2014 SCCIA CONFERENCE. Celebrating a Decade of Success in South Carolina IU HEALTH RISK RETENTION GROUP. Presented By:

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1 2014 SCCIA CONFERENCE Celebrating a Decade of Success in South Carolina Presented By: Michele Calderon Johns, JD, CPHRM Chief Risk Officer, Indiana University Health Juliana J. Keaton Director of Insurance, CSX Transportation Sally Thieman, RN, JD Vice President, Chief Ethics & Compliance Officer, Saint Luke s Health System IU HEALTH RISK RETENTION GROUP The First Ten Years Michele Johns, JD, CPHRM Indiana University Health, Inc., Chief Risk Officer IU Health Risk Retention Group, Inc., President mjohns1@iuhealth.org

2 IU Health Risk Retention Group, Inc. Indiana University Health, Inc. ( IU Health ) is the majority shareholder of IUHRRG. Indiana University Health is Indiana s most comprehensive healthcare system. A unique partnership with Indiana University School of Medicine, one of the nation s leading medical schools, gives patients access to innovative treatments and therapies. IU Health is comprised of 18 hospitals, physicians and allied services dedicated to providing preeminent care throughout Indiana and beyond. Total admissions: 144,919 Total outpatient visits: 2,563,086 Total Physicians: 3,707 Total team members: 36,000 Total staffed beds: 3,541 Indiana University Health, Inc. National Recognition U.S.News & World Report Four patient-care specialties at IU Health are nationally ranked inu.s.news & World Report s edition of "America s Best Hospitals." Nineout of 10 specialty programs at Riley Hospital for Children at IU Health ranked among the top 50 children's hospitals in the nation. Magnet Designation IU Health is designated as a Magnet hospital system by the American Nurses Credentialing Center, recognizing excellence in nursing care at IU Health Bloomington Hospital, IU Health Goshen Hospital, IU Health La Porte Hospital, as well as its downtown Indianapolis hospitals IU Health Methodist, IU Health University and Riley Hospital for Children at IU Health. The designation is the gold standard for nursing excellence and the highest national honor an organization can receive for professional nursing practice. University Health System Consortium In 2009 for the third consecutive year, IU Health Methodist Hospital was recognized as one of the nation s best academic health centers by the University Health System Consortium (UHC). IU Health Methodist received this prestigious award in recognition of excellence in delivering high quality care, as measured by the UHC Quality and Accountability Study conducted annually since The Road to RRG Formation Early 2000s, carriers began departing the marketplace as medical malpractice lines became unprofitable. 2002, only 2 carriers writing in Indiana, Medical Protective and ProAssurance. IUH s carrier, St. Paul/Travelers left the marketplace entirely and in late 2001 gave IUH a notice of non-renewal.

3 Why a captive insurance program? In January 2002 IUH conducted a feasibility study for various alternative risk financing programs. A captive insurance program was selected as the best alternative. Captive programs provided the most flexibility and the greatest potential cost savings. Various domiciles were considered. An off shore domicile was chosen for tax benefits, experience and ease of doing business. Grand Cayman was selected as IUH s captive domicile. Grand Cayman had an established and proven track record of being well regulated, flexible and could accommodate IUH s need to be up and running within six months. In 2002 approximately 62 healthcare captives had already been formed there. Initial lines of coverage Hospital Professional Liability Employed Physician Professional Liability General Liability Contingent Professional Liability IUH Assurance, Ltd. (IUHAL) Formed in Grand Cayman in June First policies issued July 1, IUHAL is wholly owned by IU Health, Inc. Indiana Patients Compensation Fund will not accept a direct issued policy from an off shore captive. Therefore, IUHAL had to use a fronting arrangement with an admitted commercial carrier to issue policies in Indiana. For the first two policy periods, and , Continental Casualty, a CNA Insurance Company issued the paper for IUHAL s medical malpractice, general liability and contingent professional liability coverages.

