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Motor accidents premiums determination guidelines

Section 24 of the Motor Accidents Compensation Act 1999.

For insurance premiums proposed by insurers for all third-party policies issued with a commencement date on or after 1 July 2016.

These guidelines remain in effect until 1 December 2017.

Approved by the State Insurance Regulatory Authority Board 9 May 2016.

1. Introduction

These guidelines form part of the mechanism for the regulation of premiums under Chapter 2, Part 2.3 of the Motor Accidents Compensation Act 1999 (the Act) by the State Insurance Regulatory Authority (SIRA)1.

2. Commencement and revocation of previous guidelines

These guidelines are effective for premium rate filings submitted for all third-party policies that the filing insurer proposes to issue with a commencement date on or after 1 July 2016, replacing any prior guidelines and will remain in force until amended or replaced.

3. Definitions

These guidelines adopt the definitions provided in sections 3, 30, 49 and 74 of the Act. Additional definitions are contained in clause 15.

4. Guiding principles

The primary objects of the Act2 relating to a premium framework are to:

  • promote competition in the setting of premiums
  • keep premiums affordable
  • ensure that insurers charge premiums that fully fund their anticipated liability
  • ensure that insurers, as receivers of public money that is compulsorily levied, account for their profit margins

SIRA seeks to achieve a balance between these objects in managing third-party insurance premiums.

To promote competition and innovation by insurers, SIRA allows risk-based pricing but this must be done within limits in order to keep premiums affordable. The premium framework recognises that this liability scheme, which is compulsory and privately underwritten, blends
risk-based and community-rated approaches to assist with the object of affordability.

Filed premiums are required to be fully funded and must also take into account the separate excessive premium requirement under section 27(1)(b) of the Act. Filed premiums will be closely scrutinised by SIRA against these objects.

In aligning with the competition object, SIRA recognises that market positioning is an integral part of each insurer’s pricing. On this basis, technical (actuarial) pricing will not be considered in isolation and explanation by insurers is encouraged for non-technical pricing considerations including:

  • business plans and short term growth strategies
  • response to pricing by competitors
  • market segmentation and distribution strategies

SIRA will take into account the objects of the Act by considering in aggregate both qualitative and quantitative explanations when reviewing insurer filings.

5. Filing under Part 2.3 of the Act

In submitting a full or partial rate filing a licensed insurer must provide to the Executive Director, Motor Accidents Insurance Regulation, SIRA a soft copy of the filing including a covering letter, the filing report, appendices and any associated spreadsheets. The covering letter is to be signed by the NSW CTP Product Executive and must include:

  • a description of the type of filing3 and proposed effective date
  • an executive summary of the filing including the reasons for the filing and any significant variations compared to the most recent full filing and most recent partial filing, if applicable
  • any changes to the business plan impacting competitive strategies or market positioning
  • significant rating factor changes
  • changes in bonus malus levels, and
  • an outline of the policyholder impact analysis.

6. Rejection of premiums by SIRA

SIRA may only reject4 a premium filed under Part 2.3 of the Act if it is of the opinion that the premium:

  • will not fund the present and likely future liability under the Act of the licensed insurer (as a corollary, insurers are not permitted to recoup past claims costs or expenses not incurred in the period filed)
  • is excessive in relation to actuarial advice and to other relevant financial information available to SIRA
  • does not conform to SIRA Premiums Determination Guidelines in force under Part 2.3 of the Act, or
  • has been determined in a manner that contravenes section 30 (‘Maximum commission payable to insurers’ agents’).

SIRA will conduct an internal review of all filings lodged in accordance with Part 2.3 of the Act and SIRA Premiums Determination Guidelines in force (PDG). SIRA may also obtain actuarial advice from the Scheme Actuary or other relevant financial advice.

SIRA’s internal review will consider:

  • whether a filing is considered incomplete.  Completeness will be determined by SIRA conducting a procedural review of the documentation and schedules required by the PDG, and confirming there is materially sufficient explanation of the assumptions and filed premium to enable a review of the quantitative and qualitative elements of the filing. If classified as incomplete, SIRA will request its withdrawal and, if not withdrawn, will reject the filing.
  • whether the premium has been explained to the satisfaction of SIRA.

7. Charging third-party premiums

Under section 25 of the Act a licensed insurer must only charge an insurance premium for a third-party policy in accordance with Part 2.3 of the Act. That is, insurers must not charge any other premium.

Regarding commissions or other remuneration there is no express or implied power under Part 2.3 of the Act or the PDG that allows a licensed insurer to charge a premium net of commission or other remuneration to a policyholder who is not an agent of the insurer.

8. Premium components and factors to be calculated

8.1 SIRA Schedule of Premium Relativities

Insurers must classify vehicles based on SIRA Schedule of Premium Relativities. This schedule is published to licensed insurers each year or other period as determined by SIRA. Insurers must apply the premium relativity that is applicable to the vehicle class and region.

8.2 Base premium

The base premium for each vehicle classification and region must be calculated as:

  1. the Class 1 Metro vehicle base premium for which the policyholder is not entitled to any Input Tax Credit
  2. multiplied by the relativity for the particular vehicle class and region published in SIRA Schedule of Premium Relativities current at the date the third-party policy begins
  3. divided by 100.

