B-0050-97

This bulletin provides the rules and procedures to be used by all companies licensed to write direct liability insurance in the State of Texas in complying with the mandatory rate reductions required by Article 5.131, Texas Insurance Code, and 28 TAC 5.14000-5.14011. These rate reductions are intended to reflect loss savings due to legislation passed by the 73rd and 74th Legislatures designed to reduce or eliminate costs associated with the civil justice system. The specific reforms enacted by the Legislature included, among other things, new caps on the payments of exemplary damages, stricter standards on the application of joint & several liability, limitations on establishing venue, clarification of allowable damages associated with deceptive trade practices, and stronger deterrences against frivolous lawsuits. On October 20, 1997 Commissioner s Order #97-1052 adopted amendments to 28 TAC 5.14002-5.14005, 5.14007, and 5.14011 including revised Loss and ALAE reduction percentages which will become effective on January 20, 1998.

Carriers should be advised that Subchapter R, 28 TAC 5.14000-5.14011 applies to any insurer that is authorized to do business in this state and that is authorized to write any of the liability lines or sublines set forth below, including capital stock companies, mutual insurance companies, Lloyd s plan insurance companies, and reciprocal or interinsurance exchanges. Filings are required for all companies regardless of whether or not they submitted a filing effective 1/1/97. Companies who are authorized to write insurance in a line in which they do not currently write any business are required to file Form TR-CF by the Tort Reform filing due date of each year, even if they previously submitted such a form.

The subchapter, except for 5.14003 (Rule-making Procedures for Reductions in Rates), 5.14004 (Loss and ALAE Reduction Percentages by Line), 5.14005 (Calculation and Application of Rate Reduction Factor), 5.14006 (Duration) and 5.14008 (Administrative Relief), also applies to the limited extent of passing through savings on a prospective basis and the monitoring of compliance with the legislative directive, to County Mutuals, Joint Underwriting Associations and other insurers, whether rate regulated or not, for those lines of insurance which are not rate regulated.

This bulletin is intended to provide information on 1998 filing requirements to reflect savings from Tort Reform legislation. Specific topics to be covered include:

Filing requirements (including revised tort reform percentages) to assist in the quantification of anticipated savings due to Tort Reform during 1998. This will require filings of the appropriate forms on or before January 20, 1998 (see below for special requirements for the automobile flex lines).

The use of a reconciliation form (TR-RF) that will be used to reconcile the premium in each company s tort reform filings to its 1996 Texas Annual Statement page 15.

New versions of TDI forms TR-1-R through TR-7-NR. With the exception of forms TR-1-R, TR-3A-R, and TR-7-NR the changes are minimal. The revised forms now develop changes to be applied to already adjusted premiums and correct typographical errors in the original versions.

Special filing requirements for flex lines in light of the simultaneous effective date for the new automobile benchmark rates and Tort Reform.

The elimination of the two simplified forms (TR-8A-R and TR-8B-R) as well as certification form TR-CB (which is now included as part of TR-1-R).

A list of frequently asked questions and TDI s responses.

A Tort Reform Flow Chart to assist you in determining which forms are required to be submitted.

The lines of insurance which are impacted by the mandatory rate reductions are:

Commercial Excess Liability;
Commercial General Liability (including premises medical, fire legal liability, personal advertising injury, contractual liability and liability for all premises);
Commercial Liability for damages arising out of the manufacture, design, importation, distribution, packaging, labeling, lease, or sale of a product, or for completed operations coverage (Products/Completed Operations);
Commercial Multiple Peril (including Business owners);
Commercial Umbrella;
Farm and Ranch Owners;
Other Commercial Liability, if not already covered as a part of a Commercial General Liability policy, when written as a monoline coverage or added to another policy, including the following lines and sublines: fire legal liability; contractual liability; pollution liability;
owners and contractors protective liability; railroad protective liability; liquor liability; farm liability; garage liability; and all other commercial liability lines and sublines. Personal Umbrella and Excess Liability;
Private Passenger and Commercial Automobile Bodily Injury Liability (including assigned risk BI as provided for in Commissioner s Order #96-0591, but excluding Medical Payments and Personal Injury Protection);
Professional Liability as defined in Article 5.15-1, Texas Insurance Code; and Professional Liability other than Professional Liability as defined in Article 5.15-1, Texas Insurance Code.

Exceptions: Although 28 TAC 5.14000-5.14011 also applies to Homeowners and Tenants Multiple Peril and the employers liability portion of Workers' Compensation, no reductions to these lines are required at this time. It is possible that rate reductions may be required in future years and that the provisions of 28 TAC 5.14000-5.14011 will apply to these lines at that time. No filing(s) on account of tort reform are currently required for these coverages.

