KENTUCKY August 18, 2016 Cathy_Booth@ncci.com 202-655-2699 Sean_Cooper@ncci.com 561-893-3072 Mona_Carter@ncci.com 561-893-3045 Ed O Daniel, Esq. 859-336-9611
Kentucky Workers Compensation State Advisory Forum Opening Remarks Panel Discussion Kentucky and Countrywide Outlook and Observations Filing Activity Claim Frequency Indemnity and Medical Severity Economic Outlook and Coal Mining Case Study Q & A Closing Remarks 2
Panel Discussion Commissioner H. Brian Maynard Department of Insurance Commissioner Dwight Lovan Department of Workers Claims Mona Carter Senior Division Executive, NCCI 3
Kentucky Workers Compensation System Overview
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Kentucky and Countrywide Outlook and Observations
Kentucky Workers Compensation System An Overview Stable premium volume Frequency continues to decline Stable indemnity and medical severities Favorable loss ratio trends 7
Kentucky s Workers Compensation Premium Volume Direct Written Premium in $ Millions $682 $637 $593 $540 $475 $507 $471 $491 $514 $513 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Calendar Year Source: NAIC s Annual Statement data 8
Kentucky Accident Year Combined Ratios 106% 108% 106% 107% 107% 2011 2012 2013 2014 2015 Accident Year Sources: NCCI s financial data and NAIC s Annual Statement data 9
Impact of Discounting on Workers Compensation Premium in Kentucky 30% 20% 10% 0% 0.8% 1.6% 2.9% -10% -20% -20.0% -14.1% -0.8% -1.3% -6.5% -8.4% -8.6% -15.7% -17.3% -15.0% -8.2% -30% -25.0% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Policy Year Rate/Loss Cost Departure Schedule Rating Dividends Based on data through 12/31/2015 Dividend ratios are based on calendar year statistics 10
State of the Workers Compensation Market Combined ratios: Underwriting gains achieved on both calendar year and accident year bases Net written premium volume increased for the fifth consecutive year Lost-time claim frequency again decreased Lost-time claim severity changes were small increasing for indemnity and decreasing for medical 11
$ Billions 50 40 Countrywide Workers Compensation Net Written Premium Growth Continued State Funds ($B) 35.3 35.7 34.3 35.4 33.6 Private Carriers ($B) Private Carriers and State Funds 32.1 37.7 42.3 46.5 47.8 46.5 44.3 39.3 34.6 33.8 36.4 44.2 45.5 41.8 39.5 30 30.1 28.5 27.0 25.9 25.0 28.6 20 10 37.8 38.6 37.6 38.5 39.7 36.9 34.7 33.8 35.1 31.0 31.3 29.8 30.5 31.1 32.3 29.1 29.2 30.3 29.9 26.3 25.2 24.2 25.0 23.3 26.1 22.3 0 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15p Calendar Year p Preliminary Source: Annual Statement data Includes state insurance fund data for the following states: AZ, CA, CO, HI, ID, KY, LA, MD, MO, MT, NM, OK, OR, RI, TX, and UT Each calendar year total for state funds includes all funds operating as a state fund in that year 12
Percent Countrywide Workers Compensation Impact of Discounting on Premium NCCI States Private Carriers 5 2.1 0.7 1.0 0.7-5 -4.0-1.7-2.2-4.7-3.8-0.2-7.1-7.4-7.1-8.5-7.4-8.4-8.8-7.7-10.5-15 -14.6-14.3-17.7-19.2-25 -22.6-23.2 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15p Policy Year p Preliminary Sources: Annual Statement Statutory Page 14 and NCCI s Financial Call data NCCI benchmark level does not include a profit and contingency provision Based on data valued as of 12/31/2015 for all states where NCCI provides ratemaking services, excluding TX 13
Countrywide Workers Compensation Impact of Discounting on Premium NCCI States Private Carriers Dividends Schedule Rating Rate/Loss Cost Departure 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15p Policy Year p Preliminary Sources: Annual Statement Statutory Page 14 and NCCI s Financial Call data Dividend ratios are based on calendar year statistics NCCI benchmark level does not include a profit and contingency provision Based on data valued as of 12/31/2015 for all states where NCCI provides ratemaking services, excluding TX 14
