HOUSTON: The U.S. life and health insurance industry saw more credit rating upgrades than downgrades in first-half 2020, driven primarily by improved levels of risk-adjusted capitalization.
However, according to a new AM Best special report, negative rating actions could increase in the second half of the year as the COVID-19 pandemic negatively impacts companies’ sales, operations, operating performance and investments.
The Best’s Special Report, titled, “Life/Health Upgrades Outnumber Downgrades in First-Half 2020,” states that AM Best upgraded the Long-Term Issuer Credit Ratings of 12 rating units and downgraded four among life/annuity (L/A) and health carriers in the first half of 2020, compared with 15 upgrades and four downgrades in the first half of 2019. Upgrades were more concentrated in the L/A segment, which reported eight upgrades. Nearly 80% of rating actions in first-half of 2020 were affirmations, consistent with most years.
Positive rating developments for L/A carriers were mostly due to increased strategic value, stronger risk-adjusted capitalization and improved enterprise risk management practices. For health insurers increased strategic value of business diversification of a subsidiary relative to the group, as well as improvement in capitalization and earnings led to positive rating developments. Other report highlights include rating units that were placed under review, details on specific rating activity, as well as updates on rating outlooks.
AM Best revised its market segment outlook on the U.S. L/A segment to negative from stable in April 2020, primarily based on the impact of the COVID-19 pandemic. Operating performance is expected to deteriorate in the near to medium term amid the anticipated dislocation of assets and liabilities.
AM Best maintains a stable outlook on the U.S. health industry segment, despite the wide impact of COVID-19. Key factors include lower utilization trends driven by the deferral of visits for routine care and elective procedures, a trend of strong earnings and strengthened risk-adjusted capitalization through year-end 2019.
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