OLDWICK, N.J.--(BUSINESS WIRE)--The number of Credit Rating (rating) downgrades and under reviews for the U.S. life/health (L/H) industry as a percentage of total rating actions increased moderately in first-half 2021, compared with the first half of the previous year,
The Best’s Special Report, titled, “Life/Health Rating Activity Mixed for First Half of 2021,” states that rating actions increased in the first half of 2021, with 159 taking place for L/H carriers, compared to 140 during the same period in 2020. Downgrades rose to 4.4% of ratings actions, compared with 2.9% in the same prior-year period. Under reviews were elevated in the first half of 2021 as well, increasing to 9.4% from 4.3% in first-half 2020. A majority of the ratings placed under review were due to uncertainties stemming from merger and acquisition activity. Rating upgrades and assigned ratings were in line with the prior year, while affirmations (78%) continue to be the most common rating action.
The following are other highlights from the report:
- In the first half of 2021, there were four rating upgrades and no downgrades in the health segment. By comparison, there were four upgrades and two downgrades for the first half of 2020. These rating activities reflected overall favorable earnings over the past few years, bolstered by the COVID-19 pandemic, as insurers reported higher-than-expected earnings in 2020, leading to higher absolute and risk-adjusted capitalization levels; and
- Through the first half of 2021, there were seven rating upgrades and seven rating downgrades in the life/annuity segment, compared to eight upgrades and two downgrades for the first half of 2020. Life/annuity carriers continue to face COVID-related challenges in 2021, with heightened mortality, extreme fluctuations in equity markets, a low interest rate environment and tightening spreads.
Most of the challenges facing the U.S. L/H industry are not new, according to the report. So far, in the second half of 2021, interest rates remain low and the Federal Reserve has signaled just two interest rate increases by the end of 2023. The low interest rate environment will continue to put pressure on life/annuity insurers operating in spread businesses, as changes to longer-term interest rate assumptions will impact reserves and pricing. The health segment’s 2021 financial results will depend on how the many uncertainties will be resolved, as the COVID-19 pandemic, economic recovery and a new administration’s policies will have the largest impact on the industry.
To access the full copy of this special report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=311844.
AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in New York, London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.
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