LONG TERM CARE 2010 GENERAL LIABILITY AND PROFESSIONAL LIABILITY Actuarial Analysis August 2010

[ LONG TERM CARE 2010 GENERAL LIABILITY AND PROFESSIONAL LIABILITY Actuarial Analysis August 2010

2010LONGTERMCARE ii TABLE OF CONTENTS INTRODUCTION.......................... 1 Purpose...................................... 1 Scope........................................ 1 EXECUTIVE SUMMARY...................... 2 Key Findings................................... 2 Database..................................... 4 Actuarial Analysis............................... 4 OVERALL GL/PL BENCHMARK STATISTICS........ 5 Overall Loss Cost Trends.......................... 5 Overall Frequency Trends......................... 6 Overall Severity Trends........................... 7 Overall Liability Costs and Medicaid Reimbursement Rates. 8 Closed Claim Analysis............................ 9 STATE SPECIFIC RESULTS................... 12 Arkansas..................................... 12 California.................................... 15 Indiana..................................... 18 Massachusetts................................ 21 North Carolina................................ 24 Ohio........................................ 27 Pennsylvania.................................. 30 Tennessee.................................... 33 Texas....................................... 36 Wisconsin.................................... 39 West Virginia................................. 42 All Other States............................... 45 DEFINITIONS............................ 48 AON AT A GLANCE....................... 50

2010LONGTERMCARE 1 INTRODUCTION Purpose The Actuarial and Analytics Practice of Aon Global Risk Consulting (Aon) conducted an actuarial analysis of general liability and professional liability (GL/PL) claim costs to the long term care industry operating in the United States. Scope The specific objectives of this study are to: Identify the overall trends in the cost of GL/PL claims for long term care Identify state specific trends in the cost of GL/PL claims for long term care An overview of the findings can be found in the Executive Summary section of this report. * * * * * Please contact us if you have any questions regarding this report. Respectfully submitted, Christian Coleianne, FCAS, MAAA Donald Riggins, FCAS, MAAA, CPCU Associate Director and Actuary Associate Director and Actuary Aon Global Aon Global +1.410.309.0741 +1.410.309.4539 christian.coleianne@aon.com donald.riggins@aon.com

2010LONGTERMCARE 2 EXECUTIVE SUMMARY Key Findings Based on the actuarial analysis of GL/PL claims data from long term care providers: Long term care loss costs remain stable on an overall basis. The accident year long term care GL/PL loss cost is $1,270 per bed Long term care frequency is stable to decreasing on an overall basis The accident year long term care GL/PL frequency is 0.94% per bed Long term care severity is stable on an overall basis The accident year long term care GL/PL severity is $135,000 per claim The loss cost as a percent of the Medicaid per diem reimbursement rate is 2.09% accident year GL/PL loss costs vary significantly by state The stability in loss costs can be attributed to a number of influences, including the staying power of effective tort limits, the success of quality of care initiatives and the investment in the defense of claims in recent years. In states where loss costs have decreased as a percent of the Medicaid per diem reimbursement rate, more of this funding can be applied to patient care. Despite these favorable conditions, there remain states where liability costs are very high on a per bed basis, in large part due to severity. In particular, Arkansas, Tennessee and West Virginia are distinguished by high loss costs per bed. Loss Cost per Occupied Bed $4,500 $4,000 $3,990 $3,770 $3,500 $3,000 $3,070 $2,500 $2,000 $2,150 $1,500 $1,000 $500 $440 $380 $460 $700 $940 $460 $610 $1,340 AR CA IN MA NC OH PA TN TX WI WV All Other

2010LONGTERMCARE 3 AR CA IN MA NC OH PA TN TX WI WV All Other States Loss Cost per Occupied Bed Frequency per Occupied Bed $3,990 $2,150 $440 $380 $460 $700 $940 $3,070 $460 $610 $3,770 $1,340 1.05% 1.10% 0.64% 0.35% 0.41% 1.06% 1.00% 0.86% 0.65% 0.54% 1.30% 1.08% Severity per Claim $380,000 $195,000 $69,000 $108,000 $113,000 $66,000 $94,000 $357,000 $70,000 $113,000 $290,000 $124,000 Loss Cost as a Percent of Medicaid Reimbursement 7.63% 3.63% 0.80% 0.54% 0.81% 1.15% 1.28% 5.83% 1.12% 1.15% 5.51% 2.19% Database In an effort to present a comprehensive analysis from the perspective of all long term care providers, Aon disseminated a request for data to for-profit and not-for-profit providers including independent providers, regional multi-facility providers and national multi-facility providers. The results presented in this study are based on the ensuing comprehensive database of long term care GL/PL losses and allocated loss adjustment expenses (ALAE) as reported to us by 24 long term care providers operating around the country. Approximately 17,000 individual non-zero claims from long term care facilities were aggregated to perform this study. The facilities included in this database combined currently operate approximately 260,000 long term care beds, consisting primarily of skilled nursing facility beds but also including a number of independent living and assisted living beds. The participants represent approximately 14% of the beds in the United States. The results found in this study are representative of the participants. Providers that did not participate may have different results, either higher or lower. This may be due to any number of reasons, including differences in the tort environment by state, levels of effectiveness in quality of care initiatives and the attractiveness of the provider for tort actions. Based on standard actuarial techniques, the number of claims, number of participants and bed representation assure significant credibility of the results at the countrywide level. To ensure considerable credibility in the state level results, the profiled states were selected based on year over year stability, a sizeable proportion of statewide beds and a mix of provider experience. All long term care benchmark results published in this report are based on losses (indemnity plus allocated adjustment expense) limited to $1 million per occurrence unless otherwise noted. The $1 million per occurrence limitation was selected to limit the impact of large claims on the results. Statutory limitations were based on National Conference of State Legislatures research updated March 22, 2010. Referenced statutory limitations were confirmed by retrieving the individual state codes online. The loss costs are presented relative to the Medicaid per diem reimbursement rate. The Medicaid per diem reimbursement rate is based on data from A Report on Shortfalls in Medicaid Funding for Nursing Home Care produced by Eljay LLC for the AHCA and dated November. The Overall Medicaid per diem reimbursement rate is based on the state exposure distribution inherent in this study.

