Workers’ Comp Delivers Record Profits in 2024 as Pricing Declines

The workers’ compensation insurance line achieved its lowest combined ratio in five years at 88.8% in 2024, outperforming all other major property/casualty lines despite a 6.9% drop in net premiums written and accelerating pricing cuts, according to analysis of the sector by AM Best.

Workers’ compensation continues to demonstrate remarkable resilience, maintaining consistent profitability even as competitive pressures drive rates lower, according to the report.

“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 favorable prior-year loss development,” said Christopher Graham, senior industry analyst, Industry Research and Analytics for AM Best.

Sustained Profitability Defies Market Headwinds

The line’s combined ratio has remained below 92% for five consecutive years, with 2024 marking the median performance over this period. This stability comes despite quarterly pricing decreases for workers’ compensation coverage that have accelerated to their steepest levels in five years, with first quarter 2025 showing the largest cuts.

The profitability engine remains powered by favorable prior-year loss reserve development, which contributed $7.3 billion in 2024 alone, AM Best said. This development provided a 14.5 percentage point benefit to the calendar year loss ratio, essentially underpinning the entire P&C industry’s reserve position. While the rest of the industry experienced $1.2 billion in unfavorable development, workers’ comp carriers continued to benefit from conservative reserving practices and declining loss costs, the report noted.

Workplace safety improvements continue to drive positive results, with lost-time claim frequency declining 5% in 2024 compared to the previous year, according to AM Best. Since 2021, only two years — 2010 and 2021 — saw an increase in lost-time claims frequency, according to data from the National Council on Compensation Insurance (NCCI) cited by AM Best.

Federal labor data shows workplace injuries per 100 full-time employees have dropped 70% over the past three decades, reflecting both enhanced safety measures and the economy’s shift toward less hazardous service-sector employment, the report said.

Competition Intensifies Amid Market Fragmentation

The workers’ compensation market remains highly fragmented and competitive, with the largest insurer by direct premiums written, Travelers Group, holding just 6.7% market share. This competitive landscape, combined with state-specific regulations, creates ongoing pressure for insurers to cut prices to maintain or gain market share. Seven of the past eight quarters have seen pricing changes of negative 1.8% or steeper, signaling intensifying competition, AM Best said.

Geographic concentration presents both opportunities and challenges, according to the report. California maintains its position as the largest market with 20.5% of direct premiums written, though premium volume declined 1.5% year-over-year. The top 10 states represent more than 60% of national premium, with six of these states achieving combined ratios better than the national average.

State funds face particular challenges, with five of the six insurers posting combined ratios above 100 being state-operated entities. In contrast, 18 of 19 private carriers achieved profitable underwriting results, highlighting the operational advantages of commercial insurers in the current environment.

Future Outlook Points to Narrowing Margins

While workers’ compensation appears positioned for continued profitability in the near term, several factors suggest margins may compress, according to the report. The NCCI estimates that current reserves remain redundant by approximately $16 billion, providing a cushion for continued favorable development in 2025. However, AM Best’s assessment indicates the overall reserve position is weakening, with less redundancy available to bolster future calendar year results.

Mid-year 2025 results indicate another profitable year is developing, though direct premiums written for the first six months trail the same period of 2024. The loss ratio of 50.1% for the first half, while higher than recent years, remains well below breakeven levels. Historical patterns suggest the full-year loss ratio will likely improve as reserve releases typically accelerate in the second half.

“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,” said David Blades, associate director, Industry Research & Analytics for AM Best.

Obtain the full report here. &