The Allocation of Salaries and the Recapitulation of Salaries shall be prepared either for the twelve months of the current calendar year, or for twelve months ending not earlier than September 30th of the current year, in which case the ratios established shall be applied to the total salaries for the twelve months of the current calendar year. The second method herein referred to shall not be followed if operations during the period used were materially different from operations during the period to which the ratios are to be applied. All amounts included in the operating expense classification Salaries, for the period used in preparing the Allocation of Salaries and the Recapitulation of Salaries shall be accounted for on such records.
Forms of the records are shown as Forms A through C at the close of s. Ins 6.30 (5). The forms may be of any convenient size, and may be entered in ink, type, or by other mechanical means, provided the entries are legible. If the organization or method of operation of any company is such as to make desirable changes in the forms such as a rearrangement of the columns, or a separation of the forms into two or more parts, such changes may be made, provided the substituted forms do not, in any respect, show less information than called for on the forms shown herein, and do not result in confusing the presentation of salary allocation. Such records shall be maintained in good order and shall at all times be readily available for examination.
First: The form, Allocation of Salaries, is shown as Form A. To aid in the understanding of the form, specimen entries have been made thereon and, as further aids to understanding, each column is explained in the following paragraphs:
Column 1: List each similarly employed unit within each departmental or other division in the organization. By “similarly employed” is meant employed in essentially the same or similar activities in or for the same department or other division.
The personnel shall be divided into as many units as necessary to show each type of work done by each departmental or other division in the organization. Employees whose duties are not solely related to the work performed by one unit, such as some in supervisory positions, shall be listed separately by title or job classification.
Column 2: Gross salaries applicable to each unit shown in Column 1.
Columns 3, 4 and 5: These columns are for use when the Salaries classification is affected by allocations made to other companies.
A separate line is to be used for the allocation to each company or group of companies. When intercompany allocations are not made, or when quota share percentages can be applied to fleet totals, Columns 3, 4 and 5 need not be used.
Designating numbers shall be entered in Column 4 for the methods used in intercompany allocations.
Column 6: Designating numbers shall be entered in this column for the methods used in allocating salaries to expense groups.
Columns 7 to 10: The amounts assigned to each expense group shall be in accordance with the method shown in Column 6. At the side of each expense group column (except the column Investment Expenses) is shown a narrower column captioned “Line Dist.”, wherein shall be entered designating numbers for the methods to be followed in distributing salaries to lines of business.
Second: Pool and Quota Share Reinsurance. When quota share reinsurance is in effect and when salaries may be allocated in strict accordance with the quota share percentages, the amounts shown in the Allocation of Salaries Form may be those subject to quota share. Quota share percentages may, in such cases, be applied to the totals either on the Allocation of Salaries or the Recapitulation of Salaries.
Third: Branch and Field. Branch office salaries shall be shown separately in the Allocation of Salaries and in the Recapitulation of Salaries. In combining branch employees into similarly employed units, it shall be permissible to consider as a unit all similarly employed personnel in all branch offices having similar functions, and handling approximately the same relative volume of each line of business.
Fourth: Salary Reimbursements to Other Companies. Due to expense sharing with another company, outside of the company or fleet, debits may appear in the salary accounts for reimbursements to outside companies. Such payments are to payments amount to less than 10% of gross salaries paid by the company to its own employees, the amounts shown on the Allocation of Salaries may be distributed as an overhead on all other salary distributions. If more than 10%, the distribution shall be obtained from the other company.
Fifth: Salaries Not Specifically Reimbursable. When the employees of a company devote time to the affairs of another company, and the reimbursements therefor are handled in accordance with the instructions, Expenses for Account of Another or Income from Special Services (see s. Ins 6.30 (1) (b) 22. b. and c.) the salaries for each similarly employed unit applicable to work done for such other company shall be shown separately on the Allocation of Salaries (in Columns 3 to 10 incl.). When all distributions called for on the Allocation of Salaries Form have been completed, the Recapitulation of Salaries shall be made.
For each company to which salaries have been allocated on the Allocation of Salaries Form, the amounts shown in each expense group column shall be combined by the line distribution codes shown in the “Line Dist.” columns. The totals thus obtained shall be entered on the Recapitulation of Salaries Form and allocated to lines of business in accordance with the line distribution codes.
The form, Recapitulation of Salaries, is shown in three parts, B-1, B-2, and B-3. B-1 is for Loss Adjustment Expenses, B-2 is for Acquisition, Field Supervision and Collection Expenses, and B-3 is for General Expenses. For purposes of illustration, the specimen entries, applicable to Company A, made on the Allocation of Salaries Form have been continued on the Recapitulation of Salaries Form. Note that, for Company A, the figures in the expense group columns on the Allocation of Salaries Form have been combined by “Line Dist.” codes, entered on the Recapitulation of Salaries Form, and then spread to lines of business based on the “Line Dist.” codes.
