Ohio Petroleum Underground Storage Tank Release Compensation Board. Estimated Unpaid Claims Liability As ofjune 30, 2012

Transcription

1 Ohio Petroleum Underground Storage Tank Release Compensation Board Estimated Unpaid Claims Liability As ofjune 30, 2012

2 Petroleum Underground Storage Tank Release Compensation Board Estimate of Unpaid Reimbursement Liability For the Year Ended June 30, 2012 Purpose of Report The Petroleum Underground Storage Tank Release Compensation Board (the Board) was created in 1989 to administer Ohio's Underground Storage Tank (UST) Financial Assurance Fund (the Fund). The Fund was created in response to Environmental Protection Agency (EPA) regulations requiring responsible persons to demonstrate the capability to pay for correction actions caused by accidental releases of petroleum from UST systems and costs for third party liability resulting from releases. The Fund generally reimburses UST owners up to $1 million per release, less a deductible. The deductible is based on the number of tanks owned and fees paid in a given year. An owner may receive up to $4 million per year, depending on the number of tanks owned. To obtain a Certificate of Coverage and be eligible for reimbursement from the Fund, owners must participate in the Fund by paying an annual per-tank fee and demonstrating compliance with federal and state regulations as well as complying with the Board's internal procedures regarding the reporting and remediation of releases. The Board annually estimates the unpaid reimbursement liability of the Fund. In fiscal years' 2003 and 2007, as a result of changes in assumptions, the Board engaged a professional actuary firm to perform an independent review of the assumptions and methodology used in developing this estimate as well as to provide an estimate of the Fund's unpaid reimbursement liability for the fiscal year under review. Under the guidance of a professional actuary firm, beginning in fiscal year 2010, management modified the historical analysis framework by adjusting the data available at April 30 to expected June 30 values. These expected values are then used in the development of the loss reserve estimate at June 30. Beginning with fiscal year 2004 and including fiscal year 2012, management has prepared the estimate of this liability. As the UST regulation environment changes or other related assumptions change, it is the Board's intent to outsource this analysis to an independent firm to allow for updates and changes in the assumptions. The following report and schedules are management's estimate of the Fund's loss reserves for the year ended June 30, Approach Similar to the loss reserve estimate for fiscal year 2011, the Board's staff has prepared this report utilizing data available as of April 30, 2012 to estimate the Fund's unpaid reimbursement liability as of June 30, The use of values adjusted to June 30 has the potential to impact the development process. Variances could exist due to abnormalities occurring during the last two months of the fiscal year in relation to the number of claims submitted, amount of gross face value from claims submitted, amount of claim payments, and number of claims closed. However, based upon a comparison of management's expected values against actual data as of June 30, 2012, the utilization of the April 30, 2012 data to develop expected June 30, 2012 values did not result in a significant variance that could have distorted the results of the development process. As in previous analyses, management used the following five actuarial methods in projecting ultimate fund losses by program notification year: Paid loss development It Average loss Bornhuetter-Ferguson using average loss and paid loss.. Ultimate gross face value adjusted for disallowed costs and deductible recoveries Bornhuetter-Ferguson using ultimate gross face value and paid loss Based on the results of these five tests, ultimate losses are selected by program notification year. The estimated liability on the incurred but not reported (lbnr) claims as of June 30, 2012 was determined by estimating the ultimate claims by program release year using the following two actuarial methods:

3 Reported claim development Bornhuetter-Ferguson using exposures and reported claims Because of regulatory requirements that the Board receive an Application for Eligibility within one year of the release date, the liability on unreported claims is limited to only the latest release year. For fiscal year 2012 this is the period of July 1, 2011 through June 30, In addition to the IBNR claims, 13 applications for eligibility are pending review and determination. These are added to the IBNR counts. Based on past history, management estimates that the applicant of approximately 70% of the IBNR and pending applications will be granted eligibility to file claims for reimbursement with the Fund. Findings Based on management's analysis, the Fund's total unpaid loss liability as of June 30, 2012 is estimated at $29,846,518. The table below details this amount and compares it to the estimate of the unpaid loss liability as of June 30, Petroleum Underground Storage Tank Release Compensation Board Financial Assurance Fund Summary of Unpaid Liabilities Valuation Date Claims Reported As of Valuation Date Claims Unreported As of Valuation Date June 30, 2012 $ 28,407,418 $ 1,439,100 $ 29,846,518 June 30, 2011 $ 30,586,116 $ 1,505,400 $ 32,091,516 Changes from Prior Estimates Reported Claims The reduction in the estimated unpaid liability for reported claims from the June 30, 2011 valuation is a result of claim reimbursements being paid at a rate greater than the increase in the estimated ultimate loss. In management's report, estimated ultimate loss increased approximately $4.8 million from June 30, 2011 to June 30, The increase in the estimated ultimate loss has three components. The first is the change in the estimates of ultimate losses for Notification Years 2010 and prior, which increased by approximately $3.48 million. The second component is the estimate of ultimate losses for Notification Year 2011 which totaled $1.4 million. The third component is the change in the estimate of Unreported Claims, which decreased by $66,300. By comparison, in fiscal year 2012, approximately $7.06 million was reimbursed. 2

