Overview of Tennessees Workers Compensation Market Conditions and Environment August 29, 2013...
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Transcript of Overview of Tennessees Workers Compensation Market Conditions and Environment August 29, 2013...
1
Overview of Tennessee’sWorkers’ Compensation Market Conditions and
EnvironmentAugust 29, 2013
Advisory Council on Workers’ Compensation
Presented by Mike Shinnick - TDCI
2
Presentation Covers• Premium Segment Changes• Key National Indicators• National and State Price Changes• 2013 Voluntary LCM Distribution• Assigned Risk Trends• Assigned Risk Cycle Implications• Likely Assigned Risk 2014 LCM
Recommendation• Insolvency Changes, Including Two New• TN A.M. Best Ratings By Premium
Concentrations• NCCI AIS Summary
3
2012 Market Segments
Voluntary Self Insureds SI Groups* TWCIP$0
$100
$200
$300
$400
$500
$600
$700
$800 $721
$169
$22 $39
$779
$149
$23$54
20112012
+8%
+38%+5%
-12%**
Millions in Premiums
• * Excluding government sponsored groups; Individual Self Insureds are on an equivalent premium basis, Group premiums are estimated.
• ** Change in “equivalent premium” premium tax calculation: weighted average voluntary LCM vs. assigned risk LCM: 1.34/1.51(-11.3%); lost 5 & no new added
4
National Picture
5
Property & Casualty Underwriting
Results
Improved Significantly
Net Calendar Year Combined Ratio – Private Carriers
Line of Business
2010 2011 2012 preliminary
Personal Auto 101% 102% 102%
Homeowners 107% 122% 104%
Com. Multi Peril
101% 113% 107%
Com. Auto 98% 104% 107%
Workers’ Comp 115% 115% 109%
Total P&C Industry
102% 108% 103%
Sources: NCCI for Workers Comp; Total P/C Industry: ISO
Combined Ratio = Expense Ratio + Loss & LAE Ratio; results <100 equate to an underwriting
profit
6
Calendar Year Combined RatiosExcept for 2008, WC Consistently Trails Overall P&C Results
(on Average 6 Points Less Favorable)
'01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12p0
20
40
60
80
100
120
140
122111 110 107 103
93101 101
110115 115
109
CY WCCY P&C
Source: NCCI; Annual Statement Date; ISO; 2011 preliminary data
7
Workers’ Compensation Indemnity
Claims Cost – Modest Increase in
2012
'00'' '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11p '12p
-4%
-2%
0%
2%
4%
6%
8%
10%
12%
1%
-3%
2%1%
Source: NCCI (2012 is preliminary)
8
WC Medical Claim Cost Trends
'00
'02
'04
'06
'08
'10
'12p
0
2
4
6
8
10
12
14
16
Change in Med. SeverityMedical CPI
Sources: NCCI – Medical Severity; Economy.com – Medical CPI; 2012 is preliminary
Percentage Change
9
WC Lost-Time Claim Frequency Continued to
Decline in 2012
'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11p '12-8
-6
-4
-2
0
2
4
6
Source: NCCI; 2012 is Preliminary; 2010 & 2011 frequency is adjusted for recessionary factors
Percentage
10
Countrywide Accident Year Combined Ratios
'03 '04 '05 '06 '07 '08 '09 '10 '11 '12p0
20
40
60
80
100
120
7465 63 65
7380 82
90 8680
23.8
23.4 23.6 20.9
26.1
26.427.8
28.327.6
28
97.8
88.4 86.6 85.9
99.1
106.4 109.8113.6
108.0
118.3
Loss & LAE Ratio
Expense Ratio Includ-ing Dividends
Source: NCCI; 2012 preliminary data
11
WC Operating
Gain Reemerges
Pre-Tax Operating Gain Ratio – Private Carriers
'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12p
-15.0%
-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
Source: 2000-2011, Annual Statement Data; 2012 NCCI - preliminary
5.2% Average (1990-2011)
12
According to Goldman Sachs, Prices Appear to be
Increasing
Agent Responses on WC Rates on Renewals vs. 12 Months Prior
Down 21%+
Down 11-20%
Down 1-10%
No Change
Up 1-10%
Up 11%+-10.00%
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
70.00%
0% 0%
1%
8%
57%
33%Jan-11Jan-12Jan-13
Source: Goldman Sachs Research, Proprietary Survey, January 2013 Pricing Survey, Insurance: Property & Casualty (Exhibit 4, WC)
Percentage of Respondents
13
Change in Commercial Rate Renewals,
by Line: 1Q12 vs. 1Q13
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
1.30%
4.60% 4.30% 4.60%5.50%
4.10%
6.80%
9.80%
Source: Council of Insurance Agents and Brokers; Insurance Information Institute
14
Tennessee Specific
15
TN Direct Premium Written
Premium (DPW) History
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
-50000000
50000000
150000000
250000000
350000000
450000000
550000000
650000000
750000000
850000000
950000000
DPW
10%
-4%
11%
DPW: “Direct Premiums Written" - Property/casualty premiums collected by the insurer from policyholders, before reinsurance premiums are deducted. Insurers share some direct premiums and the risk involved with their reinsurers.
