Workers’ compensation was the worst performing commercial lines segment in 2011, according to a new report from Fitch.

Representing around 18 percent of commercial net written premiums in 2011, making it the largest commercial lines segment, workers’ comp posted a statutory combined ratio of 117 percent—9.5 percentage points below the commercial lines aggregate.

Given sharp declines in premiums in the segment since 2006, Fitch found 2011’s seven percent growth in written premiums encouraging. The report outlined anticipation for continued growth in 2012 as well.

Yet the report indicated more concern surrounding claims costs and volatile underwriting.

“Claims costs will continue to be affected by rising medical severity, and premium rates will need to improve significantly further for the market to reach an underwriting breakeven,” said Jim Auden, managing director at Fitch.

From company to company, results varied widely. Despite overall deterioration of results, four insurers— Ace American Insurance Co, Federal Insurance Co (Chubb), Old Republic General Insurance Group, and W.R. Berkley Corp—posted an underwriting profit for 2011.

The report also noted that workers’ comp has generated reserve deficiencies from prior underwriting periods in the last three years.

'Fitch believes that workers compensation reserves at year-end 2011 are one of the weaker segments from a reserve adequacy perspective for the property/casualty industry, and industry results will continue to be affected by unfavorable reserve development going forward,' said Auden.

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