{ "id": 11890484, "name": "STATE OF NORTH CAROLINA EX REL. COMMISSIONER OF INSURANCE, Appellee v. NORTH CAROLINA RATE BUREAU, Appellant. IN THE MATTER OF THE FILING DATED FEBRUARY 1, 1994 BY THE NORTH CAROLINA RATE BUREAU FOR REVISED AUTOMOBILE INSURANCE RATES-PRIVATE PASSENGER CARS AND MOTORCYCLES", "name_abbreviation": "State ex rel. Commissioner of Insurance v. North Carolina Rate Bureau", "decision_date": "1996-12-17", "docket_number": "No. COA95-641", "first_page": "674", "last_page": "697", "citations": [ { "type": "official", "cite": "124 N.C. App. 674" } ], "court": { "name_abbreviation": "N.C. Ct. App.", "id": 14983, "name": "North Carolina Court of Appeals" }, "jurisdiction": { "id": 5, "name_long": "North Carolina", "name": "N.C." }, "cites_to": [ { "cite": "1993 N.C. Sess. Laws 409", "category": "laws:leg_session", "reporter": "N.C. Sess. Laws", "opinion_index": 0 }, { "cite": "269 S.E.2d 602", "category": "reporters:state_regional", "reporter": "S.E.2d", "year": 1980, "pin_cites": [ { "page": "606" } ], "opinion_index": 0 }, { "cite": "300 N.C. 485", "category": "reporters:state", "reporter": "N.C.", "case_ids": [ 8562738 ], "year": 1980, "pin_cites": [ { "page": "491" } ], "opinion_index": 0, "case_paths": [ "/nc/300/0485-01" ] }, { "cite": "165 S.E.2d 207", "category": "reporters:state_regional", "reporter": "S.E.2d", "year": 1969, "pin_cites": [ { "page": "222" } ], "opinion_index": 0 }, { "cite": "275 N.C. 15", "category": "reporters:state", "reporter": "N.C.", "case_ids": [ 8557738 ], "year": 1969, "pin_cites": [ { "page": "36" } ], "opinion_index": 0, "case_paths": [ "/nc/275/0015-01" ] }, { "cite": "N.C. Gen. Stat. \u00a7 58-2-165", "category": "laws:leg_statute", "reporter": "N.C. Gen. Stat.", "opinion_index": 0 }, { "cite": "234 S.E.2d 720", "category": "reporters:state_regional", "reporter": "S.E.2d", "weight": 2, "year": 1977, "pin_cites": [ { "page": "730" }, { "page": "730" } ], "opinion_index": 0 }, { "cite": "292 N.C. 471", "category": "reporters:state", "reporter": "N.C.", "case_ids": [ 8571182 ], "weight": 4, "pin_cites": [ { "page": "489" }, { "page": "489" } ], "opinion_index": 0, "case_paths": [ "/nc/292/0471-01" ] }, { "cite": "393 S.E.2d 905", "category": "reporters:state_regional", "reporter": "S.E.2d", "year": 1990, "opinion_index": 0 }, { "cite": "326 N.C. 804", "category": "reporters:state", "reporter": "N.C.", "case_ids": [ 5309188, 5308933, 5309254, 5308262, 5307886 ], "year": 1990, "opinion_index": 0, "case_paths": [ "/nc/326/0804-01", "/nc/326/0804-04", "/nc/326/0804-05", "/nc/326/0804-02", "/nc/326/0804-03" ] }, { "cite": "389 S.E.2d 574", "category": "reporters:state_regional", "reporter": "S.E.2d", "weight": 3, "year": 1990, "pin_cites": [ { "page": "575" }, { "page": "576", "parenthetical": "remanding the issue of underwriting profit provisions due to insufficient findings in the Commissioner's order" }, { "page": "576" } ], "opinion_index": 0 }, { "cite": "97 N.C. App. 644", "category": "reporters:state", "reporter": "N.C. App.", "case_ids": [ 8522734 ], "weight": 3, "year": 1990, "pin_cites": [ { "page": "646" }, { "page": "647" }, { "page": "647" } ], "opinion_index": 0, "case_paths": [ "/nc-app/97/0644-01" ] }, { "cite": "273 S.E.2d 300", "category": "reporters:state_regional", "reporter": "S.E.2d", "year": 1980, "opinion_index": 0 }, { "cite": "301 N.C. 107", "category": "reporters:state", "reporter": "N.C.", "case_ids": [ 8564256, 8564233, 8564290, 8564187 ], "year": 1980, "opinion_index": 0, "case_paths": [ "/nc/301/0107-03", "/nc/301/0107-02", "/nc/301/0107-04", "/nc/301/0107-01" ] }, { "cite": "269 S.E.2d 547", "category": "reporters:state_regional", "reporter": "S.E.2d", "weight": 8, "year": 1980, "pin_cites": [ { "page": "592" }, { "page": "586", "parenthetical": "alteration in original" }, { "page": "587" }, { "page": "589-90" }, { "page": "589-90" }, { "page": "592-93" } ], "opinion_index": 0 }, { "cite": "300 N.C. 381", "category": "reporters:state", "reporter": "N.C.", "case_ids": [ 8562647 ], "weight": 5, "year": 1980, "pin_cites": [ { "page": "456" }, { "page": "448-449" }, { "page": "450-51" } ], "opinion_index": 0, "case_paths": [ "/nc/300/0381-01" ] }, { "cite": "381 S.E.2d 801", "category": "reporters:state_regional", "reporter": "S.E.2d", "weight": 2, "year": 1989, "pin_cites": [ { "page": "803" }, { "page": "803" } ], "opinion_index": 0 }, { "cite": "95 N.C. App. 157", "category": "reporters:state", "reporter": "N.C. App.", "case_ids": [ 8519844 ], "weight": 2, "year": 1989, "pin_cites": [ { "page": "159" }, { "page": "159" } ], "opinion_index": 0, "case_paths": [ "/nc-app/95/0157-01" ] }, { "cite": "N.C. Gen. Stat. \u00a7 58-36-70", "category": "laws:leg_statute", "reporter": "N.C. Gen. Stat.", "pin_cites": [ { "page": "(d)" } ], "opinion_index": 0 }, { "cite": "N.C. Gen. Stat. \u00a7 58-36-10", "category": "laws:leg_statute", "reporter": "N.C. Gen. Stat.", "opinion_index": 0 }, { "cite": "N.C. Gen. Stat. \u00a7 58-2-90", "category": "laws:leg_statute", "reporter": "N.C. Gen. Stat.", "pin_cites": [ { "page": "(e)" } ], "opinion_index": 0 }, { "cite": "N.C. Gen. Stat. \u00a7 58-2-80", "category": "laws:leg_statute", "reporter": "N.C. Gen. Stat.", "opinion_index": 0 }, { "cite": "385 S.E.2d 510", "category": "reporters:state_regional", "reporter": "S.E.2d", "weight": 5, "year": 1989, "pin_cites": [ { "page": "511" }, { "page": "512" }, { "page": "512" }, { "page": "511" } ], "opinion_index": 0 }, { "cite": "96 N.C. App. 220", "category": "reporters:state", "reporter": "N.C. App.", "case_ids": [ 8521089 ], "weight": 4, "year": 1989, "pin_cites": [ { "page": "221" }, { "page": "223" }, { "page": "223" }, { "page": "221" } ], "opinion_index": 0, "case_paths": [ "/nc-app/96/0220-01" ] }, { "cite": "28 S.E.2d 201", "category": "reporters:state_regional", "reporter": "S.E.2d", "year": 1943, "pin_cites": [ { "page": "203" } ], "opinion_index": 0 }, { "cite": "223 N.C. 687", "category": "reporters:state", "reporter": "N.C.", "case_ids": [ 8615929 ], "year": 1943, "pin_cites": [ { "page": "690" } ], "opinion_index": 0, "case_paths": [ "/nc/223/0687-01" ] }, { "cite": "214 S.E.2d 98", "category": "reporters:state_regional", "reporter": "S.E.2d", "weight": 3, "year": 1975, "pin_cites": [ { "page": "106" }, { "page": "106" } ], "opinion_index": 0 }, { "cite": "287 N.C. 192", "category": "reporters:state", "reporter": "N.C.", "case_ids": [ 8561318 ], "weight": 2, "year": 1975, "pin_cites": [ { "page": "205" }, { "page": "205" } ], "opinion_index": 0, "case_paths": [ "/nc/287/0192-01" ] }, { "cite": "335 S.E.2d 319", "category": "reporters:state_regional", "reporter": "S.E.2d", "weight": 2, "year": 1985, "opinion_index": 0 }, { "cite": "314 N.C. 547", "category": "reporters:state", "reporter": "N.C.", "case_ids": [ 4696490, 4687151, 4696345, 4688826, 4686907 ], "year": 1985, "opinion_index": 0, "case_paths": [ "/nc/314/0547-04", "/nc/314/0547-01", "/nc/314/0547-02", "/nc/314/0547-03", "/nc/314/0547-05" ] }, { "cite": "331 S.E.2d 124", "category": "reporters:state_regional", "reporter": "S.E.2d", "weight": 6, "year": 1985, "pin_cites": [ { "page": "131" }, { "page": "141" }, { "page": "225" }, { "page": "141" } ], "opinion_index": 0 }, { "cite": "75 N.C. App. 201", "category": "reporters:state", "reporter": "N.C. App.", "case_ids": [ 8525529 ], "weight": 3, "year": 1985, "pin_cites": [ { "page": "208" }, { "page": "224-25" }, { "page": "228" } ], "opinion_index": 0, "case_paths": [ "/nc-app/75/0201-01" ] } ], "analysis": { "cardinality": 1456, "char_count": 55411, "ocr_confidence": 0.737, "pagerank": { "raw": 3.6315349071283225e-07, "percentile": 0.8891585957328014 }, "sha256": "5b589e0d0467694e18676acb8215e25566f108309c496c0f684a09d654e84535", "simhash": "1:11b2676b011d4ec4", "word_count": 8680 }, "last_updated": "2023-07-14T17:03:33.335576+00:00", "provenance": { "date_added": "2019-08-29", "source": "Harvard", "batch": "2018" }, "casebody": { "judges": [], "parties": [ "STATE OF NORTH CAROLINA EX REL. COMMISSIONER OF INSURANCE, Appellee v. NORTH CAROLINA RATE BUREAU, Appellant. IN THE MATTER OF THE FILING DATED FEBRUARY 1, 1994 BY THE NORTH CAROLINA RATE BUREAU FOR REVISED AUTOMOBILE INSURANCE RATES-PRIVATE PASSENGER CARS AND MOTORCYCLES." ], "opinions": [ { "text": "McGEE, Judge.