STATE INSURANCE FUND CORPORATION

Number: 9102Date: JULY 29.2019Approved ..Maria Marcano de Leon

Subsecretaiy of State

By: Samuel Wiscovitoh CoraliAssistant SecretaryDepartment of State

REGULATION FOR GOVERNING THE PLAN FORCLASSIFICATION BASED UPON EXPERIENCE

2019

STATE INSURANCE FUND CORPORATION

REGULATION FOR GOVERNING THE PLAN FOR CLASSIFICATION BASED

UPON EXPERIENCE

TABLE OF CONTENTS

Page

I, Introduction 1

!!. Legal Basis 1

Hi. Purpose 2

IV. Aplicability 2

V. Definitions 2-3

VI. Genera! Dispositions 3

A. Basis for Insurance Rate Based Upon Experience 3

B. Incurred Losses 3

C. Incurred Loss Allocation 4

D. Earned Payroll Exposure and Total Earned Premium 4

E. Determination and Application Surcharge Rate Based

Upon Experience 4

F. Determination and Application Bonus Rate Based Upon

Experience 4-5

G. Determination of Credibiiitv Factor 5

K Basic Table to Assign Credibility 5

I. Employers Under More Than One Classification 5

J. Bonuses or Surcharges Lesser Than One Percent (1%) or

One Dollar ($1.00) 5-6

K. Employer Operating Several Businesses 6

L. Pre-existent Disabilities S

M. Catastrophe 6

N. Formulas, Temninology and Examples 7-9

0. Notice to Employers Under the Merit System 9

VII. Provisos 10

VliL Derogation 10

EX. Approval 10

X. Validity 10

STATE INSURANCE FUND CORPORATION

REGULATION FOR GOVERNING THE PLAN FOR CLASSIFICATION BASED

UPON EXPERIENCE

ARTICLE I - INTRODUCTION

The State Insurance Fund Corporation provides to employers with workers

insurance coverage that guarantees injured workers medical sen/ices and

economic compensation for accidents or occupational diseases, in order to

establish a fair cost for the payment of premiums and to encourage the prevention

of accidents, the Corporation, in accordance with its Enabling Law, maintains a

program of bonuses and surcharges, taking into account the experience of each

employer

This regulation establish the rules that must be met in the annual revision of the

/rates in force, to achieve an equitable distribution of the losses between the

occupations and industries and to achieve that the bonuses or surcharges for the

,, ' premiums, approach the most possible to the experience of each group in

^ -, ^', \^' particular.y'i

^ ARTICLE II - LEGAL BASIS

This Regulation is promulgated in accordance with the powers conferred on the

Governing Board and the Administrator of the State Insurance Fund Corporation,

through the Articles 1 B (11 LPRA § 1 b-3) and (1 1 LPRA § 1 b^) of the Law 45 of

April 18, 1935, as amended, known as the Workers' Compensation System Law.

These provisions empower the Administrator to adopt the rules and procedures

necessary to regulate an efficient operation. Inadd'rtion, Law 38 of June 30, 2017,

known as the Uniform Administrative Procedures Act of the Government of Puerto

Rico.

ARTICLE HI - PURPOSE

The purpose of this Regulation is establish the set of rules that will constitute the

Plan for Classification Based upon Experience to encourage employers to promote

healthy operation environments in order to prevent work hazards and occupational

diseases, by allowing them to pay insurance premiums in measure with their

experience.

ARTICLE IV - APPLICABILITY

This Regulation applies to every employer covered by the Plan for Classification

Based upon Experience, from July 1 of every year, after being insured by the State

Insurance Fund Corporation for a period longer than a year, starting from July 1 of

the previous natural year, as long as such insured employer has accrued a net

total of premiums greater than seven thousand dollars ($7,000) during the last two

years prior to July 1 of the last natural year.

ARTICLE V - DEFINITIONS

In pursuant to this Regulation, the following terminology is defined to be interpreted

according to these meanings:/J-

//'^/ 1. Administrator-Administrator of the State Insurance Corporation.

^|^" 2. Bonus - Price cut or discount on premium payments.

