806 KAR | Title 806 KAR — Public Protection Cabinet - Department of Insurance

Chapter 2 Administration

806 KAR 2:060 Complaints {#sec-806-kar-2-060 omnilex-key=us-ky-regs-official--title-806--806 KAR 2:060}

Section 1.

(1) When a written and signed complaint is received by the Department of Insurance, the commissioner, within the jurisdiction under the laws of this Commonwealth, shall make a determination, as to the merits, of any received complaint.

(2) Upon final disposition of each complaint, the commissioner shall make a finding as to if the complaint is justifiable, unjustifiable, indeterminate, or a request for information, and record the finding in its record. In making this finding, the commissioner shall be guided by the common and accepted practice in the insurance industry and a fair and reasonable application of the duties, responsibilities, and obligations of the respective parties.

Section 2. The department shall not have the authority to usurp or infringe upon the jurisdiction, prerogative, or authority of the various courts of competent jurisdiction in this Commonwealth. The ultimate decision upon questions of law and fact shall rest with the court.

History

RELATES TO: KRS 304.2-160
STATUTORY AUTHORITY: KRS 304.2-110, 304.2-165
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.2-110 authorizes the Commissioner of Insurance to promulgate administrative regulations necessary for or as an aid to the effectuation of any provision of the Kentucky Insurance Code, as defined in KRS 304.1-010. This administrative regulation establishes the classification of complaints made to the Department of Insurance.
History: 47 Ky.R. 1714, 2387; eff. 8-3-2021.

806 KAR 2:070 Preservation of records {#sec-806-kar-2-070 omnilex-key=us-ky-regs-official--title-806--806 KAR 2:070}

Section 1. In order to enable the commissioner to perform the duties and execute the powers placed upon him by KRS 304.2-210, 304.2-220, 304.2-230, 304.13-320, and 302.24-290 and to enforce compliance therewith, the accounts, records, documents, experience, statistics, rating plans, rating systems, underwriting rules, policy or bond forms, surveys, and inspections mentioned therein shall be preserved in their entirety and kept available and open to the commissioner's inspection, unless specifically excused by the commissioner, for a period of not less than five (5) years following creation of the material or the completion of the purpose for which it was created, whichever shall occur last.

Section 2. Nothing in this administrative regulation is intended to encourage the destruction of or failure to preserve material at any time, particularly in view of the fact that statutory periods of time in which causes of action accrue or may be brought often exceed a five (5) year period.

Section 3. With reference to domestic insurers, the term "principal records" as used in KRS 304.24-290 shall include the material referred to in Section 1 of this administrative regulation, and the material shall not be removed from this state except in compliance with this administrative regulation.

Section 4. Records required by this administrative regulation may be maintained in their original forms, on microfilm, on data processing tapes or cards, or by means of other forms of electronic storage. All records maintained by electronic storage shall be capable of duplication to legible hard copy.

History

RELATES TO: KRS 304.2-210-304.2-230, 304.13-320, 304.24-290
STATUTORY AUTHORITY: KRS 304.2-110
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.2-110 provides that the Commissioner of Insurance may make reasonable administrative regulations necessary for or as an aid to the effectuation of any provision of the Kentucky Insurance Code. This administrative regulation requires the preservation of records of insurers, holding companies, and advisory organizations for a minimum period of five (5) years and in a specified form.
History: I-2.07; 1 Ky.R. 855; eff. 5-14-75; Am. 19 Ky.R. 258; eff. 9-10-92; TAm eff. 8-9-2007; Crt eff. 2-26-2020; TAm 3-10-2020.

806 KAR 2:088 Verification of risk location systems {#sec-806-kar-2-088 omnilex-key=us-ky-regs-official--title-806--806 KAR 2:088}

Section 1. Definitions.

(1) "Broker" is defined in KRS 304.10-030.

(2) "Department" means the Department of Insurance.

(3) "Insurance company" means an entity holding a certificate of authority in accordance with KRS Chapter 304.03.

(4) "Risk location system or program" is defined in KRS 91A.0802(2).

(5) "Verified entity" means a vendor, insurance company or surplus lines broker that has received an order of verification from the Department of Insurance.

(6) "Verified risk location system" means a risk location system or program that is the subject of an effective order of verification issued by the department that has not expired or otherwise been revoked.

Section 2. Application for Verification.

(1) A vendor, insurance company, or broker seeking verification of a risk location system or program shall submit:

(a) A complete Application for Verification of Risk Location System or Program;

(b) An application fee in accordance with KRS 91A.0806(2);

(d) A written explanation of how the risk location system or program is updated and the frequency with which the system or program is updated; and

(e) A written certification that the risk location system or program uses the municipal and county boundary data available from the Commonwealth Office of Technology that is based upon municipal and other filings with the Secretary of State as its sole source of boundary data.

(2) Upon receipt of the information required in subsection (1) of this section, the department shall:

(a) Review the application and documents submitted;

(b) Test the accuracy of the risk location system or program's address data set by identifying a random sampling of address data to determine if the data accurately falls within or outside of a Kentucky taxing entity; and

(3) Within twenty (20) days from the date of issuance of the preliminary report, the applicant shall:

(a) Review the preliminary report;

(b) Provide the department with a written response to a contested finding; and

(4) The department shall issue a final report of the results of the test within:

(a) Thirty (30) days from the date of receipt of a written response from the applicant; or

(b) Thirty (30) days from the date of issuance of the preliminary report if a response is not received in accordance with subsection (3) of this section.

(5)

(a) The department shall issue an order verifying the risk location software or program if:

The results of the test demonstrate that the risk location system or program achieved an overall level of accuracy of at least ninety (90) percent in identifying the city or county within which an address is located; and
The risk location system or program is updated at least quarterly with regard to changes in municipal and county boundary data, street addresses and zip codes.

(b) The order shall expire automatically three (3) years from its effective date unless otherwise revoked.

Section 3. Continuation of Verification. A verified entity seeking to continue an order of verification of a risk location system or program shall, at least six (6) months prior to the date the order of verification is scheduled to expire, submit an application and comply with the application process set forth in Section 2 of this administrative regulation.

Section 4. Alternative Option for Insurers and Brokers with Limited Risk Locations.

(1) An insurance company or surplus lines broker seeking an order from the commissioner allowing for an alternative means of determining risk location pursuant to KRS 91A.0806 shall submit the following to the department:

(a) Documentation demonstrating that the insurance company or surplus lines broker has 200 or less risk locations in Kentucky;

(b) A written explanation of the method that will be used to determine risk location; and

Street number;
Street name;
City;
State;
Zip code;
Notation indicating if the address is inside or outside of an incorporated city boundary; and
If inside an incorporated city boundary, identification of the taxing entity.

(2) Upon receipt of the information required in subsection (1) of this section, the department shall:

(a) Review the information provided; and

(b) Test the accuracy of the risk location address data set by identifying a random sampling of address data to determine if the data accurately falls within or outside of a Kentucky taxing entity.

(3) The department shall issue an order permitting the use of an alternative method of determining risk location if the results of the review determine:

(a) The insurance company or surplus lines broker has a limited number of risk locations, not exceeding 200 in Kentucky; and

(b) The method of determining risk location will achieve an overall level of accuracy of at least ninety (90) percent in identifying the city or county within which an address is located.

(4) The order issued pursuant to subsection (3) of this section shall expire automatically three (3) years from its effective date unless otherwise revoked.

(5)

(a) On or before January 31 of each year, an insurance company or surplus lines broker that has been issued an order pursuant to subsection (3) of this section, shall certify to the department that it has 200 or less risk locations in Kentucky.

(b) Notwithstanding subsection (4) of this section, an order issued pursuant to subsection (3) of this section shall be revoked if:

An insurance company or surplus lines broker fails to certify that it has 200 or less risk locations in Kentucky in accordance with paragraph (a) of this subsection; or
An insurance company or surplus lines broker has more than 200 risk locations in Kentucky.

Section 5. Revocation of Order of Verification or Order of Alternative Risk Methodology.

(1) If the department has reason to believe after an investigation pursuant to 304.2-100, audit or investigation under KRS 91A.0804, examination of an insurer through 304.2-310 or examination of a surplus lines broker pursuant to 304.10-160, that a verified risk location system or program no longer meets the requirements for verification set forth in Section 2(5) of this administrative regulation, the department shall request that the verified entity, insurance company or surplus lines broker provide a risk location address data set as set forth in Section 2(1)(c) within thirty (30) days of the request.

(2) If the department has reason to believe after an investigation pursuant to 304.2-100, audit or investigation under KRS 91A.0804, examination of an insurer through 304.2-310 or examination of a surplus lines broker pursuant to 304.10-160, that an insurance company or surplus lines broker no longer meets the requirements for an alternative risk methodology set forth in Section 4 of this administrative regulation, the department shall request that the insurance company or surplus lines broker provide a risk location address data set as set forth in Section 4(1)(c) within thirty (30) days of the request.

(3) Upon receipt of a risk location address data set in accordance with subsections (1) and (2) of this section, the department shall test the accuracy of the data received to determine the accuracy in identifying the city or county within which an address is located. If the test results demonstrate an overall level of accuracy of less than ninety (90) percent, the department shall issue a notice of deficiency to the verified entity.

(4)

(a) Within ten (10) days from the date of the notice of deficiency, the verified entity shall provide the department with the names and addresses of all insurance companies and surplus lines brokers in Kentucky utilizing the verified risk location system.

(b) The department shall provide a copy of the notice of deficiency to all insurance companies and surplus lines brokers identified by the verified entity in accordance with paragraph (a) of this subsection.

(5) A verified entity, insurance company or surplus lines broker shall have sixty (60) days from the date of a notice of deficiency to:

(a) Correct the deficiency; and

(b) Submit a risk location address data set to the department demonstrating that the deficiency has been corrected.

(6) The department shall issue an order revoking its order of verification if:

(a) The verified entity, insurance company or surplus lines broker fails to provide the information requested in accordance with subsection (1) of this section; or

(b) The verified entity, insurance company or surplus lines broker fails to demonstrate that the deficiency has been corrected in accordance with subsection (5) of this section.

Section 6. Listing of Verified Risk Location Systems. The department shall post a listing of verified risk location systems on its Web site. The listing shall include:

(1) The name of the verified risk location system;

(2) The effective date of the order of verification;

(3) The expiration date of the order of verification; and

(4) The date the order of verification was revoked, if applicable.

Section 7. Incorporated by Reference.

(1) The following material is incorporated by reference:

(a) "Application for Verification of Risk Location System or Program", 11/2008; and

(b) "Verification Data Manual", 1/2009.

(2) This material may be inspected, copied, or obtained, subject to applicable copyright law, at the Department of Insurance, 215 West Main Street, Frankfort, Kentucky 40601, Monday through Friday, 8 a.m. to 4:30 p.m. This material is also available on the department's internet Web site at: http://insurance.ky.gov.

History

RELATES TO: KRS 91A.0804, 91A.0806, 304.2-100, 304.2-310, 304.3, 304.10-030, 304.10-160
STATUTORY AUTHORITY: KRS 91A.0806(1), EO 2008-507
NECESSITY, FUNCTION, AND CONFORMITY: EO 2008-507, signed June 6, 2008, and effective June 16, 2008, created the Department of Insurance, headed by the Commissioner of Insurance. KRS 91A.0806(1) requires the Department of Insurance to promulgate administrative regulations establishing criteria for the verification of risk location systems and programs. This administrative regulation establishes the risk location verification criteria, sets forth the process to obtain and renew verification, and sets forth the process for revocation of verification. This administrative regulation also establishes the process for an insurer with limited risks to request an order allowing an alternative form of risk location.
History: 35 Ky.R. 1965; 2252; eff. 5-1-2009; Crt eff. 2-26-2020; TAm eff. 3-10-2020.

806 KAR 2:092 Disclosure of local government taxes and collection fee {#sec-806-kar-2-092 omnilex-key=us-ky-regs-official--title-806--806 KAR 2:092}

Section 1. Definitions.

(1) "Collection fee" means the fee established in KRS 91A.080(4).

(2) "Insurance company" means:

(a) An entity holding a certificate of authority in accordance with KRS 304.3-150; and

(b) A surplus lines broker licensed in accordance with KRS 304.10-120.

(3) "Local government tax" or "tax" means the license fee or tax imposed by a local government in accordance with KRS 91A.080, except the collection fee.

Section 2. Disclosure of Local Government Tax.

(1) An insurance company shall disclose to the policyholder the amount of local government tax being charged to the policyholder and the taxing jurisdiction to which the tax is due.

(2) Disclosure of a local government tax shall not be required if the insurance company does not charge the tax to the policyholder.

(3) The disclosure shall:

(a) Itemize:

The amount of tax and any collection fee charged to the policyholder for each taxing jurisdiction; and
The name or abbreviation clearly identifying each corresponding taxing jurisdiction to which the tax is due; and

(b) Be provided to the policyholder:

For newly issued policies, on the:

a. Policy;

b. Declaration sheet; or

c. Initial billing; and

For renewed policies, on the:

a. Renewal certificate upon renewal of the policy; or

b. Billing for each period for which premium or additional premium is charged to a policyholder by the insurance company.

(4)

(a) If local government tax is owed to multiple taxing jurisdictions, the disclosure required in subsection (3) of this section shall list separately each taxing jurisdiction to which tax is owed.

(b) If a credit of a city tax is applied to a county tax pursuant to KRS 91A.080(12), and the result is that no tax is owed to the county, the disclosure may include the county in the itemization of taxing jurisdictions required in subsection (3) of this section.

(5) If a collection fee is included in the amount charged to the policyholder, the disclosure shall state that the amount includes the tax and a collection fee.

(6)

(a) An insurance company may provide the disclosure on a notice separate from either the renewal certificate or billing if providing the disclosure on the renewal certificate or billing would cause the disclosure to be illegible due to type size or other space considerations.

(b) If the disclosure is provided on a separate notice, the insurance company shall provide the disclosure to the policyholder at the same time and in the same manner as the insurance company provides the renewal certificate or billing.

Section 3. Collection Fee.

(1) An insurance company may charge to and collect from an insured a collection fee in addition to a local government tax.

(2) An insurer may charge up to the maximum collection fee established in KRS 91A.080(4).

(3) If an insurance company is owed a refund or credit on the local government premium tax charged to a policyholder, any collection fee received by the insurance company shall be returned to the policyholder on a pro rata basis.

History

RELATES TO: KRS 91A.080, 91A.0804, 91A.0810, 304.3-150
STATUTORY AUTHORITY: KRS 91A.080, 91A.0810
NECESSITY, FUNCTION, AND CONFORMITY: KRS 91A.0810 requires an insurance company to disclose the amount of local government premium taxes charged to an insured and identify the taxing jurisdiction. KRS 91A.080 provides the Department of Insurance with general oversight over the local government premium tax system and express authority to promulgate administrative regulations providing for a reasonable collection fee and the accounting and reporting procedures related to the collection and reporting of the license fees, taxes, and collection fees. HB 524 of the 2008 Regular Session, which included new sections of Chapter 91A and required disclosures, reinforced the Department's authority by providing a two year period for assessments to pay for the Department's costs in administering the various local government premium tax requirements. This administrative regulation sets minimum standards for the disclosure of local government taxes and collection fees to policyholders.
History: 35 Ky.R. 682; Am. 1224; eff. 1-5-2009; 45 Ky.R. 1423, 3075; eff. 5-31-2019; Crt eff. 5-27-2026.

806 KAR 2:095 Accounting and reporting requirements for collecting local government premium tax {#sec-806-kar-2-095 omnilex-key=us-ky-regs-official--title-806--806 KAR 2:095}

Section 1. Definitions.

(1) "Commissioner" is defined by KRS 304.1-050(1).

(2) "Insurance company" shall mean: (a) An entity holding a certificate of authority in accordance with KRS Subtitle 304.3; and (b) A surplus lines broker licensed in accordance with KRS 304.10-120.

(3) "Local government" is defined by KRS 91A.0802(2).

(4) "Local government premium tax" shall mean a tax or license fee levied pursuant to KRS 91A.080.

Section 2. Quarterly Payment and Reporting of Local Government Premium Taxes.

(1) Each insurance company with local government premium tax liability shall make payment of its tax liability based on premiums actually collected within a calendar quarter. Payment shall be made to each local government within thirty (30) days of the end of each calendar quarter and shall be accompanied by:

(a)

Form LGT-141, City, County, or Urban County Government Quarterly Insurance Premium Tax Return; and
Form LGT-142, City Credit Against County Taxes; or

(b) A form containing the same information as Form LGT-141 and LGT-142.

(2) A copy of the report required in subsection (1) of this section shall not be filed with the commissioner.

Section 3. Annual Reports.

(1) By March 31 of each year, an insurance company shall submit to:

(a) Each local government to which local government premium taxes have been paid during the preceding calendar year, a report on the local government premium taxes paid during the preceding calendar year on:

a. Form LGT-140, City, County, or Urban County Government Insurance Premium Tax Annual Reconciliation; and

b. Form LGT-142, City Credit Against County Taxes; or

A form substantially similar to Form LGT-140; and

(b) The department a report on the local government premium taxes paid during the preceding calendar year, accompanied by a fee of five (5) dollars per insurance company, through the Department of Insurance Web site, https://insurance.ky.gov/doieservices/UserRole.aspx.

(2)

(a) If an insurance company does not have any local government premium tax liability for the preceding calendar year, the insurance company shall submit a report to the department in accordance with subsection (1)(b) of this section.

(b) The report required by paragraph (a) of this subsection shall be required if the insurance company held an active license or certificate of authority at any time during the preceding calendar year.

Section 4. Each insurance company shall maintain records adequate to support the reports required by this administrative regulation.

Section 5. Each insurance company shall file the reports required by this administrative regulation. Reports required by this administrative regulation and filed on a group basis shall not be acceptable.

Section 6. Incorporation by Reference.

(1) The following material is incorporated by reference:

(a) Form LGT-140, "City, County, or Urban County Government Insurance Premium Tax Annual Reconciliation", 1/2012;

(b) Form LGT-141, "City, County, or Urban County Government Quarterly Insurance Premium Tax Return", 1/2012; and

(2) This material may be inspected, copied, or obtained, subject to applicable copyright law, at the Department of Insurance, Mayo-Underwood Building, 500 Mero Street, 2 SE 11,, Frankfort, Kentucky 40601, Monday through Friday, 8 a.m. to 4:30 p.m. This material is also available on the department's Web site at: http://insurance.ky.gov.

History

RELATES TO: KRS 91A.080, 304.10-120
STATUTORY AUTHORITY: KRS 91A.080(4), 304.2-110(1), 304.4-010
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.2-110(1) authorizes the Commissioner of Insurance to promulgate administrative regulations necessary for or as an aid to the effectuation of any provision of the Kentucky Insurance Code as established in KRS 304.1-010. KRS 91A.080(4) requires the department to promulgate administrative regulations for the collection and reporting of local government premium taxes. This administrative regulation establishes requirements for the accounting and reporting procedures to be used for the collection and reporting of a local government premium tax.
History: 5 Ky.R. 96; eff. 9-6-78; Am. 9 Ky.R. 383; eff. 10-6-82; 11 Ky.R. 649; 981; eff. 12-11-84; 20 Ky.R. 1697; eff. 2-10-94; TAm eff. 8-9-2007; 38 Ky.R. 1495; 1857; eff. 6-1-2012; Crt eff. 2-26-2020; 47 Ky.R. 1075, 1564; eff. 5-4-2021.

806 KAR 2:097 Filing of local government premium tax ordinances; notification to insurers {#sec-806-kar-2-097 omnilex-key=us-ky-regs-official--title-806--806 KAR 2:097}

Section 1. Definitions.

(1) "Commissioner" means the Commissioner of the Kentucky Department of Insurance.

(2) "Local government premium taxes" means taxes levied pursuant to KRS 91A.080.

Section 2. Filing of Local Government Premium Tax Ordinances. Adopted or amended ordinances shall be submitted by the city, county, or urban county government to the commissioner in accordance with KRS 91A.080. If an adopted or amended ordinance under KRS 91A.080 is received less than 100 days prior to July 1st, the commissioner shall not notify insurers of the adopted or amended ordinance until the next notice of local government premium taxes is published.

Section 3. Notification to Insurers of Local Government Premium Taxes.

(1) No less than eighty-five (85) days prior to July 1 of each year, the commissioner shall notify insurers of those cities, counties, or urban-county governments that impose or amended a local government premium tax.

(2) The notice shall be mailed or submitted electronically to the current address of the administrative offices of an insurer as on file with the commissioner.

(3) One (1) copy of the notice of local government premium taxes shall be provided to insurers free of charge. Additional copies of the notice of local government premium taxes or copies of the notice of local government premium taxes requested by others shall be available only on written request and payment of five (5) dollars fee for filing the request.

History

RELATES TO: KRS 91A.080, 304.4-010
STATUTORY AUTHORITY: KRS 91A.080, 304.2-110
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.2-110 provides that the commissioner may make reasonable administrative regulations necessary for or as an aid to the effectuation of any provision of the Kentucky Insurance Code. KRS 91A.080 authorizes the commissioner to adopt administrative regulations for the collection and reporting of local government premium taxes. This administrative regulation establishes procedures for notifying insurers of the contents of these local government premium tax ordinances.
History: 11 Ky.R. 676; Am. 982; eff. 12-11-1984; 20 Ky.R. 1699; eff. 2-10-1994; TAm eff. 8-9-2007; 43 Ky.R. 1278; eff. 5-5-2017; Cert. eff. 5-9-2023.

806 KAR 2:100 Disclosure of insurance premium surcharge {#sec-806-kar-2-100 omnilex-key=us-ky-regs-official--title-806--806 KAR 2:100}

Section 1.

(1) Each policy subject to KRS 136.392 issued to an insured shall include a notice, conspicuously placed on the declarations page, renewal certificate, or billing instrument, indicating that the premium includes the surcharge required by KRS 136.392.

(2) The amount of surcharge shall be separately itemized on the declarations page or billing instrument used by the insurer for newly issued policies and renewals subject to KRS 136.392.

History

RELATES TO: KRS 136.392
STATUTORY AUTHORITY: KRS 136.392(1)(a)
NECESSITY, FUNCTION, AND CONFORMITY: KRS 136.392(1)(a) requires that the premium surcharge collected by an insurer shall be disclosed to policyholders pursuant to administrative regulations promulgated by the commissioner of the Department of Insurance. This administrative regulation establishes the manner in which the surcharge required by KRS 136.392 is to be disclosed to policyholders.
History: 11 Ky.R. 100; eff. 8-7-84; TAm eff. 8-9-2007; 45 Ky.R. 1425, 3076; eff. 5-31-2019; Crt eff. 5-27-2026.

806 KAR 2:200 Operations, eligibility, and grant procedures for the Strengthen Kentucky Homes Program {#sec-806-kar-2-200 omnilex-key=us-ky-regs-official--title-806--806 KAR 2:200}

Section 1. Definitions.

(1) "Applicant" means a real property owner seeking, or who has been approved for, a financial grant pursuant to KRS 304.2-450.

(2) "Commissioner" is defined by KRS 304.1-050(1).

(3) "Contractor" means a person certified to act as a contractor by IBHS and who is approved to work with the SKH program pursuant to 806 KAR 2:210.

(4) "Department" means the Kentucky Department of Insurance as defined by KRS 304.1-050(2).

(5) "Evaluator" means a person certified to act as an evaluator by IBHS and who is approved to work with the SKH program pursuant to 806 KAR 2:210.

(6) "IBHS" means the Insurance Institute for Business and Home Safety.

(7) "IBHS FORTIFIED Designation Certificate" means a certificate issued by IBHS upon successful completion of a FORTIFIED project.

(8) "Region" means a distinct geographic area designated for the purpose of fund allocation and grant award priority, and divided by area development districts established pursuant to KRS 147A.050.

(9) "Resident" means a person who resides in Kentucky for at least 181 days per calendar year.

(10) "SKH" means the Strengthen Kentucky Homes Program as established by KRS 304.2-450.

Section 2. Operations.

(1) SKH shall operate within the Property and Casualty Division of the Department.

(2) In accordance with KRS 304.2-450, the commissioner shall allocate monies held by the Strengthen Kentucky Homes Program Fund to the regions of the state in equal amounts.

(3) If a region fails to exhaust all funds allocated to that region due to an insufficient number of applicants, the commissioner may proportionally reallocate that region's funds to regions which have exhausted all previously allocated funds.

(4) The commissioner may establish special mitigation zones for the allocation of additional funds in any geographic area within the Commonwealth of Kentucky if:

(a) The Governor declares a state of emergency; or

(b) Additional funding is needed to mitigate areas which exhibit higher vulnerability to extreme weather events.

Section 3. Eligibility.

(1) To be eligible for an SKH grant:

(a) The applicant shall be:

The homeowner of the property to be mitigated; and
A resident of Kentucky;

(b) The property to be mitigated shall be:

Deemed eligible for mitigation as determined by an evaluator based on the requirements included in the PSI-1 form; and
An insurable, owner-occupied primary residence located in Kentucky and either:

a. A single-family home;

b. A duplex; or

c. A townhome as defined in the 2025 Fortified Home Standard.

(2) Applications submitted for properties with multiple owners shall complete the AOC-1 form with signatures from all owners of the property.

(3) A single-family or multifamily structure is only eligible to receive one (1) SKH grant.

(4) The property to be mitigated may be a modular home, but shall not be a condominium or mobile home.

(5) The applicant shall comply with all local building codes, permitting requirements, and inspection requirements.

(6) All mitigation projections shall be completed in accordance with the technical standards promulgated by IBHS as set forth in the:

(a) Foundation Requirements for FORTIFIED Home Eligibility, FH 2022-06;

(b) Eligibility and Compliance of Accessory Roof Structures, FH 2023-03;

(d) FORTIFIED Home Requirements for Homes with Excessive Gaps Between Wood Decking Boards, FH 2023-07;

(e) FORTIFIED Guidance on Leaf Guards and Gutters, FH 2023-09; and

(f) 2025 Fortified Home Standard, FH Std.-2025.

Section 4. Application Process.

(1) The applicant shall submit the online SKH Application via the SKH online portal at https://skh.doi.ky.gov.

(2) The applicant shall select an evaluator from the Department's SKH list of evaluators as prompted by the SKH website upon successful completion of an application and shall be responsible for paying the evaluator's charge for services.

(3) The evaluator shall:

(a) Examine the home to determine whether it is eligible for mitigation;

(b) Identify all improvements required to achieve IBHS Roof eligibility; and

Section 5. Approval of Grants and Process.

(1) The Department shall:

(a) Review all applications for completeness and determine if the applicant is eligible to receive grant funds;

(b) Verify the accuracy of the information on the application; and

Meet all eligibility requirements set out in Section 3 of this administrative regulation;
Successfully submit a complete and verified application; and
Have a PSI-1 Form on file with the Department which finds the residence eligible for mitigation.

(2) Grants of up to $10,000 shall be awarded in the order that applications are approved within a region subject to availability of funds.

(3) The Department shall send notice to the applicant informing him or her of an approval or disapproval of the application.

(4) If approved, an applicant shall select at least one (1) contractor from the Department's SKH list of contractors on the SKH website to request a bid for the mitigation work.

(5) Selected contractors shall utilize the BDS-1 form to electronically submit bid proposals via the SKH online portal at: https://skh.doi.ky.gov.

(6) Applicants who elect to proceed shall select a contractor of his or her choice from bids received and enter into an agreement with the contractor to perform the mitigation work. Contractors who begin mitigation work prior to the Department's approval of the grant application shall not receive grant fund compensation.

(7) Grant projects shall be completed within ninety (90) days of the date of the grant approval notification. Upon written request, the Department may provide an extension based upon the following:

(a) Unknown additional required mitigation work;

(b) Acts of God; or

(8) Failure of a contractor to complete a grant project within ninety (90) days without an extension may result in forfeiture of the grant for non-responsive and unreasonably delayed projects.

Section 6. Grant Award Process.

(1) Once the grant application is approved, the contractor selected by the applicant may begin the mitigation work.

(2) Once the mitigation work is completed, the contractor shall submit completed CCF-1 and INV-1 forms via the SKH online portal at: https://skh.doi.ky.gov.

(3) The evaluator previously selected by the applicant shall conduct all required evaluations confirming that the work was completed according to the most current IBHS FORTIFIED Standard and shall submit an HR-1 form to the online portal at: https://skh.doi.ky.gov.

(4) After all required forms are completed and submitted, the Department shall pay the contractor's bid up to the limit of the grant.

(5) The applicant shall be responsible for any remaining cost to the contractor.

Section 7. Release of Funds.

(1) Grant funds shall be paid on behalf of an approved applicant after:

(a) A FORTIFIED Designation Certificate is issued for the property by IBHS and received by the Department; and

(b) The contractor completes and submits the INV-1 Form via the SKH online portal at: https://skh.doi.ky.gov.

(2) Checks shall be mailed to the address of the contractor's choice.

Section 8. Incorporation by Reference.

(1) The following material is incorporated by reference:

(a) "Contractor Bid Sheet", BDS-1 (7/2025);

(b) "Pre-Site Inspection Questions", PSI-1 (7/2025);

(d) "Additional Owners Consent Form", AOC-1 (7/2025);

(e) "Home Review Form", HR-1 (7/2025);

(f) "Standard Invoice", INV-1 (7/2025);

(g) "Foundation Requirements for FORTIFIED Home Eligibility", FH 2022-06 (4/2023);

(h) "Eligibility and Compliance of Accessory Roof Structures", FH 2023-03 (4/2023);

(i) "FORTIFIED Requirements for Cement and Clay Hip and Ridge Tile Installed Over Asphalt Shingle Roof Cover", FH 2023-05 (4/2023);

(j) "FORTIFIED Home Requirements for Homes with Excessive Gaps Between Wood Decking Boards", FH 2023-07 (4/2023);

(k) "FORTIFIED Guidance on Leaf Guards and Gutters", FH 2023-09 (5/2023);

(l) "2025 Fortified Home Standard", FH Std.-2025 (11/2024); and

(m) "Online SKH Application", https://skh.doi.ky.gov (7/2025).

(2) This material may be inspected, copied or obtained, subject to applicable copyright law, at the Department of Insurance, Mayo-Underwood Building, 500 Mero Street, Frankfort, Kentucky 40601, Monday through Friday, 8 a.m. to 4:30 p.m. This material is also available on the department's website at: https://insurance.ky.gov/ppc/CHAPTER.aspx.

History

RELATES TO: KRS 147A.050, 304.1-050, 304.2-450
STATUTORY AUTHORITY: KRS 304.2-450
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.2-450 requires the commissioner to promulgate administrative regulations to establish rules and eligibility requirements that are necessary for the proper implementation and administration of the Strengthen Kentucky Homes program. This administrative regulation establishes the operations of the program, the eligibility rules and requirements, and the application and grant award process which are necessary to carry out the provisions of KRS 304.2-450, relating to the Strengthen Kentucky Homes Program.
History: 806 KAR 002:200. 52 Ky.R. 338, 746; eff. 12-17-2025.) COMPILER'S NOTE: 2025 RS HB 6, enacted by the General Assembly on March 27, 2025, altered the information to be provided at the time an administrative regulation is filed. Aside from formatting changes necessary to upload the regulation into the LRC's publication application, this regulation has been published as submitted by the agency.

806 KAR 2:210 Eligibility requirements for contractors and evaluators in the Strengthen Kentucky Homes Program {#sec-806-kar-2-210 omnilex-key=us-ky-regs-official--title-806--806 KAR 2:210}

Section 1. Definitions.

(1) "Applicant" means a real property owner seeking, or who has been approved for, a financial grant pursuant to KRS 304.2-450.

(2) "Commissioner" is defined by KRS 304.1-050(1).

(3) "Contractor" or "SKH approved contractor" means a person certified to act as a contractor by IBHS and who is approved to work with the SKH program pursuant to this administrative regulation.

(4) "Department" means the Kentucky Department of Insurance as defined by KRS 304.1-050(2).

(5) "Evaluator" or "SKH approved evaluator" means a person certified to act as an evaluator by IBHS and who is approved to work with the SKH program pursuant to this administrative regulation.

(6) "IBHS" means the Insurance Institute for Business and Home Safety.

(7) "IBHS FORTIFIED Designation Certificate" means a certificate issued by IBHS upon successful completion of a FORTIFIED project.

(8) "SKH" means the Strengthen Kentucky Homes Program as established by KRS 304.2-450.

Section 2. Contractor Eligibility. To be eligible to work as an SKH approved contractor, a person shall:

(1) Be in good standing with IBHS;

(2) Comply with all the requirements as set forth in the FORTIFIED Home Roofing Contractor Handbook;

(3) Execute a Certified FORTIFIED Roofing Contractor Agreement with IBHS;

(4) Maintain all required state or jurisdictional business licenses or work permits required by Kentucky law;

(5) Maintain an in-force General Liability policy with $1,000,000 in liability coverage;

(6) Comply with all state and federal Worker's Compensation laws;

(7) Obtain a Letter of Good Standing from the Kentucky Department of Revenue;

(8) Complete SKH mitigation projects within the time frame set forth in 806 KAR 2:200, Section 5(7); and

(9) Create an account and submit to the Department the following through the SKH online portal at https://skh.doi.ky.gov:

(a) An active IBHS-Certified FORTIFIED Roofing Contractor Certificate;

(b) Evidence of an in-force General Liability policy with $1,000,000 in liability coverage; and

Section 3. Evaluator Eligibility. To be eligible to work as an SKH approved evaluator, a person shall:

(1) Be in good standing with IBHS;

(2) Comply with all the requirements as set forth in the Certified FORTIFIED Evaluator Handbook;

(3) Execute a Certified FORTIFIED Home Evaluator Agreement with IBHS;

(4) Maintain all required state or jurisdictional business licenses or work permits required by Kentucky law;

(5) Maintain an in-force surety bond in the amount of $50,000;

(6) Obtain a Letter of Good Standing from the Kentucky Department of Revenue; and

(7) Create an account and submit to the Department the following through the SKH online portal at https://skh.doi.ky.gov:

(a) An active IBHS-Certified FORTIFIED Home Evaluator Certificate;

(b) Evidence of an in-force surety bond in the amount of $50,000; and

Section 4. Conflict Prohibition.

(1) Contractors and evaluators shall not have a financial interest in any project for which they perform work toward a FORTIFIED designation other than for payment for actual work performed on behalf of the applicant.

(2) Contractors and evaluators shall not act as both the contractor and evaluator for a FORTIFIED designation on any project funded through SKH.

(3) Both contractors and evaluators shall report, in writing to the Department, any potential conflicts of interest which may violate this section before work commences on any job funded through SKH.

Section 5. Kentucky Resident Preference. Contractors and evaluators who reside in Kentucky shall be designated as a Resident Preferred Contractor or Resident Preferred Evaluator on the SKH website available at https://skh.doi.ky.gov.

Section 6. Incorporation by Reference.

(1) The following material is incorporated by reference:

(a) "FORTIFIED Home Roofing Contractor Handbook", (2025-1 Edition);

(b) "Certified FORTIFIED Roofing Contractor Agreement", (2021 Edition);

(d) "Certified FORTIFIED Home Evaluator Agreement", (2023 Edition).

History

RELATES TO: KRS 304.1-050, 304.2-450
STATUTORY AUTHORITY: 304.2-450
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.2-450 requires the commissioner to promulgate administrative regulations to establish rules and eligibility requirements that are necessary for the proper implementation and administration of the Strengthen Kentucky Homes program. This administrative regulation establishes the eligibility requirements for contractors and evaluators to participate in the Strengthen Kentucky Homes Program which are necessary to carry out the provisions of KRS 304.2-450, relating to the Strengthen Kentucky Homes Program.
History: 806 KAR 002:210. 52 Ky.R. 341, 748, 1133; eff. 12-17-2025.) COMPILER'S NOTE: 2025 RS HB 6, enacted by the General Assembly on March 27, 2025, altered the information to be provided at the time an administrative regulation is filed. Aside from formatting changes necessary to upload the regulation into the LRC's publication application, this regulation has been published as submitted by the agency.

806 KAR 2:220 Subsequent reinspection procedures for the Strengthen Kentucky Homes Program {#sec-806-kar-2-220 omnilex-key=us-ky-regs-official--title-806--806 KAR 2:220}

Section 1. Definitions.

(1) "Applicant" means a real property owner seeking, or who has been approved for, a financial grant pursuant to KRS 304.2-450.

(2) "Commissioner" is defined by KRS 304.1-050(1).

(3) "Department" means the Kentucky Department of Insurance as defined by KRS 304.1-050(2).

(4) "Evaluator" means a person certified to act as an evaluator by IBHS and who is approved to work with the SKH program pursuant to 806 KAR 2:210.

(5) "Grant recipient" means an applicant who has received a financial grant pursuant to KRS 304.2-450.

(6) "IBHS" means the Insurance Institute for Business and Home Safety.

(7) "SKH" means the Strengthen Kentucky Homes Program as established by KRS 304.2-450.

Section 2. Subsequent Reinspections.

(1) All completed SKH mitigation projects are subject to subsequent reinspection by the Department.

(2) If selected for reinspection, a grant recipient shall schedule and complete a reinspection within sixty (60) days from the date he or she is contacted by an evaluator.

(3) Upon written request, the Department shall provide up to two (2) sixty (60) day extensions.

(4) Extension requests may be sent by email to skh.doi@ky.gov.

(5) Evaluator services shall be procured by the Department in accordance with KRS Chapter 45A.

(6) The evaluator for the reinspection shall be paid through SKH at no cost to the grant recipient.

(7) Failure to comply with a required reinspection may result in penalties pursuant to KRS 304.99-010.

(8) Suspected criminal activities shall be reported to the Kentucky Department of Insurance Division of Insurance Fraud Investigation in accordance with KRS 304.47-050.

History

RELATES TO: KRS Chapter 45A, 304.1-050, 304.2-450, 304.47-050, 304.99-010
STATUTORY AUTHORITY: 304.2-450
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.2-450 requires the commissioner to promulgate administrative regulations to establish rules and eligibility requirements that are necessary for the proper implementation and administration of the Strengthen Kentucky Homes program. This administrative regulation establishes subsequent reinspection rules, procedures, and requirements which are necessary to carry out the provisions of KRS 304.2-450, relating to the Strengthen Kentucky Homes Program.
History: 806 KAR 002:220. 52 Ky.R. 343, 749; eff. 12-17-2025.) COMPILER'S NOTE: 2025 RS HB 6, enacted by the General Assembly on March 27, 2025, altered the information to be provided at the time an administrative regulation is filed. Aside from formatting changes necessary to upload the regulation into the LRC's publication application, this regulation has been published as submitted by the agency.

Chapter 3 Authorization of Insurers and General Requirements

806 KAR 3:110 Authorization {#sec-806-kar-3-110 omnilex-key=us-ky-regs-official--title-806--806 KAR 3:110}

Section 1. KRS 304.3-070(1)(b) is not applicable where the insurer requesting the authority is unable to write a particular kind of insurance in the state of its domicile because that kind of insurance is written there by a governmental monopoly.

History

RELATES TO: KRS 304.3-070
STATUTORY AUTHORITY: KRS 304.2-110
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.3-070(1)(b) mandates that no insurer be authorized to transact a kind of insurance in this state unless duly authorized or qualified to transact a specific insurance in the state or county of its domicile. The function of this administrative regulation is to clarify a special circumstance to which such statute would not be applicable.
History: I-3.12; 1 Ky.R. 857; eff. 5-14-75; Crt eff. 2-26-2020.

806 KAR 3:150 Standards for consideration of a hazardous financial condition {#sec-806-kar-3-150 omnilex-key=us-ky-regs-official--title-806--806 KAR 3:150}

Section 1. Definitions.

(1) "Commissioner" means the Commissioner of the Kentucky Department of Insurance.

(2) "Insurer" means any of the entities listed in KRS 304.33-020 and an industrial insured captive insurer as defined in KRS 304.49-010(8).

Section 2. Standards. One (1) or more of the following standards may be considered by the commissioner to determine whether the continued operation of any insurer transacting an insurance business in Kentucky may be hazardous to its policyholders, creditors, or to the general public:

(1) Adverse findings reported in financial condition or market conduct examination reports, audit reports and actuarial opinion, reports or summaries;

(2) The National Association of Insurance Commissioners Insurance Regulatory Information System and its other financial analysis solvency tools and reports;

(3) Whether the insurer has made adequate provision, according to presently accepted actuarial standards of practice, for the anticipated cash flows required by the contractual obligations and related expenses of the insurer, considered in light of the assets held by the insurer with respect to the reserves and related actuarial items including the investment earnings on the assets and the considerations anticipated to be received and retained under the policies and contracts;

(4) The ability of an assuming reinsurer to perform and whether the insurer's reinsurance program provides sufficient protection for the insurer's remaining 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;

(5) Whether the insurer's operating loss in the last twelve (12) month period or any shorter period of time, such as net capital gain or loss, change in nonadmitted assets, or cash dividends paid to shareholders, is greater than fifty (50) percent of the insurer's remaining surplus as regards policyholders in excess of the minimum required;

(6) Whether the insurer's operating loss in the last twelve (12) month period or any shorter period of time, excluding net capital gains, is greater than twenty (20) percent of the insurer's remaining surplus as regards policyholders in excess of the minimum required;

(7) 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 its monetary or other obligations, and which may affect the solvency of the insurer;

(8) Any contingent liabilities, pledges, or guaranties which either individually or collectively involve a total amount which may affect the solvency of the insurer;

(9) Whether any controlling person of an insurer is delinquent in transmission or payment of net premiums to the insurer;

(10) The age and collectability of receivables;

(11) Whether the management of an insurer, including officers, directors, or any other person who directly or indirectly controls the operation of the insurer, fails to possess and demonstrate the competence, fitness, and reputation necessary to serve the insurer in that position;

(12) Whether management of an insurer has failed to respond to inquiries relative to the condition of the insurer or has furnished false or misleading information concerning an inquiry;

(13) Whether the insurer has failed to meet financial and holding company filing requirements as set forth in KRS 304 Subtitle 3 and 304 Subtitle 37;

(14) Whether management of an insurer either has filed any false or misleading sworn financial statement, has released a false or misleading financial statement to lending institutions or to the general public, has made a false or misleading entry, or has omitted an entry of material amount in the books of the insurer;

(15) Whether the insurer has grown so rapidly and to such an extent that it lacks adequate financial and administrative capacity to meet its obligations in a timely manner;

(16) Whether the insurer has experienced or will experience in the foreseeable future cash flow or liquidity problems;

(17) Whether management has established reserves that do not comply with minimum standards established in KRS 304 Subtitle 6 and KRS 304.3-242;

(18) Whether management persistently engages in material under reserving that results in adverse development; and

(19) 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.

Section 3. Corrective Action.

(1) For the purposes of making a determination of an insurer's financial condition under this administrative regulation, the commissioner may:

(a) Disregard any credit or amount receivable resulting from transactions with a reinsurer which is insolvent, impaired, or otherwise subject to a delinquency proceeding;

(b) Make appropriate adjustments including disallowance to asset values attributable to investments in or transactions with parents, subsidiaries, or affiliates consistent with KRS 304 Subtitles 6 and 7;

(c) Refuse 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; or

(d) Increase the insurer's liability in an amount equal to any 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 with the next twelve (12) month period.

(2) If the commissioner determines that the continued operation of the insurer in Kentucky may be hazardous to its policyholders, creditors, or to the general public, the commissioner may, upon his determination, issue an order requiring the insurer to:

(a) Reduce the total amount of present and potential liability for policy benefits by reinsurance;

(b) Reduce, suspend, or limit the volume of business being accepted or renewed;

(d) Increase the insurer's capital and surplus;

(e) Suspend or limit the declaration and payment of dividends by an insurer to stockholders or policyholders;

(f) File reports concerning the market value of the insurer's assets;

(g) Limit or withdraw from certain investments or discontinue certain investment practices to the extent reasonably necessary;

(h) Document the adequacy of premium rates in relation to the risks insured;

(i) File, in addition to regular annual statements, interim financial reports in the form of and pursuant to the instructions for the quarterly statements prescribed by the National Association of Insurance Commissioners in accordance with KRS 304.3-240 and 304.3-241;

(j) Correct corporate governance practice deficiencies, as identified by the Financial Standards and Examination Division staff through the analysis or examination process;

(k) Provide a business plan to the commissioner in order to continue to transact business in the state; or

(l) Adjust rates for any non-life insurance product written by the insurer to improve the financial condition of the insurer.

(3) Any insurer subject to an order under subsection (2) of this section may request an administrative hearing to review the order in accordance with KRS 304.2-310.

History

RELATES TO: KRS 304.2-310, 304.3-200, 304.3-240, 304.3-241, 304.3-242, 304.06, 304.07, 304.33-140, 304.37, 304.49-010(8), 304.33-190
STATUTORY AUTHORITY: KRS 304.2-110, EO 2009-535
NECESSITY, FUNCTION, AND CONFORMITY: EO 2009-535, signed June 12, 2009, created the Department of Insurance, headed by the Commissioner of Insurance. KRS 304.2-110 provides that the Executive Director of Insurance may make reasonable administrative regulations necessary for or as an aid to the effectuation of any provision of the Kentucky Insurance Code, as defined in KRS 304.1-010. This administrative regulation establishes standards which the Commissioner of the Department of Insurance may use for identifying insurers found to be in a condition to render the continuance of their business hazardous to policyholders, creditors, or the public.
History: 18 Ky.R. 239; Am. 700; eff. 9-6-1991; 19 Ky.R. 2498; eff. 7-23-1993; TAm eff. 8-9-2007; 36 Ky.R. 794; eff. 11-6-2009; Crt eff. 2-26-2020.

806 KAR 3:160 Life and health reinsurance agreements {#sec-806-kar-3-160 omnilex-key=us-ky-regs-official--title-806--806 KAR 3:160}

Section 1. Purpose and Scope.

(1) This administrative regulation shall apply to all:

(a) Domestic life and health insurers;

(b) Other authorized life and health insurers that are not subject to a substantially similar administrative regulation in their domiciliary state; and

(2) This administrative regulation shall not apply to:

(a) Assumption reinsurance;

(b) Yearly renewable term reinsurance; or

Section 2. Accounting Requirements.

(1) An insurer shall not, for reinsurance ceded, reduce a liability or establish an asset in a financial statement filed with the Office of Insurance if, by the terms of the reinsurance agreement, in substance or effect, any of the following conditions exist:

(a) The primary effect of the reinsurance agreement is to transfer deficiency reserves or excess interest reserves to the books of the reinsurer for a risk charge, and the agreement does not provide for material participation by the reinsurer in one (1) or more of the following risks: mortality, morbidity, investment, or surrender benefit;

(b) The reserve credit taken by the ceding insurer does not comply with:

The Kentucky Insurance Code, KRS Chapter 304; or
Office of Insurance administrative regulations; or
Actuarial Standards of Practice of the Actuarial Standards Board;

(c) 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;

(d)

Except as provided by subparagraphs 2 and 3 of this paragraph, the ceding insurer is required to reimburse the reinsurer for negative experience under the reinsurance agreement;
Offsetting experience refunds against the current and prior years' losses, or payment by the ceding insurer of an amount equal to the current and prior years' losses upon voluntary termination of in-force reinsurance by the ceding insurer shall not be considered a reimbursement to the reinsurer for negative experience.
Voluntary termination shall not include a termination that occurs because of unreasonable provisions which allow the reinsurer to reduce its risk under the agreement.

(e)

Except as provided by subparagraph 2 of this paragraph, the ceding insurer may be deprived of surplus at the reinsurer's option or automatically upon occurrence of some event, such as insolvency of the ceding insurer.
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, shall not be considered to be a deprivation of surplus.

(f) The ceding insurer must, at specific points in time scheduled in the agreement, terminate, or automatically recapture, all or part of the reinsurance ceded;

(g) No cash payment is due from the reinsurer, throughout the lifetime of the reinsurance agreement, with all settlements prior to the termination date of the agreement made only in a "reinsurance account", and no funds in this account are available for the payment of benefits;

(h) The reinsurance agreement involves the possible payment by the ceding insurer to the reinsurer of amounts other than from income reasonably expected from the reinsured policies. A ceding company shall not pay reinsurance premiums, or other fees or charges, to a reinsurer that are greater than the direct premiums collected by the ceding company.

(i) The reinsurance agreement does not transfer all of the significant risk inherent in the business being reinsured. A risk shall be considered significant if it is:

Identified in the representative sampling of products or types of businesses in the "Risk Categories Table"; or
Consistent with the representative sampling of products or types of business identified in the "Risk Categories Table".

(j)

Except as provided by subparagraph 2 of this paragraph, the credit quality, reinvestment, or disintermediation risk is significant for the business reinsured, and the ceding company does not transfer the underlying assets to the reinsurer, legally segregate the assets in a trust or escrow account, or otherwise establish a mechanism satisfactory to the executive director which legally segregates, by contract or contract provision, the underlying assets.
Assets supporting the reserves for the following classes of business and any classes of business that do not have a significant credit quality, reinvestment, or disintermediation risk may be held by the ceding company without segregation:

a. Health insurance - LTC/LTD;

b. Traditional nonpar permanent;

c. Traditional par permanent;

d. Adjustable premium permanent;

e. Indeterminate premium permanent;

f. Universal life fixed premium excluding dump-in premiums.

The formula for determining the reserve interest rate adjustment shall:

a. Reflect the ceding company's investment earnings;

b. Incorporate all realized and unrealized gains and losses reflected in the statutory statement; and

c. Be calculated as follows:

(k) Settlements are made less frequently than quarterly, or payments due from the reinsurer are not made in cash within ninety (90) days of the settlement date;

(l) The ceding insurer is required to make representations or warranties not reasonably related to the business being reinsured;

(m) The ceding insurer is required to make representations or warranties about future performance of the business being reinsured;

(n) The reinsurance agreement is entered into for the principal purpose of producing significant surplus aid for the ceding insurer. All of the significant risks inherent in the business reinsured are not transferred and, in substance or effect, the expected potential liability to the ceding insurer remains basically unchanged.

(o)

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 renewable expenses of the ceding insurer on the portion of the business reinsured, unless a liability is established for the present value of the shortfall.
The liability shall be established by using assumptions equal to the applicable statutory reserve basis on the business reinsured.
Anticipated allocable renewal expenses shall include commissions, premium taxes and direct expenses such as billing, valuation, claims and maintenance expected by the company at the time the business is reinsured;

(2) An insurer may, with prior approval of the executive director of Insurance, take reserve credit or establish any asset that the Executive Director of Insurance has determined is consistent with the:

(a) Insurance code;

(b) Administrative regulations of the Office of Insurance;

Section 3.

(1)

(a) An agreement, including a subsequent amendment to an agreement, entered into after the effective date of this administrative regulation that involves the reinsurance of business issued prior to the effective date of the agreement shall be filed by the ceding company with the executive director within thirty (30) days from its date of execution.

(b) A filing shall include data detailing the financial impact of the transaction.

(c) The ceding insurer's actuary who signs the financial statement actuarial opinion in the annual statement with respect to valuation of reserves shall consider this administrative regulation and any applicable actuarial standards of practice when determining the proper credit in financial statements filed with the office.

(d) The actuary shall:

Maintain adequate documentation;
Upon request, describe the actuarial work performed for inclusion in the annual and quarterly financial statements; and
Upon request, demonstrate that such work conforms to this administrative regulation.

(2)

(a) An increase in surplus net of federal income tax resulting from arrangements described in subsection (1) of this section shall be identified separately on the insurer's statutory annual and quarterly financial statement as a surplus item, "aggregate write-ins for gains and losses in surplus in the Capital and Surplus Account".

(b) Recognition of the surplus increase as income shall be reflected on a net of tax basis in the "reinsurance ceded" line as earnings emerge from the business reinsured.

Section 4. Written Agreements.

(1) If an agreement, amendment, or letter of intent has not been duly executed by both parties no later than the "as of date" of a financial statement, a reinsurance agreement, or amendment to an agreement, shall not be used to reduce a liability or establish an asset in a financial statement filed with the office.

(2) A reinsurance agreement or an amendment to a reinsurance agreement shall be executed within a reasonable period of time not exceeding ninety (90) days from the execution date of the letter of intent, in order for credit to be granted for the reinsurance ceded.

(3) The reinsurance agreement shall contain provisions which provide that:

(a) The agreement shall constitute the entire agreement between the parties with respect to the business being reinsured and that there are no understandings between the parties other than as expressed in the agreement; and

(b) Any change or modification to the agreement shall be null and void unless made by amendment to the agreement and signed by both parties.

Section 5. Existing Agreements. An insurer may continue to reduce liabilities or establish assets in financial statements filed with the Office of Insurance for reinsurance ceded under types of reinsurance agreements described in Sections 1(2) and 2 of this administrative regulation if:

(1) The agreements were executed and in force prior to the effective date of this administrative regulation;

(2) A new business is not ceded under the agreements after the effective date of this administrative regulation;

(3) The reduction of the liability or the asset established for the reinsurance ceded is reduced to zero:

(a) 1994 by December 31, 1994; or

(b) A later date approved by the Executive Director of Insurance pursuant to an application made by the ceding insurer prior to December 31 of the year in which this administrative regulation becomes effective;

(4) The reduction of the liability or establishment of the asset is otherwise permissible under all other applicable provisions of the insurance code, administrative regulations of the Office of Insurance, or Actuarial Standard of Practice of the Actuarial Standards Board; and

(5) The Office of Insurance is notified within ninety (90) days following the effective date of this administrative regulation of the existence of the reinsurance agreements and all corresponding credits taken in the ceding insurer's 1990 annual statement.

Section 6. Risk Categories Table.

(1) Significance or risk categories shall be determined by the Risk Categories Table established by this section.

(a) Morbidity.

(b) Mortality.

(d) Credit Quality.

(e) Reinvestment.

(f) Disintermediation.

(2) Classes of Insurance Business.

(a) Lapse is the risk that a policy will voluntarily terminate prior to the recoupment of a statutory surplus strain experienced at issue of the policy.

(b) Credit Quality is the risk that invested assets supporting the reinsured business will decrease in value. Credit Quality does not include market value declines due to changes in interest rates.

(c) Reinvestment is the risk that interest rates will fall and funds reinvested (coupon payments or monies received upon asset maturity or call) will earn less than expected.

(d) Disintermediation is the risk that policy loans and surrenders increase, or maturing contracts do not renew at anticipated rates of renewal, during a period of increasing interest rates.

History

RELATES TO: KRS 304.3-240, 304.5-120
STATUTORY AUTHORITY: KRS 304.2-110(1)
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.2-110 provides that the Executive Director of Insurance may promulgate administrative regulations to implement the Kentucky Insurance Code, KRS Chapter 304. This administrative regulation restricts the use of life and health reinsurance agreements as "surplus relief" if the effect is to distort reporting of the life and health insurer's true financial condition, take credit for or a reduction from liability for reinsurance agreements which do not involve a transfer of risk, and which conceal the fact that the insurer is in hazardous financial condition.
History: 18 Ky.R. 958; eff. 11-8-91; 22 Ky.R. 1741; 2033; 23 Ky.R. 137; eff. 7-5-96; TAm eff. 8-9-2007; Crt eff. 2-26-2020.

806 KAR 3:170 Annual audited financial reports {#sec-806-kar-3-170 omnilex-key=us-ky-regs-official--title-806--806 KAR 3:170}

Section 1. Definitions.

(1) "Accountant" means:

(a) An independent certified public accountant or accounting firm in good standing with the American Institute of Certified Public Accountants and in all states in which the accountant is licensed to practice;

(b) For Canadian and British insurers, a Canadian-chartered or British-chartered accountant.

(2) "Affiliate" or "affiliated" is defined by KRS 304.37-010(4).

(3) "Audit committee" means a committee, or equivalent body, established by the board of directors of an entity for the purpose of overseeing the accounting and financial reporting processes of an insurer or group of insurers, the internal audit function of an insurer of group of insurers, if applicable, and external audits of financial statements of the insurer or group of insurers.

(4) "Audited financial report" means a report consisting of those items established in Section 4 of this administrative regulation.

(5) "Commissioner" is defined by KRS 304.1-050(1).

(6) "Control" is defined by KRS 304.37-010(3).

(7) "Department" is defined in KRS 304.1-050(2).

(8) "Group of insurers" means those licensed insurers included in the reporting requirements of KRS 304.37-020, or a set of insurers as identified by management, for the purpose of assessing the effectiveness of internal control over financial reporting.

(9) "Insurer" is defined by KRS 304.1-040.

(10) "Internal audit function" means a person who provides independent objective and reasonable assurance designed to add value and improve an organization's operations and accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control, and governance processes."

(11) "Internal control over financial reporting" means a process affected by an entity's board of directors, management, and other personnel designed to provide reasonable assurance regarding the reliability of the financial statements and includes those policies and procedures that:

(a) Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of assets;

(b) Provide reasonable assurance that transactions are recorded as necessary to permit preparation of the financial statements and that receipts and expenditures are being made only in accordance with authorizations of management and directors; and

(c) Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of assets that could have a material effect on the financial statements.

(12) "SEC" means the United States Securities and Exchange Commission.

(13) "Section 404" means Section 404 of the Sarbanes-Oxley Act of 2002, Pub. L. 107-204, and the SEC's rules and regulations promulgated under Section 404.

(14) "Section 404 Report" means management's report on "internal control over financial reporting" as defined by the SEC at 17 C.F.R. 240.13a-15(f) and the related attestation report of the accountant.

(15) "SOX compliant entity" means an entity that either is required to be compliant with, or voluntarily is compliant with, all of the following provisions of the Sarbanes-Oxley Act of 2002, Pub. L. 107-204:

(a) The preapproval requirements of Section 202;

(b) The audit committee independence requirements of Section 301; and

(16) "Work papers" mean the records kept by the accountant of the procedures followed, the tests performed, the information obtained, and the conclusions reached pertinent to the accountant's audit of the financial statements of an insurer. Work papers can include audit planning documentation, work programs, analyses, memoranda, letters of confirmation and representation, abstracts of insurer documents, and schedules or commentaries prepared or obtained by the accountant in the course of the accountant's audit of the financial statements of an insurer and that support the accountant's opinion of the financial statements of an insurer.

Section 2. Purpose and Scope.

(1) This administrative regulation shall be to improve the department's surveillance of the financial condition of insurers by requiring:

(a) An annual audit of financial statements reporting the financial position and the results of operations of insurers by accountants;

(b) Communication of internal control related matters noted in an audit; and

(2) Except as established in paragraph (a) of this subsection, every insurer shall be subject to this administrative regulation.

(a) Unless the commissioner makes a specific finding that compliance is necessary for the department to carry out its statutory responsibilities, an insurer shall be exempt during years in which the following conditions exist. The insurer has, at the end of the calendar year:

Direct premiums written in this state of less than $1,000,000; and
Less than 1,000 policyholders or certificate holders of direct written policies nationwide.

(b) An insurer with assumed premiums of $1,000,000 or more pursuant to contracts or treaties of reinsurance shall not be exempt from this administrative regulation.

(3) A foreign or alien insurer filing the audited financial report in another state, pursuant to the other state's requirement for filing an audited financial report, which has been found by the commissioner to be substantially similar to the requirements of this administrative regulation, shall be exempt from this administrative regulation if:

(a) The following documents, which are filed with the other state, are filed with the commissioner in accordance with Sections 4, 10, and 11 of this administrative regulation:

A copy of the audited financial report;
Communication of internal control related matters noted in an audit; and
The accountant's letter of qualifications. Canadian insurers may submit accountants' reports as filed with the Office of Superintendent of Financial Institutions, Canada; and

(b) A copy of any notification of adverse financial condition report filed with the other state is filed with the commissioner within the time established in Section 9 of this administrative regulation.

(4) A foreign or alien insurer required to file management's report of internal control over financial reporting in another state shall be exempt from filing the report in this state if:

(a) The other state has substantially similar reporting requirements; and

(b) The report is filed with the commissioner of the other state within the other state's required time.

(5) This administrative regulation shall not prohibit, preclude, or in any way limit the commissioner from ordering, conducting, or performing examinations of insurers under KRS 304.2-210 through 304.2-290 through 304.2-300, 304.17A-820, 304.32-210, 304.35-040, 304.36-140, 304.42-150, 304.48-110, 304.49-080, or 304.50-075.

Section 3. General Requirements Related to Filing and Extensions for Filing of Annual Audited Financial Reports and Audit Committee Appointment.

(1) All insurers shall have an annual audit by an accountant and shall file an audited financial report with the commissioner on or before June 1 for the year ended December 31 immediately preceding. The commissioner may, based on whether or not the company is determined to be in a "hazardous condition" pursuant to KRS 304.2-065, require an insurer to file an audited financial report earlier than June 1 with ninety (90) days advance notice to the insurer.

(2) Extensions of the June 1 filing date may be granted by the commissioner for thirty (30) day periods upon showing by the insurer and its accountant the reasons for requesting the extension and determination by the commissioner of good cause for an extension. The request for extension shall be submitted in writing not less than ten (10) days prior to the due date and contain sufficient detail to permit the commissioner to make an informed decision as to the requested extension.

(3) If an extension is granted in accordance with subsection (2) of this section, a similar extension of thirty (30) days shall be granted to the filing of management's report of internal control over financial reporting.

(4) Every insurer required to file an annual audited financial report pursuant to this administrative regulation shall designate a group of individuals as constituting its audit committee. The audit committee of an entity that controls an insurer may be deemed to be the insurer's audit committee for purposes of this administrative regulation at the election of the controlling person.

Section 4. Contents of Annual Audited Financial Report.

(1) The annual audited financial report shall report 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 established, or otherwise permitted, by the insurance supervisory authority of the insurer's state of domicile.

(2) The annual audited financial report shall include the:

(a) Report of the accountant;

(b) Balance sheet for reporting admitted assets, liabilities, capital, and surplus;

(d) Statement of cash flows;

(e) Statement of changes in capital and surplus;

(f) Notes to financial statements as required by KRS 304.3-240 in accordance with KRS 304.3-241. These notes shall also include:

A reconciliation of differences, if any, between the audited statutory financial statements and the annual statement filed pursuant to KRS 304.3-240 with a written description of the nature of these differences; and
A summary of ownership and relationships of the insurer and all affiliated companies; and

(g) 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 commissioner; and
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. The annual statement forms and instructions shall be those established by the National Association of Insurance Commissioners as required by KRS 304.3-240.

Section 5. Designation of Accountant.

(1) Each insurer required by this administrative regulation to file an annual audited financial report shall, within sixty (60) days after becoming subject to this requirement, register with the commissioner in writing the name and address of the accountant or accounting firm retained to conduct the annual audit required by this administrative regulation.

(2) The insurer shall obtain a letter from the accountant and file a copy with the commissioner, stating that the accountant is aware of the provisions of the insurance laws of the insurer's state of domicile that relate to accounting and financial matters and affirming that the accountant shall express the accountant's opinion on the financial statements in terms of their conformity to the statutory accounting practices established or otherwise permitted by the insurance regulatory authority in that state, stating any exceptions as the accountant believes appropriate.

(3) If an accountant who was the accountant for the immediately preceding filed audited financial report is dismissed or resigns the insurer shall:

(a) Within five (5) business days notify the commissioner of this event;

(b) Submit to the commissioner, a separate letter within ten (10) business days of the notification established in paragraph (a) of this subsection, if stating in the twenty-four (24) months preceding the accountant's resignation, there were any disagreements with the former accountant that, if not resolved to the satisfaction of the former accountant, would cause the accountant to make reference to the subject matter of the disagreement in connection with the opinion. These shall include disagreements:

Concerning accounting principles, financial statement disclosure, or auditing scope or procedure;
That have been resolved to the former accountant's satisfaction and those not so resolved; and
That occur at the decision-making level, that is, between personnel of the insurer responsible for presentation of its financial statements and personnel for the accounting firm responsible for rendering its report;

(c) Request the former accountant to submit a letter addressed to the insurer stating whether or not the accountant agrees with the statements contained in the insurer's letter, and, if not, stating the reasons for which the accountant does not agree; and

(d) Submit the responsive letter from the former accountant to the commissioner together with its own.

Section 6. Qualifications of Accountant.

(1) The commissioner shall not recognize any person or firm as a qualified accountant if the person or firm:

(a) Is not in good standing with the American Institute of Certified Public Accountants and in all states in which the accountant is licensed to practice, or, for a Canadian or British insurer, that is not a chartered accountant; or

(b) Has either directly or indirectly entered into an agreement of indemnity or release from liability with respect to the audit of the insurer.

(2) Except as otherwise established in this administrative regulation, an accountant shall be recognized as qualified if the accountant conforms to the standards of the accounting profession, as contained in the statutes, administrative regulations, and codes of ethics and rules of professional conduct administered by the State Board of Accountancy of Kentucky in accordance with KRS Chapter 325 and 201 KAR Chapter 1.

(3) The lead or coordinating audit partner having primary responsibility for the audit shall not act in that capacity for more than five (5) consecutive years. After five (5) consecutive years, the person shall be disqualified from acting in that or a similar capacity for the same insurer or its insurance subsidiaries or affiliates for a period of five (5) years.

(a) An insurer may make application to the commissioner for relief from this rotation requirement on the basis of undue hardship. Application shall be made at least thirty (30) days before the end of the calendar year. The commissioner shall consider the following factors in determining if the relief should be granted:

Number of partners, expertise of the partners, or the number of insurance clients in the currently registered firm;
Premium volume of the insurer; or
Number of jurisdictions in which the insurer transacts business.

(b) The insurer shall file with its annual statement filing the approval for relief from paragraph (a)1 of this subsection with the states that it is licensed in or doing business in and with the National Association of Insurance Commissioners. If the nondomestic state accepts electronic filing with the National Association of Insurance Commissioners, the insurer shall file the approval in an electronic format acceptable to the National Association of Insurance Commissioners via the Web site, https://www2.naic.org/servlet/Index.

(c) The commissioner shall not recognize as a qualified accountant, nor accept any annual audited financial report, prepared in whole or in part by any natural person who:

Has been convicted of fraud, bribery, or a conviction of the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. Chapter 96;
Has been found to have violated the insurance laws of this state with respect to any previous reports submitted under this administrative regulation; or
Has demonstrated a pattern or practice of failing to detect or disclose material information in previous reports filed under this administrative regulation.

(4) If an insurer disagrees with a determination made by the commissioner pursuant to subsection (3) of this section, it may request a hearing in accordance with KRS 304.2-310.

(5)

(a) The commissioner shall not recognize as a qualified accountant, nor accept an annual audited financial report prepared in whole or in part by an accountant who provides to an insurer, contemporaneously with the audit, the following nonaudit services:

Bookkeeping or other services related to the accounting records or financial statements of the insurer;
Financial information systems design and implementation;
Appraisal or valuation services, fairness opinions, or contribution-in-kind reports;
Actuarially-oriented advisory services involving the determination of amounts recorded in the financial statements. The accountant may assist an insurer in understanding the methods, assumptions, and inputs used in the determination of amounts recorded in the financial statement only if it is reasonable to conclude that the services provided will not be subject to audit procedures during an audit of the insurer's financial statements. An accountant's actuary may also issue an actuarial opinion or certification on an insurer's reserves if:

a. Neither the accountant nor the accountant's actuary has performed any management functions or made any management decisions;

b. The insurer has competent personnel or engages a third party actuary to estimate the reserves for which management takes responsibility; and

c. The accountant's actuary tests the reasonableness of the reserves after the insurer's management has determined the amount of the reserves;

Internal audit outsourcing services;
Management functions or human resources;
Broker or dealer, investment adviser, or investment banking services; or
Legal services or expert services unrelated to the audit.

(b) A qualified independent public accountant shall not:

Function in the role of management;
Audit his or her own work; and
Serve in an advocacy role for the insurer.

(6)

(a) An insurer having direct written and assumed premium of less than $100,000,000 in any calendar year may request an exemption from subsection (5)(a) of this section.

(b) To request an exemption, the insurer shall file with the commissioner a written statement discussing the reasons why the insurer should be exempt from these provisions.

(c) If requested and if the commissioner finds, upon review of this statement, that compliance with this administrative regulation would constitute an organizational hardship upon the insurer, an exemption shall be granted.

(7) A qualified accountant who performs the audit may engage in other nonaudit services, including tax services, that are not established in subsection (5)(a) of this section or that do not conflict with subsection (5)(b) of this section, only if the activity is approved in advance by the audit committee in accordance with subsection (8) of this section.

(8)

(a) All auditing services and nonaudit services provided to an insurer by the qualified accountant of the insurer shall be preapproved by the audit committee.

(b) The preapproval requirement shall be waived with respect to nonaudit services if:

The insurer is a SOX compliant entity or a direct or indirect wholly-owned subsidiary of a SOX compliant entity; or

a. The aggregate amount of all non-audit services provided to the insurer constitutes not more than five (5) percent of the total amount of fees paid by the insurer to its qualified accountant during the fiscal year in which the nonaudit services are provided;

b. The services were not recognized by the insurer at the time of the engagement to be nonaudit services; and

c. The services are brought to the attention of the audit committee and approved prior to the completion of the audit by the audit committee or by one (1) or more members of the audit committee who are the members of the board of directors to whom authority to grant approvals has been delegated by the audit committee.

(9) The audit committee may delegate to one (1) or more designated members of the audit committee the authority to grant the preapprovals required by subsection (8) of this section. The decisions of any member to whom this authority is delegated shall be presented to the full audit committee at each of its scheduled meetings.

(10)

(a)

The commissioner shall not recognize an accountant as qualified for a particular insurer if the following were employed by the accountant and participated in the audit of that insurer during the one (1) year period preceding the date that the most current statutory opinion is due:

a. A member of the board;

b. President;

c. Chief executive officer;

d. Controller;

e. Chief financial officer;

f. Chief accounting officer; or

g. Any person serving in an equivalent position for that insurer.

This subsection shall only apply to partners and senior managers involved in the audit.
An insurer may make application to the commissioner for relief from the requirements established in this subsection on the basis of undue hardship.

(b) The insurer shall file, with its annual statement filing, the approval for relief from paragraph (a) of this subsection with the states that it is licensed in or doing business in and the National Association of Insurance Commissioners. If the nondomestic state accepts electronic filing with the National Association of Insurance Commissioners, the insurer shall file the approval in an electronic format acceptable to the National Association of Insurance Commissioners via the Web site, https://www2.naic.org/servlet/Index.

Section 7. Consolidated or Combined Audits. An insurer may make written application to the commissioner for approval to file audited consolidated or combined financial statements in lieu of separate annual audited financial reports if the insurer is part of a group of insurers that utilizes a pooling or 100 percent 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. In these cases, a columnar consolidating or combining worksheet shall be filed with the report, as established in subsections (1) through (5) of this section.

(1) Amounts shown on the consolidated or combined audited financial report shall be shown on the worksheet.

(2) Amounts for each insurer subject to this section shall be stated separately.

(3) Noninsurance operations may be shown on the worksheet or a combined or individual basis.

(4) Explanations of consolidating and eliminating entries shall be included.

(5) A reconciliation shall be included of any differences between the amounts shown in the individual insurer columns of the worksheet and comparable amounts shown in the annual statements of the insurers.

Section 8. Scope of Examination and Report of Accountant.

(1) Financial statements submitted pursuant to Section 4 of this administrative regulation shall be examined by the accountant.

(2) The examination of the insurer's financial statements shall be conducted in accordance with generally accepted auditing standards.

(3) In accordance with SAS No. 109, Understanding the Entity and Its Environment and Assessing the Risks of Material Misstatement and SAS No. 110, Performing Audit Procedures in Response to Assessed Risks and Evaluating the Audit Evidence Obtained, the accountant shall obtain an understanding of internal control sufficient to plan the audit.

(4) To the extent required by SAS 109 and SAS 110, for those insurers required to file a management's report of internal control over financial reporting pursuant to Section 2 of this administrative regulation, the accountant shall consider the most recently available report in planning and performing the audit of the statutory financial statements.

(5) Consideration shall also be given to other procedures illustrated in the Financial Condition Examiner's Handbook of the National Association of Insurance Commissioners that the accountant deems necessary.

Section 9. Notification of Adverse Financial Condition.

(1)

(a) The insurer required to submit the annual audited financial report shall require the accountant to report, in writing, within five (5) business days to the board of directors or its audit committee any determination by the accountant that the insurer has materially misstated its financial condition as reported to the commissioner as of the balance sheet date currently under examination or that the insurer does not meet the minimum capital and surplus requirements of KRS 304.3-120 and 304.3-125 as of that date.

(b) An insurer that has received a report pursuant to this subsection shall forward a copy of the report to the commissioner within five (5) business days of receipt of the report and shall provide the accountant making the report with evidence of this report being submitted to the commissioner.

(c) If the accountant fails to receive this evidence within the required five (5) business day period, the accountant shall submit to the commissioner a copy of its report within the next five (5) business days.

(2) An accountant shall not be liable in any manner to any person for any statement made in connection with subsection (1) of this section if the statement is made in good faith in compliance with subsection (1) of this section.

(3) If the accountant, subsequent to the date of the audited financial report filed pursuant to this administrative regulation, becomes aware of facts that might have affected his report, the commissioner shall note the obligation of the accountant to take the action established in Volume 1, Section AU 561 of the Professional Standards of the American Institute of Certified Public Accountants.

Section 10. Communication of Internal Control Related Matters Noted in an Audit.

(1)

(a) In addition to the annual audited financial statements, each insurer shall submit to the commissioner a written communication as to any unremediated material weakness in its internal control over financial reporting noted during the audit.

(b) The communication shall be prepared by the accountant within sixty (60) days after the filing of the annual audited financial report and shall contain a description of any unremediated material weaknesses as of December 31 immediately preceding in the insurer's internal control over financial reporting noted by the accountant during the course of the accountant's audit of the financial statements.

(2) If the action is not included in the accountant's communication, an insurer shall provide a description of remedial actions taken or proposed to correct unremediated material weaknesses.

Section 11. Accountant's Letter of Qualifications. The accountant shall submit to the insurer in connection with, and for inclusion in, the filing of the annual audited financial report, a letter stating:

(1) That the accountant is independent with respect to the insurer and conforms to the standards of the accountant's profession as contained in statutes, administrative regulations, and rules of professional conduct of the State Board of Accountancy of Kentucky set forth in KRS Chapter 325 and 201 KAR Chapter 1;

(2) The background and experience in general, and the experience in audits of insurers of the staff assigned to the engagement and whether or not each is an accountant. This administrative regulation shall not prohibit the accountant from utilizing staff as the accountant deems appropriate if use is consistent with the standards established by generally accepted auditing standards;

(3) That the accountant understands the annual audited financial report, that the accountant's opinion on it shall be filed in compliance with this administrative regulation, and that the commissioner will be relying on this information in monitoring the financial position of insurers;

(4) That the accountant consents to the requirements of Section 12 of this administrative regulation and that the accountant consents and agrees to make the work papers available for review by the commissioner, the commissioner's designee, or the commissioner's appointed agent;

(5) That the accountant is properly licensed by an appropriate state licensing authority and is a member in good standing of the American Institute of Certified Public Accountants; and

(6) That the accountant is in compliance with the requirements of Section 6 of this administrative regulation.

Section 12. Availability and Maintenance of Accountant Work Papers.

(1) Every insurer required to file an audited financial report pursuant to this administrative regulation shall require the accountant to make available for review by department examiners all work papers prepared in the conduct of the accountant's audit and any communications related to the audit between the accountant and the insurer, at the offices of the insurer, at the department, or any other reasonable place designated by the commissioner. The insurer shall require that the accountant retain the audit work papers and communications until the department has filed a report on examination covering the period of the audit, but no longer than seven (7) years from the date of the audit report.

(2) In the conduct of the periodic review by department examiners established in subsection (1) of this section, it shall be agreed that photocopies of pertinent audit work papers may be made and retained by the department. Reviews by the department examiners shall be considered investigations, and all working papers and communications obtained during the course of shall be afforded the same confidentiality as other examination work papers generated by the department.

Section 13. Requirements for Audit Committees. This section shall not apply to foreign or alien insurers licensed in this state or an insurer that is a SOX compliant entity or a direct or indirect wholly-owned subsidiary of a SOX compliant entity.

(1) The audit committee shall be directly responsible for the appointment, compensation, and oversight of the work of any accountant, including resolution of disagreements between management and the accountant regarding financial reporting, for the purpose of preparing or issuing the audited financial report or related work pursuant to this administrative regulation. Each accountant shall report directly to the audit committee.

(2)

(a) The audit committee of an insurer or group of insurers shall be responsible for supervising the insurer's internal audit function and granting the person performing the function suitable authority and resources to fulfill the responsibilities if required by Section 14 of this administrative regulation.

(b) If an audit committee is not designated by the insurer, the insurer's entire board of directors shall constitute the audit committee.

(3) Each member of the audit committee shall be a member of the board of directors of the insurer or a member of the board of directors of an entity elected pursuant to subsection (6) of this section and section 3(4) of this administrative regulation.

(4)

(a) Except as established in paragraph (b) of this subsection, a member of the audit committee shall not, other than in his or her capacity as a member of the audit committee, the board of directors, or any other board committee;

Accept any consulting advisory or other compensatory fee from the entity; or
Be an affiliated person of the entity or any subsidiary.

(b) If the law requires board participation by otherwise nonindependent members, that law shall prevail and the members may participate in the audit committee and be designated as independent for audit committee purposes, unless the member is an officer or employee of the insurer or one (1) of its affiliates.

(5) If a member of the audit committee ceases to be independent for reasons outside the member's reasonable control, that person, with notice by the responsible entity to the state, may remain an audit committee member of the responsible entity until the earlier of:

(a) The next annual meeting of the responsible entity; or

(b) One (1) year from the occurrence of the event that caused the member to be no longer independent.

(6)

(a) At the election of the controlling person, the audit committee of any entity that controls a group of insurers may be deemed to be the audit committee for one (1) or more of these controlled insurers solely for the purposes of this administration regulation.

(b) To exercise the election of the controlling person to designate the audit committee for purposes of this administrative regulation, the ultimate controlling person shall provide written notice to the commissioners of the affected insurers.

(c) Notification shall be made timely prior to the issuance of the statutory audit report and shall include a description of the basis for the election.

(d) The election can be changed through notice to the commissioner by the insurer which shall include a description of the basis for the change.

(e) The election shall remain in effect for perpetuity, until rescinded.

(7)

(a) The audit committee shall require the accountant that performs for an insurer any audit required by this administrative regulation to timely report to the audit committee in accordance with the requirements of SAS 114, The Auditor's Communication With Those Charged With Governance, or its replacement, including:

All significant accounting policies and material permitted practices;
All material alternative treatments of financial information within statutory accounting principles that have been discussed with management officials of the insurer, ramifications of the use of the alternative disclosures and treatments, and the treatment preferred by the accountant; and
Other material written communications between the accountant and the management of the insurer, including any management letter or schedule of unadjusted differences.

(b)

If an insurer is a member of an insurance holding company system, the reports required by paragraph (a) of this subsection may be provided to the audit committee on an aggregate basis for insurers in the holding company system.
Any substantial differences among insurers in the system shall be identified to the audit committee.

(8)

(a) Except as established in paragraph (b) of this subsection, the proportion of independent audit committee members shall meet or exceed the following criteria:

For prior calendar year direct written and assumed premiums between $0 and $300,000,000, no minimum requirements;
For prior calendar year direct written and assumed premiums over $300,000,000 to $500,000,000, fifty (50) percent or more of members shall be independent; and
For prior calendar year direct written and assumed premiums over $500,000,000; seventy-five (75) percent of members shall be independent.

(b) The commissioner may require the audit committee's board to enact improvements to the independence of the audit committee membership if the insurer:

Is in a risk-based capital action level in accordance with 806 KAR 3:190; or
Meets one (1) or more of the standards of an insurer deemed to be in "hazardous financial condition", as established in KRS 304.2-065, or otherwise exhibits qualities of a "troubled insurer", as established in KRS 304.3-625.

(c) An insurer with less than $500,000,000 in prior year direct written and assumed premiums may structure its audit committee with at least a supermajority of independent audit committee members.

(d) For purposes of subsection (7)(a) of this section, prior calendar year direct written and assumed premiums shall be the combined total of direct premiums and assumed premiums from nonaffiliates for the reporting entities.

(9)

(a) An insurer with direct written and assumed premium, excluding premiums reinsured with the Federal Crop Insurance Corporation and National Flood Insurance Program, less than $500,000,000 may make application to the commissioner for a waiver from the requirements of this section based upon hardship.

(b) The insurer shall file, with its annual statement filing, the approval for relief from this section with the states that it is licensed in or doing business in and the National Association of Insurance Commissioners.

(c) If the nondomestic state accepts electronic filing with the National Association of Insurance Commissioners, the insurer shall file the approval in an electronic format acceptable to the National Association of Insurance Commissioners, via the Web site, https://www2.naic.org/servlet/Index.

Section 14. Internal Audit Function Requirements.

(1) An insurer shall be exempt from the requirements of this section if the insurer:

(a) Has annual direct written and unaffiliated assumed premium, including international direct and assumed premium but excluding premiums reinsured with the Federal Crop Insurance Corporation and National Flood Insurance Program, less than $500,000,000; or

(b) Is a member of a group of insurers that has annual direct written and unaffiliated assumed premium including international direct and assumed premium, but excluding premiums reinsured with the Federal Crop Insurance Corporation and National Flood Insurance Program, less than $1,000,000,000.

(2) The insurer or group of insurers shall establish an internal audit function providing independent, objective, and reasonable assurance to the audit committee and insurer management regarding the insurer's governance, risk management, and internal controls. This assurance shall be provided by:

(a) Performing general and specific audits, reviews, and tests; and

(b) Employing other techniques deemed necessary to protect assets, evaluate control effectiveness and efficiency, and evaluate compliance with policies and KAR Title 806.

(3) In order to ensure that internal auditors remain objective, the internal audit function shall be organizationally independent.

(a) The internal audit function shall:

Not defer ultimate judgment on audit matters to others; and
Appoint an individual to head the internal audit function who shall have direct and unrestricted access to the board of directors.

(b) Organization independence shall not preclude dual-reporting relationships.

(4) The head of the internal audit function shall report to the audit committee regularly, but no less than annually, on:

(a) The periodic audit plan;

(b) Factors that could adversely impact the internal audit function's independence or effectiveness;

(d) The appropriateness of corrective actions implemented by management as a result of audit findings.

(5) 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 established in this section at:

(a) The ultimate controlling parent level;

(b) An intermediate holding company level; or

Section 15. Conduct of Insurer in Connection with the Preparation of Required Reports and Documents.

(1) A director or officer of an insurer shall not, directly or indirectly:

(a) Make or cause to be made a materially false or misleading statement to an accountant in connection with any audit, review, or communication required under this administrative regulation; or

(b) Omit to state, or cause another person to omit to state, any material fact necessary in order to make statements made, in light of the circumstances under which the statements were made, not misleading to an accountant in connection with any audit, review, or communication required under this administrative regulation.

(2) An officer or director of an insurer, or any other person acting under the direction of the officer or director, shall not, directly or indirectly, take any action to coerce, manipulate, mislead, or fraudulently influence any accountant engaged in the performance of an audit pursuant to this administrative regulation if that person knew or should have known that the action, if successful, could result in rendering the insurer's financial statements materially misleading.

(3) An officer or director of an insurer, or any other person acting under the direction of the officer or director, shall not, directly or indirectly, take any of the following actions to coerce, manipulate, mislead, or fraudulently influence an accountant with respect to the professional engagement period:

(a) To issue or reissue a report on an insurer's financial statements that is not warranted in the circumstances due to material violations of statutory accounting principles as required by KRS 304.3-241, generally accepted auditing standards, or other professional or regulatory standards;

(b) Not to perform audit, review, or other procedures required by generally accepted auditing standards or other professional standards;

(d) Not to communicate matters to an insurer's audit committee.

Section 16. Management's Report of Internal Control over Financial Reporting.

(1)

(a) Except as established in subsection (2) of this section, every insurer required to file an audited financial report pursuant to this administrative regulation that has annual direct written and assumed premiums, excluding premiums reinsured with the Federal Crop Insurance Corporation and National Flood Insurance Program, of $500,000,000 or more shall prepare a report of the insurer's or group of insurers' internal control over financial reporting.

(b) The report shall be filed with the commissioner along with the communication of internal control related matters noted in an audit.

(2) The commissioner may require an insurer to file management's report of internal control over financial reporting if the insurer:

(a) Is in any risk-based capital level event in accordance with 806 KAR 3:190; or

(b) Meets one (1) or more of the standards of an insurer deemed to be in "hazardous financial condition" in accordance with KRS 304.2-065.

(3) An insurer or a group of insurers meeting the following requirements may file its or its parent's Section 404 Report and an addendum in satisfaction of the requirements of this section if those internal controls of the insurer or group of insurers having a material impact on the preparation of the insurer's or group of insurer's audited statutory financial statements were included in the scope of the Section 404 Report:

(a) Directly subject to Section 404;

(b) Part of a holding company system whose parent is directly subject to Section 404;

(d) A member of a holding company system whose parent is not directly subject to Section 404 but is a SOX compliant entity.

(4) Management's report of internal control over financial reporting shall include:

(a) A statement that management shall be responsible for establishing and maintaining adequate internal control over financial reporting;

(b) A statement that management has established internal control over financial reporting and an assertion, to the best of management's knowledge and belief, after diligent inquiry, as to whether or not its internal control over financial reporting is effective to provide reasonable assurance regarding the reliability of financial statements in accordance with statutory accounting principles;

(c) A statement that briefly describes the approach or processes by which management evaluated the effectiveness of internal control over financial reporting;

(d) A statement that briefly describes the scope of work that is included and whether or not any internal controls were excluded;

(e) Disclosure of any unremediated material weaknesses in the internal control over financial reporting identified by management as of December 31 immediately preceding. Management shall not conclude that the internal control over financial reporting is effective to provide reasonable assurance regarding the reliability of financial statements in accordance with statutory accounting principles if there is one (1) or more unremediated material weaknesses in its internal control over financial reporting;

(f) A statement regarding the inherent limitations of internal control systems; and

(g) Signatures of the chief executive officer and the chief financial officer.

(5) Management shall document and make available upon financial condition examination the basis upon which its assertions, required in subsection (4) of this section, are made. Management may base its assertions, in part, upon its review, monitoring, and testing of internal controls undertaken in the normal course of its activities.

(a) Management shall have discretion as to the nature of the internal control framework used, and the nature and extent of the documentation, in order to make its assertion in a cost effective manner and may include assembly of or reference to existing documentation.

(b) The following shall have one (1) year following the year the threshold is exceeded to comply with the independence requirements in Section 6 of this administrative regulation, but not earlier than January 1, 2010. An insurer or group of insurers that, pursuant to Section 13 of this administrative regulation:

Is not required to have independent audit committee members or is required to have only a majority of independent audit committee members because the total written and assumed premiums is below the threshold; and
Subsequently becomes subject to one (1) of the independence requirements due to changes in premium.

Section 17. Exemptions and Effective Dates.

(1) Upon written application of any insurer, the commissioner may grant an exemption from compliance with any or all provisions of this administrative regulation if the commissioner finds, upon review of the application, that compliance with this administrative regulation would constitute a financial or organizational hardship upon the insurer. An exemption may be granted any time and from time to time for a specified period or periods. Upon denial of an insurer's written request for an exemption from this administrative regulation, the insurer may request a hearing on its application for an exemption. The hearing process shall be pursuant to KRS 304.2-310.

(2) The requirements of this administrative regulation shall be in effect for audits of calendar years beginning January 1, 2010.

Section 18. Canadian and British Companies.

(1) In the case of Canadian and British insurers, the annual audited financial reports shall be the annual statement of total business in the manner filed by these insurers with their supervisory authority duly audited by an independent chartered accountant.

(2) For Canadian and British insurers, the letter required by Section 5 of this administrative regulation shall state that the accountant is aware of the requirements relating to the annual audited financial report filed with the commissioner pursuant to Section 3 of this administrative regulation and shall affirm that the opinion expressed is in conformity with the requirements of Section 3 of this administrative regulation.

Section 19. Incorporation by Reference.

(1) The following material is incorporated by reference:

(a) "Financial Condition Examiner's Handbook", 2020, National Association of Insurance Commissioners;

(b) AU Section 561, "Subsequent Discovery of Facts Existing at the Date of the Auditor's Report", 1996 Professional Standards of the American Institute of Certified Public Accountants;

(c) SAS 114, "The Auditors Communication with Those Charged with Governance", 2007, American Institute of Certified Public Accountants;

(d) SAS 109, "Understanding the Entity and Its Environment and Assessing the Risks of material Misstatement", 2007 American Institute of Certified Public Accountants; and

(e) SAS 110, "Performing Audit Procedures in Response to Assessed Risks and Evaluating the Audit Evidence", 2007 American Institute of Certified Public Accountants.

History

RELATES TO: KRS 304.1-040, 304.1-050, 304.2-065, 304.2-210-304.2-290, 304.3-120, 304.3-125, 304.3-240, 304.3-241, 304.17A-820, 304.32-210, 304.35-040, 304.36-140, 304.37-010, 304.37-020, 304.42-150, 304.45-030, 304.45-040, 304.48-110, 304.49-070(2), 304.49-080, 304.49-090, 304.50-060, 304.50-075, 18 U.S.C. Chapter 96, Pub. L. 107-204
STATUTORY AUTHORITY: KRS 304.2-110, 304.3-240, 304.49-140
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.2-110 authorizes the Commissioner of the Department of Insurance to promulgate administrative regulations necessary for or as an aid to the effectuation of any provision of the Kentucky Insurance Code as established in KRS 304.1-010. KRS 304.3-240 authorizes the commissioner to promulgate administrative regulations concerning the publication of financial statements. KRS 304.49-170 authorizes the commissioner to promulgate administrative regulations relating to captive insurance companies that are necessary to enable the commissioner to carry out the provisions of KRS 304.49-010 through 304.49-230. This administrative regulation establishes requirements concerning the annual filing of audited financial reports by insurers.
History: 18 Ky.R. 959; eff. 11-8-91; TAm eff. 8-9-2007; 35 Ky.R. 1304; 1831; 1765; eff. 3-6-2009; 37 Ky.R. 2746; 38 Ky.R. 37; eff. 9-2-2011; Crt eff. 2-26-2020; 47 Ky.R. 384, 956; eff. 2-2-2021.

806 KAR 3:190 Risk-based capital for insurers {#sec-806-kar-3-190 omnilex-key=us-ky-regs-official--title-806--806 KAR 3:190}

Section 1. Definitions.

(1) "Adjusted RBC report" means an RBC report which has been adjusted by the commissioner in accordance with Section 3(6) of this administrative regulation.

(2) "Authorized control level RBC" means the number determined under the risk-based capital formula in accordance with the RBC instructions.

(3) "Company action level RBC" means the product of two (2.0) and its authorized control level RBC.

(4) "Corrective order" means an order issued by the commissioner specifying corrective actions which the commissioner has determined are required.

(5) "Domestic insurer" is defined by KRS 304.1-070(1).

(6) "Foreign insurer" is defined by KRS 304.1-070(2).

(7) "Fraternal benefit society" is defined by KRS 304.29-011.

(8) "Insurer" is defined by KRS 304.1-040.

(9) "Life and health insurer" means any insurer licensed to write insurance as defined in KRS 304.5-020, 304.5-030, and 304.5-040 or a licensed property and casualty insurer writing only accident and health insurance.

(10) "Mandatory control level RBC" means the product of seven-tenths (.70) and the authorized control level RBC.

(11) "NAIC" is defined by KRS 304.7-012(59).

(12) "Negative trend" means, with respect to a life or health insurer or a fraternal benefit society, negative trend over a period of time, as determined in accordance with the "Trend Test Calculation" included in the Life or Fraternal RBC instructions.

(13) "Property and casualty insurer" means any insurer licensed to write insurance as defined in KRS 304.5-050, 304.5-060, 304.5-070, 304.5-080, and 304.5-110, except for monoline mortgage guaranty insurers, financial guaranty insurers, and title insurers.

(14) "RBC" means risk-based capital.

(15) "RBC instructions" means the RBC Report including risk-based capital instructions adopted by the NAIC.

(16) "RBC Level" means an insurer's company action level RBC, regulatory action level RBC, authorized control level RBC, or mandatory control level RBC.

(17) "RBC plan" means a comprehensive financial plan containing the elements specified in Section 4(2) of this administrative regulation.

(18) "RBC report" means the report required in Section 3 of this administrative regulation.

(19) "Regulatory action level RBC" means the product of one and five-tenths (1.5) and its authorized control level RBC.

(20) "Revised RBC plan" means an RBC plan that has been rejected by the commissioner and then revised by the insured.

(21) "Total adjusted capital" means the sum of:

(a) An insurer's statutory capital and surplus as determined in accordance with the statutory accounting applicable to the annual financial statements required to be filed under KRS 304.3-240; and

(b) Any other items as specified in the RBC instructions.

Section 2. The provisions of this administrative regulation shall apply to the following insurers:

(1) All domestic insurers, whether or not they purport to do business in this state;

(2) All insurers who are doing or have done an insurance business in this state and against whom claims arising from that business may exist now or in the future;

(3) All insurers who purport to do an insurance business in this state;

(4) All insurers who have insureds resident in this state;

(5) All other persons organized or in the process of organizing with the intent to do an insurance business in this state;

(6) A fraternal benefit society as defined in KRS Chapter 304, Subtitle 29; and

(7) An industrial insured captive insurer as defined by KRS 304.49-010(8).

Section 3. RBC Reports.

(1) On or prior to March 1, every domestic insurer shall prepare and submit to the commissioner an RBC report for the calendar year just ended.

(2) The RBC report shall be filed in a form and contain information as is required by the RBC instructions.

(3) In addition, every domestic insurer shall file its RBC report with:

(a) The NAIC in accordance with the RBC instructions; and

(b) The insurance commissioner in any state in which the insurer is authorized to do business, if the insurance commissioner has notified the insurer of its request in writing, in which case the insurer shall file its RBC report no later than:

Fifteen (15) days from the receipt of notice to file its RBC report with that state; or
The filing date.

(4) Requirements for life and health insurers:

(a) A life and health insurer's or a fraternal benefit society's RBC shall be determined in accordance with the formula set forth in the RBC instructions.

(b) The formula shall take into account and may adjust for the covariance between the following which are determined in each case by applying the factors in the manner set forth in the RBC instructions:

The risk with respect to the insurer's assets;
The risk of adverse insurance experience with respect to the insurer's liabilities and obligations;
The interest rate risk with respect to the insurer's business; and
All other business risks and other relevant risks as are set forth in the RBC instructions.

(5) Requirements for property and casualty insurers:

(a) A property and casualty insurer's RBC shall be determined in accordance with the formula set forth in the RBC instructions.

(b) The formula shall take into account and may adjust for the covariance between the following which shall be determined in each case by applying the factors in the manner set forth in the RBC instructions:

Asset risk;
Credit risk;
Underwriting risk; and
All other business risk and other relevant risks as are set forth in the RBC instructions.

(6) If a domestic insurer files an RBC report which in the judgment of the commissioner is inaccurate, then the commissioner shall:

(a) Adjust the RBC report to correct the inaccuracy;

(b) Notify the insurer of the adjustment;

(d) Once the RBC report is adjusted, refer to the report as the adjusted RBC report.

Section 4. Company Action Level Event.

(1) A company action level event shall be any of the following events:

(a) The filing of an RBC report by an insurer which indicates that:

The insurer's total adjusted capital is greater than or equal to its regulatory action level RBC but less than its company action level RBC;
If a life or health insurer or a fraternal benefit society, the insurer has:

a. Total adjusted capital which is greater than or equal to its company action level RBC but less than the product of its authorized control level RBC and three (3.0); and

b. A negative trend; or

If a property and casualty insurer, the insurer:

a. Has total adjusted capital which is greater than or equal to its company action level RBC but less than the product of its authorized control level RBC and three (3.0); and

b. Triggers the trend test determined in accordance with the trend test calculation included in the Risk-Based Capital Forecasting & Instructions, Property/Casualty;

(b) The notification by the commissioner to the insurer of an adjusted RBC report that indicates an event in paragraph (a) of this subsection, if the insurer does not challenge the adjusted RBC report under Section 8 of this administrative regulation; or

(c) If, pursuant to Section 8 of this administrative regulation, an insurer challenges an adjusted RBC report that indicates the event in paragraph (a) of this subsection, the notification by the commissioner to the insurer that the commissioner has, after a hearing, rejected the insurer's challenge.

(2) If a company action level event occurs, the insurer shall prepare and submit to the commissioner an RBC plan which shall:

(a) Identify the conditions which contribute to the company action level event;

(b) Propose corrective actions which the insurer intends to take in order to eliminate the company action level event;

(c) Provide projections of the insurer's financial results in the current year and at least the four (4) succeeding years, both in the absence of proposed corrective actions and giving effect to the proposed corrective actions including:

Projections of statutory operating income, net income, capital, or surplus; and
The projections for both new and renewal business may include separate projections for each major line of business and separately identify each significant income, expense, and benefit component;

(d) Identify the key assumptions impacting the insurer's projections and the sensitivity of the projections to the assumptions; and

(e) Identify the quality of the insurer's business and problems associated with the insurer's business, including the following:

Assets;
Anticipated business growth and associated surplus strain;
Exposure to risk;
Mix of business; and
Use of reinsurance.

(3) The RBC plan shall be submitted:

(a) Within forty-five (45) days of the company action level event; or

(b) If the insurer challenges an adjusted RBC report pursuant to Section 8 of this administrative regulation, within forty-five (45) days after notification to the insurer that the commissioner has, after a hearing, rejected the insurer's challenge.

(4) Within sixty (60) days after the submission by an insurer of an RBC plan to the commissioner, the commissioner shall notify the insurer whether the RBC plan shall be implemented or is unsatisfactory.

(5) If the commissioner determines that the RBC plan is unsatisfactory, the notification to the insurer shall set forth the reasons for the determination, and may set forth proposed revisions which will render the RBC plan satisfactory.

(6) Upon notification from the commissioner, the insurer shall prepare a revised RBC plan which may incorporate by reference any revisions proposed by the commissioner, and shall submit the revised RBC plan to the commissioner:

(a) Within forty-five (45) days after the notification from the commissioner; or

(b) If the insurer challenges the notification from the commissioner under Section 8 of this administrative regulation, within forty-five (45) days after a notification to the insurer that the commissioner has, after a hearing, rejected the insurer's challenge.

(7) If there is a notification by the commissioner to an insurer that the insurer's RBC plan or revised RBC plan is unsatisfactory, the commissioner may subject to the insurer's right to a hearing under Section 8 of this administrative regulation, specify in the notification that the notification constitutes a regulatory action level event.

(8) Every domestic insurer that files an RBC plan or revised RBC plan with the commissioner shall file a copy of the RBC plan or revised RBC plan with the insurance commissioner in any state in which the insurer is authorized to do business if:

(a) The state has an RBC provision substantially similar to Section 9(1) of this administrative regulation; and

(b) The insurance commissioner of that state has notified the insurer of its request for the filing in writing.

(9) If the insurer is required by subsection (8) of this section to file an RBC plan or revised RBC plan with another state, then it shall be filed in that state by the latter of the following time periods:

(a) Fifteen (15) days after the receipt of notice to file a copy of its RBC plan or revised RBC plan with the state; or

(b) The date on which the RBC plan or revised RBC plan is filed under subsections (3) and (4) of this section.

Section 5. Regulatory Action Level Event.

(1) A regulatory action level event shall be any of the following events:

(a) The filing of an RBC report by the insurer which indicates that the insurer's total adjusted capital is greater than or equal to its authorized control level RBC but less than its regulatory action level RBC;

(b) The notification by the commissioner to an insurer of an adjusted RBC report that indicates a regulatory action level event, if the insurer does not challenge the adjusted RBC report under Section 8 of this administrative regulation;

(c) If, pursuant to Section 8 of this administrative regulation, the insurer challenges an adjusted RBC report that indicates a regulatory action level event, the notification by the commissioner to the insurer that the commissioner has, after a hearing, rejected the insurer's challenge;

(d) The failure of the insurer to file an RBC report by the filing date, unless the insurer has provided an explanation for that failure and has cured the failure within ten (10) days after the filing date;

(e) The failure of the insurer to submit an RBC plan to the commissioner within the time period set forth in Section 4(3) of this administrative regulation;

(f) Notification by the commissioner to the insurer that:

The RBC plan or revised RBC plan submitted by the insurer is unsatisfactory; and
The notification constitutes a regulatory action level event with respect to the insurer, if the insurer has not challenged the determination under Section 8 of this administrative regulation;

(g) If, pursuant to Section 8 of this administrative regulation, the insurer challenges a determination by the commissioner under subsection (1)(f) of this section, the notification by the commissioner to the insurer that the commissioner has, after a hearing, rejected the challenge;

(h) If the insurer has not challenged the determination under Section 8 of this administrative regulation, notification by the commissioner to the insurer that:

The insurer has failed to adhere to its RBC plan or revised RBC plan; and
The insurer's failure has a substantial adverse effect on the ability of the insurer to eliminate the company action level event in accordance with its RBC plan or revised RBC plan; or

(i) If, pursuant to Section 8 of this administrative regulation, the insurer challenges a determination by the commissioner under paragraph (h) of this subsection, the notification by the commissioner to the insurer that the commissioner has, after a hearing, rejected the challenge.

(2) If a regulatory action level event occurs, the commissioner shall:

(a) Require the insurer to prepare and submit an RBC plan or, if applicable, a revised RBC plan;

(b) Perform an examination or analysis of the assets, liabilities, and operations of the insurer including a review of its RBC plan or revised RBC plan; and

(c) Subsequent to the examination or analysis, issue a corrective order specifying corrective actions as the commissioner shall determine are required.

(3) In determining corrective actions, the commissioner may take into account relevant factors based upon the commissioner's examination or analysis of the assets, liabilities, and operations of the insurer, which shall include the results of any sensitivity tests undertaken pursuant to the RBC instructions.

(4) The RBC plan or revised RBC plan shall be submitted:

(a) Within forty-five (45) days after the occurrence of the regulatory action level event;

(b) If the insurer challenges the adjusted RBC report pursuant to Section 8 of this administrative regulation and the challenge is not frivolous, within forty-five (45) days after the notification to the insurer that the commissioner has, after a hearing, rejected the insurer's challenge; or

(c) If the insurer challenges a revised RBC plan pursuant to Section 8 of this administrative regulation and the challenge is not frivolous, within forty-five (45) days after the notification to the insurer that the commissioner has, after a hearing, rejected the insurer's challenge.

(5) The commissioner may retain actuaries and investment experts and other consultants as may be necessary to:

(a) Review the insurer's RBC plan or revised RBC plan;

(b) Examine or analyze the assets, liabilities, and operations of the insurer; and

(6) The fees, costs, and expenses relating to consultants shall be borne by the affected insurer.

Section 6. Authorized Control Level Event.

(1) An authorized control level event shall be any of the following events:

(a) The filing of an RBC report by the insurer which indicates that the insurer's total adjusted capital is greater than or equal to its mandatory control level RBC but less than its authorized control level RBC;

(b) The notification by the commissioner to the insurer of an adjusted RBC report that indicates an authorized control level event, if the insurer does not challenge the adjusted RBC report under Section 8 of this administrative regulation;

(c) If, pursuant to Section 8 of this administrative regulation, the insurer challenges an adjusted RBC report that indicates an authorized control level event, notification by the commissioner to the insurer that the commissioner has, after a hearing, rejected the insurer's challenge;

(d) The failure of the insurer to respond to a corrective order, if the insurer has not challenged the corrective order under Section 8 of this administrative regulation; or

(e) If the insurer has challenged a corrective order under Section 8 of this administrative regulation and the commissioner has, after a hearing, rejected the challenge or modified the corrective order, the failure of the insurer to respond to the corrective order subsequent to rejection of modification by the commissioner.

(2) If an authorized control level event occurs with respect to an insurer, the commissioner shall:

(a) Take actions as are required under Section 5 of this administrative regulation regarding an insurer to which a regulatory action level event has occurred; or

(b) Take actions as are necessary to cause the insurer to be placed under regulatory control pursuant to KRS Chapter 304, Subtitle 33 if the commissioner determines it to be in the best interest of the policyholders, creditors of the insurer, and public.

(3) The authorized control level event shall be sufficient grounds for the commissioner to take action under KRS Chapter 304, Subtitle 33. If the commissioner takes actions under this section pursuant to an adjusted RBC report, the insurer shall be entitled to the protections afforded to insurers under the provisions of the section pertaining to summary proceedings.

Section 7. Mandatory Control Level Event.

(1) A mandatory control level event shall be any of the following events:

(a) The filing of an RBC report which indicates that the insurer's total adjusted capital is less than its mandatory control level RBC;

(b) Notification by the commissioner to the insurer of an adjusted RBC report that indicates a mandatory control level event, if the insurer does not challenge the adjusted RBC report under Section 8 of this administrative regulation; or

(c) If, pursuant to Section 8 of this administrative regulation, the insurer challenges an adjusted RBC report that indicates a mandatory control level event, notification by the commissioner to the insurer that the commissioner has, after a hearing, rejected the insurer's challenge.

(2) If a mandatory control level event occurs for a life insurer or fraternal benefit society:

(a) The commissioner shall take actions as are necessary pursuant to KRS Chapter 304, Subtitle 33.

(b) If the commissioner takes actions pursuant to an adjusted RBC report, the insurer shall be entitled to the protections of KRS Chapter 304, Subtitle 33 pertaining to summary proceedings.

(c) The commissioner may forego action for up to ninety (90) days after the mandatory control level event if the commissioner finds there is a reasonable expectation that the mandatory control level event may be eliminated within the ninety (90) day period.

(3) If a mandatory control level event occurs for a property and casualty insurer:

(a) The commissioner shall take actions as are necessary pursuant to KRS Chapter 304, Subtitle 33.

(b) If an insurer is writing no business and is running-off its existing business, the commissioner may allow the insurer to continue its run-off under the supervision of the commissioner.

(c) The mandatory control level event shall be sufficient grounds for the commissioner to take action under KRS Chapter 304, Subtitle 33.

(d) If the commissioner takes actions pursuant to an adjusted RBC report, the insurer shall be entitled to the protections of KRS Chapter 304, Subtitle 33 pertaining to summary proceedings.

(e) The commissioner may forego action for up to ninety (90) days after the mandatory control level event if the commissioner finds there is a reasonable expectation that the mandatory control level event may be eliminated within the ninety (90) day period.

Section 8. Hearings.

(1) Upon any of the following notifications, the insurer shall have the right to a confidential hearing at which the insurer may challenge any determination or action by the commissioner:

(a) Notification to an insurer by the commissioner of an adjusted RBC report;

(b) Notification to an insurer by the commissioner that:

The insurer's RBC plan or revised RBC plan is unsatisfactory; and
The notification constitutes a regulatory action level event with respect to the insurer;

The insurer has failed to adhere to its RBC plan or revised RBC plan; and
This failure has a substantial adverse effect on the ability of the insurer to eliminate the company action level event with respect to the insurer in accordance with its RBC plan or revised RBC plan; or

(d) Notification to an insurer by the commissioner of a corrective order.

(2) The insurer shall notify the commissioner of its request for a hearing within five (5) days after the notification by the commissioner under subsection (1) of this section.

(3) Upon receipt of the insurer's request for a hearing, the commissioner shall set a date for the hearing, which shall be no less than ten (10) nor more than thirty (30) days after the date of the insurer's request.

Section 9. Confidentiality; Prohibition on Announcements, Prohibition on Use in Ratemaking.

(1) The following records shall be confidentially disclosed pursuant to the requirements of this administrative regulation and shall be proprietary information that, if disclosed, would create an unfair competitive advantage to competitors and shall be kept confidential by the commissioner:

(a) RBC reports;

(b) RBC plans;

(d) Corrective order.

(2) Comparison of insurer's total adjusted capital to any RBC levels shall be a regulatory tool and shall not be used to rank insurers.

(3) An insurer, agent, broker, or other person engaged in the insurance business shall not disseminate orally or in any manner or cause to be disseminated directly or indirectly to the public an assertion, representation, or statement with regard to RBC levels of any insurer or any component of the calculation.

(4) If a false statement with regard to a comparison of an insurer's total adjusted capital to its RBC levels or an inappropriate comparison is made, and the falsity is substantially proved, an insurer may issue a statement to rebut the false statement.

(5) RBC instructions, RBC reports, adjusted RBC reports, RBC plans, and revised RBC plans:

(a) Shall be used solely by the commissioner in monitoring the solvency of insurers and the need for possible corrective action with respect to insurers;

(b) Shall not be used in rate making or as evidence in rate proceedings; and

(c) Shall not be used by the commissioner to calculate or derive any elements of an appropriate premium level or rate of return for any line of insurance which an insurer or any affiliate is authorized to write.

Section 10. Exemption. The commissioner may exempt from the application of this administrative regulation any domestic property and casualty insurer which:

(1) Writes direct business only in this state;

(2) Writes direct annual premiums of $2,000,000 or less; and

(3) Assumes no reinsurance in excess of five (5) percent of direct premium written.

Section 11. Foreign Insurers.

(1) Any foreign insurer shall, upon the written request of the commissioner, submit to the commissioner an RBC report for the calendar year just ended.

(2) The RBC report of a foreign insurer shall be filed as follows:

(a) On the date an RBC report would be required to be filed by a domestic insurer under this administrative regulation; or

(b) Fifteen (15) days after the request is received by the foreign insurer.

(3) Any foreign insurer shall, at the written request of the commissioner, promptly submit to the commissioner a copy of any RBC plan that is filed with the insurance commissioner of any other state.

(4) The commissioner may require a foreign insurer to file an RBC plan if:

(a) A company action level event, regulatory action level event, or authorized control level event exists as determined by:

RBC law applicable in the insurer's state of domicile; or
This administrative regulation; and

(b) If the insurance commissioner of the insurer's state of domicile fails to require the foreign insurer to file an RBC.

(5) If the commissioner requires the foreign insurer to file an RBC plan pursuant to subsection (4) of this section, the failure of the foreign insurer to file an RBC Plan with the commissioner shall be grounds to order the insurer to cease and desist from writing new insurance business in this state.

(6) If a mandatory control level event with respect to any foreign insurer occurs, and if no domiciliary receiver has been appointed with respect to the foreign insurer under the rehabilitation and liquidation statute applicable in the state of domicile of the foreign insurer:

(a) The commissioner may make application to the Franklin Circuit Court permitted under KRS Chapter 304, Subtitle 33 with respect to the liquidation of property of foreign insurers found in this state; and

(b) The occurrence of the mandatory control level event shall be considered adequate grounds for the application.

Section 12. Notices.

(1) All notices by the commissioner to an insurer which may result in regulatory action pursuant to this administrative regulation shall be effective upon dispatch if transmitted by registered or certified mail.

(2) If notices are transmitted other than by regular or certified mail, they shall be effective upon the insurer's receipt of the notice.

Section 13. Incorporation by Reference.

(1) The following material is incorporated by reference:

(a) "Risk-Based Capital Forecasting & Instructions, Life" (2011);

(b) "Risk-Based Capital Forecasting & Instructions, Property/Casualty" (2011); and

(2) This material may be inspected, copied, or obtained, subject to applicable copyright law, at the Kentucky Department of Insurance, 215 West Main Street, Frankfort, Kentucky 40601, Monday through Friday, 8 a.m. to 4:30 p.m.

History

RELATES TO: KRS 304.3-120, 304.3-140, 304.3-240, 304.5-020, 304.5-030, 304.5-040, 304.5-050, 304.5-060, 304.5-070, 304.5-080, 304.5-110, 304.6, 304.7, 304.24-350, 304.33, 304.49-010
STATUTORY AUTHORITY: KRS 304.2-110, 304.3-125
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.2-110 authorizes the Commissioner of Insurance to promulgate administrative regulations necessary for or as an aid to the effectuation of any provision of the Kentucky Insurance Code, as defined by KRS 304.1-010. KRS 304.3-125 authorizes the commissioner to promulgate administrative regulations addressing requirements for additional capital and surplus based on the kind, type, volume, and nature of insurance business transacted, up to the standards prescribed by the National Association of Insurance Commissioners. This administrative regulation establishes risk-based capital requirements for all insurers authorized to transact insurance business in Kentucky.
History: 23 Ky.R. 4029; Am. 24 Ky.R. 122; eff. 8-11-97; TAm eff. 8-9-2007; 38 Ky.R. 1057; 1333; eff. 2-3-12; 38 Ky.R. 1910; 39 Ky.R. 36; eff. 8-6-2012; Crt eff. 2-26-2020.

806 KAR 3:210 Privacy of consumer financial and health information {#sec-806-kar-3-210 omnilex-key=us-ky-regs-official--title-806--806 KAR 3:210}

Section 1. Definitions.

(1) "Affiliate" means a company that controls, is controlled by, or is under common control with another company.

(2) "Annually" means at least once in a period of twelve (12) consecutive months during which a customer relationship exists.

(3) "Clear and conspicuous" means that a notice is reasonably understandable and designed to call attention to the nature and significance of information in the notice.

(4) "Collect" means to obtain information that the licensee organizes or can retrieve by the name of an individual or by identifying number, symbol, or other identifying particular assigned to the individual, irrespective of the source of the underlying information.

(5) "Commissioner" means the Commissioner of the Kentucky Department of Insurance.

(6) "Company" means a corporation, limited liability company, business trust, general or limited partnership, association, sole proprietorship, or similar organization.

(7) "Consumer":

(a)

Means an individual who seeks to obtain, obtains, or has obtained an insurance product or service from a licensee that is to be used primarily for personal, family, or household purposes, and about whom the licensee has nonpublic personal information; or
Means that individual's legal representative.

(b) Does include:

An individual who provides nonpublic personal information to a licensee in connection with obtaining or seeking to obtain financial, investment, or economic advisory services relating to an insurance product or service, regardless of whether the licensee establishes an ongoing advisory relationship;
An applicant for insurance prior to the inception of insurance coverage; and
An individual subject to disclosure by a licensee of nonpublic personal financial information to a nonaffiliated third party, other than as permitted under Sections 14, 15, and 16 of this administrative regulation, if:

a. The individual is a beneficiary of a life insurance policy underwritten by the licensee;

b. The individual is a claimant under an insurance policy issued by the licensee;

c. The individual is an insured or annuitant under an insurance policy or an annuity issued by the licensee; or

d. The individual is a mortgagor of a mortgage covered under a mortgage insurance policy.

An individual is a consumer of another financial institution and the licensee is acting as agent for, or provides processing or other services to, that financial institution;
An individual is a beneficiary of a trust for which the licensee is a trustee; or
An individual has designated the licensee as trustee for a trust.

(d) Does not mean an individual is a "consumer" solely based on the status listed in subparagraph 2a through c of this paragraph, if:

The licensee provides the initial, annual, and revised notices under Sections 5, 6, and 9 of this administrative regulation to the plan sponsor, group, or blanket insurance policyholder, group annuity contract holder, or workers' compensation plan participant; and
The licensee does not disclose to a nonaffiliated third party nonpublic personal financial information, other than as permitted under Sections 14, 15, and 16 of this administrative regulation, about an individual who is:

a. A participant or a beneficiary of an employee benefit plan that the licensee administers or sponsors or for which the licensee acts as a trustee, insurer, or fiduciary;

b. Covered under a group or blanket life insurance policy or group annuity contract issued by the licensee; or

c. A beneficiary in a workers' compensation plan.

(e) Does mean the individuals described in paragraph (d)2a through c of this subsection are consumers of a licensee if the licensee fails to meet all the conditions of paragraph (d)1 and 2 of this subsection.

(8) "Consumer reporting agency" is defined in 15 U.S.C. 1681a(f) of the federal Fair Credit Reporting Act.

(9) "Continuing relationship":

(a) Means a relationship between a consumer and a licensee if:

The consumer is a current policyholder of an insurance product issued by or through the licensee; or
The consumer obtains financial, investment, or economic advisory services relating to an insurance product or service from the licensee for a fee.

(b) Does not mean that a consumer has a continuing relationship with the licensee if:

The consumer applies for insurance but does not purchase the insurance;
The licensee sells the consumer airline travel insurance in an isolated transaction;
The individual is no longer a current policyholder of an insurance product or no longer obtains insurance services with or through the licensee;
The consumer is a beneficiary or claimant under a policy and has submitted a claim under that policy choosing a settlement option involving an ongoing relationship with the licensee;
The consumer is a beneficiary or claimant under a policy and has submitted a claim under that policy choosing a lump sum settlement option;
The customer's policy has lapsed, expired, or is otherwise inactive or dormant under the licensee's business practices, and the licensee has not communicated with the customer about the relationship for a period of twelve (12) consecutive months, other than annual privacy notices, material required by law or administrative regulation, communication at the direction of a state or federal authority, or promotional materials;
The individual is an insured or an annuitant under an insurance policy or annuity, respectively, but is not the policyholder or owner of the insurance policy or annuity; or
The individual's last known address according to the licensee's records is invalid. An address of record is invalid if mail sent to that address by the licensee is returned by the postal authorities as undeliverable and if subsequent attempts by the licensee to obtain a current valid address for the individual are unsuccessful.

(10) "Control" means:

(a) Ownership, control, or power to vote twenty-five (25) percent or more of the outstanding shares of any class of voting security of the company, or acting through one (1) or more other persons;

(b) Control over the election of a majority of directors, trustees, or general partners, or individuals exercising similar functions of the company; or

(11) "Customer" means a consumer who has a customer relationship with a licensee.

(12) "Customer relationship" means a continuing relationship between a consumer and a licensee under which the licensee provides one (1) or more insurance products or services to the consumer that are to be used primarily for personal, family, or household purposes.

(13)

(a) "Designed to call attention" means that the notice:

Uses a plain-language heading;
Uses a typeface and type size that are easy to read;
Provides wide margins and ample line spacing;
Uses boldface or italics for key words; and
Is in a form that combines the licensee's notice with other information and uses distinctive type size, style, and graphic devices, such as shading or sidebars.

(b) If a licensee provides a notice on an Internet Web page, "designed to call attention" means that the notice uses text or visual cues to encourage scrolling down the page to view the entire notice, if necessary, and ensures that other elements on the Web site do not distract attention from the notice, and the licensee either:

Places the notice on a screen that consumers frequently access, including a page on which transactions are conducted; or
Places a link on a screen that consumers frequently access, including a page on which transactions are conducted, that connects directly to the notice and is labeled appropriately to convey the importance, nature, and relevance of the notice.

(14) "Financial institution":

(a) Means any institution engaging in activities that are financial in nature or incidental to financial activities as described in Section 4(k) of the Bank Holding Company Act of 1956 at 12 U.S.C. 1843(k).

(b) Does not mean:

Any person or entity with respect to any financial activity that is subject to the jurisdiction of the Commodity Futures Trading Commission under 7 U.S.C. 1 to 27f of the Commodity Exchange Act;
The federal Agricultural Mortgage Corporation or any entity charged and operating under 12 U.S.C. 2001-2279cc of the Farm Credit Act of 1971; or
Institutions chartered by U.S. Congress specifically to engage in securitizations, secondary market sales, including sales of servicing rights, or similar transactions related to a transaction of a consumer, as long as the institutions do not sell or transfer nonpublic personal information to a nonaffiliated third party.

(15) "Financial product or service" means:

(a) Any product or service that a financial holding company could offer by engaging in an activity that is financial in nature or incidental to a financial activity described in Section 4(k) of the Bank Holding Company Act of 1956 at 12 U.S.C. 1843(k); and

(b) A financial institution's evaluation or brokerage of information that the financial institution collects in connection with a request or an application from a consumer for a financial product or service.

(16) "Former customer" means an individual with whom a licensee no longer has a continuing relationship.

(17) "Health care" means preventive, diagnostic, therapeutic, rehabilitative, maintenance, or palliative care, services, procedures, tests, or counseling that:

(a) Relates to the physical, mental, or behavioral condition of an individual;

(b) Affects the structure or function of the human body or any part of the human body, including the banking of blood, sperm, organs, or any other tissue; or

(c) Prescribing, dispensing, or furnishing to an individual drugs or biologicals, or medical devices or health care equipment and supplies.

(18) "Health care provider" is defined by KRS 304.17A-005(23).

(19) "Health information" means any information or data except age or gender, whether oral or recorded in any form or medium, created by, or derived from a health care provider or the consumer that relates to:

(a) The past, present, or future physical, mental, or behavioral health or condition of an individual;

(b) The provision of health care to an individual; or

(20) "Insurance product or service" means:

(a) Any product or service that is offered by a licensee, pursuant to KRS Chapter 304: and

(b) A licensee's evaluation, brokerage, or distribution of information that the licensee collects in connection with a request or an application from a consumer for an insurance product or service.

(21) "Joint agreement" means a written contract pursuant to which a licensee and one (1) or more financial institutions jointly offer, endorse, or sponsor a financial product or service.

(22) "Licensee":

(a) Means all insurers holding a certificate of authority, licensed producers, companies, or business entities licensed or required to be licensed, or authorized or required to be authorized, or registered or required to be registered pursuant to the Kentucky Insurance Code, KRS Chapter 304.

(b) Does not mean registered service contract makers as defined in 806 KAR 5:060.

(23) "Necessary to effect, administer, or enforce a transaction" means that the disclosure is:

(a) Required;

(b) Is one (1) of the lawful or appropriate methods, to enforce the licensee's rights or the rights of other persons engaged in carrying out the financial transaction or providing the product or service; or

To carry out the transaction, the product, or the service business of which the transaction is a part, and record, service, or maintain the consumer's account in the ordinary course of providing the insurance product or service;
To administer or service benefits or claims relating to the transaction, product, or service business of which it is a part;
To provide a confirmation, statement, or other record of the transaction, or information on the status or value of the insurance product or service to the consumer or the consumer's agent or broker;
To accrue or recognize incentives or bonuses associated with the transaction that are provided by a licensee or any other party;
To underwrite insurance at the consumer's request or for any of the following purposes as they relate to a consumer's insurance:

a. Account administration;

b. Reporting;

c. Investigating or preventing fraud or material misrepresentation;

d. Processing premium payments;

e. Processing insurance claims;

f. Administering insurance benefits, such as utilization review activities;

g. Participating in research projects; or

h. As otherwise required or specifically permitted by federal or state law; or

In connection with:

a. The authorization, settlement, billing, processing, clearing, transferring, reconciling, or collection of amounts charged, debited, or otherwise paid using a debit, credit, or other payment card, check or account number, or by other payment means;

b. The transfer of receivables, accounts, or interests; or

c. The audit of debit, credit, or other payment information.

(24) "Nonaffiliated third party":

(a) Means any person who is not:

A licensee's affiliate; or
Employed jointly by a licensee and a company that is not the licensee's affiliate.

(b) Includes:

Any company that is an affiliate solely by virtue of the direct or indirect ownership or control of the company by the licensee or its affiliate in conducting merchant banking or investment banking activities of the type described in 12 U.S.C. 1843(k)(4)(H) and (I) of the federal Bank Holding Company Act; and
A company that is not the licensee's affiliate that jointly employs a person who is also employed by the licensee.

(25) "Nonpublic personal financial information":

(a) Means:

Personally-identifiable financial information; and
Any list, description, or other grouping of consumers, and publicly-available information pertaining to them that is derived using personally-identifying financial information that is not publicly available.

(b) Includes any list of individuals' names and street addresses that is derived in whole or in part using personally-identifiable financial information that is not publicly available, such as account numbers.

Health information subject to Section 18 of this administrative regulation;
Publicly-available information, except as included on a list described in paragraph (a)2 or (b) of this subsection; or
Any list, description, or other grouping of consumers and publicly-available information pertaining to them that is derived without using any personally-identifiable financial information that is not:

a. Publicly available, including any list of individuals' names and addresses that contains only publicly-available information;

b. Derived in whole or in part using personally-identifiable financial information that is not publicly available; and

c. Disclosed in a manner that indicates that any of the individuals on the list is a consumer of a financial institution.

(26) "Nonpublic personal health information" means health information:

(a) That identifies an individual who is the subject of the information; or

(b) With a reasonable basis to believe that the information may be used to identify an individual.

(27) "Opt out" means a direction by the consumer that the licensee not disclose nonpublic personal financial information about that consumer to a nonaffiliated third party, other than as permitted by Sections 14, 15, and 16 of this administrative regulation.

(28) "Personally-identifiable financial information":

(a) Means information:

That a consumer provides to a licensee to obtain an insurance product or service from the licensee;
About a consumer resulting from a transaction involving an insurance product or service between a licensee and a consumer; or
That the licensee otherwise obtains about a consumer in connection with providing an insurance product or service to a consumer.

(b) Includes:

Information a consumer provides to a licensee on an application to obtain an insurance product or service;
Account balance information and payment history;
That an individual is or has been one (1) of the licensee's customers or has obtained an insurance product or service from the licensee;
Any information about the licensee's consumer if it is disclosed in a manner that indicates that the individual is or has been the licensee's consumer;
Any information that a consumer provides to a licensee or that the licensee or its agent otherwise obtains in connection with collecting on a loan or servicing a loan;
Any information the licensee collects through an Internet cookie, an information-collecting device from a Web server; and
Information from a consumer report.

Health information subject to Section 18 of this administrative regulation;
A list of names and addresses of customers of an entity that is not a financial institution; and
Information that does not identify a consumer, such as aggregate information or blind data that does not contain personal identifiers such as account numbers, names, or addresses.

(29) "Publicly-available information" means any information that a licensee has a reasonable basis to believe is lawfully made available to the general public from:

(a) Federal, state, or local government records;

(b) Widely-distributed media; or

(30) "Reasonable basis" to believe that information is lawfully made available to the general public means the licensee has taken steps to determine:

(a) That the information is the type that is available to the general public; and

(b) Whether an individual may direct that the information not be made available to the general public and, if so, that the licensee's consumer has not done so.

(31) "Reasonably understandable" means a notice:

(a) Presents the information in the notice in clear, concise sentences, paragraphs, and sections;

(b) Uses short explanatory sentences or bullet lists, if possible;

(d) Avoids multiple negatives;

(e) Avoids legal and highly technical business terminology, if possible; and

(f) Avoids explanations that are imprecise and readily subject to different interpretations.

Section 2. Purpose and Scope. This administrative regulation governs the treatment of nonpublic personal health information and nonpublic personal financial information about individuals by all licensees.

(1) This administrative regulation:

(a) Requires a licensee to provide notice to individuals about its privacy policies and practices;

(b) Describes the conditions under which a licensee may disclose nonpublic personal financial information and nonpublic personal health information about individuals to affiliates and nonaffiliated third parties; and

(2) This administrative regulation applies to:

(a) Nonpublic personal financial information about individuals who obtain or are claimants or beneficiaries of products or services primarily for personal, family, or household purposes from licensees; and

(b) All nonpublic personal health information.

(3) This administrative regulation shall not apply to information about companies or about individuals who obtain products or services for business, commercial or agricultural purposes.

Section 3. Compliance. A licensee domiciled in this state that is in compliance with this administrative regulation in a state that has not enacted laws or regulations that meet the requirements of Title V of the Gramm-Leach-Bliley Act (Pub.L. 102-106) may be found to be in compliance with Title V of the Gramm-Leach-Bliley Act in the other state.

Section 4. Rules of Construction.

(1) The Sample Clauses and Examples, and the Model Privacy Forms and General Instructions in the material incorporated by reference are not exclusive. Compliance with an example, use of a sample clause, or model privacy form, to the extent applicable, shall constitute compliance with this administrative regulation.

(2) Licensees may rely on use of the model privacy form, consistent with the instructions, as a safe harbor compliance with the privacy notice content requirements of this administrative regulation.

(3) The Sample Clauses and Examples contains sample clauses and examples for the following:

(a) Establishment of a customer relationship, referenced in Section 5 of this administrative regulation;

(b) Exceptions to the required Initial Privacy Notices to Consumers, referenced in Section 5 of this administrative regulation;

(d) Customer terminations, referenced in Section 6 of this administrative regulation;

(e) Obtaining privacy notices, referenced in Section 7 of this administrative regulation;

(f) Samples clauses of the notice content required by Section 7 of this administrative regulation; and

(g) Joint consumer opt outs, referenced in Section 8 of this administrative regulation.

(4) Use of the Model Privacy Forms and General Instructions is not required. Licensees may continue to use other types of privacy notices, including notices that contain examples and sample clauses from the Sample Clauses and Examples if the notices accurately describe the licensee's privacy practices and otherwise meet the notice content requirements of this administrative regulation. However, while licensees may continue to use privacy notices that contain examples or sample clauses, licensees may not rely on use of privacy notices with the sample clauses from the Sample Clauses and Examples as a safe harbor of compliance with the notice content requirements of this administrative regulation after July 1, 2019.

Section 5. Initial Privacy Notice to Consumers Required.

(1) Initial notice requirement. A licensee shall provide a clear and conspicuous notice that accurately reflects its privacy policies and practices to a:

(a) Customer. An individual who becomes the licensee's customer, not later than when the licensee establishes a customer relationship, except as provided in subsection (5) of this section; and

(b) Consumer. A consumer, before the licensee discloses any nonpublic personal financial information about the consumer to any nonaffiliated third party, if the licensee makes a disclosure other than as authorized by Sections 15 and 16 of this administrative regulation.

(2) When initial notice to a consumer is not required. A licensee shall not be required to provide an initial notice to a consumer under subsection (1)(b) of this section if:

(a)

The licensee does not disclose any nonpublic personal financial information about the consumer to any nonaffiliated third party, other than as authorized by Sections 15 and 16 of this administrative regulation; and
The licensee does not have a customer relationship with the consumer; or

(b) A notice has been provided by an affiliated licensee, as long as the notice clearly identifies all licensees to whom the notice applies and is accurate with respect to the licensee and the other institutions.

(3) General rule of when the licensee establishes a customer relationship. A licensee establishes a customer relationship when the licensee and the consumer enter into a continuing relationship.

(4) Existing customers. If an existing customer obtains a new insurance product or service from a licensee that is to be used primarily for personal, family or household purposes, the licensee satisfies the initial notice requirements of subsection (1) of this section as follows:

(a) The licensee may provide a revised policy notice, under Section 9 of this administrative regulation, that covers the customer's new insurance product or service; or

(b) If the initial, revised, or annual notice that the licensee most recently provided to that customer was accurate with respect to the new insurance product or service, the licensee shall not be required to provide a new privacy notice under subsection (1) of this section.

(5) Exceptions to allow subsequent delivery of notice. A licensee may provide the initial notice required by subsection (1) of this section within a reasonable time after the licensee establishes a customer relationship if:

(a) Establishing the customer relationship is not at the customer's election; or

(b) Providing notice not later than when the licensee establishes a customer relationship would substantially delay the customer's transaction and the customer agrees to receive the notice at a later time.

(6) Delivery. When a licensee is required to deliver an initial privacy notice by this section, the licensee shall deliver it according to Section 10 of this administrative regulation. If the licensee uses a short-form initial notice for noncustomers according to Section 7(4) of this administrative regulation, the licensee may deliver its privacy notice according to Section 7(4)(c) of this administrative regulation.

Section 6. Annual Privacy Notice to Customers Required.

(1) General rule. Except as provided in subsection (3) of this section, a licensee shall provide a clear and conspicuous notice to customers that accurately reflects its privacy policies and practices not less than annually during the continuation of the customer relationship. A licensee may define the twelve (12) consecutive month period, but the licensee shall apply it to the customer on a consistent basis.

(2) Termination of customer relationship. A licensee shall not be required to provide an annual notice to a former customer.

(3) Exception to annual privacy notice requirement.

(a) A licensee that provides nonpublic personal information to nonaffiliated third parties only in accordance with Sections 14, 15, or 16 of this administrative regulation and has not changed its policies and practices with regard to disclosing nonpublic personal information from the policies and practices that were disclosed in the most recent disclosure sent to consumers in accordance with this section or Section 5 of this administrative regulation shall not be required to provide an annual disclosure under this section.

(b) If a licensee fails to comply with any of the exception criteria described in paragraph (a) of this subsection, the licensee shall be required to provide the annual privacy notice required under subsection (1) of this section.

(4) Delivery. When a licensee is required by this section to deliver an annual privacy notice, the licensee shall deliver it according to Section 10 of this administrative regulation.

Section 7. Information to be Included in Privacy Notices.

(1) General rule. The initial, annual and revised privacy notices that a licensee provides under Sections 5, 6, and 9 of this administrative regulation shall include each of the following items of information, in addition to any other information the licensee wishes to provide, that applies to the licensee and to the consumers to whom the licensee sends its privacy notice:

(a) The categories of nonpublic personal financial information that the licensee collects;

(b) The categories of nonpublic personal financial information that the licensee discloses;

(c) The categories of affiliates and nonaffiliated third parties to whom the licensee discloses nonpublic personal financial information, other than those parties to whom the licensee discloses information under Sections 15 and 16 of this administrative regulation;

(d) The categories of nonpublic personal financial information about the licensee's former customers that the licensee discloses and the categories of affiliates and nonaffiliated third parties to whom the licensee discloses nonpublic personal financial information about the licensee's former customers, other than those parties to whom the licensee discloses information under Sections 15 and 16 of this administrative regulation;

(e) If a licensee discloses nonpublic personal financial information to a nonaffiliated third party under Section 14 of this administrative regulation, and no other exception in Sections 15 and 16 of this administrative regulation applies to that disclosure, a separate description of the categories of information the licensee discloses and the categories of third parties with whom the licensee has contracted;

(f) An explanation of the consumer's right under Section 11 of this administrative regulation to opt out of the disclosure of nonpublic personal financial information to nonaffiliated third parties, including the methods by which the consumer may exercise that right at that time;

(g) Any disclosures that the licensee makes under 15 U.S.C. 1681a(d)(2)(A)(iii) of the federal Fair Credit Reporting Act (that is, notices regarding the ability to opt out of disclosures of information among affiliates);

(h) The licensee's policies and practices with respect to protecting the confidentiality and security of nonpublic personal information; and

(i) Any disclosure that the licensee makes under subsection (2) of this section.

(2) Description of parties subject to exceptions. If a licensee discloses nonpublic personal financial information as authorized under Sections 15 and 16 of this administrative regulation, the licensee shall not be required to list those exceptions in the initial or annual privacy notices required by Sections 5 and 6 of this administrative regulation. If describing the categories of parties to whom disclosure is made, the licensee shall state only that it makes disclosures to other affiliated or nonaffiliated third parties, as applicable, as permitted by law.

(3) Examples.

(a) Categories of nonpublic personal financial information that the licensee collects. A licensee shall satisfy the requirement to categorize the nonpublic personal financial information it collects if the licensee categorizes it according to the source of the information, as applicable:

Information from the consumer;
Information about the consumer's transactions with the licensee or its affiliates;
Information about the consumer's transactions with nonaffiliated third parties; and
Information from a consumer reporting agency.

(b) Categories of nonpublic personal financial information a licensee discloses.

A licensee shall satisfy the requirement to categorize nonpublic personal financial information it discloses if the licensee categorizes the information according to source, as described in subparagraph 3 of this paragraph, as applicable, and provides a few examples to illustrate the types of information in each category. These may include:

a. Information from the consumer, including application information, such as assets and income and identifying information, such as name, address, and Social Security number;

b. Transaction information, such as information about balances, payment history, and parties to the transaction; and

c. Information from consumer reports, such as a consumer's creditworthiness and credit history.

A licensee shall not categorize the information that it discloses by using only general terms, such as transaction information about the consumer.
If a licensee reserves the right to disclose all of the nonpublic personal financial information about consumers that it collects, the licensee may simply state that fact without describing the categories or examples of nonpublic personal information that the licensee discloses.

A licensee shall satisfy the requirement to categorize the affiliates and nonaffiliated third parties to which the licensee discloses nonpublic personal financial information about consumers if the licensee identifies the types of businesses in which they engage.
Types of businesses may be described by general terms only if the licensee uses a few illustrative examples of significant lines of business. For example, a licensee may use the term "financial products or services" if it includes appropriate examples of significant lines of businesses, such as life insurer, automobile insurer, consumer banking, or securities brokerage.
A licensee also may categorize the affiliates and nonaffiliated third parties to which it discloses nonpublic personal financial information about consumers using more detailed categories.
Disclosures under exception for service providers and joint marketers. If a licensee discloses nonpublic personal financial information under the exception in Section 14 of this administrative regulation to a nonaffiliated third party to market products or services that it offers alone or jointly with another financial institution, the licensee shall satisfy the disclosure requirement of subsection (1)(e) of this section if it:

a. Lists the categories of nonpublic personal financial information it discloses, using the same categories and examples the licensee used to meet the requirements of subsection (1)(b) of this section, as applicable; and

b. States whether the third party is a service provider that performs marketing services on the licensee's behalf or on behalf of the licensee and another financial institution; or a financial institution with whom the licensee has a joint marketing agreement.

Simplified notices. If a licensee does not disclose, and does not wish to reserve the right to disclose, nonpublic personal financial information about customers or former customers to affiliates or nonaffiliated third parties except as authorized under Sections 15 and 16 of this administrative regulation, the licensee may simply state that fact, in addition to the information it shall provide under subsections (1)(a), (h), (i), and (2) of this section.
Confidentiality and security. A licensee describes its policies and practices with respect to protecting the confidentiality and security of nonpublic personal financial information if it does both of the following:

a. Describes in general terms who is authorized to have access to the information; and

b. States whether the licensee has security practices and procedures in place to ensure the confidentiality of the information in accordance with the licensee's policy. The licensee shall not be required to describe technical information about the safeguards it uses.

(4) Short-form initial notice with opt-out notice for noncustomers.

(a) A licensee may satisfy the initial notice requirements in Sections 5(1)(b) and 8(3) of this administrative regulation for a consumer who is not a customer by providing a short-form initial notice at the same time as the licensee delivers an opt-out notice as required in Section 8 of this administrative regulation.

(b) A short-form initial notice shall:

Be clear and conspicuous;
State that the licensee's privacy notice is available upon request; and
Explain a reasonable means by which the consumer may obtain that notice.

(c) The licensee shall deliver its short-form initial notice according to Section 10 of this administrative regulation. The licensee is not required to deliver its privacy notice with its short-form initial notice. The licensee instead may simply provide the consumer a reasonable means to obtain its privacy notice. If a consumer who receives the licensee's short-form notice requests the licensee's privacy notice, the licensee shall deliver its privacy notice according to Section 10 of this administrative regulation.

(5) Future disclosures. The licensee's notice may include:

(a) Categories of nonpublic personal financial information that the licensee reserves the right to disclose in the future, but does not currently disclose; and

(b) Categories of affiliates or nonaffiliated third parties to whom the licensee reserves the right in the future to disclose, but to whom the licensee does not currently disclose, nonpublic personal financial information.

Section 8. Form of Opt-out Notice to Consumers and Opt-out Methods.

(1)

(a) Form of opt-out notice. If a licensee is required to provide an opt-out notice under Section 11(1) of this administrative regulation, it shall provide a clear and conspicuous notice to each of its consumers that accurately explains the right to opt out under that section. The notice shall state:

That the licensee discloses or reserves the right to disclose nonpublic personal financial information about its consumer to a nonaffiliated third party;
That the consumer has the right to opt out of that disclosure; and
A reasonable means by which the consumer may exercise the opt-out right.

(b)

Adequate opt-out notice. A licensee provides adequate notice that the consumer can opt out of the disclosure of nonpublic personal financial information to a nonaffiliated third party if the licensee:

a. Identifies all of the categories of nonpublic personal financial information that it discloses or reserves the right to disclose, and all of the categories of nonaffiliated third parties to which the licensee discloses the information, as described in Section 7(1)(b) and (c) of this administrative regulation, and states that the consumer may opt out of the disclosure of that information; and

b. Identifies the insurance products or services that the consumer obtains from the licensee, either singly or jointly, to which the opt-out direction would apply.

Reasonable opt-out means. A licensee provides a reasonable means to exercise an opt-out right if it:

a. Designates check-off boxes in a prominent position on the relevant forms with the opt-out notice;

b. Includes a reply form together with the opt-out notice;

c. Provides an electronic means to opt out, such as a form that can be sent via electronic mail or a process at the licensee's Web site, if the consumer agrees to the electronic delivery of information; or

d. Provides a toll-free telephone number that consumers may call to opt out.

Unreasonable opt-out means. A licensee does not provide a reasonable means of opting out if:

a. The only means of opting out is for the consumer to write his or her own letter to exercise that opt-out right; or

b. The only means of opting out as described in any notice subsequent to the initial notice, is to use a check-off box that the licensee provided with the initial notice but did not include with the subsequent notice.

Specific opt-out means. A licensee may require each consumer to opt out through a specific means, as long as that means is reasonable for that consumer.

(2) Same form as initial notice permitted. A licensee may provide the opt-out notice together with or on the same written or electronic form as the initial notice the licensee provides in accordance with Section 5 of this administrative regulation.

(3) Initial notice required when opt-out notice delivered subsequent to initial notice. If a licensee provides the opt-out notice later than required for the initial notice in accordance with Section 5 of this administrative regulation, the licensee shall also include a copy of the initial notice with the opt-out notice in writing or, if the consumer agrees, electronically.

(4) Joint relationships.

(a) If two (2) or more consumers jointly obtain an insurance product or service from a licensee, the licensee may provide a single opt-out notice. The licensee's opt-out notice shall explain how the licensee will treat an opt-out direction by a joint consumer.

(b) Any of the joint consumers may exercise the right to opt out. The licensee may either:

Treat an opt-out direction by a joint consumer as applying to all of the associated joint consumers; or
Permit each joint consumer to opt out separately.

(c) If a licensee permits each joint consumer to opt out separately, the licensee shall permit one (1) of the joint consumers to opt out on behalf of all of the joint consumers.

(d) A licensee may not require all joint consumers to opt out before it implements any opt-out direction.

(5) Time to comply with opt out. A licensee shall comply with a consumer's opt-out direction as soon as reasonably practicable after the licensee receives it.

(6) Continuing right to opt out. A consumer may exercise the right to opt out at any time.

(7) Duration of consumer's opt-out direction.

(a) A consumer's direction to opt out under this section is effective until the consumer revokes it in writing or, if the consumer agrees, electronically.

(b) When a customer relationship terminates, the customer's opt-out direction continues to apply to the nonpublic personal financial information that the licensee collected during or related to that relationship. If the individual subsequently establishes a new customer relationship with the licensee, the opt-out direction that applied to the former relationship does not apply to the new relationship.

(8) Delivery. When a licensee is required to deliver an opt-out notice by this section, the licensee shall deliver it according to Section 10 of this administrative regulation.

Section 9. Revised Privacy Notices.

(1) General rule. Except as otherwise authorized in this administrative regulation, a licensee shall not, directly or through an affiliate, disclose any nonpublic personal financial information about a consumer to a nonaffiliated third party other than as described in the initial notice that the licensee provided to that consumer under Section 5 of this administrative regulation, unless:

(a) The licensee has provided to the consumer a clear and conspicuous revised notice that accurately describes its policies and practices;

(b) The licensee has provided to the consumer a new opt-out notice;

(c) The licensee has given the consumer a reasonable opportunity, before the licensee discloses the information to the nonaffiliated third party, to opt out of the disclosure; and

(d) The consumer does not opt out.

(2)

(a) Except as otherwise permitted by Sections 14, 15, and 16 of this administrative regulation, a licensee shall provide a revised notice before it:

Discloses a new category of nonpublic personal financial information to any nonaffiliated third party;
Discloses nonpublic personal financial information to a new category of nonaffiliated third party; or
Discloses nonpublic personal financial information about a former customer to a nonaffiliated third party, if that former customer has not had the opportunity to exercise an opt-out right regarding that disclosure.

(b) A revised notice is not required if the licensee discloses nonpublic personal financial information to a new nonaffiliated third party that the licensee adequately described in its prior notice.

Section 10. Delivery.

(1) How to provide notices. A licensee shall provide any notices that this administrative regulation requires so that each consumer may reasonably be expected to receive actual notice in writing or, if the consumer agrees, electronically.

(2)

(a) Illustrations of reasonable expectation of actual notice. A licensee may reasonably expect that a consumer will receive actual notice if the licensee:

Hand-delivers a printed copy of the notice to the consumer;
Mails a printed copy of the notice to the last known address of the consumer separately, or in a policy, billing, or other written communication;
For a consumer who conducts transactions electronically, posts the notice on the electronic site and requires the consumer to acknowledge receipt of the notice as a necessary step to obtaining a particular insurance product or service; or
For an isolated transaction with a consumer, such as the licensee providing an insurance quote or selling the consumer travel insurance, posts the notice and requires the consumer to acknowledge receipt of the notice as a necessary step to obtaining the particular insurance product or service.

(b) Illustrations of unreasonable expectation of actual notice. A licensee shall not reasonably expect that a consumer will receive actual notice of its privacy policies and practices if it:

Only posts a sign in its office or generally publishes advertisements of its privacy policies and practices; or
Sends the notice via electronic mail to a consumer who does not obtain an insurance product or service from the licensee electronically.

(3) Annual notices only. A licensee may reasonably expect that a customer will receive actual notice of the licensee's annual privacy notice if:

(a) The customer uses the licensee's Web site to access insurance products and services electronically and agrees to receive notices at the Web site and the licensee posts its current privacy notice continuously in a clear and conspicuous manner on the Web site; or

(b) The customer has requested that the licensee refrain from sending any information regarding the customer relationship, and the licensee's current privacy notice remains available to the customer upon request.

(4) Oral description of notice insufficient. A licensee may not provide any notice required by this administrative regulation solely by orally explaining the notice, either in person or over the telephone.

(5) Retention or accessibility of notices for customers.

(a) For customers only, a licensee shall provide the initial notice required by Section 5(1)(a) of this administrative regulation, the annual notice required by Section 6(1) of this administrative regulation, and the revised notice required by Section 9 of this administrative regulation so that the customer may retain them or obtain them later in writing or, if the customer agrees, electronically.

(b) Examples of retention or accessibility. A licensee provides a privacy notice to the customer so that the customer may retain it or obtain it later if the licensee:

Hand-delivers a printed copy of the notice to the customer;
Mails a printed copy of the notice to the last known address of the customer; or
Makes its current privacy notice available on a Web site, or a link to another Web site, for the customer who obtains an insurance product or service electronically and agrees to receive the notice at the Web site.

(6) Joint notice with other financial institutions. A licensee may provide a joint notice from the licensee and one (1) or more of its affiliates or other financial institutions, as identified in the notice, as long as the notice is accurate with respect to the licensee and the other institutions. A licensee also may provide a notice on behalf of another financial institution.

(7) Joint relationships. If two (2) or more consumers jointly obtain an insurance product or service from a licensee, the licensee may satisfy the initial, annual, and revised notice requirements of Sections 5(1), 6(1), and 9 of this administrative regulation, respectively, by providing one (1) notice to those consumers jointly.

Section 11. Limits on Disclosure of Nonpublic Personal Financial Information to Nonaffiliated Third Parties.

(1)

(a) Conditions for disclosure. Except as otherwise authorized in this administrative regulation, a licensee may not, directly or through any affiliate, disclose any nonpublic personal financial information about a consumer to a nonaffiliated third party unless:

The licensee has provided to the consumer an initial notice as required under Section 5 of this administrative regulation;
The licensee has provided to the consumer an opt-out notice as required in Section 8 of this administrative regulation;
The licensee has given the consumer a reasonable opportunity, before it discloses the information to the nonaffiliated third party, to opt out of the disclosure; and
The consumer does not opt out.

(b) A licensee provides a consumer with a reasonable opportunity to opt out if:

By mail. The licensee mails the notices required in subsection (1)(a) of this section to the consumer and allows the consumer to opt out by mailing a form, calling a toll-free telephone number, or any other reasonable means within thirty (30) days from the date the licensee mailed the notices.
By electronic means. A customer opens an on-line account with a licensee and agrees to receive the notices required in subsection (1)(a) of this section electronically, and the licensee allows the customer to opt out by any reasonable means within thirty (30) days after the date that the customer acknowledges receipt of the notices in conjunction with opening the account.
Isolated transaction with consumer. For an isolated transaction such as providing the consumer with an insurance quote, a licensee provides the consumer with a reasonable opportunity to opt out if the licensee provides the notices required in subsection (1)(a) of this section at the time of the transaction and requests that the consumer decide, as a necessary part of the transaction, whether to opt out before completing the transaction.

(2) Application of opt out to all consumers and all nonpublic personal financial information.

(a) A licensee shall comply with this section, regardless of whether the licensee and the consumer have established a customer relationship.

(b) Unless a licensee complies with this section, the licensee shall not, directly or through any affiliate, disclose any nonpublic personal financial information about a consumer that the licensee has collected, regardless of whether the licensee collected it before or after receiving the direction to opt out from the consumer.

(3) Partial opt out. A licensee may allow a consumer to select certain nonpublic personal financial information or certain nonaffiliated third parties with respect to which the consumer wishes to opt out.

Section 12. Limits on Redisclosure and Reuse of Nonpublic Personal Financial Information.

(1)

(a) Information the licensee receives under an exception. If a licensee receives nonpublic personal financial information from a nonaffiliated financial institution under an exception in Section 15 or 16 of this administrative regulation, the licensee's disclosure and use of that information shall be limited as follows:

The licensee may disclose the information to the affiliates of the financial institution from which the licensee received the information;
The licensee may disclose the information to its affiliates, but the licensee's affiliates may, in turn, disclose and use the information only to the extent that the licensee may disclose and use the information; and
The licensee may disclose and use the information in the ordinary course of business to carry out the activity covered by the exception under which the licensee received the information.

(b) If a licensee receives information from a nonaffiliated financial institution for claims settlement purposes, the licensee shall disclose the information for fraud prevention, or in response to a properly authorized subpoena. The licensee may not disclose that information to a third party for marketing purposes or use that information for its own marketing purposes.

(2)

(a) Information a licensee receives outside of an exception. If a licensee receives nonpublic personal financial information from a nonaffiliated financial institution other than under an exception in Section 15 or 16 of this administrative regulation, the licensee may disclose the information only:

To the affiliates of the financial institution from which the licensee received the information;
To its affiliates, but its affiliates may, in turn, disclose the information only to the extent that the licensee may disclose the information; and
To any other person, if the disclosure would be lawful if made directly to that person by the financial institution from which the licensee received the information.

(b) If a licensee obtains a customer list from a nonaffiliated financial institution outside of the exceptions in Section 15 or 16 of this administrative regulation:

The licensee may use that list for its own purposes; and
The licensee may disclose that list to another nonaffiliated third party only if the financial institution from which the licensee purchased the list may have lawfully disclosed the list to that third party. The licensee may disclose the list in accordance with the privacy policy of the financial institution from which the licensee received the list, as limited by the opt-out direction of each consumer whose nonpublic personal financial information the licensee intends to disclose, and the licensee may disclose the list in accordance with an exception in Section 15 or 16 of this administrative regulation, such as to the licensee's attorneys or accountants.

(3) Information a licensee discloses under an exception. If a licensee discloses nonpublic personal financial information to a nonaffiliated third party under an exception in Section 15 or 16 of this administrative regulation, the third party may disclose and use that information only as follows:

(a) The third party may disclose the information to the licensee's affiliates;

(b) The third party may disclose the information to its affiliates, but its affiliates may, in turn, disclose and use the information only to the extent that the third party may disclose and use the information; and

(c) The third party may disclose and use the information pursuant to an exception in Section 15 or 16 of this administrative regulation in the ordinary course of business to carry out the activity covered by the exception under which it received the information.

(4) Information a licensee discloses outside of an exception. If a licensee discloses nonpublic personal financial information to a nonaffiliated third party other than under an exception in Section 15 or 16 of this administrative regulation, the third party may disclose the information only:

(a) To the licensee's affiliates;

(b) To the third party's affiliates, but the third party's affiliates, in turn, may disclose the information only to the extent the third party can disclose the information; and

Section 13. Limits on Sharing Account Number Information for Marketing Purposes.

(1) General prohibition on disclosure of account numbers. A licensee shall not, directly or through an affiliate, disclose, other than to a consumer reporting agency, a policy number or similar form of access number or access code for a consumer's policy or transaction account to any nonaffiliated third party for use in telemarketing, direct mail marketing, or other marketing through electronic mail to the consumer.

(2) Exceptions. Subsection (1) of this section shall not apply if a licensee discloses a policy number or similar form of access number or access code:

(a) To the licensee's service provider solely in order to perform marketing for the licensee's own products or services, as long as the service provider is not authorized to directly initiate charges to the account;

(b) To a licensee who is a producer solely in order to perform marketing for the licensee's own products or services; or

(c) To a participant in an affinity or similar program where the participants in the program are identified to the customer when the customer enters into the program.

(3)

(a) A policy number, or similar form of access number or access code, does not include a number or code in an encrypted form, as long as the licensee does not provide the recipient with a means to decode the number or code.

(b) For the purposes of this section, a policy or transaction account is an account other than a deposit account or a credit card account. A policy or transaction account does not include an account to which third parties cannot initiate charges.

Section 14. Exception to Opt-out Requirements for Disclosure of Nonpublic Personal Financial Information for Service Providers and Joint Marketing.

(1) General rule.

(a) The opt-out requirements in Sections 8 and 11 of this administrative regulation shall not apply when a licensee provides nonpublic personal financial information to a nonaffiliated third party to perform services for the licensee or functions on the licensee's behalf, if the licensee:

Provides the initial notice in accordance with Section 5 of this administrative regulation; and
Enters into a contractual agreement with the third party that prohibits the third party from disclosing or using the information other than to carry out the purposes for which the licensee disclosed the information, including use under an exception in Section 15 or 16 of this administrative regulation in the ordinary course of business to carry out those purposes.

(b) If a licensee discloses nonpublic personal financial information under this section to a financial institution with which the licensee performs joint marketing, the licensee's contractual agreement with that institution shall meet the requirements of paragraph (a)2 of this subsection if:

It prohibits the institution from disclosing or using the nonpublic personal financial information except as necessary to carry out the joint marketing; or
Is under an exception in Section 15 or 16 of this administrative regulation in the ordinary course of business to carry out that joint marketing.

(2) Service may include joint marketing. The services a nonaffiliated third party performs for a licensee under subsection (1) of this section may include marketing of the licensee's own products or services or marketing of financial products or services offered pursuant to joint agreements between the licensee and one (1) or more financial institutions.

Section 15. Exceptions to Notice and Opt-out Requirements for Disclosure of Nonpublic Personal Financial Information for Processing and Servicing Transactions. Exceptions for processing transactions at consumer's request. The requirements for initial notice in Section 5(1)(b) of this administrative regulation, the opt out in Sections 8 and 11 of this administrative regulation, and for the service providers and joint marketing in Section 14 of this administrative regulation shall not apply if the licensee discloses nonpublic personal financial information as necessary to effect, administer, or enforce a transaction that a consumer requests or authorizes, or in connection with:

(1) Servicing or processing an insurance product or service that a consumer requests or authorizes;

(2) Maintaining or servicing the consumer's account with a licensee, or with another entity as part of a private label credit card program or other extension of credit on behalf of such entity;

(3) A proposed or actual securitization, secondary market sale, including sales of servicing rights, or similar transaction related to a transaction of the consumer; or

(4) Reinsurance or stop loss or excess loss insurance.

Section 16. Other Exceptions to Notice and Opt-out Requirements for Disclosure of Nonpublic Personal Financial Information.

(1) Exceptions to opt-out requirements. The requirements for initial notice to consumers in Section 5(1)(b) of this administrative regulation, the opt out in Sections 8 and 11 of this administrative regulation, and for the service providers and joint marketing in Section 14 of this administrative regulation shall not apply if a licensee discloses nonpublic personal financial information:

(a) With the consent or at the direction of the consumer, if the consumer has not revoked the consent or direction;

(b)

To protect the confidentiality or security of a licensee's records pertaining to the consumer, service, product, or transaction;
To protect against or prevent actual or potential fraud or unauthorized transactions;
For required institutional risk control or for resolving consumer disputes or inquiries;
To persons holding a legal or beneficial interest relating to the consumer; or
To persons acting in a fiduciary or representative capacity on behalf of the consumer;

(c) To provide information to insurance rate advisory organizations, guaranty funds or agencies, agencies that are rating a licensee, persons that are assessing the licensee's compliance with industry standards, and the licensee's attorneys, accountants, and auditors;

(d) To the extent specifically permitted or required under other provisions of law and in accordance with the federal Right to Financial Privacy Act of 1978, 12 U.S.C. 3401 to 3422, to law enforcement agencies, including the Federal Reserve Board, Office of the Comptroller of the Currency, Federal Deposit Insurance Corporation, Office of Thrift Supervision, National Credit Union Administration, the Securities and Exchange Commission, the Secretary of the Treasury, with respect to 31 U.S.C. 5311 to 5330, Records and Reports on Monetary Instruments and Transactions, and 12 U.S.C. 1951 to 1959, Financial Recordkeeping, a state insurance authority, and the Federal Trade Commission, self-regulatory organizations or for an investigation on a matter related to public safety;

(e)

To a consumer reporting agency in accordance with the federal Fair Credit Reporting Act, 15 U.S.C. 1681 to 1681u; or
From a consumer report reported by a consumer reporting agency;

(f) In connection with a proposed or actual sale, merger, transfer, or exchange of all or a portion of a business or operating unit if the disclosure of nonpublic personal financial information concerns solely consumers of the business or unit;

(g)

To comply with federal, state or local laws, rules and other applicable legal requirements;
To comply with a properly authorized civil, criminal or regulatory investigation, or subpoena or summons by federal, state or local authorities;
To respond to judicial process or government regulatory authorities having jurisdiction over a licensee for examination, compliance or other purposes as authorized by law; or
For purposes related to the replacement of a group benefit plan, a group health plan, a group welfare plan or a workers' compensation plan.

(2) Revocation of consent. A consumer may revoke consent by subsequently exercising the right to opt out of future disclosures of nonpublic personal information as permitted under Section 8(6) of this administrative regulation.

(3) Licensees in liquidation or rehabilitation according to KRS Chapter 304.33 shall be exempt from the notice provisions of this administrative regulation.

Section 17. Privacy Notices to Group Policyholders. Unless a licensee is providing privacy notices directly to covered individuals described in Section 22 of this administrative regulation, a licensee shall provide initial, annual, and revised notices to the plan sponsor, group or blanket insurance policyholder or group annuity contractholder, or workers' compensation policyholder, in the manner described in Sections 5 through 10 of this administrative regulation, describing the licensee's privacy practices with respect to nonpublic personal information about individuals covered under the policies, contracts, or plans.

Section 18. When Authorization Required for Disclosure of Nonpublic Personal Health Information.

(1) A licensee shall not disclose nonpublic personal health information about a consumer or customer unless an authorization is obtained from the consumer or customer about whom such information is sought to be disclosed.

(2) Nothing in this section shall prohibit, restrict or require an authorization for the disclosure of such information by a licensee for the performance of the following insurance functions by or on behalf of the licensee: claims administration; claims adjustment and management; detection, investigation or reporting of actual or potential fraud; misrepresentation or criminal activity; underwriting; policy placement or issuance; loss control; ratemaking and guaranty fund function; reinsurance and excess loss insurance; risk management; case management; disease management; quality assurance; quality improvement; performance evaluation; provider credentialing verification; utilization review; peer review activities; actuarial, scientific, medical or public policy research; grievance procedures; internal administration of compliance, managerial, and information systems; policyholder service function; auditing; reporting; database security; administration of consumer disputes and inquiries; external accreditation standards; the replacement of a group benefit plan or workers' compensation policy or program; activities in connection with a sale, merger, transfer, or exchange of all or part of a business or operating unit; any activity that permits disclosure without authorization pursuant to the federal Health Insurance Portability and Accountability Act privacy rule which is promulgated by the U.S. Department of Health and Human Services at 45 C.F.R. 160 to 164; disclosure that is required, or is one (1) of the lawful or appropriate methods, to enforce the licensee's rights or the rights of other persons engaged in carrying out a transaction or providing a product or service that a consumer requests or authorizes; and any activity otherwise permitted by law, required pursuant to governmental reporting authority, or to comply with legal process.

(3) Additional insurance functions may be added with the approval of the commissioner to the extent they are necessary for appropriate performance of insurance functions and are fair and reasonable to the interest of consumers.

Section 19. Authorizations.

(1) A valid authorization to disclose nonpublic personal health information pursuant to Section 18 of this administrative regulation shall be in written or electronic form and shall contain the following:

(a) The identity of the consumer or customer who is the subject of the nonpublic personal health information;

(b) A general description of the types of information to be disclosed;

(c) General descriptions of the parties to whom disclosure shall be made, the purpose of the disclosure, and how the information will be used;

(d) The signature of the affected consumer or customer or the individual who is legally empowered to grant authority and the date signed;

(e) Notice of the length of time for which the authorization is valid, not to exceed twenty-four (24) months; and

(f) Notice that the consumer or customer may revoke the authorization at any time and the procedure for making a revocation.

(2) A consumer or customer who is subject of nonpublic personal health information may revoke an authorization provided pursuant to this section at any time, subject to the rights of an individual who acted in reliance on the authorization prior to notice of the revocation.

(3) A licensee shall retain the authorization or copy thereof in the record of the affected individual.

Section 20. Authorization Request Delivery. A request for authorization and an authorization form may be delivered to a consumer or customer as part of an opt-out notice pursuant to Section 10 of this administrative regulation, provided that the request and the authorization form are clear and conspicuous. An authorization form is not required to be delivered to the consumer or customer or included in any other notices unless the licensee intends to disclose protected health information pursuant to Section 18(1) of this administrative regulation.

Section 21. Relationship to Federal Rules. Regardless of whether a licensee is subject to the federal Health Insurance Portability and Accountability Act ("HIPAA") privacy rule as promulgated by the U.S. Department of Health and Human Services at 45 C.F.R. 160 to 164, if a licensee complies with all requirements of 45 C.F.R. 160 to 164, the licensee shall not be subject to Sections 18, 19, and 20 of this administrative regulation.

Section 22. Nondiscrimination and Exemption from Notice and Opt Out Requirements.

(1) A licensee shall not unfairly discriminate against any consumer or customer because that consumer or customer has opted out from the disclosure or has not granted authorization for the disclosure of his or her nonpublic personal financial information pursuant to the provisions of this administrative regulation.

(2) A licensee shall not be subject to the notice and opt-out requirements for nonpublic personal financial information established in this administrative regulation if:

(a) The licensee is an employee, agent, or other representative of another licensee, "the principal";

(b) The principal otherwise complies with, and provides the notices required by, the provisions of this administrative regulation; and

(c) The licensee does not disclose any nonpublic personal financial information to any person other than the principal or its affiliates in a manner permitted by this administrative regulation.

(3) Pursuant to subsection (2) of this section, "licensee" shall also include an unauthorized insurer that accepts business placed through a licensed surplus broker in Kentucky, but only for the surplus lines placements placed pursuant to KRS 304.10.

(4) A surplus lines broker or surplus lines insurer shall be in compliance with the notice and opt-out requirements for nonpublic personal financial information established in this administrative regulation if:

(a) The broker or insurer does not disclose nonpublic personal information of a consumer or a customer to nonaffiliated third parties for any purpose, including joint servicing or marketing under Section 14 of this administrative regulation, except as permitted by Section 15 or 16 of this administrative regulation; and

(b) The broker or insurer delivers a notice to a consumer when a customer relationship is established on which the following is printed in sixteen (16) point type: "PRIVACY NOTICE - NEITHER THE U.S. BROKERS THAT HANDLED THIS INSURANCE NOR THE INSURERS THAT HAVE UNDERWRITTEN THIS INSURANCE WILL DISCLOSE NONPUBLIC PERSONAL INFORMATION CONCERNING THE BUYER TO NONAFFILIATES OF THE BROKERS OR INSURERS EXCEPT AS PERMITTED BY LAW."

Section 23. Violation. A violation of this administrative regulation shall constitute an unfair trade practice in the business of insurance and shall subject the licensee to a civil penalty authorized by KRS 304.99-020.

Section 24. Incorporation by Reference.

(1) The following material is incorporated by reference:

(a) PVCY-01, "Sample Clauses and Examples", (Edition 11/01); and

(b) "Model Privacy Forms & General Instructions", May 2017.

History

RELATES TO: KRS 304.2-105, 15 U.S.C. 6801-6809, the Gramm-Leach-Bliley Act
STATUTORY AUTHORITY: KRS 304.2-105, 304.2-110, 304.17A-609, 304.17A.846, 15 U.S.C. 6801(b), 6805, the Gramm-Leach-Bliley Act
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.2-110 provides that the commissioner of the Department of Insurance may make reasonable rules and administrative regulations necessary for or as an aid to the effectuation of any provisions of the Kentucky Insurance Code. The Gramm-Leach-Bliley Act, 15 U.S.C. 6801(b) and 6805, requires state insurance commissioners to establish standards for insurers, agencies, and agents to safeguard the security and confidentiality of consumer records and information. 15 U.S.C. 6801 to 6809 applies to financial institutions engaging in financial activities such as "Insuring, guaranteeing, or indemnifying against loss, harm, damage, illness, disability, or death, or providing and issuing annuities, and acting as principal, agent, or broker for the purpose of the foregoing, in any State." This administrative regulation extends the application to protect individuals "who obtain or are claimants or beneficiaries of products or services primarily for personal, family, or household purposes from licensees," in harmony with the federal regulations. This stricter standard will hold all Kentucky licensees to the same standard, protect the privacy of Kentucky citizens, and promote uniformity of state insurance administrative regulations across state borders because this administrative regulation is based on a national model adopted by the National Association of Insurance Commissioners. Although federal law does not prohibit financial institutions from discriminating against individuals who have used their right to opt out or refused to grant authorization to disclose nonpublic personal financial information, this administrative regulation protects Kentucky citizens from discrimination. This administrative regulation establishes security requirements for an insurer's, agency's, or agent's use of consumers' financial and health information.
History: 28 Ky.R. 1523; Am. 1828; eff. 2-11-2002; TAm eff. 8-9-2007; 44 Ky.R. 350, 744, 938; eff. 12-1-2017; Crt eff. 3-21-2023.

806 KAR 3:230 Standards for safeguarding customer information {#sec-806-kar-3-230 omnilex-key=us-ky-regs-official--title-806--806 KAR 3:230}

Section 1. Definitions.

(1) "Consumer" means an individual who seeks to obtain, obtains, or has obtained an insurance product or service from a licensee that is to be used primarily for personal, family, or household purposes, and about whom the licensee has nonpublic personal information; or that individual's legal representative.

(2) "Customer" means a consumer who has a customer relationship with a licensee.

(3) "Customer information" means nonpublic personal information about a customer, whether in paper, electronic or other form, that is maintained by or on behalf of the licensee.

(4) "Customer relationship" means a continuing relationship between a consumer and a licensee under which the licensee provides one (1) or more insurance products or services to the consumer that are to be used primarily for personal, family, or household purposes.

(5) "Licensee" means all insurers holding a certificate of authority, licensed producers, companies, or business entities licensed or required to be licensed, or authorized or required to be authorized, or registered, excluding service contract makers, or required to be registered pursuant to the Kentucky Insurance Code.

Section 2. Information Security Program. Each licensee shall implement a comprehensive written information security program that includes administrative, technical, and physical safeguards for the protection of customer information. The administrative, technical, and physical safeguards included in the information security program shall be appropriate to the size and complexity of the licensee and the nature and scope of its activities.

Section 3. Objectives of Information Security Program. A licensee's information security program shall be designed to:

(1) Ensure the security and confidentiality of customer information;

(2) Protect against any anticipated threats or hazards to the security or integrity of the information; and

(3) Protect against unauthorized access to or use of the information that may result in substantial harm or inconvenience to any customer.

Section 4. Determined Violation. A violation of this administrative regulation may constitute an unfair trade practice in the business of insurance and shall subject the licensee to a civil penalty authorized by KRS 304.99-020.

History

RELATES TO: KRS 304.12-010, 304.12-130, 304.99-020, 15 U.S.C. 6801, 6805(b), 6807
STATUTORY AUTHORITY: KRS 304.2-110(1), 15 U.S.C. 6801(b)
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.2-110(1) authorizes the commissioner to promulgate reasonable administrative regulations necessary for or as an aid to the effectuation of any provision of the Kentucky Insurance Code. The Gramm-Leach-Bliley Act codified in 15 U.S.C. 6801(b) requires the state insurance regulatory authorities to establish appropriate standards relating to administrative, technical, and physical safeguards: (1) to ensure the security and confidentiality of customer records and information; (2) to protect against any anticipated threats or hazards to the security or integrity of these records; and (3) to protect against unauthorized access to or use of records or information that could result in substantial harm or inconvenience to a customer. This administrative regulation establishes the appropriate standards for licensees of the Department of Insurance to safeguard customer information.
History: 30 Ky.R. 774; 1308; 1517; eff. 1-5-2004; TAm eff. 8-9-2007; Crt eff. 2-28-2020; 46 Ky.R. 1364; 2079; 2589; eff. 4-1-2020.

806 KAR 3:240 Corporate governance annual disclosure {#sec-806-kar-3-240 omnilex-key=us-ky-regs-official--title-806--806 KAR 3:240}

Section 1. Definitions.

(1) "Corporate Governance Annual Disclosure" or "CGAD" is defined by KRS 304.3-235(1)(c).

(2) "Insurance group" is defined by KRS 301.3-235(1)(a).

(3) "Insurer" is defined by KRS 304.37-010(7).

(4) "Senior Management" means any corporate officer responsible for reporting information to the board of directors at regular intervals or providing this information to shareholders or regulators, such as the Chief Executive Officer ("CEO"), Chief Financial Officer ("CFO"), Chief Operations Officer ("COO"), Chief Procurement Officer ("CPO"), Chief Legal Officer ("CLO"), Chief Information Officer ("CIO"), Chief Technology Officer ("CTO"), Chief Revenue Officer ("CRO"), Chief Visionary Officer ("CVO"), or any other "C" level executive.

Section 2. Filing Procedures.

(1) The Corporate Governance Annual Disclosure form or CGAD form shall be filed by June 1 of each calendar year in accordance with the provisions of KRS 304.3-235(3) through (6).

(2) If the CGAD is completed at the insurance group level, then it shall be filed with the lead state of the group as determined by the procedures outlined in the most recent Financial Analysis Handbook adopted by the NAIC, which is available at www.naic.org. In these instances, a copy of the CGAD shall also be provided to the chief regulatory official of any state in which the insurance group has a domestic insurer, upon request.

Section 3. Contents of Corporate Governance Annual Disclosure.

(1) The CGAD description of the governance framework and structure required by KRS 304.3-235(5) shall include the following considerations: (a)

(a) The board and various committees thereof ultimately responsible for overseeing the insurer or insurance group and the level at which that oversight occurs. The insurer or insurance group shall describe and discuss the rationale for the current board size and structure; and

(b) The duties of the board and each of its significant committees and how they are governed, as well as how the board's leadership is structured, including a discussion of the roles of chief executive officer and chairman of the board within the organization.

(2) In accordance with KRS 304.3-235(5)(a)4., the description of the policies and practices of the most senior governing entity and significant committees shall include a discussion of the following factors:

(a) How the qualifications, expertise and experience of each board member meet the needs of the insurer or insurance group.

(b) How an appropriate amount of independence is maintained on the board and its significant committees.

(c) The number of meetings held by the board and its significant committees over the past year as well as information on director attendance.

(d) How the insurer or insurance group identifies, nominates, and elects members to the board and its committees. The discussion should include, for example:

Whether a nomination committee is in place to identify and select individuals for consideration;
Whether term limits are placed on directors;
How the election and re-election processes function; and
Whether a board diversity policy is in place and if so, how it functions.

(e) The processes in place for the board to evaluate its performance and the performance of its committees, as well as any recent measures taken to improve performance,including any board or committee training programs that have been put in place.

(3) The insurer or insurance group shall describe the policies and practices for directing senior management, including a description of the following factors:

(a) Any processes or practices (i.e., suitability standards) to determine whether officers and key persons in control functions have the appropriate background, experience and integrity to fulfill their prospective roles, including:

Identification of the specific positions for which suitability standards have been developed and a description of the standards employed; and
Any changes in an officer's or key person's suitability as outlined by the insurer's or insurance group's standards and procedures to monitor and evaluate these changes.

(b) The insurer's or insurance group's code of business conduct and ethics, the discussion of which considers, for example:

Compliance with laws, rules, and administrative regulations; and
Proactive reporting of any illegal or unethical behavior.

(c) The insurer's or insurance group's processes for performance evaluation, compensation, and corrective action to ensure effective senior management throughout the organization, including a description of the general objectives of significant compensation programs and what the programs are designed to reward. The description shall include sufficient detail to allow the commissioner to understand how the organization ensures that compensation programs do not encourage or reward excessive risk taking. Elements to be discussed may include, for example:

The board's role in overseeing management compensation programs and practices;
The various elements of compensation awarded in the insurer's or insurance group's compensation programs and how the insurer or insurance group determines and calculates the amount of each element of compensation paid;
How compensation programs are related to both company and individual performance over time;
Whether compensation programs include risk adjustments and how those adjustments are incorporated into the programs for employees at different levels;
Any clawback provisions built into the programs to recover awards or payments if the performance measures upon which they are based are restated or otherwise adjusted; and
Any other factors relevant in understanding how the insurer or insurance group monitors its compensation policies to determine whether its risk management objectives are met by incentivizing its employees.

(d) The insurer's or insurance group's plans for CEO and senior management succession.

(4) The description of processes required by KRS 304.3-235(5)(a)4.c. shall include a discussion of:

(a) How oversight and management responsibilities are delegated between the board, its committees, and senior management;

(b) How the board is kept informed of the insurer's strategic plans, the associated risks, and steps that Senior Management is taking to monitor and manage those risks;

(c) How reporting responsibilities are organized for each critical risk area. The description should allow the commissioner to understand the frequency at which information on each critical risk area is reported to and reviewed by senior management and the board. This description may include, for example, the following critical risk areas of the insurer:

Risk management processes, for example, an ORSA Summary Report filer may refer to its ORSA Summary Report pursuant to the Risk Management and Own Risk and Solvency Assessment Model Act, NAIC model law III-505;
Actuarial function;
Investment decision-making processes;
Reinsurance decision-making processes;
Business strategy or finance decision-making processes;
Compliance function;
Financial reporting or internal auditing; and
Market conduct decision-making processes.

Section 4. Incorporation by Reference.

(1) "Corporate Governance Annual Disclosure", 07/19, is incorporated by reference.

History

RELATES TO: KRS 304.3-235
STATUTORY AUTHORITY: KRS 304.2-110
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.2-110 authorizes the commissioner of the Department of Insurance to make reasonable rules and administrative regulations necessary for or as an aid to the effectuation of any provision of the Kentucky Insurance Code, as defined in KRS 304.1-010. KRS 304.3-235 requires insurers and insurance groups to file a corporate governance annual disclosure form. This administrative regulation provides specific details on the contents of the required disclosure and incorporates a form to be utilized by reporting entities to permit efficiency in the review and submission.
History: 46 Ky.R. 296, 919, eff. 10-4-2019.

806 KAR 3:250 Cybersecurity reporting procedures {#sec-806-kar-3-250 omnilex-key=us-ky-regs-official--title-806--806 KAR 3:250}

Section 1. Definitions.

(1) "Cybersecurity Event" is defined by KRS 304.3-750(2).

(2) "Information security program" is defined by KRS 304.3-750(4).

(3) "Licensee" is defined by KRS 304.3-750(6).

(4) "eServices" means a secured electronic database developed and managed by the Department of Insurance that houses a registration of public and nonpublic information of licensees.

Section 2. Compliance and Exemption Reporting.

(1) A licensee who is domiciled in this state and is not exempt from the requirements of KRS 304.3-750 through KRS 304.3-768 pursuant to KRS 304.3-752, or deemed in compliance with KRS 304.3-750 through 304.3-768 pursuant to KRS 304.3-766, shall file a Cybersecurity Compliance Attestation Form with the department by February 15th of each year, attesting that the licensee has conducted all necessary risk assessments to fully develop an information security program and is currently implementing and executing that information security program as established in KRS 304.3-756.

