New York Codes, Rules and Regulations
Title 11 - INSURANCE
Chapter V - Rates And Rating Organizations
Subchapter F - Treatment Of Excess Profits In Motor Vehicle Insurance
Part 166 - Treatment Of Excess Profits In Motor Vehicle Insurance
Subpart 166-2 - Discussion Of General Rules
Section 166-2.3 - Discussion of profitability data averaging

(a) To assure as much stability as possible in the excess profit calculation, six-year average rates of return are used. Although no one can explain exactly what causes results to become better or worse, a reasonable approximation of the length of time for completion of the business cycle in insurance is six years.[FN5]

(b) Arguments have been made for a three-year profitability test, and even for a one-year test. The selection of the number of years to be tested may not, in the long run, affect the amount of excess profits, when a technically sound formula is used. The use of a six-year average generates a relatively modest margin above the reasonable point before excess profits are declared. In general, the shorter the time period, the greater the fluctuation in the data, and thus the larger the margin required for the excess point. If, for example, the department had chosen three years, it would have had to set the excess profit threshold at a significantly higher point, to overcome the much greater variability in the results. In addition, too short a time period risks violating the statutory admonition to take into account that losses may not be recouped.

[FN5] Williams, pp. 14a, 48b.