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Worker’s Comp Insurance Reserves are Low

- Thursday, April 24, 2014

Analysts are concerned that claim reserves for workers compensation insurers were “dangerously thin or already deficient” in 2013, according to a report released this week by SNL Financial L.C.

Additionally, at least 10 workers comp insurers and reinsurers needed to strengthen their workers comp reserves by $20 million or more in 2013. That group includes Liberty Mutual Holding Co. Inc., CNA Financial Corp., Everest Re Group Ltd. and Sydney-based QBE Insurance Group Ltd.

“The shrinking cushion leaves the industry increasingly vulnerable to the kind of sudden jumps in claims costs that in the past have financially crippled and even collapsed unprepared insurers,” SNL said of an analysis by workers comp industry analysts.

Overall, that group of worker's comp insurers had $8.9 billion in net written premiums in 2013 but needed to add $702.6 million to their workers comp reserves that year to cover higher-than-anticipated comp claim frequency or severity.

Workers comp claims “behavior takes longer to develop than in other sectors, making it more difficult to tell how much money should be set aside even years after a policy is written,” the report reads. “Misjudging those reserving needs can be disastrous.”

Liberty Mutual had $3.1 billion in net written premiums last year, and strengthened its workers comp reserves by $236.3 million in 2013 — the largest adverse reserve development of any workers comp insurer in the group, according to SNL.

CNA had $771.5 million in net written premiums and bolstered its workers comp reserves by $76.2 million last year, the report showed.

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