(2) A licensee who is deemed compliant under KRS 304.3-766, shall file a Cybersecurity Exemption Compliance Form with the department by February 15th of each year, attesting to their compliance with the Health Insurance Portability and Accountability Act of 1996, 45 C.F.R. Parts 160 and 164, or the Gramm-Leach-Bliley Act of 1999, 15 U.S.C. 6801 and 6805.

(3) The Cybersecurity Compliance Attestation Form and the Cybersecurity Exemption Compliance Form shall be filed electronically through the licensees' eServices account on the department's secure Web site: https://insurance.ky.gov/doieservices/UserRole.aspx.

Section 3. Reporting a Cybersecurity Event.

(1) If a licensee who is domiciled in Kentucky and is not exempt under KRS 304.3-752, reasonably believes that a cybersecurity event has occurred that meets a qualification established in KRS 304.3-760(1)(a) or (b), the licensee shall:

(a) Report to the commissioner the details of a cybersecurity event within three (3) business days from the determination that a cybersecurity event has occurred; and

(b) Report the cybersecurity event on the Cybersecurity Event Reporting Form submitted electronically through the licensees' eServices account located on the department's secure Web site: https://insurance.ky.gov/doieservices/UserRole.aspx.

(2) A licensee who is not domiciled in Kentucky and who is not exempt as established in KRS 304.3-752, but reasonably believes that the cybersecurity event meets any of the qualifications established in KRS 304.3-760(1)(c), shall:

(a) Report to the commissioner the details of a cybersecurity event within three (3) business days from the determination that a cybersecurity event has occurred; and

(3) A licensee who is deemed compliant under KRS 304.3-766 shall:

(a) Notify the commissioner of a cybersecurity event in the same manner and form no later than the licensee notifies the affected consumers or federal regulatory authorities, as applicable; and

(b) Submit the notification electronically to the commissioner via email at DOI.CommissionerOffice@ky.gov.

Section 4. Amending a Cybersecurity Event Submission. A licensee, who has filed a Cybersecurity Event Reporting Form with the department shall:

(1) Within three (3) business days of the discovery of new information, update and supplement any initial and subsequent cybersecurity event notifications to the commissioner; and

(2) Amend a previously submitted Cybersecurity Event Reporting Form electronically through the licensees' eServices account located on the department's secure Web site: https://insurance.ky.gov/doieservices/UserRole.aspx.

Section 5. Incorporated by Reference.

(1) The following material is incorporated by reference.

(a) "Cybersecurity Compliance Attestation Form", 12/22;

(b) "Cybersecurity Exemption Compliance Form", 12/22; and

(2) This material may be inspected, copied, or obtained, subject to applicable copyright law, at the Kentucky Department of Insurance, The Mayo-Underwood Building, 500 Mero Street, Frankfort, Kentucky 40601, Monday through Friday, 8 a.m. to 4:30 p.m. Forms may also be obtained on the Department of Insurance Internet Web site, https://insurance.ky.gov/ppc/CHAPTER.aspx.

History

RELATES TO: KRS 304.3-750 – 304.3-768, 45 C.F.R. 160, 164, 15 U.S.C. 6801, 6805
STATUTORY AUTHORITY: KRS 304.2-110, 304.3-756. 304.3-760, 304.3-766
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.2-110(1) authorizes the Commissioner of the Department of Insurance to promulgate administrative regulations necessary for or as an aid to the effectuation of any provision of the Kentucky Insurance Code. KRS 304.3-756 requires a non-exempt licensee to develop, implement, and maintain a comprehensive information security program based on an internal risk assessment. KRS 304.3-760 and 304.3-766 require non-exempt licensees to notify the Commissioner of the Department of Insurance of a cybersecurity event involving nonpublic information. This administrative regulation establishes the reporting procedures for non-exempt licensees to report a cybersecurity event and file a cybersecurity compliance report. The administrative regulation also establishes the procedure for a licensee to file a cybersecurity exemption form under KRS 304.3-752 and 304.3-766.
History: 49 Ky.R. 1549, 1942; eff. 7-5-2023.

Chapter 4 Fees and Taxes

806 KAR 4:010 Fees of the Department of Insurance {#sec-806-kar-4-010 omnilex-key=us-ky-regs-official--title-806--806 KAR 4:010}

Section 1. The commissioner shall collect fees as follows:

(1) Annual statement.

(a) Filing each year, $100.

(b) Filing additional or supplemental statement in the same year, $100.

(2) Filing charter documents.

(a) Original charter document, bylaws, and records of organization, or certified copies thereof required to be filed, $100.

(b) Amended charter documents, bylaws, and records of organization, or certified copies thereof required to be filed, fifty (50) dollars.

(3) Certificate of authority.

(a) Issuance of original certificate, $500.

(b) Amending, to add a line, fifty (50) dollars.

(4) Organization of domestic mutual insurers: filing application for solicitation permit and issuance of permit, $200.

(5) Self insurer.

(a) Application to become self insurer under KRS Chapter 304 Subtitle 39, $200.

(b) Notification of self-insurance program under KRS Chapter 304 Subtitle 32, fifty (50) dollars.

(6) Agent license, line of authority, license renewal, appointment, appointment renewal, and late renewal penalty. Each individual agent and each business entity agent.

(a) License and line of authority:

Resident individual license, forty (40) dollars and an additional forty (40) dollars for each line of authority;
Nonresident individual license, fifty (50) dollars and an additional fifty (50) dollars for each line of authority;
Resident business entity license, $100 and an additional $100 for each line of authority; and
Nonresident business entity license, $120 and an additional $120 for each line of authority.

(b) Temporary license as agent, twenty (20) dollars.

Resident individual license renewal:

a. If no active appointment, forty (40) dollars; and

b. If one (1) or more active appointments, zero dollars;

Nonresident individual license renewal:

a. If no active appointment, fifty (50) dollars; and

b. If one (1) or more active appointments, zero dollars;

Resident business entity license renewal:

a. If no active appointment, $100; and

b. If one (1) or more active appointments, zero dollars; and

Nonresident business entity license renewal:

a. If no active appointment, $120; and

b. If one (1) or more active appointments, zero dollars.

(d) Appointment, per foreign or alien insurer represented:

Resident individual appointment, for each form filed:

a. Property, casualty, and personal lines of authority of agent, forty (40) dollars;

b. Life, health, and variable life and variable annuity lines of authority, forty (40) dollars; and

c. All other lines of authority of agent, forty (40) dollars each;

Nonresident individual appointment, for each form filed:

a. Property, casualty, and personal lines of authority of agent, fifty (50) dollars;

b. Life, health, and variable life and variable annuity lines of authority, fifty (50) dollars; and

c. All other lines of authority of agent, fifty (50) dollars each;

Resident business entity appointment, for each form filed:

a. Property, casualty, and personal lines of authority of agent, $100;

b. Life, health, and variable life and variable annuity lines of authority, $100; and

c. All other lines of authority of agent, $100 each; and

Nonresident business entity appointment, for each form filed:

a. Property, casualty, and personal lines of authority of agent, $120;

b. Life, health, and variable life and variable annuity lines of authority, $120; and

c. All other lines of authority of agent, $120 each.

(e) Appointment renewal, biennial, per foreign or alien insurer:

Resident individual appointment renewal, forty (40) dollars;
Nonresident individual appointment renewal, fifty (50) dollars;
Resident business entity appointment renewal, $100; and
Nonresident business entity appointment renewal, $120.

(f) Appointment and biennial appointment renewal, per fraternal benefit society, KRS Chapter 304 Subtitle 32 corporation, health maintenance organization, or limited health service organization represented:

Resident individual, forty (40) dollars;
Nonresident individual, fifty (50) dollars;
Resident business entity, $100; and
Nonresident business entity, $120.

(g) Late penalty for license renewal and appointment renewal:

Resident individual, forty (40) dollars;
Nonresident individual, fifty (50) dollars;
Resident business entity, $100; and
Nonresident business entity, $120.

(7)

(a) Pharmacy benefit manager license, or annual license renewal, $1,000; and

(b) Late renewal penalty $500.

(8) Portable Electronics Insurance Retailer License:

(a) One (1) to twenty (20) locations in Kentucky, $100 per location; and

(b) Twenty-one (21) or more locations in Kentucky, $2,500 dollars total.

(9) Surplus lines broker, consultant, reinsurance intermediary, or managing general agent license, biennial license renewal, or late renewal penalty, $100 each.

(10)

(a) Adjuster license, biennial license renewal, or late renewal penalty, fifty (50) dollars each.

(b) Temporary license as apprentice adjuster, twenty-five (25) dollars.

(11) Administrator's license, biennial license renewal, or late renewal penalty, fifty (50) dollars each.

(12)

(a) Individual life settlement broker license, biennial license renewal, or late renewal penalty, $250 each.

(b) Business entity life settlement broker license, biennial license renewal, or late renewal penalty, $750 each.

(13)

(a) Individual life settlement provider license, biennial license renewal, or late renewal penalty, $500 each.

(b) Business entity life settlement provider license, biennial license renewal, or late renewal penalty, $1,500 each.

(14) Approval of prelicensing training course, fifty (50) dollars; biennial renewal, fifty (50) dollars.

(15) Approval of instructors, five (5) dollars per instructor; biennial renewal, five (5) dollars per instructor.

(16) Filing agent continuing education course for:

(a) Approval, five (5) dollars per hour of continuing education credit in addition to initial fee of ten (10) dollars remitted with filing; and

(b) Biennial renewal, five (5) dollars per hour of continuing education credit; minimum of ten (10) dollars.

(17) Examination for agents, life settlement brokers, adjusters, and consultants, fifty (50) dollars for each examination.

(18) Annual registration fee of unauthorized insurer under KRS 304.11-020(2), $500.

(19)

(a) Rental vehicle insurance license, biennial license renewal, and late license renewal penalty:

Rental vehicle agent, $100 each; and
Rental vehicle managing employee, individual, forty (40) dollars each.

(b) Rental vehicle agent and managing employee appointment, biennial appointment renewal, and late appointment renewal penalty, per insurer represented:

Resident individual, forty (40) dollars each;
Nonresident individual, fifty (50) dollars each;
Resident business entity, $100 each; and
Nonresident business entity, $120 each.

(20) Registration fee of industrial insureds, government entity insureds, and exempt commercial policyholders under KRS Chapter 304 Subtitle 11, $100.

(21) Advisory organizations, statistical agents, and form providers.

(a) Application for license, $500.

(b) Annual renewal, $100.

(22) Rate and form filings.

(a) Rate level revision filing in a noncompetitive market or other rate level revision filings subject to prior approval by the commissioner , $100.

(b) Credit life or health insurance filing requiring review for compliance with KRS 304.19-080, $100.

(23) Insurance premium finance companies.

(a) Application for license, $500.

(b) Annual renewal, $100.

(24) Cost of administering KRS Chapter 304 Subtitle 32 per membership contract in force on December 31 of each year, except the health insurance contract or contracts for state employees as authorized by KRS 18A.225, ten (10) cents.

(25) Computer printouts of lists, computer printouts of mailing labels, and electronic or digital media:

(a) Agents with lines of authority for:

Property, casualty, and personal lines, for computer print-outs of lists or mailing labels, $300, for electronic or digital media, $265;
Life, health, and variable life and variable annuity for computer print-outs of lists or mailing labels, $300, for electronic or digital media, $265;
All other lines, $100;
Listing for each ZIP code, fifty (50) dollars; and
Appointments (activity) of a specific agent, five (5) dollars.

(b) Adjusters, consultants, managing general agents, surplus lines brokers, reinsurance intermediaries, rental vehicle agents and managing employees, life settlement brokers, life settlement providers, and administrators, ninety (90) dollars per license classification.

All authorized insurers, ninety (90) dollars;
Insurers by line of insurance, ninety (90) dollars; and
Appointments (activity) by a specific insurer, fifty (50) dollars.

(d) Business entity license for agent, adjuster, administrator, managing general agent, reinsurance intermediary, rental vehicle agent,, life settlement broker, and life settlement provider, per license classification:

Business entity directory, ninety (90) dollars;
Business entities by line of authority, ninety (90) dollars; and
Appointments (activity) of a specific business entity, ten (10) dollars.

(e) Other special requests, printouts, or electronic or digital media not specified in this section, if the request is approved by the commissioner , the commissioner shall establish the cost for the request in accordance with KRS 61.874(4)(c).

(26) Provider agreement filing, twenty-five (25) dollars.

(27) Subcontract agreement filing, twenty-five (25) dollars.

(28) Risk-sharing arrangement filing, fifty (50) dollars.

(29) Miscellaneous services.

(a) Filing other documents, each, five (5) dollars per document.

(b) Commissioner's certificate under seal, other than certificates, licenses, and other documents provided for in this section, each, five (5) dollars.

(d) Copy of annual statements, per page, one (1) dollar.

Section 2. The biennial appointment renewal fees for agents, including managing general agent, rental vehicle agent, and rental vehicle managing employee,, shall be payable as follows:

(1) Life insurers and health insurers, including health maintenance organizations, limited health service organizations, and KRS Chapter 304 Subtitle 32 corporations, shall renew their appointments on or before March 31 in odd numbered years and biennially thereafter; fraternal benefit societies shall renew their appointments on or before March 31, 2005, and biennially thereafter.

(2) All other insurers shall renew their appointments on or before March 31 in even numbered years and biennially thereafter.

(3) Original license and appointment fees shall be the amount stated and not prorated.

(4) Fee for duplicate request of appointment or renewal of appointment may be found as earned if the appointment or renewal is confirmed.

Section 3. If a statute or administrative regulation requires payment of a fee as provided in KRS 304.4-010, it refers to a fee as established in this administrative regulation.

History

RELATES TO: KRS 18A.225, 61.874, 304.2-110, 304.2-150, 304.3-150, 304.4-010, 304.9-053, 304.9-105, 304.9-130, 304.9-140, 304.9-150, 304.9-160, 304.9-200, 304.9-260, 304.9-270, 304.9-280, 304.9-295, 304.9-300, 304.9-320, 304.9-430, 304.9-432, 304.9-505, 304.9-780, 304.10-120, 304.11-020, 304.15-700, 304.15-720, 304.17A-300, 304.19-080, 304.29-231, 304.32-120, 304.32-270, 304.38-040, 304.38-060, 304.38-200, 304.38A-070, 304.45-140, 304.49-150
STATUTORY AUTHORITY: KRS 61.874(4), 304.2-110(1), 304.4-010(1)
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.2-110(1) authorizes the Commissioner of Insurance to promulgate reasonable administrative regulations necessary for or as an aid to the effectuation of any provision of the Kentucky Insurance Code as defined in KRS 304.1-010. KRS 304.4-010(1) requires the Commissioner of Insurance to prescribe those services for which fees shall be charged and the amounts of the fees. KRS 61.874(4) authorizes an agency to charge fees based on costs for public records used for commercial purposes. This administrative regulation establishes services for which the Department of Insurance shall charge fees and the amounts of those fees.
History: 15 Ky.R. 753; Am. 1113; eff. 11-4-88; 18 Ky.R. 801; eff. 11-8-91; 21 Ky.R. 572; eff. 10-10-94; 27 Ky.R. 1589; 2151; eff. 2-15-2001; 29 Ky.R. 1355; eff. 1-16-2003; TAm eff. 8-9-2007; Crt eff. 2-26-2020; 47 Ky.R. 2714; 48 Ky.R. 1139; eff. 1-4-2022.

Chapter 5 Kinds of Insurance; Limits of Risk; Reinsurance

806 KAR 5:025 Credit for reinsurance {#sec-806-kar-5-025 omnilex-key=us-ky-regs-official--title-806--806 KAR 5:025}

Section 1. Definitions.

(1) "Additional information required by the commissioner" means any supplementary information directly related to the requirements specified by statute and this administrative regulation, that is necessary to ensure that the requirements specified by statute and this administrative regulation are being met, and does not add additional requirements not specified by statute and this administrative regulation.

(2) "Beneficiary" means:

(a) The entity for whose sole benefit the trust has been established and any successor of the beneficiary by operation of law; and

(b) If a court of law appoints a successor in interest to the named beneficiary, the named beneficiary is the court appointed domiciliary receiver, including the conservator, rehabilitator, or liquidator.

(3) "Evergreen clause" means a provision in a letter of credit or its confirmation that prevents the expiration of the letter of credit or its confirmation without written notice to the beneficiary from the issuing or confirming bank or trust company as provided by this administrative regulation.

(4) "Grantor" means:

(a) The entity that has established a trust for the sole benefit of the beneficiary; and

(b) If the trust is established in conjunction with a reinsurance agreement, the unlicensed, unaccredited assuming insurer.

(5) "Liabilities" means the assuming insurer's gross liabilities attributable to reinsurance ceded by U.S. domiciled insurers excluding liabilities that are otherwise secured by acceptable means.

(6) "Mortgage-related security" means an obligation that is rated AA or higher, or the equivalent, by a securities rating agency recognized by the Securities Valuation Office of the NAIC and that:

(a) Represents ownership of one (1) or more promissory notes or certificates of interest or participation in the notes, including any rights designed to assure servicing of, or the receipt or timeliness of receipt by the holders of the notes, certificates, or participation of amounts payable under, the notes, certificates, or participation, that:

Are directly secured by a first lien on a single parcel of real estate, including stock allocated to a dwelling unit in a residential cooperative housing corporation, upon which is located a dwelling or mixed residential and commercial structure, or on a residential manufactured home as defined in 42 U.S.C. Section 5402(6), whether the manufactured home is considered real or personal property under the laws of the state in which it is located; and
Were originated by a savings and loan association, savings bank, commercial bank, credit union, insurance company, or similar institution that is supervised and examined by a federal or state housing authority, or by a mortgagee approved by the Secretary of Housing and Urban Development pursuant to 12 U.S.C. Sections 1709 and 1715b, or, where the notes involve a lien on the manufactured home, by an institution or by a financial institution approved for insurance by the Secretary of Housing and Urban Development pursuant to 12 U.S.C. Section 1703; or

(b) Is secured by one (1) or more promissory notes or certificates of deposit or participations in the notes, with or without recourse to the insurer of the notes, and by its terms provides for payments of principal in relation to payments, or reasonable projections of payments, or notes meeting the requirements of paragraph (a) of this subsection.

(7) "Obligations" means:

(a) Reinsured losses and allocated loss expenses paid by the ceding company, but not recovered from the assuming insurer;

(b) Reserves for reinsured losses reported and outstanding;

(d) Reserves for allocated reinsured loss expenses and unearned premiums.

(8) "Promissory note" means, when used in connection with a manufactured home, a loan, or advance or credit sale, as evidenced by a retail installment sales contract or other instrument.

(9) "Solvent scheme of arrangement" means a foreign or alien statutory or regulatory compromise procedure subject to requisite majority creditor approval and judicial sanction in the assuming insurer's home jurisdiction either to finally commute liabilities of duly noticed classed members or creditors of a solvent debtor, or to reorganize or restructure the debts and obligations of a solvent debtor on a final basis, and which may be subject to judicial recognition and enforcement of the arrangement by a governing authority outside the ceding insurer's home jurisdiction.

Section 2. Reinsurer Licensed in Kentucky. The commissioner shall allow credit for reinsurance ceded by a domestic insurer to an assuming insurer that is authorized to transact insurance or reinsurance in Kentucky as of any date on which statutory financial statement credit for reinsurance is claimed.

Section 3. Accredited Reinsurers. The commissioner shall allow credit for reinsurance ceded by a domestic insurer to an assuming insurer that is accredited as a reinsurer in Kentucky as of the date on which statutory financial statement credit for reinsurance is claimed.

(1) To gain accreditation, a reinsurer shall:

(a) File a properly executed Form AR-1 as evidence of its submission to Kentucky's jurisdiction and authority to examine its books and records;

(b) File a certified copy of a certificate of authority or other acceptable evidence that it is licensed to transact insurance or reinsurance in at least one (1) state, or, in the case of a U.S. branch of an alien assuming insurer, is entered through and licensed to transact insurance or reinsurance in at least one (1) state;

(c) File annually a copy of its annual statement filed with the insurance department of its state of domicile or, in the case of an alien assuming insurer, with the state through which it is entered and in which it is licensed to transact insurance or reinsurance, and a copy of its most recent audited financial statement; and

(d) Maintain a surplus as regards policyholders in an amount not less than $20,000,000, or obtain affirmative approval of the commissioner upon a finding that it has adequate financial capacity to meet its reinsurance obligations and is otherwise qualified to assume reinsurance from domestic insurers.

(2) If the commissioner determines that the assuming insurer has failed to meet or maintain any of the qualifications established by subsection (1) of this section, the commissioner may suspend or revoke the accreditation.

(3) Credit shall not be allowed a domestic ceding insurer under this section if the assuming insurer's accreditation has been revoked by the commissioner, or if the reinsurance was ceded while the assuming insurer's accreditation was under suspension by the commissioner.

Section 4. Reinsurer Domiciled in Another State. The commissioner shall allow credit for reinsurance ceded by a domestic insurer to an assuming insurer that satisfies all requirements of KRS 304.5-140(3)(c) and files a properly executed Form AR-1.

Section 5. Reinsurers Maintaining Trust Funds.

(1) The commissioner shall allow credit for reinsurance ceded by a domestic insurer to an assuming insurer which, as of any date on which statutory financial statement credit for reinsurance is claimed, and thereafter if credit for reinsurance is claimed, maintains a trust fund in an amount in accordance with this section in a qualified U.S. financial institution as defined in KRS 304.5-140(1)(b), for the payment of valid claims of its U.S. domiciled ceding insurers, their assigns and successors in interest. The assuming insurer shall annually report to the commissioner pursuant to KRS 304.5-140(3)(d)1.

(2) Credit for reinsurance shall not be granted unless the form of the trust and any amendments to the trust have been approved by either the commissioner of the state where the trust is domiciled or the commissioner of another state who, pursuant to the terms of the trust instrument, has accepted responsibility for regulatory oversight of the trust. The form of the trust and any trust amendments also shall be filed with the commissioner of every state in which the ceding insurer beneficiaries of the trust are domiciled. The trust instrument shall satisfy all requirements of KRS 304.5-140(3)(d)5., and 6., and include that contested claims shall be valid and enforceable out of funds in trust to the extent remaining unsatisfied thirty (30) days after entry of the final order of any court of competent jurisdiction in the United States.

(3)

(a) Notwithstanding any other provision in the trust agreement, if the trust fund is inadequate because it contains an amount less than the amount required by this section, or if the grantor of the trust has been declared insolvent or placed into receivership, rehabilitation, liquidation, or similar proceedings under the laws of its state or country of domicile, the trustee shall comply with an order of the commissioner with regulatory oversight over the trust or with an order of a court of competent jurisdiction directing the trustee to transfer to the commissioner with regulatory oversight over the trust or other designated receiver all of the assets of the trust fund.

(b) The assets shall be distributed, and claims shall be filed with and valued, by the commissioner with regulatory oversight over the trust in accordance with the laws of the state in which the trust is domiciled applicable to the liquidation of domestic insurance companies.

(c) If the commissioner with regulatory oversight over the trust determines that the assets of the trust fund or any part thereof are not necessary to satisfy the claims of the U.S. beneficiaries of the trust, the commissioner with regulatory oversight over the trust shall return the assets, or any part thereof, to the trustee for distribution in accordance with the trust agreement.

(d) The grantor shall waive any right otherwise available to it under U.S. law that is inconsistent with this provision.

(4) Liabilities shall include:

(a) For business ceded by domestic insurers authorized to write accident and health, and property and casualty insurance:

Losses and allocated loss expenses paid by the ceding insurer, recoverable from the assuming insurer;
Reserves for losses reported and outstanding;
Reserves for losses incurred, but not reported;
Reserves for allocated loss expenses; and
Unearned premiums.

(b) For business ceded by domestic insurers authorized to write life, health and annuity insurance:

Aggregate reserves for life policies and contracts net of policy loans and net due and deferred premiums;
Aggregate reserves for accident and health policies;
Deposit funds and other liabilities without life or disability contingencies; and
Liabilities for policy and contract claims.

(5) Assets deposited in trusts established pursuant to KRS 304.5-140(3)(d) and this section shall be valued according to their current fair market value and shall consist only of cash in U.S. dollars, certificates of deposit issued by a qualified United States financial institution, as defined in KRS 304.5-140(1)(a), clean, irrevocable, unconditional and "evergreen" letters of credit issued or confirmed by a qualified United States financial institution, as defined in KRS 304.5-140(1)(a), and investments of the type specified in this subsection, but investments in or issued by an entity controlling, controlled by, or under common control with either the grantor or beneficiary of the trust shall not exceed five (5) percent of total investments. No more than twenty (20) percent of the total of the investments in the trust shall be foreign investments authorized under paragraphs (a)5., (c), (e)2., or (f) of this subsection, and no more than ten (10) percent of the total of the investments in the trust shall be securities denominated in foreign currencies. For purposes of applying the preceding sentence, a depository receipt denominated in U.S. dollars and representing rights conferred by a foreign security shall be classified as a foreign investment denominated in a foreign currency. The assets of a trust established to satisfy the requirements of KRS 304.5-140 shall be invested only as follows:

(a) Government obligations that are not in default as to principal or interest, that are valid and legally authorized, and that are issued, assumed, or guaranteed by:

The United States or by any agency or instrumentality of the United States;
A state of the United States;
A territory, possession, or other governmental unit of the United States;
An agency or instrumentality of a governmental unit referred to in subparagraphs 2. and 3. of this paragraph if the obligations shall be by law (statutory or otherwise) payable, as to both principal and interest, from taxes levied or by law required to be levied or from adequate special revenues pledged or otherwise appropriated or by law required to be provided for making these payments, but shall not be obligations eligible for investment under this paragraph if payable solely out of special assessments on properties benefited by local improvements; or
The government of any other country that is a member of the Organization for Economic Cooperation and Development and whose government obligations are rated A or higher, or the equivalent, by a rating agency recognized by the Securities Valuation Office of the NAIC;

(b) Obligations that are issued in the United States, or that are dollar denominated and issued in a non-U.S. market, by a solvent U.S. institution, other than an insurance company, or that are assumed or guaranteed by a solvent U.S. institution, other than an insurance company, and that are not in default as to principal or interest if the obligations:

Are rated A or higher, or the equivalent, by a securities rating agency recognized by the Securities Valuation Office of the NAIC, or if not so rated, are similar in structure and other material respects to other obligations of the same institution that are so rated;
Are insured by at least one (1) authorized insurer, other than the investing insurer or a parent, subsidiary, or affiliate of the investing insurer, licensed to insure obligations in this state and, after considering the insurance, are rated AAA, or the equivalent, by a securities rating agency recognized by the Securities Valuation Office of the NAIC; or
Have been designated as Class One or Class Two by the Securities Valuation Office of the NAIC;

(c) Obligations issued, assumed, or guaranteed by a solvent non-U.S. institution chartered in a country that is a member of the Organization for Economic Cooperation and Development or obligations of U.S. corporations issued in a non-U.S. currency, provided that in either case the obligations are rated A or higher, or the equivalent, by a rating agency recognized by the Securities Valuation Office of the NAIC.

(d) An investment made pursuant to the provisions of paragraph (a), (b), or (c) of this subsection shall be subject to the following additional limitations:

An investment in or loan upon the obligations of an institution other than an institution that issues mortgage-related securities shall not exceed five (5) percent of the assets of the trust;
An investment in any one (1) mortgage-related security shall not exceed five (5) percent of the assets of the trust;
The aggregate total investment in mortgage-related securities shall not exceed twenty-five (25) percent of the assets of the trust; and
Preferred or guaranteed shares issued or guaranteed by a solvent U.S. institution are permissible investments if all of the institution's obligations are eligible as investments under paragraphs (b)1. and (b) 3. of this subsection, but shall not exceed two (2) percent of the assets of the trust.

(e) Equity Interests.

Investments in common shares or partnership interests of a solvent U.S. institution are permissible if:

a. Its obligations and preferred shares, if any, are eligible as investments under this subsection; and

b. The equity interests of the institution, except an insurance company, are registered on a national securities exchange as provided in the Securities Exchange Act of 1934, 15 U.S.C. §§ 78a to 78kk or otherwise registered pursuant to that Act, and if otherwise registered, price quotations for them are furnished through a nationwide automated quotations system approved by the Financial Industry Regulatory Authority, or successor organization. A trust shall not invest in equity interests under this paragraph in an amount exceeding one (1) percent of the assets of the trust even though the equity interests are not so registered and are not issued by an insurance company;

Investments in common shares of a solvent institution organized under the laws of a country that is a member of the Organization for Economic Cooperation and Development, if:

a. All its obligations are rated A or higher, or the equivalent, by a rating agency recognized by the Securities Valuation Office of the NAIC; and

b. The equity interests of the institution are registered on a securities exchange regulated by the government of a country that is a member of the Organization for Economic Cooperation and Development;

An investment in or loan upon any one (1) institution's outstanding equity interests shall not exceed one (1) percent of the assets of the trust. The cost of an investment in equity interests made pursuant to this paragraph, when added to the aggregate cost of other investments in equity interests then held pursuant to this paragraph, shall not exceed ten (10) percent of the assets in the trust.

(f) Obligations issued, assumed, or guaranteed by a multinational development bank, provided the obligations are rated A or higher, or the equivalent, by a rating agency recognized by the Securities Valuation Office of the NAIC.

(g) Investment Companies.

Securities of an investment company registered pursuant to the Investment Company Act of 1940, 15 U.S.C. § 80a, are permissible investments if the investment company:

a. Invests at least ninety (90) percent of its assets in the types of securities that qualify as an investment under paragraph (a), (b), or (c) of this subsection or invests in securities that are determined by the commissioner to be substantively similar to the types of securities set forth in paragraph (a), (b), or (c) of this subsection; or

b. Invests at least ninety (90) percent of its assets in the types of equity interests that qualify as an investment under paragraph (e)1. of this subsection;

Investments made by a trust in investment companies under this paragraph shall not exceed the following limitations:

a. An investment in an investment company qualifying under subparagraph 1.a. of this paragraph shall not exceed ten (10) percent of the assets in the trust and the aggregate amount of investment in qualifying investment companies shall not exceed twenty-five (25) percent of the assets in the trust; and

b. Investments in an investment company qualifying under subparagraph 1.b. of this paragraph shall not exceed five (5) percent of the assets in the trust and the aggregate amount of investment in qualifying investment companies shall be included when calculating the permissible aggregate value of equity interests pursuant to paragraph (e)1. of this subsection.

(h) Letters of Credit.

In order for a letter of credit to qualify as an asset of the trust, the trustee shall have the right and the obligation pursuant to the deed of trust or some other binding agreement, as duly approved by the commissioner, to immediately draw down the full amount of the letter of credit and hold the proceeds in trust for the beneficiaries of the trust if the letter of credit will otherwise expire without being renewed or replaced.
The trust agreement shall provide that the trustee shall be liable for its negligence, willful misconduct, or lack of good faith. The failure of the trustee to draw against the letter of credit in circumstances where a draw would be required shall be deemed to be negligence, willful misconduct, or both.

(6) A specific security provided to a ceding insurer by an assuming insurer pursuant to Section 7 of this administrative regulation shall be applied, until exhausted, to the payment of liabilities of the assuming insurer to the ceding insurer holding the specific security prior to, and as a condition precedent for, presentation of a claim by the ceding insurer for payment by a trustee of a trust established by the assuming insurer pursuant to this section.

Section 6. Certified Reinsurers.

(1) The commissioner shall allow credit for reinsurance ceded by a domestic insurer to an assuming insurer that has been certified as a reinsurer in this state at all times for which statutory financial statement credit for reinsurance is claimed under this section. The credit allowed shall be based upon the security held by or on behalf of the ceding insurer in accordance with a rating assigned to the certified reinsurer by the commissioner. The security shall be in a form consistent with the provisions of KRS 304.5-140(3)(e) and Sections 10, 11, or 12 of this administrative regulation. The amount of security required in order for full credit to be allowed shall correspond with the following requirements:

(a) Ratings Security Required:

(b) Affiliated reinsurance transactions shall receive the same opportunity for reduced security requirements as all other reinsurance transactions.

(c) The commissioner shall require the certified reinsurer to post 100 percent security, for the benefit of the ceding insurer or its estate, upon the entry of an order of rehabilitation, liquidation, or conservation against the ceding insurer.

(d) In order to facilitate the prompt payment of claims, a certified reinsurer shall not be required to post security for catastrophe recoverable for a period of one (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. The one (1) year deferral period is contingent upon the certified reinsurer continuing to pay claims in a timely manner. Reinsurance recoverables shall only be included in the deferral for the lines of business set forth in KRS 304.5-140(3)(m)3.

(e) Credit for reinsurance under this section shall apply only to reinsurance contracts entered into or renewed on or after the effective date of the certification of the assuming insurer. Any reinsurance contract entered into prior to the effective date of the certification of the assuming insurer that is subsequently amended after the effective date of the certification of the assuming insurer, or a new reinsurance contract, covering any risk for which collateral was provided previously, shall only be subject to this section with respect to losses incurred and reserves reported from and after the effective date of the amendment or new contract.

(f) Nothing in this section shall prohibit the parties to a reinsurance agreement from agreeing to provisions establishing security requirements that exceed the minimum security requirements established for certified reinsurers under this section.

(2) Certification process.

(a) Upon receipt of an application for certification, the commissioner shall promptly post notice at insurance.ky.gov, including instructions on how members of the public may respond to the application.

(b) No fewer than thirty (30) days after posting the notice required by paragraph (a) of this subsection, the commissioner shall issue written notice to an assuming insurer that has made application and been approved as a certified reinsurer, which shall include the rating assigned the certified reinsurer in accordance with subsection (1) of this section.

Be domiciled and licensed to transact insurance or reinsurance in a qualified jurisdiction, as determined by the commissioner pursuant to subsection (3) of this section.
Maintain capital and surplus, or its equivalent, of no less than $250,000,000 calculated in accordance with subparagraph (d)8. of this subsection. 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 $250,000,000 and a central fund containing a balance of at least $250,000,000.
Maintain financial strength ratings from two (2) or more rating agencies deemed acceptable under this subparagraph. These ratings shall be based on interactive communication between the rating agency and the assuming insurer and shall not be based solely on publicly available information. These financial strength ratings shall be one (1) factor used by the commissioner in determining the rating that is assigned to the assuming insurer. Acceptable rating agencies include the following:

a. Standard & Poor's;

b. Moody's Investors Service;

c. Fitch Ratings;

d. A.M. Best Company; or

e. Any other Nationally Recognized Statistical Rating Organization.

Comply with any other requirements reasonably imposed by the commissioner pursuant to KRS 304.2-110.

(d) Each certified reinsurer shall be rated on a legal entity basis, with due consideration being given to the group rating where appropriate, except that an association including incorporated and individual unincorporated underwriters that has been approved to do business as a single certified reinsurer may be evaluated on the basis of its group rating. Factors considered as part of the evaluation process shall include:

The certified reinsurer's financial strength rating from an acceptable rating agency, as described in the matrix below. The commissioner shall 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 (2) financial strength ratings from acceptable rating agencies shall result in loss of eligibility for certification;
The business practices of the certified reinsurer in dealing with its ceding insurers, including its record of compliance with reinsurance contractual terms and obligations;
For certified reinsurers domiciled in the U.S., a review of the most recent applicable NAIC Annual Statement Blank, either Schedule F or Schedule S;
For certified reinsurers not domiciled in the U.S., a review annually of Form CR-F or Form CR-S;
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 ninety (90) days past due or are in dispute, with specific attention given to obligations payable to companies that are in administrative supervision or receivership;
Regulatory actions against the certified reinsurer;
The report of the independent auditor on the financial statements of the insurance enterprise, on the basis described in subparagraph 8. of this paragraph;
For certified reinsurers not domiciled in the U.S., audited financial statements, regulatory filings, and actuarial opinion, as filed with the non-U.S. jurisdiction supervisor, with a translation into English. Upon the initial application for certification, the commissioner shall consider audited financial statements for the last two (2) years filed with its non-U.S. jurisdiction supervisor;
The liquidation priority of obligations to a ceding insurer in the certified reinsurer's domiciliary jurisdiction in the context of an insolvency proceeding;
A certified reinsurer's participation in any solvent scheme of arrangement, or similar procedure, which involves U.S. 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; and
Any other additional information required by the commissioner.

(e) Based on the analysis conducted under subparagraph (d)5. of this subsection, 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 U.S. ceding insurers, provided that the commissioner shall, at a minimum, increase the security the certified reinsurer is required to post by one (1) rating level under subparagraph (d)1. of this subsection, if the commissioner finds that:

More than fifteen (15) percent of the certified reinsurer's ceding insurance clients have overdue reinsurance recoverables on paid losses of ninety (90) days or more which are not in dispute and which exceed $100,000 for each cedent; or
The aggregate amount of reinsurance recoverables on paid losses which are not in dispute that are overdue by ninety (90) days or more exceeds $50,000,000.

(f) The assuming insurer shall submit a properly executed Form CR-1 as evidence of its submission to the jurisdiction of this state, appointment of the commissioner as an agent for service of process in this state, and agreement to provide security for 100 percent of the assuming insurer's liabilities attributable to reinsurance ceded by U.S. ceding insurers if it resists enforcement of a final U.S. judgment. The commissioner shall not certify any assuming insurer that is domiciled in a jurisdiction that the commissioner has determined does not adequately and promptly enforce final U.S. judgments or arbitration awards.

(g) The certified reinsurer shall agree to meet information filing requirements under this paragraph. All information submitted by certified reinsurers that is not otherwise public information subject to disclosure shall be exempted from disclosure under the Kentucky Open Records Act, KRS 61.872 to 61.884, and shall be withheld from public disclosure. The information filing requirements are, as follows:

Notification within ten (10) days of any regulatory actions taken against the certified reinsurer, any change in the provisions of its domiciliary license or any change in rating by an approved rating agency, including a statement describing the changes and the reasons therefore;
Annually, Form CR-F or CR-S, as applicable;
Annually, the report of the independent auditor on the financial statements of the insurance enterprise, on the basis described in subsection (4) of this section;
Annually, the most recent audited financial statements, regulatory filings, and actuarial opinion, as filed with the certified reinsurer's supervisor, with a translation into English. Upon the initial certification, audited financial statements for the last two (2) years filed with the certified reinsurer's supervisor;
At least annually, an updated list of all disputed and overdue reinsurance claims regarding reinsurance assumed from U.S. domestic ceding insurers;
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; and
Any other additional information required by the commissioner.

(h) Change in Rating or Revocation of Certification.

In the case of a downgrade by a rating agency or other disqualifying circumstance, the commissioner shall, upon written notice, assign a new rating to the certified reinsurer in accordance with the requirements of subparagraph (d)1. of this subsection.
The commissioner shall have the authority to suspend, revoke, or otherwise modify a certified reinsurer's 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.
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 shall require the certified reinsurer to post security under the previously applicable security requirements as to all 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 shall require the certified reinsurer to meet the security requirements applicable to its new rating for all business it has assumed as a certified reinsurer.
Upon revocation of the certification of a certified reinsurer by the commissioner, the assuming insurer shall be required to post security in accordance with Section 7 of this administrative regulation in order 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 Section 5 of this administrative regulation, the commissioner may allow additional credit equal to the ceding insurer's pro rata share of the funds, discounted to reflect the risk of uncollectibility 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 shall not be denied credit for reinsurance for a period of three (3) months for all reinsurance ceded to that certified reinsurer, unless the reinsurance is found by the commissioner to be at high risk of uncollectibility.

(i) The commissioner shall publish a list of all certified reinsurers and their ratings.

(3) Qualified Jurisdictions.

(a) If, upon conducting an evaluation under this section with respect to the reinsurance supervisory system of any non-U.S. assuming insurer, the commissioner determines that the jurisdiction qualifies to be recognized as a qualified jurisdiction, the commissioner shall publish notice and evidence of recognition in an appropriate manner. The commissioner may establish a procedure to withdraw recognition of those jurisdictions that are no longer qualified.

(b) Pursuant to KRS 304.5-140(3)(e)4.b. the additional factors to be considered in determining whether to recognize a qualified jurisdiction, in the discretion of the commissioner, shall include:

The framework under which the assuming insurer is regulated.
The structure and authority of the domiciliary regulator with regard to solvency regulation requirements and financial surveillance.
The substance of financial and operating standards for assuming insurers in the domiciliary jurisdiction.
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.
The domiciliary regulator's willingness to cooperate with U.S. regulators in general and the commissioner in particular.
The history of performance by assuming insurers in the domiciliary jurisdiction.
Any documented evidence of substantial problems with the enforcement of final U.S. judgments in the domiciliary jurisdiction. A jurisdiction shall not be considered to be a qualified jurisdiction if it fails to satisfy the requirements of KRS 304.5-140(3)(e)4.b.
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.
Any other matters deemed relevant by the commissioner, pursuant to KRS 304.2-110.

(c) The Commissioner shall consider the list of qualified jurisdictions published through the NAIC Committee Process as required in KRS 304.5-140(3)(e)4.c. If the commissioner approves a jurisdiction as qualified that does not appear on the list of qualified jurisdictions, the commissioner shall provide thoroughly documented justification with respect to the criteria provided under paragraph (b)1. to 9. of this subsection.

(d) U.S. jurisdictions that meet the requirements described in KRS 304.5-140(3)(e)4.d. shall be recognized as qualified jurisdictions.

(4) Recognition of Certification Issued by an NAIC Accredited Jurisdiction.

(a) If an applicant for certification has been certified as a reinsurer in an NAIC accredited jurisdiction, the commissioner shall have the discretion to defer to that jurisdiction's certification, and to defer to the rating assigned by that jurisdiction, if the assuming insurer submits a properly executed Form CR-1 and any additional information required by the commissioner. The assuming insurer shall be considered to be a certified reinsurer in this state.

(b) Any change in the certified reinsurer's status or rating in the other jurisdiction shall apply automatically in this state as of the date it takes effect in the other jurisdiction. The certified reinsurer shall notify the commissioner of any change in its status or rating within ten (10) days after receiving notice of the change.

(c) The commissioner may withdraw recognition of the other jurisdiction's rating at any time and assign a new rating in accordance with subsection (2)(h) of this section.

(d) The commissioner may withdraw recognition of the other jurisdiction's certification at any time by providing written notice to the certified reinsurer. Unless the commissioner suspends or revokes the certified reinsurer's certification in accordance with subsection (2)(h) of this section, the certified reinsurer's certification shall remain in good standing in this state for a period of three (3) months, which shall be extended if additional time is necessary to consider the assuming insurer's application for certification in this state.

(5) Mandatory Funding Clause. In addition to the clauses required under Section 14 of this administrative regulation, reinsurance contracts entered into or renewed under this section shall include a proper funding clause, which requires the certified reinsurer to provide and maintain security in an amount sufficient to avoid the imposition of any financial statement penalty on the ceding insurer under this section for reinsurance ceded to the certified reinsurer.

(6) The commissioner shall comply with all reporting and notification requirements that may be established by the NAIC with respect to certified reinsurers and qualified jurisdictions.

Section 7.

(1) The commissioner shall allow a reduction from liability for reinsurance ceded by a domestic insurer to an assuming insurer as provided in KRS 304.5-140(4).

(2) An admitted asset or a reduction from liability for reinsurance ceded to an unauthorized assuming insurer pursuant to this section shall be allowed only when the requirements of Section 14 of this administrative regulation and the applicable portions of Sections 10, 11, or 12 of this administrative regulation have been satisfied.

Section 8. Requirements for Trust Agreements Qualified under KRS 304.5-140(3).

(1) The trust agreement shall be entered into between the beneficiary, the grantor, and a trustee, which shall be a qualified United States financial institution as defined in KRS 304.5-140(1)(b).

(2) The trust agreement shall create a trust account into which assets shall be deposited.

(3)

(a) Except as provided by paragraph (b) of this subsection, assets in the trust account shall be held by the trustee at the trustee's office in the United States.

(b) A bank may apply for the commissioner's permission to use a foreign branch office of the bank as trustee for trust agreements. If the commissioner approves the use of a foreign branch office as trustee, its use shall be approved by the beneficiary in writing. The trust agreement shall provide that the written notice described in subsection (4)(a) of this section shall be presentable, as a matter of legal right, at the trustee's principal office in the United States.

(4) The trust agreement shall provide that:

(a) The beneficiary shall:

Have the right to withdraw assets from the trust account at any time after giving written notice to the trustee; and
Not be required to give notice to the grantor;

(b) The beneficiary:

May be required to acknowledge receipt of withdrawn assets; and
Shall not be required to present other statements or documents in order to withdraw assets.

(d) The agreement shall not contain references to other agreements or documents except as provided by subsection (11) of this section.

(5) The trust agreement shall be established for the sole benefit of the beneficiary.

(6) The trust agreement shall require the trustee to:

(a) Receive and hold all assets in a safe place;

(b) Determine that all assets are in a form that the beneficiary, or the trustee upon direction by the beneficiary, may negotiate any assets whenever necessary, without consent or signature from the grantor or any other person or entity;

(c) Furnish to the grantor and the beneficiary a statement of all assets in the trust account both at the inception and at intervals no less frequent than the end of each calendar quarter;

(d) Notify the grantor and the beneficiary within ten (10) days of any deposits to or withdrawals from the trust account;

(e) Upon written demand of the beneficiary, immediately take all 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; and

(f) Allow no substitutions or withdrawals of assets from the trust account, except upon:

Written instructions from the beneficiary; or
The call or maturity of a trust asset, in which case the trustee may withdraw the asset if the proceeds are paid into the trust account without the consent of the beneficiary and after notice to the beneficiary.

(7) The trust agreement shall provide that at least thirty (30) days, but not more than forty-five (45) days, prior to termination of the trust account, written notification of termination shall be delivered by the trustee to the beneficiary.

(8) The trust agreement shall be made subject to and governed by the laws of the state in which the trust is established.

(9) The trust agreement shall prohibit invasion of the trust corpus for the purpose of paying compensation to or reimbursing the expenses of the trustee. In order for a letter of credit to qualify as an asset of the trust, the trustee shall have the right and the obligation pursuant to the deed of trust or some other binding agreement, as duly approved by the commissioner, to immediately draw down the full amount of the letter of credit and hold the proceeds in trust for the beneficiaries of the trust if the letter of credit will otherwise expire without being renewed or replaced.

(10) The trust agreement shall provide that the trustee shall be liable for its own negligence, willful misconduct, or lack of good faith.

(11)

(a) The trust agreement may provide that the ceding insurer shall undertake to use and apply amounts drawn upon the trust account, without diminution because of the insolvency of the ceding insurer or the assuming insurer for the purposes permitted by paragraphs (b) through (d) of this subsection, if:

A trust agreement is established in conjunction with a reinsurance agreement covering risks other than life, annuities, and accident and health; and
It is customary practice to provide a trust agreement for a specific purpose.

(b) To pay or reimburse the ceding insurer for the:

Assuming insurer's share under the specific reinsurance agreement regarding any losses and allocated loss expenses paid by the ceding insurer, but not recovered from the assuming insurer; or
Unearned premiums due to the ceding insurer if not otherwise paid by the assuming insurer;

(c) To make payment to the assuming insurer of any amounts held in the trust account that exceed 102 percent of the actual amount required to fund the assuming insurer's obligations under the specific reinsurance agreement; or

(d)

To withdraw amounts equal to the obligations and deposit them in a separate account as provided by subparagraph 2. of this paragraph, if the:

a. Ceding insurer has received notification of termination of the trust account; and

b. Assuming insurer's entire obligations under the specific reinsurance agreement remain unliquidated and undischarged ten (10) days prior to the termination date.

Amounts withdrawn pursuant to subparagraph 1. of this paragraph shall be deposited:

a. In the name of the ceding insurer; and

b. In a qualified United States financial institution, as defined in KRS 304.5-140(1)(a) and (b), apart from its general assets; and

c. In trust for the uses and purposes specified in paragraphs (a) and (b) of this subsection that may remain executory after the withdrawal for any period after the termination date.

(12) The reinsurance agreement entered into in conjunction with the trust agreement may contain the provisions required by Section 10(1)(b) of this administrative regulation, if the conditions required by this section are included in the trust agreement.

(13) The reinsurance agreement or trust agreement shall stipulate that assets deposited in the trust account shall be valued according to their current fair market value and shall consist only of cash in United States dollars, certificates of deposit issued by a United States bank and payable in United States dollars, and investments permitted by the Insurance Code, or any combination thereof, provided investments in or issued by an entity controlling, controlled by, or under common control with either the grantor or the beneficiary of the trust shall not exceed five (5) percent of total investments. The agreement may further specify the types of investments to be deposited. If the reinsurance agreement covers life, annuities, or accident and health risks, then the provisions required by this paragraph shall be included in the reinsurance agreement.

Section 9. Permitted Conditions for Trust Agreements Qualified under KRS 304.5-140(3).

(1) The trust agreement may provide that the:

(a) Trustee may resign only if written notice of resignation is:

Given to the beneficiary and grantor; and
Effective not less than ninety (90) days after receipt of the notice.

(b) Grantor may remove the trustee if written notice is:

Given to the trustee and beneficiary;
Effective not less than ninety (90) days after receipt of the notice;

A successor trustee has been duly appointed and approved by the beneficiary and the grantor; and
All assets in the trust have been duly transferred to the new trustee.

(2)

(a) The grantor may have the full and unqualified right to:

Vote any shares of stock in the trust account; and
Receive from time to time payments of any dividends or interest upon any shares of stock or obligations included in the trust account.

(b) Interest or dividends shall be:

Forwarded promptly upon receipt to the grantor; or
Deposited in a separate account established in the grantor's name.

(3) The trustee may be given authority to invest and accept substitutions of funds in the account with prior approval of the beneficiary, unless the trust agreement:

(a) Specifies categories of investments acceptable to the beneficiary; and

(b) Authorizes the trustee to invest funds and accept substitutions that the trustee determines are:

At least equal in market value to the assets withdrawn; and
Consistent with the restrictions in Section 10(1)(b) of this administrative regulation.

(4) The trust agreement may:

(a) Provide that the beneficiary may designate a party to which all or part of the trust assets are to be transferred; and

(b) Condition the transfer upon the trustee receiving, prior to or simultaneously, other specified assets.

(5) The trust agreement may provide upon termination of the trust account that all assets not previously withdrawn by the beneficiary shall be delivered over to the grantor with written approval by the beneficiary.

Section 10. Additional Conditions for Reinsurance Agreements Qualified under KRS 304.5-140(3).

(1) A reinsurance agreement, which is entered into in conjunction with a trust agreement and the establishment of a trust account, may contain provisions that:

(a) Require the assuming insurer to:

Enter into a trust agreement;
Establish a trust account for the benefit of the ceding insurer; and
Specify what the agreement is to cover.

(b) Except as provided by paragraph (e) of this subsection, stipulate that assets deposited in the trust account shall:

Be valued according to the current fair market value of the assets; and
Consist of:

a. Cash that is United States legal tender;

b. Certificates of deposit, issued by a United States bank and payable in United States legal tender;

c. Investments permitted by the insurance code; or

d. A combination of the assets specified in clauses a. through c. of this subparagraph;

(d) Investments permitted by paragraph (b) of this subsection shall be issued by an institution that is not the parent, subsidiary, or affiliate of the grantor or beneficiary.

(e) If a trust agreement is entered into in conjunction with a reinsurance agreement that covers risks other than life, annuities, or accident and health, the trust agreement, rather than the reinsurance agreement, may contain the provisions required by paragraphs (c) and (d) of this subsection.

(f) Require the assuming insurer, prior to depositing assets with the trustee, to:

Execute assignments or endorsements in blank; or
Transfer legal title to the trustee of shares, obligations, or other assets requiring assignments, so that the ceding insurer, or the trustee on the direction of the ceding insurer, may negotiate the assets without the consent or signature of the assuming insurer or any other entity whenever necessary.

(g) Require that all settlements of account between the ceding insurer and the assuming insurer be made in cash or its equivalent; and

(h)

As provided by subparagraph 2 of this paragraph, stipulate that the assuming insurer and the ceding insurer agree that the assets in the trust account, established pursuant to the provisions of the reinsurance agreement, may be withdrawn by the ceding insurer at any time, notwithstanding any other provisions in the reinsurance agreement.
The assets shall be utilized and applied by the ceding insurer or its successors in interest by operation of law, including without limitation any liquidator, rehabilitator, receiver, or conservator of the company, without diminution because of insolvency on the part of the ceding insurer or the assuming insurer, only for the following purposes:

a. To reimburse the ceding insurer for the assuming insurer's share of premiums returned to the owners of policies reinsured under the reinsurance agreement because of cancellations of the policies;

b. To reimburse the ceding insurer for the assuming insurer's share of surrenders and benefits or losses paid by the ceding insurer pursuant to the provisions of the policies reinsured under the reinsurance agreement;

c. To fund an account with the ceding insurer in an amount at least equal to the deduction for reinsurance ceded from the ceding insurer liabilities for policies ceded under the agreement. The account shall include amounts for policy reserves, claims and losses incurred, including losses incurred but not reported, loss adjustment expenses, and unearned premium reserves; and

d. To pay any other amounts the ceding insurer claims are due under the reinsurance agreement.

(2) The reinsurance agreement may contain provisions that:

(a) Give the assuming insurer the right to seek approval from the ceding insurer to withdraw all or part of the trust assets from the trust account and transfer the withdrawn assets to the assuming insurer provided that:

The assuming insurer shall at the time of withdrawal replace the withdrawn assets with other qualified assets having a market value equal to the market value of the assets withdrawn so as to maintain the deposit in the required amount at all times; or
After withdrawal and transfer, the market value of the trust account is no less than 102 percent of the required amount.
The ceding insurer shall not unreasonably or arbitrarily withhold its approval.

(b) Provide for:

The return of any amount withdrawn in excess of the actual amounts required for subsection (1)(h)1., 2., and 3. of this section or for payments under subsection (1)(h)4. of this section, amounts that are subsequently determined not to be due; and
Interest payments at a rate not in excess of the prime rate of interest on the amounts held pursuant to subsection (1)(e)3. of this section.

Interest at a rate different from that provided in paragraph (b)2. of this subsection;
Court or arbitration costs;
Attorney's fees; and
Other reasonable expenses.

(3)

(a) If established on or before the date of filing the financial statement of the ceding insurer, a trust agreement may be used to reduce a liability for reinsurance ceded to an unauthorized assuming insurer in financial statements that are required to be filed with the department pursuant to this administrative regulation.

(b) The amount of a reduction for the existence of an acceptable trust account:

May be lesser than or equal to the current fair market value of acceptable assets that are available to be withdrawn from the trust account at the time of withdrawal; and
Shall not be greater than the specific obligations under the reinsurance agreement that the trust account was established to secure.

(4) The failure of a trust agreement to specifically identify the beneficiary shall not be construed to affect actions or rights which the commissioner may take or possess pursuant to the provisions of the laws of this state.

Section 11. Letters of Credit Qualified under KRS 304.5-140(3).

(1) A letter of credit shall:

(a) Be clean, irrevocable, and unconditional;

(b) Issued or confirmed by a qualified United States financial institution described in KRS 304.5-140(1)(a) and (b);

(d) State that it is not subject to a condition or qualification not contained in the letter of credit;

(e) Stipulate that in order to obtain funds, the beneficiary need only draw and present a sight draft under the letter of credit; and

(f) Except as provided by subsection (9)(a) of this section, not contain a reference to other agreements, documents, or entities.

(2) The heading of a letter of credit may include a boxed section that:

(a) Contains the name of the applicant, and other appropriate notations that provide a reference for the letter of credit; and

(b) Is clearly marked to indicate that the information is only for internal identification purposes.

(3) The letter of credit shall contain a statement that the obligation of the qualified United States financial institution described in KRS 304.5-140(1)(a) and (b) under the letter of credit is not contingent upon reimbursement with respect thereto.

(4) The term of the letter of credit shall be for at least one (1) year and shall contain an evergreen clause. The evergreen clause shall provide for a period of not less than thirty (30) days' notice prior to the date of expiration or nonrenewal.

(5) The letter of credit shall state:

(a) Whether it is governed by the:

Laws of Kentucky;
The Uniform Customs and Practice for Documentary Credits of the International Chamber of Commerce Publication 600, available at https://www.uscib.org/ucp-600-ud-4465/;
International Standby Practices of the International Chamber of Commerce Publication 590; or
Any successor publication; and

(b) That a draft drawn under the letter of credit shall be presentable at an office in the United States of a qualified United States financial institution described in KRS 304.5-140(1)(a) and (b).

(6) A letter of credit shall provide for an extension of time to draw against it if it:

(a) Is made subject to subsection (5)(a)2., 3., or 4. of this section; and

(b) An occurrence specified in Article 36 of "Publication 600" of the Uniform Customs and Practice for Documentary Credits of the International Chamber of Commerce occurs.

(7) The letter of credit shall be issued or confirmed by a qualified United States financial institution authorized to issue letters of credit, pursuant to KRS 304.5-140(1)(a) and (b).

(8) If a letter of credit is issued by a United States financial institution authorized to issue letters of credit, other than a qualified United States financial institution described in subsection (7) of this section, the following additional requirements shall be met:

(a) The issuing United States financial institution shall formally designate the confirming qualified United States financial institution as its agent for the receipt and payment of the drafts; and

(b) The evergreen clause shall provide for thirty (30) days' notice prior to expiration date for nonrenewal.

(9) Reinsurance agreement provisions.

(a) The reinsurance agreement for which the letter of credit is obtained may contain provisions that:

Require the assuming insurer to provide letters of credit to the ceding insurer and specify what shall be covered.
Stipulate that the assuming insurer and ceding insurer shall agree that, the letter of credit provided by the assuming insurer pursuant to the provisions of the reinsurance agreement:

a. May be drawn upon at any time, notwithstanding other provisions in the agreement; and

b. Shall be utilized by the ceding insurer or its successors in interest only for one (1) or more of the reasons specified in subparagraph 3 of this paragraph.

a. Reimburse the ceding insurer for the assuming insurer's share of premiums returned to the owners of policies reinsured under the reinsurance agreement on account of cancellations of the policies;

b. Reimburse the ceding insurer for the assuming insurer's share of surrenders and benefits or losses paid by the ceding insurer under the terms and provisions of the policies reinsured under the reinsurance agreement;

c. Fund an account with the ceding insurer in an amount at least equal to the deduction, for reinsurance ceded, from the ceding insurer's liabilities for policies ceded under the agreement; and

d. Pay other amounts the ceding insurer claims are due under the reinsurance agreement.

(b) The provisions in paragraph (a) of this subsection shall be applied without diminution because of insolvency on the part of the ceding insurer or assuming insurer.

(c) Nothing contained in paragraph (a) of this subsection shall preclude the ceding insurer and assuming insurer from providing for:

An interest payment, at a rate not in excess of the prime rate of interest, on the amounts held pursuant to paragraph (a)2. of this subsection; or
The return of any amounts drawn down on the letters of credit in excess of the actual amounts required for the reasons established in paragraph (a)3.a. through 3c. of this subsection or, in the case of paragraph (a)3.d. of this subsection, any amounts that are subsequently determined not to be due.

(d) In lieu of the stipulation permitted by paragraph (a)2. of this subsection, a reinsurance agreement may require that the parties enter into a "Trust Agreement", that may be incorporated into the reinsurance agreement or be a separate document, if:

A letter of credit is obtained in conjunction with a reinsurance agreement covering risks other than life, annuities and health; and
It is customary practice to provide a letter of credit for a specific purpose.

(10)

(a) A letter of credit shall not be used to reduce a liability for reinsurance ceded to an unauthorized assuming insurer in financial statements required to be filed with the department unless an acceptable letter of credit with the filing ceding insurer as beneficiary has been issued on or before the date of filing of the financial statement.

(b) The reduction for the letter of credit may be up to the amount available under the letter of credit but not greater than the specific obligation under the reinsurance agreement which the letter of credit was intended to secure.

Section 12. Other Security. A ceding insurer may take credit for unencumbered funds withheld by the ceding insurer in the United States subject to withdrawal solely by the ceding insurer and under its exclusive control.

Section 13. Reciprocal Jurisdictions.

(1) Pursuant to KRS 304.5-140 (3)(f)1., the commissioner shall allow credit for reinsurance ceded by a domestic insurer to an assuming insurer that is licensed to write reinsurance by, and has its head office or is domiciled in, a reciprocal jurisdiction, and that meets the other requirements of this administrative regulation.

(2) A reciprocal jurisdiction shall mean a jurisdiction as described in KRS 304.5-140, that is designated by the commissioner pursuant to subsection (8) of this section, and meets one (1) of the following:

(a) A non-U.S. jurisdiction that is set forth in 304.5-140(1)(c);

(b) A U.S. jurisdiction that meets the requirements for accreditation under the NAIC financial standards and accreditation program; or

(c) A qualified jurisdiction, as determined by the commissioner pursuant to KRS 304.5-140(3)(e)4., which is not otherwise described in paragraph (a) and (b) of this subsection and meets all the following additional requirements:

Provides that an insurer which has its head office or is domiciled in a qualified jurisdiction shall receive credit for reinsurance ceded to a U.S.-domiciled assuming insurer in the same manner as credit for reinsurance is received for reinsurance assumed by insurers domiciled in such qualified jurisdiction;
Does not require a U.S.-domiciled assuming insurer to establish or maintain a local presence as a condition for entering into a reinsurance agreement with any ceding insurer subject to regulation by the non-U.S. jurisdiction or as a condition to allow the ceding insurer to recognize credit for the reinsurance;
Recognizes the U.S. state regulatory approach to group supervision and group capital, by providing written confirmation by a competent regulatory authority, in the qualified jurisdiction, that insurers and insurance groups that are domiciled or maintain their headquarters in this state or another jurisdiction accredited by the NAIC shall be subject only to worldwide prudential insurance group supervision including worldwide group governance, solvency and capital, and reporting, as applicable, by the commissioner or the commissioner of the domiciliary state and shall not be subject to group supervision at the level of the worldwide parent undertaking of the insurance or reinsurance group by the qualified jurisdiction; and
Provides written confirmation by a competent regulatory authority in the qualified jurisdiction that information regarding insurers and their parent, subsidiary, or affiliated entities, if applicable, shall be provided to the commissioner in accordance with a memorandum of understanding or similar document between the commissioner and the qualified jurisdiction, including the International Association of Insurance Supervisors Multilateral Memorandum of Understanding or other multilateral memoranda of understanding coordinated by the NAIC.

(3) Credit Allowance.[Credit shall be allowed when the reinsurance is ceded from an insurer domiciled in this state to an assuming insurer when each of the conditions below are met:

(a) The assuming insurer shall be licensed to transact reinsurance by, and have its head office or be domiciled in, a reciprocal jurisdiction;

(b) The assuming insurer shall have and maintain on an ongoing basis minimum capital and surplus, or its equivalent, calculated on at least an annual basis as of the preceding December 31 or at the annual date otherwise statutorily reported to the reciprocal jurisdiction, and confirmed as set forth in KRS 304.5-140(3)(f)6.,according to the methodology of its domiciliary jurisdiction, in the following amounts:

No less than $250,000,000; or
If the assuming insurer is an association, including incorporated and individual unincorporated underwriters:

a. Minimum capital and surplus equivalents, net of liabilities, or own funds of the equivalent of at least $250,000,000; and

b. (ii) A central fund containing a balance of the equivalent of at least $250,000,000.

(4) The assuming insurer shall have and maintain on an ongoing basis a minimum solvency or capital ratio, as applicable, as follows:

(a) If the assuming insurer has its head office or is domiciled in a reciprocal jurisdiction set forth in subsection (2)(a) of this section, the ratio specified in the applicable covered agreement;

(b) If the assuming insurer is domiciled in a reciprocal jurisdiction as defined in subsection (2)(b) of this section, a risk-based capital ratio of 300[)] percent of the authorized control level, calculated in accordance with the formula developed by the NAIC; or

(c) If the assuming insurer is domiciled in a reciprocal jurisdiction set forth in subsection (2)(c) of this section, after consultation with the reciprocal jurisdiction and considering any recommendations published through the NAIC Committee Process, such solvency or capital ratio as the commissioner determines to be an effective measure of solvency and that is similar to the solvency provisions of the Kentucky Insurance Code.

(5) The assuming insurer shall agree to and provide adequate assurance, in the form of a properly executed Form RJ-1, of its agreement to the requirements set forth in KRS 304.5-140(3)(f)3.a., b., c., d., and e. and:

(a) The security required by KRS 304.5-140(3)(f)3.e. shall be in a form consistent with the provisions of KRS 304.5-140(3)(e) and (4), and sections 7, 8, 9, 10, 11, or 12 of this administrative regulation; and

(b) The assuming insurer shall agree in writing to meet the applicable information filing requirements as set forth in KRS 304.5-140(3)(f)4. and subsection (6) of this section.one hundred

(6) The assuming insurer or its legal successor shall provide, if requested by the commissioner, on behalf of itself and any legal predecessors, the following documentation to the commissioner:

(a) For the two (2) years preceding entry into the reinsurance agreement and on an annual basis thereafter, the assuming insurer's annual audited financial statements, in accordance with the applicable law of the jurisdiction of its head office or domiciliary jurisdiction, as applicable, including the external audit report;

(b) For the two (2) years preceding entry into the reinsurance agreement, the solvency and financial condition report or actuarial opinion, if filed with the assuming insurer's supervisor;

(c) Prior to entry into the reinsurance agreement and not more than semi-annually thereafter, an updated list of all disputed and overdue reinsurance claims outstanding for ninety (90) days or more, regarding reinsurance assumed from ceding insurers domiciled in the United States; and

(d) Prior to entry into the reinsurance agreement and not more than semi-annually thereafter, information regarding the assuming insurer's assumed reinsurance by ceding insurer, ceded reinsurance by the assuming insurer, and reinsurance recoverable on paid and unpaid losses by the assuming insurer to allow for the evaluation of the criteria set forth in subsection (7) of this section.

(7) The assuming insurer shall maintain a practice of prompt payment of claims under reinsurance agreements. The lack of prompt payment will be evidenced if any of the following criteria is met:

(a) More than fifteen (15) percent of the reinsurance recoverables from the assuming insurer are overdue and in dispute as reported to the commissioner;

(b) More than fifteen (15) percent of the assuming insurer's ceding insurers or reinsurers have overdue reinsurance recoverable on paid losses of ninety (90) days or more which are not in dispute and which exceed for each ceding insurer $100,000, or as otherwise specified in a covered agreement; or

(c) The aggregate amount of reinsurance recoverable on paid losses which are not in dispute, but are overdue by ninety (90) days or more, exceeds $50,000,000, or as otherwise specified in a covered agreement.

(8) Pursuant to 304.5-140(3)(g)1.a., the commissioner shall publish a list of reciprocal jurisdictions which can be found on the department's Web site at https://insurance.ky.gov/ppc/newstatic_Info.aspx?static_ID=648:

(a) A list of reciprocal jurisdictions is published through the NAIC Committee Process. The list created by the commissioner shall include any reciprocal jurisdiction as defined in subsection(2) of this section, and shall consider any other reciprocal jurisdiction included on the NAIC list. The commissioner may approve a jurisdiction that does not appear on the NAIC list of reciprocal jurisdictions as provided by applicable law, regulation, or in accordance with criteria published through the NAIC Committee Process. This process is published by the NAIC and can be found on the NAIC Web site at https://content.naic.org/sites/default/files/inline-files/QR%20Jurisdiction%20Process%20Final.pdf.

(b) The commissioner may remove a jurisdiction from the list of reciprocal jurisdictions upon a determination that the jurisdiction no longer meets one (1) or more of the requirements set forth in KRS 304.5-140, and subsection (2) of this section, or in accordance with a process published through the NAIC Committee Process, except that the commissioner shall not remove from the list a reciprocal jurisdiction as defined under subsection 2(a), (b), and (c) of this section. Upon removal of a reciprocal jurisdiction from this list, credit for reinsurance ceded to an assuming insurer domiciled in that jurisdiction shall be allowed, if otherwise allowed pursuant to KRS 304.5-140 and this administrative regulation.

(9) The commissioner shall timely create and publish a list of assuming insurers that have satisfied the conditions set forth in this section and to which cessions shall be granted credit in accordance with KRS 304.5-140 and this section.

(a) If an NAIC accredited jurisdiction has determined that the conditions set forth in subsection (3) and (4) of this section have been met, the commissioner shall have the discretion to defer to that jurisdiction's determination, and add such assuming insurer to the list of assuming insurers to which cessions shall be granted credit in accordance with this subsection. The commissioner may accept financial documentation filed with another NAIC accredited jurisdiction or with the NAIC in satisfaction of the requirements of subsection (3) of this section.

(b) When requesting that the commissioner defer to another NAIC accredited jurisdiction's determination, an assuming insurer shall submit a properly executed Form RJ-1 and additional information as the commissioner may require. A state that has received a request will notify other states through the NAIC Committee Process and provide relevant information with respect to the determination of eligibility.

(10) If the commissioner determines that an assuming insurer no longer meets one or more of the requirements under this section, the commissioner may revoke or suspend the eligibility of the assuming insurer for recognition under this section. If the commissioner makes such a determination:

(a) While an assuming insurer's eligibility is suspended, no reinsurance agreement issued, amended or renewed after the effective date of the suspension shall qualify for credit except to the extent that the assuming insurer's obligations under the contract are secured in accordance with KRS 304.5-140 and Section 7 of this administrative regulation; or

(b) If an assuming insurer's eligibility is revoked, credit for reinsurance shall not be granted after the effective date of the revocation with respect to any reinsurance agreements entered by the assuming insurer, including reinsurance agreements entered into prior to the date of revocation, except to the extent that the assuming insurer's obligations under the contract are secured in a form acceptable to the commissioner and consistent with the provisions of KRS 304.5-140 and Section 7 of this administrative regulation.

(11) Before denying statement credit or imposing a requirement to post security with respect to Section 7 of this administrative regulation or adopting any similar requirement that will have substantially the same regulatory impact as security, the commissioner shall:

(a) Communicate with the ceding insurer, the assuming insurer, and the assuming insurer's supervisory authority that the assuming insurer no longer satisfies one (1) of the conditions listed in subsections (3) and (4) of this section;

(b) Provide the assuming insurer with thirty (30) days from the initial communication to submit a plan to remedy the defect, and ninety (90) days from the initial communication to remedy the defect, except in exceptional circumstances in which a shorter period is necessary for policyholder and consumer protection;

(c) After the expiration of ninety (90) days, or less, as set out in paragraph (b) of this subsection, determine that if no or insufficient action was taken by the assuming insurer, to impose any of the requirements as set out in this subsection; and

(d) Provide a written explanation to the assuming insurer of any of the requirements set out in this subsection.

Section 14. Reinsurance Contract. Upon the effective date of this administrative regulation, credit shall not be granted to a ceding insurer for reinsurance effected with assuming insurers meeting the requirements of KRS 304.5-140 unless the reinsurance agreement includes a:

(1) Proper insolvency clause pursuant to KRS 304.5-140(5) and 304.33-350 of the Insurance Code; and

(2) Provision pursuant to KRS 304.5-140(3)(f), if the assuming insurer, is an unauthorized assuming insurer, and has:

(a) Submitted to the jurisdiction of an alternative dispute resolution panel or court of competent jurisdiction within the United States;

(b) Agreed to comply with all requirements necessary to give the court or panel jurisdiction;

(d) Agreed to abide by the final decision of the court or panel.

Section 15. Contracts Affected. All new and renewal reinsurance transactions entered into after the effective date of this administrative regulation shall conform to the requirements of KRS 304.5-140 and this administrative regulation if credit is to be given to the ceding insurer for reinsurance.

Section 16. Incorporation by Reference.

(1) The following material is incorporated by reference:

(a) "Certificate of Assuming Insurer," Form AR-1, 12/95 ;

(b) "Certificate of Certified Reinsurer," Form CR-1, 9/19 ;

(d) "Form CR-S",9/19 ; and

(e) "Form RJ-1", 9/21.

(2) This material may be inspected, copied, or obtained, subject to applicable copyright law, from the Department of Insurance, 500 Mero St., Frankfort, Kentucky 40602, Monday through Friday, 8 a.m. to 4:30 p.m. This material is also available on the department's internet Web site at https://insurance.ky.gov/ppc/CHAPTER.aspx.

History

RELATES TO: KRS 61.876, 61.878, 304.5-140, 304.33-350, 12 U.S.C. 1703, 1709, 1715b, 15 U.S.C. 78a-78kk, 80a, 42 U.S.C. Section 5402(6)
STATUTORY AUTHORITY: KRS 304.2-110, 304.5-140
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.2-110 authorizes the commissioner to make reasonable rules and regulations necessary for or as an aid to the effectuation of any provision of the Kentucky Insurance Code, KRS Chapter 304. KRS 304.5-140 authorizes the commissioner to promulgate administrative regulations to implement the provisions of that section. This administrative regulation implements KRS 304.5-140 by establishing credit for reinsurance.
History: 22 Ky.R. 1755; Am. 2035; 23 Ky.R. 140; eff. 7-5-96; TAm eff. 8-9-2007; Crt eff. 2-28-2020; 46 Ky.R. 2322, 2811, 2933; eff. 9-1-2020; 48 Ky.R. 1363, 2084; eff. 4-5-2022.

806 KAR 5:060 Registration of service contracts for consumer products {#sec-806-kar-5-060 omnilex-key=us-ky-regs-official--title-806--806 KAR 5:060}

Section 1. Definitions.

(1) "Casualty insurance" is defined by KRS 304.5-070.

(2) "Maker of a service contract" or "maker" is the entity contractually obligated under the terms of the service contract.

Section 2. Registration Required. A maker of a service contract seeking exemption from the definition of casualty insurance shall register with the commissioner by submitting:

(1) The name and address of its principal office; and

(2) Evidence of financial security demonstrated by one (1) of the following:

(a) Evidence of at least $100,000,000 dollars in net worth; or

(b) Evidence of an insurance policy or performance bond that:

Shall not be terminated unless at least thirty (30) days prior written notice is given to the commissioner;
States that the holder of a service contract shall be entitled to make a direct claim against the insurer upon the failure of the maker to pay any claim within sixty (60) days after the claim has been filed with the maker; and

a. Assures performance of the duties of the maker for all service contracts issued in Kentucky; or

b. Is written for an amount of $50,000 or twenty-five (25) percent of the maker's annual revenues from the service contracts issued in Kentucky, whichever is greater.

Section 3. Establishing Evidence for Registration. A maker of a service contract providing evidence required by Section 2 of this administrative regulation may submit:

(1) A current annual report;

(2) A copy of its 10K or 20F form as filed with the Securities Exchange Commission;

(3) A financial statement audited by an independent certified public accountant in conformity with generally accepted accounting practices; or

(4) A copy of the insurance policy or performance bond, accompanied by the following information, signed and certified under oath by an officer of the company:

(a) The amount of annual revenues from the sales of service contracts in Kentucky for the previous year ending December 31; and

(b) A projection of the revenue from service contracts to be sold in Kentucky for the current year.

Section 4. Changes to Registration. A registered maker of a service contract shall immediately notify the commissioner in writing of any change that would:

(1) Decrease the net worth of the maker below $100,000,000 dollars; or

(2) Result in the termination of the insurance policy or performance bond.

Section 5. Registration Approval, Renewal, Cessation, and Revocation.

(1) If the initial registration has not been affirmatively accepted or rejected by the commissioner within thirty (30) days of filing, registration requirements shall be determined as met.

(2) After the initial registration, each maker of a service contract shall file an updated report annually, on or before March 1.

(3) If a maker ceases issuing service contracts, the maker shall continue to file annual reports through the duration of all outstanding service contracts.

(4) If at any time, the maker fails to demonstrate compliance with this administrative regulation, the commissioner may revoke the maker's registration. Upon revocation of registration, the maker shall immediately cease issuing service contracts to consumers in Kentucky.

History

RELATES TO: KRS 304.5-070
STATUTORY AUTHORITY: KRS 304.5-070(1)(q)
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.5-070(1)(q) requires that makers of service contracts who repair, replace, or maintain consumer products register with the Commissioner to be exempt from the definition of casualty insurance. This administrative regulation establishes the filing requirements for that registration.
History: 23 Ky.R. 2368; eff. 2-10-97; TAm eff. 8-9-2007; Crt eff. 2-28-2020; 46 Ky.R. 1366; 2081; 2591; eff. 4-1-2020.

Chapter 6 Assets and Liabilities

806 KAR 6:010 Valuation standards; audits {#sec-806-kar-6-010 omnilex-key=us-ky-regs-official--title-806--806 KAR 6:010}

Section 1. Definitions.

(1) "1958 Commissioners Extended Term Table of Mortality" means the mortality table that:

(a) Is based on underwriting requirements that do not include evidence of medical insurability; and

(b) Incorporates mortality rates adequate to take into account the increase in mortality rate to which the class of persons whose lives are insured with credit life insurance are subject.

(2) "1958 Commissioners Standard Ordinary Table of Mortality" means the mortality table that is:

(a) Based on underwriting requirements that include evidence of medical insurability; and

(b) A recognized table of mortality that will produce substantially the same result as the "1958 Commissioners Extended Term Table of Mortality" if thirty (30) percent is added, the additional thirty (30) percent being the amount necessary to result in mortality rates adequate to take into account the increase in mortality to which the class or persons whose lives are insured by credit life insurance are subject.

(3) "2001 Commissioners Standard Ordinary Male Composite Ultimate Mortality Table" means a mortality table that:

(a) Consists of rates for male lives in the ultimate form with smokers and nonsmokers combined;

(b) Was 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 NAIC in December 2002; and

(4) "Credit Life Insurance" is defined in KRS 304.19-020(1).

(5) "Life actuary" means a person who computes premium rates, dividends, and risks according to probabilities based on statistical records for life insurance and annuities.

(6) "Single Premium Credit Life Insurance" means credit life insurance for which a charge often is passed on to the debtor for the term of the coverage of the term of the debt and that is often included in the total sum of the obligation.

Section 2. Valuation. In conjunction with the valuation required by KRS 304.6-130, each domestic life insurer shall, in the form of an affidavit by its actuary or consulting actuary, submit to the life actuary, totals and summaries in connection with valuation as the life actuary may deem necessary. In addition, each domestic life insurer shall supply and submit to the life actuary, in corresponding order, with the necessary documentation, lists, tabulations and working papers for policy contract obligations to be valued, which shall be in readily accessible and auditable form at the home office of the insurer.

Section 3. Certificate of Valuation. The commissioner shall accept for purposes of issuing a certificate of valuation, the Request for Certification of Reserves by a domestic life insurance company, which shall be certified by an actuary. The commissioner shall annually cause the records of domestic life insurance companies to be audited, using appropriate methods to assure that life insurance companies are properly valuing their reserve liabilities as established by KRS Chapter 304.

Section 4. Components of life insurance policies, annuities, and pure endowment contracts shall include contracts and any riders or additional benefits related to the contract.

Section 5. Credit Life Insurance.

(1) Pursuant to the authority established in KRS 304.6-140(2)(a), the reserves for all policies of single premium group credit life insurance and all single premium individual credit life insurance issued to be effective prior to January 1, 2006 shall be computed on the basis of:

(a) 100 percent of the 1958 Commissioners Extended Term Table of Mortality;

(b) 130 percent of the 1958 Commissioners Standard Ordinary Table of Mortality; or

(2) Pursuant to KRS 304.6-140(2)(a) the minimum standard for reserves for all policies of group credit life insurance and individual credit life insurance issued to be effective prior to January 1, 2006, may be determined as established in paragraphs (a) through (d) of this subsection.

(a) The interest rates used in determining the minimum standard for valuation shall be the calendar year statutory valuation interest rates as established in KRS 304.6-145.

(b) The method used in determining the minimum standard for valuation shall be the commissioners reserve valuation method as established in KRS 304.6-150.

(c) The minimum mortality standard for both male and female insureds shall be the 2001 Commissioners Standard Ordinary Male Composite Ultimate Mortality Table.

(d) Where the credit life insurance policy or certificate insures two (2) lives, the minimum mortality standard shall be twice the mortality in the 2001 Commissioners Standard Ordinary Male Composite Ultimate Mortality Table based on the age of the older insured.

(3) Pursuant to the authority contained in KRS 304.6-140(2)(a) the minimum standard for reserves for all policies of group credit life insurance and individual credit life insurance issued to be effective on or after January 1, 2006, shall be determined according to the following:

(a) The interest rates used in determining the minimum standard for valuation shall be the calendar year statutory valuation interest rates as defined in KRS 304.6-145;

(b) The method used in determining the minimum standard for valuation shall be the commissioners reserve valuation method as defined in KRS 304.6-150;

(c) The minimum mortality standard for both male and female insureds shall be the 2001 Commissioners Standard Ordinary Male Composite Ultimate Mortality Table; and

(d) If the credit life insurance policy or certificate insures two (2) lives, the minimum mortality standard shall be twice the mortality in the 2001 Commissioners Standard Ordinary Male Composite Ultimate Mortality Table based on the age of the older insured.

(4) Department of Insurance examiners, in examining company affairs, shall deem reserves maintained in accordance with this administrative regulation to be in compliance with the Kentucky Insurance Code, KRS Chapter 304, for all years under examination.

Section 6. Special Policies.

(1) "Coupon," "pure endowment," "founders," "charter," "special," and similar type policies, shall use all of the policy benefits afforded in the computation of the mean reserve formula.

(a) Mean reserve factors shall be printed for use in the computation of policy reserves.

(b) The timing; frequency of contingency, if any; and the method of pure endowment payment shall be clearly shown in the formula used to compute the mean reserve.

(2) Discriminatory and arbitrary action by the life insurance company to pay some benefits prior to contract date shall not create an asset or create a reduction of aggregate reserve liability unless an enforceable negotiable instrument is evidenced.

(3) A separate file of the special type policies established in subsection (1) of this section, shall be initiated by the Life Actuary of the Department of Insurance and shall be maintained by that department in addition to policies filed with the Policy Analyst in the Life Division. For each domestic life insurance company, a folder for each special type policy in force shall include a specimen policy, actuarial formula used to arrive at the mean reserve, and a factor table of the various factors by age at issue distributed for the in-force durations considered.

(4) For domestic life insurance companies with less than $500,000,000 of individual life in force and who do not use a standardized program package with unit programming, the following benefit breakdown shall be necessary.

(a) In force volume used in the mean reserve valuation run shall be segregated to allow for auditing of the various benefits.

(b) These benefits shall be enumerated as provided for in the filed specimen policy and shall include basic policy, return of premium, unmatured endowments, and termination benefit.

(5) Domestic life insurers excluded by subsection (4) of this section shall have reporting procedures and requirements compatible with the program package without sacrificing any audit trail of factors and their application. The requirements may vary from company to company based on the procedure but shall be in a pattern consistent with that approved for that company, based on the annual audit in accordance with KRS 304.6-130 through 304.6-180, and shall closely follow the requirements for other domestic life insurance companies.

Section 7. Cost of Noncompliance.

(1) If material is not available as established in this administrative regulation, the additional burden of cost for additional time required by the staff of the department of Insurance, or its actuary, shall be borne by the life insurance company as established for in KRS 304.2-290. A special examination may be ordered by the commissioner, providing for a written report to the commissioner, together with a time and expense billing to the company examined.

(2) If a detail audit of reserves reveals that an error was made in the filed annual statement and in the certificate issued by the department, the commissioner shall order the withdrawal of certification and reissuance of certificates and copies, and require a refiled NAIC annual statement on a significant error, or require corrective internal procedures in the company prior to the next filed NAIC statement for when the resultant error is not significant.

Section 8. Incorporation by Reference.

(1) The following material is incorporated by reference:

(a) "1958 Commissioners Extended Term Table of Mortality", 1958;

(b) "1958 Commissioners Standard Ordinary Table of Mortality", 1958; and

(2) This material may be inspected, copied, or obtained, subject to applicable copyright law, at the Kentucky Department of Insurance, 500 Mero Street, Frankfort, Kentucky 40601, Monday through Friday, 8 a.m. to 4:30 p.m. This material is also available on the Web site at: http://doi.ppr.ky.gov/kentucky/.

History

RELATES TO: KRS 304.2-290, 304.6-130-304.6-180
STATUTORY AUTHORITY: KRS 304.2-110
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.2-110(1) authorizes the commissioner of insurance to promulgate administrative regulations necessary for or as an aid to the effectuation of any provision of the Kentucky Insurance Code as established in KRS 304.1-010. KRS 304.6-130 through 304.6-180 requires the commissioner to annually value the liability item of the NAIC Annual Statement form as itemized in Exhibit 5 of that statement. This administrative regulation establishes the framework for acceptable valuation standards and establishes mortality tables for the determination of adequate reserves.
History: I-6.01-1; 1 Ky.R. 858; eff. 5-14-1975; 31 Ky.R. 849; 1295; eff. 3-3-2005; Crt eff. 2-26-2020; 47 Ky.R. 392, 563; eff. 2-2-2021.

806 KAR 6:020 Temporary transfer of assets prohibited {#sec-806-kar-6-020 omnilex-key=us-ky-regs-official--title-806--806 KAR 6:020}

Section 1. Any asset obtained by or due to a temporary transfer, exchange or sale of an asset covered under KRS 304.6-020 shall not be removed from the prohibition imposed therein, by reason of the said temporary transfer, exchange or sale.

History

RELATES TO: KRS 304.6-020
STATUTORY AUTHORITY: KRS 304.2-110
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.2-110 provides that the Commissioner of Insurance may make reasonable rules and administrative regulations necessary for or as an aid to the effectuation of any provision of the Kentucky Insurance Code. This administrative regulation prevents a temporary transfer, exchange or sale of an asset from being excluded from the prohibition imposed in KRS 304.6-020.
History: I-6.02; 1 Ky.R. 858; eff. 5-14-75; TAm eff. 8-9-2007; Crt eff. 2-26-2020; TAm eff. 3-10-2020.

806 KAR 6:060 Reserve liabilities, cash surrender values, and nonforfeiture benefits for plans of life insurance with separate rates for smokers and nonsmokers {#sec-806-kar-6-060 omnilex-key=us-ky-regs-official--title-806--806 KAR 6:060}

Section 1. Definitions.

(1) "1958 CET Table" means that mortality table developed by the Society of Actuaries Special Committee on New Mortality Tables, referenced in KRS 304.15-340.

(2) "1958 CSO Table" means a mortality table developed by the Society of Actuaries Special Committee on New Mortality Tables, referenced in KRS 304.15-340.

(3) "1980 CET Table" means a mortality table consisting of separate rates of mortality for male and female lives, developed by the Society of Actuaries Committee to Recommend New Mortality Tables for Valuation of Standard Individual Ordinary Life Insurance, referenced in KRS 304.15-342.

(4) "1980 CSO Table, with or without Ten (10) Year Select Mortality Factor" means that mortality table, consisting of separate rates of mortality for male and female lives, developed by the Society of Actuaries Committee to Recommend New Mortality Tables for Valuation of Standard Individual Ordinary Life Insurance, referenced in KRS 304.6-140 and 304.15-342.

(5) "Composite mortality tables" refers to the mortality tables defined in subsections (1) through (4) of this section as they were originally published with rates of mortality that do not distinguish between smokers and nonsmokers.

(6) "Smoker and nonsmoker mortality tables" refers to the mortality tables with separate rates of mortality for smokers and nonsmokers derived from the tables defined in 1 through 4 of this section which were developed by the Society of Actuaries Task Force on Smoker/Nonsmoker Mortality and the California Insurance Department staff and recommended by the NAIC Technical Staff Actuarial Group.

Section 2. Alternate Tables.

(1)

(a) For any policy of insurance delivered or issued for delivery in Kentucky after July 15, 1982 for that policy form and before January 1, 1989, at the option of the company and subject to the conditions stated in Section 3 of this administrative regulation for the following tables for use in determining minimum reserve liabilities and minimum cash surrender values and amounts of paid-up nonforfeiture benefits:

The 1958 CSO Smoker and Nonsmoker Mortality Tables may be substituted for the 1980 CSO Table, with or without Ten (10) Year Select Mortality Factors; and
The 1958 CET Smoker and Nonsmoker Mortality Tables may be substituted for the 1980 CET Table.

(b) For any category of insurance issued on female lives with minimum reserve liabilities and minimum cash surrender values and amounts of paid-up nonforfeiture benefits determined using the 1958 CSO or 1958 CET Smoker and Nonsmoker Mortality Tables, minimum values may be calculated according to an age not more than six (6) years younger than the actual age of the insured.

(c) The substitution of the 1958 CSO or 1958 CET Smoker and Nonsmoker Mortality Tables is available only if made for each policy of insurance on a policy form delivered or issued for delivery on or after the operative date for that policy form and before a date not later than January 1, 1989.

(2) For any policy of insurance delivered or issued for delivery in this state after the operative date of KRS 304.15-342 for that policy form, at the option of the company and subject to the conditions stated in Section 3 of this administrative regulation for the following tables for use in determining minimum reserve liabilities and minimum cash surrender values and amounts of paid-up nonforfeiture benefits:

(a) The 1980 CSO Smoker and Nonsmoker Mortality Tables, with or without Ten (10) Year Select Mortality Factors, may be substituted for the 1980 CSO Table, with or without Ten (10) Year Select Mortality Factors; and

(b) The 1980 CET Smoker and Nonsmoker Mortality Tables may be substituted for the 1980 CET Table.

Section 3. Conditions. For each plan of insurance with separate rates for smokers and nonsmokers an insurer may:

(1) Use composite mortality tables to determine minimum reserve liabilities and minimum cash surrender values and amounts of paid-up nonforfeiture benefits;

(2) Use smoker and nonsmoker mortality tables to determine the valuation net premiums and additional minimum reserves, if any, required by KRS 304.6-140 and 304.6-180 and use composite mortality tables to determine the basic minimum reserves, minimum cash surrender values and amounts of paid-up nonforfeiture benefits; or

(3) Use smoker and nonsmoker mortality to determine minimum reserve liabilities and minimum cash surrender values and amounts of paid-up nonforfeiture benefits.

Section 4. Severability. If any provision of this administrative regulation or the application thereof to any person or circumstance is for any reason held to be invalid, the remainder of the administrative regulation and the application of such provision to other persons or circumstances shall not be affected.

Section 5. Incorporation by Reference.

(1) The following material is incorporated by reference:

(a) "1980 CSO Table (1980)";

(b) "Ten (10) Year Select Mortality Factors (1980)";

(d) "1958 CSO Table (1958)"; and

(e) "1958 CET Table (1958)."

(2) This material may be inspected, copied, or obtained, subject to applicable copyright law, at the Kentucky office of Insurance, 500 Mero Street, Frankfort, Kentucky 40601, Monday through Friday, 8 a.m. to 4:30 p.m. This material is also available on the Web site at: http://doi.ppr.ky.gov/kentucky/.

History

RELATES TO: KRS 304.6-140, 304.6-145, 304.6-180, 304.15-342, 304.15-410
STATUTORY AUTHORITY: KRS 304.2-110, 304.6-140, 304.15-410
NECESSITY, FUNCTION, AND CONFORMITY: EO 2004-731, signed July 9, 2004, created the Office of Insurance. KRS 304.2-110(1) authorizes the Commissioner of Insurance to make reasonable administrative regulations necessary for or as an aid to the effectuation of any provision of the Kentucky Insurance Code as defined in KRS 304.1-010. KRS 304.6-140 authorizes the commissioner to promulgate administrative regulations for the use of ordinary mortality tables adopted after 1980 by the National Association of Insurance Commissioners (NAIC). KRS 304.15-410 states that where minimum reserves cannot be determined by the methods described in KRS 304.6-150, 304.6-155, and 304.6-180, they shall be determined by a method consistent with the principals of these sections, but as determined by administrative regulations issued by the commissioner. This administrative regulation permits the use of mortality tables that reflect differences in mortality between smokers and nonsmokers in determining minimum reserve liabilities and minimum cash surrender values and amounts of paid-up nonforfeiture benefits for plans of insurance with separate premium rates for smokers and nonsmokers.
History: 11 Ky.R. 678; eff. 11-13-84; 31 Ky.R. 851; 1146; eff. 1-4-2005; Crt eff. 2-26-2020; TAm eff. 3-10-2020.

806 KAR 6:072 Valuation of life insurance and annuity reserves {#sec-806-kar-6-072 omnilex-key=us-ky-regs-official--title-806--806 KAR 6:072}

Section 1. Definitions.

(1) "1983 GAM Table" means that 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 National Association of Insurance Commissioners.

(2) "1983 Table 'a'" means that 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 National Association of Insurance Commissioners.

(3) "1994 GAR Table" means that mortality table developed by the Society of Actuaries Group Annuity Valuation Table Task Force, containing the projection scale AA, using the methodology established in Section 4(3)(j) of this administrative regulation.

(4) "2012 Individual Annuity Mortality Period (2012 IAM Period) Table" means the period table, developed by the Society of Actuaries Committee on Life Insurance Research, containing loaded mortality rates for calendar year 2012 and containing rates, qx2012.

(5) "2012 Individual Annuity Reserve Table (2012 IAR Table)" means the generational mortality table developed by the Society of Actuaries Committee on Life Insurance Research and containing rates, qx2012-n, derived from a combination of the 2012 Individual Annuity Mortality Period (2012 IAM Period) Table and Projection Scale G2 (Scale G2), using the methodology established in Section 4(3)(i) of this administrative regulation.

(6) "Actuarial guidelines" mean a series of interpretive guidelines approved by the National Association of Insurance Commissioners for inclusion in its Handbook for Financial Examiners.

(7) "Annual statement" means the annual statement required by KRS 304.3-240.

(8) "Annuity 2000 Mortality Table" means that mortality table developed by the Society of Actuaries Committee on Life Insurance Research. The Annuity 2000 Mortality Table is included in the report on pages 211-249 of Volume XLVII of the Transactions of the Society of Actuaries (1995).

(9) "Commissioner" is defined by KRS 304.1-050(1).

(10) "Department" is defined by KRS 304.1-050(2).

(11) "Department actuary" means the actuary employed by or contracted with the department for the purpose of making or verifying a valuation.

(12) "Generational mortality table" means a mortality table containing a set of mortality rates that decrease for a given age from one (1) year to the next based on a combination of a period table and a projection scale containing rates of mortality improvement.

(13) "Life insurances policies, annuities, and pure endowment contracts":

(a) Means any contracts, together with all riders or endorsements and all additional benefits related thereto, whether these additional benefits are provided by policy provision or supplementary contract; and

(b) Does not mean a provision through which the insurer accepts deposits to provide future insurance, annuity, or pure endowment benefits.

(14) "Period table" means a table of mortality rates applicable to a given calendar year.

(15) "Projection Scale AA (Scale AA)" means a table developed by the Society of Actuaries Group Annuity Valuation Table Task Force of annual rates, AAx, of mortality improvement by age for projecting future mortality rates beyond calendar year 1994.

(16) "Projection Scale G2 (Scale G2)" means a table developed by the Society of Actuaries Committee on Life Insurance Research, of annual rates, G2x, of mortality improvement by age for projecting future mortality rates beyond calendar year 2012.

(17) "Qualified actuary" means a member in good standing of the American Academy of Actuaries who meets the requirements of Section 6 of this administrative regulation.

(18) "Reserve comparison" means a calculation:

(a) Setting out three (3) year tabulations of extracts from a company's valuation; and

(b) Completed by plan, with subtotals by mortality table, interest assumption, and valuation method that correspond to the line entries in Exhibit 5 of the current annual statement.

Section 2. Filing Requirements for Domestic Insurers.

(1) To facilitate the commissioner's evaluation of the valuation of reserves for life insurance policies, annuities, and pure endowment contracts made by a domestic insurer's actuary or consulting actuary, each insurer shall provide the department actuary an affidavit, signed by the qualified actuary responsible for the valuation and setting out insurance amounts and reserves on all contracts by basis of valuation and a reserve comparison.

(2) Each domestic insurer shall maintain in numerical order with the necessary documentation, lists, tabulations, and working papers for policy contract obligations to be valued, which shall be in readily accessible and auditable form at the domestic insurer's home office.

Section 3. Valuation Principles.

(1) Extraterritoriality. The commissioner shall question and may reject any valuation made by the insurance supervisory official of another state that does not comply with the minimum standards as established in KRS Chapter 304.6.

(2) Nature of liabilities.

(a) The liabilities covered by reserves for life insurance policies, annuities, and pure endowment contracts shall be generated by recognition of obligations to provide future sums of money, which are guaranteed in these contracts, and the standards of valuation established in KRS 304.6-140 through 304.6-180, shall be established in prospective terms.

(b)

If the methods established in paragraph (a) of this subsection are not possible to apply directly, retrospective methods, using accumulations at appropriate rates of interest may be used.
A company using these methods shall be prepared to demonstrate that these methods result in sufficient amounts to fund any obligations established in its contracts as guarantees of future performance.
Obligations that arise from known past events shall be valued retrospectively.

Section 4. Specific Requirements.

(1) Interest assumptions. The Moody's Corporate Bond Yield Averages referenced in KRS 304.6-145(4) shall be for the period ending June 30 for each calendar year.

(2) The actuarial guidelines shall be used, except if statutorily prohibited.

(3) Mortality tables.

(a) Except as established in paragraph (b) of this subsection, the 1983 Table "a" shall be recognized and approved as an individual annuity mortality table for valuation and, at the option of the company, may be used for purposes of determining the minimum standard of valuation for any individual annuity or pure endowment contract issued on or after July 1, 1976.

(b) Except as established in paragraph (c) of this subsection, either the 1983 Table "a" or the Annuity 2000 Mortality Table shall be used for determining the minimum standard of valuation for any individual annuity or pure endowment contract issued on or after January 1, 1985.

(c) Except as established in paragraph (d) of this subsection, the Annuity 2000 Mortality Table shall be used for determining the minimum standard of valuation for any individual annuity or pure endowment contract issued on or after January 1, 2005.

(d) Except as established in paragraph (e) of this subsection, the 2012 Individual Annuity Reserve Table (2012 IAR Table) shall be used for determining the minimum standard of valuation for any individual annuity or pure endowment contract issued on or after January 1, 2015.

(e) The 1983 Table "a" without projection shall be used for determining the minimum standards of valuation for an individual annuity or pure endowment contract issued on or after January 1, 2005, solely if the contract is based on life contingencies and is issued to fund periodic benefits arising from:

Settlements of various forms of claims pertaining to court settlements or out of court settlements from tort actions;
Settlements, such as life settlements agreed to outside of court and that do not constitute disability settlements; or
Settlements of long-term disability claims in which a temporary or life annuity has been used in lieu of continuing disability payments.

(f) Except as established in paragraph (g) of this subsection, the 1983 GAM Table and the 1983 Table "a" shall be recognized and approved as group annuity mortality tables for valuation and, at the option of the company, any one of these tables may be used for purposes of valuation for any annuity or pure endowment purchased on or after July 1, 1976, under a group annuity or pure endowment contract.

(g) Except as established in paragraph (h) of this subsection, the 1983 GAM Table shall be used for determining the minimum standard of valuation for any annuity or pure endowment purchased on or after January 1, 1985, under a group annuity or pure endowment contract.

The commissioner shall give consideration to the approval of other tables of mortality that produce lower reserves in any special case, if the request for approval is accompanied by an actuarial report, signed by the qualified actuary, of the reasons for the request.
If applicable, the report shall include an estimate of the degree of protection against insolvency provided as margin in the proposed table.

(h) The 1994 GAR Table shall be used for determining the minimum standard of valuation for any annuity or pure endowment purchased on or after January 1, 2015 under a group annuity or pure endowment contract. The commissioner shall give consideration to the approval of other tables of mortality which produce lower reserves in any special case, if the request for approval is accompanied by an actuarial report, signed by the qualified actuary, of the reasons for the request. If applicable, the report shall include an estimate of the degree of protection against insolvency provided as margin in the proposed table.

(i)

In using the 2012 Individual Annuity Reserve Table (2012 IAR Table), the mortality rate for a person age x in year (2012 + n) shall be calculated as follows:
The resulting qx2012+n shall be rounded to three (3) decimal places per 1,000.
The rounding shall occur according to the formula in subparagraph 1. of this paragraph, starting at the 2012 period table rate.
An Example: Rounding Calculations for Mortality Table Construction for 2012 IAR Table page for use of this mortality table is incorporated by reference in this administrative regulation.

(j) In using the 1994 GAR Table, the mortality rate for a person age x in year (1994 + n) shall be calculated as follows where the qx1994 and AAx are as established in the 1994 GAR Table:

(4) Changes of method (domestic insurers). The effects of changes in the methods of valuing life contracts shall be reported in Exhibit 5A of the annual statement in the year in which the change first takes place. Exhibit 5A shall show the old and the new method of valuation and the increase or decrease in the actuarial reserve due to the change. If adopting a method that produces an increase in the reserve, the company shall notify the department. If a change will produce a reserve that will be less than the amount under the old method, the company shall have the prior approval, pursuant to subsection 3(g) of this section, of the commissioner.

Section 5. Cost of Noncompliance.

(1) If the material is not available as established in Sections 2 and 4 of this administrative regulation, the additional burden of cost for additional time required by the staff of the Department of Insurance, or its department actuary, shall be borne by the life insurance company as established in KRS 304.2-290. A special examination may be ordered by the commissioner, providing for a written report to him or her together with a time and expense billing to the company so examined.

(2) If a detailed audit of reserves reveals that an error was made in the filed annual statement and in the certificate issued by the department, the commissioner may order the withdrawal of certification and reissuance of certificates and copies, and require a refiled annual statement on a significant error, or request the company to file a corrective action plan prior to the next filed annual statement if the resultant error is not significant.

Section 6. Qualified Actuary Requirements.

(1) In addition to Section 1(17) of this administrative regulation, in order to be considered a qualified actuary, a person shall be familiar with the valuation requirements applicable to life and health insurance companies.

(2)

(a) The actuary shall not meet the requirements of a qualified actuary if that person has:

Violated any provision of, or any obligation imposed by, any law in the course of his or her dealings as qualified actuary;
Been found guilty of fraudulent or dishonest practices;
Demonstrated incompetence, lack of cooperation, or untrustworthiness to act as a qualified actuary;
Submitted an actuarial opinion or memorandum that was rejected because it did not comply with the Kentucky Insurance Code, KRS Chapter 304, or standards established by the Actuarial Standards Board during the past five (5) years; or
Resigned or been removed as an actuary within the past five (5) years as a result of an act or omission indicated in any adverse report on examination or as a result of the failure to adhere to generally acceptable actuarial standards; and

(b) Failed to notify the commissioner of any adverse action taken against the actuary pursuant to paragraph (a)1. through 5. of this subsection by any insurance regulatory official of any other state.

Section 7. Incorporation by Reference.

(1) The following material is incorporated by reference:

(a) "1983 Table 'a'", 1/2023;

(b) "1983 GAM Table", 1/2023;

(d) "2012 Individual Annuity Mortality Period (2012 IAM Period) Table", 1/2023;

(e) "2012 Individual Annuity Reserve Table (2012 IAR Table)", 1/2023;

(f) "Annuity 2000 Mortality Table", 1/2023;

(g) "Projection Scale AA (Scale AA)", 1/2023;

(h) "Projection Scale G2 (Scale G2)", 1/2023; and

(i) "Example: Rounding Calculations for Mortality Table Construction for 2012 IAR Table", 1/2023.

(2) This material may be inspected, copied, or obtained, subject to applicable copyright law, at the Kentucky Department of Insurance, The Mayo Underwood Building, 500 Mero Street, Frankfort, Kentucky 40601, Monday through Friday 8 a.m. to 4:30 p.m. This material is also available on the Web site at: http://insurance.ky.gov/ppc/CHAPTER.aspx.

History

RELATES TO: KRS 304.1-050, 304.2-290, 304.3-240, 304.6, 304.15-410
STATUTORY AUTHORITY: KRS 304.2-110, 304.6-140
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.2-110 authorizes the commissioner to promulgate reasonable administrative regulations necessary for or as an aid to the effectuation of the Kentucky Insurance Code as established in KRS 304.1-010. KRS 304.6-140 authorizes the commissioner to promulgate administrative regulations approving any mortality table "adopted by the National Association of Insurance Commissioners after 1980" for use in determining the minimum standard for valuation of policies. This administrative regulation establishes the framework for valuation standards acceptable to the department and establishes the conditions under which the department actuary will verify the valuation of a company's reserves without cost to the insurer.
History: 49 Ky.R. 1710; 2098; 50 Ky.R. 43; 531; 662; eff. 8-1-2023.

806 KAR 6:075 Valuation of life insurance policies {#sec-806-kar-6-075 omnilex-key=us-ky-regs-official--title-806--806 KAR 6:075}

Section 1. Definitions.

(1) "1980 CSO valuation tables" means the Commissioners 1980 Standard Ordinary Mortality Table (1980 CSO Table) without ten (10) year selection factors, incorporated into the 1980 amendments to the NAIC Standard Valuation Law, and variations of the 1980 CSO Table approved by the NAIC, such as the smoker and nonsmoker versions approved in December 1983.

(2) "2001 CSO Mortality Table" means a mortality table, consisting of separate rates of mortality for male and female lives, 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 NAIC in December 2002.

(3) "Basic reserves" means reserves calculated in accordance with KRS 304.6-150.

(4) "Contract segmentation method" means the method of dividing the period from issue to mandatory expiration of a policy into successive segments, with the length of each segment being defined as the period from the end of the prior segment to the end of the latest policy year as determined by section 2(1)

(5) "Deficiency reserves" means the excess, if greater than zero, of minimum reserves calculated in accordance with KRS 304.6-180 over basic reserves.

(6) "Guaranteed gross premiums" means the premiums under a policy of life insurance that are guaranteed and determined at issue.

(7) "Maximum valuation interest rates" means the interest rates defined in KRS 304.6-145 that are to be used in determining the minimum standard for the valuation of life insurance policies.

(8) "Scheduled gross premium" means the smallest illustrated gross premium set forth at issue for each policy year.

(9) "Segmented reserves" means reserves, calculated pursuant to Section 2(2).

(10) "Tabular cost of insurance" means the net single premium at the beginning of a policy year for one (1) year term insurance in the amount of the guaranteed death benefit in that policy year.

(11) "Ten (10) year select factors" means the select factors adopted with the 1980 amendments to the NAIC Standard Valuation Law.

(12) "Unitary reserves" means the reserves calculated pursuant to Section 2(3).

(13) "Universal life insurance policy" means any individual life insurance policy under the provisions of which separately identified interest credits, other than in connection with dividend accumulations, premium deposit funds, or other supplementary accounts, and mortality or expense charges are made to the policy.

Section 2. Calculations

(1) Calculations for contract segmentation method: All calculations shall be made using the 1980 CSO valuation tables, or any other valuation mortality table adopted by the National Association of Insurance Commissioners after the effective date of this administrative regulation and promulgated by administrative regulation by the commissioner for this purpose, and, if elected, the optional minimum mortality standard for deficiency reserves stipulated in Section 5(2). The length of a particular contract segment shall be set equal to the minimum of the value "t" for which Gt is greater than Rt. If Gt never exceeds Rt the segment length shall be deemed to be the number of years from the beginning of the segment to the mandatory expiration date of the policy. Gt and Rt shall be defined as follows:

(2)

(a) Segmented reserves shall be calculated using segments produced by the contract segmentation method, equal to the present value of all future guaranteed benefits less the present value of all future net premiums to the mandatory expiration of a policy, where the net premiums within each segment are a uniform percentage of the respective guaranteed gross premiums within the segment. The uniform percentage for each segment shall be, at the beginning of the segment, the present value of the net premiums within the segment equals the present value of the death benefits within the segment, plus the present value of any unusual guaranteed cash value as described in Section 6(4) of this administrative regulation occurring at the end of the segment, less any unusual guaranteed cash value occurring at the start of the segment, plus for the first segment only, the excess of the net level annual premium over a net one (1) year term premium for the benefits provided for in the first policy year. The net level annual premium shall be equal to the present value, at the date of issue, of the benefits provided for in the first segment after the first policy year, divided by the present value, at the date of issue, of an annuity of one (1) per year payable on the first and each subsequent anniversary within the first segment on which a premium falls due. However, the net level annual premium shall not exceed the net level annual premium on the nineteen (19) year premium whole life plan of insurance of the same renewal year equivalent level amount at an age one (1) year higher than the age at issue of the policy.

(b) The length of each segment shall be determined by the contract segmentation method.

(c) The interest rates used in the present value calculations for any policy shall not exceed the maximum valuation interest rate, determined with a guarantee duration equal to the sum of the lengths of all segments of the policy.

(d) For both basic reserves and deficiency reserves computed by the segmented method, present values shall include future benefits and net premiums in the current segment and in all subsequent segments.

(3) The Unitary reserves shall be the present value of all future guaranteed benefits less the present value of all future modified net premiums where guaranteed benefits and modified net premiums are considered to the mandatory expiration of the policy. Modified net premiums are a uniform percentage of the respective guaranteed gross premiums, where the uniform percentage is, at issue, the present value of the net premiums equals the present value of all death benefits and pure endowments, plus the excess of the net level annual premium over a net one (1) year term premium for the benefits provided for in the first policy year. The net level annual premium is equal to the present value, at the date of issue, of the benefits provided for after the first policy year, divided by the present value, at the date of issue, of an annuity of one (1) per year payable on the first and each subsequent anniversary of the policy on which a premium falls due. However, the net level annual premium shall not exceed the net level annual premium on the nineteen (19) year premium whole life plan of insurance of the same renewal year equivalent level amount at an age one (1) year higher than the age at issue of the policy. The interest rates used in the present value calculations for any policy shall not exceed the maximum valuation interest rate, determined with a guarantee duration equal to the length from issue to the mandatory expiration of the policy.

Section 3. Applicability.

(1) This administrative regulation shall apply to all life insurance policies, with or without nonforfeiture values, issued on or after August 14, 2000, subject to the following exceptions and conditions.

(2) This administrative regulation shall not apply to any individual life insurance policy issued on or after August 14, 2000 if the policy is issued in accordance with and as a result of the exercise of a reentry provision contained in the original life insurance policy of the same or greater face amount, issued before the effective date of this administrative regulation, that guarantees the premium rates of the new policy. This administrative regulation also shall not apply to subsequent policies issued as a result of the exercise of a reentry provision, or a derivation of the provision, in the new policy.

(3) This administrative regulation shall not apply to any universal life policy that meets the following requirements:

(a) Secondary guarantee period, if any, of five (5) years or less;

(b) Specified premium for the secondary guarantee period is not less than the net level reserve premium for the secondary guarantee period based on the 1980 CSO valuation tables and the applicable valuation interest rate; and

(c) The initial surrender charge is not less than 100 percent of the first year annualized specified premium for the secondary guarantee period.

(4) This administrative regulation shall not apply to any variable life insurance policy that provides for life insurance, the amount or duration of which varies according to the investment experience of any separate account or accounts.

(5) This administrative regulation shall not apply to any variable universal life insurance policy that provides for life insurance, the amount or duration of which varies according to the investment experience of any separate account or accounts.

(6) This administrative regulation shall not apply to a group life insurance certificate unless the certificate provides for a stated or implied schedule of maximum gross premiums required in order to continue coverage in force for a period in excess of one (1) year.

(7) Exception for universal life insurance policies. Scheduled gross premium shall be the smallest specified premium for each policy year described in Section 7(1)(e), if any, or else the minimum premium described in Section 7(1)(f) of this administrative regulation set forth at issue.

Section 4. Conditions.

(1) Calculation of the minimum valuation standard for policies, other than universal life policies, with guaranteed nonlevel gross premiums or guaranteed nonlevel benefits, or both, shall be in accordance with the provisions of Section 6.

(2) Calculation of the minimum valuation standard for flexible premium and fixed premium universal life insurance policies that contain provisions resulting in the ability of a policyholder to keep a policy in force over a secondary guarantee period shall be in accordance with the provisions of Section 7.

Section 5. General Calculation Requirements for Basic Reserves and Premium Deficiency Reserves.

(1) At the election of the company for any one (1) or more specified plans of life insurance, the minimum mortality standard for basic reserves may be calculated using the 1980 CSO valuation tables with select mortality factors, or any other valuation mortality table approved by the commissioner and promulgated by administrative regulation for this purpose. If select mortality factors are elected, they may be the following:

(a) The ten (10) year select mortality factors incorporated into the 1980 amendments to the NAIC Standard Valuation Law;

(b) The select mortality factors incorporated by reference by this administrative regulation; or

(c) Any other table of select mortality factors adopted by the NAIC, approved by the commissioner, and promulgated by administrative regulation for the purpose of calculating basic reserves.

(2) Deficiency reserves, if any, shall be calculated for each policy as the excess, if greater than zero, of the quantity A over the basic reserve. The quantity A shall be obtained by recalculating the basic reserve for the policy using guaranteed gross premiums instead of net premiums when the guaranteed gross premiums are less than the corresponding net premiums. At the election of the company for any one (1) or more specified plans of insurance, the quantity A and the corresponding net premiums used in the determination of quantity A may be based upon the 1980 CSO valuation tables with select mortality factors, or any other valuation mortality table adopted by the NAIC, approved by the commissioner, and promulgated by administrative regulation. If select mortality factors are elected, they may be the following:

(a) The ten (10) year select mortality factors incorporated into the 1980 amendments to the NAIC Standard Valuation Law;

(b) The select mortality factors incorporated by reference by this administrative regulation;

(c) For durations in the first segment, X percent of the select mortality factors incorporated by reference by this administrative regulation, subject to the following:

X may vary by policy year, policy form, underwriting classification, issue age, or any other policy factor expected to affect mortality experience;
X shall not be less than twenty (20) percent;
X shall not decrease in any successive policy years;
When using the valuation interest rate used for basic reserves, the actuarial present value of future death benefits, calculated using the mortality rates resulting from the application of X, is greater than or equal to the actuarial present value of future death benefits calculated using anticipated mortality experience without recognition of mortality improvement beyond the valuation date;
The mortality rates resulting from the application of X are at least as great as the anticipated mortality experience, without recognition of mortality improvement beyond the valuation date, in each of the first five (5) years after the valuation date;
The appointed actuary shall increase X at any valuation date where it is necessary to continue to meet all the requirements of this subsection;
The appointed actuary may decrease X at any valuation date if X does not decrease in any successive policy years and as long as it continues to meet all the requirements of this Section 5(2)(c) of this administrative regulation;
The appointed actuary shall specifically take into account the adverse effect on expected mortality and lapsation of any anticipated or actual increase in gross premiums; and
If X is less than 100 percent at any duration for any policy, then the appointed actuary shall annually prepare an actuarial opinion and memorandum for the company in conformance with the requirements of KRS 304.6-171 and 806 KAR 6:100, Section 6, and the appointed actuary shall annually opine for all policies subject to this administrative regulation as to whether the mortality rates resulting from the application of X meet the requirements of this subsection. This opinion shall be supported by an actuarial report, subject to appropriate Actuarial Standards of Practice promulgated by the Actuarial Standards Board of the American Academy of Actuaries. The X factors shall reflect anticipated future mortality, without recognition of mortality improvement beyond the valuation date, taking into account relevant emerging experience; or

(d) Any other table of select mortality factors adopted by the National Association of Insurance Commissioners approved by the commissioner, and promulgated by administrative regulation for the purpose of calculating deficiency reserves.

(3) Any set of select mortality factors may be used only for the first segment. This applies to both basic reserves and deficiency reserves. However, if the first segment is less than ten (10) years, the appropriate ten (10) year select mortality factors incorporated into the 1980 amendments to the NAIC Standard Valuation Law may be used thereafter through the tenth policy year from the date of issue.

(4) In determining basic reserves or deficiency reserves, guaranteed gross premiums without policy fees may be used where the calculation involves the guaranteed gross premium but only if the policy fee is a level dollar amount after the first policy year. In determining deficiency reserves, policy fees may be included in guaranteed gross premiums, even if not included in the actual calculation of basic reserves.

(5) Reserves for policies that have changes to guaranteed gross premiums, guaranteed benefits, guaranteed charges, or guaranteed credits that are unilaterally made by the insurer after issue and that are effective for more than one (1) year after the date of the change shall be the greatest of the following:

(a) Reserves calculated ignoring the guarantee;

(b) Reserves assuming the guarantee was made at issue; or

(6) The commissioner may require that the company document the extent of the adequacy of reserves for specific blocks, including policies issued prior to the effective date of this administrative regulation. This documentation may include a demonstration of the extent to which aggregation with other nonspecified blocks of business is relied upon in the formation of the appointed actuary opinion pursuant to and consistent with the requirements of KRS 304.6-171 and 806 KAR 6:100, Section 6.

Section 6. Calculation of Minimum Valuation Standard for Policies with Guaranteed Nonlevel Gross Premiums or Guaranteed Nonlevel Benefits that are Not Universal Life Policies.

(1) Basic reserves shall be calculated as the greater of the segmented reserves and the unitary reserves. Both the segmented reserves and the unitary reserves for any policy shall use the same valuation mortality table and selection factors. At the option of the insurer, in calculating segmented reserves and net premiums, either of the following adjustments may be made:

(a) The insurer may treat the unitary reserve, if greater than zero, applicable at the end of each segment as a pure endowment and subtract the unitary reserve, if greater than zero, applicable at the beginning of each segment from the present value of guaranteed life insurance and endowment benefits for each segment.

(b) The insurer may treat the guaranteed cash surrender value, if greater than zero, applicable at the end of each segment as a pure endowment; and subtract the guaranteed cash surrender value, if greater than zero, applicable at the beginning of each segment from the present value of guaranteed life insurance and endowment benefits for each segment.

(2)

(a) The deficiency reserve at any duration shall be calculated as follows:

On a unitary basis if the corresponding basic reserve determined by subsection (1) of this section is unitary;
On a segmented basis if the corresponding basic reserve determined by subsection (1) of this section is segmented; or
On the segmented basis if the corresponding basic reserve determined by subsection (1) of this section is equal to both the segmented reserve and the unitary reserve.

(b) This subsection shall apply to any policy for which the guaranteed gross premium at any duration is less than the corresponding modified net premium calculated by the method used in determining the basic reserves, but using the minimum valuation standards of mortality specified in Section 5(2) and rate of interest.

(c) Deficiency reserves, if any, shall be calculated for each policy as the excess if greater than zero, for the current and all remaining periods, of the quantity A over the basic reserve, where A is obtained as indicated in Section 5(2).

(d) For deficiency reserves determined on a segmented basis, the quantity A shall be determined using segment lengths equal to those determined for segmented basic reserves.

(3) Basic reserves shall not be less than the tabular cost of insurance for the balance of the policy year, if mean reserves are used. Basic reserves shall not be less than the tabular cost of insurance for the balance of the current modal period or to the paid-to-date, if later, but not beyond the next policy anniversary, if midterminal reserves are used. The tabular cost of insurance shall use the same valuation mortality table and interest rates as that used for the calculation of the segmented reserves. However, if select mortality factors are used, they shall be the ten (10) year select factors incorporated into the 1980 amendments of the NAIC Standard Valuation Law. Total reserves, including basic reserves, deficiency reserves and any reserves held for supplemental benefits that would expire upon contract termination, shall not be less than the amount that the policy owner would receive, including the cash surrender value of the supplemental benefits, if any, referred to above, exclusive of any deduction for policy loans, upon termination of the policy.

(4)

(a) For any policy with an unusual pattern of guaranteed cash surrender values, the reserves actually held prior to the first unusual guaranteed cash surrender value shall not be less than the reserves calculated by treating the first unusual guaranteed cash surrender value as a pure endowment and treating the policy as an "m" year policy providing term insurance plus a pure endowment equal to the unusual cash surrender value, where "m" is the number of years from the date of issue to the date the unusual cash surrender value is scheduled.

(b) The reserves actually held subsequent to any unusual guaranteed cash surrender value shall not be less than the reserves calculated by treating the policy as an "n" year policy providing term insurance plus a pure endowment equal to the next unusual guaranteed cash surrender value, and treating any unusual guaranteed cash surrender value at the end of the prior segment as a net single premium, where:

"n" is the number of years from the date of the last unusual guaranteed cash surrender value prior to the valuation date to the earlier of:

a. The date of the next unusual guaranteed cash surrender value, if any, that is scheduled after the valuation date; or

b. The mandatory expiration date of the policy; and

The net premium for a given year during the "n" year period is equal to the product of the net to gross ratio and the respective gross premium; and
The net to gross ratio is equal to the present value, at the beginning of the "n" year period, of death benefits payable during the "n" year period plus the present value, at the beginning of the "n" year period, of the next unusual guaranteed cash surrender value, if any, minus the amount of the last unusual guaranteed cash surrender value, if any, scheduled at the beginning of the "n" year period, divided by, the present value, at the beginning of the "n" year period, of the scheduled gross premiums payable during the "n" year period.

(c) For purposes of this subsection, a policy shall be considered to have an unusual pattern of guaranteed cash surrender values if any future guaranteed cash surrender value exceeds the prior year's guaranteed cash surrender value by more than the sum of the following:

110 percent of the scheduled gross premium for that year;
110 percent of one (1) year's accrued interest on the sum of the prior year's guaranteed cash surrender value and the scheduled gross premium using the nonforfeiture interest rate used for calculating policy guaranteed cash surrender values; and
Five (5) percent of the first policy year surrender charge, if any.

(5) At the option of the company, the following approach for reserves on yearly renewable term reinsurance may be used:

(a) Calculate the valuation net premium for each future policy year as the tabular cost of insurance for that future year.

(b) Basic reserves shall not be less than the tabular cost of insurance for the appropriate period, as calculated in subsection (3) of this section.

(c) Deficiency reserves may be determined by calculating for each policy year, the excess, if greater than zero, of the valuation net premium over the respective maximum guaranteed gross premium. Deficiency reserves shall never be less than the sum of the present values, at the date of valuation, of the excesses.

(d) For purposes of this subsection, the calculations use the maximum valuation interest rate and the 1980 CSO mortality tables with or without ten (10) year select mortality factors, or any other table adopted by the National Association of Insurance Commissioners and approved by the commissioner for this purpose.

(e) A reinsurance agreement shall be considered yearly renewable term reinsurance for purposes of this subsection if only the mortality risk is reinsured.

(f) If the assuming company chooses this optional exemption, the ceding company's reinsurance reserve credit shall be limited to the amount of reserve held by the assuming company for the affected policies.

(6) At the option of the company, the following approach for reserves for attained-age-based yearly renewable term life insurance policies may be used:

(a) Calculate the valuation net premium for each future policy year as the tabular cost of insurance for that future year.

(b) Basic reserves shall not be less than the tabular cost of insurance for the appropriate period, as defined in subsection (3) of this section.

(c) To calculate deficiency reserves, calculate the excess for each policy year, if greater than zero, of the valuation net premium over the respective maximum guaranteed gross premium. Deficiency reserves shall not be less than the sum of the present values, at the date of valuation, of the excesses.

(d) For purposes of Section 5(6) of this administrative regulation, the calculations shall use the maximum valuation interest rate and the 1980 CSO valuation tables with or without ten (10) year select mortality factors, or any other table adopted by the National Association of Insurance Commissioners, approved by the commissioner, and promulgated by administrative regulation for this purpose.

(e) A policy shall be considered an attained-age-based yearly renewable term life insurance policy for purposes of subsection (6) of this section if:

The premium rates, on both the initial current premium scale and the guaranteed maximum premium scale, are based upon the attained age of the insured so that the rate for any given policy at a given attained age of the insured is independent of the year the policy was issued; and
The premium rates, on both the initial current premium scale and the guaranteed maximum premium scale, are the same as the premium rates for policies covering all insureds of the same sex, risk class, plan of insurance and attained age.

(f) For policies that become attained-age-based yearly renewable term policies after an initial period of coverage, the approach of this subsection may be used after the initial period if:

The initial period is constant for all insureds of the same sex, risk class, and plan of insurance; or
The initial period runs to a common attained age for all insureds of the same sex, risk class and plan of insurance; and
After the initial period of coverage, the policy meets the conditions of paragraph (e) of this subsection.

(g) If an insurer elects this optional exemption under this subsection, the approach herein shall be applied in determining reserves for all attained-age-based yearly renewable term life insurance policies issued on or after August 14, 2004.

(7) Unitary basic reserves and unitary deficiency reserves for a yearly renewable term life insurance policy shall not be required to be calculated if the following conditions are met:

(a) The policy consists of a series of n-year periods, including the first period and all renewal periods, where "n" is the same for each period, except that for the final renewal period, "n" may be truncated or extended to reach the expiry age, provided that this final renewal period is less than ten (10) years and less than twice the size of the earlier n-year periods, and for each period, the premium rates on both the initial current premium scale and the guaranteed maximum premium scale are level;

(b) The guaranteed gross premiums in all n-year periods are not less than the corresponding net premiums based upon the 1980 CSO Table with or without the ten (10) year select mortality factors; and

(8) Unitary basic reserves and unitary deficiency reserves shall not be required to be calculated for a policy if the following conditions are met, based upon the initial current premium scale at issue:

(a) At issue, the insured is age twenty-four (24) or younger;

(b) Until the insured reaches the end of the juvenile period, which shall occur at or before age twenty-five (25), the gross premiums and death benefits are level, and there are no cash surrender values; and

(c) After the end of the juvenile period, gross premiums are level for the remainder of the premium paying period, and death benefits are level for the remainder of the life of the policy.

Section 7. Calculation of Minimum Valuation Standard for Flexible Premium and Fixed Premium Universal Life Insurance Policies that Contain Provisions Resulting in the Ability of a Policy Owner to Keep a Policy in Force Over a Secondary Guarantee Period.

(1)

(a) Policies with a secondary guarantee shall include, the following:

A policy with a guarantee that the policy will remain in force at the original schedule of benefits, subject only to the payment of specified premiums;
A policy in which the minimum premium at any duration is less than the corresponding one (1) year valuation premium, calculated using the maximum valuation interest rate and the 1980 CSO valuation tables with or without ten (10) year select mortality factors, or any other table adopted by the National Association of Insurance Commissioners, approved by the commissioner, and promulgated by administrative regulation for this purpose; and
A policy with any combination of paragraphs (a) and (b) of this subsection.

(b) A secondary guarantee period shall be the period for which the policy is guaranteed to remain in force subject only to a secondary guarantee. If a policy contains more than one (1) secondary guarantee, the minimum reserve shall be the greatest of the respective minimum reserves at that valuation date of each unexpired secondary guarantee, ignoring all other secondary guarantees. Secondary guarantees that are unilaterally changed by the insurer after issue shall be considered to have been made at issue. Reserves described in subsections (2) and (3) of this section shall be recalculated from issue to reflect these changes.

(c) Specified premiums shall mean the premiums specified in the policy or imputable by the terms of the policy, the payment of which guarantees that the policy will remain in force at the original schedule of benefits, but which otherwise would be insufficient to keep the policy in force in the absence of the guarantee if maximum mortality and expense charges and minimum interest credits were made and any applicable surrender charges were assessed.

(d) For purposes of this subsection, the minimum premium for any policy year shall be the premium that, when paid into a policy with a zero account value at the beginning of the policy year, produces a zero account value at the end of the policy year. The minimum premium calculation shall use the policy cost factors, including mortality charges, loads and expense charges, and the interest crediting rate, which are all guaranteed at issue.

(e) The one (1) year valuation premium shall mean the net one (1) year premium based upon the original schedule of benefits for a given policy year. The one (1) year valuation premiums for all policy years are calculated at issue. The select mortality factors defined in Section 5 (2)(b), (c), and (d) not be used to calculate the one (1) year valuation premiums.

(f) The one (1) year valuation premium shall reflect the frequency of fund processing, as well as the distribution of deaths assumption employed in the calculation of the monthly mortality charges to the fund.

(2) Basic reserves for the secondary guarantees shall be the segmented reserves for the secondary guarantee period. In calculating the segments and the segmented reserves, the gross premiums shall be set equal to the specified premiums, if any, or otherwise to the minimum premiums, that keep the policy in force and the segments shall be determined according to the contract segmentation method as defined in Section 2(1).

(3) Deficiency reserves, if any, for the secondary guarantees shall be calculated for the secondary guarantee period in the same manner as described in Section 6(2) with gross premiums set equal to the specified premiums, if any, or otherwise to the minimum premiums that keep the policy in force.

(4) The minimum reserves during the secondary guarantee period shall be the greater of the following:

(a) The basic reserves for the secondary guarantee plus the deficiency reserve, if any, for the secondary guarantees; or

(b) The minimum reserves required by other rules or administrative regulations governing universal life plans.

Section 8. Applicability of the 2001 CSO Mortality Table.

(1) The 2001 CSO Mortality Table may be used in the following manner, subject to the transition dates for use of the 2001 CSO Mortality Table:

(a) Section 3, subsection(3)(b): The net level reserve premium shall be based on the ultimate mortality rates in the 2001 CSO Mortality Table.

(b) Section 2, subsection (2): All calculations shall be made using the 2001 CSO Mortality Rate, and, if elected, the optional minimum mortality standard for deficiency reserves stipulated in Section 8, Subsection (1)(d) of this administrative regulation. The value of "qx+k+t-1" shall be the valuation mortality rate for deficiency reserves in policy year k+t, but using the unmodified select mortality rates if modified select mortality rates are used in the computation of deficiency reserves.

(d) Section 5, subsection (2): The 2001 CSO Mortality Table shall be the minimum standard for deficiency reserves. If select mortality rates are used, they may be multiplied by X percent for durations in the first segment, subject to the conditions specified in Subsection (2)(c)(1 – 9) of Section 5. In demonstrating compliance with those conditions, the demonstrations shall not combine the results of tests that utilize the 1980 CSO Mortality Table with those tests that utilize the 2001 CSO Mortality Table, unless the combination is explicitly required by administrative regulation or necessary to be in compliance with relevant Actuarial Standards of Practice.

(e) Section 6, subsection (3): The valuation mortality table used in determining the tabular cost of insurance shall be the ultimate mortality rates in the 2001 CSO Mortality Table.

(f) Section 6, subsection (5): The calculations specified in Subsection (5)(d) of Section 6 shall use the ultimate mortality rates in the 2001 CSO Mortality Table.

(g) Section 6, subsection (6): The calculations specified in Subsection (6)(d) of Section 6 shall use the ultimate mortality rates in the 2001 CSO Mortality Table.

(h) Section 5, subsection (7): The calculations specified in Subsection (7)(b) of Section 6 shall use the ultimate mortality rates in the 2001 CSO Mortality Table.

(i) Section 7, subsection (1)(b): The one (1) year valuation premium shall be calculated using the ultimate mortality rates in the 2001 CSO Mortality Table.

(2) This section shall not be construed to expand the applicability of this administrative regulation to include life insurance policies exempted under Sections 2 and 3 of this administrative regulation.

Section 9. Incorporation by Reference.

(1) The following material is incorporated by reference:

(a) "Select Mortality Factors, Male Aggregate," (4th Quarter, 1998 Edition), National Association of Insurance Commissioners;

(b) "Select Mortality Factors, Male Nonsmoker," (4th Quarter, 1998 Edition), National Association of Insurance Commissioners;

(c) "Select Mortality Factors, Male Smoker," (4th Quarter, 1998 Edition), National Association of Insurance Commissioners;

(d) "Select Mortality Factors, Female Aggregate," (4th Quarter, 1998 Edition), National Association of Insurance Commissioners;

(e) "Select Mortality Factors, Female Nonsmoker," (4th Quarter, 1998 Edition), National Association of Insurance Commissioners;

(f) "Select Mortality Factors, Female Smoker," (4th Quarter, 1998 Edition), National Association of Insurance Commissioners; and

(g) "2001 CSO Mortality Table (2001)."

(2) This material may be inspected, copied, or obtained, subject to applicable copyright law, at the Kentucky Office of Insurance, 500 Mero Street, Frankfort, Kentucky 40601, Monday through Friday, 8 a.m. to 4:30 p.m. This material is also available on the Web site at: http://doi.ppr.ky.gov/kentucky/.

History

RELATES TO: KRS 304.2-290, 304.6-130-304.6-180, 304.15-410
STATUTORY AUTHORITY: KRS 304.2-110, 304.6-130
NECESSITY, FUNCTION, AND CONFORMITY: EO 2004-731, signed July 9, 2004, created the Office of Insurance. KRS 304.2-110 authorizes the Commissioner of Insurance to promulgate reasonable administrative regulations necessary for or as an aid to the effectuation of the Kentucky Insurance Code as defined in KRS 304.1-010. KRS 304.6-130 requires the commissioner to annually value the reserve liabilities for all outstanding life insurance policies and annuity and pure endowment contracts, as shown in the National Association of Insurance Commissioners Life and Accident and Health Annual Statement Form whether or not itemized in Exhibit 5 of that statement. This administrative regulation establishes the use of new select mortality factors, mortality tables, and minimum reserving requirements for life insurance policies with nonlevel premiums and benefits or secondary guarantees. The new select mortality factors, mortality tables, and minimum reserving requirements are necessary to ensure that insurers maintain adequate reserves for nonlevel premium and benefit policies and policies with secondary guarantees.
History: 26 Ky.R. 2168; Am. 27 Ky.R. 170; 510; eff. 8-14-2000; 31 Ky.R. 856; 1150; eff. 1-4-05; Crt eff. 2-26-2020; TAm eff. 3-10-2020.

806 KAR 6:080 Reserve standards for individual health insurance policies {#sec-806-kar-6-080 omnilex-key=us-ky-regs-official--title-806--806 KAR 6:080}

Section 1. Active Life Reserves.

(1) General.

(a) Active life reserves shall be required for all in-force policies and shall be in addition to any reserves required in connection with claims. For policy Types A, B, and C, established in subsection (2) of this section, the minimum reserve shall be determined as established in subsection (3) of this section.

(b)

Minimum standards shall be in accordance with KRS 304.6-070. Higher, adequate reserves shall be established by the insurer in any case in which experience indicates that these minimum standards do not place a sound value on the liabilities under the policy.
For policy Type D, the minimum reserve shall be the gross pro rata unearned premium.

(2) Types of individual health insurance policies.

(a) Type A policies shall include policies that are guaranteed renewable for life or to a specified age, at guaranteed premium rates.

(b) Type B policies shall include policies that are guaranteed renewable for life or to a specified age, but under which the insurer reserves the right to change the scale of premiums.

(c) Type C policies shall include policies in which the insurer has reserved the right to cancel or refuse for one (1) or more reasons, but has agreed implicitly or explicitly that, prior to a specified time or age, it will not cancel or decline renewal solely because of deterioration of health after issue. Policies shall not be considered of this type if the insurer has reserved the right to refuse renewal provided the right is to be exercised at the same time for all policies in the same category, if premiums are graded so as to be substantially proportionate to the costs of insurance at the various attained ages.

(d) Type D policies shall include all other individual policies not already established in paragraphs (a) through (c) of this subsection.

(e) A franchise policy shall not be classified as a type of policy. Contract provisions within a franchise policy in which the right to refuse renewal of all policies in the group or other categories including those ceasing to be members of the association, shall be classified as Type D. If premiums are based on the level premium principle in which any reflection of age is on the basis of age at issue, or if the renewal undertaking for the individual meets the requirements for Type A, B, or C, the franchise policy shall be classified for reserve purposes according to the type to which it belongs.

(f) A policy that has guarantees qualifying it as Type A, B, or C until a specified age or duration after which the guarantees, or lack of guarantees shall be considered for reserve purposes according to the type to which it then belongs.

(g) If all of the benefits of a policy, as established by rider or otherwise, are not of the same Type, each benefit shall be considered for reserve purposes according to the type to which it belongs.

(3) Reserve standards for policies of Type A, B, or C.

(a) Interest. The maximum interest rate for reserves shall be the greater of the maximum rate allowed by KRS 304.6-120 through 304.6-180 and KAR Title 806 in the valuation of:

Currently issued life insurance; or
Life insurance issued on the same date as the health insurance.

(b) Mortality. The mortality assumptions used for reserves shall be according to a table allowed by KRS 304.6-120 through 304.6-180 and KAR Title 806 in the valuation of life insurance issued on the same date as the health insurance.

(c) Morbidity or other contingency. Minimum standards with respect to morbidity shall be stated in Reserve Standards for Individual Health Insurance incorporated by reference in this administrative regulation.

(d) Negative reserves. Negative reserves on any benefit may be offset against positive reserves for other benefits in the same policy, but the mean reserve on any policy shall not be taken as less than one-half (1/2) the valuation net premium.

(e) Preliminary term. The minimum reserve shall be on the basis of two (2) years preliminary term.

(f) Reserve method. Mean reserves diminished by appropriate credit for valuation net deferred premiums. The aggregate reserve for all policies valued on the mean reserve basis, diminished by any credit for deferred premiums, shall not be less than the gross pro rata unearned premiums under policies.

(g) Alternative valuation procedures and assumptions. If the reserve on all policies to which the method or basis is applied is not less in the aggregate than the amount determined according to the applicable standards established in paragraphs (a) through (f) of this subsection, an insurer may use any reasonable assumptions as to the interest rate, mortality rates, or the rates of morbidity or other contingency, and may introduce an assumption as to the voluntary termination of policies. The insurer may employ methods other than the methods established in paragraphs (a) through (f) of this subsection in determining a sound value of its liabilities under its policies, including:

The use of midterminal policy reserves in addition to either gross or net pro rata unearned premium reserves;
Optional use of either the level premium, the one (1) year preliminary term, or the two (2) year preliminary term method;
Prospective valuation on the basis of actual gross premiums with reasonable allowance for future expenses;
The use of approximations including those involving age groupings, groupings of several years of issue, and average amounts of indemnity;
The computation of the reserve for one (1) policy benefit as a percentage of, or by other relation to, the aggregate policy reserves, exclusive of the benefit or benefits so valued; and
The use of a composite annual claim cost for all or any combination of the benefits included in the policies valued. For statement purposes, the net reserve liability may be shown as the excess of the mean reserve over the amount of net unpaid and deferred premiums, or, regardless of the underlying method of calculation, it may be divided between the gross pro rata unearned premium reserve and a balancing item for the policy reverse.

(h) Gross unearned preliminary term premium. If a preliminary term method, either with a one (1) year or two (2) year preliminary term period, is employed, the gross pro rata unearned premium to be used in the comparison established in paragraph (f) of this subsection shall bear the same relationship to the net premium for the preliminary term period on the basis of the mortality, morbidity, and interest assumptions used for subsequent valuation as the gross premium charged bears to the net valuation premium used in subsequent years.

Section 2. Claim Reserves, Present Value of Amounts not Yet Due on Claims.

(1) General. Reserves shall be required for claims on all health insurance policies, including of Type A, C, or D, providing benefits for continuing loss, including loss of time or hospitalization.

(2) Claim reserve standards for total disability due to accident or sickness.

(a) Interest. The maximum interest rate for reserves shall be the maximum rate allowed by KRS 304.6-120 through 304.6-180 and KAR Title 806 in the valuation of life insurance issued on the same date as the date the claim is incurred.

(b) Morbidity. Minimum standards with respect to morbidity shall be those stated in Reserve Standards for Individual Health Insurance, except that for unreported claims and resisted claims and, at the option of the insurer, claims with a duration of disablement option of the insurer, claims with a duration of disablement of less than two (2) years, reserves may be based on the individual insurer's experience or other assumptions designed to place a sound value on the liabilities. Reserves based on that experience or assumptions shall be verified by the development of each year's claims over a sufficient period of years along the lines of Schedule O of the insurer's annual statement.

(c) For policies with an elimination period, the duration of disablement shall be considered as dating from the time that benefits would have begun to accrue had there been no elimination period.

(d) A new disability connected directly or indirectly with a previous disability that's had a duration of at least one (1) year and terminated within six (6) months of the new disability shall be considered a continuation of the previous disability.

(3) Reserve standards for all other claim reserves.

(b) Morbidity or other contingency. The reserve shall be based on the individual insurer's experience or other assumptions designed to place a sound value on the liabilities. The results shall be verified by the development of each year's claims over a sufficient period of years along the lines of Schedule O of the insurer's annual statement.

(4) Valuation procedures. The insurer may employ suitable approximations and estimates, including groupings and averages, in computing claim reserves.

Section 3. Incorporation by Reference.

(1) "Reserve Standards for Individual Health Insurance", 6/2020, is incorporated by reference.

History

RELATES TO: KRS 304.6-070
STATUTORY AUTHORITY: KRS 304.2-110(1), 304.6-070
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.2-110(1) authorizes the Commissioner of Insurance to promulgate reasonable administrative regulations necessary for or as an aid to the effectuation of any provision of the Kentucky Insurance Code. KRS 304.6-070 authorizes the Commissioner of Insurance to promulgate administrative regulations establishing minimum standards for reserves for individual health insurance policies. This administrative regulation establishes the minimum standards for reserves for individual health insurance policies.
History: 11 Ky.R. 681; eff. 11-13-84; TAm eff. 8-9-2007; TAm eff. 5-14-2008; Crt eff. 2-26-2020; 47 Ky.R. 394, 965; eff. 2-2-2021.

806 KAR 6:090 Discounting of casualty insurance loss reserves {#sec-806-kar-6-090 omnilex-key=us-ky-regs-official--title-806--806 KAR 6:090}

Section 1. Definitions. As used in this administrative regulation:

(1) "Annual or other financial statements" means the annual statement required by KRS 304.3-240 and all supplements thereto and any other financial statements required by the commissioner;

(2) "Casualty insurance" has the meaning set forth in KRS 304.5-070;

(3) "Commissioner" means the Commissioner of the Kentucky Office of Insurance;

(4) "Domestic insurer" has the meaning set forth in KRS 304.1-070(1);

(5) "Loss reserves" and "loss adjustment expense reserves," hereinafter called "loss reserves," means the same as in the Annual Statement Convention Blank filed with the National Association of Insurance Commissioners;

(6) "Medical malpractice insurance" means insurance as defined in KRS 304.5-070(1)(j) issued to health care providers, excess insurance issued to a medical malpractice self-insured plan, and reinsurance of medical malpractice insurance;

(7) "Qualified actuary" means:

(a) A member of the American Academy of Actuaries; or

(b) A person who has demonstrated to the satisfaction of the commissioner educational background necessary for reserving and other actuarial sciences and has not less than seven (7) years of relevant actuarial experience;

(8) "Workers' compensation insurance" has the meaning set forth in KRS 304.5-070(1)(c).

Section 2. Discounting of Casualty Insurance Loss Reserves.

(1) Domestic insurers may discount loss reserves for medical malpractice insurance, workers' compensation insurance, and such other kinds of casualty insurance as may be approved by order of the commissioner.

(2) The reserves that may be discounted are loss reserves, including reserves for incurred but not reported claims and case reserves.

(3) All filings involving discounting of loss reserves shall contain the information required by this administrative regulation.

Section 3. Actuarial Statement of Opinion.

(1) All filings involving discounting of loss reserves shall be accompanied by an actuarial statement of opinion reflecting accurately the effect of discounting of loss reserves on the domestic insurer's financial condition. The actuarial statement of opinion shall be by a qualified actuary.

(2) The actuarial statement of opinion shall include the following:

(a) An assessment of the adequacy of the undiscounted reserve (i.e., full value reserve prior to discounting);

(b) An assessment of the appropriateness of the assumed interest rate, considering at least the following:

Valuation basis of bonds (market value as opposed to amortized value);
Yield on assets;
Asset maturities (i.e., do they reasonably match the maturities of the corresponding liabilities?); and
Consistency with interest rate assumptions used in pricing.

The domestic insurer's own paid loss development history to the extent available and credible;
To the extent that such history is not available or credible, the applicability of broader based industry experience, in particular with respect to the form of coverage (e.g., occurrence as opposed to claims made coverage forms) and retention level; and
The domestic insurer's reinsurance recoverables.

(d) A description of the formula(s) used for discounting, including any provision for adverse deviation;

(e) Any other factors needed to reflect accurately the effect of discounting on the financial condition of the domestic insurer or required by the commissioner.

Section 4. Disclosure of Discounting of Loss Reserves in Annual and Other Financial Statements.

(1) Domestic insurers discounting loss reserves shall disclose the discounting of loss reserves in their annual and other financial statements in a manner which will reflect accurately the effect of discounting of loss reserves on the domestic insurer's financial condition. The commissioner may by order specify particular portions or schedules of the annual or other financial statements in which a specific type of disclosure is needed to reflect accurately the effect of discounting of loss reserves on a domestic insurer's financial condition.

(2) Insurers discounting loss reserves shall prepare schedule P, parts 1, 2, and 3, of the annual statement on an undiscounted basis, with schedule P, part 4, of the annual statement providing reconciliation between undiscounted loss reserves and discounted loss reserves. If schedule P of the annual statement is altered or replaced, insurers discounting loss reserves shall complete such schedules or other portions of the annual statement to disclose the discounting of loss reserves in accordance with the instructions of the commissioner.

Section 5. Limitations on Discounting of Loss Reserves. In no event shall discounting of loss reserves by an insurer result in reserves which do not meet the requirements of KRS 304.6-100(3).

Section 6. This administrative regulation shall apply to financial statements covering the financial condition of an insurer on or after January 1, 1988.

History

RELATES TO: KRS 304.4-010, 304.6-100
STATUTORY AUTHORITY: KRS Chapter 13A, 304.2-110, 304.6-100
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.2-110 provides that the Commissioner of Insurance may make reasonable administrative regulations necessary for or as an aid to the effectuation of any provision of the Kentucky Insurance Code. KRS 304.6-100 authorizes the Commissioner of Insurance to make administrative regulations for the computing of casualty insurance reserves. This administrative regulation permits and regulates the discounting of loss reserves for certain types of casualty insurance.
History: 14 Ky.R. 1035; Am. 1285; eff. 1-4-88; TAm eff. 8-9-2007; Crt eff. 2-26-2020; TAm eff. 3-10-2020.

806 KAR 6:100 Actuarial opinion and memorandum {#sec-806-kar-6-100 omnilex-key=us-ky-regs-official--title-806--806 KAR 6:100}

Section 1. Definitions.

(1) "Actuarial opinion" means the opinion of an appointed actuary regarding the adequacy of the reserves and related actuarial items based on an asset adequacy test in accordance with Section 4 of this administrative regulation and with presently accepted actuarial standards.

(2) "Actuarial Standards Board" means the board established by the American Academy of Actuaries to develop and promulgate standards of actuarial practice.

(3) "Annual statement" means the statement required by KRS 304.3-240.

(4) "Appointed actuary" is defined by KRS 304.6-131(2).

(5) "Asset adequacy analysis" means an analysis that meets the standards and other requirements of Section 4 of this administrative regulation.

(6) "Commissioner" is defined by KRS 304.1-050(1).

(7) "Company" is defined by KRS 304.6-131(3).

Section 2. Actuarial Qualifications. In order to be considered a qualified actuary for the purposes of this administrative regulation, a person shall:

(1) Be a member in good standing of the American Academy of Actuaries;

(2) Be qualified to sign a statement of actuarial opinion for a life and health insurance company annual statement in accordance with the qualification standards for actuaries established by the American Academy of Actuaries for actuaries signing those statements;

(3) Be familiar with the valuation requirements applicable to life and health insurance companies;

(4) Not been found by the commissioner, or if so found has subsequently been reinstated as a qualified actuary, following appropriate notice and hearing to have:

(a) Violated any provision of, or any obligation imposed by, any law in the course of his or her dealings as a qualified actuary;

(b) Been found guilty of fraudulent or dishonest practices;

(d) Submitted to the commissioner during the past five (5) years, pursuant to this administrative regulation, an actuarial opinion or memorandum that the commissioner rejected because it did not comply with this administrative regulation or standards established by the Actuarial Standards Board; or

(e) Resigned or been removed as an actuary within the past five (5) years as a result of an act or omission indicated in any adverse report on examination or as a result of the failure to adhere to generally acceptable actuarial standards; and

(5) Not have failed to notify the commissioner of any action taken by any commissioner of any other state if the action was based on a disqualification standard established in subsection (4) of this section.

Section 3. General Requirements.

(1) Every company doing business in this state shall annually submit the opinion of an appointed actuary stating an opinion relating to reserves and related actuarial items held in support of policies and contracts, in accordance with Section 4 of this administrative regulation. The actuarial opinion shall be:

(a) Included on or attached to Page 1 of the annual statement for each year;

(b) Entitled "Statement of Actuarial Opinion"; and

(c) The statement of an appointed actuary stating an opinion relating to reserves and related actuarial items held in support of policies and contracts in accordance with Section 4 of this administrative regulation.

(2) The commissioner shall accept the statement of actuarial opinion filed by a foreign or alien company with the insurance supervisory regulator of another state if the commissioner determines that the opinion meets the requirements applicable to a company domiciled in this state.

(3) The commissioner shall grant an extension of the date for submission of the statement of actuarial opinion upon written request by the company.

(4) The company shall give the commissioner timely written notice:

(a) If an actuary is appointed or retained and the notice shall state:

The name of the appointed actuary;
The title of the appointed actuary;
If the actuary is a consulting actuary, the name of the firm;
The manner of appointment or retention by the company of each appointed actuary; and
That the person appointed or retained by the company meets the requirements of a qualified actuary pursuant to Section 2 of this administrative regulation;

(b) If the actuary ceases to be appointed or retained as an appointed actuary or to meet the requirements of a qualified actuary; or

(c) If that any person appointed or retained as an appointed actuary replaces a previously appointed actuary, which notice shall state the reason for replacement.

(5) The asset adequacy analysis required by Section 4 of this administrative regulation shall:

(a) Conform to the Standards of Practice as promulgated by the Actuarial Standards Board and available at http://www.actuarialstandardsboard.org/standards-of-practice/ to this administrative regulation, which standards shall form the basis of the statement of actuarial opinion in accordance with this administrative regulation; and

(b) Be based on methods of analysis that shall be appropriate for those purposes based on standards established by the Actuarial Standards Board.

(6) Pursuant to KRS 304.6-171, the statement of actuarial opinion shall apply to all in force business on the statement date, whether directly issued or assumed, regardless of when or where issued.

(7) If the appointed actuary determines as the result of the asset adequacy analysis that a reserve in addition to the aggregate reserve held by the company and calculated in accordance with the methods established in KRS 304.6-171 is necessary, the company shall establish the additional reserve.

(8)

(a) Additional reserves established under subsection (7) of this section and determined by an actuary to not be necessary in subsequent years may be released as reserves on the company's financial statement.

(b) Any amounts released shall be disclosed in the actuarial opinion for the applicable year.

Section 4. Statement of Actuarial Opinion Based on an Asset Adequacy Analysis.

(1) The statement of actuarial opinion required by this section shall contain an opening paragraph, which shall:

(a) Identify the name and title of the appointed actuary;

(b) Identify the name of the consulting firm, if applicable;

(d) Identify the qualifications of the appointed actuary;

(e) Identify the manner in which the actuary was appointed or retained to render the actuarial opinion; and

(f) Include language identical or substantially similar to the following:

For a company actuary: "I, (name of actuary), am (title) of (name of company) and a member of the American Academy of Actuaries. I was appointed by, or by the authority of, the Board of Directors of said insurer to render this opinion as stated in the letter to the commissioner dated (insert date). I meet the Academy qualification standards for rendering the opinion and am familiar with the valuation requirements applicable to life and health insurance companies."; or
For a consulting actuary: "I, (name and title of actuary), a member of the American Academy of Actuaries, am associated with the firm of (insert name of consulting firm). I have been appointed by, or by the authority of, the Board of Directors of (name of company) to render this opinion as stated in the letter to the commissioner dated (insert date). I meet the Academy qualification standards for rendering the opinion and am familiar with the valuation requirements applicable to life and health insurance companies."

(2) The statement of actuarial opinion shall contain a scope paragraph, which shall:

(a) Identify the subjects on which an opinion is to be expressed;

(b) Describe the scope of the work of the appointed actuary;

(c) Include a tabulation delineating the reserves and related actuarial items that have been analyzed for asset adequacy and the method of analysis;

(d) Identify the reserves and related actuarial items covered by the opinion that have not been analyzed; and

(e) Include language identical or substantially similar to the following: "I have examined the actuarial assumptions and actuarial methods used in determining reserves and related actuarial items listed below, as shown in the annual statement of the company, as prepared for filing with state regulatory officials, as of December 31, (year). Tabulated below in the Table of Reserves and Liabilities are those reserves and related actuarial items that have been subjected to asset adequacy analysis."

(3) If the appointed actuary has relied on other experts to develop portions of the analysis, the statement of actuarial opinion shall contain a reliance paragraph, which shall:

(a) Describe each situation in which the appointed actuary has deferred to another expert in developing data, procedures, or assumptions; and

(b) Include a statement identical or substantially similar to the following and be accompanied by a statement in accordance with subsection (10) of this section:

"I have relied on (name), (title) for (for example, anticipated cash flows from currently owned assets, including variations in cash flows according to economic scenarios) and, as certified in the attached statement,..."; or
"I have relied on personnel as cited in the supporting memorandum for certain critical aspects of the analysis in reference to the accompanying statement."

(4) If the appointed actuary has examined the underlying asset and liability records, the statement of actuarial opinion shall include a statement identical or substantially similar to the following: "My examination included review of the actuarial assumptions and actuarial methods and of the underlying basic asset and liability records and tests of the actuarial calculations as I considered necessary."; and

(5) If the appointed actuary has not examined the underlying records, but has relied upon listings and summaries of policies in force or asset records prepared by the company or a third party, the statement of actuarial opinion required shall include a statement identical or substantially similar to the following and be accompanied by a statement in accordance with subsection (10) of this section: "In forming my opinion on (specify types of reserves) I relied upon data prepared by (name and title of company officer certifying in-force records) as certified in the attached statement. I evaluated that data for reasonableness and consistency. I also reconciled that data to (exhibits and schedules to be listed as applicable) of the company's current annual statement. In other respects my examination included review of the actuarial assumptions and actuarial methods and tests of the actuarial calculations as I considered necessary."

(6) The statement of actuarial opinion required by this section shall contain an opinion paragraph, which shall:

(a) Express the opinion of the appointed actuary with respect to the adequacy of the supporting assets to mature the liabilities that reserves and related actuarial values concerning the identified statement items:

Are computed in accordance with presently accepted actuarial standards consistently applied and are fairly stated, in accordance with sound actuarial principles;
Are based on actuarial assumptions that produce reserves at least as great as those called for in any contract provision as to reserve basis and method, and are in accordance with all other contract provisions;
Meet the requirements of KRS Chapter 304, 201 KAR Chapter 1, and KAR Title 806 of the state of domicile and are at least as great as the minimum aggregate amounts required by the state in which this statement is filed;
Are computed on the basis of assumptions consistent with those used in computing the corresponding items in the annual statement of the preceding year-end with any exception noted; and
Include provision for all actuarial reserves and related statement items established;

(b) Express an opinion as to the adequate provision for the anticipated cash flow by including language identical or substantially similar to the following: "The reserves and related items, considered in light of the assets held by the company with respect to reserves and related actuarial items including, but not limited to, the investment earnings on assets, and the considerations anticipated to be received and retained under applicable policies and contracts, make adequate provision, according to presently accepted actuarial standards of practice, for the anticipated cash flows required by the contractual obligations and related expenses of the company.";

(c) State that the actuarial methods, considerations, and analyses used in forming the actuarial opinion conform to the appropriate Standards of Practice as promulgated by the Actuarial Standards Board, which standards form the basis of the statement of opinion;

(d) State whether or not there has been a material change from the applicable date of the annual statement to the date of the rendering of the actuarial opinion which should be considered in reviewing the opinion and include language identical or substantially similar to one (1) of the following:

"This opinion is updated annually as required by statute. To the best of my knowledge, there have been no material changes from the applicable date of the annual statement to the date of the rendering of this opinion which should be considered in reviewing this opinion."; or
"The following material change(s) that occurred between the date of the statement for which this opinion is applicable and the date of this opinion should be considered in reviewing this opinion: (describe the change or changes.)";

(e) Include a statement regarding unanticipated events which is identical or substantially similar to the following: "The impact of unanticipated events subsequent to the date of this opinion is beyond the scope of this opinion. The analysis of asset adequacy portion of this opinion should be viewed recognizing that the company's future experience may not follow all the assumptions used in the analysis"; and

(f) Contain the signature, address, and telephone number of the appointed actuary.

(7) A change in actuarial assumptions shall not include the adoption for a new issue, a new claim, or other new liability of an actuarial assumption which differs from a corresponding assumption used for a prior new issue, new claim, or other new liability.

(8) If the appointed actuary is unable to form an opinion, the actuary shall refuse to issue a statement of actuarial opinion.

(9) If the opinion of the appointed actuary is adverse or qualified, the actuary shall issue an adverse or qualified actuarial opinion explicitly stating the reason for the opinion. This statement shall follow the scope paragraph and precede the opinion paragraph.

(10) If the appointed actuary relies on the certification of others on matters concerning the accuracy or completeness of any data underlying the actuarial opinion, or the appropriateness of any other information used by the appointed actuary in forming the actuarial opinion, the actuarial opinion shall:

(a) Indicate the persons the actuary is relying upon and a precise identification of the items subject to reliance; and

(b) Provide a certification from the persons on whom the appointed actuary relied that:

Precisely identifies the items on which the person is providing information;
Includes a statement as to the accuracy, completeness, or reasonableness, as applicable, of the items; and
Includes the following information for the person rendering the certification:

a. Signature and date signed;

b. Title;

c. Company;

d. Address; and

e. Telephone number.

(11) Except as established in subsection (12) of this administrative regulation and as an alternative to the requirements of subsection 4(6)(a)3. of this section, the commissioner may make one (1) or more of the following alternatives available to the opining actuary:

(a)

a. A statement that the reserves meet the requirements of the insurance laws and administrative regulations of the insurer's state of domicile; and

b. A formal written list of the standards and conditions for filing an opinion based on the law of the insurer's state of domicile.

If an insurer uses this alternative, the standards and conditions in effect on July 1 of a calendar year shall apply to statements for that calendar year, and they shall remain in effect until they are revised or revoked.
If no formal written list of the standards and conditions is available, the commissioner shall not offer this alternative;

(b)

a. A statement that the reserves meet the requirements of the insurance laws and administrative regulations of the insurer's state of domicile;

b. Verification that the actuary's request to file an opinion based on the law of the insurer's state of domicile has been approved; and

c. A statement that any conditions required by the commissioner for approval of that request have been met.

If the commissioner offers this alternative, a formal written statement of the allowance shall be issued no later than March 31 of the year it is first effective.
Subsequent to that statement being issued, if an insurer wants to use this alternative, the insurer shall file a request with the commissioner, along with justification for its use, no later than April 30 of the year of the opinion to be filed. The request shall be deemed approved on October 1 of that year if the commissioner has not denied the request by that date; and

(c)

a. A statement that the reserves meet the requirements of the insurance laws and administrative regulations of the insurer's state of domicile; and

b. A statement that the actuary has submitted the required comparison as established by the insurer's state of domicile.

If the commissioner offers this alternative, a formal written list of products for which the required comparison shall be provided shall be published on the department's Web site, http://insurance.ky.gov.
If a company uses this alternative, the formal written list of products in effect on July 1 of a calendar year shall apply to statements for that calendar year, and it shall remain in effect until it is revised or revoked.
If a formal written list of products for which the required comparison shall be provided is not available, this alternative shall not be allowed.

a. If a company desires to use this alternative, the appointed actuary shall provide a comparison of the gross nationwide reserves held to the gross nationwide reserves that would be held under National Association of Insurance Commissioners' codification standards, as established in KRS 304.6-171.

b. Gross nationwide reserves shall equal the total reserves calculated for the total company in force business directly sold and assumed, indifferent to the state in which the risk resides, without reduction for reinsurance ceded.

c. The comparison shall include the following:

(i) Product type;

(ii) Death benefit or account value;

(iii) Reserves held;

(iv) Codification reserves; and

(v) Codification standard.

d. The comparison shall include all products identified by either the state of filing or any other states that accept this alternative.

e. If there is no codification standard for the type of product or risk in force or if the codification standard does not directly address the type of product or risk in force, the appointed actuary shall provide detailed disclosure of the specific method and assumptions used in determining the reserves held.

f. The comparison provided by the company shall be kept confidential in accordance with KRS 304.6-171.

(12)

(a) The commissioner may reject an opinion based on the laws and administrative regulations of the state of the insurer's domicile and require an opinion based on the laws of the Commonwealth of Kentucky.

(b) If an insurer is unable to provide the opinion within sixty (60) days of the request or other period of time determined by the commissioner after consultation with the insurer, the commissioner may contract an independent actuary at the company's expense to prepare and file the opinion.

Section 5. Description of Actuarial Memorandum Including an Asset Adequacy Analysis.

(1) In accordance with KRS 304.6-171, the appointed actuary shall prepare a memorandum to the company that shall describe the analysis done in support of the actuary's opinion regarding the reserves.

(2) The memorandum shall:

(a) Be made available to the commissioner, upon request, for examination;

(b) Be returned to the company after an examination by the commissioner; and

(3) The commissioner may designate a qualified actuary to review the actuarial opinion and prepare a supporting memorandum, which reasonable and necessary expense of the independent review shall be paid by the company but shall be directed and controlled by the commissioner, if:

(a) The commissioner requests a memorandum and no memorandum exists;

(b) The commissioner finds that the analysis stated in the memorandum fails to meet the standards of the Actuarial Standards Board; or

(c) The commissioner finds that the analysis stated in the memorandum fails to meet the standards of this administrative regulation.

(4) In preparing the memorandum, the appointed actuary may rely on, and include as a part of the actuarial memorandum, memoranda prepared and signed by another actuary who is qualified in accordance with Section 2 of this administrative regulation with respect to the subjects covered in the memorandum.

(5) The reviewing actuary shall have the same status as an examiner for the purposes of obtaining data from the company and the work papers and documentation of the reviewing actuary shall be retained by the commissioner.

(6) Any information provided by the company to the reviewing actuary and included in the work papers shall be considered as material provided by the company to the commissioner and shall be kept confidential to the same extent as other material provided by the company to the commissioner pursuant to KRS 304.6-171.

(7) The reviewing actuary shall not be an employee of a consulting firm involved with the preparation of any prior memorandum or opinion for the insurer pursuant to this administrative regulation for any one (1) of the current year or the preceding three (3) years.

(8)

(a) In accordance with KRS 304.6-171, the appointed actuary shall prepare a regulatory asset adequacy issues summary in accordance with subsection (12) of this section.

(b) The regulatory asset adequacy issues summary shall be submitted no later than March 15 of the year following the year for which a statement of actuarial opinion based on asset adequacy is required.

(9) The memorandum shall demonstrate that the analysis has been done in accordance with the standards for asset adequacy referred to in Section 3(5) of this administrative regulation.

(10) The actuarial memorandum referred to in this section shall specify:

(a) For reserves, the documentation of the assumptions made shall be in a manner to allow an actuary reviewing the actuarial memorandum to form a conclusion as to the reasonableness of the assumptions and shall include:

Product descriptions including a market description, underwriting and any other aspect of a risk profile and the specific risks the appointed actuary deems significant;
Source of liability in force;
Reserve method and basis;
Investment reserves;
Reinsurance arrangements;
Identification of any explicit or implied guarantees made by the general account in support of benefits provided through a separate account or under a separate account policy or contract and the methods used by the appointed actuary to provide for the guarantees in the asset adequacy analysis; and
Documentation of assumptions to test reserves for the following:

a. Lapse rates, both base and excess;

b. Interest crediting rate strategy;

c. Mortality;

d. Policyholder dividend strategy;

e. Competitor or market interest rate;

f. Annuitization rates;

g. Commissions and expenses; and

h. Morbidity;

(b) For assets, the documentation of the assumptions made shall be in a manner to allow an actuary reviewing the actuarial memorandum to form a conclusion as to the reasonableness of the assumptions and shall include:

Portfolio descriptions, including a risk profile disclosing the quality, distribution and types of assets;
Investment and disinvestment assumptions;
Source of asset data;
Asset valuation bases; and
Documentation of assumptions made for:

a. Default costs;

b. Bond call function;

c. Mortgage prepayment function;

d. Determining market value for assets sold due to disinvestment strategy; and

e. Determining yield on assets acquired through the investment strategy;

Methodology;
Rationale for inclusion or exclusion of different blocks of business and how pertinent risks were analyzed;
Rationale for degree of rigor in analyzing different blocks of business, including the level of materiality that was used in determining how rigorously to analyze different blocks of business;
Criteria for determining asset adequacy, including the precise basis for determining if assets are adequate to cover reserves under moderately adverse conditions or other conditions as established in relevant actuarial standards of practice; and
Effect of federal income tax, reinsurance, and any other relevant factor;

(d) Summary of material changes in methods, procedures or assumptions from prior year's asset adequacy analysis;

(e) Summary of results; and

(f) Conclusion.

(11) The memorandum shall include a statement that indicates that the memorandum conforms to the appropriate Standards of Practice and that shall include language identical or substantially similar to the following: "Actuarial methods, considerations, and analyses used in the preparation of this memorandum conform to the appropriate standards of practice as promulgated by the Actuarial Standards Board, which standards form the basis for this memorandum."

(12) The regulatory asset adequacy issues summary shall include:

(a) Descriptions of the scenarios tested, including whether those scenarios are stochastic or deterministic, and the sensitivity testing done relative to those scenarios.

If negative ending surplus results under certain tests in the aggregate, the actuary shall describe those tests and the amount of additional reserve as of the valuate date that, if held, would eliminate the negative aggregate surplus values.
Ending surplus values shall be determined by:

a. Extending the projection period until the in-force and associated assets and liabilities at the end of the projection period are immaterial; or

b. Adjusting the surplus amount at the end of the projection period by an amount that appropriately estimates the value that can reasonably be expected to arise from the assets and liabilities remaining in force;

(b) The extent to which the appointed actuary uses assumptions in the asset adequacy analysis that are materially different than the assumptions used in the previous asset adequacy analysis;

(c) The amount of reserves and the identity of the product lines that had been subjected to asset adequacy analysis in the prior opinion but were not subject to analysis for the current opinion;

(d) Comments on any interim results that may be of significant concern to the appointed actuary;

(e) The methods used by the actuary to recognize the impact of reinsurance on the company's cash flows, including both assets and liabilities, under each of the scenarios tested; and

(f) Whether or not the actuary has been satisfied that all options, whether explicit or embedded, in any asset or liability, including those affecting cash flows embedded in fixed income securities, and equity-like features in any investments have been appropriately considered in the asset adequacy analysis.

(13) The regulatory asset adequacy issues summary shall contain the name of the company for which the regulatory asset adequacy issues summary is being supplied and shall be signed and dated by the appointed actuary rending the actuarial opinion.

(14) The appointed actuary shall retain on file, for at least seven (7) years, sufficient documentation so that it will be possible to determine the procedures followed, the analyses performed, the bases for assumptions, and the results obtained.

Section 6. Additional Considerations for Analysis.

(1) An appropriate allocation of assets in the amount of the interest maintenance reserve (IMR), whether positive or negative, shall be used in any asset adequacy analysis.

(2) Analysis of risks regarding asset default may include an appropriate allocation of assets supporting the asset valuation reserve (AVR).

(3) AVR assets shall not be applied for any other risks with respect to reserve adequacy.

(4) Analysis of these and other risks may include assets supporting other mandatory or voluntary reserves available to the extent not used for risk analysis and reserve support.

(5) The amount of the assets used for the AVR shall be disclosed in the Table of Reserves and Liabilities and in the memorandum.

(6) The method used for selecting particular assets or allocated portions of assets shall be disclosed in the memorandum.

Section 7. Incorporation by Reference.

(1) The "Table of Reserves and Liabilities", 5/2009, is incorporated by reference.

(2) This material may be inspected, copied, or obtained, subject to applicable copyright law, at the Department of Insurance, 500 Mero Street, Frankfort, Kentucky 40601, Monday through Friday, 8 a.m. to 4:30 p.m. Forms may also be obtained on the department's internet Web site at: http://insurance.ky.gov.

History

RELATES TO: KRS 304.3-240, 304.6-070, 304.6-150, 304.6-155, 304.6-171, 304.6-180
STATUTORY AUTHORITY: KRS 304.2-110(1), 304.6-171
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.2-110(1) authorizes the Commissioner of Insurance to promulgate reasonable administrative regulations necessary for or as an aid to the effectuation of any provision of the Kentucky Insurance Code, as established in KRS 304.1-010. KRS 304.6-171 requires every life insurance company doing business in this state to annually submit the opinion of a qualified actuary as to whether or not the reserves and related actuarial items held in support of the policies and contracts established by the commissioner are computed appropriately. KRS 304.6-171 requires the commissioner to establish, by administrative regulation, the requirements of the actuarial opinion and to broaden the scope of the opinion if necessary. This administrative regulation establishes provisions for the commissioner to determine whether or not reserves and related actuarial items are computed appropriately, are based on assumptions that satisfy contractual provisions, are consistent with prior reported amounts, and comply with KRS Chapter 304.
History: 24 Ky.R. 2248; Am. 2719; eff. 6-25-1998; TAm eff. 8-9-2007; 36 Ky.R. 201; 595; eff. 10-2-2009; Crt eff. 2-26-2020; 47 Ky.R. 397, 966; eff. 2-2-2021.

806 KAR 6:110 Recognition of the 2001 CSO Mortality Table for use in determining minimum reserve liabilities and nonforfeiture benefits {#sec-806-kar-6-110 omnilex-key=us-ky-regs-official--title-806--806 KAR 6:110}

Section 1. Definitions.

(1) "2001 CSO Mortality Table" means a mortality table, consisting of separate rates of mortality for male and female lives, 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 NAIC in December 2002.

(2) "2001 CSO Mortality Table (F)" means a mortality table consisting of the rates of mortality for female lives from the 2001 CSO Mortality Table.

(3) "2001 CSO Mortality Table (M)" means a mortality table consisting of the rates of mortality for male lives from the 2001 CSO Mortality Table.

(4) "Composite mortality tables" means mortality tables with rates of mortality that do not distinguish between smokers and nonsmokers.

(5) "Smoker and nonsmoker mortality tables" means mortality tables with separate rates of mortality for smokers and nonsmokers.

Section 2. 2001 CSO Mortality Table.

(1) Unless the context indicates otherwise, the "2001 CSO Mortality Table" shall include both the ultimate form of that table and the select and ultimate form of that table and shall include both the smoker and nonsmoker mortality tables and the composite mortality tables. It shall also include both the age nearest birthday and age last-birthday bases of the mortality tables.

(2) At the election of the company for any one (1) or more specified plans of insurance and subject to the conditions stated in this administrative regulation, the 2001 CSO Mortality Table may be used as the minimum standard for policies issued on or after January 1, 2005, and before the date specified in subsection (3) to which KRS 304.6-140, 304.15-342 and 806 KAR 6:075, are applicable. If the company elects to use the 2001 CSO Mortality Table, it shall do so for both valuation and nonforfeiture purposes.

(3) Subject to the conditions stated in this administrative regulation, the 2001 CSO Mortality Table shall be used in determining minimum standards for policies issued on and after January 1, 2009, to which KRS 304.6-140, 304.15-342 and 806 KAR 6:075, are applicable.

Section 3. Conditions.

(1) For each plan of insurance with separate rates for smokers and nonsmokers an insurer may use any of the following:

(a) Composite mortality tables to determine minimum reserve liabilities and minimum cash surrender values and amounts of paid-up nonforfeiture benefits.

(b) Smoker and nonsmoker mortality tables to determine the valuation net premiums and additional minimum reserves, if any, required by KRS 304.6-180, and use composite mortality tables to determine the basic minimum reserves, minimum cash surrender values and amounts of paid up nonforfeiture benefits.

(c) Smoker and nonsmoker mortality to determine minimum reserve liabilities and minimum cash surrender values and amounts of paid up nonforfeiture benefits.

(2) For plans of insurance without separate rates for smokers and nonsmokers, the composite mortality tables shall be used.

(3) For the purpose of determining minimum reserve liabilities and minimum cash surrender values and amounts of paid up nonforfeiture benefits, the 2001 CSO Mortality Table may, at the option of the company for each plan of insurance, be used in its ultimate or select and ultimate form, subject to the restrictions of Section 3 and 806 KAR 6:075 relative to use of the select and ultimate form.

(4) If the 2001 CSO Mortality Table is the minimum reserve standard for any plan for a company, the actuarial opinion in the annual statement filed with the executive director shall be based on an asset adequacy analysis as specified in Section 6 of 806 KAR 6:100. The executive director may exempt a company from this requirement if the company only does business in this state and in no other state.

Section 4. Gender-blended Tables.

(1) For any ordinary life insurance policy delivered or issued for delivery in this state on and after January 1, 2005, that utilizes the same premium rates and charges for male and female lives or is issued in circumstances where applicable law does not permit distinctions on the basis of gender, a mortality table that is a blend of the 2001 CSO Mortality Table (M) and the 2001 CSO Mortality Table (F) may, at the option of the company for each plan of insurance, be substituted for the 2001 CSO Mortality Table for use in determining minimum cash surrender values and amounts of paid up nonforfeiture benefits. A change in minimum valuation standards shall not be implied by this subsection.

(2) The company may choose from among the blended tables developed by the American Academy of Actuaries CSO Task Force and adopted by the NAIC in December 2002.

(3) An insurer may issue the same kind of policy of life insurance on both a sex-distinct and sex-neutral basis.

Section 5. Separability. If any provision of this administrative regulation or its application to any person or circumstance is for any reason held to be invalid, the remainder of the administrative regulation and the application of the provision to other persons or circumstances shall not be affected.

Section 6. Incorporation by Reference.

(1) The following material is incorporated by reference:

(a) "2001 CSO Mortality Table (2001),"

(b) "2001 CSO Mortality Table (F) (2001)"; and

(2) This material may be inspected, copied, or obtained, subject to applicable copyright law, at the Kentucky Office of Insurance, 215 West Main Street, Frankfort, Kentucky 40601, Monday through Friday, 8 a.m. to 4:30 p.m. This material is also available on the Web site at: http://doi.ppr.ky.gov/kentucky/.

History

RELATES TO: KRS 304.6-130-304.6-180, 304.15-342, 304.29-201
STATUTORY AUTHORITY: KRS 304.2-110; KRS 304.6-140, KRS 304.15-342
NECESSITY, FUNCTION, AND CONFORMITY: EO 2004-731, signed July 9, 2004, created the Office of Insurance. KRS 304.2-110(1) authorizes the Executive Director of Insurance to promulgate administrative regulations necessary for or as an aid to the effectuation of any provision of the Kentucky Insurance Code as defined in KRS 304.1-010, 304.6-140 and 304.15-342 provide that the executive director may approve by regulation any mortality table adopted by the National Association of Insurance Commissioners ("NAIC") for use in determining the minimum standard for valuation of policies. This administrative regulation establishes the use of the 2001 Commissioners Standard Ordinary ("CSO") Mortality Table in accordance with KRS 304.6-140, 304.15-342 and 806 KAR 6:075.
History: 31 Ky.R. 895; 1156; eff. 1-4-2005; Crt eff. 2-26-2020.

806 KAR 6:120 Recognition of preferred mortality tables for use in determining minimum reserve liabilities {#sec-806-kar-6-120 omnilex-key=us-ky-regs-official--title-806--806 KAR 6:120}

Section 1. Definitions.

(1) "2001 CSO Mortality Table" means a mortality table that:

(a) Consists of separate rates of mortality for male and female lives;

(c) Is published in the Proceedings of the NAIC (2nd Quarter 2002) and supplemented by the 2001 CSO Preferred Class Structure Mortality Table; and

(d) Includes, unless the context indicates otherwise, both:

The ultimate form and the select and ultimate form of the table;
The smoker and nonsmoker mortality tables and the composite mortality tables; and
The age-nearest-birthday and the age-last-birthday bases of the mortality tables.

(2) "2001 CSO Preferred Class Structure Mortality Table" means a mortality table with separate rates of mortality for super preferred nonsmokers, preferred nonsmokers, residual standard nonsmokers, preferred smokers and residual standard smoker splits of the 2001 CSO nonsmoker and smoker tables as described in the report dated January 13, 2006, and adopted by the National Association of Insurance Commissioners at the September 2006 meeting. Unless the context indicates otherwise, the "2001 CSO Preferred Class Structure Mortality Table" includes:

(a) The ultimate form and the select and ultimate form of the table;

(b) The smoker and nonsmoker mortality tables;

(d) The age-nearest-birthday and age-last-birthday bases of the table.

