California Code of Regulations
Title 10 - Investment
Chapter 5 - Insurance Commissioner
Subchapter 4.8 - Review of Rates
Article 4 - Determination of Reasonable Rates
Section 2644.17 - Leverage Factor and Surplus
Current through Register 2024 Notice Reg. No. 38, September 20, 2024
(a) "Leverage factor" means the ratio of earned premiums to the average of year-beginning and year-end surplus.
(b) The Commissioner shall calculate industry-wide leverage factors for each insurance line annually, within 45 days of the publication of the necessary source data. The factors shall be calculated using the consolidated underwriting and investment exhibit as published in Best's Aggregates and Averages. The allocation of the commercial multiple peril data to liability and non-liability and the allocation of the automobile physical damage data to private passenger and commercial shall be done using data from the Exhibit of Premiums and losses (Statutory Page 14 Data) as published in Best's Aggregates and Averages. For medical malpractice, other liability and product liability, there shall be separate leverage factors for claims-made and occurrence. Total national industry surplus shall be allocated to lines of business in proportion to the sum of the national industry-wide earned premium, unearned premium, loss and loss adjustment expense reserves. The leverage factor for each line of business shall be the national premium divided by the allocated surplus.
Notwithstanding the result of the calculation, the leverage factor for earthquake shall be 1.0. For other lines of business subject to catastrophes, mass torts and other unusual events, the Commissioner shall modify the leverage factors where he finds that they do not provide a reliable estimate of future risk, pursuant to section 2646.3.
(c) The Commissioner finds that investors' perceived investment risk may vary from line to line. Thus, while the rate of return does not vary by line, insurance perceived to have a greater risk will yield higher returns per premium dollar.
1. New section
filed 8-13-91 as an emergency; operative 8-13-91 (Register 92, No. 3). A Certificate
of Compliance must be transmitted to OAL 12-11-91 or emergency language will be
repealed by operation of law on the following day.
2. Repealed by
operation of Government Code section
11346.1(g)
(Register 92, No. 15).
3. New section refiled 2-14-92 as an emergency;
operative 2-14-92 (Register 92, No. 15). A Certificate of Compliance must be
transmittted to OAL 6-15-92 or emergency language will be repealed by operation of
law on the following day.
4. Repealed by operation of Government Code
section
11346.1(g)
and new section filed 3-15-95; operative 3-15-95. Submitted to OAL for printing only
pursuant to Government Code section
11343(a)(1)
(Register 95, No. 11).
5. Amendment 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 of subsection (b) 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.