4 The following table summarizes the change in the Estimated Unpaid Ultimate Losses: Estimate as of June 30, 2011 (1 ) Notification Years 2010 and Prior $ 30,586,116 (2) Unreported Claims (3) Total $ 32,091,516 Change in Estimated Ultimate Claims (4) Notification Years 2010 and Prior $ 3,479,600 (5) Notification Year ,400,700 (6) Unreported Claims (66,300) (7) Total $ 4,814,000 (8) Paid Losses June 30, June 30, 2012 $ 7,058,998 (9) Unpaid Loss June 30, 2012 [(3)+(7)-(8)] $ 29,846,518 Gross face value adjusted for non-reimbursable and undocumented costs and deductible amounts is a measure of the amount the Fund will ultimately pay. Claims from program notification year 1996 and prior continue to factor in the variations in the estimated ultimate loss. For fiscal year 2012, notification years 1996 and prior account for 45% of gross face value submitted and 36.5% of the increase in the total estimated ultimate gross face value from the prior year. Approximately 71 % of the increase over the previous year's estimated ultimate loss is attributed to notification years 1996 and prior. Notification years 1989 through 1996 account for 70% of all claims submitted to the Fund for reimbursement, and of these claims, approximately 16% are open and continue to have costs submitted. These open claims will continue to factor into the variability in notification years 1996 and prior, and it is uncertain when these claims will be closed. The following chart summarizes the increase in ultimate gross face value: Estimated Ultimate Gross Face Value Notification Year June 30, 2012 June 30, 2011 Difference ,000 38, ,688,000 46,179, , ,732,000 83,000, , ,956,000 49,592,000 1,364, ,887,000 42,002, , ,116,000 31,837, , ,303,000 32,734, , ,564,000 55,606, , ,812,000 14,472, , ,013,000 17,593, , ,543,000 11,254, , ,539,000 6,570,000 (31,000) ,210,000 5,329,000 (119,000) ,934,000 5,866,000 68, ,809,000 4,765,000 44, ,406,000 4,506,000 (100,000) ,958,000 7,895,000 63,000 I ,365,000 9,877, , ,280,000 9,194,000 1,086, ,581,000 9,407, , ,248,000 11,883,000 (635,000) ,158,000 3,939,000 1,219, ,895,000 5,895,000 Total $ 478,035,000 $ 463,538,000 $ 14,497, & Prior $ 5,296,000 3

5 The following chart summarizes the increase in the estimated ultimate loss: Estimated Ultimate Loss Notification Year June 30, 2012 June 30, 2011 Difference ,300 22, ,352,300 28,127, , ,321,700 49,389, , ,582,800 28,228, , ,650,500 22,207, , ,547,700 16,164, , ,530,200 17,034,600 I 495, ,668,400 27,042, , ,220,800 8,181,700 39, ,914,600 7,891,000 23, ,276,700 6,182,500 94, ,721,200 2,063, , ,629,200 1,408, , ,516,800 1,634,400 (117,600) ,255,300 1,349,900 (94,600) ,173,000 1,248,700 (75,700) ,039,900 2,275,600 (235,700) ,576,600 2,728,600 (152,000) ,479,200 2,463,500 15, ,316,300 2,587,900 (271,600) ,042,100 3,306,600 (264,500) ,277,200 1,098, , ,400,700 1,400,700 Total $ 237,515,500 $ 232,635,200 $ 4,880, & Prior $ 3,460,800 Reimbursements for corrective action costs have been paid as follows: Paid Loss Notification Year June 30,2012 June 30, 2011 Difference ,040 22, ,068,321 27,812, , ,577,823 47,982, , ,099,346 26,832, , ,239,721 20,556, , ,359,812 14,891, , ,673,229 14,873, , ,599,693 23,398,992 1,200, ,669,390 6,480, , ,484,121 6,282, , ,647,711 4,459, , ,688,646 1,630,246 58, ,007, ,750 63, ,216, , , , , , , , , ,089,775 1,031,881 57, ,056, , , , , , , , , ,150, , , , , Total $ 209,108,082 $ 202,049,084 $ 7,058, & Prior $ 4,270,701 I 4

6 Unreported Claims Unreported claims has two components: II Incurred but Not Reported; and.. Undetermined eligibility applications. The estimated loss on unreported claims decreased approximately 4% from June 30, 2011 to June 30, Changes from Prior Analysis Changes in the methods utilized to make selections in the process of determining the estimated ultimate loss will have an impact on the loss reserves. Changes in the way selections were made for the valuation period ending June 30,2012 are discussed below:.. Selection of the Average Loss As a result of comments provided in an October 24, 2011 "Review of Estimated Unpaid Claims Liability as of June 30, 2011 Report of the Ohio Underground Storage Tank Financial Assurance Fund" prepared by Pinnacle Actuarial Resources, Inc. for the Board's independent public auditors, the method to select the average loss was changed to exclude the most recent notification year as the preliminary average loss for notification year 2011 is zero. The selected average loss, shown in Reported Exhibit 10, is based on the preliminary average loss for notification years 1989 through For notification years 2007 through 2010, the selected average loss is a rounded average of the preliminary average loss of notification year 2006 through the associated notification year. For notification year 2011, the selected average loss is a rounded average of the preliminary average loss of notification years 2006 through In the prior year's report, the selected average loss for notification years 2006 through 2010 was based on a rounded average of the preliminary average losses from 2005 through the associated notification year. Considerations Revisions in federal law and the Ohio Administrative (OAC) and Revised (ORC) Codes as well as the Board's internal procedures affect the timing and amount of claim reimbursements. The following changes and assumptions are incorporated in previous reports and continue to affect the outcome of management's estimate:.. UST Performance Standards In 1988, more stringent requirements were mandated for the design, installation, corrosion protection and release detection of petroleum USTs. All existing tanks were required to be upgraded by December 22, However, because owners were permitted to take their tanks out of service for up to one year prior to replacement or upgrading, management assumes that all tanks meet the new performance standards as of December 22, Because the process of removing and replacing tanks leads to the discovery of more releases, the Fund experienced a large number of claims leading up to December 22, The number of releases versus the number of tanks decreased significantly after the upgrade deadline and management assumes that this reduced frequency will continue. Change in Procedures for Providing Notification (1996) Prior to 1996, no restrictions existed with regards to notifying the Board of a release. Consequently, the Board may have not received notification of a release occurring in 1990 until several years later. However, effective in November 1996, a change to the OAC imposed a one-year time limit for notifying the Board of a discovered release. Releases required to be reported to the State Fire Marshal (SFM) prior to January 1, 1996 were now required to be reported to the Board on or before January 1, Releases occurring thereafter must be reported to the Board within one year from the date the release or suspected release, whichever is first, was required to be reported to the SFM. This change in reporting resulted in the unusually high number of claims reported to the Board during the 1996 notification year and the corresponding increase in gross face value. 5

