To Members of the Actuarial Committee, WCIRB Members and All Interested Parties:

Transcription

1 Meeting Agenda Date Time Location Staff Contact August 1, :30 AM WCIRB California David M. Bellusci 1221 Broadway, Suite 900 Oakland, CA 1221 Broadway, Suite 900 Oakland, CA Fax Released: July 25, 2018 Revised: July 27, 2018 To Members of the Actuarial Committee, WCIRB Members and All Interested Parties: I. Approval of Minutes Meeting held on June 15, 2018 II. Working Group Meeting Summaries None III. Unfinished Business A. AC : Reform Adjustments to Loss Development B. AC : Earthquake Study C. AC : 3/31/2018 Experience Review of Methodologies IV. New Business A. AC : Third Quarter 2018 Review of Diagnostics B. AC : 1/1/2019 Filing Loss Adjustment Expense Experience Review C. AC : 1/1/2019 Filing Review of Alternative Loss Projection Methodologies D. AC : Study of Case Reserve-adjusted Loss Development Methodology V. Matters Arising at Time of Meeting VI. Next Meeting Date: September 4, 2018 VII. Adjournment Antitrust Notice As members of the Workers Compensation Insurance Rating Bureau of California, you are bound, when involved in meetings or other activities of the WCIRB California, to limit your actions (and discussions other than social ones) to matters relating to the business of the WCIRB California. Matters that do not relate directly to WCIRB California business should be avoided. Members should particularly avoid discussions or conduct that could be construed as intended to affect competition (or access to markets). Thus, as members, you should not discuss or pursue the business interests of individual insurers or others, including, in particular, the plans of individual members involving, or the possibility or desirability of (a) raising, lowering, or stabilizing prices (premiums or commissions); (b) doing business or refusing to do business with particular, or classes of, insurers, reinsurers, agents, brokers, or insureds, or in particular locales; or (c) potential actions that would affect the availability of products or service either generally or in specific markets or locales. 1 W CIRB Calif ornia

2 Meeting Agenda for August 1, 2018 Released: July 25, 2018 Notice The information in this Agenda was developed by the Workers Compensation Insurance Rating Bureau of California (WCIRB) for the purpose of assisting the WCIRB Actuarial Committee. The WCIRB cannot make any guarantees if this information is used for any other purpose and the WCIRB shall not be liable for any damages, of any kind, whether direct, indirect, incidental, punitive or consequential, arising from the use of or reliance upon this information for any other purpose Workers Compensation Insurance Rating Bureau of California. All rights reserved. No part of this work may be reproduced or transmitted in any form or by any means, electronic or mechanical, including, without limitation, photocopying and recording, or by any information storage or retrieval system without the prior written permission of the Workers Compensation Insurance Rating Bureau of California (WCIRB), unless such copying is expressly permitted in this copyright notice or by federal copyright law. No copyright is claimed in the text of statutes and regulations quoted within this work. Each WCIRB member company, including any registered third party entities, (Company) is authorized to reproduce any part of this work solely for the following purposes in connection with the transaction of workers compensation insurance: (1) as necessary in connection with Company s required filings with the California Department of Insurance; (2) to incorporate portions of this work, as necessary, into Company manuals distributed at no charge only to Company employees; and (3) to the extent reasonably necessary for the training of Company personnel. Each Company and all agents and brokers licensed to transact workers compensation insurance in the state of California are authorized to physically reproduce any part of this work for issuance to a prospective or current policyholder upon request at no charge solely for the purpose of transacting workers compensation insurance and for no other purpose. This reproduction right does not include the right to make any part of this work available on any website or any form of social media. Workers Compensation Insurance Rating Bureau of California, WCIRB, WCIRB California, WCIRB Connect, WCIRB Inquiry, WCIRB CompEssentials, X-Mod Direct, escad and the WCIRB California logo (WCIRB Marks) are registered trademarks or service marks of the WCIRB. WCIRB Marks may not be displayed or used in any manner without the WCIRB s prior written permission. Any permitted copying of this work must maintain any and all trademarks and/or service marks on all copies. To seek permission to use any of the WCIRB Marks or any copyrighted material, please contact the WCIRB at customerservice@wcirb.com. 2 W CIRB Calif ornia

