Post on 18-Jan-2016
transcript
2005 NCCI Holdings, Inc.
Workers CompensationState of the Line
2006 CAS Ratemaking Seminar
Jeff Eddinger, FCAS, MAAAPractice Leader & Senior Actuary
2 2005 NCCI Holdings, Inc.
Source:
Property & Casualty Results
3 2005 NCCI Holdings, Inc.
Source:
Line of Business (LOB) 2002 2003 2004p2003-2004p
ChangePersonal Auto $139.5 B $151.0 B $157.2 B 4.1%
Homeowners $40.0 B $45.7 B $49.5 B 8.4%
Other Liability (Incl Prod Liab) $30.9 B $37.8 B $42.7 B 12.9%
Workers Compensation $29.2 B $31.1 B $34.5 B 10.9%Commercial Multiple Peril $25.4 B $27.4 B $28.9 B 5.4%
Commercial Auto $24.5 B $25.4 B $26.8 B 5.4%
Fire & Allied Lines (Incl EQ) $15.4 B $17.6 B $18.0 B 2.3%
All Other Lines $64.9 B $69.0 B $65.9 B -4.5%
Total All Lines 369.8 B$ 405.0 B$ 423.5 B$ 4.6%
P/C Industry Net Written Premium Growth By Line
Private Carriers
p Preliminary
Source: 2002-2003, A.M. Best Aggregates & Averages; 2004p Total, ISO; 2004p LOB, NCCI
4 2005 NCCI Holdings, Inc.
Source:
Line of Business (LOB)
Personal Auto 104% 98% 94%
Homeowners 109% 98% 95%
Other Liability (Incl Prod Liab) 137% 114% 117%
Workers CompensationCommercial Multiple Peril 105% 101% 100%
Commercial Auto 103% 95% 92%
Fire & Allied Lines (Incl EQ) 89% 79% 88%
All Other Lines 105% 100% 99%
Total All Lines 107% 100% 98%
2002 2003 2004p
111% 109% 105%
P/C Industry Net Combined Ratios Improved Modestly in 2004
Private Carriers
p Preliminary
Source: 2002-2003, A.M. Best Aggregates & Averages; 2004p Total, ISO; 2004p LOB, NCCI
5 2005 NCCI Holdings, Inc.
Source:
116
110
116
102
110
116
10098
105105
109 109
106106
107107 107108 108109
85
90
95
100
105
110
115
120
19851986
19871988
19891990
19911992
19931994
19951996
19971998
19992000
20012002
20032004p
Percent
%Due toSeptember 11
1985-2003 Average: 108.1%
Calendar Year
P/C Industry Calendar YearCombined Ratios
Private Carriers
p Preliminary
Source: 1985-2003, A.M. Best Aggregates & Averages; 2004p, ISO
6 2005 NCCI Holdings, Inc.
Source:
18.717.3 17.3
16.517.6
19.318.0
16.917.9
19.320.9
18.319.3
12.0 11.7 11.9
15.314.5 14.214.5
0
5
10
15
20
25
19851986
19871988
19891990
19911992
19931994
19951996
19971998
19992000
20012002
20032004p
Net Realized Capital Gains to NEPNet Investment Income to NEP
1985-2003 Average Net Investment Gain: 16.8%
Calendar Yearp Preliminary
Source: 1985-2003, A.M. Best Aggregates & Averages; 2004p, ISO
Investment Gain Ratio Remains Below Historical Averages
Private Carriers
Percent
7 2005 NCCI Holdings, Inc.
Source:
2.8
15.113.9 13.4
9.78.0
9.6
3.6
11.2
5.8
9.7 10.1
13.1
9.6
3.3
9.610.5
-2.2
6.6 6.4
-6
0
6
12
18
19851986
19871988
19891990
19911992
19931994
19951996
19971998
19992000
20012002
20032004p
1985-2003 Average: 8.4%
Calendar Yearp PreliminarySource: 1985-2003, A.M. Best Aggregates & Averages; 2004p After-Tax Net Income, ISO;
2004p Surplus, 2003 A.M. Best Aggregates & Averages Private Carrier Surplus + 2004 ISO contributions to surplusNote: After-tax return on average surplus, including realized capital gains
Return on Surplus for P/C IndustryIncreased Slightly in 2004
Annual After-Tax Return on Surplus—Private Carriers
Percent
8 2005 NCCI Holdings, Inc.
