Pegged as an outlier in the lagging commercial insurance sector, the U.S. workers compensation market is on track for a fifth consecutive year of underwriting profits in 2019 despite recent weakening in market fundamentals, according to a report released Tuesday by Fitch Ratings Inc.

The industry's statutory combined ratio fell to 86% in 2018, and has averaged 93% annually since 2015, according to the report. Meanwhile, regulatory rate filings over the past year show that underwriters are reducing prices in nearly all states and data from the Council of Insurance Agents & Brokers show workers compensation renewal rates have declined for the last 17 quarters, according to Fitch.

Other highlights in the report include:

• Most large underwriters posted favorable underwriting profits in workers compensation over the last five years, with average statutory combined ratios below 90% in the segment, though there are a few profit outliers. Leading performers over the period include Berkshire Hathaway Inc. and Chubb Ltd.
• In 2018, positive results were partly driven by recognition of greater reserve redundancies, which totaled approximately 15% of segment earned premiums. Fitch's analysis shows conservatism in loss reporting for recent accident years could lead to more reserve development in the future, but at a lower magnitude than recent figures.
• Comp underwriters are incorporating more information systems and advanced analytics that can boost performance in several areas, including reducing operating expenses, improving risk selection and pricing, and optimizing claims outcomes.
• The average loss ratio for accident years 2014-2018 was 69%, compared with a recent high of 87% in 2010. The industry reported figure for 2018 of 72% is above the reported figure for 2017. Recent underwriting years benefited from favorable reserve development, and the 2018 year is likely to develop redundantly over time as well.
• Fitch points to several factors that could result in a sudden deterioration in performance including an increase in claims frequency or severity, and new regulatory developments in key states, according to the statement.

"The workers compensation segment is known for past periods of volatility, but recent experience represents an unprecedented level of underwriting success," Gerry Glombicki, director of insurance at Fitch Ratings, said in a statement. "However, all good things eventually come to an end, and these (favorable) underwriting profits are not sustainable in the long term in light of competitive forces, recent price deterioration and potential for future claims trend deterioration."