INSURANCE COMMISSIONER'S OFFICE
[Insurance Commissioner Matter R 98-19--Filed October 7, 1998, 11:10 a.m.]
Title of Rule: Risk-based surplus (RBS) formula and instructions for fraternal benefit societies.
Purpose: To revise the RBS formula and bring it into accord with the formula developed by the National Association of Insurance Commissioners.
Statutory Authority for Adoption: RCW 48.02.060, 48.36A.100, 48.36A.290.
Statute Being Implemented: RCW 48.36A.100, 48.36A.290.
Name of Agency Personnel Responsible for Drafting: Jim Tompkins, Lacey, Washington, (360) 407-0537; Implementation and Enforcement: John Woodall, Lacey, Washington, (360) 407-0535.
Name of Proponent: Deborah Senn, Insurance Commissioner, governmental.
Rule is not necessitated by federal law, federal or state court decision.
Explanation of Rule, its Purpose, and Anticipated Effects: The risk-based surplus formula in the past has been based upon the formula adopted by the National Fraternal Congress of America. The National Association of Insurance Commissioners has recently adopted the use of the risk-based capital formula for life insurers as the formula to use for fraternal benefit societies. The proposed rule will amend the existing rule to adopt the use of the NAIC risk based capital formula and instructions as the formula and instructions for the risk-based surplus of fraternal benefit societies.
The change in formulas will provide the adequate protections for Washington state consumers while allowing for increased uniformity for the carriers.
Proposal Changes the Following Existing Rules: The proposal would amend WAC 284-36A-010 and 284-36A-020.
The proposal would repeal WAC 284-36A-025.
THIS RULE IS BEING PROPOSED TO BE ADOPTED USING AN EXPEDITED RULE-MAKING PROCESS THAT WILL ELIMINATE THE NEED FOR THE AGENCY TO HOLD PUBLIC HEARINGS, PREPARE A SMALL BUSINESS ECONOMIC IMPACT STATEMENT, OR PROVIDE RESPONSES TO THE CRITERIA FOR A SIGNIFICANT LEGISLATIVE RULE. IF YOU OBJECT TO THIS RULE BEING ADOPTED USING THE EXPEDITED RULE-MAKING PROCESS, YOU MUST EXPRESS YOUR OBJECTIONS IN WRITING AND THEY MUST BE SENT TO Kacy Brandeberry, Office of the Insurance Commissioner, P.O. Box 40256, Olympia, WA 98504-0256, e-mail Kacyb@oic.wa.gov, fax (360) 407-0186, AND RECEIVED BY December 5, 1998.
October 7, 1998
Greg J. Scully
Chief Deputy Commissioner
AMENDATORY SECTION (Amending Matter R 98-03, filed 4/6/98, effective 5/7/98)
WAC 284-36A-010 Definitions. (1) "Adjusted RBS report" means an RBS report which has been adjusted by the commissioner in accordance with WAC 284-36A-020(4).
(2) "AVR" means asset valuation reserve.
(3) "Corrective order" means an order issued by the commissioner specifying corrective actions which the commissioner has determined are required.
(4) "Fraternal benefit society" is defined at RCW 48.36A.010.
(5) "NAIC" means the National Association of Insurance Commissioners.
(6) "Negative trend" means, with respect to a fraternal benefit society, negative trend over a period of time, as determined in accordance with the "trend test calculation" included in the RBS instructions.
(7) "RBC" means risk-based capital.
(8) "RBS" means risk-based surplus.
(9) "RBS instructions" means the ((
RBS)) RBC report
including risk-based capital instructions adopted, by the NAIC(( ,
except where specifically amended in WAC 284-36A-020 and 284-36A-025)).
(10) "RBS level" means a fraternal benefit society's society action level RBS, regulatory action level RBS, authorized control level RBS, or mandatory control level RBS where:
(a) "Society action level RBS" means, with respect to a fraternal benefit society, the product of 2.0 and its authorized control level RBS;
(b) "Regulatory action level RBS" means the product of 1.5 and its authorized control level RBS;
(c) "Authorized control level RBS" means the number determined under the risk-based surplus formula in accordance with the RBS instructions;
(d) "Mandatory control level RBS" means the product of.70 and the authorized control level RBS.
