The U.S. property/casualty (P/C) insurance industry experienced an increase in Credit Rating (rating) downgrades in the first half of 2023, reflecting a difficult period for the personal lines segment, according to a new AM Best report.
Rating downgrades for U.S. P/C insurers went from 5.2% of rating actions in the first half of 2022, to 9.1% through June 30, 2023. The development comes as this segment continued to face heightened weather-related catastrophe activity, in addition to rising loss and reinsurance costs in the first half of 2023. All lines of P/C business were also impacted by worsening economic and social inflation. The number of P/C ratings placed under review more than doubled in the first half of 2023 and made up 6.3% of total rating actions.
As for U.S. life/annuity and health insurers, a separate report notes that affirmations accounted for a larger proportion of rating actions, as upgrades and downgrades both decreased. AM Best also assigned five initial ratings during the first half of 2023—two more than in the first half of 2022. The Best’s Special Report, “Life/Health Rating Upgrades Equaled Downgrades in First-Half 2023,” notes that balance sheet changes drove the majority of rating changes, emphasizing the importance of capitalization.
The US L/A insurers have benefited from high levels of risk-adjusted capitalization, favorable liquidity profiles, and boosted net yields owing to higher interest rates. This has been counterbalanced somewhat by market-sensitive lapse rates, asset credit risks, and talent acquisition challenges. Health insurers face a possible increase in utilization, and the resumption of Medicaid eligibility redeterminations could pose issues with enrollment levels and diversification of revenues and earnings.
Overall, the number of upgrades in the L/A and health segment equaled the number of downgrades in the first half of 2023, whereas the number of upgrades nearly tripled over the number of downgrades in the first half of 2022, according to the report.
To access the full copy of the U.S. P/C rating trend special report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=336617 .
To access the full copy of the U.S. L/A and health insurers rating trend special report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=336619 .