2025 State of the Line Guide

Posted Date: May 13, 2025  

Introduction

NCCI’s annual State of the Line presentation provides an exclusive review of trends, cost drivers, and significant developments shaping the workers compensation (WC) industry. This State of the Line Guide provides a slide-by-slide examination of the key insights, data sources, and formulas underlying the State of the Line presentation.

As you review the information contained in this Guide, it may be useful to keep in mind the following market indicators and trends that NCCI’s 2025 State of the Line presentation highlighted:

  • Workers compensation net written premium decreased 3% in 2024
  • The 2024 calendar year combined ratio for workers compensation is 86%, a sign of underwriting strength for the system
  • Workers compensation’s 2024 accident year combined ratio is 99% with prior years continuing to experience downward reserve development
  • NCCI estimates a redundant industry reserve position of $16B
  • Lost-time claim frequency declined by 5% in 2024, a faster pace of decline than the long-term average
  • Severity grew in 2024 with increases of 6% for medical claim severity and 6% for indemnity claim severity

P/C Results

Net Written Premium Growth

Key Insights

  • Total property and casualty (P/C) net written premium for private carriers increased by 8.8% to $927.1 billion in 2024
  • Most lines of business experienced premium increases, most notably in the larger lines of Personal Auto and Homeowners, driven by rate increases in 2024 throughout much of the country
  • Workers compensation had the only premium decrease of all the lines shown—driven by decreases in rates that exceeded the pace of payroll growth in 2024

Background

The net written premium in this slide provides a measure of the size of each major line of business in the property and casualty (P/C) insurance industry.

Data

  • National Association of Insurance Commissioners (NAIC) Annual Statement data for individual carriers prior to consolidation of affiliated carriers
  • Insurance Expense Exhibit Part II—Allocation to Lines of Business Net of Reinsurance

The values for the most recent year are preliminary because the NAIC may still receive additional data submissions.

Share of Total Commercial Lines Net Written Premium

Key Insights

  • In general, the Workers Compensation line makes up a small share of the total net written premium for all commercial lines
  • As premiums in other commercial lines have increased over the last 20 years, the Workers Compensation share has decreased from 17% in 2004 to 10% in 2024

Background

The net written premium in this slide provides a measure of the share of Workers Compensation business in the total commercial lines sector of the property and casualty (P/C) insurance industry. Commercial lines represent all P/C lines of business except Personal Auto and Homeowners.

Data

  • NAIC’s Annual Statement data for individual carriers prior to consolidation of affiliated carriers
  • Insurance Expense Exhibit Part II—Allocation to Lines of Business Net of Reinsurance

The values for the most recent year are preliminary because the NAIC may still receive additional data submissions.

Net Combined Ratio (by Year)

Key Insights

  • Calendar Year 2024 is the first year since 2021 with an overall P/C industry combined ratio below 100%, and represents the most profitable industry underwriting results in a decade
  • Private carriers produced an underwriting gain in 11 of the 21 years displayed, including 6 of the last 10 years
  • The 20-year average combined ratio is 100%

Background

This slide displays a long-term history of the net combined ratios for the total P/C industry. A combined ratio is the sum of the loss ratio, loss adjustment expense (LAE) ratio, dividend ratio, and underwriting expense ratio. The loss, LAE, and dividend ratios are calculated as ratios to earned premium. The underwriting expense ratio is calculated as a ratio to written premium to provide a better match of the timing of the numerator and denominator.

Data

  • NAIC’s Annual Statement data: 2004–2008 and 2013–2024p
  • Insurance Services Office: 2009–2012

The value for the most recent year is preliminary because the NAIC may still receive additional data submissions.

Combined ratios in the underlying table are in percentages.

Net Combined Ratio

Key Insights

  • The total P/C combined ratio was 97% for private carriers in 2024
  • Decreases in the Personal Auto and Homeowners combined ratios are driving the drop in the total P/C combined ratio compared to 2023
  • Workers Compensation remains one of the most profitable lines for underwriting of all the P/C lines shown, with a combined ratio of 86% in 2024

Background

The calendar year net combined ratios in this slide measure the overall performance of each line of business and the P/C industry as a whole. See the Background section of Net Combined Ratio (by Year) for more information.

Data

  • NAIC’s Annual Statement data for individual carriers prior to consolidation of affiliated carriers
  • Insurance Expense Exhibit Part II—Allocation to Lines of Business Net of Reinsurance

The values for the most recent year are preliminary because the NAIC may still receive additional data submissions.

WC Loss Drivers

Total Claim Severity

Key Insights

  • The combination of indemnity and medical severities into total claim severity illustrates an increase in average total claim severity since Accident Year 2004—approximately +2% per year on average
  • In general, growth in severity is largely a function of inflation because these severity values have not been adjusted to a common inflation level
  • NCCI estimates that the average total lost-time claim severity for Accident Year 2024 will be about 6% higher than Accident Year 2023

Background

This slide displays average total claim severity based on data for all jurisdictions where NCCI provides ratemaking services. Accident Years prior to 2010 exclude Texas and prior to 2014 exclude West Virginia. All years exclude large-deductible policies. Severity represents ultimate indemnity and medical losses divided by ultimate lost-time claims. Data is valued as of 12/31/2023. However, Accident Year 2024 is based on preliminary data valued as of 12/31/2024.

