NU Online News Service, July 18, 12:00 p.m. EDT

As the workers’ compensation line continues to experience poor underwriting results and strong momentum toward rate increases, more companies are turning toward forming captives to combat rising costs, a Marsh executive says.

Speaking today during a Webinar to discuss the Marsh Global Insurance Market Quarterly Briefing, Jonathan Zaffino, leader of Marsh’s U.S. Casualty Practice, noted that workers’ comp. remains one of the few casualty lines still experiencing a significant pull on rates. This line, he notes, “has experienced another difficult year in 2011” with a combined ratio of 115, the worst seen since 2001, and the third straight year the line has led all commercial lines with the highest combined ratio.

Indemnity and medical costs continue to rise, he adds, and this, along with poor investment earnings, “leads to a relatively bleak picture” for workers’ comp., says Zaffino.

Julie Boucher, Marsh’s Americas leader in Captive Solutions Practice, says the broker has seen more use of captives to mediate the escalating costs of workers’ comp. She says companies are using captives in a range of ways to control costs, from covering a company’s deductibles to insuring the company’s entire workers’ comp program.

She notes that, according to Marsh’s benchmarking report, 20 percent of the firm’s captives have workers’ comp in their insurance programs, ranked third behind property (35 percent), and general third-party liability (32 percent).

Speaking broadly about the casualty market in general, Zaffino says that the “tug of war” that underwriters seemed to be engaged in during early 2011—as they tried to strike a balance between underwriting performance and market appetite and competitiveness—is giving way to an environment of stability.

At the mid-point of 2012, says Zaffino, most casualty lines “remain stable, excluding certain industry groups with unique issues.”

Underwriters, he notes, are taking longer to complete renewals as they apply their guidelines more carefully. Overall, he says the market is “tentative,” but for most clients, stability should reign for the remainder of the year.

Zaffino advises policyholders to start the renewal process early and put a strategy in place aimed at obtaining the best terms.

“Options do indeed exist,” says Zaffino, adding that having the time to find options is critical to secure coverage a client needs.