The Issue The issue in this proceeding is whether the Agency for Health Care Administration's denial of Petitioners', Brookwood- Walton County Convalescent Center and Brookwood-Washington County Convalescent Center (Brookwood), interim rate request for general and professional liability insurance was proper and in keeping with state and federal laws and the rules and regulations governing Florida's Medicaid program.
Findings Of Fact Petitioners, Brookwood-Washington County Convalescent Center and Walton County Convalescent Center (Brookwood) are licensed nursing homes in the State of Florida. The Brookwood facilities have historically been high Medicaid providers. Both participate in the Florida Medicaid program. Washington County Convalescent Center is currently 90 percent Medicaid and Walton County Convalescent Center is 85 percent Medicaid. The statewide average for all nursing homes in Florida is 50-55 percent Medicaid. Such high Medicaid participation makes Brookwood extremely sensitive to changes in its allowable costs and its ability to recover those costs. Florida's Medicaid program is needs-based, providing nursing home care to persons eligible for such care who fall below a certain level of income and assets. Medicaid is a "prospective" reimbursement program in that reimbursement to a nursing home is based on the facility's cost history adjusted or inflated to approximate future costs. Adjustments are made and reimbursement rates are set based on a nursing home's cost report for allowable costs it has incurred in the past year. In determining allowable reimbursable costs, AHCA utilizes the Florida Title XIX Long-Term Care Reimbursement Plan, Version XIX, dated November 27, 1995 (Reimbursement Plan), the reimbursement principles of the Federal Medicare Program's Health Insurance Manual (also known as the Provider Reimbursement Manual, PRM, or HIM-15), and Generally Accepted Accounting Principles (GAAP) or accepted industry practice. In making determinations as to allowable reimbursable costs, one first looks to the Plan, then HIM-15 and finally, GAAP. With certain exceptions not relevant here, The Florida Medicaid program reimburses all allowable costs, as those costs are defined in the Reimbursement Plan and HIM-15. Premiums paid by a nursing home for liability insurance are an allowable cost under the Reimbursement Plan. Allowable costs are broken out in the categories of property, patient care, and operating expenses. As indicated, in determining the prospective rate, AHCA inflates the reported allowable costs in each category forward subject to various class ceiling limitations and target limitations. A class ceiling is an upper limit on the cost that will be reimbursed. A target limitation is a limit on the rate of increase of costs from year to year. In short, a nursing home provider may be under its class ceilings; however, any increase in its costs that exceeds a certain percentage amount will not be recognized for reimbursement purposes. After applying the inflation factor, the class ceilings and the target limitations to allowable costs, AHCA arrives at a per-patient, per-day rate that the nursing home will be paid during the next year. Because nursing home reimbursement is prospective and subject to target limits, a nursing facility might be unable to recover its allowable costs of providing services if it experiences unanticipated expenses that cause its allowable costs to unexpectedly rise. In such cases, the Plan has provisions that allow, under very limited circumstances, an interim rate adjustment for an unexpected increase in costs. Such interim rate increases are covered in Section IV.J. of the Plan. In 1999, Brookwood's liability insurance premium cost was $400,000 for its six Florida facilities and one North Carolina facility. In the year 2000, Brookwood's liability insurance premium cost increased to $4,000,000. Of that amount, the premium cost for Walton County Convalescent Center increased from $56,000 to $546,000 and the premium cost for Washington County Convalescent Center increased from $84,000 to $819,000. The premium increase occurred after Brookwood's rates had been set based on its 1999 insurance costs. Additionally, in September of 2000, Brookwood's liability insurer left the state. Brookwood has since been unable to obtain liability insurance for its Florida facilities. It was possible for Brookwood to self-insure, but it did not. Self-insurance is generally only feasible for facilities larger than Brookwood. However, the evidence did not demonstrate that Brookwood could not self-insure. On May 30, 2000, faced with this unforeseen increase in liability insurance premiums, Brookwood applied to AHCA for an interim rate effective retroactively to January 1, 2000. This was necessary because the large increase in costs would not be covered by the normal rate of inflation allowed by the department and the cost of the increase would not be recoverable through the normal prospective reimbursement methodology due to the lag time between the cost increase and the filing of the cost report. In addition, without an interim rate Brookwood would not receive an adjustment to its target rate, thereby, limiting reimbursement for any increased costs it did report on its cost reports. Brookwood only requested interim rates for these two facilities because its other four facilities were at or above the cost ceilings and could get no relief from an interim rate. In other words, for those four facilities, Medicaid will not participate in payment for the extra costs incurred by the increased liability insurance premiums. Even for the two facilities at issue here, if an interim rate is granted, AHCA will not reimburse for any costs that exceed the cost ceilings. The increase of premiums and subsequent pull out by several insurance companies were part of a reaction to increased loss in the area of nursing home liability. The crisis was, in part, due to an increase in civil litigation against nursing homes being brought under Sections 400.022 and 400.023, Florida Statutes. Indeed, Florida's rate of nursing home liability litigation is significantly above the national average. However, Florida's nursing home population is also significantly larger than the national average. However, the crisis was also due to many other factors which impact liability and rates in Florida. While there may be some debate about the causes of the increased litigation, there is no debate that the cost of liability insurance increased significantly over a short period of time with some insurance companies ceasing to write liability insurance for nursing homes in Florida. The Agency denied Brookwood's request because no new interpretation of law by the state or federal government pertaining to liability insurance had occurred which caused Brookwood's costs to increase. As indicated earlier, the Plan contains provisions that allow a nursing home participating in the Medicaid program to request an interim change in its reimbursement rate when it incurs costs resulting from patient care or operating changes made to comply with existing state regulations and such costs are at least $5,000 or one percent of its per diem. The language of Section IV.J.2 of the Estate's Long- Term Care Reimbursement Plan states that: J. The following provisions apply to interim changes in component reimbursement rates, other than through the routine semi- annual rate setting process. * * * 2. Interim rate changes reflecting increased costs occurring as a result of patient care or operating changes shall be considered only if such changes were made to comply with existing State or Federal rules, laws, or standards, and if the change in cost to the provider is at least $5000 and would cause a change of 1 percent or more in the provider's current total per diem rate. Other subsections of Section J of the Reimbursement Plan deal with new requirements or new interpretation of old requirements. Those subsections do not apply in this case. The term standards as used in Section J refers to standards in the Reimbursement Plan, Section IV titled "Standards," the standards of care and operation detailed by the Medicaid program in its provider handbooks and such standards as are detailed in the Code of Federal Regulations, and HCFA/HHS guidelines, as well as state statutes and rules. These standards are the usual or customary method or practice used by the nursing home industry to gain reimbursement from Medicaid. The term standards include reimbursement standards, methods or principles for medicaid providers. In essence, a nursing home would have to incur additional or new costs to receive an interim rate adjustment. Brookwood's increase in insurance premiums was such an increase in costs, which would be allowable subject to ceiling and target limitations. At the time of Brookwood's request, there was no specific requirement in the state Reimbursement Plan, state or federal law requiring that liability insurance be carried by a nursing home. Additionally, there was no change to the Reimbursement Plan, state, or federal law or regulation requiring that liability insurance be carried by a nursing home. On the other hand, the reimbursement standards or requirements set forth in HIM-15 make it clear that a prudent Medicaid provider is expected to carry liability insurance or self-insurance in order to be reimbursed for any uninsured losses. Specifically, Section 2160.2 of the Provider Reimbursement Manual states: Liability damages paid by the provider, either imposed by law or assumed by contract, which should reasonably have been covered by liability insurance, are not allowable. Section 2161 of HIM-15 states that the reasonable costs of such insurance are allowable. Section 2162.1 of HIM-15 states that losses in excess of the deductible or co-insurance are allowable costs so long as the amount of insurance was consistent with sound management practices. Section 2162.5 of HIM-15 recognizes the allowability of deductibles, so long as they do not exceed 10 percent of the entity's net worth or $100,000 per provider. It also states that if you set a deductible higher than those amounts (or assume all the risk), any losses exceeding the 10 percent or $100,000 will not be allowable as recognized costs. The general implication of these and other related sections of HIM-15 is that a prudent provider is expected to carry liability insurance or be self-insured. Thus, a provider will be reimbursed for the reasonable costs of liability insurance, any reasonable deductible, and any losses in excess of reasonable insurance coverage. These limitations on loss recovery or reimbursement are standards for purposes of determining whether a interim rate increase is allowable. These standards were in effect at the time Brookwood's premiums increased. Thus, in order to comply with Medicaid's reimbursement standards, Brookwood had to remain insured or self-insured. The choice of which type of insurance to utilize to meet the reimbursement standard is left to the provider. Brookwood reasonably chose to insure through an insurance company. Since Brookwood was required to make such a choice in order to comply or conform to Medicaid's reimbursement standards, Brookwood is entitled to an interim rate increase. However, the interim rate provisions of the Plan only recognize such rates submitted within 60 days prior to the date of the interim rate request. Based on this limitation, Petitioners' rate increase is limited to the increase in premium incurred 60 days prior to its interim rate request around May 30, 2000.
Recommendation Based upon the foregoing findings of fact and Conclusions of Law, it is RECOMMENDED that A final order be entered granting Brookwood's interim rate request limited to the 60 days prior to the initial rate request. DONE AND ENTERED this 31st day of September, 2001, in Tallahassee, Leon County, Florida. DIANE CLEAVINGER Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 21st day of September, 2001. COPIES FURNISHED: Steven A. Grigas, Esquire Agency for Health Care Administration 2727 Mahan Drive Fort Knox Building 3, Suite 3431 Tallahassee, Florida 32308-5403 Theodore E. Mack, Esquire Powell & Mack 803 North Calhoun Street Tallahassee, Florida 32303 Diane Grubbs, Agency Clerk Agency for Health Care Administration 2727 Mahan Drive Fort Knox Building 3, Suite 3431 Tallahassee, Florida 32308-5403 Julie Gallagher, General Counsel Agency for Health Care Administration 2727 Mahan Drive Fort Knox Building 3, Suite 3431 Tallahassee, Florida 32308-5403
The Issue The issue is whether Petitioner's application for a 25.75 percent increase for its individual long term care policy form, number 93710(FL), filed on February 7, 2006, meets the applicable tests of Section 627.410, Florida Statutes,1 and Florida Administrative Code Rule 69O-149.005, and should be approved. Also at issue is whether Subsection 627.9407(7)(c), Florida Statutes (as amended by Section 9, Ch. 2006-254, Laws of Florida, effective July 1, 2007), applies in this case; and, if so, the propriety of Respondent's intended implementation of that amended statute to Petitioner's rate filing, and whether Petitioner's rate increase filing should be disapproved due to Respondent's implementation of that statute.
Findings Of Fact Petitioner's rate increase application concerns policy form number 93710(FL), a stand-alone individual home health care policy form, which is a sub-line of long term care health insurance. The policy provides reimbursement for certain medical care delivered outside the in-patient hospital or nursing home setting. The policy form and initial rates for the form were first approved in Florida in 1994. The policy has not been actively sold since 1998, and the existing policies constitute a closed block of business. Periodic rate increases for this policy form have been approved in the past: 30 percent in 1998, 20 percent in 1999, 20 percent in 2000, 50 percent in 2001, 30 percent in 2002, and 25 percent in 2003. OIR has prior approval authority over the rate increase applied for by Petitioner. Petitioner timely sought a formal administrative hearing in this matter. Petitioner's rate filing seeks approval of a 25.75 percent rate increase. Christine Jung, the actuary who submitted the rate filing, is a qualified actuary who meets the Qualification Standards for Prescribed Statements of Actuarial Opinion published by the American Academy of Actuaries ("AAA"). Mr. Yee's opinion that Ms. Jung is not a qualified actuary is not persuasive. He could point to no provision in the AAA's Qualification Standards for Prescribed Statements of Actuarial Opinion that did not meet Ms. Jung's education, training, and experience when she submitted the rate filing at issue in this case. Any objections to Ms. Jung's qualifications go to the weight to be given her testimony when compared with the testimony given by the other actuarial experts in this matter. The greater weight of the evidence supports the fact that a rate increase of 25.75 percent meets the tests prescribed for approval in Florida Administrative Code Rule 69O- 149.005(2)(b). Petitioner's evidence, which is the more persuasive evidence, establishes that the requested rate increase meets the tests of that rule when anticipated future experience is projected properly, in accordance with sound actuarial techniques and Actuarial Standards of Practice ("ASOPs"). Ms. Jung concluded that a rate increase of 25.75 percent was actuarially appropriate based on her actuarial analysis. Ms. Dawn Helwig is a highly qualified health insurance actuary who specializes in rate analysis and rating of long term care insurance, including home health care insurance. Her testimony is persuasive. She evaluated Petitioner's rate filing and its component data, and performed an actuarial analysis using generally accepted actuarial techniques, and in accordance with the ASOPs and actuarial principles. Ms. Helwig concluded, and it is so found, that Petitioner's rate increase request of 25.75 percent is actuarially justified, will yield premiums that are not excessive in relation to the benefits offered under policy form number 93710(FL), and satisfies the tests for approval set forth in Florida Administrative Code Rule 69O- 149.005(2)(b)1.a. and b. Ms. Helwig concluded that a rate increase of 37.4 percent to 39.9 percent (depending upon whether industry medical trend is used in the first year of the rate projection) is actuarially justified based upon Petitioner's claims and premium experience reflected in the rate filing. By comparison, Ms. Jung's rate indication of 25.75 percent was conservative. Ms. Jung used an un-trended average of historical loss ratios to arrive at her starting loss ratio value (or current loss ratio) from which to project forward to determine Petitioner's rate need. Had Ms. Jung trended the claims costs in the three years of Petitioner's historical experience that she used to determine her starting loss ratio, her rate indication would have been higher than the 25.75 percent rate increase for which Petitioner applied. At the hearing, OIR offered three independent grounds for disapproving Petitioner's rate filing: 1) that the proposed rate increase was not based upon a "credible body of past data," which must have occurred over the lesser period of the past five years or at least 1,000 claims; 2) that the use of a medical trend has not been justified; and 3) that the rate increase would result in a rate higher than the OIR's published new business rate pursuant to Subsection 627.9407(7)(c), Florida Statutes. OIR did not assert, as a basis for denial, that Petitioner's requested rate increase would result in inadequate premium rates under Florida Administrative Code Rule 69O- 149.005(1), and no evidence was offered at the hearing that the requested rate increase would result in inadequate rates. Accordingly, it is found that Petitioner's requested rate increase would not result in inadequate rates. OIR did not assert, as a basis for denial, that Petitioner's requested rate increase would result in unfair discriminatory premium rates under Florida Administrative Code Rule 69O-149.005(1), and no evidence was offered at the hearing that Petitioner's requested rate increase would result in unfair discriminatory rates. Accordingly, it is found that Petitioner's requested rate increase would not result in unfair discriminatory rates. Mr. Keating interprets Florida Administrative Code Rule 69O-149.0025(6) to mean that, in developing the Florida and nationwide rate indications called for in Florida Administrative Code Rule 69O-149.0025(6), the actuary must use the five years of historical data that the Rule prescribes for weighing the separate Florida and nationwide rate indications for credibility. Ms. Jung derived her separate Florida and nationwide rate indications from the three most recent full years of Petitioner's data. Mr. Keating, therefore, asserted that Petitioner's requested rate increase is not supported by sufficiently credible experience data. The more persuasive evidence does not support Mr. Keating's opinion that the experience data Petitioner used to develop its rate request is not sufficiently credible. Mr. Keating's interpretation of Florida Administrative Code Rule 69O-149.006(3)(b)23.b.