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You are here: Home . rules . 2003 . 0224a-059
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Subchapter A. Examination and Financial Analysis

28 TAC §7.18

The Commissioner of Insurance adopts amendments to §7.18 concerning the adoption by reference of the Accounting Practices and Procedures Manual (Manual). The amended section is adopted without changes to the proposed text as published in the January 2, 2004 issue of the Texas Register (29 TexReg 49) and will not be republished.

The amendments to §7.18 are necessary to update the version of the Manual previously adopted by the Department. The Manual is designed to provide a nationwide standard method of accounting which most insurers, including health maintenance organizations, will be required to use for statutory financial reporting guidance, thus creating a more consistent regulatory environment. The section adopts the Manual by reference with deference to Texas statutes, regulations and to exceptions enumerated in the section.

The adopted section provides for more efficient regulation of insurance and a decrease in costs to insurers that are currently required to file multiple financial statements in multiple states. The adoption of the March 2003 version of the Manual will provide for a more consistent regulatory environment and will provide a single source for accounting guidance. The amended section updates the adoption by reference of the Manual by adopting the March 2003 version of the Manual; renumbers the paragraphs in subsection (c) as a result of the repeal of paragraphs (1) and (5); and changes several Texas Insurance Code references as a result of the state's continuing statutory revision program.

No comments were received.

The amendments are adopted under the Texas Insurance Code Articles 1.15, 1.32, 3.33, 5.61, 21.28-A, 21.39 and §§32.041, 36.001, 802.001, 823.012, 841.004, 843.151, 861.255, 862.001. Article 1.15 mandates that the department examine the financial condition of each carrier organized under the laws of Texas or authorized to transact the business of insurance in Texas and, by rule, adopt procedures for the filing and adoption of examination reports. Article 1.32 authorizes the Commissioner to establish standards for evaluating the financial condition of an insurer. Article 3.33 authorizes the Commissioner to adopt such rules, minimum standards, or limitations as may be appropriate for the implementation of the article. Article 5.61 provides that reserves shall be computed in accordance with rules adopted by the Commissioner for the purpose of adequately protecting insureds. Article 21.28-A authorizes the Commissioner to adopt rules necessary to accomplish the purposes of the act. Article 21.39 authorizes the Commissioner to adopt rules for establishing reserves applicable to each line of insurance recommended by the National Association of Insurance Commissioners. Sections 32.041 and 802.001 authorize the Commissioner to provide required financial statement forms. Section 843.151 (formerly Article 20A.22) authorizes the Commissioner to promulgate rules as are necessary to carryout the provisions of Chapter 843 and Insurance Code Chapter 20A (the Texas Health Maintenance Organization Act). Section 823.012 (formerly Article 21.49-1) authorizes the Commissioner to issue rules and orders necessary to implement the provisions of Insurance Code, Chapter 823, Insurance Holding Company Systems. Sections 841.004, 861.255 and 862.001 (formerly Articles 3.01, 8.07, 6.12) authorize the Commissioner to adopt rules defining electronic machines and systems, office equipment, furniture, machines and labor saving devices and the maximum period for which each such class may be amortized. Section 36.001 provides that th e C ommissioner may adopt any rules necessary and appropriate to implement the powers and duties of the department under the Insurance Code and other laws of this state.

§7.18. NAIC Accounting Practices and Procedures Manual.

(a) The purpose of this section is to adopt statutory accounting principles, which will provide independent accountants, industry accountants and department analysts and examiners guidance as to how to properly record business transactions for the purpose of accurate statutory reporting. The March 2003 version of the National Association of Insurance Commissioners Accounting Practices and Procedures Manual (Manual) will be utilized as the guideline for statutory accounting principles in Texas to the extent the Manual does not conflict with provisions of the Texas Insurance Code or rules of the department. The Commissioner reserves all authority and discretion to resolve any accounting issues in Texas. When making a determination on the proper accounting treatment for an insurance or health plan transaction the Commissioner shall refer to the sources in paragraphs (1) - (6) of this subsection in the respective order of priority listed. Furthermore, §§3.1501-3.1505, 3.1605, 3.1606, 3.7004, 7.7, 7.85 and 11.803 of this title (relating to Annuity Mortality Tables, General Requirements, Required Opinions, Contract Reserves, Subordinated Indebtedness, Audited Financial Reports and Investments, Loans and Other Assets), preempt any contrary provisions in the Manual.

(1) Texas statutes;

(2) department rules;

(3) directives, instructions and orders of the Commissioner;

(4) the Manual;

(5) other NAIC handbooks, manuals, and instructions, adopted by the department; and

(6) Generally Accepted Accounting Practices.

(b) The Commissioner adopts by reference the March 2003 version of the Accounting Practices and Procedures Manual published by the National Association of Insurance Commissioners, with the exceptions and additions set forth in subsections (c) and (d) of this section, as the source of accounting principles for the department when examining financial reports and for conducting statutory examinations and rehabilitations of insurers and health maintenance organizations licensed in Texas, except where otherwise provided by law. This adoption by reference shall be applied to examinations conducted as of January 1, 2004 and thereafter and also shall be used to prepare all financial statements filed with the department for periods after January 1, 2004.

(c) The Commissioner adopts the following exceptions and additions to the Manual:

(1) Retrospective premiums must be billed within 60 days of computation and audit premiums must be billed within 60 days of the completion of the audit in determining the beginning date from which the ninety day period is calculated to determine admissibility of uncollected premium balances under Statement of Statutory Accounting Principles number 6.

(2) Electronic machines, constituting a data processing system or systems and operating systems software used in connection with the business of an insurance company acquired after December 31, 2000, may be an admitted asset as permitted by Texas Insurance Code §§841.004, 861.255, 862.001, and any other applicable law and shall be amortized as provided by the Manual . All such property acquired prior to January 1, 2001, may be an admitted asset as permitted by Texas Insurance Code §§841.004, 861.255, 862.001, and any other applicable law, and shall be amortized in full over a period not to exceed ten years.

(3) Furniture, labor-saving devices, machines, and all other office equipment may be admitted as an asset as permitted by Texas Insurance Code §§841.004, 861.255, 862.001, and any other applicable law and, for such property acquired after December 31, 2000, depreciated in full over a period not to exceed five years. All such property acquired prior to January 1, 2001, may be an admitted asset as permitted by Texas Insurance Code §§841.004, 861.255, 862.001, and any other applicable law, and shall be depreciated in full over a period not to exceed ten years.

(4) Goodwill, as reported on a regulated entity´s statutory financial statements as of December 31, 2000, and any additional goodwill acquired thereafter, beginning January 1, 2001, shall be admitted as an asset and accounted for as permitted by Statements of Statutory Accounting Principles numbers 61 and 68. All other amounts of goodwill, including, but not limited to, such amounts that may have been previously expensed, shall not be allowed as an admitted asset. However, notwithstanding the provisions of Statements of Statutory Accounting Principles numbers 61 and 68, all methods of non-insurer subsidiary and affiliate valuation permitted by Texas Insurance Code §§823.301-823.307 may be used for the purposes of goodwill calculation.

(5) All certificates of deposit, of any maturity, may be classified as cash and are subject to the accounting treatment contained in Statement of Statutory Accounting Principles number 2, notwithstanding the provisions of Statement of Statutory Accounting Principles number 26.

(d) A farm mutual insurance company, statewide mutual assessment company, local mutual aid association, or mutual burial association that has less than $5 million in annual direct written premiums need not comply with the Manual .

(e) This section shall not be construed to either broaden or restrict the authority provided under the Texas Insurance Code to insurers, including health maintenance organizations.



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