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Enterprise Risk Valuation and Capital Planning for Health Care Companies
John Stark, FSA, MAAARegional VP, Actuarial Product LineAnthem Health Plans of [email protected]
ERM AssumptionsDesignated a CRO or a risk management committee
Constructed a risk mapping
Conducted an inventory of risk management tools
Identified its risk management appetite
Developed a risk policy
Started monitoring risks
Business Plan & ERMBusiness plan and ERM program must be in alignment
Can have situation where business plan gives acceptable financial results that are not within risk policy parameters
ERM program cannot be rigid
Qualitative QuantitativeShow effect of ERM infrastructure on financial results
Use current models for budgeting and forecasting
May need to develop new models or enhance current models
Using Current ModelsMaintain consistency before and after ERM implementation
All parties can understand results
View assumptions within ERM framework●Actual model inputs will not change●Derivation and interpretation will be different●Run more scenarios
More on AssumptionsAssumptions should take into account risks identified in risk mapping
How does the model deal with situations such as● Rapid growth (e.g., deterioration in customer service
or network cannot absorb all new members)● Adversarial provider negotiations● Competitors engaged in irrational pricing● Reputational risk
More on Assumptions (cont’d)Company needs resources other than $$●Claims processors● IT hardware, software, and/or personnel●Need lead time to arrange for these resources
Enterprise Risk ValuationAnd Capital Planning
For Health Care Companies
James P. Galasso, FSA, MAAAPresident & Consulting ActuaryActuarial Modeling(404) [email protected]
Topics
1. Enterprise Risk Management (“ERM”) and Business Planning
2. Uses of ERMA. Corporate IssuesB. Actuarial Issues
3. ERM Modeling Assumptions4. Aligning Business Plan w/ ERM Scenarios
A. Selected LeversB. Three Deterministic Scenarios (Hand-outs)
5. Dynamic Modeling (Hand-out)
ERM and Business Planning
ERM and Business Planning1. The Planning Process
a) Industry / Competitor analysisb) Product Development & Planningc) Target marketsd) Growth / Financial objectivese) Program initiativesf) The Business / Financial Plan / Board Reporting
2. Existing financial reports, data access, and processesa) Are current needs being met?b) What might enhance current capabilities?
Uses for ERM
ERM Modeling – Selected Uses1. Corporate Issues
a) Financial Planningb) Enterprise Valuation c) Performance Measurementd) Business Segment Analysise) Sensitivity Analysisf) Solvency (Risk-Based Capital)
Testingg) Merger & Acquisition / Due
Diligenceh) Financial Training Tool
ERM Modeling – Selected Uses
2. Actuarial Issuesa) Actuarial Appraisalsb) Medical Trend Analysisc) Lapse rate Analysisd) Premium Deficiency Reserve
Valuationse) New vs Existing Business Analysisf) First Year vs Renewal Business
Analysisg) Product Developmenth) Deferred Acquisition Costs
ERM Modeling Assumptions
ERP Modeling – Selected Assumptions
20. Valuation Multiple10. Dividend Policy & Capital Contribs
19. Min MLR’s9. Medical Trend “Recognition Delay”
18. One-time Prem Changes8. Federal Income Tax Rate17. Annual Claim Changes7. Initial Surplus and Risk-Based Capital
16. Interest Rates6. Underwriting Selection Factor15. Fees & Other Income5. 1st Yr Premium Selection Factor14. Admin Expenses4 Target MLR’s / Defined Prem Changes13. Hurdle Rate3 Initial PMPM’s (or, PEPM’s)12. Days of Receivables2. Medical Trends11. Mnths of IBNR1. Lapse Rates (Annual & Shock Lapses)
Aligning Business Planwith ERM Scenarios
Selected Financial Levers
c. Benefit Plans
d. Lines of Business (Direct Pay, Small Group, Large Group)
b. Products (POS, PPO, Med Supp)9. Cost of Capitala. New Business vs Renewal
8. Regulation/Litigation/Taxes2. Business Mix7. Interest Ratesd. Benefit Plans6. Admin Expensesc. Rx, Mental Health, etc.5. Lapse Ratesb. Utilization4. Competitiona. Unit Costs3. Risk Selection1. Medical Trends / Premium Rates
ERP Modeling – Handouts
Base Scenario
1. Market Segmentsa) Large Groupb) Small Groupc) Medicare Supplement Ad) Medicare Supplement B
ERP Modeling – Handouts
Base Scenario (Cont’d)
Summary Valuation2. Present Values ($Millions)
a) Net Income: $103.1b) Cost of Capital: ($39.2)c) Divestiture Value: $73.7d) Enterprise Value: $137.6e) Capital Contributions: $0f) Dividends Paid: $8.5
ERP Modeling – Handouts
Base Scenario (Cont’d)
3. Summary Valuation (Cont’d)a) Compound Annual Growth Rates
1) Members: 6.6%2) Premium: 17.6%3) Net Income: 23.4%
b) Return on Capital: 19.0%
ERP Modeling – Handouts
Alternative Scenarios
Alternative 1 – Same as Base Except:1. All Medical Loss Ratios reduced by 0.5%
(Premium Increases)2. New Business reduced by 2%3. Lapse Rates increased by 1 percentage
point4. Introduced Small Group $25 Monthly
Admin Fee
ERP Modeling – Handouts
Alternative Scenarios
Alternative 2 – Same as Base Except:1. All Admin Expenses (except
Commissions & Premium Taxes) reduced by 5%
2. Future Fixed Admin reduced by 5% per year (versus Base, where FixedAdmin increased 5% per year)
ERP Modeling – HandoutsAlternative Scenarios ($Millions)
(Present Values)
Enterprise Value
Divestiture Value
Cost of Capital
Net Income
Item
$209.5$170.1$137.6
$114.2$89.7$73.7
($39.2)($38.1)($39.2)
$134.6$118.4$103.1
Alt 2Alt 1Base
ERP Modeling – HandoutsAlternative Scenarios (Cont’d)
(Compound Annual Growth Rates / Return on Capital)
Return on Capital
Net Income
Premiums
Members
Item
23.8%21.8%19.0%
26.5%22.6%23.4%
17.6%16.6%17.6%
6.6%5.6%6.6%
Alt 2Alt 1Base
Dynamic ERM Modeling(Hand-outs)
Excellent for:1. Sensitivity Analysis2. Objective determination of range of
possible outcomes (relatively) 3. Risk of Ruin and Capital Adequacy
Analysis (e.g. Risk-based Capital)
Financial Projections
For
XYZ Health Plan
Projection Period: Jan-2005 -
Total Business (Annual)
Summary Income Statements with Key Indicators
Scenario Grand Total-Base Scenario(1) Market Segment(s) Aggregated
1. Large Group2. Small Group3. Med Supp A4. Med Supp B
(1) Market Segments have been shaded if corresponding Members were not Aggregated
Dec-2009
Actuarial Modeling 04/18/05
Financial Projections for:
Table of Contents
Page
Summary Valuation 1Scenarios Summary 2Annual Income Statements 3Base Data 4Key Assumptions 5
GraphsMembers 6Premium & Benefit PMPM's 7Admin PMPM's 8Loss Ratios 9Earnings 10Surplus vs Target Risk-Based Capital 11
XYZ Health Plan
Actuarial Modeling 04/18/05
Summary Valuation Exhibit for Operating Entities ($000's)
Company Name: XYZ Health Plan Scenario: Grand Total-Base Scenario
Projection Period Jan-2005 To Dec-2009
Present Values as of: Jan-2005 Hurdle Rate: 12.0% Compound Annual Growth Rates (3)
(From Jan 1, 2005 to Dec 31, 2009)Net Income
New Business 37,437 Members 6.6%Existing Business 65,688 Premium 17.6%
Total Net Income 103,125 Total Net Income 23.4%
Cost of Capital (39,186) Return on CapitalYear 1 Year 2 Year 3 Year 4 Year 5 Average
Divestiture Value (P.V. of end of proj period value) (1) 73,702 19.6% 18.7% 18.5% 18.8% 19.4% 19.0%
Enterprise Value (2) 137,640
Cap Contribs (assumed rec'd beginning of proj yr) 0
Dividends (Pd end of proj yrs & subtracted from surplus) 8,463
(1) Divestiture Value = 5.0 x (12 mos Net Income less 12 mos Cost of Capital)(2) Total Present Values for Op Entities (New plus Existing Business Net Income plus Cost of Capital plus Divestiture Value)(3) Simple rates when Proj Yr 5 is negative / not meaningful (N.A.) when Proj Yr 1 is negative
Actuarial Modeling Page 1 04/18/05
SCENARIOSKey Values (Op Entities) Key Assumps (Op Entities)
PV After-Tax Op G(L) (1st Proj Year only)
ScenarioEnterprise
Value New Existing TotalP.V. Costof Capital
P.V. Divestiture
Value
5 YrAvg Return on Capital
LapseRate
Tgt MLRor PremChange
MedicalTrend User Notes / Comments
Base ScenarioPrem Select - Large Group - 90% (1 Year)
High 16.0% 86.8% 11.4% Medical Cost Selection - Small Group - 75% (24 mos)1. Grand Total-Base Scenario 137,640 37,437 65,688 103,125 (39,186) 73,702 19.0% Low 3.0% 79.6% 9.8%
Alt 1 - Same as Base Except:All MLR's reduced by 0.5% (prem increases)
High 17.0% 86.3% 11.4% New Bus reduced 2% & Lapse Rates increased 1 percentage pt2. Grand Total-Alternative 1 170,089 42,389 76,059 118,449 (38,097) 89,738 21.8% Low 4.0% 79.1% 9.8% Small Group PGPM $25 Admin Fee
Alt 2; Same as Base Except:All Admin (x-Commissions & Prem Taxes) reduced by 5%
High 16.0% 86.8% 11.4% Future Admin reduced by 5% per year (vs Base where increased 5% p3. Grand Total-Alternative 2 209,534 48,678 85,890 134,568 (39,186) 114,152 23.8% Low 3.0% 79.6% 9.8%
Actuarial Modeling Page 2 04/18/05
