Nevada - WorkCompCentral · 2009. 4. 1. · Implications of the New AMA Guides 11:45 Closing Remarks Nevada Workers Compensation ... •Uncertain political fallout from fall elections

© Copyright 2009 National Council on Compensation Insurance, Inc. All Rights Reserved.© Copyright 2009 National Council on Compensation Insurance, Inc. All Rights Reserved.

Nevada

March 26, 2009

[email protected] 818.707.8374



22© Copyright 2009 National Council on Compensation Insurance, Inc. All Rights Reserved.

8:30 Continental Breakfast

9:00 Legislative Update

Workers Compensation System Overview

10:45 Break

Impact of Recessions on Workers Compensation

The Residual Market in Nevada

Implications of the New AMA Guides

11:45 Closing Remarks

Nevada Workers CompensationState Advisory Forum

© Copyright 2009 National Council on Compensation Insurance, Inc. All Rights Reserved.

Legislative Update


Workers Compensation System Overview


State of the Industry—An Overview

• Total workers compensation premium continues to decline

• Underwriting results continue to be good, although there has been some deterioration

• Frequency continues to decline—at a lower rate

• Medical costs remain above inflation

• Uncertain political fallout from fall elections

• Continued regulatory turnover


NevadaWorkers Compensation System—

An Overview

• Premium growth continues

• Underwriting results continue to be relatively good

• Frequency continues to decline—at a lower rate

• Significant increase in Accident Year 2007 indemnity and medical claim costs

• High indemnity costs compared to other states


Countrywide Total Workers Compensation Premium Continues to

Decline in 2007Net Written Premium

25.2 24.2 23.3 22.325.0 26.1

29.3 31.134.7

37.8 38.7 37.6

28.226.9 25.9 25.0

28.5

32.0

37.5

42.0

46.247.5 46.3

44.0

0

10

20

30

40

50

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007p

State Funds ($ B)

Private Carriers ($ B)

Calendar Year

$ Billions

p PreliminarySource: 1996–2006 Private Carriers, Best's Aggregates & Averages; 2007p, NCCI

1996–2007p State Funds: AZ, CA, CO, HI, ID, KY, LA, MO, MT, NM, OK, OR, RI, TX, UT Annual Statements


376

416

374 372

413430

459

513541

0

100

200

300

400

500

600

1999 2000 2001 2002 2003 2004 2005 2006 2007

$ Millions

Source: NAIC Annual Statement data (Best’s State/Line Report)

Calendar Year

Nevada Workers CompensationPremium Volume

Private Carrier Direct Written Premium


Countrywide Accident Year Combined Ratio—Another Underwriting Gain in 2007

Workers Compensation Calendar Year vs. Ultimate Accident YearPrivate Carriers

Percent

107

115118

122

111 110107

103

93

99

133

142

136

123

105

96

88

85 84

92

80

90

100

110

120

130

140

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007p

Calendar Year Accident Year

p PreliminaryAccident Year data is evaluated as of 12/31/2007 and developed to ultimateSource: Calendar Years 1998–2006, Best's Aggregates & Averages;

Calendar Year 2007p and Accident Years 1998–2007p, NCCI analysis based on Annual Statement dataIncludes dividends to policyholders


Accident Year 2007 Combined RatiosResults Vary From State to State

74

93

121

0

20

40

60

80

100

120

140

HI, TX

AR AK FL, LA

DC, NM, VT

MO AL ID IN, MS, NV

SC TN UT ME, NE

KS, NC

CO, VA

IA, MD

IL, NH

CT, KY

MT, OR

OK, RI

GA AZ SD

Data is evaluated as of 12/31/2007.


Nevada Accident Year Combined Ratios

86%89%

94%

87%

93%

40%

80%

120%

2003 2004 2005 2006 2007

Co

mb

ine

d R

ati

o

Accident YearSource: NCCI financial data, NAIC Annual Statement data.


Countrywide Average Approved BureauRates/Loss Costs

History of Average WC Bureau Rate/Loss Cost Level Changes

p PreliminaryCountrywide approved changes in advisory rates, loss costs and assigned risk rates as filed by the applicable rating organization

12.1

7.4

10.0

2.9

-6.4

-3.2

-6.0

-8.0

-5.4

-2.6

3.5

1.2

4.9

6.6

-6.0-5.1

-5.7-6.6

-2.6

-10

-5

0

5

10

15

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008p

Cumulative

1990-1993

+36.3%

Cumulative 1994-1999

-27.8%

Percent


+17.1%


-23.5%

Calendar Year


Countrywide Average Approved BureauRates/Loss Costs

All States vs. All States Excluding California

3.5

1.2

4.9

6.6

-6.0

-5.1-5.7

-6.6

-2.6

-0.1-0.8

0.0

1.8

0.5 0.5

-0.7

-3.7-3.1

-8

-6

-4

-2

0

2

4

6

8

2000 2001 2002 2003 2004 2005 2006 2007 2008p

All States

All States Ex CA

Percent

Cumulative 2000–2008

– 10.4% All States

– 5.6% All States Ex CA

Calendar Yearp PreliminaryCountrywide approved changes in advisory rates, loss costs and assigned risk rates as filed by the applicable rating organization


