Canadian Underwriter

Credit rating upgrades outpace downgrades for U.S. P&C carriers in 2016: A.M. Best

February 7, 2017   by Canadian Underwriter

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Credit rating activity in 2016 turned positive as upgrades outpaced downgrades for the property & casualty industry in the United States, despite headwinds that include pressure on underwriting results and the low investment yield environment, according to a new special report from A.M. Best Company.

The Best’s Special Report, titled Upgrades Outpace Downgrades for Property/Casualty Carriers in 2016, was released on Tuesday by Oldwick, N.J.-based A.M. Best. It found that the number of long-term issuer credit rating (ICR) upgrades, as a percentage of all rating actions on P&C carriers, increased to 7.3% in 2016, compared with 5.2% in the previous year. Conversely, the number of long-term ICR downgrades fell to 4.6% compared with 6.7% in 2015 of total actions on rating units.

In 2016, A.M. Best took action on the long-term ICRs of 786 rating units, a small decrease from the prior year, the ratings firm said in a statement. Consistent with the prior four years of rating actions, the overwhelming majority (81.9%) 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 statement said.

Other highlights of the report include:

  • 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 totalled 26 compared with 15 downgrades; and
  • 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.