Company Name: XYZ Health Plan Scenario: Grand Total-Base Scenari
Op Entities ($000's)Summary Annual View
Tot. Operating Entities
Proj. Year 1 2 3 4 52005 2006 2007 2008 2009
No. of 1st year mos.: 12Member Months 4,038,688 4,312,836 4,599,395 4,898,812 5,211,600
Revenue 996,124 1,172,334 1,379,697 1,621,609 1,903,583Prem Earned 991,287 1,166,665 1,373,025 1,613,762 1,894,366Other Income 4,836 5,669 6,672 7,847 9,217
Benefits Incurred 820,077 963,283 1,133,678 1,332,858 1,565,001SG&A (w/ Royalty Fees) 152,549 179,461 209,658 244,723 285,419
Net Income 17,387 22,106 27,466 33,429 40,310Pre-Tax Op Gain (Loss) 23,498 29,590 36,361 44,028 53,163
Interest on Surplus 3,669 4,951 6,555 8,205 9,821F.I.T. 9,780 12,435 15,449 18,804 22,675
2005 2006 2007 2008 2009
KEY INDICATORS - Total
PMPM'sPrem Earned 245.45 270.51 298.52 329.42 363.49Benefits Incurred 203.06 223.35 246.48 272.08 300.29SG&A (w/ Royalty Fees) 37.77 41.61 45.58 49.96 54.77
General Admin Exp. 29.79 32.75 35.83 39.21 42.93Prem Taxes 4.91 5.41 5.97 6.59 7.27Commissions 3.08 3.45 3.78 4.15 4.57
Pre-Tax Op Gain (Loss) 5.82 6.86 7.91 8.99 10.20% of Premium
Benefits Incurred 82.7% 82.6% 82.6% 82.6% 82.6%SG&A (w/ Royalty Fees) 15.4% 15.4% 15.3% 15.2% 15.1%
General Admin Exp. 12.1% 12.1% 12.0% 11.9% 11.8%Prem Taxes 2.0% 2.0% 2.0% 2.0% 2.0%Commissions 1.3% 1.3% 1.3% 1.3% 1.3%
Pre-Tax Op Gain (Loss) 2.4% 2.5% 2.6% 2.7% 2.8%Annual PMPM Trends
Members 6.8% 6.6% 6.5% 6.4%Prem Earned 10.2% 10.4% 10.3% 10.3%Benefits Incurred 10.0% 10.4% 10.4% 10.4%SG&A (w/ Royalty Fees) 10.2% 9.5% 9.6% 9.6%Pre-Tax Op Gain (Loss) 17.9% 15.2% 13.7% 13.5%
Actuarial Modeling Page 3 04/18/05
Pre-Projection Period Aggregated Base Data for: XYZ Health Plan($000's)
Large Group Small Group Med Supp A Med Supp B 0Month Members Premiums Benefits Members Premiums Benefits Members Premiums Benefits Members Premiums Benefits Members Premiums Benefits
1/2004 132,129 28,129 22,981 70,145 16,286 13,168 101,079 10,686 7,963 101,079 10,686 7,767 0 0 02/2004 133,450 28,661 24,649 68,727 15,536 12,920 103,090 10,994 9,618 103,090 10,994 8,164 0 0 03/2004 134,785 29,189 26,860 69,414 15,830 12,067 103,989 10,873 9,160 103,989 10,873 9,105 0 0 04/2004 136,133 29,749 26,607 72,111 17,071 12,224 105,234 11,304 9,431 105,234 11,304 8,752 0 0 05/2004 137,494 30,317 27,115 74,353 16,274 13,533 107,245 11,747 9,705 107,245 11,747 9,002 0 0 06/2004 138,869 30,893 28,428 75,365 16,259 13,271 108,996 11,513 8,579 108,996 11,513 8,731 0 0 07/2004 140,258 31,464 25,977 76,356 17,390 13,524 110,453 12,319 9,779 110,453 12,319 10,024 0 0 08/2004 142,643 32,277 27,758 77,589 18,693 15,113 106,982 12,039 10,239 106,982 12,039 9,796 0 0 09/2004 142,543 31,983 28,206 76,902 17,624 14,310 106,256 11,779 9,472 106,256 11,768 9,441 0 0 0
10/2004 141,977 32,304 28,314 75,504 17,516 14,177 105,532 11,803 9,490 105,532 11,781 9,451 0 0 011/2004 141,878 32,282 28,517 74,918 17,434 14,194 104,810 11,826 9,507 104,810 11,794 9,460 0 0 012/2004 141,779 32,259 28,721 74,425 17,354 14,228 104,091 11,850 9,524 104,091 11,806 9,469 0 0 0
Actuarial Modeling Page 4 04/18/05
Key Assumptions for: XYZ Health Plan
Projection Period: Jan 1, 2005 thru Dec 31, 2009
Scenario: Grand Total-Base Scenario
Key Corporate Assumptions (Projection Year 1)
Int. on Surplus (Composite): 5.0% Hurdle rate: 12.0% Data Consistency CheckInt. on Operations: 6.0% RBC Target (Corporate): 12.0% All O.K.
F.I.T. rate: 36.0% Divestiture Value (Wt'd Avg.) 5.0
Key Operating Assumptions (Projection Year 1)
Administrative ExpensesAnnual Medical First Year Renewal
Mkt Sgmt Lapse Rate Target MLR Trend % Prem Comm Prem Tax PMPM PGPM % Prem Comm Prem Tax PMPM PGPM
1. Large Group 3.0% 86.8% 9.8% 6.0% 2.0% 2.0% 5.00 5.00 10.0% 1.0% 2.0% 2.50 3.002. Small Group 16.0% 80.1% 11.4% 15.0% 5.0% 2.0% 5.00 5.00 10.0% 3.0% 2.0% 2.50 3.003. Med Supp A 8.0% 79.7% 11.0% 10.0% 0.0% 2.0% 7.00 0.00 10.0% 0.0% 2.0% 5.00 0.004. Med Supp B 8.0% 79.6% 9.9% 10.0% 0.0% 2.0% 7.00 0.00 10.0% 0.0% 2.0% 5.00 0.005. 0 0.0% 0.0% 0.0% 15.0% 0.0% 2.0% 0.00 0.00 10.0% 0.0% 2.0% 0.00 0.00
Actuarial Modeling Page 5 04/18/05
XYZ Health Plan MEMBERS SCENARIO Grand Total-Base Scenario
Members Mar-04 Jun-04 Sep-04 Dec-04 Mar-05 Jun-05 Sep-05 Dec-05 Mar-06 Jun-06 Sep-06 Dec-06Existing 305,603 318,600 326,661 321,638 312,098 307,405 301,987 297,005 288,518 284,368 279,531 275,089
New 0 0 0 0 20,280 26,331 36,109 45,015 66,517 72,101 81,494 89,993Total 305,603 318,600 326,661 321,638 332,377 333,736 338,096 342,020 355,035 356,470 361,025 365,081
Members Mar-07 Jun-07 Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09Existing 267,511 263,831 259,499 255,526 248,732 245,461 241,568 238,004 231,889 228,974 225,466 222,259
New 111,213 116,401 125,491 133,662 154,745 159,599 168,458 176,371 197,448 202,020 210,713 218,431Total 378,723 380,232 384,989 389,187 403,476 405,059 410,026 414,376 429,337 430,994 436,179 440,690
0
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Actuarial Modeling Page 6 04/18/05
XYZ Health Plan PREMIUMS / MEDICAL COST PMPM's SCENARIO Grand Total-Base Scenario
PMPM's Mar-04 Jun-04 Sep-04 Dec-04 Mar-05 Jun-05 Sep-05 Dec-05 Mar-06 Jun-06 Sep-06 Dec-06Premium 216.77 219.39 226.22 228.01 237.85 242.15 249.39 252.16 264.05 267.21 272.81 277.74Benefits 179.34 183.49 187.39 191.78 195.88 200.50 205.32 210.28 215.03 220.40 225.99 231.72
PMPM's Mar-07 Jun-07 Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09Premium 291.41 294.87 301.05 306.52 321.59 325.38 332.19 338.25 354.88 359.03 366.53 373.24Benefits 237.16 243.22 249.45 255.81 261.80 268.48 275.35 282.37 288.95 296.33 303.90 311.64
0
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0
50,000
100,000
150,000
200,000
250,000
300,000
350,000
400,000
Mar-04
Jun-0
4
Sep-04
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Mar-05
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5
Sep-05
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Avg Existing MembersAvg New Members
Avg Total Members
0.00
50.00
100.00
150.00
200.00
250.00
300.00
350.00
400.00
Mar-04
Jun-0
4Sep
-04Dec
-04Mar-
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Premium PMPM
Med Cost PMPM
Actuarial Modeling Page 7 04/18/05
XYZ Health Plan ADMIN EXPENSES SCENARIO Grand Total-Base Scenario
PMPM's Mar-04 Jun-04 Sep-04 Dec-04 Mar-05 Jun-05 Sep-05 Dec-05 Mar-06 Jun-06 Sep-06 Dec-06Gen'l Admin 0.00 0.00 0.00 0.00 28.81 29.42 30.24 30.64 32.07 32.42 32.99 33.49Prem Taxes 0.00 0.00 0.00 0.00 4.76 4.84 4.99 5.04 5.28 5.34 5.46 5.55
Commissions 0.00 0.00 0.00 0.00 2.95 3.01 3.13 3.21 3.40 3.42 3.47 3.52Royalties 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Total 0.00 0.00 0.00 0.00 36.51 37.27 38.36 38.89 40.75 41.19 41.91 42.56PMPM's Mar-07 Jun-07 Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09
Gen'l Admin 35.08 35.47 36.09 36.65 38.39 38.81 39.50 40.12 42.03 42.49 43.25 43.93Prem Taxes 5.83 5.90 6.02 6.13 6.43 6.51 6.64 6.77 7.10 7.18 7.33 7.46
Commissions 3.72 3.75 3.80 3.86 4.09 4.11 4.18 4.23 4.49 4.52 4.59 4.65Royalties 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Total 44.63 45.11 45.92 46.64 48.91 49.44 50.32 51.12 53.62 54.19 55.17 56.05
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Mar-04
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General AdminPremium TaxesCommissionsRoyalty PymtsTotal Expenses
Actuarial Modeling Page 8 04/18/05
XYZ Health Plan LOSS RATIOS SCENARIO Grand Total-Base Scenario
Loss Ratios Mar-04 Jun-04 Sep-04 Dec-04 Mar-05 Jun-05 Sep-05 Dec-05 Mar-06 Jun-06 Sep-06 Dec-06Benefits 82.7% 83.6% 82.8% 84.1% 82.4% 82.8% 82.3% 83.4% 81.4% 82.5% 82.8% 83.4%
Admin 0.0% 0.0% 0.0% 0.0% 15.4% 15.4% 15.4% 15.4% 15.4% 15.4% 15.4% 15.3%Total 82.7% 83.6% 82.8% 84.1% 97.7% 98.2% 97.7% 98.8% 96.9% 97.9% 98.2% 98.8%
Loss Ratios Mar-07 Jun-07 Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09Benefits 81.4% 82.5% 82.9% 83.5% 81.4% 82.5% 82.9% 83.5% 81.4% 82.5% 82.9% 83.5%
Admin 15.3% 15.3% 15.3% 15.2% 15.2% 15.2% 15.1% 15.1% 15.1% 15.1% 15.1% 15.0%Total 96.7% 97.8% 98.1% 98.7% 96.6% 97.7% 98.0% 98.6% 96.5% 97.6% 98.0% 98.5%
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0.0%
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60.0%
80.0%
100.0%
120.0%
Mar-04
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Benefit Loss RatioAdmin Loss Ratio
Total Loss Ratio
Actuarial Modeling Page 9 04/18/05
XYZ Health Plan EARNINGS SCENARIO Grand Total-Base Scenario
($000's) Mar-04 Jun-04 Sep-04 Dec-04 Mar-05 Jun-05 Sep-05 Dec-05 Mar-06 Jun-06 Sep-06 Dec-06Pre-Tax G(L) 0 0 0 0 6,576 5,566 7,006 4,350 10,131 7,405 6,763 5,291Net Income 0 0 0 0 4,743 4,131 5,090 3,423 7,210 5,514 5,145 4,238