Countrywide Workers Compensation Net Combined Ratios Calendar Year vs. Accident Year as Reported Private Carriers 130 120 110 100 93 104 101 101 97 110 108 115 116 115 112 109 103 102 100 100 97 98 94 90 80 85 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015p Calendar Year Accident Year p Preliminary Source: NCCI analysis based on Annual Statement data Accident Year information is reported as of 12/31/2015 Includes dividends to policyholders 15
Results Vary From State to State Accident Year 2014 Combined Ratios 160 140 134 120 110 100 80 78 60 40 20 0 WV OK TX AR KS DC IL SD NH NV IN MT NM IA MS NE AZ FL NC VT CT TN ID UT LA MO VA AL SC GA HI CO RI AK KY MD ME OR Data is evaluated as of 12/31/2014 16
Filing Activity
Kentucky s Filing Activity Voluntary Loss Cost Changes 3.4% -3.4% -5.0% -7.9% -7.9% -6.9% 10/1/2012 10/1/2013 6/6/2014* 10/1/2014 10/1/2015 10/1/2016** *Law-only filing **Pending 18
Kentucky October 1, 2016 Loss Cost Filing Overall Loss Cost Level Change 5.0% Changes due to: Experience 5.3% Trend 0.3% Benefits +0.6% Experience Period 4.1% Indemnity +1.7% Indemnity (SAWW) +1.3% Loss Development 1.3% Medical 1.7% Medical 0.0% 19
Kentucky October 1, 2016 Filing Average Changes by Industry Group Manufacturing 5.1% Contracting 6.2% Office and Clerical 7.0% Goods and Services 4.8% Miscellaneous 3.8% Overall 5.0% 20
Current Average Voluntary Pure Loss Costs Using Kentucky s Payroll Distribution Pure Loss Cost All Classes $1.88 $1.05 $1.11 $1.10 $1.33 $1.21 $0.83 $0.77 KY IL IN TN VA WV Region Country Based on the latest NCCI approved rates and loss costs in the various states 21
Pure Loss Cost All Classes Current Average Voluntary Pure Loss Costs Using Kentucky s Payroll Distribution 3 2 1 1.05 0 TX AR WV IN UT DC KS NV KY SD OR MS VA TN AZ FL NE HI AL ID NC MO CO LA SC GA NM OK MD NH IA ME RI MT AK IL VT CT CW State Based on the latest NCCI approved rates and loss costs in the various states 22
Kentucky s Top Five Class Codes Based on Statewide Payroll 2009 8810 Clerical (28.1%) 8868 College: Professional Empl. (7.9%) 8742 Outside Sales (6.0%) 8832 Physician (4.1%) 8017 Retail Stores (3.0%) 2013 8810 Clerical (23.9%) 8868 College: Professional Empl. (9.2%) 8742 Outside Sales (5.2%) 8832 Physician (3.8%) 8833 Hospital: Professional Empl. (2.7%) 23
Countrywide Workers Compensation Approved Changes in Bureau Premium Level By Effective Year for NCCI States Percent 5 0.6 0-5 Cumulative Change of 20.1% (1999 2016p) 2.5-1.2-0.5 0.4-0.2-0.3-3 -3.8-5.1-2.6-1.3 2.1-0.2-1.4-4.5-3.4-10 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16p Calendar Year p Preliminary Bureau premium level changes reflect approved changes in advisory rates, loss costs, assigned risk rates, and rating values, relative to those previously approved in NCCI states only IN and NC are filed in cooperation with state rating bureaus 24
NCCI Voluntary Market Filing Activity Number of State Loss Cost/Rate Filings by Filing Season 25 30 27 19 19 13 10 7 1 1 0 0 2012/2013 Season 2013/2014 Season 2014/2015 Season 2015/2016 Season Less Than 0% No Filing 0% and Greater 25
2015/2016 Filing Cycle NCCI Voluntary Market Filing Activity Data for 38 states was reviewed 27 states filed a decrease 10 states filed a change of 0% or greater 1 state did not submit a filing Range of voluntary filings: 14.8% to +3.4% Based on data evaluated as of 12/31/2014 26