Status of NCCI Filing ActivityVoluntary Market Filings

11

2628 28

12

01

22

8 8

4

0

5

10

15

20

25

30

2005/2006 Season 2006/2007 Season 2007/2008 Season 2008/2009 Season

Nu

mb

er

of

Sta

tes

Less than 0% No Filing 0% and greater


-12.3

-6.5

-0.3

3.4

-10.5

-4.9

-9.1

-6.9

-2.6

5.0

-10.1

-6.0

-14

-12

-10

-8

-6

-4

-2

0

2

4

6

1/1/04 1/1/05 3/1/06 3/1/07 3/1/08 3/1/09

Pe

rce

nt

Effective Date

Voluntary Assigned Risk

Nevada Recent Filing ActivityVoluntary Loss Cost and Assigned Risk Rate Changes


Current NCCI Voluntary MarketFiled Rate/Loss Cost Changes

Excludes Law-Only Filings

-18.6

-17.4

-15.9

-14.4

-13.0

-13.0

-12.8

-11.6

-7.8

-7.7

-7.6

-7.2

-6.7 -5.9

-5.4

-5.1

-4.9

-4.8

-4.4

-4.4

-3.8

-3.8

-3.4

-3.1 -2.3

-1.9

-1.8

-1.4

-1.4

-1.2 -0.4

0.4

3.5

7.9 9

.1

-7.9

-0.3

-25

-20

-15

-10

-5

0

5

10

15

FL LA CO DC MS VT AR HI GA UT MO ME RI NM OR MD KY NV AK NE NC ID IA IN TN AL NH MT CT VA WV SD SC KS IL AZ OK

Percent

Pending Pending


Nevada March 1, 2009 FilingAverage Loss Cost Changes

by Industry Group

Overall Change

-4.9%

Manufacturing

-9.1%

Contracting

-5.5%

Office & Clerical

-2.8%

Goods & Services

-5.6%

Miscellaneous

-1.5%

• Textiles

• Cabinets

• Printing

•••

• Plumbing

• Roofing

• Carpentry

•••

• Clerical

• Outside Sales

• Physician

•••

• Retail Store

• Restaurant

• Hotel

•••

• Trucking

• Mining

• Aviation

•••


5.6%17.0%

41.2%

29.5%

6.7%

Payroll by Industry GroupNevada vs. Region

6.8% 10.2%

57.6%

19.6%

5.8%

Nevada Region

Manufacturing Contracting Office & Clerical

Goods & Services Miscellaneous

Regional states are AZ, CO, NM, and UT.Based on the latest available policy period in NCCI’s WCSP data.


Top Five Class CodesBased on Statewide Payroll

Nevada Region

8810-Clerical (20.2%) 8810-Clerical (32.5%)

8742-Outside Sales (5.8%) 8742-Outside Sales (8.1%)

8832-Physician (4.1%) 8832-Physician (4.0%)

8017-Retail Store (3.5%) 8868-College (3.9%)

9082-Restaurant (3.3%) 8017-Retail Store (2.3%)

Regional states are AZ, CO, NM, and UT.Based on the latest available policy period in NCCI’s WCSP data.


Current Average Voluntary Pure Loss Costs Using Nevada

Payroll Distribution

1.85

2.43

2.05 2.07

1.77

2.152.29

0

1

2

3

NV AZ CO NM UT REG CW

Pu

re L

oss C

ost—

All C

lasses

State

Based on the latest NCCI approved rates and loss costs in the various states.


Nevada Loss RatiosIndemnity and Medical

0.530.50

0.490.48

0.3

0.4

0.5

0.6

0.7

0.8

2003 2004 2005 2006 2007

Lo

ss

Rati

o

Accident Year

Indemnity Medical

Based on NCCI’s financial data at current benefit level and developed to ultimate.


Claim Frequency


Countrywide Workers Compensation Lost-Time Claim Frequency

Continues to Decline Lost-Time Claims

-4.2 -4.4

-9.2

0.3

-6.5

-4.5

0.5

-3.9

-2.3

-4.5

-6.9

-4.5-4.1

-3.7

-6.7

-6.0

-2.6

-10

-8

-6

-4

-2

0

2

1991 1993 1995 1997 1999 2001 2003 2005 2007

Cumulative Change of –53.0%

(1991–2007)

Percent Change

Accident Year

1991–2007: Based on data through 12/31/2007, developed to ultimateBased on the states where NCCI provides ratemaking servicesExcludes the effects of deductible policies


Nevada Claim Frequency TrendsLost-Time Claims

4.5

-8.4 -8.7

-2.4

-10

-8

-6

-4

-2

0

2

4

6

2004 2005 2006 2007

Accident Year

Cumulative Change of –15.0%

(2003–2007)

Percent Change

Based on data through 12/31/07, developed to ultimate.


Nevada Average Claim FrequencyFrequency per 100,000 Workers—All Claims

5,910

5,215

5,667

5,119

5,854

0

2,000

4,000

6,000

8,000

NV AZ CO NM UT

Cla

im F

req

ue

nc

y

Based on NCCI’s WCSP data.


