1.  2002 NCCI Holdings, Inc. Midwestern Actuarial Forum Ron Retterath, FCAS, MAAA September 26, 2002

2.  2002 NCCI Holdings, Inc. 2 1. Select a number between 1 and 10 2. Multiply this number by 9 3. Add the two digits 4. Subtract 5 5. Correlate this number to a letter of the alphabet (A=1, B=2, etc.) 6. What is the first country that comes to mind that starts with this letter? 7. What is the last letter of the name of this country? 8. What is the first animal that comes to mind that starts with this letter? 9. What is the last letter of the name of this animal? 10. What is the first color that comes to mind that starts with this letter?

3.  2002 NCCI Holdings, Inc. 3 1. Green 2. Red 3. Blue 4. Orange 5. Purple 6. Black

4.  2002 NCCI Holdings, Inc. 4

5. State of the Market

6.  2002 NCCI Holdings, Inc. 6 State of the Market The Economics Underlying P&C Insurance Industry Performance The State of the Workers Compensation Industry Looking to the Future

7.  2002 NCCI Holdings, Inc. 7 Workers Compensation Remains the Third Largest P&C Line Net Written Premium Volume by Line—Private Carriers Source: Best's Aggregates & Averages Updated

8.  2002 NCCI Holdings, Inc. 8 Results Deteriorated for Most Lines Combined Ratios by Line—Private Carriers Source: Best's Aggregates & Averages Updated for actual 2001 Bests

9.  2002 NCCI Holdings, Inc. 9 P&C Industry Calendar Year Combined Ratios Private Carriers Percent  3.1% Due to Sept. 11 Source: Best's Aggregates & Averages

10.  2002 NCCI Holdings, Inc. 10 Impact of 9/11 on the P&C Industry Estimated Ultimate Cost of September 11 Catastrophe

11.  2002 NCCI Holdings, Inc. 11 Return on Surplus for P&C Industry Has Been Volatile— First Ever Net Loss for 2001 Annual After-Tax Return on Surplus 1986–2001 Average: 8.5% Note: After-tax return on surplus includes realized capital gains Source: Best’s Aggregates & Averages

12.  2002 NCCI Holdings, Inc. 12 P&C Surplus Has Risen Significantly Relative to Premium P&C Industry—Private Carriers $ BillionsP:S Ratio Source: Best’s Aggregates & Averages 1985-2001 Average Growth in NWP: +5.1% 1985-2001 Average Growth in Surplus: +8.8% High Surplus $334.3 in 1999 Low P:S Ratio 0.845:1 in 1998 $144.9 $323.4 $75.5 $289.6 Updated

13.  2002 NCCI Holdings, Inc. 13 Return on Surplus Reflects Volatility of Underwriting Gains Pre-tax Underwriting & Investment Contributions to Total Return on Surplus Source: Best’s Aggregates & Averages

14.  2002 NCCI Holdings, Inc. 14 The State of Workers Compensation:

15.  2002 NCCI Holdings, Inc. 15 Workers Compensation Calendar Year Combined Ratios Continue Their Upward Climb Private Carriers Combined Ratio Source: Best’s Aggregates & Averages 1.9% Due to Sept. 11

16.  2002 NCCI Holdings, Inc. 16 Projected Impact of September 11 Catastrophe on Workers Compensation Initial Workers Compensation Sept. 11 Loss Estimates… Morgan Stanley:$3 billion Tillinghast:$3 billion–$5 billion … these estimates assumed 6,000+ deaths. Current Workers Compensation Sept. 11 Loss Estimates… Approx. # deaths: 3,015 excl hijackers Approx. # injuries: 5,000 Approx. 15% of losses were self-insured (includes NY Firefighters/PD) Approx. 5% non-workers compensation losses Approx. 20% of fatalities were single (lump sum $50,000 pmt per person) NCCI currently estimates ultimate Sept. 11 losses at $1.3 B–$2.0 B Majority of direct losses were ceded to reinsurers Losses Net of Reinsurance:$0.3 B–$1.2 B Ultimate Accident Year Combined Ratio Impact of 1%–4%

17.  2002 NCCI Holdings, Inc. 17 2001 Drop in Investment Returns— Will This Level Continue? Workers Compensation Ratio of Investment Gain and Other Income to Premium Private Carriers Source for 1990–2000: NCCI; 2001 Best’s Aggregates & Averages Investment gain includes investment income and realized gains * Adjusted to include realized capital gains to be consistent with 1992 and after

18.  2002 NCCI Holdings, Inc. 18 Workers Compensation Pretax Operating Gain Ratio Private Carriers Source for 1990–2000: NCCI; 2001 Best’s Aggregates & Averages Investment gain includes investment income and realized gains * Adjusted to include realized capital gains to be consistent with 1992 and after

