After many years of losses, underwriting performance for the workers’ compensation line generated a significant profit in 2015, according to a new report from New York City-based Fitch Ratings.

The report also notes that competition is heating up, and Fitch expects a return to an underwriting loss by 2017 in the line.

“The workers comp insurance market saw a sharp turnaround in the last few years due to past premium rate increases, stable loss cost trends and improved loss reserve experience,” Jim Auden, Fitch's managing director, said in a statement. "However, this performance will likely be unsustainable as price competition intensifies due in part to abundant market capacity."

The segment underwriting combined ratio dropped from a recent cyclical high of 117% in 2011 to 95% in 2015, the report says. Premium revenue growth slowed more recently, but it averaged more than 5% for the last three years and was 3.5% in 2015. Among the factors contributing to the decline were the recent economic recession, weak pricing and lower premium volume. The increase in written premium volume for the segment is attributed to the underwriting response to 2010 and 2011 losses, combined with improving economic conditions.

Fitch’s report noted that workers’ compensation is the largest individual product segment by premium volume in the commercial lines market and an important business line for a wide number of underwriters. Market share shifted significantly in workers’ compensation over the past five years. Prior industry leaders, American International Group Inc. and Liberty Mutual Insurance Group reduced premiums in the segment in response to past underwriting losses, while rapid growth was reported by several underwriters, particularly, Berkshire Hathaway Inc. and AmTrust Financial Services Inc.

“As the market landscape shifts, there have been a number of companies that have demonstrated extraordinary growth, however, Fitch considers rapid growth that is well in excess of the market’s growth rate to add considerable risk to an insurer’s underwriting profile,” Auden added.

The full report “U.S. Workers' Compensation Insurance Market Update” is available at Fitch’s website (subscription required).

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Workers&rsquo; comp market shows profit for 2015, but will it last?

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Workers’ comp market shows profit for 2015, but will it last?