While credit-rating activity for the US property-casualty sector was mixed in the first half of 2020, upgrades modestly outnumbered downgrades, according to a new report from AM Best.
According to the new Best’s Special Report, titled “Mid-Year Rating Changes Mixed as US Property/Casualty Insurers Manage Challenging Market Dynamics”, the percentage of upgrades for AM Best-rated US P&C carriers’ Issuer Credit Ratings through H1 of 2020 were down slightly, to 5.1% of rating actions from 6.2% in H1 2019. About 25% of the 17 upgrades in H1 2020 were due to affiliations or mergers. Downgrades decreased to 3.3% of total actions, from 7.1% in the first half of 2019.
“Affirmations were the most common action, at 81.3%, reflecting the overall stability of the US P/C industry,” AM Best said.
Rating upgrades were driven largely by increases in risk-adjusted capitalization, strong results relative to operating performance and the appropriateness of companies’ enterprise risk management, AM Best said. While COVID-19-related lockdowns have forced many companies to transition to remote work, most have operated effectively in the remote environment.
Other report highlights included:
- The number of ratings placed under review in H1 2020 was 16, nearly double the nine in H1 2019. Of the 16 ratings under review, 50% had negative implications, compared with 33% in H1 2019.
- In H1 2020, 81.9% of the P&C industry’s rating outlooks were stable, slightly down from 83.2% in the first half of 2019. The number of rating units with positive outlooks increased by one, while the number of rating units with negative outlooks fell by four.
- AM Best assigned 20 ratings in the first half, up from 10 in H1 2019. Most of the assigned ratings were for new or recently formed companies created to provide greater capacity and rate-filing flexibility for existing organizations. Others were for established companies that participated in AM Best’s interactive ratings process for the first time.
“The US P/C industry continues to face challenges, including elevated non-weather related water losses; catastrophic weather activity; uncertainty regarding the long-term effects of COVID-19; and system implementations,” AM Best said. “AM Best maintains a stable market segment outlook on the personal lines segment of the P/C industry and the global reinsurance industry, and a negative outlook on the commercial lines segment, reflecting the macroeconomic fallout from COVID-19.”