Workers Compensation
Excess Development
Jon Evans, FCAS, MAAA
CAS Annual Meeting
November 12, 2007
 Copyright 2007 National Council on Compensation Insurance, Inc. All Rights Reserved.
Workers Compensation Excess Loss Development
• Basis Of Analysis:
– Case incurred losses
– Indemnity + medical combined
– Excess per claim
– No loss adjustment expense
• Excess development is relevant to:
– Excess reinsurance
– Large deductibles
– Tail factors
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2
Call 31
• Initiated to allow limited loss development in
aggregate ratemaking
• Includes all claims over 500k from accident years
1984 forward, valued at calendar years 1998
forward
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Excess Case Incurred Loss Emergence
(% of Losses at 22 years)
120%
100%
80%
x2m
x3m
x4m
x5m
x7.5m
x10m
60%
40%
20%
1
2
3
4
5
6
7
8
9 10 11 12 13 14 15 16 17 18 19 20 21 22
Development Year
Source: Call 31 data, accident years 1984-2004, calendar years 2000-2005, combination
of 3% and 5% trend loss adjustment, NCCI states
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Large Claim Counts Emergence
(% of large claim counts at 22 years)
120%
100%
80%
60%
2m+
3m+
4m+
5m+
7.5m+
10m+
40%
20%
0%
1
2
3
4
5
6
7
8
9 10 11 12 13 14 15 16 17 18 19 20 21 22
Development Year
Source: Call 31 data, accident years 1984-2004, calendar years 2000-2005, combination
of 3% and 5% trend loss adjustment, NCCI states
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5
Key Results
• Case incurred excess and large claim count development
factors do not strictly increase with higher attachment points
• Claims tend to develop upward overall, but the very largest
claims are more likely to drop significantly, on a case incurred
basis, than to increase
• This phenomenon had been observed in previous NCCI
studies of development up to 9th report by size of loss using
sample data from carriers
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Key Results
(continued)
• The Call 31 data extends this result to over 20 years of
maturity past accident year
• Significant calendar year effects are observed in
development patterns
• Case incurred development for higher layers beyond 6 years
tends to be much lower when calendar years 2004 and 2005
are included
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Case Incurred Loss Development
By Size Of Loss In 2001
% Change In Case Incurred Loss In
Calendar Year 2001
300%
Accident Years 1996 - 2000
250%
200%
150%
100%
50%
0%
-50%
-100%
1,000,000
2,000,000
3,000,000
4,000,000
5,000,000
6,000,000
7,000,000
8,000,000
9,000,000
Case Incurred Loss Amount At Calendar Year 2000
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10,000,000
% Change In Case Incurred Loss In
Calendar Year 2001
Case Incurred Loss Development
By Size Of Loss In 2001
200%
Accident Years 1984 - 1995
150%
100%
50%
0%
-50%
-100%
1,000,000
2,000,000
3,000,000
4,000,000
5,000,000
6,000,000
7,000,000
8,000,000
9,000,000
Case Incurred Loss Amount At Calendar Year 2000
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10,000,000
Case Incurred Loss Development
By Size Of Loss In 2005
% Change In Case Incurred Loss In
Calendar Year 2005
300%
Accident Years 2000 - 2004
250%
200%
150%
100%
50%
0%
-50%
-100%
1,000,000
2,000,000
3,000,000
4,000,000
5,000,000
6,000,000
7,000,000
8,000,000
9,000,000
Case Incurred Loss Amount At Calendar Year 2004
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10,000,000
% Change In Case Incurred Loss In
Calendar Year 2005
Case Incurred Loss Development
By Size Of Loss In 2005
200%
Accident Years 1984 - 1999
150%
100%
50%
0%
-50%
-100%
1,000,000
2,000,000
3,000,000
4,000,000
5,000,000
6,000,000
7,000,000
8,000,000
9,000,000
Case Incurred Loss Amount At Calendar Year 2004
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11
10,000,000
Case Incurred Loss Development
By Size Of Loss In 2001-2005
% Change In Case Incurred Loss In
Calendar Years 2001-2005
300%
Accident Years 1996 - 2000
200%
100%
0%
-100%
1,000,000
2,000,000
3,000,000
4,000,000
5,000,000
6,000,000
7,000,000
8,000,000
9,000,000
Case Incurred Loss Amount At Calendar Year 2000
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10,000,000
Case Incurred Loss Development
By Size Of Loss In 2001-2005
% Change In Case Incurred Loss In
Calendar Years 2001-2005
300%
Accident Years 1984 - 1995
200%
100%
0%
-100%
1,000,000
2,000,000
3,000,000
4,000,000
5,000,000
6,000,000
7,000,000
8,000,000
9,000,000
Case Incurred Loss Amount At Calendar Year 2000
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10,000,000
Trending Losses Underlying Excess
Development Factors
• Over time trends in claim costs shift the relative size of an
attachment point compared to average claim size
• For example, costs increase by +100% over 10 years then
development patterns today excess of $2m will be like those
excess of $1m were 10 years ago
• We compensate for this by trending individual claim amounts
to a common date
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14
Turning Call 31 Into Excess Development
Factors
• Claims trended on ground-up basis by 5% and 3% from
accident year to 2006
– 22 years of development for attachments ≥2m
– 10 years for attachments ≥1m
– 5 years for attachments ≥ 700k
• Link factors and weighted average development factors for 4
calendar year groups
– CY 2000-2005
– CY 2000-2003
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Turning Call 31 Into Excess Development
Factors
• Case incurred loss and claim counts
• Per claim excess layers:
–
–
–
–
–
–
x700k, x1m, x2m, x3m, x4m, x5m, x7.5m, x10m
300k x 700k, 1.3m x 700k
1m x 1m, 4m x 1m
1m x 2m, 3m x 2m
5m x 5m
10m x 10m
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Cumulative Development Factors Derived From Call 31
1st through 22nd calendar year past accident year
trended at 5% from accident year to 2006
1st to 6th
6th to 11th
11th to 22nd
AY 1984-2004
CY
2000
to
2005
CY
2000
to
2003
CY
2000
to
2005
CY
2000
to
2003
CY
2000
to
2005
CY
2000
to
2003
xs 2m
xs 3m
xs 4m
xs 5m
xs 7.5m
xs 10m
2.02
1.98
1.91
1.87
1.78
1.85
1.73
1.62
1.55
1.47
1.14
1.22
1.25
1.16
1.10
1.07
1.01
0.94
1.30
1.22
1.17
1.12
1.05
1.06
1.62
1.48
1.36
1.27
1.26
1.20
1.75
1.70
1.63
1.59
1.75
1.76
1m xs 2m
3m xs 2m
5m xs 5m
10m xs 10m
2.29
2.07
1.88
1.91
2.27
1.82
1.51
1.29
1.56
1.38
1.14
1.08
1.58
1.43
1.14
1.12
1.85
1.89
1.32
1.25
1.71
1.85
1.49
1.95
Note: A volume weighted average is used for cumulative development factors.
