PROPOSED RULEMAKING
INSURANCE DEPARTMENT
[31 PA. CODE CH. 3]
Allocation of Joint Expenses
[30 Pa.B. 5019] The Insurance Department (Department) proposes to delete Chapter 3 (relating to allocation of joint expenses) to read as set forth in Annex A, under the authority of sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P. S. §§ 66, 186, 411 and 412); the act of May 9, 1949 (P. L. 1025, No. 298) (act) (40 P. S. §§ 1261--1264); and section 320 of The Insurance Company Law of 1921 (40 P. S. § 443). The regulations apply to property and casualty insurers, the State Workmen's Insurance Fund and title insurers. The regulations prescribe accounting rules for allocation of joint expenses in financial statements.
Purpose
The purpose of this rulemaking is to delete Chapter 3 to eliminate obsolete, unnecessary regulations. The regulations were initially adopted October 21, 1949, and last amended July 7, 1970, under the authority of the act. Specifically, sections 1 and 2 of the act (40 P. S. §§ 1261 and 1262) require property and casualty insurers, the State Workmen's Insurance Fund and title insurers to maintain uniform classifications of accounts and records as may be prescribed by the Insurance Commissioner (Commissioner) and, in addition, to file reports in a form determined by the Commissioner. The regulations were adopted to prescribe uniform accounting rules for the allocation of joint expenses in financial reports filed with the Commissioner. Joint expenses are expenses shared among members of a group of entities.
Section 320(a) of The Insurance Company Law of 1921 requires insurers to file annual financial statements and, as amended by the act of December 18, 1992 (P. L. 792, No. 176) states, in pertinent part:
(a)(1) Every stock and mutual insurance company, association, and exchange, doing business in this Commonwealth, shall annually, on or before the first day of March, file in the office of the Insurance Commissioner and with the National Association of Insurance Commissioners a statement which shall exhibit its financial condition on the thirty-first day of December of the previous year . . . The Insurance Commissioner shall require each insurance company, association and exchange to report its financial condition on the statement convention blanks, in such form as adopted by the National Association of Insurance Commissioners . . . and may make such changes, from time to time, in the form of the same as shall seem best adapted to elicit from them a true exhibit of their financial condition.(2) Unless otherwise provided by law, regulation or order of the Insurance Commissioner, each insurance company, association and exchange shall adhere to the annual or quarterly statement instructions and the accounting practices and procedures manuals prescribed by the National Association of Insurance Commissioners . . .Under the authority of the act and section 320 of The Insurance Company Law of 1921, the Insurance Commissioner has determined that the annual statement instructions and the accounting practices and procedures manual (manual) prescribed by the National Association of Insurance Commissioners (NAIC)1 , sufficiently address the allocation of joint expenses. Specifically, Statement of Statutory Accounting Principles No. 70 in the manual establishes statutory accounting principles for the apportionment of shared expenses and refers to the applicable annual statement instructions. The regulations in no manner enhance the NAIC instructions and manual. In addition, §§ 3.4(a) and 3.6 (relating to records required; and other applicable instructions) refer to requirements in Chapter 9 that have been deleted effective August 8, 1998. Therefore, the regulations are outdated and are no longer needed.
Affected Parties
The deletion of the regulations affects property and casualty insurers, the State Workmen's Insurance Fund and title insurers.
Fiscal Impact
There is no fiscal impact as a result of the deletion of the regulations.
Paperwork
The deletion of the regulations would impose no additional paperwork requirements on the Department or insurers.
Effectiveness/Sunset Date
The rulemaking will become effective upon final publication in the Pennsylvania Bulletin. Because the rulemaking proposes to delete the regulations, no sunset date has been assigned.
Contact Person
Questions or comments regarding the proposed rulemaking may be addressed in writing to Peter J. Salvatore, Regulatory Coordinator, Pennsylvania Insurance Department, 1326 Strawberry Square, Harrisburg, PA 17120, within 30 days following the publication of this notice in the Pennsylvania Bulletin. Questions and comments may also be e-mailed to psalvato@ins.state.pa.us or faxed to (717) 772-1969.
