1. (a) Ratemaking shall be on a direct basis, with no consideration for the cost or benefits of reinsurance, except for the lines listed in section 2644.25, and the catastrophe perils within the property lines listed in subdivision (b).

2. (b) For the catastrophe perils of flood, fire following earthquake, and wildfire exposure for commercial property insurance and “qualifying residential property insurance,” as that is defined in section 2644.4.8, within the property lines of fire, allied lines, private flood, homeowners, farm owners, and commercial non-liability, the maximum permitted earned premium is calculated as described in subpart (1). Additionally, for an insurer that thus complies with section 2644.4.8 with respect to such “qualifying residential property insurance,” the maximum permitted earned premium is calculated as described in subpart (1) for wildfire exposure covered under a renter's insurance policy, an HO-6 policy, or the equivalent of an HO-6 policy.

   1. (1) the quotient of

      1. (A) the sum of

         1. (i) a. projected losses, as defined in section 2644.4,

            1. b. plus projected defense and cost containment expenses, as defined in section 2644.8,
         2. (ii) multiplied by 1 minus the fixed investment income factor as defined in section 2644.19(a),
      2. (B) minus projected ancillary income, as defined in section 2644.13,
   2. (2) divided by the maximum denominator, as defined in section 2644.25.1(d),

   3. (3) plus the quotient of

      1. (A) the Standard NCOR as defined in section 2644.25.2(j),

      2. (B) divided by 1 minus the variable expense factor, as defined in section 2644.14.

         Stated as a formula:

         Max permitted EP=

         (losses + DCCE) x (1- fixed invest income factor) - ancil income

         +

         standard net cost of reinsurance

         max denom

         1 - var exp factor

   4. (4) The maximum denominator means:

      1. (A) 1.0,
      2. (B) minus the efficiency standard, as defined in section 2644.12,
      3. (C) minus the maximum profit factor, as defined in section 2644.15,

      4. (D) plus the variable investment income factor, as defined in section 2644.19(b).

         Stated as a formula:

         Max denom = 1 - eff std - profit factor + var invest inc factor

3. (c) The cost or benefits of reinsurance shall be allowed for ratemaking purposes as set forth in this section only if the insurer complies with the insurer commitments defined in section 2644.25.3.

Note: Authority cited: Sections 1861.01 and 1861.05, Insurance Code; and 20th Century v. Garamendi, 8 Cal.4th 216 (1994). Reference: Sections 1861.01 and 1861.05, Insurance Code; and Calfarm Insurance Company v. Deukmejian (1989) 48 Cal.3d 805.

History

1. New section filed 1-13-2025 pursuant to Government Code section 11343.8; operative 1-13-2025. Submitted to OAL for filing and printing only pursuant to Government Code section 11340.9(g) (Register 2025, No. 3).