# Title 26.1 — Insurance

## Chapter 26.1-03.2 — Risk-Based Capital for Health Organizations

### § 26.1-03.2-01. Definitions.

In this chapter, unless the context or subject matter otherwise requires:
1. "Adjusted risk-based capital report" means a risk-based capital report which has been
adjusted by the commissioner in accordance with section 26.1-03.2-02.
2. "Corrective order" means an order issued by the commissioner specifying corrective
actions which the commissioner has determined are required.
3. "Domestic health organization" means a health organization domiciled in this state.
4. "Foreign health organization" means a health organization that is licensed to do
business in this state but is not domiciled in this state.
5. "Health organization" means a health maintenance organization, prepaid limited health
service organization, nonprofit health service corporation, or other managed care
organization licensed by the commissioner to do business in this state. "Health
organization" does not include an organization that is licensed as either a life and
health insurer or a property and casualty insurer that is otherwise subject to either the
life or property and casualty risk-based capital requirements.
6. "Risk-based capital instructions" means the risk-based capital report including
risk-based capital instructions adopted by the national association of insurance
commissioners, as these risk-based capital instructions may be amended by the
national association of insurance commissioners from time to time in accordance with
the procedures adopted by the national association of insurance commissioners.
7. "Risk-based capital level" means a health organization's company action level
risk-based capital, regulatory action level risk-based capital, authorized control level
risk-based capital, or mandatory control level risk-based capital and:
a. "Authorized control level risk-based capital" means the number determined under
the risk-based capital formula in accordance with the risk-based capital
instructions.
b. "Company action level risk-based capital" means, with respect to any health
organization, the product of 2.0 and its authorized control level risk-based capital.
c. "Mandatory control level risk-based capital" means the product of .70 and the
authorized control level risk-based capital.
d. "Regulatory action level risk-based capital" means the product of 1.5 and its
authorized control level risk-based capital.
8. "Risk-based capital plan" means a comprehensive financial plan containing the
elements specified in subsection 2 of section 26.1-03.2-03. If the commissioner rejects
the risk-based capital plan, and it is revised by the health organization, with or without
the commissioner's recommendation, the plan must be called the "revised risk-based
capital plan".
9. "Risk-based capital report" means the report required in section 26.1-03.2-02.
10. "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 section 26.1-03-07 or, in the case of a
health maintenance organization, section 26.1-18.1-08; and
b. Such other items, if any, as the risk-based capital instructions may provide.
### § 26.1-03.2-02. Risk-based capital reports.

1. On or before each March first, a domestic health organization shall prepare and submit
to the commissioner a report of its risk-based capital levels as of the end of the
calendar year just ended, in a form and containing such information as is required by
the risk-based capital instructions. In addition, a domestic health organization shall file
its risk-based capital report:
a. With the national association of insurance commissioners in accordance with the
risk-based capital instructions; and

b. With the 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 risk-based capital report not later than the later of:
(1) Fifteen days from the receipt of notice to file its risk-based capital report with
that state; or
(2) The filing date.
2. A health organization's risk-based capital must be determined in accordance with the
formula set forth in the risk-based capital instructions. The formula must take the
following into account, and may adjust for the covariance between, as determined in
each case by applying the factors in the manner set forth in the risk-based capital
instructions:
a. Asset risk;
b. Credit risk;
c. Underwriting risk; and
d. All other business risks and such other relevant risks as are set forth in the
risk-based capital instructions.
3. Net worth over the amount produced by the risk-based capital requirements contained
in this chapter and the formulas, schedules, and instructions referenced in this chapter
is desirable in the business of health insurance. Accordingly, health organizations
should seek to maintain capital above the risk-based capital levels required by this
chapter. Additional capital is used and useful in the insurance business and helps to
secure a health organization against various risks inherent in, or affecting, the
business of insurance and not accounted for or only partially measured by the
risk-based capital requirements contained in this chapter.
4. If a domestic health organization files a risk-based capital report that in the judgment
of the commissioner is inaccurate, then the commissioner shall adjust the risk-based
capital report to correct the inaccuracy and shall notify the health organization of the
adjustment. The notice must contain a statement of the reason for the adjustment. A
risk-based capital report as so adjusted is referred to as an "adjusted risk-based
capital report".
### § 26.1-03.2-03. Company action level event.

