BEFORE THE COMMISSIONER OF SECURITIES AND INSURANCE
MONTANA STATE AUDITOR
In the matter of the adoption of New Rules I through III pertaining to Fire Tax
NOTICE OF ADOPTION
TO: All Concerned Persons
1. On April 30, 2015, the Commissioner of Securities and Insurance, Montana State Auditor, published MAR Notice No. 6-214 pertaining to the public hearing on the proposed adoption of the above-stated rules at page 394 of the 2015 Montana Administrative Register, Issue Number 8.
2. The department has adopted New Rule I (6.6.4801) exactly as proposed.
3. The department has adopted New Rule II (6.6.4802), and New Rule III (6.6.4803), but with the following changes to the original proposal, stricken matter interlined, new matter underlined:
NEW RULE II (6.6.4802) FIRE PREMIUM ALLOCATION PROCEDURE
(1) remains as proposed.
(2) For each line of business identified in 50-3-109(2), MCA, the following
requirements apply to an insurer's reporting obligation under (1):
(a) remains as proposed.
(b) If the percentage of fire premium reported is below the presumptively reasonable allocation, the insurer shall provide the basis for the calculation of fire premium along with any supporting documentation to the CSI. If the CSI accepts the insurer's calculation of fire premium, and in subsequent years the percentage of fire premium remains the same, the insurer is not required to provide such justification to the CSI;
(c) through (3) remain as proposed.
AUTH: 33-1-313, MCA
IMP: 33-2-705, MCA
NEW RULE III (6.6.4803) PRESUMPTIVELY REASONABLE ALLOCATIONS (1) through (1)(f) remain as proposed.
(g) for surplus lines, 60%;
(h) through (p) remain as proposed, but are renumbered (g) through (o).
AUTH: 33-1-313, MCA
IMP: 33-2-705, MCA
4. On May 21, 2015, a public hearing was held on the proposed adoption of the above-stated rules. Comments were received by the May 29, 2015, deadline.
5. The department has thoroughly considered the comments and testimony received. Two commenters provided comments in regard to these rules, raising four issues.
COMMENT NO. 1: One commenter stated that surplus lines insurance should not be included in New Rule III (ARM 6.6.4803), because non-admitted carriers are not required to pay the fire premium tax set forth in 50-3-109, MCA. Instead, fire premium tax is paid by insureds and collected by insurance producers. 33-2-311, MCA.
RESPONSE NO. 1: The CSI agrees that surplus lines insurance has a different process for paying taxes, and should not be included in these rules. The CSI has removed the reference to surplus lines insurance in the final rules.
COMMENT NO. 2: Both commenters state that New Rules I (ARM 6.6.4801) through III (ARM 6.6.4803) would shift the burden of establishing the reasonableness of the fire premium tax allocation from the department onto each insurer. Both commenters state that under the New Rules I (ARM 6.6.4801) through III (ARM 6.6.4803) insurers who do not use the presumptively reasonable allocations will have to develop and defend their own methodologies to justify a different allocation percentage, which may be costly and time-consuming.
RESPONSE NO. 2: The department disagrees that New Rules I (ARM 6.6.4801) through III (ARM 6.6.4803) shift any burden onto insurers. Both commenters misinterpret the current legal framework for paying fire premium tax under 33-2-705, MCA. Currently, insurers provide their proposed fire premium tax allocations to the department, which the department reviews for reasonableness pursuant to 33-2-705(3), MCA. Under that existing statute, the department may require—and has required—particular insurers to justify their allocation percentages, which has been a costly and time-consuming process in the past. Thus, there is no shifting of burdens; the purpose of New Rules I (ARM 6.6.4801) through III (ARM 6.6.4803) is to avoid the burdensome process that already exists as much as possible. In addition, 33-2-705, MCA, requires insurers to determine the percentage of premium attributable to risk of fire, so insurers should have already developed a methodology to determine that percentage. Therefore, these rules do not require any new expenditure of resources by insurers.
COMMENT NO. 3: One commenter opined that New Rules I (ARM 6.6.4801) through III (ARM 6.6.4803) may exceed the statutory authority of the department, because "the insurer shall make a reasonable allocation from the entire premium to the fire portion of the coverage as must be stated in the report" pursuant to 33-2-705(3), MCA.
RESPONSE NO. 3: The department disagrees that these rules exceed the department's authority. There is no conflict between these rules and 33-2-705(3), MCA. Under the new rules, insurers will still determine the allocation of fire premium and report that allocation to the CSI, on a form created by the CSI. The new rules only address the portion of 33-2-705(3), MCA, uncited by the commenters: "as may be approved or accepted by the commissioner."
COMMENT NO. 4: One commenter asked whether the department has considered alternative approaches, such as issuing guidance to insurers for determining their allocation of fire premium.
RESPONSE NO. 4: The department has considered alternative approaches. One approach to meet its statutory duty to review fire premium allocations for reasonableness would be to allocate more personnel and resources to request and review insurers' methodologies for determining those allocations. The department believes issuing these new rules is in the best interests of the department and insurers. As to the commenter's suggestion of issuing guidance to determine the allocation of fire premium, the department's guidance is contained in New Rule II (ARM 6.6.4802).
6. August 1, 2015 will be the effective date for ARM 6.6.4801 through 6.6.4803. The department shall update the fire premium tax form and apply ARM 6.6.4801 through 6.6.4803 to all fire premium tax filings for the 2015 tax year and later.
/s/ Nick Mazanec /s/ Jesse Laslovich
Nick Mazanec Jesse Laslovich
Rule Reviewer Chief Legal Counsel
Certified to the Secretary of State July 20, 2015.