Workers Compensation
State of the Line
2006 CAS Ratemaking Seminar
Jeff Eddinger, FCAS, MAAA
Practice Leader & Senior Actuary
 2005 NCCI Holdings, Inc.
Property & Casualty Results
 2005 NCCI Holdings, Inc.
Source:
2
P/C Industry Net Written Premium
Growth By Line
Private Carriers
Line of Business (LOB)
2002
2003
Personal Auto
$139.5 B
$151.0 B
$157.2 B
20032004p
Change
4.1%
Homeowners
$40.0 B
$45.7 B
$49.5 B
8.4%
Other Liability (Incl Prod Liab)
$30.9 B
$37.8 B
$42.7 B
12.9%
$29.2 B
$31.1 B
$34.5 B
10.9%
Commercial Multiple Peril
$25.4 B
$27.4 B
$28.9 B
5.4%
Commercial Auto
$24.5 B
$25.4 B
$26.8 B
5.4%
Fire & Allied Lines (Incl EQ)
$15.4 B
$17.6 B
$18.0 B
2.3%
All Other Lines
$64.9 B
$69.0 B
$65.9 B
-4.5%
$369.8 B $ 405.0 B $ 423.5 B
4.6%
Workers Compensation
Total All Lines
p Preliminary
Source:
2002-2003,
A.M. Best
 2005
NCCI Holdings,
Inc. Aggregates & Averages; 2004p Total, ISO; 2004p LOB, NCCI
Source:
3
2004p
P/C Industry Net Combined Ratios
Improved Modestly in 2004
Private Carriers
Line of Business (LOB)
2002
2003
2004p
Personal Auto
104%
98%
94%
Homeowners
109%
98%
95%
Other Liability (Incl Prod Liab)
137%
114%
117%
Workers Compensation
111%
109%
105%
Commercial Multiple Peril
105%
101%
100%
Commercial Auto
103%
95%
92%
89%
79%
88%
105%
100%
99%
107%
100%
98%
Fire & Allied Lines (Incl EQ)
All Other Lines
Total All Lines
p Preliminary
Source:
2002-2003,
A.M. Best
 2005
NCCI Holdings,
Inc. Aggregates & Averages; 2004p Total, ISO; 2004p LOB, NCCI
Source:
4
P/C Industry Calendar Year
Combined Ratios
Private Carriers
Percent
120
116
1985-2003 Average: 108.1% 116
116
%
Due to
September 11
115
110
108
110
109
109 110 109
106
105 105
105
108
107
107
107
106
102
100
98
100
95
90
85
19
85
19
86
19
87
19
88
19
89
19
90
19
91
19
92
19
93
19
94
19
95
19
Calendar Year
p Preliminary
Source:
1985-2003,
A.M. Best
 2005
NCCI Holdings,
Inc. Aggregates & Averages; 2004p, ISO
Source:
5
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
p
Investment Gain Ratio Remains
Below Historical Averages
Private Carriers
Percent
25
20
1985-2003 Average Net Investment Gain: 16.8%
Net Realized Capital Gains to NEP
Net Investment Income to NEP
19.3
18.7
18.0
17.6
17.3
17.3
16.5
14.5 15.3
15
20.9
19.3
16.9
18.3
17.9
19.3
14.5
14.2
12.0 11.7 11.9
10
5
0
20
20
20
20
20
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
04
03
02
01
00
99
98
97
96
95
94
93
92
91
90
89
88
87
86
85
p
Calendar Year
p Preliminary
Source:
1985-2003,
A.M. Best
 2005
NCCI Holdings,
Inc. Aggregates & Averages; 2004p, ISO
Source:
6
Return on Surplus for P/C Industry
Increased Slightly in 2004
Annual After-Tax Return on Surplus—Private Carriers
Percent
18
15.1
13.9 13.4
11.2
12
1985-2003 Average: 8.4%
13.1
9.7
9.7 10.1
9.6
9.6
10.5
9.6
8.0
5.8
6
6.6
6.4
3.6
2.8
3.3
0
-2.2
-6
20
20
20
20
20
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
04
03
02
01
00
99
98
97
96
95
94
93
92
91
90
89
88
87
86
85
p
Calendar Year
p Preliminary
Source: 1985-2003, A.M. Best Aggregates & Averages; 2004p After-Tax Net Income, ISO;
2004p
Surplus,
2003
A.M. Best Aggregates & Averages Private Carrier Surplus + 2004 ISO contributions to surplus
 2005
NCCI
Holdings,
Inc.
