17:48E-17.1. Two special contingent surplus accounts

5. a. Every health service corporation shall accumulate and maintain during each calendar year two separate special contingent surplus accounts, one for its individual contracts and one for its other activities.

b. Every health service corporation shall accumulate and maintain a special contingent surplus for each account over and above its reserves and liabilities at the rate of 2% annually of its net premium income until that surplus is not less than $1,250,000.00 in each account. The special contingent surplus in each account shall be accumulated to and maintained at an amount not less than 2 1/2% of the net premium income received during that year, as determined by reference to the statement of financial condition filed pursuant to section 36 of P.L.1985, c.236 (C.17:48E-36). The commissioner may increase the minimum amount of special contingent surplus which shall be maintained pursuant to this subsection to an amount not exceeding 5% of the net premium income received during the preceding year. No method of accumulation as herein provided shall be deemed to supersede any provision of subsection c. of this section. In the case of any health service corporation which was created by the merger of a medical service corporation established pursuant to P.L.1940, c.74 (C.17:48A-1 et seq.) and a hospital service corporation created pursuant to P.L.1938, c.366 (C.17:48-1 et seq.), in calculating the proportional allocation of any deficit or surplus between group and individual contracts at the time the separate surplus accounts are created, the corporation shall allocate based on its determination of the proportional contributions of individual and group business to any surplus or deficit during the period between January 1 of the calendar year in which the health service corporation commenced doing business as a health service corporation until the effective date of P.L.1988, c.71. The assumptions upon which the allocations are based shall be certified as reasonable by an independent actuary.

c. Every health service corporation established as of the effective date of P.L.1988, c.71 shall file a recovery plan with the commissioner for meeting the surplus amount requirements established by subsection b. of this section and which establishes a time period within which the corporation will meet those requirements. The time period established in the plan shall not exceed eight years and shall provide for the reduction to 0% of the deficit in the special contingent surplus account for its group and other activities by the end of four years from the effective date of P.L.1988, c.71; and for the reduction to 0% of the special individual contingent surplus account by the end of five years from the effective date of P.L.1991, c.208 through the dedication of five approximately equal amounts annually during each year of the five-year period. The commissioner shall take all necessary action to assure that individual rates are actuarially adequate to achieve this purpose. The plan shall be subject to the approval of the commissioner, who shall approve it within 60 days after it has been filed if he believes it to be reasonable. If the commissioner does not approve a plan filed under this subsection within 60 days of its submission, he shall issue findings and conclusions with respect to the reasonableness of the plan.

d. Whenever the special contingent surplus for either group contracts or individual contracts is an amount which is less than 2 1/2% to 5% of the earned premium of the group or individual business, as the case may be, at the discretion of the commissioner, the health service corporation shall, without regard to any other rate increase provided for or required by law or any rate increase which may have previously been taken pursuant to this subsection, and with the approval of the commissioner, commence within 90 days the implementation of rate increases for the group or individual contracts, as the case may be, which increases shall be sufficient to cause the amount of the special contingent surplus to equal an amount which is not less than 5% of the earned premium of the group or individual business within one year of the increase.

e. After the end of the recovery plan for the reduction to 0% of the deficit on the individual special contingent surplus account pursuant to subsection c. of this section, a health service corporation, which was created by the merger of a medical service corporation and a hospital service corporation, shall not be required to augment the surplus account allocable to individual contracts with any monies from the surplus account of group contracts, or from any corporate assets or any other source other than net earnings from individual contracts, nor shall it be required to augment the surplus account allocable to group contracts with any monies from the surplus account of individual contracts or from any corporate assets or any other source other than net earnings from group contracts, except that the commissioner may require the health service corporation to augment the earnings or surplus account allocable to individual contracts in the amount of any provider differential furnished for this purpose approved by the Hospital Rate Setting Commission pursuant to section 18 of P.L.1971, c.136 (C.26:2H-18).

f. Nothing in this section nor in P.L.1985, c.236 (C.17:48E-1 et seq.) shall abrogate the responsibilities of corporate officers with regard to the reporting of financial condition pursuant to section 36 of P.L.1985, c.236 (C.17:48E-36), nor shall any provision of P.L.1988, c.71 or P.L.1985, c.236 (C.17:48E-1 et seq.) be construed to limit the authority of the commissioner to require compliance with statutory capital, surplus or reserve requirements for a subsidiary or affiliate of a health service corporation, or for any reinsurance activities to be undertaken by a health service corporation.

L.1988,c.71,s.5; amended 1989,c.295,s.1; 1991,c.208,s.22.