Best’s Special Report: Credit Rating Upgrades Continue to Outpace Downgrades for U.S. Property/Casualty Carriers in 2017

OLDWICK, N.J.--()--Credit rating activity in 2017 for the U.S. property/casualty (P/C) industry remained positive for a second straight year as upgrades outpaced downgrades, even as companies experienced a historical year in terms of catastrophic weather losses and a persistently low investment yield environment, according to a new A.M. Best special report.

The Best’s Special Report, titled, “Upgrades Continue to Outpace Downgrades for Property/Casualty Carriers in 2017,” states that the higher proportion of Long-Term Issuer Credit Rating (Long-Term ICR) upgrades in 2017 was due to solid capitalization, improved technology and risk management capabilities, and ongoing acquisition and affiliation agreements with higher-rated companies. A.M. Best believes that the industry as a whole maintains sufficient overall risk-adjusted capitalization relative to its existing credit ratings.

The number of Long-Term ICR upgrades, as a percentage of all rating actions on P/C carriers, increased to 8.5% in 2017, compared with 7.3% in the previous year. Conversely, the number of Long-Term ICR downgrades fell to 2.8% compared with 4.6% in 2016 of total actions on rating units. A.M. Best took action in 2017 on the Long-Term ICRs of 720 rating units, which describes either an individual insurer or a consolidation of companies and is the financial basis on which A.M. Best performs its credit rating evaluations. The overwhelming majority of the 2017 P/C rating actions were affirmations (80%).

The following are some other highlights from the report:

  • The number of ratings placed under review in 2017 increased to 42 from 32 in 2016, and reflects material changes in operating performance, mergers and acquisitions, reorganizations through pooling and reinsurance arrangements and the release of the updated Best’s Credit Rating Methodology in October 2017;
  • The commercial lines segment recorded 32 upgrades compared with 9 downgrades in 2017, while in the personal lines segment, upgrades totaled 26 compared with 10 downgrades; and
  • In 2017, 79.0% of the U.S. P/C industry’s credit ratings carried a stable outlook, a modest increase from 2016. Contributing to this increase was a decline in negative and positive outlooks in 2017.

Although nearly 90% of the total credit rating actions were affirmations and upgrades, individual companies continue to face significant headwinds, including operating pressure from a persistent low investment yields; a reduced benefit from prior-year reserve releases; the impact of weather-related events on property carriers concentrated in a single state; and intensifying competitive market conditions caused by sophisticated pricing algorithms and expanding distribution channels.

To access a copy of this special report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=270547.

A.M. Best is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

Copyright © 2018 by A.M. Best Rating Services, Inc. and/or its subsidiaries. ALL RIGHTS RESERVED.

Contacts

A.M. Best
Lewis DeLosa, +1-908-439-2200, ext. 5529
Financial Analyst
lewis.delosa@ambest.com
or
Christopher Sharkey, +1-908-439-2200, ext. 5159
Manager, Public Relations
christopher.sharkey@ambest.com
or
Jim Peavy, +1-908-439-2200, ext. 5644
Director, Public Relations
james.peavy@ambest.com

Contacts

A.M. Best
Lewis DeLosa, +1-908-439-2200, ext. 5529
Financial Analyst
lewis.delosa@ambest.com
or
Christopher Sharkey, +1-908-439-2200, ext. 5159
Manager, Public Relations
christopher.sharkey@ambest.com
or
Jim Peavy, +1-908-439-2200, ext. 5644
Director, Public Relations
james.peavy@ambest.com