Cal. Code Regs. tit. 10 § 2644.10

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Current through Register 2024 Notice Reg. No. 43, October 25, 2024

Section 2644.10 - Excluded Expenses

The following expense items shall not be allowed for ratemaking purposes:

(a) Political contributions and lobbying.

(b) Executive compensation that exceeds the reasonable amount for such compensation.

For purposes of this computation, the following shall apply:

(1) "Executive" means the insurer's five highest-paid policymaking positions in each insurance group.

(2) "Compensation" means the total cash paid, including salary and bonus.

(3) "Maximum permissible executive compensation" means:

(A) For the highest paid executive in the group:

max comp = 1077(10^{1.4600 + 0.4060 log X})

(B) For the second-highest paid executive in the group:

max comp = 1077(10^{1.4140 + 0.3490 log X})

(C) For the third-highest paid executive in the group:

max comp = 1077(10^{1.2310 + 0.3820 log X})

(D) For the fourth-highest paid executive in the group:

max comp= 1077(10^{1.2470 + 0.3580 log X})

(E) For the fifth-highest paid executive in the group:

max comp = 1077(10^{1.2460 + 0.3420 log X})

where X is the greater of (i) the insurer's total countrywide direct earned premium for the most recent completed calendar year for lines of business subject to Proposition 103 divided by 1,000,000 or (ii) 70.

(c) Bad faith judgments and associated defense and cost containment expenses.

(d) All costs attendant to the unsuccessful defense of discrimination claims.

(e) Fines and penalties.

(f) Institutional advertising expenses. "Institutional advertising" means advertising not aimed at obtaining business for a specific insurer and not providing consumers with information pertinent to the decision whether to buy the insurer's product.

(g) All payments to affiliates, to the extent that such payments exceed the fair market rate or value of the goods or services in the open market.

Except as allocated pursuant to section 2643.6, calculation of the amounts expended on the foregoing expense items shall be based on the insurer's national expenditures, allocated among states in proportion to earned premium.

The disallowance shall be effected by reducing the efficiency standard by the ratio of the insurer's national excluded expenses to its national direct earned premium.

Cal. Code Regs. Tit. 10, § 2644.10

1. New section filed 8-13-91 as an emergency; operative 8-13-91 (Register 92, No. 3). A Certificate of Compliance must be transmitted to OAL 12-11-91 or emergency language will be repealed by operation of law on the following day.
2. Repealed by operation of Government Code section 11346.1(g) (Register 92, No. 15).
3. New section refiled 2-14-92 as an emergency; operative 2-14-92 (Register 92, No. 15). A Certificate of Compliance must be transmittted to OAL 6-15-92 or emergency language will be repealed by operation of law on the following day.
4. Repealed by operation of Government Code section 11346.1(g) and new section filed 3-15-95; operative 3-15-95. Submitted to OAL for printing only pursuant to Government Code section 11343(a)(1) (Register 95, No. 11).
5. Amendment of subsections (b), (c) and (g) and new subsections (b)(1)-(b)(3)(E) filed 1-3-2007; operative 4-3-2007. Submitted to OAL for printing only pursuant to Government Code section 11340.9(g) (Register 2007, No. 1).

Note: Authority cited: Sections 1861.01 and 1861.05, Insurance Code; and 20th Century v. Garamendi, 8 Cal.4th 216 (1994). Reference: Sections 1861.01 and 1861.05, Insurance Code; and Calfarm Insurance Company v. Deukmejian (1989) 48 Cal.3d 805.