Workers compensation may face increased profitability pressures due to consistently declining premium rates, according to the annual A.M. Best Co. Inc. workers compensation market segment report.

The workers compensation was the only line in the property/casualty industry to see a decline in direct premium written in 2018. Since 2015, direct premium written has had little movement, falling just 0.5% since 2016, but net premiums written rose 7.4% from 2017 to 2018, reflecting a revision in internal reinsurance agreements as a result of the Tax Cuts and Jobs Act, according to the report.

The pure net loss ratio declined another 3.5% from 2017 to 2018 — the fifth year of decline — likely due to safer workplaces and more effective claims management. The combined ratio has also continued to improve, steadily declining from 101.5 in 2014 to 86.1 in 2018, which Oldwick, New Jersey-based A.M. Best attributed to $7.6 billion in workers comp reserve releases.

Loss reserves in the workers comp sector may be a cause for concern. A.M. Best predicts that the comp sector had a reserve deficiency of $12 billion by the end of 2018, and questions whether current premiums and reserves will be “adequate over the long term.”

The same top 10 players continue to dominate the market, writing 68% of the comp business in 2018, with Travelers Cos. Inc, Hartford Financial Services Group Inc. and Berkshire Hathaway Inc. The only change in the top 10 was Lansing, Michigan-based AF Group’s jump from 14 to 10, and Old Republic Insurance Group Inc.’s move from 10 to 11, said A.M. Best

The average cost of lost-time claims has continued to inch upward, and this cost increase has continued to trend upwards at a higher rate than group health care prices since 1999, according to the report, with medical cost severity being the biggest contributor. Motor vehicle accident rates have also negatively impacted severity costs — a trend affecting other property/casualty lines as well as workers comp.

State funds have continued to perform, with all but two competitive state funds reporting net income in 2018, according to the report, with Salem, Oregon’s State Accident Insurance Fund Corp. reporting the biggest share of the state fund market, followed by Maine Employers Mutual Insurance Co. and the Montana State Fund.