BULLETIN NO. 349 July 27, 1990
PROPOSED CHANGE
RULES OF OPERATION
RULE 11
At its Meeting of July 18, 1990, the Governing Committee voted to amend Rule 11, Assessments and Participation 1989 And Thereafter. A copy of the Filing Letter, which contains an explanation of this Rule change, is attached for your information.
This amendment updates the version of Rule 11 which is currently in effect. In the event that the amendments to Rule 11, which were filed with the Commissioner of Insurance on April 27, 1990, are approved (see Bulletin 391), the amendments herein will be superseded by the amendments to that version of Rule 11, contained in Bulletin No. 348.
This Bulletin, with a copy of the proposed Rule 11 enclosed, is being
furnished to every Member Company as required by Article X, of the Plan of Operation. Any Member Company may request a public hearing within five
days of receipt of this Bulletin and Filing Letter as provided by ArticleX, of the Plan of Operation.
A proposed Rule shall become effective either upon the written approval of the Commissioner or upon the expiration of thirty days after filing, providing the Commissioner has not previously disapproved the Rule
in writing.
DANA I. JEWELL
Administrative Vice President
and Secretary
Attachment
July 27, 1990
Honorable Timothy H. Gailey
Commissioner of Insurance
Division of Insurance
280 Friend Street
Boston, Massachusetts 02114
Dear Commissioner Gailey:
Rules of Operation
In accordance with the provisions of Article X, of the Plan of Opera
tion, I hereby file, at the request of the Governing Committee, the following changes to Rule 11, of the Rules of Operation. These updates modify the version of Rule 11 which is currently in place, and does not include the amendments which were filed with you on April 27, 1990.
RULE 11 ASSESSMENTS AND PARTICIPATION 1989 AND THEREAFTER
Amend Rule 11, B, 1, b, by deleting current language and inserting in place the following (new wording underlined):
B. PARTICIPATION UNDERWRITING RESULTS
1. Private Passenger Motor Vehicles
b. Formula for Calculating Utilization Ratios for
Policy Years 1990 and Subsequent
For policy years 1990 and subsequent, a company's utilization ratio shall be determined as a function of the company's util
ization of the residual market, with a "grossingup" process to be applied for those companies which were not Servicing Carriers for private passenger business during the entire period from January l, 1989 through December 3l, 1989, and for
those companies who elect to "buyout" of Servicing Carrier responsibilities in the private passenger market as of January 1, 1990 or a later date.
Exposures for ceded risks meeting the following criteria shall
be excluded from the calculation of the utilization ratio, where noted in subsequent paragraphs:
<NU = 9>
<BH = 1>
Honorable Timothy H. Gailey 3 July 27, 1990
<EH = 1>
RULE 11 ASSESSMENTS AND PARTICIPATION 1989 AND THEREAFTER (Cont.)
B. PARTICIPATION UNDERWRITING RESULTS (Cont.)
1. Private Passenger Motor Vehicles (Cont.)
b. Formula for Calculating Utilization Ratios for
Policy Years 1990 and Subsequent (Cont.)
Policy
Year Exclusion Criteria
1991 Ceded exposures for risks at S.D.I.P. step 20 and above, and ceded exposures for Inexperienced Operators (03 years) Rate Classes 20, 21, 25 and 26.
The formula for determining the utilization ratio shall be as follows:
(l) For each company, separately for liability and physical damage, determine the company's voluntary (C.A.R. I.D. codes 0,1,2,7, and 8) written exposures, voluntaryceded (C.A.R. I.D. codes 4 and 6) written exposures, and ceded exposures written through Representative Producers with whom the company has no voluntary relationship, (C.A.R. I.D. code 3, 5, and 9), for the calendar year correspond
ing to the policy year whose participation ratios are being calculated. Note that if a company has "boughtout" of its responsibility for servicing involuntarily assigned Representative Producers, the ceded exposures from these producers written on the company's behalf by another entity will be counted against the "buyingout" company. Note also that voluntaryceded and ERP (invol untary producer) ceded exposures meeting the exclusion criteria in paragraph B1b above should be separately identified, to enable their exclusion where specified in subsequent paragraphs.
RULE 11 ASSESSMENTS AND PARTICIPATION 1989 AND THEREAFTER (Cont.)
B. PARTICIPATION UNDERWRITING RESULTS (Cont.)
1. Private Passenger Motor Vehicles (Cont.)
b. Formula for Calculating Utilization Ratios for
Policy Years 1990 and Subsequent (Cont.)