(3) "Composite mortality tables" means the mortality tables with rates of mortality that do not distinguish between smokers and nonsmokers.

(4) "Commissioner" is defined in KRS 304.1-050(1).

(5) "CSO" means Commissioners Standard Ordinary.

(6) "Smoker and nonsmoker mortality tables" means mortality tables with separate rates of mortality for smokers and nonsmokers.

Section 2. 2001 CSO Preferred Class Structure Table.

(1) At the election of the insurer for any one (1) or more specified plan of insurance and subject to the conditions stated in this administrative regulation, the 2001 CSO Preferred Class Structure Mortality Table may be substituted in place of the 2001 CSO Smoker and Nonsmoker Mortality Table as the minimum valuation standard for policies issued on or after January 1, 2007, to which KRS 304.6-140 and 806 KAR 6:075 apply.

(2) An election shall not be made until the insurer can demonstrate at least twenty (20) percent of the business to be valued on this table is in one (1) or more of the preferred classes.

(3) A table from the 2001 CSO Preferred Class Structure Mortality Table used in place of a 2001 CSO Mortality Table, pursuant to the requirements of this administrative regulation, shall be treated as part of the 2001 CSO Mortality Table only for purposes of reserve valuation pursuant to the requirements of 806 KAR 6:110.

Section 3. Conditions.

(1)

(a) For each policy of insurance with separate rates for preferred and standard nonsmoker lives, an insurer may use the super preferred nonsmoker, preferred nonsmoker, and residual standard nonsmoker tables to substitute for the nonsmoker mortality table found in the 2001 CSO Mortality Table to determine minimum reserves.

(b) At election and annually thereafter, except for business valued under the residual standard nonsmoker table, the appointed actuary shall certify that:

The present value of death benefits over the next ten (10) years after the valuation date, using the anticipated mortality experience without recognition of mortality improvement beyond the valuation date for each class, is less than the present value of death benefits using the valuation basic table corresponding to the valuation table being used for that class; and
The present value of death benefits over the future life of the contracts, using anticipated mortality experience without recognition of mortality improvement beyond the valuation date for each class, is less than the present value of death benefits using the valuation basic table corresponding to the valuation table being used for that class.

(2)

(a) For each policy of insurance with separate rates for preferred and standard smoker lives, an insurer may use the preferred smoker and residual standard smoker tables to substitute for the smoker mortality table found in the 2001 CSO Mortality table to determine minimum reserves.

(b) At election and annually thereafter, for business valued under the preferred smoker table, the appointed actuary shall certify that:

The present value of death benefits over the next ten (10) years after the valuation date, using the anticipated mortality experience without recognition of mortality improvement beyond the valuation date for each class, is less than the present value of death benefits using the preferred smoker valuation basic table corresponding to the valuation table being used for that class; and
The present value of death benefits over the future life of the contracts, using anticipated mortality experience without recognition of mortality improvement beyond the valuation date for each class, is less than the present value of death benefits using the preferred smoker valuation basic table.

Section 4. Incorporation by Reference.

(1) The following material is incorporated by reference:

(a) "2001 CSO Mortality Table", published in the proceedings of the National Association of Insurance Commissioners, Section Quarter 2002; and

(b) "2001 CSO Preferred Class Structure Mortality Table", published in the proceedings of the National Association of Insurance Commissioners, Third Quarter 2006.

History

RELATES TO: KRS 304.6-130, 304.6-140, 304.6-160, 304.6-170, 304.6-171, 304.6-180
STATUTORY AUTHORITY: KRS 304.2-110, 304.6-140(2)(a)
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.2-110(1) authorizes the Commissioner of the Department of Insurance to promulgate administrative regulations necessary for the effectuation of any provision of the Kentucky Insurance Code, KRS Chapter 304. KRS 304.6-140(2)(a) provides that the commissioner may promulgate by administrative regulation any mortality table adopted by the National Association of Insurance Commissioners for use in determining the minimum standard for valuation of policies. This administrative regulation establishes the use of mortality tables that reflect differences in mortality between preferred and standard lives in determining minimum reserve liabilities in accordance with KRS 304.6-140 and 806 KAR 6:075.
History: 33 Ky.R. 4290; Am. 34 Ky.R. 284; 727; eff. 11-2-2007; Crt eff. 2-26-2020; TAm eff. 3-10-2020.

806 KAR 6:130 Minimum standards for determining reserve liabilities and nonforfeiture values for preneed insurance {#sec-806-kar-6-130 omnilex-key=us-ky-regs-official--title-806--806 KAR 6:130}

Section 1. Definitions.

(1) "1980 CSO Table (F), with or without Ten (10) Year Select Mortality Factors" means that mortality table consisting of the rates of mortality for female lives from the 1980 CSO Table, with or without Ten (10) Year Select Mortality Factors.

(2) "1980 CSO Table (M), with or without Ten (10) Year Select Mortality Factors" means that mortality table consisting of the rates of mortality for male lives from the 1980 CSO Table, with or without Ten (10) Year Select Mortality Factors.

(3) "2001 CSO Mortality Table" means a mortality table that:

(a) Consists of separate rates of mortality for male and female lives;

(c) Is published in the Proceedings of the National Association of Insurance Commissioners (2nd Quarter 2002) and supplemented by the 2001 CSO Preferred Class Structure Mortality Table; and

(d) Includes, unless the context indicates otherwise, both:

The ultimate form and the select and ultimate form of the table;
The smoker and nonsmoker mortality tables and the composite mortality tables; and
The age-nearest-birthday and the age-last-birthday bases of the mortality tables.

(4) "Commissioner" means the Commissioner of the Department of Insurance.

(5) "Insurer" is defined in KRS 304.1-040.

(6) "Merged Gender Ultimate 1980 CSO Table" means any mortality table which is a blend of the 1980 CSO Table (M), without Ten (10) Year Select Mortality Factors, and the 1980 CSO Table (F), without Ten (10) Year Select Mortality Factors, which have been adopted by the National Association of Insurance Commissioners.

(7) "Preneed insurance" means a life insurance policy issued by an insurance company which:

(a) Whether by assignment or otherwise, has for a purpose the funding of a preneed funeral contract or an insurance-funded funeral or burial agreement; and

(b) Pays funds for the funeral or burial of the insured.

(8) "Ultimate 1980 CSO Table", means a mortality table, consisting of separate rates of mortality for male and female lives, without Ten (10) Year Select Mortality Factors, developed by the Society of Actuaries Committee to Recommend New Mortality Tables for Valuation of Standard Individual Ordinary Life Insurance, referenced in KRS 304.6-140 and 304.15-342.

Section 2. Minimum Valuation and Nonforfeiture Mortality Standards.

(1) For preneed insurance, the minimum mortality standard for determining reserve liabilities and nonforfeiture values for male and female insureds shall be the male Ultimate 1980 CSO Table and the female Ultimate 1980 CSO Table, respectively.

(2) A Merged Gender Ultimate 1980 CSO Table may, at the option of the insurer, be substituted for the male Ultimate 1980 CSO Table or the female Ultimate 1980 CSO Table minimum mortality standard for determining nonforfeiture values.

(3) It shall not be a violation of KRS 304.12-085 for an insurer to issue the same kind of policy of life insurance on both a sex distinct and sex neutral basis if:

(a) The insurer establishes, prior to issue of any policy which is to be offered, the conditions under which each type will be marketed; and

(b) The conditions, together with sufficient information to establish that an unfairly discriminatory condition will not be created, are filed with the commissioner for approval in accordance with KRS 304.14-120.

Section 3. Transition Rules.

(1) For preneed insurance policies issued on or after the effective date of this administrative regulation and before January 1, 2012, the 2001 CSO Mortality Table may be used as the minimum standard for reserves and the minimum standard for nonforfeiture benefits for both male and female insureds.

(2) If an insurer elects to use the 2001 CSO Mortality Table as a minimum standard for any policy issued on or after the effective date of this administrative regulation and before January 1, 2012, the insurer shall provide, as part of the actuarial opinion memorandum required by KRS 304.6-171 submitted in support of the insurer's asset adequacy testing, an annual written notification to the domiciliary state insurance commissioner. The notification shall include:

(a) A complete list of all preneed policy forms that use the 2001 CSO Mortality Table as a minimum standard;

(b) A certification signed by the appointed actuary stating that the reserve methodology employed by the insurer in determining reserves for the preneed policies after the effective date of this administrative regulation and using the 2001 CSO Mortality Table as a minimum standard, develops adequate reserves. For purposes of this certification, the preneed policies using the 2001 CSO Mortality Table as a minimum standard shall not be aggregated with any other policies; and

(c) Supporting information regarding the adequacy of reserves for preneed insurance policies issued after the effective date of this administrative regulation and using the 2001 CSO Mortality Table as a minimum standard for reserves.

(3) Preneed insurance policies issued on and after January 1, 2012, shall use the Ultimate 1980 CSO Tables in the calculation of minimum nonforfeiture values and minimum reserves.

Section 4. Incorporation by Reference.

(1) The following material is incorporated by reference:

(a) "Ultimate 1980 CSO Table", published in the proceedings of the National Association of Insurance Commissioners, 1984, Vol. 1, pages 402-413;

(b) "Merged Gender Ultimate 1980 CSO Table", published in the proceedings of the National Association of Insurance Commissioners, 1984, Vol.1, pages 396-400; and

(c) "2001 CSO Mortality Table", published in the proceedings of the National Association of Insurance Commissioners, Second Quarter 2002.

History

RELATES TO: KRS 304.1-040, 304.6-130, 304.6-140, 304.6-170, 304.6-171, 304.6-180, 304.12-085, 304.12-240, 304.15-342
STATUTORY AUTHORITY: KRS 304.2-110, 304.6-140, 304.15-410
NECESSITY, FUNCTION, AND CONFORMITY: EO 2008-507, signed June 6, 2008, and effective June 16, 2008, created the Department of Insurance, headed by the Commissioner of Insurance. KRS 304.2-110 authorizes the Commissioner of the Department of Insurance to promulgate administrative regulations necessary for or as an aid to the effectuation of any provision of the Kentucky Insurance Code, KRS 304.1-010 through 304.99-152. KRS 304.6-140 provides that the commissioner may approve by administrative regulation any mortality table adopted by the National Association of Insurance Commissioners for use in determining the minimum standard for valuation of policies. KRS 304.15-410 provides for reserves held under any plan of life insurance which provides for future premium determination to be appropriate in relation to the benefits and computed by a method which is consistent with the principles of the standard valuation law, as determined by regulations promulgated by the commissioner. This administrative regulation establishes minimum mortality standards for preneed insurance product reserves and nonforfeiture values, and requires the use of the 1980 Commissioners Standard Ordinary (CSO) Life Valuation Mortality table in determining the minimum standard of valuation of reserves and minimum standard nonforfeiture values for preneed insurance products.
History: 35 Ky.R. 684; Am. 1467; eff. 1-5-2009; Crt eff. 2-26-2020; TAm eff. 3-10-2020.

Chapter 7 Investments

806 KAR 7:035 Finance committee of domestic insurers {#sec-806-kar-7-035 omnilex-key=us-ky-regs-official--title-806--806 KAR 7:035}

Section 1.

(1) Each domestic insurer shall, with each annual statement report, file with the commissioner the names of the members of any finance or executive committee or the board of directors which has, during the preceding year, exercised the authority to approve investments or investment policy.

(2) The filing required by subsection (1) of this section shall be accompanied by an affidavit signed by a financial officer of the insurer or its president, attesting that the members of the executive or finance committee or the board of directors have been advised as to the requirements of Subtitle 7 of KRS Chapter 304, administrative regulations, and other pertinent provisions of law applicable to investments or investment policy submitted for their approval.

History

RELATES TO: KRS 304.2-205, 304.7-361
STATUTORY AUTHORITY: KRS 304.2-110, 304.2-205, 304.3-240, 304.7-367
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.2-110 authorizes the Commissioner of Insurance to promulgate administrative regulations necessary for or as an aid to the effectuation of any provision of the Kentucky Insurance Code as defined in KRS 304.1-010. KRS 304.2-205 requires the commissioner to prescribe additional filings to be made by an insurer, along with its annual statement filing, by March 1 of each year. KRS 304.3-240 requires each authorized insurer to annually file with the commissioner a true statement of its financial condition, transactions, and affairs. KRS 304.7-367 authorizes the commissioner to promulgate administrative regulations implementing the provisions of KRS Chapter 304, Subtitle 7. The administrative regulation requires a domestic insurer transacting business in Kentucky to notify the commissioner of the names of the members of the finance or executive committees of its company or the board of directors responsible for approval of the insurer's investment policy.
History: 47 Ky.R. 487, 971; eff. 2-2-2021.

806 KAR 7:090 Custodial accounts for investment securities of insurance companies {#sec-806-kar-7-090 omnilex-key=us-ky-regs-official--title-806--806 KAR 7:090}

Section 1. Definitions.

(1) "Certificated security" is defined by KRS 304.7-360(1)(g).

(2) "Clearing corporation" is defined by KRS 304.7-360(1)(a).

(3) "Commissioner" is defined by KRS 304.1-050(1).

(4) "Custodian bank" is defined by KRS 304.7-360(1)(b).

(5) "Custodied securities" means securities held by the custodian bank, its nominee, a clearing corporation, the Federal Reserve book-entry system, or in any combination of these entities.

(6) "Direct participant" is defined by KRS 304.7-360(1)(c).

(7) "Federal reserve book-entry system" is defined by KRS 304.7-360(1)(d).

(8) "Member bank" is defined by KRS 304.7-360(1)(e).

(9) "Security" is defined by KRS 304.7-360(1)(f).

(10) "Uncertificated security" is defined by KRS 304.7-360(1)(h).

Section 2. Standards for Custodial Agreements. Pursuant to KRS 304.7-360, an insurance company may provide by agreement for the custody of its securities with a custodian bank meeting the qualifications set forth in Section 3 of this administrative regulation which securities may be held by the custodian bank, its nominee, in a clearing corporation, or in the Federal Reserve book-entry system. Any agreement shall contain provisions to comply with the following standards:

(1) The agreement shall be in writing and shall be authorized by a resolution of the Board of Directors or an authorized committee of the insurance company.

(2) Certificated securities held by the custodian bank may be held separate from the securities of the custodian bank and of all its other customers or in a fungible bulk of securities as part of a Filing of Securities by Issue (FOSBI) arrangement.

(3) Securities held in a fungible bulk by the custodian bank and securities in a clearing corporation or the Federal Reserve book-entry system shall be separately identified on the custodian bank's official records as being owned by the insurance company. The records shall identify which custodied securities are held by the custodian bank or by its nominee and which securities are in a clearing corporation or the Federal Reserve book-entry system. If the securities are in a clearing corporation or the Federal Reserve book-entry system, the records shall also identify where the securities are and, if in a clearing corporation, the name of the clearing corporation or, if held in nominee name, the name of the nominee.

(4) All custodied securities that are registered shall be registered in the name of:

(a) The insurance company;

(b) A nominee of the insurance company;

(d) If in a clearing corporation, the clearing corporation or its nominee.

(5) Custodied securities shall be held subject to the instructions of the insurance company and shall be withdrawable upon the demand of the insurance company.

(6) The custodian bank shall arrange for execution of transactions in custodied securities in accordance with the insurance company's instructions and shall not exercise discretionary authority to effect transactions in custodied securities except in such limited or special circumstances as the insurance company may authorize.

(7) The custodian bank shall be required to send or cause to be sent to the insurance company a confirmation of all transfers of custodied securities to or from the account of the insurance company. In addition, the custodian bank shall be required to furnish the insurance company with reports of holdings of custodied securities at such times and containing such information as may be reasonably requested by the insurance company, but not less frequently than monthly.

(8) During the course of the custodian bank's regular business hours, any officer or employee of the insurance company, any independent accountant selected by the insurance company, or any representative of the commissioner shall be entitled to examine, on the premises of the custodian bank, the custodian bank's records relating to custodied securities and the custodied securities, but only upon furnishing the custodian bank with written instructions to that effect from an appropriate officer of the insurance company or the commissioner.

(9) The custodian bank and its nominee shall be required to send to the insurance company:

(a) All reports which they receive from a clearing corporation or the Federal Reserve book-entry system on their respective systems of internal accounting control; and

(b) Reports prepared by outside auditors with respect to the respective systems of internal accounting control of the custodian bank and its nominee pertaining to custodial record keeping as the insurance company may reasonably request from time to time.

(10) The custodian bank shall maintain records sufficient to determine and verify information relating to custodied securities that may be reported in the insurance company's annual statement and supporting schedules as filed with various regulatory authorities and in connection with any audit of the financial statements of the insurance company.

(11) The custodian bank shall provide upon request an affidavit with respect to custodied securities on the form, Custodian Affidavit or in a substantially similar format.

(12) The custodian bank shall be obligated to indemnify the insurance company for any loss of custodied securities, except that the custodian bank shall not be obligated to the extent that the loss was caused by other than the negligence or dishonesty of the custodian bank.

(13) If there is a loss of custodied securities for which the custodian bank shall be obligated to indemnify the insurance company as provided in subsection (12) of this section, the custodian bank shall promptly replace the securities or the value of the securities and the value of any loss of rights or privileges resulting from the loss of securities.

(14) The agreement may provide that the custodian bank will not be liable for any failure to take any action required to be taken under the agreement if the taking of such action is prevented or delayed by war, whether declared or not and including existing war, revolution, insurrection, riot, civil commotion, act of God, accident, fire, explosion, stoppage of labor, strikes or other differences with employees, laws, regulations, orders or other acts of any governmental authority, or any other cause beyond its reasonable control.

(15) If entry in a clearing corporation or in the Federal Reserve book-entry system is gained through a direct participant or a member bank, there shall be an agreement between the custodian and the direct participant or member bank under which the direct participant or member bank shall be subject to the same liability for loss of custodied securities as the custodian bank. However, if the direct participant or member bank shall be subject to regulation under the laws of a jurisdiction which is different from the jurisdiction the laws of which regulate the custodian bank, the commissioner may accept a standard of liability applicable to the direct participant or member bank which is different from the standard of liability applicable to the custodian bank.

(16) The agreement shall be terminable by the insurance company on not more than thirty (30) days' notice.

Section 3. Qualifications of Custodian Banks. Any custodian bank selected by an insurance company to act as custodian under an agreement authorized by KRS 304.7-360 shall possess the following qualifications:

(1) Its custodial functions for the insurance company shall be carried out under its trust department;

(2) It shall be audited annually by independent public accountants whose audit report, together with the related financial statements, and whose report on internal controls are made available to the insurance company and the commissioner;

(3) It shall be organized under the laws recognizing that the custodied securities are special deposits rather than general deposits, remain the specific property of the insurance company, and shall not be subject to any creditor relationship of the custodian bank.

(4) It shall maintain blanket bond coverage relating to its custodial functions with limits equal to or exceeding those suggested by the American Bankers Association.

(5) Its capital and surplus funds shall equal or exceed $25,000,000; and

(6) It shall have demonstrated sufficient experience in handling custodial accounts.

Section 4. Incorporation by Reference.

(1) "Custodian Affidavit", (6/2020), is incorporated by reference.

History

RELATES TO: KRS 304.7-360
STATUTORY AUTHORITY: KRS 304.2-110, 304.7-360
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.2-110 authorizes the Commissioner of Insurance to promulgate administrative regulations necessary for or as an aid to the effectuation of any provision of the Kentucky Insurance Code as defined in KRS 304.1-010. KRS 304.7-360 requires the Commissioner of Insurance to promulgate administrative regulations governing the deposit by insurers of securities with clearing corporations, the Federal Reserve book-entry system, and with custodian banks. This administrative regulation establishes provisions to be included in an agreement for the custody of an insurance company's securities with a custodian bank and qualifications for a custodian bank.
History: 9 Ky.R. 89; 375; eff. 10-6-1982; TAm eff. 8-9-2007; Crt eff. 2-26-2020; 47 Ky.R. 405, 971; eff. 2-2-2021.

806 KAR 7:110 Derivative instruments {#sec-806-kar-7-110 omnilex-key=us-ky-regs-official--title-806--806 KAR 7:110}

Section 1. Definitions.

(1) "Business entity" is defined by KRS 304.7-012(8).

(2) "Commissioner" is defined by KRS 304.1-050(1).

(3) "Counterparty exposure amount" is defined by KRS 304.7-012(19).

(4) "Department" is defined by KRS 304.1-050(2).

(5) "Derivative instrument" is defined by KRS 304.7-012(22).

(6) "Insurer" is defined in KRS 304.1-040.

(7) "Over-the-counter derivative" means a derivative instrument entered into with a business entity other than through a qualified exchange, qualified foreign exchange, or cleared through a qualified clearinghouse.

(8) "Qualified clearinghouse" is defined by KRS 304.7-012(67).

(9) "Qualified exchange" is defined by KRS 304.7-012(68).

(10) "Qualified foreign exchange" is defined by KRS 304.7-012(69).

Section 2. Applicability. The provisions of this administrative regulation shall not apply to:

(1) Captive insurers licensed in accordance with KRS 304.49-020, except for industrial insured captive insurers pursuant to KRS 304.49-010(8);

(2) Workers' compensation self-insured groups certified in accordance with KRS 304.50-035; and

(3) Liability self-insurance groups certified in accordance with KRS 304.48-060.

Section 3. Amount of Credit Risk.

(1) The amount of credit risk shall equal:

(a) The market value of the derivative instrument issued through a qualified clearinghouse if the liquidation of the derivative instrument would result in a final cash payment to the insurer; or

(b) Zero if the liquidation of the derivative instrument would not result in a final cash payment to the insurer.

(2) If derivative instruments are entered into through a qualified clearinghouse pursuant to a written master agreement which provides for netting of payments owed by the respective parties, and the domiciliary jurisdiction of the counterparty is either within the United States or if not within the United States, within a foreign jurisdiction listed by the Securities Valuation Office as eligible for netting, the net amount of credit risk shall be the greater of zero or the net sum of:

(a) The market value of the derivative instruments issued through a qualified clearinghouse entered into pursuant to the agreement, the liquidation of which would result in a final cash payment to the insurer; and

(b) The market value of the derivative instruments issued through a qualified clearinghouse entered into pursuant to the agreement, the liquidation of which would result in a final cash payment by the insurer to the business entity.

(3) For open transactions, market value shall be determined at the end of the most recent quarter of the insurer's fiscal year and shall be reduced by the market value of acceptable collateral held by the insurer or placed in escrow by one (1) or both parties.

Section 4. Guidelines and Internal Control Procedures.

(1) Before engaging in a derivative transaction, an insurer shall establish written guidelines, approved by the commissioner pursuant to Section 5 of this administrative regulation, that shall be used for effecting and maintaining derivative transactions. The guidelines shall:

(a) Specify insurer objectives for engaging in derivative transactions and derivative strategies and all applicable risk constraints, including credit risk limits;

(b) Establish counterparty exposure limits and credit quality standards;

(c) Identify permissible derivative transactions and the relationship of those transactions to insurer operations including a precise identification of the risks being hedged by a derivative transaction; and

(d) Require compliance with internal control procedures.

(2) An insurer shall have a written methodology for determining whether a derivative instrument used for hedging has been effective.

(3) An insurer shall have written policies and procedures describing the credit risk management process and a credit risk management system for over-the-counter derivative instrument transactions that measures credit risk exposure using the counterparty exposure amount.

(4) An insurer's board of directors shall, in accordance with KRS 304.7-361:

(a) Approve:

The written guidelines, methodology, and policies and procedures required by subsections (1), (2), and (3) of this section; and
The systems required by subsections (1) and (2) of this section;

(b) Determine whether the insurer has adequate professional personnel, technical expertise, and systems to implement investment practices involving derivatives;

(c) Review whether derivatives transactions have been made in accordance with the approved guidelines and consistent with stated objectives; and

(d) Take action to correct any deficiencies in internal controls relative to derivative transactions.

Section 5. Commissioner Approval. Written documentation explaining the insurer's internal guidelines and controls governing derivative transactions shall be submitted for approval to the commissioner. The commissioner shall have the authority to disapprove the guidelines and controls proposed by the insurer if the insurer cannot demonstrate the proposed internal guidelines and controls would be adequate to manage the risks associated with the derivative transactions the insurer intends to engage in.

Section 6. Documentation Requirements. An insurer shall maintain the following documentation and records relating to each derivative transaction:

(1) The purpose or purposes of the transaction;

(2) The assets or liabilities to which the transaction relates;

(3) The specific derivative instrument used in the transaction;

(4) For over-the-counter derivative instrument transactions, the name of the counterparty and the market value; and

(5) For exchange traded derivative instruments, the name of the exchange and the name of the firm that handled the trade and the market value.

Section 7. Trading Requirements. Each derivative instrument shall be:

(1) Traded on a qualified exchange;

(2) Entered into with, or guaranteed by, a business entity;

(3) Issued or written with the issuer of the underlying interest on which the derivative instrument is based; or

(4) Entered into with a qualified foreign exchange.

Section 8. Effective Date. The requirements of this administrative regulation shall not be implemented or enforced prior to the effective date determined pursuant to KRS 13A.330, or July 15, 2014, whichever is later.

History

RELATES TO: KRS 304.7-361, 304.7-405, 304.7-417, 304.7-419, 304.7-421, 304.7-457, 304.7-469, 304.48-060, 304.49-010, 304.49-020, 304.50-035, 15 U.S.C. §§ 78 et seq.
STATUTORY AUTHORITY: KRS 304.2-110(1), 304.7-367
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.2-110(1) authorizes the Commissioner of Insurance to promulgate administrative regulations necessary for, or as an aid to, the effectuation of any provision of the Kentucky Insurance Code, as defined in KRS 304.1-010. KRS 304.7-367 authorizes the commissioner to promulgate administrative regulations to implement the provisions of KRS Chapter 304, Subtitle 7. This administrative regulation sets standards for the prudent use of derivative instruments in accordance with KRS 304.7-419.
History: 39 Ky.R. 1086; 1405; eff. 2-1-2013; Crt eff. 2-26-2020.

Chapter 8 Administration of Deposits

806 KAR 8:010 Valuation of assets on deposit {#sec-806-kar-8-010 omnilex-key=us-ky-regs-official--title-806--806 KAR 8:010}

Section 1. Insurance companies making deposits and revaluations of deposits with the Custodian of Insurance Securities shall utilize the Insurance Department Form 143, Detailed Listing of Securities Held Under Safekeeping Pursuant to KRS 304.8-095.

Section 2. Assets on deposit with the Custodian of Insurance Securities which are obligations having a fixed term, rate and face value, shall be valued as follows:

(1) At face value if acquired at face value; or

(2) If acquired above or below face value, on the basis of the purchase price adjusted annually to bring the value to face value on maturity. The obligations when in default as to either principal or interest are not eligible for deposit, and the commissioner shall require replacement of the deposits in accordance with KRS 304.8-120.

Section 3. Preferred and common stocks shall be valued, for deposit purposes, at the then market value. Twice each year these classes of securities shall be revalued, once as of the preceding December 31 and again as of June 30. The latter revaluation shall be accompanied by a statement from a recognized securities brokerage firm to the effect that the prices used were the fair market values at June 30.

Section 4. Mortgage loans and notes shall be valued at the unpaid principal balance of the note at the time of deposit. Each year, before April 1, the mortgage loans on deposit shall be revalued so as to reflect the estimated unpaid principal balances as of the succeeding December 31.

Section 5. Home office real property shall be valued for deposit purposes at the company's book value, or at the fair market value if the appraisal has been established by a licensed appraiser. Any change in the company's book value or appraised value shall cause a revaluation of this deposit.

Section 6. Incorporation by Reference.

(1) "Insurance Department Form 143, Detailed Listing of Securities Held Under Safekeeping Pursuant to KRS 304.8-095", (6/2020), is incorporated by reference.

History

RELATES TO: KRS 304.8-040, 304.8-095, 304.8-120
STATUTORY AUTHORITY: KRS 304.2-110
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.2-110 provides that the Commissioner of Insurance may make reasonable rules and administrative regulations necessary for or as an aid to the effectuation of any provision of the Kentucky Insurance Code. This administrative regulation sets forth the method of valuation of assets on deposit with the Commissioner of Insurance.
History: I-8.01; 1 Ky.R. 1076; eff. 7-2-75; TAm eff. 8-9-2007; Crt eff. 2-26-2020; 47 Ky.R. 405, 973; eff. 2-2-2021.

Chapter 9 Agents, Consultants, Solicitors and Adjusters

806 KAR 9:020 False or deceptive names, titles, prohibited {#sec-806-kar-9-020 omnilex-key=us-ky-regs-official--title-806--806 KAR 9:020}

Section 1. Prohibited Conduct. A person licensed pursuant to the Kentucky Insurance Code, shall not, in the conduct of business, use, or knowingly permit to be used on the person's behalf, any name, title, letters, degrees, certificate, accomplishment, award, designation or the like, which implies or purports to convey that:

(1) The person possesses a greater skill, knowledge, experience, or qualification than is actually a fact; or

(2) The person possesses a greater skill, knowledge, experience, or qualification in advising or servicing seniors in connection with the solicitation, sale, or purchase of a life insurance or annuity product than is actually a fact. The manner in which specified words are used shall be a factor in determining whether a name or title is in violation, and the commissioner shall consider the combinations of:

(a) "Senior", "retirement", "elder", or similar words; and

(b) With "certified", "registered", "chartered", "advisor", "specialist", "consultant", "planner", or similar words.

Section 2. Properly Conferred Titles Permitted. This administrative regulation shall not prohibit the use of names, titles, letters, degrees, certificates, recognition of accomplishments, awards, designations, or the like which have been properly conferred upon a licensee by:

(1) A duly accredited and recognized college or university; or

(2) A duly accredited and recognized professional association or society.

Section 3. Certain Job Titles Prohibited. This administrative regulation shall not prohibit the use of a job title within an organization licensed or registered by a state or federal financial services regulatory agency, including an agency that regulates insurance licensees, unless:

(1) It is used in a manner that would confuse or mislead a reasonable consumer; and

(2) The job title:

(a) Indicates seniority or standing within the organization; or

(b) Specifies an individual's area of specialization within the organization.

History

RELATES TO: KRS 304.1-010, 304.12-130
STATUTORY AUTHORITY: KRS 304.2-110
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.2-110 authorizes that the Commissioner of Insurance to make administrative regulations necessary for or as an aid to the effectuation of any provisions of the Kentucky Insurance Code. This administrative regulation prohibits the use of names, titles, degrees, certificates, accomplishments, or the like, that implies a greater skill or knowledge than the person actually possesses.
History: I-9.02; 1 Ky.R. 860; eff. 5-14-1975; 32 Ky.R. 314; 880; eff. 12-2-2005; 38 Ky.R. 325; 802; 913; 12-2-2011; 46 Ky.R. 1865; eff. 1-3-2020.

806 KAR 9:025 Licensing process {#sec-806-kar-9-025 omnilex-key=us-ky-regs-official--title-806--806 KAR 9:025}

Section 1. Prelicensing Course Requirements.

(1) An individual applying for an agent license shall complete a prelicensing course of study approved by the commissioner for a minimum of forty (40) hours for life and health insurance, forty (40) hours for property and casualty insurance, or twenty (20) hours for each line of authority, as applicable, for the lines of authority included in the application, unless the applicant is:

(a) Seeking a variable life and variable annuity products line of authority or a limited line of authority under KRS 304.9-230; or

(b) Exempt pursuant to KRS 304.9-170.

(2)

(a) All prelicensing courses, providers, and instructors shall be approved by the commissioner prior to offering a course.

(b) A prelicensing course provider shall submit either in writing or electronically through the department's Web site, http://insurance.ky.gov:

A Form KYP-01, Provider Approval Application, submitted once to become an approved course provider;
A Form CE/PL-100, Course Approval Application, for each course the approved provider wants to offer;
A Form CE/PL-200, Instructor Approval Application, for each course instructor;
The fee, as applicable, established for provider, instructor, and course approval in 806 KAR 4:010; and
An outline of the content of the course of study.

(c) In approving a prelicensing course of study, the commissioner or the commissioner's designee shall consider whether the course of study covers the subject matter included in the department's current study outlines or their equivalent.

(d) A prelicensing course of study approved by the commissioner shall be renewed biennially.

(e) For renewals, the provider and instructor approval applications shall not be required to be submitted with each course.

(3) A prelicensing course of study shall be valid for one (1) year from the date of completion.

(4) The prelicensing provider shall submit proof of completion of a course of study to the department and the applicant on Form CPL-01, Certificate of Prelicensing Course Completion or electronically through the department's Web site, http://insurance.ky.gov, for each applicant.

Section 2. Agent Licensing.

(1) Except as otherwise provided in this chapter, an applicant for an individual agent license shall file with the department:

(a) A completed Form 8301, NAIC Individual Insurance License Application;

(b) Documentation demonstrating successful completion of any required prelicensing course;

(c) If the applicant is designating Kentucky as his or her home state, a completed background check through the Kentucky Administrative Office of the Courts; and

(d) Except as provided in KRS 12.357, payment of the fees applicable to the license and lines of authority sought in accordance with KRS 304.4-010 and 806 KAR 4:010.

(2) If an examination is required, the documents and fees required in subsection (1) of this section shall be submitted prior to scheduling an examination.

(3) An individual applying for a line of authority identified in KRS 304.9-030(2) shall successfully complete an examination as follows:

(a) For a life line of authority, a life examination;

(b) For a health line of authority, a health examination;

(d) For a casualty line of authority, a casualty examination;

(e) For a personal lines line of authority, a property and casualty personal lines examination;

(f) For a line of authority identified in accordance with KRS 304.9-030(2)(h), an examination appropriate for the kind of insurance; and

(g) For a variable life and variable annuity products line of authority, an examination shall not be required.

(4) An examination shall only be required for individual applicants applying for the following limited lines of authority identified in KRS 304.9-230:

(a) For a crop limited line of authority, a crop examination; and

(b) For a rental vehicle limited line of authority, a rental vehicle examination shall be administered or monitored by a rental vehicle agent pursuant to 806 KAR 9:265.

(5) Every applicant for a license for which an examination is required shall answer correctly seventy (70) percent of the questions to pass the examination.

(6) To retake an examination, an applicant shall submit to the department:

(a) Form 8304, Examination Retake Form; and

(b) The applicable examination fee established in 806 KAR 4:010.

Section 3. Adjuster Licensing.

(1) An applicant for an adjuster license shall file with the department:

(a) A completed Form 8301, NAIC Individual Insurance License Application;

(b) If the applicant is designating Kentucky as his or her home state, a completed background check through the Kentucky Administrative Office of the Courts; and

(2) The documents and fees required under subsection (1) of this section shall be submitted prior to scheduling an examination.

(3) An individual applying for an adjuster line of authority identified in KRS 304.9-430(7) shall:

(a) For a property and casualty line of authority, successfully complete a property and casualty adjuster examination;

(b) For a workers' compensation line of authority, successfully complete a workers' compensation adjuster examination; and

Successfully complete a crop adjuster examination; or
Demonstrate certification through the Crop Adjuster Proficiency Program, by providing to the department a copy of a Crop Adjuster Proficiency Program certification identification card with an active status issued by the federal Risk Management Agency, an agency within the U.S. Department of Agriculture, which specifies the applicant has passed a proficiency examination to adjust multi-peril crop claims.

(4) Every applicant for a license for which an examination is required shall answer correctly seventy (70) percent of the questions to pass the examination.

(5) To retake an examination, an applicant shall submit to the department:

(a) Form 8304, Examination Retake Form; and

(b) The applicable examination fee established in 806 KAR 4:010.

Section 4. Consultant Licensing.

(1) An applicant for a consultant license shall:

(a) File with the department:

A completed Form 8301, NAIC Individual Insurance License Application;
If the applicant is designating Kentucky as his or her home state, a completed background check through the Kentucky Administrative Office of the Courts; and
Except as provided in KRS 12.357, payment of the fees applicable to the license in accordance with KRS 304.4-010 and 806 KAR 4:010; and

(b) Successfully complete the consultant examination.

(2) The documents and fees required under subsection (1)(a) of this section shall be submitted prior to scheduling an examination.

(3) An applicant for a consultant license shall answer correctly seventy (70) percent of the questions to pass the consultant examination.

(4) To retake an examination, an applicant shall submit to the department:

(a) Form 8304, Examination Retake Form; and

(b) The applicable examination fee established in 806 KAR 4:010.

Section 5. Continuing Education.

(1)

(a) Continuing education providers, instructors, and courses shall be approved by the commissioner unless specifically exempted by KRS 304.9-295.

(b) To apply for approval as a continuing education provider, an applicant shall submit to the department:

A completed Form KYP-01, Provider Approval Application; and
For proprietary schools, documentation of licensure by the Kentucky Commission on Proprietary Education.

(c) To apply for approval as a continuing education instructor, an approved continuing education provider shall submit to the department:

A completed Form CE/PL-200, Instructor Approval Application; and
The applicable fee established in 806 KAR 4:010.

(d)

To apply for approval of a continuing education course, an approved continuing education provider shall submit to the department Form CE/PL-100, Course Approval Application at least sixty (60) days in advance of advertising the course, unless good cause is demonstrated by the provider for the failure to timely submit the form. If the course is offered in multiple states, the provider may, in lieu of Form CE/PL-100, submit the NAIC Uniform Continuing Education Reciprocity Course Filing Form.
After approval of the continuing education course and the determination of the number of credit hours assigned to the course, the continuing education provider shall pay to the department the applicable fee established in 806 KAR 4:010.

(e) The commissioner shall consider the following in determining approval of a continuing education course:

Once the total credit hours are determined, whether the applicant has remitted all fees due pursuant to 806 KAR 4:010; and
Whether the continuing education course contributes directly, at a professional level, to the competence of the licensee with respect to the following subjects:

a. Insurance, annuities, and risk management;

b. Insurance laws and administrative regulations;

c. Mathematics, statistics, and probability;

d. Economics;

e. Business law;

f. Finance;

g. Taxes;

h. Agency management, including all aspects of agency operations that support the long-term stability of the agency system and encourage the service and protection of customers;

i. Ethics; and

j. Other topics approved by the commissioner which contribute directly at a professional level to the competence of the licensee.

(f) The continuing education course shall:

Include current, relevant, accurate, and valid reference materials, graphics, and interactivity;
Have clearly defined objectives and course completion criteria;
Have a written outline and study materials or texts; and
Include a means for evaluation.

(g) A self-study course shall require successful completion of an examination.

(h) Continuing education credit shall not be provided for:

Any course used to prepare for taking an examination required pursuant to KRS Chapter 304;
Committee service for professional organizations;
Computer training to develop functional skills; and
Motivational or self-help courses.

(i) The commissioner shall measure continuing education course credit hours by the following:

Each credit hour for live instruction courses, completed in a classroom, by video, teleconference, or computer, shall include at least fifty (50) minutes of continuous instruction or participation; and
Each credit hour for recorded self-study courses, completed online or by correspondence, shall be calculated in accordance with the Recommended Guidelines for Online Courses.

(j) Any material change in a previously approved continuing education course shall be filed with and approved by the commissioner prior to use.

(k) Biennially, a continuing education provider shall request renewal of a continuing education course and a continuing education instructor by submitting the information required by subsection (1)(c) and (d) of this section and the fee established in 806 KAR 4:010 to the department on or before June 30 of even-numbered years.

(2)

(a) A resident individual agent selling, soliciting, or negotiating insurance products that qualify under the Long-Term Care Partnership Insurance Program, as described in KRS 304.14-642, shall complete eight (8) hours of initial long-term care insurance training, and four (4) hours of additional training for each biennial continuing education compliance period.

(b) A resident individual agent who holds a property and casualty line of authority selling flood insurance under the National Flood Insurance Program shall complete three (3) hours of training in accordance with the Flood Insurance Reform Act of 2004, as set forth in Pub.L. 108-264, Section 207.

(c)

An individual agent who holds a life line of authority shall successfully complete four (4) hours of initial training, prior to the sale, solicitation, or negotiation of annuities, unless the agent has documented the completion of substantially similar training in another state, that shall include at a minimum information on the following topics:

a. The types of annuities and various classifications of annuities;

b. Identification of the parties to an annuity;

c. How product specific annuity contract features affect consumers;

d. The application of income taxation of qualified and non-qualified annuities;

e. The primary uses of annuities; and

f. Appropriate standard of conduct, sales practices, replacement, and disclosure requirements.

The training required by subparagraph 1. of this paragraph shall not include:

a. Marketing information;

b. Training on sales techniques; or

c. Specific information about a particular insurer's products.

Except as provided in subparagraph 4. of this paragraph, an agent who has completed an annuity training course approved by the department prior to January 1, 2022 shall, within six (6) months after January 1, 2022, complete either:

a. A new four (4) credit hour training course approved by the Department of Insurance and provided by a Department of Insurance-approved education provider; or

b. An additional one-time one (1) credit hour training course approved by the Department of Insurance and provided by a Department of Insurance-approved education provider on appropriate sales practices and replacement and disclosure requirements under 806 KAR 12:120.

A non-resident agent who has completed a training course that is substantially similar to the training course required in subparagraph 3. of this paragraph shall meet the requirements of subparagraph 3. of this paragraph.

(3) A continuing education provider shall:

(a) Within thirty (30) days of completion of a continuing education course, submit electronically through the department's Web site, http://insurance.ky.gov, the Continuing Education Certificate of Completion forms and attendance roster for all licensees who satisfactorily completed the course;

(b) Issue Form CE-301, Approved Continuing Education Certificate of Completion to the licensee that successfully completed the course; and

(c) Maintain all attendance rosters and course completion certificates in hard copy or electronic format for at least five (5) years for review, as necessary, by the commissioner.

(4) A licensee shall be responsible for verifying that a continuing education provider has submitted a continuing education certificate of completion form to the department for a continuing education course that the licensee has successfully completed. If the continuing education provider has not submitted a continuing education certificate of completion form in accordance with subsection (3) of this section, the licensee shall submit the continuing education certificate of completion to the department within the timeframes established in KRS 304.9-260 and 304.9-295.

(5) A licensee may carry forward up to twelve (12) excess credit hours to the subsequent continuing education biennium.

(6)

(a) If the department does not receive proof of compliance with a licensee's continuing education requirement on or before the deadline established in KRS 304.9-260 and 304.9-295, the commissioner shall:

Make information of the deficiency available to the licensee; and
Terminate the license if proof of completion of the deficient hours is not received as prescribed by KRS 304.9-295.

(b) A licensee whose license is terminated pursuant to paragraph (a) of this subsection shall:

Have the license reissued within twelve (12) months of the license termination if the licensee:

a. Satisfies the delinquent continuing education requirements;

b. Submits a new application with required attachments included within Section 2(1) or Section 3(1) of this administrative regulation for a license; and

c. Submits the applicable fees established in 806 KAR 4:010; or

Complete all licensing requirements specified in KRS Chapter 304, Subtitle 9 and this administrative regulation if the continuing education delinquency remains unsatisfied for twelve (12) months or longer.

(7)

(a) A licensee may seek an exemption from continuing education requirements under KRS 304.9-295(3)(d) by completing a Form CE AFF 304, Affidavit for Exemption from Continuing Education.

(b) An agent exempted from continuing education requirements in accordance with paragraph (a) of this subsection may withdraw the continuing education exemption and may have all restrictions against selling, soliciting, and negotiating insurance removed from the agent license by:

Completing the continuing education requirements for the immediate preceding continuing education biennium;
Providing a certification of completion of those continuing education requirements; and
Providing a signed, written statement withdrawing the affidavit.

(c) The false use of Form CE AFF 304, Affidavit for Exemption from Continuing Education for any reason, including for the purpose of obtaining an extension for completion of continuing education requirements for a continuing education biennium, shall be a violation of KRS 304.9-295 and shall subject the affiant to suspension or revocation of the agent license.

(8) Members of the Armed Forces who have been mobilized or deployed in support of their duties may request an extension of time for completion, or a waiver, of continuing education requirements, in accordance with KRS 304.9-260(3), by filing with the department the Form MLW-01, Request for Waiver of Renewal Procedures or Exemption from Examination or Extension for Continuing Education Due to Active Military Service Deployment.

Section 6. Business Entity Agent Application and Designation.

(1) Except as otherwise provided in this chapter, a business entity applying for a license in accordance with KRS Chapter 304 Subtitle 9 or Subtitle 10 shall submit to the department:

(a) Form 8301-BE, NAIC Business Entity Insurance License Application; and

(b) The applicable fee established in 806 KAR 4:010.

(2) A business entity shall submit Form 8305, Business Entity Designation or Termination of Designation Form, to designate or terminate individuals authorized to act under the business entity's license or appointments.

Section 7. Agent Appointment.

(1) Each insurer shall appoint each agent acting on the insurer's behalf within fifteen (15) days of the agent contract's execution or the date on which the agent submits their first application to the insurer, whichever is earlier, in accordance with KRS 304.9-270.

(2) An insurer seeking approval of an agent's appointment shall submit to the department:

(a) Form 8302-AP, Producer Appointment; and

(b) The applicable filing fee established in 806 KAR 4:010.

(3) An insurer terminating an appointment pursuant to KRS 304.9-280 shall submit Form 8302-TE, Termination of Producer Appointment within thirty (30) days following the effective date of an agent's termination.

(4) The requirements of this section shall apply to both individual and business entity agent appointments.

Section 8. Record Correction. A licensee shall submit Form 8303, Record Correction Form to the department to make a change or update the licensee's:

(1) Name;

(2) Address;

(3) Phone number;

(4) Email address; and

(5) Name in which the licensee is doing business.

Section 9. Incorporation by Reference.

(1) The following material is incorporated by reference:

(a) Form CPL-01, "Certificate of Prelicensing Course Completion," (8/2019);

(b) Form 8301, "NAIC Individual Insurance License Application," (6/2022);

(d) Form 8302-AP, "Producer Appointment," (9/2021);

(e) Form 8302-TE, "Termination of Producer Appointment," (9/2021);

(f) Form 8305, "Business Entity Designation or Termination of Designation Form," (9/2021);

(g) Form 8304, "Examination Retake Form," (9/2021);

(h) Form KYP-01, "Provider Approval Application," (9/2021);

(i) Form CE/PL-100, "Course Approval Application," (8/2019);

(j) Form CE/PL-200, "Instructor Approval Application," (8/2019);

(k) Form CE-301, "Approved Continuing Education Certificate of Completion," (9/2021);

(l) Form CE AFF 304, "Affidavit for Exemption from Continuing Education," (9/2021);

(m) Form 8303, "Record Correction Form," (9/2021);

(n) Form MLW-01, "Request for Waiver of Renewal Procedures or Exemption from Examination or Extension for Continuing Education Due to Active Military Service Deployment," (9/2021);

(o) "NAIC Uniform Continuing Education Reciprocity Course Filing Form," (8/2019); and

(p) "Recommended Guidelines for Online Courses", National Association of Insurance Commissioners, 3/2015.

(2) This material may be inspected, copied or obtained, subject to applicable copyright law, at the Kentucky Department of Insurance, Mayo-Underwood Building, 500 Mero Street, Frankfort, Kentucky 40601, Monday through Friday, 8 a.m. to 4:30 p.m. This material is also available on the Department's Web site at https://insurance.ky.gov/ppc/CHAPTER.aspx.

History

RELATES TO: KRS 12.357, 165A.330, 304.4-010, 304.9-030, 304.9-105, 304.9-130, 304.9-150, 304.9-160, 304.9-170, 304.9-230, 304.9-260, 304.9-270, 304.9-280, 304.9-295, 304.9-320, 304.9-430, 304.14-642, Pub. L. 108-264, Sect. 207
STATUTORY AUTHORITY: KRS 304.2-110, 304.9-080, 304.9-105, 304.9-160, 304.9-170, 304.9-230, 304.9-270, 304.9-280, 304.9-295
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.2-110 authorizes the Commissioner of the Department of Insurance to promulgate administrative regulations necessary for or as an aid to the effectuation of any provisions of the Kentucky Insurance Code, KRS Chapter 304. KRS 304.9-080 requires the commissioner to prescribe and furnish all forms required for licenses and appointments under Subtitle 9 of the Kentucky Insurance Code. KRS 304.9-105 requires the commissioner to promulgate administrative regulations to establish requirements for a prelicensing course of study for all agents, except for a variable life and variable annuities line of authority and limited lines of authority. KRS 304.9-230 requires the commissioner to promulgate administrative regulations establish requirements for a prelicensing course of study for limited lines of authority. KRS 304.9-160 requires the commissioner to establish the examination process. KRS 304.9-270 requires the commissioner to prescribe a form for appointment of individual and business entity agents. KRS 304.9-230 and 304.9-295 require the commissioner to establish forms and standards for the approval of prelicensing and continuing education course providers, instructors, and courses. This administrative regulation establishes the guidelines for individual agents, business entities, consultants, and adjusters to become licensed, obtain appointments, as required, in Kentucky, maintain their licenses through the completion of continuing education, and surrender their license voluntarily or have their appointment terminated by an insurer.
History: 46 Ky.R. 1866; eff. 3-3-2020; 47 Ky.R. 806, 1600; 48 Ky.R. 1141; eff. 1-4-2022; 49 Ky.R. 99, 810; eff. 1-3-2023.

806 KAR 9:030 Adjuster licensing restrictions {#sec-806-kar-9-030 omnilex-key=us-ky-regs-official--title-806--806 KAR 9:030}

Section 1.

(1) An independent, staff, or public adjuster licensed pursuant to KRS 304.9-430 shall not represent the interest of both insurer and the insured or claimant.

(2) When applying for an adjuster license, an applicant shall elect to act solely on behalf of either:

(a) Insurers; or

(b) Persons claiming benefits under insurance or annuity contracts.

(3) A licensed adjuster shall act in a fiduciary capacity on behalf of his or her principal.

Section 2. An individual may hold only one (1) apprentice adjuster license until the individual is issued an adjuster license in accordance with KRS 304.9-430. Once an individual has held an adjuster license in accordance with KRS 304.9-430, the individual may again be eligible to hold one (1) apprentice adjuster license.

Section 3. Temporary Adjuster Registration for Catastrophe. Insurers seeking to temporarily register emergency independent or staff adjusters if there is a catastrophe under KRS 304.9-430(14) shall submit to the commissioner Form 8307, Request for Unlicensed Adjuster Representing an Insurer to Adjust Losses Resulting from a Catastrophe.

Section 4. Incorporation by Reference.

(1) "Request for Unlicensed Adjuster Representing an Insurer to Adjust Losses Resulting from a Catastrophe, Form #8307", (05/2019), is incorporated by reference.

(2) This material may be inspected, copied, or obtained, subject to applicable copyright law at the Kentucky Department of Insurance, Mayo-Underwood Building, 500 Mero Street, Frankfort, Kentucky, Monday through Friday, 8:00 a.m. to 4:30 p.m.

History

RELATES TO: KRS 304.9-020, 304.9-430, 304.9-432(2)(d), 304.9-440
STATUTORY AUTHORITY: KRS 304.2-110(1)
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.2-110(1) authorizes the Commissioner of the Department of Insurance to promulgate administrative regulations necessary for or as an aid to the effectuation of any provision of the Kentucky Insurance Code. This administrative regulation restricts the persons whom an adjuster may represent to prevent conflicts of interest, and clarifies the circumstances under which the restriction for holding only one (1) apprentice adjuster license applies.
History: I-9.03; 1 Ky.R. 860; eff. 5-14-75; Am. 9 Ky.R. 610; eff. 12-1-82; 1318; eff. 7-6-83; 29 Ky.R. 1358; 1794; eff. 1-16-2003; TAm eff. 8-9-2007; 37 Ky.R. 495; 1197; eff. 12-3-2010; 46 Ky.R. 1869; eff. 1-3-2020; 47 Ky.R. 810, 1388; eff. 4-6-2021.

806 KAR 9:110 Agent's rights after contract termination {#sec-806-kar-9-110 omnilex-key=us-ky-regs-official--title-806--806 KAR 9:110}

Section 1. Prohibitions. Except as provided in Section 2 of this administrative regulation, no agency contract with a property or casualty agent who is an independent agent independent contractor compensated on a commission basis shall:

(1) Infringe upon the right of the agent, while licensed, to service runoff business after termination of the agency contract; or

(2) Contain any provision which prevents the agent from being licensed with another insurer in order to avoid policy lapses which would otherwise occur after termination.

Section 2. Permitted Provisions. An agency contract with a property or casualty agent who is an independent contractor compensated on a commission basis may provide that the following are the property of the company and shall be returned to the company upon cancellation or termination of the contract:

(1) Renewals;

(2) Records;

(3) Manuals;

(4) Documents; and

(5) Right of renewals.

History

RELATES TO: KRS 304.9-290
STATUTORY AUTHORITY: KRS 304.2-110
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.2-110 authorizes the Commissioner of Insurance to promulgate administrative regulations necessary for or as an aid to the effectuation of any provision of the Kentucky Insurance Code. This administrative regulation sets forth the rights of a property or casualty agent who is an independent contractor after termination of an agency contract.
History: I-9.15; 1 Ky.R. 862; eff. 5-14-75; TAm eff. 8-9-2007; 46 Ky.R. 978, 1869; eff. 1-3-2020.

806 KAR 9:190 Disclosure requirements for financial institutions authorized to engage in insurance agency activities {#sec-806-kar-9-190 omnilex-key=us-ky-regs-official--title-806--806 KAR 9:190}

Section 1. A financial institution authorized by law to engage in insurance agency activities shall provide to an insurance consumer the disclosure forms:

(1) Notice of Free Choice of Agent and Insurer; and

(2) Financial Institution Disclosures.

Section 2. The disclosure form, Model Privacy Forms and General Instructions as incorporated by reference in 806 KAR 3:210, may be used to provide the disclosure required under KRS 304.9-135(2)(c).

Section 3. Incorporation by Reference.

(1) The following material is incorporated by reference:

(a) FI-02, "Notice of Free Choice of Agent and Insurer", (12/2020 edition); and

(b) FI-03, "Financial Institution Disclosures", (7/2002 edition).

History

RELATES TO: KRS 286.3-030(4), 304.9-135
STATUTORY AUTHORITY: KRS 304.9-135(2)(g)
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.9-135(2)(g) requires the Commissioner to promulgate administrative regulations to specify the disclosure forms required by KRS 304.9-135(2)(b), (c), and (f). This administrative regulation specifies the disclosure forms for use by financial institutions authorized to engage in insurance agency activities.
History: 926 Ky.R. 506; Am. 1019; eff. 12-16-99; 29 Ky.R. 1362; eff. 1-16-2003; TAm eff. 8-9-2007; 46 Ky.R. 1869; eff. 1-3-2020; 47 Ky.R. 812, 1388; eff. 4-6-2021.

806 KAR 9:200 Volume of insurance agent exchange of business {#sec-806-kar-9-200 omnilex-key=us-ky-regs-official--title-806--806 KAR 9:200}

Section 1. Definition. "Total premium" means all payments received from insureds or prospective insureds as consideration for insurance, including all taxes and surcharges imposed by Kentucky law.

Section 2. Volume of Insurance Agent Exchange of Business.

(1) An agent holding a license with the following lines of authority shall not place insurance with a premium of more than twenty (20) percent of the agent's total premium for the preceding calendar year with insurers for which the agent holds no appointment:

(a) Property;

(b) Casualty;

(d) Health.

(2) Insurance placed by an agent through the following shall not be considered in determining whether the agent has violated this Section:

(a) A residual market mechanism as defined in KRS 304.13-011(8);

(b) A surplus lines insurer pursuant to KRS Chapter 304.10; or

Section 3. Business Entity Licensees. For agents designated to act under a business entity agent license, the percentage limitations of Section 2 of this administrative regulation shall be measured by the total premium received by the business entity. Persons designated to act under a business entity agent license are subject to a single overall limit and shall not use their separate licenses to increase the volume of permissible exchange of business.

Section 4. Insurer Responsibility.

(1) An insurer may assume that agents not appointed by the insurer and submitting applications to the insurer have not exceeded the limitations of Section 2 of this administrative regulation.

(2) An insurer that knows or has reason to know an agent not appointed by the insurer has exceeded the limitations established by Section 2 of this administrative regulation shall not issue a policy based on an application submitted by the agent.

Section 5. Validity. An insurance policy issued in violation of this administrative regulation shall be valid and enforceable.

History

RELATES TO: KRS 304.9-030, 304.9-080, 304.9-085, 304.9-230, 304.9-410, 304.10, 304.13-011(8)
STATUTORY AUTHORITY: KRS 304.2-110, 304.9-410(3)
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.2-110 authorizes the commissioner to promulgate administrative regulations necessary for or as an aid to the effectuation of any provision of the Kentucky Insurance Code. KRS 304.9-410(3) requires the commissioner to promulgate an administrative regulation establishing the amount or volume of business that constitutes the occasional placement of business with insurers the agent is not appointed to represent. This administrative regulation defines what constitutes occasional placement of business with insurers an agent is not appointed to represent.
History: 13 Ky.R. 2171; Am. 14 Ky.R. 212; eff. 8-5-1987; 27 Ky.R. 1337; 1804; eff. 1-15-2001; 32 Ky.R. 316; 880; eff. 12-2-20005; 46 Ky.R. 1870; eff. 1-3-2020.

806 KAR 9:265 Rental vehicle agent license {#sec-806-kar-9-265 omnilex-key=us-ky-regs-official--title-806--806 KAR 9:265}

Section 1. License Application. To apply for a rental vehicle agent license, an applicant shall submit:

(1) The appropriate completed form:

(a) For individual managing employees, Form 8301, incorporated by reference in 806 KAR 9:025;

(b) For Business Entities, Form 8301-BE, incorporated by reference in 806 KAR 9:025; and

All business locations proposed to be licensed; and
The name and assigned licensed managing employee for each business location.

(2) The corresponding fees established by 806 KAR 4:010.

Section 2. Register.

(1) A licensed rental vehicle agent shall maintain a register that includes:

(a) A current list of every unlicensed employee authorized to act under the license;

(b) Records of all prelicensing study and course examinations completed by managing employees; and

(2) The register shall be made available to the department upon request.

Section 3. Licensed Rental Vehicle Agent Responsibilities. The licensed rental vehicle agent shall:

(1) Provide a prelicensing course of study for its managing employees, approved by the commissioner;

(2) Administer an examination to managing employees that is approved by the commissioner and that includes at least twenty-five (25) questions on the topics in the department's course outline. The managing employee applicant shall attain a score of seventy (70) percent or better to pass the examination and be eligible for the license;

(3) Be responsible for the insurance activities of its licensed managing employees and its unlicensed employees and representatives; and

(4) Report all material changes and additions to the department within thirty (30) days.

History

RELATES TO: KRS 304.4-010, 304.9-295, 304.9-505
STATUTORY AUTHORITY: KRS 304.2-110, 304.9-230, 304.9-505
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.2-110 authorizes the commissioner to promulgate administrative regulations necessary for or as an aid to the effectuation of any provision of the Kentucky Insurance Code. KRS 304.9-230 authorizes the commissioner to issue an agent's license with the limited line of authority for rental vehicle, and requires the commissioner to promulgate administrative regulations to establish the requirements, if any, for prelicensing courses of instruction and examination for each limited line of authority. KRS 304.9-505 authorizes the commissioner to issue licenses to act as a rental vehicle agent and requires the commissioner to prescribe an application form for a business entity seeking to act as a rental vehicle agent. This administrative regulation establishes the information to be included in the application for rental vehicle agent business entity and managing employee licenses; the requirements for prelicensing education, course examinations; and recordkeeping for rental vehicle agents and their employees who sell rental vehicle insurance.
History: 27 Ky.R. 2969; Am. 3250; eff. 6-8-2001; 32 Ky.R. 321; 881; eff. 12-2-05; Crt eff. 2-28-2020; 46 Ky.R. 1368; 2083; eff. 4-1-2020.

806 KAR 9:310 Life settlement licenses {#sec-806-kar-9-310 omnilex-key=us-ky-regs-official--title-806--806 KAR 9:310}

Section 1. Individual Applicant.

(1) An individual seeking a life settlement broker or provider license shall:

(a) Be at least twenty-one (21) years of age;

(b) Submit either:

A completed Form 8301, NAIC Individual Insurance Producer License Application incorporated by reference in 806 KAR 9:025; or
A completed, electronic Individual Uniform Application prescribed by the National Association of Insurance Commissioners (NAIC) and available on the National Insurance Producer Registry's (NIPR) Web site: www.NIPR.com;

For a life settlement provider license, $500;
For a life settlement broker license, $250; and

(d) Have in force financial responsibility in the amounts established by KRS 304.15-700(5).

(2) In addition to the requirements of subsection (1) of this section, an individual seeking a life settlement broker license shall:

(a) Have completed a forty (40) hour life settlement prelicensing course of study approved by the commissioner; and

(b) Have passed a life settlement examination in accordance with 806 KAR 9:025.

Section 2. Exempt individuals. A person licensed as a resident or nonresident insurance agent with a life line of authority under KRS 304.15-700(2)(b) shall within thirty (30) days of first acting as a life settlement broker without a license:

(1) Submit a completed electronic Individual Uniform Notification prescribed by the NAIC and available on the NIPR's Web site: www.NIPR.com;

(2) Remit the nonrefundable fee of $250; and

(3) Have in force financial responsibility in the amounts established in KRS 304.15-700(2)(d).

Section 3. Background report. Resident individuals seeking licensure under Section 1 of this administrative regulation or providing notice of exemption under Section 2 of this administrative regulation shall submit a criminal background check report obtained through the Kentucky Administrative Office of the Courts.

Section 4. Continuing Education.

(1) An individual licensed as either a life settlement broker or an insurance agent authorized to operate as a life settlement broker shall complete twenty-four (24) hours of continuing education approved by the commissioner, which shall include a minimum of:

(a) Three (3) hours in life insurance;

(b) Three (3) hours in life settlements; and

(2) The same hours may be credited towards the individual's continuing education requirements for the life settlement broker license and the applicable agent license, if any.

Section 5. Business Entity Applicant. A business entity applying for a life settlement broker or provider license shall:

(1) Submit either:

(a) A completed Form 8301 - BE, Uniform Application for Business Entity Insurance License incorporated by reference in 806 KAR 9:025; or

(b) A completed, electronic Uniform Business Entity Application prescribed by the NAIC and available on the NIPR's Web site: www.NIPR.com;

(2) Remit the appropriate nonrefundable fee:

(a) For a life settlement provider license, $1,500;

(b) For a life settlement broker license, $750; and

(3) Have in force financial responsibility in the amounts established in KRS 304.15-700(5).

Section 6. Renewal and Continuation of License.

(1) Each life settlement license shall continue in force and renew in accordance with KRS 304.9-260. The renewal fee shall be nonrefundable and in the amount as follows:

(a) $250 for an individual broker licensee;

(b) $500 for an individual provider licensee;

(d) $1500 for a business entity provider licensee.

(2) A life settlement broker or provider licensee or an insurance agent authorized to operate as a life settlement broker shall notify the department in writing within thirty (30) days of any change to the information in the application, notification, or supporting documents submitted seeking licensure or providing notice of exemption.

History

RELATES TO: KRS 304.15-020, 304.15-700-304.15-725
STATUTORY AUTHORITY: KRS 304.2-110(1), 304.15-700, 304.15-720
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.2-110(1) authorizes the Commissioner of Insurance to promulgate administrative regulations necessary for or as an aid to the effectuation of any provision of the Kentucky Insurance Code. KRS 304.15-700(2)(a) requires the commissioner to promulgate administrative regulations to provide for the licensing of life settlement brokers and the termination or revocation of the license. KRS 304.15-720 authorizes the commissioner to promulgate administrative regulations to implement KRS 304.15-700 to 304.15-720. KRS 304.15-700 prohibits any person from acting as a life settlement provider or broker without first obtaining the appropriate license from the commissioner. This administrative regulation establishes the requirements and fees for the issuance and continuation of life settlement provider and broker licenses.
History: 27 Ky.R. 3190; Am. 28 Ky.R. 81; eff. 7-16-2001; 29 Ky.R. 1364; eff. 1-16-2003; 32 Ky.R. 323; 909; 2013; eff. 6-2-2006; 35 Ky.R. 1912; eff. 5-1-2009; 46 Ky.R. 18710; eff. 1-3-2020.

806 KAR 9:350 Recognition of financial planning certification and designation for receipt of fees and commissions {#sec-806-kar-9-350 omnilex-key=us-ky-regs-official--title-806--806 KAR 9:350}

Section 1. Recognition of Financial Planning Certification and Designation. For purposes of KRS 304.9-350(8), the Department of Insurance recognizes the following financial planning certifications and designations:

(1) Accredited Asset Management Specialist (AAMS);

(2) Accredited Estate Planner (AEP);

(3) Associate Financial Advisor (AFA);

(4) Accredited Financial Counselor (AFC);

(5) Associate, Financial Services Institute (AFSI);

(6) Accredited Wealth Manager Advisor (AWMA);

(7) Board Certified in Estate Planning (BCE);

(8) Chartered Asset Manager (CAM);

(9) Chartered Advisor for Senior Living (CASL);

(10) Certificate in Investment Performance Measurement (CIPM);

(11) Certified Estate Advisor (CEA);

(12) Certified Estate Planner (CEP);

(13) Certified Financial Planner (CFP);

(14) Certified Fund Specialist (CFS);

(15) Certified Investment Management Analyst (CIMA);

(16) Certified Pension Consultant (CPC);

(17) Certified Public Accountant (CPA);

(18) Chartered Advisor in Philanthropy;

(19) Chartered Financial Analyst (CFA);

(20) Chartered Financial Consultant (ChFC);

(21) Chartered Life Underwriter (CLU);

(22) Chartered Market Technician (CMT);

(23) Chartered Mutual Fund Counselor (CMFC);

(24) Chartered Portfolio Manager (CPM);

(25) Chartered Retirement Planning Counselor (CRPC);

(26) Chartered Retirement Plan Specialist (CRPS);

(27) Chartered Senior Financial Planner (CSFP);

(28) Chartered Trust and Estate Planner (CTEP);

(29) Fellow, Financial Services Institute (FFSI);

(30) Fellow of the Life Management Institute (FLMI);

(31) Financial Services Specialist (FSS);

(32) Master Financial Advisor (MFA);

(33) Master Financial Manager (MFM);

(34) Master Financial Professional (MFP);

(35) Masters of Science in Financial Services (MSFS);

(36) Personal Financial Specialist (PFS);

(37) Professional Financial Advisor (PFA);

(38) Qualified Plan Financial Consultant (QPFC);

(39) Registered Financial Specialist (RFS);

(40) Registered Financial Planner (RFP); or

(41) Senior Registered Financial Planner (SRFP).

History

RELATES TO: KRS 304.9-350
STATUTORY AUTHORITY: KRS 304.2-110, 304.9-350(8)
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.2-110 authorizes the commissioner to promulgate administrative regulations necessary for or as an aid to the effectuation of any provision of the Kentucky Insurance Code. KRS 304.9-350(8) authorizes the commissioner to promulgate an administrative regulation to recognize a formal financial planning certification or designation for the purposes of receiving a fee for financial planning services and the sale, solicitation or negotiation of life insurance or annuities for the same insurance risk. This administrative regulation sets forth the listing of recognized financial planning certifications and designations.
History: 35 Ky.R. 1105; Am. 1492; 1708; eff. 2-6-2009; 46 Ky.R. 1872; eff. 1-+3-2020.

806 KAR 9:360 Pharmacy Benefit Manager License {#sec-806-kar-9-360 omnilex-key=us-ky-regs-official--title-806--806 KAR 9:360}

Section 1. Definitions.

(1) "Admitted insurer" is defined by KRS 304.10-030(1).

(2) "Commissioner" is defined by KRS 304.1-050(1).

(3) "Department" is defined by KRS 304.1-050(2).

(4) "Nonadmitted insurer" is defined by KRS 304.10-030(8).

(5) "Pharmacy benefit manager" is defined by KRS 304.9-020(15).

Section 2. Initial License and Renewal.

(1) An applicant for a pharmacy benefit manager license or renewal license from the commissioner shall submit the following to the department in the format as outlined in the instructions on the Pharmacy Benefit Manager License Application:

(a) Form PBM, the Pharmacy Benefit Manager License Application;

(b) The fee set forth in KRS 304.9-053(3) and the penalty fee, if applicable, set forth in KRS 304.9-053(4);

A certificate of insurance from either an admitted insurer or a nonadmitted insurer, in accordance with KRS 304.10-040, stating that the insurer has and will keep in effect on behalf of the pharmacy benefit manager a policy of insurance covering the legal liability of the licensed pharmacy benefit manager's erroneous acts or failure to act in its capacity as a pharmacy benefit manager, and payable to the benefit of any aggrieved party in the sum of not less than $1,000,000; or
A cash surety bond issued by a corporate surety authorized to issue surety bonds in this Commonwealth, in the sum of $1,000,000, which shall be subject to lawful levy of execution by any party to whom the licensee has been found to be legally liable;

(d) The name of at least one (1) responsible individual who shall be responsible for the pharmacy benefit manager's compliance with KRS Chapter 304 and KAR Title 806 and who is:

Licensed as an administrator in Kentucky; and
Designated in accordance with KRS 304.9-133;

(e) If performing utilization review in accordance with KRS 304.17A-607, the pharmacy benefit manager's utilization review registration number;

(f) The following written policies and procedures to be used by the pharmacy benefit manager:

An appeals process for any pricing system used to determine the cost of a generic drug required by KRS 304.17A-162;
Exceptions policy required by 45 C.F.R. 156.122(c) and KRS 304.17A-535(4); and
Pharmacy and Therapeutics committee membership standards and duties required by 45 C.F.R. 156.122(a);

(g) Proof of a registered agent and office with the Kentucky Secretary of State in accordance with KRS 14A.4-010;

(h) A listing of all clients the pharmacy benefit manager provides services to, including any non-ERISA self-funded or governmental plans; and

(i) A listing of any delegated or contracted companies that perform part of the pharmacy benefit manager services.

(2)

(a) Upon receipt of a complete application as required by subsection (1) of this section, the commissioner shall review the application and:

a. Approve the application; and

b. Issue the applicant the pharmacy benefit manager license;

Notify the applicant that additional information is needed in accordance with paragraph (b) of this subsection; or
Deny the application in accordance with paragraph (c) of this subsection.

(b)

If supplemental or additional information is necessary to complete the application, the applicant shall submit that information within thirty (30) days from the date of the notification from the commissioner.
If the missing or necessary information is not received within thirty (30) days from the date of the notification, the commissioner shall deny the application unless good cause is shown. To determine if the applicant has demonstrated good cause, the commissioner shall weigh the justification provided against any other issues, including if the applicant had submitted any prior good cause excuses for the same request. Some examples of good cause include:

a. Personnel-related issues, including the individual responsible for responding was transferred, terminated, or became incapacitated due to illness;

b. A need to obtain information that was not immediately available and had to be requested from other sources;

c. A lack of sufficient resources to respond to large requests; and

d. Information technology, operational, or equipment malfunctions causing unexpected delays.

(c) If the commissioner determines that the applicant does not meet the requirements for licensure, or if the application is denied pursuant to paragraph (b)2. of this subsection, the commissioner shall:

Provide written notice to the applicant that the application has been denied; and
Advise the applicant that a request for a hearing may be filed in accordance with KRS 304.2-310.

(3)

(a) A pharmacy benefit manager license shall:

Be renewed annually; or
Expire on March 31.

(b)

An applicant for a pharmacy benefit manager license or renewal license shall pay a registration fee of $10,000 and the fee set forth in KRS 304.9-053(3) within thirty (30) days of initial licensure and annually thereafter on or before March 31.
Notwithstanding subparagraph 1. of this paragraph, a pharmacy benefit manager that solely provides services for a workers' compensation plan shall not pay the registration fee of $10,000.

(4) If a renewal application is submitted after the renewal date of March 31, but between April 1 and May 30, the application required by subsection (1) of this section shall be accompanied by a penalty fee of $500 in accordance with KRS 304.9-053(4). A license approved by May 30 shall be considered continuously active.

Section 3. Notice of Changes. Within thirty (30) days of any change, a licensee shall notify the commissioner of all changes among its members, directors, officers, and other individuals designated or registered to the license, any changes to the listing of clients and delegated contractors provided in the most recent application filed by the licensee, and any changes to its written policies and procedures submitted pursuant to Section 2(1)(f) of this administrative regulation.

Section 4. Incorporation by Reference.

(1) "Pharmacy Benefit Manager License Application", Form PBM, 1/2025, is incorporated by reference.

(2) This material may be inspected, copied, or obtained, subject to applicable copyright law, at the Kentucky Department of Insurance, Mayo-Underwood Building, 500 Mero Street, Frankfort, Kentucky 40601, Monday through Friday, 8 a.m. to 4:30 p.m. This material is also available on the website at: http://insurance.ky.gov/ppc/CHAPTER.aspx.

History

RELATES TO: KRS 14A.4-010, 304.1-050, 304.2-290, 304.2-310, 304.9-020, 304.9-053, 304.9-054, 304.9-055, 304.9-133, 304.10-030, 304.10-040, 304.17A-005, 304.17A-162, 304.17A-163, 304.17A-165, 304.17A-535, 304.17A-607, 304.17A-617-304.17A-633, 304.99-020, 45 C.F.R. 156.122
STATUTORY AUTHORITY: KRS 304.2-110(1), 304.9-053(2), 304.9-054(3), (4), 304.9-055
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.2-110(1) authorizes the commissioner to promulgate reasonable administrative regulations necessary for or as an aid to the effectuation of the Kentucky Insurance Code as defined in KRS 304.1-010. KRS 304.9-053(2) requires a person seeking a pharmacy benefit manager license to apply to the commissioner in writing on a form provided by the department. KRS 304.9-054(3) and 304.9-055(2) require the commissioner to promulgate administrative regulations that are necessary to implement and enforce the provisions of KRS Chapter 304.9, including KRS 304.9-053, 304.9-054, 304.9-055, and 304.17A-162. KRS 304.9-054(4) authorizes the department to impose a fee upon pharmacy benefit managers, in addition to a license fee, to cover the costs of implementation and enforcement of KRS 205.647 and any provision of KRS Chapter 304 applicable to pharmacy benefit managers, including but not limited to 304.9-053, 304.9-054, 304.9-055, and 304.17A-162. This administrative regulation establishes requirements for the licensure of pharmacy benefit managers.
History: 806 KAR 009:360. 43 Ky.R. 1123, 1590, 1735; eff. 5-5-2017; TAm eff. 6-7-2017; 45 Ky. R. 159, 656; eff. 10-5-2018; 47 Ky.R. 813, 1963; eff. 7-6-2021; TAm eff. 10-6-2021; 51 Ky.R. 1207; 52 Ky.R. 391; eff. 12-2-2025.

806 KAR 9:370 Preneed funeral agent license {#sec-806-kar-9-370 omnilex-key=us-ky-regs-official--title-806--806 KAR 9:370}

Section 1. Definitions.

(1) "Agent" is defined by KRS 304.9-020(1).

(2) "Department" is defined by KRS 304.1-050(2).

(3) "Preneed funeral contract or prearrangement" is defined by KRS 304.12-240(1)(a).

(4) "Preneed funeral insurance" means a life insurance or annuity contract used solely to fund a preneed funeral contract or prearrangement.

Section 2. An agent license with a limited line of authority for preneed funeral insurance shall only sell, solicit, or negotiate preneed funeral insurance with a face amount that does not exceed $25,000.

Section 3. License Application. To apply for an agent license with a preneed funeral limited line of authority, an applicant shall submit to the department the following information:

(1)

(a) For individual applicants, Form 8301, incorporated by reference in 806 KAR 9:025, including all applicable attachments; and

(b) For business entity applicants, Form 8301-BE, incorporated by reference in 806 KAR 9:025, including all applicable attachments;

(2) A completed background check through the Kentucky Administrative Office of the Courts; and

(3) The corresponding fees established by 806 KAR 4:010.

Section 4. Pre-licensing training. An applicant for an agent license with a preneed funeral limited line of authority shall not be required to complete pre-licensing training.

Section 5. Examination. An applicant for an agent license with a preneed funeral limited line of authority shall not be required to complete an examination.

Section 6. License renewal. An agent with a preneed funeral limited line of authority shall renew in accordance with KRS 304.9-260.

History

RELATES TO: KRS 304.1-050(2), 304.4-010, 304.9-020(1), 304.9-080, 304.9-150, 304.9-230, 304.9-260 304.12-240(1)(a)
STATUTORY AUTHORITY: KRS 304.2-110, 304.9-230
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.2-110 authorizes the commissioner to promulgate administrative regulations necessary for or as an aid to the effectuation of any provision of the Kentucky Insurance Code. KRS 304.9-230 authorizes the commissioner to issue an agent's license with the limited line of authority for other limited lines of authority, and requires the commissioner to promulgate administrative regulations to establish the requirements, if any, for pre-licensing courses of instruction and examination for each limited line of authority. This administrative regulation establishes the preneed funeral limited line of authority and the requirements for licensure.
History: 47 Ky.R. 877, 1389; eff. 4-6-2021.

806 KAR 9:380 Limited Lines Self-Service Storage Space Insurance Requirements {#sec-806-kar-9-380 omnilex-key=us-ky-regs-official--title-806--806 KAR 9:380}

Section 1. Definitions.

(1) "Limited lines self-service storage space insurance producer" is defined by KRS 304.9-495(1).

(2) "Self-service storage facility" is defined by KRS 304.9-495(6).

(3) "Self-service storage space insurance" is defined by KRS 304.9-495(7).

Section 2. License Application.

(1) To apply for a limited lines self-service storage space insurance producer license, an applicant shall submit:

(a) The appropriate completed form:

For individuals, Form 8301, incorporated by reference in 806 KAR 9:025; or
For Business Entities, Form 8301-BE, incorporated by reference in 806 KAR 9:025;

(b) A register, signed by the licensed limited lines self-service storage space insurance producer applicant, as prescribed on the Self-Service Storage Space Location Form, and in accordance with KRS 304.9-496(1)(b); and

(2) The register provided on the Self-Service Storage Space Location Form shall be made available to the department upon request.

Section 3. Limited Lines Self-Service Storage Space Insurance Producer Responsibilities. A licensed limited lines self-service storage space insurance producer shall:

(1) Be responsible for the acts of the self-service storage facility operator that occur within the scope of their operation of a self-service storage facility;

(2) Provide a program for instructional training to the employees of the self-service storage facility operator;

(3) Be responsible for the insurance activities of the self-service storage facility, its operators, unlicensed employees, and representatives;

(4) Report all material changes and additions to the department within thirty (30) days; and

(5) Before transacting any business at any location, ensure that the self-service storage facility and its operators provide the appropriate consumer protection disclosures as prescribed in KRS 304.9-497 to all prospective consumers in writing.

Section 4. Material Incorporated by Reference.

(1) The Self-Service Storage Space Location Form, 2/2022 is incorporated by reference.

(2) This material may be inspected, copied, or obtained, subject to applicable copyright law, at the Kentucky Department of Insurance, Mayo-Underwood Building, 500 Mero Street, Frankfort, Kentucky 40601, Monday through Friday, 8 a.m. to 4:30 pm. This material is also available on the Department's Web site at https://insurance.ky.gov/ppc/CHAPTER.aspx.

History

RELATES TO: KRS 304.4-010, 304.9-030, 304.9-105, 304.9-130, 304.9-150, 304.9-230, 304.9-260, 304.9-270, 304.9-495, 304.9-497
STATUTORY AUTHORITY: KRS 304.2-110, 304.9-080, 304.9-496
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.2-110 authorizes the commissioner to promulgate administrative regulations necessary for or as an aid to the effectuation of any provision of the Kentucky Insurance Code. KRS 304.9-080 requires a self-service storage space insurance producer to be licensed and requires the commissioner to prescribe and furnish all forms required under KRS Chapter 304.9 as to licenses and appointments. KRS 304.9-496 requires the commissioner to prescribe a register form for a limited lines of self-service storage space insurance producer for the purpose of maintaining a list of each facility that offers this insurance on the producer's behalf. This administrative regulation establishes the information to be included in the application for a limited lines self-service insurance storage space producer, the recordkeeping requirements for a self-service storage facility and their employees who offer and disseminate self-service storage space insurance, and the register form.
History: 48 Ky.R. 2889; 49 Ky.R. 346; eff. 11-1-2022.

806 KAR 9:390 Portable Electronics Retailer license {#sec-806-kar-9-390 omnilex-key=us-ky-regs-official--title-806--806 KAR 9:390}

Section 1. Definitions.

(1) "Portable electronics" is defined by KRS 304.9-020(16).

(2) "Portable electronics insurance" is defined by KRS 304.9-020(17)(a) and (b).

(3) "Portable electronics insurance supervising entity" is defined by KRS 304.9-020(18).

(4) "Portable electronics retailer" is defined by KRS 304.9-020(19).

Section 2. License Application. To apply for a portable electronics retailer license, an applicant shall submit:

(1) Business Entities Application, Form PEI; and

(2) If the portable electronics retailer receives more than fifty (50) percent of its revenue from the sale of portable electronic insurance, the following information on the Form PEI-Locations:

(a) Contact information for officers, directors, and shareholders who have an ownership interest in the portable electronics insurance retailer of ten (10) percent or more;

(b) The percentage of ownership for each officer, director, or shareholder holding an ownership interest in the portable electronics retailer of ten (10) percent or more; and

(c) The title of and affiliation with the portable electronics retailer for any such officer, director, or shareholder; and

(3) The corresponding fees established by 806 KAR 4:010.

Section 3. Register.

(1) A licensed portable electronics insurance supervising entity shall maintain a register on a Form PEI-Locations that includes:

(a) The current name of the portable electronics retailer;

(b) The address for each business location including:

Street addresses; and
City, state, and zip code.

(2) The register shall be made available to the department upon request.

Section 4. Portable Electronics Insurance Retailer Supervising Entity Responsibilities. The portable electronics insurance retailer supervising entity shall:

(1) Be responsible for the insurance activities of the portable electronics retailer and its unlicensed employees and representatives; and

(2) Report all material changes and additions to the department within thirty (30) days.

Section 5. Material Incorporated by Reference.

(1) The following materials are incorporated by reference:

(a) Business Entities Application, Form PEI, 7/2022; and

(b) Form PEI-Locations, 2/2022.

(2) This material may be inspected, copied, or obtained, subject to applicable copyright law, at the Kentucky Department of Insurance, Mayo-Underwood Building, 500 Mero Street, Frankfort, Kentucky 40601, Monday through Friday, 8 a.m. to 4:30 pm. This material is also available on the Department's Web site at https://insurance.ky.gov/ppc/CHAPTER.aspx.

History

RELATES TO: KRS 304.4-010, 304.9-020, 304.9-440, 304.9-782, 304.9-784
STATUTORY AUTHORITY: KRS 304.2-110, 304.9-780
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.2-110 authorizes the commissioner to promulgate administrative regulations necessary for or as an aid to the effectuation of any provision of the Kentucky Insurance Code. KRS 304.9-780 authorizes the commissioner to issue a portable electronics insurance retailer license to offer and disseminate portable electronics insurance and requires the commissioner to promulgate administrative regulations to establish the requirements for licensure. This administrative regulation establishes the information to be included in the application for a portable electronics insurance retailer license, and recordkeeping requirements for portable electronics insurance retailers and their employees who offer and disseminate portable electronics insurance.
History: 48 Ky.R. 2891; 49 Ky.R. 346; eff. 11-1-2022.

806 KAR 9:400 Public adjuster filings {#sec-806-kar-9-400 omnilex-key=us-ky-regs-official--title-806--806 KAR 9:400}

Section 1. Definitions.

(1) "Commissioner" is defined by KRS 304.1-050(1).

(2) "Catastrophe" is defined by KRS 304.9-020(6).

(3) "Department" is defined by KRS 304.1-050(2).

(4) "Emergency circumstance" means:

(a) A catastrophe; or

(b) An event that results in a declaration of emergency by the Governor pursuant to KRS 39A.100.

(5) "Public adjuster" is defined by KRS 304.9-020(20).

Section 2. Contract Filings.

(1) Before a public adjuster may execute a contract or provide services to an insured, the public adjuster shall:

(a) File a form with the commissioner for approval that meets the contract standards prescribed by KRS 304.9-433 and included in the Contracting Checklist Form; and

(b) Provide the insured with a written disclosure as prescribed by KRS 304.9-433 and the contact information for the Department's Consumer Protection Division provided on the Contracting Checklist Form.

(2) The public adjuster shall file the form:

(a) On the Department's secure Web site, https://insurance.ky.gov/doiservices/userrole.aspx; or

(b) By electronic mail to doi.licensingmail@ky.gov.

(3)

(a) The commissioner shall have thirty (30) business days to approve or disapprove a contract form filing. The public adjuster shall not use a contract form prior to receiving the approval for the contract form filing.

(b) If the commissioner disapproves a contract form filing, the public adjuster shall have fifteen (15) business days to amend the original filing for the commissioner's approval.

Section 3. Emergency Circumstance, Intent to Contract.

(1) If an emergency circumstance occurs and a public adjuster is unable to reasonably execute a contract before providing services to an insured, the public adjuster shall file an Intent to Contract Form with the insured's insurer.

(2) The public adjuster shall file this form with the insurer within three (3) business days of providing any services to the insured.

(3) If a contract has not been executed within seven (7) business days following the filing of an Intent to Contract Form, the Intent to Contract Form shall be void.

(4) The public adjuster shall not receive any compensation unless he or she executes a contract with the insured on a general contract form previously approved by the commissioner.

Section 4. Amending Filings.

(1) A public adjuster may amend a previously approved form with the commissioner only if the public adjuster files the amended form and receives prior approval before utilizing the new contract form.

(2) The approval process for any amended contract form filings shall be governed by Section 2 of this administrative regulation.

Section 5. Materials Incorporated by Reference.

(1) The following material is incorporated by reference:

(a) "Contracting Checklist Form", 7/23; and

(b) "Intent to Contract Letter", 7/23.

(2) This material may be inspected, copied, or obtained, subject to applicable copyright law, at the Department of Insurance, The Mayo-Underwood Building, 500 Mero Street, Frankfort, Kentucky 40601, Monday through Friday, 8 a.m. to 4:30 p.m. This material is also available on the department's Web site at https://insurance.ky.gov/ppc/CHAPTER.aspx.

History

RELATES TO: KRS 304.9-020, 304.9-430, 304.9-433, 304.9-435, 304.9-440
STATUTORY AUTHORITY: KRS 304.9, 304.2-110
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.2-110 authorizes the Commissioner of Insurance to promulgate administrative regulations necessary for or as an aid to the effectuation of any provision of the Kentucky Insurance Code as defined in KRS 304.1-010. KRS 304.9-433 requires public adjusters to file a form to be approved by the commissioner prior to executing a contract with an insured. This administrative regulation sets forth the prefiling requirements for public adjusters prior to executing a contract with an insured.
History: 50 Ky.R. 531, 1070; eff. 1-30-2024.

Chapter 10 Surplus Lines

806 KAR 10:030 Surplus lines reporting and tax payment structure {#sec-806-kar-10-030 omnilex-key=us-ky-regs-official--title-806--806 KAR 10:030}

Section 1. Affidavit Reporting.

(1) A licensed surplus broker shall file electronically a Kentucky Surplus Lines Affidavit of Insurance Transactions with the department within fifteen (15) days after the invoice date or effective date of each premium bearing surplus lines transaction, whichever occurs later.

(2) The affidavit shall be filed electronically through the Department of Insurance's secure Web site at https://insurance.ky.gov/doieservices/UserRole.aspx.

Section 2. Quarterly Reporting and Payment of Surplus Lines Premium Taxes for Insurance Transactions.

(1) The department shall generate a quarterly report of all surplus lines transactions reported in a preceding calendar quarter, for each surplus lines broker based on the affidavits filed in accordance with Section 1 of this administrative regulation.

(2) The department shall make the quarterly report available to a licensed surplus lines broker on its secure Web site at https://insurance.ky.gov/doieservices/UserRole.aspx.

(3) Each licensed surplus lines broker shall:

(a) Reconcile the surplus lines taxes owed on the quarterly report with the broker's own records;

(b) Notify the department of any discrepancy in surplus lines taxes owed; and

(c) Pay all surplus lines premium tax and any applicable penalties owed pursuant to KRS 304.99-085 within thirty (30) days of the end of the calendar quarter.

(4) Surplus lines premium tax shall be:

(a) Computed at the rate of three (3) percent on the premiums, assessments, fees, charges, or other consideration deemed part of the premium as shown on the quarterly report;

(b) Payable to the Kentucky State Treasurer; and

(c) Remitted to the Kentucky Department of Insurance electronically through the department's secure Web site at https://insurance.ky.gov/doieservices/UserRole.aspx.

(5) Agencies paying a surplus lines premium tax on behalf of a broker shall submit payment electronically through the broker's Eservices account using the department's secure Web site at https://insurance.ky.gov/doieservices/UserRole.aspx.

(6) The department shall consider the payment of the surplus lines premium tax and any applicable penalty to be the submission of the broker's quarterly report and verified statement of transactions.

Section 3. Effective Date. This administrative regulation shall be effective beginning with the calendar quarter beginning July 1, 2021.

Section 4. Incorporation by Reference.

(1) "Kentucky Surplus Lines Affidavit of Insurance Transaction", May 2019, is incorporated by reference.

(3) This material may also be obtained on the department's secure Web site at https://insurance.ky.gov/doieservices/UserRole.aspx.

History

RELATES TO: KRS 304.1-070, 304.10-030, 304.10-040, 304.10-180, 304.99-085
STATUTORY AUTHORITY: KRS 304.2-110(1), 304.10-050, 304.10-170, 304.10-210,
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.2-110(1) authorizes the Commissioner of Insurance to promulgate administrative regulations necessary for or as an aid to the effectuation of any provision of the Kentucky Insurance Code as established in KRS 304.1-010. KRS 304.10-050 requires a surplus lines broker to file an affidavit setting forth facts from which it can be determined if the insurance was eligible for export under KRS 304.10-040. KRS 304.10-170 requires the commissioner to establish the form of the verified statement of all surplus lines transactions for a preceding calendar quarter. KRS 304.10-210 requires the commissioner to promulgate administrative regulations to effectuate the Surplus Lines Law. This administrative regulation establishes the reporting procedures to be used by surplus lines brokers for the reporting and payment of surplus lines tax pursuant to KRS 304.10-170 and 304.10-180.
History: 29 Ky.R. 1440; Am. 1796; eff. 1-16-2003; TAm eff. 8-9-2007; 36 Ky.R. 471; 795; eff. 11-6-2009; 45 Ky.R. 1824, 2716, 3411; eff. 7-5-2019; 47 Ky.R. 1077, 1565; eff. 5-4-2021.

Chapter 11 Unauthorized Insurers' Prohibitions, Process and Advertising

806 KAR 11:010 Industrial insured, government entity insured, and exempt commercial policyholder {#sec-806-kar-11-010 omnilex-key=us-ky-regs-official--title-806--806 KAR 11:010}

Section 1.

(1) An "industrial insured" as defined in KRS 304.11-020(2)(a), shall be an insured who filed an affidavit to the executive director prior to July 1, 1999, establishing that it satisfied the then-existing criteria for obtaining that status.

(2) All "industrial insureds" shall reapply for their status, prior to December 31, 2000, by filing with the executive director an "Industrial Insured Affidavit" (Form II-1 P & C) for his approval, certifying that the requirements of KRS 304.11-020(2)(a) continue to be satisfied.

Section 2. Prior to being recognized as a "government entity insured" as defined in KRS 304.11-020(2)(b), a proposed insured shall file with the executive director a "Government Entity Insured Affidavit" (Form GEI-1 P & C) for his approval.

Section 3. Prior to being recognized as an "exempt commercial policyholder" as defined in KRS 304.11-020(2)(c), a proposed insured shall file with the executive director an "Exempt Commercial Policyholder Affidavit" (Form ECP-1 P & C) for his approval.

Section 4. The executive director may, at his discretion, cause an investigation into the facts set forth in the proposed insured's affidavit.

Section 5. All filings of an initial certification or renewal shall be accompanied by the appropriate filing fee.

Section 6. All industrial insureds, government entity insureds and exempt commercial policyholders shall apply for renewal of their respective status with the executive director every three (3) years.

Section 7.

(1) All property and casualty insurers, prior to issuing a policy of insurance to an industrial insured, government entity insured, or exempt commercial policyholder, shall obtain a copy of the approved Forms II-1 P & C, GEI-1 P & C, and ECP-1 P & C. The insurer shall make these approved forms available for examination by the executive director.

(2) It shall be permissible for any person to file the appropriate affidavit on behalf of an "industrial insured", "government entity insured" or "exempt commercial policyholder".

Section 8. After designating an insured an "industrial insured", "government entity insured", or "exempt commercial policyholder" the executive director may, from time to time, cause an investigation or unannounced audit to ascertain that the requirements for the designation continue to be satisfied.

Section 9. Incorporation by Reference.

(1) The following material is incorporated by reference:

(a) Form II-1 P & C, "Industrial Insured Affidavit", June, 2000 edition, Office of Insurance.

(b) Form GEI-1 P & C, "Government Entity Insured Affidavit", June, 2000 edition, Office of Insurance.

(2) This material may be inspected, copied or obtained, subject to applicable copyright law, at the Kentucky Office of Insurance, 215 West Main Street, Frankfort, Kentucky 40601, Monday through Friday, 8 a.m. to 4:30 p.m., or on the office's internet Web site: http://doi.ppr.ky.gov/kentucky/

History

RELATES TO: KRS 304.11-020, 304.13-051, 304.14-120
STATUTORY AUTHORITY: KRS 304.2-110
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.2-110 provides that the Executive Director of Insurance shall promulgate reasonable rules and administrative regulations necessary for or as an aid to the effectuation of any provision of the Kentucky Insurance Code. This administrative regulation provides the means by which the Executive Director may determine whether a proposed insured meets the definition of an "industrial insured", a "government entity insured", and an "exempt commercial policyholder".
History: 3 Ky.R. 799; Am. 4 Ky.R. 108; eff. 8-3-77; 27 Ky.R. 1340; 1806; eff. 1-15-2001; TAm eff. 8-9-2007; Crt eff. 2-26-2020.

806 KAR 11:020 Multiple employer welfare arrangements {#sec-806-kar-11-020 omnilex-key=us-ky-regs-official--title-806--806 KAR 11:020}

Section 1. Definitions.

(1) "Administrator" is defined by KRS 304.9-051(1).

(2) "Agent" is defined by KRS 304.9-020(1).

(3) "Commissioner" is defined by KRS 304.1-050(1).

(4) "Department" is defined by KRS 304.1-050(2).

(5) "Health benefit plan" is defined by KRS 304.17A-005(22).

(6) "Health insurance policy" means "health benefit plan" as defined by KRS 304.5-040.

(7) "Health insurance stop-loss policy" is defined by KRS 304.17A-410(7).

(8) "MEWA" or "multiple employer welfare arrangement":

(a) Is defined by 29 U.S.C. 1002(40); and

(b) Does not mean an arrangement under which health care benefits are fully insured by an insurer authorized to do business in Kentucky.

(9) "Person" is defined by KRS 304.1-020.

(10) "Private review agent" is defined by KRS 304.17A-600(11).

Section 2.

(1) A MEWA seeking initial registration shall file with the commissioner an Application for a Certificate of Registration of a Multiple Employer Welfare Arrangement (MEWA) and obtain registration approval from the commissioner pursuant to Section 4 of this administrative regulation.

(2) A MEWA shall submit an application fee of $500 with the application.

(3) The application shall include the information required in Section 3 of this administrative regulation.

Section 3. Written Information to be Filed with the Commissioner . The information required to be filed in writing with the commissioner in support of an application for a certificate of registration pursuant to Section 2 of this administrative regulation shall include:

(1) The employer identification number assigned by the Internal Revenue Service to the MEWA;

(2) A copy of any trust document used by the MEWA;

(3) A copy of any health benefits or life benefits plan documents;

(4) A copy of the most recent Form 5500 and M-1 filing made by the MEWA to the United States Department of Labor;

(5) A copy of any audits conducted with respect to the MEWA;

(6) A copy of any actuarial reports prepared for the MEWA;

(7) A copy of any summary annual reports published for participants in the MEWA;

(8) A copy of any contracts with agents or administrators;

(9) The names of insurers and policy numbers for bonds covering fiduciaries of the MEWA;

(10) A copy of any stop-loss, excess, or reinsurance policies held by the MEWA;

(11) The AM Best rating of the stop-loss insurer issuing a policy to the MEWA;

(12) A list of all Kentucky employers participating in the MEWA, including full mailing addresses;

(13) A list of the names, addresses, official positions, and biographical information of all officers and trustees of the MEWA;

(14) A copy of any marketing materials and rate manuals; and

(15) The total number of employees, dependents, and beneficiaries participating in the MEWA.

Section 4. Issuance of Certificate of Registration.

(1) Upon receipt of an application for a certificate of registration submitted in accordance with Section 2 of this administrative regulation and the written information submitted in accordance with Section 3 of this administrative regulation, the commissioner shall issue or deny the application. A certificate of registration shall be issued only if the commissioner finds the following conditions are met:

(a) The persons responsible for the conduct of the affairs of the MEWA shall be competent, trustworthy, and possess good reputations; and

(b) The MEWA shall be financially responsible and reasonably expected to meet its obligations to participants and prospective participants. In making this determination the commissioner shall consider:

The adequacy of working capital;
Any agreement with an insurer, a government, or any other organization for insuring the payment of health claims or the provisions for automatic applicability of an alternative coverage in the event of discontinuance of the coverage offered through the MEWA; and
Compliance with KRS 304.17A-812 as a guarantee that the financial solvency obligations of the MEWA shall be met.

(2) A MEWA subject to the jurisdiction of the department shall comply with any applicable requirements of KRS Chapter 304, including KRS 304.17A-600 through 304.17A-633. A MEWA that is issued a certificate of registration shall comply with the requirements as established in KRS 304.17A-600 through 304.17A-633. A MEWA may contract with a registered private review agent that is licensed in Kentucky to fulfill these requirements.

(3) A MEWA that is issued a certificate of registration shall be subject to the commissioner's authority to investigate complaints pursuant to KRS 304.2-160 and 304.2-165.

Section 5. Renewal of Certificate of Registration.

(1) A MEWA shall annually renew a certificate of registration by submitting:

(a) The application required by Section 2 of this administrative regulation;

(b) The information required by Section 3 of this administrative regulation.

(2) The information required by subsection (1) of this section shall be submitted to the department no later than March 1 of each year.

Section 6. Penalties and Liability.A person who violates Section 2 of this administrative regulation shall incur a civil penalty of $1,000 for each violation.

Section 7. Exemptions. The provisions of this administrative regulation shall not apply to a self-insured employer organized association group as defined by KRS 304.17A-802(10).

Section 8. Incorporated by Reference.

(1) The following material is incorporated by reference:

(a) Application for a Certification of Registration of a MEWA (CoR MEWA Form), 7/2021;

(b) United States Department of Labor Form 5500, 2020;

(d) Kentucky Designation of Person to Receive Legal Process (Form 800), 1/2011.

History

RELATES TO: KRS 304.1-050, 304.1-120, 304, 304.2-160, 304.2-165 304.5-040, 304.9-020, 304.9-051, 304.11-030, 304.11-045, 304.17A-005(22), 304.17A-410(7), 304.17A-600, 304.17A-633, 304.17A-802, 304.17A-812, 304.99-020, 29 U.S.C. §1002(40).
STATUTORY AUTHORITY: KRS 304.2-110, 304.4-010
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.2-110 authorizes the Commissioner of Insurance to make reasonable administrative regulations necessary for or as an aid to the effectuation of any provision of the Kentucky Insurance Code. KRS 304.4-010 requires the commissioner to established the fees charged by the department and the services for which fees shall be charged by administrative regulation. This administrative regulation requires multiple employer welfare arrangements to provide information to the Commissioner of Insurance so the Commissioner of Insurance can enforce applicable laws. This administrative regulation also identifies the provisions of the Insurance Code that will be applicable to multiple employer welfare arrangements.
History: 17 Ky.R. 2311; eff. 3-13-1991; TAm eff. 8-9-2007; Crt eff. 2-26-2020; 48 Ky.R. 602, 1759; eff. 3-1-2022.

Chapter 12 Trade Practices and Frauds

806 KAR 12:010 Advertising of accident and sickness benefits {#sec-806-kar-12-010 omnilex-key=us-ky-regs-official--title-806--806 KAR 12:010}

Section 1. Definitions.

(1) "Exception" means:

(a) Any provision in a policy in which coverage for a specified hazard is eliminated; or

(b) A statement of risk not assumed under the policy.

(2) "Limitation" means any provision that restricts coverage under the policy other than an exception or a reduction.

(3) "Reduction" means:

(a) Any provision in a policy that reduces the amount of the benefit; and

(b) A risk of loss is assumed but payment upon the occurrence of the loss is limited to some amount or period less than what would be otherwise payable had the reduction clauses not been used.

Section 2. Scope. The provisions of this administrative regulation shall:

(1) Be limited to a life or health insurer issuing any policy; and

(2) Apply to individual and group accident and sickness insurance advertisements; and

(3) Apply to agents and brokers to the extent that an agent and broker are responsible for the advertisement of any policy.

Section 3.

(1) An insurance advertisement shall include:

(a) Printed and published material and descriptive literature of an insurer used in newspapers, magazines, radio and TV scripts, and billboards and similar displays;

(b) Descriptive literature and sales aids of all kinds issued by an insurer for presentation to members of the public, including circulars, leaflets, booklets, depictions, illustrations, and form letters; and

(c) Prepared sales talks, presentations, material for use by agents and brokers, and representations made by agents and brokers.

(2) A policy shall include any policy, plan, certificate, contract, agreement, statement of coverage, rider, or endorsement that provides accident or sickness benefits or medical, surgical, or hospital expense benefits, whether on a cash indemnity, reimbursement, or service basis, except if issued in connection with another kind of insurance other than life, and except disability and double indemnity benefits included in life insurance and annuity contracts.

(3) Insurer shall include any corporation, association, partnership, reciprocal exchange, interinsurer, Lloyds, fraternal benefit society, and any other legal entity engaged in the advertisement of a policy.

Section 4.

(1) Advertisements shall:

(a) Be truthful and not misleading in fact or in implication; and

(b) Not use words or phrases, which are clear only by:

Implication; or
Familiarity with insurance terminology.

(2)

(a) Words, phrases, or illustrations shall not be used in a manner that misleads or has the capacity and tendency to deceive as to the extent of any policy benefit payable, loss covered, or premium payable. An advertisement relating to any policy benefit payable, loss covered, or premium payable shall be sufficiently complete and clear to avoid deception or the capacity and tendency to deceive.

(b) The words and phrases "all," "full," "complete," "comprehensive," "up to," "as high as," "this policy will pay your hospital and surgical bills," "this policy will replace your income," or similar words and phrases:

Shall not be used so as to exaggerate any benefit beyond the terms of the policy; and
May be used only in a manner that fairly describes a benefit.

(c) A policy covering only one (1) disease or a list of specified diseases shall not be advertised in a manner that implies coverage beyond the terms of the policy. Synonymous terms shall not be used to refer to any disease as to imply broader coverage than is the fact.

(d) The benefits of a policy that pays varying amounts for the same loss occurring under different conditions or that pays benefits only if a loss occurs under certain conditions shall not be advertised without disclosing the limited conditions under which the benefits referred to are provided by the policy.

(e) Phrases similar to "this policy pays $1,800 for hospital room and board expenses" shall be incomplete without indicating the maximum daily benefit and the maximum time limit for hospital room and board expenses.

(3) If an advertisement refers to any dollar amount, period of time for which any benefit is payable, cost of policy, specific policy benefit, or the loss for which a benefit is payable, it shall also disclose those exceptions, reductions, and limitations affecting the basic provisions of the policy without which the advertisement would have the capacity and tendency to mislead or deceive. Required disclosures include:

(a) If a policy contains a time period between the effective date of the policy and the effective date of coverage under the policy or a time period between the date a loss occurs and the date benefits begin to accrue for the loss, an advertisement shall disclose the existence of the periods; and

(b) An advertisement shall disclose the extent to which any loss is not covered if the cause of the loss is traceable to a condition existing prior to the effective date of the policy. If a policy does not cover losses traceable to preexisting conditions, the advertisement of the policy shall not state or imply that the applicant's physical condition or medical history will not affect the issuance of the policy or payment of a claim. This requirement shall limit use of the phrase "no medical examination required" and similar phrases.

Section 5. An advertisement that refers to renewability, cancelability, or termination of a policy, that refers to a policy benefit, or that states or illustrates time or age in connection with eligibility of applicants or continuation of the policy, shall disclose the provisions relating to renewability, cancelability, and termination and any modification of benefits, losses covered, or premiums because of age or for other reasons, in a manner that shall not minimize or render obscure the qualifying conditions.

Section 6. All information required to be disclosed by this administrative regulation shall be stated:

(1) Conspicuously and in close conjunction with the statements to which the information relates; or

(2) Under appropriate captions of prominence that shall not be minimized, rendered obscure, or presented in an ambiguous fashion or intermingled with the context of the advertisement so as to be confusing or misleading.

Section 7. Testimonials used in advertisements shall be genuine, represent the current opinion of the author, be applicable to the policy advertising, and be accurately reproduced. The insurer, in using a testimonial shall make as its own all of the statements contained in the advertisement. All of the advertisement, including the statements, shall be subject to the provisions of this administrative regulation.

Section 8. An advertisement relating to the dollar amounts of claims paid, the number of persons insured, or similar statistical information relating to any insurer or policy shall not be used unless it accurately reflects all of the relevant facts. The advertisement shall not imply that statistics are derived from the policy advertised unless that is the fact.

Section 9. An offer in an advertisement of free inspection of a policy or offer of a premium refund shall not be a cure for misleading or deceptive statements contained in the advertisement.

Section 10.

(1) If a choice of the amount of benefits is referred to, an advertisement shall disclose that the amount of benefits provided depends upon the plan selected, and that the premium will vary in conjunction with the amount of the benefits.

(2) If an advertisement refers to various benefits that could be contained in two (2) or more policies, other than group master policies, the advertisement shall disclose that the benefits are provided only through a combination of the policies.

Section 11. An advertisement shall not directly or indirectly make unfair or incomplete comparisons of policies or benefits or otherwise falsely disparage competitors, policies, services, or business methods.

Section 12.

(1) An advertisement that is intended to be seen or heard beyond the limits of the jurisdiction in which the insurer is licensed shall not imply licensing beyond those limits.

(2) Advertisements by direct mail insurers shall indicate that the insurer is licensed in a specified state or states only, or is not licensed in a specified state or states, by use of language similar to "This company is licensed only in State A" or "This company is not licensed in State B."

Section 13. The identity of the insurer shall be made clear in all of the insurer's advertisements. An advertisement shall not use a trade name, service make, slogan, symbol, or other device that has the capacity and tendency to mislead or deceive as to the true identity of the insurer.

Section 14. An advertisement of a particular policy shall not state or imply that prospective policyholders become group or quasi-group members and, as members, enjoy special rates or underwriting privileges unless that is the fact.

Section 15. An advertisement shall not state or imply that a particular policy or combination of policies is an introductory, initial, or special offer and that the applicant shall receive advantages by accepting the offer unless that is the fact.

Section 16.

(1) An advertisement shall not state or imply that an insurer or a policy has been approved, or that an insurer's financial condition has been examined and found to be satisfactory by a governmental agency, unless that is the fact.

(2) An advertisement shall not state or imply that an insurer or a policy has been approved or endorsed by any individual, group of individuals, society, association, or other organization, unless that is the fact.

Section 17. An advertisement shall not contain:

(1) Untrue statements with respect to the time within which claims are paid; or

(2) Statements that imply that claim settlements will be liberal or generous beyond the terms of the policy.

Section 18. An advertisement shall not contain statements that are untrue in fact or by implication misleading with respect to the insurer's assets, corporate structure, financial standing, age, or relative position in the insurance business.

Section 19.

(1) Each insurer shall maintain at its home or principal office a complete file containing every printed, published, or prepared advertisement of individual policies, and typical printed, published, or prepared advertisements of blanket, franchise, and group policies, disseminated in this or any other state, whether or not licensed in the other state, with a notation attached to each advertisement that shall indicate the manner and extent of distribution and the form number of any policy advertised. The file shall be subject to regular and periodical inspection by the Department of Insurance. All advertisements shall be maintained by the insurer for a period of not less than three (3) years.

(2) A life or health insurer required to file an annual statement, in accordance with KRS 304.3-240, that issues any policy shall file with the department, together with its annual statement, a certificate executed by an authorized officer of the insurer stating that to the best of his or her knowledge, information, and belief, the advertisements that were disseminated by the insurer during the preceding statement year complied or were made to comply in all respects with the provisions of KRS Chapter 304.

Section 20. Any person, firm, corporation, or association who knowingly aids and abets an insurer in the violation of this administrative regulation or the applicable provisions of the Insurance Code shall be subject to the penalties established by KRS Subtitle 304.99.

Section 21. Incorporation by Reference.

(1) Form 440, "Certificate on Advertising- Accident and Health", 10/2021 edition is incorporated by reference.

(2) This material may be inspected, copied or obtained, subject to applicable copyright law, at the Department of Insurance, Mayo-Underwood Building, 500 Mero Street, Frankfort, Kentucky 40601, Monday through Friday, 8 a.m. to 4:30 p.m. This material is also available on the department's Web site at: https://insurance.ky.gov/ppc/CHAPTER.aspx.

History

RELATES TO: KRS 304.3-200, 304.3-240, 304.12-010, 304.12-020, 304.12-060, 304.12-120, 304.12-130, 304.99
STATUTORY AUTHORITY: KRS 304.2-110(1)
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.2-110(1) authorizes the Commissioner of Insurance to promulgate administrative regulations necessary for or as an aid to the effectuation of any provision of the Kentucky Insurance Code, as established in KRS 304.1-010. This administrative regulation clarifies the minimum standards for advertising as established in KRS 304.12-010 and 304.12-020.
History: I-12.02; 1 Ky.R. 863; eff. 5-14-1975; TAm eff. 8-9-2007; Crt eff. 2-26-2020; 47 Ky.R. 1079, 1566; eff. 5-4-2021; 48 Ky.R. 1657, 2222; eff. 5-3-2022.

806 KAR 12:020 Fair disclosure to consumers {#sec-806-kar-12-020 omnilex-key=us-ky-regs-official--title-806--806 KAR 12:020}

Section 1. Definitions.

(1) "Agent" is defined by KRS 304.9-020.

(2) "Commissioner" is defined by KRS 304.1-050(1).

(3) "Consultant" is defined by KRS 304.9-040.

(4) "Department" is defined by KRS 304.1-050(2).

(5) "Insurer" is defined by KRS 304.1-050.

(6) "Person" is defined by KRS 304.1-020.

(7) "Pure endowment benefit" means a guaranteed insurance benefit, actuarially determined, the payment of which is contingent upon the survival of the insured to a specified point in time.

Section 2. Applicability. This administrative regulation shall apply to:

(1)

(a) Any insurance company, person, or consultant;

(b) Acts and practices in the advertising, promotion, solicitation, and negotiation of or effecting the sale of life insurance policies; and

(c) Acts and practices related to the sale of insurance, whether or not they involve the use of language disseminated by means of sales kits, policy jackets or covers, letters, personal presentations, visual aids, or other sales media.

(2) This administrative regulation shall not apply to group insurance policies or to annuity contracts.

Section 3. Statement of Policy.

(1) To assure fair disclosure of relevant facts in the sale of life insurance and to protect purchasers and prospective purchasers of life insurance policies sales methods that are misleading shall not be used, including:

(a) The omission of facts fairly describing both the subject matter of a life insurance policy and the benefits obtainable under the policy;

(b) An undue emphasis upon facts that might be true but are not relevant to the sales of life insurance; and

(c) An undue emphasis upon features that are of incidental or secondary importance to the life insurance aspects of a policy.

(2) Although this administrative regulation is addressed to selected acts and practices that have been of serious concern to the Department of Insurance, this shall not be a determination that any act of practice not established in this administrative regulation is in conformance with the statutory provisions.

(3) The acts and practices established in Sections 7 through 7 of this administrative regulation shall be prohibited.

Section 4. Policy Forms. A company shall not:

(1) Include coupons as a part of policies containing pure endowment benefits;

(2) Issue a policy of insurance containing pure endowment benefits unless the gross premium for these provisions is shown prominently and separately in the policy as distinct from the regular insurance gross premium. This subsection shall not apply to any policy in which the amount of any pure endowment or periodic benefit or benefits payable during any policy year is greater than the total annual premium for the year.

(a) This separate gross premium for the series of pure endowments shall be based on reasonable assumptions and be consistent with the policy as to interest, mortality, and expense.

(b) The amount of the guaranteed series of pure endowment benefits shall be expressed in dollar amounts and shall not be presented or defined, either in the policy or any sales and advertising material, as a "percentage" of any premiums or benefits contained in the policy.

(c) All policies with pure endowments sold in Kentucky shall include the following statement stamped on the face of the policy until present stocks are exhausted: "The premium includes $____ for pure endowment benefits;"

(3) Use a dividend illustration in connection with a participating life insurance policy unless the dividend illustration is on file with the commissioner as a part of a rate book or as a separate filing; and

(4) Use words or phrases such as "investment or investment plan," "insured investment plan," "profitsharing," "charter plan," "founders plan," or similar language in a life insurance policy, either in context or under circumstances or conditions as to have the capacity and tendency to mislead a purchaser or prospective purchaser to believe that he or she will receive or that it is probable he or she will receive something other than an insurance policy, some benefit not provided in the policy, or some benefit not available to other persons of the same class and equal expectation of life.

Section 5. Sales Presentation and Solicitation. Sales presentations and solicitations shall not:

(1) Reference to a policy using similar terminology as established in Section 4(4) of this administrative regulation, including:

(a) Statements or representations that the prospective policyholder shall receive the right to benefits from the insurance company that are not stipulated in the policy itself; or

(b) Statements or references that refer to premium payments in language stating the payment is a "deposit" unless:

The payment establishes a debtor-creditor relationship between the insurance company and the policyholder; or
The term is used in conjunction with the word "premium" in a manner that clearly indicates the true character of the payment;

(c) Statements that describe a life insurance policy or premium payments in terms of "unit of participation", unless accompanied by other language fairly indicating their reference to a life insurance policy or to premium payments. Statements that describe a life insurance policy or premium payments in terms of units shall be followed by the dollar amount representing the annual premium for each unit or units described, and further wording clearly indicating that the unit or units represent a life insurance policy; and

(d) Statements that infer that the guaranteed endowments available under a policy are interest, earnings, return on investment, or anything other than benefits for which the cost is taken into consideration in calculating the total premium;

(2) Reference to any policy or contract in a manner as to misrepresent its true nature and more particularly:

(a) Statements that tend to lead the prospect to believe that the agent is dealing in other than a life insurance contract;

(b) Statements that tend to lead the prospect to believe that life insurance is incidental to the purchase of the contract;

(c) Statements or reference relating to the growth of the life insurance industry or to the tax status of life insurance companies in a context that would 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;

(d) Statements that reasonably give rise to the inference that the insured will enjoy a status common to a stockholder or will acquire a stock ownership interest in the insurance company by virtue of purchasing the policy; and

(e) References or statements to a company's "investment department," "insured investment department," or similar terminology in a manner as to imply that the policy was sold, issued, or is serviced by the investment department of the insurance company;

(3) Reference the payment of dividends in a manner as to misrepresent their true nature, including:

(a) Providing any illustration as to projected dividends unless the dividend scale is based on the experience currently used by the company for dividends and unless the illustration is expressed in dollar amounts;

(b) Statements that use the words "dividends," "cash dividends," "surplus," or similar phrases in a manner as to state or imply that the payment of dividends is guaranteed or certain to occur;

(c) Statements or references that a purchaser of a policy will share in a stated percentage or portion of the earnings of the company;

(d) Statements that use the word "dividend," "cash dividends," "surplus," or similar terminology not expressed as a dollar amount. This shall apply to projected dividends and past experience on dividends; and

(e) Statements or inferences that projected dividends under a participating policy are sufficient at any time to assure the receipt of benefits without the further payment of premiums unless the statement is accompanied by an adequate explanation as to:

What benefits or coverage would be provided; and
The conditions under which this would occur; and

(4) Reference to any policy or contract in a manner as to suggest that certain policyholders will receive preferential treatment, including:

(a) Statements or references that 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 in the payment of dividends, special advantages, benefits, or favored treatment. This paragraph shall not apply to policies under which insured persons of one (1) class of risk may receive dividends of a higher rate than persons of another class of risk;

(b) Statements or references that each policyholder is given the right to allocate a specific number of policies;

(c) Statements or inferences that only a limited number of person 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;

(d) Statements or inferences that policyholders who act as "centers of influence" for an insurance company in that capacity will share in the company's surplus earnings in some manner not available to policyholders of the same class; and

(e) Comparisons to the past experience of other life insurance companies in which the comparison is based on an arbitrary selection as to either the companies or the statistics or other data used.

Section 6. Dividends.

(1) Policyholder premium or gross cost reductions on participating policies shall be designated dividends. Other items shall not be designated as dividends.

(a) Dividends shall not be guaranteed as to amount, percentage, or premium, or other basis.

(b) The decision for declaration of a dividend shall be determined by the insurance company's board of directors, based solely on operating results or projection for those policies designated participating policies.

(2) If dividends are declared for a policy year classification based on specific plan or age classifications as they relate to contribution of company ability to declare dividends, dividends shall be apportioned to all policies so entitled in that policy year.

(3) The date dividends are declared shall be the date liability is established for the dividends and the reserve established for this liability shall be the full amount of the dividends declared.

History

RELATES TO: KRS 304.1-050, 304.2-310, 304.9-440, 304.12-010, 304.12-020, 304.12-040, 304.12-110, 304.12-130, 304.14-120 to 304.14-180
STATUTORY AUTHORITY: KRS 304.2-110(1)
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.2-110(1) authorizes the Commissioner of Insurance to promulgate administrative regulations necessary for or as an aid to the effectuation of any provision of the Kentucky Insurance Code as established in KRS 304.1-010. This administrative regulation establishes standards to assure fair disclosure to insurance consumers.
History: I-12.01; 1 Ky.R. 1077; eff. 7-2-75; TAm eff. 8-9-2007; Crt eff. 2-26-2020; 47 Ky.R. 1082, 1568; eff. 5-4-2021.

806 KAR 12:040 Insurance in credit transactions {#sec-806-kar-12-040 omnilex-key=us-ky-regs-official--title-806--806 KAR 12:040}

Section 1. In a finance or loan transaction wherein the vendee refuses or for any reason fails to provide reasonable insurance protection against loss from physical damage, an insurer may, at the request of the dealer, finance factor, or lender, provide such insurance protection.

Section 2. Where the dealer, finance factor, or lender requests and secures such protection, no part of the cost thereof shall be charged to the vendee unless losses payable thereunder shall be for the benefit of the vendee as well as the dealer, finance factor, or lender. In the event a loss is payable under such policy where any part of the cost of such protection is charged to the vendee, it shall be applied toward restoration of the damaged subject of the transaction or toward reduction of the balance of the debt, if any remains, arising out of the transaction.

Section 3. When insuring motor vehicle or aircraft, the title page of a policy providing single interest protection for the sole benefit of the dealer, finance factor, or lender must have clearly stamped or printed in not less than fourteen (14) point type the words: "This policy does not provide protection:

(1) To the buyer of the property insured hereunder;

(2) Against legal liability to persons or property of third parties."

History

RELATES TO: KRS 304.14-040
STATUTORY AUTHORITY: KRS 304.2-110
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.2-110 provides that the Executive Director of Insurance shall make reasonable rules and regulations necessary for or as an aid to the effectuation of any provision of the Kentucky Insurance Code. This administrative regulation provides the respective rights and obligations of the vendor and vendee where insurance is procured on property sold in a credit transaction.
History: I-12.05; 1 Ky.R. 1079; eff. 7-2-75; TAm eff. 8-9-2007; Crt eff. 2-26-2020.

806 KAR 12:060 Health insurance replacement {#sec-806-kar-12-060 omnilex-key=us-ky-regs-official--title-806--806 KAR 12:060}

Section 1. This administrative regulation shall apply to the solicitation of health insurance covering residents of this state issued by insurance corporations, fraternal benefit societies or nonprofit service plans in accordance with KRS 304.14-120.

Section 2. This administrative regulation shall not apply to the solicitation of the following accident and sickness insurance:

(1) Group or blanket;

(2) Accident only;

(3) Single premium nonrenewable;

(4) Nonprofit dental care;

(5) Nonprofit prepaid optometric service;

(6) Under which dental expenses only, prescription expenses only, vision care expenses only or blood service expenses only are covered;

(7) Conversion to another individual or family policy in the same insurer with continuous coverage;

(8) Conversion to an individual or family policy to replace group, blanket coverage in the same insurer;

(9) Change to a Medicare supplement policy which covers preexisting conditions, without any limitation, to replace a basic hospital expense, basic medical expense, basic surgical expense, or major medical expense policy.

Section 3. Definitions.

(1) Replacement is any transaction wherein new health insurance is to be purchased, and it is known to the agent or company at the time of application that as part of the transaction, existing health insurance has been or is to be lapsed or the benefits thereof substantially reduced.

(2) Continuous coverage means that the benefits are not less than the benefits under the previous policy, and the policy also covers loss resulting from injury sustained or sickness contracted while coverage was in force under the previous policy to the extent such loss is not covered under any extended benefit or similar provision of the previous policy.

(3) Group type coverage is as defined in KRS 304.18-020.

(4) Direct response insurance is insurance issued to an applicant who has himself completed the application and forwarded it directly to the insurer in response to a solicitation coming into his possession by any means of mass communication.

Section 4. An application form for insurance subject to this administrative regulation shall contain a question to elicit information as to whether the insurance to be issued is to replace any insurance presently in force. A supplementary application or other form to be signed by the applicant containing such a question may be used.

Section 5.

(1) An agent soliciting the sale of insurance shall, upon determining that the sale would involve replacement, furnish to the applicant, at the time of taking the application, the notice described in Section 6 of this administrative regulation to be signed by the applicant.

(2) An insurer soliciting direct response insurance shall, upon determining that the sale would involve replacement, furnish to the applicant, before the policy is issued, the notice described in Section 6 of this administrative regulation to be signed by the applicant.

(3) A copy of such notice shall be left with or retained by the applicant and a signed copy shall be retained by the insurer.

Section 6. The form for notice required by Section 5 of this administrative regulation is filed by reference as Appendix A. Copies may be obtained from the Office of Insurance, 215 W. Main Street, Frankfort, Kentucky 40601.

Section 7. A violation of this administrative regulation shall be considered to be a misrepresentation for the purpose of inducing a person to purchase insurance. A person guilty of such violation shall be subject to KRS 304.9-440(1).

History

RELATES TO: KRS 304.14-120
STATUTORY AUTHORITY: KRS 304.2-110
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.2-110 provides that the Executive Director of Insurance may make reasonable rules and regulations necessary for or as an aid to the effectuation of any provision of the Kentucky Insurance Code. This administrative regulation safeguards the interests of persons covered under health insurance including indemnity insurance who consider replacing their insurance by making available to them information regarding replacement and thereby reducing the opportunity for misrepresentation and other unfair practices and methods of competition in the insurance business.
History: 3 Ky.R. 277; eff. 10-6-76; TAm eff. 8-9-2007; Crt eff. 2-26-2020.

806 KAR 12:070 Life insurance application requirements {#sec-806-kar-12-070 omnilex-key=us-ky-regs-official--title-806--806 KAR 12:070}

Section 1. An application for life insurance solicited personally by an agent shall include the location where the application is signed and the applicant's signature.

History

RELATES TO: KRS 304.14-090, 304.14-120
STATUTORY AUTHORITY: KRS 304.2-110, EO 2009-535
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.2-110 authorizes the Executive Director of Insurance to promulgate reasonable rules and administrative regulations necessary for or as an aid to the effectuation of any provisions of the Kentucky Insurance Code, as defined in KRS 304.1-010. EO 2009-535, effective June 12, 2009, established the Department of Insurance and the Commissioner of Insurance as the head of the department. This administrative regulation requires that an application for life insurance which was personally solicited by an agent to include the location where the application was signed and to be signed by the applicant.
History: 8 Ky.R. 1130; Am. 1413; eff. 6-25-82; TAm eff. 8-9-2007; 36 Ky.R. 664; 1225; eff. 1-4-2010; Crt eff. 2-26-2020.

806 KAR 12:080 Replacement of life insurance and annuity contracts {#sec-806-kar-12-080 omnilex-key=us-ky-regs-official--title-806--806 KAR 12:080}

Section 1. Definitions.

(1) "Conservation" means any attempt by the existing insurer or its agent to continue existing life insurance in force after the existing insurer has received a copy of the "Office Form A, Important Notice: Replacement of Life Insurance or Annuities" as required by Section 3(2) of this administrative regulation from a replacing insurer. A conservation effort does not include routine administrative procedures.

(2) "Direct-response solicitation" is defined in KRS 304.12-030(1)(f).

(3) "Executive director" is defined by KRS 304.1-050(1).

(4) "Existing life insurance" is defined in KRS 304.12-030(1)(d).

(5) "Existing insurer" is defined in KRS 304.12-030(1)(b).

(6) "Financed purchase" is defined in KRS 304.12-030(1)(e).

(7) "Illustration" means a presentation or depiction that includes nonguaranteed elements of a policy of life insurance over a period of years.

(8) "Office" is defined by KRS 304.1-050(2).

(9) "Policy summary" means:

(a) For policies or contracts other than universal life policies, a written statement regarding a policy or contract which shall contain, to the extent applicable, the following information:

The current death benefit;
The annual contract premium;
The current cash surrender value;
The current dividend; and
The amount of outstanding loans; or

(b) For universal life policies, a written statement that contains, at a minimum, the following information:

The beginning and end dates of the current reporting period;
The policy value at the end of the previous reporting period and at the end of the current reporting period;
The total amounts that have been credited or debited to the policy value during the current reporting period, identifying each by type;
The current death benefit at the end of the current reporting period on each life covered by the policy;
The net cash surrender value of the policy as of the end of the current reporting period; and
The amount of outstanding loans, if any, as of the end of the current reporting period.

(10) "Registered contract" means a variable annuity contract or variable life insurance policy subject to the prospectus delivery requirements of the Securities Act of 1933, 15 U.S.C. 77a et seq.

(11) "Replacement" is defined in KRS 304.12-030(1)(a).

(12) "Replacing insurer" is defined in KRS 304.12-030(1)(c).

(13) "Sales material" means a sales illustration and any other written, printed, or electronically-presented information created, completed, or provided by the company or agent and used in the presentation to the policy or contract owner related to the policy or contract purchased.

(14) "Universal life insurance policy" means a life insurance policy where separately identified interest credits, other than in connection with dividend accumulations, premium deposit funds, or other supplementary accounts, and mortality and expense charges are made to the policy. A universal life insurance policy may provide for other credits and charges, such as charges for the cost of benefits provided by the rider.

Section 2. Exemptions. This administrative regulation shall not apply to the policies or contracts set forth in KRS 304.12-030(3).

Section 3. Duties of Agents.

(1) Each agent shall submit to the insurer with, or as part of the application, a statement signed by both the applicant and the agent as to whether the applicant has existing policies or contracts. If the applicant indicates that he or she does not have existing policies or contracts, the agent's duties with respect to replacement are complete.

(2) If the applicant indicates that he or she has existing policies or contracts, the agent shall present and read to the applicant, not later than at the time of taking the application "Office Form A, Important Notice: Replacement of Life Insurance or Annuities," or a substantially-similar form approved by the executive director. Approval shall not be required if amendments to the notice are limited to the omission of references not applicable to the product being sold or replaced. The notice shall be:

(a) Signed by both the applicant and the agent attesting that:

The notice has been read aloud by the agent; or
The applicant did not wish the notice to be read aloud, in which case the agent need not have read the notice aloud; and

(b) Left with the applicant.

(3) The notice shall list all life insurance policies or annuity contracts proposed to be replaced, and properly identified by:

(a) Name of insurer;

(b) The insured or annuitant; and

(4) The notice shall include a statement as to whether each policy or contract will be replaced or whether a policy or contract will be used as a source of financing for the new policy or contract. If a policy or contract number has not been issued by the existing insurer, alternative identification shall be listed.

(5) In connection with a replacement transaction, the agent shall leave with the applicant when an application for a new policy or contract is completed, the original or a copy of all sales material. Electronically-presented sales material shall be provided to the policy or contract owner in printed form no later than when the policy or contract is delivered.

(6) Except as provided in Section 5(3), in connection with a replacement transaction, the agent shall submit to the insurer to which an application for a policy or contract is presented:

(a) A copy of each document required by this section;

(b) A statement identifying any preprinted or electronically-presented company approved sales materials used; and

(c) Copies of any individualized sales materials, including any illustrations related to the specific policy or contract purchased.

Section 4. Duties of Insurers That Use Agents. Insurers that use agents shall:

(1) Maintain a system of supervision and control to ensure compliance with the requirements of this administrative regulation that shall include at least the following:

(a) Inform its agents of the requirements of this administrative regulation and KRS 304.12-030, and incorporate the requirements of this administrative regulation into all relevant agent training manuals prepared by the insurer;

(b) Provide to each agent a written statement of the insurer's position with respect to the acceptability of replacements providing guidance to its agents as to the appropriateness of these transactions;

(c) A system to review the appropriateness of each replacement transaction that the agent does not indicate is in accord with paragraph (b) of this subsection;

(d) Procedures to confirm that the requirements of this administrative regulation have been met; and

(e) Procedures to detect transactions that are replacements of existing policies or contracts by the existing insurer, but that have not been reported as such by the applicant or agent.

(2) Have the capacity to monitor each agent's life insurance policy and annuity contract replacements for that insurer, and shall produce, upon request, and make the records available to the Office of Insurance. The capacity to monitor shall include the ability to produce records for each agent's:

(a) Life replacements, including financed purchases, as a percentage of the agent's total annual sales for life insurance;

(b) Number of lapses of policies by the agent as a percentage of the agent's total annual sales for life insurance.

(d) Number of transactions that are unreported replacements of existing policies or contracts by the existing insurer detected by the insurer's monitoring system as required by subsection (1)(e) of this section; and

(e) Replacements, indexed by replacing agent and existing insurer.

(3) Require with or as a part of each application for life insurance or an annuity, a signed statement by both the applicant and the agent as to whether the applicant has existing policies or contracts;

(4) Require with each application for life insurance or an annuity that indicates an existing policy or contract a completed notice regarding replacements as contained in "Office Form A, Important Notice: Replacement of Life Insurance or Annuities;"

(5) If the applicant has existing policies or contracts, be able to produce copies of any sales material required by Section 3(6) of this administrative regulation, the basic illustration, and any supplemental illustrations related to the specific policy or contract that is purchased, and the agent's and applicant's signed statements with respect to financing and replacement for at least five (5) years after the termination or expiration of the proposed policy or contract;

(6) Ascertain that the sales material and illustrations required by Section 3(6) of this administrative regulation meet the requirements of this administrative regulation and are complete and accurate for the proposed policy or contract;

(7) If an application does not meet the requirements of this administrative regulation, notify the agent and applicant and fulfill the outstanding requirements; and

(8) Maintain records in paper, photograph, microprocess, magnetic, mechanical, or electronic media or by any process that accurately reproduces the actual document.

Section 5. Duties of Replacing Insurers that Use Agents.

(1) If a replacement is involved in the transaction, the replacing insurer shall:

(a) Verify that the required forms are received and are in compliance with this administrative regulation;

(b) Notify any other existing insurer that may be affected by the proposed replacement within five (5) business days of receipt of a completed application indicating replacement of when the replacement is identified, if not indicated on the application, and mail a copy of the available illustration or policy summary for the proposed policy or available disclosure document for the proposed contract within five (5) business days of a request from an existing insurer;

(c) Be able to produce copies of the notification regarding replacement required in Section 3(2) of this administrative regulation, indexed by agent, for at least five (5) years or until the next regular examination by the insurance department of an insurer's state of domicile, whichever is later; and

(d) Provide to the policy or contract owner notice of the right to return the policy or contract within thirty (30) days of the delivery of the contract and receive an unconditional full refund of all premiums or considerations paid on it, including any policy fees or charges or, if a variable or market value adjustment policy or contract, a payment of the cash surrender value provided under the policy or contract plus the fees and other charges deducted from the gross premiums or considerations or imposed under the policy or contract.

(e) Allow credit for the period of time that has elapsed under the replaced policy's or contract's incontestability and suicide period up to the face amount of the existing policy or contract. With regard to financed purchases, the credit may be limited to the amount the face amount of the existing policy is reduced by the use of existing policy values to fund the new policy or contract.

(2) If an insurer prohibits the use of sales material other than that approved by the insurer, as an alternative to the requirements made of an insurer pursuant to Section 3(6) of this administrative regulation, the insurer:

(a) May require with each application a statement signed by the agent that:

Represents that the agent used only company-approved sales material; and
States that copies of all sales material were left with the applicant in accordance with Section 3(5) of this administrative regulation;

(b) May within ten (10) days of the issuance of the policy or contract:

Notify the applicant by sending a letter or by verbal communication with the applicant by a person whose duties are separate from the marketing area of the insurer, that the agent has represented that copies of all sales material have been left with the applicant in accordance with Section 3(5) of this administrative regulation;
Provide the applicant with a toll-free number to contact insurer personnel involved in the compliance function if this is not the case; and
Stress the importance of retaining copies of the sales material for future reference; and

(c) Shall be able to produce a copy of the letter or other verification in the policy file for at least five (5) years after the termination or expiration of the policy or contract.

Section 6. Duties of the Existing Insurer. Where a replacement is involved in the transaction, the existing insurer shall:

(1) Retain and be able to produce all replacement notifications received, indexed by a replacing insurer, for at least five (5) years or until the conclusion of the next regular examination conducted by the insurance department of its state of domicile, whichever is later.

(2) Send a letter to the policy or contract owner of the right to receive information regarding the existing policy or contract values including:

(a) An in-force illustration, if available; or

(b) A policy summary if an in-force illustration cannot be produced within five (5) business days of receipt of a notice that an existing policy or contract is being replaced. The information shall be provided within five (5) business days of receipt of the request from the policy or contract owner.

(3) Upon receipt of a request to borrow, surrender, or withdraw any policy values, send a notice advising the policy owner that the release of policy values may affect the guaranteed elements, nonguaranteed elements, face amount or surrender value of the policy from which the values are released. The notice shall be sent separate from the check if the check is sent to anyone other than the policy owner. In the case of consecutive automatic premium loans, the insurer shall send the notice at the time of the first loan.

Section 7. Duties of Insurer with Respect to Direct-response Solicitation.

(1) If an application is initiated as a result of a direct-response solicitation, the insurer shall require, with or as part of each completed application for a policy or contract, a statement asking whether the applicant, by applying for the proposed policy or contract, intends to replace, discontinue, or change an existing policy or contract. If the applicant indicates a replacement or change is not intended, or if the applicant fails to respond to the statement, the insurer shall send to the applicant with the policy or contract, a notice regarding replacement in "Office Form B, Notice Regarding Replacing Your Life Insurance Policy or Annuity" or other substantially-similar form approved by the executive director.

(2) If the insurer has proposed the replacement, or if the applicant indicates a replacement is intended and the insurer continues with the replacement, the insurer shall:

(a) Provide to applicants or prospective applicants with the policy or contract a notice, as described in "Office Form C, Important Notice: Replacement of Life Insurance or Annuities," or other substantially-similar form approved by the executive director. In these instances, the insurer may delete the references to the agent, including the agent's signature, and references not applicable to the product being sold or replaced, without having to obtain approval of the form from the executive director. The insurer's obligation to obtain the applicant's signature shall be satisfied if it can demonstrate that it has made a diligent effort to secure a signed copy of the notice referred to in this paragraph. The requirement to make a diligent effort shall be deemed satisfied if the insurer includes in the mailing a self-addressed postage prepaid envelope with instructions for the return of the signed notice referred to in this section; and

(b) Comply with the requirements of Section 5(1)(b), if the applicant furnishes the names of the existing insurers, and the requirements of Section 5(1)(c), (d), and 5(2).

Section 8. Violations and Penalties.

(1) Any failure to comply with this administrative regulation shall be considered a violation of KRS 304.12-010.

(2) Policy and contract owner have the right to replace existing life insurance policies or annuity contracts after indicating in or as a part of applications for new coverage that replacement is not their intention. Patterns of this action by policy or contract owners of the same agent shall be deemed prima facie evidence of the agent's knowledge that replacement was intended in connection with the identified transactions, and these patterns of action shall be deemed prima facie evidence of the agent's intent to violate this administrative regulation.

(3) If it is determined that the requirements of this administrative regulation have not been met, the replacing insurer shall provide to the policy owner an in-force illustration, if available, or policy summary for the replacement policy or available disclosure document for the replacement contract and the appropriate notice regarding replacements in "Office Form A, Important Notice: Replacement of Life Insurance or Annuities."

Section 9. Incorporation by Reference.

(1) The following material is incorporated by reference:

(a) "Office Form A, Important Notice: Replacement of Life Insurance or Annuities", April 2005;

(b) "Office Form b, Notice Regarding Replacing Your Life Insurance Policy Or Annuity", April 2005; and

History

RELATES TO: KRS 304.12-010, 304.12-030
STATUTORY AUTHORITY: KRS 304.2-110
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.2-110 provides that the Executive Director of Insurance may make reasonable rules and regulations necessary for or as an aid to the effectuation of any provision of the Kentucky Insurance Code. KRS 304.12-030 establishes minimum standards of conduct to be observed in replacement or proposed replacement of life insurance policies and annuity contracts. This administrative regulation sets forth the procedures to be followed in the replacement or proposed replacement of life insurance policies and annuity contracts.
History: 9 Ky.R. 655; Am. 789; 1004; eff. 2-2-83; 1236; eff. 6-1-83; 32 Ky.R. 327; 692; 885; eff. 12-2-2005; Crt eff. 2-26-2020.

806 KAR 12:092 Unfair life and health insurance claims settlement practices {#sec-806-kar-12-092 omnilex-key=us-ky-regs-official--title-806--806 KAR 12:092}

Section 1. Definitions. As used in this administrative regulation:

(1) "Agent" means any person authorized to represent an insurer with respect to a claim;

(2) "Beneficiary" means, for the purpose of life and health insurance, the party entitled to receive the proceeds or benefits occurring under the policy in lieu of the insured;

(3) "Claimant" means an insured, the beneficiary, or legal representative (e.g., administrator, executor, guardian, or similar person) of the insured, including a member of the insured's immediate family designated by the insured (the insurer may require written proof of the designation), making the claim under a policy;

(4) "Claim file" shall mean any retrievable electronic file, paper file, or combination of both;

(5) "Executive Director" means the executive director of the Kentucky Office of Insurance;

(6) "Documentation" includes, but is not limited to, all pertinent communications, transactions, notes, work papers, claim forms, bills and, explanation of benefits forms relative to the claim;

(7) "Good faith" means an honest intention to abstain from taking any unconscientious advantage of another, together with absence of all information, notice, or benefit or belief of facts which render a transaction unconscientious;

(8) "Insured" means, for the purpose of life or health insurance, the party named on a policy, certificate, or contract as the individual with legal rights to the benefits provided by the policy, certificate, or contract;

(9) "Insurer" means any insurer, fraternal benefit society, nonprofit hospital, medical, surgical, dental, and health service corporations and prepaid dental plan organization, including agents and third party administrators;

(10) "Investigation" means all activities of an insurer directly or indirectly related to the determination of liabilities under coverages afforded by a policy, certificate or contract;

(11) "Notification of claim" means a notice to the insurer that a loss has occurred or is about to be incurred;

(12) "Policy", "certificate" or "contract" include any contract of an insurer providing indemnity or other coverage for medical, health or hospital goods and services, but do not include contracts of workers' compensation;

(13) "Proof of loss" means written proofs, such as claim forms, medical bills, medical authorizations, or other reasonable evidence of the claim that is ordinarily required of all insureds or beneficiaries submitting the claims;

(14) "Reasonable explanation" means that sufficient information shall be included in the explanation of benefits as to enable the insured or beneficiary to compare the allowable benefits with policy provisions and determine whether proper payment has been made;

(15) Delay or denial of a claim is "without reasonable foundation" when there is no rational relationship between the reasons for the delay or denial of a claim and the policy, certificate, or contract, applicable law, or applicable facts;

(16) "Written communications" include all correspondence, regardless of source or type, that is materially related to the handling of the claim.

Section 2. Scope and Purpose of this Administrative Regulation.

(1) This administrative regulation sets forth minimum standards for the investigation and disposition of life and health insurance claims arising under policies, certificates, and contracts. It is not intended to cover claims involving workers' compensation insurance since all questions arising under KRS Chapter 342 shall be resolved by workers' compensation administrative law judges. This administrative regulation is intended to define procedures and practices which constitute unfair claims settlement practices.

(2) The National Association of Insurance Commissioners, which created the model regulation on which this administrative regulation is based, has stated that its model regulation is not appropriate for a state which allows a private cause of action. Accordingly, the sole purpose of this administrative regulation is to provide guidance to the commissioner and his designees in their investigations, examinations, and administrative adjudication and appeals therefrom.

Section 3. Claim Practices.

(1) Every insurer, upon receiving due notification of a claim shall, within fifteen (15) calendar days of the notification, provide necessary claim forms, instructions, and reasonable assistance so the insured can properly comply with insurer requirements for the filing of a claim.

(2) Upon receipt of proof of loss from a claimant, the insurer shall begin any necessary investigation of the claim within fifteen (15) calendar days.

(3) The insurer's standards for claims processing shall require that notice of claim or proofs of loss submitted against one (1) policy issued by that insurer shall fulfill the insured's obligation under any and all similar policies issued by that insurer and specifically identified by the insured to the insurer to the same degree that the same form would be required under any similar policy. If additional information is required to fulfill the insured's obligation under similar policies, the insurer may request the additional information. When it is apparent to the insurer that additional benefits would be payable under an insured's policy upon additional proofs of loss, the insurer shall communicate to and cooperate with the insured in determining the extent of the insurer's additional liability.

(4) The insurer shall affirm or deny any liability on claims within a reasonable time and shall offer payment within thirty (30) calendar days of receipt of due proof of loss. If the insurer fails to pay the claim within thirty (30) days of receipt of due proof of loss, and the delay or denial is due to lack of a good faith attempt to settle the claim, the claim bears interest at the rate of twelve (12) percent per annum from the expiration of thirty (30) days from the receipt of due proof of loss. If the delay or denial is without reasonable foundation, the insured shall be reimbursed for reasonable attorney's fees incurred in collecting the claim. If a portion or portions of the claim are in dispute, the insurer shall tender payment for any portion or portions of the claim which are not in dispute within thirty (30) days of receipt of due proof of loss.

(5) With each claim payment, the insurer shall provide to the insured an explanation of benefits which shall include the name of the provider of health care services covered, dates of service, and a reasonable explanation of the computation of benefits.

(6) An insurer shall not impose a penalty on any insured for noncompliance with insurer requirements for precertification unless the penalties are specifically and clearly set forth in writing in the policy.

(7) If a claim remains unresolved for thirty (30) days from the receipt of due proof of loss, the insurer shall provide the insured or, when applicable, the insured's beneficiary, with a reasonable written explanation of the delay. In credit, mortgage, and assigned health insurance claims, the notice shall also be provided to the debtor who is the insured or health care provider in addition to the insured. If the investigation remains incomplete, the insurer shall, forty-five (45) days from the date of initial notification and every forty-five (45) days thereafter, send to the claimant a letter setting forth the reasons additional time is needed for the investigation. The notice shall also describe to the insured the availability of interest and attorney's fees specified in subsection (4) of this section.

(8) The insurer shall acknowledge and respond within fifteen (15) calendar days to any written communications relating to a claim.

(9) When a claim is denied, written notice of denial shall be sent to the claimant within fifteen (15) calendar days of the determination. The notice shall refer to the policy provision, condition, or exclusion upon which the denial is based.

(10) Insurers shall not deny a claim based on information obtained in a telephone conversation or personal interview with any source unless the telephone conversation or personal interview is documented in the claim file.

(11) Insurers shall not refuse to settle claims on the basis that responsibility for payment should be assumed by others except as provided by policy, certificate, or contract provisions.

(12) All insurers offering cash settlements of first party long term disability income claims (except in cases where there is a bona fide dispute as to the coverage for, or amount of, the disability) shall develop a present value calculation of future benefits (with probability corrections for mortality and morbidity) utilizing contingencies such as mortality, morbidity, and interest rate assumptions, and other facts appropriate to the risk. A copy of the amount so calculated shall be given to the insured and signed by the insured at the time a settlement is entered into.

(13) No insurer shall indicate to a first party claimant on a payment draft, check, or in any accompanying letter that the payment is "final" or "a release" of any claim unless the policy limit has been paid or there has been a compromise settlement agreed to by the first party claimant and the insurer as to coverage and amount payable under the contract.

(14) Insurers shall not withhold any portion of any benefit payable as a result of a claim on the basis that the settlement held is an adjustment or correction for an overpayment made on a prior claim arising under the same policy unless:

(a) The insurer has within its files clear, documented evidence of an overpayment and written authorization from the insured permitting the withholding procedure; or

(b) The insurer has within its files clear, documented evidence of the following:

The overpayment was clearly erroneous under the provisions of the policy. If the overpayment is the subject of a reasonable dispute as to facts, the procedure specified in this paragraph shall not be used;
The error which resulted in the payment is not a mistake of the law;
The insurer notifies the insured within six (6) months of the date of the error, except that in instances of error prompted by representations or nondisclosures of claimants or third parties, the insurer notifies the insured within fifteen (15) calendar days after the date that clear, documented evidence of discovery of such error is included in its file. For the purpose of this subparagraph, the date of the error shall be the day on which the draft, check, or other claim payment is issued; and
The notice states clearly the nature of the error and states the amount of the overpayment.

(15) Insurers shall not continue negotiations with a claimant who has no legal representation until the claimant's rights may be affected by a statute of limitations or a time limitation in a policy, certificate, or contract without giving the claimant written notice that the time limitation may be expiring. The notice shall be mailed or delivered to the claimant at least thirty (30) days prior to the date on which the time limit may expire.

Section 4. File and Record Documentation. Each insurer's claim files are subject to examination by the executive director or the executive director's designees. To aid in an examination:

(1) The insurer shall maintain claim data that are accessible and retrievable for examination. An insurer shall be able to provide the claim number, line of coverage, date of loss and date of payment of the claim, and date of denial or date closed without payment. This data shall be available for all open and closed files for the current year and the five (5) preceding years.

(2) Documentation shall be contained in each claim file to permit reconstruction of the insurer's activities relative to each claim.

(3) Each document within the claim file shall be noted as to date received, date processed, or date mailed.

(4) For those insurers which do not maintain hard copy files, claim files shall be accessible from a computer terminal available to examiners or micrographics and be capable of duplication to hard copy.

Section 5. Severability. If any provision of this administrative regulation or the application thereof to any person or circumstance is for any reason held to be invalid, the remainder of the regulation and the application of the provision to other persons or circumstances shall not be affected thereby.

Section 6. Effective Date. This administrative regulation shall become effective upon completion of its review pursuant to KRS Chapter 13A.

History

RELATES TO: KRS 304.2-165, 304.3-200, 304.3-210, 304.12-010, 304.12-220, 304.12-230, 304.12-235, 304.29-341, 304.32-270, 304.38-200, 342.325
STATUTORY AUTHORITY: KRS 304.2-110, 304.32-250, 304.38-150
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.2-110 provides that the Executive Director of Insurance may make reasonable regulations necessary for or as an aid to the effectuation of any provision of the Kentucky insurance code. KRS 304.32-250 provides that the executive director may promulgate reasonable administrative regulations which he deems necessary for the proper administration of KRS 304.32. KRS 304.38-150 provides that the Executive Director of Insurance may promulgate reasonable administrative regulations which he deems necessary for the proper administration of KRS 304.38. This administrative regulation defines unfair life and health insurance claims settlement practices.
History: 17 Ky.R. 806; Am. 1503; eff. 11-15-90; TAm eff. 8-9-2007; TAm eff. 10-9-2008; Crt eff. 2-26-2020.

806 KAR 12:095 Unfair claims settlement practices for property and casualty insurance {#sec-806-kar-12-095 omnilex-key=us-ky-regs-official--title-806--806 KAR 12:095}

Section 1. Definitions.

(1) "Agent" means any person authorized to represent an insurer with respect to a claim;

(2) "Claimant" means either a first party claimant, a third-party claimant, or both and includes:

(a) The claimant's designated legal representative, including an administrator, executor, guardian, or similar person, and

(b) A member of the insured's immediate family designated by the claimant;

(3) "Claim file" means any retrievable electronic file, paper file, or both;

(4) "Commissioner" is defined by KRS 304.1-050(1);

(5) "Days" means any day, Monday through Friday, except holidays;

(6) "First-party claimant" means a person asserting a right to payment under an insurance policy, certificate, or contract arising out of the occurrence of the contingency or loss covered by the policy, certificate, or contract;

(7) "Insurer" is defined by KRS 304.1-040;

(8) "Investigation" means all activities of an insurer related to the determination of liabilities under coverages afforded by a policy, certificate, or contract;

(9) "Local market area" means a reasonable distance surrounding the area where a motor vehicle is principally garaged or the usual location of the article covered by the policy. This area does not mean limited to the geographic boundaries of the Commonwealth;

(10) "Notification of claim" means any notification, whether in writing or by other means acceptable under the terms of the policy, certificate, or contract, to an insurer or its agent, by a claimant, which reasonably apprises the insurer of the facts pertinent to a claim;

(11) "Policy", "certificate", or "contract" means any contract of insurance or indemnity, except for:

(a) Fidelity, suretyship, or boiler and machinery insurance; or

(b) A contract of workers' compensation insurance unless it satisfies the requirements of Section 2 of this administrative regulation.

(12) "Replacement crash part" means sheet metal or plastic parts which generally constitute the exterior of a motor vehicle, including inner and outer panels; and

(13) "Third-party claimant" means any person asserting a claim against any person under a policy, contract, or certificate of an insurer.

Section 2. Scope and Purpose of this Administrative Regulation.

(1) This administrative regulation establishes:

(a) Minimum standards for the investigation and disposition of property and casualty insurance claims arising under policies, certificates, and contracts;

(b) Procedures and practices which constitute unfair claims settlement practices; and

(2) This administrative regulation shall not cover claims involving:

(a) Fidelity, suretyship, or boiler and machinery insurance; or

(b) Workers' compensation unless:

The claim involves a question that does not arise under KRS Chapter 342; or
The claim is for unearned premium refunds.

(3) Statement of enforcement policy. If complaints are filed with the commissioner, the commissioner shall note violations of this administrative regulation after the insurer or agent has been given an opportunity to pay the claim and any interest.

(4) A violation of this administrative regulation shall be found only by the commissioner. This administrative regulation shall not create or imply a private cause of action for violation of this administrative regulation.

Section 3. File and Record Documentation. Each insurer's claim files for policies, certificates, or contracts are subject to examination by the commissioner or the commissioner's designees. To aid in an examination:

(2) The insurer shall maintain documentation in each claim file to permit reconstruction of the insurer's activities relative to each claim.

(3) The insurer shall note each relevant document within the claim file as to date received, date processed, or date mailed.

(4) If an insurer does not maintain hard copy files, claim files shall be accessible to examiners electronically and be capable of duplication to legible hard copy.

Section 4. Misrepresentation of Policy Provisions.

(1) Insurers and agents shall not misrepresent or conceal from first-party claimants any pertinent benefits, coverages, or other provisions of any insurance policy or insurance contract if the benefits, coverages, or other provisions are pertinent to a claim, pursuant to KRS 304.12-230(1).

(2) Insurers shall not deny a claim on the basis of failure to exhibit property unless there is documentation in the claim file of breach of the policy provisions.

(3) Insurers shall not deny a claim based upon the failure of a first-party claimant to give written notice of loss within a specified time limit unless written notice of loss is a written condition in the policy, certificate, or contract and the first-party claimant's failure to give written notice after being requested to do so is so unreasonable as to constitute a breach of the first-party claimant's duty to cooperate with the insurer.

(4) Insurers shall not indicate to a first-party claimant on a payment draft, check, or in an accompanying letter that payment is "final" or "a release" of any claim unless:

(a) The policy limit has been paid; or

(b) There has been a compromise settlement agreed to by the first-party claimant and the insurer as to coverage and amount payable under the policy, certificate, or contract.

(5) Insurers shall not issue checks or drafts in partial settlement of a loss or claim under a specific coverage which contain language which releases the insurer or its insured from total liability.

Section 5. Failure to Acknowledge Pertinent Communications.

(1) Every insurer, upon receiving notification of a claim shall, within fifteen (15) days, acknowledge the receipt of the notice unless payment is made within that period of time. If an acknowledgement is made by means other than writing, an appropriate notation of the acknowledgement shall be made in the claim file of the insurer and dated. Notification given to an agent of an insurer shall be notification to the insurer.

(2) If an insurer receives an inquiry from the Department of Insurance respecting a claim, the insurer shall, within fifteen (15) days of receipt of the inquiry, furnish the Department of Insurance with an adequate response to the inquiry in duplicate.

(3) The insurer shall make an appropriate reply within fifteen (15) days on all other pertinent communications from a claimant which reasonably suggest that a response is expected.

(4) Every insurer, upon receiving notification of claim, shall promptly provide necessary claim forms, instructions, and reasonable assistance to first-party claimants so that they can comply with the policy conditions and the insurer's reasonable requirements. Compliance with this subsection within fifteen (15) days of notification of a claim shall constitute compliance with subsection (1) of this section.

Section 6. Standards for Prompt, Fair, and Equitable Settlements Applicable to All Insurers.

(1)

(a) Except as provided in this subsection, an insurer shall, offer any payment due within thirty (30) calendar days of receipt of proof of loss. If claims involve multiple coverages, payments which are not in dispute shall be tendered within thirty (30) calendar days of receipt of proof of loss.

(b) If there is a reasonable basis, which shall be supported by specific information available for review by the commissioner, that a claimant has fraudulently caused or contributed to the loss, the insurer shall advise the first-party claimant of the acceptance or denial of the claim within a reasonable time for full investigation after receipt by the insurer of a properly executed proof of loss.

(c) If the insurer needs more time to determine whether a first-party claim shall be accepted or denied, it shall notify the first-party claimant within thirty (30) calendar days after receipt of the proofs of loss, giving the reasons more time is needed.

(d) If the investigation remains incomplete, the insurer shall, forty-five (45) calendar days from the date of the initial notification and every forty-five (45) calendar days thereafter, send to the first-party claimant a letter stating the reasons additional time is needed for investigation.

(2) Insurers shall not fail to settle first-party claims on the basis that responsibility for payment shall be assumed by others except as may otherwise be provided by policy provisions.

(3) Insurers shall not continue negotiations for settlement of a claim directly with a first- party claimant who is not legally represented if the first-party claimant's rights may be affected by a statute of limitations or a time limit in a policy, certificate, or contract, unless the insurer has given the first-party claimant written notice of the limitation. The notice shall be given to the first party claimant at least thirty (30) calendar days before the date on which the time limit expires.

(4) Insurers shall not make statements which indicate that the rights of a third-party claimant may be impaired if a form or release is not completed within a given period of time unless the statement is given for the purpose of notifying the third-party claimant of the provision of a statute of limitations.

(5) Subject to subsection (1)(a) of this section relating to first-party claims, insurers shall affirm or deny liability on claims within a reasonable time and shall tender payment within thirty (30) days of affirmation of liability, if the amount of the claim is determined and not in dispute. If claims involve multiple coverages, and if the payee is known, payments which are not in dispute shall be tendered within thirty (30) calendar days.

(6) Insurers shall not request or require any insured to submit to a polygraph examination unless authorized under the applicable policy, certificate, contract, or applicable law.

Section 7. Standards for Prompt, Fair, and Equitable Settlements Applicable to Motor Vehicle Insurance.

(1) If the policy, certificate, or contract provides for the adjustment and settlement of first-party motor vehicle total losses on the basis of actual cash value or replacement with another of like kind and quality, one (1) of the following methods shall apply:

(a) The insurer may elect to offer a replacement motor vehicle, which is an available specific and comparable motor vehicle, to the insured, with all applicable taxes, license fees (if these fees cannot be refunded by the Transportation Cabinet), and other fees incident to transfer of evidence of ownership of the motor vehicle paid, at no cost other than any deductible provided in the policy. The offer, and any rejection thereof, shall be documented in the claim file;

(b) The insurer may elect a cash settlement based upon the actual cost, less any deductible provided in the policy, to purchase a comparable motor vehicle, including all applicable taxes, license fees (if these fees cannot be refunded by the Transportation Cabinet), and other fees incident to transfer of evidence of ownership of a comparable motor vehicle. The actual cost shall be determined by any one (1) of the following:

The cost of a comparable motor vehicle in the local market area if a comparable motor vehicle is available in the local market area;
If a comparable motor vehicle is not available in the local market area, one (1) of two (2) or more quotations obtained by the insurer from two (2) or more qualified and licensed dealers which engage in the buying and selling of comparable motor vehicles in the ordinary course of their business located within the local market area; or
Any source for determining statistically valid fair market values, including nationally-recognized automobile evaluation publications that meet all of the following criteria:

a. The source shall give consideration to the values of vehicles in the local market area and may consider data on vehicles outside the area;

b. The source's database shall produce values for at least eighty-five (85) percent of all makes and models for the last eight (8) model years taking into account the values of all major options for these vehicles;

c. The source shall produce fair market values based on current data available from the local market area where the insured vehicle was principally garaged or a necessary expansion of parameters such as travel time and area to assure statistical validity;

Actual cash value as determined by the use of the source's database shall be adjusted to reflect any value of enhancements to the motor vehicle not accounted for by the database;
If the vehicle's condition does not meet the criteria for value used in the source's database, the actual cash value amount may be adjusted; and
Absent an appraisal provision in the insurance contract, if the insured demonstrates, by presenting two (2) independent appraisals based on measurable and discernable factors, that the vehicle would have a higher cash value in the local market area than the value reflected in the source's database, the local market value shall be considered when determining the actual cash value;

(c) Right of recourse. If the insurer is notified within thirty-five (35) days of the receipt of the settlement check that the insured cannot purchase a comparable motor vehicle for fair market value, as determined under paragraph (b)3. of this subsection, the insurer shall reopen its claim file and comply with the following procedures:

The insurer may locate a comparable motor vehicle by the same manufacturer, same year, similar body style, and similar options and price range for the insured for the fair market value determined by the insurer at the time of settlement. This vehicle shall be available through licensed motor vehicle dealers;
The insurer shall either pay the insured the difference between the fair market value before applicable deductions and the cost of the comparable motor vehicle of like kind and quality which the insured has located or negotiate and effect the purchase of this motor vehicle for the insured; or
The insurer may conclude the loss settlement as prepared for under the appraisal provision of the insurance contract in force at the time of loss. This appraisal shall be considered as binding against both parties, but shall not preclude or waive any other rights either party has under the insurance contract or law; or

(d) If a first-party motor vehicle's total loss is settled on a basis which deviates from the methods described in subsection (1)(a) or (b) of this section, the deviation shall be supported by documentation giving particulars of the motor vehicle's condition. Any deductions from the cost, including deduction for salvage, shall be measurable, discernable, itemized, and specified as to dollar amount and shall be appropriate in amount. The basis for the alternative method of settlement shall be explained fully to the first-party claimant.

(2) The measure of damages in a third-party motor vehicle loss shall be the difference between the fair market value of the motor vehicle immediately before and after the loss, proportioned by the third party's contributory negligence, if any. Repair estimates or appraisers' reports may be used to indicate the difference in fair market value. The measure of damages in a first- party vehicle loss shall be governed by the policy of insurance issued to the first party and shall not include any measure of damages not specifically provided for in the policy.

(3) If liability and damages are reasonably clear, insurers shall not recommend that third-party claimants make claims under their own policies, certificates, or contracts solely to avoid paying claims under the insurers' policies, contracts, or certificates.

(4) Insurers shall not require a claimant to travel an unreasonable distance to inspect a replacement motor vehicle.

(5) If requested by the claimant, insurers shall include the first-party claimant's deductible, if any, in subrogation demands. Subrogation recoveries shall be shared on a proportionate basis with the first-party claimant, unless the deductible amount has been otherwise recovered. Deduction for expenses shall not be made from the deductible recovery unless an outside attorney is retained to collect the recovery. The deduction shall then be for only a pro rata share of the allocated loss adjustment expense.

Section 8. Repairs to Motor Vehicles.

(1)

(a) If losses involving motor vehicle repairs are settled on the basis of a written estimate prepared by or for the insurer, the insurer shall supply the insured a copy of the estimate upon which the settlement is based.

(b) The estimate prepared by or for the insurer shall be reasonable, in accordance with applicable policy provisions, and of an amount which will allow for repairs to be made in a workmanlike manner.

(c) If the insured subsequently claims, based upon a written estimate which the insured obtains, that necessary repairs will exceed the written estimate prepared by or for the insurer, the insurer shall pay the difference between the written estimate and a higher estimate obtained by the insured or promptly provide the insured with the name of at least one (1) repair shop that will make the repairs for the amount of the written estimate. If the insurer designates only one (1) or two (2) repair shops, the insurer shall assure that the repairs are performed in a workmanlike manner. The insurer shall maintain documentation of all of these communications.

(2) If the amount claimed is reduced because of betterment or depreciation, all information for the reduction shall be contained in the claim file. These deductions shall be itemized and specified as to dollar amount and shall be appropriate for the amount of deductions.

(3)

(a) Betterment deductions shall be allowed only if the deductions reflect a measurable decrease in the market value and general overall condition of the motor vehicle.

(b) The deductions set forth in paragraph (a) of this subsection shall be measurable, itemized, specified as to dollar amount, and documented in the claim file.

(4) Insurers shall not require the use of replacement crash parts in the repair of a motor vehicle unless the replacement crash part is at least equal in kind and quality to the part to be replaced in terms of fit, quality, and performance. Insurers specifying the use of replacement crash parts shall consider the cost of any modifications which may be necessary when making the repair.

(5) Insurers shall not require a claimant to travel an unreasonable distance to:

(a) Obtain a repair estimate; or

(b) Have the motor vehicle repaired at a specific repair shop.

Section 9. Standards for Prompt, Fair, and Equitable Settlements Applicable to Fire-and-Extended-Coverage-Type Policies with Replacement Cost Coverage.

(1) If the policy, contract, or certificate authorizes the adjustment and settlement of first-party losses based on replacement cost, the following shall apply:

(a) If a loss requires repair or replacement of an item or part, any consequential physical damage incurred in making the repair or replacement not otherwise excluded by the policy shall be included in the loss. The insured shall not have to pay for betterment nor any other cost to the extent of replacement cost, except for the applicable deductible.

(b) If a loss requires replacement of items and the replaced items do not reasonably match in quality, color, and size, the insurer shall replace all items in the area so as to conform to a reasonably uniform appearance. This applies to interior and exterior losses. The insured shall not bear any cost over the applicable deductible.

(2) Actual cash value.

(a) If the insurance policy provides for the adjustment and settlement of losses on an actual cash value basis on residential fire and extended coverage, the insurer shall determine actual cash value as follows: replacement cost of property at the time of the loss less depreciation, if any. If provided for in the policy, depreciation may include the costs of goods, materials, labor, equipment, overhead and profit, taxes, fees, and services necessary to replace, repair, or rebuild the damaged property. If requested by the insured, the insurer shall provide a copy of the claim file worksheets showing any and all deductions for depreciation.

(b) If the insured's interest is limited because the property has nominal or no economic value, or a value disproportionate to replacement cost less depreciation, the determination of actual cash value as set forth in paragraph (a) of this subsection shall not be required. If requested by the insured, the insurer shall provide a written explanation of the basis for limiting the amount of recovery along with the amount payable under the policy.

History

RELATES TO: KRS 304.2-100, 304.2-165, 304.2-340, 304.3-200(1)(e), 304.12-010, 304.12-220, 304.12-230, 304.12-235, 304.14-400, 304.20-070, 304.20-150 to304.20-180, 342.325
STATUTORY AUTHORITY: KRS 304.2-110
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.2-110 authorizes the Commissioner of Insurance to make reasonable administrative regulations necessary for, or as an aid to, the effectuation of any provision of the Kentucky Insurance Code. This administrative regulation establishes unfair property and casualty insurance claims settlement practices, effectuating KRS 304.3-200(1)(e), 304.12-010, and 304.12-230.
History: 19 Ky.R. 340; Am. 783; 1380; eff. 12-9-92; 28 Ky.R. 709; 1136; eff. 11-12-2001; TAm eff. 8-9-2007; Crt eff. 2-26-2020; 47 Ky.R. 2717; 48 Ky.R. 827; eff. 11-30-2021.

806 KAR 12:110 Merged gender mortality tables for life insurance {#sec-806-kar-12-110 omnilex-key=us-ky-regs-official--title-806--806 KAR 12:110}

Section 1. Definitions. As used in this administrative regulation:

(1) "1980 CSO Table, with or without Ten (10) Year Select Mortality Factor" means that mortality table, consisting of separate rates of mortality for male and female lives, developed by the Society of Actuaries Committee to Recommend New Mortality Tables for Valuation of Standard Individual Ordinary Life Insurance, incorporated in the 1980 NAIC Amendments to the Model Standard Valuation Law and Standard Nonforfeiture Law for Life Insurance, and referred to in those models as the Commissioners 1980 Standard Ordinary Mortality Table, with or without Ten (10) Year Select Mortality Factors.

(3) "1980 CSO Table (F), with or without Ten (10) Year Select Mortality Factors" means that mortality table consisting of the rates of mortality for female lives from the 1980 CSO Table, with or without Ten (10) Year Select Mortality Factors.

(4) "1980 CET Table" means that mortality table consisting of separate rates of mortality for male and female lives, developed by the Society of Actuaries Committee to Recommend New Mortality Tables for Valuation of Standard Individual Ordinary Life Insurance, incorporated in the 1980 NAIC Amendments to the Model Standard Valuation Law and Standard Nonforfeiture Law for Life Insurance, and referred to in those models as the Commissioners 1980 Extended Term Insurance Table.

(5) "1980 CET Table (M)" means that mortality table consisting of the rates of mortality for male lives from the 1980 CET Table.

(6) "1980 CET Table (F)" means that mortality table consisting of the rates of mortality for female lives from the 1980 CET Table.

Section 2. General Rule.

(1) For any policy of insurance on the life of either a male or female insured delivered or issued for delivery in this state after the effective date of KRS 304.15-342 for that policy form:

(a) A mortality table which is a blend of the 1980 CSO Table (M) and the 1980 CSO Table (F) with or without Ten (10) Year Select Mortality Factors may at the option of the company be substituted for the 1980 CSO Table, with or without Ten (10) Year Select Mortality Factors; and

(b) A mortality table which is of the same blend as used in paragraph (a) of this subsection but applied to form a blend of the 1980 CET Table (M) and the 1980 CET Table (F) may at the option of the company be substituted for the 1980 CET Table for use in determining minimum cash surrender values and amounts of paid-up nonforfeiture benefits.

(2) Only the following blended tables as have been adopted by the NAIC may be so used and this administrative regulation formally approves those tables for use in this state.

(a) 100 percent male, zero percent female for tables to be designated as the "1980 CSO-A" and "1980 CET-A" tables.

(b) Eighty (80) percent male, twenty (20) percent female for tables to be designated as the "1980 CSO-B" and "1980 CET-B" tables.

(c) Sixty (60) percent male, forty (40) percent female for tables to be designated as the "1980 CSO-C" and "1980 CET-C" tables.

(d) Fifty (50) percent male, fifty (50) percent female for tables to be designated as the "1980 CSO-D" and "1980 CET-D" tables.

(e) Forty (40) percent male, sixty (60) percent female for tables to be designated as the "1980 CSO-E" and "1980 CET-E" tables.

(f) Twenty (20) percent male, eighty (80) percent female for tables to be designated as the "1980 CSO-F" and "1980 CET-F" tables.

(g) Zero percent male, 100 percent female for tables to be designated as the "1980 CET-G" tables. Tables (a) and (g) are not to be used with respect to policies issued on or after January 1, 1985, except where the proportion of persons insured is anticipated to be ninety (90) percent or more of one (1) sex or the other or except for certain policies converted from group insurance. Such group conversions issued on or after January 1, 1986, must use Mortality Tables based on the blend of lives by sex expected for such policies if such group conversions are considered as extensions of the Norris decision. This consideration has not been clearly defined by judicial or legislative action in all jurisdictions.

(3) No change in minimum valuation standards is implied by this administrative regulation.

Section 3. Unfair Discrimination.

(1) It shall not be a violation of KRS 304.12-085 for an insurer to issue the same kind of policy of life insurance on both a sex distinct and sex neutral basis. However, each such insurer shall establish prior to issue of any such policies which are to be so offered the conditions under which each type will be marketed. Such conditions, together with sufficient information to establish that an unfairly discriminatory condition will not be created, shall be filed with the executive director for his approval.

(2) It shall, however, be a violation of KRS 304.12-085 to substitute the 1980 CSO Table (M) or 1980 CET Table (M) with ages set back (as permitted with the 1958 CSO Table) for the 1980 CSO Table (F) or 1980 CET Table (F).

Section 4. Severability. If any provision of this administrative regulation or the application thereof to any person or circumstance is for any reason held to be invalid, the remainder of the regulation and the application of such provision to other persons or circumstances shall not be affected thereby.

Section 5. Effective Date. This administrative regulation shall become effective upon completion of its review pursuant to KRS Chapter 13A.

History

RELATES TO: KRS 304.12-085, 304.15-342
STATUTORY AUTHORITY: KRS Chapter 13A, 304.2-110, 304.15-342
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.2-110 provides that the Executive Director of Insurance may make reasonable regulations necessary for or as an aid to the effectuation of any provision of the Kentucky Insurance Code. KRS 304.15-342 establishes the use of the 1980 CSO and 1980 CET Tables of Mortality, and provides that any ordinary mortality tables adopted after 1980 by the National Association of Insurance Commissioners (NAIC) may be approved for use in Kentucky by administrative regulation promulgated by the executive director. The NAIC has adopted certain modifications of the 1980 CSO and 1980 CET tables of mortality for use where necessary. This administrative regulation permits individual life insurance policies to provide the same cash surrender values and paid-up nonforfeiture benefits to both men and women.
History: 11 Ky.R. 683; eff. 11-13-84; 13 Ky.R. 2107; eff. 8-5-87; TAm eff. 8-9-2007; Crt eff. 2-26-2020.

806 KAR 12:120 Suitability in annuity transactions {#sec-806-kar-12-120 omnilex-key=us-ky-regs-official--title-806--806 KAR 12:120}

Section 1. Definitions.

(1) "Agent" is defined by KRS 304.9-020(1).

(2) "Annuity" is defined by KRS 304.5-030.

(3) "Cash Compensation" means any discount, concession, fee, service fee, commission, sales charge, loan, override, or cash benefit received by a producer in connection with the recommendation or sale of an annuity from an insurer, intermediary, or directly from the consumer.

(4) "Commissioner" is defined by KRS 304.1-050(1).

(5) "Comparable standards" means:

(a) With respect to broker-dealer and registered representatives of broker-dealers, applicable SEC and FINRA rules pertaining to best interest obligations and supervision of annuity recommendations and sales, including Regulation Best Interest and any amendments or successor regulations thereto;

(b) With respect to investment advisers registered under federal and state securities laws or investment adviser representatives, the fiduciary duties, and all other requirements imposed on investment advisers or investment adviser representatives by contract or under the Investment Advisers Act of 1940, including the Form ADV and interpretations; and

(c) With respect to plan fiduciaries or fiduciaries, means the duties, obligations, prohibitions, and all other requirements attendant to such status under the Employee Retirement Security Act of 1974 (ERISA) or the Internal Revenue Code (IRC) and any amendments or successor statutes thereto.

(6) "Consultant" is defined by KRS 304.9-040.

(7) "Financial professional" means a licensee that is regulated and acting as:

(a) A broker-dealer registered under federal and state securities laws or a registered representative of a broker-dealer;

(b) An investment adviser registered under federal and state securities laws or an investment adviser representative associated with the federal and state registered investment adviser; or

(c) A plan fiduciary under Section 3(21) of the ERISA or fiduciary under Section 4975 (e)(3) of the IRC or any amendments or successor statutes thereto.

(8) "FINRA" means the Financial Industry Regulatory Authority or a succeeding agency.

(9) "Insurance producer" is defined by KRS 304.9-020(10).

(10) "Insurer" is defined by KRS 304.1-040.

(11) "Intermediary" means an entity contracted directly with an insurer or with another entity contracted with an insurer to facilitate the sale of the insurer's annuities by producers.

(12) "Licensee" means agent, or an insurer if an agent is not involved, and consultant.

(13) "Material conflict of interest" means a financial interest of the producer in the sale of an annuity that a reasonable person would expect to influence the impartiality of a recommendation but does not include cash compensation or non-cash compensation.

(14) "Non-cash compensation" means any form of compensation that is not cash compensation.

(15) "Nonguaranteed elements" means the premium, credited interest rates including bonus, benefits, values, dividends, non-interest based credits, charges, or elements of formulas used to determine any of these, that are subject to company discretion and are not guaranteed at issue. An element shall be considered nonguaranteed if any of the underlying nonguaranteed elements are used in its calculation.

(16)

(a) "Recommendation" means advice provided by a licensee to an individual consumer that results in a purchase, exchange, or replacement of an annuity in accordance with that advice.

(b) Recommendation shall not include general communication to the public, generalized customer services assistance or administrative support, general educational information and tools, prospectuses, or other product and sales material.

(17) "Replacement" is defined by KRS 304.12-030(1)(a).

(18) "SEC" means the United States Securities and Exchange Commission.[

Section 2. Exemptions. This administrative regulation shall not apply to recommendations involving:

(1) Direct response solicitations without a recommendation based on information collected from the consumer pursuant to this administrative regulation; or

(2) Contracts used to fund:

(a) An employee pension or welfare benefit plan covered by the Employee Retirement and Income Security Act (ERISA), codified as 29 U.S.C. 1001 to 1461;

(b) A plan described by 26 U.S.C. 401(a), 401(k), 403(b), 408(k), or 408(p), as amended, if established or maintained by an employer;

(c) A governmental or church plan defined in 26 U.S.C. 414, a government or church welfare benefit plan, or a deferred compensation plan of a state or local government or tax exempt organization under 26 U.S.C. 457;

(d) A nonqualified deferred compensation arrangement established or maintained by an employer or plan sponsor;

(e) Settlements of or assumptions of liabilities associated with personal injury litigation or any dispute or claim resolution process; or

(f) Prepaid funeral contracts.

Section 3. Duties of Insurers and Licensees.

(1) Obligations . A licensee, when making a recommendation of an annuity, shall act in the best interest of the consumer under the circumstances known at the time the recommendation is made, without placing the licensee's or the insurer's financial interest ahead of the consumer's interest and does so by satisfying the following obligations regarding care, disclosure, conflict of interest and documentation.