7 .. Change in Procedures for Submitting Costs (1999) Prior to 1999, no restrictions were placed on the timing of cost submissions. Owners could submit costs at any point during investigation and remediation of the release or alternatively, wait until all corrective action was complete. However, a change to the OAC in 1999 required that all costs incurred for corrective action program tasks completed prior to July 1, 1999 and that were not previously submitted to the Board, be submitted by July 1, In addition, costs for program tasks that were completed after July 1, 2000 are required to be submitted within a year of the completion date defined within the OAC. The immediate effect of this change was a significant increase in the amount of costs submitted in the 1999 notification year. Requiring timely submission of costs results in the acceleration of the reported gross face value when compared to costs submitted prior to this change. Change in Reimbursement of Non Pre-approved Costs After the Board's staff reviews a reimbursement application, a settlement offer is made to the owner. Settlements are generally determined as the gross face value less non-reimbursable and undocumented costs and an individual owner's deductible amount. Beginning in 1999, certain corrective action costs require pre-approval in order to be eligible for full reimbursement. Costs that are not pre-approved as required were subject to a 10% reduction in the amount of reimbursement. In 2003, this 10% reduction was increased to 20% and in April 2005, it was increased to 50%. Effective November 30, 2009, the Board amended its rule, OAC , requiring the pre-approval of costs. As a result of this amendment, costs exceeding the pre-approved amount by 20% or $6,000, whichever is less, that are not pre-approved when required are subject to a 50% reduction in the amount of reimbursement. Because the pre-approval process combined with the penalty for failure to obtain pre-approval when required provides incentive to use the most cost effective cleanup method, management believes mandatory cost pre-approval has the effect of reducing both gross face value and disallowed costs. Additionally, management believes the November 30, 2009change to the OAC will not impact its estimate of ultimate losses... Introduction of Risk Based Corrective Action (RBCA) (1999) In 1999, a new set of standards for corrective actions was introduced which impacted all releases occurring on or after March 31, A Risk-Based Corrective Action (RBCA) process was established, allowing for site specific cleanup remedies based on the anticipated future use of the site. Previous to that time, all corrective actions were held to generic standards without consideration of future site use. It was anticipated that the speed of the corrective action process would be accelerated and the overall cost of remediation would be reduced with the implementation of the RBCA process. Responsible persons with claims, where the release date was before March 31, 1999 (regardless of the status of the corrective action), had the option to remediate their sites in compliance with either the original (non-rbca) standards or the RBCA process. In loss reserve analyses prior to June 30, 2007, an adjustment was included to reflect the possible impact of the optional RBCA processing. However, beginning with the June 30, 2007 valuation, management assumes the impact from RBCA is imbedded within the data used to develop the estimates and as a result, an adjustment is not necessary... Mandatory Risk Based Corrective Action (RBCA) (2005) Beginning in March 2005, existing clean ups being conducted under the 1992 or 1999 corrective action rules were required to transition to the 2005 RBCA rules by September 1, 2005 or March 1, 2006, respectively, unless approval to remain in an earlier version of the rule was sought from and granted by the SFM. Under the 2005 RBCA rules, the corrective action levels were lowered thereby increasing the amount of corrective action that must be performed to reach acceptable levels of contamination that may remain at the release site. In addition, the 2005 RBCA rules require additional testing and reporting. Consequently, the costs of corrective action are anticipated to increase for releases that were transitioned to or occurred after the implementation of the March 31, 2005 corrective action rules. 6