\nOn 1 February 1994, the North Carolina Rate Bureau (Bureau) filed a general request for increased rates for private passenger automobiles and motorcycles. The rate increase requested an increase of 10.8% for automobile rates and 22.4% for motorcycle rates. The Commissioner held a comprehensive hearing during the summer of 1994. The filing request was more than 1,500 pages in length; there were an additional 800 pages of responses by the Bureau to the Commissioner\u2019s requests for data to explain the filing; the hearing transcript is more than 3,500 pages in length and the evidence included more than 120 exhibits. The Commissioner\u2019s lengthy order of more than 500 pages, including calculations and exhibits, disapproved the Bureau\u2019s filing and ordered rate changes reducing rates for automobiles by 13.8% and increasing rates for motorcycles by 10.2%. The Bureau appealed from this order and brought forward 13 assignments of error based on more than 40 pages of exceptions to various findings of fact, conclusions of law and exhibits.\nI. STANDARDS OF REVIEW\nA. Appellate Court Review\nIn reviewing orders of the Insurance Commissioner, the test is whether the Commissioner\u2019s conclusions of law are supported by material and substantial evidence in light of the whole record. State ex rel. Comr. of Insurance v. N.C. Rate Bureau, 75 N.C. App. 201, 208, 331 S.E.2d 124, 131, disc. review denied, 314 N.C. 547, 335 S.E.2d 319 (1985). \u201cThe whole record test requires the reviewing court to consider the record evidence supporting the Commissioner\u2019s order, to also consider the record evidence contradicting the Commissioner\u2019s findings, and to determine if the Commissioner\u2019s decision had a rational basis in the material and substantial evidence offered.\u201d Id. Substantial evidence is \u201csuch relevant evidence as a reasonable mind might accept as adequate to support a conclusion.\u201d Comr. of Insurance v. Automobile Rate Office, 287 N.C. 192, 205, 214 S.E.2d 98, 106 (1975). It is \u201cmore than a scintilla or a permissible inference.\u201d Id. (quoting Utilities Commission v. Trucking Company, 223 N.C. 687, 690, 28 S.E.2d 201, 203 (1943)).\nWhile this Court employs the \u201cwhole record\u201d test in reviewing the Commissioner\u2019s orders, \u201cit is not our function to substitute our judgment for that of the Commissioner when the evidence is conflicting.\u201d State ex rel. Comr. of Insurance v. N.C. Rate Bureau, 96 N.C. App. 220, 221, 385 S.E.2d 510, 511 (1989). The weight and sufficiency of the evidence as well as the credibility of the witnesses are determined by the Commissioner. Id.\nB. Review by the Insurance Commissioner\nAn order or decision of the Insurance Commissioner regarding premium rates is presumed to be correct if it is supported by substantial evidence. N.C. Gen. Stat. \u00a7 58-2-80. \u201cUpon any appeal, the rates fixed or any rule, regulation, finding, determination, or order made by the Commissioner under the provisions of Articles 1 through 64 of this Chapter shall be prima facie correct.\u201d N.C. Gen. Stat. \u00a7 58-2-90(e).\nThe Commissioner\u2019s order regarding a rate filing must comply with the standards set forth in N.C. Gen. Stat. \u00a7 58-36-10:\n(1) Rates shall not be excessive, inadequate or unfairly discriminatory.\n(2) Due consideration shall be given to actual loss and expense experience within this State for the most recent three-year period for which such information is available; to prospective loss and expense experience within this State; to the hazards of conflagration and catastrophe; to a reasonable margin for underwriting profit and to contingencies; to dividends, savings, or unabsorbed premium deposits allowed or returned by insurers to their policyholders, members, or subscribers; to investment income earned or realized by insurers from their unearned premium, loss, and loss expense reserve funds generated from business within this State; to past and prospective expenses specially applicable to this State; and to all other relevant factors within this State: Provided, however, that countrywide expense and loss experience and other countrywide data may be considered only where credible North Carolina experience or data is not available.\nN.C. Gen. Stat. \u00a7 58-36-70(d) regarding rate filings and hearings for motor vehicle insurance states, in part:\nIf the Commissioner after the hearing finds that the filing does not comply with the provisions of this Article, he may issue an order disapproving the filing, determining in what respect the filing is improper, and specifying the appropriate rate level or levels that may be used by the members of the Bureau instead of the rate level or levels proposed by the Bureau filing, unless there has not been data admitted into evidence in the hearing that is sufficiently credible for arriving at the appropriate rate level or levels.\n\u201cIn reaching his ultimate determination, the Commissioner must make findings which clearly and specifically indicate the facts on which he bases his order, the resolution of conflicting evidence, and the consideration he has given to the material and substantial evidence that has been offered.\u201d State ex rel. Comr. of Insurance v. N.C. Rate Bureau, 95 N.C. App. 157, 159, 381 S.E.2d 801, 803 (1989). This requires the Commissioner to be mathematically specific as to his findings of fact. Comr. of Insurance v. Rate Bureau, 300 N.C. 381, 456, 269 S.E.2d 547, 592, reh\u2019g denied, 301 N.C. 107, 273 S.E.2d 300 (1980).\nII. DIVIDENDS AND DEVIATIONS\nThe Bureau contends the Commissioner exceeded his statutory authority and entered an order which is unsupported by material and substantial evidence when he ignored the requirements set forth in G.S. 58-36-10 by failing to give \u201cdue consideration\u201d to dividends and deviations in ruling on this rate request. Particularly, the Bureau argues the Commissioner determined the aggregate losses, expenses and an appropriate profit; he then calculated and used underwriting profit provisions without any adjustment in the ratemaking formula for dividends and deviations. In so doing, the Bureau contends the Commissioner \u201ccamouflage [d] his continuing refusal to adhere to the requirement of the law that the rates reflect the effects of dividends and deviations\u201d by devoting almost half of his order to an examination of the issue of dividends and deviations, but ultimately concluding that our current system of ratemaking already includes, within the average rate, a provision for dividends and deviations.\nThe Bureau argues this conclusion is erroneous and will result in rates which will not generate sufficient premium to provide for a reasonable profit for all automobile insurance. Because deviations and dividends reduce the cost of insurance to policyholders, the Bureau argues they should be treated as an expense item as opposed to profit. The Commissioner rejected the Bureau\u2019s treatment of deviations and dividends as a reduction in premium (an expense) and he simply adjusted the expected premium back to the amount which would be collected if there were no deviations without making an adjustment for dividends and deviations in his rate calculations. With this adjustment, the Bureau contends the targeted profit is only generated \u201cif one assumes that the premiums not charged (i.e. the amount deviated) are somehow collected by the companies and the premiums returned to policyholders (i.e. dividends) are somehow retained by the companies.