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Property/Casualty Filings Made Easy Guide - Part 7 of 9

+ Indicates new information since last update +

   + November 2011 Edition, + Continued Part 7 of 9

List of Articles Recodified in the 78th, 79th, & 80th Legislative Sessions

 

SECTION II - RATE FILINGS

Property/Casualty Rate Filing Requirements

The following is general information regarding rate filings.

  • Applicability - Section II - Rates of the Guide is intended to assist insurers complying with 28 TAC §§5.9330 - 5.9332 (Division 6 - FME - Rate and Rate Manual Filing Requirements)

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  • Rate Filings - All rates, rating manuals, rating rules, fees and supplementary rating information must be filed. As defined by Chapter 2251:

    "Rate" means the cost of insurance per exposure unit, whether expressed as a single number or as a prospective loss cost, adjusted to account for the treatment of expenses, profit, and individual insurer variation in loss experience, before applying individual risk variations based on loss or expense considerations.

    "Rating Manual" means a publication or schedule that lists rules, classifications, territory codes and descriptions, rates, premiums, and other similar information used by an insurer to determine the applicable premium charged an insured.

    "Supplementary rating information" means any manual, rating schedule, plan of rules, rating rules, classification systems, territory codes and descriptions, rating plans, and other similar information used by the insurer to determine the applicable premium for an insured. The term includes factors and relativities, including increased limits factors, classification relativities, deductible relativities, premium discount, and other similar factors and rating plans such as experience, schedule, and retrospective rating.

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  • Fees - All policy fees, service fees, and other fees that are charged or collected by the insurer under §§4005.001 - 4005.003 or §550.001 of the Texas Insurance Code must be filed. The file type for a fee only filing is "rate" (refer to Item 8 on FT-4 or Item 4 on FT-8).

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  • Underwriting Guidelines    - Underwriting Guidelines must be filed separately from other types of filings. Do not include underwriting guidelines with rate, rule, form, endorsement, or credit scoring model submissions filed in accordance with this guide. See Section V - Underwriting Guidelines for further information.

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  • Credit Scoring Models & Supporting Data    - Supporting data for the difference in rates due to the use of credit scoring as required under 28 TAC §5.9941 should be included as part of an insurer's rate filing, when necessary.

    If this information is filed independent of a rate filing, the file type listed should still be rates. All other filing requirements are those required of a credit scoring model filing. See Section IV-Credit Scoring for further information.

    Note: Credit Scoring Models (the models that produce credit scores as opposed to the use of those credit scores) should be filed separately from other types of filings. Do not include Credit Scoring Models with rate, rule, form, endorsement, or underwriting guideline submissions filed in accordance with this guide. See Section IV-Credit Scoring for further information.

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  • Mandatory Filing Requirements - The following documents constitute a complete filing:

    1. Typed transmittal Form, (Link to Adobe Reader)
    2. A Filing Memorandum (refer to RATES-4),
    3. Any necessary supporting information (refer to RATES-3),
    4. Company certification (Link to Adobe Reader) (Mortgage Guarantee filings only, refer to RATES-28).

    Filing may apply to only one line of insurance, except Dual Filings and Interline Filings.

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  • Copies - Commercial lines rate only filings should file an original copy.
    Commercial lines combined rate/form filings should file an original and two copies.

    Personal lines rate only filings should file an original and one copy.
    Personal lines combined rate/form filings should file an original and three copies.

    WC Rate Relativity filings should file an original and one copy.

    Group filings do not require extra copies beyond those stated above regardless of the number of companies included.

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  • Supporting Information - Justification for the specific rates and changes being proposed in the filing is required as appropriate to that filing. The chart on RATES-3 lists the supporting information that is recommended for the average insurer for the various filing types. Companies who have received inquiries in the past from TDI may file more detailed information.

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  • Use of Filed Rates - With the exception of Mortgage Guaranty, all rates may be used the day they are filed. Rates are considered filed the day they are received so long as a filing transmittal form (Link to Adobe Reader) is included. In the case that additional supporting information is requested by TDI, rates are still considered filed as of the day they were initially received. Mortgage Guaranty rates must be filed 15 days prior to use Chapter 3502.

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  • Reference Filings    - A rate filing may be made referencing industry or other approved prospective loss costs without including a copy of the referenced loss costs. However, the insurer must provide its own actual data and loss experience and actuarial justification for the level of its rates.

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  • Group Filings    - Although group ratemaking data may be utilized in the actuarial support, all Property/Casualty Rate Filing Exhibits must be completed on an individual company basis.

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  • Dual Filings    - Insurers may submit a monoline filing that may also be used with the insurer's multi-peril policy without having to submit a separate multi-peril filing. This dual purpose filing is referred to by TDI as a "Dual" filing. Refer to Item 6.a. on FT-4 or Item 3.a. on FT-8.

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  • Interline Filings    - General rating rules, fees, etc. that are to be used across multiple lines may be filed as a single joint filing referred to by TDI as an "Interline" filing. Refer to Item 6.b. on FT-4 or Item 3.b. on FT-8.

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  • Workers' Compensation - In accordance with §§2053.001 - 2053.010, an insurer may not make a filing more frequently than every six months.

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  • + MGAs - County mutuals under Insurance Code §912.056: Managing general agents (MGAs), districts, and local chapters may file independent rates (refer to RATES-38). +

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  • + Public Information - Rate filings and any supporting information filed under Chapter 2251, Insurance Code are public information subject to Chapter 552, Government Code. Rate filings and any supporting information filed under Chapter 2053, Insurance Code, are open to public inspection as of the date of the filing. +

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Property/Casualty Rate Filing Requirements   

REQUIRED DOCUMENTATION & RECOMMENDED SUPPORTING INFORMATION

  • General Rate Filings (does not solely fall in any category below)
    • First Time Filing or No Prior Experience - Filing Transmittal, Exhibits E, H** & L, and Filing Memorandum and Actuarial Support*
    • Second & Subsequent Filings - Filing Transmittal, Exhibits C, D, E, H**, & L, Filing Memorandum and Actuarial Support*

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  • Endorsements containing Rates
    • First Time Filing or No Prior Experience - Filing Transmittal and Filing Memorandum and Actuarial Support*
    • Second & Subsequent Filings - Filing Transmittal and Filing Memorandum and Actuarial Support*

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  • Rating Plans including Experience & Retrospective
    • First Time Filing or No Prior Experience - Filing Transmittal, Filing Memorandum and Actuarial Support*
    • Second & Subsequent Filings - Filing Transmittal, Filing Memorandum and Actuarial Support*

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  • Loss Cost Reference
    • First Time Filing or No Prior Experience - Filing Transmittal, Exhibits E, G, & L, and Filing Memorandum
    • Second & Subsequent Filings - Filing Transmittal, Exhibits C, D, E, G, & L, Filing Memorandum, and Actuarial Support*

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  • Reference
    • First Time Filing or No Prior Experience - Filing Transmittal, Exhibits E, H** & L, and Filing Memorandum
    • Second & Subsequent Filings - Filing Transmittal, Exhibits C, D, E, H** & L, Filing Memorandum and Actuarial Support*

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  • Workers' Compensation***
    • First Time Filing or No Prior Experience - Filing Transmittal, Exhibits F, L, & WC and Filing Memorandum
    • Second & Subsequent Filings - Filing Transmittal, Exhibits C, D, F, L, & WC, Filing Memorandum and Actuarial Support*

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  • Workers' Compensation Loss Cost Reference***
    • First Time Filing or No Prior Experience - Filing Transmittal, Exhibits F, G, L, & WC and Filing Memorandum
    • Second & Subsequent Filings - Filing Transmittal, Exhibits C, D, F, G, L, & WC, Filing Memorandum and Actuarial Support*

NOTE: Supporting information is required by 28 TAC §5.9332. The above chart is provided in an effort to assist insurers in determining what information the Department generally deems necessary. If a filing falls in more than one file type category, any item in either list should be submitted.

Personal Insurance Rate Filings may also require supporting data for territory deviations or for the Use of Credit Scoring or credit information. See RATES-29 and RATES-34 for further guidance.

A Company certification (Link to Adobe Reader) is also required for Mortgage Guaranty Rate Filings.

* See page RATES-4 for more information regarding required Filing Memorandum and Actuarial Support.

** Use Exhibit H if Multi-Peril. (Link to Adobe Reader)

*** Switching between Workers' Compensation rate bases is not considered a first time filing if the company has been previously writing business.

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Property/Casualty Rate Filing Requirements   

  • Filing Memorandum    - The Filing Memorandum briefly explains the purpose of the filing. It can be thought of as a cover letter whose purpose is to explain all the important background details relating to the filing. Simply stated, the Memorandum should answer the question, Why is your company submitting this filing?