4 IUHRRG the next logical step During the policy term it became apparent that fronting with CNA was becoming expensive, added another layer of corporate bureaucracy, and that national carriers did not always understand the Indiana Patient Compensation Fund. Federal law provides for the formation of Risk Retention Groups that can do business within the United States. South Carolina was one of the leading states in recognizing this economic opportunity and developed the regulatory infrastructure to facility the formation and governance of RRGs. SC also permitted non-employed physicians to participate in the program. June 2004 Movies, Books and Music IUHRRG the next logical step In June, 2004, Clarian Health Risk Retention Group, Inc. (CHRRG), now rebranded as IUHRRG, a South Carolina corporation was formed, in time for the July 1, 2004 renewal. IUHRRG replaced CNA as the fronting carrier. IUHRRG is admitted in Indiana as a foreign risk retention group, and can issue policies in Indiana. Unlike Cayman Captive, IUHAL, IUHRRG can do business on shore. IU Health, Inc. is the majority shareholder, owning approximately 97.5%. The Board of Directors of IUHRRG, mirrors the IUHAL board with the exception of the South Carolina resident on the IUHRRG board.

5 If you build it, they will come. As the commercial market deteriorated, non-employed physicians sought to be included in IUHRRG s program. Medical Protective, the company that had traditionally written many of the Indiana University physician groups either cancelled coverage, limited practices, or raised premium. In 2003 the non-employed MD base grew to approximately 1000 physicians. The first non-employed groups were Indiana University Medical Group, Primary Care and University Neurosurgical Associates. Within 3 years, by 2006, the non-employed MD base had grown to over Underwriting requirements to prevent adverse selection: Must write entire group; Must have significant relationship with IU Health Market Share / Competitive Position IUHRRG 76 th largest medical professional underwriter in US based upon premium dollars, according to Best, 2011 study. 3rd largest medical professional liability carrier in Indiana IUHRRG has very competitive pricing and discounts; a robust risk consultation program; occurrence policies for physicians Varied Book of Business Most common ISO codes Nurse Practitioners 13% Family Practitioners 11% Internal Medicine 10% Emergency Medicine 6% Pediatric 6% Intensive Care 5% Radiology 4% IUH Captive Program Structure

6 Self-administered Pursuant to a management contract with IUHRRG, all management and administrative functions are performed internally by IUH employees including: Underwriting Policy Administration Additions, terminations, renewals Issuance of certificates and policies Invoicing/Quotes Claims Management Finance Risk Management/Consultation IDOI asked IUHRRG to serve as administrator for state high risk pool, IRMIA Income from this contractual engagement Historical Loss Costs: 7/1/04 6/30/14 and Return on Investment HPL/GL loss costs have increased at an annualized rate of 4%. However, since 2006, loss costs have only increased at an annualized rate of 2%. Current employed physician loss costs are literally half of what they were in 2004! This translates to an annualized decrease of 7.5%. Also, employed physician rates are approximately 30% to 45% lower than the non employed physician rates. Non employed physician rates have decreased cumulatively by 23% since Total cash returned from captive since inception, 2002: Over $40,000,000

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9 What to do in the next 10 years? Use IUHRRG to write third party business, but segregate that risk from the existing program by retaining it at IUHRRG or reinsuring it to a separate cell within IUHAL Use IUHRRG as a front for other captives, charge a fronting fee and charge for services provided, such as risk management and claims management services Form an insurance services arm at IUH and sell administrative or claims handling services to other insureds What to do in the next 10 years? Use IUHRRG to write third party business, but segregate that risk from the existing program by retaining it at IUHRRG or reinsuring it to a separate cell within IUHAL Use IUHRRG as a front for other captives, charge a fronting fee and charge for services provided, such as risk management and claims management services Form an insurance services arm at IUH and sell administrative or claims handling services to other insureds CSX Corporation CSX Insurance Company Juliana J. Keaton, J.D. Director of Insurance, CSX Transportation, Inc. President, CSX Insurance Company

