Financial Calls— Designated Statistical Reporting Level Premium
NCCI’S 2016 DATA EDUCATIONAL PROGRAM Financial Calls— Designated Statistical Reporting Level Premium January 26–29, 2016 Palm Beach County Convention Center West Palm Beach, FL
Financial Calls—Designated Statistical Reporting Level Premium Presented by: Harry Snyder and Kelly Blake Copyright 2016 National Council on Compensation Insurance, Inc. All Rights Reserved. Objective To identify and derive data required to be included in Designated Statistical Reporting (DSR) Level Premium. 2016 DATA EDUCATIONAL PROGRAM Copyright 2016 National Council on Compensation Insurance, Inc. All Rights Reserved. 2 1
Agenda Purpose of DSR Level Premium General Information Active Deviation History Deriving DSR Level Premium Extending Exposures Calculating the Average Deviation DSR Level Premium Validation 2016 DATA EDUCATIONAL PROGRAM Copyright 2016 National Council on Compensation Insurance, Inc. All Rights Reserved. 3 Purpose of Designated Statistical Reporting (DSR) Level Premium 2016 DATA EDUCATIONAL PROGRAM Copyright 2016 National Council on Compensation Insurance, Inc. All Rights Reserved. 2
What Is DSR Level Premium? The DSR Level Premium is: The standard earned premium that What states? would result if business were written at NCCI-approved loss costs or rates instead of your company rates Common benchmark level at which carriers report premium on the Financial Calls 2016 DATA EDUCATIONAL PROGRAM Copyright 2016 National Council on Compensation Insurance, Inc. All Rights Reserved. 5 History of DSR Level Premium Prior to the 1980s, all states approved rates Eventual migration from rates to loss costs Carriers develop their own expenses and deviations 2016 DATA EDUCATIONAL PROGRAM Copyright 2016 National Council on Compensation Insurance, Inc. All Rights Reserved. 6 3
History of DSR Level Premium NCCI files advisory loss costs, which exclude most expenses Carriers then report DSR Level Premium, which is what would be earned if only loss costs were charged Premium is “apples to apples” DSR used to determine adequacy of current loss cost level 2016 DATA EDUCATIONAL PROGRAM Copyright 2016 National Council on Compensation Insurance, Inc. All Rights Reserved. 7 Comparison of Premium Types Three types of earned premium are reported on the Policy and Calendar-Accident Year Calls DSR Level Premium—Column 1 Company Standard Premium—Column 2 Net Premium—Column 3 Both Company Standard and Net Premium reflect the use of company rates, whereas DSR Level Premium reflects the NCCI-approved loss costs or rates 2016 DATA EDUCATIONAL PROGRAM Copyright 2016 National Council on Compensation Insurance, Inc. All Rights Reserved. 8 4
DSR Premium Level Standard Earned Premium at NCCI-Designated Statistical Reporting (DSR) Level Used by NCCI for ratemaking Premium that would develop if business were written at NCCI-filed and approved level 2016 DATA EDUCATIONAL PROGRAM Copyright 2016 National Council on Compensation Insurance, Inc. All Rights Reserved. 9 Company Standard Premium Level Standard Earned Premium at Company Level Premium calculated at the company’s full rates Includes the impact of a loss cost multiplier (LCM) or other approved deviation 2016 DATA EDUCATIONAL PROGRAM Copyright 2016 National Council on Compensation Insurance, Inc. All Rights Reserved. 10 5
Example of DSR vs. Standard Premium— Loss Cost State To calculate DSR Level Premium, exposure is multiplied by the approved NCCI loss cost. Class Code Payroll NCCI Loss Cost NCCI DSR Level Premium 1234 4,000,000 3.00 (4,000,000 /100) x 3.00 120,000 To calculate Company Standard Premium,* exposure is multiplied by the company rate. Class Code Payroll Company Rate Company Standard Premium 1234 4,000,000 4.00 (4,000,000 /100) x 4.00 160,000 What is the LCM in this example? *Example simplified to ignore stat codes 2016 DATA EDUCATIONAL PROGRAM Copyright 2016 National Council on Compensation Insurance, Inc. All Rights Reserved. 11 Net Premium Level Accumulated Net Premium: Should reconcile to premium reported to the NAIC (Statutory Page 14) 2016 DATA EDUCATIONAL PROGRAM Copyright 2016 National Council on Compensation Insurance, Inc. All Rights Reserved. 12 6