-14.8-14.7-13.4-12.8-11.6-10.2-9.9-8.2-7.9-7.5-6.2-5.9-5.5-5.5-5.3-5.3-5.0-4.7-4.3-3.9-3.4-2.7-2.6-2.5-2.4-1.9-1.3-1.2-0.9 0.1 0.2 0.4 1.4 2.5 2.5 2.6 2.7 2.8 Percent Current NCCI Voluntary Market Loss Cost/Rate Level Changes Excludes Law-Only Filings 15 10 5 0-5 -10-15 -20-25 OKWV IL AZ KS NC TX AL MS RI NM NH NV VA MD OR KY FL AR CT MT LA AK UT MO CO SD NE TN ME ID DC HI IN SC VT IA GA Approved Pending Reflects the most recent experience filing in each jurisdiction Due to the timing of the individual loss cost/rate filings, the figures shown may include changes from prior filing seasons 27
Current Voluntary Market Rates/Loss Costs Southeastern NAIC Zone *Pending Georgia 3/1/16 +2.8% South Carolina 9/1/16 +2.5% Tennessee 3/1/16 0.9% Louisiana 5/1/16 2.7% Arkansas 7/1/16 4.3% Florida 1/1/16 4.7% Kentucky* 10/1/16 5.0% Virginia* 4/1/17 5.5% Mississippi 3/1/16 7.9% Alabama 3/1/16 8.2% North Carolina 4/1/16 10.2% West Virginia* 11/1/16 14.7% 28
Contact Information Email: gdavis5@windstream.net Postal Address: Kids Chance of Kentucky PO Box 910234 Lexington, KY 40591 Telephone: Office: 859-219-0194 Fax: 859-219-0170 30
Countrywide Claim Frequency
Frequency Index Countrywide Lost-Time Claim Frequency by Size of Total Loss 1.05 1.00 0.95 0.90 0.85 0.80 0 10K (40% of LT claims) 10K Over (60% of LT claims) 2008 2009 2010 2011 2012 2013 2014p Accident Year p Preliminary Source: NCCI s Statistical Plan data Frequency is lost time claims at 1st report per $1M premium at current wage and NCCI pure loss cost level Prior to assigning individual claims to size of loss categories, reported loss amounts are adjusted for inflation through 2014 For all states where NCCI provides ratemaking services 32
Frequency Index Countrywide Lost-Time Claim Frequency by Size of Total Loss Quintiles 1.05 1.00 0.95 0.90 0.85 0.80 0 3K 3K 10K 10K 20K 20K 50K 50K Over 2008 2009 2010 2011 2012 2013 2014p Accident Year p Preliminary Source: NCCI s Statistical Plan data Frequency is lost time claims at 1st report per $1M premium at current wage and NCCI pure loss cost level Prior to assigning individual claims to size of loss categories, reported loss amounts are adjusted for inflation through 2014 For all states where NCCI provides ratemaking services 33
Frequency Countrywide Lost-Time Claim Frequency by Part-of-Body Groupings Accident Year 2008 2009 2010 2011 2012 2013 2014p 3.50 3.00 Cumulative changes (2008 2014): +21% -1% -17% +2% -9% -10% -14% -18% -18% -6% -10% -10% -7% -4% 2.50 2.00 1.50 1.00 0.50 0.00 p Preliminary Source: NCCI s Statistical Plan data Frequency is lost time claims at 1st report per $1M premium at current wage and NCCI pure loss cost level For all states where NCCI provides ratemaking services 34
Frequency Countrywide Lost-Time Claim Frequency by Part-of-Body Groupings for Claims Over $50,000 Accident Year 2009 2010 2011 2012 2013 2014p 1.20 1.00 Cumulative changes (2009 2014): +14% +21% -22% -5% -15% -19% -18% -28% -4% +5% +5% -17% +1% +1% 0.80 0.60 0.40 0.20 0.00 p Preliminary Source: NCCI s Statistical Plan data Frequency is lost time claims at 1st report per $1M premium at current wage and NCCI pure loss cost level Prior to assigning individual claims to the >$50K size-of-loss category, reported loss amounts are adjusted for inflation through 2014 For all states where NCCI provides ratemaking services 35
Claim Frequency
Frequency per Million of On-Leveled Premium Kentucky s Lost-Time Claim Frequency 40 30 30.9 20 18.8 10 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Policy Year Based on NCCI s financial data Frequency of lost-time claims adjusted to a common wage level 37