Note:Source:
After-tax return on average surplus, including realized capital gains 7
Workers Compensation
Results
 2005 NCCI Holdings, Inc.
Source:
8
Workers Compensation Premium
Continued to Rise in 2004
Private Carriers
$ Billions
50
WC Net Written Premium ($ B)
40
34.5
31.0
31.3
29.8
30.5
30
29.1
29.3
26.3
25.2
24.2
23.3
22.3
1997
1998
1999
25.0
26.1
2000
2001
31.1
20
10
0
1990
1991
1992
1993
1994
1995
1996
Calendar Year
p Preliminary
Source:
1990-2003,
A.M. Best
 2005
NCCI Holdings,
Inc. Aggregates & Averages; 2004p, NCCI
Source:
9
2002
2003 2004p
WC Calendar Year Combined Ratio
Continued Its Modest Decline in 2004
Private Carriers
Percent
Loss
140
117
123
LAE
Underwriting Expense
1.9% Due to
September 11
Dividends
122
115
120
109
118
122
111
107
102
97
100
101
1995
1996
1997
109
105
100
80
60
40
20
0
1990
1991
1992
1993
1994
1998
Calendar Year
p Preliminary
Source:
1990-2003,
A.M. Best
 2005
NCCI Holdings,
Inc. Aggregates & Averages; 2004p, NCCI
Source:
10
1999
2000
2001
2002
2003 2004p
Low Workers Compensation Investment
Returns Continued in 2004
Investment Gain on Insurance Transactions to Premium Ratio
Percent
Private Carriers
25
20.4
20
18.1
15
13.0
20.5
19.5
17.6
16.8
16.7
21.3
14.4
14.0
14.0
10.7
10.4
2002
2003 2004p
10
10
5
0
1990* 1991*
1992
1993
1994
1995
1996
1997
1998
Calendar Year
p Preliminary
* Adjusted to include realized capital gains to be consistent with 1992 and after
Investment
Insurance
 2005Gain
NCCIon
Holdings,
Inc.Transactions includes Other Income
Source:
1990-2003, A.M. Best Aggregates & Averages; 2004p, NCCI
Source:
11
1999
2000
2001
2004 Workers Compensation
Results Improved Over 2003
Pre-Tax Operating Gain Ratio—Private Carriers
Percent
25
19.8
19.7
17.9
20
13.9
12.8
15
10
7.5
5.2
5
5
1.5
1.0
0
0.0
-5
-10
-3.4
-4.2
-7.5
-8.7
-15
1990* 1991* 1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
Calendar Year
p Preliminary
* Adjusted to include realized capital gains to be consistent with 1992 and after
Operating
Gain
equals
1.00Inc.
minus (Combined Ratio less Investment Gain on Insurance Transactions and Other Income)
 2005
NCCI
Holdings,
Source:
1990-2003, A.M. Best Aggregates & Averages; 2004p, NCCI
Source:
12
2002
2003 2004p
Workers Compensation Calendar Year
Direct Combined Ratios
Countrywide and NCCI States—Private Carriers
Percent
140
130
127
Countrywide
NCCI States
120
122
118
113 112
118
114
113
110
107
103
100
114
102
109
104
100 101
98
94
90
80
1996
1997
1998
1999
2000
Calendar Year
p Preliminary
Source: 1996-2003 Countrywide, A.M. Best Aggregates & Averages;
1996-2003
NCCI States,
Statutory Page 14 and Insurance Expense Exhibit;
 2005
NCCI Holdings,
Inc.
2004p, NCCI
Source:
13
2001
2002
2003
2004p
Workers Compensation Premium
Volume Continues to Grow
Private Carriers and State Funds
$ Billions
50
46.0
State Funds ($ B)
Private Carriers ($ B)
42.0
37.5
40
32.0
30
28.4
27.0
28.5
25.9
25.0
20
25.2
24.2
23.3
22.3
1996
1997
1998
1999
10
25.0
26.1
2000
2001
29.2
31.1
2002
2003
34.5
0
Calendar Year
p Preliminary
Source: 1996-2003 Private Carriers, A.M. Best Aggregates & Averages; 2004p, NCCI
1996-2004p
State Funds:
AZ, CA, CO, HI, ID, KY, LA, MO, MT, NM, OK, OR, RI, TX, UT Annual Statements
 2005
NCCI Holdings,
Inc.
