## Facts

- Massachusetts law required the Commissioner of Insurance to set annual compulsory automobile insurance rates after a statutory hearing.
- For 1983, the rating organization for insurers and certain insurers sought a substantial rate increase; the State Rating Bureau and Attorney General urged a smaller increase.
- The Commissioner adopted rates providing a significantly smaller increase than the insurers requested.
- The Commissioner set rates by determining allowances for (1) losses, (2) expenses, and (3) underwriting profit; the profit allowance depended on estimates of investment income earned from premiums and capital.
- Insurers challenged the Commissioner’s determinations for loss and profit allowances, asserting the findings were unsupported, legally erroneous, and produced inadequate and confiscatory rates.
- On profit, insurers disputed the surplus-allocation model used to allocate capital among lines of insurance and challenged the tax-rate assumption used in a model-company approach to estimate after-tax investment income.
- On losses, insurers argued the Commissioner improperly projected claim-frequency trends (especially property damage liability) by relying primarily on internal claims data and by misjudging the impact of regulatory and program changes (including merit rating and accident-prevention measures).
- The cases reached the full Supreme Judicial Court on a reserved and reported record from a single justice.

## Issues

1. Whether the 1983 rates were “adequate, just, reasonable and nondiscriminatory” and reasonably supported by the evidence under G.L. c. 175, § 113B.
2. Whether the rates were unconstitutionally confiscatory because the loss and profit allowances were allegedly set too low.
3. Whether the Commissioner committed reversible legal error in selecting and applying (a) a surplus-allocation model, (b) a tax-rate assumption in modeling investment income, and (c) a claim-frequency trend methodology.

## Decision

- The Supreme Judicial Court affirmed the Commissioner’s 1983 rate order and rejected the statutory and constitutional challenges.
- The court held that the Commissioner’s choices on underwriting profit methodology (including surplus allocation and tax assumptions) were within regulatory discretion and supported by the record.
- The court upheld the Commissioner’s loss-trend determinations, including reliance on internal claims experience and evaluation of external factors.
- The court concluded the challengers did not prove confiscation when the rate order was considered as a whole, including expected investment income.

## Legal Principles

- Judicial review of compulsory auto rate-setting under G.L. c. 175, § 113B is limited; the court asks whether rates are “adequate, just, reasonable and nondiscriminatory” and whether the order is reasonably supported by the evidence, not whether the court would select the same methodology.
- In complex economic regulation, the Commissioner has broad discretion to choose among competing actuarial and financial models if the approach is explained and supported by substantial evidence.
- Rate-making permits reasonable approximation; modeling assumptions (including tax and investment-income inputs) are not reversible error absent arbitrariness, lack of record support, or an overall unlawful result.
- A confiscation claim requires proof that the overall rate structure denies a fair and reasonable return; evidence of recent underwriting losses alone is insufficient, and investment income must be considered.

## Conclusion

The court sustained the Commissioner’s 1983 compulsory automobile insurance rates, holding that the challenged profit and loss methodologies were supported by the record and within the Commissioner’s discretion, and that the insurers failed to meet their burden of showing the rates were unlawfully inadequate or confiscatory.


Massachusetts Auto. Rating & Accident Prevention Bureau v. Comm'r of Ins., 389 Mass. 824, 453 N.E.2d 381 (Mass. 1983)