CHICAGO--(BUSINESS WIRE)--After many years of underwriting losses, underwriting performance for the U.S. property/casualty (P/C) industry's workers' compensation line generated a significant profit in 2015, according to a new report from Fitch Ratings. Competition is heating up however and Fitch expects a return to an underwriting loss by 2017 in the workers' compensation (P/C) line.
"The workers comp insurance market saw a sharp turnaround in the last few years due to past premium rate increases, stable loss cost trends and improved loss reserve experience, however, this performance will likely be unsustainable as price competition intensifies due in part to abundant market capacity," said Jim Auden, Managing Director, Fitch.
The segment underwriting combined ratio dropped from a recent cyclical high of 117% in 2011 to 95% in 2015. Premium revenue growth tapered more recently, but averaged more than 5% for the last three years and was 3.5% in 2015. In the recent economic recession, workers' compensation business suffered from weak pricing and significant declines in segment premium volume. The underwriting response to 2010 and 2011 losses, combined with improving economic conditions, led to a sharp increase in written premium volume for the segment.
Workers' compensation is the largest individual product segment by premium volume in the commercial lines market and an important business line for a wide number of underwriters. Market share shifted significantly in workers' compensation over the last five years. Prior industry leaders, American International Group, Inc. (AIG) and Liberty Mutual Insurance Group (Liberty Mutual) reduced premiums in the segment in response to past underwriting losses, while rapid growth was reported by several underwriters, particularly, Berkshire Hathaway Inc. (BRK) and AmTrust Financial Services, Inc. (AmTrust).
"As the market landscape shifts, there have been a number of companies that have demonstrated extraordinary growth, however, Fitch considers rapid growth that is well in excess of the market's growth rate to add considerable risk to an insurer's underwriting profile," added Auden.
The full report 'U.S. Workers' Compensation Insurance Market Update' is available at 'www.fitchratings.com'.
Additional information is available at 'www.fitchratings.com'.
U.S. Workers' Compensation Market Update (Underwriting Profit Sustainability in Question)