Kentucky Workers Compensation Claim Frequency Changes Lost-Time Claims Percent Change 8% Cumulative Change of 38.9% (2000 2014) 0% -1% -3% -3% -6% -1% -4% -2% -1% -3% -7% -11% -12% 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Policy Year Based on data through 12/31/2015, developed to ultimate 38
Percent Countrywide Workers Compensation Lost-Time Claim Frequency Change in Lost-Time Claims per $1M Pure Premium Private Carriers and State Funds 10 5 Average Annual Change of 3.6% (1994 2014) 3.6 0-5 -10 0.5-0.9-2.3-2.2-1.7-4.5-3.9-4.5-4.5-4.1-3.7-3.2-3 -4.5-4.3-4.9-5.4-6.5-6.9-6.6 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15p Accident Year 2010 and 2011 adjusted primarily for significant changes in audit activity p Preliminary based on data valued as of 12/31/2015 Source: NCCI s Financial Call data, developed to ultimate and adjusted to current wage and voluntary loss cost level, excludes highdeductible policies; 1994 2014: based on data through 12/31/2014 Includes all states where NCCI provides ratemaking services; WV is excluded through 2014, but included in 2015 39
Kentucky s Average Claim Frequency Frequency per 100,000 Workers All Claims 3,757 3,913 3,681 3,774 2,883 3,146 3,279 2,333 KY IL IN TN VA WV Region CW Based on NCCI s Statistical Plan data 40
Kentucky s Average Lost-Time Claim Frequency Frequency per 100,000 Workers Lost-Time Claims 949 996 722 661 830 759 813 439 KY IL IN TN VA WV Region CW Based on NCCI s Statistical Plan data 41
Kentucky s Distribution of Claims by Injury Type Kentucky 81% 13% 6% 0% Region 76% 14% 10% 0% Countrywide 76% 15% 9% 0% 0% 20% 40% 60% 80% 100% Medical Only Temporary Total Permanent Partial Permanent Total Fatal Regional states are IL, IN, TN, VA, and WV Based on NCCI s Statistical Plan data for jurisdiction/claim type combinations for which three or more cases exist 42
Key Takeaways Claim Frequency Frequency continues to decline Changes in claim frequency is a key cost driver Higher % of medical-only claims relative to the region and countrywide 43
Indemnity and Medical Severity
Loss Ratio Kentucky s Indemnity and Medical Loss Ratios 1.0 0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0.86 0.58 0.56 0.46 2007 2008 2009 2010 2011 2012 2013 2014 Policy Year Indemnity Medical Based on NCCI s financial data at current benefit level and developed to ultimate 45
Indemnity Average Claim Severity ($ '000s) Kentucky s Average Indemnity Severity 35 30 25 20 15 25.9 17.9 24.1 24.3 AY 15. 10 5 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Policy Year Adjusted to Current Wage Level Actual Based on NCCI s financial data for lost-time claims at current benefit level and developed to ultimate 46
Kentucky s Average Indemnity Claim Severity Lost-Time Claim Severity in $ Thousands Cumulative Change of +34.9% (2000 2014) 8.0% 0.9% -7.2% 6.9% 4.3% 0.3% -6.5% 13.4% -4.3% 5.1% 6.0% 4.1% -1.4% 2.8% $24.1 $23.5 $23.8 $22.9 $21.6 $20.5 $21.5 $18.9 $20.3 $20.2 $19.4 $18.1 $19.5 $19.3 $17.9 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Policy Year Based on data through 12/31/2015, on-leveled and developed to ultimate 47
Severity ($ Thousands) Countrywide Workers Compensation Average Indemnity Cost per Lost-Time Claim Private Carriers and State Funds 25 20 15 10 5 $9.8 +6.6% +9.2% +3.1% +4.6% +1.0% +3.1% +5.9% +10.1% +10.1% +9.0% +7.7% +5.9% $10.4 $11.2 $12.2 $13.5 $14.8 $16.2 $16.7 $17.5 $17.6 $18.2 $19.3 $20.5 +9.3% +0.6% -2.2% +0.9% -0.1% +2.9% +1.5% +1.0% $22.4 $22.6 $22.1 $22.2 $22.2 $22.9 $23.2 $23.5 0 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14p 15p Accident Year p Preliminary based on data valued as of 12/31/2015 Source: NCCI s Financial Call data, developed to ultimate; excludes high-deductible policies; 1994 2013: based on data through 12/31/2014 For all states where NCCI provides ratemaking services, excluding WV 48
