TEXAS DEPARTMENT OF INSURANCENotification Pursuant to the Insurance Code, 
Chapter 5, Subchapter LAs required by the Insurance Code, Article 5.96 and 5.97, 
the Texas Register publishes notice of proposed actions by the Texas Board of 
Insurance. Notice of action proposed under Article 5.96 must be published in the 
Texas Register not later than the 30th day before the board adopts the proposal. 
Notice of action proposed under Article 5.97 must be published in the Texas 
Register not later than the 10th day before the Board of Insurance adopts the 
proposal. The Administrative Procedure Act, the Government Code, Chapters 2001 
and 2002, does not apply to board action under Articles 5.96 and 5.97.
The complete text of the proposal summarized here may be examined in the offices 
of the Texas Department of Insurance, 333 Guadalupe Street, Austin, Texas 78714-
9104.)
This notification is made pursuant to the Insurance Code, Article 5.96, which 
exempts it from the requirements of the Administrative Procedure Act.

ADOPTED
The Commissioner of Insurance at a public hearing held under Docket Number 2293 
on June 24, 1997, at 10:00 a.m., in Room 100 of the Texas Department of 
Insurance Building, 333 Guadalupe Street in Austin, Texas, adopted amendments to 
the Texas Personal Lines Manual (Manual) to provide deductible adjustment charts 
for determining premium credits for optional large deductibles for coverage 
afforded under a dwelling policy, farm and ranch policy, and farm and ranch 
owners policy. The amendments were proposed by Department staff in a petition 
filed on May 14, 1997. Notice of the proposal (Reference Number P-0597-13-I) was 
published in the May 20, 1997, issue of the Texas Register (22 TexReg 4375 and 
4393). The Commissioner adopted the proposal without changes to the proposal as 
noticed in the Texas Register.
The new optional large deductible adjustment charts are added to the Dwelling, 
Farm and Ranch, and Farm and Ranch Owners sections of the Manual to be used in 
determining the appropriate premium credits when optional large deductibles are 
selected for a dwelling policy, farm and ranch policy, or farm and ranch owners 
policy. The charts also provide instructions for applying the specified 
deductible adjustment premium credits to determine the appropriate policy 
premium. The deductible adjustments for determining premium credits for optional 
large deductibles for the homeowners policy were determined at the Residential 
Property Insurance Benchmark Rate Hearing held on December 20-21, 1995 under 
Docket Number 454-95-1280.G (Commissioner's Order Number 96-1047 effective 
October 1, 1996). 
Need for the Credits. The Commissioner under Commissioner's Order Number 95-1084 
(October 17, 1995), adopted rules (Rule 7 under the General Requirements Section 
V, Deductibles Subsection D) in both the Homeowners and the Farm and Ranch 
Owners sections of the Manual to provide for optional large deductibles of 1.5%, 
2.0%, 2.5%, 3.0%, 4.0% and 5.0% of the limit of liability of Coverage A 
(Dwelling) under the homeowners policy forms and the farm and ranch owners 
policy forms. The Commissioner under Commissioner's Order Number 95-1284 
(December 8, 1995) adopted rules (Rule 5 in the Dwelling Section of the Manual 
under the General Requirements Section V, Deductibles Subsection D) to provide 
for optional large deductibles of 1.5%, 2.0%, 2.5%, 3.0%, 4.0% and 5.0% of the 
limit of liability for each item of insurance shown on the declarations page of 
the dwelling policy forms and (Rule 6 in the Farm and Ranch Section of the 
Manual under General Requirements Section V, Deductibles Subsection D) to 
provide for optional large deductibles of 1.5%, 2.0%, 2.5%, 3.0%, 4.0% and 5.0% 
of the limit of liability for each item of insurance shown on the declarations 
page of the farm and ranch policy forms and on the declarations page of any 
endorsement attached to the farm and ranch policy forms. These rules did not 
include the deductible adjustment premium credits for the optional large 
deductibles. Pursuant to Commissioner's Order Numbers. 95-1084 and 95-1284, the 
Commissioner determined that the applicable premium credits for the optional 
large deductibles should be determined at the next annual residential benchmark 
rate hearing and that the optional large deductibles would be effective for all 
applicable policies issued on and after the effective date of the benchmark 
rates determined pursuant to that hearing. The benchmark rate hearing was held 
on December 20-21, 1995, under Docket Number 454-95-1280.G. Evidence for the 
determination of the appropriate premium credits for optional large deductibles 
to the homeowners policy was presented at that hearing, and pursuant to 
Commissioner's Order Number 96-1047, the optional large deductibles and the 
premium credits for Coverage A (Dwelling) under the homeowners policy became 
