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A MILLIMAN GLOBAL FIRM

HD MillimanusA Consultants and Actuaries

EMPIRE STATE TRANSPORTATION WORKERS' COMPENSATION TRUST

LOSS AND ALAE RESERVES AS OF 12/31/01

Prepared by: Kenneth E. Carlton II), FCAS, MAAA, FCA Milliman USA, Inc. 289 Edgewater Drive Wakefield, MA 01880 (781)213-6200

Prepared for: Empire State Transportation Workers' Compensation Trust

Date: March 5, 2002

MILLIMAN USA

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TABLE OF CONTENTS

I. BACKGROUND 3

II. SCOPE AND LIMITATIONS 4

A. SCOPE OF ANALYSIS :....4

B. GENERAL LIMITATIONS 5

III. SUMMARY OF FINDINGS 9

A. LOSS AND LOSS EXPENSE RESERVES 9

IV. ANALYSIS. 10

A. DATA AND INFORMATION 10

B. METHODOLOGY 10

C. DETAILED ANALYSIS 13

V. EXHIBITS 17

l:\115fcc\O4-ES"nwORD12002\ESTWCT01 doc

MILLtMAN USA

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/. BACKGROUND

In 1995 several transportation enterprises decided to form a workers compensation self-

insurance group in the State of New York, called the Empire State Transportation

Workers' Compensation Trust ("ESTWCT"). ESTWCTs Third Party Administrator

("TPA") is First Cardinal Corporation ("FCC").

FCC has asked Milliman USA. Inc. ("Milliman") to analyze the loss and loss adjustment

expense reserves of ESTWCT as of December 31, 2001.

ESTWCT has purchased specific and aggregate excess insurance, attaching at a

$300,000 per occurrence limit and 94.3% of written premium, respectively, for fund year

2001. The aggregate excess insurance is for limits of $5 million.

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//. SCOPE AND LIMITATIONS

A. SCOPE OF ANALYSIS

Milliman has been asked by ESTWCT to independently estimate its loss and loss

expense reserves as of December 31, 2001. In our report loss expense refers to

allocated loss adjustment expense ("ALAE"). It is our understanding that all future

unallocated loss adjustment expense is not the responsibility of ESTWCT, but rather

ESTWCT's administrator, First Cardinal Corporation ("FCC"). Our reserve estimates

are: 1) on an undiscounted and discounted basis; 2) net of excess insurance; and 3) net

of anticipated salvage and subrogation recoveries.

We were also requested by ESTWCT to calculate an assessment accrual estimate

related to ESTWCT's 12/31/01 case reserves on an undiscounted and discounted

basis.

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B. GENERAL LIMITATIONS

1. Reliance on Data

In performing this analysis, we relied on data and other information provided to us by FCC.

We have not audited or verified this data and information. If the underlying data or

information is inaccurate or incomplete, the results of our analysis may likewise be

inaccurate or incomplete.

We performed a limited review of the data used directly in our analysis for reasonableness

and consistency and have not found material defects in the data. If there are material

defects in the data, it is possible that they would be uncovered by a detailed, systematic

review and comparison of the data to search for data values that are questionable or

relationships that are materially inconsistent. Such a review was beyond the scope of our

assignment.

Regarding excess insurance, we did not review the actual contracts of ESTWCT, but

relied on summaries of the tenns of the contracts provided to us by FCC.

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2. Uncertainty

Actuarial estimates are subject to uncertainty from various sources, including changes in

claim reporting patterns, claim settlement pattems, judicial decisions, legislation, economic

conditions, etc. In addition, ESTWCT has been in operation for only a short period of

time. Since workers' compensation benefits can continue over the course of the

claimant's lifetime, ESTWCT experience is relatively immature. This adds to the

uncertainty of our projections.

In estimating ESTWCT's reserves for unpaid losses and loss expense, it is necessary to

project future loss and loss expense payments. It is certain that actual future losses and

loss expense will not develop exactly as projected and may, in fact, vary significantly from

our projections. Further, our projections make no provision for extraordinary future

emergence of new classes of losses or types of losses, which are not sufficiently

represented in ESTWCT's historical database or which are not yet quantifiable.

We supplemented ESTWCT's data with insurance industry data where deemed

necessary. The use of external data is another source of uncertainty in our estimates.

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3. Variability Due to Random Fluctuation

Our results are estimates based on long term averages. Actual loss experience in any

given year may differ from what is suggested by these averages.

4. Range of Values

Our results should be considered point estimates within a wide range of possible

outcomes. Where our results are presented in ranges, it is possible that actual results will

fall outside of these ranges.

5. Discount Factors

For our analysis, we utilized IRS discount factors provided by FCC. There is the possibility

that ESTWCT may settle its losses more slowly or quickly than the settlement pattern

underlying these factors. It is also possible that the annual rate of investment return for

ESTWCT may differ from the underlying annual rate of investment for these factors. Thus,

the estimated amount of future investment income implied from the use of these factors on

our undiscounted reserve estimates may differ significantly from the actual amount of

future investment income which ESTWCT will earn on our undiscounted reserve

estimates.

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6. Excess Insurance Collectibility

Our results, net of excess insurance, assume that all excess Insurance is valid and

collectible.

7. Distribution

This report was prepared for the use of and only to be relied upon by the management of

ESTWCT and FCC. No portion of the report may be provided to any other party without

Milliman's prior written consent. In the event such consent is provided, the report must be

provided in its entirety. We recommend that any such party have its own actuary review

this report to ensure that the party understands the assumptions and uncertainties inherent

in our estimates. This report may not be filed with the SEC or other securities regulatory

bodies.

MILLIMAN USA

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///. SUMMARY OF FINDINGS

A. LOSS AND LOSS EXPENSE RESERVES

Table 1 summarizes our results.

TABLE 1 EMPIRE STATE TRANSPORTATION

WORKERS' COMPENSATION TRUST SUMMARY OF RESERVES

AS OF 12/31/01

Low Point Estimate Estimate

High Estimate

Undiscounted Reserves: 15,116,921 15,805,425 17,182.433

Discounted Reserves: 12,068,580 12,618.956 13.719,704

See Exhibit 1 for details.

