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U.S workers compensation set for fifth year of underwriting profit, says Fitch

18th July 2019 - Author: Matt Sheehan

The US workers compensation market is on track for a fifth consecutive year of underwriting profits in 2019 despite a recent weakening in market fundamentals, according to Fitch Ratings.

market growthThe rating agency noted that the industry’s statutory combined ratio fell to 86% in 2018, and has averaged 93% annually since 2015.

“The workers compensation segment is known for past periods of volatility, but recent experience represents an unprecedented level of underwriting success” says Gerry Glombicki, Director of Insurance at Fitch Ratings.

“However, all good things eventually come to an end, and these favorable underwriting profits are not sustainable in the long term in light of competitive forces, recent price deterioration and potential for future claims trend deterioration.”

Underwriters are currently reducing prices in nearly all states, and data from the Council of Insurance Agents & Brokers (CIAB) shows that workers compensation renewals rates have declined for the last 17 quarters.

Fitch cautioned the market to monitor a number of issues that could trigger a sudden deterioration in performance, including an increase in claims frequency or severity, and new regulatory developments in key states.

Most large underwriters have posted favourable underwriting profits in the workers’ compensation segment over the last five years, with Berkshire Hathaway and Chubb achieving the lowest combined ratios for the period.

In 2018, analysts argued that positive results were partly driven by recognition of greater reserve redundancies, which totalled approximately 15% of segment earned premiums.

Fitch continues to maintain a stable sector outlook for US commercial lines insurers based on solid market fundamentals and capital adequacy measures that it believes can withstand significant adversity in future.

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