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Cumulative Development Factors Derived From Call 31
1st through 11th calendar year past accident year
trended at 5% from accident year to 2006
1st to 6th
6th to 11th
AY 1995-2004
CY
2000
to
2005
CY
2000
to
2003
CY
2000
to
2005
CY
2000
to
2003
1m xs 1m
4m xs 1m
unlimited xs 1m
2.37
2.23
2.17
2.42
2.12
2.00
1.56
1.43
1.30
1.54
1.39
1.26
AY 2000-2004
300k xs 700k
1.3m xs 700k
unlimited xs 700k
3.22
3.01
2.81
Note: A volume weighted average is used for cumulative development factors.
 Copyright 2007 National Council on Compensation Insurance, Inc. All Rights Reserved.
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Cumulative Development Factors Derived From Call 31
1st through 22nd calendar year past accident year
trended at 3% from accident year to 2006
1st to 6th
6th to 11th
11th to 22nd
AY 1984-2004
CY
2000
to
2005
CY
2000
to
2003
CY
2000
to
2005
CY
2000
to
2003
CY
2000
to
2005
CY
2000
to
2003
xs 2m
xs 3m
xs 4m
xs 5m
xs 7.5m
xs 10m
2.04
1.98
1.91
1.88
1.74
2.08
1.70
1.59
1.52
1.39
1.01
2.23
1.20
1.12
1.07
1.03
0.96
0.95
1.26
1.18
1.12
1.07
1.03
1.19
1.50
1.32
1.25
1.25
1.11
0.91
1.70
1.59
1.61
1.72
1.70
1.38
1m xs 2m
3m xs 2m
5m xs 5m
10m xs 10m
2.22
2.08
1.87
2.10
2.16
1.79
1.40
2.29
1.50
1.30
1.08
1.09
1.53
1.37
1.01
1.30
1.94
1.65
1.43
0.80
1.84
1.67
1.91
1.33
Note: A volume weighted average is used for cumulative development factors.
 Copyright 2007 National Council on Compensation Insurance, Inc. All Rights Reserved.
19
Cumulative Development Factors Derived From Call 31
1st through 11th calendar year past accident year
trended at 3% from accident year to 2006
1st to 6th
6th to 11th
AY 1995-2004
CY
2000
to
2005
CY
2000
to
2003
CY
2000
to
2005
CY
2000
to
2003
1m xs 1m
4m xs 1m
unlimited xs 1m
2.25
2.17
2.13
2.29
2.04
1.94
1.49
1.36
1.25
1.45
1.32
1.21
AY 2000-2004
300k xs 700k
1.3m xs 700k
unlimited xs 700k
3.19
2.98
2.81
Note: A volume weighted average is used for cumulative development factors.
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RAA Excess Development
• RAA excess triangles are compiled by ranges of attachment
points without distinction by limit
• Reinsurance coverage is usually on a per occurrence basis
• Losses are affected by various reinsurance contract
provisions
• May include reinsurer adjusted estimates for ceded case
reserve
• May include excess loss for claims settling below attachment,
as part of commutation agreement
• Includes delay in report to reinsurer
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RAA Excess Reinsurance Loss Development
Percentage Of 19th Maturity
Case Incurred Loss
120%
100%
80%
60%
40%
0 to 180k Attachment
181k to 425k Attachment
20%
426k to 1.8m Attachment
1.8m to 4.75m Attachment
0%
1
2
3
4
5
6
7
8
9 10 11 12 13 14 15 16 17 18 19
Development Year
Source: volume weighted for accident years 1986-2004 and calendar years
2000-2004, derived from the Reinsurance Association of America’s Historical
Loss Development Study (2005)
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Caveat About Call 31 Excess Loss
Development Applications
• Losses to date can be so volatile for excess layers that
applying Call 31 derived excess development factors to
actual losses may not be very predictive
• However, excess development factors may be more useful
for exposure based methods, such as Bornheutter-Ferguson
• Reinsurance excess layers may be subject to contractual
terms not reflected in per claim layering of Call 31 claims
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23