1. (a) Catastrophe adjustment. No adjustment of losses for catastrophes shall be made.
2. (b) Loss development and trending. Actual incurred losses shall be used, subject to validation by the Commissioner to ensure that there has not been inappropriate reserves-strengthening. Because incurred losses for calendar year 1989 are now known, no loss development is necessary or appropriate and loss and loss adjustment expense trend would have so insubstantial an effect on rates that no adjustment shall be made.

3. (c) Reserves-strengthening. The Commissioner will not adjust an insurer's 1989 reserves when any of the following conditions are found:

   1. (1) Reserves: Premium, One-Year Test. When the year-end 1989 loss reserves to 1989 earned premiums is less than or equal to the year-end 1989 loss reserves to 1988 earned premiums.
   2. (2) Reserves: Premium Four-Year Test. When the 1989 reserves- to-premium ratio is less than or equal to the average of the reserves-to-premium ratios for 1985 through 1988.
   3. (3) Incurred Versus Paid Test. When the ratio of 1989 incurred losses to 1988 incurred losses was no greater than the ratio of the payments on 1989-incurred losses was to payments on 1988-incurred losses.

4. (d) If the insurer satisfies none of the three tests in subdivision (c) of this section, unless the Commissioner finds, based on evidence proffered by the insurer and any other party, that some other number better reflects appropriate reserve levels, the insurer's reserves shall be adjusted, on a line-by-line, company-specific basis, to the same multiple of earned premium as the 1985 through 1988 reserves had to 1985 through 1988 earned premium. The adjustment, stated as a formula, is as follows:

   [

   1985-1988 reserves

   ]

   1989 reserves = 1989 earned premium

   [

   ]

   [

   1985-1988 earned premium

   ]

In lieu of projected losses and loss adjustment expenses, actual loss and loss adjustment expense data for calendar year 1989 shall be used.

Note: Authority cited: Sections 1861.01 and 1861.05, Insurance Code. Reference: Sections 1861.01 and 1861.05, Insurance Code; Calfarm Insurance Company v. Deukmejian (1989) 48 Cal.3d 805.

History

1. New section filed 8-13-91 as an emergency; operative 8-13-91 (Register 92, No. 3). A Certificate of Compliance must be transmitted to OAL 12-11-91 or emergency language will be repealed by operation of law on the following day.

2. New subsections (c) and (d) filed 10-8-91 as an emergency; operative 10-8-91 (Register 92, No. 13). A Certificate of Compliance must be transmitted to OAL 2-5-92 or emergency language will be repealed by operation of law on the following day.

3. Editorial correction of operative date in History 2. (Register 92, No. 19).

4. New section filed 2-20-92 as an emergency; operative 2-20-92 (Register 92, No. 19). A Certificate of Compliance must be transmitted to OAL 6-19-92 or emergency language will be repealed by operation of law on the following day.

5. Certificate of Compliance as to 2-20-92 order transmitted to OAL 6-19-92 and filed 7-28-92 (Register 92, No. 31).