[Code of Federal Regulations]
[Title 24, Volume 4]
[Revised as of April 1, 2005]
From the U.S. Government Printing Office via GPO Access
[CITE: 24CFR965.205]

[Page 475-477]
 
                 TITLE 24--HOUSING AND URBAN DEVELOPMENT
 
CHAPTER IX--OFFICE OF ASSISTANT SECRETARY FOR PUBLIC AND INDIAN HOUSING, 
               DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
 
PART 965_PHA-OWNED OR LEASED PROJECTS_GENERAL PROVISIONS--Table of Contents
 
                  Subpart B_Required Insurance Coverage
 
Sec. 965.205  Qualified PHA-owned insurance entity.

    (a) Contractual requirements for insurance coverage. The Annual 
Contributions Contract (ACC) between PHAs and the U.S. Department of 
Housing and Urban Development requires that

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PHAs maintain specified insurance coverage for property and casualty 
losses that would jeopardize the financial stability of the PHAs. The 
insurance coverage is required to be obtained under procedures that 
provide ``for open and competitive bidding.'' The HUD Appropriations Act 
for Fiscal Year 1992 provided that a PHA could purchase insurance 
coverage without regard to competitive selection procedures when it 
purchases it from a nonprofit insurance entity owned and controlled by 
PHAs approved by HUD in accordance with standards established by 
regulation. This section specifies the standards.
    (b) Method of selecting insurance coverage. While 24 CFR part 85 
requires that grantees solicit full and open competition for their 
procurements, the HUD Appropriations Act for Fiscal Year 1992 provides 
an exception to this requirement. PHAs are authorized to obtain any line 
of insurance from a nonprofit insurance entity that is owned and 
controlled by PHAs and approved by HUD in accordance with this section, 
without regard to competitive selection procedures. Procurement of 
insurance from other entities is subject to competitive selection 
procedures.
    (c) Approval of a nonprofit insurance entity. Under the following 
conditions, HUD will approve a nonprofit self-funded insurance entity 
created by PHAs that limits participation to PHAs (and to nonprofit 
entities associated with PHAs that engage in activities or perform 
functions only for housing authorities or housing authority residents):
    (1) An insurance company (including a risk retention group). (i) The 
insurance company is licensed or authorized to do business in the State 
by the State Insurance Commissioner and has submitted documentation of 
this approval to HUD; and
    (ii) The insurance company has not been suspended from providing 
insurance coverage in the State or been suspended or debarred from doing 
business with the federal government. The insurance company is obligated 
to send to HUD a copy of any action taken by the authorizing official to 
withdraw the license or authorization.
    (2) An entity not organized as an insurance company. (i) The entity 
has competent underwriting staff (hired directly or engaged by contract 
with a third party), as evidenced by professionals with an average of at 
least five years of experience in large risk (exceeding $100,000 in 
annual premiums) commercial underwriting or at least five years of 
experience in the underwriting of risks for public entity risk pools. 
This standard may be satisfied by submission of evidence of competent 
underwriting staff, including copies of resumes of underwriting staff 
for the entity;
    (ii) The entity has efficient and qualified management (hired 
directly or engaged by contract with a third party), as evidenced by the 
report submitted to HUD in accordance with paragraph (d)(3) of this 
section and by having at least one senior staff person who has a minimum 
of five years of experience:
    (A) At the management level of Vice President of a property/casualty 
insurance entity;
    (B) As a senior branch manager of a branch office with annual 
property/casualty premiums exceeding $5 million; or
    (C) As a senior manager of a public entity risk pool. Documentation 
for this standard must include copies of resumes of key management 
personnel responsible for oversight and for the day-to-day operation of 
the entity;
    (iii) The entity maintains internal controls and cost containment 
measures, as evidenced by an annual budget;
    (iv) The entity maintains sound investments consistent with the 
State insurance commissioner's requirements for licensed insurance 
companies, or other State statutory requirements controlling investments 
of public entities, in the State in which the entity is organized, 
investing only in assets that qualify as ``admitted assets'';
    (v) The entity maintains adequate surplus and reserves for 
undischarged liabilities of all types, as evidenced by a current audited 
financial statement and an actuarial review conducted in accordance with 
paragraph (d) of this section; and

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    (vi) Upon application for initial approval, the entity has proper 
organizational documentation, as evidenced by copies of the articles of 
incorporation, by-laws, business plans, copies of contracts with third 
party administrators, and an opinion from legal counsel that 
establishment of the entity conforms with all legal requirements under 
Federal and State law. Any material changes made to these documents 
after initial approval must be submitted for review and approval before 
becoming effective.
    (d) Professional evaluations of performance. Audits and actuarial 
reviews are required to be prepared and submitted annually to the HUD 
Office of Public and Indian Housing, for review and appropriate action, 
by nonprofit insurance entities that are not insurance companies 
approved under paragraph (c)(1) of this section. In addition, an 
evaluation of other management factors is required to be performed by an 
insurance professional every three years. For fiscal years ending on or 
after December 31, 1993, the initial audit, actuarial review, and 
insurance management review required for a nonprofit insurance entity 
must be submitted to HUD within 90 days after the entity's fiscal year.
    (1) The annual financial statement prepared in accordance with 
generally accepted accounting principles (including any supplementary 
data required under GASB 10) is to be audited by an independent auditor 
(see 24 CFR part 44), in accordance with generally accepted auditing 
standards. The independent auditor shall express an opinion on whether 
the entity's financial statement is presented fairly in accordance with 
generally accepted accounting principles. A copy of this audit must be 
submitted to HUD.
    (2) The actuarial review must be done consistent with requirements 
established by the National Association of Insurance Commissioners and 
must be conducted by an independent property/casualty actuary who is an 
Associate or Fellow of a recognized professional actuarial organization, 
such as the Casualty Actuary Society. The report issued, a copy of which 
must be submitted to HUD, must include an opinion on any over or under 
reserving and the adequacy of the reserves maintained for the open 
claims and for incurred but unreported claims.
    (3) A review must be conducted, a copy of which must be submitted to 
HUD, by an independent insurance consulting firm that has at least one 
person on staff who has received the professional designation of 
chartered property/casualty underwriter (CPCU), associate in risk 
management (ARM), or associate in claims (AIC), of the following:
    (i) Efficiency of any Third Party Administrator;
    (ii) Timeliness of the claim payments and reserving practices; and
    (iii) The adequacy of reinsurance coverage.
    (e) Revocation of approval of a nonprofit insurance entity. HUD may 
revoke its approval of a nonprofit insurance entity under this section 
when it no longer meets the requirements of this section. The nonprofit 
insurance entity will be notified in writing of: the proposed revocation 
of its approval, the reasons for the action, and the manner and time in 
which to request a hearing to challenge the determination. The procedure 
to be followed is specified in 24 CFR part 26, subpart A.

[41 FR 20276, May 17, 1976, as amended at 61 FR 7969, Feb. 29, 1996; 61 
FR 50219, Sept. 24, 1996]