Financial Calls Designated Statistical Reporting Level Premium

Transcription

1 Financial Calls Designated Statistical Reporting Level Premium January 30 February 2, 2018 Palm Beach County Convention Center West Palm Beach, FL The Path to Data Excellence

2 Financial Calls Designated Statistical Reporting Level Premium Presented by: Harry Snyder and Jorge Martin Objective To identify and derive data required to be included in Designated Statistical Reporting (DSR) Level Premium. 2 1

3 Agenda Purpose of DSR Level Premium General Information Active Deviation History Deriving DSR Level Premium Extending Exposures Calculating the Average Deviation DSR Level Premium Validation 3 Purpose of Designated Statistical Reporting (DSR) Level Premium 2

4 What Is DSR Level Premium? The DSR Level Premium is: The standard earned premium that would result if business was written What states? at NCCI approved loss costs or rates instead of your company rates Common benchmark level at which carriers report premium on the Financial Calls Used to determine adequacy of current loss cost level 5 Example of DSR vs. Standard Premium Loss Cost State To calculate DSR Level Premium, exposure is multiplied by the approved NCCI loss cost. Class NCCI Code Payroll Loss Cost NCCI DSR Level Premium ,000, (4,000,000 /100) x 3.00 = 120,000 To calculate Company Standard Premium,* exposure is multiplied by the company rate. Class Company Code Payroll Rate Company Standard Premium ,000, (4,000,000 /100) x 4.00 = 160,000 *Example simplified to not factor in stat codes What is the Loss Cost Multiplier (LCM) in this example? 6 3

5 General Information Resources Financial Call Reporting Guidebook Only include adjustments/components as required in the Financial Calls (Parts 5 and 6) Identify dates of NCCI approved DSR Level loss costs or rates (Part 7, Section E) Basic Manual Review to identify the different state premium algorithms Self Audit Form Financial Call and Data Reporting Circulars 8 4

6 Premium Components Summary Part 5 Financial Call Reporting Guidebook Excerpt (Handout 1) Premium Components Summary Chart When DSR Level Is Rates Company Component Net Standard DSR 1 Assigned Risk Adjustment Program (ARAP)[*] X X X 2 Balance to Minimum Premium Adjustment[**] X X X X 3 Catastrophe and Terrorism Provisions (e.g., DTEC, TRIA, TRIEA, TRIPRA) Do Not Report 4 Company Loss Constant X X X 5 Consent to Rate X X X When DSR Level Is Loss Costs Company Standard DSR Rates/Loss Costs: Deviation From NCCI Rates Rates/Loss Costs: Deviations From NCCI Loss Costs X X X X 9 Sample Premium Algorithm Alabama (Handout 2) Excerpt from the Basic Manual 10 5

7 Self Audit Form Excerpt Part 1 Self Audit Form Checklist Section B: Financial Call Components 1. Premiums (unless otherwise noted; for additional details, see Part 5 of the Financial Call Reporting Guidebook) # Item Options Comments Consent to Rate deviations are included in Company Standard and Net premium but excluded from DSR Level premium DSR Level premium reflects the approved rates or loss costs designated for each policy year (Financial Call Reporting Guidebook, Part 7 E) Confirmed Review Confirmed Review Part 2 Self Audit Form Additional Details # Item Comments The Self-Audit Form is not a complete list of all reporting requirements. 1 Provide a brief description of the method used to determine premium at the Designated Statistical Reporting Level as reported in Column 1 of Call #3 (for details, refer to Part 7 of the Financial Call Reporting Guidebook). We extend exposures at the policy level. 11 Questions to Consider Responses to these questions will affect how you derive the DSR Level Premium. What DSR Levels were in effect throughout the year? What loss cost multipliers were in effect throughout the year by the carrier? What NCCI loss costs did you use throughout the year? New and renewal Did some law or judicial decisions also affect outstanding policies? 12 6

8 State DSR Levels Approved Loss Costs Voluntary experience in loss cost states (majority of states) Assigned risk experience for Missouri and Nebraska 13 State DSR Levels Approved Rates Assigned risk experience in all states except Missouri and Nebraska Rate states (Arizona, Florida, Iowa, and Idaho) States with approved loss costs and rates (Illinois and Indiana) use rates as their DSR Level 14 7