3 Meeting Agenda for August 1, 2018 Item AC Reform Adjustments to Loss Development For many years, the WCIRB has based its loss development projection on a methodology that adjusts for the estimated impact of various workers compensation reforms on paid loss development patterns. During a review of these adjustments at the August 5, 2014 meeting, the Committee recommended that these adjustments continue to be reviewed regularly. The previous review was presented at the August 3, 2016 meeting. Staff s most recent analysis of these adjustments is detailed below. Indemnity Adjustments The adjustment to indemnity losses for the impact of Senate Bill No. 863 (SB 863) is based on a 2013 WCIRB report on loss development and the WCIRB s standard approach to adjust for the impact of reforms that become effective on a date of injury basis. 1 Table 1 shows the current adjustments for the impact of SB 863 on indemnity loss development for accident years 2013 and 2014 based on the findings of the report. Table 1: SB 863 Impact on Indemnity Loss Development Year Current Age in Months Impact on Age-to-Ultimate Development Factor % % Several periods of post-sb 863 loss development are now available. Exhibit 1 compares quarterly age-toage development for accident years 2013 and 2014 with that projected by the WCIRB s post-sb 863 imputed payment patterns or the alternative latest year unadjusted factor. Initially, the factors produced by the imputed payment pattern (approximately for the 12-to-36 month period) on both a quarterly and cumulative basis were generally more accurate than the latest year unadjusted factor for both accident years 2013 and However, during the most recent development periods the factors imputed by the reform-adjusted method have not been more accurate than the latest year unadjusted factors. Staff believes this may be related to the recent acceleration in the rate permanent disability claims have been settling. The effect of higher permanent disability benefits provided by SB 863 on paid indemnity patterns may be being offset by the cost savings from closing permanent disability claims earlier. This analysis is based on a review of emerging paid indemnity development, whereas the adjustments are applied to cumulative development factors since permanent disability claims develop much later than other types of claims. However, staff believes the acceleration in permanent disability claim settlement rates likely has some long-term downward impact on the future paid indemnity development for these accident years, and the earlier closure of permanent disability claims offsets the previously expected long-term increase to paid development from the SB 863 permanent disability benefit increases. In addition, recent paid indemnity development has generally been emerging lower than projected. As a result, staff recommends no longer applying these adjustments to paid indemnity development. Medical Adjustments The WCIRB s 2013 report on loss development also discussed the potential impact of the various SB 863 reforms on historical medical payment patterns. Based on the findings of the report and updated SB 863 cost monitoring information, the WCIRB s current development methodology adjusts pre-2013 medical payments by -4.2% based on the estimated impact of SB 863 provisions related to liens, surgical implant hardware, ambulatory surgical centers, and medical provider network strengthening. The WCIRB also 1 Impact of Senate Bill No. 863 on Loss Development Patterns, WCIRB, August 13, III-A-1 W CIRB Californi a

