Messrs. Ned Price and Durwood Manford Opinion No. M -446 

Members, State Board of Insurance. 

Insurance Building 

Austin, Texas Re: Investment Income as a 

Factor in Computing Premium Rates for AutoGentlemen: mobile Insurance 

You have recently requested an opinion of this office on the following questions:’ 

1. Is the Board authorized or required by law to consider or include in its automobile rate-making formula 

or premiums the overall countrywide investment income 

of the insurers from all sources in prescribing and promulgating rates of premium? 

2. Is the Board authorized or required by law to consider or 

include in its automobile rate-making formula or premiums 

the overall investment income of insurers attributable to 

their business done in Texas in prescribing and promulgating rates of premium? 

3. Is the Board authorized or required by law to consider or 

include in its automobile insurance rate-making formula 

or premiums the overall countrywide investment income 

of the insurers attributable to their automobile insurance 

premiums in prescribing and promulgating rates of premium? 

4. Is the Board authorized or required by law to consider or 

include in its automobile insurance rate-making formula 

or premiums the investment income of the insurers attributable to their Texas automobile insurance premiums? 

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Messrs. Ned Price and Durwood Manford, page 2 (M -446 

Article 5. 01, Texas Insurance Code provides, in part, as 

follows: 

‘1. . . The Board shall have the sole and exclusive power and authority, and it shall be its duty 

to determine, fix, prescribe, and promulgate just, 

reasonable and adequate rates of premiums to be charged 

and collected by all insurers writing any form of insurance 

on motor vehicles in this State, including fleet or other 

rating plans designed to discourage losses from fire and 

theft and similar hazards and any rating plans designed to 

encourage the prevention of accidents. In promulgating 

any such rating plans the Board shall give due consideration to the peculiar hazards and experience of individual 

risks, past and prospective, within and outside the State 

and to all other relevant factors, within and outside the 

State. The Board shall have the authority also to alter 

or amend any and all of such rates of premiums so fixed 

and determined and adopted by it, and to raise or lower 

the same or any part thereof. ” 

Article 5. 03, Texas Insurance Code provides as follows: 

“On and after the filing and effective date of 

such classification of such risks and rates, no such insurer shall issue or renew any such insurance at premium rates which are greater or less than, or different 

from, those approved by the Board as just, reasonable, 

and adequate for the risk to which they respectively apply, and not confiscatory as to any class of insurance carriers authorized by law to write such insurance. ” 

Article 5.04, Texas Insurance Code reads: 

“To insure the adequacy and reasonableness of 

rates the Board may take into consideration past and prospective experience, within and outside the State, and all 

other relevant factors, within and outside the State, gathered 

from a territory sufficiently broad to include the varying 

conditions of the risks involved and the hazards and liabilities assumed, and over a period sufficiently long to insure 

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Messrs. Ned Price and Durwood Manford, page 3 (M -446 

that the rates determined therefrom shall be just, 

reasonable and adequate, and to that end the Board 

may consult any rate making organization or association that may now or hereafter exist. ” 

The basic consideration on which all four questions here presented 

are based is whether the State Board of Insurance is either authorized or 

required to consider in its automobile rate making formula various types 

of investment income realized by the insurers from some or all of their 

investments. Because of the nature of our answers to these questions they 

all may be considered together. 

Review of the above quoted sections of the Insurance Code makes it 

readily apparent that no specific reference is made to either the inclusion 

or exclusion of investment income of the insurers in the Board’s establish - 

ment of adequate and reasonable rates. It is clear, however, from the 

language of Article 5.01 that the Board shall have the sole and exclusive 

power and authority to prescribe just, reasonable andadequate rates of 

premiums to be charged for automobile insurance in Texas. These are the 

general guidelines the Board is to follow in establishing the rates. Article 

5.03 provides that such rates shall not be confiscatory as to any class of 

insurance carriers. 

There seems to be no question that rate making is a legislative 

function, and in this case is to be performed by an administrative body, the 

State Board of Insurance. Brown & Root v. Traders & General Insurance 

co. ) 135 S. W. 2d 534 (Tex. Civ. App., 1940, error dism., judgm. car. ); 

Gsociated Indemnity Corp. v. Oil Well Drilling Co., 258 S. W. 2d 523 (Tex. 