9 State DSR Levels Texas Texas Department of Insurance Rate Relativities NCCI Loss Costs 15 State DSR Levels Excerpt (Handout 3) Resources: Financial Call Reporting Guidebook (Part 7) DSR Level Data (Financial Data Collection tool) Policy Year Designated Statistical Reporting Levels Effective Dates (District of Columbia Indiana) Excerpt District of Columbia Georgia Hawaii Illinois Indiana /1/17 lc 3/1/17 lc 1/1/17 lc 1/1/17 rates [1] 1/1/17 rates [2] /1/16 lc 3/1/16 lc 1/1/16 lc 1/1/15 rates 1/1/16 rates /1/15 lc 3/1/15 lc 1/1/15 lc 1/1/15 rates 1/1/15 rates /1/14 lc 3/1/14 lc 1/1/14 lc 1/1/14 rates 1/1/14 rates rates = advisory rates; lc = loss costs 16 8

10 State DSR Levels Illinois and Indiana Deviation Conversion Converts to Rate DSR Level if loss costs were used IL Deviation = IL LCM x Permissible Loss Ratio (PLR) IN Deviation = IN LCM x Target Cost Ratio (TCR) Ratios found in NCCI filing circulars: Technical Supplements, Exhibit II Also in Part 7 of the Financial Call Reporting Guidebook 17 Exercise Illinois and Indiana Deviation Conversions What is the IL PLR for 2017? What is the IN TCR for 2017? If IL LCM is 1.65, what is the deviation from rates? If IN LCM is 1.10, what is the deviation from rates? 18 9

11 Deviations and Loss Costs in Effect During the Year 19 Texas DSR Levels For policies effective before 6/1/2011, DSR Level is Texas Department of Insurance (TDI) relativities. For policies effective 6/1/2011 and later, carriers can base their rates on either TDI relativities or NCCI filed and stateapproved loss costs. For policies effective 6/1/2011 and later, the DSR Level is what the carrier used as its rate basis. Be sure to accurately indicate the Basis of Rates in the Active Deviation screen

12 Texas DSR Levels Determine DSR Levels for TX Designated Statistical Reporting Levels Effective Dates (Texas) 21 Texas Deviations and Loss Costs in Effect During the Year TDI Relativities NCCI Advisory Loss Costs Two Choices 22 11

13 Application of Filing 23 Application of Filing 24 12

14 Application of Filing 25 Exercise Determine DSR Levels for Tennessee for Policy Years (PY) 2015 and 2016 (Handout 4) 26 13

15 PY 2015 Exercise Answers Determine DSR Levels for Tennessee for PYs 2015 and 2016 Policy Effective Dates 1/1/2015 2/28/2015 3/1/ /31/2015 DSR Level Effective Dates 7/1/2014 Loss Costs 3/1/2015 Loss Costs 27 PY 2016 Exercise Answers Determine DSR Levels for Tennessee for PYs 2015 and 2016 Policy Effective Dates DSR Level Effective Dates 28 14

16 Active Deviation History Active Deviation History History of Company Loss Cost Multipliers and Deviations Essential in Validation of Designated Statistical Reporting (DSR) Level Premium Located in the Financial Data Collection Tool 30 15

17 Active Deviation Updates Carriers should enter any updates for the current reporting year Changes to prior years require the assistance of an NCCI financial data validator 31 Active Deviation Updates 32 16

18 Active Deviation Updates Need to add deviation effective 3/1/ Loss Cost Multiplier (LCM)/Rate Deviation Worksheet (Handout 5) 34 17

19 Loss Cost Multiplier (LCM)/Rate Deviation Worksheet Information in Carrier Filing Group Code: Carrier Code: State: Kansas NCCI filing effective date: 1/1/2017 Carrier effective date: 3/1/2017 Rolling Multiplier: Y 35 Loss Cost Multiplier (LCM)/Rate Deviation Worksheet Information in Carrier Filing Group Code: State: Kansas Active Flag: (Default = Yes) Yes Carrier Code: Carrier Deviation Effective Date: 03/01/2017 NCCI DSR Level Effective Date: 01/01/2017 Rolling Multiplier? 1 (Yes or No) Yes Filed/Calculated? 2 Calculated Deviation Amount: Deviation Amount % of Business Written Indicate the Deviation Amount and % of Business Written to which the Deviation Amount applies. For a Loss Cost Multiplier, Deviation Amount = (LCM 1.0) For a Rate Deviation, Deviation Amount = Rate Deviation expressed as a decimal. The sum of % of Business Written must equal 100%. Comments: (Optional) 100% 36 18

