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Property/Casualty Filings Made Easy Guide - Part 8 of 9

Indicates new addition since last update.Indicates new information since last update.

November 2011 Edition, Continued Part 8 of 9

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

Property/Casualty Rate Filing Exhibits

Exhibit F - Expense Information - Indicates new addition since last update.For Workers' Compensation and Mortgage Guaranty

The purpose of this exhibit is to display historical expense information for filings not subject to the 110% 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 be the amounts, or a subset of the amounts, reported on the Insurance Expense Exhibit (IEEE), Part III.

    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.

    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).

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

    Line 19, Profit and Contingencies:
    The TDI requires insurers to utilize a total rate of return methodology in the development of Texas rates. Income of all types (premiums, 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 rate of return on GAAP net worth. A methodology utilizing a traditional 5% or any other unsupported profit and contingencies loading is not acceptable.

Exhibit F - Interactive PDF Exhibit F (PC368 Indicates new addition since last update.Rev. 01/16)

(Link to Adobe Reader)

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Property/Casualty Rate Filing Exhibits

Exhibit G - Loss Costs Reference Information

This exhibit is only applicable to loss cost reference filings.

  • General Instructions

    An insurer may reference the loss costs filed by an advisory organization to which it subscribes or the prospective loss costs underlying another insurer's effective rates.

    Actuarial justification based on the insurer's actual data and loss experience must be provided for any loss cost modification factor, if any.

    The expense and profit provisions must be the same as are shown on Lines 15 through 19 of Exhibit E. (Link to Adobe Reader)

    Line 7 is calculated as [(Line 5 ÷ Line 6) x (change in underlying loss costs, expressed as a factor)] - 1. For example, if Line 5 = 1.50, Line 6 = 1.25 and the change in underlying loss costs is +10%, then Line 7 = [(1.5 ÷ 1.25) x 1.10] - 1 = 32.0%.

    If expense constants are utilized, provide, on a separate sheet of paper, the amount of the expense constant, a description of its derivation, and an explanation of how the expense ratios in Line 3 were established so as to not duplicate the expenses implicit in the expense constant.

Exhibit G - Interactive PDF Exhibit G (PC369 Indicates new addition since last update.Rev. 01/16)

(Link to Adobe Reader)

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Property/Casualty Rate Filing Exhibits

Exhibit H - Multi-Peril Rate Reference Information

This exhibit is only applicable to multi-peril reference filings.

  • General Instructions

    A company may reference its own filed monoline rates.

    Each line of insurance for which rates are being referenced must be listed, along with the TDI file number or link number of the filing company's latest rate filing in each line.

    The company may also use this exhibit to reference package modification factors developed by an advisory organization.

    If the company making the filing develops its own package modification factors, the proposed factors and supporting data must be provided.

Exhibit H - Interactive PDF Exhibit H (PC370 Indicates new addition since last update.Rev. 01/16)

(Link to Adobe Reader)

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Property/Casualty Rate Filing Exhibits

Exhibit L - Profit Provision Information

A brief description of the methodology and assumptions used to arrive at the profit provisions underlying the proposed rates is all that is required. This exhibit is provided only as an example. Insurers should provide their profit provision information in the format most suitable to their methodology.

  • General Instructions

    Line 1 - Provide the target after-tax rate-of-return as a percentage of GAAP equity. GAAP equity is required to make comparisons between businesses and industries of similar risk. Describe in Line 8 the method used to calculate the target after-tax rate-of-return. Note that it is not sufficient to state that the value is management's objective.

    Line 2 - Provide the GAAP equity to statutory surplus ratio. If your company is not required to provide GAAP financials, use Line 8 to provide the methodology used to calculate your target rate-of-return on surplus.

    Line 4 - Provide the annual projected before-tax rate-of-return on investment income. Support for this number must be attached.

    Line 7 - The effective tax rate on investment income may or may not be equal to the corporate tax rate. Provide support for this number.

