Credit rating for U.S. p/c industry was favourable, reflecting the stability of the sector with 86% of rating actions being affirmations and the rate of upgrades continuing to outpace those of last year, according to A.M. Best’s special report.
The personal lines segment was given a stable outlook, but the sector saw underwriting losses of over $840 million driven by pressure in the automobile business and a start to the year which brought above average catastrophe losses.
However, a competitive pricing environment; rising losses, particularly in the commercial automobile sector and the prolonged low-interest rate environment have put a strain on earnings resulting in a negative outlook on the commercial lines segment.
Despite these challenges firms showed positive developments in credit ratings largely due to improved risk management strategies.
A.M. Best put nearly one-third of upgrades down to “increased parental support, on-going mergers and acquisitions (M&A) and the generally enhanced importance of companies within specific organizations.”
Other factors that contributed to the industry’s positive credit rating actions were more disciplined standards for underwriting leading to sustained favourable earnings, firms increasing their risk-adjusted capital ratios and other improvements to enterprise risk management.
Most of the changes to credit ratings in the U.S. P/C segment were seen in personal lines for long-term Issuer Credit Ratings (ICR) where upgrades significantly outpaced Long-Term ICR downgrades in H1.
A.M. Best said the trend of increasingly favourable credit ratings upgrades for the sector has continued on and even overtaken last year’s ratings – likely given an additional boost by positive overall conditions in the U.S. economy, which showed up in lower unemployment levels, higher housing starts and new car sales.
As a result nearly 80% of the commercial and personal lines segments’ ratings are stable, but the sector is not without its challenges which show up in A.M. Best’s growing percentage of negative outlooks.
“After three years of posting underwriting profits, the P/C industry recorded an underwriting loss of nearly $6.6 billion in 2016, driven by an increase in frequency and severity, particularly in the automobile business.
“In the commercial lines segment, 10% of its rating units had a negative outlook versus 7% on the positive side, and in the personal lines segment, the split was 13% to 8%,” according to A.M. Best.