\u201d\nThe Bureau argues the Commissioner\u2019s reasons for ignoring deviations and dividends are baseless and irrelevant. The Bureau notes the Commissioner\u2019s concern that dividends and deviations are voluntary and discretionary has already been settled by our Court, which has held the discretionary nature of dividends and deviations is not a basis for the Commissioner to ignore them in developing the rate level. State ex rel. Comr. of Ins. v. N.C. Rate Bureau, 97 N.C. App. 644, 646, 389 S.E.2d 574, 575, disc. review denied, 326 N.C. 804, 393 S.E.2d 905 (1990). Furthermore, the Bureau points out the Commissioner\u2019s finding that deviations and dividends are unfairly discriminatory ignores the fact that our General Assembly \u201ccreated a system of ratemaking that is by design \u2018discriminatory\u2019 \u201d because the formula is based on the collective experience of all insured motorists, pooling drivers with both good and bad driving records. The Commissioner\u2019s charges that dividends and deviations (1) are not competitive tools, (2) they lead to spiraling manual rates, and that (3) they are payable from surplus are not supported by material or substantial evidence, according to the Bureau. Finally, the Bureau contends the Commissioner\u2019s last two arguments are erroneous: (1) ratemaking must assume that every company charges the manual rate and (2) there is an actual margin in the rates for dividends and deviations. The Bureau concludes by arguing the Commissioner\u2019s failure to explicitly recognize deviations and dividends is in excess of his statutory authority, his reasoning is flawed and irrelevant, and his implicit provision for deviations and dividends is unsupported by material and substantial evidence.\nThe Commissioner contends his order is the product of a thorough consideration of dividends and deviations and that the concept of \u201cdue consideration\u201d required by G.S. 58-36-10 does not necessarily mean that an adjustment to the rates must be made to reflect the effects of dividends and deviations. He argues there was substantial evidence that the Bureau\u2019s proposed rate was excessive and that the Bureau formula results in the double counting of dividends and deviations which, in turn, leads to spiraling manual rates. Left uncorrected, this situation leads to excessive and unfairly discriminatory rates. Consequently, the Commissioner contends he remedied the inequities by: (1) using the manual rates actually in effect in North Carolina; (2) correcting the Bureau\u2019s mathematical error in its ratemaking formula; (3) determining the appropriate amount of dividends and deviations based on the corrections; and (4) deriving a profit provision which included the appropriate dividends and deviations.\nWe agree with the Commissioner that \u201cdue consideration\u201d does not mandate that a numerical adjustment to the rates must be made to reflect the effects of dividends and deviations. In State ex rel. Comr. of Ins. v. N.C. Rate Bureau, 75 N.C. App. at 224-25, 331 S.E.2d at 141, this Court addressed the meaning of \u201cdue consideration\u201d in terms of the underwriting profit rating factor. Our Court said:\nG.S. \u00a7 58-124.19(2) [now G.S. 58-36-10] only requires that the Commissioner give \u201cdue consideration\u201d to the enumerated rating criteria, including allowance for an underwriting profit. Nothing in the language of the statute requires that the Commissioner provide for an underwriting profit so long as the rate level established on the statutory rate criteria is not inadequate, excessive, or unfairly discriminatory.\nId. The Court quoted our Supreme Court as saying the General Assembly never intended \u201cto make any one, or all, of these matters [statutory rating standards] conclusive. . . . The weight to be given the respective factors is for the Commissioner to determine in the exercise of his sound discretion and expertise. ...\u201d Id. at 225, 331 S.E.2d at 141 (quoting Comr. of Insurance v. Rating Bureau, 292 N.C. 471). Like underwriting profit, dividends and deviations are statutory rating factors to which the Commissioner must give \u201cdue consideration,\u201d but the Commissioner must then weigh the various statutory rate factors to achieve an adequate rate level and to ensure the proposed rate will leave the insurers with a fair and reasonable profit. Id.\nAfter a careful review of the record, we find there is substantial support for a number of the Commissioner\u2019s concerns and his rejection of the Bureau\u2019s treatment of dividends and deviations. At the hearing, there was conflicting expert testimony as to where to reflect dividends and deviations \u2014 in the expenses or in calculating the underwriting profit. While two of the Bureau\u2019s witnesses testified these factors are expenses, a number of experts testifying for the Department of Insurance (Department) stated the appropriate place to reflect dividends and deviations is in the margin for underwriting profits. There was expert testimony that the Bureau used neither of the two accepted ratemaking formulas (Loss Ratio and Pure Premium Methods) and consequently, the results lead to inflated levels of dividends and deviations. This testimony was illustrated by comparing the two accepted formulas and showing they always produced the same result. The expert then compared these formulas to the Bureau\u2019s method and demonstrated the Bureau\u2019s formula resulted in double counting, excessive and inflated rates, and was unfairly discriminatory as it ultimately led to spiraling rates. Department witnesses echoed the testimony as to the double counting and spiraling effect of the Bureau\u2019s formula. Relying on this testimony, \u201cthe Commissioner corrected the Bureau\u2019s mathematical and actuarial error and used the manual rates in effect in North Carolina without the improper reduction for deviations.\u201d\nAfter making the appropriate corrections, the Commissioner then provided for the appropriate amount for dividends and deviations in the profit provision by calculating the amount that is provided in his prospective rate level based on evidence in the Record on existing levels. The Commissioner made the following findings, in his order:\n74. The testimony and evidence summarized in Exhibits C through H, attached, together with the matters and things set forth in the exhibits referred to in this Section are found to be substantial, credible, convincing, true and supportive of the Findings of Facts and Conclusions of Law set forth in this Order and collectively such evidence and testimony are hereby adopted as additional Findings of Facts and they are incorporated herein as fully as if set forth verbatim in the main body of this Order.\n75. The evidence for the Department convincingly and repeatedly demonstrates that the average rate includes within it a provision for dividends and deviations.\n76. DOI-44 shows the effects of the Bureau method and corroborates the testimony of the Bureau expert Michael Miller and the Department experts that manual rates based on average costs do, in fact, provide a margin for insurers to deviate and/or pay dividends. Furthermore, it demonstrates that for the prior decade, there have been deviations and dividends in North Carolina in excess of total savings and shows the actual dividends and deviations in dollars from 1983 through 1992.\n77. Using the historical results in the evidence supplied by the Bureau and used in the Jordan model, it appears that a reasonable margin has been included in prior rates for the accumulation of surplus for the payment of dividends and deviations even without an extra explicit expense load provision as set forth in this filing. These margins are set forth below.\n78. These margins were provided by an average manual premium. The Commissioner finds and concludes that any margin in excess of the margin provided for in the average manual premium is unreasonable and produces rates that are excessive and unfairly discriminatory.\n79. Based on the foregoing, the Commissioner finds that profit provisions of -3.75 for liability and +1.75 for physical damage will provide 4.96% of manual premiums, or $90 million, that may be dividended and deviated as a savings to insureds, assuming the same book of business. DOI-44, p. 4; Jordan Transcript, pp. 1826-1828.\n80. The 4.96% of premium or approximately $90 million provided in the manual rate for policyholder dividends and deviations by the Bureau member companies is reasonable, adequate and is provided in the rates which are adopted and approved hereinafter by this Order and which are not inadequate, excessive or unfairly discriminatory.