PwC

1. Washington State Transit Insurance Pool Rating System Recommendations August 26, 2010 Presented by: Kevin Wick, FCAS, MAAA PwC

2. A risk sharing pool should charge each member in proportion to the risk they are contributing to the program “Risk” does not equal actual losses Rating system is the program’s method of assessing the individual member risk Individual member actual losses are variable Need to temper impact individual member losses have on rates (risk measurement) or fundamental purpose of pool is defeated High Level Points

3. Context Background • Review conducted of experience rating system (dated July 23, 2010) • Recommendations presented at July 29, 2010 WSTIP Meeting • Recommendations revised and examples prepared

4. Recommendations Current review suggests single blended rate per mile is appropriate but mode rate differences should be monitored annually Maintain a three-year loss experience window Vary the individual loss cap by size of member In mod calculation, weight between relative loss experience and prior mod (versus relative loss experience and 1.000) More transparent presentation that provides a year by year context for evaluating loss levels

5. Recommendation # 3 Revised – Varying Loss Cap

6. Rating Example – Part 1

7. Rating Example – Part 2

8. Financial Impact of Moving to Proposed System • Annual Fluctuation - same • Recognition of long-term favorable or unfavorable loss levels • Improvement under proposed system • Deficiency in primary rating base • Large loss impact – effectively the same • Current - less consideration is given to less predictable losses at higher limits • Proposed – tiered cap allows more consideration of individual member experience