Report: Workers’ Compensation Premium Grows But Market Results Still ‘Conflicted’

Workers’ compensation premium grew by 7.4 percent in 2011, a positive sign for the state of the line. However, the combined ratio for the workers’ comp line remains at an unsustainable level, according to a new report.

In its annual State of the Line workers’ compensation market analysis, the NCCI based in Boca Raton, Fla., says the current state of the market remains “conflicted” at best.

The workers’ compensation calendar combined ratio held firm at 115 in 2011, the same number as in 2010.

The NCCI observed a number of countervailing indicators in current industry conditions, said NCCI President and CEO Steve Klingel.

“In some ways, we are seeing an improved condition from 2010. By other measures, however, the market remains in a worrisome state,” Klingel said. “In sum, we see a market that is conflicted as to its forward trajectory, and that makes for a challenging environment.”

“Workers’ compensation, because of its direct connection to employment and the labor markets, has been the property/casualty line most significantly impacted by the continued difficult economic environment,” said NCCI Chief Actuary Dennis Mealy. “Combined ratios remain at unsustainably high levels, and investment returns are not sufficiently high to generate operating returns near the cost of capital.”

Mealy says on a more positive note, the growth in written premium provides strong support that the worst of the recession has passed, and the industry is well capitalized for the future.

While the overall market remains challenging, the good news may be that results have held steady during the past year.

The workers’ compensation calendar year combined ratio for private carriers was 115 in 2011, the same result as in 2010, and all of the underlying components were also remarkably stable, the NCCI reported. However, for the third straight year, worker’s compensation holds the distinction of having the highest combined ratio of all the major commercial lines.

In terms of premium (including state funds), net written premium increased to $36.3 billion in 2011. This 7.4 percent increase in premium is the first increase since 2005, and a welcome shift following the cumulative 27 percent decline in premium from 2006–2010.

Other market indicators/trends highlighted in NCCI’s 2011 State of the Line report include:

Moving forward, the NCCI says it will continue to closely monitor trends and developments in claims frequency, an uncertain underwriting cycle, the as-yet-unknown impact from healthcare and financial services reforms, including the Federal Insurance Office (FIO), and new efforts to introduce alternatives to workers compensation.

The entire NCCI State of the Line presentation can be found at www.ncci.com.

Source: NCCI