NU Online News Service, May 5, 3:30 p.m. EDT--Orlando, Fla.--Profitability for the workers' compensation insurance line is at its best level in years with the 2004 calendar year combined ratio dropping four points to 105, the National Council on Compensation Insurance reported at its conference here today.

NCCI said it is cautiously optimistic for the year ahead, although it is worried about medical costs that continue to soar for injured workers, as well as mediocre stock performance and low interest rates that limit insurers' combined ratio improvement.

The industry services organization also voiced doubts concerning Congressional efforts to renew the Terrorism Risk Insurance Act. NCCI noted that comp polices, which became effective this year, have some exposure because they extend beyond TRIA's scheduled Dec. 31 expiration.

Other positive news from NCCI said that the combined ratio based on the 2004 accident year is at 94--its best level in more than 10 years. Also improved is the industry loss reserve picture. NCCI said the deficiency in that area had dropped to $12 billion from nearly $15 billion.

When discounting is done for lifetime pension cases, NCCI said that the deficiency is lowered to $7 billion.

NCCI found that in the last several months, the volume of business in the residual market has shown indications it is beginning to see some decline in larger policy business. But, it added that volumes among the states it deals with are at "uncomforably high levels," running about 13 percent of the total comp market in some states.

Examining premium volumes, NCCI said the volumes increased for the fifth straight year, rising about 9.5 percent to $46 billion in 2004 for the entire market, including state funds. Private carriers alone improved premium volume by nearly 11 percent last year.

As it has since the beginning of the 90's, the frequency of lost-time claims in states monitored by NCCI declined again, dropping by 3.4 percent.

Medical treatment of injured workers remained vexing to the industry. NCCI said medical costs now make up 57 percent of total losses. The rate of interest in those costs was found to have jumped 10.5 percent over 2003 levels last year.

Dennis Mealy, NCCI chief actuary, in announcing the results before he briefed meeting participants, said "the point from which we are starting the year is certainly better than it was just a few short years ago." He cautioned, however, that insurers will need continued improvement in underwriting results to offset lowering interest rate returns for the companies.

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Comp Industry Combined Ratio Drops

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