NEW MEXICO - National Council on Compensation Insurance · New Mexico finished the budget year in June with a $131 million deficit after exhausting operating reserves, as a sustained

© Copyright 2016 National Council on Compensation Insurance, Inc. All Rights Reserved.

November 3, 2016

[email protected] 818-707-8374

[email protected] 561-893-3115

NEW MEXICO


Greetings from

Where the good news keeps flowing like a river …

Frequency Declining

Underwriting Results

Improving

Residual Market

Shrinking

2


State of the Industry

Legislative Issues Nationwide

New Mexico Workers Compensation

New Mexico’s Residual Market

Guest Speaker: Rachel Bayless, New Mexico Workers’ Compensation Administration

The State of the Economy

Claim Frequency

Indemnity and Medical Severity

Emerging Issues: Oil and Gas Jobs

New Mexico Workers Compensation State Advisory Forum

3


State of the Industry


State of the Workers Compensation Market

Combined ratios: Underwriting gains achieved on

both calendar year and accident year bases

Net written premium volume increased for the

fifth consecutive year

Lost-time claim frequency again decreased

Lost-time claim severity changes were small—

increasing for indemnity and decreasing for

medical

Residual market premium remains manageable

5


p Preliminary Source: NAIC’s Annual Statement data Includes state insurance fund data for the following states: AZ, CA, CO, HI, ID, KY, LA, MD, MO, MT, NM, OK, OR, RI, TX, and UT Each calendar year total for state funds includes all funds operating as a state fund in that year

31.0 31.3 29.8 30.5 29.1

26.3 25.2 24.2 23.3 22.3 25.0 26.1

29.2 31.1

34.7 37.8 38.6 37.6

33.8 30.3 29.9

32.3 35.1

36.9 38.5 39.7

35.3 35.7 34.3

35.4 33.6

30.1 28.5

27.0 25.9

25.0

28.6

32.1

37.7

42.3

46.5 47.8

46.5

44.3

39.3

34.6 33.8

36.4

39.5

41.8

44.2 45.5

0

10

20

30

40

50

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15p

$ Billions

Calendar Year

State Funds ($B)

Private Carriers ($B)

6

Countrywide Workers Compensation Net Written Premium Growth Continued

Private Carriers and State Funds


p Preliminary Sources: NAIC’s Annual Statement Statutory Page 14 and NCCI’s Financial Call data Dividend ratios are based on calendar year statistics NCCI benchmark level does not include a profit and contingency provision Based on data valued as of 12/31/2015 for all states where NCCI provides ratemaking services, excluding TX

-7.1 -7.4 -7.1 -8.5

-10.5

-14.6

-17.7

-22.6 -23.2

-19.2

-14.3

-4.0 -1.7

2.1 0.7

-2.2 -4.7

-7.4 -8.4 -8.8 -7.7

-3.8 -0.2

1.0 0.7

-25

-15

-5

5

91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15p

Percent

Policy Year

Rate/Loss Cost Departure Schedule Rating Dividends

7

Countrywide Workers Compensation Impact of Discounting on Premium

NCCI States—Private Carriers


117

123 121

109

102

97

100 101

107

115

118

122

111 110

107

103

93

101 101

110

115 115

109

102 100

94

85

90

95

100

105

110

115

120

125

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15p

Percent

Calendar Year

4% lower

Countrywide Workers Compensation Combined Ratio—Underwriting Gain Achieved

Private Carriers

p Preliminary Source: NAIC’s Annual Statement data

8


Countrywide Workers Compensation Combined Ratio Components

Private Carriers

p Preliminary Source: NAIC’s Annual Statement data

55 59 60 54

15 14

24 25

1 1

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15p

Calendar Year

Loss Ratio

Loss Adjustment Expense (LAE) Ratio

Underwriting Expense Ratio

Percent

Dividends

9


Countrywide Workers Compensation Net Combined Ratios

Calendar Year vs. Accident Year as Reported—Private Carriers

p Preliminary Source: NCCI’s analysis based on NAIC’s Annual Statement data Accident Year information is reported as of 12/31/2015 Includes dividends to policyholders

93

101 101

110

115 115

109

102 100

94

85

97

104

108

116

112

103 100

97 98

80

90

100

110

120

130

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015p

Calendar Year Accident Year

10


p Preliminary

Bureau premium level changes reflect approved changes in advisory rates, loss costs, assigned risk rates, and rating values, relative to those previously approved in NCCI states only

IN and NC are filed in cooperation with state rating bureaus

Countrywide Workers Compensation Approved Changes in Bureau Premium Level

By Effective Year for NCCI States

11

0.6

-1.2 -0.5

2.5

0.4

-0.2 -0.3

-3 -3.8

-5.1

-2.6

-1.3

2.1

-0.2

-1.4

-4.5

-2.5

-10

-5

0

5

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16p

Percent

Calendar Year

Cumulative Change of –19.4% (1999–2016p)


19

30

27 26

0 1 1 1

19

7

10

1

2013/2014 Season 2014/2015 Season 2015/2016 Season 2016/2017 Season

Less Than 0% No Filing 0% and Greater

12

NCCI Voluntary Market Filing Activity

Number of State Loss Cost/Rate Filings by Filing Season


Current NCCI Voluntary Market Loss Cost/Rate Level Changes

Excludes Law-Only Filings

-14.7

-14.4

-12.9

-12.8

-10.2

-9.9

-9.9

-9.1

-9.0

-9.0

-8.8

-8.4

-7.5

-6.6

-5.5

-5.0

-4.7

-4.7

-4.3

-3.7

-3.7

-3.4

-1.3

-1.2

0.1

2.5

2.6

2.8

-12.8

-12.1

-10.9

-9.8

-6.1

-5.5

-5.5

-4.0

-2.4

1.3

-25

-20

-15

-10

-5

0

5

10

15

WVNC IL AZ TN AL CT OKMD TX LA IN NHNM UT KS RI OR MS AK NV VA KY FL IA AR NE DCMOMT CO SD ID ME HI SC VT GA

Approved Pending

Reflects the most recent experience filing in each jurisdiction Due to the timing of the individual loss cost/rate filings, the figures shown may include changes from prior filing seasons