(II) is not borne out by the Rule's language. With reference to projecting rate need based on in-force experience, the portion of the Rule states as follows: The experience period shall reflect the most current data available, generally the most recent 12 months for coverage subject to medical inflation, or the period of time to determine the credible data pursuant to subsection 69O-149.0025(6), F.A.C. (emphasis supplied) That provision is disjunctive, and its use of the word "generally" connotes that its disjunctive indicators for experience periods are examples, not requirements. As Mr. Keating conceded at the hearing, neither that rule passage nor other related rules equate "the most current data available" with "the period of time to determine credible data pursuant to subsection 69O-149.0025(6), F.A.C." The rules thus leave to actuarial judgment the decision concerning "the most current data available" on which to develop the separate Florida and nationwide rate indications called for in the rules. The rules do not mandate that the actuary use five full years of data to develop the separate Florida and nationwide rate indications. The rules do require that, once those separate Florida and nationwide rate indications are developed, they are to be credibility-weighted using five years of data under Florida Administrative Code Rule 69O-149.0025(6) to arrive at the ultimate rate indication. This is what Ms. Jung did. OIR has not consistently required use of the five years of data as the experience period for making the separate Florida and nationwide rate indications. One of Respondent's exhibits, a Guarantee Trust Life rate filing for this same policy form, was approved by consent order, dated December 23, 2003. It used only the most recent calendar year's loss ratio as the starting value for projection, though there were fewer than 1,000 claims in that calendar year. The more persuasive evidence shows that Mr. Keating's interpretation would double-count the credibility factor in the rules. Moreover, the more persuasive evidence shows that applying Mr. Keating's interpretation of the credibility weighting method set forth in Florida Administrative Code Rule 69O-149.0025(6)(e)3. as "equivalent to" the alternative methods described in Florida Administrative Code Rule 69O-149.0025(6)(e)2. would, in fact, not yield equivalent results for the same data set, as a matter of mathematics. Ms. Jung developed a rate indication based on Petitioner's Florida experience under policy form 93710(FL), and a separate rate indication based on Petitioner's nationwide data on that policy form. She used the most recent three full years of experience on the policy form (2002-2004) which she found to be appropriate current data for developing Florida and nationwide rate indications. After separately deriving an indicated rate increase from Florida data and a rate increase indicated by total nationwide data, consistent with Florida Administrative Code Rule 69O-149.0025(6)(e)3., she then weighed the two separate rate indications for credibility by weighting the resulting rate changes from each district analysis by the credibility of each distinct component assigned by that rule. Her analysis resulted in a 25.79 percent rate increase need, which she rounded down to 25.75 percent. Florida Administrative Code Rule 69O-149.0025(6) establishes the acceptable range for credible data (the number of claims needed for making rate projections) and the procedures for weighting the data for credibility when the claims frequency used in rate projections falls between the Rule's upper and lower bounds of acceptability. A frequency of at least 1,000 claims over the five years preceding the rate filing is given 100 percent, or full, credibility. Two hundred claims or fewer are given no (zero percent) credibility. Claim frequency counts falling between 200 and 1,000 receive a proportionate credibility weight under the formulae in Florida Administrative Code Rule 69O-149.0025(6)(e), which provides, in pertinent part: (b)1. For policy forms . . . such as accident and long term care, at least 1,000 claims, over a period not to exceed the most recent 5-year period, shall be assigned 100 percent credibility; 200 claims shall be assigned 0 percent credibility. * * * (e)1. Florida only experience shall be used if it is 100 percent credible. 2.a. If Florida experience is not 100 percent credible, a combination of Florida and nationwide experience shall be used. The Florida data shall be given the weight of the ratio of the Florida credibility to the nationwide credibility. For example, if Florida data is 10 percent credible and nationwide is 40 percent credible, the Florida data will be given the weight of [10%/40%] 25 percent. The nationwide data shall be given the weight of the ratio of the nationwide credibility less the Florida credibility to the nationwide credibility. In the above example, the nationwide data will be given the weight of [(40%-10%)/40%] 75 percent. The data is combined using the indicated weights (in the example above, the experience data would be weighted 25%/75%). The combination of the two weights will always equal 100 percent. A rate change is determined from the blended data. 3. The analysis in subparagraph 2. above is equivalent to determining the indicated rate increase from the Florida only data and the total nationwide data separately, and then weighting the resulting rate changes from each distinct analysis by the credibility of each distinct component. Ms. Jung's separate Florida and nationwide rate indications were based on claim counts that fall within the credibility range posted by Florida Administrative Code Rule 69O-149.0025(6)b.1. The number of claims in the last three years of data from which Ms. Jung derived her Florida and nationwide rate indications exceeded 200 claims, in each case. Ms. Jung applied five full years of company claims data to combine her Florida and nationwide rate projections, that is, to separate rate indications for credibility in arriving at the ultimate indicated rate need of 25.75 percent. She did so properly, in accordance with the provisions of Florida Administrative Code Rule 69O-149.0025(6)(e)3. Moreover, in her actuarial projections of Florida and nationwide rate indications, Ms. Helwig, Petitioner's consulting actuary, used the five years of Petitioner's historical experience data that Mr. Keating believes should be used. Ms. Helwig concluded that a rate increase of at least 25.75 percent was actuarially justified, and that the full five years of data would support an increase of up to 39.9 percent in her opinion. Mr. Yee, Respondent's actuarial expert, testified that in his opinion neither Ms. Jung's analysis nor Ms. Helwig's analysis is based on a sufficient number of claims to be regarded as adequately credible. The premise for Mr. Yee's opinion is his personal, subjective standard for "fully credible" long term care ("LTC") data. Mr. Yee's full-credibility standard contradicts the full- credibility standards for LTC ratemaking prescribed by Florida in Florida Administrative Code Rule 69O-149.0025(6). Florida Administrative Code Rule 69O-149.0026(6)(b)1. provides that for LTC forms, "at least 1,000 claims, over a period not to exceed the most recent 5-year period, shall be assigned 100 percent credibility; 200 claims shall be assigned 0 percent credibility." The Rule thus prescribes that 1,000 LTC claims over five years are to be considered fully credible; that 200 claims is the credibility floor; and it establishes methods for weighting the credibility value of claim counts falling between 200 and 1,000. Contrary to the Florida rule, Mr. Yee holds the view that at least 3,246 LTC claims are required for "full credibility." Based upon his "full credibility" premise, he believes that at least 649 claims are needed to consider LTC data credible enough for making a rate projection. He arrives at his 649-claim credibility minimum by noting that since 200 claims in the Rule (the credibility floor) is 20 percent of the 1,000 claims assigned full credibility by that Rule, 649 is the minimum number of claims required for making a LTC rate projection (20 percent of 3,246). Since Petitioner's data contains 621 claims for the most recent five-year period, less than the 649 claim floor, Mr. Yee concludes that Petitioner's data is not credible, and, therefore, should not be used for making a rate projection. He, therefore, concludes that the rate increase is not justified by either Ms. Jung's or Ms. Helwig's actuarial analysis. However, Mr. Yee's data credibility opinion directly conflicts with Florida Administrative Code Rule 69O-149.0025(6). The Rule is clear that 1,000 claims or more shall be accorded full credibility for LTC ratemaking and that claim counts falling between 200 and 1,000 are to be credibility-weighted as set forth in the Rule. Mr. Yee concedes that his "full credibility" standard, the foundation of his no-credibility opinion, is a subjective standard that he and four other actuaries recommended in a report to the National Association of Insurance Commissioners on the subject of LTC data credibility. He further concedes that his "full credibility" standard has not been adopted by any regulatory body or embraced by AAA. It has not even been circulated for comment to the AAA membership. Mr. Keating testified that a claims frequency of 1,000 claims should be regarded as fully credible for LTC ratemaking under the Florida rules. Mr. Yee's opinion, while interesting and apparently well-intended, is, therefore, not credited. The more persuasive evidence shows that Petitioner's data is adequately credible under Florida's adopted standards, and was properly used by Petitioner's actuaries in developing the rate indications supporting Petitioner's requested rate increase. Although in its interrogatory responses OIR stated that Petitioner failed to adjust earned premium on a current rate basis, Mr. Keating testified at hearing that Petitioner had, in fact, provided earned premium on a current rate basis. Therefore, this asserted reason for denial of Petitioner's rate increase is not supported by the evidence. The actuaries who testified agreed that putting both historical premiums and losses (claim costs) on a "current basis" or a "current rate basis" is actuarially appropriate in order to arrive at the correct starting point for a rate projection (whether that starting point is expressed as a loss ratio on a current basis or claim costs on a current basis), and that an accurate current starting point is centrally important in making and evaluating rates. However, neither the phrase "earned premium on a current rate basis" nor the terms "current rate basis" or "current basis" is defined in Section 617.410, Florida Statutes, or in Florida Administrative Code Rule 69O-149, Part I. Moreover, the statutes and rules do not prescribe how to arrive at a "current rate basis" starting value for rate projection. The propriety of a "current rate basis" technique, therefore, must be judged by whether it comports with the ASOPs and accepted actuarial principles. The major point of contention among the actuaries who testified was on the question of the appropriate "current rate basis" methodology for determining the starting value for future projection (the correct starting loss ratio on a current rate basis or the correct starting claims cost on a current basis). Mr. Keating made what he refers to as a "current rate basis" adjustment to Petitioner's historical data. He testified that, based on his current rate basis adjustment, he estimated the "current rate basis" Actual-to-Expected (A/E) ratio for Petitioner's historic Florida experience to be 95.41 percent, which he testified results in a current-rate-basis starting loss ratio value of 74.34 percent for making a rate projection. Mr. Keating applied that 74.34 percent starting-point value, and restructured Petitioner's rate projection, culminating in his estimate of a future A/E ratio for Florida of 96.66 percent. Since, according to his restructuring, the future A/E ratio is less than 1.0, he concluded that Petitioner failed to meet the "Anticipated Loss Ratio" test of Florida Administrative Code Rule 69O-149.005(2)(b)1.a. He performed the same analysis, using the same "current rate basis" method on Petitioner's nationwide data, and reached the same conclusion. The more persuasive evidence, however, shows that the "current rate basis" adjustment Mr. Keating made to Petitioner's data does not comport with the ASOPs and the Florida rules. His "current rate basis" analysis yields starting values for projecting Petitioner's need (his starting loss ratio of 74.34 percent for Florida data and 76.66 percent for nationwide data), which do not match Petitioner's recent experience, and which, in fact, Petitioner has not experienced since 2002, even when Petitioner's historical experience is adjusted by earned premium on a current rate basis. Under Mr. Keating's starting loss ratio of 74.34 percent, and the corresponding number of claims implied by that loss ratio, Ms. Helwig demonstrated that if Mr. Keating's starting loss ratio were correct (if it were the true mean loss ratio), then the probability of Petitioner experiencing the actual number of claims it has in fact experienced in the two- to three-year period before 2005 is less than one percent. ASOP 25, which instructs that the methods an actuary uses should produce a starting value with less than a one percent probability of occurrence, is not found to be reasonable. ASOP 8 instructs that the actuary is to adjust past experience, specifically historical loss ratios, for trends in morbidity in a way that reasonably matches claim experience to exposure. Mr. Keating's current rate basis method did not do so. The more persuasive evidence shows that Mr. Keating's "current rate basis" analysis does not comport with ASOP 8, which provides that when past experience is used to project future results, both past premium rates and morbidity (claims experience) should be adjusted to reflect changes and trends. Mr. Keating did not recognize or take into account the claims trend in the company's historical experience when coming to his "current rate basis" A/E ratios and his starting values for the restated projections he made from Petitioner's data. To derive the "current rate basis" A/E ratios of 95.41 percent (Florida) and 98.53 percent (nationwide), which he then used to develop starting loss ratios of 74.34 percent based on Florida data and 76.66 percent based on nationwide data, Mr. Keating simply took a weighted average of 4.75 years of Petitioner's historical A/E ratios (each year's A/E ratio, as adjusted by earned premium on a current rate basis). Mr. Keating did not trend Petitioner's historical data to arrive at his current basis A/E ratios and his starting-point loss ratio values. To derive the "current rate basis" starting point A/E ratios, Mr. Keating used an average of Petitioner's historic yearly A/E ratios, and did not trend the yearly A/E ratios, based upon this rationale: In his view, only medical (utilization) trend should be used to trend historical data, since he believes that "aging" trend should be pre-funded in the initially approved premium for any long term care product. Since he believed that Petitioner had not sufficiently identified medical "utilization" trend separately from the "aging" trend in the historical data, Mr. Keating, therefore, averaged Petitioner's historical experience and did not apply any trends in the company's claims experience when arriving at his starting loss ratio. The actuaries, four of whom testified at hearing, disagreed about whether, in the context of making projections of future anticipated experience from a current-basis starting- point value, Petitioner's actuaries properly isolated medical (utilization) trend from "aging" trend, and whether, therefore, utilization trends should be used in projecting forward. The more persuasive trend, as discussed more fully below, shows that utilization trend over and above aging trend is adequately identified in the company's data, and was appropriately used for projecting forward. That debate, however, is separate from the issue of whether an actuary may ignore trend in a company's historical data to develop the current-basis starting-point for projecting into the future. The more persuasive evidence is that the ASOPs require the actuary to take trend in the company's historical data into account in coming to a starting-point value for future projection (the current basis loss ratio or current basis claims cost), regardless of whether the historical trend is categorized as "medical," "aging," or otherwise. The more persuasive evidence is that, if the actuary fails to recognize and take into account historical trend in evaluating the starting point for a future projection, the starting-point value will be actuarially incorrect, thus making the future projection incorrect, regardless of whether, for purposes of the future projection, the actuary includes a medical trend assumption or excludes it. The persuasive evidence on this point is reinforced by the language of Florida Administrative Code Rule 69O- 149.006(3)(b)18. That Rule passage calls for differentiating between medical (utilization) trend and insurance (aging) trend in making "trend assumptions." "Assumptions" about medical trend or aging trend denotes something the actuary assumes to be the case for future periods, not something that is an observable past fact. In contrast, a company's historical claims experience, which must be taken into account in arriving at the starting value for a rate projection, is a directly observable fact, not an assumption. Likewise, the trend in a company's past experience is a directly observable fact, not an assumption. According to the more persuasive evidence and the applicable ASOPs, an actuary may not disregard such observed historical claims trend in arriving at a "current basis" starting point to make future projections. Mr. Keating arrived at his starting-point values without considering and accounting for trend in Petitioner's historical data. His methodology was, therefore, actuarially flawed. If Mr. Keating had properly accounted for historical trend in his evaluation, his starting-point loss ratio values would have been approximately 113 percent, which compares closely with Ms. Helwig's starting value of 107 percent. His projection would, therefore, have resulted in a future A/E ration of 148 percent, which calls for approval of Petitioner's rate request under the "Anticipated Loss Ratio" test of Florida Administrative Code Rule 69O-149.005(2)(b)1.a. Ms. Helwig properly took historical trend into account in reaching the starting value for her future projections, and concluded that the appropriate starting value was a loss ratio of 107 percent. Her projections show that Petitioner's rate increase application meets the approval tests of Florida Administrative Code Rule 69O-149.005(2)(b)1. Ms. Jung used a 10 percent medical trend assumption, for one year only, in her projection forward of anticipated experience, appropriately weighted under Florida Administrative Code Rule 69O-149.0025(6). Ms. Helwig also assumed medical trend, likewise for one year only, in her projection of anticipated experience, appropriately weighted under Florida Administrative Code Rule 69O-149.0025(6). The more persuasive evidence shows that using medical (utilization) trend in projecting forward in this case is appropriate, and the medical trend values used by Petitioner's actuaries for projection are reasonable and appropriate. Florida Administrative Code Rule 69O-149.006(3)(b)18. provides that, when making future projections, medical trend (which includes "utilization" trend) may be used, but "aging" trend may not be included. The Rule directs the actuary to "make appropriate adjustments to claims data to isolate the effects of medical trend." The evidence demonstrates that Ms. Helwig appropriately adjusted Petitioner's claims data to isolate the effects of the medical (utilization) trend, and properly included utilization trend in her projections. "Aging" trend refers to the expected increase in frequency of claims as policyholders' ages increase after policies are originally issued. As Ms. Helwig persuasively testified, companies filing original rates for long term care policies make an actuarial assumption about what the expected increase in claim frequency due to aging will be over the life of the policies, which is commonly understood