PURPOSE: This rule effectuates the provisions of sections 385.300 to 385.320, RSMo, regarding assuring the faithful performance of a provider’s obligations to its contract holders.

1. (1) Each provider who is contractually obligated to the service contract holder under the terms of a service contract shall:

   1. (A) Insure all service contracts under a reimbursement insurance policy as provided in section 385.302.4(3), RSMo;
   2. (B) Maintain a funded reserve account and place in trust with the director a financial security deposit as provided in section 385.302.4(1)(a) and (b), RSMo; or
   3. (C) Maintain a net worth of at least one hundred (100) million dollars as provided in section 385.302.4(2)(a), RSMo, and provide the information required under section 385.302.4(2)(b), RSMo.

2. (2) To assure the faithful performance of a provider’s obligations to its contract holders: 20 CSR 200-18

   1. (A) Each provider electing to insure all service contracts under a reimbursement insurance policy, as set forth in section 385.302.4(3), RSMo, and subsection (1)(A) of this rule, shall comply with the following requirements:

      1. 1. Any such policy shall be issued by an

insurance company authorized to transact insurance in this state. As used in this paragraph, the term “insurance company authorized to transact insurance in this state” means either an insurance company with a valid certificate of authority from the director to transact liability insurance or a financially responsible risk retention group. A financially responsible risk retention group is any risk retention group (RRG) that meets each of the following requirements:

1. A. Such RRG is registered with the

director pursuant to sections 375.1080 to 375.1105, RSMo.

1. B. Such RRG files with the director

its most recent sworn annual statement reporting at a minimum its balance sheet (assets and liabilities, surplus and other funds), income statement or statement of profit and loss (summary of operations), and cash flow statement, which annual statement:

1. (I) Was prepared with the consis-

tent application of statutory accounting principles, as shown by the National Association of Insurance Commissioners’ (NAIC’s) Accounting Practices and Procedures Manual as provided in 20 CSR 200-1.020, with only those deviations from such principles as are commonly allowed insurance companies which possess a certificate of authority from the director to transact liability insurance; and

1. (II) Has been, within five (5) years

after the “as of” date of such annual statement, examined by this department or any other state insurance regulatory authority which was, at the time of the examination, accredited pursuant to the Financial Regulation Standards and Accreditation Program of the NAIC; and

1. (III) Shows that on the basis of such

statutory accounting principles, the RRG maintains at least one million six hundred thousand dollars in surplus as regards policyholders, has deposited with the insurance regulatory authority of its state of domicile for the security of all its policyholders and creditors cash or securities valued at no less than eight hundred thousand dollars ($800,000), and is not in a hazardous financial condition;

1. 2. Either:

   1. A. No such policy may have any

deductible or retention payable by the policyholder or claimant under the policy; or FINANCIAL INSTITUTIONS AND PROFESSIONAL REGISTRATION

1. B. To the extent that any such policy

has a deductible or retention payable by the policyholder or claimant under the policy, the provider must either:

1. (I) Maintain a funded reserve

account and place in trust with the director a financial security deposit as provided in section 385.302.4(1)(a) and (b), RSMo, and this rule, for the difference between the amount paid by or on behalf of the service contract holder for the service contract and the amount paid by or on behalf of the provider for the reimbursement insurance policy; or

1. (II) Maintain a net worth of at least

that percentage of one hundred (100) million dollars which is determined by dividing the difference between the total amount paid by or on behalf of all service contract holders for the service contracts insured under the reimbursement insurance policy and the total amount paid by or on behalf of the provider for the reimbursement insurance policy by the total amount paid by or on behalf of all service contract holders for the service contracts insured under the reimbursement insurance policy and provide the information required under section 385.302.4(2)(b), RSMo.

1. 3. Any such policy shall contain a pro-

vision that requires the insurer issuing such policy to provide the director with at least sixty (60) days prior notice of insurer’s termination of such policy by delivering notice to the Consumer Affairs Division.