^ 3. Classification or Risk Identification Code - Each and ever/ group of

occupations and industries included within the Manual of Classifications

and Rates for Workers Compensation Insurance.

4. Corporation -The State Insurance Fund Corporation.

5. Credibility - Measurement for the confidence level assigned in accordance

to the experience shown by the employer.

6- Manual- Manual of Classifications and Rates for Workers Compensation

Insurance.

7. Incurred Losses - All kinds of costs related to medical services or

compensations and other services added to the reserve claim losses,

8. Plan for Classification Based upon Experience and/or Merit System -

System to grant bonuses or impose surcharges to an employer, based upon

C. INCURRED LOSS ALLOCATION

From the total of earned premiums, there shall be a certain amount

allocated for the employer to cover incurred losses by workers suffering job-

related accidents. Such amount shall be known as "Incurred Loss

Allocation". Every employer will be assigned a .78 as a factor to Incurred

Loss Allocation. The factor assigned to incurred losses shall be multiplied

by .78 to the total of earned premiums, to obtain the Incurred Loss Allocation

Quantity.

D. EARNED PAYROLL EXPOSURE AND TOTAL EARNED PREMIUM

The total payroll and premiums earned by an insured employer sha!l be

determined by including only the payrolls and premiums accrued during the

last two (2) years before July 1 of the preceding natural year.

E. DETERMINATION AND APPLICATION SURCHARGE RATES BASED

UPON EXPERIENCE

When the frequency and/or severity of job-related accidents suffered by

workers of an insured employer result in incurred losses greater than the

incurred loss allocation quantity, the basic premium rate according to the

code shall be increased by a factor assigned within the Basic Table to

Assign Credibility, by subtracting the difference between incurred losses

and the incurred loss allocation quantity, in relation to the incurred loss

allocation quantity. A difference less than frfty dollars ($50.00) between the

incurred losses and the incurred less allocation quantity shall be

disregarded, and surcharges greater to the percentage of credibility factor

shall be considered to be the percentage.

F. DETERMINATION AND APLICATION BONUS RATES BASED UPON

EXPERIENCE

When the frequency and/or severity of job-related accidents suffered by

workers of an insured employer result in incurred losses smaller than the

incurred loss allocation quantity, the basic premium rate according to the

code shall be decreased by a factor assigned within the Basic Table to

their classification basic rate, depending on individual experience, in

pursuant to the Law and this Regulation.

9. Minimum Premium ~ The smallest charge amount for which a policy shall

be issued.

IQ.Self-EmpIoyer - A natural person, owner of their production means in a

self-entrepreneurship, works full time and their annual gross income does

not exceed one million dollars ($1,000,000.00).

11. Surcharges -Additional charges imposed on premium payments.

12. Reserve - An estimated amount of money allocated to cover expected

losses for known cases.

13. Premium Basic Rate or Code Rate-Annual rates published in Manual of

Classifications and Rates Workers Compensation Insurance promulgated

by the Administrator.

ARTICLE VI - GENERAL DISPOSITIONS

A. BASIS FOR THE INSURANCE RATE BASED UPON EXPERIENCE

The insurance rate based upon experience shall be calculated annually and

shall remain valid for the next bwelve months beginning on July 1 of every

^ y natural year, throughout June 30 of the next year.

Employers holding minimum premium policies, eventual policies and self-

employer classifications shall not be included within the Plan of

Classifications Based upon Experience. Likewise, all agencies and

instrumentalities of the Government of Puerto Rico, except Public

Corporations-

B. INCURRED LOSSES

Incurred losses by an insured employer shall be determined by the following

criteria: hazard compensations, medical costs, travel expenses of the

injured, funeral expenses, reserves and other expenses; except for

management costs, and losses suffered as a result of a catastrophe

occurred within the last two (2) years previous to July 1 of such natural year.

^

Assign Credibility by subtracting the difference between incurred losses and

the incurred loss allocation quantity, in relation to the incurred loss allocation

quantity. A difference less than fifty dollars ($50) between the incurred

losses and the incurred losses allocation factor shall be disregarded, and

bonuses greater to the percentage of credibility shall be considered to be to

percentage regarded as the actual percentage of credibility.

