Commercial Rate Edit - Additional Information

Overview
The Commercial Rate Edit System assures that ceded commercial premium data has been correctly rated and reported to CAR. The following data is eligible for editing:

• ceded commercial premiums
• the two most current policy effective years
• valid premium records which do not have statistical errors except those errors that do not impact premium development such as: S13 Rating Id Code - Commercial Only, S20 Zip Code, S22 Pre Insurance Inspection Code, S26 Annual Statement Line of Business Code, S45 CAR Id Code Invalid for Producer Code, S46 Producer Code, S49 VIN and S54 Terrorism Coverage Code

The system uses the rating components contained within the statistical records to calculate the record's proper premium. The components include classification, coverage code, limits, vehicle age and symbol, territory, discounts and exposure. This calculated premium is then compared to the reported premium to determine if a discrepancy exists. A record with a discrepancy of more than 10% is considered a rate error. It should be noted that because the edit is based upon the reported rating components, the error may not be attributed to a calculation discrepancy, but rather may be caused by incorrect statistical information.

The Commercial Rate Edit system runs on a weekly basis, usually on Thursday evenings. Please refer to our Commercial Rate Edit processing schedule on our website for the exact run dates. Accordingly, the updated results, due to new data, washouts, or corrections, are typically available on Friday of each week, or the day after the date listed on the processing schedule. Corrections to rate edit errors can only be made via an offset to the original error record and a re-enter of the corrected records. For rate edit purposes, in order for the offset and the original error record to washout, all fields but the Accounting Date, Transaction Type, and Company Use fields must match exactly (the dollar and exposure fields must net to zero).

Companies are responsible for ensuring that their cumulative percentage of rate errors, for each line of business and policy effective year, remains below the established rate edit error tolerance of 2%. Once a company exceeds the rate edit tolerance and minimum error record volume of 50 rate errors, the company is provided with a six month timeframe to reduce their cumulative rate edit error percentage to below the 2% tolerance level. Note that timeframes are established separately for each line of business and policy effective year.

Any company that does not reduce its error percentage to below the error tolerance level by its six month deadline will be assessed a penalty. The penalty is a flat fee of $3,000 per line of business. Additionally, a $3,000 penalty per month/per line of business will be assessed for each subsequent month that the error percentage remains over tolerance and uncorrected until the error situation is resolved or the effective year is no longer eligible for monitoring.

Questions regarding this application or the Rate Edit System should be directed to the Residual Market Services Department or you can e-mail them directly at rms@commauto.com.

Error Summary Report
The Error Summary Report provides summary data about a company's rate errors, regardless of whether the company may be in a pending penalty situation. Accordingly, this report should be used as a monitoring tool so that a company can identify and prevent a potential rate edit problem before the tolerance level has been exceeded and a deadline has been set. The Error Summary Reports are separated by the three lines of business (liability, no-fault, and physical damage), with each page displaying the following information for the two policy effective years that are being rate edited:

• Accounting Date - denotes the accounting shipment in which the records were reported.
• Eligible Records - denotes the number of records that were rate edited for that accounting date.
• Rate Errors - denotes the number of records that were identified as having a rate edit error.
• Percent in Error - is a calculated percentage that is equal to the number of Rate Errors divided by the number of Eligible Records, multiplied by 100.
• Overall totals/error percentages are displayed for each line of business.

Over Tolerance Report
The Over Tolerance Report provides summary information about a company's potential/cumulative penalty situation once it has exceeded the rate edit tolerance. This report only lists the lines of business that have exceeded the tolerance and are shown separately for each policy year. Each page displays the following information:

• Accounting Date - denotes the accounting shipment in which the records were reported.
• M.A.S. Due Date - denotes the accounting shipment in which correction records must be reported in order to avoid a penalty.
• Correction Deadline Due Date - denotes the calendar due date for the accounting shipment for which records must be reported in order to avoid a penalty.
• Line of Business - denotes the line of business (liability, no-fault, or physical damage) that is over tolerance.
• Eligible Records - denotes the number of records that were rate edited for that accounting date.
• Rate Errors - denotes the number of records that were identified as having a rate edit error.
• Percent in Error - is a calculated percentage that is equal to the number of Rate Errors for the entire line of business divided by the number of Eligible Records for the entire line of business, multiplied by 100.
• Rate Error Tolerance - displays the maximum number of acceptable rate error records.
• Accumulative Penalty - displays the pending or accumulative penalty to date for that line of business.
• An asterisk (*) indicates the accounting month the company exceeded the tolerance level.

Rate Edit Penalty Summary Report
The Penalty Summary Report provides summary data about a company's accrued penalties. The report is generated when a company exceeds the rate edit tolerance and minimum error record volume and fails to reduce its cumulative rate edit error percentage (for each line of business and policy effective year) to within the established tolerance during the six month correction period.

This report allows companies to track cumulative penalty assessments per quarter for the two most current policy effective years, and also view the associated penalty letters. The report is broken down by quarter, policy effective year, type of business and line of business. On a cumulative basis the report shows company total, and policy effective year total for all penalty occurrences throughout the two policy effective year timeframes. This report is updated on a monthly basis and reflects actual penalties which are determined as of the run immediately following the 15^th of each month.

Penalties are assessed in accordance with CAR's Statistical Data Quality Penalty Fee Program using the Rate Edit Commercial Penalty process date schedule. Penalty assessments are processed as a Bulk Adjustment in the Quarterly Settlement of Balances. The first quarter includes monthly accounting shipments processed during March, April and May. These penalties are assessed as of the run immediately following May 15^th. The second quarter includes monthly accounting shipments processed during June, July and August. These penalties are assessed as of the run immediately following August 15^th. The third quarter includes monthly accounting shipments processed during September, October and November. These penalties are assessed as of the run immediately following November 15^th. The fourth quarter includes monthly accounting shipments processed during December, January and February. These penalties are assessed as of the run immediately following February 15^th.

Rate Edit Error Details Report
The Error Details Report allows a company to view, print, or download detail rate error records. Based upon the selection criteria, the program will read CAR's databases, find the designated records, reformat those records into the 150 byte company-reported record layout, and present those records for viewing, printing, or downloading. Note that an additional 1 byte field called "Rate Edit Indicator" has been added to the layout to denote the type of rate edit error.

Information pertaining to downloading can be found in the option titled "Help with Crystal Reports Viewer". It should be noted that if the Excel option is selected, the complete 151 byte record will be downloaded into one cell. While it may appear as if the record has been truncated, the size of the cell will need to be expanded in order to view all the data.

The selection criteria allows for the following options:

• Type of Business (commercial)
• Line of Business (liability, no-fault, and/or physical damage)
• Accounting Start Month and Year
• Accounting Stop Month and Year
• Policy Effective Year

Once the selection criteria has been selected and submitted, the program indicates the number of records that fits the designated criteria and then allows the user to view the report or go back and specify a new selection. Note that for record volumes exceeding 10,000, CAR recommends that you contact us to request that your data be extracted to a CD. The record layouts for the six different records are:

Commercial Liability Premium Record

• Statistical Plan Layout
• Copybook Layout

Commercial No-Fault Premium Record

• Statistical Plan Layout
• Copybook Layout

Commercial Physical Damage Record

• Statistical Plan Layout
• Copybook Layout

Note that the Statistical Plan Layouts do not contain the 151^st byte, which is the Rate Edit Indicator field. Additionally, the values for this field are as follows:

Schedules
Commercial Monthly Penalty Process Date