The term Premiums used as basis of allocation means the allocation of expenses shall follow the percentages of applicable premiums.
The term Special Studies used as a basis of allocation means that expenses shall be analyzed and bases of allocation applied as dictated by that analysis.
The term Overhead on Salaries used as a basis of allocation means that the allocation of expenses shall follow the percentages of the applicable salaries allocation.
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.
In making any allocations of Joint Expenses, companies shall observe the General Instructions Regarding Allocation Bases (see s. Ins 6.30 (5) (a) 2.). The methods followed in allocating Joint Expenses shall be described, kept and supported as set forth under Detail of Allocation Bases (See s. Ins 6.30 (5) (a) 3-c). The effects of the application, to each operating expense classification, of all bases of allocation shall be shown on records kept in clear and legible form. Such records shall be readily available for examination.
It is permissible to apportion expenses between companies during the year on the basis of methods and procedures other than those prescribed herein, provided allocations of corrected amounts, calculated in accordance with these instructions, are made in time for entry in the Annual Statement.
Ins 6.30(3)(a)(a) Instructions relating to the composition of, and allocation to, expense groups. Expenses reported in the operating expense classifications shall be allocated to the following expense groups:
Investment Expenses.
Loss Adjustment Expenses.
Acquisition, Field Supervision and Collection Expenses.
Taxes.
General Expenses.
The composition of each expense group shall be as follows:
Investment Expenses shall comprise all expenses incurred wholly or partially in connection with the investing of funds and the obtaining of investment income, including related expenses incurred in the following activities: initiating or handling orders and recommendations; doing research; pricing; appraising and valuing; paying and receiving; entering and keeping general and detail records; safe keeping; collecting, recording, calculating and accruing investment income; general clerical, secretarial, office maintenance, supervisory and executive duties; handling personnel, supplies, mail, etc.; and all other activities reasonably attributable to the investing of funds and the obtaining of investment income.
Loss Adjustment Expenses shall comprise all expenses incurred wholly or partially in connection with the adjustment and recording of policy claims, including the totals of the operating expense classification, Claim Adjustment Services: the types of expenses included in Claim Adjustment Services, when the activities resulting in such types of expenses are performed by employees; and including related expenses incurred in the following activities: estimating amounts of claims; paying and receiving; entering and keeping general and detail records; general clerical, secretarial, office maintenance, supervisory and executive duties; handling personnel, supplies, mail, etc.; and all other activities reasonably attributable to the adjustment and recording of policy claims in connection with claims reported, paid, and outstanding, and reinsurance thereon.
Acquisition, Field Supervision and Collection Expenses shall comprise all expenses incurred wholly or partially in the following activities:
Soliciting and procuring business and developing the sales field.
Writing policy contracts, and checking and directly supervising the work of policy writers.
Receiving and paying of premiums and commissions; entering into or setting up records of premiums and commissions receivable and payable for collection purposes; balancing and maintaining such records; corresponding with and visiting insureds and producers for the purpose of collecting premiums or adjusting differences; checking current accounts from producers; auditing of records of delinquent agents; and services of collection agencies. Do not include activities offices within the company.
Compiling and distributing expiration lists, notices of premiums due, lists of premiums or premium balances receivable and payable, contingent and other commission statements, production statements for acquisition and field supervision purposes, and similar data.
Maintaining good will of insureds and producers; activities of field personnel; contact work relating to acquisition, field supervision and collection; making contracts and agreements with producers; and activities in connection with agency appointments and replacements. Do not include: inspections of risks when carried on by personnel employed by the insurance company, engaged full time in physical inspection of risks and activities directly related thereto; audits for the purpose of premium determination; and activities in connection with the adjustment of policy claims.
Rendering service to agents and other producers, such as providing office space, personnel, telephone, etc., and obtaining agents’ licenses.
Do not include fees paid for agents’ licenses.
Advertising and publicity of every nature related to acquisition, field supervision and collection. In addition to applicable salaries, etc., include the entire amount shown in the operating expense classification, Advertising.
Miscellaneous activities of agents, brokers and producers other than employees, when performed by them: inspections; quoting premiums; signing policies; examining and mailing policies, applications and daily reports; compiling figures for current accounts; correspondence and sundry bookkeeping and clerical work.
Other activities reasonably attributable to those operations listed above, such as: keeping general and detail records; paying and receiving; general clerical, secretarial, office maintenance, supervisory and executive work; and handling personnel, supplies, mail, etc.