(a)

Care obligation. The licensee, in making a recommendation, shall exercise reasonable diligence, care, and skill to:

a. Know the consumer's financial situation, insurance needs, and financial objectives;

b. Understand the available recommendation options after making a reasonable inquiry into options available to the licensee;

c. Have a reasonable basis to believe the recommended option effectively addresses the consumer's financial situation, insurance needs, and financial objectives over the life of the product, as evaluated in light of the consumer profile information; and

d. Communicate the basis or bases of the recommendation.

a. The requirements under subparagraph 1. of this paragraph shall include at a minimum, the following information to determine whether a recommendation addresses the consumer's financial situation, insurance needs, and financial objectives making reasonable efforts to obtain consumer profile information from the consumer prior to the recommendation of an annuity.

b. Consumer profile information shall include:

(i) Age;

(ii) Annual Income;

(iii) Financial situation and needs, including debts and other obligations;

(iv) Financial experience;

(v) Insurance needs;

(vi) Financial objectives;

(vii) Intended use of the annuity;

(viii) Financial time horizon;

(ix) Existing assets or financial products, including investment, annuity, and insurance holdings;

(x) Liquidity needs;

(xi) Liquid net worth;

(xii) Risk tolerance, including willingness to accept nonguaranteed elements in the annuity;

(xiii) Financial resources used to fund the annuity; and

(xiv) Tax status.

a. The requirements under subparagraph 1. of this paragraph shall require a licensee to consider the types of products the licensee is authorized and licensed to recommend or sell that address the consumer's financial situation, insurance needs, and financial objectives.

b. The requirements under subparagraph 1. of this paragraph shall not require analysis or consideration of any products outside the authority and license of the licensee or other possible alternative products or strategies available in the market at the time of the recommendations.

The requirements under paragraph (a) of this subsection shall not create a fiduciary obligation or relationship and shall only create a regulatory obligation as established in this administration regulation.

a. Factors relevant in making a determination whether an annuity effectively addresses the consumer's financial situation, insurance needs, and financial objectives shall include:

(i) Consumer profile information;

(ii) Characteristics of the insurer; and

(iii) Product costs, rates, benefits, and features.

b. The level of importance of each factor under the care obligation of this paragraph may vary depending on the facts and circumstances of a particular case;

c. Factors shall not be considered in isolation.

The requirements under paragraph (a) of this subsection shall include having a reasonable basis to believe the consumer would benefit from certain features of the annuity, such as annuitization, death or living benefit, or other insurance-related features.
The requirements under paragraph (a) of this subsection shall apply to the particular annuity as a whole and the underlying subaccount to which funds are allocated at the time of purchase or exchange of an annuity, and riders and similar product enhancements, if any.
The requirements under paragraph (a) of this subsection shall not mean the annuity with the lowest one-time or multiple occurrence compensation structure shall necessarily be recommended.
The requirements under paragraph (a) of this subsection shall not mean the licensee has ongoing monitoring obligations. An obligation may be separately owed under the terms of a fiduciary, consulting, investment advising, or financial planning agreement between the consumer and the licensee.
In the case of an exchange or replacement of an annuity, the licensee shall consider the whole transaction, which shall include taking into consideration whether:

a. The consumer will incur a surrender charge, be subject to the commencement of a new surrender period, lose existing benefits, such as death, living, or other contractual benefits, or be subject to increased fees, investment advisory fees, or charges for riders and similar product enhancements;

b. The replacing product would substantially benefit the consumer in comparison to the replaced product over the life of the product; and

c. The consumer had another annuity exchange or replacement and, in particular, an exchange or replacement within the preceding sixty (60) months.

If the licensee does not give advice or provide services that are otherwise subject to securities laws or engage in any other activity requiring other professional licenses, this administrative regulation shall not be construed to require a licensee to obtain any license other than a license with the appropriate line of authority to sell, solicit, or negotiate insurance in this state, including any securities license, in order to fulfill the duties and obligations contained in this administrative regulation.

(b) Disclosure obligation.

Prior to the recommendation or sale of an annuity, the licensee shall prominently disclose to the consumer on a form substantially similar to "Insurance Agent (Producer) Disclosure For Annuities":

a. A description of the scope and terms of the relationship with the consumer and the role of the licensee in the transaction;

b. An affirmative statement on whether the licensee is licensed and authorized to sell the following products:

(i) Fixed annuities;

(ii) Fixed indexed annuities;

(iii) Variable annuities;

(iv) Life insurance;

(v) Mutual funds;

(vi) Stocks and bonds; and

(vii) Certificates of deposit;

c. An affirmative statement describing the insurers for which the licensee is authorized, contracted or appointed, or otherwise able to sell insurance products using the following descriptions:

(i) From one (1) insurer;

(ii) From two (2) or more insurers; or

(iii) From two (2) or more insurers although primarily contracted with one (1) insurer.

d. A description of the sources and types of cash compensation and non-cash compensation to be received by the licensee, including whether the licensee is to be compensated for the sale of a recommended annuity by commission as part of premium or other remuneration received from the insurer, intermediary, or other licensee, or by fee as a result of a contract for advice or consulting services; and

e. A notice of the consumer's right to request additional information regarding cash compensation described in subparagraph 2. of this paragraph;

Upon request of the consumer or the consumer's designated representative, the licensee shall disclose:

a. A reasonable estimate of the amount of cash compensation to be received by the licensee, which may be stated as a range of amounts or percentages; and

b. Whether the cash compensation is a one-time or multiple occurrence amount, and if a multiple occurrence amount, the frequency and amount of the occurrence, which may be stated as a range of amounts or percentages.

Prior to or at the time of the recommendation or sale of an annuity, the licensee shall have a reasonable basis to believe:

a. The consumer has been informed of various features of the annuity, including:

(i) The potential surrender period and surrender charge;

(ii) Potential tax penalty if the consumer sells, exchanges, surrenders, or annuitizes the annuity;

(iii) Mortality and expense fees;

(iv) Investment advisory fees;

(v) Potential charges for and features of riders or other options of the annuity;

(vi) Limitations on interest returns, potential changes in nonguaranteed elements of the annuity, insurance, and investment components;

(vii) Market risk; and

(viii) Annual fees.

(c) Conflict of interest obligation. A licensee shall identify and avoid or reasonably manage and disclose material conflicts of interest, including material conflicts of interest related to an ownership interest.

(d) Documentation obligation. A licensee shall at the time of recommendation or sale:

Make a written record of any recommendation and the basis for the recommendation subject to this regulation;
Obtain a consumer signed statement on a form substantially similar to "Consumer Refusal To Provide Information" documenting:

a. A consumer's refusal to provide the consumer profile information, if any; and

b. A consumer's understanding of the ramifications of not providing his or her consumer profile information or providing insufficient consumer profile information; and

Obtain a consumer signed statement on a form substantially similar to "Consumer Decision To Purchase An Annuity NOT Based On A Recommendation" acknowledging the annuity transaction is not recommended if a consumer decides to enter into an annuity transaction that is not based on the licensee's recommendation.[

(e)

Application of the best interest obligation. A requirement applicable to a licensee under this subsection shall apply to every licensee who has exercised material control or influence in the making of a recommendation and has received direct compensation as a result of the recommendation or sale, regardless of whether the licensee has had any direct contact with the consumer.
Activities providing or delivering marketing or educational materials, product wholesaling or other back office product support, and general supervision of a licensee shall not constitute material control or influence.

(2) Transactions not based on a recommendation.

(a) Except as provided under paragraph (b) of this subsection, the licensee shall not have an obligation to a consumer under this subsection or subsection (1)(a) of this section related to an annuity transaction if:

A consumer refuses to provide relevant consumer profile information requested by the licensee and the annuity transaction is not recommended;
A consumer decides to enter into an annuity transaction not based on a recommendation of the licensee;
A recommendation was made and was later found to have been prepared based on materially inaccurate information provided by the consumer; or
No recommendation is made.

(b) An insurer's issuance of an annuity subject to paragraph

(c) of this subsection shall be reasonable under all the circumstances actually known to the insurer at the time the annuity is issued.

(3)

(a) Except as permitted under subsection (2) of this section, an insurer shall not issue an annuity recommended to a consumer unless there is a reasonable basis to believe the annuity would effectively address the particular consumer's financial situation, insurance needs, and financial objectives based on the consumer's consumer profile information.[

(b) An insurer shall establish and maintain a system that is reasonably designed to achieve a licensee's compliance with this administrative regulation, including the following:

The insurer shall establish and maintain reasonable procedures to inform its licensees of the requirements of this administrative regulation and shall incorporate the requirements of this administrative regulation into relevant licensee training manuals.
The insurer shall establish and maintain standards for licensee product training and shall establish and maintain reasonable procedures to require its licensees to comply with the requirements of Section 4 of this administrative regulation.
The insurer shall provide product-specific training and training materials that explain all material features of its annuity products to its licensees.
The insurer shall establish and maintain procedures for the review of each recommendation, prior to issuance of an annuity, that are designed to ensure there is a reasonable basis to determine that the recommended annuity would effectively address the particular consumer's financial situation, insurance needs, and financial objectives.

a. The review procedures may apply a screening system for the purpose of identifying selected transactions for additional review and may be accomplished electronically or through other means including physical review.

b. The electronic or other system for review procedures may be designed to require additional review only of those transactions identified for additional review by the selection criteria.

The insurer shall establish and maintain reasonable procedures to detect recommendations that are not in compliance with subsections (1), (2), (4), and (5) of this section. .] This may include confirmation of the consumer's consumer profile information, systematic customer surveys, licensee and consumer interviews, confirmation letters, licensee statements or attestations, and programs of internal monitoring. An insurer may comply with this subparagraph by applying sampling procedures, or by confirming the consumer profile information or other required information under this section after issuance or delivery of the annuity.
The insurer shall establish and maintain reasonable procedures to assess, prior to or upon issuance or delivery of an annuity, if a licensee has provided to the consumer the information required to be provided under this section.
The insurer shall establish and maintain reasonable procedures to identify and address suspicious consumer refusals to provide consumer profile information.
The insurer shall establish and maintain reasonable procedures to identify and eliminate any sales contests, sales quotas, bonuses, and non-cash compensation that are based on the sales of specific annuities within a limited period of time. The requirements of this subparagraph shall not prohibit the receipt of health insurance, office rent, office support, retirement benefits, or other employee benefits by employees as long as those benefits are not based upon the volume of sales of a specific annuity within a limited period of time.
The insurer shall annually provide a written report to senior management, including to the senior manager responsible for audit functions, which details a review, with appropriate testing, reasonably designed to determine the effectiveness of the supervision system, the exceptions found, and corrective action taken or recommended, if any.

(c)

An insurer may contract for performance of a function, including maintenance of procedures, required under subsection (3) of this subsection.
An insurer's supervision system under this subsection shall include supervision of contractual performance under this subsection. This shall include the following:

a. Monitoring and, as appropriate, conducting audits to assure that the contracted function is properly performed; and

b. Annually obtaining a certification from a senior manager who has responsibility for the contracted function that the manager represents, that the function is properly performed; and

If an insurer contracts for performance of a function and supervises the performance of the contract in accordance with subparagraph (c)2. of this section, the insurer shall remain responsible for taking appropriate corrective action and may be subject to sanctions and penalties pursuant to Section 5 of this administrative regulation.

(d)

An insurer shall not be required to include in its system of supervision a licensee's recommendations to consumers of products other than the annuities offered by the insurer; or
Include consideration of or comparison to options available to the licensee or compensation relating to those options other than annuities or other products offered by the insurer.

(4) Prohibited practices. A licensee or an insurer shall not attempt to influence a consumer from:

(a) Truthfully responding to an insurer's request for confirmation of the consumer profile information;

(b) Filing a complaint; or

(5)

(a)

Safe Harbor. Recommendations and sales of annuities made in compliance with comparable standards shall satisfy the requirements under this administrative regulation.
This subsection shall apply to all recommendations and sales of annuities made by financial professionals in compliance with business rules, controls, and procedures that satisfy a comparable standard even if the standard would not otherwise apply to the product or recommendation at issue
This subsection shall not limit the commissioner's ability to investigate and enforce the provisions of this administrative regulation.

(b) Nothing in paragraph (a) of this subsection shall limit the insurer's obligation to comply with subsection (3)(a) of this section, although the insurer may base its analysis on information received from either the financial professional or the entity supervising the financial professional.

Monitor the relevant conduct of the financial professional seeking to rely on paragraph (a) of this subsection or the entity responsible for supervising the licensee, such as the licensee's broker-dealer or investment adviser registered under federal securities laws using information collected in the normal course of an insurer's business; and
Provide to the entity responsible for supervising the licensee seeking to rely on paragraph (a) of this subsection, such as the financial professionals broker-dealer or investment adviser registered under federal securities laws, information and reports that are reasonably appropriate to assist the entity to maintain its supervision system.

(6) The requirements of this section are intended to supplement and not replace the disclosure requirements in 806 KAR 12:150.

Section 4. Licensee Training.

(1) An agent shall not sell, solicit, or negotiate an annuity product unless the agent has adequate knowledge of the product to recommend the annuity and completed training in accordance with 806 KAR 9:025

(2) A consultant shall not advise an individual regarding an annuity unless the consultant has adequate knowledge of the product to recommend the annuity and completed the training in accordance with 806 KAR 9:025 .

(3) A licensee shall maintain records documenting compliance with the training requirements in subsection (1) and (2) of this section, which shall be available:

(a) To the department, if requested; and

(b) For a period not less than five (5) years.

(4) An insurer shall verify that an agent has completed the annuity training course required under this subsection before allowing the agent to sell an annuity product for that insurer.

Section 5. Mitigation of Responsibility.

(1) An insurer shall be responsible for compliance with this administrative regulation. If a violation occurs, due to the action or inaction of the insurer or its licensee, the commissioner may require:

(a) An insurer to take appropriate corrective action for any consumer harmed by a failure to comply with this regulation by the insurer, an entity contracted to perform the insurer's supervisory duties, or by its licensees ;

(b) A licensee [a to take appropriate corrective action for any consumer harmed by the licensee's violation of this administrative regulation; or

(c) A supervising licensee that employs or contracts with another licensee to sell, or solicit the sale, of annuities to consumers, to take appropriate corrective action for any consumer harmed by the licensee's violation of this administrative regulation;

(2) The commissioner may require a consultant to take appropriate corrective action for any consumer harmed by the consultant's violation of this administrative regulation.

(3) Any applicable penalty under KRS 304.99-020 for a violation of this administrative regulation may be reduced or eliminated, if corrective action for the consumer is taken promptly after a violation is discovered.

Section 6. Recordkeeping. Licensees shall maintain records of the information collected from the consumer, disclosure made to the consumer, including summaries of oral disclosures, and other information used in making the recommendations that were the basis for insurance transactions in accordance with KRS 304.9-390 and 806 KAR 2:070. An insurer may maintain documentation on behalf of a licensee.

Section 7. Effective Date. The requirements of this administrative regulation shall not be implemented or enforced prior to the effective date, determined pursuant to KRS 13A.330, or January 1, 2022 , whichever is later.

Section 8. Scope. This administrative regulation shall not create or imply a private cause of action for violation of this administrative regulation.

Section 9. Material Incorporated by Reference.

(1) The following material is incorporate by reference:

(a) "Insurance Agents (Producer) Disclosure For Annuities", (7/2020);

(b) "Consumer Refusal To Provide Information", (7/2020); and

History

RELATES TO: KRS 304.1-040, 304.5-030, 304.9-020(1), 304.9-025, 304.9-040, 304.9-390, 304.12-010, 304.12-030(1)(a), 304.99-020, 26 U.S.C. 401, 403, 408, 414, 457, 29 U.S.C. 1001-1461
STATUTORY AUTHORITY: KRS 304.2-110
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.2-110(1) authorizes the Commissioner of Insurance to promulgate administrative regulations necessary for or as an aid to the effectuation of any provision of the Kentucky Insurance Code, KRS Chapter 304. This administrative regulation requires licensees to act in the best interest of the consumer when making a recommendation of an annuity and to require insurers to establish and maintain a system to supervise recommendations so that the insurance needs and financial objectives of consumers at the time of the transaction are effectively addressed.
History: 33 Ky.R. 4292; 34 Ky.R. 286; 728; eff. 11-2-2007; 37 Ky.R. 2754; 38 Ky.R. 44; eff. 9-2-2011; TAm eff. 4-10-2012; Crt eff. 2-26-2020; 47 Ky.R. 815, 1604; 48 Ky.R. 1144; eff. 1-4-2022.

806 KAR 12:131 Requirements for disclosure for life insurance and annuity contracts used to fund preneed funeral contracts or prearrangements {#sec-806-kar-12-131 omnilex-key=us-ky-regs-official--title-806--806 KAR 12:131}

Section 1. Definitions. As used in this administrative regulation: "Preneed funeral contract or prearrangement" shall have the meaning set forth in KRS 304.12-240.

Section 2. Required Disclosure. If a life insurance or annuity contract is to be used to fund a preneed funeral contract or prearrangement, the following information shall be disclosed adequately when an application is made for such life insurance or annuity contract prior to acceptance of the applicant's initial premium or deposit:

(1) The fact that a life insurance or annuity contract is involved or is being used to fund a preneed funeral contract or prearrangement;

(2) The nature of the relationship among the soliciting agent or agents, the provider of the funeral or cemetery merchandise or services, the administrator, and any other person;

(3) The relationship of the life insurance or annuity contract to the funding of the preneed funeral contract or prearrangement and the nature and existence of any guarantees relating to the preneed funeral contract or prearrangement;

(4) The impact on the prearrangement of:

(a) Changes in the life insurance policy, including, but not limited to, changes in the assignment, beneficiary designation, or use of the proceeds;

(b) Penalties to be incurred by the contract holder as a result of failure to make premium payments; and

(c) Penalties to be incurred or monies to be received as a result of cancellation or surrender of the life insurance or annuity contract;

(5) A list of the merchandise and services which are applied or contracted for in the preneed funeral contract or prearrangement and all relevant information concerning the price of the funeral services, including an indication that the purchase price is either guaranteed at the time of purchase or to be determined at the time of need;

(6) An explanation of any entitlements or obligations which arise if there is a difference between the proceeds of the life insurance or annuity contract and the amount actually needed to fund the preneed funeral contract or prearrangement; and

(7) Any penalties or restrictions, regarding either geographic restrictions or constraints or the inability of the provider of funeral goods or services to perform, on the delivery of merchandise, services, or the prearrangement guarantee.

History

RELATES TO: KRS 304.12-020, 304.12-240
STATUTORY AUTHORITY: KRS 304.2-110, 304.12-240
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.2-110 authorizes the Executive Director of Insurance to adopt administrative regulations necessary for or as an aid to the effectuation of any provision of the Kentucky Insurance Code. This administrative regulation establishes disclosure requirements for life insurance or annuity contracts which are used to fund preneed funeral contracts or prearrangements.
History: 17 Ky.R. 2579; Am. 2949; eff. 4-5-91; TAm eff. 8-9-2007; Crt eff. 2-26-2020.

806 KAR 12:140 Life insurance illustrations {#sec-806-kar-12-140 omnilex-key=us-ky-regs-official--title-806--806 KAR 12:140}

Section 1. Definitions.

(1) "Actuarial Standards Board" means the board established by the American Academy of Actuaries to develop and promulgate standards of actuarial practice.

(2) "Agent" is defined by KRS 304.9-020(1).

(3) "Basic illustration" means a ledger or proposal used in the sale of a life insurance policy that shows both guaranteed and non-guaranteed elements and is given to the applicant or policy owner no later than the time of delivery of the policy.

(4) "Contract premium" means the gross premium required to be paid under a fixed premium policy, including the premium for a rider for which benefits are shown in the illustration.

(5) "Currently payable scale" means a scale of non-guaranteed elements in effect for a policy form as of the preparation date of the illustration or declared to become effective within the next ninety-five (95) days.

(6) "Disciplined current scale" means a scale of non-guaranteed elements constituting a limit on illustrations currently being illustrated by an insurer that is reasonably based on actual recent historical experience.

(7) "Executive director" is defined by KRS 304.1-050(1).

(8) "Generic name" means a short title descriptive of the policy being illustrated.

(9) "Guaranteed elements" means the premiums, benefits, values, credits or charges under a policy of life insurance that are guaranteed and determined at issue.

(10) "Illustrated scale" means a scale of non-guaranteed elements currently being illustrated and not more favorable to the policy owner than the lesser of:

(a) The disciplined current scale; or

(b) The currently payable scale.

(11) "Illustration" means a presentation or depiction that includes non-guaranteed elements of a policy of life insurance over a period of years and that is either a basic illustration, supplemental illustration, or in force illustration.

(12) "Illustration actuary" means an actuary meeting the requirements of Section 12 of this administrative regulation who certifies to illustrations based on the standard of practice promulgated by the Actuarial Standards Board.

(13) "In force illustration" means an illustration furnished after the policy has been in force for one (1) year or more.

(14) "Lapse-supported illustration" means an illustration of a policy form failing the test of self-supporting illustration, under a modified persistency rate assumption using persistency rates underlying the disciplined current scale for the first five (5) years and 100 percent policy persistency thereafter.

(15) "Minimum assumed expenses" means the minimum expenses that may be used in the calculation of the disciplined current scale for a policy form.

(16) "Nonguaranteed elements" means the premiums, benefits, values, credits, or charges under a policy of life insurance that are not guaranteed or not determined at issue.

(17) "Nonterm group life" means a group policy or individual policies of life insurance issued to members of an employer group or other permitted group if:

(a) Every plan of coverage was selected by the employer or other group representative;

(b) Some portion of the premium is paid by the group or through payroll deduction; and

(18) "Policy owner" means the owner named in the policy or the certificate holder in the case of a group policy.

(19) "Premium outlay" means the amount of premium assumed to be paid by the policy owner or other premium payer out-of-pocket.

(20) "Self-supporting illustration" means an illustration of a policy form for which it shall be demonstrated that, if using experience assumptions underlying the disciplined current scale, for all illustrated points in time on or after the 15th policy anniversary or the 20th policy anniversary for second-or-later-to-die policies or upon policy expiration if sooner, the accumulated value of all policy cash flows equals or exceeds the total policy owner value available.

(21) "Supplemental illustration" means an illustration furnished in addition to a basic illustration.

Section 2. Applicability and Scope. This administrative regulation shall apply to all group and individual life insurance policies sold and certificates issued on or after the effective date of this administrative regulation except:

(1) Variable life insurance;

(2) Individual and group annuity contracts;

(3) Credit life insurance; and

(4) Life insurance policies, if illustrated death benefits on any individual do not exceed 10,000 dollars at any time.

Section 3. Disciplined Current Scale.

(1) A disciplined current scale shall be certified annually by an illustration actuary designated by the insurer.

(2) Further guidance in determining the disciplined current scale as contained in standards established by the Actuarial Standards Board may be relied upon if the standards:

(a) Are consistent with this administrative regulation;

(b) Limit a disciplined current scale to reflect only actions that have already been taken or events that have already occurred;

(c) Do not permit a disciplined current scale to include projected trends of improvements in experience or assumed improvements in experience beyond the illustration date; and

(d) Do not permit assumed expenses to be less than minimum assumed expenses.

Section 4. Minimum Assumed Expenses.

(1) Each year, the insurer shall choose to designate the method of determining assumed expenses for all policy forms from the following:

(a) Fully allocated expenses;

(b) Marginal expenses; and

(c) A generally recognized expense table based on fully allocated expenses representing a significant portion of insurance companies.

(2)

(a) Marginal expenses may be used only if they are greater than a generally recognized expense table.

(b) If an approved and generally recognized expense table is unavailable, fully allocated expenses shall be used.

Section 5. Self-supporting Illustration. For a self-supporting illustration, the policy owner value shall include cash surrender values and other illustrated benefit amounts available at the policy owner's election.

Section 6. Supplemental Illustration. A supplemental illustration may be presented in a format differing from the basic illustration, but shall only depict a scale of nonguaranteed elements permitted in a basic illustration.

Section 7. Policies to Be Illustrated.

(1) Each insurer marketing policies to which this administrative regulation applies shall notify the executive director as to whether a policy form is to be marketed with or without an illustration.

(a)

For policy forms actively marketed on the effective date of this administrative regulation, the insurer shall identify in writing those forms and whether or not an illustration will be used with them.
Written identification shall be submitted to the executive director on or before April 1, 2008.

(b)

For policy forms filed after the effective date of this administrative regulation, the identification shall be made with submission of the policy form.
Previous identification may be changed by notice to the executive director.

(2) If the insurer identifies a policy as one to be marketed without an illustration, any use of an illustration for a policy using that form prior to the first policy anniversary shall be prohibited.

(3) If a policy form is identified by the insurer as one to be marketed with an illustration, a basic illustration prepared in accordance with this administrative regulation and delivered no later than the time of delivery of the policy shall be required.

(a) A basic illustration shall not be required to be provided to individual members of a group or to individuals insured under multiple lives coverage issued to a single applicant unless the coverage is marketed to these individuals.

(b) The illustration furnished to an applicant for a group life insurance policy or policies issued to a single applicant on multiple lives may be either:

An individual or composite illustration representative of the coverage on the lives of members of the group; or
An individual or composite illustration representative of the multiple lives covered.

(4)

(a) Potential enrollees of a nonterm group life insurance policy subject to this administrative regulation shall be furnished a quotation with the enrollment materials.

(b) The quotation shall show potential policy values for sample ages and policy years on a guaranteed and nonguaranteed basis appropriate to the group and the coverage.

(c) The quotation shall not be considered an illustration for purposes of this administrative regulation, but information provided shall be consistent with the illustrated scale.

(d) A basic illustration shall be provided at delivery of the certificate to enrollees for a non-term group life insurance policy who enroll for more than the minimum premium necessary to provide pure death benefit protection.

(e) An insurer shall make a basic illustration available to an enrollee of a non-term group life insurance policy upon request of the enrollee.

Section 8. General Rules and Prohibitions.

(1) An illustration used in the sale of a life insurance policy shall:

(a) Satisfy the applicable requirements of this administrative regulation;

(b) Be clearly labeled "life insurance illustration"; and

Name of insurer;
Name and business address of the agent, if any;
Name, age, and gender of the proposed insured, unless a composite illustration is permitted pursuant to subsection (3)(b) of this section;
Underwriting, rating, or rating classification upon which the illustration is based;
Generic name of the insurance policy; the company product name, if different; and the form number;
Initial death benefit; and
Dividend option election or application of non-guaranteed elements, if applicable.

(2) If an insurer or its agents uses an illustration in the sale of a life insurance policy, the insurer or its agents shall not:

(a) Represent the policy as anything other than a life insurance policy;

(b) Use or describe nonguaranteed elements in a manner that is misleading or has the capacity to mislead;

(d) Use an illustration that does not comply with the requirements of this administrative regulation;

(e) Use an illustration that depicts policy performance at any policy duration more favorable to the policy owner than the policy performance produced by the insurer's illustrated scale;

(f) Provide an incomplete illustration;

(g) Represent that premium payments shall not be required for each year of the policy in order to maintain the illustrated death benefits, except for policies that do not require premium payments for each year of the policy in order to maintain the illustrated death benefit;

(h) Use the term "vanish" or "vanishing premium," or a similar term that implies that the policy becomes paid up to describe a plan for using non-guaranteed elements to pay a portion of future premiums;

(i) Use a lapse-supported illustration, except for policies that can never develop nonforfeiture values; or

(j) Use an illustration that is not a self-supporting illustration.

(3) If an interest rate used to determine the illustrated nonguaranteed elements is shown, it shall not be greater than the earned interest rate underlying the disciplined current scale.

Section 9. Standards for Basic Illustrations.

(1) A basic illustration shall conform with the format requirements established in this subsection.

(a) The illustration shall include the date on which it was prepared.

(b) Each page, including any explanatory notes or pages, shall be numbered and show its relationship to the total number of pages in the illustration.

(d) If the age of the proposed insured is shown as a component of the tabular detail, the age shall be issue age plus the number of years the policy is assumed to have been in force.

(e)

The assumed payments on which the illustrated benefits and values are based shall be identified as premium outlay or contract premium, as applicable.
For policies that do not require a specific contract premium, the illustrated payments shall be identified as premium outlay.

(f) Guaranteed death benefits and values available upon surrender, if any, for the illustrated premium outlay or contract premium shall be shown and clearly labeled "guaranteed".

(g) If the illustration shows any nonguaranteed elements, the elements shall:

Not be based on a scale more favorable to the policy owner than the insurer's illustrated scale at any duration; and
Be clearly labeled "nonguaranteed".

(h) Any guaranteed elements shall be shown before corresponding non-guaranteed elements and shall be specifically referred to on any page of an illustration that shows or describes only the non-guaranteed elements.

(i) The account or accumulation value of a policy, if shown, shall be identified by the name this value is given in the policy being illustrated and shown in close proximity to the corresponding value available upon surrender.

(j) The value available upon surrender shall be identified by the name this value is given in the policy being illustrated and shall be the amount available to the policy owner in a lump sum after deduction of surrender charges, policy loans and policy loan interest, as applicable.

(k) Illustrations may show policy benefits and values in graphic or chart form in addition to the tabular form.

(l) An illustration of nonguaranteed elements shall be accompanied by a statement indicating that:

The benefits and values shall not be guaranteed;
The assumptions on which they shall be based are subject to change by the insurer; and
Actual results may be more or less favorable.

(m) If the applicant plans to use dividends or policy values, guaranteed or nonguaranteed, to pay all or a portion of the contract premium or policy charges, or for any further purpose, the illustration may reflect those plans and the impact on future policy benefits.

(n)

If the illustration shows that the premium payor may have the option to allow policy charges to be paid using dividends or another non-guaranteed value, the illustration shall clearly disclose that a charge continues to be required and that, depending on actual results, the premium payor may need to continue or resume premium outlays.
Similar disclosure as that required by subparagraph 1 of this paragraph shall be made for premium outlay of lesser amounts or shorter durations than the contract premium.
If a contract premium is due, the premium outlay display shall not be left blank or show zero unless accompanied by an asterisk or similar mark to draw attention to the fact that the policy is not paid up.

(2) A basic illustration shall include a narrative summary that includes the following:

(a) A brief description of the policy being illustrated, including a statement that it is a life insurance policy;

(b) A brief description of the premium outlay or contract premium, as applicable, for the policy. For a policy that does not require payment of a specific contract premium, the illustration shall show the premium outlay that shall be paid to guarantee coverage for the term of the contract, subject to maximum premiums allowable to qualify as a life insurance policy under the applicable provisions of the Internal Revenue Code;

(c) A brief description of policy features, riders or options, guaranteed or nonguaranteed, shown in the basic illustration and the impact they may have on the benefits and values of the policy;

(d) Identification and a brief definition of column headings and key terms used in the illustration; and

(e) A statement containing the following: "This illustration assumes that the currently illustrated non-guaranteed elements will continue unchanged for all years shown. This is not likely to occur, and actual results may be more or less favorable than those shown."

(3)

(a) Following the narrative summary, a basic illustration shall include a numeric summary of the death benefits and values and the premium outlay and contract premium, as applicable.

(b) For a policy that provides for a contract premium, the guaranteed death benefits and values shall be based on the contract premium.

(c)

The summary required by paragraph (a) of this subsection for a policy that provides for a contract premium shall be shown for at least policy years five (5), ten (10), and twenty (20) and age seventy (70), if applicable, for the bases established in paragraph (e) of this subsection.
If coverage will cease prior to policy maturity or age 100, the year in which coverage will cease shall also be shown.

(d)

The summary required by paragraph (a) of this subsection for multiple life insurance policies shall show policy years five (5), ten (10), and twenty (20), and thirty (30) for each of the bases established in paragraph (e) of this subsection.
If coverage will cease prior to policy maturity or age 100, the year in which coverage will cease shall also be shown.

(e) The bases that shall be illustrated shall include:

Policy guarantees;
Insurer's illustrated scale; and
Insurer's illustrated scale with the non-guaranteed elements reduced as follows:

a. Dividends at fifty (50) percent of the dividends contained in the illustrated scale used;

b. Nonguaranteed credited interest at rates that are the average of the guaranteed rates and the rates contained in the illustrated scale used; and

c. All nonguaranteed charges, including term insurance charges, mortality, and expense charges at rates that are the average of the guaranteed rates and the rates contained in the illustrated scale used.

(4) Statements substantially similar to the following shall be included on the same page as the numeric summary and signed by the applicant, or the policy owner if an illustration is provided upon delivery of the policy.

(a) A statement to be signed and dated by the applicant or policy owner shall be as follows: "I have received a copy of this illustration and understand that any nonguaranteed elements illustrated are subject to change and may be either higher or lower. The agent has told me they are not guaranteed."

(b) A statement to be signed and dated by the agent shall be as follows: "I certify that this illustration has been presented to the applicant and that I have explained that any nonguaranteed elements illustrated are subject to change. I have not made statements that are inconsistent with the illustration."

(5)

(a) A basic illustration shall include the following tabular detail for at least each policy year from one (1) to ten (10) and for every fifth policy year thereafter ending at age 100, policy maturity, or final expiration and, except for term insurance beyond the 20th year, for any year in which the premium outlay and contract premium, if applicable, will change:

The premium outlay and the mode the applicant plans to pay and the contract premium, as applicable;
The corresponding guaranteed death benefit, as provided in the policy; and
The corresponding guaranteed value available upon surrender, as provided in the policy.

(b) For a policy that provides for a contract premium, the guaranteed death benefit and value available upon surrender shall correspond to the contract premium.

For a policy on which the insurer intends to credit terminal dividends, the nonguaranteed elements may be shown in the illustration if the insurer's current practice is to pay terminal dividends.
If any non-guaranteed elements are shown, they shall be shown at the same durations as the corresponding guaranteed elements, if any.
If a guaranteed benefit or value is not available at any duration for which a non-guaranteed benefit or value is shown, a zero shall be displayed in the guaranteed column.

Section 10. Standards for Supplemental Illustrations.

(1) A supplemental illustration may be provided if:

(a) It is appended to, accompanied by, or preceded by a basic illustration that complies with this administrative regulation;

(b) The nonguaranteed elements shown are not more favorable to the policy owner than the corresponding elements based on the scale used in the basic illustration;

(d)

For a policy with a contract premium, the contract premium underlying the supplemental illustration is equal to the contract premium shown in the basic illustration; or
For policies that do not require a contract premium, the premium outlay underlying the supplemental illustration is equal to the premium outlay shown in the basic illustration.

(2) The supplemental illustration shall include a notice referring to the basic illustration for guaranteed elements.

Section 11. Delivery of Illustration and Record Retention.

(1)

(a)

If a basic illustration is used by an agent in the sale of a life insurance policy and the policy is applied for as illustrated, a copy of that illustration, signed in accordance with this administrative regulation, shall be submitted to the insurer when the policy application is submitted.
A copy of the signed illustration shall be provided to the applicant.

(b)

If the policy is issued other than as applied for, a revised basic illustration conforming to the policy as issued shall be sent with the policy.
The revised illustration shall:

a. Conform to the requirements of this administrative regulation;

b. Be labeled "Revised Illustration"; and

c. Be signed and dated by the applicant or policy owner and agent no later than the time the policy is delivered.

(2)

(a)

If an illustration is not used by an agent in the sale of a life insurance policy or if the policy is applied for other than as illustrated, the agent shall certify to that effect in writing on a form provided by the insurer.
On the same form, the applicant shall acknowledge that an illustration conforming to the policy applied for was not provided and shall further acknowledge an understanding that an illustration conforming to the policy as issued shall be provided no later than the policy's delivery. This form shall be submitted to the insurer when the policy application is submitted.

(b)

If the policy is issued, a basic illustration conforming to the policy as issued shall be sent with the policy and signed no later than the time the policy is delivered.
A copy of the basic illustration shall be provided to the insurer and the policy owner.

(3)

(a) If the basic illustration or revised illustration is sent to the applicant or policy owner by mail from the insurer, it shall include instructions for the applicant or policy owner to sign the duplicate copy of the numeric summary page of the illustration for the policy issued and return the signed copy to the insurer.

(b) The insurer's obligation under this subsection shall be satisfied if it demonstrates a diligent effort to secure a signed copy of the numeric summary page.

(c) The requirement to make a diligent effort shall be satisfied if the insurer includes in the mailing a self-addressed postage prepaid envelope with instructions for the return of the signed numeric summary page.

(4) A copy of the basic illustration and a revised basic illustration, if any, signed as applicable, along with a certification that either an illustration was not used or that the policy was applied for other than as illustrated, shall be retained by the insurer in accordance with 806 KAR 2:070. A copy of the basic illustration and the revised illustration shall not be required to be retained if a policy is not issued.

Section 12. Annual Report; Notice to Policy Owners.

(1) If a policy form is designated as one for which illustrations shall be used, the insurer shall provide each policy owner with an annual report on the status of the policy that shall contain, at a minimum, the information required by this subsection.

(a) For universal life insurance policies, the report shall include the following:

The beginning and end date of the current report period;
The policy value at the end of the previous report period and at the end of the current report period;
The total amounts that have been credited or debited to the policy value during the current report period, identifying each by type;
The current death benefit at the end of the current report period on each life covered by the policy;
The net cash surrender value of the policy as of the end of the current report period;
The amount of outstanding loans, if any, as of the end of the current report period; and

a. For fixed premium policies, if, assuming guaranteed interest, mortality and expense loads, and continued scheduled premium payments, the policy's net cash surrender value will not maintain insurance in force until the end of the next reporting period, a notice to this effect shall be included in the report; or

b. For flexible premium policies, if, assuming guaranteed interest, mortality and expense loads, the policy's net cash surrender value will not maintain insurance in force until the end of the next reporting period unless further premium payments are made, a notice to this effect shall be included in the report.

(b) For all other policies, if applicable:

Current death benefit;
Annual contract premium;
Current cash surrender value;
Current dividend;
Application of current dividend; and
Amount of outstanding loan.

(c) Insurers writing life insurance policies that do not build nonforfeiture values shall only be required to provide an annual report with respect to these policies for those years if a change has been made to non-guaranteed policy elements by the insurer.

(2)

(a) If the annual report does not include an in force illustration, it shall contain the following notice displayed prominently in accordance with 806 KAR 14:121, Section 4(3): "IMPORTANT POLICY OWNER NOTICE: You should consider requesting more detailed information about your policy to understand how it may perform in the future. You should not consider replacement of your policy or make changes in your coverage without requesting a current illustration. You may annually request, without charge, this illustration by calling {insurer's phone number}, writing to {insurer's name} at {insurer's address}, or contacting your agent. If you do not receive a current illustration of your policy within thirty (30) days from your request, you should contact your state insurance department."

(b) The insurer may vary the sequential order of the methods for obtaining an in force illustration.

(3)

(a) Upon the request of the policy owner, the insurer shall furnish an in force illustration of current and future benefits and values based on the insurer's present illustrated scale.

(b) This illustration shall comply with the requirements of Sections 8(1), (2), 9(5)of this administrative regulation.

(4) If an adverse change in nonguaranteed elements that may affect the policy has been made by the insurer since the last annual report, the annual report shall contain a notice of that fact and the nature of the change displayed prominently in accordance with 806 KAR 14:121, Section 4(3).

Section 13. Annual Certifications.

(1) The board of directors of each insurer shall appoint one (1) or more illustration actuaries.

(2) The illustration actuary shall certify that the disciplined current scale used in illustrations is in conformity with the Actuarial Standard of Practice No. 24 promulgated by the Actuarial Standards Board, and that the illustrated scale meets the requirements of this administrative regulation.

(3) The illustration actuary shall:

(a) Be a member in good standing of the American Academy of Actuaries;

(b) Be familiar with the standard of practice regarding life insurance policy illustrations;

Violated any provision of, or any obligation imposed by, the insurance law or other law in the course of the actuary's dealings as an illustration actuary;
Been found guilty of fraudulent or dishonest practices;
Demonstrated incompetence, lack of cooperation, or untrustworthiness to act as an illustration actuary; or
Resigned or been removed as an illustration actuary within the past five (5) years as a result of acts or omissions indicated in an adverse report on examination or as a failure to adhere to generally acceptable actuarial standards;

(d) Notify the executive director of any action taken by a commissioner of another state similar to that under paragraph (c) of this subsection;

(e) Disclose in the annual certification if, since the last certification, a currently payable scale applicable for business issued within the previous five (5) years and within the scope of the certification has been reduced for reasons other than changes in the experience factors underlying the disciplined current scale.

If nonguaranteed elements illustrated for new policies are not consisted with those illustrated for similar in force policies, this shall be disclosed in the annual certification.
If nonguaranteed elements illustrated for both new and in force policies are not consistent with the non-guaranteed elements actually being paid, charged, or credited to the same or similar forms, this shall be disclosed in the annual certification; and

(f) Disclose in the annual certification which of the following methods were used to allocate overhead expenses for all illustrations:

Fully allocated expenses;
Marginal expenses; or
A generally recognized expense table based on fully allocated expenses representing a significant portion of insurance companies and approved by the executive director.

(4)

(a) The illustration actuary shall file a certification with the board of directors of the insurer and with the executive director:

Annually for all policy forms for which illustrations are used; and
Before a new policy form is illustrated.

(b) If an error in a previous certification is discovered, the illustration actuary shall notify the board of directors of the insurer and the executive director within thirty (30) days after discovery of the error.

(5) If an illustration actuary is unable to certify the scale for any policy form illustration the insurer intends to use, the actuary shall notify the board of directors of the insurer and the executive director within thirty (30) days of the inability to certify.

(6) A responsible officer of the insurer, other than the illustration actuary, shall certify annually:

(a) That the illustration formats meet the requirements of this administrative regulation and that the scales used in illustrations are those scales certified by the illustration actuary; and

(b) That the insurer has provided its agents with information about the expense allocation method used by the company in its illustrations and disclosed as required in subsection (3)(f) of this section.

(7) The annual certifications shall be provided to the executive director each year by a date determined by the insurer.

(8) If an insurer changes the illustration actuary responsible for all or a portion of the company's policy forms, the insurer shall notify the executive director of that fact promptly and disclose the reason for the change.

Section 14. Effective Date. The requirements, implementation, and enforcement of this administrative regulation shall begin on January 1, 2008.

Section 15. Incorporation by Reference.

(1) "Actuarial Standard of Practice No. 24, Compliance with the NAIC Life Insurance Illustrations Model Regulation", February 2007, is incorporated by reference.

(2) This material may be inspected, copied, or obtained, subject to applicable copyright law, at the Office of Insurance, 215 West Main Street, Frankfort, Kentucky 40601, Monday through Friday 8 a.m. to 4:30 p.m.

History

RELATES TO: KRS 304.12-010, 304.12-020
STATUTORY AUTHORITY: KRS 304.2-110
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.2-110(1) authorizes the Executive Director of the Office of Insurance to promulgate administrative regulations necessary for or as an aid to the effectuation of any provision of the Kentucky Insurance Code, KRS Chapter 304. This administrative regulation provides illustration formats, prescribes standards to be followed if illustrations are used, and specifies the disclosures that are required in connection with illustrations for life insurance policies.
History: 33 Ky.R. 4294; Am. 33 Ky.R. 288; 730; eff. 11-2-2007; Crt eff. 2-26-2020; TAm eff. 6-20-2023.

806 KAR 12:150 Annuity disclosures {#sec-806-kar-12-150 omnilex-key=us-ky-regs-official--title-806--806 KAR 12:150}

Section 1. Definitions.

(1) "Buyer's Guide" means the current National Association of Insurance Commissioner's approved Annuity Buyer's Guide.

(2) "Charitable gift annuity" is defined in KRS 304.1-120(6)(b).

(3) "Contract owner" means the owner named in the annuity contract or certificate holder in the case of a group annuity contract.

(4) "Funding agreement" means an agreement for an insurer to accept and accumulate funds and to make one (1) or more payments at future dates in amounts that are not based on mortality or morbidity contingencies.

(5) "Generic name" means a short title descriptive of the annuity contract being applied for or illustrated.

(6) "Guaranteed elements" means the premiums and credited interest rates, including any bonus, benefits, values, noninterest based credits, charges, or elements of formulas used to determine any of these, that are guaranteed and determined at issue. An element is guaranteed if all of the underlying elements that go into its calculation are guaranteed.

(7) "Illustration" means a personalized presentation or depiction prepared for and provided to an individual consumer that includes nonguaranteed elements of an annuity contract over a period of years.

(8) "Nonguaranteed elements" means the premiums and credited interest rates including any bonus, benefits, values, non-interest based credits, charges, or elements of formulas used to determine any of these, that are subject to company discretion and are not guaranteed at issue. An element is nonguaranteed if any of the underlying nonguaranteed elements are used in its calculation.

(9) "Registered Product" means an annuity contract or life insurance policy subject to the prospectus delivery requirements of the Securities Act of 1933.

(10) "Structured settlement annuity" means:

(a) A "qualified funding asset" as defined in 26 U.S.C. 130(d); or

(b) An annuity that would be a qualified funding asset pursuant to 26 U.S.C. 130(d) except for the fact that it is not owned by an assignee under a qualified assignment.

Section 2. Applicability. This administrative regulation shall apply to all group and individual annuity contracts and certificates except:

(1) Immediate and deferred annuities that do not contain non-guaranteed elements;

(2)

(a) Annuities used to fund:

An employee pension plan that is covered by the Employee Retirement Income Security Act (ERISA), codified as 29 U.S.C. 1001 to 1461;
A plan described by 26 U.S.C. 401(a), (k), or 403(b), if the plan, for purposes of ERISA, is established or maintained by an employer;
A governmental or church plan defined in 26 U.S.C. 414 or a deferred compensation plan of a state or local government or a tax exempt organization under 26 U.S.C. 457; or
A nonqualified deferred compensation arrangement established or maintained by an employer or plan sponsor;

(b)

Notwithstanding paragraph (a) of this subsection, this administrative regulation shall apply to annuities used to fund a plan or arrangement that is funded solely by contributions an employee elects to make, whether on a pre-tax or after-tax basis, and if the insurance company has been notified that plan participants may choose from among two (2) or more fixed annuity providers and there is a direct solicitation of an individual employee by a producer for the purchase of an annuity contract; and
As used in this subsection, direct solicitation shall not include a meeting held by a producer solely for the purpose of educating or enrolling employees in the plan or arrangement;

(3) Non-registered variable annuities issued exclusively to an accredited investor or qualified purchaser as those terms are defined by the Securities Act of 1933 (15 U.S.C. Section 77a et seq.), the Investment Company Act of 1940 (15 U.S.C. Section 80a-1 et seq.), or the regulations promulgated under either of those acts, and offered for sale and sold in a transaction that is exempt from registration under the Securities Act of 1933 (15 U.S.C. Section 77a et seq.);

(4)

(a) Transactions involving variable annuities and other registered products in compliance with Securities and Exchange Commission (SEC) rules and Financial Industry Regulatory Authority (FINRA) rules relating to disclosures and illustrations, except that compliance with Section 3 of this administrative regulation shall be required after January 1, 2014, unless the SEC has adopted a summary prospectus rule or FINRA has approved for use a simplified disclosure form applicable to variable annuities or other registered products.

(b) Notwithstanding subsection (4) of this section, the delivery of the Buyer's Guide is required in sales of variable annuities, and if appropriate, in sales of other registered products.

(c) Nothing in this subsection shall limit the commissioner's ability to enforce the provisions of this administrative regulation or to require additional disclosure;

(5) Structured settlement annuities;

(6) Charitable gift annuities; and

(7) Funding agreements.

Section 3. Standards for the Disclosure Document and Buyer's Guide.

(1)

(a) If the application for an annuity contract is solicited personally by an agent, the applicant shall be given both the disclosure document described in subsection (3) of this section and the Buyer's Guide no later than the time of application.

(b) If the application for an annuity contract is taken by means other than a personal solicitation by an agent, the applicant shall be sent both the disclosure document described in subsection (3) of this section and the Buyer's Guide no later than five (5) business days after the completed application is received by the insurer.

With respect to an application received as a result of a direct solicitation through the mail:

a. Providing a Buyer's Guide in a mailing inviting prospective applicants to apply for an annuity contract shall satisfy the requirement that the Buyer's Guide be provided no later than five (5) business days after receipt of the application; and

b. Providing a disclosure document in a mailing inviting a prospective applicant to apply for an annuity contract shall satisfy the requirement that the disclosure document be provided no later than five (5) business days after receipt of the application.

With respect to an application received via the Internet:

a. Taking reasonable steps to make the Buyer's Guide available for viewing and printing on the insurer's Web site shall satisfy the requirement that the Buyer's Guide be provided no later than five (5) business days after receipt of the application; or

b. Taking reasonable steps to make the disclosure document available for viewing and printing on the insurer's Web site shall satisfy the requirement that the disclosure document be provided no later than five (5) business days after receipt of the application.

A solicitation for an annuity contract that is not personally solicited by an agent shall include a statement that the proposed applicant may obtain a free Annuity Buyer's Guide by contacting the Department of Insurance or the insurer.

(c)

If the Buyer's Guide and disclosure document described in subsection (3) of this section are not provided at or before the time of application, a free look period of no less than fifteen (15) days shall be provided for the applicant to return the annuity contract without penalty.
This free look period shall run concurrently with any other free look period provided under state law or administrative regulation.

(2) The following information shall be included in the disclosure document:

(a) The generic name of the contract, the company product name, if different, the form number, and the fact that it is an annuity;

(b) The insurer's name, physical address, website address, and telephone number;

(c) A description of the contract and its benefits, emphasizing its long-term nature, including the following information:

The guaranteed and nonguaranteed elements of the contract and their limitations, if any, including for fixed indexed annuities, the elements used to determine the index-based interest, such as the participation rates, caps, or spreads, and an explanation of how they operate;
An explanation of the initial crediting rate, or for fixed indexed annuities, an explanation of how the index-based interest is determined, specifying any bonus or introductory portion, the duration of the rate, and the fact that rates may change from time to time and shall not be guaranteed;
Periodic income options both on a guaranteed and nonguaranteed basis;
Value reductions caused by withdrawals from or surrender of the contract;
How values in the contract can be accessed;
The death benefit, if available, and how it will be calculated;
A summary of the federal tax status of the contract and any penalties applicable on withdrawal of values from the contract; and
An explanation of the impact of a rider, such as a long-term care rider or guaranteed living benefit;

(d) Specific dollar amount or percentage charges and fees shall be listed with an explanation of how they apply; and

(e) Information about the current guaranteed rate or indexed crediting rate formula for new contracts that contain a clear notice that the rate is subject to change.

(3) The disclosure statement shall comply with the minimum standards for readability and intelligibility established in 806 KAR 14:121.

Section 4. Report to Contract Owners. For annuities in the payout period that include nonguaranteed elements and for the accumulation period of a deferred annuity, the insurer shall provide each contract owner with a report, at least annually, on the status of the contract that contains at least the following information:

(1) The beginning and end date of the current report period;

(2) The accumulation and cash surrender value, if any, at the end of the previous report period and at the end of the current report period;

(3) The total amounts, if any, that have been credited, charged to the contract value or paid during the current report period; and

(4) The amount of outstanding loans, if any, as of the end of the current report period.

Section 5. Effective Date. The requirements of this administrative regulation shall not be implemented or enforced prior to the effective date, determined pursuant to KRS 13A.330, or July 1, 2021,, whichever is later.

Section 6. Incorporation by Reference.

(1) "Buyer's Guide for Deferred Annuities" published by the National Association of Insurance Commissioners, Revised 2013 is incorporated by reference.

(3) This material is also available on the department's Web site at http://insurance.ky.gov/.

History

RELATES TO: KRS 304.12-010, 304.12-020, 304.12-230, 26 U.S.C. 401, 403, 414, 457, 29 U.S.C. 1001-1461
STATUTORY AUTHORITY: KRS 304.2-110
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.2-110(1) authorizes the Commissioner of the Department of Insurance to promulgate administrative regulations necessary for or as an aid to the effectuation of any provision of the Kentucky Insurance Code, KRS Chapter 304. This administrative regulation requires insurers to deliver information to purchasers of annuities that will improve the buyer's ability to select the most appropriate annuity for the buyer's needs and improve the buyer's understanding of the basic features of the product that has been purchased or is under consideration.
History: 33 Ky.R. 4299; 34 Ky.R. 293; 734; eff. 11-2-2007; 37 Ky.R. 1084; 1712; eff. 3-4-2011; 38 Ky.R. 326; 764; eff. 11-4-11; Crt eff. 2-26-2020; 47 Ky.R. 820, 1411, 1570; eff. 5-4-2021.

806 KAR 12:160 Standards for accelerated death benefits {#sec-806-kar-12-160 omnilex-key=us-ky-regs-official--title-806--806 KAR 12:160}

Section 1. Definitions.

(1) "Accelerated death benefit" means the advance payment of some or all of the death proceeds payable pursuant to a life insurance policy:

(a) To the owner, during the lifetime of the insured triggered by a qualifying event;

(b) That reduces the death benefit otherwise payable under the policy through a present value payment or imposition of a lien upon the death benefits; and

(2) "Executive director" is defined in KRS 304.1-050(1).

(3) "Form" means accelerated death benefit form, or policy provision if the benefit is built into the policy.

(4) "Qualifying event" means a medical condition that is reasonably expected to result in a drastically limited life span for the insured.

Section 2. Applicability. The requirements established in this administrative regulation shall:

(1) Apply to accelerated death benefits in individual life insurance policies; and

(2) Not apply to long-term care insurance or policies providing long-term care benefits.

Section 3. Form Filings. The following form filing requirements shall apply to accelerated death benefits and shall be included on Certification Form L-TD Life, Transmittal Document, Office of Insurance (1/1/06), incorporated by reference in 806 KAR 14:005, or as an attachment to the filing:

(1) A statement of the types of policy forms with which this benefit will be offered;

(2) Underwriting restrictions involving face amount or age;

(3) Whether the benefit is intended for use with new issues, or in force business, or both;

(4) A notice describing the amount of the accelerated benefit option and its effect on the other benefit provisions of the policy, to be provided to the owner prior to or concurrent with the election of the accelerated death benefit option; and

(5) An actuarial memorandum prepared, dated, and signed by the member of the American Academy of Actuaries which shall provide the following information:

(a) A description of the accelerated death benefit, including the effects of payment of the accelerated death benefit on all policy benefits, premium payments, cost of insurance rates, and values, including any outstanding loan, if applicable, for all types of forms with which the accelerated death benefit will be used;

(b) Justification for expense charges associated with the accelerated death benefit and the maximum expense charges;

(c) The interest rate or interest rate methodology used in any present value calculation or in accruing interest on the amount of the accelerated death benefit, which shall not exceed the greater of:

The current yield on 90-day treasury bills; or
An adjustable rate determined in accordance with KRS 304.15-115;

(d) The mortality basis and methodology, including the period of time applicable to any mortality discount, used in any present value calculation of the accelerated death benefit;

(e) The mortality and morbidity basis and methodology used in the determination of any separate premium or costs of insurance for the accelerated death benefit;

(f) The formula used to determine the accelerated death benefit, including any limitations on the amount of the benefit, and the formula used to determine the post-acceleration premium;

(g) A sample calculation of the accelerated death benefit.

If the policy contains a loan provision, the example shall assume that there is an outstanding loan at date of acceleration.
All policy benefits, premium payments, cost of insurance charges, and values, including the outstanding loan, if applicable, immediately before and immediately after acceleration shall be shown in the example;

(h) If an accelerated death benefit may be paid in installments, the basis used in the calculation of the minimum periodic payment for the payment period and a sample calculation of a minimum periodic payment;

(i) If the insured dies before all periodic payments for the payment period are made, identification of the basis used and a sample calculation of the lump sum payable; and

(j) A certification that the value and premium of the accelerated death benefit is incidental to the life coverage.

Section 4. General Form Requirements.

(1) The company's definition of a "drastically limited life span" shall have a minimum of "six (6) months or less" and a maximum of "twenty-four (24) months or less" and shall be specified in the form

(2) The cover page of the form, or the cover page of the policy if the benefit is built into the policy, shall include the following in prominent type:

(a) The term "accelerated death benefit" included in the brief description or descriptive title of the form;

(b) A clear statement that the death benefit and any accumulation values and cash values and, if applicable, premium payments or cost of insurance charges, shall be reduced if an accelerated death benefit is paid; and

(c) A clear statement recommending that the owner seek additional information from the owner's personal tax advisor about the tax status of the accelerated death benefit payment.

(3) The form shall not contain provisions that unfairly discriminate among insureds with differing qualifying events covered pursuant to the form or among insureds with similar qualifying events covered pursuant to the form.

(4) Products subject to these standards shall not be described as long-term care insurance or as providing long-term care benefits.

(5)

(a) The percentage or dollar amount of the policy death benefit that may be accelerated may be limited.

(b) The limit shall be specified in the form.

(6) A time frame within which proof of eligibility shall be provided shall be prohibited.

Section 5. Benefit Design Options.

(1) The form shall describe the accelerated death benefit option or options that shall be available to the owner, such as the payment of all of the death benefit of the policy, the payment of part of the death benefit of the policy, or a lien on the death benefit of the policy.

(2) If the form allows for the present value calculation, the form shall:

(a) Specify the amount of the death benefit of the policy that may be accelerated by the owner;

(b) State that the company may apply a portion of the accelerated death benefit to repay an outstanding policy loan but only up to the amount of the outstanding policy loan multiplied by the percentage of the policy death benefit that has been accelerated;

(c) State that the premium shall be reduced to the premium that would apply had the policy been issued at the reduced amount, and may be further reduced according to some defined formula, such as pro rata reduction, or become paid-up;

(d) State that the company may pay the owner a present value of the policy death benefit being accelerated. The interest rate or interest rate methodology used in the calculation shall be disclosed in the form; and

(e) State that the policy cash value, if any, shall be reduced by the same percentage as the policy death benefit.

(3) If the payment to the owner of the accelerated death benefit is treated as a lien on the death benefits of the policy, the form shall state that:

(a) The lien may be applied only against the policy death benefit, not against any policy cash value;

(b) The lien may bear interest.

The interest rate accrued on the portion of the lien which is equal to the cash value of the policy upon acceleration shall not be more than the policy loan interest rate stated in the policy.
For the amount of the lien in excess of the cash value, the interest rate or interest rate methodology shall be disclosed in the form;

(d) Due and unpaid premiums may be included in the lien after the automatic premium loan, if available, is exercised; and

(e) Access to the policy cash value may be restricted to the excess of the cash value over the sum of the lien and any other outstanding policy loans.

(4)

(a) A premium charge or cost of insurance charge for the accelerated death benefit shall be disclosed to the insured.

(b) A premium charge or cost of insurance charge shall be prohibited for a qualifying event of the type described in Section 11(1)(a) of this administrative regulation.

(5) The company may deduct a reasonable expense charge for accelerating the death benefit and shall state the maximum expense charge in the form.

(6) If an index used in determining the accelerated death benefit is discontinued, the company shall use an appropriate substitute index.

(7) The form or policy shall not:

(a) Provide that the insured forfeits the remainder of the policy death benefit upon acceleration of part of the policy death benefit;

(b) Place an aggregate limit provision that caps the accelerated death benefits payable for all policies issued by the company and its subsidiaries and affiliates;

(c) Require that the accelerated death benefit be provided if the policy remains in force for a specific period of time following acceleration. The option may exclude from acceleration a term insurance coverage scheduled to terminate prior to the end of the period used to define a qualifying event of the type described in Section 11(1)(a) of this administrative regulation; and

(d) Contain restrictions on the use of the accelerated death benefit proceeds.

(8) A form with an accelerated death benefit shall include an option upon acceleration:

(a) To reduce the accelerated death benefit payment by an amount actuarially determined to pay the remaining premiums; or

(b) To continue to pay premiums to keep the policy in force.

Section 6. Effect of Benefit Payment on other Benefit Provisions.

(1) Prior to or concurrent with the election to accelerate the policy death benefits, the owner and each irrevocable beneficiary shall be given a statement demonstrating the effect of the acceleration of the payment of death benefits on the cash value, death benefit, premium, cost of insurance charges, and policy loans, including policy liens, of the particular policy involved.

(a) The statement shall display the premium or cost of insurance charges necessary to continue coverage following the acceleration, and shall display all expense and interest charges associated with accelerating the death benefit.

(b) Statements for use with liens shall state that future due and unpaid premiums or cost of insurance charges may be included in the lien if the provision provides for the charges.

(d) The statement shall include a disclosure that receipt of an accelerated death benefit may affect eligibility for Medicaid or other government benefits or entitlements and may have income tax consequences.

(2) The form shall describe the effect of acceleration on premiums, cost of insurance charges, cash values, and loan values, as applicable.

(3) The form shall describe the effect that acceleration of death benefits will have on coverage on another insured pursuant to the policy.

(4) If a part of the death benefit remains after payment of the accelerated death benefit, the following requirements shall apply:

(a) If the accelerated death benefit is paid under a present value calculation, the policy shall be modified by an endorsement, which includes a statement of cash values, policy loans, premiums, cost of insurance charges, and death benefits following acceleration;

(b) The dividends or non-guaranteed elements credited shall not discriminate between policies whose death benefits have been reduced through acceleration and policies originally issued in the amount of the reduced death benefits; and

(c) The accidental death benefit provision, if any, in the policy shall not be affected by the payment of the accelerated death benefit.

Section 7. Exclusions or Restrictions. The accelerated death benefit shall not contain exclusions or restrictions that are not also exclusions or restrictions in the policy.

Section 8. Incontestability. The accelerated death benefit shall be incontestable on the same, or on a more favorable basis, as the individual policy.

Section 9. Payment Options.

(1)

(a) The payment options shall include the option to receive the accelerated death benefit payment in a lump sum and may include an option to receive the benefit in periodic payments for a period certain.

(b) Periodic payments based on the continued survival or institutional confinement of the insured shall be prohibited.

(2)

(a) The amount payable as a lump sum shall be at least equal to the acceleration percentage multiplied by the difference between the current policy cash value and any outstanding policy loans.

(b) The current policy cash value shall include any termination dividend payable on the surrender of the policy.

(3)

(a) The form shall specify what occurs if the insured dies before all payments of the accelerated death benefit are made.

(b) If the present value of remaining payments is paid, the interest rate used to calculate any present value of the settlement option shall be that assumed in calculating the original payments.

(4) If the insured dies after the owner elects to receive accelerated death benefits but before benefits are received, the election shall be cancelled and the death benefit paid pursuant to the policy.

Section 10. Payment Procedures. The procedures required to accelerate the death benefit of the policy shall be specified in the form and shall be at least as favorable as the following:

(1)

(a) If the company requires the filing of a proof of eligibility claim form, the company shall provide the claim form within fifteen (15) days of the acceleration request.

(b) If the claim form is not furnished within fifteen (15) days, it shall be considered that the claimant complied with the claim requirements if the claimant submits written proof covering the occurrence, the character, and the extent of the occurrence for which claim is made;

(2)

(a) The company may reserve the right to require a second or third medical opinion to confirm benefit eligibility.

(b) The second or third medical opinion shall be provided at the company's expense.

(d) In the case of conflicting opinions, eligibility for benefits shall be determined by a third medical opinion provided by a physician that is mutually acceptable to the insured and the company;

(3) The accelerated death benefit shall be paid to the owner or owner's estate while the insured is living, unless the benefit has been otherwise assigned or designated by the owner; and

(4)

(a) Prior to the payment of the accelerated death benefit, the company shall obtain from any assignee or irrevocable beneficiary a signed acknowledgement of concurrence for payout.

(b) If the company paying the accelerated death benefit is itself the assignee under the policy, an acknowledgement shall not be required.

(c) Payment of the accelerated death benefit is due in accordance with KRS 304.12-235 with respect to any delay in processing requests to accelerate the payment of death benefits.

Section 11. Qualifying Events.

(1) A qualifying event may, at the option of the company, include one (1) or more of the following:

(a) A medical condition that requires extraordinary medical intervention, such as major organ transplant or continuous artificial life support, without which the insured is expected to die;

(b) A condition that usually requires continuous confinement in an institution, as defined in the form, and the insured is expected to remain there for the rest of the insured's life;

(c) A specified medical condition that, in the absence of extensive or extraordinary medical treatment, is expected to result in a drastically limited life span; or

(d) A chronic illness that results in permanent inability to perform a specified number of activities of daily living without substantial assistance from another individual, or permanent severe cognitive impairment, or both.

(2) The form shall specify the terms and conditions applicable to each qualifying event.

(3) The form shall not require that the cause of a qualifying event first manifest itself or be diagnosed after issuance of the individual policy or form.

(4) The form shall not include a waiting period requirement.

(5) A requirement that the individual policy or form be in force past the incontestable period shall be prohibited.

Section 12. Reinstatement. The form shall include a reinstatement provision on the same, or more favorable, terms as contained in the policy.

Section 13. Termination.

(1) The form shall include the following conditions for termination, upon:

(a) A written request; or

(b) Termination of the policy; or

(c) Nonpayment of any separate premium or cost of insurance charge for the accelerated death benefit, in accordance with the provisions of the form or the policy.

(2) The form may state that the accelerated death benefit may be terminated if a nonforfeiture benefit becomes effective pursuant to the policy.

(3) The form shall state that termination shall not prejudice the payment of benefits for a qualifying event that occurred while the form was in force.

Section 14. Effective Date. The requirements, implementation, and enforcement of this administrative regulation shall begin on January 1, 2008.

History

RELATES TO: KRS 304.6-170, 304.6-171, 304.12-010, 304.12-020, 304.12-235, 304.14-600(2), 304.15-115
STATUTORY AUTHORITY: KRS 304.2-110
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.2-110(1) authorizes the Executive Director of the Office of Insurance to promulgate administrative regulations necessary for or as an aid to the effectuation of any provision of the Kentucky Insurance Code, KRS Chapter 304. This administrative regulation establishes standards for accelerated death benefits in individual life insurance forms.
History: 33 Ky.R. 4301; Am. 34 Ky.R. 295; 736; eff. 11-2-2007; Crt eff. 2-26-2020.

806 KAR 12:170 Life insurance disclosures {#sec-806-kar-12-170 omnilex-key=us-ky-regs-official--title-806--806 KAR 12:170}

Section 1. Definitions.

(1) "Buyer's Guide" means the current Life Insurance Buyer's Guide published by the National Association of Insurance Commissioners.

(2) "Current scale of nonguaranteed elements" means a formula or other mechanism that produces values for an illustration as if there is no change in the basis of those values after the time of illustration.

(3) "Generic name" means a short title that is descriptive of the premium and benefit patterns of a policy or a rider.

(4) "Nonguaranteed elements" means the premiums, credited interest rates, including any bonus, benefits, values, non-interest based credits, charges, or elements of formulas used to determine any of these, that are subject to company discretion and are not guaranteed at issue. An element is considered nonguaranteed if any of the underlying nonguaranteed elements are used in its calculation.

(5) "Policy data" means a display or schedule of numerical values, both guaranteed and nonguaranteed, for each policy year or a series of designated policy years of the following information:

(a) Illustrated annual, other periodic, and terminal dividends;

(b) Premiums;

(d) Cash surrender values, outstanding policy loans, current policy loan interest rate, and endowment benefits.

(6) "Policy summary" means a separate document describing the elements of the policy and complying with the requirements established in Section 3 of this administrative regulation.

Section 2. Application.

(1) Except as provided in subsection (2) of this section, this administrative regulation shall apply to:

(a) A solicitation, negotiation, or procurement of life insurance occurring within this state; and

(b) An issuer of life insurance contracts including fraternal benefit societies.

(2) This administrative regulation shall not apply to:

(a) Individual and group annuity contracts;

(b) Credit life insurance;

(d) Life insurance policies issued in connection with pension and welfare plans that are subject to the federal Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. Section 1001 et seq. as amended; or

(e) Variable life insurance under which the amount or duration of the life insurance varies according to the investment experience of a separate account.

Section 3. Policy Summary. A policy summary shall describe the elements of the policy including the following:

(1) A permanently placed title stating: "STATEMENT OF POLICY COST AND BENEFIT INFORMATION";

(2) The name and address of the insurance agent or, if an agent is not involved, a statement of procedure to be followed in order to receive responses to inquiries regarding the policy summary;

(3) The full name and home office or administrative office address of the life insurance company issuing the policy;

(4) The generic name of the basic policy and each rider;

(5) The following amounts shall be listed in total, not on a per thousand or per unit basis and, if applicable for the first ten (10) policy years and representative policy years thereafter, the amounts shall be listed sufficiently to clearly illustrate the premium and benefit patterns, including at least an age from sixty (60) through sixty-five (65) and policy maturity:

(a) The annual premium of the basic policy;

(b) The annual premium for each optional rider;

(c)

The amount payable upon death at the beginning of the policy year pursuant to the basic policy with additional benefits for each rider shown separately.
If more than one (1) insured is covered pursuant to one (1) policy or rider, death benefits shall be displayed separately for each insured or for each class of insured's if death benefits do not differ within the class;

(d) The total guaranteed cash surrender values at the end of the year with values shown separately for the basic policy and each rider; and

(e) Endowment amounts payable pursuant to the policy that are not included pursuant to the cash surrender values described in this subsection;

(6)

(a) The effective policy loan annual percentage interest rate, if the policy contains this provision, specifying whether the rate is applied in advance or in arrears.

(b) If the policy loan interest rate is adjustable, the policy summary shall state that the annual percentage rate shall be determined in accordance with the provisions of the policy and the applicable law; and

(7) The date on which the policy summary was prepared.

Section 4. Duties of Insurers.

(1) Requirements for new issues.

(a)

Except as provided in subparagraph 2. of this paragraph, the insurer shall provide the Buyer's Guide to each prospective purchaser prior to accepting the applicant's initial premium or premium deposit.
If the policy for which application is made contains an unconditional refund provision of at least ten (10) days, the Buyer's Guide may be delivered with the policy or prior to delivery of the policy.

(b) The insurer shall provide a policy summary to prospective purchasers in which the insurer shall identify the policy form as not marketed with an illustration.

The policy summary shall show guarantees only.
The policy summary shall consist of a separate document with all required information set out in a manner that does not minimize or render any portion of the summary obscure.
Amounts that remain level for two (2) or more years of the policy may be represented by a single number if it is clearly indicated what amounts are applicable for each policy year.
Amounts in Section 3(5) of this administrative regulation shall be listed in total, not on a per thousand or per unit basis.
If more than one (1) insured is covered under one (1) policy or rider, death benefits shall be displayed separately for each insured or for each class of insured if death benefits do not differ within the class.
Zero amounts shall be displayed as a blank space.
Delivery of the policy summary shall be consistent with the time for delivery of the Buyer's Guide as specified in paragraph (a) of this subsection.

(2) Requirements applicable to existing policies.

(a) Upon request by the policy owner, the insurer shall furnish the policy data or an in force illustration as follows:

For policies issued prior to January 1, 2008, the insurer shall furnish policy data, or, at its option, an in force illustration meeting the requirements of 806 KAR 12:140.
For policies issued on or after January 1, 2008 and declared not to be used with an illustration, the insurer shall furnish policy data, limited to guaranteed values, if it has chosen not to furnish an in force illustration meeting the requirements of 806 KAR 12:140.
If the policy was issued on or after January 1, 2008 and declared to be used with an illustration, an in force illustration shall be provided.
Unless otherwise requested, the policy data shall be provided for twenty (20) consecutive years beginning with the previous policy anniversary.

(b)

If a life insurance company changes its method of determining scales of nonguaranteed elements on existing policies, it shall notify each affected policy owner of the change and its effect on the policy no later than the date of the first payment on the new basis.
The requirement established in subparagraph 1. of this paragraph shall not apply to policies for which the death benefit pursuant to the basic policy on the date of notice does not exceed $5,000.

(c) If the insurer makes a material revision in the terms and conditions which will limit its right to change any nonguaranteed factor, it shall notify each affected policy owner of the change no later than the first policy anniversary following the revision.

Section 5. General Rules.

(1)

(a) Prior to commencing a life insurance sales presentation, an agent shall inform the prospective purchaser that the agent is acting as a life insurance agent.

(b) The agent shall inform the prospective purchaser, in writing, of the full name of the insurance company which the agent represents.

(2)

(a) An insurance producer marketing insurance products shall not use a title or designation, including "financial planner," "investment advisor," "financial consultant," or "financial counseling" to imply that the insurance producer is engaged in an advisory or consulting business in which compensation is unrelated to sales.

(b) This subsection shall not preclude:

A person recognized as having a financial planning or consultant designation from using the designation even if only selling insurance; or
Members of a recognized trade or professional association from having these terms as part of the organization's name from citing membership. If authorized only to sell insurance products, a person citing membership shall disclose that fact.

(c) A person shall not charge an additional fee for services customarily associated with the solicitation, negotiation, or servicing of policies.

(3)

(a) A reference to nonguaranteed elements shall include a statement that the item is not guaranteed and is based on the company's current scale of nonguaranteed elements.

(b) If a nonguaranteed element would be reduced by the existence of a policy loan, a statement to that effect shall be included in each reference to nonguaranteed elements.

Section 6. Failure to Comply. Failure of an insurer to provide or deliver the Buyer's Guide, an in force illustration, a policy summary, or policy data shall constitute an omission that misrepresents the benefits, advantages, conditions, or terms of an insurance policy.

Section 8. Incorporation by Reference.

(1) "Life Insurance Buyer's Guide, "National Association of Insurance Commissioners", 2018 is incorporated by reference.

(2) This material may be inspected, copied, or obtained, subject to applicable copyright law, at the Department of Insurance, Mayo-Underwood Building, 500 Mero Street, Frankfort, Kentucky 40601, Monday through Friday, 8 a.m. to 4:30 p.m. This material is also available on the department's Web site at: http://insurance.ky.gov/.

History

RELATES TO: KRS 304.12-010, 304.12-020, 304.12-230
STATUTORY AUTHORITY: KRS 304.2-110
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.2-110(1) authorizes the Commissioner of Insurance to promulgate administrative regulations necessary for or as an aid to the effectuation of any provision of the Kentucky Insurance Code, KRS Chapter 304. This administrative regulation establishes requirements for insurers to deliver information to purchasers of life insurance that is designed to improve the buyer's ability to select the most appropriate plan of life insurance for the buyer's needs and improve the buyer's understanding of the basic features of the policy that has been purchased or is under consideration.
History: 33 Ky.R. 4305; Am. 34 Ky.R. 298; 738; eff. 11-2-2007; 37 Ky.R. 1087; 1714; eff. 3-4-2011; 38 Ky.R. 329; eff. 11-4-11; Crt eff. 2-26-2020; 47 Ky.R. 825, 1389; eff. 4-6-2021.

806 KAR 12:180 Military sales practices {#sec-806-kar-12-180 omnilex-key=us-ky-regs-official--title-806--806 KAR 12:180}

Section 1. Definitions.

(1) "Active duty":

(a) Means full-time duty in the active military service of the United States and includes members of the reserve component, both the National Guard and Reserve, while serving under published orders for active duty or full-time training; and

(b) Does not mean members of the reserve component who are performing active duty or active duty for training under military calls or orders specifying periods of less than thirty-one (31) calendar days.

(2) "Annuity" is defined by KRS 304.5-030.

(3) "Commissioner" is defined by KRS 304.1-050(1).

(4) "Department of Defense Personnel" means all active duty service members and all civilian employees, including nonappropriated fund employees and special government employees, of the Department of Defense.

(5) "Door-to-door" means a solicitation or sales method in which an insurance producer proceeds randomly or selectively from household to household without a prior specific appointment.

(6) "General advertisement" means an advertisement having as its sole purpose the promotion of the reader's or viewer's interest in the concept of insurance, or the promotion of the insurer or the insurance producer.

(7) "Insurable needs" means the risks associated with premature death taking into consideration the financial obligations and immediate and future cash needs of the applicant's estate or survivors or dependents.

(8) "Insurer" is defined by KRS 304.1-040.

(9) "Insurance producer" is defined by KRS 304.9-020(10).

(10) "Known" or "knowingly" means the insurance producer or insurer had actual awareness, or in the exercise of ordinary care should have known, when the act or practice complained of occurred, that the person solicited is a service member.

(11) "Life insurance" is defined by 304.5-020.

(12) "Military installation" means any federally owned, leased, or operated base, reservation, post, camp, building, or other facility to which service members are assigned for duty, including barracks, transient housing, and family quarters.

(13) "MyPay" means the Defense Finance and Accounting Service Web-based system that enables service members to process certain discretionary pay transactions or provide updates to personal information data elements without using paper forms.

(14) "Other military survivor benefits" means the death gratuity, funeral reimbursement, transition assistance, survivor and dependents' educational assistance, dependency and indemnity compensation, TRICARE healthcare benefits, survivor housing benefits and allowances, federal income tax forgiveness, and Social Security survivor benefits.

(15) "SGLI" means the Servicemembers' Group Life Insurance as established by 38 U.S.C. section 1965.

(16) "Service member" means an active duty officer, both commissioned and warrant, or enlisted member of the United States Armed Forces.

(17) "Side fund":

(a) Means a fund or reserve that is part of or otherwise attached to a life insurance policy by rider, endorsement, or other mechanism that accumulates premium or deposits with interest or by other means; and

(b) Does not mean:

Accumulated value or cash value or secondary guarantees provided by a universal life policy;
Cash values provided by a whole life policy subject to standard nonforfeiture law for life insurance; or
A premium deposit fund that:

a. Contains only premiums paid in advance which accumulate at interest;

b. Does not impose a penalty for withdrawal;

c. Does not permit funding beyond future required premiums;

d. Is not marketed or intended as an investment; and

e. Does not carry a commission, either paid or calculated.

(18) "Specific appointment" means a prearranged appointment agreed upon by both parties and definite as to place and time.

(19) "United States Armed Forces" means all components of the Army, Navy, Air Force, Marine Corps, and Coast Guard.

(20) "VGLI" means the Veterans' Group Life Insurance, as established by U.S.C. Title 38.

Section 2. Scope. This administrative regulation shall apply only to the solicitation or sale of a life insurance policy or annuity by an insurer or insurance producer to an active duty service member of the United States Armed Forces.

Section 3. Exemptions.

(1) This administrative regulation shall not apply to solicitations or sales involving:

(a) Credit insurance;

(b) Group life insurance or group annuities if:

An in-person, face-to-face solicitation of individuals by an insurance producer is not made; or
The contract or certificate does not include a side fund;

A contractual change or a conversion privilege is being exercised;
The existing policy or contract is being replaced by the same insurer pursuant to a program filed with and approved by the commissioner in accordance with KRS Chapter 304; or
A term conversion privilege is exercised among corporate affiliates;

(d) Individual stand-alone health policies, including disability income policies;

(e) Contracts offered by SGLI or VGLI;

(f) Life insurance contracts offered through or by a non-profit military association, qualifying under 26 U.S.C. 501(c)(23), and that are not underwritten by an insurer; or

(g) Contracts used to fund:

An employee pension or welfare benefit plan that is covered by the Employee Retirement and Income Security Act, 29 U.S.C. Chapter 18;
A plan established by 26 U.S.C. 401(a), 401(k), 403(b), 26 U.S. C. 408(k) or 408(p), if established or maintained by an employer;
A governmental or church plan established in 26 U.S.C. 414;
A governmental or church welfare benefit plan, or a deferred compensation plan of a state or local government or tax exempt organization under 26 U.S.C. 457;
A nonqualified deferred compensation arrangement established or maintained by an employer or plan sponsor;
Settlements of or assumptions of liabilities associated with personal injury litigation or any dispute or claim resolution or process; or
Prearranged funeral contracts.

(2) This administrative regulation shall not abrogate the ability of a nonprofit organization or another organization to educate members of the United States Armed Forces in accordance with Department of Defense Instruction 1344.07, Personal Commercial Solicitation on DoD Installations.

(3)

(a) General advertisements, direct mail, and internet marketing shall not constitute solicitation.

(b) Telephone marketing shall not constitute solicitation if the caller:

Explicitly and conspicuously discloses that the product concerned is life insurance; and
Does not make a statement that avoids a clear and unequivocal statement that life insurance is the subject matter of the solicitation.

(c) This subsection shall not exempt an insurer or insurance producer from the requirements of this administrative regulation in any in-person, face-to-face meeting established as a result of the exemptions established in this subsection.

Section 4. Practices Declared False, Misleading, Deceptive, or Unfair on a Military Installation.

(1) The following acts or practices, if committed on a military installation by an insurer or insurance producer, with respect to the in-person, face-to-face solicitation of life insurance shall be false, misleading, deceptive, or unfair:

(a) Knowingly soliciting the purchase of any life insurance product:

Door to door; or
Without first establishing a specific appointment for each meeting with the prospective purchaser;

(b) Soliciting service members in a group or mass audience or in a captive audience if attendance is not voluntary;

(d) Making appointments with or soliciting service members in:

Barracks;
Day rooms;
Unit areas;
Transient personnel housing; or
Other areas where the installation commander has prohibited solicitation;

(e) Soliciting the sale of life insurance without first obtaining permission from the installation commander or the commander's designee;

(f) Posting unauthorized bulletins, notices, or advertisements;

(g) Failing to present Department of Defense Form 2885, Personal Commercial Solicitation Evaluation, to service members solicited or encouraging service members solicited not to complete or submit a Department of Defense Form 2885; or

(h) Knowingly accepting an application for life insurance or issuing a policy of life insurance on the life of an enlisted member of the United States Armed Forces without first obtaining for the insurer's files a completed copy of a required form, which confirms that the applicant has received counseling or fulfilled any other similar requirement for the sale of life insurance established by regulations, directives, or rules of the US Department of Defense, or any branch of the US Armed Forces.

(2) The following acts or practices, if committed on a military installation by an insurer or insurance producer, shall constitute corrupt practices, improper influences, or inducements and shall be false, misleading, deceptive, or unfair:

(a) Using US Department of Defense personnel, directly or indirectly, as a representative or agent in any official or business capacity with or without compensation with respect to the solicitation or sale of life insurance to service members; and

(b) Using an insurance producer to participate in any United States Armed Forces sponsored education or orientation program.

Section 5. Practices Declared False, Misleading, Deceptive, or Unfair Regardless of Location.

(1) The following acts or practices by an insurer or insurance producer shall constitute corrupt practices, improper influences, or inducements and shall be false, misleading, deceptive, or unfair:

(a)

Submitting, processing, or assisting in the submission or processing of any allotment form or similar device used by the United States Armed Forces to direct a service member's pay to a third party for the purchase of life insurance including using or assisting in using a service member's "MyPay" account or other similar internet or electronic medium for those purposes;
This subsection shall not prohibit assisting a service member by providing insurer or premium information necessary to complete an allotment form;

(b)

Knowingly receiving funds from a service member for the payment of premium from a depository institution with which the service member does not have a formal banking relationship;
For purposes of this subsection, a formal banking relationship shall be established if the depository institution:

a. Provides the service member a deposit agreement and periodic statements and makes the disclosures required by the Truth in Savings Act, 12 U.S.C. 4301 et seq. and 12 C.F.R. 205, 230, and 707; and

b. Permits the service member to make deposits and withdrawals unrelated to the payment or processing of insurance premiums;

(c) Employing a device or method or entering into an agreement if funds received from a service member by allotment for the payment of insurance premiums are identified on the service member's leave and earnings statement or equivalent or successor form as "savings" or "checking" and if the service member has no formal banking relationship;

(d) Entering into any agreement with a depository institution for the purpose of receiving funds from a service member if the depository institution, with or without compensation, agrees to accept direct deposits from a service member with whom it has no formal banking relationship;

(e) Using US Department of Defense personnel, directly or indirectly, as a representative or agent in an official or unofficial capacity with or without compensation with respect to the solicitation or sale of life insurance to service members who are junior in rank or grade, or to the family members of personnel;

(f) Offering or giving anything of value, directly or indirectly, to US Department of Defense personnel to procure their assistance in encouraging, assisting, or facilitating the solicitation or sale of life insurance to another service member;

(g) Knowingly offering or giving anything of value to a service member for the member's attendance at any event at which an application for life insurance is solicited; or

(h) Advising a service member to change the member's income tax withholding or state of legal residence for the sole purpose of increasing disposable income to purchase life insurance.

(2) The following acts or practices by an insurer or insurance producer lead to confusion regarding source, sponsorship, approval, or affiliation and shall be false, misleading, deceptive, or unfair:

(a)

Making any representation, or using any device, title, descriptive name, or identifier that has the tendency or capacity to confuse or mislead a service member into believing that the insurer, insurance producer, or product offered is affiliated, connected, or associated with, endorsed, sponsored, sanctioned, or recommended by the U.S. Government, the United States Armed Forces, or any state or federal agency or government entity;
This subsection shall not prohibit a person from using a professional designation awarded after the successful completion of a course of instruction in the business of insurance by an accredited institution of higher learning; or

(b) Soliciting the purchase of any life insurance product through the use of or in conjunction with a third party organization that promotes the welfare of or assists members of the United States Armed Forces in a manner that has the tendency or capacity to confuse or mislead a service member into believing that either the insurer, insurance producer, or insurance product is affiliated, connected, or associated with, endorsed, sponsored, sanctioned, or recommended by the U.S. Government or the United States Armed Forces.

(3) The following acts or practices by an insurer or insurance producer lead to confusion regarding premiums, costs, or investment returns and shall be false, misleading, deceptive, or unfair:

(a) Using or describing the credited interest rate on a life insurance policy in a manner that implies that the credited interest rate is a net return on premium paid; or

(b) Excluding individually issued annuities, misrepresenting the mortality costs of a life insurance product, including stating or implying that the product "costs nothing" or is "free."

(4) The following acts or practices by an insurer or insurance producer regarding SGLI or VGLI shall be false, misleading, deceptive, or unfair:

(a) Making any representation regarding the availability, suitability, amount, cost, exclusions, or limitations to coverage provided to a service member or dependents by SGLI or VGLI, which is false, misleading, or deceptive;

(b) Making any representation regarding conversion requirements, including the costs of coverage, exclusions, or limitations to coverage of SGLI or VGLI to private insurers that is false, misleading, or deceptive; or

(c) Suggesting, recommending, or encouraging a service member to cancel or terminate his or her SGLI policy or issuing a life insurance policy that replaces an existing SGLI policy unless the replacement shall take effect upon or after the service member's separation from the United States Armed Forces.

(5) The following acts or practices by an insurer or insurance producer regarding disclosure shall be false, misleading, deceptive, or unfair:

(a) Deploying, using, or contracting for a lead generating material designed exclusively for use with service members that does not clearly and conspicuously disclose that the recipient will be contacted by an insurance producer, if that is the case, for the purpose of soliciting the purchase of life insurance;

(b) Failing to disclose that a solicitation for the sale of life insurance will be made if establishing a specific appointment for an in-person, face-to-face meeting with a prospective purchaser;

(c) Excluding individually issued annuities, failing to clearly and conspicuously disclose the fact that the product being sold is life insurance;

(d) Failing to make, at the time of sale or offer to an individual known to be a service member, the written disclosures required by Section 10 of the "Military Personnel Financial Services Protection Act," Pub. L. No. 109-290, p.16; or

(e) Excluding individually issued annuities, if the sale is conducted in-person face-to-face with an individual known to be a service member, failing to provide the applicant if the application is taken:

An explanation of a free look period with instructions on how to cancel if a policy is issued; and

a. A copy of the application; or

(i) A written disclosure.

(ii) The copy of the application or the written disclosure shall state the type of life insurance and the death benefit applied for and the policy or benefit expected first year cost. A basic illustration that complies with 806 KAR 12:140 shall be sufficient to meet this requirement for a written disclosure.

(6) The following acts or practices by an insurer or insurance producer shall be false, misleading, deceptive, or unfair:

(a) Excluding individually issued annuities, recommending the purchase of any life insurance product that includes a side fund to a service member unless the insurer has reasonable grounds for believing that the life insurance death benefit, standing alone, is suitable;

(b) Offering for sale or selling a life insurance product that includes a side fund to a service member who is:

Currently enrolled in SGLI; and
Presumed unsuitable unless, after the completion of a needs assessment, the insurer demonstrates that the applicant's SGLI death benefit, together with any other military survivor benefits, savings and investments, survivor income, and other life insurance are insufficient to meet the applicant's insurable needs for life insurance;

(c) Excluding individually issued annuities, offering for sale or selling a life insurance contract that includes a side fund:

Unless interest credited accrues from the date of deposit to the date of withdrawal and permits withdrawals without limit or penalty;
Unless the applicant has been provided with a schedule of effective rates of return based upon cash flows of the combined product.

a. The effective rate of return shall consider all premiums and cash contributions made by the policyholder and all cash accumulations and cash surrender values available to the policyholder in addition to life insurance coverage.

b. The schedule shall be provided for at least each policy year from one (1) to ten (10) and for every subsequent fifth policy year ending at age 100, policy maturity, or final expiration; and

That by default diverts or transfers funds accumulated in the side fund to pay, reduce, or offset any premiums due; or

(d) Excluding individually issued annuities, offering for sale or selling a life insurance contract that after considering all policy benefits, does not comply with KRS 304.15-310.

Section 6. Incorporation by Reference.

(1) The following material is incorporated by reference:

(a) "Department of Defense Instruction Number 1344.07, Personal Commercial Solicitation on DoD Installations", (March 30, 2006); and

(b) "Department of Defense Form 2885, Personal Commercial Solicitation Evaluation", (April 2006).

History

RELATES TO: KRS 304.1-040, 304.5-020, 304.5-030, 304.9-020, 304.12-010, 304.12-030, 304.15-310, 12 C.F.R. 205, 230, 707, 10 U.S.C. 992, 12 U.S.C. 4301, 26 U.S.C. 401(a), (k), 403(b), 408(k), (p), 414, 457, 501(c)(23), 29 U.S.C. 1001, 38 U.S.C. 1965, Pub.L. 109-290
STATUTORY AUTHORITY: KRS 304.2-110(1), 304.12-257, 10 U.S.C. 992(9)(a)(2), Pub.L. 109-290
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.12-257 authorizes the commissioner to promulgate administrative regulations to protect service members of the United States Armed Forces from dishonest insurance marketing and sales practices. Pub.L. 109-290 requires the states to collectively work with the Secretary of Defense to ensure implementation of appropriate standards to protect members of the Armed Forces from dishonest and predatory insurance sales practices while on a military installation of the United States and requires each state to identify its role in promoting the standards in a uniform manner. This administrative regulation establishes standards to protect active duty service members of the United States Armed Forces from dishonest and predatory insurance sales practices by declaring certain identified practices to be false, misleading, deceptive, or unfair.
History: 34 Ky.R. 1600; 35 Ky.R. 560; eff. 10-3-2008; Crt eff. 2-26-2020; 47 Ky.R. 1085, 1574; eff. 5-4-2021.

Chapter 13 Rates and Rating Organizations

Section 1.

(1) For rates required to be filed with the department in accordance with KRS 304.13-051, if an insurer and an applicant for insurance contemplated by KRS Subtitle 304.13 consent to rates to be charged in any specific instance in excess of those filed by or on behalf of the insurer, the insurer shall, within ten (10) days following the effective date of the policy, file with the commissioner a statement signed by the applicant that shall include:

(a) The policy number;

(b) The inception and expiration dates;

(d) The name of the insurer;

(e) The name and address of the insured;

(f) The limits of coverage;

(g) The total premium charged;

(h) The fact that the rate exceeds the filed rate;

(i) The reasons that the rate exceeds the filed rate; and

(j) That the insured has consented to the excess rate.

(2) For rates not required to be filed with the department pursuant to KRS 304.13-051, if an insurer and an applicant for insurance contemplated by KRS Subtitle 304.13 consent to rates to be charged in any specific instance in excess of those utilized by the insurer, the insurer shall prepare a statement, which shall not be required to be filed with the department, signed by the applicant that shall include the:

(a) Policy number;

(b) Inception and expiration dates;

(d) Name of the insurer;

(e) Name and address of the insured;

(f) Limits of coverage;

(g) Total premium charged;

(h) Fact that the rate exceeds the utilized rate;

(i) Reasons that the rate exceeds the utilized rate; and

(j) Acknowledgement that the insured has consented to the excess rate.

Section 2. A copy of the consent to rate statement required by Section 1 of this administrative regulation shall be submitted to the insured.

Section 3. The commissioner shall, in accordance with KRS Subtitle 304.13, approve or deny the consent to rate statement required by Section 1(1) of this administrative regulation, and shall return to the agent and to the insurer, one (1) copy of the consent, indicating the action taken.

History

RELATES TO: KRS 304.13-051
STATUTORY AUTHORITY: KRS 304.2-110, 304.13-100
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.2-110(1) authorizes the Commissioner of Insurance to promulgate administrative regulations necessary for or as an aid to the effectuation of any provision of the Kentucky Insurance Code as established in KRS 304.1-010. This administrative regulation establishes that an insurer and applicant shall file a form confirming the applicant's consent to the, if any, excess rate charged.
History: I-13.05; 1 Ky.R. 864; eff. 5-14-75; TAm eff. 8-9-2007; Crt eff. 2-26-2020; 47 Ky.R. 1089, 1577; eff. 5-4-2021.

806 KAR 13:040 Automobile fleet insurance defined {#sec-806-kar-13-040 omnilex-key=us-ky-regs-official--title-806--806 KAR 13:040}

Section 1. For purposes of vehicle damage or liability coverage, a fleet of automobiles is defined as five (5) or more private passenger or commercial automobiles owned and operated by an individual partnership, firm, or corporation.

Section 2. A leased automobile may be construed as an "owned automobile," if:

(1) There is a written agreement of lease for a term of not less than one (1) year; and

(2) The lease agreement stipulates that lessor shall not enjoy the use or control of the leased vehicle during the term of the lease.

Section 3. Buses leased by the Commonwealth may be written as a fleet if the term of the insurance is not longer than the term of the lease.

History

RELATES TO: KRS 304.13-121
STATUTORY AUTHORITY: KRS 304.2-110
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.2-110 authorizes the Commissioner of Insurance to make reasonable rules and administrative regulations necessary for or as an aid to the effectuation of any provision of the Kentucky Insurance Code. This administrative regulation provides a uniform definition for purposes of "fleet" insurance on automobiles.
History: I-13.08; 1 Ky.R. 865; eff. 5-14-75; Am. 9 Ky.R. 44; eff. 9-8-82; TAm eff. 8-9-2007; Crt eff. 2-28-2020; 46 Ky.R. 1634, 2279; eff. 5-5-2020.

806 KAR 13:090 Premium financing {#sec-806-kar-13-090 omnilex-key=us-ky-regs-official--title-806--806 KAR 13:090}

Section 1. A property or casualty insurer, after filing with and approved by the Commissioner of Insurance, may charge a different rate for insurance when the premium therefor is payable in installments rather than in cash.

Section 2. Additional charges based on installment payments shall not exceed those permitted to be charged by premium finance companies; nor shall such financing be on terms less favorable to insureds than are permitted in financing by premium finance companies.

Section 3. Gross premiums on any policies, whether arising from cash rate premiums, installment service charges, or any other surcharges approved by the commissioner, shall be used as the basis upon which premium taxes shall be determined.

History

RELATES TO: KRS 304.13-051, 304.13-071, 304.13-031, 304.30-090
STATUTORY AUTHORITY: KRS 304.2-110
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.2-110 provides that the Commissioner of Insurance may make reasonable rules and administrative regulations necessary for or as an aid to the effectuation of any provision of the Kentucky Insurance Code. This administrative regulation permits additional charges to be made on insurance premiums when the premiums are made in installments.
History: I-13.14; 1 Ky.R. 1081; eff. 7-2-75; Am. 27 Ky.R. 1341; 1807; eff. 1-15-2001; TAm eff. 8-9-2007; Crt eff. 2-26-2020; TAm eff. 3-10-2020.

806 KAR 13:110 Rate standards for property and casualty insurance ''flex rating'' {#sec-806-kar-13-110 omnilex-key=us-ky-regs-official--title-806--806 KAR 13:110}

Section 1. Property and casualty insurance rates subject to prior approval by the Commissioner of Insurance under KRS 304.13-051(5)(b) shall be made in accordance with the following provisions:

(1) Manual, minimum, class rates, rating schedules, or rating plans shall be made and adopted, except in the case of specific inland marine rates on risks specially rated;

(2) Rates shall not be excessive, inadequate, or unfairly discriminatory; and

(3) Due consideration shall be given:

(a) To past and prospective loss experience within and outside this state;

(b) To conflagration and catastrophe hazards;

(d) To dividends, savings, or unabsorbed premium deposits allowed or returned by insurers to their policyholders, members, or subscribers;

(e) To past and prospective expenses, both countrywide and those specially applicable to this state;

(f) To all other relevant factors within and outside this state; and

(g) In the case of fire insurance rates, consideration may be given to the experience of the fire insurance business during a period of not less than the most recent three (3) year period for which such experience is available;

(4) The systems of expense provisions included in the rates for use by insurer or group of insurers may differ from those of other insurers or group of insurers to reflect the requirements of the operating methods of any such insurer or group with respect to any kind of insurance or with respect to any subdivision or combination thereof for which subdivision or combination separate expense provisions are applicable; and

(5) Risks may be grouped by classifications for the establishment of rates and minimum premiums. Classification rates may be modified to produce rates for individual risks in accordance with rating plans which establish standards for measuring variations in hazards or expense provisions, or both. Such standards may measure any differences among risks which may have a probable effect upon losses or expenses.

Section 2. This administrative regulation shall become effective upon completion of its review pursuant to KRS Chapter 13A.

History

RELATES TO: KRS 304.13-051
STATUTORY AUTHORITY: KRS 304.2-110
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.2-110 provides that the Commissioner of Insurance may make reasonable administrative regulations necessary for or as an aid to the effectuation of any provision of the Kentucky Insurance Code. This administrative regulation prescribes the rate standards which must be met by property and casualty insurance rate filings subject to the "flex rating" provisions of KRS 304.13-051.
History: 15 Ky.R. 755; eff. 10-7-88; TAm eff. 8-9-2007; Crt eff. 2-26-2020; TAm eff. 3-10-2020.

806 KAR 13:120 Workers' compensation deductible policies {#sec-806-kar-13-120 omnilex-key=us-ky-regs-official--title-806--806 KAR 13:120}

Section 1. Definition. "Commissioner" is defined in KRS 304.1-050(1).

Section 2. All insurers authorized to write workers' compensation insurance in Kentucky, when establishing the premium for a workers' compensation insurance policy with a deductible ranging from $100 to $10,000 shall use only the following deductibles: $100, $200, $300, $400, $500, $1,000, $1,500, $2,500, $5,000, $7,500, $10,000.

Section 3. Application of this Administrative Regulation.

(1) General.

(a) This administrative regulation shall apply to all insurers and licensed advisory organizations introducing or revising workers' compensation insurance deductible discounts for policies with deductibles of $100 to $10,000 or their application in Kentucky.

(b) A licensed advisory organization filing shall be self- contained and fully documented and shall not simply adopt the deductible plan or factors of another filing.

File a self-contained and fully documented deductible discount plan; or
Adopt the filed deductible plan and discounts of a licensed advisory organization or another insurer.

(2) Form of the deductible. The deductible discounts shall be determined by the multiplication of the deductible discount factors by the manual premiums. Separate deductible discounts for each deductible option shall be applicable for each hazard group as defined by the advisory organization designated by the commissioner pursuant to KRS 304.13-167.

(3) Experience and retrospective rating. Experience rating modifications shall be based on losses net of deductibles and manual premiums less the deductible discount. The parameters of the experience rating plan shall also be adjusted to account for the deductible.

(4) Premium discount programs. For insurers that have a premium discount program based on the standard premium of a policy, the deductible discounts shall be applied prior to the application of premium discounts. The deductible discount shall be calculated by multiplying the discount factor by the manual premium. Premium discounts then are calculated based on the standard premium, after deductibles.

Section 4. Deductible Discount Provisions. The deductible discount shall recognize the reduction in losses borne by the insurer as a result of the insured's selection of a deductible. The deductible discount shall be calculated based on a loss elimination ratio and shall include the following adjustments:

(1) The size of loss distribution including distribution including an analysis of historical data which shall determine a mathematical function or a discrete empirical distribution table;

(2) Recognition of factors which imply additional costs or savings associated with the deductible including:

(a) Credit risks that the insured will not repay the insurer for the deductible amount;

(b) Changes in insurer cash flow:

Deductibles paid by an insurer in accordance with KRS 304.13-400(3)(a) shall be considered a loan, the effects of which may be recognized in the filing; and
This factor shall be equal to the amount or proportion of dollars that are eliminative by the deductible times a reasonable interest rate to account for the loss in investment income

Loss elimination ratios may be reduced for adverse selection by up to five (5) percent.
Filings which include greater reductions shall be clearly supported by actuarial evidence of higher loss ratios by deductible and class to clearly show that the deductible discounts are consistently high across classes and time.
For the initial filing, data from other states with deductibles may be used to support the selection of this factor; and

(3) Recognition that many insurer operating expenses are not reduced by the introduction of deductibles including:

(a) Loss adjustment expenses including allocated and unallocated expenses;

(b) Overhead expenses; and

(c) General expenses including all expenses incurred other than loss adjustment expense, commissions, other acquisition expenses, premium taxes, licenses, and fees.

Section 5. Effect on Rate Making.

(1) Data. The designated advisory organization's statistical plan shall include a field indicating the deductible on the policy. Financial data calls shall segregate data by deductible.

(2) Gross versus net data. Adjustments to net data shall be made in the rate-making process to account for the presence of deductibles. Losses shall be loaded by the loss elimination ratio, adjusted for anti-selection to a gross basis prior to the rate- making process. The loss elimination ratio and antiselection factor shall be the same as in the current approved filing.

(3) Methodology. Rate-making methods shall be modified to account for the presence of deductibles. An adjustment shall be made in classification rate making for differences in the distribution of exposures by deductible among classes. in the trending procedure for the presence of a shift in the distribution by deductible.

History

RELATES TO: KRS 304.13-057, 304.13-167, 304.13-400-304.13-420
STATUTORY AUTHORITY: KRS 304.2-110, 304.13-410
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.2-110 authorizes the commissioner to make reasonable administrative regulations necessary for or as an aid to the effectuation of any provision of the Kentucky Insurance Code, KRS 304.1-010. KRS 304.13-410 requires the commissioner to promulgate administrative regulations concerning calculations for premium reductions for deductible workers' compensation insurance policies. This administrative regulation establishes the method of calculating premium reductions for workers' compensation insurance policies with deductibles.
History: 19 Ky.R. 1982; 2260; eff. 5-10-1993; TAm eff. 8-9-2007; 37 Ky.R. 1557; 2007; eff. 3-4-2011; Crt eff. 2-26-2020.

806 KAR 13:130 Experience modification factors for workers' compensation insurers {#sec-806-kar-13-130 omnilex-key=us-ky-regs-official--title-806--806 KAR 13:130}

Section 1. Workers' compensation insurers that use experience modification factors shall develop an experience modification factor for each insured in accordance with the following provisions:

(1) The experience modification factor shall be based upon three (3) full years of experience ending one (1) year prior to the effective date of the modification;

(2) The experience modification factor shall be developed on an annual basis and shall remain effective for twelve (12) months;

(3) Only one (1) experience modification shall apply to a given risk at any time and shall apply to all operations of the risk;

(4) In developing premium for the experience modification factor, insurers shall:

(a) Apply the experience modification factor to the carrier's rates in force on the effective date of the experience modification factor; and

(b) Base the premium upon state qualifying premium amounts and the predetermined state limits, as both are identified in an advisory organization's publications approved by the commissioner; and

(5) An experience modification factor may be determined for a risk if the risk has developed sufficient qualifying premium based on payroll and other exposures reported in accordance with the publications of the National Council on Compensation Insurance.

Section 2. Each insurer or advisory organization using experience modification factors shall provide the policyholder with a written explanation of the policyholder's experience modification factor in language reasonably calculated to inform the policyholder of the data and methodology utilized in the calculation of the factor, including the information specified in Section 1 of this administrative regulation.

Section 3. Incorporation by Reference.

(1) "Experience Rating Plan Manual for Workers Compensation and Employers Liability Insurance", The National Council on Compensation Insurance, is incorporated by reference.

(2) This material may be inspected, copied or obtained at the Kentucky Department of Insurance, 500 Mero Street, Frankfort, Kentucky 40601, Monday through Friday, 8 a.m. to 4:30 p.m.

History

RELATES TO: KRS 304.13-011(9), 304.13-057, 304.13-091, 304.13-415
STATUTORY AUTHORITY: KRS 304.13-415
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.2-110 provides that the Commissioner of Insurance may make reasonable administrative regulations necessary for or as an aid to the effectuation of any provision of the Kentucky Insurance Code. KRS 304.13-415 requires that for each workers' compensation policy issued or renewed on or after May 1, 1997, insurers or licensed advisory organizations shall provide policyholders with written explanations of the policyholders' experience modification factor and the data and methodology utilized in the calculation of the factor. KRS 304.13-415 also provides that the commissioner shall establish guidelines for application of experience modification factors to be used in developing workers' compensation insurance rates. This administrative regulation establishes guidelines for the application of experience modification factors, and for the written explanations to policyholders regarding how the factors were calculated.
History: 24 Ky.R. 431; Am. 895; eff. 10-13-97; TAm eff. 8-9-2007; Crt eff. 2-26-2020; TAm eff. 3-10-2020.

806 KAR 13:140 Notice of right to seek review of application of workers' compensation insurance rates {#sec-806-kar-13-140 omnilex-key=us-ky-regs-official--title-806--806 KAR 13:140}

Section 1. With every workers' compensation insurance policy issued or renewed on or after May 1, 1997, insurers or agents shall include the following written "Notice of Insured's Rights" at the time the policy is issued or renewed. If the policy is a new policy, the notice shall be provided with the policy. If a policy is renewed, the notice shall be provided at the time of renewal.

Section 2. The notice shall clearly state in substance: NOTICE OF INSURED'S RIGHTS If you are insured under a workers' compensation insurance policy and believe that the rates or the rating system have been incorrectly or improperly applied, you may request a review of the manner in which the rate or rating system has been applied. You must make your request in writing to the insurance company or advisory organization. The insurance company or advisory organization has thirty (30) days to grant or reject your request for a review and to notify you in writing whether your request has been granted or rejected. If your request is granted, the insurance company or advisory organization shall conduct the review within ninety (90) days of receiving your request. If your request is rejected or if you are dissatisfied with the results of the review, you may appeal to the commissioner for further review. You must make your appeal within thirty (30) days of receipt of the rejection or of the results of the review. Your appeal is to be sent to: Legal Division Department of Insurance P.O. Box 517 Frankfort, KY 40602

History

RELATES TO: KRS 304.13-057, 304.13-161, 304.13-415, Chapter 342 et seq.
STATUTORY AUTHORITY: KRS 304.13-161
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.2-110 provides that the Commissioner of Insurance may make reasonable administrative regulations necessary for or as an aid to the effectuation of any provision of the Kentucky Insurance Code. KRS 304.13-161 provides that each insurer or agent shall notify in writing each insured at the time a workers' compensation policy is issued or renewed, on or after May 1, 1997, of the insured's right to seek a review of the manner in which the rating system was applied. KRS 304.13-161 requires the commissioner to promulgate an administrative regulation setting forth the manner and format of the written notice. This administrative regulation prescribes the manner and format of this notice.
History: 24 Ky.R. 432; Am. 896; eff. 10-13-97; TAm eff. 8-9-2007; Crt eff. 2-26-2020; TAm eff. 3-10-2020.

806 KAR 13:150 Property and casualty rate and rule filings {#sec-806-kar-13-150 omnilex-key=us-ky-regs-official--title-806--806 KAR 13:150}

Section 1. Definitions.

(1) "Advisory organization" is defined by KRS 304.13-011(9).

(2) "Commissioner" is defined by KRS 304.1-050(1).

(3) "Department" is defined by KRS 304.1-050(2).

(4) "Loss cost" means the loss cost per unit of exposure excluding all loss adjustment expenses.[

(5) "Rate" is defined by KRS 304.13-011(22).

(6) "Statistical agent" is defined by KRS 304.13-011(24).

(7) "Supplementary rating information" is defined by KRS 304.13-011(2).

Section 2.

(1) Paper filings shall include two (2) full document sets, on 8 1/2" x 11" white paper, with three (3) copies of Form PC TD-1, Property & Casualty Transmittal Document and a self-addressed stamped envelope. The interactive version of this form is available on the National Association of Insurance Commissioners Web site at https://content.naic.org/industry_rates_forms_trans_docs.htm.

(2) A property and casualty insurance company, advisory organization, or statistical agent may file a rate or supplementary rating information on the commissioner's electronic system for rate and form filings via the Web site www.serff.com. An electronic filing shall be in lieu of a paper filing.

Section 3.

(1) Every insurer, other than a life or health insurer, required by law or licensed advisory organization, or statistical agent permitted by law to file rates, loss costs, supplementary rating information, statistical plans, advertising and sales materials, or other documents shall file with these documents a completed and signed Form PC TD-1, Property and Casualty Transmittal Document.

(2) If the filing is being made by a third party, a signed letter of authorization from the insurer shall be submitted.

Section 4.

(1) A filing may include any number of documents, filed together on a particular date, pertaining to a single type of insurance identified on the Uniform Property and Casualty Product Coding Matrix This form is available electronically on the National Association of Insurance Commissioners Web site at https://content.naic.org/sites/default/files/inline-files/2021%20PC%20PCM.pdf.

(2) Rates, loss costs, and supplementary rating information shall be filed separately from forms.

Section 5. All rate, loss cost, or supplementary rating information filings shall be accompanied by Form PC RRFS-1. Rate/Ruling Filing Schedule. This form is available electronically at https://insurance.ky.gov/PPC/Documents/NAICPropCasFormFilingSched102708.pdf.

Section 6.

(1)

(a) Except as otherwise provided in paragraph (b) of this subsection, rate filings referencing loss costs formulated by an advisory organization shall be accompanied by Form LC-1 P & C, Calculation of Loss Cost Multiplier. This form is available electronically at https://insurance.ky.gov/PPC/Documents/LC-1%202007.pdf.

(b) A rate filing referencing loss costs formulated by an advisory organization in which an expense constant is used shall be accompanied by Form LC-2 P & C, Expense Constant Supplement, Calculation of Loss Cost Multiplier. This form is available electronically at https://insurance.ky.gov/PPC/Documents/LC-2%20P&C%202007.pdf.

(2) A rate filing to which this section applies shall include separate Forms LC-1 P & C; Calculation of Loss Cost Multiplier; and LC-2 P&C; Expense Constant Supplement, Calculation of Loss Cost Multiplier for each company included in the filing.

Section 7.

(1)

(a) An insurer filing rates or supplement rating information regarding personal automobile insurance shall submit premium comparison information on-line via the Department of Insurance Web site¸ https://insurance.ky.gov/doieservices/UserRole.aspx, if any rate or supplementary rating information change impacts the premium information previously submitted.

(b) If there is not an impact to premium information previously submitted, an explanatory statement shall be included in Form PC TD-1, Property and Casualty Transmittal Document.

(2)

(a) An insurer filing rates or supplemental rating information regarding homeowners' insurance shall submit premium comparison information on-line via the Department of Insurance Web Site, https://insurance.ky.gov/doieservices/UserRole.aspx, if any rate or supplementary rating information change impacts the premium information previously submitted.

(b) If there is not an impact to premium information previously submitted on-line, an explanatory statement shall be included in Form PC TD-1 Property and Casualty Transmittal Document.

(3) A filing to which this section applies shall include a separate premium comparison information for each company included in the filing.

Section 8.

(1) A property and casualty rate or supplementary rating information filing may include rates or supplementary rating information for a particular insurance company or group of insurance companies.

(2) If the filing is made for a group of insurance companies, Form PC TD-1, Property and Casualty Transmittal Document shall identify all companies included in the filing.

Section 9.

(1) Filing fees shall be paid on a per company basis.

(2) Pursuant to KRS 304.4-010(2), all fees and charges payable under the insurance code, KRS Chapter 304, shall be collected by the department pursuant to 806 KAR 4:010.

(3) The period of time in which the commissioner may affirmatively approve or disapprove the filing shall not begin to run until both the complete filing and appropriate fee are received by the department .

Section 10.

(1) An insurer that is a member, subscriber, or service purchaser of an advisory organization or statistical agent may choose to adopt all or some of the loss costs, supplementary rating information, or statistical plans of that advisory organization or statistical agent.

(2) If an insurer chooses to adopt only a specific filing of an advisory organization or statistical agent, it shall do so in accordance with the procedures established in subsection (3) of this section , and shall clearly identify which filing of the advisory organization or statistical agent it is adopting.

(3)

(a) If an insurer chooses to adopt all of the current and future loss costs, supplementary rating information, or statistical plans of an advisory organization or statistical agent, it shall:

Provide written authorization to the advisory organization or statistical agent to notify the commissioner that the insurance company shall adopt all of the loss costs, supplementary rating information, or statistical plans that the advisory organization or statistical agent files on its behalf; or
File written notice with the commissioner that the insurer is adopting by reference all of the current and future loss costs, supplementary rating information, or statistical plans that the advisory organization or statistical agent files.

(b)

If required by law to file its rates, an insurer may file a loss cost multiplier, in accordance with this section and Sections 2 through 9 of this administrative regulation, to adopt the prospective loss costs filed by an advisory organization.
The insurer shall:

a. Apply its loss cost multiplier to a specific loss cost filing; or

b. Elect to have its multiplier apply to all future loss costs filed by the advisory organization.

(c)

The advisory organization or statistical agent shall file the written notice of authorization referred to in paragraphs (a) and (b) of this subsection with the commissioner and shall pay the appropriate fee, pursuant to KRS 304.4-010 and 806 KAR 4:010.
The fee shall be paid for each company sending a written authorization and on the basis of each line of insurance.

(d)

If an insurer that previously authorized an advisory organization or statistical agent to file loss costs, supplementary rating information, or statistical plans on its behalf chooses to not adopt certain loss costs, supplementary rating information, or statistical plans as filed on its behalf by the advisory organization or statistical agent, or changes its loss cost multiplier, the insurer shall file a notice of the nonadoption or change of its loss cost multiplier with the commissioner ]and shall pay the appropriate filing fee, pursuant to KRS 304.4-010 and 806 KAR 4:010.

a. If an insurer chooses to delay the effective date of its adoption of an advisory organization or statistical agent filing, it shall submit a letter requesting the revised date upon which it will adopt the filing.

b. The delayed adoption date shall be within six (6) months of the original effective date.

c. If additional time is needed, a second letter shall be submitted, requesting a revised delayed adoption date.

d. All revised delayed adoption dates shall be within one (1) year of the original effective date as filed by the advisory organization or statistical agent.

If an insurer fails to adopt the advisory organization or statistical agent filing within one (1) year of the original effective date as filed by the advisory organization or statistical agent, the insurer shall submit a filing indicating it is not adopting.

Section 11. A property and casualty insurance company, advisory organization and statistical agent may file its prospective loss cost or rate on the commissioners' electronic system for rate and form filings via the Web site www.serff.com. An electronic filing shall substitute for any physical filing.

Section 12. Incorporation by Reference.

(1) The following material is incorporated by reference:

(a) "Uniform Property and Casualty Product Coding Matrix", 01/2021 ;

(b) Form PC TD-1, "Property and Casualty Transmittal Document", 01/2020 ;

(d) LC-1 P&C, "Calculation of Loss Cost Multiplier", 10/2007 ;

(e) LC-2 P&C, "Expense Constant Supplement, Calculation of Loss Cost Multiplier with Expense Constant", 10/2007; ;[.

(2) This material may be inspected, copied, or obtained, subject to applicable copyright law, from the Department of Insurance, The Mayo-Underwood Building, 500 Mero Street, 2 SE 11, , Frankfort, Kentucky 40601, Monday through Friday, 8 a.m. to 4:30 p.m. This material is also available on the department's Internet Web site at: https://insurance.ky.gov/ppc/CHAPTER.aspx or the Web site of the National Association of Insurance Commissioners at www.naic.org.

History

RELATES TO: KRS 304.1-010, 304.1-050, 304.4-010(2), 304.13-011, 304.13-021 304.13-031, 304.13-051, 304.13-061, 304.13-081, 304.21-010, 304.22-020, 304.23-010
STATUTORY AUTHORITY: KRS 304.2-110, 304.13-061
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.2-110 authorizes the commissioner to promulgate administrative regulations necessary for or as an aid to the effectuation of any provision of the Kentucky Insurance Code, defined in KRS 304.1-010. This administrative regulation establishes rate and rule filing procedures for property, casualty, surety, title,and mortgage guaranty insurance.
History: 27 Ky.R. 1402; 1807; eff. 1-15-2001; 28 Ky.R. 2729; 29 Ky.R. 438; eff. 8-12-2002; 34 Ky.R. 1548; 2187; 2286; eff. 5-2-2008; Crt eff. 2-26-2020; 47 Ky.R. 2721; 48 Ky.R. 1148; eff. 1-4-2022.

Chapter 14 Insurance Contract

806 KAR 14:005 Rate and form filing procedures for life insurers, life settlement providers, and life settlement brokers {#sec-806-kar-14-005 omnilex-key=us-ky-regs-official--title-806--806 KAR 14:005}

Section 1. Definitions.

(1) "Commissioner" is defined by KRS 304.1-050(1).

(2) "Department" is defined by KRS 304.1-050(2).

(3) "Life settlement broker" is defined by KRS 304.15-020(16).

(4) "Life settlement provider" is defined by KRS 304.15-020(18).

Section 2. An entity may include any number of forms or documents in a filing for a particular insurance company. These forms or documents shall be filed electronically together on a particular date, pertaining to a single line of insurance.

Section 3. The period of time in which the commissioner may approve or disapprove the filing shall not begin until both the filing and appropriate fee are received by the department.

Section 4. A policy or contract form shall not be used in the Commonwealth of Kentucky until:

(1) It has been approved; and

(2) If rates for the form are required by law to be approved, the appropriate rate schedule has been approved.

Section 5. Each form document, including riders and endorsements, shall be identified by a unique identifying form number in the lower left-hand corner of each page of the document.

Section 6. If a filing includes a form which amends, replaces, or supplements a form which has been previously filed and not disapproved, it shall be accompanied by a letter of explanation from the filing entity establishing:

(1) All changes contained in the newly-filed form;

(2) Any effect the changes have upon the hazards purported to be assumed by the policy;

(3) The rates applicable to the policy, if required; and

(4) A revised form number.

Section 7. If a filing is disapproved, the form numbers used on each form within this filing shall not be used on any form in a future filing.

Section 8.

(1) Facsimile signatures of company officers, attorneys-in-fact, employees, and representatives shall not be required and shall not be submitted with any filing.

(2) A change of signature of the executing officer on a policy form shall not, because of this change alone, require a new filing.

Section 9.

(1) Life insurance companies, life settlement providers, and life settlement brokers shall file a rate or form electronically through the National Association of Insurance Commissioners' electronic system for rate and form filings via the Web site www.serff.com.

(2) An electronic filing as identified in subsection (1) of this section shall be in lieu of a paper filing.

History

RELATES TO: KRS 304.4-010, 304.14-120, 304.14-190, 304.15-020, 304.15-700
STATUTORY AUTHORITY: KRS 304.2-110
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.2-110 authorizes the Commissioner of Insurance to promulgate administrative regulations necessary for or as an aid to the effectuation of any provision of the Kentucky Insurance Code, as defined in KRS 304.1-010. This administrative regulation establishes rate and form filing procedures for life insurers, life settlement providers, and life settlement brokers.
History: I-14.01; 1 Ky.R. 1081; eff. 7-2-1975; Am. 9 Ky.R. 45; eff. 9-8-1982; 20 Ky.R. 2370; 2779; eff. 4-11-1994; 27 Ky.R. 1342; 1808; eff. 1-15-2001; 29 Ky.R. 562; 954; eff. 10-16-2002; 33 Ky.R. 4258; 34 Ky.R. 740; eff. 11-2-2007; 36 Ky.R. 1995; 2045-A; eff. 5-7-2010; Crt eff. 2-26-2020; 47 Ky.R. 1654, 2387; eff. 8-3-2021.

806 KAR 14:006 Property and casualty insurance form filings {#sec-806-kar-14-006 omnilex-key=us-ky-regs-official--title-806--806 KAR 14:006}

Section 1. Definitions.

(1) "Commissioner" is defined by KRS 304.1-050(1).

(2) "Department" is defined by KRS 304.1-050(2).

Section 2. Electronic Filing.

(1) Every insurer, other than life or health insurers, required by law or licensed advisory organization or form provider permitted by law to file policy forms or endorsements, advertising and sales materials, or other documents subject to form filing requirements shall file the forms with the department electronically through the System for Electronic Rate and Form Filing (SERFF) or other electronic manner approved by the department.

(2) If the filing is being made by a third party, a signed letter of authorization from the insurer shall be submitted.

(3) Forms shall be filed separately from rates and rules.

(4) A property and casualty form filing may include forms for a particular insurance company or group of insurance companies.

Section 3.

(1) A policy or form shall not be used in Kentucky until it has been approved unless a policy or form has been exempted by an order of the commissioner pursuant to KRS 304.14-120(4). Any policy or form exempt from prior approval requirements under an order issued by the commissioner pursuant to KRS 304.14-120(4) may be subsequently disapproved for continued use on a prospective basis by the commissioner or designee upon a finding that the policy or form:

(a) Does not meet the requirements of Kentucky law;

(b) Contains any provisions that are unfair, deceptive, ambiguous, misleading, or unfairly discriminatory; or

(c) Is solicited by means of advertising, communication, or dissemination of information which is deceptive or misleading.

(2) If the rates pertaining to a form are required by law to be filed or approved, the form shall not be used until the appropriate rates have been filed or approved as required in accordance with KRS 304.14-120 and 304.13-051.

Section 4.

(1) Filing fees shall be paid on a per-company basis.

(2) The period of time in which the commissioner may approve or disapprove the filing shall not begin to run until both the complete filing and appropriate fee, in accordance with KRS 304.4-010 and 806 KAR 4:010, are received by the department.

Section 5.

(1) Insurers that are members, subscribers, or service purchasers of an advisory organization or form provider permitted by law to file policy forms or endorsements, advertising and sales materials, or other documents other than those pertaining to rates may choose to adopt all or some of the forms of that advisory organization or form provider.

(2) If an insurer chooses to adopt only a specific filing of an advisory organization or form provider, it shall do so in accordance with the procedures set forth in this administrative regulation, and shall clearly identify which filing of the advisory organization or form provider it is adopting.

(3)

(a) If an insurer chooses to adopt all of the policy forms or endorsements, advertising and sales materials, or other documents other than those pertaining to rates of an advisory organization or form provider, it shall:

Provide written authorization to the advisory organization or form provider to file those materials on the insurer's behalf; or
File written notice with the commissioner that it is adopting by reference all the current and future policy forms or endorsements, advertising and sales materials, or other documents other than those pertaining to rates that the advisory organization or form provider files.

(b)

The advisory organization or form provider shall file the written notice of authorization referred to in paragraph (a)1 of this subsection with the commissioner and shall pay the appropriate fee, in accordance with KRS 304.4-010 and 806 KAR 4:010.
The fee shall be paid for each company sending the written authorization and on the basis of each line of insurance.

(c)

If an insurer that previously authorized an advisory organization or forms provider to file on its behalf as referred to in paragraph (a)1 of this subsection, or an insurer that filed written notice with the executive director to adopt by reference as referred to in paragraph (a)2 of this subsection chooses not to adopt certain policy forms or endorsements, advertising and sales materials, or other documents other than those pertaining to rates as filed by the advisory organization or form provider, the insurer shall file a notice of the non-adoption with the commissioner and shall pay the appropriate filing fee, in accordance with KRS 304.4-010 and 806 KAR 4:010.

a. If an insurer chooses to delay the effective date of its adoption of an advisory organization or forms provider filing, it shall submit a letter to the departmentrequesting the revised date upon which it shall adopt the filing.

b. The delayed adoption date shall be within six (6) months of the original effective date.

c. If additional time is needed, a second letter shall be submitted to the department, requesting a revised delayed adoption date.

d. All revised delayed adoption dates shall be within one (1) year of the original effective date as filed by the advisory organization or forms provider.

If an insurer does not adopt the advisory organization or forms provider filing within one (1) year of the original effective date as filed by the advisory organization or forms provider, the insurer shall submit a non-adoption filing.

(4) The requirements of this section shall apply to any filing made pursuant to an exemption order issued by the commissioner under KRS 304.14-120(4), unless the commissioner specifically exempts the advisory organization or form provider from these requirements in the order.

(1) All changes contained in the newly filed form;

(2) The effect, if any, the changes have upon the hazards purported to be assumed by the policy; and

(3) An explanation as to the effect on the applicable rates.

Section 7.

(1) Facsimile signatures of company officers, attorneys-in-fact, employees, and representatives shall not be required and shall not be submitted with any filing.

(2) A change of signature of the executing officer on a policy form shall not, because of this change alone, require a new filing.

History

RELATES TO: KRS 304.1-050, 304.4-010, 304.13-051, 304.14-120, 304.14-190, 304.21-010, 304.22-020, 304.23-010
STATUTORY AUTHORITY: KRS 304.2-110, 304.14-120
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.2-110 authorizes the commissioner to promulgate reasonable administrative regulations necessary for or as an aid to the effectuation of any provision of the Kentucky Insurance Code as defined in KRS 304.1-010. KRS 304.14-120 authorizes the commissioner to approve, disapprove, or exempt insurance documents and forms prior to issuance for delivery in Kentucky. This administrative regulation provides form filing procedures for property, casualty, surety, title, and mortgage guaranty insurance.
History: 27 Ky.R. 1404; Am. 1809; eff. 1-15-2001; 34 Ky.R. 1550; 2289; eff. 5-2-2008; Amd 44 Ky.R. 1665, 2210; eff. 5-4-2018; Crt eff. 4-25-2025.

806 KAR 14:007 Rate and form filing for health insurers {#sec-806-kar-14-007 omnilex-key=us-ky-regs-official--title-806--806 KAR 14:007}

Section 1. Definitions.

(1) "Commissioner" means the Commissioner of Insurance as defined by KRS 304.1-050(1).

(2) "Department" means Department of Insurance as defined by KRS 304.1-050(2).

(3) "Filing entity" means a health insurer authorized to transact business in Kentucky or an entity authorized by that health insurer to submit filings on its behalf.

(4) "Health benefit plan" is defined by KRS 304.17A-005(22).

(5) "Health policy form" or "form" means:

(a) Any application, policy, certificate, contract, rider, or endorsement; and

(b) Includes advertising for long-term care, short-term nursing, and Medicare Supplement products.

(6) "Limited health service benefit plan" is defined by KRS 304.17C-010(5).

Section 2. Filing Procedures.

(1) A health insurance rate and form filing shall be accompanied by a Face Sheet and Verification Form, Form HIPMC-F1.

(2) An individual health insurance rate filing shall be accompanied by an Individual Health Forms Actuarial Certification Form, Form HIPMC-R4.

(3) An insurer issuing, delivering, or renewing a health benefit plan or a limited health service benefit plan shall complete and attach to each plan filed a Health Summary Sheet – Form Filings, Form HL-F11.

(4) Except for a health benefit plan rate filing pursuant to KRS 304.17A-095, a rate filing shall be accompanied by a Rate Filing Information Form, Form HIPMC-R36.

(5) If a rate or form filing submitted by a health insurer does not contain the information necessary to review the filing, the department shall use an Additional Health Information Request Form, Form HIPMC-F16, to request submittal of the incomplete information.

(6) Each form shall be identified by a unique form number in the lower left-hand corner of the first page of the form.Other numbers shall not appear in close proximity to the form number.

(7) Each submission shall be accompanied by a submittal letter listing:

(a) All forms by number with a brief description of each form; and

(b) All of the forms that will be submitted together.

(8) If a form is submitted with alternate pages or alternative benefits, the submittal letter required by subsection (7) of this section shall:

(a) State under what conditions each alternate page or alternative benefit may be used; and

(b) Identify by a unique form number each alternate page or alternative benefit.

(9) If a filing entity files a form containing variable text, the filing entity shall file an explanation of each variation the health insurer proposes to use.

(10) Except for an insert page or alternate page, each form shall contain the corporate name and address of the health insurer.

(11) A form that contains advertising or marketing material shall be filed separately from all other forms.

(12) If a new form is submitted, the filing entity shall identify the unique features of the form.

(13) If a filing includes a form which was previously disapproved by the department, the filing entity shall assign the form a new form number.

Section 3. Filing Entity. A filing entity may include in a filing multiple forms or documents pertaining to a single line of insurance, filed together on a particular date.

Section 4. Date of Filing. Pursuant to KRS 304.4-010(2), a fee payable under the Kentucky Insurance Code shall be collected in advance, unless an insurer is excluded from paying the fee in advance pursuant to KRS 304.4-010(3). The period of time in which the commissioner may approve or disapprove a filing shall not commence, and the submission shall not be given a filing date, until the following are received by the department:

(1) The rate or form filing;

(2) The appropriate fee pursuant to 806 KAR 4:010; and

(3) The form or letter of explanation required by Sections 2 and 6 of this administrative regulation, as appropriate.

Section 5. Use of Forms and Rates.

(1) A form or rate filing shall not be used in Kentucky until:

(a) The form or rate has been approved by the department, which shall occur within the sixty (60) day timeframe identified in KRS 304.14-120(2) except as follows:

If the 60th day falls on a weekend or holiday, the 60th day shall be the following business day; and
If the commissioner grants an extension of the sixty (60) day time period required for approval or disapproval of a form or rate, and the insurer does not submit a corrected form or rate or additional requested information at least five (5) days prior to the expiration of the extended time period, the filing shall be disapproved; and

(b) If a rate for the form is required by KRS 304.14-120 to be approved, the appropriate rate schedule has been approved.

(2) A document subject to a filed-only process, including advertisements and provider directories, shall be:

(a) Filed with the department; and

(b) Subject to review in accordance with KRS 304.14-120.

Section 6. Form Revision. If a filing includes a form that amends, replaces, or supplements a form which has been previously filed, it shall be accompanied by a letter of explanation from the filing entity which identifies:

(1) All changes contained in the newly filed form;

(2) The form being replaced;

(3) The date the replaced form was:

(a) Approved;

(b) Disapproved;

(d) Submitted; and

(4) The effect the changes have upon the policy or the rates applicable to the policy.

Section 7. Rate Revision and Annual Rate Filings.

(1) The following shall be included and properly completed in a filing for rate revision or annual rate filing:

(a) Signed actuarial memorandum, in accordance with 806 KAR 17:070, Section 4;

(b) New rate sheet, in accordance with 806 KAR 17:070, Section 3; and

(2) An appropriate fee, shall be submitted with each filing, pursuant to 806 KAR 4:010.

Section 8. Officer Signature. A change of signature of the executing officer on a policy form shall not, because of this change alone, require a new filing.

Section 9. Electronic Filings.

(1) A health insurer may file a rate or form electronically through the National Association of Insurance Commissioners' electronic system for rate and form filings via the Web site www.serff.com.

(2) An electronic filing as identified in subsection (1) of this section shall be in lieu of a paper filing.

Section 10. Incorporation by Reference.

(1) The following material is incorporated by reference:

(a) Form HIPMC-F1, "Face Sheet and Verification Form", 10/2021 edition;

(b) Form HL-F11, "Health Summary Sheet – Form Filings", 07/2020 edition;

(d) Form HIPMC-R36, "Rate Filing Information Form", 07/2020 edition; and

(e) Form HIPMC-F16, "Additional Health Information Request Form", 07/2020 edition.

(2) This material may be inspected, copied or obtained, subject to applicable copyright law, at the Department of Insurance, Mayo-Underwood Building, 500 Mero Street, Frankfort, Kentucky 40601, Monday through Friday, 8 a.m. to 4:30 p.m. This material is also available on the department's Web site at: https://insurance.ky.gov/ppc/CHAPTER.aspx.

History

RELATES TO: KRS 304.1-010, 304.12-020, 304.1-050, 304.3-270, 304.4-010, 304.14-120, 304.14-190,304.17-380, 304.17A-005, 304.17A-095, 304.17A-096, 304.17C-010(5)
STATUTORY AUTHORITY: KRS 304.2-110(1), 304.14-420
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.2-110(1) authorizes the Commissioner of Insurance to promulgate reasonable administrative regulations necessary for or as an aid to the effectuation of the Kentucky Insurance Code, as defined by KRS 304.1-010. KRS 304.14-420 requires the commissioner to promulgate administrative regulations to establish minimum standards for the readability and intelligibility of insurance contracts. This administrative regulation establishes rate and form filing procedures for health insurers.
History: 29 Ky.R. 608; Am. 955; eff. 10-16-2002; 32 Ky.R. 156; 499; eff. 10-7-2005; 34 Ky.R. 1802; 2093; eff. 4-4-2008; 35 Ky.R. 650; 12-5-2008; Crt eff. 2-26-2020; 47 Ky.R. 1656, 2388; eff. 8-3-2021; 48 Ky.R. 1662, 2224; eff. 5-3-2022.

806 KAR 14:010 Proof of loss; form {#sec-806-kar-14-010 omnilex-key=us-ky-regs-official--title-806--806 KAR 14:010}

Section 1. An insurer shall not refuse to accept a proof of loss submitted by a policyholder in support of a claim under its policy solely because it is not in or upon a particular form required by the insurer, unless within reasonable time following receipt of notice of claim the insurer notifies the policyholder in writing as to the minimum requirements in a particular form which will be acceptable.

History

RELATES TO: KRS 304.14-270
STATUTORY AUTHORITY: KRS 304.2-110
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.2-110 provides that the Executive Director of Insurance may make reasonable rules and administrative regulations necessary for or as an aid to the effectuation of any provision of the Kentucky Insurance Code. This administrative regulation prohibits insurer's rejection of an insured's proof of loss solely for failure to be in or on a particular form.
History: I-14.09; 1 Ky.R. 866; eff. 5-14-75; TAm eff. 8-9-2007; Crt eff. 2-26-2020.

806 KAR 14:020 Binders {#sec-806-kar-14-020 omnilex-key=us-ky-regs-official--title-806--806 KAR 14:020}

Section 1. No binder shall be issued covering any property or casualty risk within the Commonwealth of Kentucky unless a proper premium is charged therefor, and no such coverage shall be cancelled flat. In every case, the agent must charge the proper pro rata or short rate premium for the period of risk.

Section 2.

(1) When a policy is issued in the same company, the date of commencement of the policy must be the same as the binder unless a pro rata earned premium is charged for the period of the binder.

(2) Binders in effect less than fifteen (15) days, however, may be cancelled flat as "not taken" without premium charge, subject to the approval of the company; provided the cancelled binder is received by the insuring company within fifteen (15) days of its effective date.

Section 3. This administrative regulation does not apply to business being audited by the office of insurance services and successor agencies, as the subject is covered in its filed and approved rule book. On lines not being audited by said office, every binder shall be handled in accordance with this administrative regulation.

History

RELATES TO: KRS 304.14-220
STATUTORY AUTHORITY: KRS 304.2-110
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.2-110 provides that the Executive Director of Insurance may make reasonable rules and administrative regulations necessary for or as an aid to the effectuation of any provision of the Kentucky Insurance Code. This administrative regulation sets forth certain requirements to be met by companies when issuing binders.
History: I-14.10; 1 Ky.R. 866; eff. 5-14-75; TAm eff. 8-9-2007; Crt eff. 2-26-2020.

806 KAR 14:030 Participating policy dividends not to be guaranteed {#sec-806-kar-14-030 omnilex-key=us-ky-regs-official--title-806--806 KAR 14:030}

Section 1. Payments of dividends under participating policies shall not be guaranteed and statements or words shall not be used in or in connection with any policy which imply that the payment of dividends is guaranteed or certain to occur.

History

RELATES TO: KRS 304.14-290
STATUTORY AUTHORITY: KRS 304.2-110
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.2-110 provides that the Executive Director of Insurance may make reasonable rules and administrative regulations necessary for or as an aid to the effectuation of any provision of the Kentucky Insurance Code. This administrative regulation prohibits the guaranteeing of payments of dividends under participating policies.
History: I-14.12; 1 Ky.R. 866; eff. 5-14-75; TAm eff. 8-9-2007; Crt eff. 2-26-2020.

806 KAR 14:050 Additional benefits to policyholders {#sec-806-kar-14-050 omnilex-key=us-ky-regs-official--title-806--806 KAR 14:050}

Section 1. If additional benefits are afforded to property and casualty insurance policyholders of an insurer which do not require increases in premium rates or reductions or restrictions of coverage, such additional benefits shall also be afforded to all prior policyholders paying the same rates and each such policy shall be interpreted by the insurer as if such additional benefits were contained in the prior policies.

History

RELATES TO: KRS 304.14-180
STATUTORY AUTHORITY: KRS 304.2-110
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.2-110 provides that the Executive Director of Insurance may make reasonable rules and administrative regulations necessary for or as an aid to the effectuation of any provision of the Kentucky Insurance Code. This administrative regulation requires additional benefits extended to some policyholders under a policy without additional premium to be extended to all policyholders under the same policy.
History: I-14.14; 1 Ky.R. 867; eff. 5-14-75; TAm eff. 8-9-2007; Crt eff. 2-26-2020.

806 KAR 14:090 Grouping for preferential treatment prohibited {#sec-806-kar-14-090 omnilex-key=us-ky-regs-official--title-806--806 KAR 14:090}

Section 1. A form, plan, or policy of insurance covering any group or combination of persons or risks, other than life or health insurance, shall not be written or delivered within or outside the Commonwealth of Kentucky to cover a Kentucky person or risk at any preferred rate or form other than that offered to the public generally, unless the form, plan, or policy and the rate or premium to be charged have been submitted to and approved by the Commissioner of Insurance.

History

RELATES TO: KRS 304.12-080, 304.13-051, 304.14-120
STATUTORY AUTHORITY: KRS 304.2-110
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.2-110 authorizes the Commissioner of Insurance to promulgate administrative regulations necessary for or as an aid to the effectuation of any provision of the Kentucky Insurance Code, as defined in KRS 304.1-010. This administrative regulation prohibits the grouping of persons or risks for preferential treatment in insurance rates or forms.
History: I-14.07; 1 Ky.R. 1082; eff. 5-14-75; TAm eff. 8-9-2007; Crt eff. 2-26-2020; 47 Ky.R. 1658, 2389; eff. 8-3-2021.

806 KAR 14:100 Certificate not to alter contract {#sec-806-kar-14-100 omnilex-key=us-ky-regs-official--title-806--806 KAR 14:100}

Section 1. Each certificate or memorandum of property or casualty insurance when issued to any person other than the policyholder shall contain the following or similar statement: "This certificate or memorandum of insurance neither affirmatively nor negatively amends, extends, or alters the coverage afforded by policy number ____ issued by ____."

Section 2. Prior to its use, each insurer shall file with the executive director the form of certificate or memorandum of insurance which will be used by such company.

History

RELATES TO: KRS 304.14-120
STATUTORY AUTHORITY: KRS 304.2-110
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.2-110 provides that the Executive Director of Insurance may make reasonable rules and administrative regulations necessary for or as an aid to the effectuation of any provision of the Kentucky Insurance Code. This administrative regulation requires that memoranda or certificates of insurance, as herein defined, shall not amend, extend or alter the coverage of an existing contract.
History: 1 Ky.R. 1082; Am. 2 Ky.R. 26; eff. 7-2-75; TAm eff. 8-9-2007; Crt eff. 2-26-2020.

806 KAR 14:110 Dividend plans; filing, participation {#sec-806-kar-14-110 omnilex-key=us-ky-regs-official--title-806--806 KAR 14:110}

Section 1. To encourage savings in the net cost of insurance protection, insurers authorized to transact insurance in this state may, issue a policy allowing the insured to participate in the dividend earning of the insurer. This administrative regulation shall not apply to dividends to shareholders in a stock company or to general dividends to policyholders in a mutual company.

Section 2.

(1) An insurer shall file or refile with the commissioner, in the same manner as a rate filing, every proposed dividend plan and every modification of a dividend plan, including discontinuance, which it intends to use, accompanied by the information that supports the filing.

(2)

(a) A filing shall not propose both a participating and nonparticipating policy for the same class of risk. Any classification by the insurer of its participating policy and of risks assumed under that policy which the insurer may make shall be reasonable and nondiscriminatory. In determining the proposed eligibility requirements for a dividend plan, the underlying standard shall be the demonstrated or demonstrable success in savings in expenses or in losses above levels anticipated in previously filed rates.

(b) Any proposed dividend plan shall be made available to all insureds meeting the eligibility requirements set forth in the dividend plan.

(c) An agent appointed by one (1) or more companies of a group of affiliated insurers shall also be appointed by the company within the group authorized to write participating insurance policies. Notice and details of the availability of the program in Kentucky shall be given to all licensed agents within the authorized group.

(3) If the filing is an initial filing or the facts or the laws have changed since a prior filing has been used, the filing shall contain either satisfactory evidence of proper specific charter as defined in KRS 304.3-050, authority to issue a participating policy, or satisfactory evidence that unless otherwise provided by its charter, the laws of its domicile provide that it may issue a policy entitled to participate in the earnings of the insurer through dividends.

(4) The filing shall also contain proposed policy provisions or proposed policy endorsement forms for the payment of dividends which shall further provide that all dividends be paid by the insurer directly to the insured, and that no dividends may be assigned to associations or others, except upon assignment of the policy for value. If the provision for the payment of dividends is made by separate endorsement rather than incorporated in the policy form, the endorsement shall be attached to each policy issued.

Section 3.

(1) Dividends to participating policies shall be paid only out of that part of surplus funds that derives from any realized net profits from the insurer's business. An insurer or its agents shall not guarantee or promise to a policyholder or prospective policyholder the amount of percentage of dividends to be paid. A dividend, otherwise earned, shall not be made contingent upon payment of renewal premium on any policy, or membership in, or affiliation with, any association.

(2) All brochures and advertising material shall affirmatively and clearly set forth that dividends are not guaranteed and that all policyholders are eligible for the dividend program whether or not they are members of, or affiliated with, any association.

History

RELATES TO: KRS 304.3-050, 304.12-010, 304.12-080-304.12-110, 304.13-031, 304.13-051, 304.13-053, 304.13-057, 304.13-058, 304.13-061, 304.13-071, 304.13-075, 304.13-169, 304.14-120, 304.15-380, 304.24-250, 304.24-310, 304.24-320, 304.24-330
STATUTORY AUTHORITY: KRS 304.2-110
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.2-110 authorizes the Commissioner of Insurance to promulgate administrative regulations necessary for or as an aid to the effectuation of any provision of the Kentucky Insurance Code, as defined in KRS 304.1-010. This administrative regulation permits the participation by insureds in dividend premium plans under "participating" policies and requires a filing of the dividend plans with the commissioner.
History: I-14.11; 1 Ky.R. 1082; Am. 2 Ky.R. 27; eff. 7-2-75; TAm eff. 8-9-2007; Crt eff. 2-26-2020; 47 Ky.R. 1659, 2390; eff. 8-3-2021.

806 KAR 14:121 Minimum standards for the readability and intelligibility of insurance contracts {#sec-806-kar-14-121 omnilex-key=us-ky-regs-official--title-806--806 KAR 14:121}

Section 1. Definitions.

(1) "Amended" or "renewed" does not include changes or an extension of the term that are contractually granted and exercised by the policy owner or insured under the provisions of the policy;

(2) "Commissioner" is defined by KRS 304.1-050(1);

(3) "Personal lines insurance" means those personal lines of insurance established in KRS 304.14-420(1); and

(4) "Text" means all printed matter, except:

(a)

The name and address of the insurer;
The name, number, or title of the policy;
The table of contents or index;
Captions and subcaptions;
Specification or declarations pages;
Schedules; or
Tables; and

(b) Any policy language that is drafted to conform to the requirements of any federal law, administrative regulation, or agency interpretation, any medical terminology, and any policy language required by law or administrative regulation, but the insurer shall certify that the language is entitled to be excepted from the definition of "text" as established in this paragraph.

Section 2. Scope.

(1) This administrative regulation shall apply to all personal lines insurance policies delivered, issued for delivery, amended, or renewed in Kentucky on and after one (1) year from the effective date of this administrative regulation.

(2) This administrative regulation shall not apply to policies issued for conversion from policies not subject to this administrative regulation.

Section 3. Minimum Standards for Legibility. A personal lines insurance policy shall not be delivered, issued for delivery, amended, or renewed in Kentucky unless it is printed, except for specification or declarations pages, schedules, and tables, in not less than ten (10) point type, one (1) point leaded.

Section 4.

(1) The following type face styles shall be acceptable for personal lines insurance policies:

(a) Aldus;

(b) Alternate Gothic No. 3;

(d) American Typewriter Medium;

(e) Americana;

(f) Andover (Palatino);

(g) Antique Olive Light;

(h) Aster;

(i) Auriga;

(j) Avant Garde Light;

(k) Avant Garde Book;

(l) Baskerville;

(m) Bembo;

(n) Benguiat Book;

(o) Bodoni;

(p) Bodoni Book;

(q) Bookman;

(r) Caledonia;

(s) Candida;

(t) Caslon Old Face No. 2;

(u) Century Expanded;

(v) Century Schoolbook;

(w) Chelmsford (Optima);

(x) Clarendon Light;

(y) Clearface;

(z) Crown (Century);

(aa) Egyptian;

(bb) Egyptian Light;

(cc) Electra;

(dd) Eurostile;

(ee) Fairfield Medium;

(ff) Friz Quadrata;

(gg) Garamond;

(hh) Garamond No. 3;

(ii) Goudy Oldstyle;

(jj) Hanover (Melior);

(kk) Helvetica Light;

(ll) Helvetica;

(mm) Helvetica Condensed;

(nn) Highland (Calendonia);

(oo) Iridium;

(pp) Italia Book;

(qq) Janson;

(rr) Korinna;

(ss) Megaron Light (Helvetica Light);

(tt) Megaron Medium (Helvetica Medium);

(uu) Melior;

(vv) Memphis Light;

(ww) Memphis Medium;

(xx) Monticello;

(yy) News Gothic;

(zz) Optima;

(aaa) Orion;

(bbb) Palatino;

(ccc) Primer;

(ddd) Quorum Light;

(eee) Quorum Book;

(fff) Rotation;

(ggg) Sabon;

(hhh) Schoolbook;

(iii) Serif Gothic Light;

(jjj) Souvenir;

(kkk) Souvenir Light;

(lll) Stymie Medium;

(mmm) Stymie Light;

(nnn) Tiffany Light;

(ooo) Tiffany Medium;

(ppp) Times Roman;

(qqq) Trade Gothic Light;

(rrr) Trade Gothic;

(sss) Trade Gothic Condensed;

(ttt) Trade Gothic Extended;

(uuu) Triumvirant;

(vvv) Trump;

(www) Trump Medieval;

(xxx) Univers Light;

(yyy) Univers Medium;

(zzz) Univers No. 45;

(aaaa) Univers No. 46;

(bbbb) Univers No. 55;

(cccc) Univers No. 56;

(dddd) Univers No. 57; and

(eeee) Univers 45 Light.

(2) Any type face style selected other than those listed in subsection (1) of this section shall not be used unless approved by the commissioner. Extreme type styles including "Old English" or heavy block shall not be acceptable.

(3) Italics, bold face, and contrasting styles may be used to emphasize important or technical terms and for captions. If two (2) or more type face styles are used, these shall be visually compatible.

Section 5. Minimum Standards for Intelligibility.

(1) A personal lines insurance policy shall not be delivered, issued for delivery, amended, or renewed in this state unless the text achieves a minimum score of forty (40) on the Flesch reading ease test, or an equivalent score on any other reading test approved by the commissioner for use as an alternative that is comparable in result to the Flesch reading ease test.

(2) For the purposes of this section, a Flesch reading ease test score shall be measured by the following method:

(a) For policy forms containing 10,000 words or less of text, the entire policy form shall be analyzed. For policy forms containing more than 10,000 words, the readability of two (2) 200 word samples per page may be analyzed instead of the entire policy form. The samples shall be separated by at least twenty (20) printed lines. Any endorsement made a part of the policy may, at the determination of the insurer, be scored separately or as part of the policy.

(b) The number of words and sentences in the text shall be counted and the total number of words divided by the total number of sentences. The figure obtained shall be multiplied by a factor of 1.015.

(c) The total number of syllables shall be counted and divided by the total number of words. The figure obtained shall be multiplied by a factor of 84.6.

(d) The sum of the figures computed under paragraphs (b) and (c) of this subsection subtracted from 206.835 equals the Flesch reading ease score for the policy form.

(e) For the purposes of paragraphs (b), (c), and (d) of this subsection, the following procedures shall be used:

A contraction, hyphenated word, or numbers and letters, if separated by spaces, shall be counted as one (1) word;
A unit of words ending with a period, semicolon, or colon, but excluding headings and captions, shall be counted as one (1) sentence; and
A syllable means a unit of spoken language consisting of one (1) or more letters of words as divided by an accepted dictionary. If the dictionary shows two (2) or more equally acceptable pronunciations of a word, the pronunciation containing fewer syllables may be used.

(3) Each policy form filing subject to this administrative regulation shall be accompanied by a certificate signed by an officer of the insurer or other insurer representative authorized by the board of directors stating that the policy form meets the minimum reading ease score on the test used, or stating that the score is lower than the minimum required, but the policy form may be approved in accordance with subsection (4) of this section.

(4) The commissioner may approve a policy form filing with a lower reading ease test score than the Flesch reading ease score required in subsection (1) of this section if he or she finds that a lower score:

(a) Will provide a more accurate reflection of the readability of a policy form;

(b) Is warranted by the nature of a particular policy form, or type or class of policy forms; or

(c) Is caused by certain policy language that is drafted to conform to the requirements of any federal or state law, administrative regulation, or agency interpretation.

History

RELATES TO: KRS 304.14-130, 304.14-420-304.14-450
STATUTORY AUTHORITY: KRS 304.2-110, 304.14-420, 304.14-450(1)
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.2-110 authorizes the Commissioner of Insurance to promulgate administrative regulations necessary for or as an aid to the effectuation of any provision of the Kentucky Insurance Code, as defined in KRS 304.1-010. KRS 304.14-420(2) requires the Commissioner of Insurance to promulgate administrative regulations to establish minimum standards for the readability and intelligibility of insurance contracts. KRS 304.14-450(1) requires the Commissioner of Insurance to promulgate administrative regulations establishing a list of type face styles acceptable for use in insurance contracts. This administrative regulation establishes the list of type face styles acceptable for use in insurance contracts, and the minimum standards for readability and intelligibility of insurance contracts.
History: 16 Ky.R. 516; eff. 11-4-1989; TAm eff. 8-9-2007; Crt eff. 2-26-2020; 47 Ky.R. 1661, 2586; eff. 8-31-2021.

Chapter 15 Life Insurance and Annuity Contracts

806 KAR 15:010 Variable annuity contracts {#sec-806-kar-15-010 omnilex-key=us-ky-regs-official--title-806--806 KAR 15:010}

Section 1. Scope and Definitions.

(1) The term "variable contract," when used in this administrative regulation, shall mean any contract which provides for annuity benefits which vary according to the investment experience of any separate account or accounts maintained by the insurer as to such contract, as provided for in KRS 304.15-390.

(2) "Agent," when used in this administrative regulation, shall mean any person, corporation, partnership, or other legal entity which under the laws of this state is licensed as a life insurance agent.

Section 2. Qualification of Insurance Companies to Issue Variable Contracts.

(1) No company shall deliver or issue for delivery variable contracts within this state unless:

(a) It is licensed or organized to do a life insurance or annuity business in this state; and

(b) The commissioner is satisfied that its condition or method of operation in connection with the issuance of such contracts will not render its operation hazardous to the public or its policyholders in this state. In this connection, the commissioner shall consider, among other things:

The history and financial condition of the company;
The character, responsibility and fitness of the officers and directors of the company; and
The law and administrative regulation under which the company is authorized in the state of domicile to issue variable contracts.

(2) If the company is a subsidiary of an admitted life insurance company, or affiliated with such company by common management or ownership, it may be deemed by the commissioner to have satisfied the provisions of subsection (1)(b) of this section if either it or such admitted life company satisfies the aforementioned provisions; provided, further, that companies licensed and having a satisfactory record of doing business in this state for a period of at least three (3) years may be deemed to have satisfied the commissioner with respect to subsection (1)(b) of this section.

(3) Before any company shall deliver or issue for delivery variable contracts within this state it shall submit to the commissioner:

(a) A general description of the kinds of variable contracts it intends to issue.

(b) If requested by the commissioner, a copy of the statutes and administrative regulations of its state of domicile under which it is authorized to issue variable contracts; and

(c) If requested by the commissioner, biographical data with respect to officers and directors of the company on the NAIC uniform biographical data forms.

Section 3. Separate Account or Separate Accounts. A domestic company issuing variable contracts shall establish one (1) or more separate accounts pursuant to KRS 304.15-390, subject to the following provisions of this section:

(1)

(a) Except as may be provided with respect to reserves for guaranteed benefits and funds referred to in paragraph (b) of this subsection.

Amount allocated to any separate account and accumulations thereon may be invested and reinvested without regard to any requirements or limitations prescribed by the laws of this state governing the investments of life insurance companies; and
The investments in such separate account or accounts shall not be taken into account in applying the investment limitations otherwise applicable to the investments of the company.

(b) Reserves for:

Benefits guaranteed as to dollar amount and duration; and
Funds guaranteed as to principal amount or stated rate of interest may be maintained in a separate account if a portion of the assets of such separate account at least equal to such reserve liability is invested in accordance with the laws and administrative regulations of this state governing the investments of life insurance companies. Such portion of the assets also shall not be taken into account in applying the investment limitations otherwise applicable to the investments of the company.

(c) With respect to seventy-five (75) percent of the market value of the total assets in a separate account no company shall purchase or otherwise acquire the securities of any insurer, other than securities issued or guaranteed as to principal or interest by the United States, if immediately after such purchase or acquisition the market value of such investment, together with prior investments of such separate account in such security taken at market would exceed ten (10) percent of the market value of the assets of said separate account; provided, however, that the executive director may waive such limitation if, in his opinion, such waiver will not render the operation of such separate account hazardous to the public or the policyholders in this state.

(d) Unless otherwise permitted by law or approved by the commissioner, no company shall purchase or otherwise acquire for its separate accounts the voting securities of any insurer if as a result of such acquisition the insurance company and its separate accounts, in the aggregate, will own more than ten (10) percent of the total issued and outstanding voting securities of such insurer; provided, that the foregoing shall not apply with respect to securities held in separate accounts, the voting rights in which are exercisable only in accordance with instructions from persons having interest in such accounts.

(e) The limitations provided in paragraphs (c) and (d) of this subsection shall not apply to the investment with respect to a separate account in the securities of an investment company registered under the Investment Company Act of 1940, provided that the investments of such investment company comply in substance with paragraphs (c) and (d) of this subsection.

(2) Unless otherwise approved by the commissioner, assets allocated to a separate account shall be valued at their market value on the date of valuation, or if there is no readily available market, then as provided under the terms of the contract or the rules or other written agreement applicable to such separate account; provided, that unless otherwise approved by the commissioner, the portion, if any, of the assets of such separate account equal to the company's reserve liability with regard to the benefits and funds referred to in subsection (1)(b) of this section shall be valued in accordance with the rules otherwise applicable to the company's assets.

(3) If and to the extent so provided under the applicable contracts, that portion of the assets of any such separate account equal to the reserves and other contract liabilities with respect to such account shall not be chargeable with liabilities arising out of any other business the company may conduct.

(4) Notwithstanding any other provisions of law a company may:

(a) With respect to any separate account registered with the Securities and Exchange Commission as a unit investment trust exercise voting rights in connection with any securities of a regulated investment company registered under the Investment Company Act of 1940 and held in such separate accounts in accordance with instructions from persons having interests in such accounts ratably as determined by the company; or

(b) With respect to any separate account registered with the Securities and Exchange Commission as a management investment company, establish for such account a committee, board, or other body, the members of which may or may not be otherwise affiliated with such company and may be elected to such membership by the vote of persons having interests in such account ratably as determined by the company. Such committee, board or other body may have the power, exercisable alone or in conjunction with others to manage such separate account and the investment of its assets.

(c) With respect to any separate account registered with the Securities and Exchange Commission, a company, committee, board or other body may make such other provisions as may be deemed appropriate to facilitate compliance with requirements of any federal or state law now or hereafter in effect; provided that the commissioner approves such provisions as not hazardous to the public or the company's policyholders in this state.

(5) 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 (1) or more of its separate accounts unless, in case of a transfer into a separate account, such transfer is made solely to establish the account or to support the operation of the contracts with respect to the separate account to which the transfer is made, and unless such transfer, whether into or from a separate account is made by a transfer of cash, or by a transfer of securities having a valuation which could be readily determined in the marketplace, provided that such transfer of securities is approved by the commissioner. The commissioner may authorize other transfers among such accounts if, in his opinion, such transfers would not be inequitable.

(6) The company shall maintain in each such separate account assets with a value at least equal to the reserves and other contract liabilities with respect to such account, except as may otherwise be approved by the commissioner.

(7) Rules under any provision of the insurance laws of this state or any administrative regulation applicable to the officers and directors of insurance companies with respect to conflicts of interest shall also apply to members of any separate accounts committee, board or other similar body. No officer or director of such company nor any member of the committee, board or body of a separate account shall receive directly or indirectly, any commissioner commission or any other compensation with respect to the purchase or sale of assets of such separate account.

Section 4. Filing of Contracts. The filing requirements applicable to variable contracts shall be those filing requirements otherwise applicable under existing statutes and administrative regulations of this state with respect to individual and group life insurance and annuity contract form filings to the extent appropriate.

Section 5. Contracts Providing for Variable Benefits.

(1) Any variable contract providing benefits payable in variable amounts delivered or issued for delivery in this state shall contain a statement of the essential features of the procedures to be followed by the insurance company in determining the dollar amount of such variable benefits. Any such contract, including a group contract and any certificate in evidence of variable benefits issued thereunder, shall state that such dollar amount will vary to reflect investment experience and shall contain on its first page a clear statement to the effect that the benefits thereunder are on a variable basis.

(2) Illustrations of benefits payable under any variable contract shall not include projections of past investment experience into the future or attempted predictions of future investment experience; provided that nothing contained herein is intended to prohibit use of hypothetical assumed rates of return to illustrate possible levels of benefits.

(3) No individual variable contract calling for the payment of periodic stipulated payments shall be delivered or issued for delivery in this state unless it contains in substance the following provision or provisions which in the opinion of the commissioner are more favorable to the holders of such contracts:

(a) A provision that there shall be a period of grace of thirty (30) days or of one (1) month, within which any stipulated payment to the insurer falling due after the first may be made, during which period of grace the contract shall continue in force. The contract may 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;

(b) A provision that, at any time within three (3) years from the date of default, in making periodic stipulated payments 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 may 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;

(c) A provision specifying the options available in the event of default in a periodic stipulated payment. Such 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.

(4) Any variable contract delivered or issued for delivery in this state shall stipulate the investment increment factors to be used in computing the dollar amount of variable benefits or other variable contractual payments or values thereunder, and may guarantee that expense and/or mortality results shall not adversely affect such dollar amounts. In the case of an individual variable contract under which the expense and mortality results may adversely affect the dollar amount of benefits, the expense and mortality factors shall be stipulated in the contract.

(a) In computing the dollar amount of variable benefits or other contractual payments or values under an individual variable contract:

The annual net investment increment assumption shall not exceed five (5) percent, except with the approval of the commissioner;
To the extent that the level of benefits may be affected by future 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 lower life expectancy at any age, or, if approved by the commissioner, from another table.

(b) "Expense," as used this subsection, may exclude some or all taxes, as stipulated in the contract.

(5) The reserve liability for variable contracts shall be established pursuant to the requirements of the standard valuation law in accordance with actuarial procedures that recognize the variable nature of the benefits provided and any mortality guarantees.

Section 6. Required Reports.

(1) Any company issuing individual variable contracts shall mail to the contract holder at least once in each contract year after the first at his last address known to the company, a statement or statements reporting the investments held in the separate account. The company shall submit annually to the insurance commissioner a statement of the business of its separate account or accounts in such form as may be prescribed by the National Association of Insurance Commissioners.

(2) Any company issuing individual variable contracts shall mail to the contract holder at least once in each contract year after the first at his last address known to the company, a statement reporting as of a date not more than four (4) months previous to the date of mailing, in the case of an annuity contract under which payments have not yet commenced:

(a) The number of accumulation units credited to such contract and the dollar value of a unit; or

(b) The value of the contract holder's account.

Section 7. Foreign Companies. If the law or administrative regulation in the place of domicile of a foreign company provides a degree of protection to the policyholders and the public which is substantially equal to that provided by this administrative regulation, the commissioner, to the extent deemed appropriate by him in his discretion, may consider compliance with such law or administrative regulation as compliance with this administrative regulation.

Section 8.

(1) No person shall be or act as an agent for the solicitation or sale of variable contracts except while duly appointed and licensed under the Kentucky Insurance Code as life insurance agent with respect to the insurer, and while meeting federal law requirements for dealing in securities.

(2) Any person doing business as agent under this section shall immediately report to the commissioner:

(a) The imposition of any disciplinary sanction (including, but not limited to, suspension or revocation of membership, suspension, revocation, or denial of registration) imposed upon such person by any national securities exchange, national securities association, or any federal, state, or territorial agency with jurisdiction over securities, variable annuities, or variable life insurance.

(b) Any judgment or injunction entered against such person on the basis of conduct deemed to have involved unfair, false, misleading, or deceptive practices, or violation of any securities law (whether statute or administrative regulation).

Section 9. Exemptions. This administrative regulation shall not apply to a deposit administration or similar contract pursuant to which a separate account is established in connection with the employee pension, retirement or profit-sharing plan of the insurer and/or its affiliates.

History

RELATES TO: KRS 304.7-240, 304.9-160, 304.15-390
STATUTORY AUTHORITY: KRS Chapter 13A, 304.2-110, 304.15-390
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.2-110 provides that the Commissioner of Insurance may make reasonable rules and administrative regulations necessary for or as an aid to the effectuation of any provision of the Kentucky Insurance Code. KRS 304.15-390 provides that the commissioner may promulgate administrative regulations controlling the sale and issuance of variable contracts. This administrative regulation sets forth the requirements on variable annuity contracts.
History: I-15.01; 1 Ky.R. 867; eff. 5-14-75; Am. 11 Ky.R. 261; 595; eff. 10-9-84; TAm eff. 8-9-2007; Crt eff. 2-26-2020; TAm eff. 3-10-2020.

806 KAR 15:020 Wholesale life insurance; employer's contribution; dividends {#sec-806-kar-15-020 omnilex-key=us-ky-regs-official--title-806--806 KAR 15:020}

Section 1. As used in KRS 304.15-020, the phrase "funds contributed by the employer" shall be deemed to mean those funds contributed by the employer which make an effective contribution to the net cost of the insurance, on the life of the employee.

Section 2. Any dividend returned upon a whole life insurance policy shall be applied for the sole benefit of insured employees.

History

RELATES TO: KRS 304.15-020
STATUTORY AUTHORITY: KRS 304.2-110
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.2-110 provides that the Commissioner of Insurance may make reasonable rules and administrative regulations necessary for or as an aid to the effectuation of any provision of the Kentucky Insurance Code. This administrative regulation clarifies the meaning of the phrase "funds contributed by the employer" as used in KRS 304.15-020. It also requires the payment of dividends on such policies to the insured.
History: I-15.02; 1 Ky.R. 869; eff. 5-14-75; TAm eff. 8-9-2007; Crt eff. 2-26-2020; TAm eff. 3-10-2020.

806 KAR 15:030 Variable life insurance {#sec-806-kar-15-030 omnilex-key=us-ky-regs-official--title-806--806 KAR 15:030}

Section 1. Definitions. As used in this administrative regulation:

(1) "Affiliate" of an insurer means any person, directly or indirectly, controlling, controlled by, or under common control with such insurer; any person who regularly furnishes investment advice to such insurer with respect to its separate accounts for which a specific fee or commission is charged; or any director, officer, partner, or employee of such insurer, controlling or controlled person, or person providing investment advice or any member of the immediate family of such person.

(2) "Agent" means any person, corporation, partnership, or other legal entity which is licensed by this state as a life insurance agent.

(3) "Assumed investment rate" means 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.

(4) "Benefit base" means the amount to which the net investment return is applied.

(5) "Commissioner" is defined in KRS 304.1-050(1).

(6) "Control" (including the terms "controlling," "controlled by" and "under common control with") means the possession, direct or indirect, or 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 ten (10) percent of the voting securities of any other 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 such determination, that control exists in fact, notwithstanding the absence of a presumption to that effect.

(7) "Flexible premium policy" means any variable life insurance policy other than a scheduled premium policy as specified in subsection (15) of this section.

(8) "General account" means all assets of the insurer other than assets in separate accounts established pursuant to KRS 304.15-390 or pursuant to 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.

(9) "Incidental insurance benefit" means all 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, or term riders.

(10) "May" is permissive.

(11) "Minimum death benefit" means 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.

(12) "Net investment return" means the rate of investment return in a separate account to be applied to the benefit base.

(13) "Person" has the meaning specified in KRS 304.1-020, and also includes a fund.

(14) "Policy processing day" means the day on which charges authorized in the policy are deducted from the policy's cash value.

(15) "Scheduled premium policy" means any variable life insurance policy under which both the amount and timing of premium payments are fixed by the insurer.

(16) "Separate account" means a separate account established pursuant to KRS 304.15-390 or pursuant to the corresponding section of the insurance laws of the state of domicile of a foreign or alien insurer.

(17) "Shall" is mandatory.

(18) "Variable death benefit" means 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.

(19) "Variable life insurance policy" means any individual policy which provides for life insurance the amount or duration of which varies according to the investment experience of any separate account or accounts established and maintained by the insurer as to such policy, pursuant to KRS 304.15-390 or pursuant to the corresponding section of the insurance laws of the state of domicile of a foreign or alien insurer.

Section 2. Qualification of Insurer to Issue Variable Life Insurance. The following requirements are applicable to all insurers either seeking authority to issue variable life insurance in this state or having authority to issue variable life insurance in this state.

(1) Licensing and approval to do business in this state. An insurer shall not deliver or issue for delivery in this state any variable life insurance policies unless:

(a) The insurer is licensed or organized to do a life insurance business in this state;

(b) The insurer has obtained the written approval of the executive director for the issuance of variable life insurance policies in this state. The executive director shall grant such written approval only after he has found that:

The plan of operation for the issuance of variable life insurance policies is not unsound;
The general character, reputation, and experience of the management and those persons or 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 state; and
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 state. The commissioner shall consider, among other things:

a. The history of 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 those persons or firms proposed to supply consulting, investment, administrative, or custodial services to the insurer;

c. The applicable law and administrative 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 shall be deemed its state of domicile for this purpose; and

d. If the insurer is a subsidiary of, or is affiliated by common management or ownership with another company, its relationship to such other company and the degree to which the requesting insurer, as well as the other company, meets these standards.

(2) Filing for approval to do business in this state. The commissioner may, at his discretion, require that an insurer, before it delivers or issues for delivery any variable life insurance policy in this state, file with the commissioner the following information for the consideration of the commissioner in making the determination required by subsection (1) of this section:

(a) Copies of and a general description of the variable life insurance policies it intends to issue;

(b) 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 distributive services to the insurer;

(c) With respect to any separate account maintained by an insurer for any variable life insurance policy, a statement of the investment policy the issuer intends to follow for the investment of the assets held in such separate account, and a statement of procedures for changing such investment policy. The statement of investment policy shall include a description of the investment objectives intended for the separate account;

(d) A description of any investment advisory service contemplated as required by Section 5(10) of this administrative regulation;

(e) A copy of the statutes and administrative regulations of the state of domicile of the insurer under which it is authorized to issue variable life insurance policies;

(f) Biographical data with respect to officers and directors of the insurer on the National Association of Insurance Commissioners Uniform Biographical Data Form; and

(g) A statement of the insurer's actuary describing the mortality and expense risks which the insurer will bear under the policy.

(3) Standards of suitability. Every insurer seeking approval to enter into the variable life insurance business in this state shall establish and maintain a written statement specifying the standards of suitability to be used by the insurer. Such 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 such policy is not unsuitable for such applicant on the basis of information furnished after reasonable inquiry of such applicant concerning the applicant's insurance and investment objectives, financial situation and needs, and any other information known to the insurer or the agent making the recommendation.

(4) Use of sales materials. An insurer authorized to transact variable life insurance business in this state shall not use any sales material, advertising material, or descriptive literature or other materials of any kind in connection with its variable life insurance business in this state which is false, misleading, deceptive, or inaccurate.

(5) Requirements applicable to contractual services. Any 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 such services shall furnish the commissioner with any information or reports in connection with such services which the commissioner may request in order to ascertain whether the variable life insurance operations of the insurer are being conducted in a manner consistent with these administrative regulations, and any other applicable law or administrative regulations.

(6) Reports to the commissioner. Any insurer authorized to transact the business of variable life insurance in this state shall submit to the commissioner, in addition to any other materials which may be required by this administrative regulation or any other applicable laws or administrative regulations:

(a) An annual statement of the business of its separate account or accounts in such forms as may be prescribed by the National Association of Insurance Commissioners; and

(b) Prior to use in this state any information furnished to applicants as provided for in Section 6 of this administrative regulation; and

(c) Prior to use in this state the form of any of the reports to policyholders as provided for in Section 8 of this administrative regulation; and

(d) Such additional information concerning its variable life insurance operations or its separate accounts as the commissioner may deem necessary. Any material submitted to the commissioner under this section shall be disapproved if it is found to be false, misleading, deceptive, or inaccurate in any material respect and, if previously distributed, the commissioner shall require the distribution of amended material.

(7) Authority of commissioner to disapprove. Any material required to be filed with and approved by the commissioner shall be subject to disapproval if at any time it is found by him not to comply with the standards established in this administrative regulation.

Section 3. Insurance Policy Requirements. The commissioner shall not approve any variable life insurance form filed pursuant to this administrative regulation unless it conforms to the requirements of this administrative regulation.

(1) Filing of variable life insurance policies. All variable life insurance policies, and all riders, endorsements, applications and other documents which are to be attached to be made a part of the policy and which relate to the variable nature of the policy, shall be filed with the commissioner and approved by him prior to delivery or issuance for delivery in this state.

(a) The procedures and requirements for such filing and approval shall be, to the extent appropriate and not inconsistent with this administrative regulation, the same as those otherwise applicable to other life insurance policies.

(b) 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 administrative regulation.

(2) Mandatory policy benefit and design requirements. Variable life insurance policies delivered or issued for delivery in this state shall comply with the following minimum requirements:

(a) Mortality and expense risks shall be borne by the insurer. The mortality and expense charges shall be subject to the maximums stated in the contract.

(b) 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 duly paid (subject to the provisions of Section 4(4)(b) of this administrative regulation);

(c) The policy shall reflect the investment experience of one or more separate accounts established and maintained by the insurer. The insurer must demonstrate that the reflection of investment experience in the variable life insurance policy is actuarially sound.

(d) Each variable life insurance policy shall be credited with the full amount of the net investment return applied to the benefit base.

(e) Any changes in variable death benefits of each variable life insurance policy shall be determined at least annually.

(f) 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. If the policy does not contain an assumed investment rate this demonstration shall be based on the maximum interest rate permitted under the standard valuation law. The method of computation may disregard incidental minimum guarantees as to the dollar amounts payable. Incidental minimum guarantees include, for example, 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.

(g) 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.

(3) Mandatory policy provisions. Every variable life insurance policy filed for approval in this state shall contain at least the following:

(a) The cover page or pages corresponding to the cover page of each such policy shall contain:

A prominent statement in either contrasting color or in boldface type that the amount or duration of death benefit may be variable or fixed under specified conditions;
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 any specified minimum guarantees;
A statement describing any minimum death benefit required pursuant to subsection (2)(b) of this section;
The method, or a reference to the policy provision which describes the method, for determining the amount of insurance payable at death;
To the extent permitted by state law, a captioned provision that the policyholder may return the variable life insurance policy within ten (10) days of receipt of the policy by the policyholder, and receive a refund equal to the sum of:

a. The difference between the premiums paid including any policy fees or other charges and the amounts allocated to any separate accounts under the policy; and

b. The value of the amounts allocated to any separate accounts under the policy, on the date the returned policy is received by the insurer or its agent. Until such time as state law authorizes the return of payments as calculated in the preceding sentence, the amount of the refund shall be the total of all premium payments for such policy.

Such other items as are currently required for fixed benefit life insurance policies and which are not inconsistent with this administrative regulation.

(b)

For scheduled premium policies, a provision for a grace period of not less than thirty-one (31) days from the premium due date which shall provide that when the premium is paid within the grace period, policy values will be the same, except for the deduction of any overdue premium, as if the premium were paid on or before the due date.
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 such charges in accordance with the terms of the policy. Such grace period shall end on a date not less than sixty-one (61) days after the mailing date of the report to policyholders required by Section 8(3) of this administrative regulation. The death benefit payable during the grace period will equal the death benefit in effect immediately prior to such period less any overdue charges. If the policy processing days occur monthly, the insurer may require the payment of not more than three (3) times the charges which were due on the policy processing day on which the amounts available under the policy were insufficient to pay all charges authorized by the policy that are necessary to keep such policy in force until the next policy processing day.

(c) For scheduled premium policies, a provision that the policy will be reinstated at any time within two (2) years from the date of default upon the written application of the insured and 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 any 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 payment of an amount not exceeding the greater of:

All overdue premiums with interest at a rate not exceeding that specified in the contract and any indebtedness in effect at the end of the grace period following the date of default with interest at a rate not exceeding that specified in the contract; or
110 percent of the increase in cash value resulting from reinstatement plus all overdue premiums for incidental insurance benefits with interest at a rate not exceeding that specified in the contract. However, when making the calculations required by subparagraphs 1 and 2 of this paragraph, any indebtedness which is a policy loan must be repaid at interest charged in conformity with KRS 304.15-115.

(d) A full description of the benefit base and of the method of calculation and application of any factors used to adjust variable benefits under the policy;

(e) A provision designating the separate account to be used and stating that:

The assets of such 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 variable life insurance policies supported by the separate account.
The assets of such separate account shall be valued at least as often as any policy benefits vary but at least monthly.

(f) A provision specifying what documents constitute the entire insurance contract under state law;

(g) A designation of the officers 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;

(h) An identification of the owner of the insurance contract;

(i) 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;

(j) A statement of any conditions or requirements concerning the assignment of the policy;

(k) A description of any adjustments in policy values to be made in the event of misstatement of age or sex of the insured;

(l) A provision that the policy shall be incontestable by the insurer after it has been in force for two (2) years during the lifetime of the insured, but any 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 any such increase has been in force, during the lifetime of the insured, for two (2) years from the date of issue of such increase;

(m) A provision stating that the investment policy of the separate account shall 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 of this state;

(n) A provision that payment of variable death benefits in excess of any minimum death benefits, cash values, policy loans, or partial withdrawals (except when used to pay premiums) or partial surrenders may be deferred:

For up to six (6) months from the date of request, if such payments are based on policy values which do not depend on the investment performance of the separate account; or
Otherwise, for any 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 such payment impractical.

(o) If settlement options are provided, at least one such option shall be provided on a fixed basis only;

(p) A description of the basis for computing the cash value and the surrender value under the policy shall be included;

(q) Premiums or charges for incidental insurance benefits shall be stated separately;

(r) Any other policy provision required by this administrative regulation;

(s) Such other items as are currently required for fixed benefit life insurance policies and are not inconsistent with this administrative regulation;

(t) A provision for nonforfeiture insurance benefits. The insurer may establish a reasonable minimum cash value below which any nonforfeiture insurance options will not be available.

(4) Policy loan provisions. Every variable life insurance policy, other than term insurance policies and pure endowment policies, delivered or issued for delivery in this state shall contain provisions which are not less favorable to the policyholder than the following: a provision for policy loans after the policy has been in force for three (3) full years which provides the following:

(a) At least seventy-five (75) percent of the policy's cash surrender value may be borrowed.

(b) The amount borrowed shall bear interest at a rate not to exceed that permitted by KRS 304.15-115.

(d) Any indebtedness shall be deducted from the cash surrender value upon surrender or in determining any nonforfeiture benefit.

(e) For scheduled premium policies, whenever the indebtedness exceeds the cash surrender value, the insurer shall give notice of any intent to cancel the policy if the excess indebtedness is not repaid within thirty-one (31) days after the date of mailing of such 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 such charges, a report must be sent to the policyholder containing the information specified by Section 8(3) of this administrative regulation.

