1266 Uniform classification of expenses

Title 31--INSURANCE

INSURANCE DEPARTMENT

[31 PA. CODE, CHS. 1, 5, 7 AND 9]

Uniform Classification of Expenses

[28 Pa.B. 3753]

   The Insurance Department (Department) hereby deletes Chapters 1, 5, 7 Chapter 9 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 298) (40 P. S. §§ 1261--1264); and section 320 of The Insurance Company Law of 1921 (act) (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 allocating and classifying certain types of expenses in financial statements.

Purpose

   The purpose of the deletion of Chapters 1, 5, 7 and 9 is to eliminate obsolete, unnecessary regulations. The regulations were initially adopted October 21, 1949, and last amended July 7, 1970, under the authority of Act 298. Specifically, sections 1 and 2 of Act 298 (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 classification of specific expenses.

   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 reports 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 Act 298 and section 320 of The Insurance Company Law of 1921, the Commissioner has determined that the form, instructions and manuals prescribed by the National Association of Insurance Commissioners (NAIC) sufficiently address the classification of the types of expenses covered in the regulations. Therefore, the Commissioner currently requires the insurers subject to the regulations, including the State Workmen's Insurance Fund, to adhere to the NAIC form, instructions and manuals for the classification and reporting of those expenses. The regulations in no manner enhance the NAIC instructions and manuals. Therefore, the regulations are outdated and redundant and are no longer needed.

Statutory Authority

   The regulations are being deleted under the authority of sections 206, 506, 1501 and 1502 of The Administrative Code of 1929; Act 298 and section 320 of the act. The regulations were adopted under the authority of Act 298.

Comments

   Notice of this deletion was published at 27 Pa.B. 3231 (July 5, 1997) as a proposed rulemaking with a 30-day public comment period.

   No comments were received from the standing committees. Comments were received from the Pennsylvania Association of Mutual Insurance Companies (PAMIC). On September 3, 1997, the Independent Regulatory Review Commission (IRRC) submitted notice to the Department that IRRC had no objections, comments or suggestions to offer on this rulemaking. The following is a summary of PAMIC's comments and the Department's response in its final rulemaking.

   PAMIC agreed that the regulations are outdated but questioned whether the regulations should be updated or deleted. PAMIC commented that its general goal is to give domestic insurers, especially insurers that write business only in this Commonwealth, an opportunity to comment on substantive regulatory issues. PAMIC further stated that the rules under which insurers operate in this Commonwealth should be available to insurers and other parties without incurring the cost of purchasing NAIC publications.

   As previously cited, section 320 of the act requires the insurers subject to these regulations to adhere to the NAIC instructions and accounting practices and procedures manuals, unless otherwise provided by law, regulation or order of the Insurance Commissioner. The NAIC instructions and manuals are designed to provide comprehensive, uniform accounting rules for financial reporting by insurers in the various states. The NAIC continually updates its accounting requirements to keep abreast of developments in financial reporting issues. Section 320(a)(2) of the act was adopted in 1992 to clarify Pennsylvania's standard requirement that insurers adhere to the NAIC instructions and manuals when preparing financial statements to be filed with the Department. The 1992 amendments to section 320 of the act were also made to bring this Commonwealth into compliance with the NAIC's state accreditation standards for effective solvency regulation of the insurance industry.

   The Department agrees that insurers and all other affected parties should have an opportunity to comment on substantive regulatory issues. Therefore, the Department has historically proposed to adopt substantive financial reporting requirements through the Legislative or regulatory process. For example, the Department proposed legislation to require insurers to file risk-based capital reports with annual financial statements (Act 40- 1997). In addition, the requirements relating to annual audited financial reports were adopted by regulation (Chapter 147). However, with respect to the accounting rules for the classification of expenses, the Department believes that compliance with the NAIC instructions and manuals under section 320(a)(2) of the act is both appropriate and sufficient.

   The NAIC manual that includes the rules for classifying expenses costs $100. Because the insurers subject to these regulations are currently required to adhere to the NAIC instructions and manuals under section 320(a)(2) of the act, the Department believes the deletion of the regulations should result in minimal or no additional costs to the affected insurers.

   Therefore, the Department believes the regulations are redundant and unnecessary and should be deleted to read as set forth in Annex A.

