79.55 STANDARDS FOR RATES.
Subdivision 1. General standards.
Premiums shall not be excessive, inadequate, or unfairly
Subd. 2. Excessiveness.
Rates and rating plans are excessive if the expected underwriting
profit, together with expected income from invested reserves, that would accrue to an insurer
under the rates and rating plans would be unreasonably high in relation to the risk undertaken
by the insurer in transacting the business. The burden is on the insurer to establish that profit
is not unreasonably high.
Subd. 3. Inadequacy.
Premiums are inadequate if, together with the investment income
associated with an insurer's Minnesota workers' compensation insurance business, they are clearly
insufficient to sustain projected losses and expenses of the insurer and (a) if their continued
use could lead to an insolvent situation for the insurer; or (b) if their use destroys or lessens
competition or is likely to destroy or lessen competition.
Subd. 4. Unfair discrimination.
Premiums are unfairly discriminatory if differentials
for insureds fail to reasonably reflect the differences in expected losses and expenses to the
insurer attributable to the insureds. Rates are not unfairly discriminatory solely because different
premiums result for insureds with like loss exposures but different expense factors, or like
expense factors but different loss exposures, provided that rates reflect the differences with
Subd. 5. Discounts permitted.
An insurer may offer a discount from a manual premium
if the premium otherwise complies with this section. The commissioner shall not by rule, or
otherwise, prohibit a credit or discount from a manual premium solely because it is greater than a
certain fixed percentage of the premium.
Subd. 6. Rating factors.
In determining whether a rate filing complies with this section,
separate consideration shall be given to: (i) past and prospective loss experience within this state
and outside this state to the extent necessary to develop credible rates; (ii) dividends, savings, or
unabsorbed premium deposits allowed or returned by insurers to their policyholders, members, or
subscribers; and (iii) a reasonable allowance for expense and profit. An allowance for expense
shall be presumed reasonable if it reflects expenses that are 22.5 percent greater or less than
the average expense for all insurers writing workers' compensation insurance in this state. An
allowance for after-tax profit shall consider anticipated investment income from premium receipts
net of disbursements and from allocated surplus, based on the current five-year United States
Treasury note yield and an assumed premium to surplus ratio of
to one. The allowance for
after-tax profit shall be presumed reasonable if the corresponding return on equity target is equal
to or less than the sum of: (i) the current yield on five-year United States Treasury securities; and
(ii) an appropriate equity risk premium that reflects the risks of writing workers' compensation
insurance. The risk premium shall not be less than the average, since 1926, of the differences in
return between: (i) the annual return, including dividend income, for the Standards and Poors
500 common stock index or predecessor index for each year; and (ii) the five-year United States
Treasury note yield as of the start of the corresponding year. Profit and expense allowances not
presumed reasonable under this subdivision, are reasonable if the circumstances of an insurer, the
market, or other factors justify them.
Subd. 7. External factors.
That portion of a rate or rating plan related to assessments from
the assigned risk plan, reinsurance association, guarantee fund, special compensation fund, agent
commission, premium tax and any other state-mandated surcharges shall not cause the rate or
rating plan to be considered excessive, inadequate, or unfairly discriminatory.
Subd. 8. Annual filings.
Not later than October 1 of each year, the rating association shall
file with the commissioner and the Rate Oversight Commission the following information used
and related to the calculation and cost of workers' compensation insurance premiums:
(1) all statistical plans, including classification definitions used to assign each compensation
risk written by its members to its approved classification for reporting purposes;
(2) all development factors and alternative derivations;
(3) a description and summary of each data reporting and monitoring method used to collect
and monitor the database for workers' compensation insurance;
(4) trend factors and alternative derivations and applications;
(5) pure premium relativities for the approved classification system for which data are
(6) an evaluation of the effects of changes in law on loss data;
(7) an explicit discussion and explanation of all methodology, alternatives examined,
assumptions adopted, and areas of judgment and reasoning supporting judgments entered into,
and the effect of various combinations of these elements on indications for modification of an
overall pure premium rate level change; and
(8) all merit rating plans and the calculation of any variable factors necessary for utilization
of the plan.
Subd. 9. Analysis by Rate Oversight Commission.
Not later than December 1 of each
year, the Rate Oversight Commission may submit to the commissioner a report concerning the
completeness of the filing and compliance of the filing with the standards for excessiveness,
inadequacy, and unfair discrimination set forth in this chapter.
Subd. 10. Duties of commissioner.
The commissioner shall issue a report by March 1 of each
year, comparing the average rates charged by workers' compensation insurers in the state to the
pure premium base rates filed by the association, as reviewed by the Rate Oversight Commission.
The Rate Oversight Commission shall review the commissioner's report and if the experience
indicates that rates have not reasonably reflected changes in pure premiums, the rate oversight
commission shall recommend to the legislature appropriate legislative changes to this chapter.
History: 1981 c 346 s 26; 1985 c 219 s 1; 1995 c 231 art 1 s 5-8; art 2 s 13-15; 1996 c
374 s 2; 1997 c 128 s 1,2