Company Standard/Net Premium The difference between the two columns is due primarily to policy-specific adjustments such as: Premium Discounts Schedule Rating Adjustments Retrospective Rating Adjustments Deductible Credits 2016 DATA EDUCATIONAL PROGRAM Copyright 2016 National Council on Compensation Insurance, Inc. All Rights Reserved. 13 Company Standard/Net Premium Net Premium reflects the application of these adjustments Company Standard Premium is calculated prior to the application of these adjustments 2016 DATA EDUCATIONAL PROGRAM Copyright 2016 National Council on Compensation Insurance, Inc. All Rights Reserved. 14 7
General Information 2016 DATA EDUCATIONAL PROGRAM Copyright 2016 National Council on Compensation Insurance, Inc. All Rights Reserved. Resources Financial Call Reporting Guidebook Only include adjustments/components as required in the Financial Calls (Parts 5 and 6) Identify dates of NCCI-approved DSR Level loss costs or rates (Part 7, Section E) Basic Manual Review to identify the different state premium algorithms Self-Audit Form Circulars 2016 DATA EDUCATIONAL PROGRAM Copyright 2016 National Council on Compensation Insurance, Inc. All Rights Reserved. 16 8
Premium Components Summary Part 5—Financial Call Reporting Guidebook Excerpt 2016 DATA EDUCATIONAL PROGRAM Copyright 2016 National Council on Compensation Insurance, Inc. All Rights Reserved. 17 Sample Premium Algorithm—Alabama Excerpt from the Basic Manual 2016 DATA EDUCATIONAL PROGRAM Copyright 2016 National Council on Compensation Insurance, Inc. All Rights Reserved. 18 9
Self-Audit Form—Excerpt Self-Audit Form is not a complete list of all reporting requirements. 2016 DATA EDUCATIONAL PROGRAM Copyright 2016 National Council on Compensation Insurance, Inc. All Rights Reserved. 19 Questions to Consider Responses to these questions will affect how you derive the DSR Level Premium. What DSR Levels were in effect throughout the year? What loss cost multipliers were in effect throughout the year by the carrier? What NCCI loss costs did you use throughout the year? New and renewal—Did some law or judicial decisions also affect outstanding policies? 2016 DATA EDUCATIONAL PROGRAM Copyright 2016 National Council on Compensation Insurance, Inc. All Rights Reserved. 20 10
State DSR Levels Approved Loss Costs Voluntary experience in loss cost states (majority of states) Assigned risk experience for Missouri and Nebraska 2016 DATA EDUCATIONAL PROGRAM Copyright 2016 National Council on Compensation Insurance, Inc. All Rights Reserved. 21 State DSR Levels Approved Rates Assigned risk experience in all states except Missouri and Nebraska Rate states (Arizona, Florida, Iowa, and Idaho) States with approved loss costs and rates (Illinois and Indiana) use rates as DSR Level 2016 DATA EDUCATIONAL PROGRAM Copyright 2016 National Council on Compensation Insurance, Inc. All Rights Reserved. 22 11
State DSR Levels Texas Texas Department of Insurance Rate Relativities NCCI Loss Costs 2016 DATA EDUCATIONAL PROGRAM Copyright 2016 National Council on Compensation Insurance, Inc. All Rights Reserved. 23 State DSR Levels Resources: Financial Call Reporting Guidebook (Part 7) DSR Level Data (Financial Data Collection tool) 2016 DATA EDUCATIONAL PROGRAM Copyright 2016 National Council on Compensation Insurance, Inc. All Rights Reserved. 24 12
State DSR Levels Illinois and Indiana Deviation Conversion Converts to Rate DSR Level if loss costs were used IL Deviation IL LCM x Permissible Loss Ratio IN Deviation IN LCM x Target Cost Ratio Ratios found in NCCI filing circulars: Technical Supplements, Exhibit II Also in Part 7 of the Financial Call Reporting Guidebook 2016 DATA EDUCATIONAL PROGRAM Copyright 2016 National Council on Compensation Insurance, Inc. All Rights Reserved. 25 Exercise Illinois and Indiana Deviation Conversions What is the IL PLR for 2015? What is the IN TCR for 2015? If IL LCM is 1.65, what is deviation from rates? If IN LCM is 1.10, what is deviation from rates? 2016 DATA EDUCATIONAL PROGRAM Copyright 2016 National Council on Compensation Insurance, Inc. All Rights Reserved. 26 13
