Posted Date: March 13, 2023

Key Takeaways

  • The estimated 2021 countrywide calendar-accident year combined ratio is 94%—a six-point underwriting gain
  • The estimated 2020 countrywide policy year combined ratio is 91%—a nine-point underwriting gain
  • On a countrywide basis, underwriting gains have been observed in each of the years shown in this report

Executive Summary

NCCI’s annual underwriting results update is based on data reported to NCCI on the Calendar-Accident Year and Policy Year Financial Data Calls excluding reported COVID-19-related claims. The results are provided by individual NCCI jurisdiction and based on data valued as of year-end 2021. For this report, the term “countrywide” refers to all 38 NCCI jurisdictions combined. For more information, see the accompanying Underwriting Results by State spreadsheet. This report was prepared as of March 10, 2023. 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.

As shown below, there is wide variation in the observed state-specific combined ratios across the individual jurisdictions included in this report. Calendar-Accident Year 2021 combined ratios range from 68% to 139% and Policy Year 2020 combined ratios range from 62% to 131%.

On a countrywide basis, underwriting gains have been observed in each of the years shown in this report. The estimated 2021 countrywide calendar-accident year combined ratio is 94%—a six-point underwriting gain. This is the highest observed countrywide combined ratio of the most recent five calendar-accident years. On an individual state basis, five consecutive years of underwriting gains have been observed in the majority of jurisdictions (28 of 38). The year-to-year volatility in the state-specific combined ratios is less pronounced when reviewing the combined countrywide results.

On a policy year basis, the 2020 countrywide combined ratio is 91%—another strong result for the industry. Consistent with the observed trend in countrywide calendar-accident year combined ratios, the countrywide policy year combined ratios have increased from 88% to 91% over the most recent five-year period shown in this report. In general, observed individual jurisdiction policy year combined ratio changes have been more moderate when compared with those on a calendar-accident year basis.


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Results by State

The changes in combined ratios are predominantly driven by changes in the underlying loss ratios. In general, the expense and dividend ratios have remained relatively constant.

Calendar-Accident Year

Combined Ratios: 2017 to 2021
Click the state-specific graph for additional details.

Policy Year

Combined Ratios: 2016 to 2020
Click the state-specific graph for additional details.

Appendix

Background and Methodologies

Workers compensation premiums are meant to provide funds to meet two expenditures: statutory benefit costs and operating expenses of the benefit system. Underwriting results are a measure of the adequacy of premium funds 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 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 experience. Further, losses from reported COVID-19-related claims have been excluded from the data included in this report. 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 an exact match 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 an effective date occurring 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 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.

The data provided herein is for informational purposes only. The ultimate loss ratios are estimates that may change each year as claims are closed and/or reserve estimates are updated. Recommendations regarding ultimate historical loss ratios, as well as prospective loss ratios, are not made in this report.

Underwriting Results Components

This report includes jurisdictions for which NCCI collects financial data. Unless otherwise noted, results for Arizona, Colorado, Hawaii, Idaho, Kentucky, Louisiana, Maryland, Missouri, Montana, New Mexico, Oklahoma, Oregon, Rhode Island, Texas, and Utah include state fund data, as applicable. Results for Florida include self-insured data. Data for the remaining jurisdictions is for private carriers only.

The components of the underwriting results are as follows:

Standard Earned Company Premium (Column 1)

Standard earned premiums at the company level are provided, although these premiums are not used in the underwriting results. Standard earned company premium represents premium reported at the rate level charged to the insured by the insurance company after the application of experience rating modification and expense constant but prior to the application of retrospective rating adjustments, schedule rating, and premium discounts.

For the Policy Year Underwriting Results, standard earned company premium is developed to an ultimate level. For an individual policy, the premium at policy inception is based on estimated payroll, and final premium is based on the payroll audit conducted shortly after policy expiration. Since not all such payroll audits will have occurred for a policy year at an early report, a development factor is applied to estimate the impact of final audits.

Net Earned Premium (Column 2)

Net (direct) earned premium differs from company standard premium in that it also includes adjustments related to retrospective rating, schedule rating, and premium discounts. The net earned premium is the final amount paid by the insured.

For the Policy Year Underwriting Results, the net (direct) earned premium is developed to an ultimate level to reflect the adjustment from estimated to actual audited payroll.

Note that both company standard and net earned premium, as reported on NCCI’s Financial Data Calls, are direct of reinsurance (i.e., prior to reinsurance cessions and assumptions).

Developed Indemnity and Medical Losses (Columns 3 and 4)

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 two 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 an 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.

Expense Ratio (Column 7)

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 using 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 that 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).

Dividend Ratio (Column 8)

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.