The bases of allocation used on the Allocation of Salaries Form shall be fully described on the Detail of Allocation Bases Form. There shall be a separate sheet for each basis and the sheets shall be kept in consecutive numerical order, available at all times for examination.
When the basis of allocation cannot be fully described on the form, subsidiary worksheets, compilations and data shall be either attached to the form or filed separately and readily available.
The Detail of Allocation Bases Form and all subsidiary worksheets, compilations and data shall be clear and legible; shall show the sources, detail and dates of all figures used; shall disclose the names of persons or groups responsible for all compilations, data, calculations, studies, estimates, judgment factors, weightings, etc., and the dates thereof; and, in general shall include complete explanations of all figures used and decisions made.
Ins 6.30 NoteNote: The Detail of Allocation Bases Form need not be prepared each year, but with appropriate changes in supporting worksheets, etc., may remain current as long as the bases are in effect.
Ins 6.30 NoteThe Detail of Allocation Bases Form is identified as Form C and four illustrations of the form are shown. The allocation bases No. 1, 101, 105 and 501 shown on the Allocation of Salaries Form have been carried into the forms and specimen explanations given.
Ins 6.30
FORM A
ALLOCATION OF SALARIES
Note: Totals in Col. 5 for each similarly employed unit must equal amount in Col. 2.
Ins 6.30 HistoryHistory: Cr. Register, July, 1959, No. 43, eff. 8-1-59. Ins 6.31Ins 6.31 Interpretations of the instructions for uniform classifications of expenses of fire and marine and casualty and surety insurers. Ins 6.31(1)(a)(a) This rule is intended to implement and interpret uniform accounting instructions in s. Ins 6.30. Ins 6.31(1)(a)1.1. The following kinds of expense shall be allocated to indicated operating expense classifications. Ins 6.31(1)(a)2.a.a. When contingent commission payments are large in number and small in average amount, a method of allocation based on the over-all profit in each line of business should yield reasonably correct allocations. Ins 6.31(1)(a)2.b.b. Company-owned automobiles and equipment may be depreciated on a 100% basis. Ins 6.31(1)(a)2.c.c. A company may carry company-owned automobiles and equipment as an asset (non-admitted) and deduct depreciation each year. Ins 6.31(1)(a)2.d.d. Handling of certain filing charges: Where a company sells a policy to a long haul firm and that firm requests that the insuring company make a “filing” with a State Commerce Commission in a state in which it is not licensed and another insurance company on behalf of the first insurance company actually issues the policy and makes the required filing, charging a nominal fee for the transaction, the company receiving the fee should credit it to “Direct Premiums” and the company paying the fee should charge it to “Direct Premiums.” Ins 6.31(1)(a)3.3. The following kind of expense shall be allocated to the indicated expense group: Ins 6.31(1)(a)4.4. When commission on reinsurance is on a “sliding scale” or “guaranteed profit” basis both the tentative commission and any adjustments brought about by the “sliding scale” or “guaranteed profit” provisions should be allocated to Commission and Brokerage-Reinsurance Assumed or Commission and Brokerage-Reinsurance Ceded. Ins 6.31 NoteNote: To make clear the meaning of “sliding scale” and “guaranteed profits” the following is submitted:
SLIDING SCALE CONTRACTS
Ins 6.31 NoteMost of these contracts provide for a flat commission ranging from about 30% to 37 1/2%, paid on a written basis. Additional profit commissions are paid at a later date on an earned basis as specified by a formula embodied in the contract. These profit commissions are paid as the result of savings in the loss ratio. A common provision is that 1/2% profit commission shall be paid for each 1% saving in the loss ratio. Sometimes a portion of the scale may provide for a “1 for 1” profit commission, i.e., a full 1% profit commission for each 1% saving in the loss ratio.
Ins 6.31 NoteFor example, a contract may provide for a flat commission of 35%, with a “1/2 for 1” profit commission to be paid the ceding company for any saving in the loss ratio under 55%, until the profit commission reaches 10%, or a total commission of 45%.
Ins 6.31 NoteSome contracts provide for a possible “return commission.” In the preceding example, if the loss ratio should exceed the breaking point of 55%, then the ceding company might have to pay a return commission to the reinsurer on a “1/2 for 1” basis until return commissions of, say, 5% have been returned, thus reducing the ultimate net commission from 35% to 30%. If the loss ratio should run under 35% or exceed 65%, then such saving or loss would ordinarily be carried forward to the computation for the following year.