The nominated base premium is used to define the allowable range of premiums in terms of the limits for bonus malus, the relative premiums for vehicle classifications and regions, and the loading which allows for policyholder entitlement to an ITC. It is equal to:

IB Class 1 Metro equals (AP times n times 100) divided by summation subscript i premium relativity subscript i times (1 plus bm subscript i)





IBClass 1 Metro = the insurer’s base premium for Class 1 Metro including GST but excluding LTCS levy and MAIR levy, calculated as if no policyholders are entitled to any ITC

AP = the insurer’s average premium including GST but excluding LTCS levy and MAIR levy, calculated as if no policyholders are entitled to any ITC, as shown in the Premium Filing Summary Sheet (Schedule C)

premium relativityi = the premium relativity applicable to the i-th policy, as anticipated to be underwritten over the period of the premium filing

bmi = bonus malus rate (%) applicable to the i-th policy, as anticipated to be underwritten over the period of the premium filing

n = number of policies anticipated to be underwritten over the period of the premium filing.

Insurers must provide the filed base premium for each vehicle class and rating region in accordance with this clause in an electronic spreadsheet designated Schedule A.

8.3 Ratio of insurer’s average premium to Class 1 Metro (Item 14 in Schedule C)

This factor expresses the ratio of the insurer’s average premium based on the insurer’s projected portfolio mix5 (taking into account the insurer’s vehicle class and region mix of business), relative to the base premium of a Class 1 Metro vehicle.

This is calculated by:

  1. determining the percentage of the insurer’s projected portfolio (based on the number of vehicles) that will be written in each vehicle class and region
  2. multiplying each of the above proportions by the premium relativities published by SIRA for the corresponding vehicle class and region
  3. adding up all of the values calculated in (2) above
  4. dividing (3) by 100.

The formula for the calculation is:

Ratio equals (sum subscript k a subscript k times premium relativity subscript k) divided by 100





where
ak = proportion (as a %) of the insurer’s projected portfolio (based on vehicle count) for the k-th vehicle class and region

premium relativityk = premium relativity for the k-th vehicle class and region as published by SIRA.

8.4 Bonus malus factor (Item 15 in Schedule C)

This factor expresses the average bonus malus applied by an insurer to its projected annual policy equivalent portfolio (after taking into account the insurer’s vehicle class and region mix of business). This is calculated by:

  1. determining the total portfolio premium (before GST and levies) to be collected, inclusive of the bonus malus rates to be applied, for the portfolio of risks projected to be written by the insurer. The portfolio of risks projected to be written by the insurer should take into account the mix of business by vehicle class, region and insurer’s rating factors
  2. determining the total portfolio premium (before GST and levies) to be collected, before the application of any bonus malus rates, for the portfolio of risks projected to be written by the insurer, and
  3. dividing (1) by (2).

The formula for the calculation is:

bonus malus factor equals (sum subscript i base premium subscript i times (1 plus bm subscript i)) divided by sum subscript i base premium subscript i




where
base premiumi = applicable base premium ($) for the i-th policy based on its vehicle class and rating region

bmi = bonus malus rate (%) applicable to the i-th policy given the rating factors and bonus malus structure adopted by the insurer.

8.5 Bonus malus limits, rating structure and risk rating factors

Each risk rating factor proposed by an insurer must be objective and evidence based.

A risk rating factor must not be used unless approved by SIRA. Insurers can apply to use objective risk rating factors except race, policy duration, input tax credit entitlement and postcode.

Where there is a significant change to an insurer’s bonus malus structure or change in the bonus malus applied to a group of policyholders (more than 10% change in the bonus/malus percentage applied compared to the current rating structure in force, in absolute terms), an insurer must include in their filing:

  • Analysis showing the technical relativity (or cost) for each group of policyholders within the rating factor for which bonus/malus changes are proposed
  • Comparison of the technical relativity (or cost) against the actual premium relativity or bonus malus percentage (or cost) proposed

Where an insurer proposes a rating structure that is significantly different from the technical basis, reasons for the difference must be discussed in the filing report.

Malus limit

Premiums charged by an insurer for each vehicle classification and region must be:

  • no greater than the following multiple of the insurer’s base premium excluding GST for the vehicle classification and region:

where
IB = insurer's filed base premium for a Class 1 Metro vehicle for which the policyholder is not entitled to any ITC

RB = reference base rate at the time of filingD is 30% unless otherwise advised by the SIRA.

The maximum malus percentage may be calculated exactly or may be rounded to the nearest one tenth of a per cent. For example, a multiple calculated as 51.2657 per cent may either be applied without rounding or may be rounded to 51.3 per cent.