Severity ($ Thousands) Countrywide Workers Compensation Average Indemnity Cost per Lost-Time Claim Private Carriers and State Funds NCCI States 25 Cumulative Change in Excess of Wage Growth (1995 2015p): +23% 20 15 10 5 0 Cumulative Change (1995 2015p): +138% 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14p 15p Accident Year p Preliminary based on data valued as of 12/31/2015 Sources: Severity: NCCI s Financial Call data, developed to ultimate, excludes high-deductible policies; 1994 2013: based on data through 12/31/2014 US Average Weekly Wage: 1994 2007 and 2012 2014, Quarterly Census of Employment and Wages; 2008 2011, NCCI; 2015p, NCCI and Moody s Economy.com Includes all states where NCCI provides ratemaking services; WV is included in 2014 and subsequent 49
Cost per Case ($ '000s) Kentucky vs. Countrywide Average Indemnity Claim Severity 35 30 25 20 22 24 23 15 2011 2012 2013 2014 2015 Accident Year Kentucky Countrywide Source: NCCI s financial data 50
Medical Benefits Constitute the Majority of Total Benefit Costs in Kentucky Kentucky Indemnity 43% Medical 57% Region Indemnity 41% Medical 59% Countrywide Indemnity 41% Medical 59% 0% 20% 40% 60% 80% 100% Regional states are IL, IN, TN, VA, and WV Based on NCCI s financial data 51
Medical Average Claim Severity ($ '000s) Kentucky s Average Medical Severity 40 35 30 25 32.9 30.9 32.0 AY 15. 20 22.8 15 10 5 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Policy Year Adjusted to Current Wage Level Actual Based on NCCI s financial data for lost-time claims at current benefit level and developed to ultimate 52
Kentucky s Average Medical Claim Severity Lost-Time Claim Severity in $ Thousands Cumulative Change of +35.7% (2000 2014) 13.3% -4.2% -0.9% 8.6% 4.4% -1.0% 5.3% 3.5% -0.3% 4.7% 4.0% -5.3% 2.7% -2.3% $30.9 $31.6 $30.8 $32.5 $31.3 $29.9 $30.0 $28.9 $27.5 $27.7 $26.6 $24.5 $24.7 $25.8 $22.8 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Policy Year Based on data through 12/31/2015, on-leveled and developed to ultimate 53
Severity ($ Thousands) 35 Countrywide Workers Compensation Average Medical Cost per Lost-Time Claim Private Carriers and State Funds 30 25 20 15 10 5 $9.1 +7.4% $9.8 +3.0% +4.5% +0.4% +2.2 +2.0% +2.3% -1.0% +7.0% +5.9% +5.8% +7.8% +5.4% +7.7% +8.8% +13.5% +7.3% +10.6% +8.3% +10.1% $10.8 $11.6 $12.9 $13.8 $15.7 $17.1 $18.4 $19.4 $20.9 $22.1 $23.4 $25.0 $26.2 $26.3 $26.8 $27.3 $28.0 $28.8 $28.5 0 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14p 15p Accident Year p Preliminary based on data valued as of 12/31/2015 Source: NCCI s Financial Call data, developed to ultimate, excludes high-deductible policies; 1994 2013: based on data through 12/31/2014 Includes all states where NCCI provides ratemaking services; WV is included in 2014 and subsequent 54
Severity ($ Thousands) Countrywide Workers Compensation Average Medical Cost per Lost-Time Claim Private Carriers and State Funds NCCI States 35 30 Cumulative Change in Excess of Medical Care Inflation (1995 2015p): +55% 25 20 15 10 5 0 Cumulative Change (1995 2015p): +214% 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14p 15p Accident Year p Preliminary based on data valued as of 12/31/2015 Sources: Severity: NCCI s Financial Call data, developed to ultimate, excludes high-deductible policies; 1994 2013: based on data through 12/31/2014 US Medical CPI: US Bureau of Labor Statistics Includes all states where NCCI provides ratemaking services; WV is included in 2014 and subsequent 55
