P/C credit rating downgrades decline, but so do upgrades in H1 2024: AM Best

There have been fewer credit rating downgrades in the first half of 2024 compared with the same prior-year period, at the same time upgrades in the US property/casualty insurance segment declined in the same period, AM Best has revealed.

Fewer credit rating downgrades in H1 2024 were mainly due to the slight improvement in events such as increased catastrophe and secondary peril events, inflation and rising reinsurance costs, which have been persistently impacting the US.

According to the “P/C Rating Upgrades and Downgrades Both Declined in the First Half of 2024” report, Issuer Credit Rating upgrades dropped compared with H1 2023, to 16 from 22, attributable predominantly to rating unit changes as companies were integrated into higher-rated rating units.

In the first half of 2024, there was a significant decrease in rating downgrades, with only 20 downgrades compared to 32 in the same period the previous year, AM Best reported.

Noting that the decline can be primarily attributed to the reduced frequency of severe weather events, which had a positive impact on property results. Additionally, improved results in the private passenger auto sector contributed to this downward trend.

“Despite fewer rating downgrades, personal lines insurers are still challenged by maintaining rate adequacy and somewhat by restrictive regulatory environments contributing to ongoing deteriorating results,” said Helen Andersen, industry analyst, AM Best.

Adding: “However, commercial lines’ underwriting performance and reserve development have been consistently strong, with positive pricing momentum and underwriting discipline positioning the segment to navigate headwinds.”

According to the rating agency, the most common reason for P/C rating upgrades were rating unit changes, as 44% of companies were integrated into higher-rates rating units.

Most downgrades were due to changes in balance sheet strengths (25%), followed by poor operating performance and a change in rating unit – which accounted for20% of downgrades each.

Another 20% of downgrades were caused by adjustments to more than one building block, all of which included balance sheet strength, according to AM Best.

The report also found that affirmation continues to make up most of rating actions going up four percentage points, to 78.9% from 74.9%. The total number of rating actions declines moderately, from 351 in H1 2023 to 337 in H1 2024.

In the first half of the year, AM Best also assigned 15 initial ratings, accounting for 4.5% of rating actions, up slightly from 12 initial ratings in the first half of 2023. All 15 initial ratings were in the commercial lines segment.

Another highlight of the report is the decrease in the percentage of stable rating outlooks in H1 2024 compared to H1 2023, while the percentages of negative and positive outlooks rose.

Negative outlooks were up substantially, to 12% from 8% of all P/C rating outlooks. The number of ratings placed under review decreased by one.

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