June 8, 2004

James D. Hurley, ACAS, MAAA

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Casualty Actuaries in Reinsurance

Observations on Medical Malpractice

This document is incomplete without the accompanying discussion; it is confidential and intended solely for the information and benefit of the immediate recipient hereof.

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Observations on Medical Malpractice

Financial results

Data/Analytical issues

Tort reform

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Observations on Medical Malpractice

Financial results impacted by... 1990’s

modest loss trends favorable reserve development relatively high investment returns expansion slippage in pricing

2000’s loss trends pick up unfavorable reserve development investment returns turn rates adjusted

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Combined Ratios

Source: AM Best, RAA

0%

20%

40%

60%

80%

100%

120%

140%

160%

1996 1997 1998 1999 2000 2001 2002 2003

Calendar Year

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Medical Malpractice - Loss Ratios

Source: AM Best

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Observations on Medical Malpractice Financial results impacted by...

1990’s

modest loss trends

favorable reserve development

relatively high investment returns

expansion

slippage in pricing 2000’s

loss trends pick up

unfavorable reserve development

investment returns turn

rates adjusted ... a work in progress?

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Observations on Medical Malpractice

Data/Analytical issues Jurisdictions Limits/Clash Review ALAE/Indemnity combined and separately? Sources

company data

JVR

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Medical Malpractice – Jury Awards

Source: Jury Verdict Research

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

Year

Me

an

Ju

ry A

wa

rds

($0

00

)

0

0.25

0.5

0.75

1

1.25

1.5

1.75

Me

dia

n J

ury

Aw

ard

s ($

00

0)

Mean Jury Awards Median Jury Awards

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Observations on Medical Malpractice

Data/Analytical issues Jurisdictions Limits/Clash Review ALAE/Indemnity combined and separately? Sources

company data

JVR

National Practitioner Data Bank

state specific data sets Experience vs. expected ILF’s

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Observations on Medical Malpractice

Tort reform Background – Federal

HR5/HR4280

MICRA-like Background – State

many have discussed

several have passed

likely impacts

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Observations on Medical Malpractice Tort reform (cont’d)

Issues/Risks

limited data to evaluate

prospective credit?

interpreted as expected

upheld

specifics

non-economic limit: per defendant or per occurrence

collateral source: jury disclosure or after award

panels: admissible or not

PCF, etc.

no-fault