STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

GENERAL INSURANCE COMPANY, )

)

Petitioner, )

)

vs. ) CASE NO. 89-6041

) DEPARTMENT OF INSURANCE ) AND TREASURER, )

)

Respondent. )

)

RECOMMENDED ORDER

Pursuant to notice, the Division of Administrative Hearings, by its duly designated Hearing Officer, Claude B. Arrington, held a formal hearing in the above-styled case on February 1, 1990, in Miami, Florida.

APPEARANCES

For Petitioner: Charles A. Intriago, Esquire

Floyd, Pearson, Richman, Greer, Weil, Zack & Brumbaugh, P.A. Courthouse Center, 26th Floor

175 North West First Avenue Miami, Florida 33128-1817

For Respondent: Daniel Y. Sumner, Esquire

Cathleen E. Lindsey, Esquire Division of Legal Services

412 Larson Building

Tallahassee, Florida 32399-0300 STATEMENT OF THE ISSUES

Whether Petitioner's two rate filings for private passenger automobile insurance, one filed on March 24, 1989, and the other filed on October 30, 1989, should be approved.

PRELIMINARY STATEMENT

Petitioner is a private passenger automobile insurance company that operates primarily in South Florida. On March 1, 1989, Petitioner implemented certain rate changes. On March 24, 1989, Petitioner applied for Respondent's approval of the rate changes pursuant to Section 627.0651, Florida Statutes. On May 16, 1989, Respondent notified Petitioner by letter that it had determined, following its preliminary review, that the filing was insufficient to justify the proposed rate changes. Pursuant to Section 627.0651(9), Florida Statutes, Respondent requested additional information. On June 16, 1989, Petitioner responded to Respondent's letter of May 16, 1989.

Petitioner contends that its letter of June 16, 1989, fully answered all questions raised by Respondent's letter of May 16, 1989, and that its filing of March 24, 1989, as supplemented by its letter of June 16, 1989, establishes its entitlement to Respondent's approval of the rate filing. On August 9, 1989, Respondent issued a Notice of Intent to Issue Final Order pursuant to the provisions of Section 627.0651(10), Florida Statutes. This Notice informed Petitioner of Respondent's determination that the rate filing may be excessive, inadequate, or unfairly discriminatory, advised Petitioner as to the specific matters which Respondent deemed to be deficient, and gave Petitioner 60 days within which to provide all information which, in Petitioner's belief, proves the reasonableness, adequacy, and fairness of the rate changes. Petitioner thereafter filed a request for a formal hearing to challenge Respondent's determinations as to the rate filing of March 24, 1989.

On October 30, 1989, Petitioner submitted to Respondent a second rate filing for rate changes that were implemented October 1, 1989. By an Immediate Final Order of Disapproval, Respondent notified Petitioner that the second rate filing was immediately disapproved. Petitioner challenged this denial and requested a formal hearing as to Respondent's determination in this matter. On Petitioner's motion, and without objection by Respondent, the challenge relating to the October 30, 1989, rate filing was consolidated with the hearing as to the March 24, 1989, rate filing. The consolidated hearing was held February 1, 1990.

At the formal hearing, Petitioner presented the testimony of one witness, Dale F. Ogden, a consulting actuary from San Pedro, California. Mr. Ogden was not tendered as an expert witness. Respondent presented the testimony of one witness, Kenneth Ritzenthaler, who is an actuary employed by Respondent. Mr. Ritzenthaler was accepted as an expert witness in actuarial science and private passenger automobile rate making. Petitioner offered nine exhibits, eight of which were received into evidence. One of Petitioner's exhibits, marked as Petitioner's Exhibit 3, was withdrawn by Petitioner. Respondent offered three exhibits, all of which were received into evidence. Following the hearing, the deposition of Mr. Ogden was filed with the Division of Administrative Hearings by Respondent and the deposition of Mr. Ritzenthaler was similarly filed by Petitioner.

A transcript of the proceedings has been filed. Rulings on the parties? proposed findings may be found in the appendix to this recommended order.

FINDINGS OF FACT

1. Petitioner is engaged in the business of writing private passenger automobile insurance in the State of Florida. Petitioner's offices are in Miami, Florida, and it concentrates its business in South Florida. Petitioner has earned the rating of A (Excellent) from A. M. Best and Company.

   
   

2. Respondent is a Florida governmental agency whose responsibilities include the regulation of private passenger automobile insurers in Florida.

   
   

3. Section 627.0651, Florida Statutes, which governs private passenger automobile rate filings, is referred to as a "use and file" system because it allows such insurers to implement rate changes and to then seek approval from Respondent for the rate changes by making a rate filing within thirty days of the date of implementation. Respondent's review is required to be in accordance with generally accepted and reasonable actuarial techniques. An insurer such as Petitioner has the burden of establishing that the rate changes that it has

   implemented are not excessive, inadequate, or unfairly discriminatory. Respondent may require the insurer to provide it all information Respondent deems necessary to evaluate the rate changes. Under this regulatory scheme, insurers are not required to refund any premium overcharges that may have occurred during the period while the rates are being examined by Respondent.

