N.J. Admin. Code § 11:3-16B.4

Current through Register Vol. 56, No. 23, December 2, 2024

Section 11:3-16B.4 - Rate process for limited rate changes

(a) General requirements for limited rate change filings are as follows:

1. Filers shall provide coverage indications based on three accident years of data. For coverages that are fully credible based on less than three years of data, filers may use two accident years of data to calculate indications for those coverages;

2. Indications may be based on either total limit or basic limit data for the liability coverages;

3. Coverage indications shall be calculated as follows:

i. Filers that only sell split limits policies shall submit separate BI and PD indications;

ii. Filers that only sell CSL policies shall submit one CSL indication. However, the BI and PD portion of losses shall be developed and trended using separate loss development triangles and trend factors;

iii. Filers that sell both split limits and CSL policies can either submit separate BI, PD and CSL indications or allocate the CSL data between BI and PD;

iv. Filers that sell PACK policies can submit one indication for the policy but the BI, PD and PIP portion of the losses shall be developed and trended using separate loss development triangles and trend factors; and

v. UM data shall be combined with liability data in (a)3i, ii, iii or iv above. Filers do not have to calculate a separate indication for UM; and

4. All supporting exhibits must include documentation of formulas and data sources.

(b) Filers shall provide the following information regarding projected earned premium:

1. New Jersey (NJ) earned premium by coverage, by accident year;

2. On-level factors by coverage, based on company specific historical NJ rate changes; and

3. The premium trend factors, based on either annual selections from the latest approved Insurance Services Office (ISO) filing in NJ, or internal company data.

i. If supplying premium trend factors developed from internal company data, the filer shall provide all data and methods used.

(c) Ultimate loss and loss adjustment expense ("LAE") shall be determined by:

1. NJ incurred loss and defense/cost containment expense ("DCC"), by coverage, by accident year either combined (loss and DCC) or developed separately;

i. For COMP and COLL coverages, filers may use paid loss instead of incurred loss.

2. New Jersey loss development factors (LDFs) by coverage, either combined (loss and DCC) or separately;

i. The selected age-to-age factors shall be based on the latest five-year X HI/LO average, that is, using a straight average of the latest five age-to-age factors, excluding the highest and lowest.

ii. BI and PIP LDFs shall be developed to 87 months, with a five percent tail factor from 87 months to ultimate.

iii. PD, COMP and COLL LDFs shall be developed out to 51 months, with no subsequent tail factor;

iv. LDFs for COLL and COMP shall be consistent with the method used in (c)1 above.

3. Loss trend factors shall be based on either annual selections from the latest approved ISO filing in NJ, or the latest available NJ Fast Track data, computed separately for severity and frequency by coverage (BI, PIP, PD, COMP, COLL). All data must be based on paid, not incurred/arising, claims.

i. If supplying Fast Track trend factors, the filer shall use the 12 quarter-rolling average and provide all data and calculations.

ii. For COMP, filers may use country-wide Fast Track data to smooth out the effect of catastrophes;

4. Adjusting and other claims related expenses ("AO") shall be determined as a ratio of incurred AO to incurred loss plus incurred DCC from the latest three-year average of Countrywide Insurance Expense Exhibit (IEE) in the insurer's annual statement filed with the Department;

5. Filers shall account for impacts of significant changes to legislative, regulatory, social, economic, or operational factors that have an impact on loss frequency or severity, or on loss adjustment expenses. These impacts shall be accounted for as supplemental to the standard data and procedures described elsewhere in this regulation, and must be justified. If the addition of such impacts results in an alternative method of calculating the indications, then the Department's review of and decision on the method will be governed by the time frames as set forth in 11:3-16B.4(k); and

6. Filers may exclude catastrophe losses from the COMP data and include a load based either on the selected factor from ISO's last approved private passenger automobile filing in New Jersey or derive a factor from at least 10 years of the filer's internal New Jersey catastrophe COMP data.

(d) Expenses shall be determined by group of coverages (liability versus physical damage) from the total of:

1. Three year average of commissions and brokerage expense ratios based on the NJ page 14 of the insurer's latest annual statement filed with the Department and calculated as ratios to NJ WP;

2. Three-year average of general and other acquisition expense ratios, based on the countrywide IEE of the insurer's latest annual statement filed with the Department and calculated as ratios to EP;

3. The sum of (d)1 and 2 above are subject to the expense limitations found at N.J.A.C. 11:3-16.9(c) and shall not include any of the expenses listed at N.J.A.C. 11:3-16.9(d). Current expense limitations by type of insurer will be posted annually on the Department's website http://www.state.nj.us/dobi , by group of coverages (liability versus physical damage).

4. Three-year average of taxes, licenses and fee ratios, based on the NJ page 14 of the insurer's latest annual statement filed with the Department and calculated as ratios to NJ WP; plus

5. The profit and contingency provision shall be the last provision approved for the filer pursuant to either 11:3-16.1 0 or this subchapter. If the filer is proposing a revision to the profit and contingency provision, the filer shall provide all information related to the derivation of the profit and contingency loading contained in the filing by group of coverages. Filers shall specifically include all data used and judgments made, as well as a description of the method used to arrive at the selected loading. Filers shall demonstrate that the profit and contingency loading does not result in rates that are excessive, inadequate, or unfairly discriminatory. The Department's review of, and decision on any filing that includes a change to the profit and contingency provision is not governed by the time frames in 11:3-16B.6(d), but instead will be subject to the time frames set forth in (k) below.

