HOUSTON: Credit rating activity for the U.S. property and casualty insurance industry in the first half of 2020 was mixed, with upgrades modestly outnumbering downgrades, according to a new AM Best report.

A new Best’s Special Report, titled, “Mid-Year Rating Changes Mixed as U.S. Property/Casualty Insurers Manage Challenging Market Dynamics,” states that the percentage of upgrades for AM Best-rated U.S. property and casualty insurance industry carriers’ Issuer Credit Ratings through mid-year 2020 were down modestly, to 5.1% of rating actions, compared with 6.2% in first-half 2019.

Approximately 25% of the 17 upgrades in the study period were due to affiliations or mergers. Downgrades decreased to 3.3% of total actions, down from 7.1% in the first half of 2019. Affirmations were the most common rating action, at 81.3%, reflecting the overall stability of the U.S. property and casualty insurance industry.

Rating upgrades were driven by increases in risk-adjusted capitalization, strong results relative to operating performance and the appropriateness of companies’ enterprise risk management (ERM). COVID-19-related lockdowns have forced many companies to work remotely and most companies have operated effectively in the remote environment.

Other report highlights include:

The number of ratings placed under review in first-half 2020 nearly doubled to 16 from nine in the first half of 2019. Of the 16 ratings under review, 50% had negative implications, compared with 33% in the same prior-year period;

For first-half 2020, 81.9% of the property and casualty insurance industry’s rating outlooks were stable, down modestly from 83.2% for the same period in 2019. The number of rating units with positive outlooks increased by one, while the number of rating units with negative outlooks declined by four; and

AM Best assigned 20 ratings, up from 10 in the first half of 2019. Most of the assigned ratings were for new or recently formed companies created to provide greater capacity and rate filing flexibility in existing organizations. Others were for established companies that participated in the AM Best interactive ratings process for the first time.

The U.S. property and casualty insurance industry continues to face challenges, including elevated non-weather related water losses, catastrophic weather activity; uncertainty regarding the long-term effects of COVID-19; and system implementations.

AM Best maintains a stable market segment outlook on the personal lines segment of the property and casualty insurance industry and the global reinsurance industry, and a negative outlook on the commercial lines segment, reflecting the macroeconomic fallout from COVID-19.

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