Nevada Average Lost-Time Claim Frequency

Frequency per 100,000 Workers—Lost-Time Claims

1,148

775

1,103

1,006 1,001

0

400

800

1,200

1,600

NV AZ CO NM UT

Cla

im F

req

ue

nc

y



Distribution of Claims by Injury Type

11.9%

7.0%

0.2%

80.9%

11.6%

6.0%

0.1%

82.3%

Nevada

Permanent Partial Permanent Total/Fatal Medical OnlyTemporary Total

14.5%

8.2%

0.3%

77.0%

Regional Average Countrywide

Regional states are AZ, CO, NM , and UT.Based on NCCI’s WCSP data.


Economic Conditions in Nevada—Implications for

Claim Frequency


Key Las Vegas Metrics Declined Markedly in 2008—Especially at Year’s End

Percent Change from Year Ago

-20%

-16%

-12%

-8%

-4%

0%

Visitor Volume Hotel Occupancy

Convention Attendance

Conv./Mtgs. Held

Total Air Psngrs.

Gaming Revenue

(Clark Cty.)

Yr. '08 vs. Yr. '07 Dec. '08 vs. Dec. '07

Source: Las Vegas Convention and Visitors Authority


$100

$150

$200

$250

$300

$350

2000Q

1

2000Q

2

2000Q

3

2000Q

4

2001Q

1

2001Q

2

2001Q

3

2001Q

4

2002Q

1

2002Q

2

2002Q

3

2002Q

4

2003Q

1

2003Q

2

2003Q

3

2003Q

4

2004Q

1

2004Q

2

2004Q

3

2004Q

4

2005Q

1

2005Q

2

2005Q

3

2005Q

4

2006Q

1

2006Q

2

2006Q

3

2006Q

4

2007Q

1

2007Q

2

2007Q

3

2007Q

4

2008Q

1

2008Q

2

2008Q

3

2008Q

4

2009Q

1

2009Q

2

2009Q

3

2009Q

4

Thousands

Economic Recessions

Median Existing House Price

Source: U.S. Bureau of Labor Statistics

Home Prices in Las Vegas Have Plunged—With Further Declines Expected Through 2009


After Sharp Declines, Building Permits in Las Vegas May Have Bottomed Out

Number of Single-Family Building Permits, Seasonal Adj. Ann. Rate

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

Source: Moody’s Economy.com


Source: Las Vegas Convention and Visitors Authority

Clark County Is No Longer Addingto Its Population

Annual Increase in New Residents Moving to Clark County

-20

0

20

40

60

80

100

120

2000 2001 2002 2003 2004 2005 2006 2007 2008

Thousands


-8%

-4%

0%

4%

8%

12%

16%

'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09

Nevada employment data through January 2009.Source: U.S. Bureau of Labor Statistics

Employment in Nevada Has Declined Sharply in this Recession

Private Employment, Percent Change from Year Ago


3%

4%

5%

6%

7%

8%

9%

10%

'90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09

Data for Nevada’s unemployment rate is available through January 2009.Source: U.S. Bureau of Labor Statistics

Nevada's Unemployment Rate Spiked to 9.4% in JanuaryUnemployment Rate, Percent


Frequency of Injuries: Experience Matters

Inexperienced Have a Disproportionately High Share of Lost Work-Time Injuries and Illnesses

Time With Current Employer

Share of Employment (Jan. 2008), Mountain

Census Division

Share of Lost Work-Time Injuries & Illnesses

(2007), Nevada

Relative Difference Share of Injuries vs.

Employment

Less Than 1 Year 25.6% 41.4% 61.7 : Higher

1–5 Years 38.5% 37.3% -3.1 : Lower

5+ Years 35.9% 21.3% -40.7 : Lower

Time periods in the table are based on Share of Lost Work-time Injuries and Illnesses. Tenure ―breaks‖ for Share of Employment classifications: 12 months or less, 13 months-to-5 years, and 5 years and above. Data for Share of Employment based on data as of January 2008.



Indemnity Claim Costs


Countrywide Workers Compensation Indemnity Claim Cost Trends

Lost-Time Claims

$10.0

$9.7

$9.4

$9.9

$10.1

$10.7

$11.5

$12.5

$13

.8

$15

.2

$16.6

$17.1

$17.9

$18.1

$18.6

$19.5

$20.2

+1.0%-3.1%-2.8%+4.9%+1.7%

+5.9%+7.7%

+9.0%

+10.1%

+10.1%

+9.2%+3.1%+4.4%+1.3%

+3.0%

+4.8%+3.4%

5

7

9

11

13

15

17

19

21

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Indemnity

Claim Cost (000s)

Annual Change 1991–1993: -1.7%

Annual Change 1994–2001: +7.3%



Accident Year


Nevada Workers CompensationIndemnity Claim Cost Trends

Lost-Time ClaimsIndemnity

Claim Cost (000s)

Based on data through 12/31/07, on-leveled and developed to ultimate

$2

0.7

$2

0.1

$2

3.7

$2

3.7

$2

2.8

$2

4.4

$2

4.1

$2

8.4

-2.9%

17.5% 0.1% -3.5% 6.6% -0.9%

17.7%

0

5

10

15

20

25

30

2000 2001 2002 2003 2004 2005 2006 2007

Accident Year


Indemnity Benefits Constitute Halfof Total Benefit Costs in Nevada

50% 50%

Indemnity Medical

34%

66%

41%

59%


Nevada

Regional states are AZ, CO, NM, and UT.