All insurers shall pass through the savings from the Tort Reform legislation to their policyholders on a prospective basis for the lines and sublines of insurance identified above. Insurers that write any of these lines or sublines of insurance may be required to provide information to the department in the form of rate filings, special data calls, informational hearings and any other means consistent with other provisions of the Texas Insurance Code and determined by the commissioner to be necessary to monitor compliance with the provisions of Article 5.131, Texas Insurance Code, and 28 TAC 5.14000--5.14011.

Exclusions: 28 TAC 5.14000-5.14011 does not apply to the following lines and/or sublines:

Accident & Health Insurance
Aircraft
Boiler & Machinery
Comprehensive Personal Liability
Credit Insurance (including involuntary unemployment insurance)
Crime
Fidelity & Surety
Financial Guaranty
Fire & Allied Lines
Inland Marine
Mortgage Guaranty
Ocean Marine
Private Passenger and Commercial Automobile Property Damage Liability, Uninsured/Underinsured Motorists, Medical Payments, Personal Injury Protection, and Physical Damage
Private Passenger and Commercial Automobile Assigned Risk, except as provided in Commissioner s Order 96-0591, or any subsequent order issued by the Commissioner

Effective Date:
The revised mandatory rate reductions shall apply to all policies or coverages effective on or after January 20, 1998. The reductions shall be reflected in the rates in effect on that date, and to all rates first effective on or after that date but prior to 90 days after the date of the Commissioner s next temporary rate reduction order. Such revised reductions are in lieu of the rate reductions effective January 1, 1997. They are not in addition to the rate reductions effective 1/1/97.

Mandatory Filing Submission Deadline
Filings to implement the temporary rate reductions to reflect savings from Tort Reform legislation for rates in effect, or proposed to be effective, on January 20, 1998 must be made with the Department no later than January 20, 1998, following the procedures outlined in this bulletin.

Contents of Bulletin:
The procedures to comply with the provisions of 28 TAC 5.14000-5.14011 will vary depending on a number of factors. There are separate rules and procedures for lines that are rate regulated versus lines that are not rate regulated by the Texas Department of Insurance. Further, different rules apply to flex rated lines of insurance versus other than flex rated lines. Finally, County Mutuals, Joint Underwriting Associations, and other non-rate regulated insurers are required to follow separate procedures for passing through savings resulting from Tort Reform legislation and the monitoring of compliance with certain provisions of Article 5.131, Texas Insurance Code. This Bulletin is intended to cover three basic types of filings; these are as follows:

Filings made for the purposes of determining revised tort reform rate reduction factors and assist the Commissioner in determining the impact of tort reform upon the marketplace and reporting such to the Legislature, as required under Texas Insurance Code Art. 5.131, Sec. 10. These filings are referred to as "Annual Tort Reform Filings"

Filings made for the purposes listed above and to implement an additional rate change with the same effective date as the effective date of tort reform.

Filings made for the sole purpose of filing rates as required under Texas Insurance Code Articles 5.15, 5.13-2, or 5.101 with an effective date other than that concurrent with tort reform (except for special instructions for submitting filings for the 1/20/98 benchmark rates). Filing requirements for these "Other than Annual Tort Reform Filings" are included at the end of this Bulletin. It is designed so that companies may insert this "Tort" section into their Filings Made Easy manual and use it for future reference.

Early Implementation of Tort Reform:
Companies may, on a voluntary basis, implement the mandatory Loss & ALAE reductions on a date before January 20, 1998. Companies who wish to do so should indicate the proposed effective date for the implementation of tort reform on the applicable tort reform submission form. If the proposed rate change on that date is solely due to tort reform then the forms required by "Filings Made Easy" are not required. If the rate change is due to other than the early implementation of tort reform, a full rate filing and all applicable forms as required by "Filings Made Easy" are required.

Additions/Changes for 1/20/98 Submissions:
Please read through this bulletin and Tort Reform filing instruction packet carefully. Please do not contact the Department until you have read through this Bulletin carefully, including the attached FAQ and flowchart. Several changes were made since last year s edition to aid in the ease of reporting:
Revised forms in the TR-1-R through TR-7-NR series from 1997. Formulas have been corrected for the new reporting year. The only major changes were in forms TR-1-R, TR-3A-R, and TR-7-NR and in the elimination of forms TR-8A-R, TR-8B-R, and TR-CB.
Tort Reform Filings for Private Passenger or Commercial Automobile should be submitted along with the corresponding flex filing for automobile (see also Bulletin B-0044-97). Auto flex filings (and corresponding tort reform filings) must be submitted no later than 30 days after the effective date of the benchmark rates (February 19, 1998). Note that the benchmark filing will require the revised TR-1-R filing form as well as the TR-RF. Non-rate regulated companies writing Private Passenger or Commercial Automobile will continue to be required to file the TR-7-NR and TR-RF, as they did for 1/1/97, on or before January 20, 1998.
The flowchart was revised to guide insurers to the correct forms to file for each line of insurance.
The list of Frequently Asked Questions (FAQ) has been revised for your convenience immediately following this bulletin.