2010LONGTERMCARE 4 Actuarial Analysis The statistics presented in this report are based on an actuarial analysis of the aggregated long term care GL/PL claim database and related exposure data. The analysis applies standard actuarial methods to the claim data to develop ultimate losses and claim counts by accident year. These projections are used to calculate the following statistics presented in this report: Loss Cost ultimate loss projection per occupied bed equivalent Overall Frequency annual number of non-zero claims per occupied bed equivalent; a frequency of 1.0% represents 1 non-zero claim per 100 occupied bed equivalents Indemnity Frequency annual number of claims with indemnity payments per occupied bed equivalent Severity average ultimate size of each claim, where each claim is limited to $1 million per occurrence

2010LONGTERMCARE 5 OVERALL GL/PL BENCHMARK STATISTICS This report presents an analysis of loss cost per occupied long term care bed, claim frequency per bed and claim severity. Claim frequency statistics are presented for indemnity claims and expense only claims. Overall Loss Cost Trends The following graph shows the loss cost per occupied long term care bed. The annual loss cost has been generally decreasing over the past ten years. Loss Cost per Occupied Bed Overall $1,800 $1,600 $1,400 $1,200 $1,710 $1,530 $1,560 $1,470 $1,240 $1,430 $1,360 $1,280 $1,270 $1,000 $800 $600 $400 $200

2010LONGTERMCARE 6 Overall Frequency Trends The following graph shows the frequency per occupied long term care bed. The stacked bar chart below provides frequency benchmarks for both claims closed with indemnity (indemnity claims) and claims closed without indemnity (expense only claims). The overall frequency increased in the period between and. Overall frequency decreased in and was stable through. Since, overall frequency appears to be decreasing again. Claim Frequency per Occupied Bed Overall Indemnity Claims Expense Only Claims 1.20% 1.00% 0.80% 0.99% 0.24% 1.07% 0.21% 1.14% 0.20% 1.05% 0.18% 0.98% 0.18% 1.01% 1.05% 0.18% 0.20% 0.96% 0.94% 0.18% 0.18% 0.60% 0.40% 0.75% 0.86% 0.94% 0.87% 0.80% 0.83% 0.85% 0.78% 0.76% 0.20% 0.00%

2010LONGTERMCARE 7 Overall Severity Trends The following graph shows the average size per long term care claim (severity). The average severity decreased greatly from to a low point in. Severity is stable since at $135,000. Severity per Claim Overall $200,000 $180,000 $172,800 $160,000 $140,000 $120,000 $143,200 $136,700 $139,900 $126,000 $141,500 $130,000 $133,000 $135,000 $100,000 $80,000 $60,000 $40,000 $20,000

2010LONGTERMCARE 8 Overall Liability Costs and Medicaid Reimbursement Rates Medicaid is a significant source of revenue for Long Term Care providers. The following graph shows the per diem loss cost per bed charted against the Overall Medicaid per diem reimbursement rate. The Overall Medicaid reimbursement rate shown here is a state rate weighted by the exposure distribution inherent in this study. As a percent of the Overall Medicaid per diem reimbursement rate, liability costs have been decreasing over the past several years. Loss Cost as a Percentage of Medicaid Reimbursement Overall 5.00% 4.00% 3.00% 2.00% 4.07% 3.47% 3.32% 2.94% 2.38% 2.66% 2.39% 2.19% 2.09% 1.00% 0.00% Average Medicaid Per Diem Reimbursement Per Diem Loss Cost per Bed $115.05 $120.91 $128.46 $137.02 $142.89 $147.54 $156.08 $160.39 $166.32 $4.68 $4.19 $4.27 $4.03 $3.40 $3.92 $3.73 $3.51 $3.48

2010LONGTERMCARE 9 Closed Claim Analysis To further investigate trends in claim severity, a closed claim analysis is presented below. Payments are organized by the closing year for each claim in the database. Overall, the size of claims closed with indemnity is stable, as is the relationship of claims closed with indemnity to claims closed with expense only. INDEMNITY AND EXPENSE ONLY CLAIM COUNTS The following graph presents the counts for claims closed with an indemnity payment and expense only claims. The lower portion of each bar is the number of claims that closed with an indemnity payment. The upper portion of each bar represents the number of claims that closed, but with an expense amount only. Closed Claim Counts 1,800 Indemnity Claims Expense Only Claims 1,600 1,400 1,200 209 261 246 256 291 292 1,000 800 600 400 1,223 1,216 1,291 1,290 1,163 1,308 200 0 Closing Year

2010LONGTERMCARE 10 AVERAGE PAID INDEMNITY ON CLAIMS CLOSED WITH AN INDEMNITY PAYMENT The following graph presents the average paid indemnity for claims closed with an indemnity payment. The number above each bar is the total average paid indemnity for all claims. The number in the blue bar is the average paid indemnity for claims limited to $1 million. The number in the orange bar is the contribution to the total average paid indemnity from claims greater than $1 million. The chart below the graph shows the number of closed claims with indemnity payments greater than $1 million in the database. There is no clear trend in the average indemnity on claims closed with indemnity. Average Paid Indemnity on Claims Closed with an Indemnity Payment Indemnity Limited to $1M Indemnity Excess of $1M $140,000 $120,000 $100,000 $80,000 $124,000 $47,000 $98,000 $10,000 $90,000 $6,000 $114,000 $15,000 $98,000 $13,000 $107,000 $10,000 $60,000 $40,000 $77,000 $88,000 $84,000 $99,000 $85,000 $97,000 $20,000 Closing Year Number of Closed Claims with Indemnity Payments Greater than $1M 15 18 11 18 12 17

2010LONGTERMCARE 11 AVERAGE PAID EXPENSE ON CLAIMS CLOSED WITH AN INDEMNITY PAYMENT The following graph presents the average paid loss adjustment expense on claims closed with an indemnity payment. Since, the average paid expense on claims closed with indemnity has been between $35,000 and $45,000. Average Paid Expense on Claims Closed with an Indemnity Payment $50,000 $45,000 $40,000 $35,000 $41,400 $36,500 $39,500 $35,300 $45,000 $30,000 $25,000 $23,900 $20,000 $15,000 $10,000 $5,000 Closing Year AVERAGE PAID EXPENSE ON CLAIMS CLOSED WITH EXPENSE ONLY The following graph presents the average paid loss adjustment expense on claims closed with expense only. The average expense paid on expense only claims has been relatively stable since. Average Paid Expense on Claims Closed with Expense Only $20,000 $18,000 $16,000 $14,000 $14,000 $18,200 $16,500 $17,400 $18,900 $15,100 $12,000 $10,000 $8,000 $6,000 $4,000 $2,000 Closing Year

