ORDERS:
ORDER AND DECISION
This matter comes before me pursuant to S.C. Code Ann. § 38-73-775 (1976), as amended, and
S.C. Code Ann. § 1-23-600(B) (1976), as amended, upon the Petitioner's request for an increase in the
physical damage loss component for automobile insurance coverages ceded to the South Carolina
Reinsurance Facility ("Facility").
STATEMENT OF CASE
On August 21, 1997, the Facility filed an application with the Director of the South Carolina
Department of Insurance ("Department") seeking approval of an overall rate increase of 7.7 %,
consisting of an increase of 23.7 % in the rates for physical damage coverages. Subsequent to the
filing, the Facility's request was amended to seek approval of an overall rate increase of 4.4% due to
a corrected calculation of the combined indications for the components of the physical damage
coverages. The Consumer Advocate for the State of South Carolina applied for and was granted
intervener status in these proceedings. Present at the hearing were Thomas C. Salane, representing the
Facility; Gwendolyn L. Fuller, representing the Department; and Hana Pokorna-Williamson,
representing the South Carolina Department of Consumer Affairs. Also present were D.A. Gay,
Facility Manager; AIPSO actuaries Thomas Chisolm and John Winkleman; and Dean Kruger, the
Department's Rates and Forms Director.
After careful consideration of the testimony, exhibits and arguments presented at the hearing,
I find and conclude as follows:
FINDINGS OF FACT
1. The Facility, as filer, produced the expert testimony of John Winkleman who testified that
the requested revisions would produce physical damage rates that were not excessive, inadequate or
unfairly discriminatory.
2. John Winkleman also testified that the proposed physical damage loss component and rate
reflected by the filing was developed by AIPSO, Inc., an independently contracted actuarial service;
was based upon the most recent, available actual loss experience of all such risks ceded to the Facility;
and was actuarially developed and supported by the statistical evidence presented in the filing exhibits.
3. The Department, as respondent, produced the expert testimony of Dean Kruger the
Department's Director of Rates and Forms. He testified based upon his actuarial review of the Facility's
filing that the rate increase request would produce premium rates where were not excessive,
inadequate or unfairly discriminatory and that the rates developed by the filing were actuarially sound
and supported by the statistical evidence as required by Section 38-73-775.
4. The Consumer Advocate, as intervener has reviewed the filing and made no objection to the
overall rate request, subject only to the agreed stipulation of the parties that methodology employed
using a "profit and contingency" factor to calculate the rate indication was not intended to produce a
profit. Rather, the use of this factor by the Facility was based upon anticipated changes in cession
practices by member insurers by which overall Facility loss experience is expected to worsen. The
Facility intends to review the physical damage loss components annually, as required by Section 38-73-775, and make whatever revisions are appropriate to maintain a self-sustaining rate based upon the
most currently available premium and loss experience. Should it be determined that the rates to be
approved under the current filing produces an operating profit, whether caused by the use of the profit
or contingency factor or otherwise, the Facility stipulated that it would adjust any subsequently filed
rates to account for and true-up any profit realized. The Facility, however, anticipates neither a profit
or loss from use of the filed rates.
5. Respondent published notice in five newspapers of statewide circulation advising the public
that Petitioner's application for the requested rate increase for physical damage coverages for
automobile insurance ceded to the Facility had been made and would be the subject of a hearing held
on November 3, 1997: The Greenville News, The Charleston News and Courier, The State, The Rock
Hill Herald and The Darlington News and Press.
CONCLUSIONS OF LAW
Based upon the foregoing Findings of Fact, I conclude, as a matter of law, the following:
1. The Administrative Law Judge Division has jurisdiction to hear this case pursuant to S.C.
Code Ann. §§ 38-73-775, 1-23-600(B) and 38-73-910 (1976), as amended.
2. Due and proper notice of hearing was provided to the public. See S.C. Code Ann. § 38-73-910 (Supp. 1996). No member of the general public responded to the published notices or was present
at the hearing.
3. A request for a change in the physical damage loss component by the South Carolina
Reinsurance Facility is governed by the provisions of Section 38-73-775, requiring the Facility to
develop and file annually the loss component "based upon the total experience of all risks ceded to the
facility which are actuarially-sound and supported by statistical evidence. " S.C. Code Ann. § 38-73-775 (Supp. 1996). To be "actuarially-sound", the use of the loss component should produce rates
which are not excessive, inadequate, or unfairly discriminatory. See S.C. Code Ann. §§ 38-73-330(2)
and 38-73-10(a)(1) (Supp. 1996), as amended. Petitioner's filing, as amended, complied with all of
these statutory requirements.
4. The last revision or change in the physical damage loss component was effective October
1, 1996. Section 38-73-775 prohibits the Facility from submitting an increase in the physical damage
loss component other than annually. See S.C. Code Ann. § 38-73-775 (Supp. 1996), as amended; see
also S.C. Code Ann. § 38-73-920 (Supp. 1996). The proposed effective date for use of the rates under
the revised physical damage loss components approved by this Order is January 1, 1998, and does not
conflict with this prohibition.
ORDER
IT IS THEREFORE ORDERED, ADJUDGED AND DECREED that the physical
damage automobile insurance loss component changes requested by the South Carolina Reinsurance
Facility in the filing, as amended, are approved. The effective date of these changes shall be January
1, 1998, for all new and renewal physical damage automobile insurance coverage ceded to the Facility.
AND IT IS SO ORDERED.
JOHN D. GEATHERS
Administrative Law Judge
Columbia, S.C.
November 3, 1997. |
