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The cycle for workers compensation has improved as insurers have become more cautious in the business they underwrite, the National Association of Insurance Commissioners said.
In 2014, direct premiums earned for workers comp totaled $53.5 million, up 6.2% from 2013, and the line saw an average 1.7% underwriting gain compared with a 1.6% gain in 2013, according to NAIC's Report on Profitability, released last week.
In recent years, insurers have raised prices and canceled marginal business, NAIC said Wednesday in an email. “As a result, prices are up, along with profitability,” the organization added. “That will go on for a short time before vigorous competition returns, prices decline and profitability goes down. Then the cycle is repeated.”
According to the report, losses incurred in 2014 were 60.4%, up from 59.6% in 2013.
“It is impossible to predict what the various markets will do over the next year,” NAIC said. “There is some benefit in tracking the experience over a 20- to 30-year horizon … Underwriting cycles reach their peaks and valleys roughly every eight to 12 years.”
Joseph C. Peiser, executive vice president and head of casualty broking at Willis Towers Watson P.L.C. in New York, said in an email that he expects “relative stability in the workers compensation line and improved claims management due to increasing sophistication of predictive claims analytics.”
In an October report, Oldwick, New Jersey-based rating agency A.M. Best Co. Inc. said it expects 2015 calendar year results to “show additional improvement in underwriting and overall operating performance.”
Michigan, New Hampshire and West Virginia were among the most profitable states in 2014 for comp insurers. Idaho and Kentucky were among the least profitable, according to the NAIC.
State-by-state findings “cannot and should not be used to determine whether current rates are adequate to cover future costs,” the NAIC said in its recent report.