1. WC Second Injury Fund: South Carolina Jeri Boysia Companion P&C Presented at CAS Spring Meeting June 15-18, 2008

2. WC SIF: South Carolina Background and History of the SC SIF  2003 Limitation  2007 Dissolution Actuarial Considerations Following SIF Law Changes  Impact on Reserving  Impact on Pricing The Future and The End of the SC SIF

3. Background and History of the SC SIF

4. SC SIF Financial Mechanics Fund reimburses insurers for “second injuries” Assessments for paid recoveries levied based on carriers paid loss levels (not premium)  Creates an unfunded liability, and  Statutory accounting requires assessment on paid plus anticipated recoveries to be expensed Prior to 7/1/07, asset requirement set at 175% of Fund payouts  Carrier Assessment = (Carrier % of State Paid Loss) * 175% of SIF disbursements LESS SIF net assets

5. SC SIF Practical Issues Loss costs are reduced Expenses are higher Is there a cost to the system? What are the benefits? Recovery efforts handled by carrier or outsourced Results vary by carrier  Winners and losers  Some disregard recovery potential completely

6. SC SIF Assessment History FY 2005 assessment spiked to $253M Estimates of unfunded liability were significant What caused this sudden growth?

7. SC SIF Timeline 2003 law change (effective 6/25/03)  Redefined eligible claim  Fear that SC SIF may be dissolved (discussed during 2005 reform efforts) Reimbursements skyrocketed in 2005 leading to a record assessment 2007 WC Reform Act (S. 332) dissolved the SC SIF

8. Qualifying Claim Prior to 2003 Law Change Employee has a pre-existing injury Reimbursement for subsequent injury which results in medical cost substantially greater because of the pre-existing injury (or would not have occurred w/o pre- existing injury) Employer knowledge of pre-existing injury not required

9. Qualifying Claim After 2003 Law Change Employee has a pre-existing injury Reimbursement for subsequent injury which results in medical cost substantially greater because of the pre-existing injury (or would not have occurred w/o pre- existing injury) Employer must have knowledge of pre- existing injury at the time the employee was hired

10. 2007 WC Reform Act (S. 332) No arthritis or “other” claims with date of injury on or after 7/1/07 No claims with date of injury on or after 7/1/08 Last day to submit notice of new claim is 12/31/10 All data re: claims must be submitted to the Fund by 7/1/11 Last day for Fund to accept a claim for reimbursement is 12/31/11

11. 2007 WC Reform Act (S. 332) Other key dates:  7/1/07: changed assessment calculation; reduced asset requirement from 175% to 135%  7/1/13: Fund is terminated and remaining obligations transferred to Budget and Control Board

12. Actuarial Considerations Following 2003 Law Change

13. What is the impact of SIF recoveries on your company’s loss history? Could be significantly different than industry results Are you separately accounting for received and anticipated recoveries? Or… Are your losses (e.g. triangles) net of recoveries? Separate treatment relatively straight forward; focus on the latter.

14. Estimated Impact of 2003 Law Change

15. Estimated Impact of 2003 Law Change (Cont) AY 00-02 (Ave recovery normalized for exposure changes; base year) 1.00 AY 2003 (partial year) 0.47-53% AY 20040.15-85% AY 20050.18-82% AY 20060.20-80%

16. Impact of 2003 Law Change on Loss Development Factors +47% +27% +15% +8% +4%

17. Impact on Reserving Development Methods  Adjustment to Loss Development Factors Loss Ratio Methods  Adjustment to Loss Development Factors  Adjustment to Expected Loss Ratio Bottom Line:  Losses will increase  Magnitude will vary by carrier Caution re: industry loss development factors

18. Impact on Pricing Long Term  No significant impact on pricing  Carrier accountability factor might lower cost Short Term – timing issue  Loss cost multipliers might need to be adjusted downward prior to increase in loss costs  Impact to loss costs will be slow to emerge  Carriers are better equipped to estimate impact earlier (they have the data available)

19. The Future and The End of the SC SIF

20. Projected Impact of 2007 Law Change AY 00-02 (base year) 1.00 AY 20030.47-53% AY 20040.15-85% AY 20050.18-82% AY 20060.20-80% AY 2007??? AY 2008??? AY 20090.00-100%

21. Impact of These Changes On Reimbursements FY 2008 as of 4/30/08

22. Impact of These Changes On Assessments

23. Questions?