US Property and Casualty Insurer Ratings: Trends and Insights
A recent analysis by AM Best, a credit rating agency with a focus on the insurance sector, indicates a decline in the number of rating downgrades for US property and casualty (P&C) insurers. In 2024, downgrades fell to 43 from 55 in 2023, despite ongoing challenges in the personal lines sector.
The report, “US Property/Casualty: Rating Upgrades Up, Downgrades Down in 2024,” highlights inflation and the rising costs of reinsurance as persistent challenges facing the industry. Most downgrades in 2024 were associated with insurers heavily exposed to property risks, attributed to elevated catastrophe risks, more frequent secondary peril losses, and increased reinsurance costs and retentions.
On a positive note, rating upgrades rose to 42 in 2024, compared to 35 in the previous year. This improvement was primarily driven by the commercial lines segment, which saw 34 upgrades against just 12 downgrades. In contrast, the segment experienced 21 upgrades and 15 downgrades the previous year, indicating a trend towards greater stability.
Key Findings from the Report
- The number of initial ratings assigned by AM Best increased to 33 in 2024 from 26 in 2023, making up 4.5% of all rating actions, with the majority in the commercial lines sector.
- Personal lines insurers continued to face difficulties, with 25.6% holding negative outlooks as of December 31, 2024, compared to 17.9% a year earlier.
- Positive outlooks in the personal lines sector slightly increased from 1.3% to 1.8%, while companies under review rose from 4.7% to 6.7%.
Drivers of Rating Changes
- The most frequent cause of rating upgrades was improved operating performance, which contributed to 40.5% of cases.
- About 23.8% of upgrades were due to mergers with higher-rated groups.
- On the downgrade side, 34.9% were due to weakened balance sheet strength, while 27.9% were linked to poor operating performance.
- Another 14% of downgrades resulted from adjustments in multiple rating factors, all involving balance sheet strength.
This comprehensive analysis underscores a blend of resilience and continuing financial challenges within the P/C insurance industry. While commercial lines exhibit robust performance, personal lines insurers remain under significant economic and operational pressure.
“The underwriting results and overall reserve development for commercial lines insurers have been consistently solid. Positive pricing momentum and underwriting discipline are positioning the segment to handle headwinds effectively,” said Helen Andersen, industry research analyst at AM Best.
