Workers’ Compensation Profits Are Strong, but the Future Is Unclear

Underwriting profits for Workers’ Compensation (WC) hit an annual average of $4.8 billion over the last five years, exceeding all other major property and casualty lines. According to a recently released market segment report from credit agency AM Best, WC’s strong favorable loss reserve development drove the favorable reserve development across the entire property/casualty industry. 

Despite WC’s healthy profits, however, AM Best says this shouldn’t necessarily set expectations for the future. 

Here’s a brief summary of the market segment report: 

  • Over the past five years, WC’s net loss ratio has fallen between 45.4 and 49, which AM Best attributes to improvements in workplace safety, legislative changes that curbed WC claims, and an overall decline in claim frequency. 
  • The WC combined loss ratio has ranged from 86.2 to 92.2
  • As of September 2022, unemployment numbers were at 3.5 percent compared to 5.4 percent last year. This may indicate a rise in WC premiums through the end of the year. 
  • The impacts of inflation have yet to be fully seen and could lead to rate increases. For example, if we see medical costs go up without also seeing increases in employee wages, WC rates may also need to increase to make up the difference. 
  • WC policyholders’ surplus has grown, but the net income for WC insurance companies has not. As a result, for the past two years there’s been a decrease in after-tax return on equity. Once 2022 comes to a close, we’ll have a better idea of whether the return on equity will rise to pre-pandemic levels or remain low. 

You can find more in-depth details in the full AM Best Workers’ Compensation report.

Jencap specializes in Workers’ Compensation insurance with a market reach of over 60 monoline Workers’ Compensation carriers. Our dedicated WC team works across all industries and premium sizes to offer a broad range of coverage solutions. Contact one of our brokers today for a quote.

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