In this issue, we are pleased to feature an analysis of written premiums, loss ratios, and combined ratios for the workers’ compensation line. The data was derived from the “Insurance Expense Exhibit” of the NAIC’s property/casualty annual statement. The Research and Actuarial Department is committed to providing insurance regulators, consumers, academics, industry and government entities and other interested persons with insurance statistical, actuarial, financial and market conduct information for economic analysis and regulatory monitoring of the insurance marketplace.
Workers’ compensation is directly connected to employment and wage growth and, as a result, has been heavily impacted by the “Great Recession.” An examination of the data suggests that the recent economic downturn in the United States has led to a decline in premiums and an increase in combined ratios. Continued high unemployment and lack of growth in wages could lead to an increase in assigned risk pools if combined ratios continue to deteriorate, stressing the primary markets. From 2006 to 2010, premiums have declined more than 25% while the combined ratio rose more than 20 points over the same period.
Figure 1 shows a rise in direct written premiums for the first time since 2005. In 2011, direct written premium increased 7.24%, from approximately $35.5 billion in 2010 to $38.3 billion in 2011. The pure loss ratio for workers’ compensation has remained relatively consistent over the past two years, increasing 0.05 percentage points to 71.09% in 2011 from 71.04% in 2010 (Figure 2). The pure loss ratio, as well as the combined ratio for workers’ compensation, has steadily increased since 2006. The 2011 combined ratio was 118.85%, up 3.5 percentage points from 2010 (Figure 3). A combined ratio of more than 100% signifies an underwriting loss. The combined ratio for the workers’ compensation line is higher than all other major commercial lines and has maintained this ranking for three straight years.
Market shares among companies did not vary to a large degree over the past year. The same 10 insurers made up the top 10 in 2010 and 2011 in the workers’ compensation line.
Figure 1: Workers’ Compensation — Written Premiums (000’s)
Figure 2: Workers’ Compensation — Ratio Analysis
Figure 3: Workers’ Compensation — Combined Ratio
The NAIC publishes several reports containing workers’ compensation data. Expense and loss ratio data can be found in the Statistical Compilation of Annual Statement Information for Property/Casualty Insurance Companies and data on market shares can be found in the 2011 Market Share Reports for Property/Casualty Groups and Companies. This report contains data on the top 125 groups/companies writing each of the property/casualty lines of business and provides the top 10 groups by state. For more detailed information on a particular line of business, Market Share By Line reports provide the top 99% of the market share by state for each line of business.
These reports are available for purchase at: www.naic.org/prod_serv_alpha_listing.htm#market_share