8 State Fire Marshal's Corrective Action Rules (2012) Beginning in March 2012, existing clean ups being conducted under the 1992, 1999, or 2005 corrective action rules were required to transition to the 2012 rules by October 1, 2012, unless approval to remain in an earlier version of the rule was sought from and granted by the SFM. For a limited number of releases transitioned from the 2005 to 2012 corrective action rules, the change will decrease the amount of corrective action that must be performed to reach acceptable levels of contamination that may remain at the release site. This, in turn, will reduce the costs of corrective action for this limited number of releases. It is anticipated costs for transitioning to the 2012 correction action rules will be minimal and not significantly impact the Fund's liability. The rule change does not have an impact in the Fund's liability as of June 30,2012. Limitations on Annual Reimbursement Amounts Prior to the 1997 notification year, no restrictions were placed on the amount of funds available to make reimbursements during an annual period. Effective with the 1997 notification year, changes to the OAC required the Board to annually obligate a set amount of funds for the payment of claims reimbursements. The amounts obligated by notification year were as follows: Years Annual Obligated Amount $15 Million 2001 $12 Million $10 Million $9 Million 2010 $8 Million 2011 $9 Million 2012 (Planned) $9 Million III Change in Procedures for Processing and Prioritizing Claims Reimbursement As a means to collectively settle costs submitted incrementally for reimbursement and to manage the backlog of claims created by the regulations requiring timely submission of corrective action costs for reimbursement, beginning in 2004 and continuing through the 2009 notification year, the Board offered lump sum settlements to the major oil companies for releases for which the SFM had issued a "No Further Action" (NFA) determination. A summary of those lump sum settlements follows: Notification Year Lump Sum Payments Lump Sum Claims 2003 $663,775 36* 2004 $1,517, $912, $1,832, $1,820, $1,215, *in 2007, 24 claims were re-opened and additional costs submitted with a 25% reduction in the reimbursable costs as determined by the Board. Until April 2005, applications for claim reimbursement were generally settled on a first-come, firstserved basis. Applications are submitted incrementally as corrective action program tasks are completed. A change to the OAC in 2005 permitted the prioritization of applications based on the NFA status. Consequently, when the SFM issues a NFA, all in-house applications could be simultaneously reviewed and settled. Both the lump sum settlements and the prioritizing of reimbursement applications according to the NFA status have the affect of accelerating the number of closed claims and the determination of disallowed costs and deductible values. The prioritization of claims had the unintended effect of increasing the time to review claims for releases with continuing investigation and remediation. In December 2011, the prioritization of applications based on NFA status was discontinued and all in-house unsettled claims are generally settled on a first-come, first-served basis. 7

9 Claims Lag Due to the regulations requiring incremental and timely submission of corrective action costs for reimbursement and staffing limitations, the number of claim reimbursement applications received has exceeded the number of claim reimbursement applications settled since the 1999 notification year. This in turn delays the determination of disallowed costs and the issuance of claim reimbursement payments, affecting the development factors. Ongoing Data Clean-Up Beginning in 1999, the Board began a re-write of its database system. As part of this project, claims reimbursement data was migrated to the new system and data integrity checks were implemented. Over the past several years, the claims tracking data was reviewed and corrected where appropriate. For the period ended June 30, 2012, six claims were added that were not included in the previous year's report. Additional corrections to the date of the release resulted in a fluctuation in the number of claims reported by release year presented in the unreported exhibits. It is management's belief this does not have a significant impact on its estimate of the Fund's ultimate losses. Management estimates that approximately 99% of the claims tracking and payment data has been reviewed and corrected where appropriate. Changes in historical values will continue to be minimal in future reporting periods. Limitations I Caveats The results of this analysis are management's estimates and are likely to change from one valuation period to the next. The changes are due not only to the uncertain nature of the claims reimbursement process, but also because the past is used to forecast the future, with the assumption that the conditions that existed in the past will continue. 8

10 By Release Year Summary Exhibit 1 Summary of Reserve Estimates As of June 30, 2012 (A) Estimated Loss Reserves From Claims Reported Prior to 7/1/12: (B) Estimated Loss Reserves From Claims Reported or Approved After 7/1/12: (C) Total Reserves (A) + (B): $ 28,407,418 1,439,100 $ 29,846,518 Notes: 1. Row (A) is from Reported Exhibit 1, total column (3). 2. Row (B) is from Unreported Exhibit 1, total column (6).

11 Reported Exhibit 1 Summary of Losses and Reserves As of 6/30/2012 Notification Year Ultimate Loss Indicated Paid Loss Loss Reserves (1)-(2) (1 ) (2) (3) 1. Column (1) is from Reported Exhibit 4, column (7). 2. Column (2) is Actual Paid Loss as of June 30, $ 22,300 22,040 $ ,352,300 28,068, , ,321,700 48,577,823 1,743, ,582,800 27,099,346 1,483, ,650,500 21,239,721 1,410, ,547,700 15,359,812 1,187, ,530,200 15,673,229 1,856, ,668,400 24,599,693 3,068, ,220,800 6,669,390 1,551, ,914,600 6,484,121 1,430, ,276,700 4,647,711 1,628, ,721,200 1,688,646 1,032, ,629,200 1,007, , ,516,800 1,216, , ,255, , , ,173, , , ,039,900 1,089, , ,576,600 1,056,551 1,520, ,479, ,618 1,484, ,316, ,833 1,669, ,042,100 1,150,977 1,891, ,277, ,463 1,125, ,400,700 1,400,700 Total $ 237,515,500 $ 209,108,082 $ 28,407,418