Data

  • NCCI’s Financial Call data; excludes COVID-19 claims through 7/1/2023

The underlying table shows two total severity values for Accident Years 2010 and 2014. Accident Year 2010 is restated to exclude Texas in order to match the states in Accident Year 2009. Accident Year 2014 is restated to exclude West Virginia in order to match the states in Accident Year 2013. This restatement ensures that each year’s severity change is based on the same group of states.

Indemnity Claim Severity

Key Insights

  • NCCI estimates that the average indemnity cost per claim for Accident Year 2024 will be about 6% higher than Accident Year 2023.
  • Accident Years 2022–2024 each saw larger-than-average increases in indemnity severity. The larger-than-average changes are largely driven by significant wage increases in recent years.

Background

This slide displays average indemnity claim severity based on data for all jurisdictions where NCCI provides ratemaking services. Accident Years prior to 2010 exclude Texas and prior to 2014 exclude West Virginia. All years exclude large-deductible policies. Severity represents ultimate indemnity losses divided by ultimate lost-time claims. Data is valued as of 12/31/2023. However, Accident Year 2024 is based on preliminary data valued as of 12/31/2024.

Data

  • NCCI’s Financial Call data; excludes COVID-19 claims through 7/1/2023

The underlying table shows two indemnity severity values for Accident Years 2010 and 2014. Accident Year 2010 is restated to exclude Texas in order to match the states in Accident Year 2009. Accident Year 2014 is restated to exclude West Virginia in order to match the states in Accident Year 2013. This restatement ensures that each year’s severity change is based on the same group of states.

Indemnity Claim Severity vs. Wage Inflation

Key Insights

  • The change in indemnity claim severity has historically tracked quite closely with the change in average wage
  • In more recent years, the rate of wage growth has increased, putting upward pressure on indemnity claim costs

Background

This slide compares the growth in average indemnity claim severity with the growth in average weekly wages across the time period of 2004 to 2024. An adjustment to average weekly wages between 2008 and 2011 compensates for exceptional volatility in bonuses for the financial sector during these years. The year-to-year severity changes are based on data for unmatched states. The year a state is first included in the data may influence the countrywide severity change from the prior year. Both the WC average indemnity claim severity and average weekly wage trend lines are indexed to 2004. All years exclude large-deductible policies.

Data

  • Indemnity severity is derived from NCCI’s Financial Call data; excludes COVID-19 claims through 7/1/2023
  • US Average Weekly Wage is based on Quarterly Census of Employment and Wages (QCEW) data from the US Bureau of Labor Statistics (BLS) for 2004–2007, 2012–2019, and 2022–2023; NCCI and QCEW for 2008–2011 and 2020–2021; and BLS, the US Bureau of Economic Analysis (BEA), and NCCI for 2024p

Values in the underlying table are in percentages.

Medical Claim Severity

Key Insights

  • NCCI estimates that the average medical lost-time claim severity for Accident Year 2024 will be about 6% higher than Accident Year 2023
  • The volume of medical losses in Accident Year 2024 is approximately 2% higher than Accident Year 2023, but the lost-time claim volume is estimated to have decreased by approximately 4% in Accident Year 2024

Background

This slide displays average medical lost-time claim severity based on data for all jurisdictions where NCCI provides ratemaking services. Accident Years prior to 2010 exclude Texas and prior to 2014 exclude West Virginia. All years exclude large-deductible policies. Severity represents ultimate medical losses divided by ultimate lost-time claim counts. Data is valued as of 12/31/2023. However, Accident Year 2024 is based on preliminary data valued as of 12/31/2024.

Data

  • NCCI’s Financial Call data; excludes COVID-19 claims through 7/1/2023

The underlying table shows two medical lost-time claim severity values for Accident Years 2010 and 2014. Accident Year 2010 is restated to exclude Texas in order to match the states in Accident Year 2009. Accident Year 2014 is restated to exclude West Virginia in order to match the states in Accident Year 2013. This restatement ensures that each year’s severity change is based on the same group of states.

Medical Share of Losses Over Time

Key Insights

  • The share of medical losses has been relatively stable over time
  • Medical benefits continue to account for a majority of total losses

Background

This slide displays medical share of losses based on data for all jurisdictions where NCCI provides ratemaking services. Accident Years prior to 2010 exclude Texas and prior to 2014 exclude West Virginia. All years exclude large-deductible policies. The medical share of losses represents ultimate medical losses (including losses from medical-only claims) as a proportion of ultimate indemnity and medical losses combined. Data is valued as of 12/31/2023. However, Accident Year 2024 is based on preliminary data valued as of 12/31/2024.

Data

  • NCCI’s Financial Call data; excludes COVID-19 claims through 7/1/2023

Values in the underlying table are in percentages.