Exhibit L - Interactive PDF Exhibit L (PC371 Indicates new addition since last update.Rev. 01/16)

(Link to Adobe Reader)

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Property/Casualty Rate Filing Exhibits

Exhibit WC - Workers' Compensation Information

This Exhibit is only applicable to Workers' Compensation filings. It is provided to assist insurer's compliance with §2053.002.

  • General Instructions

    For all first time filings or no prior experience Section 1 lines 2 and 3, and Section 2 should be left blank.

    Individual company experience should be shown.

    Experience for Section 2 is for at least the five most recent policy years valued as of 12 months after the beginning of the policy year.

    Premium-weighted averages must be used in calculating the average schedule rating modification. Average Schedule Rating credits/debits should be weighted on modified premium immediately prior to the application of schedule rating.

    The modification should be expressed as a factor, where a factor of 1.000 implies an average schedule rating modification of zero. An average schedule rating modification of -10.0% should be reported as .900 and an average schedule rating modification of +15.0% should be reported as 1.150.

    General Note: Changes in the average overall risk variations based on loss or expense considerations, including schedule rating and negotiated experience modifiers, should be reflected in on-level premium calculations.

Exhibit WC - Interactive PDF Exhibit WC (PC376 Indicates new addition since last update.Rev. 01/16)

(Link to Adobe Reader)

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Company Certification - Interactive PDF Company Certification (PC360 Indicates new addition since last update.Rev. 01/16)

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Additional Supporting Information & Sample Exhibits

15% Territory Rule:

  • Applicability

    This portion of the Guide is intended to assist insurer's writing residential property or personal automobile insurance in complying with §2253.001 and 28 TAC §5.9960.

    -----------------------------
  • §2253.001

    Provides that an insurer may not use rating territories that subdivide a county unless the county is subdivided and the rate for any subdivision within that county is not greater than 15% higher than the rate used in any other subdivisions in the county by that insurer.

    -----------------------------
  • 28 TAC §5.9960

    Makes an exception from this restriction if the rate is based on sound actuarial principles, is supported by data filed with the department, and is in compliance with all statutory and regulatory requirements.

    -----------------------------
  • General Instructions

    For companies who utilize ZIP code rating or otherwise subdivide counties, compliance with 28 TAC §5.9960 should be addressed with every rate filing (except minor rule filings).

    Depending on the nature of the filing, this may be handled through 1) a simple statement in the cover letter or 2) a brief exhibit detailing which counties are affected and supporting data or reference to supporting data as appropriate.

    -----------------------------
  • Supporting Data

    Companies should provide an exhibit detailing which counties are affected by the 15% territory rule (see Sample Exhibit 1). Per 28 TAC §5.9960, supporting data must be supplied to support deviations higher than 15% (see Sample Exhibit 2). If your company data is not fully credible, industrywide statistical plan data is available upon request.

    -----------------------------
  • Sample Exhibits

    Two sample exhibits are provided to assist insurers. These are samples only. Company specific formats may also be sufficient.

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Sample Exhibit 1 - (page RATES-31) - Territory Exhibit 1 - Display of counties that are subdivided

Sample Exhibit 1 displays all counties that are subdivided and their maximum base rate differentials.

This Exhibit is provided for illustrative purposes only for companies that need to comply with §2253.001 and 28 TAC §5.9960. Company analysis and exhibits may also be sufficient.

  • General Instructions

    For each county that is subdivided, list all of the territories within that county.

    For each territory, list the base rate (or territory relativity if applicable). One column should be used for each coverage and/or form with a unique set of deviations. For example, Personal Auto filings usually include columns for BI liability, PD liability, PIP, Collision and Comprehensive. For Homeowners filings, a column may be necessary for each different form (eg. HO, tenants, condos, etc.) Modify the number of columns and headers as appropriate.

    For each county, calculate the highest differential within the county (max rate/min rate).