Commission and Allowances: When the whole or a part of any amount in the operating expense classifications Commission and Brokerage-Direct, and Allowances to Managers and Agents is paid specifically for services other than those set forth under Acquisition, Field Supervision and Collection Expenses, and when such services are not duplicated or otherwise compensated by the company, the amount thereof shall be allocated to expense groups other than Acquisition, Field Supervision and Collection, and such allocations shall be justified by detailed statements and data calculated and prepared in accordance with the methods described in these instructions showing amounts of expenditures properly allocated to expense groups and lines of business.
When Allowances to Managers and Agents represent a division of expenses shared with other companies, the aforementioned statements and data shall show the division of such shared expenses calculated and prepared in accordance with the methods prescribed in these instructions.
The calculation and preparation of the aforementioned statements and data shall be subject to verification and audit by insurance department personnel.
The instructions under the heading Commission and Allowances do not apply to Commission and Brokerage-Reinsurance Assumed, or Commission and Brokerage-Reinsurance Ceded.
Taxes shall comprise the totals of the operating expense classification Taxes, Licenses and Fees.
General Expenses shall comprise all expenses not assignable by these instructions to other expense groups.
For those operating expense classifications permitting the basis Overhead on Salaries, any other basis of allocation may be adopted which yields more accurate results. The basis Overhead on Salaries shall not be used if clearly inappropriate.
In making any allocations to expense groups, companies shall observe the General Instructions Regarding Allocation Bases (see s. Ins 6.30 (5) (a) 2.). The methods followed in allocating to expense groups shall be described, kept and supported as set forth under Detail of Allocation Bases (see s. Ins 6.30 (5) (a) 3. c.). The effects of the application to each operating expense classification of all bases of allocation shall be shown on records kept in clear and legible form. Such records shall be readily available for examination.
Ins 6.30(4)(a)(a) Instruction relating to allocation to lines of business. The lines of business for allocation of expenses shall be the following:
Fire and Allied Lines:
Fire
Extended Coverage
Other
Homeowners Multiple Peril
Commercial Multiple Peril
Ocean Marine
Inland Marine
Automobile Liability:
Bodily Injury (including medical payments coverage)
Property Damage
Automobile Physical Damage:
Fire, Theft and Comprehensive
Collision
Worker’s Compensation
Liability Other than Automobile:
Bodily Injury
Property Damage
Fidelity
Surety
Glass
Burglary and Theft
Individual Accident and Health:
Accident only
Accident and Health
Hospital and Medical Expense
Group Accident and Health Boiler and Machinery
Ins 6.30(4)(a)2.a.a. The allocation of expenses to lines of business shall be by expense groups. Each classification of expense within each expense group shall be allocated separately to lines of business on the bases of allocation prescribed as follows. All bases employed in such allocations shall be applicable and appropriate to the expense group of which such expense is a part.
Example — Expenses which are allocated to lines of business as an Overhead on Salaries shall be calculated in relation only to the salaries included in the same expense group.
The term Actual means that the expenses are susceptible of direct and accurate allocation, and companies shall allocate directly to lines of business and shall not employ any apportionments or estimations.
For definitions of the terms Special Studies, Premiums, and Overhead on Salaries, see s. Ins 6.30 (2) (a) 1. b. For those 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.
In making any allocations to lines of business, companies shall observe the General Instructions Regarding Allocation Bases (see s. Ins 6.30 (5) (a) 2.). The methods followed in allocating to lines of business shall be described, kept and supported as set forth under Detail of Allocation Bases (see s. Ins 6.30 (5) (a) 3. c.). The effects of the application to each operating expense classification of all bases of allocation shall be shown on records kept in clear and legible form. Such records shall be readily available for examination.
Ins 6.30(5)(a)(a) Special instructions relating to the allocation of salaries and other expenses. Wherever possible, salaries of individuals or similarly employed groups shall be allocated direct to companies, expense groups, and lines of business. In other words, salaries of employees whose work is solely in connection with a specific company, expense group or line of business shall be allocated thereto.
When a direct allocation is not made, salaries, with certain exceptions hereinafter noted, shall be allocated on whichever of the following bases, or combinations thereof, are appropriate: Number of Items or Units, Time Studies, Overhead on Other Allocations, Premiums, Dollar Volume of Losses, and Other Special Studies.