Source:
Workers Compensation Results
9 2005 NCCI Holdings, Inc.
Source:
31.0 31.3
26.3 25.2 24.2 23.3 22.325.0 26.1
29.331.1
34.5
29.130.529.8
0
10
20
30
40
50
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004p
WC Net Written Premium ($ B)
Workers Compensation PremiumContinued to Rise in 2004
Private Carriers$ Billions
Calendar Yearp Preliminary
Source: 1990-2003, A.M. Best Aggregates & Averages; 2004p, NCCI
10 2005 NCCI Holdings, Inc.
Source:
117123 122
109102
97 100 101107
115 118122
111 109105
0
20
40
60
80
100
120
140
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004p
Loss LAE Underwriting Expense Dividends
1.9% Due to September 11Percent
WC Calendar Year Combined Ratio Continued Its Modest Decline in 2004
Private Carriers
p Preliminary
Source: 1990-2003, A.M. Best Aggregates & Averages; 2004p, NCCI
Calendar Year
11 2005 NCCI Holdings, Inc.
Source:
13.014.0
18.116.7
14.4
16.817.6
20.421.3
20.519.5
14.0
10.7 10.4 10
0
5
10
15
20
25
1990* 1991* 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004p
Percent
Low Workers Compensation InvestmentReturns Continued in 2004
Investment Gain on Insurance Transactions to Premium RatioPrivate Carriers
Calendar Yearp Preliminary* Adjusted to include realized capital gains to be consistent with 1992 and afterInvestment Gain on Insurance Transactions includes Other IncomeSource: 1990-2003, A.M. Best Aggregates & Averages; 2004p, NCCI
12 2005 NCCI Holdings, Inc.
Source:
7.5
12.8
19.717.9
19.8
13.9
5.2
1.5 1.0
5
0.0
-7.5
-3.4
-8.7
-4.2
-15
-10
-5
0
5
10
15
20
25
1990* 1991* 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004p
Percent
Calendar Yearp Preliminary* Adjusted to include realized capital gains to be consistent with 1992 and afterOperating Gain equals 1.00 minus (Combined Ratio less Investment Gain on Insurance Transactions and Other Income)Source: 1990-2003, A.M. Best Aggregates & Averages; 2004p, NCCI
2004 Workers CompensationResults Improved Over 2003
Pre-Tax Operating Gain Ratio—Private Carriers
13 2005 NCCI Holdings, Inc.
Source:
103 102
113
118122
127
114
109
10098
94
112114
118
113
107104
101
80
90
100
110
120
130
140
1996 1997 1998 1999 2000 2001 2002 2003 2004p
Countrywide
NCCI States
Percent
Workers Compensation Calendar Year Direct Combined Ratios
Countrywide and NCCI States—Private Carriers
p PreliminarySource: 1996-2003 Countrywide, A.M. Best Aggregates & Averages;
1996-2003 NCCI States, Statutory Page 14 and Insurance Expense Exhibit; 2004p, NCCI
Calendar Year
14 2005 NCCI Holdings, Inc.
Source:
28.427.0 25.9
28.5
32.0
37.5
42.0
46.0
25.0
0
10
20
30
40
50
1996 1997 1998 1999 2000 2001 2002 2003 2004p
25.2 24.2 26.129.2 31.1
34.5
23.3 22.325.0
0
10
20
30
40
50
1996 1997 1998 1999 2000 2001 2002 2003 2004p
State Funds ($ B)
Private Carriers ($ B)
$ Billions
p PreliminarySource: 1996-2003 Private Carriers, A.M. Best Aggregates & Averages; 2004p, NCCI
1996-2004p State Funds: AZ, CA, CO, HI, ID, KY, LA, MO, MT, NM, OK, OR, RI, TX, UT Annual Statements
Workers Compensation PremiumVolume Continues to Grow
Private Carriers and State Funds
Calendar Year
15 2005 NCCI Holdings, Inc.
