Progressive Corp. has joined the growing ranks of property and casualty insurers that have fielded questions from multiple constituencies about the potential effects of federal tax reform on rate filings.
In response to an analyst's question during the company's March 1 investor relations meeting, CEO Tricia Griffith said it is "hard to say" whether state insurance commissioners would push the idea, as the Consumer Federation of America suggested in a January letter, that carriers must passing along savings from the lower federal corporate tax rate to their policyholders.
"There are a few states out there that will likely do that or react to that," she said.
The question arose about one week after the Nevada Division of Insurance sent an otherwise routine objection letter to a pending private-passenger auto rate filing by Progressive Direct Insurance Co. and Progressive Northern Insurance Co. that included queries related to tax reform. The letter, signed by actuarial analyst Mitchell Moore, offered extended context about the nature of the regulator's interest. Moore wrote that the division is gathering information as it attempts to evaluate the impacts of the Tax Cuts and Jobs Act of 2017 "in the coming years."
The letter noted that an exhibit of the rate filing showed the federal tax rate as 35% instead of the 21% in the legislation, which was signed into law on Dec. 22, 2017, and that the investment income sections of the document should reflect the current rate. Progressive Northern and Progressive Direct seek rate increases of 2% and 4.9%, respectively, on their Nevada private auto programs.
Moore additionally requested information about the legislation's impact on the provision for profit and contingencies, the targeted rate of return, and any provisions for investment income. The letter is also seeking information regarding Progressive's expectations about how the legislation's impact "may manifest itself over time, as well as any future actions that the insurer plans to take in consideration of such impact."
The division included similar requests in an objection letter from Moore dated Feb. 22 to Sentry Insurance a Mutual Co.'s Viking Insurance Co. of Wisconsin. That company submitted revised manual pages for its powersports program that would have the effect of increasing overall rates on a small book of business by 27.3%.
Nevada's previous objections pertaining to the lower tax rate generally seem to have been more limited in their scope. Letters from Moore and/or Assistant Chief Examiner Timothy Ghan to units of Liberty Mutual Holding Co. Inc., State Farm Mutual Automobile Insurance Co. and The Hartford Financial Services Group Inc., among others, either requested a discussion of the companies' rationale for not using the lower tax rate where applicable in their filings or for them to revise certain sections to use the new rate, which is something several of them have done to minimal apparent effect.
The Hartford's Property & Casualty Insurance Co. of Hartford, for instance, reported that its selected underwriting profit provisions of 5% and 10% on the liability and physical damage components of its Nevada personal auto filing were still supported even after it employed the lower tax rate on underwriting income. The indicated profit provision declined to 10.5% and 12.7% for the liability and physical damage coverages, respectively, from 12.8% and 15.5% when using the 35% tax rate.
Regulators' references to the new tax rate in pre-approval communications are not unique to Nevada, though they appear to be more pervasive there than in other states. The Pennsylvania Insurance Department, for example, told Lemonade Insurance Co. in a January objection letter that it was "unable to approve rates that do not reflect the prospective 21% corporate tax rate." The Texas Department of Insurance has opted to remind multiple filers that the profit provisions in future rate filings should reflect the lower tax rate generally without requesting revisions to pending requests.
With the California Department of Insurance having launched a regulatory review of insurers' rates and Nevada seemingly broadened its information collection efforts of late, it remains to be seen if other states press the issue.
"Our hope is that most regulators regulate in terms of ... not having our rates inadequate, excessive or unfairly discriminatory," Griffith said. "But ... we're nimble and we're working to make sure that we provide a good rate for the customers."