1. "Company action level event" means any of the following events:
a. The filing of a risk-based capital report by a health organization which indicates
that:
(1) The health organization's total adjusted capital is greater than or equal to its
regulatory action level risk-based capital but less than its company action
level risk-based capital; or
(2) If a health organization has total adjusted capital that is greater than or
equal to its company action level risk-based capital but less than the product
of its authorized control level risk-based capital and three and triggers the
trend test determined in accordance with the trend test calculation included
in the health risk-based capital instructions;
b. Notification by the commissioner to the health organization of an adjusted
risk-based capital report that indicates an event in subdivision a, provided the
health organization does not challenge the adjusted risk-based capital report
under section 26.1-03.2-07; or
c. If, pursuant to section 26.1-03.2-07, a health organization challenges an adjusted
risk-based capital report that indicates the event in subdivision a, the notification
by the commissioner to the health organization that the commissioner, after a
hearing, has rejected the health organization's challenge.
2. In the event of a company action level event, the health organization shall prepare and
submit to the commissioner a risk-based capital plan that:
a. Identifies the conditions that contribute to the company action level event;

b. Contains proposals of corrective actions which the health organization intends to
take and which would be expected to result in the elimination of the company
action level event;
c. Provides projections of the health organization's financial results in the current
year and at least the two 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 risk-based capital 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. Identifies the key assumptions impacting the health organization's projections and
the sensitivity of the projections to the assumptions; and
e. Identifies 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, mix of business, and use of
reinsurance, if any, in each case.
3. The risk-based capital plan must be submitted:
a. Within forty-five days of the company action level event; or
b. If the health organization challenges an adjusted risk-based capital report
pursuant to section 26.1-03.2-07, within forty-five days after notification to the
health organization that the commissioner, after a hearing, has rejected the health
organization's challenge.
4. Within sixty days after the submission by a health organization of a risk-based capital
plan to the commissioner, the commissioner shall notify the health organization
whether the risk-based capital plan shall be implemented or is, in the judgment of the
commissioner, unsatisfactory. If the commissioner determines the risk-based capital
plan is unsatisfactory, the notification to the health organization must set forth the
reasons for the determination and may set forth proposed revisions that will render the
risk-based capital plan satisfactory in the judgment of the commissioner. Upon
notification from the commissioner, the health organization shall prepare a revised
risk-based capital plan, which may incorporate by reference any revisions proposed by
the commissioner, and shall submit the revised risk-based capital plan to the
commissioner:
a. Within forty-five days after the notification from the commissioner; or
b. If the health organization challenges the notification from the commissioner under
section 26.1-03.2-07, within forty-five days after a notification to the health
organization that the commissioner has, after a hearing, rejected the health
organization's challenge.
5. In the event of a notification by the commissioner to a health organization that the
health organization's risk-based capital plan or revised risk-based capital plan is
unsatisfactory, the commissioner, subject to the health organization's right to a hearing
under section 26.1-03.2-07, may specify in the notification that the notification
constitutes a regulatory action level event.
6. Every domestic health organization that files a risk-based capital plan or revised
risk-based capital plan with the commissioner shall file a copy of the risk-based capital
plan or revised risk-based capital plan with the insurance commissioner in any state in
which the health organization is authorized to do business if:
a. The state has a risk-based capital provision substantially similar to subsection 1
of section 26.1-03.2-08; 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 risk-based capital plan or revised risk-based capital plan in that state
no later than the later of:
(1) Fifteen days after the receipt of notice to file a copy of its risk-based capital
plan or revised risk-based capital plan with the state; or

(2) The date on which the risk-based capital plan or revised risk-based capital
plan is filed under subsections 3 and 4.
### § 26.1-03.2-04. Regulatory action level event.

