Issues and Trends in Medical Professional Liability: Update on PIAA - - PowerPoint PPT Presentation

Prepared For: Casualty Loss Reserve Seminar Prepared By: Kevin J. Atinsky, F.C.A.S., M.A.A.A. Chief Actuary Medical Mutual Insurance Company of Maine katinsky@medicalmutual.com September 14, 2009

Issues and Trends in Medical Professional Liability: Update on PIAA Financial Results

1

Disclosures

• Content of presentation is based on 2nd Quarter

2009 edition of The Physician Insurer, trade publication of the Physician Insurers Association

• f America (PIAA); article entitled “Industry

Update: Tilting Away from Further Improvement” by Kevin Atinsky and Chad Karls

• Source data based upon an analysis of a 49 PIAA

member company compilation of year-end financial statements provided by National Underwriter Data Services from Highline Data

2

Overview of Presentation

• Overview and highlights
• Update on PIAA financial results
• Top-line premium growth
• Operating performance
• Capitalization levels
• Concluding thoughts

3

Overview and Highlights

• Last year we posed, “Is this as good as it gets?”
• With one more year of unfolding, now seems probably so
• 2008 reflected record underwriting results
• Offset to some degree by investment fallout caused

by impairment in financial markets

• Maintained strong capitalization levels
• Caution that investment risk has increased
• Impacts “required” capital and thus relative adequacy
• Declaration of $200 million in policyholder

dividends in 2008 over $450 million past two years

• AIG warrants attention due to vast market presence

4

Direct Written Premium Growth

($Billions)

$0 $1 $2 $3 $4 $5 $6 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 4.9% 26.1% 30.5% 19.2% 9.4% 2.5% (0.3)% (6.1)% (5.5)%

5

Direct Written Premium Growth

Notable Observations

• Last two years represent fairly sizable reductions
• 11% drop is largest two-year reduction in tracked history
• 7.5% reduction during 1990 and 1991
• 2.5% reduction during 1996 and 1997
• Modest rate reductions and increased use of credits
• Combined revenue impact of $600 million
• Notable that underwriting results have continued to

improve during this period

• Driven by favorable reserve development and

continuation of reduced claims frequency

6

Combined Ratio Components

0% 20% 40% 60% 80% 100% 120% 140% 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Loss & LAE Ratio Underwriting Expense Ratio Policyholder Dividend Ratio 123% 130% 129% 124% 108% 97% 89% 85% 77% 118%

7

One-Year Reserve Development to NEP

• 20.0%
• 12.3%
• 6.0%

7.3% 10.2% 2.7%

• 3.4%
• 11.3%
• 19.2%
• 28.5%
• 35%
• 30%
• 25%
• 20%
• 15%
• 10%
• 5%

0% 5% 10% 15% 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

8

Operating Ratio Components

• 20%

0% 20% 40% 60% 80% 100% 120% 140%

• 20%

0% 20% 40% 60% 80% 100% 120% 140% 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Combined Ratio Operating Ratio Investment Income Ratio Realized Capital Gains Ratio

9

Operating Performance

Notable Observations

• 2008 underwriting results one of best ever
• Key contributor was favorable reserve development
• Highlights importance of assessing reserve position
• Investments suffered from broader economic turmoil
• Investment gain ratio (to NEP) of 9% in 2008 compares to

recent historical results in the 20% to 25% range

• Despite poor investment results, the 2008 operating

results were nearly as good as 2007

10

Policyholder Surplus Growth

($Billions)

(2.1)% (5.4)% (6.8)% 5.0% 15.0% 14.7% 19.1% 16.8% 2.1% $0 $1 $2 $3 $4 $5 $6 $7 $8 $9 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

11

NAIC RBC Ratio

588% 567% 506% 383% 376% 416% 495% 606% 735% 734% 0% 100% 200% 300% 400% 500% 600% 700% 800% 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

12

Capitalization Levels

Notable Observations

• Following several years of double-digit growth,

surplus levels relatively flat during 2008

• Impacted by unrealized losses and stockholder dividends
• RBC, which normalizes for underlying risk, and is

used by regulators, was flat after large advancements

• In light of historical underwriting volatility, and

recent increase in investment risk, it seems as if the strengthened capital levels are essential

Concluding Thoughts

14

Concluding Thoughts

• Future financial results largely pinned on reserve

adequacy and sustainability of claims frequency

• In 2008, reserve releases totaled $1.2 billion
• Another critical area to monitor is investments
• Uncharacteristic to this industry
• 2009 will reveal important indicators as to the

future results in areas of reserve adequacy, claims frequency and investment outlook

• Forces skewed more towards deterioration, and

thus, tilting away from further improvement