(2) For each company, separately for liability and physical damage, determine the company's minimum allowable voluntary and voluntaryceded written exposures as:
Policy Minimum Allowable Voluntary and
Year VoluntaryCeded Exposures
1990 97.5% of 1989 voluntary and voluntary
ceded exposures
199l 92.5% of 1989 voluntary and voluntary
ceded exposures
1992 85.0% of 1989 voluntary and voluntary
ceded exposures
1993 75.0% of 1989 voluntary and voluntary
ceded exposures
1994 and later No mimimum
If the result is greater than the total of the voluntary
and voluntaryceded exposures including those voluntary ceded exposures meeting the exclusion criteria, as deter
mined in (l) above, then the difference will be added to the voluntaryceded exposures excluding those meeting the
exclusion criteria, as determined in (l) above and in (3)
through (5) below.
(3) If a company chooses to "buyout" of Servicing Carrier responsibilities at any time on or after January 1, 1990,
then "grossup" exposures will be determined for the com
pany for any year in which the company has "boughtout" of Servicing Carrier responsibilities during any part of that year. The "grossup" exposures will bear the same relationship to the company's voluntary written exposures
from (l) above as the total of all voluntaryceded written exposures from (l) above (excluding those meeting the
RULE 11 ASSESSMENTS AND PARTICIPATION 1989 AND THEREAFTER (Cont.)
B. PARTICIPATION UNDERWRITING RESULTS (Cont.)
1. Private Passenger Motor Vehicles (Cont.)
b. Formula for Calculating Utilization Ratios for
Policy Years 1990 and Subsequent (Cont.)
exclusion criteria and those written by companies who "boughtout" of Servicing Carrier responsibilities for any part of the year) bears to the total of all voluntary written exposures from (l) above (excluding those written by companies who "boughtout" for any part of the year).
If the "grossup" exposures determined above are greater than the company's voluntary ceded exposures in (l) above, excluding those meeting the exclusion criteria, then the difference will be added to the company's volun
taryceded exposures excluding those meeting the exclu sion criteria as determined in (1) and (2) above and in (4) and (5) below.
(4) If a company was not a Servicing Carrier for private passenger business during the entire period from January1, 1989 through December 3l, 1989 and has not chosen to "buyout" of Servicing Carrier responsibilities for the private passenger market as of January 1, 1990 or a later date, then "grossup" exposures will be determined for the company. The "grossup" exposures will bear the same relationship to the company's voluntary written exposures from (l) above as the total of all voluntaryceded written exposures from (l) above (excluding those meeting the exclusion criteria and those written by companies who "boughtout" for any part of the year) bears to the total of all voluntary written exposures from (l) above (excluding those written by companies who "boughtout" for any part of the year).
Determine, then, a weighted average of the company's vol
untaryceded exposures excluding those meeting the exclu
sion criteria from (l) above, and its "grossup" exposures from the preceding paragraph, as follows:
RULE 11 ASSESSMENTS AND PARTICIPATION 1989 AND THEREAFTER (Cont.)
B. PARTICIPATION UNDERWRITING RESULTS (Cont.)
1. Private Passenger Motor Vehicles (Cont.)
b. Formula for Calculating Utilization Ratios for
Policy Years 1990 and Subsequent (Cont.)
Weights Assigned To:
Policy Vol.Ceded Exposures "Grossup"
Year from Step (1) Exposures
1990 0.0% 100.0%
1991 33.3% 66.7%
1992 66.7% 33.3%
1993 and later 100.0% 0.0%
If the weightedaverage exposures from the above formula aregreater than the company's voluntaryceded exposures excluding those meeting the exclusion criteria in (1) above, then the difference will be added to the company's
voluntaryceded exposures excluding those meeting the exclusion criteria as determined in (l) through (3) above
and in (5) below.
(5) For policy years 1991 and later, each company's volun taryceded exposures excluding those meeting the exclu sion criteria, as determined in (l) and (2) above, will be further adjusted in accordance with the following procedure:
ERP Exposure Adjustment:
(a) Determine those Exclusive Representative Producers assigned to each company for all or part of the calendar year corresponding to the policy year for which participation ratios are being calculated.
(b) Determine those voluntary agents of each company that were previously assigned as Exclusive Repre sentative Producers to any company during any part of the calendar year or the five preceding calendar years, and that were voluntary agents for all or part of the calendar year.
RULE 11 ASSESSMENTS AND PARTICIPATION 1989 AND THEREAFTER (Cont.)
B. PARTICIPATION UNDERWRITING RESULTS (Cont.)
1. Private Passenger Motor Vehicles (Cont.)
b. Formula for Calculating Utilization Ratios for
Policy Years 1990 and Subsequent (Cont.)