    Examples of some typical subjects included in a Filing Memorandum are:

    • Reasons for entry into a new market
    • Reasons for offering additional coverages
    • Reasons for offering new discounts
    • Reasons for changing rates
    • Changes in company goals and objectives
    • Changes as a result of group/company reorganization

    A statement on the overall impact of the filing should also be included.

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  • Actuarial Support - Some form of actuarial support is recommended for virtually all rate filings. The level of detail provided should be appropriate for the size of the insurer making the filing and the nature of the changes being made. Note: the Department reserves the right to request additional information.

    Actuarial support may be based on individual company or group data.

    Actuarial support must include the data and methodologies utilized in the filing and may address each of the following as they apply:

    1. Premiums at current rate level
    2. Loss and claim development factors
    3. Current and prospective trend factors
    4. Rate relativities (classification, territory, amount of insurance, etc.)
    5. Increased limits factors
    6. Catastrophe factors (large loss, hurricane, or regular wind/hail)
    7. Deductible credits
    8. Discounts and surcharges
    9. Credibility
    10. Investment income from all sources
    11. Description of how final rates are determined
    12. A history of the statewide weighted average rate changes, by coverage and for all coverages combined, sufficient to determine ratemaking experience at current rate levels, including the effect of changes in premiums due to overall average individual risk variations based on loss or expense considerations.

    This is not an exhaustive list. Any other relevant data, such as a competitive analysis, used in determining the rates may be included.

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  • Note: For ease in processing, companies opting to submit the required information on their own forms rather than those provided by TDI should state in their cover letter or filing memorandum a clear description of where the information is provided.

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Property/Casualty Rate Filings Exhibits   

* The exhibits above are intended to assist insurers with compliance with 28 TAC §§5.9330 - 5.9332 (Division 6 - FME - Rate and Rate Manual Filing Requirements). The information may also be provided in company forms and formats. See page RATES-3 for a list of recommended exhibits by type of filing.

 

This is not a checklist. See RATES-3 for guidance on required documentation and recommended supporting information.

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Property/Casualty Rate Filing Exhibits   

Exhibit C - Statewide Average Rate Level Information

The purpose of this exhibit is the identification of the statewide weighted rate change percent for each coverage/form and for all coverages/forms combined even if only some coverages/forms are being changed. Page 2 is provided for identification of rate change history.

  • Specific Instructions for Calculations

    For all filings other than Loss Costs Reference Filings, Column C and Column D should be left blank.

    For Prospective Loss Costs Reference Filings, Column C is the percentage change in the underlying loss costs.

    For Prospective Loss Costs Reference Filings, Column D is calculated as [(Proposed LCM from Line 5 of Exhibit G) ÷ (Prior LCM from Line 6 of Exhibit G)] - 1.

    For Prospective Loss Costs Reference Filings, Column E is calculated as [(Column C, expressed as a factor) x (Column D, expressed as a factor)] - 1. For example, if Column C = -11.3% and Column D = 22.2%, then Column E = [(0.887 x 1.222)] - 1 = 8.4%. For All Other Filings, Column E is the requested rate change percent.

    Latest year direct written premiums should be used as weighting values when calculating the proposed rate level change percent for all coverages/forms combined (Line 1). All coverages/forms must be included, even if only some coverages/forms are being changed. If there are no direct written premiums for the latest year, use and attach an estimate of the anticipated premium distribution.

    Line 2 may list the rate effect of any change in discounts/surcharges if it is not already taken into account in the rate changes listed in Line 1.

    For filings listing a change in Line 2, the total statewide average rate change (Line 3) is calculated as [(Line 1, Column E, expressed as a factor) x (Line 2, expressed as a factor)] - 1. For example, if Line 1, Column E = 8.4% and Line 2 = -1.0%, then Line 3 = [(1.084 x 0.99)] - 1 = 7.3%.

    For all other filings, Line 3 is the same as Line 1, Column E.

    Exhibit C, page 2 is provided to display a company's rate change history if a company exhibit is not available. List the effective day for both new and for renewal policies.

Exhibit C - Interactive PDF Exhibit C  (PC365 Rev. 05/07)

(Link to Adobe Reader)

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Property/Casualty Rate Filing Exhibits   

Exhibit D - Historical Experience

The purpose of this exhibit is to display historical premium, loss and loss ratio experience.

