workers compensation reinsurance pricing considerations robert blanco, fcas, maaa, cpcu, are scor...

Workers Compensation

• Reinsurance Pricing Considerations

Robert Blanco, FCAS, MAAA, CPCU, ARe

SCOR Reinsurance Corp.

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WC – Reinsurance Pricing Issues:

Experience Rating

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• Quality of Loss Data

• Rate Changes

• Loss Trends

• Excess Loss Development Factors

• Other Considerations

Experience Rating Issues

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• Reporting Threshold – is ½ the retention low enough?

• Are the losses discounted vs. undiscounted?

• Are the losses on an occurrence (vs. individual claimant) basis?

• Is indemnity vs. medical detail available for individual claims?

Quality of Loss Data

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• Reliable, client-specific changes available?

• “Discretionary” rate changes – the devil is in the detail.

• Changes in average experience mod – to use or not to use?

Rate Changes

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• By state vs. countrywide

• Frequency trends – ground-up vs. large loss, working layers vs. higher layers

• Severity trends – ground-up vs. large loss, working layers vs. higher layers

• Indemnity vs. Medical severity

Loss Trends

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• Lack of industry benchmarks

• How important are state-specific differences on patterns?

• Working layers vs. higher layers

• Indemnity vs. Medical

• Client-specific LDFs and claims practices – how to reflect in pricing?

Excess Loss Development Factors

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• Has the mix of states shifted over the experience period?

• Has the hazard group mix changed over the experience period?

• Have company underwriting and claims philosophies changed?

• Does the portfolio include non-standard policies (Large Ded, XS, Retros)?

Other Considerations

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WC – Reinsurance Pricing Issues:

Exposure Rating

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• Ground-Up Loss Ratio

• State / Hazard Group

• Other Considerations

Exposure Rating Issues

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• Critical to establish expected TOTAL losses before splitting into layers.

• Many of the same experience rating considerations apply (rate changes, loss trends, loss development)

• Loading for Unused Capacity?

Ground-Up Loss Ratio

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• Premium vs. Payroll HG split

• State-specific vs. combined HG split

• New vs. old NCCI HG definitions

• California-specific HG definitions

• NCCI vs. Non-NCCI exposure curves

State / Hazard Group

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• Do the existing industry HG mappings adequately reflect differences in exposure between portfolios?

• Impact of non-standard policies (Large Ded, XS, Retros) on exposure curves.

• How to reflect impact of MAOL (Maximum Any One Life) treaty provision?

Other Considerations

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WC – Reinsurance Pricing Issues:

Beyond Experience and Exposure Rating

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• Years of data for experience

• Volume of claims vs. “credit” for loss-free experience

• Stability of portfolio over experience period

• Unused exposure in experience period

• Confidence in exposure curves

Blending Experience and Exposure

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• Federal Exposures

• Re-Underwriting of Portfolios

• Significant law changes/reforms, and their varying impacts by claim type

• Proportional Treaties

• WC Cat Treaties

Other Considerations