Insurer Downgrades Jumped in 2018 But Were Still Outnumbered by Upgrades: A.M. Best

Catastrophic weather events in 2017 helped spur an increase in rating downgrades for the U.S. property/casualty (P/C) industry during the first half of 2018, according to an A.M. Best report.

But the report also notes that overall ratings activity in that same period was modestly favorable, with upgrades outnumbering downgrades.

According to the report, “Downgrades for U.S. P/C Industry Increase in First Half 2018,” the positive rating actions were driven by tightened underwriting standards that have led to favorable results over several years, higher risk-adjusted capitalization and improved enterprise risk management capabilities.

“The majority of companies managed their exposures effectively, reflecting improved risk management capabilities and robust reinsurance programs.

However, the P/C industry does face challenges, including growing frequency and severity issues in the automobile segment; the cost and time devoted to systems implementation; and, in the reinsurance segment, the impact of soft pricing margins,” A.M. Best said.

Affirmations were again the most common rating action, at 78.6 percent, reflecting the overall stability of the U.S. P/C industry. The number of upgrades outpaced downgrades for a third consecutive year. Upgrades were similar to the prior year period, 7.1 percent of rating actions, compared to 7.4 percent in 2017. Downgrades increased to 6.3 percent of total actions, up from 2.4 percent in the first half of 2017.

In the first quarter of 2018, the P/C industry posted an underwriting profit of $3.9 billion, reversing the $840 million loss posted in the first quarter of 2017. The improvement in profitability was driven by lower average catastrophe loss experience and nearly $7 billion in favorable loss development.

A.M. Best said it is maintaining its stable outlook on both the personal and commercial lines segments, although the industry continues to face challenges. A.M. Best is also maintaining its negative outlook on the reinsurance segment.