At its
Annual Insights Symposium (AIS) in May 2024, NCCI presented the
State of the Line Report—a comprehensive account of results for the workers compensation (WC) insurance line of business. The results presented in that report reflect the most current data available at the time, including NCCI’s preliminary estimates for Calendar Year (CY) 2023.
This report provides both updated results for 2023 and an early look at 2024.
Key Insights
Final countrywide results:
- WC CY 2023 private carrier net written premium (NWP) increased from 2022 by 1.1% to $43.0 billion
- The WC CY 2023 private carrier combined ratio was 85.9%, and the operating gain was 23.1%
While still early and subject to revision, preliminary analysis through the second quarter of 2024 shows:
- WC CY 2024 private carrier direct written premium (DWP) decreased nearly 1% through the first half of 2024, compared with DWP through the first half of 2023
- The WC CY 2024 private carrier direct loss ratio through the first half of 2024 is 48%, which is one point higher than that observed through the first half of 2023
- The WC line is expected to have another strong year with continued underwriting gains in 2024, comparable to recent years, and a net premium volume similar to that observed in CY 2023
2023 in Review
For CY 2023, the final WC written premium volume net of reinsurance is $43.0 billion for private carriers. This is unchanged from the NWP estimate presented at
AIS 2024 and represents a 1.1% increase from 2022’s NWP volume of $42.5 billion.
For CY 2023, NCCI previously estimated a WC net combined ratio of 86% for private carriers. Updated industry data indicates a net combined ratio of 85.9%, which represents a 14.1% underwriting gain.
The CY 2023 combined ratio marks the seventh consecutive year under 90% and a decade of underwriting gains for private carriers in the WC industry. The current period of consecutive underwriting gains is unprecedented in terms of both duration and magnitude and is reflective of a prolonged soft market in the
underwriting cycle.
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 2024, the IGIT for CY 2023 was estimated to be 9% of net earned premium. Updated industry data indicates no change to this ratio, which is below the long-term average.
The WC pretax operating gain measures the overall performance of the WC line of business, reflecting both underwriting and investment income. The CY 2023 underwriting gain of 14.1%, combined with the investment gain of 9.0%, resulted in a WC operating gain of 23.1%. This value is similar to the preliminary estimate of 23% shared at AIS 2024 and marks the seventh consecutive operating gain exceeding 20% for private carriers in the WC industry.
Overall, the WC industry exhibited a strong performance in 2023 and had a combined ratio well below the total Property/Casualty (P/C) industry. The table below summarizes the final CY 2023 private carrier combined ratios by line of business.
At
AIS 2024, NCCI shared with the industry that WC lost-time claim frequency had declined by 3.4%, on average, per year over the past 20 accident years in jurisdictions where NCCI provides ratemaking services. This long-term decline in frequency is expected to continue as Accident Year (AY) 2023 frequency is expected to decline by approximately 8%, more than double the long-term average change.
NCCI’s preliminary estimate is subject to change as data is continuously validated and analyzed throughout each ratemaking season until final frequency and severity results are published in the spring of the next year. The initial –8% frequency estimate for AY 2023 was based on preliminary data and leveraged the latest assumptions available at the time of the analysis. The waterfall graph below illustrates the impact of updating each component of the analysis based on the latest available information.
The impact of premium audits was abnormally high during 2023 due to larger-than-expected wage growth corresponding to policies effective in 2022. To account for this in our calculations, we adjusted 2022 premium up and 2023 premium down—so that the accident year frequency metric, which is measured relative to premium (claims/premium), reflects a better match between claims occurring in each year and the corresponding exposure. The net effect of this audit adjustment is that the AY 2023 frequency change is less negative. While audit activity puts upward pressure on the 2022–2023 frequency change, it is entirely offset by downward pressure due to updated wage inflation assumptions, industry data, and other data adjustments. As a result of these offsetting impacts, NCCI’s latest frequency estimate for AY 2023 remains unchanged from the initial –8%.
