additional information to members of the …€¦ · copc . 16.07 updates to the manual of...

ADDITIONAL INFORMATION

TO MEMBERS OF THE COMPLIANCE AND OPERATIONS COMMITTEE

FOR THE MEETING OF:

Wednesday, April 13, 2016 at 10:00 a.m.

COPC 16.07 Updates to the Manual of Administrative Procedures Chapter X – Accounting Edit and Correction Procedures of the Manual of Administrative Procedures has been updated to apply exclusively to commercial business and to reflect current practices. A redlined version highlighting the updated language and a non-redlined version of the chapter are attached. (Docket #COPC16.07, Exhibit #3) COPC 16.11 Disaster Recovery – Business Impact Analysis To assist the Committee in preparing a Business Impact Analysis for setting forth CAR’s policy with respect to CAR’s tolerance for business interruption, attached is a proposal that identifies the impacted processes within each of CAR’s major business functions. (Docket #16.11, Exhibit #1)

WENDY BROWNE Vice President of Business Operations

Attachments Boston, Massachusetts April 5, 2016

Manual of Administrative Procedures Chapter X – Accounting Edit and Correction Procedures

Memorandum of Changes – April 13, 2016

General Modifications References to private passenger business have been eliminated throughout Chapter X – Accounting Edit and Correction Procedures. The Chapter now pertains exclusively to commercial business. The Chapter is updated to reflect current practices and eliminate obsolete language. Wording is added, modified or expanded upon, as necessary, to clarify existing language. References throughout the Chapter are updated for consistency. This includes references to other Chapters and Sections of the Manual, and references to the CAR Rules of Operation and other CAR Manuals. Specific Modifications Section B. Accounting Verification

The critical and non-critical accounting edits are updated to reflect current edit procedures and to eliminate those edits that are obsolete.

Section C. Accounting Error Listings

Additional language is added to this Section to identify each of the informational listings, applications and browse screens that are available from Accounting Online Access menu.

Section D. Accounting Error Correction Procedures

This Section is updated to clarify that Servicing Carriers are still able to submit loss records on a policy after a critical error write-off as long as the company has rectified the situation which initially caused the critical error condition.

Section E. Request for Loss Reimbursement on Ceded Polices for which Cession and Premium Reporting has been Discontinued

This Section identifies the documentation requirements for requesting reimbursement for a loss when cession and/or premium reporting has been discontinued and how reimbursements deemed acceptable by CAR are processed.

CAR DOCKET #COPC16.07 EXHIBIT #3

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CAR Manual of Administrative Procedures Chapter X Accounting Edit and Correction Procedures

Revision Date DRAFT – 2016.04.13 Page 1 of 37

A. General

1. Introduction

It is Commonwealth Automobile Reinsurers' (CAR’s) responsibility to verify that Servicing Carriers report, completely and accurately, their cession, premium, paid loss, and outstanding loss data for ceded policies.

CAR loads all acceptable data for an accounting month to its accounting system, regardless of the completeness of the submission. That is, if a Servicing Carrier submits its monthly accounting shipment and CAR rejects one or more line of business (e.g., private passenger liability premium) due to a reporting error, CAR loads the remaining acceptable lines of business to its accounting system. CAR verifies that Servicing Carriers resubmit the rejected line(s) of business in a timely manner. Furthermore, CAR ensures the pool is not adversely impacted by this procedure by assessing Loss of Investment Income when appropriate.

2. Servicing Carrier Responsibility

AB. Preliminary Verification of Reported Data

Commonwealth Automobile Reinsurers (CAR) checks the edits a Servicing Carrier’s ceded data on a policy level basis to verify that the Servicing Carrier has accurately reported, for accuracy via the policy edits. all cession, cession correction, premium, paid loss and outstanding loss data and The policy edits verify that proper relationships exist between the cession, premium, and loss records reported for each ceded policy. The However, a Servicing Carrier's sole responsibility is to ensure is ultimately responsible for assuring the accuracy of their its own data. submissions. Therefore, and CAR expects that prior to reporting data submissions to CAR, anticipates that the Servicing Carriers will perform various edits within their its own systems to assure the validity and completeness of all its reported data submissions.

1. Cession Edits

CAR performs cession edits on all cession and cession correction records Servicing Carriers submit prior to using the cession records in the accounting edit routines. Chapter II, Section E of this manual describes the preliminary edits of cessions and cession corrections. Cession and cession correction records are edited for fatal and non-fatal errors as described in Sections E., F. and G. of Chapter II – Cession Rules and Procedures of this Manual.


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2. Statistical Edits and Data Reporting Requirements

Premium, paid loss and outstanding loss submissions are edited for statistical errors and other data reporting requirements. For further information, refer to the Massachusetts Commercial Automobile Statistical Plan and CAR’s Statistical Edit Package, which are both available on CAR’s website under the Manuals tab. As CAR uses the monthly submissions reported for both accounting and statistical purposes, all submissions (voluntary and ceded) must pass preliminary statistical edits and requirements before CAR accepts and uses the submission for accounting purposes. As this manual references only those procedures relative to the performance of CAR's reinsurance functions, this manual does not contain a description of these statistical edits and requirements. The Massachusetts Automobile Statistical Plans and statistically-related industry publications, which CAR produces, provide information relative to the statistical edits and requirements.

BC. Accounting Verification

1. General Information

All acceptable ceded premium and paid loss records are loaded to CAR’s Accounting System on a weekly basis, and outstanding loss records are loaded on a quarterly basis, regardless of the completeness of the monthly submission. That is, if a Servicing Carrier submits its monthly accounting shipment and CAR rejects one or more lines of business due to reporting errors, CAR will still load the ceded data contained in the other acceptable lines of business to its accounting system. CAR will verify that the Servicing Carrier resubmits the rejected line(s) of business in a timely manner. To ensure that the pool is not adversely impacted by the missing data, CAR will assess loss of investment income as appropriate. For additional information relative to loss of investment income, refer to Section B.6. of Chapter VI – Participation of this Manual. After CAR has balanced and accepted the premium, paid loss, and outstanding loss data for a particular month for accounting and statistical purposes, it loads the ceded policies to CAR's master file, with the exception of paid and outstanding loss data reported on closed-out policies (see Section G of this chapter for a detailed description of the close-out procedures). Using company number, policy number and policy effective year as a key, reported cession records are linked to the corresponding premium and loss records.


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Each policy is run through a series of critical and non-critical edits which verify that proper relationships exist between the cession, premium and loss records reported on the policy. These edits are described in Sections B.2. and B.3. of this Chapter. CAR’s Policy Edit Package, which is available on CAR’s website under the Manuals tab, contains a complete description of each of the critical and non-critical accounting error edits. Additionally, each policy with an active in-force cession is edited to ensure that positive policy premium has been reported. Likewise, each policy with ceded premium is edited to ensure that an active in-force cession exists. Also, each policy with a ceded loss is edited to ensure that an active in-force cession and positive policy premium exists. The Cession/No Premium process, including available reports and listings, penalty program and write-off procedures are described in Chapter III – Premium of this Manual and in the Policy Edit Package, which is available on CAR’s website under the Manuals tab. Weekly, the master file is edited for errors which reflect discrepancies in the reporting of cession, premium, and losses within each ceded policy. These policy-based edits are divided into three categories: • critical accounting errors • non-critical accounting errors • cession/no premium errors

A description of these edits is provided below.

2. Critical Accounting Errors

Critical accounting errors are those errors that identify that CAR coverage does not exist on a policy. which CAR has determined to be so critical in nature that the A Servicing Carrier is required to correct every critical error identified. In general, critical errors indicate paid loss records for which CAR coverage cannot be granted. These critical errors are as follows:

a. Critical Error Code "1" – No Valid In-fForce Cession

On every accounting record, aAn active in-force Transaction Code 1

(New Business) or Transaction Code 2 (Renewal) cession record must exist on every ceded policy. The cession record must have the same company number, with the same policy number and policy effective year as the ceded premium and loss records. must exist. CAR will flag with Error Code 1 aAny premium or paid loss records reported on a policy which does not contain an active in-force cession will be flagged with Error Code 1.


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b. Critical Error Code "6" – No Positive Premium for Loss Records

For any policyies containing a loss records, the policy must contain net positive premium must exist. If the net premium for the policy is less than or equal to zero, CAR will identify flag the loss record(s) with Error Code 6. If the term of a policy's term was not sufficient to generate earned premium, yet and a loss occurred during this term period, the Servicing Carrier must report a token premium record containing (as little as $1 or $2) to avoid the an Error Code 6 condition.

c. Critical Error Code "7" – Loss Record Date Discrepancies/Accident Date

Outside of Cession Bounds The accident date of every reported paid loss record reported for a policy must be a valid date. The policy effective date of the loss record must be prior or equal to the accident date. The accident date must be prior or equal to the accounting date. The accident date and must fall within the period of reinsurance coverage CAR provides for a policy. The period of reinsured coverage begins on the policy's cession effective coverage date and ends on the policy's expiration date or, if the policy is cancelled via Transaction Code 13 (Cancellation of Policy Pro Rata or Short Rate) premium records, the policy's cancellation date. If a policy is flat cancelled with either a Transaction Code 4 (Policy Not Taken or Cancelled) cession record or Transaction Code 15 (Cancelled Flat) premium records, all reported loss records are invalid and will be flagged with Error Code 7. CAR's Policy Edit Package contains a complete description of the critical accounting error edits.

3. Non-Critical Accounting Errors

Non-critical accounting errors are those errors for which CAR coverage is not impacted and which has determined create a minimal financial impact if they are maintained at reasonable levels. Prior to the reporting of data for a particular policy effective year, CAR establishes acceptable tolerance levels for each non-critical error code to ensure they do not result in a financial impact on the industry. CAR requires detail cCorrection of non-critical errors is required only when the Servicing Carrier's percentage and volume of policies containing a particular non-critical error code exceed the established audit review tolerances. For additional information relative to CAR’s Audit Review process, refer to Section F.2. of this Chapter and CAR’s Policy Edit


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Package which is available on CAR’s website under the Manuals tab. The following pages list the non-critical error codes are as follows:. a. Non-Critical Error Code "2" – CAR ID Code Discrepancy Reserved for

Future Use

The CAR ID Code on every cession, premium, and paid loss record submitted for a policy must be the same. Any discrepancies cause the inconsistent record(s) to be flagged with Error Code 2.

b. Non-Critical Error Code "3" – Policy Effective and/or Expiration Date

Inconsistency Discrepancies

All active in-force cession, premium, and paid loss records submitted for a specific policy must contain have the same policy effective and expiration dates. Records with policy effective and expiration date inconsistencies will Any discrepancies cause the inconsistent record(s) to be flagged with Error Code 3.

c. Non-Critial Error Code "4" – Premium Not Found/Premium Record Date Discrepancyies on Premium Records; New/Renewal Premium Not Found

A logical relationship must exist among the dates coded on the premium records within a policy. New business or renewal premium transactions (TX11) must exist on a policy. Every premium record must be reported with a valid premium Transaction Code. Every policy must have at least one active Transaction Code 11 (New Business) premium record. The transaction effective date of the Transaction Code 11 premium record must equal the policy effective date. If a Transaction Code 15 (Cancelled Flat) premium record exists, its transaction effective date must equal the policy effective date. Premium records not meeting these requirements will be flagged with Error Code 4.

d. Non-Critical Error Code "5" – Net Premium Not Positive Less Than Zero

For every line of business(liability, no-fault and physical damage) /class group combination within a policy, the net premium amount must be greater than or equal to zero. Premium records which do not meeting this requirement are will be flagged with Error Code 5.


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e. Non-Critical Error Code "8" – Accident Date and/or Class Group

Inconsistent Discrepancy Within Loss Records a Claim

All paid loss records must have a valid claim number. Additionally, all paid loss records within a policy which contain the same claim number must also contain the same accident date. and class group. Any discrepancies cause the inconsistent pPaid loss records not meeting these requirements will to be flagged with Error Code 8.

f. Non-Critical Error Code "9" – Invalid Net Loss Amount

The net paid loss amount for all paid loss records within a policy which contain the same a specific line of business and claim number must be greater than or equal to zero. If it is not, then the pPaid loss records not meeting this requirement will be are flagged in with Error Code 9.

g. Non-Critical Error Code "10" – No Matching Claim for Subrogation

For every subrogation record within a policy, a corresponding paid loss record having the same line of business and claim number must exist. The net paid loss amount and the net subrogation amount must be greater than or equal to zero, for the same line of business and claim number. and tThe sum of the net paid loss amount, the plus net subrogation amount and the net salvage amount must be greater than or equal to zero for the same line of business and claim number. Any lLoss records violating not meeting these requirements are will be flagged in with Error Code 10.

h. Non-Critical Error Code "11" – Invalid Net Allocated Expense Amounts The net paid allocated expense amount for all paid allocated loss adjustment expense records within a policy which contain for the same line of business and claim number must be greater than or equal to zero. If it is not, then the pPaid allocated loss adjustment expense records are not meeting this requirement will be flagged with Error Code 11.

i. Non-Critical Error Code "12" – Unmatched Reinstatements Records

If a policy contains Transaction Code 14 (rReinstatement) premium transactions, it must also contain corresponding matching Transaction Code 13 (Cancellation of Policy Pro Rata or Short Rate) or Transaction Code 15 (Cancelled Flat) cancellation premium transactions. Any pPremium records which violate not meeting these requirements are will be flagged with Error Code 12.

CAR's Policy Edit Package contains a complete description of the edits for the non-critical accounting errors.


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4. Cession/No Premium Errors Cession/no premium errors indicate instances where a Servicing Carrier has not reported a net positive premium amount for a policy which contains an active inforce cession. Please reference Chapter III, Section C of this manual for a complete description of cession/no premium editing, error listings, and penalty procedures.

CD. Accounting Error Listings


Servicing Carriers can view all their policies containing critical and non-critical accounting errors, and policies that are in a warning or penalty status listings via the CAR’s online tTelecommunications sSystem. On CAR’s website, from the Reports tab, click on the Telecommunications link and in the left navigation, click on Start Secure Session. After log-in from CAR’s Telecommunications Menu Selections (TE100) screen, select the CAR Accounting System option (refer to Exhibit X-C-1). during the established hours of availability. CAR updates the online system following the extraction of ceded data from its statistical database files.