Medical Share of Losses by Threshold

Key Insights

  • As the size of the claim threshold increases, medical costs take up a larger portion of the total share of losses
  • Medical costs make up approximately 90% of total costs for claims with $5M or more total incurred losses
  • Similarly, medical costs account for ~80% of total costs for claims in the $4M–$5M range, ~70% of total costs for claims in the $3M–$4M range, and ~60% of total costs for claims in the $2M–$3M range

Background

This slide displays the average medical share of losses by threshold based on data for all jurisdictions where NCCI provides ratemaking services for Accident Years 2004–2024. Accident Years prior to 2010 exclude Texas and prior to 2014 exclude West Virginia. All years exclude large-deductible policies. The medical share of losses represents ultimate medical losses (including losses from medical-only claims) as a proportion of ultimate indemnity and medical losses combined. Data is valued as of 12/31/2023. However, Accident Year 2024 is based on preliminary data valued as of 12/31/2024.

Data

  • NCCI’s Financial Call data; excludes COVID-19 claims through 7/1/2023

Medical Paid Per Claim

Key Insights

  • The largest medical cost category is Physician, accounting for over 40% of medical costs.
  • Total medical paid per claim receiving treatment increased roughly 7% between 2023 and 2024. This change is generally consistent among most cost categories.

Background

This slide contains 2024 share data and the latest year-over-year change between 2023 and 2024 in paid per claim receiving treatment by medical cost category. This data is considered preliminary and subject to change given that it is based on medical payments made in the same year in which the accident occurred and was reported to NCCI prior to 4/1 in the subsequent year. It includes all states where NCCI provides ratemaking services.

Data

  • NCCI’s Medical Data Call

WCWMI by Medical Cost Category

Key Insights

  • Overall WC medical price changes have hovered around 2%–3% over the last three years
  • Changes to physician services, the largest medical cost category, averaged roughly 1.5% over this time period

Background

The Workers Compensation Weighted Medical Price Index (WCWMI) is a composition of medical cost components from the Producer Price Index and the Consumer Price Index, reweighted using our Medical Call data to better match the mix of spend in workers compensation.

Data

  • US Bureau of Labor Statistics for both the Producer Price Index and the Consumer Price Index.
  • NCCI’s Medical Data Call for component weights.

Physician Paid Per Claim

Key Insights

  • Utilization is driving the majority of the 2024 cost increase in the Physician cost category
  • Physician utilization is experiencing increases in a variety of utilization categories, including physical medicine and evaluation and management

Background

This slide contains the latest year-over-year change between 2023 and 2024 in utilization for physician services. This data is considered preliminary and subject to change given that it is based on medical payments made in the same year in which the accident occurred and was reported to NCCI prior to 4/1 in the subsequent year. It includes all states where NCCI provides ratemaking services.

Data

  • NCCI’s Medical Data Call

Claim Frequency

Key Insights

  • NCCI estimates that lost-time claim frequency for Accident Year 2024 will be 5% lower than that for Accident Year 2023
  • Accident Year 2024 represents the third consecutive decrease in frequency greater than the long-term average annual change of –3.6% that followed the pandemic-related increase in Accident Year 2021
  • NCCI expects that the long-term downwards trend in frequency will likely continue for at least the near future

Background

This slide displays changes in frequency (lost-time claims per million dollars of pure premium) for all jurisdictions where NCCI provides ratemaking services. The year-to-year changes are based upon matched states.

Frequency is defined as lost-time claim counts (developed to an ultimate basis) per million dollars of premium. Premium is adjusted to current wage and voluntary pure premium levels. Data is valued as of 12/31/2023. However, Accident Year 2024 is based on preliminary data valued as of 12/31/2024. Accident Years 2010–2011 and 2019–2023 show adjusted values, primarily due to significant changes in audit activity. All years exclude large-deductible policies.

Data

  • NCCI’s Financial Call data; excludes COVID-19 claims through 7/1/2023

Values in the underlying table are in percentages.

Wage-Adjusted Total Claim Severity

Key Insights

  • Average wage-adjusted total lost-time claim severity values are calculated by applying a wage adjustment to the loss amounts in previous accident years in order to bring those losses to the current wage level
  • On a wage-adjusted basis, total lost-time claim severity is lower than in Accident Year 2004 and has generally been declining since Accident Year 2009—although severity has trended higher over the latest two years
  • Between Accident Years 2004 and 2024, wage inflation (+3% per year on average) has outpaced total lost-time claim severity growth (+2% per year on average). The net effect is a decline in wage-adjusted total lost-time claim severity of approximately 1% per year on average

Background

This slide displays average wage-adjusted total lost-time claim severity based on data for all jurisdictions where NCCI provides ratemaking services. The gray portion of the bar represents the average total lost-time claim severity prior to being wage-adjusted. The orange portion of bar represents the additional dollars added to the average total lost-time severity after it has been wage-adjusted. Accident Years prior to 2010 exclude Texas and prior to 2014 exclude West Virginia. All years exclude large-deductible policies. Severity represents ultimate indemnity and medical losses, adjusted to a current wage level and divided by ultimate lost-time claims. Data is valued as of 12/31/2023. However, Accident Year 2024 is based on preliminary data valued as of 12/31/2024.

