FAQ

FAQ - Financial

The following are Financial questions and answers pertaining to CAR's quarterly member participation reports and member company ceding expense allowance.

Questions:


When will a company be required to participate in CAR deficits?

What is the Servicing Carrier “ceding expense allowance”?

How soon is a company’s current year data reflected in the participation ratio?

In the Settlement of Balances process, when are cash balances shared on the current policy year?

Answers:


When will a company be required to participate in CAR deficits?

Pursuant to CAR’s Plan and Rules of Operation, companies are required to participate in the CAR deficit during any policy year in which the company writes coverage reportable to CAR according to the Massachusetts Statistical Plan. Participation in CAR’s deficit sharing is allocated to the pool(s) in which the coverage is written.

What is the Servicing Carrier “ceding expense allowance”?

Servicing Carriers are provided an expense allowance for servicing ceded business. This expense allowance is based on the expense components included in the approved CAR rates. Specifically, these rate components include unallocated loss adjustment expense (ULAE), general company expense, premium tax, and commissions

Servicing Carriers are reimbursed for ULAE and general company expenses based on the percentages in the approved rates, adjusted for the Servicing Carrier’s ceded claim frequency relative to the industry. Servicing Carriers are reimbursed for premium tax and commission expenses according to their actual expenses incurred, capped at the approved rate components.

Further information relative to CAR’s private passenger and commercial ceding expense allowance formulas can be found in a brief outline on CAR’s Reports and Applications Page.

How soon is a company’s current year data reflected in the participation ratio?

Participation ratios used to determine each company’s share in CAR’s underwriting results are calculated for each policy year based on the company's calendar year statistical data. Final ratios are calculated for a particular policy year and reflected in the member participation reports beginning with the June quarter following the close of the policy year. In the interim, member participation results are calculated using the prior year’s participation ratios.

For example, final policy year 2000 participation ratios will be calculated based on calendar year 2000 exposures (private passenger) and written premium (commercial). The final ratios will first be used in calculating the June, 2001 quarter member participation reports, distributed in September 2001.

In the Settlement of Balances process, when are cash balances shared on the current policy year?

Cash balances for the current policy year are provided each quarter on the SB-4 report. However, the current year cash balances are actually shared only in the September and December calendar quarters. Accordingly, your company’s invoice will reflect the following SB report totals in each quarter of the calendar year:

Calendar Quarter Ending SB Report Shared
March 31st SB-5
(policies effective prior to current year)
June 30th SB-5
(policies effective prior to current year)
September 30th SB-1
(all policy years combined)
December 31st SB-1
(all policy years combined)
 
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