Deviations and Loss Costs in Effect During the Year 2016 DATA EDUCATIONAL PROGRAM Copyright 2016 National Council on Compensation Insurance, Inc. All Rights Reserved. 27 Texas DSR Level For policies effective before 6/1/2011, DSR Level is Texas Department of Insurance (TDI) relativities. For policies effective 6/1/2011 and later, carriers can base their rates on either TDI relativities or NCCI-filed and state-approved loss costs. For policies effective 6/1/2011 and later, the DSR Level is what the carrier used as its rate basis. Be sure to accurately indicate the Basis of Rates in the Active Deviation screen. 2016 DATA EDUCATIONAL PROGRAM Copyright 2016 National Council on Compensation Insurance, Inc. All Rights Reserved. 28 14
Texas Deviations and Loss Costs in Effect During the Year TDI Relativities NCCI Advisory Loss Costs 2016 DATA EDUCATIONAL PROGRAM Copyright 2016 National Council on Compensation Insurance, Inc. All Rights Reserved. Two Choices 29 Application of Filing 2016 DATA EDUCATIONAL PROGRAM Copyright 2016 National Council on Compensation Insurance, Inc. All Rights Reserved. 30 15
Application of Filing 2016 DATA EDUCATIONAL PROGRAM Copyright 2016 National Council on Compensation Insurance, Inc. All Rights Reserved. 31 Application of Filing 2016 DATA EDUCATIONAL PROGRAM Copyright 2016 National Council on Compensation Insurance, Inc. All Rights Reserved. 32 16
Exercise Extend Exposures—Policy Method Class or Stat Code Description Exposure Amount 0 140.00 per policy 0900 EXPENSE CONSTANT 5645 CARPENTRY CONSTRUCTION OF RESIDENTIAL DWELLINGS NOT EXCEEDING THREE STORIES IN HEIGHT 463,952 8742 SALESPERSONS, COLLECTORS OR MESSENGERS‐ OUTSIDE 78,173 0.85 manual rate 9741 CATASTROPHE PROVISIONS FOR CATASTROPHE (OTHER THAN CERTIFIED ACTS OF TERRORISM) 0 14.00 for this policy 9812 ADDITIONAL PREMIUM FOR EMPLOYERS LIABILITY INCREASED LIMITS (WITH WORKERS COMPENSATION) 1000000/ 1000000/ 1000000 0 2.6% EXPERIENCE MODIFICATION FACTOR 0 .90 2016 DATA EDUCATIONAL PROGRAM Copyright 2016 National Council on Compensation Insurance, Inc. All Rights Reserved. Amount 19.97 manual 15.36 loss cost rate 0.65 loss cost 63 Exercise Extend Exposures—Policy Method Premium Component Company Standard DSR Level Manual (Class Codes 5645 and 8742) Additional premium employers liability increased limits (Stat Code 9812) Subtotal Subtotal including experience mod Expense Constant Total 2016 DATA EDUCATIONAL PROGRAM Copyright 2016 National Council on Compensation Insurance, Inc. All Rights Reserved. 64 32
Exercise Answers Extend Exposures—Policy Method Premium Component Company Standard DSR Level Manual (Class Codes 5645 and 8742) Additional premium employers liability increased limits (Stat Code 9812) Subtotal Subtotal including experience mod Expense Constant Total 2016 DATA EDUCATIONAL PROGRAM Copyright 2016 National Council on Compensation Insurance, Inc. All Rights Reserved. 65 Recap Extending Exposures—Policy Level Calculate Manual Premium Apply Appropriate Premium Adjustments Apply Experience Modification Factor Add NCCI Expense Constant if DSR Level is Rates Sum Results for All Policies 2016 DATA EDUCATIONAL PROGRAM Copyright 2016 National Council on Compensation Insurance, Inc. All Rights Reserved. 66 33
Supplemental Information
Three types of earned premium are reported on the Policy and Calendar-Accident Year Calls DSR Level Premium—Column 1 Company Standard Premium—Column 2 Net Premium—Column 3 Both Company Standard and Net Premium reflect the use of company rates, whereas DSR Level Premium reflects the NCCI-approved loss costs or rates 8
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