2. Data Included in on the Critical and Non-Critical Accounting Error Listings

Each policy that contains a critical or non-critical accounting error will appear on a Servicing Carrier’s Accounting Error Listing and will include the following data: a. Each time CAR extracts the cCeded premium and paid loss data

extracted from its CAR’s statistical database files and loadeds the data to the CAR’s Accounting System on a weekly basis. master file, it will include the following items:

ba. Cession and cession correction records received one to two (1 to 2)

weeks prior to since the prior load to the Accounting System. to the master file.

cb. Accounting Statistical data reported for the current (and any prior)

accounting months in which shipments are due. The current accounting month is as defined in the Annual Call Schedule, which published annually by CAR publishes as an Accounting and Statistical Notice. The shipment due date is the 15th of the month or, if the 15th falls on a weekend or holiday, the first business day following the 15th. Note: only the months of January, April, July and October include data reported on close-out policies. Refer to Section G of this chapter for information specific to closed-out policies.


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dc. Error listings corrections made via to the CAR’s online aAccounting System application that have not been applied since the last prior error correction load to the Accounting System. master file.

3. Critical and Non-Critical Accounting Errors

Servicing Carriers can review and correct their critical and non-critical accounting errors via CAR's online accounting corrections application by selecting the Accounting Corrections option from the CAR Accounting (TE120) screen. (see Refer to Exhibit X-CD-2.).

a. Critical Accounting Errors

To view policies which contain a critical accounting error, from Tthe

Accounting Online Access System – Menu Selections (CO100) screen (refer to Exhibit X-C-3), select the Critical Error Policies option. online application lists, at all times, all policies which contain a critical accounting error. A Servicing Carrier will be able to view its critical errors by error code and/or effective year, by list date or by write-off date (refer to Exhibit X-C-4).

When a Servicing Carrier processes a correction which clears the critical

error condition, the policy will no longer appear on the critical accounting error list. If the policy, aAfter becoming free of critical errors, if the policy returns to a critical error statuse, then the policy will re-appear once again be listed on the online critical error list.

b. Non-Critical Accounting Errors

Servicing Carriers can review and correct their non-critical accounting errors via CAR's online accounting application (see Exhibit X-D-2). To view policies which contain a non-critical accounting error, from the Accounting Online Access System – Menu Selections (CO100) screen (refer to Exhibit X-C-3), select the Non-Critical Error Policies option. The online application lists all policies which contain a non-critical accounting error. A Servicing Carrier will be able to view its non-critical errors by error code and/or effective year or by error list date (refer to Exhibit X-C-5). When a Servicing Carrier processes a correction(s) which clears the non-critical error condition, the policy will no longer appear on the non-critical accounting error list. If the policy, aAfter becoming free of non-critical errors, if the policy returns to a non-critical error statuse, then the policy will reappear once again be listed on the online non-critical error list.


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4. Other Accounting and Informational Listings

From the Accounting Online Access System – Menu Selections (CO100) screen (refer to Exhibit X-C-3), Also through the online accounting application, Servicing Carriers can are also able to review access a series of informational listings, applications and browse screens as follows: a. The critical error analysis listing identifies a Servicing Carrier’s their

percentage and volume of policies and records containing each of the critical error codes (refer to Exhibit X-C-6).

b. The non-critical error analysis identifies a Servicing Carrier’s non-critical error codes for each policy effective year CAR is monitoring (see Exhibit X-D-3). CAR monitors only the latest two (2) policy effective years (refer to Exhibit X-C-7). for non-critical errors. This summary function within the online accounting application reflects all non-critical accounting errors residing on the master file. Note that Any a non-critical error code that exceedsing the established Audit Review tolerance levels for the latest two policy effective years will be is specifically identified in on the listing. application. For additional information relative to the Audit Review monitoring and penalty process, refer to Section F.2. of this Chapter and CAR’s Policy Edit Package which is available on CAR’s website under the Manuals tab.

c. The cession/no premium warning and penalty listings identify those

policies for which a cession has been reported but no corresponding positive ceded premium exists. For additional information relative to the warning and penalty program, including the cession/no premium write-off and associated penalties, refer to Chapter III – Premium of this Manual and CAR’s Policy Edit Package which is available on CAR’s website under the Manuals tab.

d. The net negative premium listing identifies those policies that have an

overall premium value of less than $0. For additional information relative to the net negative premium listing and write-off procedures, refer to Chapter III – Premium of this Manual and CAR’s Policy Edit Package which is available on CAR’s website under the Manuals tab.

e. The outstanding loss reserve listing is a listing of outstanding loss

reserve activity for all policy years. This informational listing may be used to assist Servicing Carriers in the verification of loss reporting on policies with open claims.

f. The premium and losses written-off listing identifies premium and loss

records that have been written-off in accordance with the critical error and the net negative premium write-off procedures. For additional information relative to the critical error loss write-off, refer to Section


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F.1. of this Chapter and relative to the net negative premium write-off, refer to Chapter III – Premium of this Manual.

From the CAR Accounting System (TE120) screen (refer to Exhibit X-C-2), Servicing Carriers may access the CAR Policy Histories application to assist in the error correction process. Refer to Section D. of this Chapter for information relative to accounting error correction procedures.

4. Aging of Critical Accounting Errors

When a policy incurs is identified as having a critical accounting error, it is assigned a critical list date equal to the date that the record was initially flagged in error. tThe policy will appears on CAR's online critical error list in the month which it is identified. and will The policy remains on the online critical error list for twelve (12) calendar months from the critical list date unless the Servicing Carrier submits records or processes corrections such that the policy becomes free of critical errors. The policy will then no longer appear on the critical error listing. However, if the policy is still in error Aafter the twelve (12) month time period, all loss records on the policy with a critical error will becomes eligible for write-off. Note that if subsequent losses with critical errors are reported on the policy during the 12 month period, those losses will be also be eligible for write-off at the end of the 12 month period, regardless of whether the losses have been in error for the full 12 months. tThe Critical Error Loss Write-Off, is described in further detail in Section F.1. of this cChapter.

If the Servicing Carrier submits records or processes corrections and the policy becomes free of critical error, then the policy disappears from will no longer appear on the critical error list. If, after the policy has been free of critical error, However, if the policy returns to a critical error statuse, then the Servicing Carrier policy will be assigned a new critical list date and will begins a new twelve (12) month time period in which to correct the critical error condition must be corrected. After the twe1ve (12) month time period, the policy becomes eligible for the Critical Error Write-Off, described in Section F of this chapter.


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EXHIBIT X-C-1 TELECOMMUNICATIONS MENU SCREEN (TE100)

TE100SB COMMONWEALTH AUTOMOBILE REINSURERS 03/15/2016 TEMENUSA TELECOMMUNICATIONS 09:11:22 C.A.R. ACCOUNTING ........... PF2 OR 02 CESSION SYSTEM ........... PF3 OR 03 STATISTICAL SYSTEM ........... PF4 OR 04 PRODUCER CODE SYSTEM ........... PF5 OR 05 . . . NO SELECTION ........... PF6 OR 06 AUDIT & CLAIMS SYSTEM ........... PF7 OR 07 TERMINATE C.A.R. SESSION ........... PF12 OR 12


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EXHIBIT X-C-2 CAR ACCOUNTING SYSTEM MENU SCREEN (TE120)

TE120 COMMONWEALTH AUTOMOBILE REINSURERS 03/15/2016 C.A.R. ACCOUNTING SYSTEM 08:41:21

COMPANY NUMBER . . . . . 999

CAR POLICY HISTORIES ..... PF2 OR 02 PRODUCER INQUIRIES ..... PF3 OR 03 CESSION BROWSE OPTIONS ..... PF4 OR 04 ACCOUNTING CORRECTIONS ..... PF5 OR 05


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EXHIBIT X-C-3 ACCOUNTING ONLINE ACCESS SYSTEM –

MENU SELECTIONS SCREEN (CO100)

COMPANY 999 COMMONWEALTH AUTOMOBILE REINSURERS CO100SA ACCOUNTING ONLINE ACCESS SYSTEM 03/15/2016 MENU SELECTIONS 08:42 AM ERROR LISTINGS: CRITICAL ERROR POLICIES (CA2400) ..... PF2 OR 02 NON CRITICAL ERROR POLICIES (CA2685) ..... PF3 OR 03 WARNING AND PENALTY POLICIES (CA2500) ..... PF4 OR 04 INFORMATIONAL LISTINGS: NET NEGATIVE PREMIUMS (CA4000) ..... PF5 OR 05 OUTSTANDING LOSS RESERVES (CA4100) ..... PF6 OR 06 CRITICAL/NON CRITICAL ANALYSIS (CA2650) ..... PF7 OR 07 PREMIUMS AND LOSSES WRITTEN-OFF (CA3200) ..... PF8 OR 08 REVIEW MESSAGES: REVIEW/UPDATE POLICY MESSAGES ..... PF9 OR 09 REVIEW CAR NEWSLETTER ..... PF11 OR 11

SELECT FUNCTION KEY/ENTER NUMBER PF1/01 - HELP PANEL : : PF12/12 - RETURN TO MENU


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EXHIBIT X-C-4

ACCOUNTING ONLINE ACCESS SYSTEM – CRITICAL ERRORS SCREEN (CO200)

COMPANY 999 COMMONWEALTH AUTOMOBILE REINSURERS CO200SA ACCOUNTING ONLINE ACCESS SYSTEM 03/15/2016

CRITICAL ERRORS (CA2400) 08:54:55 (1) ERROR CODE (1,6 OR 7) AND EFFECTIVE YEAR (FORMAT=YYYY) ERROR CODE(S) ( ALL ) EFFECTIVE YEAR ( ALL ) SELECT POLICIES ..... PF5 OR 05 COMPANY SUMMARY ..... PF15 OR 15 (2) ERROR LIST DATE (LATEST DATE IS SHOWN) (FORMAT=MM/YYYY) ERROR LIST DATE ( 03 / 2016 ) SELECT POLICIES ..... PF6 OR 06 COMPANY SUMMARY ..... PF16 OR 16 (3) WRITE-OFF DATE (NEXT ELIGIBLE DATE IS SHOWN) (FORMAT=MM/YYYY) WRITE-OFF ELIGIBLE ( 03 / 2016 ) SELECT POLICIES ..... PF7 OR 07 COMPANY SUMMARY ..... PF17 OR 17

TYPE OVER ( DEFAULTS ) - SELECT FUNCTION KEY/ENTER NUMBER PF1/01 - HELP PANEL : : PF12/12 - RETURN TO MENU


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EXHIBIT X-C-5 ACCOUNTING ONLINE ACCESS SYSTEM – NON-CRITICAL ERRORS SCREEN (CO300)

COMPANY 999 COMMONWEALTH AUTOMOBILE REINSURERS CO300SA ACCOUNTING ONLINE ACCESS SYSTEM 03/15/2016 NON CRITICAL ERRORS (CA2685) 08:55:19 (1) ERROR CODE(1 THRU 12) AND EFFECTIVE YEAR (FORMAT=YYYY) ERROR CODE ( ALL ) EFFECTIVE YEAR ( ALL ) SELECT POLICIES ..... PF5 OR 05 COMPANY SUMMARY ..... PF15 OR 15 (2) ERROR LIST DATE (LATEST DATE IS SHOWN) (FORMAT=MM/YYYY) ERROR LIST DATE ( 03 / 2016 ) SELECT POLICIES ..... PF6 OR 06 COMPANY SUMMARY ..... PF16 OR 16 TYPE OVER ( DEFAULTS ) - SELECT FUNCTION KEY/ENTER NUMBER PF1/01 - HELP PANEL : : PF12/12 - RETURN TO MENU


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CRITICAL ERRORS ANALYSIS SCREEN (CO710)

COMPANY 999 COMMONWEALTH AUTOMOBILE REINSURERS CO710SA ACCOUNTING ONLINE ACCESS SYSTEM 08/25/2015 CRITICAL ANALYSIS ALL EFFEC YEAR(S) 14:50:24 TOTAL CRITICAL CRITICAL ERROR PAID LOSS & PAID LOSS & YEAR POLICIES PLUS W/P MINUS W/P PCT PREM RECORDS PREM ERRORS ============================================================================= _ 2006 2,949 3 1 .03 73,462 8 _ 2007 5,829 2 0 .00 139,818 0 _ 2008 4,075 0 0 .00 97,921 0 _ 2009 3,388 2 0 .00 78,686 0 _ 2010 3,025 1 0 .00 72,245 0 _ 2011 3,608 0 0 .00 83,812 0 _ 2012 4,634 1 0 .00 112,771 0 _ 2013 4,770 0 0 .00 121,744 0 _ 2014 4,668 9 5 .11 117,475 929 _ 2015 3,494 46 13 .37 43,250 93 TYPE 'X' BESIDE YEAR ENTRY FOR ERROR CODE WITHIN YEAR SUMMARY PF1/01 - HELP PANEL SELECT FUNCTION : : PF3/03 - SELECT YEAR PF7/07 - PAGE BACKWARD PF8/08 - PAGE FORWARD PF12/12 - RETURN TO MENU


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NON-CRITICAL ERRORS ANALYSIS SCREEN (CO720)

COMPANY 999 COMMONWEALTH AUTOMOBILE REINSURERS CO720SA ACCOUNTING ONLINE ACCESS SYSTEM 04/01/2016 NON CRITICAL ERRORS 09:53:22 TOTAL NON CRIT PREMIUM NON CRIT LOSS NON CRIT YEAR POLICIES POLICIES RECORDS PREM REC RECORDS LOSS REC ============================================================================= _ 2014 7,618 25 115,514 132 12,647 107 X 2015 10,632 6 107,349 20 7,765 20 _ 2016 3,521 3 14,238 10 63 0 TYPE 'X' BESIDE YEAR ENTRY FOR ERROR CODE WITHIN YEAR SUMMARY SELECT FUNCTION PF1/01 - HELP PANEL : : PF3/03 - SELECT YEAR PF7/07 - PAGE BACKWARD PF8/08 - PAGE FORWARD PF12/12 - RETURN TO MENU

COMPANY 999 COMMONWEALTH AUTOMOBILE REINSURERS CO720SB ACCOUNTING ONLINE ACCESS SYSTEM 04/01/2016 NON CRITICAL ANALYSIS EFFEC YEAR(S) 09:54:33 TOTAL NON CRIT PREMIUM NON CRIT LOSS NON CRIT YEAR POLICIES POLICIES RECORDS PREM REC RECORDS LOSS REC ============================================================================= 2015 10,632 6 107,349 20 7,765 20 ERROR NON CRIT ERROR = OVER TOLERANCE = CODES POLICIES PERCNT 1ST DATE DEADLINE LAST MAS TO BE PROCESSED - 03 - 3 .03 - 04 - 0 .00 - 05 - 0 .00 - 08 - 0 .00 - 09 - 0 .00 - 10 - 3 .03 - 11 - 1 .01 - 12 - 0 .00 PF1/01 - HELP PANEL SELECT FUNCTION PF4/04 - DELETE MESSAGE : : PF12/12 - RETURN TO MENU


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DE. Accounting Error Correction Procedures

1. Online Applications

From CAR’s Telecommunications Menu Selections screen, select the CAR Accounting System option (refer to Exhibit X-C-1) and then select the Accounting Corrections option (refer to Exhibit X-C-2). From the Accounting Online Access System – Menu Selections screen (refer to Exhibit X-C-3), error listings for both critical and non-critical error policies may be selected for viewing (refer to Exhibits X-C-4 and X-C-5). The Accounting oOnline accounting application Access System – Menu Selectins screen also provides access to lists CAR's various error and informational listings that may be helpful for correction and browse purposes. A Servicing Carriers can may also use the online CAR pPolicy hHistory application which is available from the CAR Accounting System screen to facilitate assist with the its error correction process. The online system is available to all Servicing Carriers. Please contact CAR for access.