19.  2002 NCCI Holdings, Inc. 19 Percent Source: Best’s Aggregates & Averages and Annual Statements State Funds—AZ, CA, CO, HI, ID, KY, LA, ME, MN, MO, MT, NM, OK, OR, PA, RI, TX, UT Workers Compensation Combined Ratios Private Carriers vs. State Funds Updated

20.  2002 NCCI Holdings, Inc. 20 Workers Compensation Calendar Year Direct Combined Ratios Countrywide vs. NCCI States Private Carriers Only Source: NCCI, NCCI States—Private Carriers Includes dividends to policyholders Combined Ratio

21.  2002 NCCI Holdings, Inc. 21 Workers Compensation Premium Volume: Have We Shifted to a Period of Growth? Workers Compensation Net Written Premium—Private Carriers Source: Best’s Aggregates & Averages $ Billions$ Trillions

22.  2002 NCCI Holdings, Inc. 22 Workers Compensation Premium Volume: Have We Shifted to a Period of Growth? Workers Compensation Net Written Premium—Private Carriers Source: Best’s Aggregates & Averages $ Billions$ Trillions

23.  2002 NCCI Holdings, Inc. 23 Adjusted Workers Compensation Premium Volume Workers Compensation Direct Written Premium—Private Carriers 1. Direct of Reinsurance $ Billions $ Trillions

24.  2002 NCCI Holdings, Inc. 24 1. Direct of Reinsurance 2. Grossed-Up for Large Deductible Credits $ Billions $ Trillions Adjusted Workers Compensation Premium Volume Workers Compensation Direct Written Premium—Private Carriers $ Billions$ Trillions

25.  2002 NCCI Holdings, Inc. 25 1. Direct of Reinsurance 2. Grossed-Up for Large Deductible Credits 3. Adjusted to 1990 Rate/Loss Cost Level $ Billions $ Trillions Adjusted Workers Compensation Premium Volume Workers Compensation Direct Written Premium—Private Carriers

26.  2002 NCCI Holdings, Inc. 26 1. Direct of Reinsurance 2. Grossed-Up for Large Deductible Credits 3. Adjusted to 1990 Rate/Loss Cost Level 4. Grossed-Up for Carrier Departure $ Billions $ Trillions Adjusted Workers Compensation Premium Volume Workers Compensation Direct Written Premium—Private Carriers

27.  2002 NCCI Holdings, Inc. 27 Workers Compensation Net Written Premium Private Carriers vs. State Funds Private Carriers WC NWP ($B) State Funds NWP ($B) Source: Best’s Aggregates & Averages and Annual Statements State Funds—AZ, CA, CO, HI, ID, KY, LA, ME, MN, MO, MT, NM, OK, OR, PA, RI, TX, UT Updated

28.  2002 NCCI Holdings, Inc. 28 Joe

29.  2002 NCCI Holdings, Inc. 29 Joe

30.  2002 NCCI Holdings, Inc. 30 1% - 4% Due to Sept. 11 Workers Compensation Calendar Year 2001 Results Deteriorated, While Accident Year Results Improved Calendar Year vs. Ultimate Accident Year Countrywide—Private Carriers Best’s Aggregates & Averages (Calendar Year) Includes dividends to policyholders Accident year data is evaluated as of 12/31/01 and developed to ultimate Combined Ratio

31.  2002 NCCI Holdings, Inc. 31 Workers Compensation Reserve Deficiencies Have Grown Larger in Recent Years Difference between NCCI estimated ultimate losses and LAE as of 12/31/01 and reported Schedule P incurred losses and LAE $ Billions Assuming losses are paid out in 30 years, implied discount rate is 4% Approximately ¼ of reserve deficiency is due to tabular reserves

32.  2002 NCCI Holdings, Inc.

33. 33 Approved Rates/Loss Costs Are Basically Stable History of Average Bureau Rate/Loss Cost Level Changes p Preliminary Countrywide approved changes in advisory rates, loss costs and assigned risk rates as filed by the applicable rating organization Cumulative 1990-1993 +36.3% Cumulative 1994-1999 -27.8% Updated

34.  2002 NCCI Holdings, Inc. 34 The Impact of Discounting on Premium NCCI States—Private Carriers Based on data through 12/31/01 for the states where NCCI provides ratemaking services Dividend ratios are based on calendar year statistics

35.  2002 NCCI Holdings, Inc. 35 The Rate of Change in Workers Compensation Indemnity Claim Costs Has Accelerated Since 1995 Indemnity Claim Cost (000s) p Preliminary Based on data through 12/31/01, developed to ultimate Based on the states where NCCI provides ratemaking services Excludes the effects of deductible policies Annual Change 1991–1995: +0.6% Annual Change 1996–2001: +6.3%

