ALASKA. October 19, - PDF Free Download

ALASKA October 19, 2016 Maggie_Karpuk@ncci.com 818-707-8374 John_Deacon@ncci.com 818-707-8376

Alaska Workers Compensation State Advisory Forum State of the Industry Economic Overview Alaska Workers Compensation System Overview Alaska s 2017 Loss Cost Filing Claim Frequency Medical Severity Guest Speaker: Marie Marx, Director of Alaska Workers Compensation Division Indemnity Severity Alaska s Residual Market Legislative Issues Nationwide and in Alaska 2

Alaska Outlook Decline in Frequency Medical Severity Increase A Tenuous Balance 3

NCCI Market Outlook 2012 Conflicted 2013 Encouraging 2014 Balanced 2015 Calm Now but Turbulence Ahead 2016 Transforming Bill Donnell New NCCI President and CEO 4

State of the Industry

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 Residual market premium remains manageable 6

$ Billions 50 40 30 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 30.1 28.5 27.0 25.9 25.0 28.6 32.1 37.7 42.3 46.5 47.8 46.5 44.3 39.3 34.6 33.8 36.4 39.5 41.8 44.2 45.5 20 10 31.0 31.3 29.8 30.5 29.1 26.3 25.2 24.2 23.3 22.3 25.0 26.1 29.2 31.1 34.7 37.8 38.6 37.6 33.8 30.3 29.9 32.3 35.1 36.9 38.5 39.7 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: NAIC s 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 7

Countrywide Workers Compensation Approved Changes in Bureau Premium Level By Effective Year for NCCI States Percent 5 Cumulative Change of 20.3% (1999 2016p) 0-5 0.6-1.2-0.5 2.5 0.4-0.2-0.3-3 -3.8-5.1-2.6-1.3 2.1-0.2-1.4-4.5-3.7-10 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 8

Countrywide Workers Compensation Average Indemnity Cost per Lost-Time Claim Severity ($ Thousands) 25 Private Carriers and State Funds +9.3% +0.6% +2.9% +1.5% +1.0% -2.2% +0.9% -0.1% 20 15 10 5 $9.8 +10.1% +9.0% +5.9% +7.7% $10.4 $11.2 $12.2 $13.5 +10.1% $14.8 +5.9% +9.2% +3.1% +4.6% +3.1% +1.0% $16.2 $16.7 $17.5 $17.6 $18.2 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14p 15p $19.3 +6.6% $20.5 $22.4 $22.6 $22.1 $22.2 $22.2 $22.9 $23.2 $23.5 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 9

Countrywide Workers Compensation Average Medical Cost per Lost-Time Claim Severity ($ Thousands) Private Carriers and State Funds 30 25 20 15 10 5 $9.1 +7.4% $9.8 +10.6% +7.3% +8.3% +10.1% $10.8 $11.6 $12.9 $13.8 +2.3% +3.0% +4.5% +0.4% +2.2 +2.0% -1.0% +7.0% +5.9% +7.8% +5.8% +7.7% +5.4% +8.8% +13.5% $15.7 $17.1 $18.4 $19.4 $20.9 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14p 15p $22.1 Accident Year $23.4 $25.0 $26.2 $26.3 $26.8 $27.3 $28.0 $28.8 $28.5 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 10

Indemnity/Medical Split Over Time Private Carriers and State Fund NCCI States Indemnity Medical 1985 1995 2005 2015p 55% 45% 48% 52% 43% 57% 42% 58% Source: NCCI s Financial Call data, developed to ultimate, excludes high-deductible policies 11

NCCI Voluntary Market Filing Activity Number of State Loss Cost/Rate Filings by Filing Season 30 27 19 19 21 10 7 1 1 0 0 1 2013/2014 Season 2014/2015 Season 2015/2016 Season 2016/2017 Season Less Than 0% No Filing 0% and Greater 12

-14.7-14.4-12.9-12.8-12.8-12.1-10.9-10.2-9.9-9.9-9.1-9.0-9.0-8.4-7.9-7.5-6.6-5.5-5.5-5.5-5.0-4.7-4.7-4.3-3.7-3.7-3.4-2.7-2.5-2.4-1.3-1.2 0.1 0.2 1.3 2.5 2.6 2.8 Current NCCI Voluntary Market Loss Cost/Rate Level Changes Percent Excludes Law-Only Filings 15 10 5 0-5 -10-15 -20-25 WV NC IL AZ TN AL CT OK MD TX IN NH NM KS MS RI OR AK NV VA KY FL IA AR DC MO MT LA UT CO SD NE ME ID HI SC VT 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 13

