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AM Best: Downgrades Outnumber Upgrades in 2023

AM Best downgraded 32 property & casualty companies' credit ratings in the first half of 2023, including 21 personal lines insurers.
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am best downgraded more carriers than it upgraded in 2023 so far

AM Best downgraded 32 property & casualty companies' credit ratings in the first half of 2023. With 21 p&c personal lines insurers receiving downgrades, along with 10 commercial lines insurers and one reinsurer, the downgrades outnumber the 22 ratings upgrades.

The first half of 2023's downgrades also outpace last year's first-half downgrades of 18, according to the report. The p&c downgrades accounted for 9% of all AM Best's ratings actions taken during the first half of 2023, compared to 5% in the first half of 2022. 

Personal lines, and especially personal auto, drove the negativity. Personal auto insurers accounted for 11 of the 21 personal lines downgrades, AM Best noted. The report echoed other industry analysis that a near-term return to underwriting profitability is “unlikely" for personal auto carriers. Weather-driven deterioration in operating performance, rising losses and reinsurance costs were major factors in personal lines carriers' woes.

However, commercial lines upgrades still outpace downgrades in 2023 so far but, thanks to social inflation, commercial casualty insurers accounted for half the downgrades.

Among all downgrades, AM Best said 39% were caused by declining operating results, while weakened balanced accounting caused 23% of the downgrades. All lines were impacted by worsening economic and social inflation. Additionally, the number of p&c ratings placed under review more than doubled in 2023's first half, making up 6% of total rating actions.

Looking ahead, the percentage of negative carrier rating outlooks has doubled over the past six months to nearly 10% halfway through 2023, up from 5% at the end of 2022.

For personal lines, “carriers that are slow to address challenges or do not have the means, expertise, or technological capabilities to keep pace with changes in the environment will likely face ratings pressure," AM Best warned.

Commercial carriers still largely face up to challenges, with “conservative investment portfolios, sound reserve positions and enhanced risk management discipline," the report noted.

In a separate report, AM Best noted that U.S. life, health and annuity insurers saw a larger percentage of affirmations, with both upgrades and downgrades decreasing. Life, health and annuities benefited from high levels of risk-adjusted capitalization, favorable liquidity profiles and boosted net yields due to higher interest rates. However, those favorable conditions were balanced by market-sensitive lapse rates, asset credit risks, and talent acquisition challenges, AM Best said.

AnneMarie McPherson Spears is IA news editor.  

Wednesday, November 15, 2023
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