La. Admin. Code tit. 37 § XI-311

Current through Register Vol. 50, No. 9, September 20, 2024

Section XI-311 - Solvency or Risk Management Agencies; Trustee Responsibilities

A. In order to insure the financial stability of the operations of each interlocal risk management agency, the board of trustees of each fund shall be responsible for all operations of the fund. The board of trustees of each agency shall take all necessary precautions to safeguard the assets of the fund or funds of such agency including:

1. the designation of a fiscal agent or administrator, if not otherwise provided for by Act 462 of the 1979 Regular Session of the Louisiana Legislature to administer the financial affairs of the fund, which as obligee, shall furnish a fidelity bond, or acceptable substitute, to protect the fund against misappropriation or misuse of any monies or securities. The amount of the bond, or substitution therefor, shall be determined by the interlocal risk management agency subject to approval by the insurance department. Such fiscal agent or administrator shall not be an owner, officer, or employee of the service agent;

2. retain control of all monies collected or disbursed from the fund or funds and shall segregate all monies into a claims fund and trustee fund. The amount allocated to the claims fund will be sufficient to cover payment of the entire aggregate loss fund, as defined in the aggregate excess insurance policy. Only disbursements that are credited toward the loss fund, as defined in the aggregate excess policy, will be made from the claims fund. All administration costs and other disbursements will be made from the trustee fund. The administrator of the fund shall establish a revolving fund for use by the authorized service agent, which will be replenished from time to time from the claims fund. The service agent and its employees shall be covered by a fidelity bond, with the interlocal risk management agency named as obligee in an amount sufficient to protect all monies placed in the revolving fund. Such bond and its amount shall be subject to approval by the insurance department;

3. audit of the accounts and records are provided for in Act 462 of the 1979 Regular Session of the Louisiana Legislature;

4. the board of trustees or its fiscal agent or administrator shall not utilize any of the monies collected as premiums for any purpose unrelated to workmen's compensation or public liability purposes. Further, it shall not borrow any monies from the fund, or in the name of the fund, without advising the Department of Insurance of the nature and purpose of the loan and obtaining approval. The board of trustees may, at its discretion, invest any surplus monies not needed for current obligations, but such investments shall be limited to:

a. direct United States Treasury obligations, the principal and interest of which are fully guaranteed by the government of the United States;

b. bonds, debentures, notes, or other evidence of the indebtedness issued or guaranteed by federal agencies and provided such obligations are backed by the full faith and credit of the United States of America, which obligations include but are not limited to:

i. U.S. Export-Import Bank;

ii. Farmers Home Administration;

iii. Federal Financing Bank;

iv Federal Housing Administration Debentures;

v. General Services Administration;

vi. Government National Mortgage Association- guaranteed mortgage-backed bonds and guaranteed pass-through obligations;

vii. U.S. Maritime Administration-guaranteed Title XI financing;

viii. U.S. Department of Housing and Urban Development.

c. Bonds, debentures, notes, or other evidence of the indebtedness issued or guaranteed by U.S. government instrumentalities, which are federally sponsored, and such obligations include but are not limited to:

i. Federal Home Loan Bank System;

ii. Federal Home Loan Mortgage Corporation;

iii. Federal National Mortgage Association;

iv. Student Loan Marketing Association;

v. Resolution Funding Corporation.

d. In no instance shall an interlocal risk management agency invest in obligations in Subparagraphs b and c of this Paragraph which are collateralized mortgage obligations that have been stripped into interest only or principal only obligations, inverse floaters, or structured notes. For the purposes of this Item, structured notes shall mean securities of U.S. government agencies, instrumentalities, or government-sponsored enterprises, which have been restructured, modified, and/or reissued by private entities.

e. Bonds, debentures, notes, or other evidence of indebtedness issued by the state of Louisiana or any of its political subdivisions provided that the indebtedness shall have a long-term rating of Baa or higher by Moody's Investors Service, a long-term rating of BBB- or higher by Standard and Poor's or a long-term rating of BBB- or higher by Fitch, Inc. or a short-term rating of MIGI or VMIGI by Moody's Investors Service, a short-term rating of A-l or A-1+ by Standard and Poor's, or a short-term rating of Fl of Fl+by Fitch, Inc.

f. Direct security repurchase agreements of any federal book entry only securities enumerated in Subparagraphs a, b, and c of this Paragraph. Direct security repurchase agreement means an agreement under which political subdivision buys, holds for a specified time, and then sells back those securities and obligations enumerated in Subparagraphs a, b, and c of this Paragraph.

g. Time certificates of deposit of any bank domiciled or having a branch office in the state of Louisiana, savings accounts or shares of savings and loan associations and savings band, as defined by R.S. 6:703(16) or (17), or share accounts and share certificate accounts of federally or state-chartered credit unions issuing time certificates of deposit. Funds invested herein shall not exceed at any time the amount insured by the Federal Deposit Insurance Corporation in any one banking institution, or in any one savings and loan association, or National Credit Union Administration.

