Commissioner’s Bulletin # B-0075-98

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 and several liability, limitations on establishing venue, clarification of allowable damages associated with deceptive trade practices, and stronger deterrences against frivolous lawsuits. On October 2, 1998 Commissioner's Order #98-1128 adopted amendments to 28 TAC §§5.14004 and 5.14005, including revised loss and ALAE reduction percentages which will become effective on January 1, 1999.

This bulletin also includes benchmark rates adjusted to reflect the temporary rate reductions for Voluntary Commercial Auto Bodily Injury Liability. Since the 1/1/99 tort reform reduction for Private Passenger Auto Bodily Injury Liability is the same as the 1/20/98 reduction, no revisions were necessary for Private Passenger Auto. The Commercial Auto adjusted benchmark rates are being provided as a convenience to companies only and reflect revisions to the 1/20/98 benchmark rates necessary due to changes in the mandatory loss and ALAE reductions ordered by the Commissioner. No other changes were made. The tort reductions effective 1/1/99 apply to voluntary risks only. Therefore, for assigned risks, companies should continue to use the 3/1/98 benchmark rates. All rate-regulated companies writing Commercial Auto Liability must use the attached tort-adjusted benchmark rates for all voluntary policies effective on or after 1/1/99.

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 1/20/98. 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 monitoring 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 1999 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 1999. Filings of the appropriate forms are required on or before December 1, 1998.
• The use of a reconciliation form (TR-RF) to reconcile the premium in each company's tort reform filings to its 1997 Texas Annual Statement page 15.
• New versions of TDI forms TR-1-R through TR-7-NR. For rates based on advisory organization loss costs, the 1/20/98 version of Form TR-5-R has been replaced with TR-5A-R and with a simplified Form TR-5B-R to be used in certain situations (see Section 1.B.I. below for details). The changes to the other forms were minimal. In addition, new automated versions of the forms, which are available on TDI's website, may be used and may decrease the number of calculation errors.
• Frequently asked questions and TDI's responses.
• A Tort Reform Flow Chart to assist in determining the forms required to be submitted.
• A list of the revised loss and ALAE reduction percentages for all lines.

Companies may access this bulletin from the Texas Department of Insurance web site - www.tdi.state.tx.us. The Internet version of this bulletin contains downloadable, automated versions (in Excel file format) of the forms TR-1-R through TR-7-NR so that companies may complete the forms with greater ease and accuracy (See " Additions/Changes for 1/1/99 Submissions" section below and instructions for forms for more detailed instructions on using the automated versions of the forms).

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 Businessowners);
• 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 98-0101, 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: 2 8 TAC §§5.14000-5.14011 does not apply to the following lines and/or sublines:

• Accident and Health Insurance
• Aircraft
• Boiler and Machinery
• Comprehensive Personal Liability
• Credit Insurance (including involuntary unemployment insurance)
• Crime
• Fidelity and Surety
• Financial Guaranty
• Fire and 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 98-0101, 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 1, 1999. 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 20, 1998. They are not in addition to the rate reductions effective 1/20/98.

Mandatory Filing Submission Deadline
Filings to implement the temporary rate reductions to reflect savings from Tort Reform legislation for rates in effect or to be effective on January 1, 1999 must be made with the Department no later than December 1, 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 Department. 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 to monitor the 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 of assisting the Commissioner in determining the impact of tort reform upon the marketplace and in 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 1/1/99. Filing requirements for these "Other than Annual Tort Reform Filings" are included with this Bulletin (pages TORT-1 and TORT-2). The Department suggests that companies insert pages TORT-1 through TORT-65 included with this bulletin in the "Filings Made Easy" manual so that all required filing forms can be readily accessed from one source.

Additions/Changes for 1/1/99 Submissions
Please read through this Bulletin carefully, including the attached Frequently Asked Questions (FAQ), flowchart and tort reform filing instructions, carefully before contacting the Department with questions.
Several changes were made since last year's edition to aid in the ease of reporting:

• The major change for this year is that the Internet version of this bulletin (found on TDI's web site - www.tdi.state.tx.us) contains automated versions of the forms TR-1-R through TR-7-NR. The forms are in Excel format. After downloading these files, the filer should enter only the "input" fields, which are highlighted in yellow. The other lines on the form, including the rate reduction factor and savings dollars, will be calculated automatically. You may then print the forms and include them in your filing. More detailed instructions on using the automated forms are incorporated in the instructions for each form.
• · Revised forms TR-1-R through TR-7-NR. For rates based on advisory organization loss costs, the 1/20/98 version of Form TR-5-R has been replaced with TR-5A-R, and with a new simplified Form TR-5B-R to be used in certain situations (see Section 1.B.I. below for details). The changes to the other forms were minimal.
• The list of FAQ has been revised.
• A list of the loss and ALAE reduction percentages for all lines has been included.

