Workers' compensation insurers barely broke even last year, according to figures recently released by the National Council on Compensation Insurance (NCCI) in its "State of the Line" market analysis. The firm's projection for the 2008 accident year combined ratio is 100. Low interest rates and poor equity market performance leaves the line with "post-tax returns that barely meet the industry's cost of capital," said NCCI president and chief executive officer Steve Klingel. Other drivers included rising medical and indemnity costs, uncertainty about possible state and federal legislation, and other variables. For 2007, NCCI had projected a combined ratio of 99--a figure now revised to 96. NCCI said the projected calendar-year combined ratio for 2008 was 101--a figure that would have been 106 had California results been excluded. The accident-year ratio, however, would be unchanged by leaving out California, according to the analysis. NCCI said the long-term outlook is "cautionary," as net written premiums for private carriers dropped about $34 billion, or 10 percent. In addition, NCCI estimated a private carrier reserve deficiency of $6 billion for 2008, compared with a $2 billion deficiency the year before. However, the figure is considered adequate after allowing for discounting of indemnity reserves of lifetime pension cases. Continuing an uninterrupted trend, accident frequency declined by 4 percent in 2008, compared with a decline of 2.6 percent in 2007. NCCI economists have found that additional frequency decreases in a recession are common. The NCCI evaluation also found that the residual insurance market is depopulating rapidly. In 2008, premium dropped about 30 percent to about $700 million--half of 2004's volume. Klingel said that NCCI was encouraged by the fact that despite the economic restraints on companies in this recession and fears of flu contagion, attendance at the conference was down by only 2 percent, with 675 people registered. Read NCCI's full "State of the Line" report at www.ncci.com.
From the June 2009 issue of American Agent & Broker • Subscribe!
Industry IQ: Workers' comp barely broke even in 2008
Workers' compensation insurers barely broke even last year, according to figures recently released by the National Council on Compensation Insurance (NCCI) in its "State of the Line" market analysis. The firm's projection for the 2008 accident year combined ratio is 100. Low interest rates and poor equity market performance leaves the line with "post-tax returns that barely meet the industry's cost of capital," said NCCI president and chief executive officer Steve Klingel. Other drivers included rising medical and indemnity costs, uncertainty about possible state and federal legislation, and other variables. For 2007, NCCI had projected a combined ratio of 99--a figure now revised to 96. NCCI said the projected calendar-year combined ratio for 2008 was 101--a figure that would have been 106 had California results been excluded. The accident-year ratio, however, would be unchanged by leaving out California, according to the analysis. NCCI said the long-term outlook is "cautionary," as net written premiums for private carriers dropped about $34 billion, or 10 percent. In addition, NCCI estimated a private carrier reserve deficiency of $6 billion for 2008, compared with a $2 billion deficiency the year before. However, the figure is considered adequate after allowing for discounting of indemnity reserves of lifetime pension cases. Continuing an uninterrupted trend, accident frequency declined by 4 percent in 2008, compared with a decline of 2.6 percent in 2007. NCCI economists have found that additional frequency decreases in a recession are common. The NCCI evaluation also found that the residual insurance market is depopulating rapidly. In 2008, premium dropped about 30 percent to about $700 million--half of 2004's volume. Klingel said that NCCI was encouraged by the fact that despite the economic restraints on companies in this recession and fears of flu contagion, attendance at the conference was down by only 2 percent, with 675 people registered. Read NCCI's full "State of the Line" report at www.ncci.com.
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