Division 4. Small Insurer and New Insurer Rate Filing Requirements
28 TAC §5.3301
The Commissioner of Insurance adopts new §5.3301 concerning residential property insurance filing requirements for small and new insurers. The subchapter is adopted with changes to the proposed text as published in the October 17, 2003 issue of the Texas Register (28 TexReg 9050).
New §5.3301 is being adopted to implement Insurance Code Article 5.142 §4(c), as enacted by the Regular Session of the 78 th Legislature in Senate Bill 14, effective June 11, 2003. Article 5.142 §4(c) authorizes the commissioner to simplify rate filing requirements by rule for small and new insurers and to allow for the immediate use of filed rates by small and new insurers provided that the rate filing does not constitute a significant overall rate increase as determined by rule. New §5.3301 is necessary to provide the filing requirements for small and new insurers by specifying what information must be filed to comply with the rate filing requirements adopted under Article 5.142 §4(c). In addition, new §5.3301 is necessary to define an overall rate increase for the purpose of determining whether a small insurer or new insurer may immediately use a filed rate as provided by Article 5.142 §4(c).
To assure compliance with the rate standards established under Insurance Code Article 5.142, the department must pay closer attention to actuarial support and justification of rates in the early stages of implementation. For this reason, the new section allows the department to monitor actuarial support and justification of rates for a greater number of small insurers in the early stages of implementation under Insurance Code Article 5.142. A similar approach was enacted by the Regular Session of the 78 th Legislature in Senate Bill 14, which contemplates a gradual lessening of regulatory supervision over time for residential property insurance rates as demonstrated by Insurance Code Articles 5.26-1, 5.142 and 5.13-2.
Under Article 5.142, the commissioner has discretionary authority to simplify rate filing requirements for small insurers and new insurers and to determine what constitutes a sufficient rate filing for small insurers and new insurers. New §5.3301(e) allows the commissioner to exercise this discretion with regard to requirements for filing actuarial support by establishing thresholds of $10 million and $20 million in direct written premium of small insurers for residential property insurance. Insurers defined under Insurance Code Article 5.142 as "small" vary greatly in size from under $1 million to over $80 million (two percent of the Texas homeowners market of approximately $4.2 billion) in direct written premium. While the data for insurers at the small end of this range may not be fully credible, other insurers in this group should have fully credible data. For example, an insurer group at the high end of the range would be the largest to the fifth largest insurer in eight of the 15 most populous states (Georgia, Illinois, Indiana, Massachusetts, New Jersey, North Carolina, Ohio and Washington). With more credible data, a better determination can be made as to whether the rates in fact satisfy the statutory requirements. Because of the wide range of size among "small" insurers in the state, a higher level of review of actuarial support or other justification of rates is necessary to assure compliance with the rate standards established under Insurance Code Article 5.142 for some but not all "small" insurers as reflected in thresholds established in new subsection (e).
Changes have been made to the subparagraph designations of proposed §5.3301(e)(3) as published to reflect correct classification designations from lowercase Roman numerals to capital letters.
New §5.3301(a) through (c), respectively, set forth the purpose, scope and definitions applicable to the entire section. Statutory definitions under Insurance Code Article 5.142 apply to this new section, including the definitions of "small insurer" under subsection (c)(1) and "new insurer" under (c)(2). A "small insurer" is defined as an insurer, including a Lloyd's plan insurer or reciprocal exchange, that during the previous calendar year wrote less than two percent of the total homeowners premium in the state; if such an insurer is part of an insurance group, the total aggregate homeowners premium for the group must be less than two percent for any insurer in the group to be considered a small insurer. A "new insurer" is an insurer that, as of the effective date of Senate Bill 14 (June 11, 2003) was not authorized to write residential property insurance in this state and was not affiliated with another insurer that was authorized to write and was writing residential property insurance as of the effective date of Senate Bill 14.
New §5.3301(d) sets forth the general filing requirements for small insurers and new insurers. Small and new insurers must submit to the department a filing memorandum, a filing transmittal and a company certification. In addition, small insurers must submit an exhibit that demonstrates the small insurers' general rate support. These requirements will provide the department with the information necessary to determine compliance with Article 5.142. Information required by form may be submitted on a form provided by the department or on the insurers' own form if the form contains the same information that is required by and contained in the form provided by the department.