by health actuaries to be aging trend. The aging trend assumption is incorporated into the durational loss ratio curve (or table) for the policy form, approved by Respondent when the policy form and its original rates are approved. The originally approved premium rate is intended to cover increases in claims frequency assumed in the durational loss ratio curve, that is, increase over time in claim frequency from aging, assumed in the durational loss ratio curve, is pre-funded by the originally- approved premium rates. As Ms. Helwig persuasively testified, increases in claims frequency, over and above the aging trend originally assumed in the durational loss ratio curve, is utilization trend, which is properly included in medical trend. It is an experienced trend in claims frequency that exceeds the trend which was originally assumed, and that exceeds what was assumed to be pre-funded in the originally approved premium rate. Ms. Helwig testified, without contradiction that, in Petitioner's five years of experience, she evaluated that a clear, observable trend exists in the frequency of claims that exceeds the frequency trend assumed in Petitioner's approved durational loss ratio curve, and that this excess claims frequency trend was not pre-funded in the original approved premium rate. She, therefore, subtracted the aging trend assumed in the durational loss ratio curve from the average observed total trend, and properly included the excess utilization trend as medical trend in evaluating the propriety of Petitioner's requested rate increase. She properly isolated the effects of medical trend, and properly included the medical trend, so derived, in her experience projections. Mr. Keating's and Mr. Yee's opinions on the use or non-use of medical trend to make projections in this case, under Florida Administrative Code Rule 69O-149.006(3)(b)18., are not persuasive. Both Mr. Keating and Mr. Yee testified that Petitioner had not "separately identified" (isolated) medical trend, in their opinion, and thus use of medical trend in projecting future experience to derive rates for Petitioner's policy is not justified. However, both of Respondent's actuaries based their opinions on the assumption that all utilization increases were intended to be pre-funded in the rates originally submitted and approved for this particular policy form (i.e., that all claims frequency increases were intended to be subsumed in the aging trend originally included in the durational loss ratio curve when the initial premium rate for this policy form was proposed and approved). They, therefore, assumed that all frequency increases under this policy form must be aging trend, and, therefore, that no utilization increase in the company's experience can be treated as part of medical trend for this product. However, Mr. Keating's and Mr. Yee's assumption on this point is contradicted by the evidence. The actuarial memorandum for the original 1994 rate filing (which Respondent approved) clearly noted that the initial premium rate for this particular policy form was not intended to fully pre-fund all expected utilization increases, and that utilization increases in excess of what is pre-funded in the original premium rate would be funded by periodic rate increases. Mr. Keating and Mr. Yee did not consult the original rate filing and the original actuarial memorandum in forming their opinions. As Ms. Helwig testified, and it is concluded here, it is consistent with how the premium rate for this particular policy form was initially filed and approved to classify, as medical trend, the utilization trend in the company's experience that exceeds the utilization frequency assumed in the durational loss ratio curve. Mr. Yee and Mr. Keating additionally offered the opinion that medical trend was not justified because Petitioner's data was insufficiently credible. These opinions are not credited. Petitioner's actuaries used adequately credible data in their analyses under the standards set forth in the Florida rules, as discussed above. Respondent disagreed at hearing with Ms. Helwig's use of industry medical trend in her projections. However, the more persuasive evidence shows that Ms. Helwig properly used industry medical trend. The industry medical trend value she used was derived from the Milliman Claim Cost Guidelines, adjusted to Petitioner's benefit structure and in-force business. The Milliman Claim Cost Guidelines are the type of data health actuaries reasonably rely upon in reaching professional opinions in their field. Ms. Helwig gave appropriate credibility weight to the industry medical trend she used in her projections, in accordance with Florida Administrative Code Rule 69O- 149.0025(6). Moreover, she testified without contradiction that, even if industry medical trend were excluded from her projections, the indicated rate need from her analysis would still meet or exceed the 25.75 percent rate increase for which Petitioner has applied. Mr. Keating and Mr. Yee testified that Petitioner's rate increase application should not be approved because Petitioner should have filed a new durational loss ratio curve for approval, and phased-in the resultant rate increase over time, rather than making a periodic rate increase filing, as Petitioner chose to do. Respondent did not assert this as a basis for denial in its denial letter, in its interrogatory responses, or otherwise before hearing. Petitioner chose to present evidence on this issue, and on the more persuasive evidence, Mr. Keating's and Mr. Yee's opinions that Petitioner was required to file a new durational loss ratio curve are not found to be persuasive. Both of Respondent's actuaries rest their opinion upon their interpretation of two provisions in Florida Administrative Code Chapter 69O-149, Part I. Their interpretation does not comport with the plain language of the rules they rely upon. Respondent's actuaries testified that Florida Administrative Code Rule 69O-149.006(3)(b)20. requires Petitioner to file a new durational loss ratio curve (or table), rather than seek a periodic rate increase, when company experience shows utilization exceeding what was assumed in the existing loss ratio curve. That subsection reads, in pertinent part, as follows: [The actuarial memorandum for a rate increase] shall also include the current approved durational loss ratio table for the form. If a revised durational loss ratio table is being proposed, the proposed table, together with a justification for the new table, shall be provided. The proposed new table shall be consistent with the claim projections contained in the new filing. If approved, the new table will be used in filings made subsequent to the one in which it is being proposed. (V)(A) When the slope of the shape of the durational loss ratio table is changed . . . from those used in the last approved rate filing, any rate increase due to the change shall be uniformly implemented over a 3 year period. Contrary to Mr. Keating's and Mr. Yee's views, the plain language of this Rule does not require Petitioner to propose a revised curve. The Rule prescribes a particular course of conduct if a revised curve is proposed, but that does not require that the rate filer propose a new curve. Mr. Keating and Mr. Yee also testified that Florida Administrative Code Rule 69O-149.0025(7)(a) required Petitioner to file a new durational loss ratio curve. These opinions are inconsistent with the plain language of that Rule, as well. That Rule provides, in pertinent part: (a)1.a. The company shall adjust the durational loss ratio table when the average annual premium at the time of filing results in a loss ratio standard pursuant to the provisions of subsection 69O-149.005(4), F.A.C., that is changed by at least .5 percent from the current lifetime loss ratio standard for the form. b. Each loss ratio in the durational loss ratio table shall be increased by the ratio of the loss ratio standard determined from the current average annual premium divided by the prior lifetime loss ratio standard . . . . This Rule refers to Florida Administrative Code Rule 69O- 149.005(4). Florida Administrative Code Rule 69O-149.005(4), in turn, contains tables setting out minimum loss ratio standards (and formulas for revising minimum loss ratio standards in those tables) for some types of health insurance policies: policy forms whose loss ratio standards are subject to change based on the average annual premium at the time of the rate filing. Florida Administrative Code Rule 69O-149.005(4), however, explicitly excludes long term care policies. It provides: These tables are not applicable to Medicare Supplement or Long-Term Care Policy Forms. The minimum loss ratios for those policy forms are found in Rule Chapters 69O-156 and 69O-157, respectively. Florida Administrative Code Rule 69O-149.005(4) excludes long term care policies because, unlike the types of policies governed by Florida Administrative Code Rule 69O-149.005(4), the minimum loss ratio standard for long term care policies does not change when the average annual premium changes. The minimum loss ratio standard for long term care policies is a constant value, as stated in Florida Administrative Code Rule 69O- 157.022. Florida Administrative Code Rule 69O-149.0025(7) only requires a revised durational loss ratio curve to be submitted for policy forms whose minimum loss ratio standards are subject to change under Florida Administrative Code Rule 69O-149.005(4). As noted, that is not true of long term care policies. Accordingly, Mr. Keating's and Mr. Yee's opinions that this rule required Petitioner to submit a new durational loss ratio curve are not persuasive. Both Mr. Keating and Mr. Yee further suggested that Petitioner should file a new durational loss ratio curve, rather than seek a periodic rate increase, because of their assumption that all utilization (frequency) increases for long term care policies should have been pre-funded in the rates originally submitted and approved for the product. In other words, they opine, all claim frequency increases should be included in the aging assumption of the original durational loss ratio curve for a long term care policy. Whatever the accuracy of that assumption may be as to the rate structure of long term care products in general, the evidence shows it is factually incorrect as to this particular product. The actuarial memorandum for the initial, approved rate filing for this particular policy form clearly noted that the initial premium rates were not intended to fully pre-fund all expected utilization increases. The rate structure approved by Respondent for this product expressly contemplated that utilization increases, in excess of the utilization trend assumed in the initial durational loss ratio curve, would be funded by future periodic rate increases. Consistent with that approved rate structure, Respondent has approved several periodic rate increases for this product (most recently by consent order in 2003), and did not previously take the position that Petitioner should file a revised durational loss ratio curve. Respondent's actuaries' opinions on this point are contradicted by the evidence and are not persuasive. Mr. Yee opined that annual variation or volatility in Petitioner's claim reserves may mean that the claim reserves in Petitioner's data may not actually reflect the company's true experience. He thus concluded that a rate increase was not justified. Respondent did not assert this as a basis for denial in its denial letter, responses to interrogatories, or otherwise prior to the hearing. Nevertheless, Petitioner presented evidence on the issue, and on the more persuasive evidence Mr. Yee's opinion is not persuasive. Mr. Keating did not testify that annual variation in Petitioner's claim reserves was cause to deny the rate increase, and did not mention any concern over annual claim reserve variation as a basis to deny the rate increase. Mr. Yee admitted that trending and averaging of the data smoothes claim reserve year-to-year volatility. Ms. Helwig persuasively testified that the observed claim reserve variations correspond closely with observed annual fluctuations in claim frequency, and that averaging Petitioner's claims history (as both she and Ms. Jung did) smoothes year-to-year data variability. The more persuasive evidence does not support Mr. Yee's opinion on this point. Mr. Yee testified that he believed there was a discrepancy between current premiums on this book of policies and "active life reserves" displayed in Ms. Jung's actuarial memorandum supporting the filing. Mr. Yee characterized the discrepancy as "alarming," but did not offer an objective basis for that characterization. He testified that, because Ms. Jung did not explain the active life reserves in her actuarial memorandum, he concluded that she was not qualified to make the filing, and it should, therefore, be disapproved. Respondent did not assert this as a basis for denial in its denial letter, its interrogatory responses, or otherwise before hearing. Nevertheless, Petitioner presented evidence on the issue, and on the more persuasive evidence Mr. Yee's opinion is not persuasive. On cross-examination, Mr. Yee testified that a rate filing actuarial memorandum is not intended to be a reserve opinion by the actuary, and that annual reserve opinions are separately made. Mr. Yee also testified that companies often pool active life reserves across policy forms, and he does not know whether Petitioner's reported active life reserves are the result of such multi-policy-form pooling, or pertain exclusively to policy form 93710(FL). He admitted he had no personal knowledge concerning the accuracy of Petitioner's life reserves displayed in Ms. Jung's actuarial memorandum. He, therefore, has no factual basis to question them. He further conceded that neither Florida Administrative Code Rule 69O- 149.006, nor applicable ASOPs place any obligation on Petitioner or its actuaries to provide explanation in the rate filing actuarial memorandum concerning the reported life reserves. Mr. Keating did not request any further explanation from Petitioner concerning its reported life reserves, did not list a deficiency of explanation concerning life reserves as a basis for denial, and did not testify that he asked for more explanation concerning life reserves, or found the absence of explanation a reason for disapproving Petitioner's rate increase filing. Ms. Helwig testified that active life reserves play no role in evaluating the appropriateness of a proposed rate for a home health care product. Consistent with her testimony, Florida Administrative Code Rule 69O-149.006(3)(b)17. expressly provides: "Because these [active life] reserves do not represent claim payments, but provide for timing differences, they shall not be included in any benefit and loss ratio calculations." The Rule expressly acknowledges that active life reserves are not material to evaluating whether the benefit/premium relationship, often expressed in terms of loss ratios, meets the rules' tests for approval of the requested rate. Mr. Keating testified that certain data inconsistencies in Ms. Jung's actuarial memorandum supporting the rate increase filing were not significant, and did not affect his review or his conclusions. Respondent did not cite these minor data discrepancies as a basis for denial. Ms. Jung testified that the data discrepancies were immaterial, and did not affect her rate analysis. It is found that the data inconsistencies are immaterial to the issues to be decided in this case, and are not a basis to deny Petitioner's requested rate increase. As noted in the Preliminary Statement above, before the final hearing, Petitioner made a Motion to Strike and Motion in Limine, directed to Respondent's assertion that amended Subsection 627.9407(7)(c), Florida Statutes, would serve as an additional basis for the disapproval of Petitioner's rate increase. Respondent asserted this additional basis for the first time in its statement of position in the Pre-Hearing Stipulation filed in this matter. Petitioner's Motion was denied at the time it was made in order to hear evidence as to how Respondent intended to implement and apply the amended statute to Petitioner's rate filing. Numerous facts were elicited at hearing that bear on the applicability of Subsection 627.9407(7)(c), Florida Statutes. Section 9, Chapter 2006-254, Laws of Florida, amended Subsection 627.9407(7), Florida Statutes, in June 2006, after this rate filing was made and disapproved. Section 9 (creating Subsection 627.9407(7)(c), Florida Statutes) provides, in part, and Section 11, Chapter 2006-254, Laws of Florida, provides in pertinent part: (c) Any premium increase for existing insureds shall not result in a premium charged to the insureds that would exceed the premium charged on a newly issued insurance policy, except to reflect benefit differences. If the insurer is not currently issuing new coverage, the new business rate shall be as published by the office at the rate representing the new business rate of insurers representing 80 percent of the carriers currently issuing policies with similar coverage as determined by the prior calendar year earned premium. Section 11. This act shall apply to long- term care insurance policies issued or renewed on or after July 1, 2006. Petitioner is not issuing new coverage under this policy form. Amended Subsection 627.9407(7)(c), Florida Statutes, is not self-executing in its application to insurers, such as Petitioner, that are not issuing new coverage. As to Petitioner (and similarly situated insurers), Respondent implemented amended Subsection 627.9407(7)(c), Florida Statutes, by publishing benchmark charges, developed by Respondent, to which Petitioner's rates were compared. In developing its published benchmarks, Respondent made a number of policy decisions, which are discussed below. Respondent posted its benchmark charges on its website in late September of 2006. Well before hearing, while a meaningful opportunity for discovery still was available to Petitioner, Respondent had ample opportunity to notify Petitioner that it would be asserting its benchmarks as additional grounds for the disapproval of Petitioner's rate increase filing. Respondent could have done so by amending the denial letter or by amending its interrogatory responses. Respondent failed to do so. Respondent asked to continue the final hearing scheduled for November 21, 2006, which was granted, and never asserted as a basis for the continuance that it intended to assert a new basis for denial of Petitioner's rate increase filing, namely, the implementation of the amended statute. Respondent did not even assert the amended statute as a further basis for denial at a deposition taken by Petitioner of its actuary and designated agency representative, Mr. Keating, on November 30, 2006. Mr. Keating was specifically asked at that deposition whether Respondent intended to assert any additional bases for disapproval of Petitioner's rate filing. Mr. Keating responded that Respondent had no such intention. Had Respondent given timely advance notice, Petitioner would have had a fair opportunity to take discovery on the issue, to amend its Petition, or both. Prior approval of Petitioner's rate increase is an authorization required by law before it can implement the rate pursuant to Subsection 120.52(15) and Section 627.410, Florida Statutes. Respondent did not assert this additional basis for disapproval until December 22, 2006, after discovery had been completed. In light of this late date and the intervening holidays, Respondent's delay deprived Petitioner of a fair and meaningful opportunity to take discovery and prepare to defend Respondent's assertion at the final hearing beginning January 3, 2007. Since Petitioner could not implement the new rate unless and until the proceedings were completed and it received approval, additional