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 15

Forecast Is for Continued but Slowing Growth 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 1.7 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 and Moody s Analytics 16

Percent 20 The US Unemployment Rate Continues to Decline but Is Higher When Marginally Attached Workers Are Included 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: July 2016 Sources: Moody s Analytics and the US Bureau of Labor Statistics 17

Annual Growth Rate Percent 5 Wages Are Forecast to Accelerate Significantly by 2017 US Average Weekly Wage Growth 4 4.3 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; forecast years: 2016 and 2017 Sources: US Bureau of Labor Statistics, Moody s Analytics, and NCCI 18

Medical Inflation Is Forecast to Accelerate US Medical Consumer Price Index Growth Rate Percent 4 3 3.0 3.7 3.7 3.5 2 2.5 2.4 2.6 1 0 2011 2012 2013 2014 2015 2016f 2017f f Forecast Medical Care Consumer Price Index, Urban Consumers Frequency of observation: annual; latest historical data point: 2015; forecast years: 2016 and 2017 Sources: US Bureau of Labor Statistics and Moody s Analytics 19

Interest Rates Are Expected to Increase in 2017 10-Year Treasury Notes Percent 4 3 3.0 2 2.3 2.6 2.4 2.6 1 1.6 1.6 0 2011 2012 2013 2014 2015 2016 2017f f Forecast Frequency of observation: interest rate as of June Latest historical data point: June 2016 Sources: Federal Reserve Board and Moody s Analytics 20

Current Economic Headlines National Economic Highlights and Their Impact on Workers Compensation National Economic Indicator Oil and natural gas prices are low Economic weakness in Europe and China should keep the dollar strong Housing starts are increasing Potential Impact on the Workers Compensation Market Low energy prices benefit most producers a positive for workers compensation because manufacturing accounts for 16% of premiums. However, layoffs in the energy sector negatively impact energy-dependent states. A strong dollar may cut employment in exportcentric industries, particularly equipment manufacturing and technology. This is a negative due to the large share of premiums in manufacturing. New residential construction should boost demand for construction workers a positive because construction accounts for 24% of premiums. 21

Oil Prices Are Forecast to Accelerate Next Year West Texas Intermediate US $ per Barrel 125 100 75 $95 $94 $98 $93 50 $49 $44 $57 25 0 2011 2012 2013 2014 2015 2016f 2017f f Forecast Petroleum Crude Oil Spot Price: West Texas Intermediate Frequency of observation: annual; latest historical data point: 2015; forecast years: 2016 and 2017 Sources: US Energy Information Administration and Moody s Analytics 22

How Does the Alaska Economy Compare?

Change in Private Employment Private Employment Has Declined Slightly in Alaska Percent 3 July 2014 July 2015 July 2016 2 2.3 2.4 1.9 1 0.8 0.9 0-0.2-1 Alaska United States Private Nonfarm Employment, seasonally adjusted Frequency of observation: monthly; latest available data point: July 2016; percentage change for the 12 months ending each July Source: US Bureau of Labor Statistics (BLS), www.bls.gov 24

Change in Private Employment Comparison of Private Employment Growth Across States 25 Private Nonfarm Employment, seasonally adjusted Frequency of observation: monthly; latest available data point: July 2016; percentage change for the 12 months ending July 2016 Source: US Bureau of Labor Statistics (BLS), www.bls.gov 25

Change in Employment by Industry Employment in Most Industries Has Decreased in the Past 12 Months Industrial Sector 12-Month Percent Change, July 2016 Sector Size % Share 12-Month Change Education and Health Services Leisure and Hospitality Government Trade, Transportation, and Utilities Other Services Manufacturing Financial Activities Construction Information Professional and Business Services Natural Resources and Mining AK +5.5 49,900 15 +2,600 US +2.9 AK +4.3 36,600 11 +1,500 US +2.8 AK +1.6 83,300 24 +1,300 US +0.7 AK +1.2 66,500 20 +800 US +1.4 AK +0.0 11,600 3 +0 US +1.1 AK 1.4 13,700 4 200 US 0.3 AK 2.4 12,200 4 300 US +2.0 AK 2.8 17,100 5 500 US +3.3 AK 3.2 6,000 2 200 US +1.0 AK 6.7 28,000 8 2,000 US +2.8 AK 12.6 15,200 4 2,200 US 16.0 Percentage change for the latest 12 months as of July 2016 Current Employment Statistics Survey, seasonally adjusted; frequency of observation: monthly Source: US Bureau of Labor Statistics (BLS), www.bls.gov 26

