Business Development & Underwriting Meeting
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Transcript Business Development & Underwriting Meeting
National Council of Self-Insurers
2014 Meeting
Presented by Tom Hebson
Vice President
June 2, 2014
What we will discuss today
• Overall market issues and how these potentially impact
the state of self insurance
• The dreaded “Development” and the impact of Medical
Inflation on “Larger Claims” and some of the issues
driving the increases
• Bankruptcies and posted security – deficiencies and
desires
• When Regulators retire, liabilities do not cease existing
The Industry Press
• PC Insurers 2013 Profits and Profitability Reflect First
Net Gains on Underwriting Since 2007- PCI
• Could Third Party Capital Transform the Reinsurance
Market? – McKinsey
• Several workers comp insurers have ‘dangerously thin’
reserves – BI
• Insurance Industry Continuing to Release Reserves
through 2014 – Guy Carpenter
• Recruiting the Insurance Industry’s Next Generation –
P&C Digital
Industry Results
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Net income after taxes grew $63.8 Billion
10.3% overall rate of return
Combined Ratio of 96.1 vs 102.9
Total Net Premiums Written = $477.7 Billion
Record Surplus Level of $653.3 Billion
Net Gains on Underwriting in past 55 years – only 12 times
Less catastrophe losses in 2013 ($9Bn less than average and
$22Bn less than 2012)
• $16 Billion in favorable prior year development
Catastrophe Reinsurance
• Worldwide Catastrophe Reinsurance Capacity - $300
Billion
• 16% of Capacity is provided by third party structures
(up from 2% in the 1990’s)
• Primarily (80%)focused on property related
disasters/event (Hurricanes, Earthquakes)
• Low interest rate environment and good returns may
keep this strong as well as expand use of mechanism
WC Reserve Issues
• In the news -Tower Group, QBE, Liberty Mutual, Everest Re,
Meadowbrook
• 10 Workers’ Comp carriers needed to strengthen reserves by $20
million or more in 2013
• Additional reserve strengthening eroding available surplus
• WC Costs development should be carefully reviewed and
appropriate reserves set aside for longer future payouts
• Despite the news…
– Long Tail lines released more reserves for accident year 2012 than for
accident year 2011.
Talent
• No sector is immune from the aging workforce-Carriers, Brokers,
Regulators, TPA’s and Risk Management
• By 2018, it is estimated that 25% of the industry will have retired
• Long Tail business more susceptible to the loss of institutional
knowledge
• Regulatory community is and will be seeing large retirements
possibly exceeding 25% of their workforce
• Recruiting and Training seen as a key to future results
• Working with regulatory associations, key educational and
support efforts must be initiated to maintain a strong regulatory
environment
The impact of development
• Medical Development
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Co-Morbidity
Opioids
Medical Advances
Complicated regulation and system structure
Overcrowded courts and or system
Presumption
The Impact of Medical Inflation
2005 - 2015 Estimated Medical Cost Inflation
NCCI Avg Claim Cost
$1,400,000
$1,200,000
$1,000,000
$600,000
790,500
750,000
$800,000
500,000
527,000
560,201
$400,000
250,000
263,500
895,761
840,302
280,101
597,174
621,658
310,829
298,587
979,582
945,542
932,488
630,362
315,181
653,055
326,527
1,008,969
672,646
336,323
1,044,283
696,189
348,094
1,080,833
720,556
360,278
1,118,662
745,775
372,887
$200,000
$0
2005
2006
2007
2008
2009
$250,000
2010
$500,000
est 2011
$750,000
est 2012
est 2013
est 2014
est 2015
Recent Bankruptcies
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•
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Delphi Automotive Group
Prime Tanning
Hostess
City of Detroit
A new era of Security
• Impact of Bankruptcies
– Underfunded obligations
– Unfunded obligations
• Piercing the posted security
• What to do with the impact of Public Entity
bankruptcies?
• What is the most efficient way of securing long tail
exposures?
The impact of Security
• For the Employer
– Maintains confidence level that obligations will be met in the event of
default
– May leverage balance sheet if required security and any accompanying
LOC’s is a large amount
– Long tail may slow down release of security over time suppressing cash
flow and/or credit borrowing capacity
• For the Regulator
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–
–
–
Improve protection for injured workers
Protect the SI Community
Protect State assets
Maintain State Viability
The impact of Security
It is all about losses, payroll and financial standing
Security is a function of losses, past and present, payroll and exposure
trends and your credit worthiness
Controlling losses is a long term objective for improving an employer’s
security requirements
Recent activities
Creation of alternative security options including modifying how
credit is analyzed and appropriate security calculated
Utilization of an approach that allows security to be reviewed on a
comprehensive basis and not just severally for a single employer
Streamlining of regulatory steps that allows for departments to do
more with less
The impact of Security
Other pertinent issues from a regulatory perspective
Use of inside agreements including deductible buybacks, undisclosed
indemnity agreements and other mechanisms
Multiple line, multiple state liabilities associated with self insuring
Claims suppression
The long tail nature of the business – is it adequately contemplated?
• Questions?
Thank You