Source:
100 101
107
115118
122
111 109105
112
119
143147
144
115 114 116 118119
128
141144
136
116 117
103 101
80
90
100
110
120
130
140
150
1996 1997 1998 1999 2000 2001 2002 2003 2004p
Private Carriers NCCI Affiliated State Funds State Funds
Percent
Calendar Year
Workers Compensation Calendar YearNet Combined Ratios
Private Carriers and State Funds
p PreliminarySource: 1996-2003 Private Carriers, A.M. Best Aggregates & Averages; 2004p, NCCI
1996-2004p State Funds: AZ, CA, CO, HI, ID, KY, LA, MO, MT, NM, OK, OR, RI, TX, UT Annual Statements
16 2005 NCCI Holdings, Inc.
Source:
19.8
13.9
5.2
1.5
-7.5
1.00.31.9
-2.1
8.7
3.8
-0.4
7.65.8
-6.0-7.5 -7.5
-0.7 -1.2
6.25
17.9
0.0
16.9
1
18.1
8
-15
-10
-5
0
5
10
15
20
25
1996 1997 1998 1999 2000 2001 2002 2003 2004p
Private Carriers NCCI Affiliated State Funds State Funds
1996-2003 AveragesPrivate Carriers: +6.5%NCCI Affiliated State Funds: +5.9%State Funds: -0.4%
Percent
Workers Compensation Pre-Tax Operating Gain Ratios
Private Carriers and State Funds
p PreliminaryOperating Gain equals 1.00 minus (Combined Ratio less Investment Gain on Insurance Transactions and Other Income)Source: 1996-2003 Private Carriers, A.M. Best Aggregates & Averages; 2004p, NCCI
1996-2004p State Funds: AZ, CA, CO, HI, ID, KY, LA, MO, MT, NM, OK, OR, RI, TX, UT Annual Statements
Calendar Year
17 2005 NCCI Holdings, Inc.
Source:
Workers Compensation
Accident Year Results
And
Reserve Estimates
18 2005 NCCI Holdings, Inc.
Source:
p PreliminaryAccident Year data is evaluated as of 12/31/2004 and developed to ultimateSource: Calendar Years 1995-2003, A.M. Best Aggregates & Averages;
Calendar Year 2004p and Accident Years 1995-2004p, NCCIIncludes dividends to policyholders
Accident Year Combined RatioAnother Underwriting Profit in 2004
Workers Compensation Calendar Year vs.Ultimate Accident Year – Private CarriersPercent
97100 101
107
115118
122
111109
105
100
106
120
131
139135
126
106
98
94
90
100
110
120
130
140
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004p
Calendar Year Accident Year
19 2005 NCCI Holdings, Inc.
Source:
15
18
2021
18
15
12
2
5
10
0
5
10
15
20
25
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004p
$ Billions
Workers Compensation Reserve Deficiencies Continue to Decline
Private Carriers
Loss and LAE Reserve Deficiency Through Year Endp Preliminary
Difference between NCCI estimated ultimate losses and LAE as of 12/31/2004 and reported in Schedule P
$5 billion of the Reserve Deficiencyin 2004 is due to Tabular Discounts
20 2005 NCCI Holdings, Inc.
Source:
p PreliminaryReported Loss and LAE reserves from Schedule PSource: 1995-2004p, NAIC Annual Statement insurance data
Workers Compensation AccidentYear Loss & LAE Ratios
Private CarriersPercent
Accident Year
78 7779
8184
83 83
7577
69
73
85
94
10098
86
7673
74
65
70
75
80
85
90
95
100
105
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004p
At First Report
As of 12/31/2004
21 2005 NCCI Holdings, Inc.