2010LONGTERMCARE 12 STATE SPECIFIC RESULTS Arkansas The participants in this study represent approximately 4,900 occupied long term care beds in the state. This is approximately 28% of the state total long term care beds. The following graphs present the loss cost per occupied bed, claim frequency per occupied bed, claim severity and loss costs relative to the Medicaid per diem reimbursement rate. Frequency is shown for claims with indemnity payments and expense only claims. LOSS COST The estimated loss cost per occupied long term care bed is $3,990, which is the highest loss cost in the study. Loss costs are trending downward from their high in. Arkansas enacted legislation in to limit non-economic damages to $250,000 per plaintiff, or three times the amount of economic damages, not to exceed $1 million. The limits can be bypassed when intent to harm is present. While this legislation may have had some impact on the loss cost trend, the state s loss costs levels remain much higher than other profiled states. Loss Cost per Occupied Bed Arkansas $8,000 $7,000 $6,000 $5,000 $4,000 $6,800 $5,810 $5,570 $6,610 $4,950 $6,070 $4,830 $4,100 $3,990 $3,000 $2,000 $1,000

2010LONGTERMCARE 13 FREQUENCY Claim frequency dropped sharply in from to, reaching a low point in. Claim frequency is currently at 1.05%. Claim Frequency per Occupied Bed Arkansas 3.00% Indemnity Claims Expense Only Claims 2.50% 2.46% 2.00% 1.50% 1.00% 0.50% 1.07% 1.39% 1.58% 0.57% 1.01% 1.31% 0.37% 0.94% 1.70% 0.34% 1.36% 1.01% 0.14% 0.87% 1.26% 1.21% 0.13% 0.25% 1.14% 0.96% 1.05% 1.05% 0.20% 0.15% 0.85% 0.90% 0.00% SEVERITY While claim severity is decreasing since its high of $490,000 in, Arkansas has the highest severity of the states profiled in this study. The severity decline is the driving influence behind the overall loss cost decrease. Severity per Claim Arkansas $600,000 $500,000 $400,000 $366,900 $424,000 $389,600 $490,000 $481,800 $400,000 $390,000 $380,000 $300,000 $276,700 $200,000 $100,000

2010LONGTERMCARE 14 MEDICAID PER DIEM REIMBURSEMENT The loss cost as a percent of the Medicaid per diem reimbursement rate has been steadily declining over the past ten years. The current rate of 7.63% is less than one third of its peak in. Despite this improving trend, Arkansas s rate is the highest in this study. Loss Cost as a Percentage of Medicaid Reimbursement Arkansas 30.00% 25.00% 23.98% 20.00% 16.90% 15.32% 17.52% 15.00% 12.70% 12.75% 10.00% 9.60% 8.14% 7.63% 5.00% 0.00% Average Medicaid Per Diem Reimbursement $77.69 $94.21 $99.58 $103.36 $106.78 $130.40 $137.83 $137.96 $143.20 Per Diem Loss Cost per Bed $18.63 $15.92 $15.26 $18.11 $13.56 $16.63 $13.23 $11.23 $10.93

2010LONGTERMCARE 15 California The participants in this study represent approximately 10,100 occupied long term care beds in the state. This is approximately 10% of the state total long term care beds. The following graphs present the loss cost per occupied bed, claim frequency per occupied bed, claim severity and loss costs relative to the Medicaid per diem reimbursement rate. Frequency is shown for claims with indemnity payments and expense only claims. LOSS COST The estimated loss cost per occupied long term care bed is $2,150, the fourth highest of the profiled states. In California, the loss costs show an increasing trend. While California has a $250,000 cap on non-economic damages through The Medical Injury Compensation Reform Act of 1975 (MICRA), The Elder Abuse and Dependent Adult Civil Protection Act (EADACPA), enacted in 1982, effectively bypasses these caps in cases of abuse or negligence to nursing home residents. Loss Cost per Occupied Bed California $3,500 $3,000 $2,910 $2,710 $2,500 $2,000 $1,740 $1,810 $1,960 $2,040 $2,090 $2,150 $1,500 $1,430 $1,000 $500

2010LONGTERMCARE 16 FREQUENCY At 1.10%, California s frequency of claims per bed is the second highest of the profiled states. While this frequency rate is high relative to the other profiled states, it does not appear to be increasing. Claim Frequency per Occupied Bed California 1.60% 1.40% 1.20% 1.00% 0.80% 0.99% 0.24% Indemnity Claims 1.32% 1.32% 0.21% 0.20% 0.85% 0.19% 1.10% 0.25% Expense Only Claims 1.45% 0.31% 1.16% 1.10% 1.10% 0.21% 0.22% 0.20% 0.60% 0.40% 0.75% 0.66% 1.11% 1.12% 0.85% 0.95% 1.14% 0.88% 0.90% 0.20% 0.00% SEVERITY The severity in California is the fourth highest of the profiled states at $195,000 per claim. The increasing trend in severity is the force behind California s overall increasing loss cost levels. Severity per Claim California $250,000 $219,900 $200,000 $175,800 $169,000 $178,000 $176,300 $186,700 $190,000 $195,000 $150,000 $137,200 $100,000 $50,000

2010LONGTERMCARE 17 MEDICAID PER DIEM REIMBURSEMENT The loss cost as a percent of the Medicaid per diem reimbursement rate appears stable, and, at 3.63%, is the fourth highest among the profiled states. Loss Cost as a Percentage of Medicaid Reimbursement California 7.00% 6.63% 6.00% 5.00% 4.00% 4.33% 3.47% 4.31% 4.04% 3.93% 4.92% 3.74% 3.63% 3.00% 2.00% 1.00% 0.00% Average Medicaid Per Diem Reimbursement $110.27 $112.93 $115.10 $120.15 $132.83 $142.14 $150.69 $153.19 $162.45 Per Diem Loss Cost per Bed $4.77 $3.92 $4.96 $7.97 $5.37 $5.59 $7.42 $5.73 $5.89

2010LONGTERMCARE 18 Indiana The participants in this study represent approximately 11,600 occupied long term care beds in the state. This is approximately 24% of the state total long term care beds. The following graphs present the loss cost per occupied bed, claim frequency per occupied bed, claim severity and loss costs relative to the Medicaid per diem reimbursement rate. Frequency is shown for claims with indemnity payments and expense only claims. LOSS COST At $440 per occupied bed, Indiana s loss cost is among the lowest of the profiled states. In Indiana, a provider s liability is limited to $250,000 per occurrence. There is a Patient Compensation Fund (PCF) which provides for recovery of damage above $250,000 up to $1.25 million. Loss Cost per Occupied Bed Indiana $700 $600 $550 $600 $500 $400 $380 $390 $340 $410 $460 $410 $440 $300 $200 $100