4 Meeting Agenda for August 1, 2018 adjusts paid medical loss development for the impact of the changes to the physician fee schedule based on the resource-based relative value scale (RBRVS), which became effective over a four-year period beginning on January 1, Specifically, pre-2014 medical payments are adjusted by -2.1% and pre medical payments are adjusted by -1.7% for the estimated impact of RBRVS on the 2014 and 2015 service years based on current cost monitoring results. No adjustments have been applied for the RBRVS changes effective in 2016 and 2017 given that the latest information has shown the overall impact to be a modest increase in physician costs that has not been significantly distorting paid medical development patterns. The impact of the SB 863 and RBRVS adjustments on paid medical loss development factors and projected ultimate medical loss ratios is shown in Exhibits 2 and 3, respectively. As shown on Exhibit 2, the adjustments based on the January 1, 2013 SB 863 provisions have a modest impact on the age-toage factors while the RBRVS adjustments have very little impact on medical loss development. Similarly, as shown on Column D of Exhibit 3, the overall impact of all medical loss development adjustments for SB 863 based on recent evaluations is modest given that it has been several years since the reforms have been implemented. In some instances for older accident years, the adjustments are having a downward impact on the projected ultimate loss ratios, which is counterintuitive to the intended effect of the adjustments. This is attributable to the mechanics of the adjustment in which both the reported paidto-date medical loss ratios and paid medical loss development factors are adjusted for SB 863 and RBRVS. However, the downward adjustment to reported medical loss ratios is not fully offset by the upward adjustment to the loss development factors. As a result, to a large extent, these adjustments are adding volatility to the projections for these years without achieving their intended effect. Given that these adjustments are intended to correct for distortions in the emerging paid medical age-toage factors, retrospectively testing their accuracy is challenging since the emerging development would also include the distortions. Staff addressed this by reviewing paid medical loss ratios as of March 31, 2017 developed forward one-year based on the adjusted and unadjusted paid medical factors, and comparing them to the actual paid medical loss ratios as of March 31, Exhibit 4 shows the results of this review. Column A of Exhibit 4 shows the reported medical loss ratios as of March 31, Column B of Exhibit 4 shows paid medical loss ratios projected from March 31, 2017 to March 31, 2018 using latestyear unadjusted factors. Columns C and D of Exhibit 4 show paid medical loss ratios projected from March 31, 2017 to March 31, 2018 using the latest-year factors adjusted for the January 1, 2013 SB 863 provisions and both the January 1, 2013 SB 863 provisions and RBRVS, respectively. In Columns C and D of Exhibit 4, the projected loss ratios were restated at an actual projected level, that is the impact of reducing the paid-to-date loss ratio in the adjustment approach was removed. 2 Based on this review of a single development period, the loss ratios developed using the reform adjustments did not improve the accuracy of the projections and in fact moderately overestimated the actual emerging loss ratios more than the unadjusted estimate. Given that the SB 863 and RBRVS reform adjustments to paid medical development (a) are only having a modest impact on the medical loss development factors, (b) appear to increase the volatility in the projections for older accident years, and (c) do not appear to improve the overall accuracy of the projection, there is little evidence to support continuing to apply these adjustments to medical loss development. Additionally, these adjustments have had an upward impact on the medical loss development projections and paid and incurred medical development have continued to decline in recent years in part due to decreases in pharmaceutical payments, acceleration in claim settlement rates, independent medical review and independent bill review, and increased efforts to fight fraud. A number of these factors likely also impact the medical loss development tail, which is not contemplated in the current adjustments. As a result, staff recommends no longer applying these adjustments to paid medical development. 2 The formula for computing the loss ratios in Columns C and D of Exhibit 4 was: [Adjusted Reported Paid Loss Ratio] x [Adjusted Paid Medical Development Factor] [Adjusted Reported Paid Loss Ratio] + [Unadjusted Reported Paid Loss Ratio]. III-A-2 W CIRB Californi a

5 Meeting Agenda for August 1, 2018 The WCIRB s current loss development methodology also adjusts paid medical loss development for the impact of the provisions of Senate Bill No and Assembly Bill No related to liens. These adjustments were adopted by the Committee at the March 19, 2018 meeting. Given that these adjustments are for fairly recent reforms and were reviewed by the Committee earlier this year, staff did not review these adjustments in this study and continues to recommend their application to paid medical loss development. Staff will continue to review these adjustments with the Committee regularly in future evaluations of experience. III-A-3 W CIRB Californi a