20 Active Deviation Updates 37 Active Deviation Add or Edit PREFILLED DROP-DOWN ENTER AUTO CALCULATE 38 19

21 Active Deviation Updates New Deviation Entry Completed 39 Deriving DSR Level Premium 20

22 Reporting Levels and Premium Rate States Rate Deviation Loss Cost States LCM Voluntary Premium at DSR Level Voluntary Premium at Company Standard Level Voluntary Premium at DSR Level Voluntary Premium at Company Standard Level Assigned Risk Premium Assigned Risk Premium Assigned Risk Premium Assigned Risk Premium DSR Level Column 1 Company Standard Column 2 DSR Level Column 1 Company Standard Column 2 41 Calculating DSR Level Premium Two general approaches: Derive DSR Level Premium directly Essentially, this involves rerating the policies on the Calls using NCCI approved loss costs or rates (i.e., extending exposures) Derive DSR Level Premium using Company Standard (CS) Premium as a starting point This approach involves calculating an average deviation That average deviation is then applied to Company Standard Premium 42 21

23 Exercise Premium Components (Handout 6) Which of the following class and stat codes belong in DSR, CS, and Net Premium when DSR Level is loss costs? Class or Stat Code Description DSR 0063 PREMIUM DISCOUNT TYPE A STOCK CO EXPENSE CONSTANT 5221 CONCRETE OR CEMENT WORK FLOORS, DRIVEWAYS, YARDS OR SIDEWALKS & DRIVERS 8010 STORE: HARDWARE 8810 CLERICAL OFFICE EMPLOYEES NOC PREMIUM CREDIT FOR THE REPORTING OF DEDUCTIBLES SUBJECT TO EXP RATINGS CATASTROPHE PROVISIONS FOR TERRORISM NOT PART OF STANDARD PREMIUM ADDITIONAL PREMIUM REQUIRED TO BALANCE TO THE MINIMUM PREMIUM FOR EMPLOYERS LIABILITY INCREASED LIMITS Company Standard Net 43 Exercise Premium Components (Handout 7) Which of the following class and stat codes belong in DSR, CS, and Net Premium when DSR Level is rates? Class or Stat Code Description DSR 0063 PREMIUM DISCOUNT TYPE A STOCK CO EXPENSE CONSTANT 5221 CONCRETE OR CEMENT WORK FLOORS, DRIVEWAYS, YARDS OR SIDEWALKS & DRIVERS 8010 STORE: HARDWARE 8810 CLERICAL OFFICE EMPLOYEES NOC PREMIUM CREDIT FOR THE REPORTING OF DEDUCTIBLES SUBJECT TO EXP RATINGS CATASTROPHE PROVISIONS FOR TERRORISM NOT PART OF STANDARD PREMIUM Company Standard Net 9848 ADDITIONAL PREMIUM REQUIRED TO BALANCE TO THE MINIMUM PREMIUM FOR EMPLOYERS LIABILITY INCREASED LIMITS 44 22

24 Extending Exposures When to Extend Exposures? Extending Exposures is acceptable when: The average deviation calculation is challenging: Delayed adoption of NCCI filings Multiple loss cost multipliers in effect Class code and statistical code level detail is available to accurately report the Financial Call data 46 23

25 Methods of Extending Exposures Policy Level Each policy is rerated using the DSR Level loss costs or rates Class Code Level Data should be grouped (across policies) to capture all carrier rate changes and NCCI loss cost changes Need to calculate an average experience modification factor 47 Sample Premium Algorithm AL Excerpt from the Basic Manual 48 24

26 Premium Calculations Policies may contain both included and excluded class codes. Examples of excluded class codes: FELA and Maritime Coal Mine 49 Premium Calculations Statistical code premium amounts should reflect only amounts associated with the included experience. Examples: Expense Constants Exclude or include 100% depending on applicable DSR Level Multiplicative Factors Employers Liability Increased Limits 50 25

