INSURANCE COMMISSIONER

[Insurance Commissioner Matter R 2018-07—Filed September 18, 2018, 4:58 p.m.]

Preproposal statement of inquiry was filed as WSR 18-14-106.

Title of Rule and Other Identifying Information: Valuation of the stick [stock] of a subsidiary of a domestic insurance company.

Hearing Location(s): On October 23, 2018, at 10:00 a.m., at the Office of the Insurance Commissioner, 302 Sid Snyder Avenue S.W., Suite 200, Olympia, WA 98501.

Date of Intended Adoption: October 24, 2018.

Submit Written Comments to: Jim Tompkins, P.O. Box 40620 [40260], Olympia, WA 98504-0260, email rulescoordinator@oic.wa.gov, fax 360-586-3109, by October 22, 2018.

Assistance for Persons with Disabilities: Contact Lorie Villaflores, phone 360-725-7087, TTY 360-586-0241, email LorieV@oic.wa.gov, by October 22, 2018.

Purpose of the Proposal and Its Anticipated Effects, Including Any Changes in Existing Rules: WAC 284-16-150 through 284-16-220 regarding the valuation of the stock of the subsidiary of a domestic insurance company were adopted under previous versions of the Insurer Holding Company Act (chapter 48.31B RCW). The commissioner will consider adopting amendments to these rules to update the rules to be compatible with the current version of the Insurance Holding Company Act.

Reasons Supporting Proposal: WAC 284-16-150 through 284-16-220 regarding the valuation of the stock of the subsidiary of a domestic insurance company were adopted under previous versions of the Insurer Holding Company Act (chapter 48.31B RCW). The commissioner will consider adopting amendments to these rules to update the rules to be compatible with the current version of the Insurance Holding Company Act.

Statutory Authority for Adoption: RCW 48.02.060, 48.12.180, and 48.31B.040.

Statute Being Implemented: RCW 48.12.180.

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

Name of Proponent: Mike Kreidler, insurance commissioner, governmental.

Name of Agency Personnel Responsible for Drafting: Jim Tompkins, P.O. Box 40260, Olympia, WA 98504-0260, 360-725-7036; Implementation: Steve Drutz, P.O. Box 40255, Olympia, WA 98504-0255, 360-725-7209; and Enforcement: Doug Hartz, P.O. Box 40255, Olympia, WA 98504-0255, 360-725-7214.

A school district fiscal impact statement is not required under RCW 28A.305.135.

A cost-benefit analysis is not required under RCW 34.05.328. The proposed rule only corrects or clarifies language as a result of statutory changes.

This rule proposal, or portions of the proposal, is exempt from requirements of the Regulatory Fairness Act because the proposal:

Is exempt under RCW 19.85.025(3) as the rules only correct typographical errors, make address or name changes, or clarify language of a rule without changing its effect.

Insurance Commissioner

AMENDATORY SECTION(Amending Order R 76-7, filed 11/30/76)

WAC 284-16-160Definitions.

For purpose of this regulation:

(1) ((The term)) "Subsidiary" ((shall have))has the same meaning ((given it by RCW 48.31A.010))as in RCW 48.31B.005;

(2) ((The term)) "Book value" ((shall)) means that value determined by dividing the amount of its capital and surplus as shown in its last annual statement or subsequent report of examination (excluding from its surplus, any reserves required by statute and any portion of surplus properly allocable to policyholders, ((rather))other than stockholders) less the ((value ())par ((of))or redemption value, whichever is the greater(())) of all of its preferred stock((, if any,)) outstanding, by the total number of shares of its common stock issued and outstanding.

AMENDATORY SECTION(Amending Order R 76-7, filed 11/30/76)

WAC 284-16-170Usual valuation of stock of a subsidiary.

The common stock of any subsidiary of an insurer may always be valued on the basis of the value of only such of the assets of such subsidiary as would constitute lawful investments for the insurer if acquired or held directly by the insurer under either the requirements of chapter 48.13 or 48.31B RCW, or both.

AMENDATORY SECTION(Amending Order R 76-7, filed 11/30/76)

WAC 284-16-180Other methods of valuing stock of a subsidiary.

If sound business judgment of an insurer's management causes it to believe that a valuation of common stock of a subsidiary pursuant to WAC 284-16-170 is inappropriate, it may value such stock on one of the following bases:

(1) "Book value," provided, however, that the common stock of a noninsurance company may not be valued on the basis of this subsection, and further provided that an insurer may value its holdings of stock in a subsidiary insurer at acquisition cost if acquisition cost is less than market or book value.

(2) One of the following bases appropriate to each type of subsidiary owned by it, provided, however, that an insurer shall not be required to value the stock of all its subsidiaries on the same basis:

(a) Subject to the limitations imposed under WAC 284-16-190, the net worth of a noninsurance company determined in accordance with generally accepted accounting principles, as of the end of its most recent fiscal year, provided, subject to WAC 284-16-200, that the financial statements of the company for its most recent fiscal year have been audited by an independent certified public accountant in accordance with generally accepted auditing standards. The common stock of an insurance company may not be valued under this subsection.

(b) Subject to the limitations imposed under WAC 284-16-190, a value equal to the cost of the common stock of the subsidiary, provided such value is determined and adjusted to reflect subsequent operating results, in the case of insurance companies in accordance with statutory accounting requirements, and for other than insurance companies in accordance with generally accepted accounting principles.

(d) The value, if any, placed on the common stock of such subsidiary by the National Association of Insurance Commissioners.

(e) Any other value which the insurer can substantiate to the satisfaction of the commissioner as being a reasonable value.

AMENDATORY SECTION(Amending Order R 76-7, filed 11/30/76)

WAC 284-16-190Limitation on values.

(1) With respect to values determined under WAC 284-16-180 (2)(a) or (b), amounts attributable to "good will," and other intangibles shall not in the aggregate (of all direct and indirect subsidiaries) exceed (either initially on acquisition of a subsidiary, or thereafter), 10% of the capital and surplus of an insurer, as reported in its next preceding annual statement. Such amounts shall be written off over a period not in excess of ten years, written down for any other than temporary decline of the fair value of an investment as a subsidiary, or other adjustments in accordance with the NAIC statements of statutory accounting principles.

(2) For purposes of this section, "good will" shall be defined as the amount arising at a given point in time, resulting from an arm's-length transaction involving the transfer of a business, representing the difference between the value of the consideration given and the net asset value of the properties acquired on the books of the predecessor company.

(3) Where warranted in exceptional cases, the commissioner may require a more rapid write-off of good will than is otherwise provided in this section.