continuances and delays would only have served to further prejudice Petitioner's position. Additionally, Respondent's proposed implementation and application of amended Subsection 627.9407(7)(c), Florida Statutes, constitutes agency action that determines Petitioner's substantial interests on the basis of non-rule policy. Numerous facts support this finding. Amended Subsection 627.9407(7)(c), Florida Statutes, is not self-executing to insurers like Petitioner that are not issuing new coverage. Respondent made policy decisions on several matters to implement the statute and to apply it to Petitioner, including: 1) What constitutes "similar coverage;" 2) Which insurers comprise 80 percent of carriers currently issuing policies "with similar coverage" for purposes of developing the benchmarks; 3) Within that 80 percent of carriers, whether the charges of each carrier are to be given equal weight in developing the benchmark charges, or instead, will be weighted according to each carrier's percentage of the previous year's earned long term care premium; 4) Since the carriers whose charges are used in developing benchmarks offer multiple home health care policy forms and various benefit levels and correspondingly varying premium charges, which particular charges by those carriers will be used in developing the benchmark charges; 5) What information, if any, other than the published benchmark charges will be used in making the comparison called for by the statute; and 6) What claims experience adjustments, if any, to the published benchmark charges will be used to make the comparison. When Respondent first gave notice, on December 22, 2006, that it would assert benchmarks under Subsection 627.9407(7)(c), Florida Statutes, Petitioner promptly put Respondent on notice that it believed the benchmarks to be non- rule policy assertions by the agency, by filing its Motion to Strike and Motion in Limine on December 27, 2006. Respondent did not in any manner publish the benchmarks it actually used to make the Subsection 627.9407(7)(c) comparison to Petitioner. The benchmarks Respondent published were developed for benefit configurations that are materially different from the benefit configurations in Petitioner's policy. Mr. Keating made a number of adjustments to the published benchmarks in making his comparison with Petitioner. However, none of these adjusted benchmarks were published in any manner, and Mr. Keating could not recall details of the methods by which the adjustments were made. Respondent compared Petitioner's rate filing to unpublished information, contrary to the plain language of Subsection 627.9407(7)(c), Florida Statutes. Respondent was aware of 20-25 insurers who would be affected by the published benchmarks, yet did not serve any affected insurer, including Petitioner, with a copy of the benchmarks published; and did not offer any of them a point of entry to proceedings in which to explore and test the adequacy or validity of Respondent's benchmarks. The published benchmarks developed by Mr. Keating for Respondent gave more than 92 percent weight to just one company- -Bankers Life. Two other companies' charges were also used, but Mr. Keating gave less than five percent combined weight to them. Mr. Keating did not give equal weight to the selected charges of the three insurers chosen as benchmark companies. Instead, he gave greater weight based upon the companies' prior year earned premium. He offered no actuarial basis for this decision. He also offered no testimony about the other companies' charges and what the posted benchmark values would be had he given equal weight to all three companies' charges. Respondent offered no point of entry for proceedings to question the decision. Mr. Keating also selected the lowest Bankers Life charges to develop the published benchmarks. He gave no actuarial basis for that decision, and no point of entry was given for affected insurers to question the decision. The benefit configurations in Petitioner's policy differ significantly from those in the Bankers Life policy from which Mr. Keating developed the published benchmarks. The differences in benefit configurations are material to the Subsection 627.9407(7)(c) comparison that Mr. Keating undertook. Mr. Keating used unpublished information in performing the comparison, and he could not recall the underlying methods and assumptions in making the comparisons. Therefore, some doubt was cast as to their validity. Further, no affected insurers were given a point of entry to question the comparisons or their underlying assumptions. The greater weight of the evidence shows that the policy decisions made by Respondent in implementing and applying Subsection 627.9407(7)(c), Florida Statutes, in many respects are not supported by logic or critical facts. Petitioner offered facts to demonstrate that Respondent's intended implementation and application of amended Subsection 627.9407(7)(c), Florida Statutes, would impair Petitioner's existing contracts, and would violate due process of law. The factual findings in this regard are set forth below. Petitioner's existing contracts were entered into at least nine years before amended Subsection 627.9407(7)(c), Florida Statutes, was proposed and became law, and before Respondent proposed to apply its benchmark charges to Petitioner. Petitioner's contracts are guaranteed-renewable contracts. Petitioner must continue to renew them indefinitely. When Petitioner entered into these contracts, the Laws of Florida, which were incorporated into the contracts, provided that Petitioner had the right to receive premiums for such guaranteed-renewable policies at rates actuarially justified under the provisions of Section 627.410, Florida Statutes, and the tests in Florida Administrative Code Rule 69O- 149.005(2)(b)1. Petitioner has demonstrated that the proposed rates in question are actuarially justified and meet those tests.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that Respondent issue a final order approving Petitioner's rate increase request of 25.75 percent. DONE AND ENTERED this 8th day of June, 2007, in Tallahassee, Leon County, Florida. S ROBERT S. COHEN Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 8th day of June, 2007.
The Issue This issue in this case is whether the Petitioner is responsible for payment of certain state employee health insurance premiums.
Findings Of Fact In July, 1986, Ms. Phyllis McCluskey-Titus became employed at Florida State University ("FSU"). She and her husband, John, moved to Tallahassee from outside Florida, so that she could accept her employment. At the time Ms. McCluskey-Titus became employed, Mr. Titus had not yet accepted employment. She appropriately enrolled in the state health insurance plan. Mr. Titus was listed as, and had coverage as, a dependent on her family coverage. In August, 1986, Mr. Titus accepted employment at Tallahassee Memorial Regional Medical Center ("TMRMC"). Although TMRMC offered an employee health insurance benefit, Mr. Titus retained his coverage on his wife's plan, because the couple believed the state plan's benefits to be more beneficial. Enrollment in the state health insurance plan requires the payment of premiums. Such premiums are generally paid through joint contributions, by the employee (through payroll deduction) and by the state. However, where spouses are both state employees, and one spouse is listed as an eligible dependent on the other spouse's family coverage, the state makes the full health insurance premium contribution (the "spouse plan"). In August, 1988, Mr. Titus became employed by the Department of Health and Rehabilitative Services ("DHRS"). Both FSU (Ms. McCluskey-Titus's employer) and DHRS are state agencies. Therefore, upon Mr. Titus' employment at DHRS, the couple became eligible for the spouse plan. On August 24, 1988, Ms. McCluskey-Titus went to her personnel office and completed the necessary forms to qualify for the spouse plan. At the time of his employment, Mr. Titus received a package of materials from DHRS. Included in the materials was a five page document entitled "EMPLOYEE BENEFITS INFORMATION PACKAGE". The document outlines various insurance benefits and lists premiums related to coverages. On the first page of the information document, under the heading "PREMIUMS (full-time employees)" is the following statement: "If you and your spouse are both employed with State Agencies, please contact the Personnel office for information on the Spouse Program. If you are eligible, the State will pay up to 100% of your premium". Believing that his wife's completion of the appropriate form at the FSU personnel office was sufficient, Mr. Titus did not contact his personnel office for information. On the third page of the information document, is a form which was to be completed and returned to the DHRS personnel office. Contained on the form is the following statement: "If your spouse is employed with a State Agency in a Career Service position, please contact the Personnel office to request an application for the Spouse Program". Ms. McCluskey-Titus was not employed in a Career Service position. Mr. Titus believed that his wife's completion of the appropriate form at the FSU personnel office was sufficient. He did not obtain or submit an application for the program. Neither form provided to Mr. Titus stated that both spouses were required to submit separate documentation. There is no evidence that either Mr. or Ms. Titus were informed, by either employer or the Respondent, that the failure to complete separate documentation would preclude enrollment in the spouse program and could result in an assessment of unpaid premiums. After Ms. McCluskey-Titus submitted the form to the FSU personnel office, the state discontinued deducting her contribution to the health insurance premium from her check. The couple believed that, since no premium deduction was being withheld, the spouse plan enrollment had been completed. In February, 1989, Mr. Titus was informed that, because he had not completed the appropriate form at the DHRS office, the couple was ineligible for the spouse plan. The Respondent requires that both spouses complete separate documentation in order to enroll in the spouse plan. He completed the form and by March 1, 1989, their coverage in the spouse plan became effective. The Respondent is now attempting to assess Ms. McCluskey-Titus for the $83.46 monthly family coverage premiums which were not deducted from her pay during the five month period preceding Mr. Titus' completion of the appropriate form. The total amount claimed by Respondent is $417.30. The evidence indicates that, but for Mr. Titus' failure to complete and submit the form, the couple would have been entitled to participate in the spouse plan and no premium contribution would be owed.
Recommendation Based on the foregoing, it is hereby RECOMMENDED that: The Department of Administration, Division of State Employees' Insurance, enter a Final Order dismissing the assessment against the Petitioner for additional insurance premiums in the total amount of $417.30. DONE and RECOMMENDED this 9th day of February, 1990, in Tallahassee, Florida. WILLIAM F. QUATTLEBAUM Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, FL 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 9th day of February, 1990. APPENDIX CASE NO. 89-4943 The following constitute rulings on proposed findings of facts submitted by the parties. Petitioner Accepted as modified. Accepted as modified, except for last sentence, rejected, argument, not appropriate finding of fact. Statement that prescription drug claims were covered is rejected, not supported by evidence. Rejected, irrelevant. Nature of communication between the respective personnel offices, rejected, not supported by evidence. Respondent Accepted. Rejected, not supported by evidence. 3-4. Accepted as modified. However, requirement that both spouses must submit forms, not supported by evidence. Accepted as to amount, rejected as to indicating that Petitioner was responsible for payment, not supported by evidence. Rejected. Paragraph 2E(2) of the Petition does not state that Mr. Titus failed to read the document, but states only that he took no action. Rejected, not supported by evidence. COPIES FURNISHED: Phyllis McCluskey-Titus 2353 Skyland Drive Tallahassee, Florida 32303 William A. Frieder, Esq. Department of Administration Room 438, Carlton Building Tallahassee, Florida 32399-1550 Aletta Shutes Secretary Department of Administration 435 Carlton Building Tallahassee, Florida 32399-1550 =================================================================
The Issue The issue presented is whether Respondent is guilty of the allegations contained in the Administrative Complaint filed against him, and, if so, what disciplinary action should be taken against him, if any.
Findings Of Fact At all times material hereto, Respondent has been licensed in Florida as a life and variable annuity contracts salesman and as a life and health insurance agent. In 1994 twin sisters Edith Ellis and Gertrude Franklin attended a luncheon at which Respondent made a presentation. The sisters were then 79 years old, and both were the owners of single-premium insurance policies issued by Merrill Lynch. They decided to cash in their existing policies and purchase new policies through Respondent. Both Ellis and Franklin executed 1035 exchange forms whereby the monies obtained from cashing in their Merrill Lynch policies were transferred to the insurance companies issuing their new policies. Both were charged a substantial penalty by Merrill Lynch. On August 11, 1994, Security Connecticut Insurance Company issued to Edith Ellis a flexible premium adjustable life insurance policy with a face value of $150,000. The cover page of the policy recites in bold print that it is a flexible premium adjustable life insurance policy, directs the insured to read the policy, and provides a 20-day period for canceling the policy with a full refund. It also contains a statement that provides: This Policy provides flexible premium, adjustable life insurance to the Maturity Date. Coverage will end prior to the Maturity Date if premiums paid and interest credited are insufficient to continue coverage to that date. Dividends are not payable. Flexible premiums are payable to the end of the period shown, if any, or until the Insured's death, whichever comes first. The cover page also recites that the first premium is $75,000 and that the monthly premium is $805.75. After deductions, Merrill Lynch only transferred $44,928.81, and Ellis never paid any additional premiums. Therefore, the policy was not funded to maturity since the company only received a partial payment. The insurance company did not set up this policy to receive periodic premium payments because it was originally anticipated that the company would receive $75,000 which would carry the expense, based upon the then interest rate. The policy was dependent upon interest rates. The company sent annual statements, however, to both Ellis and to the agency where Respondent worked. These statements clearly showed a declining accumulated value for the policy and specified how much it had declined from the previous year. When Ellis surrendered the policy on July 3, 2002, its value was $4,849. First Colony Life Insurance issued a flexible premium adjustable life insurance policy to Gertrude Franklin on October 18, 1994, with a face value of $600,000. The cover page provides for a 20-day cancellation period with a full refund of premiums paid. In bold type, the cover page further advises as follows: "Flexible Premium Adjustable Life Insurance Policy", "Adjustable Death Benefit Payable at Death", "Flexible Premiums Payable During Insured's Lifetime", and "Benefits Vary with Current Cost of Insurance Rates and Current Interest Rates." It also advises that the initial premium is $56,796. The insurance company received an initial premium payment of $203,993.75 on December 19, 1994, and an additional premium payment in February 1996, for a total of premiums paid of approximately $266,000. The total premiums received, however, were insufficient to fund the policy to maturity since that would have required in excess of $400,000 in premiums. Annual statements sent by the insurance company reflected that the policy value was declining. On August 26, 1996, the insurance company received a letter over the name of Nancy Franklin, the trustee of the trust which owned the policy, advising the company to send billing and annual statements to the address of the agency where Respondent was employed. Respondent sent that letter as a courtesy because Gertrude Franklin asked him to keep her papers for her because she had no place to keep them. Gertrude Franklin, not her daughter, signed that letter. Respondent left that agency in October 1997 and was not permitted to take any records with him. In 2002 Edith Ellis showed her policy to someone at a senior center. Based upon that person's statements she called her sister and told her that their policies were no good. They contacted Respondent who came to their homes and reviewed their policies. He advised Gertrude Franklin that her only options at that point were to pay an additional premium or to reduce the face value of the policy to $400,000 in order to keep it in effect longer. She chose the latter course. Respondent gave Franklin a letter for Nancy Franklin's signature directing the insurance company to reduce the face value of the policy. Franklin, not her daughter, signed the letter and forwarded it to the company. The company reduced the face value based upon that letter which it received on April 1, 2002. That directive allowed the policy to stay in force another two months.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that a final order be entered dismissing the Administrative Complaint filed against Respondent in this cause. DONE AND ENTERED this 28th day of December, 2004, in Tallahassee, Leon County, Florida. S LINDA M. RIGOT Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 28th day of December, 2004. COPIES FURNISHED: James A. Bossart, Esquire Department of Financial Services 612 Larson Building 200 East Gaines Street Tallahassee, Florida 32399-0333 Nancy Wright, Esquire 7274 Michigan Isle Road Lake Worth, Florida 33467 Honorable Tom Gallagher Chief Financial Officer Department of Financial Services The Capitol, Plaza Level 11 Tallahassee, Florida 32399-0300 Pete Dunbar, General Counsel Department of Financial Services The Capitol, Plaza Level 11 Tallahassee, Florida 32399-0300
The Issue This case concerns the issue of whether Respondent's license as an Ordinary Life including Disability agent should be suspended, revoked, or otherwise disciplined for making certain misrepresentations to a Mr. Roger L. Robert in connection with the sale of a life insurance policy to Mr. Robert. A second issue relating to such disciplinary action is whether the Respondent improperly applied to become an insured under a group insurance policy. At the formal hearing, the Petitioner called as witnesses John E. Riley, Roger L. Robert, Angela Stackler, Marie Ellena Mullins, Frederick P. Quinn. The Respondent called as witnesses Baron Kramer, and the Respondent, Stanford J. Sabarsky. The Petitioner offered and had admitted into evidence Petitioner's Exhibits 1 through 7. Counsel for the Petitioner and counsel for the Respondent submitted proposed findings of fact and conclusions of law to the Hearing Officer for consideration. To the extent that the findings of fact herein are consistent with those proposed findings, the proposed findings were adopted by the Hearing Officer. To the extent that the findings herein are inconsistent with the proposed findings the proposed findings were considered by the Hearing Officer and rejected as having been unsupported by the evidence or as being unnecessary to the resolution of this cause.
