Casualty Loss Reserve Seminar Workers Compensation Update

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Casualty Loss Reserve SeminarWorkers
Compensation Update

• Timothy L. Wisecarver
• September 12, 2005

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Casualty Loss Reserve SeminarWorkers
Compensation Update

• Selected Reserving Issues
• Claim Frequency
• Claim Severity
• Large Losses
• Settlements
• Law Changes

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Casualty Loss Reserve SeminarWorkers
Compensation Update

• Claim Frequency
• Improvement is Old (but Good) News
• Nature of Improvement Continues to Emerge
• Type of Claim
• Size of Claim

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Casualty Loss Reserve SeminarWorkers
Compensation Update

• Claim Frequency
• If frequency decline has been focused on small
  claims with relatively quick payouts
• Ultimates May Tend to be Understated-
• Early Maturities Loss Amounts Shrink
• Link Ratios Dont Fully Respond
• Affects All Maturities, not Just Recent Years

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Casualty Loss Reserve SeminarWorkers
Compensation Update

• Claim Frequency
• May Have Implications for Severity
• Severity Changes May Have Separate Components
• Behavior, Explanations and Expectations May
  Differ by Component

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Casualty Loss Reserve SeminarWorkers
Compensation Update

• Claim Severity
• Inflation
• Recurring, Long-term
• Utilization
• Cyclical, Intermittent ?
• Shift in Loss Distribution
• Implications for Future Changes
• Combinations of the Above

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Casualty Loss Reserve SeminarWorkers
Compensation Update

• Large Losses
• Volatile Layers of Loss
• Impact on Development
• Concentrations Often Overstate Ultimates

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Casualty Loss Reserve SeminarWorkers
Compensation Update

• Large Losses
• Early Emergence May Understate Other Periods
  Ultimates
• Link Ratios Include Large Loss Ballast
• Late Emergence May Understate Affected Periods
  Ultimate
• Development Cant Anticipate Adverse Surprises

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Casualty Loss Reserve SeminarWorkers
Compensation Update

• Large Losses
• One Approach Limit Loss Development
• Reported Values (Paid, Case Incurred)
• Implied Ultimate Values per Claim
• Indemnity/Medical Allocation
• Excess Provision

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Casualty Loss Reserve SeminarWorkers
Compensation Update

• Settlements (Lump Sums, Annuities)
• Change in Timing of Payments
• Changes in Amounts of Payments
• Accounting Issues

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Casualty Loss Reserve SeminarWorkers
Compensation Update

• Settlements
• Change in Timing of Payments
• Acceleration Will Tend to Overstate Ultimates
• Beginning of Use
• Increased Use
• Earlier Use

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Casualty Loss Reserve SeminarWorkers
Compensation Update

• Settlements
• Change in Timing of Payments
• Deceleration Tends to Understate Ultimates
• End of Use
• Decreased Use
• Later Use

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Casualty Loss Reserve SeminarWorkers
Compensation Update

• Settlements
• Change in Amounts of Payments
• Persistent Increases May Look Like Acceleration
  but Understate Ultimates
• Payment Base Lags Future

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Casualty Loss Reserve SeminarWorkers
Compensation Update

• Settlements
• Change in Amounts of Payments
• Persistent Decreases May Look Like Deceleration
  but Overstate Ultimates
• Payment Base Lags Future

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Casualty Loss Reserve SeminarWorkers
Compensation Update

• Settlements
• Accounting Issues
• Detail by Indemnity, Medical, Expense
• Generally Weak in Industry
• Errors Affect Separate Components in Opposite
  Directions

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Casualty Loss Reserve SeminarWorkers
Compensation Update

• Law Changes
• New Business vs. Outstanding
• Parametric vs. Procedural
• Quantifiability

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Casualty Loss Reserve SeminarWorkers
Compensation Update

• Loss Development Case Studies
• Pennsylvania Delaware
• Paid Loss Case Incurred Loss Development Methods

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Casualty Loss Reserve SeminarWorkers
Compensation Update

• Questions