Source:
Workers Compensation
Premium Drivers
22 2005 NCCI Holdings, Inc.
Source:
12.1
7.4
10.0
2.9 3.5
1.2
4.9
6.6
-0.9
-6.4
-3.2
-6.0
-8.0
-5.4
-2.6
-6.0
-10
-5
0
5
10
15
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005*
Cumulative 1990-1993
+36.3%
Cumulative 1994-1999
-27.8%
Average Approved BureauRates/Loss Costs
History of Average WC Bureau Rate/Loss Cost Level ChangesPercent
Cumulative 2000-2003
+17.1%
Cumulative
2004-2005
-6.8%
Calendar Year* States approved through 04/15/2005Countrywide approved changes in advisory rates, loss costs and assigned risk rates as filed by the applicable rating organization
23 2005 NCCI Holdings, Inc.
Source:
-5.1-3.0
-2.0 -1.8-1.5-1.3 -1.1-1.0-0.7 -0.3
0.0 0.1 0.61.7 2.0 2.2 2.3 2.4 2.5 3.4 3.9 4.9 5.3 5.5 6.3 6.5
8.8
12.0
11.2 11.4
-20.2
12.1
-6.5
-25
-20
-15
-10
-5
0
5
10
15
20
RI CONV
FL HI SD DC AR MO IA GA AL CT OR IL MS KS NC ME LA AZIN
NH MD TN NEVA
ID OK KY VT NM UT SC AK MT
Current NCCI Voluntary Market Approved Rate/Loss Cost Changes
Excludes Law-Only FilingsPercent
States approved through 04/15/2005
24 2005 NCCI Holdings, Inc.
Source:
73.7%
6.7%
2.4%17.2%
Wages and Salaries
Health Insurance
Workers Compensation
All Other
Employer Costs As Percentage ofTotal Compensation
Private Industry
1994 2004
All Other includes Paid Leave, Insurance (other than Health), Social Security, Retirement and SavingsSource: U.S. Department of Commerce, Bureau of Labor Statistics
7.3%
17.8%1.8%
73.1%
25 2005 NCCI Holdings, Inc.
Source:
-7.1 -7.5 -7.0-8.5
-10.4
-14.6
-17.7
-22.6
-19.2
-14.2
-4.0-0.2
-23.2
-1.6
-25
-20
-15
-10
-5
0
5
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004p
Rate/Loss Cost Departure Schedule Rating Dividends
Percent
Impact of Discounting on Workers Compensation Premium
NCCI States—Private Carriers
p PreliminaryNCCI benchmark level does not include an underwriting contingency provisionDividend ratios are based on calendar year statisticsBased on data through 12/31/2004 for the states where NCCI provides ratemaking services
Policy Year
26 2005 NCCI Holdings, Inc.
Source:
Workers Compensation
Loss Drivers
27 2005 NCCI Holdings, Inc.
Source:
$9
.7
$9
.4
$9
.1
$9
.6
$9
.7
$1
0.3
$1
1.1
$1
2.1
$1
3.3
$1
4.7
$1
6.1
$1
6.5
$1
7.2
$1
7.9
+4.2%+4.6%
+2.4%+9.0%
+11.2%
+9.9%
+8.5%+7.7%
+5.9%+1.7%+4.9%
-2.8%-3.1%+1.0%
5
7
9
11
13
15
17
19
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004p
IndemnityClaim Cost (000s)
Annual Change 1991–1995: +0.3%Annual Change 1996–2003: +7.4%
2004p: Preliminary based on data valued as of 12/31/20041991-2003: Based on data through 12/31/2003, developed to ultimateBased on the states where NCCI provides ratemaking servicesExcludes the effects of deductible policies
The Growth in WC Indemnity ClaimCosts Has Eased in Recent Years
Lost–Time Claims
Accident Year
28 2005 NCCI Holdings, Inc.