   
   

   THE FILING OF MARCH 24, 1989:

   
   

4. On March 24, 1989, Petitioner filed with Respondent a private passenger automobile rate filing which had gone into effect March 1, 1989. The rate filing requested a rate increase of 15%. Petitioner's only witness in this matter was Dale F. Ogden, a self-employed consulting actuary from San Pedro, California. Mr. Ogden was not tendered as an expert witness and he did not participate in the preparation of either of the two rate filings involved in these proceedings, nor had he audited any of the underlying data. Mr. Ogden knew of no actuary who assisted Petitioner in the preparation of either of the rate filings involved in these proceedings. Petitioner presented no testimony from anyone involved in the actual preparation of these rate filings or from anyone who had direct knowledge of the underlying data offered in support of the filings.

   
   

5. Kenneth Ritzenthaler is the actuary employed by Respondent who reviewed Petitioner's March 24, 1989, rate filing (March 24 filing). Mr. Ritzenthaler was accepted as an expert in actuarial science and private passenger automobile rate making.

   
   

6. On May 16, 1989, Respondent notified Petitioner by letter that it had determined, following its preliminary review, that the filing was insufficient to justify various specified components of the proposed rate changes. This letter detailed in twenty separately numbered paragraphs matters that Respondent determined were deficiencies in Petitioner's filing. Pursuant to Section 627.0651(9), Florida Statutes, Respondent requested additional information.

   
   

7. On June 16, 1989, Petitioner responded to Respondent's letter of May 16, 1989, by providing additional information and by attempting to address the concerns raised by Respondent in its letter of May 16, 1989. Petitioner contends that its letter of June 16, 1989, fully answered all questions raised by Respondent's letter of May 16, 1989, and that its filing of March 24, 1989, as supplemented by its letter of June 16, 1989, establishes its entitlement to Respondent's approval of the rate filing. Petitioner's response of June 16, 1989, resolved some of the concerns raised by Respondent's letter of May 16, 1989, but the response did not resolve all of the concerns.

   
   

8. On August 9, 1989, Respondent issued a Notice of Intent to Issue Final Order pursuant to the provisions of Section 627.0651(10), Florida Statutes. This Notice informed Petitioner of Respondent's determination that the rate filing may be excessive, inadequate, or unfairly discriminatory, advised Petitioner as to the specific matters in the filing which Respondent deemed to be deficient, and gave Petitioner 60 days within which to provide all information which, in Petitioner's belief, proves the reasonableness, adequacy, and fairness of the rate change. Instead of attempting to provide additional information in response to the Notice of Intent, Petitioner elected to file a request for a formal hearing to challenge Respondent's determinations as to the rate filing of March 24, 1989.

9. The NOTICE OF INTENT TO ISSUE FINAL ORDER, dated August 9, 1989, provided, in pertinent part, as follows:

   
   

   1. The rate filing does not provide sufficient justification for the proposed increase. The filing is deficient in the following areas:

      1. Based on the date in this filing and other data available to this Department, the selected annual trend factors for Property Damage and PIP appear high.

      2. You have included a loading for Florida Insurance Guaranty Assessments in your indications. Part of this loading is from an October 1, 1987 payment. Since you have increased rates twice since this payment, its inclusion in the rate level indications is unacceptable.

      3. You have failed to show how the profit factors are calculated and that they are in compliance with Rule 4- 57.01, Florida Administrative Code (Calculations and Use of Investment Income in Motor Vehicle Insurance Rates). Further, you list profit factors of 2.0% for Liability and 5.0% for Physical Damage while stating that the total profit allowance underlying your proposed rates is -1.8%.

      4. You have failed to provide a breakdown of your "Losses and LAE" percentage of 64.3% into losses (pure losses only), Allocated LAE, and Unallocated LAE. Note: LAE is Loss Adjustment Expenses.

      5. Based on the data provided, the selected loss development factors for Bodily Injury and PIP appear high. In addition, the lack of credibility in the loss development data for Uninsured Motorists coverage and Medical Payments has not been accounted for.

   2. All of the above items are involved in the determination of the rate level indications which are used to support the proposed rate level changes, and must be properly justified in the rate filing.

   3. The filing is also deficient in the following areas:

      1. This filing is not in compliance with Rule 4-72.006, Florida Administrative Code (Rate Manual Filings and Revisions).

      2. The rates on Form D14-3A do not agree with those shown in your manual.

      3. The rates on Form D14-3C do not agree with those shown in your manual.

      4. Your cancellation procedures are not in compliance with Section 627.7282, Florida Statutes.

      5. The revisions to page 5 of your manual covering hurricane deductibles are unsupported.

      6. You attempted to adopt an Insurance Services Office revision concerning the rating of 1990 model year vehicles; however, you failed to show that you have adopted the same definitions and relativities approved for the Insurance Services Office and have failed to submit the statutorily required manual pages.

      7. You provided a breakdown of your proposed premiums into fixed and variable general and administrative expenses. Thus you are not in compliance with Rule 4-43.02, Florida Administrative Code (Administrative Expense Flattening).

      8. Your Medical Payments data is so limited that it really has no value as support for any change. Further, your proposed Medical Payments premiums appear to be approximately three times the premiums charged by the F.J.U.A. Thus, the proposed 96.8% increase in Medical payments premiums is unjustified.

      9. You have failed to provide supporting data which justifies PIP base rates higher than those charged by the F.J.U.A.

      10. You have proposed Uninsured Motorists premiums which vary by sex/age class. As support, you relied primarily on F.J.U.A. Uninsured Motorists premiums. Since F.J.U.A. Uninsured Motorists premiums do not vary by sex/age class, your proposed premiums are unsupported.