Note: All submissions must be completed using the new forms.

Mailing or Delivery of Filings:

All filings must be mailed or delivered to the following addresses:

If Mailed:

Texas Department of Insurance
Property & Casualty Intake Unit
PO Box 149104
Austin, Texas 78714-9104

If Delivered:

Texas Department of Insurance
Property & Casualty Intake Unit
Mail Code 104-3B Tower I, Room 460A
333 Guadalupe Street
Austin, Texas 78701

This bulletin is divided into the following sections:

Section 1. Procedures for Stock Companies, Direct Writers, Mutuals, Lloyds and Other Rate Regulated Insurers

A. Procedures for Flex Rated Lines of Insurance
B. Procedures for Other Than Flex Rated Lines of Insurance
I. Rates based on Advisory Organization Loss Costs
II. Independent Company Rates
a. Commercial Multiple Peril with Divisible Premium
b. (A) Rates and Estimated Loss Potentials
c. Indivisible Premium Policies (CMP, Businessowners)
d. Filed Rates other than those discussed in Subparagraphs a, b, or c

Section 2. Procedures for Non-Rate Regulated Insurers and Non-Rate Regulated Lines of Insurance

A. Procedures for County Mutuals and Other Non-Rate Regulated Insurers - Flex Rated Lines of Insurance
B. Procedures for Non-Rate Regulated Insurers and Non-Rate Regulated Lines of Insurance - Other Than Flex Rated Lines
I. Using the Loss and ALAE Reduction Percentages as Specified in 28 TAC 5.14004.
II. Calculation of Different Loss and ALAE Reduction Percentages

Section 3. Miscellaneous Procedures and Provisions - All Filings

A. Minimum Premiums
B. Expense Constants / Policy Fees
C. Policy Exclusions
D. Retrospective Rating
E. Policy Endorsements
F. Experience Rating
I. Continuing use of a previously adopted advisory organization experience rating plan
II. Continuing use of a previously adopted independent experience rating plan
III. Changing from a previously adopted advisory organization experience rating plan to an independent experience rating plan
IV. Changing from a previously adopted independent experience rating plan to an advisory organization experience rating plan
G. TDI Staff Contacts
Section 1.

Procedures for Stock Companies, Direct Writers, Mutuals, and Other Rate Regulated Insurers

A. Procedures for Flex Rated Lines of Insurance

This section details the filing requirements for those lines of insurance that are termed "flex lines" and governed by Article 5.101, Texas Insurance Code. These lines are subject to promulgated flexibility bands and benchmark rates and include Private Passenger Automobile and Commercial Bodily Injury Liability (excluding Medical Payments and Personal Injury Protection). Homeowners and Tenants Multiple Peril, while are included within the definition of "flex lines", are not subject to a rate reduction at this time. Therefore, filings to reflect tort reform reductions are not currently required for Homeowners and Tenants Multiple Peril. Rate reductions may be specified in future years for Homeowners and Tenants coverage. Effective 1/1/98 Farm & Ranchowners will no longer be governed by Article 5.101. Form TR-1-R should not be completed for Farm & Ranchowners. Refer to Section 1, B for further details.

For flex rated lines of insurance, Form TR-1-R must be completed separately by line. Form TR-1-R is also used to calculate the estimated impact on company premiums resulting from the application of the company s flex percentage(s) to the adjusted benchmark rates. Form TR-1-R, along with applicable instructions, is attached to this bulletin.

Rate Reduction Factors used to Adjust 1/20/98 Benchmark Rates
The following factors should be entered on Line (6) when completing Form TR-1-R.

Private Passenger Automobile Bodily Injury (Including Uninsured Motorists) 0.908
Private Passenger Automobile Bodily Injury (Assigned Risk Only)* 0.934
Commercial Automobile Bodily Injury 0.890
Commercial Automobile Bodily Injury (Assigned Risk Only)* 0.903

* As of the date of this Bulletin, the Commissioner has not ordered revised Assigned Risk (TAIPA) rates for 1998. As a result, the tort reform reduction percentages underlying the 8/1/96 TAIPA rates still apply. Should the Commissioner order different rate reduction factors for TAIPA prior to the submission of your company s flex rate filing, those rate reductions should apply.