Source:
Indemnity severity 2004p: Preliminary based on data valued as of 12/31/2004Indemnity severity 1995-2003: Based on data through 12/31/2003, developed to ultimateBased on the states where NCCI provides ratemaking services, excludes the effects of deductible policiesSource: Calendar year Current Population Survey, Economy.com; Accident year indemnity severity, NCCI
2.8 2.8
4.04.7
4.24.9
4.2
2.2 2.01.7
5.9
7.78.5
9.9
11.2
9.0
2.4
4.64.2
2.2
0
2
4
6
8
10
12
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004p
Change in CPS Wage Change in Indemnity Cost per Lost-Time Claim
Percent Change
Workers Compensation Indemnity Severity Is Outpacing Wage Inflation
Lost–Time Claims
Year
29 2005 NCCI Holdings, Inc.
Source:
Annual Change 1991–1995: +3.9%Annual Change 1996–2003: +9.3%
WC Medical Claim Cost TrendsDouble-Digit Growth Continued in 2004
Lost–Time ClaimsMedicalClaim Cost (000s)
Accident Year
$8
.0
$8
.2
$8
.0
$8
.7
$9
.1
$9
.8
$1
0.8
$1
1.6
$1
2.8
$1
3.9
$1
5.5
$1
6.8
$1
8.7
$2
0.6
+10.5%
+10.9
+8.4%
+11.9%
+8.5%+9.9%
+7.6%+10.1%
+7.4%+5.1%+9.0%
-2.1%+1.3%+6.8%
5
7
9
11
13
15
17
19
21
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004p
2004p: Preliminary based on data valued as of 12/31/20041991-2003: Based on data through 12/31/2003, developed to ultimateBased on the states where NCCI provides ratemaking servicesExcludes the effects of deductible policies
30 2005 NCCI Holdings, Inc.
Source:
4.53.6
2.83.2 3.5
4.14.6 4.7
4.0
5.1
7.4
10.1
7.6
9.9
8.5
11.9
8.4
10.9 10.5
4.4
0
2
4
6
8
10
12
14
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004p
Change in Medical CPI Change in Medical Cost per Lost-Time Claim
Workers Compensation Medical Severity Has Been Growing Much
Faster Than the Medical CPILost–Time ClaimsPercent Change
Medical severity 2004p: Preliminary based on data valued as of 12/31/2004Medical severity 1995-2003: Based on data through 12/31/2003, developed to ultimateBased on the states where NCCI provides ratemaking services, excludes the effects of deductible policiesSource: Calendar year Current Population Survey, Economy.com; Accident year medical severity, NCCI
Year
31 2005 NCCI Holdings, Inc.
Source:
3.2 3.54.1 4.6 4.7
7.6
9.9
8.5
11.9
8.4
12.9
15.1
12.4
14.9
11.1
0
2
4
6
8
10
12
14
16
18
20
1998 1999 2000 2001 2002
Change in Medical CPIChange in Medical Cost per Lost-Time ClaimChange in Rx Drug Costs per Lost-Time Claim
Percent Change
Drug Costs Are Increasing More Rapidly Than Total WC Medical Costs
Year
Medical severity: Based on data through 12/31/2003, developed to ultimateBased on the states where NCCI provides ratemaking services, excludes the effects of deductible policiesSource: Calendar year Current Population Survey, Economy.com; Accident year medical severity, NCCI; Accident year
Rx Drug Costs, NCCI estimate based on sample data provided by carriers
32 2005 NCCI Holdings, Inc.
Source:
Workers Compensation Medical Losses Are More Than Half of Total Losses
All Claims—NCCI States
44%56%
1984
MedicalIndemnity
1994
51% 49%
Indemnity Medical
2004p
43% 57%Indemnity Medical
2004p: Preliminary based on data valued as of 12/31/20041984, 1994: Based on data through 12/31/2003, developed to ultimateBased on the states where NCCI provides ratemaking servicesExcludes the effects of deductible policies
33 2005 NCCI Holdings, Inc.