($000's) Mar-07 Jun-07 Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09Pre-Tax G(L) 12,473 9,100 8,262 6,526 15,001 11,001 10,017 8,008 17,998 13,268 12,113 9,785Net Income 8,949 6,851 6,366 5,300 10,814 8,327 7,760 6,529 12,970 10,030 9,367 7,943
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-04Dec
-04Mar-
05Ju
n-05
Sep-05
Dec-05
Mar-06
Jun-0
6Sep
-06Dec
-06Mar-
07Ju
n-07
Sep-07
Dec-07
Mar-08
Jun-0
8Sep
-08Dec
-08Mar-
09Ju
n-09
Sep-09
Dec-09
Avg Existing Members
Avg New Members
Avg Total Members
0
50,000
100,000
150,000
200,000
250,000
300,000
350,000
400,000
Mar-04
Jun-0
4
Sep-04
Dec-04
Mar-05
Jun-0
5
Sep-05
Dec-05
Mar-06
Jun-0
6
Sep-06
Dec-06
Avg Existing MembersAvg New Members
Avg Total Members
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
20,000
Mar-04
Jun-0
4Sep
-04Dec
-04Mar-
05Ju
n-05
Sep-05
Dec-05
Mar-06
Jun-0
6Sep
-06Dec
-06Mar-
07Ju
n-07
Sep-07
Dec-07
Mar-08
Jun-0
8Sep
-08Dec
-08Mar-
09Ju
n-09
Sep-09
Dec-09
Pre-Tax Op Gains(Losses)
Net Income
Actuarial Modeling Page 10 04/18/05
XYZ Health Plan SURPLUS vs TARGET RISK-BASED CAPITAL SCENARIO Grand Total-Base Scenario
($000's) Mar-04 Jun-04 Sep-04 Dec-04 Mar-05 Jun-05 Sep-05 Dec-05 Mar-06 Jun-06 Sep-06 Dec-06Surplus 0 0 0 0 70,358 74,489 79,579 88,597 95,807 101,320 106,465 118,354
Target RBC 0 0 0 0 88,726 91,770 94,724 98,409 102,455 106,649 111,030 115,594
($000's) Mar-07 Jun-07 Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09Surplus 127,303 134,154 140,520 148,774 159,587 167,914 175,674 177,979 190,949 200,980 210,346 208,176
Target RBC 120,446 125,454 130,655 136,041 141,733 147,591 153,662 159,943 166,577 173,405 180,481 187,800
0
50,000
100,000
150,000
200,000
250,000
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Mar-04
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4Sep
-04Dec
-04Mar-
05Ju
n-05
Sep-05
Dec-05
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-06Dec
-06Mar-
07Ju
n-07
Sep-07
Dec-07
Mar-08
Jun-0
8Sep
-08Dec
-08Mar-
09Ju
n-09
Sep-09
Dec-09
Avg Existing Members
Avg New Members
Avg Total Members
0
50,000
100,000
150,000
200,000
250,000
300,000
350,000
400,000
Mar-04
Jun-0
4
Sep-04
Dec-04
Mar-05
Jun-0
5
Sep-05
Dec-05
Mar-06
Jun-0
6
Sep-06
Dec-06
Avg Existing MembersAvg New Members
Avg Total Members
0
50,000
100,000
150,000
200,000
250,000
Mar-04
Jun-0
4Sep
-04Dec
-04Mar-
05Ju
n-05
Sep-05
Dec-05
Mar-06
Jun-0
6Sep
-06Dec
-06Mar-
07Ju
n-07
Sep-07
Dec-07
Mar-08
Jun-0
8Sep
-08Dec
-08Mar-
09Ju
n-09
Sep-09
Dec-09
Surplus Target RBC
Actuarial Modeling Page 11 04/18/05
Financial Projections
For
XYZ Health Plan
Projection Period: Jan-2005 -
Total Business (Annual)
Summary Income Statements with Key Indicators
Scenario Grand Total-Alternative 1(1) Market Segment(s) Aggregated
1. Large Group2. Small Group3. Med Supp A4. Med Supp B
(1) Market Segments have been shaded if corresponding Members were not Aggregated
Dec-2009
Actuarial Modeling 04/18/05
Financial Projections for:
Table of Contents
Page
Summary Valuation 1Scenarios Summary 2Annual Income Statements 3Base Data 4Key Assumptions 5
GraphsMembers 6Premium & Benefit PMPM's 7Admin PMPM's 8Loss Ratios 9Earnings 10Surplus vs Target Risk-Based Capital 11
XYZ Health Plan
Actuarial Modeling 04/18/05
Summary Valuation Exhibit for Operating Entities ($000's)
Company Name: XYZ Health Plan Scenario: Grand Total-Alternative 1
Projection Period Jan-2005 To Dec-2009
Present Values as of: Jan-2005 Hurdle Rate: 12.0% Compound Annual Growth Rates (3)
(From Jan 1, 2005 to Dec 31, 2009)Net Income
New Business 42,389 Members 5.6%Existing Business 76,059 Premium 16.6%
Total Net Income 118,449 Total Net Income 22.6%
Cost of Capital (38,097) Return on CapitalYear 1 Year 2 Year 3 Year 4 Year 5 Average
Divestiture Value (P.V. of end of proj period value) (1) 89,738 22.1% 21.4% 21.4% 21.8% 22.5% 21.8%
Enterprise Value (2) 170,089
Cap Contribs (assumed rec'd beginning of proj yr) 0
Dividends (Pd end of proj yrs & subtracted from surplus) 21,667
(1) Divestiture Value = 5.0 x (12 mos Net Income less 12 mos Cost of Capital)(2) Total Present Values for Op Entities (New plus Existing Business Net Income plus Cost of Capital plus Divestiture Value)(3) Simple rates when Proj Yr 5 is negative / not meaningful (N.A.) when Proj Yr 1 is negative
Actuarial Modeling Page 1 04/18/05
SCENARIOSKey Values (Op Entities) Key Assumps (Op Entities)
PV After-Tax Op G(L) (1st Proj Year only)
ScenarioEnterprise
Value New Existing TotalP.V. Costof Capital
P.V. Divestiture
Value
5 YrAvg Return on Capital
LapseRate
Tgt MLRor PremChange
MedicalTrend User Notes / Comments
Base ScenarioPrem Select - Large Group - 90% (1 Year)
High 16.0% 86.8% 11.4% Medical Cost Selection - Small Group - 75% (24 mos)1. Grand Total-Base Scenario 137,640 37,437 65,688 103,125 (39,186) 73,702 19.0% Low 3.0% 79.6% 9.8%
Alt 1 - Same as Base Except:All MLR's reduced by 0.5% (prem increases)
High 17.0% 86.3% 11.4% New Bus reduced 2% & Lapse Rates increased 1 percentage pt2. Grand Total-Alternative 1 170,089 42,389 76,059 118,449 (38,097) 89,738 21.8% Low 4.0% 79.1% 9.8% Small Group PGPM $25 Admin Fee
Alt 2; Same as Base Except:All Admin (x-Commissions & Prem Taxes) reduced by 5%
High 16.0% 86.8% 11.4% Future Admin reduced by 5% per year (vs Base where increased 5% p3. Grand Total-Alternative 2 209,534 48,678 85,890 134,568 (39,186) 114,152 23.8% Low 3.0% 79.6% 9.8%
Actuarial Modeling Page 2 04/18/05
Company Name: XYZ Health Plan Scenario: Grand Total-Alternative 1
Op Entities ($000's)Summary Annual View
Tot. Operating Entities
Proj. Year 1 2 3 4 52005 2006 2007 2008 2009
No. of 1st year mos.: 12Member Months 3,989,150 4,209,361 4,447,479 4,700,106 4,966,118
Revenue 988,834 1,151,772 1,342,790 1,565,790 1,825,396Prem Earned 983,158 1,145,330 1,335,409 1,557,307 1,815,629Other Income 5,675 6,442 7,381 8,484 9,767
Benefits Incurred 809,983 940,102 1,096,068 1,278,501 1,490,843SG&A (w/ Royalty Fees) 151,198 176,047 203,807 236,087 273,524
Net Income 20,084 26,106 31,838 38,101 45,328Pre-Tax Op Gain (Loss) 27,653 35,623 42,916 51,202 61,029
Interest on Surplus 3,728 5,168 6,831 8,330 9,797F.I.T. 11,297 14,685 17,909 21,432 25,497
2005 2006 2007 2008 2009
KEY INDICATORS - Total
PMPM'sPrem Earned 246.46 272.09 300.26 331.33 365.60Benefits Incurred 203.05 223.34 246.45 272.02 300.20SG&A (w/ Royalty Fees) 37.90 41.82 45.83 50.23 55.08
General Admin Exp. 29.89 32.91 36.01 39.42 43.16Prem Taxes 4.93 5.44 6.01 6.63 7.31Commissions 3.09 3.47 3.81 4.19 4.61
Pre-Tax Op Gain (Loss) 6.93 8.46 9.65 10.89 12.29% of Premium
Benefits Incurred 82.4% 82.1% 82.1% 82.1% 82.1%SG&A (w/ Royalty Fees) 15.4% 15.4% 15.3% 15.2% 15.1%
General Admin Exp. 12.1% 12.1% 12.0% 11.9% 11.8%Prem Taxes 2.0% 2.0% 2.0% 2.0% 2.0%Commissions 1.3% 1.3% 1.3% 1.3% 1.3%
Pre-Tax Op Gain (Loss) 2.8% 3.1% 3.2% 3.3% 3.4%Annual PMPM Trends
Members 5.5% 5.7% 5.7% 5.7%Prem Earned 10.4% 10.4% 10.3% 10.3%Benefits Incurred 10.0% 10.3% 10.4% 10.4%SG&A (w/ Royalty Fees) 10.3% 9.6% 9.6% 9.7%Pre-Tax Op Gain (Loss) 22.1% 14.0% 12.9% 12.8%
Actuarial Modeling Page 3 04/18/05
Pre-Projection Period Aggregated Base Data for: XYZ Health Plan($000's)
Large Group Small Group Med Supp A Med Supp B 0Month Members Premiums Benefits Members Premiums Benefits Members Premiums Benefits Members Premiums Benefits Members Premiums Benefits
1/2004 132,129 28,129 22,981 70,145 16,286 13,168 101,079 10,686 7,963 101,079 10,686 7,767 0 0 02/2004 133,450 28,661 24,649 68,727 15,536 12,920 103,090 10,994 9,618 103,090 10,994 8,164 0 0 03/2004 134,785 29,189 26,860 69,414 15,830 12,067 103,989 10,873 9,160 103,989 10,873 9,105 0 0 04/2004 136,133 29,749 26,607 72,111 17,071 12,224 105,234 11,304 9,431 105,234 11,304 8,752 0 0 05/2004 137,494 30,317 27,115 74,353 16,274 13,533 107,245 11,747 9,705 107,245 11,747 9,002 0 0 06/2004 138,869 30,893 28,428 75,365 16,259 13,271 108,996 11,513 8,579 108,996 11,513 8,731 0 0 07/2004 140,258 31,464 25,977 76,356 17,390 13,524 110,453 12,319 9,779 110,453 12,319 10,024 0 0 08/2004 142,643 32,277 27,758 77,589 18,693 15,113 106,982 12,039 10,239 106,982 12,039 9,796 0 0 09/2004 142,509 31,975 28,199 76,856 17,613 14,301 106,163 11,768 9,464 106,163 11,757 9,433 0 0 0
10/2004 141,753 32,252 28,270 75,368 17,482 14,151 105,347 11,780 9,473 105,347 11,759 9,434 0 0 011/2004 141,620 32,221 28,465 74,743 17,390 14,161 104,533 11,792 9,482 104,533 11,760 9,435 0 0 012/2004 141,487 32,191 28,661 74,216 17,302 14,188 103,723 11,805 9,491 103,723 11,762 9,436 0 0 0
Actuarial Modeling Page 4 04/18/05
Key Assumptions for: XYZ Health Plan
Projection Period: Jan 1, 2005 thru Dec 31, 2009
Scenario: Grand Total-Alternative 1
Key Corporate Assumptions (Projection Year 1)
Int. on Surplus (Composite): 5.0% Hurdle rate: 12.0% Data Consistency CheckInt. on Operations: 6.0% RBC Target (Corporate): 12.0% All O.K.
