NU Online News Service, May 10, 3:04 p.m. EDT

Workers' compensation combined ratios remained unsustainably high in 2011, and investment returns were not high enough to generate sufficient operating returns, but premium growth in this line indicates that the worst of the recession has passed, and the industry remains well capitalized for the future, according to NCCI.

NCCI President and CEO Steve Klingel, commenting on the latest NCCI State of the Line workers' compensation analysis, says, “NCCI has observed a number of countervailing indicators in current industry conditions. In some ways, we are seeing an improved condition from 2010. By other measures, however, the market remains in a worrisome state. In sum, we see a market that is conflicted as to its forward trajectory, and that makes for a challenging environment.”

The analysis shows workers compensation calendar year combined ratio for private carriers was 115 in 2011, the same result as in 2010, and the highest combined ratio since 2001, when it was 122. 

The accident-year combined ratio in 2011 dropped two points from 2010 to 114.

NCCI Chief Actuary Dennis Mealy says workers compensation results continue to be challenged by the economy. “Workers compensation, because of its direct connection to employment and the labor markets, has been the property and casualty line most significantly impacted by the continued difficult economic environment,” he says.

NCCI notes that, for the third straight year, workers compensation had the highest combined ratio of all the major commercial-insurance lines.

NCCI says the workers' comp private-carrier reserve position deteriorated modestly in 2011, for the fourth consecutive year. The reserve position is currently estimated at an $11 billion deficiency.

The line did get some positive news in 2011 regarding net written premiums, which increased 7.4 percent compared to 2010. Net written premiums for both private carriers and state funds was $36.3 billion, compared to $33.8 billion in 2010. For private carriers alone, net written premiums were $32.2 billion in 2011, up from $29.9 billion in 2010.

Net written premiums had climbed from 1999 until 2005, peaking at $47.8 billion, according to NCCI data. Written premiums then declined every year since then until 2011.

Lost-time claim frequency also improved in 2011, dropping 1 percent after increasing 3% in 2010. But NCCI says it is still unclear whether claim frequency is returning to a long-term downward trend.

NCCI says, “Moving forward, NCCI will continue to closely monitor trends and developments in claims frequency, an uncertain underwriting cycle, the as-yet-unknown impact from healthcare and financial-services reforms, including the Federal Insurance Office, and new efforts to introduce alternatives to workers compensation.”