1. (a) The Commissioner shall calculate the Standard Net Cost of Reinsurance (Standard NCOR) parameters from time to time as conditions warrant, and when updated source data is available. Data and information used to calculate the Standard NCOR shall prioritize the following:

   1. (1) Information that represents the diversity and scope of insurance companies operating in California.
   2. (2) Data that is most relevant to the current market conditions.
   3. (3) Data and information that support the most actuarially sound parameters.
   4. (4) Comprehensive data that is available, reliable, and reduces long-term volatility in the Standard NCOR methodology.

2. (b) The Standard NCOR parameters shall be expressed as permitted return multiples for specific loss probability layers, which represent the net cost for a reasonably efficient insurer to purchase reinsurance coverage or hold additional capital for exposure to the occurrence of catastrophic property loss, or both.

   1. (1) Loss probability layers represent the coverage ranges within reinsurance contracts, where the reinsurer typically provides coverage for losses exceeding a certain dollar threshold up to a given dollar limit. The dollar thresholds and limits of these individual reinsurance coverage layers correspond to specific probabilities of loss, which can be used to aggregate and compare data across reinsurance contracts of varying sizes with different underlying risks.

3. (c) The Standard NCOR parameters shall be set separately for insurer/coverage groups.

   1. (1) Insurer/coverage groups shall be assigned based upon objectively measurable or observable characteristics of the insurer and/or the coverage provided by the insurer to its policyholders for the catastrophe perils within property lines listed in subdivision (b) of section 2644.25.1.
   2. (2) The Commissioner shall establish no less than three insurer/coverage groups, and may establish additional insurer/coverage groups based on the Commissioner's review and determination of updated and credible source data, to achieve a more actuarially sound result.

4. (d) In setting the insurer/coverage groups, the Commissioner shall determine whether adopting separate parameters for a given characteristic, or combination of characteristics, would produce a more actuarially sound result.

   1. (1) If the Commissioner determines that adopting separate parameters for a given characteristic, or combination of characteristics, would produce a more actuarially sound result, the Commissioner shall set the parameters separately, pursuant to section 2646.3.

      1. (A) Characteristics that may be relevant include, but are not limited to, insurer capital structure, amount of insurance being written based on premium or policy counts, percentage of insurance written in California, property line of business, and/or catastrophe peril.

5. (e) In determining whether a given characteristic, or combination of characteristics, would produce a more actuarially sound result, the Commissioner shall consider:

   1. (1) The relationship with expected property catastrophe reinsurance costs;
   2. (2) Common or standardized industry practices related to expected property catastrophe reinsurance costs;
   3. (3) Limitations created by business practices and whether such limitations are likely to have a significant impact;
   4. (4) The degree to which expected property catastrophe reinsurance costs vary within an insurer/coverage group (homogeneity);
   5. (5) The size of an insurer/coverage group and its predictive value for expected property catastrophe reinsurance costs (credibility);
   6. (6) The tradeoffs between practical and other relevant considerations (practicality); and
   7. (7) The reasonableness of the results that proceed from their use.

6. (f) To determine the specific loss probability layers, the Commissioner shall consider:

   1. (1) Common or standardized industry practices for both the purchase of property catastrophe reinsurance and the modeling of loss return periods;
   2. (2) The homogeneity of return multiples by layer;
   3. (3) The credibility of return multiple data by layer;
   4. (4) The practicality of the number of layers; and
   5. (5) The reasonableness of the results that proceed from their use.

7. (g) For each specific loss probability layer, the permitted return multiple shall be the average return multiple over the layer, calculated as the definite integral from the starting loss probability to the ending loss probability of a curve of best fit on return multiples by loss probability from the source data, as defined in section (i) of this section, divided by the length of the integration interval.

   1. (1) In calculating curves of best fit, the Commissioner may exclude insurers and/or reinsurance coverage layers for which reliable data are not readily available in the source data.
   2. (2) The Commissioner may consider, but is not limited to the consideration of, the currentness, consistency, reasonability, sufficiency, and any known limitations of the data when determining its reliability.

8. (h) Since the net cost for a reasonably efficient insurer to purchase reinsurance coverage and/or hold additional capital for exposure to the occurrence of catastrophic property loss may vary by the combination of catastrophe perils and/or property lines covered in California, where multiple catastrophe perils and/or property lines are covered in California, the Commissioner shall set both the level of detail at which the Standard NCOR parameters shall apply and the methodology by which the results are combined.

   1. (1) Level of detail and methodology

      1. (A) In setting the level of detail at which the Standard NCOR parameters shall apply and the methodology by which the results are combined, the Commissioner shall determine whether adopting a given treatment would produce a more actuarially sound result.

      2. (B) The Commissioner shall consider, but is not limited to the consideration of, the following methodologies when determining whether a given treatment will produce a more actuarially sound result:

         1. (i) Applying the Standard NCOR parameters to each catastrophe peril and/or property line in California individually, with or without covariance adjustments;
         2. (ii) Applying the parameters to all catastrophe perils and property lines combined and allocating the results to individual catastrophe perils and property lines; or
         3. (iii) A combination of (i) and (ii).
   2. (2) If the Commissioner determines that a given treatment would produce a more actuarially sound result, the Commissioner shall adopt such treatment, pursuant to section 2646.3.

9. (i) Data used in subdivisions (a) through (h) of this section shall be derived from data available to the California Department of Insurance, including from data calls that the California Department of Insurance conducts relating to reinsurance strategies and placement, and/or publicly available data, whatever would produce the most actuarially sound result. If the Commissioner determines that the use of publicly available data alone would produce the most actuarially sound result, the Commissioner shall use such data, pursuant to section 2646.3.

   1. (1) Any data derived from data calls shall only be released to the public in the aggregate so that no individual insurer experience is revealed.

10. (j) If an insurer complies with the commitments defined in section 2644.25.3, the insurer may file its complete rate application, made pursuant to section 2648.4, using the Standard NCOR parameters for its insurer/coverage group(s) for the catastrophe perils within property lines listed in subdivision (b) of section 2644.25.1.

    1. (1) The permitted return multiples shall be applied to the expected losses generated from one or a combination of catastrophe models for the specific loss probability layers, at the level of detail set by the Commissioner.

       1. (A) The expected losses may be adjusted to include a provision for defense and cost containment expenses (DCCE), either by applying a historical ratio of noncatastrophe DCCE to noncatastrophe loss or by applying a historical ratio of catastrophe DCCE to catastrophe loss.
    2. (2) The results for multiple catastrophe perils and/or property lines covered in California shall be combined according to the methodology set by the Commissioner, where applicable.

11. (k) It is expected that in an insurer's complete rate application, made pursuant to section 2648.4, any catastrophe model(s) used for subdivision (j) of this section shall be consistent with the catastrophe model(s) used for subdivisions (a) through (c) of section 2644.4.5.

    1. (1) The use of catastrophe models shall comply with the requirements set forth in subdivisions (d) through (f) of section 2644.4.5, and the inclusion of any required model information in the complete rate application proceeding shall make such information public information.

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).