These procedures should be followed by companies that are proposing to change their current flex percentage for a given line or subline or adopting the adjusted benchmark rates for the first time. These filings must be supported through an actuarial memorandum and/or other supporting exhibits. Failure to document and explain the rationale for any proposed change may result in a disapproval of the filing.

Filing Requirements for Section A

Filings must be made separately by company. Group filings are not permitted.

Filings must be made separately by annual statement line of insurance. Filings that include more than one line of insurance are not permitted and will be returned. Separate Exhibits must be filed for each program with a unique TDI # in a line of insurance.

Each filing must contain:
1. A Transmittal Form TR-T AND Property & Casualty Filings Made Easy Transmittal Form. Due to the simultaneous effective dates of the Tort Reform and Benchmark filings for Private Passenger or Commercial Automobile, a special annual Tort Reform filing will not be required. The tort reform forms accompanying the company s filing required by Article 5.101 to implement the new auto benchmark rates that are effective January 20, 1998 will satisfy the "annual tort reform filing" requirements. (Note that the benchmark filing will require the revised TR-1-R filing form as well as the TR-RF) (see Bulletin B-0044-97),
2. All required forms as described in the Texas Department of Insurance publication Property and Casualty Filings Made Easy,
3. Actuarial support for proposed changes,
4. A completed copy of Reconciliation Form TR-RF,
5. A copy of Form TR-1-R.

If the filing is being made for reasons other than to first adopt the benchmark rates effective January 20, 1998, please refer to the specific filing instructions following this bulletin.

Three (3) copies of each filing must be submitted to one of the addresses indicated above. Filings to reflect the revised temporary rate reductions to reflect savings from Tort Reform legislation must be made with the Department no later than 30 days after January 20, 1998 for the initial submission for 1998. These procedures also apply to other filings effective at any time in 1998 and submitted at some future point in time.

It is strongly recommended that a qualified actuary or an experienced rate analyst complete the required forms so that errors are minimized.

B. Procedures for Other Than Flex Rated Lines of Insurance

This subsection details the filing requirements for those lines of insurance that are non-flex rated. Non-flex rated lines of business that are affected by the mandatory rate reductions include General Liability, Product and Completed Operations Liability, Medical Professional Liability, other Professional Liability, Umbrella and Excess Liability, Commercial Multiple Peril Liability, and Farm and Ranch Owners Liability. Because the employers liability coverage of Workers' Compensation is not subject to a rate reduction at this time, no filing on account of Tort Reform for this coverage is currently required. It is possible that a reduction may be specified in future years for this coverage.

Paragraph B.I. provides specific information that applies if the line, subline, and coverage being reported utilizes rates that are based on reference advisory loss costs. Paragraph B.II. provides specific information if Paragraph B.I. does not apply.

B.I. Rates Based on Advisory Organization Loss Costs

For filings with rates based on advisory organization loss costs, your company should complete form TR-5-R for each applicable line or subline of insurance. Form TR-5-R is used to determine the estimated premium impact on company premiums resulting from the mandatory reductions and also assists with the calculation of a revised loss cost multiplier and a revised loss cost modification factor.

Filing Requirements for Section B.I.

Filings must be made separately by company. Group filings are not permitted.

If the filing is being made for reasons other than the 'annual tort reform filing', please refer to the specific instructions following this bulletin.

Three (3) copies of each filing must be submitted to one of the addresses indicated above.
Filings to reflect the revised temporary rate reductions to reflect savings from Tort Reform legislation must be made with the Department no later than January 20, 1998 for the initial submission for 1998. These procedures also apply to filings effective at any time in 1998 and submitted at some future point in time.

If the proposed expense provisions differ from the current expense provisions, support must be attached to the filing.

For additional details, see the specific instructions for Forms TR-5-R attached to this bulletin.

It is strongly recommended that a qualified actuary or an experienced rate analyst complete the required forms so that errors are minimized.

B.II. Independent Company Rates

This paragraph provides information to complete the required filings for non-flex rated lines in which advisory loss costs are not referenced. Subparagraph B.II.a. concerns filings for Commercial Multiple Peril with divisible premiums. Subparagraph B.II.b. concerns filings for (A) rates and estimated loss potentials. Subparagraph B.II.c. concerns indivisible premium Commercial Multiple Peril policies. Subparagraph B.II.d. provides information on topics not covered in Subparagraphs B.II.a., B.II.b., or B.II.c.

B.II.a. Commercial Multiple Peril with Divisible Premium

This subparagraph provides information for complying with the mandatory loss and ALAE reductions for Commercial Multiple Peril programs and coverages with divisible premium. Divisible premium means that the premium for liability coverage is determined separately from that for other coverages. For Commercial Multiple Peril programs and coverages with indivisible premium, see subparagraph B.II.c.