Percent

13


Current Voluntary Market Rates/Loss Costs Western NAIC Zone

Hawaii* 1/1/17 +1.3%

Idaho 1/1/17 –1.2%

Colorado* 1/1/17 –2.4%

Montana 7/1/16 –3.4%

Alaska* 1/1/17 –5.5%

Nevada 3/1/16 –5.5%

Oregon 1/1/17 –6.6%

Utah 12/1/16 –8.8%

New Mexico 1/1/17 –9.0%

Texas 7/1/16 –9.9%

Arizona 1/1/17 –12.8%

14

*Pending


Workers Compensation Legislation: What Happened, What Didn’t Happen, and What’s Coming


2016 Legislative Sessions

CA

OR

ID

WA

MT

NV

AK

UT

AZ

CO

NM

WY

TX

OK

KS

NE

SD

ND

MN

IA

MO

AR

LA

IL

WI

MI

IN OH

MS AL GA

FL

TN

KY

SC

NC

VA WV

PA

NY

NJ

ME

VT NH

MD

DE

CT RI

DC

MA

HI

States With

2015/2016 Carryover

States With 2016/2017 Biennium

States With No

Carryover

States With No Regular Session in

2016

16


Top Five Workers Compensation-Related Legislation Topics in 2016

First Responder Presumption

Employer/Employee Definition

Medical Cost Management

Independent Contractors and Misclassification

Exclusive Remedy

17


Drug Formulary

States Recently Instituting Drug Formularies:

Tennessee Rule 0800-02-25, effective August 28, 2016

California AB 1124, effective July 1, 2017

Recent Legislation Proposing Formularies:

Nebraska LB 1005, deferred due to prioritization

Louisiana HB 725, died in committee

Recent Regulations Proposing Formularies:

Arizona—Rules R20-5-1301 through 1312

Nevada Guidelines

Feasibility Study:

North Carolina, having completed the study required in HB 97, recommends further review and postponing implementation to no earlier than July 1, 2018

18


Opt-Out

Introduced, but no further action was taken:

South Carolina Employee Injury Benefit Plan Alternative (HB 4197)

Tennessee Employee Injury Benefit Alternative (HB 997/SB 721)

19


Number of Requests to NCCI for Pricing of Law/Regulation Changes in the Last Five Years

20

*2016 data as of 7/21/2016

120

172

136 147

107

0

25

50

75

100

125

150

175

200

2012 2013 2014 2015 2016*


2016 Law-Only Filings

Alaska (approved): –3.7% impact of

medical fee schedule changes

Florida (approved): +14.5% impact of state Supreme Court rulings

in the cases of Castellanos and

Westphal combined with recently enacted

medical reimbursement changes (SB 1402)

Oklahoma (approved):

+3.4 impact of state Supreme Court ruling

in Maxwell

Tennessee (approved):

–2.7% impact of Rule 0800-02-25 (Drug

Formulary and Medical Treatment

Guidelines)

21


NCCI’s Role in the Legislative Process

Monitors the effects of law changes/court rulings after they are enacted

After the legislature has adjourned:

Prepares circulars on substantive changes Makes filings if needed

•Files rate/loss costs to address changes when the cost impact is significant

•Files rule/program changes, if needed

Before and during the legislative session:

Provides examples of how an issue is treated in other states Analyzes the cost impact of various options being considered and updates the impact analysis if a bill is amended

22


New Mexico Legislature Convened a Special Session

The New Mexico state legislature has convened for

a special session to resolve a major budget shortfall and consider stiffer criminal sentencing laws

New Mexico finished the budget year in June with a $131 million deficit after exhausting operating reserves, as a sustained downturn in energy markets cut into state revenues and rippled through the economy

At last count, the $6.2 billion general fund spending plan for the current year exceeds estimated revenues by $458 million

23


Key Takeaways

Legislative activity for 2016 is about average for an election year

No significant workers compensation measures have progressed

Opt-out proposals in South Carolina and Tennessee stalled

The financial impact of legislation, regulations, and judicial decisions priced in 2016 on states’ WC systems ranged from –3.7% to +19.6%

New terminology has emerged regarding the gig economy and independent contractors: “Qualified Marketplace Contractor”

24


New Mexico Workers Compensation


New Mexico Workers Compensation System—

An Overview

Premium continues to

increase

Improvement in the

combined ratio

Frequency continues to

decline

Medical costs have been volatile in

recent years

26


New Mexico’s Workers Compensation Premium Volume

Direct Written Premium in $ Millions

$279 $280 $261

$232 $218

$231 $252

$273 $291 $296

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Source: NAIC’s Annual Statement data

Calendar Year

27


Impact of Discounting on Workers Compensation Premium in New Mexico

10.5%

10.7%

12.9%

15.2% 14.2%

10.6%

2.1% 4.0%

7.0% 6.3%

4.0%

-10%

-5%

0%

5%

10%

15%

20%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015p

Policy Year

Rate/Loss Cost Departure Schedule Rating Dividends

P Preliminary Based on data through 12/31/2015 Dividend ratios are based on calendar year statistics

Percent

28


New Mexico Accident Year Combined Ratios

112% 116%

94% 91% 87%

2011 2012 2013 2014 2015

Sources: NCCI’s financial data and NAIC’s Annual Statement data

Accident Year

29


Results Vary From State to State

Accident Year 2014 Combined Ratios

78

94

134

0

20

40

60

80

100

120

140

160

WV OKTX

AR KS DC ILSD

NHNV

INMT

NM

IAMS

NE

AZFL

NC

VT CTTN

IDUT

LAMO

VA

AL SC GAHI

CO RI AKKY

MD ME OR

Data is evaluated as of 12/31/2014

30


New Mexico January 1, 2017 Loss Cost Filing

Experience

–7.6%

Experience Period

–4.9%

Loss Development

–2.9%

Trend

–3.7%

Indemnity 0.0%

Medical –5.9%

Benefits

+0.5%

Indemnity (SAWW)