GUARANTEED PROFIT CONTRACTS
Ins 6.31 NoteThe most common form of “surplus aid” is the “guaranteed profit”contract. Its principal characteristic is that it transfers unearned premium reserve from the ceding company to the reinsurer and results in an immediate increase in the ceding company’s surplus by the amount of the tentative commissions received, but because all such tentative commissions are subject to return to the reinsurer, does not actually relieve the ceding company of risk. The ceding company still remains exposed to the same risk as before. It is in the position of paying 2% to 5% of the ceded premiums to induce a reinsurer to sign a contract which has no ultimate effect other than to reduce its surplus by 2% to 5% of these premiums.
Ins 6.31 NoteGuaranteed profit contracts are often written in a form similar to a quota share or portfolio of reinsurance contract, or a combination of both. The tentative commission is ordinarily 45% or 50%. The reinsurer’s fee is generally 2%, 3%, or 5% of the amount ceded. Most quota-share type contracts are subject to monthly reporting and settlements. The contract usually provides for additional commissions to be increased by 1% for each 1% decrease in the loss ratio, and return commissions on the basis of 1% for each 1% increase in the loss ratio. An example follows:
Ins 6.31 NoteIn a situation similar to the one illustrated, the ceding company pays to the reinsurer the gross reinsurance premiums less 45% commissions, or a net 55%. As losses are determined they are paid by the reinsurer until the ceding company has received back from the reinsurer losses recovered in an aggregate amount equal to 52% of the original premiums ceded (55% less 3%). Any additional losses are immediately charged back to the ceding company as “return commissions” on a “1 for 1” basis. On the other hand, any saving under 52% is returned to the ceding company in the form of additional commissions. The ultimate effect on the ceding company is the loss of 3% of its ceded premiums. The ceding company actually carries its own full risk throughout the entire period with respect to its gross business.)
Ins 6.31(1)(a)5.a.a. Where attention is given to salvage or subrogation matters at the same time as the adjustment of the loss is proceeding, no attempt will be made to allocate any portion of the adjuster’s time to salvage (or subrogation) expense. Ins 6.31(1)(a)5.b.b. Where the salvage or subrogation activity follows the adjustment of the loss such additional time as may be required will be treated as salvage expense. Ins 6.31(1)(a)5.c.c. Any items of outside service such as advertising, expenses of outside organizations or rewards where paid by and billed to the company will be treated as salvage expense. Ins 6.31(1)(a)5.d.d. Cost of recovering stolen goods incurred by and billed to the company will be treated as salvage expense. Ins 6.31(1)(a)5.e.e. Where salvage is handled by outside agencies and their billing is made directly to the company, sufficient information should be given for proper classification of the related expenses. Ins 6.31(1)(a)5.f.f. It is understood that the classification of expenses as salvage expense is not dependent upon any salvage recovery. Ins 6.31(1)(a)6.a.a. The following employee activities should be allocated to expense groups on the basis of the purposes for which the tabulating, listing, filing or other jobs were performed: Cutting and verifying punched cards, sorting and tabulating punched cards, maintaining punched card files, and supervision thereof. Ins 6.31(1)(a)6.b.b. The salaries of the employees in service units, such as the following, providing services to other employees may be allocated to expense groups as overhead on the salaries of employees in all other departments except executive officers: Mailroom, Personnel, First aid, Telephone operation, Office maintenance and Receptionists. Ins 6.31(1)(a)6.c.c. If an appreciable part of the time of employees handling purchases and supplies is devoted to furnishing supplies to agents, such salaries may be allocated to expense groups on the basis of a time estimate. Allocate to General Expenses that part of the time spent in working on supplies for agents; allocate remainder as Overhead on Salaries of employees in all other departments except executives. Ins 6.31(1)(a)6.d.d. When files are maintained and serviced in a separate department or at a central location, the salaries of employees engaged in this activity may be allocated to expense groups on the basis of a time estimate. That portion of time spent on policy files (daily reports, applications, endorsements, etc.) and that portion of time spent on general correspondence files may be allocated to General Expenses; that portion of time spent on active claim files may be allocated to Loss Adjustment Expenses; that portion of time on inactive claim files (dead files) may be allocated to General Expenses. Ins 6.31(1)(a)6.e.e. When a central abstract department is maintained for the mechanical reproduction of premium abstracts and claim abstracts for use by other departments, the salaries of these employees may be charged on the basis of a time estimate. That portion of time spent on claim abstracts may be allocated to Loss Adjustment Expenses and that portion of time spent on premium abstracts to General Expenses. Ins 6.31(1)(a)6.f.f. If a company maintains a general accounting unit and a cashier’s unit (the duties of which include keeping the general ledger, general journal and general cash books) and no apportionment to Investment Expenses, to Loss Adjustment Expenses, or to Acquisition, Field Supervision and Collection Expenses is possible, except by using a rough estimation which is little better than a guess, the company may allocate the total expenses of these units to General Expenses in view of the impossibility of making reasonably accurate apportionments to expense groups. Ins 6.31(1)(a)7.7. If the salary of a non-supervisory employee predominantly pertains to the activities of one expense group, the whole of such salary may be allocated to that expense group. Ins 6.31 Note(Note: By this interpretation, many salaries may be allocated directly and without fractional apportionment. As examples: a branch office or home office employee who is primarily concerned with the collection of premiums may be allocated wholly to Acquisition, Field Supervision and Collection Expenses, even though a lesser part of the activities may pertain to General Expenses; a branch office or home office underwriter who is primarily concerned with the acceptability of risks, net retentions, quoting of rates, etc., may be allocated wholly to General Expenses, although he or she may also engage, in a lesser extent, in production work, pertaining to Acquisition. Field Supervision and Collection Expenses; a special agent working on the development and maintenance of the sales field may be allocated wholly to Acquisition, Field Supervision and Collection Expenses, although he or she may also be concerned, to a lesser extent, in the adjustment of losses; key punch and tabulating machine operators, whose work is primarily statistical, may be allocated wholly to General Expenses, although the cards and tabulations may be used to some extent in collection and loss adjustment activities.)
