State of the Line

At the 2019 NCCI Annual Issues Symposium, NCCI Chief Actuary Kathy Antonello gave the much anticipated “state of the line” presentation. The comparisons provided are all 2017 vs 2018 unless otherwise stated. The highlights:

• Property & Casualty results
• There was a 10.6% increase in total industry premiums. The growth was fairly consistent across multiple lines. A big factor in this is the tax reform which enabled insurers to bring more premiums onshore rather than offshoring them to captives.
• Industry combined ratios were 99%. This is an improvement from the 104% ratio in 2017.
• Almost all lines showed an improvement in combined ratios.
• Industry investment gain yields dropped driven by lower yields in the bond market.
• The after-tax return on surplus improved from 5.5% to 8% which is above historical averages.
• P&C surplus dropped from its 2017 record level. The premium to surplus ratio jumped to 82%.

Workers’ Compensation

• Net written premiums for private carriers rose from 39.8 to 43.2 billion. Most of this increase can be attributed to carriers keeping the money onshore due to tax law changes.
• While payroll increased, this was offset by lower rates so the overall direct written premium was flat 2017 vs 2018.

Workers compensation combined ratios decreased 6% from 89% to 83%.

2018 was the lowest workers’ compensation combined ratio on record going back to the 1930s.

Nevada has the biggest increase in payroll in 2018.

California, Illinois and Florida saw an overall decrease in premiums as declining premiums offset increased payroll.

From 2014-2017 payroll increased by 13.8%. This was slightly more than the loss costs decreased. However for 2017-2018 the payroll increases were less than loss costs decreases.

Over the last 20 years accident frequency has been decreasing at a faster rate than severity is increasing. This has resulted in rate decreases around the nation.

With a few exceptions, there have not been significant changes in workers’ compensation benefits that would increase claims costs in several years.

In 2018 every NCCI state except Hawaii saw rate decreases. The most significant was Tennessee with a 19% decrease.

According to a CIAB survey, only 5% of respondent reported premium increases in Q4 2018.

There is dramatic distribution of results between carriers in the workers’ compensation line with many carriers reporting combined ratios well above industry averages.

Loss adjustment expenses increased from 26.5 to 30% of losses. This could be because carriers are investing more in tools that will have a positive impact on medical costs and lost time duration.

Investment gains from insurance transactions dropped from 12.6% to 9%.

For the second year in a row, accident year combined ratios increased and came in at 97%. NCCI expects these combined ratios to come down but not to the level of the calendar year combined ratios.

NCCI analysis indicates reserves for private carriers are redundant by around $5 billion. This has not happened previously as their analysis over the last 20 years showed a reserve shortfall each year.

Indemnity claim severity in NCCI states increased 3%.

Over the last 20 years the cumulative change in indemnity severity has been 20% higher than wage inflation. However, since 2008 wage inflation has increased faster than indemnity claim severity.

Medical lost time severity increased 1%.

Over the last 20 years, medical lost time claim severity increased by 150% compared to a 61% increase in medical inflation. However, over the last 10 years medical inflation and medical lost time costs increases have tracked very closely.

Accident claim frequency decreased by 1%. This is the lowest decrease since 2011. Economic factors could have contributed to the lower decline in frequency due to the tight labor market which can mean less trained and de-conditioned workers in the workforce. Carriers also saw an increase in slip/fall claims due to the harsher winter in 2018.

To view the complete NCCI State of the Line Presentation please visit their web site HERE