Data

  • Total severity is derived from NCCI’s Financial Call data; excludes COVID-19 claims through 7/1/2023
  • US Average Weekly Wage is based on Quarterly Census of Employment and Wages (QCEW) data from the US Bureau of Labor Statistics (BLS) for 2004–2007, 2012–2019, and 2022–2023; NCCI and QCEW for 2008–2011 and 2020–2021; and BLS, the US Bureau of Economic Analysis (BEA), and NCCI for 2024p

The underlying table shows two total severity values for Accident Years 2010 and 2014. Accident Year 2010 is restated to exclude Texas in order to match the states in Accident Year 2009. Accident Year 2014 is restated to exclude West Virginia in order to match the states in Accident Year 2013. This restatement ensures that each year’s severity change is based on the same group of states.

Loss Ratio

Key Insight

  • When we bring frequency and severity together, we see the overall impact to the average loss ratio in 2024 is –4%, which is slightly higher than the long-term average of –4.5%

Background

This slide displays the average change in loss ratios based on data for all jurisdictions where NCCI provides ratemaking services. Premium for Accident Years prior to 2007 exclude Texas and prior to 2012 exclude West Virginia. Losses for Accident Years prior to 2010 exclude Texas and prior to 2014 exclude West Virginia. All years exclude large-deductible policies. Loss ratio represents estimated ultimate indemnity and medical losses divided by pure premium. Data is valued as of 12/31/2023. However, Accident Year 2024 is based on preliminary data valued as of 12/31/2024.

Data

  • NCCI’s Financial Call data; excludes COVID-19 claims through 7/1/2023

WC Premium

Net Written Premium

Key Insights

  • The 2024 net written premium for private carriers was $41.6 billion, a decrease of about 3% from 2023. A large reinsurance transaction that ceded almost a quarter of a billion dollars contributed to this decrease.
  • Total net written premium, including state funds, was $46.3 billion.

Background

This slide displays WC net written premium by year, separately for private carriers and state funds.

In the context of the State of the Line presentation, NCCI’s definition of state funds includes only those carriers that are both members of the American Association of State Compensation Insurance Funds and largely exempt from paying federal income taxes. All other carriers are included in the private carrier values.

Data

  • NAIC’s Annual Statement data
  • Insurance Expense Exhibit Part II—Allocation to Lines of Business Net of Reinsurance

The values for the most recent year are preliminary because the NAIC may still receive additional data submissions.

Premium values in the underlying table are in billions of dollars.

Residual Market Premium

Key Insight

  • Premium in the NCCI-serviced pools was about $800 million from Policy Years 2019 through 2022. Policy Years 2023 and 2024 were approximately $700 million.

Background

Insureds that are unable to obtain coverage in the voluntary market can secure coverage through the Residual Market Pool in participating states. The estimated ultimate premium for all Residual Market Pools that NCCI services is displayed by policy year.

Data

  • Pool Data for all NCCI-serviced WC Residual Market Pool states, valued as of 12/31/2024
  • Tennessee Reinsurance Mechanism premium is not included
  • NCCI’s Residual Market Quarterly Results

Residual market premium values in the underlying table are in billions of dollars.

Residual Market Share

Key Insight

  • The residual market share has been consistently declining since 2014, and in 2024 it was approximately 5%

Background

Pool and direct assignment premium for all NCCI-serviced Residual Market Pool states as a percentage of total WC market premium is displayed by calendar year.

Data

  • Pool and direct assignment data for all NCCI-serviced WC Residual Market Pool states valued as of 12/31/2024
  • NCCI’s Residual Market Management Summary

Residual market shares in the underlying table are in percentages.

Direct Written Premium Change

Key Insights

  • Between 2023 and 2024, the overall change in NCCI and independent bureau private carrier direct written premium was a decrease of 1.3%
  • On a state level, the changes in direct written premium this year were mostly moderate, with decreases seen across 31 states

Background

Underlying the change in the private carrier direct written premium volume are the changes in premium volume by individual jurisdiction. The percentage changes depicted on the map exclude monopolistic fund states. Orange represents premium volume increases, while blue represents premium volume decreases. The deeper colors represent larger magnitudes of change.

Data

  • NAIC’s Annual Statement Statutory Page 14 for calendar year written premium by state

Direct written premium changes in the underlying table are in percentages.

Changes in Payroll by Component

Key Insights

  • Payroll increased by about 5% in 2024, about 1% from employment and 4% from wages
  • The largest employment gains were in the Health Care sector with above-average increases in the Leisure and Hospitality and Construction sectors as well
  • Wage growth was strong across nearly all sectors

Background

The change in payroll from 2023 to 2024 is broken down into changes in employment and wage rate.

Data

Combined Office is an aggregation of several sectors: Information, Financial Activities, and Professional and Business Services. All Other includes the Other Services, Private Education, Utilities, and Logging and Mining sectors.

  • US Bureau of Labor Statistics
  • US Bureau of Economic Analysis
  • NCCI

Values in the underlying table are in percentages.

Change in Combined Impact of Schedule Rating, Dividends, and Rate/Loss Cost Departure

Key Insights

  • The year-over-year change in the combined impact of schedule rating, dividends, and rate/loss cost departure has been about 1% per year over the last several years
  • The change in the latest policy year of +1.3% is primarily driven by an increase in rate/loss cost departures

Background

Schedule rating, dividends, and departure from bureau level loss costs/rates are the carrier-driven components to overall premium. This slide shows the year-over-year change in the combined impact of these components based on private carrier data for all jurisdictions where NCCI provides ratemaking services.

