Accident-year workers compensation profitability, excluding state funds, improved in 2013 to a combined ratio of 103—its lowest level since 2008—as a result of significant rate increases and the shedding of unprofitable business in 2012 and 2013.

Executive Summary

Moody's recent pricing and trend survey indicates that workers comp insurers have an increased risk appetite, which will likely slow the pace of price increases over the next two years as carriers seek to retain existing profitable accounts and to add new business.

We expect the sector will achieve underwriting profitability in 2014 with incremental improvement in 2015, provided current trends hold. In particular, margin expansion will be driven by estimated rate firming averaging 5.5 percent—well below the greater than 8 percent pace of 2012-2013 but above continuing benign loss ratio trends.

According to our pricing and trend survey, workers comp insurers overall indicate a moderate increase in risk appetite for 2014 compared to declines in previous surveys. This will likely slow the pace of price increases over the next two years as carriers seek to retain existing profitable accounts and to add new business, with rates falling to the level of loss ratio trends within about two years.

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