   4. As a result of the deficiencies set forth in paragraphs 3-5 above, the Department preliminarily finds that the proposed rate increase is not justified and may be excessive, inadequate or unfairly discriminatory. In making this determination, the Department, after reviewing the rate filing in accordance with generally accepted and reasonable actuarial techniques, preliminarily

      finds that the filing fails to meet the applicable standards set forth in Section 627.0651, Florida Statutes, in that:

      1. The rate filing does not give proper consideration to past and prospective loss experience within and outside this state. (Section 627.0651(2)(a), Florida Statutes)

      2. The rate filing does not give proper consideration to past and prospective expenses. (Section 627.0651(2)(b), Florida Statutes)

      3. The rate filing does not give proper consideration to investment income reasonably expected by the insurer, consistent with the insurer's investment practices, from investable premiums anticipated in the filing, plus any other expected income from currently invested assets representing the amount expected on unearned premium reserves and loss reserves, not including income form invested surplus. (Section 627.0651(2) (d), Florida Statutes)

      4. The rate filing does not demonstrate that reasonable actuarial judgment has been utilized. (Section 627.0651(2)(e), Florida Statutes)

      5. The rate filing does not demonstrate the adequacy of loss reserves. (Section 627.0651(2)(i), Florida Statutes)

      6. The rate filing does not give proper consideration to trend factors, including trends in actual losses per insured unit for your company. (Section 627.0651(2)(k), Florida Statutes)

      7. The rate filing does not give proper consideration to relevant factors which impact on frequency or severity of claims or upon expenses. (Section 627.0651(2)(a), Florida Statutes)

      WHEREFORE, upon consideration of the foregoing and the factors enumerated in Section 627.0651, Florida Statutes, the Department finds on a preliminary basis that the rates or rate changes included in the aforementioned rate filing may be excessive, inadequate, or unfairly discriminatory among members of the class affected as those terms are used in said section. Therefore, it is my intent to issue an Order disapproving the rates or rate changes which you filed with the Department on March 24, 1989.

      You have the opportunity to prove to the Department that the rates or rate changes included in the aforementioned rate filing are not excessive, inadequate or unfairly discriminatory. Pursuant to Section 627.0651, Florida Statutes, you shall, within sixty (60) days of the date of this Notice file with the Department all information which you believe proves the

      reasonableness, adequacy and fairness of the rate or rate changes.

      
      

10. Paragraph 3(a) of the Notice of Intent relates to the annual trend figures used by Petitioner in the calculation of its rates for Property Damage and PIP coverages. Trend figures are essentially rates of inflation and are factored into rate filings to make appropriate provision for future costs. On February 1, 1989, Petitioner requested and received from Respondent the trend figures Petitioner considered most current. The rates received from Respondent ranged between 6.5% - 8.5% for Property Damage coverage and between 9% - 12% for PIP coverage. Petitioner used the factor of 8.5% for Property Damage coverage and 12% for PIP coverage based on its experience in South Florida. Subsequent information caused Respondent to revise its recommended trend factors downward and resulted in the invalidation of the ranges that had been given Petitioner. Consequently, the annual trend factors used by Petitioner in calculating its rates for Property Damage and PIP coverages were excessive. Based on Respondent's revised information, Petitioner should have used a trend factor of approximately 10% for Property Damage coverage and a trend factor of approximately of 6% for PIP coverage. Excessive annual trend factors act to overstate projected losses which results in the overstating of rate level indications. Petitioner informed Respondent in its letter of June 16 that it had gotten the trend factor ranges from Respondent on February 1, 1989, and that it had selected the high end of each range based on its experience. The trend factors used in its calculations were not otherwise justified by Petitioner.

    
    

11. Paragraph 3(b) of the Notice of Intent relates to the inclusion as an expense factor in the March 24 rate filing of an assessment paid on October 1, 1987, to the Florida Insurance Guaranty Association. The inclusion of the total dollar amount of this assessment in the March 24 filing is unreasonable since Petitioner has filed rate increases twice since this assessment and has recouped part, if not all, of that assessment. Petitioner has failed to establish its contention that its prior rate increases did not recoup this assessment. The inclusion of this assessment serves to overstate expenses which results in the overstating of rate level indications. This inclusion was not justified by Petitioner after being questioned by Respondent.

    
    

12. As noted in Paragraph 3(c) of the Notice of Intent, Petitioner failed to show how it calculated its profit factors and it failed to establish that the factors were calculated in accordance with Rule 4-57.001, Florida Administrative Code. Paragraph 3(c) of the Notice of Intent also correctly notes that Petitioner provided profit data that contained an inconsistency. The physical damage profit factor of 5% used by Petitioner is reasonable. Petitioner failed, however, to show how it calculated its liability profit factor of 2% and it failed to demonstrate that the liability profit factor was calculated in accordance with the applicable rule. Without this showing, the reasonableness of the liability profit factor cannot be adequately evaluated. The inconsistency relating to profit figures is that an underwriting loss is

    projected using the profit factors Petitioner contends it requires. Although Petitioner presented considerable testimony as to the need to utilize good business judgment in the environment in which it operates and as to the overall profit factor it required, the deficiencies noted in Paragraph 3(c) of the Notice of Intent were not justified or resolved by Petitioner.

