Cal. Code Regs. Tit. 10, § 2644.7 - Loss and Premium Trend
(a) "Loss trend" and "premium trend" is the
process by which forces not reflected in historical loss and premium data are
expected to affect losses and premiums in the rating period.
(b) Trend factors shall be based on the
exponential curve of best fit. Companies shall file the most recent 8, 12, 16,
20, and 24 quarters of rolling calendar year data excluding catastrophes. The
premium and loss trend factors shall be developed using the insurer's most
actuarially sound company-specific rolling calendar year data excluding
catastrophes, for the most recent 8, 12, 16, 20, or 24 quarters. The insurer
shall file its rate change application using the single data period that it
determines to be the most actuarially sound. The Commissioner may require the
use of an alternative data period if the Commissioner determines that use of
the alternative is the most actuarially sound. Frequency trend shall be
calculated as reported or closed claims divided by exposures. Severity trend
shall be calculated on paid losses divided by closed claims or total paid
losses, including partial payments in previous calendar years, on closed claims
divided by closed claims. The insurer shall submit the frequency and severity
calculations on all bases, and shall demonstrate that its selection is the most
actuarially sound. Premium trend factors shall be developed using
company-specific premium per exposure data.
(c) Where the trend factor within a given
line significantly varies by subline, by policy limits, by region of the state,
or by coverage, separate trend factors shall be calculated in accordance with
that evidence.
(d) For homeowners
multiple peril and private passenger automobile liability and physical damage,
the standard for full credibility for loss trend shall be 6000 total claims
over the same number of quarters as used in subsection (b) for each form for
homeowners and for each coverage for private passenger automobile. Partial
credibility shall be the square root of the ratio of the actual number of
claims divided by the full credibility standard. For private passenger
automobile other than motorcycle, the complement of credibility for loss trend
shall be calculated using the latest available California Fast Track paid loss,
closed claim count and earned exposure data, The complement shall be based on
the exponential curve of best fit to the most recent rolling calendar year data
for the same number of quarters as used in subsection (b). For uninsured and
underinsured motorist bodily injury and medical payments coverages, the
complement shall use the California Fast Track bodily injury data. For
uninsured and underinsured motorist property damage coverages, the complement
shall use the California Fast Track property damage data. The Commissioner may
modify the result of the calculation from California Fast Track data to take
into account factors not reflected in the historical data, pursuant to section
2646.3.
(e) For lines of business other than
homeowners multiple peril and private passenger automobile liability and
physical damage, the standard for full credibility for loss trend shall be
determined using the most actuarially sound method. For lines of business other
than private passenger automobile liability and physical damage, the standard
for the complement of credibility for loss trend shall be determined using the
most actuarially sound method.
Notes
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 section heading and section 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.
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 section heading and section 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).
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