Messrs.    Ned Price  and Durwood Manford               Opinion   No.     M -446
Members,     State Board of Insurance.
Insurance   Building
Austin,   Texas                           Re:           Investment  Income as a
                                                        Factor  in Computing Pre-
                                                        mium Rates for Auto-
Gentlemen:                                              mobile Insurance

        You have   recently   requested    an opinion    of this office    on the follow-
ing questions:’

        1.     Is the Board authorized     or required    by law to con-
               sider or include in its automobile      rate-making     formula
               or premiums     the overall  countrywide     investment    income
               of the insurers   from all sources    in prescribing     and promul-
               gating rates of premium?

        2.     Is the Board authorized     or required  by law to consider     or
               include in its automobile    rate-making   formula    or premiums
               the overall  investment   income of insurers    attributable   to
               their business   done in Texas in prescribing     and promulgat-
               ing rates of premium?

        3.     Is the Board authorized      or required    by law to consider      or
               include in its automobile      insurance   rate-making      formula
               or premiums     the overall    countrywide    investment     income
               of the insurers   attributable    to their automobile     insurance
               premiums    in prescribing      and promulgating     rates of pre-
               mium?

        4.     Is the Board     authorized   or required  by law to consider    or
               include in its    automobile   insurance  rate-making   formula
               or premiums       the investment   income of the insurers    at-
               tributable to    their Texas automobile     insurance premiums?



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Messrs.      Ned     Price     and Durwood    Manford,     page   2           (M -446




           Article     5. 01,   Texas   Insurance   Code   provides,    in part,     as
follows:

                    ‘1. . . The Board shall have the sole and ex-
           clusive   power and authority,      and it shall be its duty
           to determine,     fix, prescribe,     and promulgate        just,
           reasonable    and adequate     rates of premiums         to be charged
           and collected    by all insurers    writing     any form of insurance
           on motor vehicles      in this State, including fleet or other
           rating plans designed      to discourage      losses   from fire and
           theft and similar     hazards   and any rating plans designed          to
           encourage    the prevention     of accidents.      In promulgating
           any such rating plans the Board shall give due considera-
           tion to the peculiar   hazards    and experience   of individual
           risks,  past and prospective,      within and outside the State
           and to all other relevant    factors,    within and outside the
           State.   The Board shall have the authority       also to alter
           or amend any and all of such rates of premiums           so fixed
           and determined     and adopted by it, and to raise or lower
           the same or any part thereof.       ”

           Article     5. 03,   Texas   Insurance   Code   provides    as follows:

                   “On and after the filing and effective      date of
           such classification   of such risks and rates,     no such in-
           surer shall issue or renew any such         insurance   at pre-
           mium rates which are greater        or less than, or different
           from,  those approved     by the Board as just, reasonable,
           and adequate for the risk to which they respectively         ap-
           ply, and not confiscatory     as to any class of insurance      car-
           riers authorized    by law to write   such insurance.    ”

           Article     5.04,    Texas   Insurance   Code    reads:

                    “To insure the adequacy        and reasonableness    of
           rates the Board may take into consideration           past and pro-
           spective   experience,     within and outside the State, and all
           other relevant    factors,    within and outside the State, gathered
           from a territory     sufficiently   broad to include the varying
           conditions   of the risks involved     and the hazards    and liabili-
           ties assumed,     and over a period sufficiently      long to insure

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Messrs.     Ned Price       and Durwood       Manford,   page    3            (M -446




          that the rates determined  therefrom     shall be just,
          reasonable   and adequate, and to that end the Board
          may consult any rate making organization       or asso-
          ciation that may now or hereafter    exist. ”

         The basic consideration        on which all four questions   here presented
are based is whether       the State Board of Insurance     is either authorized     or
required   to consider    in its automobile     rate making formula   various    types
of investment    income realized       by the insurers  from some or all of their
investments.      Because     of the nature of our answers    to these questions     they
all may be considered        together.

         Review    of the above quoted sections          of the Insurance      Code makes it
readily  apparent      that no specific   reference     is made to either the inclusion
or exclusion    of investment       income of the insurers         in the Board’s     establish  -
ment of adequate        and reasonable    rates.    It is   clear,    however,    from    the
language   of Article      5.01 that the Board shall have the sole and exclusive
power and authority         to prescribe  just, reasonable         andadequate      rates of
premiums     to be charged for automobile          insurance       in Texas.    These are the
general   guidelines      the Board is to follow in establishing          the rates.     Article
 5.03 provides    that such rates shall not be confiscatory              as to any class of
insurance    carriers.

