The workers’ compensation industry had a pretty good 2014 in which its combined ratio improved for the third consecutive year, premium grew for the fourth consecutive year, and claim frequency declined about two percent. But the results in 2014 were not enough to relax officials at the industry’s rating and statistical organization, the National Council on Compensation Insurance. NCCI, which is the official rating and statistical organization for more than 30 states, this week released its annual State of the Line workers compensation market analysis in which the group describes the current state of the industry as “calm now – but turbulence ahead.”

This year’s State of the Line report indicates that the workers compensation calendar year combined ratio for private carriers was 98 in 2014, a four-point decrease from 2013 and a 17-point decline since 2011. Total market net written premium increased by approximately 6% to $44.2 billion, driven primarily by an increase in payroll.

“The most recent results show that 2014 was a good year for the industry—and that follows solid results in 2013,” said NCCI President and CEO Steve Klingel. “It would be great if these results marked the beginnings of a new trend line, but ours is a business that runs in cycles. And despite the current calm conditions, we are anticipating turbulence ahead.”

“From ongoing threats to exclusive remedy, to the risk of benefit increases without appropriate rate adjustments, to the rapidly changing nature of our workforce and workplaces, our industry is being tried on all sides today. While I am confident that we will work our way through these challenges, it is important to be realistic about current conditions and to recognize that the current positive results may not last.”

“Results for the workers compensation line improved again in 2014,” said NCCI Chief Actuary Kathy Antonello. “Among the more positive signals were a combined ratio that fell below 100 for the first time since 2006, a second year of above average operating gains, and a continued decline in claim frequency.”

“On the other hand, indemnity and medical severity increases have begun to outpace increases in the average weekly wage and medical consumer price index, low interest rates continue to make investing a challenge, and employment in some sectors of the economy – particularly construction and manufacturing – remains well below pre-recession levels.”

The workers compensation calendar year combined ratio for private carriers was 98 for 2014, which was driven primarily by a decrease in the loss ratio. The accident year results also showed improvement in 2014, falling four points to a combined ratio of 95. The calendar year 2014 underwriting results combined with investment gains on insurance transactions produced a workers compensation pretax operating gain of 14% for 2014. The overall reserve position for private carriers further improved in 2014. NCCI estimates the year-end 2014 reserve position to be a $10 billion deficiency for private carriers – down from $11 billion in 2013. Lost-time claim frequency maintained a path of decline in 2014 – down 2%, on average, in NCCI states.

Even so, the workers compensation industry faces some ongoing challenges: Claim severity increased slightly more than inflation measures for indemnity and medical costs. While workers compensation premium volume continues to increase, construction and manufacturing employment totals remain well below pre-recession levels – restraining even higher premium growth rates. A continuing low-interest-rate environment threatens investment results over the long term.