NCCI Holdings, Inc., delivered its “State of the Workers Compensation Insurance Line” presentation to an estimated 500 insurance executives at the NCCI Annual Issues Symposium (AIS) in Orlando, Fla., claiming the state of the workers’ comp market remains tough with early 2001 results indicating one of the year’s worst performances in the market’s history.
NCCI reported a combined ratio of 121 percent for the 2001 workers’ compensation insurance calendar year. With a gain of 3 points from the 2000 combined ratio of 118 percent, this year’s results mark the sixth straight year of falling combined ratios.
During the mid-1990s, the combined ratio for workers compensation hovered around 100 (1994-1997), which is considered excellent for a long-tailed line like workers compensation. Unfortunately, that trend could not be maintained, and starting in 1998, the combined ratio began to move back to levels last seen in the early 1990s.
NCCI reported that less than 2 percentage points—or $500 million—of the Calendar Year 2001 combined-ratio on a net basis is attributable to claims resulting from the terrorist attacks of Sept. 11. This impact is substantially less than originally expected because the vast majority of losses were ceded to reinsurers and will not appear in the workers’ compensation line on a net-of-reinsurance basis.
NCCI noted that as additional claims, such as respiratory diseases and stress, become more certain, the real impact of Sept. 11-related claims will likely change. NCCI also noted that investment income associated with workers’ compensation insurance transactions fell drastically in 2001 to an estimated 14 percent—down from approximately 20 percent during 1997-2000. The decrease in investment income is due to drastically lower interest rates, as well as a drop in realized capital gains.
Incorporating the combined ratio with the investment gains results in a pretax operating loss for workers’ compensation of 7 percent, according to the numbers compiled by NCCI. From a historical perspective, 2001 marks the fourth straight year of declining pretax operating ratios and the first year to show a pretax loss since 1992.