casualty loss reserve seminar current issues and trends in medical malpractice this document is...
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Observations on Financial Results Edward WrobelTRANSCRIPT
Casualty Loss Reserve SeminarCurrent Issues and Trends in Medical Malpractice
This document is incomplete without the accompanying discussion; it is confidential and intended solely for the information and benefit of the immediate recipient hereof.
Edward WrobelGail Tverberg
September 12, 2006
2
Overview Observations on financial results – Edward Wrobel
Malpractice tort reforms and their impact on loss data – Gail Tverberg
Significant risk and uncertainty in medical malpractice loss reserving – Bill Burns
Observations and trends – Edward Wrobel
Closing/questions
Observations on Financial Results
Edward Wrobel
4
Observations on Financial Results
0%20%40%60%80%
100%120%140%160%180%
CombinedSource: A.M. Best’s Aggregates and Averages
5
Observations on Financial Results
0%20%40%60%80%
100%120%140%160%180%
Combined Investment GainSource: A.M. Best’s Aggregates and Averages
6
Observations on Financial Results
0%20%40%60%80%
100%120%140%160%180%
1976
1979
1982
1985
1988
1991
1994
1997
2000
2003
Combined Investment Gain OperatingSource: A.M. Best’s Aggregates and Averages
7
Observations on Financial Results
Source: A.M. Best’s Aggregates and Averages
Medical Malpractice - Occurrence & Claims-MadeDirect
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
Coverage Year
Prem
ium
s Ea
rned
(bill
ions
)
0.0
20.0
40.0
60.0
80.0
100.0
120.0
140.0
160.0
Loss
Rat
io
Premiums Earned Loss Ratio
8
Observations on Financial Results
Source: A.M. Best’s Aggregates and Averages
Medical Malpractice - Occurrence & Claims-MadeCeded
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
Coverage Year
Prem
ium
s Ea
rned
(bill
ions
)
0.0
20.0
40.0
60.0
80.0
100.0
120.0
140.0
160.0
180.0
200.0
Loss
Rat
io
Premiums Earned Loss Ratio
9
Observations on Financial Results
Source: A.M. Best’s Aggregates and Averages
Medical Malpractice - Occurrence & Claims-MadeNet
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
Coverage Year
Prem
ium
s Ea
rned
(mill
ions
)
0.0
20.0
40.0
60.0
80.0
100.0
120.0
140.0
160.0
Loss
Rat
io
Premiums Earned Loss Ratio
10
Observations on Financial Results
Source: A.M. Best’s Aggregates and Averages
Medical Malpractice - Occurrence & Claims-MadeLoss Ratios
0.0
20.0
40.0
60.0
80.0
100.0
120.0
140.0
160.0
180.0
200.0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
Coverage Year
Direct Ceded Net
11
Net Loss & DCC Schedule P - Part 2Occurrence and Claims Made Ultimate Loss at Different Valuation Points
$0
$1,000,000
$2,000,000
$3,000,000
$4,000,000
$5,000,000
$6,000,000
$7,000,000
$8,000,000
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Coverage Year
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Source: A.M. Best
12
Financial results impacted by... 1990s
—modest loss trends—favorable reserve development—relatively high investment returns—expansion—slippage in pricing
2000s—loss trends pick up—unfavorable reserve development—investment returns decline—rates adjusted
Observations on Financial Results
Malpractice Tort Reforms and Their Impact on Loss Data
Gail E. Tverberg
14
Overview
State Reforms by Year Federal Reforms Impacts of Tort Reforms on Loss Data Industry Calendar Year Data
15
State Reforms by Year - 2003 Tort reforms in several large states
Florida: $500K physician / $750K hospital non-economic damage (NED) cap
Idaho: $250K NED cap
Ohio: Variable NED cap to $1M; collateral source offset
Oklahoma: $300K NED cap for obstetrics
Texas: $250K NED cap; mandatory periodic payments; joint and several liability changes
West Virginia: $250K - $500K NED cap
16
State Reforms by Year - 2004 Tort reforms in several smaller states, and enhancements
to previous reforms in larger states
Florida: Cap on attorney fees
Massachusetts: Reduction in pre-judgment interest
Mississippi: $500K NED cap
Nevada: Enhancements to $350K NED cap; attorney fee cap; periodic payments
Ohio: Reduction in pre-judgment interest; NED cap lowered to $250K - $500K
Oklahoma: $350K NED cap enhancements; changes to joint and several liability
17
State Reforms by Year - 2005 More tort reforms – not as significant as in 2003
Alaska: $250K - $400K NED cap
Connecticut: Weak package, including small reduction in prejudgment interest
Georgia: $350K NED cap; joint and several liability changes; venue changes
Illinois: $500K physician, $1M hospital NED cap
Missouri: $350K NED cap; joint and several liability changes; collateral source; venue
South Carolina: $350K NED cap; joint and several liability changes
Many states: Evidence of apology not admissible in court
18
State Reforms by Year – 2005 (cont’d.) Other 2005 changes
New Jersey: Mandatory offer of $5,000 deductible; premium subsidy; reporting requirements
Pennsylvania: Joint and several liability reforms overturned
Wisconsin: $350K NED cap overturned
19
State Reforms by Year - 2006 Very few reforms in 2006
Florida: Joint and Several Liability Reform
Wisconsin: $750K NED cap (to replace $350K cap struck down in 2005)
20
Federal Tort Reform Federal NED cap legislation introduced each year
2006 legislation patterned after Texas legislation
Filibuster threatened
Failed to get 60 votes needed to invoke cloture
21
Impact of Tort Reforms on Loss Data Legislation states when a given reform is effective
Injuries after xx/xx/xxxx
Accident year basis
Often used on non-economic damage caps or changes in statute of limitations
Suits filed after xx/xx/xxxx
Similar to report year basis
For example, may be used on change in prejudgment interest rate, or change in periodic payment requirement
22
Impact of Tort Reforms on Loss Data (cont’d.)