+0.4%

Medical (Schedule)

+0.5%

LAE

+0.3%

Flat Factor

+1.4%

Overall Loss Cost Level Change: –9.0%

Changes due to:

31

Assigned Risk Rate Level Change: –7.0%


New Mexico January 1, 2017 Filing— Average Changes by Industry Group

Manufacturing

-10.5%

Contracting

-7.8%

Office and Clerical

-12.3%

Goods and Services

-9.3%

Miscellaneous

-8.0%

Overall -9.0%

32


$1.53

$1.24

$1.41

$0.60

$1.00

$0.86

$1.37

NM AZ CO TX UT Region Country

Based on the latest NCCI approved rates and loss costs in the various states

Current Average Voluntary Pure Loss Costs Using New Mexico’s Payroll Distribution

Pure Loss Cost—All Classes

33


New Mexico’s Indemnity and Medical Loss Ratios

0.47

0.39

0.71

0.55

0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

2007 2008 2009 2010 2011 2012 2013 2014

Lo

ss R

ati

o

Policy Year

Indemnity Medical

Based on NCCI’s financial data at current benefit level and developed to ultimate

34


New Mexico’s Residual Market


Where Does NCCI Provide Residual Market Services?

36


Residual Market Snapshot

All Pools, Policy Year 2015 as of 12/31/15*

2015 Written Premium—$1.2 billion*

2015 Operating Losses—$66 million*

2015 Combined Ratio—106%*

2015 Residual Market Share—8%*

*Incomplete policy year projected to ultimate, preliminary

37


Workers Compensation Residual Market Premium

NCCI-Serviced Workers Compensation Residual Market Pools as of 12/31/2015

2.1

2.6

2.8

3.5

4.0

4.4

4.8

4.1

3.1

2.0

1.0

0.6

0.3 0.3 0.4

0.6

1.1

1.4 1.5

1.4 1.2

0.9

0.7 0.5 0.5 0.5

0.8

1.1 1.2 1.2

0

1

2

3

4

5

$ Billions


38


Residual Market Share— NCCI Plan States

(Includes Direct Assignments)

Plan Premium as a Percentage of Direct Written Premium

10.8%

9.2%

7.5%

6.3%

4.9%

3.8% 3.5% 4.0%

5.3%

6.6% 6.8% 6.3%

0%

5%

10%

15%

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015*

Calendar Year

*Preliminary For all NCCI Plan-administered states

39


New Mexico Residual Market Share

Plan Premium as a Percentage of Direct Written Premium

3.0%

3.7%

5.6%

7.0%

6.0%

0%

1%

2%

3%

4%

5%

6%

7%

8%

2011 2012 2013 2014 2015*

Calendar Year

*Preliminary

40


Total Residual Market New Applications and Premium Assigned in New Mexico

837

1,212

1,279

1,086

$5M

$12M

$7M $6M

0

2

4

6

8

10

12

14

2012 2013 2014 2015

0

200

400

600

800

1,000

1,200

1,400

Calendar Year

Total New Applications Total New Premium

Estimated Premium ($ Millions) # Applications

41


New Mexico’s Total Residual Market Plan Policy Counts

As of 12/31/15

4,109

3,521

2,818

2,392 2,221 2,135 2,210

2,657

3,018 2,923

-

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Policy Year

42


New Mexico’s Total Residual Market Plan Estimated Premium Volume

Premium in $ Millions as of 12/31/15

$18.8

$12.6

$7.7

$5.6 $5.4 $5.6

$8.9

$16.1 $16.2

$12.6

$0

$2,000,000

$4,000,000

$6,000,000

$8,000,000

$10,000,000

$12,000,000

$14,000,000

$16,000,000

$18,000,000

$20,000,000

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Policy Year

43


New Mexico Residual Market Change in Total Estimated Annual Premium

As of 12/31/15

Size of Risk 2014 2015 Change

$0 - $2,499 $1.8 $1.8 0.1%

$2,500 - $4,999 $0.9 $0.9 -4.5%

$5,000 - $9,999 $1.4 $1.4 -3.3%

$10,000 - $49,999 $4.3 $4.1 -5.2%

$50,000 - $99,999 $2.1 $1.9 -9.6%

$100,000 and over $5.7 $2.6 -53.9%

Total $16.2 $12.6 -22.0%

44


New Mexico Average Size Accounts for Residual Market Policies and

Estimated Premium

As of 12/31/15

Premium Range

Policy Count % of Policies Total Premium % of Premium

Average Policy Size

$0- $2,499 2,229 76.3% $1,789,922 14.2% $803

$2,500- $4,999 247 8.5% $872,273 6.9% $3,531

$5,000- $9,999 196 6.7% $1,391,856 11.0% $7,101

$10,000- $19,999 130 4.5% $1,775,863 14.0% $13,660

$20,000- $49,999 78 2.7% $2,278,909 18.0% $29,216

$50,000- $99,999 28 1.0% $1,926,733 15.2% $68,811

$100,000- $199,999 12 0.4% $1,729,182 13.7% $144,098

$200,000+ 3 0.1% $884,253 7.0% $294,751

Total 2,923 100.0% $12,648,991 100.0% $4,327

45


Assigned Risk Plan Policies and Estimated Premium

By State as of 12/31/15

State Total Policy Count Total Premium

AK 7,942 $34,799,717

AL 1,600 $11,393,989

AR 6,754 $24,040,907

AZ 6,065 $50,248,061

CT 14,367 $54,842,636

DC 1,407 $7,669,642

GA 19,679 $63,596,139

IA 4,665 $42,135,106

ID 721 $1,847,445

IL 33,414 $113,034,967

IN 9,052 $59,161,370

KS 8,914 $33,727,603

MS 2,690 $19,405,030

NH 5,774 $27,178,283

NM 2,923 $12,648,991

NV 4,698 $21,703,511

OR 9,383 $43,279,101

SC 11,690 $32,766,784

SD 1,762 $10,274,905

TN 5,927 $30,186,362

VA 15,719 $67,814,456

VT 4,116 $20,406,876

WV 2,520 $16,620,769

Total 181,782 $798,782,650

46


New Mexico Residual Market Reinsurance Pool Net Operating Results

Estimated Net Operating Gain/(Loss), Projected to Ultimate as of 12/31/2015

$951

$1,377

$3,094

$2,159

($412)