Change in Average Weekly Wages 0 Wage Growth Is Below the Rest of the Nation Percent 5 2013 2014 2015 4 3.9 3 2 2.1 3.1 3.1 2.7 1 1.1 0 Alaska 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 27

Headline Unemployment Rate The Unemployment Rate Is Above the National Average Percent July 2014 July 2015 July 2016 8 6 7.0 6.2 6.5 6.7 4 5.3 4.9 2 0 Alaska United States Headline unemployment rate, seasonally adjusted Frequency of observation: monthly; latest available data point: July 2016 Source: US Bureau of Labor Statistics (BLS), www.bls.gov 28

Alaska s Economic Highlights Alaska s unemployment rate is above the US rate Employment has declined: Natural Resources and Mining and Professional and Business Services have posted the largest declines Education and Health Services is the topperforming sector in the state, with growth outpacing the national rate The Leisure and Hospitality; Government; and Trade, Transportation, and Utilities sectors have also added jobs Alaska wage growth is below the US average 29

Alaska Workers Compensation System Overview

Alaska Workers Compensation System An Overview Premium volume is stable Frequency continues to decline Combined ratios are lower in the latest year Average medical costs are on the rise 31

Alaska s Workers Compensation Premium Volume Direct Written Premium in $ Millions $345 $331 $285 $256 $235 $247 $299 $294 $283 $282 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015p Calendar Year p Preliminary Source: NAIC s Annual Statement data 32

Workers Compensation Premium Rate Ranking Premium Rate Index per $100 of Payroll AK ranking 5th highest (out of 51) 3.48 3.0 2.68 2.0 1.0 0.88 0.0 ND IN AR MA VA NV UT DC WV OR CO KY KS MS AZ TX MD MI OH GA WY NE AL FL HI NC SD IA WI TN MO NM RI MN WA SC PA ID ME NH MT LA DE VT IL OK AK NY NJ CT CA Source: 2014 Oregon Workers Compensation Premium Rate Ranking Summary 33

Impact of Discounting on Workers Compensation Premium in Alaska Percent 20% 15% 14.7% 11.1% 14.0% 9.2% 5.1% 0.3% 0.6% 2.5% 7.5% 8.2% 10% 2.0% 5% 0% -5% -10% -7.0% -15% -11.0% -0.2% -0.2% -20% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Policy Year Rate/Loss Cost Departure Schedule Rating Dividends Totals Based on data through 12/31/2015 Dividend ratios are based on calendar year statistics 34

Combined Ratio 120% Alaska s Accident Year Combined Ratios 105% 100% 80% 99% 36% 92% 32% 88% 33% 34% 87% 33% 60% 40% 20% 62% 60% 55% 72% 53% 0% 2011 2012 2013 2014 2015 Loss Ratio Accident Year Dividend and Expense Ratio Sources: NCCI s financial data and NAIC s Annual Statement data 35

Countrywide Workers Compensation Net Combined Ratios Calendar Year vs. Accident Year as Reported Private Carriers 120 100 115 112 109 103 102 100 100 97 98 94 80 60 40 20 0 2011 2012 2013 2014 2015p Calendar Year Accident Year p Preliminary Source: NCCI s analysis based on NAIC s Annual Statement data Accident Year information is reported as of 12/31/2015 Includes dividends to policyholders 36

Alaska s 2017 Loss Cost Filing

Alaska s Major Loss Cost Drivers Experience and loss development improved Medical loss ratios have decreased Loss costs have decreased Lost-time frequency is decreasing 38

Alaska s January 1, 2017 Loss Cost Filing Overall Loss Cost Level Change 5.5% Changes due to: Experience 4.8% Trend 1.5% Benefits +0.6% LAE +0.2% Indemnity 0.0% Indemnity (SAWW) +0.6% Medical 2.0% Medical (Schedule) +0.6% 39