Claims paid after xx/xx/xxxx
Rarely see this for true tort reforms – more often, for other changes
Example – collect closed claim data after given date; new disciplinary procedures for physicians after a given date
Legislation is generally a package of reforms
Different parts may have different reform effective dates
23
Impact of Tort Reforms on Loss Data (cont’d.)
Actual impact on loss data seems to differ from theoretical Indirect impacts as well as direct
Typical impacts Large jump in claims reported and claims paid
—Occurs shortly after legislation is passed, before it becomes effective
—Purpose: avoid the new law Drop in claims reported after effective date
—Empty pipeline
—Wait to see how new legislation will work out May bounce back
24
Impact of Tort Reforms on Loss Data (cont’d.)
True reforms
Will have a long-term effect
May reduce annual trend rate
May need to be tested in court to be fully effective
Indirect impact on jurors
May result from hearing about need for legislation
Thus, possible to have some effect in states without reforms
25
Change in National Practitioner Databank Payments
States with 2003 Tort Reforms Compared to Other States (in millions)Average Annual Payments
2000 to 2003 2004 to 2005 % Change
States with Reforms
Florida $317.2 $264.3 -17%
Idaho 6.8 8.4 23%
Ohio 180.9 132.3 -27%
Oklahoma 34.3 40.3 17%
Texas 245.7 219.1 -11%
West Virginia 38.8 18.3 -53%
Subtotal $823.8 $682.7 -17%
US Total $4,188.2 $4,164.1 -1%
US Total ex 2003Reform States
$3,364.3 $3,481.4 3%
26
Florida – AM Best Page 14 Data ($ millions)
0100200300400500600700800900
1,000
2000 2001 2002 2003 2004 2005
$ M
illio
ns
Written P remium Paid Loss Incurred Loss Paid ALAE
27
Texas – AM Best Page 14 Data ($ millions)
0100
200300
400500
600700
2000 2001 2002 2003 2004 2005
$ M
illio
ns
Written P remium Paid Loss Incurred Loss Paid ALAE
Observations on Trends
Edward Wrobel
29
Frequency Generally flat to down Exposure base considerations?
Severity Following surge in late 1990s/early 2000s, leveling
off?
Heavily influenced by jurisdiction Some tort-reform driven, some not Other factors?
Impact on reserving
Observations on Trends
30
Medical MalpracticeP&S Pure Premium
$200,000 Limits
0
10
20
30
40
1 2 3 4 5
Time
(% C
hang
e)
Source: 1990 St. Paul Filing
+18%
+31%
+16% +15%
+12%
31
Medical MalpracticeSt. Paul CountrywideP&S Pure Premium
$200,000 Limits
0
10
20
30
40
1981 1982 1983 1984 1985 1986 1987 1988 1989
Year
(% C
hang
e)
Source: 1990 St. Paul Filing
+18%
+31%
+16% +15%
+12%
+3%
+1%
+7%+6%
32
St. Paul-Hospitals
0.0080.009
0.010.0110.0120.0130.0140.0150.0160.0170.0180.019
0.020.021
1979 1980 1981 1982 1983 1984 1985 1986 1987 1988
Actual Fit
Frequency
33
St. Paul-Hospitals
6
7
8
9
10
11
12
13
14
15
16
17
18
1979 1980 1981 1982 1983 1984 1985 1986 1987 1988
(thou
sand
s)
Actual Fit
Severity
34
St. Paul-Hospitals
406080
100120140160180200220240260280300
1979 1980 1981 1982 1983 1984 1985 1986 1987 1988
Actual Fit
Pure Premium
Questions?