New York Workers Compensation Reforms and Their Impact on Loss Development Ziv Kimmel Vice President and Chief Actuary New York Compensation Insurance Rating Board CAGNY 2015 SPRING MEETING

Overview Major New York Workers Compensation (WC) Reforms Pricing of Reform Elements Adjusting Loss Development to Reflect Reforms

Elimination of Special Disability Fund Increase in Maximum Weekly Benefit Caps on Permanent Partial Disability Duration (PPD) PPD Claims Into Aggregate Trust Fund Medical-Related Provisions System Improvements Major Components of the 2007 Reforms

The 2008 Reform Effective 10/1/2008 End of “Administered Pricing” Loss Costs  LCMs NYCIRB’s governing structure

The 2013 Reform Revised Assessment Process Closing of the Reopened Case Fund

Actual Assessment Data From State WC Board Relate Assessments to Paid Losses Mitigation / Efficiency Factor Indemnity Impact:+17.8% Total Impact: +13.3% Elimination of Special Disability Fund

Fratello Method Recognition of Varying Wage Levels by Injury Type Increased System Utilization Increase in Maximum Weekly Benefit

Effective DateMax Weekly Benefit Overall Impact 7/1/2007$5006.0% 7/1/2008$5501.9% 7/1/2009$6001.5% 7/1/2010$7404.1% 7/1/2011$7730.8% 7/1/2012$7920.3% 7/1/2013$8030.2% 7/1/2014$8090.1% 7/1/2015$8440.4% Total To Date 16.2% Increase in Maximum Weekly Benefit Impact

% Loss of Earnings = # Weeks of Benefits Actual PPD Data From State WC Board Distribution of Loss of Earnings PPD Settlement Considerations Hardship Provision Total Impact: -28% Caps on PPD Duration

Loss of Earning %Number of Weeks Greater than 95%525 90% to 95%500 85% to 90%475 80% to 85%450 75% to 80%425 70% to 75%400 60% to 70%375 50% to 60%350 40% to 50%300 30% to 40%275 15% to 30%250 Less than 15%225 Benefit Duration by Impairment Ratings

Loss of Earning percentage Number of WeeksSelected Distribution Percentage Savings Lump sum CasesOther Cases Greater than 95% % 17.0%33.5% 90% to 95% % 18.5%34.2% 85% to 90% % 20.0%35.0% 80% to 85% % 21.5%35.7% 75% to 80% % 46.1%73.0% 70% to 75% % 49.1%74.6% 60% to 70% % 52.2%76.0% 50% to 60% % 55.3%77.6% 40% to 50% % 61.4%80.7% 30% to 40% % 64.5%82.3% 15% to 30% % 67.7%83.9% Less than 15% % 70.9%85.4% Average 54.2%75.6% Total Average Savings on Perm. Partial Non Schedule 71.3% Total Average Savings on Perm. Partial 50.5% Total Impact -28.0% Final Calculation

Reflection of Reforms in Subsequent Filing Back to Basics What’s in the Reported Data? Pre-Reform vs. Post Reform

Historical loss development information is primarily pre- reform OK to use it if we assume losses are at pre-reform levels Need adjustment if applying loss development factors (LDF) to losses at post reform levels Paid vs. Paid + Case Loss Development Adjustment

Duration Cap Development Adjustments

Reported Indemnity Paid Loss Development Triangle PY1/22/33/44/55/66/77/88/99/1010/1111/1212/1313/1414/1515/1616/1717/1818/1919/ULT Note: Numbers shown in this exhibit are for illustration purposes only

Restating the Loss Development Factors: Example (1)Reported PY th to 8th link ratio1.100 (2)Development portion (3)% of Non Scheduled out of total PPD 66.7% (4)% of PPD out of total indemnity 86.6% (5)% Non Scheduled out of indemnity (3)x(4) 57.8% (6)Development portion that is NSPPD (2)x(5) (7)Development portion that is other than NSPPD (2)-(6)0.042 (8)*% of cases affected by limited duration 25% (9)Restated NSPPD Development portion (6) x [1-(8)]0.043 (10)Restated PY th to 8th link ratio 1+(9)+(7) Row (8) assumes at this point in the development, 25% are cases are now limited, whereas before they were still developing. 75% of the cases are still developing at this point in the triangle, even after the reform, as they still haven't reached the maximum duration. These assumed percentages can be found on the top of each column of the "restated" triangles. The percentages are based on a distribution of severities obtained from the Workers’ Compensation Board. Note: Numbers shown in this exhibit are for illustration purposes only

Restated Indemnity Paid Loss Development Triangle PY1/22/33/44/55/66/77/88/99/1010/1111/1212/1313/1414/1515/1616/1717/1818/1919/ULT % Cases affected Note: Numbers shown in this exhibit are for illustration purposes only

Reform Development Adjustment Summary 1 st to 19 th 19 th to Ultimate 1 st to Ultimate Adjustment Total Full Year Adjustment ReportedRestatedAdjustmentReportedRestatedAdjustment % Note: Numbers shown in this exhibit are for illustration purposes only

Special Disability Fund (SDF) Development Adjustments

Reported Indemnity Paid + Case Loss Development Triangle Evaluated as of 2008 PY1/22/33/44/55/66/77/88/99/1010/1111/1212/1313/1414/1515/1616/1717/1818/1919/ULT Note: Numbers shown in this exhibit are for illustration purposes only