Average Statutory Benefit Provisions(Indemnity only, as of 1/1/08)

1.69

0.0

0.5

1.0

1.5

2.0

ND AL WY NY FL KS MS MN NM GA MT AR UT NJ IN MO TN CA SC AZ WV LA NH OR CO OK NC SD NE MD MI ME OH ID AK HI VA KY TX DE WI WA VT CT IA IL PA RI NV MA

Source: Workers Compensation State Rankings, Manufacturing Industry Costs, and Statutory Benefit Provisions, 2008 Ed., prepared by Actuarial & Technical Solutions, Inc.

1.0 represents countrywide average cost

per case (indemnity only). All states

indexed to countrywide average.


Actual Average Indemnity Benefits per Employee per Year

(Cost spread over all employees whether or not injured)

$85

$326

$0

$100

$200

$300

$400

$500

$600

IN UT AR AZ TX DC VA AL SD NE WI KS FL NH ID MO TN KY NM MI MS MD CO OR GA LA NJ MN IA HI RI ME MA CA VT IL DE CT PA AK SC NC NV NY MT OK

Source: WCSP Data at first report for policies effective in 2004 and 2005


Nevada IndemnityAverage Cost per Case

26.5

18.2

20.3

17.3

9.7

0

5

10

15

20

25

30

NV* AZ CO NM UT*

Ind

em

nit

y C

laim

Co

st

($ '0

00

s)

Based on NCCI’s financial data for lost-time claims.* NV & UT based on an average of AY 2006 and AY 2007. All other states based on PY 2006.


Indemnity Loss Distributionby Injury Type

Regional states are AZ, CO, NM, and UT.Based on NCCI’s WCSP data.

9.9%

71.6%

18.5%

15.4%

72.2%

12.4% 15.4%

71.4%

13.2%


Nevada

Permanent Total/FatalTemporary Total Permanent Partial


Medical Claim Costs


Countrywide WC Medical Claim Cost Trends—Growth Continues in 2007

Lost-Time Claims

$8

.5

$8

.6

$8

.4

$9

.2

$9

.6

$1

0.3

$11

.4

$1

2.3

$1

3.6

$1

4.6

$1

6.6

$1

8.0

$1

9.2

$2

0.3

$2

1.8

$2

3.1

$2

4.5

+6.8%1.3% -2.1%+9.0%+5.1%

+7.4%+10.1%

+8.3%+10.6%

+7.3%

+13.5%

+8.2%+7.1%

+5.4%

+7.7%+6.0%

+5.8%

5

10

15

20

25

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Medical

Claim Cost (000s)


Accident Year





Countrywide Medical Severity Is Outpacing the Medical Care CPI

Indexes of Medical Severity* and Medical Care CPI, 2000 = 1.0

0.5

1.0

1.5

2.0

2.5

3.0

2000 2001 2002 2003 2004 2005 2006 2007

Medical Cost per Claim (Accident Year)

MCPI (Calendar Year)

Avg. Annual Pct. Change, 2000-2007

Countrywide Medical Cost per Claim = 8.3%

U.S. Medical Care CPI = 4.3%

* Lost-time claimsData valued at 12/31/2007Medical Severity is represented above as unlimited medical losses at ultimate without adjustments for either wage or benefit changesSource: NCCI; U.S. Bureau of Labor Statistics


Nevada Workers Compensation Medical Claim Cost Trends

Lost-Time ClaimsMedical

Claim Cost (000s)

Based on data through 12/31/07, on-leveled and developed to ultimate

$2

0.1

$1

9.1

$2

1.3

$2

1.9

$2

3.0

$2

3.5

$2

2.6

$2

6.9

-4.9%

11.7% 2.7% 5.0% 2.4% -4.1%

19.2%

0

5

10

15

20

25

30

2000 2001 2002 2003 2004 2005 2006 2007

Accident Year


Medical Severity in Nevada Is Increasing in Line With the Medical CPI

Indexes of Medical Severity*and Medical Care CPI, 2000 = 1.0

0.5

1.0

1.5

2.0

2.5

3.0

2000 2001 2002 2003 2004 2005 2006 2007

Nevada Medical Cost per Claim (Accident Year)

MCPI, West Region (Calendar Year)

Avg. Annual Pct. Change, 2000-2007

Nevada's Medical Cost per Claim = 6.1%

West Region Medical Care CPI = 4.6%

* Lost-time claimsData valued at 12/31/2007Medical Severity is represented above as unlimited medical losses at ultimate without adjustments for either wage or benefit changesSource: NCCI; U.S. Bureau of Labor Statistics


Average Hospital Cost per Day* in Nevada: Lower Than and Increasing Less

Rapidly Than That of the U.S.

1,427

2,3241,493

0

1,000

2,000

3,000

4,000

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Nevada

United StatesAvg. Annual Pct. Change, 1994-2006

Nevada 4.1%

United States 6.3%

* Cost per Day reflects internal costs incurred for hospital servicesSource: American Hospital Association

3,091


Nevada Medical Average Cost per Case

25.0

41.6

20.8

24.926.6

0

5

10

15

20

25

30

35

40

45

NV* AZ CO NM UT*

Me

dic

al C

laim

Co

st

($ '0

00

s)

Based on NCCI’s financial data for lost-time claims.* NV and UT based on an average of AY 2006 and AY 2007. All other states based on PY 2006.


Medical Loss Distribution by Injury Type

12.2%

54.5%

20.7%

12.6%

16.2%

53.3%

14.7%

15.8%

Nevada

Medical OnlyPermanent Total/FatalTemporary Total Permanent Partial

15.4%

57.1%

17.2%

10.3%


Regional states are AZ, CO, NM, and UT.Based on NCCI’s WCSP data.


Permanent Partial Claims


Nevada Permanent Partial Indemnity Average Cost per Case

46

35 34

41

22

33

39

0

20

40

60


Co

st

pe

r C

as

e (

$ '0

00

s)

State



Nevada Permanent Partial Medical Average Cost per Case

34

62

30

5149

4347

0

20

40

60

80


Co

st

pe

r C

as

e (

$ '0

00

s)

State



Nevada Permanent PartialTotal Average Cost per Case

81

96

64

92

7076

86

0

20

40

60

80

100


Co

st

pe

r C

as

e (

$ '0

00

s)

State



Nevada Permanent Partial Claims

Permanent Partial Frequency per 100,000 Workers

412

218

472

386

240

329

385

0

200

400

600


PP

Cla

im F

req

ue

nc

y

State



Nevada Permanent Partial Total CostsPermanent Partial Costs per 100,000 Workers

33

21

30

36

17

26

33

0

10

20

30

40

50

60


To

tal

Co

sts

($

M)

State





• Exposure

• Claim Frequency

• Indemnity and Medical Severity



Length and Severity of Past Recessions


The Average Duration of Prior Recessions Has Been a Bit Less Than One Year

Recession Length (in Months)

0 5 10 15 20

Jul-53

Aug-57

Apr-60

Dec-69

Nov-73

Jan-80

Jul-81

Jul-90

Mar-01

Dec-07

Dates indicate the start of the recessionAssumes current recession continues through March 2009Source: U.S. Bureau of Labor Statistics; National Bureau of Economic Research

Average, 9 Prior Recessions

???


The Current Recession Has Already Had an Above Average Loss in Private Sector Jobs

Pct. Change in Private Employment During Recession Period

-5% -4% -3% -2% -1% 0%

Jul '53 (10)

Aug '57 (8)

Apr '60 (10)

Dec '69 (11)

Nov '73 (16)

Jan '80 (6)

Jul '81 (16)

Jul '90 (8)

Mar '01 (8)

Dec '07 (15+)

Average, 9 Prior Recessions

???

Dates indicate the start of the recession. ( ) = length of the recession, in monthsEmployment data in the current recession is up-to-date through February 2009Source: U.S. Bureau of Labor Statistics; National Bureau of Economic Research


Impact of Recessionson Exposure


Excludes 1980 ―mini‖ recession* Begins in December 2007 and includes data available through January 2009Source: U.S. Bureau of Labor Statistics; National Bureau of Economic Research

Recessions Result in Slower Growth or Declines in Wages and Salaries

Percent Change in Wage and Salary Disbursements During Year Before the Start of Recession vs. During Recession (at an Annual Rate)

Years Indicate Start of Recession

-6%

-3%

0%

3%

6%

9%

12%

1953 1957 1960 1969 1973 1981 1990 2001 2007

1 Year Before Start of Recession During Recession

So Far *


• Changes in employment

• Changes in wages

Changes in Exposure (Payroll) During Business Cycles Reflect . . .


The Impact of Recessions on Employment Differs Markedly by

Industry SectorAverage Percent Decline in Employment in Eight Prior Recessions*

Compared to the Current Recession** for NCCI’s Five Industry Groups

-12%

-9%

-6%

-3%

0%

3%

Manufacturing Contracting Miscellaneous Office & Clerical Goods & Services

Average Current (So Far)**

* Excludes 1980 ―mini‖ recession** Begins in December 2007 and includes data available through January 2009Source: U.S. Bureau of Labor Statistics; National Bureau of Economic Research


The Top Five Industries Account for Nearly 76% of Nevada’s Employment

Percent of Total Private Employment, 2008

0% 10% 20% 30% 40%

Leisure & Hospitality

Professional & Business Services

Retail Trade

Construction

Education & Health Services

Financial Activities

Transportation & Utilities

Manufacturing

Wholesale Trade

Other Services

Information

Natural Resources & Mining



There Has Been a Marked Loss in Construction Jobs in Nevada Since the

Start of the Current RecessionNevada Employment, Pct. Change Since Start of Recession*

-20%

-15%

-10%

-5%

0%

5%

Total Private Leisure & Hospitality

Svcs.

Prof. & Bus. Svcs.

Retail Trade Construction Educ. & Health Svcs.

Avg., 1990-91 and 2001 Recessions

Current Recession

* 2001 recession only for Retail Trade and Education & Health Services; data for the current recession from December 1970 through January 2009Source: U.S. Bureau of Labor Statistics


Recession-Related Increases in the Unemployment Rate Tend to Place

Downward Pressure on Wage IncreasesUnemployment Rate vs. Year-Ago Percent Change in the Employment Cost Index (ECI) for Private Sector Workers

2%

3%

4%

5%

6%

7%

8%

9%

'87 '88 '89 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09

Recession Period ECI for Private Sector Unemployment Rate

Data for the ECI available through the Fourth Quarter 2008; unemployment rate through February 2009.Source: U.S. Bureau of Labor Statistics; Moody’s Economy.com


Impact of Recessionson Claim Frequency


Overview of Just-Completed NCCI Research

• Uses BLS data on injury and illness incidence rates (―BLS frequency,‖ for short) for manufacturing

• Analysis based on growth rate of frequency

• Uses statistical modeling to determine the long-term trend in frequency growth and how frequency growth varies over the business cycle

• Full report will be published later this year


Characteristics of Frequency:A Long-Term Drift Downward

Manufacturing—Total Recordable Cases

Rate of Injury and Illness Cases per 100 Full-Time Workers

0

5

10

15

20

25

30

'26

'28

'30

'32

'34

'36

'38

'40

'42

'44

'46

'48

'50

'52

'54

'56

'58

'60

'62

'64

'66

'68

'70

'72

'74

'76

'78

'80

'82

'84

'86

'88

'90

'92

'94

'96

'98

'00

'02

'04

'06

'08

Note: Recessions indicated by gray barsSource: U.S. Bureau of Labor Statistics; National Bureau of Economic Research


The Business Cycle Impact on the Incidence Growth Rate in Isolation

Growth Rates, Workplace Illness and Injury—Manufacturing

-0.20

-0.15

-0.10

-0.05

0.00

0.05

0.10

0.15

0.20

'26

'28

'30

'32

'34

'36

'38

'40

'42

'44

'46

'48

'50

'52

'54

'56

'58

'60

'62

'64

'66

'68

'70

'72

'74

'76

'78

'80

'82

'84

'86

'88

'90

'92

'94

'96

'98

'00

'02

'04

'06

'08

Note: Recessions indicated by gray barsSource: U.S. Bureau of Labor Statistics; National Bureau of Economic Research

7474

Explaining the Business Cycle Behavior of BLS Frequency Growth

• The observed business cycle behavior of frequency growth is consistent with the ―experienced worker‖ effect:

− In recessions, fewer new jobs are being created, which reduces the fraction of inexperienced workers on the payroll, thus reducing frequency growth

− In contrast, in economic expansions, when new jobs are created at a high rate, many inexperienced workers are added to the payroll, which increases frequency growth

• Nevertheless, there continues to be anecdotal reports of ―job loss‖ effects (claim frequency rising on news of factory shutdowns or large layoffs)

• How do we reconcile these disparate views on how frequency behaves in recessions?

Copyright 2009 National Council on Compensation Insurance, Inc. All Rights Reserved.

7575

Explaining the Business Cycle Behavior of Frequency Growth: Focus on Job Flows

• Job flows data breaks down net changes in employment into changes related to job creation (the adding of new jobs) and job destruction (the elimination of existing jobs) at the establishment level (e.g., plant level)

• The rates of job creation and job destruction move in opposite directions during recessions

• Those differences help to reconcile the ―experienced worker‖ effect and the ―job loss‖ effect



Cyclical Pattern of Job Creation and Job Destruction

Rates of Job Creation and Job Destruction—Manufacturing

Note: Recessions indicated by gray barsSource:Davis, S.J., R.J. Faberman, and J. Haltiwanger (2006), ―The Flow Approach to Labor Markets: New Data Sources and Micro-

Macro Links,‖ Journal of Economic Perspectives 20(3), pp. 3-26.

3

5

7

9

'47

'49

'51

'53

'55

'57

'59

'61

'63

'65

'67

'69

'71

'73

'75

'77

'79

'81

'83

'85

'87

'89

'91

'93

'95

'97

'99

'01

'03

'05

'07

Job Creation

Job Destruction

7777

Impact of Job Flows on Frequency Growth:Results of Quantitative Analysis


• The decline in job creation at the onset of recessions causes the growth rate of frequency to decrease—reflective of the ―experienced worker‖ effect

• At the same time, the increase in the rate of job destruction causes the growth rate of frequency to increase—the ―job loss‖ effect (possibly indicative of moral hazard)

7878

Impact of Job Flows on Frequency Growth: Results of Quantitative Analysis


• Statistical modeling shows that the effect of the decline in job creation in recessions outweighs the effect of the increase in job destruction—so, on net, recessions tend to cause a decline in the rate of frequency growth

• Conversely, economic expansions come with an increase in the growth rate of frequency


Impact of Recessions on Indemnity and Medical

Severity


Indemnity Severity Growth EasesDuring Recessions

Indemnity Claims

0

5

10

15

20

25

30

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007p

Recessions

Indemnity Cost per

Claim ($000s)

2007p: Preliminary based on data valued as of 12/31/20071980–2006: Based on Financial Call data, developed to ultimateBased on the states where NCCI provides ratemaking services and excludes the effects of deductible policies

Accident Year


Recessions Place Downward Pressure on Wage Increases

Employment Cost Index (ECI) for Private Sector WorkersPercent Change from Year Ago

2%

3%

4%

5%

'87 '88 '89 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08

Recession Period ECI for Private Sector

Includes data available through December 2008Source: U.S. Bureau of Labor Statistics; Moody’s Economy.com


Indemnity Severity—Uncertain Impact of Recession on Worker Attitudes

• Concern for job may reduce time away from work

• High likelihood of job loss may reduce incentives to return to work quickly


Medical Cost per Claim Appears to Be Unrelated to the Business Cycle

Total Medical Claims

0

5

10

15

20

25

30

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007p

Recessions

Medical Cost per

Claim ($000s)

Period of reforms in

the early 1990s.