2010LONGTERMCARE 19 FREQUENCY Indiana s frequency is stable at 0.64%. Claim Frequency per Occupied Bed Indiana Indemnity Claims Expense Only Claims 0.80% 0.70% 0.60% 0.50% 0.40% 0.57% 0.10% 0.72% 0.18% 0.63% 0.21% 0.52% 0.11% 0.71% 0.14% 0.62% 0.63% 0.12% 0.17% 0.65% 0.64% 0.16% 0.15% 0.30% 0.20% 0.46% 0.54% 0.42% 0.41% 0.57% 0.50% 0.46% 0.49% 0.49% 0.10% 0.00% SEVERITY Indiana s severity is the second lowest of the profiled states, with an average size of $69,000. Severity per Claim Indiana $100,000 $90,000 $87,200 $84,800 $80,000 $70,000 $60,000 $67,500 $55,100 $65,100 $66,100 $72,600 $63,300 $69,000 $50,000 $40,000 $30,000 $20,000 $10,000

2010LONGTERMCARE 20 MEDICAID PER DIEM REIMBURSEMENT The loss costs as a percent of the Medicaid per diem reimbursement rate is second lowest of the profiled states at 0.80%. While loss costs are moderately increasing, the proportion of the Medicaid per diem reimbursement rate is decreasing. Loss Cost as a Percentage of Medicaid Reimbursement Indiana 1.60% 1.40% 1.46% 1.49% 1.20% 1.00% 0.80% 1.06% 1.02% 0.87% 0.97% 0.95% 0.77% 0.80% 0.60% 0.40% 0.20% 0.00% Average Medicaid Per Diem Reimbursement $97.88 $104.92 $103.68 $106.87 $110.40 $114.92 $132.94 $145.53 $151.06 Per Diem Loss Cost per Bed $1.04 $1.07 $1.51.93 $1.64 $1.12 $1.26 $1.12 $1.21

2010LONGTERMCARE 21 Massachusetts The participants in this study represent approximately 11,200 occupied long term care beds in the state. This is approximately 22% of the state total long term care beds. The following graphs present the loss cost per occupied bed, claim frequency per occupied bed, claim severity and loss costs relative to the Medicaid per diem reimbursement rate. Frequency is shown for claims with indemnity payments and expense only claims. LOSS COST The Massachusetts loss cost per occupied bed exhibits a steep increase until a peak in. Since that time, the loss cost has reversed course and decreased substantially to a current level of $380 per occupied bed, the lowest loss cost of the profiled states. Massachusetts limits a providers liability to $500,000 per occurrence for non-economic damages. Loss Cost per Occupied Bed Massachusetts $600 $550 $500 $400 $300 $440 $310 $370 $460 $480 $430 $360 $380 $200 $100

2010LONGTERMCARE 22 FREQUENCY Frequency in Massachusetts is stable at 0.35%, and is the lowest of the profiled states. Claim Frequency per Occupied Bed Massachusetts 0.50% 0.45% 0.40% 0.35% 0.30% 0.25% 0.20% 0.15% 0.10% 0.05% 0.00% Indemnity Claims 0.39% 0.37% 0.08% 0.11% 0.32% 0.09% 0.28% 0.29% 0.22% Expense Only Claims 0.44% 0.36% 0.37% 0.12% 0.35% 0.35% 0.33% 0.09% 0.10% 0.05% 0.06% 0.09% 0.27% 0.27% 0.28% 0.32% 0.26% 0.30% SEVERITY Severity movements drive the loss cost changes in Massachusetts. After two years of decreases in and, severity is increasing at a moderate level. Severity per Claim Massachusetts $160,000 $140,000 $120,000 $100,000 $80,000 $120,300 $78,500 $116,800 $138,800 $152,100 $127,800 $98,000 $103,000 $108,000 $60,000 $40,000 $20,000

2010LONGTERMCARE 23 MEDICAID PER DIEM REIMBURSEMENT Among the profiled states, Massachusetts has the lowest loss cost as a percent of the Medicaid per diem reimbursement rate at 0.54%. This ratio has moved in step with the overall loss cost level. Loss Cost as a Percentage of Medicaid Reimbursement Massachusetts 1.00% 0.92% 0.87% 0.80% 0.76% 0.75% 0.60% 0.60% 0.65% 0.62% 0.52% 0.54% 0.40% 0.20% 0.00% Average Medicaid Per Diem Reimbursement $131.07 $140.63 $154.94 $165.96 $173.94 $177.16 $191.30 $189.23 $192.01 Per Diem Loss Cost per Bed $1.21.85 $1.01 $1.26 $1.51 $1.32 $1.18.99 $1.04

2010LONGTERMCARE 24 North Carolina The participants in this study represent approximately 11,300 occupied long term care beds in the state. This is approximately 25% of the state total long term care beds. The following graphs present the loss cost per occupied bed, claim frequency per occupied bed, claim severity and loss costs relative to the Medicaid per diem reimbursement rate. Frequency is shown for claims with indemnity payments and expense only claims. LOSS COST The loss cost in North Carolina has decreased from a high in of $770 per occupied bed to a low in of $340 per occupied bed. Since, the loss cost level is increasing to its current level of $460 per occupied bed. In North Carolina, punitive damages are limited to the greater of $250,000 or three times the economic damages. Loss Cost per Occupied Bed North Carolina $900 $800 $700 $600 $500 $400 $720 $770 $530 $400 $340 $340 $590 $400 $460 $300 $200 $100

2010LONGTERMCARE 25 FREQUENCY Frequency peaked in at 0.61%, but has since dropped to 0.41%. North Carolina has the second lowest frequency of the profiled states. Claim Frequency per Occupied Bed North Carolina Indemnity Claims Expense Only Claims 0.70% 0.60% 0.50% 0.40% 0.44% 0.06% 0.57% 0.10% 0.61% 0.10% 0.49% 0.08% 0.47% 0.10% 0.47% 0.09% 0.41% 0.41% 0.11% 0.11% 0.30% 0.20% 0.10% 0.38% 0.46% 0.50% 0.40% 0.37% 0.25% 0.07% 0.18% 0.38% 0.30% 0.30% 0.00% SEVERITY Severity was at its highest point in at $161,200. The current claim severity is $113,000. Severity per Claim North Carolina $180,000 $160,000 $161,200 $140,000 $120,000 $100,000 $80,000 $135,500 $87,000 $82,200 $73,200 $134,600 $126,300 $98,000 $113,000 $60,000 $40,000 $20,000

