Workers’ Compensation results are a drag on the P&C insurance industry’s numbers, producing a combined ratio that is 7 points worse than the industry as a whole, according to Fitch Ratings.

In a new report, Fitch says Workers' Comp came in with a statutory combined ratio of 117.2 for 2011, about 9 points worse than the commercial-lines aggregate for last year. During the five-year period from 2007-2011 the line generated a combined ratio of 108.5, about 7 points worse than commercial lines collectively.

Since 2006 premium volumes have fallen 23 percent for Workers’ Comp, which the report attributes to “numerous factors” including intense price competition and effects of the recession.

The line is also plagued by sharp increases tied to medical costs. Medical severity from Workers’ Comp rose at an average rate of 4 percent annually from 2007-2011, the report notes, citing statistics from the National Council of Compensation Insurers (NCCI).

“Recent premium rate increases in Workers’ Compensation are an encouraging sign that the market has reached a cyclical bottom,” Jim Auden, Fitch’s managing director, says in a statement. “However, claims costs will continue to be affected by rising medical severity, and premium rates will need to improve significantly for the market to reach an underwriting break-even.”

Fitch says that Workers’ Comp shifted back to positive written-premium growth of more than 7 percent last year thanks to economic improvements producing more jobs, as well as rate increases in the line during the second half of 2011.

Josh Youdovin, vice president of insurance research for global third-party insurance asset manager Conning, says in its  “Mid-Year 2012 Wokers' Compensation Insurance Segment Report" that the line has had the “highest combined ratio relative to other casualty lines of business since 2006.”

Medical inflation and increased use of narcotics will have a negative impact on Workers’ Comp profitability, Youdovin notes. With rising loss costs and premium-rate inadequacies from past years, reserve releases are “likely to diminish or end for many companies, exerting more financial pain.”

While rates are firming, the line has not yet entered a hard market—and one is not on the horizon, in his opinion.

“It is a fear of downgrades or inadequate capital, leading to withdrawals of capacity from some competitors, that tends to lead to a hard market,” Youdovin adds.

According to Fitch, the Workers’ Comp market is seeing a shift as state funds and residual markets are shrinking their policy counts. In terms of net written premium, over the five-year period from 2006-2011 AIG has lost ground to Liberty Mutual as the No. 1 writer of Workers’ Comp.

In 2011, Liberty had 10 percent of the market, taking the top slot, while AIG held just over 9 percent and is ranked second. However, Liberty’s net written premium is down more than $1 billion over the five-year period to just over $3.5 billion.

Fitch notes that both Travelers and The Hartford have significantly increased their Workers’ Comp premium over the five-year period, almost doubling their share of the market and rising to third and fourth place, respectively.

This article points out that the workers compensation insurance line has had the highest combined ratio relative to other casualty lines of business since 2006. New York has already requested an 11.5% rate increase effective October 1, 2012 after an already big increase in 2011. New Jersey had a rate increase of 6.9% and many other states have made increases as well. With poor loss ratios and big rate increases, plus the upcoming experience rating split point change (which will make bad experience mods worse), workers compensation premiums are on the rise. The fact is that when the new experience mod split point value takes effect in 2013, it will use claims from 2011, 2010, and 2009, all of which has already occurred. The claim experience for most of the 2014 and 2015 experience mods have already occurred as well. Considering that most of the experience in the 2013, 2014, and 2015 experience mods have already passed, implimenting safety programs to curb workers compensation costs in the upcoming years is no longer an option at this point. There is only one solution to making sure your company has a better experience mod to enter the renewal marketplace with. WORKERS COMPENSATION PREMIUM RECOVERY is the fastest and quickest way to recover workers compensation overcharges on prior years, obtain workers compensation refunds, and have future savings for you, the employer, to keep.