WC Second Injury Fund: South CarolinaJeri BoysiaCompanion P&CPresented at CAS Spring MeetingJune 15-18, 2008

WC SIF: South Carolina Background and History of the SC SIF

2003 Limitation2007 Dissolution

Actuarial Considerations Following SIF Law Changes Impact on Reserving Impact on Pricing

The Future and The End of the SC SIF

Background and Historyof the SC SIF

SC SIF Financial Mechanics Fund reimburses insurers for “second injuries” Assessments for paid recoveries levied based on

carriers paid loss levels (not premium) Creates an unfunded liability, and Statutory accounting requires assessment on paid plus

anticipated recoveries to be expensed Prior to 7/1/07, asset requirement set at 175% of

Fund payouts Carrier Assessment = (Carrier % of State Paid Loss) *

175% of SIF disbursements LESS SIF net assets

SC SIF Practical Issues

Loss costs are reduced Expenses are higher Is there a cost to the system? What are the benefits? Recovery efforts handled by carrier or outsourced Results vary by carrier

Winners and losers Some disregard recovery potential completely

SC SIF Assessment History

$0

$100

$200

$300

Mill

ions

FY 2000 FY 2001 FY 2002 FY 2003 FY 2004 FY 2005

FY 2005 assessment spiked to $253M Estimates of unfunded liability were significant What caused this sudden growth?

SC SIF Timeline

2003 law change (effective 6/25/03)Redefined eligible claimFear that SC SIF may be dissolved (discussed

during 2005 reform efforts) Reimbursements skyrocketed in 2005

leading to a record assessment 2007 WC Reform Act (S. 332) dissolved the

SC SIF

Qualifying ClaimPrior to 2003 Law Change Employee has a pre-existing injury Reimbursement for subsequent injury which

results in medical cost substantially greater because of the pre-existing injury (or would not have occurred w/o pre-existing injury)

Employer knowledge of pre-existing injury not required

Qualifying ClaimAfter 2003 Law Change Employee has a pre-existing injury Reimbursement for subsequent injury which

results in medical cost substantially greater because of the pre-existing injury (or would not have occurred w/o pre-existing injury)

Employer must have knowledge of pre-existing injury at the time the employee was hired

2007 WC Reform Act (S. 332) No arthritis or “other” claims with date of injury on

or after 7/1/07 No claims with date of injury on or after 7/1/08 Last day to submit notice of new claim is 12/31/10 All data re: claims must be submitted to the Fund

by 7/1/11 Last day for Fund to accept a claim for

reimbursement is 12/31/11

2007 WC Reform Act (S. 332)

Other key dates:7/1/07: changed assessment calculation;

reduced asset requirement from 175% to 135%

7/1/13: Fund is terminated and remaining obligations transferred to Budget and Control Board

Actuarial Considerations Following 2003 Law Change

What is the impact of SIF recoveries on your company’s loss history?

Could be significantly different than industry results

Are you separately accounting for received and anticipated recoveries? Or…

Are your losses (e.g. triangles) net of recoveries?

Separate treatment relatively straight forward; focus on the latter.

Estimated Impact of 2003 Law Change

Distribution of Reported SIF Claims by CY

83% 74%60% 63%

22%

70%

0%

20%

40%

60%

80%

100%

120%

2000 2001 2002 2003 2004 2005 2006

AY (CY,CY-1,CY-2) AY (CY-3) AY (CY-4)

Estimated Impact of 2003 Law Change (Cont)

AY 00-02 (Ave recovery normalized for exposure

changes; base year)

1.00

AY 2003(partial year)

0.47 -53%

AY 2004 0.15 -85%

AY 2005 0.18 -82%

AY 2006 0.20 -80%

Impact of 2003 Law Change on Loss Development Factors

12-Ult 24-Ult 36-Ult 48-Ult 60-Ult

Net of Recoveries Gross of Recoveries

+47%

+27%

+15%+8%

+4%

Impact on Reserving

Development Methods Adjustment to Loss Development Factors

Loss Ratio Methods Adjustment to Loss Development Factors Adjustment to Expected Loss Ratio

Bottom Line: Losses will increase Magnitude will vary by carrier

Caution re: industry loss development factors

Impact on Pricing

Long Term No significant impact on pricing Carrier accountability factor might lower cost

Short Term – timing issue Loss cost multipliers might need to be adjusted

downward prior to increase in loss costs Impact to loss costs will be slow to emerge Carriers are better equipped to estimate impact earlier

(they have the data available)

The Future and The End of the SC SIF

Projected Impact of 2007 Law Change

AY 00-02 (base year)

1.00

AY 2003 0.47 -53%

AY 2004 0.15 -85%

AY 2005 0.18 -82%

AY 2006 0.20 -80%

AY 2007 ??? ???

AY 2008 ??? ???

AY 2009 0.00 -100%

Impact of These ChangesOn Reimbursements

$0

$20

$40

$60

$80

$100

$120

$140

$160

$180

Mil

lio

ns

FY 2003 FY 2004 FY 2005 FY 2006 FY 2007 FY 2008

FY 2008 as of 4/30/08

Impact of These ChangesOn Assessments

$0

$50

$100

$150

$200

$250

$300

Mil

lio

ns

FY2000

FY2001

FY2002

FY2003

FY2004

FY2005

FY2006

FY2007

Questions?