Downgrades of US insurers up by 60 percent in 2023: AM Best

Faced in large part with deteriorating market conditions and rising loss costs, rating downgrades of AM Best-rated US-based insurers increased by 60 percent in 2023 compared with two years earlier, according to a newly issued report.

A Best’s Special Report “Declining Balance Sheet Strength, Unfavorable Operating Performance Driving US Rating Downgrades” published on September 10, noted that in addition to catastrophe risk, secondary perils continue to reshape geographic risk, with companies writing business in six states or fewer accounting for 60 percent of rating downgrades in 2023. 

“The wider trajectory of rating movements can reflect marketplace dynamics.”

Companies domiciled in California, Florida, and Texas have accounted for more than a quarter (27 percent) of downgrades over the past three years, driven largely by personal lines carriers, according to the report.

This deterioration reflects the conditions that US property casualty insurers in particular have faced in recent years. The report notes that while rating upgrades and downgrades are dependent on the individual circumstances of each rated company, the wider trajectory of rating movements can reflect marketplace dynamics.

“Some of the factors driving these rating actions are cyclical in nature, while others reflect a more permanent shift in operating conditions,” said David Lopes, senior industry analyst, AM Best. “Worsening economic and social inflation, as well as rising operating and loss costs are among the factors at play.”

The rating downgrades reflect deteriorating operating results particularly in the personal lines segment, on which AM Best has had a negative outlook since September 2022. Rising interest rates have increased investment income for all insurance segments, and higher rates helped bolster premium growth for life/annuity insurers due to attractive crediting rates.

For more news from the American Property Casualty Insurance Association (APCIA) click here.

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