6 Meeting Agenda for August 1, 2018 Exhibit 1 Comparison of Indemnity Loss Development Factors Year 2013 Age-to-Age Factor Cumulative Factors Methodology Curr. 12-Curr. Actual Emergence Latest Year Unadjusted Imputed Payment Pattern* Difference from Actual Methodology Curr. 12-Curr. Latest Year Unadjusted -2.1% 0.6% -0.2% 0.7% 0.4% -0.6% 0.0% -0.5% 0.1% 0.1% 0.2% 0.0% 0.0% 0.2% 0.1% 0.3% 0.3% -1.6% 1.4% -0.2% Imputed Payment Pattern* -2.2% 0.6% -0.1% 0.8% 0.2% -0.7% -0.1% -0.5% 0.3% 0.4% 0.4% 0.2% -0.4% 0.3% 0.1% 0.3% 0.3% -2.0% 1.9% -0.1% Year 2014 Age-to-Age Factor Cumulative Factors Methodology Curr. 12-Curr. Actual Emergence Latest Year Unadjusted Imputed Payment Pattern* Difference from Actual Methodology Curr. 12-Curr. Latest Year Unadjusted -0.1% -0.8% -0.3% -1.0% -1.0% -0.5% -0.4% 0.4% 0.0% -0.2% 0.2% 0.3% -0.1% -3.6% 0.1% -3.5% Imputed Payment Pattern* 0.1% -0.7% -0.2% -0.9% -0.3% 0.0% 0.0% 0.6% 0.4% -0.2% 0.7% 0.6% 0.1% -1.4% 1.6% 0.2% *Imputed based on cumulative paid indemnity development adjusted for the permanent disability benefit changes from SB 863. III-A-4

7 Meeting Agenda for August 1, 2018 Exhibit 2 Paid Medical Age-to-Age Factors Comparison of Impacts of Progressive Reform Adjustments Year Age-to-Age Factor (A) (B) (B) - (A) (C) (C) - (B) (D) (D) - (C) Adjusted for All in Adjusted for All in Adjusted for (B) and RBRVS (C) and RBRVS No Reform SB 863 Reforms Fee Schedule Fee Schedule Adjustments Effective 1/1/2013 Change Effective 1/1/2014 Change Effective 1/1/2015 Change / / / / / / / / / / / / / / / / / / / / (B) Reflects adjustment of -4.2% to payments made before January 1, (C) Reflects adjustments of -4.2% to payments made before January 1, 2013 and -2.1% to payments made before January 1, (D) Reflects adjustments of -4.2% to payments made before January 1, 2013, -2.1% to payments made before January 1, 2014, and -1.7% to payments made before January 1, III-A-5

8 Meeting Agenda for August 1, 2018 Exhibit 3 Projected Ultimate Medical Loss Ratios * Comparison of Impacts of Progressive Reform Adjustments Year (A) (B) (B) - (A) (C) (C) - (B) (D) (D) - (C) Adjusted for All in Adjusted for All in Adjusted for (B) and RBRVS (C) and RBRVS No Reform SB 863 Reforms Fee Schedule Fee Schedule Adjustments Effective 1/1/2013 Change Effective 1/1/2014 Change Effective 1/1/2015 Change * Each projection reflects paid loss development factors, adjusted for the specified reforms, applied through 243 months, and incurred loss development after 243 months. (B) Reflects adjustment of -4.2% to payments made before January 1, (C) Reflects adjustments of -4.2% to payments made before January 1, 2013 and -2.1% to payments made before January 1, 2014 (D) Reflects adjustments of -4.2% to payments made before January 1, 2013, -2.1% to payments made before January 1, 2014, and -1.7% to payments made before January 1, III-A-6

9 Meeting Agenda for August 1, 2018 Exhibit 4 Comparison of Estimated versus Actual Medical Paid Loss Ratios Comparison of Impacts of Reform Adjustments (A) (B) (B)-(A) (C) (C)-(A) (D) (D)-(A) Actual Estimated (Unadj) Estimated (SB ) Estimated (SB 863 & RBRVS) Year Loss Ratio Loss Ratio Difference Loss Ratio Difference Loss Ratio Difference (A) Reported paid medical loss ratio based on March 31, 2018 valuation. (B) Loss ratios based on March 31, 2017 valuation developed to March 31, 2018 using the latest year unadjusted factor. (C) Loss ratios based on March 31, 2017 valuation developed to March 31, 2018 using latest year adjusted factor for -4.2% to payments made before January 1, (D) Loss ratios based on March 31, 2017 valuation developed to March 31, 2018 using latest year adjusted factor for of -4.2% to payments made before January 1, 2013, -2.1% to payments made before January 1, 2014, and -1.7% to payments made before January 1, 2015 III-A-7

