Presented by Steven Weeks AmFed April 2019 MS Workers’ Compensation & Self-insurance: A Prognosis of the Industry Presented by Steven Weeks AmFed April 2019

Triage Plan Setting the Tone – a historical perspective Vital Signs Internal Examination Loss dollar Rate adequacy Expense load – or cost of production including excess External Examination Competition Medical Costs NCCI Legal Environment Prognosis - ?

At any one time, what was the highest number of approved self-insured groups in MS? What is it today? What’s changed and why? What’s on the horizon? Initial Assessment

The Loss Dollar Indemnity and Medical Falling Rate Medical CPI Loss Dollar Competition The Loss Dollar Indemnity and Medical

Rate Adequacy Combined Ratio Workers’ Comp Private Carriers

On average the commercial insurance industry is operating at a 25% - 32% expense load. This leaves 60% of the premium dollar to pay claims and 8% -15% profit margin. Expenses Underwriting, claims, risk management Ancillary costs and services – accounting, actuarial, taxes, fees and other expenses Acquisition costs/commissions Excess coverage As an industry, are we efficient? Expenses – a key driver

Industry Drivers Commercial market Frequency and/or severity of claims Statutory change Regulatory change Case law – impact toward future rate Economic Outlook

Policyholder Surplus $781.5 Billion (all time high)

Cost Drivers 2002 – 2016: Cumulative Change -39.5% Y/Y Average Change -3% (Industry -3.7%) Lost-Time Claim Frequency Cumulative Change +15.2% Y/Y Average Change +1.2% (Industry +22.5%) Severity Previous 6 years: ranging 3% - 6% Medical Inflation Cost Drivers

Mississippi Historical NCCI Loss Cost Changes by Year

Regulatory and Legal Regulatory: Substantive statutory changes in 2012 Rules: Continued positive changes and improvements Legal: No significant judicial rulings as in Alabama and Florida Regulatory and Legal

Economic: Is a recession imminent? Yield Curve inverted briefly Q1 2019. This may signal a less positive economic outlook, e.g., economic slowdown or recession. We are either at or near full-employment. This could be an economic headwind. The Fed is very cautious regarding additional interest rate hikes for the immediate future.

Outlook Commercial market Cumulative rate change of -48.1% since 2009. Profitable results continue to be published. Policyholder surplus at historic levels. Cumulative rate change of -48.1% since 2009. Full-employment concerns. Longest economic expansion since WWII. Yield curve inversion. Recession on the horizon?

Treatment Plan Increase efficiency Reduce expenses Improve loss dollar Consider creative solutions Improve services to create value Develop strategic partnerships Internal Be aware of your surroundings Deliberate planning around external pressures Identify strategic opportunities External Treatment Plan

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