          There   seems to be no question that rate making is a legislative
function,   and in this case is to be performed     by an administrative     body, the
State Board of Insurance.      Brown & Root v. Traders        & General   Insurance
co. ) 135 S. W. 2d 534 (Tex.     Civ. App.,   1940, error    dism.,   judgm.   car. );
Gsociated      Indemnity Corp.   v. Oil Well Drilling   Co.,    258 S. W. 2d 523 (Tex.
Civ. App. 1953, affirmed,       153 Tex.   153, 264 S. W. 2d 697. )

          In the latter     decision     the Dallas   Court   of Civil   Appeals   stated:

                  “It cannot be disputed that the legislature originally
          intended to leave the details of rate making to, a rate-making
          body, such as the Board . . .

                   “.     . .

                   “The         Board’s  rate-making     powers  are legislative
          in character;          hence its orders   fixing rates must be sub-


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    Messrs    Ned      Price   and Durwood     Manford,       page   4             (~-446



              jetted    to the same tests under the ‘equal           protection’
              clause     as an enactment  of the Legislature          itself. ‘I

             The Insurance    Code was first enacted in 1927.  Articles 5.01 and
    5. 04 were amended     in 1953 by H. B. No. 32, Acts of the 53rd Legislature,
    Regular   Session,   At that time the words “and all other relevant  factors, I’
    among other things,     were added to the Articles.

            The words “all relevant   factors”    were by H. B. No.                 32 added to
    Article 5. 01 in the second sentence    of the second paragraph                  of that Article.
    This sentence   is as follows:

                        “In promulgating      any       such rating plans the Board
              shall give due consideration             to the peculiar   hazards  and
              experiences      of the individual        insurers,   past and pro-
              spective,     within and outside         the state and to all other
              relevant    factors,   within and        outside the state. ‘1

              It thus appears    that the words “all relevant factors” as are used
    in Article    5. 01 apply only to rating plans and not to the general  automobile
    insurance     premium    formula.

             As previously      observed,       the words “all relevant        factors”     were also
    added, among other things,            to Article    5. 04 in 1953.     The Legislature         has
    directed  that the Board may take into consideration                 to insure the adequacy
    and reasonableness        of rates. past and prospective          experience       within and out-
    side the state and all other relevant            factors.    Therefore,       it is apparent
    that the Board has wide discretion             in its determination       of what are all other
    relevant  factors    and in fact may or may not include in its consideration                      such
    factors.   In  Virginia,     the  Supreme       Court   of that state,    in  reviewing     a  rate
    set by the rate fixing board,          concluded     from the evidence       before     it that in-
    come from investment          of the loss reserve,         as well as from investment            of
    the unearned    premium       reserve,      was a relevant, factor       in fixing a reasonable
    margin for underwriting          profit and contingencies.        Virginia     State AFL-CIO
    v. Commonwealth         of Virginia,      et al, 167 S. E. Zd 322 (Va. Sup. 1969).

             We are of the opinion,    therefore,    that our Legislature   has delegated
    to the State Board of Insurance      the legislative   function of rate making.     By
    Articles   5. 01 and 5. 03 it has directed    the Board to fix just, reasonable    and




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            Messrs.       Ned Price     and Durwood     Manford,      page    5          (M446



            adequate    rates which      are non-confiscatory.           By Article    5. 04 the Legisla-
            ture has stated that in arriving         at just, reasonable       and adequate     rates
            which    are not confiscatory        the Board is authorized        to consider,     among
            other things,    all other relevant      factors.      If the Board determines        a factor
            to be relevant    for consideration       in arriving     at a just, reasonable      and
            adequate    rate which is not confiscatory,           it has the authority      to consider
            such factor.      But this is the sole and exclusive            power and authority       of the
            Board by virtue      of its legislative     rate-making      authority.     It is not for this
            office to determine      what is a relevant       factor for the Board’s        consideration
            in the exercise     of its legislative     powers.      Section   1, Article    II, Constitu-
            tion of Texas.

                                                      SUMMARY

                                  The fixing of automobile      insurance     rates by
                        the State Board of Insurance        is a legislative    function,
                        delegated    to it by the Legislature,     and it has the sole
                        power and exclusive      authority    to determine     a fair and
                        just rate, and to give due consideration           to such factors
                        as they may determine,        from the evidence       before them,
                        to be relevant.

                                                      Youfiery       truly,




                                                      Attobey      General    of Texas

            Prepared       by Sam Kelley
            Assistant      Attorney General

            APPROVED:
            OPINION   COMMITTEE

            Kerns Taylor,   Chairman
            George  Kelton,  Vice-Chairman
            W. 0. Shultz
            Harold Kennedy
            John Grace
            Alfred Walker

            W. V. Geppert
            Staff Legal Assistant

            Hawthorne        Phillips
            Executive       Assistant
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