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Current Issues In Medical Malpractice Insurance Carolyn L. Greene - Willis Re Inc. John H. Mize - Tillinghast April 2002 This document was designed for discussion purposes only and is not intended to present

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current issues in medical malpractice insurance
Current Issues In Medical Malpractice Insurance

Carolyn L. Greene - Willis Re Inc.

John H. Mize - Tillinghast

April 2002

This document was designed for discussion purposes only and is not intended to present

detailed information on our analysis and findings. It is incomplete, and not intended to be

used, without the accompanying oral presentation and discussion.

S:\People\Mizej\Presentations\CAS Mtg 04152002.ppt

current issues in medical malpractice insurance2
Current Issues in Medical Malpractice Insurance

Overview

  • Financial Results
  • Underlying Trends
  • Primary Marketplace
  • Reinsurance Marketplace
  • Input on Renewals
  • Opportunities for Actuaries

2

current issues in medical malpractice insurance4
Current Issues in Medical Malpractice Insurance

Source: Best’s Aggregates and Averages

4

current issues in medical malpractice insurance5
Current Issues in Medical Malpractice Insurance

Source: Best’s Aggregates and Averages

5

current issues in medical malpractice insurance6
Current Issues in Medical Malpractice Insurance

Source: Best’s Aggregates and Averages

6

current issues in medical malpractice insurance7
Current Issues in Medical Malpractice Insurance

Source: Best’s Aggregates and Averages

7

current issues in medical malpractice insurance8
Current Issues in Medical Malpractice Insurance

Source: Best’s Aggregates and Averages

8

current issues in medical malpractice insurance9
Current Issues in Medical Malpractice Insurance

Source: Best’s Aggregates and Averages

9

current issues in medical malpractice insurance10
Current Issues in Medical Malpractice Insurance

Source: Best’s Aggregates and Averages

10

current issues in medical malpractice insurance13
Current Issues in Medical Malpractice Insurance

U.S. Median Medical Liability Awards and Settlements

800

700

600

$ in Thousands

Settlements

500

Awards

400

300

200

1993

1994

1995

1996

1997

1998

1999

Source: Jury Verdict Research

current issues in medical malpractice insurance14
Current Issues in Medical Malpractice Insurance

Claim Frequency per 100 Physicians

20.00

18.00

16.5

16.0

15.6

15.5

15.2

15.1

16.00

14.3

14.2

13.8

13.4

14.00

12.00

10.00

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

Source: St. Paul Physicians & Surgeons 2000 Year-End Update

current issues in medical malpractice insurance15
Current Issues in Medical Malpractice Insurance

Observations: Trends

  • Frequency relatively flat - but more concentrated mix?
  • $1 million limits severity trend: 5% to 8%
  • Higher trends for long-term care
  • Greater frequency of shock losses
current issues in medical malpractice insurance17
Current Issues in Medical Malpractice Insurance

Market Drivers

  • Poor financial performance
    • Physicians - price competition/use of reserve redundancies
    • Hospitals - pricing discipline/aggregate maintenance
    • Investment yields
  • Loss of capacity
    • St. Paul leaves marketplace
    • PHICO, Frontier, PIE, etc. - Gone
    • MIIX financial troubles
    • More to come?
st paul major markets
St. Paul – Major Markets

StateSharePosition

SC 50.4% 1

AR 50.0% 1

NE 47.4% 1

SD 42.2% 1

ND 39.9% 1

NV 39.5% 1

IA 32.9% 1

MN 38.8% 2

WV 30.7% 2

LA 27.0% 2

DC 26.7% 2

DE 26.4% 2

NC 24.6% 2

KS 22.9% 2

GA 20.8% 2

Average 34.7%

Source: CCS

current issues in medical malpractice insurance19
Current Issues in Medical Malpractice Insurance

Market Drivers

  • Poor financial performance
    • Physicians - price competition/use of reserve redundancies
    • Hospitals - pricing discipline/aggregate maintenance
    • Investment yields
  • Loss of capacity
    • St. Paul leaves marketplace
    • PHICO, Frontier, PIE, etc. - Gone
    • MIIX financial troubles
    • More to come?
current issues in medical malpractice insurance20
Current Issues in Medical Malpractice Insurance

Current Status of Medical Malpractice Market - Primary

  • Physicians
    • Premiums almost uniformly on the up-swing
    • Driven by losses, investment income, elimination of balance sheet conservatism, and reinsurance costs
    • 15% or larger increases in filed rates common
    • Reduction in discounts - material but tough to quantify
    • Issue is affordability more than availability
  • Hospitals
    • At last - excess insurers listen to actuaries!
    • Focus on specific and aggregate attachments
    • Large premium increases combined with retention increases
current issues in medical malpractice insurance21
Current Issues in Medical Malpractice Insurance

