Nova Scotia approves Sonnet auto-rate changes and revised renewal caps

The Nova Scotia Regulatory and Appeals Board has approved Sonnet Insurance Company’s private-passenger automobile rate changes, including an overall increase of 10 per cent and revisions to the system that limits changes in some renewal premiums. The October 2, 2026 decision in Sonnet Insurance Company, 2026 NSRAB 137, also permits an extensive revision of the factors used to price individual risks.

The 10 per cent figure is the overall impact across the insurer’s coverage portfolio. It is not a prescribed increase for every driver, and it is not the maximum increase allowed by the renewal cap. Individual premiums depend on the approved rating factors and whether the capping rules apply.

Renewal protection has exceptions and also limits decreases

Sonnet’s existing premium-dislocation mechanism operates on a per-vehicle or per-exposure basis and limits both increases and decreases at renewal. Its protection extends to coverages but generally excludes endorsements, except SEF#44. The application changed the limits on premium increases; the reasons do not publish a single numerical cap that can be applied to every policy.

The cap does not apply where the client has had a new at-fault accident or conviction within the previous 14 months. When a new vehicle or coverage is added at renewal, the cap does not apply to that addition either. Those exceptions matter when assessing what the approval means for a particular renewal.

The board also examined the fairness of limiting premium decreases. To permit that feature, it requires the premiums the insurer gives up by limiting increases to be at least as large as the extra revenue it collects by limiting decreases. Sonnet’s uncapped increase slightly exceeded its capped increase under the proposed limits, which the board accepted as meeting that requirement.

Company data supported the increase

Board member M. Kathleen McManus assessed whether the proposed rates and risk-classification systems were just and reasonable and complied with the Insurance Act and its regulations. Staff reviewed the filing and sought further information before recommending approval. Sonnet reviewed their report and had no further comments.

Sonnet based its loss-trend analysis on the Nova Scotia experience of its sister company, Definity, through December 31, 2025. It also considered industry data for longer-tail coverages such as bodily injury and accident benefits, where the cost of claims can develop over a longer period. Its modelling included adjustments for pandemic effects and unusually high physical-damage cost inflation.

The board said it generally would not accept company-only trend data if the sample were too small to reveal credible trends. Here, Definity represented about one-twelfth of the provincial market. The board had previously allowed the companies to use Definity’s experience and found no reason to change that approach in this application.

Calculations using the board consultant’s industry assumptions pointed to a slightly smaller indicated increase than Sonnet’s assumptions. The board nevertheless accepted Sonnet’s loss trends and staff’s matching indications as the appropriate benchmark. The proposed changes were below the indicated need for every coverage and produced a projected return on equity of 9.6 per cent, below Sonnet’s 10 per cent target. That was a ratemaking projection, not a finding about profits actually earned.

Rating changes and effective dates differ

The filing begins a multi-phase effort to align Sonnet’s rating structure with Definity’s. It changes 12 existing rating variables, including driving distance, driving record, vehicle age, ownership and price. It also removes two variables and relies more heavily on the interaction between the number of vehicles and drivers, aiming to simplify the formula and avoid double counting.

The changes do not all move premiums in the same direction. For example, Sonnet lowered the highest annual-distance differential for most coverages other than comprehensive coverage, but extended a direct-compensation property-damage surcharge to the 8,000-to-16,000-kilometre category. It also reduced the conviction-free discount for bodily injury and property-damage tort coverage while leaving that discount unchanged for other coverages.

Sonnet included the effects of the rating-factor changes in its off-balancing calculations to make those changes revenue-neutral overall. That does not mean each policy remains unchanged or that the separately approved overall rate increase disappears. A redistribution among risks and a change in the overall rate level are different parts of the filing.

The board also approved adoption of the 2026 Canadian Loss Experience Automobile Rating table for assigning vehicle rate groups. All approved changes had an October 29, 2026 effective date for new business. For renewals, most changes were approved effective December 18, 2026, but the new vehicle-rating table was approved effective January 27, 2027.

The decision set July 1, 2028, as Sonnet’s next mandatory filing date for private-passenger vehicles. An updated electronic insurance manual was required within 30 days after issuance of the order in the matter. The reasons said an order would follow; they do not by themselves establish subsequent implementation or what any particular policyholder has been charged.

The approval therefore combines a portfolio-wide rate increase with changes in how costs are distributed and how quickly some renewal premiums can change. The exceptions to capping, and the separate renewal date for the vehicle-rating table, prevent the overall percentage from serving as a reliable prediction of an individual bill.