Current through Register Vol. 46, No. 12, March 20, 2024
(a) Number of items or units.
(1) Item and unit counts may include the
following:
Number of premium entries
Number of policies
Number of loss entries
Number of accidents
Number of employees and any other unit or item counts which
aid in the allocation of expenses. To the greatest practical extent, such unit
or item counts shall be applied only to expenses incurred in activities having
a direct relationship to the bases.
(2) In determining the applicability of
"number of premium entries" as a basis of allocation, consideration shall be
given to the number of premiums on original policies plus additional premiums,
return premiums, reinsurance premiums, and return premiums on reinsurance.
Where more than one card is punched or more than one entry is made covering
only one amount, consideration shall be given thereto. Consideration shall also
be given to the effect on cost of procedural differences in connection with
types of entries.
(3) In
determining the applicability of "number of policies" as a basis of allocation,
consideration shall be given to policies underlying another policy, to policies
covering more than one line of business, to policies for various terms, and to
the effect on cost of procedural differences in connection with types of
policies.
(4) In determining the
applicability of "number of loss entries" as a basis of allocation,
consideration shall be given to the number of gross entries plus salvage
entries and reinsurance entries, for paid or outstanding losses, or both, and
to the effect on cost of procedural differences in connection with types of
loss entries.
(5) In determining
the applicability of "number of accidents" as a basis of allocation,
consideration shall be given to accidents on which specific estimates are set
up, those on which no specific estimate is made, and those for which no claim
is made, and to the effect on cost of procedural differences in connection with
types of accidents.
(6) The basis
"number of employees" is of limited application and shall be used only where
the cost logically follows the number of employees. It may be of use, where
properly weighted, in allocating such units as cafeteria, personnel department,
and payroll department.
(b) Time studies. Time studies are actual
measurements of time required to make motions, to complete a routine or
regularly occurring procedure. In contemplating the use of a time study as a
basis of allocation, consideration shall be given to the number of motions
which must be studied to obtain a valid average and to possible distortions in
the average caused by exceptional conditions during the study.
(c) Overhead on other allocations. Salaries
of supervisors and executives may be distributed as an overhead on the salaries
of employees whom they supervise. Salaries of departments such as mail and
general stenographic may be distributed as an overhead on the salaries of
people whose work is handled. However, no salaries shall be distributed as an
overhead on other allocations if any other basis is more appropriate.
(d) Premiums.
(1) Premiums shall not be used as a basis of
allocation except when specifically noted as a permissible basis or when the
expense is incurred as a percentage of premiums (subject to instructions under
commission and allowances in section
107.3[c][2]
of this Title), or when the expenses are logically allocable on the basis of
premiums. In no event shall premiums be used as a basis of allocation in
connection with clerical, technical, secretarial, office maintenance,
supervisory and executive activities unless such basis is clearly appropriate
and until all other reasonable bases of allocations have been considered and
found less appropriate than premiums.
(2) In determining the applicability of
premiums as a basis of allocation, consideration shall be given to the
applicability of direct and reinsurance premiums, and written, earned and
unearned premiums, as well as to subdivisions thereof.
(e) Dollar volume of losses.
(1) Dollar volume of losses shall be used as
a basis of allocation only when the activities resulting in expense are
influenced by the dollar amounts of losses, and only when all other reasonable
bases of allocation have been considered and found less appropriate than dollar
volume of losses.
(2) In
determining the applicability of dollar volume of losses as a basis of
allocation, consideration shall be given to the applicability of direct and
reinsurance losses, and paid, incurred and outstanding losses as well as to
subdivisions thereof.
(f) Other special studies. Salaries may be
allocated on the basis of other special studies, provided demonstrably more
accurate results are thereby produced than through the use of the bases
heretofore discussed, but not otherwise.
(g) Weightings. Weightings may be applied in
using any bases of allocation but the justification for such weightings shall
be stated in the detail of allocation bases (see section
109.4[g]
of this Part). Weightings shall not be used as a means for giving effect to a
basis which is prohibited by these instructions.
(h) Bases shall be appropriate.
(1) The bases of allocation used shall be
appropriate and applicable to the expenses to which such bases are applied. All
bases shall be limited and subdivided in such manner that the expenses to which
the bases are applied have a reasonable relationship to each component of the
bases. For example, an allocation basis which includes a particular line of
business shall not be applied to expenses incurred for activities which do not
include that line.
(2) Any basis of
allocation which is found to be inappropriate shall be discontinued.
(i) General work on totals. Where
an individual or a group of employees work on totals, the allocation of the
expenses involved may be based on the information entering into the
totals.
(j) Bases shall be made in
current period. All bases of allocation shall be compiled or calculated from
the transactions or procedures for the period applicable to the expenses to be
allocated, unless the use of any other period is justified by investigation
made during the applicable period. Such justification shall be set forth on the
detail of allocation bases (see section
109.4[g]
of this Part).
