Workers’ compensation has posted a combined ratio below 100 for twelve consecutive years among private carriers, according to NCCI. The run of underwriting profits has made it the most reliable casualty line in the US market and, for most of that period, a relatively predictable one to place. A new report published by AM Best suggests that predictability is now under more pressure than the headline numbers show.
The report, which analyzed full-year 2025 results, puts the sector’s calendar-year combined ratio at 93.2, below all major long-tailed casualty lines and below the commercial lines segment overall. That figure aligns broadly with data from the National Council on Compensation Insurance (NCCI), whose 2026 State of the Line report, covering private carriers in the 38 states it serves, puts the calendar-year combined ratio at 91, while noting an accident-year combined ratio of 102 for 2025.
The accident-year measure strips out the effect of prior-year reserve releases. A reading above 100 means that on current-year business, the line is paying out more in losses and expenses than it collects in premium before those releases flow through.
Favorable development on prior accident years has been the structural underpinning of workers’ comp profitability throughout this cycle, and according to AM Best, it was greater in 2025 than for any other individual property and casualty line. But the reserve base supporting that development is eroding. NCCI estimates the industry’s redundant reserve position at $14 billion at year-end 2025, down from $16 billion in 2024. That is a $2 billion drawdown in a single year, and the lowest redundancy level since 2021.
"While reserves still remain redundant, the redundancy has been dissipating and is now at its lowest level since 2021," said AM Best associate director David Blades. "The next 12 months will provide significant insight into whether this is a trend."
That question matters because the gap between the calendar-year and accident-year combined ratios depends entirely on how much favorable development continues to flow through. If redundancy keeps shrinking at its current pace, carriers will have less prior-year cushion to draw on, and calendar-year results will converge toward the accident-year reading.
Compounding that dynamic is what’s happening to premium. The Council of Insurance Agents & Brokers’ (CIAB) latest P&C Market Survey found workers’ comp premiums declined by an average 3.2% in the second quarter of 2026, marking the 18th consecutive quarter of decreases.
AM Best notes that price cuts appear to be accelerating amid competitive market conditions, with some carriers cutting rates to retain profitable accounts. Total US workers’ comp direct premiums written, including state funds, fell 2.4% to $56.18 billion in 2025, according to NAIC data. Private carrier net written premium, as measured by NCCI, was essentially flat at $41.6 billion.
The market reshuffle at the top reflects that competitive pressure. Hartford Insurance Group replaced Travelers Group as the largest US workers’ compensation writer in 2025, with $3.73 billion in direct premiums written, after Travelers cut its book by 3.7% to $3.69 billion. That’s not a minor adjustment. Travelers had held the top position for years, and a deliberate reduction of that scale signals where at least one major carrier thinks the risk-reward equation is heading.
"Despite the continued favorable underwriting and operating results, rising medical costs, and reserve adequacy concerns could begin driving the need for significant changes for those same insurers," said AM Best senior industry analyst Christopher Graham.
Medical cost inflation is the sharpest near-term pressure on the loss side. NCCI data shows medical severity rising 4% in 2025, outpacing the Workers Compensation Weighted Medical Price Index. That means utilization, not just price, is driving the increase. The mid-year 2026 data cited by AM Best reinforces the direction: the direct incurred loss ratio through the second quarter was the highest of the past five years.
California, which accounts for more than 20% of all US workers’ comp premium, is already moving through what other states may face with a lag. The Workers’ Compensation Insurance Rating Bureau of California estimated that average charged rates in the first quarter of 2026 were about 6% higher than in 2025. That suggests a decade-long downward trend in the state may be ending. The WCIRB projects California’s accident-year combined ratio for 2025 at 127%, the highest in more than 20 years. That is well above the national figure, and a signal of where medical severity and cumulative trauma exposures can take a market when the cushion runs out.
The AM Best report does not predict a hard market. What it describes is a line that has been profitable long enough to attract aggressive competition, at precisely the moment when the financial conditions that supported that competition are becoming less favorable.