1. "Regulatory action level event" means, with respect to a health organization, any of the
following events:
a. The filing of a risk-based capital report by the health organization which indicates
that the health organization's total adjusted capital is greater than or equal to its
authorized control level risk-based capital but less than its regulatory action level
risk-based capital;
b. Notification by the commissioner to a health organization of an adjusted
risk-based capital report that indicates the event in subdivision a, provided the
health organization does not challenge the adjusted risk-based capital report
under section 26.1-03.2-07;
c. If, pursuant to section 26.1-03.2-07, the health organization challenges an
adjusted risk-based capital report that indicates the event in subdivision a, the
notification by the commissioner to the health organization that the commissioner,
after a hearing, has rejected the health organization's challenge;
d. The failure of the health organization to file a risk-based capital report by the filing
date, unless the health organization has provided an explanation for the failure
which is satisfactory to the commissioner and has cured the failure within ten
days after the filing date;
e. The failure of the health organization to submit a risk-based capital plan to the
commissioner within the time period set forth in subsection 3 of section
26.1-03.2-03;
f. Notification by the commissioner to the health organization that:
(1) The risk-based capital plan or revised risk-based capital plan submitted by
the health organization is, in the judgment of the commissioner,
unsatisfactory; and
(2) Notification constitutes a regulatory action level event with respect to the
health organization, provided the health organization has not challenged the
determination under section 26.1-03.2-07;
g. If, pursuant to section 26.1-03.2-07, the health organization challenges a
determination by the commissioner under subdivision f, the notification by the
commissioner to the health organization that the commissioner, after a hearing,
has rejected the challenge;
h. Notification by the commissioner to the health organization that the health
organization has failed to adhere to its risk-based capital plan or revised
risk-based capital 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 risk-based capital plan or revised risk-based capital plan
and the commissioner has so stated in the notification, provided the health
organization has not challenged the determination under section 26.1-03.2-07; or
i. If, pursuant to section 26.1-03.2-07, the health organization challenges a
determination by the commissioner under subdivision h, the notification by the
commissioner to the health organization that the commissioner, after a hearing,
has rejected the challenge.
2. In the event of a regulatory action level event the commissioner shall:
a. Require the health organization to prepare and submit a risk-based capital plan
or, if applicable, a revised risk-based capital plan;
b. Perform such examination or analysis as the commissioner deems necessary of
the assets, liabilities, and operations of the health organization, including a review
of its risk-based capital plan or revised risk-based capital plan; and
c. Subsequent to the examination or analysis, issue an order specifying such
corrective actions as the commissioner determines are required.

3. In determining corrective actions, the commissioner may take into account factors the
commissioner deems relevant with respect to the health organization risk 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 risk-based capital instructions. The risk-based capital plan or revised
risk-based capital plan must be submitted:
a. Within forty-five days after the occurrence of the regulatory action level event;
b. If the health organization challenges an adjusted risk-based capital report
pursuant to section 26.1-03.2-07 and the challenge is not frivolous in the
judgment of the commissioner, within forty-five 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 risk-based capital plan pursuant to
section 26.1-03.2-07 and the challenge is not frivolous in the judgment of the
commissioner, within forty-five days after the notification to the health
organization that the commissioner has, after a hearing, rejected the health
organization's challenge.
4. The commissioner may retain actuaries and investment experts and other consultants
as may be necessary in the judgment of the commissioner to review the health
organization's risk-based capital plan or revised risk-based capital 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 must be borne by
the affected health organization or such other party as directed by the commissioner.
### § 26.1-03.2-05. Authorized control level event.

1. "Authorized control level event" means any of the following events:
a. The filing of a risk-based capital report by the health organization which indicates
that the health organization's total adjusted capital is greater than or equal to its
mandatory control level risk-based capital but less than its authorized control
level risk-based capital;
b. The notification by the commissioner to the health organization of an adjusted
risk-based capital report that indicates the event in subdivision a, provided the
health organization does not challenge the adjusted risk-based capital report
under section 26.1-03.2-07;
c. If, pursuant to section 26.1-03.2-07, the health organization challenges an
adjusted risk-based capital report that indicates the event in subdivision a,
notification by the commissioner to the health organization that the commissioner,
after a hearing, has rejected the health organization's challenge;
d. The failure of the health organization to respond, in a manner satisfactory to the
commissioner, to a corrective order, provided the health organization has not
challenged the corrective order under section 26.1-03.2-07; or
e. If the health organization has challenged a corrective order under section
modified the corrective order, the failure of the health organization to respond, in
a manner satisfactory to the commissioner, to the corrective order subsequent to
rejection or modification by the commissioner.
2. In the event of an authorized control level event with respect to a health organization,
the commissioner shall:
a. Take such actions as are required under section 26.1-03.2-04 regarding a health
organization with respect to which a regulatory action level event has occurred; or
b. If the commissioner deems it to be in the best interests of the policyholders and
creditors of the health organization and of the public, take such actions as are
necessary to cause the health organization to be placed under regulatory control
under chapter 26.1-06.1. If the commissioner takes such actions, the authorized
control level event must be deemed sufficient grounds for the commissioner to

take action under chapter 26.1-06.1 and the commissioner shall have the rights,
powers, and duties with respect to the health organization as are set forth in
chapter 26.1-06.1. If the commissioner takes actions under this subdivision
pursuant to an adjusted risk-based capital report, the health organization is
entitled to such protections as are afforded to health organizations under the
provisions of chapter 26.1-06.1 pertaining to summary proceedings.
### § 26.1-03.2-06. Mandatory control level event.

