OIR Holds Workshop On Workers’ Comp Excess Profits Rule; Few Details Emerge
On February 22, 2010, the Office of Insurance Regulation held a workshop on potential revisions to the workers’ compensation insurance excessive profits rule (69O-189.007, F.A.C.) and its incorporated Excessive Profits Reporting Form (OIR-B1-15). The Office is engaging in rulemaking as the result of an agreement reached with the petitioner in an ongoing administrative law rule challenge. In that proceeding, the petitioner insurance company claims that the methods and statements the Office uses to interpret the excess profits rule constitute “rules” themselves that were not adopted pursuant to the Florida Administrative Procedures Act. The agency statements that allegedly meet the definition of a “rule” but that were not adopted as such focus on the Office’s disallowal of certain expenses for the excessive profits calculation, including deductions for expenses attributable to: income taxes paid, quota share reinsurance, interest paid on subordinated surplus debentures or surplus notes, and the management of investments, as well as the Office’s sole reliance on the characterization of expenses in an insurer’s financial statement and disallowing expenses based on the Office’s own internal policies. FFVA Mutual Insurance Company v. Office of Insurance Regulation, DOAH Case No. 09-4193RU. FFVA and the Office agreed to stay the case while the Office engages in rulemaking on the subject.
At Monday’s hearing, there were no drafts of a proposed new rule circulated and there was only minimal testimony given. Counsel for FFVA testified as to the alleged need for the Office to have administrative rules defining and otherwise clarifying its treatment of certain expenses in the excess profits calculation, such as the deduction for interest, investment administration, income tax expenses, and the like. Harry Schufert, chief economist with the National Council on Compensation Insurance (NCCI), testified at the request of the Office as to the effects of excluding income tax expenses and including investment income in the calculation of the profit and contingency factor that is used in the excess profits calculation. Mr. Schufert ultimately said that in his view, it would not be proper to deduct federal income taxes from the excess profits calculation because the profit and contingency factor already allows for a pre-tax profit necessary to generate the specified after-tax return. Likewise, he said that in his opinion investment expenses should not be deducted as part of the excess profits calculation because NCCI’s Internal Rate of Return model already adjusts for them.
The record for this rule workshop will remain open until Friday March 5, 2010 if anyone wishes to suggest any potential changes to the rule or otherwise submit written comments.