Findings Of Fact COUNT I As to Count I of the Administrative Complaint, the parties stipulated to certain facts alleged in the Administrative Complaint, and those facts are found as facts in Paragraphs 1 through 9 below: Respondent, Stanford J. Sabarsky, at all times material herein, represented the All American Life Insurance Company as a licensed Ordinary Life, including Disability Agent. Stanford J. Sabarsky did on or about September 16, 1980, contact one Roger L. Robert, President of Freight Sales Centers, Inc. of Tampa, Florida for the purpose of soliciting an application for life insurance from Mr. Robert. At that time and place, Respondent represented to Mr. Robert that he could purchase a seven hundred fifty thousand dollar ($750,000.00) life insurance policy to be issued by the All American Life Insurance Company with an initial annual premium payment of fourteen thousand two hundred and eighty-five dollars ($14,285.00) As a result of said application, the All American Life Insurance Company subsequently issued to Mr. Robert policy number L1124920 effective November 11, 1980, in the face amount of seven hundred fifty thousand dollars ($750,000.00). Premium payments on policy number L1124920 were made by Mr. Robert on a monthly basis from October, 1980, to November, 1981. On or about November, 1981, Mr. Robert received notice from the All American Life Insurance Company that the second annual renewal premium on policy number L1124920 was due. On or about December 4, 1981, Mr. Robert requested that the renewal premium be paid from the cash value of his policy. As a result of the request, the second year annual renewal premium on policy number L1124920 was paid for by a policy loan against said policy, thereby reducing the net insurance protection of that policy. That Respondent, Stanford J. Sabarsky, earned a sales commission due to the issuance of policy L1124920. Prior to purchasing policy L1124920, Mr. Robert was given a sales presentation in his office by the Respondent. It was represented to Mr. Robert, by Mr. Sabarsky, that after the first year's premium was paid, the premium would thereafter be paid by the cash value and he would not have to make any more premium payments. Mr. Sabarsky also explained to him that the cash value could be borrowed out of the policy at approximately seven percent interest. It was Mr. Robert's understanding that after he paid the first year's premium, he would never have to pay out any more money for the life insurance coverage. He expressed this understanding to Angela Stackler, an employee, in the presence of Respondent, and Respondent did not inform him that his understanding was incorrect. In approximately November, 1981, Mr. Sabarsky returned to Mr. Robert's office. At that time, Mr. Sabarsky was questioned by Mr. Robert and his employee Ellena Mullins about the fact that they had received a bill for the next year's premium. In response to the inquiry, Mr. Sabarsky related that the first year's premium would carry the policy and that Mr. Robert wouldn't have to pay any more money. Mr. Sabarsky did not explain to Mr. Robert in November, 1980, or in November, 1981, the out-of-pocket expense which Mr. Robert would have to pay each year in order to borrow the cash value to pay the premium. In order to obtain those loans annually, Mr. Robert, within six years of the policy, would have out-of-pocket interest expense of $3,779.00, and in ten years, would pay interest of $10,163.00 in order to maintain the policy in effect. On April 1, 1982, Mr. Robert, after making inquiry to All American Life Insurance Company, received a letter setting forth the out-of-pocket expenses which would be required of him in order to maintain the life insurance policy in effect. COUNT II As to the allegations of Count II of the Administrative Complaint, the parties stipulated to those facts found in Paragraphs 14 through 16 below. That at all times pertinent to the dates and occurrences referred to in this Administrative Complaint, Respondent, Stanford J. Sabarsky, was qualified and licensed as an insurance agent in this state. On or about January 29, 1979, Stanford J. Sabarsky, while licensed as an insurance agent for Home Security Life Insurance Company, did solicit and sell to Roger L. Robert, President of Freight Sales Center, Inc. of Tampa, Florida, a group disability insurance plan for the employees of Freight Sales Center, Inc. That on or about February 12, 1981, Stanford J. Sabarsky, signed an application to Home Security Life Insurance Company to have his name added to said group disability insurance plan and indicated on said application that he was an employee of Freight Sales Center, Inc. Prior to signing the application on February 12, 1981, the Respondent had asked Roger L. Robert to allow him to add his name to the group disability insurance plan of Freight Sales Center, Inc. As a result of the February 12, 1981, application, the Respondent was, in fact, added as an insured to the group disability insurance policy. He remained as an insured under the policy until approximately May, 1981. In March, 1981, the Respondent submitted a claim to Home Security Life Insurance Company. The claim was paid. The application signed by the Respondent (Petitioner's Exhibit 6) on February 12, 1981, reflected that he worked a minimum of 30 hours per week for Freight Sales Center, Inc, that his date of employment was 1/30/81, and that his base earnings was $600 per week. These facts were not true. At no time from January 30, 1981, to May, 1981, was the Respondent an employee of Freight Sales Center, Inc. The Respondent was aware at the time that he signed the application that he was not an employee of Freight Sales Center, Inc.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED: That the Department enter a final order suspending Respondent's license as an Ordinary Life including Disability agent for a period of one (1) year. DONE and ENTERED this 12th day of August, 1983, in Tallahassee, Florida. MARVIN E. CHAVIS, Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32301 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 12th day of August, 1983. COPIES FURNISHED: William W. Tharpe, Jr., Esquire Department of Insurance 413-B Larson Building Tallahassee, Florida 32301 George W. Greer, Esquire 302 South Garden Avenue Clearwater, Florida 33516 Honorable Bill Gunter Insurance Commissioner and Treasurer The Capitol, Plaza Level Tallahassee, Florida 32301
Findings Of Fact Parties Petitioner is the state agency responsible for regulating insurance and insurance related activities in Florida. Petitioner regulates persons engaged in activities prohibited under Chapters 626 and 627, Florida Statutes. 1/ Respondent, Koontz, is licensed as a general lines agent for property, casualty, surety, and miscellaneous insurance. 2/ His agent number is 300429666. Mr. Koontz is the primary agent and vice president for Cash Register Auto Insurance of Polk County, Inc., ("Cash Register"). Cash Register sells insurance and is an insurance agency within the meaning of Section 626.094. Respondent, Davis, is employed by Cash Register. She is licensed under customer service representative number 534548407. Mr. Koontz is the appointing and supervising agent for Ms. Davis. He is responsible for her acts and representations pursuant to Florida Administrative Code Rule 4-213.100. 3/ Cash Register is a Florida corporation wholly owned by Mr. Lloyd Register III and LR3 Enterprises, Inc. ("LR3"). 4/ Cash Register's principal place of business is 2810 South Florida Avenue, Number B, Lakeland, Florida 33803. Background Prior to August, 1994, Mr. Ernest C. Carey maintained automobile insurance on his 1987 Toyota truck through Allstate Insurance Company ("Allstate"). Allstate cancelled the policy. During August, 1994, Mr. Carey obtained replacement insurance. Mr. Carey telephoned five insurance agencies to obtain premium quotes for the minimum insurance required by law. One of the insurance agencies that Mr. Carey telephoned was Cash Register. Mr. Carey sought to finance the insurance premium, make the minimum down payment, and obtain the minimum monthly payment available. The quote given to Mr. Carey was stored in the Cash Register computer. On August 17, 1994, Mr. Carey went to the Cash Register office and discussed the purchase of insurance with Respondent, Davis. Ms. Davis retrieved Mr. Carey's quote from the computer and offered Mr. Carey the same premium, down payment, and terms that were quoted to Mr. Carey by telephone. The quoted premium was $275 for personal injury protection, a $2,000 deductible, and $10,000 in liability insurance. The insurer was Armor Insurance Company ("Armor"). The down payment was $67. The quote was based on Mr. Carey's purchase of two additional policies. One policy was a $1,000 accidental death benefit ("ADB"). The second was hospital indemnification. The additional premium for the ADB policy was $10. The additional premium for the hospital indemnity policy was $100. Mr. Carey had the option of rejecting the two additional policies. His down payment on the cost of automobile insurance alone would have increased to $97.50, and his monthly payment would have also increased. However, the finance charge and total cost would have decreased. Mr. Carey was unhappy with his financing alternatives but did not choose to pay the premium in full rather than finance it. Nor did he choose to reduce his total cost by purchasing automobile insurance only. Mr. Carey chose a lower down payment, lower monthly payment, ADB, and hospital indemnification. Mr. Carey paid $67 to Respondent, Davis, signed the appropriate documents including a premium finance agreement, and left. Premium Financing Respondents are each charged with violating former Sec. 627.8405(3), Fla. Stat. (1994 Supp.)("former Section 627.8405(3)"). 5/ Former Section 627.8405 provided inter alia: No premium finance company shall, in a premium finance agreement, provide financing for the cost of: * * * (3) Any amount in excess of 70 percent of the original premium . . . on any insurance contract . . . of 12 months' or more duration . . . . Respondents did not violate former Section 627.8405(3) in the Carey transaction unless they satisfied three conjunctive requirements. Respondents must have: provided financing; in a premium finance agreement; for more than 70 percent of the original premiums. Respondents satisfied only one of the foregoing requirements. Provided Financing The term "financing" is not defined in Chapter 627, Part XV. The plain and ordinary meaning of the term "finance" is to supply money, credit, or capital ("money or credit"). 6/ Respondents did not supply money or credit to pay insurance premiums in the Carey transaction. Equity Premium, Inc. ("Equity") 7/ provided financing in the Carey transaction. Equity supplied money to the insurer or insurance agent, supplied credit to Mr. Carey, and imposed a finance charge for the money and credit supplied. Equity is a premium finance company, within the meaning of Section 627.826, and, on August 17, 1994, was subject to the provisions of former Section 627.8405(3). However, Equity is not a party to this proceeding. Respondents do not own stock in Equity. Nor do they own stock in Cash Register or LR3. Equity, Cash Register, and LR3 may be related entities because the stock of each corporation may be owned by common shareholders. However, any such relationship does not include Respondents. Petitioner failed to show by clear and convincing evidence that Respondents provided financing as principals. Petitioner failed to show by clear and convincing evidence that Respondents were authorized as agents to bind Equity irrevocably without the subsequent consent and approval of Equity. In A Premium Finance Agreement The financing document used in the Carey transaction was labeled a premium finance agreement. However, a written agreement is not a premium finance agreement merely because of the label affixed to the document. To be a premium finance agreement, a written agreement must satisfy the statutory definition of a premium finance agreement. A premium finance agreement is defined in Section 627.827 8/ as: . . . a written agreement by which an insured promises or agrees to pay to . . . a premium finance company the [amount advanced] . . . to the insurer or insurance agent, in payment of premiums on an insurance contract, [together with a service charge]. . . . [emphasis supplied] In relevant part, a premium finance agreement is a written agreement in which the insured promises to pay the amount advanced together with a service charge A written agreement in which the insured promises to pay the amount advanced without a service charge is not a premium finance agreement. Section 627.826(3) 9/ clearly states: The inclusion of a charge for insurance on a bona fide sale of goods or services on installments is not subject to the provisions of this part Section 627.826(3) makes it clear that financing provided without a service charge was not subject to the prohibition in former Section 627.8405(3). Former Section 627.8405(3) prohibited only financing in a written agreement in which the insured agreed to pay the amount advanced together with a service charge The amount advanced in the Carey transaction was $319.40. The amount advanced was determined by reducing original premiums of $375 by $57 of the down payment and by increasing the $318 remainder by D.O.C. stamps of $1.40. Of the amount advanced, Mr. Carey agreed to pay only $137.69 together with a service charge. The $43.66 service charge was calculated at an annual interest rate of 31.71 percent. 10/ If Mr. Carey had agreed to pay the entire $319.40 together with a service charge of 31.71 percent, he would have agreed to pay a service charge of $101.28. 11/ If Respondents provided financing in the Carey transaction, they provided financing in a premium finance agreement for only $137.69 because that is the only part of the amount advanced that Mr. Carey agreed to pay together with a service charge. Respondents did not provide financing in a premium finance agreement for $181.71 because Mr. Carey agreed to pay that part of the amount advanced without a service charge. 12/ The single written agreement that was labeled a premium finance agreement was, by statutory definition, a dual-use document. That part of the document in which Mr. Carey agreed to pay $137.69 together with a service charge was a premium finance agreement within the meaning of Section 627.827. That part of document in which Mr. Carey agreed to pay $181.71 without a service charge did not satisfy an essential requirement in the statutory definition of a premium finance agreement. Financing provided in that part of the document that was not a premium finance agreement was not prohibited by former Section 627.8405(3). Section 627.826(3) provides that such financing is not subject to the finance provisions of Chapter 627, Part XV, including the prohibition in former Section 627.8405(3). More Than 70 Percent Of The Original Premium If Respondents provided financing in the Carey transaction, they did not violate former Section 627.8405(3) by providing financing in a premium finance agreement for more than 70 percent of the original premiums. The $137.69 that Mr. Carey agreed to pay together with a service charge is only 37 percent of the $375 in original premiums. Respondents failed to show by clear and convincing evidence that a disproportionate share of the $137.69 represented more than 70 percent of the $100 premium for hospital indemnification. Nor did Petitioner show that Mr. Carey agreed to pay the $100 premium together with a service charge. All of the $137.69 and the $43.66 service charge arguably could have been attributable to the $275 automobile premium. Even if the $100 premium for hospital indemnification were actually a charge for products other than insurance, $137.69 comprises only 50 percent of the $275 automobile premium. As the premium finance agreement stated, "FINANCE CHARGES HAVE BEEN CALCULATED ON NO MORE THAN 70 PERCENT OF THE PREMIUM." Automobile Club Section 627.8405(1) 13/ provides, in relevant part: No premium finance company shall, in a premium finance agreement, provide financing for the cost of: A membership in an automobile club. The term "automobile club" means a legal entity which, in consideration of dues, assessments, or periodic payments of money, promises its members or subscribers to assist them in matters relating to the ownership, operation, use, or maintenance of a motor vehicle. . . Respondents did not violate Section 627.8405(1). Respondents did not provide financing in a premium finance agreement for the cost of a membership in an automobile club. Both the ADB and hospital indemnification policies Mr. Carey purchased were issued by Home Insurance Company ("Home") to Colonial Touring Association, Inc. ("CTA") as group policies for CTA members. 