The large number of programs and coverages that fall into the Commercial Multiple Peril line of insurance results in numerous rating plans. For programs and coverages that are rated using a package modification factor and a rate for a monoline liability program, the package modification need not be changed if the monoline rate has been adjusted for the mandatory loss and ALAE reduction. However, the applicable monoline forms must be completed specifically for the monoline coverages written under Commercial Multiple Peril policies so that the estimated premium impact of the tort reform reductions for such policies is included. Do not include CMP Liability premium with monoline General Liability premium.

Note: For Commercial Multiple Peril programs and coverages with divisible premium that are rated without reference to a monoline liability rate, all of the filing requirements contained in Subparagraph B.II.d. apply.

B.II.b. Filings for (A) Rates and Estimated Loss Potentials

For policies that are (A) rated, insurers shall reduce the otherwise applicable (A) rate by the same rate reduction factor calculated for non-(A) rated policies for the same line, subline, coverage and policy type (occurrence vs. claims made). Insurers that have filed ranges of (A) rates must also reduce the endpoints of each range in the same manner. For insurers with (A) rates based upon estimated loss potentials (ELP s) provided by an advisory organization and a loss cost multiplier, adjust the (A) rate in the same manner as non-(A) rates based advisory loss costs for the same line, subline, coverage and policy type. For the purpose of calculating estimated premium impact, premiums from policies that are (A) rated shall be included with the non-(A) rated premium on the applicable filing form for the line, subline, coverage and policy type being reported. Note: Policies that are (A) rated with liability deductibles or retentions greater than $100,000 should reflect the applicable Excess Liability Loss and ALAE Reduction Factor, and should therefore report the rate reduction factor and anticipated savings on a separate TR-2-R.

B.II.c. Filings for Indivisible Premium Policies

Certain coverages and programs contained in the broad Commercial Multiple Peril line of insurance may be rated such that property and liability premiums are not determined separately. This subparagraph provides the information necessary to comply with the mandatory loss and ALAE reduction percentages as specified in 28 TAC 5.14004.

For the coverages and programs that fall into this category, Forms TR-6-R and TR-2-R must be completed. Form TR-6-R is used to calculate the rate reduction factor to be reflected in current company rates based on the mandated loss and ALAE reduction percentages. The form is also used to calculate the estimated premium impact on company premiums resulting from the mandatory reductions. Forms TR-6-R and TR-2-R, along with the applicable instructions, are attached to this bulletin.

B.II.d. Rates Other than Discussed in Subparagraphs B.II.a., B.II.b., or B.II.c.

For non-flex rated lines of insurance with rates falling in this category, various combinations of Forms TR-2-R, TR-3A-R, TR-3B-R, and TR-4-R will be required. Form TR-2-R is required for occurrence rates. Forms TR-3A-R and TR-3B-R are required for claims made rates. Form TR-4-R shall be used for umbrella and excess polices for which the premium calculated as a factor or percentage of the premiums of the underlying policies. The required forms should be completed separately by annual statement line (and, if necessary, by subline and coverage). They are used to calculate the rate reduction factors to be reflected in current company rates based on the mandated loss and ALAE reduction percentages. The forms are also used to calculate the estimated premium impact on company premiums resulting from the mandatory reductions. These forms, along with applicable instructions, are attached to this bulletin.
Note: Policies with large liability deductibles or retentions greater than $100,000 should reflect the applicable Excess Liability Loss and ALAE Reduction Factor, and should therefore report the rate reduction factor and anticipated savings for such high deductible or retention programs on a separate TR-2-R.

Filing Requirements for Section B.II

Filings must be made separately by company. Group filings are not permitted.

Filings must be made separately by line of insurance. Filings that include more than one line of insurance are not permitted and will be returned. Separate Exhibits must be filed for each program with a unique TDI # in a line of insurance.

If the filing is being made solely to reflect the new tort reform L & ALAE reduction percentages that are effective 1/20/98, the filing must contain:
1. A Transmittal Form TR-T,
2. A completed copy of Reconciliation Form TR-RF,
3. A completed copy of certification Form TR-CA for each company
4. A completed copy of certification Form TR-CD if you wish to exclude exemplary damages and/or DTPA, and
5. For B.II.a. For each component of the package policy, submit the Tort Reform form applicable to the corresponding monoline coverage. The premium reported on each form should be the package premium reported on Page 15, Line 5.2 of the Annual Statement for the particular subline or coverage.
For B.II.b. A copy of the appropriate form(s) from section B.II.a, B.II.c., or B.II.d for each company.
For B.II.c. A copy of Form TR-6-R, and TR-2-R (see instructions for Form TR-6-R) for each company.
For B.II.d. Copy(-ies) of Forms TR-2-R, TR-3A-R, TR-3B-R, and/or TR-4-R.

