US Workers Compensation Insurance Continues To Outperform

The US workers compensation segment remains the most profitable line of business in the property-casualty (P&C) industry, driven by declines in loss frequency and favorable reserve development, according to a report from AM Best. 

The September 2024 Best's Market Segment Report, titled "Workers' Compensation Winning Streak Continues," highlights that since 2015, this segment has consistently outperformed all other personal and commercial lines of business. This sustained profitability supports AM Best's stable outlook for the workers compensation market. 

In 2023, the segment reported a combined ratio of 88.7, slightly better than the median 10-year combined ratio of 91.5. "Effective workplace safety initiatives of the past decade or more have helped control loss frequency, and, along with declines in fraud and in defense costs, have contributed to the line's excellent underwriting margins," said Christopher Graham, senior industry research analyst at AM Best. The report also noted that the net operating ratio for workers compensation was 14.5 points better than the industry's overall ratio. 

Further, AM Best data for year-end 2023 showed favorable loss and loss adjustment expense reserve development for older accident years, with workers compensation benefiting from $6.9 billion in favorable reserve development. In comparison, the entire P&C industry showed only $2.9 billion in favorable development, signaling adverse reserve development of approximately $4 billion across other lines. 

Additional key findings from the report include the following.

• Medical severity remains low, falling below core inflation levels, supporting favorable loss development. 
• Although pricing has dropped for nine consecutive quarters, wage increases and job growth have driven premiums above prepandemic levels. 
• The market remains competitive and profitable, with the top 25 insurers writing approximately 67 percent of all workers compensation premiums, a relatively low concentration compared to other insurance lines. 

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