Comp underwriting to remain strong in 2021: FitchPosted On: Jun. 14, 2021 11:22 AM CST
The workers compensation underwriting performance is expected to remain strong in 2021, though the line’s level of profitability is not likely sustainable for long, according to a report on the line released by Fitch Ratings Inc. on Friday.
Workers compensation has continued to perform well due to reductions in claim frequency and increased recognition of material reserve redundancies, leading the segment to post a third consecutive year of combined ratios of 90% or below in 2020, Fitch analysts said. Even though the line saw a 10% reduction in annual written premiums in 2020 due to the pandemic-related business closures, the sharp decline in claims frequency offset the losses, and the pandemic-related claims that were filed have been manageable.
While Fitch predicts that the line’s combined ratio will remain around 90% in 2021, analysts noted that COVID-19 claims remain a source of uncertainty for the line and that comp’s level of profitability is unsustainable in the long term, with the likelihood that claims trends will normalize and competitive forces will create renewed pricing pressure.
The workers comp line does maintain the strongest reserve position of any property/casualty line, with calendar year favorable developments averaging 15% of earned premiums for the last four years. In addition, the line’s reserve strength was maintained in 2020 because reported loss ratios probably underestimated the benefits of declining frequency on incurred losses.
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