G. DETERMINATION OF CREDIBILIPT FACTOR

To determine the credibility factor of an insured employer, its total earned

payroll shall be assessed. Afterwards, a credibility group shall be assigned

according to the Basic Table to Assign Credibility.

H. BASIC TABLE TO ASSIGN CREDIBILITY

Total

Earned Payroll Exposure

20,000,000 and more

$10,000,000-19,999,999

5,000,000 - 9,999,999

1,000,000 - 4,999,999

500,000 - 999,999

250,000 - 499,999

Less than or equal to 249,999

CredibilityFactor Group

I

I!

Ill

IV

v

VI

VII

Credibility

Factor

.30

.27

.25

.20

.17

.13

.09

I. EMPLOYERS UNDER MORE THAN ONE CLASSIFICATION

When coverage granted to an employer comprises more than one

classification rate modrfication percentage shall be determined according to

the total accrued experience of such classifications (payroll, premiums and

losses incurred) and such modification percentage shall be applied to each

and every one of the classifications.

J. BONUSES OR SURCHARGES LESSER THAN ONE PERCENT (1%)

OR ONE DOLLAR ($1.00)

Neither bonuses nor surcharges shall be applied when the amounts of such

quantities are lesser than one percent (1 %).

Likewise, when the rates for bonuses or surcharges are calculated, if the

resulting amount is less than one dollar ($'1.00) such quantity shall be

disregarded.

K. EMPLOYER OPERATING SEVERAL BUSINESSES

When an employer operates several businesses as independent units with

separate accounting systems, the experience shall be assessed separately

for each operation to determine the amount of bonuses or surcharges.

Construction businesses are exempted from the aforementioned

assessment, since all building operations shall be considered as a total

project executed by the contractor employer.

L. PRE-EXfSTENT DISABILITIES

If as a result of a job-related accident an employee suffers the worsening or

exacerbation of a pre-existing condition and such combined factors result in

total, permanent disability to work, or total, permanent disability by loss of

physiological functioning of a limb or an internal organ, the difference from

the compensation granted to the employee minus the compensation that

the employee would have received if such pre-existenf condition had not

existed will be surcharged to the employer's experience. The remaining

costs shall be charged against the Catastrophe Resen/e Fund.

M. CATASTROPHE

A catastrophe is defined by an accident in which two or more employees

working under the same employer die or suffer injuries that result in total,

permanent disability. If previously established requirements are met and

the costs exceed the amount of $32,400.00, per case, the excess of

$32,400.00 per case shall not be surcharged to the employer; such excess

shall be transferred to the Catastrophe Reserve Fund. Catastrophe costs

include compensations, benefits, money resen/es, all medical costs, travel

expenses of the injured, funeral expenses, etc.

N. FORMULAS, TERMINOLOGY AND EXAMPLES

To calculate rates for bonuses or surcharges, the following formulas shall

be applied:

A. Formula to calculate the bonus rate

IPxA=IPA RxZc=RZc

IPA-C == R (1-RZc) x M = RZMc

I PA

B. Formula to calculate the surcharge rate

IPxA=IPA RxZd=R2d

C - IPA= R (1+RZd) x M = RZMdI PA

C. Terminology

Abbreviations used for calculations are defined as follows:

Earned Premiums

Factor Assigned Loss

Incurred Loss Allocation Quantity

Incurred Losses

Percentage obtained by dividing the difference from the

Incurred Loss Allocation Quantity (IPA) minus Incurred

Losses (C) by the Incurred Loss Allocation Quantify

(IPA)6- M Basic Premium Rate according to the Code

7-2d Credibility Factor Surcharge

8-Zc Credibility Factor Credit

9- RZd Surcharge Percentage Applicable to the Basic Rate (M)

10-RZc Credit Percentage Applicable to the Basic Rate (M)

11-RZMd Adjusted Rate Surcharge for every $100 of payroll

12-RZMc Rebate Rate for every $100 of payroll

/1<̂

^//

;y

/^'/

.'

