While market pricing is dramatically improving in workers' comp in nearly all states, these rate increases are offset somewhat by continued rising trends in claims severity and sharp increases in reinsurance costs for primary carriers, Fitch reported.

Creating further challenges, reinsurance market terms and conditions have also shifted unfavorably for primary carriers, particularly with the widespread use of terrorism exclusions in renewing treaties, Fitch noted.

"Workers' compensation insurers will continue to face challenges in producing operating results that correspond with an adequate return on capital as the magnitude of underpricing in previous periods will continue to be revealed through adverse reserve development," Mr. Auden said.

Fitch believes that the current hardening market for workers' comp pricing will maintain momentum over the near term. However, there remains uncertainty that the industry will get to a broad level of rate adequacy and maintain that position for a sustained period in which market participants can produce reasonable profits while also restoring loss reserve adequacy, Fitch added.

For a full copy of the report--"Workers' Compensation Insurance, Still Struggling"?visit Fitch's Web site at www.fitchratings.com, or contact Market Services at 1-800-853-4824.