If a Servicing Carrier or CAR experiences a system problem, CAR will ensure that the Servicing Carrier maintains a sufficient amount of time to correct any error records. A Servicing Carrier is able to correct records with critical accounting errors until the effective year of the policy that is in error has been closed-out. Servicing Carriers are notified of the close-out of a particular policy effective year via a published CAR Bulletin and Accounting and Statistical Notice, which are available on CAR’s website under the Bulletins tab. However, note that cession and ceded premium records are only reportable for the latest three policy effective years and this may impact available correction methods. Ceded loss data may be reported for a policy until the policy effective year is closed-out for statistical reporting purposes. Refer to Section G. of this Chapter for additional information relative to the close-out of older policy years for ceded loss reporting. The correction of records with non-critical errors is only required when the Servicing Carrier’s percentage and volume of policies containing a particular non-critical error code exceed the established audit review tolerances. The audit review of non-critical accounting errors is performed on a monthly basis for the two most current policy effective years. For further information relative to the audit review process, refer to Section F.2. of this Chapter and CAR’s Policy Edit Package which is available on CAR’s website under the Manuals tab. The Accounting Online Access System – Menu Selections screen (refer to Exhibit X-C-3) provides access to an analysis of a Servicing Carrier's critical and non-critical accounting error records and a summary function for


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monitoring the error percent of each non-critical error code (refer to Exhibit X-C-7).

21. Correcting Critical Accounting Errors A Servicing Carrier can correct critical errors in different ways depending on the nature of the error. If CAR has closed-out the policy, please refer to Section G of this chapter.

a. Method of Correction Prior to the Critical Error Write-Off

Servicing Carriers can correct critical accounting errors prior to the Critical Error Write-Off If a policy is flagged with a critical error (refer to Exhibit X-E-1) as a result of an error on the premium or loss record, the policy may be corrected as follows: in three (3) ways: a. Process Premium and Loss Corrections via the Online Accounting

Application Using this option, the A Servicing Carrier may makes the necessary correction(s) to the record(s) in error via in the correction grids that are provided on the online Accounting Premium and Loss critical error listings (refer to Exhibit X-D-2). On a weekly basis, CAR will processes the corrections made and will load the correction records to CAR’s Accounting System. to the online application weekly. When CAR processes the correction, it offsets the incorrect record, creates a corrected record, and loads it to the master file. For detailed premium and loss correction instructions, refer to CAR’s Policy Edit Package which is available on CAR’s website under the Manuals tab.

(b.2) Submitting oOffset/rRe-eEnter rRecords

Using this option, the If a correction must be made to a field for which a correction grid is not provided, or if this correction method is preferred, a Servicing Carrier may offsets the incorrect premium or loss record(s) in error and re-enters the corrected record(s) in a subsequent monthly accounting/statistical submission. Please For detailed instructions relative to the reporting of offset and re-enter records, reference to CAR's Policy Edit Package and the Massachusetts Commercial Automobile Statistical Plans for instructions relative to reporting offset and re-enter records. which are available on CAR’s website under the Manuals tab.


PAGE 20 OF 66



If the policy is in error as a result of a missing cession record or there exists an error on the reported cession record, the policy may be corrected as follows:

(c.3) Submitting a cCessions Record and cession corrections

Using this option, the If the policy is in error due to a missing cession record, a Servicing Carrier should correct the policy by submittings a cession record. or cession correction to remove the error condition from the policy. Please For instructions relative to reporting cession records, reference to Chapter II – Cession Rules and Procedures of this mManual and CAR's Policy Cession Edit Package which is available on CAR’s website under the Manuals tab. for instructions relative to reporting cessions and cession corrections.

(d.4) Process Cession Corrections processed via the oOnline Cession

accounting aApplication If the policy is in error due to an error on the reported cession record, Using this option, the a Servicing Carrier may makes the any necessary correction(s) to the cession record via in the correction grids provided on the online critical cession correction error listing. On a weekly basis, CAR will processes the corrections made and will load the correction records to CAR’s cession database file. to the online application weekly. When CAR processes the correction, it offsets the incorrect record, creates a corrected record, and loads it to the master file. For detailed cession correction instructions, refer to Chapter II – Cession Rules and Procedures of this Manual and CAR’s Cession Edit Package which is available on CAR’s website under the Manuals tab.

If the policy is in error as a result of missing or negative ceded premium, the policy may be corrected by submitting the appropriate premium records. A policy that has a paid loss with a critical error will remain on the critical error list until it becomes free of critical error or until the loss record in error becomes eligible for critical error write-off. Refer to Section G.1. of this Chapter for further critical error write-off information. A critical error policy remains on the online critical error list until it becomes free of critical error or until CAR performs the Critical Error Write-Off against it after the twelve (12) month time period.

Corrections to policies containing effective years which CAR has closed-out are limited. Please refer to parts 4 and 5 of Section E of this chapter for more information.


PAGE 21 OF 66



e. Submission of Loss Records on a Policy after the Critical Error Write-

Off After a loss record with a critical accounting error has been written off, a Servicing Carrier is still able to report paid loss records on the policy. However, the Servicing Carrier must assure that the situation that initially caused the critical error condition has been rectified prior to the submission of the new loss record. If not, the new record may also be subject to write-off.

b. Method of Correction After the Critical Error Write-Off

After a critical accounting error has been written-off, the Servicing Carrier can correct it using only the procedures described below. • Do not submit offset and re-enter records to correct critical errors

after CAR has written them off because this action will create additional critical error conditions.

• Do create only re-enter records for the written-off records (correcting the appropriate fields) and submit them in a Write-Off Correction Shipment. Only correction records for reportable years may be submitted (that is, write-off corrections will not be accepted for a policy effective year which has been determined to be a final close-out policy effective year). A Servicing Carrier may submit this type of submission in the February, May, August, and November accounting submissions only.

Furthermore, the Servicing Carrier must provide information relative to the write-off correction records it is submitting. Reference CAR's Policy Edit Package, the Massachusetts Automobile Statistical Plans, and CAR Staff for additional information regarding Write-Off Correction Shipments.

32. Correcting Non-Critical Accounting Errors

Servicing Carriers may correct their non-critical errors in two ways: Non-critical errors (refer to Exhibit X-D-3) may be corrected as follows: ba. Process Premium and Loss Corrections processed via the oOnline

aAccounting aApplication

Using this option, the A Servicing Carrier may makes the necessary correction(s) to the record(s) in error via in the correction grids that are provided on the online Accounting Premium and Loss non-critical error listings (refer to Exhibit X-D-4). On a weekly basis, CAR will processes the corrections made to the online application weekly. and will load the


PAGE 22 OF 66



correction records to CAR’s Accounting System. When CAR processes the correction, it offsets the incorrect record, creates a corrected record, and loads it to the master file.

The online accounting application provides up-to-date information relative to each Servicing Carrier's non-critical error records. The online accounting application also provides a summary function so that Servicing Carriers can monitor the error percent of each non-critical error code to highlight any specific problem areas.

A policy with a non-critical error policy will remains on the online non-critical error list until it becomes free of non-critical errors.

ab. Submitting oOffset/rRe-eEnter rRecords

Using this option, the If a correction must be made to a field for which a correction grid is not provided, or if this correction method is preferred, a Servicing Carrier may offsets the incorrect premium or loss record(s) and re-enters the corrected record(s) in a subsequent monthly accounting/statistical submission. Please For detailed instructions relative to the reporting of offset and re-enter records, reference to CAR's Policy Edit Package and the Massachusetts Automobile Commercial Statistical Plans for instructions relative to reporting offset and re-enter records. which are available on CAR’s website under the Manuals tab.

Although reporting may have been discontinued for a policy effective year, Servicing Carriers may continue to report loss data until the policy effective year is closed for statistical reporting.

4. Corrections for Policy Effective Years for which the Reporting of Cession

and Premium Records has been Discontinued

CAR discontinues the reporting of cession and premium records for a particular policy effective year, two (2) years following the end of a policy effective year (e.g., reporting of premiums for policy effective year 1997 will cease following the December 1999 monthly accounting shipment due date and reporting of cessions policy year 1997 cessions will cease as of February 1, 2000). If a Servicing Carrier becomes aware of a situation where it needs to report ceded records after the discontinuation of reporting for a particular policy effective year, the Servicing Carrier may appeal in the following instances:

a. The Servicing Carrier can document that its failure to report the original

cession and/or premium records prior to the discontinuation of reporting was clearly outside of its control.


PAGE 23 OF 66



b. The Servicing Carrier can document that its failure to reinstate a

previously flat-cancelled policy prior to the discontinuation of reporting was clearly outside of its control.

If CAR agrees that the failure to report the necessary records was outside the control of the Servicing Carrier, then CAR will process bulk adjustments (both premium and losses) to the Servicing Carrier's quarterly participation reports to assure that the uncorrected error does not result in a financial impact to the Servicing Carrier.


5. Corrections for Policies with Effective Years That Have Been Closed-Out,

but Which Do Not Meet the Close-Out Criteria

CAR closes out polices for effective years 1989 and prior only. Section G of this chapter contains a complete description of the close-out criteria. Corrections for policy effective year 1989 and prior policies that do not meet the close-out criteria will be limited to corrections within the policy. That is, policy number corrections will not be allowed. In instances where a policy number is in error, the record must be offset and re-entered under the correct policy number.

6. Corrections For Closed-Out Policies

If a Servicing Carrier reports a record containing a critical accounting error on a policy that has been closed-out, CAR will not process corrections to the policy. Instead, the record will be immediately written-off. A complete description of the write-off procedures for closed-out policies is contained in parts 2 and 3 of Section G of this chapter.


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EXHIBIT X-D-1 ACCOUNTING ONLINE ACCESS SYSTEM –

CRITICAL ERRORS SCREEN (CO210)

COMPANY 999 COMMONWEALTH AUTOMOBILE REINSURERS CO210SA ACCOUNTING ONLINE ACCESS SYSTEM 03/30/2016 NEXT WO 03/26/2016 CRITICAL- (ALL)EFF YR (ALL)ERRS 09:47 AM FROM 113456 POLICY 1ST LIST===PREMIUM === ==== LOSS ===== MSG DATE YR POLICY NUMBER STATUS MM/DD/YY ERRORS DOLLARS ERRORS DOLLARS MM/DD/YY ========================================================================== X 15 113456 NOPREM 03/03/16 0 0 1 10 _ 16 123456 03/03/16 24 27046 0 0 TYPE STARTING POLICY NUMBER -OR- TYPE 'P'/'L' TO SELECT PREM/LOSS POLICY PF1/01 - HELP PANEL SELECT FUNCTION : : PF2/02 - SELECT ALL REC PF3/03 - SELECT ERR REC PF7/07 - PAGE BACKWARD PF8/08 - PAGE FORWARD PF9/09 - POLICY MESSAGE PF10/10 - POLICY HISTORY PF12/12 - RETURN TO MENU


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EXHIBIT X-D-2 ACCOUNTING LOSS LISTING CRITICAL ERRORS SCREEN (CO250)

CO250SA COMMONWEALTH AUTOMOBILE REINSURERS 03/30/2016 COMPANY 999 ACCOUNTING LOSS LISTING - ONLY ERRORS 10:00 AM EFF DATE COV EFF COV EXP CRITICAL MSG DATE POLICY NUMBER MM/DD/YY C TXPROD RSK MM/DD/YY MM/DD/YY MM/DD/YY MM/DD/YY 123456 09/28/15 5 1 83K 2 09/28/15 12/31/15 03/03/16 ( ................ ) INSUREDS NAME ABC INC LOSSES ACTG ACCIDENT TX LB EFF SEQ MM/YY MM/DD/YY TWN CLAIM ID C TP LOSS AMT 24 41 09 000005 12/15 12/12/15 ABC123456 5 03 10 ( 2. )( .. ) ( .. .. .. ) ( ................ ) ERRORS= 6 TOT LOSS RECS 5 CRITICAL ERR RECS 1 START W/SEQ # 5 NON CRIT ERR RECS 0 PF1/01 - HELP PANEL SELECT FUNCTION/ENTER NUMBER PF3/03 - APPLY CORRECT PF7/07 - PAGE BACKWARD : : PF8/08 - PAGE FORWARD PF9/09 - POLICY MESSAGE PF10/10 - POLICY HISTORY PF12/12 - RETURN TO MENU


