Medical Malpractice Update

September 23, 2004

James D. Hurley, ACAS, MAAA

© 2004 Towers Perrin

Medical Malpractice Update

CASE 2004 Fall Meeting

© 2004 Towers Perrin 2S:\People\hurlj\Presentations\040923 CASE 2004 Fall Meeting.ppt

Topics change in players financial results reforms



2000 Top 20 Med Mal Insurers

Company Name2000 DPW

($000s)Market Share

1. St. Paul Fire & Marine Insurance Co.2. Medical Liability Mutual Insurance Co.3. Employers Reinsurance Corp Group4. Health Care Indemnity, Inc.5. Continental Casualty Group6. Medical Group Holdings and Affiliates7. MIIX8. Doctors Company Group9. PHICO10. Mutual Assurance Companies11. American International Group12. Illinois State Med Interins Exchange13. SCPIE Indemnity Co.14. Picom Group15. Physicians Reciprocal Insurers16. Farmers Insurance Group17. Firemans Fund Insurance Group18. Healthcare Underwriters Mutual Ins Co.19. FPIC Insurance Group, Inc.20. Promutual Group

21. TOP 2022. GRAND TOTAL

23. GROWTH RATE 1998-2000

580,159366,260320,977243,168212,721212,374209,750204,977190,109168,266163,850163,848154,009137,854133,995132,284131,688131,030111,919105,613

4,074,8516,422,468

4.1%

9.0%5.7%5.0%3.8%3.3%3.3%3.3%3.2%3.0%2.6%2.6%2.6%2.4%2.1%2.1%2.1%2.1%2.0%1.7%1.6%

63.4%100.0%



2002 Top 20 Med Mal Insurers

Company Name2002 DPW

($000s)Market Share

2000 Rank

1. Medical Liability Mutual Group2. American International Group3. Employers Reinsurance Corp Group4. ProAssurance Corp Group & Affiliates5. Doctors Company Group6. Health Care Indemnity, Inc.7. Continental Casualty Group8. FPIC Insurance Group, Inc.9. ISMIE Insurance Group10. Medical Group Holdings and Affiliates11. Farmers Insurance Group12. St. Paul Fire & Marine Insurance Co.13. MAG Mutual Insurance Co.14. Firemans Fund Insurance Group15. Zurich Insurance Company Group16. Associated International Market Insurance Cos.17. Physicians Reciprocal Insurers18. Promutual Group19. AP Capital Group20. State Volunteer Mutual Insurance Co.

21. TOP 20 TOTAL22. GRAND TOTAL

23. GROWTH RATE 2000-2002

958,842639,634633,229443,275405,773342,022334,820291,530266,095246,744231,074219,396212,654207,738203,552187,209185,332179,791176,627163,859

6,529,1969,547,380

48.6%

10.0%6.7%6.6%4.6%4.3%3.6%3.5%3.1%2.8%2.6%2.4%2.3%2.2%2.2%2.1%2.0%1.9%1.9%1.9%1.7%

68.4%100.0%

211

310

845

1912

616

12517223515202621



Still fairly spread out MLMIC, the largest, at 10% drops off quickly

Huge turnover... St. Paul, MIIX, Phico, SCPIE, ROA, Farmer’s over $1 Billion in premium moves some commercials step-up

Many new formations most are state specific (or even ‘group’ specific) getting into the game tougher