10 CSX Corporation Together with its subsidiaries, CSX is one of the nation s leading freight transportation companies, providing rail-based services and the transport of intermodal containers and trailers CSX dates back more than 180 years to the Baltimore and Ohio Railroad Company (B&O), the nation s first common carrier Based in Jacksonville, Florida, CSX has operations throughout the eastern United States CSX Corporation Chicago St Louis Memphis New Orleans Montreal New York Charleston Jacksonville Miami 32,000 people 21,000 miles of railroad Serving 23 states east of the Mississippi, the District of Columbia and the Canadian provinces of Ontario and Quebec Track connections to approximately 240 short-line and regional railroads 1,300 trains per day Access to 70 ocean, river and lake port terminals 12 hump yards 24 flat yards Diversity of business is a key strength 2014 First Half Revenue Intermodal and Other 17% Automotive 10% Metals 6% Chemicals 17% Phosphates 4% Agriculture 9% Coal 23% Forest Emerging Markets 6% 6% Food & Consumer 2%

11 CSX Insurance Company A pure captive, originally incorporated in Vermont in 1987 Redomiciled to South Carolina in September 2004 because of the better match to CSX s footprint Key Financial Information as of December 31, 2013 Total Assets $310 Million Total Premium Written $37 Million Annual Net Income $10 Million CSXIC assumes exposures for CSX Corporation and its subsidiaries and affiliates either by insuring or reinsuring the following: Workers Compensation U.S. Longshore & Harbor Workers Compensation (USL&H)/Jones Act Federal Employers Liability Act (FELA) Employers Liability General Liability Railroad Force Liability Railroad Protective Liability Terrorism Owner Operators/Motor Carrier Liability Motor Truck Cargo Legal Liability Automobile Liability Mileage Reimbursement Program Personal Home and Auto Property Storage Tank Liability Key Reasons for Formation and Resulting Benefits Access to large, global reinsurance markets Greater capacity Lower premiums Stabilize coverage by removing vulnerability to changes in the insurance markets Enhance ability to determine policy terms and conditions, particularly with respect to railroad-specific coverages (i.e., Federal Employers Liability Act (FELA), Force Account and Railroad Protective) Greater control over claims handling and resolution Capitalize on depth of understanding of unique exposures Allow payment of dividends and lending of capital to the parent

12 Saint Luke s Health System Saint Luke s Health System Risk Retention Group Sally L. Thieman, RN, JD Vice President, Chief Ethics & Compliance Officer Insurance Environment Cost of Professional Liability coverage increasing rapidly at that time o One of the worst performing lines of insurance o Too much reliance on investment earnings which were shrinking Medical Malpractice Combined Ratio F Greatly diminished capacity o 9/11 o Multi carriers ceased writing medical professional liability o Missouri identified as a state in crisis Medical malpractice awards rising across the country o Institute of Medicine Report on medical errors o Distrust of medical profession Med Mal Insurers in 2012 paid out $0.91 in loss and expense for every $1 they earned in The dramatic improvement over the past decade $180 premiums has restored med mal s viability, though some deterioration is anticipated $ $ $ $ $80 In 2001, med mal insurers paid $60 out $1.55 for every dollar earned $40 $20 $ E 13F 14F 15F Source (A.M. Best ; Conning and Insurance Information Institute) Key Reasons for Formation Stabilize coverage by removing vulnerability to market changes Keep any profit and investment income More control over terms and conditions Ability to provide coverage for both employed and non-employed physicians An RRG met a specific Kansas State requirement

13 Challenges Working under a short time frame Becoming comfortable taking on risk that had been traditionally commercially insured Benefits Able to take advantage of favorable loss history Control and stability Slowly able to move away from reinsurance Keep surplus and investment income Flexibility with coverage o Slots o eicu Pass savings on to Subscribers through premium rate reduction Long-term solution 600 Active Insured / / / / / /2015 Growth/Results $8,000,000 Calendar Year Written Premium $7,000,000 $6,000,000 $5,000,000 $6,103,899 $6,459,623 $6,833,270 $4,940,309 $4,592,372 $4,000,000 $3,000,000 $2,000,000 $1,000,000 $0 * premium ** **Reduction in *50% credit Excess Premium $16,000,000 $14,000,000 $12,000,000 $10,000,000 $8,000,000 $6,000,000 $4,000,000 $2,000,000 $0 Capital/Surplus $14,116,813 $14,495,153 $14,336,549 $12,086,803 $10,362,673 $1,200,

14 Other Why South Carolina? Claims Management Risk Management Efforts