Bonus limits

Premiums charged by an insurer for each vehicle classification and region must accord with the following if the:

  • youngest driver is aged under 55, the minimum premium is no less than 85 per cent of the insurer’s base premium excluding GST for the vehicle classification and region, or
  • youngest driver is aged 55 or over, the minimum premium is no less than 75 per cent of the insurer’s base premium excluding GST for the vehicle classification and region, or
  • a fleet of 5,000 or more class 1 and/or class 3c vehicles owned by a single entity, or a group of related entities, that it proposes to insure third-party policies with one licensed insurer, the minimum premium is no less than 60 per cent of the insurer’s base premium excluding GST for the vehicle classification and region.

The various levels of the bonus malus filed by a licensed insurer for each vehicle class and rating region must be supported by experience and/or the strategic commercial reasons for applying those levels of bonus malus. These bonus limits apply unless modified by a schedule issued by SIRA under clause 13.

8.6 Premiums where entitlement to an Input Tax Credit (ITC) is applicable

Specific premiums apply when the vehicle owner is entitled to an ITC for GST purposes to allow for the tax treatment. The insurer will determine two sets of premium rates:

  1. nil ITC premium rates applicable to policyholders with no entitlement to any ITC for GST included in the premium, and
  2. some ITC premium rates, which apply to policyholders entitled to claim an ITC for at least some of the GST included in the premium. Some ITC premium rates will be the insurer’s corresponding nil ITC premium rates increased by a loading.
    • Each insurer will determine the percentage loading it considers appropriate. However, the loading, expressed as a percentage of the corresponding nil ITC premium rates, must be within the range from 6.5 per cent to 7.5 per cent.
    • The loading will be determined in relation to the effect of policyholders’ entitlement to claim an ITC on the insurer’s entitlement to claim decreasing adjustments for claims costs attributable to those policyholders.
    • The ITC loading will be the same percentage for each vehicle classification and region and will not vary according to the bonus malus; that is, the risk rating factors used to determine the bonus malus must be the same for the insurer’s nil ITC premium rates and its ITC premium rates. However, minor variations in the percentage loading attributable only to the calculation of premiums for non-annual policies, or to rounding, are acceptable.

8.7 Loading of premiums for short term policies

For quarterly or six-month policies, short term insurer premiums may include a surcharge (the short term policy surcharge) excluding GST, LTCS levy and MAF levy which is calculated as:

Quarterly premium = (Annual premium + X) x (100% + Y%) / 4

Half yearly premium = (Annual premium + A) x (100% + B%) / 2

Where:

  • Annual premium excludes GST, LTCS levy and MAF levy
  • X, Y, A and B are amounts that each insurer will determine subject to:
    • X (an administrative costs loading for quarterly policies) being no more than $15
    • Y (a forgone investment income loading for quarterly policies) being no more than 2.2 per cent
    • A (administrative costs loading for half yearly policies) being no more than $5
    • B (forgone investment income loading for half yearly policies) being no more than 1.5 per cent.

Each licensed insurer must set one proposed rate for each of the factors X, Y, A and B that will be applied consistently across all short term CTP policies offered by that insurer. The proposed loadings will be included in all filings and must be approved by SIRA. The LTCS levy and MAIR levy for short term policies are calculated based on the pro rata annual premium after the short term policy surcharge is added. The surcharge does not apply to short term periods for common due date policies. GST and LTCS levy and MAIR levy are then applied to calculate the total amount payable by the policyholder for a short term policy, initially to the nearest one cent.

8.8 Schedule B

A licensed insurer must provide in accordance with clauses 8.5, 8.6 and 8.7 its complete rating structure, risk rating factors and filed premium6 at each bonus malus level for each vehicle class, rating region and input tax entitlement level, in an electronic spreadsheet designated Schedule B.

9. Justifying third-party premium assumptions

Insurers must specify how they have determined proposed premiums and must explain the proposed premiums to the satisfaction of SIRA.

9.1 Basis of estimate

The total estimated claims cost (risk premium) adopted in the filing must be on a central estimate basis; that is, an estimate of the mean which must not be intentionally or unintentionally conservative or optimistic. Expense assumptions adopted in the filing must be set with reference to:

  • the suitability of expense type for inclusion in a compulsory insurance product and efficiency of insurer’s own administration and claims processes
  • insurer’s best estimate of expenses taking into account current internal management budgets and internal strategies to control costs.

9.2 Level of explanation

Filed assumptions for full and partial filings must be explained with sufficient information that an analysis of the filing can lead to a conclusion that the results stated in the filing:

  • have been determined on a central or best estimate basis where required
  • meet the fully funded test under section 27(8) of the Act, and
  • represent a genuine effort on the part of the insurer to offer competitive premiums and thereby allows SIRA to form an opinion under section 27 (1)(b) of the Act that the filed premium is not excessive.

The level of detail to be provided will depend on the price impact of the assumptions, the extent of the uncertainty surrounding the assumptions, the nature of the analysis and considerations of materiality7.

9.3 Comparison with industry

In determining proposed premiums the insurer must consider both its own experience and industry experience. The filing report must explain the extent to which the insurer used its own experience and industry experience to set both claim frequency and average claim size assumptions. It must also outline why the approach was adopted and the reasons for any changes in the approach since the previous filing.

In addition, insurers must show a comparison over time of the insurer’s experience against the industry experience adjusted to represent the insurer’s vehicle class and region mix. This comparison must be conducted for:

  • claim frequency, and
  • risk premium8.