36.  2002 NCCI Holdings, Inc. 36 Workers Compensation Medical Claim Costs Have Also Continued Their Consistent Upward Trend Medical Claim Cost (000s) Annual Change 1991–1995: +4.2% Annual Change 1996–2001: +6.8% p Preliminary Based on data through 12/31/01, developed to ultimate Based on the states where NCCI provides ratemaking services Excludes the effects of deductible policies

37.  2002 NCCI Holdings, Inc. 37 The Frequency of Lost-Time Claims Has Continued to Fall Through 2001 Two-Year Rolling Average Cumulative Change of –35.7% Since 1990 p Preliminary Based on data through 12/31/01, developed to ultimate Based on the states where NCCI provides ratemaking services Excludes the effects of deductible policies

38.  2002 NCCI Holdings, Inc. 38 Fifteen Large Classes Note: Frequency = Lost-Time Claims/Payroll; prior payroll adjusted for inflation Source: NCCI

39. BAM! Let’s Kick It Up A Notch

40.  2002 NCCI Holdings, Inc. 40 The Rate of Work-Related Injuries Has Decreased Over Time Due to Improved Working Conditions

41.  2002 NCCI Holdings, Inc. 41 Recent Decline in Frequency This is a long-term trend driven by technology, economic incentives, and employee preferences for a safe workplace, such as… Continued Emphasis on Workplace Safety Robotics Modular Design and Construction Power-Assisted Processes Ergonomic Design Cordless Tools Stronger, lighter-weight materials (e.g., fiberglass rather than wooden ladders) More and Better Training Clerical Support Aids Fraud Initiatives

42.  2002 NCCI Holdings, Inc. 42 Workplace Injury Incidence Rates— Decreases During Recessions and Increases in Recovery Countrywide—Six Recessions Since 1960

43.  2002 NCCI Holdings, Inc. 43 Impacts of Recessions and Expansions on Frequency In a recession, frequency generally drops: Inexperienced workers are laid off, leaving a more experienced workforce Minimal new hires Average workweek is reduced, minimizing fatigue Laid off workers may be more likely to file claims In an expansion, frequency generally increases (at least initially): New employees are hired Workweek expands Inexperienced workers make up higher proportion of workforce

44.  2002 NCCI Holdings, Inc. 44 * Excludes Maine Residual Market Pool ** Projected to ultimate Residual Market Premium Volume as of March 31, 2002 $623m $356m

45.  2002 NCCI Holdings, Inc. 45 Residual Market Policies by Size of Risk

46.  2002 NCCI Holdings, Inc. 46 Residual Market Policies by Size of Risk

47.  2002 NCCI Holdings, Inc. 47 * Excludes Maine Residual Market Pool ** Projected to ultimate Residual Market Combined Ratios Continue to Grow as of March 31, 2002

48.  2002 NCCI Holdings, Inc. 48 Residual Market Underwriting Results as of March 31, 2002 * Excludes Maine Residual Market Pool ** Projected to ultimate

49.  2002 NCCI Holdings, Inc. 49 Comparisons of Conditions in the Industry Late 1980’s Benefit escalation Wage inflation Cost containment coming Administered pricing Large residual market share and large burdens Some use of deviations, schedule ratings, dividends At Present Benefits relatively stable Medical inflation Cost containment in place Loss cost filings; Loss costs relatively adequate Small residual market share and low burdens Use of tiers, schedule rating, dividend Use of large deductibles Real exposure to catastrophe

50.  2002 NCCI Holdings, Inc. Looking to the Future

51.  2002 NCCI Holdings, Inc. 51 The Underwriting of Risk Has Changed Concentration of Employees Concentration of Policyholders Concentration of Lines Catastrophe Exposures Large Airports, Bridges, Tunnels, Nuclear Power Plants Institutions in Major Cities Water Treatment and Storage Systems “Trophy” Buildings High-Rise Buildings Reinsurance Capacity Restricted (142% Combined Ratio) Affordability/Availability Issues Workers Compensation Outlook Fixed

52.  2002 NCCI Holdings, Inc. 52 Unique WC Issues Presented by Terrorism No policy limits No individual claim limits No exclusions or coverage modifications Mandatory for most employers

53.  2002 NCCI Holdings, Inc. 53 NCCI’s Response to Terrorism Support trades in working towards a federal backstop Partnered with EQECAT to develop models to estimate severity of major terrorist attacks Analyzed legal issues associated with a WC pool that would coordinate with the federal backstop Working with NAIC on terrorism related issues

54.  2002 NCCI Holdings, Inc. 54 Source: NAIC Quarterly Statement, Annual Statement Workers Compensation Outlook– Will the Combined Ratio Improve in 2002-2003? Quarterly WC Direct Loss Ratios

55.  2002 NCCI Holdings, Inc. 55 THE END

56.  2002 NCCI Holdings, Inc. 56

57.  2002 NCCI Holdings, Inc. 57