10 Meeting Agenda for August 1, 2018 Item AC Earthquake Study At the December 6, 2017 meeting, the Committee reviewed a study of earthquake exposure in California completed by Risk Management Solutions (RMS) on behalf of the WCIRB. In the study, RMS projected that the long-term average earthquake loss per year was $29 million, with an average loss rate per $100 of payroll of $ The RMS study can be accessed at the following link: Given the advances in earthquake modeling science and the level of refinement of the exposure information provided to RMS, at the December 6, 2017 meeting, the Actuarial Committee recommended consideration of a provision to reflect average expected losses from the earthquake hazard in advisory pure premium rates. III-B-1 W CIRB Californi a

11 Meeting Agenda for August 1, 2018 Item AC /31/2018 Experience Review of Methodologies At the June 15, 2018 meeting, the Committee reviewed a preliminary analysis of statewide experience through March 31, Exhibits 1 through 8 contain an updated analysis of March 31, 2018 experience. In total, almost 100% of the market is included. Wage and loss levels are projected to January 1, 2020 the approximate midpoint of experience on policies incepting in 2019, and premiums were adjusted to the industry average filed pure premium rate level as of January 1, The updated information differs from what was presented at the June 15, 2018 meeting in that this analysis reflects: (a) the inclusion of additional insurer data submissions and insurer data call corrections, (b) updates to the wage level and indemnity claim frequency projections based on UCLA s June 2018 forecasts, and (c) updates to several other on-level adjustments. As shown on Exhibit 8, the projected policy year 2019 loss to the industry average filed pure premium ratio based on March 31, 2018 experience, the methodologies reflected in the July 1, 2018 Pure Premium Rate Filing, and the January 1, 2019 industry average filed pure premium rate level is (The projected loss ratio reflected in the analysis presented at the June 15, 2018 meeting was and the projected loss ratio reflected in the July 1, 2018 Pure Premium Rate Filing was ) Additional supplemental information is included in Exhibits 9 through In the January 1, 2019 Pure Premium Rate Filing, ratios will be adjusted to the July 1, 2018 industry average filed pure premium rate level. III-C-1 W CIRB Californi a

