Traditionally one of the most challenging underwriting segments in the U.S. commercial lines insurance market, workers compensation has experienced a meaningful turnaround in performance from large underwriting losses as recently as 2011. Several factors have contributed to this change in fortune, including better revenue growth, relative stability in claims trends and benefits from modestly favorable reserve development experience.
Executive Summary
The P/C industry has generated a calendar-year underwriting profit in workers compensation only once in the last 15 years, but the 2014 combined ratio inched close to breakeven. Here, Fitch Ratings' James Auden reviews recent trends explaining how the industry got to such a good place and discusses future impacts that will determine whether the industry records another profit in the near term.Favorable Underwriting Trends
For the property/casualty industry aggregate, the workers comp segment moved closer toward a breakeven calendar-year result in 2014 with a 102 combined ratio. This result continues a trend of sharp improvement in performance, as the industry combined ratio reached 117 as recently as 2011.
Consistent premium revenue growth is a key factor behind the recent turnaround in workers comp performance. Net written premium increased by 6 percent in 2014, consistent with the average growth rate over the last four years. This followed a period of consecutive years of significant written premium declines in workers comp from 2006-2010.
