Date Time Location Staff Contact September 3, :30 AM WCIRB California David M. Bellusci 525 Market Street, Suite 800 San Francisco, CA

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1 Meeting Minutes Date Time Location Staff Contact September 3, :30 AM WCIRB California David M. Bellusci 525 Market Street, Suite 800 San Francisco, CA 525 Market Street, Suite 800 San Francisco, CA Fax Released: September 12, 2014 Members Rose Barrett* Steve Belden* Jim Gebhard* Joanne Ottone Mark Priven* Kate Smith Representing American International Group Meadowbrook Insurance Group Farmers Insurance Group of Companies Berkshire Hathaway Homestate Companies Public Members of Governing Committee State Compensation Insurance Fund California Department of Insurance Robert Hallstrom Patricia Hein Giovanni Muzzarelli WCIRB Participants Bill Mudge David Bellusci Ward Brooks Tony Milano * Participated via teleconference The meeting of the Actuarial Committee was called to order at 9:35 AM, with Mr. David Bellusci, Chief Actuary, presiding. * * * * * Approval of Minutes The Minutes of the meeting held on August 5, 2014 were distributed to Committee members prior to the meeting for their review. As there was no correction of the Minutes, a motion was made, seconded, and unanimously passed to adopt the Minutes as written. During the discussion of the Minutes, a Committee member requested that staff provide the listing of classifications impacted by the 15% swing limit in expected loss rates (Item AC of the August 5, 2014 meeting). This has been included as Attachment 1 to these Minutes. 1

2 Released: September 12, 2014 Notice The information in these Minutes 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. WCIRB California 525 Market Street, Suite 800 San Francisco, CA Tel Fax 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. Each WCIRB member company, including any registered third party entities, (Company) are 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 Web site or through any computer or electronic means for any purpose. Workers Compensation Insurance Rating Bureau of California, WCIRB, WCIRB California, WCIRB Online, 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 Workers Compensation Insurance Rating Bureau of California, 525 Market Street, Suite 800, San Francisco, California

3 Item II-A Actuarial Research Working Group Meeting Summary The summary of the Actuarial Research Working Group meeting held on July 25, 2014 was included in the Agenda materials. Staff briefly summarized the information discussed at the meeting with respect to a potential variable split experience rating plan. After discussion, the meeting summary was accepted by the Committee. 3

4 Item II-B Claims Working Group Meeting Summary The summary of the Claims Working Group meeting held on July 31, 2014, which was included in the Agenda materials, was accepted by the Committee. 4

5 Item AC /30/2014 Experience Review of Methodologies The Committee was reminded that in the WCIRB s January 1, 2015 Pure Premium Rate Filing submitted on August 19, 2014, the WCIRB advised that the filed advisory pure premium rates were subject to amendment pending the review of experience valued as of June 30, The Agenda materials included a summary of accident year experience through June 30, 2014 that included almost 100% of the market and the methodologies reflected in the January 1, 2015 Pure Premium Rate Filing. The Committee was advised that the approximate four percentage point decrease in the projected policy year 2015 loss ratio was primarily due to a significant decrease in the loss development projection, particularly for medical, and small decreases in the accident year 2013 indemnity claim frequency and indicated medical severity trend projections as compared to the projections reflected in the January 1, 2015 Pure Premium Rate Filing. The Committee discussed the lower loss development experienced in the second quarter of It was noted that in addition to accident year 2013 emerging more favorably than projected, development on older accident years in the second quarter of 2014 was much lower than that experienced in the second quarter of It was suggested that the increased second quarter 2013 development may have been somewhat of an aberration partially driven by aggressive settling of older liens as well as efforts to resolve older claims in 2013, and that development in 2014 has been generally consistent with prior calendar year trends. A Committee member suggested comparing paid medical development in the second quarters of 2013 and 2014 with lien payments removed. It was noted that incremental claim settlement rates in the second quarter of 2014 were fairly consistent with the higher levels of settlement experienced in the second quarter of 2013, suggesting claim settlement rate changes may not be a significant driver of the changes in development patterns. It was also noted that the extent to which the lower development is a consequence of the January 1, 2014 changes to the physician fee schedule to a resource based relative value scale (RBRVS) basis remains uncertain. It was further noted that the decreased loss development impacted both paid and incurred loss development projections. The Committee next discussed the indemnity claim frequency projections. It was noted that after many years of steady increases in the proportion of late-reported indemnity claims, indemnity claim count development moderated in the second quarter of 2014, which resulted in lower frequency projections for accident years 2013 and 2014 based on aggregate reported indemnity claim counts. The Committee next discussed the indemnity and medical severity trend projections. It was noted that, as a result of the lower medical development, particularly on the 2013 accident year, the indicated medical severity trend included in the Agenda materials based on the WCIRB s standard approach of using the approximate average of the short-term and longer-term rates of growth was 3.5% as compared to 4.0% reflected in the January 1, 2015 Pure Premium Rate Filing. A Committee member suggested that, given the uncertainty surrounding the impact of the recent changes to the physician fee schedule to an RBRVS basis on the utilization of medical services, it may be premature to adjust the medical severity trend at this time. Several Committee members felt it was appropriate to reflect the impact of the lower second quarter development on the projected severity trend. However, the majority of the Committee agreed that maintaining the medical severity trend at the 4.0% reflected in the January 1, 2015 Pure Premium Rate Filing was appropriate, at least until such time as the impact of the RBRVS conversion can be better assessed. 5