The reserve estimates in Table 1 are net of anticipated salvage and subrogation

recoveries and include an assessment accrual estimate of $2,035,351 related to

ESTWCT's 12/31/01 case reserves.

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IV. ANALYSIS

In this section, we set forth the process utilized to estimate the loss and loss expense

resen/es for ESTWCT as of December 31, 2001. Unless noted otherwise, throughout

the remainder of this report loss refers to loss and allocated loss adjustment expense.

A. DATA AND INFORMATION

In estimating ultimate losses, we relied on loss and exposure information provided by

FCC. We supplemented our analysis with New York workers compensation industry

data.

B. METHODOLOGY

Our methodology consists of the following subsections:

1. Estimate of Ultimate Losses

2. Calculation of Reserves

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1. Estimate of Ultimate Losses

Our approach to estimating ultimate losses and loss expense was to use a variety of

estimation methods and then judgmentally assign weight to each method. The following

is a brief description of each method used for losses and loss expense.

a. Incurred Loss

in the incurred loss development method, incurred losses as of the latest evaluation

date are "developed" to an ultimate basis by applying an appropriate factor. This loss

development factor ("LDF") accounts for any unreported claims, any changes in

estimates of case reserves for unpaid reported claims, and any reopened claims.

b. Paid Loss

In the paid loss development method, paid losses as of the latest evaluation date are

"developed" to an ultimate basis by applying an appropriate factor. This LDF accounts

for any unreported claims, future payments on open claims, and any reopened claims.

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c. Incurred Bornhuetter-Ferguson

The Incurred Bornhuetter-Ferguson method requires the use of development factors,

as well as the selection of expected losses. Expected unreported losses are

determined using earned premiums, the expected loss ratio, and the selected incurred

LDFs. These expected unreported losses are then combined with the actual incurred

losses to arrive at the estimated ultimate losses.

d. Paid Bornhuetter-Ferguson

The Paid Bornhuetter-Ferguson method requires the use of development factors, as

well as the selection of expected losses. Expected unpaid losses are detemriined using

earned premiums, the expected loss ratio, and the selected paid LDFs. These

expected unpaid losses are then combined with the actual paid to arrive at the

estimated ultimate losses.

e. Loss Ratio

The loss ratio method produces ultimate losses by multiplying earned premiums by a

selected ultimate loss ratio.

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f. Summary

After reviewing the results of each method and assigning weights to each, the result is a

selected ultimate loss amount.

2. Calculation of Reserves

Our approach to calculating reserves was to subtract amounts paid to date from the

estimated ultimate loss amounts. In addition, adjustments were made to reflect

anticipated salvage and subrogation recoveries and an accrual for assessments.

C. DETAILED ANALYSIS

The purpose of this section is to explain how we combined the available data with the

selected methodology described in Sections A-B above so as to properly reflect any

circumstances unique to ESTWCT. Our detailed analysis includes the following

categories:

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1. Selected Ultimate Losses 2. Expected Ultimate Losses 3. Selected Loss Development Factors 4. Calculation of Assessment Accrual Estimate 5. Calculation of Reserves as of December 31, 2001 6. Range of Reserves

1. Selected Ultimate Losses

We selected a weighted average of the results of the various methods for accident

years 1995 through 2001. See Exhibit 4 Sheet 1.

2. Expected Ultimate Losses

The paid and incurred Bornhuetter-Ferguson methods require the selection of expected

ultimate losses. For all years except the most current year, we selected last year's

estimate of ultimate losses as this expectation.

For the most current year, we selected expected ultimate losses by reviewing, in Exhibit

5, the results of a paid development method, an incurred development method, and a

loss ratio method. That is, for accident year 2001, we first developed paid and incurred

experience as of December 31, 2001 to an ultimate basis for indemnity, medical, and

ALAE separately. We next selected a weighted average of the results from these two

methods, summed these selections for indemnity, medical and ALAE and then

compared this summary result to the result from the loss ratio method.

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We utilized a loss ratio of 65.0% based on a review of industry workers' compensation

experience in New York and the ultimate policy year loss ratios produced by the

experience of the more mature self-insurance groups administered by FCC in New

York. The result of this calculation was an estimate of expected ultimate loss and loss

expense.

3. Selected Loss Development Factors

We selected the paid and incurred loss development factors used to derive expected

ultimate losses by judgmentally selecting factors based upon the loss development

experience of the seven more mature FCC SIGs in New York and a review of New York

industry workers compensation development factors. Our selected paid and incurred

tail LDFs were derived by judgmentally tempering the industry paid and incurred tail

LDFs.

4. Calculation of Assessment Accrual Estimate

In Exhibit 8, we applied the assessment rate provided by FCC of 35.83% to ESTWCTs

12/31/01 indemnity case reserves to derive the assessment accrual estimate of

$2,035,351.

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5. Calculation of Reserves as of December 31, 2001

We derived undiscounted loss reserves (gross of anticipated salvage and subrogation

recoveries) in Exhibit 2 by subtracting paid losses as of December 31, 2001 from our

selected ultimate losses. We then derived in Exhibit 9 the undiscounted loss reserve

estimates net of anticipated salvage and subrogation recoveries. Finally, in Exhibit 3 we

calculated the discounted reserve estimates by multiplying the sum of the undiscounted

loss reserves (net of anticipated salvage and subrogation recoveries) from Exhibit 9 and

the assessment accrual estimate for case reserves from Exhibit 8 by the IRS discount

factors provided by FCC.

6. Range of Reserves

Our reserve estimates should be considered as point estimates within wide ranges of

possible outcomes. For each policy year, we derived an undiscounted high estimate by

selecting 110% of our point estimate undiscounted reserve. For each policy year, we

derived an undiscounted low estimate by selecting 95% of our point estimate

undiscounted reserve. Our discounted reserve range estimates were produced by

multiplying the IRS discount factor (selected by FCC) for each policy year by the

undiscounted reserve range estimates.