-$1,000 -$500 $0 $500 $1,000 $1,500 $2,000 $2,500 $3,000 $3,500

2011

2012

2013

2014

2015

Operating Gain/(Loss) (000's)

Po

licy Y

ear

47


Residual Market Underwriting Results

All Pools Serviced by NCCI as of 12/31/2015

-86

-56 -69

-101 -87

-47 -58

-68 -53

-34 -42

-66

-250

-200

-150

-100

-50

0

50

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015*

$ Millions

Policy Year


48


New Mexico’s Assigned Risk Programs

Assigned Risk Adjustment Program (ARAP)

Differential/Surcharge

Take-Out Credit (TOC) Program

Workers Compensation Premium Adjustment for Qualifying Classifications

Voluntary Coverage Assistance Program (VCAP® Service)

49

© Copyright 2016 National Council on Compensation Insurance, Inc. All Rights Reserved. 50


Residual Market Summary

National

Stable residual market share

Manageable operating results

Slow growth in 2014 and 2015

New Mexico

Decrease in residual market share

Self-funded operating results

Please visit ncci.com for additional state and countrywide information.

51


Guest Speaker: Rachel Bayless New Mexico Workers’ Compensation Administration


Nationwide Economic Outlook


National Economic Indicator Potential Impact on the Workers Compensation Market

Private employment is expected to continue to grow slowly

Premium increases from higher payroll and higher expected claim frequency for new workers

Wage growth is poised to accelerate Upward pressure on payroll and premium as well as indemnity severity

Medical inflation is trending up Increased pressure on medical costs per claim

In December 2015, the Federal Reserve began raising the federal funds rate

Higher interest rates mean better returns on invested funds

National Economic Highlights and Their Impact on Workers Compensation

54


1.8

2.2 2.0

2.2 2.4

2.0

1.7

0

1

2

3

2011 2012 2013 2014 2015 2016f 2017f

f Forecast Private Nonfarm Employment Frequency of observation: annual; latest historical data point: 2015; forecast years: 2016 and 2017 Sources: US Bureau of Labor Statistics and Moody’s Analytics

Forecast Is for Continued but Slowing Growth in the Private Sector

US Private Employment Growth Annual Growth Rate Percent

55


3.0 2.8

1.1

3.1 3.1

3.5

4.3

0

1

2

3

4

5

2011 2012 2013 2014 2015 2016f 2017f

f Forecast Wages are for Total Private Industry Frequency of observation: annual; latest historical data point: 2015; forecast years: 2016 and 2017 Sources: US Bureau of Labor Statistics, Moody’s Analytics, and NCCI

Wages Are Forecast to Accelerate Significantly by 2017

US Average Weekly Wage Growth Annual Growth Rate Percent

56


0

5

10

15

20

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

U-6 Unemployment Headline Unemployment

U-6 measures the number of the unemployed, the marginally attached, and the part-time for economic reasons Headline (official) Unemployment Rate and U-6 are seasonally adjusted Frequency of observation: monthly; latest available data point: July 2016 Sources: Moody’s Analytics and the US Bureau of Labor Statistics

The US Unemployment Rate Continues to Decline but Is Higher When Marginally

Attached Workers Are Included

US Headline Unemployment Rate and U-6 Percent

57


3.0

3.7

2.5 2.4 2.6

3.7 3.5

0

1

2

3

4

2011 2012 2013 2014 2015 2016f 2017f

f Forecast Medical Care Consumer Price Index, Urban Consumers Frequency of observation: annual; latest historical data point: 2015; forecast years: 2016 and 2017 Sources: US Bureau of Labor Statistics and Moody’s Analytics

Medical Inflation Is Forecast to Accelerate

US Medical Consumer Price Index Growth Rate

58

Percent


3.0

1.6

2.3 2.6

2.4

1.6

2.6

0

1

2

3

4

2011 2012 2013 2014 2015 2016 2017f

f Forecast Frequency of observation: interest rate as of June Latest historical data point: June 2016 Sources: Federal Reserve Board and Moody’s Analytics

Interest Rates Are Expected to Increase in 2017

10-Year Treasury Notes

59

Percent


National Economic Indicator Potential Impact on the Workers Compensation Market

Oil and natural gas prices are low Low energy prices benefit most producers—a positive for workers compensation because manufacturing accounts for 16% of premiums. However, layoffs in the energy sector negatively impact energy-dependent states.

Economic weakness in Europe and China should keep the dollar strong

A strong dollar may cut employment in export-centric industries, particularly equipment manufacturing and technology. This is a negative due to the large share of premiums in manufacturing.

Housing starts are increasing New residential construction should boost demand for construction workers—a positive because construction accounts for 24% of premiums.

