Liberty Mutual tops the workers’ compensation market for the third straight year with American International Group right behind them, according to a report from A.M. Best.

According to the new report, profitability for workers’ comp lines will continue to be challenged going forward despite a more favorable pricing environment, due to an increasingly competitive operating environment and the cumulative effect of rate increases.

The U.S. workers’ compensation line of business, which has faced significant challenges in recent years, received a respite in 2011 as employment and payrolls stabilized and overall net premiums written (NPW) increased by 10 percent, according to A.M. Best. Despite this increase, however, premium volume remains 23.8 percent lower than its peak of $49.2 billion in 2005.

The report, titled “Despite Favorable Pricing Trends, Profitability Challenges Persist,” also found that overall underwriting results for the aggregated workers’ comp line improved slightly, as the combined ratio declined to 117.8 in 2011, from 118.1 the previous year.

The premium growth of 10 percent in the workers’ comp line in 2011 outpaced that of U.S. commercial lines, which saw a reported 4 percent increase in NPW for the year. In addition, the rise in NPW for the workers’ comp line comes after five consecutive years of NPW declines, from 2006 through 2010, when a combination of competitive pricing, a series of consecutive rate increases (often related to statutory reforms), poor employment and challenging macroeconomic conditions put significant pressure on the sector.

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