PROCEEDINGS May 15, 16, 17, 18, 2005 - Casualty Actuarial Society

582 ESTIMATING THE WORKERS COMPENSATION TAILbe expected to be significantly less at relatively lowretentions.11.TheexpectedvalueofanMPDcasereserveismuchgreater than cumulative inflated payments through theexpected year of death. This is similar to the situationthat occurs when reinsurance contracts are commuted,whereusingthelifeexpectancyoftheclaimantproducesan estimate well below the weighted average ofoutcomes based on a mortality table [2].12. The variability of total MPD reserves can be gaugedrealistically by a Markov chain simulation model thatseparately estimates payments for each future DY byclaimant.13. The potential for common actuarial methods to understatethe MPD reserve, and consequently the entireworkers compensation reserve, is significant. Thisis also true regarding common methods for estimatingthe degree of variability in the workers compensationreserve.14. The MPD loss reserve is a high percentage of the totalworkers compensation loss reserve for maturities of 10years or more. And that percentage increases noticeablyat higher maturities.It is important to note that the applicability of the above findingsdepends not only on the retention level, but also the presence(or absence) of permanent disability (PD) claimants with ongoingmedical costs and on the specific provisions of state workerscompensation laws.Statutory indemnity benefits differ by state. For example,some states allow for escalation of PD benefits while others donot. Medical benefit structures are much more uniform acrossstates. This paper focuses on MPD payments, which generallydo not vary significantly between states.