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Sheena Harrison

Travelers overtakes Liberty Mutual as largest workers comp insurer in U.S.

March 16, 2014 - 6:00am

Travelers Cos. Inc.


While Liberty Mutual Holding Co. Inc. is reducing its workers compensation exposure to avoid what its top executive called “severely underpriced” risks, the market is seeing reduced losses and increased premiums amid an uptick in employer hiring.

Liberty Mutual's move was evident in rankings released earlier this month by the National Association of Insurance Commissioners, which showed the Boston-based company now is the nation's second-largest workers comp insurer with $3.6 billion in direct written comp premiums in 2013, down 14.2% from 2012.

At the same time, Travelers Cos. Inc. posted an 8.8% gain with $4.14 billion in direct written comp premiums in 2013, taking the No. 1 spot Liberty Mutual had held for at least five years, according to the NAIC.

Travelers' “premiums went up by about the amount you'd expect if they were primarily maintaining their policy-in-force base and then getting market rate increases and organic growth from underlying payrolls and hiring,” said Mark Dwelle, an insurance analyst at RBC Capital Markets, a unit of RBC Securities Inc. in Richmond, Va. “Their share increase was pretty small, so I don't think taking business from (Liberty Mutual) had much to do with it.”

Jim Wucherpfennig, vice president of workers compensation for Travelers, said the insurer has invested in programs and tools to help control its expenses.

“Medical costs currently make up 60% of workers compensation claim costs and are forecasted to account for nearly 70% of costs by 2020,” Mr. Wucherpfennig said in an email. “The investments we have made put us in a position to effectively manage the medical costs associated with our customers' workers compensation claims in the years ahead.”

In Liberty Mutual's fourth-quarter earnings conference call, Chairman and CEO David H. Long said the insurer's workers comp exposure fell 26% in 2013 compared with 2012. That exposure is expected to decrease further with its pending sale of Summit Holdings Southeast Inc. to Cincinnati-based American Financial Group Inc., he said of the $250 million deal expected to close by midyear.

“The decline in workers comp leaves us with a better overall business mix in both commercial insurance and at the group level, where workers comp is now just 7.5% of group premiums,” Mr. Long said during the conference call.

“We were prepared to lose a lot of business, in particular in workers compensation, that we thought was severely underpriced,” Mr. Long said.

He said Liberty Mutual will push for higher rates and that it plans to grow its comp business among small accounts.

“We're going to price for the risk that we're taking; and if we can get our price, then we'll certainly take it,” Mr. Long said. “And if we can't, we'll be prepared to let somebody else have it.”

In general, employers are seeing insurers become more selective in their workers comp underwriting while pushing for moderate pricing increases, said Harry Shuford, chief economist for the National Council on Compensation Insurance Inc. in Boca Raton, Fla.

“In some instances, that may result in the employer moving to another insurer where they feel like they're getting a more competitive rate,” Mr. Shuford said. “In some cases, it may actually result in the employer finding that they end up in the residual market.”

Liberty Mutual's decision likely results from its high workers comp loss ratio, Mr. Dwelle said.

According to NAIC data, Liberty Mutual's loss ratio was down about 10 percentage points last year from the previous year, but still the highest among the 25 largest comp insurers.

“I expect they were repositioning that business by actively raising prices and eliminating unprofitable accounts,” Mr. Dwelle said in a statement to Business Insurance.

The top 25 U.S. workers comp insurers reported $51.4 billion in direct written premiums in 2013, up 7% from 2012. Meanwhile, the industry's overall loss ratio fell to 60% in 2013, down from 68% the previous year, according to the NAIC.

Losses have decreased mainly due to price increases in the past couple of years, sources said.

“Most of the industry has been raising pricing in workers compensation ... at around 10%,” said Josh Stirling, New York-based insurance analyst at Sanford C. Bernstein & Co. L.L.C. “I think the general industry has felt as though it was underpricing workers comp for many years.”

Limited investment income due to low interest rates has been a factor in the collective push for higher prices, and many comp insurers could push for additional rate increases of 10% to 20% in the future, Mr. Stirling said.

Additionally, losses have been mitigated by reduced prescribing of opioid painkillers, which are costly and can cause injured workers to be disabled longer if they become addicted, as well as hiring lags in the manufacturing and construction industries, which tend to have costlier workers comp claims, the NAIC said in a statement to Business Insurance.

Still, the comp market overall remains unprofitable.

Workers comp combined ratios, which include claim losses and administrative expenses, were 110.3% in 2012, down nearly 7 percentage points from 2011 and the U.S. comp industry's first combined ratio decline since 2006, according to Oldwick, N.J.-based rating agency A.M. Best Co. Inc.

Mr. Shuford said the overall premium growth reflected in the NAIC's data was expected since the number of U.S. jobs has grown in recent years and insurers have been getting higher rates.

While Liberty Mutual is bearish on the comp market, Mr. Stirling said higher pricing, improved underwriting and using predictive analytics to affect claim outcomes and reserving is helping others be more optimistic about the sector.

 



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