NCCI: Comp Ratio Recuperating
By Daniel Hays
NU Online News Service, May 15 11:50 a.m. EDT, Orlando, Fla.?The National Council on Compensation Insurance reported today at its annual conference here that the combined ratio for the workers' compensation insurance sector made a "remarkable" 12-point improvement over 2001.
The NCCI preliminary market analysis found the combined ratio for Calendar Year 2002 is 110, down from 122, ending a six-year string of increasingly unprofitable results.
Not all of the NCCI "State of the Line" was positive, however. Investment income for comp, NCCI said, fell to an estimated 14 percent in 2001 compared with 20 percent during 1997-2000. NCCI attributed the decrease to lower interest rates and a reduction in realized capital gains.
By NCCI calculations the combined ratio incorporated with the investment gains results in a pretax operating profit of 2 percent for workers' comp in 2002.
Dennis Mealy, NCCI chief actuary, noted that many comp carriers "may need a combined ratio of less than 100 percent in order to return their cost of capital."
He continued that, "Unfortunately, combined ratios this low are extremely rare in long-tailed lines like workers' compensation, where underwriting losses are generally offset with investment income."
In addition to the poor investment income environment, NCCI noted the high rate of medical inflation impacting workers' comp cost as well as a need to fund against the threat of terrorist attacks.
NCCI's combined ratio is an aggregate number averaging the experience of the 41 states that NCCI serves with data on loss costs.
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