9.4 Insurance liability valuation report

Each licensed insurer must provide SIRA with a copy of its latest9 full valuation report (when it is completed, and including all appendices) relating to its NSW CTP business. Comparison and explanation of any differences between the filed assumptions and the following assumptions from an insurer’s NSW CTP portfolio Insurance Liability Valuation Report assumptions must be provided in filings:

  • claim frequency assumed for premium liabilities10
  • average claim size assumed for premium liabilities9
  • superimposed inflation
  • economic assumptions
  • claim handling expense assumed for premium liabilities11
  • policy and administration expense assumed for premium liabilities10

Insurers can explain any developments in experience since the most recent full valuation as part of this comparison.

9.5 CTP business plan and management accounts

Each licensed insurer must provide SIRA with a copy of its current NSW CTP business plan and disclose all relevant business and distribution strategies when material changes are made and otherwise at least annually.

Each licensed insurer must provide SIRA with a copy of its NSW CTP management accounts. In addition the insurer must provide a:

  • comparison of budgeted expenses and actual expenses for the previous filing period
  • detailed budget of expenses covering the proposed filing period.

The above expense analysis should show the following expenses separately (to the extent they have been broken down as such in the management accounts):

  • commission
  • acquisition and policy administration expenses
  • claims handling expenses
  • any other expense components itemised in the insurer’s own management accounts

9.6 Discount rate assumptions

Insurers must use rates of discount that are no less than the risk-free rates based on the forward rates implied from market information available at the time of preparing the filing, being applied to the average underwriting date of the period filed.

Insurers must disclose the single weighted average discount rate calculated by applying the payment pattern for the claim liabilities underlying the policies to be underwritten to the insurer’s adopted rates of discount.

9.7 Capital allocation and profit margin

An insurer must explain the proposed percentage of gross premiums (excluding GST, LTCS levy and MAIR levy) intended to be retained as profit, before tax, to provide a reasonable rate of return on the capital supporting the business, and the actuarial basis for its calculation.

Insurers must disclose their:

  • internal method of allocating capital to its lines of business for pricing purposes
  • actual or notional internal capital allocation for NSW CTP, how it was determined and how it is expressed applying the insurer’s internal method
  • target rate of return on capital and how it was determined
  • investment policy, the rate of future investment return assumed for each category of investment, and how these are related to the target rate of return on capital, and
  • details of the method and calculations used to derive the proposed profit margin from the capital allocation, target rate of return on capital, adopted rate of return, investment policy and rates of future investment return assumed.

Insurers must provide explanation for the filed profit margin with reference to:

  • information as disclosed concerning NSW CTP capital allocation and related matters
  • the compulsory nature of CTP and its implications on profit, and
  • current business plan, competitive strategy and market positioning.

9.8 Portfolio analysis

The following information and analysis relating to portfolio mix must be provided:

  • actual past and expected future number and mix of insured vehicles by vehicle class and rating region at each bonus malus level, including commentary on strategies that are expected to result in any changed mix of business
  • proposed use of bonus malus, the basison which they will be offered to all vehicle owners including a complete description of the rating structure, each rating factor with relevant qualifying time periods, where applicable, definitions of generic terminology, a summary of the explicit changes in bonus malus since the previous filing and the impact on the insurer's required and expected average premium
  • for all policyholders to be issued a renewal notice during the proposed filing period12, the distribution by numbers of policies experiencing a price increase/decrease (including GST, LTCS levy and MAIR levy) using incremental bands13 compared to the actual premium paid for in force policies for each of the following vehicle classes (in Excel format):
    • Class 1
    • Class 3c
    • Classes 10(d), 10(e), 10(f), 10(g) and 10(h) combined
    • Classes 3d, 3e, 6a, 7
    • All remaining classes combined
    • All classes combined in aggregate
  • expected number of policies by underwriting quarter split by vehicle class, region, ITC entitlement, policy duration and at each bonus malus level with premium income split by insurer premium, MAIR levy, LTCS levy, GST and total payable (in Excel format), and
  • the resulting average bonus malus factor for each vehicle class and rating region (in Excel format).

9.9 Insurer assumptions differing from actuary

If one or more assumptions adopted in the premium filing are different to the assumption recommended by the insurer’s actuary, then the filing report must clearly show the difference in the assumption used, the reasons for their adoption by the insurer’s management and the impact on average premium.

9.10 Sensitivity analysis

Insurers must undertake sensitivity analysis on key assumptions that are subject to significant uncertainty to quantitatively illustrate the impact of uncertainty on proposed premiums.  Such sensitivity analysis includes the use of scenarios to test the impact of multiple assumptions simultaneously.

The extent of the variation assumed on key assumptions for sensitivity testing should reflect an alternate reasonable and plausible situation. Insurers must document the results of the sensitivity analysis in the filing report.

SIRA may provide guidance on the specific assumptions or scenarios to be tested and included in a filing prior to its submission.

10 Full filing report

A full filing report must include the manner in which proposed insurance premiums14 were determined by the insurer and the factors and assumptions taken into account in the determination of the premiums. An explanation of the non-technical pricing factors must also be included where applicable.