\n81. Dividends and deviations in excess of the 4.96% of premium or approximately $90 million may occur, as in the past. If so, the excess may come from companies which are prepared to accept, on an individual basis, less than the average profit provided in the manual rate, from accumulated surplus, from lower expenses, from an excessive rate level implemented by the Bureau or from sources which are not within the jurisdiction of the Commissioner.\n82. This 4.96% of the premiums will become retained earnings, i.e. profit, if it is not dividended or deviated. Including more than 4.96% of premium for dividends and deviations in the rate calculation will cause rates to spiral and become excessive and unfairly discriminatory.\nWhile there is substantial evidence to support the majority of the Commissioner\u2019s findings regarding dividends and deviations, we are unable to determine from the record exactly how the Commissioner selected the figure of 4.96% as the amount which may be used for dividends and deviations. Department exhibit DOI-44 appears to be the basis for the Commissioner\u2019s figure; however, we agree with the Bureau that the estimates shown in the chart for the years 1993, 1994 and 1995 are not supported by the evidence and there are no findings explaining the Commissioner\u2019s estimates, particularly how the Commissioner chose the 4.96% figure. Consequently, we remand to allow the Commissioner to make specific findings that clearly show the facts upon which he based his decision that the rate contains a 4.96% margin for dividends and deviations. See State ex rel. Comr. of Ins. v. N.C. Rate Bureau, 97 N.C. App. at 647, 389 S.E.2d at 576 (remanding the issue of underwriting profit provisions due to insufficient findings in the Commissioner\u2019s order).\nIII. INVESTMENT INCOME FROM CAPITAL AND SURPLUS FUNDS\nWe agree with the Bureau\u2019s next contention that the Commissioner erred as a matter of law in considering investment income from capital and surplus in his ratemaking calculations.\nIn Comr. of Insurance v. Rate Bureau, 300 N.C. 381, 269 S.E.2d 547, our Supreme Court examined the issue of income on invested capital. The Court said:\nB. The Majority Rule\nWe also find our view consistent with that prevailing in other jurisdictions. In 2 Couch, Insurance Law \u00a7 21:38 at 494 (Anderson ed. 1959) it is said:\n\u201cIn determining whether an insurer has made a reasonable profit, the amount of business done rather than its capital should be considered, and profits should be determined by subtracting losses and expenses from the total premiums actually received, to the exclusion of profit on capital and surplus, and excess commissions paid to agents but considering interest on unearned premiums and related elements.\nId. at 444, 269 S.E.2d at 586 (alteration in original). After summarizing the issue, the Court concluded, \u201cprior decisions in this State have sustained the view that investment income from unearned premiums and loss reserve funds are appropriately considered in a ratemaking hearing. . . . Neither prior cases nor statutes, however, have permitted consideration of invested income from investment capital.\u201d Id. at 446, 269 S.E.2d at 587. In subsequent cases, this Court has clearly followed the Supreme Court\u2019s directive. In State ex rel. Comr. of Insurance v. N.C. Rate Bureau, 75 N.C. App. at 228, 331 S.E.2d at 142 our Court said, \u201cthe Commissioner may not consider investment income from capital and surplus accounts . ...\u201d We remanded the issue of the Commissioner\u2019s selection of underwriting profit provisions for more findings showing how the Commissioner\u2019s figure was made without consideration of \u201cinvestment income from capital and surplus\u201d in State ex rel. Comr. of Ins. v. N.C. Rate Bureau, 97 N.C. App. at 647, 389 S.E.2d at 576.\nIn this order, the Commissioner set forth the methodology by which he calculated the underwriting profit and contingency factor. He discussed the various methods used by several department and Bureau expert witnesses and then found, \u201cit is appropriate to use the formula of the Bureau and O\u2019Neil [a department expert] to calculate the target underwriting profit and contingency factor in this proceeding, with due consideration and appropriate adjustments to each factor in the calculation.\u201d This formula included a line item and calculation for \u201cIncome from Capital and Surplus.\u201d The Bureau witness whose testimony the Commissioner relied upon in calculating this figure stated:\n[I]n addition to including investment income from loss, expense and unearned premium reserves, it includes installment payment income and realized and unrealized capital gains. It also includes both investment income and capital gains on stockholder-supplied funds, i.e. capital and surplus. Thus, it is a total return and not just a return on insurance operations.\nThe Order also states that in addition to the Bureau witness, the Commissioner relied upon the figures presented by department witness, O\u2019Neil. In prefiled testimony, O\u2019Neil stated she reflected investment income in her calculations by \u201cus[ing] the Rate Bureau\u2019s calculation procedure. . . . My results differed slightly from the Rate Bureau\u2019s because my expected loss ratio . . . differs from the Rate Bureau\u2019s value because of differences in other underlying assumptions such as the treatment of dividends . . . .\u201d\nThis order is remanded for recalculation of the underwriting profit provisions. The formula used must exclude investment income earned on capital and surplus.\nIV. UNDERWRITING PROFIT PROVISIONS\nThe Bureau next argues the Commissioner erred in reducing the filed underwriting profit provisions from .8% to -3.75% for liability coverage and from 5.4% to 1.75% for physical damage. According to the Bureau, the Commissioner reached these figures by (1) accepting the 13.9% filed target return on net worth, but then improperly converting this to a return on statutory surplus; (2) improperly assuming a hypothetical capital structure by adopting a \u201cnormative\u201d premium-to-surplus ratio rather than the existing ratio in North Carolina; and (3) improperly finding that the premiums used for prepaid expenses and agents\u2019 balances remain available for investment.\nA. Rate of Return\nEssentially, the Bureau argues part of the methodology employed by the Commissioner in determining the underwriting profit provisions was faulty because the Commissioner used the more conservative accounting system known as SAP (statutory accounting principles) as opposed to the GAAP system (generally accepted accounting principles). The Bureau contends SAP, established by the National Association of Insurance Commissioners (NAIC), is inappropriate because its purpose is to measure the liquidation value of a company and it does not include all of a company\u2019s assets in its calculations. By contrast, the GAAP system measures the financial condition of a company as an ongoing concern, not its liquidation value. According to the Bureau, the more conservative SAP approach to measuring assets produced a chain of reactions: an understatement of the value of the aggregate insurance company and a smaller base upon which to apply the return, and ultimately resulted in a lower rate of return. Additionally, the Bureau contends the Commissioner\u2019s calculations are not supported by material and substantial evidence.\nThe Bureau has not cited any authority and we find nothing in the cases or statutes which prescribe the system the Commissioner must use, either SAP or GAAP, in calculating these profit provisions. In Comr. of Insurance v. Rating Bureau, 292 N.C. 471, 489, 234 S.E.2d 720, 730 (1977), our Supreme Court said:\nThe ultimate question for the Commissioner\u2019s determination is whether the proposed rates will, after provision for reasonably anticipated losses and operating expenses, leave for the insurers ... a fair and reasonable profit and no more. The purpose of the entire statutory plan is to provide for the public, at reasonable cost, insurance in financially responsible companies. The public interest extends as truly to the financial responsibility of the insurer as it does to the reasonable cost of the insurance to the insured, and vice versa, (citations omitted) (emphasis added).