Sample - For Illustrative Purposes Only!
County/Territory BI Liability PD Liability PIP Comprehensive Collision
Sample County 1 (Rates)
Terr 63 $69 $149 $43 $143 $291
Terr 163 61 121 43 160 250
Terr 263 75 161 44 125 295
Max Difference: 23% 33% 2% 28% 18%
Sample County 2
Terr 6 59 125 47 174 247
Terr 16 66 142 53 199 280
Max Difference: 12% 14% 13% 14% 13%

Interactive PDF Territory Exhibit - Display of counties affected by 15% territory rule (Sample Exhibit 1, page RATES-31) (PC374 Indicates new addition since last update.Rev. 01/16)

(Link to Adobe Reader)

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Sample Exhibit 2 - (page RATES-33) - Territory Exhibit 2 - Support for territorial deviations

Sample Exhibit 2 provides supporting information for territory deviations.

This Exhibit is provided for illustrative purposes only for companies that need to comply with §2253.001 and 28 TAC §5.9960. Company analyses and exhibits are also acceptable.

  • General Instructions

    Column (1). List each territory.

    Column (2). Provide the earned exposure for each territory. (Vehicle years, House years, etc.)

    Column (3). Provide the earned premium for each territory. If any adjustments are made to the earned premium such as adjusting it to a base level, it should be footnoted or addressed in an actuarial memorandum.

    Column (4). Provide the loss ratio for each territory.

    Column (5). Provide credibility for each territory. Credibility Method should be footnoted or addressed in an actuarial memorandum.

    Column (6). Credibility weighted loss ratio = [(4) x (5)] + [C x (1 - (5))]. Complement of credibility used (C) should be footnoted or addressed in an actuarial memorandum.

    Column (7). Indicated relativity = (6) / [base value of (6)]. Base value is typically statewide average. If any other value is used, it should be footnoted or addressed in an actuarial memorandum.

    Column (8). Selected relativity from the proposed rates should be restated here for comparison purposes.

    Column (9). Current relativity from existing rates should be restated here for comparison purposes. This column is only needed for revision filings.

    Column (10). Percent change = {[(8) / (9)] - 1} x 100%. This column is only needed for revision filings.

Interactive PDF Territory Exhibit - Support for territorial deviations (Sample Exhibit 2, page RATES-33) (PC377 Indicates new addition since last update.Rev. 01/16)

(Link to Adobe Reader)

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Additional Supporting Information & Sample Exhibits

28 TAC §5.9941 - Support for Use of Credit Scores:

  • Applicability

    This portion of the Guide is intended to assist insurers writing personal insurance in complying with Chapter 559 and 28 TAC §5.9941.

    Personal insurance is defined in Chapter 559 as personal automobile, residential property, residential fire and allied lines, or a noncommercial insurance policy covering a boat, personal watercraft, snowmobile, or recreational vehicle.

    -----------------------------
  • Chapter 559

    Provides certain requirements pertaining to the use of credit information and credit scoring by insurers in Texas for underwriting or rating personal insurance policies.

    -----------------------------
  • 28 TAC §5.9941

    Specifies that an insurer may vary its rates charged to applicants or insureds for personal insurance policies due solely to credit scoring. The differences in rates charged due solely to credit scoring shall be based on sound actuarial principles and supported by data filed with the department.

    -----------------------------
  • General Instructions

    For companies that utilize credit scoring, compliance with 28 TAC §5.9941 should be addressed with any filing that mentions credit scoring.

    An Exhibit providing supporting data should be included with any filing that modifies the portion of the rating system (discounts/surcharges/tiering, etc.) that utilizes credit scoring. This includes the introduction of the use of credit information or credit scoring.

    For clarity on filings in which no such change was made, it may be stated in the cover letter, filing memorandum or actuarial memorandum that no change was made to the use of credit.

    -----------------------------
  • Supporting Data

    Supporting data under the requirements of 28 TAC §5.9941 should include insurance score categories, including no-hit/no-score, and a pure premium or loss ratio analysis supporting the proposed rate differentials.

    If a company has varying credit factors based on coverage and/or territory grouping, supporting information should be provided for each set of unique credit-based relativities.