Data

  • NAIC’s Annual Statement Statutory Page 14
  • NCCI’s Financial Call data

Values in the underlying table are in percentages.

Direct Written Premium Change by Component

Key Insights

  • For NCCI states, private carrier direct written premium volume decreased by 1.4% between 2023 and 2024
  • The decrease in Loss Cost & Mix was mostly offset by the increases in Payroll and Carrier Departure & Schedule Rating

Background

This slide provides the major components impacting the overall change in private carrier direct written premium for all states where NCCI provides ratemaking services.

The Other Factors category may include changes in audit impacts, average experience mod, deductible credit types or amounts, mix of policy types, or mix between private carrier and either state fund or self-insured markets.

Data

  • Direct written premium change: NAIC’s Annual Statement Statutory Page 14
  • Components: NCCI’s Policy Data

Approved Changes in Bureau Loss Cost Level

Key Insight

  • Premiums are expected to decrease by an average of 6.1% from 2024 to 2025 as a result of loss cost/rate changes in approved NCCI filings

Background

The bureau loss cost level changes shown here reflect the approved changes in advisory rates, loss costs, and assigned risk rates as filed in jurisdictions where NCCI provides ratemaking services as of April 25, 2025.

The percentage changes by state, which reflect the impact on written premium (from one year to the next) due to NCCI filing activity, are weighted using calendar year direct written premium as reported to the NAIC. The changes shown reflect several factors that impact NCCI filings, such as changes in claim frequency and severity, changes in the economy, cost containment initiatives, legislative reforms, and judicial decisions. Texas is included beginning with Calendar Year 2011, and West Virginia beginning with Calendar Year 2008.

This methodology reflects the effective date of each state’s filing when determining the impact on written premium from one year to the next.

Data

  • NCCI
  • NAIC’s Annual Statement Statutory Page 14

The value for the most recent year is preliminary because there may be additional filing approvals with effective dates in 2025.

Approved changes in bureau loss cost level in the underlying table are in percentages.

Most Recent Changes in Bureau Loss Cost Level

Key Insights

  • The most recent filings resulted in decreases for nearly every NCCI state
  • The changes range from –13.2% to +6.5%
  • Double-digit decreases were filed in fewer states in 2025 compared to 2024

Background

This slide displays the most recent filed changes (whether approved or pending) in voluntary market advisory rates or loss costs in each jurisdiction where NCCI provides ratemaking services as of April 25, 2025. Law-only filings are not included in this analysis.

In the slide, orange represents premium level increases, while blue represents premium level decreases. The deeper colors represent larger magnitudes of change.

Data

Changes in bureau premium level in the underlying table are in percentages.

Payroll Growth

Key Insights

  • Payroll has grown on average by 4.2% annually since 2000. Payroll growth has exceeded this average for each year since the pandemic, although the changes in the last two years have been much closer to the long-term average.
  • On average, wage growth makes up about 75% of the payroll growth, with employment contributing the rest.
  • There was only one year where we saw both a payroll decline and wage decrease and that was at the end of the Great Financial Crisis in 2009.
  • Employment loss tends to coincide with recessions.

Background

The year-to-year change in annual private industry payroll is broken down into changes in employment and wage rate.

Data

The wage rate is derived from BLS employment and BEA total payrolls for private nonfarm industries.

  • US Bureau of Labor Statistics (BLS)
  • US Bureau of Economic Analysis (BEA)
  • NCCI

WC Results

Net Combined Ratio

Key Insights

  • The 2024 private carrier combined ratio of 86% marks the 8th consecutive year of results under 90% and the 11th consecutive year of underwriting gains
  • The 2024 combined ratio translates to a 14-point underwriting gain, a metric of significant underwriting profitability

Background

This slide shows workers compensation combined ratios. See the Background section of Net Combined Ratio (by Year) for more information.

Data

  • NAIC’s Annual Statement data for individual carriers prior to consolidation of affiliated carriers
  • Insurance Expense Exhibit Part II—Allocation to Lines of Business Net of Reinsurance

The value for the most recent year is preliminary because the NAIC may still receive additional data submissions.

Combined ratios in the underlying table are in percentages. Information for state funds is included for informational purposes. Information for private carriers and state funds combined is also included for informational purposes, but these values are only shown back to 2011 due to data availability.

Net Combined Ratio by Component

Key Insights

  • The dividends, underwriting expense, loss adjustment expense, and loss ratios for 2024 are all relatively consistent with the respective values for 2023
  • This is the eighth consecutive year with a loss ratio under 50%

Background

This slide shows the components of the workers compensation calendar year net combined ratios. The loss ratios in this slide compare net incurred losses to net earned premium. The loss ratio is the largest component of the combined ratio. The loss adjustment expense (LAE) ratio compares net incurred LAE to net earned premium. LAE includes both defense and cost containment expenses (DCCE) and adjusting and other expenses (AOE). The underwriting expense ratio compares the costs associated with writing insurance to net written premium. The underwriting expenses included in the ratio are:

  • Commission and brokerage expenses
  • Taxes, licenses, and fees
  • Other customer acquisition expenses
  • General expenses

Policyholder dividends are the smallest component of the combined ratio and are compared to net earned premium.