\nThe Commissioner is considered an expert in the field of insurance and his reliance on various \u201cmethods of analysis of the profit to which the insurance companies are entitled lies entirely within his discretion.\u201d State ex rel Comr. of Insurance v. N.C. Rate Bureau, 96 N.C. App. at 223, 385 S.E.2d at 512. The rates the Commissioner determines in his order are prima facie correct so long as there is substantial and material evidence to support the Commissioner\u2019s findings. G.S. 58-2-80; G.S. 58-2-90(e).\nWe find there is substantial and material evidence to support the Commissioner\u2019s use of SAP in calculating the profit provisions. Not only was there expert testimony that SAP was the appropriate method, but as the Commissioner pointed out in his order, even our statutes refer to the accounting practices set forth by the NAIC (i.e. SAP system) in requiring insurance companies to evaluate and make regular reports of their financial positions. N.C. Gen. Stat. \u00a7 58-2-165. Additionally, the Commissioner reasons that since SAP represents that level of financial commitment an insurance company is legally required to make to its policyholders, it is a logical foundation upon which to base a rate of return in determining \u201ca fair and reasonable profit and no more.\u201d Comr. of Insurance v. Rating Bureau, 292 N.C. at 489, 234 S.E.2d at 730. \u201cAs we do not find error in the Commissioner\u2019s judgment we cannot replace our judgment for his.\u201d State ex rel Comr. of Insurance v. N.C. Rate Bureau, 96 N.C. App. at 223, 385 S.E.2d at 512.\nWe turn now to the Commissioner\u2019s calculations and ultimate selection of 13.67% total rate of return as a percentage of surplus (SAP). The Bureau vigorously argues the Commissioner\u2019s - calculations and findings, to the extent they portend to be based on the Bureau calculations, are \u201ccontrived in order to give the appearance of \u2018comparable\u2019 [Bureau] results.\u201d While there may be some misleading language in the Commissioner\u2019s findings as to comparisons with Bureau figures, including findings of Fact 47 and 48, we ultimately find there is material and substantial evidence to support the Commissioner\u2019s calculations.\nThe Commissioner\u2019s order included the following:\nSELECTION OF RATE OF RETURN\n44. The historical rate of return for the property and casualty insurance industry during the 1981 to 1990 period was 9.6% of GAAP and 9.4% of SAP. DOI-39.\n45. Several recommendations as to the appropriate rate of return were advanced in the testimony. See Exhibit A, Section C, pp. 30, 31, line (12).\na. Plotkin testified that a broad spectrum of U.S. industries has historically achieved average returns on net worth (GAAP) in the range of 12% to 15%. He opined that 13.9% (GAAP) was not excessive. RB-15, Plotkin Prefiled Testimony, p. 15.\nb. Vander Weide opined that the cost of equity capital for the average company writing private passenger automobile insurance in North Carolina is 13.0% to 15.25% (GAAP), or a fair rate of return of 15.0% to 17.25% on GAAP equity. RB-17, Vander Weide Prefiled Testimony, pp. 4, 17-18.\nc. Cohn testified that the appropriate rate of return is on operations (not a total rate of return) based on risk premium, and the required risk premium is 5.2% of surplus. DOI-4, Cohn Prefiled Testimony, pp. 8-16; Exhibit A, Section C, pp. 30-31, line (16). Cohn did not calculate the cost of capital, but would estimate it to be 10%. Cohn Transcript, p. 925.\nd. Schwartz testified that the required rate of return on operations is 3.6% of premium (3.8% for liability and 3.2% for physical damage). Exhibit A, Section C, pp. 30-31, line (18). He calculated that the recommended 3.6% results in an overall post-tax rate of return in relation to surplus of 17.3%, which may be overly generous. DOI-5, Schwartz Prefiled Testimony, pp. 12-15.\ne. Wilson concluded that a return of 10% on surplus (SAP) is appropriate based on the current cost of equity capital for private passenger automobile insurance companies. DOI-3, Wilson Prefiled Testimony, pp. 5, 44; Exhibit A, Section C, pp. 30-31, line (12).\nf. O\u2019Neil concluded that an overall 11% post-tax rate of return (SAP) was appropriate, noting that the reasonable expected rate of return for all industries would be in the range of 10% to 15% (GAAP). DOI-6, O\u2019Neil Prefiled Testimony, pp. 47-49; Exhibit A, Section C, pp. 30-31, line (12).\n46. The rates of return recommended by each of the witnesses were derived by reference, in varying degrees, to rates of return in industries other than the North Carolina private passenger automobile insurance industry.\n47. The rate of return used by the Bureau in its calculation is a 13.9% return on net worth (GAAP) (see RBI, L-461 and L-465), which converts to a return on surplus of 13.66% for liability and 13.61% for physical damage. Exhibit A, Section C, pp. 32 and 33.\n48. In light of all the evidence, the Commissioner selects a 13.67% total rate of return as a percentage of surplus (SAP) for both liability and physical damage coverages. This is the return derived from the adjusted Bureau calculation. Exhibit A, Section C, pp. 32 and 33. Based on the evidence in this case, a 13.67% return leads to a reasonable margin for underwriting profit and to contingencies for the average carrier, and no more. In Re Filing by Fire Ins. Rating Bureau. 215 [sic] N.C. 15, 32-33 (1969); Commissioner of Insurance v. Rate Bureau. 300 N.C. 381, 448-449 (1980). Rates of return of 13.67% for both liability and physical damage are appropriate and do not lead to rates that are excessive, inadequate or unfairly discriminatory. 49. Therefore, 13.67% is entered into line (12) of Exhibit A, Section C, pp. 30 and 31.\nAfter considering the wide variety of recommendations, the Commissioner used the Bureau\u2019s profit components related to surplus and calculated a return on surplus of 13.66% by multiplying the return on premium (the Bureau's figure of 9.26%) by 1.475, the premium-to-surplus ratio for 1992, the latest single year of data available for this filing. We have already discussed the evidence which allows the Commissioner to use a return on surplus (SAP) as one of the bases for deriving profit. The Commissioner\u2019s choice of the premium-to-surplus ratio for 1992 is also supportable. It represents data from the most current year; Bureau witnesses testified the 1992 data was credible; and the ratio was used in department witness O\u2019Neil\u2019s calculations.\nB. Premium-to-surplus ratio:\nThe Bureau argues \u201cthe Commissioner erred as a matter of law in adopting a hypothetical \u2018normative\u2019 premium-to-surplus ratio rather than the actual ratio.\u201d This selection, according to the Bureau, further reduced the filed underwriting profit provisions. While the Bureau contends this hypothetical ratio is \u201cerror as a matter of law,\u201d the only case cited for this proposition is Comr. of Insurance v. Rate Bureau, 300 N.C. at 450-51, 269 S.E.2d at 589-90. We find this case distinguishable.\nIn Comr. of Insurance v. Rate Bureau, 300 N.C. 381, 269 S.E.2d 547, the Court\u2019s discussion of the use of a hypothetical rate of return was in the context of the Commissioner\u2019s decision to use the \u201ccapital asset pricing model\u201d for determining the underwriting profit margin. The Court stated:\n[T]he Commissioner\u2019s requirement for the use of a hypothetical \u201crisk free\u201d rate of return would clearly violate the intent of our Legislature in authorizing insurance companies operating in North Carolina to invest in certain securities. G.S. 58-79.1 specifically requires casualty insurance companies to invest reserve funds in one or more of ten different categories of investments.\nIt is inconceivable to us that our Legislature intended that insurance companies invest their funds in certain designated securities and then require that those companies\u2019 underwriting profits shall be computed on the hypothetical assumption that they were invested in something else. Such an interpretation would, as appellants suggest, \u201cmake a mockery of the statute.\u201d\nId. at 450-51, 269 S.E.2d at 589-90. The statute at issue, G.S. 58-79.1 has since been repealed.