NU Online News Service, Oct. 13, 3:11 p.m. EDT
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 decreases, weak macroeconomic factors, growing medical costs and an uptick in claim frequency into 2011, A.M. Best notes in "Best's Special Report," there is reason for hope. Employment and payrolls have stabilized and premium growth 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 and among the largest commercial lines, A.M. Best explains. It makes up nearly 8.0 percent of total industry premium volume and about 16 percent of all commercial-lines premium in 2010.
The overall P&C industry's underwriting performance weakened again in 2010, with workers' comp being among the lines that experienced the greatest deterioration, according to the ratings agency.
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.
A.M. Best notes that premium volume declined in all commercial lines of business in 2010, with net premiums written (NPW) declining more than 2 percent during the year.
Premium volume in the worker's comp line remained under pressure from various factors, including competitive market conditions; further rate reductions in most states; return audit premium and weak macroeconomic conditions that caused payrolls to languish. In addition, self-insurance, large-deductible programs and captives also have had a negative impact on premium volume.
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, A.M. Best notes. As a result of these factors, NPW 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.
A.M. Best also says that premium volume for the line has declined more than 30 percent since NPW reached its high of $49.2 billion in 2005.
A.M. Best believes the long-term trend of declining claims frequency is beginning to flatten. According to the National Council on Compensation Insurance's preliminary analysis of states where it provides ratemaking services, the frequency of lost-time claims increased on an adjusted basis by 3 percent in 2010.
This represented the first increase since 1997, when the frequency of lost-time claims per $1.0 million of premium increased 0.5 percent. This is noteworthy because the declining trend that started in the early 1990s has helped offset rising medical costs that have been responsible for higher severity trends, according to A.M. Best.
Other key findings in the report:
• The top-five workers' comp insurers ranked by NPW in 2010 remained unchanged, with Liberty Mutual Insurance Cos., American International Group, Travelers Group, Hartford Insurance Group and the State Insurance Fund of New York still leading.
• 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 during this time. A.M. Best says it expects this trend to continue for the remainder of 2011.
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