16
Tennessee Accident Year Combined Ratios
'03 '04 '05 '06 '07 '08 '09 '10 '11 '12p0
20
40
60
80
100
120
140
78 74.367.6 69.3 70.3
77.4 82.596.3
84.775.6
25.125.6
28.6 21.7 24.4
25.824.8
26.6
24
24.1
103.1 99.996.2 91 94.7
103.2 107.3 108.7
99.7
122.9
Loss & Loss Ad-justment Expense
Expense Ratio Includ-ing Dividends
Source: NCCI - added 9/23/13; 2012 preliminary data
Loss Cost Filing & Final Approvals Since 2004 Reforms
Implemented
Year Filing Made
NCCI Filed Rate
Advisory Council Recommendation
C&I Approved Rate
Effective Date
2004 -6.3% -6.3% -6.3% 9/1/2004
2005 3.9% 3.9% 3.9% 7/1/2005
2005 -6.9% -6.9% -6.9% 7/1/2005
2006 1.6% 1.6% 1.6% 3/1/2006
2007 1.4% 0% 1.4% 3/1/2007
2007 2.4% 2.4% 2.4% 7/1/2007
2007 -7.2% -8.6% -7.2% 3/1/2008
2008 -3.1% -3.1% -3.1% 7/1/2008
2008 -3.1% -3.4% -3.1% 3/1/2009
2009 -.1% -.1% -.1% 3/1/2010
2010 -5.1% -5.3% -5.1% 3/1/2011
2011 6.3% 6.3% 6.3% 11/1/11
2011 1.6% -.3% .4% 3/1/12
2012 -5.1% -5.1% -5.1% 8/9/12
2012* 2.3% 1.6% 2.3% 3/1/13
17
-19% since 2004 Reforms*
18
Tennessee Voluntary Market Weighted
Average Loss Cost Multiplier History
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 20131.25
1.3
1.35
1.4
1.45
1.5
1.461.49
1.461.43
1.41.37
1.33 1.34 1.34 1.35
1.4
Multipliers are based on prior year premium “weighted average” market shares.