12 California Workers' Compensation Year Experience as of March 31, 2018 Earned Paid Indemnity Paid Medical Total Loss Year Premium Indemnity Reserves Medical** Reserves IBNR* Incurred** Ratio* ,506,609,097 1,382,620,638 4,886,384 1,137,075,716 32,546,668 16,342,179 2,573,471, ,374,085,383 1,504,773,528 7,151,649 1,327,875,924 45,290,687 58,070,009 2,943,161, ,173,049,472 1,701,689,111 7,173,358 1,533,077,060 41,394,885 43,574,688 3,326,909, ,674,529,942 1,937,518,136 8,634,552 1,788,322,786 57,302,851 38,864,263 3,830,642, ,698,665,461 2,254,809,905 9,442,653 2,033,038,225 57,638,798 63,232,646 4,418,162, ,863,319,243 2,470,257,432 17,260,922 2,184,401,966 66,176,080 62,058,054 4,800,154, ,681,466,382 1,971,509,958 13,879,900 1,747,453,669 67,105,401 64,120,268 3,864,069, ,928,480,359 1,689,422,102 14,624,760 1,497,293,087 83,873,750 48,022,964 3,333,236, ,022,749,028 1,621,967,560 21,318,624 1,455,233,134 94,452,979 49,476,648 3,242,448, ,778,975,599 1,755,487,448 31,763,443 1,599,261, ,397,226 64,436,431 3,564,346, ,736,857,547 1,940,627,998 38,703,319 1,689,219, ,279,588 75,266,516 3,872,096, ,916,944,392 2,299,469,488 46,399,709 1,983,852, ,308, ,145,386 4,597,175, ,322,051,270 2,752,214,821 60,815,478 2,598,169, ,361, ,448,942 5,861,010, ,537,629,086 3,030,373,103 58,203,862 2,981,831, ,120, ,581,250 6,568,110, ,905,419,052 3,395,312,865 81,796,003 3,505,390, ,738, ,316,554 7,658,554, ,094,684,192 4,791,615, ,352,995 5,260,365, ,235, ,727,021 11,272,296, ,405,893,679 4,719,058, ,377,305 5,379,563, ,616, ,207,385 11,519,823, ,429,675,115 4,477,943, ,438,612 4,941,156, ,975,091 1,294,015,032 11,308,528, ,043,963,090 3,153,900, ,173,369 3,954,760, ,721,924 1,404,405,344 9,027,962, ,350,709,483 2,478,059, ,915,818 3,547,730, ,153,135 1,144,442,878 7,664,302, ,205,061,787 2,558,891, ,984,395 3,644,521, ,780, ,153,611 7,595,331, ,252,379,499 2,679,453, ,187,500 3,885,519, ,041, ,362,580 7,968,564, ,744,360,124 2,715,340, ,122,458 3,878,474, ,177, ,344,368 7,850,459, ,877,640,496 2,569,931, ,578,708 3,661,331, ,729, ,634,040 7,539,205, ,398,228,398 2,576,642, ,351,718 3,729,686, ,118, ,066,837 7,673,866, ,129,285,077 2,503,846, ,699,919 3,332,946, ,763, ,014,085 7,531,270, ,692,134,220 2,490,702, ,690,163 3,160,141, ,209,416 1,213,966,713 7,694,710, ,149,827,161 2,454,556, ,602,278 2,931,066, ,640,754 2,231,036,059 8,554,902, ,997,914,039 2,393,293, ,918,926 2,679,037, ,739,109 3,228,631,783 9,523,621, ,063,477,971 2,108,159, ,533,248 2,314,036,432 1,027,814,720 4,251,386,747 10,379,930, ,953,201,345 1,471,493, ,143,739 1,756,603,773 1,291,028,640 5,185,710,361 10,590,980, ,672,390, ,841, ,356, ,125,101 1,471,227,157 6,398,216,349 10,387,766, ,406,979,953 18,592, ,534,204 33,187, ,978,040 2,120,271,785 2,530,563, * Shown for informational purposes only. ** Paid medical for accident years 2011 and subsequent exclude the paid cost of medical cost containment programs (MCCP). Paid medical for accident years 2010 and prior include paid MCCP costs. Source: WCIRB quarterly experience calls III-C-2

13 Incurred Indemnity Loss Development Factors Age-to-Age (in months) Year 27/15 39/27 51/39 63/51 75/63 87/75 99/87 111/99 123/ / / / / / / / Selected (a) Cumulative (a) Selections are latest year for the 15-to-27 month through 99-to-111 month factors and six-year average for the subsequent age-to-age factors. III-C-3

14 Incurred Indemnity Loss Development Factors (Continued) Age-to-Age (in months) Year 219/ / / / / / / / / / / / / / / /387 ULT/399Inc (b) Selected (a) Cumulative (b) The ULT/399Inc tail factor was calculated based on an inverse power curve fit to a six-year average of the 111-to-123 through 339-to-351 factors, excluding the most recent two evaluations, and extrapolated to 80 development years. III-C-4

15 Incurred Medical Loss Development Factors Age-to-Age (in months) (b) Year 27/15 39/27 51/39 63/51 75/63 87/75 99/87 111/99 123/ / / / / / / / Selected (a) Cumulative (a) Selections are latest year for the 15-to-27 month through 99-to-111 month factors and six-year average for the subsequent age-to-age factors. (b) Incurred medical loss development factors include the paid cost of medical cost containment programs for accident years 2011 and prior. III-C-5