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V. EXHIBITS

Exhibit Number

Exhibit 1

Exhibit 2

Exhibit 3, Sheet 1

Exhibit 3, Sheet 2

Exhibit 4

Exhibit 5

Exhibit 6

Exhibit 7

Exhibit 8

Exhibit 9

Description

Summary of Loss & ALAE Reserves as of 12/31/01

Summary of Undiscounted Loss & ALAE Reserves as of

12/31/01

Summary of Discounted Reserves Loss & ALAE Reserves

as of 12/31/01 (Including Assessment Accrual)

Retrospective Analysis

Summary of Methods

Expected Ultimate Losses - Accident Year 2001

Selected Loss Development Factors

Diagnostics

Calculation of Assessment Accrual for Case Reserves as of

12/31/01

Calculation of Anticipated Salvage and Subrogation

Recoveries

MILLIMAN USA

First Cardinal Corporation

^ 1 ■ " ■1 ■■ ■ ■ ™ ■■ ■■ ■ ■ ■■ ■■

Exhibit 1 Empire State Transportation Workers' Compensation Trust

Summary of Loss & ALAE Reserves as of 12/31/01

(1) (2) (3) (4) (5) (6) (7)

CI Undiscounted Loss & ALAE Reserves | 1 Discounted Loss & ALAE Reserves 1

Accident Year Low Point High Low Point High Endinq 12/31/XX Estimate Estimate Estimate Estimate Estimate Estimate

1995 157,815 165,076 179.598 111,701 116.841 127,119 1996 725.469 757.505 821.575 520.959 543,964 589,973 1997 817,315 851.447 919.711 574.327 598,312 646.281 1998 896,544 936,273 1,015,731 677.249 707,261 767,283 1999 2,020,973 2,108,011 2,282,086 1,612,130 1,681,560 1,820,420 2000 3,732.184 3,898,315 4,230,579 3,014,112 3,148,279 3,416,616 2001 6.766.621 7.088,798 7,733.153 5,558,102 5,822,739 6,352,012

Total

Total minus latest year

15,116.921

8,350.300

15,805.425

8.716,627

17.182.433

9,449,280

12.068,580

6.510.478

12,618.956

6,796.217

13,719,704

7.367,692

Notes: Net of anticipated salvage and subrogation recoveries. Includes assessment accrual for case reserves. (2H4).(5)-(7): Exhibit 3. Sheet 1

MILLIMAN USA l:l119FCCU4MrE(nEXCEL13XI2l(nE3ERVE GTVOV AS OF 12-31-OI.XLS]

First Cardinal Corporation Empire State Transportation Workers' Compensation Trust

Summary of Undiscounted Loss & AI_AE Reserves as of 12/31/2001

(1) (2) (3) (4) (5) (6) (7)

Exhibit 2

(8) (9)

Accident Year Ending 12/31/XX

Estimated Estimated Estimated Point Low High

Selected Paid Incurred Loss & Al_AE Loss & ALAE Loss & ALAE Ultimate Loss & ALAE Loss & ALAE Reserves as of Reserves as of Reserves as of

Loss & ALAE as of 12/31/2001 as of 12/31/2001 12/31/2001 12/31/2001 12/31/2001 Earned

Premium

Loss Ratio

<2)/(8)

1995 1996 1997 1998 1999 2000 2001

1,015,794 2,728,775 2,389,875 2,406.986 3,980,292 6,048,228 7,565,794

837,610 2,018,454 1,518,609 1,500,971 1,979,427 2,302,302 1,014,149

Total 26,135,744 11,171,522

921.878 2,509,759 2,196,576 2,088,573 3,494,449 4,629,758 4,548,413

20.589,406

178.184 710,321 871,266 906.015

2,000.865 3,745,926 6,551,645

169,275 674,805 827,703 860,714

1,900,822 3.558,630 6,224,063

196.002 781,353 958,393 996,617

2.200,952 4.120,519 7,206,810

2,164.352 4,975,929 5,069,000 4,802,436 5,770,831 7,411,333 9,688,455

0.469 0.548 0.471 0.501 0.690 0.816 0.781

14,964,222 14.216,012 16,460,646 39,882.336 0.655

Notes: Gross of anticipated salvage and subrogation (2); Exhibit 4, Sheet 1

(3), (4), (8): Provided by First Cardinal Corporation (5): = (2) - (3) (6): = (5) X 95.0% (7): = (5) X 110.0%

MILLIMAN USA mtsrt>smA*JtiiMx:ti'aocirfpEaeiivfTuaYtaom-t\-«xja*i

First Cardinal Corporation Empire State Transportation Worlters* Compensation Trust

Summary of Discounted Loss & ALAE Reserves as of 12/31/2001 (Including Assessment Accrual)

Exhibit 3 Sheet 1

(1) (2) (3) (4) (5) (6) (7) (8)

Estimated Estimated Estimated Discounted Discounted Discounted

Low Point High Low Point High

Loss & AI-AE Loss & ALAE Loss & ALAE Reserve Loss & ALAE Loss & AI_AE Loss & ALAE

Accident Year Reserves as of Reserves as of Reserves as of Discount Reserves as of Reserves as of Reserves as of

Ending 12/31/XX 12/31/2001 12/31/2001 12/31/2001 Factor 12/31/2001 12/31/2001 12/31/2001

1995 157.815 . 165,076 179,598 0.7078 111.701 116.841 127.119

1996 725,469 757,505 821,575 0.7181 520.959 543,964 589,973

1997 817.315 851,447 919,711 0.7027 574.327 598,312 646.281

1998 896,544 936,273 1,015,731 0.7554 677,249 707,261 767.283

1999 2.020.973 2,108,011 2,282,086 0.7977 1,612.130 1,681.560 1.820,420

2000 3,732,184 3.898,315 4,230,579 0.8076 3.014.112 3.148,279 3.416,616

2001 6.766,621 7,088,798 7,733,153 0.8214 5.558.102 5.822,739 6.352.012

Total 15.116,921 15,805,425 17,182,433 12.068.580 12.618,956 13,719.704

Notes: Net of anticipated salvage and subrogation recoveries. Includes accmal assessment for case reserves. (2). (3), (4): Exhibit 6 and Exhibit 9