Regulatory Review
Under section 5(a) of the Regulatory Review Act (71 P. S. § 745.5(a)), on September 21, 2000, the Department submitted a copy of this proposed rulemaking to the Independent Regulatory Review Commission (IRRC) and to the Chairpersons of the Senate Banking and Insurance Committee and the House Committee on Insurance. In addition to submitting this proposed rulemaking, the Department has provided IRRC and the Committees with a copy of a detailed Regulatory Analysis Form prepared by the agency in compliance with Executive Order 1996-1, ''Regulatory Review and Promulgation.'' A copy of this material is available to the public upon request.
Under section 5(g) of the Regulatory Review Act, if IRRC has objections to any portion of the proposed amendments, it will notify the Department within 10 days of the close of the Committees' review period. The notification shall specify the regulatory review criteria that have not been met by that portion. The Regulatory Review Act specifies detailed procedures for review, prior to final publication of the regulations by the Department, the General Assembly and the Governor of objections raised.
M. DIANE KOKEN,
Insurance CommissionerFiscal Note: 11-201. No fiscal impact; (8) recommends adoption.
Annex A
TITLE 31. INSURANCE
PART I. GENERAL PROVISIONS
Subpart A. UNIFORM CLASSIFICATION OF EXPENSES
CHAPTER 3. ALLOCATION OF JOINT EXPENSES § 3.1. [Definitions] (Reserved).
[The following words and terms, when used in this chapter, have the following meanings, unless the context clearly indicates otherwise:
Overhead on salaries--When used as a basis of allocation, the term indicates that the allocation of expenses shall follow the percentages of the applicable salaries allocation.
Premiums--When used as a basis of allocation, the term indicates that the allocation of expenses shall follow the percentages of applicable premiums.
Special studies--When used as a basis of allocation, the term indicates that expenses shall be analyzed and bases of allocation applied as dictated by that analysis.]
§ 3.2. [Basis of allocation] (Reserved).
[Joint expenses, as described in § 1.1 (Reserved), shall be allocated to companies as follows:
Expenses To Be Allocated To Companies Bases Of Allocation To Companies Advertising Premiums Boards, bureaus, and
associationsSpecial studies Surveys and under-
writing reportsSpecial studies Audit of assureds'
recordsSpecial studies Salaries See §§ 9.1 and 9.2
(Reserved)Employe relations and
welfareOverhead on salaries Pensions Overhead on salaries Traveling and enter-
tainingSpecial studies Rent and rent items Overhead on salaries Equipment Overhead on salaries Printing and stationery Overhead on salaries Postage, telephone and
telegraph, exchange
and expressOverhead on salaries Legal and auditing Special studies Payroll taxes Overhead on salaries Miscellaneous Special studies] § 3.3. [Other bases permitted or prescribed] (Reserved).
[For those operating expense classifications permitting the basis overhead on salaries or premiums, any other basis of allocation may be adopted which yields more accurate results. The bases overhead on salaries and premiums shall not be used if clearly inappropriate.]
§ 3.4. [Records required] (Reserved).
[(a) The methods followed in allocating joint expenses shall be described, kept, and supported as prescribed in § 9.48 (relating to detail of allocation bases form).
(b) The effects of the application to each operating expenses classification of all bases of allocation shall be shown on records kept in clear and legible form. The records shall be readily available for examination.]
§ 3.5. [Interim allocations of joint expenses] (Reserved).
[It shall be permissible to apportion expenses between companies during the year on the basis of methods and procedures other than those prescribed in this chapter if allocations of corrected amounts, calculated in accordance with this subpart, are made in time for entry in the annual statement.]
§ 3.6. [Other applicable instructions] (Reserved).
[In making any allocations of joint expenses, companies shall observe the provisions of §§ 9.11--9.20 (relating to general instructions regarding allocation bases).]
[Pa.B. Doc. No. 00-1664. Filed for public inspection September 29, 2000, 9:00 a.m.] _______
1 In 1998, the NAIC revised its model regulation to make it consistent with the NAIC's codified manual that will be effective January 1, 2001. Insurers subject to these regulations have been advised by Insurance Department Notices Nos. 1998-04 and 2000-02 that they will be required to adhere to the manual in preparing financial statements to be filed with the Department.
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