Opinion ID: 1293583
Heading Depth: 1
Heading Rank: 11

Heading: income on invested capital

Text: The Commissioner concluded in his order that the proposed rate increase was excessive to the extent that investment income is not properly taken into account in any of the rate level calculations contained in the filing. (Emphasis added.) He also concluded that it has long been recognized that investment income is an integral part of the return on any insurance transaction. Appellants contend that the Commissioner's conclusions were erroneous to the extent that they contemplated a consideration of investment income on invested capital. Appellants correctly note that the 1979 Legislature amended G.S. 58-124.19(2) to require consideration of investment income on unearned premium and loss reserves in reviewing rate filings. Because investment income on unearned premium and loss reserves were included in this filing and because the Legislature has clarified consideration of these items for the future, we are not concerned here with appellants' investment income on unearned premium and loss reserves. The questions before us relates solely to consideration of investment income on invested capital. On this point, the Court of Appeals held: [T]his Court has recently decided that investment income may be considered in evaluating the reasonableness of a filing. State ex rel. Comr. of Ins. v. N. C. Rate Bureau, 40 N.C.App. 85, 252 S.E.2d 811 (1979). It is thus proper for the Commissioner to consider investment earnings on capital invested by insurers in reviewing the rate making formula. 41 N.C.App. at 318, 255 S.E.2d at 562-63. (Emphasis added.) We first note that the Court of Appeals misconstrued its earlier decision. A careful review of the earlier decision reveals that the question was whether the Commissioner might properly consider profits on investment income from unearned premium and loss reserves. The court there made no mention of the propriety of the consideration of income from invested capital and thus reliance on that decision was misplaced.