Cost per Case ($ '000s) Kentucky vs. Countrywide Average Medical Claim Severity 40 35 32 32 30 25 20 15 27 29 10 2011 2012 2013 2014 2015 Accident Year Kentucky Countrywide Source: NCCI s financial data 56
Average Indemnity Claim Severity in the Region Lost-Time Claim Severity in $ Thousands $32.6 $24.1 $26.2 $13.9 $16.8 $14.6 KY IL* IN TN VA* WV* *Unlimited Severity Figure Based on NCCI s financial data for lost-time claims 57
Average Medical Claim Severity in the Region Lost-Time Claim Severity in $ Thousands $49.4 $30.9 $30.3 $36.0 $36.7 $18.0 KY IL* IN TN VA* WV* *Unlimited Severity Figure Based on NCCI s financial data for lost-time claims 58
Kentucky s Indemnity Loss Distribution by Injury Type Kentucky 37% 52% 6% 5% Region 28% 66% 3% 3% Countrywide 31% 60% 4% 5% 0% 20% 40% 60% 80% 100% Temporary Total Permanent Partial Permanent Total Fatal Regional states are IL, IN, TN, VA, and WV Based on NCCI s Statistical Plan data for jurisdiction/claim type combinations for which three or more cases exist 59
Kentucky s Medical Loss Distribution by Injury Type Kentucky 35% 46% 4% 15% 0% Region 27% 53% 6% 13% 1% Countrywide 29% 48% 9% 13% 1% 0% 20% 40% 60% 80% 100% Temporary Total Permanent Partial Permanent Total Medical Only Fatal Regional states are IL, IN, TN, VA, and WV Based on NCCI s Statistical Plan data for jurisdiction/claim type combinations for which three or more cases exist 60
Key Takeaways Severity Stable indemnity and medical severities Indemnity/ medical split consistent with region and country Similar indemnity severity to countrywide Slightly higher medical severity than countrywide 61
Nationwide Economic Outlook
National Economic Highlights and Their Impact on Workers Compensation National Economic Indicator Private employment is expected to continue to grow slowly Wage growth is poised to accelerate Medical inflation is trending up In December 2015, the Federal Reserve began raising the federal funds rate Potential Impact on the Workers Compensation Market Premium increases from higher payroll and higher expected claim frequency for new workers Upward pressure on payroll and premium as well as indemnity severity Increased pressure on medical costs per claim Higher interest rates mean better returns on invested funds 63
Forecast Is for Continued but Slowing Growth Near 2% in the Private Sector Annual Growth Rate Percent 3 US Private Employment Growth 2 1.8 2.2 2.0 2.2 2.4 2.0 1.8 1 0 2011 2012 2013 2014 2015 2016f 2017f f Forecast Private Nonfarm Employment Frequency of observation: annual; latest historical data point: 2015; forecast years: 2016 and 2017 Sources: US Bureau of Labor Statistics (BLS) and Moody s Analytics 64
Annual Growth Rate Percent Wages Are Forecast to Accelerate Significantly by 2017 US Average Weekly Wage Growth 5 4 4.4 3 3.0 2.8 3.1 3.1 3.5 2 1 1.1 0 2011 2012 2013 2014 2015 2016f 2017f f Forecast Wages are for Total Private Industry Frequency of observation: annual; latest historical data point: 2015 (preliminary); forecast years: 2016 and 2017 Sources: US Bureau of Labor Statistics (BLS), Moody s Analytics, and NCCI 65
The US Unemployment Rate Continues to Decline, but Is Higher When Marginally Attached Workers Are Included Percent 20 US Headline Unemployment Rate and U-6 15 10 5 U-6 Unemployment Headline Unemployment 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 U-6 measures the number of the unemployed, the marginally attached, and the part-time for economic reasons Headline (official) unemployment rate and U-6 are seasonally adjusted Frequency of observation: monthly; latest available data point: June 2016 Sources: Moody s Analytics and US Bureau of Labor Statistics (BLS) 66
How Does the Kentucky Economy Compare?