1-lp

2-A

3-1 PA

4-C

5-R

D. Examples

1. Calculation for Bonus Rate

Payroll $ 460,000.00

Premiums $ 23,000.00

Losses Incurred $ 8,500.00

Basic Rate $ 5.00

We will assigned to the policy a .78 as a iosses incurred factor.

Such factor 78 multiplied by the premiums' $23,000.00, will result

in the total amount of allocation for loss incurred $17,940.00. If

losses incurred by the employer amounted to $8,500.00, we

subtract the allocation of $17,940.00 minus $8,500.00, to obtain a

total of $9,440.00. This resulting figure of $9,440.00 will be divided

by the allocation of $17,940.00 to get the proportion of .53. This

figure then will be multiplied by the credibility factor, in this example

.13. The result of this operation is .07, shall constitute the bonus

rate to be applied to the basic rate. If the basic rate amounts to

$5.00, this quantity will be multiplied by .07, to obtain a total of $.35i/ J^/L

.-.7 . that will constitute the discount to be applied to the premium rate

^/i ^

^ as stated wrthin the code. Therefore, the employer's policy wi!l

result in an effective rate of $4.65 ($5.00 basic rate minus 7%).

$23,000.00 (IP) x .78 (A) = $17,940.00 (IPA)

$17.940.00 HPA) - 58.500.00 (C) = .53

$17,940.00 (IPA)

.53(R)x.13(2c)=.07RZc

.07 (RZc) x $5.00 (M) = .35 (RZMc)

5.00(M)- .35 (RZMc) = 4.65 Effective Rate

2. Calculation for Surcharge Rate

Payroll $460,000.00

Premiums $ 23,000.00

Losses Incurred $ 30,000.00

Basic Rate $ 5.00

We will assigned to the policy a .78 as a losses incurred factor.

Such factor .78 multiplied by the premiums' $23,000.00, will

result in the total amount of allocation for loss incurred:

$17,940-00. If losses incurred by the employer amounted to

$30,000.00, we subtract the allocation of $17,940.00 to obtain

a total of $12,060.00. This resulting figure of $12,060.00 will

be divided by the allocation of $17,940.00 to get the proportion

of .67. This figure then will be multiplied by the credibility

factor, in this example .13. The result of this operation, .09,

shall constitute the surcharge rate to be added to the basic

rate. If the basic rate amounts to $5.00, this quantity must be

multiplied by .09, to obtain a total of $.45 that will constitute

the surcharge to be applied to the premium rate as stated

within the code. Therefore, the employer's policy wil! result iny6

an effective rate of $5.45 ($5.00 basic rate plus 9%).

i-$23,000.00 (IP) x .78 (A) = $17,940.00 (IPA)

$30.000.00 (0 - $17.940.00 flPA^ = .67

$17,940.00 (IPA)

.67(R)x.13(Zd)=.09RZd

.09 (RZd) x $5.00 (M) = .45 (RZMd)

5.00 (M) + .45 (RZMd) = 5.45 Effective Rate

0. NOTICE TO EMPLOYERS UNDER THE MERIT SYSTEM

The Administrator shall notify annually to every employer about their

percentage of bonuses earned or surcharges to be imposed, before the

imposition of the premiums. This notice will be issued in pursuant to the

Law and ft constitutes a non- appealable decision.

ARTICLE VII - PROVISOS

If any section, subsection, paragraph or any part of this document is declared null

by a competent Court, such declaration of nullity will not affect the rest of the

dispositions declared herein, so the rest of this Regulation shall remain valid.

ARTICLE VIII - DEROGATION

Approval of this document repeals regulation Number (8991) known as Regulation

to Government the Plan of Classifications Based upon Experience, of May 24,

2017. This was approved by Government Board of the State Insurance Fund

\ff) Corporation under Resolution A-48-2017 and by State Department on August 4,

y 2017'

^ ARTICLE IX-APPROVAL

This document was approved by the Government Board of the State Insurance

Fund Corporation, under Resolution Number A-50-2019 of June 24, 2019.

ARTICLE X - VALIDITY

This document will be valid as of its approval, signature and filing in the State

Department of the Government of Puerto Rico.

.' . -•;/'/ -

'// /•..- zLl£Jesus M. Rodriguez f^rfsa Dafte

Administrator

10