F.I.T. rate: 36.0% Divestiture Value (Wt'd Avg.) 5.0
Key Operating Assumptions (Projection Year 1)
Administrative ExpensesAnnual Medical First Year Renewal
Mkt Sgmt Lapse Rate Target MLR Trend % Prem Comm Prem Tax PMPM PGPM % Prem Comm Prem Tax PMPM PGPM
1. Large Group 4.0% 86.3% 9.8% 6.0% 2.0% 2.0% 5.00 5.00 10.0% 1.0% 2.0% 2.50 3.002. Small Group 17.0% 79.6% 11.4% 15.0% 5.0% 2.0% 5.00 5.00 10.0% 3.0% 2.0% 2.50 3.003. Med Supp A 9.0% 79.2% 11.0% 10.0% 0.0% 2.0% 7.00 0.00 10.0% 0.0% 2.0% 5.00 0.004. Med Supp B 9.0% 79.1% 9.9% 10.0% 0.0% 2.0% 7.00 0.00 10.0% 0.0% 2.0% 5.00 0.005. 0 0.0% 0.0% 0.0% 15.0% 0.0% 2.0% 0.00 0.00 10.0% 0.0% 2.0% 0.00 0.00
Actuarial Modeling Page 5 04/18/05
XYZ Health Plan MEMBERS SCENARIO Grand Total-Alternative 1
Members Mar-04 Jun-04 Sep-04 Dec-04 Mar-05 Jun-05 Sep-05 Dec-05 Mar-06 Jun-06 Sep-06 Dec-06Existing 305,603 318,600 326,603 320,930 309,695 304,414 298,140 292,436 282,642 278,061 272,579 267,599
New 0 0 0 0 19,869 25,782 35,341 44,039 64,933 70,313 79,394 87,598Total 305,603 318,600 326,603 320,930 329,564 330,196 333,481 336,475 347,575 348,374 351,973 355,198
Members Mar-07 Jun-07 Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09Existing 259,060 255,072 250,265 245,901 238,295 234,781 230,491 226,604 219,792 216,687 212,847 209,373
New 108,053 112,982 121,678 129,480 149,656 154,203 162,596 170,075 190,113 194,338 202,499 209,724Total 367,114 368,054 371,944 375,382 387,952 388,984 393,088 396,679 409,906 411,025 415,346 419,097
0
50,000
100,000
150,000
200,000
250,000
300,000
350,000
400,000
450,000
Mar-04
Jun-0
4Sep
-04Dec
-04Mar-
05Ju
n-05
Sep-05
Dec-05
Mar-06
Jun-0
6Sep
-06Dec
-06Mar-
07Ju
n-07
Sep-07
Dec-07
Mar-08
Jun-0
8Sep
-08Dec
-08Mar-
09Ju
n-09
Sep-09
Dec-09
Avg Existing MembersAvg New Members
Avg Total Members
Actuarial Modeling Page 6 04/18/05
XYZ Health Plan PREMIUMS / MEDICAL COST PMPM's SCENARIO Grand Total-Alternative 1
PMPM's Mar-04 Jun-04 Sep-04 Dec-04 Mar-05 Jun-05 Sep-05 Dec-05 Mar-06 Jun-06 Sep-06 Dec-06Premium 216.77 219.39 226.22 227.98 238.47 242.97 250.58 253.62 265.60 268.78 274.43 279.38Benefits 179.34 183.49 187.39 191.78 195.88 200.51 205.33 210.29 215.02 220.40 225.99 231.72
PMPM's Mar-07 Jun-07 Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09Premium 293.11 296.59 302.82 308.32 323.47 327.28 334.14 340.23 356.94 361.12 368.68 375.42Benefits 237.14 243.19 249.43 255.79 261.75 268.43 275.30 282.32 288.87 296.25 303.83 311.57
0
50,000
100,000
150,000
200,000
250,000
300,000
350,000
400,000
450,000
Mar-04
Jun-0
4Sep
-04Dec
-04Mar-
05Ju
n-05
Sep-05
Dec-05
Mar-06
Jun-0
6Sep
-06Dec
-06Mar-
07Ju
n-07
Sep-07
Dec-07
Mar-08
Jun-0
8Sep
-08Dec
-08Mar-
09Ju
n-09
Sep-09
Dec-09
Avg Existing Members
Avg New Members
Avg Total Members
0
50,000
100,000
150,000
200,000
250,000
300,000
350,000
400,000
Mar-04
Jun-0
4
Sep-04
Dec-04
Mar-05
Jun-0
5
Sep-05
Dec-05
Mar-06
Jun-0
6
Sep-06
Dec-06
Avg Existing MembersAvg New Members
Avg Total Members
0.00
50.00
100.00
150.00
200.00
250.00
300.00
350.00
400.00
Mar-04
Jun-0
4Sep
-04Dec
-04Mar-
05Ju
n-05
Sep-05
Dec-05
Mar-06
Jun-0
6Sep
-06Dec
-06Mar-
07Ju
n-07
Sep-07
Dec-07
Mar-08
Jun-0
8Sep
-08Dec
-08Mar-
09Ju
n-09
Sep-09
Dec-09
Premium PMPM
Med Cost PMPM
Actuarial Modeling Page 7 04/18/05
XYZ Health Plan ADMIN EXPENSES SCENARIO Grand Total-Alternative 1
PMPM's Mar-04 Jun-04 Sep-04 Dec-04 Mar-05 Jun-05 Sep-05 Dec-05 Mar-06 Jun-06 Sep-06 Dec-06Gen'l Admin 0.00 0.00 0.00 0.00 28.87 29.50 30.36 30.79 32.23 32.58 33.15 33.66Prem Taxes 0.00 0.00 0.00 0.00 4.77 4.86 5.01 5.07 5.31 5.38 5.49 5.59
Commissions 0.00 0.00 0.00 0.00 2.95 3.02 3.15 3.22 3.42 3.44 3.49 3.54Royalties 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Total 0.00 0.00 0.00 0.00 36.60 37.38 38.52 39.08 40.95 41.40 42.13 42.78PMPM's Mar-07 Jun-07 Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09
Gen'l Admin 35.26 35.65 36.28 36.84 38.59 39.02 39.71 40.33 42.25 42.72 43.48 44.17Prem Taxes 5.86 5.93 6.06 6.17 6.47 6.55 6.68 6.80 7.14 7.22 7.37 7.51
Commissions 3.75 3.77 3.83 3.88 4.12 4.14 4.21 4.27 4.53 4.56 4.63 4.70Royalties 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Total 44.87 45.35 46.16 46.89 49.18 49.71 50.60 51.41 53.92 54.50 55.48 56.38
0
50,000
100,000
150,000
200,000
250,000
300,000
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Mar-04
Jun-0
4Sep
-04Dec
-04Mar-
05Ju
n-05
Sep-05
Dec-05
Mar-06
Jun-0
6Sep
-06Dec
-06Mar-
07Ju
n-07
Sep-07
Dec-07
Mar-08
Jun-0
8Sep
-08Dec
-08Mar-
09Ju
n-09
Sep-09
Dec-09
Avg Existing Members
Avg New Members
Avg Total Members
0
50,000
100,000
150,000
200,000
250,000
300,000
350,000
400,000
Mar-04
Jun-0
4
Sep-04
Dec-04
Mar-05
Jun-0
5
Sep-05
Dec-05
Mar-06
Jun-0
6
Sep-06
Dec-06
Avg Existing MembersAvg New Members
Avg Total Members
0.00
10.00
20.00
30.00
40.00
50.00
60.00
Mar-04
Jun-0
4Sep
-04Dec
-04Mar-
05Ju
n-05
Sep-05
Dec-05
Mar-06
Jun-0
6Sep
-06Dec
-06Mar-
07Ju
n-07
Sep-07
Dec-07
Mar-08
Jun-0
8Sep
-08Dec
-08Mar-
09Ju
n-09
Sep-09
Dec-09
General AdminPremium TaxesCommissionsRoyalty PymtsTotal Expenses
Actuarial Modeling Page 8 04/18/05
XYZ Health Plan LOSS RATIOS SCENARIO Grand Total-Alternative 1
Loss Ratios Mar-04 Jun-04 Sep-04 Dec-04 Mar-05 Jun-05 Sep-05 Dec-05 Mar-06 Jun-06 Sep-06 Dec-06Benefits 82.7% 83.6% 82.8% 84.1% 82.1% 82.5% 81.9% 82.9% 81.0% 82.0% 82.3% 82.9%
Admin 0.0% 0.0% 0.0% 0.0% 15.3% 15.4% 15.4% 15.4% 15.4% 15.4% 15.4% 15.3%Total 82.7% 83.6% 82.8% 84.1% 97.5% 97.9% 97.3% 98.3% 96.4% 97.4% 97.7% 98.3%
Loss Ratios Mar-07 Jun-07 Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09Benefits 80.9% 82.0% 82.4% 83.0% 80.9% 82.0% 82.4% 83.0% 80.9% 82.0% 82.4% 83.0%
Admin 15.3% 15.3% 15.2% 15.2% 15.2% 15.2% 15.1% 15.1% 15.1% 15.1% 15.0% 15.0%Total 96.2% 97.3% 97.6% 98.2% 96.1% 97.2% 97.5% 98.1% 96.0% 97.1% 97.5% 98.0%
0
50,000
100,000
150,000
200,000
250,000
300,000
350,000
400,000
450,000
Mar-04
Jun-0
4Sep
-04Dec
-04Mar-
05Ju
n-05
Sep-05
Dec-05
Mar-06
Jun-0
6Sep
-06Dec
-06Mar-
07Ju
n-07
Sep-07
Dec-07
Mar-08
Jun-0
8Sep
-08Dec
-08Mar-
09Ju
n-09
Sep-09
Dec-09
Avg Existing Members
Avg New Members
Avg Total Members
0
50,000
100,000
150,000
200,000
250,000
300,000
350,000
400,000
Mar-04
Jun-0
4
Sep-04
Dec-04
Mar-05
Jun-0
5
Sep-05
Dec-05
Mar-06
Jun-0
6
Sep-06
Dec-06
Avg Existing MembersAvg New Members
Avg Total Members
0.0%
20.0%
40.0%
60.0%
80.0%
100.0%
120.0%
Mar-04
Jun-0
4Sep
-04Dec
-04Mar-
05Ju
n-05
Sep-05
Dec-05
Mar-06
Jun-0
6Sep
-06Dec
-06Mar-
07Ju
n-07
Sep-07
Dec-07
Mar-08
Jun-0
8Sep
-08Dec
-08Mar-
09Ju
n-09
Sep-09
Dec-09
Benefit Loss RatioAdmin Loss Ratio
Total Loss Ratio
Actuarial Modeling Page 9 04/18/05
XYZ Health Plan EARNINGS SCENARIO Grand Total-Alternative 1
($000's) Mar-04 Jun-04 Sep-04 Dec-04 Mar-05 Jun-05 Sep-05 Dec-05 Mar-06 Jun-06 Sep-06 Dec-06Pre-Tax G(L) 0 0 0 0 7,285 6,435 8,162 5,770 11,551 8,886 8,300 6,885Net Income 0 0 0 0 5,199 4,694 5,841 4,350 8,142 6,492 6,167 5,305
($000's) Mar-07 Jun-07 Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09Pre-Tax G(L) 13,967 10,706 9,946 8,297 16,593 12,758 11,871 9,980 19,695 15,193 14,157 11,984Net Income 9,937 7,918 7,492 6,491 11,839 9,466 8,970 7,825 14,037 11,253 10,676 9,362
0
50,000
100,000
150,000
200,000
250,000
300,000
350,000
400,000
450,000
Mar-04
Jun-0
4Sep
-04Dec
-04Mar-
05Ju
n-05
Sep-05
Dec-05
Mar-06
Jun-0
6Sep
-06Dec
-06Mar-
07Ju
n-07
Sep-07
Dec-07
Mar-08
Jun-0
8Sep
-08Dec
-08Mar-
09Ju
n-09
Sep-09
Dec-09
Avg Existing Members
Avg New Members
Avg Total Members
0
50,000
100,000
150,000
200,000
250,000
300,000
350,000
400,000
Mar-04
Jun-0
4
Sep-04
Dec-04
Mar-05
Jun-0
5
Sep-05
Dec-05
Mar-06
Jun-0