27 Extending Exposures Policy Level Each policy is rerated using the DSR Level loss costs or rates Extending Exposures 1,000,000 40,000,000 Example 1 Policy Number WC Exposure State Alabama Policy Effective Date 3/1/2015 Policy Expiration Date 2/29/2016 Employers Liability Increased Limits 2.5% Drug Free Workplace Credit 5.0% Experience Modification Factor 1.20 Expense Constant $200 NCCI Loss Class Code Payroll Company Rate Cost 3.75 (3.00 x 1.25) 0.25 (0.20 x 1.25)

28 Premium Calculations for PY 2015 Premium Company Standard DSR Level Manual Increased Limits Drug-Free Credit Subtotal Subtotal With Exp. Mod 137,500 ([1,000,000 / 100] x 3.75) + ([40,000,000 / 100] x 0.25) 3,438 (137,500 x 0.025) 7,047 (137, ,438) x ,891 (137, ,438 7,047) 160,669 (133,891 x 1.20) 110,000 ([1,000,000 / 100] x 3.00) + ([40,000,000 / 100] x 0.20) 2,750 (110,000 x 0.025) 5,638 (110, ,750) x ,112 (110, ,750 5,638) 128,534 (107,062 x 1.20) Expense Constant Total Example 1 (cont d) $160,869 (160, ) D E V I A T I O N $128, Extending Exposures Class Code Payroll Company Rate NCCI Loss Cost Example 2 New Loss Costs Not Adopted Policy Number WC Exposure State Alabama Policy Effective Date 3/1/2016 Policy Expiration Date 2/28/2017 Employers Liability Increased Limits 2.5% Drug Free Workplace Credit 5.0% Experience Modification Factor 1.20 Expense Constant $200 1,000,000 40,000, (3.00 x 1.25) 0.25 (0.20 x 1.25)

29 Premium Calculations for PY 2016 Premium Company Standard DSR Level Manual Increased Limits Drug-Free Credit Subtotal Subtotal with Exp. Mod 137,500 ([1,000,000 / 100] x 3.75) + ([40,000,000 / 100] x 0.25) 3,438 (137,500 x 0.025) 7,047 (137, ,438) x ,891 (137, ,438 7,047) 160,669 (133,891 x 1.20) 123,000 ([1,000,000 / 100] x 2.70) + ([40,000,000 / 100] x 0.24) 3,075 (123,000 x 0.025) 6,304 (123, ,075) x ,771 (123, ,075 6,304) 143,725 (119,771 x 1.20) Expense Constant Total Example 2 (cont d) $160,869 (160, ) D E V I A T I O N $143, Exercise Extending Exposures Policy Method (Handout 8) Class or Stat Code Description Exposure Amount Amount 0900 EXPENSE CONSTANT 0 $ per policy 5645 CARPENTRY CONSTRUCTION OF RESIDENTIAL DWELLINGS NOT EXCEEDING THREE STORIES IN HEIGHT $463,952 $19.97 manual rate $15.36 loss cost 8742 SALESPERSONS, COLLECTORS OR MESSENGERS OUTSIDE $78,173 $0.85 manual rate $0.65 loss cost 9741 CATASTROPHE PROVISIONS FOR CATASTROPHE (OTHER THAN CERTIFIED ACTS OF TERRORISM) 0 $14.00 for this policy 9812 ADDITIONAL PREMIUM FOR EMPLOYERS LIABILITY INCREASED LIMITS (WITH WORKERS COMPENSATION) $ /$ /$ % EXPERIENCE MODIFICATION FACTOR

30 Exercise Extending Exposures Policy Method (Handout 9) Premium Component Company Standard DSR Level Manual (Class Codes 5645 and 8742) Additional premium employers liability increased limits (Stat Code 9812) Subtotal Subtotal including experience mod Expense Constant Total 57 Recap Extending Exposures Policy Level Calculate Manual Premium Apply Appropriate Premium Adjustments Apply Experience Modification Factor Add NCCI Expense Constant if DSR Level Is Rates Sum Results for All Policies 58 29