(f) The policy may provide that if, at any time, so long as premiums are duly paid, the variable death benefit is less than it would have been if no loan or withdrawal had ever been made, the policyholder may increase such 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 percent of the corresponding increase in cash value and by furnishing such evidence of insurability as the insurer may request.

(g) The policy may specify a reasonable minimum amount which may be borrowed at any time but such minimum shall not apply to any automatic premium loan provision.

(h) No policy loan provision is required if the policy is under extended insurance nonforfeiture option.

(i) The policy loan provisions shall be constructed so that variable life insurance policyholders who have not exercised such provisions are not disadvantaged by the exercise thereof.

(j) Amounts paid to the policyholders upon the exercise of any policy loan provisions 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.

(5) Other policy provisions. The following provisions may in substance be included in a variable life insurance policy or related form delivered or issued for delivery in this state:

(a) An exclusion for suicide within two (2) years of the issue date of the policy; provided, however, that to the extent of the increased death benefits only, the policy may provide an exclusion for suicide within two (2) years of any increase in death benefits which result from an application of the owner subsequent to the policy issue date;

(b) Incidental insurance benefits may be offered on a fixed or variable basis;

(c) Policies issued on a participating basis shall offer to pay dividend amounts in cash. In addition, such policies may offer the following dividend options:

The amount of the dividend may be credited against premium payments;
The amount of the dividend may be applied to provide amounts of additional fixed or variable benefit life insurance;
The amount of the dividend may be deposited in the general account at a specified minimum rate of interest;
The amount of the dividend may be applied to provide paid-up amounts of fixed benefit one (1) year term insurance;
The amount of the dividend may be deposited as a variable deposit in a separate account.

(d) 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 subsection (4) of this section, except that a restriction that no more than two (2) consecutive premiums can be paid under this provision may be imposed;

(e) A provision allowing the policyholder to make partial withdrawals;

(f) Any other policy provision approved by the commissioner.

Section 4. Reserve Liabilities for Variable Life Insurance.

(1) Reserve liabilities for variable life insurance policies shall be established under the standard valuation law in accordance with actuarial procedures that recognize the variable nature of the benefits provided and any mortality guarantees.

(2) For scheduled premium policies, 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 the guarantee, and shall be maintained in the general account of the insurer and shall not be less than the greater of the following minimum reserve:

(a) The aggregate total of the term costs, if any, covering a period of one (1) full year from the valuation date, of the guarantee on each variable life insurance contract, assuming an immediate one-third (1/3) depreciation in the current value of the assets in the separate account followed by a net investment return equal to the assumed investment rate; or

(b) The aggregate total of the "attained age level" reserved on each variable life insurance contract. The "attained age level" reserve on each variable life insurance contract shall not be less than zero and shall equal the "residue," as described in subparagraph 1 of this paragraph, of the prior year's "attained age level" reserve on the contract, with any such "residue" increased or decreased by a payment computed on an attained age basis as described in subparagraph 2 of this paragraph.

The "residue" of the prior year's "attained age level" reserve on each variable life insurance contract shall not be less than zero and shall be determined by adding interest at the valuation interest rate to such 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 such guarantee, and 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.
The payment referred to in subsection (2)(b) of this section shall be computed so that the present value of a level payment of that amount each year over the future premium paying period of 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 such guarantee, and (C) is any "residue" as described in subparagraph 1 of this paragraph, of the prior year's "attained age level" reserve on such variable life insurance contract. If the contract is paid-up, the payment shall equal (A) minus (B) minus (C). The amounts of the future death benefits referred to in (B) shall be computed assuming a net investment return of the separate account which may differ from the assumed investment rate and/or the valuation interest but in no event may exceed the maximum interest rate permitted for the valuation of life contracts.

(c) The valuation interest rate and mortality table used in computing the two (2) minimum reserves described in paragraphs (a) and (b) of this subsection shall conform to permissible standards for the valuation of life insurance contracts. In determining such minimum reserve, the company may employ suitable approximations and estimates, including but not limited to groupings and averages.

(3)

(a) For flexible premium policies, reserve liabilities for any guaranteed minimum death benefit shall be maintained in the general account of the insurer and shall not be less than the aggregate total of the term costs, if any, covering the period for in the guarantee not otherwise provided for by the reserves held in the separate account assuming an immediate one-third (1/3) depreciation in the current value of the assets of the separate account followed by a net investment return equal to the valuation interest rate.

(b) The valuation interest rate and mortality table used in computing this additional reserve, if any, shall conform to permissible standards for the valuation of life insurance contracts. In determining such minimum reserve, the company may employ suitable approximations and estimates, including but not limited to groupings and averages.

(4) Reserve liabilities for all fixed incidental insurance benefits and any guarantees associated with variable accidental insurance benefits shall be maintained in the general account and reserve liabilities for all 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 such benefit.

Section 5. Separate Accounts. The following requirements apply to the establishment and administration of variable life insurance separate accounts by any domestic insurer:

(1) Establishment and administration of separate accounts. Any domestic insurer issuing variable life insurance shall establish one or more separate accounts pursuant to KRS 304.15-390.

(a) If no law or other administrative regulation provides for the custody of separate account assets and if such insurer is not the custodian of such separate account assets, all contracts for custody of such assets shall be in writing and the commissioner shall have the authority to review and approve of both the terms of any such contract and the proposed custodian prior to the transfer of custody.

(b) Such insurer shall not without prior written approval of the commissioner employ in any material connection with the handling of separate account assets any person who:

Within the last ten (10) years has been convicted of any felony or a misdemeanor arising out of such person's conduct involving embezzlement, fraudulent conversion, or misappropriation of funds or securities or involving violation of Sections 1341, 1342, or 1343 of Title 18, United States Code; or
Within the last ten (10) years has been found by any state regulatory authority to have violated or has acknowledged violation of any provision of any state insurance law involving fraud, deceit, or knowing misrepresentation; or
Within the last ten (10) years has been found by federal or state regulatory authorities to have violated or has acknowledged violation of any provision of federal or state securities laws involving fraud, deceit, or knowing misrepresentation.

(c) All persons with access to the cash, securities, or other assets of the separate account shall be under bond in the amount of not less than:

(d) The assets of such separate accounts shall be valued at least as often as variable benefits are determined but in any event at least monthly.

(2) Amounts in the separate account. The insurer shall maintain in each separate account assets with a 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 such policies.

(3) Investments by the separate account.

(a) No sale, exchange, or other transfer of assets may be made by an insurer or any of its affiliates between any of its separate accounts or between any other investment account and one (1) or more of its separate accounts unless:

In case of transfer into a separate account, such transfer is made solely to establish the account or to support the operation of the policies with respect to the separate account to which the transfer is made; and
Such transfer, whether into or from a separate account, is made by a transfer of cash; but other assets may be transferred if approved by the commissioner in advance.

(b) The separate account shall have sufficient net investment income and readily marketable assets to meet anticipated withdrawals under policies funded by the account.

(4) Limitations on ownership.

(a) A separate account shall not purchase or otherwise acquire the securities of any issuer, other than securities issued or guaranteed as to principal and interest by the United States, if immediately after such purchase or acquisition the value of such investment, together with prior investments of such account in such security valued as required by these administrative regulations, would exceed ten (10) percent of the value of the assets of the separate account. The commissioner may waive this limitation in writing if he believes such waiver will not render the operation of the separate account hazardous to the public or the policyholders in this state.

(b) No separate account shall purchase or otherwise acquire the voting securities of any issuer if as a result of such acquisition the insurer and its separate accounts in the aggregate, will own more than ten (10) percent of the total issued and outstanding voting securities of such issuer. The commissioner may waive this limitation in writing if he believes such waiver will not render the operation of the separate account hazardous to the public or the policyholders in this state or jeopardize the independent operation of the issuer of such securities.

(c) The percentage limitation specified in paragraph (a) of this subsection shall not be construed to preclude the investment of the assets of separate accounts in shares of investment companies registered pursuant to the Investment Company Act of 1940 or other pools of investment assets if the investments and investment policies of such investment companies or asset pools comply substantially with the provisions of subsection (3) of this section and other applicable portions of the administrative regulation.

(5) 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.

(6) Separate account investment policy. The investment policy of a separate account operated by a domestic insurer filed under Section 2(2) of this administrative regulation shall not be changed without first filing such change with the commissioner.

(a) Any change filed pursuant to this section shall be effective sixty (60) days after the date it was filed with the commissioner, unless the commissioner notifies the insurer before the end of such sixty (60) day period of his disapproval of the proposed change. At any time the commissioner may, after notice and public hearing, disapprove any change that has become effective pursuant to this section.

(b) The commissioner may disapprove the change if he determines that the change would be detrimental to the interests of the policyholders participating in such separate accounts.

(7) Charges against separate account. The insurer must disclose in writing, prior to or contemporaneously with delivery of the policy, all charges that may be made against the separate account, including but not limited to the following:

(a) Taxes or reserves for taxes attributable to investment gains and income of the separate account;

(b) Actual cost of reasonable brokerage fees and similar direct acquisition and sale costs incurred in the purchase or sale of separate account assets;

(d) Charges for administrative expenses and investment management expenses, including internal costs attributable to the investment management of assets of the separate account;

(e) A charge, at a rate specified in the policy, for mortality and expense guarantees;

(f) Any amounts in excess of those required to be held in the separate accounts;

(g) Charges for incidental insurance benefits.

(8) Standards of conduct. Every insurer seeking approval to enter into the variable life insurance business in this state shall adopt by formal action of its board of directors a written statement specifying the standards of conduct of the insurer, its officers, directors, employees, and affiliates with respect to the purchase or sale of investments of separate accounts. Such standards of conduct shall be binding on the insurer and those to whom it refers. A code or codes of ethics meeting the requirements of Section 17(j) under the Investment Company Act of 1940 and applicable rules and regulations thereunder shall satisfy the provisions of this section.

(9) Conflicts of interest. Rules under any provision of the insurance laws of this state or any administrative regulation applicable to the officers and directors of insurance companies with respect to conflicts of interest shall also apply to members of any separate account's committee or other similar body.

(10) Investment advisory services to a separate account. An insurer shall not enter into a contract under which any person undertakes, for a fee, to regularly furnish investment advice to such insurer with respect to its separate account maintained for variable life insurance policies unless:

(a) The person providing such advice is registered as an investment advisor under the Investment Advisor Act of 1940; or

(b) The person providing such advice is an investment manager under the Employee Retirement Income Security Act of 1974 with respect to the assets of each employee benefit plan allocated to the separate account; or

(c) The insurer has filed with the commissioner and continues to file annually the following information and statements concerning the proposed advisor:

The name and form of organization, state of organization, and its principal place of business;
The names and addresses of its partners, officers, directors, and persons performing similar functions or, if such an investment advisor be an individual, of such individual;
A written standard of conduct complying in substance with the requirements of subsection (8) of this section which has been adopted by the investment advisor and is applicable to the investment advisor, its officers, directors, and affiliates;
A statement provided by the proposed advisor as to whether the advisor or any person associated therewith:

a. Has been convicted within ten (10) years of any felony or misdemeanor arising out of such person's conduct as an employee, salesman, officer or director of an insurance company, a banker, 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 Sections 1341, 1342, or 1343 of Title 18 of United States Code;

b. Has been permanently or temporarily enjoined by an order, judgment, or decree of any court of competent jurisdiction from acting as an investment advisor, underwriter, broker, or dealer, or as an affiliated person or as an employee of any investment company, bank, or insurance company, or from engaging in or continuing any conduct or practice in connection with any such activity;

c. Has been found by federal or state regulatory authorities to have willfully violated or have acknowledged willful violation of any provision of federal or state securities laws or state insurance laws or of any rule or regulation under any such laws; or

d. Has been censured, 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; and

(d) Such investment advisory contract shall be in writing and provide that it may be terminated by the insurer without penalty to the insurer or the separate account upon no more than sixty (60) days' written notice to the investment advisor.

(e) The commissioner may, after notice and opportunity for hearing, by order require such investment advisory contract to be terminated if he deems continued operation thereunder to be hazardous to the public or the insurer's policyholders.

Section 6. Information Furnished to Applicants. An insurer delivering or issuing for delivery in this state any variable life insurance policies shall deliver to the applicant for such policy, and obtain a written acknowledgment of receipt from such applicant coincident with or prior to the execution of the application, the following information. 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, either in the form of: a prospectus included in the requirements of the Securities Act of 1933 and which was declared effective by the Securities and Exchange Commission; or all information and reports required by the Employee Retirement Income Security Act of 1974 if the policies are exempted from the registration requirements of the Securities Act of 1933 pursuant to Section 3(a)(2)thereof.

(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. Such explanation must include notices of the provision required by Section 3(3)(a)5 and (f) of this administrative regulation.

(2) A statement of the investment policy of the separate account, including:

(a) A description of the investment objectives intended for the separate account and the principal types of investments intended to be made; and

(b) Any 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 ten (10) years or such lesser period as 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. Such illustrations shall be prepared by the insurer and shall not include projections of past investment experience into the future or attempted predictions of future investment experience, provided that nothing contained herein prohibits use of hypothetical assumed rates of return to illustrate possible levels of benefits if it is made clear that such assumed rates are hypothetical only.

Section 7. 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 any specified minimum guarantees); and

(3) Questions designed to elicit information which enables the insurer to determine the suitability of variable life insurance for the applicant.

Section 8. Reports to Policyholders. Any insurer delivering or issuing for delivery in this state any variable life insurance policies shall mail to each variable life insurance policyholder at his or her last known address the following reports:

(1) Within thirty (30) days after each anniversary of the policy, a statement or statements of the cash surrender value, death benefit, any partial withdrawal or policy loan, any interest charge, any optional payments allowed pursuant to Section 3(4) of this administrative regulation under the policy computed as of the policy anniversary date. Provided, however, that such statement may be furnished within thirty (30) days after a specified date in each policy year so long as the information contained therein is computed as of a date not more than sixty (60) days prior to the mailing of such notice. 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 shall prominently identify any 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 such statement, the statement shall be modified to so indicate. For flexible premium policies, the report must 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 any other charges made against the cash value. In addition, the report must show the projected cash value and cash surrender value, if different, as of one (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; and

(c) The net return is equal to the guaranteed rate or, in the absence of a guaranteed rate, is not greater than zero. If the projected value is less than zero, a warning message must be included that states that the policy may be in danger of terminating without value in the next twelve (12) months unless additional premium is paid.

(2) Annually, a statement or statements including:

(a) A summary of the financial statement of the separate account based on the annual statement last filed with the commissioner;

(b) 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 five (5) years when available;

(c) 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;

(d) Any charges levied against the separate account during the previous year;

(e) A statement of any change, since the last report, in the investment objective and orientation of the separate account, in any investment restriction or material quantitative or qualitative investment requirement applicable to the separate account or in the investment advisor of the separate account.

(3) For flexible premium policies, a report must be sent to the policyholder in the amounts available under the policy on any 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 must 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 such amount.

Section 9. Foreign Companies. If the law or administrative 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 these administrative regulations, the commissioner to the extent deemed appropriate by him in his discretion, may consider compliance with such law or administrative regulation as compliance with this administrative regulation.

Section 10.

(1) Qualifications of Agents for the Sale of Variable Life Insurance. No person shall be or act as an agent for the solicitation or sale of variable life insurance except while duly appointed and licensed under the Kentucky Insurance Code as a life insurance agent with respect to the insurer, and while meeting federal law requirements for dealing in securities.

(2) Any person doing business as agent under this section shall immediately report to the commissioner:

(a) The imposition of any disciplinary sanction (including but not limited to suspension or revocation of membership, suspension, revocation, or denial of registration) imposed upon such person by any national securities exchange, national securities association, or any federal, state, or territorial agency with jurisdiction over securities, variable annuities, or variable life insurance.

Section 11. Severability. If any provision of this administrative regulation or the application thereof to any person or circumstance is for any reason held to be invalid, the remainder of the administrative regulation and the application of such provision to other persons or circumstances shall not be affected thereby.

Section 12. Effective Date. This administrative regulation shall become effective upon completion of its review pursuant to KRS Chapter 13A.

History

RELATES TO: KRS 304.2-100, 304.7-240, 304.12-020, 304.12-030, 304.14-120, 304.15-115, 304.15-130, 304.15-390
STATUTORY AUTHORITY: KRS Chapter 13A, 304.2-110, 304.15-390
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.2-110 provides that the Commissioner of Insurance may make reasonable administrative regulations necessary for or as an aid to the effectuation of any provision of the Kentucky Insurance Code. KRS 304.15-390 authorizes the Commissioner of Insurance to make administrative regulations controlling the sale and issuance of variable contracts. This administrative regulation establishes guidelines for the sale and issuance of variable life insurance.
History: 11 Ky.R. 364; Am. 600; eff. 10-9-84; TAm eff. 8-9-2007; TAm eff. 3-10-2020; TAm eff. 4-7-2021.

806 KAR 15:050 Reporting and general requirements for settlement providers and brokers {#sec-806-kar-15-050 omnilex-key=us-ky-regs-official--title-806--806 KAR 15:050}

Section 1. Definitions.

(1) "Commissioner" is defined by KRS 304.1-050(1).

(2) "Department" is defined by KRS 304.1-050(2).

(3) "Individual identification data" means an insured's address, telephone number, facsimile number, electronic mail address, photograph or likeness, employer, employment status, Social Security number, or other information that is likely to lead to the identification of the insured.

(4) "Insured" means the person covered under the policy being considered for settlement.

(5) "Insurer" is defined by KRS 304.1-040.

(6) "Life expectancy" means the mean of the number of months the individual insured under the life insurance policy to be settled can be expected to live as utilized by the life settlement provider pursuant to the life settlement contract considering medical records and appropriate experiential data.

(7) "Net death benefit" means the amount of the life insurance policy or certificate to be settled less any outstanding debts or liens.

(8) "Owner" is defined by KRS 304.15-020(19).

Section 2. General Rules.

(1) A life settlement provider shall not unfairly discriminate in making life settlements on the basis of race, age, sex, national origin, creed, religion, occupation, or marital or family status.

(2) A life settlement provider shall not unfairly discriminate between an owner with a dependent and an owner without a dependent.

(3) A life settlement provider shall not solicit investors who may influence the treatment of the illness of the insured whose coverage would be the subject of the investment.

(4) Within three (3) days of execution of the life settlement contract, the life settlement provider shall mail to the owner a copy of:

(a) The executed life settlement contract;

(b) The application for the life settlement contract; and

(c) The statement from the licensed attending physician that the owner is of sound mind and not under undue influence or constraint.

(5) Payment of the proceeds of a life settlement pursuant to KRS 304.15-710 (1)(g) shall be by means of wire transfer to an account designated by the owner or by certified check or cashier's check.

(6) Payment of the proceeds to the owner pursuant to a life settlement shall be made in a lump sum, except the life settlement provider may purchase an annuity or similar financial instrument issued by a licensed insurance company or bank, or an affiliate of either. The life settlement provider or escrow agent shall not retain a portion of the proceeds not disclosed or described in the life settlement contract without written consent of the owner.

(7) A life settlement provider or life settlement broker shall not pay or offer to pay any finder's fee, commission, or other compensation to any insured's physician, or to an attorney, accountant, or other person providing medical, legal, or financial planning services to the owner, or to any other person acting as an agent of the owner, other than a life settlement broker, with respect to the life settlement.

(8) If a life settlement provider enters into a life settlement that allows the owner to retain an interest in the insurance policy, the life settlement contract shall contain:

(a) A provision that the life settlement provider will affect the transfer of the amount of the death benefit only to the extent or portion of the amount settled. Benefits in excess of the amount settled shall be paid directly to the owner's beneficiary by the insurance company;

(b) A provision that the life settlement provider, upon acknowledgment of the completion of the transfer, shall:

Advise the owner, in writing, that the insurance company has confirmed the owner's interest in the policy; or
Send, to the owner, a copy of the instrument sent from the insurance company to the life settlement provider that acknowledges the owner's interest in the policy; and

(c) A provision that apportions the premiums to be paid by the life settlement provider and the owner, which provides premium payment terms and nonforfeiture options no less favorable, on a proportional basis, than those included in the policy.

(9) If the insured is a minor child, disclosures to and permission of a parent or legal guardian that satisfy the requirements of KRS 304.15-700 through KRS 304.15-720 and this administrative regulation.

Section 3. Life Settlement Contract and Form Approval.

(1) A life settlement form submitted to the commissioner for approval shall:

(a) Be filed in accordance with KRS 304.14-120;

(b) Provide space for identifying the parties;

(d) Provide that the contract shall be governed under the laws of the Commonwealth of Kentucky, and that the courts of the Commonwealth of Kentucky shall be the exclusive forum for any judicial remedies sought by either party.

(2) Each life settlement contract or other form submitted for approval shall:

(a) Be accompanied by the filing fee prescribed by 806 KAR 4:010;

(b) Have a form number in the lower left corner;

(d) Meet the legibility standards established by KRS 304.14-450, except the disclosures required by KRS 304.15-710 shall be in at least twelve (12) point type.

(3) The commissioner may review any previously approved life settlement contract or other form for compliance with KRS 304.15-700 to 304.15-725 and this administrative regulation.

Section 4. Filing Requirements for Advertising of Life Settlements.

(1) This section shall apply to advertising of life settlement contracts, or related products or services intended for dissemination in Kentucky, including Internet advertising viewed by persons located in Kentucky.

(2) A life settlement licensee shall establish and maintain a system of control over the content, form, and method of dissemination of advertisements of its contracts, products, and services. A system of control shall include routine notification, at least once a year, to persons authorized by the life settlement licensee to disseminate advertisements, of the requirements and procedures for review by the department prior to the use of any advertisements not furnished by the life settlement licensee.

(3) A life settlement licensee shall provide a copy of any advertising for life settlements intended for use in Kentucky whether through written, radio, or television medium to the commissioner for review in accordance with KRS 304.12-020.

(4) An advertisement shall be truthful and not misleading in fact or by implication. The form and content of an advertisement shall be sufficiently complete and clear to avoid deception. It shall not have the capacity or tendency to mislead or deceive. If an advertisement has the capacity or tendency to mislead or deceive shall be determined by the commissioner from the overall impression that the advertisement may be reasonably expected to create upon a person of average education or intelligence within the segment of the public to which it is directed.

(5) The information required to be disclosed under this section shall not be minimized, rendered obscure, or presented in an ambiguous fashion or intermingled with the text of the advertisement so as to be confusing or misleading.

(6) The following rules shall govern the advertisement of life settlements:

(a) An advertisement shall not omit material information or use words, phrases, statements, references, or illustrations if the omission or use has the capacity, tendency, or effect of misleading or deceiving owners as to the nature or extent of any benefit, loss covered, premium payable, or state or federal tax consequence. It shall not be a remedy of misleading statements to make the life settlement contract available for inspection prior to completion of the sale, or offering to refund the payment if the owner is not satisfied, or including in the life settlement contract a "free look" period that satisfies or exceeds legal requirements.

(b) An advertisement shall not use the name or title of a life insurer or a life insurance policy unless the advertisement has been approved by the insurer.

(c) An advertisement shall not state or imply that interest charged on an accelerated death benefit or a policy loan is unfair, inequitable, or in any manner an incorrect or improper practice.

(d) The words "free," "no cost," "without cost," "no additional cost," "at no extra cost," or words of similar import shall not be used with respect to a benefit or service unless true. An advertisement may specify the charge for a benefit or a service, may state that a charge is included in the payment, or may use other similar language.

(e) When a testimonial, appraisal, endorsement, or analysis is used in an advertisement, the testimonial, appraisal, endorsement, or analysis shall:

Be genuine;
Represent the current opinion of the author;
Be applicable to the life settlement contract product or service advertised;
Be accurately reproduced with sufficient completeness to avoid misleading or deceiving prospective owners as to the nature or scope of the testimonial, appraisal, analysis, or endorsement;
Prominently disclose in the advertisement if the individual making the testimonial, appraisal, analysis, or endorsement has a financial interest in the life settlement provider or related entity as a stockholder, director, officer, employee, or otherwise, or receives a benefit other than required union scale wages; and
Not state or imply that a life settlement contract benefit or service has been approved or endorsed by a group of individuals, society, association, or other organization unless that is the fact and unless any relationship between an organization and the life settlement licensee is disclosed. If the entity making the endorsement or testimonial is owned, controlled, or managed by the life settlement licensee, or receives any payment or other consideration from the life settlement licensee for making an endorsement or testimonial, that fact shall be disclosed in the advertisement.

(f) In using testimonials, appraisals, endorsements, or analysis, the life settlement licensee shall make as its own all the statements contained therein, and the statements shall be subject to all the provisions of this section.

(g) If an endorsement refers to benefits received under a life settlement contract, all pertinent information shall be retained for a period of not less than five (5) years following creation of the material or the completion of the purpose for which it was created, whichever shall occur last.

(h) An advertisement shall not contain statistical information unless it accurately reflects recent and relevant facts. The source of all statistics used in an advertisement shall be identified.

(i) An advertisement shall not disparage insurers, life settlement providers, life settlement brokers, insurance producers, policies, services, or methods of marketing.

(j) The name of the life settlement licensee shall be identified in all advertisements about the licensee or its life settlement contracts, products, or services, and if any specific life settlement contract is advertised, the life settlement contract shall be identified by form number or some other appropriate description. If an application is part of the advertisement, the name of the life settlement provider shall be shown on the application.

(k) An advertisement shall not use a trade name, group designation, name of the parent company of a life settlement licensee, name of a particular division of the life settlement licensee, service mark, slogan, symbol, or other device, or reference without disclosing the name of the life settlement licensee if the advertisement would have the capacity or tendency to mislead or deceive as to the true identity of the life settlement licensee or create the impression that a company other than the life settlement licensee would have any responsibility for the financial obligation under a life settlement contract.

(l) An advertisement shall not use any combination of words, symbols, or physical materials that by their content, phraseology, shape, color, or other characteristics are so similar to a combination of words, symbols, or physical materials used by a government program or agency, or otherwise appear to be of such a nature, that they tend to mislead prospective owners into believing that the solicitation is in some manner connected with a government program or agency.

(m) An advertisement may state that a life settlement licensee is licensed in the state where the advertisement appears if it does not exaggerate that fact or suggest or imply that competing life settlement licensees may not be so licensed. The advertisement may ask the audience to consult the licensee's Web site or contact the department to find out if Kentucky requires licensing and, if so, whether the life settlement provider or life settlement broker is licensed.

(n) An advertisement shall not create the impression that the life settlement provider, its financial condition or status, the payment of its claims, or the merits, desirability, or advisability of its life settlement contracts are recommended or endorsed by a government entity.

(o) The name of the actual licensee shall be stated in all of its advertisements. An advertisement shall not use a trade name, group designation, name of an affiliate or controlling entity of the licensee, service mark, slogan, symbol, or other device in a manner that would have the capacity or tendency to mislead or deceive as to the true identity of the actual licensee or create the false impression that an affiliate or controlling entity would have responsibility for the financial obligation of the licensee.

(p) An advertisement shall not create the impression that a division or agency of the state or U. S. government endorses, approves, or favors:

A life settlement licensee or its business practices or methods of operation;
The merits, desirability, or advisability of a life settlement contract;
A life settlement contract; or
A life insurance policy or life insurer.

(q) If the advertiser emphasizes the speed with which the settlement will occur, the advertising shall disclose the average time frame from completed application to the date of offer and from acceptance of the offer to receipt of the funds by the owner.

(r) If the advertising emphasizes the dollar amounts available to owners, the advertising shall disclose the average purchase price as a percent of face value obtained by owners contracting with the licensee during the past six (6) months.

Section 5. Standards for Evaluation of Reasonable Payments for Terminally or Chronically-Ill Insureds. To ensure that owners receive a reasonable return for settling an insurance policy, the return for settling a policy shall be no less than the following payouts for insureds that are terminally or chronically ill:

(1) If an insured's life expectancy is less than six (6) months, eighty (80) percent of the minimum percentage of face value, reduced by any outstanding loans received by the owner;

(2) If an insured's life expectancy is at least six (6) months, but less than twelve (12) months, seventy (70) percent of the minimum percentage of face value, reduced by any outstanding loans received by the owner;

(3) If an insured's life expectancy is at least twelve (12) months, but less than eighteen (18) months, sixty-five (65) percent of the minimum percentage of face value, reduced by any outstanding loans received by the owner;

(4) If an insured's life expectancy is at least eighteen (18) months but less than twenty-five (25) months, sixty (60) percent of the minimum percentage of face value, reduced by any outstanding loans received by the owner; and

(5) If an insured's life expectancy is twenty-five (25) months or more, the owner shall receive at least the greater of the cash surrender value or accelerated death benefit in the policy.

Section 6. Prohibited Practices.

(1) Except for a subpoena issued by the commissioner, if a life settlement provider or broker is served with a subpoena compelling the life settlement provider or broker to produce records containing individual identification data, the life settlement provider or broker shall notify the owner and the insured within five (5) business days after receiving notice of the subpoena. Notice shall be sufficient if delivered to the last known address of the owner and the insured.

(2) A life settlement broker shall not seek or obtain any compensation from the owner in connection with a life settlement transaction prior to performing any services.

Section 7. Insurance Company Practices.

(1) Life insurance companies authorized to do business in this state shall respond to a request for verification of coverage from a life settlement provider or a life settlement broker within thirty (30) calendar days of the date a request is received, subject to the receipt of the Verification of Coverage for Life Insurance Policies Form VOC, which has been completed by the life settlement provider or the life settlement broker in accordance with the instructions on the form.

(2) A life insurance company shall not charge a fee for responding to a request for information from a life settlement provider or life settlement broker in compliance with this section in excess of any usual and customary charges to policyholders or certificate holders for similar services.

(3) The life insurance company shall send an acknowledgement of receipt of the request for verification of coverage to the policyholder or certificate holder. The acknowledgment shall contain a general description of any accelerated death benefit that is available under a provision of or rider to the life insurance contract.

(4) A life insurance company shall not require the owner to sign any request for change in a policy or a group certificate from a life settlement provider that is the owner or assignee of the insured's insurance coverage, unless the owner has ownership, assignment, or irrevocable beneficiary rights under the policy. If the owner has ownership, assignment, or irrevocable beneficiary rights under the policy the life settlement provider shall provide timely notice to the owner that a settlement transaction on the policy has occurred. Notice shall be provided within fifteen (15) calendar days of the change in a policy or group certificate.

Section 8. Disclosure.

(1) The life settlement broker shall provide a copy of the life settlement disclosure Form LS 7 and the "Kentucky Consumer Guide to Understanding Life Settlements" to the owner on or before the date that the life settlement broker offers or advertises the availability of the owner's life insurance policy, introduces the owner to a life settlement provider, or offers or attempts to negotiate a life settlement between an owner and a life settlement provider.

(2) If there is no life settlement broker involved in the life settlement transaction, the life settlement provider shall provide the life settlement disclosure Form LS 7 and the "Kentucky Consumer Guide to Understanding Life Settlements" to the owner on or before the date that the life settlement contract is signed by each party to the contract.

Section 9. Reporting Requirement.

(1) On or before March 1 of each calendar year, the licensed life settlement provider shall submit:

(a) A report of the life settlement transactions related to Kentucky insureds, which shall be submitted on Form LS 1;

(b) A report of the individual mortality of Kentucky insureds, which shall be submitted on Form LS 2;

(c) A report of the life settlement transactions in all states and territories, which shall be submitted on Form LS 3; and

(d) A certification of the information contained in the reports, which shall be submitted on Form LS 6 and shall be filed with the reports.

(2) The information reported pursuant to subsection (1) of this section shall include the total number of policies for the previous calendar year that were:

(a) Reviewed for consideration by a life settlement provider;

(b) Offered for purchase to an owner of a life insurance policy; and

Section 10. Incorporation by Reference.

(1) The following material is incorporated by reference:

(a) "Kentucky Consumer Guide to Understanding Life Settlements", 3/2020 edition;

(b) Form LS 1, "Life Settlement Provider Report - Kentucky Insureds Only", 7/2008 edition;

(d) Form LS 3, "Life Settlement Provider Report - All States and Territories", 7/2008 edition;

(e) Form LS 6, "Life Settlement Provider Certification Form", 7/2008 edition; and

(f) Form LS 7, "The Kentucky Life Settlement Disclosure Form - Notice Regarding Life Settlement Contracts", 3/2021 edition; and

(g) Form VOC, "Verification of Coverage for Life Insurance Policies Form", 7/2008 edition.

(2) This material may be inspected, copied, or obtained, subject to applicable copyright law, at the Kentucky Department of Insurance, Mayo-Underwood Building, 500 Mero Street, Post Office Box 517, Frankfort, Kentucky 40602, Monday through Friday, 8 a.m. to 4:30 p.m. This material is also available on the Department of Insurance Internet Web site at http://insurance.ky.gov.

History

RELATES TO: KRS 304.12-020, 304.14-120, 304.14-440, 304.14-450, 304.15-020, 304.15-035, 304.15-700-304.15-725, 304.99-020
STATUTORY AUTHORITY: KRS 304.15-715(2), 304.15-719, 304.15-720
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.15-715 requires a request for verification of coverage to be made on a form approved by the commissioner. KRS 304.15-720 authorizes the commissioner to promulgate administrative regulations implementing the provisions of KRS 304.15-700 to 304.15-720. This administrative regulation establishes the standards for life settlement contracts and other forms, the information to be included in disclosures and reports, advertising standards, and general rules and prohibited practices with respect to life settlement contracts, life settlement providers, and life settlement brokers.
History: 806 KAR 015:050. 27 Ky.R. 3196, 28 Ky.R. 85; eff. 7-16-2001; 32 Ky.R. 330, 911, 1621; eff. 3-31-2006; 35 Ky.R. 1915; eff. 5-1-2009; 47 Ky.R 1664, 2413, 2588; eff. 8-31-2021.

806 KAR 15:060 Universal life insurance {#sec-806-kar-15-060 omnilex-key=us-ky-regs-official--title-806--806 KAR 15:060}

Section 1. Definitions.

(1) "Cash surrender value" means the net cash surrender value plus any amounts outstanding as policy loans.

(2) "Commissioner" is defined by KRS 304.1-050(1).

(3) "Fixed premium universal life insurance policy" means a universal life insurance policy other than a flexible premium universal life insurance policy.

(4) "Flexible premium universal life insurance policy" means a universal life insurance policy that permits the policyowner to vary, independently of each other, the amount or timing of one (1) or more premium payments or the amount of insurance.

(5) "Guaranteed maturity premium for fixed premium universal life insurance policies" means the premium defined in the policy that at the time of issue, provides the minimum policy guarantees.

(6) "Guaranteed maturity premium" means the level gross premium, that is paid at issue and periodically thereafter over the period which premiums are allowed to be paid, that will mature the policy on the latest maturity date, if any, permitted under the policy, or at the highest age in the valuation mortality table, for an amount which is in accordance with the policy structure.

(7) "Interest-indexed universal life insurance policy" means any universal life insurance policy in which the interest credits are linked to an external reference.

(8) "Net cash surrender value" means the maximum amount payable to the policyowner upon surrender.

(9) "Policy value" means the amount that shall separately identify interest credits and mortality, expense, or other charges made under a universal life insurance policy.

(10) "Universal life insurance policy" means a life insurance policy:

(a) That shall separately identify interest credits, other than in connection with dividend accumulations, premium deposit funds, or other supplementary accounts, and mortality and expense charges made to the policy; and

(b) That may provide for other credits and charges, such as charges for the cost of benefits provided by the rider.

Section 2. Application. This administrative regulation shall apply to all individual universal life insurance policies except variable universal life insurance policies.

Section 3. Valuation.

(1) Requirements:

(a) The minimum valuation standard for universal life insurance policies shall be the Commissioners Reserve Valuation Method, as described in this section, and the tables and interest rates established in paragraphs (b) through (m) in this subsection.

(b) The terminal reserves for the basic policy and riders for premiums that are not paid separately as of any policy anniversary shall be equal to the net level premium reserves calculated pursuant to paragraph (c) of this subsection, minus the calculations established in paragraphs (h) and (j) of this subsection.

The letter "(d)" equaling the calculation as established in paragraph (d) of this subsection;
The letter "(e)" equaling the calculation as established in paragraph (e) of this subsection; and
The letter "r" equaling the calculation as established in paragraph (f) of this subsection.

(d) The letter "(d)" shall be determined by calculating the present value of all future guaranteed benefits at the date of valuation.

(e) The letter "(e)" shall be determined by calculating the formula "PVFBax+t/ax" as established in this paragraph.

"PVFB" shall be the present value of all benefits guaranteed at policy issue assuming future guaranteed maturity premiums are paid by the policyowner and taking into account all guarantees contained in the policy or declared by the insurer.
"ax" and "ax+t" shall be present values of an annuity of one (1) per year payable on policy anniversaries beginning at ages "x" and "x+t", respectively, and continuing until the highest attained age that a premium may be paid under the policy. The letter "x" shall be the policy issue age and the letter "t" shall be the duration of the policy.
The guaranteed maturity premium shall be calculated at issue based on all policy guaranteed at issue, excluding guarantees linked to an external referent. The guaranteed maturity premium for fixed premium universal life insurance policies shall be the premium defined in the policy which at policy issue shall provide the minimum policy guarantees.

(f) The letter "r" shall be:

Equal to one (1); or
If the policy is a flexible premium policy and the policy value is less than the guaranteed maturity fund, the ratio of the policy value to guaranteed maturity fund.

(g) The guaranteed maturity fund at any duration shall be that amount that, together with future guaranteed maturity premiums, will mature the policy based on all policy guarantees at issue.

(h) The numerical value for this paragraph shall be the quantity that results from the formula "r((a)-(b))ax+t/ax", with:

The letter "r" equaling the calculation made pursuant to paragraph (f) of this subsection;
The value "(a)-(b)" equaling the calculation made pursuant to paragraph (i) of this section; and
The values for "ax+t" and "ax" established in paragraph (e)2, of this subsection.

(i) The value of "(a)-(b)" shall be as established in KRS 304.6-150(1) for the plan of insurance defined at policy issue by the guaranteed maturity premiums and all guarantees contained in the policy or declared by the insurer.

(j) The numerical value for this paragraph shall be the sum of any additional quantities analogous to paragraph (h) of this subsection which arise because of structural changes in the policy, with each quantity being determined on a basis consistent with that of paragraph (h) of this subsection using the maturity date in effect at the time of the change.

(k) The guaranteed maturity premium, the guaranteed maturity fund, and paragraph (e) of this subsection shall be recalculated to reflect any structural changes in the policy. This recalculation shall be done in a manner consistent with the requirements established in this subsection.

(l) Future guaranteed benefits shall be determined by:

Projecting the greater of the guaranteed maturity fund and the policy value, taking into account future guaranteed maturity premiums, if any, and using all guarantees of interest, mortality and expense deductions, contained in the policy or declared by the insurer; and
Taking into account any benefits guaranteed in the policy or by declaration that do not depend on the policy value.

(m) All present values shall be determined using:

An interest rate or rates specified by KRS 304.6-145(2) for policies issued in the same year;
The mortality rates specified by KRS 304.6-140 for policies issued in the same year or contained in another table approved by the commissioner for this purpose; and
Any other tables needed to value supplementary benefits provided by a rider that is being valued together with the policy.

(2) Alternative Minimum Reserve.

(a) If, in any policy, the guaranteed maturity premium on any universal life insurance policy is less than the valuation net premium for such policy, calculated by the valuation method actually used in calculating the reserve but using the minimum valuation standards of mortality and rate of interest, the minimum reserve required for the contract shall be the greater of:

The reserve calculated according to the method, the mortality table, and the rate of interest actually used; or
The reserve calculated according to the method actually used by using the minimum valuation standards of mortality and rate of interest and replacing the valuation net premium by the guaranteed maturity premium in each policy year for which the valuation net premium exceeds the guaranteed maturity premium.

(b) For universal life insurance reserves on a net level premium basis, the valuation net premium shall be "PVFB/ax", where "PVFB" and "ax" shall be determined pursuant to subsection(1)(e), (l), and (m) of this section.

(c) For reserves on a Commissioners Reserve Valuation Method, the valuation net premium shall be "PVFB/ax + (9a)-(b)/ax", where "(a)-(b)" shall be determined pursuant to subsection (1)(i) of this section.

Section 4. Nonforfeiture.

(1) Minimum cash surrender values for flexible premium universal life insurance policies.

(a) Minimum cash surrender values for flexible premium universal life insurance policies shall be determined separately for the basic policy and any benefits and riders for which premiums are paid separately.

(b) The requirements established in this paragraph shall pertain to a basic policy and any benefits and riders for which premiums are not paid separately.

The minimum cash surrender value before adjustment for indebtedness and dividend credits available on a date as of which interest is credited to the policy shall be equal to the accumulation to that date of the premiums paid minus the accumulations to that date of:

a. The benefit charges;

b. The averaged administrative expense charge for the first policy year and any insurance increase years;

c. The actual administrative expense charge for other years;

d. An initial and additional acquisition expense charge not exceeding the initial or additional expense allowances, respectively;

e. The service charge actually made excluding charges for cash surrender or election of a paid up nonforfeiture benefit; and

f. Deductions made for partial withdrawals.

All accumulations shall be at the actuarial rate or rates of interest at which interest credits have been made unconditionally to the policy or have been made unconditionally, but for the conditions that have since been met, and minus any unamortized unused initial and additional expense allowances.
Interest on the premiums and on all charges referred to in subparagraph 1. of this paragraph shall be accumulated from and to dates consistent with the manner in which interest is credited in determining the policy value.
The benefit charge shall include the charge made for mortality and the charge made for riders or supplementary benefits for premiums that are not paid separately.
If benefit charges are substantially level by duration and develop low or no cash values, the commissioner shall require higher cash values unless the insurer provides justification that the cash values are appropriate in relation to the policy's other characteristics.
An administrative expense charge shall include:

a. A charge per premium payment;

b. A charge per dollar of premium paid;

c. A periodic charge per $1,000 of insurance;

d. A periodic per policy charge; and

e. Any other charge permitted by the policy to be imposed without regard to the policyowner's request for the service of the insurer.

The averaged administrative expense charge for any year shall be those which would have been imposed in that year if the charge rate or rates for each transaction or period within the year had been equal to the arithmetic average of the corresponding charge rates that the policy states will be imposed in policy years two (2) through twenty (20) in determining the policy value.
The initial acquisition expense charge shall be the excess of the expense charge, other than service charge, actually made in the first policy year over the averaged administrative expense charge for that year.
Additional acquisition expense charge shall be the excess of the expense charge, other than the service charge, actually made in an insurance-increase year over the averaged administrative expense charge for that year.
An insurance-increase year shall be the year beginning on the date of increase in the amount of insurance by policyowner request or by the terms of the policy.
The service charge shall include any charge permitted by the policy to be imposed as the result of a policyowner's request for a service by the insurer or a special transaction.
The initial expense allowance shall be the allowance established in KRS 304.15-342(1) for a fixed premium, fixed benefit endowment policy with a face amount equal to the initial face amount of the flexible premium universal life insurance policy, with level premiums paid annually until the highest attained age at which a premium may be paid under the flexible premium universal life insurance policy, and maturing on the latest maturity date permitted under the policy.
If there is no maturity date in the policy, the highest age in the valuation mortality table shall be used.
The unused initial expense allowance shall be the excess of the initial expense allowance over the initial acquisition expense charge.
If the amount of insurance is subsequently increased upon request of the policyowner or by the terms of the policy, an additional expense allowance and an unused additional expense allowance shall be determined on a basis consistent with this paragraph and as established in KRS 304.15-342(5) using the face amount and the latest maturity date permitted at the time under the policy.
The unamortized unused initial expense allowance shall be:

a. Calculated during the policy year beginning on the policy anniversary at age "x+t", with "x" equaling the same issue age; and

b. The unused initial expense allowance multiplied by "(ax + t)/ax", with "ax+t" and "ax" being the present values of an annuity of one (1) per year payable on the anniversary of the policy beginning at ages "x+t" and "x", respectively, and continuing until the highest attained age at which a premium may be paid under the policy, both on the mortality and interest bases guaranteed in the policy.

An unamortized unused additional expense allowance shall be the unused additional expense allowance multiplied by a similar ratio of annuities, with "ax" replaced by an annuity beginning on the date as of which the additional expense allowance was determined.

(2) The minimum cash surrender value for a fixed premium universal life insurance policy.

(a) For a fixed premium universal life insurance policy, the minimum cash surrender value shall be determined separately for the basic policy and any benefits and riders for which premiums are paid separately.

(b) The requirements established in paragraph (c) of this subsection shall pertain to a basic policy and any benefits and riders for which premiums are not paid separately.

(c) The minimum cash surrender value before adjustment for indebtedness and dividend credits available on a date as of which interest is credited to the policy shall be equal to "(d)-(e)-(f)-(g)", with:

The letter "(d)" equaling the calculation made pursuant to paragraph (d) of this subsection;
The letter "(e)" equaling the calculation made pursuant to paragraph (e) of this subsection;
The letter "(f)" equaling the calculation made pursuant to paragraph (f) of this subsection; and
The letter "(g)" equaling the calculation made pursuant to paragraph (g) of this subsection.

(d) The letter "(d)" shall be the present value of all future guaranteed benefits.

(e) The letter "(e)" shall be the present value of future adjusted premiums. The adjusted premiums shall be calculated as established by KRS 304.15-342. The nonforfeiture net level premium shall be equal to the quantity "PVFB divided by ax".

"PVFB" shall be the present value of all benefits guaranteed at policy issue assuming future premium is paid by the policyowner and all guarantees contained in the policy or declared by the insurer.
"ax" shall be the present value of an annuity of one (1) per year payable on the anniversary of the policy beginning at age "x" and continuing until the highest attained age at which a premium may be paid under the policy.

(f) The letter "(f)" shall be the present value of any quantities analogous to the nonforfeiture net level premium which arise because of guarantees declared by the insurer after the issue date of the policy. "ax "shall be replaced by an annuity beginning on the date as of which the declaration became effective and payable until the end of the period covered by the declaration.

(g) The letter "(g)" shall be the sum of any quantities analogous to paragraph (e) which arise because of structural changes in the policy.

Any future guaranteed benefit shall be determined by:

a. Projecting the policy value, taking into account the future premiums, and using all guarantees of interest, mortality, and expense deductions contained in the policy or declared by the insurer; and

b. Taking into account any benefit guaranteed in the policy or by declaration that do not depend on the policy value.

All present values shall be determined using:

a. An interest rate established by KRS 304.15-342(9) for policies issued in the same year; and

b. The mortality rates established by KRS 304.15-342(8) for policies issued in the same year or contained in other table that may be approved by the commissioner for this purpose.

(3) The minimum paid-up nonforfeiture benefit.

(a) If a universal life insurance policy provides for the optional election of a paid-up nonforfeiture benefit, it shall have a present value at least equal to the cash surrender value provided for by the policy on the effective date of the election.

(b) The present value shall be based on mortality and interest standards at least as favorable to the policyowner as:

In the case of a flexible premium universal life insurance policy, the mortality and interest basis guaranteed in the policy for determining the policy value; or
In the case of a fixed premium policy, the mortality and interest standards permitted for paid-up nonfeiture benefits as established by KRS 304.15-342(8) and (9).

(c) In lieu of the paid-up nonforfeiture benefit, the insurer may substitute, upon request not later than sixty (60) days after the due date of the premium in default, an actuarially equivalent alternative paid-up nonforfeiture benefit which provides a greater amount or longer period of the death benefit, or, if applicable, a greater amount or earliest payment of the endowment benefit.

Section 5. Mandatory Policy Provisions. The policy shall provide:

(1) A report which shall be sent at least annually to the policyowner to inform the policyowner of the status of the policy:

(a) The end of the current reporting period shall not be more than three (3) months prior to the date of the mailing of the report; and

(b) The report shall comply with the requirements established in Section 7 of this administrative regulation;

(2) Notice that the policyholder may request an illustration of the current and future benefits and values;

(3) The guarantee of minimum interest credit and the maximum mortality and expense charge:

(a) All values and data shown in the policy shall be based on guarantees; and

(b) Any figure based on nonguarantees shall not be included in the policy;

(4) A general description of the calculation of the cash surrender value including:

(a) The guaranteed maximum expense charge and the load;

(b) Any limitation on the crediting of additional interest. Any interest credit shall not remain conditional for a period longer than twenty-four (24) months;

(d) The guaranteed maximum mortality charge;

(e) Any other guaranteed charge; and

(f) Any surrender or partial withdrawal charge;

(5)

(a) If the policyowner has the right to change the basic coverage, that any limitation on the amount or timing of the change in basic coverage shall be stated in the policy; and

(b) If the policyowner has the right to increase the basic coverage, whether the additional coverage shall be subject to the same provisions as the original policy;

(6) Written notice to be sent to the policyowner's last known address at least thirty (30) days prior to termination of coverage:

(a) A flexible premium policy shall allow for a grace period of at least thirty (30) days after lapse; and

(b) Unless otherwise defined in the policy, lapse shall occur on that date on which the net cash surrender value is first equal to zero;

(7) If there is a misstatement of age or sex in the policy, that the amount of death benefit shall be that of what would be purchased by the most recent mortality charge at the correct age or sex; and

(8) If a policy provides for a maturity date, end date, or similar date, that the policy shall contain a statement, in close proximity to that date, that it is possible that coverage may not continue to the maturity date even if the scheduled premium is paid in a timely manner.

Section 6. Disclosure of information about the policy being applied for shall follow the standards established in 806 KAR 12:140.

Section 7. Periodic Disclosure to Policyowner.

(1)

(a) The policy shall provide that the policyowner shall be sent, without charge at least annually, a report which shall inform the policyowner of the status of the policy.

(b) The end of the current report period shall not be more than three (3) months prior to the date of the mailing of the report.

(2) The report shall include:

(a) The beginning and end of the current report period;

(b) The policy value at the end of the previous report period and at the end of the current report period;

(c) The total amount that has been credited or debited to the policy value during the current report period, identifying each by type;

(d) The current death benefit at the end of the current report period on each life covered by the policy;

(e) The net cash surrender value of the policy as of the end of the current report period;

(f) The amount of any outstanding loan, if any, as of the end of the current report period;

(g) For a fixed premium policy, if applicable, a notice to the effect that based on the calculation of the guaranteed interest, mortality, and expense load and the continued scheduled premium payment, the policy's net cash surrender value is at a level that will not maintain insurance in force until the end of the next reporting period; and

(h) For a flexible premium policy, if applicable, a notice to the effect that based on the guaranteed interest, mortality, and expense load, the policy's net cash surrender value will not maintain insurance in force until the end of the next reporting period unless further premium payments are made.

Section 8. The Interest-indexed Universal Life Insurance Policy.

(1)

(a) All information received in accordance with paragraph (c) of this subsection shall be treated confidentially to the extent permitted by law.

(b) The information required by paragraph (c) of this subsection shall be submitted in addition to the requirements established by KRS 304.14-120.

A description of how the interest credit shall be determined, including:

a. A description of the index;

b. The relationship between the value of the index and the actual interest rate to be credited;

c. The frequency and timing of determining the interest rate; and

d. The allocation of the interest credit, if more than one (1) rate of interest shall be applied to different portions of the policy value;

The insurer's investment policy, which shall include a description of:

a. How the insurer addressed the reinvestment risks;

b. How the insurer plans to address the risk of capital loss on cash outflows;

c. How often the insurer plans to address the risk that appropriate investments may not be available or not available in sufficient quantities;

d. How the insurer plans to address the risk that the indexed interest rate may fall below the minimum contractual interest rate guaranteed in the policy;

e. The amount and type of assets currently held for interest indexed policies; and

f. The amount and type of assets expected to be acquired in the future;

If policies are linked to an index for a specified period less than to the maturity date of the policy, a description of the method used to determine interest credits upon the expiration of such period;
A description of any interest guarantee in addition to or in lieu of the index; and
A description of any maximum premium limitations and the conditions under which they apply.

(2) Reporting requirements:

(a) Annually, every insurer shall submit a Statement of Actuarial Opinion by the insurer's actuary as established in subsection (3) of this section;

(b) Annually, an insurer shall submit a description of the amount and type of assets currently held by the insurer with respect to its interest-indexed policies; and

(c)

Prior to implementation, a domestic insurer shall submit a description of any material change in the insurer's investment strategy or method of determining the interest credits.
A change shall be material if it would:

a. Affect the form or definition of the index; or

b. Significantly change the amount or type of assets held for interest-indexed policies.

(3) Statement of Actuarial Opinion for Interest-Indexed Universal Life Insurance Policies shall state: I, ______________________________________, am (position or relationship to Insurer) for the _____________ Name of Life Insurance Company (the Insurer) in the state of _____________________________. (State of Domicile of Insurer) I am a member of the American Academy of Actuaries (or if not, state other qualifications to sign annual statement actuarial options). I have examined the interest-indexed universal life insurance policies of the Insurer in force as of December 31, , encompassing ______ number of policies and $ of insurance in force. I have considered the provisions of the policies. I have considered any reinsurance agreements pertaining to the policies, the characteristics of the identified assets, and the investment policy adopted by the Insurer as they affect future insurance and investment cash flows under the policies and related assets. My examination included tests and calculations that I considered necessary to form an opinion concerning the insurance and investment cash flows arising from the policies and related assets. I relied on the investment policy of the Insurer and on projected investment cash flows as provided by _______________________, Chief Investment Officer of the Insurer. The tests were conducted under various assumptions as to future interest rates, and particular attention was given to those provisions and characteristics that may cause future insurance and investment cash flows to vary with changes in the level of prevailing interest rates. In my opinion, the anticipated insurance and investment cash flows referred to above make a sufficient provision for the contractual obligations of the Insurer under these insurance policies.

History

RELATES TO: KRS 304.6-120, 304.6-130, 304.6-140, 304.6-143, 304.6-145, 304.6-150, 304.14-120, 304.15-010, 304.15-040, 304.15-300, 304.15-310, 304.15-340, 304.15-342
STATUTORY AUTHORITY: KRS 304.2-110, 304.6-143(5), 304.6-171(2)
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.2-110(1) authorizes the Commissioner of Insurance to promulgate administrative regulations necessary for or as an aid to the effectuation of any provision of the Kentucky Insurance Code. This administrative regulation establishes requirements to accommodate the development and issuance of universal life insurance policies.
History: 806 KAR 015:060. 33 Ky.R. 4307, 34 Ky.R. 300, 741; eff. 11-2-2007; 47 Ky.R. 1668, 2390; eff. 8-3-2021.

806 KAR 15:070 Annuity nonforfeiture {#sec-806-kar-15-070 omnilex-key=us-ky-regs-official--title-806--806 KAR 15:070}

Section 1. Definitions.

(1) "Basis" means:

(a) If used in the context of an initial or redetermination method, the specified period over which an average is computed that shall produce the value of the five-year Constant Maturity Treasury (CMT) Rate; or

(b) If used in the context of the equity-indexed benefit, the point in time used for establishing the parameters that:

Are incorporated into the calculation of the value of the equity-indexed options; and
Include the risk free rate, dividend yield, index volatility, and prior index values if the option is path dependent.

(2) "Equity-indexed benefit" means a benefit that:

(a) Is in an annuity contract in which the value of the benefit is determined using an interest crediting rate based on the performance on an equity-based index and contract parameters; and

(b) Shall not include the variable benefit of separate account variable annuities and indexed guaranteed separate account contracts purchased by an institutional buyer.

(3) "Commissioner" is defined by KRS 304.1-050(1).

(4) "Index term" means each period of time until the next indexed interest crediting date.

(5) "Initial method" means the basis upon which the initial nonforfeiture rate is established and the period that it shall apply and shall last for the entirety of the contract.

(6) "Initial nonforfeiture rate" means the nonforfeiture rate applicable at contract issue.

(7) "Minimum nonforfeiture amount" means the amount established by KRS 304.15-365(4)(a).

(8) "Modal period" means the period the company specifies during which the current nonforfeiture rate will remain fixed.

(9) "Nonforfeiture rate" means the interest rate established in KRS 304.15-365(5).

(10) "Redetermination method" means the redetermination date, basis, and period for all future redetermination nonforfeiture rates.

Section 2. Basis Applicability. The same basis shall apply to equity-indexed benefits and nonequity-indexed benefits, if any.

(1)

(a) The basis may use a specified period that is determined by the level of change in the CMT rate, or another date-dependent methodology adopted by the National Association of Insurance Commissioners and in compliance with this administrative regulation.

(b) A specifically excluded method is a method that shall define the nonforfeiture rate as the lowest rate in a specified time period.

(c) A method based upon changes in CMT levels shall move up or down in an identical manner with changes in interest rates, subject to KRS 304.15-365(5).

(2) If the basis uses a specified period determined by the level of change in the CMT rate:

(a) The nonforfeiture rate applicable if this subsection is first utilized for a contract form shall be determined by a method using a specified period or a date-dependent methodology in compliance with this administrative regulation.

(b)

A symmetrical range shall be defined that shall determine if the rate will be updated.
The maximum allowable range shall be plus or minus fifty (50) basis points.

(c) At the beginning of each modal period, a potential nonforfeiture rate shall be calculated using the method in paragraph (a) of this subsection, without incorporating caps or floors.

(d) If the difference between the potential nonforfeiture rate and the current initial nonforfeiture rate is less than or equal to the range, the current nonforfeiture rate shall not be updated.

(e) If the difference between the potential nonforfeiture rate and the current nonforfeiture rate is more than the range, the current nonforfeiture rate shall be updated to be equal to the potential nonforfeiture rate adjusted for rounding and caps or floors.

Section 3. Initial Method.

(1) The initial method shall be filed with the commissioner.

(2)

(a) Changes to the initial method shall be allowed once per calendar year.

(b) Changes to the initial method shall be filed with the commissioner in accordance with KRS 304.14-120.

(c) A change in the initial method would be applicable only to new contracts or new certificates issued subsequent to the effective date of the change in method.

(3) The initial method shall not be required to be disclosed in the contract form.

(4) The initial nonforfeiture rate shall not be required to be disclosed in the contract form unless redetermination is used.

(5) The minimum nonforfeiture parameters shall not be required to be disclosed in the contract unless they are utilized in the calculation of the guaranteed minimum value of the contract.

Section 4. Redetermination Method.

(1) If redetermination is used, the method shall be disclosed in the contract form or certificate.

(2) Changes in the redetermination method for future issues or certificates shall be filed in accordance with KRS 304.14-120.

Section 5. Nonforfeiture Rate and Minimum Nonforfeiture Amount.

(1) An annuity contract or certificate without an equity-indexed benefit shall have one (1) nonforfeiture rate and one (1) minimum nonforfeiture amount applicable to the entire contract.

(2) An annuity contract or certificate with equity-indexed benefits may have more than one (1) nonforfeiture rate applicable to the contract or certificate subject to the following:

(a) If the contract has a non-equity-indexed benefit, the nonforfeiture interest rate applicable to the non-equity-indexed benefit shall be determined in compliance with KRS 304.15-365(5) without consideration of any equity indexed feature.

(b) If an additional reduction is elected for equity-indexed benefits, reduced nonforfeiture interest rates may apply to each equity-indexed benefit for which the additional reduction is elected in compliance with KRS 304.15-365(6) and Section 5 of this administrative regulation.

(c) The minimum nonforfeiture amount for the contract shall be determined by calculating a nonforfeiture amount, without any reduction for indebtedness to the company on the contract including interest due and accrued on the indebtedness, for each equity-indexed and non-equity-indexed benefit using the nonforfeiture interest rates described in this subsection, summing the results, and then deducting any indebtedness to the company on the contract including interest due and accrued on the indebtedness.

(d) If contract value is transferred:

From a benefit, the benefit's minimum nonforfeiture amount shall be reduced by the benefit's minimum nonforfeiture amount prior to the transfer and multiplied by the proportion of the benefit's contract value that is transferred;
To a benefit, the benefit's minimum nonforfeiture amount shall be increased by the sum of all reductions in minimum nonforfeiture amounts determined pursuant to subparagraph 1 of this paragraph, and multiplied by the proportion of total contract value that is transferred to that benefit; or
For the purpose of calculations specified in subparagraphs 1 and 2 of this paragraph, the contract value shall first be reduced by any fees associated with the transfer.

(e) In the case of a withdrawal from a benefit in which the amount of withdrawal exceeds the benefit's nonforfeiture amount, the insurer shall treat the excess withdrawal in a manner at least as favorable to the contract holder as deducting the excess withdrawal from the nonforfeiture amounts of other benefits in order from lowest to highest nonforfeiture interest rate.

(f) A contract charge or premium tax paid by the company shall be allocated to a benefit's minimum nonforfeiture amount based on the percentage of that benefit's contract value to the total contract value.

Section 6. Equity-indexed Benefits.

(1) If a company chooses to take the additional reduction for an equity-indexed benefit, the company shall prepare a demonstration showing compliance with KRS 304.15-365(6).

(2) To demonstrate compliance a company shall:

(a) Calculate the annualized option cost for the equity-indexed benefit in the form of basis points for the entire index term as of the beginning of the index term.

In making the calculation, a company shall:

a. Use the equity-indexed benefit's guaranteed product features;

b. Use a basis representative of the point in time at the beginning of the current index term for the option cost. The company shall not change this basis during the index term; and

c. Calibrate the method and parameters for the option cost to capital markets based option pricing.

A company shall not make adjustments for persistency, death, or utilization.

(b) Be eligible to take a reduction equal to the lesser of 100 basis points or the annual cost basis value, if the annualized option cost for the equity-indexed benefit is twenty-five (25) basis points or more, and the equity-indexed benefit shall provide substantive participation under KRS 304.15-365(6).

(c) Prepare an actuarial certification signed by a member of the American Academy of Actuaries that the reduction complies with KRS 304.15-365(6) at the time that the contract form is filed and submitted.

(d) Annually prepare an actuarial certification in accordance with KRS 304.15-365(6) signed by a member of the American Academy of Actuaries with regard to ongoing compliance and submit it in conjunction with the filing of the annual statement.

(3) If the additional reduction of up to 100 basis points for equity-indexed benefits has been inappropriately taken, the commissioner shall require the recalculation of all values for all affected policyholders without all or part of the additional reduction.

History

RELATES TO: KRS 304.14-120, 304.15-365
STATUTORY AUTHORITY: KRS 304.2-110, 304.15-365(7)
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.2-110 authorizes the Commissioner of Insurance to promulgate administrative regulations necessary for or as an aid to the effectuation of any provision of the Kentucky Insurance Code. KRS 304.15-365(7) authorizes the commissioner to promulgate administrative regulations to implement KRS 304.15-365(6) and to establish further adjustments to the calculation of minimum nonforfeiture amounts for contracts that provide substantive participation in an equity index benefit and for other contracts that the commissioner shall determine if adjustments are justified. This administrative regulation establishes the requirement to implement the annuity nonforfeiture provisions established in KRS 304.15-365(4).
History: 806 KAR 015:070. 33 Ky.R. 4311, 34 Ky.R. 304, 746; eff. 11-2-2007; 47 Ky.R. 1673, 2394; eff. 8-3-2021.

806 KAR 15:090 Notice of rights as an owner of a life insurance policy {#sec-806-kar-15-090 omnilex-key=us-ky-regs-official--title-806--806 KAR 15:090}

Section 1. When required by KRS 304.15-075(3), an insurer shall provide the owner of an individual life insurance policy with a net death benefit of $100,000 or greater with either of the following:

(1) Important Information About Your Life Insurance Policy, Notice 126; or

(2) A notice developed by the insurer that:

(a) Meets the requirements of KRS 304.15-075(2); and

(b) Has been approved by the commissioner.

Section 2. Incorporation by Reference.

(1) "Important Information About Your Life Insurance Policy", Notice 126, 2/2021, is incorporated by reference.

(2) This material may be inspected, copied, or obtained, subject to applicable copyright law, at the Kentucky Department of Insurance, The Mayo-Underwood Building, 500 Mero St., Frankfort, Kentucky 40601, Monday through Friday, 8 a.m. to 4:30 p.m. Forms may also be obtained on the department Web site at https://insurance.ky.gov/ppc/CHAPTER.aspx.

History

RELATES TO: KRS 304.14-120, 304.15-075
STATUTORY AUTHORITY: KRS 304.2-110, 304.15-075(1), (3), (4)
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.2-110(1) authorizes the Commissioner of Insurance to promulgate administrative regulations necessary for or as an aid to the effectuation of any provisions of the Kentucky Insurance Code. KRS 304.15-075(1) requires the commissioner to develop a notice to inform the owner of a life insurance policy issued in this state of his or her rights as an owner of a life insurance policy. KRS 304.15-075(4) authorizes the commissioner to promulgate administrative regulations that establish that notice shall only be required with respect to policies with a net death benefit that is $100,000 or greater. This administrative regulation establishes the notice that shall be provided to owners of life insurance policies at times specified in KRS 304.15-075(3) and exempts insurers from providing notice to owners whose life insurance policy has a net death benefit that is less than $100,000.
History: 806 KAR 015:090. 37 Ky.R. 881; eff. 1-3-2010; 46 Ky.R. 1635, 2279; eff. 5-5-2020; 47 Ky.R. 2725; 48 Ky.R. 830; eff. 11-30-2021.

Chapter 17 Health Insurance Contracts

806 KAR 17:005 Health insurance forms and reports {#sec-806-kar-17-005 omnilex-key=us-ky-regs-official--title-806--806 KAR 17:005}

Section 1. Forms and Reports.

(1) Form HIPMC-RF-25, Basic Health Benefit Plan Summary Sheet-Form and Rate Filings, shall be filed by an insurer with a form or rate for a basic health benefit plan.

(2) Form HIPMC-BHP-1, Basic Health Benefit Plan Annual Report, shall be filed annually by an insurer offering a basic health benefit plan.

(3) Form HIPMC-R32, Health Benefit Plan Rate Filing Information Form, shall be filed with a rate for a health benefit plan.

(4) Form HIPMC-F1, Face Sheet and Verification Form, shall be filed as the coversheet of a rate or form filing for a health benefit plan.

(5) An Income and Expense Worksheet shall be filed with a rate for a health benefit plan.

(6) Form HIPMC-R33, Health Benefit Plan Regions, which includes eight (8) identified health benefit plan regions in Kentucky, may be filed for a geographic region factor adjustment in a rate for a health benefit plan.

(7) Form HIPMC-R34, Certification Form, shall be filed with a rate for a health benefit plan for an individual, association, or small group.

(8) Form HIPMC-IRE-1, Application for Certification of an Independent Review Entity, shall be filed by an independent review entity applying for certification to perform external reviews in Kentucky.

(9) Form HIPMC-IRE-2, Assignment of Independent Review Entity Form, shall be filed by an insurer if an external review is assigned to an independent review entity.

(10) Form HIPMC-IRE-3, External Review Decision Notification Form, shall be used by an independent review entity to notify the Department of Insurance of an external review decision.

(11) Form HIPMC-IRE-4, Annual Independent Review Entity Report Form, shall be filed by an independent review entity annually with the Department of Insurance.

(12) Form HIPMC-IRE-5, Approval of an External Review Fee in excess of $800, shall be used by the Department of Insurance to approve excess fees of an independent review entity in unusual or complicated circumstances.

(13) Form HIPMC-IRE-6, External Review Information Face Sheet, shall be used by an insurer to provide information and documentation relating to an external review to an independent review entity.

(14) Form HIPMC-UR-1, Utilization Review Registration Application, shall be filed by an insurer or private review agent applying for registration to perform utilization review in Kentucky.

(15) Form HIPMC-UR-2, Annual Utilization Review Report Form, shall be filed by an insurer or private review agent annually to the Department of Insurance.

(16) Form HIPMC-R1, Risk-sharing Arrangement Information Sheet, shall be filed by an insurer for each risk-sharing arrangement in force.

Section 2. Incorporation by Reference.

(1) The following material is incorporated by reference:

(a) "HIPMC-RF-25, Basic Health Benefit Plan Summary Sheet-Form and Rate Filings", 07/2008;

(b) "HIPMC-BHP-1, Basic Health Benefit Plan Annual Report", 07/2008;

(d) "HIPMC-F1, Face Sheet and Verification Form", 07/2008;

(e) "Income and Expense Worksheet", 1998;

(f) "HIPMC-R33, Health Benefit Plan Regions", 12/00;

(g) "HIPMC-R34, Certification Form", 07/2008;

(h) "HIPMC-IRE-1, Application for Certification of an Independent Review Entity", 07/2008;

(i) "HIPMC-IRE-2, Assignment of Independent Review Entity Form", 7/2008;

(j) "HIPMC-IRE-3, External Review Decision Notification Form", 07/2008;

(k) "HIPMC-IRE-4, Annual Independent Review Entity Report Form", 07/2008;

(l) "HIPMC-IRE-5, Approval of an External Review Fee in excess of $800", 07/2008;

(m) "HIPMC-IRE-6, External Review Information Face Sheet", 07/2008;

(n) "HIPMC-UR-1, Utilization Review Registration Application", 07/2008;

(o) "HIPMC-UR-2, Annual Utilization Review Report Form", 07/2008; and

(p) "HIPMC-R1, Risk-sharing Arrangement Information Sheet", 07/00.

(3) Forms may also be obtained on the Department of Insurance Web site at http://insurance.ky.gov.

History

RELATES TO: KRS 304.1-010, 304.4-010, 304.14-120, 304.14-190, 304.17A-095, 304.17A-096, 304.17A-600-304.17A-629
STATUTORY AUTHORITY: KRS 304.2-110(1)
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.2-110(1) authorizes the executive director of insurance to promulgate reasonable administrative rules and administrative regulations necessary for or as an aid to the effectuation of any provision of the Kentucky Insurance Code, as defined by KRS 304.1-010. EO 2008-507, effective June 16, 2008, established the Department of Insurance and the Commissioner of Insurance as head of the department. This administrative regulation establishes forms and reports to be submitted to the Department of Insurance by a health insurer or independent review entity.
History: 34 Ky.R. 1906; Am. 2095; eff. 4-4-08; 35 Ky.R. 652; 1189; eff. 12-5-2008; Crt eff. 2-26-2020.

806 KAR 17:020 Disclosure of other coverage in application {#sec-806-kar-17-020 omnilex-key=us-ky-regs-official--title-806--806 KAR 17:020}

Section 1. Application Requirements.

(1) Every application form used by an insurer, electronically or otherwise, to solicit individually underwritten health insurance, except group or accident insurance only, shall require the applicant to disclose all health insurance currently covering the applicant and any proposed insured. The applicant shall identify the name of the insurer and the amount of insurance, if known.

(2) Every application, described in subsection (1), solicited personally by an agent shall have the applicant's signature and the agent shall certify that each question on the application was asked of the applicant and that the applicant's answers have been accurately recorded.

History

RELATES TO: KRS 304.14-120
STATUTORY AUTHORITY: KRS 304.2-110
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.2-110 authorizes the insurance commissioner to promulgate reasonable rules and administrative regulations necessary for or as an aid to the effectuation of any provision of the Kentucky Insurance Code. This administrative regulation requires an applicant for health insurance to disclose any health insurance policy currently in force in the name of the applicant.
History: 806 KAR 017:020. I-17.01; 1 Ky.R. 1083; eff. 7-2-1975; TAm eff. 8-9-2007; 36 Ky.R. 668; 1226; eff. 1-4-2010; 45 Ky.R 446; eff. 11-2-2018; Crt eff. 10-29-2025.

806 KAR 17:030 Surgical schedule {#sec-806-kar-17-030 omnilex-key=us-ky-regs-official--title-806--806 KAR 17:030}

Section 1. A health policy, or rider attached, or to be attached thereto, providing identification for surgical care through the means of an operation or surgical schedule will not be approved for use in Kentucky unless it complies with the following:

(1) Where the indemnity is limited to the listed operation(s), the policy or rider shall indicate in unequivocal language that indemnity will be paid only for listed operations; and

(2) If the company is to determine the amount to be paid for any unlisted operation, the policy must provide that the amount will be determined:

(a) On a basis of comparative severity or original difficulty with operations listed in the schedule of operations;

(b) On the basis of usual and customary charges in the community by accredited physicians for comparable services; or

History

RELATES TO: KRS 304.17-030
STATUTORY AUTHORITY: KRS 304.2-110
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.2-110 provides that the Commissioner of Insurance may make reasonable rules and administrative regulations necessary for or as an aid to the effectuation of any provision of the Kentucky Insurance Code. This administrative regulation provides certain inclusions in health insurance contracts where surgical care and indemnification is provided.
History: I-17.02; 1 Ky.R. 1083; eff. 7-2-75; TAm eff. 8-9-2007; Crt eff. 2-26-2020; TAm eff. 3-10-2020.

806 KAR 17:050 Inclusion of Medicaid as first payor prohibited {#sec-806-kar-17-050 omnilex-key=us-ky-regs-official--title-806--806 KAR 17:050}

Section 1. No insurer or health care provider shall write or issue any policy or certificate of coverage provision which has the effect of limiting or excluding its obligation to pay on a claim because the insured is eligible for or is provided medical assistance under the provisions of title XIX of the Social Security Act (Medicaid).

Section 2. No insurer or health care provider shall deny or cancel a policy of insurance or certificate of coverage on the basis that the insured or enrollee is a recipient of medical assistance benefits under title XIX of the Social Security Act (Medicaid).

History

RELATES TO: KRS 304.12-080, 304.17-220, 304.17-230, 304.18-020, 304.18-070, 304.32-150, 304.32-160, 304.38-050, 304.38-180
STATUTORY AUTHORITY: KRS 304.2-110
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.2-110 provides that the Commissioner of Insurance may make reasonable rules and administrative regulations for or as an aid to the effectuation of any provision of the Kentucky Insurance Code. This administrative regulation prohibits the inclusion in insurance contracts and health care provider agreements of provisions making Medicaid first payor.
History: 5 Ky.R. 635; eff. 5-2-79; TAm eff. 8-9-2007; Crt eff. 2-26-2020; TAm eff. 3-10-2020.

806 KAR 17:070 Filing procedures for health insurance rates {#sec-806-kar-17-070 omnilex-key=us-ky-regs-official--title-806--806 KAR 17:070}

Section 1. Definitions.

(1) "Accumulated value" means the amount of which a sum of money would have increased as of the valuation date, if invested at a specific date in the past, subject to the investment earnings attributable to the policies.

(2) Insurer is defined by KRS 304.1-040.

(3) "Loss ratio" means the ratio of the sum of incurred losses divided by the earned premiums.

(4) "Present value" means the amount of money needed as of the valuation date to produce, when accumulated at interest, a specified amount on a specific future date. The "present value of future benefits" and "present value of future premiums" are the sums of those values that take into account not only the interest assumption, but the assumed persistency and mortality of the business.

(5) "Qualified actuary" means a member of the American Academy of Actuaries, a fellow or associate of the Society of Actuaries, the Institute of Actuaries, the Faculty of Actuaries, the Casualty Actuarial Society, or a fellow or member of the Conference of Actuaries in Public Practice that is compliant with continuing professional development in the area of health insurance.

Section 2. Scope. This administrative regulation shall apply to individual health insurance products and Medicare supplement plans. This administrative regulation shall not apply to health benefit plans as defined by KRS 304.17A-005(22).

Section 3. Classification of Policies. For the purposes of this administrative regulation, policies are classified by type of benefit, renewal clause, and average annual premium.

(1) Types of benefits recognized are:

(a) Medical expense, including hospital indemnity policies, as well as hospital, surgical, major medical, cancer, critical illness, or any other policies providing insurance against the expenses resulting from accident or sickness, as well as indemnity or lump sum benefits payable upon a medical event or diagnosis;

(b) Medicare supplement policies; and

(2) Categories of renewal clause are as follows:

(3) Recognized categories by average annual premium per policy are:

(a) Less than $250 ;

(b) A minimum of at least $250 but less than $500 ; and

Section 4. Filing of Rates. Every policy, rider, or endorsement form affecting benefits that are submitted for approval shall be accompanied by a rate filing unless the rider or endorsement form does not directly or indirectly produce a change in the benefit level. Any subsequent addition to or change in rates applicable to the policy, rider, or endorsement shall also be filed.

(1) The following items shall be included in individual health insurance rate filing submissions for rates on a new product:

(a) Policy form, application, endorsements, HIPMC-F1 incorporated by reference in 806 KAR 14:007,and filing fee.

(b) Rate sheet.

A brief description of the type of policy, benefits, renewability, general marketing method, and issue age limits.
A brief description of how rates were determined, including the general description and source of each assumption used. If assumptions are materially different from the insurer's experience on similar policies, the reasons for their choice shall be explained. Margins, both implicit and explicit, shall be estimated. For expenses, show those that are percent of premium, dollars per policy and dollars per unit of benefit, separately, by policy year.
Estimated average annual premium per policy.
Anticipated loss ratio, including a brief description of how it was calculated, and a projection of year-by-year expected loss ratios.
Anticipated loss ratio presumed reasonable according to Section 5 of this administrative regulation.
If subparagraph 4 of this paragraph is less than subparagraph 5 of this paragraph, supporting documentation for the use of the proposed premium rates shall be filed.
An actuarial report signed by a qualified actuary as to whether or not, to the best of the actuary's knowledge and judgment, the rate submission is in compliance with the applicable laws and administrative regulations of the state, the Actuarial Standards of Practice available at http://www.actuarialstandardsboard.org/standards-of-practice/, and that the premiums are:

a. Reasonable in relation to the benefits;

b. Adequate;

c. Not excessive; and

d. Not unfairly discriminatory .

A comparison of the rates with those of any similar policies currently or recently issued by the insurer.

(d) A statement as to the status of the filing in the insurer's home state, and a statement as to any variations in rates or loss ratio assumptions required by or used in other states.

(2) The following items shall be included in individual health insurance rate filing submissions for rate increases on an existing product:

(a) New rate sheet, HIPMC-F1 incorporated by reference in 806 KAR 14:007, and filing fee.

(b) Actuarial memorandum including:

A brief description of the type of policy, benefits, renewability, general marketing method, issue age limits, the first and last year the policy form was issued, and the anticipated loss ratio of its original rates.
The scope and reason for rate revision including a statement of whether the revision applies only to new business, only to in-force business, or to both, and outline of all past rate increases on this form.
The estimated average annual premium per policy, before and after rate increase and a comparison of proposed rate scale with current rate scale.
Past experience, the statistical credibility of the experience data and any other available data the insurer may wish to provide. If policy reserves are other than net level reserves based on the rate assumptions underlying the existing rates, an estimate of the effect of using the reserves shall be provided.
A brief description of how revised rates were determined, including the general description and source of each assumption used. For expenses, include percent of premium, dollars per policy, dollars per unit of benefit as separate items, and the unamortized initial expenses to be recovered from future premiums shall be shown.
The anticipated future loss ratio described in Section 5(2)(a) of this administrative regulation and a description of how it was calculated.
The anticipated loss ratio that combines cumulative and future experience described in Section 5(2)(b) of this administrative regulation, and a description of how it was calculated.
Anticipated loss ratio presumed reasonable according to Section 5 of this administrative regulation.
If subparagraphs 6 or 7 of this paragraph is less than subparagraph 8 of this paragraph, supporting documentation for the use of the premium rates.
An actuarial report signed by a qualified actuary as to whether or not, to the best of the actuary's knowledge and judgment, the rate submission is in compliance with the applicable laws and administrative regulations of the state, the Actuarial Standards of Practice available at http://www.actuarialstandardsboard.org/standards-of-practice/, and that the premiums are:

a. Reasonable in relation to benefits;

b. Adequate;

c. Not excessive; and

d. Not unfairly discriminatory .

The number of policies in force in Kentucky and approximate annual premiums.

(c) A statement as to the status of the filing in the insurer's home state, and a statement as to any variations in rates or ratio assumptions required by or used in other states.

Section 5. Reasonableness of Benefits in Relation to Premiums.

(1) New forms.

(a) With respect to a new form other than a Medicare supplement form under which the average annual premium, as defined in the table below is expected to be at least $500 , benefits shall be found as reasonable in relation to premiums provided the anticipated loss ratio is at least as great as shown in the following table:

(b) For a policy form, including riders and endorsements, under which the expected average annual premium per policy is $250 or more but less than $500 , subtract five (5) percentage points from the numbers in the table above, or less than $250 , subtract ten (10) percentage points.

(c) The average annual premium per policy shall be computed by the insurer based on an anticipated distribution of business by all applicable criteria having a price difference, such as age, sex, amount, dependent status rider frequency, etc., except assuming an annual mode for all policies (i.e., the fractional premium loading shall not affect the average annual premium or anticipated loss ratio calculation).

(d) The loss ratio for a Medicare supplement policy shall be as provided in 806 KAR 17:570 , regardless of renewal clause or average premium.

(2) Rate revisions. Except as provided in subsection (3) of this Section, with respect to filings of rate revisions for a previously approved form, benefits shall be determined reasonable in relation to premiums if both of the following loss ratios meet the standards for new forms as established in subsection (1) of this Section and the loss ratio described in paragraph (b) of this subsection meets or exceeds the initial filed expected loss ratio.

(a) The anticipated loss ratio over the entire future period for which the revised rates are computed to provide coverage;

(b) The anticipated loss ratio derived by dividing "A" by "B" where:

a. "A" is the sum of the accumulated value of the benefits, from the original effective date of the form or the effective date of this administrative regulation, whichever is later, to the effective date of the revision, and the present value of future benefits; and

b. "B" is the sum of the accumulated value of the premiums from the original effective date of the form or the effective date of the administrative regulation, whichever is later, to the effective date of the revision, and the present value of future premiums.

The present values shall be taken over the entire period that the revised rates are computed to provide coverage, and the values shall be calculated from the last date that accounting has been made to the effective date of the revision.

(3) Anticipated loss ratios other than those indicated in subsection (1) or (2) of this section shall require justification based on the special circumstances that may be applicable.

(a) Coverages for which a lower loss ratio may receive special consideration are as follows:

Accident only;
Short term nonrenewable, e.g., airline trip, student accident;
Specified peril, e.g., common carrier; and
Other special risks.

(b) Factors for which lower loss ratios may receive special consideration are as follows:

Marketing methods, giving due consideration to acquisition and administration costs and to premium mode;
Extraordinary expenses;
High risk of claim fluctuation because of the low loss frequency or the catastrophic, or experimental nature of the coverage;
Product features such as long elimination periods, high deductibles and high maximum limits;
The industrial or debit method of distribution; and
Forms issued prior to the effective date of these guidelines.

(c) Insurers shall review their experience periodically and file rate revisions, as appropriate, in a timely manner to avoid the necessity of later filing of unacceptable large rate increases. For rate increases of more than thirty (30) percent, insurers may be requested to implement the increase over two (2) or more years.

(d) An example of factors for which higher loss ratios may be required:

A form on which all initial expenses have been amortized.
A form on which rates have been increased to at least double their original level.
A form on which insurers have not filed rate increases in a timely manner pursuant to subsection 3(c) of this section.

(e) When rates are submitted for new forms, the Department may require subsequent filings to demonstrate that the loss ratio required by subsection (1)(a) of this section is being met.

Section 6. Miscellaneous Considerations.

(1) Additional data that may be included in the support of rate filings includes data such as the substitution of actual claim run-offs for claim reserves and liabilities, in order to avoid the problems of short-term developments, accident-year loss ratios supporting trends, the operation of any experience funds or stabilization reserves, and the adjustment of premiums to an annual mode basis.

(2) All additional data shall be reconciled, as appropriate, to the required data, and any missing data explained.

Section 7. Severability. If any provision of this administrative regulation or the application thereof to any person or circumstance is for any reason held to be invalid, the remainder of this administrative regulation and the application of the provision to other persons or circumstances shall not be affected thereby.

History

RELATES TO: KRS 304.14-120, 304.14-130, 304.17-380, 304.17A-005(22)
STATUTORY AUTHORITY: KRS 304.2-110
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.2-110(1) authorizes the Commissioner of Insurance to promulgate administrative regulations necessary for or as an aid to the effectuation of any provision of the Kentucky Insurance Code as defined in KRS 304.1-010 . This administrative regulation establishes additional filing procedures for health insurance rates.
History: 806 KAR 017:070. 8 Ky.R. 955; eff. 4-7-1982; 21 Ky.R. 1961; eff. 4-6-1995; TAm eff. 8-9-2007; 47 Ky.R. 2726, 48 Ky.R. 1151; eff. 1-4-2022.

806 KAR 17:081 Minimum standards for long-term care insurance policies {#sec-806-kar-17-081 omnilex-key=us-ky-regs-official--title-806--806 KAR 17:081}

Section 1. Definitions.

(1) "Applicant" is defined in KRS 304.14-600(3).

(2) "Attained age rating" means a schedule of premiums starting from the issue date which increases age at least one (1) percent per year prior to age fifty (50), and at least three (3) percent per year beyond age fifty (50).

(3) "Certificate" is defined in KRS 304.14-600(4).

(4) "Chronically-ill individual", pursuant to 26 U.S.C. 7702B(c)(2):

(a) Means any individual who has been certified by a licensed health care practitioner as:

Being unable to perform without substantial assistance from another individual at least two (2) activities of daily living for a period of at least ninety (90) days due to a loss of functional capacity; or
Requiring substantial supervision to protect the individual from threats to health and safety due to severe cognitive impairment; and

(b) Shall not include an individual otherwise meeting these requirements unless within the preceding twelve month period a licensed health care practitioner has certified that the individual meets these requirements.

(5) "Claim" means a request for payment of benefits under an in-force policy regardless of whether the benefit claimed is covered under the policy or any terms or conditions of the policy have been met.

(6) "Cold lead advertising" means the use of any method of marketing which fails to disclose in a clear, easy to notice manner that a purpose of the method of marketing is solicitation of insurance and contact will be made by an insurance agent or insurance company.

(7) "Commissioner" means the Commissioner of Insurance.

(8) "Denied claim" means the insurer refuses to pay a claim for any reason except for failure to meet the waiting period or due to an applicable preexisting condition.

(9) "Department" means the Department of Insurance.

(10) "Exceptional increase" means a premium rate increase filed by an insurer as exceptional, which the commissioner determines is necessary and justified due to:

(a) Changes in Kentucky laws or administrative regulations applicable to long-term care coverage; or

(b) Increased and unexpected utilization that affects the majority of insurers of similar products.

(11) "Group long-term care insurance" is defined in KRS 304.14-600(5).

(12) "High pressure tactics" means employing any method of marketing that may affect or induce the purchase of insurance through force, fright, explicit or implied threat, or create undue pressure to purchase or recommend the purchase of insurance.

(13) "Incidental" is defined in KRS 304.14-600(1).

(14) "Individually-identifiable information" means personal information gathered in connection with an insurance transaction from which judgment may be made regarding an individual's character, habits, avocations, finances, occupation, general reputation, credit, health or other personal characteristics including an individual's name, address, and medical record information.

(15) "Insurer" is defined in KRS 304.1-040.

(16) "Interlocking directorates" means two (2) separate boards of directors that have at least one (1) director in common.

(17) "Kentucky insurance code" means the statutes referenced in KRS 304.1-010 and the administrative regulations established in KAR Title 806.

(18) "Licensed health care practitioner" means a physician as defined in 42 U.S.C. 1395x(r), registered nurse, licensed social worker, or other individual who meets the requirements of 26 U.S.C. 7702B(c)(4).

(19) "Limited distribution channel" means a discrete entity, including a financial institution or brokerage, through which a specialized product is made available to a purchaser other than the general public.

(20) "Long-term care benefits classifications" means:

(a) Institutional long-term care benefits only;

(b) Noninstitutional long-term care benefits only; or

(21) "Long-term care insurance" is defined in KRS 304.14-600(2).

(22) "Maintenance or personal care services" means care for which the primary purpose is the provision of needed assistance with a disability as a result of which the individual is a chronically-ill individual, including protection from threats to health and safety due to severe cognitive impairment.

(23) "Managed-care plan" means a health care or assisted living arrangement designed to coordinate patient care or control costs through utilization review, case management, or use of specific provider networks.

(24) "Misrepresentation" means misrepresenting a material fact in selling or offering to sell a long-term care insurance policy.

(25) "Policy" is defined in KRS 304.14-600(6).

(26) "Qualified actuary" means a member in good standing of the American Academy of Actuaries.

(27) "Qualified long-term care insurance contract" or "federally tax-qualified long-term care insurance contract" means:

(a) An individual or group insurance contract that meets the requirements of 26 U.S.C. 7702B(b) as follows:

The insurance protection provided under the contract shall be limited to coverage of qualified long-term care services and the contract shall not fail to satisfy the requirements of this subparagraph by reason of payments being made on a per diem or other periodic basis without regard to the expenses incurred during the period to which the payments relate;

a. The contract shall not pay or reimburse expenses incurred for services or items to the extent that the expenses are reimbursable under Title XVIII of the Social Security Act, as amended, 42 U.S.C. 1395 et seq., or would be reimbursable except for the application of a deductible or coinsurance amount;

b. The requirements of this subparagraph shall not apply to expenses that are reimbursable under 42 U.S.C. 1395 et seq. as a secondary payor; and

c. The contract shall not fail to satisfy the requirements of this subparagraph by reason of payments being made on a per diem or other periodic basis without regard to the expenses incurred during the period to which the payments relate;

The contract shall be guaranteed renewable, as established in 26 U.S.C. 7702B(b)(1)(C);
The contract shall not provide for a cash surrender value or other money that may be paid, assigned, pledged as collateral for a loan, or borrowed except as required in subparagraph 5 of this paragraph;
Refunds of premiums and policyholder dividends or similar amounts under the contract shall be applied as a reduction in future premiums or to increase future benefits, except that a refund upon death of the insured, a complete surrender, or cancellation of the contract shall not exceed the aggregate premiums paid under the contract; and
The contract shall meet the consumer protection provisions as established in 26 U.S.C. 7702B(g); or

(b) The portion of a life insurance contract that:

Provides long-term care insurance coverage by rider or as part of the contract; and
Meets the requirements of 26 U.S.C. 7702B(b) and (e).

(28) "Qualified long-term care services" means services required in 26 U.S.C. 7702B(c)(1), including necessary diagnostic, preventive, therapeutic, curative, treatment, mitigation and rehabilitative services, and maintenance or personal care services which are required by a chronically-ill individual, and provided pursuant to a plan of care prescribed by a licensed health care practitioner.

(29) "Similar policy forms" means:

(a) Long-term care insurance policies and certificates issued by an insurer in the same long-term care benefit classification as the policy form being considered; or

(b) Certificates of groups, as identified in KRS 304.14-600(5)(a) similar to other comparable certificates of groups that meet the definition in KRS 304.14-600(5)(a) with the same long-term care benefit classifications.

(30) "Twisting" means knowingly making a misleading representation or incomplete or fraudulent comparison of insurance policies or insurers for the purpose of inducing, or tending to induce, a person to:

(a) Lapse, forfeit, surrender, terminate, retain, pledge, assign, borrow on, or convert an insurance policy; or

(b) Secure an insurance policy from another insurer.

Section 2. Policy Definitions. A long-term care insurance policy delivered or issued for delivery in Kentucky shall not include the following terms unless the terms are defined in the policy and the definitions satisfy the following requirements:

(1) "Activities of daily living" means at least bathing, continence, dressing, eating, toileting, and transferring.

(2) "Acute condition" means that the individual is medically unstable and requires frequent monitoring by medical professionals, including physicians and registered nurses, in order to maintain health status.

(3) "Adult day care" means a program for four (4) or more individuals, of social- or health-related, or both, services provided during the day in a community group setting for the purpose of supporting frail, impaired elderly or other disabled adults who may benefit from care in a group setting outside the home.

(4) "Bathing" means washing oneself by sponge bath, or in a tub or shower, including the task of getting into or out of the tub or shower.

(5) "Cognitive impairment" means a deficiency in a person's short or long-term memory, orientation as to person, place, and time, deductive or abstract reasoning, or judgment as it relates to safety awareness.

(6) "Continence" means the ability to maintain control of bowel and bladder function, or, if unable to maintain control of bowel or bladder function, the ability to perform associated personal hygiene, including caring for catheter or colostomy bag.

(7) "Dressing" means putting on and taking off all items of clothing and any necessary braces, fasteners, or artificial limbs.

(8) "Eating" means feeding oneself by getting food into the body from a receptacle, including a plate, cup, or table, or by a feeding tube or intravenously.

(9) "Hands-on assistance" means minimal, moderate, or maximal physical assistance without which the individual would not be able to perform the activity of daily living.

(10) "Home health-care services" means medical and nonmedical services, including homemaker services, assistance with activities of daily living, and respite care services, provided to ill, disabled, or infirmed persons in their residences.

(11) "Medicare" means:

(a) "The Health Insurance for the Aged Act, Title XVIII of the Social Security Amendments of 1965 as Then Constituted or Later Amended;"

(b) "Title I, Part I of Public Law 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

(12) "Mental or nervous disorder" means neurosis, psychoneurosis, psychopathy, psychosis, or mental or emotional disease or disorder.

(13) "Personal care" means the provision of hands-on services to assist an individual with activities of daily living.

(14) "Skilled nursing care", "intermediate care", "personal care", "home care", and other services shall be defined in relation to the level of skill required, the nature of the care, and the setting in which care shall be delivered.

(15) "Toileting" means getting to and from the toilet, getting on and off the toilet, and performing associated personal hygiene.

(16) "Transferring" means moving into or out of bed, chair, or wheelchair.

(17)

(a) "Skilled nursing facility", "extended care facility", "intermediate care facility", "convalescent nursing home", "personal care facility", "assisted living facility", "home care agency", "specialized care providers", and other providers of services shall be defined in relation to the services and facilities required to be available and the licensure, certification, registration, or degree status of those providing or supervising the services; and

(b) If the definition requires that the provider be appropriately licensed, certified, or registered, the definition shall also include the requirements that a provider shall meet in lieu of licensure, certification or registration if the state in which the service is provided:

Does not require a provider of these services to be licensed, certified or registered; or
Licenses, certifies or registers the provider of services under another name.

Section 3. Policy Practices and Provisions.

(1) Renewability. The terms "guaranteed renewable" and "noncancellable" shall not be used in an individual long-term care insurance policy without further explanatory language in accordance with the disclosure requirements of Section 6 of this administrative regulation.

(a) A long-term care insurance policy issued to an individual shall not contain renewal provisions other than "guaranteed renewable" or "noncancellable."

(b) The term "guaranteed renewable" shall not be used unless:

The insured has the right to continue the long-term care insurance in force by the timely payment of premiums; and
Except for a revision of rates on a class basis, the insurer has no unilateral right to make a change in a provision of the policy or rider while the insurance is in force, and shall not decline to renew.

(c) The term "noncancellable" shall be not be used unless the insured has the right to continue the long-term care insurance in force by the timely payment of premiums during the period in which the insurer has no right to unilaterally make a change in a provision of the insurance or in the premium rate.

(d) The term "level premium" shall not be used unless the insurer does not have the right to change the premium.

(e) In addition to the other requirements of this subsection, a qualified long-term care insurance contract shall be guaranteed renewable, pursuant to 26 U.S.C. 7702B(b)(1)(C).

(2)

(a) Limitations and exclusions. A policy shall not be delivered or issued for delivery in Kentucky as long-term care insurance if the policy limits or excludes coverage by type of illness, treatment, medical condition, or accident, except as follows:

Preexisting conditions or diseases in accordance with KRS 304.14-615(3)(d);
Mental or nervous disorders except for Alzheimer's disease;
Alcoholism and drug addiction;
Illness, treatment, or medical condition as a result of:

a. War or act of war, whether declared or undeclared;

b. Participation in a felony, riot, or insurrection;

c. Service in the armed forces or auxiliary units;

d. Suicide, if sane or insane, attempted suicide, or intentionally self-inflicted injury; or

e. Except for fare-paying passengers, aviation;

a. Treatment provided in a government facility, unless otherwise required by law;

b. Services for which benefits are available under:

(i) Medicare or other governmental program, except Medicaid;

(ii) A state or federal workers' compensation;

(iii) Employer's liability or occupational disease law; or

(iv) A motor vehicle no-fault law;

c. Services provided by a member of the covered person's immediate family; and

d. Services for which no charge is normally made in the absence of insurance;

Expenses for services or items available or paid under another long-term care insurance or health insurance policy; and
If a qualified long-term care insurance contract, expenses for services or items to the extent that the expenses:

a. Are reimbursable under 42 U.S.C. 1395 et seq.; or

b. Would be reimbursable except for the application of a deductible or coinsurance amount;

(b)

This subsection is not intended to prohibit the delivery or issue for delivery of a long-term care policy with exclusions and limitations by type of provider; and
A long-term care insurer shall not deny a claim because services are provided in a state other than the state of policy issue under the following conditions, if the state other than the state of policy issue:

a. Does not have the provider licensing, certification, or registration required in the policy and the provider satisfies the policy requirements outlined for providers in lieu of licensure, certification or registration; or

b. Licenses, certifies or registers the provider under another name; and

(c) This subsection is not intended to prohibit the delivery or issue for delivery of a long-term care policy with territorial limitations.

(3) Extension of benefits.

(a) Termination of long-term care insurance shall be without prejudice to any; benefits payable for institutionalization if the institutionalization:

Began while the long-term care insurance was in force; and
Continues without interruption after termination.

(b) The extension of benefits beyond the period the long-term care insurance was in force may be:

Limited to the:

a. Duration of the benefit period, if any; or

b. Payment of the maximum benefits; and

Subject to:

a. Any policy waiting period; and

b. All other applicable provisions of the policy.

(4) Continuation or conversion. Group long-term care insurance issued in Kentucky on or after July 15, 2002 shall provide a covered individual with a basis for continuation or conversion of coverage.

(a) A basis for continuation shall be identified as a policy provision, which provides for continued coverage under the existing group policy if the coverage would otherwise terminate and be subject to the continued timely payment of premium when due.

Group policies that restrict provision of benefits and services to, or contain incentives to use certain providers or facilities, may provide continuation benefits that are substantially equivalent to the benefits of the existing group policy; and
The commissioner shall:

a. Make a determination as to the substantial equivalency of benefits as identified in subparagraph 1 of this paragraph; and

b. In making the determination identified in clause a. of this subparagraph, take into consideration the differences between managed-care and nonmanaged-care plans, including:

(i) Provider system arrangements;

(ii) Service availability;

(iii) Benefit levels; and

(iv) Administrative complexity.

(b) A basis for conversion shall be identified as a policy provision, which provides that an individual shall be entitled to the issuance of a converted policy by the insurer under whose group policy the individual is covered, without evidence of insurability, if the:

Individual's coverage under the group policy would otherwise terminate or has been terminated for any reason, including discontinuance of the group policy in its entirety or with respect to an insured class; and
Individual has been continuously insured under the group policy and any group policy which it replaced, for at least six months immediately prior to termination.

(c)

A converted policy shall be an individual policy of long-term care insurance that provides benefits identical to or benefits determined by the commissioner to be substantially similar to or in excess of those provided under the group policy from which conversion is made.
If the group policy from which conversion is made restricts provision of benefits and services to, or contains incentives to use certain providers or facilities, the commissioner, in making a determination as to the substantial similarity of benefits, shall take into consideration the differences between managed-care and non managed-care plans, including:

a. Provider system arrangements;

b. Service availability;

c. Benefit levels; and

d. Administrative complexity.

(d)

No later than thirty-one (31) days after termination of coverage under the group policy, an individual who desires a converted policy shall:

a. Make written application for the converted policy; and

b. Pay the first premium that is due, if any.

A converted policy shall be:

a. Issued effective on the day following date of termination of coverage under the group policy; and

b. Renewable annually.

(e) The premium for a converted policy shall be calculated on the basis of the insured's age at inception of coverage under the group policy:

From which conversion is made unless the group policy from which conversion is made replaced previous group coverage; or
Replaced, if the group policy from which conversion is made replaced previous group coverage.

(f) Continuation of coverage or issuance of a converted policy shall be mandatory, except if:

Termination of group coverage resulted from an individual's failure to make a required payment of premium or contribution when due; or
The terminating coverage is replaced not later than thirty-one (31) days after termination, by group coverage effective on the day following the date of termination of coverage:

a. Providing benefits identical to or benefits determined by the commissioner to be substantially equivalent to or in excess of those provided by the terminating coverage; and

b. The premium for which is calculated in a manner consistent with the requirements of paragraph (e) of this subsection.

(g) Notwithstanding any other provision of this section, a converted policy issued to an individual who at conversion is covered by another long-term care insurance policy that provides benefits on the basis of incurred expenses, may contain a provision that results in a reduction of benefits payable if:

The benefits provided under the additional coverage, together with the full benefits provided by the converted policy, would result in payment of more than 100 percent of incurred expenses; and
The converted policy also provides for a premium decrease or refund which reflects the reduction in benefits payable.

(h) A converted policy may provide that the benefits payable under the converted policy, together with the benefits payable under the group policy from which conversion is made, shall not exceed those that would have been payable had the individual's coverage under the group policy remained in force and effect.

(i) Notwithstanding any other provision of this section, an insured individual whose eligibility for group long-term care coverage is based upon the individual's relationship to another person shall be entitled to continuation of coverage under the group policy upon termination of the qualifying relationship by death or dissolution of marriage.

(5) Discontinuance and replacement.

(a) If a group long-term care policy is replaced by another group long-term care policy issued to the same policyholder, the succeeding insurer shall offer coverage to persons covered under the previous group policy on its date of termination; and

(b) Coverage provided or offered to individuals by the insurer and premiums charged to persons under the new group policy shall not:

Result in an exclusion for preexisting conditions that would have been covered under the group policy being replaced; and
Vary or depend on the individual's:

a. Health or disability status;

b. Claim experience; or

c. Use of long-term care services.

(6)

(a) The premium charged to an insured for long-term care insurance shall not increase due to the:

Increasing age of the insured at ages beyond sixty-five (65); or
Duration that the insured has been covered under the policy.

(b)

The purchase of additional coverage shall not be considered a premium rate increase; and
For the calculation required under Section 25(6) of this administrative regulation, the portion of the premium attributable to the additional coverage shall be added to and considered part of the initial annual premium.

(c)

A reduction in benefits shall not be considered a premium change; and
for the calculation required under Section 25(6) of this administrative regulation, the initial annual premium shall be based on the reduced benefits.

(7) Electronic enrollment for group policies.

(a) A requirement that a signature of a group long-term care insurance insured be obtained by an agent or insurer shall be deemed satisfied if:

The consent is obtained by telephonic or electronic enrollment by the group policyholder or insurer;
The telephonic or electronic enrollment provides necessary and reasonable safeguards to assure the:

a. Accuracy, retention, and prompt retrieval of records; and

b. Maintenance of the confidentiality of personally-identifiable information pursuant to 806 KAR 3:210, 3:220 and 3:230.

(b) A verification of enrollment information shall be provided to an enrollee.

(c) Upon request of the commissioner, an insurer shall make available records that will demonstrate the insurer's ability to confirm enrollment and coverage amounts.

Section 4. Unintentional Lapse. An insurer offering long-term care insurance shall, as a protection against unintentional lapse, comply with the following:

(1)

(a) Notice before lapse or termination. An individual long-term care policy or certificate shall not be issued until the insurer has received from the applicant a written:

Designation of at least one (1) person, in addition to the applicant, who shall receive notice of lapse or termination of the policy or certificate for nonpayment of premium; or
Waiver:

a. Dated and signed by the applicant; and

b. Electing not to designate additional persons to receive notice.

c. Designation shall not constitute acceptance of any liability of the third party for services provided to the insured.

d. The form used for the written designation shall provide space clearly designated for listing at least one (1) person.

e. The designation shall include each person's full name and home address.

f. If an applicant elects not to designate an additional person, the waiver shall contain the language as established in HIPMC-LTC-10.

g. The insurer shall notify the insured of the right to change a written designation, at least once every two (2) years.

(b)

If a policy holder or certificate holder pays premium for a long-term care insurance policy or certificate through a payroll or pension deduction plan, the policy or certificate shall not be required to meet the requirements of paragraph (a) of this subsection until sixty (60) days after the policyholder or certificate holder is no longer on the payment plan.
The application or enrollment form for the policy or certificate shall clearly indicate the payment plan selected by the applicant.

An individual long-term care policy or certificate shall not lapse or be terminated for nonpayment of premium unless the insurer, at least thirty (30) days before the effective date of the lapse or termination, has given notice to the insured and any person designated pursuant to paragraph (a) of this subsection, at the address provided by the insured for purposes of receiving notice of lapse or termination.
Notice of lapse or termination shall:

a. Be given by first class U.S. mail, postage prepaid;

b. Not be given until thirty (30) days after a premium is due and unpaid; and

c. Be deemed to have been given as of five (5) days after the date of mailing.

(2) Reinstatement.

(a) In addition to meeting the requirements of subsection (1) of this section, a long-term care insurance policy or certificate shall include a provision for reinstatement of coverage:

When lapse occurs; and
If the insurer is provided proof that the policyholder or certificate holder was cognitively impaired or had a loss of functional capacity before the grace period contained in the policy expired.

(b) The reinstatement of coverage option as identified in paragraph (a) of this subsection shall:

Be available to the insured if requested within five (5) months after termination; and
Allow for the collection of past due premium, if appropriate.

(c) The standard of proof of cognitive impairment or loss of functional capacity shall not be more stringent than the benefit eligibility criteria for cognitive impairment or loss of functional capacity as established in the policy and certificate.

Section 5. Required Disclosure Provisions.

(1) Renewability.

(a) An individual long-term care insurance policy shall contain a renewability provision, which shall:

Be appropriately captioned;
Appear on the first page of the policy; and
State clearly that the coverage is guaranteed renewable or noncancellable.

(b) Paragraph (a) of this subsection shall not apply to a life insurance policy with a long-term care insurance rider:

Which does not contain a renewability provision; and
Under which the right to nonrenew is reserved solely to the policyholder.

(c) Except for a long-term care insurance policy for which an insurer does not have the right to change the premium, a long-term care insurance policy or certificate shall include a statement that premium rates may change.

(2) Riders and endorsements.

(a) Except for a rider or endorsement by which an insurer effectuates a request made in writing by the insured under an individual long-term care insurance policy, a rider or endorsement added to an individual long-term care insurance policy after date of issue or at reinstatement or renewal which reduces or eliminates benefits or coverage in the policy shall require signed acceptance by the individual insured.

(b) Except for increases in benefits or coverage that are required by the Kentucky insurance code, a rider or endorsement shall be agreed to in writing and signed by the insured, if the rider or endorsement:

Is issued after the date of policy issue; and
Increases benefits or coverage with a concomitant increase in premium during the policy term.

(c) If a separate additional premium is charged for benefits provided in connection with a rider or endorsement, the premium charged shall be disclosed in the policy, rider, or endorsement.

(3) Payment of benefits. A long-term care insurance policy which provides payment of benefits based on standards described as usual and customary, reasonable and customary, or words of similar import shall include:

(a) A definition of these terms or words; and

(b) An explanation of these terms or words in its accompanying outline of coverage.

(4) Limitations. If a long-term care insurance policy or certificate contains any limitations, which apply to preexisting conditions, the limitations shall:

(a) Appear as a separate paragraph of the policy or certificate; and

(b) Labeled as Preexisting Condition Limitations.

(5) Other limitations or conditions on eligibility for benefits. Except for limitations or conditions prohibited in KRS 304.14-615(4)(b), a long-term care insurance policy or certificate containing a limitation or condition for eligibility shall:

(a) Provide a description of the limitations or conditions, including any required number of days of confinement, in a separate paragraph of the policy or certificate; and

(b) Label the paragraph as established in paragraph (a) of this subsection as "Limitations or Conditions on Eligibility for Benefits."

(6) Disclosure of tax consequences. A disclosure statement, as identified in paragraph (a) of this subsection, shall be required for a life insurance policy which provides an accelerated benefit for long-term care.

(a) The disclosure statement shall:

Be required:

a. Upon application for the policy or rider; and

b. When the accelerated benefit payment request is submitted;

Disclose that:

a. Receipt of the benefits may be taxable; and

b. Assistance from a personal tax advisor is recommended; and

Be prominently displayed on the first page of the:

a. Policy or rider; and

b. Documents related to the policy or rider.

(b) This subsection shall not apply to a qualified long-term care insurance contract.

(7) Benefit triggers.

(a) Activities of daily living and cognitive impairment shall be:

Used to measure an insured's need for long-term care;
Described in the policy or certificate in a separate paragraph; and
Labeled "Eligibility for the Payment of Benefits".

(b) Any benefit triggers not identified in paragraph (a) of this subsection shall also be explained in the benefit triggers section of the policy or certificate.

(c) If benefit triggers differ for different benefits, an explanation of the trigger shall accompany each benefit description.

(d) If certification of a certain level of functional dependency by an attending physician or other specified person is required for determination of eligibility for benefits, the required certification shall be disclosed.

(8) A qualified long-term care insurance contract shall include a disclosure statement:

(a) In the policy and as established in Outline of Coverage, HIPMC-LTC-7; and

(b) Which states that the policy is intended to be a qualified long-term care insurance contract under 29 U.S.C. 7702B(b).

(9) A nonqualified long-term care insurance contract shall include a disclosure statement:

(a) In the policy and as established in Outline of Coverage, HIPMC-LTC-7; and

(b) Which states that the policy is not intended to be a qualified long-term care insurance contract.

Section 6. Required Disclosure of Rating Practices to Consumers.

(1) Except as provided in subsection (2) of this section, this section shall apply to any long-term care policy or certificate issued in Kentucky beginning January 15, 2003.

(2) For a certificate issued on or after July 15, 2002, under a group long-term care insurance policy as identified in KRS 304.14-600(5)(a), which was in force July 15, 2002, the provisions of this section shall apply on the policy anniversary following July 15, 2003.

(3) Except for a policy for which no applicable premium rate or rate schedule increases may be made, an insurer shall provide the information listed in this subsection to the applicant when application or enrollment occurs, unless the method of application does not allow for delivery at that time:

(a) A statement that the policy may be subject to rate increases in the future;

(b) An explanation of potential future premium rate revisions and the policyholder's or certificate holder's option if a premium rate is revised;

(c) The premium rate or rate schedules applicable to the applicant that shall be in effect until a request for an increase is made;

(d) A general explanation for applying premium rate or rate schedule adjustments that shall include:

A description of when premium rate or rate schedule adjustments shall be effective, including the next anniversary date or billing date; and
If the premium rate or rate schedule is changed, the right to a revised premium rate or rate schedule as provided in paragraph (c) of this subsection; and

(e)

Information regarding each premium rate increase on the policy form or similar policy forms during the past ten (10) years for Kentucky or any other state that, at a minimum, shall identify:

a. The policy forms for which premium rates have been increased;

b. The calendar years when the form was available for purchase; and

c. The amount or percent of each increase. The percentage may be expressed as:

(i) A percentage of the premium rate prior to the increase; or

(ii) If the rate increase is variable by rating characteristics, the minimum and maximum percentages.

The insurer may, in a fair manner, provide additional explanatory information related to the rate increases.
An insurer may exclude, from the disclosure premium rate increases that occurred prior to the acquisition of and only apply to:

a. Blocks of business acquired from other nonaffiliated insurers; or

b. Long-term care policies acquired from other nonaffiliated insurers.

If an acquiring insurer files for a rate increase on a long-term care policy form acquired from a nonaffiliated insurer or block of policy forms acquired from a nonaffiliated insurer and if those increases occurred prior to the acquisition on or before the later of July 15, 2002 or the end of a twenty-four (24) month period following the acquisition of the block of business or policies, the acquiring insurer may exclude that rate increase from the disclosure.

a. The rate increase that may be excluded pursuant to this subparagraph shall be disclosed by the nonaffiliated selling company in accordance with subparagraph 1 of this paragraph; and

b. If the acquiring insurer files for a subsequent rate increase, within the twenty-four (24) month period, on the same policy form acquired from a nonaffiliated insurer or block of policy forms acquired from a nonaffiliated insurer, the acquiring insurer shall make the disclosures required by this paragraph, including disclosure of the earlier rate increase.

(4) If the method of application does not allow for delivery when application or enrollment occurs, the information listed in subsection (3)(a) and (e) of this section shall be delivered to the applicant no later than the date the policy or certificate is delivered.

(5) An applicant shall sign an acknowledgement that the insurer made the disclosure required under subsection (3)(a) and (e) of this section:

(a) When application occurs; or

(b) If the method of application does not allow signature when application occurs, no later than the delivery date of the policy or certificate.

(6) An insurer shall use forms HIPMC-LTC-1 and HIPMC-LTC-2, to comply with the requirements of subsections (3) and (5) of this section.

(7) An insurer shall provide notice of an upcoming premium rate schedule increase to a policyholder or certificate holder, if applicable, at least forty-five (45) days prior to the implementation of the premium rate schedule increase by the insurer.

(8) The notice required, pursuant to subsection (7) of this section, shall include the information required by subsection (3) of this section when the rate increase is implemented.

Section 7. Initial Filing Requirements.

(1) This section shall apply to a long-term care policy issued in Kentucky beginning January 15, 2003.

(2) An insurer shall provide the information listed in this subsection to the commissioner in accordance with the time period established in KRS 304.14-120(2), including:

(a) A copy of the disclosure documents required in Section 6 of this administrative regulation; and

(b) An actuarial certification consisting of at least the following:

A statement that the:

a. Initial premium rate schedule is sufficient to cover anticipated costs under moderately adverse experience; and

b. Premium rate schedule is reasonably expected to be sustainable over the life of the form with no future premium increases anticipated;

A statement that the policy design and coverage have been reviewed and considered;
A statement that the underwriting and claims adjudication processes have been reviewed and considered;
A complete description of the basis for contract reserves that are anticipated to be held under the form, including:

a. Sufficient detail or sample calculations to depict completely the reserve amounts to be held;

b. A statement that the assumptions used for reserves contain reasonable margins for adverse experience;

c. A statement that except for the attained-age rating, if permitted, the net valuation premium for renewal years does not increase; and

d. A statement that the difference between the gross premium and the net valuation premium for renewal years is sufficient to cover expected renewal expenses, or if the statement cannot be made, a complete description of the situations in which this does not occur;

(i) An aggregate distribution of anticipated issues may be used if the underlying gross premiums maintain a reasonably consistent relationship; and

(ii) If the gross premiums for certain age groups appear to be inconsistent with this requirement, the commissioner may request a demonstration as identified under subsection (3) of this section based on a standard age distribution; and

a. A statement that the premium rate schedule is not less than the premium rate schedule for existing similar policy forms currently also available from the insurer except for reasonable differences attributable to benefits; or

b. A comparison of the premium schedules for similar policy forms that are currently available from the insurer with an explanation of the differences.

(3) The commissioner may request an actuarial demonstration that benefits are reasonable in relation to premiums which shall include:

(a) Premium and claim experience on similar policy forms, adjusted for any premium and benefit differences;

(b) Relevant and creditable data from other studies; or

(c) Premium and claims experience, and relevant and creditable data as identified in paragraphs (a) and (b) of this subsection.

Section 8. Prohibition Against Postclaims Underwriting.

(1) Except for an application which is guaranteed issue, an application for a long-term care insurance policy or certificate shall contain clear and unambiguous questions designed to ascertain the health condition of the applicant.

(2)

(a) If an application for long-term care insurance contains a question which asks if the applicant has had medication prescribed by a physician, it shall also ask the applicant to list the medication that has been prescribed.

(b) If at application, the medications listed in the application were known by the insurer, or should have been known, to be directly related to a medical condition for which coverage would be denied, the policy or certificate shall not be rescinded for that condition.

(3) Except for a policy or certificate which is guaranteed issue:

(a) The language shall be conspicuous and located in close proximity to the applicant's signature block on an application for a long-term care insurance policy or certificate: "Caution: If your answers on this application, to the best of your knowledge and belief, are incorrect or untrue, (insurer name) has the right to deny benefits or rescind your policy."

(b) The language identified in HIPMC-LTC-10, or substantially similar language, shall be clear and easy to read on the long-term care insurance policy or certificate when it is delivered.

(c) Prior to issuance of a long-term care policy or certificate to an applicant age eighty (80) or older, the insurer shall obtain one (1) of the following:

A report of a physical examination;
An assessment of functional capacity;
An attending physician's statement; or
A copy of the medical records.

(4) A copy of the completed application or enrollment form, as applicable, shall be delivered to the insured no later than the delivery date of the policy or certificate unless it was retained by the applicant at application.

(5) An insurer issuing long-term care insurance benefits shall:

(a) Except for a policy or certificate rescission voluntarily effectuated by the insured, maintain a record of all policy or certificate rescissions, both Kentucky and countrywide; and

(b) Annually submit the information identified in paragraph (a) of this subsection to the commissioner using HIPMC-LTC-3.

Section 9. Minimum Standards for Home Health and Community Care Benefits in Long-term Care Insurance Policies.

(1) A long-term care insurance policy or certificate which provides benefits for home health care or community care services shall not limit or exclude benefits by:

(a) Requiring that the insured or claimant would need care in a skilled nursing facility if home health care services were not provided;

(b) Requiring that the insured or claimant first or simultaneously receive nursing or therapeutic services, or both, in a home, community, or institutional setting before home health care services are covered;

(d) Requiring that a nurse or therapist provide services covered by the policy that may be provided by a:

Home health aide; or
Other licensed or certified home care worker acting within the worker's scope of licensure or certification;

(e) Excluding coverage for personal care services provided by a home health aide;

(f) Requiring that the provision of home health care services be at a level of certification or licensure greater than that required by the eligible service;

(g) Requiring that the insured or claimant have an acute condition before home health care services are covered;

(h) Limiting benefits to services provided by Medicare-certified agencies or providers; or

(i) Excluding coverage for adult day care services.

(2)

(a) A long-term care insurance policy or certificate which includes home health or community care services shall provide total home health or community care coverage that is a dollar amount equivalent to at least one-half (1/2) of one (1) year's coverage available for nursing home benefits under the policy or certificate, when covered home health or community care services are received.

(b) The requirement identified in paragraph (a) of this subsection shall not apply to a policy or certificate issued to a resident of a continuing care retirement community.

(3) In determining maximum coverage under the terms of a policy or certificate, home health care coverage may be applied to the nonhome health care benefits provided in the policy or certificate.

Section 10. Requirement to Offer Inflation Protection.

(1) In addition to any other inflation protection, an insurer offering a long-term care insurance policy shall offer to the policyholder, an option to purchase a policy that provides for benefit levels to increase with benefit maximums or reasonable durations which are meaningful to account for reasonably anticipated increases in the costs of long-term care services covered by the policy and when the policy is purchased, the option to purchase a policy with an inflation protection feature that is no less favorable than one (1) of the following:

(a) Increases benefit levels annually in a manner that increases are compounded annually at a rate no less than five (5) percent;

(b) If the option for the previous period has not been declined, guarantees the insured individual the right to periodically increase benefit levels without providing evidence of insurability or health status. The amount of the additional benefit shall not be less than the difference between the existing policy benefit and that benefit compounded annually at a rate of at least five (5) percent for the period:

Beginning with the purchase of the existing benefit; and
Extending until the year in which the offer is made; or

(c)

Covers a specified percentage of actual or reasonable charges; and
Does not include a maximum specified indemnity amount or limit.

(2) If a long-term care policy is issued to a:

(a) Group, the required offer in subsection (1) of this section shall be made to the group policyholder; or

(b) Group as defined in KRS 304.14-600(5)(d) other than to a continuing care retirement community, the required offer in Subsection (1) of this section shall be made to each proposed certificate holder.

(3) The offer in subsection (1) of this section shall not be required of life insurance policies or riders containing accelerated long-term care benefits.

(4) An insurer:

(a) Shall disclose, in or with the outline of coverage:

A graphic comparison of the benefit levels of a policy, which:

a. Increases benefits over the policy period; and

b. Does not increase benefits over the policy period; and

Any expected premium increases or additional premiums to pay for automatic or optional benefit increases;

(b) Shall show the benefit levels as identified in paragraph (a)1 of this subsection for a period of twenty (20) years or more; and

(c) May use a reasonable hypothetical, or a graphic demonstration for the disclosure identified in paragraphs (a) and (b) of this subsection.

(5) Inflation protection benefit increases under a policy which contains these benefits shall continue regardless of an insured's:

(a) Age;

(b) Claim status;

(d) Length of time the person has been insured under the policy.

(6) An offer of inflation protection which provides automatic benefit increases shall:

(a) Include an offer of a premium which the insurer expects to remain constant; and

(b) Disclose in a conspicuous manner that the premium may change in the future unless the premium is guaranteed to remain constant.

(7)

(a) Inflation protection as identified in subsection (1)(a) of this section shall be included in a long-term care insurance policy unless an insurer obtains a rejection of inflation protection signed by the policyholder as required in this subsection.

(b) As established in HIPMC-LTC-10, the rejection of inflation protection, which may be either in the application or in a separate form, shall be considered a part of the application.

Section 11. Requirements for Application Forms and Replacement Coverage.

(1)

(a) Application forms shall include questions designed to obtain information to determine if:

The applicant has another long-term care insurance policy or certificate in force on the date of application; or
A long-term care insurance policy or certificate is intended to replace:

a. An accident and sickness policy or certificate currently in force; or

b. A long-term care policy or certificate currently in force.

(b) A supplementary application or other form, containing the questions required by this section, may be used if signed by the:

Applicant; and
Agent, if coverage is sold by an agent.

(c) If a replacement policy is issued to a group, as defined by KRS 304.14-600(5)(a), the following questions shall be included and may be modified only to the extent necessary to obtain information about a health or long-term care insurance policy other than the group policy being replaced if the certificate holder has been notified of the replacement.

Do you have another long-term care insurance policy or certificate in force, including a health-care service contract or health maintenance organization contract?
Did you have another long-term care insurance policy or certificate in force during the last twelve (12) months?

a. If yes, with which company?

b. If that policy lapsed, when did it lapse?

Are you covered by Medicaid?
Do you intend to replace any of your medical or health insurance coverage with this policy or certificate?

(2) An agent shall list other health insurance policies sold by the agent to the applicant which:

(a) Are currently in force; and

(b) Were sold in the past five (5) years and are no longer in force.

(3) Solicitations other than direct response.

(a) Upon determining that a sale will involve replacement, an insurer, which does not use direct response solicitation methods or an agent of the insurer, shall provide the applicant with a notice regarding replacement of accident and sickness or long-term care coverage as established in the HIPMC-LTC-8.

(b)

One (1) copy of the notice identified in this subsection shall be retained by the applicant; and
A copy of the notice shall be signed by the applicant and retained by the insurer.

(c) The notice, as identified in this subsection shall be provided prior to issuance or delivery of the individual long-term care insurance policy.

(4) Direct response solicitations. An insurer which uses direct response solicitation methods shall deliver a notice regarding replacement of accident and sickness or long-term care coverage to the applicant:

(a) If it is determined that a sale will involve a replacement; and

(b) As established in the HIPMC-LTC-9.

(5)

(a) If replacement is intended, the replacing insurer shall provide written notification to the existing insurer of the proposed replacement.

(b) The existing policy shall be identified by the:

Insurer;
Name of the insured; and

a. Insured's policy number; or

b. Insured's address, including ZIP code.

(c) The notice shall be delivered within five (5) business days of the date the application is received by the insurer or the date the policy is issued, whichever is sooner.

(6)

(a) A life insurance policy which accelerates benefits for long-term care shall comply with this section if the policy being replaced is a long-term care insurance policy.

(b) If the policy being replaced is a life insurance policy, the insurer shall comply with the replacement requirements of KRS 304.12-030 and 806 KAR 12:080.

(c) If a life insurance policy which accelerates benefits for long-term care is replaced by another life insurance policy which accelerates benefits for long-term care, the replacing insurer shall comply with the:

Long-term care replacement requirements as identified in paragraph (a) of this subsection; and
Life insurance replacement requirements as identified in paragraph (b) of this subsection.

Section 12. Reporting Requirements.

(1) For each agent, an insurer shall maintain records, including an agent's amount of:

(a) Replacement sales as a percent of the agent's total annual sales; and

(b) Lapses of long-term care insurance policies sold as a percent of the agent's total annual sales.

(2) An insurer shall use the HIPMC-LTC-11 to report to the department annually by June 30 the ten (10) percent of the insurer's agents with the greatest percentages of lapses and replacements based upon information identified in subsection (1) of this section.

(3) Reported replacement and lapse rates shall not alone constitute a violation of the Kentucky insurance code or necessarily imply wrongdoing. The reports, as referenced in subsections (1) and (2) of this section, shall be used by the department to conduct a comprehensive review of agent activities regarding the sale of long-term care insurance.

(4) An insurer shall report to the department annually by June 30 using HIPMC-LTC-11, the number of:

(a) Lapsed long-term care insurance policies as a percent of the insurer's total:

Annual sales; and
Number of long-term care insurance policies in force at the end of the preceding calendar year; and

(b) Replacement long-term care insurance policies sold as a percent of the insurer's total:

Annual sales; and
Number of long-term care insurance policies in force as of the preceding calendar year.

(5) For qualified long-term care insurance contracts an insurer shall file a report with the department annually by June 30, containing the number of claims denied for each class of business, expressed as a percentage of claims denied, using the HIPMC-LTC-4.

(6) Reports required in this section shall include information on a statewide basis.

Section 13. Licensing. An agent shall not be authorized to market, sell, solicit, or negotiate with respect to long-term care insurance except as authorized by KRS 304.9-080(1).

Section 14. Discretionary Powers of Commissioner. Upon written request and after an administrative hearing pursuant to KRS 304.2-310, the commissioner may issue an order to modify or suspend an identified provision of this administrative regulation regarding a long-term care insurance policy or certificate upon a written finding that:

(1) The modification or suspension is in the best interest of the insureds;

(2) The purposes to be achieved may not be effectively or efficiently achieved without the modification or suspension; and

(3)

(a) The modification or suspension is necessary to the development of an innovative and reasonable approach for insuring long-term care;

(b)

The policy or certificate is issued to residents of:

a. A life care or continuing care retirement community; or

b. A residential community for the elderly other than a life care or continuing care retirement community; and

The modification or suspension is reasonably related to the special needs or nature of the community as identified in subparagraph 1 of this paragraph; or

(c) The modification or suspension is necessary to permit long-term care insurance to be sold as part of or in conjunction with, another insurance product.

Section 15. Reserve Standards.

(1)

(a) If long-term care benefits are provided through the acceleration of benefits under a group or individual life insurance policy or rider to a group or individual life insurance policy, policy reserves for these benefits shall be determined in accordance with KRS 304.6-130 to 304.6-180.

(b) If the policy or rider is in claim status, claim reserves shall be established.

(c) Except for voluntary termination rates or as established in paragraph (d) of this subsection, reserves for a policy or rider subject to the requirements of this subsection shall be based on:

The multiple decrement model utilizing relevant decrements; or
Single decrement approximations, if the:

a. Calculation produces essentially similar reserves;

b. Reserve is clearly more conservative; or

c. Reserve is immaterial.

(d) Calculations may consider the reduction in life insurance benefits due to the payment of long-term care benefits, except the reserves for the long-term care benefit and the life insurance benefit shall not be less than the reserves for the life insurance benefit assuming no long-term care benefit.

(e) In the development and calculation of reserves for a policy and rider subject to the requirements of this subsection, consideration shall be given to the applicable policy provisions, marketing methods, administrative procedures, and other considerations which have an impact on projected claim costs, including:

Definition of insured events;
Covered long-term care facilities;
Existence of home convalescence care coverage;
Definition of facilities;
Existence or absence of barriers to eligibility;
Premium waiver provision;
Renewability;
Ability to raise premiums;
Marketing method;
Underwriting procedures;
Claims adjustment procedures;
Waiting period;
Maximum benefit;
Availability of eligible facilities;
Margins in claim costs;
Optional nature of benefit;
Delay in eligibility for benefit;
Inflation protection provisions; and
Guaranteed insurability option.

(f) An applicable valuation morbidity table shall be certified as appropriate as a statutory valuation table by a member of the American Academy of Actuaries.

(2) If long-term care benefits are not provided through the acceleration of benefits under a group or individual life policy or rider to this policy, reserves shall be determined in accordance with KRS 304.6-070.

Section 16. Loss Ratio.

(1) Except for a policy or certificate that is subject to Sections 7 and 17 of this administrative regulation, a long-term care insurance policy or certificate shall comply with this section.

(2)

(a) Benefits under a long-term care insurance policy shall be deemed reasonable in relation to premiums if the expected loss ratio is:

At least sixty (60) percent; and
Calculated in a manner for adequate reserving of the long-term care insurance risk.

(b) In evaluating the expected loss ratio, consideration shall be given to relevant factors, including:

Statistical credibility of incurred claims experience and earned premiums;
The period for which rates are computed to provide coverage;
Experienced and projected trends;
Concentration of experience within early policy duration;
Expected claim fluctuation;
Experience refunds, adjustments, or dividends;
Renewability features;
Expense factors, as appropriate;
Interest;
Experimental nature of the coverage;
Policy reserves;
Mix of business by risk classification; and
Product features including:

a. Long elimination periods;

b. High deductibles; and

c. High maximum limits.

(3) Subsection (2) of this section shall not apply to a life insurance policy which accelerates benefits for long-term care.

(4) A life insurance policy which funds long-term care benefits entirely by accelerating the death benefit shall be considered to provide reasonable benefits in relation to premiums paid, if the policy complies with the following:

(a) The interest credited internally to determine cash value accumulations, including long-term care, if any, are guaranteed to be no less than the minimum guaranteed interest rate for cash value accumulations without long-term care as identified in the policy;

(b) The portion of the policy that provides life insurance benefits meets the nonforfeiture requirements of KRS 304.15-310;

If an application for a long-term care insurance contract or certificate is approved, the insurer shall deliver the contract or certificate of insurance to the applicant no later than thirty (30) days after the date of approval;
When the policy is delivered, a policy summary shall be delivered in accordance with KRS 304.14-615(9);
If the long-term care inflation protection option required by Section 10(1) of this administrative regulation is not available, the policy summary shall state that long-term care inflation protection option required by Section 10(1) of this administrative regulation is not available under the policy;
The policy summary required by subparagraph 2 of this paragraph may be incorporated into a basic illustration that meets the requirements of 806 KAR 12:140, Sections 8 and 9; and
If a long-term care benefit, funded through a life insurance product by the acceleration of the death benefit, is in the benefit payment status, a monthly report shall be provided in accordance with KRS 304.14-615(10);

(d) Any policy illustration meets the applicable requirements of 806 KAR 12:140, Section 3; and

(e) An actuarial memorandum is filed with the department, which includes:

A description of the basis on which the long-term care rates were determined;
A description of the basis for the reserves;
A summary of the:

a. Type of policy;

b. Benefits;

c. Renewability;

d. General marketing method; and

e. Limits on ages of issuance;

a. A description and a table of each actuarial assumption used; and

b. For expenses, shall include the percent of premium dollars per policy and dollars per unit of benefits, if any;

A description and a table of the anticipated policy reserves and additional reserves to be held in each future year for active lives;
The estimated average annual premium per policy and the average issue age;

a. A statement that:

(i) Indicates if underwriting is performed upon application; and

(ii) If underwriting is used, includes a description of the type of underwriting used, including medical underwriting or functional assessment underwriting; and

b. If related to a group policy, the statement as established in clause a of this paragraph shall indicate:

(i) If the enrollee or a dependent shall be underwritten; and

(ii) When underwriting shall occur; and

For active lives and insureds in long-term care status, a description of the long-term care policy provision on:

a. Required premiums;

b. Nonforfeiture values; and

c. Reserves on the underlying life insurance policy.

Section 17. Premium Rate Schedule Increases.

(1)

(a) Except as required in paragraph (b) of this subsection, this section shall apply to a long-term care policy or certificate issued in Kentucky beginning January 15, 2003.

(b) For a certificate issued on or after the effective date of this administrative regulation under a group long-term care insurance policy in force on July 15, 2002, the provisions of this section shall apply on the policy anniversary following July 15, 2003.

(2) An insurer shall provide a notice of a pending premium rate schedule increase, including an exceptional increase, to the commissioner at least thirty (30) days prior to the notice issued to policyholders, which shall include:

(a) Information required by Section 6 of this administrative regulation;

(b) Certification by a qualified actuary that:

If the requested premium rate schedule increase is implemented and the underlying assumptions, which reflect moderately adverse conditions, are realized, no further premium rate schedule increases are anticipated; and
The premium rate filing is in compliance with the provisions of this section;

Lifetime projections of earned premiums and incurred claims based on the filed premium rate schedule increase and the method and assumptions used in determining the projected values, including reflection of any assumptions that deviate from those used for pricing other forms currently available for sale;

a. Annual values for the five (5) years preceding and the three (3) years following the valuation date shall be provided separately;

b. Unless the rate increase is an exceptional increase, the projections shall include the development of the lifetime loss ratio;

c. The projections shall demonstrate compliance with subsection (3) of this section; and

d. For exceptional increases:

(i) The projected experience shall be limited to the increases in claims expenses attributable to the approved reasons for the exceptional increase; and

(ii) If the commissioner makes a determination as required in subsection (12)(b) of this section that offsets may exist, the insurer shall use appropriate net projected experience;

If the rate increase triggers the contingent benefit upon lapse, disclosure of how reserves have been incorporated in this rate increase;
Disclosure of the analysis performed to determine:

a. Why a rate adjustment is necessary;

b. Which pricing assumptions were not realized and why; and

c. What actions taken by the company have been relied on by the actuary;

A statement that consideration was given to:

a. Policy design;

b. Underwriting; and

c. Claims adjudication practices; and

If necessary to maintain consistent premium rates for new certificates and certificates receiving a rate increase, the insurer shall file composite rates reflecting projections of new certificates;

(d) A statement that renewal premium rate schedules are not greater than new business premium rate schedules except for differences attributable to benefits, unless sufficient justification is provided to the commissioner; and

(e) Sufficient information for review and approval of the premium rate schedule increase by the commissioner.

(3) Premium rate schedule increases shall be determined in accordance with the following requirements:

(a) Exceptional increases shall provide that seventy (70) percent of the present value of projected additional premiums from the exceptional increase shall be returned to policyholders in benefits;

(b) Premium rate schedule increases shall be calculated in a manner that the sum of the accumulated value of incurred claims, without the inclusion of active life reserves, and the present value of future projected incurred claims, without the inclusion of active life reserves, shall not be less than the sum of the following:

The accumulated value of the initial earned premium multiplied by fifty-eight (58) percent;
Eighty-five (85) percent of the accumulated value of prior premium rate schedule increases on an earned basis;
The present value of future projected initial earned premiums multiplied by fifty-eight (58) percent; and
Eighty-five (85) percent of the present value of future projected premiums not included in subparagraph 3 of this paragraph on an earned basis;

(c) If a policy form has exceptional and other increases, the values in paragraph (b)2 and 4 of this subsection shall also include seventy (70) percent for exceptional rate increase amounts; and

(d)

All present and accumulated values used to determine rate increases shall use the maximum valuation interest rate for contract reserves as required by 806 KAR 6:080, Section 1(3)(a); and
The actuary shall disclose as part of the actuarial memorandum the use of any appropriate averages.

(4) For each rate increase implemented, an insurer shall file for review by the commissioner updated projections, as identified in subsection (2)(c)1 of this section, annually for the next three (3) years, which shall include a comparison of actual results to projected values.

(a) If actual results are not consistent with projected values from prior projections, the commissioner may extend the period to greater than three (3) years.

(b) For group insurance policies that meet the conditions in subsection (11) of this section, the projections required by this subsection shall be provided to the policyholder in lieu of filing with the commissioner.

(5)

(a) If a premium rate in the revised premium rate schedule is greater than 200 percent of the comparable rate in the initial premium schedule, lifetime projections, as established in subsection (2)(c)1 of this section, shall be filed for review by the commissioner every five (5) years following the end of the required period identified in subsection (4) of this section.

(6)

(a) If the commissioner has determined that the actual experience following a rate increase does not adequately match the projected experience and that the current projections under moderately adverse conditions demonstrate that incurred claims will not exceed proportions of premiums specified in subsection (3) of this section, the commissioner may require the insurer to implement any of the following:

Premium rate schedule adjustments; or
Measures other than premium rate schedule adjustments to reduce the difference between the projected and actual experience.

(b) In determining if the actual experience adequately matches the projected experience, consideration shall be given to subsection (2)(c)5 of this section, if applicable.

(7) If the majority of the policies or certificates to which the increase is applicable are eligible for the contingent benefit upon lapse:

(a) The insurer shall file:

The original anticipated lifetime loss ratio and the premium rate schedule increase that would have been calculated according to subsection (3) of this section had the greater of the original anticipated lifetime loss ratio or fifty-eight (58) percent been used in the calculations described in subsection (3)(b)1 and 3 of this section; and

a. A plan, subject to commissioner's approval, for improved administration or claims processing designed to eliminate the potential for further deterioration of the policy form requiring further premium rate schedule increases, or both; or

b. Documentation, which demonstrates that appropriate administration and claims processing have been implemented or are in effect; or

(b) If an insurer does not comply with paragraph (a)2 of this subsection, the commissioner may impose the condition identified in subsection (8) of this section.

(8)

(a) For a rate increase filing that meets the following criteria, the commissioner shall review, for all policies included in the filing, the projected lapse rates and past lapse rates during the twelve (12) months following each increase to determine if significant adverse lapse rates have occurred or are anticipated:

The rate increase is not the first rate increase requested for the specific policy form or forms;
The rate increase is not an exceptional increase; and
The majority of the policies or certificates to which the increase is applicable are eligible for the contingent benefit upon lapse.

(b) If significant adverse lapse rates have occurred, are anticipated in the filing, or are evidenced in the actual results as presented in the updated projections provided by the insurer following the requested rate increase, the commissioner may determine that a rate spiral exists.

(c) Following a determination that a rate spiral exists, the commissioner may require the insurer to offer, without underwriting, to insureds subject to the rate increase the option to replace existing coverage with one (1) or more comparable products offered by the insurer or an affiliate of the insurer.

The offer shall:

a. Be subject to the approval of the commissioner;

b. Be based on actuarially sound principles;

c. Not be based on attained age; and

d. Provide maximum benefits under a new policy, which shall be:

(i) Accepted by an insured; and

(ii) Reduced by comparable benefits already paid under the existing policy.

a. The insurer shall maintain the experience of all replacement insureds separate from the experience of insured's originally issued the policy forms.

b. If a rate increase on the policy form is requested, the rate increase shall be limited to the lesser of:

(i) The maximum rate increase which was determined on the basis of the combined experience; and

(ii) The maximum rate increase which was determined on the basis of the experience of the insured's originally issued the form plus ten (10) percent.

(9) If the commissioner determines that the insurer has exhibited a persistent practice of filing inadequate initial premium rates for long-term care insurance, the commissioner may impose the provisions of subsection (8) of this section and prohibit the insurer from:

(a) Filing and marketing comparable coverage for a period of up to five (5) years; or

(b) Offering all other similar coverage's and limiting marketing of new applications to the products subject to recent premium rate schedule increases.

(10) Subsections (1) through (9) of this section shall not apply to a policy for which the long-term care benefits provided by the policy are incidental, if the policy complies with all of the following provisions:

(b) The portion of the policy which provides insurance benefits other than long-term care coverage meets the nonforfeiture requirements, as applicable, in any of the following:

KRS 304.15-310;
KRS 304.15-315;
806 KAR 15:010; or
806 KAR 15:030;

(d) The portion of the policy, which provides insurance benefits other than long-term care coverage meets the requirements, as applicable, in the following:

Policy illustrations as required in 806 KAR 12:140; and
Disclosure requirements as required in 806 KAR 15:010 and 15:030; and

(e) An actuarial memorandum is filed with the department, which includes:

A description of the basis for determination of the long-term care rates;
A description of the basis for the reserves;
A summary of the:

a. Type of policy;

b. Benefits;

c. Renewability;

d. Marketing method; and

e. Limits on ages of issuance;

A description and table of each actuarial assumption used, including expenses, for which an insurer shall include:

a. Percent of premium dollars per policy; and

b. Dollars per unit of benefits, if any;

A description and table of the:

a. Anticipated policy reserves for active lives; and

b. Additional reserves to be held in each future year for active lives;

a. The estimated average annual premium per policy; and

b. The average issue age;

A statement regarding the performance or nonperformance of underwriting at application.

a. The statement shall:

(i) Indicate whether underwriting is used; and

(ii) If underwriting is used, include a description of the type of underwriting used, including medical underwriting or functional assessment underwriting; and

b. If the statement relates to a group policy, the statement shall indicate:

(i) If the enrollee or dependent will be underwritten; and

(ii) When underwriting will occur; and

A description of the effect of the long-term care policy provision on the:

a. Required premiums;

b. Nonforfeiture values; and

c. For active lives and for insured's in long-term care claim status, reserves on the underlying insurance policy.

(11) Subsections (6) and (8) of this section shall not apply to insurance policies issued to a group identified in KRS 304.14-600(5)(a) if the:

(a)

Policies insure 250 or more persons; and
Policyholder has 5,000 or more eligible employees of a single employer; or

(b) The policyholder, and not the certificate holder, pays a material portion of the premium, which shall not be less than twenty (20) percent of the total premium for the group in the calendar year prior to the year a rate increase is filed.

(12) For an exceptional increase, the commissioner:

(a) May request a review of the basis for a request that an increase be considered an exceptional increase by:

An independent actuary; or
A professional actuarial body; and

(b) In determining that the necessary basis for an exceptional increase exists, shall determine any potential offsets to higher claim costs.

(13) Except as required in this section, an exceptional increase shall be subject to the same requirements as any premium rate schedule increase.

Section 18. Filing Requirement for a Group Policy Issued in Another State. Prior to offering group long-term care insurance issued in another state to a resident of Kentucky pursuant to KRS 304.14-610, an insurer shall file with the commissioner evidence that the group policy or certificate issued under the group policy has been approved by a state having statutory or regulatory long-term care insurance requirements substantially similar to requirements in Kentucky.

Section 19. Filing Requirements for Advertising.

(1) An insurer providing long-term care insurance or benefits in Kentucky shall provide a copy of a long-term care insurance advertisement intended for use in Kentucky whether through written, radio, or television medium to the commissioner for review in accordance with this administrative regulation and KRS 304.12-020, 304.14-120, 304.14-620, and 806 KAR 12:010, 806 KAR 14:005, 806 KAR 14:007, Section 5(2);

(2) An advertisement shall be retained by the insurer for at least five (5) years from the date the advertisement was first used.

(3) The commissioner may exempt advertising from the requirements of this section pursuant to KRS 304.14-120(4).

Section 20. Standards for Marketing.

(1) An insurer marketing long-term care insurance coverage in Kentucky, directly or through its agents, shall:

(a) Establish marketing procedures and agent training requirements to assure that:

Marketing activities, including a comparison of policies, by its agent, shall be fair and accurate; and
Excessive insurance shall not be sold or issued.

(b) Display prominently by type, stamp, or other appropriate means, on the first page of the outline of coverage and policy, the notice as established in HIPMC-LTC-10.

(c) Provide to the applicant a copy of each disclosure form required in Section 6(5) and (6) of this administrative regulation.

(d) Inquire and make every reasonable effort to identify:

If a prospective applicant or enrollee for long-term care insurance has accident and sickness or long-term care insurance; and
The type and amount of insurance identified in subparagraph 1 of this paragraph.

(e) For a qualified long-term care insurance contract, not be required to make an inquiry into whether a prospective applicant or enrollee for long-term care insurance has accident and sickness insurance, in accordance with paragraph (d) of this section.

(f) Establish auditable procedures for verifying compliance with the requirements of this subsection.

(g) At solicitation, provide:

Written notice to the prospective policyholder and certificate holder that the Kentucky State Health Insurance Assistance Program is available; and
The address and telephone number of the program as identified in subparagraph 1 of this paragraph.

(h) For a long-term care insurance policy and certificate, use the terms, noncancellable or level premium, if the policy or certificate conforms to Section 3(1)(c) and (d) of this administrative regulation.

(i) Provide an explanation of:

Contingent benefit upon lapse as described in Section 25(6)(c) of this administrative regulation; and
If applicable, the additional contingent benefit upon lapse provided to all policies with fixed or limited premium paying periods as described in Section 25(6)(d).

(2) An insurer shall:

(a) Comply with the requirements of KRS Chapter 304.12; and

(b) Not perform the following acts and practices:

Twisting;
High pressure tactics;
Cold lead advertising; and
Misrepresentation.

(3)

(a) To comply with the requirements of this subsection, an association, as defined in KRS 304.14-600(5)(b) shall have the primary responsibility of educating its members concerning long-term care issues in general:

If endorsing or selling long-term care insurance; and
To ensure that its members make informed decisions.

(b) An association shall provide objective information regarding long-term care insurance policies or certificates endorsed or sold by the association to ensure that its members receive a balanced and complete explanation of the features of the policy or certificate that is endorsed or sold.

An insurance policy and, if applicable, a certificate;
An outline of coverage, which corresponds to the filed policy or certificate; and
Advertisements as requested by the department pursuant to Section 19(1) of this administrative regulation.

(d) An association shall disclose in a long-term care insurance solicitation:

The specific nature and amount of the compensation arrangements, including fees, commissions, administrative fees, and other forms of financial support, which the association receives from endorsement or sale of the policy or certificate to its members; and
A brief description of the process used to select the policy and the insurer, which issued the policy.

(e) If an association and insurer have interlocking directorates or trustee arrangements, the association shall disclose that fact to the association members.

(f) The board of directors of an association selling or endorsing a long-term care insurance policy or certificate shall review and approve the:

Insurance policy; and
Compensation arrangements made with the insurer.

(g) Except for a qualified long-term care insurance contract, an association shall:

Upon a decision to endorse a long-term care insurance contract, engage the services of a person with expertise in long-term care insurance not affiliated with the insurer to:

a. Conduct an examination of the policy, including its benefits, features, and rates; and

b. Update the examination, if a material change is made to the contract;

Actively monitor the marketing efforts of the insurer and its agents; and
Review and approve:

a. Marketing materials; or

b. Insurance communications other than marketing materials, including communications:

(i) Used to promote sales; or

(ii) Sent to members regarding the policy or certificate.

(h) A group long-term care insurance policy or certificate shall not be issued to an association unless the insurer files with the commissioner the information required in this subsection.

(i) Unless an insurer certifies annually that an association has complied with the requirements established in this subsection, an insurer shall not:

Issue a long-term care policy or certificate to the association; or
Continue to market the policy or certificate.

(j) Failure to comply with the filing and certification requirements of this section shall constitute an unfair trade practice in violation of KRS 304.12-010.

Section 21. Suitability.

(1) This section shall not apply to life insurance policies that accelerate benefits for long-term care.

(2) An insurer marketing long-term care insurance shall:

(a) Develop and use suitability standards to determine if the purchase or replacement of long-term care insurance is appropriate for the needs of the applicant;

(b) Train an agent to use the suitability standards identified in paragraph (a) of this subsection; and

(c) Maintain a copy of the suitability standards, which shall be available for inspection upon request by the commissioner.

(3)

(a) To determine if an applicant meets the suitability standards developed by the insurer, the agent and insurer shall develop a procedure, which considers the:

Applicant's ability to pay for the proposed coverage and other pertinent financial information related to the purchase of the coverage;
Applicant's goals or needs with respect to:

a. Long-term care; and

b. Advantages and disadvantages of insurance to meet the applicant's goals or needs; and

Values, benefits, and costs of the applicant's existing insurance, if any, as compared to the values, benefits, and costs of the recommended purchase or replacement.

(b) The insurer and, if an agent is involved, the agent, shall make a reasonable effort to obtain the information identified in paragraph (a) of this subsection using the HIPMC-LTC-1 Long-term Care Insurance Personal Work Sheet, which shall:

Be presented to the applicant at or prior to application;
Include not less than the information identified in the format of the HIPMC-LTC-1;
Be provided in no less than twelve (12) point type; and
Be filed with the commissioner.

(d) Except for a Long-term Care Personal Work Sheet completed for the sale of employer group long-term care insurance to employees and spouses of employees, a Long-term Care Personal Work Sheet shall be completed and returned to the insurer prior to the insurer's consideration of the applicant for coverage.

(e) An insurer or agent shall not sell or disseminate information obtained from a Long-term Care Personal Work Sheet outside the company or agency.

(4) An insurer shall use the suitability standards as identified in subsection(2) of this section to determine if the issuance of long-term care insurance coverage is appropriate for an applicant.

(5) An agent shall use the suitability standards of an insurer in marketing long-term care insurance.

(6) When the Long-term Care Personal Work Sheet is provided to the applicant pursuant to subsection (3)(b) of this section, the disclosure form entitled Things You Should Know Before You Buy Long-term Care Insurance, HIPMC-LTC-5 shall be provided in at least twelve (12) point type.

(7)

(a) If an insurer determines that the applicant does not meet the financial suitability standards, or if the applicant has declined to provide the information as identified in the Long-term Care Personal Work Sheet, the insurer may reject the application or send to the applicant, a:

Long-term Care Suitability Letter, HIPMC-LTC-6; or
Letter, which is:

a. Similar to the Long-term Care Suitability Letter identified in Subparagraph 1 of this paragraph; and

b. Approved by the commissioner.

(b) If the applicant declined to provide financial information, the insurer may verify the applicant's intent using an alternative method.

(c) The applicant's returned HIPMC-LTC-6 or a record of the alternative method of verification shall be maintained as part of the applicant's file.

(8) For the previous calendar year, an insurer shall report annually by June 30 to the commissioner:

(a) The total number of applications for long-term care insurance received from Kentucky residents;

(b) Of the number reporting in paragraph (a) of this subsection, the number of applicants who:

Declined to provide information on the personal worksheet;
Did not meet the suitability standards; and
Chose to confirm after receiving a suitability letter.

Section 22. Prohibition Against Preexisting Conditions and Probationary Periods in Replacement Policies or Certificates. If a long-term care insurance policy or certificate replaces another long-term care policy or certificate, the replacing insurer shall waive any time periods applicable to preexisting conditions and probationary periods in the new long-term care policy for similar benefits to the extent that similar exclusions have been satisfied under the original policy.

Section 23. Availability of New Services or Providers.

(1)

(a) An insurer shall notify a policyholder of the availability of a new long-term policy product, which provides coverage for new long-term care services or providers material in nature and not previously available to the general public through the insurer.

(b) The notice shall be provided within twelve (12) months of the date the new policy product is made available for sale in Kentucky.

(2) An insurer:

(a) Shall not be required to provide the notification identified in subsection (1) of this section:

For a policy issued prior to January 1, 2009; or
To a policyholder or certificate holder who:

a. Is currently eligible for benefits:

(i) Within an elimination period; or

(ii) On a claim;

b. Previously had been in claim status; or

c. May not be eligible to apply for coverage due to issue age limitations under the new policy; and

(b) To add new services or providers, may require a policyholder to meet eligibility requirements, including:

Underwriting; and
Payment of the required premium.

(3) The insurer shall make the new coverage available by:

(a)

Adding a rider to the existing policy; and
Charging a separate premium for the new rider based on the insured's attained age;

(b)

Exchanging the existing policy or certificate for a different policy or certificate with an issue age based on the present age of the insured; and
Recognizing past insured status by granting premium credits, which shall be based on premiums paid or reserves held for the prior policy or certificate, toward the premiums for the new policy or certificate;

(c) Exchanging the existing policy or certificate for a new policy or certificate in which consideration for past insured status shall be recognized by setting the premium for the new policy or certificate at the issue age of the policy or certificate being exchanged; or

(d) If filed and approved by the commissioner, an alternative program developed by the insurer, which meets the intent of this section.

(4) The cost of a new policy or certificate, as identified in subsection (3)(c) of this section, may recognize the difference in reserves between the:

(a) New policy or certificate; and

(b) Original policy or certificate.

(5) An insurer shall:

(a) Not be required to notify a policyholder of a new proprietary policy product, created and filed for use in a limited distribution channel; and

(b) Notify a policyholder of a new proprietary policy product if a new long-term care product, which provides coverage for new long-term care services or providers material in nature, is made available to that limited distribution channel.

(6)

(a) A policy issued pursuant to this section shall:

Be considered an exchange; and
Not be considered a replacement.

(b) An exchange as identified in paragraph (a) of this subsection shall not be subject to:

Requirements of Sections 11 and 21 of this administrative regulation; and
Reporting requirements of Section 12(1) through (4) of this administrative regulation.

(7) If the policy is:

(a) Offered through an employer, labor organization, professional, trade or occupational association, the notification required in subsection (1) of this section shall be issued to the offering entity; or

(b) Issued to a group identified in KRS 304.14-600(5)(d), the notification required in Subsection (1) of this Section shall be issued to each certificate holder.

(8)

(a) Pursuant to this section, an insurer may offer a policy, rider, certificate or coverage change to a policyholder or certificate holder.

(b) Upon request, a policyholder may apply for currently available coverage, which includes a new service or provider.

Underwriting; and
Payment of the required premium.

(9) A life insurance policy or rider, which includes accelerated long-term care benefits, shall not be subject to the requirements of this section.

Section 24. Right to Reduce Coverage and Lower Premiums.

(1)

(a) A long-term care insurance policy and certificate shall include a provision, which allows the policyholder or certificate holder to reduce coverage and lower the policy or certificate premium in at least one (1) of the following ways:

Reducing the maximum benefit; or
Reducing the daily, weekly or monthly benefit amount.

(b) An insurer may offer a reduction option not identified in paragraph (a) of this subsection, which is consistent with the:

Policy or certificate design; or
The insurer's administrative processes.

(2) The provision, identified in subsection (1) of this section, shall include:

(a) A description of the ways in which coverage may be reduced; and

(b) The process for requesting and implementing a reduction in coverage.

(3) The age used to determine a premium for the reduced coverage shall be based on the age used to determine a premium for the current coverage.

(4) An insurer may limit a reduction in coverage to a plan or option:

(a) Available for that policy form; and

(b) For which benefits shall be available after consideration of claims paid or payable.

(5) If a policy or certificate is about to lapse, the insurer shall provide a written reminder to the policyholder or certificate holder of the right to reduce coverage and premiums in the notice required by section 4(1)(c) of this administrative regulation.

(6) A life insurance policy or rider, which includes accelerated long-term care benefits shall not be subject to the requirements of this Section.

(7) The requirements of this section shall apply to a long-term care policy issued in Kentucky on or after January 1, 2010.

Section 25. Nonforfeiture Benefit Requirement.

(1) A life insurance policy or rider, which includes accelerated long-term care benefits shall not be subject to the requirements of this section.

(2) Except as required in subsection (3) of this section, a long-term care insurance policy shall not be delivered or issued for delivery unless the policyholder or certificate holder has been offered the option of purchasing a policy or certificate including a nonforfeiture benefit.

(a) The offer of a nonforfeiture benefit may be in the form of a rider, which is attached to the policy.

(b) If a policyholder or certificate holder declines the nonforfeiture benefit identified in paragraph (a) of this subsection, the insurer shall provide a contingent benefit upon lapse, which shall be available for 120 days, following a substantial increase in premium rate, as established in subsection (6) of this section.

(3) If a group long-term care insurance policy is issued:

(a) The offer required in subsection (2) of this section shall be made to the group policyholder; or

(b) As group long-term care insurance as defined in KRS 304.14-600(5)(d), other than to a continuing care retirement community or other similar entity, the offer shall be made to each proposed certificate holder.

(4) A nonforfeiture benefit offer as identified in subsection (2) of this section shall:

(a) Include coverage elements, eligibility, benefit triggers, and benefit length, which are identical to coverage issued without nonforfeiture benefits;

(b) Be the benefit described in subsection (7) of this section; and

The Outline of Coverage required under KRS 304.14-615(7); or
Materials other than the Outline of Coverage, which are given to the prospective policyholder.

(5) If the offer required under subsection (2) of this section is:

(a) Rejected, the insurer shall provide the contingent benefit upon lapse described in this section; or

(b) Accepted for a policy with a fixed or limited premium paying period, the contingent benefit upon lapse in subsection (6)(d) of this section shall apply.

(6)

(a) After rejection of the offer required under subsection (2) of this section, the insurer shall provide a contingent benefit upon lapse for a policy issued after July 15, 2002, including:

An individual policy without a nonforfeiture benefit; and
A group policy without a nonforfeiture benefit.

(b) If a group policyholder elects to make the nonforfeiture benefit an option to the certificate holder, a certificate shall provide either the nonforfeiture benefit or the contingent benefit upon lapse.

(c)

A contingent benefit upon lapse shall be triggered as identified in the following table if:

a. An insurer increases the premium rates to a level, which results in a cumulative increase of the annual premium equal to or exceeding the percentage of the insured's initial annual premium as established in this paragraph based on the insured's issue age; and

b. The policy or certificate lapses within 120 days of the due date of the increased premium:

Unless required by Section 6(7) of this administrative regulation, a policyholder shall be notified at least thirty (30) days prior to the due date of a premium reflecting the rate increase, as identified in this paragraph.

(d)

A contingent benefit upon lapse shall be triggered for a policy, which includes a fixed or limited premium paying period, as identified in the following table, if:

b. The policy or certificate lapses within 120 days of the due date of the premium, which increased; and

c. The ratio in paragraph (f)2 of this subsection is forty (40) percent or more:

Unless an insurer provides notice as established in Section 6(7) of this administrative regulation, a policyholder shall be notified at least thirty (30) days prior to the due date of the premium reflecting a rate increase by the insurer.

a. An insurer shall be subject to this paragraph and the contingent benefit upon lapse provision of paragraph (c) of this subsection; and

b. If a trigger as identified in paragraph (c) of this subsection and a trigger as identified in this paragraph are identified, the benefit provided shall be at the option of the insured.

(e) On or before the effective date of a substantial premium increase as established in paragraph (c) of this subsection, an insurer shall:

Offer to reduce policy benefits provided by the current coverage without requiring additional underwriting to prevent an increase in required premium payments;

a. Offer to convert the coverage to a paid-up status with a shortened benefit period in accordance with the terms of subsection (7) of this section; and

b. Allow this option to be elected by the policyholder or certificate holder within the 120-day period identified in paragraph (c) of this subsection; and

Notify the policyholder or certificate holder that a default or lapse, which occurs within the 120-day period identified in paragraph (c) of this subsection shall be deemed to be an election of the offer to convert as identified in subparagraph 2 of this paragraph unless the automatic option in paragraph (f)3 applies.

(f) On or before the effective date of a substantial premium increase as identified in paragraph (d) of this subsection, the insurer shall:

Offer to reduce policy benefits provided by the current coverage without requiring additional underwriting in order that required premium payments are not increased;

a. Offer to convert the coverage to a paid-up status if the amount payable for each benefit is ninety (90) percent of the payable amount, which was in effect immediately prior to lapse, multiplied by the ratio of the number of completed months of paid premiums divided by the number of months in the premium paying period; and

b. Allow this option to be elected within the 120-day period identified in paragraph (d) of this subsection; and

Notify the policyholder or certificate holder that a default or lapse, which occurs within the 120-day period identified in paragraph (d) of this subsection shall be deemed to be an election of the offer to convert in subparagraph 2 of this paragraph if the ratio is forty (40) percent or more.

(7) A benefit continued as a nonforfeiture benefit, including a contingent benefit upon lapse in accordance with subsection (6)(c) of this section, shall be provided as follows:

(a)

Pursuant to this subsection, a nonforfeiture benefit shall include a shortened benefit period, which provides paid-up long-term care insurance coverage after lapse.
The same benefit, including amount and frequency, in effect at lapse and not be increased in the future, shall be payable for a qualifying claim, except the lifetime maximum dollars or days of benefits shall be determined as established in paragraph (b) of this subsection.

(b)

A standard nonforfeiture credit shall be equal to 100 percent of the sum of premiums paid, including the premiums paid prior to a change in benefits.
An insurer may offer an additional shortened benefit period option, if the benefits for each duration equal or exceed the standard nonforfeiture credit for that duration.
The minimum nonforfeiture credit shall not be less than thirty (30) times the daily nursing home benefit upon lapse.
The calculation of a nonforfeiture credit shall be subject to the limitation of subsection (8) of this section.

(c)

a. Except for a policy or certificate with attained age rating, a nonforfeiture benefit shall begin no later than the final day of the third year following the policy or certificate issue date.

b. A contingent benefit upon lapse shall be effective on the date of policy or certificate issue.

For a policy or certificate with attained age rating, the nonforfeiture benefit shall begin on the earlier of the end of the:

a. Tenth year following the policy or certificate issue date; or

b. Second year following the date the policy or certificate is no longer subject to attained age rating.

(d) A nonforfeiture credit may be used up to the limit identified in the policy or certificate for care and services qualifying for benefits under the terms of the policy or certificate.

(8) Benefits paid by an insurer when the policy or certificate is in premium paying status and paid up status shall not exceed the maximum benefits, which would be payable if the policy or certificate had remained in premium paying status.

(9) For a group and individual policy, an insurer shall provide the minimum nonforfeiture benefit as required under this section.

(10)

(a) Except as provided in subsection (6) and paragraph (b) and (c) of this subsection, the requirements of this section shall apply to a long-term care policy issued in Kentucky on or after July 15, 2003.

(b) The requirements of this section shall not apply to a certificate issued on or after July 15, 2003 under a group long-term care insurance policy, as identified in KRS 304.14-600(5)(a), which was in force before July 15, 2003.

(c) Except for a new certificate under a group policy, as identified in KRS 304.14-600(5)(a), issued on July 16, 2003, the requirements of subsections (5)(b) and (6)(d) and (f) of this section shall apply to a long-term care insurance policy or certificate issued on and after January 16, 2003.

(11) A premium charged for a policy or certificate, which contains a nonforfeiture benefit or a contingent benefit upon lapse shall be subject to the loss ratio requirements established in Section 16 or 17 of this administrative regulation, as applicable, treating the policy as a whole.

(12) To determine if a contingent benefit upon lapse provision as identified in subsection (6)(c) or (d) of this section is triggered, a replacing insurer, which purchased or assumed a block of long-term care insurance policies from an insurer, shall calculate the percent increase based on the initial annual premium paid by the insured on the date the policy was purchased from the original insurer.

(13) For a qualified long-term care insurance contract, which is a level premium contract, the nonforfeiture benefit offered by an insurer shall:

(a) Be appropriately captioned;

(b) Indicate that the nonforfeiture benefit is available if a default in the premium payment occurs;

(c) State that the amount of the benefit may be adjusted subsequent to being initially granted, as necessary, to reflect a change in claims, persistency, and interest as reflected in a change in a rate for a premium paying contract approved by the commissioner for the identical contract form; and

(d) Provide at least one (1) of the following:

Reduced paid up insurance;
Extended term insurance;
Shortened benefit period; or
An offering, which is:

a. Similar to an offering as identified in subparagraphs 1, 2, or 3 of this paragraph; and

b. Approved by the commissioner.

Section 26. Standards for Benefit Triggers.

(1) A long-term care insurance policy shall condition the payment of benefits based upon a determination of the insured's:

(a) Ability to perform activities of daily living; and

(b) Cognitive impairment.

(2) Eligibility for the payment of benefits shall not be more restrictive than requiring:

(a) A deficiency in the ability to perform no more than three (3) activities of daily living; or

(b) The presence of cognitive impairment.

(3)

(a) Activities of daily living shall include no less than the activities defined in Section 2(1) of this administrative regulation and the policy; and

(b) To trigger covered benefits, an insurer may use activities of daily living, which are:

Described in paragraph (a) of this subsection; and
In addition to activities identified in paragraph (a) if defined in the policy.

(4)

(a) An insurer may use a provision other than activities of daily living as identified in subsection (3) of this section to determine the date benefits are payable under a policy or certificate; and

(b) If a provision as established in paragraph (a) of this subsection is used by the insurer, the provision shall not:

Restrict the requirements identified in subsections (1), (2), and (3) of this section; and
Be used in lieu of the requirements of subsections (1), (2), and (3) of this section.

(5) A determination of a deficiency, as identified in this section, shall not be more restrictive than:

(a) Requiring the hands on assistance of another person to perform the prescribed activities of daily living as identified in subsection (3) of this section; or

(b) If the deficiency is due to the presence of a cognitive impairment, supervision or verbal cueing by another person is needed in order to protect the insured or others.

(6) An assessment of an insured's activities of daily living and cognitive impairment shall be performed by a licensed or certified professional, including a:

(a) Physician;

(b) Nurse; or

(7) A long-term care insurance policy shall include a clear description of the process for an appeal and resolution of a benefit determination.

(8) The requirements identified in this section:

(a) Except as provided in paragraph (b) of this subsection, shall apply to a long-term care policy issued in Kentucky on or after July 15, 2002; and

(b) Shall not apply to a certificate under a group long-term care insurance policy, as identified in KRS 304.14-600(5)(a), which was in force before July 15, 2003.

Section 27. Additional Standards for Benefit Triggers for Qualified Long-term Care Insurance Contracts.

(1) A qualified long-term care insurance contract shall pay for a qualified long-term care service received by a chronically-ill individual if the service is provided in accordance with a plan of care prescribed by a licensed health care practitioner.

(2) A qualified long-term care insurance contract shall condition the payment of benefits on a certified determination of the insured's inability to perform activities of daily living for an expected period of at least ninety (90) days due to:

(a) A loss of functional capacity; or

(b) Severe cognitive impairment.

(3) A certification as required pursuant to subsection (2) of this section:

(a) Shall be performed by a licensed or certified professional, including a licensed health care practitioner; and

(b) May be performed at the direction of an insurer, if the certification is reasonably necessary to determine payment for a specific claim.

(4) If a licensed health care practitioner certified that an insured is unable to perform activities of daily living for an expected period of time of at least ninety (90) days due to a loss of functional capacity and the insured is in claim status:

(a) The certification performed pursuant to subsection (3)(b) of this section shall not be rescinded; and

(b) An additional certification shall not be performed until the ninety (90) day period has expired.

(5) A qualified long-term care insurance contract shall include a clear description of the process for the appeal and resolution of a dispute regarding a benefit determination.

Section 28. Standard Format and Content of an Outline of Coverage. Pursuant to the requirements of KRS 304.14-615(7):

(1) An outline of coverage shall:

(a) Be a freestanding document, which is printed in no less than ten (10) point type; and

(b) Not contain material of an advertising nature.

(2) Text, which is capitalized or underscored in the standard format outline of coverage, may be emphasized by using a method, which provides prominence equivalent to the:

(a) Capitalization; or

(b) Underscoring.

(3) Except as indicated, use of the text and sequence of text shall be:

(a) Mandatory; and

(b) Consistent with the Outline of Coverage, HIPMC-LTC-7.

(4) The format to be used for the outline of coverage shall be Consistent with the Outline of Coverage, HIPMC-LTC-7.

Section 29. Requirement to Deliver Shopper's Guide.

(1) A long-term care insurance shopper's guide developed by the National Association of Insurance Commissioners, which is available at www.naic.org, or a guide developed or approved by the commissioner, shall be provided to a prospective applicant of a long-term care insurance policy or certificate.

(a) For agent solicitation, an agent shall deliver the shopper's guide prior to the presentation of an application or enrollment form.

(b) For direct response solicitation, an insurer shall deliver the shopper's guide in conjunction with an application or enrollment form.

(2) An insurer offering a life insurance policy or rider, which includes accelerated long-term care benefits shall:

(a) Not be required to provide a shopper's guide as identified in subsection (1) of this section; and

(b) Provide a policy summary, including a:

Statement, which establishes that a long-term care inflation protection option as identified in Section 10 of this administrative regulation is not available under the policy; and
Items as identified and required under KRS 304.14-615(9).

Section 30. Penalties. An insurer or agent, who is identified as violating a requirement of Kentucky Insurance Code relating to the regulation or marketing of long-term care insurance shall be subject to the greater of:

(1) A fine of up to three (3) times the amount of a commission paid for each policy involved in the violation or up to $10,000; or

(2) A penalty as identified in KRS Chapter 304, subtitles 3, 9, 12, 14, 17, and 99, and this administrative regulation.

Section 31. Permitted Compensation Arrangements.

(1) Upon replacement the replacing insurer shall not provide compensation to its agents or other producers greater than 200 percent of the renewal compensation payable by the replacing insurer on renewal policies.

(2) A commission or other compensation provided in subsequent renewal years by the replacing insurer shall be:

(a) The same as that provided in the second year or period; and

(b) Provided for a reasonable number of renewal years.

(3) If long-term care insurance is provided under annuities or life insurance policies or riders, the requirements of this section shall apply only to the commissions or other compensation attributable to the long-term care insurance provided by these policies or riders.

Section 32. Incorporated by Reference.

(1) The following material is incorporated by reference:

(a) "Long-term Care Insurance Personal Worksheet, HIPMC-LTC-1", 09/2008;

(b) "Long-term Care Insurance Potential Rate Increase Disclosure Form, HIPMC-LTC-2", 09/2008;

(d) "Claims Denial Reporting Form for Long-term Care Insurance, HIPMC-LTC-4", 09/01;

(e) "Things You Should Know Before You Buy Long-term Care Insurance, HIPMC-LTC-5", 09/2008;

(f) "Long-term Care Insurance Suitability Letter, HIPMC-LTC-6", 09/2008;

(g) "Outline of Coverage, HIPMC-LTC-7", 09/2008;

(h) "Notice to Applicant Regarding Replacement of Individual Accident and Sickness or Long-term Care Insurance, HIPMC-LTC-8", 09/2008;

(i) "Notice to Applicant Regarding Replacement of Accident and Sickness or Long-term Care Insurance, HIPMC-LTC-9", 09/2008;

(j) "Disclosures and Language for Long-term Care Policies and Certificates, HIPMC-LTC-10", 09/2008; and

(k) "Long-term Care insurance replacement and lapse reporting form, HIPMC-LTC-11", 09/2008.

History

RELATES TO: KRS 304.1-040, 304.2-310, 304.6-070, 304.6-130-304.6-180, 304.9-080, 304.12-020, 304.12-030, 304.12-130, 304.14-120(2), 304.14-600-304.14-644, 304.15-310, 304.15-315, 304.18-120, 304.18-127, 304.29-600, 304.32-290, 304.38-220, 26 U.S.C. 7702B, 42 U.S.C. 1395x(r), 45 C.F.R. 160.103
STATUTORY AUTHORITY: KRS 304.2-110(1), 304.14-615, 304.14-620, 304.32-250, 304.38-150
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.2-110(1) authorizes the Commissioner of Insurance to promulgate administrative regulations necessary for or as an aid to the effectuation of any provision of the Kentucky Insurance Code. KRS 304.14-615(1) requires the Commissioner of Insurance to promulgate administrative regulations establishing minimum standards for the manner, content, and sale of long-term care insurance policies. KRS 304.14-620 requires the Commissioner of Insurance to promulgate administrative regulations to establish minimum standards for marketing practices, agent compensation, agent testing, penalties, and reporting practices for long-term care insurance. KRS 304.32-250 authorizes the Commissioner of Insurance to promulgate reasonable administrative regulations necessary for the proper administration of KRS Chapter 304.32. KRS 304.38-150 authorizes the Commissioner of Insurance to promulgate reasonable administrative regulations necessary for the proper administration of KRS Chapter 304.38. EO 2008-507, effective June 16, 2008, established the Department of Insurance and the Commissioner of Insurance as the head of the Department. This administrative regulation establishes minimum standards for long-term care insurance.
History: 19 Ky.R. 1029; Am. 1756; eff. 2-8-93; 28 Ky.R. 1922; 2359; 29 Ky.R. 114; eff. 7-15-2002; TAm eff. 8-9-2007; 35 Ky.R. 1029; 1742; eff. 2-6-09; Crt eff. 2-26-2020; TAm eff. 3-10-2020.

806 KAR 17:083 Kentucky long-term care partnership insurance program {#sec-806-kar-17-083 omnilex-key=us-ky-regs-official--title-806--806 KAR 17:083}

Section 1. Definitions.

(1) "Agent" is defined by KRS 304.9-020(1).

(2) "Asset disregard" is defined by KRS 304.14-640(1).

(3) "Commissioner" means the Commissioner of Insurance.

(4) "Department" means the Department of Insurance.

(5) "Eligible policyholder" means a policyholder of a long-term care insurance policy, which:

(a) Was issued by the insurer on or after:

January 16, 2003, for a policyholder in the individual market; or
July 16, 2003, for a policyholder in the group market; and

(b) Meets the requirements of long-term care partnership insurance as established in:

KRS 304.14-642(2)(a) through (c); and
Section 2(2)(d) of this administrative regulation.

(6) "Federally tax-qualified" is defined by 806 KAR 17:081, Section 1(27).

(7) "Kentucky Long-Term Care Partnership Insurance Program" or "Partnership Insurance Program" is defined by KRS 304.14-640(2).

(8) "Long-term care insurance" is defined by KRS 304.14-600(2).

(9) "Long-term care partnership insurance" is defined by KRS 304.14-640(4).

(10) "Medicaid" means coverage in accordance with Title XIX of the Social Security Act, 42 U.S.C. secs. 1396 et seq., as amended.

(11) "Partnership exchange" means an exchange between an insurer and the insurer's eligible policyholder of an existing long-term care insurance policy, certificate, or rider for a long-term care partnership insurance policy, certificate, rider, or endorsement with substantially similar benefits.

Section 2. Long-Term Care Partnership Insurance Policy and Disclosure.

(1) An insurer selling, issuing, or renewing a long-term care partnership insurance policy or certificate in Kentucky on or after the effective date of this administrative regulation shall obtain approval of a related form and premium rate from the commissioner pursuant to KRS 304.14-120, 806 KAR 14:005, and 806 KAR 14:007, as applicable.

(2) A long-term care partnership insurance policy, certificate, or rider shall:

(a) Meet requirements as established in:

KRS 304.14-600 through 304.14-644;
806 KAR 17:081; and
This administrative regulation;

(b) Be clearly identified as Kentucky long-term care partnership insurance, in not less than twelve (12) point type, on the first page of a long-term care partnership insurance policy, certificate, or rider;

Explain the benefits of a long-term care partnership insurance policy or certificate, including:

a. Asset disregard under the Kentucky Medicaid Program;

b. Status as a federally tax-qualified long-term care insurance contract; and

c. Inflation protection as identified in paragraph (2)(d) of this section;

State that purchasing long-term care partnership insurance does not guarantee eligibility for Medicaid; and
Inform the insured that:

a. A modification of a partnership insurance program policy, certificate, or rider may affect whether the:

(i) Policy, certificate, or rider continues to be a partnership insurance program policy; and

(ii) Insured continues to be eligible for asset disregard; and

b. If the insured moves to a state outside Kentucky which has entered into a reciprocity agreement pursuant to 73 F.R. 51302, the policyholder may be eligible for asset disregard in that state;

(d) Include for an individual, who has:

Not attained sixty-one (61) years of age as of the date of purchase of the policy, an automatic annual inflation increase at a rate not less than three (3) percent calculated on a compound basis;
Attained age sixty-one (61) to seventy-five (75) as of the date of purchase, an automatic annual inflation increase:

a. At a rate not less than three (3) percent calculated on a simple basis; or

b. That meets the requirements of subsection (2)(d)1 of this section; or

Attained age seventy-six (76) as of the date of purchase, an offer of inflation protection in accordance with 806 KAR 17:081, Section 10; and

(e) Not be issued in Kentucky prior to the effective date of this administrative regulation.

(3) For the disclosure identified in subsection(2)(c) of this section, an insurer shall use:

(a) The LTCPIP-1; or

(b) A disclosure developed by the insurer, which shall:

Meet the requirements of subsection 2(c) of this section;
Be entitled "Important Information About Your Kentucky Long-Term Care Partnership Insurance"; and
Be filed with and approved by the commissioner prior to use.

Section 3. Partnership Insurance Program Notice.

(1) For a prospective applicant, an insurer, which offers a long-term care partnership insurance policy, certificate, or rider, shall provide a partnership insurance program notice pursuant to KRS 304.14-644, which shall:

(a) Be available electronically and in writing;

(b) Be presented in clear and understandable language;

A description of:

a. The Kentucky Long-Term Care Partnership Insurance Program;

b. Long-term care insurance and services provided under a long-term care insurance policy and certificate; and

c. The Kentucky Medicaid Program, including eligibility for Medicaid benefits; and

Information regarding:

a. Asset disregard;

b. A federally tax-qualified long-term care insurance contract;

c. Inflation protection as identified in Section 2(2)(d) of this administrative regulation; and

d. The impact on an insured's eligibility for asset disregard under a state Medicaid program if an insured moves to a state outside Kentucky; and

(d) Include additional resource information, including the telephone number of:

The insurer, including a position or title for a contact who is knowledgeable of long-term care partnership insurance;
The Kentucky Department of Insurance; and
The Kentucky Department for Medicaid Services.

