The Montana State Fund Rate Setting Process Dan Gengler – Internal Actuary

Class Rate = NCCI Loss Cost x Loss Cost Multiplier Rates = Loss Costs +/- book variance on loss costs + general production expense + taxes and assessments + contribution to surplus & contingencies + underwriting offsets - future investment income on UW cash flow “Loss Cost” vs. Manual Rates LCM

$3.46$3.42

Modifications to NCCI Loss Costs Approx. 406 Class Codes used for MSF customers 15 MSF Special Class Codes: 1 combined class code for agricultural producers 11 class codes for state agencies 3 class codes for municipal governmental entities MSF Class Rating Model “Bayesian Credibility” model process and results are annually certified by consulting actuary certification is endorsed by board of directors

Modifications to NCCI Loss Costs (continued) Limited Deviations from NCCI Loss Costs Statutory requirement to charge rates neither excessive, inadequate, nor unfairly discriminatory Statutory requirement to provide coverage to all Private carriers have equivalent ability to deviate 8 class code rates selected for deviation in FY 2004 (4 codes above & 4 codes below NCCI loss cost) Criteria for Deviation Strong indication in class rating model Corroborating evidence / judgment Approval Process process and results are certified by consulting actuary certification is endorsed by board of directors

Committee Questions