98-03: Calculation of Workers' Compensation Premium Tax

To:           Missouri Workers' Compensation Insurers

From:      Susan Schulte, Supervisor, Property & Casualty Section

Re:          Calculation of Workers' Compensation Premium Tax and Second Injury Fund Surcharge

Date:       March 3, 1998

Background:

The Department has been asked by various insurance companies, agents and employers about several aspects of the calculation and reporting of the Workers' Compensation Premium Tax (also referred to as the Workers' Compensation Administrative Tax) and the Second Injury Fund Surcharge. These questions are understandable, given that the procedures for these "assessments" have been made more complicated since 1993 due to legislative changes to two Missouri statutes, Sections 287.690 and 287.715, RSMo.  These statutes give the Division of Workers' Compensation the authority to determine the appropriate level of the two assessments which are needed to fund the Division of Workers' Compensation and the Second Injury Fund. The following chart outlines the recent changes to the assessments:    

WC Second Injury Fund Surcharge and Tax Rates
1993 1994 1995 1996 1997 1998
WC Premium Tax 2% 0% 0% 1% 1% 2%
SIF Surcharge 3% 0% 0% 0% 1.5% 3%

Assessment Base for the Workers' Compensation Premium Tax and Second Injury Fund Surcharge:

Sections 287.690 and 287.715, RSMo require that the two assessments be levied against the "net premiums, net deposits, or net assessments received, in lieu of all other taxes."  Section 287.690, RSMo defines "net premiums, net deposits or net assessments" as "gross premiums, gross deposits or gross assessments less canceled or returned premiums, premium deposits or assessments and less dividends or savings, actually paid or credited."  However, Section 287.310, RSMo provides that the definition of premium for purposes of assessing policies that contain deductible options shall be "premiums which would have been paid in the absence of the deductible option."  The Department interprets these provisions to mean that the two assessments are calculated on the final premium, after the application of the experience modification factor, schedule credits/debits, premium discounts and expense constants, but before any deductible credits.

 It should be noted that these assessments are only applicable to primary workers' compensation insurance premiums.  They do not apply to any reinsurance, retrocessional,  or excess workers' compensation transactions.

Calculation Methodology:

Effective Date:

The guidelines in this bulletin apply to all new and renewal business with an effective date on or after January 1, 1998.  The Missouri Department of Insurance recognizes the fact that many new and renewal policies have already been assessed under previous guidelines. We suggest that these policies be adjusted upon audit to reflect the changes required by this bulletin.
 
Any questions or comments regarding this issue should be directed to David Murray of the Missouri Department of Insurance's P&C Section, (573) 751-3365.

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Footnotes:
It is presumed that retrocessional transactions are defined as reinsurance transactions of reinsurers. Therefore, retrospective policies issued by the workers' compensation carrier are considered primary workers' compensation insurance, and are assessed in the same manner as "guaranteed cost" insurance policies.

Excess workers' compensation insurance is not considered primary workers' compensation insurance because it is a reimbursement mechanism for self-insurers.