AM Best: Workers’ comp results reach ‘inflection point’ as incurred losses rise
By Michael Loney
April 1 - (The Insurer) – The U.S. workers’ compensation insurance segment is expected to remain profitable although AM Best anticipates its combined ratio will worsen to 93.0% this year from 89.0% in 2024.
AM Best maintains a stable outlook on the workers’ comp segment, citing expected sustained profitability expected in line with recent years and results benefiting from favorable prior-year reserve development.
However, the rating agency said that offsetting factors include projected loss reserve deficiency anticipated to increase at year-end 2024 year over year, resulting in a weaker reserve position.
In addition, sustained rate declines are expected to begin to pressure the loss and loss-adjustment expense ratio.
AM Best highlighted the potential for healthcare costs to rise faster than inflation over the near term, which could drive claims higher than expected on prior accident years while wage growth could drive indemnity severity higher.
“Results appear to have reached an inflection point with incurred losses beginning to tick higher, as indicated by the increase in the estimated reserve deficiency as of December 2024. This increase appears in the combined ratio which is expected to increase from 89.0 in 2024 to 93.0 in 2025,” AM Best said in a commentary.
The segment’s net premiums written are expected to remain flat for 2024 because of the soft rates. This is despite sustained low unemployment data combined with monthly job creation.
AM Best anticipates the carried reserves for the workers’ comp line will weaken by $5.6 billion in 2024, with the reserve deficiency increasing from an estimated $2.2 billion as of December 2023 to $7.8 billion as of December 2024.
“Market competition remains a concern, specifically as strong segment performance can attract new market participants,” the rating agency said.
Workers’ comp has been the most consistently profitable of the U.S. property casualty lines despite long-term rate decreases that began in 2015.
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