California workers’ comp carriers are filing a steady stream of rate increases as medical costs rise. But most are unable to capitalize on those higher premiums due to lack of capital availability and a host of competitors willing to write it as it comes. The end result is a combined loss ratio for California’s workers’ comp carriers that may reach 130 for 2009 as written premiums continued their decline to an estimated $6.3 billion. But overall, rates per $100 of payroll were down only slightly through the first nine months of 2009 at $2.33, compared to $2.36 in 2008.

Final numbers for 2009 are still a way out, but Dave Bellusci, chief actuary to the Workers’ Compensation Insurance Rating Bureau, said he expects that combined ratio to come in between 125 and 130. That’s up from 111 in 2008.

Bellusci says that much of the $10 billion drop-off in workers’ comp premiums was due to lower premiums following enactment of the reforms. But now, he says, the drop-off is driven by the economic decline. Rates have flattened, but fewer workers are employed and many of those still on the job are working fewer hours. Overall, written premium net of deductible credits was $7.6 billion statewide in 2008 before the full force of the recession was felt.

Bellusci noted that the decline in written premium last year was exacerbated by the nature of the downturn, which hit construction and manufacturing sectors hardest — two industries that contribute significantly higher premium to the overall pool than other lower-hazard industries. Helping to keep those rates down is the plethora of companies still willing to write comp in California.

Ken Allen, bureau chief for the California Department of Insurance rate regulation branch, reminds us that 39 new companies have started writing workers’ comp in California since the reforms were enacted. These companies now account for 9% of the premium written. Typically, these companies have been coming in around the average rates to a little above average, but that’s not always the case.

“Some have been aggressive to gain a toehold in the market, but most are at the norm or a little above,” Allen noted.

Depopulating State Fund

California’s largest writer of workers’ comp is keenly aware of this competition. Jim Neary, executive vice president and chief actuarial advisor for State Fund, says that its market share will have dipped below the 20% mark if the latest estimates of 2009 premiums holds true. At that level, Neary says State Fund’s market share would be 19.8%, down from 22.6% in 2008 when premiums were at $7.6 billion.

Neary said much of its lost business went to three groups — Everest National, Travelers and Meadowbrooke. “These three took twice the volume of business from us than anyone else,” Neary said before listing eight other players that he says were actively pursuing State Fund’s insureds last year. The secondary list includes Majestic Insurance, The Hartford, Zurich, Zenith Insurance, Insurance Company of the West, Seabright Insurance Company, FirstComp and Delos Insurance Company.

He noted that in prior years AIG, Liberty Mutual and Berkshire had been actively taking business from State Fund, and while they are still in the California market, Neary said they were less active last year in taking business from State Fund. Employers Direct Insurance Company also started the year out “very competitive” before it pulled back from the California market, he said.

But how long this will last remains a concern. “If 2009 does come in at 125 or 130 combined ratio, then rates will have to go up at some point,” he noted, expressing concern about how quickly those rates will rebound.