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EXHIBIT X-D-3 ACCOUNTING ONLINE ACCESS SYSTEM – NON-CRITICAL ERRORS SCREEN (CO310)

COMPANY 999 COMMONWEALTH AUTOMOBILE REINSURERS CO310SA NEXT WO 03/26/2016 ACCOUNTING ONLINE ACCESS SYSTEM 04/01/2016 NON CRITICAL- (ALL )EFF YR (ALL)ERRS 11:03 AM FROM 111111111 POLICY 1ST LIST === PREMIUM === ==== LOSS ===== MSG DATE YR POLICY NUMBER STATUS MM/DD/YY ERRORS DOLLARS ERRORS DOLLARS MM/DD/YY ========================================================================== _ 14 1111111111 PREM 02/26/16 0 0 5 -35 _ 14 1222222222 PREM 01/28/16 0 0 3 -1 X 14 1333333333 PREM 01/28/16 0 0 9 855 _ 14 1444444444 PREM 01/28/16 0 0 4 -8531 _ 14 1555555555 PREM 02/26/15 0 0 3 331 _ 14 1666666666 F CANC 01/08/15 28 0 0 0 _ 14 1777777777 PREM 05/01/14 0 0 3 0 _ 14 1888888888 R CANC 05/01/14 0 0 4 9075 _ 14 1999999999 PREM 06/25/15 0 0 12 -1 _ 14 1020014761 PREM 02/26/16 0 0 1 -1388 TYPE STARTING POLICY NUMBER -OR- TYPE 'P'/'L' TO SELECT PREM/LOSS POLICY PF1/01 - HELP PANEL SELECT FUNCTION : : PF2/02 - SELECT ALL REC PF3/03 - SELECT ERR REC PF7/07 - PAGE BACKWARD PF8/08 - PAGE FORWARD PF9/09 - POLICY MESSAGE PF10/10 - POLICY HISTORY PF12/12 - RETURN TO MENU


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ACCOUNTING LOSS LISTING NON-CRITICAL ERRORS SCREEN (CO250)

CO250SA COMMONWEALTH AUTOMOBILE REINSURERS 04/01/2016 COMPANY 999 ACCOUNTING LOSS LISTING - ALL 11:04 AM EFF DATE COV EFF COV EXP NON CRIT MSG DATE POLICY NUMBER MM/DD/YY C TX PROD RSK MM/DD/YY MM/DD/YY MM/DD/YY MM/DD/YY 1333333333 08/04/14 5 2 123456 2 08/04/14 08/04/15 01/28/16 ( ................ ) INSUREDS NAME CHRISTIAN RODRIG LOSSES ACTG ACCIDENT TX LB EFF SEQ MM/YY MM/DD/YY TWN CLAIM ID C TP LOSS AMT 23 45 08 000001 11/14 11/15/14 602 123456351411001 5 12 1009 ( 2. )( .. ) ( .. .. .. ) ( ................ )ERRORS= 23 45 08 000002 11/14 11/15/14 602 123456351411001 5 12 3925 ( 2. )( .. ) ( .. .. .. ) ( ................ )ERRORS= 29 01 08 000003 11/14 11/15/14 602 123456351411002 5 24 10 ( 2. )( .. ) ( .. .. .. ) ( ................ )ERRORS= 23 45 08 000004 12/14 11/15/14 602 123456351411001 5 09 570 ( 2. )( .. ) ( .. .. .. ) ( ................ )ERRORS= TOT LOSS RECS 67 CRITICAL ERR RECS 0 START W/SEQ # 1 NON CRIT ERR RECS 9 PF1/01 - HELP PANEL SELECT FUNCTION/ENTER NUMBER PF3/03 - APPLY CORRECT PF7/07 - PAGE BACKWARD : : PF8/08 - PAGE FORWARD PF9/09 - POLICY MESSAGE PF10/10 - POLICY HISTORY PF12/12 - RETURN TO MENU


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E. Request for Loss Reimbursement on Ceded Policies for which Cession

and Premium Reporting has been Discontinued

For cession and premium records, only the latest three policy effective years may be reported to CAR. After the discontinuation of reporting for a particular policy effective year, if a Servicing Carrier becomes aware of a situation where cession and premium records should have been reported to CAR, only in the following instances may the Servicing Carrier request reimbursement for losses paid on that policy:

1. The Servicing Carrier can document that its failure to report the original


2. The Servicing Carrier can document that its failure to reinstate a


If CAR agrees that the failure to report cession and premium records was outside the control of the Servicing Carrier, then CAR will process bulk adjustments (both premium and losses) to the Servicing Carrier's Settlement of Balances and Member’s Participation reports to reimburse the Servicing Carrier.


PAGE 29 OF 66



F. Penalty Procedures for Uncorrected Accounting Errors Penalty Procedures 1. Critical Accounting Errors

a. Eligibility Criteria

For 1990 and subsequent policy effective year policies, a A paid loss record with an uncorrected critical error will be considered eligible for the Critical Error Wwrite-Ooff Procedures if all both of the following criteria have been are met: (1) Twelve (12) calendar months have elapsed since the policy was first

flagged with a critical accounting error. first appeared on CAR's online accounting application. That is, the first list date noted on the online critical error list plus twelve (12) months.

(2) The Servicing Carrier fails to correct the critical error condition by

the assigned write-off eligible date. remained uncorrected during the twelve (12) month period. The write-off eligible date is equal to the assigned critical list date (the date that the record was first flagged in error) plus twelve months.

b. Critical Error Loss Write-Off – Penalty and Procedures

The Critical Error Loss Write-Off Procedures will takes place each on a monthly basis following the load of ceded premium and loss data reported in the current accounting/statistical shipment to the CAR’s Accounting System. master file after the shipment due date for a particular accounting month. That is, January submissions are due at CAR approximately March 15. After the 15th, CAR will load the ceded data to its master file and then perform the Critical Error Write-Off Procedures. For every A paid loss record that meetsing the above stated eligibility criteria noted in Section F.1.a. will be written-off. CAR will create add an offsetting to the paid loss record to net the dollar amount to $0. the master file and enter it into CAR's quarterly participation reports. From the Accounting Online Access System – Menu Selections screen (refer to Exhibit X-C-3), select the Premiums and Losses Written-Off option. Servicing Carriers can are able to select losses view by write-off year (refer to Exhibit X-G-1) the detail loss records written-off by using the online accounting application, which lists the detail write-off records by month. Servicing Carriers can also review on-line to view a summary of loss records and loss dollars written-off (refer to Exhibit X-F-2) as well as the detail for a particular loss record. Furthermore, CAR distributes a detail Listing of Records Written-Off (Exhibit X-F-1) after each monthly


PAGE 30 OF 66



write-off showing all loss records included in the Critical Error Write-Off Procedures. Additionally, it distributes a Summary of Loss Records Written-Off report (see Exhibit X-F-2) of loss records and dollars written-off.

These procedures eliminate the critical error condition from the master file and decrease (or increase) the Servicing Carrier's reported paid losses in the next quarterly participation reports by the sum of the off-setting records generated.

Additionally, For a loss record that has been in a critical error status for the entire 12 month period, CAR will also assesses the Servicing Carrier a penalty fee equal to 10% of the dollar value of the loss records being written-off. Theis penalty fee is intended to encourage timely correction of losses with critical errors prior to the write-off, and to reimburse the pool for investment income lost as a result of the invalid loss reporting. The fee will be processed as a bulk adjustment to the Servicing Carrier’s Settlement of Balances and Member’s Participation Reports. against the Servicing Carrier. Note that CAR assesses a fee against those loss records that have remained in critical error for the entire twelve (12) month period only. That is, However, for those a loss records that were was reported during the 12-month period, but after the critical list date was established, CAR does will not assess a the 10% penalty fee. Additionally, since losses reported on closed-out policies which contain critical errors are immediately written-off, CAR does not assess the penalty fee against those losses. These 10% penalty fees are processed as bulk adjustments to the Settlement of Balances and Member's Participation Reports. They are reflected as a direct charge against the Servicing Carrier; all members share the total penalty dollars assessed against all Servicing Carriers based upon their percentage of the industry wide total Massachusetts Annual Statement, Page 15, direct automobile premium writings for the most current calendar year for which data is available. Servicing Carriers may still correct critical errors after the errors are written-off. Reference Section E of this chapter for a description of the special correction procedures Servicing Carriers must follow for making corrections after the Critical Error Write-Off has occurred.



On a monthly basis, via the Audit Review process, CAR monitors the volume of a A Servicing Carrier's non-critical errors for the two most current policy years. When a record is initially flagged with a non-


PAGE 31 OF 66



critical error, the policy is assigned a corresponding non-critical list date. condition will be considered eligible for the Non-Critical Error Audit Review Penalty Program iIf the Servicing Carrier's percentage and volume of policies for a particular policy effective year containing a particular and non-critical error condition code exceeds the established tolerance level of 1% and ten (10) policies in error, the error policies will be eligible for an audit review penalty if either of the following conditions exists: for that non-critical error code and policy effective year, and either: (1) the percentage and volume of non-critical error policies has exceeded

the established non-critical error code tolerance for nine (9) months after the month in which the error condition was first identified as exceeding the tolerance, and/or

(2) the percentage and volume of non-critical error policies exceeds the

established non-critical error code tolerance as of the last month during in which CAR is monitoring the particular policy effective year was monitored for non-critical errors, regardless of when the tolerance had initially been exceeded. Normally, February represents the last month CAR monitors the older of the two (2) policy effective years being reviewed for non-critical errors.

b. Audit Review of Non-Critical Errors – Audit Review Penalty Procedures

The Non-Critical Error Audit Review Penalty Procedures assess penalties for excessive non-critical error conditions, as described below. An excessive policy that meets the eligibility criteria noted in Section F.2.a. non-critical error condition which remains uncorrected for a substantial period of time could are be subject to both of the following penalties: described below.

(1) If the excessive non-critical error condition is not corrected by the

ninth (9th) month after the month in which the Servicing Carrier's policies containing the error code first exceeded the established tolerance level for a particular non-critical error code, CAR will assesses a flat charge of $50 per policy for each policy with the non-critical error code that exceedsing the established non-critical error code tolerance. If a Servicing Carrier continues to exceeds the tolerance for a particular error code for another nine months, after the assessment of the initial nine (9) month penalty for that error code, then additional subsequent nine (9) month penalties of $50 per policy for each policy with the non-critical error code that exceeds the established tolerance will be assessed.

If the nine (9) month penalty for a particular error code exceeding

the tolerance happens to coincides with the last month of CAR’s


PAGE 32 OF 66



reviewing of a policy effective year, then only the last month penalty will be assessed.

(2) Audit Review of Non-Critical Errors – Last Month Penalty

If an excessive non-critical error condition exists as of the last time month in which CAR monitors a particular policy effective year for non-critical errors, the Servicing Carrier will be assessed a flat charge of $50 for each policy with a non-critical error code exceeding the established non-critical error code tolerances, previous assessments notwithstanding.

CAR notifies Servicing Carriers will be notified of all non-critical error code penalties, and including the calculation for determining the penalty amount. Audit Review penalties will be processed as bulk adjustments to the a Servicing Carrier’s Settlement of Balances and Member's Participation Reports. These penalties are reflected as a direct charge against the Servicing Carrier; all members share the total penalty dollars assessed against all Servicing Carriers based upon their percentage of the industry wide total Massachusetts Annual Statement, Page 15, direct automobile premium writings for the most current calendar year for which data is available.


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EXHIBIT X-F-1 RECORDS WRITTEN OFF SCREEN (CO800)

COMPANY 999 COMMONWEALTH AUTOMOBILE REINSURERS CO800SA NEXT LOSS WO 08/29/2015 ACCOUNTING ONLINE ACCESS SYSTEM 08/25/2015 NEXT PREM WO 04/22/2016 RECORDS WRITTEN OFF (CA3200) 03:08:48 (1) EFFECTIVE YEAR - (FORMAT=YYYY) ( ALL ) PREMIUM POLICIES ....... PF5 OR 05 COMPANY SUMMARY ....... PF15 OR 15 (2) WRITE OFF YEAR - (FORMAT=YYYY) ( ALL ) WRITE OFF MONTH - (FORMAT=MM) ( ALL ) OPTIONAL LOSS POLICIES ....... PF6 OR 06 COMPANY SUMMARY ....... PF16 OR 16 TYPE OVER ( DEFAULTS ) - SELECT FUNCTION KEY/ENTER NUMBER PF1/01 - HELP PANEL : : PF12/12 - RETURN TO MENU


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EXHIBIT X-F-2 POLICIES WRITTEN OFF – LOSS SCREEN (CO810)

COMPANY 999 COMMONWEALTH AUTOMOBILE REINSURERS CO810SA NEXT WO 08/29/2015 ACCOUNTING ONLINE ACCESS SYSTEM 08/25/2015 WO YEAR ALL POLICIES WRITTEN OFF - LOSS 03:09 PM WO MONTH ALL COV EFF COV EXP === PREM WO === === LOSS WO === MSG DT YR POLICY NUMBER MM/DD/YY MM/DD/YY RECORDS DOLLARS RECORDS DOLLARS MMDDYY _ 05 12345655555 01/01/05 01/01/06 0 0 2 0 _ 05 12345666666 99/99/99 00/00/00 0 0 1 -322 _ 05 12345677777 05/10/05 03/01/06 0 0 2 0 _ 06 12345688888 06/26/06 06/01/07 0 0 3 45 _ 06 12345699999 01/10/06 01/10/07 0 0 3 -6628 _ 06 12345600000 99/99/99 00/00/00 0 0 1 -1615 _ 07 23456788888 99/99/99 00/00/00 0 0 5 0 _ 07 23456799999 03/14/07 02/06/08 0 0 1 -421 _ 08 23456700000 99/99/99 00/00/00 0 0 10 0 _ 08 23456711111 11/26/08 10/29/09 0 0 3 0 TYPE 'X' BESIDE YR OF CHOSEN POLICY PF1/01 - HELP PANEL SELECT FUNCTION/ENTER NUMBER PF3/03 - SELECT POLICY PF7/07 - PAGE BACKWARD : : PF8/08 - PAGE FORWARD PF9/09 - POLICY MESSAGE PF10/10 - POLICY HISTORY PF12/12 - RETURN TO MENU


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G. Close-Out of Older Policy Effective Years

1. Eligibility Criteria

CAR closes-out policy effective years 1984-1989 only. All policy effective years subsequent to 1989 remain on CAR's on-line and off-line database files until the year has been closed-out for statistical reporting (approximately ten to twelve (10 to 12) years subsequent to the policy effective year). For policy effective years 1984-1989, CAR removes all policies for which it expects no additional reportings. That is, it closes-out all policies except:

a. Those policies containing current outstanding loss records, provided that

the policy also contains an active inforce cession, net positive premium, and that the outstanding loss' accident date falls between the policy's cession effective and expiration or cancellation dates. For purposes of the close-out program, a "current" outstanding loss is defined as one whose accounting date corresponds to one (1) of the four (4) most recent quarters for which accounting/statistical data has been reported.

b. Those policies containing paid loss records flagged with critical errors,

for which CAR expects future correction or write-off activity.

