U.S. workers comp picture brightening: Fitch

In a new report, rating agency Fitch says the bleak picture faced by U.S. workers’ compensation insurers in the past several years turned around significantly in 2003, and is set to remain stable for 2004.Based on data from the National Council of Compensation Insurance Inc. (NCCI), the combined ratio in the workers comp line dropped to 108% in 2003, down from 111% in 2002 and 122% in 2001.This growth came on the back of significant and successive rate increases, although Fitch notes the pricing cycle in this line has likely peaked. This means rates moving forward are unlikely to keep pace with rising loss costs and adverse development on prior year claims. The NCCI puts reserve deficiency in the workers comp line at US$15 billion at the end of 2003, with more than half of this in California alone.There are bright spots even in that beleaguered state, however, Fitch notes. Recent reforms instituted by Governor Arnold Schwartzenegger should put a grip on loss costs, the rater says. California’s Workers Compensation Insurance Rating Bureau (WCIRB) says the accident-year combined ratio for 2003 was an impressive 94%, down from 116% in 2002 and 142% in 2001.For the segment as a whole, Fitch says it expects barring a catastrophic loss, underwriting performance will continue to improve in 2004. Moving forward, the question will be whether price competition drags the segment into pricing volatility, or if cooler heads will prevail.