SACRAMENTO, CA – Amid widespread refusals of needed medical care for injured workers, insurance companies are reporting huge profits. “Injured workers’ care has been tied in knots,” said California Applicant Attorneys President Art Azevedo. “After seeing profits more than double in 2003, the insurance industry is reporting continued profit growth in 2004. Mid-year results are in for most companies, and profit increases range from merely impressive to spectacular. It’s clear that the millions saved by forcing injured workers to live in pain is going directly into insurance companies’ pockets. “Although the reported data shows nationwide results, some available data on California workers’ compensation insurance clearly shows that it is among the most profitable lines. Nevertheless, the industry continues to insist that rate decreases are “premature” and, in fact, the most recent proposal from the industry’s rating bureau was to increase rates next year.
The 2003 results were reported by Weiss Ratings, which found that national profits for the property-casualty industry grew from $13.5 billion in 2002 to $32.3 billion in 2003. For California workers’ compensation the results have been similar. As reported by the Workers’ Compensation Insurance Rating Bureau, the 2003 loss ratio ? the percentage of collected premium paid out in claim costs – dropped by 25% from 75.5% in 2002 to just 57.1% in 2003. In fact, the industry hasn’t seen a loss ratio that low since 1993 – 1994, and it was the excessive profits being earned by the industry at that time that lead directly to the elimination of the Minimum Rate Law!
The reported mid-year results for 2004 continue the trend of steadily increasing profits for the insurance industry. Zenith National Insurance Company reported 2004 second quarter net income of $24.8 million, up more than one-third over the $18.4 million in 2003. Even more remarkable, income from workers’ compensation operations – this represents premium income after subtracting claim costs and expenses – grew from $8.0 million in the first half of 2003 to $41.9 million in 2004, and increase of 424%! Zenith had a combined ratio (the ratio of premiums to claim costs plus expenses) of 90.3% in the first half of 2004, compared to a ratio of 97.4% in 2003. This means that Zenith’s profits increased by an additional 7% of the premium from 2003 to 2004. Including the investment income earned by Zenith, the company’s average return on equity for the first half of 2004 was 24.4%, up significantly from a still very profitable 18% in 2003.
Other insurers reported similar profit increases in the second quarter of 2004. The Everest Re Group reported a 62.8% increase in after-tax operating income for the second quarter of 2004 compared to 2003. Net income, which includes realized capital gains, was up 140.9% during the second quarter. Everest’s combined ratio for the first half of the year was 91.1%, down from 94.5% last year. AIG saw its net income excluding realized capital losses jump 19.2% to a record $3 billion, and had a 92.35% combined ratio for the first half of 2004. The American Financial Group saw a net income growth of 83%, climbing from $30.5 million in the second quarter of 2003 to $55.9 million in 2004. The combined ratio for the American Financial Group in California workers’ compensation insurance dropped from 96.3% in the first half of 2003 to 92.5% in 2004.
For Liberty Mutual, net income rose 106% during the second quarter, and was up 227% for the first half of 2004. The 6-month net income grew from $211 million in 2003 to $691 million in 2004. Hannover Re reported a net income growth of 30.2% for the first 6 months of 2004. Net income for the first half of 2004 for the Hartford Group topped $1 billion, with a combined ratio of 91.4% for its property-casualty operations, down from 96.0% in 2003.
The insurance industry often criticizes similar reviews of insurer profitability because most of these figures represent profits earned in all lines of insurance and in all states where that insurer operates. The industry claims that these particular insurers may be profitable on a nationwide basis, but that doesn’t mean that workers’ compensation insurance in California is profitable. However, the data shows that the industry complaint is baseless. For example, the data reported for the American Family Group shows a separate accounting of California workers’ compensation insurance results. As noted above, the combined ratio for the first half of 2004 was 92.5%, meaning that the insurer is making a profit of 7.5% on every dollar of premium it writes – even before earning investment income. Since insurance companies typically generate all of their profit from investment income, earning a 7.5% profit even before consideration of investment income demonstrates the high profitability of the company’s California workers’ compensation insurance business.
Likewise, the results of the Zenith show how profitable workers’ compensation insurance in California is for the industry. Zenith writes only workers’ compensation insurance, and almost two-thirds of its premium comes from California (that’s up from last year, showing that Zenith is expanding its business rapidly in California). With a combined ratio of 90.3%, Zenith is earning a profit of almost 10% on its premium, without even considering its investment income! With its return on equity growing to 24.4% for the first half of 2004, Zenith’s results clearly demonstrate that the California workers’ compensation insurance market is already very profitable and that profit margins are still growing.