U.S. workers' comp strong in 2017, long-term projections unclear: Fitch
Fitch believes that the workers' compensation industry may still generate underwriting profits this year.
The U.S. workers’ compensation insurance market reported strong underwriting performance for the third consecutive year in 2017, with an industry statutory combined ratio of approximately 92%, according to Fitch Ratings.
Fitch believes that while the industry may still generate underwriting profits this year, workers’ compensation results will move toward breakeven in 2019, with low visibility of longer-term projected results due to historical performance volatility.
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Two sides to a story
Positive performance drivers including growth in underwriting exposure growth continued falling claims frequency rates and conservative reserve levels. Fitch noted past underwriting and pricing actions and relatively stable loss trends have positively influenced recent market performance.
Although the current workers’ comp market touts a strong performance, Fitch mentions that a steady decline in premium rates from increased competition will ultimately lead to weaker underwriting results.
Factors that can negatively affect future industry performance include premium rate pressure, increasing medical loss severity and erosion of past reform benefits in key states. Additionally, premium revenue weakness, along with greater technology-related spending, has led to higher expense ratios, which have risen two points since 2014 for the industry.
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Final takeaways
Shifts in loss cost trends, particularly claims severity, represent a source for future workers’ compensation performance deterioration that bears further monitoring. Both indemnity and medical claims cost severity were relatively stable compared with historical norms for nearly a decade but ticked up recently.
Fitch’s U.S. Workers’ Compensation Market Update report tracks market share and underwriting performance of the largest market participants over the past five years. Additional information is available on www.fitchratings.com.
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