At its Annual Issues Symposium (AIS) in May 2018, NCCI presented the State of the Line Report—a comprehensive account of financial results for the workers compensation (WC) line of business. The results presented at AIS 2018 reflected the most up-to-date data available at the time, including NCCI’s preliminary estimates for Calendar Year 2017. In this report, NCCI provides updated results for 2017, as well as preliminary estimates for Calendar Year 2018.
For Calendar Year 2017, NCCI estimated WC premium volume net of reinsurance to be $39.8 billion for private carriers. The updated data reported by the industry indicates no change to this preliminary estimate.
NCCI has since evaluated the data reported as of mid-year 2018 to provide a full-year written premium volume estimate for Calendar Year 2018. While still early and subject to revision, NCCI’s analysis indicates an increase in net written premium (NWP) of 1.4% to $40.4 billion for private carriers.
In recent years, increased utilization of offshore reinsurance has stalled NWP growth. This trend may begin to subside due to the new Base Erosion Anti-Abuse Tax (BEAT), introduced in the Tax Cuts and Jobs Act of 2017. The BEAT, which imposes an additional tax burden on business transferred to offshore affiliates, has the potential to disrupt the reinsurance market and impact NWP growth. The 2018 estimate is based on private carrier-reported direct written premium and the historical relationship between direct and net written premium in recent years.
Changes in rates/loss costs impact premium growth and are reflective of several factors that impact system costs, such as changes in the economy, cost containment initiatives, and reforms. NCCI expects premium in 2018 to decrease by 9.7%, on average, as a result of rate/loss cost filings made in jurisdictions for which NCCI provides ratemaking services.
The cumulative decrease since 2002 is more than 30%. This is primarily the result of improved experience driven by declines in lost-time claim frequency. The changes shown reflect both voluntary and assigned risk market approvals.
For Calendar Year 2017, NCCI estimated a WC net combined ratio of approximately 89% for private carriers. The updated data reported by the industry indicates a private carrier 2017 combined ratio of 89.3%. After evaluating the data reported as of mid-year 2018, NCCI estimates that the 2018 combined ratio will decline slightly to approximately 88%, representing the lowest WC combined ratio seen since the 1950s and the fifth consecutive underwriting gain for the industry. The estimate for 2018 is based on private carrier direct calendar year incurred losses, direct earned premium, and historical net-to-direct ratios.
The WC investment gain on insurance transactions (IGIT) measures investment performance by comparing investment income allocated to the WC line of business with the corresponding earned premium. At AIS 2018, the IGIT for Calendar Year 2017 was estimated to be approximately 12% of net earned premium. The updated data reported by the industry indicates a slightly higher ratio of 12.6%—the highest result since 2013 and an improvement from the 2016 local minimum of 10.8%. This latest gain is slightly below the 13.2% long-term average since 1997.
The WC pretax operating gain measures the overall financial performance of the WC business, reflecting both underwriting and investment income. The 2017 investment gain of 12.6% in combination with the favorable 2017 combined ratio resulted in a WC operating gain of 23.3% for that year. This exceeds the 6.9% long-term average pretax operating gain since 1997. This value, which is based on updated data reported by the industry, is slightly more than the preliminary estimate of 23% shared at AIS 2018.
NCCI will share its updated estimates for 2018 at AIS 2019—Powered by Insight, scheduled for May 13–15, 2019.