NU Online News Service, July 18, 12:00 p.m.EDT

As the workers' compensation line continues to experience poorunderwriting results and strong momentum toward rate increases,more companies are turning toward forming captives to combat risingcosts, a Marsh executive says.

Speaking today during a Webinar to discuss the Marsh GlobalInsurance Market Quarterly Briefing, Jonathan Zaffino, leaderof Marsh's U.S. Casualty Practice, noted that workers' comp.remains one of the few casualty lines still experiencing asignificant pull on rates. This line, he notes, “has experiencedanother difficult year in 2011” with a combined ratio of 115, theworst seen since 2001, and the third straight year the line has ledall commercial lines with the highest combined ratio.

Indemnity and medical costs continue to rise, he adds, and this,along with poor investment earnings, “leads to a relatively bleakpicture” for workers' comp., says Zaffino.

Julie Boucher, Marsh's Americas leader in Captive SolutionsPractice, says the broker has seen more use of captives to mediatethe escalating costs of workers' comp. She says companies are usingcaptives in a range of ways to control costs, from covering acompany's deductibles to insuring the company's entire workers'comp program.

She notes that, according to Marsh's benchmarking report, 20percent of the firm's captives have workers' comp in theirinsurance programs, ranked third behind property (35 percent), andgeneral third-party liability (32 percent).

Speaking broadly about the casualty market in general, Zaffinosays that the “tug of war” that underwriters seemed to be engagedin during early 2011—as they tried to strike a balance betweenunderwriting performance and market appetite and competitiveness—isgiving way to an environment of stability.

At the mid-point of 2012, says Zaffino, most casualty lines“remain stable, excluding certain industry groups with uniqueissues.”

Underwriters, he notes, are taking longer to complete renewalsas they apply their guidelines more carefully. Overall, he says themarket is “tentative,” but for most clients, stability should reignfor the remainder of the year.

Zaffino advises policyholders to start the renewal process earlyand put a strategy in place aimed at obtaining the best terms.

“Options do indeed exist,” says Zaffino, adding that having thetime to find options is critical to secure coverage a clientneeds.