    -----------------------------
  • Sample Exhibits

    A sample exhibit is provided. It is a sample provided for illustrative purposes only. It may not be appropriate for all situations. Company specific formats may also be provided.

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Sample Exhibit 3 (page RATES-37) - CS Exhibit - Support for use of Credit Scoring

Sample Exhibit 3 provides supporting data for the use of credit scoring or credit information.

This Exhibit is provided for illustrative purposes only for companies that need to comply with Chapter 559 and 28 TAC §5.9941. Company analyses and exhibits may also be sufficient.

  • General Instructions

    Supporting data under the requirements of 28 TAC §5.9941 should include insurance score categories, including no hit/no score, and a loss ratio or pure premium analysis supporting the proposed rate differentials.

    If a company has varying credit factors based on coverage and/or territory grouping one exhibit or similar supporting information should be provided for each set of unique credit-based relativities.

    Column (1). Provide each insurance score category utilized including no-hit/no-score.

    Column (2). Provide the earned exposure for each category.

    Column (3). Provide the earned premium for each category. If any adjustments are made to the earned premium such as adjusting it to a base level, it should be footnoted or addressed in an actuarial memorandum.

    Column (4). Provide the incurred losses for each category. Note, for coverages such as Homeowners or Comprehensive for auto, appropriate adjustments should be made to remove catastrophe losses and other non-recurring losses such as mold. These adjustments should be footnoted or addressed in an actuarial memorandum.

    Column (5). The loss ratio should be calculated for each category. (5) = (4) / (3).

    Column (6). The pure premium should be calculated for each category. (5) = (4) / (2).

    Column (7). Indicated Relativity, loss ratio basis. The calculation should vary depending on how credit scores are utilized. For example, if a company uses a discount plan, it should be calculated as (5) / (max value in (5)). Similarly, if a company uses a combination surcharge/discount plan, it should be calculated as (5) / (value of base category in (5)).

    Column (8). Indicated Relativity, pure premium basis. Similar to column (7), (8) = (6) / (value of base category in (6)).

    Column (9). Selected factors/differentials from proposed rates should be restated here for comparison purposes.

    Column (10). Current relativity from existing rates should be restated here for comparison purposes. This column is only needed for revision filings.

    Column (11). Percent change = [(9) / (10)] - 1. This column is only needed for revision filings.

Interactive PDF CS Exhibit - Support for use of Credit Scoring (page RATES-37) (PC375 Indicates new addition since last update.Rev. 01/16)

(Link to Adobe Reader)

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Sample Exhibit 4 (CM Exhibit) - Additional Information for Certain County Mutuals

The following exhibit is only applicable to certain county mutuals that qualify to continue to utilize managing general agents (MGAs), districts, or local chapters to manage a portion of the company's business independent of all other business of the county mutual in accordance with §912.056. For these companies, additional information is required by 28 TAC §5.9361. While the following exhibit may be used, a company form or filing memorandum may also be used if the information provided meets the requirements of §5.9361. This information is required for all lines of business.

  • General Instructions

    Line 1. Show the name and license number of the filing entity. Check the appropriate box designating whether the filing entity is a managing general agent (MGA), district, or local chapter of a county mutual insurance company. Note, when filing for business written directly by the county mutual without the use of an independent MGA, district, or local chapter, this exhibit is not required.

    Line 2. If the county mutual's contact information was included in the filing transmittal, this space may be used for MGA, district, or local chapter contact information. If the county mutual's contact information was not provided in the transmittal, it should be provided here.

    Indicate whether or not you agree to allow us to release your e-mail address in response to a public information request.

    Line 3. List the name and number of the forms and endorsements to be used by the MGA, district, or local chapter to which the filing pertains. Include the TDI filing number under which it was approved for use by the county mutual.

Interactive PDF CM Exhibit - Additional Information for Certain County Mutuals (page RATES-39) (PC405 Indicates new addition since last update.Rev. 01/16)

(Link to Adobe Reader)


Indicates new addition since last update.Interactive PDF County Exhibit - Average Premium Change by County (PC422 Rev. 01/16)

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