NCCI Reports a Strong Workers’ Compensation Marketplace

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State of the Line Report

Yesterday morning, the Chief Actuary of the National Council on Compensation Insurance (“NCCI”), Donna Glenn, presented the much-anticipated “State of the Line Report” at the Annual Issues Symposium (“AIS”) in Orlando.  According to the NCCI, “the AIS delivers actionable intelligence, unmatched analysis and expert-led perspectives.  AIS is unmatched in the industry for providing information on workers compensation financial results and perspectives on what is ahead.”

The most glaring data point to me was a workers’ compensation reserve redundancy of $16 Billion.  To further put that in perspective, it should be noted that the definition of a reserve redundancy is as follows:

“a redundancy exists when it is estimated or determined that the reserves are greater than what will be needed to pay the ultimate settlement value of the related liabilities.”

So what?  Well, it means carriers are making a 13 point underwriting profit, a 12 point investment income. interest rates headed North rapidly  and padding their reserves for a rainy day at the same time.  “Hello Mr. Softee”, as in ,expect a “buyer’s market” for workers’ compensation in the foreseeable future.

I mentioned a 13 point underwriting profit, or combined ratio of a 87%.  the third straight year in a row and seventh in the double digits.  “Back in the old days”, double-digit combined were the exceptions, and triple digit ones more the norm for workers’ compensation.  I do not see those days again for some time.

Medical and wage inflation are trending upwards and the closet economist in me thinks the numbers used to show go-forward inflation are lighter then what could be prognosticated.  The war in Ukraine, CoVid and “over-employment” also play a part in what direction wage and medical inflation goes.

Every NCCI State had a decrease in rates with the exception of Hawaii.

Employment went up 3.3%, payroll 10.76% and wage rate 7.1%; each a significant driver of exposure basis.  Since 206, payroll is up 28% and loss costs are down 33%.

Lost time claims frequency up 7% and severity flat.

COVID-19 claims accounted for +/- $500m in loss on 60,000 claims with an average severity of approximately $8,300.  These are well off original COVID-19 estimates that were in the multi-billion dollar range.

A good year for solvency and stability.  We will see how the market conducts itself with the economic tailwinds the market appears to present.

The full NCCI AIS report is available on the NCCI.com website:

https://www.ncci.com/Articles/Pages/Insights-AIS2022-SOTL.aspx

 

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