New §5.3301(e) requires small insurers to submit actuarial support or other justification for an overall rate increase if: (a) for rates effective before March 1, 2004, a company had direct written residential property premium in the previous calendar year of more than $10 million; and (b) for rates effective on or after March 1, 2004, a company had direct written residential property premium in the previous calendar year of more than $20 million. This new subsection allows the department to monitor actuarial support and justification of rates for a greater number of small insurers in the early stages of implementation under Insurance Code Article 5.142. New §5.3301(f) provides that the department may request additional information as necessary relating to rate filings of small insurers or new insurers.
New §5.3301(g) provides that a small insurer or new insurer may immediately use a rate that has been submitted to the department in accordance with new subsections (d) and (e) of §5.3301, provided that the filed rate does not constitute an overall increase that is 10% or more than the lesser of the current rates or any other rates used by the insurer within the 12 months immediately preceding the rate filed under §5.3301. The provisions of Insurance Code Article 5.142 §5, relating to prior approval, apply if any increase is 10% or more of the current rates or any other rates used by the insurer within the 12 months preceding the rates filed under §5.3301. Under this new subsection, small insurers and new insurers may make multiple rate changes in a 12 month period within the 10% allowable increase.
New §5.3301(h) clarifies that except as provided in this adopted section, the provisions of Insurance Code Article 5.142 apply to small insurers and new insurers, including the rating criteria set forth in Insurance Code Article 5.142 §3.
New §5.3301(i) clarifies that this rule expires on December 1, 2004, in accordance with the expiration of Insurance Code Article 5.142.
The department received no comments.
The new section is adopted under the Insurance Code Article 5.142 and §36.001. Article 5.142 §4(c) provides that the commissioner may simplify filing requirements by rule for small insurers and new insurers subject to: (1) the specified definition of a "small insurer"; (2) the specified definition of a "new insurer"; (3) a provision that the commissioner must specify what information the small insurer or new insurer must file to constitute a filing sufficient to comply with the filing requirements adopted under Article 5.142; and (4) a provision that the commissioner shall allow for the immediate use of filed rates provided the rate filing does not constitute a significant overall rate increase, as determined by rule. Section 36.001 provides that the commissioner may adopt any rules necessary and appropriate to implement the powers and duties of the department under the Insurance Code and other laws of this state.
Division 4. Small Insurer and New Insurer Rate Filing Requirements
§5.3301. Rate Filing Requirements Under Article 5.142 for Small and New Insurers Writing Residential Property Insurance.
(a) Purpose. This section specifies what information a small insurer or a new insurer must file to comply with the filing requirements under Insurance Code Article 5.142. In addition, this section defines an overall rate increase for the purpose of determining whether a small insurer or a new insurer may immediately use a filed rate as provided by Insurance Code Article 5.142 §4(c)(4).
(b) Scope. This section applies to a small insurer or a new nsurer, as defined in Insurance Code Article 5.142 §4(c)(1) and (2) respectively.
(c) Definitions. Words and terms defined in Insurance Code Article 5.142 shall have the same meaning when used in this section.
(d) General filing requirements.
(1) Small Insurer. A small insurer must complete and submit to the department a filing memorandum, a filing transmittal, a company certification, and a general rate level support as specified in subparagraphs (A) - (D) of this paragraph. The forms specified in subparagraphs (B) - (D) of this paragraph are provided by the department, and may be obtained from the department website (www.tdi.state.tx.us) or, upon request, from the Texas Department of Insurance Property & Casualty Actuarial Division, Mail Code 105-5F, P.O. Box 149104, Austin, TX 78714-9104. For purposes of this section, in lieu of submitting a form provided by the department, a small insurer may submit to the department the insurer's own form if the form contains the same information that is required by and contained in the form provided by the department.
(A) A filing memorandum that briefly explains the purpose of the filing and all material background details relating to the filing. For example, a filing memorandum may include one or more of the following, if applicable:
(i) reasons for entry into a new market;
(ii) reasons for offering additional coverages;
(iii) reasons for offering new discounts;
(iv) reasons for changing rates based on market conditions;
(v) changes in the insurer's goals and objectives;
(vi) an explanation of insurer or insurer group reorganization; or
(vii) data sufficient to determine the amount of the rate change, if any;
(B) FT (Sm or New Res. Prop.) - Filing Transmittal;
(C) FT (5.142 Cert.) - Company Certification. Certificate by an officer of the insurer that all rate classifications, the rates applicable to those classifications, and the risk factors to which those classifications apply are based on reasonably sound and verifiable actuarial principles and that no classifications are unfairly discriminatory;
(D) Exhibit 1 - General Rate Level Support.