31 Extending Exposures Class Code Level Data must be grouped (across policies) to capture all carrier rate changes and NCCI loss cost changes Need to calculate an average experience modification factor 59 Extending Exposures Class Code Method Example Handouts Data for the Policy Year (Handout 10) Blank Worksheets (Handouts 11 13) 60 30

32 Policy Year 2016 as of 12/31/2017 Extending Exposures Class Code Method Example (1) (2) (3) (4) (5) (6) (7) (8) (9) Class Code First PED Last PED Earned Payroll Carrier Rate NCCI Loss Cost Avg. Exp Mod Company Standard Premium [(4) / 100] x (5) x (7) DSR Level Premium [(4) / 100] x (6) x (7) Totals PED = Policy Effective Date 61 Extending Exposures Class Code Method Example (Handout 10) (1) (2) (3) (4) (5) (6) (7) (8) (9) Class Code First PED Last PED Earned Payroll Carrier Rate NCCI Loss Cost Avg. Exp Mod /1/ /1/ /1/ /1/ /1/ /1/ /1/ /1/ /1/ Totals Company Standard Premium [(4) /100] x (5) x (7) DSR Level Premium [(4) /100] x (6) x (7) 62 31

33 Extending Exposures Class Code Example (1) (2) (3) (4) (5) (6) (7) (8) (9) Class Code First PED Last PED Earned Payroll Carrier Rate NCCI Loss Cost Avg. Exp Mod Company Standard Premium [(4) / 100] x (5) x (7) DSR Level Premium [(4) /100] x (6) x (7) /1/16 5/31/16 5,000, , , /1/16 5/31/16 3,000, ,960 79, /1/16 5/31/ /1/16 8/31/16 8,000, , , /1/16 8/31/ /1/16 8/31/ /1/16 12/31/ /1/16 12/31/ /1/16 12/31/16 10,000, , ,000 Totals 1,985,610 1,608, Extending Exposures Class Code Example (Handout 11) (1) (2) (3) (4) (5) (6) (7) (8) (9) Class Code First PED Last PED Earned Payroll Carrier Rate NCCI Loss Cost Avg. Exp Mod Company Standard Premium [(4) /100] x (5) x (7) DSR Level Premium [(4) /100] x (6) x (7) /1/16 5/31/16 5,000, , , /1/16 5/31/16 3,000, ,960 79, /1/16 8/31/16 8,000, , , /1/16 12/31/16 10,000, , ,000 Totals 1,985,610 1,608,860 Average Deviation = 1,985,610 / 1,608,860 =

34 Extending Exposures Class Code Example (Handout 12) (1) (2) (3) (4) (5) (6) (7) Stat Code Amount Reported in Statistical Code Average Experience Mod Company Standard Premium (3) x (4) Average Deviation DSR Level Premium (5) / (6) Description Expense 0900 Constant 6,000 6, Increased Limits 75, , ,856 Totals 88,500 66, Extending Exposures Class Code Example (Handout 13) Company Standard Premium DSR Level Premium Class Codes 1,985,610 1,608,860 Statistical Codes 88,500 66,856 Totals 2,074,110 1,675,

35 Recap Extending Exposures Class Code Level Calculate class code premium Data for each class code includes premium across all policies and Policy Effective Dates Add class code and statistical code amounts Apply average deviation to statistical codes Summarize class code premium to determine average deviation Data is grouped by Policy Effective Date, class code, company rate, and DSR Level loss costs 67 Calculating the Average Deviation 34

36 Average Deviation Calculation Example 1 The parameters: NCCI loss costs became effective on: 8/1/2015 8/1/2016 Carrier adopted each new approved loss cost on the day it became effective LCM of 1.33 for the 8/1/2015 loss costs LCM of 1.33 for the 8/1/2016 loss costs Average deviation for PY 2016 = Timeline Example 1 (cont d) Carrier Activity Adopted 8/1/2015 Loss Costs with an LCM of 1.33 Adopted 8/1/2016 Loss Costs with an LCM of /1/2015 1/1/2016 8/1/ /31/2016 NCCI DSR Levels 8/1/2015 Loss Costs PY 2016 = /1/2016 Loss Costs 8/1/2015 1/1/2016 8/1/ /31/