(2) For the partnership insurance program notice, an insurer shall use:

(a) The LTCPIP-2; or

(b) A partnership insurance program notice developed by the insurer, which shall:

Meet the requirements of subsection (1) of this section;
Be entitled "The Kentucky Long-Term Care Partnership Insurance Program Notice"; and
Be filed with and approved by the commissioner prior to use.

Section 4. Agent Training. An insurer offering long-term care partnership insurance shall:

(1) Require an agent prior to selling, soliciting, or negotiating a long-term care partnership insurance policy or certificate to:

(a) Demonstrate an understanding of long-term care partnership insurance as required under KRS 304.14-642(4); and

(b) Receive training in accordance with 806 KAR 9:220, Section 5(1); and

(2) Maintain a record which supports compliance with the training requirements for an agent who sells, solicits, or negotiates long-term care partnership insurance, which shall be available:

(a) To the department, if requested; and

(b) For a period not less than five (5) years.

Section 5. Partnership Exchange of a Policy.

(1) Within one (1) year of the date that an insurer begins to market long-term care partnership insurance in Kentucky, the insurer shall offer, in writing, the option for a partnership exchange to an eligible policyholder.

(2)

(a) An insurer shall complete a partnership exchange by issuing a:

New long-term care partnership insurance policy or certificate, or rider attached to a life insurance policy; or
Rider or endorsement to an existing long-term care insurance policy or certificate, which shall:

a. Be approved by the department as long-term care partnership insurance;

b. Include a new effective date of coverage; and

c. Amend the first page of the policy or certificate in accordance with Section 2(2)(b) of this administrative regulation.

(b) In completing a partnership exchange pursuant to subsection (2)(a) of this section, the:

Insurer shall not perform underwriting associated with the policy, certificate, rider, or endorsement;
Premium rate charged for the policy, certificate, rider, or endorsement shall be determined using the original issue age and risk class of the insured, which were used to determine the premium rate of the existing policy, certificate, or rider; and
Insurer shall ensure that rights, benefits, and built-up value, which accrued under the original policy, are maintained, including credit for satisfying a:

a. Pre-existing condition exclusion period;

b. Elimination period; or

c. Incontestability period.

(c) A policy, certificate, rider, or endorsement issued pursuant to this section shall not be reported as replacement as identified in 806 KAR 17:081, Section 12.

(3) An insurer shall:

(a) Offer a partnership exchange on a nondiscriminatory basis regardless of the age or health status of the policyholder or certificate holder;

(b) Allow the policyholder to elect an offer of partnership exchange not less than ninety (90) days from the date of mailing of the notice as identified in paragraph (c) of this subsection;

A description of the effect on the insured's premium;
Identifying information relating to the insurer, insured, and policy;
Information regarding the requirements of a partnership insurance program policy;
A statement that the insured shall not:

a. Forfeit any rights, benefits, or built-up value, which accrued under the original policy pursuant to subsection (2)(b) of this section; and

b. Be guaranteed eligibility for Medicaid benefits;

Information required by Section 3(1)(c)2 of this administrative regulation;
Insurer contact information; and
Instructions for accepting the offer of exchange.

(4) For a notice as identified in subsection(3)(c) of this section, an insurer shall use:

(a) The LTCPIP-3; or

(b) A notice developed by the insurer, which shall:

Meet the requirements identified in subsection (3)(c) of this section;
Be entitled "Important Notice of Offer to Exchange"; and
Be filed with and approved by the commissioner prior to use.

Section 6. Insurer Reporting Requirements. An insurer offering life and health insurance in Kentucky, which participates in the Kentucky Long-term Care Partnership Program, shall:

(1) Collect and report data relating to long-term care partnership insurance to the Secretary of the U.S. Department for Health and Human Services:

(a) Pursuant to KRS 304.14-642(6); and

(b) In accordance with the state long-term care partnership insurance reporting requirements as established by 45 C.F.R. 144.200 through 144.214; and

(2) If a statement of benefits paid under a long-term care partnership insurance policy, certificate, or rider is requested by an insured or authorized representative of an insured, provide a completed LTCPIP-4, to the insured or authorized representative, within fifteen (15) days of the request.

Section 7. Incorporation by Reference.

(1) The following material is incorporated by reference:

(a) "Important Information About Your Kentucky Long-Term Care Partnership Insurance, LTCPIP-1", 12/2008;

(b) "The Kentucky Long-Term Care Partnership Insurance Program Notice, LTCPIP-2", 2/2009;

(d) "Long-Term Care Partnership Insurance Program Statement of Benefits Paid, LTCPIP-4", 2/2009.

(2) This material may be inspected, copied, or obtained, subject to applicable copyright law, at the Department of Insurance, 500 Mero Street, Frankfort, Kentucky 40601, Monday through Friday, 8 a.m. to 4:30 p.m. This material is also available on the department's Web site at http://insurance.ky.gov.

History

RELATES TO: KRS 205.619, 304.14-120, 304.14-600 - 304.14-644, 42 C.F.R. sec. 1396p(b), 73 F.R. 30030, 51302
STATUTORY AUTHORITY: KRS 304.2-110(1), 304.14-642(5), 304.14.644(2), EO 2008-507
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.2-110(1) authorizes the Commissioner of Insurance to promulgate administrative regulations necessary for or as an aid to the effectuation of any provision of the Kentucky Insurance Code, as defined in KRS 304.1-010. KRS 304.14-642(5) requires the Department of Insurance to promulgate an administrative regulation to implement the Kentucky Long-Term Care Partnership Insurance Program and to establish the manner and content of a disclosure, in coordination with the Cabinet for Health and Family Services. EO 2008-507, effective June 16, 2008, established the Department of Insurance and the Commissioner of Insurance as the head of the department. This administrative regulation defines terms and establishes requirements for long-term care partnership insurance, including a life insurance policy with a long-term care partnership insurance rider, notice, disclosure, policy exchange, training of an agent, reciprocity of a long-term care partnership insurance policy, and reporting long-term care benefits under a long-term care partnership insurance policy.
History: 35 Ky.R. 1968; 2306; eff. 6-5-2009; Crt eff. 2-26-2020; TAm eff. 3-10-2020.

806 KAR 17:085 Minimum standards for short-term nursing home insurance policies {#sec-806-kar-17-085 omnilex-key=us-ky-regs-official--title-806--806 KAR 17:085}

Section 1. Definitions.

(1) "Applicant" means:

(a) For an individual short-term nursing home insurance policy, the person who seeks to contract for benefits; and

(b) For a group short-term nursing home insurance policy, the proposed certificate holder.

(2) "Association" means entities eligible for group health insurance pursuant to KRS 304.18-020.

(3) "Benefit trigger" means a contractual provision in the insured's policy conditioning the payment of benefits on a determination of the insured's ability to perform activities of daily living and on cognitive impairment.

(4) "Certificate" means any certificate issued under a group short-term nursing home insurance policy, which has been delivered or issued for delivery in Kentucky.

(6) "Commissioner" is defined by KRS 304.1-050.

(7) "Compensation" means pecuniary or nonpecuniary remuneration of any kind relating to the sale or renewal of short-term nursing home insurance or certificates, including bonuses, gift, prizes, awards, and finders fees.

(8) "Elimination period" means the time that elapses before benefits commence under a short-term nursing home insurance policy or certificate.

(9) "Insurer" means an entity authorized to issue short-term nursing home insurance in Kentucky.

(10) "Maintenance or Personal care services" means any care the primary purpose of which is the provision of needed assistance with any of the disabilities as a result of which the individual is a chronically-ill individual (including the protection from threats to health and safety due to severe cognitive impairment).

(11) "Policy" means any policy, contract, subscriber agreement, enrollment agreement, rider, or endorsement delivered or issued for delivery in Kentucky.

(12) "Qualified short-term nursing home insurance contract" is defined by 26 U.S.C. §7702B.

(13) "Short-term nursing home insurance policies" is defined by KRS 304.14-650.

Section 2. Policy Requirements. A short-term nursing home insurance policy delivered or issued for delivery in Kentucky shall not use the terms set forth below unless the terms are defined in the policy as follows:

(1) "Activities of daily living" means at least bathing, continence, dressing, eating, toileting, and transferring.

(2) "Acute condition" means that the individual is medically unstable. The individual requires frequent monitoring by medical professionals, such as physicians and registered nurses, in order to maintain health status.

(3) "Adult day care" means a program for four (4) or more individuals, of social or health-related, or both, services provided during the day in a community group setting for the purpose of supporting frail, impaired elderly or other disabled adults who can benefit from care in a group setting outside the home.

(4) "Bathing" means washing oneself by sponge bath; or in either a tub or shower, including the task of getting into or out of the tub or shower.

(5) "Cognitive impairment" means a deficiency in a person's short or long-term memory, orientation as to person, place, and time, deductive or abstract reasoning, or judgement as it relates to safety awareness.

(6) "Continence" means the ability to maintain control of bowel and bladder function; or , when unable to maintain control of bowel or bladder function, the ability to perform associated personal hygiene (including caring for catheter or colostomy bag).

(7) "Dressing" means putting on and taking off all items of clothing and any necessary braces, fasteners, or artificial limbs.

(8) "Eating" means feeding oneself by getting food into the body from a receptacle (such as a plate, cup, or table) or by a feeding tube or intravenously.

(9) "Hands-on assistance" means physical assistance (minimal, moderate, or maximal) without which the individual would not be able to perform the activity of daily living.

(10) "Home health care services" means medical and nonmedical services, provided to ill, disabled or infirm persons in their residences. The services may include homemaker services, assistance with activities of daily living, and respite care services.

(11) "Medicare" means "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 Pub.L. 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.

(12) "Mental or nervous disorder" means not including more than neurosis, psychoneurosis, psychopathy, psychosis, or mental or emotional disease or disorder.

(13) "Personal care" or maintenance means the provision of hands-on services to assist an individual with activities of daily living.

(14) "Skilled nursing care", "intermediate care", "personal care", "home care", "specialized care", "assisted living" and other services means being defined in relation to the level of skill required, the nature of the care, and the setting in which care is to be delivered.

(15) "Toileting" means getting to and from the toilet, getting on and off the toilet, and performing associated personal hygiene.

(16) "Transferring" means moving into or out of bed, chair, or wheelchair.

Section 3. Policy Practices and Provisions.

(1) Renewability. The terms "guaranteed renewable" and "noncancellable" shall not be used in any individual short-term nursing home insurance policy without further explanatory language in accordance with the disclosure requirements of Section 5 of this administrative regulation.

(a) A short-term nursing home insurance policy issued to an individual shall not contain renewal provisions other than "guaranteed renewable" or "noncancellable".

(b) The term "guaranteed renewable" may be used only if the insured has the right to continue the short-term nursing home insurance in force by the timely payment of premiums and if the insurer has no unilateral right to make any change in any provision of the policy or rider while the insurance is in force, and cannot decline to renew, except that rates may be revised by the insurer on a class basis.

(c) The term "noncancellable" may be used only if the insured has the right to continue the short-term nursing home insurance in force by the timely payment of premiums during which period the insurer has no right to unilaterally make any change in any provision of the insurance or in the scheduled premium rate.

(d) The term "level premium" may only be used if the insurer does not have the right to change the premium.

(2)

(a) Limitations and exclusions. A policy shall not be delivered or issued for delivery in Kentucky as a short-term nursing home insurance if the policy limits or excludes coverage by type of illness, treatment, medical condition, or accident, except as follows:

Preexisting conditions or diseases as defined in Section 5(8) through (10) of this administrative regulation;
Mental or nervous disorders, but this shall not permit exclusion or limitation of benefits on the basis of Alzheimer's disease;
Alcoholism and drug addiction;
Illness, treatment, or medical condition arising out of:

a. War or act of war (whether declared or undeclared);

b. Participation in a felony, riot, or insurrection;

c. Service in the armed forces or auxiliary units;

d. Suicide (sane or insane), attempted suicide, or intentionally self-inflicted injury; or

e. Aviation (this exclusion shall apply only to nonfare-paying passengers);

Treatment provided in a government facility (unless otherwise required by law), services for which benefits are available under Medicare or other governmental program (except Medicaid), any state or federal workers' compensation, employer's liability, or occupational disease law, services provided by a member of the covered person's immediate family, and services for which no charge is normally made in the absence of insurance;

(b) This subsection shall not prohibit exclusions and limitations by type of provider or territorial limitations.

(3) Continuation or conversion.

(a) Group short-term nursing home insurance issued in Kentucky on or after the effective date of this administrative regulation shall provide:

A covered individual with a basis for continuation or conversion of coverage without underwriting upon termination of coverage; and
A converted policy or continued coverage including benefits identical to or benefits determined by the Commissioner to be substantially similar to or in excess of those provided under the group policy from which conversion or continued coverage is made.

(b) Written application for the converted policy or continued coverage shall be made and the first premium due, if any, shall be paid as directed by the insurer not later than thirty-one (31) days following notice of continuation or conversion rights under the group policy. The converted policy shall be issued effective on the day following the termination of coverage under the group policy and shall be renewable annually.

(4) Extension of benefits. Termination of short-term nursing home insurance shall be without prejudice to any benefits payable for institutionalization if the institutionalization began while the short-term nursing home insurance was in force and continues without interruption after termination. The extension of benefits beyond the period the short-term nursing home insurance was in force may be limited to the duration of the benefit period, if any, or to payment of the maximum benefit and may be subject to any policy waiting period, and all other applicable provisions of the policy.

(5) Discontinuance and replacement. If a group short-term nursing home insurance policy is replaced by another group short-term nursing home insurance policy issued to the same policyholder, the succeeding insurer shall offer coverage to all persons covered under the previous group policy on its date of termination. Coverage provided or offered to individuals by the insurer and premiums charged to persons under the new group policy shall not:

(a) Result in an exclusion for preexisting conditions that would have been covered under the group policy being replaced; and

(b) Vary or otherwise depend on the individual's health or disability status, claim experience or use of short term care services.

(6) Premium changes. The premium charged to an insured for short-term nursing home insurance shall not increase due to either:

(a) The increasing age of the insured at ages beyond sixty-five (65); or

(b) The duration the insured has been covered under the policy.

(7) Coverage of dependents. A short-term nursing home policy may be issued that jointly covers the life of the policyholder and his or her spouse.

Section 4. Unintentional Lapse. An insurer offering short-term nursing home insurance shall, as a protection against unintentional lapse, comply with the following:

(1) Notice before lapse or termination. An individual short-term nursing home policy or certificate shall not be issued until the insurer has received from the applicant either a written:

(a) Designation of at least one (1) person, in addition to the applicant, who is to receive notice of lapse or termination of the policy or certificate for nonpayment of premium; or

(b) Waiver, dated and signed by the applicant, electing not to designate additional persons to receive notice.

(2) Lapse or termination for nonpayment of premium:

(a) An individual short-term nursing home policy or certificate shall not lapse or be terminated for nonpayment of premium unless the insurer, at least thirty (30) days before the effective date of the lapse or termination, has given notice to the insured and to those persons designated pursuant to subsection (1)(a) of this section, at the address provided by the insured for purposes of receiving notice of lapse or termination; and

(b) Notice shall:

Be given by first class United States mail, postage prepaid;
Not be given until thirty (30) days after a premium is due and unpaid; and
Be found to have been given as of five (5) days after the date of mailing.

(3) Reinstatement. A short-term nursing home policy shall contain a reinstatement provision as required in KRS 304.17-080.

Section 5. Required Information and Disclosure Provisions.

(1) Renewability.

(a) Individual short-term nursing home insurance policies shall contain a renewability provision.

(b) The provision shall:

Be appropriately captioned;
Appear on the first page of the policy; and
State clearly that:

a. The coverage is guaranteed renewable and that premium rates are subject to change; or

b. the coverage is noncancellable.

(c) All short-term nursing home policies or certificates issued in the commonwealth of Kentucky shall state in (16) sixteen point bold type print on the front page of the policy the following statement: This is a short-term nursing home product that offers benefits for less than twelve (12) months. This is not a long-term care policy.

(2) Riders and endorsements.

(a) Except for riders or endorsements by which the insurer effectuates a request made in writing by the insured under an individual short-term nursing home insurance policy, riders or endorsements added to an individual short-term nursing home insurance policy after date of issue, reinstatement or renewal which reduce or eliminate benefits or coverage in the policy shall require signed acceptance by the individual insured.

(b) After the date of policy issue, a rider or endorsement which increases benefits or coverage with a concomitant increase in premium during the policy term shall be agreed to in writing signed by the insured, except if the increased benefits or coverage are required by law.

(c) If a separate additional premium is charged for benefits provided in connection with riders or endorsements, the premium charge shall be set forth in the policy, rider, or endorsement.

(3) Payment of benefits. A short-term nursing home insurance policy or certificate shall clearly define how benefits will be paid.

(4) Limitations. If a short-term nursing home insurance policy or certificate contains any limitations with respect to preexisting conditions, the limitations shall appear as a separate paragraph of the policy or certificate and shall be labeled as "Preexisting Condition Limitations".

(5) Other limitations or conditions on eligibility for benefits. A short-term nursing home insurance policy or certificate containing any limitations or conditions for eligibility including any elimination period shall be clearly defined in the policy or certificate and the paragraph shall be labeled "Limitations or Conditions on Eligibility for Benefits".

(6) Benefit triggers.

(a) Activities of daily living and cognitive impairment shall be:

Used to measure an insured's need for short-term nursing home care;
Described in the policy or certificate in a separate paragraph; and
Labeled "Eligibility for the payment of benefits."

(b) Any additional benefit triggers shall also be explained in this section.

(c) If these triggers differ for different benefits, explanation of the trigger shall accompany each benefit description.

(d) If an attending physician or other specified person shall certify a certain level of functional dependency in order to be eligible for benefits, this shall be specified.

(7) A provider of service shall be defined in relation to the services and facilities required to be available and the licensure or degree status of those providing or supervising the services. The definition may require that the provider be appropriately licensed or certified.

(8) Short-term nursing home policies or certificates shall not use a definition of preexisting condition that is more restrictive than the following: "Preexisting condition means a condition for which medical services or treatment is recommended by, or received from, a provider of health care services within six (6) months preceding the effective date of coverage of an insured person."

(9) A short-term nursing home policy or certificate shall not exclude coverage for a loss or confinement which is the result of a preexisting condition unless that loss or confinement begins within six (6) months following the effective date of coverage of the insured person.

(10) A short term nursing home policy or certificate shall not exclude or use waivers or riders of any kind to exclude, limit, or reduce coverage or benefits for specifically named or described preexisting conditions or physical conditions beyond the preexisting condition periods described in subsections (8) and (9) of this section.

(11) Insurers shall offer an option to purchase inflation protection at a minimum of three (3) percent compounded annually with any short-term nursing home policy or certificate.

(12) Short-term nursing home policies shall contain on the front page of the policy or certificate the following statement: "Notice to buyer: This policy may not cover all of the costs associated with nursing home care incurred by the buyer during the period of coverage. The buyer is advised to review carefully all policy limitations".

(13) An elimination period shall be calculated based upon consecutive calendar days, beginning the first day eligible services are received by the individual, and ending the first day benefits are payable.

Section 6. Prohibition Against Post-claims Underwriting.

(1)

(a) If an application for short-term nursing home insurance contains a question that asks if the applicant has had medication prescribed by a physician, it shall also ask the applicant to list all medication that has been prescribed.

(b) If the medications listed in the application are known by the insurer, or should have been known at the time of application, to be directly related to a medical condition that coverage would otherwise be denied, then the policy or certificate shall not be rescinded for that condition.

(2) The following language, or language substantially similar to the following, shall be set out conspicuously on the short-term nursing home insurance policy or certificate no later than when it is delivered: "Caution: The issuance of this short-term nursing home insurance (policy or certificate) is based upon your responses to the questions on your application. A copy of your (application or enrollment form) is enclosed or was retained by you when you applied. If your answers, to the best of your knowledge and belief, are incorrect or untrue, the insurer may have the right to deny benefits or rescind your policy. The best time to clear up any questions is now, before a claim arises! If, for any reason, any of your answers are incorrect, contact the insurer at this address: (insert address)."

(3) A copy of the completed application or enrollment form, whichever is applicable, shall be delivered to the insured no later than when the policy or certificate is delivered unless it was retained by the applicant at the time of application.

Section 7. Reserve Standards.

(1)

(a) If short-term nursing home insurance benefits are provided through the acceleration of benefits under group or individual life policies or riders to these policies, policy reserves for these benefits shall be determined in accordance with KRS 304.6-130 to 304.6-180.

(b) Claim reserves shall also be established if the policy or rider is in claim status.

(c) In the development and calculation of reserves for policies and riders subject to the requirements of this subsection, due regard shall be given to the applicable policy provisions, marketing methods, administrative procedures, and all other considerations that may have an impact on projected claim costs.

(d) Any applicable valuation morbidity table shall be certified as appropriate as a statutory valuation table by a member of the American Academy of Actuaries.

(2) If short-term nursing home benefits are provided other than as described in subsection (1) of this section, reserves shall be determined in accordance with KRS 304.6-070.

Section 8. Loss Ratio.

(1) Rate filings shall follow the filing procedures contained in 806 KAR 14:007 and 806 KAR 17:070.

(2) Initial premium rate schedules shall be calculated so that the present value of future projected incurred claims, without the inclusion of active life reserves, shall not be less than the present value of future projected earned premiums times sixty (60) percent.

(3) Premium rate schedule increases shall be calculated so that the sum of the accumulated value of incurred claims, without the inclusion of active life reserves, and the present value of future projected incurred claims, excluding active life reserves, shall not be less than the sum of the following:

(a) The accumulated value of the initial earned premiums times sixty (60) percent;

(b) Eighty-five (85) percent of the accumulated value of prior premium rate schedule increases on an earned basis;

(d) Eighty-five (85) percent of the present value of future projected premiums not described in paragraph (c) of this subsection on an earned basis.

(4) All present and accumulated values used to determine rates shall use the maximum valuation interest rate for contract reserves as specified in 806 KAR 6:080. The actuary shall disclose as part of the actuarial memorandum required by 806 KAR 17:070, Section 3, the use of any appropriate averages.

Section 9. Minimum Standards for Home Health and Community Care Benefits in Short-term nursing Insurance Policies.

(1) A short-term nursing home insurance policy or certificate that provides benefits for home health care or community care services shall not limit or exclude benefits by:

(a) Requiring that the insured or claimant would need care in a skilled nursing facility if home health care services are not provided;

(d) Requiring that a nurse or therapist provide services covered by the policy that may be provided by a:

Home health aide; or
Other licensed or certified home care worker acting within the worker's scope of licensure or certification;

(e) Excluding coverage for personal care services provided by a home health aide;

(f) Requiring that the provision of home health care services be at a level of certification or licensure greater than that required by the eligible service;

(g) Requiring that the insured or claimant have an acute condition before home health care services are covered;

(h) Limiting benefits to services provided by Medicare-certified agencies or providers; or

(i) Excluding coverage for adult day care services.

(2)

(a) A short term nursing insurance policy or certificate that includes home health or community care services shall provide the total home health or community care coverage that is a dollar amount equivalent to at least one-half (1/2) of one (1) year of coverage available for nursing home benefits under the policy or certificate, when covered home health or community care services are received.

(b) The requirement identified in paragraph (a) of this subsection shall not apply to a policy or certificate issued to a resident of a continuing care retirement community.

(3) In determining maximum coverage under the terms of a policy or certificate, home health care coverage may be applied to the non-home health care benefits provided in the policy or certificate.

Section 10. Prohibition Against Preexisting Conditions and Probationary Periods in Replacement Policies or Certificates. If a short-term nursing home insurance policy or certificate replaces another short-term nursing home or long-term care policy or certificate, the replacing insurer shall waive any time periods applicable to preexisting conditions and probationary periods in the new short-term nursing home insurance policy for similar benefits to the extent that similar exclusions have been satisfied under the original policy.

Section 11. Filing Requirements for Advertising.

(1) An insurer providing short term nursing home care insurance or benefits in Kentucky shall provide a copy of any advertisement intended for use in Kentucky whether through written, radio, or television medium to the commissioner for review in accordance with this administrative regulation and KRS 304.12-020, 304.14-120, and 806 KAR 12:010, 806 KAR 14:005, 806 KAR 14:007, Section 5(2);

(2) An advertisement shall be retained by the insurer for at least five (5) years from the date the advertisement was first used.

(3) The commissioner may exempt advertising from the requirements of this section pursuant to KRS 304.14-120(4).

Section 12. Standards for Marketing.

(1) An insurer marketing short term nursing home insurance coverage in Kentucky, directly or through its agents, shall:

(a) Establish marketing procedures and agent training requirements to assure that:

Marketing activities, including policy comparison, by its agent, shall be fair and accurate; and
Excessive insurance shall not be sold or issued.

(b) Display prominently by type, stamp, or other appropriate means, on the first page of the outline of coverage and policy, the notice as established in HIPMC-STN-1.

(2) An insurer shall:

(a) Comply with the requirements of KRS Chapter 304.12; and

(b) Not perform the following acts and practices:

Twisting;
High pressure tactics;
Cold lead advertising; and
Misrepresentation.

(3)

(a) To comply with the requirements of this subsection, an association may have the primary responsibility of educating members concerning short-term nursing home issues in general:

If endorsing or selling short-term nursing home insurance; and
To ensure that its members make informed decisions.

(b) An association shall provide objective information regarding short-term nursing home insurance policies or certificates endorsed or sold by the association to ensure that members receive a balanced and complete explanation of the features of the policy or certificate that is endorsed or sold.

Insurance policies and, if applicable, certificates;
Outlines of coverage, which corresponds to the filed policy or certificate; and
Advertisements as requested by the department pursuant to Section 11(1) of this administrative regulation.

(d) An association shall disclose in a short-term nursing home insurance solicitation:

The specific nature and amount of the compensation arrangements, including fees, commissions, administrative fees, and other forms of financial support, which the association receives from endorsement or sale of the policy or certificate to its members; and
A brief description of the process used to select the policy and the insurer, which issued the policy.

(e) If an association and insurer have interlocking directorates or trustee arrangements, the association shall disclose that fact to the association members.

(f) The board of directors of an association selling or endorsing a short-term nursing home insurance policy or certificate shall review and approve the:

Insurance policy; and
Compensation arrangements made with the insurer.

(g) Except for a qualified short-term nursing home insurance contract, an association shall:

Upon a decision to endorse a short-term nursing home insurance contract, engage the services of a person with expertise in short-term nursing home insurance not affiliated with the insurer to:

a. Conduct an examination of the policy, including its benefits, features, and rates; and

b. Update the examination, if a material change is made to the contract;

Actively monitor the marketing efforts of the insurer and agents; and
Review and approve:

a. Marketing materials; or

b. Insurance communications other than marketing materials, including communications:

(i) Used to promote sales; or

(ii) Sent to members regarding the policy or certificate.

(h) A group short-term nursing home insurance policy or certificate shall not be issued to an association unless the insurer files with the commissioner the information required in this subsection.

(i) Unless an insurer certifies annually that an association has complied with the requirements established in this subsection, an insurer shall not:

Issue a short-term nursing home policy or certificate to the association; or
Continue to market the policy or certificate.

(j) Failure to comply with the filing and certification requirements of this section shall constitute an unfair trade practice in violation of KRS 304.12-010.

Section 13. Standard Format and Content of an Outline of Coverage.

(1) An outline of coverage shall:

(a) Be a freestanding document, that shall be printed in no less than ten (10) point type; and

(b) Not contain material of an advertising nature.

(2) Text, shall be emphasized by using a method, that provides prominence equivalent to the:

(a) Capitalization; or

(b) Underscoring.

(3) Except as indicated, use of the text and sequence of text shall be:

(a) Mandatory; and

(b) Consistent with the Outline of Coverage, HIPMC-STN-1.

(4) The format to be used for the outline of coverage shall be consistent with the Outline of Coverage, HIPMC-STN-1.

Section 14. Standards for Benefit Triggers.

(1) A short term nursing home insurance policy shall condition the payment of benefits based upon a determination of the insured's:

(a) Ability to perform activities of daily living; and

(b) Cognitive impairment.

(2) Eligibility for the payment of benefits shall not be more restrictive than requiring:

(a) A deficiency in the ability to perform no more than three (3) activities of daily living; or

(b) The presence of cognitive impairment.

(3)

(a) Activities of daily living shall include no less than the activities defined in Section 2(1) of this administrative regulation and the policy; and

(b) To trigger covered benefits, an insurer may use activities of daily living that are:

Described in paragraph (a) of this subsection; and
In addition to activities identified in paragraph (a) if defined in the policy.

(4)

(a) An insurer may use a provision other than activities of daily living as identified in subsection (3) of this section to determine the date benefits are payable under a policy or certificate; and

(b) If a provision, as established in paragraph (a) of this subsection is used by the insurer, the provision shall not:

Restrict the requirements identified in subsections (1), (2), and (3) of this section; and
Be used in lieu of the requirements of subsections (1), (2), and (3) of this section.

(5) A determination of a deficiency, as identified in this section, shall not be more restrictive than:

(a) Requiring the hands on assistance of another person to perform the prescribed activities of daily living as identified in subsection (3) of this section; or

(b) If the deficiency is due to the presence of a cognitive impairment, supervision, or verbal cueing by another person shall be needed in order to protect the insured or others.

(6) An assessment of the insured's activities of daily living and cognitive impairment shall be performed by a licensed or certified professional, including a:

(a) Physician;

(b) Nurse; or

(7) A short-term nursing home insurance policy shall include a clear description of the process for an appeal and resolution of a benefit determination.

Section 15. Incorporation by Reference.

(1) "Outline of Coverage", HIPMC-STN-1, 03/2021 is incorporated by reference.

(2) This material may be inspected, copied, or obtained, subject to applicable copyright law, at The Kentucky Department of Insurance, The Mayo-Underwood Building, 500 Mero Street, Frankfort, Kentucky 40601, Monday through Friday, 8 a.m. to 4:30 p.m. This material is also available on the Department of Insurance Internet Web site at https://insurance.ky.gov/ppc/CHAPTER.aspx.

History

RELATES TO: KRS 304.6-070, 304.6-130, 304.6-180, 304.12-010, 304.12-020, 304.14-650-304.14-675, 304.17-080
STATUTORY AUTHORITY: KRS 304.2-110(1), 304.14-660
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.2-110(1) authorizes the Commissioner of Insurance to promulgate administrative regulations necessary for or as an aid to the effectuation of any provision of the Kentucky Insurance Code as defined in KRS 304.1-010 . KRS 304.14-660 requires the Commissioner of Insurance to promulgate administrative regulations to establish the requirements for short-term nursing home insurance policies. This administrative regulation establishes the minimum standards for short-term nursing home insurance policies.
History: 806 KAR 017:085. 29 Ky.R. 1441, 1797; eff. 1-16-2003; TAm eff. 8-9-2007; 47 Ky.R. 2729, 48 Ky.R. 1153; eff. 1-4-2022.

806 KAR 17:100 Certificate of filing for provider-sponsored networks {#sec-806-kar-17-100 omnilex-key=us-ky-regs-official--title-806--806 KAR 17:100}

Section 1. Definitions. A provider-sponsored network is a provider sponsored integrated health delivery network as defined in 304.17A-005(39).

Section 2. A provider-sponsored network shall apply for and obtain a certificate of filing from the commissioner in order to provide, directly or through arrangements with others, a health benefit plan to consumers voluntarily enrolled with the organization on a per capita or a predetermined, fixed prepayment basis.

Section 3.

(1) Each application for a certificate of filing for a provider-sponsored network shall be filed on a Form 996 and verified by an officer or authorized representative of the applicant.

(2) Each application shall set forth or be accompanied by the following:

(a) Name, address, principal place of business, owners, officers, managers, and sponsors of the provider-sponsored network.

(b) Address where books and records of the provider-sponsored network shall be maintained at all times.

(c) The providers who sponsor, own, govern, or manage the provider-sponsored network shall provide a copy of their licenses and affidavit confirming good standing with their licensure board.

(d) A copy of the organizational documents of the applicant including:

Articles of incorporation;
Articles of association;
Partnership agreement;
Trust agreement;
Bylaws;
Organizational chart; and
Other applicable documents and amendments.

(e) A copy of the policies, procedures, and other documents explaining how the provider sponsored network shall:

Administer health plans;
Have ability, experience, and structure to arrange for appropriate level and type of health care services;
Conduct utilization management activities;
Achieve, monitor, and evaluate the quality and cost effectiveness of care provided;
Monitor access to its provider network; and
Use standardized electronic claims, billing processes, and formats.

(f) Names, addresses, and biographical information of the following:

Board of directors;
Board of trustees;
Executive committee or other governing body;
Each owner of five (5) percent or more of the provider-sponsored network;
Principal officers;
Partners; and
Persons responsible for the conduct of the applicants affairs and day to day operations.

(g) Financial statements audited by an independent certified public accountant in conformity with statutory accounting practices that reflect the following:

Financial position of the applicant;
Results of its operation;
Cash flows; and
Changes in capital and surplus.

(h) If the "as of" date of the financial statements filed pursuant to paragraph (f) of this subsection is more than ninety (90) days from the date of the application, interim financial statements compiled by an independent certified public accountant as of a date less than ninety (90) days from the application containing the same information as the audited financial statements.

(i) List of providers including name, address, license number, and health services provided.

(j) A statement or map reasonably describing the counties to be served and written assurance that health services shall be provided to enrollees within fifty (50) miles of their residences.

(k) Proposed contracts and agreements including the following:

Applications or individual enrollment forms;
Master contract forms for group enrollment;
Evidence of coverage or handbook;
Riders or endorsements; and
Rates with actuarial justifications.

(l) A copy of the following professional agreements:

Provider agreements;
Third party administrators agreements;
Service agreements;
Administrative agreements; and
Reinsurance agreements.

(m) A copy of grievance procedures to be utilized for the investigation and resolution of enrollee and provider complaints and grievances.

(n) A copy of the applicant's plan for handling insolvency as required by KRS 304.17A-310(6).

(o) Financial program setting forth a three (3) year projection of operations on a quarterly basis which shall include the following:

Detailed enrollment projections;
Projection of balance sheets;
Projection of cash flow statements showing any capital expenditures;
Projection of purchase and sale of investments and deposits;
Projection of income and expense statements anticipated from the start of operation until the organization has had net income for one (1) year; and
Statement of the sources of working capital as well as other sources of funding.

Section 4. If any of the information filed with the department pursuant to Section 3 of this administrative regulation changes or becomes incorrect, then the provider-sponsored network shall immediately notify the office in writing of the change and immediately give the department the correction.

Section 5. Incorporated by Reference.

(1) Form 996, "Application for Certificate of Filing as a Provider-Sponsored Integrated Health Delivery Network", 08/2021, is incorporated by reference.

(2) This material may be inspected, copied, or obtained, subject to applicable copyright law, at the Kentucky Department of Insurance, The Mayo-Underwood Building, 500 Mero St., Frankfort, Kentucky 40601, Monday through Friday, 8 a.m. to 4:30 p.m. Forms may also be obtained on the department Web site at https://insurance.ky.gov/ppc/CHAPTER.aspx.

History

RELATES TO: KRS 304.17A-005(39), 304.17A-300, 304.17A-310
STATUTORY AUTHORITY: KRS 304.2-110(1), 304.17A-300, 304.17A-310
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.2-110(1) authorizes the commissioner to promulgate reasonable administrative regulations necessary for or as an aid to the effectuation of any provision of the Kentucky Insurance Code, established in KRS 304.1-010. KRS 304.17A-300 requires provider sponsored networks to obtain a certificate of filing before doing business in Kentucky. This administrative regulation establishes the requirements for a provider sponsored network applying for a certificate of filing.
History: 806 KAR 017:100. 23 Ky.R. 1822, eff. 12-11-1996; TAm eff. 8-9-2007; 47 Ky.R. 2734, 48 Ky.R. 1158; eff. 1-4-2022.

806 KAR 17:150 Health benefit plan rate filing requirements {#sec-806-kar-17-150 omnilex-key=us-ky-regs-official--title-806--806 KAR 17:150}

Section 1. Definitions.

(1) "Base premium rate" is defined by KRS 304.17A-005(3).

(2) "Class of business" means all or a distinct grouping of small employers or individuals as shown on the records of the small employer or individual insurance carrier.

(3) "Commissioner" is defined by KRS 304.1-050(1).

(4) "Date of filing" means the date the department confirms that the appropriate filing fee and all information required by this administrative regulation have been received by the department .

(5) "Department" is defined by KRS 304.1-050(2).

(6) "Duration" means a policy year of twelve (12) months, measured from the date of issuance of a policy, with each succeeding twelve (12) month period being a new duration.

(7) "Employer-organized association" is defined by 304.17A-005(12).

(8) "FFS" means a fee for service product type.

(9) "Health benefit plan" is defined by KRS 304.17A-005(22).

(10) "Health benefit plan region" or "geographic region" means each one (1) of the eight (8) allowable rating regions for health benefit plans identified in HIPMC-R33, Health Benefit Plan Regions.

(11) "HMO" means a health maintenance organization product type.

(12) "Index rate" is defined by KRS 304.17A-005(27) .

(13) "Large group" is defined by KRS 304.17A-005(32) .

(14) "Material change" means any change to a rate filing, except that a change in value of an existing rate factor other than trend is not be considered a material change.

(15) "POS" means a point of service product type.

(16) "PPO" means a preferred provider organization product type.

(17) "Small group" is defined by KRS 304.17A-005(45) .

(18) "Target loss ratio" means a loss ratio that an insurer files, that projects and guarantees a loss ratio on an annual basis.

Section 2. Scope.

(1) A health benefit plan rate filing to which the standards of KRS 304.17A-095 apply, shall include the information required by Sections 3 through 10 of this administrative regulation.

(2) The period of time that the commissioner shall have to approve or disapprove a filing shall not begin until the date of filing.

(3) An insurer shall not market or use the proposed rates until the date of filing.

(4) A filing and fee shall not be found as received until the department confirms that:

(a) Information required by Sections 3 through 10 of this administrative regulation has been received; and

(b) The appropriate fee, as established in Section 3(2)(b) of this administrative regulation, has been paid.

Section 3. Health Benefit Plan Rate Filing Procedures.

(1) A health benefit plan rate filing shall be submitted electronically through the System For Electronic Rate and Form Filing (SERFF) for a:

(a) New rate filing; or

(b) Material change to a previously approved rate filing.

(2) The following shall be included and properly completed in a health benefit plan rate filing submission:

(a) Form HIPMC-R32, the Health Benefit Rate Filing Information Form;

(b) The following filing fee or the domiciliary state fee, whichever is greater:

$100 for an original or new filing; or
Fifty (50) dollars for an amendment to a filing;

(d) Signed actuarial memorandum prepared in accordance with Sections 6 and 7 of this administrative regulation; and

(e) Except for large groups, Certification Form HIPMC-R34.

(3) A copy of all material shall be submitted electronically to the Kentucky Attorney General's Office by the insurer at the same time as the submission to the department and shall include:

(a) An amendment;

(b) An update; or

(4) An electronic copy of all correspondence with the department or other state agency concerning a filing shall be submitted to the department ..

Section 4. Filing Format.

(1) A separate health benefit plan rate filing shall be submitted for each market segment as follows:

(a) Individual;

(b) Small group;

(d) Large group;

(e) Except as otherwise authorized pursuant to KRS 304.17A-0954(1), each employer-organized association; and

(f) Self-insured employer organized association.

(2) A large group rate filing may include each product type offered as follows:

(a) FFS;

(b) PPO;

(d) HMO.

Section 5. Employer-organized Association Rate Filings for Fully Insured and Self Insured.

(1)

(a) An employer-organized association rate filing shall include the name of each employer-organized association that generated the rating experience contained in the filing; and

(b) If more than one (1) employer-organized association is named in the filing as identified in paragraph (a) of this subsection and each employer-organized association provides the insurer with written permission to have rates based on experience other than its own, the insurer:

May have the experience of all employer-organized associations named in the filing combined for rate determination; and
Shall include proposed rates for the combination of associations in one (1) filing.

(2) Each employer-organized association rate filing shall contain documentation demonstrating that the entity is an employer-organized association pursuant to KRS 304.17A-005(12).

(3) An insurer proposing to begin marketing a health benefit plan to an employer-organized association, shall file a rate filing, including appropriate formulas and rate factors within the limitations outlined in KRS 304.17A-0954. The filing shall include:

(a) Factors for all plans to be offered; and

(b) A detailed description of the methodology for incorporating the actual experience of an employer-organized association in determining rates for that association.

(4) If the insurer receives written permission from an employer-organized association regarding combining experience with other employer-organized associations, the insurer shall submit a copy of the permission to the commissioner with the rate filing. The permission shall include the following:

(a) A statement giving the insurer permission to rate the employer-organized association on experience other than the experience of the employer-organized association ;

(b) Name, address, and telephone number of the employer-organized association giving permission to the insurer;

(d) Month, day, and year that permission is given to the insurer; and

(e) Number of eligible association members.

Section 6. Actuarial Memorandum.

(1) The actuarial memorandum for each rate filing shall be prepared in accordance with the most recent edition of the following located at http://www.actuarialstandardsboard.org/standards-of-practice/:

(a) Actuarial Standard of Practice No. 8, Regulatory Filings for Health Benefits, Accident and Health Insurance, and Entities Providing Health Benefits , Actuarial Standards Board;

(b) Actuarial Standard of Practice No. 26, Compliance with Statutory and Regulatory Requirements for the Actuarial Certification of Small Employer Health Benefit Plans, Actuarial Standards Board; and

(2) The actuarial memorandum for a rate filing, other than a large group rate filing, shall include the following:

(a) Qualifications of the signing actuary;

(b) A statement identifying the date that the proposed rates shall be used;

The claim cost development, that shall include an explanation of the following:

a. Methodology;

b. Assumptions including the following:

(i) Trend, including supporting analysis, that supports the trend level selected;

(ii) Benefit change;

(iii) Utilization or cost-per-service change;

(iv) Demographic change;

(v) Change in medical management;

(vi) Change in provider contracts; and

(vii) Any other assumption used by the actuary in the claim cost development; and

c. Experience by month, including exposures or members, earned premium, paid claims, incurred claims, and incurred loss ratio, for the past three (3) years for this product, or for a similar product if the filing is for a new product;

a. Development and printout of the following shall be shown by age, gender, and tier combination using the lowest industry factor and the lowest area factor, and separately using the highest industry factor and highest area factor:

(i) Base premium rates;

(ii) Index rates; and

(iii) Corresponding highest premium rates;

b. If the filing contains more than one (1) product type, a development and printout as identified and described in clause a of this subparagraph for each product type separately.

c. If the filing contains proposed rates for more than one (1) class of business, a development and printout as identified and described in clauses a. and b. of this subparagraph for each class of business separately;

Factors used for each case characteristic, including age, gender, industry or occupation, and geographic region, with a separate summary of the maximum factor and the minimum factor for each case characteristic.

a. A health benefit plan region other than the eight (8) identified in HIPMC-R33, Health Benefit Plan Regions, shall not be used for a geographic region factor adjustment; and

b. Any healthy lifestyle discount factor, if applicable, shall be included and an explanation of the determination of that factor, and the condition for when that factor is applicable;

The anticipated pricing loss ratio, including a detailed justification of load factors, including percentages allocated for the:

a. Administrative expense assumption, including an explanation of:

(i) Any change from the factor used for an existing rate ; and

(ii) How these costs are allocated among each benefit plan design, including demonstrative documentation as an exhibit;

b. Commission assumption, including an explanation for any change from the factor used for an existing rate ;

c. Federal, state, and local government tax assumptions, including an explanation for a change from the factor used for an existing rate ;

d. Investment income assumption, including an explanation for any change from the factor used for an existing rate ;

e. Profit and contingency assumption, including an explanation for a change from the factor used for an existing rate ;

f. Assessments pursuant to KRS 304.17B-021; and

g. Other identified load factors;

(d) A detailed explanation, including an example of the following:

The method for determining a small group composite rate;
The conditions under which a small group composite rate is recalculated; and
The group size that is eligible for a composite rate calculation;

(e) Each health benefit plan description and the applicable benefit factor adjustment, or other methods of calculating rates for a different benefit plan if the method is not multiplicative, for each benefit plan applicable to the filing;

(f) Detailed discussion of the manner in which the projected amount of net assessments and payments under KRS 304.17B-021 and 304.17B-023(3) are to be used in establishing the proposed rates in the filing as required by KRS 304.17A-095;

(g) Information regarding how fees are paid to providers as follows:

Justification of fees paid to providers in relation to the rate requested, including any assumption used regarding provider discounts in the rate filing; and
Average discount to providers during experience period and average discount for physician payments, hospital payments, laboratory payments, pharmacy payments, mental health payments, and other payments for the rate filing period;

(h) If a trend rate is used, include the time period to which the trend applies, not to exceed twelve (12) months, and the applicable annual trend rate and the periodicity of the factor;

(i) Explanation of the anticipated effect of the requested rates on the current policyholders, subscribers, or enrollees;

(j) Information regarding each class of business, which shall include:

Identification of each class of business;
Justification of each separate class of business; and
A demonstration that each index rate for the class of business with the highest index rates is within ten (10) percent of the corresponding index rate from the class of business with the lowest index rates; and

(k) Prospective certification of the following, which shall be filed as an attachment to the actuarial memorandum for a rate filing other than a large group filing, and signed by the qualified actuary who prepared and signed the actuarial memorandum:

That the information is prepared in accordance with American Academy of Actuaries Actuarial Standard of Practice No. 26, Compliance with Statutory and Regulatory Requirements for the Actuarial Certification of Small Employer Health Benefit Plans, applicable to the following markets:

a. Individual;

b. Association; and

c. Small group; and

That the proposed rates meet the requirements of KRS 304.17A-0952 or 304.17A-0954, as applicable.

Section 7. Large Group Rate Filings. The actuarial memorandum for a large group rate filing shall include the following information:

(1) The information identified in Section 6(2)(a), (b), (c)1, 4, (f), (g), (h), (i) and (j) of this administrative regulation;

(2) Development of rating basis, including each adjustment for the following:

(a) Age;

(b) Gender;

(d) Benefit plan;

(e) Industry;

(f) Healthy lifestyle; and

(g) Any other adjustment included in the development;

(3) A formula for new and renewal business, including a definition of each term used in the formula;

(4) Credibility criteria used in conjunction with experience rating;

(5) Detailed explanation of a change in the manual rating formula or experience rating formula;

(6) Detailed explanation of a change in factors that would be used in a formula;

(7) Any periodic trend rate applied in the formula;

(8) The composite effect of a change in formula and formula factors; and

(9) Detailed explanation of any trend assumption used in experience rating.

Section 8. Guaranteed Loss Ratio Filing for New Products or Products without Credible Experience.

(1) A filing accompanied by a guaranteed loss ratio statement shall meet all requirements of KRS 304.17A-095(6).

(2) Individual, small group, and employer-organized association market filings shall meet the following requirements regarding guaranteed loss ratios by duration:

(a) The guaranteed loss ratio for the first duration shall not be less than sixty (60) percent of the guaranteed lifetime loss ratio specified in the policy.

Expected loss ratios may vary by month within the first duration; and
The average of the loss ratios for all months shall be equal to the guaranteed loss ratio for the first duration;

(b) The guaranteed loss ratio for a specific duration shall not be less than the guaranteed loss ratio for the previous duration;

(c) The guaranteed loss ratio for the third duration shall not be less than the guaranteed lifetime loss ratio identified in the policy;

(d) The average of the first six (6) guaranteed loss ratios by duration shall not be less than the guaranteed lifetime loss ratio identified in the policy;

(e) The guaranteed lifetime loss ratio shall not be less than that identified in KRS 304.17A-095(6)(a)5; and

(f) The guaranteed loss ratios by duration shall be guaranteed for any policy issued under the policy form and shall be identified in the policy.

(3) A refund shall be calculated pursuant to the following formula:

(a) Refundable premium for any year shall be the sum of the current year's refundable premium for each duration. Each duration's refundable premium shall be calculated by subtracting the three (3) items in subparagraphs 1, 2, and 3 of this paragraph from the current year's earned premium by duration and multiplying the result by the ratio of earned premium by duration and earned premium by duration minus the items identified in subparagraphs 1 and 2 of this paragraph and minus any premium related expenses identified in subparagraph 3 of this paragraph:

State and local premium taxes allocated to that duration;
Assessments pursuant to KRS 304.17B-021 allocated to that duration; and
The sum of incurred claims, preferred provider organization expenses, case management and utilization review expenses, and reinsurance premiums, minus reinsurance recoveries, allocated to that duration, divided by the guaranteed loss ratio in the policy, for that duration;

(b) If the annual earned premium is less than $2,500,000, the minimum refund shall be calculated by refundable premium multiplied by the annual earned premium, divided by $2,500,000;

(c) If the annual earned premium is equal to or greater than $2,500,000, the minimum refund shall be the refundable premium;

(d) The refund to be paid to a policyholder pursuant to KRS 304.17A-095(6)(d) shall be calculated by dividing the earned premium for that policyholder by the total earned premium for the year, and multiplying that percentage of the aggregate refund of the policy form by the aggregate refund; and

(e) The amount of the refund shall include the computation of interest in accordance with KRS 304.17A-095(6)(d) in determining whether payment shall be made to the policyholder or to the Kentucky State Treasurer.

(4) An audit shall be conducted in accordance with KRS 304.17A-095(6)(b), which shall include the following:

(a) Guaranteed lifetime loss ratio;

(b) Guaranteed loss ratios by duration;

(c) Analysis of prior year estimated items, including uncollected premiums and unpaid claim liabilities, and description of method of allocation by duration;

(d) Earned premium by duration and description of method of allocation by duration;

(e) State premium tax by duration and description of method of allocation by duration;

(f) Local premium tax by duration and description of method of allocation by duration;

(g) Assessments by duration and description of the method of allocation by duration;

(h) Incurred claims by duration and description of method of allocation by duration;

(i) Preferred provider organization expenses and description of method of allocation by duration;

(j) Case management and utilization review expenses and description of method of allocation by duration;

(k) Reinsurance premiums less reinsurance recoveries and description of method of allocation by duration;

(l) A description of reinsurance and identity of reinsurer;

(m) A statement that incurred claims do not include administrative expenses, late payment charges, punitive damages, legal fees, or any other related administration expenses;

(n) A statement that incurred claims have been reduced for the full amount of all provider discounts, rebates, coordination of benefits savings, subrogation savings, and any other savings;

(o) A statement of refund checks not being issued before approval of the audit;

(p) Calculation of minimum refundable premium, actual refunded premium, and refund carryover;

(q) Calculation of percent of earned premium that shall be refunded;

(r) Method used to calculate a policyholder's actual refund;

(s) Historical experience for the policy form since inception;

(t) Auditor's certification; and

(u) Actuarial certification.

(5) An initial rate filing shall be a formal filing, and a subsequent rate filing may be submitted by actuarial certification.

Section 9. Minimum Guaranteed Loss Ratio Requirements for an Amended Policy Form or a Previously Filed Minimum Guaranteed Loss Ratio.

(1) If amending a policy form or a previously filed minimum guaranteed loss ratio, a filing accompanied by a guaranteed loss ratio statement shall meet the requirements of KRS 304.17A-095(6).

(2) An insurer shall provide a minimum guaranteed loss ratio statement each time rates are amended for a policy form or if amending a previously filed minimum guaranteed loss ratio. The statement shall identify amounts by which rates are amended and include an actuarial certification verifying that rates continue to meet the requirements of the minimum guaranteed loss ratio most recently filed with the department.

(3) The initial rate filing and subsequent statements shall include an actuarial certification, which includes information to demonstrate meeting the requirements of KRS 304.17A-0952 and Section 6 of this administrative regulation.

(4)

(a) The currently approved loss ratio on file with the department under a prior approval process or a minimum guaranteed loss ratio shall be found as a reasonable loss ratio for any amended policy forms or amended minimum guaranteed loss ratios; and

(b) Rate filings requesting a change in the previously approved loss ratio shall require documented evidence to demonstrate increased administrative cost or other evidence that the insurer would not be able to achieve previously approved profitability targets.

(5) If experience is filed by duration pursuant to Section 8(2) of this administrative regulation, a refund shall be calculated in accordance with Section 8(3) of this administrative regulation.

(6) If experience is filed by utilizing a target loss ratio and the actual achieved loss ratio is less than the target loss ratio, a refundable premium shall be determined as follows:

(a) Refundable premium shall be equal to the annual earned premium multiplied by the percentage by which the target loss ratio exceeds the actual achieved loss ratio;

(b)

If the annual earned premium is equal to or greater than $2,500,000, the minimum re-fundable premium shall be equal to the refundable premium as established in paragraph (a) of this subsection; or
If the annual earned premium is less than $2,500,000, the:

a. Minimum refundable premium shall be equal to the refundable premium multiplied by the ratio of the annual earned premium divided by $2,500,000;

b. Refund carryover shall be equal to any amount by which the refundable premium exceeds the minimum refundable premium; and

c. Refundable premium in the subsequent year shall be the sum of the refund carryover plus the calculated refundable premium for the subsequent year;

(c) The refund to be paid to a policyholder pursuant to KRS 304.17A-095(6)(d) shall be calculated by dividing the earned premium for that policyholder by the total earned premium for the year, and multiplying that percentage of the aggregate refund of the policy form by the aggregate refund; and

(d) The amount of the refund shall include the computation of interest in accordance with KRS 304.17A-095(6)(d) in determining whether payment shall be made to the policyholder or to the Kentucky State Treasurer.

(7) If experience is filed by duration, an audit shall be conducted in accordance with Section 8(4) of this administrative regulation.

(8) If experience is filed by target loss ratio, an audit shall be conducted in accordance with KRS 304.17A-095(6)(b), which shall include the following:

(a) Guaranteed lifetime loss ratio;

(b) Actual loss ratio;

(d) Earned premium;

(e) State premium tax;

(f) Local premium tax;

(g) Assessments;

(h) Incurred claims;

(i) Preferred provider organization expenses;

(j) Case management and utilization review expenses;

(k) Reinsurance premiums less reinsurance recoveries;

(l) A description of reinsurance and identity of reinsurer;

(m) A statement that incurred claims do not include administrative expenses, late payment charges, punitive damages, legal fees, or any other related administration expenses;

(n) A statement that incurred claims have been reduced for the full amount of all provider discounts, rebates, coordination of benefits savings, subrogation savings, and any other savings;

(o) A statement of refund checks not being issued before approval of the audit;

(p) Calculation of minimum refundable premium, actual refunded premium, and refund carryover;

(q) Calculation of percent of earned premium that is to be refunded;

(r) Method used to calculate a policyholder's actual refund;

(s) Historical experience for the policy form since inception;

(t) An auditor's certification; and

(u) An actuarial certification.

(9) An initial rate filing shall be a formal filing, and a subsequent rate filing may be by actuarial certification.

(10) An initial rate filing shall be required for insurers electing to file under a minimum guaranteed loss ratio pursuant to KRS 304.17A-095(6).

Section 10. Amendments to Previously Approved Rate Filings.

(1) For any change that is not a material change, an insurer shall submit an amendment to a rate filing previously approved by the department , which shall include the following:

(a) Identification of the rate file number assigned and stated in the Order of Approval received by the insurer from the department for the previously approved rate filing;

(b) Date of approval of the previously approved rate filing;

(d) A fifty (50) dollar filing fee;

(e) A copy of a properly completed HIPMC-F1 form, Face Sheet and Verification Form that is incorporated by reference in 806 KAR 14:007; and

(f) A copy of a properly-completed HIPMC-R32 form, Health Benefit Plan Rate Filing Information Form.

(2) Each amendment filing shall contain documentation to demonstrate the necessity of the amendment, which shall include the following:

(a) An itemized list of the information to be amended and the reason for the amendment;

(b) A statement identifying the impact of the amendment in relation to benefits and costs on current and future policyholders; and

(3) One (1) copy of the amendment filing and written material relating to the filing shall be submitted to the Kentucky Attorney General's department by the insurer at the same time as the submission to the department .

(4) The amendment to a previously approved rate filing shall not be found as received until the department confirms that the information and fifty (50) dollar filing fee required under this section have been received.

(5) Within sixty (60) days of date of filing, the department shall notify the insurer in writing of the acceptance or rejection of the amendment.

Section 11. Material Incorporated by Reference:

(1) The following material is incorporated by reference:

(a) Actuarial Standard of Practice No. 8, "Regulatory Filings for Health Benefits, Accident, and Health Insurance, and Entities Providing Health Benefits", 03/2014 , Actuarial Standards Board;

(b) Actuarial Standard of Practice No. 26, "Compliance with Statutory and Regulatory Requirements for the Actuarial Certification of Small Employer Health Benefit Plans", 05/2011 , Actuarial Standards Board;

(d) HIPMC-R32 Form, "Health Benefit Plan Rate Filing Information Form", 04/2021;

(e) HIPMC-R33, "Health Benefit Plan Regions", 04/2021;

(f) HIPMC-R34, "Certification Form", 04/2021.

(2) This material may be inspected, copied, or obtained, subject to applicable copyright law, at the Kentucky Department of Insurance, The Mayo-Underwood Building, 500 Mero Street , Frankfort, Kentucky 40601, Monday through Friday, 8 a.m. to 4:30 p.m. This material is also available on the Department of Insurance internet Web site at https://insurance.ky.gov/ppc/CHAPTER.aspx .

History

RELATES TO: KRS 304.1-050, 304.3-270, 304.4-010, 304.17A-005, 304.17A-095, 304.17A-0952, 304.17A-0954, 304.17A-750, 304.17A-764, 304.17A-834, 304.17B-021, 304.17B-023(3)
STATUTORY AUTHORITY: KRS 304.2-110(1), 304.17A-095(7)
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.2-110(1) authorizes the Commissioner of Insurance to promulgate administrative regulations necessary for or as an aid to the effectuation of any provision of the Kentucky Insurance Code, as defined in KRS 304.1-010 . KRS 304.17A-095(7) authorizes the commissioner to promulgate an administrative regulation to obtain relevant information for health benefit plan rate filings and establish the format of the filing . This administrative regulation establishes the format and procedure for the submission of a health benefit plan rate filing.
History: 806 KAR 017:150. 25 Ky.R. 718, 1049; eff. 11-20-1998; 28 Ky.R. 151; eff. 9-10-2001; 29 Ky.R. 1368, 1799; eff. 1-16-2003; 32 Ky.R. 158, 512; eff. 11-22-2005; 34 Ky.R. 1804, 2095; eff. 4-4-2008; 47 Ky.R. 2736, 48 Ky.R. 1159; eff. 1-4-2022.

806 KAR 17:160 Creditable coverage for health insurance {#sec-806-kar-17-160 omnilex-key=us-ky-regs-official--title-806--806 KAR 17:160}

Section 1. Definitions.

(1) "Creditable coverage" is defined in KRS 304.17A-005(8).

(2) "Health benefit plan" is defined in KRS 304.17A-005(22).

Section 2. Creditable Coverage Certification. The certification for periods of creditable coverage with respect to an individual covered under:

(1) An individual health benefit plan shall be in the form provided in the Form HIPMC-CC1, Certificate of Individual Health Plan Coverage; and

(2) A group health benefit plan shall:

(a) Include the information as identified in 26 C.F.R. 54.9801-5(a)(3)(ii); or

(b) Be in the form, model certificate, as identified in 69 Fed. Reg. 78726, effective December 30, 2004.

Section 3. Incorporation by Reference.

(1) Form HIPMC-CC1, "Certificate of Individual Health Plan Coverage", Kentucky Department of Insurance, January 2006 edition is incorporated by reference.

(2) This material may be inspected, copied, or obtained, subject to applicable copyright law, at the Department of Insurance, 500 Mero Street, Frankfort, Kentucky 40601, Monday through Friday, 8 a.m. to 4:30 p.m. The material is also available on the office's Web site at: http://doi.ppr.ky.gov/kentucky.

History

RELATES TO: KRS 304.17A-005(8), 304.17A-220(4), 26 C.F.R. 54.9801-1, 26 C.F.R. 54.9801-2, 26 C.F.R. 54.9801-5, 45 C.F.R. 146.113, 45 C.F.R. 146.113, 42 U.S.C. 300gg
STATUTORY AUTHORITY: KRS 304.2-110(1), 304.17A-220(7)(b)
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.2-110(1) authorizes the commissioner to promulgate administrative regulations necessary for or as an aid to the effectuation of any provision of the Kentucky Insurance Code as defined in KRS 304.1-010. KRS 304.17A-220(7)(b) authorizes the commissioner to specify how periods of creditable coverage shall be certified. This administrative regulation establishes the form that shall be used by insurers for certification of periods of creditable coverage.
History: 25 Ky.R. 960; 1363; eff. 12-17-98; 32 Ky.R. 1781; eff. 6-2-2006; TAm eff. 4-11-2008; Crt eff. 2-26-2020; TAm eff. 3-10-2020.

806 KAR 17:180 Standard health benefit plan {#sec-806-kar-17-180 omnilex-key=us-ky-regs-official--title-806--806 KAR 17:180}

Section 1. Definitions.

(1) "Department" is defined by KRS 304.1-050(2).

(2) "Health Insurance Advisory Council" means the body established in accordance with KRS 304.17A-080.

(3) "Standard health benefit plan" means the format, cost-sharing levels, definitions, benefits, exclusions, and supplemental benefit riders:

(a) Established by the department in accordance with KRS 304.17A-250 and any other health insurance benefit mandated by the General Assembly; and

(b) Included in the Kentucky Standard Health Benefit Plan, HIPMC-SP1.

Section 2. Modification Process.

(1) The standard health benefit plan shall remain in effect until the plan or any form is modified in accordance with the procedures established by this section.

(2) The standard health benefit plan may be modified each year and each modification shall apply to each policy or certificate issued or renewed on or after July 15.

(3) A person wishing to make a recommendation for modification of the standard health benefit plan shall:

(a) Submit the recommendation, in writing, to the Kentucky Department of Insurance, Health and Life Division, by May 1 of the year preceding the year in which each modification is recommended for implementation;

(b) Explain the need for each recommended modification; and

(4) Prior to July 1 of each year:

(a) The department shall present each recommendation for modification received pursuant to subsection (3) of this section to the Health Insurance Advisory Council for consideration;

(b) The Health Insurance Advisory Council shall review and discuss each recommendation for modification of the standard health benefit plan in accordance with KRS 304.17A-080(3);

(c) The Health Insurance Advisory Council shall make a final recommendation for modification of the standard health benefit plan based on the recommendations presented by the department pursuant to paragraph (a) of this subsection; and

(d) After considering the final recommendation for modification from the Health Insurance Advisory Council, the department shall either accept or decline, in writing, to modify the standard health benefit plan.

(5) Each insurer issuing, delivering, or renewing a standard health benefit plan shall:

(a) Implement each modification to the standard health benefit plan prescribed by the department; and

(b) Amend each policy form and rate filing to include modifications to the standard health benefit plan.

Section 3. Incorporation by Reference.

(1) "The Kentucky Standard Health Benefit Plan, HIPMC-SP1", (5/2011) is incorporated by reference.

History

RELATES TO: KRS 304.17A-080, 304.17A-250
STATUTORY AUTHORITY: KRS 304.2-110(1), 304.17A-250(1)
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.2-110(1) authorizes the Commissioner of Insurance to promulgate administrative regulations necessary for or as an aid to the effectuation of any provisions of the Kentucky Insurance Code as defined in KRS 304.1-010. KRS 304.17A-250(1) requires the Commissioner of Insurance to define by administrative regulation one (1) standard health benefit plan. This administrative regulation establishes one (1) standard health benefit plan that may be offered by an insurer in the individual and small group markets and establishes procedures for modifications to the standard health benefit plan.
History: 25 Ky.R. 961; Am. 1400; eff. 1-19-99; 27 Ky.R. 2235; 2780; eff. 4-9-2001; 28 Ky.R. 1227; 1648; eff. 1-14-2002; 29 Ky.R. 1373; 1803; eff. 1-16-2003; 30 Ky.R. 432; 1580; eff. 1-5-04; 31 Ky.R. 433; 707; eff. 11-5-04; 33 Ky.R. 564; 1325; eff. 12-1-06; 34 Ky.R. 650; 1507; eff. 2-1-2008; 35 Ky.R. 407; eff. 10-31-08; 37 Ky.R. 500; eff. 11-5-2010; 38 Ky.R. 128; eff. 10-7-11; Crt eff. 2-26-2020.

806 KAR 17:190 Guaranteed Acceptance Program requirements {#sec-806-kar-17-190 omnilex-key=us-ky-regs-official--title-806--806 KAR 17:190}

Section 1. Definitions.

(1) "Alternative underwriting mechanism" or "AUM" is defined in KRS 304.17A-430(3).

(2) "Commissioner" is defined by KRS 304.1-050

(3) "GAP health benefit plan" means a health benefit plan issued to an individual with a high-cost condition or to an individual meeting the AUM criteria.

(4) "GAP participant" means a GAP qualified individual defined in KRS 304.17A-005(15) who has been issued a GAP health benefit plan.

(5) "GAP participating insurer" is defined by KRS 304.17A-005(12).

(6) "GAP qualified individual" is defined by KRS 304.17A-005(15).

(7) "Guaranteed Acceptance Program" or "GAP" is defined in KRS 304.17A-005(14).

(8) "High-cost condition" is defined by KRS 304.17A-005(19).

(9) "Mandatory GAP participating insurer" means a health insurer in Kentucky that has twenty-five (25) percent or more of the market share and is required to be a GAP participating insurer.

(10) "New market insurer" means an insurer that enters the individual health market as a voluntary GAP participating insurer in Kentucky on or after July 1, 1998.

(11) "New market period" means a period extending twelve (12) months from the date a new market insurer enters the individual health insurance market in Kentucky, and includes the remainder of the calendar year after the twelve (12) month period expires.

(12) "Voluntary GAP participating insurer" means a health insurer that has less than twenty-five (25) percent of the market share and elects to be a GAP participating insurer.

Section 2. GAP Participating Insurer Requirements. A GAP insurer shall notify the commissioner of the effective date for GAP participation in writing with the following information:

(1) Name of the GAP health benefit plan;

(2) Product type of the health benefit plan;

(3) Geographic service area of the GAP health benefit plan;

(4) Cost containment features required in KRS 304.17A-450; and

(5) Any modification made to an existing health benefit plan to qualify it as a GAP health benefit plan.

Section 3. Enrollment Limits for a GAP Participating Insurer.

(1) For the first three (3) months that a new market insurer enters the individual market, the insurer may not enroll any individuals in GAP.

(2) At the end of the first three (3) months that a new market insurer enters the individual market, the new market insurer shall have a GAP enrollment limit of one-half (1/2) of one (1) percent of its quarterly enrollment of the individual market projected until the end of the new market period.

(3) If, in the second three (3) month period after the new market insurer enters the individual market, the new market insurer meets the enrollment limit required in subsection (2) of this section, the new market insurer shall be deemed to have met its GAP enrollment limit requirement until the end of the new market period.

(4) If the insurer does not meet the GAP enrollment limit required in subsection (2) of this section in the subsequent quarter, the insurer shall use its quarterly enrollment at the time to project a new GAP enrollment limit in accordance with subsection (2) of this section.

(5) When the new market period has elapsed, the insurer shall be subject to the GAP enrollment limit of one-half (1/2) of one (1) percent of its total enrollment in the individual market as of the preceding December 31.

(6) A mandatory GAP participating insurer shall not have a limit on the number of individual GAP health benefit plans.

Section 4. Issuance of a GAP Health Benefit Plan. A GAP participating insurer shall, within two (2) months from the effective date of the insurer's GAP participation implementation date, identify an individual for GAP health benefit plan coverage in accordance with KRS 304.17A-430(1)(b).

Section 5. AUM Criteria.

(1) A GAP participating insurer electing to use AUM shall submit to the commissioner for review and approval written documentation of its underwriting guideline criteria for AUM.

(2) If underwriting documentation does not exist, other documentation which supports underwriting AUM may be submitted to the commissioner for review and approval.

(3) After approval of an insurer's underwriting guideline criteria for AUM, the insurer shall resubmit its underwriting guideline criteria for AUM by December 1 of each year for approval for the subsequent year.

(4) Any change to the underwriting guideline criteria for AUM submitted for a subsequent calendar year shall require:

(a) Justification for the change; and

(b) Documentation of the insurer's underwriting criteria.

(5) Upon receipt of approval by the commissioner, a GAP participating insurer shall implement its underwriting guideline criteria for AUM.

(6) A GAP participating insurer shall use the same standards for AUM as for other high-cost conditions as established in KRS 304.17A-430(1) and (2).

(7) If an individual was issued a policy by an insurer in the individual market between July 15, 1995, and July 1, 1998, to be reimbursed from the GAP fund, the insurer shall demonstrate that the insured, at the time of issuance of the policy:

(a) Was diagnosed with a condition on the list of high-cost conditions; or

(b) Met the insurer's approved AUM requirements and the insured would not have met the insurer's most recent underwriting guidelines in existence prior to July 15, 1995.

(8) If an individual was issued a policy by an insurer in the individual market after July 1, 1998, to be reimbursed from the GAP fund the insurer shall demonstrate that the insured at the time of issuance of the policy:

(a) Was diagnosed with a condition on the list of high-cost conditions; or

(b) Met the insurer's approved AUM requirements.

Section 6. GAP Participation Termination Requirements.

(1) A mandatory GAP participating insurer shall not terminate its participation in GAP.

(2) A voluntary GAP participating insurer may elect to terminate its status as a GAP participating insurer.

(3) A voluntary GAP participating insurer that elects to terminate its status as a GAP participating insurer shall do so by submitting a termination letter to the commissioner by September 1 of each year that shall include:

(a) The effective date of termination for issuing a GAP health benefit plan; and

(b) The reason for the termination from GAP.

(4) Upon notification of termination to the commissioner, the voluntary GAP participating insurer shall:

(a) Be prohibited from issuing a new GAP health benefit plan;

(b) Provide a ninety (90) day notice to GAP participants advising the participants of the insurer's GAP participation termination status; and

(5) A voluntary GAP participating insurer failing to notify the commissioner by September 1 of each year of its GAP termination status as established in subsection (2) of this section shall issue and renew GAP health benefit plans for the subsequent calendar year.

(6) A voluntary GAP participating insurer terminating its GAP participation may subsequently reapply to become a GAP participating insurer subject to approval by the commissioner.

(7) The commissioner may elect to terminate the status of a GAP participating insurer that is in hazardous financial condition pursuant to 806 KAR 3:150.

History

RELATES TO: KRS 304.17A-210(5)(b), 304.17A-420, 304.17A-430
STATUTORY AUTHORITY: KRS 304.2-110, 304.17A-210(5)(b), 304.17A-430
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.2-110 authorizes the commissioner to promulgate administrative regulations to implement the Insurance Code. KRS 304.17A-210(5)(b) requires the commissioner to promulgate administrative regulations establishing equitable enrollment limits for new market insurers for the first twelve (12) months and a remaining portion of the calendar year after expiration of a twelve (12) month period. This administrative regulation establishes the limits and requirements of a new market insurer.
History: 25 Ky.R. 1286; Am. 2156; eff. 3-19-99; TAm eff. 8-9-2007; Crt eff. 2-26-2020; TAm eff. 3-10-2020.

806 KAR 17:230 Requirements regarding medical director's signature on health care benefit denials {#sec-806-kar-17-230 omnilex-key=us-ky-regs-official--title-806--806 KAR 17:230}

Section 1. Definitions.

(1) "Adverse determination" is defined by KRS 304.17A-600(1).

(2) "Coverage denial" is defined by KRS 304.17A-617(1).

(3) "Electronic signature" is defined by KRS 369.102(8).

(4) "Enrollee" is defined by KRS 304.17A-500(5).

(5) "Managed care plan" is defined by KRS 304.17A-500(9).

(6) "Medical director" means a person meeting the requirements of KRS 304.17A-545(1), and includes a medical director of an entity under contract and delegated to perform utilization review on behalf of a managed care plan.

(7) "Notice of coverage denial" means a letter, a notice, or an Explanation of Benefits statement advising of a coverage denial as defined by KRS 304.17A-617(1).

(8) "Signature" means name, title, state of licensure and license number.

(9) "Utilization review" is defined by KRS 304.17A-600(17) .

Section 2. Application. This administrative regulation shall apply to all managed care plans authorized by law to engage in managed care in the state of Kentucky, and any utilization review entities registered in Kentucky that have contracted with a managed care plan to perform utilization reviews on the plan's behalf.

Section 3. Appointment of Medical Director.

(1) A managed care plan shall submit to the department a:

(a) Completed Form HIPMC-MD-1; and

(b) Biographical resume of each individual who shall serve as the medical director.

(2) A managed care plan shall furnish the department with any change in medical director within thirty (30) days of the change.

(3) A managed care plan shall provide for an alternative medical director to serve if the medical director is absent and furnish the department with information as required in subsection (1) of this section.

Section 4. Letters of Denial for Adverse Determination or Notices of Coverage Denial.

(1) Letters of denial for adverse determination or notices of coverage denial shall be sent to an enrollee's last known address with a copy of the same sent to the provider.

(2) Letters of denial requiring signature of the medical director pursuant to KRS 304.17A-545(1)(d) and KRS 304.17A-607(1) shall include:

(a) Letters of adverse determination, including denials, limitations, reductions and terminations of services, based on lack of medical necessity; and

(b) Letters of adverse determination, including denials, limitations, reductions and terminations or services, based on lack of medical appropriateness.

(3) Notices of coverage denial shall not require the medical director's signature.

Section 5. Signature of the Medical Director. For purposes of this administrative regulation, the signature of the medical director shall include:

(1) Handwritten and copies of original signature; or

(2) An electronic signature.

Section 6. Incorporation by Reference.

(1) "Medical Director Report Form", Form HIPMC-MD-1, 03/2021 is incorporated by reference.

(2) This material may be inspected, copied, or obtained, subject to applicable copyright law, at the Kentucky Department of Insurance, The Mayo-Underwood Building, 500 Mero Street , Frankfort, Kentucky 40601, Monday through Friday, 8 a.m. to 4:30 p.m. This material is also available on the Department's Web site at http://insurance.ky.gov/ppc/CHAPTER.aspx.

History

RELATES TO: KRS 304.17A-540, 304.17A-545, 304.17A-600 – 304.17A-619
STATUTORY AUTHORITY: KRS 304.2-110(1)
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.2-110(1) authorizes the Commissioner to promulgate reasonable administrative regulations necessary for, or as an aid to, the effectuation of any provision of the Kentucky Insurance Code, as defined in KRS 304.1-010. This administrative regulation establishes the procedure to be followed when a medical director's signature is required on health care benefit denials.
History: 806 KAR 017:230. 27 Ky.R. 1694, 2189, 2451; eff. 3-19-2001; TAm eff. 8-9-2007; TAm eff. 10-9-2008; 47 Ky.R. 2742, 48 Ky.R. 1164; eff. 1-4-2022.

806 KAR 17:240 Data reporting requirements {#sec-806-kar-17-240 omnilex-key=us-ky-regs-official--title-806--806 KAR 17:240}

Section 1. Definitions.

(1) "Association" is defined by KRS 304.17A-005(1).

(2) "Electronic format" means an electronic copy of a Microsoft Excel Spreadsheet.

(3) "Health benefit plan" means a health benefit plan as defined by KRS 304.17A-005(22) and issued within Kentucky to a Kentucky resident.

(4) "Insurance purchasing outlet" is defined by KRS 304.17A-750(4).

(5) "Insurer" is defined by KRS 304.17A-005(29).

(6) "Market segment" means the portion of the market covering one (1) of the following:

(a) Individual;

(b) Small group;

(d) Group association;

(e) Individual association;

(f) Self-insured employer-organized association; or

(g) Insurance purchasing outlet.

(7) "Medical service" means the service that was provided by a health care provider to a member of a health benefit plan.

(8) "Member" means a covered person, as defined by KRS 304.17A-500(3).

(9) "Member month" means a period of time that represents each month that a member or subscriber, depending upon the data request, is enrolled in a health benefit plan.

(10) "Self-insured employer-organized association" means an association that holds a certificate of filing pursuant to KRS 304.17A-320.

(11) "Subscriber" means the following:

(a) In the individual market, the number of health benefit plan policyholders; or

(b) In the small group, large group, individual association, group association, self-insured employer-organized association, or insurance purchasing outlet market, the number of health benefit plan certificate holders.

(12) "Total unduplicated covered persons" means the total number of subscribers and their dependents covered by a health benefit plan at any time during the reporting year.

Section 2. Data Reporting Requirements.

(1) Beginning with the report due by July 31, 2004, and within the time frame prescribed by KRS 304.17A-330, an insurer authorized to write health insurance in this state, a self-insured employer-organized association, and an insurance purchasing outlet shall submit the following reports regarding health benefit plans to the Department of Insurance:

(a) Annual Report 1 - Insurer Information Report;

(b) Annual Report 2 - Premium and Enrollment Report as Member Months;

(d) Annual Report 4 - Billed Charge and Paid Claim Report;

(e) Annual Report 5 - Medical Service Cost Report by Market Segment;

(f) Annual Report 6 - Medical Service Cost Report by Product Type;

(g) Annual Report 7 - Policy Discontinuance Reason Report;

(h) Annual Report 8 - Mental Health Parity Report by Market Segment; and

(i) Annual Report 9 - Mental Health Parity Report by Product Type.

(2) An entity described in subsection (1) of this section with more than 500 total unduplicated covered persons shall submit all of the reports listed in subsection (1)(a) through (i) of this section.

(3) An entity described in subsection (1) of this section with 500 or less total unduplicated covered persons shall submit only the report listed in subsection (1)(a) of this section.

(4) An insurer, a self-insured employer-organized association, or an insurance purchasing outlet, who ceases operations in Kentucky shall submit the reports required by subsection (1) of this section to the Department of Insurance within 120 days after cessation.

(5) The reports required pursuant to subsection (1) of this section are contained in the Data Reporting Manual, HIPMC-DR-1", and the reports shall:

(a) Be submitted in an electronic format; and

(b) Contain the prescribed data elements and information in the order prescribed by the Data Reporting Manual.

Section 3. Incorporated by Reference.

(1) "Data Reporting Manual", HIPMC-DR-1, 09/21 is incorporated by reference.

History

RELATES TO: KRS 304.17A-005, 304.17A-320, 304.17A-330, 304.17A-750
STATUTORY AUTHORITY: KRS 304.2-110(1), 304.17A-330
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.2-110(1) authorizes the commissioner to promulgate reasonable administrative regulations necessary for, or as an aid to, the effectuation of any provision of the Kentucky Insurance Code as defined in KRS 304.1-010. KRS 304.17A-330 authorizes the commissioner to prescribe the format for reporting the information required by KRS 304.17A-330. This administrative regulation establishes the data elements and the format for submitting annual reports to the Department of Insurance.
History: 806 KAR 017:240. 27 Ky.R. 1695, 2190, 2452; eff. 3-19-2001; 30 Ky.R. 103, 657; eff. 10-31-2003; TAm eff. 8-9-2007; 48 Ky.R. 186, 1550; eff. 2-1-2022.

806 KAR 17:250 Notification requirements for drug benefits {#sec-806-kar-17-250 omnilex-key=us-ky-regs-official--title-806--806 KAR 17:250}

Section 1. Definitions.

(1) "Drug formulary" means a list of prescription medications preferred for use by a managed care plan and dispensed through a participating pharmacy to an enrollee.

(2) "Enrollee" is defined in KRS 304.17A-500(5).

(3) "Maintenance prescription medication" means a prescription drug

(a) For which a managed care plan receives no less than:

Three (3) claims for a thirty (30) day supply within a four (4) month period of time; or
One (1) claim for a ninety (90) day supply within a six (6) month period of time, including a mail order prescription; and

(b) That is required for maintenance therapy as determined by the prescribing provider.

(4) "Managed care plan" is defined in KRS 304.17A-500(9).

Section 2. Notification Requirements.

(1) A managed care plan shall provide advance written notice to an enrollee of the following changes:

(a) The removal of a maintenance prescription medication from its drug formulary;

(b) A change that restricts or reduces the quantity or dosage of a prescription medication supplied when a prescription is filled; or

(2) A written notification pursuant to subsection (1) of this section shall be mailed to an enrollee:

(a) At least thirty (30) but no more than sixty (60) days prior to the effective date of a change as listed in subsection (1)(a), (b), or (c) of this section for an enrollee who is dispensed a prescription for the drug within six (6) months prior to the notification date; and

(b) Within thirty (30) days following the effective date of a change as listed in subsection (1)(a), (b), and (c) of this section for an enrollee who is dispensed a prescription for the drug after the notification date required by paragraph (a) of this subsection of this section.

(3) A written notification pursuant to subsection (1) of this section shall include:

(a) A clear explanation of the action being taken by the managed care plan;

(b) The name and phone number of a contact person to answer questions; and

History

RELATES TO: KRS 304.17A-505, 304.17A-535
STATUTORY AUTHORITY: KRS 304.2-110(1), 304.17A-565
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.2-110(1) authorizes the commissioner to promulgate administrative regulations necessary for or as an aid to the effectuation of any provision of the Kentucky Insurance Code, as defined in KRS 304.1-010. KRS 304.17A-565 requires the commissioner to enforce and carry out the provisions of KRS 304.17A-500 to 304.17A-570 by promulgating necessary administrative regulations. This administrative regulation establishes notification requirements of a managed care plan if a prescription medication is removed from its drug formulary, a supply amount of a prescription is changed, or prior authorization is added for a prescription medication.
History: 27 Ky.R. 2007; Am. 2539; 2781; eff. 4-9-2001; 34 Ky.R. 651; 985; eff. 12-7-2007; Crt eff. 2-26-2020; TAm eff. 3-10-2020.

806 KAR 17:260 Conversion policy minimum benefits {#sec-806-kar-17-260 omnilex-key=us-ky-regs-official--title-806--806 KAR 17:260}

Section 1. Definitions.

(1) "Conversion policy" means an individual health policy issued to an insured person pursuant to a conversion privilege contained in a group health policy upon termination of the insured person's coverage under the group policy.

(2) "FFS" means a fee-for-service product type.

(3) "Group policy" is defined by KRS 304.18-110(1)(a).

(4) "HMO" means a health maintenance organization product type.

(5) "POS" means a point-of-service product type.

(6) "PPO" means a preferred provider organization product type.

(7) "Preventive Health Service" means the service described by 29 C.F.R 2590.715-2713(a) and (b).

Section 2. Plan Cost Sharing and Minimum Benefits.

(1) The out-of-pocket limit for covered expenses incurred during a plan year for a converted policy issued pursuant to a conversion privilege contained in a PPO, FFS, HMO, or POS product shall be no more than:

(a) $7,000 for a single person; and

(b) $14,000 for a family.

(2) A converted policy issued pursuant to the conversion privilege contained in a group HMO, POS, FFS, or PPO product shall include the following minimum benefits:

(a) In hospital care:

Inpatient hospital room and board benefits in a maximum coinsurance amount of fifty (50) percent; and
Coverage benefits in a maximum coinsurance amount of fifty (50) percent for transplants, including:

a. Kidney;

b. Cornea;

c. Bone marrow;

d. Heart;

e. Liver;

f. Lung;

g. Heart orlung; and

h. Pancreas.

(b) Outpatient care:

Ambulatory outpatient surgery benefits in a maximum coinsurance amount of fifty (50) percent;
Provider office visits benefits in a maximum coinsurance amount of fifty (50) percent; and
Diagnostic tests and Laboratory benefits in a maximum coinsurance amount of fifty (50) percent;

Hospital emergency room benefits in a maximum coinsurance amount of fifty (50) percent; and
Ground ambulance benefits in a maximum coinsurance amount of fifty (50) percent.

(d) Medicare hospice benefits.

(e) Prescription drug benefits in a maximum coinsurance amount of fifty (50) percent.

(f) Maternity Benefits in a maximum coinsurance amount of fifty (50) percent.

(g) Mental Health and Substance Abuse Benefits:

Inpatient Benefits in a maximum coinsurance amount of fifty (50) percent; and
Outpatient Benefits in a maximum coinsurance amount of fifty (50) percent.

(h) Rehabilitative and Habilitative Benefits in a maximum coinsurance amount of fifty (50) percent.

(i) Preventive Health Service shall be covered at 100 percent.

(j) Pediatric Benefits in a maximum coinsurance amount of fifty (50) percent.

History

RELATES TO: KRS 304.17A, 304.18-110, 304.18-114, 304.18-120(2), 29 C.F.R 2590.715-2713(a), 29 C.F.R 2590.715-2713(b)
STATUTORY AUTHORITY: KRS 304.2-110(1), 304.18-120(2)
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.2-110(1) authorizes the Commissioner of Insurance to promulgate administrative regulations necessary for or as an aid to the effectuation of any provision of the Kentucky Insurance Code as defined in KRS 304.1-010 . KRS 304.18-120(2) requires the department to promulgate administrative regulations to establish minimum benefits for a conversion policy issued pursuant to the conversion privilege contained in a group health policy. This administrative regulation establishes those requirements.
History: 806 KAR 017:260. 27 Ky.R. 1696, eff. 2-15-2001; TAm eff. 8-9-2007; 48 Ky.R. 188, 1164; eff. 1-4-2022.

806 KAR 17:270 Telehealth claim forms and records {#sec-806-kar-17-270 omnilex-key=us-ky-regs-official--title-806--806 KAR 17:270}

Section 1. Definitions.

(1) "ADA" means American Dental Association.

(2) "Electronic" or "electronically" is defined by KRS 304.17A-700(7).

(3) "HCFA" means Health Care Financing Administration.

(4) "Health benefit plan" is defined by KRS 304.17A-005(22).

(5) "Health care provider" or "provider" is defined by KRS 304.17A-005(23).

(6) "Insurer" is defined by KRS 304.17A-005(29) .

(7) "National Uniform Billing Committee (NUBC)" is defined by KRS 304.17A-700(14).

(8) "Telehealth" is defined by KRS 311.550(17).

Section 2. Application. This administrative regulation shall apply to health benefit plans delivered, issued, or renewed on or after July 15, 2001.

Section 3. Claim Forms. The following claim forms shall be used for reimbursement of telehealth consultations:

(1) A claim form for dentists shall consist of the ADA Dental Claim Form - J430 approved by the American Dental Association effective at the time the service was billed; and

(2) A claim form for all other health care providers shall consist of the Health Insurance Claim Form, Form HCFA - 1500 data set or its successor submitted on the designated paper or electronic format as adopted by the National Uniform Claims Committee effective at the time the service was billed.

Section 4. Retention of Records. A provider shall, upon request, provide a copy of the following to an insurer as support for a claim for reimbursement of a telehealth consultation:

(1) Written record that substantiates the request by the referring provider for the telehealth consultation by the primary care provider; and

(2) Written record of the telehealth consultation.

Section 5. Material Incorporated by Reference.

(1) The following material is incorporated by reference:

(a) "ADA Dental Claim Form - J430", 5/2019 ; and

(b) Form HCFA - 1500, "Health Insurance Claim Form", 2/2012 .

(2) This material may be inspected, copied, or obtained, subject to applicable copyright law, at the Kentucky Department of Insurance, The Mayo-Underwood Building, 500 Mero Street , Frankfort, Kentucky 40601, Monday through Friday, 8 a.m. to 4:30 p.m. This material is also available on the department's internet Web site at https://insurance.ky.gov/ppc/CHAPTER.aspx.

History

RELATES TO: KRS 304.17A-005, 304.17A-138, 304.17A-700
STATUTORY AUTHORITY: KRS 304.2-110(1), 304.17A-138
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.2-110(1) authorizes the commissioner to promulgate reasonable administrative regulations necessary for or as an aid to the effectuation of any provision of the Kentucky Insurance Code as defined in KRS 304.1-010. KRS 304.17A-138 requires that the department promulgate an administrative regulation in accordance with KRS Chapter 13A to designate the claim forms and records required to be maintained for telehealth claims. This administrative regulation establishes requirements for telehealth claim forms and records.
History: 806 KAR 017:270. 27 Ky.R. 2008, 2540, 2781; eff. 4-9-2001; TAm eff. 8-9-2007; 48 Ky.R. 190, 1551; eff. 2-1-2022.

806 KAR 17:280 Registration, utilization review, and internal appeal {#sec-806-kar-17-280 omnilex-key=us-ky-regs-official--title-806--806 KAR 17:280}

Section 1. Definitions.

(1) "Adverse determination" is defined by KRS 304.17A-600(1).

(2) "Authorized person" is defined by KRS 304.17A-600(2).

(3) "Board" means one (1) of the following governing bodies:

(a) The American Board of Medical Specialties;

(b) The American Osteopathic Association; or

(4) "Coverage denial" is defined by KRS 304.17A-617(1).

(5) "Department" means Department of Insurance.

(6) "Enrollee" is defined by KRS 304.17C-010(2).

(7) "Health benefit plan" is defined by KRS 304.17A-005(22).

(8) "Health Care Provider" or "provider" is defined in KRS 304.17A-005(23) and includes pharmacy as required under 806 KAR 17:580.

(9) "Insurer" is defined by KRS 304.17A-005(29).

(10) "Internal appeals process" is defined by KRS 304.17A-600(9).

(11) "Limited health service benefit plan" is defined by KRS 304.17C-010(5).

(12) "Nationally recognized accreditation organization" is defined by KRS 304.17A-600(10).

(13) "Notice of coverage denial" means a letter, a notice, or an explanation of benefits statement advising of a coverage denial.

(14) "Policies and procedures" means the documentation which outlines and governs the steps and standards used to carry out functions of a utilization review program.

(15) "Private review agent" is defined by KRS 304.17A-600(11).

(16) "Registration" is defined by KRS 304.17A-600(14).

(17) "Step therapy exception" is defined in KRS 304.17A-163(1)(f).

(18) "Step therapy protocol" is defined in KRS 304.17A-163(1)(g).

(19) "Utilization review" is defined by KRS 304.17A-600(17).

(20) "Utilization review plan" is defined by KRS 304.17A-600(18).

Section 2. Registration Required for Utilization Review.

(1) The department shall issue a registration to an applicant who has met the requirements of KRS 304.17A-600 through 304.17A-619 and KRS 304.17A-623, if applicable, and Sections 2 through 11 of this administrative regulation.

(2) An applicant seeking registration to provide or perform utilization review shall:

(a) Submit an application to the department as required by Section 4 of this administrative regulation; and

(b) Pay an application fee as required by Section 3 of this administrative regulation.

(3) If an insurer, private review agent, or other registered UR entity desires a renewal of registration to perform utilization review, an application for renewal of registration shall be submitted to the department at least ninety (90) days prior to expiration of the current registration.

Section 3. Fees.

(1) An application for registration shall be accompanied by a fee of $1,000.

(2) A submission of changes to utilization review policies or procedures to the department shall be accompanied by a fee of fifty (50) dollars.

(3) A fee as established in subsection (1) or (2) of this section shall be made payable to the Kentucky State Treasurer.

Section 4. Application Process for Utilization Review.

(1) An applicant for registration shall complete and submit to the department an application, HIPMC-UR-1 and HIPMC-MD-1, and except as provided in subsection (3) of this section, documentation to support compliance with KRS 304.17A-600 through 304.17A-623, as applicable, including:

(a) A utilization review plan;

(b) The identification of criteria used for all services requiring utilization review;

(c) Types and qualifications of personnel, employed directly or under contract, performing utilization review in compliance with KRS 304.17A-607, including names, addresses, and telephone numbers of the medical director and contact persons for questions regarding the filing of the application;

(d) A toll-free telephone number to contact the insurer, limited health service benefit plan, private review agent, or other registered UR entity as required by KRS 304.17A-607(1)(e) and 304.17A-609(3);

(e) A copy of the policies and procedures required by:

KRS 304.17A-163;
KRS 304.17A-1631;
KRS 304.17A-167;
KRS 304.17A-603;
KRS 304.17A-607, and including the policies and procedures required by KRS 304.17A-607(1)(f) and (i); and
KRS 304.17A-609(4);

(f) A copy of the policies and procedures by which:

A limited health service benefit plan provides a notice of review decision which complies with KRS 304.17A-607(1)(h) to (j) and includes:

a. Date of service or preservice request date;

b. Date of the review decision;

c. Date and time the step therapy exception request was received;

d. Date and time the step therapy exception request was completed; and

e. Instructions for filing an internal appeal; or

An insurer, private review agent, or other registered UR entity provides a notice of review decision, which complies with KRS 304.17A-607(1)(h) to (j) and 806 KAR 17:230, and includes:

a. Date of service or preservice request date;

b. Date of the review decision;

c. Date and time the step therapy exception request was received;

d. Date and time the step therapy exception request was completed; and

e. Instructions for filing an internal appeal, including information concerning:

(i) The availability of an expedited internal appeal and a concurrent expedited external review;

(ii) For an adverse determination, the right to request that the appeal be conducted by a board eligible or certified physician pursuant to KRS 304.17A-617(3)(b); and

(iii) The insurer's contact information for conducting appeals, which shall include an address and direct ten (10) digit telephone number, and which shall be bolded and more prominently displayed than the contact information of the department; and

d. Information relating to the availability of:

(i) A review of a coverage denial by the department following completion of the internal appeal process; or

(ii) A review of an adverse determination by an independent review entity following completion of the internal appeal process, in accordance with KRS 304.17A-623;

(g) If a part of the utilization review process is delegated, a description of the:

Delegated function;
Entity to whom the function was delegated, including name, address, and telephone number; and
Monitoring mechanism used by the insurer, private review agent, or other registered UR entity to assure compliance of the delegated entity with paragraph (f) of this subsection;

(h) A sample copy of an electronic or written notice of review decision, which complies with paragraph (f) of this subsection;

(i) A copy of the policies and procedures by which a covered person, authorized person, or provider may request an appeal of an adverse determination, or coverage denial in accordance with KRS 304.17A-617, including:

The method by which an appeal may be initiated, including:

a. An oral request followed by a brief written request, or a written request for an expedited internal appeal;

b. A written request for a nonexpedited internal appeal; and

c. If applicable, the completion of a specific form, including a medical records release consent form with instructions for obtaining the required release form;

Time frames for:

a. Conducting a review of an initial decision; and

b. Issuing an internal appeal decision;

Procedures for coordination of expedited and nonexpedited appeals;
Qualifications of the person conducting internal appeal of the initial decision in accordance with KRS 304.17A-617(3)(b);
Information to be included in the internal appeal determination in accordance with KRS 304.17A-617(3)(b), including the:

a. Title and, if applicable, the license number, state of licensure, and certification of specialty or subspecialty of the person making the internal appeal determination;

b. Clear, detailed decision; and

c. Availability of an expedited external review of an adverse determination; and

A sample copy of the internal appeal determination in compliance with paragraph (i)5 of this subsection; and

(j) A copy of the policies and procedures, which:

Address and ensure the confidentiality of medical information in accordance with KRS 304.17A-609(5), 806 KAR 3:210, and 806 KAR 3:230;
Comply with the requirements of KRS 304.17A-615 if the insurer, private review agent, or other registered UR entity fails to:

a. Provide a timely utilization review decision; or

b. Be accessible, as determined by verifiable documentation of a provider's attempts to contact the insurer, private review agent, or other registered UR entity, including verification by:

(i) Electronic transmission records; or

(ii) Telephone company logs;

Comply with the requirements of KRS 304.17A-619, regarding the submission of new clinical information prior to the initiation of the external review process;
Address and ensure consistent application of review criteria for all services requiring utilization review; and
Comply with the requirements of KRS 304.17A-607(1)(k), as applicable.

(2) Upon review of an application for registration, submitted changes to utilization review policies and procedures in accordance with KRS 304.17A-607(3), or submitted changes to internal appeals policies and procedures in accordance with KRS 304.17A-617(3), the department shall:

(a) Inform the applicant if supplemental information is needed;

(b) Identify and request that supplemental information be submitted to the department within thirty (30) days;

(c) If requested information is not provided to the department within the timeline established in paragraph (b) of this subsection:

Deny the application for registration or proposed changes to utilization review or internal review policies and procedures; and
Not refund the application or filing fee; and

(d) Approve or deny registration or proposed changes to utilization review or internal review policies and procedures.

(3) To be registered to perform utilization review in Kentucky, an applicant who holds accreditation or certification in utilization review by a nationally recognized accreditation organization in accordance with KRS 304.17A-613(10) shall be required to submit with its completed application to the department:

(a)

Evidence of current accreditation or certification in utilization review, including an expiration date; and
Documentation to demonstrate compliance with the requirements of KRS 304.17A-613(10) and that the standards of the accreditation organization sufficiently meet the minimum requirements in subsection (1) of this section.

(b) If the national accreditation standard does not meet all the requirements as established in subsection (1) of this Section, then the applicant shall submit the additional information required under subsection (1) of this section.

Section 5. Denial or Revocation Hearing Procedure. Upon denial of an application for registration, or suspension or revocation of an existing registration, the department shall:

(1) Give written notice of its action; and

(2) Advise the applicant or registration holder that if dissatisfied, a hearing may be requested and filed in accordance with KRS 304.2-310.

Section 6. Complaints Relating to Utilization Review.

(1) A written complaint regarding utilization review shall be reviewed by the department in accordance with KRS 304.17A-613(8).

(2) Upon receiving a copy of the complaint, an insurer, private review agent, or other registered UR entity shall provide a response in accordance with KRS 304.17A-613(8)(a), including:

(a) Any information relating to the complaint;

(b) All correspondence or communication related to the denial between any of the parties, including the insurer, the member, provider, and private review agent; and

(3) Within thirty (30) days of implementation of a corrective action, as identified in subsection (2) of this section, an insurer, private review agent, or other registered UR entity shall notify the department in writing of the implementation of the corrective action.

(4) If an insurer, private review agent, or other registered UR entity fails to comply with this section, the department may impose a penalty in accordance with KRS 304.2-140.

(5) The number, recurrence, and type of complaints, as identified in subsection (1) of this section, shall be considered by the department in reviewing an application for registration pursuant to KRS 304.17A-613(9).

Section 7. Internal Appeals for a Health Benefit Plan. In addition to the requirements of KRS 304.17A-617, and as part of an internal appeals process, an insurer, private review agent, or other registered UR entity shall:

(1) Allow a covered person, authorized person, or provider acting on behalf of a covered person to request an internal appeal at least sixty (60) days following receipt of a denial letter;

(2) Provide written notification of an internal appeal determination decision as required by KRS 304.17A-617(3)(a) and (d), which shall include the:

(a) Title and, if applicable, the license number, state of licensure and specialty or subspecialty certifications of the person performing the review;

(b) Elements required in a letter of denial in accordance with 806 KAR 17:230, Sections 4 and 5, if applicable;

(d) Date of service or preservice request date; and

(e) Date of the internal appeal decision;

(3) Maintain written records of an internal appeal, including the:

(a) Reason for the internal appeal;

(b) Date that the internal appeal was received by the insurer, private review agent, or other registered UR entity, including the date any necessary or required authorizations were received;

(d) Internal appeal decision; and

(e) Information required by Section 4(1)(i)5 of this administrative regulation; and

(4) Retain a record of an internal appeal decision for five (5) subsequent years in accordance with 806 KAR 2:070.

Section 8. Internal Appeals for a Limited Health Service Benefit Plan.

(1) An insurer offering a limited health service benefit plan shall have an internal appeals process which shall:

(a) Be disclosed to an enrollee in accordance with KRS 304.17C-030(2)(g); and

(b) Include provisions, which:

Allow an enrollee, authorized person, or provider acting on behalf of the enrollee to request an internal appeal within at least sixty (60) days of receipt of a notice of adverse determination or coverage denial or if applicable, a step therapy exception denial; and
Require the limited health service benefit plan to provide a written internal appeal determination within thirty (30) days following receipt of a request for an internal appeal.

(2) A notice of adverse determination or coverage denial or if applicable, a step therapy exception denial shall include a disclosure of the availability of the internal appeals process.

Section 9. Internal Appeals for a Step Therapy Exception Denial. In addition to the requirements of KRS 304.17A-617, and as part of the internal appeals process for a step therapy exception denial, an insurer, private review agent, or pharmacy benefit manager shall:

(1) Allow a covered person or provider acting on behalf of a covered person to request an internal appeal of a step therapy exception denial;

(2) Require the insurer, private review agent, or pharmacy benefit manager to provide a written internal appeal determination within forty-eight (48) hours following receipt of a request for an internal appeal of a step therapy exception denial;

(3) Provide written notification of an internal appeal determination decision as required by KRS 304.17A-617(3)(a) and (d) and KRS 304.17A-163(4)(a), which shall include the:

(a) Title and, if applicable, the license number, state of licensure and specialty or subspecialty certifications of the person performing the review;

(b) Elements required in a letter of denial in accordance with 806 KAR 17:230, Sections 4 and 5, if applicable;

(d) Date of service or preservice request date;

(e) Date and time the step therapy exception internal appeal was received;

(f) Date and time of the step therapy exception internal appeal decision;

(g) Maintain written records of a step therapy exception internal appeal, including the:

Reason for the step therapy exception internal appeal;
Date that the step therapy exception internal appeal was received by the insurer, private review agent, or other registered UR entity, including the date any necessary or required authorizations were received;
[The] Clinical review criteria used to make the step therapy exception appeal determination;
Date and time of the step therapy exception internal appeal decision;
Step therapy exception internal appeal decision; and
Information required by Section 4(1)(i)5. of this administrative regulation; and

(4) Retain a record of a step therapy exception internal appeal decision for five (5) years from the date of decision in accordance with 806 KAR 2:070.

Section 10. Reporting Requirements. By March 31 of each calendar year, an insurer, private review agent, or other registered UR entity shall complete and submit to the department a HIPMC-UR-2, and a HIPMC-STE-1 for the previous calendar year.

Section 11. Maintenance of Records. An insurer, private review agent, or other registered UR entity shall maintain documentation to assure compliance with KRS 304.17A-163, 304.17A-1631, 304.17A-600 through 304.17A-619, 304.18-045, 304.32-147, 304.32-330, 304.38-225, and 304.47-050, including:

(1) Proof of the volume of reviews conducted per the number of review staff broken down by staff answering the phone;

(2) Information relating to the availability of physician consultation;

(3) Information which supports that based on call volume, the insurer, private review agent, or other registered UR entity has sufficient staff to return calls in a timely manner;

(4) Proof of the volume of phone calls received on the toll-free phone number per the number of phone lines;

(5) Telephone call abandonment rate; and

(6) Proof of the response time of insurer, private review agent, or other registered UR entity for returned phone calls to a provider if a message is taken.

Section 12. Cessation of Operations to Perform Utilization Review.

(1) Upon a decision to cease utilization review operations in Kentucky, an insurer, private review agent, or other registered UR entity shall submit the following to the department thirty (30) days or as soon as practicable prior to ceasing operations:

(a) Written notification of the cessation of operations, including the proposed date of cessation and the number of pending utilization review decisions with projected completion dates; and

(b) A written action plan for cessation of operations, which shall be subject to approval by the department prior to implementation.

(2) Annual reports required pursuant to Section 9 of this administrative regulation shall be submitted to the department within thirty (30) calendar days of ceasing operations.

Section 13. Incorporated by Reference.

(1) The following material is incorporated by reference:

(a) Form HIPMC-UR-1, "Utilization Review Registration Application", 01/2023 edition;

(b) Form HIPMC-UR-2, "Annual Utilization Review (UR) Report Form", 09/2020 edition;

(d) Form HIPMC-STE-1, "Step Therapy Annual Report", 01/2023 edition.

(2) This material may be inspected, copied, or obtained, subject to applicable copyright law, at the Department of Insurance, The Mayo-Underwood Building, 500 Mero Street, Frankfort, Kentucky 40601, Monday through Friday, 8 a.m. to 4:30 pm. This material is also available on the department's Web site at https://insurance.ky.gov/ppc/CHAPTER.aspx.

History

RELATES TO: KRS 217.211, 304.2-140, 304.2-310, 304.17-412, 304.17A-005, 304.17A-163, 304.17A-1631, 304.17A.167, 304.17A-168, 304.17A-535, 304.17A-600, 304.17A-607, 304.17A-619, 304.17A-623, 304.17C-010, 304.17C-030, 304.18-045, 304.32-147, 304.32-330, 304.38-225, 304.47-050
STATUTORY AUTHORITY: KRS 304.2-110(1), 304.17A-609, 304.17A-613, 304.17A-1631
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.2-110(1) authorizes the Commissioner to promulgate reasonable administrative regulations necessary for or as an aid to the effectuation of any provision of the Kentucky Insurance Code as defined in KRS 304.1-010. KRS 304.17A-609 requires the department to promulgate administrative regulations regarding utilization review and internal appeal and KRS 304.17A-1631 requires the commissioner to promulgate administrative regulations regarding step therapy protocols and exceptions. KRS 304.17A-613 requires the department to promulgate administrative regulations to develop a process for the registration of insurers or private review agents. This administrative regulation establishes requirements for the registration of insurers or private review agents, and the utilization review process, including internal appeal of decisions and step therapy exception request denials.
History: 806 KAR 017:280. 27 Ky.R. 1698, 2453; eff. 3-19-2001; 29 Ky.R. 1375, 1845, 2099; eff. 2-16-2003; 31 Ky.R. 435, 708; eff. 11-5-2004; TAm eff. 8-9-2007; 35 Ky.R. 654, eff. 12-5-2008; Cert eff. 2-26-2020; 49 Ky.R. 1174, 1766; eff. 5-30-2023.

806 KAR 17:290 Independent External Review Program {#sec-806-kar-17-290 omnilex-key=us-ky-regs-official--title-806--806 KAR 17:290}

Section 1. Definitions.

(1) "Adverse determination" is defined by KRS 304.17A-600(1).

(2) "Assign" or "assignment" means selection of an independent review entity by an insurer, and acceptance of a request to conduct an external review by an independent review entity.

(3) "Authorized person" is defined by KRS 304.17A-600(2).

(4) "Commissioner" is defined by KRS 304.1-050(1).

(5) "Coverage denial" is defined by KRS 304.17A-617(1)(c).

(6) "Covered person" means:

(a) A covered person as defined by KRS 304.17A-600(4); and

(b) As used in:

Sections 2 and 3 of this administrative regulation, insureds subject to a step therapy protocol established by an insurer, health plan, pharmacy benefit manager, or private review agent subject to KRS 304.17A-163; and
Section 5(2)(b) of this administrative regulation, insureds seeking an external review under KRS 304.17A-163;

(7) "Department" is defined by KRS 304.1-050(2).

(8) "External review" is defined by KRS 304.17A-600(5).

(9) "Financial hardship" means the:

(a) Gross income of the covered person is below 200 percent of the federal poverty level based upon family size as shown by a federal income tax return for the previous year; or

(b) Covered person's participation in one (1) of the following programs:

National Prescription Drug Patient Assistance;
Kentucky Transitional Assistance Program (K-TAP);
Kentucky Medical Assistance Program; or
Unemployment Insurance.

(10) "Health care provider" or "provider" is defined by KRS 304.17A-005(23) and includes pharmacy as required by 806 KAR 17:580.

(11) "Independent review entity" is defined by KRS 304.17A-600(7).

(12) "Insurer" means:

(a) An insurer as defined by KRS 304.17A-600(8); and

(b) Insurers, health plans, pharmacy benefit managers, and private review agents subject to KRS 304.17A-163.

(13) "Reviewer" means an individual selected by the independent review entity to conduct an external review and make a recommended decision to the independent review entity.

(14) "Step therapy exception" is defined by KRS 304.17A-163(1)(f).

(15) "Step therapy protocol" is defined by KRS 304.17A-163(1)(g).

Section 2. Requirements of an Insurer.

(1) An insurer shall:

(a) Disclose to a covered person in a clear, concise, written format the following information concerning an external review, as applicable:

At enrollment, the right to an external review in accordance with KRS 304.17A-505(1)(g) or 304.17A-163;
The availability of an external review, including expedited external review, in the insurer's notice of an adverse determination in accordance with KRS 304.17A-623(1) or step therapy exception denial in accordance with KRS 304.17A-163;
Instructions for initiating an external review in the internal appeal decision letter upholding an adverse determination or denial of a step therapy exception request, including:

a. Whether the appeal shall be in writing;

b. How to request and complete any necessary forms, including a medical records release form or written authorization of representation;

c. Applicable time frames;

d. The position and telephone number of a contact person who can provide additional information about an external review; and

e. Additional documentation that may be necessary to initiate the external review; and

The right of a covered person to request an external review within sixty (60) days of receiving notice that, pursuant to KRS 304.17A-617(3)(d), the insurer has elected to afford an opportunity for external review;

(b) Allow a covered person, authorized person, or provider acting on behalf of and with the consent of a covered person, to submit an oral request, followed by a brief written request, for an expedited external review;

(c) Provide the following information relating to an external review in the policy or certificate of coverage issued to a covered person and upon request:

The circumstances under which the following types of external review shall be provided:

a. Nonexpedited external review in accordance with KRS 304.17A-623(3), (4) and (6), and (13); and

b. Expedited external review in accordance with KRS 304.17A-623(10), (11), and (12);

The filing fee for requesting an external review in accordance with KRS 304.17A-623(5);
Notice that the cost of an external review by an independent review entity shall be paid by the insurer in accordance with KRS 304.17A-625(5);
The procedure for submitting:

a. An oral request followed up by a brief written request, or a written request for an expedited external review;

b. A written request for a nonexpedited external review; and

c. Any specific forms required by the insurer to initiate an external review, including a written authorization of personal representation or a consent to release medical records form;

The time frame for:

a. Submitting a request for external review in accordance with KRS 304.17A-623(4);

b. Rendering a decision by an independent review entity in accordance with KRS 304.17A-623(12) and (13); and

c. Implementation of a decision of the independent review entity in accordance with KRS 304.17A-625(11) through (13);

A statement relating to the confidential treatment of medical records and information relating to the external review; and
A statement of the availability of a complaint process through the department relating to:

a. A covered person's right to an external review in accordance with KRS 304.17A-623(8); and

b. The action of an independent review entity in accordance with KRS 304.17A-625(16);

(d) If an external review is requested by an authorized person or provider acting on behalf of a covered person, obtain the:

Written authorization of representation; and
Consent to release medical records to the independent review entity;

(e) Determine if an external review is warranted in accordance with KRS 304.17A-623(3) and (10), and notify the person who requested the external review of its determination within the following time periods:

For expedited reviews, within twenty-four (24) hours of receipt of the request, pursuant to KRS 304.17A-623(11); or
For nonexpedited reviews, within five (5) business days of receipt of the request;

(f) Upon a determination that an expedited external review is warranted:

By telephone, request acceptance of assignment of the external review by an independent review entity, which was selected pursuant to KRS 304.17A-623(7) from a list of certified independent review entities maintained by the department at http://insurance.ky.gov; and
Notify the independent review entity by telephone that the following documents shall be forwarded to the independent review entity in accordance with KRS 304.17A-623(11):

a. The written consent of the covered person authorizing release of medical records as required by KRS 304.17A-623(4);

b. Information to be considered as required by KRS 304.17A-625(1)(a); and

c. A completed External Review Information Face Sheet, HIPMC-IRE-6;

(g) Upon a determination that a nonexpedited external review is warranted:

By telephone, request acceptance of assignment of the external review by an independent review entity, which was selected pursuant to KRS 304.17A-623(7) from the list of certified independent review entities as identified in paragraph (f)1 of this subsection; and
Within three (3) business days of assignment, deliver to the independent review entity the documentation as identified in paragraph (f)2 of this subsection;

(h) Upon assignment of an external review, complete and send to the department an Assignment of Independent Review Entity Form, HIPMC-IRE-2, within one (1) business day via email to DOI.UtilizationReview@ky.gov;

(i) Upon receipt of a decision relating to external review from an independent review entity, implement the decision in accordance with KRS 304.17A-625(11) through (13) and provide the department with a reprocessed explanation of benefits or other payment documentation showing the implementation of the overturned decision;

(j) Upon receipt of an invoice relating to an external review, pay the independent review entity within thirty (30) days;

(k) Maintain a written record of each external review for a period of not less than five (5) years pursuant to 806 KAR 2:070, Section 1; and

(l) Upon written notice of termination of an independent review entity pursuant to Section 3(21)(a) or (c) of this administrative regulation, reassign an external review in accordance with paragraphs (f) and (g) of this subsection.

(2)

(a) If a request for external review is denied by an insurer, written notification shall be provided by the insurer to the person requesting the external review, which shall include:

The date the request for external review was received by the insurer;
A statement relating to the nature of the request;
The rationale of the insurer for denying the request;
A statement relating to the availability of review by the department if a dispute arises regarding the right to external review;
The toll-free telephone number of the department; and
The name and telephone number of a contact person who shall provide information relating to the denial of the request.

(b) If requested by the department, the insurer shall provide:

A copy of the written notification described in paragraph (a) of this subsection; and
Information or documentation that the insurer relied upon to deny the request for external review.

Section 3. Requirements of an Independent Review Entity. An independent review entity shall:

(1) Accept a request for assignment unless:

(a) A conflict of interest exists;

(b) Confidentiality issues exist; or

(c) Due to circumstances beyond the control of the independent review entity, an appropriate reviewer becomes unavailable;

(2) Upon receipt of a request for assignment from an insurer determine if a condition of subsection (1)(a) through (c) of this section exists;

(3) Within twenty-four (24) hours of receipt of a request for assignment:

(a) Immediately provide verbal notification, followed by written notification to the insurer and department of the rejection of an assignment if a condition of subsection (1)(a) through (c) of this section exists; or

(b) Provide written notification to an insurer and the department via DOI.UtilizationReview@ky.gov of the acceptance of an assignment; and

(4) Maintain a written record of:

(a) Whether the external review relates to an adverse determination or coverage denial, which requires resolution of a medical issue, or a step therapy exception internal appeal denial;

(b) The specific question or issue, as identified by the independent review entity, to be resolved by the external review; and

(5) For each external review, obtain and maintain a signed statement of a reviewer that the reviewer has no conflict of interest;

(6) Not limit the basis of an external review decision to the standards, criteria, and clinical rationale used by the insurer to make its decision pursuant to KRS 304.17A-625(1), (2), and (7);

(7) Have a reviewer with expertise in:

(a) Health insurance benefits and contracts, who shall serve as a reviewer with a healthcare professional reviewer, in an external review of a coverage denial, which requires the resolution of a medical issue, or step therapy exception internal appeal denial, in accordance with KRS 304.17A-617(3)(d); and

(b) Health care, who shall:

Conduct an external review of a step therapy exception internal appeal denial, or an adverse determination or a coverage denial, which requires resolution of a medical issue, in accordance with the requirements of KRS 304.17A-623; and
Meet the following requirements:

a. Hold active licensure in a state of the United States;

b. Have recent experience or familiarity with current body of knowledge and applicable specialty or subspecialty practice;

c. Have at least five (5) years of experience in the specialty or subspecialty of the external review; and

d. Hold current board certification by:

(i) The American Board of Medical Specialties if the reviewer is a medical doctor;

(ii) The American Osteopathic Association if the reviewer is a doctor of osteopathic medicine;

(iii) The American Board of Podiatric Surgery if the reviewer is a doctor of podiatric medicine; or

(iv) Other recognized health professional board pursuant to KRS 304.17A-627;

(8) Establish criteria in accordance with KRS 304.17A-627 for:

(a) Selection of a qualified reviewer, including the initial verification and reverification every three (3) years of credentials of the reviewer;

(b) Ensuring that an appropriate:

Reviewer performs the external review; and
Number of reviewers are used for the external review; and

(c) Ensuring that at least one (1) reviewer qualified in each medical specialty and subspecialty is available for external review;

(d) Provide a listing of the reviewers to the department including each reviewer's name, date of licensure, license number and specialty, including any subspecialty in accordance with KRS 304.17A-627(5) and (6);

(9) Have a medical director or clinical director with professional postresidency experience in direct patient care who shall:

(a) Hold a current license to practice medicine in a state of the United States;

(b) Provide guidance for the medical aspects of the external review process; and

Quality management program; and
Reviewer credentialing program;

(10) Establish and implement criteria for determination of the need for a time extension pursuant to KRS 304.17A-623(12) and (13);

(11) Provide written notification of a decision as required by KRS 304.17A-625(6), which shall include the:

(a) Title, professional license number, state of licensure and specialty or subspecialty certifications, if any, of the reviewer;

(b) Date the decision was rendered; and

The decision shall be final and binding on the insurer; and
If dissatisfied with the decision, a comment, question, or complaint may be submitted in writing to the department;

(12) Within two (2) business days of rendering a decision, provide written notification of the decision to the:

(a) Covered person or authorized person, treating provider, and insurer; and

(b) Department via email at DOI.UtilizationReview@ky.gov by:

Copying the department on the written notification to the covered person; and
Completing an External Review Decision Notification Form, HIPMC-IRE-3;

(13) Establish written policies and procedures for maintenance and the confidential treatment of external review records in accordance with KRS 304.17A-623(9), 806 KAR 3:210, and 806 KAR 3:230;

(14) Maintain a written record of an external review for a minimum of five (5) years in accordance with 806 KAR 2:070, which shall include, as applicable:

(a) All documentation relating to the external review pursuant to KRS 304.17A-625(1)(a);

(b) The independent review entity's decision regarding each issue identified in the external review request;

(d) Medical records and information considered during the review;

(e) References to any medical literature, research data, or national clinical criteria upon which the independent review entity's decision was based;

(f) A copy of the covered person's health benefit plan;

(g) A copy of the adverse determination or coverage denial, which requires resolution of a medical issue, or the step therapy exception internal appeal denial, and the internal appeal decision; and

(h) A copy of all correspondence and communication between the independent review entity, reviewer, and any other person regarding the external review, including a copy of the final external review decision letter;

(15) Provide toll-free telephone access that:

(a) Operates at a minimum from 9 a.m. until 5 p.m. of each business day in each time zone if the services under review are in dispute; and

(b) Allows for:

Receiving after-hours requests for external review; and
Acting upon expedited external review requests in accordance with KRS 304.17A-623(12);

(16) If an external review function, or any portion of this function, is delegated or subcontracted to another person or organization, submit to the department:

(a) Policies and procedures relating to oversight activities to ensure compliance with requirements of an independent review entity as established in KRS 304.17A-623 and 304.17A-625, and this section; and

(b) A copy of the delegation or subcontract agreement;

(17) Establish and maintain a written quality assurance program in accordance with KRS 304.17A-627(7), which shall be made available to the public upon request and shall include a written plan, which addresses:

(a) Scope and objectives;

(b) Program organization;

(d) Evaluation and organizational improvement of external review activities, including:

Objectives and approaches used in the monitoring and evaluation of external review activities, including the systematic evaluation of complaints for patterns and trends;
The implementation of an action plan to improve or correct an identified problem; and
The procedures to communicate the results of an action plan to its employees and reviewers, as applicable;

(18) Submit a copy of any change to information provided on the Application for Certification of an Independent Review Entity, HIPMC-IRE-1, in writing to the department for approval. A change shall not become effective until approved by the commissioner;

(19) Submit a new application for certification if requested by the department following notification of a material change in the application information as required by KRS 304.17A-627(2);

(20) Establish a fee structure, to be available upon request, for each type or level of external review, including at a minimum, a fee for:

(a) A completed external review of:

A coverage denial, which requires resolution of a medical issue, or step therapy exception internal appeal denial; and
An adverse determination; and

(b) An incomplete external review;

(21) Immediately terminate an external review and provide notice by telephone, followed by a written notification to the department and, if appropriate, the insurer requesting the external review if:

(a) A conflict of interest or confidentiality issue is discovered at any time during the external review process;

(b) A reversal of a coverage denial, step therapy exception internal appeal denial, or adverse determination is received in writing from the insurer; or

(c) The independent review entity or a reviewer becomes unavailable for reasons beyond the control of the independent review entity, including acts of God, natural disasters, epidemics, strikes or other labor disruptions, war, civil disturbances, riots, or complete or partial disruptions of facilities;

(22) If more than one (1) reviewer is utilized in making a decision:

(a) Render an overall decision based upon the majority decision of the reviewers; or

(b) If the reviewers are evenly split as to whether the recommended or requested health care service or treatment shall be covered, request an additional reviewer to make a binding majority decision;

(23) Implement a written policy and procedure for each aspect of an external review process, including:

(a) Processing of the request for assignment of an external review from an insurer;

(b) Receipt and maintenance of medical records and information from insurer;

(d) Ensuring the credentialing, selection, and notification of a reviewer who performs an external review;

(e) Rendering a timely decision and issuing notification of the decision;

(f) Ongoing monitoring and evaluation of the performance of a reviewer;

(g) Monitoring and oversight of a delegated external review function, if any;

(h) Billing and collection of fees for external review, including:

Filing fee of the covered person; and
Cost of external review for the insurer;

(i) Collecting and reporting data;

(j) Termination of external review; and

(k) Response to a request for information relating to a complaint filed with the department; and

(24)

(a) Conduct annually, a program for training reviewers, which:

Provides information relating to the requirements of the Kentucky Independent External Review Program; and
Describes the policies and procedures of the independent review entity, as applicable; and

(b) Provide a written record of the training to the department, upon request.

Section 4. Application Process for Certification to Perform External Reviews.

(1) To perform an external review, an independent review entity shall be certified in accordance with requirements established in KRS 304.17A-627, and this administrative regulation.

(2) To be certified to perform an external review, an independent review entity shall:

(a) Complete and submit to the department, an Application for Certification of an Independent Review Entity, HIPMC-IRE-1;

(b) Submit a fee with the application for certification as required by Section 5 of this administrative regulation; and

(c) Enclose with the application for certification, written documentation which supports compliance with the requirements of an independent review entity established in KRS 304.17A-627 and Section 3 of this administrative regulation.

(3) In renewing a certification, an independent review entity shall submit an application for certification to the department at least ninety (90) days prior to expiration of the current certification.

Section 5. Fees.

(1) Department fees.

(a) An application for certification as an independent review entity shall be submitted with $500.

(b) Pursuant to KRS 304.17A-627(2), a change in application information after certification shall be submitted with fifty (50) dollars.

(2) Independent review entity fees.

(a)

Except for a fee which meets the criteria established in HIPMC-IRE-5, Approval of an External Review Fee in Excess of $800, the total fee charged for an external review shall not exceed $800; and
The fee proposed by the independent review entity in excess of $800 shall be submitted to the department for approval prior to billing the insurer with the justification defined in HIPMC-IRE-5, Approval of an External Review Fee in Excess of $800.

(b) The twenty-five (25) dollar filing fee to be paid by the covered person shall:

Be billed by the independent review entity upon assignment; or
Be waived if it creates a financial hardship pursuant to KRS 304.17A-623(5).

Section 6. Department Review of Application for Certification or Change in Information Provided on the Application.

(1) Upon review of an application for certification or a change in information provided on the application, the department shall:

(a) Notify the applicant of any missing or necessary information;

(b) Identify and request submission of the information identified in paragraph (a) of this subsection within thirty (30) days;

(c) If requested information is not provided to the department within the time frame established in paragraph (b) of this subsection:

Disapprove the application for certification or the change of information provided on the application; and
Not refund the applicable fee submitted in accordance with Section 5(1) of this administrative regulation; and

(d) Approve or deny certification or a change to information provided on the application of an independent review entity within ninety (90) days of submission.

(2) An independent review entity certification shall expire on the second anniversary of the certification date unless the certification is renewed by the independent review entity, which submits a new application for certification in accordance with Section 4(2) of this administrative regulation.

Section 7. Denial, Decertification, or Suspension Hearing Procedure. Upon the denial of certification, decertification, or suspension of a certification, the department shall:

(1) Give written notice of its action; and

(2) Advise the applicant or certificate holder that a request for a hearing may be filed in accordance with KRS 304.2-310.

Section 8. Independent Review Entity Complaint Process.

(1) A copy of the complaint filed pursuant to KRS 304.17A-625(16) and a letter from the department requesting a written response to the complaint shall be sent to the independent review entity.

(2) Within ten (10) business days of receipt of the letter from the department, the independent review entity shall submit a written response to the department, including the following:

(a) Information relating to the complaint;

(b) If applicable, corrective actions to address the complaint, including time frames for actions; and

(3) Upon receipt of the written response of the independent review entity, the department shall:

(a) If applicable, take action pursuant to KRS 304.17A-625(16); and

(b) Notify the complainant of the department's findings and action taken, if any.

Section 9. Department Investigations. The commissioner may conduct an investigation of an independent review entity pursuant to KRS 304.2-100 and 304.2-230.

Section 10. Reporting Requirements. An independent review entity shall complete and submit to the department by March 31 of each year for the previous calendar year, the Annual Independent Review Entity Report Form, HIPMC-IRE-4.

Section 11. Cessation of Participation. Upon a decision to terminate participation in the independent external review program as established in KRS 304.17A-621, an independent review entity shall:

(1) Immediately notify the department in writing of its decision to cease accepting new assignments; and

(2) Except for reasons beyond its control, submit the following to the department for approval at least thirty (30) days prior to termination:

(a) Written notification of the termination, including:

Date of termination; and
Number of pending external reviews with corresponding assignment dates; and

(b) A written action plan for terminating participation.

Section 12. Incorporated by Reference.

(1) The following material is incorporated by reference:

(a) Form HIPMC-IRE-1, "Application for Certification of an Independent Review Entity", 01/2023 edition;

(b) Form HIPMC-IRE-2, "Assignment of Independent Review Entity Form", 10/2022 edition;

(d) Form HIPMC-IRE-4, "Annual Independent Review Entity Report Form", 10/2022 edition;

(e) Form HIPMC-IRE-5, "Approval of an External Review Fee in Excess of $800", 09/2020 edition; and

(f) Form HIPMC-IRE-6, "External Review Information Face Sheet", 10/2022 edition.

History

RELATES TO: KRS 304.1-050, 304.2-100, 304.2-230, 304.2-310, 304.17A-005, 304.17A-163, 304.17A-1631, 304.17A-168, 304.17A-505, 304.17A-535, 304.17A-600, 304.17A-607, 304.17A-617, 304.17A-621-304.17A-631
STATUTORY AUTHORITY: KRS 304.2-110(1), 304.17A-163, 304.17A-1631, 304.17A-629
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.2-110(1) authorizes the commissioner to promulgate administrative regulations necessary for or as an aid to the effectuation of any provision of the Kentucky Insurance Code as defined in KRS 304.1-010. KRS 304.17A-629 requires the department to promulgate administrative regulations regarding the Independent External Review Program, and KRS 304.17A-1631 requires the commissioner to promulgate administrative regulations regarding step therapy protocols and exceptions. This administrative regulation establishes the insurer requirements, procedures for the certification of independent review entities, and the process for initiating and conducting external review of utilization review decisions and step therapy exception internal appeal denials. This administrative regulation also establishes the disclosure requirements of the external review process to be included in the health benefit plan issued at enrollment of a covered person.
History: 806 KAR 017:290. 27 Ky.R. 1701, eff. 3-19-2001; 29 Ky.R. 1379, 1848, 2102; eff. 2-16-2003; 31 Ky.R. 438, 941; eff. 11-26-04; TAm eff. 8-9-2007; 35 Ky.R. 658; eff. 12-5-2008; 48 Ky.R. 195, 1165; eff. 1-4-2022; 49 Ky.R. 1178, 1769; eff. 5-30-2023; 50 Ky.R. 449, 1070; eff. 1-30-2024.

Section 1. Definitions.

(1) "Provider agreement" means a contract between an insurer offering a managed care plan and a provider for the provision of health care services.

(2) "Subcontract agreement" means a contract for the provision of health care services to:

(a) An enrollee, which is negotiated between a participating health care provider with a managed care plan and a nonparticipating provider with a managed care plan; or

(b) A covered person, which is negotiated between a risk sharing entity through a "risk sharing arrangement", as defined by KRS 304.17A-500(13), and a provider.

Section 2. Filing Requirements.

(1) An insurer, managed care plan, and limited health service benefit plan shall file a sample copy of the following with the commissioner at least sixty (60) days before its use:

(a) Provider agreement;

(b) Risk sharing arrangement; and

(2) A filing pursuant to subsection (1) of this section shall:

(a) Include:

A compensation arrangement, including a description of the:

a. Payment methodology; and

b. Payor as defined in the agreement;

Any attachment, exhibit, or addendum to the items listed in subsection (1) of this section;
A completed and signed Face Sheet and Verification Form HIPMC-F1, incorporated by reference in 806 KAR 14:007; and
A filing fee, including:

a. Twenty-five (25) dollars for a provider agreement or subcontract agreement filing; or

b. Fifty (50) dollars for a risk sharing arrangement filing; and

(b)

Not be considered complete until the information required by paragraph (a) of this subsection is received by the department; and
Be disapproved if a complete filing is not received within sixty (60) days of the date of filing.

(3) If a managed care plan, insurer, or limited health service benefit plan amends an existing provider agreement, subcontract agreement, or risk sharing agreement that was previously filed with the commissioner, affecting any requirements of this administrative regulation, the managed care plan shall submit:

(a) An amended filing at least sixty (60) days before its use; and

(b) A letter that identifies and explains each amendment.

(4) The failure of a managed care plan, insurer, or limited health service benefit plan to file a sample copy of a provider agreement, subcontract agreement, or risk sharing agreement shall constitute a basis for a civil penalty in accordance with KRS 304.99.

(5) An insurer issuing, delivering, or renewing a limited health service benefit plan shall complete and attach Form HL-F11, Health Summary Sheet – Form Filings, incorporated by reference in 806 KAR 14:007, to each limited health service benefit plan filed with the commissioner.

Section 3. Provider Agreement Requirements.

(1) The sample copy of a provider agreement for an insurer or managed care plan filed with the commissioner shall:

(a) Comply with the requirements of KRS 304.17A-527(1);

(b) Comply with the requirements of KRS 304.17A-728;

(d) Not include a:

Most-favored nation provision in accordance with KRS 304.17A-560;
Limitation on disclosure provision in accordance with KRS 304.17A-530;
Condition of participation provision in accordance with KRS 304.17A-150(4); or
Mandatory use of hospitalist provision in accordance with KRS 304.17A-532(2).

(2) The sample copy of a provider agreement for a limited health service benefit plan filed with the commissioner shall:

(a) Comply with the requirements of KRS 304.17C-060(1);

(b) Be governed under the jurisdiction of Kentucky; and

Section 4. Subcontract Agreement Requirements. A sample copy of a subcontract agreement that is part of a provider agreement or risk sharing arrangement shall:

(1) Be filed with the commissioner by the managed care plan, limited health service benefit plan, or insurer in conjunction with the provider agreement or risk sharing arrangement;

(2) Meet applicable requirements of Section 3 of this administrative regulation; and

(3) Meet the requirements of KRS 304.17A-527(2) or 304.17C-060(3), as applicable.

Section 5. Risk Sharing Arrangement Requirements.

(1) The sample copy of a risk sharing arrangement filed with the commissioner shall:

(a) Meet the requirements of Section 3 of this administrative regulation;

(b) Include a Risk Sharing Arrangement Information Sheet, HIPMC-R1; and

(2) On or before September 1 of each calendar year, an insurer, managed care plan, or limited health services benefit plan shall file with the commissioner the HIPMC-R1, for each risk sharing arrangement currently effective.

Section 6. Incorporation by Reference.

(1) HIPMC-R1, Risk Sharing Arrangement Information Sheet, 10/2021, is incorporated by reference.

(2) This material may be inspected, copied, or obtained, subject to applicable copyright law, at the Kentucky Department of Insurance, The Mayo-Underwood Building, 500 Mero Street, Frankfort, Kentucky 40601, Monday through Friday, 8 a.m. to 4:30 p.m. Forms may also be obtained on the department's Web site at https://insurance.ky.gov/ppc/CHAPTER.aspx.

History

RELATES TO: KRS 304.12-237, 304.17A-150, 304.17A-235, 304.17A-500, 304.17A-527, 304.17A-530,304.17A-532, 304.17A-560, 304.17A-575, 304.17A-728, 304.17C-060, 304.17C-070, 304.99
STATUTORY AUTHORITY: KRS 304.2-110(1), 304.17A-527(1), 304.17C-060(1)
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.2-110(1) authorizes the commissioner to promulgate reasonable administrative regulations necessary to the effectuation of any provision of the Kentucky Insurance Code. KRS 304.17A-527(1) and 304.17C-060(1) require the commissioner to promulgate administrative regulations regarding the manner and form of required filings of sample copies of provider agreements. This administrative regulation establishes the filing requirements of provider agreements, subcontract agreements, and risk sharing arrangements.
History: 806 KAR 017:300. 27 Ky.R. 1706, 2191, 2455; eff. 3-19-2001; 31 Ky.R. 443, 711; eff. 11-5-2004; TAm eff. 8-9-2007; 35 Ky.R. 1314; eff. 2-6-2009; 45 Ky.R. 437; eff. 11-2-2018; 48 Ky.R. 1921, 2411; eff. 5-31-2022.

806 KAR 17:360 Prompt payment of claims {#sec-806-kar-17-360 omnilex-key=us-ky-regs-official--title-806--806 KAR 17:360}

Section 1. Definition. (1) "Health care clearinghouse" means an entity that converts health care transactions into standardized formats and forwards them to an insurer.

Section 2. Requirements.

(1) An attachment subject to the requirements of KRS 304.17A-706(2) shall be a standardized health claim attachment prescribed by 806 KAR 17:370.

(2) Pursuant to KRS 304.17A-704(4), an insurer response to a claim status inquiry by a provider shall either:

(a) Advise of no record of receiving the claim; or

(b) Provide the date the claim was received by an insurer, its agent, or designee, an insurer reference number for the claim, and one (1) of the following dated actions:

Claim is in process, but has not had a determination of denial, payment, contest, or suspension by the insurer;
Claim denial, in whole or in part, and reason for denial;
Determination to pay claim, in whole or in part;
Claim suspension, in whole or in part, and reason for suspension; or
Claim contest, in whole or in part, and reason for contest.

Section 3. Claim Payment Time Frame.

(1) The payment date of a claim shall be:

(a) The posting date of an electronic payment to a provider account;

(b) The postmark date of a nonelectronic payment mailed to a provider; or

(2) An insurer, its agent, or designee shall be required, as part of the acknowledgment process in accordance with KRS 304.17A-704(2) to notify a provider, its billing agent, or designee that submitted the claim, of an attachment that is missing or in error, if required pursuant to KRS 304.17A-706(2) or 304.17A-720.

(3) Except for a claim involving an organ transplant, an insurer shall be in compliance with KRS 304.17A-702(1) if a clean claim is paid within:

(a) Thirty (30) days of receipt of the claim; or

(b) Three (3) business days of the check date if the check issued for payment of the claim is dated on the 28th, 29th, or 30th day after the claim is received.

(4) An insurer shall be in compliance with KRS 304.17A-702(1) for a clean claim involving an organ transplant if the claim is paid within:

(a) Sixty (60) days of receipt of the claim; or

(b) Three (3) business days of the check date if the check issued for payment of the claim is dated on the 58th, 59th, or 60th day after the claim is received.

(5) The claim payment time frame of KRS 304.17A-702(1) shall:

(a) Include the time a claim is with a health care clearinghouse acting on behalf of an insurer; and

(b) Not include the time a claim is with a health care clearinghouse acting on behalf of a provider.

Section 4. Payment of Interest.

(1) The method used to calculate an interest payment required by:

(a) KRS 304.17A-730(1) shall yield an amount not less than the result obtained by dividing the total number of days that a claim remains unpaid after the date payment was due by 365;

(b) Multiplying that quotient by the applicable interest rate established under KRS 304.17A-730(1); and

(2) An interest payment shall identify the claim for which it is paid by including the following information:

(a) Name of covered person;

(b) Covered person's insurer identification number;

(d) Date of service;

(e) Amount of interest paid; and

(f) Insurer reference number for the claim.

(3) Except for nonpayment of interest by a limited health service benefit plan for the provision of dental-only benefits as established under KRS 304.17C-090(3), an insurer shall pay the interest required by KRS 304.17A-730 within thirty (30) days after the date a claim is paid.

(4) An insurer shall not be required to pay interest on corrected payments made in accordance with KRS 304.17A-708(1).

Section 5. Contested Claims.

(1) An insurer may contest a clean claim, pursuant to KRS 304.17A-706(1)(a), if an insurer, its agent, or designee has reasonable documented grounds, including:

(a) A covered person has notified the insurer that he has:

Another payment source; or
A preexisting condition;

(b) A provider has notified the insurer that a covered person has:

Another payment source; or
A preexisting condition;

Another insurer may be primarily responsible for the claim; or
A preexisting condition exists;

(d) A health claim attachment indicates another payment source; or

(e) A billing instrument identifies another payment source or a preexisting condition.

(2) An insurer in possession of the documentation listed in subsection (1) of this section shall provide this information to a provider upon request.

Section 6. An insurer offering a limited health service benefit plan for the provision of dental-only benefits, its agent or designee shall be subject to the requirements established under this administrative regulation except for a requirement as established under Section 3(4) of this administrative regulation and KRS 304.17C-090.

Section 7. Insurer Offering a Health Benefit Plan Reporting Requirements.

(1) Within the time frames established in KRS 304.17A-722(3), an insurer offering a health benefit plan shall submit to the department, on a calendar quarter basis, a report on the prompt payment of claims.

(2) If an insurer is unable to meet a time frame for reporting on the prompt payment of claims as established in subsection (1) of this section because of unforeseen computer system problems, an extension of time may be granted upon written request to the commissioner.

(3) The report required pursuant to subsection (1) of this section shall contain the information and data elements, as applicable, in the electronic format as prescribed by the Prompt Payment Reporting Manual, DIPR-PPR1.

(4) A reporting insurer shall update any information included within the report later determined to be inaccurate.

Section 8. Insurer Offering a Limited Health Service Benefit Plan Reporting Requirements. An insurer offering a limited health service benefit plan for the provision of dental-only benefits shall:

(1) Annually, no later than June 30 of each year, submit a report to the office on the prompt payment of claims as established under KRS 304.17C-090(2); and

(2) Except for Section 7(1) of this administrative regulation, be subject to the requirements of an insurer offering a health benefit plan as established in this administrative regulation.

Section 9. Incorporation by Reference.

(1) "Prompt Payment Reporting Manual, DIPR-PPR1",7/2018, is incorporated by reference.

History

RELATES TO: KRS 304.17A-005, 304.17A-700, 304.17A-702(1), 304.17A-704, 304.17A-706, 304.17A-708(1), 304.17A-720, 304.17A-722(3), 304.17A-730, 304.17C-090, 304.99-123
STATUTORY AUTHORITY: KRS 304.2-110(1), 304.17A-722(1)
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.2-110(1) authorizes the commissioner to promulgate reasonable administrative regulations necessary for or as an aid to the effectuation of any provision of the Kentucky Insurance Code. KRS 304.17A-722(1) requires the office to promulgate administrative regulations establishing reporting requirements regarding the prompt payment of claims by insurers offering health benefit plans. This administrative regulation establishes requirements for insurers offering health benefit plans and insurers offering limited health service benefit plans for the provision of dental-only benefits.
History: 806 KAR 017:360. 28 Ky.R. 1021; 1435; 1649; eff. 1-14-2002; 29 Ky.R. 1390; 1808; eff. 1-16-2003; 32 Ky.R. 969; 1398; eff. 3-3-2006; 35 Ky.R. 411; 823; eff. 10-31-2008; 45 Ky.R. 470; eff. 11-2-2018; Crt eff. 10-29-2025.

806 KAR 17:370 Standardized health claim attachments {#sec-806-kar-17-370 omnilex-key=us-ky-regs-official--title-806--806 KAR 17:370}

Section 1. Definitions.

(1) "Clean claim" is defined by KRS 304.17A-700(3).

(2) "Health benefit plan" is defined by KRS 304.17A-005(22).

(3) "Health care provider" or "provider" is defined by KRS 304.17A-700(9).

(4) "Health claim attachments" is defined by KRS 304.17A-700(10).

(5) "Insurer" is defined by KRS 304.17A-005(29) .

(6) "Limited health services benefit plan" is defined by KRS 304.17C-010(5).

(7) "Practitioner" means an individual licensed or certified to provide a health care service in Kentucky.

(8) "Reparation obligor" is defined by KRS 304.39-020(13).

Section 2. Standardized Health Claim Attachments. If another payment source is identified by a provider, an insurer shall require the provider to include the following health claim attachments, as applicable, for a claim to qualify as a clean claim:

(1) An explanation of benefits statement or noncoverage notice from another payer;

(2) An electronic or paper-based Medicare remittance notice if the claim involved Medicare as a payer; and

(3) A record of all payments by a reparations obligor pursuant to KRS 304.39-010 to 304.39-340.

Section 3. Routinely-requested Health Claim Attachments. An insurer offering a health benefit plan or a limited health service benefit plan for dental only, may routinely request the following health claim attachments in accordance with KRS 304.17A-706(2), as applicable:

(1) A certification of medical necessity;

(2) A complete medical record, or part of a medical record, including:

(a) Discharge summary:

Patient identification, including name, age, gender, and medical record number;
Name of attending practitioner;
Dates of admission and discharge;
Final diagnosis;
Reason for the admission or visit;
Medical history;
Significant findings during length of stay or visit;
Procedures and treatments;
Patient condition at discharge;
Discharge medications; and
Discharge instructions;

(b) Emergency department report:

Patient identification, including name, age, gender, and medical record number;
Date of service;
Attending practitioner;
Chief complaint and symptoms;
History of present illness and physical exam;
Diagnostic test findings;
Clinical impression and diagnosis;
Treatment plan;
Discharge instructions; and
Practitioner orders;

Patient identification, including name, age, gender, and medical record number;
Chief complaint;
Details of present illness;
Relevant past, social and family histories;
Inventory by body system;
Summary of psychological needs;
Report of relevant physical exam;
Statement relating to the conclusions or impressions drawn from the admission history and physical;
Statement relating to the course of action planned for this episode of care; and
Name of practitioner performing history and physical;

(d) Nurse's notes:

Patient identification, including name, age, gender, and medical record number;
Vital signs with graphics, if available;
Intake and output record, if applicable;
Medication administration records;
Date of nurse's notes;
Nurse assessment;
Nursing intervention;
Observation; and
Name of nurse;

(e) Operative report:

Patient identification, including name, age, gender, and medical record number;
Date of procedure;
Name of operating practitioner;
Pre- and post-operative diagnoses;
List of procedures performed;
Operative description including indications and findings;
Anesthesia used; and
Specimens collected;

(f) Progress notes:

Patient identification, including name, age, gender, and medical record number;
Discharge or treatment plan;
Practitioner orders;
Practitioner notes;
Attending practitioner name;
Results of tests and treatments;
Dates of notes; and
Chief complaint;

(g) Test results:

Patient identification, including name, age, gender, and medical record number;
Test findings, including date ordered and date completed; and
Ordering practitioner name;

(h) Practitioner orders or treatment plan, as applicable:

Patient identification, including name, age, gender, and medical record number;
Practitioner orders;
Ordering practitioner name; and
Order dates;

(i) Practitioner notes:

Patient identification, including name, age, gender, and medical record number;
Practitioner name;
Practitioner notes; and
Dates of notes;

(j) Consult notes and reports:

Patient identification, including name, age, gender, and medical record number;
Practitioner name;
Findings and recommendations including notes and reports; and
Dates of notes and reports;

(k) Anesthesia record:

Patient identification, including name, age, gender, and medical record number;
Administering practitioner name;
Start and stop anesthesia times;
Route of administration;
Dates;
Notes;
Patient vital signs; and
Drug administered;

(l) Therapy notes:

Patient identification, including name, age, gender, and medical record number;
Practitioner name;
Practitioner orders;
Treatment plan;
Number of treatments and dates;
Therapist's notes; and
Dates of notes;

(m) Office notes:

Patient identification, including name, age, gender, and medical record number;
Practitioner name;
Any notes generated for dates of service; and
Dates of notes;

(n) Dental records; and

(o) Pharmacy records;

(3) Certification and documentation as identified in 42 C.F.R. 441.203, 441.206, 441.207, 441.208, 441.250, 441.255, 441.256, and 441.258;

(4) Itemized bill; and

(5) Evidence of Medicare secondary payment pursuant to 42 C.F.R. 411.32.

History

RELATES TO: KRS 304.17A-005, 304.17A-607, 304.17A-700-304.17A-730, 304.17C-010, 304.17C-090, 304.39-010-304.39-340,, 42 C.F.R. 411.32, 441.203, 441.206, 441.207, 441.208, 441.250, 441.255, 441.256, 441.258
STATUTORY AUTHORITY: KRS 304.2-110(1), 304.17A-720(1)
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.2-110(1) authorizes the commissioner to promulgate reasonable administrative regulations necessary for or as an aid to the effectuation of any provision of the Kentucky Insurance Code as defined in KRS 304.1-010. KRS 304.17A-720(1) requires the department to promulgate administrative regulations prescribing standardized health claim attachments to be used by insurers. This administrative regulation establishes requirements for standardized health claim attachments and minimum requirements for routinely requested medical information health claim attachments.
History: 29 Ky.R. 2399; Am. 2890; eff. 6-16-2003; TAm eff. 8-9-2007; 35 Ky.R. 413; eff. 10-31-2008; Crt eff. 2-26-2020; 48 Ky.R. 200, 1169; eff. 1-4-2022.

806 KAR 17:450 Insurance purchasing outlet requirements {#sec-806-kar-17-450 omnilex-key=us-ky-regs-official--title-806--806 KAR 17:450}

Section 1. Definitions.

(1) "Business entity" means an applicant for a certificate of registration to act as an insurance purchasing outlet.

(2) "Commissioner" is defined by KRS 304.1-050(1) .

(3) "Department" is defined by KRS 304.1-050(2) .

(4) "Eligible employee" is defined by KRS 304.17A-750(1).

(5) "Employer" is defined by KRS 304.17A-750(3).

(6) "Insurance purchasing outlet" is defined by KRS 304.17A-750(4).

(7) "Insurance purchasing outlet member" or "member" is defined by KRS 304.17A-750(5).

(8) "Voucher" is defined by KRS 304.17A-750(7).

Section 2. Application for Certificate of Registration.

(1) A business entity seeking issuance of or renewal of a certificate of registration shall submit to the department the following:

(a) A completed Insurance Purchasing Outlet Application for Registration, HIPMC-IPO-1;

(b) All the documentation and information required by KRS 304.17A-754(4); and

(2) Since KRS 304.4-010(2) requires all fees payable under the insurance code to be collected in advance, the period of time in which the commissioner may act on an application for issuance of a certificate of registration, pursuant to KRS 304.17A-754(3), shall not commence, until the following are received by the department :

(a) All the information required by KRS 304.17A-750 through 304.17A-768 and Sections 2 through 8 of this administrative regulation; and

(b) The appropriate fee pursuant to Section 3 of this administrative regulation.

(3) A business entity seeking to renew a certificate of registration to act as an insurance purchasing outlet shall file an application to renew a certificate of registration:

(a) Biennially in accordance with KRS 304.17A-758(6); and

(b) At least ninety (90) days prior to expiration of the certificate of registration.

(4) Upon receipt of an application for issuance or renewal of certificate of registration, the department shall:

(a) Inform the applicant if supplemental information is or is not needed, and if supplemental information is needed:

The applicant shall submit the requested information within thirty (30) days; or
If requested information is not provided to the department within thirty (30) days, the department shall:

a. Deny the application for issuance or renewal of a certificate of registration to act as an insurance purchasing outlet; and

b. Not refund the application fee;

(b) Review the application and material required by KRS 304.17A-754(4) and Sections 2 through 8 of this administrative regulation; and

(5) Pursuant to KRS 304.17A-754(5), an insurance purchasing outlet shall submit to the department a change to the original documentation or information that was submitted to the department for issuance or renewal of a certificate of registration as follows:

(a) All updated documentation or information shall be submitted to the department within thirty (30) days after the insurance purchasing outlet knew of the change; and

(b) A fee to submit updated information shall be paid in accordance with Section 3 of this administrative regulation.

Section 3. Fees.

(1) An application for issuance of a certificate of registration to act as an insurance purchasing outlet shall be accompanied by a fee of $200 to pay administrative and other costs associated with carrying out the provisions of KRS 304.17A-750 through 304.17A-768.

(2) A submission to change the information filed by an insurance purchasing outlet, in accordance with KRS 304.17A-754(5), and Sections 2 through 8 of this administrative regulation, shall be accompanied by a fee of twenty-five (25) dollars to pay administrative and other costs associated with carrying out the provisions of KRS 304.17A-750 through 304.17A-768.

(3) An application to renew a certificate of registration as an insurance purchasing outlet, in accordance with KRS 304.17A-758(6), shall be accompanied by a fee of fifty (50) dollars to pay administrative and other costs associated with carrying out the provisions of KRS 304.17A-750 through 304.17A-768.

Section 4. Annual and Quarterly Financial Statements Required. In accordance with requirements and timeframes established in KRS 304.17A-758 and 304.17A-760, an insurance purchasing outlet shall:

(1) Annually, submit:

(a) In accordance with the timeframes established in KRS 304.17A-758(4), an annual financial statement and an audited financial statement, in accordance with the Annual Financial Statement of Insurance Purchasing Outlet, HIPMC-IPO-3; and

(b) Within sixty (60) days after the end of the fiscal year of the insurance purchasing outlet, a report on operations in accordance with the Annual Report on Operations of Insurance Purchasing Outlet, HIPMC-IPO-2. The report shall include:

Membership enrollment in tabular form by:

a. Month;

b. Quarter; and

c. Year-to-date; and

Discussion and analysis of financial condition and results of operations.

(2) In accordance with the timeframe established in KRS 304.17A-758(4), quarterly, submit a financial statement, in accordance with the format established in the Quarterly Financial Statement of Insurance Purchasing Outlet, HIPMC-IPO-4.

(3) An insurance purchasing outlet shall file its financial statements, as required by KRS 304.17A-758, in accordance with Financial Accounting Standards Board Statements available at https://www.fasb.org/jsp/FASB/Page/PreCodSectionPage&cid=1176156317989.

Section 5. Advertising and Marketing Materials Required to be Filed. An insurance purchasing outlet shall file all advertising and marketing materials, of any nature, with the commissioner for informational purposes:

(1) Materials submitted shall contain a form number on the lower left hand corner of every page of the filed document; and

(2) A filing fee of five (5) dollars for each form or marketing material shall be required to be submitted at the time of the filing.

Section 6. Disclosures Required.

(1) In writing, and at the time of enrollment, an insurance purchasing outlet shall provide disclosures to its members as follows:

(a) Premium payment procedures;

(b) Voucher payment procedures;

(d) As required by KRS 304.17A-762(3).

(2) In writing, the insurance purchasing outlet shall provide the following disclosures to an eligible person or eligible employee when an application for membership is submitted:

(a) The appeal rights for a person denied membership in the insurance purchasing outlet as required by KRS 304.17A-754(4)(c); and

(b) The enrollment procedures of the insurance purchasing outlet.

Section 7. Vouchers.

(1) An insurance purchasing outlet shall:

(a) Accept all vouchers; and

(b) Submit the voucher to the insurance purchasing outlet member's employer for payment within five (5) business days of receipt of the voucher from the member.

(2) If the insurance purchasing outlet does not receive payment for the voucher from the member's employer within ten (10) business days of submission, the insurance purchasing outlet shall notify the member, within three (3) business days, by certified mail return receipt requested, that the member's employer failed to redeem the voucher within the required time. At the same time, the insurance purchasing outlet shall also notify the member that he may pay the premium amount directly to the insurance purchasing outlet pursuant to KRS 304.17A-768(2).

(3) A voucher shall contain the following information:

(a) The name of the employer;

(b) The mailing address of the employer;

(d) The tax identification number of the employer;

(e) The name of the employee;

(f) The employee's Social Security number;

(g) The dollar amount of the voucher;

(h) The dates during which the voucher is valid; and

(i) That the voucher is nonassignable and nontransferable pursuant to KRS 304.17A-768(1).

Section 8. Reinstatement Policy Required.

(1) An insurance purchasing outlet shall have a reinstatement policy for an eligible employee and an eligible person who is terminated from the health benefit plan for nonpayment of premium.

(2) An eligible employee or an eligible person who has been terminated, pursuant to KRS 304.17A-245, shall be reinstated as a member of the insurance purchasing outlet if he or she meets the reinstatement requirements of the insurance purchasing outlet and the insurer.

(3) An insurance purchasing outlet shall not deny an eligible employee or an eligible person reinstatement based on any health status-related factor listed in KRS 304.17A-200 or consideration of medical loss ratio.

(4) If premium is not paid and the insurance purchasing outlet receives notification of termination for the member, pursuant to KRS 304.17A-245, the insurance purchasing outlet shall notify the member, within five (5) business days of receiving notification of termination from the insurer, that he or she is terminated. The insurance purchasing outlet shall notify the member of his or her termination by regular first class mail to the last known address of the member.

Section 9. Cessation of Operations of the Insurance Purchasing Outlet.

(1) Upon a decision to cease operating as an insurance purchasing outlet, the insurance purchasing outlet shall:

(a) Immediately notify the department, in writing, its decision to cease accepting new members to the insurance purchasing outlet; and

(b) Submit the following to the department ninety (90) days prior to ceasing operations:

Written notification of the cessation of operations, including the date of cessation and the number of current members of the insurance purchasing outlet; and
A written action plan for ceasing operations, which shall be approved by the department and include:

a. Copies of letters that will be mailed to members and insurers notifying them of the decision to cease operating as an insurance purchasing outlet; and

b. The projected date for processing all voucher and premium payments.

(2) Upon receipt of a written notification as required in subsection (1) of this section, the department shall review and act upon the action plan of the insurance purchasing outlet.

(3) Upon approval of an action plan to cease operations by the department , the insurance purchasing outlet shall send written notification, at least sixty (60) days in advance of the date that it will cease operations, to insurance purchasing outlet members and insurers issuing health benefit plans to its members.

(4) Upon being notified by the insurance purchasing outlet of its decision to cease operations, the insurer shall notify all members of the insurance purchasing outlet that the health benefit plan offered through the insurance purchasing outlet shall be terminated and that the member has the right to elect a conversion policy pursuant to KRS 304.17A-766.

Section 10. Hearing Process.

(1) An insurance purchasing outlet may request a hearing pursuant to KRS 304.2-310(2)(b) if the commissioner :

(a) Denies an application for a certificate of registration to act as an insurance purchasing outlet;

(b) Suspends or revokes a certificate of registration held by an insurance purchasing outlet; or

(2) The commissioner may take administrative action against an insurance purchasing outlet for any violation of KRS 304.17A-750 through 304.17A-770, 304.47-020, and Sections 2 through 9 of this administrative regulation.

Section 11. Material Incorporated by Reference.

(1) The following material is incorporated by reference:

(a) "Insurance Purchasing Outlet Application for Registration," HIPMC-IPO-1, 7/02 ;

(b) "Annual Report on Operations of Insurance Purchasing Outlet," HIPMC-IPO-2, 9/02 ;

(d) "Quarterly Financial Statement of Insurance Purchasing Outlet," HIPMC-IPO-4, 9/02 .

(2) This material may be inspected, copied, or obtained, subject to applicable copyright law, at the Kentucky Department of Insurance, The Mayo-Underwood Building, 500 Mero Street , Frankfort, Kentucky 40601, Monday through Friday, 8 a.m. to 4:30 p.m. The material is also available on the department Internet Web site at https://insurance.ky.gov/ppc/CHAPTER.aspx.

History

RELATES TO: KRS 304.1-050, 304.2-310, 304.4-010, 304.9-052, 304.17A-200, 304.17A-245, 304.17A-750-304.17A-770, 304.47-020
STATUTORY AUTHORITY: KRS 304.2-110(1), 304.17A-752(3), 304.17A-758(8), 304.17A-760(1)(i), 304.17A-762(3)(c), 304.17A-768(8)
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.2-110(1) authorizes the Commissioner of Insurance to promulgate reasonable administrative regulations necessary for or as an aid to the effectuation of any provision of the Kentucky Insurance Code as defined in KRS 304.1-010. KRS 304.17A-752(3) authorizes the commissioner to promulgate administrative regulations necessary to administer KRS 304.17A-750 through 304.17A-770. KRS 304.17A-758(8) requires the commissioner to promulgate regulations to establish fees for the initial registration and renewal of registration of an insurance purchasing outlet. KRS 304.17A-760(1)(i) requires the commissioner to promulgate administrative regulations to establish a process for insurance purchasing outlets to prepare and file annual reports on the operations of the insurance purchasing outlet. KRS 304.17A-762(3)(c) requires the commissioner to promulgate regulations to establish disclosures that are required to be made by the insurance purchasing outlet to insurance purchasing outlet members when the member enrolls. KRS 304.17A-768(8) requires the commissioner to promulgate administrative regulations to implement the provisions of that section involving vouchers. This administrative regulation establishes insurance purchasing outlet requirements, procedures for registering insurance purchasing outlets, and the voucher process.
History: 29 Ky.R. 1446; Am. 1810; eff. 1-16-2003; TAm eff. 8-9-2007; Crt eff. 2-26-2020; 48 Ky.R. 202, 1171; eff. 1-4-2022.

806 KAR 17:470 Data reporting to an employer-organized association health benefit plan {#sec-806-kar-17-470 omnilex-key=us-ky-regs-official--title-806--806 KAR 17:470}

Section 1. Definitions.

(1) "Aggregate claims experience" means the total dollar amount paid to health care providers of medical and pharmacy services for persons covered under an employer-organized association health benefit plan.

(2) "Commissioner" is defined by KRS 304.1-050(1).

(3) "Complete request" means a written request for employer-organized association health benefit plan information, including:

(a) A certification by a designated representative of the employer-organized association stating the:

Employer-organized association health benefit plan has adopted safeguards and standards for the treatment of health information pursuant to 45 C.F.R. 164.504(f); and
Information requested is the minimum amount necessary to accomplish the intended purpose of the use or disclosure pursuant to 45 C.F.R. 164.502(b) and 164.514(d); and

(b) Specific and sufficient details relating to the requested health benefit plan information.

(4) "Department" is defined by KRS 304.1-050(2).

(5) "Electronically" is defined by KRS 304.17A-700(7).

(6) "Employer-organized association" is defined by KRS 304.17A-005(12).

(7) "Employer-organized association health benefit plan" means a health benefit plan issued to an employer-organized association or trust established by one (1) or more employer-organized associations.

(8) "Health benefit plan" is defined by KRS 304.17A-005(22).

(9) "HIPAA" means Health Insurance Portability and Accountability Act of 1996, Pub.L. 104-191.

Section 2. Requirements for Provision of Information.

(1) Within five (5) business days of receipt of a written request for information relating to an employer-organized association health benefit plan, an insurer shall in writing:

(a) Acknowledge receipt of the request; and

(b) If the request fails to be a complete request, identify the items necessary to constitute a complete request in the acknowledgment of receipt letter.

(2) Pursuant to KRS 304.17A-846(1), an insurer shall provide an employer-organized association with its health benefit plan information, as requested:

(a) Including:

Total aggregate claims experience by month;
Total premiums paid by month by the employer-organized association;
Total number of persons on a monthly basis covered under the employer-organized association health benefit plan, by coverage tier, as follows:

a. Family;

b. Individual;

c. Individual and spouse;

d. Individual and domestic partner; and

e. Parent plus; and

Information required under KRS 304.17A-846(1)(d); and

(b) Within thirty (30) calendar days of receipt of a complete request.

(3) An insurer may:

(a) Except if an employer-organized association specifies the method for the delivery of its health benefit plan information, provide the requested information in one (1) of the following formats:

Electronically, pursuant to the requirements for electronic transmission of information as established in 45 C.F.R. 160 and 164; or
Hard copy;

(b) Request an extension of the timeframe for providing an employer-organized association with its health benefit plan information in whole or in part, if the insurer:

Provides evidence to the employer-organized association that a disruption in electricity and communication connections beyond its control has occurred; or
Establishes that an unusual circumstance exists that precludes the provision of health benefit plan information electronically or in hard copy format; and

A determination is made by the United States Department of Health and Human Services Office for Civil Rights that provision of health benefit plan information as requested by the employer-organized association is prohibited under HIPAA; and
A copy of the determination, as established under subparagraph 1. of this paragraph, is provided to the employer-organized association which submits a complete request.

(4) The disclosure of information under this administrative regulation is subject to the HIPAA limitations established in KRS 304.17A-846(2) and any applicable administrative regulations.

Section 3. Preemption. This administrative regulation shall not:

(1) Preempt or supersede an existing Kentucky law relating to a medical record, health, or insurance information privacy; or

(2) Infringe upon the jurisdiction of the United States Department of Health and Human Services Office for Civil Rights in its:

(a) Enforcement of 45 C.F.R. 160 and 164; and

(b) Responding to a complaint relating to privacy of health information.

History

RELATES TO: KRS 304.1-050, 304.2-110(1), 304.17A-005, 304.17A-700(7), 304.17A-846(1), 45 C.F.R. 160, 45 C.F.R. 164
STATUTORY AUTHORITY: KRS 304.2-110(1), 304.17A-846
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.2-110(1) authorizes the commissioner to promulgate reasonable administrative regulations necessary for, or as an aid to, the effectuation of any provision of the Kentucky Insurance Code as defined in KRS 304.1-010. KRS 304.17A-846 requires the department to promulgate an administrative regulation to implement its provisions and define the extent that health benefit plan information shall be provided to an employer-organized association. This administrative regulation establishes requirements for the provision of health benefit plan information to an employer-organized association by an insurer offering a health benefit plan.
History: 32 Ky.R. 573; 915; eff. 2-3-2006; Crt eff. 2-26-2020; 48 Ky.R. 205, 1554; eff. 2-1-2022

806 KAR 17:480 Uniform evaluation and reevaluation of providers {#sec-806-kar-17-480 omnilex-key=us-ky-regs-official--title-806--806 KAR 17:480}

Section 1. Definitions.

(1) "Applicant" is defined by KRS 304.17A-575(1).

(2) "Evaluation" or "credentialing" means:

(a) A process for collecting and verifying professional qualifications of a health care provider;

(b) An assessment of a health care provider's professional competence and conduct; and

(c) A process to be completed before a health care provider may participate in a provider network of an insurer on an initial or ongoing basis.

(3) "Form KAPER-1" means the uniform application for credentialing or recredentialing of a health care provider pursuant to KRS 304.17A-545(5).

(4) "Health care provider" or "provider" means a:

(a) Health care provider pursuant to KRS 304.17A-005(23); or

(b) Psychologist licensed under KRS Chapter 319.

(5) "Participating health care provider" means a participating health care provider pursuant to KRS 304.17A-500(10), including a psychologist licensed under KRS Chapter 319.

(6) "Reevaluation" or "recredentialing" means:

(a) A process for collecting and reverifying professional qualifications of a participating health care provider; and

(b) An assessment of a participating health care provider's professional competence and conduct.

Section 2. Guidelines for an Insurer.

(1) Except as established in subsection (3)(b) of this section, an insurer that offers a managed care plan and performs credentialing or recredentialing activities shall use Form KAPER-1, Part A to credential or recredential a health care provider who desires participation in its provider network.

(2) Pursuant to subsection (1) of this section, an insurer shall:

(a) Have a mechanism for making available and accepting from a health care provider a handwritten or electronically submitted Form KAPER-1, Part A for:

Initial credentialing; and
Recredentialing;

(b) Within thirty (30) days of receipt of a Form KAPER-1, Part A, electronically or in writing:

Notify the health care provider of receipt of the Form KAPER-1 and, if applicable, of any omitted or questionable information included on the form;
Offer assistance to the provider, if requested; and

(c)

Within sixty (60) days of receipt of a Form KAPER-1, Part A, provide an electronic or written notification regarding the status of credentialing to the health care provider; and
Extend the time period identified in section 2(2)(c)1, due to extenuating circumstances if:

a. Additional time is required by the insurer to consider information submitted on the Form KAPER-1, Part A; and

b. The health care provider is informed of the need for more time, including information relating to the extenuating circumstance, which caused the delay;

(d) Provide electronic or written notification as established in paragraph (c) of this subsection every thirty (30) days after the initial notification until a final determination regarding credentialing has been issued to the health care provider;

(e) Not require:

Information on the Form KAPER-1, Part A, which is not relevant to the scope of practice, health care setting, or service of the health care provider; and
Routine recredentialing of a health care provider more frequently than three (3) years from the previous credentialing date; and

(f) Upon making a final determination regarding credentialing of an applicant in accordance with KRS 304.17A-576(1), provide notification of the determination to the applicant.

(3) An insurer may use:

(a) Form KAPER-1, Part A to credential or recredential an individual in its provider network other than a health care provider; and

(b) The provider credentialing application form of the Council for Affordable Quality Healthcare as identified in the introduction of the Form KAPER-1, Part A, in lieu of the Form KAPER-1, Part A.

Section 3. Incorporation by Reference.

(1) The "Kentucky Application for Provider Evaluation and Reevaluation", Form KAPER-1 (10/2021), is incorporated by reference.

(2) This material may be inspected, copied, or obtained, subject to applicable copyright law, at the Department of Insurance, 500 Mero St., 2SE11, Frankfort, Kentucky 40601, Monday through Friday, 8 a.m. to 4:30 p.m. This material is also available on the Department of Insurance Web site at: http://insurance.ky.gov.

History

RELATES TO: KRS 205.560(12), 216B.155(2), 304.17A-005, 304.17A-500, 304.17A-545, 304.17A-575, 304.17A-576
STATUTORY AUTHORITY: KRS 304.2-110(1), 304.17A-545(5)
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.2-110(1) authorizes the commissioner to promulgate reasonable administrative regulations necessary for, or as an aid to, the effectuation of any provision of the Kentucky Insurance Code. KRS 304.17A-545(5) requires the commissioner to promulgate administrative regulations to establish a uniform application form and guidelines for the evaluation and reevaluation of health care providers, including psychologists, who will be on a managed care plan's list of participating providers. This administrative regulation establishes the uniform application form and guidelines for evaluation and reevaluation of a health care provider, including a psychologist.
History: 32 Ky.R. 1028; 1265; 1399; 3-3-2006; 33 Ky.R. 1726; 3028; 3193; eff. 5-4-2007; 35 Ky.R.1607; 2081; 2742; eff. 7-6-2009; Crt eff. 2-28-2020; 46 Ky.R. 1952, 2408; eff. 6-2-2020; TAm eff. 10-6-2021.

806 KAR 17:490 Hospice benefit requirements {#sec-806-kar-17-490 omnilex-key=us-ky-regs-official--title-806--806 KAR 17:490}

Section 1. Definitions.

(1) "Health benefit plan" is defined in KRS 304.17A-005(22).

(2) "Health savings account" is defined in 26 U.S.C. 223(d).

(3) "High deductible health plan" means a health benefit plan that qualifies as a high deductible health plan as defined in 26 U.S.C. 223(c)(2).

(4) "Hospice" means an entity defined in 42 C.F.R. 418.3 and approved by Medicare or licensed pursuant to KRS Chapter 216B.

(5) "Hospice benefit" means services described in 42 C.F.R. Part 418, Subpart F if provided by a hospice.

Section 2. Application of Deductible to a Hospice Benefit. A hospice benefit provided for a person covered under a high deductible health plan with a health savings account shall be subject to deductible amounts as established in the health benefit plan.

History

RELATES TO: KRS 304.14-130, 304.32-160, 304.38-050
STATUTORY AUTHORITY: KRS 304.2-110(1), 304.17A-250(6)
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.2-110(1) authorizes the Commissioner of Insurance to promulgate administrative regulations necessary for or as an aid to the effectuation of any provision of the Kentucky Insurance Code as defined in KRS 304.1-010. KRS 304.17A-250(6) requires all health benefit plans to cover hospice care at least equal to the Medicare benefits. EO 2003-064, filed December 23, 2003, created the Environmental and Public Protection Cabinet. EO 2004-031, filed January 6, 2004, abolished the Department of Insurance and transferred all its "duties, functions, responsibilities, records, equipment, staff and support budgets" to the Office of Insurance. This administrative regulation clarifies the requirement that a health benefit plan shall provide a hospice benefit at least equal to the Medicare hospice benefit.
History: 31 Ky.R. 13; Am. 569; eff. 9-15-2004; TAm eff. 8-9-2007; Crt eff. 2-26-2020; TAm eff. 3-10-2020.

806 KAR 17:570 Minimum standards for Medicare supplement insurance policies and certificates {#sec-806-kar-17-570 omnilex-key=us-ky-regs-official--title-806--806 KAR 17:570}

Section 1. Definitions.

(1) "Applicant" is defined by KRS 304.14-500(1).

(2) "Bankruptcy" means a petition for declaration of bankruptcy filed by or filed against a Medicare Advantage organization that is not an insurer and has ceased doing business in the state.

(3) "Certificate" is defined by KRS 304.14-500(2).

(4) "Certificate form" means the form on which the certificate is delivered or issued for delivery by the insurer.

(5) "Commissioner" means Commissioner of the Department of Insurance.

(6) "Compensation" means monetary or non-monetary remuneration of any kind relating to the sale or renewal of the policy or certificate including bonuses, gifts, prizes, awards, and finder's fees.

(7) "Complaint" means any dissatisfaction expressed by an individual concerning a Medicare Select insurer or its network providers.

(8) "Continuous period of creditable coverage" means the period during which an individual was covered by creditable coverage, if during the period of the coverage the individual had no breaks in coverage greater than sixty-three (63) days.

(9) "Creditable coverage" is defined by KRS 304.17A-005(8).

(10) "Employee welfare benefit plan" means a plan, fund, or program of employee benefits as defined by 29 U.S.C. Section 1002 of the Employee Retirement Income Security Act.

(11) "Family member" means, with respect to an individual, any other individual who is a first-degree, second-degree, third-degree, or fourth-degree relative of the individual.

(12) "Genetic information" means, except for information relating to the sex or age:

(a) With respect to any individual:

Information about the individual's genetic tests, the genetic tests of family members of the individual, and the manifestation of a disease or disorder in family members of the individual; or
Any request for, or receipt of, genetic services, or participation in clinical research that includes genetic services, by the individual or any family member of the individual; and

(b) Any reference to genetic information concerning an individual or family member of an individual who is a pregnant woman, including:

Genetic information of any fetus carried by a pregnant woman; or
With respect to an individual or family member utilizing reproductive technology, genetic information of any embryo legally held by an individual or family member.

(13) "Genetic services" means a genetic test, genetic counseling (including obtaining, interpreting, or assessing genetic information), or genetic education.

(14) "Genetic test":

(a) Means an analysis of human DNA, RNA, chromosomes, proteins, or metabolites, that detect genotypes, mutations, or chromosomal changes; and

(b) Does not mean an analysis of proteins or metabolites that:

Does not detect genotypes, mutations, or chromosomal changes; or
Is directly related to a manifested disease, disorder, or pathological condition that could reasonably be detected by a health care professional with appropriate training and expertise in the field of medicine involved.

(15) "Grievance" means dissatisfaction expressed in writing by an individual insured under a Medicare Select policy or certificate with the administration, claims practices, or provision of services concerning a Medicare Select insurer or its network providers.

(16) "Health care expenses" means expenses of health maintenance organizations associated with the delivery of health care services, which expenses are analogous to incurred losses of insurers.

(17) "Insolvency" is defined by KRS 304.33-030(12).

(18) "Insurer" means insurance companies, fraternal benefit societies, health care service plans, health maintenance organizations, and any other entity delivering or issuing for delivery in Kentucky, Medicare supplement policies or certificates.

(19) "Insurer of a Medicare supplement policy or certificate" means an insurer or third-party administrator, or other person acting for or on behalf of the insurer.

(20) "Medicare" is defined by KRS 304.14-500(4).

(21) "Medicare Advantage plan" means a plan of coverage for health benefits under Medicare Part C as defined by 42 U.S.C. 1395w-28(b)(1), including:

(a) A coordinated care plan, which provides health care services, including:

A health maintenance organization plan, with or without a point-of-service option;
A plan offered by provider-sponsored organization; and
A preferred provider organization plan;

(b) A medical savings account plan coupled with a contribution into a Medicare Advantage plan medical savings account; and

(22) "Medicare Select insurer" means an insurer offering, or seeking to offer, a Medicare Select policy or certificate.

(23) "Medicare Select policy" or "Medicare Select certificate" means, respectively, a Medicare supplement policy or certificate that contains restricted network provisions.

(24) "Medicare supplement policy" is defined by KRS 304.14-500(3).

(25) "Network provider" means a provider of health care, or a group of providers of health care, that has entered into a written agreement with the insurer to provide benefits insured under a Medicare Select policy.

(26) "Non-age eligible person" is defined by KRS 304.14-525(1)(a).

(27) "Policy form" means the form on which the policy is delivered or issued for delivery by the insurer.

(28) "Pre-standardized Medicare supplement benefit plan", "Pre-Standardized benefit plan", or "Pre-standardized plan" means a group or individual policy of Medicare supplement insurance issued prior to January 1, 1992.

(29) "Restricted network provision" means any provision that conditions the payment of benefits, in whole or in part, on the use of network providers.

(30) "Secretary" means the Secretary of the U.S. Department of Health and Human Services.

(31) "Service area" means the geographic area approved by the commissioner, as established in Section 12 of this administrative regulation, within which an insurer is authorized to offer a Medicare Select policy.

(32) "Structure, language, designation, and format" means style, arrangement, and overall content of a benefit.

(33) "Underwriting purposes" means:

(a) Rules for, or determination of, eligibility, including enrollment and continued eligibility, for benefits under the policy;

(b) The computation of premium or contribution amounts under the policy;

(d) Other activities related to the creation, renewal, or replacement of a contract of health insurance or health benefits.

(34) "Weighted average aged premium rate" is defined by KRS 304.14-525(1)(b).

(35) "1990 Standardized Medicare supplement benefit plan", "1990 Standardized benefit plan", or "1990 plan" means a group or individual policy of Medicare supplement insurance issued on or after January 1, 1992, with an effective date for coverage prior to June 1, 2010 including Medicare supplement insurance policies and certificates renewed on or after that date that are not replaced by the insurer at the request of the insured.

(36) "2010 Standardized Medicare supplement benefit plan", "2010 Standardized benefit plan", or "2010 plan" means a group or individual policy of Medicare supplement insurance issued with an effective date for coverage on or after June 1, 2010.

Section 2. Purpose. The purpose of this administrative regulation shall be to:

(1) Provide for the reasonable standardization of coverage and simplification of terms and benefits of Medicare supplement policies;

(2) Facilitate public understanding and comparison of the policies;

(3) Eliminate provisions contained in the policies that may be misleading or confusing in connection with the purchase of the policies or with the settlement of claims; and

(4) Provide for full disclosures in the sale of accident and sickness insurance coverage to persons eligible for Medicare.

Section 3. Applicability and Scope.

(1) Except as provided in Sections 6, 15, 16, 19, and 24, the requirements of this administrative regulation shall apply to:

(a) All Medicare supplement policies delivered or issued for delivery in Kentucky on or after January 4, 2010; and

(b) All certificates issued under group Medicare supplement policies, which certificates have been delivered or issued for delivery in Kentucky.

(2) This administrative regulation shall not apply to a policy or contract:

(a) Of one (1) or more employers or labor organizations, or of the trustees of a fund established by one (1) or more employers or labor organizations, or combination thereof;

(b) For employees or former employees, or a combination thereof; or

Section 4. Policy Definitions and Terms. A policy or certificate shall not be advertised, solicited, or issued for delivery in Kentucky as a Medicare supplement policy or certificate unless the policy or certificate contains definitions or terms that conform to this section.

(1) "Accident", "accidental injury", or "accidental means" shall be defined to employ "result" language and shall not include words that establish an accidental means test or use words including "external, violent, visible wounds", or similar words of description or characterization.

