Workers' Comp Improving But Not Yet Profitable

NU Online News Service, July 16, 12:18 p.m. EDT?Firmer pricing is driving improved insurer results in the workers' compensation line, but profits remain elusive due to residual effects from the previous soft market, according to a report by Fitch Ratings in Chicago.

"Current results indicate that pricing, though improved, is still insufficient to produce adequate returns on capital," noted James Auden, senior director of Fitch Ratings, in a statement summarizing the report. Rates will have to rise even further in order to keep pace with loss costs, the report points out.

Based on those findings, Mr. Auden predicted that rating downgrades of insurers would continue in the near term because of the impact of unfavorable reserve development.

He also stressed the need for underwriting profits, given the current climate of low interest rates and poor stock market performance. "To earn adequate return on capital, underwriting profits are required, even in long-tail lines such as workers' compensation," Mr. Auden said.

Strong underwriting and claims management, a reasonable geographic mix, and sufficient reserves are the key to workers' comp underwriting profits, the report noted.

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Workers' Comp Improving But Not Yet Profitable

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