2003 CAS Ratemaking Seminar

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Pricing Excess Workers Compensation Reinsurance
2003 CAS Ratemaking Seminar Session
REI-5 By Karen Pachyn, FCAS, MAAA GE
Reinsurance Corporation
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CAS Ratemaking Seminar
Outline

• Outline
• General Methodology
• Data Needs
• Default Parameters
• Experience Rating
• Exposure Rating
• Selecting An Expected

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CAS Ratemaking Seminar
Methods

• Two Methods For Determining The Expected Burning
  Cost
• Experience Rating
• Exposure Rating
• Select Expected Burning Cost Based On A Blending
  Of The Two Methods

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CAS Ratemaking Seminar
Data Needs

• Data Needs
• Historical Subject Premiums By State Or
• Projected Premium By State, HG
• Rate Change Information, Both Historical And
  Projected
• Change In Loss Costs / Rates
• Change In Loss Cost Multiplier / Deviations
• Change In Use Of Experience And Schedule
  Credits And Debits
• Change In Miscellaneous Credits
• If Company Writes Excess SIRs, Get Premium By
  SIR
• How Does Layer Attach?
• Portion Of Book That Is Guaranteed Cost, Versus
  Retrospectively Rated
• Historical Exposures By State Or

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CAS Ratemaking Seminar
Data Needs

• Data Needs
• Paid And Incurred Historical Losses Ground Up
  By State Or
• As Of The Most Recent Evaluation
• As Of Prior Evaluations
• With ALAE Separated Out
• Paid And Reported Claim Counts Consistent With
  The Loss Data
• Cat Losses Separated Out
• Most Recent Reserve Study
• Any Information To Help Us Better Understand
  The Companys Triangles
• And Frequency/Severity Trends

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CAS Ratemaking Seminar
Data Needs

• Data Needs
• Per Occurrence Losses In Excess Of 50 Of The
  Retention
• As Of The Most Recent Evaluation
• As Of Prior Evaluations
• With Cat Losses Identified
• With ALAE Separated Out
• Is Any Of The Ceding Companys Business Excess?

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CAS Ratemaking Seminar Industry
Parameters

• Industry Parameters
• Frequency
• Severity
• Premium Trends
• Loss Development
• Ground Up Vs. Excess
• National Versus Regional

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CAS Ratemaking Seminar
Rate Changes
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CAS Ratemaking Seminar
Rate Changes
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CAS Ratemaking Seminar
Loss Trend
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CAS Ratemaking Seminar
Loss Trend
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CAS Ratemaking Seminar
Severity Trend
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CAS Ratemaking Seminar
Loss Trend
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CAS Ratemaking Seminar WC
Development
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CAS Ratemaking Seminar Experience
Rating

• Experience Rating
• By Year
• Trend Historical Subject Premiums
• Trend Individual Large Losses
• Determine Trended Losses To Layer And Aggregate
• Develop Trended Layer Losses To Ultimate
• Calculate Trended And Developed Historical
  Burning Costs
• Select An Expected

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CAS Ratemaking Seminar Experience
Rating
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CAS Ratemaking Seminar Experience
Rating
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CAS Ratemaking Seminar Experience
Rating
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CAS Ratemaking Seminar Experience
Rating
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CAS Ratemaking Seminar Exposure
Rating

• Exposure Rating
• Calculate An Expected Ground Up Loss Ratio
• Calculate Expected ALAE Factor As A Of Ground
  Up Losses
• Use NCCI ELPPFs To Calculate Losses To Our
  Layer
• Modify ALAE Factor To A Factor Thats
  Appropriate For An Excess Layer
• Excess Burning Cost Is The Ground Up Loss Ratio
  Times The Percent Of
• Ground Up Losses To Our Layer Times The ALAE
  Load

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CAS Ratemaking Seminar Exposure
Rating
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CAS Ratemaking Seminar Exposure
Rating
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CAS Ratemaking Seminar
Burning Cost

• Selection Of Expected Burning Cost
• Blending Of Experience And Exposure Rating
• What Is Frequency And Severity Implied By Both
• Other Considerations
• Number Of Years In The Experience Period
• Stability And Size Of Book
• Number Of Claims To The Layer Historically
• Size Of Losses In The Layer
• Layer Attachment Point
• Company Business Versus Industry Average

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CAS Ratemaking Seminar
Burning Cost

• Selection Of Expected Burning Cost
• Questions Unique To Workers Compensation
• Critical To Understand Issues Unique To The
  States They Write In
• Are Losses Discounted Or Undiscounted?
• Is The Company Using An Automated Reserving
  System?
• How Proactive Are They In Loss Control And
  Managed Care?
• Mix Of Classes Of Business Within Hazard Groups
• Accumulations Of Employees
• Cat And Terrorism Exposures