NCCI’s annual underwriting results update is based on data reported to NCCI on the Calendar-Accident Year and Policy Year Financial Data Calls. The results are provided by individual NCCI jurisdiction and based on data valued as of year-end 2017. For this report, the term “countrywide” refers to all 38 NCCI jurisdictions combined.
As shown below, there is wide variation in the observed state-specific combined ratios across the individual jurisdictions included in this report.
The estimated 2017 countrywide calendar-accident year combined ratio is 93%, marking the fifth year in a row with a countrywide underwriting gain. As expected, favorable results were also observed across individual jurisdictions.
On a policy year basis, the 2016 countrywide combined ratio is 93%—another strong result for the industry. Favorable combined ratios are also evident across individual jurisdictions.
The state-specific information underlying these key takeaways is provided in this report. Please see the accompanying Underwriting Results by State spreadsheet for additional information. This report was prepared as of February 25, 2019. Therefore, events that occurred after this date which may have a material impact on workers compensation costs in NCCI jurisdictions have not been considered in the analysis.
In general, the changes in loss ratios have driven the changes in combined ratios. In most jurisdictions, expense and dividend ratios have remained relatively constant.
Workers compensation premiums are meant to provide funds to meet two expenditures: statutory benefit costs and operating expenses of the benefit system. Underwriting results indicate whether premium funds were sufficient to cover these expenditures. NCCI expresses the underwriting result as a ratio to net premium. The ratio is the difference between unity and the sum of the loss, expense, and dividend ratios to net premium. It represents the portion of the net premium that remains after benefit costs and operating expenses are paid. An underwriting ratio less than zero indicates that losses and expenses exceeded premium collected and vice versa. Note that underwriting results do not reflect investment income.
NCCI’s Financial Call data is used in compiling the Calendar-Accident Year and Policy Year Underwriting Results. This data excludes underground coal mine, F-classification, large deductible, national defense project, and excess business. NCCI develops the losses reported by carriers to an estimated ultimate basis.
Calendar-Accident Year Experience
Calendar-accident year experience reflects premium earned from January 1 to December 31 of that year, along with loss experience for claims with accident dates from January 1 to December 31 of that year. The Calendar-Accident Year Underwriting Results provide information for each of the most recent five years. While calendar-accident year experience is more recent than policy year experience, it is less mature on average. Also, calendar-accident year premiums are not perfectly matched to losses. For example, payroll audits and retrospective rating adjustments on prior-year policies are earned in the year they are made, as opposed to the years in which the policies were in effect and the loss exposure occurred. In addition, the timing of accidents can influence calendar-accident year results.
Policy Year Experience
Policy year experience reflects policies with effective dates from January 1 to December 31 of that year. The Policy Year Underwriting Results contain the most recent 15 reports. Policy year experience is slightly older, on average, and therefore more mature than the corresponding calendar-accident year experience. Unlike calendar-accident year experience, the policy year results provide an exact match of premium and losses from the same block of policies. All premium and loss activity (e.g., payments, audits, and reserve adjustments) is applied to the policy year to which the policy effective date corresponds.
As explained below, each jurisdiction’s losses are developed using a methodology consistent with the state’s most recent rate filing review. Countrywide results are determined by summing the available data for each individual NCCI jurisdiction.
Underwriting results, by definition, are not adjusted to reflect recent rate or loss cost changes, trends, or benefit changes. Therefore, this information, by itself, does not provide an indication of future potential results in a state and should not be used for ratemaking purposes.
These results are provided as informational only. An insurer is not required to use this information. The ultimate loss ratios are estimates that may change each year as claims are closed and/or reserve estimates are updated. Recommendations regarding future year loss ratios are not made in this report.
The Underwriting Results include jurisdictions for which NCCI collects financial data. Unless otherwise noted, results for Arizona, Colorado, Hawaii, Idaho, Kentucky, Louisiana, Missouri, Montana, New Mexico, Oklahoma, Oregon, Rhode Island, Texas, and Utah include state fund data, as applicable. Data for the remaining jurisdictions is for private carriers only.
The components of the underwriting results are as follows:
For each state, indemnity and medical losses have been separately developed to an ultimate basis using the respective methodology from the most recent rate/loss cost filing in that state. NCCI’s individual state filings are typically based on one of, or a combination of, the following widely recognized loss development methods:
Paid Method
Paid Plus Case Method
The Paid Loss Method estimates ultimate losses from paid losses to date using the historical payout pattern of losses in the given state. Similarly, the Paid Plus Case Method estimates ultimate losses from paid losses to date plus case reserves using the historical pattern by which paid losses and case reserves in the given state developed to ultimate level. Case reserves represent estimates of anticipated future payments on individual known claims. Refer to NCCI’s state filing circulars for details on the loss development methods used in each state.
In the rare event of large losses that have a significant impact on an individual state’s results, NCCI uses the reported paid plus case amount as the best estimate of the claim’s ultimate value, prior to the application of loss development. This approach is applied infrequently and is used only for those valuations in which a predetermined large loss threshold is reached.
For the Calendar-Accident Year Underwriting Results, expenses are derived from Statutory Page 14 data of the Annual Statement and the Insurance Expense Exhibit. For the Policy Year Underwriting Results, successive calendar years are weighted to obtain the corresponding policy year figures.
Incurred direct defense and cost containment expenses, commissions and brokerage expenses, and taxes, licenses, and fees are calculated by jurisdiction utilizing data as reported from Annual Statement Statutory Page 14. Adjusting and other expenses and general and other acquisition expenses are from the Insurance Expense Exhibit using both private carrier countrywide and state fund data as reported.
A summary of the most recent year’s expense ratio by individual component is shown following the underwriting results. The expense ratio components are:
Direct Defense and Cost Containment Expenses
Include defense, litigation, and medical cost containment expenses.
Adjusting and Other Expenses
Reflect the remaining costs associated with the settlement of claims, such as claim adjusters’ fees.
Commissions and Brokerage Expenses
Reflect fees paid by the insurer to agents and brokers who represent the insured in placing orders for coverage.
Taxes, Licenses, and Fees
Represent the insurer’s legal obligation to pay premium taxes, various miscellaneous taxes, and assessments that vary by jurisdiction. Taxes are generally levied as percentages of premium, and assessments can be levied as percentages of premium or losses.
General and Other Acquisition Expenses
Reflect costs to the insurer of running internal operations (e.g., rent or salaries), general activities (e.g., administration, payroll, audits, boards and bureaus funding, and inspections), and other acquisition costs (e.g., advertising and premium collection expenses).
The dividend ratio reflects dividends as a percentage of earned premium based on individual state information from Annual Statement Statutory Page 14 data. The policy year dividend ratios are then estimated based on information for successive calendar years.