(11) "RBS plan" means a comprehensive financial plan containing the elements specified in WAC 284-36A-040(2). If the commissioner rejects the RBS plan, and it is revised by the fraternal benefit society, with or without the commissioner's recommendation, the plan shall be called the "revised RBS plan."
(12) "RBS report" means the report required in WAC 284-36A-050 and 284-36A-020.
(13) "Total adjusted surplus" means the sum of:
(a) A fraternal benefit society's statutory surplus as determined in accordance with statutory accounting applicable to the annual financial statement required to be filed under RCW 48.36A.260; and
(b) Other items, if any, as the RBS instructions may provide.
[Statutory Authority: RCW 48.02.060, 48.36A.100 and 48.36A.290. 98-09-016 (Matter R 98-03), § 284-36A-010, filed 4/6/98, effective 5/7/98. Statutory Authority: RCW 48.02.060, 48.36A.100(7), 48.36A.290(4), 48.36A.100, 48.36A.282, 48.36A.284, 48.36A.286, 48.36A.290, 48.36A.310 and 1996 c 236. 96-22-064 (Matter No. R 96-5), § 284-36A-010, filed 11/4/96, effective 12/5/96.]
AMENDATORY SECTION (Amending Matter R 98-03, filed 4/6/98, effective 5/7/98)
WAC 284-36A-020 Report of RBS level--Formula for
determining level--Inaccurate reports adjusted by commissioner.
(1) On or prior to the annual filing date, which is hereby
established as ((
April)) March 1, every fraternal benefit society
authorized to transact insurance business in this state, shall
prepare and submit to the commissioner a report of its RBS level
as of the end of the calendar year just ended, in a form and
containing all information required by the RBS instructions.
(2) The RBS of a fraternal benefit society shall be determined in accordance with the formula set forth in the RBS instructions. The formula shall take into account and may adjust for the covariance between:
(a) The risk with respect to the assets of the fraternal benefit society;
(b) The risk of adverse insurance experience with respect to the liabilities and obligations of the fraternal benefit society;
(c) The interest rate risk with respect to the business of the fraternal benefit society; and
(d) All other business risks and other relevant risks as are set forth in the RBS instructions, determined in each case by applying the factors in the manner set forth in the RBS instructions.
(3) An excess of surplus over the amount produced by the RBS requirements and the formulas, schedules, and instructions under this chapter is desirable in the insurance business of fraternal benefit societies. Accordingly, fraternal benefit societies should seek to maintain unimpaired surplus above the RBS level required. Additional unimpaired surplus is used and useful in the insurance business of fraternal benefit societies and helps to secure a fraternal benefit society against various risks inherent in, or affecting, the insurance business of fraternal benefit societies and not accounted for or only partially measured by the RBS requirements.
(4) If a fraternal benefit society files an RBS report that in the judgment of the commissioner is inaccurate, then the commissioner shall adjust the RBS report to correct the inaccuracy and shall notify the fraternal benefit society of the adjustment. The notice shall contain a statement of the reason for the adjustment. An RBS report as so adjusted is referred to as an "adjusted RBS report."
[Statutory Authority: RCW 48.02.060, 48.36A.100 and 48.36A.290. 98-09-016 (Matter R 98-03), § 284-36A-020, filed 4/6/98, effective 5/7/98. Statutory Authority: RCW 48.02.060, 48.36A.100(7), 48.36A.290(4), 48.36A.100, 48.36A.282, 48.36A.284, 48.36A.286, 48.36A.290, 48.36A.310 and 1996 c 236. 96-22-064 (Matter No. R 96-5), § 284-36A-020, filed 11/4/96, effective 12/5/96.]
The following section of the Washington Administrative Code is repealed:
WAC 284-36A-025 Risk-based surplus (RBS) financial standard formula.