OLDWICK, New Jersey – (COMMERCIAL THREAD) – Workers’ compensation underwriters have consistently generated better underwriting profits than other P&C lines of business, doing so again in 2020 amid the pandemic, according to a new report. AM Best report.
The Best Market Segment Report, titled “Workers’ Compensation Still Outpacing Other Lines”, indicates that underwriting results of workmen’s compensation insurers remained solid in 2020, despite a 10% drop in net premiums written, due to the substantial drop in payroll during the second quarter of the year. The combined ratio of 91.1 in the workers’ compensation segment in 2020 was a few points higher than in 2019, but still comfortably below the breakeven point of 100.0, reflecting profitable underwriting. Given the decline in premiums, expense ratios increased, but the increase was minimal and did not hold back underwriting results too much.
The volume of premiums for workers’ compensation writers has also been constrained by rate cuts in most states. According to the report, some authors are looking to develop new products and explore new markets in other lines of coverage and allow their workers’ compensation premiums to drop in states where they generate large premiums.
Despite a reduced premium base, occupational accident insurers have remained very profitable compared to other non-life insurance branches. Workers’ compensation insurers have benefited from a drop in the frequency of lost time claims linked to efforts to improve workplace safety. The other factors that have benefited the profitability of the line are the fall in fraud, work accidents and defense costs.
AM Best also analyzes the overall health of the workers ‘compensation business line through its Workers’ Compensation Composite, which is made up of U.S. companies, including public funds, of which Workers ‘compensation and net workers’ compensation premiums represent at least 50% of their total net premiums. Even with the fall in the workers compensation premium in 2020 due to the pandemic, the market share of these specialists fell to 26.2% in 2020, from 16.7% in 2011.
AM Best’s negative outlook for the workers’ compensation segment, the largest component of the U.S. commercial lines market, reflects continued uncertainty about the effects of COVID-19, from an economic perspective and regulatory, as well as legislative as states are considering presumptive legislation stemming from the pandemic. In addition, although the impact of the pandemic on insurers’ balance sheets has so far been tempered, concerns about the prolonged low interest rate environment persist. As a result, investment returns are expected to remain stable and insurers may start looking for riskier investments to generate a higher return.
To access the full copy of this market segment report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=313043.
AM Best is a global credit rating agency, news publisher, and data analytics provider specializing in the insurance industry. Based in the United States, the company operates in more than 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.
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