P&C insurers hit by downgrades

Challenging economic environment drives uptick

P&C insurers hit by downgrades

Insurance News

By Mika Pangilinan

There were fewer credit rating upgrades for US property/casualty insurers in 2022, while higher reinsurance costs, economic and social inflation, and rising loss costs drove a modest uptick in downgrades, according to a new report by AM Best.

The report found that while some insurers were able to navigate the changing economic environment and strengthen their balance sheets and operations, others reported deteriorating results.

As AM Best noted, the number of upgrades for P/C insurers declined from 54 in 2021 to 36 in 2022, representing 5.1% of total rating actions. In contrast, the number of downgrades increased from 3.4% in the previous year to 4.2%, or 30, in 2022.

The report additionally stated that AM Best assigned 32 ratings in 2022, which accounted for 4.5% of all rating actions. Of the assigned ratings, 27 were in the commercial lines segment, three were in the personal lines segment, and two were in reinsurance.

Affirmations, meanwhile, made up the bulk of 2022 total rating actions at 82.8%.

“Market trends are likely to continue impacting US personal lines insurers negatively,” said Helen Andersen, an industry analyst with AM Best. “The commercial segment also faces headwinds but remains solidly capitalized owing to its conservative investment profile, sound reserve position, and enhanced risk management discipline.”

The report also noted that in 2022, 10 ratings in the personal lines segment were upgraded, and 18 were downgraded, compared with 32 upgrades and 11 downgrades in 2021.

Additionally, the commercial lines segment saw 26 ratings upgraded and 11 downgraded, with both being higher than 2021, when 21 ratings were upgraded and 13 were downgraded.

Despite the challenging environment, the report noted that the percentage of negative outlooks declined to 5.4% from 8.1% at the end of 2021, as did positive outlooks, which changed to 3.3% from 5.7% of rating units. Under review actions also increased slightly.

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