2010LONGTERMCARE 26 MEDICAID PER DIEM REIMBURSEMENT North Carolina s loss cost as a percent of the Medicaid per diem reimbursement rate is 0.81%, the third lowest of the profiled states. Loss Cost as a Percentage of Medicaid Reimbursement North Carolina 2.00% 1.83% 1.90% 1.50% 1.34% 1.19% 1.00% 0.85% 0.70% 0.69% 0.73% 0.81% 0.50% 0.00% Average Medicaid Per Diem Reimbursement $107.62 $111.29 $107.87 $129.67 $132.87 $134.18 $136.54 $150.33 $155.69 Per Diem Loss Cost per Bed $1.97 $2.11 $1.45 $1.10.93.93 $1.62 $1.10 $1.26

2010LONGTERMCARE 27 Ohio The participants in this study represent approximately 15,900 occupied long term care beds in the state. This is approximately 18% of the state total long term care beds. The following graphs present the loss cost per occupied bed, claim frequency per occupied bed, claim severity and loss costs relative to the Medicaid per diem reimbursement rate. Frequency is shown for claims with indemnity payments and expense only claims. LOSS COST The loss cost level in Ohio exhibits volatility and has increased to $700 per occupied bed. Ohio enacted tort reform legislation in. The enacted legislation provided for limits on non-economic damages of $250,000 or three times the economic damages, limited to $350,000. These caps are increased when certain specific injuries are involved. Ohio s tort reform was challenged and upheld in late. Loss Cost per Occupied Bed Ohio $900 $800 $700 $820 $670 $700 $600 $500 $400 $560 $540 $470 $530 $440 $300 $200 $180 $100

2010LONGTERMCARE 28 FREQUENCY Ohio s frequency is 1.06% and is the third highest of the profiled states. There is no clear trend in frequency over the past several years. Claim Frequency per Occupied Bed Ohio 1.40% 1.20% 1.00% 0.80% 0.60% 0.40% 0.20% 0.75% 0.15% 0.60% Indemnity Claims 1.04% 0.20% 0.77% 0.13% 0.84% 0.64% 0.96% 0.20% 0.76% Expense Only Claims 1.25% 1.17% 1.06% 1.06% 0.40% 0.33% 0.25% 0.26% 0.82% 0.23% 0.84% 0.85% 0.81% 0.80% 0.59% 0.00% SEVERITY Recent increases in Ohio loss cost levels can be attributed to rising severity. Interestingly, Ohio has the lowest severity of the profiled states. Severity per Claim Ohio $80,000 $70,000 $60,000 $50,000 $40,000 $75,000 $52,100 $49,100 $70,600 $42,800 $53,900 $63,000 $66,000 $30,000 $20,000 $23,200 $10,000

2010LONGTERMCARE 29 MEDICAID PER DIEM REIMBURSEMENT The loss cost as a percent of the Medicaid per diem reimbursement rate is increasing in recent years. Loss Cost as a Percentage of Medicaid Reimbursement Ohio 1.60% 1.40% 1.39% 1.20% 1.00% 0.80% 1.07% 1.03% 0.82% 0.91% 0.74% 1.12% 1.15% 0.60% 0.40% 0.32% 0.20% 0.00% Average Medicaid Per Diem Reimbursement $143.54 $143.96 $152.71 $158.09 $161.89 $158.71 $163.96 $164.89 $166.72 Per Diem Loss Cost per Bed $1.53 $1.48.49 $1.29 $2.25 $1.45 $1.21 $1.84 $1.92

2010LONGTERMCARE 30 Pennsylvania The participants in this study represent approximately 25,300 occupied long term care beds in the state. This is approximately 27% of the state total long term care beds. The following graphs present the loss cost per occupied bed, claim frequency per occupied bed, claim severity and loss costs relative to the Medicaid per diem reimbursement rate. Frequency is shown for claims with indemnity payments and expense only claims. LOSS COST Following a spike in the loss cost per occupied bed in through, the loss cost per occupied bed has settled to a level under $1,000, and is currently at $940. Limits on damages are constitutionally prohibited in Pennsylvania. In, Pennsylvania established MCARE, which funds claims above $500,000 per occurrence, up to $1.2 million per occurrence. Providers are required to insure up to $500,000 per occurrence. Curiously, the Pennsylvania results show increasing costs in the years immediately after MCARE was established, due to higher frequency of claims. Loss Cost per Occupied Bed Pennsylvania $1,400 $1,310 $1,300 $1,200 $1,160 $1,000 $880 $890 $890 $940 $800 $600 $620 $660 $400 $200

2010LONGTERMCARE 31 FREQUENCY Frequency increased to a peak of 1.51% in before declining to the current level of 1.00%. This period of increase correlates to an increasing loss cost over the same period. Long Term Care Benchmark General and Professional Liability Claim Frequency per Occupied Bed Pennsylvania Indemnity Claims Expense Only Claims 1.60% 1.40% 1.20% 1.00% 0.80% 0.60% 0.40% 0.57% 0.12% 1.06% 0.12% 0.94% 1.32% 0.16% 1.16% 1.51% 0.20% 1.31% 1.32% 1.25% 0.22% 0.18% 1.10% 1.06% 1.03% 1.00% 1.00% 0.16% 0.15% 0.20% 0.86% 0.85% 0.80% 0.20% 0.45% 0.00% SEVERITY Claim severity is generally increasing over time in Pennsylvania to $94,000 in. Severity per Claim Pennsylvania $120,000 $100,000 $107,700 $86,800 $87,800 $104,100 $87,000 $89,000 $94,000 $80,000 $60,000 $62,100 $66,800 $40,000 $20,000

2010LONGTERMCARE 32 MEDICAID PER DIEM REIMBURSEMENT The loss cost as a percent of the Medicaid per diem reimbursement rate reached its highest point of 2.06% in, but has since decreased to 1.28%. Loss Cost as a Percentage of Medicaid Reimbursement Pennsylvania 2.50% 2.00% 1.50% 1.26% 1.28% 1.61% 2.06% 1.82% 1.99% 1.28% 1.25% 1.28% 1.00% 0.50% 0.00% Average Medicaid Per Diem Reimbursement $134.57 $141.65 $149.72 $173.97 $175.08 $179.17 $190.83 $194.94 $202.09 Per Diem Loss Cost per Bed $1.70 $1.81 $2.41 $3.59 $3.18 $3.56 $2.44 $2.44 $2.58