    
    

13. Paragraph 3(d) of the Notice of Intent relates to the breakdown of the losses and loss adjustment expenses. Respondent's letter of May 16, 1989, asked Petitioner to provide the breakdown of losses (pure losses only), allocated LAE, and unallocated LAE. Petitioner's response, in its letter of June 16, 1989, did not provide the requested breakdown; it lumped this information together. Petitioner's contention that this information is more reliable when considered together is rejected. This information was necessary for Respondent to determine whether any adjustment in the rate level indications are required. Petitioner did not provide this information after being specially asked to do so by Respondent.

    
    

14. Paragraph 3(e) of the Notice of Intent relates to the selected loss development factors Petitioner used in the calculation of Bodily Injury and PIP coverage. Petitioner's loss development factors were calculated, in part, by the averaging of certain data experienced during three separate periods. Because of unusual experience data during one of the periods included in the averaging process, the results were skewed, and, consequently, the loss

    development factors were not accurate. Petitioner failed to justify the selected loss development factors it used in the calculation of Bodily Injury and PIP coverage. (Paragraph 3(e) of the Notice of Intent also relates to the lack of credibility of data used in determining the loss development factors for Uninsured Motorist Coverage and Medical Payments. These matters are discussed in Paragraphs 22 and 23 of this Recommended Order.)

    
    

15. Petitioner failed to submit a complete manual with its rate filing of March 24, 1989, as required by Rule 4-72.006, Florida Administrative Code, although this deficiency was specifically noted by Paragraph 5(a) of the Notice of Intent.

    
    

16. The rates Petitioner showed on Form D14-3A attached to the March 24 filing are inconsistent with rates shown by its manual. Petitioner provided its reasons for these inconsistencies, but it did not correct these inconsistencies. This deficiency is noted in Paragraph 5(b) of the Notice of Intent.

    
    

17. The rates Petitioner showed on Form D14-3C attached to the March 24 filing are inconsistent with rates shown by its manual. Petitioner provided its reasons for these inconsistencies, but it did not correct these inconsistencies. This deficiency is noted in Paragraph 5(c) of the Notice of Intent.

    
    

18. Paragraph 5(d) of the Notice of Intent, relates to Petitioner's procedures for the calculation of refunds of premiums to be paid the policyholder after the cancellation of policies. The procedures stated in Petitioner's policy manual are not in full compliance with Section 627.7282, Florida Statutes. Petitioner represented in its letter of June 16, 1989, that it had made the necessary revisions for its procedures to be in full compliance with this statute. However, Petitioner did not introduce its revised provision into evidence and did not otherwise present proof of compliance after being specifically asked to do so by Respondent.

    
    

19. Paragraph 5(e) of the Notice of Intent relates to changes in Petitioner's manual covering hurricane deductibles. The changes in these

    deductibles result in a decrease in coverage, as a result of an increase in the deductibles, with no concomitant reduction in premium. As a result, the premium schedule for hurricane coverage is excessive. Petitioner failed to justify the increases it implemented in the deductibles for its hurricane coverage.

    
    

20. Paragraph 5(f) of the Notice of Intent relates to Petitioner's failure to establish that it had adopted the same definitions and relativities that were approved by the Insurance Services Office. Respondent raised this concern with Petitioner in its letter of May 16, 1989. Petitioner's response, contained in paragraph 8 of its letter dated June 16, 1989, is as follows: "At the time the filing was being prepared, we were unaware of the new symbols for the 1990 model year vehicles. Following the pattern of the past few years, it was decided to derive the 1990 relativities by adding 5% to the 1989 model relativity and applying the result to the existing symbol relativities." The adjustment made by Petitioner was inadequate and resulted in its charging inadequate rates to certain policyholders. Petitioner should adopt the Insurance Services Office definitions and relativities to assure that the appropriate premiums are being charged.

    
    

21. Expense flattening is a concept that recognizes that certain expenses should be charged equally to all policyholders, regardless of the total premium being paid by the individual policyholders, because those expenses are not tied to the total premium being paid by each policyholder. Petitioner failed to establish that it had flattened at least 60% of its general and administrative expenses as it indicated that it should do in its initial filing and as recommended by Rule 4- 43.02, Florida Administrative Code. Petitioner flattened only 47% of its administrative expenses. As a result of its failure to flatten at least 60% of its administrative expenses, Petitioner undercharged certain of its low-rated policyholders and it overcharged certain of its high-rated policyholders. This deficiency was not corrected by Petitioner after being noted by Respondent in Paragraph 5(g) of the Notice of Intent.

    
    

22. Petitioner failed to justify its increase of 96.8% in the premium rates for Medical Payments coverage. Although Petitioner may be able to justify such an increase with additional data, the data it relied upon to justify the increase was too limited to do so using sound actuarial techniques. Petitioner's position that the rate is actuarially sound is rejected as being unsupported by the record. Respondent noted this deficiency in Paragraph 5(h) of the Notice of Intent.

    
    

23. Petitioner failed to justify its increase in the premium rates for PIP coverage. Although Petitioner may be able to justify such an increase with additional data, the data it relied upon to justify the increase did not do so using sound actuarial techniques. Petitioner's position that the rate is actuarially sound is rejected as being unsupported by the record. Respondent noted this deficiency in Paragraph 5(i) of the Notice of Intent.