(5): Discount factors are based on IRS publication (6): = (2) X (5) (7):=(3)x(5) (8): = (4) X (5)

MILLIMAN USA IM 1SFCC\MASTEW£XCeU200a(RESERVE STUDY AS OF 12-31-0IJ(L8I

First Cardinal Corporation Exhibit 3 Empire State Transportation Workers' Compensation Trust Sheet 2

Retrospectives Analysis

(1) (2)

Selected Ultimate

(3)

Prior Ultimate

(4) (5)

Loss & ALAE Loss & ALAE Percent Accident Year as of as of Difference Difference

Ending 12/31/XX 12/31/2001 12/31/2000 (2)-(3) (4) / (3)

1995 1.015,794 1,175,131 (159,337) (13.6%) 1996 2,728,775 3.124,256 (395,481) (12.7%) 1997 2,389,875 2,931.039 (541,164) (18.5%) 1998 2,406.986 2,896,588 (469,602) (16.9%) 1999 3.980.292 5,109,046 (1,128.754) (22.1%) 2000 6,048,228 6,006,110 42,118 0.7%

Total 18,569.950 21.242,170 (2.672,220) (12.6%)

Notes: (2): Exlilblt 4, Sheet 1 (3): From Mllliman prior report evaluated 12/31/00

MILLIMAN USA IA11SFCC1MlUTERCXC£l.a(n2V*E3EIIVE STUDY AS or 13-3141 XLS]


ExhiBIt 4 Sheet 1

Summary of Methods

0) (2) (3) (4) (5) (6) (7) (8) (9) (10)

[ Estimated Ultimate Loss & ALAE Based on: 1

Paid Incurred Selected Accident Year Paid Incurred Bomhuetter- Bomhuetter- Weight to Weight to Weight to Weight to Ultimate

Endinq 12/31/XX Development Development Ferquson Ferquson (2) (3) (4) (5) Loss & ALAE

1995 1,028,585 1,003,003 1,056,184 1,017,064 0.500 0.500 0.000 0.000 1,015,794 1996 2,726,931 2,730,618 2,830,761 2.762.824 0.500 0.500 0.000 0.000 2,728.775 1997 2.262,727 2.389,875 2,482,921 2,433,990 0.000 1.000 0.000 0.000 2,389.875 1998 2,518,629 2,295,342 2,671,193 2,349,266 0.500 0.500 0.000 0.000 2.406,986 1999 3.948,957 4.011.627 4.528,841 4,153.516 0.500 0.500 0.000 0.000 3.980.292 2000 6,117,216 5.979,240 6,050.115 5,982.931 0.500 0.500 0.000 0.000 6.048.228 2001 6,800,883 7.973.368 6,895.893 7,520.387 0.000 0.500 0.000 0.500 7.565.794

Total 25,403,928 26,383.073 26,515,908 26,219,978 26.135,744

Notes; (2): Exhibit 4. Sheet 2 (3): Exhibit 4. Sheet 3 (4); Exhibit 4, Sheet 4 (5): Exhibit 4, Sheet 5

(10): = [(2) x (6)] -f [(3) X (7)] + [(4) x (8)] + [(5) x (9)] For 2001, excess insurancerecovery of $181,084 was subtracted out

MILLIMAN USA l:M1SFCC«WSTCn<XCELiaaa2>(RESERVElTllOVASOFIM1-OIJCU]

First Cardinal Corporation Exh[bif4

1 Empire State Transportation Workers' Compensation Trust Sheet 2

Paid Development Method -

(1) (2) (3)

Paid

(4) (5)

Estimated Loss & ALAE Cumulative Ultimate

Accident Year Age as of Development Loss&AI^E Ending 12/31/XX (in Months) 12/31/2001 Factors (31 X (41

1995 64 837,610 1.228 1.028.585 1996 72 2.018,454 1.351 2,726,931 1997 60 1.518,609 1.490 2.262,727 1998 48 1.500,971 1.678 2,518,629 1999 36 1,979.427 1.995 3,948.957 2000 24 2,302.302 2.657 6.117.216 2001 12 1,014,149 6.706 6.800,883

Total 11,171.522 25.403.928

Notes: (3): Provided by First Cardinal Corporation (4): Exhibit 6, Sheet 1

MILLIMAN USA 111 ivnxtuTEiMicawiaTfvwtM men M or iMi«i ja.q


Incurred Development Method

(1) (2) (3) (4)

Exhibit 4 She«t3

(5)

Incun-ed Estimated Loss & ALAE Cumulative Ultimate

Accident Year Age as of Development Loss & ALAE Ending 12/31/XX (in Months) 12/31/2001 Factors (3) X (4)

1995 84 921.878 1.088 1,003,003 1996 72 2,509,759 1.088 2,730,618 1997 60 2,196,576 1.088 2,389,875 1998 48 2,088,573 1,099 2.295.342 1999 36 3,494.449 1.148 4.011,627 2000 24 4,829,758 1.238 5,979.240 2001 12 4,548.413 1.753 7,973,368

Total 20.589,406 26,383,073

Notes: (3): Provided by First Cardinal Corporation (4): Exhibit 6, Sheet 2

MILLIMAN USA tAII5FCC«iVkSTER1£XCELUaa»nESERVE «TW)Y**OF l»l«1J(L(|


Paid Bomhuetter-Ferguson Method

(1) (2) (3) (4) (5) (6)

Exhibit 4 Sheet 4

(7)

\ Paid Estimated

Cumulative Remaining Remaining Loss & ALAE Ultimate Accident Year Expected Development Development Reserves as of Loss & ALAE

