Portfolio Opportunities in the Workers' Compensation Industry
Conning has analyzed the market of insurers specializing in workers' compensation coverage to identify portfolio investment opportunities for this niche group of carriers.

Our general findings and interactive charts (figures 3-12) are below and we offer individual companies the option of learning more about their market position relative to peers, along with portfolio suggestions that might help them strengthen their business.

Market Comparison
There are 58 firms designated as workers’ compensation specialist according to A.M. Best data. We separated them into four bands based on portfolio size and compiled average figures for each band on invested assets, direct and net written premium, surplus, and loss and loss-adjustment expense (LAE) reserves (see Figure 1).




Figure 1* - Carrier Financial Summary by Invested Assets (Averages, in 000s)
Invested Asset Range Number of Companies Invested Assets Direct Written Premium Net Written Preimium Policyholder Surplus Loss & LAE Reserves







Greater than $1BN 16 3,806,407 623,642 616,039 1,477,976 2,154,255
$250mm - $1BN 18 516,218 174,568 150,176 216,554 255,040
$100mm - $250mm 10 157,171 50,070 48,376 60,378 74,489
$50mm - $100mm 14 64,104 24,593 22,844 34,392 28,239
Invested Asset Range Number of Companies Invested Assets Direct Written Premium Net Written Preimium Policyholder Surplus Loss & LAE Reserves







Greater than $1BN 16 3,806,407 623,642 616,039 1,477,976 2,154,255
$250mm - $1BN 18 516,218 174,568 150,176 216,554 255,040
$100mm - $250mm 10 157,171 50,070 48,376 60,378 74,489
$50mm - $100mm 14 64,104 24,593 22,844 34,392 28,239


During the last five years, overall growth among workers' compensation specialists has varied by company and size band but overall has been strong, as seen in Figure 2.


Figure 2 - Workers' Compensation Industry Compound Annual Growth Rates ("CAGR"), 2013 - 2018


Underwriting Results and Investment Income
Figure 3 shows that the two smaller bands of workers' compensation companies experienced lower loss ratios in 2018, signaling stronger underwriting performance, while the larger companies’ scale advantage in underwriting operations resulted in lower expense ratios. The lower loss and dividend ratios for the smaller specialists has led to persistently lower combined ratios (see Figure 4). However, as Figure 5 illustrates, the larger companies - especially those with $1 billion in assets or more – have an advantage in investment income ratio, or the amount of investment income earned per dollar of premium. This is driven by higher investment yields and greater balance-sheet leverage and helps counter the weaker underwriting performance. Accounting for investment income ratio shows that all the workers’ compensation carriers in our study are, on average, very close in operating ratio (Figure 6).


Figure 3* - Average 2018 Combined Ratio Components


Figure 4* - Average Combined Ratio±, 2014 - 2018
±Includes Dividends


Figure 5* - 2018 Investment Income Ratio


Figure 6* - Average Operating Ratio, 2014 - 2018


Larger Firms Have Advantage in Investment Performance
Larger companies have the advantage in investment performance, both on a total return and income measure (see Figures 7 and 8). Examining their bond portfolios reveals why. Larger firms' bonds on average have longer duration and maturity (as seen in Figure 9), have a greater exposure to non-public bonds (Figure 10), and on average are of lower quality (Figure 11). Conning believes there are no fundamental reasons that limit these exposures to just the larger companies. Companies of all sizes, in fact, might benefit from a thorough analysis of market opportunities.


Figure 7* - Estimated Portfolio Total Return


Figure 8* - Estimated Tax-Equivalent Bond Investment Yield


Figure 9* - Bond Maturity and Duration Estimates, 2018


Figure 10* - Exposure to Private Bonds, 2018


Figure 11* - Bond Quality Distribution, 2018


Room for Investment Improvement Across Size Bands
However, when we analyze results on a reward-risk basis, such as comparing tax-equivalent yield to average portfolio duration (see Figure 12), results are spread across a wide spectrum with no discernable patterns. That suggests portfolio inefficiencies among workers’ compensation specialists in all the size bands. Where does your firm fall in this array? Who are your closest competitors in terms of portfolio investment performance? And how do you improve your position?

Conning is prepared to help you better understand your position in these categories and to model strategies that can help you improve your portfolio, all the while working within your tolerance for risk.


Figure 12* - Portfolio Reward-Risk Varies Among All Size Bands (2018)


Contact us below to request a more detailed analysis of your company versus peers
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*All figures: Prepared by Conning, Inc. Source: ©2019 A.M. Best - used by permission.