Best’s Market Segment Report: Workers’ Compensation Results Still Outpacing Other U.S. Property/Casualty Insurance Lines

OLDWICK, N.J.--(BUSINESS WIRE)--Underwriters of workers’ compensation insurance have consistently generated better underwriting profits than other property/casualty (P/C) lines of business, again doing so in 2020 amid the pandemic, according to a new AM Best report.

The Best’s Market Segment Report, titled, “Workers’ Compensation Still Outpacing Other Lines,” states that underwriting results of workers’ compensation insurers remained strong in 2020, despite a 10% decline in bottom-line net premiums written, owing to the substantial drop in payrolls during the second quarter of the year. The combined ratio of 91.1 in the workers’ compensation segment in 2020 was a few points higher than in 2019, but still comfortably under the breakeven mark of 100.0, reflecting profitable underwriting. Given the decline in premium, expense ratios rose, but the increase was nominal and did not overly dampen underwriting earnings.

Premium volume for workers’ compensation writers also has been constrained by rate decreases in most states. According to the report, some writers are looking to develop new products and explore new markets in other lines of coverage and allowing their workers’ compensation top-line premium to decline in the states where they generate significant premium.

Despite the smaller premium base, workers’ compensation insurers remained highly profitable in comparison with other P/C lines. Workers’ compensation underwriters have benefited from a decline in lost-time claims frequency tied to efforts to improve workplace safety. Other factors that have benefited the line’s profitability are the declines in fraud, workplace accidents and defense costs.

AM Best also analyzes the overall health of the workers’ compensation line of business through its Workers’ Compensation Composite, which is composed of U.S. companies, including state funds, whose workers’ compensation and excess workers’ compensation net premiums constitute 50% or more of their total net premiums. Even with the 2020 decline in workers’ compensation premium due to the pandemic, the market share of these specialists rose to 26.2% in 2020, up considerably from 16.7% in 2011.

AM Best’s negative market segment outlook for the workers’ compensation segment, the largest component of the U.S. commercial lines market, reflects the continued uncertainty about the effects of COVID-19, from an economic and a regulatory perspective, as well as a legislative one as states consider presumptive legislation stemming from the pandemic. Moreover, although the impact of the pandemic on insurers’ balance sheets to date has been tempered, concerns about the prolonged low interest rate environment persist. As a result, investment returns are expected to remain flat, and insurers may begin seeking riskier investments to generate higher yield.

To access the full copy of this market segment report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=313043.

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

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