NAII Wants Clarification of Proposed N.J. Excess Profit Regulation

September 25, 2003

The National Association of Independent Insurers announced that it has asked the New Jersey Department of Banking and Insurance to be more specific regarding the methodology contained in a proposed regulation dealing with insurer excess profit calculations.

The NAII’s letter focused on two areas of the proposed regulation: the provisions dealing with the maximum 12 percent return on equity (ROE), and a required premium-to-surplus ratio of two-to-one.

“NAII believes the competitive marketplace should dictate an insurer’s profit level,” stated Donald S. Cleasby, NAII assistant VP and assistant general counsel. “Placing a 12 percent maximum allowable cap is an arbitrary government intervention that is counter to the legislative intent behind the recently enacted auto insurance regulatory reform law.”

The NAII bulletin said, “No formula is specified in the proposed regulation, nor does it specify whether the 12 percent ROE is calculated using only private passenger auto data only, or if all lines will be included. NAII suggests the regulation allow insurers to provide company data to be reviewed and authorized by the Department to justify a higher ROE if needed.”

It also said it “objects to the 2/1 premium-to-surplus restriction, which does not specify whether the ratio refers to written or earned, net or direct premiums.” Cleasby noted that “according to NAII’s Research Services Division, 64 percent of insurers filing 2002 annual statements had ratios of less than 2/1 on a written, and 66 percent had ratios below the 2/1 cutoff on a direct earned basis. Using either calculation, most insurers would be adversely affected by having to restate their earnings to meet this requirement.”

He added “If allowed to stand, this proposed regulation could make insurers unwilling to enter the state’s private passenger auto market. That is a result neither the industry nor the Department desires.”

Topics Carriers Legislation Profit Loss New Jersey

Was this article valuable?

Here are more articles you may enjoy.