Pennsylvania Code
Title 31 - INSURANCE
Part VII - Property, Fire and Casualty Insurance
Chapter 120 - LOSS COSTS ADJUSTMENT FILINGS-STATEMENT OF POLICY
Section 120.4 - Insurer action

(a) Each insurer shall individually determine the final rates it will file for approval, for filings submitted before December 1, 1994, and the effective date of rate changes. Individual insurer loss costs adjustment filings are not subject to approval after December 1, 1994, unless they are found in violation of sections 704 and 711 of the act ( ___P. ___S).

This will be the result of the independent company decision making process of each insurer. For the initial loss costs adjustment filing, the Commissioner " . . . shall publish an aggregate factor reflecting the experience of stock insurance companies and including the effect of applicable premium discount programs, for loss adjustment, or claim management expenses, other operating expenses, assessments, taxes and profit or contingency allowances which all insurers may use in the foregoing initial filings. Any insurer filing which uses an aggregate factor not in excess of the appropriate foregoing factor shall be deemed approved upon filing for purposes of this section." (See section 24(5) of the act of July 2, 1993 (P. L.___ , No. 44).) An insurer shall submit its filing for the Commissioner's aggregate factor in writing to the Department in duplicate with a stamped, self-addressed return envelope. The Department will acknowledge receipt of the filing, and send a copy of the acknowledgment to the company. If an insurer's loss costs adjustment filing is disapproved, under section 705(b) of the act ( ___P. ___S), it " . . . may not make or issue a contract or policy of insurance of the kind to which this article applies, except in accordance with the filings which are in effect for the insurer as provided in this article." This provision would require an insurer to use the rates approved as of December 1992 until its initial loss costs adjustment filing is approved.

(b) If an insurer that is a member, subscriber or service purchaser of a rating organization decides to use the prospective loss costs in the approved reference filing in support of its own initial filing, the insurer should make a filing for approval using the reference filing adoption form. The insurer's rates are the combination of the prospective loss costs and the loss costs adjustments contained in the reference filing adoption form, which should be completed even if adopting the aggregate factor. After the approval of an initial filing, the insurer shall notify the Department if it chooses not to use an approved rating organization loss costs filing.

(c) Insurers may file modifications of the prospective loss costs in the approved reference filing based on their own anticipated experience. Supporting documentation will be required for modifications, upwards or downwards, of the prospective loss costs in the approved reference filing.

Examples

The "summary of supporting information form," this refers to the forms in Appendix A, contains a reference to examples of how to apply a company's loss costs modification factor (this and other terms that are a part of Appendix A are defined in the context with which they are used on the forms) to the rating organization's prospective loss costs. Two examples follow:

Example 1: Loss costs modification factor: If your company's loss costs modification is -10%, a factor of .90 (1.000 - .100) should be used.

Example 2: Loss costs modification factor: If your company's loss costs modification is +15%, a factor of 1.15 (1.000 + .150) should be used.

(d) Insurers may vary expense loads by individual classification or grouping. Insurers may use variable or fixed expense loads or a combination of these to establish their expense loadings. The loss costs methodology shall be filed with the Department. Insurers are required to file data in accordance with the uniform statistical plan approved by the Commissioner. Insurers may offer premium discount plans that shall be filed with the Department. For the purpose of the initial filing, insurers may choose to adopt the premium discount plan approved and currently on file with the Department.

(e) At a minimum, the Department will require the following data to support the loss costs adjustment filing by insurers: an explanation of the derivation of expense loadings including documentation of data sources relied on to derive the actual loadings and documentation showing how the company arrived at its underwriting profit loading and how it reflected investment income in the derivation of the profit loading. In addition, an exhibit showing the company's estimated payout pattern including data and methodology that documents its derivation and an exhibit showing how the loss adjustment expense factor was derived using historical state specific and countrywide data will be required. Loss constants should be filed as a separate item under "Other" on the form.

(f) If an insurer wishes to use minimum premiums, it shall file with support, and obtain approval for, the minimum premium rules, formulas or amounts it proposes to use.

(g) The insurer may request to have its loss costs adjustments remain on file and refer to all subsequent loss costs reference filings. Under such a request, the insurer's rates will be the combination of prospective loss costs, subsequently approved under the rating organization's reference filings, and the loss costs adjustments contained in the insurer's reference filing adoption form on file with the Department. These rates will be effective on the effective dates of those prospective loss costs.

(h) Insurers may file other information which the company deems relevant and shall provide other information requested by the Department.

(i) To the extent that an insurer's final rates are determined solely by applying its loss costs adjustments, as presented in the reference filing adoption form, to the prospective loss costs contained in a rating organization's reference filing and printed in the rating organization's rating manual, the insurer need not develop or file its final rate pages with the Commissioner. If an insurer chooses to print and distribute final rate pages for its own use, based solely upon the application of its filed loss costs, the insurer need not file those pages with the Commissioner. If the rating organization does not print the loss costs in its manual, the insurer shall submit its rates to the Commissioner.

(j) For future reference filings filed by a rating organization: