Workers’ Compensation Profits Hold Steady but Reserve Cushion Shows Cracks
Workers’ compensation insurers generated a combined ratio of 93.2 in 2025, the highest level for the line in the past decade, according to market segment report from AM Best.
Even so, that combined ratio remained better than every other major long-tailed casualty line and the commercial lines segment overall, trailing only private passenger auto and homeowners’ multiperil among major property & casualty lines, the rating agency said.
AM Best found that favorable prior-year loss reserve development exceeded the line’s net underwriting profit of $3.19 billion by more than $3 billion in 2025, suggesting accident year 2025 alone may have actually produced an underwriting loss once reserve releases are stripped out. Net premiums written edged up 0.9% to $46.7 billion in 2025 from $46.3 billion in 2024, according to the report.
Pricing Cuts Accelerate as Reserve Cushion Thins
Competition for profitable accounts has pushed workers’ comp pricing cuts to their steepest pace in recent years, AM Best said, citing Council of Insurance Agents and Brokers data showing the three steepest post-COVID quarterly price declines all occurred within the past five quarters. The first-quarter pricing decrease of 3.7% was the deepest quarterly pricing cut in 10 years, according to CIAB’s report.
Those cuts are landing as the line’s reserve redundancy shrinks to its lowest level since 2021, AM Best found. Favorable development has reduced the calendar year loss ratio by at least 10 percentage points in each of the past nine years, but the accident year 2025 initial loss ratio pick of 68.1 was the highest in a decade outside of the pandemic years of 2020 and 2021, the report said. The resulting calendar year loss ratio of 54.5 was the highest since 2017, according to AM Best.
Workplace safety improvements have offset some of that pressure. Lost-time claims frequency fell in 23 of the past 25 years, and non-fatal workplace injuries are down roughly 70% over the past 30 years, AM Best said, citing U.S. Bureau of Labor Statistics data. The report cautioned that this injury rate has a natural floor and the pace of improvement may be slowing, which could remove one of the factors sustaining profits.
Top Writers Show Cracks Beneath Industry Averages
The Hartford Group overtook Travelers Group as the largest writer of workers’ compensation in 2025 after Travelers cut its book 3.7%, according to AM Best. The top 25 groups accounted for just 67.8% of total market premium, which AM Best said is low compared with the largest writers’ share of other property & casualty lines.
A closer look at individual carriers reinforced signs of a potential market turn, the report said. Liberty Mutual’s 2025 net combined ratio was negative, as reserve takedowns on older accident years exceeded its accident year 2025 losses and underwriting expenses. Excluding that outlier, the combined ratio for the remaining top writers was 96.1, nearly three points worse than the line’s official 93.2 figure, which includes Liberty Mutual’s impact, according to AM Best.
Among the 21 private companies in the top 25, seven posted combined ratios above 100 in 2025, compared with just one on a five-year aggregate basis, and 20 of the 25 groups recorded higher combined ratios in 2025 than their five-year averages, the report said.
California remained the largest state market, representing more than 20% of total workers’ compensation premium and more than any other three states combined, according to AM Best. The state’s insurance commissioner approved a 6.6% increase in advisory pure premium rates effective Sept. 1, 2026, below the Workers’ Compensation Insurance Rating Bureau’s proposed 10.4% increase, following an 11.2% proposal that was approved at 8.7% a year earlier.
AM Best attributed rising California costs partly to cumulative trauma claims and a growing share of high-complexity, elevated-cost claims.
Medical Costs and Workforce Shifts Cloud the Outlook
Mid-year 2026 results showed a direct incurred loss ratio of 52.3, the highest of the past five years, according to AM Best, up from 50.0 at mid-year 2025 and 48.4 at mid-year 2024.
Medical severity trend, muted from 2009 through 2020, has recently exceeded core inflation, mirroring the reserve pattern AM Best described: redundancies built up when severity trend was low have begun eroding as medical cost growth reaccelerates.
The report also pointed to macroeconomic and demographic pressures, including A.I. potentially cutting into payroll or shifting business to lower risk-class codes, and the retirement of Baby Boomers alongside a comparatively small Generation X workforce, as factors that could reshape premium volume going forward.
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