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PA Bulletin, Doc. No. 01-636

RULES AND REGULATIONS

INSURANCE DEPARTMENT

[31 PA. CODE CH. 11]

Miscellaneous Provisions

[31 Pa.B. 2001]

   The Insurance Department (Department) by this order amends Chapter 11 (relating to miscellaneous provisions) to read as set forth at 30 Pa.B. 5020 (September 30, 2000). Except as otherwise provided, Chapter 11 applies to property and casualty insurance companies, associations, exchanges and employees' mutual liability associations and organizations, including the State Workmen's Insurance Fund; Chapter 11 does not apply to title insurance. The final-form regulations clarify charges made by the Department in filing or certifying records; and prescribe accounting rules for reporting electronic data processing equipment, allocating commission on sliding scale or guaranteed profit reinsurance contracts, and classifying and allocating salvage and subrogation recovery expenses.

Purpose

   The purpose of these final-form regulations is to update Chapter 11 by eliminating obsolete and unnecessary provisions and by updating and clarifying the scope of the accounting rules in the final-form regulations.

   Sections 1 and 2 of the act of May 9, 1949 (P. L. 1025, No. 289) (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. Further, section 320(a) of The Insurance Company Law of 1921 (40 P. S. § 443(a)), 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 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) sufficiently address the reporting of electronic data processing equipment and software and commission on reinsurance contracts for all insurers subject to the act and section 320 of The Insurance Company Law of 1921. Specifically, Statements of Statutory Accounting Principles Nos. 16, 61 and 62 in the NAIC manual establish statutory accounting principles for electronic data processing equipment and software and commission on reinsurance contracts. Sections 11.4--11.6 (relating to reporting of computer or data processing equipment; ''sliding scale'' or ''guaranteed profit'' contracts; example of ''sliding scale'' and ''guaranteed profit'' contract) in no manner enhance the NAIC instructions and manual. Therefore, §§ 11.4--11.6 are outdated and are no longer needed.

   The Commissioner has further determined that the accounting rules in § 11.7 (relating to salvage and subrogation recovery expenses) continue to be needed to supplement the NAIC instructions and manual. Section 11.7 provides specific guidance on the types of expenses that shall be treated as salvage expense and on proper billing procedures when insurers use outside agencies to perform salvage activities. The NAIC instructions and manual do not include the accounting rules in § 11.7, and the Commissioner believes these rules are needed to provide adequate instructions for reporting salvage and subrogation recovery expenses. Therefore, § 11.7 is being retained in the final-form regulations.

   Finally, because §§ 11.4--11.6 are being deleted and the accounting rules in § 11.7 apply only to property and casualty insurance, § 11.1 (relating to applicability) is being deleted and provisions relating to the authority and scope of § 11.7 are being included as new subsections (a) and (b) in § 11.7. These amendments will clarify the scope of the subsections in Chapter 11.

Statutory Authority

   These final-form regulations are adopted 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 and section 320 of The Insurance Company Law of 1921.

Comments

   Notice of the proposed rulemaking was published at 30 Pa.B. 5020 with a 30-day public comment period.

   No comments were received from the standing committees. The Insurance Federation of Pennsylvania, Inc., commented in support of the proposed rulemaking. On November 30, 2000, the Independent Regulatory Review Commission (IRRC) notified the Department that IRRC had no objections, comments or suggestions to offer on the proposed regulations.

Fiscal Impact

   The final-form regulations have no fiscal impact on State government, the general public, political subdivisions or the private sector.

Paperwork

   The final-form regulations will impose no additional paperwork requirements on the Department or affected insurers.

Persons Regulated

   The final-form regulations affect stock and mutual insurance companies, associations and exchanges required to file financial statements with the Commissioner.

Contact Person

   Questions or comments regarding the final-form regulations may be addressed in writing to Peter J. Salvatore, Regulatory Coordinator, Insurance Department, Office of Special Projects, 1326 Strawberry Square, Harrisburg, PA 17120, (717) 787-4429. Questions and comments may also be e-mailed to psalvatore@state.pa.us or faxed to (717) 705-3873.

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 the notice of proposed rulemaking to IRRC and to the Chairpersons of the Senate Committee on Banking and Insurance and the House Committee on Insurance for review and comment.

   Under section 5(c) of the Regulatory Review Act, IRRC and the Committees were provided with copies of the comments received during the public comment period. A copy of that material is available to the public upon request.

   Under section 5.1(d) of the Regulatory Review Act (71 P. S. § 745.5a(d)), on March 14, 2001, these final-form regulations were deemed approved by the House and Senate Committees. Under section 5(g) of the Regulatory Review Act, IRRC met on March 22, 2001, and the final-form regulations were deemed approved.

Findings

   The Commissioner finds that:

   (1)  Public notice of intention to adopt these final-form regulations by this order has been given under sections 201 and 202 of the act of July 31, 1968 (P. L. 769, No. 240) (45 P. S. §§ 1201 and 1202) and the regulations thereunder, 1 Pa. Code §§ 7.1 and 7.2.

   (2)  The adoption of these final-form regulations in the manner provided in this order is necessary and appropriate for the administration and enforcement of the authorizing statutes.

Order

   The Commissioner, acting under the authorizing statutes, orders that:

   (1)  The regulations of the Department, 31 Pa. Code, Chapter 11, are amended by deleting §§ 11.1, and 11.4--11.6 and amending § 11.7 to read as set forth at 30 Pa.B. 5020.

   (2)  The Commissioner shall submit this order and 30 Pa.B. 5020 to the Office of General Counsel and Office of Attorney General for approval as to form and legality as required by law

   (3)  The Commissioner shall certify this order and 30 Pa.B. 5020 and deposit them with the Legislative Reference Bureau as required by law.

   (4)  This order shall take effect upon publication in the Pennsylvania Bulletin.

M. DIANE KOKEN,   
Insurance Commissioner

   (Editor's Note:  For the text of the order of the Independent Regulatory Review Commission relating to this document, see 31 Pa.B. 1925 (April 7, 2001).

   Fiscal Note:  Fiscal Note 11-202 remain valid for the final adoption of the subject regulations.

[Pa.B. Doc. No. 01-636. Filed for public inspection April 13, 2001, 9:00 a.m.]


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