## Facts

- The North Carolina Rate Bureau filed a residential property insurance rate filing dated January 3, 2014, seeking an average statewide premium increase of about 26%.
- The filing included numerous ratemaking components, including projected losses, expenses, profit/return allowances, and a substantial reinsurance-cost provision connected to catastrophe risk transfer.
- The North Carolina Department of Insurance, acting through the Commissioner of Insurance, challenged the filing and initiated a contested administrative rate proceeding.
- The Commissioner conducted multiple public hearings and received extensive testimony and exhibits, including testimony from competing actuaries and other witnesses.
- A Department witness questioned the foundation and assumptions supporting the Bureau’s reinsurance-cost calculation and testified that reasonable reinsurance costs fell within a smaller numerical range than the Bureau proposed.
- In a final order, the Commissioner made detailed findings on the disputed components, selected a reinsurance-cost figure within the smaller range supported by the Department’s evidence, and concluded the Bureau’s proposed rates were excessive.
- The Commissioner’s order effectively disallowed any overall rate increase compared to existing rates.
- The Rate Bureau appealed to the North Carolina Court of Appeals, arguing that the Commissioner (a) failed to apply a state constitutional requirement to measure permissible profit by investor expectations for comparable businesses and (b) acted arbitrarily by substituting a different reinsurance-cost figure for the Bureau’s calculation.

## Issues

1. Whether the Commissioner’s profit/return determination violated the North Carolina Constitution by failing to measure allowable profit against investor expectations for comparable businesses.
2. Whether the Commissioner acted arbitrarily or capriciously, or without substantial evidence, by rejecting the Bureau’s reinsurance-cost calculation and selecting a different figure.
3. Whether substantial evidence supported the Commissioner’s determination that the Bureau’s proposed residential property rates were excessive and could be disapproved.

## Decision

- The North Carolina Court of Appeals affirmed the Commissioner’s final order disapproving the Rate Bureau’s January 3, 2014 filing and denying the requested average increase.
- The court rejected the Bureau’s constitutional argument, concluding the Commissioner did not apply an unlawful profit standard and did not set rates that were constitutionally inadequate.
- The court held the Commissioner’s reinsurance-cost finding was not arbitrary or capricious because it was based on record evidence, including testimony supporting a reasonable range from which the Commissioner selected.
- The court held the Commissioner’s broader “excessive” rate determination was supported by substantial evidence under the applicable standard of review, and the court would not reweigh competing technical proof.

## Legal Principles

- On judicial review of an insurance ratemaking order, the reviewing court applies administrative-law standards, including review for errors of law and whether findings are supported by substantial evidence in view of the whole record.
- In contested ratemaking proceedings, the Commissioner may resolve conflicts in technical testimony and choose among competing methods and numerical estimates when the chosen approach is supported by substantial evidence.
- The state constitutional requirement of a fair and reasonable return protects against confiscatory outcomes, but it does not require the Commissioner to accept the filer’s preferred profit benchmark or to mechanically tie profit allowances to asserted investor expectations for other industries.
- A reinsurance-cost allowance may be set based on credited testimony and record support; selecting a figure within a supported range is a permissible fact-finding choice rather than an arbitrary substitution.
- If the Commissioner’s findings support a conclusion that proposed rates are excessive under the governing statutes, the Commissioner may disapprove the filing, and courts will not replace the agency’s technical judgments with their own.

## Conclusion

The Court of Appeals affirmed the Commissioner’s order disapproving the Rate Bureau’s proposed average 26% residential property rate increase, holding that the Commissioner lawfully evaluated profit and other rate components, permissibly set reinsurance costs based on credited record evidence, and supported the “excessive rates” determination with substantial evidence under whole-record review.


State ex rel. Commissioner of Insurance v. North Carolina Rate Bureau (In re Filing Dated Jan. 3, 2014), 791 S.E.2d 211 (2016)