Fiscal Impact

   The current cost of the NAIC manual that includes the rules for classifying expenses is $100. Because the affected insurers are currently required to adhere to the NAIC instructions and manuals, the deletion of the regulations will have minimal fiscal impact.

Paperwork

   The deletion of the regulations will impose no additional paperwork requirements on the Department or insurers.

Affected Parties

   The deletion of the regulations affects property and casualty insurers, the State Workmen's Insurance Fund and title insurers.

Effectiveness/Sunset Date

   The rulemaking will become effective upon final publication in the Pennsylvania Bulletin. Because the rulemaking deletes obsolete, redundant regulations, no sunset date has been assigned.

Contact Person

   Questions or comments regarding this final rulemaking may be addressed in writing to Peter J. Salvatore, Regulatory Coordinator, Office of Special Projects, 1326 Strawberry Square, Harrisburg, PA 17120, [phone].

Regulatory Review

   Under section 5(a) of the Regulatory Review Act (71 P. S. § 745.5(a)), on June 3, 1997, the Department submitted a copy of the proposed rulemaking to IRRC, the Chairpersons of the House Insurance Committee and the Senate Banking and Insurance Committee. In addition to the submitted proposed rulemaking, the Department has provided IRRC and the Committees with a copy of a detailed Regulatory Analysis Form prepared by the Department in compliance with Executive Order 1996-1, ''Regulatory Review and Promulgation.'' A copy of the material is available to the public upon request.

   These final-form regulations were deemed approved by the House and Senate Committees on June 25, 1998, in accordance with section 5.1(d) of the Regulatory Review Act (71 P. S. § 745.5a(d)). IRRC met on July 9, 1998, and deemed approved the deletion in accordance with section 5.1(e) of the Regulatory Review Act.

Findings

   The Commissioner finds that:

   (1)  Public notice of intention to adopt this rulemaking as amended 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 this rulemaking 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:

   (a)  The regulations of the Department, 31 Pa. Code Chapters 1, 5, 7 and 9, are amended by deleting §§ 1.1--1.4, 1.11--1.14, 1.21--1.26, 1.31--1.34, 1.41, 1.42, 1.51--1.67, 5.1--5.5, 5.11--5.15, 5.21, 5.22, 5.31--5.37, 7.1--7.4, 7.11, 7.12, 9.1, 9.2, 9.11--9.20, 9.31, 9.32 and 9.41--9.48 to read as set forth in Annex A.

   (b)  The Commissioner shall submit this order and Annex A to the Office of General Counsel and Office of Attorney General for approval as to form and legality as required by law.

   (c)  The Commissioner shall certify this order and Annex A and deposit them with the Legislative Reference Bureau as required by law.

   (d)  The regulations rescinded by this order shall be deleted upon publication in the Pennsylvania Bulletin.

M. DIANE KOKEN,   
Insurance Commissioner

   Fiscal Note: Fiscal Note 11-152 remains valid for the final adoption of the subject regulations.

Annex A

TITLE 31.  INSURANCE

PART I.  GENERAL PROVISIONS

Subpart A.  UNIFORM CLASSIFICATION OF EXPENSES

CHAPTER 1.  (Reserved)

§§ 1.1--1.4.  (Reserved).

§§ 1.11--1.14.  (Reserved).

§§ 1.21--1.26.  (Reserved).

§§ 1.31--1.134.  (Reserved).

§ 1.41.  (Reserved).

§ 1.42.  (Reserved).

§§ 1.51--1.67.  (Reserved).

CHAPTER 5.  (Reserved)

§§ 5.1--5.5.  (Reserved).

§§ 5.11--5.15.  (Reserved).

§ 5.21.  (Reserved).

§ 5.22.  (Reserved).

§§ 5.31--5.37.  (Reserved).

CHAPTER 7.  (Reserved)

§§ 7.1--7.4.  (Reserved).

§ 7.11.  (Reserved).

§ 7.12.  (Reserved).

CHAPTER 9.  (Reserved)

§ 9.1.  (Reserved).

§ 9.2.  (Reserved).

§§ 9.11--9.20.  (Reserved).

§ 9.31.  (Reserved).

§ 9.32.  (Reserved).

§§ 9.41--9.48.  (Reserved).

[Pa.B. Doc. No. 98-1266. Filed for public inspection August 7, 1998, 9:00 a.m.]