\nIn this case, we find there was substantial evidence to support the Commissioner\u2019s selection of a 2 to 1 premium-to-surplus ratio. The 2 to 1 ratio is a traditional standard for the premium-to-surplus ratio and several expert witnesses used this 2 to 1 ratio in their calculations. Additionally, there was testimony that it is more appropriate to use a normative ratio than an historical one when determining rates on a prospective basis. We agree with the Commissioner there is no evidence of error as a matter of law; there is neither a statutory mandate for a premium-to-surplus ratio nor anything to preclude the Commissioner\u2019s use of a hypothetical normative premium-to-surplus ratio as opposed to the actual ratio so long as there is substantial evidence to support the Commissioner\u2019s selection.\nC. Treatment of Reserves Subject to Investment\nThe Bureau\u2019s final contention under the underwriting profit provision argument is that the Commissioner erred by improperly finding that the premiums used for prepaid expenses and agents\u2019 balances remain available for investment. We disagree.\nG.S. 58-36-10 states, in part, \u201c[d]ue consideration shall be given to . . . investment income earned or realized by insurers from their unearned premium, loss, and loss expense reserve funds generated from business within this State ....\u201d Section F of the Commissioner\u2019s order examined the issue of investment income from unearned premium, loss, and loss expense reserve funds. In this section, the Commissioner clearly defined the factors involved in considering investment income; selected a reasonable rate of return (7%) on investments; and carefully explained why he concluded the Bureau\u2019s amount of reserves subject to investment was incorrect.\nThe Commissioner found the Bureau had excluded from the calculations of the reserves available for investment prepaid expenses and agents\u2019 balances. Reasoning that decisions as to how to handle agents\u2019 balances and to prepay expenses are discretionary and outside the control of policyholders, the Commissioner stated, \u201cit is appropriate to allow the interest earned on the entire amount of these funds to accrue to the benefit of policyholders.\u201d This conclusion was supported by the evidence in the record. Expert witness John Wilson testified that by reducing the reserve by prepaid expenses and agents\u2019 balances, the Bureau \u201cis saying that the working capital requirements of the insurance company \u2014 in particular things like agents\u2019 balances and other important capital requirements, any type of accounts receivable \u2014 should be funded by the premium reserve.\u201d Wilson further stated, \u201c[t]hat is not the way in which business operates. ... To make a deduction from policyholder-provided funds rather than owner-supplied funds, for the working capital requirements of the enterprise is incorrect accounting for purposes of ratemaking.\u201d The Commissioner also observed that none of the statutes authorize the Bureau to reduce investment reserves for prepaid expenses and agents\u2019 balances and that the annual statement includes \u201cthe entire unearned premium reserve and loss and loss adjustment expense reserves are allocated in their entirety to the benefit of policyholders.\u201d\nWe find there is substantial evidence in the record to support the Commissioner\u2019s decision as to the Calculation of investment income from unearned premium, loss, and loss expense reserve funds.\nY. GENERAL AND OTHER ACQUISITION EXPENSES\nGeneral and other acquisition expenses for liability coverage is figured from information which combines the automobile expense experience from the voluntary market and the Reinsurance Facility (facility market). To calculate the proper expense provision for a filing, this combined expense data is allocated between the voluntary and facility markets. In the past, the Commissioner has approved filings where the expense dollars are allocated to each market based on the number of policies (called exposures) in each market. In this filing, the Commissioner concluded the best method for determining general and other acquisition expenses was by allocating expenses between the voluntary and facility markets by premium volume as opposed to exposures. The Bureau contends the Commissioner erred in accepting this method because it is not supported by substantial or material evidence. We disagree.\nAs we have already stated, the Commissioner weighs the sufficiency of the evidence as well as the credibility of the witnesses. State ex rel. Comr. of Insurance v. N.C. Rate Bureau, 96 N.C. App. at 221, 385 S.E.2d at 511. Substantial evidence is \u201csuch relevant evidence as a reasonable mind might accept as adequate to support a conclusion.\u201d Comr. of Insurance v. Automobile Rate Office, 287 N.C. at 205, 214 S.E.2d at 106. Additionally, we note the Commissioner is free to consider and adopt a new method of allocation. As pointed out in the Commissioner\u2019s brief, our Supreme Court has stated, \u201c[i]t is not a proper ground for the rejection of such evidence that such projection . . . has never before been used in the rate making process. The statute does not contemplate that procedures and methods for determining replacement costs for the future shall be frozen.\u201d In re Filing by Fire Ins. Rating Bureau, 275 N.C. 15, 36, 165 S.E.2d 207, 222 (1969). \u201c[T]he head of an administrative agency in the executive branch of our government clearly has the power, provided he follows legal means, to chart new courses in discharging the functions of his office.\u201d Comr. of Insurance v. Rate Bureau, 300 N.C. 485, 491, 269 S.E.2d 602, 606 (1980).\nIn choosing to change the method by which general and other acquisition expenses are calculated, the Commissioner had before him expert testimony from department witness Allan I. Schwartz, an actuarial consultant who had conducted an independent analysis of the issue. Schwartz testified, \u201cthe key issue in this item is how these expenses are distributed between the voluntary and involuntary [North Carolina Reinsurance Facility (NCRF)] markets. There are two main methods used to allocate these types of expenses. One would be on the basis of premiums, the other would be on the basis of exposures.\u201d Schwartz carefully explained the differences between allotment by exposure as opposed to allocating by premium. He reasoned that some expenses like advertising and a portion of boards, bureaus and surveys are already allocated on the basis of premiums and he stated, \u201c [i]t is clear that a significant portion of other acquisition plus general expenses are more closely related to premiums than to exposures.\u201d Other evidence presented by Schwartz included a study performed by an industry-sponsored organization (AIPSO) responsible for the administration of automobile insurance residual markets in most jurisdictions. The results of this study showed the expense ratios are higher for the residual market than for the voluntary market whereas the Bureau method results in a much higher expense ratio for the voluntary market than the residual market. Schwartz was asked why insurance companies would take \u201ccontradictory positions through two of their agents (i.e. AIPSO and NCRB [Bureau]) with regard to the relationship of expenses to premiums for the residual market in comparison to the voluntary market.\u201d He responded:\nAs it turns out, in most states other than North Carolina, residual market rates are more heavily regulated than the voluntary market rates. Hence, in those jurisdictions a financial incentive exists for insurance companies to try and push as many expense dollars as possible into the residual market rate level.\nIn North Carolina, however, residual market rates are less regulated than the voluntary market rates. Hence, there is a financial incentive in North Carolina for insurance companies to try and push as many expense dollars as possible into the voluntary market rate level.