1.  Copyright 2012 National Council on Compensation Insurance, Inc. All rights reserved. Texas Biennial Hearing December 17, 2012 terri_robinson@ncci.com 501-333-2835 ann_marie_smith@ncci.com 561-893-3781

2.  Copyright 2012 National Council on Compensation Insurance, Inc. All rights reserved. 2 Statistical Agent Services Collection and validation of various types of data Summarizing data and providing reports to TDI Advisory Organization Services Production of experience rating modifications Third loss cost filing is pending Proof of Coverage Vendor Supply policy transaction information to TDI NCCI’s Role in Texas

3.  Copyright 2012 National Council on Compensation Insurance, Inc. All rights reserved. 3 State of the Industry Countrywide Vs. Texas

4.  Copyright 2012 National Council on Compensation Insurance, Inc. All rights reserved. 4 Countrywide Workers Compensation Premium—First Increase in Years Net Written Premium $ Billions Calendar Year Source:1990–2010 Private Carriers, Annual Statement Data; 2011, NCCI 1996–2011 State Funds: AZ, CA, CO, HI, ID, KY, LA, MD, MO, MT, NM, OK, OR, RI, TX, UT Annual Statements State Funds available for 1996 and subsequent

5.  Copyright 2012 National Council on Compensation Insurance, Inc. All rights reserved. 5 Texas Workers Compensation Premium Volume Increases Direct Written Premium Source: NAIC Annual Statement data

6.  Copyright 2012 National Council on Compensation Insurance, Inc. All rights reserved. 6 Countrywide Accident Year Net Combined Ratio Workers Compensation Calendar Year vs. Ultimate Accident Year Private Carriers Accident Year data is evaluated as of 12/31/2011 and developed to ultimate Source:Calendar Years 2002–2011, Annual Statement Data; Ultimate Accident Years 2001–2011, NCCI analysis based on Annual Statement Data Includes dividends to policyholders Percent

7.  Copyright 2012 National Council on Compensation Insurance, Inc. All rights reserved. 7 Texas Accident Year Combined Ratios Sources: NCCI financial data, NAIC Annual Statement data

8.  Copyright 2012 National Council on Compensation Insurance, Inc. All rights reserved. 8 Results Vary From State to State Accident Year 2010 Combined Ratios Data is evaluated as of 12/31/2010

9.  Copyright 2012 National Council on Compensation Insurance, Inc. All rights reserved. 9 Workers Compensation Premium Rate Ranking Premium Rate Index per $100 of Payroll Source: 2012 Oregon Workers’ Compensation Premium Rate Ranking Summary Indexes based on rates in effect on January 1, 2012 TX Ranking 14th (out of 51).

10. Countrywide = $1.14 Based on the latest NCCI approved rates and loss costs in the various states. Texas = $0.66 DC OH NM MI NC MN WI IL MO IN OR KS NE ID AL CA LA KY TX AZ VA FL MS SC AR GA TN IA CO UT OK WA WV ND ME AK SD NV PA NY MT MD DE NJ CT RI MA VT NH HI WY Average Voluntary Pure Loss Costs Quartiles

11. NCCI’s Loss Cost Filings in Texas 11  2012 National Council on Compensation Insurance, Inc. All rights reserved. Initial Filing 6/1/2011 Decrease of 0.3% 6/1/2012 Decrease of 3.8% 6/1/2013* * Filing is pending

12. Countrywide = $0.94 Based on the latest NCCI approved rates and loss costs in the various states. Texas = $0.66 DC OH NM MI NC MN WI IL MO IN OR KS NE ID AL CA LA KY TX AZ VA FL MS SC AR GA TN IA CO UT OK WA WV ND ME AK SD NV PA NY MT MD DE NJ CT RI MA VT NH HI WY Average Voluntary Pure Loss Costs Quartiles Using Texas Payroll Distribution

13.  Copyright 2012 National Council on Compensation Insurance, Inc. All rights reserved. 13 Countrywide vs. Texas Experience Rating Source: Average Experience Rating Modifications produced by NCCI

14.  Copyright 2012 National Council on Compensation Insurance, Inc. All rights reserved. 14 Countrywide vs. Texas Experience Rating Source: Average Experience Rating Modifications produced by NCCI

15.  Copyright 2012 National Council on Compensation Insurance, Inc. All rights reserved. 15 Number of Texas Policies by Industry Group Compared with Countrywide/Region Manufacturing Regional states are AR, LA, NM, and OK Countrywide and Regional Averages do not include Texas. Based on NCCI’s Statistical Plan data Contracting Office & Clerical Goods & Services Miscellaneous

16.  Copyright 2012 National Council on Compensation Insurance, Inc. All rights reserved. 16 Claim Frequency

17.  Copyright 2012 National Council on Compensation Insurance, Inc. All rights reserved. 17 Countrywide Workers Compensation Lost-Time Claim Frequency Declined in 2011 Lost-Time Claims Percent Accident Year 2011p: Preliminary based on data valued as of 12/31/2011 1991–2010: Based on data through 12/31/2010, developed to ultimate Based on the states where NCCI provides ratemaking services, including state funds; excludes high deductible policies Frequency is the number of lost-time claims per $1M pure premium at current wage and voluntary loss cost level Cumulative Change of –55.5% (1991–2010 adjusted)

18.  Copyright 2012 National Council on Compensation Insurance, Inc. All rights reserved. 18 Texas Claim Frequency Based on NCCI’s financial data Frequency of lost-time claims adjusted to a common wage level