The filing report must include the covering letter outlined in clause 5 and commentary on the techniques used in assessing the following items:

Claim frequency

  • Past and projected future frequency of
    • full claims for the industry
    • full claims for the insurer (and disclosing the treatment of shared claims and Nominal Defendant claims)
    • not-at-fault Accident Notification Form (ANF) only claims, and
    • at-fault ANF only claims.
  • Relativity of the full claims frequency for the insurer’s mix of vehicles (by vehicle class and region) to the full claims frequency for an industry mix of vehicles. This must be calculated using the historical claim frequency relativities by vehicle class and region provided by SIRA.

Average claim size

  • Past and projected future average claim size of:
    • full claims for the industry
    • full claims for the insurer including the estimated net effects of shared and Nominal Defendant claims
    • not-at-fault ANF only claims, and
    • at-fault ANF only claims.
  • Relativity of the full claims average claim size for the insurer’s mix of vehicles (by vehicle class and region) to the full claims average claim size for an industry mix of vehicles. This must be calculated using the historical average claim size relativities by vehicle class and region provided by SIRA.

Economic and investment assumptions

  • Assumed future rates of wage and price inflation.
  • Full yield curve adopted and the single equivalent rate of discount.
  • A summary of the insurer’s investment strategy and objectives including the mix of investments.
  • Assumed future investment earnings and how that assumption relates to the insurer’s investment policy.
  • Assumed future claim payment pattern for the underwriting period covered by the filing specifying if the basis is current values, inflated or discounted.

Superimposed inflation

  • Assumed future rates of superimposed inflation (SI).
  • The assessment made of at least the most recent ten years’ SI experience for the industry and for the insurer’s own portfolio, including analysis by different claim segments (for example, small claims, large claims) if it has been analysed by segment.
  • Disclosure of the single equivalent rate of SI where different rates have been used for different claim segments (for example, small, large, LTCS) and/or different rates of SI have been adopted in future years.
  • An explanation of the approach taken in setting the SI assumptions.

Average risk premium

  • Estimated average risk premium calculated:
    • notional average risk premium excluding at-fault ANF only claims, and
    • estimated increase in average risk premium to allow for at-fault ANF only claims, and sufficient detail so that a knowledgeable reader can reproduce its numerical reasoning.

Insurer expenses

  • Average past actual and expected future rates and amounts of:
    • acquisition and policy handling expenses (excluding commission or other remuneration) associated with third-party policies with appropriate explanation provided and a description of the methodology used to allocate overhead expenses
    • commission or other remuneration payments. The commission or other remuneration percentage paid per policy cannot exceed the percentage listed in section 30 of the Act (or other such percentage as may be prescribed by the regulations)
    • claims handling expenses, including an explanation of what is included in this item, and a description of the methodology used to allocate overhead expenses, and
    • net cost of reinsurance.
  • Disclosure of the above past and expected future expenses on a total pool basis as well as on a cost per policy basis for acquisition and policy expenses, and on a per claim basis for claims handling expense15.
  • The expense assumptions used and an explanation of how they relate to the above information.

Profit margin

  • Proposed profit margin and the actuarial basis for its calculation – the percentage of gross insurance premiums intended to be retained as profit, before tax, to provide a reasonable rate of return on the capital supporting the business; an explanation consistent with clause 9.7 must be included.

Adjustments to insurer premium to obtain the Class 1 Metro base premium by disclosing details of the calculation of the:

  • ratio of the Class 1 Metro premium to the average premium (clause 8.3)
  • details average bonus malus factor (clause 8.4).

Other

  • Any other matter the insurer should reasonably take into account in the determination of premiums
  • details of how the percentage loading applied to the nil ITC premium rates to obtain the some ITC premium rates was determined, and
  • details of how the short term loading parameters A, B, X and Y were determined.

A full filing report must include Schedule A, Schedule B and Schedule C (shown in Appendix A, spreadsheet provided). Schedule C must reconcile with the equivalent assumptions adopted in the filing report.

10.1 Comparison with previous full filing

Insurers must provide a comparison with the previous full filing of the filed average premium and the actual average premium received by the insurer, together with an explanation of the allowance made for non-annual policies in calculating these average amounts, including:

  • how the assumptions regarding future experience in the current premium filing differ from the corresponding assumptions in the previous full filing by the insurer, and
  • the changes in assumptions and the effect of those changes on the proposed premiums, including a reconciliation between the previous and proposed new base premium for a Sydney passenger vehicle for which the policyholder is not entitled to any ITC.

11 Schedules to the filing

11.1 Schedule A

Insurers must provide the base premium including GST, but excluding LTCS levy and MAIR levy, for each vehicle classification and region for policyholders who are not entitled to any ITC (PDF version in filing report and Excel version as an Appendix).

11.2 Schedules B(i) and B(ii)

Insurers must provide a full description of proposed bonus and malus structure and the actual amounts (after application of any rounding) proposed to be charged for each vehicle classification, region and bonus malus rate, sub-divided into separate amounts of:

  • insurance premium excluding GST, LTCS levy and MAIR levy
  • GST
  • LTCS levy
  • MAIR levy, and
  • total payable by the policyholder.