1. "Mandatory control level event" means any of the following events:
a. The filing of a risk-based capital report that indicates that the health
organization's total adjusted capital is less than its mandatory control level
risk-based capital;
b. Notification by the commissioner to the health organization of an adjusted
risk-based capital report that indicates the event in subdivision a, provided the
health organization does not challenge the adjusted risk-based capital report
under section 26.1-03.2-07; or
c. If, pursuant to section 26.1-03.2-07, the health organization challenges an
adjusted risk-based capital report that indicates the event in subdivision a,
notification by the commissioner to the health organization that the commissioner,
after a hearing, has rejected the health organization's challenge.
2. In the event of a mandatory control level event, the commissioner shall take such
actions as are necessary to place the health organization under regulatory control
under chapter 26.1-06.1. In that event, the mandatory control level event must be
deemed sufficient grounds for the commissioner to take action under chapter
26.1-06.1, and the commissioner shall have the rights, powers, and duties with respect
to the health organization as are set forth in chapter 26.1-06.1. If the commissioner
takes actions pursuant to an adjusted risk-based capital report, the health organization
is entitled to the protections of chapter 26.1-06.1 pertaining to summary proceedings.
Notwithstanding any of the foregoing, the commissioner may forego action for up to
ninety 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-day period.
### § 26.1-03.2-07. 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 days after the notification by the
commissioner under subsection 1, 2, 3, or 4. Upon receipt of the health organization's request
for a hearing, the commissioner shall set a date for the hearing, which may not be less than ten
nor more than thirty days after the date of the health organization's request. The events include:
1. Notification to a health organization by the commissioner of an adjusted risk-based
capital report;
2. Notification to a health organization by the commissioner that:
a. The health organization's risk-based capital plan or revised risk-based capital
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 risk-based capital plan or revised risk-based capital 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 risk-based capital plan or revised risk-based capital plan; or
4. Notification to a health organization by the commissioner of a corrective order with
respect to the health organization.

### § 26.1-03.2-08. Confidentiality - Prohibition on announcements - Prohibition on use in

ratemaking.
1. All risk-based capital reports, to the extent the information is not required to be set
forth in a publicly available annual statement schedule, and risk-based capital plans,
including the results or report of any examination or analysis of a health organization
performed pursuant to this chapter, and any corrective order issued by the
commissioner pursuant to examination or analysis, with respect to a domestic health
organization or foreign health organization, which are filed with the commissioner
constitute information that might be damaging to the health organization if made
available to its competitors, and therefore shall be kept confidential by the
commissioner. This information may not be made public or be subject to subpoena,
other than by the commissioner and then only for the purpose of enforcement actions
taken by the commissioner pursuant to this chapter or any other provision of the
insurance laws of this state.
2. Neither the commissioner nor any person that received documents, materials, or other
information while acting under the authority of the commissioner is permitted or
required to testify in any private civil action concerning any confidential documents,
materials, or information subject to subsection 1.
3. To assist in the performance of the commissioner's duties, the commissioner may:
a. Share documents, materials, or other information, including the confidential and
privileged documents, materials, or information subject to subsection 1, with other
state, federal, and international regulatory agencies; with the national association
of insurance commissioners and its affiliates and subsidiaries; and with state,
federal, and international law enforcement authorities, if the recipient agrees to
maintain the confidentiality and privileged status of the document, material, or
other information.
b. Receive documents, materials, or information, including otherwise confidential
and privileged documents, materials, or information from the national association
of insurance commissioners 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 documents, materials, or
information is confidential or privileged under the laws of the jurisdiction that is
the source of the document, material, or other information; and
c. Enter agreements governing sharing and use of information consistent with this
subsection.
4. A waiver of an applicable privilege or claim of confidentiality in the documents,
materials, or information does not occur as a result of disclosure to the commissioner
under this section or as a result of sharing as authorized in subdivision c of
subsection 3.
5. It is the judgment of the legislature that the comparison of a health organization's total
adjusted capital to any of its risk-based capital levels is a regulatory tool that may
indicate the need for corrective action with respect to the health organization and is not
intended as a means to rank health organizations generally. Therefore, except as
otherwise required under the provisions of this chapter, the making, publishing,
disseminating, circulating, or placing before the public, or causing, directly or indirectly
to be made, published, disseminated, circulated, or placed before the public, in a
newspaper, magazine, or other publication, or in the form of a notice, circular,
pamphlet, letter, or poster, or over a radio or television station, or in any other way, an
advertisement, announcement, or statement containing an assertion, representation,
or statement with regard to the risk-based capital levels of any health organization, or
of any component derived in the calculation, by any health organization, insurance
producer, or other person engaged in any manner in the insurance business would be
misleading and is therefore prohibited. However, if any materially false statement with
respect to the comparison regarding a health organization's total adjusted capital to its
risk-based capital levels, or any of them, or an inappropriate comparison of any other

