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$: State of Hawaii - Departmentags.hawaii.gov/.../uploads/2012/09/...HRD_06-30-11.pdf · State of Hawaii Department of Accounting and ... State of 882A\2011_06_30_HRD\Report\Hawaii_HRD_WC$
State of Hawaii

Actuarial Study of the Self-Insured Workers Compensation Program

as of June 30, 2011

November 2, 2011

1901 Main Street, Suite 300 Irvine, CA 92614 tel: 949.608.6300 • fax: 949.608.6475 • www.aon.com Aon Risk Solutions | Global Risk Consulting | Actuarial and Analytics

November 2, 2011 299001 State of Hawaii Department of Accounting and General Services 1151 Punchbowl Street, Room 320 Honolulu, HI 96813 Attn: Mr. Wayne Horie Administrator of the Accounting Division

Actuarial Study of the Self-Insured Workers Compensation Program

as of June 30, 2011 This study has been completed for the State of Hawaii for the specific objectives listed in the study. It contains the analysis and conclusions of our work. Each section and appendix of the study is an integral part of the whole. We recommend a review of the entire study prior to reliance upon this study. No key personnel have a relationship with the State of Hawaii that may impair our objectivity. Please call if you have any questions. Thank you for the opportunity to be of service. Respectfully submitted, Aon Risk Consultants, Inc. By

Mujtaba Datoo, ACAS, MAAA, FCA Tracy Fleck, ACAS, MAAA Actuarial Practice Leader Consultant and Actuary

MD/TF:dp X:\Clients\Actuarial\H\Hawaii, State of 882A\2011_06_30_HRD\Report\Hawaii_HRD_WC_063011_110211.doc

1901 Main Street, Suite 300 Irvine, CA 92614 tel: 949.608.6300 • fax: 949.608.6475 • www.aon.com Aon Risk Solutions | Global Risk Consulting | Actuarial and Analytics

Table of Contents I. Background ............................................................................................................ 1 II. Objectives .............................................................................................................. 2 III. Conclusions ............................................................................................................ 3 Appendices A Conditions and Limitations B Glossary of Actuarial Terms C Exhibits

I. Background The State of Hawaii (the State) self-insures its workers compensation exposures. The State retains all claim liabilities, up to the statutory limit. Claims for this study are administered by the Department of Human Resources Development (HRD). Data The State provided individual claim payments made during fiscal year 2011, and incurred amounts on claims open as of June 30, 2011. For valuations prior to June 30, 2011, we relied on the data used in our prior actuarial study. The State also provided payroll data for calendar years 2010, as well as for 2011 through June 30. To estimate the fiscal year amounts, we assumed that payroll was distributed equally throughout the year.

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II. Objectives The specific objectives of this study are: 1. Estimate Outstanding Losses. Estimate outstanding losses (including

allocated loss adjustment expenses [ALAE]) as of June 30, 2011. The estimated outstanding losses are the cost of unpaid claims. The estimated outstanding losses include case reserves, the development of known claims and incurred but not reported (IBNR) claims. ALAE are the direct settlement expenses for specific claims, primarily legal expenses. The amounts are limited to the self-insured retention.

2. Size of Loss Distribution Analysis. Analyze the distribution of

losses in various layers. 3. Affirm GASB Statement No. 10. Provide a statement affirming the

conclusions of this report are consistent with Governmental Accounting Standards Board (GASB) Statement No. 10.

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III. Conclusions We have reached the following conclusions:

1. Estimate Outstanding Losses We estimate outstanding losses as of June 30, 2011 at various confidence levels to be as shown in Table III-1.

Table III-1 Estimated Outstanding Losses at Various Confidence Levels

June 30, 2011

Confidence Level

Estimated Outstanding

Losses

Present Value of Estimated

Outstanding Losses

(1) (2) (3)(A) Expected $42,999,751 $36,059,831(B) 70% 49,449,714 41,468,806 (C) 80% 55,899,676 46,877,780 (D) 90% 64,499,627 54,089,747

Note: (A) is from Exhibits WC-10. (B) to (D) are based on (A) and actuarial judgment.

The estimated outstanding losses increased by $1,383,852, compared to the estimated outstanding losses as of June 30, 2010, which were $41,615,899. This change is primarily due to an increase in the reported case reserves, which increased by about $1.5 million from June 30, 2010 to June 30, 2011. The present value of the estimated outstanding losses is the amount of money, discounted for anticipated investment income, required to meet unpaid claims. It is calculated based on a 3.5% yield on investments. GASB Statement No. 10 specifies that a liability for estimated outstanding unallocated loss adjustment expenses (ULAE) needs to be established for governmental entities. ULAE are primarily composed of future claims administration for open claims as of June 30, 2011. The estimated outstanding losses include the unpaid losses only. The estimated outstanding losses do not include outstanding ULAE. Based on our experience

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with other public self-insurance programs, we recommend a ULAE ratio of 7.5% of estimated outstanding losses. Loss Experience Trends Graphs III-1 and III-2 show loss experience trends for the State as measured by loss rate per $100 of payroll and frequency and severity, respectively.

Graph III-1

Loss Rate per $100 of Payroll

$2.13

$1.62$1.72

$1.12 $1.19$1.31

$0.93

$1.34$1.16

$1.30

$0.00

$0.50

$1.00

$1.50

$2.00

$2.50

2001

/02

2002

/03

2003

/04

2004

/05

2005

/06

2006

/07

2007

/08

2008

/09

2009

/10

2010

/11

Note: Loss rates are based on Exhibit WC-9, column (8) and Exhibit WC-1, column (5). .

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Graph III-2 Frequency and Severity

$15,476

$11,894

$14,705

$11,870$13,563

$16,019

$12,643

$20,674$19,276$18,969

782 795 702 602 576 573 546 502 433 403

1.38 1.36

1.17

0.95

0.870.82

0.730.65 0.60

0.68

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40

1.60

$0

$5,000

$10,000

$15,000

$20,000

$25,000

2001

/02

2002

/03

2003

/04

2004

/05

2005

/06

2006

/07

2007

/08

2008

/09

2009

/10

2010

/11

Num

ber

of C

laim

s pe

r $1

Mill

ion

of P

ayro

ll

Ave

rage

Cos

t pe

r Cla

im

Severity # of Claims Frequency

Note: Frequency amounts are from Exhibit WC-8, Section I, column (7). Severity amounts are based on the projected claim counts in Exhibit

WC-8 and the projected ultimate losses in Exhibit WC-9.

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Graph III-3 shows the composition of the projected ultimate limited losses.

Graph III-3 Composition of Projected Ultimate Limited Losses

$0

$2

$4

$6

$8

$10

$12

$1419

92/9

3

1993

/94

1994

/95

1995

/96

1996

/97

1997

/98

1998

/99

1999

/00

2000

/01

2001

/02

2002

/03

2003

/04

2004

/05

2005

/06

2006

/07

2007

/08

2008

/09

2009

/10

2010

/11

Mill

ions

Paid Losses Case Reserves IBNR

Note: Amounts are from Exhibit WC-10.

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2. Size of Loss Distribution Analysis Table III-2 shows the distribution of losses in various layers for workers compensation.

Table III-2 Size of Loss Distribution

Layer

Total Reported Claims

Percent of Total

(2)/Total(2)

Cumulative Percent of

Total

Total Reported Incurred Losses

Percent of Total

(5)/Total(5)

Cumulative Percent of

Total(1) (2) (3) (4) (5) (6) (7)

(A) $0 to $5,000 10,041 73.7% 73.7% $9,051,855 4.9% 4.9%

(B) $5,000 to $10,000 865 6.3% 80.0% 6,202,880 3.4% 8.3%

(C) $10,000 to $25,000 1,077 7.9% 87.9% 17,390,891 9.4% 17.7%

(D) $25,000 to $50,000 739 5.4% 93.3% 26,002,163 14.1% 31.8%

(E) $50,000 to $100,000 491 3.6% 96.9% 34,180,635 18.5% 50.3%

(F) $100,000 to $250,000 332 2.4% 99.4% 50,403,358 27.3% 77.6%

(G) $250,000 to $500,000 59 0.4% 99.8% 19,518,885 10.6% 88.2%

(H) $500,000 to $750,000 21 0.2% 99.9% 12,479,766 6.8% 94.9%

(I) $750,000 to $1,000,000 4 0.0% 100.0% 3,445,012 1.9% 96.8%

(J) Over $1,000,000 4 0.0% 100.0% 5,920,911 3.2% 100.0% (K) Total

(A) … (J) 13,633 100% $184,596,358 100%

Note: See Exhibit WC-13.

For workers' compensation, about 80% of the non-zero claims reported are below $10,000 and represent about 8% of the incurred amounts. The remaining 20% of the claims consume about 92% of the incurred amounts.

3. Affirm GASB Statement No. 10 We affirm the conclusions of this report are consistent with GASB Statement No. 10.

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Appendix A

Conditions and Limitations It is important to understand the conditions and limitations listed below. Each chapter and section is an integral part of the whole study. If there are questions, please contact Aon for clarification.

• Data Quality. We relied upon data provided by the organization shown on the transmittal page or its designated agents. The data was used without verification or audit, other than checks for reasonableness. Unless otherwise stated, we assumed the data to be correct and complete.