6. Total expenses shall be determined from the sum of (d)1, 2, 4 and 5 above.

(e) Permissible loss and LAE ratios by group of coverages (liability versus physical damage) shall be determined by subtracting total expenses, determined in (d)6 above from 1.00.

(f) Credibility shall be determined by:

1. If the filer submits indications on a total limit basis, the full credibility standard shall be based on 4,000 claims for BI, PD, CSL and PACK. If the filer submits indications on a basic limits basis, the full credibility standard shall be based on 3,000 claims for BI, PD, CSL and PACK. The full credibility standard for PIP, COMP and COLL shall be based on 3,000 claims.

2. Alternatively, the filer may support different full credibility standards than those in (f)1 above by calculating the mean, variance and coefficient of variation from the company's internal size-of-loss distributions by coverage and then adjust the 1,082 claims frequency standard by the appropriate factors by coverage to reflect variation in severity. The severity adjustment shall be made and the filer shall provide all data together with the method used.

3. The filer shall apply the classical credibility procedure using the square-root rule to the full credibility standards obtained in either (f)1 or 2 above to determine the credibility of each coverage. The minimum credibility assigned to any coverage or combination of coverages (CSL or PACK) shall be 50 percent.

(g) The complement of credibility shall be assigned to the loss ratio trends by coverage, trended from the average date of earning during the experience period to the average date of earning for the proposed effective period using premium and loss trends by coverage determined in (b)3 and (c)3 above, respectively.

(h) The indicated rate changes by coverage and overall shall be calculated as follows:

1. The all year projected ultimate loss and LAE by coverage determined in (c) above divided by the all year projected premium by coverage determined in (b) above.

2. The raw indications by coverage shall be calculated by the all year loss and LAE ratios determined in (h)1 above divided by the permissible loss and LAE ratios determined in (e) above.

3. The credibility-weighted indications by coverage shall be determined by:

i. Paragraph (h)2 above (raw indication);

ii. Multiplied by (f)3 above (credibility);

iii. Plus (1 + (g) above) (loss ratio trend);

iv. Multiplied by (1 - (f)3 above) (complement of credibility).

4. The overall indication results from the credibility-weighted indications by coverage, determined in (h)3 above, weighted by the latest year's on-level projected earned premium by coverage determined in (b) above.

(i) If only uniform Statewide base rate changes by coverage are proposed, the information in (a) through (h) above is sufficient. If proposed base rate changes vary by territory, the filer shall provide credibility-weighted territorial indications by coverage, in addition to (a) through (h) above.

1. Territorial indications by coverage shall be based on at least three years of data and shall be indexed to the indications by coverage, derived in (h)3 above.

2. Territorial indications by coverage shall be based on a full-credibility standard of 3,000 claims per territory, with the complement of credibility applied to the Statewide indications by coverage determined in (h)3 above or to the current territorial rate/relativity.

(j) Filers that include changes to expense fees shall provide the standard, fixed expense fee calculation. For changes to deductible factors and increased limit factors, filers shall provide three-year relative loss ratios to justify the proposed changes. Filers shall also provide the overall percentage impact resulting from these changes independent of any proposed base rate impacts.

(k) All filers shall use the Department's method set forth in (a) through (j) above. The filer may submit an alternate method or use different data in support of specific elements of its filing provided that it is clearly labeled as such and is submitted in addition to the method in (a) through (j) above. The filer may also submit a completely alternate method, not using the rules set forth in (a) through (j) above, provided it is clearly labeled as such and the identical alternate method has been submitted to the Department for review by the filer prior to its use in a filing under this subchapter. The Department's review of, and decision on, any alternate method or data submission as referenced above are not governed by the time frames in 11:3-16B.6(d), but instead will be subject to the time frames set forth in 11:3-18.4.

(l) Data described above in this section shall be submitted through the use of the NAIC electronic filing system SERFF (System for Electronic Rate and Form Filing). The information shall be provided in a Microsoft Excel or compatible worksheet. All calculated values shall be given as a formula in the spreadsheet.

N.J. Admin. Code § 11:3-16B.4

Amended by R.2003 d.500, effective 12/15/2003.
See: 35 N.J.R. 3093(a), 35 N.J.R. 5611(a).
Rewrote the section.
Amended by R.2007 d.179, effective 6/4/2007.
See: 38 N.J.R. 4161(a), 39 N.J.R. 2260(b).
Rewrote the section.
Amended by R.2009 d.190, effective 6/15/2009.
See: 41 N.J.R. 365(a), 41 N.J.R. 2486(a).
Section was "Rate process for limited rate changes; calculation for private passenger automobile insurance". Rewrote ( l).
Notice of readoption with technical change, effective 1/3/2022.
See: 54 N.J.R. 67(b).