P&C carriers got more upgrades than downgrades in 2016 but the ratio of negative outlooks to positive outlooks in the property and casualty space has increased according to A.M. Best.
One of the ratings agency’s senior financial analysts told
Insurance Business that P&C had faced volatility over the past 18 months and that was largely due to the increased severity and frequency of auto claims from distracted drivers on their phones or interacting with their vehicle’s voice response system.
The report outlined a negative outlook for both commercial lines and reinsurance, while personal lines had a stable outlook.
In commercial, increased competition and the pricing environment contributed to the less-than-positive forecast and reinsurance had overcapacity with capital coming in from third parties.
Underwriting losses in 2016 were among the headwinds some companies weren’t able to overcome with pricing while those carriers who received upgrades had capable pricing structures, according to the analyst.
Low interest rates causing historically slim investment yields is another challenge carriers faced and the ones who were weren’t sophisticated enough to accommodate underwriting profitability over-relied on investment income, the analyst said.
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“The commercial lines segment recorded 28 upgrades compared with 20 downgrades, while in the personal lines segment, upgrades totaled 26 compared with 15 downgrades,” the report said.
“Just over three-quarters of the US P/C industry’s ratings carried a stable outlook in 2016, a modest decline from 2015. Contributing to this decline was the continued higher amount of negative outlooks relative to positive outlooks.”
Though P&C is experiencing a higher volume of claims, the report was optimistic about the number of carriers positively rated.
“Overall, the percentage increases on rating upgrades was driven by individual company trends of positive operating performance over several years, steady growth in risk-adjusted capitalization that supported higher rating levels and acquisition/affiliation with more highly rated companies and groups,” the study said.
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