    
    

24. Petitioner failed to justify its premium schedule for Uninsured Motorists coverage which varies rates based on the policyholder's sex/age. Respondent specifically requested such justification because this coverage applies when a driver other than the policyholder is at fault and has no coverage. Usually, the policyholder's sex and age are considered irrelevant in establishing the premium for such coverage. While Petitioner may have data to support its contentions that its experience justifies such variation in premiums, no such data was presented either in the rate filing or at the hearing. This deficiency was noted in Paragraph 5(j) of the Notice of Intent.

    THE RATE FILING OF OCTOBER 30, 1989

    
    

25. On October 30, 1989, Petitioner filed a second rate filing which reflected a change in rates that had been implemented on October 1, 1989. This rate change increased premiums by 10.3%.

    
    

26. On December 11, 1989, Respondent issued an IMMEDIATE FINAL ORDER OF DISAPPROVAL and ordered Petitioner to return to those rates effective as of March 1, 1989. This Immediate Final Order of Disapproval provided, in pertinent part, as follows:

    
    

    1. Assumptions which underly (sic) the rate changes in the October 20, 1989 filing are necessarily linked to the data in the March filing which has been preliminarily disapproved and, for that reason, the October filing overstates the need for a rate increase.

    2. Additionally, the October 30, 1989 rate filing does not provide sufficient justification for the proposed increase. The filing is deficient in the following areas:

       1. Based on the data in this filing and other data available to this Department, the selected annual trend factors for Bodily Injury, Property Damage, Personal Injury Protection (PIP), Uninsured Motorists, Medical Payments, and Comprehensive appear excessive.

       2. In the calculation of the indications, the company has applied the complement of credibility to a trend factor covering a time period of 1.797 years. This time period is excessive and unsupported by the company's rate history.

       3. The company has included a loading for Florida Insurance Guaranty Assessments in their indications. This loading appears to be based on an assessment paid in May of 1988. Since the company has increased rates since this assessment its inclusion in the rate level indications is unacceptable.

       4. The company has included profit factors of 4.4% for Liability and 10.3% for Physical Damage in its rate level indications. This Physical Damage profit factor is more than double the maximum profit allowance specified in Rule 4-57.001 and is not supported. Further, these profit factors are inconsistent with the 0.29% total profit allowance underlying their proposed rates.

       5. The company has provided exhibits with data titled "ULAE incurred per interval" and "ULAE incurred". The data included under "ULAE incurred" appears inaccurate based on the data under "ULAE" incurred per interval". Further, the company has included "Fixed ULAE" as a separate item in their rate level indications while also including "ULAE incurred" in the same indications; thus apparently double counting a portion of unallocated loss adjustment expenses.

       6. Based on the data provided the selected loss development factors for Bodily Injury, Property Damage, PIP, Uninsured Motorists, and Comprehensive coverage appear unreasonably high. In addition, the lack of credibility in the loss development data for Uninsured Motorists and Medical Payments has not been accounted for.

       7. The company has failed to include an adjustment for the automatic premium increases resulting from symbol drift in the rate level indications for Comprehensive and Collision coverages.

    3. All of the above items are involved in the determination of the rate level indications which are used to support the proposed rate level changed, and must be properly justified in the rate filing.

    4. The filing is also deficient in the following areas:

       1. The company's Medical Payments data is so statistically insignificant that it has insufficient credibility to support any change. Further, the company's proposed Medical Payments' premiums appear to be in excess of 3 times the premiums charged the F.J.U.A. Thus, the proposed 26.6% increase in Medical Payments' premiums is unjustified.

       2. The company has failed to provide supporting data which justifies PIP base rates higher than the F.J.U.A.

       3. The company has failed to provide supporting data which justifies Uninsured Motorists' rates higher than the F.J.U.A. Further, since the

          F.J.U.A. does not vary Uninsured Motorists' rates by sex/age class, the company's use of F.J.U.A. data to support rates which do vary by sex/age is unreasonable.

       4. The company has failed to provide support for the "distributional adjustment factors" included in their support for the proposed change in territory relativities, sex/age class relativities, and deductible factors. Further, you have not explained how you calculated the " base wtd. relativities", the "smoothened relativities" or the "standardized wtd. relativities". Thus, the proposed changes in territory relativities, sex/age class relativities, and deductible factors are unjustified.

          Note - the company also failed to explain what their PIP deductible codes (i.e., A through I) represent.

       5. The revisions to page 6 of the company's manual covering hurricane deductibles are not explained or supported.

       6. The company's cancellation procedures are not in compliance with Section 627.7282, Florida Statutes.

    5. As a result of unjustified assumptions from the contested March 24, 1989 filing and the deficiencies set forth in paragraphs 8-10 above, the Department finds that the proposed rate increase is not justified and is excessive and unfairly discriminatory.

    
    

27. There is a direct link between the two filings involved in these proceedings in that the validity of the filing of October 30, 1989, assumes the validity of the rate filing of March 24, 1989. Deficiencies in Petitioner's October 30, 1989, filing existed and were accurately described in Respondent's Immediate Final Order of Disapproval. Many of the deficiencies noted in the Immediate Final Order of Disapproval were also noted in Respondent's Notice of Intent entered in response to the March 24 filing.