+4%
19
TN Price Change Analysis
Oct
'11
Nov
'11
Dec '1
1
Jan
'12
Feb '1
2
Mar
'12
Apr '1
2
May
'12
Jun
'12
Jul '
12
Aug '1
2
Sep '1
2
Oct
'12
Nov
'12
Dec '1
2
Jan
'13
Feb '1
3
Mar
'13
Apr '1
3
May
'13
-10
-5
0
5
10
15
Average Re-ported Net Rate Change: Cur-rent/Prior Peri-ods (5% in 2012, 1% in2013)
Filed Loss Cost Change
Source: NCCI
20
2013 LCM Distribution(by Direct Premium Written)
Median 1.40
80% are above 1.05 and below 1.6325% above 1.52 Assigned Risk LCM
A complete listing of LCMs is posted on the Department’s website
21
TN WC Premium Tax Revenues
YE 8/31/09 YE 8/31/10 YE 8/31/11 YE 8/31/12
Self Insurance
$8M $6.7M $7.5M $6.4M
Insurance $31.8M $25.9M $26.6M $31.7M
Total Premium Tax*
$39.8M $32.6M $34.1M $38.1M
Data excludes .4% TOSHA Surcharge
22
Tennessee Workers Compensation Insurance Plan
(TWCIP)
23
TWCIP Premium History
0
20000000
40000000
60000000
80000000
100000000
120000000
140000000
160000000
Premium
Poor Experience Poor Experience
Up 38%
Best Experience
24
Servicing Carrier & Direct Assignment
Carrier Loss Ratio History
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 20110.0%
20.0%
40.0%
60.0%
80.0%
100.0%
120.0% (1.55LCM Leveled)
Loss Ratio
Premium at Low Ebb71% Break
Even
25
TWCIP LCM History
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
1
1.1
1.2
1.3
1.4
1.5
1.6
1.7
1.8
1.9
2
1.497
1.7 1.7
1.95 1.951.85
1.7 1.631.54 1.51 1.55
1.671.52
26
TN Assigned Risk Market Share -
NAIC Direct Premium Written
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
14.76%15.65%
14.94%
11.00%
8.80%
6.60%
5.30%4.80%4.70%5.20%
6.49%
Statutory ThresholdMarket Share
27
LCM History: Voluntary vs.
TWCIP
TWCIP 21% On Average Higher
'03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '140
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
1.8
2
1.46 1.49 1.46 1.43 1.4 1.37 1.33 1.34 1.34 1.35 1.40 1.44
1.7
1.95 1.951.85
1.71.63
1.54 1.51 1.551.67
1.52 1.55
Voluntary
TWCIP
2014 is esti-mated at 8% higher than voluntary market – as-sumes 4 point in-crease in vol-untary LCM
28
TN Assigned Risk Bookings Up, But Growth
Slowing Since March 2013
July '12
Aug '12
Sept '12
Oct '12
Nov '12
Dec '12
Jan '13
Feb '13
Mar '13
Apr '13
May '13
Jun '13
July '13
0
1,000,000
2,000,000
3,000,000
4,000,000
5,000,000
6,000,000
7,000,000
Last 6 months of 2012:Bookings up 41%
First 6 months of 2013:Bookings up 21%
NCCI Plans Up 34% through June 2013
NCCI Plans Up 61% for last 6 months of 2012
‘12/’13
’11/’12
29
TCA § 56-5-314 (c)(6)(B)
• “The commissioner shall annually establish the
multiplier to be applied to the advisory prospective loss cost for the assigned risk plan. In establishing such multiplier, the commissioner shall consider the estimated cost of providing required services pursuant to this subsection and the level of the multipliers in the voluntary market.” (emphasis added)
30
Servicing Carrier & Direct Assignment
Carrier Loss Ratio History
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 20110.0%
20.0%
40.0%
60.0%
80.0%
100.0%
120.0% (1.55LCM Leveled)
Loss Ratio
Premium at Low Ebb
“Low” LCM Projection Period: 2003-2007Aggressive pick: LCM Projection Period: 2003-2006
1.57
71% Break Even
1.54
31
Aon’s Actuarial Estimate of Break Even
3/1/14 LCM
Mid Point Low High
1.57 1.66
• Projections are “grossed up” to reflect 50% reduction in tabular surcharge effective 9/1/12.
• MID POINT: Full data period is 2004-2011, excluding experience for 2010 due to $5M+ claim. Had Aon used 2010 data, the full impact would have projected a HIGH of 1.66 LCM. Six million dollar claim development in 2006 responsible for overall increase in the numbers.
• No provision for adverse deviation due to 2014 premium projected to be much higher than 2009-2011, when cycle was in its low ebb.