h. Deposits in savings and loan associations and commercial banks shall be limited in this state, except in those instances where higher interest rates paid on deposits by such institutions in other states will provide better investment income and such deposits shall not exceed the federally insured amount in any one account, except that the federally insured amount on any one account may be exceeded if the amount involved in such an account does not exceed the greater of either of the two factors:

i. 5 percent of the combination of surplus and undivided profits and reserves, as currently reported for each bank in this state of in the banking division annual report of the Financial Institution Office of the Department of Commerce (banking control) or financial reports filed with the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, and the Federal Reserve Bank of Atlanta;

ii. $500,000 per institution.

i. Mutual or trust fund institutions which are registered with the Securities and Exchange Commission under the Securities Act of 1933 and the Investment Act of 1940, and which have underlying investments consisting solely of and limited to securities of the United States government or its agencies. Investment of funds in such mutual or trust fund institutions shall be limited to 25 percent of the monies considered available for investment as provided by this Section.

j. Guaranteed investment contracts issued by a bank, financial institution, insurance company, or other entity having one of the two highest short-term rating categories of either Standard and Poor's Corporation or Moody's Investors Service, provided that no such investment may be made except in connection with a financing program for political subdivisions which financing program is approved by the state Bond Commission and offered by a public trust having the state as its beneficiary, provided further that no such investment shall be for a term longer than 18 months, and provided further that any such guaranteed investment contract shall contain a provision providing that in the event the issuer of the guaranteed investment contract is at any time no longer rated in either of the two highest short-term rating categories of Standard and Poor's Corporation or Moody's Investors Service, the investing unit of local government may either be released from the guaranteed investment contract without penalty, or be entitled to require that the guaranteed investment provider collateralize the guaranteed investment contract with any bonds or other obligations which as to principal and interest constitute direct general obligations of, or are unconditionally guaranteed by, the United States of America, including obligations set forth in Subparagraphs a and b of this Paragraph to the extent unconditionally guaranteed by the United States of America.

k. Investment grade commercial paper issued in the United States, traded in the United States markets, denominated in United States dollars, with a short-term rating of at least A-l by Standard and Poor's Financial Services LLC or P-lby Moody's Investor Service, Inc. or the equivalent rating by a Nationally Recognized Statistical Rating Organization (NRSRO).

l. Pre-approved first mortgage loans on commercial real estate owned by the fund administrator, located with the state of Louisiana, and occupied by the Fund or its trustees, administrator, or third [arty administrator.

m. Bonds, debentures, notes, or other indebtedness issued by a state of the United States of America other than Louisiana or any such state's political subdivisions provided that all of the following conditions are met.

i. The indebtedness shall have a long-term rating of A3 or higher by Moody's Investors Service, a long-term rating of A- or higher by Standard and Poor's or a long-term rating of A- or higher by Fitch, Inc., or a short-term rating of M1G1 of VM1G1 by Moody's Investor's Service, a short-term rating of A-l or A-l + by Standard & Poor's, or a short-term rating of F1 or F1 + by Fitch, Inc.

ii. Prior to purchase of any such indebtedness and at all times during which such indebtedness is owned, the purchasing interlocal risk management agency retains the services of an investment advisor registered with the United States Securities and Exchange Commission; a trust department of an institution that is insured by the Federal Deposit Insurance Corporation, that exercised trust powers in Louisiana, and that has a main office or a bank branch in Louisiana; or a trust company that has offices in Louisiana, that is regulated by the Office of Financial Institutions or the applicable federal agency, and that owes a fiduciary duty to act solely in the best interest of the political subdivision.

n. Bonds, debentures, notes or other indebtedness issued by domestic United States corporations provided that all of the following conditions are met.

i. The indebtedness shall have a long-term rating of Aa3 or higher by Moody's Investors Service, a long-term rating of AA- or higher by Standard and Poor's, or a long-term rating of AA- or higher by Fitch Ratings, Inc.

o. All interlocal risk management agencies shall develop and adopt an investment policy that details and clarifies investment objectives and the procedures and constraints necessary to reach those objectives. All such investment policies should:

i. reflect the mandate to manage funds prudently;

ii. place appropriate emphasis on the goals of safety of principal first, liquidity second, and yield third.

B. The board of trustees may delegate authority for specific functions to the administrator of the self-insurers' fund. The functions which may be delegated include, but are not limited to, such matters as contracting with a service agent, determining the premium charged to and refunds payable to members, investing surplus monies subject to the restrictions set forth in §311. A 4, and approving applications for membership. All delegated authority shall be specifically defined in the written minutes of the trustees' meetings and shall be subject to final approval.

La. Admin. Code tit. 37, § XI-311

Promulgated by the Department of Insurance, Commissioner of Insurance, LR 16:621 (July 1990), Amended LR 461103 (8/1/2020).

AUTHORITY NOTE: Promulgated in accordance with R.S. 22:11, Title 22, Section 2 of 1950 and Act 462 of the 1979 Session of the Louisiana Legislature, R.S. 33:2955 and the Administrative Procedure Act, R.S. 49:950 et seq.