Workers’ Comp Industry Is Stable

Laptop Workers' Comp Charts

Workers’ Comp Industry Is Stable

Despite recent weakening in workers’ compensation market fundamentals, this year the workers’ comp market should see a fifth consecutive year of underwriting profits.

The industry’s statutory combined ratio fell to 86% in 2018, having averaged 93% annually since 2015, notes a Fitch Ratings report, “U.S. Workers’ Compensation Market Update – Fifth Consecutive Year of Underwriting Profits Projected for 2019.”

Fitch notes that in 2018, positive results were partially the result of recognition of greater reserve redundancies, which totaled approximately 15% of segment earned premiums. Improved loss control, says Fitch, will impact favorable reserve development in the future.

As expected, most large underwriters posted favorable underwriting profits in the workers’ compensation segment over the last five years, with Berkshire Hathaway and Chubb leading the market with the lowest five-year average segment combined ratios.

Workers’ Comp Strength

Workers on Stairs

Fitch said it maintains a stable sector outlook for U.S. commercial lines insurers based on solid market fundamentals and capital adequacy measures that can withstand significant adversity in future performance. For several insurers, strength in the workers’ compensation segment offsets recent weaker results in other lines.

As reported in the Insurance Journal, Fitch questions how long the good news will last:

“The workers’ compensation segment is known for past periods of volatility, but recent experience represents an unprecedented level of underwriting success,” Gerry Glombicki, director of Insurance at Fitch Ratings. “However, all good things eventually come to an end, and these favorable underwriting profits are not sustainable in the long term in light of competitive forces, recent price deterioration and potential for future claims trend deterioration.”

Recent regulatory rate filings reveal that underwriters are reducing prices in nearly all states, Fitch noted.  The Insurance Journal report noted that several factors can promote a sudden deterioration in performance including an increase in claims frequency or severity along with new regulatory developments in key states, according to Fitch analysts. These issues are not a near-term threat but should be watched, added Fitch.

Photo courtesy of Carlos Muza