Opinion ID: 1279260
Heading Depth: 1
Heading Rank: 3

Heading: Matters To Be Determined Upon The Remand To The Commissioner

Text: We affirm the judgment of the Court of Appeals remanding the cause for further proceedings before the Commissioner. Those proceedings are to be conducted in accordance with this opinion. Their purpose will be to fix premium rates in accordance with the statutory plan. Since such further proceedings are to be had, we deem it advisable to discuss briefly questions which will necessarily arise therein. When In Re North Carolina Fire Insurance Rating Bureau, supra, was decided by this Court, it was noted, The question as to whether a 50% loss ratio is a proper division of a premium dollar is not before us for decision. Neither is that question before us upon this appeal, for this record does not indicate that it has been determined by the Commissioner. It will be before him, however, upon the remand hearing and must be determined by him. G.S. § 58-131.2 imposes upon the Commissioner the duty of fixing such rates as will produce a fair and reasonable profit and no more. In the statutory plan for the regulation of insurance premium rates, there is nothing comparable to the procedure prescribed by G.S. § 62-133 for the fixing of rates by public utility companies for their services. The statutes conferring authority upon the Commissioner of Insurance, and directing his use of it, do not use the term fair return on fair value of the property devoted to the insurance business in North Carolina. Here, the direction is to prescribe rates which will yield a reasonable profit. See, Insurance Department v. City of Philadelphia, supra. There are, however, certain underlying principles common to both price fixing processes. Neither a fair return on fair value nor a reasonable profit can be determined until there is first a determination of reasonable expenses attributable to the business operated in this State. See, National Bureau of Casualty Underwriters v. Superintendent of Insurance, supra. This figure may or may not coincide precisely with the actual expenses paid. Obviously, the operating companies must be given substantial freedom of management, including the incurring of operating expenses such as salaries, but, like public utility companies, their determination of the propriety of expenditures for operating costs is not binding upon the Commissioner in a rate making procedure. This is true both of Loss Adjustment Expense and of other operating expenses. The determination of a fair and reasonable allowance for Loss Adjustment Expense and for other operating expenses, like the determination of a fair and reasonable allowance for losses, involves a projection of past experience into the immediate future. This determination having been made, it remains to be determined whether the difference between gross revenues to be derived from existing premium rates, Earned Premiums, less the combination of losses and expenses is a fair and reasonable profit. This is not a question of law, nor is it a question upon which the determination of the Bureau is conclusive. It is a question of fact to be determined by the Commissioner upon evidence. As to this, as well as to the other factors in the equation, the burden of proof is upon the Bureau to show that the existing premium rates are not sufficient. There is nothing sacrosanct about 6% in this connection. Whether six cents out of each dollar of gross revenue, i. e., Earned Premiums, is a fair and reasonable profit, an excessive profit or an insufficient profit must be determined by the Commissioner from evidence and this, too, involves a projection into the future of past experience and present conditions. It involves consideration of profits accepted by the investment market as reasonable in business ventures of comparable risk. Like construction costs and consumer prices, a fair and reasonable profit varies from time to time. There is nothing in this record to show that the Commissioner has ever determined what percentage of Earned Premiums constitutes a fair reasonable profit for a fire insurance company. If upon the remand hearing of the present matter such finding in a former case be shown, it would not be res judicata and would not replace a finding of fact upon the question in the current investigation. The ultimate question to be determined by the Commissioner is whether an increase in premium rates is necessary in order to yield a fair and reasonable profit in the immediate future (i. e., treating the Bureau as if it were an operating company whose experience in the past is the composite of the experiences of all of the operating companies), and, if so, how much increase is required for that purpose. This cannot be determined without specific findings of fact, upon substantial evidence, as to (1) the reasonably anticipated loss experience during the life of the policies to be issued in the near future, (2) the reasonably anticipated operating expenses in the same period, and (3) the percent of Earned Premiums which will constitute a fair and reasonable profit in that period. See, National Bureau of Casualty Underwriters v. Superintendent of Insurance, supra. Although neither of the orders of the Commissioner so states, the Attorney General, in his brief filed on behalf of the Commissioner in this Court, appears to take the position that the Commissioner must approve or disapprove a filing by the Bureau in its entirety. We find nothing in the statutory plan for fixing premium rates which leads to this conclusion. See, National Bureau of Casualty Underwriters v. Superintendent of Insurance, supra. Unquestionably, the Bureau may amend its filing so as to propose a smaller increase in premium rates than that proposed in the original filing, but, in the absence of such amendment, the Commissioner, upon proper findings of fact supported by substantial evidence, may fix premium rates at a level such as to allow part but not all of the increase proposed by the Bureau, just as the Utilities Commission may do in the case of rate proposals filed with it. See, State ex rel. Utilities Commission v. Lee Telephone Co., 263 N.C. 702, 140 S.E.2d 319, in which Denny, C. J., speaking for the Court, said: [T]here is nothing in the statutes that requires the Commission to accept the rate or rates proposed, or to reject them altogether. Judicial review of such an order may be had in accordance with the statute by any person aggrieved. G.S. § 58-9.3. The orders of the Commissioner of Insurance are hereby vacated. This matter is remanded to the Court of Appeals for the entry by it of an appropriate judgment for a further remand to the Superior Court of Wake County and thence to the Commissioner of Insurance for further proceedings in accordance with this opinion. Modified and affirmed.