1. (a) Statutory deposits made pursuant to the Insurance Code Article 20A.13 must consist of funds in the form of either legal tender of the United States, certificates of deposit, or United States Treasury bonds or notes.

   1. (1) Certificates of deposit must be issued by a solvent, federally insured and Texas domiciled bank. However, the amount of total deposits by the HMO in the same depository bank may not exceed the greater of:

      1. (A) the limits of federal insurance coverage pertaining to such deposits; or
      2. (B) 10% of the issuing depository bank's net worth, provided that such net worth is in excess of $25 million.
   2. (2) United States Treasury bonds or notes must be obtained through a Texas domiciled bank which is subject to supervision and examination by the Board of Governors of the Federal Reserve System and must be valued at the lesser of current fair market value or amortized cost.
2. (b) Before the issuance of the certificate of authority, the HMO must submit funds as described in subsection (a) of this section in the amount required by the Insurance Code Article 20A.13, with four completed originals of security deposit report form number 120, one original pledge document on bank letterhead, and the applicable fees pursuant to §7.1301(d) of this title (relating to Regulatory Fees) to the bond and securities officer of the department.

3. (c) Each HMO must annually determine the amount of statutory deposit required as specified in the Insurance Code Article 20A.13 and deposit any required additional funds by March 15 in the manner set forth as follows:

   1. (1) Any additional statutory deposit required shall be in funds as described in subsection (a) of this section and shall be accompanied by four completed originals of security deposit report form 120 and the applicable fee.
   2. (2) If any statutory deposit is to be released, such request for release must be accompanied by four completed originals of withdrawal form number 121 and the applicable fee. If the commissioner directs such a release, the bond and securities officer of the department shall execute a release of any pledge and the funds shall be returned to the HMO.
4. (d) For any substitution of funds, the HMO must submit four completed originals of security deposit report form number 120, four completed originals of withdrawal form number 121, one original pledge document on bank letterhead, and the applicable fees.

5. (e) If the HMO wishes to request a release of all or part and/or a waiver of the statutory deposit requirements as permitted by the Insurance Code Article 20A.13, a written request must be submitted to the commissioner no less than 60 days prior to the March 15 due date. Such request for any release or waiver must provide adequate information, including the following, to justify the release:

   1. (1) Specification of the pertinent provision(s) of the Insurance Code under which the release or waiver is being requested;
   2. (2) The amount of the statutory deposit for which a release or waiver is being requested;
   3. (3) If a waiver is being requested, the period of time over which the waiver is requested;

   4. (4) Supporting documentation that justifies such release or waiver including:

      1. (A) Reasons for requesting the release or waiver;
      2. (B) Discussion as to impact of granting a release and/or waiver and assurance that the HMO and its enrollees will not be harmed if the release or waiver is granted;
      3. (C) Evidence that the HMO has reported net profits for the previous 12 months;
      4. (D) Evidence that the HMO's net worth is in a positive position;

      5. (E) If a request is based upon a guarantee:

         1. (i) a copy of the guarantee;
         2. (ii) a copy of the most current financial statements of the sponsoring organization;
         3. (iii) disclosure of the number of guarantees that the sponsoring organization has issued; and
         4. (iv) disclosure of the dollar amount of all obligations guaranteed and the amounts reflected as liabilities and the amounts guaranteed that are not reflected as liabilities in the sponsoring organization's consolidated financial statements;

   5. (5) If the request is based on projected uncovered expenses:

      1. (A) Projections for the next calendar year which includes an income statement, a balance sheet, a cash flow statement and enrollment, including assumptions on which the projections are based;
      2. (B) An explanation as to why expenses are classified as "covered"; and
      3. (C) A reconciliation with explanation for any differences between submitted projections and the previous calendar year's actual experience.

   6. (6) If a release is requested under sections (d) or (e) of the Insurance Code Article 20A.13:

      1. (A) Evidence that the dollar amount of uncovered health care expenses are likely to continue and will not exceed the amount remaining on deposit; and
      2. (B) Explanation as to the reasons for the decrease in uncovered health care expenses from that which was incurred during previous years.
   7. (7) If the commissioner approves the release or waiver, the HMO must submit the forms required by subsection (c)(2) of this section.
6. (f) Whenever conditions upon which a waiver were granted change to the extent that the HMO is no longer able to qualify for the waiver, the HMO must deposit adequate funds to comply with the requirements of the Insurance Code Article 20A.13, within 30 days.
7. (g) All interest income when due on the statutory deposit funds may be paid directly to the HMO by the bank.

Source Note:The provisions of this §11.802 adopted to be effective November 2, 1998, 23 TexReg 11347.