Current through Register Vol. 56, No. 6, March 18,
2024
(a) General
requirements for limited rate change filings are as follows:
1. Filers shall provide coverage indications
based on three accident years of data. For coverages that are fully credible
based on less than three years of data, filers may use two accident years of
data to calculate indications for those coverages;
2. Indications may be based on either total
limit or basic limit data for the liability coverages;
3. Coverage indications shall be calculated
as follows:
i. Filers that only sell split
limits policies shall submit separate BI and PD indications;
ii. Filers that only sell CSL policies shall
submit one CSL indication. However, the BI and PD portion of losses shall be
developed and trended using separate loss development triangles and trend
factors;
iii. Filers that sell both
split limits and CSL policies can either submit separate BI, PD and CSL
indications or allocate the CSL data between BI and PD;
iv. Filers that sell PACK policies can submit
one indication for the policy but the BI, PD and PIP portion of the losses
shall be developed and trended using separate loss development triangles and
trend factors; and
v. UM data shall
be combined with liability data in (a)3i, ii, iii or iv above. Filers do not
have to calculate a separate indication for UM; and
4. All supporting exhibits must include
documentation of formulas and data sources.
(b) Filers shall provide the following
information regarding projected earned premium:
1. New Jersey (NJ) earned premium by
coverage, by accident year;
2.
On-level factors by coverage, based on company specific historical NJ rate
changes; and
3. The premium trend
factors, based on either annual selections from the latest approved Insurance
Services Office (ISO) filing in NJ, or internal company data.
i. If supplying premium trend factors
developed from internal company data, the filer shall provide all data and
methods used.
(c) Ultimate loss and loss adjustment expense
("LAE") shall be determined by:
1. NJ
incurred loss and defense/cost containment expense ("DCC"), by coverage, by
accident year either combined (loss and DCC) or developed separately;
i. For COMP and COLL coverages, filers may
use paid loss instead of incurred loss.
2. New Jersey loss development factors (LDFs)
by coverage, either combined (loss and DCC) or separately;
i. The selected age-to-age factors shall be
based on the latest five-year X HI/LO average, that is, using a straight
average of the latest five age-to-age factors, excluding the highest and
lowest.
ii. BI and PIP LDFs shall
be developed to 87 months, with a five percent tail factor from 87 months to
ultimate.
iii. PD, COMP and COLL
LDFs shall be developed out to 51 months, with no subsequent tail
factor;
iv. LDFs for COLL and COMP
shall be consistent with the method used in (c)1 above.
3. Loss trend factors shall be based on
either annual selections from the latest approved ISO filing in NJ, or the
latest available NJ Fast Track data, computed separately for severity and
frequency by coverage (BI, PIP, PD, COMP, COLL). All data must be based on
paid, not incurred/arising, claims.
i. If
supplying Fast Track trend factors, the filer shall use the 12 quarter-rolling
average and provide all data and calculations.
ii. For COMP, filers may use country-wide
Fast Track data to smooth out the effect of catastrophes;
4. Adjusting and other claims related
expenses ("AO") shall be determined as a ratio of incurred AO to incurred loss
plus incurred DCC from the latest three-year average of Countrywide Insurance
Expense Exhibit (IEE) in the insurer's annual statement filed with the
Department;
5. Filers shall account
for impacts of significant changes to legislative, regulatory, social,
economic, or operational factors that have an impact on loss frequency or
severity, or on loss adjustment expenses. These impacts shall be accounted for
as supplemental to the standard data and procedures described elsewhere in this
regulation, and must be justified. If the addition of such impacts results in
an alternative method of calculating the indications, then the Department's
review of and decision on the method will be governed by the time frames as set
forth in 11:3-16B.4(k); and
6.
Filers may exclude catastrophe losses from the COMP data and include a load
based either on the selected factor from ISO's last approved private passenger
automobile filing in New Jersey or derive a factor from at least 10 years of
the filer's internal New Jersey catastrophe COMP data.
(d) Expenses shall be determined by group of
coverages (liability versus physical damage) from the total of:
1. Three year average of commissions and
brokerage expense ratios based on the NJ page 14 of the insurer's latest annual
statement filed with the Department and calculated as ratios to NJ
WP;
2. Three-year average of
general and other acquisition expense ratios, based on the countrywide IEE of
the insurer's latest annual statement filed with the Department and calculated
as ratios to EP;
3. The sum of (d)1
and 2 above are subject to the expense limitations found at
N.J.A.C.
11:3-16.9(c) and shall not
include any of the expenses listed at
N.J.A.C.
11:3-16.9(d). Current
expense limitations by type of insurer will be posted annually on the
Department's website
http://www.state.nj.us/dobi , by
group of coverages (liability versus physical damage).
