 Washington State Transit Insurance Pool Rating System Recommendations August 26, 2010 Presented by: Kevin Wick, FCAS, MAAA

PricewaterhouseCoopersSlide 2 High Level Points A risk sharing pool should charge each member in proportion to the risk they are contributing to the program -“Risk” does not equal actual losses Rating system is the program’s method of assessing the individual member risk Individual member actual losses are variable Need to temper impact individual member losses have on rates (risk measurement) or fundamental purpose of pool is defeated

PricewaterhouseCoopers Context Background Review conducted of experience rating system (dated July 23, 2010) Recommendations presented at July 29, 2010 WSTIP Meeting Recommendations revised and examples prepared Slide 3

PricewaterhouseCoopers Recommendations 1. Current review suggests single blended rate per mile is appropriate but mode rate differences should be monitored annually 2. Maintain a three-year loss experience window 3. Vary the individual loss cap by size of member 4. In mod calculation, weight between relative loss experience and prior mod (versus relative loss experience and 1.000) 5. More transparent presentation that provides a year by year context for evaluating loss levels Slide 4

PricewaterhouseCoopers Recommendation # 3 Revised – Varying Loss Cap Slide 5 GroupMembersCriteria Average Loss Level Recommended Loss Limit Large 1Pierce, Community15m+$404,000$250,000 Large 2Ben Franklin, Spokane, Intercity, Kitsap, Whatcom, Island 3.5m- 15m $114,000$100,000 MediumLink, Everett, Clallam, Skagit, Grays Harbor, Yakima 1.5m- 3.5m $50,000 SmallGrant, Mason, Jefferson, Pacific, Valley, Pullman, Columbia, Twin, Asotin, CUBS <1.5m$14,000$25,000

PricewaterhouseCoopers Rating Example – Part 1 Slide 6

PricewaterhouseCoopers Rating Example – Part 2 Slide 7

PricewaterhouseCoopers Financial Impact of Moving to Proposed System 1. Annual Fluctuation - same 2. Recognition of long-term favorable or unfavorable loss levels Improvement under proposed system Deficiency in primary rating base 3. Large loss impact – effectively the same Current - less consideration is given to less predictable losses at higher limits Proposed – tiered cap allows more consideration of individual member experience Slide 8