The U.S. workers’ compensation line of coverage remains a key driver of the profitability of property/casualty insurance, although economic uncertainty may lead to some short-to-medium-term turbulence for insurers, according to a recent AM Best report.
With a combined ratio of 88.8 in 2024, the lowest among the major P&C lines of business, U.S. workers’ compensation remained profitable, the Best’s Market Segment Report, “Workers’ Compensation Continues With Strong Profits, Despite Pricing Cuts,” stated.
This was achieved even as net premium written for the industry fell nearly 7% due to rate decreases and pricing cuts. Midyear 2025 results show continued profitability, with a further decrease in premiums due to ongoing rate reductions, analysts noted.
“Workers’ compensation is the key line of business driving the profitability of the whole property/casualty industry, and underwriting profits over the past decade have been largely attributable to favourable prior-year loss development,” said Christopher Graham, senior industry analyst, Industry Research and Analytics, AM Best.
He continued: “While the reserve cushion appears to be shrinking, it is expected to provide benefits to calendar-year profitability in the medium term.”
California continues on the lead with the largest share of national workers’ compensation premium, accounting for 20% of direct premium written in the United States – double that of any other state.
Collectively, the top 10 states contribute more than 60% of the national premium. While the overall results in 2024 were strong, six of these top 20 states achieved even better outcomes, with statewide combined ratios exceeding the national average.
“Although workers’ compensation has remained relatively unaffected by many of the factors leading to stress in other lines of coverage, which have produced more volatile year-to-year results, its payroll exposure base is susceptible to macroeconomic shocks,” analysts explained.
Adding: “The possibility of a recession, the impact of tariff and immigration policy changes and other challenges, including legislative changes, are possible headwinds for this line of business.”
The report also noted that the workers’ compensation system will be less impacted by the recent increases in medical inflation in the overall economy, mainly because statutory payment schedules and different uses of physician services and pharmaceuticals limit the impact of unexpected inflation for workers’ compensation claims.
David Blades, associate director, Industry Research & Analytics, stated: “A key question for the workers’ compensation line is how much longer will rate and pricing declines continue and cause dissipating profit margins before insurers begin to hold the line on pricing, since, for many companies, workers’ compensation profits help offset more uncertain underwriting results for other lines of coverage.”
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