INSURANCE CODE -- INSURANCE COMPANIES -- ADMISSIBILITY OF ASSETS.
Insurance Code, Insurance Company Investments, Filed annual statements, admissibility of assets in determining financial condition, personal property and chattel mortgages on personal property.
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August 21, 1957
Honorable William A. Sullivan
Olympia, Washington Cite as: AGO 57-58 No. 114
By letter previously acknowledged you have requested an opinion from this office concerning the listing of certain property as assets by an insurance company under the investment provisions of the insurance code. We paraphrase your question as follows:
May an insurance company, in submitting its annual statement of 1956, include as admitted assets safe deposit vault equipment and a chattel mortgage on printing equipment at their full book value?
Our answer to your question is in the negative.
From the facts outlined by the office of the insurance commissioner, on December 31, 1956, the company owned certain described assets as follows:
(1) Safe deposit vault equipment located on leased property in South Tacoma, Washington, with the approximate book value of $20,000.
[[Orig. Op. Page 2]]
(2) Chattel mortgage on printing equipment owned by various mortgagors, the equipment located in the company's former home office property in Seattle, Washington, with the approximate book value of $20,000.
RCW 48.12.010 defines and sets forth the assets which shall be allowed in determining the financial condition of an insurer. Subsection (11) of the foregoing section defines "other assets" as follows:
"(11) Other assets, not inconsistent with the foregoing provisions, deemed by the commissioner available for the payment of losses and claims, at values to be determined by him."
RCW 48.12.020 outlines the "nonallowable assets" in any determination of the financial condition of an insurer and reads as follows:
"In addition to assets impliedly excluded under RCW 48.12.010, the following expressly shall not be allowed as assets in any determination of the financial condition of an insurer:
". . .
"(5) Furniture, furnishings, fixtures, safes, equipment, vehicles, library, stationery, literature, and supplies; except, such personal property as the insurer is permitted to hold pursuant to paragraph (e) of subsection (2) of RCW 48.13.160, or which is acquired through foreclosure of chattel mortgages acquired pursuant to RCW 48.13.150, or which is reasonably necessary for the maintenance and operation of real estate lawfully acquired and held by the insurer other than real estate used by it for home office, branch office, and similar purposes." (Emphasis supplied.)
The foregoing language expressly excludes fixtures, safes and equipment as nonallowable assets, and safe deposit vault equipment clearly falls within this terminology. Therefore, in answer to your first question, a company cannot include the book value of safe deposit vault equipment as an admitted asset in its filed annual statement for 1956.
In respect to (2), the chattel mortgage on printing equipment, an outline of [[Orig. Op. Page 3]] basic factual information appears to be necessary to determine whether or not the property covered by the chattel mortgage is an admitted asset.
The mortgage was originally executed on August 7, 1953, and was reformed and renewed December 1, 1955. The company, though not the fee owner, has a purchase money mortgage on the real property in which the printing equipment is located, and that mortgage, in addition to its security of the real property, is further secured by the chattel mortgage on the same equipment. Evidently, the purpose for this method of handling was to make certain that the chattel mortgage on the printing equipment would not be released during the existence of the real estate mortgage. The mortgage originally secured by the chattel is in addition to the purchase money mortgage on the real property. Further, until the original chattel mortgage has been satisfied, the chattel does not become additional security for the purchase money mortgage loan.
The following two sections outline investments which may be made in personal property or mortgages secured thereby.
RCW 48.13.150 defines auxiliary chattel mortgages as follows:
"(1) In connection with a mortgage loan on the security of real property designed and used primarily for residential purposes only, acquired pursuant to RCW 48.13.110, an insurer may loan or invest an amount not exceeding twenty percent of the amount loaned on or invested in such real property mortgage, on the security of a chattel mortgage for a term of not more than five years representing a first and prior lien, except for taxes not then delinquent, on personal property constituting durable equipment owned by the mortgagor and kept and used in the mortgaged premises.
"(2) The term 'durable equipment' shall include only mechanical refrigerators, mechanical laundering machines, heating and cooking stoves and ranges, mechanical kitchen aids, vacuum cleaners, and fire extinguishing devices; and in addition in the case of apartment houses and hotels, room furniture and furnishings.
"(3) Prior to acquisition of a chattel mortgage, items of property to be included shall be separately appraised by a competent appraiser and the fair market value thereof determined. No such chattel mortgage loan shall exceed in amount the same ratio of loan to the value of the property as is applicable to the companion loan on the real [[Orig. Op. Page 4]] property."
RCW 48.13.160 (2) (e) provides in pertinent part as follows:
"(2) An insurer may own real property acquired in satisfaction or on account of loans, mortgages, liens, judgments, or other debts previously owing to the insurer in the course of its business, and may invest or have invested in aggregate amount not exceeding three percent of its assets in other real property, and in the repair, alteration, furnishing, or improvement thereof, as follows only:
"(e) Upon approval of the commissioner, in real property and equipment incident to real property, requisite or desirable for the protection or enhancement of the value of other real property owned by the insurer."
The first section quoted above would not be applicable inasmuch as a chattel mortgage does not come within the type set forth in the section. In addition, it does not qualify under the latter statutory provision inasmuch as the company is not the owner of the real property in which the chattel is situated and the equipment is not incidental to the real property nor has there been any approval by the commissioner of this investment.
RCW 48.13.240 defines miscellaneous investments. This section is general in application and provides that an insurer may make loans or investments not otherwise specifically made eligible for investment and not specifically prohibited or made ineligible by this section or other provisions of the code. However, subsection (2) reads in part as follows:
"(2)No such loan or investment shall be represented by
"(a)any item described in RCW 48.12.020; or
"(b) any loan or investment of a kind specifically made eligible under any other provision of this code; . . ." (Emphasis supplied.)
Since there is the specific reference back to RCW 48.12.020 (nonallowable assets) which expressly precludes a chattel mortgage on equipment, a company [[Orig. Op. Page 5]] cannot legally include the book value of the chattel mortgage on printing equipment as an admitted asset in its filed annual statement for 1956.
In reviewing other provisions of the code, it would appear that the foregoing chattel mortgage on printing equipment is a type of transaction that could only be considered as an admitted asset under RCW 48.13.250, if there had been advance approval by the insurance commissioner of the foregoing transactions or investments. You have advised us that there has been no such approval and therefore the chattel mortgage cannot be considered an asset under that provision.
We hope the foregoing analysis will be helpful to you.
Very truly yours,
JOHN J. O'CONNELL
LLOYD G. BAKER
Assistant Attorney General