Financial Results – survey (ex. MLMIC) balance sheet income statement Schedule P



$10.5$10.8

$11.6$12.2 $12.3 $12.3

$13.0

$14.1

$15.2

$0.0

$2.0

$4.0

$6.0

$8.0

$10.0

$12.0

$14.0

Bil

lio

ns

1995 1996 1997 1998 1999 2000 2001 2002 2003

Calendar Year

Total Assets



0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

100.0%

1995 1996 1997 1998 1999 2000 2001 2002 2003

Percentage of Cash and Invested Assets

Bonds Stocks M ortgages Real Estate Cash & ST Other



7.1%

10.0%

11.1%

12.3%

15.2%14.4%

12.5%

10.7%11.6%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

1995 1996 1997 1998 1999 2000 2001 2002 2003Calendar Year

Stocks as a Percent of Cash and Invested Assets



15%

97%

112%

17%

92%

109%

19%

92%

111%

21%

92%

114%

22%

91%

113%

22%

98%

120%

22%

113%

134%

18%

111%

129%

17%

105%

122%

0%

20%

40%

60%

80%

100%

120%

140%

1995 1996 1997 1998 1999 2000 2001 2002 2003

Calendar Year

Comparison of Loss, Underwriting Expense & Combined Ratios

Underwriting Expense Loss Combined



97%

108%

92%

101%

92%

106%

92%

118%

91%

115%

98%

122%

113%

128%

111%110%105%

100%

0%

20%

40%

60%

80%

100%

120%

140%

1995 1996 1997 1998 1999 2000 2001 2002 2003

Calendar Year

Net Loss & LAE Ratios

Calendar Year Coverage Year at 12/2003



$1.9$2.0 $2.1

$2.2 $2.3$2.5

$3.1

$4.0$4.2

$0.0

$0.5

$1.0

$1.5

$2.0

$2.5

$3.0

$3.5

$4.0

$4.5

Bil

lio

ns

1995 1996 1997 1998 1999 2000 2001 2002 2003

Direct Written Premium



6.8%5.0%

7.4%

2.7%

8.9%

24.1%

27.8%

6.6%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

1996 1997 1998 1999 2000 2001 2002 2003

Calendar Year

Percentage Change in Direct Premiums Written



6.4%

4.7%

7.5%

9.1%

3.9%5.3%

14.1%

23.2%

6.7%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

20.0%

22.0%

24.0%

1995 1996 1997 1998 1999 2000 2001 2002 2003

Calendar Year

Percentage Change in Net Premiums Earned



0

2

4

6

8

10

12

14

< 80% 80%-100%

100%-110%

110%-120%

120%+

Loss Ratio

Comparison of Calendar Year/Coverage Year Loss Ratios - 2003

Calendar Year Coverage Year



15%

97%

112%

17%

92%

109%

19%

92%

111%

21%

92%

114%

22%

91%

113%

22%

98%

120%

22%

113%

134%

18%

111%

129%

17%

105%

122%

0%

20%

40%

60%

80%

100%

120%

140%

1995 1996 1997 1998 1999 2000 2001 2002 2003

Calendar Year

Comparison of Loss, Underwriting Expense & Combined Ratios

Underwriting Expense Loss Combined



9.9%

8.9%

7.4%

6.0% 6.0%5.4%

3.3%

1.7%

0.4%0%

2%

4%

6%

8%

10%

1995 1996 1997 1998 1999 2000 2001 2002 2003

Calendar Year

Dividends as a Percent of Premiums



45.7%

42.6% 42.9% 42.0%

33.4%32.4%

29.7%

18.4%

21.0%

0%

10%

20%

30%

40%

50%

1995 1996 1997 1998 1999 2000 2001 2002 2003

Calendar Year

Investment Income as a Percent of Premiums



45.7%

42.6% 42.9% 42.0%

33.4%

3.10%

32.4%

2.30%

29.7%

2.90%

18.4%

-1.80%

21.0%

4.60%

-10%

0%

10%

20%

30%

40%

50%

1995 1996 1997 1998 1999 2000 2001 2002 2003

Calendar Year

Investment Income as a Percent of Premiums



31.6%

7.1%

32.6%

6.3%

31.3%

6.2%

31.0%

4.9%

14.2%

1.9%

26.0%

1.6%4.7%

-0.3%

31.0%

-3.3%

-20.6%

0.4%

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

35%

1995 1996 1997 1998 1999 2000 2001 2002 2003

Calendar Year

FIT as a Percentage of Net Income & Premiums

% of Net Income % of Premiums



22.5%

19.4% 19.8%

16.0%

13.1%

6.3%

-6.7%

-10.5%

-1.7%

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

1995 1996 1997 1998 1999 2000 2001 2002 2003

Calendar Year

Net Income as a Percent of Premiums



$6.2 $6.3 $6.4 $6.6 $6.6 $6.8$7.1

$7.9

$8.6

$0.0

$1.0

$2.0

$3.0

$4.0

$5.0

$6.0

$7.0

$8.0

$9.0

Bil

lio

ns

1995 1996 1997 1998 1999 2000 2001 2002 2003

Calendar Year

Total Loss Reserves



($484) ($496)($456)

($496)

($420)

($311)

($130)

$133 $143

($500)

($400)

($300)

($200)

($100)