Change in Private Employment Private Employment Growth Is Below Average Percent 3 May 2014 May 2015 May 2016 2 2.0 2.1 2.1 2.4 1.7 1.9 1 0 Kentucky United States Private Nonfarm Employment, seasonally adjusted Frequency of observation: monthly; latest available data point: May 2016; percentage change for the 12 months ending each May Source: US Bureau of Labor Statistics (BLS), www.bls.gov 68
Change in Private Employment Comparison of Private Employment Growth Across States 69 Private Nonfarm Employment, seasonally adjusted Frequency of observation: monthly; latest available data point: May 2016; percentage change for the 12 months ending May 2016 Source: US Bureau of Labor Statistics (BLS), www.bls.gov 69
Change in Employment by Industry Employment in Half the Industries Has Increased in the Past 12 Months Industrial Sector 12-Month Percent Change, May 2016 Sector Size % Share 12-Month Change Financial Activities Education and Health Services Trade, Transportation, and Utilities Leisure and Hospitality Professional and Business Services Manufacturing Construction Government Other Services Information Natural Resources and Mining KY +3.3 95,100 5 +3,000 US +2.0 KY +3.2 272,200 14 +8,500 US +3.0 KY +2.9 397,600 21 +11,300 US +1.6 KY +1.9 190,400 10 +3,600 US +2.5 KY +1.7 218,200 11 +3,700 US +2.7 KY +1.2 243,400 13 +2,800 US 0.3 KY 0.9 74,400 4 700 US +3.4 KY 1.2 315,100 17 3,800 US +0.5 KY 1.9 62,400 3 1,200 US +1.0 KY 5.1 24,000 1 1,300 US 0.1 KY 19.3 11,700 1 2,800 US 15.4 Percentage change for the latest 12 months as of May 2016 Current Employment Statistics Survey, seasonally adjusted; frequency of observation: monthly Source: US Bureau of Labor Statistics (BLS), www.bls.gov 70
Change in Average Weekly Wages Wage Growth Is Above the Rest of the Nation Percent 4 2013 2014 2015 3 3.1 3.4 3.1 3.1 2 1 0.8 1.1 0 Kentucky United States Wages are for Total Private Industry Frequency of observation: annual; latest available data point: 2015 (preliminary) Source: US Bureau of Labor Statistics (BLS), www.bls.gov 71
Headline Unemployment Rate The Unemployment Rate Is Above the National Average Percent May 2014 May 2015 May 2016 8 6 4 6.8 6.2 5.3 5.5 5.1 4.7 2 0 Kentucky United States Headline unemployment rate, seasonally adjusted Frequency of observation: monthly; latest available data point: May 2016 Source: US Bureau of Labor Statistics (BLS), www.bls.gov 72
Kentucky s Economic Highlights Kentucky s unemployment rate is above the US rate Employment growth is below the US rate: Financial Activities and Education and Health Services are the top-performing sectors in the state The Trade, Transportation, and Utilities sector added the most jobs Manufacturing posted gains due to the strong demand for autos The Natural Resources and Mining sector has posted a significant decline Kentucky wage growth is above the US average 73
Coal Mining
Percent Share US Electricity Generation by Source Natural Gas, Solar, and Wind Are Taking Share From Coal 100% 80% All Other Sources 60% Natural Gas 40% 20% Coal 0% 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Frequency of observation: monthly; data represented through March 2016 Source: US Energy Information Administration (EIA) 75
Change in Coal Mining Employment Employment in Coal Mining Is Declining Throughout Much of the Country Coal Mining is NAICS 2121 Coal Mining, all establishment sizes, private ownership Average Annual Change in Coal Mining Employment: December 2015 (preliminary) over December 2013 Frequency of observation: monthly states printed in white: no reported coal mining activity or employment data can be broken down to the level of coal mining due to disclosure restrictions Sources: Moody s Economy.com; US Bureau of Labor Statistics, Quarterly Census of Employment and Wages, www.bls.gov/cew 76
Coal Mining Fatality Rate, Nationwide The Coal Mining Fatality Rate Is Volatile but Trending Lower Frequency of observation: annual; latest available data point: 2015 Source: Mine Safety and Health Administration (MSHA), www.msha.gov/stats/centurystats/coalstats.asp 77
Coal Mining Employment: Kentucky Employment Is Down Both Nationally And in Kentucky 250 Coal Employment, thousands 125 200 150 United States, excluding KY (left axis) Kentucky (right axis) 100 75 100 50 50 25 0 0 1975 1980 1985 1990 1995 2000 2005 2010 2015 1975 2000: SIC-based; 1990 2000: SIC-based data reconstructed to NAICS; 2001 2015: NAICS-based Frequency of observation: annual; latest available data point: 2015 (preliminary) Sources: Moody s Economy.com; US Bureau of Labor Statistics, Quarterly Census of Employment and Wages; www.bls.gov/cew
Wage Growth in Coal Mining: Kentucky Growth of Coal Mining Wages Have Not Kept Pace With Private Industry Wages Wage growth is shown for Kentucky s Average Weekly Wage (AWW) in all industry sectors and in NAICS 2121 Coal Mining. All establishment sizes, private ownership. Frequency of observation: quarterly. Latest available data point: December 2015 (preliminary) Average Annual Rate of Wage Growth, December 2015 compared to 12, 36, and 60 months prior, respectively. Source: US Bureau of Labor Statistics, Quarterly Census of Employment and Wages; www.bls.gov/cew
Challenging Outlook for Coal Mining Central Appalachian (CAPP) coal production is in decline. Three main causes are: Increased extraction costs as the best reserves are increasingly mined out. Cheap natural gas encourages fuel switching. Reduction in coal-fired generation capacity. Since 2000, CAPP coal mining has become increasingly expensive, especially underground. The thickest and most accessible coal seams have already been mined out. What remains is harder and more expensive to extract. Source: US Energy Information Administration (EIA) 80
Q & A
Closing Remarks Thank You!