Current Economic Headlines— National Economic Highlights and Their Impact

on Workers Compensation

60


$95 $94 $98

$93

$49 $44

$57

0

25

50

75

100

125

2011 2012 2013 2014 2015 2016f 2017f

f Forecast Petroleum Crude Oil Spot Price: West Texas Intermediate Frequency of observation: annual; latest historical data point: 2015; forecast years: 2016 and 2017 Sources: US Energy Information Administration and Moody’s Analytics

Oil Prices Are Forecast to Accelerate Next Year

West Texas Intermediate

61

US $ per Barrel


-800

-700

-600

-500

-400

-300

80

90

100

110

120

130

2011 2012 2013 2014 2015 2016f 2017f

US Dollar Index

Net Exports of Goods & Services

f Forecast Weighted average exchange value of the US dollar: Broad Index—nominal; Net Exports of Goods and Services: billions of 2009 US dollars Frequency of observation: annual; latest historical data point: 2015; forecast years: 2016 and 2017 Sources: Federal Reserve Board, US Bureau of Economic Analysis, and Moody’s Analytics

The Dollar Is Forecast to Continue to Rise This Year, Reducing Exports

62

US Dollar Index (January 1997 = 100)

Net Exports of Goods & Services,

$ Billions


0.6

0.8 0.9

1.0 1.1

1.2

1.7

0.0

0.5

1.0

1.5

2.0

2011 2012 2013 2014 2015 2016f 2017f

f Forecast Total Housing Starts Frequency of observation: annual; latest historical data point: 2015; forecast years: 2016 and 2017 Sources: US Census Bureau and Moody’s Analytics

Housing Starts Are Expected to Continue to Rise

Total Housing Starts

63

Millions


How Does the New Mexico Economy Compare?


Private Nonfarm Employment, seasonally adjusted Frequency of observation: monthly; latest available data point: July 2016; percentage change for the 12 months ending July 2016 Source: US Bureau of Labor Statistics (BLS), www.bls.gov

Change in Private Employment

Comparison of Private Employment Growth Across States

65

65


Percentage change for the latest 12 months as of July 2016 Current Employment Statistics Survey, seasonally adjusted; frequency of observation: monthly Source: US Bureau of Labor Statistics (BLS), www.bls.gov

Change in Employment by Industry

Employment in Most Industries Has Increased in the Past 12 Months

66

NM +6.6 141,600 17 +8,800

US +2.9

NM +2.6 191,100 23 +4,900

US +0.7

NM +2.5 95,500 11 +2,300

US +2.8

NM +1.8 101,500 12 +1,800

US +2.8

NM +1.5 13,400 2 +200

US +1.0

NM +0.9 43,700 5 +400

US +3.3

NM +0.3 28,800 3 +100

US +1.1

NM –0.9 33,000 4 –300

US +2.0

NM –1.6 137,100 17 –2,300

US +1.4

NM –6.1 26,100 3 –1,700

US –0.3

NM –26.1 18,700 2 –6,600

US –16.0

Government

Industrial Sector 12-Month Percent Change, July 2016

Sector

Size

Natural Resources and Mining

12-Month

Change

Education and Health Services

%

Share

Trade, Transportation, and Utilities

Manufacturing

Leisure and Hospitality

Professional and Business Services

Information

Construction

Other Services

Financial Activities


0.4

2.8

1.1 1.1

3.1 3.1

0

1

2

3

4

2013 2014 2015

New Mexico United States

Wages are for Total Private Industry Frequency of observation: annual; latest available data point: 2015 (preliminary) Source: US Bureau of Labor Statistics (BLS), www.bls.gov

Change in Average Weekly Wages

Wage Growth Is Below the Rest of the Nation

67

Percent


6.7 6.6 6.4 6.2

5.3 4.9

0

2

4

6

8

July 2014 July 2015 July 2016

New Mexico United States

Headline Unemployment Rate, seasonally adjusted Frequency of observation: monthly; latest available data point: July 2016 Source: US Bureau of Labor Statistics (BLS), www.bls.gov

Headline Unemployment Rate

The Unemployment Rate Is Above the National Average

68

Percent


New Mexico’s unemployment rate is above the US rate

Employment growth is below the US rate:

Education and Health Services is the top-performing sector in the state, with growth outpacing the national rate

Government, Leisure and Hospitality, and Professional and Business Services have also added numerous jobs

The Natural Resources and Mining; Manufacturing; Trade, Transportation, and Utilities; and Financial Activities sectors have all declined

New Mexico wage growth is below the US average

New Mexico’s Economic Highlights

69


Claim Frequency


New Mexico Claim Frequency

22.9

12.7

0

5

10

15

20

25

30

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Freq

uen

cy p

er M

illi

on

of

On

-Levele

d P

rem

ium

Policy Year

Based on NCCI’s financial data Frequency of lost-time claims adjusted to a common wage level

71


New Mexico Workers Compensation Lost-Time Claim Frequency

Lost-Time Claims

5%

-2%

-6%

-15%

-7%

7%

-11%

-1%

0%

-2%

-7%

-4%

-8%

-5%

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Policy Year

Cumulative Change of –44.7% (2000–2014)

Percent Change

Based on data through 12/31/2015, developed to ultimate

72


2010 and 2011 adjusted primarily for significant changes in audit activity p Preliminary based on data valued as of 12/31/2015 Source: NCCI’s Financial Call data, developed to ultimate and adjusted to current wage and voluntary loss cost level, excludes high- deductible policies; 1994–2014: based on data through 12/31/2014 Includes all states where NCCI provides ratemaking services; WV is excluded through 2014, but included in 2015

-6.5

-4.5

0.5

-3.9

-2.3

-4.5

-6.9

-4.5 -4.1 -3.7

-6.6

-4.5

-2.2

-4.3 -4.9

3.6

-0.9

-5.4

-3.2

-1.7 -3

-10

-5

0

5

10

95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15p

Percent

Accident Year

Cumulative Change of –51.5% (1994–2014)

