Workers’ Compensation Continues to Lead P/C industry With Strong Profits

Although economic uncertainty could affect insurers in the near to midterm, the workers’ compensation line continues to be a key driver of the profitability of the entire property/casualty insurance industry even as workers’ compensation prices are falling, according to a new AM Best report.

The line remained profitable in 2024 with a combined ratio of 88.8, the lowest among the major property/casualty lines of business, even as net premium written for the industry fell nearly 7% due to the rate decreases and pricing cuts, says Best’s aptly titled market report, “Workers’ Compensation Continues With Strong Profits, Despite Pricing Cuts.”

The picture isn’t expected to change. Midyear results indicate 2025 will be another profitable year and another year with a decrease in premium in line with more rate decreases.

Christopher Graham, senior industry analyst, Industry Research and Analytics, AM Best, noted that workers’ compensation underwriting profits over the past decade have been largely attributable to favorable prior-year loss development. “While the reserve cushion appears to be shrinking, it is expected to provide benefits to calendar-year profitability in the medium term,” Graham added.

California remains the state with the largest share of national workers’ compensation premium, with more than 20% of direct premium written in the country, and twice as much as any other state. The top 10 states represent more than 60% of the national premium. According to AM Best, as good as the overall results were in 2024, in six of these top 10 states, results were even better: the statewide combined ratio was better than the national combined ratio.

The report touches on what forces could alter the positive outlook. For one, the segment’s payroll exposure base is susceptible to macroeconomic shocks, the report points out. AM Best sees the possibility of a recession, tariff and immigration policies, and legislative changes as potential headwinds for this line of business.

“A key question for the workers’ compensation line is how much longer will rate and pricing declines continue and cause dissipating profit margins before insurers begin to hold the line on pricing, since, for many companies, workers’ compensation profits help offset more uncertain underwriting results for other lines of coverage,” said David Blades, associate director, Industry Research & Analytics.

Source: AM Best

Topics Profit Loss Workers' Compensation Talent Market Property Casualty