2010LONGTERMCARE 33 Tennessee The participants in this study represent approximately 12,000 occupied long term care beds in the state. This is approximately 31% of the state total long term care beds. The following graphs present the loss cost per occupied bed, claim frequency per occupied bed, claim severity and loss costs relative to the Medicaid per diem reimbursement rate. Frequency is shown for claims with indemnity payments and expense only claims. LOSS COST At $3,070, Tennessee has the third highest loss cost of the profiled states. The loss cost exhibits historical volatility, but is consistently high compared to other states. Unlike many other states, Tennessee has no legislated limits on tort awards. In recent years, efforts to promote tort reform have been unsuccessful. Loss Cost per Occupied Bed Tennessee $4,000 $3,500 $3,000 $2,500 $3,490 $2,470 $2,500 $3,280 $3,030 $3,070 $2,000 $1,500 $1,820 $1,290 $1,590 $1,000 $500

2010LONGTERMCARE 34 FREQUENCY Frequency in Tennessee is stable at 0.86% per occupied bed. Long Term Care Benchmark General and Professional Liability Claim Frequency per Occupied Bed Tennessee 1.40% 1.20% Indemnity Claims 1.25% 0.25% Expense Only Claims 1.00% 0.80% 0.60% 0.89% 0.32% 0.77% 0.29% 1.00% 0.91% 0.26% 0.64% 0.14% 0.89% 0.94% 0.18% 0.22% 0.86% 0.86% 0.15% 0.14% 0.40% 0.20% 0.57% 0.48% 0.65% 0.49% 0.72% 0.72% 0.71% 0.72% 0.00% SEVERITY Tennessee has the second highest severity of the profiled states at $357,000 per claim. Increasing severity per claim is the driver behind loss cost increases in Tennessee. Severity per Claim Tennessee $400,000 $350,000 $350,000 $352,000 $357,000 $300,000 $250,000 $200,000 $150,000 $205,200 $167,100 $278,800 $271,100 $248,200 $280,800 $100,000 $50,000

2010LONGTERMCARE 35 MEDICAID PER DIEM REIMBURSEMENT The loss cost as a percent of the Medicaid per diem reimbursement rate is flat over the past several years. At 5.83%, this ratio is the second highest of the profiled states. Loss Cost as a Percentage of Medicaid Reimbursement Tennessee 10.00% 8.76% 8.00% 6.00% 5.05% 5.98% 5.23% 6.60% 5.95% 5.83% 4.00% 3.42% 3.46% 2.00% 0.00% Average Medicaid Per Diem Reimbursement $98.78 $103.19 $109.07 $113.22 $126.05 $131.05 $136.12 $139.59 $144.30 Per Diem Loss Cost per Bed $4.99 $3.53 $9.56 $6.77 $4.36 $6.85 $8.99 $8.30 $8.41

2010LONGTERMCARE 36 Texas The participants in this study represent approximately 10,500 occupied long term care beds in the state. This is approximately 11% of the state total long term care beds. The following graphs present the loss cost per occupied bed, claim frequency per occupied bed, claim severity and loss costs relative to the Medicaid per diem reimbursement rate. Frequency is shown for claims with indemnity payments and expense only claims. LOSS COST Texas has stable loss cost levels since Tort Reform was enacted in. The loss cost has remained consistently less than $1,000 per occupied bed and is currently at $460 per occupied bed. The enacted tort legislation in Texas is often cited as a model to control tort costs, and the results are evident here. Beginning in, the implementation in Texas provides for a $250,000 limit per claimant on non-economic damages. Further, the amount of non-economic recovery from a single provider is limited to $250,000. Loss costs in Texas plummeted after the tort reform was enacted and have remained level for a number of consecutive years. Loss Cost per Occupied Bed Texas $6,000 $5,550 $5,000 $4,000 $4,220 $3,000 $2,440 $2,000 $1,000 $880 $530 $530 $410 $420 $460

2010LONGTERMCARE 37 FREQUENCY Frequency dropped from a high of 2.34% in just before tort reform to 0.84% in the year immediately following tort reform. Since then, frequency has dropped slightly and is currently 0.65%. Claim Frequency per Occupied Bed Texas 2.50% 2.34% Indemnity Claims Expense Only Claims 2.00% 1.50% 1.77% 0.49% 0.54% 1.90% 0.47% 1.00% 0.50% 1.28% 1.80% 1.43% 0.84% 0.87% 0.76% 0.20% 0.16% 0.33% 0.64% 0.60% 0.54% 0.68% 0.65% 0.65% 0.25% 0.27% 0.23% 0.43% 0.38% 0.42% 0.00% SEVERITY Following tort reform in, severity dropped from pre-form levels over $235,000 to levels under $100,000. The severity estimate is $70,000. Severity per Claim Texas $300,000 $250,000 $238,600 $237,500 $200,000 $150,000 $100,000 $50,000 $128,100 $105,100 $69,500 $60,400 $60,000 $65,000 $70,000

2010LONGTERMCARE 38 MEDICAID PER DIEM REIMBURSEMENT The loss cost as a percent of the Medicaid per diem reimbursement rate reflects the impact of the tort reform limitations on non-economic damages. Prior to the reforms, the ratio was as high as 15.80%. The ratio dropped substantially after reforms and is currently 1.12%. Loss Cost as a Percentage of Medicaid Reimbursement Texas 20.00% 15.00% 13.52% 15.80% 10.00% 7.04% 5.00% 2.51% 1.53% 1.35% 1.05% 1.06% 1.12% 0.00% Average Medicaid Per Diem Reimbursement $85.50 $96.25 $94.91 $95.99 $94.67 $107.26 $106.48 $108.63 $112.87 Per Diem Loss Cost per Bed $11.56 $15.21 $6.68 $2.41 $1.45 $1.45 $1.12 $1.15 $1.26

