“Recent premium rate increases in Workers’ Compensation are an encouraging sign that the market has reached a cyclical bottom,” Jim Auden, Fitch’s managing director, says in a statement. “However, claims costs will continue to be affected by rising medical severity, and premium rates will need to improve significantly for the market to reach an underwriting break-even.”

Fitch says that Workers’ Comp shifted back to positive written-premium growth of more than 7 percent last year thanks to economic improvements producing more jobs, as well as rate increases in the line during the second half of 2011.

Josh Youdovin, vice president of insurance research for global third-party insurance asset manager Conning, says in its “Mid-Year 2012 Workers’ Compensation Insurance Segment Report” that the line has had the “highest combined ratio relative to other casualty lines of business since 2006.”

Medical inflation and increased use of narcotics will have a negative impact on Workers’ Comp profitability, Youdovin notes. With rising loss costs and premium-rate inadequacies from past years, reserve releases are “likely to diminish or end for many companies, exerting more financial pain.”

While rates are firming, the line has not yet entered a hard market—and one is not on the horizon, in his opinion.

“It is a fear of downgrades or inadequate capital, leading to withdrawals of capacity from some competitors, that tends to lead to a hard market,” Youdovin adds.

According to Fitch, the Workers’ Comp market is seeing a shift as state funds and residual markets are shrinking their policy counts. In terms of net written premium, over the five-year period from 2006-2011 AIG has lost ground to Liberty Mutual as the No. 1 writer of Workers’ Comp.

In 2011, Liberty had 10 percent of the market, taking the top slot, while AIG held just over 9 percent and is ranked second. However, Liberty’s net written premium is down more than $1 billion over the five-year period to just over $3.5 billion.

Fitch notes that both Travelers and The Hartford have significantly increased their Workers’ Comp premium over the five-year period, almost doubling their share of the market and rising to third and fourth place, respectively.

NCCI: OBESE WORKERS’ INDEMNITY CLAIMS COST MORE

Meanwhile, indemnity-benefit duration of obese Workers’ Compensation claimants is over five times longer than non-obese claimants, according to a new study.

NCCI compared claims by obese persons to comparable claims by non-obese persons, matching all claim characteristics exactly except for age at injury. The matching claims were then analyzed using a model that accounts for the possible nonlinear influence of age.

“Based on Temporary Total and Permanent Total indemnity-benefit payments, the duration of obese claimants is more than five times the duration of non-obese claimants, after controlling for primary ICD-9 code, injury year, U.S. state, industry, gender and age,” NCCI states.

NCCI’s study follows a Duke University study of its own employees, which pointed to substantially higher odds of injury for workers in the highest obesity category. That study tallied Workers’ Comp claims for Duke University and Duke University Health System employees over an eight-year window and classified the employees into six BMI categories ranging from underweight to recommended weight to overweight and three classes of obese.

That study concluded that medical costs for morbidly obese employees were 6.8 times higher than for recommended-weight employees.