Separate Schedules B(i) and B(ii) are required for nil ITC premium rates and some ITC premium rates respectively, for both annual and short term policies.

11.3 Schedule C (Appendix A)

Insurers must provide a summary of the assumptions adopted and base premium filed (PDF version in filing report and Excel version as an Appendix), in the form specified in Appendix A.

11.4 Insurer certificate (Appendix B)

Each insurer must provide a certificate from the Chief Executive Officer of the insurer in accordance with the certificate attached to these guidelines for each full filing.

12 Partial filing report

Insurers can submit partial filings where all of the following conditions are met:

  • the expiry date of the partial filing lodged is within 12 months from the commencement date of the most recent full filing approved by SIRA
  • the change in average premium excluding GST, LTCS levy and MAIR levy reported in Schedule C (Item 13) is less than 4 per cent when compared to the most recent full filing approved by SIRA, and
  • the change in Base Premium Rate (Class 1 Metro) excluding GST, LTCS levy and MAIR levy reported in Schedule C (Item 16) is less than 4 per cent when compared to the most recent full filing approved by SIRA.

If any of the above conditions is not met, the insurer must submit a full rate filing. A partial filing must include:

  • a summary of the changes proposed and any changes in business strategy
  • explanation on each filing assumption change made since the previous full filing and if relevant, previous partial filing approved.  The explanation for each individual assumption change is required to be at the same level of detail as that required in a full filing
  • Schedule A, Schedules B(i) and B(ii) (for both annual and short term policies) and Schedule C
  • commentary and analysis of the estimated effects on the portfolio composition as described in clause 9.8
  • an analysis of the change in average premium and base premium against the previous full filing and if relevant, against the previous partial filing approved, and
  • signed endorsement of the partial filing from the NSW CTP Product Executive.

SIRA may also request additional explanation and documentation to clarify matters about the partial filing.

13. Related SIRA published documents and factors

Unless otherwise advised by SIRA, SIRA intends to review each year:

  • reference base rate
  • premium relativities
  • permitted range for the percentage loading used in calculating some ITC premium rates
  • administrative costs loading for quarterly and half yearly policies
  • forgone investment income loading for quarterly and half yearly policies
  • maximum bonus limits, and
  • maximum malus – factor D.

14 Penalties for non-compliance with these guidelines

It is a condition of a licence issued under Part 7.1 of the Act that the licensed insurer complies with the PDG. If a licensed insurer does not comply with the PDG under section 166 of the Act SIRA may impose a penalty of up to $50,000 per breach of this licence condition.

15 Definitions

‘ANF only claim’ is a claim by an injured person for compensation for treatment costs and/or loss of earnings under Part 3.2 of the MACA, as amended by the MACA Amendment 2007 and the MACA Amendment 2009.

‘APRA’ is the Australian Prudential Regulation Authority.

‘Full claim’ is a claim by an injured person for compensation, for which a notice of claim has been provided to an insurer in accordance with section 74 of the MACA.

‘Insurer’s base premium’ for a Class 1 vehicle garaged in the Sydney metropolitan area for which the policyholder is not entitled to any input tax credit (ITC) is a premium, inclusive of GST but excluding LTCS levy and excluding MAIR levy, nominated in the rate filing, to which bonus malus may be applied.

‘LTCS Act’ is the Motor Accidents (Lifetime Care and Support) Act 2006, all associated regulations and statutory instruments.

‘LTCS Fund’ is the Lifetime Care and Support Authority Fund established by section 48 of the LTCS Act.

‘LTCS levy’ is the levy provided for by section 50 of the LTCS Act.

‘MACA’ is the Motor Accidents Compensation Act 1999, all associated regulations and statutory instruments.

‘MACA Amendment 2006’ is the Motor Accidents Compensation Amendment Act 2006.

‘MACA Amendment 2007’ is the Motor Accidents Compensation Amendment (Claims and Dispute Resolution) Act 2007.

‘MACA Amendment 2009’ is the Motor Accidents Compensation Amendment Act 2009.

‘MAIR levy’ is the levy provided for by section 214 of the MACA.

16 Appendix A

Schedule C: Premium filing summary sheet

1a. Assumed frequency

Full claims for an industry mix of vehicles (net of sharing and Nominal Defendant) calculated allowing for enactment of all of the LTCS Act, the MACA Amendment 2006 and the MACA Amendment 2007

0.****%

1b.

Relativity of the full claims frequency for the insurer’s mix of vehicles (by vehicle class and region) to the full claims frequency for an industry mix of vehicles

 

1c.

Full claims for insurer (net of sharing and Nominal Defendant) calculated allowing for enactment of all of the LTCS Act, the MACA Amendment 2006 and the MACA Amendment 2007

0.****%

1d.

ANF only claims for insurer, allowing for enactment of the MACA Amendment 2007 but not for enactment of the MACA Amendment 2009

0.****%

1e.