2024 in Sight
For the 2024 preliminary analysis of WC results, NCCI utilized National Association of Insurance Commissioners (NAIC) Quarterly Statement data, which is only available on a direct (of reinsurance) basis. To infer how the quarterly data may develop by year end, a review of the quarterly data alongside year-end direct and net of reinsurance values was performed. In the graph below, changes in cumulative DWP by quarter from one calendar year to the next are paired with changes in NWP at year end.
Countrywide, NAIC private carrier DWP decreased 0.9% through the first half of 2024, compared with DWP through the first half of 2023. This decrease has moderated compared to the –2.4% change observed through the first quarter of 2024. Considering the 2024 results to date, the year-end private carrier NWP change will likely be in the vicinity of zero, resulting in 2024 NWP close to the $43.0 billion figure observed in 2023. This estimation is a reasonable possibility assuming DWP develops similarly to historical patterns and the relationship between direct and net premium holds consistent.
Because premium is calculated as payroll times rate, the combined impact of the changes in those components drive the overall change in premium. NCCI expects the impact of rate/loss cost level changes on premium to decrease in 2024 by about 9%, on average, as a result of recent rate/loss cost filings made in jurisdictions where NCCI provides ratemaking services. Factors contributing to this decrease include the wage-sensitive exposure base (payroll) in WC as well as declines in lost-time claim frequency and moderate changes in claim severity.
For more information on the notable decreases in bureau level changes over the last several years, please see
Understanding Loss Cost Actions, by Nadege Bernard.
Changes in other factors also contribute to a final rate change, such as changes in schedule rating, dividends, rate/loss cost departure, average experience rating modification, deductible credits, or mix of policies. The impact of these factors cannot yet be estimated, but over the last several years these factors combined have put upward pressure on premium.
Further offsetting bureau premium level decreases, payroll through the first half of 2024 increased by about 6.5% over the prior year (sources: US Bureau of Labor Statistics; US Bureau of Economic Analysis; NCCI). This increase is driven by a 1.5% increase in employment level paired with a 5% increase in wage rate.
Overall, the workers compensation industry continues to exhibit signs of strong performance in CY 2024.
In analyzing the profitability of the WC line in 2024, NCCI reviews the countrywide combined ratio results. The combined ratio is the sum of the loss, expense, and dividend ratios. The private carrier direct loss ratio for the first half of 2024 is 48%, which is one point higher than the direct loss ratio observed through the first half of 2023. At the end of 2023, the direct loss ratio was 44%, about three points lower than the loss ratio through second quarter. We can see in the graph below that this pattern, where the loss ratio at year end is lower than the loss ratio at second quarter, has been consistent for seven consecutive years. Also notice that the year-end net and direct loss ratios are very similar.
We cannot predict future outcomes with complete certainty, but if we assume similar development in 2024, the net loss ratio will be in close range of the 2023 result.
NAIC Quarterly Statement data does not contain expenses by line of business. Therefore, NCCI makes the additional assumption that WC expense ratios (including dividends) for 2024 are equal to those of 2023. Note that expense ratios are not expected to change significantly from year to year.
With these assumptions in place, it is reasonable to expect that the 2024 year-end net combined ratio will be similar to that of 2023 and likely range from 83% to 90%, as displayed below. This would result in 11 years of WC calendar year combined ratios under 100%.
Join us for
AIS 2025 where our full-year view of 2024 results will be presented.
AIS 2025 is scheduled for May 12–14, 2025.
Notes
This document includes assumptions and projections. 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 development of Second Quarter 2024 DWP, Direct Earned Premium, and Direct Incurred Loss to year-end values
- The relationship between direct and net business
- The expected expense ratios
- The impact of changes to laws and regulations
This article is provided solely as a reference tool to be used for informational purposes only. The information in this article shall not be construed or interpreted as providing legal or any other advice. Use of this article for any purpose other than as set forth herein is strictly prohibited.