If the filing is being made for reasons in addition to reflecting the new tort reform L & ALAE reduction percentages that are effective 1/20/98, the filing must contain: 1. A Transmittal Form TR-T AND a Property & Casualty Filings Made Easy Transmittal Form,
2. All required forms as described in the Texas Department of Insurance publication Property and Casualty Filings Made Easy,
3. Actuarial support for proposed changes,
4. A completed copy of Reconciliation Form TR-RF,
5. A completed copy of certification Form TR-CA for each company
6. A completed copy of certification Form TR-CD if you wish to exclude exemplary damages and/or DTPA, and
7. For B.II.a. For each component of the package policy, submit the Tort Reform form applicable to the corresponding monoline coverage. The premium reported on each form should be the package premium reported on Page 15, Line 5.2 of the Annual Statement for the particular subline or coverage.
For B.II.b. A copy of the appropriate form(s) from section B.II.a, B.II.c., or B.II.d for each company.
For B.II.c. A copy of Form TR-6-R, and TR-2-R (see instructions for Form TR-6-R) for each company.
For B.II.d. Copy(-ies) of Forms TR-2-R, TR-3A-R, TR-3B-R, and/or TR-4-R.

If the filing is being made for reasons other than the 'annual tort reform filing' (effective 1/20/98), please refer to the specific filing instructions following this bulletin.

Three (3) copies of each filing must be submitted to one of the addresses indicated above. Filings to reflect the revised temporary rate reductions to reflect savings from Tort Reform legislation must be made with the Department no later than January 20, 1998 for the initial submission for 1998. These procedures also apply to filings effective at any time in 1998 and submitted at some future point in time.

If the proposed expense provisions differ from the current expense provisions, support must be attached to the filing.

For additional details, see the specific instructions for Forms TR-2-R, TR-3A-R, TR-3B-R, TR-4-R, and TR-6-R attached to this bulletin.

It is strongly recommended that a qualified actuary or an experienced rate analyst complete the required forms so that errors are minimized.

Section 2.

Procedures for Non Rate Regulated Insurers or Non-Rate Regulated Lines of Insurance

A. Procedures for County Mutuals and Other Non-Rate Regulated Insurers - Flex Lines of Insurance Only - Regardless of Intent to Change Rate Reduction Factor

This subsection details the filing requirements for those lines of insurance that are "flex lines" and governed, for rate regulated insurers, by Article 5.101, Texas Insurance Code. Flex rated lines that include lines, sublines, and coverages that are subject to mandatory temporary rate reductions due to Tort Reform are: Private Passenger Automobile Bodily Injury Liability (excluding Medical Payments and Personal Injury Protection), and Commercial Automobile Bodily Injury Liability. Note that Homeowners and Tenants Multiple Peril, while are included within the definition of "flex lines", are not subject to a rate reduction at this time. It is possible that rate reductions may be specified in future years for Homeowners and Tenants.

For flex rated lines of insurance, 28 TAC 5.14005 specifies the rate reduction percentages promulgated by the Commissioner for rate regulated companies that are to be reflected in the current benchmark rates by line. Non-Rate Regulated Companies have the option of using the loss and ALAE reduction percentages in 28 TAC 5.14004 or any other loss and ALAE reduction percentage they feel appropriate for the line of insurance being filed. However, if a loss and ALAE reduction percentage other than that promulgated by the Commissioner of Insurance is used, a description of the derivation of the values must be provided.

Form TR-7-NR, which is attached to this bulletin, should be completed separately for each program. Form TR 7-NR is used to display the rate reduction factor used and to calculate the estimated premium impact on company premiums resulting from consideration of Tort Reform. Form TR 7-NR, along with applicable instructions, is attached to this bulletin.

Note: Form TR-7-NR has been revised in order to simplify submissions. Certain information previously required has been eliminated and the format has been altered for ease of submission.

Filing Requirements for Section A

Filings must be made separately by company. Separate sheets must be supplied for each program written by the company, and each must be listed on the transmittal form. Group filings are not permitted.

Filings must be made separately by annual statement line of insurance. Filings that include more than one line of insurance are not permitted and will be returned. Separate exhibits must be filed for each program within a line of insurance.

Each filing must contain a filing transmittal Form TR-T, a reconciliation form (TR-RF), and a completed copy of Form TR-7-NR. The reconciliation form should list each program within a given annual statement line of insurance. See the instructions for Form TR-7-NR for other information that must be submitted.

