WSR 01-11-167

PROPOSED RULES

OFFICE OF THE

INSURANCE COMMISSIONER

[ Filed May 23, 2001, 11:58 a.m. ]

Original Notice.

Preproposal statement of inquiry was filed as WSR 01-08-099.

Title of Rule: Audited financial statements.

Purpose: The proposed changes address technical issues that arose after the adoption of RCW 48.05.073 and 48.43.097. The proposal clarifies filing requirements and harmonizes the relationship between the WAC and the NAIC Accounting Practices and Procedures Manual.

Other Identifying Information: R 2001-03.

Statutory Authority for Adoption: RCW 48.02.060, 48.05.073, 48.43.097, 48.44.050, and 48.46.200.

Statute Being Implemented: RCW 48.05.073, 48.43.097.

Summary: The proposed rule amends WAC 284-07-130. It conforms the rule to the recent legislation and the NAIC Accounting Practices and Procedures Manual. It clarifies filing requirements and eliminates duplicative provisions and unnecessary information.

Reasons Supporting Proposal: This rule change was requested by the NAIC in the accreditation process. It clarifies filing requirements and eliminates some unnecessary or duplicative language and provisions.

Name of Agency Personnel Responsible for Drafting and Implementation: Dennis Julnes, Lacey, Washington, (360) 407-0536; and Enforcement: Jim Odiorne, Lacey, Washington, (360) 407-0420.

Name of Proponent: Mike Kreidler, Insurance Commissioner, governmental.

Rule is not necessitated by federal law, federal or state court decision.

Explanation of Rule, its Purpose, and Anticipated Effects: The proposed rule has three elements:

1. The reference to general accepted accounting principles disclosure requirements is eliminated. NAIC codification requires specific statutory accounting principles disclosures;

2. The requirement of related party disclosure in WAC 284-07-130 (2)(f)(ii) is eliminated as duplicative. Statement of Statutory Accounting Principles 1 already requires this disclosure; and

3. The proposed rule provides consistency with the annual statement instructions and removes some filing requirements for foreign insurers.

Proposal Changes the Following Existing Rules: WAC 284-07-130 (2)(f) is amended as follows:

Notes to financial statements. These notes shall be those required by the appropriate NAIC Annual Statement Instructions and ((any other notes required by generally accepted accounting principles and)) NAIC Accounting Practices and Procedures Manual. The notes shall ((also)) include((:

(i))) a reconciliation of differences, if any, between the audited statutory financial statements and the annual statement filed pursuant to RCW 48.05.250, 48.05.073, 48.43.050, 48.43.097 48.44.095, or 48.46.080 with a written description of the nature of these differences.

(((ii) A summary of ownership and relationships of the insurer and all affiliated companies.))

A small business economic impact statement has been prepared under chapter 19.85 RCW.

Small Business Economic Impact Statement

Background: In March of 2001, the commissioner notified a selection of industry that the subject was under consideration. A draft of the proposed CR-101 and proposed text was sent to a selection of industry and comments were requested. On April 4, 2001, a CR-101 was filed announcing the agency's intent to begin rule making in this area. The CR-101 was mailed to affected parties and posted on the agency website.

Is the Rule Required by Federal Law or Federal Regulation? This rule is not required by federal law or regulation.

What Industry Is Affected by the Proposed Rule? The rules would impact insurers as defined in RCW 48.01.050 and health care service contractors (HCSCs) and health maintenance organizations (HMOs). The industry codes that would be affected by the proposed rules include: Hospital and Medical Service Plans, #6324; Group and Blanket Disability Carriers, #6321; Life Insurers, #6311; Fire, Marine & Casualty Insurers, #6331; Surety Insurers, #6351; and Title Insurers, #6351.

List the Specific Parts of the Proposed Rule, Based on the Underlying Statutory Authority (RCW Section), Which May Impose a Cost to Business: RCW 48.05.073 and 48.43.097 require insurers and health carriers respectively to file financial statements "as required by this code and by the commissioner in accordance with the accounting practices and procedures manuals as adopted by the national association of insurance commissioners, unless otherwise provided by law."

The proposed rule amends WAC 284-07-130. It conforms the rule to the recent legislation and the NAIC Accounting Practices and Procedure Manual. It clarifies filing requirements and eliminates duplicative provisions and unnecessary information. The drafters do not anticipate any costs attributable to the rule beyond the time spent in reading and comprehending the rule.

What Will Be the Compliance Costs for the Industries Affected? The drafters do not anticipate any costs attributable to the rule beyond the time spent in reading and comprehending the rule.

The proposed rule has three elements: 1. The general accepted accounting principles disclosure requirements are eliminated. NAIC codification requires specific statutory accounting principles disclosures;

2. The requirement of related party disclosure in WAC 284-07-130 (2)(f)(ii) is eliminated as duplicative. Statement of Statutory Accounting Principles 1 already requires this disclosure; and

3. The proposed rule provides consistency with the annual statement instructions and removes some filing requirements for foreign insurers.

What Percentage of the Industries in the Four-digit Standard Industrial Classification Will Be Affected by the Rule? The proposed rule would affect 100% of the insurers and carriers subject to regulation by the insurance commissioner.

Will the Rule Impose a Disproportionately Higher Economic Burden on Small Businesses Within the Four-digit Classification? No. The proposed rule will not impose a disproportionately higher economic burden on smaller carriers. The rules should not have economic burdens for any carrier or insurer. The proposed rules should have little to no economic impact.

