OLDWICK, N.J.--(BUSINESS WIRE)--The U.S. workers’ compensation industry reported solid underwriting performance during 2014, marking the fourth consecutive year in which the industry reported improved results, according to a new A.M. Best report.
However, the Best Special Report, titled, “U.S. Workers’ Compensation Performance Improves Further Despite Additional Rate Softening,” states that over the longer term, the industry’s ability to maintain rate adequacy is uncertain. The industry reported a slight rate decrease of 0.4% during first-quarter 2015, as pricing for what are currently the most profitable accounts has become more competitive. Furthermore, loss reserve releases have declined and that trend is not likely to reverse in the near term. There remains some concern that improved underwriting performance driven by prior increased prices—without underlying improvement in losses and expenses—will reverse quickly if a broadly competitive market returns.
The improvement seen in 2014 is evidenced in the industry’s 2014 combined ratio, which improved by 2.2 points to 101.5 when compared with the 2013. A.M. Best’s workers’ compensation composite, which is made up of individual companies whose book of business is primarily workers’ compensation, also reported ongoing improvement in underwriting results, with a combined ratio of 103.1 in 2014, 3.0 points better than what was reported for 2013. In the near term, the sustained positive operating trends, including ongoing favorable levels of prior-year loss reserve development, albeit at lower levels, and a stable macro-economic environment will be crucial as a foundation from which to build on the improvements reported in 2014.
Other key findings from the report include:
- The workers’ compensation line’s net premiums written (NPW) increased in 2014, approximately 5.6% to $46.8 billion from $44.3 billion in 2013 , compared with overall growth of 2.0% in NPW for the commercial segment;
- Direct premiums written (DPW) increased in all but seven jurisdictions, a slight increase from the prior year when five jurisdictions reported reductions in premium. When considering the entire United States, DPW increased 5.7% during 2014, down slightly from the 8.3% growth in DPW reported during 2013; and
- Net income for the A.M. Best workers’ compensation composite increased approximately $1.3 billion to $3.5 billion in 2014, a 67% increase over the prior year. The increase reflects stronger operating earnings with pretax operating income up $0.6 billion, primarily a result of a $0.5 billion improvement in underwriting results along with a $0.2 billion increase in investment income.
Despite improvement in operating performance, A.M. Best remains concerned about the adequacy of the industry’s overall loss reserve position. A.M. Best estimates that the loss and loss-adjustment expense reserve position for the workers’ compensation line was deficient by $26.2 billion at year-end 2014, down from an estimated $28.6 billion in 2013. Although the majority of the deficiency is due to statutory discounting, the ultimate adequacy of the industry’s reserve position remains uncertain for earlier accident years when rates were at their low point.
To access a copy of this report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=24315.
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