6
Sep-06
Dec-06
Avg Existing MembersAvg New Members
Avg Total Members
0
5,000
10,000
15,000
20,000
25,000
Mar-04
Jun-0
4Sep
-04Dec
-04Mar-
05Ju
n-05
Sep-05
Dec-05
Mar-06
Jun-0
6Sep
-06Dec
-06Mar-
07Ju
n-07
Sep-07
Dec-07
Mar-08
Jun-0
8Sep
-08Dec
-08Mar-
09Ju
n-09
Sep-09
Dec-09
Pre-Tax Op Gains(Losses)
Net Income
Actuarial Modeling Page 10 04/18/05
XYZ Health Plan SURPLUS vs TARGET RISK-BASED CAPITAL SCENARIO Grand Total-Alternative 1
($000's) Mar-04 Jun-04 Sep-04 Dec-04 Mar-05 Jun-05 Sep-05 Dec-05 Mar-06 Jun-06 Sep-06 Dec-06Surplus 0 0 0 0 70,814 75,508 81,349 91,009 99,151 105,643 111,810 121,831
Target RBC 0 0 0 0 88,475 91,265 93,883 97,198 100,864 104,671 108,655 112,812
($000's) Mar-07 Jun-07 Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09Surplus 131,768 139,687 147,179 149,014 160,853 170,319 179,290 175,000 189,037 200,290 210,966 201,731
Target RBC 117,247 121,829 126,592 131,528 136,744 142,110 147,670 153,420 159,492 165,738 172,210 178,901
0
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4
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-04Dec
-04Mar-
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-08Mar-
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Surplus Target RBC
Actuarial Modeling Page 11 04/18/05
Financial Projections
For
XYZ Health Plan
Projection Period: Jan-2005 -
Total Business (Annual)
Summary Income Statements with Key Indicators
Scenario Grand Total-Alternative 2(1) Market Segment(s) Aggregated
1. Large Group2. Small Group3. Med Supp A4. Med Supp B
(1) Market Segments have been shaded if corresponding Members were not Aggregated
Dec-2009
Actuarial Modeling 04/18/05
Financial Projections for:
Table of Contents
Page
Summary Valuation 1Scenarios Summary 2Annual Income Statements 3Base Data 4Key Assumptions 5
GraphsMembers 6Premium & Benefit PMPM's 7Admin PMPM's 8Loss Ratios 9Earnings 10Surplus vs Target Risk-Based Capital 11
XYZ Health Plan
Actuarial Modeling 04/18/05
Summary Valuation Exhibit for Operating Entities ($000's)
Company Name: XYZ Health Plan Scenario: Grand Total-Alternative 2
Projection Period Jan-2005 To Dec-2009
Present Values as of: Jan-2005 Hurdle Rate: 12.0% Compound Annual Growth Rates (3)
(From Jan 1, 2005 to Dec 31, 2009)Net Income
New Business 48,678 Members 6.6%Existing Business 85,890 Premium 17.6%
Total Net Income 134,568 Total Net Income 26.5%
Cost of Capital (39,186) Return on CapitalYear 1 Year 2 Year 3 Year 4 Year 5 Average
Divestiture Value (P.V. of end of proj period value) (1) 114,152 23.1% 22.6% 23.3% 24.4% 25.6% 23.8%
Enterprise Value (2) 209,534
Cap Contribs (assumed rec'd beginning of proj yr) 0
Dividends (Pd end of proj yrs & subtracted from surplus) 29,081
(1) Divestiture Value = 5.0 x (12 mos Net Income less 12 mos Cost of Capital)(2) Total Present Values for Op Entities (New plus Existing Business Net Income plus Cost of Capital plus Divestiture Value)(3) Simple rates when Proj Yr 5 is negative / not meaningful (N.A.) when Proj Yr 1 is negative
Actuarial Modeling Page 1 04/18/05
SCENARIOSKey Values (Op Entities) Key Assumps (Op Entities)
PV After-Tax Op G(L) (1st Proj Year only)
ScenarioEnterprise
Value New Existing TotalP.V. Costof Capital
P.V. Divestiture
Value
5 YrAvg Return on Capital
LapseRate
Tgt MLRor PremChange
MedicalTrend User Notes / Comments
Base ScenarioPrem Select - Large Group - 90% (1 Year)
High 16.0% 86.8% 11.4% Medical Cost Selection - Small Group - 75% (24 mos)1. Grand Total-Base Scenario 137,640 37,437 65,688 103,125 (39,186) 73,702 19.0% Low 3.0% 79.6% 9.8%
Alt 1 - Same as Base Except:All MLR's reduced by 0.5% (prem increases)
High 17.0% 86.3% 11.4% New Bus reduced 2% & Lapse Rates increased 1 percentage pt2. Grand Total-Alternative 1 170,089 42,389 76,059 118,449 (38,097) 89,738 21.8% Low 4.0% 79.1% 9.8% Small Group PGPM $25 Admin Fee
Alt 2; Same as Base Except:All Admin (x-Commissions & Prem Taxes) reduced by 5%
High 16.0% 86.8% 11.4% Future Admin reduced by 5% per year (vs Base where increased 5% p3. Grand Total-Alternative 2 209,534 48,678 85,890 134,568 (39,186) 114,152 23.8% Low 3.0% 79.6% 9.8%
Actuarial Modeling Page 2 04/18/05
Company Name: XYZ Health Plan Scenario: Grand Total-Alternative 2
Op Entities ($000's)Summary Annual View
Tot. Operating Entities
Proj. Year 1 2 3 4 52005 2006 2007 2008 2009
No. of 1st year mos.: 12Member Months 4,038,688 4,312,836 4,599,395 4,898,812 5,211,600
Revenue 996,124 1,172,334 1,379,697 1,621,609 1,903,583Prem Earned 991,287 1,166,665 1,373,025 1,613,762 1,894,366Other Income 4,836 5,669 6,672 7,847 9,217
Benefits Incurred 820,077 963,283 1,133,678 1,332,858 1,565,001SG&A (w/ Royalty Fees) 146,534 170,217 196,778 227,720 263,752
Net Income 21,299 28,237 36,052 44,670 54,568Pre-Tax Op Gain (Loss) 29,513 38,835 49,241 61,030 74,830
Interest on Surplus 3,767 5,286 7,090 8,767 10,432F.I.T. 11,981 15,883 20,279 25,127 30,694
2005 2006 2007 2008 2009
KEY INDICATORS - Total
PMPM'sPrem Earned 245.45 270.51 298.52 329.42 363.49Benefits Incurred 203.06 223.35 246.48 272.08 300.29SG&A (w/ Royalty Fees) 36.28 39.47 42.78 46.48 50.61
General Admin Exp. 28.30 30.61 33.03 35.74 38.77Prem Taxes 4.91 5.41 5.97 6.59 7.27Commissions 3.08 3.45 3.78 4.15 4.57
Pre-Tax Op Gain (Loss) 7.31 9.00 10.71 12.46 14.36% of Premium
Benefits Incurred 82.7% 82.6% 82.6% 82.6% 82.6%SG&A (w/ Royalty Fees) 14.8% 14.6% 14.3% 14.1% 13.9%
General Admin Exp. 11.5% 11.3% 11.1% 10.9% 10.7%Prem Taxes 2.0% 2.0% 2.0% 2.0% 2.0%Commissions 1.3% 1.3% 1.3% 1.3% 1.3%
Pre-Tax Op Gain (Loss) 3.0% 3.3% 3.6% 3.8% 4.0%Annual PMPM Trends
Members 6.8% 6.6% 6.5% 6.4%Prem Earned 10.2% 10.4% 10.3% 10.3%Benefits Incurred 10.0% 10.4% 10.4% 10.4%SG&A (w/ Royalty Fees) 8.8% 8.4% 8.7% 8.9%Pre-Tax Op Gain (Loss) 23.2% 18.9% 16.4% 15.3%
Actuarial Modeling Page 3 04/18/05
Pre-Projection Period Aggregated Base Data for: XYZ Health Plan($000's)
Large Group Small Group Med Supp A Med Supp B 0Month Members Premiums Benefits Members Premiums Benefits Members Premiums Benefits Members Premiums Benefits Members Premiums Benefits
1/2004 132,129 28,129 22,981 70,145 16,286 13,168 101,079 10,686 7,963 101,079 10,686 7,767 0 0 02/2004 133,450 28,661 24,649 68,727 15,536 12,920 103,090 10,994 9,618 103,090 10,994 8,164 0 0 03/2004 134,785 29,189 26,860 69,414 15,830 12,067 103,989 10,873 9,160 103,989 10,873 9,105 0 0 04/2004 136,133 29,749 26,607 72,111 17,071 12,224 105,234 11,304 9,431 105,234 11,304 8,752 0 0 05/2004 137,494 30,317 27,115 74,353 16,274 13,533 107,245 11,747 9,705 107,245 11,747 9,002 0 0 06/2004 138,869 30,893 28,428 75,365 16,259 13,271 108,996 11,513 8,579 108,996 11,513 8,731 0 0 07/2004 140,258 31,464 25,977 76,356 17,390 13,524 110,453 12,319 9,779 110,453 12,319 10,024 0 0 08/2004 142,643 32,277 27,758 77,589 18,693 15,113 106,982 12,039 10,239 106,982 12,039 9,796 0 0 09/2004 142,543 31,983 28,206 76,902 17,624 14,310 106,256 11,779 9,472 106,256 11,768 9,441 0 0 0
10/2004 141,977 32,304 28,314 75,504 17,516 14,177 105,532 11,803 9,490 105,532 11,781 9,451 0 0 011/2004 141,878 32,282 28,517 74,918 17,434 14,194 104,810 11,826 9,507 104,810 11,794 9,460 0 0 012/2004 141,779 32,259 28,721 74,425 17,354 14,228 104,091 11,850 9,524 104,091 11,806 9,469 0 0 0
Actuarial Modeling Page 4 04/18/05
Key Assumptions for: XYZ Health Plan
Projection Period: Jan 1, 2005 thru Dec 31, 2009
Scenario: Grand Total-Alternative 2
Key Corporate Assumptions (Projection Year 1)
Int. on Surplus (Composite): 5.0% Hurdle rate: 12.0% Data Consistency CheckInt. on Operations: 6.0% RBC Target (Corporate): 12.0% All O.K.
