1. Privatization of Worker’s Compensation State Funds
CAS Annual Meeting
November 16, 1999

2. Privatization of Worker’s Compensation State Funds
Why do it at all?
Can it be done?
Why now?
Structural Issues 2

3. Why do it at all? Political / Philosophic Economic
Eliminate government bureaucracies wherever possible
Create Economic Incentives to:
Cut claims costs
Cut administrative costs
Eliminate favors/cronyism
Economic
More efficient use of capital/free up trapped capital
Reduce risk of insolvency/assessment 3

4. Discounted Value of Reserves
-Expected-
Margin
Reinsurance
Premium
Reinsurers’
Limit
Mean 4

5. Can it be done? Political will Economically feasible
Pass enabling legislation
Overcome entrenched interests
Economically feasible
Adequate funding plus margin
Regulatory Cooperation
Accounting Issues
Posting Security
RBC, etc. 5

6. Why now? Political will may exist Improved economic condition of funds
Workers’ comp reforms in place and effective
Stock market returns may have improved asset values
Old reserves have been running off favorably
Large reserves versus much smaller or different ongoing operations
Reinsurance availability
Workers’ comp reform/restructuring increases confidence in loss prediction
It’s just plain competitive out there 6

7. Structural Issues Who is the reinsured? Who owns the company?
Who handles the claims?
Who shares the profits?
Are coincident interests maintained?
What happens if the reinsurance is inadequate? 7