Civ. App. 1953, affirmed, 153 Tex. 153, 264 S. W. 2d 697. ) 

In the latter decision the Dallas Court of Civil Appeals stated: 

“It cannot be disputed that the legislature originally 

intended to leave the details of rate making to, a rate-making 

body, such as the Board . . . 

“. . . 

“The Board’s rate-making powers are legislative 

in character; hence its orders fixing rates must be sub- 

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Messrs Ned Price and Durwood Manford, page 4 (~-446 

jetted to the same tests under the ‘equal protection’ 

clause as an enactment of the Legislature itself. ‘I 

The Insurance Code was first enacted in 1927. Articles 5.01 and 

5. 04 were amended in 1953 by H. B. No. 32, Acts of the 53rd Legislature, 

Regular Session, At that time the words “and all other relevant factors, I’ 

among other things, were added to the Articles. 

The words “all relevant factors” were by H. B. No. 32 added to 

Article 5. 01 in the second sentence of the second paragraph of that Article. 

This sentence is as follows: 

“In promulgating any such rating plans the Board 

shall give due consideration to the peculiar hazards and 

experiences of the individual insurers, past and prospective, within and outside the state and to all other 

relevant factors, within and outside the state. ‘1 

It thus appears that the words “all relevant factors” as are used 

in Article 5. 01 apply only to rating plans and not to the general automobile 

insurance premium formula. 

As previously observed, the words “all relevant factors” were also 

added, among other things, to Article 5. 04 in 1953. The Legislature has 

directed that the Board may take into consideration to insure the adequacy 

and reasonableness of rates. past and prospective experience within and outside the state and all other relevant factors. Therefore, it is apparent 

that the Board has wide discretion in its determination of what are all other 

relevant factors and in fact may or may not include in its consideration such 

factors. In Virginia, the Supreme Court of that state, in reviewing a rate 

set by the rate fixing board, concluded from the evidence before it that income from investment of the loss reserve, as well as from investment of 

the unearned premium reserve, was a relevant, factor in fixing a reasonable 

margin for underwriting profit and contingencies. Virginia State AFL-CIO 

v. Commonwealth of Virginia, et al, 167 S. E. Zd 322 (Va. Sup. 1969). 

We are of the opinion, therefore, that our Legislature has delegated 

to the State Board of Insurance the legislative function of rate making. By 

Articles 5. 01 and 5. 03 it has directed the Board to fix just, reasonable and 

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Messrs. Ned Price and Durwood Manford, page 5 (M446 

adequate rates which are non-confiscatory. By Article 5. 04 the Legislature has stated that in arriving at just, reasonable and adequate rates 

which are not confiscatory the Board is authorized to consider, among 

other things, all other relevant factors. If the Board determines a factor 

to be relevant for consideration in arriving at a just, reasonable and 

adequate rate which is not confiscatory, it has the authority to consider 

such factor. But this is the sole and exclusive power and authority of the 

Board by virtue of its legislative rate-making authority. It is not for this 

office to determine what is a relevant factor for the Board’s consideration 

in the exercise of its legislative powers. Section 1, Article II, Constitution of Texas. 

SUMMARY 

The fixing of automobile insurance rates by 

the State Board of Insurance is a legislative function, 

delegated to it by the Legislature, and it has the sole 

power and exclusive authority to determine a fair and 

just rate, and to give due consideration to such factors 

as they may determine, from the evidence before them, 

to be relevant. 

Youfiery truly, 

Attobey General of Texas 

Prepared by Sam Kelley 

Assistant Attorney General 

APPROVED: 

OPINION COMMITTEE 

Kerns Taylor, Chairman 

George Kelton, Vice-Chairman 

W. 0. Shultz 

Harold Kennedy 

John Grace 

Alfred Walker 

W. V. Geppert 

Staff Legal Assistant 

Hawthorne Phillips 

Executive Assistant 

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