73

Countrywide Workers Compensation Lost-Time Claim Frequency

Change in Lost-Time Claims per $1M Pure Premium Private Carriers and State Funds


New Mexico’s Average Claim Frequency

Frequency per 100,000 Workers—All Claims

794

615

945

624

678

679

2,720

3,021

3,269

1,817

3,239

2,374

Total 3,514

Total 3,636

Total 4,214

Total 2,441

Total 3,917

Total 3,053

NM

AZ

CO

TX

UT

Reg

Lost Time Medical Only

Based on NCCI’s Statistical Plan data

74


New Mexico’s Distribution of Claims by Injury Type

Regional states are AZ, CO, TX, and UT Based on NCCI’s Statistical Plan data

New Mexico

Region

Countrywide

76%

78%

77%

15%

14%

14%

9%

8%

9%

0%

0%

0%

0% 20% 40% 60% 80% 100%

Medical Only Temporary Total Permanent Partial Fatal & Permanent Total

75


Key Takeaways—Claim Frequency

Claim frequency is a key

cost driver

Both countrywide

and New Mexico claim

frequency declined in the latest

year

New Mexico’s distribution of claims is comparable to the region

76


Indemnity and Medical Severity


Medical Benefits Constitute the Majority of Total Benefit Costs in New Mexico

Indemnity

41%

Indemnity

36%

Indemnity

39%

Medical

59%

Medical

64%

Medical

61%

0% 20% 40% 60% 80% 100%

New Mexico

Region

Countrywide

Regional states are AZ, CO, TX, and UT Based on NCCI’s financial data

78


New Mexico’s Average Indemnity Claim Severity

25.5

16.7

30.6

4

9

14

19

24

29

34

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

In

dem

nit

y A

verag

e

Cla

im S

everit

y (

$ '0

00

s)

Policy Year

Adjusted to Current Wage Level Actual

. 30.4

AY 15

Based on NCCI’s financial data for lost-time claims at current benefit level and developed to ultimate

79


$1

6.7

$1

8.3

$1

8.0

$1

8.5

$2

0.8

$2

1.0

$2

3.6

$2

4.4

$2

3.9

$2

3.2

$2

3.8

$2

4.4

$2

6.8

$2

6.3

$3

0.6

9.2% -1.3% 2.9%

12.1% 1.0%

12.4% 3.5% -2.1%

-2.8% 2.6% 2.5%

9.6% -1.9%

16.5%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Policy Year

New Mexico’s Average Indemnity Claim Severity

Lost-Time Claim Severity in $ Thousands

Based on data through 12/31/2015, on-leveled and developed to ultimate

Cumulative Change of +82.8% (2000–2014)

80


$9

.8

$1

0.4

$1

1.2

$1

2.2

$1

3.5

$1

4.8

$1

6.2

$1

6.7

$1

7.5

$1

7.6

$1

8.2

$1

9.3

$2

0.5

$2

2.4

$2

2.6

$2

2.1

$2

2.2

$2

2.2

$2

2.9

$2

3.2

$2

3.5

+5.9% +7.7%

+9.0%

+10.1%

+10.1%

+9.2% +3.1%

+4.6% +1.0% +3.1%

+5.9%

+6.6%

+9.3% +0.6% -2.2% +0.9% -0.1%

+2.9% +1.5% +1.0%

5

10

15

20

25

95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14p 15p

Countrywide Workers Compensation Average Indemnity Cost per Lost-Time Claim

Private Carriers and State Funds Severity ($ Thousands)

Accident Year

p Preliminary based on data valued as of 12/31/2015 Source: NCCI’s Financial Call data, developed to ultimate; excludes high-deductible policies; 1994–2013: based on data through 12/31/2014 For all states where NCCI provides ratemaking services, excluding WV

81


p Preliminary based on data valued as of 12/31/2015 Sources: Severity: NCCI’s Financial Call data, developed to ultimate, excludes high-deductible policies; 1994–2013: based on data through 12/31/2014 US Average Weekly Wage: 1994–2007 and 2012–2014, Quarterly Census of Employment and Wages; 2008–2011, NCCI; 2015p, NCCI and Moody’s Economy.com Includes all states where NCCI provides ratemaking services; WV is included in 2014 and subsequent

5

10

15

20

25

95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14p 15p

Severity ($ Thousands)

Accident Year

Cumulative Change in Excess of Wage Growth (1995–2015p): +23%

Cumulative Change (1995–2015p): +138%

82

Countrywide Workers Compensation Average Indemnity Cost per Lost-Time Claim

Private Carriers and State Funds—NCCI States


p Preliminary based on data valued as of 12/31/2015 Sources: Severity: NCCI’s Financial Call data, developed to ultimate, excludes high-deductible policies; 1994–2013: based on data through 12/31/2014 US Average Weekly Wage: 1994–2007 and 2012–2014, Quarterly Census of Employment and Wages; 2008–2011, NCCI; 2015p, NCCI and Moody’s Economy.com Includes all states where NCCI provides ratemaking services; WV is included in 2014 and subsequent

1995 to 2001 2002 to 2008 2009 to 2015p

Cumulative Change in Indemnity Claim Severity

Cumulative Change in US Average Weekly Wage (AWW)

Severity Growth > US AWW Growth

Severity Growth > US AWW Growth

US AWW Growth > Severity Growth

83

Countrywide Relative Growth Rates— Indemnity Severity vs. Wage Inflation



$30.6

$18.4

$23.4

$19.7

$13.2

NM AZ CO TX UT

Based on NCCI’s financial data for lost-time claims

Average Indemnity Claim Severity in the Region


84


New Mexico’s Indemnity Loss Distribution by Injury Type

85


31%

25%

24%

60%

52%

61%

4%

8%

5%

5%

15%

10%

0% 20% 40% 60% 80% 100%

Temporary Total Permanent Partial Permanent Total Fatal

New Mexico

Region

Countrywide


New Mexico’s Average Medical Claim Severity

31.6

20.8

43.8

4

9

14

19

24

29

34

39

44

49

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Med

ical A

verag

e

Cla

im S

everit

y (

$ '0

00

s)

