Court Opinion

ID: 8894274
Source: CourtListenerOpinion
Date Created: 2022-11-26 23:42:30.513849+00
Date Added: 2024-06-11T17:07:23.193060
License: Public Domain

Judge Greene
dissenting in part.
I do not agree with the majority that the “Commissioner improperly considered income from capital and surplus in arriving at his total return” and that remand is necessary for a recalculation of. the automobile insurance rates. Otherwise, I fully concur with the majority.
The issue raised in this appeal is how the Commissioner is to calculate a fair and reasonable profit provision for automobile insurance companies.
*674The parties do not dispute and our courts have long recognized that the “insurance business is divided into two separate and distinct branches, (1) the underwriting business and (2) the investment business.” Comr. of Insurance v. Rate Bureau, 300 N.C. 381, 446, 269 S.E.2d 547, 587, reh’g denied, 301 N.C. 107, 273 S.E.2d 300 (1980). The North Carolina Rate Bureau (Bureau) contends that the law of this State requires automobile insurance rates to be established so that insurance companies receive a profit on their underwriting business that is equal to the total profit received by other industries of comparable risk. The North Carolina Insurance Commissioner (Commissioner) argues that the establishment of automobile insurance rates in the manner suggested by the Bureau would be inconsistent with the laws of this State and would “provide insurance companies with a return in excess of the returns earned by industries of comparable risk and will result in excessive rates.” I agree with the Commissioner.
Automobile insurance rates must be “adequate to produce a fair and reasonable [underwriting] profit.”1 Id. at 443, 269 S.E.2d at 585 (quoting Comr. of Insurance v. Attorney General, 16 N.C. App. 724, 729, 193 S.E.2d 432, 435 (1972)). The question of whether the rate is “fair and reasonable” is a question of fact for the Commissioner which “involves consideration of profits accepted by the investment market as reasonable in business ventures of comparable risk.” In re Filing by Fire Ins. Rating Bureau, 275 N.C. 15, 39, 165 S.E.2d 207, 224 (1969).
In this case, the Commissioner determined that a 5.7 percent return on an automobile insurance company’s underwriting business was a fair and reasonable profit provision. After making that determination, the Commissioner “tested” his decision by comparing the 5.7 percent return on underwriting with the total return (underwriting and investments) of other businesses of comparable risk. In making that comparison the Commissioner determined that the 5.7 percent return on underwriting when combined with return on investments of the insurance companies amounted to a total return for the insurance company within the range of the total return received by other businesses of comparable risk.
The procedure used by the Commissioner complies, as best as possible, with the somewhat conflicting directives of our courts: *675(1) set rates so as to produce a fair and reasonable profit on the underwriting portion of the automobile insurance business, and (2) set rates so as to provide the insurance company a profit consistent with profits from other businesses of comparable risk. The conflict in these directives arises because the profits from other businesses of comparable risk are usually not divided into underwriting and investments. Thus, to set the underwriting rates as suggested by the Bureau, consistent with other businesses, allows the automobile insurance company a return on its underwriting business equal to the total return of businesses of comparable risk. When that underwriting return is added to the return the insurance companies receive on their investments, they receive a return in excess of that received by comparable companies. For example: assume that the total return received by comparable companies is 13 percent. If automobile insurance rates axe established so as to provide the insurance company with an underwriting return of 13 percent, and the insurance company is also receiving a return of 7 percent on its business investments, then the total return for the insurance company would be 20 percent, an amount substantially in excess of the 13 percent total return of other comparable businesses. I simply do not believe that this result represents either the intent of our legislature or a proper construction of our case law.
I would, therefore, affirm the order of the Commissioner.

. Because the rate must provide a fair return on the underwriting business, return on investments held by the insurance company are not to be considered. Comr. of Insurance, 300 N.C. at 444, 269 S.E.2d at 686.