[October 08, 2015]

A.M. Best Special Reports: U.S. Property/Casualty, Life/Health Sectors See Reversal of Positive Rating Trends in First-Half 2015

According to two special reports by A.M. Best, the property/casualty (P/C) industry's rating activity over the first half of 2015 turned negative as downgrades and negative outlooks outpaced upgrades and positive outlooks, reversing a two-year positive trend, and the rating activity among domestic life/health (L/H) carriers' issuer credit ratings (ICR) through mid-year 2015, when compared with the same period for 2014, has produced a slight decrease in affirmations and a reversal of the positive rating trends reported last year.

The U.S. P/C Best Special Report, titled, "P/C Industry Sees Negative Rating Activity in 2015, Reversing Positive Two-Year Trend," states that the reversal in P/C ratings was generally caused by individual company trends of negative operating performance over several years; reductions in risk-adjusted capitalization to levels that were not supportive of current ratings due, in some cases, to aggressive premium growth outpacing policyholders' surplus or changes in organizational structure as a result of increased or decreased parental support.

Some of the highlights from this P/C report include:

• The rating activity among U.S P/C carriers' ICRs through mid-year 2015, compared with the same period for 2014, has created a decline in the number of rating affirmations and in the percentage of total rating actions represented by affirmations. The number of downgrades year over year more than doubled for the first six months of 2015, to 36 from 15;

• The commercial lines segment has a stable outlook for 78.8% of its ratings, with downgrades outpacing upgrades, the number and percentage of negative outlooks (42 or 9.0%) continues to outpace the number and percentage of postive outlooks (27 or 5.8%); and
• The personal lines segment had 75.7% of its rating units with a stable outlook through mid-year 2015, a modest year-over-year increase from 74% in 2014. However, negative outlooks outpaced positive outlooks, 44 and 23, respectively, continuing this particular trend for the third consecutive year.

Some of the highlights from this L/H report include:

• There were 11downgrades and 10 upgrades among L/H and life reinsurance carriers through June 30, 2015, with only one upgrade in the life reinsurance segment. This compares with 23 upgrades and only two downgrades reported through the same period in 2014; and
• From a rating outlook perspective, the proportion of L/H carriers with a stable outlook slightly decreased to 87.4% through the first half of 2015, from 89.2% at the same time last year. Conversely, the percentage of "under review" ratings modestly increased to 3.7% from 2.0%. The proportion of positive and negative outlooks slightly decreased.

For the P/C and the L/H industry, rating affirmations remained the most common rating action at 82.6% and 83.1%, respectively.

For the full copy of the L/H special report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=242212.

For the full copy of the P/C special report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=242247.

A.M. Best Company is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

Copyright © 2015 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.

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