(a) The definition shall not be more restrictive than the following: "Injury or injuries for which benefits are provided means accidental bodily injury sustained by the insured person, which is the direct result of an accident, independent of disease or bodily infirmity or any other cause, and occurs while insurance coverage is in force."

(b) The definition may provide that injuries shall not include injuries for which benefits are provided or available under any workers' compensation, employer's liability or similar law, or motor vehicle no-fault plan, unless the definition is prohibited by law.

(2) "Activities of daily living" shall include bathing, dressing, personal hygiene, transferring, eating, ambulating, assistance with drugs that are normally self-administered, and changing bandages or other dressings.

(3) "At-home recovery visit" shall mean the period of a visit required to provide at home recovery care, without limit on the duration of the visit, except each consecutive four (4) hours in a twenty-four (24) hour period of services provided by a care provider shall be one (1) visit.

(4) "Benefit period" or "Medicare benefit period" shall not be defined more restrictively than as defined in the Medicare program.

(5) "Care provider" shall mean a duly qualified or licensed home health aide or homemaker, personal care aide, or nurse provided through a licensed home health care agency or referred by a licensed referral agency or licensed nurses registry.

(6) "Convalescent nursing home", "extended care facility", or "skilled nursing facility" shall not be defined more restrictively than as defined in the Medicare Program.

(7) "Emergency care" shall mean care needed immediately because of an injury or an illness of sudden and unexpected onset.

(8) "Home" shall mean any place used by the insured as a place of residence, if the place would qualify as a residence for home health care services covered by Medicare. A hospital or skilled nursing facility shall not be considered the insured's place of residence.

(9) "Hospital" 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, but shall not be defined more restrictively than as defined in the Medicare Program.

(10) "Medicare" shall be defined in the policy and certificate. Medicare 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 Law 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.

(11) "Medicare eligible expenses" shall mean expenses of the kinds covered by Medicare Parts A and B, to the extent recognized as reasonable and medically necessary by Medicare.

(12) "Physician" shall not be defined more restrictively than as defined in the Medicare program.

(13) "Preexisting condition" shall not be defined more restrictively than a condition for which medical advice was given or treatment was recommended by or received from a physician within six (6) months before the effective date of coverage.

(14) Except as established in this subsection, "sickness" shall not be defined to be more restrictive than the following: "Sickness means illness or disease of an insured person that first manifests itself after the effective date of insurance and while the insurance is in force." The definition may be further modified to exclude sicknesses or diseases for which benefits are provided under any workers' compensation, occupational disease, employer's liability, or similar law.

Section 5. Policy Provisions.

(1) Except for allowed preexisting condition clauses as described in Sections 6(2)(a), 7(1)(a), and 8(1) of this administrative regulation, a policy or certificate shall not be advertised, solicited, or issued for delivery in Kentucky as a Medicare supplement policy if the policy or certificate contains limitations or exclusions on coverage that are more restrictive than those of Medicare.

(2) A Medicare supplement policy or certificate shall not:

(a) Contain a probationary or elimination period; or

(b) Use waivers to exclude, limit, or reduce coverage or benefits for specifically named or described preexisting diseases or physical conditions.

(3) A Medicare supplement policy or certificate in force in Kentucky shall not contain benefits that duplicate benefits provided by Medicare.

(4)

(a) In accordance with Sections 6(2)(d), (e), and (g), and 7(1)(d) and (e) of this administrative regulation, a Medicare supplement policy with benefits for outpatient prescription drugs in existence prior to January 1, 2006, shall be renewed for current policyholders who do not enroll in Part D at the option of the policyholder.

(b) A Medicare supplement policy with benefits for outpatient prescription drugs shall not be issued after December 31, 2005.

(c) After December 31, 2005, a Medicare supplement policy with benefits for outpatient prescription drugs shall not be renewed after the policyholder enrolls in Medicare Part D unless:

The policy is modified to eliminate outpatient prescription coverage for expenses of outpatient prescription drugs incurred after the effective date of the individual's coverage under a Part D plan; and
Premiums are adjusted to reflect the elimination of outpatient prescription drug coverage at Medicare Part D enrollment, accounting for any claims paid, if applicable.

Section 6. Minimum Benefit Standards for Pre-Standardized Medicare Supplement Benefit Plan Policies or Certificates Issued for Delivery Prior to January 1, 1992.

(1) A policy or certificate shall not be advertised, solicited, or issued for delivery in Kentucky as a Medicare supplement policy or certificate unless the policy or certificate meets or exceeds the minimum standards established in subsections (2) and (3) of this section, which shall not preclude the inclusion of other provisions or benefits that are not inconsistent with these standards.

(2) General standards. The standards established in paragraphs (a) through (g) of this subsection shall apply to Medicare supplement policies and certificates and are in addition to all other requirements of this administrative regulation.

(a) A Medicare supplement policy or certificate shall not exclude or limit benefits for losses incurred more than six (6) months from the effective date of coverage because it involved a preexisting condition, and the policy or certificate shall not define a preexisting condition more restrictively than Section 4(13) of this administrative regulation.

(b) A Medicare supplement policy or certificate shall not indemnify against losses resulting from sickness on a different basis than losses resulting from accidents.

(c) A Medicare supplement policy or certificate shall provide that benefits designed to cover cost sharing amounts under Medicare shall be changed automatically to coincide with any changes in the applicable Medicare deductible, copayment, or coinsurance amounts. Premiums may be modified to correspond with the changes.

(d) A "noncancellable", "guaranteed renewable", or "noncancellable and guaranteed renewable" Medicare supplement policy shall not:

Provide for termination of coverage of a spouse solely because of the occurrence of an event specified for termination of coverage of the insured, other than the nonpayment of premium; or
Be cancelled or nonrenewed by the insurer solely on the grounds of deterioration of health.

(e)

An insurer shall not cancel or nonrenew a Medicare supplement policy or certificate for any reason other than nonpayment of premium or material misrepresentation.
If a group Medicare supplement insurance policy is terminated by the group policyholder and not replaced as provided in subparagraph 4. of this paragraph, the insurer shall offer certificate holders an individual Medicare supplement policy with at least the following choices:

a. An individual Medicare supplement policy currently offered by the insurer having comparable benefits to those contained in the terminated group Medicare supplement policy; and

b. An individual Medicare supplement policy that provides the benefits as are required to meet the minimum standards as established in Section 8(2) of this administrative regulation.

If membership in a group is terminated, the insurer shall:

a. Offer the certificate holder the conversion opportunities described in subparagraph 2. of this paragraph; or

b. At the option of the group policyholder, offer the certificate holder continuation of coverage under the group policy.

If a group Medicare supplement policy is replaced by another group Medicare supplement policy purchased by the same policyholder, the insurer of the replacement policy shall offer coverage to all persons covered under the old group policy on its date of termination, and coverage under the new group policy shall not result in any exclusion for preexisting conditions that would have been covered under the group policy being replaced.

(f) Termination of a Medicare supplement policy or certificate shall be without prejudice to any continuous loss that commenced while the policy was in force, but the extension of benefits beyond the period during which the policy was in force may be predicated upon the continuous total disability of the insured, limited to the duration of the policy benefit period, if any, or to payment of the maximum benefits. Receipt of Medicare Part D benefits shall not be considered in determining a continuous loss.

(g) If a Medicare supplement policy eliminates an outpatient prescription drug benefit as a result of requirements imposed by the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, Pub. L. 108-173, the modified policy shall satisfy the guaranteed renewal requirements of this subsection.

(3) Minimum benefit standards. The following minimum benefit standards shall apply to Medicare supplement policies and certificates and are in addition to all other requirements of this administrative regulation:

(a) Coverage of Part A Medicare eligible expenses for hospitalization, to the extent not covered by Medicare from the 61st day through the 90th day in any Medicare benefit period;

(b) Coverage for either all or none of the Medicare Part A inpatient hospital deductible amount;

(c) Coverage of Part A Medicare eligible expenses incurred as daily hospital charges during use of Medicare's lifetime hospital inpatient reserve days;

(d) Upon exhaustion of all Medicare hospital inpatient coverage including the lifetime reserve days, coverage of ninety (90) percent of all Medicare Part A eligible expenses for hospitalization not covered by Medicare limited to a lifetime maximum benefit of an additional 365 days;

(e) Coverage under Medicare Part A for the reasonable cost of the first three (3) pints of blood, or equivalent quantities of packed red blood cells, pursuant to 42 C.F.R. 409.87(a)(2), unless replaced in accordance with 42 C.F.R. 409.87(c)(2) or already paid for under Part B;

(f) Coverage for the coinsurance amount, or in the case of hospital outpatient department services paid under a prospective payment system, the copayment amount, of Medicare eligible expenses under Part B regardless of hospital confinement, limited to a maximum calendar year out-of-pocket amount equal to the Medicare Part B deductible; and

(g) Effective January 1, 1990, coverage under Medicare Part B for the reasonable cost of the first three (3) pints of blood, or equivalent quantities of packed red blood cells, pursuant to 42 C.F.R. 409.87(a)(2), unless replaced in accordance with 42 C.F.R. 409.87(c)(2) or already paid for under Part A, limited to the Medicare deductible amount.

Section 7. Benefit Standards for 1990 Standardized Medicare Supplement Benefit Plan and Policies or Certificates Issued or Delivered on or After January 1, 1992, and With an Effective Date for Coverage Prior to June 1, 2010. The following standards shall apply to all Medicare supplement policies or certificates delivered or issued for delivery in Kentucky on or after January 1, 1992, and with an effective date for coverage prior to June 1, 2010. A policy or certificate shall not be advertised, solicited, delivered, or issued for delivery in Kentucky as a Medicare supplement policy or certificate unless it complies with subsections (1) through (4) of this section.

(1) General Standards. The following standards shall apply to Medicare supplement policies and certificates and shall be in addition to all other requirements of this administrative regulation.

(b) A Medicare supplement policy or certificate shall not indemnify against losses resulting from sickness on a different basis than losses resulting from accidents.

(d) A Medicare supplement policy or certificate shall not provide for termination of coverage of a spouse solely because of the occurrence of an event specified for termination of coverage of the insured, other than the nonpayment of premium.

(e) Each Medicare supplement policy shall be guaranteed renewable.

The insurer shall not cancel or nonrenew the policy solely on health status of the individual.
The insurer shall not cancel or nonrenew the policy for any reason other than nonpayment of premium or material misrepresentation.
If the Medicare supplement policy is terminated by the group policyholder and is not replaced as provided under subparagraph 5. of this paragraph, the insurer shall offer certificate holders an option to choose an individual Medicare supplement policy which, at the option of the certificate holder provides for:

a. Continuation of the benefits contained in the group policy; or

b. Benefits that meet the requirements of this subsection.

If an individual is a certificate holder in a group Medicare supplement policy and the individual terminates membership in the group, the insurer shall:

a. Offer the certificate holder the conversion opportunity described in subparagraph 3. of this paragraph; or

b. At the option of the group policyholder, offer the certificate holder continuation of coverage under the group policy.

If a group Medicare supplement policy is replaced by another group Medicare supplement policy purchased by the same policyholder, the insurer of the replacement policy shall offer coverage to all persons covered under the old group policy on its date of termination. Coverage under the new policy shall not result in any exclusion for preexisting conditions that would have been covered under the group policy being replaced.
If a Medicare supplement policy eliminates an outpatient prescription drug benefit as a result of requirements imposed by the Medicare Prescription Drug, Improvement and Modernization Act of 2003, Pub. L. 108-173, the modified policy shall satisfy the guaranteed renewal requirements of this paragraph.

(f) Termination of a Medicare supplement policy or certificate shall be without prejudice to any continuous loss that commenced while the policy was in force, but the extension of benefits beyond the period during which the policy was in force may be conditioned upon the continuous total disability of the insured, limited to the duration of the policy benefit period, if any, or payment of the maximum benefits. Receipt of Medicare Part D benefits shall not be considered in determining a continuous loss.

(g)

A Medicare supplement policy or certificate shall provide that benefits and premiums under the policy or certificate shall be suspended at the request of the policyholder or certificate holder for the period, not to exceed twenty-four (24) months, in which the policyholder or certificate holder has applied for and is determined to be entitled to medical assistance under Title XIX of the Social Security Act, 42 U.S.C. 1396 et seq., but only if the policyholder or certificate holder notifies the insurer of the policy or certificate within ninety (90) days after the date the individual becomes entitled to assistance.
If suspension occurs and if the policyholder or certificate holder loses entitlement to medical assistance, the policy or certificate shall be automatically reinstituted, effective as of the date of termination of entitlement, as of the termination of entitlement if the policyholder or certificate holder provides notice of loss of entitlement within ninety (90) days after the date of loss and pays the premium attributable to the period, effective as of the date of termination of entitlement.
Each Medicare supplement policy shall provide that benefits and premiums under the policy shall be suspended, for any period provided by 42 U.S.C. 1395ss(q)(5), at the request of the policyholder if the policyholder is entitled to benefits under Section 226(b) of the Social Security Act, 42 U.S.C. 426(b), and is covered under a "group health plan", as defined by Section 1862(b)(1)(A)(v) of the Social Security Act, 42 U.S.C. 1395y(b)(1)(A)(v). If suspension occurs and if the policyholder or certificate holder loses coverage under the group health plan, the policy shall be automatically reinstituted, effective as of the date of loss of coverage, if the policyholder provides notice of loss of coverage within ninety (90) days after the date of the loss and pays the premium attributable to the period, effective as of the date of termination of enrollment in the group health plan.
Reinstitution of coverages as described in subparagraphs 2. and 3. of this paragraph:

a. Shall not provide for any waiting period with respect to treatment of preexisting conditions;

b. Shall provide for resumption of coverage that is substantially equivalent to coverage in effect before the date of suspension. If the suspended Medicare supplement policy provided coverage for outpatient prescription drugs, reinstitution of the policy for Medicare Part D enrollees shall be without coverage for outpatient prescription drugs and shall provide substantially equivalent coverage to the coverage in effect before the date of suspension; and

c. Shall provide for classification of premiums on terms at least as favorable to the policyholder or certificate holder as the premium classification terms that would have applied to the policyholder or certificate holder had the coverage not been suspended.

(h) If an insurer makes a written offer to the Medicare Supplement policyholders or certificate holders of one (1) or more of its plans, to exchange during a specified period from his or her 1990 Standardized plan, as described in Section 9 of this administrative regulation, to a 2010 Standardized plan, as described in Section 10 of this administrative regulation, the offer and subsequent exchange shall comply with subparagraphs 1. through 5. of this paragraph.

An insurer shall not be required to provide justification to the commissioner if the insured replaces a 1990 Standardized policy or certificate with an issue age rated 2010 Standardized policy or certificate at the insured's original issue age. If an insured's policy or certificate to be replaced is priced on an issue age rate schedule at offer, the rate charged to the insured for the new exchanged policy shall recognize the policy reserve buildup, due to the pre-funding inherent in the use of an issue age rate basis, for the benefit of the insured. The method proposed to be used by an insurer shall be filed with the commissioner in accordance with KRS 304.14-120 and 806 KAR 14:007.
The rating class of the new policy or certificate shall be the class closest to the insured's class of the replaced coverage.
An insurer:

a. Shall not apply new pre-existing condition limitations or a new incontestability period to the new policy for those benefits contained in the exchanged 1990 Standardized policy or certificate of the insured; and

b. May apply pre-existing condition limitations of no more than six (6) months to any added benefits contained in the new 2010 Standardized policy or certificate not contained in the exchanged policy.

The new policy or certificate shall be offered to all policyholders or certificate holders within a given plan, except if the offer or issue would be in violation of state or federal law.
An insurer may offer its policyholders or certificate holders the following exchange options:

a. Selected existing plans; or

b. Certain new plans for a particular existing plan.

(2) Standards for basic (core) benefits common to benefit plans A through J. Every insurer shall make available a policy or certificate including at a minimum the basic "core" package of benefits established in paragraphs (a) through (e) of this subsection to each prospective insured. An insurer may make available to prospective insureds any of the other Medicare Supplement Insurance Benefit Plans in addition to the basic core package, but not in lieu of it, including:

(a) Coverage of Part A Medicare eligible expenses for hospitalization to the extent not covered by Medicare from the 61st day through the 90th day in any Medicare benefit period;

(b) Coverage of Part A Medicare eligible expenses incurred for hospitalization to the extent not covered by Medicare for each Medicare lifetime inpatient reserve day used;

(c) Upon exhaustion of the Medicare hospital inpatient coverage, including the lifetime reserve days, coverage of 100 percent of the Medicare Part A eligible expenses for hospitalization paid at the applicable prospective payment system (PPS) rate, or other appropriate Medicare standard of payment, limited to a lifetime maximum benefit of an additional 365 days;

(d) Coverage under Medicare Parts A and B for the reasonable cost of the first three (3) pints of blood, or equivalent quantities of packed red blood cells, pursuant to 42 C.F.R. 409.87(a)(2), unless replaced in accordance with 42 C.F.R. 409.87(c)(2); and

(e) Coverage for the coinsurance amount or for hospital outpatient department services paid under a prospective payment system, the copayment amount, of Medicare eligible expenses under Part B regardless of hospital confinement, limited to the Medicare Part B deductible.

(3) Standards for Additional Benefits. The following additional benefits shall be included in Medicare Supplement Benefit Plans "B" through "J" only as provided by Section 9 of this administrative regulation:

(a) Medicare Part A Deductible, which is coverage for all of the Medicare Part A inpatient hospital deductible amount per benefit period;

(b) Skilled Nursing Facility Care, which is coverage for the actual billed charges up to the coinsurance amount from the 21st day through the 100th day in a Medicare benefit period for posthospital skilled nursing facility care eligible under Medicare Part A;

(c) Medicare Part B Deductible, which is coverage for all of the Medicare Part B deductible amount per calendar year regardless of hospital confinement;

(d) Eighty (80) Percent of the Medicare Part B Excess Charges, which is coverage for eighty (80) percent of the difference between the actual Medicare Part B charge as billed, not to exceed any charge limitation established by the Medicare program, and the Medicare-approved Part B charge;

(e) 100 Percent of the Medicare Part B Excess Charges, which is coverage for all of the difference between the actual Medicare Part B charges as billed, not to exceed any charge limitation established by the Medicare Program or state law, and the Medicare-approved Part B charge;

(f) Basic Outpatient Prescription Drug Benefit which is coverage for fifty (50) percent of outpatient prescription drug charges, after a $250 calendar year deductible, to a maximum of $1,250 in benefits received by the insured per calendar year, to the extent not covered by Medicare. The outpatient prescription drug benefit may be included for sale or issuance in a Medicare supplement policy until January 1, 2006;

(g) Extended Outpatient Prescription Drug Benefit, which is coverage for fifty (50) percent of outpatient prescription drug charges, after a $250 calendar year deductible to a maximum of $3,000 in benefits received by the insured per calendar year, to the extent not covered by Medicare. The outpatient prescription drug benefit may be included for sale or issuance in a Medicare supplement policy until January 1, 2006;

(h) Medically Necessary Emergency Care in a Foreign Country, which is coverage to the extent not covered by Medicare for eighty (80) percent of the billed charges for Medicare eligible expenses for medically necessary emergency hospital, physician, and medical care received in a foreign country, which care would have been covered by Medicare if provided in the United States and which care began during the first sixty (60) consecutive days of each trip outside the United States, limited to a calendar year deductible of $250, and a lifetime maximum benefit of $50,000;

(i)

Preventive Medical Care Benefit, which is coverage for the following preventive health services not covered by Medicare:

a. An annual clinical preventive medical history and physical examination that may include tests and services from subparagraph 2. of this paragraph and patient education to address preventive health care measures; and

b. Preventive screening tests or preventive services, the selection and frequency of which are determined to be medically appropriate by the attending physician.

Reimbursement shall be for the actual charges up to 100 percent of the Medicare approved amount for each service, as if Medicare were to cover the service as identified in American Medical Association Current Procedural Terminology (AMA CPT) codes, to a maximum of $120 annually under this benefit. This benefit shall not include payment for any procedure covered by Medicare; and

(j) At-Home Recovery Benefit, which is coverage for services to provide short term, at-home assistance with activities of daily living for those recovering from an illness, injury or surgery.

Coverage requirements and limitations.

a. At-home recovery services provided shall be primarily services that assist in activities of daily living.

b. The insured's attending physician shall certify that the specific type and frequency of at-home recovery services are necessary because of a condition for which a home care plan of treatment was approved by Medicare.

c. Coverage shall be limited to:

(i) No more than the number and type of at-home recovery visits certified as necessary by the insured's attending physician. The total number of at-home recovery visits shall not exceed the number of Medicare-approved home health care visits under a Medicare-approved home care plan of treatment;

(ii) The actual charges for each visit up to a maximum reimbursement of forty (40) dollars per visit;

(iii) $1,600 per calendar year;

(iv) Seven (7) visits in any one (1) week;

(v) Care furnished on a visiting basis in the insured's home;

(vi) Services provided by a "care provider", as defined by Section 4(5) of this administrative regulation;

(vii) At-home recovery visits while the insured is covered under the policy or certificate and not excluded; and

(viii) At-home recovery visits received during the period the insured is receiving Medicare-approved home care services or no more than eight (8) weeks after the service date of the last Medicare-approved home health care visit.

Coverage shall be excluded for:

a. Home care visits paid for by Medicare or other government programs; and

b. Care provided by family members, unpaid volunteers, or providers who are not care providers.

(4) Standards for Plans K and L.

(a) Standardized Medicare supplement benefit plan "K" shall consist of:

Coverage of 100 percent of the Part A hospital coinsurance amount for each day used from the 61st through the 90th day in any Medicare benefit period;
Coverage of 100 percent of the Part A hospital coinsurance amount for each Medicare lifetime inpatient reserve day used from the 91st through the 150th day in any Medicare benefit period;
Upon exhaustion of the Medicare hospital inpatient coverage, including the lifetime reserve days, coverage of 100 percent of the Medicare Part A eligible expenses for hospitalization paid at the applicable prospective payment system (PPS) rate, or other appropriate Medicare standard of payment, subject to a lifetime maximum benefit of an additional 365 days;
Medicare Part A Deductible, which is coverage for fifty (50) percent of the Medicare Part A inpatient hospital deductible amount per benefit period until the out-of-pocket limitation is met as described in subparagraph 10. of this paragraph;
Skilled Nursing Facility Care, which is coverage for fifty (50) percent of the coinsurance amount for each day used from the 21st day through the 100th day in a Medicare benefit period for posthospital skilled nursing facility care eligible under Medicare Part A until the out-of-pocket limitation is met as described in subparagraph 10. of this paragraph;
Hospice Care, which is coverage for fifty (50) percent of cost sharing for all Part A Medicare eligible expenses and respite care until the out-of-pocket limitation is met as described in subparagraph 10. of this paragraph;
Coverage for fifty (50) percent, under Medicare Part A or B, of the reasonable cost of the first three (3) pints of blood (or equivalent quantities of packed red blood cells, pursuant to 42 C.F.R. 409.87(a)(2)), unless replaced in accordance with 42 C.F.R. 409.87(c)(2), until the out-of-pocket limitation is met as described in subparagraph 10. of this paragraph;
Except for coverage provided in subparagraph 9. of this paragraph, coverage for fifty (50) percent of the cost sharing applicable under Medicare Part B after the policyholder pays the Part B deductible until the out-of-pocket limitation is met as described in subparagraph 10. of this paragraph;
Coverage of 100 percent of the cost sharing for Medicare Part B preventive services after the policyholder pays the Part B deductible; and
Coverage of 100 percent of all cost sharing under Medicare Parts A and B for the balance of the calendar year after the individual has reached the out-of-pocket limitation on annual expenditures under Medicare Parts A and B of $4,000 in 2006, indexed each year by the appropriate inflation adjustment specified by the secretary.

(b) Standardized Medicare supplement benefit plan "L" shall consist of the benefits established in:

Paragraph (a)1., 2., 3., and 9. of this subsection;
Paragraph (a)4. through 8. of this subsection, but substituting seventy-five (75) percent for fifty (50) percent; and
Paragraph (a)10. of this section, but substituting $2,000 for $4,000.

Section 8. Benefit Standards for 2010 Standardized Medicare Supplement Benefit Plan Policies or Certificates Issued for Delivery with an Effective Date for Coverage on or After June 1, 2010. The standards established in subsections (1) through (3) of this section shall apply to all Medicare supplement policies or certificates delivered or issued for delivery in Kentucky with an effective date for coverage on or after June 1, 2010. A policy or certificate shall not be advertised, solicited, delivered, or issued for delivery in Kentucky as a Medicare supplement policy or certificate unless the policy or certificate complies with these benefit standards. An insurer shall not offer any 1990 Standardized Medicare supplement benefit plan for sale on or after June 1, 2010. Benefit standards applicable to Medicare supplement policies and certificates issued before June 1, 2010, shall remain in compliance with the requirements of Sections 7 and 9 of this administrative regulation.

(1) General Standards. The general standards of Section 7(1)(a) through (g), except 7(1)(e)6., shall apply to all policies in this section.

(2) Standards for Basic (Core) Benefits Common to Medicare Supplement Insurance Benefit Plans A, B, C, D, F, High Deductible F, G, M and N. Every insurer of Medicare supplement insurance benefit plans shall make available a policy or certificate including, at a minimum, the basic "core" package of benefits established in paragraphs (a) and (b) of this subsection to each prospective insured. An insurer may make available to prospective insureds any of the other Medicare Supplement Insurance Benefit Plans in addition to the basic core package, but not in lieu of it, including:

(a) Section 7(2)(a) through (e) of this administrative regulation shall be applied to plans under this section; and

(b) Hospice Care, which is coverage of cost sharing for all Part A Medicare eligible hospice care and respite care expenses.

(3) Standards for Additional Benefits. The following additional benefits shall be included in Medicare supplement benefit Plans B, C, D, F, High Deductible F, G, M, and N as provided by Section 10 of this administrative regulation:

(a) Medicare Part A Deductible, which is coverage for 100 percent of the Medicare Part A inpatient hospital deductible amount per benefit period;

(b) Medicare Part A Deductible, which is coverage for fifty (50) percent of the Medicare Part A inpatient hospital deductible amount per benefit period;

(c) Skilled Nursing Facility Care, which is coverage for the actual billed charges up to the coinsurance amount from the 21st day through the 100th day in a Medicare benefit period for posthospital skilled nursing facility care eligible under Medicare Part A;

(d) Medicare Part B Deductible, which is coverage for 100 percent of the Medicare Part B deductible amount per calendar year regardless of hospital confinement;

(e) 100 percent of the Medicare Part B Excess Charges, which is coverage for the difference between the actual Medicare Part B charges as billed, not to exceed any charge limitation established by the Medicare program, and the Medicare-approved Part B charge; and

(f) Medically Necessary Emergency Care in a Foreign Country, which is coverage to the extent not covered by Medicare for eighty (80) percent of the billed charges for Medicare-eligible expenses for medically necessary emergency hospital, physician, and medical care received in a foreign country, which care would have been covered by Medicare if provided in the United States and which care began during the first sixty (60) consecutive days of each trip outside the United States limited to a calendar year deductible of $250, and a lifetime maximum benefit of $50,000.

Section 9. Standard Medicare Supplement Benefit Plans for 1990 Standardized Medicare Supplement Benefit Plan Policies or Certificates Issued for Delivery on or After January 1, 1992, and with an Effective Date for Coverage Prior to June 1, 2010.

(1) An insurer shall make available to each prospective policyholder and certificate holder, a policy form or certificate form containing only the basic core benefits, as established in Section 7(2) of this administrative regulation.

(2) Groups, packages, or combinations of Medicare supplement benefits other than those listed in this section shall not be offered for sale in Kentucky, except as may be permitted in subsection (7) of this section and Section 11 of this administrative regulation.

(3) Benefit plans shall be uniform in structure, language, designation, and format to the standard benefit plans "A" through "L" listed in this section and conform to the definitions in Section 1 of this administrative regulation. Each benefit shall be structured in accordance with the format provided in Section 7(2) and(3) or 7(4) of this administrative regulation and shall list the benefits in the order shown in this section.

(4) An insurer may use, in addition to the benefit plan designations required in subsection (3) of this section, other designations to the extent allowed by law.

(5) Make-up of benefit plans.

(a) Standardized Medicare supplement benefit Plan "A" shall be limited to the basic (core) benefits common to all benefit plans, as described in Section 7(2) of this administrative regulation.

(b) Standardized Medicare supplement benefit Plan "B" shall include only the core benefit as described in Section 7(2) of this administrative regulation, plus the Medicare Part A deductible as described in Section 7(3)(a).

(c) Standardized Medicare supplement benefit Plan "C" shall include only the core benefit as described in Section 7(2) of this administrative regulation, plus the Medicare Part A deductible, skilled nursing facility care, Medicare Part B deductible and medically necessary emergency care in a foreign country as described in Section 7(3)(a), (b), (c), and (h), respectively.

(d) Standardized Medicare supplement benefit Plan "D" shall include only the core benefit, as described in Section 7(2) of this administrative regulation, plus the Medicare Part A deductible, skilled nursing facility care, medically necessary emergency care in a foreign country and the at-home recovery benefit as described in Section 7(3)(a), (b), (h), and (j), respectively.

(e) Standardized Medicare supplement benefit Plan "E" shall include only the core benefit as described in Section 7(2) of this administrative regulation, plus the Medicare Part A deductible, skilled nursing facility care, medically necessary emergency care in a foreign country and preventive medical care as described in Section 7(3)(a), (b), (h), and (i), respectively.

(f) Standardized Medicare supplement benefit Plan "F" shall include only the core benefit as described in Section 7(2) of this administrative regulation, plus the Medicare Part A deductible, the skilled nursing facility care, the Medicare Part B deductible, 100 percent of the Medicare Part B excess charges, and medically necessary emergency care in a foreign country as described in Section 7(3)(a), (b), (c), (e), and (h), respectively.

(g) Standardized Medicare supplement benefit high deductible Plan "F" shall include only the following: 100 percent of covered expenses following the payment of the annual high deductible Plan "F" deductible. The covered expenses shall include the core benefits as described in Section 7(2) of this administrative regulation, plus the Medicare Part A deductible, skilled nursing facility care, the Medicare Part B deductible, 100 percent of the Medicare Part B excess charges, and medically necessary emergency care in a foreign country as described in Section 7(3)(a), (b), (c), (e), and (h), respectively. The annual high deductible Plan "F" deductible shall consist of out-of-pocket expenses, other than premiums, for services covered by the Medicare supplement Plan "F" policy, and shall be in addition to any other specific benefit deductibles. The annual high deductible Plan "F" deductible shall be $1,500 for 1998 and 1999, and shall be based on the calendar year. It shall be adjusted annually thereafter by the secretary to reflect the change in the Consumer Price Index for all urban consumers for the twelve-month period ending with August of the preceding year, and rounded to the nearest multiple of ten (10) dollars.

(h) Standardized Medicare supplement benefit Plan "G" shall include only the core benefit as described in Section 7(2) of this administrative regulation, plus the Medicare Part A deductible, skilled nursing facility care, eighty (80) percent of the Medicare Part B excess charges, medically necessary emergency care in a foreign country, and the at-home recovery benefit as described in Section 7(3)(a), (b), (d), (h), and (j), respectively.

(i) Standardized Medicare supplement benefit Plan "H" shall consist of only the core benefit as described in Section 7(2) of this administrative regulation, plus the Medicare Part A deductible, skilled nursing facility care, basic prescription drug benefit, and medically necessary emergency care in a foreign country as described in Section 7(3)(a), (b), (f), and (h), respectively. The outpatient prescription drug benefit shall not be included in a Medicare supplement policy sold after December 31, 2005.

(j) Standardized Medicare supplement benefit Plan "I" shall consist of only the core benefit as described in Section 7(2) of this administrative regulation, plus the Medicare Part A deductible, skilled nursing facility care, 100 percent of the Medicare Part B excess charges, basic prescription drug benefit, medically necessary emergency care in a foreign country, and at-home recovery benefit as described in Section 7(3)(a), (b), (e), (f), (h), and (j), respectively. The outpatient prescription drug benefit shall not be included in a Medicare supplement policy sold after December 31, 2005.

(k) Standardized Medicare supplement benefit Plan "J" shall consist of only the core benefit as described in Section 7(2) of this administrative regulation, plus the Medicare Part A deductible, skilled nursing facility care, Medicare Part B deductible, 100 percent of the Medicare Part B excess charges, extended prescription drug benefit, medically necessary emergency care in a foreign country, preventive medical care, and at-home recovery benefit as described in Section 7(3)(a), (b), (c), (e), (g), (h), (i), and (j), respectively. The outpatient prescription drug benefit shall not be included in a Medicare supplement policy sold after December 31, 2005.

(l) Standardized Medicare supplement benefit high deductible Plan "J" shall consist of only the following: 100 percent of covered expenses following the payment of the annual high deductible Plan "J" deductible. The covered expenses shall include the core benefits as described in Section 7(2) of this administrative regulation, plus the Medicare Part A deductible, skilled nursing facility care, Medicare Part B deductible, 100 percent of the Medicare Part B excess charges, extended outpatient prescription drug benefit, medically necessary emergency care in a foreign country, preventive medical care benefit, and at-home recovery benefit as described in Section 7(3)(a), (b), (c), (e), (g), (h), (i) and (j), respectively. The annual high deductible Plan "J" deductible shall consist of out-of-pocket expenses, other than premiums, for services covered by the Medicare supplement Plan "J" policy, and shall be in addition to any other specific benefit deductibles. The annual deductible shall be $1,500 for 1998 and 1999, and shall be based on a calendar year. It shall be adjusted annually thereafter by the secretary to reflect the change in the Consumer Price Index for all urban consumers for the twelve (12) month period ending with August of the preceding year, and rounded to the nearest multiple of ten (10) dollars. The outpatient prescription drug benefit shall not be included in a Medicare supplement policy sold after December 31, 2005.

(6) Design of two (2) Medicare supplement plans mandated by The Medicare Prescription Drug, Improvement and Modernization Act of 2003 (MMA), Pub. L. 108-173.

(a) Standardized Medicare supplement benefit plan "K" shall consist of only those benefits described in Section 7(4)(a) of this administrative regulation.

(b) Standardized Medicare supplement benefit plan "L" shall consist of only those benefits described in Section 7(4)(b) of this administrative regulation.

(7)

(a) New or Innovative Benefits: An insurer may, with the prior approval of the commissioner as established in KRS 304.14-120, 304.14-130, and 304.14-510, offer policies or certificates with new or innovative benefits in addition to the benefits provided in a policy or certificate that complies with the applicable standards. The new or innovative benefits may include benefits that are:

Appropriate to Medicare supplement insurance;
New, innovative, or not available;
Cost-effective; and
Offered in a manner that is consistent with the goal of simplification of Medicare supplement policies.

(b) After December 31, 2005, the innovative benefit shall not include an outpatient prescription drug benefit.

Section 10. Standard Medicare Supplement Benefit Plans for 2010 Standardized Medicare Supplement Benefit Plan Policies or Certificates with an Effective Date for Coverage on or After June 1, 2010. The following standards shall apply to all Medicare supplement policies or certificates with an effective date for coverage in this state on or after June 1, 2010. A policy or certificate shall not be advertised, solicited, delivered, or issued for delivery in Kentucky as a Medicare supplement policy or certificate unless the policy or certificate complies with these benefit plan standards. Benefit plan standards applicable to Medicare supplement policies and certificates issued before June 1, 2010, shall remain in compliance with the requirements of Sections 7 and 9 of this administrative regulation.

(1)

(a) An insurer shall make available to each prospective policyholder and certificate holder, a policy form or certificate form containing only the basic (core) benefits, as described in Section 8(2) of this administrative regulation.

(b) If an insurer makes available any of the additional benefits described in Section 8(3), or offers standardized benefit Plans K or L, as described in subsection (5)(h) and (i) of this section, then the insurer shall make available to each prospective policyholder and certificate holder, in addition to a policy form or certificate form with only the basic (core) benefits as described in paragraph (a) of this subsection of this section, a policy form or certificate form containing either standardized benefit Plan C, as described in subsection (5)(c) of this section, or standardized benefit Plan F, as described subsection (5)(e) of this section.

(2) Groups, packages, or combinations of Medicare supplement benefits other than those listed in this section shall not be offered for sale in this state, except as established in subsection (6) of this section and in Section 12 of this administrative regulation.

(3) Benefit plans shall be uniform in structure, language, designation, and format to the standard benefit plans listed in this subsection and conform to the definitions in Section 1 of this administrative regulation. Each benefit shall be structured in accordance with the format provided in Section 8(2) and(3) of this administrative regulation; or, in the case of plans K or L, in subsection(5)(h) or (i) of this section and list the benefits in the order shown.

(4) In addition to the benefit plan designations required in subsection (3) of this section, an insurer may use other designations if approved by the commissioner in accordance with subsection (6) of this section.

(5) 2010 Standardized Benefit Plans.

(a) Standardized Medicare supplement benefit Plan A shall include only the basic (core) benefits as described in Section 8(2) of this administrative regulation.

(b) Standardized Medicare supplement benefit Plan B shall include only the basic (core) benefit as described in Section 8(2) of this administrative regulation, plus 100 percent of the Medicare Part A deductible as described in Section 8(3)(a) of this administrative regulation.

(c) Standardized Medicare supplement benefit Plan C shall include only the basic (core) benefit as described in Section 8(2) of this administrative regulation, plus 100 percent of the Medicare Part A deductible, skilled nursing facility care, 100 percent of the Medicare Part B deductible, and medically necessary emergency care in a foreign country as described in Section 8(3)(a), (c), (d), and (f) of this administrative regulation, respectively.

(d) Standardized Medicare supplement benefit Plan D shall include only the basic (core) benefit, as described in Section 8(2) of this administrative regulation, plus 100 percent of the Medicare Part A deductible, skilled nursing facility care, and medically necessary emergency care in a foreign country as described in Section 8(3)(a), (c), and (f) of this administrative regulation, respectively.

(e) Standardized Medicare supplement Plan F shall include only the basic (core) benefit as described in Section 8(2) of this administrative regulation, plus 100 percent of the Medicare Part A deductible, the skilled nursing facility care, 100 percent of the Medicare Part B deductible, 100 percent of the Medicare Part B excess charges, and medically necessary emergency care in a foreign country as described in Section 8(3)(a), (c), (d), (e), and (f), respectively.

(f) Standardized Medicare supplement Plan High Deductible F shall include only the following: 100 percent of covered expenses following the payment of the annual deductible set forth in subparagraph 2. of this paragraph.

The basic (core) benefit as described in Section 8(2) of this administrative regulation, plus 100 percent of the Medicare Part A deductible, skilled nursing facility care, 100 percent of the Medicare Part B deductible, 100 percent of the Medicare Part B excess charges, and medically necessary emergency care in a foreign country as described in Section 8(3)(a), (c), (d), (e), and (f) of this administrative regulation, respectively.
The annual deductible in High Deductible Plan F shall consist of out-of-pocket expenses, other than premiums, for services covered by Plan F, and shall be in addition to any other specific benefit deductibles. The basis for the deductible shall be $1,500 and shall be adjusted annually from 1999 by the Secretary of the U.S. Department of Health and Human Services to reflect the change in the Consumer Price Index for all urban consumers for the twelve (12) month period ending with August of the preceding year, and rounded to the nearest multiple of ten (10) dollars.

(g)

Standardized Medicare supplement benefit Plan G shall include only the basic (core) benefit as described in Section 8(2) of this administrative regulation, plus 100 percent of the Medicare Part A deductible, skilled nursing facility care, 100 percent of the Medicare Part B excess charges, and medically necessary emergency care in a foreign country as described in Section 8(3)(a), (c), (e), and (f), respectively.
Beginning January 1, 2020, the standardized benefit plans described in Section 11(1)(d) of this administrative regulation (Redesignated Plan G High Deductible) may be offered to any individual who was eligible for Medicare prior to January 1, 2020.

(h) Standardized Medicare supplement Plan K is mandated by The Medicare Prescription Drug, Improvement and Modernization Act of 2003, Pub. L. 108-173, and shall include only the:

Part A Hospital Coinsurance 61st through 90th days: Coverage of 100 percent of the Part A hospital coinsurance amount for each day used from the 61st through the 90th day in any Medicare benefit period;
Part A Hospital Coinsurance, 91st through 150th days: Coverage of 100 percent of the Part A hospital coinsurance amount for each Medicare lifetime inpatient reserve day used from the 91st through the 150th day in any Medicare benefit period;
Part A Hospitalization After 150 Days: Upon exhaustion of the Medicare hospital inpatient coverage, including the lifetime reserve days, coverage of 100 percent of the Medicare Part A eligible expenses for hospitalization paid at the applicable prospective payment system (PPS) rate, or other appropriate Medicare standard of payment, with a lifetime maximum benefit of an additional 365 days;
Medicare Part A Deductible: Coverage for fifty (50) percent of the Medicare Part A inpatient hospital deductible amount per benefit period until the out-of-pocket limitation is met as described in subparagraph 10. of this paragraph;
Skilled Nursing Facility Care: Coverage for fifty (50) percent of the coinsurance amount for each day used from the twenty-first (21) day through the 100th day in a Medicare benefit period for posthospital skilled nursing facility care eligible under Medicare Part A until the out-of-pocket limitation is met as described in subparagraph 10. of this paragraph;
Hospice Care: Coverage for fifty (50) percent of cost sharing for all Part A Medicare eligible expenses and respite care until the out-of-pocket limitation is met as described in subparagraph 10. of this paragraph;
Blood: Coverage for fifty (50) percent, under Medicare Part A or B, of the reasonable cost of the first three (3) pints of blood, or equivalent quantities of packed red blood cells, as described under 42 C.F.R. 409.87(a)(2) unless replaced in accordance with 42 C.F.R. 409.87(c)(2) until the out-of-pocket limitation is met as described in subparagraph 10. of this paragraph;
Part B Cost Sharing: Except for coverage provided in subparagraph 9. of this paragraph, coverage for fifty (50) percent of the cost sharing applicable under Medicare Part B after the policyholder pays the Part B deductible until the out-of-pocket limitation is met as described in subparagraph 10. of this paragraph;
Part B Preventive Services: Coverage of 100 percent of the cost sharing for Medicare Part B preventive services after the policyholder pays the Part B deductible; and
Cost Sharing After Out-of-Pocket Limits: Coverage of 100 percent of all cost sharing under Medicare Parts A and B for the balance of the calendar year after the individual has reached the out-of-pocket limitation on annual expenditures under Medicare Parts A and B of $4,000 in 2006, indexed each year by the appropriate inflation adjustment specified by the Secretary of the U.S. Department of Health and Human Services.

(i) Standardized Medicare supplement Plan L is mandated by The Medicare Prescription Drug, Improvement and Modernization Act of 2003, Pub. L. 108-173, and shall include only the benefits established in:

Paragraph (h)1., 2., 3., and 9. of this subsection;
Paragraph (h)4. through 8. of this subsection, but substituting seventy-five (75) percent for fifty (50) percent; and
Paragraph (h)10. of this subsection, but substituting $2,000 for $4,000.

(j) Standardized Medicare supplement Plan M shall include only the basic core benefit as described in Section 8(2) of this administrative regulation, plus fifty (50) percent of the Medicare Part A deductible, skilled nursing facility care, and medically necessary emergency care in a foreign country as described in Section 8(3)(a), (c) and (f) of this administrative regulation, respectively.

(k) Standardized Medicare supplement Plan N shall include only the basic core benefit as described in Section 8(2) of this administrative regulation, plus 100 percent of the Medicare Part A deductible, skilled nursing facility care, and medically necessary emergency care in a foreign country as described in Section 8(3)(a), (c) and (f) of this administrative regulation, respectively, with copayments in the following amounts:

The lesser of twenty (20) dollars or the Medicare Part B coinsurance or copayment for each covered health care provider office visit, including visits to medical specialists; and
The lesser of fifty (50) dollars or the Medicare Part B coinsurance or copayment for each covered emergency room visit. This copayment shall be waived if the insured is admitted to any hospital and the emergency visit is subsequently covered as a Medicare Part A expense.

(6)

(a) New or Innovative Benefits: An insurer may, with the prior approval of the commissioner as established in KRS 304.14-120, 304.14-130, and 304.14-510, offer policies or certificates with new or innovative benefits, in addition to the standardized benefits provided in a policy or certificate that complies with the applicable standards of this section. The new or innovative benefits shall include only benefits that are:

Appropriate to Medicare supplement insurance;
New, innovative, or not available; and
Cost-effective.

(b) Approval of new or innovative benefits shall not adversely impact the goal of Medicare supplement simplification.

(d) New or innovative benefits shall not be used to change or reduce benefits, including a change of any cost-sharing provision, in any standardized plan.

Section 11. Standard Medicare Supplement Benefit Plans for 2020 Standardized Medicare Supplement Benefit Plan Policies or Certificates Issued for Delivery to individuals Newly Eligible for Medicare on or After January 1, 2020. The Medicare Access and CHIP Reauthorization Act of 2015 (MACRA), Pub. L. 114-10, requires the standards established in subsections (1) through (4) of this section to be applicable to all Medicare supplement policies or certificates delivered or issued for delivery in this state to individuals newly eligible for Medicare on or after January 1, 2020. A policy or certificate providing coverage of the Medicare Part B deductible shall not be advertised, solicited, delivered, or issued for delivery in this state as a Medicare supplement policy or certificate to individuals newly eligible for Medicare on or after January 1, 2020. All policies shall comply with the benefit standards established in this section. Benefit plan standards applicable to Medicare supplement policies and certificates issued to individuals eligible for Medicare before January 1, 2020, shall remain limited to the requirements of Sections 9 and 10 of this administrative regulation.

(1) Benefit Requirements. The standards and requirements of Section 10 of this administrative regulation shall apply to all Medicare supplement policies and certificates delivered or issued for delivery to individuals newly eligible for Medicare on or after January 1, 2020, with the exceptions established in paragraphs (a) through (d) of this subsection.

(a) Standardized Medicare supplement benefit Plan C shall be redesignated as Plan D and shall provide the benefits contained in Section 10(5)(c) of this administrative regulation but shall not provide coverage for any portion of the Medicare Part B deductible.

(b) Standardized Medicare supplement benefit Plan F shall be redesignated as Plan G and shall provide the benefits contained in Section 10(5)(e) of this administrative regulation but shall not provide coverage for 100 percent or any portion of the Medicare Part B deductible.

(c) Standardized Medicare supplement benefit plans C, F, and F with High Deductible shall not be offered to individuals newly eligible for Medicare on or after January 1, 2020.

(d)

Standardized Medicare supplement benefit Plan F with High Deductible shall be redesignated as Plan G with High Deductible and shall provide the benefits contained in Section 10(5)(f) of this administrative regulation but shall not provide coverage for any portion of the Medicare Part B deductible.
The Medicare Part B deductible paid by the beneficiary shall be considered an out-of-pocket expense in meeting the annual high deductible.

(2) Applicability to Certain Individuals. This section shall apply only to individuals who are newly eligible for Medicare on or after January 1, 2020:

(a) By reason of attaining age sixty-five (65) on or after January 1, 2020; or

(b) By reason of entitlement to benefits under Part A pursuant to section 226(b) or 226A of the Social Security Act, 42 U.S.C. 426(b) or 426-1, or who is deemed eligible for benefits under section 226(a) of the Social Security Act, 42 U.S.C. 426(a), on or after January 1, 2020.

(3) Guaranteed Issue for Eligible Persons. For purposes of Section 14(5) of this administrative regulation, in the case of any individual newly eligible for Medicare on or after January 1, 2020, any reference to a Medicare supplement policy C or F (including F with High Deductible) shall be deemed to be a reference to Medicare supplement policy D or G (including G with High Deductible) respectively that meet the requirements of this section.

(4) Offer of Redesignated Plans to Individuals Other than Newly Eligible. On or after January 1, 2020, the standardized benefit plans described in subsection (1)(d) of this section may be offered to any individual who was eligible for Medicare prior to January 1, 2020 in addition to the standardized plans described in Section 10(5) of this administrative regulation.

Section 12. Medicare Select Policies and Certificates.

(1)

(a) This section shall apply to Medicare Select policies and certificates, as described in this section.

(b) A policy or certificate shall not be advertised as a Medicare Select policy or certificate unless it meets the requirements of this section.

(2) The commissioner may authorize an insurer to offer a Medicare Select policy or certificate, pursuant to this section and Section 4358 of the Omnibus Budget Reconciliation Act (OBRA) of 1990, 42 U.S.C. 1395ss and 42 U.S.C. 1320c-3, if the commissioner finds that the insurer has satisfied all of the requirements of this administrative regulation.

(3) A Medicare Select insurer shall not issue a Medicare Select policy or certificate in Kentucky until the insurer's plan of operation has been approved by the commissioner pursuant to this section and KRS 304.14-120.

(4) A Medicare Select insurer shall file a proposed plan of operation with the commissioner. The plan of operation shall contain at least the following information:

(a) Evidence that all covered services that are with restricted network provisions are available and accessible through network providers, including a demonstration that:

Covered services can be provided by network providers with reasonable promptness with respect to geographic location, hours of operation, and after-hour care. The hours of operation and availability of after-hour care shall reflect usual practice in the local area. Geographic availability shall not be more than sixty (60) miles from the insured's place of residence;
The number of network providers in the service area is sufficient, with respect to current and expected policyholders, either:

a. To deliver adequately all services that are with a restricted network provision; or

b. To make appropriate referrals;

There are written agreements with network providers describing specific responsibilities;
Emergency care is available twenty-four (24) hours per day and seven (7) days per week; and
If covered services are with a restricted network provision and are provided on a prepaid basis, there are written agreements with network providers prohibiting the providers from billing or seeking reimbursement from or recourse against any individual insured under a Medicare Select policy or certificate. This subparagraph shall not apply to supplemental charges or coinsurance amounts as stated in the Medicare Select policy or certificate;

(b) A statement or map providing a clear description of the service area;

(d) A description of the quality assurance program, including:

The formal organizational structure;
The written criteria for selection, retention, and removal of network providers; and
The procedures for evaluating quality of care provided by network providers, and the process to initiate corrective action if warranted;

(e) A list and description, by specialty, of the network providers;

(f) Copies of the written information proposed to be used by the insurer to comply with subsection (8) of this section; and

(g) Any other information requested by the commissioner in accordance with this section, KRS 304.14-120, and KRS 304.14-130.

(5)

(a) A Medicare Select insurer shall file any proposed changes to the plan of operation, except for changes to the list of network providers, with the commissioner prior to implementing the changes. Changes shall be considered approved by the commissioner after sixty (60) days unless specifically disapproved as established in KRS 304.14-130.

(b) An updated list of network providers shall be filed with the commissioner at least quarterly.

(6) A Medicare Select policy or certificate shall not restrict payment for covered services provided by nonnetwork providers if:

(a) The services are for symptoms requiring emergency care or are immediately required for an unforeseen illness, injury, or a condition;

(b) It is not reasonable to obtain services through a network provider; or

(7) A Medicare Select policy or certificate shall provide payment for full coverage under the policy for covered services that are not available through network providers.

(8) A Medicare Select insurer shall make full and fair disclosure in writing of the provisions, restrictions and limitations of the Medicare Select policy or certificate to each applicant. This disclosure shall include at least:

(a) An outline of coverage sufficient to permit the applicant to compare the coverage and premiums of the Medicare Select policy or certificate with:

Other Medicare supplement policies or certificates offered by the insurer; and
Other Medicare Select policies or certificates;

(b) A description, which shall include address, phone number, and hours of operation of the network providers, including primary care physicians, specialty physicians, hospitals, and other providers;

(c) A description of the restricted network provisions, including payments for coinsurance and deductibles if providers other than network providers are utilized. Except to the extent specified in the policy or certificate, expenses incurred if using out-of-network providers shall not count toward the out-of-pocket annual limit contained in plans K and L;

(d) A description of coverage for emergency and urgently needed care and other out-of-service area coverage;

(e) A description of limitations on referrals to restricted network providers and to other providers;

(f) A description of the policyholder's rights to purchase any other Medicare supplement policy or certificate offered by the insurer; and

(g) A description of the Medicare Select insurer's quality assurance program and grievance procedure.

(9) Prior to the sale of a Medicare Select policy or certificate, a Medicare Select insurer shall obtain from the applicant a signed and dated form stating that the applicant has received the information provided pursuant to subsection (8) of this section and that the applicant understands the restrictions of the Medicare Select policy or certificate.

(10) A Medicare Select insurer shall have and use procedures for hearing complaints and resolving written grievances from the subscribers. The procedures shall be aimed at mutual agreement for settlement and may include arbitration procedures.

(a) The grievance procedure shall be described in the policy and certificates and in the outline of coverage.

(b) Upon issuance of the policy or certificate, the insurer shall provide detailed information to the policyholder describing how a grievance may be registered with the insurer.

(c) A grievance shall be considered in a within a reasonable time and shall be transmitted to appropriate decision makers who have authority to fully investigate the issue and take corrective action.

(d) If a grievance is found to be valid, then appropriate corrective action shall be taken.

(e) All concerned parties shall be notified about the results of a grievance.

(f) The insurer shall report no later than each March 31st to the commissioner regarding its grievance procedure, including the number of grievances filed in the past year and a summary of the subject, nature, and resolution of grievances.

(11) Upon initial purchase, a Medicare Select insurer shall make available to each applicant for a Medicare Select policy or certificate, the opportunity to purchase any Medicare supplement policy or certificate offered by the insurer.

(12)

(a) At the request of an individual insured under a Medicare Select policy or certificate, a Medicare Select insurer shall make available to the individual insured the opportunity to purchase a Medicare supplement policy or certificate offered by the insurer that has comparable or lesser benefits and that does not contain a restricted network provision. The insurer shall make the policies or certificates available without requiring evidence of insurability after the Medicare Select policy or certificate has been in force for six (6) months.

(b) For the purposes of this subsection, a Medicare supplement policy or certificate shall be considered to have comparable or lesser benefits unless the policy or certificate contains one (1) or more of the following significant benefits not included in the Medicare Select policy or certificate being replaced, coverage for:

The Medicare Part A deductible;
At-home recovery services; or
Part B excess charges.

(13) Medicare Select policies and certificates shall provide for continuation of coverage if the secretary determines that Medicare Select policies and certificates issued pursuant to this section shall be discontinued due to either the failure of the Medicare Select Program to be reauthorized under law or its substantial amendment.

(a) Each Medicare Select insurer shall make available to each individual insured under a Medicare Select policy or certificate, the opportunity to purchase any Medicare supplement policy or certificate offered by the insurer that has comparable or lesser benefits and that does not contain a restricted network provision. The insurer shall make these policies and certificates available without requiring evidence of insurability.

The Medicare Part A deductible;
At-home recovery services; or
Part B excess charges.

(14) A Medicare Select insurer shall comply with reasonable requests for data made by state or federal agencies, including the United States Department of Health and Human Services, for the purpose of evaluating the Medicare Select Program.

Section 13. Initial Open Enrollment.

(1)

(a) Except as established in KRS 304.14-525(3)(b)1., an insurer shall not deny or condition the issuance or effectiveness of any Medicare supplement policy or certificate available for sale in Kentucky, nor discriminate in the pricing of a policy or certificate because of the health status, claims experience, receipt of health care, or medical condition of an applicant if the applicant:

a. Is enrolled for benefits under Medicare Part B; and

b. Submits an initial application for a policy or certificate prior to or during the six (6) month period beginning with the first day of the first month in which an individual is sixty-five (65) years of age or older; or

Meets the requirements of KRS 304.14-525(2)(a) or (b).

(b) Each Medicare supplement policy and certificate currently available from an insurer shall be made available to all applicants who qualify under this subsection without regard to age.

(2) Except as established in KRS 304.14-525(3):

(a) If an applicant qualifies under subsection (1) of this section and submits an application during the time period referenced in subsection (1) of this section and, as of the date of application, has had a continuous period of creditable coverage of at least six (6) months, the insurer shall not exclude benefits based on a preexisting condition; and

(b) If the applicant qualifies under subsection (1) of this section and submits an application during the time period referenced in subsection (1) of this section and, as of the date of application, has had a continuous period of creditable coverage that is less than six (6) months, the insurer shall reduce the period of any preexisting condition exclusion by the aggregate of the period of creditable coverage applicable to the applicant as of the enrollment date. The secretary shall specify the manner of the reduction under this subsection.

(3) Except as provided in KRS 304.14-525(3), subsection (2) of this section, and Sections 14 and 25 of this administrative regulation, subsection (1) of this section shall not be construed as preventing the exclusion of benefits under a policy, during the first six (6) months, based on a preexisting condition for which the policyholder or certificate holder received treatment or was diagnosed during the six (6) months before the coverage became effective.

Section 14. Guaranteed Issue for Eligible Persons.

(1) Guaranteed Issue:

(a) Eligible persons shall be those individuals described in subsection (2) of this section who seek to enroll under the policy during the period specified in subsection (3) of this section, and who submit evidence of the date of termination, disenrollment, or Medicare Part D enrollment with the application for a Medicare supplement policy.

(b) With respect to eligible persons, an insurer shall not:

Deny or condition the issuance or effectiveness of a Medicare supplement policy described in subsection (5) of this section that is offered and is available for issuance to new enrollees by the insurer;
Discriminate in the pricing of a Medicare supplement policy because of health status, claims experience, receipt of health care, or medical condition; and
Impose an exclusion of benefits based on a preexisting condition under a Medicare supplement policy.

(2) An eligible person shall include an individual who:

(a) Is enrolled under an employee welfare benefit plan that provides health benefits that supplement the benefits under Medicare; and the plan terminates, or the plan ceases to provide all the supplemental health benefits to the individual;

(b) Is enrolled with a Medicare Advantage organization under a Medicare Advantage plan under part C of Medicare, and:

The individual is sixty-five (65) years of age or older and is enrolled with a Program of All-Inclusive Care for the Elderly (PACE) provider under Section 1894 of the Social Security Act, 42 U.S.C. 1395eee, and there are circumstances similar to those described in subparagraph 2. of this paragraph that would permit discontinuance of the individual's enrollment with the provider if the individual were enrolled in a Medicare Advantage plan; or
Any of the following circumstances apply:

a. The certification of the organization or plan has been terminated;

b. The organization has terminated or discontinued providing the plan in the area in which the individual resides;

c. The individual is no longer eligible to elect the plan because of a change in the individual's place of residence or other change in circumstances specified by the secretary, but not including termination of the individual's enrollment on the basis described in Section 1851(g)(3)(B) of the federal Social Security Act, 42 U.S.C 1395w-21(g)(3)(B), if the individual has not paid premiums on a timely basis or has engaged in disruptive behavior as specified in standards under Section 1856, 42 U.S.C. 1395w-26, or the plan is terminated for all individuals within a residence area; or

d. The individual demonstrates, in accordance with guidelines established by the secretary, that:

(i) The organization offering the plan substantially violated a material provision of the organization's contract under this part in relation to the individual, including the failure to provide an enrollee on a timely basis medically necessary care for which benefits are available under the plan or the failure to provide the covered care in accordance with applicable quality standards;

(ii) The organization, or agent or other entity acting on the organization's behalf, materially misrepresented the plan's provisions in marketing the plan to the individual; or

(iii) The individual meets the other exceptional conditions as the secretary may provide;

(c)

Is enrolled with:

a. An eligible organization under a contract under Section 1876 of the Social Security Act, 42 U.S.C. 1395mm regarding Medicare cost;

b. A similar organization operating under demonstration project authority, effective for periods before April 1, 1999;

c. An organization under an agreement under Section 1833(a)(1)(A) of the Social Security Act, 42 U.S.C. 1395l(a)(1)(A), regarding health care prepayment plan; or

d. An organization under a Medicare Select policy; and

Ceases to be enrolled under the same circumstances that would allow discontinuance of an individual's election of coverage under paragraph (b) of this subsection;

(d) Is enrolled Under a Medicare supplement policy and the enrollment ceases due to:

a. The insolvency of the insurer or bankruptcy of the non-insurer organization; or

b. The involuntary termination of coverage or enrollment under the policy;

The insurer of the policy substantially violating a material provision of the policy; or
The insurer, or an agent or other entity acting on the insurer's behalf, materially misrepresenting the policy's provisions in marketing the policy to the individual;

(e)

Was enrolled under a Medicare supplement policy and terminates enrollment and subsequently enrolls, for the first time, with:

a. A Medicare Advantage organization under a Medicare Advantage plan under part C of Medicare;

b. An eligible organization under a contract under Section 1876 of the Social Security Act, 42 U.S.C. 1395mm regarding Medicare cost;

c. A similar organization operating under demonstration project authority;

d. A PACE provider under Section 1894 of the Social Security Act, 42 U.S.C. 1395eee; or

e. A Medicare Select policy; and

Subsequently enrolls under subparagraph 1. of this paragraph and whose enrollment is terminated by the enrollee during any period within the first twelve (12) months of subsequent enrollment during which the enrollee is allowed to terminate the subsequent enrollment under Section 1851(e) of the federal Social Security Act, 42 U.S.C. 1395w-21(e);

(f) Upon first becoming eligible for benefits under part A of Medicare at age sixty-five (65), enrolls in:

A Medicare Advantage plan under part C of Medicare, or with a PACE provider under Section 1894 of the Social Security Act, 42 U.S.C. 1395eee; and
Disenrolls from the plan or program by not later than twelve (12) months after the effective date of enrollment;

(g)

Enrolls in a Medicare Part D plan during the initial enrollment period;
Upon enrollment in Part D, was enrolled under a Medicare supplement policy that covers outpatient prescription drugs; and
Terminates enrollment in the Medicare supplement policy and submits evidence of enrollment in Medicare Part D along with the application for a policy described in subsection (5)(d) of this section; or

(h) Is currently enrolled in a Medicare supplement policy and who satisfies the requirements of KRS 304.14-525(2)(c).

(3) Guaranteed issue time periods.

(a) For an individual described in subsection (2)(a) of this section, the guaranteed issue period shall:

Begin on the later of the date:

a. The individual receives a notice of termination or cessation of all supplemental health benefits, or, if a notice is not received, notice that a claim has been denied because of a termination or cessation; or

b. That the applicable coverage terminates or ceases; and

End sixty-three (63) days thereafter.

(b) For an individual described in subsection (2)(b), (c), (e),(f), or (h) of this section whose enrollment is terminated involuntarily, the guaranteed issue period shall begin on the date that the individual receives a notice of termination and ends sixty-three (63) days after the date the applicable coverage is terminated.

(c) For an individual described in subsection (2)(d)1. of this section, the guaranteed issue period shall end on the date that is sixty-three (63) days after the date the coverage is terminated and shall begin on the earlier of the date that:

The individual receives a notice of termination, a notice of the insurer's bankruptcy or insolvency, or other the similar notice if any; or
The applicable coverage is terminated.

(d) For an individual described in subsection (2)(b), (d)2., (d)3., (e), or (f) of this section who disenrolls voluntarily, the guaranteed issue period shall begin on the date that is sixty (60) days before the effective date of the disenrollment and shall end on the date that is sixty-three (63) days after the effective date.

(e) For an individual described in subsection (2)(g) of this section, the guaranteed issue period shall begin on the date the individual receives notice pursuant to Section 1882(v)(2)(B) of the Social Security Act, 42 U.S.C. 1395ss(v)(2)(B), from the Medicare supplement insurer during the sixty (60) day period immediately preceding the initial Part D enrollment period and shall end on the date that is sixty-three (63) days after the effective date of the individual's coverage under Medicare Part D.

(f) For an individual described in subsection (2)(a), (b), (c), (d), (e), (f), or (g) of this section but not as described in paragraphs (a), (b), (c), (d), or (e) of this subsection, the guaranteed issue period shall begin on the effective date of disenrollment and shall end on the date that is sixty-three (63) days after the effective date.

(g) For an individual established in subsection (2)(h) of this section, the guaranteed issue period shall begin annually on the insured's birthday and shall end sixty (60) days after their birth date.

(4) Extended Medigap Access for Interrupted Trial Periods.

(a) For an individual described in subsection (2)(e) of this section whose enrollment with an organization or provider described in Subsection (2)(e)1. of this section is involuntarily terminated within the first twelve (12) months of enrollment, and who, without an intervening enrollment, enrolls with another organization or provider, the subsequent enrollment shall be deemed to be an initial enrollment described in subsection(2)(e)of this section.

(b) For an individual described in subsection (2)(f) of this section whose enrollment with a plan or in a program described in subsection (2)(f) of this section is involuntarily terminated within the first twelve (12) months of enrollment, and who, without an intervening enrollment, enrolls in another plan or program, the subsequent enrollment shall be deemed to be an initial enrollment described in subsection (2)(f) of this section.

(c) For purposes of subsection (2)(e) and (f) of this section, enrollment of an individual with an organization or provider described in subsection (2)(e)1. of this section, or with a plan or in a program described in subsection (2)(f) of this section, shall not be deemed to be an initial enrollment under this paragraph after the two (2) year period beginning on the date on which the individual first enrolled with an organization, provider, plan, or program.

(5) Products to which eligible persons shall be entitled. The Medicare supplement policy to which eligible persons shall be entitled under:

(a) Subsection (2)(a) through (d) of this section shall consist of a Medicare supplement policy that has a benefit package classified as Plan A, B, C, F, high deductible F, K, or L offered by any insurer;

(b) On or before December 31, 2005, subsection (2)(e) of this section shall be the same Medicare supplement policy in which the individual was most recently previously enrolled, if available from the same insurer, or, if not so available, a policy described in paragraph (a) of this subsection. After December 31, 2005, if the individual was most recently enrolled in a Medicare supplement policy with an outpatient prescription drug benefit, a Medicare supplement policy described in this paragraph shall be:

The policy available from the same insurer but modified to remove outpatient prescription drug coverage; or
At the election of the policyholder, an A, B, C, F, high deductible F, K, or L policy that is offered by any insurer;

(d) Subsection (2)(g) of this section shall be a Medicare supplement policy that:

Has a benefit package classified as Plan A, B, C, F, high deductible F, K, or L; and
Is offered and available for issuance to new enrollees by the same insurer that issued the individual's Medicare supplement policy with outpatient prescription drug coverage; or

(e) Subsection (2)(h) of this section shall be a Medicare supplement policy that is the same Medicare supplement plan as the individual is currently enrolled but is issued by a different insurer.

(6) Notification provisions.

(a) Upon an event described in subsection (2) of this section resulting in a loss of coverage or benefits due to the termination of a contract or agreement, policy, or plan, the organization that terminates the contract or agreement, the insurer terminating the policy, or the administrator of the plan being terminated, respectively, shall notify the individual of the individual's rights under this section, and of the obligations of insurers of Medicare supplement policies under subsection (1) of this section. This notice shall be communicated simultaneously with the notification of termination.

(b) Upon an event described in subsection (2) of this section resulting in an individual ceasing enrollment under a contract or agreement, policy, or plan, the organization that offers the contract or agreement, regardless of the basis for the cessation of enrollment, the insurer offering the policy, or the administrator of the plan, respectively, shall notify the individual of the individual's rights under this section, and of the obligations of insurer of Medicare supplement policies under subsection (1) of this section. The notice shall be communicated within ten (10) working days of the insurer receiving notification of disenrollment.

Section 15. Standards for Claims Payment.

(1) An insurer shall comply with 42 U.S.C. 1395ss, section 1882(c)(3) of the Social Security Act, by:

(a) Accepting a notice from a Medicare carrier on dually assigned claims submitted by participating physicians and suppliers as a claim for benefits in place of any other claim form required and making a payment determination on the basis of the information contained in that notice;

(b) Notifying the participating physician or supplier and the beneficiary of the payment determination;

(d) Upon enrollment, furnishing each enrollee with a card listing the policy name, number, and a central mailing address to which notices from a Medicare carrier may be sent;

(e) Paying user fees for claim notices that are transmitted electronically or in another manner; and

(f) Providing to the secretary of, at least annually, a central mailing address to which all claims may be sent by Medicare carriers.

(2) Compliance with the requirements established in subsection (1) of this section shall be certified to the commissioner as part of the insurer's annual filing pursuant to KRS 304.3-240.

Section 16. Loss Ratio Standards and Refund or Credit of Premium.

(1) Loss Ratio Standards.

(a)

Pursuant to KRS 304.14-530, a Medicare Supplement policy form or certificate form shall not be delivered or issued for delivery in Kentucky unless it is expected to return to policyholders and certificate holders in the form of aggregate benefits, not including anticipated refunds or credits, provided under the policy form or certificate form which total:

a. At least seventy-five (75) percent of the aggregate amount of premiums earned in the case of group policies; or

b. At least sixty-five (65) percent of the aggregate amount of premiums earned in the case of individual policies.

The calculation shall be in accordance with accepted actuarial principles and practices; and

a. Based on:

(i) Incurred claims experience or incurred health care expenses if coverage is provided by a health maintenance organization on a service rather than reimbursement basis; and

(ii) Earned premiums for the period; and

b. Incurred health care expenses if coverage is provided by a health maintenance organization shall not include:

(i) Home office and overhead costs;

(ii) Advertising costs;

(iii) Commissions and other acquisition costs;

(iv) Taxes;

(v) Capital costs;

(vi) Administrative costs; and

(vii) Claims processing costs.

(b) A filing of rates and rating schedules shall demonstrate that expected claims in relation to premiums comply with the requirements of this section if combined with actual experience to date. Filings of rate revisions shall also demonstrate that the anticipated loss ratio over the entire future period for which the revised rates are computed to provide coverage can be expected to meet the appropriate loss ratio standards.

The originally filed anticipated loss ratio if combined with the actual experience since inception;
The appropriate loss ratio requirement from paragraph (a)1.a. and b. of this subsection if combined with actual experience beginning with July 5, 1996, to date; and
The appropriate loss ratio requirement from paragraph (a)1.a. and b. of this subsection over the entire future period for which the rates are computed to provide coverage.

(2) Refund or Credit Calculation.

(a) An insurer shall collect and file with the commissioner by May 31 of each year, the data contained in the applicable reporting form contained in HL-MS-1 for each type in a standard Medicare supplement benefit plan.

(b) If, on the basis of the experience as reported the benchmark ratio since inception (ratio 1) exceeds the adjusted experience ratio since inception (ratio 3), then a refund or credit calculation shall be required. The refund calculation shall be done on a statewide basis for each type in a standard Medicare supplement benefit plan. For purposes of the refund or credit calculation, experience on policies issued within the reporting year shall be excluded.

(c) For policies or certificates issued prior to October 14, 1990, the insurer shall make the refund or credit calculation separately for all individual policies, including all group policies with an individual loss ratio standard at issuance, combined and all other group policies combined for experience after July 5, 1996.

(d) A refund or credit shall be made only if the benchmark loss ratio exceeds the adjusted experience loss ratio and the amount to be refunded or credited exceeds the level as identified on the annual refund calculation form HL-MS-1. The refund shall include interest from the end of the calendar year to the date of the refund or credit at a rate specified by the Secretary of Health and Human Services, but it shall not be less than the average rate of interest for thirteen (13) week Treasury notes. A refund or credit against premiums due shall be made by September 30 following the experience year upon which the refund or credit is based.

(3) Annual filing of Premium Rates.

(a) An insurer of Medicare supplement policies and certificates issued before or after January 14, 1992, in Kentucky shall file annually for approval by the commissioner in accordance with the filing requirements and procedures prescribed by the commissioner in KRS 304.14-120:

Rates;
Rating schedule; and
Supporting documentation, including ratios of incurred losses to earned premiums by policy duration.

(b) The supporting documentation shall also demonstrate in accordance with actuarial standards of practice using reasonable assumptions that the appropriate loss ratio standards can be expected to be met over the entire period for which rates are computed. The demonstration shall exclude active life reserves.

(c) An expected third-year loss ratio that is greater than or equal to the applicable percentage shall be demonstrated for policies or certificates in force less than three (3) years.

(d) As soon as practicable, but prior to the effective date of enhancements in Medicare benefits, every insurer of Medicare supplement policies or certificates in Kentucky shall file with the commissioner, in accordance with KRS 304.14-120:

a. Appropriate premium adjustments necessary to produce loss ratios as anticipated for the current premium for the applicable policies or certificates. The supporting documents necessary to justify the adjustment shall accompany the filing;

b. Appropriate premium adjustments necessary to produce an expected loss ratio under the policy or certificate to conform to minimum loss ratio standards for Medicare supplement policies and that are expected to result in a loss ratio at least as great as that originally anticipated in the rates used to produce current premiums by the insurer for the Medicare supplement policies or certificates. A premium adjustment that would modify the loss ratio experience under the policy other than the adjustments described in this subsection shall not be made with respect to a policy at any time other than upon its renewal date or anniversary date; and

c. If an insurer fails to make premium adjustments acceptable to the commissioner in accordance with this section, the commissioner may order premium adjustments, refunds, or premium credits necessary to achieve the loss ratio required by this section; and

Any appropriate riders, endorsements, or policy forms needed to accomplish the Medicare supplement policy or certificate modifications necessary to eliminate benefit duplications with Medicare. The riders, endorsements, or policy forms shall provide a clear description of the Medicare supplement benefits provided by the policy or certificate.

(4) Public Hearings. The commissioner may conduct a public hearing, which shall be conducted pursuant to KRS 304.2-310, to gather information concerning a request by an insurer for an increase in a rate for a policy form or certificate form issued before or after January 1, 1992, if the experience of the form for the previous reporting period is not in compliance with the applicable loss ratio standard. The determination of compliance shall be made without consideration of any refund or credit for the reporting period. Public notice of the hearing shall be submitted in accordance with KRS 304.2-320.

Section 17. Filing and Approval of Policies and Certificates and Premium Rates.

(1) An insurer shall not deliver or issue for delivery a policy or certificate to a resident of Kentucky unless the policy form or certificate form has been filed with and approved by the commissioner in accordance with filing requirements and procedures in KRS 304.14-120.

(2) An insurer shall file, with the commissioner, any riders or amendments to policy or certificate forms, issued in Kentucky, to delete outpatient prescription drug benefits as required by the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, Pub. L. 108-173.

(3) An insurer shall not use or change premium rates for a Medicare supplement policy or certificate unless the rates, rating schedule, and supporting documentation have been filed with and approved by the commissioner in accordance with KRS 304.14-120.

(4)

(a) Except as provided in paragraph (b) of this subsection, an insurer shall not file for approval more than one (1) form of a policy or certificate of each type for each standard Medicare supplement benefit plan.

(b) An insurer may offer, with the approval of the commissioner as established in KRS 304.14-120, 304.14-130, and 304.14-510, up to four (4) additional policy forms or certificate forms of the same type for the same standard Medicare supplement benefit plan, one (1) for each of the following cases:

The inclusion of new or innovative benefits;
The addition of either direct response or agent marketing methods;
The addition of either guaranteed issue or underwritten coverage; and
The offering of coverage to individuals eligible for Medicare by reason of disability.

An individual policy;
A group policy;
An individual Medicare Select policy; or
A group Medicare Select policy.

(5)

(a) Except as provided in subparagraph 1. of this paragraph, an insurer shall continue to make available for purchase any policy form or certificate form issued after January 1, 1992, that has been approved by the commissioner. A policy form or certificate form shall not be considered to be available for purchase unless the insurer has actively offered it for sale in the previous twelve (12) months.

An insurer may discontinue the availability of a policy form or certificate form if the insurer provides to the commissioner in writing its decision at least thirty (30) days prior to discontinuing the availability of the form of the policy or certificate. After receipt of the notice by the commissioner, the insurer shall not offer for sale the policy form or certificate form in Kentucky.
An insurer that discontinues the availability of a policy form or certificate form pursuant to subparagraph 1. of this paragraph shall not file for approval a new policy form or certificate form of the same type for the same standard Medicare supplement benefit plan as the discontinued form for a period of five (5) years after the insurer provides notice to the commissioner of the discontinuance. The period of discontinuance may be reduced if the commissioner determines, upon good cause shown, that a shorter period is appropriate.

(b) The sale or other transfer of Medicare supplement business to another insurer shall be considered a discontinuance for the purposes of this subsection.

(c) A change in the rating structure or methodology shall be considered a discontinuance under paragraph (a) of this subsection unless the insurer:

Provides an actuarial memorandum, describing the manner in which the revised rating methodology and resultant rates differ from the existing rating methodology and existing rates; and
Does not subsequently put into effect a change of rates or rating factors that would cause the percentage differential between the discontinued and subsequent rates as established in the actuarial memorandum to change. The commissioner, as established in KRS 304.17-380 and 304.17-383, may approve a change to the differential that is in the public interest.

(6)

(a) Except as provided in paragraph (b) of this subsection, the experience of all policy forms or certificate forms of the same type in a standard Medicare supplement benefit plan shall be combined for purposes of the refund or credit calculation prescribed in Section 16 of this administrative regulation.

(b) Forms assumed under an assumption reinsurance agreement shall not be combined with the experience of other forms for purposes of the refund or credit calculation.

(7) An insurer shall not present for filing or approval a rate structure for its Medicare supplement policies or certificates issued after October 4, 2005, based upon a structure or methodology with any groupings of attained ages greater than one (1) year. The ratio between rates for successive ages shall increase smoothly as age increases.

(8) Any policy issued or delivered on or after January 1, 2024 to a non-age eligible individual shall not be charged more than the weighted average aged premium rate for the policy.

Section 18. Permitted Compensation Arrangements.

(1) An insurer or other entity may provide commission or other compensation to an agent or other representative for the sale of a Medicare supplement policy or certificate only if the first year commission or other first year compensation is no more than 200 percent of the commission or other compensation paid for selling or servicing the policy or certificate in the second year or period.

(2) The commission or other compensation provided in subsequent (renewal) years shall be the same as that provided in the second year or period and shall be provided for no fewer than five (5) renewal years.

(3) An insurer or other entity shall not provide compensation to its agents or other producers and an agent or producer shall not receive compensation greater than the renewal compensation payable by the replacing insurer on renewal policies or certificates if an existing policy or certificate is replaced.

Section 19. Required Disclosure Provisions.

(1) General Rules.

(a)

Medicare supplement policies and certificates shall include a renewal or continuation provision.
The language or specifications of a renewal or continuation provision shall be consistent with the type of contract issued.
The renewal or continuation provision shall:

a. Be appropriately captioned;

b. Appear on the first page of the policy; and

c. Include any reservation by the insurer of the right to change premiums and any automatic renewal premium increases based on the policyholder's age.

(b)

A rider or endorsement added to a Medicare supplement policy after date of issue or at reinstatement or renewal that reduces or eliminates benefits or coverage in the policy shall require a signed acceptance by the insured, except for a rider or endorsement by which an insurer:

a. Effectuates a request made in writing by the insured;

b. Exercises a specifically reserved right under a Medicare supplement policy; or

c. Is required to reduce or eliminate benefits to avoid duplication of Medicare benefits.

After the date of policy or certificate issue, any rider or endorsement that increases benefits or coverage with a concomitant increase in premium during the policy term shall be agreed to in writing signed by the insured, unless:

a. The benefits are required by the minimum standards for Medicare supplement policies; or

b. The increased benefits or coverage is required by law.

If a separate additional premium is charged for benefits provided in connection with riders or endorsements, the premium charge shall be set forth in the policy.

(c) Medicare supplement policies or certificates shall not provide for the payment of benefits based on standards described as "usual and customary," "reasonable and customary," or words of similar import.

(d) If a Medicare supplement policy or certificate contains any limitations with respect to preexisting conditions, these limitations shall appear as a separate paragraph of the policy and be labeled as "Preexisting Condition Limitations."

(e) Medicare supplement policies and certificates shall have a notice prominently printed on the first page of the policy or certificate, or attached thereto, stating in substance that the policyholder or certificate holder shall have the right to return the policy or certificate within thirty (30) days of its delivery and to have the premium refunded if, after examination of the policy or certificate, the insured person is not satisfied for any reason.

(f)

Insurers of accident and sickness policies or certificates that provide hospital or medical expense coverage on an expense incurred or indemnity basis to persons eligible for Medicare shall provide to those applicants a Guide to Health Insurance for People with Medicare in the language, format, type size, type proportional spacing, bold character, and line spacing developed jointly by the National Association of Insurance Commissioners and Centers for Medicare and Medicaid Services and in a type size no smaller than twelve (12) point type.
Delivery of the guide described in subparagraph 1. of this paragraph shall be made:

a. Whether or not the policies or certificates are advertised, solicited, or issued as Medicare supplement policies or certificates as described in this administrative regulation; and.

b. To the applicant upon application and acknowledgement of receipt of the guide, which shall be obtained by the insurer, except that direct response insurer shall deliver the guide to the applicant upon request but not later than at policy delivery.

(2) Notice requirements.

(a) As soon as practicable, but no later than thirty (30) days prior to the annual effective date of any Medicare benefit changes, an insurer shall notify the insurer's policyholders and certificate holders of modifications the insurer has made to Medicare supplement insurance policies or certificates. The notice shall:

Include a description of revisions to the Medicare Program and a description of each modification made to the coverage provided under the Medicare supplement policy or certificate; and
Inform each policyholder or certificate holder as to if any premium adjustment is to be made due to changes in Medicare.

(b) The notice of benefit modifications and any premium adjustments shall be in outline form and in clear and simple terms so as to facilitate comprehension.

(3) Insurers shall comply with any notice requirements of the Medicare Prescription Drug, Improvement and Modernization Act of 2003, Pub.L. 108-173.

(4) Outline of Coverage Requirements for Medicare Supplement Policies.

(a) An insurer shall provide an outline of coverage to all applicants with an application presented to the prospective applicant and, except for direct response policies, shall obtain an acknowledgement of receipt of the outline from the applicant.

(b) If an outline of coverage is provided at application and the Medicare supplement policy or certificate is issued on a basis that would require revision of the outline, a substitute outline of coverage properly describing the policy or certificate shall accompany the policy or certificate when it is delivered and contain the following statement, in no less than twelve (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."

(c)

The outline of coverage provided to applicants pursuant to this section shall consist of four (4) parts:

a. A cover page;

b. Premium information;

c. Disclosure pages; and

d. Charts displaying the features of each benefit plan offered by the insurer.

The outline of coverage shall be in the language and format prescribed in the HL-MS-09 in no less than twelve (12) point type.
All plans shall be shown on the cover page, and the plans that are offered by the insurer shall be prominently identified.
Premium information for plans that are offered shall be shown on the cover page or immediately following the cover page and shall be prominently displayed.
The premium and mode shall be stated for all plans that are offered to the prospective applicant.
All possible premiums for the prospective applicant shall be illustrated.

(5) Notice Regarding Policies or Certificates That Are Not Medicare Supplement Policies.

(a)

Any accident and sickness insurance policy or certificate, other than a Medicare supplement policy, a policy issued pursuant to a contract under Section 1876 of the Federal Social Security Act, 42 U.S.C. 1395 et seq., disability income policy, or other policy identified in Section 3(2) of this administrative regulation, issued for delivery in Kentucky to persons eligible for Medicare shall notify insureds under the policy that the policy is not a Medicare supplement policy or certificate.
The notice shall either be printed or attached to the first page of the outline of coverage delivered to insureds under the policy, or if no outline of coverage is delivered, to the first page of the policy, or certificate delivered to insureds.
The notice shall be in no less than twelve (12) point type and shall contain the following language: "THIS (POLICY OR CERTIFICATE) IS NOT A MEDICARE SUPPLEMENT (POLICY OR CONTRACT). If you are eligible for Medicare, review the Guide to Health Insurance for People with Medicare available from the company."

(b) Applications provided to persons eligible for Medicare for the health insurance policies or certificates described in paragraph (a) of this subsection shall disclose, using the applicable statement in HL-MS-3 the extent to which the policy duplicates Medicare. The disclosure statement shall be provided as a part of, or together with, the application for the policy or certificate.

Section 20. Requirements for Application Forms and Replacement Coverage.

(1) Comparison statement.

(a) If a Medicare Advantage or Medicare supplement policy or certificate is to replace another Medicare supplement or Medicare Advantage policy or certificate, HL-MS-5 shall be presented to the applicant, no later than the application date.

(b) Direct response insurers shall present the comparison statement to the applicant not later than when the policy is delivered.

Obtain the signature of the applicant on the comparison statement;
Sign the comparison statement; and
Send the comparison statement to the insurer and attach a copy of the comparison statement to the replacement policy.

(2)

(a) Application forms shall include the questions on HL-MS-6 designed to elicit information as to whether, as of the date of the application:

The applicant currently has Medicare supplement, Medicare Advantage, Medicaid coverage, or another health insurance policy or certificate in force; or
A Medicare supplement policy or certificate is intended to replace any other accident and sickness policy or certificate presently in force.

(b) An agent shall provide the HL-MS-07 to the applicant.

(c) A supplementary application or other form to be signed by the applicant and agent containing the questions as found on the HL-MS-06 and statements on HL-MS-07 may be used.

(3) Agents shall list, on HL-MS-06 or on the supplementary form as identified in subsection (2)(c) of this section, any other health insurance policies the agent has sold to the applicant including:

(a) Policies sold that are still in force; and

(b) Policies sold in the past five (5) years that are no longer in force.

(4) For an insurer that uses direct response, a copy of the application or supplemental form, signed by the applicant, and acknowledged by the insurer, shall be returned to the applicant by the insurer upon delivery of the policy.

(5) Upon determining that a sale will involve replacement of Medicare supplement coverage, any insurer, other than an insurer that uses direct response, or its agent, shall provide the applicant, prior to issuance or delivery of the Medicare supplement policy or certificate, a notice regarding replacement of Medicare supplement coverage. One (1) copy of the notice signed by the applicant and the agent, except if the coverage is sold without an agent, shall be provided to the applicant and an additional signed copy shall be retained by the insurer. An insurer that uses direct response shall deliver to the applicant at issuance of the policy, the notice regarding replacement of Medicare supplement coverage. Upon receipt of the notice, the applicant or the applicant's designee shall notify the insurer who previously provided Medicare supplement coverage of the replacement coverage.

(6) The notice required by subsection (5) of this section for an insurer shall be provided as specified in HL-MS-08, in no less than twelve (12) point type or in a form developed by the insurer, which shall:

(a) Meet the requirements of this section; and

(b) Be filed with and approved by the commissioner, as established in KRS 304.14-130, prior to use.

Section 21. Filing Requirements for Advertising and Policy Delivery.

(1) An insurer shall provide a copy of any Medicare supplement advertisement intended for use in Kentucky whether through written, electronic, radio, television, or any other medium to the commissioner for review prior to use. Advertisements shall not require approval prior to use, but an advertisement shall not be used if it has been disapproved by the commissioner, as established in KRS 304.14-130, and notice of the disapproval has been given to the insurer.

(2) Insurers and agents shall not use the names and addresses of persons purchased as "leads" unless the solicitation material used to obtain the names and addresses of the "leads" are filed as advertisement as required by this section. Insurers and agents shall not use "leads" if the solicitation materials have been disapproved by the commissioner as established in KRS 304.14-130.

(3) If a Medicare supplement policy is not delivered by mail, the agent or insurer shall obtain a signed and dated delivery receipt from the insured. If the delivery receipt is obtained by an agent, the agent shall forward the delivery receipts to the insurer.

Section 22. Standards for Marketing.

(1) An insurer, directly or through its agents or other representatives, shall:

(a) Establish marketing procedures to assure that any comparison of policies by its agents or other representatives shall be fair and accurate;

(b) Establish marketing procedures to assure excessive insurance is not sold or issued;

(c) Display prominently by type, stamp, or other appropriate means, on the first page of the policy the following disclosure: "Notice to buyer: This policy may not cover all of your medical expenses";

(d) Inquire and make every reasonable effort to identify if a prospective applicant or enrollee for Medicare supplement insurance already has accident and sickness insurance and the types and amounts of any insurance; and

(e) Establish auditable procedures for verifying compliance with this subsection.

(2) In addition to the practices prohibited in KRS Chapter 304.12 and 806 KAR 12:092, the following acts and practices shall be prohibited:

(a) Twisting. Making any unfair or deceptive representation or incomplete or fraudulent comparison of any insurance policies or insurers for the purpose of inducing, or tending to induce, any person to lapse, forfeit, surrender, terminate, retain, pledge, assign, borrow on, or convert an insurance policy or to take out a policy of insurance with another insurer;

(b) High pressure tactics. Employing any method of marketing having the effect of or tending to induce the purchase of insurance through force, fright, threat, whether explicit or implied, or undue pressure to purchase or recommend the purchase of insurance; and

(c) Cold lead advertising. Making use of any method of marketing that fails to disclose in a conspicuous manner that a purpose of the method of marketing is solicitation of insurance and that contact will be made by an insurance agent or insurance company.

(3) The terms "Medicare Supplement," "Medigap," "Medicare Wrap-Around", and similar words shall not be used unless the policy is issued in compliance with this administrative regulation.

Section 23. Appropriateness of Recommended Purchase and Excessive Insurance.

(1) In recommending the purchase or replacement of any Medicare supplement policy or certificate, an agent shall make reasonable efforts to determine the appropriateness of a recommended purchase or replacement.

(2) Any sale of a Medicare supplement policy or certificate that will provide an individual more than one (1) Medicare supplement policy or certificate shall be prohibited.

(3) An insurer shall not issue a Medicare supplement policy or certificate to an individual enrolled in Medicare Part C unless the effective date of the coverage is after the termination date of the individual's Part C coverage.

Section 24. Reporting of Multiple Policies.

(1) On or before March 1 of each year, an insurer shall report to the commissioner the following information, using HL-MS-2, for every individual resident of Kentucky for which the insurer has in force more than one (1) Medicare supplement policy or certificate:

(a) Policy and certificate number; and

(b) Date of issuance.

(2) The items set forth in subsection (1) of this section shall be grouped by individual policyholder.

Section 25. Prohibition Against Preexisting Conditions, Waiting Periods, Elimination Periods, and Probationary Periods in Replacement Policies or Certificates.

(1) If a Medicare supplement policy or certificate replaces another Medicare supplement policy or certificate, the replacing insurer shall waive any time periods applicable to preexisting conditions, waiting periods, elimination periods, and probationary periods in the new Medicare supplement policy or certificate to the extent time was spent under the original policy.

(2) If a Medicare supplement policy or certificate replaces another Medicare supplement policy or certificate which has been in effect for at least six (6) months, the replacing policy shall not provide any time period applicable to preexisting conditions, waiting periods, elimination periods, and probationary periods.

Section 26. Prohibition Against Use of Genetic Information and Requests for Genetic Testing.

(1) An insurer of a Medicare supplement policy or certificate shall not:

(a) Deny or condition the issuance or effectiveness of the policy or certificate, including the imposition of any exclusion of benefits under the policy based on a pre-existing condition, on the basis of the genetic information with respect to any individual; and

(b) Discriminate in the pricing of the policy or certificate, including the adjustment of premium rates, of an individual on the basis of the genetic information with respect to any individual.

(2) Subsection (1) of this section shall not be construed to limit the ability of an insurer, to the extent permitted by law, from:

(a) Denying or conditioning the issuance or effectiveness of the policy or certificate or increasing the premium for a group based on the manifestation of a disease or disorder of an insured or applicant; or

(b) Increasing the premium for any policy issued to an individual based on the manifestation of a disease or disorder of an individual who is covered under the policy, and the manifestation of a disease or disorder in one individual shall not also be used as genetic information about other group members and to further increase the premium for the group.

(3) Except as provided by subsection (6) of this section, an insurer of a Medicare supplement policy or certificate shall not request or require an individual or a family member of an individual to undergo a genetic test.

(4) Subsection (3) of this section shall not be construed to prohibit an insurer of a Medicare supplement policy or certificate from obtaining and using the results of a genetic test in making a determination regarding payment, as described for the purposes of applying the regulations promulgated under part C of title XI of the Social Security Act, 42 U.S.C. 1320d et seq., and section 264 of the Health Insurance Portability and Accountability Act of 1996, 42 U.S.C. 1320d-2, and consistent with subsection (1) of this section.

(5) For purposes of carrying out subsection (4) of this section, an insurer of a Medicare supplement policy or certificate may request only the minimum amount of information necessary to accomplish the intended purpose.

(6) An insurer of a Medicare supplement policy may request, but shall not require, that an individual or a family member of the individual undergo a genetic test if:

(a) The request is made pursuant to research that complies with 45 C.F.R. part 46, or equivalent federal regulations, and any applicable state or local law, or administrative regulations, for the protection of human subjects in research;

(b) The insurer clearly indicates to each individual, or if a minor child, to the legal guardian of the child, to whom the request is made that:

Compliance with the request shall be voluntary; and
Noncompliance shall have no effect on enrollment status or premium or contribution amounts;

(c) Genetic information collected or acquired under this subsection shall not be used for underwriting, determination of eligibility to enroll or maintain enrollment status, premium rates, or the issuance, renewal, or replacement of a policy or certificate;

(d) The insurer notifies the secretary in writing that the insurer is conducting activities pursuant to the exception provided for under this subsection, including a description of the activities conducted; and

(e) The insurer complies with other conditions as the secretary may by federal regulation require for activities conducted under this subsection.

(7) An insurer of a Medicare supplement policy or certificate shall not request, require, or purchase genetic information for underwriting purposes.

(8) An insurer of a Medicare supplement policy or certificate shall not request, require, or purchase genetic information with respect to any individual prior to an individual's enrollment under the policy in connection with enrollment.

(9) If an insurer of a Medicare supplement policy or certificate obtains genetic information incidental to the requesting, requiring, or purchasing of other information concerning any individual, the request, requirement, or purchase shall not be considered a violation of subsection (8) of this section if the request, requirement, or purchase is not in violation of subsection (7) of this section.

Section 27. Incorporated by Reference.

(1) The following material is incorporated by reference:

(a) "HL-MS-1", July 2009 edition;

(b) "HL-MS-2", July 2009 edition;

(d) "HL-MS-4", October 2009 edition;

(e) "HL-MS-5", May 2018 edition;

(f) "HL-MS-06", July 2009 edition;

(g) "HL-MS-07", July 2009 edition;

(h) "HL-MS-08", October 2009 edition; and

(i) "HLMS-9", 2023 edition.

(3) This material may also be obtained at the department's Web site at https://insurance.ky.gov/ppc/CHAPTER.aspx.

History

RELATES TO: KRS 304.2-310, 304.2-320, 304.3-240, 304.12-020, 304.14-120, 304.14-500 - 304.14-550, 304.17-311, 304.17-380, 304.17-383, 304.17A-005, 304.18-034, 304.32-275, 304.33-030, 304.38-205, 42 C.F.R. 409.87, 45 C.F.R. Part 46, 74 F.R. 18808 (2009), 29 U.S.C. 1002, 42 U.S.C. 426, 1320c-3, 1320d, 1320d-2, 1395 - 1395ggg, 1396, Pub. L. 108-173, 114-10
STATUTORY AUTHORITY: KRS 304.2-110(1), 304.14-510, 304.14-525, 304.32-250, 304.38-150
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.2-110(1) authorizes the commissioner of the Department of Insurance to promulgate administrative regulations necessary for or as an aid to the effectuation of any provision of the Kentucky Insurance Code, as established in KRS 304.1-010. KRS 304.14-510 authorizes the commissioner of the Department of Insurance to promulgate administrative regulations establishing minimum standards for Medicare supplement insurance policies. KRS 304.32-250 authorizes the commissioner of the Department of Insurance to promulgate administrative regulations necessary for the proper administration of KRS 304.32. KRS 304.38-150 authorizes the commissioner of the Department of Insurance to promulgate administrative regulations necessary for the proper administration of KRS Chapter 304.38. This administrative regulation establishes minimum standards for Medicare supplement insurance policies and certificates.
History: 806 KAR 017:570. 36 Ky.R. 499, 1064; eff. 1-4-2010; 45 Ky.R. 161, 1202; eff. 12-7-2018; 51 Ky.R. 120, 892; eff. 2-4-2025.

806 KAR 17:575 Pharmacy benefit managers {#sec-806-kar-17-575 omnilex-key=us-ky-regs-official--title-806--806 KAR 17:575}

Section 1. Definitions.

(1) "Contracted pharmacy" or "pharmacy" is defined by KRS 304.17A-161(1).

(2) "Department" is defined by KRS 304.1-050(2).

(3) "Maximum Allowable Cost" is defined by KRS 304.17A-161(3).

(4) "Pharmacy Benefit Manager" is defined by KRS 304.17A-161(4).

Section 2. Maximum Allowable Cost Pricing Appeal Process.

(1) A pharmacy benefit manager shall establish a maximum allowable cost pricing appeal process that allows a contracted pharmacy or the pharmacy's designee to appeal if:

(a) The maximum allowable cost established for a drug reimbursement is below the cost at which the drug is available for purchase by pharmacists and pharmacies in Kentucky from national or regional wholesalers licensed in Kentucky by the Kentucky Board of Pharmacy; or

(b) The pharmacy benefit manager has placed a drug on the maximum allowable cost list in violation of KRS 304.17A-162(8).

(2) The pharmacy benefit manager shall accept an appeal submitted by a contracted pharmacy on or before sixty (60) days of the initial claim; and

(3) The pharmacy benefit manager's appeal process shall include the following:

(a) Notification to the appealing party that the appeal has been received, and the names, addresses, email addresses, and telephone numbers of the pharmacy benefit manager's contact persons for questions regarding the maximum allowable cost appeal process; and

(b) A provision allowing a contracted pharmacy, pharmacy service administration organization, or group purchasing organization to initiate the appeal process, regardless of whether an appeal has previously been submitted by a pharmacy or the pharmacy's designee outside of Kentucky, by contacting the pharmacy benefit manager's designated contact person electronically, by mail, or telephone. If the appeal process is initiated by telephone, the appealing party shall follow up with a written request within three (3) days.

(4) The pharmacy benefit manager's maximum allowable cost pricing appeal process shall be readily accessible to contracted pharmacies:

(a) Electronically;

(b) Through publication on the pharmacy benefit manager's website; and

(c)

In the contracted pharmacy's contract with the pharmacy benefit manager; or
Through a pharmacy provider manual distributed to contracted pharmacies, pharmacy service administration organizations, and group purchasing organizations.

(5) For an appeal received from a pharmacy services administration organization or a group purchasing organization related to a dispute regarding maximum allowable cost pricing, a pharmacy benefit manager may request documentation that the pharmacy services administration organization or group purchasing organization is acting on behalf of a contracted pharmacy before responding to the appeal.

(6) The pharmacy benefit manager shall investigate, resolve, and respond to the appeal within ten (10) calendar days of receipt of the appeal. Upon resolution, the pharmacy benefit manager shall issue a written response to the appealing party that shall include the following:

(a) The date of the decision;

(b) The name, phone number, mailing address, email address, and title of the person making the decision; and

If the appeal is granted:

a. The amount of the adjustment to be paid retroactive to the initial date of service to the appealing pharmacy;

b. The drug name, national drug code, and prescription number of the appealed drug; and

c. The appeal number assigned by the pharmacy benefit manager, if applicable; or

If the appeal is denied:

a. The national drug code of the appealed drug, or the national drug code of a therapeutically equivalent drug as referenced in KRS 304.17A-162(9), of the same dosage, dosage form, and strength of the appealed drug; and

b. The Kentucky licensed wholesaler offering the drug at or below maximum allowable cost on the date of fill.

(7) If a pharmacy benefit manager grants an appeal for which a price update is warranted in accordance with KRS 304.17A-162(2), the pharmacy benefit manager shall individually notify contracted pharmacies of the date of the granted appeal, the appealed drug, initial date of service, national drug code, generic code number, applicable information to identify the health benefit plan, and retroactive price update by the time of release of the next scheduled maximum allowable cost update following the appeal decision by:

(a) Mail Courier;

(b) Electronic mail;

(d) Web portal posting for sixty (60) days and corresponding electronic communication to a contracted pharmacy with hyperlink to the portal for the granted appeal. A pharmacy benefit manager shall include in the beginning and upon renewal of the contract with a pharmacy or the pharmacy's representative, notice and instructions for how to access and use the web portal.

(8) All contracted pharmacies permitted to reverse and resubmit claims following a granted appeal pursuant to KRS 304.17A-162(2) shall submit claims to the pharmacy benefit manager within sixty (60) days of notification that the appeal was granted.

(9) A pharmacy benefit manager shall submit the maximum allowable cost pricing appeal process and a template response satisfying the requirements of subsection (6) of this section to the department for review and approval.

Section 3. Department Review of Maximum Allowable Cost Pricing Appeal.

(1) A contracted pharmacy or the pharmacy's designee may file a complaint with the department following a final decision of the pharmacy benefit manager, in accordance with KRS 304.2-160, 304.2-165, and 304.17A-162(5).

(2) A complaint shall be submitted to the department no later than thirty (30) calendar days from the date of the pharmacy benefit manager's final decision.

(3) The department shall be entitled to request additional information necessary to resolve a complaint from any party in accordance with KRS 304.2-165 and 304.17A-162(5).

Section 4. Maximum allowable cost list availability and format.

(1) The comprehensive maximum allowable cost pricing list required under KRS 304.17A-162(4) shall:

(a) Be a complete listing by drug in an electronically accessible format;

(b) Identify the applicable health plan for which the pricing is applicable;

(c) Contain the ability to search and sort drugs electronically by individual drug name, national drug code, and generic code number;

(d) Contain data elements, including the drug name, national drug code, per unit price, and strength of drug;

(e) List a specific maximum allowable cost for each drug that will be reimbursed by the pharmacy benefit manager;

(f) Provide the effective date for that maximum allowable cost price; and

(g) Provide the date the maximum allowable cost list was updated.

(2) The pharmacy benefit manager shall retain, in accordance with subsection (1)(a) of this section, historical pricing data for a minimum of 120 days.

Section 5. Weekly Updates to Maximum Allowable Cost Price List.

(1) Pharmacy benefit managers shall send to all contracted pharmacies one (1) weekly update to the maximum allowable cost price list, in accordance with the requirements of this section.

(2) The weekly update, required under 34.17A-162(7), shall:

(a) Be in an electronically accessible format on the pharmacy benefit manager's Web site; and

(b) Include the information below for all drugs added, removed, or changed in price since the last weekly update:

The basis for each drug's inclusion on the update;
If a drug is added to the maximum allowable cost list, the maximum allowable cost price;
All drugs removed from the maximum allowable cost list;
If a change in the maximum allowable cost price is made, the old price and new price;
The drug name, national drug code, generic code number, and the applicable health benefit plan information; and
The effective date of the change.

Section 6. Data Source Availability. Each pharmacy benefit manager shall identify electronically or within contracts to all contracted pharmacies the national drug pricing compendia, or sources used to obtain drug price data for those drugs, subject to maximum allowable cost provisions. If any changes are made to the data sources following the execution of a contract, the pharmacy benefit manager shall individually notify the contracted pharmacies of the changes through correspondence submitted electronically, by facsimile, or by mail courier.

Section 7. Annual report. All pharmacy benefit managers licensed to do business in Kentucky shall transmit a Pharmacy Benefit Manager Annual Report to the department at least annually, by March 31 of each year.

Section 8. Incorporation by Reference.

(1) "Pharmacy Benefit Manager Annual Report," 06/2017, is incorporated by reference.

History

RELATES TO: KRS 304.1-050, 304.2-160, 304.2-165, 304.9-020, 304.17A-161, 304.17A-162
STATUTORY AUTHORITY: KRS 304.2-110, 304.9-054, 304.17A-162
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.2-110(1) authorizes the commissioner of the Department of Insurance to promulgate reasonable administrative regulations necessary for, or as an aid to, the effectuation of any provision of the Kentucky Insurance Code as defined in KRS 304.1-010. KRS 304.17A-162 requires the department to promulgate administrative regulations to establish the manner in which a pharmacy benefit manager shall respond to an appeal regarding maximum allowable cost pricing, the manner in which a pharmacy benefit manager shall make available the sources for drug pricing data to contracted pharmacies, a comprehensive list of drugs subject to maximum allowable cost and the actual maximum allowable cost for each drug, and weekly drug list updates. KRS 304.9-054 authorizes the department to promulgate administrative regulations to implement and enforce the provisions of KRS 304.17A-162 and specify the contents of any required forms or reports. This administrative regulation establishes requirements for a pharmacy benefit manager's maximum allowable cost appeals process, the process for the department's review of a complaint associated with a maximum allowable cost appeal, the requirements for the cost listings made available by a pharmacy benefit manager, and reporting requirements.
History: 43 Ky.R. 2079; 44 Ky.R. 243; 733; eff. 10-24-2017; 48 Ky.R. 1924, 2412; eff. 5-31-2022.

806 KAR 17:580 Definition of Health Care Provider {#sec-806-kar-17-580 omnilex-key=us-ky-regs-official--title-806--806 KAR 17:580}

Section 1. In addition to the health care practitioners listed in KRS 304.17A-005(23)(a) – (i), the definition of "health care provider" or "provider" in KRS 304.17A-005(23) shall include a pharmacy licensed under the provisions of KRS Chapter 315.

History

RELATES TO: KRS 304.17A-005(23)
STATUTORY AUTHORITY: KRS 304.2-110, 304.17A-005(23)(j)
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.2-110 authorizes the Commissioner of Insurance to promulgate administrative regulations necessary for or as an aid to the effectuation of any provision of the Kentucky Insurance Code as defined in KRS 304.1-010. KRS 304.17A-005(23)(j) authorizes the Department to promulgate an administrative regulation to determine other health care practitioners to be added to the definition of "health care provider" or "provider" for use in KRS Chapter 304, Subtitle 17A. This administrative regulation implements KRS 304.17A-005(23)(j).
History: 47 Ky.R. 2777; 48 Ky.R. 831; eff. 11-30-2021.

806 KAR 17:585 Annual report mental health parity nonquantitative treatment limitation compliance {#sec-806-kar-17-585 omnilex-key=us-ky-regs-official--title-806--806 KAR 17:585}

Section 1. Definitions.

(1) "Commissioner" is defined by KRS 304.1-050(1).

(2) "Insurer" is defined by KRS 304.17A-005(29).

(3) "Nonquantitative treatment limitations" as defined by KRS 304.17A-660(3).

Section 2. Data Reporting Requirements.

(1) An insurer that issues or renews a health benefit plan and is authorized to write health insurance in this state shall submit an annual report containing the information described in KRS 304.17A-661 on the Nonquantitative Treatment Limitation (NQTL) Reporting Submission Form to the commissioner by April 1st of each year for the previous plan year.

(2) The report shall be submitted electronically through:

(a) Email; or

(b) A portal designated for this purpose.

Section 3. Material Incorporated by Reference.

(1) "Nonquantitative Treatment Limitation (NQTL) Reporting Submission Form", 5/2022 is incorporated by reference.

(2) This material may be inspected, copied, or obtained, subject to applicable copyright law, at the Kentucky Department of Insurance, Mayo-Underwood Building, 500 Mero Street, Frankfort, Kentucky 40601, Monday through Friday, 8 a.m. to 4:30 pm. This material is also available on the Department's Web site at https://insurance.ky.gov/ppc/CHAPTER.aspx.

History

RELATES TO: KRS 304.1-050(1), 304.17A-660, 304.17A-669, 45 C.F.R. 146.136, 45 C.F.R. 147.160, 42 U.S.C. 300gg-26
STATUTORY AUTHORITY: KRS 304.2-110, 304.17A-661
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.2-110 authorizes the Commissioner of Insurance to promulgate administrative regulations necessary for or as an aid to the effectuation of any provision of the Kentucky Insurance Code as defined in KRS 304.1-010. KRS 304.17A-661 requires an insurer that issues or renews a health benefit plan to annually report to the commissioner the self-compliance with the federal Mental Health Parity and Addiction Equity Act, 42 U.S.C. 300gg-26, related to nonquantitative treatment limitations between medical and surgical benefits and mental health substance use disorder benefits, to demonstrate that these treatment limitations are applied comparably and requires the commissioner to establish a form for this purpose. This administrative regulation establishes the format and submission time frame for the data reporting requirements in KRS 304.17A-661.
History: 48 Ky.R. 3138; 49 Ky.R. 616, 813, 973; eff. 1-3-2023.

806 KAR 17:590 Annual report on providers prescribing medication for addiction treatment {#sec-806-kar-17-590 omnilex-key=us-ky-regs-official--title-806--806 KAR 17:590}

Section 1. Definitions.

(1) "Commissioner" is defined by KRS 304.1-050(1).

(2) "Department" is defined by KRS 304.1-050(2).

(3) "Insurer" is defined by KRS 304.17A-005(29).

(4) "Medication for addiction treatment" means a prescription drug that:

(a)

Is prescribed for use in the treatment of alcohol or opioid addiction; and
Contains methadone, buprenorphine, or naltrexone; or

(b) Was approved before January 1, 2022, by the United States Food and Drug Administration for the mitigation of opioid withdrawal symptoms.

Section 2. Data Reporting Requirements.

(1) An insurer authorized to write health insurance in this state shall submit the data required by the Annual Report on Providers Prescribing Medication for Addiction Treatment form to the commissioner by March 31st of each year.

(2) The data required by the Annual Report on Providers Prescribing Medication for Addiction Treatment form shall be submitted via electronic mail to DOI.Healthreporting@ky.gov.

Section 3. Material Incorporated by Reference.

(1) "Annual Report on Providers Prescribing Medication for Addiction Treatment" form, 9/2023, is incorporated by reference.

(2) This material may be inspected, copied, or obtained, subject to applicable copyright law, at the Kentucky Department of Insurance, Mayo-Underwood Building, 500 Mero Street, Frankfort, Kentucky 40601, Monday through Friday, 8 a.m. to 4:30 pm. This material is also available on the department's Web site at https://insurance.ky.gov/ppc/CHAPTER.aspx.

History

RELATES TO: KRS 304.1-050(1) 304.9-020, 304.9-055, 304.17A-005(29), 304.17A-732
STATUTORY AUTHORITY: KRS 304.2-110
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.2-110 authorizes the Commissioner of the Department of Insurance to promulgate administrative regulations necessary for or as an aid to the effectuation of any provision of the Kentucky Insurance Code, as defined in KRS 304.1-010. KRS 304.17A-732 requires insurers to annually report to the commissioner the number and type of providers that have prescribed medication for addiction treatment to its insureds in conjunction with behavioral therapy and not in conjunction with behavioral therapy. This administrative regulation sets forth the format and submission time frame for the data reporting requirements in KRS 304.17A-732.
History: 48 Ky.R. 1684, 2413; eff. 5-31-2022; 50 Ky.R. 950, 1498; eff. 4-2-2024.

806 KAR 17:595 Dental Benefits Assignment {#sec-806-kar-17-595 omnilex-key=us-ky-regs-official--title-806--806 KAR 17:595}

Section 1. Definitions.

(1) "Benefit assignment" means written consent of a covered person choosing to allow a dental carrier to pay claim benefit payments directly to a non-participating dental service provider in accordance with KRS 304.17C-137.

(2) "Covered person" is defined by KRS 304.17C-130(1).

(3) "Dental carrier" is defined by KRS 304.17C-130(3).

(4) "Dental services" is defined by KRS 304.17C-130(4).

(5) "Non-participating provider" means a dental services provider that has not entered into an agreement with a dental carrier to provide dental services.

(6) "Provider" is defined by KRS 304.17C-130(7).

Section 2. Dental Benefit Assignment Form. A provider shall comply with a written assignment of benefits under a dental benefit plan made in accordance with KRS 304.17C-137(1)(a)1.b. on the Dental Benefit Assignment Form. Nothing in this administrative regulation shall be construed to require a covered person to assign a dental benefit. A provider shall not condition treatment on the execution of the Dental Benefit Assignment Form.

Section 3. Incorporation by Reference.

(1) "Dental Benefit Assignment Form," HL-DBA1 3/2026, is incorporated by reference.

(2) This material may be inspected, copied, or obtained, subject to applicable copyright law, at the Kentucky Department of Insurance, Mayo-Underwood Building, 500 Mero Street, Frankfort, Kentucky 40601, Monday through Friday, 8 a.m. to 4:30 p.m. This material is also available on the Web site at: http://insurance.ky.gov/ppc/CHAPTER.aspx.

History

RELATES TO: KRS 14A.4-010, 304.1-050, 304.17C-130, 304.17C-137
STATUTORY AUTHORITY: KRS 304.2-110(1), 304.17C-137
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.2-110(1) authorizes the commissioner to promulgate reasonable administrative regulations necessary for or as an aid to the effectuation of the Kentucky Insurance Code as defined in KRS 304.1-010. KRS 304.17C-137(1)(a)1.b. requires insurers to accept dental benefit assignments made by covered persons in writing on a form established by the commissioner in an administrative regulation. KRS 304.17C-137 requires the department to promulgate administrative regulations to implement and enforce the provisions of 304.17C-137. This administrative regulation establishes the required dental benefit assignment form.
History: 806 KAR 017:595. 52 Ky.R. 1251, 1870; eff. 9-1-2026.

Chapter 18 Group and Blanket Health Insurance

806 KAR 18:020 Preferred and exclusive provider arrangements {#sec-806-kar-18-020 omnilex-key=us-ky-regs-official--title-806--806 KAR 18:020}

Section 1. Definitions.

(1) "Alternative delivery system" means a health care delivery system characterized by alliances between selected health care providers and insurers, employers, or both, managed care through greater utilization controls, or discounted fee or capitation payment arrangements with health care providers, as distinguished from the traditional fee-for-service delivery approach.

(2) "Exclusive provider arrangement" means an alternative delivery system in which an insurer contracts with health care providers for alternative rates of payment and requires insureds or subscribers to use the health care providers under contract with the insurer.

(3) "Insurer" is defined by KRS 304.17A-005(27).

(4) "Preferred provider arrangement" means an alternative delivery system under which an insurer contracts with health care providers for alternative rates of payment and allows insureds or subscribers to choose between contract health care providers and noncontract health care providers.

Section 2. Contract Guidelines. Insurers shall not:

(1) Issue contracts of insurance offering any preferred provider arrangement under which the difference between the benefit payable for services rendered by noncontract health care providers and the benefit payable for services rendered by contract health care providers exceeds twenty-five (25) percent; or

(2) Issue contracts of insurance offering any exclusive provider arrangement.

Section 3. Exception. Section 2 of this administrative regulation shall not apply to health maintenance organizations, limited health service organizations, and non-profit hospital, medical-surgical, dental, and health service corporations.

History

RELATES TO: KRS 304.12-010, 304.18-040, 304.32-080
STATUTORY AUTHORITY: KRS 304.2-110, 304.32-250, 304.14-130
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.2-110 and KRS 304.32-250 provide that the commissioner may make reasonable administrative regulations necessary for or as an aid to the effectuation of any provision of the Kentucky Insurance Code. This administrative regulation establishes guidelines for the use of preferred provider arrangements for group health insurers.
History: 12 Ky.R. 1710; 1840; eff. 6-10-1986; TAm eff. 8-9-2007; 43 Ky.R. 1291; eff. 6-2-2017; Cert. eff. 6-13-2023.

806 KAR 18:030 Group health insurance coordination of benefits {#sec-806-kar-18-030 omnilex-key=us-ky-regs-official--title-806--806 KAR 18:030}

Section 1. Definitions.

(1) "Allowable expense" means a health care service or expense, including deductibles, coinsurance, and copayments, that is covered in full or in part by any of the plans covering the person.

(2) "Claim" means a request that benefits of a plan be provided or paid, and the benefits claimed are in the form of:

(a) Services, including supplies;

(b) Payment for all or a portion of the expenses incurred;

(d) An indemnification.

(3) "Complying plan" means a plan with benefit determination requirements that comply with the requirements of this administrative regulation.

(4) "Coordination of benefits" means a provision establishing an order in which plans pay their claims and permitting secondary plans to reduce their benefits so that the combined benefits of all plans do not exceed total allowable expenses.

(5) "Custodial parent" means the parent awarded custody of a child by a court decree or with whom the child resides more than one-half (1/2) of the calendar year.

(6) "Insurer" is defined by KRS 304.17A-005(29).

(7) "Noncomplying plan" means a plan without benefit determination requirements or whose benefit determination requirements do not comply with the requirements of this administrative regulation.

(8) "Plan":

(a) Means:

A form of coverage with which coordination of benefits is allowed and "health benefit plans" as defined by KRS 304.17A-005(22); and
Sometimes includes Medicare benefits pursuant to 42 U.S.C. 1395, or other governmental benefits; and

(b) Does not mean:

The medical benefits coverage in a group, group-type, and individual motor vehicle "no-fault" or traditional automobile "fault" type contract; or
School accident-type coverages that cover elementary, high school, or college students for accidents only, including athletic injuries, either on a twenty-four (24) hour basis or on a "to-and-from school" basis.

(9) "Primary plan" means a plan whose benefits for a person's health care coverage are determined without taking the existence of any other plan into consideration if:

(a) The plan either has no order of benefit determination requirements, or its requirements differ from those permitted by this administrative regulation; or

(b) All plans that cover the person use the order of benefit determination requirements required by this administrative regulation, and under those requirements the plan determines its benefits first.

(10) "Secondary plan" means a plan that is not a primary plan.

Section 2. Requirements for Coordination of Benefits.

(1) If a person is covered by two (2) or more plans, the requirements for determining the order of benefit payments shall be as established in paragraphs (a) through (c) of this subsection.

(a) The primary plan shall pay or provide its benefits as if the secondary plan or plans did not exist.

(b) A plan that does not contain a coordination of benefits provision consistent with this administrative regulation shall always be primary, except that coverage obtained by virtue of membership in a group and designed to supplement a part of a basic package of benefits may state the supplementary coverage shall be secondary to the basic package of benefits provided by the contract holder.

(2) Order of Benefit Determination. The following requirements shall be applied in the following priority, alphabetically to determine the order of plan payment:

(a) Nondependent or dependent.

The plan that covers a person other than as a dependent shall be primary.
The plan that covers a person as a dependent shall be secondary, unless the person is a Medicare beneficiary, in which case the order of benefits is determined in accordance with 42 U.S.C. 1395.

(b) Dependent child covered under more than one (1) plan. Unless a court decree determines otherwise, or a parent has made an election within the first thirty-one (31) days of birth to add a newborn as a dependent to one parent's plan, plans covering a dependent child, including a newborn subject to KRS 304.17-042 and 304.18-032, shall determine the order of benefits as established in subparagraphs 1. through 4. of this paragraph.

The primary plan shall be the plan of the parent whose birthday is earlier in the year if:

a. The parents are married;

b. The parents are not separated, whether or not they have ever been married; or

c. A court decree awards joint custody without establishing that one (1) parent has the responsibility to provide health care coverage.

If both parents have the same birthday, the plan that has covered either of the parents longer shall be primary.
If a court decree states that one (1) parent is responsible for the child's health care expenses or health care coverage and the plan of that parent has actual knowledge of those terms, that plan shall be primary. If the parent with responsibility has no coverage for the child's health care services or expenses, but the responsible parent's spouse does, the spouse's plan shall be primary.
If the parents are divorced, separated, or not married, and there is no court decree allocating responsibility for the child's health care services or expenses, the order of benefit determination among the plans of the parents and the parents' spouses, if any, shall be the plan of the:

a. Custodial parent;

b. Spouse of the custodial parent;

c. Noncustodial parent; and

d. Spouse of the noncustodial parent.

(c) Active or inactive employee. The plan that covers a person as an active employee, neither laid off nor retired, or as an active employee's dependent, shall be primary. The plan covering the same person as a retired or laid-off employee, or as a dependent of a retired or laid-off employee, shall be the secondary plan.

(d) Continuation coverage. If a person has coverage provided pursuant to a right of continuation pursuant to federal or state law and is also covered under another plan, the continuation coverage shall be secondary.

(e) Longer or shorter length of coverage. If the preceding requirements established in paragraphs (a) through (d) of this subsection, respectively, do not determine the order of benefits, the plan that covered the person for the longer period of time shall be primary:

To determine the length of time a person has been covered under a plan, two (2) plans shall be treated as one (1) if the covered person was eligible under the second within twenty-four (24) hours after the first ended;
Changes during a coverage period that do not constitute the start of a new plan include:

a. A change in scope of a plan's benefits;

b. A change in the entity that pays, provides, or administers the plan's benefits; or

c. A change from one (1) type of plan to another; and

The person's length of time covered under a plan shall be measured from the person's first date of coverage under that plan. If that date is not readily available for a group plan, the date the person first became a member of the group shall be used as the date from which to determine the length of time the person's coverage under the present plan has been in force.

(f) If none of the preceding requirements established in paragraphs (a) through (e) of this subsection, respectively, determines the primary plan, the allowable expenses shall be shared equally between the plans.

Section 3. Procedure to be followed by Secondary Plan to Calculate Benefits and Pay Claim.

(1) A secondary plan shall reduce its benefits so that the total benefits paid or provided by all plans shall not be more than 100 percent of total allowable expenses.

(2) If a person is covered by more than one (1) secondary plan, the order of benefit determination requirements of this administrative regulation shall decide the order in which secondary plans benefits shall be determined in relation to each other.

(3) The secondary plan shall credit to its plan deductible any amounts it would have credited to its deductible in the absence of other health care coverage.

Section 4. Notice to Covered Persons. A plan shall, in its explanation of benefits provided to covered persons, include the following language: "If you are covered by more than one (1) health benefit plan, you should file all your claims with each plan."

Section 5. Miscellaneous Provisions.

(1) Provision of Services. A secondary plan that provides benefits in the form of services shall only recover the reasonable cash value of the services from the primary plan, to the extent that benefits for the services are covered by the primary plan and have not already been paid or provided by the primary plan.

(2) Non-Complying Plan Coordination.

(a) A plan with order of benefit determination requirements that comply with this administrative regulation may coordinate its benefits with a plan that is "excess" or "always secondary" or that uses order of benefit determination requirements that do not comply with those contained in this administrative regulation if the:

Complying plan is the primary plan, it shall pay or provide its benefits first;
Complying plan is the secondary plan, it shall pay or provide its benefits first, but the amount of the benefits payable shall be determined as if the complying plan were the secondary plan. In that situation, the payment shall be the limit of the complying plan's liability; and
Noncomplying plan does not provide the information needed by the complying plan to determine its benefits within a reasonable time after it is requested to do so, the complying plan shall assume that the benefits of the noncomplying plan are identical to its own and shall pay its benefits accordingly. If, within two (2) years of payment, the complying plan receives information as to the actual benefits of the noncomplying plan, it shall adjust payments accordingly.

(b) If the noncomplying plan reduces its benefits so that the covered person receives less in benefits than he or she would have received had the complying plan paid or provided its benefits as the secondary plan, and the noncomplying plan paid or provided its benefits as the primary plan, and governing state law allows the right of subrogation as established in paragraph (c) of this subsection, then the complying plan shall advance to or on behalf of the covered person an amount equal to the difference.

(c) The complying plan shall not advance more than the complying plan would have paid had it been the primary plan, less any amount it previously paid for the same expense or service, and:

In consideration of the advance, the complying plan shall be subrogated to all rights of the covered person against the noncomplying plan; and
The advance by the complying plan shall also be without prejudice to any claim it may have against a noncomplying plan in the absence of subrogation.

(3) Coordination of benefits differs from subrogation. Provisions for one (1) may be included in health care benefits contracts without compelling the inclusion or exclusion of the other.

(4) If the plans cannot agree on the order of benefits within thirty (30) calendar days after the plans have received all of the information needed to pay the claim, the plans shall immediately pay the claim in equal shares and determine their relative liabilities following payment, except that a plan shall not be required to pay more than it would have paid had it been the primary plan.

History

RELATES TO: KRS 304.17-042, 304.17A-250(7), 304.18-032, 304.18-085, 304.32-145, 304.38-185, 42 U.S.C. 1395
STATUTORY AUTHORITY: KRS 304.2-110(1), 304.17A-250, 304.18-085, 304.32-145, 304.32-185, 304.32-250, 304.38-150
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.2-110 authorizes the commissioner of the Department of Insurance to promulgate reasonable administrative regulations necessary for or as an aid to the effectuation of any provision of the Kentucky Insurance Code as defined in KRS 304.1-010. KRS 304.32-250 authorizes the commissioner to promulgate reasonable administrative regulations necessary for the proper administration of KRS 304.32. KRS 304.38-150 authorizes the commissioner to promulgate reasonable administrative regulations necessary for the proper administration of KRS 304.38. This administrative regulation establishes guidelines for coordination of benefits by group health insurance contracts.
History: 13 Ky.R. 104; Am. 509; eff. 9-4-1986; 27 Ky.R. 1896; 2782; eff. 4-9-2001; TAm eff. 8-9-2007; 44 Ky.R. 1407, 1855; 3-9-2018; 48 Ky.R. 1926, 2414; eff. 5-31-2022.

Chapter 19 Credit Life Insurance and Credit Health Insurance

806 KAR 19:010 Credit transaction requirements {#sec-806-kar-19-010 omnilex-key=us-ky-regs-official--title-806--806 KAR 19:010}

Section 1.

(1) The premiums charged for life insurance issued in connection with credit transactions shall conform to the loan schedule in the installment contract. Level term life insurance will be permitted on level loans, as well as coverage which provides for term insurance on consecutive reducing levels designed to reflect periodic (annual or semiannual) reductions of the loan balance, and decreasing term or group indebtedness coverage for loans providing for regular uniform monthly reduction corresponding to the loan balance.

(2) The debtor shall acknowledge receipt of a statement that indicates the maximum percentage of the loan payable at death under the insurance policy if the policy does not cover the full amount of the loan.

History

RELATES TO: KRS 304.19-040, 304.19-080, 304.19-090
STATUTORY AUTHORITY: KRS 304.2-110
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.2-110 provides that the Commissioner of Insurance may make reasonable rules and regulations necessary for or as an aid to the effectuation of any provision of the Kentucky Insurance Code. This administrative regulation delineates conditions that must be met in the issuance of life insurance in connection with a credit transaction.
History: I-19.01; 1 Ky.R. 1083; eff. 7-2-75; TAm eff. 8-9-2007; Crt eff. 2-26-2020; TAm. 3-10-2020.

806 KAR 19:020 Claims; secondary beneficiary {#sec-806-kar-19-020 omnilex-key=us-ky-regs-official--title-806--806 KAR 19:020}

Section 1. It shall be the duty of the creditor to furnish to the insurer, as soon as practical following a loss under a credit life insurance policy, a notice of loss setting forth complete and accurate details as to the net amount due it, computed on an early payment basis, including the balance, if any, due to the secondary beneficiary or the debtor's estate. It shall be the insurer's duty to pay such balance, if any, by separate check, and deliver it to the creditor for proper disbursement or delivery.

Section 2. In the case of a debtor group policy only, creditor-beneficiary shall have the right as policyholder to terminate coverages and to receive dividends and rate credits.

History

RELATES TO: KRS 304.19-070, 304.16-040
STATUTORY AUTHORITY: KRS 304.2-100
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.2-10 provides that the Commissioner of Insurance may make reasonable rules and regulations necessary for or as an aid to the effectuation of any provision of the Kentucky Insurance Code. This administrative regulation sets forth who is responsible for making claims under a credit life insurance policy and how payment is to be made if there is any balance due to a secondary beneficiary or the debtor's estate.
History: I-19.02; 1 Ky.R. 869; eff. 5-14-75; TAm eff. 8-9-2007; Crt eff. 2-26-2020; TAm eff. 3-10-2020.

806 KAR 19:040 Extinguishment of debt; options {#sec-806-kar-19-040 omnilex-key=us-ky-regs-official--title-806--806 KAR 19:040}

Section 1. In the event of extinguishment of a debt by prepayment wherein the credit transaction is secured by any type of credit insurance, and the debt is not renewed or refinanced, termination of such insurance is not required, and may, at the option of the debtor, continue for the benefit of the secondary beneficiary. The agent shall, within ten (10) days of the extinguishment of the debt, notify the debtor of the debtor's option to continue the insurance or receive a pro rata return of the premiums.

Section 2. In the event the debtor elects to continue such insurance in force, the agent shall give written notice to the insurer within ten (10) days of the date the debtor makes his election, that the debt is extinguished and that the insurance is to remain in force for the benefit of the secondary beneficiary.

History

RELATES TO: KRS 304.19-060, 304.19-070
STATUTORY AUTHORITY: KRS 304.2-110
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.2-110 provides that the Commissioner of Insurance may make reasonable rules and regulations necessary for or as an aid to the effectuation of any provision of the Kentucky Insurance Code. This administrative regulation provides the debtor a choice, when a debt extinguished which is covered by any type of credit insurance, to retain the insurance coverage or to receive a pro rata return of the premium.
History: 1-19.04; 1 Ky.R. 1084; eff. 7-2-75; TAm eff. 8-9-2007; Crt eff. 2-26-2020; TAm 3-10-2020.

806 KAR 19:050 Combined health and dismemberment restrictions {#sec-806-kar-19-050 omnilex-key=us-ky-regs-official--title-806--806 KAR 19:050}

Section 1. An insurer shall not write or issue any health and dismemberment insurance policy in connection with a credit transaction subject to the provisions of KRS Chapter 304, Subtitle 19 that, alone or in conjunction with the policy, is expressly written as security for a loan. Unless the debt is extinguished prior to maturity at the end of the claim, the insurer shall grant the debtor the choice to receive a refund of premiums paid for the unused insurance or to continue the coverage afforded by the unused policy.

History

RELATES TO: KRS 304.19-080, 304.19-120
STATUTORY AUTHORITY: KRS 304.2-110
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.2-110 authorizes the Commissioner of Insurance to promulgate administrative regulations necessary for or as an aid to the effectuation of any provision of the Kentucky Insurance Code as defined in KRS 304.1-010. This administrative regulation prohibits the writing of health and dismemberment insurance in connection with a credit transaction unless the debtor has a choice upon extinguishment of the debt, to receive a refund of premiums paid for the unused insurance, or to continue the coverage under the unused insurance.
History: I-19.05; 1 Ky.R. 1084; eff. 7-2-75; TAm eff. 8-9-2007; Crt eff. 2-26-2020; 47 Ky.R. 1675, 2396; eff. 8-3-2021.

806 KAR 19:060 Joint lives {#sec-806-kar-19-060 omnilex-key=us-ky-regs-official--title-806--806 KAR 19:060}

Section 1. An agent or insurer shall not deliver or issue for delivery in this state any policy of credit life, or health insurance, or any certificate of group insurance, that insures the life or health of more than one (1) individual, unless the spouse of the debtor is cosigner to the credit or finance transaction.

Section 2. If a married couple is insured under the exception provided in Section 1 of this administrative regulation, the premium rate charged shall not exceed one hundred fifty (150) percent of the rate permissible in KRS 304.19-080.

Section 3. Only one (1) individual credit life insurance policy and one (1) credit health insurance policy shall be issued as security for a single indebtedness.

Section 4. This administrative regulation shall not be construed to authorize the insuring of joint lives by credit life or credit health insurance in credit transactions involving a small loan or industrial loan in violation of KRS 288.560(2) or 291.480(1)(b).

History

RELATES TO: KRS 288.560, 291.480, 304.19-020, 304.19-080
STATUTORY AUTHORITY: KRS 304.2-110
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.2-110 authorizes the Commissioner of Insurance to promulgate administrative regulations necessary for or as an aid to the effectuation of any provision of the Kentucky Insurance Code as defined in KRS 304.1-010. This administrative regulation prohibits the insuring of joint lives, unless the spouse of the debtor is a cosigner to the credit or finance transaction.
History: I-19.06; 1 Ky.R. 1084; 2 Ky.R. 27; eff. 7-2-1975; TAm eff. 8-9-2007; Crt eff. 2-26-2020; 47 Ky.R. 1676, 2396; eff. 8-3-2021.

Chapter 20 Casualty Insurance Contracts

806 KAR 20:010 Declination, cancellation, and nonrenewal of property and casualty insurance and automobile liability insurance policies {#sec-806-kar-20-010 omnilex-key=us-ky-regs-official--title-806--806 KAR 20:010}

Section 1. Notice of Reason for Declination, Cancellation, or Nonrenewal.

(1) All notices requiring reasons for declination, cancellation, or nonrenewal under KRS 304.20-320 shall provide specific grounds, and shall not rely on general underwriting reasons.

(2) All notices of cancellation and nonrenewal of automobile liability insurance policies under KRS 304.20-040 shall be in writing and inform the applicant or insured of the specific reason for cancellation or nonrenewal.

(3) Subsection (1) of this section shall not apply for a declination, cancellation, or nonrenewal where specific information available for review by the commissioner of the Department of Insurance indicates the insured has contributed to the loss by arson or fraud.

(4) The fact that the reason or reasons for declination, cancellation, or nonrenewal have been obtained through an investigative consumer report subject to the Fair Credit Reporting Act, 15 U.S.C. 1681 et seq., shall not relieve the insurer from the requirement of notifying the insured of the declination, cancellation, or nonrenewal pursuant to KRS 304.20-040 and KRS 304.20-300 to 304.20-350. However, any insured wishing to learn the substance of an investigative consumer report shall be directed to contact the consumer reporting agency and follow the procedures contained in the Fair Credit Reporting Act.

Section 2. Cancellation for Nonpayment of Premium Under Insurance Premium Finance Company Contracts Controlled by KRS Chapter 304.30.

(1) If an insurance premium finance company exercises its power of attorney to cancel a policy pursuant to KRS 304.30-110, that cancellation is considered to be a cancellation at the request of the insured and shall not be subject to KRS 304.20-300 to 304.20-350.

(2) The phrases "premium finance plan" and "extension of credit" in KRS 304.20-310(2) refer to extensions of credit to pay for insurance which are made by insurers or other entities not subject to KRS Chapter 304.30.

History

RELATES TO: KRS 304.12-020, 304.14-120, 304.14-210, 304.20-040, 304.20-160, 304.20-300-304.20-350, 304.30-110
STATUTORY AUTHORITY: KRS 304.2-110, 304.30-070
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.2-110 authorizes the Commissioner of the Department of Insurance to make reasonable administrative regulations necessary for or as an aid to the effectuation of any provision of the Kentucky Insurance Code. KRS 304.30-070 authorizes the Commissioner of the Department of Insurance to make reasonable administrative regulations necessary for the effectuation of any provision of KRS Chapter 304.30. This administrative regulation establishes guidelines for the declination, cancellation, and nonrenewal of property and casualty insurance pursuant to KRS 304.20-300 to 304.20-350, and automobile liability insurance policies under KRS 304.20-040.
History: 13 Ky.R. 462; Am. 644; eff. 10-2-1986; 15 Ky.R. 262; eff. 9-2-1988; 27 Ky.R. 1344; 1810; eff. 1-15-2001; TAm eff. 8-9-2007; Amd 44 Ky.R. 1776; eff. 5-4-2018; Crt eff. 4-25-2025.

806 KAR 20:030 Car valuation guides {#sec-806-kar-20-030 omnilex-key=us-ky-regs-official--title-806--806 KAR 20:030}

Section 1. A property insurer, casualty insurer, and property and casualty insurer shall use the following car valuation guides when determining the retail value of a wrecked, destroyed, or damaged motor vehicle, under KRS Chapter 186A:

(1) The current version of the Kelley Blue Book available at https://www.kbb.com/whats-my-car-worth/, or any successor entity; or

(2) The current version of the J.D. Power Values/National Association of Auto Dealers guidelines available at https://www.jdpower.com/cars, or any successor entity.

History

RELATES TO: KRS 304.20-110
STATUTORY AUTHORITY: KRS 304.20-110
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.20-110 requires the commissioner to promulgate an administrative regulation to identify the nationally accepted used car valuation guides or tools to be used when determining the retail value of a wrecked, destroyed, or damaged motor vehicle, under KRS Chapter 186A. This administrative regulation establishes the nationally accepted used car valuation guides or tools to be used when determining the retail value of a wrecked, destroyed, or damaged motor vehicle.
History: 806 KAR 020:030. 52 Ky.R. 344, 749; eff. 2-3-2026.) COMPILER'S NOTE: 2025 RS HB 6, enacted by the General Assembly on March 27, 2025, altered the information to be provided at the time an administrative regulation is filed. Aside from formatting changes necessary to upload the regulation into the LRC's publication application, this regulation has been published as submitted by the agency.

Chapter 24 Domestic Stock and Mutual Insurers

806 KAR 24:010 Information required during incorporation and subsequent issue of equity securities {#sec-806-kar-24-010 omnilex-key=us-ky-regs-official--title-806--806 KAR 24:010}

Section 1. Incorporation and Promotion of New Insurance Companies. In addition to the requirements and conditions expressly prescribed in KRS Chapter 304 relative to the organization and promotion of new insurance companies, the commissioner will require that the incorporators of the new company submit to him, in duplicate, authenticated copies of the following items, to the extent that they are involved or used in the corporation or promotion procedures, namely:

(1) Any and all contracts, letters, memoranda, plans, resolutions, or other documents pertaining in any way to the organization or promotion of the subject company or to the rights and duties of the organizers inter se or in relation to the company, or pertaining to the gain or profits the organizers contemplate receiving from the corporate venture.

(2) An affidavit in the form prescribed by and obtainable from the Department of Insurance, herein filed by reference, is to be submitted by each organizer, promoter, incorporator, director, trustee, officer, proposed management personnel or other person similarly situated, if a company being formed. The affidavit shall be typewritten.

(3) Copies of equity security subscription agreements, equity security certificates to be used, per value of same, sale price to general public, sale price to organizers, promoters, incorporators and proposed officers or managers, the number of shares to be offered in the first issue, prospects, and any other promotional literature or exhibits for use in selling equity securities.

(4) An estimate of the maximum expense of issuing and selling equity securities of the first issue and in accomplishing all other organization procedures.

(5) Monies received from organizers, Prospective policyholders, and prospective subscribers, not subject to impounding by requirements of the Office of Banking and Securities shall be impounded and held in escrow upon such terms and conditions as the commissioner may prescribe.

(6) An agreement executed by all the incorporators obligating the incorporators to submit promptly to the Department of Insurance any items of information specifically or generally described in the foregoing enumeration which come into existence during the period of organization.

(7) A questionnaire and check list, on a form prescribed by the commissioner, showing compliance with this section and the sections of the Kentucky Revised Statutes to which this administrative regulation relates.

(8) After the requirements of subsection (1) of this section have been complied with to the satisfaction of the commissioner, he will examine such persons referred to in this section concerning the data and documents above referred to and other pertinent and necessary matters; and on the basis of the items enumerated above, together with other information available to him from his examination, he will, prior to approving the Articles of Incorporation for filing with the Secretary of State and completion of the company's incorporation, advise the incorporators whether or not such filed material can meet the requirements necessary for a certificate of authority.

Section 2. Second or Subsequent Issues of Equity Securities by an Insurance Company Heretofore or Hereafter Organized.

(1) A second or subsequent issue of equity securities by a stock insurance company heretofore or hereafter organized (equity securities issued as a dividend excepted) shall be cleared with the commissioner through the identical process described above in relation to a company in the process of incorporation, except that the commissioner will not require the submission of information already in his files.

(2) With respect to a second or subsequent issue of equity securities by a company which has been in existence for a period less than six (6) hears, the information and agreements described in paragraphs (a) and (b) of this subsection shall be submitted to the commissioner in addition to the data required in subsection (1) of this section, namely:

(a) A statement showing in parallel columns the names and addresses of the directors, officers, and the ten (10) largest security holders of the company, of any related or subsidiary company, and the number of shares of the company or companies, respectively, owned by each of such persons.

(b) An agreement on the part of each director, officer or security holder owning, in the case of the latter, ten (10) percent or more of the respective equity securities described above, to the effect that such director, officer, or security holder will not, during the period the equity securities are being offered and for the period of six (6) months following the termination of the offering period, sell or offer for sale any equity securities he may own or which he controls in such company or companies at a price higher than the price at which same was acquired by him or by any other person for his use and benefit. In applying this paragraph to any director, officer or security holder, he shall be regarded as owning equity securities in which he has a beneficial interest or which, regardless of discernible beneficial interest, are registered in the name of his wife, child, father, or mother, or any or all of same.

(3) The commissioner's approval of a second or subsequent issue of equity securities will not be granted if it appears from all the facts and circumstances presented to the commissioner that the notification of such issue is the personal advantage of directors, officer, or security holders as distinguished from a need of the company for additional capital.

Section 3. Collaboration with Commissioner of Department of Financial Institutions. The commissioner, in administering the administrative regulations propounded above, will be mindful of the requirements and administrative procedures under the Kentucky Securities Law; and he may consult with the Commissioner of Financial Institutions relative to decisions which both officers are respectively required to make pursuant to law or this administrative regulation.

Section 4. Rules and Principles. The Commissioner of Insurance, in considering questions relating to the organization of a new stock insurance company, or relating to the enlargement of the capital of an established stock company, will be guided by the following concepts, rules and principles, among others:

(1) The organization and promotion of new insurance companies on a sound basis is to be commended and encouraged.

(2) The business of insurance, because of its direct and vital effect upon security holders, policyholders, and the economy generally, is vital to the public interest and welfare.

(3) The organization and capitalization of insurance companies should be carefully scrutinized in keeping with the concepts, rules, and principles therein enunciated.

(4) Organization and promotion expenses, inclusive of commissions paid for the sale of equity securities, legal expenses, and statutory organization fees and charges, should not under any circumstances exceed fifteen (15) percent of the sale price of equity securities actually sold.

(5) In the event a new equity securities issue is approved by the office within a period of five (5) years immediately subsequent to the date of the company's original license to do an insurance business, the sale price for the new issue shall be subject to the commissioner's approval and may not exceed 200 percent of the lowest price at which any shares were previously issued, except that a higher price may be fixed for a new issue, if in the opinion of the commissioner the condition of the company justifies it, taking into considerate the company's financial condition, business in force, and facts relating to the equity security's history, such as splits, dividends, changes in par value, and the like.

(6) The sale price of equity securities shall be paid in cash or approved assets.

(7) With respect to stock companies hereafter organized, any arrangement, devise, plan or scheme, however contrived or formulated, having as its end or purpose a diversion, either directly or indirectly of the company's funds, other than in payment of legitimate dividends or costs of doing business to any officer(s), director(s), organizer(s), promoter(s) or equity holder(s) of ten (10) percent or more of the company, or to any association, corporation, partnership, or trust owned or controlled by any officer(s), director(s), organizer(s), promoter(s), or equity security holder(s) of ten (10) percent or more of the company, as in violation of this administrative regulation and the insurance laws of this state.

(8) No domestic stock insurer will be granted a certificate of authority if the funds used for its formation have come, in any part, from an organization in which there was a difference in the net price per share paid by the organizers as compared to other equity security holders during the first two (2) years of its business operation.

Section 5. This administrative regulation, representing as it does implementation of the workings of the insurance law in a specific area, shall not be regarded either as a contraction or enlargement of insurance law, but rather, as an administrative application or interpretation of such law.

Section 6. This administrative regulation does not apply to changes in corporate structure, amendments to articles of incorporation, mergers, consolidations, or other corporate changes which do not involve the public offering of equity securities.

History

RELATES TO: KRS 304.3-150, 304.26-090
STATUTORY AUTHORITY: KRS 304.2-110
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.2-110 provides that the Commissioner of Insurance may make reasonable rules and administrative regulations necessary for or as an aid to the effectuation of any provision of the Kentucky Insurance Code. This administrative regulation requires submission of certain materials during the incorporation of a domestic insurer. Additionally, this administrative regulation sets forth procedures to be followed by a domestic insurer when it makes a subsequent issue of equity securities.
History: I-24.01; 1 Ky.R. 1084; eff. 7-2-75; TAm eff. 8-9-2007; Crt eff. 2-26-2020; TAm eff. 3-10-2020.

Chapter 26 Insider Trading of Equity Securities

806 KAR 26:010 Proxies, consents and authorizations {#sec-806-kar-26-010 omnilex-key=us-ky-regs-official--title-806--806 KAR 26:010}

Section 1. Definitions.

(1) The definitions set out in Schedule SIS, as promulgated by the National Association of Insurance Commissioners, shall be applicable for purposes of this administrative regulation.

(2) The terms "solicit" and "solicitation" for purposes of this administrative regulation shall include:

(a) Any request for proxy, whether or not accompanied by or included in a form of proxy; or

(b) Any request to execute or not to execute, or to revoke a proxy; or

(c) The furnishing of a proxy or other communications to security holders under circumstances reasonably calculated to result in the procurement, withholding or revocation of a proxy.

(3) The terms "solicit" and "solicitation" shall not include:

(a) Any solicitation by a person in respect to equity security of which he is the beneficial owner;

(b) Action by a broker or other person in respect to equity security carried in his name or in the name of his nominee in forwarding to the beneficial owner of such equity security soliciting material received from the company, or impartially instructing the beneficial owner to forward a proxy to the person, if any, to whom the beneficial owner with respect to the authority to be conferred by the proxy and stating that a proxy will be given if the instructions are received by a certain date;

(c) The furnishing of a form of proxy to a security holder upon the unsolicited request of such security holder, or the performance by any person of ministerial acts on behalf of a person soliciting a proxy.

Section 2. Application of Administrative Regulation. This administrative regulation shall be applicable to each domestic stock insurer which has any class of equity security held of record by 100 or more persons; provided, however, that this administrative regulation shall not apply to any insurer if ninety-five (95) percent or more of its equity securities are owned or controlled by a parent or an affiliated insurer and the remaining securities are held of record by less than 500 persons. A domestic stock insurer which files with the Securities and Exchange Commission forms of proxies, consents and authorizations complying with the requirements of the Securities Exchange Act of 1934, as amended, and the applicable administrative regulations promulgated thereunder, shall be exempt from the provisions of this administrative regulation with respect to any class of securities subject to SEC jurisdiction.

Section 3. Proxies, Consents and Authorizations. A domestic stock insurer, or any director, officer or employee of an insurer subject to Section 2 of this administrative regulation, or any other person shall not solicit, or permit the use of his name to solicit, by mail or otherwise, any proxy, consent or authorization in respect of any class of equity security of an insurer held of record by 100 or more persons in contravention of this administrative regulation and especially Sections 14 and 15 of this administrative regulation.

Section 4. Disclosure of Equivalent Information. Unless proxies, consents or authorizations in respect of any class of equity security of a domestic insurer subject to Section 2 of this administrative regulation are solicited by or on behalf of the management of such insurer from the holders of record of such security in accordance with this administrative regulation prior to any annual or other meeting of such security holders, such insurer shall, in accordance with this administrative regulation file with the commissioner and transmit to all security holders of record information substantially equivalent to the information which would be required to be transmitted if a solicitation were made. The insurer shall transmit a written statement containing the information specified in Section 6(4) of this administrative regulation to every security holder who is entitled to vote in regard to any matter to be acted upon at the meeting and from whom a proxy is not solicited on behalf of the management of the insurer; provided, that in the case of a class of securities in unregistered or bearer form such statement need be transmitted only to those security holders whose names and addresses are known to the insurer.

Section 5.

(1) The instructions set out in Schedule SIS, as promulgated by the National Association of Insurance Commissioners, shall be applicable for purposes of this administrative regulation.

(2) Schedule SIS, revised in 1992, is incorporated by reference. Copies may be obtained from or inspected at the Department of Insurance, P.O. Box 517, 500 Mero Street, Frankfort, Kentucky 40601, Monday through Friday, 8 a.m. to 4:30 p.m.

Section 6. Information to be Furnished to Security Holders.

(1) A solicitation subject to this administrative regulation shall not be made unless each person solicited is concurrently furnished or has previously been furnished with a written proxy statement containing the information specified in Section 14 of this administrative regulation.

(2) If the solicitation is made on behalf of the management of the insurer and relates to an annual meeting of security holders at which directors are to be elected, each proxy statement furnished pursuant to subsection (1) of this section shall be accompanied or preceded by an annual report (in preliminary or final form) to the security holders containing the financial statements for the last fiscal year as are referred to in Schedule SIS under the heading "Financial Reporting to Security Holders." Subject to the foregoing requirements with respect to financial statement, the annual report to security holders may be in any form deemed suitable by the management.

(3) Two (2) copies of each report sent to the security holders pursuant to this section shall be mailed to the commissioner, not later than the date on which the report is first sent or given to security holders or the date on which preliminary copies of solicitation material are filed with the commissioner pursuant to Section 8(1) of this administrative regulation, whichever date is later.

(4) If no solicitation is being made by management of the insurer with respect to any annual or other meeting, such insurer shall mail to every security holder of record at least twenty (20) days prior to the meeting date, an information statement as required by Section 4 of this administrative regulation, containing the information called for by Section 1 of this administrative regulation, other than subsections (1), (3) and (4) of that Section, which would be applicable to any matter to be acted upon at the meeting if proxies were to be solicited in connection with the meeting. If the information statement relates to an annual meeting at which directors are to be elected, it shall be accompanied by an annual report to such security holders in the form provided in subsection (2) of this section.

Section 7. Requirements as to Proxy.

(1) The form of proxy:

(a) Shall indicate in boldface type whether or not the proxy is solicited on behalf of the management;

(b) Shall provide a specifically designated blank space for dating the proxy; and

(c) Shall identify clearly and impartially each matter or group of related matters intended to be acted upon, whether proposed by the management, or security holders. No reference need be made to proposals as to which discretionary authority is conferred pursuant to subsection (3) of this section.

(2)

(a) Means shall be provided in the proxy for the person solicited to specify by ballot a choice between approval or disapproval of each matter or group of related matters referred to therein, other than elections to office. A proxy may confer discretionary authority with respect to matters as to which a choice is not so specified if the form of proxy states in boldface type how it is intended to vote the shares or authorization presented by the proxy in each case.

(b) A form of proxy which provides both for elections to office and for action on other specified matters shall be prepared so as to clearly provide, by a box or otherwise, means by which the security holder may withhold authority to vote for elections to office. Any such form of proxy which is executed by the security holder in this manner as not to withhold authority to vote for elections to office shall be deemed to grant this authority, provided the form of proxy so states in boldface type.

(3) A proxy may confer discretionary authority with respect to other matters which may come before the meeting, provided the persons on whose behalf the solicitation is made are not aware, a reasonable time prior to the time the solicitation is made that any other matters are to be presented for action at the meeting and provided further that a specific statement to that effect is made in the proxy statement or in the form of proxy.

(4) A proxy shall not confer authority to vote:

(a) For the election of any person to any office for which a bona fide nominee is not named in the proxy statement; or

(b) At any annual meeting other than the next annual meeting (or any adjournment thereof) to be held after the date on which the proxy statement and form of proxy are first sent or given to security holders. The limitation in paragraph (a) of this subsection shall not prevent the authority conferred from applying to a person substituted for a nominee who, prior to the election, has clearly manifested his unwillingness to serve or whose service would be a physical impossibility.

(5) The proxy statement or form of proxy shall provide, subject to reasonable specified conditions, that the proxy will be voted and that where the person solicited specifies by means of ballot provided pursuant to subsection (2) of this section a choice with respect to any matter to be acted upon, the vote will be in accordance with the specifications so made.

(6) The information included in the proxy statement or information statement shall be clearly presented and the statements made shall be divided into groups according to subject matter, with appropriate headings. All printed proxy statements or information statements shall be clearly and legibly presented.

(7) All proxy statements shall disclose, under an appropriate caption, the date by which proposals of security holders intended to be presented at the next annual meeting must be received by the insurer for inclusion in the insurer's proxy statement and form of proxy relating to that meeting, the date to be calculated in accordance with the provisions of Section 10(1) of this administrative regulation. If the date of the next annual meeting is subsequently advanced by more than thirty (30) calendar days or delayed by more than ninety (90) calendar days from the date of the annual meeting to which the proxy statement relates, the insurer shall, in a timely manner, inform security holders of such change, and the date by which proposals of security holders must be received, by any means reasonably calculated to so inform them.

Section 8. Material Required to be Filed.

(1) Two (2) preliminary copies of the information statement or the proxy statement and form of proxy and any other soliciting material to be furnished to security holders concurrently therewith shall be filed with the commissioner at least thirty (30) days prior to the date definitive copies of the material are first sent or given to security holders, or such shorter period prior to that date as the commissioner may authorize upon a showing of good cause therefor.

(2) Two (2) preliminary copies of any additional soliciting material relating to the same meeting or subject matter to be furnished to security holders subsequent to the proxy statements shall be filed with the commissioner at least ten (10) days (exclusive of Saturdays, Sundays, or holidays) prior to the date copies of this material are first sent or given to security holders or a shorter period prior to the date as the commissioner may authorize upon a showing of good cause therefor.

(3) Two (2) definitive copies of the information statement or the proxy statement, form of proxy and all other soliciting material, in the form in which this material is furnished to security holders, shall be filed with, or mailed for filing to, the commissioner not later than the date the material is first sent or given to the stockholders.

(4) Where any information statement or proxy statement, form of proxy or other material filed pursuant to these rules is amended or revised, two (2) of the copies shall be marked to clearly show such changes.

(5) Copies or replies to inquiries from security holders requesting further information and copies of communications which do no more than request that forms of proxy theretofore solicited be signed and returned need not be filed pursuant to this section.

(6) Notwithstanding the provisions of subsections (1) and (2) of this section and of Section 13(5) of this administrative regulation, copies of soliciting material in the form of speeches, press releases and radio or television scripts may, but need not, be filed with the commissioner prior to use or publication. Definitive copies, however, shall be filed with or mailed for filing to the commissioner as required by subsection (3) of this section not later than the date the material is used or published. The provisions of subsections (1) and (2) of this section and Section 13(5) of this administrative regulation shall apply, however, to any reprints or reproductions of all or any part of such material.

Section 9. Mailing Communications for Security Holders.

(1) If the management of the insurer has made or intends to make any solicitation subject to this administrative regulation, the insurer shall perform any of the following acts as may be duly requested in writing with respect to the same subject matter or meeting by any security holder who is, or security holders who are, entitled to vote at least one (1) percent of the votes entitled to be voted on this matter and who shall defray the reasonable expenses to be incurred by the insurer in the performance of the act or acts requested:

(a) The insurer shall mail or otherwise furnish to the security holder, as promptly as practicable after the receipt of the request:

A statement of the approximate number of record owners and, to the extent known to the insurer, the approximate number of beneficial owners of any class of securities, any of whom have been or are to be solicited on behalf of the management, or any group of whom the security holder shall designate; and
An estimate of the cost of mailing a specified proxy statement, form of proxy or other communication to the owners.

(b) Copies of any proxy statement, form of proxy or other communication furnished by the security holder shall be mailed by the insurer to the security owners specified in paragraph (a)1 of this subsection as the security holder shall designate;

(c) Material furnished by the security holder shall be mailed with reasonable promptness after receipt of the material to be mailed, envelopes or other containers therefor, and postage or payment for postage. The insurer need not, however, mail any such material prior to the first day on which solicitation is made on behalf of the insurer;

(d) The insurer shall not be responsible for the proxy statement, form of proxy or other communication.

(2) In lieu of performing the acts specified above, the insurer may, at its option, furnish promptly to the security holder a reasonably current list of the names and addresses of the record owners and, to the extent known to the insurer, the beneficial owners as the security holder shall designate and a schedule of the handling and mailing costs if the schedule has been supplied to the insurer.

Section 10. Proposals of Security Holders.

(1) If any holder or holders of the securities of an insurer (hereafter referred to as the "proponent") notifies the insurer in writing not less than ninety (90) days before the insurer's annual meeting of his intention to present a lawful proposal for action at a forthcoming meeting of the insurer's security holders and at the time of the notice the proponent is entitled to vote at least one (1) percent of the votes entitled to be voted on the proposal, the insurer shall set forth the proposal in its proxy statement and identify it in its form of proxy and provide for the specification of approval or disapproval of such proposal. The proxy statement shall also include the name and address of the proponent.

(2) If the insurer opposes any proposal received from a proponent, it shall also, at the request of the proponent, include in its proxy statement a statement of the proponent of not more than 200 words in support of the proposal.

(3) The insurer may omit a proposal and any statement in support thereof from its proxy statement and form of proxy under any of the following circumstances:

(a) The proponent has submitted more than one (1) proposal in connection with a particular meeting;

(b) The proposal is more than 300 words in length;

(c) The proposal or the supporting statement is contrary to any section of this administrative regulation, including Section 11 of this administrative regulation which prohibits false or misleading statements in proxy soliciting materials;

(d) The proposal relates to the enforcement of a personal claim or the redress of a personal grievance against the insurer, its management, or any other person;

(e) The proposal deals with a matter not significantly related to the insurer's business; a matter beyond the insurer's power to effectuate; a matter relating to the conduct of the ordinary business operations of the insurer; or an election to office;

(f) The proposal is counter to a proposal to be submitted by the insurer at the meeting; the proposal has been rendered moot; or the proposal relates to specific amounts of cash or stock dividends;

(g) The proposal is substantially duplicative of a proposal previously submitted to the insurer by another proponent, which proposal will be included in the management's proxy material for the meeting; or

(h) The substantially same proposal has previously been submitted to security holders in the insurer's proxy statement and form of proxy relating to any annual or special meeting of security holders held within the preceding five (5) calendar years, and received less than five (5) percent of the total number of votes cast in respect thereof at the time of its most recent submission.

(4) If the insurer intends to omit any proposal from its proxy statement or forms of proxy, it shall notify the proponent in writing of its intention at least ten (10) days before the insurer's preliminary proxy material is filed pursuant to Section 8 of this administrative regulation.

Section 11. False or Misleading Statements. A proxy statement, form of proxy, notice of meeting, information statement, or other communication, written or oral, subject to this administrative regulation, shall not contain any statement which at the time and in the light of the circumstances under which it is made, is false or misleading with respect to any material fact, or which omits to state any material fact necessary in order to make the statements therein not false or misleading or necessary to correct any statement in any earlier communication with respect to the same meeting or subject matter which has become false or misleading.

Section 12. Prohibition of Certain Solicitations. A person making a solicitation which is subject to this administrative regulation shall not solicit any undated or postdated proxy or any proxy which provides that it shall be deemed to be dated as of any date subsequent to the date on which it is signed by the security holder.

Section 13. Special Provisions Applicable to Election Contests.

(1) Applicability. This section shall apply to any solicitation subject to this administrative regulation by any person or group for the purpose of opposing a solicitation subject to this administrative regulation by any other person or group with respect to the election or removal of directors at any annual or special meeting of stockholders.

(2) Participant or participant in a solicitation. For purposes of this section the terms "participant" and "participant in a solicitation" include:

(a) The insurer;

(b) Any person or organization retained or employed by a participant to solicit security holders or any person who merely transmits proxy soliciting material or performs ministerial or clerical duties;

(c) Any person employed in the capacity of attorney, accountant, or advertising, public relations or financial adviser, and whose activities are limited to the performance of his duties in the course of this employment;

(d) Any person regularly employed as an officer or employee of the insurer or any of its subsidiaries or affiliates who is not otherwise a participant; or

(e) Any officer or director of, or any person regularly employed by any other participant, if such officer, director, or employee is not otherwise a participant.

(3) Filing of information required by Section 15 of this administrative regulation.

(a) Solicitations subject to this section shall not be made by any person other than the management of an insurer unless at least five (5) business days prior thereto, or a shorter period as the commissioner may authorize upon a showing of good cause therefor, there has been filed, with the commissioner, by or on behalf of each participant in this solicitation, a statement in duplicate containing the information specified by Section 15 of this administrative regulation and a copy of any material proposed to be distributed to security holders in furtherance of this solicitation. Where preliminary copies of any materials are filed, distribution to security holders should be deferred until the commissioner's comments have been received and complied with.

(b) Within five (5) days after a solicitation subject to this section is made by the management of an insurer, or a longer period as the commissioner may authorize upon a showing of good cause therefor, there shall be filed with the commissioner by or on behalf of each participant in the solicitation, other than the insurer, and by or on behalf of each management nominee for director, a statement in duplicate containing the information specified by Section 15 of this administrative regulation.

(c) If any solicitation on behalf of management or any other person has been made, or if proxy material is ready for distribution, prior to a solicitation subject to this section in opposition thereto, a statement in duplicate containing the information specified in Section 14 of this administrative regulation shall be filed with the commissioner, by or on behalf of each participant in the prior solicitation, other than the insurer, as soon as reasonably practicable after the commencement of the solicitation in opposition thereto.

(d) If, subsequent to the filing of the statement required by paragraphs (a), (b) and (c) of this subsection, additional persons become participants in a solicitation subject to this rule, there shall be filed with the commissioner, by or on behalf of a person, a statement in duplicate containing the information specified by Section 15 of this administrative regulation within three (3) business days after a person becomes a participant, or such longer period as the commissioner may authorize upon a showing of good cause therefor.

(e) If any material change occurs in the facts reported in any statement filed by or on behalf of any participant, an appropriate amendment to the statement shall be filed promptly with the commissioner.

(f) Each statement and amendment thereto filed pursuant to this subsection shall be part of the public files of the commissioner.

(4) Solicitations prior to furnishing required written proxy statement. Notwithstanding the provisions of Section 6(1) of this administrative regulation, a solicitation subject to this section may be made prior to furnishing security holders a written proxy statement containing the information specified in Section 14 of this administrative regulation with respect to the solicitation, provided that:

(a) The statements required by subsection (3) of this section are filed by or on behalf of each participant in the solicitation.

(b) No form of proxy is furnished to shareholders prior to the time the written proxy statement required by Section 6(1) of this administrative regulation is furnished to these persons: provided, however, that this paragraph shall not apply where a proxy statement then meeting the requirements of Section 14 of this administrative regulation has been furnished to security holders.

(c) At least the information specified in this paragraph and paragraph (b) of this subsection of the statements required by subsection (3) of this section to be filed by each participant, or an appropriate summary thereof, are included in each communication sent or given to security holders in connection with the solicitation.

(d) A written proxy statement containing the information specified in Section 14 of this administrative regulation with respect to a solicitation is sent or given security holders at the earliest practicable date.

(5) Solicitations prior to furnishing required written proxy statement; filing requirements. Two (2) copies of any soliciting material proposed to be sent or given to security holders prior to the furnishing of the written proxy statement required by Section 6(1) of this administrative regulation shall be filed with the commissioner in preliminary form at least five (5) business days prior to the date definitive copies of the material are first sent or given to such persons, or shorter period as the commissioner may authorize upon a showing of good cause therefor.

(6) Application of this section to report. Notwithstanding the provisions of Section 6(2) and (3) of this administrative regulation, two (2) copies of any portion of the report referred to in Section 6(2) of this administrative regulation which comments upon or refers to any solicitation subject to this section, or to any participant in any such solicitation, other than the solicitation by the management, shall be filed with the commissioner as proxy material subject to this administrative regulation. That portion of the report shall be filed with the commissioner in preliminary form at least five (5) business days prior to the date copies of the report are first sent or given to security holders.

Section 14. Information Required in Proxy Statement.

(1) Revocability of proxy. Make a positive statement similar to, "This proxy may be revoked at will, prior to the voting for which it is given; upon notice to the Secretary of the Company." KRS 271A.165 requires proxies be revocable at will.

(2) Dissenters' rights of appraisal. Outline briefly the rights of appraisal or similar rights of dissenting security holders with respect to any matter to be acted upon and indicate any statutory procedure required to be followed by such security holders in order to perfect their rights. Where these rights may be exercised only within a limited time after the date of the adoption of a proposal, the filing of a charter amendment, or other similar act, state whether the person solicited will be notified of the date.

(3) Persons making solicitations not subject to Section 13 of this administrative regulation:

(a) If the solicitation is made by the management of the insurer, so state. Give the name of any director of the insurer who has informed the management in writing that he intends to oppose any action intended to be taken by the management and indicate the action which he intends to oppose.

(b) If the solicitation is made otherwise than by the management of the insurer, state the names and addresses of the persons by whom the cost of solicitation has been or will be borne, directly or indirectly.

(4) Interest of certain persons in matters to be acted upon. Describe briefly any substantial interest, direct or indirect, by security holdings or otherwise, of any director, nominee for election for director, officer and, if the solicitation is made otherwise than on behalf of management, each person on whose behalf the solicitation is made, in any matter to be acted upon other than elections to office.

(5) Voting securities.

(a) State, as to each class of voting securities of the insurer entitled to be voted at the meeting, the number of shares outstanding and the number of votes to which each class is entitled.

(b) Give the date as of which the record list of security holders entitled to vote at the meeting will be determined. If the right to vote is not limited to security holders of record on that date, indicate the conditions under which other security holders may be entitled to vote.

(c) If action is to be taken with respect to the election of directors, under KRS 271A.180 the persons solicited shall have cumulative voting rights. Make a statement that they have such rights and state briefly the technique of cumulative voting.

(6) Nominees and directors. If action is to be taken with respect to the election of directors furnish the following information, in tabular form to the extent practicable, with respect to each person nominated for election as a director and each other person whose term of office as a director will continue after the meeting:

(a) Name each such person, state when his term of office or the term of office for which he is a nominee will expire, and all other positions and offices with the insurer presently held by him, and indicate which persons are nominees for election as directors at the meeting.

(b) State his present principal occupation or employment and give the name and principal business of any corporation or other organization in which the employment is carried on. Furnish similar information as to all of his principal occupations or employments during the last five (5) years, unless he is now a director and was elected to his present term of office by a vote of security holders at a meeting for which proxies were solicited under this administrative regulation.

(c) If he is or has previously been a director of the insurer, state the period or periods during which he has served as such.

(d) State, as of the most recent practicable date, the approximate amount of each class of equity security of the insurer or any of its parents, subsidiaries or affiliates other than directors' qualifying shares, beneficially owned directly or indirectly by him. If he is not the beneficial owner of any such equity securities make a statement to that effect.

(7) Remuneration and other transactions with management and others:

(a) This subsection shall apply only to each director whose aggregate remuneration exceeds $40,000 and to each of the three (3) highest paid officers whose aggregate annual remuneration exceeds $40,000.

(b) Furnish the information reported or required in Item 1 of Schedule SIS under the heading "Information Regarding Management and Directors" if action is to be taken with respect to:

The election of directors;
Any remuneration plan, contract or arrangement in which any director, nominee for election as a director, or officer of the insurer will participate;
Any pension or retirement plan in which any such person will participate; or
The granting or extension to any such person of any options, warrants or rights to purchase any equity securities other than warrants or rights issued to security holders, as such, on a pro rata basis. If the solicitation is made on behalf of persons other than management, information shall be furnished only as to Item 1-A of the aforesaid heading of Schedule SIS.

(8) Bonus, profit sharing and other remuneration plans. If action is to be taken with respect to any bonus, profit sharing, or other remuneration plan of the insurer, furnish the following information:

(a) A brief description of the material features of the plan, each class of persons who will participate therein, the approximate number of persons in each class, and the basis of each participation.

(b) The amounts which would have been distributed under the plan during the last calendar year to:

Each person named in subsection (7) of this section;
Directors and officers as a group; and
All other employees as a group, if the plan had been in effect.

(c) If the plan to be acted upon may be amended (other than by a vote of security holders) in a manner which would materially increase the cost thereof to the insurer or to materially alter the allocation of the benefits as between the groups specified in paragraph (b) of this subsection, the nature of the amendments should be specified.

(9) Pension and retirement plan. If action is to be taken with respect to any pension or retirement plan of the insurer, furnish the following information:

(a) A brief description of the material features of the plan, each class of persons who will participate therein, the approximate number of persons in each such class, and the basis of the participation.

(b) State:

The approximate total amount necessary to fund the plan with respect to past services, the period over which the amount is to be paid, and the estimated annual payments necessary to pay the total amount over that period;
The estimated annual payment to be made with respect to current services; and
The amount of such annual payments to be made for the benefit of:

a. Each person named in subsection (7) of this section;

b. Directors and officers as a group; and

c. Employees as a group.

(c) If the plan to be acted upon may be amended (other than by a vote of security holders) in a manner which would materially increase the cost thereof to the insurer or to materially alter the allocation of the benefits as between the groups specified in paragraph (b)3 of this subsection, the nature of the amendments should be specified.

(10) Options, warrants, or rights. If action is to be taken with respect to the granting or extension of any options, warrants or rights (all referred to herein as "warrants") to purchase equity securities of the insurer or any subsidiary or affiliate, other than warrants issued to all security holders on a pro rata basis, furnish the following information:

(a) The title and amount of equity security called for or to be called for, the prices, expiration dates and other material conditions upon which the warrants may be exercised, the consideration received or to be received by the insurer, subsidiary or affiliate for the granting or extension of the warrants and the market value of the equity security called for or to be called for by the warrants, as of the latest practicable date.

(b) If known, state separately the amount of equity security called for or to be called for by warrants received or to be received by the following persons, naming each such person:

Each person named in subsection (7) of this section; and
Each other person who will be entitled to acquire five (5) percent or more of the equity security called for or to be called for by such warrants.

(c) If known, state also the total amount of equity security called for or to be called for by such warrants, received or to be received by all directors and officers of the company as a group and all employees, without naming them.

(11) Authorization or issuance of equity securities.

(a) If action is to be taken with respect to the authorization or issuance of any equity security of the insurer, furnish the title, amount and description of the equity security to be authorized or issued.

(b) If the equity securities are other than additional shares of common stock of a class outstanding, furnish a brief summary of the following, if applicable: dividend, voting, liquidation, preemptive, and conversion rights, redemption and sinking fund provisions, interest rate and date of maturity.

(c) If the equity securities to be authorized or issued are other than additional shares of common stock of a class outstanding, the commissioner may require financial statements comparable to those contained in the annual report.

(12) Mergers, consolidations, acquisitions and similar matters.

(a) If action is to be taken with respect to a merger, consolidation, acquisition, or similar matter, furnish in brief outline the following information:

The rights of appraisal or similar rights of dissenters with respect to any matters to be acted upon. Indicate any procedure required to be followed by dissenting security holders in order to perfect these rights.
The material features of the plan or agreement.
The business done by the company to be acquired or whose assets are being acquired.
If available, the high and low sales prices for each quarterly period within two (2) years.
The percentage of outstanding shares which must approve the transaction before it is consummated.

(b) For each company involved in a merger, consolidation or acquisition, the following financial statements should be furnished:

A comparative balance sheet as of the close of the last two (2) fiscal years.
A comparative statement of operating income and expenses for each of the last two (2) fiscal years and, as a continuation of each statement, a statement of earnings per share after related taxes and cash dividends paid per share.
A pro forma combined balance sheet, and income and expenses statement for the last fiscal year giving effect to the necessary adjustments with respect to the resulting company.

(13) Restatement of accounts. If action is to be taken with respect to the restatement of any assets, capital, or surplus of the insurer, furnish the following information:

(a) State the nature of the restatement and the date as of which it is to be effective.

(b) Outline briefly the reasons for the restatement and for the selection of the particular effective date.

(14) Matters not required to be submitted. If action is to be taken with respect to any matter which is not required to be submitted to a vote of security holders, state the nature of the matter, the reason for submitting it to a vote of security holders and what action is intended to be taken by the management in the event of a negative vote on the matter by security holders.

(15) Amendment of charter, bylaws, or other documents. If action is to be taken with respect to any amendment of the insurer's charter, bylaws or other documents as to which information is not required above, state briefly the reasons for and general effect of the amendment and the vote needed for its approval.

Section 15. Information to be included in statements filed by or on behalf of a participant (other than the insurer) in a proxy solicitation in an election contest.

(1) Insurer. State the name and address of the insurer.

(2) Identity and background.

(a) State the following:

Your name and business address.
Your present principal occupation or employment and the name, principal business and address of any corporation or other organization in which this employment is carried on.

(b) State the following:

Your resident address.
Information as to all material occupations, positions, offices and employments during the last ten (10) years, giving starting and ending dates of each and the name, principal business and address of any business corporation or other business organization in which each such occupation, position, office or employment was carried on.

(c) State whether or not you are or have been a participant in any other proxy contest involving this company or other companies within the past ten (10) years. If so, identify the principals, the subject matter and your relationship to the parties and the outcome.

(d) State whether or not, during the past ten (10) years, you have been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors) and, if so, give dates, nature of conviction, name and location of court, and penalty imposed or other disposition of the case. A negative answer to this paragraph need not be included in the proxy statement or other proxy soliciting material.

(3) Interest in equity securities of the insurer.

(a) State the amount of each class of equity security of the insurer which you own beneficially, directly or indirectly.

(b) State the amount of each class of equity security of the insurer which you own of record but not beneficially.

(c) State with respect to the equity security specified in paragraphs (a) and (b) of this subsection the amounts acquired within the past two (2) years, the date of acquisition and the amounts acquired on each date.

(d) If any part of the purchase price or market value of any of the equity security specified in paragraph (c) of this subsection is represented by funds borrowed or otherwise obtained for the purpose of acquiring or holding such equity security, so state and indicate the amount of the indebtedness as of the latest practicable date. If the funds were borrowed or obtained otherwise than pursuant to a margin account or bank loan in the regular course of business of a bank, broker, or dealer, briefly describe the transaction, and state the names of the parties.

(e) State whether or not you are a party to any contracts, arrangements or understandings with any person with respect to any equity security of the insurer, including but not limited to joint ventures, loan or option arrangements, puts or calls, guarantees against loss or guarantees of profits, division of losses or profits, or the giving or withholding of proxies. If so, name the persons with whom such contracts, arrangements, or understandings exist and give the details thereof.

(f) State the amount of equity security of the insurer owned beneficially, directly or indirectly, by each of your associates and the name and address of each such associate.

(g) State the amount of each class of equity security of any parent, subsidiary or affiliate of the insurer which you own beneficially, directly, or indirectly.

(4) Further matters.

(a) Describe the time and circumstance under which you became a participant in the solicitation and state the nature and extent of your activities or proposed activities as a participant.

(b) Describe briefly, and where practicable state the approximate amount of any material interest, direct or indirect, to yourself and of each of your associates in any material transactions since the beginning of the company's last fiscal year, or in any material proposed transactions, to which the company or any of its subsidiaries or affiliates was or is to be a party.

With respect to any future employment by the insurer or its subsidiaries or affiliates; or
With respect to any future transactions to which the insurer or any of its subsidiaries or affiliates will or may be a party. If so, describe such arrangement or understanding and state the names of the parties thereto.

(5) Signature. The statement shall be dated and signed in the following manner:

History

RELATES TO: KRS 304.26-050
STATUTORY AUTHORITY: KRS 304.2-110, 304.26-050
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.2-110 provides that the Commissioner of Insurance may make reasonable rules and administrative regulations necessary for or as an aid to the effectuation of any provision of the Kentucky Insurance Code. KRS 304.26-050 gives the commissioner the authority to regulate any form of proxies, consents and authorizations. This administrative regulation sets out the requirements for proxies and their solicitation, consents, and authorizations.
History: I-26.01; 1 Ky.R. 870; eff. 5-14-75; Am. 8 Ky.R. 926; eff. 4-7-82; 20 Ky.R. 2371; 2780; eff. 4-11-94; TAm eff. 8-9-2007; Crt eff. 2-26-2020; TAm eff. 3-10-2020.

806 KAR 26:020 Insider trading requirements {#sec-806-kar-26-020 omnilex-key=us-ky-regs-official--title-806--806 KAR 26:020}

Section 1. General Application.

(1) Definition of certain items.

(a) "Insurer" means any domestic stock insurance company with an equity security subject to the provisions of KRS 304.26-020 to 304.26-090, and not exempt thereunder.

(b) "Act" means KRS Chapter 304, Subtitle 26.

(c) "Officer" means a president, vice president, treasurer, actuary, secretary, controller, and any other person who performs for the insurer functions corresponding to those performed by the foregoing officers.

(d) "Equity security" means any stock or similar security; or any voting trust certificate of deposit for such a security; or any security convertible, with or without consideration, into such a security, or carrying any warrant or right to subscribe to or purchase such a security; or any such warrant or right.

(e) Securities "held of record."

For the purpose of determining whether the equity securities of an insurer are held of record by 100 or more persons, securities shall be deemed to be "held of record" by each person who is identified as the owner of such securities on records of security holders maintained by or on behalf of the insurer, subject to the following:

a. In any case where the records of security holders have not been maintained in accordance with accepted practice, any additional person who would be identified as such an owner on such records if they had been maintained in accordance with accepted practice shall be included as a holder of record.

b. Securities identified as held of record by a corporation, a partnership, a trust whether or not the trustees are named, or other organization shall be included as so held by one (1) person.

c. Securities identified as held of record by one (1) or more persons as trustees, executors, guardians, custodians or in other fiduciary capacities with respect to a single trust, estate or account shall be included as held of record by one (1) person.

d. Securities held by two (2) or more persons as co-owners shall be included as held by one (1) person.

e. Each outstanding unregistered or bearer certificate shall be included as held of record by a separate person, except to the extent that the insurer can establish that, if such securities were registered, they would be held of record, under the provisions of this rule, by a lesser number of persons.

f. Securities registered in substantially similar names where the insurer has reasons to believe because of the address or other indications that such names represent the same person, may be included as held of record by one (1) person.