\nHence, what at first may seem to be illogical and contradictory positions by insurance companies is simply consistent with an attempt by insurance companies to try and load as many expense dollars as possible into the rate level that is more closely regulated.\nSchwartz went on to recommend to the Commissioner \u201cthat a reasonable procedure would be to allocate other acquisition and general expenses between the voluntary and residual markets based upon premiums.\u201d We conclude there was substantial evidence before the Commissioner to support his method of calculating general and other acquisition expenses by allocating expense dollars based on premium volume as opposed to exposures. Therefore, we overrule this assignment of error.\nVI. CURRENT COST AND EXPENSE TREND PROVISIONS\nThe Bureau next argues the Commissioner erred in disapproving the filed current cost and expense trend provisions and in ordering rates based on inadequate current cost and expense trend provisions.\nAs we outlined at the beginning of this opinion, G.S. 58-36-70(d) states, in part:\nIf the Commissioner finds that a filing complies with the provisions of this Article, either after the hearing or at any other time after the filing has been properly made, he may issue an order approving the filing. If the Commissioner after the hearing finds that the filing does not comply with the provisions of this Article, he may issue an order disapproving the filing, determining in what respect the filing is improper, and specifying the appropriate rate level or levels that may be used by the members of the Bureau instead of the rate level or levels proposed by the Bureau filing, unless there has not been data admitted into evidence in the hearing that is sufficiently credible for arriving at the appropriate rate level or levels.\n\u201cIn reaching his ultimate determination, the Commissioner must make findings which clearly and specifically indicate the facts on which he bases his order, the resolution of conflicting evidence, and the consideration he has given to the material and substantial evidence that has been offered.\u201d State ex rel. Comr. of Ins. v. N.C. Rate Bureau, 95 N.C. App. at 159, 381 S.E.2d at 803. \u201c[T]he present statute requires the Commissioner to be mathematically specific in rejecting proposed rate increases and future orders should specify \u2018wherein and to what extent\u2019 the proposed filings are deemed improper.\u201d Comr. of Insurance v. Rate Bureau, 300 N.C. at 456, 269 S.E.2d at 592-93 (emphasis added).\nAfter explaining the necessity of prospective loss and experience (trending) in insurance ratemaking cases, the Commissioner noted, \u201c[t]he evidence in this case was conflicting concerning trends that will most accurately predict the prospective loss and expense experience . . . .\u201d He then made detailed and specific findings based on department witness O\u2019Neil\u2019s \u201cextensive analysis\u201d on the issue of current cost and expense trend provisions, occasionally making general references to inconsistencies between the Bureau and O\u2019Neil findings. The Commissioner ultimately chose to use O\u2019Neil\u2019s trend selections in the calculation of the rate level change. As to the Bureau\u2019s trends, the Commissioner made the following findings of fact:\n4. The Bureau trends were all selected by its committees. However, no testimony was offered by any member of these committees to explain the reasons for the selection of exponential curves as has been automatically made by the Bureau in all auto filings for many years. The mechanical process of calculating the pure premium and cost trend was briefly explained by the Bureau witness Woods, without independent evaluation, on pages 25 and 26 of RB-14. Woods was not a member of the Bureau committees.\n. . . [findings 5-10 discussed O\u2019Neil\u2019s research and conclusions]\n11. The trends selected by the Bureau will result in rates which are excessive in violation of the law of this state.\n12. The trends selected by the Bureau committees and briefly explained by Woods were not determined upon the same thoughtful analysis as those derived by O\u2019Neil and, thus, are found to be less credible, reasonable and reliable, and are rejected.\n13. For the reasons set forth above, the trend selections derived by O\u2019Neil are accepted as credible and reliable for use in the calculation of the rate level change in this proceeding, while the trends selected by the Bureau are found to lack credibility and are rejected.\nO\u2019Neil\u2019s analysis and findings are supported by the evidence in the record; however, the Commissioner\u2019s statements regarding the Bureau\u2019s evidence are conclusory and unsupported by specific evidence. While \u201c[tjhere is no burden upon the Commissioner to disprove the filing,\u201d Comr. of Insurance v. Rate Bureau, 300 N.C. at 455, 269 S.E.2d at 592, the statutes do compel the Commissioner to be specific in rejecting rate increases by stating \u201c \u2018wherein and to what extent\u2019 the proposed filings are deemed improper.\u201d Id. at 456, 269 S.E.2d at 592-93. The Commissioner\u2019s recognition of conflicting evidence, but his failure to resolve the conflicts in precise detail along with his failure to specifically show he has given consideration to the material and substantial evidence the Bureau offered before rejecting the Bureau in favor of O\u2019Neil\u2019s evidence require us to remand this issue to the Commissioner for more specific findings as to the Bureau\u2019s evidence.\nVII. FILING DATE ADJUSTMENT\nThe Bureau argues the Commissioner erred in (1) disapproving the filing date adjustment it was legally authorized to include in the proposed filing and (2) improperly calculating and ordering into effect his own adjustment, which resulted in further decreasing the overall ordered rate change. According to the Bureau, the Commissioner exceeded his statutory authority by reviewing the filing date adjustment because only the Bureau was given the power to make an adjustment to compensate for the changed filing date.\nIn 1993, the General Assembly changed the annual filing date for automobile insurance rate filings from 1 July to 1 February. Since this change prevented the Bureau from filing for a rate change in 1993, the General Assembly provided:\nWith respect to the nonfleet private passenger motor vehicle insurance rate filing made on or before February 1, 1994, the Bureau may file an additional factor for an additional rate increase or decrease to compensate for the changing of the filing rate (sic) from July 1 to February 1 as provided in Section 10 of this act.\n1993 N.C. Sess. Laws 409, \u00a7 11 (emphasis added). Pursuant to this authority, the Bureau included an adjustment which \u201cshowed a need for an increase of 8.6% without the filing date adjustment. When combined with the filing date adjustment, the overall filed change was 10.7%.\u201d The Commissioner, using the Bureau\u2019s methodology, calculated and ordered into effect his own adjustment which resulted in a further decrease of the overall rate change.\nWhile the legislation allows the Bureau an additional filing factor, we are not convinced the General Assembly intended that the ultimate decision on the amount of the additional rate increase or decrease be left solely in the hands of the Bureau. Indeed, the last line of this legislation states, \u201cas provided in Section 10 of this act.\u201d G.S. 58-36-10 is the listing of factors to which the Commissioner must give \u201cdue consideration\u201d in insurance ratemaking cases. The filing date adjustment was part of the overall proposed filing and as such, the Commissioner was vested with the statutory authority to disapprove of any provision in the filing and to specify the appropriate rate to be used. G.S. 58-36-70(d).\nVIII. CONCLUSION\nWe have reviewed the parties\u2019 remaining assignments of error and find them to be without merit.\nAffirmed in part; vacated in part; and remanded.", "type": "majority", "author": "McGEE, Judge." }, { "text": "Judges JOHNSON and MARTIN, JOHN C.\nconcur.