Although workers' compensation pricing on the street is still highly competitive in California, a first analysis of calendar year loss ratios in the state through the first nine months of this year shows a steep deterioration in costs that could be portent of things to come for the industry.

Even the ultimate accident year loss ratio for 2006 marked the first increase in 7 years, up 5.3 percentage points to 36% from 28.7% in the year prior, according to the Workers' Compensation Insurance Rating Bureau's new report on insurer experience through Sept. 30. The combined ratio in the 2006 accident year was 63%, up 11 points from an astoundingly low 52% in 2006. While the loss portion increased, loss adjustment expense ratio increased from 9% to 11%. In another indication that costs have bottomed out, ultimate accident year losses for 2006 are 6.2 billion, the same as in 2005, despite the fact that premiums collected have dropped 23 percent during the same year.

All that said, however, expense ratios logged by the California industry are still strong and profitable and a far cry from the lung-puncturing combined accident year ratio of 188 percent logged in 1998.

The Bureau's analysis also showed that the 2006 calendar year combined and loss ratios were the lowest in more than 10 years (as far back as data goes back in this Bureau report). But that seems to have been the nadir, because the calendar year loss ratio through Sept. 30 shot up 11 points to 55% up from 44% in corresponding period in 2006.

Additionally, costs per claim are on the rise and the estimated ultimate medical costs per indemnity claim in the 2006 accident year is at an all-time high of $26,398, a hair more than the previous high of $26,307 in 2002. And for the first time in four years, the ultimate cost per indemnity claim jumped nearly 10% to $40,174 in 2006 from $36,575 in 2005. One reason for this phenomenon, pundits will tell you, is that the more difficult and costly claims are left in a system that's been depleted – as a result of reforms – of many small claims.

Meanwhile, written premium and rates per payroll are still falling. Written premium in the nine months ended Sept. 30 was logged at $9.9 billion, down 23% from the same time period in 2006. Also, the average insurer rate per $100 of payroll fell to $2.49 in the three month period ended Sept. 30, compared to $2.93 in the first six months of the year.

And that, as they say, is -30-