Conditions look ripe for a hardening of the workers comp market later this year. I’ve been known to get just a bit ahead of myself in my predictions about lots of things – and this time may be no different. That said, the stars look to be getting closer to alignment, with profits up, underwriting losses increasing, and medical costs heading north as well.
Yesterdays’ PropertyCasualty 360 brought news that P&C insurers’ “2010 net income rose to $34.7 billion from $28.7 billion the year before, the industry’s net losses on underwriting for the year grew $7.4 billion compared to 2009.”
So, you say, how could the market be hardening be income is going up? Doesn’t that lead to more entrants to the market, more capital chasing less business?
Well, perhaps. But there’s a couple other things going on that weigh against a soft market.
First, insurers’ results aren’t very good. Last year’s 6.5 percent margin compares poorly to 9.1 percent, the average for last fifty years or so. As investors like to see a nice steady improvement in margins and a rosy outlook, those numbers are likely going to discourage the big money folks from allocating billions to the P&C insurance business.
The news from California isn’t encouraging either. The state fund’s loss ratio is above 157%.
157%.
Nationally, NCCI reports the picture is getting increasingly gloomy. This from Joan Collier’s report:
– After very minor underwriting losses in 2007 and 2008, the combined ratio for workers’ compensation (private carriers) shot up nine points in 2009–the largest single year increase since the mid-1980s.
– Deteriorating underwriting results, combined with a record low interest rate environment, left the line in an only slightly better-than-break-even position after investment income is considered.
– Combining the underwriting loss with the investment gains, the result is a pre-tax operating gain of 1.6 percent, the worst result since the 0.9 percent gain of 2003.
When you add a strengthening economy, growth in employment, and a faster pace of work – and the likely outcome of all that, which is an increase in claim frequency, coupled with the increased severity we’ve been experiencing for some time now, and the near-term outlook for workers comp doesn’t look so bright.
What does this mean for you?
A tighter market by the end of 2011 and increasing prices.
Apr
21