For purposes of calculating participation ratios for policy year 1991, if an agent has an Exclusive Representative Producer relationship with one Serv icing Carrier and at the same time has a voluntary relationship with another Servicing Carrier, then the agent will not be considered within the provi sions of the preceding paragraph for the second Servicing Carrier. Instead, the agent will be con sidered within the provisions of paragraph (e), below, for the second Servicing Carrier, and within the provisions of paragraph (a), above, for the first Servicing Carrier.
(c) Determine the exposures written through the pro ducers identified in (a) and (b) above, both volun tary retained and ceded, for:
(i) the calendar year for which participation ratios are being determined, and
(ii) the calendar year prior to the year for which participation ratios are being determined. Further, this number will include a minimum of 400 exposures for each producer identified.
The second number above shall include all exposures written through such producers irrespective of their
status or assignment in that year.
However, exclude from both (i) and (ii) above any ceded exposures which meet the exclusion criteria set forth in paragraph Blb above.
(d) The exposures as determined in (c), (i) above, shall
be counted as "actual ERP exposures" for the com pany(ies) with which the producers determined in (a) and (b) above are currently associated, subject to the following maximum:
RULE 11 ASSESSMENTS AND PARTICIPATION 1989 AND THEREAFTER (Cont.)
B. PARTICIPATION UNDERWRITING RESULTS (Cont.)
1. Private Passenger Motor Vehicles (Cont.)
b. Formula for Calculating Utilization Ratios for
Policy Years 1990 and Subsequent (Cont.)
The "maximum permissible ERP exposures" counted for each company in the calendar year for which the participation ratios are being determined shall equal the number of exposures determined in (c), (ii) above, multiplied by the "total ERP market growth ratio". The "total ERP market growth ratio" is defined as the ratio of the sum of the exposures determined in (c), (i), for all companies to those determined in (c), (ii), for all companies.
For each company, the maximum permissible ERP expo sures in the year for which the participation ratios
are being determined shall be further reduced by the
number of exposures by which a company's (c), (i), exposures as determined in the previous year exceeded that year's maximum permissible number, if any.
In instances where the same agent has been identi fied for more than one company in (b) above, the exposures for this agent in (c), (i) and (c), (ii) above will be divided among these companies based on the proportion of the agent's exposures, both voluntary retained and voluntaryceded, excluding voluntaryceded exposures meeting the exclusion criteria, which is written by each company during the calendar year corresponding to the policy year for which participation ratios are being calculated.
(e) Determine those producers who wrote business as voluntary agents in the second calendar year prior to the year for which participation ratios are being
calculated, where the agent was not included in (b),
above. The sales forces of direct writer companies shall be included in this determination.
RULE 11 ASSESSMENTS AND PARTICIPATION 1989 AND THEREAFTER (Cont.)
B. PARTICIPATION UNDERWRITING RESULTS (Cont.)
1. Private Passenger Motor Vehicles (Cont.)
b. Formula for Calculating Utilization Ratios for
Policy Years 1990 and Subsequent (Cont.)
(f) Determine the exposures written through the pro ducers identified in (e) above, both voluntary retained and ceded, for the second calendar year prior to the year for which participation ratios are being calculated. Determine also the company through which these exposures were written. How ever, exclude any ceded exposures which meet the exclusion criteria set forth in paragraph Blb above.
(g) For those companies as determine in (f) above which were not Servicing Carriers for the voluntary agents
or direct writer sales forces in the second prior calendar year, grossup the company's exposures from
(f) above, as follows:
Determine the ratio of ceded to voluntary retained exposures from (f) above, for the total exposures of all those companies and voluntary agents or direct writer sales forces where the company was a Servicing Carrier for the voluntary agent or sales force in the second prior calendar year. Multiply this ratio by the voluntary retained exposures from (f) above for each company and voluntary agent or sales force where the company was not a Servicing Carrier for the voluntary agent or sales force in the second prior calendar year. The result will be used as grossedup ceded exposures for the nonServ
icing Carrier company.
(h) Determine for each company a "lagged voluntary agent
or direct written market share", by dividing the voluntary and (grossedup) ceded exposures for each company from (f) and (g) above, by the total of all such exposures for all companies.
RULE 11 ASSESSMENTS AND PARTICIPATION 1989 AND THEREAFTER (Cont.)
B. PARTICIPATION UNDERWRITING RESULTS (Cont.)
1. Private Passenger Motor Vehicles (Cont.)
b. Formula for Calculating Utilization Ratios for
Policy Years 1990 and Subsequent (Cont.)
(i) Determine each company's "appropriate ERP expo sures", by multiplying the total of all "actual ERP exposures" for all companies from (d) above, by each