ORLANDO, Fla. – The National Council on Compensation Insurance Holdings, Inc. (NCCI) released its annual State of the Line report yesterday during its conference at the Portofino Bay Hotel at Universal Orlando, showing continuing improvements in the national workers' compensation market. Although the NCCI had good news to report in terms of national benchmark averages, it is evident that without California's results mixed into the pot, the numbers would be worse. For example, the 2006 average workers' comp calendar year combined ratio of 96.5 percent — the best underwriting result in at least 30 years – would actually be more than 105 percent sans California's stellar results.

The 2006 national workers compensation calendar year average combined ratio showed a 6.5 point improvement over 2005 and a 25.5 point improvement from the current cyclical peak of 122 percent in 2001. Last year yielded the first underwriting profit for the line since 1995.

California also skewed the NCCI's estimate of a $4 billion national workers' comp reserve deficiency as of December 31, 2006 – a $5 billion improvement from year-end 2005. In contrast, the industry in California was over-reserved to the tune of $6.5 billion at the end of 2006, according to the Workers' Compensation Insurance Rating Bureau of California.

After allowing for discounting of indemnity reserves for lifetime pension cases, the report deems the national reserve position as slightly more than adequate. NCCI's analysis indicates the industry has made significant progress on its reserve deficiency over the past five years, and the current cycle of strengthening reserve on older accident years is nearing an end for this cycle.

However, there is a catch. Though underwriting results are the best they've been in decades, returns after investment income and federal taxes and returns on surplus are nowhere near record levels. According to the report, they're just modestly above the average for the past 20 years due to recently low interest rates.

"NCCI's short-term view of the line is optimistic, but the long-term view remains cautionary due to a series of critical issues that continue to face the business," said NCCI President and CEO Stephen J. Klingel. "These include skyrocketing medical costs, low investment returns, a changing political landscape, and the projection that the current underwriting cycle is likely at its peak. If the industry is to continue to improve its financial performance, these items will need attention in the months to come."

And that, as they say, is -30-

File by Christine Stanley in Orlando, Florida.