Credit rating activity in 2016 turned positive as upgrades outpaced downgrades for the U.S. property/casualty industry, despite insurers having to face pressure on underwriting results and a low investment yield environment, according to A.M. Best.
The number of Long-Term Issuer Credit Rating (Long-Term ICR) upgrades, as a percentage of all rating actions on P/C carriers, increased to 7.3 percent in 2016, compared with 5.2 percent in the previous year. Conversely, the number of Long-Term ICR downgrades fell to 4.6 percent compared with 6.7 percent in 2015 of total actions on rating units, according to the Best’s Special Report titled, “Upgrades Outpace Downgrades for Property/Casualty Carriers in 2016.”
In 2016, A.M. Best took action on the Long-Term ICRs of 786 rating units, a small decrease from the prior year. Consistent with the prior four years of rating actions, the overwhelming majority (81.9 percent) were affirmations.
Overall, the percentage increases on rating upgrades was driven by individual company trends of positive operating performance over several years, steady growth in risk-adjusted capitalization that supported higher rating levels and acquisition/affiliation with more highly rated companies and groups.
The number of ratings placed “under review” in 2016 was 32, compared with 33 in 2015, and reflects material changes in operating performance, mergers and acquisitions and reorganizations through pooling and reinsurance arrangements.
The commercial lines segment recorded 28 upgrades compared with 20 downgrades, while in the personal lines segment, upgrades totaled 26 compared with 15 downgrades.
Just over three-quarters of the U.S. P/C industry’s ratings carried a stable outlook in 2016, a modest decline from 2015. Contributing to this decline was the continued higher amount of negative outlooks relative to positive outlooks.
Source: A.M. Best
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