The Office of General Counsel issued the following informal opinion on June 14, 2000 representing the position of the New York State Insurance Department.
Re.: Non-Renewal/Change of Tier Two-for-One New Business Credits
Question Presented:
What is the proper time period for calculation and application of the "two-for-one" new business credit as it applies to retiering of risks under N.Y. Ins. Law Section 3425(f)(2) (McKinney Supp. 2000)?
Conclusion:
The period of time to calculate and apply the two-for-one business credit is the same current calendar year in which non-renewals and uptiered policies are made. There must be new business written this year to support any non-renewals and uptiering made this year in a two-for-one ratio.
Facts:
An insurer miscalculated in its underwriting capacity in 1999, resulting in a significant percentage of its insureds being placed in a lower-premium tier than was proper. To remedy this problem, the insurer has applied for a general rate increase across the board and seeks to use the two-for-one new business credit under N.Y. Ins. Law § 3425(f)(2) (McKinney Supp. 2000) to non-renew or uptier said misclassified insureds this year.
Analysis:
An insurer has proposed that the applicable insurance laws, regulations, and circular letters support an interpretation that the number of policies it has written last year, being the same year used in the last year-end formula to calculate the 2% limit under N.Y. Ins. Law § 3425(f)(1) (McKinney Supp. 2000), should be the controlling number for the purpose of determining its two-for-one non-renewals this year. Last year's number is used to calculate the 2% limit in said § 3425(f)(1). However, the two-for-one credit, under N.Y. Ins. Law § 3425(f)(2) (McKinney Supp. 2000), applies to a current amount of business, independent of the number of policies written in the prior year. This credit is available to an insurer this year to the extent that the insurer writes new policies this year.
N.Y. Ins. Law § 3425(f)(2) (McKinney Supp. 2000) reads as follows:
For every two new automobile policies which the insurer voluntarily writes in each such territory, such insurer shall be permitted to non-renew or conditionally renew one additional automobile policy in that territory in excess of the two percent limit established in paragraph one of this subsection, subject to a fair and nondiscriminatory formula developed by the superintendent, which shall consider the number of automobile policies written less cancellations initiated by the insurer within the first sixty days of the policy period.
The legislative intent of its predecessor section, N.Y. Ins. Law § 167-aa (McKinney, effective 1979), is to provide "[a]n incentive to increase voluntary writing ... for every two newly insured automobiles written ..., an insurer may non-renew or conditionally renew one additional automobile in that territory in excess of the 2 percent limit ..." (emphasis added).
§ 3425(f)(2) is clearly written in the present tense: "For every two new automobile policies which the insurer voluntarily writes ... " (emphasis added). In addition, the statute provides that the credit shall be subject to a fair and nondiscriminatory formula developed by the Superintendent. There has been such a formula in place at least since Circular Letter No. 4 (June 6, 1986). This formula refers to policies in effect at the beginning of a particular calendar year (so as to establish the base for the 2% rule), then adds in the number of newly written automobile policies for which the two-for-one credit may be utilized.
Furthermore, the Superintendent's March 1, 1983 report to the Governor includes the term "January 1 of a given year". This term clearly refers to the current year, not the prior year. Here, the subsequent reference to "such calendar year" refers to the current year, not the prior year.
For further information contact Associate Attorney Jeffrey Stonehill of the Departments New York Office.