Ratings activity for the US life/health (L/H) segment in the first half of 2022 has been mixed, with the percentage of upgrades increasing while the percentage of downgrades decreased slightly, according to a recent report by AM Best.
Additionally, according to the US L/H Ratings Activity in 2022 Mixed as Insurers Navigate Headwinds report, affirmations and ratings placed under review also saw a decline.
AM Best said that credit ratings activity in H1 2022 was similar to 2021, with 152 rating actions for the L/H carriers, compared to 159 during last year’s first half. The number of upgrades was higher in H1 2022, while the number of ratings under review was lower. Downgrades and initial ratings were in line with the prior year; affirmations are still the most common rating action.
According to the report, just under a third of all L/H upgrades were due to an increase in capitalization, which impacted balance sheet strength assessments. On the other hand, the primary driver of downgrades was the removal of lift owing to a decline in the strategic importance to the parent due to M&A.
Other highlights of the report include the ten rating upgrades and three downgrades in the life/annuity (L/A) segment made in H1 2022, which compares to the seven upgrades and seven downgrades in the same period last year.
For the health segment, AM Best upgraded six ratings and four were downgraded. By comparison, four were upgraded and none were downgraded in the first half of 2021.
In addition, the percentage of L/H ratings placed under review declined in first-half 2022, to 6.7% from 9.4%. Ratings on six L/A carriers and four health carriers were placed under review during first-half 2022, due mostly to M&A.
The rating agency also assigned three ratings in the first half of 2022, similar to the first half of 2021. More than three-quarters of all L/H rating actions were affirmations.
Overall, AM Best’s outlook for both the US L/A and health market segments is stable.
The L/A segment stable outlook was revised from negative in December. It reported the same number of negative outlooks but slightly fewer positive outlooks or ratings under review, compared to year-end 2021.
According to the report, and given the pressures of the low interest environment over the last decade, higher interest rates will be welcomed by the L/A insurers—provided the increase is gradual.
The stable outlook for the health segment is mainly due to favourable earnings, despite challenges and uncertainty related to the pandemic, especially as new variants caused several waves across the country in 2021.
The segment saw a slight increase in both positive and negative ICR outlooks compared to year-end 2021. A large majority of the outlooks, 83.6%, were stable as of June 30, 2022.
The majority of the US health insurers have strong levels of risk-adjusted capitalization and good liquidity sufficient to withstand COVID-19 uncertainties ahead.
