According to Fitch Ratings, the workers’ comp market is on track to have a fifth year of underwriting profits in 2019 even against a weakening in market fundamentals. The industry’s combined ratio fell to 86 percent in 2018 and has averaged 93 percent annually since 2015. The group warns that these favorable results may not be sustained in the long term.

“The workers’ compensation segment is known for past periods of volatility, but recent experience represents an unprecedented level of underwriting success” says Gerry Glombicki, Director of Insurance at Fitch Ratings. “However, all good things eventually come to an end, and these favorable underwriting profits are not sustainable in the long term in light of competitive forces, recent price deterioration and potential for future claims trend deterioration.”

Recent regulatory rate filings show underwriters are reducing prices in almost every state, and data from the Council of Insurance Agents and Brokers (CIAB) shows workers’ comp renewal rates have declined for the past 17 consecutive quarters.

There are a few factors that can promote a sudden deterioration in performance including an increase in claims frequency or severity, and new regulatory developments in key states. The rating bureau does not think these issues are a threat in the short term, but they do bear monitoring.

In 2018, positive results were driven by recognition of greater reserve redundancies, which totaled 15 percent of segment earned premiums. Their analysis shows that conservatism in loss reporting for recent accident years predicts continued segment favorable reserve development in the future, but at a lower magnitude than recent futures.

Read more, including the full report “U.S. Workers’ Compensation Market Update – Fifth Consecutive Year of Underwriting Profits Projected for 2019” from Fitch Ratings.