[Code of Federal Regulations]

[Title 24, Volume 4]

[Revised as of April 1, 2006]

From the U.S. Government Printing Office via GPO Access

[CITE: 24CFR965.205]



[Page 469-471]

 

                 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 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;



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    (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

    (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



[[Page 471]]



    (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]