Source:
14
2004p
Workers Compensation Calendar Year
Net Combined Ratios
Private Carriers and State Funds
Percent
150
143
147
144
144
141
140
136
128
130
119
120
122
119
118
115
115116
112
114
111
117
107
110
100
118
116
109
103
101
105
101
100
90
80
1996
1997
1998
Private Carriers
1999
2000
2001
NCCI Affiliated State Funds
2002
State Funds
Calendar Year
p Preliminary
Source: 1996-2003 Private Carriers, A.M. Best Aggregates & Averages; 2004p, NCCI
1996-2004p
State Funds:
AZ, CA, CO, HI, ID, KY, LA, MO, MT, NM, OK, OR, RI, TX, UT Annual Statements
 2005
NCCI Holdings,
Inc.
Source:
15
2003
2004p
Workers Compensation Pre-Tax
Operating Gain Ratios
Private Carriers and State Funds
Percent
25
20
17.9
16.9
1996-2003 Averages
Private Carriers:
NCCI Affiliated State Funds:
State Funds:
19.8
18.1
13.9
15
10
+6.5%
+5.9%
-0.4%
8.7
7.6
5.8
6.2
5.2
5
3.8
1.9
0.3
1.5
1.0
8
5
1
0
-0.7
-2.1
-5
-6.0
-10
-7.5
0.0
-1.2
-0.4
-7.5 -7.5
-15
1996
1997
1998
Private Carriers
1999
2000
2001
NCCI Affiliated State Funds
2002
State Funds
Calendar Year
p Preliminary
Operating Gain equals 1.00 minus (Combined Ratio less Investment Gain on Insurance Transactions and Other Income)
Source: 1996-2003 Private Carriers, A.M. Best Aggregates & Averages; 2004p, NCCI
 2005
NCCI Holdings,
Inc.
1996-2004p
State Funds:
AZ, CA, CO, HI, ID, KY, LA, MO, MT, NM, OK, OR, RI, TX, UT Annual Statements
Source:
16
2003
2004p
Workers Compensation
Accident Year Results
And
Reserve Estimates
 2005 NCCI Holdings, Inc.
Source:
17
Accident Year Combined Ratio
Another Underwriting Profit in 2004
Workers Compensation Calendar Year vs.
Ultimate Accident Year – Private Carriers
Percent
140
139
135
131
130
126
122
120
118
120
115
111
110
106
100
100
107
100
109
106
105
101
98
97
94
90
1995
1996
1997
1998
1999
Calendar Year
p Preliminary
Accident Year data is evaluated as of 12/31/2004 and developed to ultimate
Source: Calendar Years 1995-2003, A.M. Best Aggregates & Averages;
 2005
NCCI Holdings,
Inc. and Accident Years 1995-2004p, NCCI
Calendar
Year 2004p
Source:
18
Includes dividends to policyholders
2000
2001
Accident Year
2002
2003
2004p
Workers Compensation Reserve
Deficiencies Continue to Decline
Private Carriers
$ Billions
25
$5 billion of the Reserve Deficiency
in 2004 is due to Tabular Discounts
20
20
21
18
18
15
15
15
12
10
10
5
5
2
0
1995
1996
1997
1998
1999
2000
2001
2002
Loss and LAE Reserve Deficiency Through Year End
p Preliminary
Difference
between
NCCI estimated
ultimate losses and LAE as of 12/31/2004 and reported in Schedule P
 2005
NCCI Holdings,
Inc.
Source:
19
2003
2004p
Workers Compensation Accident
Year Loss & LAE Ratios
Private Carriers
Percent
105
100
100
95
98
94
At First Report
As of 12/31/2004
90
86
85
85
80
84
83
81
83
79
78
77
77
75 76
73
75
73
74
69
70
65
1995
1996
1997
1998
1999
2000
Accident Year
p Preliminary
Reported Loss and LAE reserves from Schedule P
Source:
1995-2004p,
NAIC Inc.