14/ CTA is an automobile club within the meaning of Section 627.8405(1). 15/ Ms. Beverly Robinson operates CTA and maintains its books and records. Ms. Robinson is licensed as an insurance agent pursuant to agent number 081505068. On August 17, 1994, Ms. Robinson was authorized to sell ADB and hospital indemnity group insurance for Home. 16/ Respondents did not charge Mr. Carey for the cost of a membership in an automobile club. 17/ Respondents charged Mr. Carey $110 for ADB and hospital indemnification premiums. Respondents paid the entire $110 to CTA. CTA paid Home for the amount owed Home and retained the balance as commissions earned on the sale of group insurance. The ADB and hospital indemnification premiums were high commission items. Of the $10 charged to Mr. Carey for ADB, CTA paid only $1 to Home. CTA retained the remaining $9 as commission. Of the $100 charged to Mr. Carey for hospital indemnification, CTA paid Home only $10 and retained the balance. Neither Respondents, Ms. Robinson, nor the books and records of CTA treat any portion of the $99 commission included in the premiums for ADB and hospital indemnification as the cost of a membership in CTA. Mr. Carey was covered for ADB and hospital indemnification from August 17, 1994, through August 16, 1995. Petitioner failed to show by clear and convincing evidence the portion of the $99 commission, if any, that should be treated as the cost of the CTA membership. Similarly, Petitioner failed to show the portion of the $99 commission that should be treated as commission earned on the sale of insurance. Even if some or all of the $99 commission retained by CTA should be treated as the cost of membership in CTA, Respondents did not provide financing in a premium finance agreement for that cost. Petitioner failed to show by clear and convincing evidence that Mr. Carey agreed to pay the amount advanced for a CTA membership together with a service charge. 18/ ADB Section 627.8405(2) provides, in relevant part: No premium finance company shall, in a premium finance agreement, provide financing for the cost of: * * * (2) An accidental death and dismemberment policy sold in combination with a personal injury protection and property damage only policy. Respondents did not violate Section 627.8405(2). Respondents did not provide financing in a premium finance agreement for the cost of an ADB policy irrespective of whether it was sold in combination with a personal injury protection and property damage policy. The $10 premium for the ADB policy was paid entirely from Mr. Carey's $67 down payment. CTA received the $10 from Cash Register, retained a $9 commission, and transmitted the $1 cost for the group ADB policy to Home. No part of the $10 premium for the ADB policy was financed. Mr. Carey did not agree to pay any part of the amount advanced for the ADB premium together with a service charge. Informed Consent, Unfair Practices, And Deception Respondents did not violate Sections 626.611(7) or (9). Respondents did not demonstrate a lack of fitness or a lack of trustworthiness to engage in the business of insurance. Nor did they commit fraudulent or dishonest practices in their business. Respondents did not violate Sections 626.611(13) and 626.621(2). Respondents did not willfully fail to comply with applicable statutes, rules, or Petitioner's final orders. Respondents did not violate Section 626.611(5). Respondents did not willfully practice deception with regard to an insurance policy. Respondents did not violate Sections 626.621(6) and 626.9541(1) and (2). Respondents did not engage in unfair or deceptive acts or practices including misrepresentation and sliding. Respondents did not otherwise show themselves to be a source of injury or loss to the public or to be detrimental to the public interest. The Insured Mr. Carey made his choices for his own economic convenience. He was interested solely in complying with state requirements for insurance at the minimum down payment and at the minimum monthly cost. Mr. Carey was not interested in the details of the insurance he purchased. He was not interested in reading the documents he signed, and he chose not to do so. Mr. Carey does not travel frequently and has little or no need for the benefits of the ADB and hospital indemnity policies. However, he did have an economic need to obtain automobile insurance for the lowest down payment and for the lowest monthly cost. The Documents Mr. Carey signed a confirmation of coverages form disclosing his purchase of the ADB and hospital indemnity policies. The confirmation of coverage form signed by Mr. Carey expressly states that the ADB and hospital indemnity premiums are high commission items. The confirmation of coverages form made the following disclosure to Mr. Carey concerning his ADB policy: Separate in the price of some of our policies is separate coverage for accidental death and dismemberment resulting from an auto accident. Yours includes 1 THOUSAND DOLLARS coverage for 12 months and the premium is $10 . You may increase this coverage if you desire. Remember coverage is subject to the terms and conditions in the policy. If you do not wish this coverage please advise the agent. This is a high commission item that allows us to sell you auto insurance at the lowest possible premium. We will have to change your options if you do not wish this coverage. The confirmation of coverages form made the following disclosure to Mr. Carey concerning his hospital indemnification policy: Separate in the price of some of our policies is separate coverage for hospital indemni- fication resulting from an auto accident. Yours includes 1 THOUSAND DOLLARS coverage for 12 months and the premium is $100. You may increase this coverage if you desire. Remember coverage is subject to the terms and conditions in the policy. If you do not wish this coverage please advise the agent. This is a high commission item that allows us to sell you auto insurance at the lowest possible premium. We will have to change your options if you do not wish this coverage. Mr. Carey also signed an insurance application for automobile coverage with Armor Insurance, a premium finance agreement with Equity, and CTA forms including a designation of beneficiary form. Respondent, Davis, submitted each document to Mr. Carey separately. He signed each document in her presence in separate "intervals." Ms. Davis did not rush Mr. Carey through the transaction. The premium finance agreement adequately discloses the terms of financing. The agreement discloses: the types of premiums financed; the amount of premiums for each policy; a down payment of $57; an unpaid balance of $318; an amount financed of $319.40; a finance charge of $43.66; total payments of $363.06; a total sales price of $420.06; an annual percentage rate of 31.71; and nine monthly payments of approximately $40.30 each. 19/ Mr. Carey had a reasonable opportunity to read the documents he signed but declined to do so. Mr. Carey understood that by signing the confirmation of coverages form he certified that he understood the insurance he purchased even though he chose not to read the documents. Respondent, Davis, provided Mr. Carey with a copy of all of the documents that Mr. Carey signed except the confirmation of coverages form and the CTA forms. Both were available for Mr. Carey to review at the Cash Register office. 20/ Mr. Carey never requested copies of the confirmation of coverages form or the CTA forms. Nor did he object to not receiving copies of those forms. The Explanation Even though Mr. Carey did not read the documents he signed, Respondent, Davis, explained each document to Mr. Carey. Her explanation was adequate, accurate, and did not misrepresent material facts. Her explanation was consistent with the documents signed by Mr. Carey. Respondent, Davis, discussed the confirmation of coverages form with Mr. Carey, including the ADB and hospital indemnification. She explained to Mr. Carey that the ADB and hospital indemnity policies were optional. She further explained that the premium and down payment would be adjusted if Mr. Carey rejected the ADB and hospital indemnification and that an agent would have to provide a new quote to Mr. Carey. Ms. Davis reviewed the premium finance agreement with Mr. Carey. She explained the total premiums, finance charge, down payment, and monthly payments. She explained that the $100 charged in the agreement was the annual premium for the group hospital indemnity policy from Home. Ms. Davis explained that the premium for the ADB policy would not be financed but would be paid from Mr. Carey's $67 down payment. Mr. Carey recognized that he paid $67 as a down payment but received credit on the premium finance agreement for a down payment of only $57. Mr. Carey understood that the $10 difference paid for the ADB policy. Mr. Carey designated Ms. June Wilson, his mother, as the beneficiary of the ADB policy. Mr. Carey understands the meaning of a beneficiary. Mr. Carey is a high school graduate. 21/ He understands, speaks, and reads English as his primary language. At the time of the transaction, Mr. Carey was alert and was not under the influence of drugs or alcohol. Mr. Carey received his automobile insurance policy from Armor and kept the coverage until his first monthly payment was due. He failed to make the first payment and allowed the policy to lapse. Mr. Carey was covered for ADB and hospital indemnification from August 17, 1994, through August 16, 1995. Supervision Respondents did not violate Rules 4-213.100(1) and (2). Respondent, Koontz, did not fail to properly supervise Respondent, Davis, in her transaction with Mr. Carey. Neither Respondent knowingly aided, assisted, procured, advised, or abetted the other in violating applicable statutes or rules. Respondent, Davis, has extensive experience as a customer representative. She processes approximately six customers a day or approximately 1,000 to 1,500 customers a year. 22/ She has had only two complaints from customers other than Mr. Carey concerning her customary practice. Ms. Davis followed her customary practice in dealing with Mr. Carey. She did not conceal any documents from Mr. Carey, did not misrepresent material facts, and is not trained to do so by Respondent, Koontz. Apparent Authority Respondents did not violate Rule 4-213.130(5). Respondent, Davis, did not allow Mr. Carey to form the impression that she is an insurance agent rather than a customer service representative. Respondent, Koontz, did not allow Ms. Davis to create such an impression or to misrepresent herself as an insurance agent. Ms. Davis stated to Mr. Carey that if he elected to decline the ADB and hospital indemnity policies, an agent would need to quote Mr. Carey's new down payment and monthly payments. She explained to Mr. Carey that she would need to have an agent provide that information.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that Petitioner enter a Final Order finding Respondents not guilty of the charges in the administrative complaints. RECOMMENDED this 17th day of December, 1996, in Tallahassee, Florida. DANIEL S. MANRY Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (904) 488-9675 SUNCOM 278-9675 Fax Filing (904) 921-6847 Filed with the Clerk of the Division of Administrative Hearings this 17th day of December, 1996.
Findings Of Fact Respondent, Frank Alvin Lashman (Lashman), was at all times material hereto a licensed insurance agent in the State of Florida. Lashman is qualified for licensure and/or licensed as an Ordinary Life, including Health Agent, Dental Health Care Service Contract Salesman, and Legal Expense Insurance Agent. At all times material hereto, all funds received by Lashman from consumers or on behalf of consumers representing premiums or monies for insurance policies were trust funds received in a fiduciary capacity. Such funds were to be paid over to the insurer, insured, or other persons entitled thereto, in the regular course of business. On or about July 1, 1985, Lashman, as a general agent for American Integrity Insurance Company (American), solicited Martha Lunsford to purchase a medicare supplement insurance policy. On July 31 1985, Lashman secured an application for the subject insurance policy from Ms. Lunsford, and delivered to her a "certification" document which provided: That, I am a licensed agent of this insurance company and have given a company receipt for an initial premium in the amount of $189.20 which has been paid to me by ( ) check (x) cash ( ) money order. The proof establishes that Lashman did not receive the initial quarterly premium of $189.20 from Ms. Lunsford, or give a company receipt for any monies. Rather, Lashman collected $25.00 on July 3, 1985 with the intention of submitting the application to American once he had collected the entire initial premium. Over the ensuing months Lashman visited Ms. Lunsford on a number of occasions to collect the balance due on the initial premium. While the proof is uncontroverted that the full premium of $189.20 was never paid, there is disagreement as to the total amount Ms. Lunsford paid to Lashman. The premium installments Ms. Lunsford paid to Lashman were in cash. Lashman kept no record of the amount or date of payment, and gave no company receipt for the monies collected. The only evidence of payment Lashman provided to Ms. Lunsford was a brief note on the back of his business cards stating the amount received. The last business card he gave to Ms. Lunsford reflects a payment of $60.00, and a balance due of $9.00. On balance, the proof establishes that Ms. Lunsford paid to Lashman $180.20 toward the initial premium of $189.20. Under the terms of Lashman's general agent's contract with American, he was: . . . authorized to solicit applications for insurance for (American), to forward these applications to (American) for approval or rejection, and to collect only the initial premium payment due on such applications. While American averred that Lashman's contract did not permit him to collect the initial premium payment in installments, there is no such prohibition contained in the agreement or proof that Lashman was otherwise noticed of such a prohibition. Accordingly, there is no proof that Lashman committed any offense by collecting the premium in installments, by failing to remit any monies to American until he was in receipt of the full initial premium, or by failing to submit the application to American until the initial premium was paid in full. Although Lashman is free of wrongdoing in the manner in which he strove to collect the initial premium and his delay in submitting the application to American, the proof does establish that Lashman breached a fiduciary relationship by failing to safeguard and account for the monies collected. On November 22, 1985, Ms. Lunsford filed a criminal complaint against Lashman for his failure to secure the subject insurance policy. Incident to that complaint, Lashman was interviewed by a criminal investigator with the State Attorney's Office and served with a subpoena duces tecum which required the production of: ANY AND ALL RECORDS PERTAINING TO THE INSURANCE POLICY SOLD TO . . . MARTHA D. LUNSFORD ON JULY 3, 1985 BY FRANK LASHMAN, ACTING AS AGENT FOR AMERICAN INTEGRITY INSURANCE COMPANY. During the course of his interview, Lashman told the investigator that he had not procured the policy because the initial premium had not yet been paid in full. Lashman further stated that although he kept no records of the payments made, all funds received from Ms. Lunsford had been deposited in his account with Florida National Bank. As of December 20, 1985, Lashman's account with Florida National Bank carried a balance of $5.81. At hearing Lashman averred that he had erred when he advised the investigator that he had deposited the monies he received from Ms. Lunsford in his account with Florida National Bank. According to Lashman, he put the money, as he collected it, into an envelope, which he kept in the file with Ms. Lunsford's insurance papers. Lashman's explanation for not exhibiting the envelope and money to the investigator when questioned was ". . . he didn't ask me for that." Lashman's explanation is inherently improbable and unworthy of belief. On January 12, 1986, the investigator advised Lashman's attorney that a warrant had been issued for Lashman's arrest on the complaint filed by Ms. Lunsford. On his counsel's advice, Lashman sent Ms. Lunsford a cashier's check in the sum of $149.00, as a refund of premiums paid. Ms. Lunsford did not negotiate the check, nor was it of a sufficient sum to represent a return of all premiums paid by Ms. Lunsford.
The Issue Whether Petitioners' proposed rates are justified pursuant to the requirements of Section 627.062, Florida Statutes, or whether the Department of Financial Services, Office of Insurance Regulation (OIR) was correct in denying the requested rate increases.