2010LONGTERMCARE 39 Wisconsin The participants in this study represent approximately 6,700 occupied long term care beds in the state. This is approximately 21% of the state total long term care beds. The following graphs present the loss cost per occupied bed, claim frequency per occupied bed, claim severity and loss costs relative to the Medicaid per diem reimbursement rate. Frequency is shown for claims with indemnity payments and expense only claims. LOSS COST The loss cost in Wisconsin experience a sharp increase between and, but has been stable since. The current loss cost is $610 per occupied bed. The increase between and may be partly explained by a Wisconsin State Supreme Court ruling that ruled limits on non-economic damages unconstitutional. Prior to the ruling, Wisconsin had a $350,000 inflation adjusted limit on non-economic damages. While the frequency of claims appears unchanged after the State Supreme Court ruling, the size of claims does appear to have increased around. Loss Cost per Occupied Bed Wisconsin $800 $700 $600 $610 $690 $590 $590 $610 $500 $470 $400 $300 $240 $320 $200 $160 $100

2010LONGTERMCARE 40 FREQUENCY With the exception of, frequency has been level in Wisconsin over the past ten years. Claim Frequency per Occupied Bed Wisconsin Indemnity Claims Expense Only Claims 0.70% 0.60% 0.50% 0.40% 0.51% 0.07% 0.46% 0.07% 0.54% 0.14% 0.55% 0.20% 0.59% 0.58% 0.12% 0.12% 0.55% 0.54% 0.13% 0.12% 0.30% 0.20% 0.45% 0.39% 0.39% 0.29% 0.06% 0.35% 0.46% 0.46% 0.42% 0.42% 0.10% 0.22% 0.00% SEVERITY From to, severity per claim increased sharply. Since, claim severity has been stable and is currently at $113,000 per claim. Severity per Claim Wisconsin $140,000 $120,000 $100,000 $87,200 $111,600 $110,400 $117,500 $103,000 $108,000 $113,000 $80,000 $60,000 $52,400 $40,000 $32,100 $20,000

2010LONGTERMCARE 41 MEDICAID PER DIEM REIMBURSEMENT The loss cost as a percent of the Medicaid per diem reimbursement rate is at 1.15%. Over the experience period, this ratio increased concurrently with the loss cost after which the ratio has been stable. Loss Cost as a Percentage of Medicaid Reimbursement Wisconsin 1.60% 1.40% 1.20% 1.00% 1.05% 1.28% 1.42% 1.19% 1.20% 1.15% 0.80% 0.60% 0.65% 0.69% 0.40% 0.39% 0.20% 0.00% Average Medicaid Per Diem Reimbursement $113.82 $102.12 $122.68 $128.22 $130.78 $133.21 $136.13 $134.70 $144.73 Per Diem Loss Cost per Bed.44.66 $1.29.88 $1.67 $1.89 $1.62 $1.62 $1.67

2010LONGTERMCARE 42 West Virginia The participants in this study represent approximately 4,100 occupied long term care beds in the state. This is approximately 42% of the state total long term care beds. The following graphs present the loss cost per occupied bed, claim frequency per occupied bed, claim severity and loss costs relative to the Medicaid per diem reimbursement rate. Frequency is shown for claims with indemnity payments and expense only claims. LOSS COST At $3,770, West Virginia s loss cost per occupied bed is the second highest of the profiled states. Over the past ten years, the loss cost has increased nearly threefold from $1,380 in to $3,770 in. In, West Virginia implemented caps on liability. Non-economic damages are limited to $250,000 in most cases, inflation adjusted since. Neither frequency nor severity seems to have tempered in the years since this reform was enacted. Loss Cost per Occupied Bed West Virginia $4,000 $3,770 $3,500 $3,240 $3,280 $3,380 $3,000 $2,500 $2,460 $2,000 $1,500 $1,380 $1,500 $1,340 $1,940 $1,000 $500

2010LONGTERMCARE 43 FREQUENCY The frequency in West Virginia is the highest of the profiled states at 1.30%. West Virginia claims also exhibit the highest indemnity claim to total claim ratio. Claim Frequency per Occupied Bed West Virginia Indemnity Claims Expense Only Claims 1.60% 1.40% 1.20% 1.00% 0.80% 0.60% 0.40% 0.20% 0.45% 0.05% 0.40% 0.98% 0.19% 0.79% 0.76% 0.06% 0.70% 1.02% 1.06% 0.14% 0.17% 0.88% 0.89% 1.48% 0.28% 1.21% 1.30% 1.22% 1.25% 0.09% 0.14% 0.17% 1.16% 1.16% 1.05% 0.00% SEVERITY Severity per claim demonstrates an increasing trend over the experience period. At $290,000 per claim, West Virginia s frequency is the third highest of the profiled states. Severity per Claim West Virginia $350,000 $300,000 $250,000 $305,300 $241,200 $218,100 $267,800 $270,000 $290,000 $200,000 $150,000 $152,500 $178,000 $183,200 $100,000 $50,000

2010LONGTERMCARE 44 MEDICAID PER DIEM REIMBURSEMENT The loss cost as a percent of the Medicaid per diem reimbursement rate in West Virginia is the third highest among the profiled states at 5.51%. Loss Cost as a Percentage of Medicaid Reimbursement West Virginia 6.00% 5.00% 4.00% 3.00% 2.97% 3.16% 2.46% 4.25% 3.17% 5.28% 5.16% 5.13% 5.51% 2.00% 1.00% 0.00% Average Medicaid Per Diem Reimbursement $127.40 $129.88 $149.22 $158.64 $168.02 $168.11 $174.36 $180.64 $187.50 Per Diem Loss Cost per Bed $3.78 $4.11 $3.67 $6.74 $5.32 $8.88 $8.99 $9.26 $10.33

2010LONGTERMCARE 45 All Other States The participants in this study represent approximately 100,000 occupied long term care beds in the remaining states. This is approximately 11% of the total long term care beds in the remaining states. The following graphs present the loss cost per occupied bed, claim frequency per occupied bed, claim severity and loss costs relative to the Medicaid per diem reimbursement rate. Frequency is shown for claims with indemnity payments and expense only claims. LOSS COST The All Other States loss cost exhibits a long term decreasing trend to the loss cost per occupied bed of $1,340. Loss Cost per Occupied Bed All Other States $2,500 $2,170 $2,000 $1,500 $1,750 $1,630 $1,370 $1,290 $1,550 $1,460 $1,370 $1,340 $1,000 $500