1. (B) Each provider electing to maintain a funded reserve account, as set forth in section 385.302.4(1)(a), RSMo, and subsection (1)(B) of this rule, shall establish and maintain such account in accordance with each of the following requirements:

   1. 1. Such account shall be maintained in

cash or cash equivalent in either:

1. A. A “qualified United States finan-

cial institution” as that term is defined in section 375.246.3(2), RSMo; or

1. B. Such other financial institution as

specifically approved in writing by the director;

1. 2. At least forty percent (40%) of gross

considerations received on the sale of each service contract shall be deposited into such account;

1. 3. No check or draft may be drawn on

such account, except for:

1. A. The payment of a claim under a

service contract for which at least forty percent (40%) of the gross consideration was deposited into such account; or

1. B. Payment to the provider at the expi-

ration of a service contract of any positive balance of the difference between the sums deposited into such account under such contract and the claims paid from such account under such contract, provided, however, that no such payment may be made to the provider if after such payment the balance in such account would be less than the difference between forty percent (40%) of the total gross considerations received under all such contracts and the claims paid on all such contracts; or

1. C. Such payment as the director may

specifically approve in writing; and

1. 4. Any cash withdrawal from or check

or draft payable to cash or bearer drawn on such account shall be presumed in violation of this rule, unless sufficient written evidence is maintained showing that such withdrawal, check or draft was made for one (1) of the purposes listed in subparagraphs (2)(B)3.A, B, or C above.

1. (C) Each provider placing in trust with the director a financial security deposit, as set forth in section 385.302.4(1)(b), RSMo, and subsection (1)(B) of this rule, shall comply with the following requirements:

   1. 1. The amount of such deposit shall at

least equal the greater of five percent (5%) of the gross consideration received, less claims paid, on the sale of all service contracts issued and in force or twenty-five thousand dollars ($25,000); and

1. 2. To the extent, if any, that such deposit

consists of:

1. A. Cash or securities as permitted by

section 385.302.4(1)(b)b or c, RSMo, such deposit shall be made with the same depositary and upon the same terms and conditions as the capital deposits of insurance companies domiciled in this state, except that the amount of the deposit will be determined by the provisions of section 385.302.4(1)(b), RSMo and this rule;

1. B. A surety bond, as provided in sec-

tion 385.302.4(1)(b)a, RSMo, that shall be acceptable only if the bond is completed on the Bond of Service Contract Provider Form (Form SC-3) and is filed with the director along with the provider’s completed provider exhibit; or

1. C. A letter of credit, as provided in

section 385.302.4(1)(b)d, RSMo, that shall comply with the following requirements:

1. (I) The letter of credit must be

issued by a “qualified financial institution” as defined in section 375.246.3(1), RSMo, or such other financial institution as specifically approved in writing by the director; and

1. (II) The terms of the letter of cred-

it must comply with the terms and conditions for letters of credit stated in subsections (A), (B), (C) and (D) of section (9) of 20 CSR 200-2.100, including, but not limited to, the requirements that such letter of credit be clean, irrevocable and unconditional, except that the beneficiary shall be the director and his or her successors in office.

1. (D) Each provider maintaining a net worth of one hundred (100) million dollars and establishing such net worth through the provider’s parent company, as set forth in section 385.302.4(2)(b), RSMo, and subsection (1)(C) of this rule, shall comply with the following requirements with respect to the guaranty of the parent company:

   1. 1. The guaranty shall be in writing and

shall conform to the Guaranty of Service Contract Obligations Form (Form SC-4); and

1. 2. The guaranty shall be filed with the

director along with the provider’s completed provider exhibit.

1. (3) Forms. The following forms have been adopted and approved for filing with the director under this rule:

   1. (A) The Bond of Service Contract Provider Form (Form SC-3), revised on January 2, 2008; and
   2. (B) The Guaranty of Service Contract Obligations Form (Form SC-4), revised on May 19, 2008. Copies of the forms are available at the department’s office, at the department website, www.insurance.mo.gov, or by mailing a written request to the Department of Insurance, Financial Institutions and Professional Registration, PO Box 690, Jefferson City, MO 65102.

AUTHORITY: section 385.318, RSMo Supp. 2007.* Original rule filed Jan. 29, 2008, effective Sept. 30, 2008.

*Original authority: 385.318, RSMo 2007.