For each policy removed from the master file, CAR maintains a policy-level summary record on a separate close-out tape file. This summary record contains sufficient information to edit any future loss activity for critical accounting errors.

2. Reporting Requirements for Closed-Out Policy Effective Years

After a policy effective year is closed-out, additional loss reporting will only be expected against policies that have current outstanding losses and/or critical errors (as described above). However, CAR will access the close-out file monthly to allow for processing of additional loss reporting that it may receive on closed-out policies. Loss records CAR accepted during the most recent quarter for policies not found on the master file will be processed against the close-out file with the following stipulations:

a. Outstanding losses cannot be reported for open physical damage claims,

or for closed claims where subrogation recoveries are still pending. Therefore, in these cases, Servicing Carriers cannot prevent the close-out of a policy, even though additional loss reportings will be forthcoming.

b. Paid loss records that fail one or more of the critical edits will be

immediately written-off.

The records written-off will not be included on the Detail Loss Records Written-Off (Exhibit X-F-1). Instead, they will appear on the Listing of


PAGE 36 OF 66



Records Processed for Closed-Out Policies (described later in this section).

c. If an outstanding loss record fails one or more of the critical edits, the Servicing Carrier will see the error condition on the Records Processed for Closed-Out Policies (described in part 3 of Section G of this chapter).

3. Listing of Records Processed for Closed-Out Policies

Servicing Carriers receive a detailed Listing of Records Processed for Closed-Out Policies (Exhibit X-G-1) after each quarterly access of the close-out file. It lists all records processed against the close-out file, including paid and outstanding liability, non-fault, and physical damage losses. Critical error records are flagged with a message indicating the existence of critical accounting errors. In addition, companies receive a Summary of Loss Records Written-Off for Closed-Out Policies (Exhibit X-G-2) to permit reconciliation to quarterly member participation report totals.

4. Outstanding Loss Reserves List

By using the on-line accounting application, Servicing Carriers can review their outstanding loss activity for all policy effective years via the Outstanding Loss Reserve function. This list (Exhibit X-G-3) is intended to assist Servicing Carriers verify they are correctly reporting outstanding loss records quarterly for all ceded policies having open claims, in order to avoid those policies with open claims from being closed-out.

5. Final Close-Out of Older Policy Effective Years

After When the volume of open claims for a particular policy effective year has decreased to approximately fifty (50) or fewer records and $200,000 or less, or has decreased significantly as determined by the CAR’s Compliance and Operations Committee, CAR will perform a final close-out of the older policy effective year for financial and statistical reporting purposes. Any paid loss record data reported to CAR for an effective year that a final has been closed-out has occurred will be considered a "fatal" error, and the record(s) will be deleted from the submission.

Correction activity on a policy with an effective year that has been closed-out is not allowed. However, Iif a Servicing Carrier settles pays a claim for on a policy whose policy effective year has experienced a final been closed-out, the company should may contact CAR in writing to request reimbursement for the claim. If the policy was validly ceded, CAR will reimburse the Servicing Carrier for the loss process via a bulk adjustment that will be reflected to on the Member Company Servicing Carrier’s Settlement of Balances and Member’s pParticipation reports. to ensure the company is


PAGE 37 OF 66



reimbursed for the loss. Any other correction activity for an effective year that has had a final close-out will not be accepted for reimbursement. Companies are responsible for correcting errors during the time during the timeframe that an effective year is reportable (prior to the final close-out of an effective year).


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A. Verification of Reported Data

Commonwealth Automobile Reinsurers (CAR) edits a Servicing Carrier’s ceded data on a policy level basis to verify that the Servicing Carrier has accurately reported all cession, cession correction, premium, paid loss and outstanding loss data and that proper relationships exist between the cession, premium, and loss records reported for each ceded policy. However, a Servicing Carrier is ultimately responsible for assuring the accuracy of its own data and CAR expects that prior to reporting data submissions to CAR, the Servicing Carrier will perform edits within its own systems to assure the validity and completeness of its reported data submissions.

1. Cession Edits Cession and cession correction records are edited for fatal and non-fatal errors as described in Sections E., F. and G. of Chapter II – Cession Rules and Procedures of this Manual.

2. Statistical Edits and Data Reporting Requirements

Premium, paid loss and outstanding loss submissions are edited for statistical errors and other data reporting requirements. For further information, refer to the Massachusetts Commercial Automobile Statistical Plan and CAR’s Statistical Edit Package, which are both available on CAR’s website under the Manuals tab.

B. Accounting Verification


All acceptable ceded premium and paid loss records are loaded to CAR’s Accounting System on a weekly basis, and outstanding loss records are loaded on a quarterly basis, regardless of the completeness of the monthly submission. That is, if a Servicing Carrier submits its monthly accounting shipment and CAR rejects one or more lines of business due to reporting errors, CAR will still load the ceded data contained in the other acceptable lines of business to its accounting system. CAR will verify that the Servicing Carrier resubmits the rejected line(s) of business in a timely manner. To ensure that the pool is not adversely impacted by the missing data, CAR will assess loss of investment income as appropriate. For additional information relative to loss of investment income, refer to Section B.6. of Chapter VI – Participation of this Manual.


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Using company number, policy number and policy effective year as a key, reported cession records are linked to the corresponding premium and loss records. Each policy is run through a series of critical and non-critical edits which verify that proper relationships exist between the cession, premium and loss records reported on the policy. These edits are described in Sections B.2. and B.3. of this Chapter. CAR’s Policy Edit Package, which is available on CAR’s website under the Manuals tab, contains a complete description of each of the critical and non-critical accounting error edits. Additionally, each policy with an active in-force cession is edited to ensure that positive policy premium has been reported. Likewise, each policy with ceded premium is edited to ensure that an active in-force cession exists. Also, each policy with a ceded loss is edited to ensure that an active in-force cession and positive policy premium exists. The Cession/No Premium process, including available reports and listings, penalty program and write-off procedures are described in Chapter III – Premium of this Manual and in the Policy Edit Package, which is available on CAR’s website under the Manuals tab.

2. Critical Accounting Errors

Critical accounting errors are those errors that identify that CAR coverage does not exist on a policy. A Servicing Carrier is required to correct every critical error identified. The critical errors are as follows:

a. Critical Error Code 1 – No Valid In-Force Cession

An active in-force Transaction Code 1 (New Business) or Transaction

Code 2 (Renewal) cession record must exist on every ceded policy. The cession record must have the same company number, policy number and policy effective year as the ceded premium and loss records. Any premium or paid loss records reported on a policy which does not contain an active in-force cession will be flagged with Error Code 1.

b. Critical Error Code 6 – No Positive Premium for Loss Records

For any policy containing a loss record, net positive premium must exist. If the net premium for the policy is less than or equal to zero, CAR will flag the loss record(s) with Error Code 6. If the term of a policy was not sufficient to generate earned premium, and a loss occurred during this period, the Servicing Carrier must report a token premium record containing $1 or $2 to avoid an Error Code 6 condition.


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c. Critical Error Code 7 – Loss Record Date Discrepancies/Accident Date

Outside Cession Bounds The accident date of every reported paid loss record must be a valid date. The policy effective date of the loss record must be prior or equal to the accident date. The accident date must be prior or equal to the accounting date. The accident date must fall within the policy's cession effective date and policy expiration date or, if the policy is cancelled via Transaction Code 13 (Cancellation of Policy Pro Rata or Short Rate) premium records, the policy's cancellation date. If a policy is flat cancelled with either a Transaction Code 4 (Policy Not Taken or Cancelled) cession record or Transaction Code 15 (Cancelled Flat) premium records, all reported loss records are invalid and will be flagged with Error Code 7.


Non-critical accounting errors are those errors for which CAR coverage is not impacted and which create a minimal financial impact if maintained at reasonable levels. Correction of non-critical errors is required when the Servicing Carrier's percentage and volume of policies containing a particular non-critical error code exceed the established audit review tolerances. For additional information relative to CAR’s Audit Review process, refer to Section F.2. of this Chapter and CAR’s Policy Edit Package which is available on CAR’s website under the Manuals tab. The non-critical error codes are as follows: a. Non-Critical Error Code 2 – Reserved for Future Use

b. Non-Critical Error Code 3 – Policy Effective and/or Expiration Date

Inconsistency

All active in-force cession, premium, and paid loss records submitted for a specific policy must have the same policy effective and expiration dates. Records with policy effective and expiration date inconsistencies will be flagged with Error Code 3.

c. Non-Critical Error Code 4 – Premium Not Found/Premium Record Date Discrepancy Every premium record must be reported with a valid premium Transaction Code. Every policy must have at least one active Transaction Code 11 (New Business) premium record. The transaction


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effective date of the Transaction Code 11 premium record must equal the policy effective date. If a Transaction Code 15 (Cancelled Flat) premium record exists, its transaction effective date must equal the policy effective date. Premium records not meeting these requirements will be flagged with Error Code 4.

d. Non-Critical Error Code 5 – Net Premium Not Positive

For every line of business (liability, no-fault and physical damage) within a policy, the net premium amount must be greater than or equal to zero. Premium records not meeting this requirement will be flagged with Error Code 5.

e. Non-Critical Error Code 8 – Accident Date Inconsistent Within Loss

Records

All paid loss records must have a valid claim number. Additionally, all paid loss records within a policy which contain the same claim number must also contain the same accident date. Paid loss records not meeting these requirements will be flagged with Error Code 8.

f. Non-Critical Error Code 9 – Invalid Net Loss Amount

The net paid loss amount for a specific line of business and claim number must be greater than or equal to zero. Paid loss records not meeting this requirement will be flagged with Error Code 9.

g. Non-Critical Error Code 10 – No Matching Claim for Subrogation

For every subrogation record within a policy, a corresponding paid loss record having the same line of business and claim number must exist. The net paid loss amount and the net subrogation amount must be greater than or equal to zero, for the same line of business and claim number. The sum of the net paid loss amount, the net subrogation amount and the net salvage amount must be greater than or equal to zero for the same line of business and claim number. Loss records not meeting these requirements will be flagged with Error Code 10.

h. Non-Critical Error Code 11 – Invalid Expense Amounts The net expense amount for all paid allocated loss adjustment expense records within a policy for the same line of business and claim number must be greater than or equal to zero. Paid allocated loss adjustment expense records not meeting this requirement will be flagged with Error Code 11.


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i. Non-Critical Error Code 12 – Unmatched Reinstatement Records

If a policy contains Transaction Code 14 (Reinstatement) premium transactions, it must also contain matching Transaction Code 13 (Cancellation of Policy Pro Rata or Short Rate) or Transaction Code 15 (Cancelled Flat) premium transactions. Premium records not meeting these requirements will be flagged with Error Code 12.

C. Accounting Error Listings


Servicing Carriers can view policies containing critical and non-critical accounting errors, and policies that are in a warning or penalty status via CAR’s online Telecommunications System. On CAR’s website, from the Reports tab, click on the Telecommunications link and in the left navigation, click on Start Secure Session. After log-in from CAR’s Telecommunications Menu Selections (TE100) screen, select the CAR Accounting System option (refer to Exhibit X-C-1).

2. Data Included on the Critical and Non-Critical Accounting Error Listings

Each policy that contains a critical or non-critical accounting error will appear on a Servicing Carrier’s Accounting Error Listing and will include the following data: a. Ceded premium and paid loss data extracted from CAR’s statistical

database files and loaded to CAR’s Accounting System on a weekly basis.

b. Cession and cession correction records received since the prior load to

the Accounting System.

c. Statistical data reported for the current (and any prior) accounting months as defined in the Annual Call Schedule, published annually by CAR as an Accounting and Statistical Notice.

d. Error corrections made via CAR’s online Accounting System application

that have been applied since the prior error correction load to the Accounting System.

3. Critical and Non-Critical Accounting Errors

Servicing Carriers can review and correct their critical and non-critical accounting errors via CAR's online accounting corrections application by selecting the Accounting Corrections option from the CAR Accounting (TE120) screen. Refer to Exhibit X-C-2.


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a. Critical Accounting Errors

To view policies which contain a critical accounting error, from the Accounting Online Access System – Menu Selections (CO100) screen (refer to Exhibit X-C-3), select the Critical Error Policies option. A Servicing Carrier will be able to view its critical errors by error code and/or effective year, by list date or by write-off date (refer to Exhibit X-C-4).

When a Servicing Carrier processes a correction which clears the critical

error condition, the policy will no longer appear on the critical accounting error list. After becoming free of critical errors, if the policy returns to a critical error status, then the policy will once again be listed on the online critical error list.

b. Non-Critical Accounting Errors

To view policies which contain a non-critical accounting error, from the Accounting Online Access System – Menu Selections (CO100) screen (refer to Exhibit X-C-3), select the Non-Critical Error Policies option. A Servicing Carrier will be able to view its non-critical errors by error code and/or effective year or by error list date (refer to Exhibit X-C-5). When a Servicing Carrier processes a correction which clears the non-critical error condition, the policy will no longer appear on the non-critical accounting error list. After becoming free of non-critical errors, if the policy returns to a non-critical error status, then the policy will once again be listed on the online non-critical error list.