2007p: Preliminary based on data valued as of 12/31/20071980–2006: Based on Financial Call data, developed to ultimateBased on the states where NCCI provides ratemaking services and excludes the effects of deductible policies

Accident Year


Key Takeaways

• The current recession is likely to be both protracted and severe

• Recessions tend to place downward pressure on exposure (payrolls) because of declines in both employment and slower growth (or declines) in wage rates

• The economy affects claim frequency largely through the experienced worker effect—reflected in fluctuations around a persistent downward trend


Key Takeaways (cont.)

• Indemnity severity is impacted by changes in wages (the growth in which varies over the business cycle) as well as by how workers react to changes in economic conditions

• Medical severity seems largely insensitive to the business cycle


The Residual Market in Nevada


Total Residual Market New Applications and Premium Assigned in All Plan States

85.477.8

66.9

54.9

$311

$232$188

$144

0

100

200

300

400

500

2005 2006 2007 2008

0

20

40

60

80

100

Calendar Year

Total New Applications Total New Premium

# Thousands $ Millions

$ Premium (Millions) # Applications (000’s)


Total Residual Market New Applications and Premium Assigned in Nevada

2.62.1

1.81.5

$15

$12

$9

$6

0

5

10

15

20

2005 2006 2007 2008

0

1

2

3

4

5

Calendar Year

Total New Applications Total New Premium

$ Premium (Millions) # Applications (000’s)

# Thousands $ Millions


Number of Total Assignments

Year Q1–Q4 % Change From Prior Year

2005 2,574

2006 2,132 -17%

2007 1,772 -17%

2008 1,529 -14%

The Number of Residual Market Plan Assignments in Nevada


The Volume of New AssignedPremium in Nevada

Volume of Total Assigned Premium

Year Q1–Q4 % Change From Prior Year

2005 $14,764,680

2006 $11,920,696 -19%

2007 $ 9,089,955 -24%

2008 $ 6,426,169 -29%


Nevada Total Residual Market Plan Policy Count

7,2316,930

6,271

5,451

0

5,000

10,000

2005 2006 2007 2008

Nu

mb

er

of

Po

lic

ies

Policy Year


Nevada Total Residual Market Plan Premium Volume

$39$37

$31

$24

$0

$10

$20

$30

$40

$50

2005 2006 2007 2008

Pre

miu

m (i

n M

illi

on

s)

Policy Year


Nevada Residual Market Plan 2007 vs. 2008 Total Policy Size

Comparison

Premium Size

2007 2008

# of

Policies

Premium # of

Policies

Premium

$0-$2,4994,275 $3,730,220 3,823 $3,333,847

$2,500-$4,999776 $2,747,231 626 $2,215,568

$5,000-$9,999555 $3,902,359 476 $3,398,275

$10,000-$19,999369 $5,186,479 296 $4,197,892

$20,000-$49,999198 $6,130,716 167 $5,056,482

$50,000-$99,99973 $4,944,728 45 $3,169,507

$100,000-$199,99921 $2,806,082 17 $2,212,194

$200,000 and greater4 $1,809,136 1 $ 214,345

TOTAL6,271 $31,256,951 5,451 $23,798,110


Nevada Top Five Class Codes Based on Residual Market Plan

Total Policy Count

Nationally Nevada

5645—Carpentry (11.1%) 5645—Carpentry (4.9%)

5437—Carpentry, Interior Trim (4.8%)

8810—Clerical (4.4%)

5474—Painting (4.2%) 7228—Trucking, Local (3.4%)

8810—Clerical (4.1%) 9014—Janitorial Services byContractor (3.1%)

7228—Trucking, Local (3.8%) 5403—Carpentry NOC (3.1%)


Nevada Top Five Class Codes Based on Residual Market Plan

Total Written Premium

Nationally Nevada

5645—Carpentry (6.4%) 5551—Roofing (4.2%)

5551—Roofing (3.1%) 5645—Carpentry (3.8%)

7228—Trucking, Local (2.5%) 6204—Drilling NOC (3.3%)

7229—Trucking, LongDistance (2.5%)

5403—Carpentry NOC (2.9%)

8835—Nursing, Home Health (2.4%)

8835—Nursing, Home Health (2.2%)


Demographics: Top 10 Zip CodesWith the Largest Number of

Nevada Residual Market Policies

Zip Code City

Policy

Counts

% of Policies

in Zip Code

89502 RENO, NV 116 2.76%

89118 LAS VEGAS, NV 104 2.48%

89119 LAS VEGAS, NV 101 2.40%

89511 RENO, NV 89 2.12%

89509 RENO, NV 87 2.07%

89423 MINDEN, NV 84 2.00%

89431 SPARKS, NV 82 1.95%

89102 LAS VEGAS, NV 78 1.86%

89103 LAS VEGAS, NV 77 1.83%

89117 LAS VEGAS, NV 74 1.76%

892 21.23%


Nevada Assigned Risk Pricing Programs

• Assigned Risk Differential

• Assigned Risk Adjustment Program (ARAP)

