(a) To the extent that the maximum and
minimum permitted earned premiums are based upon data that lack credibility, a
credibility adjustment shall be made.
(b) For each form for homeowners multiple
peril and for each coverage for private passenger auto liability and physical
damage the standard for full credibility shall be 3000 claims. Partial
credibility shall be the square root of the ratio of the actual number of
incurred claims in the experience period divided by the full credibility
standard. For lines of business other than homeowners multiple peril and
private passenger automobile liability and physical damage, the standard for
full and partial credibility shall be determined using the most actuarially
sound method.
(c) When the loss and
defense and cost containment expense data is less than fully credible, in the
maximum and minimum premium formulas in sections
2644.2 and
2644.3, the following shall be
substituted:
(1) The sum of
(A) the credibility weight, as defined in
section
2644.23(b),
(B) multiplied by the sum of
(i) projected loss, as defined in section
2644.4,
(ii) plus projected defense and cost
containment expense, as defined in section
2644.8,
(2) plus
(A) the difference of
(i) 1.0
(ii) minus the credibility weight, as defined
in section
2644.23(b),
(B) multiplied by the complementary loss and
defense cost containment expense, as defined in section
2644.23(d).
Stated as a formula:
Credibility weight x (loss + DCCE) + (1-
credibility weight) x comp loss
DCCE
(d) The complementary loss and defense and
cost containment expense means
(1) the
quotient of
(A) the sum of
(i) the trended current rate level premium,
as defined in section
2644.24,
(ii) multiplied by 1.0 plus the complement
trend, as defined in section
2644.23(g),
(iii) multiplied by the maximum denominator,
as defined in section
2644.2(c).
(B) plus
(i) the ancillary income, as defined in
section
2644.13
(2) divided by 1 minus the fixed investment
income factor, as defined in section
2644.19.
Stated as a formula:
Comp loss DCCE = (TCRLP x (1 + comp trend) x max
denom + ancil income) /(1 - fixed invest inc
factor)
(e) Where the cost of reinsurance is allowed,
as provided in section
2644.25, the credibility
adjustment in subsection (c) shall be made to loss plus defense and cost
containment expense minus reinsurance recoverable, as defined in section
2644.26.
(f) Where the cost of reinsurance is allowed,
as provided in section
2644.25, the complementary loss
and defense and cost containment expense means
(1) The quotient of
(A) The sum of
(i) the trended current rate level premium,
as defined in section
2644.24,
(ii) multiplied by 1.0 plus the complement
trend, as defined in section
2644.23(g),
(iii) Multiplied by the maximum denominator,
as defined in section
2644.2(c).
(B) plus the ancillary income, as defined in
section
2644.13,
(C) Minus the product of
(I) the reinsurance premium, as used in
section
2644.25, divided by 1 minus the
variable expense factor, as defined in section
2644.14,
(Ii) multiplied by the maximum denominator,
as defined in section
2644.2(c),
(2) Divided by 1 minus the fixed investment
income factor, as defined in section
2644.19.
Stated as a formula:
Comp loss DCCE = (TCRLP x (1 + comp trend) x max
demon + ancil income - reins perm / (1 - vary exp factor) x max demon)/ (1 -
fixed invest Inc factor)
(g) The complement trend means the annual net
trend plus one, raised to the power of the number of years from the effective
date of the current rate to the proposed effective date of the proposed rates,
minus one.
Stated as a formula:
Comp trend = ((annual net trend+1)^number of years)
-1
If the number of years from the effective date of the
current rate to the proposed effective date of the proposed rates exceeds four,
the complement trend shall be the annual net trend plus one, raised to the
fourth power, minus one.
(h)
The annual net trend is the ratio of the loss trend, as defined in section
2644.7, annualized, plus one,
divided by the premium trend, as defined in section
2644.7, annualized, plus one,
minus one.
Stated as a formula:
Annual net trend = ((annual loss trend +1)/(annual
premium trend +1))-1
(i) If the credibility weight is less than
25% the applicant or the Commissioner may use an alternative complementary loss
and defense and cost containment expense, provided that the alternative is the
most actuarially sound method.
Notes
Cal. Code Regs. Tit. 10, §
2644.23
1. New
section filed 8-13-91 as an emergency; operative 8-13-91 (Register 92, No. 3).
A Certificate of Compliance must be transmitted to OAL 12-11-91 or emergency
language will be repealed by operation of law on the following
day.
2. Repealed by operation of Government Code section
11346.1(g)
(Register 92, No. 15).
3. New section refiled 2-14-92 as an
emergency; operative 2-14-92 (Register 92, No. 15). A Certificate of Compliance
must be transmittted to OAL 6-15-92 or emergency language will be repealed by
operation of law on the following day.
4. Repealed by operation of
Government Code section
11346.1(g)
and new section filed 3-15-95; operative 3-15-95. Submitted to OAL for printing
only pursuant to Government Code section
11343(a)(1)
(Register 95, No. 11).
5. Amendment of subsection (a), repealer and
new subsections (b) and (c) and new subsections (c)(1)-(g) filed 1-3-2007;
operative 4-3-2007. Submitted to OAL for printing only pursuant to Government
Code section
11340.9(g)
(Register 2007, No. 1).
6. Amendment filed 5-16-2008; operative
5-16-2008. Submitted to OAL for printing only pursuant to Government Code
section
11340.9(g)
(Register 2008, No. 20).
Note: Authority cited: Sections
1861.01 and
1861.05,
Insurance Code; and 20th Century v. Garamendi, 8 Cal.4th 216 (1994). Reference:
Sections
1861.01 and
1861.05,
Insurance Code; and Calfarm Insurance Company v. Deukmejian (1989) 48 Cal.3d
805.
1. New section filed
8-13-91 as an emergency; operative 8-13-91 (Register 92, No. 3). A Certificate
of Compliance must be transmitted to OAL 12-11-91 or emergency language will be
repealed by operation of law on the following day.
2. Repealed by
operation of Government Code section
11346.1(g)
(Register 92, No. 15).
3. New section refiled 2-14-92 as an
emergency; operative 2-14-92 (Register 92, No. 15). A Certificate of Compliance
must be transmittted to OAL 6-15-92 or emergency language will be repealed by
operation of law on the following day.
4. Repealed by operation of
Government Code section
11346.1(g)
and new section filed 3-15-95; operative 3-15-95. Submitted to OAL for printing
only pursuant to Government Code section
11343(a)(1)
(Register 95, No. 11).
5. Amendment of subsection (a), repealer and
new subsections (b) and (c) and new subsections (c)(1)-(g) filed 1-3-2007;
operative 4-3-2007. Submitted to OAL for printing only pursuant to Government
Code section
11340.9(g)
(Register 2007, No. 1).
6. Amendment filed 5-16-2008; operative
5-16-2008. Submitted to OAL for printing only pursuant to Government Code
section
11340.9(g)
(Register 2008, No. 20).