Fitch Ratings: Comp rates improving; underwriting losses remain
Its report, Workers' Compensation Insurance Market Update, says pricing trends will likely continue to increase. It also projects a combined ratio of 105 by the end of the year.
Rates increased at a rate of nearly 10 percent in the first quarter of 2013, based on a survey by the Council of Insurance Agents & Brokers, the report says. Also, a report by Willis North America "predicts that workers' comp rates will be up 2.5 percent -- 10 percent in 2013, with more than 20 percent increases projected in the underperforming California market."
The increased rates were due in part to "some withdrawals of underwriting capacity in weaker performing markets by larger writers and niche players," Fitch says. Seabright Holdings Inc., for example, was acquired by Enstar Group Limited this past February.
Where increasing competitiveness, the effects of the economic recession and unemployment had caused premium revenue to shrink "substantially" between 2007 and 2010, there was a 7 percent increase in written premium volume in 2011 and 2012, the report notes. However, it also says premium volume for the industry "remains down by 18 percent from peak levels reached in 2006."
Pricing improvements, exposure growth, and a return to favorable frequency helped lower the combined ratio in 2012 to 110 percent after five years of deteriorating underwriting results that resulted in a combined ratio of 117 percent in 2011. Although the underwriting results are still "subpar," pricing momentum and generally stable economic trends should result in further improvements. Fitch's projection for a 105 combined ratio in calendar year 2013 is "largely due to the effect of better pricing on the loss ratio, and revenue growth, modestly reducing expense ratios," the report says. "Adverse reserve development will likely add to underwriting losses in the near term."
The workers' comp line posted its fourth consecutive year of calendar year adverse loss reserve development in 2012, which Fitch said bucked the industry trend of favorable reserve development. "Fitch believes that the industry will continue to report unfavorable reserve development in the workers' comp line for the next several years as analysis of segment reserves based on paid and incurred loss development projections and ratio analysis from accident year data compiled in Schedule P of statutory financial statements reveal further reserving weakness."
Fitch also noted the "wide variation" in the underwriting performance of companies. "Despite soft market conditions in the workers' comp market, there are a number of underwriters that have generated consistent underwriting profits from 2008-2012, including The Chubb Corporation, Hartford Fire Insurance Company Group, National Indemnity Company, Travelers Companies, Inc., and W.R. Berkley Corporation," the report said.
In terms of market share, Liberty Mutual was at the top for net premiums written in 2012 with 9.9 percent. It was followed by Travelers, Hartford, AIG, and National Indemnity.
The "reduction of market premiums written by state funds" is another continuing theme noted by the authors. The State Compensation Insurance Fund of California, for example, reported a 60 percent decline in written premium volume between 2007 and 2012.
By Nancy Grover
Read more at the WorkersComp Forum homepage.
July 29, 2013
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