4. Three-year average of taxes, licenses and
fee ratios, based on the NJ page 14 of the insurer's latest annual statement
filed with the Department and calculated as ratios to NJ WP; plus
5. The profit and contingency provision shall
be the last provision approved for the filer pursuant to either
11:3-16.1 0 or this subchapter. If
the filer is proposing a revision to the profit and contingency provision, the
filer shall provide all information related to the derivation of the profit and
contingency loading contained in the filing by group of coverages. Filers shall
specifically include all data used and judgments made, as well as a description
of the method used to arrive at the selected loading. Filers shall demonstrate
that the profit and contingency loading does not result in rates that are
excessive, inadequate, or unfairly discriminatory. The Department's review of,
and decision on any filing that includes a change to the profit and contingency
provision is not governed by the time frames in
11:3-16B.6(d),
but instead will be subject to the time frames set forth in (k)
below.
6. Total expenses shall be
determined from the sum of (d)1, 2, 4 and 5 above.
(e) Permissible loss and LAE ratios by group
of coverages (liability versus physical damage) shall be determined by
subtracting total expenses, determined in (d)6 above from 1.00.
(f) Credibility shall be determined by:
1. If the filer submits indications on a
total limit basis, the full credibility standard shall be based on 4,000 claims
for BI, PD, CSL and PACK. If the filer submits indications on a basic limits
basis, the full credibility standard shall be based on 3,000 claims for BI, PD,
CSL and PACK. The full credibility standard for PIP, COMP and COLL shall be
based on 3,000 claims.
2.
Alternatively, the filer may support different full credibility standards than
those in (f)1 above by calculating the mean, variance and coefficient of
variation from the company's internal size-of-loss distributions by coverage
and then adjust the 1,082 claims frequency standard by the appropriate factors
by coverage to reflect variation in severity. The severity adjustment shall be
made and the filer shall provide all data together with the method
used.
3. The filer shall apply the
classical credibility procedure using the square-root rule to the full
credibility standards obtained in either (f)1 or 2 above to determine the
credibility of each coverage. The minimum credibility assigned to any coverage
or combination of coverages (CSL or PACK) shall be 50 percent.
(g) The complement of credibility
shall be assigned to the loss ratio trends by coverage, trended from the
average date of earning during the experience period to the average date of
earning for the proposed effective period using premium and loss trends by
coverage determined in (b)3 and (c)3 above, respectively.
(h) The indicated rate changes by coverage
and overall shall be calculated as follows:
1. The all year projected ultimate loss and
LAE by coverage determined in (c) above divided by the all year projected
premium by coverage determined in (b) above.
2. The raw indications by coverage shall be
calculated by the all year loss and LAE ratios determined in (h)1 above divided
by the permissible loss and LAE ratios determined in (e) above.
3. The credibility-weighted indications by
coverage shall be determined by:
i. Paragraph
(h)2 above (raw indication);
ii.
Multiplied by (f)3 above (credibility);
iii. Plus (1 + (g) above) (loss ratio
trend);
iv. Multiplied by (1 - (f)3
above) (complement of credibility).
4. The overall indication results from the
credibility-weighted indications by coverage, determined in (h)3 above,
weighted by the latest year's on-level projected earned premium by coverage
determined in (b) above.
(i) If only uniform Statewide base rate
changes by coverage are proposed, the information in (a) through (h) above is
sufficient. If proposed base rate changes vary by territory, the filer shall
provide credibility-weighted territorial indications by coverage, in addition
to (a) through (h) above.
1. Territorial
indications by coverage shall be based on at least three years of data and
shall be indexed to the indications by coverage, derived in (h)3
above.
2. Territorial indications
by coverage shall be based on a full-credibility standard of 3,000 claims per
territory, with the complement of credibility applied to the Statewide
indications by coverage determined in (h)3 above or to the current territorial
rate/relativity.
(j)
Filers that include changes to expense fees shall provide the standard, fixed
expense fee calculation. For changes to deductible factors and increased limit
factors, filers shall provide three-year relative loss ratios to justify the
proposed changes. Filers shall also provide the overall percentage impact
resulting from these changes independent of any proposed base rate
impacts.
(k) All filers shall use
the Department's method set forth in (a) through (j) above. The filer may
submit an alternate method or use different data in support of specific
elements of its filing provided that it is clearly labeled as such and is
submitted in addition to the method in (a) through (j) above. The filer may
also submit a completely alternate method, not using the rules set forth in (a)
through (j) above, provided it is clearly labeled as such and the identical
alternate method has been submitted to the Department for review by the filer
prior to its use in a filing under this subchapter. The Department's review of,
and decision on, any alternate method or data submission as referenced above
are not governed by the time frames in
11:3-16B.6(d),
but instead will be subject to the time frames set forth in
11:3-18.4.
(l) Data described above in this section
shall be submitted through the use of the NAIC electronic filing system SERFF
(System for Electronic Rate and Form Filing). The information shall be provided
in a Microsoft Excel or compatible worksheet. All calculated values shall be
given as a formula in the spreadsheet.