effective on October 1, 1996. No evidence, however, was presented at that 
hearing for the appropriate premium credits for optional large deductibles for a 
dwelling policy, farm and ranch policy, or farm and ranch owners policy. The 
Commissioner was therefore unable to promulgate deductible adjustment premium 
credits for dwelling, farm and ranch, and farm and ranch owners policies as part 
of the residential property insurance benchmark rate matters. As a result, the 
Commissioner has determined that these optional large deductibles are necessary 
and in the public interest to enable insureds to select any of these large 
deductibles when purchasing dwelling, farm and ranch, or farm and ranch owners 
policies. The Commissioner has further determined that it is necessary, 
appropriate, and in the public interest to consider and to adopt these premium 
credits under Article 5.96 of the Insurance Code, as part of the Manual rules 
governing the writing of optional large deductibles for dwelling, farm and 
ranch, and farm and ranch owners policies. In addition, because the adopted 
decreases in premium correspond to a decrease in coverage, these deductible 
adjustment premium credits do not affect the residential property insurance 
benchmark rates in effect for the dwelling, farm and ranch, and farm and ranch 
owners policies. The new deductible adjustment charts will only be used to 
determine premium credits when an insured chooses one of the optional large 
deductibles. 
Methodology to Determine Credits. The Commissioner has determined that the 
methodology and actuarial principles used by staff to determine the adopted 
premium credits are sound and that the adopted credits are just and reasonable.
(i) Dwelling policy and farm and ranch policy. The same methodology was used to 
determine the credits for optional large deductibles for the dwelling policy and 
the farm and ranch policy. For each type of policy, staff used claims experience 
data for the deductibles of $250, $500, and 1.0% for Coverage A (Dwelling) and 
$500 and 1.0% for Coverage B (Personal Property). This data was then adjusted on 
a per claim basis to a 1.0% deductible. The data was similarly adjusted to a 
1.5%, 2.0%, 2.5%, 3.0%, 4.0%, and 5.0% deductible. This enabled staff to 
calculate credits based on claims experience to be applied to losses for each 
optional large deductible. These loss credits were then graduated using a moving 
weighted average and fitted to a curve. The optional large deductible loss 
credits developed using claims experience were then converted to a premium 
credit based on the latest benchmark expenses for Additional Extended Coverage. 
The resulting credits were rounded to the nearest whole percent. After weighing 
the credibility of the data for coverage amounts of approximately $160,000 and 
over, the staff selected maximum premium credits based on their best estimates 
for these high coverage amounts. This was done by drawing a straight line from 
the point of the coverage amount to the point of the maximum credit, instead of 
relying upon the curve to which the coverage amounts of less than $160,000 was 
fitted. (ii) Farm and ranch owners policy. Because of limited direct experience 
for the farm and ranch owners policy, staff adjusted the deductible credits that 
were adopted effective October 1, 1996, for homeowners coverage to develop the 
deductible premium credits for the farm and ranch owners policy. Staff 
considered the differences between a homeowners policy and a farm and ranch 
owners policy in expenses and in the percentage of liability losses (which are 
not subject to deductible) in making these adjustments. 
The premium credits, in accordance with Article 5.96(i) of the Insurance Code, 
are effective 15 days after notice of the adoption is published in the Texas 
Register. 
The Commissioner has jurisdiction of this matter pursuant to the Insurance Code, 
Articles 5.35, 5.101, 5.96, and 5.98. 
The amendments as adopted by the Commissioner of Insurance are on file in the 
Chief Clerk's Office of the Texas Department of Insurance under Reference Number 
P-0597-13-I and are incorporated by reference by Commissioner's Order Number 97-
0714. 
This notification is made pursuant to the Insurance Code, Article 5.96, which 
exempts action taken under Article 5.96 from the requirements of the 
Administrative Procedure Act (Government Code, Title 10, ch. 2001). 
Consistent with the Insurance Code, Article 5.96(h), prior to the effective date 
of this action, the Texas Department of Insurance will notify all insurers 
affected by this action. 
This agency hereby certifies that the adopted amendments have been reviewed by 
legal counsel and found to be a valid exercise of the agency's legal authority. 
Issued in Austin, Texas, on July 15, 1997.
TRD-9709238
Caroline Scott
General Counsel and Chief Clerk
Texas Department of Insurance
Filed: July 16, 1997