September 13, 1999 Joanne M. Ottone, FCAS, MAAA Workers Compensation Reserve Issues in Selected States Nevada

2 Prior to July 1, 1999 Employers had two choices for workers compensation Monopolistic state fund (Employers Insurance Company of Nevada, formerly known as State Industrial Insurance System) Self-insurance Nevada-specific Classifications Rates Experience Rating

3 Unique Features of Monopolistic Fund Continuous coverage rather than annual policies Premium paid in arrears with accompanying payroll report Mandatory $100 per claim deductible

4 After July 1, 1999 Private carriers enter Nevada market National Council on Compensation Insurance serves as advisory organization NCCI Classifications Rates Rating plans Residual market mechanism

5 Transition to NCCI Rates and Plans NCCI applies to all policyholders effective July 1, 1999 New and renewal Outstanding Policyholders now purchase annual policies Paid (at least partially) in advance Old Nevada and new NCCI premiums widely divergent Class definitions Rates E-mod formulas and rating values

6 Transition Plan Implemented to Alleviate Large Premium Swings Calculate average modified rate for each policyholder Using old Nevada rates and e-mod Using new NCCI rates and e-mod New average rate for each policyholder capped at Old Nevada average modified rate Plus statewide average rate change Plus/Minus 25% Details for subsequent years not yet determined

7 Individual Carrier Deviations from NCCI Rates Original plan for deviations No downward deviations for the 1st year Up to -5% for the 2nd year Up to -10% for the 3rd year Up to -15% for the 4th year Loss costs after July 1, 2003 Revised plan for deviations No downward deviations for the 1st year Up to -15% for the 2nd year Loss costs after July 1, 2001

8 Recent Legislation Changes to loss cost phase-in period Employers Insurance Company of Nevada allowed to convert to mutual insurance company Benefit changes

9 Reserving in Nevada Little historical data, and none specific to your company Mostly paid data used in NCCI filing Case reserving practices vary by company Long payout pattern Benefit Changes Significant changes in 1993 Upcoming changes Potentially volatile effects of economic conditions Construction, tourism major parts of economy