Note: All submissions must be completed using the new (Edition 1/1/99) forms.

Mailing or Delivery of Filings:

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

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

If Delivered:
Texas Department of Insurance
Property and Casualty Intake Unit
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. Other Filed Rates

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

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 the "flex" lines of insurance 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, which 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 and Ranchowners rates were no longer regulated by Article 5.101. Form TR-1-R should not be completed for Farm and Ranchowners. Refer to Section 1, B for further details.

For flex lines of insurance, Form TR-1-R must be completed separately by line of insurance. Form TR-1-R must also be 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.

1/1/99 Rate Reduction Factors Underlying Current (1/20/98) Benchmark Rates Enter the following factors on Line (6) when completing Form TR-1-R.

Private Passenger Automobile Bodily Injury (Including Uninsured Motorists) 0.908
Commercial Automobile Bodily Injury - Zone Rated 0.863
Commercial Automobile Bodily Injury - Other Than Zone Rated 0.861
Commercial Automobile Bodily Injury - Dealers and Service Operations 0.867

The 1/20/98 benchmark rates reflecting the 1/1/99 tort reductions for Voluntary Commercial Auto Bodily Injury Liability are attached to this Bulletin. Only rate pages containing changes have been attached. The tort reductions effective 1/1/99 apply to voluntary risks only. Therefore, for assigned risks, companies should continue to use the 3/1/98 benchmark rates. All rate-regulated companies writing Commercial Auto Liability must use the attached tort-adjusted benchmark rates for all voluntary policies effective on or after 1/1/99.

Filing Requirements for Section A

• Filings must be made separately by company. Group filings are not permitted.
• If the filing is made solely to reflect the new tort reform loss and ALAE reduction percentages that are effective 1/1/99, the filing must contain:
  
  • 1. A Transmittal Form TR-T,
  • 2. A completed copy of Reconciliation Form TR-RF, and
  • 3. A completed copy of Form TR-1-R.
• If the filing is made for reasons in addition to reflecting the new tort reform loss and ALAE reduction percentages that are effective 1/1/99, the filing must contain:
  
  • 1. A Transmittal Form TR-T AND a Property and 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, and
  • 5. A completed copy of Form TR-1-R.
• Submit three (3) copies of each filing to the Department at one of the addresses indicated above. Filing is required with the Department by no later than December 1, 1998 for the initial submission for 1999.
• These procedures apply to any rate filings for lines of insurance subject to the tort reform loss and ALAE reductions made throughout the year.
• A qualified actuary or an experienced rate analyst should complete the required forms so that errors are minimized.
• For additional details, see the specific instructions for Form TR-1-R attached to this bulletin.

This subsection details the filing requirements for those lines of insurance that are non-flex rated. Non-flex rated lines of insurance that are affected by the mandatory tort reform loss and ALAE 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 for 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 referenced 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 either Form TR-5A-R or Form TR-5B-R (simplified form) for each applicable line or subline of insurance. The simplified form TR-5B-R may be used ONLY if you are filing to adopt the most recent (1/1/99) version of loss costs that reflect the 1/1/99 tort reform reductions with no change to the loss cost multiplier. Form TR-5A-R must be used in all other situations. For example, if there is a change in the loss cost multiplier, or if you are not adopting the new loss costs that already reflect the 1/1/99 reductions, Form TR-5A-R must be used. Form TR-5A-R assists with the calculation of a revised loss cost multiplier and a revised loss cost modification factor. Forms TR-5A-R and TR-5B-R are both used to determine the estimated premium impact on company premiums resulting from the mandatory reductions.

Filing Requirements for Section B.I.

• Filings must be made separately by company. Group filings are not permitted and will be returned.
• 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 number in a line of insurance.
• If the filing is made solely to reflect the new tort reform loss and ALAE reduction percentages that are effective 1/1/99, 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-CC for each company, and
  • 4. Completed copy(-ies) of Forms TR-5A-R and/or TR-5B-R.
• If the filing is made for reasons in addition to reflecting the new tort reform loss and ALAE reduction percentages that are effective 1/1/99, the filing must contain:
  
  • 1. A Transmittal Form TR-T AND a Property and Casualty Filings Made Easy Transmittal Form,
  • 2. All required forms as described in the Department 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-CC for each company, and
  • 6. Completed copy(-ies) of Forms TR-5A-R and/or TR-5B-R.
• Submit three (3) copies of each filing to the Department at one of the addresses indicated above. Filings must be made with the Department by no later than December 1, 1998 for the initial submission for 1999.
• These procedures apply to any rate filings for lines of insurance subject to the tort reform loss and ALAE reductions made throughout the year.
• Attach support to the filing if the proposed expense provisions differ from the current expense provisions.
• For additional details, see the specific instructions for Forms TR-5A-R and TR-5B-R attached to this bulletin.
• A qualified actuary or an experienced rate analyst should complete the required forms so that errors are minimized.