Data

  • NAIC’s Annual Statement data for individual carriers prior to consolidation of affiliated carriers
  • Insurance Expense Exhibit Part II—Allocation to Lines of Business Net of Reinsurance

The values for the most recent year are preliminary because the NAIC may still receive additional data submissions.

Values in the underlying table are in percentages.

Investment Gain on Insurance Transactions

Key Insights

  • The preliminary WC investment gain on insurance transactions increased slightly to 10% in 2024
  • This ratio is slightly below the WC long-term average of 11.4%

Background

The overall investment gain is allocated by line of business according to the NAIC-prescribed allocation procedure.

The WC investment gain on insurance transactions (IGIT) ratio measures investment performance by comparing investment income allocated to the WC line of business to WC earned premium.

Data

  • NAIC’s Annual Statement data for individual carriers prior to consolidation of affiliated carriers
  • Insurance Expense Exhibit Part II—Allocation to Lines of Business Net of Reinsurance

The value for the most recent year is preliminary because the NAIC may still receive additional data submissions.

Investment gain ratios in the underlying table are in percentages.

Pretax Operating Gain

Key Insights

  • A 10% investment gain ratio combined with a 14% underwriting gain resulted in a 24-point operating gain in 2024
  • This is the 8th straight year with results over 20%, which represents the most profitable period we’ve seen going back at least 30 years
  • Workers compensation results have been strong, with over a decade of operating gains and 10 straight years of operating gains greater than the long-term average of 14%

Background

The pretax operating gain in this slide measures the overall financial performance of the workers compensation line by considering both underwriting income and investment income. Pretax operating gain excludes direct changes to surplus, including, but not limited to, changes in:

  • Unrealized capital gains
  • Unrealized foreign exchange gain
  • Net deferred income tax
  • Nonadmitted assets
  • The provision for reinsurance
  • Surplus notes

Data

  • NAIC’s Annual Statement data for individual carriers prior to consolidation of affiliated carriers
  • Insurance Expense Exhibit Part II—Allocation to Lines of Business Net of Reinsurance

The value for the most recent year is preliminary because the NAIC may still receive additional data submissions.

Pretax operating gains in the underlying table are in percentages. Data for state funds is included for informational purposes.

Net Combined Ratios—AY As Reported vs. NCCI’s Selections

Key Insights

  • NCCI’s selection is the level to which NCCI believes each accident year (AY) will develop over time
  • For each of the latest five AYs, the difference between the NCCI-selected and carrier-reported combined ratios is 6 to 7 percentage points, which corresponds to approximately a $2.5B difference for each AY

Background

In this slide, NCCI’s selected net combined ratios are compared to reported private carrier workers compensation net combined ratios. The values are shown for the most recent 10 years on an accident year (AY) basis. Each AY combined ratio reflects the experience of accidents as of the latest data evaluation date. See the Background section of Net Combined Ratio (by Year) for more information.

Data

  • NAIC’s Annual Statement, Schedule P—Part 1D
  • Insurance Expense Exhibit Part II—Allocation to Lines of Business Net of Reinsurance

Combined ratios in the underlying table are in percentages.

Emergence of Reported WC Net Loss and LAE Ratios

Key Insights

  • The carrier-reported Loss and LAE ratios at the initial valuation for the last 10 AYs have been around 70%
  • In between the line segments are the reserve releases (emergence), which reflect the change in the reported Loss and LAE ratios from the initial valuation to the current valuation for each AY

Background

The net incurred loss and LAE ratio is calculated as the ratio of accident year (AY) net incurred losses and LAE to calendar year (CY) net earned premium. The AY net loss and LAE ratios change with each valuation as loss experience matures.

For each AY, the light orange lines represent the carrier-reported net loss and LAE ratios as of the initial valuation (the first year-end valuation for each corresponding AY). The dark orange lines represent the current valuation of the carrier-reported net loss and LAE ratios.

Data

  • NAIC’s Annual Statement, Schedule P—Part 1D

Net loss and LAE ratios in the underlying table are in percentages.

Emergence of NCCI’s Selected WC Net Loss and LAE Ratios

Key Insights

  • NCCI’s selected Loss and LAE ratios at the latest valuation have generally declined over the past 10 accident years compared to their initial valuations. However, the most recent accident years have increased.
  • The shaded areas between the line segments are the changes in NCCI-selected Loss and LAE ratios (emergence), which reflect the change in the projected Loss and LAE ratios from the initial valuation to the current valuation for each AY.

Background

The net incurred loss and LAE ratio is calculated as the ratio of AY net incurred losses and LAE to CY net earned premium. The AY net loss and LAE ratios change with each valuation as loss experience matures.

For each AY, the light blue lines represent the NCCI’s selected net loss and LAE ratios as of the initial valuation (the first year-end valuation for each corresponding AY). The dark blue lines represent the current valuation of the carrier-reported net loss and LAE ratios.

Data

  • NAIC’s Annual Statement, Schedule P—Part 1D

Net loss and LAE ratios in the underlying table are in percentages.