Three (3) copies of each filing must be submitted to one of the addresses indicated above. Filings to reflect the revised temporary rate reductions to reflect savings from Tort Reform legislation must be made with the Department no later than January 20, 1998 for the initial submission for 1998. Companies making informational filings with effective dates subsequent to 1/20/98 are required to submit form TR-7-NR for each program with rates that are being revised.
B. Procedures for Non-Rate Regulated Insurers and Non-Rate Regulated Lines of Insurance - Other than Flex Rated Lines

This subsection details the filing requirements for those lines of insurance that are not designated as flex lines or rate regulated under Articles 5.13-2 or 5.15, Texas Insurance Code. These lines include certain types Professional Liability.

For other than flex rated lines of insurance, 28 TAC 5.14004 specifies the loss and ALAE reduction percentages promulgated by the Commissioner for rate regulated companies that are to be used to calculate the appropriate rate reduction percentages and premium impacts by line of insurance. For non-rate regulated lines, companies have the option of using the loss and ALAE reduction percentages in 28 TAC 5.14004 or any other loss and ALAE reduction percentage appropriate for the line of insurance being filed. This provision also holds for non-rate regulated companies. However, regardless of what loss and ALAE reduction percentage being used, appropriate support must be provided.

The same forms shall be completed as required for regulated lines of insurance. It is strongly recommended that the entire form be completed. However, if the expense breakdown of the current and proposed rates by category is unknown, only the totals must be reported. As mentioned above, use of the Commissioner s loss and ALAE reduction percentages is not required. Therefore, any references on the forms to required reductions should be interpreted as described in this subsection. However, if the loss and ALAE reduction percentage selected differs from the Commissioner s determination, an exhibit that describes its calculation must be attached. The following lines must be completed if they appear on the form being completed:

Rate Reduction Factor to Reflect Tort Reform,
Proposed Rate Change Prior to the Reflection of Tort Reform,
Premium Subject to Tort Reform, and
Premium Impact of Tort Reform.

See Section 2., Subsection B., in this bulletin, the filing forms, and the applicable instructions attached to this bulletin for additional information.

B.I. Using the Loss and ALAE Reduction Percentages as Specified in 28 TAC 5.14004

For each non-rate regulated line of insurance, companies have the option of adopting the loss and ALAE reduction percentages promulgated by the Commissioner in 28 TAC 5.14004. If this is done, no further actuarial support will be required other than that listed below.

B.II. Calculation of Different Loss and ALAE Reduction Percentages

For each non-rate regulated line of insurance, companies have the option of calculating different loss and ALAE reduction percentages than those promulgated by the Commissioner in 28 TAC 5.14004. If this is done, actuarial support must be provided outlining the methodology and rationale for the selected rate reduction percentages.

Filing Requirements for Section B

The same forms shall be completed as required for regulated lines of insurance including Reconciliation Form TR-RF.

In addition to these forms please also include:
B.I. a signed copy of the appropriate certification form (included in this bulletin) attesting to the accuracy of the filing.
B.II. actuarial support outlining the methodology and rationale for the selected rate reduction percentages, and a signed copy of the appropriate certification form (included in this bulletin) attesting to the accuracy of the filing.

Section 3.

Miscellaneous Procedures and Provisions

A. Minimum Premiums

It is intended that the rate reductions for each line of insurance also apply to associated minimum premiums to the extent that the minimum premiums reflect expected losses and ALAE. If the company calculates a rate reduction factor different from that to be applied to the associated rates, appropriate support must be provided. All filings submitted to this Department, regardless of the line or subline involved, should provide an explanation of how the rate reduction percentages were calculated and applied to any associated minimum premiums.

B. Expense Constants / Policy Fees

The provisions outlined in 28 TAC 5.14000-5.14011 are not intended to apply to expense constants, policy fees, or any other flat charge associated with policy issuance and acquisition. Companies that incorporate such fees within their rate-making structure should remove the expenses collected through expense constants and policy fees from the expense provisions used to calculate rate reduction factors or premium impacts due to Tort Reform.

C. Policy Exclusions

Insurers writing any commercial liability or professional liability lines or large risks may reduce the loss and ALAE reduction percentages used to calculate the rate reduction factor for a specific line by the individual Tort Reform component specified in Form TR97, Pricing Components by Tort Reform, if coverage for a Tort Reform identified in Form TR97 is specifically excluded from the policies. For example, if a policy specifically excludes exemplary damages, the reduction percentage used to calculate the rate reduction factor to be applied to the rates should be adjusted to remove the reduction applicable solely to exemplary damage reform.

