Best’s Market Segment Report: Favorable Loss Development Drives U.S. Workers’ Compensation Profits

OLDWICK, N.J.--(BUSINESS WIRE)--Ongoing loss reserve takedowns and enhanced workplace safety measures are cited as key factors that helped lift workers’ compensation insurers to another strong year of underwriting profits in 2025, according to a new AM Best report.

The Best’s Market Segment Report, “Favorable Loss Development Drives Workers’ Compensation Profits,” states that price cuts appear to be accelerating amid very competitive market conditions, suggesting that some insurers appear willing to reduce pricing in order to hold onto more profitable accounts. However, the report also includes a cautionary note that with combined ratios creeping upward, reserve redundancy shrinking and premium levels overall trending downward, the U.S. workers’ compensation segment could be nearing an inflection point.

“The results in the workers’ comp segment have outpaced the commercial lines segment in the aggregate,” said Christopher Graham, senior industry analyst, AM Best. “Despite the continued favorable underwriting and operating results, rising medical costs and reserve adequacy concerns could begin driving the need for significant changes for those same insurers.”

According to the report, workers’ compensation insurers generated a combined ratio of 93.2 in 2025, which was lower than all the major long-tailed casualty lines and lower than the commercial lines segment in totality. Only the tremendous profitability of the key personal lines of coverage—private passenger auto and homeowners’ multiperil—kept the workers’ compensation segment from producing the most favorable results of any of the major property/casualty (P/C) industry lines of coverage.

Favorable loss development on older accident years was not only responsible for the underwriting profitability of workers’ compensation insurers, but it was also greater than the favorable development for any other individual P/C line of business.

“Overall, through the past 10 years, the reserve position for the workers’ compensation line as a whole has been strong with redundant reserves,” said David Blades, associate director, AM Best. “While reserves still remain redundant, the redundancy has been dissipating and is now at its lowest level since 2021. The next 12 months will provide significant insight into whether this is a trend.”

Among the report’s other highlights:

• The segment’s results through the second quarter of 2026 suggest profits are thinning. The mid-year direct incurred loss ratio was the highest of the past five years, indicating that bottom-line results may continue trending unfavorably.
• The Hartford Group replaced Travelers Group as the top writer of workers’ compensation in 2025, as Travelers cut its book by 3.7%. The workers’ compensation market has long been very competitive, and that continued through 2025.
• California remains the largest market in the country, with over 20% of all workers’ compensation premiums and more than any other three states combined.

To access the full copy of this market segment report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=369514.

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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