Last month, the National Association of Insurance Commissioners (NAIC) released its “Report on Profitability by Line by State” for calendar year 2003 (see CWCI Bulletin 05-07). The NAIC report provides complete, direct income statement data for every line of insurance for every state compiled from insurer annual statements reported to the NAIC each December for the preceding calendar year. It includes breakdowns of all elements of underwriting results, as well as investment income, pretax gain or loss, federal income taxes, after tax gain or loss, surplus and after-tax rate of return on surplus.
NAIC has published this report for many years, and because it is compiled by the insurance regulators’ association, it is a considered one of the most objective tools for tracking the profitability of various lines of insurance over time and for comparing results across different states.
Following release of the 2003 results, the California Workers’ Compensation Institute asked veteran market analyst Fred Hill to review and summarize the 2003 results. Hill produced two analyses: the first breaks out workers’ comp industry results for California, the 44 other states without monopolistic state funds, and for the nation as a whole; the second compares results from the 10 largest states (based on earned premium), the remainder of the states, and the nation.
The NAIC reports that for the first time in 5 years, California workers’ comp insurers turned a profit in 2003, though the 3.4 percent return on surplus was less than half the 6.9 percent earned by workers’ compensation insurers nationwide, and the 7.1 percent return for insurers in the 44 other states without monopolistic state funds.
Overall, California insurer profits ranked 40th out of the 45 states in 2003. Nevertheless, following four straight years of losses and a record -11.5 percent after-tax return on surplus in 2002, the latest results were welcome news, and a positive sign that the health and stability of the California workers’ comp market is improving, which is also evidenced by the growing number of workers’ comp insurers returning to California and the ongoing decline in premium rates as recent legislative reforms are implemented.
Hill notes, however, that to a great extent, the prospects for continued improvement will hinge on the continued implementation and success of the 2002-2004 legislative reforms.
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