F.I.T. rate: 36.0% Divestiture Value (Wt'd Avg.) 5.0
Key Operating Assumptions (Projection Year 1)
Administrative ExpensesAnnual Medical First Year Renewal
Mkt Sgmt Lapse Rate Target MLR Trend % Prem Comm Prem Tax PMPM PGPM % Prem Comm Prem Tax PMPM PGPM
1. Large Group 3.0% 86.8% 9.8% 5.7% 2.0% 2.0% 4.75 4.75 9.5% 1.0% 2.0% 2.38 2.852. Small Group 16.0% 80.1% 11.4% 14.3% 5.0% 2.0% 4.75 4.75 9.5% 3.0% 2.0% 2.38 2.853. Med Supp A 8.0% 79.7% 11.0% 9.5% 0.0% 2.0% 6.65 0.00 9.5% 0.0% 2.0% 4.75 0.004. Med Supp B 8.0% 79.6% 9.9% 9.5% 0.0% 2.0% 6.65 0.00 9.5% 0.0% 2.0% 4.75 0.005. 0 0.0% 0.0% 0.0% 14.3% 0.0% 2.0% 0.00 0.00 9.5% 0.0% 2.0% 0.00 0.00
Actuarial Modeling Page 5 04/18/05
XYZ Health Plan MEMBERS SCENARIO Grand Total-Alternative 2
Members Mar-04 Jun-04 Sep-04 Dec-04 Mar-05 Jun-05 Sep-05 Dec-05 Mar-06 Jun-06 Sep-06 Dec-06Existing 305,603 318,600 326,661 321,638 312,098 307,405 301,987 297,005 288,518 284,368 279,531 275,089
New 0 0 0 0 20,280 26,331 36,109 45,015 66,517 72,101 81,494 89,993Total 305,603 318,600 326,661 321,638 332,377 333,736 338,096 342,020 355,035 356,470 361,025 365,081
Members Mar-07 Jun-07 Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09Existing 267,511 263,831 259,499 255,526 248,732 245,461 241,568 238,004 231,889 228,974 225,466 222,259
New 111,213 116,401 125,491 133,662 154,745 159,599 168,458 176,371 197,448 202,020 210,713 218,431Total 378,723 380,232 384,989 389,187 403,476 405,059 410,026 414,376 429,337 430,994 436,179 440,690
0
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Avg Existing MembersAvg New Members
Avg Total Members
Actuarial Modeling Page 6 04/18/05
XYZ Health Plan PREMIUMS / MEDICAL COST PMPM's SCENARIO Grand Total-Alternative 2
PMPM's Mar-04 Jun-04 Sep-04 Dec-04 Mar-05 Jun-05 Sep-05 Dec-05 Mar-06 Jun-06 Sep-06 Dec-06Premium 216.77 219.39 226.22 228.01 237.85 242.15 249.39 252.16 264.05 267.21 272.81 277.74Benefits 179.34 183.49 187.39 191.78 195.88 200.50 205.32 210.28 215.03 220.40 225.99 231.72
PMPM's Mar-07 Jun-07 Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09Premium 291.41 294.87 301.05 306.52 321.59 325.38 332.19 338.25 354.88 359.03 366.53 373.24Benefits 237.16 243.22 249.45 255.81 261.80 268.48 275.35 282.37 288.95 296.33 303.90 311.64
0
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-04Mar-
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-06Dec
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8Sep
-08Dec
-08Mar-
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Avg Existing Members
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0
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150,000
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350,000
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Mar-04
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4
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Mar-05
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5
Sep-05
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Dec-06
Avg Existing MembersAvg New Members
Avg Total Members
0.00
50.00
100.00
150.00
200.00
250.00
300.00
350.00
400.00
Mar-04
Jun-0
4Sep
-04Dec
-04Mar-
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-06Dec
-06Mar-
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-08Mar-
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Premium PMPM
Med Cost PMPM
Actuarial Modeling Page 7 04/18/05
XYZ Health Plan ADMIN EXPENSES SCENARIO Grand Total-Alternative 2
PMPM's Mar-04 Jun-04 Sep-04 Dec-04 Mar-05 Jun-05 Sep-05 Dec-05 Mar-06 Jun-06 Sep-06 Dec-06Gen'l Admin 0.00 0.00 0.00 0.00 27.37 27.95 28.73 29.11 29.96 30.30 30.83 31.31Prem Taxes 0.00 0.00 0.00 0.00 4.76 4.84 4.99 5.04 5.28 5.34 5.46 5.55
Commissions 0.00 0.00 0.00 0.00 2.95 3.01 3.13 3.21 3.40 3.42 3.47 3.52Royalties 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Total 0.00 0.00 0.00 0.00 35.07 35.80 36.85 37.36 38.64 39.06 39.76 40.38PMPM's Mar-07 Jun-07 Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09
Gen'l Admin 32.32 32.69 33.28 33.81 34.97 35.36 36.01 36.60 37.92 38.35 39.07 39.72Prem Taxes 5.83 5.90 6.02 6.13 6.43 6.51 6.64 6.77 7.10 7.18 7.33 7.46
Commissions 3.72 3.75 3.80 3.86 4.09 4.11 4.18 4.23 4.49 4.52 4.59 4.65Royalties 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Total 41.87 42.33 43.10 43.79 45.49 45.98 46.83 47.60 49.51 50.05 50.99 51.84
0
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-08Dec
-08Mar-
09Ju
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Avg Existing Members
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Avg Total Members
0
50,000
100,000
150,000
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250,000
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350,000
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Mar-04
Jun-0
4
Sep-04
Dec-04
Mar-05
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5
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6
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Avg Existing MembersAvg New Members
Avg Total Members
0.00
10.00
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30.00
40.00
50.00
60.00
Mar-04
Jun-0
4Sep
-04Dec
-04Mar-
05Ju
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Dec-05
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6Sep
-06Dec
-06Mar-
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-08Dec
-08Mar-
09Ju
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General AdminPremium TaxesCommissionsRoyalty PymtsTotal Expenses
Actuarial Modeling Page 8 04/18/05
XYZ Health Plan LOSS RATIOS SCENARIO Grand Total-Alternative 2
Loss Ratios Mar-04 Jun-04 Sep-04 Dec-04 Mar-05 Jun-05 Sep-05 Dec-05 Mar-06 Jun-06 Sep-06 Dec-06Benefits 82.7% 83.6% 82.8% 84.1% 82.4% 82.8% 82.3% 83.4% 81.4% 82.5% 82.8% 83.4%
Admin 0.0% 0.0% 0.0% 0.0% 14.7% 14.8% 14.8% 14.8% 14.6% 14.6% 14.6% 14.5%Total 82.7% 83.6% 82.8% 84.1% 97.1% 97.6% 97.1% 98.2% 96.1% 97.1% 97.4% 98.0%
Loss Ratios Mar-07 Jun-07 Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09Benefits 81.4% 82.5% 82.9% 83.5% 81.4% 82.5% 82.9% 83.5% 81.4% 82.5% 82.9% 83.5%
Admin 14.4% 14.4% 14.3% 14.3% 14.1% 14.1% 14.1% 14.1% 14.0% 13.9% 13.9% 13.9%Total 95.8% 96.8% 97.2% 97.7% 95.6% 96.6% 97.0% 97.6% 95.4% 96.5% 96.8% 97.4%
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0
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Mar-04
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4
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Dec-04
Mar-05
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5
Sep-05
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Mar-06
Jun-0
6
Sep-06
Dec-06
Avg Existing MembersAvg New Members
Avg Total Members
0.0%
20.0%
40.0%
60.0%
80.0%
100.0%
120.0%
Mar-04
Jun-0
4Sep
-04Dec
-04Mar-
05Ju
n-05
Sep-05
Dec-05
Mar-06
Jun-0
6Sep
-06Dec
-06Mar-
07Ju
n-07
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Dec-07
Mar-08
Jun-0
8Sep
-08Dec
-08Mar-
09Ju
n-09
Sep-09
Dec-09
Benefit Loss RatioAdmin Loss Ratio
Total Loss Ratio
Actuarial Modeling Page 9 04/18/05
XYZ Health Plan EARNINGS SCENARIO Grand Total-Alternative 2
($000's) Mar-04 Jun-04 Sep-04 Dec-04 Mar-05 Jun-05 Sep-05 Dec-05 Mar-06 Jun-06 Sep-06 Dec-06Pre-Tax G(L) 0 0 0 0 8,012 7,038 8,540 5,922 12,376 9,680 9,099 7,681Net Income 0 0 0 0 5,667 5,085 6,091 4,456 8,682 7,017 6,699 5,840
($000's) Mar-07 Jun-07 Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09Pre-Tax G(L) 15,607 12,274 11,513 9,847 19,144 15,195 14,306 12,384 23,283 18,616 17,577 15,355Net Income 11,016 8,959 8,540 7,536 13,522 11,090 10,605 9,453 16,409 13,536 12,975 11,648
0
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150,000
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Mar-04
Jun-0
4Sep
-04Dec
-04Mar-
05Ju
n-05
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Dec-05
