The report said insurers specializing in the comp line or holding a book with a certain geographic concentrations have high exposure to risks, and that the ratings on such insurers are more sensitive to the market's vagaries.

As a result, Standard & Poor's said ratings on workers' comp specialists are likely to be no higher than the 'A' rating category.

Among the U.S. Workers' Compensation Groups in 2004, S&P said the top five were California State Compensation Insurance Fund, Liberty Mutual Group Inc., American International Group Inc. companies, St. Paul Travelers Cos and affiliates and Zurich Insurance Co. Group.

Titled "State Reforms, Strong Results Point To Good Outlook For U.S. Workers' Compensation," the report says any unexpected rating changes in 2006 stemming from developments in workers' comp would most likely be the result of larger-than-expected reserve strengthening by a few insurers for prior-year business (a negative factor), or of better or worse than anticipated conditions in select markets in which a workers' comp specialty insurer maintains a business concentration.

The report includes an examination of the four biggest markets, California, New York, Florida and Texas.

Concerning California, which generated $16 billion direct earned premium in 2004, S&P said that while loss trends are favorable after recent reforms to tighten medical treatment, its prospective view is "cautious."

Rate decreases have been pushed before the savings from reforms are fully known, court challenges to reforms continue and the size of the State Compensation Insurance fund makes it a "huge, potentially disruptive market force," the report said.

Among firms that are workers' comp specialists, the largest, Zenith National Insurance Group in California, has had strong earnings and premium growth driven by a favorable environment in Florida and in California where it writes 95 percent of its comp premium, S&P said. In terms of direct comp premium written, S&P ranked Zenith eleventh in the nation.

The report said the comp sector as among the most complex in insurance, with a mixture of risk elements such as health care, long-tail claims settlements, and state regulation, as well as "an unusually significant dollop of political influence, that do not generally affect most other insurance lines."

The report is available to subscribers of Standard & Poor's Web-based credit research and analysis system, at www.ratingsdirect.com. Copies can be purchased for $400 apiece.