California Code of Regulations › Title 10 - Investment › Chapter 5 - Insurance Commissioner › Subchapter 4.8 - Review of Rates › Article 4 - Determination of Reasonable Rates › Section 2644.7 - Loss and Premium Trend

Current through Register 2024 Notice Reg. No. 28, July 12, 2024
(a) "Loss trend" and "premium trend" is the
				  process by which forces not reflected in historical loss and premium data are
				  expected to affect losses and premiums in the rating period.
(b) Trend factors shall be based on the
				  exponential curve of best fit. Companies shall file the most recent 8, 12, 16,
				  20, and 24 quarters of rolling calendar year data excluding catastrophes. The
				  premium and loss trend factors shall be developed using the insurer's most
				  actuarially sound company-specific rolling calendar year data excluding
				  catastrophes, for the most recent 8, 12, 16, 20, or 24 quarters. The insurer
				  shall file its rate change application using the single data period that it
				  determines to be the most actuarially sound. The Commissioner may require the
				  use of an alternative data period if the Commissioner determines that use of
				  the alternative is the most actuarially sound. Frequency trend shall be
				  calculated as reported or closed claims divided by exposures. Severity trend
				  shall be calculated on paid losses divided by closed claims or total paid
				  losses, including partial payments in previous calendar years, on closed claims
				  divided by closed claims. The insurer shall submit the frequency and severity
				  calculations on all bases, and shall demonstrate that its selection is the most
				  actuarially sound. Premium trend factors shall be developed using
				  company-specific premium per exposure data.
(c) Where the trend factor within a given
				  line significantly varies by subline, by policy limits, by region of the state,
				  or by coverage, separate trend factors shall be calculated in accordance with
				  that evidence.
(d) For homeowners
				  multiple peril and private passenger automobile liability and physical damage,
				  the standard for full credibility for loss trend shall be 6000 total claims
				  over the same number of quarters as used in subsection (b) for each form for
				  homeowners and for each coverage for private passenger automobile. Partial
				  credibility shall be the square root of the ratio of the actual number of
				  claims divided by the full credibility standard. For private passenger
				  automobile other than motorcycle, the complement of credibility for loss trend
				  shall be calculated using the latest available California Fast Track paid loss,
				  closed claim count and earned exposure data, The complement shall be based on
				  the exponential curve of best fit to the most recent rolling calendar year data
				  for the same number of quarters as used in subsection (b). For uninsured and
				  underinsured motorist bodily injury and medical payments coverages, the
				  complement shall use the California Fast Track bodily injury data. For
				  uninsured and underinsured motorist property damage coverages, the complement
				  shall use the California Fast Track property damage data. The Commissioner may
				  modify the result of the calculation from California Fast Track data to take
				  into account factors not reflected in the historical data, pursuant to section
				  2646.3.
(e) For lines of business other than
				  homeowners multiple peril and private passenger automobile liability and
				  physical damage, the standard for full credibility for loss trend shall be
				  determined using the most actuarially sound method. For lines of business other
				  than private passenger automobile liability and physical damage, the standard
				  for the complement of credibility for loss trend shall be determined using the
				  most actuarially sound method.
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 section heading and section
					 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).
6. Amendment filed 5-16-2008; operative
					 5-16-2008. Submitted to OAL for printing only pursuant to Government Code
					 section
					 11340.9(g)
					 (Register 2008, No. 20).
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.