OLDWICK, NJ–(BUSINESS WIRE)–Annual underwriting profit in the U.S. workers’ compensation industry has averaged $4.8 billion over the past five years and totaled nearly $24 billion during the period, a level of profitability unmatched by the other main lines of business in property and casualty insurance, according to a new AM Best report.
In his Best Market Segment Report, “Workers Compensation Generates Solid Profits but the Future Remains Uncertain”, AM Best says direct premium volume also rebounded in 2021 to $52.2 billion, following a sharp decline in 2020. Reflecting the benefits of security and legislative changes that have held back workers’ compensation claims costs As claims frequency continues to decline, the segment’s net loss ratio ranged from 45.4 to 49.0 during the the last five-year period. The combined ratio remained within the range of 86.2 and 92.2 during the period, and was 87.9 in 2021. The strong favorable development of workers’ compensation claims reserves led to the positive results for the calendar year and was the main reason for the favorable development of the entire property and casualty insurance industry. reserve development. According to the report, what appears to be excess reserves paves the way for a more favorable development in 2022. Additionally, unemployment was 3.5% in September 2022, down significantly from 5.4% in 2021, and these indicators suggest a continued increase in the number of workers. ‘ compensation premiums until the end of 2022, but this will depend on other economic factors.
“Inflation could disrupt this stable environment. If inflation causes claims costs to rise, particularly on the medical side, without a commensurate increase in employee wages, rate increases may be required to cover the gap,” said Christopher Graham, senior industry analyst at AM Best. “Inflation could also force companies to further refine their risk management and loss control efforts to limit claims frequency.”
AM Best also analyzes the overall health of the workers’ compensation industry through its Workers’ Compensation Composite, which is made up of U.S. companies, including state funds, including workers’ compensation workers’ compensation excess net premiums constitute 50% or more of their total net premiums. At the end of 2021, these specialists accounted for nearly 35% of net workers’ compensation premium volume across the industry, up significantly from just under 30% in 2011. Net income for this population has always been strong, at over $3 billion each. the last six years.
“While net income remains strong, it has not increased, although the policyholder surplus has increased,” said David Blades, managing partner, AM Best. “This has resulted in a decline in after-tax return on equity over the past two years. Calendar year 2022 will provide more insight into ROE: will the current, lower level of return persist or will the ROE of the composite strengthen and reach or exceed- it the pre-pandemic levels? »
To access the full copy of this market segment report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=325081.
AM Best is hosting a Workers’ Compensation Market Briefing on Monday, November 7, 2022 at 1:00 p.m. EST. AM Best’s senior analytical staff and leading industry experts will provide updates on the state of the workers’ compensation market and emerging trends in underwriting, reserving and claims. To register, please see AM Best’s briefing – The Workers’ Compensation Market: What to Expect in the Year Ahead.
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