Ending 12/31/XX Loss & ALAE Factors 1.0-n .0/(3)1 (2) X (4) 12/31/2001 (5) + (6)

1995 1,175,131 1.228 0.186 218.574 837,610 1,056.184 1996 3.124,256 1.351 0.260 812,307 2,018,454 2.830.761 1997 2.931,039 1.490 0.329 964,312 1,518.609 2.482.921 1998 2.896,588 1.678 0.404 1.170.222 1.500,971 2.671.193 1999 5,109,046 1.995 0.499 2.549,414 1,979,427 4.528,841 2000 6.006,110 2.657 0.624 3.747,813 2,302,302 6,050,115 2001 6,911,567 6.706 0.851 5.881.744 1,014,149 6,895,893

Total 26.153,737 15,344.386 11,171.522 26,515,908

Notes (2) (3) (6)

2000 and prior from Milliman study evaluated as of 12/31/00; 2001 from exhibit 6 Exhibit 4, Sheet 2 Provided by First Cardinal Corporation

MILLIMAN USA IAI15FCC1MWHR1£XCEt.«>»1(REKNVE«'njDV*3 0F 13.31.01 XLt]


" ™ " ■ ■ ■■ IHi 1

Exhibit 4 Empire State Transportation Workers' Compensatio n Trust Sheets

Incurred Bomhuetter-Ferguson Method

(1) (2) (3) (t) (5) (6)

Incurred

(7)

Estimated Cumulative Remaining Remaining Loss & ALAE Ultimate

Accident Year Expected Development Development Reserves as of Loss & ALAE Endinq 12/31/XX Loss & ALAE Factors 1.0-MO/(3)1 (2) X (4) 12/31/2001 (5) + (6)

- 1995 1.175.131 1.088 0.081 95,186 921.878 1,017,064 1996 3,124,256 1.088 0.081 253,065 2,509,759 2.762.824 1997 2,931,039 1.088 0.081 237,414 2,196,576 2.433.990 1998 2.896,588 1.099 0.090 260,693 2,088,573 2.349.266 1999 5,109,046 1.148 0.129 659,067 3,494,449 4.153,516 2000 6,006,110 1.238 0.192 1.153,173 4.829,758 5,982,931 2001 6,911,567 1.753 0.430 2,971,974 4,548,413 7.520,387

Totat 28,153.737 5.630,572 20,589,406 26.219,978

Notes: (2): 2000 and prior from Milliman study evaluated as of 12/31/00; 2001 from exhibit 6 (3): Exhibit 4, Sheet 3 (6); Provided by First Cardinal Corporation

MILLIMAN USA IM ISFCC«MSTERCXCE112(KQ'<RE9EI1VE STTJOV AS OP tMI JH J<L3]


Exhibit 5

Expected Ultimate Losses - Accident Year 2001

Item

Indemnity

Medical

ALAE

0)

Paid to Date

(2)

Paid Age-UIt

LDF

(3)

Estimated Ultimate

(4)

Incurred to Date

413,263

572,967

27,919

11.000

3.528

12.028

4,545,893

2.021,428

335,810

2,214,141

1.960,987

373,285

(5)

Incurred Age-UIt

LDF

2.185

1.389

1.571

(6)

Estimated Ultimate

4.837,898

2,723,811

586,431

(7)

Selected Expected Ultimate

4,691.896

2,372.620

461.121

Total 1,014.149 6.903,131 4.548,413 8.148,140 7.525.637

(8) Expected Ultimate Loss Ratio

(9) Earned Premium

(10) Expected Ultimate Losses

(11) Weight to (7)

(12) Weight to (10)

(13) Selected Expected Ultimate Losses

0.650

9.688,455

6.297.496

0.500

0.500

6,911.567

Notes: (1). (4). (9); Provided by First Cardinal Corporation

(2): Exhibit 6. Sheet 3 , Exhibit 6, Sheet 5 . Exhibit 6, Sheet 7 (3):=(1)x(2) (5): Exhibit 6, Sheet 4 , Exhibit 6, Sheet 6 . Exhibit 6, Sheet 8 (6);=(4)x(5) (7): Judgmentally Selected (8): Based on industry data

(10):=(8)x(9) (13): = 1(7) X (11)] +[(10) X (12))

IVIILLIIVIAN USA nnSFCCWMTEltlCXCELCDOZVIESCFIVE STUDf M OF IZ^I-OI JCL3|

First Cardinal Corporation Exhibit 6 Sheet 1

Cumuiative Paid Loss & ALAE

Accident at 12 at 24 at 36 at 48 at 60 at 72 at 84

Year Months Months Months Months Months Months Months

1995 417,338 537,055 704,347 723,394 838,501 955,940

1996 823,054 1.604,061 2,100,138 2,336,252 2,649,630 2,882,517

1997 678,838 1.933,432 2,572,877 3,082,884 3,523,878

1998 1.176,258 2,730,875 3,614,161 4,370,670 1999 2.156,171 5,860.549 7,887,929 2000 4.148,864 10,542.644 2001 5.903,036

Development Factors

Accident 12-24 24-36 36-48 48-60 60-72 72-84 84-Ult

Year Months Months Months Months Months Months Months

1995 1.287 1.311 1.027 1.159 1.140

1996 1.949 1.309 1.112 1.134 1.088 1997 2.843 1.331 1.198 1.143 1998 2.322 1.323 1.209 1999 2.718 1.346 2000 2.541 2001

Straight Average 2.476 1.319 1.208 1.101 1.124 1.140

Latest 5 Exd Hi/Lo 2.527 1.321 Weighted Average 2.524 1.332 1.189 1.126 1.103 1.140

Average, Latest 5 2.476 1.319 Average, Latest 3 2.527 1.333 1.173 1.101 Wtd Avg, Latest 5 2.524 1.332 Wtd Avg, Latest 3 2.558 1.337 1.181 1.126 Wtd Avg, Latest 2 2.602 1.339 1.205 1.139 1.103