  • General Instructions

    The Texas experience should be the amounts, or a subset of the amounts, reported on the Exhibit of Premiums and Losses in the Annual Statement (Statutory Page 14 Data).

    The countrywide experience should be the amounts, or a subset of the amounts, reported on the Insurance Expense Exhibit (IEE), Part III.

    Individual company experience is appropriate.

    Information provided should be for the specific program and/or line of business to which the filing pertains.

    Experience should be shown for each of the most recent five calendar years.

    Column E, the Incurred Loss & DCCE Ratio, is calculated as Column D ÷ Column B.

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  • Definitions

    DCCE: - Defense and Cost Containment Expense, formerly referred to as Allocated Loss Adjustment Expense (ALAE).

Exhibit D - Interactive PDF Exhibit D  (PC366 Rev. 05/07)

(Link to Adobe Reader)

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Property/Casualty Rate Filing Exhibits   

Exhibit E - Expense Information - Including Disallowed Expense Adjustment

The purpose of this exhibit is to display historical expense information for filings subject to the 110% of industry median cap on general expenses.

  • General Instructions

    Dollar amounts should be stated in thousands.

    Experience is for at least the three most recent calendar years.

    The Texas experience on Lines 1-4 and 10-11 should be the amounts, or a subset of the amounts, reported on Exhibit of Premiums and Losses in the Annual Statement (Statutory Page 14 Data).

    The countrywide experience required on Lines 5-9 and 12-14 should match the amounts reported on the Insurance Expense Exhibit (IEE), Part III. Further, the countrywide experience required on Lines 8a, 8b, 9a, 9b, 9c, 9d, 9e, 9f, 9g, and 9h should match the information reported by each insurer in response to the annual TDI Call for Disallowed Expense Data.

    The expense provisions listed on Lines 15 through 19 should be those provisions that underlie your proposed rates. To the extent that these provisions differ from historical provisions, support should be provided. For new rates for which historical provisions are not available, Lines 15 through 19 should be completed as projected expenses.

    Section 221.002 changed the annual premium tax from 3.5% to 1.6% of premium receipts effective January 1, 2000.

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  • Definitions

    For filings under Chapter 2251, Advertising Expenses that are Disallowed (Line 8a) are defined as advertising expenses other than for advertising: (1) directly related to the services or products provided by the insurer, or (2) designed and directed at loss prevention.

    Line 8b = Line 8 - Line 8a

    Line 9g Pursuant to §5.9331, Texas Administrative Code, payments anticipated to be made to advisory organizations, licensed to do business in Texas, for services authorized by Insurance Code Chapter 1805 for the development of statistical plans, data collection and reporting, the development and distribution of prospective loss costs, supplementary rating information, policy forms and endorsements, research, and the performance of inspections, and other activities reasonably related thereto, are not disallowed expenses and should not be included in the amount on line 9g.

    Line 9h = Line 9b + Line 9c + Line 9d + Line 9e + Line 9f + Line 9g

    Line 9i = Line 9 - Line 9a - Line 9h, limited to a maximum of 110% of the industry median.

    110% of Industry Median
    Industry information may be found on Texas Department of Insurance website at http:/www.tdi.texas.gov/commercial/pcflxrt.html.

    Note: Each line of insurance that a company writes in Texas is counted separately in determining the median.

    Line 9j = Line 9a + Line 9i

    DCCE:
    Defense and Cost Containment Expense, formerly referred to as Allocated Loss Adjustment Expense (ALAE).

    Adjusting and Other Expenses:
    Formerly referred to as Unallocated Loss Adjustment Expense (ULAE).

    Line 19, Profit:
    The TDI requires insurers to utilize a total rate of return methodology in the development of Texas rates. Income of all types (premiums, installment fees, investment income, realized capital gains and unrealized capital gains) from all sources (policyholder supplied funds and surplus) must be considered in a rate filing. The selected methodology should be based on a reasonable after-tax total rate-of-return on GAAP net worth. A methodology utilizing in any traditional 5% or any other unsupported profit loading is not acceptable. See Exhibit L (Link to Adobe Reader) for display of support for the profit assumption.

Exhibit E - Interactive PDF Exhibit E (PC367 Rev. 05/07)

(Link to Adobe Reader)

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Continue with Section II - Rate Filings - Exhibit F



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