As per Gallagher Re’s analysis of rating actions by AM Best, the number of downgrades of US P&C re/insurers jumped significantly in the eight months to the end of August 2023 compared with the calendar year 2022.
Negative rating actions reportedly outnumbered positive actions in the period, with Gallagher Re noting that AM Best “placed more scrutiny on performance metrics” due to an increase in costly secondary perils, inflation and volatility in investment markets.
Gallagher Re continued, “Between the start of 2022 and the end of August 2023, a total of 109 companies experienced 60 rating downgrades and 64 negative outlook changes (15 experienced both).
“77 of these companies have a focus on personal lines, and 32 on commercial lines.”
Looking at the companies with negative rating actions, Gallagher Re observed that the common themes were a drop in surplus of over 20% and combined ratios on average rising to over 117%.
“Most of these companies reported an operating ratio greater than 100%, because investment income was not sufficient to offset underwriting losses. 45% of these companies also reported adverse claims development greater than 10%. This is a common contributor to negative ratings actions,” the firm added.
Gallagher Re also revealed further ratings actions undertaken in the last four months of 2023, with an additional 13 companies downgraded in this period, while 26 companies had their outlook worsened.