• Loss Sensitive Rating Plan (LSRP)

• No Premium Discounts


Residual Market Filings

Arizona 10/1/08 +7.9%

South Carolina 7/1/08 +4.3%

Illinois 1/1/09 +3.5%

Connecticut 1/1/09 +1.2%

South Dakota 7/1/08 +1.2%

Georgia* 7/1/09 0.0%

Kansas 1/1/09 0.0%

Oregon 1/1/09 0.0%

New Mexico 1/1/09 -1.3%

New Hampshire 1/1/09 -1.7%

Alabama 3/1/09 -2.3%

* Pending


Residual Market Filings

Indiana 1/1/09 -3.4%

Iowa 1/1/09 -3.8%

North Carolina 4/1/09 -3.8%

Virginia 4/1/09 -5.0%

Alaska 1/1/09 -5.2%

Nevada 3/1/09 -6.0%

Tennessee 3/1/09 -8.4%

Vermont 4/1/09 -9.6%

Mississippi 3/1/09 -13.0%

Arkansas 7/1/08 -13.8%

Dist. of Columbia 11/1/08 -15.8%


Implications of the New AMA Guides


Q & A


Closing Remarks

Thank You!


Glossary


Glossary

• Assigned Risk Adjustment Program (ARAP)—An assigned risk market program that surcharges residual market risks based on the magnitude of their experience rating modification.

• Calendar Year (CY)—Experience of earned premium and loss transactions occurring within the calendar year beginning January 1, irrespective of the contractual dates of the policies to which the transactions relate and the dates of the accidents.

• Calendar-Accident Year (AY)—The accumulation of loss data on all accidents with the date of occurrence falling within a given calendar year. The premium figure is the same as that used in calendar year experience.

• Claim Frequency—The number of claims per unit of exposure. For example, the number of claims per million dollars of premium or per one hundred workers.


Glossary

• Claim Severity—The average cost of a claim. Severity is calculated by dividing total losses by the total number of claims.

• Combined Ratio—The sum of the (i) loss ratio, (ii) expense ratio, and (iii) dividend ratio for a given time period.

• Detailed Claim Information (DCI)—An NCCI call that collects detailed information on an individual workers compensation lost-time claim basis, such as type of injury, whether or not an attorney was involved, timing of the claim’s report to the carrier, etc.

• Direct Written Premium (DWP)—The gross premium income adjusted for additional or return premiums, but excluding any reinsurance premiums.


Glossary

• Indemnity Benefits—Payments by an insurance company to cover an injured worker's time lost from work. These benefits are also referred to as ―wage replacement‖ benefits.

• Loss Ratio—The ratio of losses to premium for a given time period.

• Lost-Time (LT) Claims—Claims resulting in indemnity benefits (and usually medical benefits) being paid to or on behalf of the injured worker for time lost from work.

• Medical-Only Claims—Claims resulting in only medical benefits being paid on behalf of an injured worker.

• Net Written Premium (NWP)—The gross premium income adjusted for additional or return premiums and including any additions for reinsurance assumed and any deductions for reinsurance ceded.


Glossary

• Permanent Partial (PP)—Disability that prevents the insured from working at their own (and sometimes any) occupation. A disability is considered to result in partial permanent loss of earning power.

• Policy Year (PY)—Premium and loss data on business for a 12-month period for policies with inception dates within the 12-month period.

• Schedule Rating—A debit and credit plan that recognizes variations in the hazard-causing features of an individual risk.

• Take-Out Credit Program—An assigned risk program that encourages carriers to write current residual market risks in the competitive voluntary marketplace.

• Temporary Total (TT)—A disability that totally disables a worker for a temporary period of time.


Appendix


NCCI Workers Compensation Databases

• Financial Aggregate Calls

− Used for aggregate ratemaking

• Workers Compensation Statistical Plan (WCSP)

− Used for class ratemaking

• Detailed Claim Information

− In-depth sample of lost-time claims

• Policy Data

− Policy declaration page information


Financial Aggregate Calls

• Collected annually

− Policy and calendar-accident year basis

− Statewide and assigned risk data

• Premiums, losses, and claim counts

− Evaluated as of December 31

• Purpose

− Basis for overall aggregate rate indication

− Research


Policy Year Financial Aggregate Data

1/1/07 12/31/071/1/06 1/1/10 12/31/10

Policy Expiration Date

Policy Effective Date

Policy

Year

2006

Policy

Year

2007

Policy

Year

2010


Calendar-Accident YearFinancial Aggregate Data

1/1/08 12/31/081/1/07 1/1/11 12/31/11

Policy Expiration Date

Policy Effective Date

Calendar-

Accident

Year

2007

Calendar-

Accident

Year

2008

Calendar-

Accident

Year

2011


Workers Compensation Statistical Plan (WCSP) Data

• Experience by policy detail

− Exposure, premium, experience rating modifications

− Individual claims by injury type

• Purposes

− Classification relativities

− Experience Rating Plan

− Research


Valuation of WCSP Data

Policy

Effective18 Months

1st

Report

Valuation

2nd

Report

Valuation

3rd

Report

Valuation

4th

Report

Valuation

5th

Report

Valuation

30 Months42 Months

54 Months66 Months

Documents

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