A number of challenges continued in the workers’ compensation segment throughout 2010, causing additional decline in premium volume and deterioration of underwriting results, according to A.M. Best.

While the line has dealt with the issues of competitive pricing, further rate reductions in most states, weak macroeconomic factors, growing medical costs and an uptick in claim frequency, A.M. Best notes in “Best’s Special Report,” there is reason for hope: Employment and payrolls have stabilized, and premium growth in 2011 looks to be positive for the first time since 2005.

The workers’ comp line is among the largest in the U.S. property and casualty industry. It makes up nearly 8 percent of total industry premium volume and about 16 percent of all commercial-lines premium in 2010.

A.M. Best says results for the workers’ comp line deteriorated sharply in 2010. The calendar-year combined ratio increased nearly seven points to 118.1, up from 111.2 in 2009—and the highest level since 2000, when the combined ratio was 121.0. The line’s results have deteriorated in each consecutive year since 2006, when the combined ratio was 98.5. The report is predicting a further uptick in the combined ratio in 2011 (see chart).

The economic downturn and slow recovery continue to have a major impact on the manufacturing and contracting sectors—significant contributors to premium volume in the workers’ comp line. As a result of these factors, net-premium written for the line fell for the fifth-consecutive year in 2010, declining 3.6 percent to $34.1 billion from $35.3 billion in 2009.

Through Sept. 15, 2011, negative rating actions outpaced positive rating actions in the workers’ comp segment by more than a 2-to-1 margin. In addition, eight rating units were affirmed with negative outlooks.

In other negative workers’ comp news, the National Council on Compensation Insurance’s preliminary analysis of states where it provides ratemaking services found that the frequency of lost-time claims increased on an adjusted basis by 3 percent in 2010.