Texas Workers’ Compensation Insurance Market

Presentation for the Workers’ Compensation 2012 Biennial Rate Hearing

Texas Department of InsuranceProperty and Casualty Actuarial Office

December, 2012

2

Market and Profitability

3

Texas Workers' CompensationDirect Written Premium in Billions

Source: TDI Compilation of Texas Statutory Page 14 of the NAIC Annual Statements prepared by the Texas Department of Insurance.

2005 2006 2007 2008 2009 2010 2011 $-

$500,000,000.00

$1,000,000,000.00

$1,500,000,000.00

$2,000,000,000.00

$2,500,000,000.00

$3,000,000,000.00

$2,702,011,275.00$2,801,145,442.00$2,730,265,013.00

$2,581,298,283.00

$2,183,885,939.00

$1,922,770,862.00

$2,163,990,743.00

4

Texas Workers' CompensationChange in Direct Written Premium from Prior Year

Source: TDI Compilation of Texas Statutory Page 14 of the NAIC Annual Statements prepared by the Texas Department of Insurance.

2006 2007 2008 2009 2010 2011

-20.0%

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

3.7%

-2.5%

-5.5%

-15.4%

-12.0%

12.5%

5

Texas Workers' CompensationProjected Ultimate Calendar/Accident Year Loss and Combined Ratios

Source: Texas Workers’ Compensation Financial Data Call, Texas Compilation of Statutory Page 14, Texas Compilation of the Insurance Expense Exhibit.

2005 2006 2007 2008 2009 2010 20110%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

35.7% 36.0% 39.6%43.7% 41.9%

51.3% 50.7%

73.0%70.4%

74.7%

84.4% 83.4%

94.7% 94.9%

Loss Ratio Combined Ratio

6

Rates and Premiums

7

Texas Workers' CompensationSummary of Companies Indications Filed in August 2012

Based on Experience Through 12/31/2011

Source: Company rate filings received by the Texas Department of Insurance in response to Commissioner's Bulletin B-0015-12.

Less than ≤ -30%

-30% < to ≤ -20%

-20% < to ≤ -10%

-10% < to < 0%

0 0% < to < +10%

+10% ≤ to < +50%

No indica-tions sub-

mitted

Number of Companies

7 5 14 61 4 42 20 46

5

15

25

35

45

55

65

Num

ber

of

Com

panie

s

8

Texas Workers' CompensationAverage Premium per $100 of Payroll

Source: Texas Workers’ Compensation Financial Data Call, and the Department's 2011 Classification Relativity Study.

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010$0.00

$0.50

$1.00

$1.50

$2.00

$2.50

$3.00

$3.50

$2.44

$2.79 $2.85$2.70

$2.34

$2.11

$1.90

$1.59$1.48

$1.38

Policy Year

Am

ou

nt

per

$10

0 o

f P

ayro

ll

9

Texas Workers' Compensation Average Premium, Loss, and Expense per $100 Payroll

Source: NCCI Financial Data Call, NCCI Financial Data Package, TX Compilation of Statutory Page 14, TX Compilation of IEE.

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

$0.00

$0.50

$1.00

$1.50

$2.00

$2.50

$3.00

Average Premium Average Loss Average ExpensePolicy Year

Am

ou

nt

per

$10

0 o

f P

ayro

ll

10

Texas Workers' CompensationComparison of Relative Change in Average Premiums, Schedule Rating Factors

and Rate Levels

Source: Texas Workers’ Compensation Financial Data Call, and insurance company rate filings.

2003 2004 2005 2006 2007 2008 2009 2010 20110.4

0.5

0.6

0.7

0.8

0.9

1.0

1.1

1.2

Average Premium Average Schedule Credit Average Rate Change

Year

Rel

ativ

e C

han

ge

11

Certified Healthcare Networks

12

Texas Workers' Compensation Undeveloped Incurred Loss Ratios for Network and Non-Network Experience

Source: Texas Department of Insurance Workers’ Compensation Network Data Call.

2010:12 2011:06 2011:12 2012:060%

5%

10%

15%

20%

25%

30%

Medical Incurred

Non Network Network

Accident half year

Un

dev

elo

ped

Lo

ss R

atio

2010:12 2011:06 2011:12 2012:060%

5%

10%

15%

20%

25%

Indemnity Incurred

Non Network Network

Accident half year

Un

del

evlo

ped

Lo

ss R

atio

13

Summary