Restating the Loss Development Factors: Example (1)Reported PY th to 6th link ratio1.043 (2) % of indemnity claims were subject to the SDF elimination 5.8% (3) % of claims accepted by the SDF at each development age 60.1% (4) % of all claims that were accepted by the SDF at each development age (2)x(3) 3.5% (5) % of all claims that were not accepted by the SDF at each development age 1-(4) 96.5% (6)Adjustment Factor* (7)Restated PY th to 6th link ratio (1)x(4)x(6)+(1)x(5) *The adjustment factor is determined by restating the reported loss development triangle which consists entirely of pre-reform years so that the restated LDF to ultimate is 17.8% higher than the original LDF to ultimate. Note: Numbers shown in this exhibit are for illustration purposes only

SDF Acceptance Rate Year Claims were Accepted Accident Year Total by Accident Year , , , , , , , , , TOTAL by Acceptance Year ,2211,4792,4732,0152,2932,1852,8482,3591,7231, ,060 Years of Development Accident Year Ultimate ,2371,5632,0732,3112,4772,6112,7012,7542,7872,8092,8182,8212, ,1091,6152,0582,3532,5492,7182,7912,8592,8932,9072,914 2, ,3171,7172,1182,3872,6262,7662,8412,8992,9132,924 2, ,2771,7172,1282,5192,7472,8842,9763,0173,032 3, ,1921,6022,1722,4852,6652,7582,8122,837 2, ,4581,8862,1202,3032,3662,389 2, ,3211,6531,8481,9521,985 2, ,0601,2961,4461,489 1, ,1281,191 1, Years of Development Accident Year %16%22%28%44%55%73%82%88%93%96%98%99%100% %7%11%26%38%55%71%81%87%93%96%98%99%100% %3%11%26%45%58%72%81%89%94%97%99% 100% %3%12%28%42%56%70%82%90%94%97%99% %3%14%26%41%55%75%86%92%96%97%98% %4%10%25%39%59%76%86%93%96%97% %2%9%22%43%63%78%88%93%94% %2%9%27%48%64%79%88%90% %1%11%31%50%65%80%84% %3%15%35%53%69%75% Average AY 1.2%4.4%12.5%27.6%44.3%60.1%74.9%84.2%90.3%94.2%96.6%98.2%99.1%99.6%99.9%

Restated Indemnity Paid + Case Loss Development Triangle Evaluated as of 2008 PY1/22/33/44/55/66/77/88/99/1010/1111/1212/1313/1414/1515/1616/1717/1818/1919/ULT % Cases affected4.4%12.5%27.6%44.3%60.1%74.9%84.2%90.3%94.2%96.6%98.2%99.1%100.0% Note: Numbers shown in this exhibit are for illustration purposes only

Reported Indemnity Paid + Case Loss Development Triangle Evaluated as of 2014 PY1/22/33/44/55/66/77/88/99/1010/1111/1212/1313/1414/1515/1616/1717/1818/1919/ULT Note: Numbers shown in this exhibit are for illustration purposes only

Restated Indemnity Paid + Case Loss Development Triangle Evaluated as of 2014 PY1/22/33/44/55/66/77/88/99/1010/1111/1212/1313/1414/1515/1616/1717/1818/1919/ULT % Cases affected4.4%12.5%27.6%44.3%60.1%74.9%84.2%90.3%94.2%96.6%98.2%99.1%100.0% Note: Numbers shown in this exhibit are for illustration purposes only

SDF Impact in The 2015 Filing (1)Reported 1 st to 19 th development factor2.546 (2)Restated 1 st to 19 th development factor2.931 (3)Adjustment factor for 1 st to 19 th (2)/(1)1.151 (4)Reported 19 th to ultimate factor1.032 (5)Restated 19 th to ultimate factor1.043 (6)Adjustment factor for 19 th to ultimate (5)/(4) (7)Total development adjustment factor (3)x(6) % Note: Numbers shown in this exhibit are for illustration purposes only

Doubly Adjusted Triangle

REPORTED INDEMNITY PAID + CASE TRIANGLE PY1/22/33/44/55/66/77/88/99/1010/1111/1212/1313/1414/1515/1616/1717/1818/1919/2020/ULT Reported Indemnity Paid + Case Triangle Note: Numbers shown in this exhibit are for illustration purposes only

RESTATED TRIANGLE POST DURATION CAP ADJUSTMENT PY1/22/33/44/55/66/77/88/99/1010/1111/1212/1313/1414/1515/1616/1717/1818/1919/2020/ULT % Cases affected Duration Cap Adjusted Indemnity Paid + Case Triangle Note: Numbers shown in this exhibit are for illustration purposes only

SDF & Duration Cap Adjusted Indemnity Paid + Case Triangle RESTATED TRIANGLE POST SDF ADJUSTMENT PY1/22/33/44/55/66/77/88/99/1010/1111/1212/1313/1414/1515/1616/1717/1818/1919/ULT % Cases affected4.4%12.5%27.6%44.3%60.1%74.9%84.2%90.3%94.2%96.6%98.2%99.1%100.0% Note: Numbers shown in this exhibit are for illustration purposes only

SDF Impact of 16.4% Is Then Maintained (1)Restated 1 st to 19 th development factor post Duration Cap adjustment2.382 (2)Restated 1 st to 19 th development factor post Duration Cap & SDF adjustments2.741 (3)Adjustment factor for 1 st to 19 th (2)/(1)1.151 (4)Restated 19 th to ultimate factor post Duration Cap adjustment1.015 (5)Restated 19 th to ultimate factor post Duration Cap & SDF adjustments1.026 (6)Adjustment factor for 19 th to ultimate (5)/(4) (7)Total development adjustment factor (3)x(6) % Note: Numbers shown in this exhibit are for illustration purposes only

Summary Reform adjustment depends on the reported data Adjustments can be part of on-level factors or as part of development factor Adjust one triangle at a time The devil is in the details

Questions?