    
    

28. Petitioner failed to establish that the rate changes in the October 30, 1989, filing are not excessive, inadequate, or unfairly discriminatory.

    
    

    CONCLUSIONS OF LAW

    
    

29. The Division of Administrative Hearings has jurisdiction over the subject matter of and the parties to this proceeding. Section 120.57(1), Florida Statutes

    
    

30. Section 627.0651, Florida Statutes, provides, in pertinent part, as follows:

    
    

    1. Insurers shall establish and use rates, rating schedules, or rating manuals to allow the insurer a reasonable rate of return on motor vehicle insurance written in this state.

       A copy of rates, rating schedules, and rating manuals, and changes therein, shall be filed with the department as soon as practicable following their effective date, but no later than 30 days after that date.

    2. Upon receiving notice of a rate filing or rate change, the department shall review the rate or rate change to determine if the rate is excessive, inadequate, or unfairly discriminatory. In making that determination, the department shall in accordance with generally accepted and reasonable actuarial techniques consider the following factors:

       1. Past and prospective loss experience within and outside this state.

       2. The past and prospective expenses.

       3. The degree of competition among insurers for the risk insured.

       4. Investment income reasonably expected by the insurer ...

       5. The reasonableness of judgment reflected in the filing.

       6. Dividends, savings or unabsorbed premium deposits allowed or returned to Florida policyholders, members or subscribers.

       7. The cost of repairs to motor vehicles.

       8. The cost of medical services, if applicable.

    1. The adequacy of loss reserves.

    2. The cost of reinsurance.

    3. Trend factors, including trends in actual losses per insured unit for the insurer making the filing.

       1. Other relevant factors which impact upon the frequency or severity of claims or upon expenses.

    1. Rates shall be deemed excessive if they are likely to produce a profit from Florida business that is unreasonably high in relation to the risk involved in the class of business or if expenses are unreasonably high in relation to services rendered.

    2. Rates shall be deemed excessive if, among other things, the rate structure established by a stock insurance company provides for replenishment of surpluses from premiums, when such replenishment is attributable to investment losses.

    3. (a) Rates shall be deemed inadequate if they are clearly insufficient, together with the investment income attributable to them, to sustain projected losses and expenses in the class of business to which they apply.

       (b) The Insurance Commissioner shall have the responsibility to ensure that rates for private passenger vehicle insurance are adequate. ...

    4. One rate shall be deemed unfairly discriminatory in relation to another in the same class if it clearly fails to reflect equitably the difference in expected losses and expenses.

    * * *

    1. In reviewing the rate or rate change filed, the department may require the insurer to provide at the insurer's expense all information necessary to evaluate the condition of the company and the reasonableness of the filing according to the criteria enumerated herein.

    2. The department may, at any time, review a rate or rate change, the pertinent records of the insurer, and market conditions; and, if the department finds on a preliminary basis that the rate or rate change may be excessive, inadequate, or unfairly discriminatory, the department shall so notify the insurer. Upon being so notified, the insurer or rating organization shall, within 60 days, file with the department all information which, in the belief of the insurer or organization, proves the reasonableness, adequacy, and fairness of the rate or rate change. In such instances and in any administrative proceeding relating to the legality of the rate, the insurer or rating organization shall carry the burden of proof by a preponderance of the evidence to show that the rate is not excessive, inadequate, or unfairly discriminatory. ... The department may, subject to chapter 120, disapprove without the 60-day notification any rate increase filed by an insurer during

    the time that the legality of the increased rate is being contested.

    
    

31. Petitioner has the burden to establish by a preponderance of the evidence that the rates and the rate changes it implemented on March 1, 1989, as reflected by the March 24, 1989, filing, were not excessive, inadequate, or

    unfairly discriminatory. Because of the uncorrected deficiencies found in the rate filing and the data submitted in support thereof, Petitioner failed to carry that burden. Consequently, Petitioner failed to establish its entitlement to Respondent's approval of the March 24, 1989, rate filing.

    
    

32. Petitioner has the burden to establish by a preponderance of the evidence that the rates and the rate changes it implemented on October 1, 1989, as reflected by the October 30, 1989, filing, were not excessive, inadequate, or unfairly discriminatory. There is a direct link between the two filings involved in these proceedings in that the validity of the filing of October 30, 1989, assumes the validity of the rate filing of March 24, 1989. Many of the deficiencies in the March 24 filing were still evident in the October 30 filing. Additional deficiencies in the October 30 filing were found and described by Respondent in its Immediate Final Order of Disapproval. Petitioner failed to carry its burden of proof in this proceeding and, consequently, failed to establish its entitlement to Respondent's approval of the October 30, 1989, rate filing.

RECOMMENDATION

Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED that the Department of Insurance and Treasurer enter a final

order which disapproves General Insurance Company's private passenger automobile

rate filings of March 24, 1989, and October 30, 1989.

DONE AND ENTERED this 26 day of March 1990, in Tallahassee, Leon County, Florid

CLAUDE B. ARRINGTON

Hearing Officer

The DeSoto Building 1230 Apalachee Parkway

Tallahassee, Florida 32399-1550 904/488-9675

Filed with the Clerk of the Division of Administrative Hearings this 26 day of March 1990.

