Workers comp market profitable for now
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The U.S. workers compensation market generated a “significant” profit in 2015, but underwriting losses are ahead, according to a new report from Fitch Ratings Inc.
The workers comp line's improved combined ratio of 95% last year can be attributed to “strong premium revenue growth from better pricing and economic factors, favorable loss cost trends, and favorable loss reserve experience tied to more conservative reserving practices,” according to the report released Thursday by the global ratings company.
But “competitive pressures” could lead to a higher combined ratio of 98% this year followed by underwriting losses in 2017 and beyond,” the report states.
“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; however, this performance will likely be unsustainable as price competition intensifies due in part to abundant market capacity,” Managing Director of Fitch Jim Auden said in a Thursday statement.
Workers comp written premium volume increased by 3.5% in 2015 compared with an average growth rate of about 7% during the previous three years, according to the report.
The report also states that market share in the space has shifted in recent years as prior industry leaders like American International Group Inc. and Liberty Mutual Insurance Co. have reduced underwriting exposures.
Meanwhile, Travelers Cos. Inc. and Hartford Financial Services Group Inc. have grown steadily, capturing 8.7% and 6.9% of market share, respectively.
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