4. Other Accounting and Informational Listings

From the Accounting Online Access System – Menu Selections (CO100) screen (refer to Exhibit X-C-3), Servicing Carriers are also able to access a series of informational listings, applications and browse screens as follows: a. The critical error analysis listing identifies a Servicing Carrier’s

percentage and volume of policies and records containing each of the critical error codes (refer to Exhibit X-C-6).

b. The non-critical error analysis identifies a Servicing Carrier’s non-critical error codes (refer to Exhibit X-C-7). Note that a non-critical error code that exceeds the established Audit Review tolerance levels for the latest two policy effective years will be specifically identified on the listing. For additional information relative to the Audit Review monitoring and penalty process, refer to Section F.2. of this Chapter and


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CAR’s Policy Edit Package which is available on CAR’s website under the Manuals tab.

c. The cession/no premium warning and penalty listings identify those

policies for which a cession has been reported but no corresponding positive ceded premium exists. For additional information relative to the warning and penalty program, including the cession/no premium write-off and associated penalties, refer to Chapter III – Premium of this Manual and CAR’s Policy Edit Package which is available on CAR’s website under the Manuals tab.

d. The net negative premium listing identifies those policies that have an

overall premium value of less than $0. For additional information relative to the net negative premium listing and write-off procedures, refer to Chapter III – Premium of this Manual and CAR’s Policy Edit Package which is available on CAR’s website under the Manuals tab.

e. The outstanding loss reserve listing is a listing of outstanding loss

reserve activity for all policy years. This informational listing may be used to assist Servicing Carriers in the verification of loss reporting on policies with open claims.

f. The premium and losses written-off listing identifies premium and loss

records that have been written-off in accordance with the critical error and net negative premium write-off procedures. For additional information relative to the critical error loss write-off, refer to Section F.1. of this Chapter and relative to the net negative premium write-off, refer to Chapter III – Premium of this Manual.

From the CAR Accounting System (TE120) screen (refer to Exhibit X-C-2), Servicing Carriers may access the CAR Policy Histories application to assist in the error correction process. Refer to Section D. of this Chapter for information relative to accounting error correction procedures.

4. Aging of Critical Accounting Errors

When a policy is identified as having a critical accounting error, it is assigned a critical list date equal to the date that the record was initially flagged in error. The policy will appear on CAR's online critical error list and will remain on the critical error list for 12 calendar months from the critical list date unless the Servicing Carrier submits records or processes corrections such that the policy becomes free of critical errors. The policy will then no longer appear on the critical error listing. However, if the policy is still in error after the 12 month time period, all loss records on the policy with a critical error will become eligible for write-off. Note that if subsequent losses with critical errors are reported on the policy during the 12 month period, those losses will be also be eligible for write-off at the end of


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the 12 month period, regardless of whether the losses have been in error for the full 12 months. The Critical Error Loss Write-Off is described in further detail in Section F.1. of this Chapter. If the Servicing Carrier submits records or processes corrections and the policy becomes free of critical error, the policy will no longer appear on the critical error list. However, if the policy returns to a critical error status, then the policy will be assigned a new critical list date and will begin a new 12 month time period in which the critical error condition must be corrected.


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EXHIBIT X-C-1 TELECOMMUNICATIONS MENU SCREEN (TE100)

TE100SB COMMONWEALTH AUTOMOBILE REINSURERS 03/15/2016 TEMENUSA TELECOMMUNICATIONS 09:11:22 C.A.R. ACCOUNTING ........... PF2 OR 02 CESSION SYSTEM ........... PF3 OR 03 STATISTICAL SYSTEM ........... PF4 OR 04 PRODUCER CODE SYSTEM ........... PF5 OR 05 . . . NO SELECTION ........... PF6 OR 06 AUDIT & CLAIMS SYSTEM ........... PF7 OR 07 TERMINATE C.A.R. SESSION ........... PF12 OR 12


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EXHIBIT X-C-2 CAR ACCOUNTING SYSTEM MENU SCREEN (TE120)

TE120 COMMONWEALTH AUTOMOBILE REINSURERS 03/15/2016 C.A.R. ACCOUNTING SYSTEM 08:41:21

COMPANY NUMBER . . . . . 999

CAR POLICY HISTORIES ..... PF2 OR 02 PRODUCER INQUIRIES ..... PF3 OR 03 CESSION BROWSE OPTIONS ..... PF4 OR 04 ACCOUNTING CORRECTIONS ..... PF5 OR 05


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MENU SELECTIONS SCREEN (CO100)

COMPANY 999 COMMONWEALTH AUTOMOBILE REINSURERS CO100SA ACCOUNTING ONLINE ACCESS SYSTEM 03/15/2016 MENU SELECTIONS 08:42 AM ERROR LISTINGS: CRITICAL ERROR POLICIES (CA2400) ..... PF2 OR 02 NON CRITICAL ERROR POLICIES (CA2685) ..... PF3 OR 03 WARNING AND PENALTY POLICIES (CA2500) ..... PF4 OR 04 INFORMATIONAL LISTINGS: NET NEGATIVE PREMIUMS (CA4000) ..... PF5 OR 05 OUTSTANDING LOSS RESERVES (CA4100) ..... PF6 OR 06 CRITICAL/NON CRITICAL ANALYSIS (CA2650) ..... PF7 OR 07 PREMIUMS AND LOSSES WRITTEN-OFF (CA3200) ..... PF8 OR 08 REVIEW MESSAGES: REVIEW/UPDATE POLICY MESSAGES ..... PF9 OR 09 REVIEW CAR NEWSLETTER ..... PF11 OR 11

SELECT FUNCTION KEY/ENTER NUMBER PF1/01 - HELP PANEL : : PF12/12 - RETURN TO MENU


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CRITICAL ERRORS SCREEN (CO200)

COMPANY 999 COMMONWEALTH AUTOMOBILE REINSURERS CO200SA ACCOUNTING ONLINE ACCESS SYSTEM 03/15/2016

CRITICAL ERRORS (CA2400) 08:54:55 (1) ERROR CODE (1,6 OR 7) AND EFFECTIVE YEAR (FORMAT=YYYY) ERROR CODE(S) ( ALL ) EFFECTIVE YEAR ( ALL ) SELECT POLICIES ..... PF5 OR 05 COMPANY SUMMARY ..... PF15 OR 15 (2) ERROR LIST DATE (LATEST DATE IS SHOWN) (FORMAT=MM/YYYY) ERROR LIST DATE ( 03 / 2016 ) SELECT POLICIES ..... PF6 OR 06 COMPANY SUMMARY ..... PF16 OR 16 (3) WRITE-OFF DATE (NEXT ELIGIBLE DATE IS SHOWN) (FORMAT=MM/YYYY) WRITE-OFF ELIGIBLE ( 03 / 2016 ) SELECT POLICIES ..... PF7 OR 07 COMPANY SUMMARY ..... PF17 OR 17

TYPE OVER ( DEFAULTS ) - SELECT FUNCTION KEY/ENTER NUMBER PF1/01 - HELP PANEL : : PF12/12 - RETURN TO MENU


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EXHIBIT X-C-5 ACCOUNTING ONLINE ACCESS SYSTEM – NON-CRITICAL ERRORS SCREEN (CO300)

COMPANY 999 COMMONWEALTH AUTOMOBILE REINSURERS CO300SA ACCOUNTING ONLINE ACCESS SYSTEM 03/15/2016 NON CRITICAL ERRORS (CA2685) 08:55:19 (1) ERROR CODE(1 THRU 12) AND EFFECTIVE YEAR (FORMAT=YYYY) ERROR CODE ( ALL ) EFFECTIVE YEAR ( ALL ) SELECT POLICIES ..... PF5 OR 05 COMPANY SUMMARY ..... PF15 OR 15 (2) ERROR LIST DATE (LATEST DATE IS SHOWN) (FORMAT=MM/YYYY) ERROR LIST DATE ( 03 / 2016 ) SELECT POLICIES ..... PF6 OR 06 COMPANY SUMMARY ..... PF16 OR 16 TYPE OVER ( DEFAULTS ) - SELECT FUNCTION KEY/ENTER NUMBER PF1/01 - HELP PANEL : : PF12/12 - RETURN TO MENU


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CRITICAL ERRORS ANALYSIS SCREEN (CO710)

COMPANY 999 COMMONWEALTH AUTOMOBILE REINSURERS CO710SA ACCOUNTING ONLINE ACCESS SYSTEM 08/25/2015 CRITICAL ANALYSIS ALL EFFEC YEAR(S) 14:50:24 TOTAL CRITICAL CRITICAL ERROR PAID LOSS & PAID LOSS & YEAR POLICIES PLUS W/P MINUS W/P PCT PREM RECORDS PREM ERRORS ============================================================================= _ 2006 2,949 3 1 .03 73,462 8 _ 2007 5,829 2 0 .00 139,818 0 _ 2008 4,075 0 0 .00 97,921 0 _ 2009 3,388 2 0 .00 78,686 0 _ 2010 3,025 1 0 .00 72,245 0 _ 2011 3,608 0 0 .00 83,812 0 _ 2012 4,634 1 0 .00 112,771 0 _ 2013 4,770 0 0 .00 121,744 0 _ 2014 4,668 9 5 .11 117,475 929 _ 2015 3,494 46 13 .37 43,250 93 TYPE 'X' BESIDE YEAR ENTRY FOR ERROR CODE WITHIN YEAR SUMMARY PF1/01 - HELP PANEL SELECT FUNCTION : : PF3/03 - SELECT YEAR PF7/07 - PAGE BACKWARD PF8/08 - PAGE FORWARD PF12/12 - RETURN TO MENU


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EXHIBIT X-C-7

ACCOUNTING ONLINE ACCESS SYSTEM – NON-CRITICAL ERRORS ANALYSIS SCREEN (CO720)

COMPANY 999 COMMONWEALTH AUTOMOBILE REINSURERS CO720SA ACCOUNTING ONLINE ACCESS SYSTEM 04/01/2016 NON CRITICAL ERRORS 09:53:22 TOTAL NON CRIT PREMIUM NON CRIT LOSS NON CRIT YEAR POLICIES POLICIES RECORDS PREM REC RECORDS LOSS REC ============================================================================= _ 2014 7,618 25 115,514 132 12,647 107 X 2015 10,632 6 107,349 20 7,765 20 _ 2016 3,521 3 14,238 10 63 0 TYPE 'X' BESIDE YEAR ENTRY FOR ERROR CODE WITHIN YEAR SUMMARY SELECT FUNCTION PF1/01 - HELP PANEL : : PF3/03 - SELECT YEAR PF7/07 - PAGE BACKWARD PF8/08 - PAGE FORWARD PF12/12 - RETURN TO MENU

COMPANY 999 COMMONWEALTH AUTOMOBILE REINSURERS CO720SB ACCOUNTING ONLINE ACCESS SYSTEM 04/01/2016 NON CRITICAL ANALYSIS EFFEC YEAR(S) 09:54:33 TOTAL NON CRIT PREMIUM NON CRIT LOSS NON CRIT YEAR POLICIES POLICIES RECORDS PREM REC RECORDS LOSS REC ============================================================================= 2015 10,632 6 107,349 20 7,765 20 ERROR NON CRIT ERROR = OVER TOLERANCE = CODES POLICIES PERCNT 1ST DATE DEADLINE LAST MAS TO BE PROCESSED - 03 - 3 .03 - 04 - 0 .00 - 05 - 0 .00 - 08 - 0 .00 - 09 - 0 .00 - 10 - 3 .03 - 11 - 1 .01 - 12 - 0 .00 PF1/01 - HELP PANEL SELECT FUNCTION PF4/04 - DELETE MESSAGE : : PF12/12 - RETURN TO MENU


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D. Accounting Error Correction Procedures

From CAR’s Telecommunications Menu Selections screen, select the CAR Accounting System option (refer to Exhibit X-C-1) and then select the Accounting Corrections option (refer to Exhibit X-C-2). From the Accounting Online Access System – Menu Selections screen (refer to Exhibit X-C-3), error listings for both critical and non-critical error policies may be selected for viewing (refer to Exhibits X-C-4 and X-C-5). The Accounting Online Access System – Menu Selectins screen also provides access to various error and informational listings that may be helpful for correction and browse purposes. A Servicing Carrier may also use the CAR Policy History application which is available from the CAR Accounting System screen to assist with its error correction process. A Servicing Carrier is able to correct records with critical accounting errors until the effective year of the policy that is in error has been closed-out. Servicing Carriers are notified of the close-out of a particular policy effective year via a published CAR Bulletin and Accounting and Statistical Notice, which are available on CAR’s website under the Bulletins tab. However, note that cession and ceded premium records are only reportable for the latest three policy effective years and this may impact available correction methods. Ceded loss data may be reported for a policy until the policy effective year is closed-out for statistical reporting purposes. Refer to Section F. of this Chapter for additional information relative to the close-out of older policy years for ceded loss reporting. The correction of records with non-critical errors is only required when the Servicing Carrier’s percentage and volume of policies containing a particular non-critical error code exceed the established audit review tolerances. The audit review of non-critical accounting errors is performed on a monthly basis for the two most current policy effective years. For further information relative to the audit review process, refer to Section F.2. of this Chapter and CAR’s Policy Edit Package which is available on CAR’s website under the Manuals tab. The Accounting Online Access System – Menu Selections screen (refer to Exhibit X-C-3) provides access to an analysis of a Servicing Carrier's critical and non-critical accounting error records and a summary function for monitoring the error percent of each non-critical error code (refer to Exhibit X-C-7).

