Chicago, IL -(BusinessWire)- Underwriting results for the U.S. workers’ compensation market are set to improve over the remainder of 2013 reversing several years of poor performance, according to a new Fitch Ratings report.
Workers’ compensation is the largest segment of all U.S. commercial lines, representing 18% of property/casualty industry commercial lines net written premiums in 2012.
Workers’ compensation has been the worst-performing major commercial lines segment for some time. However, the 2012 industry aggregate segment combined ratio improved to 110% from 117% in the prior year. Fitch projects a 105% workers’ compensation calendar year combined ratio in 2013.
Following a long period of declining premium rates, workers’ compensation pricing has increased for two consecutive years, with little sign that pricing trends will reverse in the near term. The Council of Insurance Agents & Brokers most recent commercial lines market survey indicates that workers’ compensation rate hikes are accelerating with a nearly 10% increase in first-quarter 2013.
Fitch notes that workers’ compensation claims costs are influenced greatly by medical cost factors that tend to expand at a higher rate than general inflations. Healthcare costs in 2012 were a bit more stable than historical patterns, but sustainability of this trend is questionable given pending implementation of healthcare reform in the U.S. A return to economic stability is promoting a return to declining claims frequency trends.
Loss reserves in the workers’ compensation segment have developed adversely for the last four consecutive years. Fitch’s analysis suggests that the industry’s loss reserve position in workers’ compensation remain inadequate.
Given the prominence of workers’ compensation as a percentage of many insurers’ book of business, continued market hardening and underwriting improvements promote earnings stability that is viewed favorably from a credit perspective. Reductions in workers’ compensation loss reserve deficiencies and uncertainty would also contribute towards stability of insurer ratings at current levels.
The report ‘Workers’ Compensation Insurance Market Update’ dated June 21, 2013, is available at ‘www.fitchratings.com‘ under ‘Insurance’ and ‘Special Reports’.