At its Annual Issues Symposium (AIS) in May 2019, 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 2019 reflected the most up-to-date data available at the time, including NCCI’s preliminary estimates for Calendar Year 2018. In this report, NCCI provides updated results for 2018, as well as preliminary estimates for Calendar Year 2019.
For Calendar Year 2018, NCCI estimated WC premium volume net of reinsurance to be $43.2 billion for private carriers. The updated data reported by the industry indicates a slightly higher result of $43.3 billion. This is almost a 9% increase in net written premium (NWP) over 2017.
NCCI has since evaluated the data reported as of mid-year 2019 to provide a full-year, private carrier written premium volume estimate for Calendar Year 2019. While still early and subject to revision, NCCI’s analysis indicates a decrease in NWP of 3.9% to $41.6 billion for private carriers.
Prior to 2018, increased utilization of offshore reinsurance stalled NWP growth. Driven by the additional tax burden on business transferred to offshore affiliates imposed by the Base Erosion Anti-Abuse Tax (BEAT) of the Tax Cuts and Jobs Act of 2017, NWP grew by $3.5 billion in 2018. While the BEAT’s residual effect and the strong economy may place upward pressure on 2019 NWP, the recent decreases in rates/loss costs are likely to more than offset these factors.
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 2019 to decrease by 10%, on average, as a result of rate/loss cost filings made in jurisdictions for which NCCI provides ratemaking services.
The cumulative decrease since 2003 is nearly 40%. 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 2018, NCCI estimated a WC net combined ratio of approximately 83% for private carriers. The updated data reported by the industry indicates a private carrier 2018 combined ratio of 83.2%. After evaluating the data reported as of mid-year 2019, NCCI estimates that the 2019 combined ratio will increase to approximately 87%, representing the second lowest combined ratio in recent history and the sixth consecutive underwriting gain for the industry.
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 2019, the IGIT for Calendar Year 2018 was estimated to be approximately 9% of net earned premium. The updated data reported by the industry indicates a ratio of 9.2%. This latest gain is well below the 12.8% long-term average since 1998.
The WC pretax operating gain measures the overall financial performance of the WC business, reflecting both underwriting and investment income. The 2018 investment gain of 9.2% in combination with the favorable 2018 combined ratio resulted in a WC operating gain of 26.0%. This value, which is based on updated data reported by the industry, is the same as the preliminary estimate shared at AIS 2019 and exceeds the 7.2% long-term average pretax operating gain since 1998.
NCCI will share its updated estimates for 2019 at AIS 2020—A New Decade In Sight, scheduled for May 11–13, 2020.
The 2019 NWP estimate is based on private carrier-reported direct written premium and the historical relationship between direct and net written premium in recent years.
The 2019 combined ratio estimate is based on private carrier direct calendar year incurred losses, direct earned premium, historical net-to-direct ratios, and historical expense ratios.
This document includes assumptions and projections concerning the future. As with any prospective analysis, there exists estimation uncertainty in these assumptions and projections. Areas of this analysis subject to estimation uncertainty that could have a material impact on the results include the following:
- Projection of development to year-end
- The historical relationship between direct and net business
- Impact of changes to laws and/or regulations
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