19.  Copyright 2012 National Council on Compensation Insurance, Inc. All rights reserved. 19 Texas Workers Compensation Lost-Time Claim Frequency Lost-Time Claims Cumulative Change of -4.9% (1998–2010) Percent Change Based on data through 12/31/2011, developed to ultimate

20.  Copyright 2012 National Council on Compensation Insurance, Inc. All rights reserved. 20 Texas Average Claim Frequency Frequency per 100,000 Workers—All Claims Based on NCCI’s Statistical Plan data

21.  Copyright 2012 National Council on Compensation Insurance, Inc. All rights reserved. 21 Claim frequency is a key cost driver Texas frequency has increased Texas frequency is lower than CW and region CW frequency decreased in latest year Key Takeaways— Claim Frequency

22.  Copyright 2012 National Council on Compensation Insurance, Inc. All rights reserved. 22 Indemnity Severity

23.  Copyright 2012 National Council on Compensation Insurance, Inc. All rights reserved. 23 Countrywide Workers Compensation Indemnity Claim Costs— Modest Increase in 2011 Average Indemnity Cost per Lost-Time Claim Accident Year 2011p: Preliminary based on data valued as of 12/31/2011 1991–2010: Based on data through 12/31/2010, developed to ultimate Based on the states where NCCI provides ratemaking services, including state funds Excludes high deductible policies Annual Change 1991–1993:–1.7% Annual Change 1994–2001:+7.3% Annual Change 2002–2010:+3.4% Indemnity Claim Cost ($ ' 000s)

24.  Copyright 2012 National Council on Compensation Insurance, Inc. All rights reserved. 24 Texas Average Indemnity Severity. 15.3 AY 11 Based on NCCI’s financial data for lost-time claims at current benefit level and developed to ultimate

25.  Copyright 2012 National Council on Compensation Insurance, Inc. All rights reserved. 25 Texas Average Indemnity Claim Severity Lost-Time Claims Indemnity Severity ($ ' 000s) The severity figures shown are in excess of wage trend Based on data through 12/31/2011, on-leveled and developed to ultimate.

26.  Copyright 2012 National Council on Compensation Insurance, Inc. All rights reserved. 26 Texas vs. Countrywide Average Indemnity Claim Severity *Preliminary Source: NCCI financial data valued as of 12/31/2010 for Countrywide AY 2007 – 2010 Source: NCCI financial data valued as of 12/31/2011 for Countrywide AY 2011 and Texas AY 2007 - 2011

27.  Copyright 2012 National Council on Compensation Insurance, Inc. All rights reserved. 27 Average Indemnity Claim Severity in the Region Based on NCCI’s financial data for lost-time claims

28.  Copyright 2012 National Council on Compensation Insurance, Inc. All rights reserved. 28 Indemnity costs remain low despite increase in the most recent year Countrywide indemnity severity increased slightly Texas average indemnity cost is lower than the region and countrywide Key Takeaways— Texas Indemnity Benefit Costs

29.  Copyright 2012 National Council on Compensation Insurance, Inc. All rights reserved. 29 Medical Severity

30.  Copyright 2012 National Council on Compensation Insurance, Inc. All rights reserved. 30 Medical Benefits Constitute the Majority of Total Benefit Costs in Texas IndemnityMedical Regional states are AR, LA, NM, and OK Based on NCCI’s Statistical Plan data

31.  Copyright 2012 National Council on Compensation Insurance, Inc. All rights reserved. 31 Countrywide Workers Compensation Medical Severity Moderate Increase in 2011 Average Medical Cost per Lost-Time Claim Accident Year Annual Change 1991–1993:+1.9% Annual Change 1994–2001:+8.9% Annual Change 2002–2010:+6.0% Medical Claim Cost ($ ' 000s) 2011p: Preliminary based on data valued as of 12/31/2011 1991–2010: Based on data through 12/31/2010, developed to ultimate Based on the states where NCCI provides ratemaking services, including state funds Excludes high deductible policies

32.  Copyright 2012 National Council on Compensation Insurance, Inc. All rights reserved. 32 Texas Average Medical Severity. 23.5 AY 11 Based on NCCI’s financial data for lost-time claims at current benefit level and developed to ultimate

33.  Copyright 2012 National Council on Compensation Insurance, Inc. All rights reserved. 33 Texas Average Medical Claim Severity Lost-Time Claims Medical Severity ($ '000s) The severity figures shown are in excess of wage trend Based on data through 12/31/2011, on-leveled and developed to ultimate

34.  Copyright 2012 National Council on Compensation Insurance, Inc. All rights reserved. 34 Texas vs. Countrywide Average Medical Claim Severity *Preliminary Source: NCCI financial data valued as of 12/31/2010 for Countrywide AY 2007 – 2010 Source: NCCI financial data valued as of 12/31/2011 for Countrywide AY 2011 and Texas AY 2007 - 2011

35.  Copyright 2012 National Council on Compensation Insurance, Inc. All rights reserved. 35 Based on NCCI’s financial data for lost-time claims Average Medical Claim Severity in the Region

36.  Copyright 2012 National Council on Compensation Insurance, Inc. All rights reserved. 36 Comprise 63% of benefits Medical severity continues to decline Costs are lower than countrywide Costs are lowest in the region Key Takeaways— Texas Medical Benefit Costs

37.  Copyright 2012 National Council on Compensation Insurance, Inc. All rights reserved. 37 Closing Remarks Thank you!