Glossary
Glossary Assigned Risk Adjustment Program (ARAP) An assigned risk market program that surcharges residual market risks based on the magnitude of their experience rating modification. Calendar Year (CY) Experience of earned premium and loss transactions occurring within the calendar year beginning January 1, irrespective of the contractual dates of the policies to which the transactions relate and the dates of the accidents. Calendar-Accident Year (AY) The accumulation of loss data on all accidents with the date of occurrence falling within a given calendar year. The premium figure is the same as that used in calendar year experience. Claim Frequency The number of claims per unit of exposure; for example, the number of claims per million dollars of premium or per 100 workers. 84
Glossary Claim Severity The average cost of a claim. Severity is calculated by dividing total losses by the total number of claims. Combined Ratio The sum of the (1) loss ratio, (2) expense ratio, and (3) dividend ratio for a given time period. Detailed Claim Information (DCI) An NCCI Call that collects detailed information on an individual workers compensation lost-time claim basis, such as type of injury, whether or not an attorney was involved, timing of the claim s report to the carrier, etc. Direct Written Premium (DWP) The gross premium income adjusted for additional or return premiums, but excluding any reinsurance premiums. 85
Glossary Indemnity Benefits Payments by an insurance company to cover an injured worker s time lost from work. These benefits are also referred to as wage replacement benefits. Loss Ratio The ratio of losses to premium for a given time period. Lost-Time (LT) Claims Claims resulting in indemnity benefits (and usually medical benefits) being paid to or on behalf of the injured worker for time lost from work. Medical-Only Claims Claims resulting in only medical benefits being paid on behalf of an injured worker. Net Written Premium (NWP) The gross premium income adjusted for additional or return premiums and including any additions for reinsurance assumed and any deductions for reinsurance ceded. 86
Glossary Permanent Partial (PP) A disability that is permanent but does not involve a total inability to work. The specific definition and associated workers compensation benefits are defined by statute and vary by jurisdiction. Policy Year (PY) The year of the effective date of the policy. Policy year financial results summarize experience for all policies with effective dates in a given calendar year period. Schedule Rating A debit and credit plan that recognizes variations in the hazard-causing features of an individual risk. Take-Out Credit Program An assigned risk program that encourages carriers to write current residual market risks in the competitive voluntary marketplace. Temporary Total (TT) A disability that totally disables a worker for a temporary period of time. 87
Appendix
NCCI s Workers Compensation Resources Financial Aggregate Calls Used for aggregate ratemaking Statistical Plan for Workers Compensation and Employers Liability Insurance (Statistical Plan) Used for class ratemaking Detailed Claim Information In-depth sample of lost-time claims Policy Data Policy declaration page information 89
Financial Aggregate Calls Collected Annually Policy and calendar-accident year basis Statewide and assigned risk data Premiums, Losses, and Claim Counts Evaluated as of December 31 Purpose Basis for overall aggregate rate indication Research 90
Policy Year Financial Aggregate Data Policy Expiration Date Policy Year 2012 Policy Year 2013 Policy Year 2016 1/1/2012 1/1/2013 12/31/2013 1/1/2016 12/31/2016 Policy Effective Date 91
Calendar-Accident Year Financial Aggregate Data Policy Expiration Date Calendar- Accident Year 2013 Calendar- Accident Year 2014 Calendar- Accident Year 2017 1/1/2013 1/1/2014 12/31/2014 1/1/2017 12/31/2017 Policy Effective Date 92
Statistical Plan for Workers Compensation and Employers Liability Insurance (Statistical Plan) Data Experience by Policy Detail Exposure, premium, and experience rating modifications Individual claims by injury type Purposes Classification relativities Experience Rating Plan Research 93
Valuation of Statistical Plan Data 1st Report Valuation 2nd Report Valuation 3rd Report Valuation 4th Report Valuation 5th Report Valuation Policy Effective 18 Months 30 Months 42 Months 54 Months 66 Months 94