After three banner years, the U.S. workers compensation market will face increasing pricing pressure and an erosion in results heading into next year. That means 2019 will be closer to a break-even combined ratio rather than a profitable one, Fitch Ratings said in a new report.
“Pricing pressure will continue going forward, though near-term premium volume will likely benefit from exposure growth as employee payrolls are expanding from higher wages and employment in a period of moderately improving economic growth,” the report states. “Fitch believes that workers compensation will experience some erosion in results going forward.”
Fitch noted that US workers have formed a compounded rate of 92.3 in the compensation market in 2017, generating combined three-year compounded ratios below 100 for the previous periods that generated long-term insurance losses. In 2015 and 2016, the combined compensation rates for workers are 95.4 and 95.6, respectively.
This winning line will not change in 2018. Fitch, meanwhile, said the market could still make a profit. The reason for this is that today there are many positive performance drivers, including exposure growth, a steady decline in claims frequency rates, and at the same time conservative reserve levels. Fitch said that in the next few years there will be a surplus in favorable loss reserves, but less than in 2017.
Fitch also said there are factors that could negatively impact future performance, such as premium rate pressures, increased severity of medical losses, and the erosion of past reform benefits in key states. The rating agency said that the direct premium volume to the market in 2017 was $ 56 billion, down 30 basis points from the previous year. Raporda has been the first year of low market premiums since 2010. Fitch also noted that net write premiums dropped by 1.3 percent compared to the same time period due to larger reinsurance disruptions.
“Premium income weakness has led to high expense ratios that have risen by two points from the industry to 2014, along with increased technology spending,” Fitch said in the report’s summary.
Fitch said that US commercial line insurers maintained a negative sector outlook based on “competitive factors and expectations of near-term profits”. However, according to the rating agency, most of them displayed a fixed appearance.
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