This paragraph provides filing instructions 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, and 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 the premium 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 Commercial Multiple Peril 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 (ELPs) provided by an advisory organization and a loss cost multiplier, adjust the (A) rate in the same manner as non-(A) rates based on 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 percentage, 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 and the applicable form for each underlying coverage shall be used for umbrella and excess polices for which the premium is 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 percentage, 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 and will be returned.
• 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 made solely to reflect the new tort reform loss and ALAE reduction percentages that are effective 1/1/99, 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 made for reasons in addition to reflecting the new tort reform loss and ALAE reduction percentages that are effective 1/1/99, the filing must contain:
  • 1. A Transmittal Form TR-T AND a Property and Casualty Filings Made Easy Transmittal Form,
  • 2. All required forms as described in the Department 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.
• Submit three (3) copies of each filing to the Department at one of the addresses indicated above. Filings must be made with the Department by no later than December 1, 1998 for the initial submission for 1999.
• These procedures apply to any rate filings for lines of insurance subject to the tort reform loss and ALAE reductions made throughout the year.
• Attach support to the filing if the proposed expense provisions differ from the current expense provisions.
• 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.
• A qualified actuary or an experienced rate analyst should complete the required forms so that errors are minimized.

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 "flex" lines of insurance 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, which 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 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 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 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.

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.
• 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.
• Submit three (3) copies of each filing to the Department at 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 by no later than December 1, 1998 for the initial submission for 1999. Companies making informational filings with effective dates subsequent to 1/1/99 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 insurers that are not rate-regulated for lines of insurance that are not designated as flex lines. This would include Lloyds companies and Reciprocal Exchanges for Commercial Multiple Peril. This subsection also details the filing requirements for rate-regulated companies for those lines of insurance that are not rate-regulated under Articles 5.13-2 or 5.15, Texas Insurance Code. These lines include certain types of 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 is 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 to required reductions on the forms 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 support will be required other than the filing requirements shown 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.

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 TR98, Pricing Components by Tort Reform, if coverage for a Tort Reform identified in Form TR98 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 damages reform.

To adjust the loss and ALAE reduction percentage, it is necessary to refer to Form TR98 attached to this bulletin. Form TR98 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 1, 1999 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 is that in effect at policy inception, that rate, with the previous adjustment (1/20/98) to reflect the savings of tort reform, shall be used. If the rating manual specifies that the rate applicable to the endorsement is that in effect as of the effective date of the endorsement, that rate, reduced to reflect the adjusted 1/1/99 savings due to tort reform, shall be used.

F. Experience Rating

Insurers with experience rating plans for liability coverages affected by the tort reform loss and ALAE 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 required are in the loss and ALAE reduction percentages. Experience rating plans must comply with the following provisions. In each of the following four cases, the experience rating plan must conform to the requirements of this bulletin and Bulletin B-0053-95 and have an effective date of January 1, 1999.

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

If continuing to use 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 to use 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.

G. TDI Staff Contacts

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

Texas Department of Insurance
Property and 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,

Philip O. Presley
Chief Actuary
Technical Analysis

1) FAQ (Frequently Asked Questions)
2) Filing Flowchart
3) Form TR98
4) 1/1/99 Loss and ALAE Reductions by Line
5) Filing Transmittal Form TR-T
6) Filing Certifications TR-CA, TR-CC, TR-CD, TR-CE, TR-CF
7) TDI Form TR-1-R and Instructions
8) TDI Form TR-2-R and Instructions
9) TDI Form TR-3A-R and Instructions
10) TDI Form TR-3B-R and Instructions
11) TDI Form TR-4-R and Instructions
12) TDI Form TR-5A-R and Instructions
13) TDI Form TR-5B-R and Instructions
14) TDI Form TR-6-R and Instructions
15) TDI Form TR-7-NR and Instructions
16) TDI Form TR-RF and Instructions
17) Revised pages of Commercial Auto Machine Letter (1/20/98 rates reflecting 1/1/99 tort reductions - Voluntary Only)
18) Revised pages of Commercial Auto Rate Bulletin (1/20/98 rates reflecting 1/1/99 tort reductions - Voluntary Only)

download attachments 1 through 16 in a self-extracting zipped file

download attachments 17 and 18 in a self-extracting zipped file

download AUTOMATED Forms TR-1-R through TR-7-NR (Excel 5.0 version)

download AUTOMATED Forms TR-1-R through TR-7-NR (Excel 97 version)