In a cautionary note, however, NCCI analysts said the reserve positions of private carriers deteriorated for the fifth consecutive year.

NCCI’s estimate of the reserve position for the private carriers as of year-end 2012 is a $13 billion deficiency, the report said.

In other findings, NCCI said that the average medical cost per lost-time claim increased by 3 percent in 2012 after increasing 3.6 percent in 2011 and increasing 1.4 percent in 2010.

Combined, the total lost-time claim cost increased about 2 percent in 2012, which is about the same rate as the change in average wages.

NCCI officials also stated that the WC residual market experienced significant growth in 2012.

Premiums grew by close to 50 percent and the average market share in the residual market increased from 5 percent to 7 percent. The pace of growth is continuing into the first quarter of 2013.

Although the volume of business in the residual market is growing as the market tightens, the combined ratio actually improved from 117 in 2011 to 112 in 2012, the NCCI report said.

The total underwriting loss in the residual market pools serviced by NCCI was $99 million for 2012, up slightly from the $85 million in 2011.

This year’s report indicates that the workers compensation calendar combined ratio was 109 in 2012, a six-point decrease from 2011 and the first decrease since 2006.

Klingel said the optimism about the state of the industry is tempered by knowing that external forces such as the economy, healthcare reform, and new legislation may still negatively affect the market.

The industry’s significant challenges include poor underwriting results, low investment yields, and continued uncertainty regarding the impact of the implementation of the federal healthcare reform bill, Dennis Mealy, NCCI chief actuary.

“But despite the long-term challenges, workers compensation saw some positive developments in 2012,” he said.

He said premiums grew for the second consecutive year, the combined ratio declined six points, and claim frequency continued to improve at a pace slightly greater than its long-term historic rate of decline.

NCCI officials said that the workers compensation calendar year combined ratio for private carriers was 109 for 2012.

“Although a 109 combined ratio is far from satisfactory, the decline is welcome,” Klingel and Mealy said.

They added that the accident year combined ratio experienced a similar six-point improvement. NCCI estimates that the accident year combined ratio for 2012 is 108, following 114 in 2011, they said.

They said lost-time claim frequency improved significantly in 2012—down 5 percent on average in NCCI states, that is, those that do not have state-sponsored claims funds.

The 5 percent decline is slightly larger than NCCI’s long-term annual estimate of a of 2–4 percent decline per year.

Previous NCCI research indicated that distortions in the calendar year premium data resulting from the recession and subsequent recovery affected our measure of claim frequency for 2010 and 2011. Current research indicates that those distortions are no longer significant for 2012, NCCI officials said in their statement.