• Economic Environment. Unless otherwise stated, we assumed the

current economic conditions will continue in the foreseeable future. • Insurance Coverage. Unless otherwise stated, we assumed no

insurance coverage changes (including coverage provided by the organization to others) subsequent to the date this study was prepared. This includes coverage language, self-insured retention, limitations and similar issues.

• Insurance Solvency. Unless otherwise stated, we assumed all

insurance purchased by the organization is from solvent sources payable in accordance with terms of the coverage document.

• Interest Rate. The exhibits specify the annual interest rate used. • Methodology. In this study, different actuarial methods were applied. In

some instances, the methods yield significantly disparate results. The estimates, projections and recommendations in this study reflect our judgments as to the best method or combination of methods that are most reliable and reflective of the exposure to loss.

• Reproduction. This study may only be reproduced in its entirety. • Risk and Variability. Insurance is an inherently risky enterprise.

Actual losses may vary significantly from our estimates, projections and recommendations. They may emerge higher or lower.

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• Statutory and Judicial Changes. Legislatures and judiciaries may change statutes that govern indemnification. This includes benefit levels for workers compensation, immunities and limitations for liability, and other similar issues. Unless otherwise stated, we assumed no statutory changes subsequent to the date this study was prepared.

• Supplemental Data. In addition to the data provided by the

organization, we supplemented our analysis with data from similar organizations and insurance industry statistics, as we deemed appropriate.

• Usage. This study has been prepared for the usage of the organization

shown on the transmittal page. It was not prepared for and may not be appropriate for use by other organizations. Other organizations should obtain written permission from Aon prior to use of this study.

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Appendix B

Glossary of Actuarial Terms Actuarial Methods (Most Common) A major objective of an actuarial study is to statistically project ultimate losses. The following actuarial methods are the most common:

• Developed Paid Losses

• Developed Reported Incurred Losses

• Developed Case Reserves

• Frequency Times Severity Analysis

• Loss Rate Analysis

The following describes each method: 1. Developed Paid Losses. Paid losses represent the amounts actually paid to

claimants (less excess insurance recoveries). As time goes on, loss payments continue until all claims are closed and there are no remaining payments expected. At this time, the ultimate losses for the claim period are known. This common process is called “paid loss development.” Paid loss development is an extrapolation of actual dollars paid. It does not depend on case reserve estimates. A potential shortcoming of utilizing this method is that only a small fraction of total payments have been made for the most recent claim periods. Extrapolating ultimate losses based on small amounts of actual payments may be speculative. A second potential shortcoming is that payment patterns can change over time.

2. Developed Reported Incurred Losses. Reported incurred losses are paid losses plus case reserves. In most programs, total reported incurred losses underestimate the ultimate losses. Over time, as more information about a body of claims becomes known, they are adjusted either up or down until they are closed. Though many individual claims settle for less than what was estimated, these decreases are generally more than offset by increases in the cost of other claims for which new information has emerged. The net effect is that total estimated costs are often revised upward over time. This

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normal process is called “reported incurred loss development.” Actuaries typically review the development patterns of the recent past to make projections of the expected future loss development and, therefore, estimations of ultimate losses.

3. Developed Case Reserves. A case reserve is an estimate of the unpaid amount established by claims adjusters for which a particular claim will ultimately be settled or adjudicated. The developed case reserves method is a hybrid of the paid loss development and reported incurred loss development methods. It relies on the historical adequacy of case reserves to predict ultimate losses.

4. Frequency Times Severity Analysis. The frequency times severity analysis is an actuarial method that uses a preliminary projection of ultimate losses to project claims severity. The claims severity times the number of claims is a predictor of ultimate losses. The focus of the frequency times severity analysis is that ultimate losses each period are dependent on the number of claims.

5. Loss Rate Analysis. The loss rate analysis is based on the historical loss rates per exposure unit (such as payroll, vehicles or property value). The loss rates (projected ultimate losses divided by exposure units) are trended to reflect the effect of claim cost inflation and retention changes. The trended loss rates represent the rates that one would see if all of the claims had been handled in the claim cost environment that will be present in the upcoming period. The trended loss rate times the projected exposure units is a predictor of losses.

6. Bornhuetter-Ferguson Method (B-F). The B-F method is an actuarial method that weights a preliminary projection of ultimate losses with projections of ultimate losses determined by other actuarial methods (usually the developed paid losses and developed reported incurred losses methods). For less mature claim periods, the B-F method leans more heavily to the preliminary projection. It gradually converges to the projections of ultimate losses determined by the other actuarial methods as the claim periods mature.

Actuary A specialist trained in mathematics, statistics, and finance who is responsible for rate, reserve, and dividend calculations and other statistical studies. Allocated Loss Adjustment Expenses Allocated loss adjustment expenses (ALAE) are the direct expenses to settle specific claims. These expenses are primarily legal expenses. Governmental Accounting Standards Board (GASB) Statement No. 10 requires that ALAE

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be included in financial statements and that they be calculated by actuarial methods. American Academy of Actuaries A society concerned with the development of education in the field of actuarial science and with the enhancement of standards in the actuarial field. Members may use the designation MAAA (Member, American Academy of Actuaries). Benefits The financial reimbursement and other services provided insureds by insurers under the terms of an insurance contract. An example would be the benefits listed under a life or health insurance policy or benefits as prescribed by a workers compensation law. Casualty Actuarial Society A professional society for actuaries in areas of property and casualty insurance work. This society grants the designation of Associate of the Casualty Actuarial Society (ACAS) and Fellow of the Casualty Actuarial Society (FCAS). Claim Demand by an individual or entity to recover for a loss. Claims Made A policy written on this basis covers only those claims that are made during the policy period. Coverage for prior acts is provided back to what is known as the retroactive date, which is the effective date of the original claims made policy with the same insurer. Composite Rate A single rate with a single basis of premium (e.g., payroll or sales). For this single rate the insured is covered for a variety of hazards, such as premises and operations, completed operations, products liability, and automobile. Its primary value is to compute premium simply.

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Confidence Level A confidence level is the statistical certainty that an actuary believes funding will be sufficient. For example, an 80% confidence level means that the actuary believes funding will be sufficient in eight years out of ten. Confidence levels are determined based on mathematical models. Coverages that are low frequency and high severity (such as excess liability) are subject to greater risk than coverages that are high frequency and low severity (such as automobile physical damage). Therefore, they need a greater margin to attain a given confidence level. GASB Statement No. 10 requires public entities to use “expected” amounts as a liability in financial statements. Expected corresponds to approximately a 55% confidence level. Amounts above expected are prudent, but should be considered equity (not a liability). Coverage The scope of the protection provided under a contract of insurance. Credibility Credibility is the belief that the sample data is an accurate reflection of the larger population. Credibility is highest when the sample data is large and the standard deviation (discussed later) of the larger population is low. Dates There are at least three milestone dates in a claim. They are the date of injury or accident, the date of report and the date of closure. It is best if each of these dates is recorded. Some organizations may also keep the date a claim becomes a lawsuit, as opposed to a demand. Aon recommends this additional level of detail, especially if the data is to be used for litigation management. Deductible The portion of an insured loss to be borne by the insured before he is entitled to recovery from the insurer. Deductibles may be expressed as a dollar amount, percentage or waiting period.

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Disability A condition that curtails a person’s ability to carry on his normal pursuits. A disability may be partial or total, and temporary or permanent. Dividend (Policyholder) The return of part of the premium paid for a policy issued on a participating basis by either a mutual or a stock insurer. Estimated Outstanding Losses Estimated outstanding losses are the cost of claims that have occurred but have not yet been paid. They typically include indemnification and allocated loss adjustment expenses (ALAE), but not unallocated loss adjustment expenses (ULAE). Estimated outstanding losses are calculated as projected ultimate losses less paid losses. Alternatively, they are the sum of case reserves and incurred but not reported (IBNR) claims. Estimated outstanding losses are usually the largest single item listed as a liability on the balance sheet of a public entity’s financial statement. GASB Statement No. 10 requires they be calculated by actuarial methods. Other common names for estimated outstanding losses are outstanding claims liabilities and unpaid claims. Experience Rating A method of adjusting the premium for a risk based on past loss experience for that risk compared to loss experience for an average risk. Exposure Data Exposure data refers to the activities of the organization. For example, payroll is the most common exposure measure for workers compensation. Aon suggests collecting exposure data with the following characteristics:

Readily Available. The exposure data should be easily obtained. It is best if it is a byproduct of other activities, although this is not always possible. If getting data is arduous, it may discourage collection.

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Vary With Losses. The exposure data should correlate directly with losses. The ideal situation is where exposure and expected losses move in tandem. The exposure base needs to be fitting to the coverage. For example, the number of employees may vary with property losses (more employees = more office space = more losses), but property value is a clearly superior exposure base for property losses.

Generally Accepted Accounting Principles (GAAP) These principles are intended to produce financial results (in the insurance industry) consistent with those of other industries and to assure consistency in financial reporting. Incurred But Not Reported IBNR is really comprised of two distinct items. These are the development of known case reserves (incurred but not enough reported [IBNER] and incurred but not yet reported [IBNYR]). IBNER are the actuary’s estimate of the inadequacy of case reserves. Most claims settle at amounts close to what is set by the claims administrator. Some claims close favorably and some emerge as more expensive. On balance, case reserves tend to be too low (especially for recent years). IBNER is the actuary’s estimate of the amount total case reserves will rise upon closure. IBNYR refers to those claims that have occurred, but have not yet been reported. A classic example is medical malpractice claim reported several years after the medical procedure was performed. Insurance Services Office (ISO) An organization of the property and casualty insurance business designed to gather statistics, promulgate rates, and develop policy forms. Investment Income The return received by entities from their investment portfolios, including interest, dividends and realized capital gains on stocks. Realized capital gains means the profit realized on assets that have actually been sold for more than their purchase price.

