Overview of Tennessee s Workers Compensation Market Conditions and Environment

Transcription

1 Overview of Tennessee s Workers Compensation Market Conditions and Environment Advisory Council on Workers Compensation August 23, 2012 Presented by Mike Shinnick - TDCI 1

2 $800 $700 $600 $500 $400 $300 $200 $100 $ Market Segments Millions in Premiums $ % $721 No Change $168 $169 $23 $22 $32 Voluntary Self Insureds SI Groups* TWCIP +22% Excluding government sponsored groups; Individual Self Insureds are on an equivalent premium basis, Group premiums are estimated. -4% $

3 National Picture 3

4 Property & Casualty Underwriting Results Worse Due to Catastrophes Net Calendar Year Combined Ratio Private Carriers Combined Ratio = Expense Ratio + Loss & LAE Ratio; results <100 equate to an underwriting profit Line of Business preliminary Personal Auto 101% 101% 102% Homeowners 106% 107% 122% Com. Multi Peril 97% 101% 113% Com. Auto 98% 98% 103% Workers Comp 110% 115% 115% Total P&C Industry 101% 102% 108% Sources: NCCI for Workers Comp; Total P/C Industry: ISO Highest since

5 140 Calendar Year Combined Ratios Except for 2008, WC Consistently Trails Overall P&C Results (on Average 6 Points Less Favorable) CY WC CY P&C '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11p Source: NCCI; Annual Statement Date; ISO; 2011 preliminary data 5

6 Workers Compensation Indemnity Claims Cost Modest Increase in % 10.00% 8.00% 6.00% 4.00% 2.00% 0.00% -2.00% -4.00% 2% 0.60% '00'' '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11p -2.80% Source: NCCI (2011 is preliminary) 6

7 WC Medical Claim Cost Percentage Change 16 Trends Change in Med. Severity Medical CPI '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11p Sources: NCCI Medical Severity; Economy.com Medical CPI; 2011 is preliminary 7

8 WC Lost-Time Claim Frequency Percentage 4 Declined in '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11p Source: NCCI; 2011 is Preliminary; 2010 & 2011 frequency is adjusted for recessionary factors 8

9 WC Loss and LAE Reserve Deficiencies Private Carriers % $ Billions Percent of CY total Carried Reserves 10% 5 0 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 Source: NCCI; Loss and LAE figures are based on NAIC Annual Statement Data for each valuation date and NCCI latest selections. 9

10 WC Investment Returns Investment Gain on Insurance Transactions-to Premium Ratio Private Carriers 20.0% 18.0% 16.0% 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11p Source: , Annual Statement Data; 2011 preliminary NCCI 10

11 WC Results Operating Loss Continues 20.0% Pre-Tax Operating Gain Ratio Private Carriers 15.0% 10.0% 5.0% 0.0% -5.0% '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11p -10.0% -15.0% Source: , Annual Statement Data; 2011 NCCI - preliminary 11

12 According to Goldman Sachs, Prices Appear to be Increasing Percentage of Respondents Agent Responses on WC Rates on Renewals vs. 12 Months Prior 70.00% 64.50% 60.00% 50.00% 40.00% 5.80% 18.20% Jan % Jan % 10.00% 0% 0% 11.50% Jan % Down 21%+ Down 11-20% Down 1-10% No Change Up 1-10% Up 11%+ Source: Goldman Sachs Research, Proprietary Survey, January 2012 Pricing Survey, Insurance: Property & Casualty (Exhibit 4, WC) 12

13 Change in Commercial Rate Renewals, by Line: 1Q12 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% 0.8% 3.1% 3.1% 3.3% 3.6% 4.0% 6.5% 7.4% Source: Council of Insurance Agents and Brokers; Insurance Information Institute 13