1. Correcting Critical Accounting Errors

If a policy is flagged with a critical error (refer to Exhibit X-D-1) as a result of an error on the premium or loss record, the policy may be corrected as follows:


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a. Process Premium and Loss Corrections via the Online Accounting

Application A Servicing Carrier may make correction(s) to the record(s) in error via the correction grids that are provided on the online Accounting Premium and Loss critical error listings (refer to Exhibit X-D-2). On a weekly basis, CAR will process the corrections made and will load the correction records to CAR’s Accounting System. For detailed premium and loss correction instructions, refer to CAR’s Policy Edit Package which is available on CAR’s website under the Manuals tab.

b. Submit Offset/Re-Enter Records

If a correction must be made to a field for which a correction grid is not provided, or if this correction method is preferred, a Servicing Carrier may offset the premium or loss record(s) in error and re-enter the corrected record(s) in a subsequent monthly accounting/statistical submission. For detailed instructions relative to the reporting of offset and re-enter records, refer to CAR's Policy Edit Package and the Massachusetts Commercial Automobile Statistical Plan which are available on CAR’s website under the Manuals tab.

If the policy is in error as a result of a missing cession record or there exists an error on the reported cession record, the policy may be corrected as follows: c. Submit a Cession Record

If the policy is in error due to a missing cession record, a Servicing Carrier should correct the policy by submitting a cession record. For instructions relative to reporting cession records, refer to Chapter II – Cession Rules and Procedures of this Manual and CAR's Cession Edit Package which is available on CAR’s website under the Manuals tab.

d. Process Cession Corrections via the Online Cession Application

If the policy is in error due to an error on the reported cession record, a Servicing Carrier may make any necessary correction(s) to the cession record via the correction grids provided on the cession correction listing. On a weekly basis, CAR will process the corrections made and will load the correction records to CAR’s cession database file. For detailed cession correction instructions, refer to Chapter II – Cession Rules and Procedures of this Manual and CAR’s Cession Edit Package which is available on CAR’s website under the Manuals tab.

If the policy is in error as a result of missing or negative ceded premium, the policy may be corrected by submitting the appropriate premium records.


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A policy that has a paid loss with a critical error will remain on the critical error list until it becomes free of critical error or until the loss record in error becomes eligible for critical error write-off. Refer to Section F.1. of this Chapter for further critical error write-off information. e. Submission of Loss Records on a Policy after the Critical Error Write-

Off After a loss record with a critical accounting error has been written off, a Servicing Carrier is still able to report paid loss records on the policy. However, the Servicing Carrier must assure that the situation that initially caused the critical error condition has been rectified prior to the submission of the new loss record. If not, the new record may also be subject to write-off.

2. Correcting Non-Critical Accounting Errors

Non-critical errors (refer to Exhibit X-D-3) may be corrected as follows: a. Process Premium and Loss Corrections via the Online Accounting

Application

A Servicing Carrier may make correction(s) to the record(s) in error via the correction grids that are provided on the online Accounting Premium and Loss non-critical error listings (refer to Exhibit X-D-4). On a weekly basis, CAR will process the corrections made and will load the correction records to CAR’s Accounting System.

A policy with a non-critical error will remain on the online non-critical error list until it becomes free of non-critical errors.

b. Submit Offset/Re-Enter Records

If a correction must be made to a field for which a correction grid is not provided, or if this correction method is preferred, a Servicing Carrier may offset the incorrect premium or loss record(s) and re-enter the corrected record(s) in a subsequent monthly accounting/statistical submission. For detailed instructions relative to the reporting of offset and re-enter records, refer to CAR's Policy Edit Package and the Massachusetts Automobile Commercial Statistical Plan which are available on CAR’s website under the Manuals tab.



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EXHIBIT X-D-1

ACCOUNTING ONLINE ACCESS SYSTEM – CRITICAL ERRORS SCREEN (CO210)

COMPANY 999 COMMONWEALTH AUTOMOBILE REINSURERS CO210SA ACCOUNTING ONLINE ACCESS SYSTEM 03/30/2016 NEXT WO 03/26/2016 CRITICAL- (ALL)EFF YR (ALL)ERRS 09:47 AM FROM 113456 POLICY 1ST LIST===PREMIUM === ==== LOSS ===== MSG DATE YR POLICY NUMBER STATUS MM/DD/YY ERRORS DOLLARS ERRORS DOLLARS MM/DD/YY ========================================================================== X 15 113456 NOPREM 03/03/16 0 0 1 10 _ 16 123456 03/03/16 24 27046 0 0 TYPE STARTING POLICY NUMBER -OR- TYPE 'P'/'L' TO SELECT PREM/LOSS POLICY PF1/01 - HELP PANEL SELECT FUNCTION : : PF2/02 - SELECT ALL REC PF3/03 - SELECT ERR REC PF7/07 - PAGE BACKWARD PF8/08 - PAGE FORWARD PF9/09 - POLICY MESSAGE PF10/10 - POLICY HISTORY PF12/12 - RETURN TO MENU


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EXHIBIT X-D-2 ACCOUNTING LOSS LISTING CRITICAL ERRORS SCREEN (CO250)

CO250SA COMMONWEALTH AUTOMOBILE REINSURERS 03/30/2016 COMPANY 999 ACCOUNTING LOSS LISTING - ONLY ERRORS 10:00 AM EFF DATE COV EFF COV EXP CRITICAL MSG DATE POLICY NUMBER MM/DD/YY C TXPROD RSK MM/DD/YY MM/DD/YY MM/DD/YY MM/DD/YY 123456 09/28/15 5 1 83K 2 09/28/15 12/31/15 03/03/16 ( ................ ) INSUREDS NAME ABC INC LOSSES ACTG ACCIDENT TX LB EFF SEQ MM/YY MM/DD/YY TWN CLAIM ID C TP LOSS AMT 24 41 09 000005 12/15 12/12/15 ABC123456 5 03 10 ( 2. )( .. ) ( .. .. .. ) ( ................ ) ERRORS= 6 TOT LOSS RECS 5 CRITICAL ERR RECS 1 START W/SEQ # 5 NON CRIT ERR RECS 0 PF1/01 - HELP PANEL SELECT FUNCTION/ENTER NUMBER PF3/03 - APPLY CORRECT PF7/07 - PAGE BACKWARD : : PF8/08 - PAGE FORWARD PF9/09 - POLICY MESSAGE PF10/10 - POLICY HISTORY PF12/12 - RETURN TO MENU


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EXHIBIT X-D-3 ACCOUNTING ONLINE ACCESS SYSTEM – NON-CRITICAL ERRORS SCREEN (CO310)

COMPANY 999 COMMONWEALTH AUTOMOBILE REINSURERS CO310SA NEXT WO 03/26/2016 ACCOUNTING ONLINE ACCESS SYSTEM 04/01/2016 NON CRITICAL- (ALL )EFF YR (ALL)ERRS 11:03 AM FROM 111111111 POLICY 1ST LIST === PREMIUM === ==== LOSS ===== MSG DATE YR POLICY NUMBER STATUS MM/DD/YY ERRORS DOLLARS ERRORS DOLLARS MM/DD/YY ========================================================================== _ 14 1111111111 PREM 02/26/16 0 0 5 -35 _ 14 1222222222 PREM 01/28/16 0 0 3 -1 X 14 1333333333 PREM 01/28/16 0 0 9 855 _ 14 1444444444 PREM 01/28/16 0 0 4 -8531 _ 14 1555555555 PREM 02/26/15 0 0 3 331 _ 14 1666666666 F CANC 01/08/15 28 0 0 0 _ 14 1777777777 PREM 05/01/14 0 0 3 0 _ 14 1888888888 R CANC 05/01/14 0 0 4 9075 _ 14 1999999999 PREM 06/25/15 0 0 12 -1 _ 14 1020014761 PREM 02/26/16 0 0 1 -1388 TYPE STARTING POLICY NUMBER -OR- TYPE 'P'/'L' TO SELECT PREM/LOSS POLICY PF1/01 - HELP PANEL SELECT FUNCTION : : PF2/02 - SELECT ALL REC PF3/03 - SELECT ERR REC PF7/07 - PAGE BACKWARD PF8/08 - PAGE FORWARD PF9/09 - POLICY MESSAGE PF10/10 - POLICY HISTORY PF12/12 - RETURN TO MENU


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ACCOUNTING LOSS LISTING NON-CRITICAL ERRORS SCREEN (CO250)

CO250SA COMMONWEALTH AUTOMOBILE REINSURERS 04/01/2016 COMPANY 999 ACCOUNTING LOSS LISTING - ALL 11:04 AM EFF DATE COV EFF COV EXP NON CRIT MSG DATE POLICY NUMBER MM/DD/YY C TX PROD RSK MM/DD/YY MM/DD/YY MM/DD/YY MM/DD/YY 1333333333 08/04/14 5 2 123456 2 08/04/14 08/04/15 01/28/16 ( ................ ) INSUREDS NAME CHRISTIAN RODRIG LOSSES ACTG ACCIDENT TX LB EFF SEQ MM/YY MM/DD/YY TWN CLAIM ID C TP LOSS AMT 23 45 08 000001 11/14 11/15/14 602 123456351411001 5 12 1009 ( 2. )( .. ) ( .. .. .. ) ( ................ )ERRORS= 23 45 08 000002 11/14 11/15/14 602 123456351411001 5 12 3925 ( 2. )( .. ) ( .. .. .. ) ( ................ )ERRORS= 29 01 08 000003 11/14 11/15/14 602 123456351411002 5 24 10 ( 2. )( .. ) ( .. .. .. ) ( ................ )ERRORS= 23 45 08 000004 12/14 11/15/14 602 123456351411001 5 09 570 ( 2. )( .. ) ( .. .. .. ) ( ................ )ERRORS= TOT LOSS RECS 67 CRITICAL ERR RECS 0 START W/SEQ # 1 NON CRIT ERR RECS 9 PF1/01 - HELP PANEL SELECT FUNCTION/ENTER NUMBER PF3/03 - APPLY CORRECT PF7/07 - PAGE BACKWARD : : PF8/08 - PAGE FORWARD PF9/09 - POLICY MESSAGE PF10/10 - POLICY HISTORY PF12/12 - RETURN TO MENU


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E. Request for Loss Reimbursement on Ceded Policies for which Cession

and Premium Reporting has been Discontinued

For cession and premium records, only the latest three policy effective years may be reported to CAR. After the discontinuation of reporting for a particular policy effective year, if a Servicing Carrier becomes aware of a situation where cession and/or premium records should have been reported to CAR, only in the following instances may the Servicing Carrier request reimbursement for losses paid on that policy:

1. The Servicing Carrier can document that its failure to report the original


2. The Servicing Carrier can document that its failure to reinstate a


If CAR agrees that the failure to report cession and premium records was outside the control of the Servicing Carrier, then CAR will process bulk adjustments (both premium and losses) to the Servicing Carrier's Settlement of Balances and Member’s Participation reports to reimburse the Servicing Carrier.

F. Penalty Procedures for Uncorrected Accounting Errors 1. Critical Accounting Errors


A paid loss record with an uncorrected critical error will be considered eligible for write-off if both of the following criteria are met: (1) Twelve calendar months have elapsed since the policy was first

flagged with a critical accounting error. (2) The Servicing Carrier fails to correct the critical error condition by

the assigned write-off eligible date. The write-off eligible date is equal to the assigned critical list date (the date that the record was first flagged in error) plus twelve months.


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b. Critical Error Loss Write-Off – Penalty and Procedures

The Critical Error Loss Write-Off takes place on a monthly basis following the load of ceded premium and loss data reported in the current accounting/statistical shipment to CAR’s Accounting System. A paid loss record that meets the eligibility criteria noted in Section F.1.a. will be written-off. CAR will create an offset to the paid loss record to net the dollar amount to $0. From the Accounting Online Access System – Menu Selections screen (refer to Exhibit X-C-3), select the Premiums and Losses Written-Off option. Servicing Carriers are able to select losses by write-off year (refer to Exhibit X-F-1) to view a summary of loss records and loss dollars written-off (refer to Exhibit X-F-2) as well as the detail for a particular loss record.

For a loss record that has been in a critical error status for the entire 12 month period, CAR will also assess the Servicing Carrier a penalty fee equal to 10% of the dollar value of the loss record being written-off. The penalty fee is intended to encourage timely correction of losses with critical errors prior to the write-off, and to reimburse the pool for investment income lost as a result of the invalid loss reporting. The fee will be processed as a bulk adjustment to the Servicing Carrier’s Settlement of Balances and Member’s Participation Reports. However, for a loss record that was reported during the 12-month period, but after the critical list date was established, CAR will not assess the 10% penalty fee.



On a monthly basis, via the Audit Review process, CAR monitors the volume of a Servicing Carrier's non-critical errors for the two most current policy years. When a record is initially flagged with a non-critical error, the policy is assigned a corresponding non-critical list date. If the Servicing Carrier's percentage and volume of policies for a particular policy effective year and non-critical error code exceeds the established tolerance level of 1% and 10 policies in error, the error policies will be eligible for an audit review penalty if either of the following conditions exists: (1) the percentage and volume of non-critical error policies has exceeded

the established non-critical error code tolerance for nine months after the month in which the error condition was first identified as exceeding the tolerance, and/or


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(2) the percentage and volume of non-critical error policies exceeds the

established non-critical error code tolerance as of the last month in which CAR is monitoring the particular policy effective year for non-critical errors, regardless of when the tolerance had initially been exceeded.

b. Audit Review of Non-Critical Errors – Penalty Procedures

A policy that meets the eligibility criteria noted in Section F.2.a. are subject to the following penalties:

(1) If the non-critical error condition is not corrected by the ninth month

after the month in which the Servicing Carrier first exceeded the established tolerance level for a particular non-critical error code, CAR will assess a flat charge of $50 per policy for each policy with the non-critical error code that exceeds the established non-critical error code tolerance. If a Servicing Carrier continues to exceed the tolerance for a particular error code for another nine months, additional penalties of $50 per policy for each policy with the non-critical error code that exceeds the established tolerance will be assessed.

If the nine month penalty for a particular error code exceeding the

tolerance coincides with the last month of CAR’s review of a policy effective year, only the last month penalty will be assessed.

