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Jun 14, 2010

Where Are California Work Comp Rates Headed?


Combined Ratio Climbs 17 Points In 2009

The rapid decline in earned premiums in California's workers' comp market pushed carrier's combined ratio well into the triple digits last year, ultimately clocking in at 118.2, according to preliminary data from the Workers' Compensation Insurance Rating Bureau. State Compensation Insurance Fund ended 2009 with a combined ratio of 161.5. The uptick came as earned premium in the state continued to fall, reaching a nine-year low of $9.1 billion before deductibles were applied

"A combined of 118% is by far the highest we've seen in some time," notes WCIRB chief actuary Dave Bellusci. "You have to go back to 2002 to find a combined ratio that high."

Addressing WCIRB's Actuarial Committee, Bellusci notes that the rapid uptick in the ratio -- an increase of 45 points since a low of 73 in 2006 -- comes even though carrier losses have moderated but not enough to offset the loss of premium. Overall last year, carriers reported a loss ratio of 74.6% as incurred losses reached $6.85 billion. That loss ratio is up 11.5 points over 2008. The total incurred loss reached 75% after insurers boosted reserves by $38 million last year.

The rapid loss of premium is also driving of expense ratios. While the underlying expense totals have held relatively steady, Bellusci points out that Unallocated Loss Adjustment Expense (ULAE) and Allocated Loss Adjustment Expenses (ALAE) ratios are also climbing. ULAE was up 2.2 points to 11.2%, while ALAE was up 2.3 points to an even 10%. After considering the cost of expenses for commissions, taxes and other operating expenses, the total expense ratio reached 43.1%.

Bellusci says that the totals cover the experience of the total market, including that of State Compensation Insurance Fund. He notes that the annual report on calendar year paid costs is a legislative mandate and includes the experience of the entire market. WCIRB has not done an analysis that excludes SCIF's experience, although it has done this in recent years when making its pure premium rate recommendation to the Insurance Commissioner.