Findings Of Fact The Hartford companies are property and casualty insurers transacting insurance in the State of Florida pursuant to valid certificates of authority and the Florida Insurance Code. Two types of personal lines insurance filings submitted by Hartford to the OIR are at issue in this proceeding: two filings for homeowners insurance (Case Nos. 07-5185 and 07-5186) and two filings for dwelling fire insurance (Case Nos. 07-5187 and 07- 5188). Hartford's substantial interests are affected by the notices disapproving the filings in this case. Homeowners insurance includes coverage for a variety of perils in and around a home, is usually purchased by a homeowner, and covers both the structure and the contents of a home. Dwelling/fire insurance is usually purchased by the owners of properties that are leased or rented to others, and provides coverage for the structure only. Both types of insurance cover damage caused by hurricanes. The New Legislation and its Requirements In a special session held in January 2007, the Florida Legislature enacted changes to the Florida Hurricane Catastrophe Fund (CAT Fund), as reflected in Chapter 2007-1, Laws of Florida. The special session was precipitated by a perceived crisis regarding the cost and availability of homeowners insurance after the 2004 and 2005 hurricane seasons. As a result of the substantial number of claims incurred after multiple severe hurricanes each of these years, changes in the insurance marketplace resulted in some insurance companies withdrawing from the Florida market, others non-renewing policies, one company becoming insolvent, and the cost for reinsurance available to all insurers rising dramatically. One of the primary features of the legislation was an expansion of the CAT Fund. The CAT Fund was established in 1993 after Hurricane Andrew to provide reinsurance to insurers for property insurance written in Florida at a price significantly less than the private market. The CAT Fund is a non-profit entity and is tax exempt. Prior to the enactment of Chapter 2007-1, the CAT Fund had an industry-wide capacity of approximately $16 million. The purpose of the changes enacted by the Legislature was to reduce the cost of reinsurance and thereby reduce the cost of property insurance in the state. As a result of Chapter 2007-1, the industry-wide capacity of the CAT Fund was increased to $28 billion, and insurers were given an opportunity to purchase an additional layer of reinsurance, referred to as the TICL layer (temporary increase in coverage limit), from the CAT Fund. Section 3 of Chapter 2007-1 required insurers to submit a filing to the OIR for policies written after June 1, 2007, that took into account a "presumed factor" calculated by OIR and that purported to reflect savings created by the law. The new law delegated to the OIR the duty to specify by Order the date such filings, referred to as "presumed factor filings" had to be made. On February 19, 2007, the OIR issued Order No. 89321-07. The Order required insurers to make a filing by March 15, 2007, which either adopted presumed factors published by the OIR or used the presumed factors and reflected a rate decrease taking the presumed factors into account. The presumed factors were the amounts the OIR calculated as the average savings created by Chapter 2007-1, and insurers were required to reduce their rates by an amount equal to the impact of the presumed factors. The OIR published the presumed factors on March 1, 2007. In its March 15, 2007, filings, Hartford adopted the presumed factors published by OIR. As a result, Hartford reduced its rates, effective June 1, 2007, on the products at issue in these filings by the following percentages: Case No. 07-5185 homeowners product: 17.7% Case No. 07-5186 homeowners product: 21.9% Case No. 07-5187 dwelling/fire product: 8.7% Case No. 07-5188 dwelling/fire product: 6.2% The Order also required that insurers submit a "True-Up Filing" pursuant to Section 627.026(2)(a)1., Florida Statutes. The filing was to be a complete rate filing that included the company's actual reinsurance costs and programs. Hartford's filings at issue in these proceedings are its True-Up Filings. The True-Up Filings Hartford submitted its True-Up filings June 15, 2007. The rate filings were certified as required by Section 627.062(9), Florida Statutes. The filings were amended August 8, 2007. Hartford's True Up Filings, as amended, request the following increases in rates over those reflected in the March 15, 2007, presumed factor filings: Case No. 07-5185 homeowners product: 22.0% Case No. 07-5186 homeowners product: 31.6% Case No. 07-5187 dwelling and fire product: 69.0% Case No. 07-5188 dwelling and fire product: 35.9% The net effects of Hartford's proposed rate filings result in the following increases over the rates in place before the Presumed Factor Filings: Case No. 07-5185 homeowners product: .4% Case No. 07-5186 homeowners product: 2.8% Case No. 07-5187 dwelling/fire product: 54.3% Case No. 07-5188 dwelling/fire product: 27.5% Case Nos. 07-5185 and 07-5186 (homeowners) affect approximately 92,000 insurance policies. Case Nos. 07-5187 and 07-5188 (dwelling/fire) affect approximately 2,550 policies. A public hearing was conducted on the filings August 16, 2007. Representatives from Hartford were not notified prior to the public hearing what concerns the OIR might have with the filings. Following the hearing, on August 20, 2007, Petitioners provided by letter and supporting documentation additional information related to the filings in an effort to address questions raised at the public hearing. The OIR did not issue clarification letters to Hartford concerning any of the information provided or any deficiencies in the filings before issuing its Notices of Intent to Disapprove the True-Up Filings. All four filings were reviewed on behalf of the OIR by Allan Schwartz. Mr. Schwartz reviewed only the True-Up Filings and did not review any previous filings submitted by Hartford with respect to the four product lines. On September 10, 2007, the OIR issued Notices of Intent to Disapprove each of the filings at issue in this case. The reasons give for disapproving the two homeowners filings are identical and are as follows: Having reviewed the information submitted, the Office finds that this filing does not provide sufficient documentation or justification to demonstrate that the proposed rate(s) comply with the standards of the appropriate statute(s) and rules(s) including demonstrating that the proposed rates are not excessive, inadequate, or unfairly discriminatory. The deficiencies include but are not limited to: The premium trends are too low and are not reflective of the historical pattern of premium trends. The loss trends are too high and are not reflective of the historical pattern of loss trends. The loss trends are based on an unexplained and undocumented method using "modeled" frequency and severity as opposed to actual frequency and severity. The loss trends are excessive and inconsistent compared to other sources of loss trends such as Fast Track data. The catastrophe hurricane losses, ALAE and ULAE amounts are excessive and not supported. The catastrophe non-hurricane losses, ALAE and ULAE amounts are excessive and not supported. The particular time period from 1992 to 2006 used to calculate these values has not been justified. There has been no explanation of why the extraordinarily high reported losses for 1992 and 1993 should be expected to occur in the future. The underwriting profit and contingency factors are excessive and not supported. Various components underlying the calculation of the underwriting profit and contingency factors, including but not limited to the return on surplus, premium to surplus ratio, investment income and tax rate are not supported or justified. The underwriting expenses and other expenses are excessive and not supported. The non-FHCF reinsurance costs are excessive and not supported. The FHCF reinsurance costs are excessive and not supported. The fact that no new business is being written has not been taken into account. No explanation has been provided as too [sic] Hartford believes it is reasonable to return such a low percentage of premium in the form of loss payments to policyholders. For example, for the building policy forms, only about 40% of the premium requested by Hartford is expected to be returned to policyholders in the form of loss payments. As a result of the deficiencies set forth above, the Office finds that the proposed rate(s) are not justified, and must be deemed excessive and therefore, the Office intends to disapprove the above-referenced filing. The Notices of Intent to Disapprove the two dwelling/fire filings each list nine deficiencies. Seven of the nine (numbers 1-6 and 8) are the same as deficiencies listed for the homeowners filings. The remaining deficiencies named for Case No. 07-5187 are as follows: 7. The credibility standard and credibility value are not supported. 9. No explanation has been provided as too (sic) why Hartford believes it needs such a large rate increase currently, when the cumulative rate change implemented by Hartford for this program from 2001 to 2006 was an increase of only about 10%. The deficiencies listed for Case No. 07-5188 are the same as those listed for Case No. 07-5187, with the exception that with respect to deficiency number 9, the rate change implemented for the program in Case No. 07-5188 from 2001 to 2006 was a decrease of about -3%. Documentation Required for the Filings Florida's regulatory framework, consistent with most states, requires that insurance rates not be inadequate, excessive, or unfairly discriminatory. In making a determination concerning whether a proposed rate complies with this standard, the OIR is charged with considering certain enumerated factors in accordance with generally accepted and reasonable actuarial techniques. Chapter 2007-1 also amended Section 627.062, Florida Statutes, to add a certification requirement. The amendment requires the chief executive officer or chief financial officer and chief actuary of a property insurer to certify under oath that they have reviewed the rate filing; that to their knowledge, the rate filing does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which the statements were made, not misleading; that based on their knowledge, the information in the filing fairly presents the basis of the rate filing for the period presented; and that the rate filing reflects all premium savings reasonably expected to result from legislative enactments and are in accordance with generally accepted and reasonable actuarial techniques. § 627.062(9)(a), Fla. Stat. (2007). Actuarial Standards of Practice 9 and 41 govern documentation by an actuary. Relevant sections of Standard of Practice 9 provide: Extent of documentation - . . . Appropriate records, worksheets, and other documentation of the actuary's work should be maintained by the actuary and retained for a reasonable length of time. Documentation should be sufficient for another actuary practicing in the same field to evaluate the work. The documentation should describe clearly the sources of data, material assumptions, and methods. Any material changes in sources of data, assumptions, or methods from the last analysis should be documented. The actuary should explain the reason(s) for and describe the impact of the changes. Prevention of misuse - . . . The actuary should take reasonable steps to ensure that an actuarial work product is presented fairly, that the presentation as a whole is clear in its actuarial aspects, and that the actuary is identified as the source of the actuarial aspects, and that the actuary is available to answer questions.. . . . * * * 5.5 Availability of documentation- Documentation should be available to the actuary's client or employer, and it should be made available to other persons when the client or employer so requests, assuming appropriate compensation, and provided such availability is not otherwise improper. . . . In determining the appropriate level of documentation for the proposed rate filings, Petitioner relied on its communications with OIR, as well as its understanding of what has been required in the past. This reliance is reasonable and is consistent with both the statutory and rule provisions governing the filings. Use of the RMS Catastrophic Loss Projection Model In order to estimate future losses in a rate filing, an insurer must estimate catastrophic and non-catastrophic losses. Hartford's projected catastrophic losses in the filings are based upon information provided from the Risk Management Solutions (RMS) catastrophic loss projection model, version 5.1a. Hartford's actuaries rely on this model, consistent with the standards governing actuarial practice, and their reliance is reasonable. Catastrophe loss projection models may be used in the preparation of insurance filings, if they have been considered by and accepted by the Florida Commission on Hurricane Loss Projection Methodology (the Hurricane Commission). The Hurricane Commission determined that the RMS model, version 5.1a was acceptable for projecting hurricane loss costs for personal residential rate filings on May 17, 2006. In addition to approval by the Hurricane Commission, use of the model is appropriate "only if the office and the consumer advocate appointed pursuant to s. 627.0613 have access to all of the assumptions and factors that were used in developing the actuarial methods, principles, standards, models, or output ranges, and are not precluded from disclosing such information in a rate proceeding." §627.0628(3)(c), Fla. Stat. Both the Consumer Advocate and a staff person from the OIR are members of the Hurricane Commission. In that context, both have the ability to make on-site visits to the modeling companies, and to ask any questions they choose regarding the models. Both OIR's representative and the Consumer Advocate participated in the meetings and had the same opportunity as other commissioners to ask any question they wished about RMS 5.1a. The Hurricane Commission members, including the Consumer Advocate, clearly have access to the information identified in Section 627.0628(3)(c). However, there are restrictions on the Hurricane Commission members' ability to share the information received regarding trade secrets disclosed by the modeling companies. For that reason, the Commission's deliberations are not, standing alone, sufficient to determine that the Office of Insurance Regulation has access. In this case, credible evidence was submitted to show that RMS officials met with staff from the Office in July and October 2006 to discuss the model. RMS offered to provide any of its trade secret information to the OIR, subject to a non- disclosure agreement to protect its dissemination to competitors. RMS also opened an office in Tallahassee and invited OIR staff to examine any parts of the model they wished. In addition, both RMS and Hartford have answered extensive questionnaires prepared by OIR regarding the RMS model, and Hartford has offered to assist OIR in gathering any additional information it requires. Most of the questions posed by OIR involve the same areas reviewed by the Commission. RMS' representative also testified at hearing that RMS would not object to disclosure of the assumptions during the hearing itself if necessary. Finally, OIR Exhibit 1 is the Florida Hurricane Catastrophe Fund 2007 Ratemaking Formula Report. The Executive Summary from the report explains how rates were recommended for the Florida Hurricane Catastrophic Fund (CAT Fund) for the 2007- 2008 contract year. The report stated that the RMS model, as well as three other models accepted by the Hurricane Commission, were used for determining expected aggregate losses to the CAT Fund reinsurance layer. Three models, including the RMS model, were also used for analysis of detailed allocation to type of business, territory, construction and deductible, as well as special coverage questions. The models were compared in detail and given equal weight. The report notes that these three models were also used in 1999-2006 ratemaking. The report is prepared by Paragon Strategic Solutions, Inc., an independent consultant selected by the State Board of Administration, in accordance with Section 215.555(5), Florida Statutes. While OIR did not prepare the report, they show no hesitation in accepting and relying on the report and the modeled information it contains in these proceedings. Indeed, one of OIR's criticisms is Hartford's failure to use the report with respect to CAT Fund loss recovery estimates. Based upon the evidence presented at hearing, it is found that the OIR and Consumer Advocate were provided access to the factors and assumptions used in the RMS model, as contemplated by Section 627.0628. The Alleged Deficiencies in the Homeowners Filings1/ A rate is an estimate of the expected value of future costs. It provides for all costs associated with the transfer of risk. A rate is reasonable and not excessive, inadequate or unfairly discriminatory if it is an actuarially sound estimate of the expected value of all future costs associated with an individual risk transfer. In preparing a filing, an actuary identifies the time period that its proposed rates are expected to be in effect. Because ratemaking is prospective, it involves determining the financial value of future contingent events. For the rate filings in question, actuaries for Hartford developed their rate indications by first considering trended premium, which reflects changes in premium revenue based on a variety of factors, including construction costs and the value of the buildings insured. Trended premium is the best estimate of the premium revenue that will be collected if the current rates remain in effect for the time period the filing is expected to be in place. Expenses associated with writing and servicing the business, the reinsurance costs to support the business and an allowance for profit are subtracted from the trended premium. The remainder is what would be available to pay losses. This approach to ratemaking, which is used by Hartford, is a standard actuarial approach to present the information for a rate indication. As part of the process, expected claims and the cost to service and settle those claims is also projected. These calculations show the amount of money that would be available to pay claims if no changes are made in the rates and how much increased premium is necessary to cover claims. The additional amount of premium reflects not only claims payments but also taxes, licenses and fees that are tied to the amount of premium. The first deficiency identified by OIR is that "the premium trends are too low and are not reflective of the historical pattern of premium trends." In determining the premium trend in each filing, Hartford used data from the previous five years and fit an exponential trend to the historical pattern, which is a standard actuarial technique. Hartford also looked at the factors affecting the more recent years, which were higher. For example, the peak in premium trend in 2006 was a result of the cost increases driven by the 2004 and 2005 hurricanes, and the peak in demand for labor and construction supplies not matched by supply. Costs were coming down going into 2007, and Hartford believed that 2006 was out of pattern from what they could anticipate seeing in the future. The premium trends reflected in Hartford's filings are reasonable, reflective of historical patterns, and based on standard actuarial techniques. The second identified deficiency with respect to the homeowner filings was that the loss trends are too high and are not reflective of the historical pattern of loss trends. A loss trend reflects the amount an insurance company expects the cost of claims to change. It consists of a frequency trend, which is the number of claims the insurance company expects to receive, and a severity trend, which is the average cost per claim. The loss trend compares historical data used in the filing with the future time period when the new rates are expected to be in effect. Hartford's loss trends were estimated using a generalized linear model, projecting frequency and severity separately. The model was based on 20 quarters of historical information. The more credible testimony presented indicates that the loss trends were actuarially appropriate. The third identified deficiency is that the loss trends are based on an unexplained and undocumented method using "modeled" frequency and severity as opposed to actual frequency and severity. As noted above, the generalized linear model uses actual, historical data. Sufficient documentation was provided in the filing, coupled with Hartford's August 20, 2007, letter. The method used to determine loss trends is reasonable and is consistent with standard actuarial practice. The fourth identified deficiency is that loss trends are excessive and inconsistent compared to other sources of loss trends, such as Fast Track data. Saying that the loss trends are excessive is a reiteration of the claim that they are too high, already addressed with respect to deficiency number two. Fast Track data is data provided by the Insurance Services Office. It uses unaudited information and is prepared on a "quick turnaround" basis. Fast Track data is based on paid claims rather than incurred claims data, and upon a broad number of companies with different claims settlement practices. Because it relies on paid claims, there is a time lag in the information provided. Hartford did not rely on Fast Track data, but instead relied upon its own data for calculating loss trends. Given the volume of business involved, Hartford had enough data to rely on for projecting future losses. Moreover, Respondents point to no statutory or rule requirement to use Fast Track data. The filings are not deficient on this basis. The fifth identified deficiency in the Notice of Intent to Disapprove is that catastrophe hurricane losses, ALAE and ULAE amounts are excessive and not supported. ALAE stands for "allocated loss adjustment expenses," and represents the costs the company incurs to settle a claim and that can be attributed to that particular claim, such as legal bills, court costs, experts and engineering reports. By contrast, ULAE stands for "unallocated loss adjustment expense" and represents the remainder of claims settlement costs that cannot be linked to a specific claim, such as office space, salaries and general overhead. Part of the OIR's objection with respect to this deficiency relates to the use of the RMS model. As stated above at paragraphs 25-33, the use of the RMS model is reasonable. With respect to ALAE, Hartford analyzed both nationwide data (4.4%) and Florida data (4.8%) and selected an ALAE load between the two (4.6%). This choice benefits Florida policyholders. It is reasonable to