Source:
-4.2 -4.4
-9.2
-6.3
-4.2-3.7 -3.4
0.3
-6.5
-4.5
0.5
-3.9
-2.3
-4.5
-10
-8
-6
-4
-2
0
2
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004p
Cumulative Change of –42.0%(1990-2003)
Percent Change
Workers Compensation Lost-Time Claim Frequency Continues Its Decline
Lost-Time Claims
Accident Year2004p: Preliminary based on data valued as of 12/31/20041991-2003: Based on data through 12/31/2003, developed to ultimateBased on the states where NCCI provides ratemaking servicesExcludes the effects of deductible policies
34 2005 NCCI Holdings, Inc.
Source:
-24%-21%-15%-22%-8%
-70
-60
-50
-40
-30
-20
-10
0
10
20
Fatal PermanentTotal
PermanentPartial
TemporaryTotal
Medical OnlyPe
rce
nt
Ch
an
ge
in L
os
t-T
ime
Cla
im F
req
ue
nc
y
Smallest 1/3 of Claims within Injury Type
Middle 1/3 of Claims within Injury Type
Largest 1/3 of Claims within Injury Type
Percent Change Between Policies Expiring in 1999 and 2003
Change in Lost-Time Claim Frequency By Injury Type and by Size of Loss Group
Loss Size Adjustments: 4.2% Indemnity, 7.4% MedicalFrequency = Lost-time claims / payroll; Payroll adjusted for inflationClaim count determined at 1st report. NCCI States only, excluding Texas
35 2005 NCCI Holdings, Inc.
Source:
$1
2.1
$1
3.3
$1
4.7
$1
6.1
$1
6.5
$1
7.2
$1
7.9
+4.2%+4.6%
+2.4%+9.0%+11.2%
+9.9%+8.5%
5
7
9
11
13
15
17
19
21
23
1998 1999 2000 2001 2002 2003 2004p
IndemnityClaim Cost (000s)
Workers Compensation Indemnity Claim Costs
Lost–Time Claims
Accident Year
Annual Change Before Adjustment for Claim Size, 1998-2002: +8.1%
2004p: Preliminary based on data valued as of 12/31/20041998-2003: Based on data through 12/31/2003, developed to ultimateBased on the states where NCCI provides ratemaking servicesExcludes the effects of deductible policies
36 2005 NCCI Holdings, Inc.
Source:
$1
2.1
$1
2.9
$1
4.0
$1
4.8
$1
4.7 ? ?
? ?
+4.2%+4.6%
+2.4%+9.0%+11.2%
+9.9%+8.5%
5
7
9
11
13
15
17
19
21
23
1998 1999 2000 2001 2002 2003 2004p
IndemnityClaim Cost (000s)
Annual Change Before Adjustment for Frequency by Size, 1998-2002: +8.1%Annual Change After Adjustment for Frequency by Size, 1998-2002: +5.1%
Impact of Changes in Claim Size Distribution on Indemnity Claim Costs
Lost–Time Claims
Accident Year2004p: Preliminary based on data valued as of 12/31/20041998-2003: Based on data through 12/31/2003, developed to ultimateBased on the states where NCCI provides ratemaking servicesExcludes the effects of deductible policies
37 2005 NCCI Holdings, Inc.
Source:
$1
1.6
$1
2.8
$1
3.9
$1
5.5
$1
6.8
$1
8.7
$2
0.6
+10.5%
+10.9%
+8.4%+11.9%
+8.5%+9.9%
+7.6%
5
7
9
11
13
15
17
19
21
23
1998 1999 2000 2001 2002 2003 2004p
Workers Compensation Medical Claim Costs
Lost–Time Claims
Accident Year
Annual Change Before Adjustment for Claim Size, 1998-2002: +9.7%
MedicalClaim Cost (000s)
2004p: Preliminary based on data valued as of 12/31/20041998-2003: Based on data through 12/31/2003, developed to ultimateBased on the states where NCCI provides ratemaking servicesExcludes the effects of deductible policies
38 2005 NCCI Holdings, Inc.
Source:
$1
1.6
$1
2.5
$1
3.4
$1
4.6
$1
5.6
??
?