Policy Year

Adjusted to Current Wage Level Actual

. 44.1

AY 15

Based on NCCI’s financial data for lost-time claims at current benefit level and developed to ultimate

86


$2

0.8

$2

6.0

$2

3.9

$2

9.0

$3

0.7

$3

2.8

$3

3.8

$3

7.0

$3

6.9

$3

8.6

$3

8.9

$3

8.4

$4

3.5

$3

8.1

$4

3.8

24.9% -7.7%

21.1% 5.9%

6.7% 3.2%

9.3% -0.2% 4.6% 0.7% -1.2%

13.4%

-12.5%

14.9%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Policy Year

New Mexico’s Average Medical Claim Severity


Based on data through 12/31/2015, on-leveled and developed to ultimate

Cumulative Change of +110.6% (2000–2014)

87


Countrywide Workers Compensation Average Medical Cost per Lost-Time Claim

Private Carriers and State Funds

$9

.1

$9

.8

$1

0.8

$1

1.6

$1

2.9

$1

3.8

$1

5.7

$1

7.1

$1

8.4

$1

9.4

$2

0.9

$2

2.1

$2

3.4

$2

5.0

$2

6.2

$2

6.3

$2

6.8

$2

7.3

$2

8.0

$2

8.8

$2

8.5

+7.4% +10.1%

+8.3% +10.6%

+7.3%

+13.5% +8.8%

+7.7% +5.4%

+7.8% +5.8%

+5.9%

+7.0% +4.5% +0.4% +2.2 +2.0%

+2.3% +3.0%

-1.0%

5

10

15

20

25

30

95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14p 15p

Accident Year

p Preliminary based on data valued as of 12/31/2015 Source: NCCI’S Financial Call data, developed to ultimate, excludes high-deductible policies; 1994–2013: based on data through 12/31/2014 Includes all states where NCCI provides ratemaking services; WV is included in 2014 and subsequent


88


5

10

15

20

25

30

35

95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14p 15p


Accident Year

p Preliminary based on data valued as of 12/31/2015 Sources: Severity: NCCI’s Financial Call data, developed to ultimate, excludes high-deductible policies; 1994–2013: based on data through 12/31/2014 US Medical CPI: US Bureau of Labor Statistics Includes all states where NCCI provides ratemaking services; WV is included in 2014 and subsequent

Countrywide Workers Compensation Average Medical Cost per Lost-Time Claim


89

Cumulative Change in Excess of Medical Care Inflation (1995–2015p): +55%

Cumulative Change (1995–2015p): +214%


1995 to 2001 2002 to 2008 2009 to2015p

Cumulative Change in Lost-Time Medical Claim Severity

Cumulative Change in US Medical Consumer Price Index (CPI)

p Preliminary based on data valued as of 12/31/2015 Sources: Severity: NCCI’s Financial Call data, developed to ultimate; excludes high-deductible policies; 1994–2013: based on data through 12/31/2014 US Medical CPI: US Bureau of Labor Statistics Includes all states where NCCI provides ratemaking services; WV is included in 2014 and subsequent

Countrywide Relative Growth Rates— Medical Severity vs. Medical Care Inflation


90

Severity Growth > US MCPI Growth

Severity Growth > US MCPI Growth

US MCPI Growth > Severity Growth


$43.8

$48.5

$31.1

$26.1

$36.7

NM AZ CO TX UT

Based on NCCI’s financial data for lost-time claims

Average Medical Claim Severity in the Region


91


New Mexico’s Medical Loss Distribution by Injury Type

29%

25%

17%

48%

48%

65%

9%

12%

9%

13%

14%

9%

1%

1%

0%

0% 20% 40% 60% 80% 100%

Temporary Total Permanent Partial Permanent Total Medical Only Fatal

New Mexico

Region

Countrywide


92


Key Takeaways—Benefit Costs

Indemnity costs have increased in

recent policy periods

Medical costs have been

volatile in recent policy periods

Indemnity and

medical severities are

high compared to the region

Indemnity share

of benefits is similar to the region and to countrywide

93


Emerging Issues: Oil and Gas Jobs


Overview

US Crude Oil

Where is it?

Historical overview

Benchmark—gasoline prices

Oil Jobs

Wages

State specifics

Job Shifting

Consumer Impact

95


US Oil Reserves

Source: US Energy Information Administration (2013), www.eia.gov/todayinenergy/detail.cfm?id=20952

96


The History of US Crude

Sources: US Energy Information Administration (2016, www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=RWTC&f=A) and Thomas Reuters

$0

$20

$40

$60

$80

$100

$120

19

86

19

87

19

88

19

89

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

West Texas Intermediate Spot Price per Barrel


Average Gasoline Prices

Source: US Energy Information Administration, Short-Term Energy Outlook, Real Prices Viewer (December 2015)

98


The “Boom and Bust” of Oil and Gas Jobs

Source: US Bureau of Labor Statistics, http://data.bls.gov/timeseries/CES1021100001?data_tool=XGtable

99


Annual Average Crude Oil Price and Number of Active Oil and Gas Rigs, 1988–2014

Sources: Crude Oil Price—US Energy Information Administration, US Department of Energy Rig Count—Baker Hughes, Inc. (1993–2011 Sum of annual average for Active Rotary Rigs for the United States) National Institute for Occupational Safety and Health, www.cdc.gov/niosh/programs/oilgas/economics.html

0

200

400

600

800

1000

1200

1400

1600

1800

2000

$0

$20

$40

$60

$80

$100

$120

US

Oil

Rig

s in

Op

erat

ion

US

Cru

de

Pri

ce p

er B

arre

l

Year

100


Age Does Matter

Source: US Energy Information Administration (2016), www.eia.gov/todayinenergy/detail.cfm?id=25472 Well age reflects the difference between the calendar year and the year that the well started producing

101


Oil and Gas Extraction Average Hourly Earnings

Source: US Bureau of Labor Statistics, http://data.bls.gov/timeseries/CEU1021100008?data_tool=XGtable

