Credit rating downgrades in the U.S property and casualty (P&C) re/insurance segment more than doubled year over year in 2018, according to a new A.M. Best report.
The rating agency said factors such as catastrophic weather losses, challenging pricing in competitive lines of business and capital market volatility had reversed a trend of annual declines that had persisted since 2014.
However, the report also noted that positive Long-Term Issuer Credit Rating actions also increased in 2018, reflecting individual company trends of positive operating performance over several years, steady growth in risk-adjusted capitalisation and affiliation with higher-rated companies.
Despite a significant amount of catastrophe activity in 2018 following the historic 2017 events, A.M. Best said, most companies effectively managed this exposure through favourable risk management efforts and robust reinsurance programs.
The number of Long-Term ICR upgrades remained flat in 2018, but the number of rating units with rating upgrades increased. Downgrades increased by 2.9% compared with 2017, although the overwhelming majority of A.M. Best’s rating actions for the sector were affirmations (78%).
The amount of ratings placed under review in 2018 held steady at 41 in 2018, although slightly more (79.8%) of the U.S P&C industry’s credit ratings carried a stable outlook when compared with 2017.
Overall, A.M. Best views the U.S. P&C industry’s ratings as stable despite the increased number of rating downgrades, and believes the industry as a whole maintains sufficient overall risk-adjusted capitalisation relative to its existing ratings.
However, individual companies continue to face challenges such as operating pressure due to the reduced benefit from prior-year reserve releases, the effect of weather events on property carriers concentrated in a single state, and an increase in competitive market conditions.