Can Mitigation Be Used to Reduce the Economic Impact of the Rule on Small Businesses and Still Meet the Stated Objective of the Statutes That Are the Basis of the Proposed Rule? No mitigation appears to be possible and none should be necessary. The NAIC requested the rule clarification as a part of accreditation. The rule change will aid in Washington's accreditation review and should incur little to no additional costs. It does not appear that this goal can be achieved in any more efficient fashion.

What Steps Will the Commissioner Take to Reduce the Costs of the Rule on Small Businesses? See above.

Which Mitigation Techniques Have Been Considered and Incorporated into the Proposed Rule? No changes have been suggested. If any changes are proposed, they will be considered and discussed throughout the remainder of the rule-making process.

Which Mitigation Techniques Were Considered for Incorporation into the Proposed Rule but Were Rejected, and Why? See above.

Briefly Describe the Reporting, Record-keeping, and Other Compliance Requirements of the Proposed Rule: There are no new record-keeping requirements as a result of this rule. Some unnecessary reporting is eliminated.

List the Kinds of Professional Services That a Small Business Is Likely to Need in Order to Comply with the Reporting, Record-keeping, and Other Compliance Requirements of the Proposed Rule: It is expected that no new professional services will be needed by smaller businesses.

Cost of equipment: There is no anticipated additional cost of equipment.

Cost of supplies: There are minimal anticipated additional costs of supplies for copying if an additional copy is needed.

Cost of labor: There may be some minimal costs associated with reading and comprehending the new rule.

Cost of increased administration: There may be some minimal costs associated with reading and comprehending the new rule.

Compare the Cost of Compliance for Small Business with the Cost of Compliance for the Largest Business in the Same Four-digit Classification, Using One or More of the Following: The cost of compliance should be proportional for small businesses. There should be no proportional differences in costs of equipment, supplies, labor, or administration.

Have Businesses That Will Be Affected Been Asked What the Economic Impact Will Be? In late March of 2001, the commissioner sent a draft of the proposed text and the proposed CR-101 to a selection of insurers and carriers and requested comments. The CR-101 was filed on April 4, 2001. The proposal was published in the Washington State Register and was posted on the insurance commissioner's website with contact names and numbers. Interested parties, including smaller carriers, were mailed the CR-101. The CR-101 requested comments and gave agency contact numbers for parties interested in participating in the rule-making process.

How Did the Commissioner Involve Small Business in the Development of the Proposed Rule? See above.

How and When Were Affected Small Businesses Advised of the Proposed Rule? In late March of 2001, the commissioner sent a draft of the proposed text and the proposed CR-101 to a selection of insurers and carriers and requested comments. The CR-101 was filed on April 4, 2001. The proposal was published in the Washington State Register and was posted on the insurance commissioner's website with contact names and numbers. Interested parties, including smaller carriers, were mailed the CR-101. The CR-101 requested comments and gave agency contact numbers for parties interested in participating in the rule-making process.

A copy of the statement may be obtained by writing to Kacy Brandeberry, P.O. Box 40255, Olympia, WA 98504-0255, e-mail Kacyb@oic.wa.gov, phone (360) 664-3784, fax (360) 664-2782.

RCW 34.05.328 applies to this rule adoption. This is a "significant legislative rule" for the purpose of RCW 34.05.328.

Hearing Location: Insurance Building, Second Floor Conference Room, 14th and Water Street, Olympia, Washington, on July 3, at 8:00 a.m.

Assistance for Persons with Disabilities: Contact Lori Villaflores by June 26, 2001, TDD (360) 407-0409.

Submit Written Comments to: Kacy Brandeberry, P.O. Box 40255, Olympia, WA 98504-0255, e-mail Kacyb@oic.wa.gov, fax (360) 664-2782, by July 2, 2001.

Date of Intended Adoption: July 5, 2001.

May 23, 2001

Mike Kriedler

Insurance Commissioner

OTS-4723.1


AMENDATORY SECTION(Amending Order R 94-2, filed 1/27/94, effective 2/27/94)

WAC 284-07-130   Contents of annual audited financial report.   (1) The annual audited financial report shall report the financial position of the insurer as of the end of the most recent calendar year and the results of its operations, cash flows, and changes in capital and surplus for the year then ended in conformity with statutory accounting practices prescribed, or otherwise permitted, by the commissioner.

(2) The annual audited financial report shall include the following:

(a) Report of independent certified public accountant.

(b) Balance sheet reporting admitted assets, liabilities, capital, and surplus.

(c) Statement of operations.

(d) Statement of cash flows.

(e) Statement of changes in capital and surplus.

(f) Notes to financial statements. These notes shall be those required by the appropriate NAIC Annual Statement Instructions and ((any other notes required by generally accepted accounting principles and)) NAIC Accounting Practices and Procedures Manual. The notes shall ((also)) include((:

(i))) a reconciliation of differences, if any, between the audited statutory financial statements and the annual statement filed pursuant to RCW 48.05.250, 48.05.073, 48.43.050, 48.43.097 48.44.095, or 48.46.080 with a written description of the nature of these differences.

(((ii) A summary of ownership and relationships of the insurer and all affiliated companies.))

(g) The financial statements included in the audited financial report shall be prepared in a form and using language and groupings substantially the same as the relevant sections of the annual statement of the insurer filed with the commissioner, and the financial statements shall be comparative, presenting the amounts as of December 31. However, in the first year in which an insurer is required to file an audited financial report, the comparative data may be omitted.

[Statutory Authority: RCW 48.02.060, 48.43.140, 48.44.050 and 48.46.200. 94-04-045 (Order R 94-2), 284-07-130, filed 1/27/94, effective 2/27/94. Statutory Authority: RCW 48.02.060. 92-19-040 (Order R 92-10), 284-07-130, filed 9/9/92, effective 10/10/92.]

Washington State Code Reviser's Office