12 Reported Exhibit 3 Ratio of Ultimate Loss to Ultimate Gross Face Value Notification Year Ultimate Loss Ultimate Gross Face Value Ratio (1) / (2) (1 (2) (3) $ 22,300 $ 38,000 28,352,300 46,688,000 50,321,700 83,732,000 28,582,800 50,956,000 22,650,500 42,887,000 16,547,700 32,116,000 17,530,200 33,303,000 27,668,400 56,564,000 8,220,800 14,812,000 7,914,600 18,013,000 6,276,700 11,543,000 2,721,200 6,539,000 1,629,200 5,210,000 1,516,800 5,934,000 1,255,300 4,809,000 1,173,000 4,406,000 2,039,900 7,958,000 2,576,600 10,365,000 2,479,200 10,280,000 2,316,300 9,581,000 3,042,100 11,248,000 1,277,200 5,158,000 1,400,700 5,895, Total $237,515,500 $478,035, Notes: 1. Column (1) is from Reported Exhibit 4, column (7). 2. Column (2) is from Reported Exhibit 16, column (4). Printed 10/29/20122:44 PM

13 Reported Exhibit 4 Comparison of Ultimate Loss Estimates Ultimate Loss Based on Ultimate Face Value Bornhuetter- Bornhuetter- Less Ferguson Ferguson Disallowed Using Using Costs Gross Average Less Face Paid Loss Average Loss and Deductible Value and Straight Ultimate Notification Year Development Loss Paid Loss Recoveries Paid Loss Average Loss (1) (2) (3) (4) (5) (7) 1989 $ 22,260 $ 22,260 $ 22,260 $ 22,327 $ 22,261 $ 22,274 $ 22, ,699,245 28,776,000 28,700,832 28,019,336 28,685,189 28,576,121 28,352, ,956,915 50,154,000 49,963,090 50,664,307 49,979,077 50,143,478 50,321, ,236,096 28,120,000 28,231,345 28,902,243 28,263,354 28,350,608 28,582, ,323,553 22,361,000 22,325,694 22,942,058 22,358,911 22,462,243 22,650, ,754,442 16,644,000 16,745,760 16,371,067 16,724,303 16,647,914 16,547, ,598,331 17,507,000 17,588,850 17,474,817 17,585,509 17,550,901 17,530, ,029,966 28,014,000 28,027,827 27,392,248 27,944,513 27,881,711 27,668, ,955,535 7,889,000 7,944,953 8,413,260 8,028,328 8,046,215 8,220, ,121,453 8,140,000 8,125,116 7,775,942 8,053,206 8,043,143 7,914, ,135,638 6,090,000 6,124,850 6,363,887 6,189,590 6,180,793 6,276, ,303,470 2,304,000 2,303,616 2,957,949 2,484,535 2,470,714 2,721, ,505,576 1,520,000 1,510,229 1,692,469 1,565,866 1,558,828 1,629, ,741,659 1,764,000 1,750,099 1,415,259 1,618,351 1,657,874 1,516, ,525,597 1,512,000 1,519,784 1,146,947 1,363,728 1,413,611 1,255, ,505,365 1,485,000 1,495,943 1,050,831 1,295,082 1,366,444 1,173, ,564,746 2,553,000 2,557,999 1,897,983 2,181,740 2,351,094 2,039, ,087,877 3,066,000 3,073,430 2,472,053 2,681,212 2,876,114 2,576, ,641,768 2,964,000 2,871,105 2,451,780 2,506,551 2,687,041 2,479, ,539,233 2,812,000 2,744,873 2,285,069 2,347,617 2,545,758 2,316, ,537,756 4,029,000 4,548,568 2,682,648 3,401,580 4,439,910 3,042, ,497,825 2,108,000 2,165,600 1,230,183 1,324,164 2,065,154 1,277, ,604,000 2,584,455 1,405,958 1,395,405 1,597,964 1,400,700 Total $244,284,306 $242,438,260 $242,926,278 $237,030,621 $238,000,072 $240,935,907 $237,515,500 Notes: 1. Column (1) is from Reported Exhibit 5, column (4). 2. Column (2) is from Reported Exhibit 8, column (3). 3. Column (3) is from Reported Exhibit 9, column (10). 4. Column (4) is from Reported Exhibit 12, column (4). 5. Column (5) is from Reported Exhibit 13, column (10). 6. Selected ultimate loss in column (7) is based on a rounded average of columns (4) and (5). Printed 10/29/20122:44 PM

14 Reported Exhibit 5 Ultimate Loss Based on Paid Loss Development Selected Cumulative Ultimate Cumulative Development Development Loss Notification Year Paid Loss Factors Factors (1)x(3) (1 ) (2) (3) (4) 1989 $ 22, $ 22, ,105, ,699, ,391, ,956, ,080, ,236, ,047, ,323, ,437, ,754, ,771, ,598, ,273, ,029, ,690, ,955, ,517, ,121, ,685, ,135, ,666, ,303, ,019, ,505, ,083, ,741, , ,525, , ,505, ,091, ,564, ,048, ,087, , ,641, , ,539, ,116, ,537, , ,497, Total $208,263,495 $244,284,306 Notes: 1. Paid loss in column (1) is estimated using values available at April 30, Development factors in columns (2) and (3) are selected in Reported Exhibit 7. Printed 10/29/20122:44 PM