Industry Averages 2.294 1.410 1.230 1.162 1.105 1.069 1.456

Latest Inc/Pd Ratios 4.405 1,862 1.575 1.348. 1.274 1.233 1.114

Selected 2.524 1.332 1.189 1.126 1.103 1.100 1.228

Cumulative 6.706 2.657 1.995 1.678 1.490 1.351 1.228 1.000

Notes: Data provided by First Cardinal Corporation

MILLIMAN USA l^1ISFCCUMSTE(n£XCEL<2CinVRESERVE STUDY A8 OF 1»1.0tXlS]


Cumuiative incurred Loss & AI^E

Accident at 12 at 24 at 36 at 48 at 60 at 72 at 64 Year Months Months Months Months Months Months Months 1995 1,057.568 1.070,393 1,066,504 980.256 1,067.542 1.065,114 1996 2,111,814 2.510,443 3.611,555 3,580,658 3,651.822 3,555,404 . 1997 2,137,070 4,443.782 4,303,373 4,481,138 4,487.996 1998 5,244,540 5,107,078 5,618,521 5,891,995 1999 8,083,564 11.618,349 12,419,841 2000 13,981,787 19.627,312 2001 25,955,379

Development Factors

Accident 12-24 24-36 36-48 48-60 60-72 72-84 84-Ult Year Months Months Months Months Months Months Months 1995 1.012 0.996 0.919 1.089 0.998 1996 1.189 1.439 0.991 1.020 0.974 1997 2.079 0.968 1.041 1.002

■ 1998 0.974 1.100 1.049 1999 1.437 1.069 2000 1.404 2001

Straight Average 1.417 1.118 1.019 0.980 1.032 0.998 Latest 5 Exd Hi/Lo 1.343 1.060 Weighted Average 1.372 1.092 1.029 0.999 0.998 0.998

Average, Latest 5 1.417 1.118 Average, Latest 3 1.272 1.046 1.027 0.980 Wtd Avg. Latest 5 1.372 1.092 Wtd Avg. Latest 3 1.331 1.055 1.031 0.999 Wtd Avg, Latest 2 1.416 1.078 1.045 1.010 0.998


Selected 1.416 1.078 1.045 1.010 1.000 1.000 1.088 Cumulative 1.753 1.238 1.148 1.099 1.088 1.088 1.088 1.000

Notes; Data provided by First Cardinal Corporation

MILLIMAN USA IMtSFCCWMTER1EXCELt2D(tlt(RES£RVC BIW)Y« Of IM141iaS|

First Cardinal Corporation Exhibit 6 Stieet 3

Cumulative Paid Indemnity

Accident at 12 at 24 at 36 at 48 at 60 at 72 at 84 Period Months Months Months Months Months Months Months 1995 155,361 210.609 340,653 350,275 441.103 550,757 1996 201.870 541,662 764,787 920,504 1.135,635 . 1.299,066 1997 202.453 656,340 968,928 1.294,135 1.649,655 1998 375,046 896,113 1,343,642 1.862,813 1999 705.885 2.092.530 3,347,506 2000 1,323.186 4,202,281 2001 2.298,829

Development Factors

Accident 12-24 24-36 36-48 48-60 60-72 72-84 84-Ult Period Months Months Months Months Months Months Months -1995 1.356 1.617 1.028 1.259 1.249 1996 2.683 1.412 1.204 1.234 1.144 1997 3.242 1.476 1.336 1.275 1998 2.389 1.499 1.386 1999 2.964 1.600 2000 3.176 2001



Industry Averages 2.361 1.635 1.336 1.224 1.140 1.089 1.528 Latest Inc/Pd Ratios 5.495 2.421 1.949 1.570 1.395 1.364 1.104



MILLIMAN USA lAllIFcc^MA^TCR^ExcEl.)^]av<ESERVEBTuClVA3 0rl^31'O•Jas|


Cumulative Incurred Indemnity

Accident at 12 at 24 at 36 at 48 at 60 at 72 at 84 Year Months Months Months Months Months Months Months 1995 615,400 628.554 587.988 510.503 599,833 607.804 1996 722,618 944.629 1,695.757 1,692,262 1,804.796 1,772,710 1997 871,331 2,250.205 2,106,357 2.249,172 2,302,175 1998 2,496.020 2,391.990 2.752.431 2,926,182 1999 3.869,058 5,923.124 6,530.921 2000 6.202,849 10,166.500 2001 12,664.433

Development Factors

Accident 12-24 24-36 36-48 48-60 60-72 72-84 84-Ult Year Months Months Months Months Months Months Months 1995 1.021 0.935 0.868 1.175 1.013 1996 1.307 1.795 0.998 1.066 0.982 1997 2.582 0.936 1.068 1.024 1998 0.958 1.151 1.063 1999 1.531 1.103 2000 1.639 2001


Average, Latest 5 1.603 1.201 Average, Latest 3 1.376 1.063 1.043 0.986 Wtd Avg, Latest 5 1.531 1.131 Wtd Avg, Latest 3 1.471 1.078 1.048 1.019 Wtd Avg. Latest 2 1.597 1.116 1.065 1.042 1.025




MILLIMAN USA iniisFccvMMTemExcELUoanRE8ERve STUDY *s of i»i.oi JCLSJ


Cumulative Paid Medical

Accident at 12 at 24 at 36 at 48 at 60 at 72 at 84 Period Months Months Months Months Months Months Months

1995 215,174 248,273 270,460 269.542 284.704 284,522 1996 576,250 907,513 1,092.361 1,118,790 1.198.934 1.241.185 1997 420,992 1,097,562 1.347.019 1.468,812 1.513,698 1998 744,844 1,676,618 2.019.554 2,189,803 1999 1,381,340 3,456,261 4.059.473 2000 2.665,920 5,732,820 2001 3,090,876

