We are pleased to summarize key year-end 2023 financial results for U.S. workers’ compensation writers based on data available from S&P Global Market Intelligence. Milliman’s composite of workers’ compensation writers includes 40 companies or groups of companies, each with workers’ compensation direct written premium of more than $330 million in 2023. This selected composite represents nearly 80% of the total workers’ compensation direct written premium volume for the industry in 2023. The metrics we reviewed show a modest increase to direct written premium following last year’s double-digit growth, a slight improvement in the calendar year loss and defense and cost containment expense (DCCE) ratios relative to year-end 2022, the continued favorable development of prior accident years’ loss ratios, and a rebound in policyholders’ surplus after last year’s unfavorable decline.
As displayed in the following tables and commentary, recent experience for workers’ compensation has been favorable. However, the social and economic environment has changed, and these changes could have a material impact on future workers’ compensation premium and losses. Some of these specific changes include higher wage inflation, more employees changing jobs, a shortage in labor resulting in rising workloads and inexperienced workers in certain segments of employment, an aging workforce population, increased usage of “work from home,” a surge in the gig economy, and uncertainty with medical inflation. Because workers’ compensation is a long-tail line of business, the current environment could substantially impact prior-year losses. Therefore, workers’ compensation experience will need to be continually monitored.
It should be noted that the data for this composite of insurers has been aggregated to reflect any historical acquisitions, such that the historical data is on a basis similar to the current data.
Direct written premium (DWP) growth stalls
After a large spike in workers’ compensation DWP during 2022, the industry saw a more modest increase in DWP in 2023. The lower DWP volumes in 2020 and 2021 can be primarily attributed to lower employment during the height of the pandemic. The increase in premium during 2022 is due to increased employment as the economy recovered from the pandemic, as well as increased wages due to inflation. As these effects eased gradually in 2023, so did the increase in total DWP. Offsetting this increase in employment and wages is lower rates per payroll, primarily due to the decreased frequency of claims. DWP for other lines of business has increased due to rate increases; however, workers’ compensation writers continue to see neutral or decreasing rate action driven by ongoing favorable frequency trends and wage trends offsetting medical and indemnity severity trends. Figure 1 displays the total workers’ compensation DWP for this composite, along with the percentage change from the prior year.
Figure 1: Top 40 workers’ compensation writers – Direct written workers’ compensation premium ($ billions)
Loss ratios continue to improve
The countrywide workers’ compensation 2023 calendar year loss and DCCE ratio (CYLR) for the industry was roughly 51%, which represents a slight improvement of about 100 basis points compared to 2022. The median 2023 CYLR improved almost 300 basis points compared to 2022, down to 51.6%, with half of the composite showing a CYLR between 43.3% and 57.3% for 2023. The continued favorable CYLR in 2023 was driven by a slightly lower initial accident year loss ratio in 2023 compared to 2022, as well as continued favorable development on older accident years. Figure 2 shows the workers’ compensation CYLRs for each of the last five years on a countrywide basis and for several of the largest states. While the decrease in 2023 was not quite as stark as it was in 2022, Figure 2 shows that, with the exception of Florida and Illinois, many of the largest states experienced a decrease in CYLR in 2023. Of the 25 largest states based on 2023 direct earned premium, 15 states saw a lower CYLR in 2023 compared to 2022.
Figure 2: Workers’ compensation total industry – Calendar year direct loss and DCCE ratio
1 December 31, 2023 data for New York State Insurance Fund not available at time of publication
As displayed in Figure 3, the workers’ compensation accident year net ultimate loss and loss adjustment expense (LAE) ratios for this composite have developed favorably from the initial booked estimates for each of the prior four accident years. The initial estimate for accident year 2023 is 70.7%, which is the lowest initial estimate for an accident year net ultimate loss and LAE ratio since at least 2019. This is over 450 basis points lower than the initial estimates for the pandemic-influenced accident years 2020 and 2021. It is likely that the initial estimates for accident years 2020 and 2021 were impacted by uncertainty associated with the pandemic, including potential slowdowns in payments, treatments, and changes in the economy. The median accident year loss ratio for 2023 is 68.6%, with the middle 50% of companies in this composite between 65.0% and 77.3%.
Figure 3: Top 40 workers’ compensation writers – Accident year net ultimate loss and LAE ratio by annual statement (AS) year
Prior-year favorable reserve development continues to outpace industry
Figure 4 compares this composite’s ratio of one-year reserve development to net earned premium for all lines of business excluding workers’ compensation to that of workers’ compensation only. This composite’s development for all lines of business excluding workers’ compensation saw slight adverse development in 2019 through 2021 followed by slight favorable development in 2022 and 2023. Meanwhile, workers’ compensation has displayed double-digit favorable one-year reserve development for each of the last five years, significantly outpacing reserve development for other lines of business as insurers release redundancies. Recent favorable trends have allowed insurers to continue to reduce their estimates of ultimate losses. While the workers’ compensation industry has consistently demonstrated favorable reserve development, 2023 saw an uptick in favorable development relative to net earned premium for the first time in four years. Workers’ compensation is a long-tail line of business with considerable uncertainty in future trends, especially medical inflation, changes in medical care, and life expectancies, where changes to any or all of these factors could influence future reserve development.
Figure 4: Top 40 workers’ compensation writers – One-year reserve development
Policyholders’ surplus (PHS) approaches $600 billion
PHS for this composite increased by 7.9% in 2023 after seeing a near unprecedented decrease of 6.0% in 2022. It is likely that the decrease in PHS during 2022 was primarily impacted by macroeconomic factors, such as rising inflation, which led to prominent levels of unrealized capital losses for the entire industry. The uptick in PHS during 2023 can largely be credited to a substantial rise in realized capital gains, coupled with an increase in unrealized capital gains due to the rising financial markets. Many of the companies included in this composite write multiple lines of business, therefore it should not be inferred that the change in PHS for this composite is a direct result of workers’ compensation experience. Figure 5 displays the total PHS for this composite, along with the percentage change from the prior year.
