A.M. Best: 2010 may mark the end of state funds' recent cycle
State funds typically serve as guaranteed markets for companies that have difficulty obtaining insurance in the general marketplace. The recent years of soft conditions is changing, resulting in net premiums written improving in all state funds except the State Compensation Insurance Fund of California and the State Workers' Insurance Fund in Pennsylvania.
The overall 7.1 percent increase among the 20 state funds marked the end of the decline in net premiums written that had occurred from 2004 to 2010. In its report, State Funds' Net Premiums Written, Surplus Grew in 2011: Signs of Change Ahead, Best cited these factors leading to the increased premiums:
- Improved premium audit adjustments. As payrolls stabilized in 2011, most companies found audit results also stabilized with lower return premiums or even flat or positive audit results.
- Stabilization of employment and payrolls.
- A trend toward higher pricing. Initially, much of the increase in 2011 was due to reduced use of scheduled debits within rate plans. "However, a number of companies have indicated that they have filed for and received approval of increased rates, which will take effect through 2012."
A variety of factors resulted in the state funds' calendar year combined ratio of 134.9, the highest level in 10 years. On an accident year basis, the combined ratio was up less than 1 point, marking the smallest increase since 2008.
"As market conditions firm and perhaps enter a full-fledged hard market over the next several years, A.M. Best expects the state funds to continue growing at a faster pace than the broad market," the report says. "Overall, it appears as though 2010 may mark the end of the recent cycle for the state funds. While A.M. Best does not believe a traditional hard market has begun, rate increases and anecdotal reports of more stringent application of underwriting and pricing criteria indicate that the stage may be set for a change in the market over the next year."
Read more at the WorkersComp Forum homepage.
August 23, 2012
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