2010LONGTERMCARE 46 FREQUENCY Claim frequency per occupied bed is stable at 1.08%. Claim Frequency per Occupied Bed All Other States Indemnity Claims Expense Only Claims 1.40% 1.20% 1.00% 1.22% 1.23% 0.29% 0.21% 1.30% 0.22% 1.15% 0.19% 1.09% 1.11% 0.18% 0.15% 1.27% 0.20% 1.11% 1.08% 0.19% 0.18% 0.80% 0.60% 0.40% 0.93% 1.02% 1.08% 0.96% 0.92% 0.96% 1.07% 0.92% 0.90% 0.20% 0.00% SEVERITY Severity per claim dropped between and, and has recently increased to $124,000. Severity per Claim All Other States $200,000 $180,000 $177,600 $160,000 $140,000 $120,000 $142,200 $125,400 $119,100 $118,300 $139,200 $115,200 $122,500 $124,000 $100,000 $80,000 $60,000 $40,000 $20,000

2010LONGTERMCARE 47 MEDICAID PER DIEM REIMBURSEMENT The loss cost as a percent of the Medicaid per diem reimbursement rate decreased from to and is currently at 2.19%. Loss Cost as a Percentage of Medicaid Reimbursement All Other States 6.00% 5.00% 5.25% 4.00% 3.99% 3.47% 3.00% 2.00% 2.77% 2.47% 2.89% 2.56% 2.33% 2.19% 1.00% 0.00% Average Medicaid Per Diem Reimbursement $113.37 $120.12 $128.64 $135.56 $142.65 $147.09 $155.97 $161.04 $167.44 Per Diem Loss Cost per Bed $5.95 $4.79 $4.47 $3.75 $3.53 $4.25 $4.00 $3.75 $3.67

2010LONGTERMCARE 48 DEFINITIONS The following definitions are provided to help the users of this report fully understand the analyses presented and the resulting conclusions. ALAE ALAE is an abbreviation for allocated loss adjustment expense. ALAE refers to costs, in addition to indemnity payments and reserves, which are incurred in handling claims. Typically, these costs are comprised of legal fees paid by the insured entity in investigating and defending claims. In the context of this study ALAE represents defense costs. The majority of claim data used in this study contained a separate field to identify ALAE costs separately from indemnity costs. Whether separately identified or not, allocated loss adjustment expenses are included in the reported loss information, loss reserving methodologies and loss projections contained in this report. All references to losses throughout the report and exhibits include ALAE except where noted otherwise. ACCIDENT YEAR An accident year is the year in which an incident giving rise to a claim occurred. All of the loss cost, frequency and severity analyses use grouped data by accident year, unless specifically noted otherwise. CLAIM A claim is a demand by an individual or other entity to recover for a loss. It may involve a formal lawsuit but not necessarily, especially in the case of a general liability claim. EXPOSURE Actuaries select an exposure base such that the incidence of claims will tend to vary directly with the exposure of the entity at risk. The actuary must consider both the historical loss level and the corresponding exposures in evaluating historical claim liabilities and expected future costs. It is important to choose an exposure measure that is relevant to the unique situation of each risk group. In this study the exposure base is occupied beds. Occupied beds are calculated by multiplying the number of licensed beds by the average annual occupancy rate. There is a strong correlation between the number of occupied beds and the total amount of losses incurred by a long term care facility. Not all beds are equal in terms of their risk exposure, however. An assisted living bed generates fewer dollars of GL/PL claim activity than a skilled care bed. All beds in this study have been adjusted to the equivalent of a skilled nursing care bed. By dividing losses by exposures, comparative estimates of the long term care industry GL/PL loss costs are developed. FREQUENCY Frequency is the ratio of the number of claims divided by exposures. In this report, frequency is measured on an annual basis as the number of claims projected for the given time period divided by the number of occupied beds during that same period. In the summary exhibits, frequency is the number of claims a year per occupied bed. GENERAL LIABILITY (GL) General liability exposure generally relates to those sums an entity becomes legally obligated to pay as damages because of a bodily injury (typically including personal and advertising injury) or property damage.

2010LONGTERMCARE 49 INDEMNITY Indemnity refers to the component of claim costs actually paid or reserved to be paid to the plaintiff. Indemnity costs include both the amount provided for the plaintiff, either as a jury award or a settlement, and the amount retained by the plaintiff s attorney. However, in most claim files, including those used to do this study, the split between plaintiff award and plaintiff attorney is not provided. Indemnity may also include punitive damages, although this is not consistently treated among companies. LIMIT OF LIABILITY A limit of liability is a maximum amount of coverage provided by an insurance transaction. Above the limit of liability, the insured is responsible for all losses. Limits of liability may be expressed on a per occurrence basis or an aggregate basis, similar to deductibles. The losses included in this study are limited to $1,000,000 per occurrence. LOSS COST Loss cost is the cost per exposure of settling and defending claims. Loss cost is calculated as the ratio of total dollars of losses (indemnity and ALAE) to total exposures for a given period of time. In this report exposures are selected to be occupied beds and the time period is one year. Consequently, a loss cost represents the annual amount per occupied bed expected to be paid to defend, settle and/or litigate GL/PL claims arising from incidents occurring during the respective year. LOSS DEVELOPMENT Loss development refers to the change in the estimated value of losses attributable to a body of claims or to a time period until all the claims are closed. Generally, the reported losses will increase over time for several reasons. First, it is impossible to estimate precisely the ultimate losses and legal expenses for claims when they are initially reported. The estimated unpaid loss for a claim, called a case reserve, is adjusted up or down as more information is obtained. In the aggregate, the upward adjustments tend to be greater than the downward ones. Second, it takes a period of time for some claims to be discovered, reported, and recorded. Claims that have been incurred but have not been reported are called pure IBNR claims. Third, closed claims are sometimes reopened. This may be due to legislation, which applies retroactively to claims that have closed. In this report, except where specifically noted, projected loss costs, frequencies and severities by state and by year are all inclusive of actuarially indicated expected loss development. Loss development also refers to the increase in paid losses as claims are reported, paid to their ultimate values, and closed. LOSS TREND Loss trend is the change in claim frequency and/or severity from one time period to the next. Factors that affect the frequency and severity of claims are constantly changing over time. Examples of causes include inflation, societal attitudes toward legal action, and changes in laws. Actuaries use trend factors to adjust historical loss experience to comparable levels. PROFESSIONAL LIABILITY (PL) Professional liability exposure relates to those sums an entity becomes legally obligated to pay as damages and associated claims and defense expenses because of a negligent act, error or omission in the rendering or failure to render professional services. SEVERITY Severity refers to the total dollar amount of a claim including indemnity and ALAE. In this report, the average severity for a given year is measured by dividing the total dollars of losses for all claims incurred in the year by the total number of claims.

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