To adjust the loss and ALAE reduction percentage, it is necessary to refer to Form TR97 attached to this bulletin. Form TR97 contains a listing of the various commercial lines loss and ALAE reduction factors by line of insurance and by specific reform. To adjust a loss and ALAE reduction percentage to exclude a specific reform, subtract the percentage for the specific line and reform from the total loss and ALAE reduction percentage shown for the line. The adjusted loss and ALAE reduction percentage should then be used in calculating rate reduction factors and premium impacts due to Tort Reform.

Insurers must complete certification Form TR-CD in addition to the certification forms and all other required forms otherwise required. Submission of Form TR-CD is required for each year in which it is still applicable. D. Retrospective Rating

Insurers shall apply the appropriate rate reduction factor(s) to the rates used to determine minimum premiums, maximum premiums and other rating values under retrospective rating plans. If any of the lines, sublines and coverages included in the retrospective rating plan are not subject to the mandatory temporary rate reductions due to Tort Reform, a factor of 1.000 shall be applied to the rates for those lines.

E. Policy Endorsements

Endorsements effective on or after January 20, 1998 to policies that were originally effective prior to that date shall be subject to the rates specified in the commissioner s promulgated rating manual or in the insurer s approved rating manual. That is, if the rating manual specifies that the rate applicable to the endorsement be that in effect at policy inception, that rate, with the previous adjustment (1/1/97) to reflect the savings of tort reform, shall be used. If the rating manual specifies that the rate applicable to the endorsement be that in effect as of the effective date of the endorsement, that rate, reduced to reflect the adjusted 1/20/98 savings due to tort reform, shall be used.

F. Experience Rating

Insurers with experience rating plans for liability coverages affected by the Tort Reform Rate Reductions, as described in this bulletin and B-0053-95, must modify these plans to conform to the provisions of the latter Bulletin. These modifications were required by Bulletin B-0053-95. The only new changes lie in the Loss and ALAE reduction percentages. Experience rating plans must be in accordance with the following provisions.

F.I. Continuing use of a previously adopted advisory organization experience rating plan

If continuing with the use of an experience rating plan of an advisory organization whose plan has been amended to conform to the above mentioned Bulletins, an insurer may simply submit a statement adopting the amendment and certifying that its plan is the same as the advisory organization s together with a completed TDI Transmittal Form TR-T. An insurer must also provide the following:

The TDI number (if any) assigned to the advisory organization s original plan,
The TDI number assigned to the amendments to the advisory organization s plan, and
The TDI number (if any) of the insurer s filing referencing the advisory organization s original plan.

F.II. Continuing use of a previously adopted independent experience rating plan

If continuing with the use of an independent experience rating plan, an insurer must amend the plan to conform to the above mentioned Bulletins and submit a statement of the amended plan rules. A completed TDI Transmittal Form TR-T should be included with the statement.

F.III. Changing from a previously adopted advisory organization experience rating plan to an independent experience rating plan

The insurer must make a new filing using the "Filings Made Easy" Forms, including a completed Filing Transmittal Form, to adopt its own independent experience rating plan, which must conform to the above mentioned Bulletins.

F.IV. Changing from a previously adopted independent experience rating plan to an advisory organization experience rating plan

The insurer must make a new filing using the "Filings Made Easy" Forms, including a completed Filing Transmittal Form, to adopt an advisory organization s experience rating plan, which must conform to the above-mentioned Bulletins.

In each of the above four cases, the experience rating plan must conform to the requirements of this bulletin and Bulletin B-0053-95 with an effective date of January 20, 1998.

G. TDI Staff Contacts

Questions on filing requirements and filing procedures should be directed to:

Texas Department of Insurance
Property & Casualty Intake Unit
Mail Code 104-3B
PO Box 149104
Austin, Texas 78714-9104

512-322-3575
512-463-6607 fax

Technical questions on Tort Reform implementation, and questions of an actuarial nature should be directed to:

Texas Department of Insurance
P/C Actuarial, Mail Code 105-5F
PO Box 149104
Austin, TX 78714-9104

512-475-3017
512-463-6122 fax

Sincerely,

Phil O. Presley
Chief Actuary
Technical Analysis

Attachments
-FAQ (Frequently Asked Questions)
-Filing Flowchart
-Form TR97
-Filing Transmittal Form TR-T
-Filing Certifications TR-CA, TR-CC, TR-CD, TR-CE, TR-CF
-TDI Form TR-1-R
-TDI Form TR-2-R
-TDI Form TR-3A-R
-TDI Form TR-3B-R
-TDI Form TR-4-R
-TDI Form TR-5-R
-TDI Form TR-6-R
-TDI Form TR-7-NR
-TDI Form TR-RF