Net Loss and LAE Ratios—AY As Reported vs. NCCI’s Selections

Key Insights

  • For every AY displayed, NCCI believes the current As Reported AY results will decline over time, and the recent AYs may decline significantly. As AYs mature, we have seen convergence in NCCI’s selected and the As Reported values, and this pattern is expected to continue.
  • The AY 2024 As Reported Loss and LAE ratio is 6 points higher than NCCI’s selected ratio.
  • AY 2024 Loss and LAE ratios is higher than AY 2023.

Background

The accident year (AY) net incurred loss and LAE ratio is calculated as a ratio of AY net losses and LAE to CY earned premium. The values in this slide compare NCCI selections to those reported at the latest valuation by private carriers.

For a given AY, a deficiency occurs when NCCI’s selected net loss and LAE ratio is higher than the reported value by carriers; a redundancy occurs when NCCI’s selected net loss and LAE ratio is lower than the value reported by carriers.

Data

  • NAIC’s Annual Statement, Schedule P—Part 1D

Net loss and LAE ratios in the underlying table are in percentages.

Net Loss and LAE Reserve Adequacy

Key Insights

  • The private carrier reserve adequacy for year-end 2024 changed to –$16B (i.e., $16B redundancy). This dollar redundancy represents 14% of the total carried reserves, from NAIC’s Annual Statement Page 3.
  • The CY reserve releases more than offset the additional redundancy for AY 2024. This is the first year with a slight reduction in the estimated redundancy.

Background

The net reserve adequacy is the dollar difference (in billions) between NCCI’s estimate of net loss and LAE reserves and the reported private carrier net loss and LAE reserves.

The overall workers compensation net reserve adequacy is combined for all AYs at each year-end valuation and considers all reserve discounts as deficiencies.

A positive value on this slide indicates an overall reserve deficiency.

A negative value on this slide indicates an overall reserve redundancy.

Data

  • NAIC’s Annual Statement, Schedule P—Part 1D

Redundancies and deficiencies in the underlying table are in billions of dollars.

Net Combined Ratios—Three Measures

Key Insights

  • Adjustments to reserves on prior accident years impact calendar year (CY) results. Over $4 billion in prior year reserve reductions influenced the CY combined ratios for each of the last eight CYs.
  • The Accident Year (AY) 2024 As Reported combined ratio in the NAIC Annual Statement is 99, which is comparable to the AY 2023 As Reported combined ratio of 98.

Background

In this slide, the overall private carrier workers compensation net combined ratios are shown for the most recent 10 years on both calendar year and accident year bases. Each AY combined ratio reflects experience as of the latest data valuation date. See the Background section of Net Combined Ratio (by Year) for more information.

Data

  • NAIC’s Annual Statement, Schedule P—Part 1D
  • Insurance Expense Exhibit Part II—Allocation to Lines of Business Net of Reinsurance

The CY value for the most recent year is preliminary because the NAIC may still receive additional data submissions.

Combined ratios in the underlying table are in percentages.

Appendices

Appendix A—Definitions

Accident Year (AY)—A loss accounting term for experience that is summarized by the calendar year in which an accident occurred.

Adjusting and Other Expenses (AOE) Incurred—Loss adjustment expenses, other than those categorized as Defense and Cost Containment Expense. Examples:

  • Fees of adjusters and settling agents (but not if engaged in a contentious defense)
  • Attorney fees incurred in the determination of coverage, including litigation between the insurer and the policyholder

Assigned Carrier—The insurer assigned to provide residual market coverage to an eligible employer that has applied for workers compensation insurance under NCCI’s Workers Compensation Insurance Plan. An assigned carrier can be either a Servicing Carrier or direct assignment carrier.

Calendar Year (CY)—A method of accounting that includes all financial transactions occurring during a 12-month period, beginning January 1.

Commissions and Brokerage Expenses Incurred—Fees paid to producers.

Defense and Cost Containment Expense (DCCE) Incurred—Expenses for defense by the insurer in contentious situations (whether a first-party or third-party claim) for litigation involving a claim and for cost containment expense. Examples:

  • Surveillance expenses
  • Fixed amounts for cost containment expenses
  • Case management expenses for managing the overall cost of a claim
  • Litigation management expenses
  • Fees or salaries for appraisers, private investigators, hearing representatives, reinspectors, and fraud investigators, if working in defense of a claim
  • Attorney fees incurred owing to a duty to defend
  • Cost of engaging experts

Direct Assignment—Assigned risk business written and serviced directly by an insurance company that has been authorized by the Insurance Department to write such business. These policies are written without reinsurance through the National Workers Compensation Reinsurance Pooling Mechanism or other reinsurance pool.

Dividends to Policyholders—When actual costs and expenses are less than anticipated costs and expenses, carriers may opt to return the difference to policyholders in the form of a dividend.

Earned Premium—The proportional share of each policy’s written premium applicable to the expired part of the policy. Derived by subtracting the change in the unearned premium reserve from the written premium.

Estimated Annual Premium—Premium charged by an insurance company, at the time the policy is issued, for coverage provided by an insurance contract for a period of time. Estimated premium is reported before endorsements or audits.