Annual Statement insurance data
 2005
NCCI Holdings,
Source:
20
2001
2002
2003
2004p
Workers Compensation
Premium Drivers
 2005 NCCI Holdings, Inc.
Source:
21
Average Approved Bureau
Rates/Loss Costs
History of Average WC Bureau Rate/Loss Cost Level Changes
Percent
15
Cumulative 2000-2003
12.1
+17.1%
10.0
10
7.4
Cumulative 1994-1999
6.6
5
2004-2005
4.9
-27.8%
3.5
2.9
Cumulative
-6.8%
1.2
0
-0.9
-5
Cumulative 1990-1993
-2.6
-3.2
+36.3%
-5.4
-6.0
-6.4
-6.0
-8.0
-10
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
Calendar Year
* States approved through 04/15/2005
Countrywide approved changes in advisory rates, loss costs and assigned risk rates as filed by the applicable rating organization
 2005 NCCI Holdings, Inc.
Source:
22
2004 2005*
Current NCCI Voluntary Market
Approved Rate/Loss Cost Changes
Excludes Law-Only Filings
Percent
20
12.0 12.1
11.4
11.2
15
10
8.8
5
0.0 0.1 0.6
0
-3.0
-5
-6.5
-2.0 -1.8 -1.5 -1.3 -1.1
3.4 3.9
1.7 2.0 2.2 2.3 2.4 2.5
6.3 6.5
4.9 5.3 5.5
-1.0 -0.7 -0.3
-5.1
-10
-15
-20
-20.2
-25
RI CO FL
NV
HI
SD DC AR MO
IA
GA AL
CT OR
IL
MS KS NC ME LA AZ NH MD TN NE
IN
VA
States approved through 04/15/2005
 2005 NCCI Holdings, Inc.
Source:
23
ID
OK KY VT NM UT SC AK MT
Employer Costs As Percentage of
Total Compensation
Private Industry
2004
1994
2.4%
1.8%
17.2%
17.8%
7.3%
6.7%
Wages and Salaries
Health Insurance
Workers Compensation
73.7%
All Other
73.1%
All Other includes Paid Leave, Insurance (other than Health), Social Security, Retirement and Savings
Source: U.S. Department of Commerce, Bureau of Labor Statistics
 2005 NCCI Holdings, Inc.
Source:
24
Impact of Discounting on Workers
Compensation Premium
NCCI States—Private Carriers
Percent
5
0
-5
-10
-4.0
-7.1
-7.5
-1.6
-0.2
2003
2004p
-7.0
-8.5
-10.4
-15
-14.2
-14.6
-17.7
-20
-19.2
-25
1991
1992
1993
1994
1995
1996
1997
Rate/Loss Cost Departure
-22.6
1998
Policy Year
25
2000
Schedule Rating
p Preliminary
NCCI benchmark level does not include an underwriting contingency provision
Dividend ratios are based on calendar year statistics
2005
NCCI
Holdings,
Inc.
Based on
data
through
12/31/2004
for the states where NCCI provides ratemaking services
Source:
-23.2
1999
2001
2002
Dividends
Workers Compensation
Loss Drivers
 2005 NCCI Holdings, Inc.
Source:
26
The Growth in WC Indemnity Claim
Costs Has Eased in Recent Years
Lost–Time Claims
Indemnity
Claim Cost (000s)
19
+4.6%
17
Annual Change 1991–1995:
Annual Change 1996–2003:
+4.2%
+9.0% +2.4%
+0.3%
+7.4%
+11.2%
15
+9.9%
+8.5%
13
1995
1996
2001
2002
$17.9
$10.3
1994
$17.2
$9.7
1993
$16.5
$9.6
1992
$12.1
$9.1
1991
$11.1
$9.4
7
$9.7
9
$13.3
+1.0% -3.1%
+4.9% +1.7%
-2.8%
$14.7
11
$16.1
+7.7%
+5.9%
5
1997
1998
Accident Year
2004p: Preliminary based on data valued as of 12/31/2004
1991-2003: Based on data through 12/31/2003, developed to ultimate
Based
on the
states
whereInc.
