## Facts

- Massachusetts law required the Commissioner of Insurance to fix compulsory automobile insurance rates that are “adequate, just, reasonable and nondiscriminatory” when market competition was found insufficient.
- In May 1979, the Commissioner determined competition was insufficient and reverted to statewide rate-setting for calendar year 1980.
- The Massachusetts Automobile Rating and Accident Prevention Bureau, joined by numerous insurers, filed proposed 1980 rates seeking an overall 20.6% increase.
- After extensive hearings with competing submissions (including from the Attorney General and the Division of Insurance), the Commissioner issued a December 20, 1979 decision setting 1980 rates producing an overall increase of about 5.7%.
- The Commissioner’s rate decision addressed three main components: loss allowances (expected claim costs), expense allowances (operating costs), and an underwriting profit allowance (target return) calculated using a cash-flow model that incorporated investment income.
- The insurers sought judicial review, primarily challenging the underwriting profit methodology and the investment yield assumptions used to set the profit allowance.

## Issues

1. Whether the Commissioner’s industry-wide 1980 automobile insurance rates satisfied the statutory requirement of being “adequate, just, reasonable and nondiscriminatory” and were supported by substantial evidence under the limited scope of judicial review for rate-making.
2. Whether the Commissioner’s underwriting profit allowance, derived from a cash-flow model using assumed investment yields, was supported by substantial evidence.
3. Whether the Commissioner’s determinations of loss and expense allowances were lawful and supported by the record.

## Decision

- The court applied a deferential review consistent with the quasi-legislative character of rate-making, focusing on whether findings were reasonably supported by the evidence and met statutory standards.
- The court affirmed the Commissioner’s determinations of loss and expense allowances, concluding the record contained substantial evidence and the Commissioner permissibly chose among competing expert views.
- The court set aside and remanded the underwriting profit allowance because the cash-flow model depended on investment yield assumptions the court found unrealistic and insufficiently supported by the evidentiary record.
- The court did not impose its own profit allowance; it directed the Commissioner to reconsider the profit component using assumptions grounded in the record.

## Legal Principles

- When competition is insufficient, compulsory automobile insurance rates set by the Commissioner must be “adequate, just, reasonable and nondiscriminatory.”
- Judicial review of administrative rate-making is limited; courts do not reweigh economic policy judgments but evaluate whether the decision rests on substantial evidence and satisfies statutory standards.
- The Commissioner may employ economic or financial modeling (including cash-flow approaches) to determine an underwriting profit allowance, but key model inputs—such as assumed investment yields—must be supported by substantial evidence and consistent with record conditions.
- Distinct rate components (losses, expenses, profit) may be reviewed and remedied separately; error in the profit component does not necessarily invalidate loss and expense determinations.

## Conclusion

The court upheld the Commissioner’s 1980 automobile insurance rate determinations for losses and expenses but remanded the underwriting profit allowance because the assumed investment yields driving the cash-flow profit calculation lacked substantial evidentiary support.


Massachusetts Auto. Rating & Accident Prevention Bureau v. Comm'r of Ins., 411 N.E.2d 762 (Mass. 1980)