© 2004 Towers Perrin September 23, 2004 James D. Hurley, ACAS, MAAA Medical Malpractice Update CASE 2004 Fall Meeting

© 2004 Towers Perrin S:\People\hurlj\Presentations\ CASE 2004 Fall Meeting.ppt 2 Topics change in players financial results reforms Medical Malpractice Update

© 2004 Towers Perrin S:\People\hurlj\Presentations\ CASE 2004 Fall Meeting.ppt Top 20 Med Mal Insurers Company Name 2000 DPW ($000s) Market Share 1. St. Paul Fire & Marine Insurance Co. 2. Medical Liability Mutual Insurance Co. 3. Employers Reinsurance Corp Group 4. Health Care Indemnity, Inc. 5. Continental Casualty Group 6. Medical Group Holdings and Affiliates 7. MIIX 8. Doctors Company Group 9. PHICO 10. Mutual Assurance Companies 11. American International Group 12. Illinois State Med Interins Exchange 13. SCPIE Indemnity Co. 14. Picom Group 15. Physicians Reciprocal Insurers 16. Farmers Insurance Group 17. Firemans Fund Insurance Group 18. Healthcare Underwriters Mutual Ins Co. 19. FPIC Insurance Group, Inc. 20. Promutual Group 21. TOP GRAND TOTAL 23. GROWTH RATE , , , , , , , , , , , , , , , , , , , ,613 4,074,851 6,422, % 9.0% 5.7% 5.0% 3.8% 3.3% 3.2% 3.0% 2.6% 2.4% 2.1% 2.0% 1.7% 1.6% 63.4% 100.0% Medical Malpractice Update

© 2004 Towers Perrin S:\People\hurlj\Presentations\ CASE 2004 Fall Meeting.ppt Top 20 Med Mal Insurers Company Name 2002 DPW ($000s) Market Share 2000 Rank 1. Medical Liability Mutual Group 2. American International Group 3. Employers Reinsurance Corp Group 4. ProAssurance Corp Group & Affiliates 5. Doctors Company Group 6. Health Care Indemnity, Inc. 7. Continental Casualty Group 8. FPIC Insurance Group, Inc. 9. ISMIE Insurance Group 10. Medical Group Holdings and Affiliates 11. Farmers Insurance Group 12. St. Paul Fire & Marine Insurance Co. 13. MAG Mutual Insurance Co. 14. Firemans Fund Insurance Group 15. Zurich Insurance Company Group 16. Associated International Market Insurance Cos. 17. Physicians Reciprocal Insurers 18. Promutual Group 19. AP Capital Group 20. State Volunteer Mutual Insurance Co. 21. TOP 20 TOTAL 22. GRAND TOTAL 23. GROWTH RATE , , , , , , , , , , , , , , , , , , , ,859 6,529,196 9,547, % 10.0% 6.7% 6.6% 4.6% 4.3% 3.6% 3.5% 3.1% 2.8% 2.6% 2.4% 2.3% 2.2% 2.1% 2.0% 1.9% 1.7% 68.4% 100.0% Medical Malpractice Update

© 2004 Towers Perrin S:\People\hurlj\Presentations\ CASE 2004 Fall Meeting.ppt 5 Still fairly spread out MLMIC, the largest, at 10% drops off quickly Huge turnover... St. Paul, MIIX, Phico, SCPIE, ROA, Farmer’s over $1 Billion in premium moves some commercials step-up Many new formations most are state specific (or even ‘group’ specific) getting into the game tougher Medical Malpractice Update

© 2004 Towers Perrin S:\People\hurlj\Presentations\ CASE 2004 Fall Meeting.ppt 6 Financial Results – survey (ex. MLMIC) balance sheet income statement Schedule P Medical Malpractice Update

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© 2004 Towers Perrin S:\People\hurlj\Presentations\ CASE 2004 Fall Meeting.ppt 34 Financial Ratios to Net Premiums Earned Loss & LAE97%92% 91%98%112%111%105% Underwriting Expense15%17%19%21%22% 18%17% Combined Underwriting112%109%111%114%113%120%134%129%122% Policy Holder Dividends10%9%7%6% 5%3%2%0% Adjusted Combined122%118% 120%119%125%137%131%122% Net Investment Income46%43% 42%33%32%30%18%21% FIT7%6% 5%2% 0%-3%0% Net Income23%19%20%16%13%6%-7%-11%-2% Medical Malpractice Update

© 2004 Towers Perrin S:\People\hurlj\Presentations\ CASE 2004 Fall Meeting.ppt 35 Messages – Financial results – a work in progress but better than industry medical malpractice Underwriting combined ratio (at 120%) still too high —2003 coverage year almost gets it rate increases still to be ‘felt’ question is reserves Investment income still evolving – ‘numerator / denominator’ problem expect lower than 2003 interest rate increase – ‘talk is cheap’ (and no help for 2004) Leverage – still upward pressure ‘Stars need to align’ to assure better 2004 Medical Malpractice Update

© 2004 Towers Perrin S:\People\hurlj\Presentations\ CASE 2004 Fall Meeting.ppt 36 Medical Malpractice Update Reforms tort reform —HR5 / MICRA / other states —will it work? —will it be upheld?

© 2004 Towers Perrin S:\People\hurlj\Presentations\ CASE 2004 Fall Meeting.ppt 37 Medical Malpractice Update Reforms tort reform insurance reform —Prop 103 —rollbacks / freezes —repeal anti-trust exemption —‘SMART’ laws —RBC

© 2004 Towers Perrin S:\People\hurlj\Presentations\ CASE 2004 Fall Meeting.ppt 38 Medical Malpractice Update Reforms tort reform insurance reform healthcare reform —provider discipline —patient safety

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© 2004 Towers Perrin S:\People\hurlj\Presentations\ CASE 2004 Fall Meeting.ppt 40 Questions? Medical Malpractice Update