\nJudge Johnson participated in this opinion prior to 1 December 1996, the effective date of his retirement.", "type": "concurrence", "author": "Judges JOHNSON and MARTIN, JOHN C." } ], "attorneys": [ "North Carolina Department of Insurance, by Ann W. Spragens, General Counsel, and Law Offices of E. Daniels Nelson, by E. Daniels Nelson, and Ragsdale, Liggett & Foley, PLLC, by George R. Ragsdale and Kristin K. Eldridge, for the Commissioner of Insurance.", "Young Moore and Henderson P.A., by R. Michael Strickland, Marvin M. Spivey, Jr., William M. Trott, and TerrynD. Owens, for the North Carolina Rate Bureau." ], "corrections": "", "head_matter": "STATE OF NORTH CAROLINA EX REL. COMMISSIONER OF INSURANCE, Appellee v. NORTH CAROLINA RATE BUREAU, Appellant. IN THE MATTER OF THE FILING DATED FEBRUARY 1, 1994 BY THE NORTH CAROLINA RATE BUREAU FOR REVISED AUTOMOBILE INSURANCE RATES-PRIVATE PASSENGER CARS AND MOTORCYCLES.\nNo. COA95-641\n(Filed 17 December 1996)\n1. Insurance \u00a7 421 (NCI4th)\u2014 rate case \u2014 whole record test\u2014 Commissioner determines credibility of witnesses\nIn reviewing rate orders of the Commissioner of Insurance, the test is whether the Commissioner\u2019s conclusions of law are supported by material and substantial evidence in light of the whole record. While the Court of Appeals employs the \u201cwhole record\u201d test, the Court does not substitute its judgment for that of the Commissioner when the evidence is conflicting. The weight and sufficiency of the evidence as well as the credibility of the witnesses are determined by the Commissioner.\nAm Jur 2d, Administrative Law and Procedure \u00a7\u00a7 225 et seq.\n2. Insurance \u00a7 421 (NCI4th)\u2014 automobile rates \u2014 Commissioner\u2019s findings must be mathematically specific\u2014 Commissioner\u2019s determinations are prima facie correct\nOn appeal, the rates fixed or any rule, regulation, finding, determination, or order made by the Commissioner of Insurance under the provisions of Articles 1 through 64 of Chapter 58 of N.C.G.S. are prima facie correct. N.C.G.S. \u00a7 58-2-90(e). The Commissioner must be mathematically specific in his findings of fact.\nAm Jur 2d, Administrative Law and Procedure \u00a7\u00a7 225 et seq.\n3. Insurance \u00a7 403 (NCI4th)\u2014 automobile rates \u2014 Commissioner must show factual basis for determination of dividends and deviations \u2014 decision remanded\n\u201cDue consideration\u201d as required by N.C.G.S. \u00a7 58-36-10 does not mandate that a numerical adjustment to automobile rates must reflect the effects of dividends and deviations. While there was substantial evidence to support the majority of the Commissioner of Insurance\u2019s findings regarding dividends and deviations, the Court was unable to determine from the record exactly how the Commissioner selected the figure of 4.96% as the amount which may be used for dividends and deviations. The Court remanded the decision to allow the Commissioner to make specific findings that clearly show the facts upon which he based his decision that the rate contains a 4.96% margin for dividends and deviations.\nAm Jur 2d, Administrative Law and Procedure \u00a7\u00a7 152 et seq.; Insurance \u00a7\u00a7 30, 59, 828 et seq.\n4. Insurance \u00a7 400 (NCI4th)\u2014 automobile rates \u2014 investment income \u2014 unearned capital \u2014 Commissioner\u2019s consideration of investment income was error\nWhile investment income from unearned premiums and loss reserve funds are appropriately considered in ratemaking hearings, the Commissioner of Insurance erred, as a matter of law, in considering investment income from capital and surplus in his ratemaking calculations.\nAm Jur 2d, Insurance \u00a7\u00a7 30, 828 et seq.\n5. Insurance \u00a7 403 (NCI4th)\u2014 automobile rates \u2014 underwriting profit \u2014 statutory accounting principles \u2014 total rate of return\nThe Commissioner of Insurance\u2019s use of statutory accounting principles (SAP) rather than generally accepted accounting principles to determine underwriting profit for automobile insurance purposes was supported by substantial and material evidence where expert testimony indicated that SAP was the appropriate method and North Carolina statutes refer to the accounting practices set forth by the NAIC (i.e. SAP system) in requiring insurance companies to evaluate and make regular reports of their financial positions. N.C.G.S. \u00a7 58-2-165. Further, the Commissioner\u2019s calculations and selection of a 13.67% total rate of return as a percentage of surplus was supported by the evidence.\nAm Jur 2d, Insurance \u00a7\u00a7 30, 828 et seq.\n6. Insurance \u00a7 403 (NCI4th) \u2014 automobile rates \u2014 normative premium-to-surplus ratio\nIt was not error, as a matter of law, for the Commissioner of Insurance to use a normative 2 to 1 premium-to-surplus ratio rather than the historical ratio where there is neither a statutory mandate for a premium-to-surplus ratio nor anything to preclude the Commissioner\u2019s use of a hypothetical normative premium-to-surplus ratio, so long as there is substantial evidence to support the Commissioner\u2019s selection.\nAm Jur 2d, Insurance \u00a7\u00a7 30, 828 et seq.\n7. Insurance \u00a7 400 (NCI4th)\u2014 automobile rates \u2014 underwriting profit \u2014 prepaid expenses and agents\u2019 balances\nThere is substantial evidence in the record to support the Commissioner of Insurance\u2019s decision as to the calculation of investment income from unearned premium, loss, and loss expense reserve funds where the Commissioner clearly defined the factors involved in considering investment income; selected a reasonable rate of return on investments; and carefully explained that the Rate Bureau\u2019s amount of reserves subject to investment was incorrect because the Bureau had excluded prepaid expenses and agents\u2019 balances from the calculations of the reserves available for investment.\nAm Jur 2d, Insurance \u00a7\u00a7 30, 828 et seq.\n8. Insurance \u00a7 403 (NCI4th)\u2014 automobile rates \u2014 general and other acquisition expenses \u2014 allocation of voluntary and facility markets by premium volume\nThere was substantial evidence before the Commissioner of Insurance to support his method of calculating general and other acquisition expenses by allocating expenses between the voluntary and Reinsurance Facility markets by premium volume rather than exposures even though the Commissioner\u2019s method had not been used in prior filings.\nAm Jur 2d, Insurance \u00a7\u00a7 30, 828 et seq.\n9. Insurance \u00a7 393 (NCI4th)\u2014 consideration of Rate Bureau evidence \u2014 resolution of conflicting evidence \u2014 Commissioner failed to show specific consideration of Bureau\u2019s evidence\nThe Commissioner of Insurance recognized the conflicting evidence in an automobile rate hearing concerning trends that would most accurately predict the prospective loss and expense experience, but failed to resolve the conflicts in precise detail and failed to specifically show he had given consideration to the material and substantial evidence of the Rate Bureau. The Court of Appeals remanded the issue to the Commissioner for more specific findings as to the Bureau\u2019s evidence.\nAm Jur 2d, Insurance \u00a7\u00a7 30, 828 et seq.\n10. Insurance \u00a7 389 (NCI4th)\u2014 filing date adjustment\u2014 Commissioner\u2019s authority to disprove filing\nThe filing date adjustment is part of the overall proposed filing and, as such, the Commissioner of Insurance is vested with the statutory authority to disapprove of any provision in the filing and to specify the appropriate rate to be used. N.C.G.S. \u00a7 58-36-70(d).\nAm Jur 2d, Insurance \u00a7\u00a7 30, 828 et seq.\nAppeal by the North Carolina Rate Bureau from the North Carolina Commissioner of Insurance\u2019s Order entered 28 September 1994. Heard in the Court of Appeals 19 March 1996.\nNorth Carolina Department of Insurance, by Ann W. Spragens, General Counsel, and Law Offices of E. Daniels Nelson, by E. Daniels Nelson, and Ragsdale, Liggett & Foley, PLLC, by George R. Ragsdale and Kristin K. Eldridge, for the Commissioner of Insurance.\nYoung Moore and Henderson P.A., by R. Michael Strickland, Marvin M. Spivey, Jr., William M. Trott, and TerrynD. Owens, for the North Carolina Rate Bureau." }, "file_name": "0674-01", "first_page_order": 712, "last_page_order": 735 }