(2) New Insurer. A new insurer must complete and submit to the department a filing memorandum, a filing transmittal, and a company certification as specified in subparagraphs (A) - (C) of this paragraph. The forms specified in subparagraphs (B) and (C) of this paragraph are provided by the department, and may be obtained from the department website (www.tdi.state.tx.us) or, upon request, from the Texas Department of Insurance Property & Casualty Actuarial Division, Mail Code 105-5F, P. O. Box 149104, Austin, TX 78714-9104. For purposes of this section, in lieu of submitting a form provided by the department, a new insurer may submit to the department the insurer's own form if the form contains the same information that is required by and contained in the form provided by the department.
(A) A filing memorandum that briefly explains the purpose of the filing and all material background details relating to the filing. For example, a filing memorandum may include one or more of the following, if applicable:
(i) reasons for entry into a new market;
(ii) reasons for offering additional coverages;
(iii) reasons for offering new discounts;
(iv) reasons for changing rates based on market conditions;
(v) changes in the insurer's goals and objectives;
(vi) an explanation of insurer or insurer group reorganization; or
(vii) data sufficient to determine the amount of the rate or rate change, if any;
(B) FT (Sm or New Res. Prop.) - Filing Transmittal;
(C) FT (5.142 Cert.) - Company Certification. Certificate by an officer of the insurer that all rate classifications, the rates applicable to those classifications, and the risk factors to which those classifications apply are based on reasonably sound and verifiable actuarial principles and that no classifications are unfairly discriminatory.
(e) Actuarial support. In addition to the information required under subsection (d)(1) of this section, a small insurer must submit to the department actuarial support or other justification of rates, including market comparison, inflationary adjustment, or reference to an approved rate filing as follows:
(1) For rates effective before March 1, 2004, any rate filing that includes an overall rate increase sought by a small insurer with more than $10 million in direct written residential property premium in the previous available calendar year shall be accompanied by actuarial support.
(2) For rates effective on or after March 1, 2004, any rate filing that includes an overall rate increase sought by a small insurer with more than $20 million in direct written residential property premium in the previous available calendar year shall be accompanied by actuarial support.
(3) Actuarial support as used in this paragraph includes rate indications and support, including the data and methodologies utilized by the insurer for such indications. Actuarial support may be based on individual insurer or insurer group data. Supporting information for the indications must address each of the following if applicable:
(A) premiums at current rate level;
(B) loss and claim development factors;
(C) current level factors;
(D) premium and loss trend factors;
(E) rate relativities (e.g. classification, territory, amount of insurance);
(F) increased limits factors;
(G) hurricane and non-hurricane catastrophe factors;
(H) definition of a catastrophe and how it has changed over the experience period used to calculate the provisions;
(I) deductible credits and debits;
(J) description and support for discounts and surcharges;
(K) off-balance factors if there have been changes in relativities (e.g. discounts, surcharges, territorial definitions);
(L) credibility;
(M) expense and profit provisions;
(N) contingency provisions; and
(O) description of how final rates are determined.
(f) Additional information. The department may request additional information as necessary relating to a rate filing of a small insurer or new insurer, including actuarial or other reasonable support of rates as deemed necessary by the department or commissioner. An insurer must respond within 10 business days of the date of the request for additional information, or by such time as determined by the department or commissioner. Failure to respond may result in administrative penalties and requirements to file under a rule or statute that would otherwise apply.
(g) Use of rate. A small insurer or new insurer may immediately use rates that have been submitted to the department in accordance with subsections (d) and (e) of this section, provided that the filed rates do not constitute an overall increase that is 10% or more than the lesser of the current rates or any other rates used by the insurer within the 12 months immediately preceding the rates filed under this section. The effective date of the rates may be upon the date of the filing or such later date as specified by the insurer. For the purposes of this section, rates are filed with the department on the date the rate filing is received by the department. If any increase is 10% percent or more of the current rates or any other rates used by the insurer within the 12 months immediately preceding the rates filed under this section, the provisions of Article 5.142 §5 apply to the filing.
h) Except as provided in this section, the provisions of Insurance Code Article 5.142 apply to small insurers and new insurers, including the rating criteria set forth in Insurance Code Article 5.142 §3.
(i) In accordance with Insurance Code Article 5.142 §17, this section expires December 1, 2004.