Notwithstanding subparagraph 1 of this paragraph:

a. Securities held, to the knowledge of the insurer, subject to a voting trust, deposit agreement or similar arrangement shall be included as held of record by the record holders of the voting trust certificates, certificates of deposit, receipts or similar evidences of interest in such securities; provided however, that the insurer may rely in good faith on such information as it is received in response to its request from a nonaffiliated insurer of the certificates or evidences of interest.

b. If the insurer knows or has reason to know that the form of holding securities of record is used primarily to circumvent the provisions of the Act, the beneficial owners of such securities shall be deemed to be the record owners thereof.

c. "Class" means all securities of an insurer which are of substantially similar character and the holders of which enjoy substantially similar rights and privileges.

(2) Transactions exempted from the operation of KRS 304.26-040(2) and (3). Any acquisition or disposition of any equity security by a director or officer of an insurer within six (6) months prior to the date on which the Act shall first become applicable with respect to the equity securities of such insurer shall not be subject to the operation of KRS 304.26-040(2) and (3).

Section 2. Administrative Regulations under KRS 304.26-030.

(1) Filing of statements. Initial statements of beneficial ownership of equity securities required by KRS 304.26-030 shall be filed on Form I-G-22, herein filed by reference. Statements of changes in such beneficial ownership required by KRS 304.26-030 shall be filed on Form I-G-22-1, herein filed by reference. All such statements shall be prepared and filed in accordance with the requirements of the applicable form.

(2) Ownership of more than ten (10) percent of an equity security.

(a) In determining, for the purpose of KRS 304.26-030 whether a person is the beneficial owner, directly, or indirectly, of more than ten (10) percent of any class of any equity security, such class shall be deemed to consist of the total amount of such class outstanding, exclusive of any securities of such class held by or for the account of the insurer or a subsidiary of the insurer; except that for the purpose of determining percentage ownership of note voting trust certificates or certificates of deposit for equity securities, the class of voting trust certificates or certificates of deposit shall be deemed to consist of the amount of voting trust certificates of deposit issuable with respect to the total amount of outstanding equity securities of the class which may be deposited under the voting trust agreement or deposit agreement in question, whether or not all of such outstanding securities have been so deposited. For the purpose of this section a person acting in good faith may rely on the information contained in the latest convention form statement filed with the commissioner with respect to the amount of securities of a class outstanding or in the case of voting trust certificates or certificates of deposit the amount thereof issuable.

(b) In determining for the purpose of KRS 304.26-030 whether a person is the beneficial owner, directly, or indirectly, of more than ten (10) percent of any class of equity securities, such person shall be deemed to be the beneficial owner of securities of such class which such person has the right to acquire through the exercise of presently exercisable options, warrants or rights or through the conversion of presently convertible securities. The securities subject to such options, warrants, rights or conversion privileges held by a person shall be deemed to be outstanding for the purpose of computing, in accordance with paragraph (a) of this subsection, the percentage of outstanding securities of the class owned by such person but shall not be deemed outstanding for the purpose of computing the percentage of the class owned by any other person. This paragraph shall not be construed to relieve any person of any duty to comply with the Act with respect to any equity securities consisting of options, warrants, rights or convertible securities which are otherwise subject as a class to the Act.

(3) Disclaimer of beneficial ownership. Any person filing a statement may expressly declare therein that the filing of such statement shall not be construed as an admission that such person is, for the purpose of the Act, the beneficial owner of any equity securities covered by the statement.

(4) Exemptions from KRS 304.26-030 and 304.26-040.

(a) During the period of twelve (12) months following their appointment and qualification, securities held by the following persons shall be exempt from KRS 304.26-030 and 304.26-040:

Executors or administrators of the estate of a decedent;
Guardians or committees for an incompetent; and
Receivers, trustees in bankruptcy, assignees for the benefit of creditors, conservators, liquidating agents, or other similar persons duly authorized by law to administer the estate or assets of other persons.

(b) After the twelve (12) month period following their appointment or qualification the foregoing persons shall be required to file reports with respect to the securities held by the estates which they administer under KRS 304.26-030 and shall be liable for profits realized from trading in such securities pursuant to KRS 304.26-040 only when the estate being administered is a beneficial owner of more than ten (10) percent of any class of equity security of an insurer subject to the Act.

(c) Securities reacquired by or for the account of an insurer and held by it for its account shall be exempt from KRS 304.26-030 and during the time they are held by the insurer.

(5) Exemption from the Act of securities purchased or sold by odd-lot dealers. Securities purchased or sold by an odd-lot dealer in odd lots so far as reasonably necessary to carry on odd-lot transactions, or in round lots to offset odd-lot transactions previously or simultaneously executed or reasonably anticipated in the usual course of business, shall be exempt from the provisions of the administrative regulation with respect to participation by such odd-lot dealer in such transactions.

(6) Certain transactions subject to KRS 304.26-030. The acquisition or disposition of any transferable option, put, call, spread, or straddle shall be deemed such a change in the beneficial ownership of the security to which such privilege relates as to require the filing of a statement reflecting the acquisition or disposition of such privilege. Nothing in this section, however, shall exempt any person from filing the statements required upon the exercise of such option, put, call, spread or straddle.

(7) Ownership of securities held in trust.

(a) Beneficial ownership of a security for the purpose of KRS 304.26-030 shall include:

The ownership of securities as a trustee where either the trustee or members of his immediate family have a vested interest in the income or corpus of trust.
The ownership of a vested beneficial interest in a trust, and
The ownership of securities as a settler of a trust in which the settler has the power to revoke the trust without obtaining the consent of all the beneficiaries.

(b) Except as provided in paragraph (c) of this subsection, beneficial ownership of securities solely as a settler or beneficiary of a trust shall be exempt from the provisions of KRS 304.26-030 where less than twenty (20) percent in market value of the securities having a readily ascertainable market value held by such trust, determined as of the end of the preceding fiscal year of the trust, consist of equity securities with respect to which reports would otherwise be required. Exemption is likewise accorded from KRS 304.26-030 with respect to any obligation which would otherwise be imposed solely by reason of ownership as settler or beneficiary of securities held in trust, where the ownership, acquisition, or disposition of such securities by the trust is made without prior approval by the settler or beneficiary. No exemption pursuant to this subsection shall, however, be acquired or lost solely as a result of changes in the value of the trust assets during any fiscal year or during any time when there is no transaction by the trust in the securities otherwise subject to the reporting requirements of KRS 304.26-030.

(c) In the event that ten (10) percent of any class of any equity security of an insurer is held in a trust, that trust and the trustee thereof as such shall be deemed a person required to file the reports specified in KRS 304.26-030.

(d) Not more than one (1) report need be filed to report any holdings or with respect to any transaction in securities held by a trust, regardless of the number of officers, directors or ten (10) percent stockholders who are either trustees, settlers, or beneficiaries of a trust, provided that the report filed shall disclose the names of all trustees, settlers, and beneficiaries who are officers, directors or ten (10) percent stockholders. A person having an interest only as a beneficiary of a trust shall not be required to file any such report so long as he relies in good faith upon an understanding that the trustee of such trust will file whatever reports might otherwise be required of such beneficiary.

(e) As used in this section the "immediate family" of a trustee means:

A son or daughter of the trustee, or a descendant of either,
A stepson or stepdaughter of the trustee,
The father or mother of the trustee, or an ancestor of either,
A stepfather or stepmother of the trustee,
A spouse of the trustee.

(f) In determining, for the purposes of KRS 304.26-030, whether a person is the beneficial owner, directly, or indirectly, of more than ten (10) percent of the class of any equity security, the interest of such person in the remainder of a trust shall be excluded from the computation.

(g) No report shall be required by any person, whether or not otherwise subject to the requirement of filing reports under KRS 304.26-030, with respect to his indirect interest in portfolio securities held by:

A pension or retirement plan holding securities of an insurer whose employees generally are the beneficiaries of the plan.
A business trust with over twenty-five (25) beneficiaries.

(h) Nothing in this section shall be deemed to impose any duties or liabilities with respect to reporting any transaction or holding prior to its effective date.

(8) Exemption for small transactions.

(a) Any acquisition of securities shall be exempt from KRS 304.26-030 where:

The person effecting the acquisition does not within six (6) months thereafter effect any disposition, otherwise than by way of gift, of securities of the same class, and
The person effecting such acquisition does not participate in acquisitions or in dispositions of securities of the same class having a total market value in excess of $3,000 for any six (6) month period during which the acquisition occurs.

(b) Any acquisition or disposition of securities by way of gift, where the total amount of such gifts does not exceed $3,000 in market value for any six (6) month period, shall be exempt from KRS 304.26-030 and may be excluded from the computations prescribed in paragraph (a)2 of this subsection.

(c) Any person exempted by paragraphs (a) or (b) of this subsection shall include in the first report filed by him after a transaction within the exemption a statement showing his acquisitions and dispositions for each six (6) month period or portion thereof which has lapsed since his last filing.

(9) Exemption from KRS 304.26-040 of transactions which need not be reported under KRS 304.26-030. Any transaction which has been or shall be exempted from the requirements of KRS 304.26-030 shall, insofar as it is otherwise subject to the provisions of KRS 304.26-040, be likewise exempted from KRS 304.26-040.

Section 3. Administrative Regulations under KRS 304.26-040.

(1) Exemption from KRS 304.26-040 of certain transactions effected in connection with a distribution.

(a) Any transaction of purchase and sale, or sale and purchase of a security which is effected in connection with the distribution of a substantial block of securities shall be exempt from the provisions of KRS 304.26-040, to the extent specified in this section as not comprehended within the purpose of said section of the Act, upon the following conditions:

The person effecting the transaction is engaged in the business of distributing securities and is participating in good faith, in the ordinary course of such business, in the distribution of such block of securities;
The security involved in the transaction is:

a. A part of such block of securities and is acquired by person effecting the transaction, with a view to the distribution thereof, from the insurer or other person on whose behalf such securities are being distributed or from a person who is participating in good faith in the distribution of such block of securities; or

b. A security purchased in good faith by or for the account of the person effecting the transaction for the purpose of stabilizing the market price of securities of the class being distributed or to cover an overallotment or other short position created in connection with such distribution; and

Other persons not within the purview of KRS 304.26-040 are participating in the distribution of such block of securities on terms at least as favorable as those on which such person is participating and to an extent at least equal to the aggregate participation of all persons exempted from the provisions of KRS 304.26-040 by this section. However, the performance of the functions of manager of a distributing group and the receipt of a bona fide payment for performing such functions shall not preclude an exemption which would otherwise be available under this section.

(b) The exemption of a transaction pursuant to this section with respect to the participation therein of one (1) party thereto shall not render such transaction exempt with respect to participation of any other party therein unless such other party also meets the conditions of this section.

(2) Exemption from KRS 304.26-040 of acquisitions of shares of stock and stock options under certain stock bonus, stock option or similar plans. Any acquisition of shares of stock (other than stock acquired under the exercise of an option, warrant or right) pursuant to a stock bonus, profit sharing, retirement, incentive, thrift, savings or similar plan, or any acquisition of a qualified or a restricted stock option pursuant to an employee stock purchase plan, by a director or officer of an insurer issuing such stock or stock option shall be exempt from the operation of KRS 304.26-040 if the plan meets the following conditions:

(a) The plan has been approved, directly or indirectly:

By the affirmative votes of the holders of a majority of the securities of such insurer present, or represented, and entitled to vote at a meeting held in accordance with the applicable laws of the Commonwealth of Kentucky; or
By the written consent of the holders of a majority of the securities of such insurer entitled to vote; provided, however, that if such vote or written consent was not solicited substantially in accordance with the proxy rules and administrative regulations prescribed by the National Association of Insurance Commissioners, if any, in effect at the time of such vote or written consent, the insurer shall furnish in writing to the holders of record of the securities entitled to vote for the plan substantially the same information concerning the plan which would be required by any such rules and administrative regulations so prescribed and in effect at the time such information is furnished, if proxies to be voted with respect to the approval or disapproval of the plan were then being solicited, on or prior to the date of the first annual meeting of security holders held subsequent to the later of:

a. The date the Act first applies to such insurer; or

b. The acquisition of an equity security for which exemption is claimed. Such written information may be furnished by mail to the last known address of the security holders of record within thirty (30) days prior to the date of mailing. Four (4) copies of such written information shall be filed with, or mailed for filing to, the commissioner not later than the date on which it is first sent or given to security holders of the insurer. For the purposes of this paragraph, the term "insurer" includes a predecessor corporation if the plan or obligations to participate thereunder were assumed by the insurer in connection with the succession.

(b) If the selection of any director or officer of the insurer to whom stock may be allocated or to whom qualified, restricted or employee stock purchase plan stock options may be granted pursuant to the plan, or the determination of the number or maximum number of shares of stock which may be allocated to any such director or officer or which may be covered by qualified, restricted or employee stock purchase plan stock options granted to any such director or officer, is subject to the discretion of any person, then such discretion shall be exercised only as follows:

With respect to the participation of directors:

a. By the board of directors of the insurer, a majority of which board and a majority of the directors acting in the matter are disinterested persons;

b. By, or only in accordance with the recommendations of, a committee of three (3) or more persons having full authority to act in the matter, all of the members of which committee are disinterested persons; or

c. Otherwise in accordance with the plan, if the plan:

(i) Specifies the number or maximum number of shares of stock which directors may acquire or which may be subject to qualified, restricted or employee stock purchase plan stock options granted to directors and the terms upon which, and the times at which, or the periods within which, such stock may be acquired and exercised; or

(ii) Sets forth, by formula or otherwise, effective and determinable limitations with respect to the foregoing based upon earnings of the insurer, dividends paid, compensation received by participants, option prices, market value of shares, outstanding shares or percentages thereof outstanding from time to time, or similar factors.

With respect to the participation of officers who are not directors:

a. By the board of directors of the insurer or a committee of three (3) or more directors; or

b. By, or only in accordance with the recommendation of, a committee of three (3) or more persons having full authority to act in the matter, all of the members of which committee are disinterested persons. For the purpose of this paragraph, a director or committee member shall be deemed to be a disinterested person only if such person is not at the time such discretion is exercised eligible and has not at any time within one (1) year prior thereto been eligible for selection as a person to whom stock may be allocated or to whom qualified, restricted or employee stock purchase plan stock options may be granted pursuant to the plan or any other plan of the insurer or any of its affiliates entitling the participants therein to acquire stock or qualified, restricted or employee stock purchase plan stock options of the insurer or any of its affiliates.

The provisions of this section shall not apply with respect to any option granted, or other equity security acquired, prior to the date that KRS 304.26-030, 304.26-040 and 304.26-050 first become applicable with respect to any class of equity securities of any insurer.

(c) As to each participant or as to all participants, the plan effectively limits the aggregate dollar amount or the aggregate number of shares of stock which may be allocated, or which may be subject to qualified, restricted, or employee stock purchase plan stock options granted, pursuant to the plan. The limitations may be established on an annual basis, or for the duration of the plan, whether or not the plan has a fixed termination date; and may be determined either by a fixed or maximum dollar amounts of fixed or maximum number of shares or by formulas based upon earnings of the insurer, dividends paid, compensation received by participants, option prices, market value of shares, outstanding shares or percentages thereof outstanding from time to time, or similar factors which will result in an effective and determinable limitation. Such limitations may be subject to any provisions for adjustment of the plan or of stock allocable or options outstanding thereunder to prevent dilution or enlargement of rights.

(d) Unless the context otherwise requires, all terms used in this section shall have the same meaning as in the Act and in Section 1 of this administrative regulation. In addition, the following definitions apply:

The term "plan" includes any plan, whether or not set forth in any formal written document or documents and whether or not approved in its entirety at one time.
The definition of the terms "qualified stock option" and "employee stock purchase plan" that are set forth in Sections 422 and 423 of the Internal Revenue Code of 1954, as amended, are to be applied to those terms where used in this section. The term "restricted stock option" as defined in Section 424(b) of the Internal Revenue Code of 1954, as amended, shall be applied to that term as used in this section; provided, however, that for the purposes of this section an option which meets all of the conditions of that section, other than the date of issuance shall be deemed to be a "restricted stock option."
The term "exercise of an option, warrant or right" contained in the parenthetical clause at the beginning of this subsection shall not include:

a. The making of any election to receive under any plan an award of compensation in the form of stock or credits therefor, provided, that such election is made prior to the making of the award; and provided further that such election is irrevocable until at least six (6) months after termination of employment;

b. The subsequent crediting of such stock;

c. The making of any election as to time for delivery of such stock after termination of employment provided that such election is made at least six (6) months prior to any such delivery;

d. The fulfillment of any condition to the absolute right to receive such stock; or

e. The acceptance of certificates for shares of such stock.

(3) Exemption from KRS 304.26-040 of certain transactions in which securities are received by redeeming other securities. Any acquisition of an equity security (other than a convertible security or right to purchase a security) by a director or officer of the insurer issuing such security shall be exempt from the operation of KRS 304.26-040 upon condition that:

(a) The equity security is acquired by way of redemption of another security of an insurer substantially all of whose assets other than cash (for government bonds) consist of securities of the insurer issuing the equity security so acquired, and which:

Represented substantially and in practical effect a stated or readily ascertainable amount of such equity security;
Had a value which was substantially determined by the value of such equity security; and
Conferred upon the holder the right to receive such equity security without the payment of any consideration other than the security redeemed;

(b) No security of the same class as the security redeemed was acquired by the director or officer within six (6) months prior to such redemption or is acquired within six (6) months after such redemption;

(c) The insurer issuing the equity security acquired has recognized the applicability of this subsection by appropriate corporate action.

(4) Exemption of long term profits incident to sales within six (6) months of the exercise of an option:

(a) To the extent specified in paragraph (b) of this subsection, the commissioner hereby exempts as not comprehended within the purposes of KRS 304.26-040 any transaction or transactions involving the purchase and sale, or sale and purchase, or any equity security where such purchase is pursuant to the exercise of an option or similar right either acquired more than six (6) months before its exercise, or acquired pursuant to the terms of an employment contract entered into more than six (6) months before its exercise.

(b) In respect to transactions specified in paragraph (a) of this subsection, the profits inuring to the insurer shall not exceed the difference between the proceeds of sale and the lowest market price of any security of the same class within six (6) months before or after the date of sale. Nothing in this section shall be deemed to enlarge the amount of profit which would inure to such insurer in the absence of this section.

(c) The commissioner also hereby exempts, as not comprehended within the purposes of KRS 304.26-040, the disposition of a security, purchased in a transaction specified in paragraph (a) of this subsection, pursuant to a plan or agreement for merger or consolidation, or reclassification of the insurer's securities, or for the exchange of its securities for the securities of another person which has acquired its assets, or which is in control, as defined in Section 368(c) of the Internal Revenue Code of 1954, of a person which has acquired its assets, where the terms of such plan or agreement are binding upon all stockholders of the insurer except to the extent that dissenting stockholders may be entitled, under statutory provisions or provisions contained in the certificate of incorporation, to receive the appraised or fair value of their holdings.

(d) The exemptions proved by the section shall not apply to any transaction made unlawful by KRS 304.26-050, or by any rules and administrative regulations thereunder.

(e) The burden of establishing market price of a security for the purpose of this section shall rest upon the person claiming the exemption.

(5) Exemption from KRS 304.26-040 of certain acquisitions and dispositions of securities pursuant to merger or consolidations.

(a) The following transactions shall be exempt from the provisions of KRS 304.26-040 as not comprehended within the purpose of said section:

The acquisition of a security of an insurer, pursuant to a merger or consolidation, in exchange for a security of a company which, prior to said merger or consolidation owned eighty-five (85) percent or more of the equity securities of all other companies in the merger or consolidation except, in the case of consolidation, the resulting company;
The disposition of a security, pursuant to a merger or consolidation of an insurer which, prior to said merger or consolidation, owned eighty-five (85) percent or more of the equity securities of all other companies involved in the merger or consolidation except, in the case of consolidation, the resulting company;
The acquisition of a security of an insurer, pursuant to a merger or consolidation, in exchange for a security of a company which, prior to said merger or consolidation, held over eighty-five (85) percent of the combined assets of all the companies undergoing merger or consolidation, computed according to their book values prior to the merger or consolidation as determined by reference to their most recent available financial statements for a twelve (12) month period prior to the merger or consolidation.
The disposition of a security, pursuant to a merger or consolidation, or an insurer which, prior to said merger or consolidation, held over eighty-five (85) percent of the combined assets of all the companies undergoing merger or consolidation, computed according to their book value prior to merger or consolidation, as determined by reference to their most recent available financial statements for a twelve (12) month period prior to the merger or consolidation.

(b) A merger within the meaning of this section shall include the sale or purchase of substantially all the assets of one insurer by another in exchange for stock which is then distributed to the security holders of the insurer which sold its assets.

(c) Notwithstanding the foregoing, if an officer, director or stockholder shall make any purchase (other than a purchase exempted by this section) of a security in any company involved in the merger or consolidation and any sale (other than a sale exempted by this section) of a security in any other company involved in the merger or consolidation within any period of less than six (6) months during which the merger or consolidation took place, the exemption provided by this section shall be unavailable to such officer, director or stockholder to the extent of such purchase and sale.

(6) Exemption from KRS 304.26-040 of transactions involving the deposit or withdrawal of equity securities under a voting trust or deposit agreement. Any acquisition or disposition of an equity security involved in the deposit of such security under, or the withdrawal of such security from a voting trust or deposit agreement, and the acquisition or disposition in connection therewith of the certificate representing such security, shall be exempt from the operation of KRS 304.26-040 if substantially all of the assets held under the voting trust or deposit agreement immediately after the deposit or immediately prior to the withdrawal, as the case may be, consisted of equity securities of the same class as the security deposited or withdrawn; provided, however, that this section shall not apply to the extent that there shall have been either:

(a) A purchase of an equity security of the class deposited and a sale of any certificate representing an equity security of such class; or

(b) A sale of an equity security of the class deposited and purchase of any certificate representing an equity security of such class (otherwise than a transaction involved in such deposit or withdrawal or in a transaction exempted by any other provisions of the administrative regulations under KRS 304.26-040 within a period of less than six (6) months which includes the date of the deposit or withdrawal).

(7) Exemption from KRS 304.26-040 of certain transactions involving the conversion of equity securities.

(a) Any acquisition or disposition of an equity security involved in the conversion of an equity security which, by its terms or pursuant to the terms of the insurer's charter or other governing instruments, is convertible immediately or after a stated period of time into another equity security of the same insurer, shall be exempt from the operation of KRS 304.26-040; provided, however, that this section shall not apply to the extent that there shall have been either:

A purchase of any equity security of the class convertible (including any acquisition of or change in a conversion privilege) and a sale of any equity security of the class issuable upon conversion; or
A sale of any equity security of the class convertible and any purchase of any equity security issuable upon conversion (otherwise than in a transaction involved in such conversion or in a transaction exempted by any other provision of the administrative regulations under KRS 304.26-040) within a period of less than six (6) months which includes the date of conversion.

(b) For the purpose of this section, an equity security shall not be deemed to be acquired or disposed of upon conversion of an equity security if the terms of the equity security converted require the payment or entail the receipt, in connection with such conversion, of cash or other property (other than equity securities involved in the conversion) equal in value at the time of conversion to more than fifteen (15) percent of the value of the equity security issued upon conversion.

(c) For the purpose of this section, an equity security shall be deemed convertible if it is convertible at the option of the holder or of some other person or by operation of the terms of the security or the governing instruments.

(8) Exemption from KRS 304.26-040 of certain transactions involving the sale of subscription rights.

(a) Any sale of a subscription right to acquire any subject security of the same insurer shall be exempt from the provision of KRS 304.26-040 to the extent prescribed in this section, as not comprehended with the purpose of said KRS 304.26-040, if:

Such subscription is acquired, directly or indirectly, from the insurer without the payment of consideration;
Such subscription right by its terms expires within forty-five (45) days after the issuance thereof;
Such subscription right by its terms is issued on a pro rata basis to all holders of the beneficiary security of the insurer; and
A registration statement under the Securities Act of 1933 is in effect as to each subject security, or the applicable terms of any exemption from such registration have been met in respect to each subject security.

(b) When used within this section the following terms have the meaning indicated:

The term "subscription right" means any warrant or certificate evidencing a right to subscribe to or otherwise acquire an equity security;
The term "beneficiary security" means a security registered pursuant to Section 12 of the Securities Exchange Act, to the holders of which a subscription right is granted;
The term "subject security" means a security which is the subject of a subscription right.

(c) Notwithstanding anything contained herein to the contrary, if a person purchases subscription rights for cash or other consideration, then a sale by such person of subscription rights otherwise exempted by this section will not be so exempted to the extent of such purchases within the six (6) month period preceding or following such sale.

Section 4. Administrative Regulations under KRS 304.26-050.

(1) Exemption of certain securities from KRS 304.26-050. Any security shall be exempt from the operation of KRS 304.26-050 to the extent necessary to render lawful under such section the execution by a broker of an order for an account in which he has no direct or indirect interest.

(2) Exemption from KRS 304.26-050 of certain transactions effected in connection with a distribution. Any security shall be exempt from the operation of KRS 304.26-050 to the extent necessary to render lawful under such section any sale made by or on behalf of a dealer in connection with a distribution of substantial block of securities, upon the following condition:

(a) The sale is represented by an overallotment in which the dealer is participating as a member of an underwriting group, or the dealer or person acting on his behalf intends in good faith to offset such sale with a security to be acquired by or on behalf of the dealer as a participant in an underwriting, selling or soliciting-dealer group of which the dealer is a member at the time of the sale, whether or not the security to be so acquired is subject to a prior offering to existing holders or some other class of persons; and

(b) Other persons not within the purview of KRS 304.26-050 are participating in the distribution of such block of securities on terms at least as favorable as those on which such dealer is participating and to an extent at least equal to the aggregate participation of all persons exempted from the provisions of KRS 304.26-050 by this section. However, the performance of the functions of manager of a distributing group and the receipt of a bona fide payment for performing such functions shall not preclude an exemption which would otherwise be available under this section.

(3) Exemption from KRS 304.26-050 of sales of securities to be acquired.

(a) Whenever any person is entitled, as an incident to this ownership of an issued security and without the payment of consideration, to receive another security "when issued" or "when distributed," the security to be acquired shall be exempt from the operation of KRS 304.26-050, provided that:

The sale is made subject to the same conditions as those attaching to the right of acquisition, and
Such person exercises reasonable diligence to deliver such security to the purchaser promptly after his right of acquisition matures, and
Such person reports the sale on the appropriate form for reporting transactions by persons subject to KRS 304.26-030.

(b) This section shall not be construed as exempting transactions involving both a sale of a security "when issued" or "when distributed" and a sale of the security by virtue of which the seller expects to receive the "when issued" or "when distributed" security, if the two (2) transactions combined result in a sale of more units than the aggregate of those owned by the seller plus those to be received by him pursuant to his right of acquisition.

Section 5. Administrative Regulation under KRS 304.26-070. Arbitrage transactions under KRS 304.26-070: It shall be unlawful for any director or officer of an insurer to effect any foreign or domestic arbitrage transaction in any equity security of such insurer, unless he shall include such transaction in the statements required by KRS 304.26-030 and shall account to each insurer for the profit arising from transaction, as provided in KRS 304.26-040. The provisions of KRS 304.26-050 shall not apply to such arbitrage transactions. The provisions of the Act shall not apply to any bona fide foreign or domestic arbitrage transaction insofar as it is effected by any person other than such director or officer of the insurer.

History

RELATES TO: KRS 304.26-020-304.26-080
STATUTORY AUTHORITY: KRS 304.2-110, 304.26-090
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.2-110 provides that the Commissioner of Insurance may make reasonable rules and administrative regulations necessary for or as an aid to the effectuation of any provision of the Kentucky Insurance Code. KRS 304.26-090 gives the commissioner the authority to promulgate administrative regulations to execute the functions vested in him under KRS Chapter 304, Subtitle 26, relating to insider trading. This administrative regulation sets forth the requirements upon insiders trading in equity securities of a domestic stock insurance company.
History: I-26.02; 1 Ky.R. 874; eff. 5-14-75; TAm eff. 8-9-2007; Crt eff. 2-26-2020; TAm eff. 3-10-2020.

Chapter 30 Insurance Premium Finance Companies

806 KAR 30:010 License procedures {#sec-806-kar-30-010 omnilex-key=us-ky-regs-official--title-806--806 KAR 30:010}

Section 1. Application for Original or Renewal License. Each application for an original or renewal license as an insurance premium finance company shall be made on the Application for License as an Insurance Premium Finance Company form. It shall be accompanied by all required documents and the license fee provided by 806 KAR 4:010 which shall not be prorated. Each application for renewal of a license as an insurance premium finance company shall be made on or before May 1 of each year and shall be accompanied by the renewal fee provided by 806 KAR 4:010.

Section 2. Biographical Questionnaire.

(1) Each application for an original license as an insurance premium finance company shall be accompanied by biographical information for the persons specified in this section on the Biographical Questionnaire for Premium Finance Companies form. A separate form shall be completed and executed:

(a) In the case of a sole proprietor, by the sole proprietor;

(b) In the case of a partnership or limited partnership, by each partner or limited partner;

(c) In the case of a corporation, by each officer, director, and owner of more than ten (10) percent, directly or indirectly, of the outstanding shares of stock; and

(d) In the case of any other business organization, by each member or holder of record or beneficial interest therein.

(2) Biographical questionnaires shall be filed with an application for renewal of a license if changes have taken place in the business organization involving individuals who have not previously filed the questionnaire.

Section 3. Consent to Jurisdiction and Service of Process. Each applicant for a license and each person required to file the biographical questionnaire shall be deemed to have appointed the Secretary of State as its attorney to receive service of all legal process issued against it in this state upon causes of action arising within this state. Nothing contained herein shall preclude service by any other authorized method. Service upon the Secretary of State shall be made in the same manner as is provided under KRS 304.3-230 for service of process upon authorized foreign or alien insurers.

Section 4. Changes in Condition of Licensee.

(1) If any licensee or any person who is a partner, member, supervisory employee, officer, director, or ten (10) percent stockholder of a licensee is convicted, by final judgment of a court, of a felony involving moral turpitude, the licensee shall, within ten (10) days after such conviction, notify the commissioner of the facts in detail by letter.

(2) The licensee shall notify the commissioner immediately upon its discovery that it no longer meets the requirements of 806 KAR 30:080.

Section 5. Incorporation by Reference.

(1) The following material is incorporated by reference:

(a) Form 106, "Application for License as an Insurance Premium Finance Company", (10/2020); and

(b) Form 503, "Biographical Questionnaire for Premium Finance Companies", (10/2020).

(2) This material may be inspected, copied, or obtained subject to applicable copyright law, at the Kentucky Department of Insurance, Mayo-Underwood Building, 500 Mero Street, Frankfort, KY 40601, Monday through Friday, 8 a.m. to 4:30 p.m.

History

RELATES TO: KRS 304.3-230, 304.30-030
STATUTORY AUTHORITY: KRS 304.30-070, 304.4-010
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.30-070 authorizes the commissioner to make reasonable administrative regulations to effectuate subtitle 30 of the Kentucky Insurance Code and to regulate the manner in which licensed insurance premium finance companies conduct their business. This administrative regulation sets forth license procedures.
History: I-30.01; 1 Ky.R. 1086; eff. 7-2-75; Am. 9 Ky.R. 612; eff. 12-1-82; TAm eff. 8-9-2007; Crt eff. 2-26-2020; 47 Ky.R. 828, 1391; eff. 4-6-2021.

806 KAR 30:020 Abuse of minimum service charge {#sec-806-kar-30-020 omnilex-key=us-ky-regs-official--title-806--806 KAR 30:020}

Section 1. Abuse of Finance Agreement Service Charge Prohibited. An insurance agent, broker, or premium finance agency shall not induce an insured to become obligated under more than one (1) premium finance agreement for the purpose of obtaining more than one (1) service charge, as specified in KRS 304.30-090(3).

History

RELATES TO: KRS 304.30-050, 304.30-090(3)
STATUTORY AUTHORITY: KRS 304.30-070
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.30-070 authorizes the commissioner to promulgate administrative regulations to effectuate the provisions of the Kentucky Insurance Code, as defined in KRS 304.1-010, and to regulate the manner in which licensed insurance premium finance companies conduct their business. This administrative regulation establishes a prohibition on abuse of the finance agreement service charge.
History: 1 Ky.R. 1086; eff. 7-2-75; TAm eff. 8-9-2007; 40 Ky.R. 2622; 41 Ky.R. 43; eff. 8-1-2014; Crt eff. 2-11-2021.

806 KAR 30:030 Representations of licensee limited {#sec-806-kar-30-030 omnilex-key=us-ky-regs-official--title-806--806 KAR 30:030}

Section 1. No licensee shall represent, either orally or in writing, directly or indirectly, by any means whatsoever, including but not limited to the use of any office sign (except its duly issued license) or the use and circulation of any letterheads, billheads, blank forms, notes, receipts, certificates, circulars, or any written or printed or partly written or printed matter whatever, that it is licensed by or subject to the supervision of the Commissioner of Insurance, except by use of the following phrase: "Licensed, pursuant to Chapter 304 of the Kentucky Revised Statutes, only for the purpose of engaging in the business of a premium finance agency." Provided, however, the use or use and circulation of any written or printed matter containing the foregoing phrase may only be in connection with the licensee's business as a premium finance agency.

History

RELATES TO: KRS 304.30-020
STATUTORY AUTHORITY: KRS 304.30-070
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.30-070 authorizes the commissioner to make reasonable administrative regulations to effectuate Subtitle 30 of the Kentucky Insurance Code. This administrative regulation limits the representations of a licensee.
History: 1 Ky.R. 1086; eff. 7-2-75; TAm eff. 8-9-2007; Crt eff. 2-26-2020; TAm eff. 3-10-2020.

806 KAR 30:040 Statement of account and receipt {#sec-806-kar-30-040 omnilex-key=us-ky-regs-official--title-806--806 KAR 30:040}

Section 1. Statement of Account, Receipts.

(1) At any time after its execution, but not later than one (1) year after the last payment thereunder, a licensee holding a premium finance agreement shall, upon written request of the insured, give or mail to him a written statement of the dates and amounts of payments and the total amount, if any, unpaid thereunder. Such a statement shall be supplied once each year without charge; if any additional statement is requested, the premium finance agency shall supply such statement at a charge not exceeding one (1) dollar for each additional statement so supplied.

(2) After the payment of all sums for which an insured is obligated under a premium finance agreement, and upon his written demand, the premium finance company holding the agreement shall deliver or mail to the insured at his last known address such one (1) or more good and sufficient instruments as may be necessary to acknowledge payment in full and to release all interests in or rights to the insurance contracts the premiums for which are advanced or are to be advanced under the agreement.

(3) The insured shall be given a receipt for a payment when made in cash.

History

RELATES TO: KRS 304.30-050
STATUTORY AUTHORITY: KRS 304.30-070
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.30-070 authorizes the commissioner to make reasonable administrative regulations to effectuate the provisions of Subtitle 30 of the Kentucky Insurance Code and to regulate the manner in which licensed insurance premium finance companies conduct their business. This administrative regulation requires a premium finance company to give a statement of account and receipt.
History: 1 Ky.R. 1086; eff. 7-2-75; TAm eff. 8-9-2007; Crt eff. 2-26-2020; TAm eff. 3-10-2020.

806 KAR 30:050 Prepayment or refinancing {#sec-806-kar-30-050 omnilex-key=us-ky-regs-official--title-806--806 KAR 30:050}

Section 1. Prepayment, Voluntary or through Cancellation. In the event of the prepayment before maturity or the cancellation of the insurance contracts listed in the agreement upon default by the insured, the insured shall receive for such prepayment (voluntary or involuntary) a refund thereon. The amount of such refund shall represent at least as great a proportion of the service charge as the sum of the periodic balances after the month in which prepayment is made bears to the sum of all periodic balances under the schedule of installments in the agreement. Before making any such refund, the holder licensee need not refund and may retain a minimum charge of ten (10) dollars per premium finance contract and an additional sum of one (1) dollar to a maximum of five (5) percent of the final installment in default for a period of five (5) days or more before cancellation. When the amount of the refund due the insured is less than one (1) dollar, no refund need be made. Refunds hereunder shall be made forthwith without the necessity of demand by the insured.

Section 2. Refinancing. A premium finance company may, upon agreement with the insured, extend the scheduled due date or defer the scheduled payment of all or of any part of any installment or installments payable thereunder. The agreement for such extension of deferment must be in writing and signed by the parties thereto. The premium finance company may charge and contract for the payment of an extension of deferral charge by the insured and collect and receive the same, but such charge may not exceed an amount equal to eight (8) dollars per year on the amount of the installment or installments, or part thereof, are made payable under the agreement of extension or deferment; except that a minimum charge of one (1) dollar for the period of extension or deferral may be made in any case where the extension or deferral charge, when computed at such rate, amounts to less than one (1) dollar.

History

RELATES TO: KRS 304.30-050
STATUTORY AUTHORITY: KRS 304.30-070
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.30-070 authorizes the commissioner to make reasonable administrative regulations to effectuate the provisions of Subtitle 30 of the Kentucky Insurance Code and to regulate the manner in which licensed insurance premium finance companies conduct their business. This administrative regulation sets forth the requirements for a premium finance company if the debtor prepays the debt, or if the insurance contract is cancelled, or if the financing agreement is modified.
History: 1 Ky.R. 1087; eff. 7-2-75; TAm eff. 8-9-2007; Crt eff. 2-26-2020; TAm eff. 3-10-2020.

806 KAR 30:060 Forms to be approved {#sec-806-kar-30-060 omnilex-key=us-ky-regs-official--title-806--806 KAR 30:060}

Section 1. Approval of Forms.

(1) No rate chart, premium finance agreement, advance notice of cancellation, final notice of cancellation, or other form, shall be issued, delivered, or used unless it has been filed in duplicate, and approved by the commissioner. Every such form shall bear thereon a date of issuance and an identifying symbol consisting of numbers or letters or a combination thereof.

(2) No premium finance agreement shall contain any provision by which:

(a) In the absence of default of the insured, the premium finance company holding the agreement may, arbitrarily and without reasonable cause, accelerate the maturity of any part or all of the amount owing thereunder.

(b) A power of attorney is given to confess judgment in this state.

(c) The insured relieves the insurance agent or broker or the premium finance company holding the agreement from liability for any legal rights or remedies which the insured may otherwise have against him.

(d) Prepayment is prohibited.

(e) Attorney's fees are recoverable from the insured.

(3) Service charges shall be inclusive of all charges incident to the premium finance agreement and for the extension of credit provided for therein.

(4) All forms shall comply with applicable "truth in lending" laws.

History

RELATES TO: KRS 304.30-080, 304.30-120
STATUTORY AUTHORITY: KRS 304.30-070
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.30-070 authorizes the commissioner to make such reasonable administrative regulations to effectuate Subtitle 30 of the Kentucky Insurance Code and to regulate the manner in which licensed insurance premium finance companies conduct their business. This administrative regulation requires the regulated companies to file forms with the commissioner for his approval as conforming to the code.
History: 1 Ky.R. 1087; eff. 7-2-75; TAm eff. 8-9-2007; Crt eff. 2-26-2020; TAm eff. 3-10-2020.

806 KAR 30:070 Books and records subject to inspection {#sec-806-kar-30-070 omnilex-key=us-ky-regs-official--title-806--806 KAR 30:070}

Section 1. Books and Records.

(1) Records shall be preserved for the time period set forth in KRS 304.30-060(2). Every licensee shall maintain each premium finance agreement or duplicate originals and all original documents relating to the premium finance agreement, except those papers returned to the insured. The premium finance agreement and all original documents relating to the premium finance agreement shall:

(a) Include a common identifying number; and

(b) Be available for inspection by the department at any time.

(2) Every licensee shall maintain a register, ledger, or combination of records containing a summary of premium finance agreements acquired, other than pursuant to a pledge, which can readily show:

(a) The date of acquisition;

(b) The name of the insured;

(d) The principal balance;

(e) The amount of service charge;

(f) The balance payable by the insured;

(g) A distribution of proceeds showing the dates, amounts, purposes, and names of the person to whom any part of the proceeds is distributed; and

(h) The application of any part of the proceeds to an unpaid balance due on an existing premium finance agreement which is terminated by refinance agreement.

(3) Every licensee shall maintain a record which will readily disclose at any time the aggregate number and outstanding time balances of all premium finance agreements held by it, other than pursuant to a pledge.

(4) Every licensee shall maintain an individual ledger card or appropriate combination of records with respect to each premium finance agreement showing:

(a) The name and address of the insured;

(b) The identifying account number;

(d) The amount of the principal balance;

(e) The date of acquisition;

(f) The name or names of the insurers and the policy number of the related insurance contracts;

(g) The date from which the service charge is payable and whether the date is the effective date of the insurance coverage or some other later date;

(h) The service charge;

(i) The balance payable by the insured; and

(j) Schedule of required payments.

(5) The ledger card shall also show all receipts setting forth their application to outstanding balances, delinquency, and other charges, if any, with the type of the charge clearly specified.

(6) With respect to cancellation of insurance, the licensee shall record:

(a) The effective date of the cancellation;

(b) The date of notice to the insured;

(d) The amount of return premium received, if any; and

(e) The disposition of any return premium received.

(7) In connection with the prepayment of a premium finance agreement, the ledger card shall show the amount of service charge refund required to be made and the date such refund is made.

(8) With respect to any premium finance agreement, whether charged off or not, upon which legal proceedings have been taken, every licensee shall clearly indicate in permanent form on the insured's ledger card or on a separate sheet or card or file bearing the identifying account number, the following:

(a) The date of referral to an outside counsel for collection;

(b) The date and terms of any settlement agreed upon or the results of any legal or summary action taken for or against the licensee; and

(c) The nature or any collection expense incurred by the licensee in connection with litigation and charged to or paid by the insured or other obligor.

(9)

(a) Except as noted in paragraph (b) of this subsection, records bearing any notation made in conformity with subsection (8) of this section shall be kept in a binder or file separate from other records.

(b) The record of a premium finance agreement which has been paid in full, which is current as to payments, or concerning which a decision has been officially made to abandon collection efforts of every kind, may be placed elsewhere.

(c) If the licensee engages in any other business, the records relating to the insurance premium finance business shall be kept separate from the records of any other business.

Section 2. Annual Report. Prior to May 1 of each year, each licensee shall furnish to the commissioner a completed Annual Report of Premium Finance Companies

Section 3. Incorporation by Reference.

(1) "Annual Report of Premium Finance Companies (07/2020) is incorporated by reference.

History

RELATES TO: KRS 304.30-030, 304.30-060
STATUTORY AUTHORITY: KRS 304.30-070
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.30-070 authorizes the commissioner to make reasonable administrative regulations to effectuate Subtitle 30 of the Kentucky Insurance Code and to regulate the manner in which licensed insurance premium finance companies conduct their business. This administrative regulation sets forth the records and recorded information subject to inspection by the commissioner.
History: 1 Ky.R. 1087; eff. 7-2-75; TAm eff. 8-9-2007; Crt eff. 2-26-2020; 47 Ky.R. 829, 1391; eff. 4-6-2021.

806 KAR 30:080 Financial requirements for insurance premium finance companies {#sec-806-kar-30-080 omnilex-key=us-ky-regs-official--title-806--806 KAR 30:080}

Section 1. Definitions. The term "insurance premium finance company" has the meaning set forth by KRS 304.30-020(1).

Section 2.

(1) In order to be considered trustworthy, competent, and to intend to act in good faith as an insurance premium finance company, an applicant for an insurance premium finance company license must show, through certification by an independent certified public accountant, that the prospective insurance premium finance company has a net worth of $50,000 and has established a line of credit of at least $100,000 with a bank which is a member of the Federal Reserve System.

(2) Notwithstanding the provisions of Section 2(1) of this administrative regulation, an applicant may be considered to be trustworthy, competent, and to intend to act in good faith as an insurance premium finance company if he shows, by certification by an independent certified public accountant, that the prospective insurance premium finance company has a net worth of $150,000.

Section 3. Insurance premium finance companies currently licensed to do business in Kentucky shall meet the financial requirements established by this administrative regulation as soon as practicable, but no later than December 31, 1984.

Section 4. Upon meeting the financial requirements established by the administrative regulation, insurance premium finance companies shall maintain at least the financial requirements established by this administrative regulation.

Section 5. This administrative regulation shall become effective upon its approval pursuant to KRS Chapter 13A.

History

RELATES TO: KRS 304.30-040
STATUTORY AUTHORITY: KRS 304.30-070
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.30-070 provides that the Commissioner of Insurance may make reasonable rules and administrative regulations necessary for or as an aid to the effectuation of the provisions of KRS 304.30. This administrative regulation establishes minimum financial requirements that an applicant for an insurance premium finance company license must meet to show that it is competent, trustworthy, and intends to act in good faith in the capacity involved in the license applied for.
History: 9 Ky.R. 656; eff. 12-1-82; TAm eff. 8-9-2007; Crt eff. 2-26-2020; TAm eff. 3-10-2020.

806 KAR 30:090 Insurance premium finance company proof of mailing of cancellation notice {#sec-806-kar-30-090 omnilex-key=us-ky-regs-official--title-806--806 KAR 30:090}

Section 1.

(1) Insurance premium finance companies shall maintain written proof of mailing of the notices of cancellation required by KRS 304.30-110(2) and (3).

(2) The written proof of mailing required by subsection (1) of this section shall be a receipt provided by the United States Postal Service.

(3) If an insurance premium finance company does not maintain the proof of mailing required by subsection (1) of this section, the purported notice is void.

Section 2. This administrative regulation applies to notices mailed on or after thirty (30) days from the effective date of this administrative regulation.

History

RELATES TO: KRS 304.30-110
STATUTORY AUTHORITY: KRS 304.2-110, 304.30-070
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.2-110 provides that the Commissioner of Insurance may make reasonable administrative regulations necessary for or as an aid to the effectuation of any provision of the Kentucky Insurance Code. KRS 304.30-070 provides that the Commissioner of Insurance has the authority to make and enforce such reasonable administrative regulations as may be necessary to make effective the provisions of KRS Chapter 304.30 and to establish the manner in which insurance premium finance companies shall conduct their business. This administrative regulation requires insurance premium finance companies to maintain written proof of mailing of notice of cancellation of insurance policies.
History: 19 Ky.R. 2355; eff. 6-7-93; TAm eff. 8-9-2007; Crt eff. 2-26-2020; TAm eff. 3-10-2020.

806 KAR 30:100 Time limit for insurance premium finance company responses to Department of Insurance inquiries {#sec-806-kar-30-100 omnilex-key=us-ky-regs-official--title-806--806 KAR 30:100}

Section 1. Insurance premium finance companies shall furnish a complete response to the Department of Insurance within twenty-one (21) days of the date of an Department of Insurance inquiry.

History

RELATES TO: KRS 304.30-050, 304.30-060
STATUTORY AUTHORITY: KRS 304.2-110, 304.30-070
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.2-110 provides that the Commissioner of Insurance may make reasonable administrative regulations necessary for or as an aid to the effectuation of any provision of the Kentucky Insurance Code. KRS 304.30-070 provides that the Commissioner of Insurance has the authority to make and enforce such reasonable administrative regulations as may be necessary to make effective the provisions of KRS Chapter 304.30 and to establish the manner in which insurance premium finance companies shall conduct their business. This administrative regulation requires insurance premium finance companies to respond to inquiries from the Department of Insurance within twenty-one (21) days of the date of the inquiry.
History: 19 Ky.R. 2356; eff. 6-7-1993; TAm eff. 8-9-2007; Crt eff. 2-26-2020; TAm eff. 3-10-2020.

Chapter 37 Insurance Holding Company Systems

806 KAR 37:010 Insurance holding company systems and other insurer filing {#sec-806-kar-37-010 omnilex-key=us-ky-regs-official--title-806--806 KAR 37:010}

Section 1. Definitions.

(1) "Commissioner" is defined by KRS 304.37-010(2).

(2) "Department" is defined by KRS 304.1-050(2).

(3) "Ultimate controlling person" means that person which is not controlled by any other person.

Section 2. Forms - General Requirements.

(1)

(a) Forms A, B, C, D, E, and F shall specify the information required to be provided in the preparation of the statements required by KRS 304.37-120, 304.37-020(1) to (14) and 304.37-030. In addition, Form A shall be used for mergers and acquisitions of domestic insurers referred to in KRS 304.24-390.

(b) Filed statements 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 clearly indicates the scope and coverage of the items.

(c) All instructions, whether appearing under the items of the form or elsewhere, shall be omitted. Unless expressly provided otherwise, if any item is inapplicable or the answer is in the negative, a statement to that effect shall be made.

(2)

(a) Duplicate originals of each statement, including exhibits and all other papers and documents filed as a part of the statement, shall be filed with the commissioner by personal delivery or mail addressed to: Financial Standards and Examination Division, Kentucky Department of Insurance, P.O. Box 517, Frankfort, Kentucky 40602.

(b) A copy of Form C shall be filed in each state in which an insurer may do business, if the insurance regulatory official of that state has notified the insurer of its request in writing, in which case the insurer has fifteen (15) days from receipt of the notice to file the form.

(d) If the signature of any person is affixed pursuant to a power of attorney or other similar authority, a copy of the power of attorney or other authority shall be filed with the statement.

(3) If an applicant requests a hearing under KRS 304.37-120(4)(b), in addition to filing the Form A with the commissioner, the applicant shall file a copy of the Form A with the National Association of Insurance Commissioners in electronic form.

(4) Statements shall be prepared electronically. All copies of any statements, financial statements, or exhibits shall be easily readable and suitable for review and reproduction. Debits in credit categories and credits in debit categories shall be designated so as to be clearly distinguishable on photocopies. Statements shall be in the English language, and monetary values shall be stated in United States currency. If any exhibit or other paper or document filed with the statement is in a foreign language, it shall be accompanied by a translation into the English language, and any monetary value shown in a foreign currency shall be converted into United States currency.

Section 3. Forms - Incorporation by Reference, Summaries, and Omissions.

(1)

(a) Information required by any item on Forms A, B, D, E, or F may be incorporated by reference in answer or partial answer to any other item.

(b) Information contained in any financial statement, annual report, proxy statement, statement filed with a governmental authority, or any other document may be incorporated by reference in answer or partial answer to any item on Forms A, B, D, E, or F if the document or paper is filed as an exhibit to the statement. Excerpts of documents may be filed as exhibits if the documents are extensive.

(c) Documents currently on file with the commissioner which were filed within three (3) years of the current filing shall not be attached as exhibits. 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 an answer to the applicable item.

(d) Material shall not be incorporated by reference if the incorporation may render the statement incomplete, unclear, or confusing.

(2)

(a) If an item requires a summary or outline of the provisions of any document, only a brief statement shall be made as to the pertinent provisions of the document.

(b) In addition to the statement, the summary or outline may incorporate by reference particular parts of any exhibit or document currently on file with the commissioner which was filed within three (3) years of the current filing and may be qualified in its entirety by the reference.

(c) If two (2) or more documents required to be filed as exhibits are substantially identical in all material respects except as to the parties, the dates of execution, or other details, a copy of only one (1) of the documents shall be filed, with a schedule identifying the omitted documents and setting forth the material details in which the documents differ from the filed documents.

Section 4. Forms - Information Unknown or Unavailable and Extension of Time to Furnish.

(1) If it is impractical to furnish any required information, document, or report when it is required to be filed, there shall be filed with the commissioner a separate document that:

(a) Identifies the information, document, or report in question;

(b) States why its filing is impractical; and

(2) The request for extension shall be granted unless the commissioner, within sixty (60) days after receipt of the request, enters an order denying the request.

Section 5. Forms - Additional Information and Exhibits.

(1) In addition to the information expressly required to be included in Forms A, B, C, D, E, and F, the commissioner may request further material information as may be necessary to make the information contained in the filing not misleading. The material information requested may include supplemental financial information, supporting contracts and agreements, and filings with other regulatory bodies.

(2) The person filing may also file exhibits in addition to those expressly required by the statement. These exhibits shall clearly indicate the subject matters to which they refer.

(3) Changes to Forms A, B, C, D, E, or F shall include, on the top of the cover page, the phrase: "Change No. (insert number) to" and shall indicate the date of the change and not the date of the original filing.

Section 6. Subsidiaries of Domestic Insurers. The authority to invest in subsidiaries under KRS 304.37-110 shall be in addition to any authority to invest in subsidiaries which may be contained in any other provision of the Insurance Code, KRS Chapter 304 and KAR Title 806.

Section 7. Acquisition of Control - Statement Filing. A person required to file a statement pursuant to KRS 304.24-390 or 304.37-120 shall furnish the required information on Form A, and on Form E, in accordance with Section 10 of this administrative regulation.

Section 8. Amendments to Form A. The applicant shall promptly advise the commissioner of any changes in the information furnished on Form A arising subsequent to the date upon which the information was furnished, but prior to the commissioner's disposition of the application.

Section 9. Acquisition of Certain Insurers.

(1) If the person being acquired is a "domestic insurer" solely because of the provisions of KRS 304.37-120(1)(a), the name of the domestic insurer on the cover page shall be indicated, in the following format, "ABC Insurance Company, a subsidiary of XYZ Holding Company".

(2) If an insurer referred to in subsection (1) of this section is being acquired, references to "the insurer" contained in Form A shall refer to both the domestic subsidiary insurer and the person being acquired.

Section 10. Pre-Acquisition Notification.

(1) If a domestic insurer, including any person controlling a domestic insurer, is proposing a merger or acquisition pursuant to KRS 304.37-120, that person shall file a pre-acquisition notification form, Form E.

(2) If a non-domiciliary insurer licensed to do business in the Commonwealth is proposing a merger or acquisition pursuant to KRS 304.37-130, that insurer shall file a pre-acquisition notification form, Form E. A pre-acquisition notification form shall not be filed if the acquisition meets the requirements of KRS 304.37-130(2)(b).

(3) In addition to the information required by Form E, the commissioner may require an expert opinion as to the competitive impact of the proposed acquisition.

Section 11. Annual Registration of Insurers - Statement Filing.

(1) An insurer required to file an annual registration statement pursuant to KRS 304.37-020 shall furnish the required information on Form B.

(2)

(a) An amendment to Form B shall be filed in accordance with KRS 304.37-020(5) there is a material change to the information provided in the annual registration statement.

(b) Only those items reported as amendments shall be filed in the Form B format.

Section 12. Summary of Registration - Statement Filing. An insurer required to file an annual registration statement pursuant to KRS 304.37-020 shall also furnish information required on Form C. An insurer shall file a copy of Form C in each state in which the insurer is authorized to do business, if requested by the insurance regulatory official of that state.

Section 13. Alternative and Consolidated Registrations.

(1) Any authorized insurer may file a registration statement on behalf of any affiliated insurer or insurers that are required to register under KRS 304.37-020. A registration statement may include information not required by KRS Chapter 304 Subtitle 37 regarding any insurer in the insurance holding company system, even if the insurer is not authorized to do business in Kentucky. Instead of filing a registration statement on Form B, the authorized insurer may file a copy of the registration statement or similar report that it is required to file in its state of domicile if:

(a) The statement or report contains substantially similar information required to be furnished on Form B; and

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

(2) 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 which substantiates the filing insurer's claim that it is the principal insurer in the insurance holding company system.

(3) With the prior approval of the commissioner, an unauthorized insurer may follow any of the procedures that may be done by an authorized insurer under subsection (1) of this section.

(4) Any insurer may take advantage of the provisions of KRS 304.37-020(9) or (10) without obtaining the prior approval of the commissioner. However, the commissioner may require individual filings if consolidation renders the material incomplete, unclear, or confusing.

Section 14. Disclaimers and Termination of Registration.

(1) A disclaimer of affiliation or a request for termination of registration claiming that a person shall not, or will not, upon the taking of some proposed action, control another person, referred to as the subject, shall contain the following information:

(a) The number of authorized, issued, and outstanding voting securities of the subject;

(b) With respect to the person whose control is denied and all affiliates of this person, the number and percentage of shares of the subject's voting securities which are held of record or known to be owned beneficially, and the number of these shares in that there is a right to acquire, directly or indirectly;

(c) All material relationships and bases for affiliation between the subject and the person whose control is denied and all affiliates of this person; and

(d) A statement explaining why the person shall not be considered to control the subject.

(2) A request for termination of registration shall be granted unless the commissioner, within thirty (30) days after he or she receives the request, notifies the registrant otherwise.

Section 15. Transactions Subject to Prior Notice - Notice Filing.

(1) An insurer required to give notice of a proposed transaction pursuant to KRS 304.37-030 shall furnish the required information on Form D.

(2) Agreements for cost sharing services and management services shall, at a minimum and as applicable:

(a) Identify the person providing services and the nature of the services;

(b) Set forth the methods to allocate costs;

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

(e) State that the insurer will maintain oversight for functions provided to the insurer by the affiliate and that the insurer will monitor services annually for quality assurance;

(f) Define books and records of the insurer to include all books and records developed or maintained under or related to the agreement;

(g) Specify that all books and records of the insurer are and remain the property of the insurer and are subject to control of the insurer;

(h) State that all funds and invested assets 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;

(i) Include standards for termination of the agreement with and without cause;

(j) Include provisions for indemnification of the insurer if there is gross negligence or willful misconduct on the part of the affiliate providing the services;

(k) Specify that, if the insurer is placed in receivership or seized by the commissioner under KRS Chapter 304 Subtitle 33:

All of the rights of the insurer under the agreement extend to the receiver or commissioner; and
All books and records shall:

a. Immediately be made available to the receiver or the commissioner; and

b. Be turned over to the receiver or commissioner immediately upon the receiver or the commissioner's request;

(l) Specify that the affiliate has no automatic right to terminate the agreement if the insurer is placed in receivership pursuant to KRS Chapter 304 Subtitle 33; and

(m) Specify that the affiliate will continue to maintain any systems, programs, or other infrastructure notwithstanding a seizure by the commissioner under KRS Chapter 304 Subtitle 33, and will make these available to the receiver for as long as the affiliate continues to receive timely payment for services rendered.

Section 16. Enterprise Risk Report. The ultimate controlling person of an insurer required to file an enterprise risk report pursuant to KRS 304.37-020(14) shall furnish the required information on Form F.

Section 17. Extraordinary Dividends and Other Distributions.

(1) Requests for approval of extraordinary dividends or any other extraordinary distribution to shareholders shall include the following:

(a) The amount of the proposed dividend;

(b) The date established for payment of the dividend;

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

(d) A copy of the calculations determining that the proposed dividend is extraordinary, which shall include the following information:

The amounts, dates, and form of payment of all dividends or distributions, including regular dividends but excluding distributions of the insurer's own securities, paid within the period of twelve (12) consecutive months ending on the date fixed for payment of the proposed dividend for which approval is sought, and commencing on the day after the same day of the same month in the last preceding year;
Surplus as regards to policyholders, total capital and surplus, as of the 31st day of December next preceding;
If the insurer is a life insurer, the net gain from operations for the twelve (12) month period ending the 31st day of December next preceding;
If the insurer is not a life insurer, the net income less realized capital gains for the twelve (12) month period ending the 31st day of December next preceding and the two (2) preceding twelve (12) month periods; and
If the insurer is not a life insurer, the dividends paid to stockholders excluding distributions of the insurer's own securities in the preceding two (2) calendar years;

(e) 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 approval is submitted; and

(f) A brief statement as to the effect of the proposed dividend 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.

(2) Subject to KRS 304.37-030(2), each registered insurer shall report to the commissioner all dividends and other distributions to shareholders within fifteen (15) business days following the declaration, including the same information required by subsection (1)(d) of this section.

Section 18. Adequacy of Surplus.

(1) In determining the adequacy and reasonableness of an insurer's surplus pursuant to KRS 304.37-030(4), no single factor shall be controlling. The commissioner shall consider the net effect of all of these factors, plus other factors bearing on the financial condition of the insurer.

(2) In comparing the surplus maintained by other insurers, the commissioner shall consider the extent to which each of these factors varies from insurer to insurer, and in determining the quality and liquidity of investments in subsidiaries, the commissioner shall consider the individual subsidiary and may discount or disallow its valuation to the extent that the individual investments so warrant.

Section 19. Incorporated by Reference.

(1) The following material is incorporated by reference:

(a) "Form A Statement Regarding the Acquisition of Control of or Merger With a Domestic Insurer," September 2022;

(b) "Form B Insurance Holding Company System Annual Registration Statement," September 2022;

(d) "Form D Prior Notice of a Transaction," September 2022;

(e) "Form E Pre-Acquisition Notification Form Regarding the Potential Competitive Impact of a Proposed Merger or Acquisition by a Non-Domiciliary Insurer Doing Business in this State or by a Domestic Insurer," September 2022; and

(f) "Form F Enterprise Risk Report," September 2022.

History

RELATES TO: KRS 304.1-050, 304.6, 304.24-390, 304.24-400, 304.24-415, 304.33, 304.37-010, 304.37-020, 304.37-030, 304.37-110, 304.37-120, 304.37-130
STATUTORY AUTHORITY: KRS 304.2-110, 304.37-060
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.2-110 authorizes the Commissioner of the Department of Insurance to promulgate make reasonable administrative regulations necessary for or as an aid to the effectuation of any provision of the Kentucky Insurance Code, KRS Chapter 304. KRS 304.37-060 authorizes the commissioner to promulgate administrative regulations as may be necessary to carry out KRS Chapter 304 Subtitle 37. This administrative regulation establishes procedural requirements necessary to carry out the provisions of KRS Chapter 304 Subtitle 37, insurance holding company systems, and statutes relating to the merger and acquisition of domestic insurers.
History: 19 Ky.R. 343; Am. 722; eff. 9-10-1992; TAm eff. 8-9-2007; 41 Ky.R. 602; 1059; eff. 12-5-2014; Cert eff. 2-11-2021; 49 Ky.R. 104, 1080; eff. 1-31-2023.

Chapter 38 Health Maintenance Organizations

806 KAR 38:010 Information required of applicants for certificate of authority {#sec-806-kar-38-010 omnilex-key=us-ky-regs-official--title-806--806 KAR 38:010}

Section 1. The proposed health maintenance organization shall furnish the name and residence address of each individual who will be directors, officers or management of the health maintenance organization. A biographical resume must be furnished on each individual on a form prescribed by the commissioner.

Section 2. The health maintenance organization shall have sufficient funds originally to cover all initial organizational, promotional, and sales expenses, plus an additional amount sufficient to cover up to thirty (30) days operating expenses.

Section 3. The health maintenance organization shall cease issuing new contracts to enrollees, except newborn children or other newly acquired dependents of existing enrollees, when its admitted assets are less than $80,000 in excess of its liabilities. The aforesaid shall not apply for the first thirty-six (36) months of operation under a certificate of authority for those health maintenance organizations which have no other source of funding for operating costs, except for revenues received from enrollees or revenues received thereon, other than through loans or loan guarantees which have been granted by the United States under Title XII of the Health Maintenance Act of 1973 Section 1305.

Section 4. In order to help determine the financial responsibility of the health maintenance organization, it will be necessary for each health maintenance organization to furnish financial statements, for three (3) years after the certificate of authority has been issued, to the commissioner on a calendar quarter basis, i.e., as of March 31, June 30, September 30 and December 31. These statements shall be filed upon a form prescribed by the commissioner no later than forty-five (45) days following the close of the calendar quarter. At the end of the three (3) year period as noted above, the commissioner may request the continuation of such quarterly reporting if he deems it necessary.

History

RELATES TO: KRS 304.38-060
STATUTORY AUTHORITY: KRS 304.38-150
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.38-060 provides that applicant Health Maintenance Organizations satisfy the commissioner as to the reputation and capability of persons responsible for the conduct of its affairs, its financial responsibility and its financial basis in provisions for working capital prior to the issuance of a certificate of authority.
History: 1 Ky.R. 1089; eff. 7-2-75; TAm eff. 8-9-2007; Crt eff. 2-26-2020; TAm eff. 3-10-2020.

806 KAR 38:040 Financial projections; area overlapping {#sec-806-kar-38-040 omnilex-key=us-ky-regs-official--title-806--806 KAR 38:040}

Section 1. The three (3) year projections for the financial program of the applicant health maintenance organization shall be prepared by an individual who has satisfied the commissioner by virtue of his training, education and experience that he is qualified to make such projections.

Section 2. The existence or proposed operation of health maintenance organizations in the same geographic area that could affect the number of prospective enrollees of the applicant health maintenance organization shall be disclosed to the commissioner in the description of the initial geographic area to be served.

Section 3. In noting the sources of working capital and funding, the proposed health maintenance organization shall inform the commissioner whether there are grants, loans or loan guarantees from the federal government; if so, the amounts thereof, rates of interest, if any, the schedule of repayment, if any, of the principal and interest. If the working capital and funding is derived from other than through the federal government, indicate such source, giving details of such program, including any schedule of repayments of principal and interest on loans which may have been made.

History

RELATES TO: KRS 304.38-040
STATUTORY AUTHORITY: KRS 304.38-150
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.38-040 provides that a health maintenance organization supply the commissioner information upon application for certificate of authority. This administrative regulation explains the authenticity of the health maintenance organization's financial projections and possibility of overlapping health maintenance organizations within a particular geographic area.
History: 1 Ky.R. 1090; eff. 7-2-75; TAm eff. 8-9-2007; Crt eff. 2-26-2020; TAm eff. 3-10-2020.

806 KAR 38:050 Fiscal soundness of organization {#sec-806-kar-38-050 omnilex-key=us-ky-regs-official--title-806--806 KAR 38:050}

Section 1. Each health maintenance organization choosing to meet the financial requirements of KRS 304.38-070 by depositing with the commissioner through the Custodian of Insurance Securities, certificates of deposit, cash, or general obligations issued, assumed or guaranteed by the United States, shall maintain their said deposits at market value at least equal to their required amount of deposit. Any general obligations referred to herein shall be in bearer form.

Section 2. The health maintenance organization shall pay into the Treasury of the Commonwealth, through the Department of the Commissioner of Insurance, its portion of the expense fund used in paying the custodian's salary, premium on his bond and other necessary expenses incident to the office used by the custodian. The portion of such expense fund to be paid by each company shall be in the same approximate proportion as the amount such company had on deposit on December 31 of the preceding year bears to the total of deposits with the Custodian of Insurance Securities as of December 31 of the preceding year. The executive director shall assess such company for its proportionate share of such expense fund. The minimum charge for each company shall be two (2) dollars.

History

RELATES TO: KRS 304.38-070
STATUTORY AUTHORITY: KRS 304.38-150
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.38-150 provides that the Commissioner of Insurance shall adopt reasonable rules and administrative regulations to administer KRS Chapter 304, Subtitle 38. This administrative regulation provides that the health maintenance organization satisfy the commissioner as to their fiscal soundness so as to guarantee that its obligations to enrollees will be performed.
History: 1 Ky.R. 1091; eff. 7-2-75; TAm eff. 8-9-2007; Crt eff. 2-26-2020; TAm eff. 3-10-2020.

806 KAR 38:070 Health maintenance organization subscriber fee filings {#sec-806-kar-38-070 omnilex-key=us-ky-regs-official--title-806--806 KAR 38:070}

Section 1. Definitions.

(1) Terms defined in KRS 304.38-030 shall have the meanings stated therein.

(2) "Uncovered expenditures" are health care service costs that are covered by a health maintenance organization and are rendered by providers not under contract with the HMO. These are expenditures for health care services for which the HMO is at risk.

(3) "Actuary" means a member of the American Academy of Actuaries, a qualified Health Service Corporation Actuary or a person who has demonstrated to the commissioner that his qualifications are substantially equivalent to those required for such qualification.

(4) "Community rating system" means a system of fixing rates of payments for health services. Under such system, rates of payments may be determined on a per-person or per-family basis and may vary with the number of persons in a family, but except as otherwise authorized, such rates must be equivalent for all individuals and for all families of similar composition.

(5) "Capitation rates" are the per-person rates which form the basis of a community rating system.

(6) "Contingency reserve" means the unassigned funds held over and above any known or estimated liabilities of the organization for the protection of its enrollees against insolvency of the HMO.

Section 2. General Principles.

(1) Rates will be considered excessive if it appears that their use will result in an unjustified accumulation of a contingency reserve in excess of that prescribed in KRS 304.38-070.

(2) Rates will be considered inadequate if it appears that their use will result in a contingency reserve less than that prescribed in KRS 304.38-070.

(3) If the HMO's contingency reserves fall outside of the range defined herein, the commissioner may require the HMO to submit new budget projections, a revised estimate, certified by an actuary, of the appropriate contingency reserve level and/or rate filings to correct the deficiencies.

(4) An unfairly discriminatory rate is a rate for a person or class of persons which gives that person or class an advantage or a disadvantage in comparison with others involving essentially the same hazards, services, deductibles, copayments or expense factors. Charges applicable to an enrollee shall not be individually determined based on the status of his health.

(5) Community rating is not mandated by these rules, but an HMO which proposes to use another rating system should be prepared to demonstrate that its rating system does not violate the principles of these rules.

(6) Any rate filing, any demonstration of the need for additional contingency reserves, or qualification of the HMO for waiver of the deposit requirements of KRS 304.38-070 shall take the following factors into account:

(a) Benefit type, including the proportion of uncovered expenditures and the potential for loss from uncollected copayments.

(b) Underwriting classifications, such as individual enrollees, small groups, Medicare complementary enrollees, etc., which may differ significantly in utilization patterns.

(c) Risk classification, including any characteristics which would cause delay in implementation of rate increases and any limited risk arrangements.

(d) Concentration of risk, such as the result of environmental hazards in a limited geographic area or the existence of a single large group.

(e) Trends, which should differ between uncovered expenditures and directly provided services and between services and administrative charges.

(f) Competition, which affects the degree to which fluctuation of actual-to-expected results may be covered in rates charged and inversely the degree to which contingency reserves must be relied upon to lessen the impact of such fluctuations.

(g) Catastrophes and epidemics, to the extent not considered elsewhere, and to the extent not covered by insurance or reinsurance.

(h) Mandated benefits for which rating information may not exist.

(i) Provider contracts, as they affect the level of uncovered expenditures.

(j) Health care development. This should be explained as a budgetary item, and any reserve for such development should be separate from the organization's contingency reserve.

(k) Fluctuation in asset values and investment income.

Section 3. Contents of Rate Filing. Each rate filing shall include:

(1) A cover letter outlining the scope and reason for the filing.

(2) A certification by an actuary as to the appropriateness of the proposed charges.

(3) The capitation rates for the plan affected and the formula to be used in deriving rates to be charged from the capitation rates, if the filing is for community rates.

(4) The organization's budget for the period for which rates are to be effective, which should be in such form as to relate easily to the elements (capitations, benefit variations, etc.) of the proposed rates.

(5) Sufficient recent financial data to support the proposed budget and any trends.

(6) Any other supporting information which the organization may wish to include or which the commissioner deems necessary to determine whether the proposed rates should be approved or disapproved.

History

RELATES TO: KRS 304.38-050, 304.38-070
STATUTORY AUTHORITY: KRS 304.38-150
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.38-150 provides that the Commissioner of Insurance may promulgate administrative regulations necessary for the proper administration of KRS Chapter 304, Subtitle 38. KRS 304.38-050 requires, in part that any schedule of fees or other periodic charges to be paid by enrollees and submitted to the commissioner is to be accompanied by adequate supporting information to show that such charges or fees are not excessive, inadequate, or unfairly discriminatory. This administrative regulation establishes the minimum amount of supporting information which may be considered adequate.
History: 9 Ky.R. 754; eff. 2-2-83; TAm eff. 8-9-2007; Crt eff. 2-26-2020; TAm eff. 3-10-2020.

806 KAR 38:080 Health maintenance organizations' reserve funds {#sec-806-kar-38-080 omnilex-key=us-ky-regs-official--title-806--806 KAR 38:080}

Section 1. A health maintenance organization shall not be considered to be financially responsible and may reasonably be expected to be unable to meet its obligations to enrollees or prospective enrollees if the commissioner determines that the health maintenance organization has failed to possess and maintain for the protection of its enrollees a reserve as a portion of its net worth equivalent to one and one-half (1 1/2) months of actual incurred medical, hospital, secondary care, administrative, and solicitation expense as reported in the health maintenance organization's annual financial statement filed with the commissioner for the immediately preceding year. For its initial year of operation, the health maintenance organization's reserve shall be based upon projected medical, hospital, secondary care, administrative, solicitation expense as estimated in its application for a certificate of authority.

Section 2. Application of this Administrative Regulation.

(1) Health maintenance organizations holding a certificate of authority in good standing with the executive director on July 15, 1986, need not comply with the 1986 amendment to KRS 304.38-070 (1986 Ky. Acts c. 437, sec. 28), but shall comply with Section 1 of this administrative regulation. However, such health maintenance organizations need not comply with Section 1 of this administrative regulation if they obtain capital stock of $1,000,000 and surplus of $250,000 (if a corporation) or capital accounts of $1,250,000 (if a partnership), and maintain such capital stock and surplus or capital accounts. Health maintenance organizations receiving a certificate of authority after July 15, 1986, need not comply with Section 1 of this administrative regulation, but shall comply with the 1986 amendment to KRS 304.38-070 (1986 Ky. Acts c. 437, sec. 28).

(2) Notwithstanding the other provisions of this administrative regulation, the Commissioner of Insurance may take whatever steps necessary to assure that a health maintenance organization is financially responsible and may reasonably be expected to be able to meet its obligations to enrollees or prospective enrollees, including, but not limited to, maintaining reserve funds based on a percentage of incurred, medical, hospital, secondary care, administrative, and solicitation expense reported in the health maintenance organization's last financial statement filed with the Commissioner of Insurance.

Section 3. Effective Date. This administrative regulation shall become effective upon its approval pursuant to KRS Chapter 13A.

History

RELATES TO: KRS 304.38-070, 304.38-130
STATUTORY AUTHORITY: KRS Chapter 13A, 304.2-110, 304.38-150
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.38-150 provides that the Commissioner of Insurance may adopt reasonable rules and administrative regulations that he deems necessary for the proper administration of KRS Chapter 304.38. KRS 304.2-110 provides that the Commissioner of Insurance may make reasonable rules and administrative regulations necessary for or as an aid to the effectuation of the Kentucky Insurance Code. This administrative regulation specifies when a health maintenance organization is no longer considered to be financially responsible and may reasonably be expected to be unable to meet its obligations to enrollees or prospective enrollees.
History: 10 Ky.R. 510; eff. 11-2-83; Am. 13 Ky.R. 2111; eff. 8-5-87; TAm eff. 8-9-2007; Crt eff. 2-26-2020; TAm eff. 3-10-2020.

806 KAR 38:100 Risk-based capital for health organizations {#sec-806-kar-38-100 omnilex-key=us-ky-regs-official--title-806--806 KAR 38:100}

Section 1. Definitions.

(1) "Adjusted RBC report" means an RBC report that has been adjusted by the commissioner in accordance with Section 2(3) of this administrative regulation.

(2) "Authorized control level event" means any of the following events:

(a) The filing of an RBC report by the health organization that indicates that the health organization's total adjusted capital is greater than or equal to its Mandatory Control Level RBC but less than its Authorized Control Level RBC;

(b) The notification by the commissioner to the health organization of an adjusted RBC report that indicates the event in paragraph (a) of this subsection, if the health organization does not challenge the adjusted RBC report under Section 7 of this administrative regulation;

(c) If, pursuant to Section 7 of this administrative regulation, the health organization challenges an adjusted RBC report that indicates the event in paragraph (a) of this subsection, notification by the commissioner to the health organization that the commissioner has, after a hearing, rejected the health organization's challenge;

(d) The failure of the health organization to respond to a corrective order, if the health organization has not challenged the corrective order under Section 7 of this administrative regulation; or

(e) If the health organization has challenged a corrective order under Section 7 of this administrative regulation and the commissioner has, after a hearing, rejected the challenge or modified the corrective order, the failure of the health organization to respond to the corrective order subsequent to rejection or modification by the commissioner.

(3) "Commissioner" is defined by KRS 304.1-050(1).

(4) "Company action level event" means any of the following events:

(a) The filing of an RBC report by a health organization that indicates that the health organization's total adjusted capital is greater than or equal to its Regulatory Action Level RBC but less than its Company Action Level RBC;

(b) Notification by the commissioner to the health organization of an adjusted RBC report that indicates an event in paragraph (a) of this subsection, if the health organization does not challenge the adjusted RBC report under Section 7 of this administrative regulation;

(c) Pursuant to Section 7 of this administrative regulation, if a health organization challenges an adjusted RBC report that indicates the event in paragraph (a) of this subsection, the notification by the commissioner to the health organization that the commissioner has, after a hearing, rejected the health organization's challenge; or

(d) A health maintenance organization that has total adjusted capital greater than or equal to its Company Action Level RBC but less than the product of its Authorized Control Level RBC and three and zero-tenths (3.0) and triggers the trend test determined in accordance with the trend test calculation included in the NAIC 2019 Risk-Based Capital Forecasting & Instructions, Health.

(5) "Corrective order" means an order issued by the commissioner specifying corrective actions that the commissioner has determined are required, under the provisions of this administrative regulation.

(6) "Department" is defined by KRS 304.1-050(2).

(7) "Domestic health organization" means a health organization domiciled in this state.

(8) "Foreign health organization" means a health organization that is licensed to do business in this state under KRS Subtitle 304.38, 304.38A, or 304.32 but is not domiciled in this state.

(9) "Health organization" means a health maintenance organization, limited health service organization, dental or vision plan, hospital, medical and dental indemnity or service corporation, or other managed care organization licensed under KRS Subtitle 304.38, 304.38A, or 304.32, except for an organization that is licensed as either a life and health insurer or a property and casualty insurer under KRS Subtitle 304.24 or 304.3 and that is otherwise subject to either the life or property and casualty RBC requirements.

(10) "Mandatory control level event" means any of the following events:

(a) The filing of an RBC report that indicates that the health organization's total adjusted capital is less than its Mandatory Control Level RBC;

(b) Notification by the commissioner to the health organization of an adjusted RBC report that indicates the event in paragraph (a) of this subsection, if the health organization does not challenge the adjusted RBC report under Section 7 of this administrative regulation; or

(c) Pursuant to Section 7 of this administrative regulation, the health organization challenges an adjusted RBC report that indicates the event in paragraph (a) of this subsection, notification by the commissioner to the health organization that the executive director has, after a hearing, rejected the health organization's challenge.

(11) "NAIC" means the National Association of Insurance Commissioners.

(12) "RBC" means risk-based capital.

(13) "RBC instructions" means the RBC report including risk-based capital instructions adopted by the NAIC, as these RBC instructions are amended by the NAIC from time to time in accordance with the procedures adopted by the NAIC.

(14) "RBC level" means a health organization's company action level RBC, regulatory action level RBC, authorized control level RBC, or mandatory control level RBC in which:

(a) "Company Action Level RBC" means, with respect to any health organization, the product of two and zero-tenths (2.0) and its Authorized Control Level RBC;

(b) "Regulatory Action Level RBC" means the product of one and five-tenths (1.5) and its Authorized Control Level RBC;

(c) "Authorized Control Level RBC" means the number determined under the risk-based capital formula in accordance with the RBC instructions; and

(d) "Mandatory Control Level RBC" means the product of 0.70 and the Authorized Control Level RBC.

(15) "RBC plan" means a comprehensive financial plan containing the elements established in Section 3(2) of this administrative regulation.

(16) "RBC report" means the report required in Section 2 of this administrative regulation.

(17) "Regulatory action level event" means, with respect to a health organization, any of the following events:

(a) The filing of an RBC report by the health organization that indicates that the health organization's total adjusted capital is greater than or equal to its Authorized Control Level RBC but less than its Regulatory Action Level RBC;

(b) Notification by the commissioner to a health organization of an adjusted RBC report that indicates the event in paragraph (a) of this subsection, if the health organization does not challenge the adjusted RBC report under Section 7 of this administrative regulation;

(c) If, pursuant to Section 7 of this administrative regulation, the health organization challenges an adjusted RBC report that indicates the event in paragraph (a) of this subsection, the notification by the commissioner to the health organization that the commissioner has, after a hearing, rejected the health organization's challenge;

(d) The failure of the health organization to file an RBC report by the filing date, unless the health organization has provided an explanation for the failure and has cured the failure within ten (10) days after the filing date;

(e) The failure of the health organization to submit an RBC plan to the commissioner within the time period established in Section 3(3) of this administrative regulation;

(f) Notification by the commissioner to the health organization that:

The RBC plan or revised RBC plan submitted by the health organization is unsatisfactory; and
Notification constitutes a regulatory action level event with respect to the health organization, if the health organization has not challenged the determination under Section 7 of this administrative regulation;

(g) If, pursuant to Section 7 of this administrative regulation, the health organization challenges a determination by the commissioner under this paragraph, the notification by the commissioner to the health organization that the commissioner has, after a hearing, rejected the challenge;

(h) Notification by the commissioner to the health organization that the health organization has failed to adhere to its RBC plan or revised RBC plan, but only if the failure has a substantial adverse effect on the ability of the health organization to eliminate the company action level event in accordance with its RBC plan or revised RBC plan and the commissioner has stated so in the notification, if the health organization has not challenged the determination under Section 7 of this administrative regulation; or

(i) If, pursuant to Section 7 of this administrative regulation, the health organization challenges a determination by the commissioner under this paragraph, the notification by the commissioner to the health organization that the commissioner has, after a hearing, rejected the challenge.

(18) "Revised RBC plan" means an RBC plan that was:

(a) Rejected by the commissioner; and

(b) Revised by the health organization, with or without the commissioner's recommendation.

(19) "Total adjusted capital" means the sum of:

(a) A health organization's statutory capital and surplus (net worth) as determined in accordance with the statutory accounting applicable to the annual financial statements required to be filed under KRS 304.3-240 or 304.32-090; and

(b) Other items, if any, as the RBC instructions provide.

Section 2. RBC Reports.

(1) A domestic health organization shall, on or prior to each March 1 (filing date), prepare and submit to the commissioner a report of its RBC levels as of the end of the calendar year just ended, in the NAIC 2019 Risk-Based Capital Forecasting & Instructions, Health. In addition, a domestic health organization shall file its RBC report with the:

(a) NAIC in accordance with the RBC instructions; and

(b) Insurance commissioner in any state in which the health organization is authorized to do business, if the insurance commissioner has notified the health organization of its request in writing, in which case the health organization shall file its RBC report not later than the later of:

Fifteen (15) days from the receipt of notice to file its RBC report with that state; or
The filing date.

(2) A health organization's RBC shall be determined in accordance with the formula established in the RBC instructions. The formula shall take the following into account, and may adjust for the covariance between, determined in each case by applying the factors in the manner established in the RBC instructions:

(a) Asset risk;

(b) Credit risk;

(d) All other business and relevant risks as are established in the RBC instructions.

(3) If a domestic health organization files an RBC report that is inaccurate, then the commissioner shall adjust the RBC report to correct the inaccuracy and shall notify the health organization of the adjustment. The notice shall contain a statement of the reason for the adjustment.

Section 3. Company Action Level Event.

(1) If a company action level event occurs, the health organization shall prepare and submit to the commissioner an RBC plan that shall:

(a) Identify the conditions that contribute to the company action level event;

(b) Contain proposals of corrective actions that the health organization intends to take and that would be expected to result in the elimination of the company action level event;

(c) Provide projections of the health organization's financial results in the current year and at least the two (2) succeeding years, both in the absence of proposed corrective actions and giving effect to the proposed corrective actions, including projections of statutory balance sheets, operating income, net income, capital and surplus, and RBC levels. The projections for both new and renewal business may include separate projections for each major line of business and separately identify each significant income, expense, and benefit component;

(d) Identify the key assumptions impacting the health organization's projections and the sensitivity of the projections to the assumptions; and

(e) Identify the quality of, and problems associated with, the health organization's business, including its assets, anticipated business growth and associated surplus strain, extraordinary exposure to risk, and mix of business and use of reinsurance, if any, in each case.

(2) The RBC plan shall be submitted:

(a) Within forty-five (45) days of the company action level event; or

(b) If the health organization challenges an adjusted RBC report pursuant to Section 7 of this administrative regulation, within forty-five (45) days after notification to the health organization that the commissioner has, after a hearing, rejected the health organization's challenge.

(3) Within sixty (60) days after the submission by a health organization of an RBC plan to the commissioner, the commissioner shall notify the health organization whether or not the RBC plan shall be implemented or is unsatisfactory. If the commissioner determines the RBC plan fails to address the requirements of subsection (1)(a) through (e), the notification to the health organization shall state the reasons for the determination, and establish revisions to correct the RBC plan. Upon notification from the commissioner, the health organization shall prepare a revised RBC plan, which may incorporate by reference any revisions proposed by the commissioner, and shall submit the revised RBC plan to the commissioner:

(a) Within forty-five (45) days after the notification from the commissioner; or

(b) If the health organization challenges the notification from the commissioner under Section 7 of this administrative regulation, within forty-five (45) days after a notification to the health organization that the commissioner has, after a hearing, rejected the health organization's challenge.

(4) If the commissioner notifies a health organization that the health organization's RBC plan or revised RBC plan is unsatisfactory, the commissioner may, subject to the health organization's right to a hearing under Section 7 of this administrative regulation, specify in the notification that the notification constitutes a regulatory action level event.

(5) Every domestic health organization that files an RBC plan or revised RBC plan with the commissioner shall file a copy of the RBC plan or revised RBC plan with the insurance commissioner in any state in which the health organization is authorized to do business if:

(a) The state has an RBC provision substantially similar to Section 8(1) of this administrative regulation; and

(b) The insurance commissioner of that state has notified the health organization of its request for the filing in writing, in which case the health organization shall file a copy of the RBC plan or revised RBC plan in that state no later than the later of:

Fifteen (15) days after the receipt of notice to file a copy of its RBC plan or revised RBC plan with the state; or
The date on which the RBC plan or revised RBC plan is filed under subsections (3) and (4) of this section.

Section 4. Regulatory Action Level Event.

(1) If a regulatory action level event occurs, the commissioner shall:

(a) Require the health organization to prepare and submit an RBC plan or, if applicable, a revised RBC plan;

(b) Perform an examination or analysis of the assets, liabilities, and operations of the health organization including a review of its RBC plan or revised RBC plan; and

(2) In determining corrective actions, the commissioner shall take into account relevant factors with respect to the health organization, based upon the commissioner's examination or analysis of the assets, liabilities, and operations of the health organization, including the results of any sensitivity tests undertaken pursuant to the RBC instructions. The RBC plan or revised RBC plan shall be submitted:

(a) Within forty-five (45) days after the occurrence of the regulatory action level event;

(b) If the health organization challenges an adjusted RBC report pursuant to Section 7 of this administrative regulation and the challenge is made in good faith within forty-five (45) days after the notification to the health organization that the commissioner has, after a hearing, rejected the health organization's challenge; or

(c) If the health organization challenges a revised RBC plan pursuant to Section 7 of this administrative regulation and the challenge is made in good faith, within forty-five (45) days after the notification to the health organization that the commissioner has, after a hearing, rejected the health organization's challenge.

(3) The commissioner may retain actuaries and investment experts and other consultants as necessary to review the health organization's RBC plan or revised RBC plan; examine or analyze the assets, liabilities, and operations, including contractual relationships, of the health organization, and formulate the corrective order with respect to the health organization. The fees, costs, and expenses relating to consultants shall be borne by the affected health organization or other party as directed by the commissioner.

Section 5. Authorized Control Level Event. If an authorized control level event occurs with respect to a health organization, the commissioner shall:

(1) Take action as required under Section 4 of this administrative regulation regarding a health organization with a regulatory action level event; or

(2) If it is in the best interests of the policyholders and creditors of the health organization and of the public, take action as necessary to cause the health organization to be placed under regulatory control under KRS Subtitle 304.33. If the commissioner takes action, the authorized control level event shall be sufficient grounds for the action. If the commissioner takes actions under this subsection pursuant to an adjusted RBC report, the health organization shall be entitled to protections as are afforded to health organizations under the provisions of Section KRS 304.33-130 pertaining to summary proceedings.

Section 6. Mandatory Control Level Event.

(1) If a mandatory control level event occurs, the commissioner shall take action as necessary to place the health organization under regulatory control under KRS Subtitle 304.33. The mandatory control level event shall be sufficient grounds for the commissioner to take action.

(2) If the commissioner takes actions pursuant to an adjusted RBC report, the health organization shall be entitled to the protections of Section KRS 304.33-130 pertaining to summary proceedings.

(3) The commissioner may forego action for up to ninety (90) days after the mandatory control level event if there is a reasonable expectation that the mandatory control level event will be eliminated within the ninety (90) day period.

Section 7. Hearings. Upon the occurrence of any of the following events the health organization shall have the right to a confidential departmental hearing, on a record, at which the health organization may challenge any determination or action by the commissioner. The health organization shall notify the commissioner of its request for a hearing within five (5) days after the notification by the commissioner of any of the following events:

(1) Notification to a health organization by the commissioner of an adjusted RBC report;

(2) Notification to a health organization by the commissioner that:

(a) The health organization's RBC plan or revised RBC plan is unsatisfactory; and

(b) Notification constitutes a regulatory action level event with respect to the health organization;

(3) Notification to a health organization by the commissioner that the health organization has failed to adhere to its RBC plan or revised RBC plan and that the failure has a substantial adverse effect on the ability of the health organization to eliminate the company action level event with respect to the health organization in accordance with its RBC plan or revised RBC plan; or

(4) Notification to a health organization by the commissioner of a corrective order with respect to the health organization.

Section 8. Confidentiality; Prohibition on Announcements, and Prohibition on Use in Ratemaking.

(1)

(a) If in the possession or the control of the Department of Insurance, the following shall be confidential:

RBC reports, to the extent that the information is not required to be stated in a publicly available annual statement schedule; and
RBC plans, including the results or report of any examination or analysis of a health organization performed and any corrective order issued by the commissioner pursuant to examination or analysis with respect to a domestic health organization or foreign health organization.

(b) The commissioner may use the documents, materials, or other information in paragraph (a) of this subsection, in accordance with KRS 304.2-150, 304.2-250(3), 304.2-260, and 304.2-270.

(2) In order to assist the performance of the commissioner's duties, the commissioner may:

(a) Share documents, materials, or other information obtained under this administrative regulation, in accordance with KRS 304.2-150, 304.2-250(3), 304.2-260(5), and 304.2-270;

(b) Receive documents, materials, or information, including otherwise confidential and privileged documents, materials, or information, from the NAIC and its affiliates and subsidiaries, and from regulatory and law enforcement officials of other foreign or domestic jurisdictions, and shall maintain as confidential or privileged any document, material, or information received with notice or the understanding that it is confidential or privileged under the laws of the jurisdiction that is the source of the document, material, or information; and

(3)

(a) Except as otherwise required or authorized under the provisions of this administrative regulation, a health organization, agent, broker, or other person engaged in any manner in the insurance business shall not make an assertion, representation, or statement with regard to the RBC levels of any health organization, or any component derived in the calculation, by:

a. Making, publishing, disseminating, circulating, or placing before the public; or

b. Causing, directly or indirectly, to be made published, disseminated, circulated, or placed before the public; and

Using:

a. A newspaper, magazine, or other publication;

b. A notice, circular, pamphlet, letter, or poster;

c. A radio or television station;

d. An advertisement, announcement, or statement; or

e. Any other means that places the information before the public.

(b) A health organization may publish an announcement in a written publication:

If the sole purpose is to rebut:

a. A materially false statement with respect to the comparison of the health organization's total adjusted capital to its RBC levels; or

b. An inappropriate comparison of any other amount to the health organization's RBC levels;

If these materially false statements or inappropriate comparisons are published in a written publication; and
If the health organization is able to demonstrate to the commissioner, with substantial proof, the falsity or inappropriateness of the statement.

(4) The RBC instructions, RBC reports, adjusted RBC reports, RBC plans, and revised RBC plans shall be solely for use by the commissioner in monitoring the solvency of health organizations and the need for possible corrective action with respect to health organizations and shall not be used by the commissioner for ratemaking, nor considered or introduced as evidence in any rate proceeding, nor used by the commissioner to calculate or derive any elements of an appropriate premium level or rate of return for any line of insurance that a health organization or any affiliate is authorized to write.

Section 9. Supplemental Provisions; Rules; Exemption.

(1) The provisions of this administrative regulation shall be supplemental to any other provisions of the laws of this state and shall not preclude or limit any other powers or duties of the commissioner under the law, including KRS Subtitle 304.32, 304.33, 304.37, or 304.38, 304.2-065, or 806 KAR 3:150.

(2) If requested, the commissioner shall exempt from the application of this administrative regulation a domestic health organization that:

(a) Writes direct business only in this state;

(b) Assumes no reinsurance in excess of five (5) percent of direct premium written; and

(c) Writes direct annual premiums for comprehensive medical business of $2,000,000 or less or is a limited health service organization that covers less than 2,000 lives.

Section 10. Foreign Health Organizations.

(1)

(a) A foreign health organization shall, upon the written request of the commissioner, submit to the commissioner an RBC report as of the end of the calendar year just ended the later of:

The date an RBC report would be required to be filed by a domestic health organization under this administrative regulation; or
Fifteen (15) days after the request is received by the foreign health organization.

(b) A foreign health organization shall, within thirty (30) days of the written request of the commissioner, submit to the commissioner a copy of any RBC plan that is filed with the insurance commissioner of any other state.

(2)

(a) The commissioner may require a foreign health organization to file an RBC plan if a company action level event, regulatory action level event, or authorized control level event occurs with respect to the foreign health organization:

As determined under the RBC statute applicable in the foreign health organization's state of domicile;
Under the provisions of this administrative regulation, if no RBC statute is in force in the state of domicile; or
If the insurance commissioner of the state of domicile fails to require the foreign health organization to file an RBC plan in the manner established under the RBC statute of the domicile state.

(b) If the commissioner chooses to require the filing specified in paragraph (a) of this subsection, the failure of the foreign health organization to file the RBC plan shall be grounds to order the organization to cease and desist from writing new insurance business in the state of Kentucky.

(3) If a mandatory control level event occurs with respect to a foreign health organization and no domiciliary receiver has been appointed with respect to the foreign health organization under the rehabilitation and liquidation statute applicable in the state of domicile of the foreign health organization:

(a) The commissioner may make application to the Franklin Circuit Court permitted under the KRS Subtitle 304.33 with respect to the liquidation of property of foreign health organizations found in this state; and

(b) The occurrence of the mandatory control level event shall be considered adequate grounds for the application.

Section 11. Incorporation by Reference.

(1) "NAIC 2019 Risk-Based Capital Forecasting & Instructions Health" is incorporated by reference.

History

RELATES TO: KRS 304.2-150, 304.2-250(3), 304.2-260, 304.2-270, 304.32-140, 304.38- 070, 304.38A-080, 304.38A-110
STATUTORY AUTHORITY: KRS 304.32-140(1), 304.38-070, 304.38A-080, 304.38-150, 304.38A-110(2)
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.38-150 authorizes the Commissioner of the Kentucky Department of Insurance to promulgate administrative regulations necessary for the proper administration of KRS 304.38. KRS 304.32-140(1), 304.38-070, 304.38A-080, and 304.38A-110(2) require the Commissioner of the Kentucky Department of Insurance to promulgate administrative regulations establishing requirements for risk-based capital. KRS 304.38-150 authorizes that the Commissioner of Insurance to promulgate reasonable administrative regulations necessary for the proper administration of KRS Subtitle 304.38. This administrative regulation establishes requirements for health maintenance organizations, limited health service corporations, and nonprofit health service corporations to comply with risk-based capital reporting requirements to aid in the department's financial monitoring.
History: 26 Ky.R. 2173; Am. 27 Ky.R. 120; eff. 7-17-2000; TAm eff. 8-9-2007; 40 Ky.R. 2623; 41 Ky.R. 274; eff. 9-5-2014; 47 Ky.R. 1091, 1578; eff. 5-4-2021.

Chapter 39 Motor Vehicle Reparations (No-fault)

806 KAR 39:020 Pedestrian defined {#sec-806-kar-39-020 omnilex-key=us-ky-regs-official--title-806--806 KAR 39:020}

Section 1. The sentence, "A pedestrian, as used herein, means any person who is not an operator or user of a motor vehicle at the time his injury occurs," as used in KRS 304.39-050(1), is interpreted to mean that a pedestrian is a person who is not actually operating, riding in or upon, entering, or alighting from a "kind of motor vehicle," as defined by insurance office administrative regulation at the time his injury actually occurs.

History

RELATES TO: KRS 304.39-050(1)
STATUTORY AUTHORITY: KRS 304.2-110, 304.39-300
NECESSITY, FUNCTION, AND CONFORMITY: Whereas, KRS 304.39-050 defines "pedestrian." Because of the very nature of "pedestrian," the tremendous impact its exact meaning has upon policy forms and rates, it is necessary to define "pedestrian" with great specificity. The purpose of this administrative regulation is to establish a specificity for rating and policy form purposes.
History: 1 Ky.R. 879; eff. 5-14-75; TAm eff. 8-9-2007; Crt eff. 2-26-2020.

806 KAR 39:030 Kentucky No-Fault Rejection Form {#sec-806-kar-39-030 omnilex-key=us-ky-regs-official--title-806--806 KAR 39:030}

Section 1. Rejection. Any person may refuse to consent to the limitation of his or her tort rights and liabilities by filing with the Department of Insurance a Kentucky No-Fault Rejection Form.

Section 2. Submitting the Kentucky No-Fault Rejection Form.

(1) Members of the same household may indicate rejections on the same form, but each household member shall execute the form on his or her own behalf unless under legal disability, or a minor under eighteen (18) years of age. The policyholder shall:

(a) Mail the original and one (1) copy of the form to the Department of Insurance; or

(b) Submit the form electronically using the online version of the "Kentucky No-Fault Rejection Form," available on the department's Web site at http://insurance.ky.gov.

(2) Upon receipt of the properly completed form, the department shall provide the policyholder a file-stamped electronic or hard copy for his or her records.

(3) A rejection is effective upon the date of filing with the department as indicated by the department file stamp and remains effective unless superseded by the filing of a subsequent rejection form.

(4) A rejection may be revoked by submitting a Kentucky No-Fault Rejection Form and selecting the revocation option.

Section 3. Legal Disability or a minor. Where a guardian or conservator has been appointed for a person under a legal disability, the guardian or conservator shall execute the rejection form on behalf of the person. A rejection for a minor under eighteen (18) years of age shall be executed by a parent, if there is no guardian or conservator. A rejection executed by a parent, guardian, or conservator is valid only so long as the individual is under legal disability, which includes a minor under eighteen (18) years of age.

Section 4. Notice to insurer. Each policyholder or insured submitting the Kentucky No-Fault Rejection Form shall send to his or her insurance company a file stamped copy of any rejection form filed with the Department of Insurance.

Section 5. Incorporation by Reference.

(1) NF-1(a)(b)(c) P and C, "Kentucky No-Fault Rejection Form" (12/17), is incorporated by reference.

(2) This material may be inspected, copied or obtained, subject to applicable copyright law, at the Kentucky Department of Insurance, 500 Mero Street, Frankfort, Kentucky 40601, Monday through Friday, 8 a.m. to 4:30 p.m. This material is also available on the Department of Insurance Web site: http://insurance.ky.gov

History

RELATES TO: KRS 304.39-060
STATUTORY AUTHORITY: KRS 304.2-110, 304.39-300
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.2-110 provides that the commissioner of the Department of Insurance may promulgate administrative regulations necessary for or as an aid to the effectuation of any provisions of the Kentucky Insurance Code. KRS 304.39-060 requires the Department of Insurance to prescribe a form whereby any person may reject limitations on his or her tort rights and liabilities. This administrative regulation establishes the Kentucky No-Fault Rejection Form and provides for its electronic submission.
History: 1 Ky.R. 879; eff. 5-14-1975; Am. 27 Ky.R. 1498; 2158; eff. 2-15-2001; TAm eff. 8-9-2007; 44 Ky.R. 1149, 1527; eff. 2-2-2018; TAm eff. 11-12-2024; Cert. eff. 1-9-2025.

806 KAR 39:040 Governmental units excluded {#sec-806-kar-39-040 omnilex-key=us-ky-regs-official--title-806--806 KAR 39:040}

Section 1. Governmental units, as described in KRS 304.39-080(3) and (4), are not subject to KRS Chapter 304, Subtitle 39, and need not take any affirmative action thereunder unless, and until, by appropriate action, they elect to become obligated governments.

Section 2. Any governmental unit, which by appropriate action elects to become an obligated government, may meet its obligations by:

(1) Providing security by acquiring a contract of insurance, or

(2) By providing security merely by obligating itself to pay basic reparation benefits in accordance with KRS Chapter 304, Subtitle 39.

Section 3. Any governmental unit purchasing a contract of insurance needs to do nothing further to be an obligated government. However, if for any reason such insurance should be terminated by the insurer, the insurer must give the governmental unit not less than sixty (60) days notice prior to the termination thereof, so that the governmental unit may take appropriate action either to purchase other insurance, to withdraw from its obligation and duties under KRS Chapter 304, Subtitle 39, or to become an obligated government by taking the appropriate steps to lawfully obligate itself to pay basic reparation benefits.

Section 4. Obligated governments who have not acquired a contract of insurance may have rights and duties under KRS 304.39-290 and should make the appropriate contacts with the Kentucky Arbitration Association in order that they may protect such rights and duties.

History

RELATES TO: KRS 304.39-080
STATUTORY AUTHORITY: KRS 304.2-110, 304.39-300
NECESSITY, FUNCTION, AND CONFORMITY: KRS Chapter 304, Subtitle 39, requires all other owners to either accept limitation on their tort rights and obligations or to affirmatively reject such limitations, but in the case of governmental units should take if they desire to become obligated governments.
History: 1 Ky.R. 879; eff. 5-14-75; Crt eff. 2-26-2020.

806 KAR 39:050 Self-insurance {#sec-806-kar-39-050 omnilex-key=us-ky-regs-official--title-806--806 KAR 39:050}

Section 1. Any person who desires to be self-insured, as established in KRS Chapter 304, Subtitle 39, shall submit an application to the Commissioner of Insurance on the form, "Application for Motor Vehicle Self-Insurance," 12/2020 edition.

Section 2. The applicant shall agree in writing to pay all tort liability and basic reparation benefits incurred and established by KRS Chapter 304, Subtitle 39, and shall agree to become a member of the Kentucky Arbitration Association, and to meet all obligations incurred, and shall agree to become a member of the Assigned Claims Bureau, and to meet all obligations incurred.

Section 3. The applicant shall file with the application, and every year after, a balance sheet and income statement that shall reflect the actual financial condition of the applicant as of the last complete calendar or fiscal year preceding the date of the application; and, in the case of an individual, the balance sheet and income statement shall be certified, under oath, by the individual that it truly reflects his financial condition and income as of that time. In the case of a corporation or partnership, it shall be certified by a Certified Public Accountant or responsible accounting officer of the applicant. This information shall be confidential, and the Commissioner of Insurance shall not release this information unless he has the prior written consent of the applicant.

Section 4. The application shall list the vehicles as of the date of application and annually thereafter for which the self-insured shall provide security and advise the commissioner of any changes in the number of insured vehicles thereof unless the self-insurer has furnished maximum security.

Section 5. The applicant shall furnish security to the commissioner to meet his continuing obligation as agreed to in Section 2 of this administrative regulation. The security furnished may be in the form of a bond, with surety, by an insurer authorized by the Department of Insurance to engage in surety insurance contracts or an irrevocable letter of credit issued by a bank chartered by the Commonwealth of Kentucky or a member bank of the Federal Reserve System whose capital and surplus shall equal or exceed $25 million.

Section 6. Security may also be furnished by depositing, with the Custodian of Insurance Securities, cash or assets of the kind that may be deposited by a domestic insurer pursuant to KRS 304.8-030. The commissioner may require assets to be deposited pursuant to KRS 304.8-095. Where the security tendered to the commissioner is of a kind that may vary in market value, including U.S. obligations, bonds, stocks, or real estate, the commissioner may, in his discretion, require the amount tendered to have a current market value greater than the minimum required security, but not in excess of 150 percent of the minimum required security.

Section 7. The minimum security that shall be furnished to the commissioner is for one (1) secured vehicle, $50,000; and for each additional vehicle: $10,000, up to a maximum of $200,000.

Section 8. The commissioner shall hold the securities furnished under Sections 5, 6, and 7 of this administrative regulation for the benefit of those persons to whom the self-insured is obligated under the provisions of KRS Chapter 304, subtitle 39.

Section 9. Each self-insured shall furnish to the commissioner, no later than January 10, April 10, July 10, and October 10 of each year, a report on forms, authorized by the commissioner, of all claims incurred during the preceding calendar year.

Section 10. If, based upon the number of claims incurred by the self-insured, the commissioner shall determine that the security furnished is inadequate, he may require additional security and more frequent report of claims incurred.

Section 11. If a self-insured fails to meet its obligations under KRS Chapter 304, Subtitle 39, or fails to make the required report of claims, or to post additional security required by the commissioner, the commissioner shall disapprove the self-insured for self-insurance.

Section 12. A self-insured may, at any time, by written request to the commissioner, withdraw as a self-insured.

Section 13. When a self-insured voluntarily withdraws as a self-insured, or when the commissioner disapproves the self-insured, the commissioner shall retain the security furnished until the self-insured has met all obligations incurred as a self-insured under KRS Chapter 304, Subtitle 39. If any obligation remains unsatisfied for ninety (90) days, the commissioner may institute proceedings to assure that all persons to whom the self-insured is obligated under KRS Chapter 304, Subtitle 39 shall receive their equitable share of the securities available.

Section 14. Incorporation by Reference. (1) The following material is incorporated by reference:

(1) "Application for Motor Vehicle Self-Insurance", 4/2021 edition.

(2) This material may be inspected, copied, or obtained, subject to applicable copyright law, from the Department of Insurance, Mayo-Underwood Building, 500 Mero Street, Frankfort, Kentucky 40601, Monday through Friday, 8 a.m. to 4:30 p.m. This material is also available on the office's Web site at www.insurance.ky.gov.

History

RELATES TO: KRS 304.8-030, 304.8-095, 304.39-020(12), 304.39-080, 304.39-140, 304.39-170, 304.39-290,
STATUTORY AUTHORITY: KRS 304.2-110, 304.39-080, 304.39-300
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.39-080 authorizes the Commissioner of Insurance to approve applications for self-insurance and set standards that shall be met by applicants. This administrative regulation establishes the criteria to apply for self-insurance, and the authority of the commissioner to revoke self-insurance status.
History: 1 Ky.R. 880; eff. 5-14-1975; TAm eff. 8-9-2007; Crt eff. 2-26-2020; 47 Ky.R. 1678, 2397; eff. 8-3-2021.

806 KAR 39:070 Proof of motor vehicle insurance {#sec-806-kar-39-070 omnilex-key=us-ky-regs-official--title-806--806 KAR 39:070}

Section 1. Definitions.

(1) "Commissioner" is defined by KRS 304.1-050(1).

(2) "Department" is defined by KRS 304.1-050(2).

(3) "Insurer" means an insurer defined by KRS 304.1-040.

(4) "Motor vehicle insurance policy" means an insurance contract that provides security covering a motor vehicle required to be registered pursuant to KRS 186.020 and insured pursuant to KRS 186.021 and 304.39-080.

(5) "Person" is defined by KRS 304.1-020.

(6) "Personal lines motor vehicle policy" means an insurance policy, issued by an insurance carrier authorized to do business in the Commonwealth of Kentucky, which insures a personal motor vehicle.

(7) "VIN" means the vehicle identification number of a motor vehicle.

Section 2. Proof of Insurance to be Provided by Insurers.

(1) The proof of insurance required by KRS 304.39-117 shall be provided to the insured when a policy is issued, renewed, or amended to include a vehicle. An insurer electing to provide proof of insurance in an electronic format shall provide a printed proof of insurance unless the insured requests to receive proof of insurance in electronic format.

(2) Printed proof of insurance card.

(a) Two (2) copies of the printed proof of insurance card shall be provided for each motor vehicle insured under a motor vehicle insurance policy.

(b) Size and format of the printed proof of insurance card.

The printed proof of insurance card shall be:

a. A two and one-fourth (2 1/4) inch by three and one-half (3 1/2) inch card;

b. A two and one-fourth (2 1/4) inch by seven (7) inch card with a vertical fold resulting in a two and one-fourth (2 1/4) inch by three and one-half (3 1/2) inch card;

c. A four and one-half (4 1/2) inch by three and one-half (3 1/2) inch card with a horizontal fold resulting in a two and one-fourth (2 1/4) inch by three and one-half (3 1/2) inch card; or

d. A substantially similar size to the dimensions established in clauses a. through c. of this subparagraph.

The printed insurance card shall be on white paper with black or blue ink.

(3) Proof of insurance in an electronic format.

(a) Proof of insurance in an electronic format shall be downloaded from or transmitted by the insurer or agent to the insured.

(b) Proof of insurance in an electronic format shall not include a photographic copy of a paper insurance card on a portable electronic device.

(4) Mandatory contents of the proof of insurance. In either paper or electronic format, the proof of insurance shall prominently display the following information, in the order listed:

(a) Title: "COMMONWEALTH OF KENTUCKY PROOF OF INSURANCE";

(b) The name of the insurance company and its five (5) digit code number assigned by the National Association of Insurance Commissioners (NAIC), or the name of the Self-Insured Group and the group ID number provided by the department;

(d) The effective date and expiration date of coverage. If the policy is amended to add an identified vehicle midterm, the effective date on the card shall be the effective date of the amendment;

(e) The policy number;

(f) The type of policy:

If the policy is a personal lines motor vehicle policy for which premium is reported on the NAIC Annual Statement line 19.1 or 19.2, the insurer shall indicate the policy type as "Personal" or "PL"; or
If the policy is a commercial lines motor vehicle policy for which premium is reported on the NAIC Annual Statement line 19.3 or 19.4, the insurer shall indicate the policy type as "Commercial" or "CL"; and

(g) The vehicle or vehicles insured:

If the type of policy is personal lines (PL), the year, make, model, and VIN of each motor vehicle; or
If the type of policy is commercial lines (CL), and:

a. If the insurance contract covers four (4) or fewer vehicles, the year, make, model, and VIN of each motor vehicle; or

b. If the insurance contract covers five (5) or more motor vehicles, it may state "Fleet" or the insurer may elect to include the year, make, model, and the VIN of each motor vehicle.

(5) Other information to be provided to the insured. The insurer shall:

(a) Include the following information on the proof of insurance if the information required by subsection (4) of this section is not obscured:

The insurer's logo;
A statement that establishes the procedure for contacting the insurer concerning a claim; and
The insurer's address; or

(b) Include the information listed in paragraph (a) of this subsection on a separate document or electronic image provided with the proof of insurance.

(6) An insurer shall provide with the proof of insurance the following information:

(a) Instructions that the insured shall keep a copy of the proof of insurance in each motor vehicle covered by the policy at all times;

(b) Information as to whether or not the policy is a personal lines motor vehicle policy and whether or not the vehicle has been reported as an insured personal motor vehicle;

If the policy is a personal lines motor vehicle policy and has been reported as an insured personal motor vehicle, the insured shall be informed that:

a. The proof of coverage information has been reported electronically to the Department of Vehicle Regulation; and

b. If the VIN does not appear in the database, the insured may be required to present proof of insurance to the county clerk for issuance of a replacement plate, decal, or registration certificate or renewal as alternative evidence of proof of coverage; or

If the policy is not a personal lines motor vehicle policy and has not been reported as an insured personal motor vehicle, the insured shall be instructed to present proof of insurance to the county clerk for issuance of a replacement plate, decal, or registration certificate or renewal as evidence of proof of coverage; and

(c) Instructions to compare the VIN appearing on the registration, insurance policy, and proof of insurance to the VIN affixed to the vehicle.

If the VIN on the motor vehicle title and registration and the VIN on the motor vehicle do not match, the policyholder shall contact the county clerk to have the title and registration corrected.
If the VIN on the proof of insurance and the motor vehicle do not match, the policyholder shall contact the insurer to have the insurance policy and card corrected. The insurer shall provide the name, address, and telephone number of an insurer representative to contact concerning a discrepancy. The telephone number shall be:

a. The phone number of a local agent of the insurer; or

b. A toll-free telephone number of the insurer.

Section 3. Methods of Proving Motor Vehicle Insurance. One (1) of the following methods shall be used to prove that motor vehicle insurance is in effect when registering a motor vehicle:

(1) The VIN shall appear as an insured motor vehicle in the Department of Vehicle Regulation's database;

(2) Proof of current insurance in paper or electronic format:

(a) If the database does not list the VIN of a vehicle insured on a personal lines motor vehicle (PL) policy, the proof of coverage shall indicate the proof was effective no more than forty-five (45) days prior to submission to the county clerk; and

(b) The county clerk may require the proof of coverage to be sent directly to the clerk by the agent or company;

(3) A certificate of insurance issued by an insurance agent with a casualty line of authority licensed by Kentucky;

(4) An insurance contract with a declaration page attached showing that the policy is in effect when the motor vehicle is being registered or transferred;

(5) A letter from the Kentucky Automobile Insurance Plan serving as prima facie evidence of insurance in force;

(6) If the owner of the motor vehicle is serving in the armed forces outside Kentucky, an affidavit by the provost marshal of the base where the person is stationed stating that the motor vehicle is covered by an automobile liability insurance policy; or

(7) A letter from the Kentucky Department of Insurance serving as prima facie evidence of self-insurance pursuant to KRS 304.39-080(7).

Section 4. Each month, an insurer shall submit information on each vehicle covered by a personal lines motor vehicle policy according to the rules contained in Section 2.1 of the Kentucky Automobile Liability Insurance Reporting Guide.

Section 5. For motor vehicles insured under a commercial lines or fleet policy, each insurer shall report cancellations pursuant to Part 2.2 of the Kentucky Automobile Liability Insurance Reporting Guide.

Section 6. Incorporation by Reference.

(1) The following material is incorporated by reference:"Kentucky Automobile Liability Insurance Reporting Guide", Transportation Cabinet, Department of Vehicle Regulation, Version 1.6, 8/15/2005

(2) This material may be inspected, copied, or obtained, subject to applicable copyright law, at the Department of Insurance, The Mayo-Underwood Building, 500 Mero Street Frankfort, Kentucky 40601, Monday through Friday, 8 a.m. to 4:30 p.m. The material may also be obtained at the Department of Insurance Web site: http://insurance.ky.gov.

History

RELATES TO: KRS 186.021(3), 186A.040, 186A.042, 186A.095, 304.39-080, 304.39-083, 304.39-085, 304.39-087, 304.39-090, 304.39-117
STATUTORY AUTHORITY: KRS 186.021(3), 304.2-110(1), 304.39-117(1), 304.39-300
NECESSITY, FUNCTION, AND CONFORMITY: KRS 186.021(3) authorizes the commissioner of the Department of Insurance to promulgate an administrative regulation to establish the manner for presenting proof of motor vehicle insurance to a county clerk. KRS 304.2-110(1) and 304.39-300 authorize the commissioner to promulgate administrative regulations necessary for or as an aid to enforce the insurance code. KRS 304.39-117(1) requires the Department of Insurance to promulgate an administrative regulation that establishes the requirements for the proof of insurance that an insurer shall give to an insured. This administrative regulation establishes the requirements for the proof of insurance, the methods for reporting coverage provided for personal motor vehicles insured on a personal lines motor vehicle policy, the methods for presenting proof of motor vehicle insurance to a county clerk or peace officer, and the requirements for notifying the Department of Vehicle Regulation if a binder, contract, or commercial policy of motor vehicle insurance is cancelled or not renewed.
History: 11 Ky.R. 685; Am. 975; eff. 11-13-1984; 1661; 12 Ky.R. 19; 125; eff. 7-9-01985; 14 Ky.R. 2063; 15 Ky.R. 15; eff. 7-1-1988; 24 Ky.R. 764; 1264; eff. 12-15-1997; 32 Ky.R. 362; 695; 888; eff. 12-2-2005; 40 Ky.R. 1141; 1723; 2132; eff. 4-4-2014; 48 Ky.R. 607, 1761; eff. 3-1-2022.

Chapter 40 Health Care Malpractice

806 KAR 40:020 Charitable health care provider registration {#sec-806-kar-40-020 omnilex-key=us-ky-regs-official--title-806--806 KAR 40:020}

Section 1. To request reimbursement of paid premium for medical professional liability insurance, a charitable health care provider shall supply to the Department of Insurance the following information:

(1) The name and address of the provider;

(2) The license number of the provider;

(3) The source of funding for the provider of charitable health care service;

(4) The number of employees who render medical care without compensation or charge and without expectation of compensation or charge and who shall be covered under the medical professional liability insurance;

(5) The expected number of patients who may be provided charitable health care services in the year for which the insurer offers malpractice coverage;

(6) The health services provided by the charitable health care provider;

(7) The following information regarding the provider's medical professional liability insurance policy for which reimbursement is being requested:

(a) A copy of the entire policy, including the declarations page showing:

The name and address of the insurer;
The effective date of the policy;
The policy number;
The total amount of premium due; and

(b) The itemized billing and proof of payment of the requested reimbursement amount;

(8) A copy of the registration filed with the Cabinet for Health and Family Services under KRS 216.941; and

(9) Acknowledgment that the provider will follow the risk management and loss prevention policies and procedures established by the insurer.

Section 2. If any of the information provided in Section 1 of this administrative regulation changes or is incorrect, the charitable health care provider shall provide the correct information immediately to the Department of Insurance.

Section 3. Any premium refund received by the charitable health care provider and remitted to the Department of Insurance, pursuant to KRS 304.40-075(3)(d), shall be accompanied by the following:

(1) A copy of the previous request;

(2) An explanation of the events prompting the refund; and

(3) Copies of all documents from the insurer regarding the refund and its amount.

Section 4.

(1) An insurer who offers medical professional liability insurance shall provide information regarding the premium paid, any expenses incurred by the insurer, and the profits made for all risk covered pursuant to KRS 304.40-075. The information required by Section 1 of this administrative regulation shall be provided to the Department of Insurance by March 1 and shall include premium, expense, and profit information from the preceding calendar year and shall be submitted on Form CHP-2B P&C.

(2) For the department to determine reasonable loss ratio guidelines, upon request by the department, an insurer who offers medical professional liability insurance shall provide premium, profit, and expense information related to the entirety of the medical professional liability insurance business of the insurer.

Section 5. Incorporation by Reference.

(1) The following material is incorporated by reference:

(a) Form CHP-2A P&C, "Commonwealth of Kentucky Department of Insurance Property and Casualty Division Medical Professional Liability Insurance Annual Call for Data Instructions", 11/2020 edition; and

(b) Form CHP-2B P&C, "Commonwealth of Kentucky Department of Insurance Property and Casualty Division Liability Insurance Annual Call for Data", 11/2020 edition.

History

RELATES TO: KRS 216.941, 304.40-075
STATUTORY AUTHORITY: KRS 304.2-110(1), 304.40-075(3)(b), (6)
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.2-110(1) authorizes the Commissioner of Insurance to promulgate administrative regulations necessary for or as an aid to the effectuation of any provision of the Kentucky Insurance Code. KRS 304.40-075(3)(b) requires the department to promulgate administrative regulations to establish reasonable guidelines for the registration of charitable health care providers. KRS 304.40-075(6) requires the department to determine if the profits made for medical professional liability insurance risks covered by that section are consistent with reasonable loss ratio guidelines. This administrative regulation establishes guidelines for the registration of charitable health care providers who seek to obtain reimbursement of paid premium for medical professional liability insurance, and also establishes reporting requirements for medical professional liability insurers for the purpose of determining reasonable loss ratios.
History: 24 Ky.R. 433; eff. 10-13-1997; Am. 29 Ky.R. 807; 1271; eff. 11-12-2002; TAm eff. 8-9-2007; Crt eff. 2-26-2020; 47 Ky.R. 1680, 2398; eff. 8-3-2021.

Chapter 44 Mine subsidence Insurance

806 KAR 44:010 Notification of qualified locations {#sec-806-kar-44-010 omnilex-key=us-ky-regs-official--title-806--806 KAR 44:010}

Section 1. Definitions.

(1) "Commissioner" is defined by KRS 304.1-050(1).

(2) "County" means a county, charter county, urban-county government, or a consolidated local government.

(3) "Eligible location" means those counties within the Commonwealth of Kentucky that have underground coal-bearing stratum or underground coal mines.

(4) "Mine subsidence insurance fund" is defined by KRS 304.44-010(3).

(5) "Qualified location" means a county in which the fiscal court had certified to the commissioner its approval of the availability of mine subsidence insurance within that county.

Section 2. Approval of Qualified Locations.

(1)

(a) In accordance with KRS 304.44-060, any county whose fiscal court has voted to approve or remove the availability of mine subsidence insurance in the county, shall provide documentation of the vote to the commissioner.

(b) Upon receipt of the documentation of an approval of the availability of mine subsidence insurance in the county, the commissioner shall:

Consider whether the county is an eligible location; and
If the county is an eligible location, approve the county as a qualified location for participation in the mine subsidence insurance fund in accordance with subsection (2) of this section. Approval shall be on a prospective basis only.

(c) An approval as a qualified location shall continue until the commissioner receives notification from the county that the fiscal court has voted to remove the availability of mine subsidence insurance in the county.

(2)

(a) If the commissioner receives the documentation of an approval or removal of the availability of mine subsidence insurance in the county as described in subsection (1) of this section more than 100 days prior to July 1, approval or removal as a qualified location shall be effective on July 1 of that same each year.

(b) If the commissioner receives the documentation of an approval or removal of the availability of mine subsidence insurance in the county described in subsection (1) of this section less than 100 days prior to July 1, approval as a qualified location shall be effective on July 1 of the subsequent year.

Section 3. Notification to Insurers of Qualified Locations.

(1) Eighty-five (85) days prior to July 1 of each year, the commissioner shall provide to insurers notice of the qualified locations participating in the mine subsidence insurance fund.

(2) The addition or removal of qualified locations shall apply to new insurance policies written and existing insurance policies renewed on or after July 1 of each year.

History

RELATES TO: KRS 304.1-050(1), 304.44-010, 304.44-020, 304.44-060, 304.44-120
STATUTORY AUTHORITY: KRS 304.2-110, 304.44-120
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.2-110 authorizes the Commissioner of Insurance to promulgate reasonable administrative regulations necessary for or as an aid to the effectuation of any provision of the Kentucky Insurance Code, KRS 304.1-010. KRS 304.44-120 authorizes the administrator of the mine subsidence fund to supervise in all respects consistent with the provisions of KRS 304.44, the operation and management of the mine subsidence insurance program and to do all things necessary or convenient to accomplish the purpose of KRS 304.44. This administrative regulation establishes procedures for counties and urban-county governments to notify the commissioner of their decision to approve the availability of mine subsidence within the county and establishes an annual effective date for participation in the mine subsidence insurance program.
History: 37 Ky.R. 1603; 2010; eff. 3-4-2011; Crt eff. 2-26-2020.

Chapter 46 Liability Self-insurance Groups

806 KAR 46:030 Reasonable time for violation correction {#sec-806-kar-46-030 omnilex-key=us-ky-regs-official--title-806--806 KAR 46:030}

Section 1. If a liability self-insurance group fails to correct a violation of KRS Chapter 304 Subtitle 48 or related administrative regulations within thirty (30) days of receiving notice of the violation pursuant to KRS 304.2-120, the commissioner may suspend or revoke the certificate of filing of the liability self-insurance group.

Section 2. Additional thirty (30) day time periods may be granted by the commissioner upon a showing by the liability self-insurance group and determination by the commissioner of good cause for each extension. A request for extension shall be submitted in writing not less than ten (10) days prior to the running of each thirty (30) day time period. The request for extension shall contain sufficient detail to permit the commissioner to make an informed decision.

Section 3. A liability self-insurance group shall notify the commissioner in writing and provide supporting documentation immediately upon correcting a violation of KRS Chapter 304 Subtitle 48 or related administrative regulations.

History

RELATES TO: KRS 304.48-220(1)(e)
STATUTORY AUTHORITY: KRS 304.48-230, 304.48-220(1)(e)
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.48-230 states that the commissioner may promulgate reasonable administrative regulations necessary for the proper administration of KRS Chapter 304 Subtitle 48. Pursuant to KRS 304.48-220(1)(e), the commissioner should establish a reasonable time period for a liability self-insurance group to correct a violation of KRS Chapter 304 Subtitle 48 or related administrative regulations.
History: 23 Ky.R. 224; eff. 9-11-96; TAm eff. 8-9-2007; Crt eff. 2-26-2020; TAm eff. 3-10-2020.

806 KAR 46:040 Forms for application and financial statements {#sec-806-kar-46-040 omnilex-key=us-ky-regs-official--title-806--806 KAR 46:040}

Section 1. Definitions.

(1) "Commissioner" is defined in KRS 304.1-050(1).

(2) "Department" is defined in KRS 304.1-050(2).

(3) "Liability self-insurance group" is defined in KRS 304.48-020(7).

Section 2.

(1) Pursuant to KRS 304.48-050, Form 995, Application for Certificate of Filing As a Liability Self-Insurance Group, shall be completed and submitted to the commissioner to apply for certification as a liability self-insurance group.

(2) Pursuant to KRS 304.48-170(2), the Liability Self-Insurance Group Quarterly Statement (Blank) shall be completed and submitted to the commissioner to file a quarterly statement of financial condition. Form 101, Trustee Confirmation of Receipt, shall be completed by each trustee of the liability self-insurance group, acknowledging receipt of a copy of the quarterly statement of financial condition, and submitted to the Department of Insurance within seventy-five (75) calendar days after the close of each quarterly reporting period.

(3) Pursuant to KRS 304.48-170(1), the Liability Self-Insurance Group Annual Statement (Blank) shall be completed and submitted to the commissioner to file an annual statement of financial condition.

Section 3. Incorporation by Reference.

(1) The following material is incorporated by reference:

(a) "Form 995 - Application for Certificate of Filing As a Liability Self-Insurance Group", 7/2020;

(b) "Liability Self-Insurance Group Quarterly Statement (Blank)", 7/2020;

(d) "Liability Self-Insurance Group Annual Statement (Blank)", 7/2020.

(3) This material is also available on the Department of Insurance Internet Web site at http://insurance.ky.gov. .

History

RELATES TO: KRS 304.1-050, 304.48-020(7), 304.48-050, 304.48-070, 304.48-170, 304.48-230
STATUTORY AUTHORITY: KRS 304.2-110, 304.48-050, 304.48-170, 304.48-230
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.48-230 permits the commissioner to promulgate administrative regulations as necessary for the proper administration of KRS Chapter 304.48. KRS 304.48-050 requires a proposed liability self-insurance group to file an application on a form approved by the commissioner. KRS 304.48-070 permits the commissioner to require a liability self-insurance group to provide a security deposit to the commissioner in the form and amount prescribed by the commissioner. KRS 304.48-170 requires liability self-insurance groups to file statements of financial condition on a form prescribed by the commissioner. This administrative regulation prescribes the required forms for application, security deposits and financial statements.
History: 37 Ky.R. 1123; eff. 1-3-2011; Crt eff. 2-26-2020; 47 Ky.R. 831; eff. 4-6-2021.

806 KAR 46:050 Liability self-insurance group rate, underwriting and evidence of coverage filings {#sec-806-kar-46-050 omnilex-key=us-ky-regs-official--title-806--806 KAR 46:050}

Section 1. Definitions.

(1) "Commissioner" is defined by KRS 304.1-050(1).

(2) "Liability self-insurance group" is defined by KRS 304.48-020(7).

(3) "Rates and underwriting guidelines" means any rating manuals and underwriting rules for all coverage types including any manual or plan of rates, loss costs, risk classifications, rating schedule, minimum premium, policy fees, premium payment plans, rating rules, supplementary rating information or any other similar information needed to determine the applicable coverage rate or premium for a member.

(4) "Supplementary rating information" is defined by KRS 304.13-011(2).

Section 2. General Filing Requirements.

(1) All filings shall be accompanied by a completed and signed Form LSIG F-1A P&C, Face Sheet and Verification Form for Liability Self-Insurance Groups.

(2) All paper filings shall include one (1) full document set on 8 1/2 in. x 11 in. white paper with two (2) cover letters and a self-addressed stamped envelope.

(3) A filing may include any number of documents, filed together on a particular date. Rates and underwriting guidelines shall be filed separately from evidence of coverage forms.

(4)

(a) A liability self-insurance group may submit a filing in an electronic format established by the National Association of Insurance Commissioners.

(b) An electronic filing shall be in lieu of a paper filing.

(5) The period of time in which the commissioner may affirmatively approve or disapprove the filing, as set forth in KRS 304.13-051, shall not begin until a complete filing and the filing fee in accordance with KRS 304.48-180, is received.

Section 3. Rate and Rule Filings.

(1) The rates and underwriting guidelines shall be filed not later than fifteen (15) days after the date of first use of the rates and underwriting guidelines, pursuant to KRS 304.13-051(1).

(2) A liability self-insurance group shall comply with the requirements of KRS 304.13-051(5).

(3) Form LSIG: S-1 P & C, Filing Synopsis for Rates and or Rules, shall be filed with all rate and underwriting guideline filings. Separate forms shall be filed for each type of coverage.

(4)

(a) Form LSIG: LC-1 P & C, Calculation of Loss Cost Multiplier, shall be filed with all rate filings referencing loss costs formulated by any advisory organization. Separate forms shall be filed for each type of coverage.

(b) Form LSIG LC-2 P & C, Expense Constant Supplement, shall be filed with all rate filings referencing loss costs formulated by an advisory organization in which an expense constant is used. Separate forms shall be filed for each type of coverage.

(5)

(a) All rate or underwriting guideline filings utilizing an experience modification plan shall include the experience rating plan by type of coverage with the formula used for calculating the experience modification factor for that coverage. Each experience modification factor applied shall be made available to the member upon request.

(b) All rate or underwriting guideline filings containing schedule rating plans shall identify the characteristics of the risk not reflected in an experience modification factor.

(c) Any application of the schedule rating plan shall be based on evidence contained in the liability self-insurance group's file when it is applied. The schedule rating plan debit or credit factor applied shall be made available to the member upon request.

(d) If the reason for application of any schedule debit is corrected by the member to the satisfaction of the liability self-insurance group, the debit may be removed when evidence of the correction is received by the group.

Section 4. Coverage Form Filings.

(1) Form LSIG: S-2 P & C, Filing Synopsis for Forms, and Form LSIG: F-2 P & C, Forms Index, shall be filed with all evidence of coverage form filings.

(2) An evidence of coverage form shall not be used until it has been approved by the commissioner. If the rates pertaining to an evidence of coverage form are required to be filed with or approved by the commissioner pursuant to KRS 304.13-051, the coverage form shall not be used until the appropriate rates have been filed or approved as required.

(3) A filing which amends, replaces, or supplements an evidence of coverage form previously filed and approved shall include an explanation setting forth all changes contained in the newly filed coverage form, the effect, if any, the changes have upon the hazards purported to be assumed by the policy, and an explanation as to the effect on the rates applicable thereto.

(4) A change of signature of the executing officer on an evidence of coverage form shall not, because of this change alone, require a new filing.

Section 5. Advisory Organization Filings.

(1) A liability self-insurance group that is a member, subscriber, or service purchaser of an advisory organization, statistical agent or forms provider may adopt coverage forms, rating plans, rating rules, rating schedules, other supplementary rating information, underwriting rules or guidelines, or statistical plans of that advisory organization or statistical agent by doing so in accordance with the procedures established in this administrative regulation and shall clearly identify each filing of the advisory organization or statistical agent it is adopting.

(2) If a liability self-insurance group chooses to adopt only a specific filing of an advisory organization, statistical agent, or form provider it shall do so in accordance with the procedures established in this administrative regulation, and shall clearly identify which filing of the advisory organization or statistical agent it is adopting. Loss cost filings shall be specifically adopted.

(3)

(a) If a liability self-insurance group chooses to adopt all of the current and future evidence of coverage forms, rating plans, rating rules, rating schedules, other supplementary rating information, underwriting rules or guidelines and statistical plans, excluding loss costs, of an advisory organization, statistical agent, or forms provider, it may file written notice with the commissioner that it is adopting by blanket reference all of the current and future coverage forms, rating plans, rating rules, rating schedules, other supplementary rating information, underwriting rules or guidelines and statistical plans, excluding loss costs, as filed by the advisory organization, statistical agent, or forms provider. Loss cost filings shall not be adopted on this blanket reference basis.

(b) If a liability self-insurance group previously notified the commissioner of its adoption of all current and future filings, excluding loss cost filings, by the advisory organization, statistical agent, or forms provider and chooses to not adopt certain evidence of coverage forms, rating plans, rating rules, rating schedules, other supplementary rating information, underwriting rules or guidelines, or statistical plans, the group shall file notice of the nonadoption with the commissioner and shall pay the appropriate filing fee in accordance with KRS 304.48-180.

If a liability self-insurance group previously notified the commissioner of its adoption of all current and future filings, excluding loss cost filings, by the advisory organization, statistical agent, or forms provider and chooses to delay the effective date of its adoption, it shall submit a letter to the commissioner requesting the revised date upon which it will adopt the filing.
The delayed adoption date shall be within six (6) months of the original effective date.
If additional time is needed, a second letter shall be submitted to the commissioner, requesting a revised delayed adoption date.
All revised delayed adoption dates shall be within one (1) year of the original effective date as filed by the advisory organization, statistical agent or forms provider.
If a liability self-insurance group fails to adopt the advisory organization, statistical agent, or forms provider filing within one (1) year of the original effective date as filed by the advisory organization, statistical agent or forms provider, the insurer shall submit a filing to the commissioner indicating it is nonadopting.

Section 6. Incorporation by Reference.

(1) The following material is incorporated by reference:

(a) Form LSIG: F-1A P & C, "Face Sheet and Verification Form for Liability Self Insurance Groups", 7/2010;

(b) Form LSIG: F-2 P & C, "Forms Index", 7/2010;

(d) Form LSIG: S-2 P & C, "Filing Synopsis Form", 7/2010;

(e) Form LSIG: LC-1 P & C, "Calculation of Loss Cost Multiplier", 7/2010;

(f) Form LSIG: LC-2 P & C, "Expense Constant Supplement", 7/2010; and

(g) Form LSIG: EMA P & C, "E-mod Affidavit", 7/2010.

(2) This material may be inspected, copied, or obtained, subject to applicable copyright law, from the Department of Insurance, 215 West Main Street, Frankfort, Kentucky 40601, Monday through Friday, 8 a.m. to 4:30 p.m. Forms may also be obtained on the Department of Insurance Internet Web site, http://insurance.ky.gov.

History

RELATES TO: KRS 304.1-050, 304.13-011, 304.13-051, 304.14-120, 304.48-020(7), 304.48-180
STATUTORY AUTHORITY: KRS 304.48-180, 304.48-230
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.48-230 authorizes the commissioner to promulgate reasonable administrative regulations not inconsistent with KRS 304 Subtitle 48 that the commissioner deems necessary for the proper administration of the subtitle. KRS 304.48-180 authorizes the commissioner to promulgate administrative regulations to establish requirements for liability self-insurance groups to follow when filing rates, underwriting guidelines, evidence of coverage, and any changes. This administrative regulation establishes the procedures for liability self-insurance groups to submit these filings.
History: 37 Ky.R. 976; eff. 11-05-2010; Crt eff. 2-26-2020.

Chapter 47 Insurance Fraud

806 KAR 47:010 Fraud prevention {#sec-806-kar-47-010 omnilex-key=us-ky-regs-official--title-806--806 KAR 47:010}

Section 1. Definitions.

(1) "Division" is defined by KRS 304.47-010(6).

(2) "Special investigative unit" or "SIU" means a unit to investigate fraudulent insurance acts as established by KRS 304.47-080.

Section 2. Scope. This administrative regulation shall apply to all insurers authorized to do business in the Commonwealth that are not otherwise exempted by KRS 304.47-080(1).

Section 3. Primary Anti-fraud Contacts. To facilitate communication with the division, an insurer shall designate two (2) primary contact persons, one (1) of whom shall be the head of the SIU, who shall communicate with the division on matters relating to the reporting, investigation, and prosecution of suspected fraudulent insurance acts, as established in KRS 304.47-020.

Section 4. Special Investigative Units and Anti-fraud Plans.

(1) An insurer shall maintain an SIU to fulfill the requirements of KRS 304.47-080.

(2) In conjunction with its SIU, an insurer shall:

(a) Implement systematic and effective methods to detect and investigate suspected fraudulent insurance claims;

(b) Educate and train all claims handlers to identify possible insurance fraud;

The insurer's claims handlers, legal personnel, technical support personnel, and database support personnel; and
The division and other relevant law enforcement agencies; and

(d) Develop and submit to the division a written anti-fraud plan, which shall include:

Acknowledgment of duty to report to the division, including mandatory reporting of the determination that a suspected fraudulent act has been committed within fourteen (14) days;
SIU contact information;
SIU investigative ethics;
Procedures to detect and deter fraud; and
Continuing education plans for SIU staff.

Section 5. Compliance Report.

(1) Within ninety (90) days of admission, and at least once every two (2) years, an insurer shall submit to the division a written report stating how the insurer is complying with Section 4 of this administrative regulation. The report shall also include:

(a) The total number of SIU investigative staff responsible for cases in Kentucky, and whether or not any staff member also investigate cases in other jurisdictions; and

(b)

If the insurer formed the SIU in house and solely governs it, the year that the SIU was formed; or
If the insurer has contracted SIU services through another company, the identity of the company providing SIU services and the initial year of the contract between the insurer and the company.

(2) Within thirty (30) days of a material change of the information provided in the compliance report, the insurer shall amend the compliance report and resubmit it to the division.

Section 6. Reporting Fraudulent Insurance Acts.

(1) All persons identified in KRS 304.47-050(2) shall report suspected fraudulent insurance acts to the division within fourteen (14) days of determination that a suspected fraudulent act has been committed. Reports submitted to a person or entity other than the division shall not satisfy the reporting duty of KRS 304.47-050(2). Reports shall be submitted by:

(a) Completing a report on the department's electronic services portal at https://insurance.ky.gov/eservices/default.aspx; or

(b) Submitting a completed Uniform Suspected Insurance Fraud Reporting Form.

(c)

To supplement the report required by this subsection and in addition to the reports required by paragraph (a) or (b) of this subsection, persons identified in KRS 304.47-050(2) may also report suspected fraudulent insurance acts through intermediaries including:

a. the National Association of Insurance Commissioners' Online Fraud Reporting System;

b. The National Health care Anti-Fraud Association; or

c. The National Insurance Crime Bureau.

A report submitted through an intermediary shall be subject to the confidentiality provisions in KRS 304.47-055.

(2) All persons identified in KRS 304.47-050(1) shall report suspected fraudulent insurance acts to the division by:

(a) Completing a report on the department's electronic services portal at https://insurance.ky.gov/eservices/default.aspx; or

(b) Submitting a completed Uniform Suspected Insurance Fraud Reporting Form.

Section 7. Incorporation by Reference.

(1) The "Uniform Suspected Insurance Fraud Reporting Form," 7/2019, is incorporated by reference.

History

RELATES TO: KRS 304.2-140, 304.47-010, 304.47-020, 304.47-040, 304.47-050
STATUTORY AUTHORITY: KRS 304.2-110, 304.47-055, 304.47-080
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.2-110(1) authorizes the Commissioner of Insurance to promulgate administrative regulations necessary for or as an aid to the effectuation of any provision of the Kentucky Insurance Code as established in KRS 304.1-010. This administrative regulation establishes insurer requirements and a comprehensive process for reporting and investigating fraudulent insurance acts.
History: 22 Ky.R. 154; eff. 9-7-1995; TAm eff. 8-9-2007; 40 Ky.R. 2629; 41 Ky.R. 43; eff. 8-1-2014; 45 Ky.R. 2993; 46 Ky.R. 39, 434; eff. 9-6-2019; 47 Ky.R. 1096, 1581; eff. 5-4-2021.

Chapter 49 Captive Insurers

806 KAR 49:020 Captive insurer application requirements {#sec-806-kar-49-020 omnilex-key=us-ky-regs-official--title-806--806 KAR 49:020}

Section 1. Definition. "Company" means the captive insurer.

Section 2. A captive insurer seeking to obtain a certificate of authority to engage in insurance business in Kentucky shall apply to the Kentucky Department of Insurance by completing and filing the following forms:

(1) Captive Application for Admission, CI-103;

(2) Coverage Limits and Reinsurance, CI-105;

(3) Irrevocable Letter of Credit CI-130;

(4) Application for Authorization to Certify Loss Reserves and Loss Expense Reserves for Captives CI-110;

(5) Application for Authorization as an Independent Certified Public Accountant for Captive Insurance Business CI-120; and

(6) Biographical Affidavit CI-501.

Section 3. All documents required by KRS 304.49-020(3)-(6) shall be submitted with a company's application seeking a certificate of authority to engage in insurance business in Kentucky or a statement describing the reason each document is not applicable.

Section 4.

(1) In addition to the processing of the application, an organizational investigation or examination may be performed by the department before an applicant receives a certificate of authority as a captive insurer.

(2) The investigation or examination shall consist of a general survey of the company's corporate records, including:

(a) Charter, bylaws, and minute books;

(b) Verification of capital and surplus;

(d) Determination of assets and liabilities; and

(e) A review of investment practice policy and procedures.

Section 5. A person shall not act as an insurance producer, broker, agent, salesman, or reinsurance intermediary for captive business without the authorization of the commissioner. Application for that authorization shall be on the Individual Application 8301 form, incorporated by reference in 806 KAR 9:025.

Section 6. Revocation.

(1) The commissioner may, subject to the provisions of this section, by order revoke the certificate of authority of the company:

(a) If the company has not commenced business according to its plan of operation within two (2) years of being licensed;

(b) If the company ceases to carry on insurance business in Kentucky;

(d) For any reason provided in KRS 304.3-190 or 304.3-200.

(2) Before the commissioner revokes the certificate of authority of a company under subsection (1)(a) or (b) of this section, the commissioner shall give the company notice in writing of the grounds on which he proposes to cancel the certificate of authority, and shall afford the company an opportunity to make objection in writing within thirty (30) days receipt of the notice. The commissioner shall take into consideration any objection timely filed and schedule an administrative hearing on the matter in accordance with KRS Chapter 13B.

Section 7. Incorporation by Reference.

(1) The following material is incorporated by reference:

(a) Captive Application for Admission CI-103 (6/2020);

(b) Coverage, Limits and Reinsurance CI-105 (4/2001);

(d) Application for Authorization to Certify Loss Reserves and Loss Expense Reserves for Captives CI-110 (6/2020);

(e) Application for Authorization as an Independent Certified Public Accountant for Captive Insurance Business CI-120 (6/2020); and

(f) Biographical Affidavit CI-501 (4/2001).

History

RELATES TO: KRS 304.49-010-304.49-230
STATUTORY AUTHORITY: KRS 304.2-110, 304.49-020(3), 304.49-140
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.2-110 provides that the Commissioner of Insurance may promulgate administrative regulations necessary for or as an aid to the effectuation of any provisions of the Kentucky Insurance Code. KRS 304.49-140 authorizes the Commissioner of Insurance to establish and amend administrative regulations related to captive insurance companies as necessary to effectuate the provisions of KRS 304.49-010 to 304.49-230. KRS 304.49-020(3) authorizes the Commissioner of Insurance to promulgate administrative regulations concerning the application for a certificate of authority for captive insurers. This administrative regulation establishes application requirements for the regulation of captive insurers.
History: 27 Ky.R. 2009; Am. 3251; eff. 6-8-2001; TAm eff. 8-9-2007; Crt eff. 2-26-2020; 47 Ky.R. 407, 973; eff. 2-2-2021.

806 KAR 49:030 Captive insurer reporting requirements {#sec-806-kar-49-030 omnilex-key=us-ky-regs-official--title-806--806 KAR 49:030}

Section 1. Definition. "Company" means the captive insurer.

Section 2. A consortium captive insurer, and a pure or industrial insured captive insurer engaged in insurance in Kentucky shall annually submit to the commissioner a report of its financial condition, verified by oath of two (2) of its executive officers on the Annual Statement Convention Blank. The report shall be filed in the same format and content as required by KRS 304.2-205 and 304.3-240.

Section 3.

(1) A captive insurer shall have an annual audit by an independent certified public accountant, authorized by the commissioner, and shall file an audited financial report with the commissioner on or before July 1 for the year ending December 31 immediately preceding.

(2) The annual audit report shall be considered part of the company's annual report of financial condition except with respect to the date by which it shall be filed with the commissioner.

(3) The annual audit shall consist of the following:

(a) Opinion of independent certified public accountant.

Financial statements furnished pursuant to this section shall be examined by an independent certified public accountant in accordance with generally-accepted auditing standards as determined by the American Institute of Certified Public Accountants.
The opinion of the independent certified public accountant shall cover all years presented.
The opinion shall:

a. Be addressed to the company on stationery of the accountant showing the address of issuance;

b. Bear original manual signatures; and

c. Be dated.

(b) Report of evaluation of internal controls.

This report shall include an evaluation of the internal controls of the company relating to the methods and procedures used in the securing of assets and the reliability of the financial records, including the controls as the system of authorization and approval, and the separation of duties.
The review shall be conducted in accordance with generally accepted auditing standards and the report filed with the commissioner.

(c) Accountant's letter. The accountant shall furnish the company, for inclusion in the filing of the audited annual report, a letter stating:

That he is independent with respect to the company and conforms to the standards of his profession as contained in the Code of Professional Ethics and pronouncements of the American Institute of Certified Public Accountants and pronouncements of the Financial Accounting Standards Board;
The general background and experience of the staff engaged in audit including the experience in auditing captives or other insurance companies;
That the accountant understands that the audited annual report and his opinions thereon will be filed in compliance with this administrative regulation with the Kentucky Department of Insurance;
That the accountant consents to the requirements of Section 6 of this administrative regulation and that the accountant consents and agrees to make available for review by the commissioner, his designee or his appointed agent, the work papers as defined in Section 6 of this administrative regulation;
That the accountant is properly licensed by an appropriate state licensing authority; and
That the accountant is a member in good standing in the American Institute of Certified Public Accountants.

(d) Financial statements. The following statements are required:

Balance sheet;
Statement of gain or loss from operations;
Statement of changes in financial position;
Statement of changes in capital paid up, gross paid in and contributed surplus and unassigned funds or unassigned surplus; and
Notes to financial statements. The notes to financial statements shall be those required by generally accepted accounting principles, and shall include:

a. A reconciliation of differences, if any, between the audited financial report and the statement or form filed with the commissioner;

b. A summary of ownership and relationship of the company and all affiliated corporations or companies insured by the captive; and

c. A narrative explanation of all material transactions and balances with the company.

(e) Certification of loss reserves and loss expense reserves.

The annual audit shall include an opinion as to the adequacy of the company's loss reserves and loss expense reserves.
The individual who certifies as to the adequacy of reserves shall be approved by the commissioner and shall be:

a. A Fellow of the Casualty Actuarial Society;

b. A member in good standing of the American Academy of Actuaries; or

c. An individual who has demonstrated his competence in loss reserve evaluation to the commissioner.

Certification shall be in the form as the commissioner deems appropriate.

(f) A filing fee for audited financial statements shall be as prescribed by 806 KAR 4:010.

Section 4. A company shall within ninety (90) days report to the commissioner in writing, the name and address of the independent certified public accountant retained to conduct the annual audit established in this administrative regulation.

Section 5. A company shall require the certified public accountant to immediately notify, in writing, an officer and all members of the board of directors of the company of any determination by the independent certified public accountant that the company has materially misstated its financial condition in its report to the commissioner as required in KRS 304.49-070. The company shall furnish the notification to the commissioner within five (5) working days of receipt.

Section 6. Work Papers.

(1) Each company shall require the independent certified public accountant to make available for review and inspection by the commissioner or his appointed agent the work papers prepared in the conduct of the audit of the company.

(2) The company shall require that the accountant retain the audit work papers for a period of not less than five (5) years after the period reported upon.

(3) Any review by the commissioner shall be considered a part of an examination or investigation and all working papers obtained during the course of an examination or investigation shall be confidential.

(4) The company shall require that the independent certified public accountant provide photocopies of any of the working papers the Department of Insurance requests and the working papers may be retained by the department.

(5) Work papers shall include:

(a) Schedules;

(b) Analyses;

(d) Abstracts;

(e) Memoranda;

(f) Narratives;

(g) Flow charts;

(h) Copies of company records; or

(i) Other documents prepared or obtained by the accountant and his employees in the conduct of their examination of the company.

Section 7.

(1) If the commissioner deems that the financial condition of the company warrants additional security, he may require a company to deposit with the Treasurer of this state, cash or securities approved by the commissioner or, to furnish the commissioner a clean irrevocable letter of credit issued by a bank chartered by the State of Kentucky or a member bank of the Federal Reserve System and approved by the commissioner.

(2) The company may receive interest or dividends from the deposit or exchange the deposits for others of equal value with the approval of the commissioner.

(3) If the company discontinues business, the commissioner shall return the deposit only after being satisfied that all obligations of the company have been discharged.

History

RELATES TO: KRS 304.49-010-304.49-230
STATUTORY AUTHORITY: KRS 304.2-110, 304.49-070(2), 304.49-140
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.2-110 provides that the Commissioner of Insurance may promulgate administrative regulations necessary for or as an aid to the effectuation of any provisions of the Kentucky Insurance Code. KRS 304.49-140 authorizes the Commissioner of Insurance to establish and amend administrative regulations related to captive insurance companies as necessary to effectuate the provisions of KRS 304.49-010 to 304.49-230. KRS 304.49-070(2) requires the Commissioner of Insurance to promulgate administrative regulations concerning the reporting requirements of captive insurers. This administrative regulation establishes financial and reporting requirements for captive insurers.
History: 27 Ky.R. 2010; 3252; eff. 6-8-2001; TAm eff. 8-9-2007; Crt eff. 2-26-2020; 47 Ky.R. 409, 974; eff. 2-2-2021.

806 KAR 49:040 Captive insurer parents and affiliates {#sec-806-kar-49-040 omnilex-key=us-ky-regs-official--title-806--806 KAR 49:040}

Section 1. Definition. "Company" means captive insurer.

Section 2. A pure captive insurer shall participate in the risk management function of any controlled unaffiliated business to be insured by the company and shall establish procedures for effective control of risk management activities regarding the controlled unaffiliated business. The commissioner or his designee may request evidence of a pure captive insurer's participation in the risk management functions of controlled unaffiliated business as a portion of a market conduct or financial examination authorized under KRS 304.2 or at any other time the commissioner deems necessary.

Section 3. Each company shall report to the executive director within thirty (30) days after any change in its executive officers or directors, including in its report a statement of the business and professional affiliations of any new commissioner or director. A director, officer, or employee of a company shall not, except on behalf of the company, accept, or be the beneficiary of, any fee, brokerage, gift, or other emolument because of any investment, loan, deposit, purchase, sale, payment or exchange made by or for the company. That person may receive reasonable compensation for necessary services rendered to the company in his or her usual private, professional or business capacity. Any profit or gain received by or on behalf of any person in violation of this section shall inure to and be recoverable by the company.

Section 4. In addition to the investment of funds in Section 3 of this administrative regulation, each company chartered in this state is required to adopt a conflict of interest statement for officers, directors and key employees. The statement shall disclose that the individual has no outside commitments, personal or otherwise, that would divert him from his duty to further the interests of the company he represents. This shall not preclude that person from being a director or officer in more than one (1) insurance company. Each officer, director, and key employee shall file a disclosure with the insurer's board of directors yearly.

Section 5.

(1) A person, other than the issuer, shall not acquire or attempt to acquire any voting security of a domestic captive insurer without the prior written approval of the commissioner, if, after the consummation thereof, that person would directly or indirectly be in control or have exercisable control of that company. For purposes of this administrative regulation, "acquire or attempt to acquire" includes making a tender offer or other request for voting securities, making any invitation for tenders of voting securities, entering into any agreement to exchange securities for voting securities, or otherwise seeking to acquire or acquiring voting securities in the open public market or private market.

(2) A person shall not enter into an agreement to merge with or otherwise to acquire control of a domestic company without the prior written approval of the commissioner.

(3) In considering any application for acquisition of control or merger with a domestic company, the executive director shall consider all of the facts and circumstances surrounding the application as well as the criteria for establishment of a company pursuant to KRS 304.49.

Section 6. Any change in the nature of the captive business from that stated in the company's plan of operation filed with the commissioner upon application requires prior approval from the commissioner. Any change in any other information filed with the application shall be filed with the commissioner but does not require prior approval.

History

RELATES TO: KRS 304.49
STATUTORY AUTHORITY: KRS 304.2-110, 304.49-140, 304.49-170
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.2-110 provides that the Commissioner of Insurance may promulgate administrative regulations necessary for or as an aid to the effectuation of any provisions of the Kentucky Insurance Code. KRS 304.49-140 authorizes the Commissioner of Insurance to establish and amend administrative regulations related to captive insurance companies as necessary to effectuate the provisions of KRS 304.49. KRS 304.49-170 requires the Commissioner of Insurance to promulgate administrative regulations concerning the control of risk management functions of a parent or affiliated company by a pure captive insurer. This administrative regulation establishes the requirements regarding captive insurer parents and affiliates.
History: 27 Ky.R. 2012; Am. 3253; eff. 6-8-2001; TAm eff. 8-9-2007; Crt eff. 2-26-2020; TAm eff. 3-10-2020.

806 KAR 49:050 Captive risk retention groups {#sec-806-kar-49-050 omnilex-key=us-ky-regs-official--title-806--806 KAR 49:050}

Section 1. Definitions.

(1) "Captive insurer" is defined by KRS 304.49-010(3).

(2) "Commissioner" is defined by KRS 304.1-050(1).

(3) "Department" is defined by KRS 304.1-050(2).

(4) "Insurance producer" is defined by KRS 304.9-020(10).

(5) "Protected cell" is defined by KRS 304.49-010(20).

(6) "Reinsurance intermediary" is defined by KRS 304.9-700(5).

(7) "Risk retention group" is defined by KRS 304.45-020(11).

Section 2. Permitted Reinsurance for Risk Retention Groups Licensed as Captive Insurers. Risk retention groups shall not receive credit on a quarterly or annual financial statement if all policies are ceded through 100 percent reinsurance arrangements.

Section 3. Credit for Reinsurance.

(1) Credit for reinsurance shall be permitted if the reinsurer complies with KRS 304.5-130, 304.5-140, 304.5-150 and 806 KAR 5:025.

(2) Credit for reinsurance may be permitted if the reinsurer:

(a) Maintains an A- or higher A.M. Best rating, or other comparable rating from a nationally recognized statistical rating organization;

(b)

Maintains a minimum policyholder surplus in an amount acceptable to the commissioner based upon a review of the reinsurer's most recent audited financial statements; and
Is licensed and domiciled in a jurisdiction in the United States or an established offshore domicile; or

The captive manager or risk retention group licensed as a captive insurer shall file annually, on or before June 30, the reinsurer's audited financial statements, which shall be analyzed by the commissioner to assess the appropriateness of the reserve credit or the initial and continued financial condition of the reinsurer;
The reinsurer shall demonstrate that it maintains a ratio of net written premium, wherever written, to surplus and capital of not more than three (3) to one (1);
The affiliated reinsurer shall not write third-party business without obtaining prior written approval from the commissioner;
The reinsurer shall not use a protected cell arrangement without obtaining prior written approval from the commissioner;
The reinsurer shall be licensed and domiciled in a jurisdiction either in the United States or in an established offshore domicile; and
The reinsurer shall submit to the examination authority of the commissioner.

Section 4. Additional Reinsurance Requirements.

(1) The commissioner shall require a reinsurer not domiciled in the United States to:

(a) Include language in the reinsurance agreement that states that if the reinsurer fails to perform its obligations under the terms of its reinsurance agreement, the reinsurer shall submit to the jurisdiction of any court of competent jurisdiction in the United States; or

(b) Be compliant with subsection (2) of this section.

(2) For credit for reinsurance and solvency regulatory purposes, the commissioner may require a reinsurer to provide to the ceding company an approved funds-held agreement, letter of credit, trust or other acceptable collateral based on unearned premium, loss and loss adjustment expense reserves, and incurred but not reported claims reserves.

Section 5. Requirements for Waiver.

(1)

(a) Upon application by the risk retention group, the commissioner may waive either of the reinsurance requirements in Section 3(2)(c)2. or Section 3(3)(c)6. of this administrative regulation if the risk retention group licensed as a captive insurer or reinsurer can demonstrate that:

The reinsurer is sufficiently capitalized based upon an annual review of the reinsurer's most recent audited financial statements;
The reinsurer is licensed and domiciled in a jurisdiction in the United States or in an established offshore domicile; and
The proposed reinsurance agreement adequately protects the risk retention group licensed as a captive insurer and its policyholders.

(b) Any waiver granted in accordance with subsection (1)(a) of this section shall be:

Included in the risk retention group's plan of operation, or any subsequent revision or amendment of the plan; and
Submitted by the risk retention group licensed as a captive to the commissioner of its state of domicile and each state in which the risk retention group licensed as a captive intends to do business or is currently registered.

(c) Any waiver of a requirement in Section 3(2)(c)2. or Section 3(2)(c)6. of this administrative regulation shall be considered a change in the risk retention group's plan of operation in each of those states.

(2)

(a) Upon application by the risk retention group, the commissioner may waive the requirements of Section 4(1) or (2) of this administrative regulation if the risk retention group licensed as a captive insurer or reinsurer can demonstrate that:

The reinsurer is sufficiently capitalized based upon an annual review of the reinsurer's most recent audited financial statements;
The reinsurer is licensed and domiciled in a jurisdiction in the United States or in an established offshore domicile; and
The proposed reinsurance agreement adequately protects the risk retention group licensed as a captive insurer and its policyholders.

(b) Any waiver granted in accordance with subsection (2)(a) of this section shall be disclosed in Note 1 of the risk retention group's annual statutory financial statement.

Section 6. Limits on Risk. A risk retention group shall not retain any risk on any one (1) subject of insurance, whether located or to be performed in this state or elsewhere, in an amount exceeding ten (10) percent of its surplus to policyholders. Authorized reinsurance ceded shall be deducted in determining risk retained. The requirements on limits of risk in KRS 304.24-100 shall apply to newly formed domestic mutual insurers.

Section 7. Holding Company. Risk retention groups licensed as captive insurers shall make all required holding company filings mandated in KRS Chapter 304.37 on forms prescribed in 806 KAR 37:010. If a disclaimer of affiliation is filed, a copy of the disclaimer shall be filed as a change in business plan with all other states in which the company is registered.

Section 8. Reinsurance Intermediaries, Managing General Agents, and Producer Controlled Agents. A risk retention group licensed as a captive insurer shall comply with KRS 304.3-400 to 304.3-430, 304.3-500 to 304.3-570, and 304.9-700 to 304.9-759.

History

RELATES TO: KRS 304.1-050, 304.3-400 – 304.3-430, 304.3-500 – 304.3-570, 304.5-130, 304.5-140, 304.5-150, 304.9-020(10), 304.9-700 – 304.9-759, 304.24-100, 304.37-010 – 304.37-150, 304.45-020(11), 304.45-030, 304.49-010, 304.49-060, 304.49-110, 304.49-170
STATUTORY AUTHORITY: KRS 304.2-110, 304.49-140
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.2-110 authorizes the Commissioner of Insurance to make administrative regulations necessary for or as an aid to the effectuation of any provisions of the Kentucky Insurance Code as defined in KRS 304.1-010. KRS 304.49-140 permits the commissioner to establish administrative regulations relating to captive insurance companies that are necessary to carry out the provisions of KRS 304.49-010 to 304.49-230. This administrative regulation provides reinsurance, financial solvency, and consumer protection requirements for captive risk retention groups.
History: 38 Ky.R. 857; 1135; eff. 1-6-12; Crt eff. 2-26-2020.

Chapter 52 Workers' Compensation Self-insured Groups

806 KAR 52:010 Forms for application, security deposits and financial statements {#sec-806-kar-52-010 omnilex-key=us-ky-regs-official--title-806--806 KAR 52:010}

Section 1. Definitions.

(1) Commissioner is defined by KRS 304.1-050(1).

(2) Department is defined by KRS 304.1-050(2).

(3) "Self-Insured group" is defined by KRS 304.50-015(29).

Section 2.

(1) Pursuant to KRS 304.50-030(1), Form 100, Initial Application for Certificate of Filing As a Workers' Compensation Self-Insured Group, shall be completed and submitted to the commissioner to apply for initial certification as a workers' compensation self-insured group.

(2) Pursuant to KRS 304.50-050(5), Form 141, Election Form for Designation of Custodian Bank for Safekeeping of Securities, shall be completed and submitted to the commissioner to propose designation of a bank or trust company for the safekeeping of securities.

(3) Pursuant to KRS 304.50-050(2), Form 142, Letter of Credit, shall be completed and submitted to the commissioner when issuing a letter of credit in satisfaction of the security deposit requirement for a workers' compensation self-insured group.

(4) Pursuant to KRS 304.50-050(2), Form 145, Transaction Sheet for Securities Held Under Safekeeping with Designated Custodian Banks, shall be completed and submitted to the commissioner when transferring funds in or out of the Safekeeping Account and shall be approved by the commissioner before the bank can complete the transfer.

(5) Pursuant to KRS 304.50-050(2), Form 826, Safekeeping Agreement for Workers' Compensation Self-Insured Groups, shall be completed and submitted to the commissioner when the self-insured group initially sets up the security account or when a group transfers the security deposit to another bank.

(6) Pursuant to KRS 304.50-060(4), the Workers' Compensation Self-Insured Group Quarterly Statement (Blank), shall be completed and submitted to the commissioner to file a quarterly statement of financial condition. Form 102, Trustee Confirmation of Receipt, shall be completed by each trustee of the workers' compensation self-insured group, acknowledging receipt of a copy of the quarterly statement of financial condition, and submitted to the Department of Insurance within forty-five (45) calendar days after the close of each quarterly reporting period.

(7) Pursuant to KRS 304.50-060(4), the Workers' Compensation Self-Insured Group Annual Statement (Blank), shall be completed and submitted to the commissioner to file an annual statement of financial condition.

(8) Pursuant to KRS 304.50-050(1), Form 147, Deposit Calculation for Workers' Compensation Self-Insured Groups, shall be completed and submitted annually to the commissioner to calculate the correct amount to be placed in the Safekeeping Account.

Section 3. Incorporation by Reference.

(1) The following material is incorporated by reference:

(a) "Form 100 - Initial Application for Certificate of Filing As a Workers' Compensation Self-Insured Group 7/2020";

(b) "Form 141 - Election Form for Designation of Custodian Bank for Safekeeping of Securities 7/2020";

(d) "Form 145 - Transaction Sheet for Securities Held Under Safekeeping with Designated Custodian Banks 7/2020";

(e) "Form 826 - Safekeeping Agreement for Workers' Compensation Self-Insured Groups 7/2020";

(f) "Workers' Compensation Self-Insured Group Quarterly Statement (Blank) 7/2020";

(g) "Form 102 - Trustee Confirmation of Receipt 7/2020";

(h) "Workers' Compensation Self-Insured Group Annual Statement (Blank) 7/2020"; and

(i) "Form 147 - Deposit Calculation for Workers' Compensation Self-Insured Groups 6/2020 ".

(2) This material may be inspected, copied, or obtained, subject to applicable copyright law, at the Kentucky Department of Insurance, Mayo-Underwood Building, 500 Mero Street, Frankfort, Kentucky 40601, Monday through Friday, 8:00 a.m. to 4:30 p.m. This material is also available on the Department of Insurance Internet Web site at https://insurance.ky.gov.

History

RELATES TO: KRS 304.50
STATUTORY AUTHORITY: KRS 304.50-010(2), 304.50-030(1), 304.50-050(1), (2), 304.50-060(4)
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.50-010(2) requires the commissioner to promulgate administrative regulations as necessary to govern admission, certification, and regulation of workers' compensation self-insured groups. KRS 304.50-030(1) requires a workers' compensation self-insured group seeking initial certification to file an application on a form approved by the commissioner. KRS 304.50-050(1) requires a workers' compensation self-insured group to provide a security deposit to the commissioner on a form prescribed by the commissioner. KRS 304.50-050(2) authorizes trustees to file cash, cash equivalents, United States Treasuries or a bank letter of credit in satisfaction of the security deposit requirement, on a form prescribed by the commissioner. KRS 304.50-060(4) requires workers' compensation self-insured groups to file statements of financial condition on a form prescribed by the commissioner. This administrative regulation prescribes the required forms for application, security deposits, and financial statements.
History: 31 Ky.R. 2065; 32 Ky.R. 276; 502; eff. 10-7-2005; Crt eff. 2-26-2020; 47 Ky.R. 833, 1392; eff. 4-6-2021.

806 KAR 52:020 Aggregate excess insurance {#sec-806-kar-52-020 omnilex-key=us-ky-regs-official--title-806--806 KAR 52:020}

Section 1. Definitions.

(1) "Commissioner" means the Commissioner of the Department of Insurance.

(2) "Department" means the Department of Insurance.

(3) "Group" means a Self-insured group.

(4) "Self-insured group" is defined in KRS 304.50-015(29).

Section 2. Waiver of Requirement to Obtain Aggregate Excess Insurance.

(1) A self-insured group may request an annual written waiver from the commissioner, which shall not unreasonably be withheld, of the requirement to purchase aggregate excess insurance by submitting the following:

(a) A statement verifying that the group has been in continuous operation for at least five (5) years;

(b) Documentation from a qualified actuary indicating that the fund is adequately reserved to meet all predictable losses; and

(c) An explanatory narrative from the group's management describing the variables and factors considered in the determination to forego aggregate coverage.

(2) A waiver shall be granted or denied in writing within thirty (30) days of application. The term of a waiver shall be limited to the upcoming fund year, whether calendar or fiscal.

(3) In determining whether to grant a waiver, the commissioner director shall consider the following factors:

(a) The self-insured group's operating history;

(b) Whether the self-insured group is adequately reserved to meet all predictable losses; and

(c) Whether the fund has exercised reasonable care and diligence in evaluating the decision to operate the fund without aggregate coverage.

Section 3. Terms and Conditions for Aggregate Excess Insurance.

(1) The minimum limit of liability of the aggregate excess insurance shall be fifteen (15) percent of the earned premium but shall not be less than $2,000,000 or more than $5,000,000.

(2) A contract or policy of aggregate excess insurance shall comply with the following:

(a) The policy shall state that it is not cancelable or nonrenewable unless written notice by registered or certified mail is given to the other party to the policy and to the department at least forty-five (45) days before termination by the party desiring to cancel or not renew the policy;

(b) The policy shall state that the following apply toward reaching the retention amount in the excess contract:

Payments made by the fund;
Payments made on behalf of the fund from deposits or other forms of security; and
Payments made by the Kentucky Group Self-Insurance Fund, as established in KRS 342.906; and

(c) The policy shall state that if the fund is unable to make benefit payments due to insolvency or bankruptcy, the excess carrier shall make the payments to other parties involved in the paying of the fund's obligations, as directed by the department, subject to the policy's retentions and limits.

History

RELATES TO: KRS 304.50-120, 342.906
STATUTORY AUTHORITY: KRS 304.50-010(2), 304.50-120(1)
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.50-010(2), requires the commissioner to promulgate administrative regulations as necessary to govern admission, certification and regulation of workers' compensation self-insured groups. KRS 304.50-120(1), requires the commissioner to promulgate administrative regulations setting forth the requirements for aggregate excess insurance and the standards for granting a waiver. This administrative regulation establishes requirements for aggregate excess insurance and for requesting a waiver from the requirement to obtain aggregate excess insurance.
History: 31 Ky.R. 2067; 32 Ky.R. 503; eff. 10-7-2005; Crt eff. 2-26-2020; TAm eff. 3-10-2020.

806 KAR 52:030 Workers' compensation self-insured group rate, rule and form filings {#sec-806-kar-52-030 omnilex-key=us-ky-regs-official--title-806--806 KAR 52:030}

Section 1. Definitions.

(1) "Coverage form" is defined by KRS 304.50-015(10).

(2) "Commissioner" is defined by KRS 304.1-050(1).

(3) "Department" is defined by KRS 304.1-050(2).

(4) "Self-insured group" is defined by KRS 304.50-015(29).

Section 2. General Filing Requirements.

(1) Every self-insured group shall file with the commissioner its coverage forms, rates, loss costs, rating plans, rating rules, underwriting rules or guidelines, statistical plans, supporting information, supplementary information, and premium payment plans accompanied by a completed and signed Form WC SIG: F-1A P&C, "Face Sheet and Verification Form for Workers Compensation Self-Insured Groups".

(2) All filings shall include two (2) full document sets on 8 1/2 in. x 11 in. white paper with three (3) cover letters and a self-addressed stamped envelope.

(3) A filing may include any number of documents, filed together on a particular date. Rates, loss costs, and rules shall be filed separately from coverage forms.

(4) Pursuant to KRS 304.4-010(2), all fees and charges payable under the insurance code shall be collected in advance. The period of time that the commissioner may affirmatively approve or disapprove the filing shall not begin until a complete filing and the appropriate fee, as set forth in 806 KAR 4:010, Section 1(22), is received.

Section 3. Rate and Rule Filings.

(1) Form WC SIG: S-1 P & C, "Filing Synopsis for Rates and or Rules" shall be filed with all rate or rule filings.

(2)

(a) Form WC SIG: LC-1 P & C, "Calculation of Loss Cost Multiplier" shall be filed with all rate filings referencing loss costs formulated by any advisory organization.

(b) Form WC SIG: LC-2 P & C, "Expense Constant Supplement" shall be filed with all rate filings referencing loss costs formulated by an advisory organization in which an expense constant is used.

(3) Form WC SIG: EMA P & C, "E-Mod Affidavit" shall be filed with all rate or rule filings containing experience modification factors.

(4)

(a) All rate or rule filings containing schedule rating plans shall identify the characteristics of the risk not reflected in an experience modification factor.

(b) Any application of the schedule rating plan shall be based on evidence contained in the self-insured group's file at the time it is applied. The schedule rating plan debit or credit factor(s) applied shall be made available to the member upon request.

(c) If the reason for application of any schedule debit is corrected by the member to the satisfaction of the self-insured group, the debit may be removed when evidence of the correction is received by the group.

Section 4. Coverage Form Filings.

(1) Form WC SIG: S-2 P & C, "Filing Synopsis Form" and Form WC SIG: F-2 P & C, "Forms Index" shall be filed with all coverage form filings.

(2) A coverage form shall not be used until it has been approved by the commissioner. If the rates pertaining to a coverage form are required by law to be filed with or approved by the commissioner, the coverage form shall not be used until the appropriate rates have been filed or approved as required.

(3) A filing which amends, replaces, or supplements a coverage form previously filed and approved shall include an explanation setting forth all changes contained in the newly filed coverage form, the effect, if any, the changes have upon the hazards purported to be assumed by the policy, and an explanation as to the effect on the rates applicable thereto.

(4) A change of signature of the executing officer on a coverage form shall not, because of this change alone, require a new filing.

Section 5. Advisory Organization Filings.

(1) A self-insured group that is a member, subscriber, or service purchaser of an advisory organization, statistical agent, or forms provider may choose to adopt coverage forms, rating plans, rating rules, rating schedules, other supplementary rating information, underwriting rules or guidelines, or statistical plans of that advisory organization or statistical agent by doing so in accordance with the procedures established in this administrative regulation and shall clearly identify each filing of the advisory organization or statistical agent it is adopting.

(2) If a self-insured group chooses to adopt only a specific filing of an advisory organization, statistical agent, or form provider it shall do so in accordance with the procedures established in this administrative regulation, and shall clearly identify which filing of the advisory organization or statistical agent it is adopting. Loss cost filings shall be specifically adopted.

(3)

(a) If a self-insured group chooses to adopt all of the current and future coverage forms, rating plans, rating rules, rating schedules, other supplementary rating information, underwriting rules or guidelines, and statistical plans, excluding loss costs, of an advisory organization, statistical agent, or forms provider, it may file written notice with the commissioner that it is adopting by blanket reference all of the current and future coverage forms, rating plans, rating rules, rating schedules, other supplementary rating information, underwriting rules or guide-lines, and statistical plans, excluding loss costs, as filed by the advisory organization, statistical agent, or forms provider. Loss cost filings shall not be adopted on this blanket reference basis.

(b) If a self-insured group previously notified the commissioner of its adoption of all current and future filings, excluding loss cost filings, by the advisory organization, statistical agent, or forms provider and chooses not to adopt certain coverage forms, rating plans, rating rules, rating schedules, other supplementary rating information, underwriting rules or guidelines, or statistical plans, the group shall file notice of the nonadoption with the commissioner and shall pay the appropriate filing fee, as set forth in 806 KAR 4:010, Section 1(22).

If a self-insured group previously notified the commissioner of its adoption of all current and future filings, excluding loss cost filings, by the advisory organization, statistical agent, or forms provider and chooses to delay the effective date of its adoption, it shall submit a letter to the commissioner requesting the revised date upon which it will adopt the filing.
The delayed adoption date shall be within six (6) months of the original effective date.
If additional time is needed, a second letter shall be submitted to the commissioner requesting a revised delayed adoption date.
All revised delayed adoption dates shall be within one (1) year of the original effective date as filed by the advisory organization, statistical agent, or forms provider.
If a self-insured group fails to adopt the advisory organization, statistical agent, or forms provider filing within one (1) year of the original effective date as filed by the advisory organization, statistical agent, or forms provider, the insurer shall submit a filing to the commissioner indicating it is nonadopting.

Section 6. Incorporation by Reference.

(1) The following material is incorporated by reference:

(a) Form WC SIG: F-1A P & C, "Face Sheet and Verification Form for Workers Compensation Self Insurance Groups," March 2005, Department of Insurance;

(b) Form WC SIG: F-2 P & C, "Forms Index," March 2005, Department of Insurance;

(d) Form WC SIG: S-2 P & C, "Filing Synopsis Form," March 2005, Department of Insurance;

(e) Form WC SIG: LC-1 P & C, "Calculation of Loss Cost Multiplier," March 2005, Department of Insurance;

(f) Form WC SIG: LC-2 P & C, "Expense Constant Supplement," March 2005, Department of Insurance; and

(g) Form WC SIG: EMA P & C, "E-mod Affidavit," March 2005, Department of Insurance.

(2) This material may be inspected, copied, or obtained, subject to applicable copyright law, from the Department of Insurance, The Mayo-Underwood Building, 500 Mero Street, Frankfort, Kentucky 40601, Monday through Friday, 8 a.m. to 4:30 p.m. This material is also available on the Department's Web site at http://www.insurance.ky.gov.

History

RELATES TO: KRS 304.4-010, 304.13-053, 304.14-120, 304.50-010, 304.50-115, 304.50-055, 304.50-065
STATUTORY AUTHORITY: KRS 304.4-010, 304.50-010(2), 304.50-115
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.50-010(2), requires the Commissioner of the Department of Insurance to promulgate administrative regulations as necessary to govern admission certification and regulation of workers' compensation self-insured groups. KRS 304.50-115, requires workers' compensation self-insured groups to file rates, supplementary rating information, and coverage form filings with the commissioner. This administrative regulation establishes workers' compensation self-insured group rate, rule and form filing procedures.
History: 31 Ky.R. 2068; 32 Ky.R. 503; eff. 10-7-2005; TAm eff. 10-9-2008; Crt eff. 2-26-2020; 47 Ky.R. 2744; 48 Ky.R. 831; eff. 11-30-2021.