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Limited Most programs purchase excess insurance for catastrophic claims. For example, they may purchase coverage for claims above a $500,000 per occurrence self-insured retention. “Limited” refers to an estimate or projection being limited to the self-insured retention. In contrast, “unlimited” means a loss projection not limited to the self-insured retention. Other common names for limited are net of excess insurance or capped losses. Loss Development The difference between the amount of losses initially estimated by the insurer and the amount reported in an evaluation on a later date. Loss development is typically measured for paid losses, reported incurred losses and claim counts. Manual Rates Usually, the published rate for some unit of insurance. An example is in the workers compensation manual, where the rates shown apply to each $100 of the payroll of the insured, $100 being the “unit.” National Council on Compensation Insurance (NCCI) An association of workers compensation insurance companies whose main functions are collecting statistics and calculating rates, establishing policy wording, developing experience and retrospective rating plans, and serving as the filing organization for member companies. Net Many pooling programs assign deductibles to members. For example, each member may have a $5,000 per claim deductible. “Net” refers to a loss estimate or projection that excludes amounts below member deductibles. Occurrence An event that results in an insured loss. In some lines of insurance, such as general liability, it is distinguished from accident in that the loss does not have to be sudden and fortuitous and can result from continuous or repeated exposure that results in bodily injury or property damage neither expected nor intended by the insured.

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Pool An organization of entities through which particular types of risks are written with the premiums, losses, and expenses shared in agreed amounts among the members belonging to the organization. Premium The price of insurance protection for a specified risk for a specified period of time. Present Value The amount of money that future amounts receivable are currently worth. For example, a Life Insurance policy may provide for payments to be made monthly for ten years. The present value of that money would be less than the total amount of the regular periodic payments for 10 years because of the amount of interest that a present lump sum could earn during the term than the payments otherwise would have been made. Probability The probability is the likelihood of an event. It is a measure of how likely a value or event is to occur. It can be measured from data by calculating the number of occurrences of the value or event divided by the total number of occurrences. This calculation can be converted to a percentage. For example, tossing a coin has a 50% probability of heads or tails. Projected Losses Paid Projected losses paid are the projected claims disbursements in a period, regardless of when the claim occurred. They typically include indemnification and ALAE, but not unallocated loss adjustment expenses (ULAE). “Projected losses paid” is a cash-flow analysis that can be used in making investment decisions. Projected Ultimate Losses Projected ultimate losses are the accrual value of claims. They are the total amount that is expected to be paid in a particular claim period after all claims are closed. Projected ultimate

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losses are the total loss costs for a particular period. They typically include indemnification and ALAE, but not ULAE. Other common names for projected ultimate losses are expected losses, ultimate losses and total losses. Rate The cost of a given unit of insurance. For example, in life insurance, it is the price of $1,000 of the face amount. In property insurance, it is the rate per $100 of value to be insured. The premium is the rate multiplied by the number of units of insurance purchased. Retrospective Rating A method for which the final premium is not determined until the end of the coverage period, and is based on the insured’s own loss experience for that same period. It is usually subject to a maximum and minimum premium. A plan of this type can be used in various types of insurance, especially workers compensation and liability, and is usually elected by only very large insureds. Salvage Property taken over by an entity to reduce its loss. Automobile physical damage losses can be reduced by the sale of recovered vehicles. Schedule Rating The application of debits or credits within established ranges for various characteristics of a risk according to an established schedule of items. Under liability and automobile insurance, the schedule rating plan allows credits and debits for various good or bad features of a particular commercial risk. An example in automobile schedule rating would be allowing credits for driver training classes or fleet maintenance programs. Self-Insurance Retention (SIR) That portion of a risk or potential loss assumed by an insured. It is often in the form of a per occurrence deductible.

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Society of Actuaries (SOA) A professional society for actuaries in areas of pensions, and life and health insurance work. The SOA grants the designation Associate of the Society of Actuaries (ASA) and Fellow of the Society of Actuaries (FSA). Standard Premium Most often used in connection with retrospective rating for Workers Compensation and General Liability Insurance. It is the premium of which the basic premium is a percentage and is developed by applying the regular rates to an insured’s payroll. State Fund A fund set up by a state government to finance a mandatory insurance system, such as Workers Compensation or non-occupational disability benefits. Such a fund may be monopolistic, i.e., purchasers of the type of insurance required must place it in the state fund; or it may be competitive, i.e., an alternative to private insurance if the purchaser desires to use it. Statutory Accounting Principles (SAP) Those principles required by statute that must be followed by an insurance company or other similar entity when submitting its financial statement to the state insurance department. Such principles differ from (GAAP) in some important respects. For one thing SAP requires that expenses must be recorded immediately and cannot be deferred to track with premiums as they are earned and taken into revenue. Unallocated Loss Adjustment Expenses Unallocated loss adjustment expenses (ULAE) are the indirect expenses to settle claims. These expenses are primarily administration and claims handling expenses. GASB Statement No. 10 requires that ULAE be included in financial statements and that they be calculated by actuarial methods.

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Appendix C

Exhibits The attached exhibits detail our analysis.

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STATE OF HAWAII Exhibit WC-1WORKERS' COMPENSATION

Data Summary as of June 30, 2011

ClaimPeriod

SpecificSelf-InsuredRetention

AggregateRetention

Months ofDevelopment

6/30/11Payroll(000)

ReportedClaims6/30/11

OpenClaims6/30/11

UnlimitedPaid

Losses6/30/11

UnlimitedCase

Reserves6/30/11

UnlimitedReportedIncurredLosses6/30/11

(1) (2) (3) (4) (5) (6) (7) (8) (9) (10)------------------------------ -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- --------------------- --------------------- ---------------------

to 1991/92 See Note None 240.0 Not Provided 3,355 39 $37,565,618 $1,985,420 $39,551,0381992/93 Statutory None 228.0 Not Provided 817 4 6,476,878 45,637 6,522,5151993/94 Statutory None 216.0 Not Provided 806 4 6,770,341 83,153 6,853,4931994/95 Statutory None 204.0 Not Provided 731 4 5,124,498 58,840 5,183,3371995/96 Statutory None 192.0 Not Provided 638 9 6,065,575 1,306,853 7,372,4281996/97 Statutory None 180.0 Not Provided 646 5 6,438,025 792,489 7,230,5151997/98 Statutory None 168.0 Not Provided 761 17 6,764,092 498,234 7,262,3261998/99 Statutory None 156.0 Not Provided 754 18 7,954,454 923,156 8,877,6111999/00 Statutory None 144.0 Not Provided 781 15 7,393,296 598,011 7,991,3082000/01 Statutory None 132.0 Not Provided 825 18 8,169,276 474,908 8,644,1842001/02 Statutory None 120.0 Not Provided 782 24 10,261,804 1,466,376 11,728,1802002/03 Statutory None 108.0 Not Provided 795 26 7,700,960 1,205,340 8,906,3002003/04 Statutory None 96.0 Not Provided 702 36 7,972,759 1,486,384 9,459,1432004/05 Statutory None 84.0 636,116 602 33 4,820,039 1,399,213 6,219,2512005/06 Statutory None 72.0 659,055 576 39 5,373,081 1,428,940 6,802,0212006/07 Statutory None 60.0 700,524 573 55 5,379,045 2,283,170 7,662,2142007/08 Statutory None 48.0 743,120 546 69 3,984,894 1,809,138 5,794,0332008/09 Statutory None 36.0 773,315 502 100 5,325,085 3,615,711 8,940,7962009/10 Statutory None 24.0 727,071 433 161 2,925,453 4,542,395 7,467,8482010/11 Statutory None 12.0 670,807 403 273 1,195,114 4,908,161 6,103,275

----------------------- ----------------------- ----------------------- ----------------------- ----------------------- ----------------------- ----------------------- ----------------------- ----------------------- -----------------------Total 16,028 949 $153,660,289 $30,911,528 $184,571,817

* The specific self-insured retention changes are as follows:

Effective Date Retention------------------------------ --------------------

07/01/00 Statutory

(8), (9) and (10) are net of the specific self-insured retention.

Data was provided by the State.