Increase in frequency of ANF only claims for insurer due to enactment of the MACA Amendment 2009

0.****%

2a. Average claims size, start of underwriting period

Full claims in current dollar values for an industry mix of vehicles calculated allowing for enactment of all of the LTCS Act, the MACA Amendment 2006 and the MACA Amendment
2007 (gross of reinsurance, net of sharing and Nominal Defendant) (i)

$**,***

2b.

Full claims in current dollar values for insurer calculated allowing for enactment of all of the LTCS Act, the MACA Amendment 2006 and the MACA Amendment 2007 (gross of
reinsurance, net of sharing and Nominal Defendant) (i)

$**,***

2c.

ANF only claims in current dollar values for insurer, in respect of the (item 1c) component of assumed frequency of ANF only claims calculated allowing for enactment of the MACA
Amendment 2007 but not for enactment of the MACA Amendment 2009 (i)

$**,***

2d.

ANF only claims in current dollar values for insurer, in respect of the (item 1d) component  of assumed increase in frequency of ANF only claims due to enactment of the MACA
Amendment 2009 (i)

$**,***

3a. Average claims size for filing period

Full claims for an industry mix of vehicles for filing period (from item 2) fully inflated and discounted to the middle of the period filed (i)

$**,***

3b.

Relativity of the full claims average claim size in current dollar values for the insurer’s mix of vehicles (by vehicle class and region) to the full claims average claim size in current dollar values for an
industry mix of vehicles

 

3c.

Full claims for insurer for filing period (from item 2c) fully inflated and discounted to the middle of the period filed (i)

$**,***

3d.

ANF only claims, in respect of the component of assumed frequency of ANF only claims calculated allowing for enactment of the MACA Amendment 2007 but not for enactment of
the MACA Amendment 2009 (from item 2c) fully inflated and discounted to the middle of the period filed (i)

$**,***

3e.

ANF only claims, in respect of the component of assumed increase in frequency of ANF only claims due to enactment of the MACA Amendment 2009, (from item 2d) fully inflated and
discounted to the middle of the period filed (i)

$**,***

4.

Insurer average risk premium (formula used to combine above assumptions to arrive at average risk premium) (1c x 3c + 1d x 3d + 1e x 3e) (i) (ii)

 

5. Average risk premium

Excluding GST calculation (substitute values in formula) (i)

$**,***

6. Average commission

Per cent gross premium excluding GST, LTCS levy and MAF levy

*.**%

7. Acquisition and policy handling expenses

Per cent gross premium excluding GST, LTCS levy and MAF levy

*.**%

8. Claims handling expenses

Per cent gross premium excluding GST, LTCS levy and MAF levy

*.**%

9. Net cost of reinsurance loading

Per cent gross premium excluding GST, LTCS levy and MAF levy

*.**%

10. Other assumptions

Specify nature and value of assumption

*.**%

11. Profit margin

Per cent gross premium excluding GST, LTCS levy and MAF levy

*.**%

12. Average premium

Formula used to arrive at average premium excluding GST, LTCS levy and MAF levy) ((5 + 10)/(1 - (6 + 7 + 8 + 9 + 11)) (ii)

 

13.

Excluding GST, LTCS levy and MAF levy (substitute values in formula) (i)

$***.**

14.

Ratio Class 1 Metro to average premium calculated in accordance with clause 8.3

*.***

15. Bonus malus

Bonus malus factor calculated in accordance with clause 8.4

*.***

16. Class 1 Metro premium

Nil ITC Class 1 Metro base premium excluding GST, LTCS levy and MAF levy (13 ÷ 14 ÷ 15)

 

17.

Nil ITC Class 1 Metro base premium including GST but excluding MCIS levy

$***.**

18.

Minimum nil ITC Class 1 Metro premium including GST but excluding LTCS levy and MAF levy (ignoring premiums calculated using a bonus factor of less than 85 per cent)

$***.**

19.

Minimum nil ITC Class 1 Metro amount payable by policyholder including GST, LTCS levy and MAF levy (ignoring amounts calculated using a bonus factor of less than 85 per cent)

$***.**

20.

Maximum nil ITC Class 1 Metro amount payable by policyholder including GST, LTCS levy and MAF levy

$***.**

21.

Loading applied to nil ITC premium rates to calculate some ITC premium rates (per cent nil ITC premium rates)

*.**%

22.

MAF levy as percentage of base premiums excluding GST

*.**%

23.

Administrative costs loading for quarterly policies (‘X’)

$**.**

24.

Forgone investment income loading for quarterly policies (‘Y’)

*.**%

25.

Administrative costs loading for half yearly policies (‘A’)

$**.**

26.

Forgone investment income loading for half yearly policies (‘B’)

*.**%

27.

Period premiums are proposed to apply

 

Notes:

(i) Estimates of average claim sizes and average premiums must be those applicable to the nil ITC premium rates, that is, calculated as if no policyholders have any entitlement to an ITC, and as if the insurer has a full entitlement to decreasing adjustments or ITC for all claims costs directly attributable to specific policies. The loading applied to nil ITC premium rates to calculate the insurer’s some ITC premium rates is then shown as item 21.

(ii) Use item number for formula description.

