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A.M. Best: Specialist Carriers Grabbing Bigger Percentage of Premium

By Elaine Goodman (medical/business Reporter)

Thursday, September 28, 2017 | 1006 | 0 | 0 min read

As large, multi-line insurance carriers such as American International Group are pulling back from workers’ compensation, smaller, specialty writers are stepping in to write more of the business, according to a new report from A.M. Best.

AIG shed $833 million in workers’ comp net premiums written last year, or 35% of its $2.35 billion total in 2015.

Meanwhile, carriers that receive half or more of their net written premiums from workers’ comp, including state funds, picked up $1.6 billion in net premiums written in 2016, reaching a total of $24.8 billion. The group has increased its share of the U.S. workers’ comp market from 33.8% in 2010 to 44.8% in 2016, the report said.

The group, which A.M. Best calls its workers’ compensation composite, includes about 250 companies.

“As some of the larger writers have decreased their exposure to the workers’ compensation line of business, specialist writers (included in the WCC) have assumed this business,” analysts Bobby Skrabal and Carl Altenburg wrote in the report.

Nationwide, the U.S. workers’ compensation sector reported a record high $58.5 billion in direct premiums written in 2016, according to the report. But growth is slowing, the analysts said, due to work comp rates that have been steadily falling since the beginning of 2015. In addition, the industry has increased its use of reinsurance for the workers’ compensation line since the 2008 financial crisis, ceding nearly 50% more of the business than before the recession.

Workers’ comp loss experience has improved in recent years and the combined ratio was a profitable 95.5% in 2016, the rating agency said.

In terms of workers’ comp market share, the A.M. Best report lists the Travelers Group and Hartford Insurance Group as the No. 1 and 2 companies, respectively, in 2016. That’s the same result reported by the National Association of Insurance Commissioners, which ranks the companies by direct premiums written rather than net premiums written.

Liberty Mutual, like AIG, has been sliding down in workers’ comp market share, ranking No. 8 last year in the NAIC report, compared to No. 7 in 2015 and No. 4 in 2014. According to the A.M. Best report, Liberty Mutual lost 1.7% of workers’ comp net premiums written in 2016, or $34 million — a much smaller amount than the decrease seen at AIG.

The workers’ comp market share held by AIG might be expected to fall even further. The company announced this week that it is eliminating a separate commercial insurance segment, and the segment’s chief executive officer, Rob Schimek, is leaving at the end of October. Commercial insurance will instead be one piece of a new general insurance segment under the restructuring at AIG.

Companies that saw the biggest percentage gains in workers’ comp net premiums written last year were Berkshire Hathaway Insurance Group, which grew 13%, to $2.36 billion, and AmTrust Group, where net premiums written increased 17.9%, to $1.36 billion, according to the A.M. Best report.

Privately held ICW Group increased net premiums written by 12.8% last year, to $912 million. The San Diego-based company is included in A.M. Best’s workers’ comp composite group.

A.M. Best also analyzed the private carriers in its workers’ compensation composite, excluding the state funds.

The private carriers have increased their workers’ compensation net premiums by about $5 billion from 2012 to 2016 and increased their market share of total private workers’ compensation net premiums by almost 7%.

Those carriers have improved their loss and loss-adjustment expense ratio by 12.5 points, resulting in a nearly 8-point advantage over carriers not in the composite group, i.e., those for which workers’ comp accounts for less than half of net premiums written.

Private carriers in the composite group also improved their expense ratio and ended up with a combined ratio of 87.3% last year, compared to 95% for carriers outside the group.

A.M. Best currently has a negative outlook for the U.S. commercial lines segment, of which workers’ compensation is the largest component, as workers’ comp insurers remain under pressure due to decreasing rates and increasing competition. 

A decline in injury frequency and the use of technology greatly benefitted companies’ bottom lines in 2016, A.M. Best said. And unemployment has decreased steadily from a peak of 9.6% in 2010. Growth in the workforce generally means an increase in work comp premiums.

“However, A.M. Best notes that long unemployment rate declines are typically followed by sharp spikes in unemployment, and believes that workers’ compensation writers should expect payroll and premium growth to halt sooner rather than later unless wage growth accelerates,” the analysts said.

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