15 Reported Exhibit 6 Paid Loss Notification Year ,000 10, ,581 4,597,069 2,292,209 3,092,944 1,986,216 2,061, ,876 1,285, ,566 1,130,383 1,018,290 1,343, , ,487 1,181,377 1,082, , , , , , , ,514,080 2,559,827 4,037,531 3,853,602 4,037,104 4,546,318 4,340,540 2,883,054 2,406,676 2,158,012 2,089,927 2,133,387 1,609, ,603 2,059, ,030 1,449, , , , ,967 2,115,368 2,852,290 3,988,660 2,241,798 1,973,143 1,350, ,373 1,066,686 1,150, ,153 1,724, ,110 1,480, , ,389 1,272, , , ,107 1,750,631 1,522,210 1,915,208 2,080, ,912 1,067,070 2,186,315 1,101,784 1,369, , , ,943 1,395, , , , , ,241 1,597,234 1,834,364 1,192,096 1,528, ,315 1,191,986 1,100, , , , , , , , , , , ,842 1,248,543 1,870,339 1,529,210 1,093, ,967 1,043, ,187 1,026, , , , ,878 1,046, , , ,657 1,822,967 2,243,905 2,401,142 1,698,964 1,320,853 1,372,262 2,019,036 1,554,135 1,368,176 1,330,590 1,493,506 1,199, , , , ,347 1,148, , , , , , , , , , , , ,987 1,081, , , , , , , , , , , , , , , , , , , , , , , , , , , , ,524 47, ,138 35, ,267 54, ,356 43,044 35, ,067 63, ,574 72,783 28, ,703 86, , ,800 76, , ,426 61,376 92,214 10,232 13, ,052 83, , , ,047 62,170 62, , , , ,796 18, , ,366 80,890 64,383 58, , , , ,946 53, ,329 59, ,674 88, , , , , ,955 63, , , , , , , , , , Note: Paid loss is estimated using values available at April 30, Cumulative Paid Loss Notification Year o 0 12,000 12,581 4,609,650 6,901,859 1,514,080 4,073,907 8,111, ,967 2,361,335 5,213, ,107 1,912,738 3,434,948 20,241 1,617,475 3,451, ,842 1,481,385 3,351, ,657 2,418,624 4,662, ,129 1,062,475 2,211,020 65,987 1,147,117 1,701, ,513 1,002,559 1,962,719 o 124, ,787 o 46, ,653 o 19, ,281 o 78, ,944 2,796 21, ,015 o 214, ,394 13, , ,632 19,955 83, ,742 o 41, ,628 o 930,963 1,116,172 o 144,965 o 22,040 9,994,804 11,965,040 9,202,284 5,350,156 4,643,935 4,880,935 7,063,671 2,576,069 2,306,648 2,446, , , , , , , , ,895 22,040 22,040 22,040 22,040 22,040 22,040 22,040 22,040 22,040 22,040 22,040 22,040 22,040 22,040 22,040 22,040 22,040 22,040 11,981,020 14,042,072 15,798,948 17,084,402 18,046,968 19,177,350 20,195,640 21,539,379 22,436,021 23,057,508 24,238,885 25,321,452 25,792,136 26,636,477 26,998,611 27,492,034 27,812,700 28,105,929 16,002,144 20,548,463 24,889,003 27,772,057 30,178,733 32,336,745 34,426,672 36,560,059 38,169,454 39,921,058 41,980,285 43,717,494 44,637,525 46,087,335 46,934,962 47,929,238 48,391,817 11,444,082 13,417,225 14,767,768 15,743,140 16,809,826 17,960,012 18,645,164 20,369,747 21,083,857 22,564,299 23,424,632 24,417,021 25,689,614 26,013,252 26,832,015 27,080,681 7,430,272 8,406,183 9,473,253 11,659,568 12,761,352 14,130,517 15,025,834 15,964,762 16,693,705 18,088,884 18,614,933 19,228,659 19,912,339 20,556,830 21,047,395 6,172,757 6,843,072 8,035,058 9,135,702 9,832,235 10,381,490 11,096,346 12,611,445 13,179,479 13,984,241 14,277,388 14,944,090 15,437,289 6,156,221 7,249,308 8,115,275 9,158,516 9,998,702 11,025,195 11,753,788 12,976,566 13,621,444 14,668,233 14,873,379 15,771,414 9,185,262 10,884,226 12,205,079 13,577,341 15,596,377 17,150,512 18,518,688 19,849,278 21,342,784 22, ,398,992 24,273,976 3,086,427 3,540,006 3, ,303,950 4,621,399 5,007,220 5,445,769 5,903,603 6,190,478 6,480,754 6,690,338 2,763,389 3,190,915 3,655,642 3,859,485 4,457,032 4,957,419 5,644,990 6,059,636 6,282,536 6,517,272 2,979,261 3,255,493 3,494,554 3,816,950 4,003,705 4,136,882 4,359,374 4,459,630 4,685, ,504 1,194,642 1,230,629 1,353,895 1,408,846 1,587,203 1,630,246 1,666, , , , , , ,750 1,019, , , , , ,140 1,083, , , , , , , , , ,552 1,031,881 1,091, ,675 1,048, ,581 22,040 Note: Paid loss is estimated using values available at April 30, Printed 10/29/20122:44 PM

16 Reported Exhibit 7 Paid Loss Development Notification Year Ult Average 3 Year Average Volume Weighted Average 7 Year Volume Weighted Average Excluding High/Low Year Volume Weighted Average Inverse Power Curve Selected Cumulative Ratio to Ultimate Printed 10/29/2012 2:44 PM