?
+7.6%+9.9%
+8.5%
+11.9%+8.4%
+10.9%
+10.5%
5
7
9
11
13
15
17
19
21
23
1998 1999 2000 2001 2002 2003 2004p
Annual Change Before Adjustment for Frequency by Size, 1998-2002: +9.7%Annual Change After Adjustment for Frequency by Size, 1998-2002: +7.7%
Impact of Changes in Claim Size Distribution on Medical Claim Costs
Lost–Time Claims
Accident Year
MedicalClaim Cost (000s)
2004p: Preliminary based on data valued as of 12/31/20041998-2003: Based on data through 12/31/2003, developed to ultimateBased on the states where NCCI provides ratemaking servicesExcludes the effects of deductible policies
39 2005 NCCI Holdings, Inc.
Source:
Workers CompensationResidual Market
40 2005 NCCI Holdings, Inc.
Source:
1.2
2.12.6
2.8
3.54.0
4.44.8
4.1
3.1
2.0
1.00.6
0.3 0.3 0.40.6
1.11.4 1.5
0
1
2
3
4
5
6
Workers Compensation Residual Market Premium Volume
NCCI-Serviced Workers Compensation Residual Market PoolsAs of December 31, 2004
$ Billions
Policy Year
* Excludes Maine Residual Market Pool** Incomplete Policy Year Projected to Ultimate
41 2005 NCCI Holdings, Inc.
Source:
Workers Compensation Residual Market Shares Continue to Rise
Workers Compensation Insurance Plan States* Premium As a Percent of Direct Written Premium
9
1618 17
2224
2629 28
24
17
11
8
4 3 3
13
5
1112
0
5
10
15
20
25
30
Percent
Calendar Year
p Preliminary* NCCI Plan states plus DE, IN, MA, MI, NJ, NC
42 2005 NCCI Holdings, Inc.
Source:
176
164168 166
159
143
127
112103
98 94 98 102
115119 118 116114 115 113
80
100
120
140
160
180
200
19851986
19871988*
1989*
1990*
1991*
1992*
19931994
19951996
19971998
19992000
20012002
20032004**
Workers Compensation Residual Market Combined Ratios
NCCI-Serviced Workers Compensation Residual Market Pools As of December 31, 2004
Percent
Policy Year
* Excludes Maine Residual Market Pool** Incomplete Policy Year Projected to Ultimate
43 2005 NCCI Holdings, Inc.
Source:
-922
-1,361
-1,777-1,883
-2,063
-1,687
-1,190
-553
-141-14 -50 -53 -63
-240-85 -164 -174
71 11816
-2,500
-2,000
-1,500
-1,000
-500
0
500
Workers Compensation Residual Market Underwriting Results
NCCI-Serviced Workers Compensation Residual Market PoolsAs of December 31, 2004
$ Millions
Policy Year
* Excludes Maine Residual Market Pool** Incomplete Policy Year Projected to Ultimate
44 2005 NCCI Holdings, Inc.
Source:
Residual Market ProgramsMitigate the Burden
Pricing Programs:– Differential/Surcharge
– ARAP/SARAP
– Removal/Reduction ofPremium Discount
– LSRP
Depopulation Mechanisms:– Take-Out Credit Program– Voluntary Compensation Assistance Program
Improved Controls:– Paid Loss Ratio Incentive Program– Heightened carrier audit process
Improved Efficiency:– Servicing carrier bid process
ARAP: Assigned Risk Adjustment ProgramSARAP: Simplified Assigned Risk Adjustment ProgramLSRP: Loss Sensitive Rating Plan
45 2005 NCCI Holdings, Inc.
Source:
In Summary
Negatives
• Low investment returns continue to put pressure on underwriting results
• Medical severity continues rapid growth
• Calendar year results lag behind other lines
Positives
• Results are improving
• Frequency continues to decline
• Industry making progress on reserve deficiency
• Residual Market burden still manageable
46 2005 NCCI Holdings, Inc.
Source:
End of Presentation
Thank You