• 1.54 “final target” reflects experience from 2003-2006, while 1.57 reflects “final target low” 2003-2007.o Same 2003-2006 data segment that produced current 1.52 LCMo Encompasses upper end of cycle premium levels. Premiums for the next several years are
expected to grow significantly and approach the upper end range similar to what’s anticipated 2014 premium position. However, will likely factor premium levels not being as high as same point in prior cycle.
o Recommendation of 1.55 or 1.56 likely to be made which is between “aggressive” and “low” end projections. This is due to introduction of TAIL plan for policies with a standard premium of $250,000 and up (1.65 maximum). This should substantially improve loss ratio for this segment. TAIL Plan policies make up approximately 7% of the total premium.
1.61
Likely Recommendation 1.55-1.56
32
Currnetly Five Active Self-Insured Groups
Self Insured Groups
Associated Builders & Contractors of Tennessee
Comptrust AGC of Tennessee
Tennessee Automotive Association
Tennessee Forestry Association
Tennessee Health Care Association
33
Insolvencies• Individual carrier data included in this section
includes insolvencies over $1million in total losses.
34
WC Insolvency Data – Valued
7/31/13
(Listing Only Carriers Having Over $1M Total Unpaid Losses)
Carrier(Liquidation Date)
Total # Claims
Total $ Amount Paid Claims
Total $ UnpaidClaims
Reliance (10/01) 1,759 38,018,295 24,408,008
Home Ins. Co. (6/03) 125 2,657,057 4,891,376
Reciprocal of America (6/03) 313 1,683,790 2,798,327
Legion & Villanova (7/03) 1,878 40,405,486 22,621,821
Casualty Reciprocal (8/04) 52 1,706,249 2,707,130
Realm National (6/05) 52 3,010,248 2,211,751
Imperial Casualty (5/10) 127 1,537,591 1,544,505
Pegasus (8/10) 6 192,621 1,181,475
Lumbermens Mutual (5/13) – PRELIMINARY
87 2,022 7,377,907
Ullico (5/13) - PRELIMINARY 40 7,522 *5,994,891
Totals (all since 10/3/01) 4,439 89,220,881 75,737,191Source: TN Guarantee Association; * projected, as not all claims have been reserved
35
Number of WC Carrier Insolvencies
Per Year Impacting TN
'01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '120
1
2
3
4
5
6
Source: TN Guarantee Association; 2003 Legion & Villanova are combined & shown as one.
36
TN Guaranty Fund Assessment History (Millions)
'90-'99
'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '120
2
4
6
8
10
12
14
16
18
37
A.M. Best Ratings for Companies
with >$1M Premium – Premium
Shares
39%
57%
1% 1% 2%
A+, A++A-,AB, B++C or BelowNot Rated
Superior
Good
Weak
Not Rated
As of July 31, 2013
38
TN Restaurant Association
• All claims have been paid. • TDCI is filing fees, a final return
with the IRS then closure motion with the court.
39
NCCI Annual Issues Symposium Summary
Negatives Positives
• Underwriting results • Premium increased
• Potential expansion of alternative systems for WC
• Frequency decline resumes
• Interest rates at historic lows
• Severity growth moderate
• Uncertain impact from healthcare reform
• Improved Countrywide AY Combined Ratio
• Pace of economic recovery • Industry’s capital position“Encouraging”
Summary: NCCI Filings Reported
Quarterly
Third Quarter 2012• TWCIP Change • Revision to TWCIP Rehabilitation and Tabular Surcharge
Reduction Incentive Plan
Fourth Quarter 2012• 02-TN-2012 • Revision to Basic Manual State Rule Exceptions for Rule 2-E-1-B
and Rule 2-E-3
40
First Quarter 2013• None
• N/A
Second Quarter 2013• Item R-1406-2013
• Item R-1407-2013
• Update to the Retrospective Rating Plan Parameters – Excess Loss Factors
• Update to the Retrospective Rating Plan Parameters – State Hazard Group Differentials
41
Summary: NCCI Filings Reported Quarterly
(continued)First Quarter 2013• None
Second Quarter 2013• Item R-1406-2013
• Item R-1407-2013
• Update to the Retrospective Rating Plan Parameters – Excess Loss Factors
• Update to the Retrospective Rating Plan Parameters – State Hazard Group Differentials