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. Ins 6.35(3)(3) Exclusions. In addition to the exclusions specified in s. 292.63 (4) (c), Stats., and the claims which shall be denied under s. 292.63 (4) (g), Stats., an owner or operator is not eligible for reimbursement under s. 292.63 (4) (b) 15., Stats., for compensation paid by the owner or operator to a 3rd party for any of the following: Ins 6.35(3)(a)(a) Costs for which the owner or operator is not legally liable. Ins 6.35(3)(b)(b) Bodily injury or property damage arising out of any of the following: Ins 6.35(3)(b)1.1. A discharge expected or intended from the standpoint of the owner or operator. Ins 6.35(3)(b)2.2. A discharge based on or attributable to a criminal act by the owner or operator. Ins 6.35(3)(b)3.3. The owner’s or operator’s intentional, willful or deliberate noncompliance with any statute or administrative rule administered by the department of safety and professional services or the department of natural resources which directly relates to the storage and handling of flammable liquid or combustible liquid, as defined by the department of safety and professional services by rule. Ins 6.35 NoteNote: The responsibility for this aspect of petroleum tank storage oversight was transferred from the Department of Safety and Professional Services to the Department of Agriculture, Trade and Consumer Protection. See s. ATCP 93.050 (30) and (49)for definitions of combustible and flammable liquid. Ins 6.35(3)(b)4.4. The owner’s or operator’s assumption of the liability of a 3rd party under a contract or agreement, unless the owner or operator would have had the liability in the absence of the contract or agreement. Ins 6.35(3)(b)5.5. The ownership, maintenance, use, operation or entrustment to another person of an automobile, aircraft, watercraft or rolling stock belonging to the owner or operator, except that this exclusion does not apply if the bodily injury or property damage is caused by the use of the automobile, aircraft, watercraft or rolling stock during the loading or unloading of the owner’s or operator’s petroleum products storage system. Ins 6.35(3)(b)6.6. War, invasion, act of a foreign enemy, hostilities, civil war, rebellion, revolution, insurrection, military or usurped power, strike, riot or civil commotion. Ins 6.35(3)(c)(c) Bodily injury to any of the following, whether the owner or operator is liable as an employer or in any other capacity, and regardless of whether the owner or operator is obligated to share damages with or to repay someone else who must pay damages because of the bodily injury: Ins 6.35(3)(c)1.1. An employee of the owner or operator for an injury occurring during and in the course of the employment. Ins 6.35(3)(c)2.2. The spouse, child, parent, brother or sister of an employee of the owner or operator arising as a consequence of the bodily injury to the employee under subd. 1. Ins 6.35(3)(d)1.1. Property owned or occupied by or rented or lent to the owner or operator. Ins 6.35(3)(d)2.2. Personal property in the care, custody or control of the owner or operator. Ins 6.35(3)(e)(e) An obligation of the owner or operator under a workers’ compensation, disability benefits, unemployment compensation or other similar law. Ins 6.35(3)(g)(g) Federal, state or local fines, forfeitures or other penalties. Ins 6.35 HistoryHistory: Cr. Register, April, 1991, No. 424, eff. 5-1-91; corrections in (2) (a) and (b), (3) (b) 3., made under s. 13.93 (2m) (b) 6. and 7., Stats., Register, February, 2000, No. 530; correction in (3) (b) 3. made under s. 13.92 (4) (b) 6., Stats., Register January 2012 No. 673; corrections in (1), (2) (c) to (e), (3) (intro.), (h) made under s. 13.92 4. (b) 7., Stats., Register August 2014 No. 704. Ins 6.40Ins 6.40 Proxies, consents and authorizations of domestic stock insurers. Ins 6.40(1)(1) Application of rule. This rule is applicable to all domestic stock insurers having 100 or more stockholders; provided, however, that this rule shall not apply to any insurer if 95% or more of its stock is owned or controlled by a parent or an affiliated insurer and the remaining shares are held by less than 500 stockholders. A domestic stock insurer which files with the securities and exchange commission forms of proxies, consents and authorizations complying with the requirements of the Securities and Exchange Act of 1934 and the Securities and Exchange Acts amendments of 1964 and Regulation X-14 of the securities and exchange commission promulgated thereunder shall be exempt from the provisions of this rule. Ins 6.40(2)(2) Proxies, consents and authorizations. No domestic stock insurer, or any director, officer or employee of such insurer subject to sub. (1), or any other person, shall solicit, or permit the use of his or her name to solicit, by mail or otherwise, any proxy, consent or authorization in respect of any stock of such insurer in contravention of this rule. Ins 6.40(3)(3) Disclosure of equivalent information. Unless proxies, consents or authorizations in respect of a stock of a domestic insurer subject to sub. (1) are solicited by or on behalf of the management of such insurer from the holders of records of stock of such insurer in accordance with this rule prior to any annual or other meeting such insurer shall, in accordance with this rule and/or such further rules as the commissioner may adopt, file with the commissioner and transmit to all stockholders of record information substantially equivalent to the information which would be required to be transmitted if a solicitation were made. Ins 6.40(4)(a)(a) The definitions and instructions set out in schedule SIS — Stockholder Information Supplement (s. Ins 7.02) shall be applicable for purposes of this rule. Ins 6.40(4)(b)(b) The terms “solicit” and “solicitation” for purposes of this rule shall include:
