ORDERS:
ORDER
This matter is before me upon the Petition of the South Carolina Reinsurance Facility
("Facility") to approve the recoupment calculation previously submitted to the Director of Insurance
("Director") in accordance with Sections 38-77-600 and 38-77-610 of the South Carolina Code of
Laws (1976), as amended. Pursuant to the provisions of the Administrative Procedures Act, as
required by Section 38-77-610, a hearing was held before me in Columbia, South Carolina on
January 23, 1998.
STATEMENT OF THE CASE
On November 21, 1997, the Facility's Governing Board, pursuant to Section 38-77-610, filed
a recoupment calculation ("filing") with the Director. This recoupment filing displayed the operating
losses of the Facility for the fiscal year ending September 30, 1997, and proposed a recoupment
calculation for the fees to be collected from automobile insureds July 1, 1998.
On November 26, 1997, a request for a hearing was submitted by the Department of
Insurance ("Department") to the Administrative Law Judge Division. Notice of Assignment was
provided to the parties on December 3, 1997.
On December 9, 1997, Philip S. Porter, Consumer Advocate for the State of South Carolina
("Consumer Advocate"), filed a motion to intervene. By Order dated December 18, 1997, the
Consumer Advocate's motion was granted pursuant Sections 37-6-604 and 37-6-607 of the South
Carolina Code of Laws (1976), as amended, and he was made a party-respondent to these
proceedings.
On December 9, 1997, a Notice of Hearing was issued by me setting the hearing on the merits
of this matter for February 11, 1998. Subsequently, on December 12, 1997, with the consent of all
parties, an Amended Notice of Hearing rescheduled the hearing for January 19, 1998. On motion
of the court, with the consent of all parties, the hearing scheduled for January 19, 1998, was
continued and, by Order dated January 21, 1998, rescheduled for January 23, 1998.
At the hearing of this matter, all parties were present and represented by counsel. The
Petitioner Facility was represented by Thomas C. Salane, Esquire. Respondent Department was
represented by Gwendolyn L. Fuller, Esquire, General Counsel. Respondent Consumer Advocate
was represented by Hana Pokorna-Williamson, Esquire. After due consideration and based upon the
evidence, testimony and exhibits presented at the hearing, I make the following findings of fact and
conclusions of law.
FINDINGS OF FACT
1. The filing is a private passenger automobile property and casualty insurance recoupment
charge filing submitted by the Facility pursuant to Section 38-77-610 of the South Carolina Code
of Laws (1976), as amended. The recoupment charges contained therein were calculated by the
Facility in accordance with Section 38-77-600, South Carolina Code of Laws (1976), as amended,
and are proposed to become effective July 1, 1998.
2. Public notice of the hearing on this matter was published more than 30 days in advance
of the scheduled hearing date in five (5) newspapers of general publication in South Carolina.
Affidavits of Publication of the Notice of Hearing were admitted into evidence.
3. The filing properly displayed the net operating losses of the Facility for the fiscal year
ending September 30, 1997. Net losses of operation were adjusted to reflect applicable on-level
premium taxes and commissions to be charged on anticipated recoupment fees to be collected. A
conservative and agreed to "time value of money" factor based upon the average 30-year treasury
rate was used to further account for the eighteen-month period until recoupment fees could be
collected and advanced funds refunded. Total operating losses were arithmetically expressed in
accordance with the formula stated in Section 38-77-600(1) to arrive at a recoupment charge by
coverage based upon a risk distribution by surcharge points under the Uniform Merit Rating Plan.
4. Dean F. Kruger, the Department's Director of Forms and Rates, whose qualifications
as an expert were stipulated by the parties, testified that he had reviewed the Facility's calculation
of recoupment charges on behalf of the Department and had concluded that the recoupment charges
as displayed in the filing had been calculated in strict accordance with Section 38-77-600 and
complied with all other relevant statutory requirements. Mr. Kruger also observed that due to recent
enactment of Act No. 154 of 1997, these recoupment charges should be used for the eight-month
period commencing July 1, 1998. Effective March 1, 1999, in accordance with Act No. 154,
recoupment charges will be changed. Such changes, however, should be the subject of a future filing
by the Facility with the Department.
5. D.A. Gay, Manager of the Facility, testified that the recoupment charges displayed in
the filing were independently calculated by AIPSO at the request of the Governing Board. The
Governing Board verified and approved these calculations and resulting recoupment charges on
November 21, 1997 as being consistent with Section 38-77-600 and all other relevant statutory
directives. Mr. Gay concurred with Mr. Kruger's testimony and stated that the Facility anticipates
making an additional filing prior to March 1, 1999, so as to comply with the directives of Act No.
154 pertaining to recoupment charges.
6. At the hearing, counsel for the Consumer Advocate stated that its independently retained
actuary had reviewed the filing and its underlying data and had concluded that the filing complied
with requirements of Section 38-77-600 and all other relevant statutory criteria. Accordingly, the
Consumer Advocate had no objection to approval of the recoupment charges as filed.
CONCLUSIONS OF LAW
1. This action involves the determination required by Section 38-77-610 of whether the
Facility's proposed recoupment charges were properly calculated in accordance with the provisions
of Section 38-77-600. See S.C. Code Ann. §§ 38-77-610 and 38-77-600 (Cum. Supp. 1996).
Subject matter jurisdiction of the Director is established by Section 38-77-610 and subject matter
jurisdiction of the Administrative Law Judge Division is established by Section 1-23-600(B).
2. Public notice of this hearing was provided by publication of the Notice of Hearing dated
December 9, 1997, as amended, in newspapers of general, statewide circulation at least thirty (30)
days in advance of the scheduled hearing date. The notices so published stated the time and place
of the hearing and the subject matter that was to be considered.
3. The recoupment charges prepared and filed by the Facility with the Director were
properly calculated in accordance with the provisions of Section 38-77-600 and all other relevant
statutory criteria. The total recoupment amount correctly reflects the operating losses of the Facility
for the fiscal year ending September 30, 1997, and has been properly adjusted to reflect all
considerations required by law. Consistent with the statutory formula, the recoupment amount has
been properly distributed among risks based upon Uniform Merit Rating Plan points. The final
recoupment charges, by coverage and by Merit Rating points, are properly calculated and should be
approved for use by all private passenger automobile insurers effective July 1, 1998.
NOW, THEREFORE, IT IS HEREBY ORDERED that the final recoupment charges set
forth in the filing of the Facility's Governing Board are hereby approved as filed. These recoupment
charges are to be added to the applicable base rates and objective standards rates in effect for each
automobile insurer commencing July 1, 1998.
__________________________________________
RALPH KING ANDERSON, III
ADMINISTRATIVE LAW JUDGE
January 23, 1998
Columbia, South Carolina |