HawaiiHRD_WC_063011.xlsx21

STATE OF HAWAII Exhibit WC-2 (page 1)WORKERS' COMPENSATION

Summary of Percent Losses Paid, Losses Reported and Claims Reported


PercentLosses

Paid

PercentLosses

Reported

PercentClaims

ReportedMonths of

Development

PercentLosses

Paid

PercentLosses

Reported

PercentClaims

Reported(1) (2) (3) (4) (5) (6) (7) (8)

------------------------ ------------------------ ------------------------ ------------------------ ------------------------ ------------------------ ------------------------ ------------------------360.0 # 99.9% # 100.0% # 100.0% 354.0 99.8% 100.0% 100.0%348.0 # 99.8% # 100.0% # 100.0% 342.0 99.8% 100.0% 100.0%336.0 # 99.7% # 100.0% # 100.0% 330.0 99.7% 100.0% 100.0%324.0 # 99.6% # 100.0% # 100.0% 318.0 99.5% 100.0% 100.0%312.0 # 99.4% # 100.0% # 100.0% 306.0 99.3% 100.0% 100.0%300.0 # 99.2% # 100.0% # 100.0% 294.0 99.0% 100.0% 100.0%288.0 # 98.9% # 100.0% # 100.0% 282.0 98.6% 100.0% 100.0%276.0 # 98.4% # 100.0% # 100.0% 270.0 98.0% 100.0% 100.0%264.0 # 97.7% # 100.0% # 100.0% 258.0 97.2% 100.0% 100.0%252.0 # 96.7% # 100.0% # 100.0% 246.0 96.0% 100.0% 100.0%240.0 # 95.2% # 100.0% # 100.0% 234.0 95.1% 99.9% 100.0%228.0 # 95.0% # 99.7% # 100.0% 222.0 94.9% 99.7% 100.0%216.0 # 94.8% # 99.6% # 100.0% 210.0 94.6% 99.6% 100.0%204.0 # 94.4% # 99.5% # 100.0% 198.0 94.2% 99.4% 100.0%192.0 # 93.9% # 99.3% # 100.0% 186.0 93.6% 99.2% 100.0%180.0 # 93.4% # 99.1% # 100.0% 174.0 93.0% 99.0% 100.0%168.0 # 92.7% # 98.8% # 100.0% 162.0 92.2% 98.6% 100.0%156.0 # 91.8% # 98.4% # 100.0% 150.0 91.1% 98.2% 100.0%144.0 # 90.4% # 98.0% # 100.0% 138.0 89.6% 97.8% 100.0%132.0 # 88.8% # 97.5% # 100.0% 126.0 87.6% 97.0% 100.0%120.0 # 86.4% # 96.4% # 100.0% 114.0 85.2% 95.7% 100.0%108.0 # 83.9% # 95.0% # 100.0% 102.0 82.7% 94.0% 100.0%96.0 # 81.5% # 93.1% # 100.0% 90.0 80.1% 92.1% 100.0%84.0 # 78.7% # 91.1% # 100.0% 78.0 76.6% 90.1% 100.0%72.0 # 74.6% # 89.0% # 100.0% 66.0 72.3% 88.0% 100.0%60.0 # 70.0% # 87.0% # 100.0% 54.0 66.9% 85.9% 100.0%48.0 # 63.7% # 84.8% # 100.0% 42.0 59.1% 82.8% 99.9%36.0 # 54.4% # 80.8% # 99.8% 30.0 47.0% 77.1% 99.3%24.0 # 39.6% # 73.4% # 98.8% 18.0 27.9% 65.0% 93.3%12.0 # 16.2% # 56.5% # 87.8% 6.0 8.1% 28.2% 43.9%

(2) is from Exhibit WC-2 (page 2).



(6), (7) and (8) are interpolated, based on (2), (3) and (4), respectively.

22

STA

TE O

F H

AW

AII

Exh

ibit

WC

-2 (p

age

2)W

OR

KE

RS

' CO

MP

EN

SA

TIO

N

His

toric

al U

nlim

ited

Pai

d Lo

sses

($00

0) a

nd U

nlim

ited

Pai

d Lo

ss D

evel

opm

ent

I. H

isto

rical

Unl

imite

d P

aid

Loss

es ($

000)

Cla

imM

onth

s of

Dev

elop

men

t:P

erio

d12

2436

4860

7284

9610

812

013

214

415

616

818

019

220

421

622

824

0--

----

----

----

----

----

----

----

----

----

---

----

----

---

----

----

----

---

----

----

---

----

----

----

---

----

----

---

----

----

----

---

----

----

---

----

----

----

---

----

----

---

----

----

----

---

----

----

---

----

----

----

---

----

----

---

----

----

----

---

----

----

---

----

----

----

---

----

----

---

----

----

----

---

----

----

---

to 1

991/

92$3

4,64

2$3

5,10

5$3

5,55

8$3

6,00

6$3

6,52

2$3

7,56

619

92/9

36,

346

6,36

26,

400

6,40

96,

425

6,43

86,

458

6,47

719

93/9

46,

472

6,60

76,

700

6,70

66,

713

6,76

76,

769

6,77

019

94/9

54,

732

4,91

34,

988

5,03

15,

109

5,11

65,

121

5,12

419

95/9

65,

124

5,44

35,

600

5,73

05,

855

5,95

76,

000

6,06

619

96/9

75,

621

5,78

85,

943

6,08

66,

208

6,30

96,

397

6,43

819

97/9

85,

486

5,77

56,

113

6,35

16,

577

6,63

46,

711

6,76

419

98/9

95,

782

6,31

76,

764

7,05

17,

281

7,53

87,

768

7,95

419

99/0

05,

904

6,42

36,

876

7,07

37,

137

7,28

77,

371

7,39

320

00/0

16,

238

6,97

17,

463

7,64

97,

747

7,95

98,

050

8,16

920

01/0

25,

986

7,35

28,

035

8,56

39,

072

9,53

09,

918

10,2

6220

02/0

33,

940

5,43

16,

230

6,77

77,

146

7,39

07,

531

7,70

120

03/0

41,

505

3,63

35,

184

6,37

66,

927

7,49

17,

821

7,97

320

04/0

51,

135

2,66

53,

635

4,08

74,

498

4,75

34,

820

2005

/06

1,18

02,

848

4,02

74,

754

5,11

65,

373

2006

/07

1,29

03,

337

4,18

54,

813

5,37

920

07/0

81,

135

2,72

23,

536

3,98

520

08/0

91,

528

3,78

25,

325

2009

/10

1,26

12,

925

2010

/11

1,19

5

II. U

nlim

ited

Pai

d Lo

ss D

evel

opm

ent

Cla

imM

onth

s of

Dev

elop

men

t:P

erio

d12

-24

24-3

636

-48

48-6

060

-72

72-8

484

-96

96-1

0810

8-12

012

0-13

213

2-14

414

4-15

615

6-16

816

8-18

018

0-19

219

2-20

420

4-21

621

6-22

822

8-24

024

0-U

lt--

----

----

----

----

----

----

----

----

----

---

----

----

---

----

----

----

---

----

----

---

----

----

----

---

----

----

---

----

----

----

---

----

----

---

----

----

----

---

----

----

---

----

----

----

---

----

----

---

----

----

----

---

----

----

---

----

----

----

---

----

----

---

----

----

----

---

----

----

---

----

----

----

---

----

----

---

to 1

991/

921.

013

1.01

31.

013

1.01

41.

029

1992

/93

1.00

21.

006

1.00

11.

002

1.00

21.

003

1.00

319

93/9

41.

021

1.01

41.

001

1.00

11.

008

1.00

01.

000

1994

/95

1.03

81.

015

1.00

91.

016

1.00

11.

001

1.00

119

95/9

61.

062

1.02

91.

023

1.02

21.

017

1.00

71.

011

1996

/97

1.03

01.

027

1.02

41.

020

1.01

61.

014

1.00

619

97/9

81.

053

1.05

91.

039

1.03

61.

009

1.01

21.

008

1998

/99

1.09

21.

071

1.04

21.

033

1.03

51.

031

1.02

419

99/0

01.

088

1.07

11.

029

1.00

91.

021

1.01

21.

003

2000

/01

1.11

71.

071

1.02

51.

013

1.02

71.

011

1.01

520

01/0

21.

228

1.09

31.

066

1.05

91.

051

1.04

11.

035

2002

/03

1.37

81.

147

1.08

81.

054

1.03

41.

019

1.02

320

03/0

42.

413

1.42

71.

230

1.08

61.

081

1.04

41.

019

2004

/05

2.34

91.

364

1.12

51.

100

1.05

71.

014

2005

/06

2.41

31.

414

1.18

11.

076

1.05

020

06/0

72.

588

1.25

41.

150

1.11

820

07/0

82.

399

1.29

91.

127

2008

/09

2.47

51.

408

2009

/10

2.32

020

10/1

1

Ave

rage

All

2.42

21.

363

1.17

01.

097

1.06

71.

048

1.03

61.

033

1.03

31.

027

1.01

71.

014

1.01

01.

003

1.00

71.

004

1.00

51.

009

1.02

9W

td 3

2.40

31.

326

1.15

41.

098

1.06

51.

033

1.03

11.

031

1.02

31.

020

1.01

41.

018

1.01

31.

005

1.00

71.

001

1.01

0La

st 3

2.39

81.

320

1.15

31.

098

1.06

31.

031

1.03

01.

030

1.02

21.

021

1.01

41.

017

1.01

31.

005

1.00

71.

001

1.00

5La

st 5

2.42

91.

357

1.15

31.

092

1.05

91.

034

1.02

21.

030

1.02

91.

025

1.01

71.

017

1.01

21.

003

1.00

7x-

hi,lo

w

Sim

ilar

2.44

71.

359

1.12

51.

050

1.03

01.

018

1.01

31.

096

Pre

viou

s2.

450

1.37

51.

180

1.09

51.

070

1.06

01.

040

1.03

51.

030

1.02

81.

018

1.01

51.

010

1.00

71.

006

1.00

51.

004

1.00

31.

