Canadian Underwriter

Downgrades more frequent than upgrades again this year

November 10, 2003   by Canadian Underwriter

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For the third year in a row, downgrades have outpaced upgrades from rating agency A.M. Best, with adverse reserve development and liability exposures among the culprits.
The rating agency says that asbestos and environmental liability exposures, medical cost inflation, weather catastrophes, rising jury awards and loss costs, lagging investment income, and regulatory challenges are hampering the U.S. property and casualty sector. Even the rise in premiums as a result of hard market pricing is seen as a detracting factor, causing increased dependence on reinsurance and eroding insurers’ risk-adjusted capital in many cases.
Rate correction that has led to stronger industry returns in the first half of 2003 was overdue and will take some time to undo the challenges faced by insurer balance-sheets. “While the continued rate hardening will enable many companies to maintain or even improve their operating returns because of much-improved loss experience, continued adverse reserve development, equity-market volatility and soft-money transactions contributed to a weakened risk-adjusted capital position for many carriers,” notes an A.M. Best release.
This weakened position has forced many companies to reduce policy counts or limit their growth, the report goes on to say. “And if the hard market continues beyond 2004, the ability of many insurers to support additional underwriting risks with their weakened capital positions is in question.”

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