A.M. Best Report: U.S. P/C Insurance Industry Ratings Reflect A Challenging 2022

A.M. Best, the credit rating agency, cautions that upgrades of U.S. property/casualty insurance companies tempered in 2022, while downgrades modestly increased. This trend comes as carriers faced higher reinsurance costs, social and economic inflation, and escalating loss costs throughout the year.

The statements by the world’s oldest rating agency were outlined in a new special report, entitled “Fewer Upgrades and More Downgrades for U.S. P/C Industry in 2022.” In it, AM Best reveals that some insurers managed to navigate the shifting economic landscape, strengthening their balance sheets and operations. However, many others experienced deteriorating results.

Overall, the number of upgrades declined to thirty-six (5.1% of total rating actions) from fifty-four in 2021, while the number of downgrades rose to thirty (4.2% of total rating actions) from 3.4% in the previous year. In 2022, AM Best assigned thirty-two new ratings, but affirmations of existing ratings accounted for 82.8% of total rating actions.

Commercial lines still well-capitalized

Helen Andersen, an industry analyst at A.M. Best, noted that “market trends are likely to continue impacting U.S. personal lines insurers negatively.” However, she noted the commercial segment, despite facing headwinds, remains solidly capitalized due to its conservative investment profile, robust reserve position, and enhanced risk management discipline.

A mixed bag between personal and commercial lines

In the personal lines segment, 2022 saw ten rating upgrades and eighteen downgrades, compared to thirty-two upgrades and eleven downgrades in 2021. The commercial lines segment experienced twenty-six rating upgrades and eleven downgrades, both more favorable than the twenty-one upgrades and thirteen downgrades in 2021.

The report also indicated a decline in the percentage of negative outlooks to 5.4% from 8.1% at year-end 2021. Positive outlooks decreased to 3.3% from 5.7% of rating units, while under review actions saw a slight increase.

Report gives no guidance to 2023 results

The findings of A.M. Best may portend that the U.S. property/casualty insurance industry will face some difficulties in 2023, as carriers contend with economic pressures and changing market conditions. As the industry adapts to the changing environment, it is likely that these trends will persist, affecting both personal and commercial lines.