A.M. Best just released a special report that shows that even though the workers’ compensation industry reported a record high of direct premiums written last year, net premium growth has slowed down after several years of growth.
The report is called “Workers’ Compensation: Costs, Legal Activity and Employment Rolls are Increasing- But So Are Profits.” The industry reported $58.5 billion in direct written premiums in 2016, but reported a net premium growth of 0.2 percent. The compound annual growth rate between 2010 and 2015 was 6.3 percent. Authors contribute this slowdown to rate decreases in 2015 and 2016, as well as an increase of reinsurance in workers’ compensation. Since 2008 workers’ compensation lines have been ceded almost 50 percent more than before the financial crisis and recession.
The combined ratio in 2016 is reported as 95.6 which is an improvement, but the authors still believe that reserve deficiency is a big concern for the industry. At the end of 2016 they estimate a reserve deficiency of $22.1 billion. Comp reserves represented $166 billion, 26.9 percent, of the total property and casualty loss reserves. Workers’ compensation claims can be lengthy and the potential lack of adequate reserves can lead to loss or insolvency.
A.M. Best’s Workers’ Compensation Composite (WCC) is their analysis of the health of the workers’ comp line. They review companies and state funds whose comp premiums make up more than half of their total net premiums. This WCC group now makes up 44.8 percent of all comp net premiums, when it made up 33.8 percent in 2010, perhaps indicating that smaller and more specialized companies have moved in when larger insurers have moved out of the comp space.
A.M. Best reports a negative outlook on the commercial lines segment, which includes workers’ compensation. Though the economy and unemployment have been recovering, they feel that payroll and subsequently premium growth will slow down if wage growth doesn’t also increase.
Read the release from A.M. Best here.