002

1.05

0

Sel

ecte

d2.

450

1.37

51.

170

1.10

01.

065

1.05

51.

035

1.03

01.

030

1.02

81.

018

1.01

51.

010

1.00

71.

006

1.00

51.

004

1.00

31.

002

1.05

0C

umul

ativ

e6.

190

2.52

61.

837

1.57

01.

428

1.34

11.

271

1.22

81.

192

1.15

71.

126

1.10

61.

089

1.07

91.

071

1.06

51.

059

1.05

51.

052

1.05

0P

erce

nt16

.2%

39.6

%54

.4%

63.7

%70

.0%

74.6

%78

.7%

81.5

%83

.9%

86.4

%88

.8%

90.4

%91

.8%

92.7

%93

.4%

93.9

%94

.4%

94.8

%95

.0%

95.2

%

Am

ount

s ar

e un

limite

d (g

ross

of e

xces

s in

sura

nce)

.

Dat

a w

as p

rovi

ded

by th

e S

tate

.

23

STA

TE O

F H

AW

AII

Exh

ibit

WC

-2 (p

age

3)W

OR

KE

RS

' CO

MP

EN

SA

TIO

N

His

toric

al U

nlim

ited

Rep

orte

d In

curr

ed L

osse

s ($

000)

and

Unl

imite

d R

epor

ted

Incu

rred

Los

s D

evel

opm

ent

I. H

isto

rical

Unl

imite

d R

epor

ted

Incu

rred

Los

ses

($00

0)

Cla

imM

onth

s of

Dev

elop

men

t:P

erio

d12

2436

4860

7284

9610

812

013

214

415

616

818

019

220

421

622

824

0--

----

----

----

----

----

----

----

----

----

---

----

----

---

----

----

----

---

----

----

---

----

----

----

---

----

----

---

----

----

----

---

----

----

---

----

----

----

---

----

----

---

----

----

----

---

----

----

---

----

----

----

---

----

----

---

----

----

----

---

----

----

---

----

----

----

---

----

----

---

----

----

----

---

----

----

---

to 1

991/

92$3

7,78

9$3

7,99

8$3

8,09

2$3

8,23

9$3

9,26

8$3

9,55

119

92/9

36,

384

6,41

46,

444

6,44

46,

475

6,47

56,

523

6,52

319

93/9

46,

638

6,76

56,

849

6,85

16,

886

6,86

46,

848

6,85

319

94/9

55,

055

5,18

35,

170

5,16

75,

235

5,21

55,

183

5,18

319

95/9

66,

259

6,58

36,

898

6,95

97,

148

7,12

17,

256

7,37

219

96/9

77,

071

7,13

37,

291

7,38

87,

168

7,28

97,

223

7,23

119

97/9

86,

852

6,84

27,

120

7,12

27,

173

7,16

07,

143

7,26

219

98/9

97,

176

7,72

48,

127

8,69

48,

887

8,95

48,

764

8,87

819

99/0

07,

355

7,77

98,

041

8,11

08,

159

8,01

37,

995

7,99

120

00/0

17,

087

7,76

78,

295

8,47

38,

802

8,64

88,

597

8,64

420

01/0

28,

722

10,0

1311

,732

11,9

7512

,041

11,7

8911

,717

11,7

2820

02/0

36,

029

7,46

58,

471

8,39

38,

568

8,67

98,

779

8,90

620

03/0

43,

516

6,31

78,

304

9,46

99,

387

9,37

49,

561

9,45

920

04/0

53,

395

5,72

96,

511

6,31

56,

015

6,17

06,

219

2005

/06

4,34

47,

204

7,26

17,

081

6,85

66,

802

2006

/07

6,87

77,

777

7,67

57,

269

7,66

220

07/0

85,

723

6,53

15,

971

5,79

420

08/0

97,

323

8,41

98,

941

2009

/10

5,99

87,

468

2010

/11

6,10

3

II. U

nlim

ited

Rep

orte

d In

curr

ed L

oss

Dev

elop

men

t

Cla

imM

onth

s of

Dev

elop

men

t:P

erio

d12

-24

24-3

636

-48

48-6

060

-72

72-8

484

-96

96-1

0810

8-12

012

0-13

213

2-14

414

4-15

615

6-16

816

8-18

018

0-19

219

2-20

420

4-21

621

6-22

822

8-24

024

0-U

lt--

----

----

----

----

----

----

----

----

----

---

----

----

---

----

----

----

---

----

----

---

----

----

----

---

----

----

---

----

----

----

---

----

----

---

----

----

----

---

----

----

---

----

----

----

---

----

----

---

----

----

----

---

----

----

---

----

----

----

---

----

----

---

----

----

----

---

----

----

---

----

----

----

---

----

----

---

to 1

991/

921.

006

1.00

21.

004

1.02

71.

007

1992

/93

1.00

51.

005

1.00

01.

005

1.00

01.

007

1.00

019

93/9

41.

019

1.01

21.

000

1.00

50.

997

0.99

81.

001

1994

/95

1.02

50.

997

0.99

91.

013

0.99

60.

994

1.00

019

95/9

61.

052

1.04

81.

009

1.02

70.

996

1.01

91.

016

1996

/97

1.00

91.

022

1.01

30.

970

1.01

70.

991

1.00

119

97/9

80.

999

1.04

11.

000

1.00

70.

998

0.99

81.

017

1998

/99

1.07

61.

052

1.07

01.

022

1.00

70.

979

1.01

319

99/0

01.

058

1.03

41.

009

1.00

60.

982

0.99

81.

000

2000

/01

1.09

61.

068

1.02

11.

039

0.98

20.

994

1.00

520

01/0

21.

148

1.17

21.

021

1.00

60.

979

0.99

41.

001

2002

/03

1.23

81.

135

0.99

11.

021

1.01

31.

012

1.01

420

03/0

41.

797

1.31

51.

140

0.99

10.

999

1.02

00.

989

2004

/05

1.68

81.

137

0.97

00.

953

1.02

61.

008

2005

/06

1.65

91.

008

0.97

50.

968

0.99

220

06/0

71.

131

0.98

70.

947

1.05

420

07/0

81.

141

0.91

40.

970

2008

/09

1.15

01.

062

2009

/10

1.24

520

10/1

1

Ave

rage

All

1.40

11.

094

1.04

11.

032

1.02

61.

025

1.01

11.

017

1.01

11.

015

0.99

61.

010

1.00

41.

004

1.00

31.

000

1.00

41.

013

1.00

7W

td 3

1.17

70.

994

0.96

40.

994

1.00

41.

014

0.99

20.

997

0.99

31.

004

0.99

11.

009

1.00

11.

006

1.00

30.

999

1.00

4La

st 3

1.17

90.

988

0.96

40.

992

1.00

51.

014

0.99

30.

997

0.99

21.

004

0.99

21.

009

1.00

11.

005

1.00

20.

999

1.00

4La

st 5

1.17

91.

019

0.97

20.

983

1.01

31.

014

1.00

31.

005

0.99

81.

007

0.99

21.

010

1.00

31.

002

1.00

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01/0

268

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73.4

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71.5

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80.8

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87.5

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02/0

365

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72.7

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57.5

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533

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46.5

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.8%

64.7

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77.0

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2005

/06

27.2

%39

.5%

55.5

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.1%

74.6

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.0%

2006

/07

18.8

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54.5

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70.2

%20

07/0

819

.8%

41.7

%59

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68.8

%20

08/0

920

.9%

44.9

%59

.6%

2009

/10

21.0

%39

.2%

2010

/11

19.6

%

Ave

rage

All

25.4

%47

.2%

61.0

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.1%

76.6

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82.2

%84

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85.1

%87

.6%

89.8

%92

.0%

92.3

%93

.4%

93.1

%94

.3%

97.6

%97

.3%

96.2

%95

.0%

Last

320

.5%

41.9

%57

.8%

67.4

%73

.2%

78.7

%81

.5%

83.6

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90.7

%90

.3%

91.3

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.0%

88.5

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93.2

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st 5

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89.4

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94.9

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x-hi

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icit

28.6

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26


Developed Unlimited Paid Losses

ClaimPeriod


6/30/11

UnlimitedPaid

Losses6/30/11

PercentLosses

Paid

DevelopedUnlimited

PaidLosses(3)/(4)

(1) (2) (3) (4) (5)------------------------- ------------------------ ------------------------ ------------------------ ------------------------

to 1991/92 240.0 $37,565,618 95.2% $39,443,8991992/93 228.0 6,476,878 95.0% 6,814,3241993/94 216.0 6,770,341 94.8% 7,144,4451994/95 204.0 5,124,498 94.4% 5,429,2891995/96 192.0 6,065,575 93.9% 6,458,4711996/97 180.0 6,438,025 93.4% 6,896,1771997/98 168.0 6,764,092 92.7% 7,296,1661998/99 156.0 7,954,454 91.8% 8,665,9651999/00 144.0 7,393,296 90.4% 8,175,4322000/01 132.0 8,169,276 88.8% 9,196,1052001/02 120.0 10,261,804 86.4% 11,875,0982002/03 108.0 7,700,960 83.9% 9,179,0052003/04 96.0 7,972,759 81.5% 9,788,0592004/05 84.0 4,820,039 78.7% 6,124,6162005/06 72.0 5,373,081 74.6% 7,202,8462006/07 60.0 5,379,045 70.0% 7,679,5462007/08 48.0 3,984,894 63.7% 6,258,0622008/09 36.0 5,325,085 54.4% 9,784,4282009/10 24.0 2,925,453 39.6% 7,391,0252010/11 12.0 1,195,114 16.2% 7,397,536

(3) is from Exhibit WC-1.


