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

616 ESTIMATING THE WORKERS COMPENSATION TAILexpenses related to their work injuries is paid until they die. Sincemedical expenses are expected to continue rising at high rates ofinflation, coverage of such expenses significantly compounds theeffects of expected increases in life expectancies.Consequently, the difference between MPD reserves calculatedusing constant recent mortality rates and those calculatedwith trended mortality rates is substantial. The latter calculationsare unusually complex. They can best be measured and understoodwith the aid of a heuristic model.While the effects of declining mortality rates on gross MPDreserves are almost undetectable over the short run, their magnitudeover future decades is quite substantial. However, the extentof these effects is negligible on net MPD when retentions arerelatively low. The effect is also fairly small for indemnity lossreserves for permanently disabled claimants.5. THE TRENDED MORTALITY MODELThis method is similar to the static mortality model adaptationof the incremental paid to prior open claim method described inSection 3 and Appendix C. The key difference is that the changein the number of open claims for every future development yearof every AY is determined by applying mortality tables forecastedby the SSA for the appropriate future development year.The rest of the method is essentially unchanged. A sample ofthese differences is provided in Table 5.1 for every fifth DY ofAY 2002.As is evident in Table 5.1, small improvements in the annualsurvival rate of remaining claimants result in major differencesin the number of claims still open at higher development years.Given that the greatest differences occur during developmentyears in the distant future, when the effects of medical inflationhave had an opportunity to compound over decades, the total