The headline of the recently released workers’ compensation Issues Report from the National Council on Compensation Insurance (NCCI) says it all: “Precarious Market Outlook Prevails.”

Authored by NCCI Holdings, Inc. President and CEO Stephen J. Klingel, the April 2011 report noted “continuing unease regarding market conditions,” an incongruity given that the overall property and casualty insurance industry has” largely out-performed other sectors of the economy during the economic downturn.”

Why the disconnect? NCCI stated that close scrutiny of the workers’ compensation product line alone shows a pattern of “significant deterioration,” and cited a number of factors:

• After very minor underwriting losses in 2007 and 2008, the combined ratio for workers’ compensation (private carriers) shot up nine points in 2009—the largest single year increase since the mid-1980s.
• Deteriorating underwriting results, combined with a record low interest rate environment, left the line in an only slightly better-than-break-even position after investment income is considered.
• Calendar year net written premium declined precipitously in 2009 for both private carriers and the state funds.
• The recessionary impact, particularly on manufacturing and contracting, along with price decreases, took its toll on industry net written premium, which declined 23 percent over two years. More than 40 percent of workers’ compensation premium is generated by manufacturing and contracting, even though only about 20 percent of the workers are employed in those industry groups.
• Countrywide frequency declines persisted in 2009, continuing the long trend downward and becoming somewhat more negative as the recession deepened.
• Workers’ compensation insurance prices continued their declines in 2009 in most jurisdictions.
• Combining the underwriting loss with the investment gains, the result is a pre-tax operating gain of 1.6 percent, the worst result since the 0.9 percent gain of 2003.

NCCI also noted that the “continued uncertainty regarding the national health care reform law” is contributing to the ambiguity and unease surrounding the industry.