37 Average Deviation Calculation Example 2 Change in LCM The parameters: NCCI loss costs became effective on: 8/1/2015 8/1/2016 Carrier adopted each new approved loss cost on the day it became effective LCM of 1.33 for the 8/1/2015 loss costs LCM of 1.40 for the 8/1/2016 loss costs 71 Timeline Example 2 (cont d) Carrier Activity Adopted 8/1/2015 Loss Costs with an LCM of 1.33 Adopted 8/1/2016 Loss Costs with an LCM of /1/2015 1/1/2016 8/1/ /31/2016 NCCI DSR Levels /1/2015 Loss Costs 8/1/2016 Loss Costs 8/1/2015 1/1/2016 8/1/ /31/

38 Average Deviation Calculation Example 3 Delayed Adoption The parameters: NCCI loss costs became effective on: 8/1/2015 8/1/2016 But the carrier adopted the loss costs as follows: 8/1/2015 loss costs on the day they became effective, with a LCM of /1/2016 loss costs on 10/1/2016, with a LCM of 1.40 This means that there are now three different time periods to consider. 73 Average Deviation Calculation Example 3 (cont d) Time periods affecting the calculation: January through July Carrier is using the 8/1/2015 loss costs, which are the same as the DSR Level August through September Carrier is using the 8/1/2015 loss costs, which are not the same as the DSR Level; the DSR Level is 8/1/2016 October through December Carrier is using the 8/1/2016 loss costs, which are the same as the DSR Level 74 37

39 Timeline Example 3 (cont d) Carrier Activity Adopted 8/1/2015 Loss Costs with an LCM of 1.33 Adopted 8/1/2016 Loss Costs with an LCM of /1/2015 1/1/2016 8/1/ /1/ /31/2016 NCCI DSR Levels 8/1/2015 Loss Costs 8/1/2016 Loss Costs 8/1/2015 1/1/2016 8/1/ /31/ Average Deviation Calculation Example 3 (cont d) For August through September, we must determine what deviation factor applied to the loss costs effective 8/1/2016 would yield the same effect as using the 1.33 LCM applied to loss costs effective 8/1/2015 If the 8/1/2016 loss costs decreased by 8% on average, then the LCM, in effect, would need to be adjusted by the factor of = 0.92 Therefore, the deviation factor is 1.33 / 0.92 =

40 Average Deviation Calculation Example 3 (cont d) This deviation factor is sometimes referred to as a passive deviation or implied LCM This is the result of a carrier not taking action the same day as NCCI s approval 77 Average Deviation Calculation Company Standard Premium* Using Loss Costs Effective 8/1/2015 LCM Company Standard Premium* Using Loss Costs Effective 8/1/2015 Implied LCM NCCI DSR Level 8/1/2016 $4,000,000??? $2,760,000 *Excludes factors such as expense constant and balance to minimum premium amounts Example 3 (cont d) NCCI DSR Level 8/1/2015 $4,000, $3,000,000 What is the correct factor? 8/1/2016 change is 8% $4,000,000 / $2,760,000 = 1.45, which yields the same amount as 1.33 / 0.92 =

41 Average Deviation Calculation Example 3 (cont d) To calculate an implied LCM, divide the carrier LCM by the value that represents the change in loss costs for your book of business. For some carriers, the appropriate value may be the same as the overall change filed by NCCI (e.g., 0.92). 79 Average Deviation Calculation Example 4 January Through July 8/1/2015 loss costs with LCM of 1.33 August Through September Did not adopt the 8/1/2016 loss costs that reflected a statewide decrease of 8% Determined that the effect of these new loss costs on the carrier s book of business was only a 3% decrease Therefore, the implied LCM is 1.33 / 0.97 = 1.37 October Through December 8/1/2016 loss costs on 10/1/2016 with LCM of