select between the national and Florida historical figures, given the amount of actual hurricane data available during the period used. With respect to ULAE, the factors used were based upon directions received from Ken Ritzenthaler, an actuary with OIR, in a previous filing. The prior discussions with Mr. Ritzenthaler are referenced in the exhibits to the filing. The more credible evidence demonstrates that the ALAE and ULAE expenses with respect to catastrophic hurricane losses are sufficiently documented in Hartford's filings and are based on reasonable actuarial judgment. The sixth identified deficiency is that the catastrophe non-hurricane losses, ALAE and ULAE amounts are excessive and not supported. According to OIR, the particular time period from 1992 to 2006 used to calculate these values has not been justified, and there has been no explanation of why the extraordinarily high reported losses for 1992 and 1993 should be expected to occur in the future. OIR's complaint with respect to non-hurricane losses is based upon the number of years of data included. While the RMS model was used for hurricane losses, there is no model for non- hurricane losses, so Hartford used its historical data. This becomes important because in both 1992 and 1993, there were unusual storms that caused significant losses. Hartford's data begins with 1992 and goes through 2006, which means approximately fifteen years worth of data is used. Hartford's explanation for choosing that time period is that hurricane models were first used in 1992, and it was at that time that non-hurricane losses had to be separated from hurricane losses. Thus, it was the first year that Hartford had the data in the right form and sufficient detail to use in a rate filing. Petitioners have submitted rate filings in the past that begin non-hurricane, ALAE and ULAE losses with 1992, increasing the number of years included in the data with each filing. Prior filings using this data have been approved by OIR. It is preferable to use thirty years of experience for this calculation. However, there was no testimony that such a time-frame is actuarially or statutorily required, and OIR's suggestion that these two high-loss years should be ignored is not based upon any identified actuarial standard. Hartford attempted to mitigate the effect of the severe losses in 1992 and 1993 by capping the losses for those years, as opposed to relying on the actual losses.2/ The methodology used by Hartford was reasonable and appropriate. No other basis was identified by the OIR to support this stated deficiency. The seventh identified deficiency is that the underwriting profit and contingency factors are excessive and not supported. The underwriting profit factor is the amount of income, expressed as a percentage of premium, that an insurance company needs from premium in excess of losses, settlement costs and other expenses in order to generate a fair rate of return on its capital necessary to support its Florida exposures for the applicable line of business. Hartford's proposed underwriting profit factor for its largest homeowners filing is 15.3%. Section 627.062(2)(b), Florida Statutes, contemplates the allowance of a reasonable rate of return, commensurate with the risk to which the insurance company exposes its capital and surplus. Section 627.062(2)(b)4., Florida Statutes, authorizes the adoption of rules to specify the manner in which insurers shall calculate investment income attributable to classes of insurance written in Florida, and the manner in which investment income shall be used in the calculation of insurance rates. The subsection specifically indicates that the manner in which investment income shall be used in the calculation of insurance rates shall contemplate allowances for an underwriting profit factor. Florida Administrative Code Rule 69O-170.003 is entitled "Calculation of Investment Income," and the stated purpose of this rule is as follows: (1) The purpose of this rule is to specify the manner in which insurers shall calculate investment income attributable to insurance policies in Florida and the manner in which such investment income is used in the calculation of insurance rates by the development of an underwriting profit and contingency factor compatible with a reasonable rate of return. (Emphasis supplied). Mr. Schwartz relied on the contents of this rule in determining that the underwriting profit factor in Hartford's filings was too high, in that Florida Administrative Code Rule 69O-170.003(6)(a) and (7) specifies that: (6)(a) . . . An underwriting profit and contingency factor greater than the quantity 5% is prima facie evidence of an excessive expected rate of return and unacceptable, unless supporting evidence is presented demonstrating that an underwriting profit and contingency factor included in the filing that is greater than this quantity is necessary for the insurer to earn a reasonable rate of return. In such case, the criteria presented as determined by criteria in subsection (7) shall be used by the Office of Insurance Regulation in evaluating this supporting evidence. * * * An underwriting profit and contingency factor calculated in accordance with this rule is considered to be compatible with a reasonable expected rate of return on net worth. If a determination must be made as to whether an expected rate of return is reasonable, the following criteria shall be used in that determination. An expected rate of return for Florida business is to be considered reasonable if, when sustained by the insurer for its business during the period for which the rates under scrutiny are in effect, it neither threatens the insurer's solvency nor makes the insurer more attractive to policyholders or investors from a corporate financial perspective than the same insurer would be had this rule not been implemented, all other variables being equal; or Alternatively, the expected rate of return for Florida business is to be considered reasonable if it is commensurate with the rate of return anticipated for other industries having corresponding risk and it is sufficient to assure confidence in the financial integrity of the insurer so as to maintain its credit and, if a stock insurer, to attract capital, or if a mutual or reciprocal insurer, to accumulate surplus reasonably necessary to support growth in Florida premium volume reasonably expected during the time the rates under scrutiny are in effect. Mr. Schwartz also testified that the last published underwriting profit and contingency factor published by OIR was 3.7%, well below what is identified in Hartford's filings. Hartford counters that reliance on the rule is a misapplication of the rule (with no explanation why), is inconsistent with OIR's treatment of the profit factors in their previous filings, and ignores the language of Section 627.062(2)(b)11., Florida Statutes. No evidence was presented to show whether the expected rate of return threatens Hartford's solvency or makes them more attractive to policyholders or investors from a corporate financial perspective than they would have been if Rule 69O- 170.003 was not implemented. Likewise, it was not demonstrated that the expected rate of return for Florida business is commensurate with the rate of return for other industries having corresponding risk and is necessary to assure confidence in the financial integrity of the insurer in order to maintain its credit and to attract capital. While the position taken by OIR with respect to Hartford's filings may be inconsistent with the position taken in past filings, that cannot be determined on this record. The prior filings, and the communications Hartford had with OIR with regard to those filings, are not included in the exhibits in this case. There is no way to determine whether Petitioners chose to present evidence in the context of prior filings consistent with the criteria in Rule 69O-170.003, or whether OIR approved the underwriting profit and contingency factor despite Rule 69O- 170.003. Having an underwriting profit factor that is considered excessive will result in a higher rate indication. Therefore, it is found that the seventh identified deficiency in the Notices of Intent to Disapprove for the homeowners filings and the second identified deficiency in the Notices of Intent to Disapprove for the dwelling/fire filings is sustained. The eighth identified deficiency is that various components underlying the calculation of the underwriting profit and contingency factors, including but not limited to the return on surplus, premium to surplus ratio, investment income and tax rate are not supported or justified. Return on surplus is the total net income that would result from the underwriting income and the investment income contributions relative to the amount of capital that is exposed. Surplus is necessary in addition to income expected from premium, to insure that claims will be paid should losses in a particular year exceed premium and income earned on premium. Hartford's expected return on surplus in these filings is 15%. The return on surplus is clearly tied to the underwriting profit factor, although the percentages are not necessarily the same. It follows, however, that if the underwriting income and contingency factor is excessive, then the return on surplus may also be too high. Hartford has not demonstrated that the return on surplus can stand, independent of a finding that the underwriting profit and contingency factor is excessive. Premium-to-surplus ratio is a measure of the number of dollars of premium Hartford writes relative to the amount of surplus that is supporting that exposure. Hartford's premium-to- surplus ratio in the AARP homeowners filing is 1.08, which means that if Hartford wrote $108 of premium, it would allocate $100 of surplus to support that premium.3/ The premium-to-surplus ratio is reasonable, given the amount of risk associated with homeowners insurance in Florida. The OIR's position regarding investment income and tax rates are related. The criticism is that the filing used a low- risk investment rate based on a LIBOR (London Interbank Offering Rate), which is a standard in the investment community for risk- free or low-risk yield calculations. The filing also used a full 35% income tax rate applied to the yield. Evidence was presented to show that, if the actual portfolio numbers and corresponding lower tax rate were used in the filings, the rate after taxes would be the same. The problem, however, is that Section 627.062(2)(b)4., Florida Statutes, requires the OIR to consider investment income reasonably expected by the insurer, "consistent with the insurer's investment practices," which assumes actual practices. While the evidence at hearing regarding Hartford's investments using its actual portfolio yield may result in a similar bottom line, the assumptions used in the filing are not based on Petitioner's actual investment practices. As a result, the tax rate identified in the filing is also not the actual tax rate that has been paid by Hartford. The greater weight of the evidence indicates the data used is not consistent with the requirements of Section 627.062(2)(b)4., Florida Statutes. Therefore, the eighth deficiency is sustained to the extent that the filing does not adequately support the return on surplus, investment income and tax rate. The ninth identified deficiency is that the underwriting expenses and other expenses are excessive and not supported. Hartford used the most recent three years of actual expense data, analyzed them and made expense selections based on actuarial judgment. The use of the three-year time frame was both reasonable and consistent with common ratemaking practices. Likewise, the commission rates reflected in the agency filings are also reasonable. The tenth identified deficiency is that the non-FHCF (or private) reinsurance costs are excessive and not supported. The criticism regarding private reinsurance purchases is three- fold: 1) that Hartford paid too much for their reinsurance coverage; 2) that Hartford purchases their reinsurance coverage on a nationwide basis as opposed to purchasing coverage for Florida only; and 3) that the percentage of the reinsurance coverage allocated to Florida is too high. Hartford buys private reinsurance in order to write business in areas that are exposed to catastrophes. It buys reinsurance from approximately 40 different reinsurers in a competitive, arm's-length process and does not buy reinsurance from corporate affiliates. Hartford used the "net cost" of insurance in its filings, an approach that is appropriate and consistent with standard actuarial practices. Hartford also used the RMS model to estimate the expected reinsurance recoveries, which are subtracted from the premium costs. Hartford buys private catastrophic reinsurance on a nationwide basis to protect against losses from hurricanes, earthquakes and terrorism, and allocates a portion of those costs to Florida. Testimony was presented, and is accepted as credible, that attempting to purchase reinsurance from private vendors for Florida alone would not be cost-effective. The cost of reinsurance, excluding a layer of reinsurance that covers only the Northeast region of the country and is not reflected in calculating costs for Florida, is approximately $113 million. Hartford retains the first $250 million in catastrophe risk for any single event, which means losses from an event must exceed that amount before the company recovers from any reinsurer. In 2006, Hartford raised its retention of losses from $175 million to $250 million in an effort to reduce the cost of reinsurance. Hartford purchases reinsurance in "layers," which cover losses based on the amount of total losses Hartford incurs in various events. Hartford allocates approximately 65% of the private reinsurance costs (excluding the Northeast layer) to Florida in the AARP homeowners filing. Only 6-7% of Hartford's homeowners policies are written in Florida. The amount Hartford paid for reinsurance from private vendors is reasonable, given the market climate in which the insurance was purchased. Hartford has demonstrated that the process by which the reinsurance was purchased resulted in a price that was clearly the result of an arms-length transaction with the aim of securing the best price possible. Likewise, the determination to purchase reinsurance on a nationwide basis as opposed to a state-by-state program allows Hartford to purchase reinsurance at a better rate, and is more cost-effective. Purchasing reinsurance in this manner, and then allocating an appropriate percentage to Florida, is a reasonable approach. With respect to the allocation of a percentage of reinsurance cost to Florida, OIR argues that, given that Florida represents only 6-7% of Hartford's homeowner insurance business, allocation of 65% of the reinsurance costs to Florida is per se unreasonable. However, the more logical approach is to examine what percentage of the overall catastrophic loss is attributable to Florida, and allocate reinsurance costs accordingly. After carefully examining both the testimony of all of the witnesses and the exhibits presented in this case, the undersigned cannot conclude that the allocation of 65% of the private reinsurance costs is reasonable, and will not result in an excessive rate.4/ The eleventh identified deficiency is that the FHCF (or CAT Fund) reinsurance costs are excessive and not supported. Hartford purchases both the traditional layer of CAT Fund coverage, which is addressed in a separate filing and not reflected in these filings, and the TICL layer made available pursuant to Chapter 2007-1, Laws of Florida. Hartford removed the costs of its previously purchased private reinsurance that overlapped with the TICL layer and those costs are not reflected in these filings and have not been passed on to Florida policyholders. In estimating the amount of premium Hartford would pay for the TICL coverage, it relied on information provided by Paragon, a consulting firm that calculates the rates for the CAT Fund. As noted in finding of fact number 31, the RMS model, along with three other models accepted by the Hurricane Commission, were used by Paragon for determining expected aggregate losses to the CAT Fund reinsurance layer, clearly a crucial factor in determining the rate for the CAT fund. Hartford did not use the loss recoveries calculated by Paragon, but instead estimated the total amount of premium it would pay for the TICL coverage and subtracted the expected loss recoveries based on the RMS model alone. The expected loss recoveries under the RMS model standing alone were 60% of the loss recovery estimate calculated by Paragon when using all four models. Hartford claimed that its use of the RMS model was necessary for consistency. However, it pointed to no actuarial standard that would support its position with respect to this particular issue. Moreover, given that the premium used as calculated by Paragon used all four models, it is actually inconsistent to use one number which was determined based on all four models (the Paragon-based premium estimate) for one half of this particular calculation and then subtract another number using only one model for the other half (the loss recoveries rate) in order to determine the net premium. To do so fails to take into account the unique nature of the CAT fund, in terms of its low expenses and tax-exempt status. Accordingly, it is found that the CAT-Fund reinsurance costs for the TICL layer are excessive. The twelfth identified deficiency is that Hartford did not consider in the filing that no new business is being written. OIR's explanation of this asserted deficiency is that the costs associated with writing new business are generally higher than that associated with writing renewals. Therefore, according to OIR, failure to make adjustments to their historical experience to reflect the current mix of business, means that the costs included in the filing would be excessive. Hartford began restricting the writing of new business for these filings in 2002. Ultimately, no new business for the AARP program was written after November 2006 and no new business was written for the agency program after June 2006. Credible evidence was presented to demonstrate that a very low percentage of new business has been written over the period of time used for demonstrating Hartford's historical losses. As a result, the effect of no longer writing new business is already reflected in the data used to determine expenses. No additional adjustment in the filing was necessary in this regard. The thirteenth identified deficiency is that no explanation has been provided as to why Hartford believes it is reasonable to return such a low percentage of premium in the form of loss payments to policyholders. For example, for the building policy forms, OIR states that only about 40% of the premium requested by Hartford is expected to be returned to policyholders in the form of loss payments. OIR pointed to no actuarial standard that would require a specific explanation regarding how much of the premium should be returned to policyholders. Nor was any statutory or rule reference supplied to support the contention that such an explanation was required. Finally, the more credible evidence presented indicates that the correct percentage is 44%. In any event, this criticism is not a basis for finding a deficiency in the filing. Alleged Deficiencies in the Dwelling/Fire Filings The seventh deficiency identified in the dwelling/fire filings, not reflected in the homeowner filings, is that the credibility standard and credibility values are not supported. Credibility is the concept of identifying how much weight to put on a particular set of information relative to other potential information. Credibility value is determined by applying the "square root rule" to the credibility value, a commonly used actuarial approach to credibility. Hartford used the credibility standard of 40,000 earned house years in these filings. This credibility standard has been the standard within the industry for personal property filings for over forty years and has been used in prior filings submitted to OIR. Mr. Schwartz testified that his criticism with respect to the credibility standard and credibility values is that Hartford did not explain why they used that particular standard. However, Florida Administrative Code Rule 69O-170.0135 discusses those items that must be included in the Actuarial Memorandum for a filing. With respect to credibility standards and values, Rule 69O-170.0135(2)(e)5., provides that the basis need only be explained when the standard has changed from the previous filing. Given that no change has been made in these filings with respect to the credibility standard, this criticism is not a valid basis for issuing a Notice of Intent to Disapprove. The ninth deficiency in the Notice relating to the dwelling/fire filing in Case No. 07-5187 provides: "No explanation has been provided as too (sic) why Hartford believes it needs such a large rate increase currently, when the cumulative rate change implemented by Hartford for this program from 2001 to 2006 was an increase of only about 10%." With respect to Case No. 07-5188, the deficiency is essentially the same, except the cumulative rate change identified for the same period of time is a decrease of about -3%. Testimony established that the dwelling/fire rate increases were larger than those identified for the homeowners filings because Hartford did not seek rate increases for these lines for several years. The decision not to seek increases was not based on the adequacy of current rates. Rather, the decision was based on an internal determination that, based on the relatively small number of policies involved in these two filings, the amount of increased premium reflected in a rate increase was not sufficient to incur the costs associated with preparing the filings. Mr. Schwartz pointed to no authority, either in statute, rule, or Actuarial Standard, that requires the explanation he desired. He acknowledged that he understood the basis of how Hartford reached the rate increase they are requesting. The failure to provide the explanation Mr. Schwartz was seeking is not a valid basis for a Notice of Intent to Disapprove.
Recommendation Upon consideration of the facts found and conclusions of law reached, it is RECOMMENDED: That a final order be entered that disapproves the rate filings in Case Nos. 07-5185 and 07-5186 based upon the deficiencies numbered 7,8,10 and 11 in the Notices of Intent to Disapprove, and that disapproves the rate filings in Case Nos. 07-5187 and 07-5188 based on the deficiencies numbered 2,3,5 and in the Notices of Intent to Disapprove. DONE AND ENTERED this 28th day of March 2008, in Tallahassee, Leon County, Florida. S LISA SHEARER NELSON Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 28th day of March, 2008.