Mar-06
Jun-0
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-06Dec
-06Mar-
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n-07
Sep-07
Dec-07
Mar-08
Jun-0
8Sep
-08Dec
-08Mar-
09Ju
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Sep-09
Dec-09
Avg Existing Members
Avg New Members
Avg Total Members
0
50,000
100,000
150,000
200,000
250,000
300,000
350,000
400,000
Mar-04
Jun-0
4
Sep-04
Dec-04
Mar-05
Jun-0
5
Sep-05
Dec-05
Mar-06
Jun-0
6
Sep-06
Dec-06
Avg Existing MembersAvg New Members
Avg Total Members
0
5,000
10,000
15,000
20,000
25,000
Mar-04
Jun-0
4Sep
-04Dec
-04Mar-
05Ju
n-05
Sep-05
Dec-05
Mar-06
Jun-0
6Sep
-06Dec
-06Mar-
07Ju
n-07
Sep-07
Dec-07
Mar-08
Jun-0
8Sep
-08Dec
-08Mar-
09Ju
n-09
Sep-09
Dec-09
Pre-Tax Op Gains(Losses)
Net Income
Actuarial Modeling Page 10 04/18/05
XYZ Health Plan SURPLUS vs TARGET RISK-BASED CAPITAL SCENARIO Grand Total-Alternative 2
($000's) Mar-04 Jun-04 Sep-04 Dec-04 Mar-05 Jun-05 Sep-05 Dec-05 Mar-06 Jun-06 Sep-06 Dec-06Surplus 0 0 0 0 71,282 76,367 82,458 92,311 100,993 108,010 114,709 124,910
Target RBC 0 0 0 0 88,726 91,770 94,724 98,409 102,455 106,649 111,030 115,594
($000's) Mar-07 Jun-07 Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09Surplus 135,926 144,885 153,426 154,500 168,022 179,112 189,717 183,147 199,556 213,092 226,067 212,758
Target RBC 120,446 125,454 130,655 136,041 141,733 147,591 153,662 159,943 166,577 173,405 180,481 187,800
0
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350,000
400,000
Mar-04
Jun-0
4
Sep-04
Dec-04
Mar-05
Jun-0
5
Sep-05
Dec-05
Mar-06
Jun-0
6
Sep-06
Dec-06
Avg Existing MembersAvg New Members
Avg Total Members
0
50,000
100,000
150,000
200,000
250,000
Mar-04
Jun-0
4Sep
-04Dec
-04Mar-
05Ju
n-05
Sep-05
Dec-05
Mar-06
Jun-0
6Sep
-06Dec
-06Mar-
07Ju
n-07
Sep-07
Dec-07
Mar-08
Jun-0
8Sep
-08Dec
-08Mar-
09Ju
n-09
Sep-09
Dec-09
Surplus Target RBC
Actuarial Modeling Page 11 04/18/05
Financial Projections
For
XYZ Health Plan
Projection Period: Jan-2005 - Dec-2009
Dynamic Graphs
Scenario Grand Total-Base Scenario(1) Market Segment(s) Aggregated
1. Large Group2. Small Group3. Med Supp A4. Med Supp B
(1) Market Segments have been shaded if corresponding Members were not Aggregated
Actuarial Modeling 04/18/05
Financial Projections for: XYZ Health Plan(Dynamic Scenario)Table of Contents
Scenario: Grand Total-Base Scenario
Page
Summary Valuation Exhibit for Dynamic Scenario 1
GRAPHSMembers 2Premium Earned 3Benefits Incurred 4Medical Loss Ratio 5Other Income 6SG&A 7Pre-tax Gains (Losses) 8Net Income 9Surplus 10RBC Target 11Surplus vs Target Risk-Based Capital 12Enterprise Value 13
Actuarial Modeling 04/18/05
Summary Valuation Exhibit for Dynamic Scenario ($000's)
Company Name: XYZ Health Plan Scenario: Grand Total-Base Scenario
Projection Period Jan-2005 To Dec-2009
Present Values as of: Jan-2005 Hurdle Rate: 12.0%
Net Cost of Divestiture EnterpriseIncome Capital Value (1) Value (2)
Optimistic 127,622 (31,292) 97,072 193,402
Base 111,364 (39,317) 73,992 146,039
Pessimistic 108,065 (48,635) 64,290 123,720
(1) Divestiture Value = 5.0 x (12 mos Net Income less 12 mos Cost of Capital)(2) Total Present Values for Op Entities (Net Income plus Cost of Capital plus Divestiture Value)
Actuarial Modeling Page 1 04/18/05
XYZ Health Plan MEMBERS (90% Confidence Interval) SCENARIO: Grand Total-Base Scenario
Members Mar-05 Jun-05 Sep-05 Dec-05 Mar-06 Jun-06 Sep-06 Dec-06 Mar-07 Jun-07 Sep-07 Dec-07Max Medical 331,440 329,859 328,278 326,697 341,881 350,710 350,640 354,041 352,487 370,531 369,287 373,247Best Estimate 333,847 339,490 345,132 350,774 355,005 356,466 361,027 365,086 378,730 380,238 384,999 389,190Min Medical 336,030 348,220 360,411 372,601 366,776 361,444 369,666 373,874 399,959 388,307 398,333 402,351
Members Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09Max Medical 364,571 390,907 387,227 392,652 381,968 414,649 410,558 416,671Best Estimate 403,469 405,050 410,004 414,353 429,287 430,972 436,135 440,653Min Medical 433,390 415,355 425,842 428,986 462,145 442,949 455,543 459,577
0
50,000
100,000
150,000
200,000
250,000
300,000
350,000
400,000
450,000
500,000
Mar-05
Jun-05
Sep-05
Dec-05
Mar-06
Jun-06
Sep-06
Dec-06
Mar-07
Jun-07
Sep-07
Dec-07
Mar-08
Jun-08
Sep-08
Dec-08
Mar-09
Jun-09
Sep-09
Dec-09
Max MedicalBest EstimateMin Medical
Actuarial Modeling Page 2 04/18/05
XYZ Health Plan Premiums Earned (90% Confidence Interval) SCENARIO: Grand Total-Base Scenario
Premiums Mar-05 Jun-05 Sep-05 Dec-05 Mar-06 Jun-06 Sep-06 Dec-06 Mar-07 Jun-07 Sep-07 Dec-07Max Medical 253,282 269,910 274,619 289,920 328,332 346,450 358,158 366,877 394,706 424,050 445,111 476,508Best Estimate 239,112 249,943 261,000 272,282 281,325 285,784 295,465 304,167 331,069 336,308 347,652 357,873Min Medical 228,253 235,798 237,529 247,134 249,185 240,677 246,354 245,520 269,759 256,904 265,563 274,420
Premiums Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09Max Medical 484,484 526,278 538,989 548,694 564,773 630,173 635,204 658,710Best Estimate 389,290 395,480 408,742 420,634 457,222 464,438 479,902 493,708Min Medical 314,760 302,789 317,328 317,748 343,655 324,786 342,976 346,763
0
100,000
200,000
300,000
400,000
500,000
600,000
700,000
Mar-05
Jun-05
Sep-05
Dec-05
Mar-06
Jun-06
Sep-06
Dec-06
Mar-07
Jun-07
Sep-07
Dec-07
Mar-08
Jun-08
Sep-08
Dec-08
Mar-09
Jun-09
Sep-09
Dec-09
Max MedicalBest EstimateMin Medical
Actuarial Modeling Page 3 04/18/05
XYZ Health Plan Benefits Incurred (90% Confidence Interval) SCENARIO: Grand Total-Base Scenario
Benefits Inc'd Mar-05 Jun-05 Sep-05 Dec-05 Mar-06 Jun-06 Sep-06 Dec-06 Mar-07 Jun-07 Sep-07 Dec-07Max Medical 210,853 223,804 227,004 239,174 268,526 286,978 297,909 307,338 322,812 351,393 370,666 399,673Best Estimate 196,217 204,273 212,641 221,384 229,068 235,709 244,725 253,717 269,429 277,402 288,156 298,768Min Medical 185,298 190,638 191,430 198,762 199,383 195,132 200,580 201,347 217,322 209,828 217,951 226,863
Benefits Inc'd Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09Max Medical 394,918 434,747 447,142 458,351 461,958 522,400 528,564 551,539Best Estimate 316,994 326,452 338,804 351,089 372,407 383,569 397,812 411,812Min Medical 253,265 247,065 259,986 262,160 274,840 263,535 279,320 284,200
0
100,000
200,000
300,000
400,000
500,000
600,000
Mar-05
Jun-05
Sep-05
Dec-05
Mar-06
Jun-06
Sep-06
Dec-06
Mar-07
Jun-07
Sep-07
Dec-07
Mar-08
Jun-08
Sep-08
Dec-08
Mar-09
Jun-09
Sep-09
Dec-09
Max MedicalBest EstimateMin Medical
Actuarial Modeling Page 4 04/18/05
XYZ Health Plan Medical Loss Ratio (90% Confidence Interval) SCENARIO: Grand Total-Base Scenario
MLR Mar-05 Jun-05 Sep-05 Dec-05 Mar-06 Jun-06 Sep-06 Dec-06 Mar-07 Jun-07 Sep-07 Dec-07Max Medical 83.2% 82.9% 82.7% 82.5% 81.8% 82.8% 83.2% 83.8% 81.8% 82.9% 83.3% 83.9%Best Estimate 82.1% 81.7% 81.5% 81.3% 81.4% 82.5% 82.8% 83.4% 81.4% 82.5% 82.9% 83.5%Min Medical 81.2% 80.8% 80.6% 80.4% 80.0% 81.1% 81.4% 82.0% 80.6% 81.7% 82.1% 82.7%
MLR Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09Max Medical 81.5% 82.6% 83.0% 83.5% 81.8% 82.9% 83.2% 83.7%Best Estimate 81.4% 82.5% 82.9% 83.5% 81.4% 82.6% 82.9% 83.4%Min Medical 80.5% 81.6% 81.9% 82.5% 80.0% 81.1% 81.4% 82.0%
78.0%
79.0%
80.0%
81.0%
82.0%
83.0%
84.0%
85.0%
Mar-05
Jun-05
Sep-05
Dec-05
Mar-06
Jun-06
Sep-06
Dec-06
Mar-07
Jun-07
Sep-07
Dec-07
Mar-08
Jun-08
Sep-08
Dec-08
Mar-09
Jun-09
Sep-09
Dec-09
Max MedicalBest EstimateMin Medical
Actuarial Modeling Page 5 04/18/05
XYZ Health Plan Other Income (90% Confidence Interval) SCENARIO: Grand Total-Base Scenario
Other Income Mar-05 Jun-05 Sep-05 Dec-05 Mar-06 Jun-06 Sep-06 Dec-06 Mar-07 Jun-07 Sep-07 Dec-07Max Medical 1,237 1,330 1,340 1,411 1,554 1,704 1,765 1,831 1,870 2,086 2,197 2,383Best Estimate 1,139 1,202 1,243 1,293 1,321 1,395 1,445 1,507 1,553 1,642 1,703 1,776Min Medical 1,068 1,114 1,110 1,152 1,135 1,142 1,171 1,182 1,243 1,233 1,279 1,339
