With the current investment environment not benefitting Workers’ Compensation insurers, companies may be pressured into a harder market as they try to achieve underwriting profits in a line that hasn’t seen combined ratios of less than 100 since 2006, according to a new report.

Conning Research and Consulting’s “Workers’ Compensation: A Bumpy Road from Recession to Recovery” says Workers’ Comp specialists have tended to invest a higher portion of their assets in bonds since 2008. But with “extremely low” interest rates projected for 2012 and even beyond, Conning adds that insurers that “relied heavily on income from bonds will have a difficult time relying on investment income as they did in the past.”

As such, the firm says insurers may be pushed into a harder market by seeking profits from underwriting.

Even if interest rates rise, the benefit in improved investment returns may be tempered by the corresponding possibility of higher inflation. “Historical results have shown that medical inflation often moves in the same direction as general inflation,” Conning notes in the report. Rising medical costs would increase Workers’ Comp loss costs.

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