Alaska s January 1, 2017 Filing Average Changes by Industry Group Manufacturing 6.1% Contracting 4.0% Office and Clerical 8.2% Goods and Services 5.4% Miscellaneous 4.2% Oil and Gas 9.7% Overall 5.5% 40

Loss Ratio Alaska s Indemnity and Medical Trends Indemnity Medical 1/1/2016 Loss Ratio Trend 5.0% 0.0% 1/1/2017 Loss Ratio Trend 5.0% 0.5% 80.0% 73.6% 71.7% 66.1% 72.7% 66.8% 65.9% 72.7% 67.9% 60.0% 40.0% 20.0% 39.9% 34.3% 30.2% 31.4% 29.3% 26.1% 27.6% 26.8% 0.0% 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 41

Percent Alaska s Filing Activity Voluntary Loss Cost and Assigned Risk Rate Changes 0.0-0.8-2.0-3.6-4.2-2.6-3.1-3.4-2.6-2.7-3.7-3.7-5.5-4.6-4.0-6.0-8.0-10.0 1/1/2013 1/1/2014 1/1/2015 1/1/2016 5/1/2016* 1/1/2017 Pending Voluntary Assigned Risk *Law-only filing 42

Average Voluntary Pure Loss Cost Quartiles Using Alaska s Payroll Distribution $0.62 $1.22 $1.23 $1.39 $1.40 $1.68 $1.69 $2.48 Not Included Countrywide = $1.40 Alaska = $2.00 Based on the latest NCCI approved rates and loss costs in the various states 43

Claim Frequency

Alaska s Distribution of Claims by Injury Type Alaska 69% 24% 7% 0% 0% Region 77% 16% 7% 0% 0% Countrywide 0% 76% 15% 9% 0% 0% 20% 40% 60% 80% 100% Medical Only Temporary Total Permanent Partial Permanent Total Fatal Regional states are AZ, MT, NM, and OR Based on NCCI s Statistical Plan data for jurisdiction/claim type combinations for which three or more cases exist 45

Alaska s Average Lost-Time Claim Frequency Frequency per 100,000 Workers Lost-Time Claims 1,345 1,140 1,526 615 794 AK AZ MT NM OR Based on NCCI s Statistical Plan data 46

Frequency per Million of On-Leveled Premium Alaska Workers Compensation Lost-Time Claim Frequency 30 27.1 25 26.6 23.0 20 15 10 21.0 19.7 18.4 18.7 18.3 16.8 15.4 15.3 14.9 14.2 13.9 13.3 5 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 47

Percent Countrywide Workers Compensation Lost-Time Claim Frequency Change in Lost-Time Claims per $1M Pure Premium Private Carriers and State Funds 10 5 Cumulative Change of 51.5% (1994 2014) 3.6 0-5 -10 0.5-0.9-2.3-2.2-1.7-3.9-4.5-4.5-4.5-4.1-3.7-3.2-3 -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 48

Key Takeaways Claim Frequency Frequency continues to decline Claim frequency is a key cost driver Higher share of temporary total claims compared with region and countrywide 49

Medical Severity

Medical Benefits Constitute the Majority of Total Benefit Costs in Alaska Alaska Indemnity 24% Medical 76% Region Indemnity 35% Medical 65% Countrywide Indemnity 41% Medical 59% 0% 20% 40% 60% 80% 100% Regional states are AZ, MT, NM, and OR Based on NCCI s financial data 51

Medical Average Claim Severity ($ '000s) Alaska s Average Medical Claim Severity 65 55 45 35 33.5 50.9. 48.3 AY 15 25 21.5 15 5 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

Alaska s Average Medical Claim Severity Lost-Time Claim Severity in $ Thousands Cumulative Change of +136.9% (2000 2014) 29.2% -1.2% 10.3% 2.6% 13.0% -3.4% 6.2% 15.9% 0.7% $21.5 4.2% 6.9% $22.4 $23.9 14.3% -3.2% -1.7% $26.0 $26.5 $27.4 $33.6 $33.2 $36.7 $37.6 $42.5 $41.0 $43.6 $50.5 $50.9 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 53

Average Medical Claim Severity in the Region Lost-Time Claim Severity in $ Thousands $50.9 $48.5 $40.3 $43.8 $16.8 AK AZ MT NM OR Based on NCCI s financial data for lost-time claims 54

