ACTUARIAL SERVICES
SOP 97-3 & Other Balance Sheet Reserves:
The Devil’s in the Details
Las Vegas
September 2004
ADVISORY
SOP 97-3 & Other Balance Sheet Reserves:
The Devil’s in the Details
Moderator:
Richard A. Hofmann, Senior Manager, KPMG LLP
SOP 97-3, Focus on DOL Special Fund
William G. Stanfield, Actuarial Manager, KPMG LLP
Other Insurer Concerns:
Claus S. Metzner, Actuary, Milliman USA
SAO & Reinsurer Concerns –
Sharon C. Carroll, Manager, KPMG LLP
Questions & Answers
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SOP 97-3: Why Is This An Issue?
Advent of Large Deductible Policies
Designed to Reduce Taxes & Assessments
Self Insurers Still Taxed on Full Premiums
Caused Increase in Assessment Rates, Especially in
Premium Based States
Many Employers Abandon Self-Insurance for Large
Deductibles, Especially in Florida
Statutory Caps on Assessment Rates Cause Failure of
Funding Mechanisms
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SOP 97-3: Why Is This An Issue?
Rapid Expansion of Competitive Rating
Rating Bureaus Publish Loss Costs, not Rates
Self Insurers Taxed Using Fabricated Rates
Insurers Taxed Based on Lower Net Premiums
ADA & Second/Subsequent Injury Funds
Many States Terminate Eligibility for Recoveries
Some Employers Are Taxed But Are Ineligible to
Receive Recoveries
AICPA SOP 97-3 Reserve Requirements
Legislative Activity to Alter Assessments
Insurers Push for Premium Based Assessments
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Growth of Large Deductibles
Analysis of Workers Compensation Financial Data
Market Growth Trends & Voluntary/Residual Payroll Distribution
$160,000
$140,000
In Millions of Dollars
$120,000
$100,000
$80,000
$60,000
$40,000
$20,000
$0
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
Average Accident Date
Residual Market
Implied Alternative Market
Implied Voluntary Market
Unit Stat Plan
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Summary of Assessments
WC Administrative Funds
Second/Subsequent Injury Funds
Guaranty Funds
Other Funds
OSHA/Safety/Loss Prevention Programs
Fraud Unit/Insurance Department Funding
Major Medical/Vocational Rehab Programs
Occupational Disease Funds (IN, MI, WA)
Self-Insurance Units (NY, RI, TX)
Statistical Advisory Organization (ME)
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WC Administrative Funds
General Revenue (9)
AK, CA(80%), HI, IL, IN, IA, MI, MN, UT
Split Funding Mechanisms (4)
CA(20%), ME, MT, OK, VT
Exposure Based Assessments (2) - MD, NM
Premium Based Assessments (18)
AR, AZ, CA(I), CO, FL, GA, ID, KY, ME(I), MA, MO, MT(I),
NE, NC, OK(I), OR, RI, SC, TN, TX, VA, VT(I), WV
Loss Based Assessments (14)
AL, CA(SI), CT, DE, DC, KS, LA, ME(SI), MS, MT(SI), NV, NH,
NY, OH, OK(SI), PA, RI(NDD), VT(SI), WA, WI
Unclear (2) - NJ, SD
No Self-Insurance (2) - ND, WY
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Overview of Assessment Bases
Conflicting Goals: Equity vs. Simplicity
Split Funding Mechanisms
Exposure Based Assessments
Premium Based Assessments
Estimated with True-Ups
Estimated no True-Ups
Actual with Deferrals
Actual no Deferrals
Loss Based Assessments
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Premium Based Assessments:
Several Types
x
=
x
+
=
x
=
=
Payrolls by Class (Needs to Be Audited)
Rates by Class (from Bureau/Company Rate Manual)
Manual Premium
Experience Modification (Needs to Be Verified)
Expense Constant
Bureau Standard Premium (Applies to Self Insurers)
Rate Deviations and/or Schedule Credit/Debits
Insurer Standard Premium
Premium Discounts, Dividends or Retro Adjustments
Collected (Net) Premium
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Loss Based Assessments
Total Paid Losses (20):
WCA Only: DE, ME, MS, VT
SIF Only: GA, HI, IA, NE, SC, SD
WCA & SIF: AL, CT, DC, KS, LA, MT, NV, NH, PA, WA
Indemnity Paid Losses (11):
WCA Only: CA, WI
SIF Only: AK, ID, IL, IN, MI, MN, NJ
WCA & SIF: NY, OH
Percent of Awards:
Death: MS, OK(WCA), WI($5000)
PTD: OK(WCA,SIF)
PPD: NC, OK(WCA,SIF), WI($7000)
No Dependency Death Claims: CA(SIF), NM, RI, TX
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SOP 97-3 Assessments: General Overview
Assessment Bases Are Constantly Changing
Several Types of Funds:
Administrative Funds
Second Injury Funds
Guaranty Funds
Several Types of Assessment Bases:
Premium vs. Losses
Estimated vs. Actual
True-Ups or Deferrals
Actuarial Input Needed to Avoid Overpayment
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The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate
and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on
such information without appropriate professional advice after a thorough examination of the particular situation.
Presenter’s contact details
Richard A. Hofmann, ACAS, MAAA
Senior Manager, KPMG LLP
(314) 444-1461
rhofmann@kpmg.com
www.kpmg.com
© 2004 KPMG LLP, a member firm of KPMG International, a Swiss cooperative. All rights reserved. Printed in the U.S.A.
03617G/SL
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