Current Status of Medical Malpractice Market - Primary

  • Long term care
    • General deterioration in loss experience - with a few very bad jurisdictions
    • Historically large rating credits
    • Heavy underwriting, large premium increases and new/higher retentions
    • For-profit vs. Not-for-profit
    • Some opportunistic pricing?
    • Flight to alternative markets
current issues in medical malpractice insurance23
Current Issues in Medical Malpractice Insurance

General Reinsurance Overall

  • Results no better than primary market
  • Top twenty reinsurers, 2000 combined ratio 114.2% versus 113.8% for 1999
  • U.S. reinsurers reported a 141.6% combined ratio for 2001
  • Enough is enough – adequate pricing or let business go
current issues in medical malpractice insurance24
Current Issues in Medical Malpractice Insurance

Domestic Reinsurers

Twelve Months Ended December 31, 2000

9/30/2001Combined

Ratio

1999 2000

Combined Combined

Ratio Ratio

American Re-Insurance Company 115.3% 117.1% 136.1%

Converium Reinsurance (NA) Inc. 107.6% 116.7% 111.8%

Employers Reinsurance Group 116.2% 117.0% 132.0%

Everest Reinsurance Company 103.3% 103.2% 115.6%

NAC Re (XL Re) 146.5% 173.3% 117.3%

Odyssey America Reinsurance Corporation 129.8% 104.8% 113.7%

Swiss Re American Corporation 109.5% 121.4% 176.3%

Transatlantic Re 106.4% 100.4% 116.7%

current issues in medical malpractice insurance25
Current Issues in Medical Malpractice Insurance

Reinsurance Considerations

  • Field of domestic reinsurers has been reduced by two-thirds from a decade ago:
      • 120 stand-alone companies operated, 30 remain with most linked to global partners
  • The five largest reinsurers control over 38% of the estimated $125B market
  • To compete reinsurers must have many times the capital formerly required, A.M. Best: “the price of reinsurers’ admission, driven by market forces, is moving toward $1B of Surplus”
current issues in medical malpractice insurance26
Current Issues in Medical Malpractice Insurance

A Sampling of Consolidations in the Reinsurance Arena

  • Overseas Partners: Reliance Re
  • X.L. Capital: NAC Re/Global Capital Re/Mid-Ocean Re
  • Fairfax Holdings: Odyssey/TIG/Sphere Drake
  • Partner Re: Winterthur/SAFR US
  • Gerling Global: Constitution Re
  • Trenwick: Chartwell/Lasalle Re
  • Folksamerica: USF Re
  • Employers Re: Kemper (GE)/Frankona Re
  • Berkshire Hathaway: General Re/Cologne Re
  • Swiss Re: M&G/Underwriters Re
  • Munich Re: American Re
current issues in medical malpractice insurance29
Current Issues in Medical Malpractice Insurance

Renewals – General

  • Lack of clarity on reinsurers position. Changed wordings, requests for more information, restructuring of programs, general uncertainty
  • Capacity available but at a price
  • Negotiations tougher and longer
  • Reinsurers taking strong position on pricing
  • Must have good information, good loss history, good presentation with good story
  • Back to technical trending and pricing approach
  • Everyone is a lead with their own list of “pet” issues
  • Late pricing and extended negotiations created bottle-necks
  • Greater consideration of alternative options by clients with predictable loss exposure
current issues in medical malpractice insurance30
Current Issues in Medical Malpractice Insurance

2002 Reinsurance Renewals – Specific

  • Rate increases, depends on loss history
  • More swing plans-high minimum/maximum
  • Tighter terms across the board
  • Accelerated premium payments
  • Annual terms instead of continuous
  • Caps on liability
  • Focus on “balance” in layers
  • Increased use of inner aggregate and loss corridors
current issues in medical malpractice insurance31
Current Issues in Medical Malpractice Insurance

2002 Reinsurance Renewals – Specific (continued)

  • Limits reduced, no free capacity
  • Premium caps
  • Reduced scope of line covered
  • Excess cessions increased ILFs
  • Reduce/remove profit sharing
  • Territorial concerns
  • Reduce ceding commission
  • Few, if any, multi-year programs
  • Increased communication between primary carrier and reinsurers
current issues in medical malpractice insurance33
Current Issues in Medical Malpractice Insurance

Opportunities for Actuaries

  • Actuarial evaluations - now “required” for renewals
    • Hospitals
    • Large physician groups
    • Large long term care entities
  • Assistance in evaluating excess/reinsurance proposals
  • Captive feasibility studies
    • Actuarial evaluations
    • Financial forecasts
current issues in medical malpractice insurance34
Current Issues In Medical Malpractice Insurance

Carolyn L. Greene - Willis Re Inc.

John H. Mize - Tillinghast

April 2002

This document was designed for discussion purposes only and is not intended to present

detailed information on our analysis and findings. It is incomplete, and not intended to be

used, without the accompanying oral presentation and discussion.

S:\People\Mizej\Presentations\CAS Mtg 04152002.ppt