AM Best is the largest credit rating agency in the world specializing in the insurance industry. In a new report it characterized the workers’ compensation line of insurance as a “profit engine” for the property and casualty (P&C) sector in 2022.

Workers’ compensation carriers reported a combined ratio of 87.8% in 2022. The combined ratio for the overall P&C sector was 102.4%.

A combined ratio below 100% indicates underwriting profitability and a ratio of 87.8% shows a remarkable profit. This profit does not include profits generated by the investment of insurance dollars in the stock market. The combination of an underwriting profit and a stock market profit makes workers’ compensation the “profit engine” for the P&C industry. Indeed, according to the National Council of Compensation Insurers (NCCI, November 2022), the pretax operating profit for workers’ compensation insurers was 23.7% in 2021.

So good news for insurers to be sure. This profitability has resulted in declining premiums for employers since 2015 with one minor exception when modest increases were reported although the reduction in premiums should probably have been more given the profitability of the insurers.

But not everybody can be a winner. For example, West Virginia has just announced its 19th straight year of declining premiums for workers’ compensation insurance. So, is everybody happy? Doctors there are not jumping for joy since West Virginia remains one of the lowest paying states for doctors treating workers’ compensation patients according to the Workers’ Compensation Research Institute (WCRI).

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