NCCI State of the Line Report Reveals Positive Outlook for Workers’ Compensation Market

The workers’ compensation industry had a pretty good 2014 in which its combined ratio improved for the third consecutive year, premium grew for the fourth consecutive year, and claim frequency declined about two percent.

But the results in 2014 were not enough to relax officials at the industry’s rating and statistical organization, the National Council on Compensation Insurance (NCCI).

The “State of the Line Report,” released during NCCI’s Annual Issues Symposium held in Orlando, Fla., in May, described the current state of the industry as “calm now … but turbulence ahead.”

The most recent results show that 2014 was a good year for the industry — and that follows solid results in 2013, said NCCI President and CEO Steve Klingel. “It would be great if these results marked the beginnings of a new trend line, but ours is a business that runs in cycles. And despite the current calm conditions, we are anticipating turbulence ahead.”

NCCI says that among the challenges facing the workers’ compensation industry are that claim severity increased slightly more than inflation measures for indemnity and medical costs and a continuing low-interest-rate environment threatens investment results over the long term.

Also, while premium volume continues to increase, construction and manufacturing employment totals remain well below pre-recession levels, which is restraining even higher premium growth rates.

But not all industries faltered during the recession.

Kathy Antonello, NCCI’s chief actuary, outlined the report’s latest findings and provided an example of the recession’s impact on the clerical/professional class payroll, the largest payroll class.

Between 2004 and up to the recession in 2008 there was an increase in payroll, she said. That increase remained evident for instructional/medical professions during the recession, she added. Fast food/restaurants and telecommuters are two other classes that also showed marked growth during the recession.

Results

Private carrier net written premium across all property/casualty lines of insurance increased by $19.6 billion in 2014 to a total of $496.6 billion, Antonello said. Workers’ compensation, in particular, increased by 4.6 percent, driven primarily by an increase in estimated payroll.

Workers’ compensation showed improvement in net combined ratio, coming in at 98 percent.

“Certainly, this underwriting cycle was milder than the last,” Antonello said.

Net incurred losses to earned premium came in at 58 percent, a drop of three points from 2013.

Antonello said this was the “largest contributor the to drop in combined ratio.”

Workers’ comp net incurred loss adjustment expense (LAE) to earned premium remained flat at 14 percent. Net incurred LAE to incurred losses revealed an increase from 2013 to 25 percent, the highest recorded since 1998. Antonello said the driver was an increase in defense and cost containment expenses.

Other lines’ combined ratios increased partly as a result of an increase in catastrophe losses, said Antonello. Overall combined ratios under 100 have only occurred in five of the last 30 years.

Net investment income has fallen every year since 2011, she said, noting that 2014 came in at 11.5, down 1 percent from 2013. Between 1985 and 2013, the average has been 15.2 percent.

According to Antonello, the embedded yield remains higher than new money yield, which has declined for the past 30 years.

Private carrier premium to surplus ratio is at a historic low, which indicates a well-capitalized market.

Topics Trends Workers' Compensation Talent