Estimating the Actuarial Value of the Connecticut Second Injury Fund Loss Portfolio

This paper describes a dynamic financial analysis model that General Re developed for the State of Connecticut to estimate its cost of the run-off loss and expense liabilities of the Connecticut Second Injury Fund (SIF), a statutorily-created entity that covers specified types of worker’s compensation claims of injured workers. The chief obstacles for pricing this loss portfolio include unreliable, if not non-existent, historical data, a radically improved claims handling operation, and an uncertain future of the SIF. The model developed contains dynamic components to reflect the sensitivity of the ultimate value of losses to varying degrees of aggressive claims handling and successful integration of ancillary claim and legal services. The model simulates a population of claims based upon assumptions on claim counts, severities of the SIF individual claims, payout patterns, percentage of settlements achieved, and the amounts at which settlements occur as a percentage of discounted case value of claims. From this, we may directly value the loss portfolio and its cost sensitivity to the way claims may be managed, as well as unexpected loss emergence.