1. © 2004 Towers Perrin September 23, 2004 James D. Hurley, ACAS, MAAA Medical Malpractice Update CASE 2004 Fall Meeting

2. © 2004 Towers Perrin S:\People\hurlj\Presentations\040923 CASE 2004 Fall Meeting.ppt 2 Topics change in players financial results reforms Medical Malpractice Update

3. © 2004 Towers Perrin S:\People\hurlj\Presentations\040923 CASE 2004 Fall Meeting.ppt 3 2000 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 20 22. GRAND TOTAL 23. GROWTH RATE 1998-2000 580,159 366,260 320,977 243,168 212,721 212,374 209,750 204,977 190,109 168,266 163,850 163,848 154,009 137,854 133,995 132,284 131,688 131,030 111,919 105,613 4,074,851 6,422,468 4.1% 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

4. © 2004 Towers Perrin S:\People\hurlj\Presentations\040923 CASE 2004 Fall Meeting.ppt 4 2002 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 2000-2002 958,842 639,634 633,229 443,275 405,773 342,022 334,820 291,530 266,095 246,744 231,074 219,396 212,654 207,738 203,552 187,209 185,332 179,791 176,627 163,859 6,529,196 9,547,380 48.6% 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% 2 11 3 10 8 4 5 19 12 6 16 1 25 17 22 35 15 20 26 21 Medical Malpractice Update

5. © 2004 Towers Perrin S:\People\hurlj\Presentations\040923 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

6. © 2004 Towers Perrin S:\People\hurlj\Presentations\040923 CASE 2004 Fall Meeting.ppt 6 Financial Results – survey (ex. MLMIC) balance sheet income statement Schedule P Medical Malpractice Update

7. © 2004 Towers Perrin S:\People\hurlj\Presentations\040923 CASE 2004 Fall Meeting.ppt 7 Medical Malpractice Update

8. © 2004 Towers Perrin S:\People\hurlj\Presentations\040923 CASE 2004 Fall Meeting.ppt 8 Medical Malpractice Update

9. © 2004 Towers Perrin S:\People\hurlj\Presentations\040923 CASE 2004 Fall Meeting.ppt 9 Medical Malpractice Update

10. © 2004 Towers Perrin S:\People\hurlj\Presentations\040923 CASE 2004 Fall Meeting.ppt 10 Medical Malpractice Update

11. © 2004 Towers Perrin S:\People\hurlj\Presentations\040923 CASE 2004 Fall Meeting.ppt 11 Medical Malpractice Update

12. © 2004 Towers Perrin S:\People\hurlj\Presentations\040923 CASE 2004 Fall Meeting.ppt 12 Medical Malpractice Update

13. © 2004 Towers Perrin S:\People\hurlj\Presentations\040923 CASE 2004 Fall Meeting.ppt 13 Medical Malpractice Update

14. © 2004 Towers Perrin S:\People\hurlj\Presentations\040923 CASE 2004 Fall Meeting.ppt 14 Medical Malpractice Update

15. © 2004 Towers Perrin S:\People\hurlj\Presentations\040923 CASE 2004 Fall Meeting.ppt 15 Medical Malpractice Update

16. © 2004 Towers Perrin S:\People\hurlj\Presentations\040923 CASE 2004 Fall Meeting.ppt 16 Medical Malpractice Update

17. © 2004 Towers Perrin S:\People\hurlj\Presentations\040923 CASE 2004 Fall Meeting.ppt 17 Medical Malpractice Update

18. © 2004 Towers Perrin S:\People\hurlj\Presentations\040923 CASE 2004 Fall Meeting.ppt 18 Medical Malpractice Update

19. © 2004 Towers Perrin S:\People\hurlj\Presentations\040923 CASE 2004 Fall Meeting.ppt 19 Medical Malpractice Update

20. © 2004 Towers Perrin S:\People\hurlj\Presentations\040923 CASE 2004 Fall Meeting.ppt 20 Medical Malpractice Update

21. © 2004 Towers Perrin S:\People\hurlj\Presentations\040923 CASE 2004 Fall Meeting.ppt 21 Medical Malpractice Update

22. © 2004 Towers Perrin S:\People\hurlj\Presentations\040923 CASE 2004 Fall Meeting.ppt 22 Medical Malpractice Update

23. © 2004 Towers Perrin S:\People\hurlj\Presentations\040923 CASE 2004 Fall Meeting.ppt 23 Medical Malpractice Update

24. © 2004 Towers Perrin S:\People\hurlj\Presentations\040923 CASE 2004 Fall Meeting.ppt 24 Medical Malpractice Update

25. © 2004 Towers Perrin S:\People\hurlj\Presentations\040923 CASE 2004 Fall Meeting.ppt 25 Medical Malpractice Update

26. © 2004 Towers Perrin S:\People\hurlj\Presentations\040923 CASE 2004 Fall Meeting.ppt 26 Medical Malpractice Update

27. © 2004 Towers Perrin S:\People\hurlj\Presentations\040923 CASE 2004 Fall Meeting.ppt 27 Medical Malpractice Update

28. © 2004 Towers Perrin S:\People\hurlj\Presentations\040923 CASE 2004 Fall Meeting.ppt 28 Medical Malpractice Update

29. © 2004 Towers Perrin S:\People\hurlj\Presentations\040923 CASE 2004 Fall Meeting.ppt 29 Medical Malpractice Update

30. © 2004 Towers Perrin S:\People\hurlj\Presentations\040923 CASE 2004 Fall Meeting.ppt 30 Medical Malpractice Update

31. © 2004 Towers Perrin S:\People\hurlj\Presentations\040923 CASE 2004 Fall Meeting.ppt 31 Medical Malpractice Update

32. © 2004 Towers Perrin S:\People\hurlj\Presentations\040923 CASE 2004 Fall Meeting.ppt 32 Medical Malpractice Update

33. © 2004 Towers Perrin S:\People\hurlj\Presentations\040923 CASE 2004 Fall Meeting.ppt 33 Medical Malpractice Update

34. © 2004 Towers Perrin S:\People\hurlj\Presentations\040923 CASE 2004 Fall Meeting.ppt 34 Financial Ratios to Net Premiums Earned 199519961997199819992000200120022003 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

35. © 2004 Towers Perrin S:\People\hurlj\Presentations\040923 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

36. © 2004 Towers Perrin S:\People\hurlj\Presentations\040923 CASE 2004 Fall Meeting.ppt 36 Medical Malpractice Update Reforms tort reform —HR5 / MICRA / other states —will it work? —will it be upheld?

37. © 2004 Towers Perrin S:\People\hurlj\Presentations\040923 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

38. © 2004 Towers Perrin S:\People\hurlj\Presentations\040923 CASE 2004 Fall Meeting.ppt 38 Medical Malpractice Update Reforms tort reform insurance reform healthcare reform —provider discipline —patient safety

39. © 2004 Towers Perrin S:\People\hurlj\Presentations\040923 CASE 2004 Fall Meeting.ppt 39 Medical Malpractice Update

40. © 2004 Towers Perrin S:\People\hurlj\Presentations\040923 CASE 2004 Fall Meeting.ppt 40 Questions? Medical Malpractice Update