ORLANDO, Fla.--The National Council on Compensation Insurance (NCCI) announced today that the workers' compensation insurance market squeaked out another profitable year with a calendar-year combined ratio of 99 for 2007.
But that figure, released at the NCCI's Annual Issues Symposium here, was a six-point deterioration from last year and would have been even higher if results from the California market were removed, according to NCCI Chief Actuary Dennis Mealy. Without California, the figure would have stood at 104, he said.
Mr. Mealy told the 700 industry attendees that based on historical trends, for the future the good times for the industry are over, and he thinks the good results are "the last I will see--and I'm not announcing early retirement."
In his briefing, Mr. Mealy reported that calendar-year net written premium declined for private carriers for the first time in eight years. It was the second straight year of premium declines for the line inclusive of the state funds.
The 3 percent decline in premium written from $38.7 billion to $37.6 billion compared with a total property-casualty decline in premiums of 0.6 percent.
Mr. Mealy said that the 2007 accident-year combined ratio came in at 92. On an accident-year basis, the current underwriting cycle peaked in 2006, with an 84 combined ratio (more than a 55 point improvement since 1999). Excluding California from the accident year, the combined ratio would have risen from 92 to about 97.
Among other items, he reported that although accident frequency continued going down during 2007, it did so at a slower rate than the last couple of years. For NCCI states, the frequency decrease for 2007 was 2.5 percent. The prior two years had very large frequency decreases of almost 7 percent. The 2.5 percent decrease in 2007 is closer to the longer-term trend for the frequency decline.
According to the NCCI's findings, frequency tends to decline during periods of economic slowdown, and despite that trend in previous years, the decline is expected to continue.
NCCI's estimates of the reserve positions of private carriers improved to about a $2 billion deficiency at year-end 2007. After consideration of the allowable discounting of the indemnity reserve of lifetime pension cases, according to NCCI's numbers, the reserves are fully adequate. This is in contrast to the $21 billion deficiency at year-end 2001, Mr. Mealy noted. He also pointed to a depopulation of the residual market that continued at an accelerating pace in 2007 and 2008.
Premiums dropped to about $1 billion for policy-year 2007, down from $1.2 billion in 2006. Overall, the market share of the residual market pools serviced by NCCI for 2007 dropped to about 8 percent, down from about 10 percent in 2006. This compares with a 13 percent market share peak reached in 2004.
According to the figures presented, medical expenses are now well above half of every workers' comp claim dollar at 59 percent and NCCI executives said they expect the figure to hit 60 percent this year.
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