APPENDIX TO THE RECOMMENDED ORDER IN CASE NO. 89-6041

The following rulings are made on the proposed findings of facts submitted on behalf of Petitioner:

1. The proposed findings of fact contained in

   paragraph 1 are rejected as findings of fact, but are discussed as preliminary matters.

2. The proposed findings of fact in paragraph 2 are

   adopted in material part by paragraph 2 of the Recommended Order.

3. The proposed findings of fact in paragraph 3 are adopted in part by paragraph 1 of the Recommended Order and are

   rejected in part as being unnecessary to the conclusions reached.

4. The proposed findings of fact in paragraph 4 are rejected as being unsubstantiated by the evidence. The portion of the transcript to which Petitioner refers is part of the opening argument by Petitioner's counsel, and is not evidence in this proceeding.

5. The proposed findings of fact in paragraph 5 are rejected as findings of fact but are discussed as preliminary matters.

6. The proposed findings of fact in paragraph 6 are adopted in material part by paragraphs 3, 4, and 25 of the Recommended Order.

7. The proposed findings of fact in the first sentence

   of paragraph 7 are adopted in material part by paragraph 4 of the Recommended Order. The remaining portions of paragraph 7 are rejected as being either unsubstantiated by the evidence or as being unnecessary to the conclusions reached.

8. The proposed findings of fact in paragraph 8 are

   adopted in material part by paragraph 6 of the Recommended Order.

9. The proposed findings of fact in paragraph 9 are adopted in part by paragraph 7 of the Recommended Order and are rejected in part as being either unsubstantiated by the evidence or as being contrary to the findings made.

10. The proposed findings of fact in paragraph 10 are adopted in part by paragraphs 8 and 9 of the Recommended Order. The proposed findings contained in the last sentence of paragraph

    10 are rejected as being inappropriate as findings of fact.

11. The proposed findings of fact in paragraph 11 are rejected as being unnecessary to the conclusions reached.

12. The proposed findings of fact in paragraph 12 are rejected as being unsubstantiated by the evidence.

13. The proposed findings of fact in paragraph 13 are adopted in part by paragraph 25 and are rejected in part as being unnecessary to the conclusions reached.

14. The proposed findings of fact in paragraph 14 are adopted in part by paragraph 26 of the Recommended Order and are rejected in part as being unnecessary to the conclusions reached.

15. The proposed findings of fact in paragraph 15 are rejected as being findings of fact but are discussed as preliminary matters.

16. The proposed findings of fact in paragraph 16 are rejected as either being unnecessary to the conclusions reached or as being unsubstantiated by the evidence.

17. The proposed findings of fact in paragraph 17 are rejected as being either unnecessary to the conclusions reached or as being unsubstantiated by the evidence.

18. The proposed findings of fact in paragraph 18 are rejected as being unsubstantiated by the evidence.

19. The proposed findings of fact in paragraph 19 are rejected as being unsubstantiated by the evidence.

20. The proposed findings of fact in paragraph 20 are rejected as being unnecessary to the conclusions reached or as being unsubstantiated by the evidence.

21. The proposed findings of fact in paragraph 21 are rejected as being unsubstantiated by the evidence.

22. The proposed findings of fact in paragraph 22 are rejected as being subordinate to the findings made.

23. The proposed findings of fact in paragraph 23 are rejected as being contrary to the findings made and to the conclusions reached.

24. The proposed findings of fact in paragraph 24 are rejected as being contrary to the weight of the evidence.

25. The proposed findings of fact in paragraph 25 are rejected as being contrary to the greater weight of the evidence.

26. The proposed findings of fact in paragraph 26 are rejected as being subordinate in part to the findings made in paragraph 10, and are rejected in part as being unsubstantiated by the evidence.

27. The proposed findings of fact in paragraph 27 are rejected as being unnecessary to the conclusions reached or as being unsubstantiated by the evidence.

28. The proposed findings of fact in paragraph 28 are rejected as being unsubstantiated by the evidence.

29. The proposed findings of fact in paragraph 29 are rejected as being unsubstantiated by the evidence.

30. The proposed findings of fact in paragraph 30 are rejected as being unsubstantiated by the evidence.

31. The proposed findings of fact in paragraph 31 are rejected as being unsubstantiated by the evidence.

32. The proposed findings of fact in paragraph 32 are rejected as being unsubstantiated by the evidence.

33. The proposed findings of fact in paragraph 33 are rejected as being contrary to the greater weight of the evidence.

34. The proposed findings of fact in paragraph 34 are rejected as being unnecessary to the conclusions reached.

35. The proposed findings of fact in paragraph 35 are rejected as being contrary to the findings made and to the conclusions reached.

36. The proposed findings of fact in paragraph 36 are adopted in part by paragraph 2 and 3 of the Recommended Order. The proposed findings of fact contained in the second and third sentences of paragraph 36 are rejected as being unnecessary to the conclusions reached. The proposed findings of fact contained in the final sentence of paragraph 36 are rejected as being contrary to the weight of the evidence.

37. The proposed findings of fact in paragraph 37 are adopted in part by paragraph 3 of the Recommended Order and are rejected in part as being unnecessary to the conclusions reached.

38. The proposed findings of fact in paragraph 38 are rejected as being inappropriate as findings of fact and as being unsupported by the record.

39. The proposed findings of fact in paragraph 39 are rejected as being inappropriate as findings of fact or as being unsubstantiated by the evidence.

