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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–
–
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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