6 A motion was made and seconded to recommend basing the projected policy year 2015 loss ratio on the loss projection methodologies reflected in the Agenda materials with the exception of a 4.0% medical severity trend used in lieu of the 3.5% trend as reflected in the Agenda. The motion passed with four in favor, one opposed, and one abstention. The Committee was further advised that the projected policy year 2015 loss adjustment expense provision used to determine the indicated average January 1, 2015 pure premium rate for consideration by the Governing Committee would be updated to reflect the projected loss ratio based on the Committee s recommended methodologies and June 30, 2014 loss experience. 6

7 Attachment 1 Indicated Class Class Relativity Code Description Change Limited to a 15% Increase 0036 DAIRY FARMS 18.3% 1123 MINING - UNDERGROUND 45.1% 1699 ROCK WOOL MFG 26.6% 1741 SILICA GRINDING; TALC MILLS; PLASTER MILLS 23.4% 1803 STONE CUTTING OR POLISHING; MARBLE CUTTONG OR POLISHING 16.9% 2362 KNITTING 19.4% 2585 LAUNDRIES 19.9% 2589 DRY CLEANING OR LAUNDRY - RETAIL 24.6% 2660 BOOT OR SHOE MFG 26.2% 2727 LOG HAULING 18.5% 3082 FOUNDRIES - STEEL CASTINGS 25.5% 3683 SPEAKER MFG 35.3% 3726 BOILER INSTALLATION REPAIR OR SETTING 19.3% 4922 MAGNETIC TAPE MFG 24.2% 5191 OFFICE MACHINE INSTALLATION OR REPAIR 21.2% 5436 HARDWOOD FLOOR LAYING 22.7% 5552 ROOFING - LOW WAGE 16.3% 6003 PILE DRIVING 15.6% 6504 FOOD PRODUCTS MFG OR PROCESSING 17.2% 7198 PARCEL DELIVERY COMPANIES 18.4% 7227 AUTO TOWING AND ROADSIDE ASSISTANCE 36.1% 7232 MAIL DELIVERY SERVICE - USPS CONTRACT 21.1% 7360 FREIGHT HANDLERS 34.9% 7600 TELECOMMUNICATIONS COMPANIES 25.0% 7606 CABLE TELEVISION COMPANIES 35.4% 7707 FIREMEN - VOLUNTEERS 34.1% 8001 STORES - FLORISTS 15.7% 8015 STORES - FURNITURE 18.5% 8041 STORES - WINE OR SPIRITS - WHOLESALE 33.3% 8304 GRAIN ELEVATORS OR STORAGE WAREHOUSES 34.0% 8387 AUTO OR AUTO TRUCK SERVICE STATIONS 21.1% 8389 AUTO OR AUTO TRUCK REPAIR SHOPS 20.4% 8393 AUTO-BODY, FENDER REPAIR AND PAINTING 17.9% 8397 AUTO-TRANSMISSION REPAIR AND REBUILDING 27.0% 9016 AMUSEMENT PARKS OR EXHIBITIONS - MAINTENANCE OF PREMISES 16.6% 9085 RESIDENT CARE - DEVELOPMENTALLY DISABLED 26.1% 9501 PAINTING - SHOP ONLY 16.6% 9519 HOUSEHOLD APPLIANCES - INSTALLATION 23.6% 9522 UPHOLSTERING 31.8% 9586 BARBER SHOPS OR BEAUTY PARLORS 40.0% 9620 FUNERAL DIRECTORS 24.1% Limited to a 15% Decrease Classifications Affected by ELR Limitation Rule 1320 OIL/GAS LEASE OPERATORS -24.0% 3152 NAIL, TACK OR RIVET MFG -17.0% 4114 GLASSWARE MFG -20.7% 4240 BOX MFG - RIGID PAPER BOXES -25.0% 4297 ELECTRONIC PREPRESS -23.2% 4611 DRUG, MEDICINE, OR PHARMACEUTICAL MFG -16.4% 5187 PLUMBING - HIGH WAGE -20.2% 5447 WALLBOARD APPLICATION - HIGH WAGE -20.6% 7405 AIRCRAFT OP - SCHEDULED - FLYING CREW -15.6% 7538 ELECTRIC LIGHT OR POWER LINE CONSTR -15.8% 7610 RADIO TELEVISION BROADCASTING STATION -20.9% 8107 MACHINERY DEALERS -16.4% 8290 WAREHOUSES - SELF STORAGE -22.9% 8807 NEWSPAPER, MAGAZINE OR BOOK PUBLISHING -22.9% 9154 THEATERS - NOT MOTION PICTURE -16.2% 7

8 The meeting was adjourned at 10:35 AM. Note to Committee Members: These Minutes, as written, have not been approved. Please refer to the meeting scheduled for November 4, 2014 for approval and/or modification. 8