Insurance Division Bulletin INS 2003-6

DATE: November 5, 2003

TO: All Property and Casualty Insurers

SUBJECT: Prospective Loss Cost Filing Procedures for Property/Casualty Insurance (other than Workers Compensation) and Loss Cost Reference Filing Adoption Forms

The Oregon Insurance Division requires rating organizations and participating companies to operate under a prospective loss cost system in Oregon as adopted by the National Association of Insurance Commissioners. This bulletin specifies the framework under which rating organizations and participating insurers in rating organizations operate in a loss cost system.

Rating organizations will develop and file advisory prospective loss costs and supporting actuarial and statistical data. Each insurer must individually determine and file the rates it will use as a result of its own independent decision-making process. The rating organizations will continue to develop and file rules, relativities and supplementary rating information on behalf of their participating insurers.

Rating organization filings of prospective loss costs and insurer filings must follow the filing requirement on the Rates and Forms Web site (http://www.oregoninsurance.org/docs/serff/pc_rating.htm) and complete the required transmittal form, checklist of standards, and certificate of compliance. The filings are made under one of the following:

• ORS 737.205 - "file and use" - all lines and classes except those described in the next paragraph.
• ORS 737.207 and OAR 836-042-0501 to 836-042-0520 - "flex rating" - commercial liability insurance rate filings are implemented under "file and use" procedures, unless the change is an increase or decrease of more than 15% in which case they must be filed for approval.

SECTION I: Rules/Loss Costs

A. Rating Organization Action

• Rating organizations are to develop and file with the Insurance Division a "Reference Filing" containing advisory prospective loss costs and supporting actuarial and statistical data. Prospective loss costs are that portion of a rate that does not include provisions for expenses (other than loss adjustment expenses) or profit, and are based on historical aggregate losses and loss adjustment expenses adjusted through development to their ultimate value and projected through trending to a future point in time.
• "Reference Filings" will contain the advisory prospective loss costs and the underlying loss data and other supporting actuarial information for any calculations or assumptions underlying those loss costs.
• After a Reference Filing has been filed with the Insurance Division (and approved when necessary), the rating organization will provide its participating insurers with a copy of the Reference Filing.
• The rating organization may print and distribute manuals of prospective loss costs, as well as rules and other supplementary rating information described in Section II A.

B. Insurer Action

• Each insurer must individually determine the final rates it will file and the effective date of any rate changes. This will be the result of the independent company decision-making process unique to each insurer.
• If a participating insurer in the rating organization decides to use the prospective loss costs in the "Reference Filing" in support of its own filing, the insurer should make a filing under ORS 737.205 or ORS 737.207 following the requirements on the Web site using the Reference Filing Adoption Form (form 440-3613) and Summary of Supporting Information (form 440-3614). The insurer's rates are the combination of the prospective loss costs and the loss cost adjustments contained in the Reference Filing Adoption Form.
• The insurer may request to have its loss cost adjustments remain on file and reference all subsequent prospective loss costs Reference Filings. Upon receipt of subsequent rating organization loss cost Reference Filings, the insurer's rates are the combination of the prospective loss costs and the loss cost adjustments contained in the Reference Filing Adoption Form on file with the Insurance Division, and will apply to policies written on or after the effective date of the prospective loss costs. The insurer need not file anything further with the Insurance Division.
• If an insurer that has filed to have its loss cost adjustments remain on file with the Insurance Division intends to delay, modify, or not adopt a particular rating organization loss cost Reference Filing, the insurer must make an appropriate filing with the Insurance Division.
• The insurer's filed loss cost adjustments will remain in effect until the insurer withdraws them or files a new Reference Filing Adoption Form.
• To the extent that an insurer's final rates are determined solely by applying its loss cost adjustments, as presented in the Reference Filing Adoption Form, to the prospective loss costs contained in a rating organization's Reference Filing and printed in the rating organization's rating manual, the insurer need not develop or file its final rate pages with the Insurance Division. If an insurer chooses to print and distribute final rate pages for its own use, based solely upon the application of its filed loss cost adjustments to a rating organization's prospective loss costs, the insurer need not file those pages with the Insurance Division. If the rating organization does not print the loss costs in its rating manual, the insurer must submit its rates to the Insurance Division.

C. Insurer Action When a Subsequent Rating Organization Reference Filing Is Filed:

SECTION II: Rules, Relativities and Supplementary Rating Information

A. Rating Organization Action

• The rating organization will file under "file and use" or for approval, as applicable, with the Insurance Division filings containing a revision of rules, relativities and supplementary rating information. This includes policy-writing rules, rating plans, classification codes and descriptions, territory codes and descriptions and rules which include factors or relativities such as increased limits factors, classification relativities or similar factors.
• These filings are made by the rating organization on behalf of those insurers that have authorized the rating organization to file rules, relativities and supplementary rating information on their behalf.
• Rating organizations may print and distribute manuals of rules, relativities and supplementary rating information.

B. Insurer Action

• If an insurer has authorized rating organizations to file on its behalf, and a new filing of rules, relativities and supplementary rating information is filed, and

If you have questions regarding the submission of loss cost filings, please contact the property/casualty actuary at 503-947-7211.

This bulletin is dated the 5th day of November 2003, at Salem, Oregon.

_______(signed)_______
Joel Ario
Insurance Administrator