Other Income Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09Max Medical 2,283 2,576 2,645 2,726 2,679 3,102 3,133 3,286Best Estimate 1,829 1,933 2,002 2,087 2,150 2,272 2,352 2,447Min Medical 1,448 1,451 1,524 1,546 1,564 1,542 1,631 1,669
0
500
1,000
1,500
2,000
2,500
3,000
3,500
Mar-05
Jun-05
Sep-05
Dec-05
Mar-06
Jun-06
Sep-06
Dec-06
Mar-07
Jun-07
Sep-07
Dec-07
Mar-08
Jun-08
Sep-08
Dec-08
Mar-09
Jun-09
Sep-09
Dec-09
Max MedicalBest EstimateMin Medical
Actuarial Modeling Page 6 04/18/05
XYZ Health Plan SG&A (90% Confidence Interval) SCENARIO: Grand Total-Base Scenario
SG&A Mar-05 Jun-05 Sep-05 Dec-05 Mar-06 Jun-06 Sep-06 Dec-06 Mar-07 Jun-07 Sep-07 Dec-07Max Medical 38,964 41,240 42,042 43,840 51,106 53,881 55,530 56,744 60,853 65,313 68,345 72,981Best Estimate 36,570 37,964 39,723 40,930 43,396 44,046 45,396 46,619 50,712 51,463 53,033 54,454Min Medical 34,225 35,108 35,439 36,407 38,115 36,781 37,531 37,312 41,240 39,235 40,431 41,674
SG&A Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09Max Medical 74,355 80,676 82,371 83,659 86,759 96,705 97,189 100,576Best Estimate 59,202 60,072 61,894 63,546 69,051 70,064 72,180 74,099Min Medical 47,365 45,508 47,545 47,495 51,763 48,867 51,449 51,906
0
20,000
40,000
60,000
80,000
100,000
120,000
Mar-05
Jun-05
Sep-05
Dec-05
Mar-06
Jun-06
Sep-06
Dec-06
Mar-07
Jun-07
Sep-07
Dec-07
Mar-08
Jun-08
Sep-08
Dec-08
Mar-09
Jun-09
Sep-09
Dec-09
Max MedicalBest EstimateMin Medical
Actuarial Modeling Page 7 04/18/05
XYZ Health Plan Pre-Tax Operating Gain/Loss (90% Confidence Interval) SCENARIO: Grand Total-Base Scenario
PreTax Op Mar-05 Jun-05 Sep-05 Dec-05 Mar-06 Jun-06 Sep-06 Dec-06 Mar-07 Jun-07 Sep-07 Dec-07Max Medical 4,701 6,197 6,914 8,316 10,254 7,295 6,483 4,625 12,911 9,431 8,298 6,237Best Estimate 7,464 8,909 9,879 11,262 10,182 7,424 6,788 5,337 12,481 9,085 8,165 6,426Min Medical 9,798 11,166 11,770 13,118 12,822 9,905 9,414 8,044 12,440 9,075 8,460 7,223
PreTax Op Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09Max Medical 17,494 13,430 12,120 9,409 18,734 14,170 12,584 9,881Best Estimate 14,923 10,889 10,046 8,086 17,913 13,077 12,262 10,244Min Medical 15,579 11,667 11,322 9,639 18,616 13,928 13,839 12,326
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
20,000
Mar-05
Jun-05
Sep-05
Dec-05
Mar-06
Jun-06
Sep-06
Dec-06
Mar-07
Jun-07
Sep-07
Dec-07
Mar-08
Jun-08
Sep-08
Dec-08
Mar-09
Jun-09
Sep-09
Dec-09
Max MedicalBest EstimateMin Medical
Actuarial Modeling Page 8 04/18/05
XYZ Health Plan Net Income (90% Confidence Interval) SCENARIO: Grand Total-Base Scenario
Net Income Mar-05 Jun-05 Sep-05 Dec-05 Mar-06 Jun-06 Sep-06 Dec-06 Mar-07 Jun-07 Sep-07 Dec-07Max Medical 3,537 4,526 5,023 5,964 7,258 5,413 4,933 3,778 9,133 6,969 6,295 5,019Best Estimate 5,313 6,284 6,957 7,901 7,270 5,554 5,189 4,297 8,923 6,810 6,272 5,203Min Medical 6,814 7,747 8,196 9,127 9,010 7,205 6,946 6,120 8,994 6,901 6,560 5,816
Net Income Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09Max Medical 12,295 9,781 9,015 7,343 13,393 10,567 9,630 7,968Best Estimate 10,707 8,198 7,720 6,520 12,890 9,881 9,435 8,212Min Medical 11,235 8,807 8,655 7,641 13,474 10,563 10,589 9,700
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
Mar-05
Jun-05
Sep-05
Dec-05
Mar-06
Jun-06
Sep-06
Dec-06
Mar-07
Jun-07
Sep-07
Dec-07
Mar-08
Jun-08
Sep-08
Dec-08
Mar-09
Jun-09
Sep-09
Dec-09
Max MedicalBest EstimateMin Medical
Actuarial Modeling Page 9 04/18/05
XYZ Health Plan Surplus (90% Confidence Interval) SCENARIO: Grand Total-Base Scenario
Surplus Mar-05 Jun-05 Sep-05 Dec-05 Mar-06 Jun-06 Sep-06 Dec-06 Mar-07 Jun-07 Sep-07 Dec-07Max Medical 69,152 73,678 78,701 84,665 91,923 97,335 102,269 106,047 115,180 122,149 128,444 133,463Best Estimate 70,928 77,212 84,169 92,070 99,339 104,893 110,082 114,378 123,302 130,111 136,383 141,587Min Medical 72,429 80,176 88,372 97,499 106,509 113,715 120,661 126,781 135,775 142,676 149,235 155,051
Surplus Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09Max Medical 145,758 155,539 164,553 171,896 185,290 195,856 205,486 213,454Best Estimate 152,294 160,491 168,212 174,732 187,622 197,504 206,939 215,151Min Medical 166,286 175,093 183,748 191,389 204,862 215,425 226,015 235,714
0
50,000
100,000
150,000
200,000
250,000
Mar-05
Jun-05
Sep-05
Dec-05
Mar-06
Jun-06
Sep-06
Dec-06
Mar-07
Jun-07
Sep-07
Dec-07
Mar-08
Jun-08
Sep-08
Dec-08
Mar-09
Jun-09
Sep-09
Dec-09
Max MedicalBest EstimateMin Medical
Actuarial Modeling Page 10 04/18/05
XYZ Health Plan RBC Target (90% Confidence Interval) SCENARIO: Grand Total-Base Scenario
RBC Target Mar-05 Jun-05 Sep-05 Dec-05 Mar-06 Jun-06 Sep-06 Dec-06 Mar-07 Jun-07 Sep-07 Dec-07Max Medical 99,382 102,456 104,590 110,120 123,413 133,806 134,506 143,633 152,437 160,001 172,607 187,313Best Estimate 89,496 93,798 97,129 101,403 102,469 106,649 110,990 115,585 120,426 125,432 130,676 136,065Min Medical 84,528 87,561 86,676 91,898 86,453 87,452 88,914 90,677 95,006 95,344 96,931 102,786
RBC Target Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09Max Medical 187,516 198,284 206,981 212,587 221,965 237,883 245,189 253,843Best Estimate 141,811 147,653 153,769 160,006 166,739 173,609 180,452 187,686Min Medical 109,185 112,101 115,513 115,470 114,951 120,270 125,984 128,741
0
50,000
100,000
150,000
200,000
250,000
300,000
Mar-05
Jun-05
Sep-05
Dec-05
Mar-06
Jun-06
Sep-06
Dec-06
Mar-07
Jun-07
Sep-07
Dec-07
Mar-08
Jun-08
Sep-08
Dec-08
Mar-09
Jun-09
Sep-09
Dec-09
Max MedicalBest EstimateMin Medical
Actuarial Modeling Page 11 04/18/05
XYZ Health Plan Ratio of Surplus to RBC Target (90% Confidence Interval) SCENARIO: Grand Total-Base Scenario
Surplus vs RBC Mar-05 Jun-05 Sep-05 Dec-05 Mar-06 Jun-06 Sep-06 Dec-06 Mar-07 Jun-07 Sep-07 Dec-07Max Medical 69.6% 71.9% 75.2% 76.9% 74.5% 72.7% 76.0% 73.8% 75.6% 76.3% 74.4% 71.3%Best Estimate 79.3% 82.3% 86.7% 90.8% 96.9% 98.4% 99.2% 99.0% 102.4% 103.7% 104.4% 104.1%Min Medical 85.7% 91.6% 102.0% 106.1% 123.2% 130.0% 135.7% 139.8% 142.9% 149.6% 154.0% 150.8%
Surplus vs RBC Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09Max Medical 77.7% 78.4% 79.5% 80.9% 83.5% 82.3% 83.8% 84.1%Best Estimate 107.4% 108.7% 109.4% 109.2% 112.5% 113.8% 114.7% 114.6%Min Medical 152.3% 156.2% 159.1% 165.7% 178.2% 179.1% 179.4% 183.1%
0.0%
20.0%
40.0%
60.0%
80.0%
100.0%
120.0%
140.0%
160.0%
180.0%
200.0%
Mar-05
Jun-05
Sep-05
Dec-05
Mar-06
Jun-06
Sep-06
Dec-06
Mar-07
Jun-07
Sep-07
Dec-07
Mar-08
Jun-08
Sep-08
Dec-08
Mar-09
Jun-09
Sep-09
Dec-09
Max MedicalBest EstimateMin Medical
Actuarial Modeling Page 12 04/18/05
XYZ Health Plan Enterprise Value (90% Confidence Interval) SCENARIO: Grand Total-Base Scenario
Enterprise Value Mar-05 Jun-05 Sep-05 Dec-05 Mar-06 Jun-06 Sep-06 Dec-06 Mar-07 Jun-07 Sep-07 Dec-07Max Medical 127,275 130,933 134,696 138,566 142,548 146,645 150,859 155,194 159,654 164,242 168,962 173,818Best Estimate 150,236 154,553 158,994 163,564 168,264 173,099 178,074 183,191 188,456 193,871 199,443 205,174Min Medical 198,960 204,677 210,559 216,610 222,835 229,239 235,826 242,603 249,575 256,747 264,126 271,716
Enterprise Value Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09Max Medical 178,813 183,951 189,238 194,676 200,270 206,025 211,946 218,037Best Estimate 211,070 217,136 223,376 229,795 236,399 243,192 250,181 257,370Min Medical 279,524 287,557 295,821 304,322 313,067 322,064 331,319 340,840
0
50,000
100,000
150,000
200,000
250,000
300,000
350,000
400,000
Mar-05
Jun-05
Sep-05
Dec-05
Mar-06
Jun-06
Sep-06
Dec-06
Mar-07
Jun-07
Sep-07
Dec-07
Mar-08
Jun-08
Sep-08
Dec-08
Mar-09
Jun-09
Sep-09
Dec-09
Max MedicalBest EstimateMin Medical
Actuarial Modeling Page 13 04/18/05