27


Developed Unlimited Reported Incurred Losses

ClaimPeriod


6/30/11


PercentLosses

Reported

DevelopedUnlimitedReportedIncurredLosses(3)/(4)

(1) (2) (3) (4) (5)------------------------- ------------------------ ------------------------ ------------------------ ------------------------

to 1991/92 240.0 $39,551,038 100.0% $39,551,0381992/93 228.0 6,522,515 99.7% 6,542,0831993/94 216.0 6,853,493 99.6% 6,880,9281994/95 204.0 5,183,337 99.5% 5,209,2901995/96 192.0 7,372,428 99.3% 7,416,235 *1996/97 180.0 7,230,515 99.1% 7,282,905 *1997/98 168.0 7,262,326 98.8% 7,349,8961998/99 156.0 8,877,611 98.4% 9,020,5971999/00 144.0 7,991,308 98.0% 8,152,4992000/01 132.0 8,644,184 97.5% 8,862,6372001/02 120.0 11,728,180 96.4% 12,085,778 *2002/03 108.0 8,906,300 95.0% 9,379,5682003/04 96.0 9,459,143 93.1% 10,161,0232004/05 84.0 6,219,251 91.1% 6,827,7042005/06 72.0 6,802,021 89.0% 7,639,2412006/07 60.0 7,662,214 87.0% 8,811,8372007/08 48.0 5,794,033 84.8% 6,829,9412008/09 36.0 8,940,796 80.8% 11,066,2762009/10 24.0 7,467,848 73.4% 10,167,4842010/11 12.0 6,103,275 56.5% 10,802,501

* - Indicates large claim(s) limited to retention. For details, see Exhibit WC-12.



28


Developed Unlimited Case Reserves

ClaimPeriod


6/30/11

PercentLosses

Paid

PercentLosses

Reported

PercentLosses

Reserved6/30/11[(4)-(3)]/

[100.0%-(3)]

UnlimitedPaid

Losses6/30/11

UnlimitedCase

Reserves6/30/11

DevelopedUnlimited

CaseReserves(6)+(7)/(5)

(1) (2) (3) (4) (5) (6) (7) (8)------------------------- ----------------------- ----------------------- ----------------------- ----------------------- ----------------------- ----------------------- -----------------------

to 1991/92 240.0 95.2% 100.0% 100.0% $37,565,618 $1,985,420 $39,551,0381992/93 228.0 95.0% 99.7% 94.0% 6,476,878 45,637 6,525,4491993/94 216.0 94.8% 99.6% 92.4% 6,770,341 83,153 6,860,3471994/95 204.0 94.4% 99.5% 91.1% 5,124,498 58,840 5,189,0681995/96 192.0 93.9% 99.3% 88.5% 6,065,575 1,306,853 7,442,142 *1996/97 180.0 93.4% 99.1% 86.5% 6,438,025 792,489 7,238,902 *1997/98 168.0 92.7% 98.8% 83.7% 6,764,092 498,234 7,359,6241998/99 156.0 91.8% 98.4% 80.7% 7,954,454 923,156 9,098,4771999/00 144.0 90.4% 98.0% 79.3% 7,393,296 598,011 8,147,0962000/01 132.0 88.8% 97.5% 77.9% 8,169,276 474,908 8,778,7192001/02 120.0 86.4% 96.4% 73.3% 10,261,804 1,466,376 12,102,100 *2002/03 108.0 83.9% 95.0% 68.7% 7,700,960 1,205,340 9,456,3562003/04 96.0 81.5% 93.1% 62.8% 7,972,759 1,486,384 10,341,3292004/05 84.0 78.7% 91.1% 58.2% 4,820,039 1,399,213 7,225,7172005/06 72.0 74.6% 89.0% 56.9% 5,373,081 1,428,940 7,886,2442006/07 60.0 70.0% 87.0% 56.4% 5,379,045 2,283,170 9,423,7322007/08 48.0 63.7% 84.8% 58.2% 3,984,894 1,809,138 7,091,0002008/09 36.0 54.4% 80.8% 57.9% 5,325,085 3,615,711 11,574,4222009/10 24.0 39.6% 73.4% 56.1% 2,925,453 4,542,395 11,029,0572010/11 12.0 16.2% 56.5% 48.1% 1,195,114 4,908,161 11,395,654

0.0%0.0%0.0%0.0%0.0%0.0%0.0%0.0%0.0%0.0%

* - Indicates large claim(s) limited to retention. For details, see Exhibit WC-12.

(3) and (4) are from Exhibit WC-2.


29


Preliminary Projected Ultimate Unlimited Losses to 2010/11

ClaimPeriod

DevelopedUnlimited

PaidLosses

DevelopedUnlimitedReportedIncurredLosses

DevelopedUnlimited

CaseReserves

PreliminaryProjectedUltimateUnlimitedLosses

(1) (2) (3) (4) (5)------------------------- ------------------------ ------------------------ ------------------------ ------------------------

to 1991/92 # $39,443,899 $39,551,038 $39,551,038 # $39,551,0381992/93 # 6,814,324 6,542,083 6,525,449 # 6,525,4491993/94 # 7,144,445 6,880,928 6,860,347 # 6,860,3471994/95 # 5,429,289 5,209,290 5,189,068 # 5,189,0681995/96 # 6,458,471 7,416,235 7,442,142 # 7,442,1421996/97 # 6,896,177 7,282,905 7,238,902 # 7,238,9021997/98 # 7,296,166 7,349,896 7,359,624 # 7,359,6241998/99 # 8,665,965 9,020,597 9,098,477 # 9,098,4771999/00 # 8,175,432 8,152,499 8,147,096 # 8,147,0962000/01 # 9,196,105 8,862,637 8,778,719 # 8,778,7192001/02 # 11,875,098 12,085,778 12,102,100 # 12,102,1002002/03 9 9,179,005 9,379,568 9,456,356 9 9,456,3562003/04 8 9,788,059 10,161,023 10,341,329 8 10,323,2992004/05 7 6,124,616 6,827,704 7,225,717 7 7,146,1142005/06 6 7,202,846 7,639,241 7,886,244 6 7,812,1432006/07 5 7,679,546 8,811,837 9,423,732 5 9,178,9742007/08 4 6,258,062 6,829,941 7,091,000 4 6,903,2832008/09 3 9,784,428 11,066,276 11,574,422 3 10,398,7962009/10 2 7,391,025 10,167,484 11,029,057 2 8,673,9232010/11 1 7,397,536 10,802,501 11,395,654 1 8,878,153

0 00 00 00 00 00 00 00 00 00 0




(5) is based on (2) to (4) and actuarial judgment.

30


Bornhuetter - Ferguson Analysis

I. A-priori Loss Rate

ClaimPeriod


Payroll(000)

UnlimitedLoss Rateper $100 of

Payroll(2)/(3)/10

Loss RateTrend

(2011/12= 1.000)

TrendedUnlimitedLoss Rateper $100 of

Payroll(4)X(5)

ProjectedA-priori

Loss Rateper $100 of

Payroll(7)/(5)

(1) (2) (3) (4) (5) (6) (8)--------------------------- ------------------------ ------------------------ ------------------------ ------------------------ ------------------------ ------------------------

2001/02 # $12,102,100 $567,203 $2.13 1.474 $3.14 $0.932002/03 9 9,456,356 584,219 1.62 1.429 2.31 0.962003/04 8 10,323,299 601,746 1.72 1.377 2.36 0.992004/05 7 7,146,114 636,116 1.12 1.327 1.49 1.032005/06 6 7,812,143 659,055 1.19 1.273 1.51 1.072006/07 5 9,178,974 700,524 1.31 1.196 1.57 1.142007/08 4 6,903,283 743,120 0.93 1.129 1.05 1.212008/09 3 10,398,796 773,315 1.34 1.092 1.47 1.252009/10 2 8,673,923 727,071 1.19 1.056 1.26 1.302010/11 1 8,878,153 670,807 1.32 1.024 1.35 1.34

(7) Projected 2011/12 a-priori loss rate per $100 of Payroll $1.37

II. Bornhuetter - Ferguson Analysis Based on Unlimited Paid Losses

ClaimPeriod

UnlimitedPaid

Losses6/30/11

PercentLosses

Paid

ProjectedA-priori


PayrollPayroll(000)

B-FUnpaidLosses

[100.0%-(3)]X(4)X(5)X10

B-FUltimateUnlimited

PaidLosses(2)+(6)

(1) (2) (3) (4) (5) (6) (7)--------------------------- ------------------------ ------------------------ ------------------------ ------------------------ ------------------------ ------------------------

2006/07 # $5,379,045 70.0% $1.14 $700,524 $2,400,150 $7,779,1952007/08 # 3,984,894 63.7% 1.21 743,120 3,271,650 7,256,5442008/09 # 5,325,085 54.4% 1.25 773,315 4,415,907 9,740,9922009/10 # 2,925,453 39.6% 1.30 727,071 5,689,856 8,615,3092010/11 # 1,195,114 16.2% 1.34 670,807 7,515,975 8,711,089

III. Bornhuetter - Ferguson Analysis Based on Unlimited Reported Incurred Losses

B F

ClaimPeriod


PercentLosses

Reported

ProjectedA-priori


PayrollPayroll(000)

B-FUnreported

Losses[100.0%-(3)]X(4)X(5)X10

B-FUltimateUnlimitedReportedLosses(2)+(6)

(1) (2) (3) (4) (5) (6) (7)--------------------------- ------------------------ ------------------------ ------------------------ ------------------------ ------------------------ ------------------------

2006/07 # $7,662,214 87.0% $1.14 $700,524 $1,045,299 $8,707,5132007/08 # 5,794,033 84.8% 1.21 743,120 1,366,091 7,160,1242008/09 # 8,940,796 80.8% 1.25 773,315 1,860,973 10,801,7692009/10 # 7,467,848 73.4% 1.30 727,071 2,500,464 9,968,3122010/11 # 6,103,275 56.5% 1.34 670,807 3,899,538 10,002,813

Section I, (2) is from Exhibit WC-6.