Experience Mod—A factor calculated from actual case loss experience used to adjust an insured’s manual premiums (up or down) based on the insured’s loss experience relative to the average underlying the manual premiums. It compares the insured’s experience to the average class experience.

Exposure Accident Year (EAY):

  • Claims/Losses—Are on an accident-year basis
  • Earned Premium—Final audited premium for each policy is allocated to the appropriate calendar year based on the period of exposure

General Expenses Incurred—Overhead expenses incurred in the insurer’s operations, other than those included in the other expense categories. Examples:

  • Salaries
  • Rent and rent items
  • Equipment

Net Written Premium—The gross premium income adjusted for additional or return premiums, including any additions for reinsurance assumed and deductions for reinsurance ceded.

Other Acquisitions, Field Supervision, and Collection Expenses Incurred—Expenses incurred in obtaining insurance business. Examples:

  • Salaries
  • Equipment
  • Advertising
  • Employee relations and welfare
  • Allowance to managers and agents
  • Postage, telephone, and express
  • Rent and rent items

Policy Year (PY)—The year of the effective date of the policy. Policy year financial results summarize experience for all policies with effective dates in a given calendar year period.

Pure Premium—The portion of bureau level premium that provides for indemnity and medical loss payments.

Residual Market Pool—A financial agreement among participating insurers to share in the experience of certain assigned risks. This reduces both administrative costs and annual fluctuations in the liability of participating insurers resulting from the operation of state insurance plans.

Servicing Carrier—An insurer, other than a direct assignment carrier, authorized to receive Plan assignments and provide coverage to eligible employers on behalf of insurance company members of the National Workers Compensation Reinsurance Association NFP (NWCRA)—or participants in other reinsurance pooling mechanisms—incorporated as a part of the Plan in a state.

Servicing Carrier Allowance—The ceding commission retained by a Servicing Carrier as compensation for the expenses of servicing an employer under a Workers Compensation Insurance Plan or similar program.

Taxes, Licenses, and Fees Incurred—State taxes, assessments, and miscellaneous fees. Examples:

  • Premium taxes
  • Second Injury Fund assessments
  • General administration funds
  • Guaranty funds

Unearned Premium Reserve—The proportional share of each policy’s written premium applicable to the unexpired part of the policy.

Workers Compensation Insurance Plan (WCIP or Plan)—A program established and maintained by NCCI and approved by state insurance regulatory authorities whereby workers compensation insurance may be secured by eligible employers unable to secure such coverage in the voluntary market.

Appendix B—Formulas

After-Tax Return on Surplus \[ =\frac{\small\text{Net Income}}{\small\text{Average Surplus}} \]

Average Surplus \[ =\small\text{0.5 x (Surplus as regards policyholders, December 31 current year} \\ \small\text{ + Surplus as regards policyholders, December 31 prior year)} \]

Combined Ratio \[ =\small\text{Loss Ratio + LAE Ratio + Dividend Ratio + Underwriting Expense Ratio} \] Combined Ratio (Residual Market Slides) \[ =\frac{\small\text{Losses}}{\small\text{Earned Premium}} + \frac{\small\text{Expenses and Allowances}}{\small\text{Written Premium}} \]

Dividend Ratio \[ =\frac{\small\text{Dividends to Policyholders}}{\small\text{Earned Premium}} \]

Indicated Net Loss & LAE Reserves \[ =\small\text{Ultimate Net Loss & LAE – Net Loss & LAE Payments} \]

Investment Gain on Insurance Transactions (IGIT) Ratio \[ =\frac{\small\text{Investment Gain on Funds Attributable to Insurance Transactions + Other Income Less Other Expenses}}{\small\text{Earned Premium}} \]

Investment Gain Ratio \[ =\frac{\small\text{Net Investment Gain (Loss)}}{\small\text{Earned Premium}} \]

Loss Adjustment Expense (LAE) Ratio \[ =\frac{\small\text{DCCE Incurred + AOE Incurred}}{\small\text{Earned Premium}} \]

Loss & LAE Ratio \[ =\frac{\small\text{Incurred Loss + DCCE Incurred + AOE Incurred}}{\small\text{Earned Premium}} \]

Loss Ratio \[ =\frac{\small\text{Incurred Loss}}{\small\text{Earned Premium}} \]

Net Earned Premium \[ =\small\text{Net Written Premium + Change in Unearned Premium Reserve} \]

Net Reserve Adequacy \[ =\small\text{NCCI Indicated Net Loss & LAE Reserves – Private Carrier Net Loss & LAE Reserves As Reported} \]

Premium-to-Surplus Ratio \[ =\frac{\small\text{Net Written Premium}}{\small\text{Surplus as regards policyholders}} \]

Pretax Operating Gain \[ =\small\text{1 – (Combined Ratio – Investment Gain on Insurance Transactions Ratio)} \]

Underwriting Expense Ratio \[ =\frac{ \begin{bmatrix} \begin{align} & \small\text{Commissions and Brokerage Expenses Incurred} \\ & \small\text{+ Taxes, Licenses, and Fees Incurred} \\ & \small\text{+ Other Acquisitions, Field Supervision, and Collection Expenses Incurred} \\ & \small\text{+ General Expenses Incurred} & \end{align} \end{bmatrix} } {\small\text{Written Premium}} \]