NCCI provides ratemaking services
 2005
NCCI
Holdings,
Excludes
the
effects
of
deductible
policies
Source:
27
1999
2000
2003
2004p
Workers Compensation Indemnity Severity
Is Outpacing Wage Inflation
Lost–Time Claims
Percent Change
12
11.2
9.9
10
9.0
8.5
7.7
8
5.9
6
4.7
4.0
4
2.8
4.9
4.2
2.8
2.2 2.4
1.7
2
4.6
4.2
2.0
4.2
2.2
0
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004p
Year
Change in CPS Wage
Change in Indemnity Cost per Lost-Time Claim
Indemnity severity 2004p: Preliminary based on data valued as of 12/31/2004
Indemnity severity 1995-2003: Based on data through 12/31/2003, developed to ultimate
Based on the states where NCCI provides ratemaking services, excludes the effects of deductible policies
 2005
NCCI Holdings,
Inc. Population Survey, Economy.com; Accident year indemnity severity, NCCI
Source:
Calendar
year Current
Source:
28
WC Medical Claim Cost Trends
Double-Digit Growth Continued in 2004
Lost–Time Claims
Medical
Claim Cost (000s)
+10.5%
21
19
17
+10.9
Annual Change 1991–1995:
Annual Change 1996–2003:
+3.9%
+9.3%
+8.4%
+11.9%
15
+8.5%
+7.6%
1997
$16.8
1996
$13.9
1995
$12.8
1994
$11.6
1993
$10.8
$8.0
1992
$9.8
$8.2
1991
$9.1
$8.0
7
+6.8% +1.3% -2.1%
+5.1%
$8.7
9
+9.0%
+10.1%
+7.4%
$15.5
11
$18.7
13
$20.6
+9.9%
5
1998
Accident Year
2004p: Preliminary based on data valued as of 12/31/2004
1991-2003: Based on data through 12/31/2003, developed to ultimate
Based
on the
states
whereInc.
NCCI provides ratemaking services
 2005
NCCI
Holdings,
Excludes
the
effects
of
deductible
policies
Source:
29
1999
2000
2001
2002
2003
2004p
Workers Compensation Medical
Severity Has Been Growing Much
Faster Than the Medical CPI
Lost–Time Claims
Percent Change
14
11.9
12
10.9
10.1
10
8.5
6
4.5
5.1
3.6
4
8.4
7.6
7.4
8
10.5
9.9
2.8
3.2
4.1
3.5
4.6
4.7
4.0
4.4
2
0
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004p
Year
Change in Medical CPI
Change in Medical Cost per Lost-Time Claim
Medical severity 2004p: Preliminary based on data valued as of 12/31/2004
Medical severity 1995-2003: Based on data through 12/31/2003, developed to ultimate
Based on the states where NCCI provides ratemaking services, excludes the effects of deductible policies
 2005
NCCI Holdings,
Inc. Population Survey, Economy.com; Accident year medical severity, NCCI
Source:
Calendar
year Current
Source:
30
Drug Costs Are Increasing More Rapidly
Than Total WC Medical Costs
Percent Change
20
18
Change in Medical CPI
Change in Medical Cost per Lost-Time Claim
Change in Rx Drug Costs per Lost-Time Claim
15.1
16
14
14.9
12.9
12.4
11.9
11.1
12
9.9
10
8.5
8
6
4
8.4
7.6
3.5
3.2
4.7
4.6
4.1
2
0
1998
1999
2000
2001
Year
Medical severity: Based on data through 12/31/2003, developed to ultimate
Based on the states where NCCI provides ratemaking services, excludes the effects of deductible policies
Source: Calendar year Current Population Survey, Economy.com; Accident year medical severity, NCCI; Accident year
 2005Rx
NCCI
Holdings,
Drug
Costs, Inc.
NCCI estimate based on sample data provided by carriers
Source:
31
2002
Workers Compensation Medical Losses
Are More Than Half of Total Losses
All Claims—NCCI States
2004p
1994
1984
Indemnity
Indemnity
56%
Medical
51%
Medical
49%
44%
2004p: Preliminary based on data valued as of 12/31/2004
1984, 1994: Based on data through 12/31/2003, developed to ultimate
Based
on the
states
whereInc.
NCCI provides ratemaking services
 2005
NCCI
Holdings,
Excludes
the
effects
of
deductible
policies
Source:
32
Indemnity
Medical
43%
57%
Workers Compensation Lost-Time Claim
Frequency Continues Its Decline
Lost-Time Claims
Percent Change
Cumulative Change of –42.0%
(1990-2003)
2
0.5
0.3
0
-2
-2.3
-4
-4.2
-3.7
-3.9
-4.4
-4.5
-3.4
-4.2
-4.5
-6
-6.3
-6.5
-8
-10
1991
1992
-9.2
1993
1994
1995
1996
1997
1998
Accident Year
2004p: Preliminary based on data valued as of 12/31/2004
1991-2003: Based on data through 12/31/2003, developed to ultimate
Based
on the
states
whereInc.