#######


Section I, (7) is based on Section I, (6) and actuarial judgment.

Sections II and III, (2) are from Exhibit WC-1.

Sections II and III, (3) are from Exhibit WC-2.

Sections II and III, (4) are from Section I, (8).

31


Frequency Times Severity Analysis

I. Projected Ultimate Claims

ClaimPeriod


6/30/11

ReportedClaims6/30/11

PercentClaims

Reported

ProjectedUltimateClaims(3)/(4)

Payroll(000)

Frequency(per $1M of

Payroll)(5)/(6)X1,000

(1) (2) (3) (4) (5) (6) (7)------------------------- ----------------------- ----------------------- ----------------------- ----------------------- ----------------------- -----------------------

2001/02 120.0 782 100.0% 782 $567,203 1.382002/03 108.0 795 100.0% 795 584,219 1.362003/04 96.0 702 100.0% 702 601,746 1.172004/05 84.0 602 100.0% 602 636,116 0.952005/06 72.0 576 100.0% 576 659,055 0.872006/07 60.0 573 100.0% 573 700,524 0.822007/08 48.0 546 100.0% 546 743,120 0.732008/09 36.0 502 99.8% 503 773,315 0.652009/10 24.0 433 98.8% 438 727,071 0.602010/11 12.0 403 87.8% 459 670,807 0.68

II. Frequency Times Severity

ClaimPeriod


ProjectedUltimateClaims

AverageSeverity(2)/(3)

SeverityTrend

(2011/12= 1.000)

TrendedAverage

ClaimSeverity(4)X(5)

De-TrendedProjected2011/12Average

ClaimSeverity(7)/(5)

FrequencyTimes

Severity(3)X(8)

(1) (2) (3) (4) (5) (6) (8) (9)------------------------- ----------------------- ----------------------- ----------------------- ----------------------- ----------------------- ----------------------- -----------------------

2001/02 $12,102,100 782 $15,476 1.981 $30,657 $10,612 $8,298,3792002/03 9,456,356 795 11,895 1.865 22,185 11,271 8,960,1732003/04 10,323,299 702 14,706 1.744 25,645 12,054 8,462,0072004/05 7,146,114 602 11,871 1.632 19,375 12,879 7,753,3162005/06 7,812,143 576 13,563 1.520 20,617 13,829 7,965,3632006/07 9,178,974 573 16,019 1.386 22,209 15,162 8,687,9932007/08 6,903,283 546 12,643 1.270 16,059 16,550 9,036,1312008/09 10,398,796 503 20,674 1.193 24,662 17,621 8,863,5342009/10 8,673,923 438 19,803 1.120 22,187 18,763 8,218,1522010/11 8,878,153 459 19,342 1.054 20,392 19,939 9,151,900

(7) Projected 2011/12 average claim severity $21,021



#

Section II, (2) is from Exhibit WC-6.

Section II, (3) is from Section I, (5).

Section II, (5) is from Exhibit WC-11.

Section II, (7) is based on (6) and actuarial judgment.

32


Projected Ultimate Unlimited Losses to 2010/11

ClaimPeriod

DevelopedUnlimited

PaidLosses

DevelopedUnlimitedReportedIncurredLosses

DevelopedUnlimited

CaseReserves

B-FUltimateUnlimited

PaidLosses

B-FUltimateUnlimitedReportedLosses

FrequencyTimes

Severity

ProjectedUltimateUnlimitedLosses

(1) (2) (3) (4) (5) (6) (7) (8)------------------------- ----------------------- ----------------------- ----------------------- ----------------------- ----------------------- ----------------------- -----------------------

to 1991/92 $39,443,899 $39,551,038 $39,551,038 $0 $0 $0 # $39,551,0381992/93 6,814,324 6,542,083 6,525,449 0 0 0 # 6,525,0001993/94 7,144,445 6,880,928 6,860,347 0 0 0 # 6,860,0001994/95 5,429,289 5,209,290 5,189,068 0 0 0 # 5,189,0001995/96 6,458,471 7,416,235 7,442,142 0 0 0 # 7,442,0001996/97 6,896,177 7,282,905 7,238,902 0 0 0 # 7,239,0001997/98 7,296,166 7,349,896 7,359,624 0 0 0 # 7,360,0001998/99 8,665,965 9,020,597 9,098,477 0 0 0 # 9,098,0001999/00 8,175,432 8,152,499 8,147,096 0 0 0 # 8,147,0002000/01 9,196,105 8,862,637 8,778,719 0 0 0 # 8,779,0002001/02 11,875,098 12,085,778 12,102,100 0 0 0 # 12,102,0002002/03 9,179,005 9,379,568 9,456,356 0 0 0 9 9,456,0002003/04 9,788,059 10,161,023 10,341,329 0 0 0 8 10,323,0002004/05 6,124,616 6,827,704 7,225,717 0 0 0 7 7,146,0002005/06 7,202,846 7,639,241 7,886,244 0 0 0 6 7,812,0002006/07 7,679,546 8,811,837 9,423,732 7,779,195 8,707,513 8,687,993 5 9,179,0002007/08 6,258,062 6,829,941 7,091,000 7,256,544 7,160,124 9,036,131 4 6,903,0002008/09 9,784,428 11,066,276 11,574,422 9,740,992 10,801,769 8,863,534 3 10,399,0002009/10 7,391,025 10,167,484 11,029,057 8,615,309 9,968,312 8,218,152 2 8,443,0002010/11 7,397,536 10,802,501 11,395,654 8,711,089 10,002,813 9,151,900 1 8,707,000

0000000000






(8) is based on (2) to (7) and actuarial judgment.

33


Estimated Outstanding Losses as of June 30, 2011

ClaimPeriod

UnlimitedPaid

Losses6/30/11

UnlimitedCase

Reserves6/30/11


ProjectedUltimateUnlimitedLosses

EstimatedIBNR

6/30/11(5)-(4)

EstimatedOutstanding

Losses6/30/11(3)+(6)

PresentValueFactor

PresentValue of

EstimatedOutstanding

Losses6/30/11(7)X(8)

(1) (2) (3) (4) (5) (6) (7) (8) (9)--------------------------- --------------------- --------------------- --------------------- --------------------- --------------------- --------------------- --------------------- ---------------------

to 1991/92 $37,565,618 $1,985,420 $39,551,038 $39,551,038 $0 $1,985,420 # 0.92 $1,824,1401992/93 6,476,878 45,637 6,522,515 6,525,000 2,485 48,122 # 0.89 42,8991993/94 6,770,341 83,153 6,853,493 6,860,000 6,507 89,660 # 0.87 77,8331994/95 5,124,498 58,840 5,183,337 5,189,000 5,663 64,503 # 0.85 54,7421995/96 6,065,575 1,306,853 7,372,428 7,442,000 69,572 1,376,425 # 0.83 1,146,3361996/97 6,438,025 792,489 7,230,515 7,239,000 8,485 800,974 # 0.82 656,8101997/98 6,764,092 498,234 7,262,326 7,360,000 97,674 595,908 # 0.81 482,4291998/99 7,954,454 923,156 8,877,611 9,098,000 220,389 1,143,545 # 0.81 920,5651999/00 7,393,296 598,011 7,991,308 8,147,000 155,692 753,703 # 0.81 608,4582000/01 8,169,276 474,908 8,644,184 8,779,000 134,816 609,724 # 0.81 493,5172001/02 10,261,804 1,466,376 11,728,180 12,102,000 373,820 1,840,196 # 0.82 1,505,6102002/03 7,700,960 1,205,340 8,906,300 9,456,000 549,700 1,755,040 # 0.82 1,440,6132003/04 7,972,759 1,486,384 9,459,143 10,323,000 863,857 2,350,241 # 0.82 1,923,1652004/05 4,820,039 1,399,213 6,219,251 7,146,000 926,749 2,325,962 # 0.82 1,897,1532005/06 5,373,081 1,428,940 6,802,021 7,812,000 1,009,979 2,438,919 # 0.82 1,999,1902006/07 5,379,045 2,283,170 7,662,214 9,179,000 1,516,786 3,799,956 # 0.82 3,120,2882007/08 3,984,894 1,809,138 5,794,033 6,903,000 1,108,967 2,918,105 # 0.83 2,412,4752008/09 5,325,085 3,615,711 8,940,796 10,399,000 1,458,204 5,073,915 # 0.84 4,243,1572009/10 2,925,453 4,542,395 7,467,848 8,443,000 975,152 5,517,547 # 0.85 4,695,7992010/11 1,195,114 4,908,161 6,103,275 8,707,000 2,603,725 7,511,886 # 0.87 6,514,652

----------------------- ----------------------- ---------------------- ----------------------- ---------------------- ---------------------- ----------------------- # ----------------------- -----------------------Total $153,660,289 $30,911,528 $184,571,817 $196,660,038 $12,088,222 $42,999,751 # $36,059,831

########

(2), (3) and (4) are net of specific self insured retention and aggregate retention.


