WC Market Deteriorating, Fitch Says

NU Online News Service, Aug. 7, 11:15 a.m. EST?The workers' compensation insurance market continues to face challenges following further deterioration in underwriting performance in 2001, according to a new report by Chicago-based Fitch Ratings.

Despite significant pricing improvements in most states, the workers' comp combined ratio increased to 121 in 2001, from 118 in 2000, representing the sixth-consecutive year of deteriorating underwriting performance.

"The unexpected losses related to the events of Sept. 11 were a contributing factor behind the poor performance," said James B. Auden, senior director at Fitch Ratings. "However, the key factor continues to be that workers' compensation pricing marketwide was inadequate from the late 1990s through 2001, despite a recent trend of rate increases."

While market pricing is dramatically improving in workers' comp in nearly all states, these rate increases are offset somewhat by continued rising trends in claims severity and sharp increases in reinsurance costs for primary carriers, Fitch reported.

Creating further challenges, reinsurance market terms and conditions have also shifted unfavorably for primary carriers, particularly with the widespread use of terrorism exclusions in renewing treaties, Fitch noted.

"Workers' compensation insurers will continue to face challenges in producing operating results that correspond with an adequate return on capital as the magnitude of underpricing in previous periods will continue to be revealed through adverse reserve development," Mr. Auden said.

Fitch believes that the current hardening market for workers' comp pricing will maintain momentum over the near term. However, there remains uncertainty that the industry will get to a broad level of rate adequacy and maintain that position for a sustained period in which market participants can produce reasonable profits while also restoring loss reserve adequacy, Fitch added.

For a full copy of the report--"Workers' Compensation Insurance, Still Struggling"?visit Fitch's Web site at www.fitchratings.com, or contact Market Services at 1-800-853-4824.

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WC Market Deteriorating, Fitch Says

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