NCCI provides ratemaking services
 2005
NCCI
Holdings,
Excludes
the
effects
of
deductible
policies
Source:
33
1999
2000
2001
2002
2003
2004p
Percent Change in Lost-Time Claim Frequency
Change in Lost-Time Claim Frequency
By Injury Type and by Size of Loss Group
20
Percent Change Between Policies Expiring in 1999 and 2003
-8%
-22%
-15%
-21%
-24%
10
0
-10
-20
-30
-40
Smallest 1/3 of Claims within Injury Type
Middle 1/3 of Claims within Injury Type
Largest 1/3 of Claims within Injury Type
-50
-60
-70
Fatal
Permanent
Total
Loss Size Adjustments: 4.2% Indemnity, 7.4% Medical
Frequency = Lost-time claims / payroll; Payroll adjusted for inflation
Claimcount
determined
at Inc.
1st report.
2005 NCCI
Holdings,
NCCISource:
States only, excluding Texas
Permanent
Partial
34
Temporary
Total
Medical Only
Workers Compensation Indemnity
Claim Costs
Lost–Time Claims
Indemnity
Claim Cost (000s)
23
Annual Change Before Adjustment for Claim Size, 1998-2002:
+8.1%
21
19
+9.0%
17
+9.9%
$16.5
$17.2
$17.9
2001
2002
2003
2004p
$14.7
$13.3
$12.1
7
$16.1
+8.5%
11
9
+4.2%
+11.2%
15
13
+2.4%
+4.6%
5
1998
1999
2000
Accident Year
2004p: Preliminary based on data valued as of 12/31/2004
1998-2003: Based on data through 12/31/2003, developed to ultimate
Based
on the
states
whereInc.
NCCI provides ratemaking services
 2005
NCCI
Holdings,
Excludes
the
effects
of
deductible
policies
Source:
35
Impact of Changes in Claim Size Distribution
on Indemnity Claim Costs
Lost–Time Claims
Indemnity
Claim Cost (000s)
23
21
Annual Change Before Adjustment for Frequency by Size, 1998-2002:
Annual Change After Adjustment for Frequency by Size, 1998-2002:
19
+9.0%
17
+11.2%
15
13
+4.2%
?
?
?
2004p
+8.5%
$14.7
1999
$14.8
$12.9
1998
?
2001
2002
2003
$14.0
$12.1
7
+4.6%
+9.9%
11
9
+2.4%
+8.1%
+5.1%
5
2000
Accident Year
2004p: Preliminary based on data valued as of 12/31/2004
1998-2003: Based on data through 12/31/2003, developed to ultimate
Based
on the
states
whereInc.
NCCI provides ratemaking services
 2005
NCCI
Holdings,
Excludes
the
effects
of
deductible
policies
Source:
36
Workers Compensation Medical Claim
Costs
Lost–Time Claims
Medical
Claim Cost (000s)
23
Annual Change Before Adjustment for Claim Size, 1998-2002:
+9.7%
+10.5%
21
+10.9%
19
+8.4%
17
+11.9%
15
$15.5
$12.8
7
$11.6
9
$13.9
11
$16.8
+7.6%
$20.6
+9.9%
$18.7
13
+8.5%
5
1998
1999
2000
2001
Accident Year
2004p: Preliminary based on data valued as of 12/31/2004
1998-2003: Based on data through 12/31/2003, developed to ultimate
Based
on the
states
whereInc.
NCCI provides ratemaking services
 2005
NCCI
Holdings,
Excludes
the
effects
of
deductible
policies
Source:
37
2002
2003
2004p
Impact of Changes in Claim Size Distribution
on Medical Claim Costs
Lost–Time Claims
Medical
Claim Cost (000s)
23
21
Annual Change Before Adjustment for Frequency by Size, 1998-2002:
Annual Change After Adjustment for Frequency by Size, 1998-2002:
+10.9%
19
?
2002
2003
?
+8.5%
+9.9%
+7.6%
$12.5
$13.4
$11.6
1999
2000
$14.6
11
7
?
+10.5%
+11.9%
15
9
+8.4%
$15.6
17
13
+9.7%
+7.7%
?
5
1998
2001
Accident Year
2004p: Preliminary based on data valued as of 12/31/2004
1998-2003: Based on data through 12/31/2003, developed to ultimate
Based
on the
states
whereInc.
