© 2005 Towers Perrin 1 Medical Malpractice Overview Financial Update Claim Trends and Observations Market Realities PLUS Medical PL Symposium March 16, 2005

© 2005 Towers Perrin March 16, 2005 James D. Hurley ACAS, MAAA Medical Malpractice – Financial Update This document is incomplete without the accompanying discussion; it is confidential and intended solely for the information and benefit of the immediate recipient hereof.

© 2005 Towers Perrin 3 Medical Malpractice — Financial Update Source: AM Best’s Aggregates and Averages

© 2005 Towers Perrin 4 Medical Malpractice – Financial Update

© 2005 Towers Perrin 5 Medical Malpractice — Financial Update Source: AM Best’s Aggregates and Averages

© 2005 Towers Perrin 6 Medical Malpractice — Financial Update Source: AM Best’s Aggregates and Averages

© 2005 Towers Perrin 7 Medical Malpractice — Financial Update Messages Financial results – a work in progress Underwriting Combined ratio still too high —Best says 130% for 2004 and 2005 —Composite of 30 companies ≈ 110% for 2004 Rate increases still to be ‘felt’ Question is reserves

© 2005 Towers Perrin 8 Medical Malpractice – Financial Update

© 2005 Towers Perrin 9 Medical Malpractice — Financial Update Messages (cont’d) Investment income Still evolving – ‘numerator / denominator’ problem Expect lower than 2003 Interest rate increase – ‘talk is cheap’ Capacity still under pressure, but stabilizing premium-to-surplus leverage 1:1? (no help for 2004 and 2005)

Medical Malpractice Trends and Observations Raymond Birkinsha GE Insurance Solutions March 16, 2005

11 GE Insurance Solutions Raymond Birkinsha March 2005 TORT REFORM Bush Administration Strongly Urging Congress to Reintroduce a Bill Limiting Non- economic Damage Awards to $250,000, Limit Punitive Damage Awards, Place Limits on Time Allowed to Injured Patients to File a Lawsuit & Establish Fee Schedule for Lawyers’ Contingency Fees Reform Passed in Nevada & Florida (Nov. ’04) Nevada… Reform Eliminates All Exemptions on a 2002 Law That Caps Awards for Pain & Suffering in Medical Malpractice Cases at $350,000 Florida… Reform Puts Constitutional Limit on Lawyers Fees Maryland General Assembly Signed in New Law (Jan ’05)… Imposing Tax on HMOs to Subsidize Doctor’s Med Mal Insurance Premiums Freeze Noneconomic Damage Award Limits at $650,000 for Next Four Years Reduce Limits on Noneconomic Damages in Wrongful Death Suits From US$ 1.6 MM to US$ 812,500 Ohio passed tort reform legislation for third time: Maximum Non- Economic Damages $350,000 Per Plaintiff Or $500,000 Per Occurrence. Mississippi (June ’04)… Reform Bill Limiting Damages for Pain & Suffering to US$ 500,000 in Medical Malpractice Cases and $1 MM in Other Cases... Restrictions on Punitive Damage Awards Also Included

12 GE Insurance Solutions Raymond Birkinsha March 2005 APPEAL BONDS The Issue: Insolvent Carriers leading to Bond Issues The Solution: Caps on Bonds GEORGIA $25,000,000 VIRGINIA$25,000,000 NEBRASKA50% or $50,000,000 IOWA $100,000,000 MINNESOTA$100,000,000 SOUTH CAROLINA NO BOND!

13 GE Insurance Solutions Raymond Birkinsha March 2005 # Payments Source: National Practitioners Data Bank Public Use Files; AON HealthLine Special Edition 2003 Claims Per 1,000 Hospital Beds Claims Per 1K Hospital Beds Payments More than 800 payments over $1MM in 2002 HOSPITAL SEVERITY

14 GE Insurance Solutions Raymond Birkinsha March Claims By Medical Specialties Source: National Practitioner Data Bank Public Use File - Data To September 2004

15 GE Insurance Solutions Raymond Birkinsha March Indemnity By Medical Specialty Source: National Practitioner Data Bank Public Use File - Data To September 2004

16 GE Insurance Solutions Raymond Birkinsha March 2005 VERDICTS $76,000,000 Impaired Infant Verdict (NJ) $63,000,000 Use of Forceps (FL) $32,000,000 Impaired Infant (IL) $30,000,000 Impaired Infant (OH) $27,600,000 Impaired Infant (KY) $23,300,000 Impaired Infant (IL) $12,500,000 Impaired Infant (IL )

17 GE Insurance Solutions Raymond Birkinsha March 2005 SETTLEMENTS $15,000,000 Hypoxic Birth Injury $17,250,000 Failure to Monitor Anticoagulation $18,000,000 Pre-eclampsia Allegations $20,000,000 Brain Injury Post Surgery $20,000,000 Failure to Perform C-Section $35,000,000 Birth Trauma – Brain Injury

18 GE Insurance Solutions Raymond Birkinsha March 2005 PLAINTIFF’S SUCCESS Developed Plaintiff’s Models Focus on Emotion No Incentive To Settle Less Cooperation Value of Money

19 GE Insurance Solutions Raymond Birkinsha March 2005 Jury Selection Mock Trials Trial Consultants Sophisticated Evidence and Exhibits RESOURCES

20 GE Insurance Solutions Raymond Birkinsha March 2005 THE NURSING HOME MODEL Surveys Ex-Employees Medical Chart Loss of Dignity

21 GE Insurance Solutions Raymond Birkinsha March 2005 TRENDS FEWER PLAYERS MORE INSOLVENCY ISSUES LARGER RETENTIONS RESTRICTIVE COVERAGE TORT REFORM

22 GE Insurance Solutions Raymond Birkinsha March 2005 RECOMENDATIONS Support Tort Reform Professional Claim Analysts Identify the Big Cases Evaluate Cases Early

23 GE Insurance Solutions Raymond Birkinsha March 2005 RECOMENDATIONS See Resolution as a Process Engage Appropriate Resources Counsel Experts Trial Resources Witness Coaches

Leadership.Innovation.Results. I NSURING THE F INANCIAL H EALTH OF H EALTHCARE P ROVIDERS Gallagher Healthcare March 16, 2005James D. Hurley ACAS, MAAA24 Medical Malpractice Market Realities Philip E. Reischman Gallagher Healthcare Insurance Services, Inc. March 16, 2005

Leadership.Innovation.Results. 25 U.S. Medical Malpractice Current Market Realities  Most Carriers Are Making Money  Capacity Continues To Expand  New Players  Greater Appetite  More Flexibility  Alternative Markets Will Not Go Away  Captives are Long-Term Commitment  Excitement of Underwriting Profits  More Fronting Options

Leadership.Innovation.Results. 26 U.S. Medical Malpractice Current Market Realities  Some Start-Ups Will Fail  Low Volume  Expense Ratios  Carrier Ratings Are Still A Concern  Downgrades  Flight To Quality  Tort Reform And Risk Management Are Driving Rate Decreases  Contingent Commissions Not Material

Leadership.Innovation.Results. 27 U.S. Medical Malpractice Client vs. Market Perceptions IssueClient PerspectiveMarket Perspective Specific RetentionOnce forced, nowAbout right voluntary Aggregate RetentionMost want at reasonableFew offer; high attachment points/priceattachment point Rates & PremiumsMust go downInflationary increase at minimum Multi-Year ProgramsHesitantHesitant

Leadership.Innovation.Results. 28 Insureds Rates Down Rates Up Insurers It’s part of the cycle, so manage through it!

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