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Department of Insurance, Securities and Banking

Commissioner Determines CareFirst 2011 Surplus Is Excessive

Tuesday, December 30, 2014

Acting Commissioner Chester A. McPherson of the D.C. Department of Insurance, Securities and Banking today issued his decision and order [PDF] in the Surplus Review and Determination for Group Hospitalization and Medical Services, Inc. (GHMSI), a nonprofit hospital and medical services corporation which operates as CareFirst in the District of Columbia.

After an extensive review of law and facts, the commissioner determined that GHMSI’s 2011 surplus of $963 million was excessive and that approximately $56 million of the excess surplus is attributable to the District. Today’s order requires GHMSI to submit a plan for the dedication of the excess surplus to community health reinvestment to the commissioner within 45 days.

The commissioner is required by law to review GHMSI’s surplus (the amount by which its admitted assets exceed its liabilities, including reserves) at least once every three years to determine whether it is “excessive.” Under District law, surplus is considered excessive if: one, it exceeds certain risk-based capital standards; and two, it is unreasonably large and inconsistent with GHMSI’s statutory obligation to engage in community health reinvestment to the maximum feasible extent consistent with financial soundness and efficiency. District law defines community health reinvestment as “expenditures that promote and safeguard the public health or that benefit current or future subscribers, including premium rate reductions.” 

GHMSI’s surplus as of Dec. 31, 2011 was just over $963 million. The commissioner determined that a target surplus of approximately $696 million would maximize GHMSI’s community health reinvestment but still be consistent with financial soundness and efficiency, as required by District law. This target was reached by modeling GHMSI’s surplus needs based on a careful evaluation of the company’s historical experience and projected future experience.

The commissioner considered over 2,000 pages of surplus-related materials in reaching this decision including submissions by GHMSI and its consultants; the D.C. Appleseed Center for Law and Justice and its experts; Maryland and Virginia insurance regulators; the department’s consultants (Rector & Associates and NovaRest) and members of the public. In addition, the department held a public hearing on June 25, 2014 to receive testimony on the surplus review.

“The department carefully considered GHMSI’s financial condition and its statutory obligation to engage in community health reinvestment,” said McPherson. “This is a complex regulatory and insurance determination that was based on the factual findings and legal conclusions reached after an extensive review. I would like to express my appreciation to GHMSI, Appleseed, our insurance regulatory peers in Virginia and Maryland, the consultants and other interested parties who provided input throughout this process.”

To view the decision and order and all other surplus review documents, go to