40. The proposed findings of fact in paragraph 40 are rejected as being contrary to the findings made or as being unsubstantiated by the record.

41. The proposed findings of fact in paragraph 41 are rejected as being contrary to the conclusions reached.

42. The proposed findings of fact in paragraph 42 are adopted in material part by paragraph 7 and 8 of the Recommended Order.

43. The proposed findings of fact in paragraph 43 are rejected as being unsubstantiated by the evidence.

44. The proposed findings of fact in paragraph 44 are rejected as being unsubstantiated by the evidence.

45. The proposed findings of fact in paragraph 45 are rejected as being contrary to the findings made and to the conclusions reached.

The following rulings are made on the proposed findings of fact submitted on behalf of Respondent:

1. The proposed findings of fact in paragraph 1 are

   adopted in material part by paragraph 1 of the Recommended Order.

2. The proposed findings of fact in paragraph 2 are adopted in material part by paragraph 3 and 4 of the Recommended Order. The proposed findings of fact contained in the second sentence of paragraph 2 are rejected as being unsubstantiated by the evidence.

3. The proposed findings of fact in paragraph 3 are adopted in part by paragraph 5 of the Recommended Order and are

   rejected in part as being unnecessary to the conclusions reached.

4. The proposed findings of fact in paragraph 4 are

   adopted in material part by paragraph 6 of the Recommended Order.

5. The proposed findings of fact in paragraph 5 are

   adopted in material part by paragraph 7 of the Recommended Order.

6. The proposed findings of fact in paragraph 6 are

   adopted in material part by paragraph 9 of the Recommended Order.

7. The proposed findings of fact in paragraph 7 are rejected as being a finding of fact because they are more appropriately considered conclusions of law.

8. The proposed findings of fact in paragraph 8 are adopted in paragraph 8 of the Recommended Order.

9. The proposed findings of fact in paragraph 9 are rejected as being unnecessary to the conclusions reached.

10. The proposed findings of fact in paragraph 10 are adopted in material part by paragraph 25 of the Recommended Order. The proposed findings of fact contained in the second sentence of paragraph 10 are rejected as being unsubstantiated by the evidence.

11. The proposed findings of fact in paragraph 11 are adopted in part and are rejected in part as being unnecessary to the conclusions reached.

12. The proposed findings of fact in paragraph 12 are adopted in material part by paragraph 26 of the Recommended Order.

13. The proposed findings of fact in paragraph 13 are adopted in material part by paragraph 10 of the Recommended Order.

14. The proposed findings of fact contained in

    paragraph 14 are adopted in material part by paragraph 11 of the Recommended Order.

15. The proposed findings of fact in paragraph 15 are adopted in material part by paragraph 12 of the Recommended Order.

16. The proposed findings of fact in paragraph 16 are adopted in material part by paragraph 13 of the Recommended Order.

17. The proposed findings of fact in paragraph 17 are adopted in material part by paragraph 14 of the Recommended Order.

18. The proposed findings of fact in paragraph 18 are adopted in material part by paragraph 15 of the Recommended Order.

19. The proposed findings of fact in paragraph 19 are adopted in material part by paragraph 16 of the Recommended Order.

20. The proposed findings of fact in paragraph 20 are adopted in material part by paragraph 17 of the Recommended Order.

21. The proposed findings of fact in paragraph 21 are adopted in material part by paragraph 18 of the Recommended Order.

22. The proposed findings of fact in paragraph 22 are adopted in material part by paragraph 19 of the Recommended Order.

23. The proposed findings of fact in paragraph 23 are adopted in material part by paragraph 20 of the Recommended Order.

24. The proposed findings of fact in paragraph 24 are adopted in material part by paragraph 21 of the Recommended Order.

25. The proposed findings of fact in paragraph 25 are adopted in material part by paragraph 22 of the Recommended Order.

26. The proposed findings of fact in paragraph 26 are adopted in material part by paragraph 23 of the Recommended Order.

27. The proposed findings of fact in paragraph 27 are adopted in material part by paragraph 24 of the Recommended Order.

28.-40. The proposed findings of fact in paragraphs 28-

40 are adopted in material part by paragraphs 26 and 27 of the Recommended Order.

41.-43. The proposed findings of fact in paragraphs 41-

43 are rejected as being subordinate to the findings made. 44.-45. The proposed findings of fact in paragraphs 44

and 45 are adopted in material part by paragraph 4 of the Recommended Order.

COPIES FURNISHED:

Charles A. Intriago, Esquire Floyd, Pearson, Richman, Greer,

Weil, Zack & Brumbaugh, P.A. Courthouse Center

26th Floor, 175 North West First Ave. Miami, Florida 33128-1817

Joseph DiBella

President, General Insurance Company 1815 Purdy Avenue

Miami Beach, Florida 33119-1879

Daniel Y. Sumner, Esquire Cathleen E. Lindsey, Esquire Division of Legal Services

412 Larson Building

Tallahassee, Florida 32399-0300

Tom Gallagher

State Treasurer and Insurance Commissioner

The Capitol, Plaza Level Tallahassee, Florida 32399-0300

Don Dowdell General Counsel

The Capitol, Plaza Level Tallahassee, Florida 32399-0300

Docket for Case No: 89-006041

Orders for Case No: 89-006041