Development Factors

Accident 12-24 24-36 36-48 48-60 60-72 72-84 84-Ult Period Months Months Months Months Months Months Months 1995 1.154 1.089 0.997 1.056 0.999 1996 1.575 1.204 1.024 1.072 1.035 1997 2.607 1.227 1.090 1.031 1998 2.251 1.205 1.084 1999 2.502 1.175 2000 2.150 2001

Straight Average 2.217 1.193 1.072 1.033 1.046 0.999 Utest 5 Excl Hi/Lo 2.527 1.321 Weighted Average 2.223 1.192 1.072 1.043 1.039 0,999

Average, Latest 5 2.217 1.193 Average, Latest 3 2.301 1.202 1.066 1.033 Wld Avg. Utest 5 2.223 1.192 Wtd Avg, Latest 3 2.267 1.192 1.071 1.043 Wtd Avg, Latest 2 2.270 1.184 1.087 1.048 1.039

Industry Averages 2.243 1.223 1.107 1.070 1.046 1.033 1.313 Latest Inc/Pd Ratios 3.215 1.445 1.282 1.181 1.178 1.142 1.157



MILLIMAN USA unsFccwAsrEmExcEnaoajWESERVE STUDY *s OF I34I<I,XLSI


■ ■ ' " ■■ 1 " ■ ■ ■■ " ™

Exhibit 6 Sheet 6

Cumulative Incurred Medical

Accident at 12 at 24 at 36 at 48 at 60 at 72 at 64 Year Monttis Months Monttis Monttis Monttis Monttis Monttis 1995 357,764 340,406 362.356 346.574 339.712 329,146 1996 1,276,324 1,348,757 1,582.325 1,518,343 1,483,799 1,416.124 1997 1.038,907 1,822,328 1.821,539 1,826,973 1,783,233 1998 2,404,748 2,365,928 2.496,367 2,585,805 1999 3,744,879 5.054,811 5.205.086 2000 6,892,011 8.288.593 2001 9.931,497

Development Factors '

Accident 12-24 24-36 36-48 48-60 60-72 72-84 84-Ult Year Months Monttis Months Months Months Months Months 1995 0.951 1.064 0.956 0.980 0.969 1996 1.057 1.173 0.960 0.977 0.954 1997 1.754 1.000 1.003 0.976 1998 0.934 1.055 1.036 1999 1.350 1.030 2000 1.203 2001

Straig tit Average 1.270 1.042 1.016 0.970 0.967 0.969 Latest 5 Exci Hi/Lo 1.343 1.060 Weighted Average 1.229 1.045 1.008 0.975 0.959 0.969

Average, Latest 5 1.270 1.042 Average, Latest 3 1.179 1.028 1.000 0.970 Wtd Avg, Latest 5 1.229 1.045 Wtd Avg, Latest 3 1.205 1.030 1.005 0.975 V\Ad Avg, Latest 2 1.254 1.038 1.022 0.977 0.959

Industry Averages 1.392 1.072 1.032 1.025 1.031 1.021 1.237 # of Open Claims



MILLIMAN USA IAt1$FCCWASTER\EXCELI3ga3l(nESERVE STUOV AS OF 1^^1.01.XLG|


Cumulative Paid ALAE

Accident at 12 at 24 at 36 at 48 at 60 at 72 at 84 Period Months Months Months Months Months Months Months 1995 46,803 78.173 93.234 103.577 112.694 120,661 1996 44,934 154.886 242.990 296.958 315,061 342.266 1997 55,393 179.530 256,930 319.937 360,525 1998 56.368 158.144 250.965 318,054 1999 68.946 311.758 480,950 2000 159.758 587,824 2001 177,770

Development Factors

Accident 12-24 24-36 36-48 48-60 60-72 72-84 84-UIt Period Months Months Months Months Months Months Months 1995 1.670 1.193 1.111 1.088 1.071 1996 3.447 1.569 . 1.222 1.061 1.086 1997 3.241 1.431 1.245 1.127 1998 2.806 1.587 1.267 1999 4.522 1.543 2000 3.679 2001


Average, Latest 5 3.539 1.560 Average. Latest 3 3.669 1.520 1.245 1.100 Wtd Avg, Latest 5 3.612 1.539 Wld Avg, Latest 3 3.710 1.523 1.245 1.097 Wtd Avg. Latest 2 3.933 1.558 1.256 1.095 1.087

Industry Averages Latest Inc/Pd Ratios 9.259 1.938 1.422 1.195 1.116 1.071 1.063



MILLIMAN USA l:t1l9FCCWUTER<£XCElUD(»(RESERVEaTU[n'MOF13.31«1ja.S]


Cumulative Incurred ALAE

Accident at 12 at 24 at 36 at 48 at 60 at 72 at 84 Year Months Months Months Months Months Months Months 1995 84,404 101,433 116,160 123,179 127,997 128.164 1996 112,872 217,057 333,473 370,053 363,227 366,570 1997 226.832 371,249 375,477 404,993 402,588 1998 343.772 349,160 369,723 380.008 1999 469.627 640.414 683,834 2000 886,927 1,140,062 2001 1.640,745

Development Factors

Accident 12-24 24-36 36-48 48^0 60-72 72-84 84-Uit Year Months Months Months Months Months Months Months 1995 1.202 1.145 1.060 1.039 1.001 1996 1.923 1.536 1.110 0.982 1.009 1997 1.637 1.011 1.079 0.994 1998 1.016 1.059 1.028 1999 1.364 1.068 2000 1.285 2001

Straight Average ' 1.445 1.175 1.091 1.012 1.024 1.001 Latest 5 Excl Hi/Lo 1.343 1.060 Weighted Average 1.332 1.121 1.077 0.998 1.017 1.001




MILLIMAN USA lAtisFccwASTEFnExcELoooiVREaERvE sniDVAs OF l^^l4nJ<u]


