“We remain pessimistic about the near-term profitability prospects for the U.S. workers’ compensation market despite improved pricing in the past couple of years,” said S&P credit analyst Siddhartha Ghosh. “We base our cautious view of the industry on such factors as continuing high unemployment levels and economic uncertainty, potential adverse reserve development, higher health care costs, and emerging risks like the expiration of Terrorism Risk Insurance Program Reauthorization Act in 2014 and significant uncertainty regarding the ACA.”
In its recent report, S&P explains that demand for workers’ compensation in the U.S. depends greatly on economic cycles with a strong correlation between premium growth for workers’ compensation insurance and the state of the labor market.
S&P cited unemployment and the GDP as affecting premium growth, noting that consumers remain worried, wages are virtually stagnant, unemployment remains high and the cost of living is rising.
Concerns about the on-and-off political gridlock in Washington, D.C., uncertainty about the implementation of the Affordable Care Act (ACA), and the potential for higher interest rates remain foremost on the minds of many, according to S&P.