Bulletin, August 20, 2001, Bulletin on Amendments to Chapter Ins 13, and section Ins 50.02, Wis. Adm. Code

Last Updated: August 21, 2001

Date: August 20, 2001
To: All Town Mutual Insurers Licensed under Ch. 612, Stat., Certain Domestic Insurers Licensed under Ch. 611, Stat., and Certain Reinsurers
From: Connie L. O'Connell, Commissioner of Insurance
Subject: Bulletin on Amendments to Chapter Ins 13, and section Ins 50.02, Wis. Adm. Code

​This Bulletin is to call your attention to some recent changes in the Insurance Administrative Code that may affect your company. Here is a short description of the changes to Ch. Ins 13 and s. Ins 50.02, Wis. Adm. Code:

Ins 13.03
The purpose of this section is to modify the "Model Articles" to match a change in the statutes, regarding the number of counties in the town mutual's territory. Under the old language, town mutual insurers could have a territory of 4 counties, with up to 8 counties with the permission of the Commissioner. The law [s. 612.02(2)(c), Wis. Stat.] was changed several years ago to allow 8 counties, with up to 16 counties with the permission of the Commissioner. The "Model Articles" are amended to match the statute.

Ins 13.05
The current code prescribes a minimum fidelity bond amount based on the town mutual's assets plus gross income, in a table up to $5 million total. Because some town mutuals have grown in assets and gross income, OCI has extended the table to accommodate the larger size. This year, the largest company is over $8 million total assets plus income, so the rule extends the table to accommodate up to $10 million total.

Ins 13.06
Collectively, the effect of these changes is to increase the minimum surplus (net worth) requirement from $50,000 to $200,000 for town mutual insurers, effective July 1, 2001. As of year-end 2000, all of the 73 town mutual insurers met the higher standard.

Ins 13.08
This section repeals the unearned premium accounting formula for 4-year and 5-year insurance policies, because no town mutual insurers offer longer than a 3-year policy.

Ins 13.09
This section updates the 1975 rule requiring that town mutual insurers obtain stop-loss reinsurance to cover catastrophic losses. The new language is consistent with what the marketplace has been providing for many years (which did not precisely comply with the existing rule). Both the existing rule and the new rule require the reinsurer to provide coverage for all losses in excess of a specified retention amount. The new rule defines the company's limit of loss retention as a percentage of premiums, rather than based on 3 mills on the average net insurance in force. (Please note that the actual reinsurance contract is permitted to define the attachment point differently, such as a fixed dollar retention, however the ceding company and reinsurer must make sure that the contract's attachment point complies with the calculation defined in the rule.) This section goes into effect for 2002, it does not affect the 2001 contracts.

The rule uses the filed annual statement data (as amended, if so required by OCI) as the basis for the attachment point. Normally, the stop loss reinsurance contract for the next year is negotiated before the prior year-end financial results are known. Therefore, it may happen that the ceding company negotiated a higher attachment point as a % of premiums for the next year than would be permitted based on actual year-end financial results. In that case, the ceding company shall notify OCI within 5 days, and the ceding company and reinsurer shall renegotiate the contract so that the attachment point meets the rule requirement.

Ins 50.02
The provisions of the rule for exemption from a CPA audit for town mutual insurers have been liberalized. The premium threshold is raised from $300,000 to $500,000, the number of counties is changed to match the change in the statute (noted in Section 13.03), and other minor changes were made, that in total, allow more town mutual insurers to be exempt from the requirement for a CPA audit.

  • The above provides a brief explanation of the changes to each of the amended sections of the administrative code. (The actual administrative code language takes legal precedence over this explanation.)
  • The effective date for the changes is July 1, 2001, except for changes to section Ins 13.09 (related to stop-loss reinsurance) which go into effect January 1, 2002.
  • If you subscribe to the Insurance Code, you have recently received new pages for chapters 13 and 50. If you do not subscribe to the Insurance Code, you can order it by contacting Document Sales, Department of Administration, PO Box 7840, Madison WI 53707-7840, phone (608) 264-9419 for credit card orders. Current prices are: $35 to buy the current edition of the Insurance code, and $35 for a one-year subscription to changes in the Insurance code; add sales tax at your county's rate.
  • If you have access to the Internet, you can view and print the new Administrative Code language by accessing www.wisconsin.gov, then click on Government; Legislature; Administrative Code; then type in the chapters or sections you want to view (e.g., ch. Ins 13 or s. Ins 50.02). (Note: there is no period after "Ins".)
  • If you have any questions about the changes, please contact Peter Medley, Insurance Examiner Supervisor, at (608) 267-5030.

Thank you.