Severity ($ Thousands) 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 +10.6% +7.3% +8.3% +10.1% $10.8 $11.6 $12.9 $13.8 +7.0% +4.5% +0.4% +5.9% +5.8% +7.8% +7.7% +5.4% +8.8% +13.5% $15.7 $17.1 $18.4 $19.4 $20.9 $22.1 $23.4 $25.0 $26.2 $26.3 +2.3% +3.0% +2.2 +2.0% -1.0% 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14p 15p Accident Year $26.8 $27.3 $28.0 $28.8 $28.5 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 55

Alaska s Medical Loss Distribution by Injury Type Alaska 36% 53% 11% 0% Region 27% 47% 9% 16% 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 AZ, MT, NM, and OR Based on NCCI s Statistical Plan data for jurisdictions/claim type combinations for which three or more cases exist 56

Key Takeaways Medical Benefit Costs Medical costs comprise about 76% of total costs Average cost per case is generally increasing faster than Countrywide Higher medical severity than the region Uncertainty in impact of medical benefit cost changes 57

Marie Marx Director Alaska Workers Compensation Division

Indemnity Severity

Indemnity Average Claim Severity ($ '000s) Alaska s Average Indemnity Claim Severity 34 29 28.2 24 19 18.1 20.1. 20.9 AY 15 14 9 4 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 60

Alaska s Average Indemnity Claim Severity Lost-Time Claim Severity in $ Thousands Cumulative Change of +11.0% (2000 2014) 11.1% 4.8% 35.2% -2.3% 7.0% -4.4% -2.6% -2.0% -2.1% -4.2% -8.6% 3.3% -1.0% -15.6% $20.1 $19.2 $17.3 $18.0 $18.4 $17.2 $17.6 $18.0 $18.4 $13.7 $16.2 $16.3 $15.8 $17.3 $18.1 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 61

Average Indemnity Claim Severity in the Region Lost-Time Claim Severity in $ Thousands $30.6 $20.1 $18.4 $20.1 $13.6 AK AZ MT NM OR Based on NCCI s financial data for lost-time claims 62

Alaska s Indemnity Loss Distribution by Injury Type Alaska 37% 51% 12% Region 27% 61% 5% 7% Countrywide 31% 60% 4% 5% 0% 20% 40% 60% 80% 100% Temporary Total Permanent Partial Permanent Total Fatal Regional states are AZ, MT, NM, and OR Based on NCCI s Statistical Plan data for jurisdiction/claim type combinations for which three or more cases exist 64

Key Takeaways Indemnity Benefit Costs Indemnity costs have generally declined over time, but are stabilizing Average indemnity cost is similar to the region and lower than countrywide Indemnity costs comprise about 24% of total costs 65

Alaska s Residual Market

Where Does NCCI Provide Residual Market Services? 67

Residual Market Snapshot All Pools, Policy Year 2015 as of 12/31/2015* 2015 Written Premium $1.2 billion* 2015 Operating Losses $66 million* 2015 Combined Ratio 106%* 2015 Residual Market Share 8%* *Incomplete policy year projected to ultimate, preliminary 68

Workers Compensation Residual Market Premium $ Billions NCCI-Serviced Workers Compensation Residual Market Pools as of 12/31/2015 5 4.8 4.4 4 4.0 4.1 3.5 3 2.6 2.8 3.1 2 2.1 2.0 1 1.0 0.6 0.3 0.3 0.4 0.6 1.1 1.4 1.5 1.4 1.2 0.9 0.7 0.5 0.5 0.5 0.8 1.1 1.2 1.2 0 *Incomplete policy year projected to ultimate, preliminary 69

15% Residual Market Share NCCI Plan States (Includes Direct Assignments) Plan Premium as a Percentage of Direct Written Premium 10.8% 10% 9.2% 7.5% 6.3% 6.6% 6.8% 6.3% 5% 4.9% 3.8% 3.5% 4.0% 5.3% 0% 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015* Calendar Year *Preliminary For all NCCI Plan-administered states 70

Alaska s Residual Market Share Plan Premium as a Percentage of Direct Written Premium 18% 16% 15.3% 15.8% 14% 12.7% 13.7% 13.9% 12% 10% 8% 6% 4% 2% 0% 2011 2012 2013 2014 2015* Calendar Year *Preliminary 71