17 Reported Exhibit 8 Ultimate Loss Based on Average Loss Notes: 1. Column (1) is from Reported Exhibit 28, column (5). 2. Selected average loss in column (2) is from Reported Exhibit 10, column (4). Ultimate Selected Ultimate Loss Notification Year Claims Average Loss (1) x (2) (1 ) (2) (3) ,260 $ 22, ,000 28,776, ,000 50,154, ,000 28,120, ,000 22,361, ,000 16,644, ,000 17,507, ,000 28,014, ,000 7,889, ,000 8,140, ,000 6,090, ,000 2,304, ,000 1,520, ,000 1,764, ,000 1,512, ,000 1,485, ,000 2,553, ,000 3,066, ,000 2,964, ,000 2,812, ,000 4,029, ,000 2,108, ,000 2,604,000 Total 3,979 $ 242,438,260 Printed 10/29/20122:44 PM

18 Reported Exhibit 9 Ultimate Loss Based on Bornhuetter-Ferguson Using Average Loss and Paid Loss Ratio of Ratio of Undeveloped Cumulative Paid Loss Expected Paid Loss to Selected Ultimate Selected Cumulative to Ultimate Loss Undeveloped Ultimate Average Loss Development Development Ultimate Loss Face Value Paid Loss Cumulative Ultimate Loss Notification Year Claims Loss (1) x (2) Factors Factors 1 1(5) 1 - (6) (3) x (7) Paid Loss (8) + (9) (1 ) (2) (3) (4) (5) (6) (7) (8) (9) $ 22,260 $ 22, $ 220 $ 22,040 $ 22, ,000 28,776, ,903 28,105,929 28,700, ,000 50,154, ,571,273 48,391,817 49,963, ,000 28,120, ,150,664 27,080,681 28,231, ,000 22,361, ,278,299 21,047,395 22,325, ,000 16,644, ,308,471 15,437,289 16,745, ,000 17,507, ,817,435 15,771,414 17,588, ,000 28,014, ,753,851 24,273,976 28,027, ,000 7,889, ,254,616 6,690,338 7,944, ,000 8,140, ,607,844 6,517,272 8,125, ,000 6,090, ,439,523 4,685,327 6,124, ,000 2,304, ,414 1,666,203 2,303, ,000 1,520, ,335 1,019,895 1,510, ,000 1,764, ,407 1,083,692 1,750, ,000 1,512, , ,420 1,519, ,000 1,485, , ,933 1,495, ,000 2,553, ,466,509 1,091,490 2,557, ,000 3,066, ,024,659 1,048,771 3,073, ,000 2,964, ,109, ,581 2,871, ,000 2,812, ,119, ,895 2,744, ,000 4,029, ,432,396 1,116,172 4,548, ,000 2,108, ,020, ,965 2,165, ,000 2,604, ,584,455 2,584,455 Total 3,979 $242,438,260 $ 34,662,787 $208,263,495 $ 242,926,278 Notes: 1. Column (1) is from Reported Exhibit 28, column (5). 2. Selected average loss in column (2) is from Reported Exhibit 10, column (4). 3. Development factors in columns (4) and (5) are selected in Reported Exhibit Cumulative Paid Loss in column (9) is estimated using values available at April 30, Printed 10/29/20122:44 PM

19 Reported Exhibit 10 Preliminary Average Loss Based on Paid Loss Development Method Ultimate Loss Based on Paid Loss Preliminary Development Ultimate Average Loss Selected Notification Year Method Claims (1) / (2) Average Loss (1 ) (2) (3) (4) 1989 $ 22, ,260 22, ,699, ,765 88, ,956, ,693 78, ,236, ,314 76, ,323, ,901 59, ,754, ,378 57, ,598, ,318 61, ,029, ,033 58, ,955, ,413 49, ,121, ,916 37, ,135, ,435 58, ,303, ,993 32, ,505, ,620 40, ,741, ,544 36, ,525, ,243 27, ,505, ,453 33, ,564, ,170 37, ,087, ,300 42, ,641, ,869 38, ,539, ,411 37, ,537, ,415 51, ,497, ,877 62, ,000 Total $ 244,284,306 3,979 Notes: 1. Column (1) is from Reported Exhibit 5, column (4). 2. Column (2) is from Reported Exhibit 28, column (5). 3. Selected average loss in column (4) is based on column (3) for notification years ; the rounded average of column (3) from 2006 througll the associated year for notification years ; and the rounded average of column (3) from 2006 through 2010 for notification year Printed 10/29/20122:44 PM