Ins 6.31(1)(a)8.8. The following describes an acceptable method of allocating to expense groups and lines of business the salaries of employees engaged in administrative and/or supervisor activities: Ins 6.31(1)(a)8.a.a. Salaries of executive heads, such as the president of a company, the chairperson of a company’s board, and their secretaries, ordinarily should be distributed to expense groups and lines of business as an Overhead on Salaries of supervised personnel, after an apportionment to Investment Expenses. If any other methods are used, the allocations must be supported by detailed analyses of activities. Ins 6.31(1)(a)8.b.b. Salaries of other executive officers, department heads and supervisors ordinarily should be allocated on the basis of a study of time spent on the affairs of each of the departments or units supervised and then these salaries should be allocated to expense groups and lines of business as Overhead on Salaries of the employees in the respective departments or units. If any other methods are used, the allocations must be supported by detailed analyses of activities. Ins 6.31(1)(a)9.9. Includable in the operating expense classification, Boards, Bureaus and Associations, are the following: “Dues, assessments, fees and charges of:...underwriting syndicates, pools and associations such as Factory Insurance Association, Oil Insurance Association, assigned risk plans (except Commission and Brokerage; Claim Adjustment Services; and Taxes, Licenses and Fees);...” The foregoing instruction is applicable to all assigned risk plans and to the following syndicates, pools and associations:
American Cargo War Risk Reinsurance Exchange
American Foreign Insurance Association
American Marine Hull Syndicate
American Marine Insurance Syndicate of Insurance of Builders Risks
American Negative Film Syndicate
American Reinsurance Exchange
Associated Aviation Underwriters
Burlap Reinsurance Exchange
Coastwise, Great Lakes & Inland Hull Assn.
The Cotton Insurance Association
Cotton Marine Reinsurance Agreement
Eastern Intercoastal Cargo Reinsurance
Exchange Excess of Loss Association
Excise Bond Underwriters
Export Automobile Reinsurance Exchange
Factory Insurance Association
Furriers Customers’ Reinsurance Syndicate
General Cover Underwriters Assn.
The Great Lakes Underwriting Syndicate
Inland Marine Reinsurance Assn.
Inland Marine Syndicate, Inc.
Inland Waterways Insurance Assn.
Lake P. & I. Reinsurance Agreement
Livestock Insurance Office
Logging Underwriting & Inspection Association
Multiple Location Service Office
Mutual Corporation Inter-Reinsurance Fund
Oil Insurance Association
Railroad Insurance Association
Railway Underwriters
Registered Mail Central Bureau
Reinsurance Clearing House
Reinsurance Exchange
Southern Reinsurance Exchange
Stock Companies Association
The Tugboat Underwriting Syndicate
Underwriters Grain Association
Underwriters Service Association
Ins 6.31(1)(a)10.10. Dues or assessments of organizations includable in Boards, Bureaus and Associations, or in Surveys and Underwriting Reports, directly related to loss work are properly chargeable to the expense group, Loss Adjustment Expenses. Ins 6.31 HistoryHistory: Cr. Register, July, 1959, No. 43, eff. 8-1-59. Ins 6.35Ins 6.35 Petroleum storage environmental cleanup fund; exclusions from reimbursement. Ins 6.35(1)(1) Purpose. This section interprets s. 292.63 (1) (ad) and (gm) and (4) (b) 15., Stats., by defining the liabilities that are excluded from coverage in liability insurance policies for bodily injury and property damage for the purpose of specifying costs paid by an owner or operator to a 3rd party which are ineligible for reimbursement from the fund. Ins 6.35(2)(b)(b) “Fund” means the petroleum storage environmental cleanup fund under s. 25.47, Stats.