16 Incurred Medical Loss Development Factors (Continued) Age-to-Age (in months) Year 219/ / / / / / / / / / / / / / / /387 ULT/399Inc (c) Selected (a) Cumulative (c) The ULT/399Inc tail factor was calculated based on an inverse power curve fit to a six-year average of the 111-to-123 through 339-to-351 factors, excluding the most recent two evaluations, and extrapolated to 80 development years. III-C-6

17 Paid Indemnity Loss Development Factors Age-to-Age (in months) Year 27/15 39/27 51/39 63/51 75/63 87/75 99/87 111/99 123/ / / / / / / / Selected (a) Cumulative Unadjusted for Impact of SB Cumulative Adjusted for Impact of SB 863 (b) (a) (b) Selections are latest year for the 15-to-27 month through 99-to-111 month factors and three-year average for the subsequent age-to-age factors. The 51-to-ultimate factor for accident year 2014 and the 63-to-ultimate factor for accident year 2013 have been adjusted by 5.0% and 2.0% respectively, for the impacts of SB 863 on indemnity loss development. (See Impact of Senate Bill No. 863 on Loss Development Patterns, WCIRB, August 13, 2013.) III-C-7

18 Paid Indemnity Loss Development Factors (Continued) Age-to-Age (in months) Year 219/ / / / / / / / / / / / / / / / Inc/399Pd (c) ULT/399Inc (d) Selected (a) Cumulative (c) (d) Three-year averages of the 399Inc/399Pd factors are selected. The ULT/399Inc tail factor was calculated based on an inverse power curve fit to a six-year average of the 111-to-123 through 339-to-351 factors, excluding the most recent two evaluations, and extrapolated to 80 development years. III-C-8

19 Paid Medical Loss Development Factors Unadjusted (a) Age-to-Age (in months) Year 27/15 39/27 51/39 63/51 75/63 87/75 99/87 111/99 123/ / / / / / / / Adjusted (b) Age-to-Age (in months) Year 27/15 39/27 51/39 63/51 75/63 87/75 99/87 111/99 123/ / / / / / / / Selected (c) Cumulative Unadjusted for Impact of SB Cumulative Adjusted for Impact of SB 1160(d) (a) (b) Paid medical loss development factors include the paid cost of medical cost containment programs for accident years 2011 and prior. These factors are adjusted for the following: (i) losses paid prior to January 1, 2013 by -4.2% for SB 863, (ii) losses paid prior to January 1, 2014 by -2.1% and paid prior to January 1, 2015 by -1.7% for the RBRVS-based physician fee schedule changes, and (iii) losses paid prior to July 1, 2017 by -3.6%, -3.8%, -3.4%, -2.4%, -0.9%, and -0.1% to accident years 2011 to 2016, respectively, for the SB 1160 lien reforms. (c) Selections are latest year for the 15-to-27 month through 99-to-111 month factors and three-year average for the subsequent age-to-age factors. (d) The cumulative factors for 15, 27, 39, 51, 63, and 75 months are adjusted by -3.6%, -3.2%, -2.5%, -1.7%, -1.0%, and -0.4%, respectively, for the impact of the SB 1160 reductions in future lien filings. III-C-9

20 Paid Medical Loss Development Factors (Continued) Unadjusted (a) Age-to-Age (in months) Year 219/ / / / / / / / / / / / / / / / Inc/399Pd (e) ULT/399Inc (f) Adjusted (b) Age-to-Age (in months) Year 219/ / / / / / / / / / / / / / / / Inc/399Pd (e) ULT/399Inc (f) Selected (c) Cumulative (e) (f) Six-year averages of the 399Inc/399Pd factors are selected. The ULT/399Inc tail factor was calculated based on an inverse power curve fit to a six-year average of the 111-to-123 through 339-to-351 factors, excluding the most recent two evaluations, and extrapolated to 80 development years. III-C-10