14 Tennessee Specific 14

15 TN Direct Premium Written Premium (DPW) History % -4% 11% DPW 15

16 Loss Cost Filing & Final Approvals Since 2004 Reforms Were Implemented -20% since 2004 Reforms* Year Filing Made NCCI Filed Rate Advisory Council Recommendation C&I Approved Rate Effective Date % -6.3% -6.3% 9/1/ % 3.9% 3.9% 7/1/ % -6.9% -6.9% 7/1/ % 1.6% 1.6% 3/1/ % 0% 1.4% 3/1/ % 2.4% 2.4% 7/1/ % -8.6% -7.2% 3/1/ % -3.1% -3.1% 7/1/ % -3.4% -3.1% 3/1/ % -.1% -.1% 3/1/ % -5.3% -5.1% 3/1/ % 6.3% 6.3% 11/1/ % -.3%.4% 3/1/12 * % -5.1% -5.1% 8/9/12 16

17 Accident Year Combined Ratios Countrywide Tennessee '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11p Source: NCCI; 2011 preliminary data 17

18 Tennessee Voluntary Market Weighted Average Loss Cost Multiplier History Multipliers are based on prior year premium weighted average market shares

19 TN Price Change Analysis Filed Loss Cost Change Jan '11 Feb '11 Mar '11 Apr May Jun '11 '11 '11 Jul '11 Aug '11 Sep '11 Oct '11 Nov '11 Dec '11 Jan '12 Feb '12 Mar '12 Apr May '12 '12 Average Reported Net Rate Change: Current/Prior Periods (5% since Jan 12) -6-8 Source: NCCI 19

20 2012 LCM Distribution (by Direct Premium Written) Median % are above 1.05 and below % above 1.67 Assigned Risk LCM A complete listing of LCMs is posted on the Department s website 20

21 TN WC Premium Tax Revenues YE 8/31/08 YE 8/31/09 YE 8/31/10 YE 8/31/11 Self Insurance $9.7M $8M $6.7M $7.5M Insurance $35.3M $31.8M $25.9M $26.6M Total Premium Tax* $45M $39.8M $32.6M $34.1M Data excludes.4% TOSHA Surcharge 21

22 Tennessee Workers Compensation Insurance Plan (TWCIP) 22

23 TWCIP Premium History Premium Up 22% Poor Experience Poor Experience

24 Servicing Carrier Loss Ratio History 120.0% (1.52 LCM Leveled) 100.0% 80.0% 60.0% Break Even 40.0% 20.0% 0.0% Loss Ratio 24

25 TWCIP LCM History

26 LCM History: Voluntary vs. TWCIP TWCIP 22% On Average Higher % higher 1 Voluntary TWCIP '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 26

27 18% TN Assigned Risk Market Share - NAIC Direct Premium Written 16% 14% 15.65% 14.76% 14.94% 12% 10% 8% 6% 4% 11% 8.80% 6.60% 5.30% 4.80% 4.70% 5.20% Statutory Threshold Market Share 2% 0%

28 TN Assigned Risk Bookings Up Dramatically Over Past Three Quarters 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% 47% 48% 42% 7% 3Q11 4Q11 1Q12 2Q12 As compared to same quarter prior year 28

29 TCA (c)(6)(b) The commissioner shall annually establish the multiplier to be applied to the advisory prospective loss cost for the assigned risk plan. In establishing such multiplier, the commissioner shall consider the estimated cost of providing required services pursuant to this subsection and the level of the multipliers in the voluntary market. (emphasis added) 29

30 Aon s Actuarial Estimate of Break Even LCM for 3/1/13 Likely Recommendation: 1.52 Low Mid Point High Projections are grossed up to reflect 50% reduction in tabular surcharge effective 9/1/12. Full data period is Experience for 2010 excluded due to $5M+ claim. Had Aon used 2010 data, the full impact would have projected a 1.61 LCM. No provision for adverse deviation due to 2013 premium being projected to be much higher than , when cycle was in its low ebb final target reflects experience from , which encompasses upper end premium levels. Premiums for the next several years are expected to grow rapidly and approach the upper end range. Low end recommendation due to introduction of TAIL plan for policies with standard premium of $250,000 and up (1.65 maximum), which should substantially improve loss ratio for this segment. 30

31 Servicing Carrier Loss Ratio History 120.0% (1.52 LCM Leveled) 100.0% 80.0% 60.0% 40.0% 20.0% 0.0% 2013 LCM Projection Based on this Period Break Even Loss Ratio 31