Supplementary Table 1 – Further assumptions used in calculating estimate of insurer average risk premium (item 5)

Inflation

Payment pattern (iii)

Year ending

Investment return

AWE

superimposed

Development year

% Paid

*****

%

%

%

 

%

*     

*

     

*

     

*

     

(iii) The payment pattern shown must be that for the underwriting period covered by the proposed filing. If different payment patterns have been assumed for full claims and ANF only claims, Supplementary Table 1 must be modified to show the payment pattern assumed for each.

Supplementary Table 2 – Further assumptions used in deriving target profit margin.

28.

Capital allocated to this class of insurance business and basis of allocation (for example, a multiple of the components of the APRA Prudential Capital Requirement for the insurer attributable to this class of insurance business, or a percentage of premiums, or a percentage of outstanding claims liabilities)

29.

Estimated risk margins for insurer for this class of insurance business, each expressed as a percentage of the corresponding central estimate:

(a) Risk margin for outstanding claims liabilities intended to result in a provision having the minimum 75 per cent probability of sufficiency required by APRA

(b) Actual risk margin for outstanding claims liabilities adopted by insurer (equal to or more than item 29(a))

(c) Risk margin for premium liabilities intended to result in a provision having the minimum 75 per cent probability of sufficiency required by APRA

(d) Actual risk margin for premium liabilities adopted by insurer for the purpose of accounting liability adequacy test (equal to or more than item 29(c))

30.

After-tax rate of return on capital for this class of insurance business:

(a) Insurer’s target rate of return

(b) Expected rate of return implied by proposed profit margin – only required if differs from item 30(a) (iv)

31.

Investment policy for assets supporting this class of insurance business (for example, proportion expected to be invested in each category of assets)

32.

Expected future rate(s) of pre-tax investment return assumed for each category of assets supporting this class of insurance business

33.

Calculations used to derive the proposed profit margin (iv) (v).

(iv) If the proposed profit margin implies an after-tax rate of return on capital which differs from the insurer’s target rate in item 30(a), the expected after-tax rate of return implied by the proposed profit margin must be shown as item 30(b).

(v) These calculations must be supplied in an Excel spreadsheet, with working formulae in spreadsheet cells. It is acceptable for items 28 to 32 inclusive to also be provided in the same spreadsheet, provided that the required information is presented in a form which can be understood by a knowledgeable recipient.

17. Appendix B – CEO Certificate

I am the CEO of .............................................................................

I certify:

  1. I have knowledge of the matters that are the subject of this certificate and I have familiarised myself with the actuarial advice provided for this rate filing.
  2. I am satisfied that the technical assumptions are appropriate and on a central or best estimate basis as defined in section 9.1 of SIRA Premiums Determination Guidelines, that the commercial assumptions used in this rate filing are appropriate, that the data used are sufficiently accurate and complete and that the filed rates comply with section 27(1) of the Act.
  3. I have taken reasonable steps to satisfy myself that the information in the rate filing has been composed with due care and that the totality of this rate filing is appropriate to this company’s financial condition and strategy.
  4. I am satisfied the filed rates will be implemented on the effective date explicitly indicated in the filing, subject to SIRA review process.
  5. I am satisfied this full rate filing is in accordance with Part 2.3 of the Motor Accidents Compensation Act 1999, the terms and conditions of the CTP insurance licence and SIRA Premiums Determination Guidelines.

Signature:

Name:

Date:

Footnotes

  1. On 1 September 2015, the functions of the Motor Accidents Authority (MAA) were assumed by the State Insurance Regulatory Authority (SIRA).
  2. Section 5 of the Act.
  3. Partial filing under Section 25(2) of the Act or full filing under Section 26(1) of the Act.
  4. Section 27 of the Act.
  5. Annual policy equivalent.
  6. Annual, half yearly and quarterly premiums split by insurance premium, MAIR levy, LTCS levy and GST.
  7. Materiality as viewed by SIRA.
  8. This is intended to capture both claim frequency and average claim size relativity.
  9. If a full valuation of the NSW CTP portfolio is conducted by an insurer more frequently than annually, an insurer must provide the most recent full valuation report available.
  10. Or latest accident year/underwriting year if premium liabilities are not estimated at a given balance date.  Claim frequency and average claim size may be considered in aggregate (e.g. as a risk premium) if an insurer’s adopted methodology for the full valuation does not enable such a breakdown.
  11. Or latest accident year/underwriting year if premium liabilities are not estimated at a given balance date.
  12. Assuming 100 per cent retention.
  13. Designated in the Motor Accidents filing template.
  14. Excluding LTCS levy, MAIR levy and GST, assuming no policyholders are entitled to any input tax credit.
  15. For clarity, claims handling cost per claim expected to arise during the period filed.

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This publication may contain information that relates to the regulation of Compulsory Third Party  Insurance in NSW.  It may include some of your obligations under the various legislations that the State Insurance Regulatory Authority (SIRA) administers. To ensure you comply with your legal obligations you must refer to the appropriate legislation.

Information on the latest laws can be checked by visiting the NSW legislation website legislation.nsw.gov.au.

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