Calif. Workers’ Comp Insurers’ Net Worth Declining

California workers’ compensation insurer returns continue to dwindle, with recent National Association of Insurance Commissioners (NAIC) data showing their return on net worth falling from 7 percent in 2008 to 4.6 percent in 2009. Those figures move the Golden State from 12th to 25th out of 46 states that operate without a monopolistic state fund.

Each year, the NAIC, made up of insurance regulators from all 50 states, the District of Columbia, and four U.S. territories, publishes a “Report on Profitability by Line by State.” The report has direct income statement and surplus information for every line of insurance and for every state, derived from insurer annual statements reported to the NAIC. The report breaks down all elements of underwriting results and shows investment income, pretax gains or losses, federal income taxes, after-tax gains or losses, surplus, and after-tax returns on surplus. The report includes return on net worth figures from the past decade for workers’ compensation insurers nationwide. Workers’ compensation losses accrue over many years, so the NAIC calculates 10-year historical averages to smooth out year-to-year fluctuation.

While stockholder-owned companies aim for a 15 percent rate of return, that goal is rarely reached, so a 12 percent return – about the average of Fortune’s Industrial and Service sectors over the past decade — is considered a more realistic goal, according to the California Workers’ Compensation Institute.

Although as an industry, California workers’ compensation insurers met or exceeded that standard from 2004-2007, that followed four straight years of losses from 1999-2003, and since peaking in 2006, the returns have been in a steady downtrend, falling to a six-year low of 4.6 percent in 2009, matching the average for the 45 states without a monopolistic state fund, and just slightly better than the national average for all workers’ compensation insurers.

The NAIC found that California workers’ compensation insurers’ 4.6 percent average return over the past decade compares to 10-year returns of 8.7 percent for all lines of insurance in California; 6.4 percent for workers’ comp insurers nationwide; 7 percent for all lines of insurance nationwide; 5.3 percent for property and casualty lines nationwide; and 11.6 percent for Fortune Magazine’s All-Industry average for Industrial & Service Sectors.

Information on ordering NAIC’s workers’ compensation report, the “Report on Profitability by Line by State in 2009” is available at www.naic.org/Releases/2010_docs/profitability_report.htm.

Topics California Carriers Workers' Compensation