Locals React: Fitch Ratings Predicts Fifth Consecutive Year of Underwriting Profit

A new report from Fitch Ratings, U.S. Workers’ Compensation Market Update – Fifth Consecutive Year of Underwriting Profits Projected for 2019, touts the tenuous health of the workers’ compensation market by predicting a fifth consecutive year of underwriting profit for 2019. However, the message was tempered by predictions of a downturn.

The report indicates that the industry’s statutory combined ratio fell to 86 percent in 2018, and has averaged 93 percent annually since 2015. For Louisiana companies, a persistent soft market environment hovers in the background of the new numbers.

Melissa Campesi, CEO of LCTA Workers’ Comp explained in comments to Louisiana Comp Blog that years of significant rate decreases, among other issues, have put pressure on local insurers. “Louisiana’s highly competitive environment, rate decreases, ever increasing claims expenses, and distressed economy will present challenges in maintaining continued underwriting profits,” she explained.

The Louisiana Department of Insurance accepted a -5.6 percent loss cost decrease recommended by NCCI effective May 1st, 2019, and a -9.8 percent in 2017. These decreases were slightly offset by a +0.4 percent loss cost increase in 2018.

According to the Fitch report, “positive results were partly driven by recognition of greater reserve redundancies, which totalled approximately 15 percent of segment earned premiums.” Further, Fitch’s analysis asserts that “conservatism in loss reporting for recent accident years portends continued segment favorable reserve development in the future, but at a lower magnitude than recent figures.”

Mike Dileo, CEO of Stonetrust Commercial Insurance Company was cautiously optimistic about the future, despite the rating actions and Fitch’s analysis. “Even with ongoing rate decreases here, our results in Louisiana have been favorable and we’re on track for another good year in 2019,” he said. “I think understanding market dynamics and how technology is impacting the underwriting process are key components of a successful strategy. We’ve also done a good job of maintaining our underwriting discipline even though pricing remains extremely competitive.  We’re optimistic about our results here but we’ve also been very deliberate about how we’re anticipating and managing the challenges presented during the current soft pricing cycle.”

Fitch considers the outlook stable for U.S. commercial lines insurers based on “solid market fundamentals and capital adequacy measures that can withstand significant adversity in future performance.”

 

Image Credit: Fitch Ratings

 

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