Diagnostics: Case Reserves and Paid to Incurred Ratios

Case Reserves

Exhibit 7 Sheet 1

Accident at 12 at 24 at 36 at 48 at 60 at 72 at 84 Year Months Months Months Months Months Months Months 1995 640.230 533,338 362.157 256,862 229,041 109,174 1996 1,288,760 906.382 1,511.417 1.244.406 1.002.192 672.887 1997 1,458,232 2,510,350 1,730.496 1,396.254 964,118 1998 4.068,282 2,376,203 2.004,360 1,521,325 1999 5,927,393 5,757,800 4.531,912 2000 9,632.923 9,084,668 2001 20,052,343

Paid to Incurred Ratios

Accident at 12 at 24 at 36 at 48 at 60 at 72 at 84 Year Months Months Months Months Months Months Months 1995 0.395 0,502 0.660 0.738 0.785 0.8S8 1996 0.390 0.639 0.582 0.652 0.726 0.811 1997 0.318 0.435 0.598 0.686 0.785 1998 0.224 0.535 0.643 0.742 1999 0.267 0.504 0.635 2000 0.297 0.537 2001 0.227

MILLIMAN USA wi3BXM«aig«>CB.agni<n«j»VE >run «* iv u Ji it mil

First Ctrdlnal Corporation

Diagnostics: Case Outstanding per Open Claim and Closed to Reported Claim Ratios

Case Outstanding per Open Claim

Exhibit 7 Sheet 2

Accident at 12 al24 at 36 at 46 at 60 at 72 at 64 Year Months Months Months Months Months Months Months 1995 10,851 19,753 27.858 21,405 20,822 13,647 1996 5,176 7,617 19,629 25,396 29.476 35,415 1997 3.103 13.946 16,325 21,512 24,103 1998 7.112 12.707 18,732 25,355 1999 6.759 19,992 30.621 2000 10,361 22,712 2001 11.879

Exponential Trend All Years 24.7% 20.4% 8.7% Utast S 35.8% 29.0% 8,7%

(4.4%) 6.1%

Closed to Reported Claim Ratios

Accident at 12 at 24 at 36 at 48 at 60 at 72 at 84 Year Months Months Months Months Months Months Months 1995 0.520 0.852 0.929 0.935 0.940 0.957 1996 0.459 0.779 0.864 0.913 0.940 0.966 1997 0.466 0.835 0.904 0.941 0.964 1996 0.559 0.875 0.930 0.961 1999 0.477 0.850 0.924 2000 0.599 0.857 2001 0.545

MILLIMAN USA if^aomaiamaxiMOBifiacnKmoi tact n-^tm ILK


Exhibit 8

Calculation of Assessment Accrual for Case Reserves as of 12/31/2001

(1) (2) (3) (4) (5) (6) (7)

Discounted Assessment Assessment

Indemnity Indemnity Indemnity Accrual Reserve Accrual Accident Year Incurred Paid Case Reserves Assessment for Case Discount for Case

Ending 12/31/XX to Date to Date (1)-(2) Rate Reserves Factor Reserves

1995 540.675 485,257 55,418 35.83% 19,856 0.7078 14.054 1996 1,238,754 912.784 325,970 35.83% 116.795 0.7181 83.870 1997 1.179,923 708.781 471.142 35.83% 168.810 0.7027 118,623 1998 1.073.190 677,717 395.473 35.83% 141.698 0.7554 107.039 1999 1,930.002 905,000 1,025.002 35.83% 367,258 0.7977 292,962 2000 2,487,529 880,833 1,606.696 35.83% 575,679 0.8076 464.918 2001 2.214.141 413.263 1.800.878 35.83% 645.255 0.8214 530,012

Total 10.664,214

Notes

4.983,635 5,680,579 2,035.351 1.611,478

(1),(2),(4) Provided by First Cardinal Corporation (5) = (3) <(4) (6) Discount factors are based on IRS publication (7) = (5) <(6)

MILLIMAN USA l:\ttSFCCWA3TER\EXCEL\2002XRESERVE STUDY AS OF 13-31.01.XLS]

First Cardinal Corporation Empire SUta Transportation Wor*»ra' Compensation Trust

Exhttit 9

Calculation of Anticipated Salvage and Subrogation Recoveries

(1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12) (13)

Actual and Low Estimate High Estimate Reserves Net Reserves Net Reserves Net Accident Year Actual PakJ Ratio Anticipated Incurred Ratio Selected Un discounted Undlscounted Undlscounted of Recoveries of Recoveries of Recoveries

Ending 12/31/XX Recoveries Loss & ALAE (1)/(2) Recoveries Loss & ALAE (4)/(5) Ratio Resetves Reserves (B)xti.o-mi

145.220

O)xri.0-(7)l

137.959

(10) X 11.0-(7)1

159,742 1995 146,990 837,610 0.175 180,000 921.878 0.195 0.165 178.184 169,275 196,002 1996 214,859 2.018.454 0.106 227.119 2,509,759 0.090 0.098 710,321 674.805 781,353 640.710 608,674 704,780 1997 369.135 1,518.609 0.243 416.643 2,196,576 0.190 0.217 871,266 827,703 956,393 682.637 648.505 750.901 1998 197.737 1.500,971 0.132 237.134 2,088,573 0.114 0.123 906,015 860.714 996,617 794,575 754.846 874.033 1999 199,028 1,979.427 0.101 554,321 3,494.449 0.159 0.130 2,000.365 1.900,822 2,200.952 1,740,753 1,653,715 1,914,828 2000 135,589 2,302,302 0.059 805,622 4,829.758 0.167 0.113 3,745.926 3.558,630 4,120,519 3.322,636 3.156,505 3,654,900 2001 2,853 1,014,149 0.003 135.324 4.548,413 0.030 0.017 6,551.645 6,224,063 7,206,810 6,443,543 6.121,366 7,087,898

Total

Notes: (1), (4): Provided by First Cardinal Corporation

(2), (5). (B), (9), (10): Exhibit 2 (7): Judgmentally selected

MILLIMAN USA •V UBse—*i iunji.cnj,i;i>iLKjiiiL (nov *i cr t].)>«Liuq

a milliman global firm hd millimanusa · fcc has asked milliman usa. inc. ("milliman") to...

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