NCCI provides ratemaking services
 2005
NCCI
Holdings,
Excludes
the
effects
of
deductible
policies
Source:
38
2004p
Workers Compensation
Residual Market
 2005 NCCI Holdings, Inc.
Source:
39
Workers Compensation Residual
Market Premium Volume
NCCI-Serviced Workers Compensation Residual Market Pools
As of December 31, 2004
$ Billions
6
4.8
5
4.4
4.0
4
4.1
3.5
2.6
3
2.8
3.1
2.1
2
2.0
1.2
1.1
1.0
0.6
1
0.3 0.3 0.4
1.4 1.5
0.6
0
**
04
20
03
20
02
20
01
20
00
20
99
19
98
19
97
19
96
19
95
19
94
19
93
19
*
92
19
*
91
19
*
90
19
*
89
19
*
88
19
87
19
86
19
85
19
Policy Year
* Excludes Maine Residual Market Pool
** Incomplete
Policy
Year Projected
to Ultimate
 2005 NCCI
Holdings,
Inc.
Source:
40
Workers Compensation Residual
Market Shares Continue to Rise
Workers Compensation Insurance Plan States*
Premium As a Percent of Direct Written Premium
Percent
30
29 28
26
24
25
24
22
20
16
18 17
17
15
10
11
9
11
12
13
8
4
5
5
3
3
0
p
04
20
03
20
02
20
01
20
00
20
99
19
98
19
97
19
96
19
95
19
94
19
93
19
92
19
91
19
90
19
89
19
88
19
87
19
86
19
85
19
Calendar Year
p Preliminary
* NCCI
Plan NCCI
statesHoldings,
plus DE,Inc.
IN, MA, MI, NJ, NC
 2005
Source:
41
Workers Compensation Residual
Market Combined Ratios
Percent
200
180
NCCI-Serviced Workers Compensation Residual Market Pools
As of December 31, 2004
176
164
168 166
159
160
143
140
127
115
112
120
103
100
98
94
98
119 118
114 115 113 116
102
80
**
04
20
03
20
02
20
01
20
00
20
99
19
98
19
97
19
96
19
95
19
94
19
93
19 *
92
19 *
91
19 *
90
19 *
89
19 *
88
19
87
19
86
19
85
19
Policy Year
* Excludes Maine Residual Market Pool
** Incomplete
Policy
Year Projected
to Ultimate
 2005 NCCI
Holdings,
Inc.
Source:
42
Workers Compensation Residual
Market Underwriting Results
NCCI-Serviced Workers Compensation Residual Market Pools
As of December 31, 2004
$ Millions
500
71
118
16
0
-14 -50 -53 -63 -85
-164 -174 -240
-141
-500
-553
-1,000
-922
-1,500
-2,000
-1,190
-1,361
-1,687
-1,777
-1,883
-2,063
-2,500
**
04
20
03
20
02
20
01
20
00
20
99
19
98
19
97
19
96
19
95
19
94
19
93
19 *
92
19 *
91
19 *
90
19 *
89
19 *
88
19
87
19
86
19
85
19
Policy Year
* Excludes Maine Residual Market Pool
** Incomplete
Policy
Year Projected
to Ultimate
 2005 NCCI
Holdings,
Inc.
Source:
43
Residual Market Programs
Mitigate the Burden
Pricing Programs:
–
Differential/Surcharge
–
ARAP/SARAP
–
Removal/Reduction of
Premium Discount
–
Depopulation Mechanisms:
–
–
Take-Out Credit Program
Voluntary Compensation
Assistance Program
Improved Controls:
–
LSRP
–
Paid Loss Ratio Incentive
Program
Heightened carrier audit
process
Improved Efficiency:
–
ARAP:
Assigned Risk Adjustment Program
SARAP: Simplified Assigned Risk Adjustment Program
LSRP:
Loss Sensitive Rating Plan
 2005 NCCI Holdings, Inc.
Source:
44
Servicing carrier bid process
In Summary
Positives
• Results are improving
• Frequency continues to
decline
• Industry making progress
on reserve deficiency
• Residual Market burden still
manageable
Negatives
• Low investment returns
continue to put pressure on
underwriting results
• Medical severity continues
rapid growth
• Calendar year results lag
behind other lines
 2005 NCCI Holdings, Inc.
Source:
45
End of Presentation
Thank You
 2005 NCCI Holdings, Inc.
Source:
46