21 Selected Indemnity Development Factors - Paid to Age 243, Incurred from Age 243 to Ultimate Age-to-Age (in months) Year 27/15 39/27 51/39 63/51 75/63 87/75 99/87 111/99 123/ / / / / / / / / / / Inc/243Pd (c) Selected (a) 2.383(d) 1.454(d) 1.197(d) 1.102(d) 1.064(d) Cumulative Unadjusted for Impact of SB Cumulative Adjusted for Impact of SB 863 (b) (a) (b) (c) (d) Selections are latest year for the 15-to-27 month through 99-to-111 month factors and three-year average for the subsequent paid age-to-age factors. Paid development factors are selected to age 243, where an incurred-to-paid ratio is chosen, and subsequently, six-year average incurred loss development factors are selected until ultimate. The 51-to-ultimate factor for accident year 2014 and the 63-to-ultimate factor for accident year 2013 have been adjusted by 5.0% and 2.0% respectively, for the impacts of SB 863 on indemnity loss development. A three-year average of the 243Inc/243Pd factor is selected. Based on calculations shown on Exhibits to Each of these selections is calculated as the latest year paid indemnity age-to-age factor multiplied by an adjustment for changes in claim settlement rates. III-C-11

22 Selected Indemnity Development Factors - Paid to Age 243, Incurred from Age 243 to Ultimate (Continued) Age-to-Age (in months) Year 255/ / / / / / / / / / / / /387 ULT/399Inc (e) Selected (a) Cumulative (e) The ULT/399Inc tail factor was calculated based on an inverse power curve fit to a six-year average of the 111-to-123 through 339-to-351 factors, excluding the most recent two evaluations, and extrapolated to 80 development years. III-C-12

23 Paid Indemnity Loss Development Factors With Separate Adjustments on Open and Closed Claims for Changes in Claim Settlement Rates A. Total Reported Indemnity Claim Counts Evaluated as of (in months) Year , , , , , , , , , , , , , , , , , , , , , , , ,244 B. Development of Total Reported Indemnity Claim Counts Age-to-Age Development (in months): Year Ultimate Latest Year Cumulative Acc. Year Ult. Claim Counts 152, , , , , ,328 C. Closed Indemnity Claim Counts Evaluated as of (in months) Year , , , ,854 97, , ,632 95, , , ,486 89, , , ,033 72,387 95, , ,751 78, , ,889 83, ,761 Source: year experience of insurers with available claim count data III-C-13

24 Paid Indemnity Loss Development Factors With Separate Adjustments on Open and Closed Claims for Changes in Claim Settlement Rates D. Ultimate Indemnity Claim Settlement Ratio (a) (a) (b) Evaluated as of (in months) Year % % 86.8% % 82.7% 87.8% % 76.3% 83.8% 88.9% % 66.5% 78.0% 85.5% % 51.6% 67.8% 79.5% % 53.3% 70.4% % 55.9% % E. Adjusted Closed Indemnity Claim Counts at Equal Percentiles of Ultimate Claim Counts (b) Evaluated as of (in months) Year , , , , , , ,187 99, , , ,837 94, , , ,872 78,513 98, , ,933 81, , ,935 83, ,761 F. Average Paid Indemnity per Closed Claim Evaluated as of (in months) Year , ,194 17, ,910 15,538 17, ,061 13,293 15,608 17, ,320 10,515 13,670 15, ,693 6,724 11,153 14, ,011 7,371 11, ,254 7, ,348 Ratio of closed indemnity claim counts (Item C) to the estimated ultimate indemnity claim counts (Item B) for that accident year. The claim counts for the latest evaluation of each accident year are equal to the reported number of closed indemnity claims. All prior evaluations shown are the product of the latest ultimate indemnity claim settlement ratio (Item D) and the ultimate indemnity claim counts (Item B) for that accident year. Source: year experience of insurers with available claim count data III-C-14