(2) Audit Review of Non-Critical Errors – Last Month Penalty

If an excessive non-critical error condition exists as of the last month in which CAR monitors a particular policy effective year for non-critical errors, the Servicing Carrier will be assessed a flat charge of $50 for each policy with a non-critical error code exceeding the established non-critical error code tolerances, previous assessments notwithstanding.

CAR notifies Servicing Carriers of all non-critical error code penalties, including the calculation for determining the penalty amount. Audit Review penalties will be processed as bulk adjustments to a Servicing Carrier’s Settlement of Balances and Member's Participation Reports.


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EXHIBIT X-F-1 RECORDS WRITTEN OFF SCREEN (CO800)

COMPANY 999 COMMONWEALTH AUTOMOBILE REINSURERS CO800SA NEXT LOSS WO 08/29/2015 ACCOUNTING ONLINE ACCESS SYSTEM 08/25/2015 NEXT PREM WO 04/22/2016 RECORDS WRITTEN OFF (CA3200) 03:08:48 (1) EFFECTIVE YEAR - (FORMAT=YYYY) ( ALL ) PREMIUM POLICIES ....... PF5 OR 05 COMPANY SUMMARY ....... PF15 OR 15 (2) WRITE OFF YEAR - (FORMAT=YYYY) ( ALL ) WRITE OFF MONTH - (FORMAT=MM) ( ALL ) OPTIONAL LOSS POLICIES ....... PF6 OR 06 COMPANY SUMMARY ....... PF16 OR 16 TYPE OVER ( DEFAULTS ) - SELECT FUNCTION KEY/ENTER NUMBER PF1/01 - HELP PANEL : : PF12/12 - RETURN TO MENU


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EXHIBIT X-F-2 POLICIES WRITTEN OFF – LOSS SCREEN (CO810)

COMPANY 999 COMMONWEALTH AUTOMOBILE REINSURERS CO810SA NEXT WO 08/29/2015 ACCOUNTING ONLINE ACCESS SYSTEM 08/25/2015 WO YEAR ALL POLICIES WRITTEN OFF - LOSS 03:09 PM WO MONTH ALL COV EFF COV EXP === PREM WO === === LOSS WO === MSG DT YR POLICY NUMBER MM/DD/YY MM/DD/YY RECORDS DOLLARS RECORDS DOLLARS MMDDYY _ 05 12345655555 01/01/05 01/01/06 0 0 2 0 _ 05 12345666666 99/99/99 00/00/00 0 0 1 -322 _ 05 12345677777 05/10/05 03/01/06 0 0 2 0 _ 06 12345688888 06/26/06 06/01/07 0 0 3 45 _ 06 12345699999 01/10/06 01/10/07 0 0 3 -6628 _ 06 12345600000 99/99/99 00/00/00 0 0 1 -1615 _ 07 23456788888 99/99/99 00/00/00 0 0 5 0 _ 07 23456799999 03/14/07 02/06/08 0 0 1 -421 _ 08 23456700000 99/99/99 00/00/00 0 0 10 0 _ 08 23456711111 11/26/08 10/29/09 0 0 3 0 TYPE 'X' BESIDE YR OF CHOSEN POLICY PF1/01 - HELP PANEL SELECT FUNCTION/ENTER NUMBER PF3/03 - SELECT POLICY PF7/07 - PAGE BACKWARD : : PF8/08 - PAGE FORWARD PF9/09 - POLICY MESSAGE PF10/10 - POLICY HISTORY PF12/12 - RETURN TO MENU


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G. Close-Out of Older Policy Effective Years

When the volume of open claims for a particular policy effective year has decreased to approximately fifty or fewer records and $200,000 or less, or has decreased significantly as determined by CAR’s Compliance and Operations Committee, CAR will perform a final close-out of the policy effective year for financial and statistical reporting purposes. Any paid loss record reported to CAR for an effective year that has been closed-out will be considered a fatal error, and the record will be deleted from the submission.

Correction activity on a policy with an effective year that has been closed-out is not allowed. However, if a Servicing Carrier pays a claim on a policy whose policy effective year has been closed-out, the company may contact CAR to request reimbursement for the claim. If the policy was validly ceded, CAR will reimburse the Servicing Carrier for the loss via a bulk adjustment that will be reflected on the Servicing Carrier’s Settlement of Balances and Member’s Participation reports.


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Disaster Recovery – Business Impact Analysis Proposal

BACKGROUND: With the implementation of the assigned risk plan and managed competition, CAR’s disaster recovery needs have changed substantially. Accordingly, CAR is undertaking a review of its critical business processes and tolerances for disruption to develop a new disaster recovery solution. The project will require the joint efforts of the Compliance and Operations Committee and the newly formed Information Technology Advisory Committee. The first major task of the disaster recovery project involves the development of a Business Impact Analysis (BIA) by the Compliance and Operations Committee. The BIA will identify the consequences of a disruption to each business function or process and will establish policies with respect to CAR’s tolerance for business interruption and requirements with respect to the recovery of stored data. The Information Technology Advisory Committee will then assist CAR in the development of a disaster recovery solution based on the policies set forth in the BIA. For each CAR function and critical process, the Compliance and Operations Committee will determine the maximum amount of time in which the organization shall have the processes running again. This is known as the Recovery Time Objective (RTO). Effectively, it is a tolerance for downtime. The RTO can be measured in minutes, hours, days or weeks, and each critical process can have a different value. Similarly, the Committee will determine the tolerance for data loss for each critical process in the event of a disruption. This is referred to as the Recovery Point Objective (RPO). Accordingly, the Committee will determine the minimum amount of data that a company or producer will be expected to replicate in order to restore any lost data that may occur in the event of an interruption experienced by CAR. CAR FUNCTIONS AND CRITICAL PROCESSES: To satisfy its responsibilities with respect to each of CAR’s functions, (i.e. statistical agent, commercial automobile programs, and MAIP), CAR performs several major business processes as described below. Of those processes, one or two can be identified as mission critical within each function. The Compliance and Operations Committee will establish policy with respect to recovery objectives of each critical function. The recovery of mission critical processes will be addressed in the disaster recovery plan to be developed by CAR’s IT management and the Information Technology Advisory Committee, and the recovery of non-critical processes will be addressed in a business continuity plan at a later date. Statistical Agent Function

Description of Major Business Processes:

• Statistical Submissions - companies are required to report premium and loss transactions to CAR on a monthly basis (low volume companies may report quarterly). The monthly submission is due at CAR 45 days subsequent to the


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Business Impact Analysis Page 2

close of the calendar month. CAR receives and processes submissions daily on its mainframe platform.

• Corrections - after a submission has been accepted, companies are then provided with 60 days to process sufficient corrections in order to meet a 95% accuracy tolerance. CAR processes corrections through an online mainframe program which will be moved to a web application in 2017.

• Annual Statement Reconciliation – on a quarterly basis, companies provide Page 14 financial data that is compared to reported statistical data to ensure completeness. Out-of-balance conditions require an explanation and corrective action if needed. Companies submit annual statement data through a CAR web application.

Mission Critical Functions and Recommended Recovery Objectives: Of the major business processes supporting the statistical agent function, the processing of statistical submissions is considered mission critical, as this data is used to satisfy the administration of CAR’s mission critical residual market functions.

• The Recovery Time Objective

In recommending the RTO for receipt and processing of statistical submissions, CAR considerations include: o Statistical data is used to administer residual market deficit sharing

processes and other processes supporting the Commercial Automobile and Taxi/Limousine Programs.

o Statistical data is used to administer the MAIP Quota Share processes underlying the assignment of MAIP risks.

CAR staff recommends an RTO of 60 days to ensure the integrity of the data used in the quota share calculation for MAIP and the quarterly cash sharing process for commercial automobile.

• The Recovery Point Objective In recommending the RPO for recovering lost data, CAR considers its policies for back-up and storage of data. o CAR backs-up statistical submissions, on-line corrections, and annual

statement submissions to tape and moves those tapes to off-site storage weekly. Accordingly, in the event of an interruption, for any one company’s reporting, CAR could lose a maximum of one monthly reporting submission, a week’s volume of correction activity, and one quarterly annual statement submission.

o To ensure full recovery, CAR recommends that companies be required to store at least one month of reported statistical data submissions, one week of correction activity, and one quarterly annual statement submission and be prepared to resubmit the data upon CAR’s recovery.


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o Companies should also have the ability to accumulate up to two months

of statistical submissions to be held for reporting during the maximum recovery time.

Commercial Automobile Function

Description of the Major Business Processes

• Cession Reporting – companies are required to report new and renewal cession transactions to CAR through either FTP submission or a mainframe online data entry application within specified time periods in order to cede a policy with full coverage.

• Ceded Premium/Loss Data – the ceded loss data is extracted from the monthly statistical submissions and loaded to CAR’s mainframe platform.

• Ceded Data Quality Programs – there are various data quality programs residing on CAR’s mainframe to ensure the integrity of ceded policies, including the critical edits, cession warning and penalty programs, experience rating, rate edit and audits.

• Participation Ratios and Ceding Expenses – interim and final participation ratios are calculated on a quarterly basis for informational purposes and are finalized on a yearly basis using applications built on CAR’s LAN server.

• Administrative Expense Ratios – are calculated annually using applications built on CAR’s LAN server.

• Settlement of Balances – the development and distribution of the Member Company financial results occur on a quarterly basis using applications built on CAR’s LAN server.

• ERP Management – Using an application built on CAR’s LAN server, CAR manages the certification, distribution and compliance of ERPs assigned to Servicing Carriers as well as dispute resolution.

Mission Critical Functions and Recommended Recovery Objectives:

Of the major processes supporting the commercial automobile function, the Settlement of Balances process is considered mission critical. (Note that the administration of the private passenger run-off pooling mechanism is also addressed with this process.) • The Recovery Time Objective

Because of the financial impact to Member Companies of an interruption to the Settlement of Balances process, CAR staff recommends that no more than one cash sharing cycle be missed. Accordingly, staff recommends an RTO of 90 days.


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• The Recovery Point Objective

Almost all processes supporting the commercial automobile function stem from the statistical data submissions addressed previously. The cession reporting, however, is a separate reporting process (note that CAR staff has the ability to backdate cession data). o Given CAR’s back-up procedures described previously, CAR staff

recommends that companies be required to store one week of reported cessions and be prepared to resubmit the data upon CAR’s recovery, along with documentation to validate cession backdate approval.

o Companies should also have the ability to accumulate 60 days of cession data, including supporting documentation, to be held for reporting until after recovery.

MAIP Function

Description of the Major Business Processes Almost all processes supporting the MAIP function are administered using applications built on CAR’s web server. However, MAIP Placement Records (MPRs) can be reported through FTP submission to the mainframe or through an online data entry application on CAR’s website.

• MAIP Policy Application – on a daily basis, from 7:00 AM to 7:00 PM agents

complete online applications for insurance to facilitate the immediate assignment of risks for automobile insurance coverage.

• FTP of Assignment Data to Companies – CAR transmits assignment data to companies on a daily basis.

• MPR Reporting – companies are required to report MPR transactions for policies assigned through the MAIP.

• Quota Share and Assignment – the quota share process determines which company receives the next assignment. It is updated in real time after each assignment, and underlying data is updated monthly to incorporate the monthly statistical data submissions.

• Rule 29 Credit Edit/Quota Share Verification/Hybrid Audit – various data quality programs and audits ensure the integrity of the quota share and assignment process.

• ARP Management – manage the certification and compliance of ARPs as well as dispute resolution.

Mission Critical Functions and Recommended Recovery Objectives:

Of the processes supporting the MAIP function, the MAIP Policy Application and the Quota Share and Assignment Processes are considered mission critical. CAR receives between 100 and 250 applications daily with as much as 100


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applications submitted in an hour at peak processing days and times. Processing occurs at the server level.

• The Recovery Time Objective

Business interruption will impact the immediate assignment of risks. CAR maintains a desktop application that will allow for the manual assignment of risks from applications received via fax transmission. Based on the volume of assignment activity during peak times and the manual efforts for recovery, CAR staff recommends an RTO of two days, which includes a recovery of systems within 24 hours and manual update of the quota share and assignment activity within the following 24 hours.

• The Recovery Point Objective o CAR currently backs up MAIP assignment data every 30 minutes, and a

copy is immediately replicated to a secure offsite location. At the close of business for the MAIP Policy Application, a full backup is run and also replicated offsite. For a system problem this plan has proven to be adequate. However, in the event of a physical disaster, this disaster recovery plan would not be effective as there would be no equipment available to restore the data to and to process subsequent assignments. To maintain the integrity of the assignments made, CAR recommends a transition to a more robust disaster recovery plan that will ensure an RTO of near zero for the assignment data.

o Recovery of all other data underlying the quota share and assignment processes is addressed under the statistical agent function.

SUMMARY AND CONCLUSION:

To summarize the major points in this proposal, CAR staff recommends the following: Recovery Time Objectives: The Recovery Time Objectives are summarized by system platform so that this committee as well as the Information Technology Advisory Committee can concentrate on the solution for each configuration.

• Mainframe functions - the processing of statistical submissions will resume within 60 days

• LAN functions - the distribution of the Settlement of Balances reports will resume

within 90 days and the assignment of MAIP policies will resume within 2 days. Recovery Point Objectives: The Recovery Point Objectives identify the time frame and data commitment that the companies will need to make for each critical business function in the event of a disruption.


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• Statistical submissions - companies would be expected to re-report no more than

one set of monthly submissions as well as maintain up to two months of monthly submissions to be reported after recovery has occurred.

• Statistical corrections - companies would be expected to re-key no more than

one week’s worth of statistical corrections.

• Annual Statement data - companies would be expected to resubmit no more than one quarter’s worth of annual statement data

• Cession data - companies would be expected to resubmit no more than one

week’s worth of cession data along with supporting documentation as well as maintain up to 60 days’ worth of cession data (including documentation) to be reported after recovery has occurred

• MAIP Applications – in our current environment, up to 30 minutes worth of

application data could be lost (and that amount would vary depending upon the time of day). However, once CAR has completed the upgrade to its disaster recovery plan, it is anticipated that the loss of application data would be kept to a minimum.


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