42 Average Deviation Calculation Example 4 (cont d) DSR Level 8/1/2015 LCM of 1.33 off of 8/1/2015 loss costs 7/1/ /1/2007 DSR Level 8/1/2016 1/1/ /31/2016 LCM of 1.40 off of 8/1/2016 loss costs DSR Level 8/1/2016 LCM of 1.33 off of 8/1/2015 loss costs Implied LCM of 1.37 (1.33 / 0.97) 81 Time Period Average Deviation Calculation Earned Company Standard Premium Reported in Column 2 of Call 3 Expense Constant Balance to Minimum Additional Premium for Consent to Rate Company Standard Used to Calculate DSR Deviation for Time Period DSR Premium for Time Period Percentage of DSR Premium per Period (2) (3) (4) (5) 7 8 (6) / (7) 9 (8) / (8)tot 1/1/2016 7/31/2016 $600,000 $15,000 $20,000 $20,000 $545, $409, % 8/1/2016 9/30/ ,000 3,000 10, , , % 10/1/ /31/ ,000 5,000 10, , , % Policy Year Totals $1,400,000 $23,000 $40,000 $20,000 $1,317, * $967, % *$1,317,000 / $967,256 = Example 4 (cont d) (1.33 x 42.4%) + (1.37 x 29.2%) + (1.40 x 28.4%) =

43 Recap Q. What does delayed adoption mean? A. Action: 83 Recap Both Methods Questions to answer when calculating DSR Level Premium: What DSR Levels were in effect during the year? What LCMs were in effect during the year? What NCCI loss costs were used by the carrier during the year? What policies were affected by loss cost filings? 84 42

44 DSR Level Premium Validation DSR Level Premium Edits (Handout 14) Valuations 12/31/2015 and subsequent Edits run on most current 6 policy years 781 and Valuations 12/31/ /31/2014 Edits run on most current 4 policy years 767 and All Valuations Edit runs on policy years too old for 781, 782, 767, or

45 DSR Level Premium Check Ratio of Company to NCCI DSR Level Premium Not as Expected Edit Number 781 Departure from NCCI DSR Level Premium not equal to expected. Voluntary NCCI DSR Premium: $495,309 Voluntary Company Standard Premium: $515,000 Ratio: $515,000 (Company Standard) / $495,309 (DSR Level) = (Ratio) 87 DSR Level Premium Check Ratio of Company to NCCI DSR Level Premium Not as Expected Edit Number 781 Verify: Active Deviation History Reported Call Data NCCI DSR Level Adopted Monthly Weights Distribution Premium Distribution Among Companies (Group Carrier) 88 44

46 DSR Level Premium Check Ratio Outside of State s Expected Range Edit Number 499 Departure from NCCI DSR Level Premium is higher than expected. Statewide NCCI DSR Premium: $10,000,000 Statewide Company Premium: $100,260,000 Assigned Risk NCCI DSR Premium: $0 Assigned Risk Company Standard Premium: $0 Voluntary NCCI DSR Premium: $10,000,000 Voluntary Company Standard Premium: $100,260,000 Voluntary Ratio: In a state where the Voluntary Business DSR Level is NCCI advisory loss costs, we would not expect such a large upward deviation. Please correct the data or provide an explanation. 89 DSR Level Premium Check Unexpected Development in Ratios Edit Number 471 Company Standard to NCCI DSR Premium ratio development is outside of expected range. Current Company Standard Premium: $21,795,412 Current NCCI DSR Premium: $15,638,038 Previous Company Standard Premium: $31,795,412 Previous NCCI DSR Premium: $25,638,038 Current Ratio: (21,795,412 / 15,638,038) Previous Ratio: (31,795,412 / 25,638,038) Development Factor:

47 DSR Level Premium Check Unexpected Development in Ratios Edit Number 471 Change from premium ratio of to is unusual. Ratios on older observations should have little development. 91 Premium Distribution Premium weights (if applicable) could impact calculations Premium weights are calculated using earned DSR Level Premium or a reasonable proxy Monthly premium distribution Carrier distribution within a group 92 46

48 How Voluntary Weights Affect Validation Monthly Weight Example CARRIER'S MONTH STATEWIDE MONTHLY WEIGHT FACTOR LOSS COST MULTIPLIER DSR FACTOR ACTUAL MONTHLY WEIGHTS DSR FACTOR (1) (2) (3) (4) = (2) x (3) (5) (6) = (3) x (5) Average Deviation How Voluntary Weights Affect Validation Carrier Weight Example Carrier Code State Name NAIC Annual Statement Premium Written Weights Based on NAIC Annual Statement Premium Written Premium Written Excluding LD Weights Excluding LD Premium Written ALABAMA 500, , ALABAMA 2,000, ,000, ALABAMA 1,700, ,700, ALABAMA 8,000, ,000, Total 12,200, ,200, LD = Large Deductible 94 47