20 Reported Exhibit 11 Cumulative Paid Loss per Cumulative Reported Claims Notification ,040 22,040 22, , , ,040 22,040 22, ,040 22, , , ,565 36, ,315 52,246 55,190 58, ,870 68, , , ,054 85, , ,887 31, , ,859 59,362 62, , ,675 72,994 74,540 75, , ,930 36, ,549 45,432 48, , ,047 9, ,180 24,995 30, , ,123 44,047 47,728 49,116 50, , ,539 11,821 15,904 21, , ,001 40,553 43, , ,162 11,678 17, , ,594 45, ,109 51,824 54, , ,653 14,625 19,017 22,535 28,110 32, , , , ,599 13, ,704 33, ,253 41, ,214 7, ,504 16,617 17, ,544 28,557 29, ,005 9,548 18,693 23,297 28,374 31, ,131 39,399 41, , ,728 8,150 10,977 11,632 16, , , ,761 21,762 24,836 26, , ,957 9, , ,396 2, , , , , ,955 15, , , ,202 6, , , Note: Paid loss and reported claims are estimated using values available at April 30, Cumulative Paid Loss on Closed Claims per Cumulative Closed Claims ,040 22,040 22, ,040 22,040 22,040 22,040 22, , ,040 22,040 22,040 22,040 22, , , ,110 89,907 87,682 87, ,585 75,206 74, ,360 71,907 52,916 53,694 59, ,381 69,128 66, ,022 71,094 72, , ,871 58,099 57, , ,033 45,339 45,574 44, , ,676 47, ,470 45, , ,300 36, ,985 48,480 44,514 44, , ,401 42,290 34, ,148 57, , ,729 34, ,348 43,197 29, ,075 22,603 22, , ,660 95,666 78, , , ,439 30,123 21,407 22,601 22, , ,446 22,308 16,125 21,610 22,079 22, ,921 18, , ,188 5,264 8,911 7, , ,404 12,871 11, ,383 13,343 13, , ,780 26,563 21, , Note: Closed claims and paid loss on closed claims are estimated using values available at April 30, Printed 10/29/20122:44 PM

21 Reported Exhibit 12 Ultimate Loss Based on Ultimate Face Value Less Disallowed Costs Less Deductible Recoveries Ultimate Gross Ultimate Ultimate Ultimate Face Disallowed Deductible Loss Notification Year Value Costs Recoveries (1) - (2) - (3) (1 ) (2) (3) (4) 1989 $ 38,000 $ 5,548 $ 10,125 $ 22, ,688,000 8,824,032 9,844,632 28,019, ,732,000 14,988,028 18,079,665 50,664, ,956,000 10,191,200 11,862,557 28,902, ,887,000 9,049,157 10,895,785 22,942, ,116,000 6,615,896 9,129,037 16,371, ,303,000 7,260,054 8,568,129 17,474, ,564,000 11,878,440 17,293,312 27,392, ,812,000 2,384,732 4,014,008 8,413, ,013,000 3,692,665 6,544,393 7,775, ,543,000 2,654,890 2,524,223 6,363, ,539,000 1,340,495 2,240,556 2,957, ,210,000 1,406,700 2,110,832 1,692, ,934,000 1,216,470 3,302,271 1,415, ,809, ,845 2,676,209 1,146, ,406, ,230 2,451,939 1,050, ,958,000 1,631,390 4,428,627 1,897, ,365,000 2,124,825 5,768,123 2,472, ,280,000 2,107,400 5,720,820 2,451, ,581,000 1,964,105 5,331,827 2,285, ,248,000 2,305,840 6,259,512 2,682, ,158,000 1,057,390 2,870,427 1,230, ,895,000 1,208,475 3,280,568 1,405,958 Total $478,035,000 $95,796,807 $145,207,577 $237,030,621 Notes: 1. Column (1) is from Reported Exhibit 16, column (4). 2. Column (2) is from Reported Exhibit 24, column (3). 3. Column (3) is from Reported Exhibit 26, column (5). Printed 10/29/2012 2:44 PM

22 Reported Exhibit 13 Bornhuetter-Ferguson Using Gross Face Value and Paid Loss Ratio of Ratio of Calculated Cumulative Undeveloped Ratio of Paid Loss Paid Loss Loss to Expected Selected Cumulative to to Undeveloped Gross Gross Selected Ultimate Loss Development Development Ultimate Loss Ultimate Loss Paid Loss Cumulative Ultimate Loss Face Value Notification Year Face Value Ratio (1)x(2) Factors Factors 1 / (5) 1 (6) (3) x (7) Paid Loss (8) + (9) (10) / (1) (1 ) (2) (3) (4) (6) (8) (9) (11 ) 1989 $ 38, $ 22,327 $ $ $ 22,040 $ 22, ,688, ,019, , ,105,929 28,685, ,732, ,664, ,587, ,391,817 49,979, ,956, ,902, ,182, ,080,681 28,263, ,887, ,942, ,311, ,047,395 22,358, ,116, ,371, ,287, ,437,289 16,724, ,303, ,474, ,814, ,771,414 17,585, ,564, ,392, ,670, ,273,976 27,944, ,812, ,413, ,337, ,690,338 8,028, ,013, ,775, ,535, ,517,272 8,053, ,543, ,363, ,504, ,685,327 6,189, ,539, ,957, , ,666,203 2,484, ,210, ,692, , ,019,895 1,565, ,934, ,415, , ,083,692 1,618, ,809, ,146, , ,420 1,363, ,406, ,050, , ,933 1,295, ,958, ,897, ,090, ,091,490 2,181, ,365, ,472, ,632, ,048,771 2,681, ,280, ,451, ,744, ,581 2,506, ,581, ,285, ,722, ,895 2,347, ,248, ,682, ,285, ,116,172 3,401, ,158, ,230, ,179, ,965 1,324, ,895, ,405, ,395, ,395, Total $478,035,000 $ 237,030,621 $29,736, $208,263,495 $ 238,000,072 Notes: 1. Column (1) is from Reported Exhibit 16, column (4). 2. Column (2) is the complement of Reported Exhibit 24, column (2) multiplied by the complement of Reported Exhibit 26, column (4). 3. Development factors in columns (4) and (5) are selected in Reported Exhibit Cumulative paid loss in column (9) is estimated using values available at April 30, Printed 10/29/20122:44 PM