California Workers’ Compensation Insurers’ Combined Ratio Exceeded 100% in Accident-Year 2008

September 21, 2009

The profitable-underwriting honeymoon workers’ compensation insurers in California enjoyed since the implementation of reforms passed by the Legislature in 2003 and 2004 ended last year. The aggregate combined ratio of carriers in the state is projected by the California Workers’ Compensation Insurance Rating Bureau (WCIRB) to soar past 100% in accident-year 2008. The loss ratio in accident-year 2008 is projected by the bureau to be the highest since 2002.

The WCIRB, which analyzed insurer data prior to the WCAB reconsidering its findings earlier this month, issued projections based on “tempered” and “not tempered” assumptions about the cost increases of permanent-disability benefits because of the rulings. The bureau’s projections for accident-year 2008 included the following:

• Loss Ratio -- 71% (tempered) or about 80% (not tempered) compared with an estimated 56.5% in accident-year 2007.
• Combined Ratio -- 112% (tempered) or about 126% (not tempered) compared with an estimated 93% in accident-year 2007.
• Total Losses -- $7.8 billion (tempered) or about $8.7 billion (not tempered); the smaller projection is approximately 18% higher than the estimated losses in accident-year 2005.

The bureau also released the following data for first-quarter 2009:

• Written Premium -- $2.6 billion, about 10% less than in first-quarter 2008.
• Average Insurer Rate -- $2.33 per $100 of payroll, approximately the same as in all of last year and about 64% less than the average rate in the last half of 2003.
• Calendar Period Loss Ratio -- 69% compared with 64% in first-quarter 2008 and 50% in first-quarter 2007.

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