49 Additional Causes of DSR Edits Expense Constants Balance to Minimum Premium Carrier Specific Loss Cost Level Changes Consent to Rate 95 Expense Constant Effect DSR Level Is Loss Costs LCM for Policy Year Is Observed Ratio $2,000,000 / $1,071,429 = How does this result happen? 96 48

50 Expense Constant Effect DSR Level Is Loss Costs Company Standard including Expense Constant is $2,000,000 Expense Constant amount is $500,000 DSR Level Premium calculation $2,000,000 $500,000 = $1,500,000 $1,500,000 / = $1,071,429 Observed Ratio $2,000,000 / $1,071,429 = Why might Expense Constant $$ be so significant? 97 Expense Constant Effect DSR Level Is Rates Deviate 7% From NCCI Rates Company Standard Premium Is $2,000,000 DSR Level Premium Is $1,977,957 Observed Ratio $2,000,000 / $1,977,957 = How does this result happen? 98 49

51 Expense Constant Effect DSR Level Is Rates Company Expense Constant Is $300 NCCI Expense Constant Is $150 1,000 Policies With Expense Constant 99 Expense Constant Effect DSR Level Is Rates DSR Level Premium Calculation $2,000,000 (1,000 x $300) = $1,700,000 $1,700,000 / 0.930* = $1,827,957 $1,827,957 + (1,000 x $150) = $1,977,957 Observed Ratio $2,000,000 / $1,977,957 = *( = Rate Deviation)

52 Carrier Specific Loss Cost Level Change Effect Last active LCM is Statewide change is +1.4% Class codes that you wrote in changed 8.9% 101 Carrier Specific Hawaii Policy Year 2016 Class Code Policy Year 2016 Earned Exposure 1/1/2015 Loss Costs Policy Year 2016 DSR Premium Using 1/1/2015 Loss Costs 1/1/2016 Loss Costs Policy Year 2016 DSR Premium Using 1/1/2016 Loss Costs Statewide Average Change Approx. 576 Approx. 232 Affiliates +1.4%

53 Carrier Specific Hawaii Policy Year /1/2016 Loss Costs Adopted by Class Code 1/1/2015 Loss Costs Adopted by Carrier Carrier on 5/1/2016 Change 0008 $2.65 $ % 2735 $4.21 $ % 2759 $4.88 $ % Carrier s Change Between 23.8% and +1.6% 103 Carrier Specific Hawaii Policy Year 2016 Class Code Policy Year Earned Exposure 1/1/2016 4/30/2016 1/1/2015 Loss Cost Adopted by Carrier 1/1/2016 4/30/2016 DSR Premium Using 1/1/2015 Loss Costs 1/1/2016 Loss Cost Not Adopted by Carrier Until 5/1/2016 1/1/2016 4/30/2016 DSR Premium Using 1/1/2016 Loss Costs Change 0008 $10,000 $2.65 $265 $2.02 $ % 2735 $5,000 $4.21 $211 $4.11 $ % 2759 $5,000 $4.88 $244 $4.96 $ % Carrier s Change Total $720 $ %

54 Carrier Specific Loss Cost Level Change Effect Statewide Change Factor = Passive LCM Using Statewide Change / = Your Change Factor = Your Passive LCM / = Consent to Rate Company Standard earned premium includes amounts attributable to consent to rate DSR Level earned premium only includes the premium at the regular rate; it excludes the additional premium due to consent to rate

55 Consent to Rate Example: Regular company rate is $5.00 Insured consents to a rate of $12.00 Earned exposure is $600,000 Company Standard earned premium at consent to rate = $600,000 / 100 x $12.00 = $72,000 Company Standard earned premium at regular rate = $600,000 / 100 x $5.00 = $30,000 Consent to rate premium amount in Company Standard = $72,000 30,000 = $42,000 If a DSR edit invokes, then include the $42,000 consent to rate amount in the Carrier Explanation box 107 Additional Resources Financial Call Reporting Guidebook Financial Data Collection Tool Statistical Plan Manual Circulars/FYI Plus Reporting Season Web Article Webinars on Demand Data Educational Program Materials NCCI Financial Data Assigned Validator

56 109 55