102


Oil and Gas Extraction Jobs by State

Shown as a Percentage of Total Private Nonfarm Labor

0% .01–.10% .11–.50% .51–2.0%

Sources: US Bureau of Labor Statistics and Moody’s Analytics

103


Growing Industries

Source: US Bureau of Labor Statistics

104


Petroleum-Derived Consumer Products

Body Lotion

Breath Mints and Gum

Buttons

Carpet

Cell Phone

Cosmetics

Curtains

Deodorant

Dishes

Glasses

Hair Conditioner

Hair Shampoo

Hairbrush and Comb

Ibuprofen and Aspirin

Ice Cube Trays

Nail Polish

Pillows

Razors

Shaving Cream

Shoes

Soap

Socks

Toothbrush and Toothpaste

Trash Bags

Umbrellas

Vitamins

105


Oil Prices Are Forecast to Accelerate Next Year

West Texas Intermediate

$95 $94 $98

$93

$49 $41

$56

0

25

50

75

100

125

2011 2012 2013 2014 2015 2016f 2017f

f Forecast Petroleum Crude Oil Spot Price: West Texas Intermediate Frequency of observation: annual; latest historical data point: 2015; forecast years: 2016 and 2017 Sources: US Energy Information Administration and Moody's Analytics

US $ per Barrel

106


Summary

US Oil Production—increased

Technology/Oil Prices—decreasing jobs

Low Oil Prices—less expensive consumer goods and increasing jobs in other sectors

107


Closing Remarks Thank You!


Q & A


Glossary


Glossary

Assigned Risk Adjustment Program (ARAP)—An assigned risk market program that surcharges residual market risks based on the magnitude of their experience rating modification.

Calendar Year (CY)—Experience of earned premium and loss transactions occurring within the calendar year beginning January 1, irrespective of the contractual dates of the policies to which the transactions relate and the dates of the accidents.

Calendar-Accident Year (AY)—The accumulation of loss data on all accidents with the date of occurrence falling within a given calendar year. The premium figure is the same as that used in calendar year experience.

Claim Frequency—The number of claims per unit of exposure; for example, the number of claims per million dollars of premium or per 100 workers.

111


Glossary

Claim Severity—The average cost of a claim. Severity is calculated by dividing total losses by the total number of claims.

Combined Ratio—The sum of the (1) loss ratio, (2) expense ratio, and (3) dividend ratio for a given time period.

Detailed Claim Information (DCI)—An NCCI Call that collects detailed information on an individual workers compensation lost-time claim basis, such as type of injury, whether or not an attorney was involved, timing of the claim’s report to the carrier, etc.

Direct Written Premium (DWP)—The gross premium income adjusted for additional or return premiums, but excluding any reinsurance premiums.

112


Glossary

Indemnity Benefits—Payments by an insurance company to cover an injured worker’s time lost from work. These benefits are also referred to as “wage replacement” benefits.

Loss Ratio—The ratio of losses to premium for a given time period.

Lost-Time (LT) Claims—Claims resulting in indemnity benefits (and usually medical benefits) being paid to or on behalf of the injured worker for time lost from work.

Medical-Only Claims—Claims resulting in only medical benefits being paid on behalf of an injured worker.

Net Written Premium (NWP)—The gross premium income adjusted for additional or return premiums and including any additions for reinsurance assumed and any deductions for reinsurance ceded.

113


Glossary

Permanent Partial (PP)—A disability that is permanent but does not involve a total inability to work. The specific definition and associated workers compensation benefits are defined by statute and vary by jurisdiction.

Policy Year (PY)—The year of the effective date of the policy. Policy year financial results summarize experience for all policies with effective dates in a given calendar year period.

Schedule Rating—A debit and credit plan that recognizes variations in the hazard-causing features of an individual risk.

Take-Out Credit Program—An assigned risk program that encourages carriers to write current residual market risks in the competitive voluntary marketplace.

Temporary Total (TT)—A disability that totally disables a worker for a temporary period of time.

114


Appendix


NCCI’s Workers Compensation Resources

Financial Aggregate Calls

Used for aggregate ratemaking

Statistical Plan for Workers Compensation and Employers Liability Insurance (Statistical Plan)

Used for class ratemaking

Detailed Claim Information

In-depth sample of lost-time claims

Policy Data

Policy declaration page information

116


Financial Aggregate Calls

Collected Annually

Policy and calendar-accident year basis

Statewide and assigned risk data

Premiums, Losses, and Claim Counts

Evaluated as of December 31

Purpose

Basis for overall aggregate rate indication

Research

117


Policy Year Financial Aggregate Data

1/1/2013 12/31/2013 1/1/2012 1/1/2016 12/31/2016

Policy Expiration Date

Policy Effective Date

Policy

Year

2012

Policy

Year

2013

Policy

Year

2016

118


Calendar-Accident Year Financial Aggregate Data

119

1/1/2014 12/31/2014 1/1/2013 1/1/2017 12/31/2017

Policy Expiration Date

Policy Effective Date

Calendar-

Accident

Year

2013

Calendar-

Accident

Year

2014

Calendar-

Accident

Year

2017


Statistical Plan for Workers Compensation and Employers Liability Insurance

(Statistical Plan) Data

Experience by Policy Detail

Exposure, premium, and experience rating modifications

Individual claims by injury type

Purposes

Classification relativities

Experience Rating Plan

Research

120


Valuation of Statistical Plan Data

Policy

Effective 18 Months

1st

Report

Valuation

2nd

Report

Valuation

3rd

Report

Valuation

4th

Report

Valuation

5th

Report

Valuation

30 Months 42 Months

54 Months 66 Months

121

NEW MEXICO - National Council on Compensation Insurance · New Mexico finished the budget year in June with a $131 million deficit after exhausting operating reserves, as a sustained

Documents