(8) is based on a 3.5% interest rate and the payout pattern in Exhibit WC-2.

34


Loss Rate and Severity Trend

I. Benefit Level Changes

EffecitiveDate

BenefitLevel

Change

CumulativeBenefitLevel

Change(1) (2) (3)

--------------------------- ------------------------ ------------------------01/01/02 1.016 1.01601/01/03 1.022 1.03801/01/04 1.014 1.05301/01/05 1.020 1.07401/01/06 1.024 1.10001/01/07 1.063 1.16901/01/08 1.016 1.18801/01/09 1.011 1.20101/01/10 1.016 1.22001/01/11 1.007 1.229

II. Loss Rate and Severity Trend

ClaimPeriod

BenefitTrend

(2011/12= 1.000)

ResidualTrend

(2011/12= 1.000)

RetentionIndex

(2011/12= 1.000)

Loss RateTrend

(2011/12= 1.000)

(2)X(3)X(4)

WageTrend

(2011/12= 1.000)

SeverityTrend

(2011/12= 1.000)(5)X(6)

(1) (2) (3) (4) (5) (6) (7)--------------------------- ------------------------ ------------------------ ------------------------ ------------------------ ------------------------ ------------------------

2001/02 # 1.209 1.219 1.000 1.474 1.344 1.9812002/03 # 1.196 1.195 1.000 1.429 1.305 1.8652003/04 # 1.175 1.172 1.000 1.377 1.267 1.7442004/05 # 1.155 1.149 1.000 1.327 1.230 1.6322005/06 # 1.130 1.126 1.000 1.273 1.194 1.5202006/07 # 1.083 1.104 1.000 1.196 1.159 1.3862007/08 # 1.043 1.082 1.000 1.129 1.126 1.2702008/09 # 1.029 1.061 1.000 1.092 1.093 1.1932009/10 # 1.015 1.040 1.000 1.056 1.061 1.1202010/11 # 1.004 1.020 1.000 1.024 1.030 1.054

2011/12 # 1.000 1.000 1.000 1.000 1.000 1.0002012/13 # 1.000 0.980 1.000 0.980 0.971 0.9522013/14 # 1.000 0.961 1.000 0.961 0.943 0.9062014/15 # 1.000 0.942 1.000 0.942 0.915 0.8622015/16 # 1.000 0.924 1.000 0.924 0.888 0.821

Section I, (2) and (3) reflect NCCI data.

Section II, (2) is based on Section I, (2).

Section II, (3) is based on 2% trend per actuarial judgment.

Section II, (4) is based on industry statistics and actuarial judgment.

Section II, (6) is based on 3% trend. 35


List of Large ClaimsUnlimited Reported Incurred Losses Greater Than or Equal to $500,000

ClaimNumber

Date ofLoss

ClaimPeriod

SpecificSelf-Insured

Retention

UnlimitedPaid

Losses6/30/11

UnlimitedCase

Reserves6/30/11


(1) (2) (3) (4) (5) (6) (7)--------------------------- ------------------------ ------------------------ ------------------------ ------------------------ ------------------------ ------------------------78002792 6/6/1980 to 1991/92 Statutory $814,101 $0 $814,10128205862 2/11/1982 to 1991/92 Statutory 530,427 0 530,42728836932 8/8/1988 to 1991/92 Statutory 460,275 63,121 523,39628837021 12/7/1988 to 1991/92 1,150,813 621,897 528,916 1,150,81348910086 4/13/1989 to 1991/92 Statutory 916,686 25,120 941,80628940954 5/29/1989 to 1991/92 Statutory 517,794 406,826 924,61928941329 8/12/1989 to 1991/92 Statutory 536,320 22,377 558,69729041103 7/2/1990 to 1991/92 Statutory 517,257 193,203 710,46029141212 12/26/1990 to 1991/92 Statutory 716,984 0 716,98419110379 8/27/1991 to 1991/92 Statutory 628,857 135,629 764,48699210095 7/2/1992 1992/93 Statutory 624,137 0 624,13799210099 7/14/1992 1992/93 Statutory 541,177 0 541,17729540578 4/24/1995 1994/95 Statutory 621,647 0 621,64729541430 10/7/1995 1995/96 Statutory 454,995 118,674 573,66929641068 1/25/1996 1995/96 Statutory 412,916 159,871 572,78799610067 6/13/1996 1995/96 1,129,468 361,532 767,936 * 1,129,468 *29640900 7/18/1996 1996/97 Statutory 605,452 0 605,45219710013 1/14/1997 1996/97 1,429,381 690,758 738,623 * 1,429,381 *29840200 3/5/1998 1997/98 Statutory 610,358 67,997 678,35529840353 4/9/1998 1997/98 Statutory 496,264 98,069 594,33329840831 7/26/1998 1998/99 Statutory 443,288 62,255 505,54329840987 9/18/1998 1998/99 Statutory 539,149 39,791 578,94079910138 2/14/1999 1998/99 Statutory 543,082 147,907 690,98910010277 12/20/2000 2000/01 Statutory 514,653 27,847 542,50110110169 8/12/2001 2001/02 2,211,249 1,773,692 437,557 * 2,211,249 *20241027 9/20/2002 2002/03 Statutory 343,335 158,872 502,20770410051 1/27/2004 2003/04 Statutory 392,146 163,870 556,01620641024 10/30/2006 2006/07 Statutory 302,001 246,229 548,23020840789 8/19/2008 2008/09 Statutory 439,480 264,341 703,821

The claim(s) indicated by a '*' have been limited in development.

(1) through (7) were provided by the State.

36


Size of Loss Distribution

I. Reported Claim Count

Layer Prior 2006/07 2007/08 2008/09 2009/10 2010/11Total

(2)…(7)

Non-ZeroClaim

CumulativeTotal

Non-ZeroClaim

Cumulative% of Total

(1) (2) (3) (4) (5) (6) (7) (8) (9) (10)

0 2,222 40 47 37 30 15 2,3910.01 - 5,000 8,622 378 370 303 227 141 10,041 10,041 73.7%5,000 - 10,000 667 42 26 40 28 62 865 10,906 80.0%10,000 - 25,000 778 41 42 35 68 113 1,077 11,983 87.9%25,000 - 50,000 586 34 22 24 29 44 739 12,722 93.3%50,000 - 100,000 351 18 27 37 34 24 491 13,213 96.9%100,000 - 250,000 259 16 12 25 16 4 332 13,545 99.4%250,000 - 500,000 55 3 0 0 1 0 59 13,604 99.8%500,000 - 750,000 19 1 0 1 0 0 21 13,625 99.9%750,000 - 1,000,000 4 0 0 0 0 0 4 13,629 100.0%Over 1,000,000 4 0 0 0 0 0 4 13,633 100.0%

Total 13,567 573 546 502 433 403 16,024 13,633

II. Total Reported Incurred Losses

Layer Prior 2006/07 2007/08 2008/09 2009/10 2010/11Total

(2)…(7)

Non-ZeroClaim

CumulativeTotal

Non-ZeroClaim

Cumulative% of Total

(1) (2) (3) (4) (5) (6) (7) (8) (9) (10)

0 $0 $0 $0 $0 $0 $0 $00.01 - 5,000 7,444,252 395,093 387,815 391,902 248,364 184,428 9,051,855 9,051,855 4.9%5,000 - 10,000 4,763,653 287,458 179,284 285,417 205,470 481,598 6,202,880 15,254,736 8.3%10,000 - 25,000 12,700,086 626,626 683,660 551,091 1,092,277 1,737,151 17,390,891 32,645,627 17.7%25,000 - 50,000 20,748,745 1,197,406 751,722 820,421 961,034 1,522,836 26,002,163 58,647,790 31.8%50,000 - 100,000 24,461,560 1,224,343 1,736,316 2,511,306 2,511,532 1,735,578 34,180,635 92,828,425 50.3%100,000 - 250,000 39,687,509 2,446,005 2,055,235 3,676,837 2,096,088 441,684 50,403,358 143,231,784 77.6%250,000 - 500,000 18,228,749 937,053 0 0 353,083 0 19,518,885 162,750,669 88.2%500,000 - 750,000 11,227,715 548,230 0 703,821 0 0 12,479,766 175,230,435 94.9%750,000 - 1,000,000 3,445,012 0 0 0 0 0 3,445,012 178,675,447 96.8%Over 1,000,000 5,920,911 0 0 0 0 0 5,920,911 184,596,358 100.0%

Total $148,628,192 $7,662,214 $5,794,033 $8,940,796 $7,467,848 $6,103,275 $184,596,358 $184,596,358

Data was provided by the State.

37

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