Fitch Sees Improving Workers’ Comp Market, But Warns Earnings May Be at Cyclical Peak

August 17, 2004

Fitch Ratings has issued a brief comment noting that it expects the workers’ compensation insurance market to continue to improve in 2004.

However, the new report warns that profitability may peak in 2004 as pricing momentum has moderated and is less likely to keep pace with future loss cost changes. “While underwriting results have improved significantly in the last two years, current information indicates that rates are flat or declining for a significant portion of workers compensation buyers,” stated James Auden, Senior Director, Fitch Ratings.

“Other factors affecting workers compensation profitability are recognition of unfavorable reserve development from prior underwriting periods and the effect of relatively low yields on investments,” said the bulletin. “Workers’ compensation insurers need to produce a significant underwriting profit to earn an adequate return on capital in the current investment climate,’ Auden continued.

A full copy of the report ‘Workers’ Compensation Insurance: Improvement Shown – Room For More,’ is available on the Fitch Ratings web site at ‘www.fitchratings’ in the ‘special reports’ section corresponding with the ‘insurance sector’ or by contacting the Ratings Desk at +1-800-893-4824.

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