amount to the health organization's risk-based capital levels is published in any written
publication and the health organization is able to demonstrate to the commissioner
with substantial proof the falsity of the statement, or the inappropriateness, as the case
may be, then the health organization may publish an announcement in a written
publication if the sole purpose of the announcement is to rebut the materially false
statement.
6. It is the further judgment of the legislature that the risk-based capital instructions,
risk-based capital reports, adjusted risk-based capital reports, risk-based capital plans,
and revised risk-based capital plans are intended 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 may 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.
### § 26.1-03.2-09. Supplemental provisions - Rules - Exemption.

1. The provisions of this chapter are supplemental to any other provisions of the laws of
this state, and do not preclude or limit any other powers or duties of the commissioner
under such laws, including chapter 26.1-06.1.
2. The commissioner may adopt reasonable rules necessary for the implementation of
this chapter.
3. The commissioner may exempt from the application of this chapter a domestic health
organization that:
a. Writes direct business only in this state;
b. Assumes no reinsurance in excess of five percent of direct premium written; and
c. Writes direct annual premiums for comprehensive medical business of less than
an amount determined by the commissioner; or
d. Is a limited health service organization that covers less than a number of lives
determined by the commissioner.
### § 26.1-03.2-10. Foreign health organizations.

1. a. A foreign health organization, upon the written request of the commissioner, shall
submit to the commissioner a risk-based capital report for the calendar year just
ended, the later of:
(1) The date a risk-based capital report would be required to be filed by a
domestic health organization under this chapter; or
(2) Fifteen days after the request is received by the foreign health organization.
b. A foreign health organization, at the written request of the commissioner, shall
promptly submit to the commissioner a copy of any risk-based capital plan that is
filed with the insurance commissioner of any other state.
2. In the event of a company action level event, regulatory action level event, or
authorized control level event with respect to a foreign health organization as
determined under the risk-based capital statute applicable in the state of domicile of
the health organization or, if no risk-based capital statute is in force in that state, under
the provisions of this chapter, if the insurance commissioner of the state of domicile of
the foreign health organization fails to require the foreign health organization to file a
risk-based capital plan in the manner specified under that state's risk-based capital
statute or, if no risk-based capital statute is in force in that state, under section
26.1-03.2-03, the commissioner may require the foreign health organization to file a
risk-based capital plan with the commissioner. In such event, the failure of the foreign
health organization to file a risk-based capital plan with the commissioner is grounds to
order the health organization to cease and desist from writing new insurance business
in this state.
3. In the event of a mandatory control level event with respect to a foreign health
organization, if 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, the commissioner may make
application to the district court permitted under section 26.1-06.1-04 with respect to the
liquidation of property of foreign health organizations found in this state, and the
occurrence of the mandatory control level event shall be considered adequate grounds
for the application.
### § 26.1-03.2-11. Immunity.

There is no liability on the part of, and no cause of action shall arise against, the
commissioner or the insurance department or its employees or agents for any action taken by
them in the performance of their powers and duties under this chapter.
### § 26.1-03.2-12. Notices.

All notices by the commissioner to a health organization which may result in regulatory
action under this chapter are effective upon dispatch if transmitted by registered or certified
mail, or in the case of any other transmission, are effective upon the health organization's
receipt of notice.
### § 26.1-03.2-13. Phasein provision.

For risk-based capital reports required to be filed by health organizations with respect to
1999, the following requirements apply in lieu of the provisions of sections 26.1-03.2-03,
26.1-03.2-04, 26.1-03.2-05, and 26.1-03.2-06:
1. In the event of a company action level event with respect to a domestic health
organization, the commissioner shall take no regulatory action under this chapter.
2. In the event of a regulatory action level event under subdivision a, b, or c of
subsection 1 of section 26.1-03.2-04, the commissioner shall take the actions required
under section 26.1-03.2-03.
3. In the event of a regulatory action level event under subdivision d, e, f, g, h, or i of
subsection 1 of section 26.1-03.2-04 or an authorized control level event, the
commissioner shall take the actions required under section 26.1-03.2-04 with respect
to the health organization.
4. In the event of a mandatory control level event with respect to a health organization,
the commissioner shall take the actions required under section 26.1-03.2-05 with
respect to the health organization.