$0

$100

$200

Millio

ns

1995 1996 1997 1998 1999 2000 2001 2002 2003

One Year Loss Reserve Development



32.2% 31.5%

26.9% 26.9%

21.9%

15.4%

5.7%

-4.7% -4.7%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

35%

Rat

io o

f R

eser

ve D

evel

op

men

t to

Net

Ear

ned

P

rem

ium

1995 1996 1997 1998 1999 2000 2001 2002 2003

One Year Loss Reserve Development to Premium




26.9%

33.7%

26.9% 26.3%

21.9%

7.5%

15.4%

-6.2%

5.7%

-19.4%

-4.7%

-17.1%

-4.7%

-22.2%

-30%

-20%

-10%

0%

10%

20%

30%

40%

1997 1998 1999 2000 2001 2002 2003

Calendar Year

One Year Loss Reserve Development to PremiumPIAA vs. Industry

PIAA Industry



121%

99%

112%

92%

113%

97%

111% 109%103% 105% 105%

112%109%

119%

99%102%

93% 93%

0.0

0.3

0.5

0.8

1.0

1.3

1.5

1995 1996 1997 1998 1999 2000 2001 2002 2003

Coverage Year

Incurred Loss & ALAE Loss Ratio

Initial Current


$2.7

$3.0

$3.5

$3.8$4.0 $3.9

$3.7

$3.4

$3.6

$0.0

$0.5

$1.0

$1.5

$2.0

$2.5

$3.0

$3.5

$4.0

Bil

lio

ns

1995 1996 1997 1998 1999 2000 2001 2002 2003

Surplus



18.2%

13.4%14.2%

9.4%

5.8%

-2.3%

-6.6%

-8.7%

8.3%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

1995 1996 1997 1998 1999 2000 2001 2002 2003

Calendar Year

Percentage Change in Surplus



2.3%2.9%

-4.4%

-3.0%

-1.8%

5.1%

-5.0%

-4.0%

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

1998 1999 2000 2001 2002 2003

Calendar Year

Change in Unrealized Gains/Losses as a % of Surplus



0.560.52 0.50 0.51

0.47

0.54

0.69

0.89 0.87

0.00

0.10

0.20

0.30

0.40

0.50

0.60

0.70

0.80

0.90

Ra

tio

of

Ne

t P

rem

ium

Wri

tte

n t

o S

urp

lus

1995 1996 1997 1998 1999 2000 2001 2002 2003

Net Premium Written to Surplus



0.690.65

0.60 0.59 0.570.64

0.84

1.18 1.16

0.00

0.10

0.20

0.30

0.40

0.50

0.60

0.70

0.80

0.90

1.00

1.10

1.20

Rat

io o

f D

irec

t P

rem

ium

Wri

tten

to

Su

rplu

s

1995 1996 1997 1998 1999 2000 2001 2002 2003

Direct Premium Written to Surplus



2.32

2.06

1.861.74

1.651.72

1.95

2.36 2.38

0.00

0.50

1.00

1.50

2.00

2.50

Rat

io o

f N

et L

oss

an

d L

AE

Res

erve

to

Su

rplu

s

1995 1996 1997 1998 1999 2000 2001 2002 2003

Net Loss and LAE Reserve to Surplus



0

2

4

6

0

23

8

01

8

12

1

4

12

18

1

5

11

19

0

5

10

15

20

1999 2000 2001 2002 2003

Coverage Year

RBC Results

≤ 200% ≤ 300% ≤ 400% ≤ 500%



Financial Ratios to Net Premiums Earned

1995 1996 1997 1998 1999 2000 2001 2002 2003

Loss & LAE 97% 92% 92% 92% 91% 98% 112% 111% 105%

Underwriting Expense 15% 17% 19% 21% 22% 22% 22% 18% 17%

Combined Underwriting 112% 109% 111% 114% 113% 120% 134% 129% 122%

Policy Holder Dividends 10% 9% 7% 6% 6% 5% 3% 2% 0%

Adjusted Combined 122% 118% 118% 120% 119% 125% 137% 131% 122%

Net Investment Income 46% 43% 43% 42% 33% 32% 30% 18% 21%

FIT 7% 6% 6% 5% 2% 2% 0% -3% 0%

Net Income 23% 19% 20% 16% 13% 6% -7% -11% -2%



Messages – Financial results – a work in progress

but better than industry medical malpractice Underwriting

combined ratio (at 120%) still too high—2003 coverage year almost gets it

rate increases still to be ‘felt’ question is reserves

Investment income still evolving – ‘numerator / denominator’ problem expect lower than 2003 interest rate increase – ‘talk is cheap’ (and no help for 2004)

Leverage – still upward pressure ‘Stars need to align’ to assure better 2004




Reforms tort reform

—HR5 / MICRA / other states

—will it work?

—will it be upheld?



Reforms tort reform insurance reform

—Prop 103

—rollbacks / freezes

—repeal anti-trust exemption

—‘SMART’ laws

—RBC



Reforms tort reform insurance reform healthcare reform

—provider discipline

—patient safety




Questions?


Documents

Medical Malpractice Update