Although premium rate increases and market reforms will help to improve the underwriting results of California workers compensation insurance writers, they will still see underwriting losses in the aggregate in 2014, Fitch Ratings predicts.

Fitch notes that California is the nation’s largest workers comp market, garnering roughly 20 percent of countrywide 2013 direct written premiums in the line. It is also historically one of the more volatile-performing markets, exhibiting past periods of large underwriting losses, Fitch says.

The rating agency also notes that the 2013 combined ratio—estimated at 113 on an accident-year basis for 2013 by the California Workers Compensation Rating Bureau—has improved by nearly 30 points since 2010.

Reduced underwriting losses are largely tied to material recent price increases, coupled with relative stability in indemnity and medical claims costs from historical experience, offset by moderately higher claims frequency, Fitch says.

While prices are expected to continue to increase in the future, and insurers will benefit from impact of reforms enacted in 2012, “a shift to an underwriting profit may prove elusive,” Fitch concludes.

“Potential changes in loss severity, particularly related to medical costs, are the leading source of uncertainty that could forestall future combined ratio improvement.”

In terms of individual players, Fitch notes that market leader, The State Compensation Insurance Fund, continues to lose market share while companies including Berkshire Hathaway Inc., Amtrust Financial Services Group, and Employers Holdings Inc. expanded their premium bases in the state.

Source: Fitch Ratings