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

626 ESTIMATING THE WORKERS COMPENSATION TAILTABLE 6.3Comparison of MPD Loss Reserve as a Percentage ofthe Total Workers Compensation Loss Reserve(Based on Different PLDF Assumptions; Dollars inMillions)Indicated by Indicated by Percentage Increase inMaturity Historical Trended Mortality MPD Reserve Due to Using(Years) PLDFs PLDFs Trended Mortality Rates10 $29.6 $41.3 +39:715 28.3 39.6 +39:625 25.5 34.6 +35:835 20.0 27.0 +34:9Clearly, the trended mortality model indicates MPD loss reservesthat are significantly larger than straight historical experiencewould indicate.7. SENSITIVITY CONSIDERATIONSThe most significant factor affecting the indications in thispaper is the applicable retention. This paper presents indicationson an unlimited basis. Tail factors and PLDFs at more matureyears of development should be expected to be significantly lessat relatively low retentions. This is evident on an a priori basis.Consider a hypothetical PD claimant injured on December 15,2003, at age 35.9 years, with a life expectancy of 40 years. Hismedical costs are $5,000 during 2004, and future medical inflationis 9% per year. Indemnity losses are a flat $25,000 per year,beginning in 2004. Table 7.1 indicates the total cumulative losspayments at the end of each of the first 41 years of development.For this hypothetical PD claimant, net paid losses would topout by the end of the ninth year of development with a retentionof $250,000; after 16 years with a $500,000 retention; after26 years with a $1 million retention; and after 37 years with a$2 million retention.