$ Millions Alaska s Total Residual Market Plan Estimated Premium Volume Premium in $ Millions as of 12/31/2015 $50,000,000 $45,000,000 $40,000,000 $35,000,000 $43.8 $39.0 $32.1 $32.4 $39.0 $39.1 $34.8 $30,000,000 $25,000,000 $26.4 $24.3 $26.6 $20,000,000 $15,000,000 $10,000,000 $5,000,000 $0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Policy Year 72

Alaska s Assigned Risk Programs Assigned Risk Adjustment Program (ARAP) Loss Sensitive Rating Plan (LSRP) Merit Rating Differential/Surcharge Removal of Premium Discounts Take-Out Credit (TOC) Program Drug-Free Workplace Premium Credit Program Voluntary Coverage Assistance Program (VCAP Service) 73

Workers Compensation Legislation: What Happened, What Didn t Happen, and What s Coming

2016 Legislative Sessions CA OR WA NV ID AZ UT MT WY CO NM ND SD NE KS OK MN WI IA IL MO AR MI IN OH KY TN ME VT NH NY MA CT PA NJ DE WV VA MD DC NC SC RI MS AL GA AK TX LA HI FL States With 2015/2016 Carryover States With 2016/2017 Biennium States With No Carryover States With No Regular Session in 2016 76

NCCI s Role in the Legislative Process Before and During the Legislative Session: Provides examples of how an issue is treated in other states Analyzes the cost impact of various options being considered and updates the impact analysis if a bill is amended After the Legislature Has Adjourned: Prepares circulars on substantive changes Makes filings if needed Files rate/loss costs to address changes when the cost impact is significant Files rule/program changes, if needed Monitors the effects of law changes after they are enacted 77

Number of Requests to NCCI for Pricing of Law/Regulation Changes in the Last Five Years 200 175 150 125 100 75 50 25 0 172 136 147 120 107 2012 2013 2014 2015 2016* 2016 data as of 7/21/2016 78

Key Workers Compensation-Related Legislation Topics in 2016 First Responder Presumption Employer/Employee Definition Medical Cost Management Independent Contractors and Misclassification Exclusive Remedy Opt-Out 79

Opt-Out Introduced, but no further action was taken: South Carolina Employee Injury Benefit Plan Alternative (HB 4197) Tennessee Employee Injury Benefit Alternative (HB 997/SB 721) 80

2016 Law-Only Filings Alaska (Approved): 3.7% impact of medical fee schedule changes Florida (Approved): +14.5% combined impact of state Supreme Court rulings in the cases of Castellanos and Westphal combined with recently enacted medical reimbursement changes (SB 1402) Oklahoma (Approved): +3.4% impact of state Supreme Court ruling in Maxwell Tennessee (Approved): 2.7% impact of Rule 0800-02-25 (Drug Formulary and Medical Treatment Guidelines) 81

Measures Calling for System Studies Three states enacted measures in 2016 calling for state workers compensation system studies: Hawaii HB 2715 calls for a closed claim study (Act 188) Utah SB 216 requires a study of hospital costs (Chapter 242) Kentucky HCR 185 creates a task force to study the state s workers compensation system and develop recommendations to enhance the system (became law without signature) Other states introduced measures, calling for system studies, that failed to pass: Vermont HB 803 would have created a committee to study portable employment benefits Connecticut HB 5506 would have required a study of the liability of employers for hospital services 82

Drug Formulary States Recently Instituting Drug Formularies: Tennessee Rule 0800-02-05, effective August 28, 2016 California AB 1124, effective July 1, 2017 Recent Legislation Proposing Formularies: Nebraska LB 1005, deferred due to prioritization Louisiana HB 725, died in committee Recent Regulations Proposing Formularies: Arizona Rules R20-5-1301 through 1312 Nevada Guidelines Feasibility Study: North Carolina has completed the study required in HB 97, recommending further review and postponing implementation to no earlier than July 1, 2018 83

Issues to Watch in 2016 and Beyond Gig Economy Attorney Fees Exclusive Remedy Drug Formularies Opt-Out 84

Key Takeaways Legislative activity for 2016 is about average for an election year No significant workers compensation measures have progressed Opt-out proposals in South Carolina and Tennessee stalled The financial impact of legislation, regulations, and judicial decisions priced in 2016 on states WC systems ranged from 3.7% to +14.5% New terminology has emerged regarding the gig economy and independent contractors: Qualified Marketplace Contractor 85

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. 89

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. 90

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. 91

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. 92

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 94

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 95

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 96

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 97

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 98

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 99