32 Six Active Self-Insured Groups Self Insured Groups Associated Builders & Contractors of Tennessee Comptrust AGC of Tennessee Home Builders Association of Tennessee Tennessee Automotive Association Tennessee Forestry Association Tennessee Health Care Association 32

33 Insolvencies Individual carrier data included in this section includes insolvencies over $1million in total losses. 33

34 WC Insolvency Data Valued 6/29/12 (Listing Only Carriers Having Over $1M Total Unpaid Losses) Carrier (Liquidation Date) Total # Claims Total $ Amount Paid Claims Total $ Unpaid Claims Reliance (10/01) 1,759 36,889,078 25,432,402 Home Ins. Co. (6/03) 125 2,587,943 5,199,666 Reciprocal of America (6/03) 313 1,597,269 3,055,181 Legion & Villanova (7/03) 1,878 38,905,293 23,566,456 Casualty Reciprocal (8/04) 52 1,558,510 2,755,635 Realm National (6/05) 52 2,822,798 3,599,322 Imperial Casualty (5/10) 127 1,452,043 1,700,356 Pegasus (8/10) 6 138,030 1,230,990 Totals (all since 10/3/01) 4,312 85,950,964 66,540,008 Source: TN Guarantee Association 34

35 WC insolvency Data On the radar screen: Lumbermens Mutual Group (Previously the Kemper Group - IL Domestic) Agreed Orders entered by Commissioner Flowers on July 6, 2005 suspending Kemper Companies licensed in Tennessee. Premium as of December 31, 2011: $43K Was put into formal rehab on 6/26/12 terminating the runoff and foreshadowing liquidation at a point unknown. Unpaid losses as of 12/31/11 Annual Statement: $7M Experience has shown that unpaid claims reserves generally are larger than indicated. 35

36 Number of WC Carrier Insolvencies Per Year Impacting TN '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 Source: TN Guarantee Association; 2003 Legion & Villanova are combined & shown as one. 36

37 TN Guaranty Fund Assessment History (Millions)

38 TN Restaurant Association All claims have been paid. TDCI is working to conclude the receivership with a final report to the court accompanied by a plan for payment of a minimal amount of final expenses. 38

39 In Summary Negatives Positives Underwriting results Premium increased Frequency essentially flat Severity growth moderate Interest rates at historic lows Overall loss cost impact of frequency & severity minimal Uncertain impact from healthcare reform Improved TN AY Combined Ratio Pace of economic recovery Market firming 39

40 Summary: NCCI Filings Reported Quarterly Third Quarter 2011 Item R-1402 Item R-1403 Item B-1424 Item E-1402 Item 03-TN-2011 Item RM-03-TN-2011 Item B-1425 Fourth Quarter 2011 Item U-1398 Item 04-TN-2011 Item RM-04-TN Update to Retrospective Rating Plan Parameters Excess Loss Factors and Update to Basic Manual Appendix E 2011 Update to Retrospective Rating Plan Parameters Expected Loss Rangers and State Hazard Group Differentials Revisions to Basic Manual Classification Code 7711 Firefighters & Drivers - Volunteer Revisions to the Experience Rating Plan Primary/Excess Split Value and Max. Debit Modification Formula Revisions to the Basic Manual TN State Rule Exception for Rule 2-E-1-B and Rule 2-E-3 (Voluntary and Assigned Risk Filings) Revisions to the Employers Liability and Admiralty or FELA Coverage Increased Limits Percentage and Factors Revisions to Statistical Plan for Workers Compensation and Employers Liability Revisions to Basic Manual TN State Rule Exceptions for Rule 2-E-1-B and Rule 2-E-3 (Voluntary & Assigned Risk Filings) 40

41 Summary: NCCI Filings Reported Quarterly (continued) First Quarter TN-2012 RM-01-TN-2012 NCCI Second Quarter 2012 R-1404 R-1405 Revisions to Basic Manual Classifications for Tire Salespersons (Voluntary and Assigned Risk Filings) Large Account Incurred Loss Premium Adjustment Plan (TAIL Plan) & Endorsements Update to Retrospective Rating Plan Parameters Excess Loss Factors Update to Retrospective Rating Plan Parameters Expected Loss Ranges and State Hazard Group Differentials 41