A decrease in California workers' compensation rates implemented in 2016 likely contributed to a 17.1% decline in State Compensation Insurance Fund's net premiums written during the second quarter of 2017.
State Fund, the quasi-governmental organization that ranked in 2016 as California's largest workers' comp writer, reported $694.3 million in net premiums written for the first half of 2017 in its latest quarterly statement. When compared with results for the first quarter, S&P Global Market Intelligence calculates that State Fund's premium volume totaled $338.5 million in the second quarter, down from $408.4 million in the year-earlier period.
It marked a fourth consecutive quarter in which State Fund's net premiums written compared unfavorably on a year-over-year basis; the period's rate of decline was well in excess of the first quarter's 9.7% retreat.
State Fund implemented an overall rate level decrease of 19.3%, effective Sept. 1, 2016, that was estimated to result in a 9.5% decline in overall collectible premium.
A 1.6% dip in net premiums written in 2016 ended a stretch of three consecutive calendar years of growth in that measure of business volume. State Fund attributed that development to factors such as lower new and renewal business in a soft market, partially offset by an increase in employer payrolls. Minutes of State Fund board meetings through 2016 show several references to pressure on new business writings, including drops of 44% in new business and 16% in submissions reported for the first quarter of that year.
S&P Global Market Intelligence calculates a combined ratio for State Fund of 131.6% for the second quarter and 132.1% for the first half of 2017, up from 130.1% and 129.4% in the respective year-earlier periods. Net premiums earned fell by 17.3% in the second quarter, slightly ahead of the 16.3% reduction in total underwriting deductions.
Executives at Everest Re Group Ltd. during a July conference call included the California workers' comp business in a list of markets where they observed "some degree of mild pressure" on rates. State Fund, for its part, plans to implement a base rate change of a negative 7.3% that is expected to achieve an overall reduction in collectible premium of 8%, effective Sept. 1.
More broadly, the Workers' Compensation Insurance Rating Bureau of California announced Aug. 8 that its governing committee approved a filing to take effect Jan. 1, 2018, that would propose an advisory pure premium rate of 0.5% above the average approved rate, effective July 1, 2017. But that slightly higher rate would still be 14.3% less than the July 1 industry average filed pure premium rate, and more than 7% below the average Jan. 1 advisory pure premium rate.
The proposed increase follows five consecutive advisory pure premium rate decreases since early 2015 that totaled more than 27%, the WCIRB said. While medical losses have continued to develop downward, claim settlement rates have accelerated, and increasing loss adjustment expense trends have moderated, the rating bureau said that average claim severities have been rising of late and the volume of cumulative injury continued to exhibit "sharp growth" in the Los Angeles and San Diego areas through accident year 2015.
The filing remains subject to its submission to, and approval by, the California Department of Insurance.
Pressure on workers' comp rates is hardly unique to California. The National Council on Compensation Insurance said in a presentation to a recent advisory forum in Virginia that its most recent rate or loss-cost filings reflected decreases in a preponderance of states in which it is active. Virginia is one of the exceptions to that rule as the NCCI has proposed a 1.1% increase in voluntary loss costs in a filing that would take effect April 1, 2018.
The NCCI said in the presentation that approved changes in advisory rates, loss costs, assigned risk rates and/or rating values with effective dates in calendar year 2017 totaled a negative 6.7% relative to those previously approved in those states in which it submits filings. The approved change in NCCI states for the previous calendar year was a negative 2.5%.