Oldwick, NJ -(BusinessWire)- Catastrophic weather events in 2017 helped spur an increase in rating downgrades for the U.S. property/casualty (P/C) industry during the first half of 2018, according to a new A.M. Best report. But the report also notes that overall ratings activity in that same period was modestly favorable, with upgrades outnumbering downgrades.
The Best’s Special Report, titled, “Downgrades for U.S. P/C Industry Increase in First Half 2018,” notes that these positive rating actions were driven by tightened underwriting standards that have led to favorable results over several years, higher risk-adjusted capitalization and improved enterprise risk management capabilities. The majority of companies managed their exposures effectively, reflecting improved risk management capabilities and robust reinsurance programs. However, the P/C industry does face challenges, including growing frequency and severity issues in the automobile segment; the cost and time devoted to systems implementation; and, in the reinsurance segment, the impact of soft pricing margins.
The percentage of affirmations for U.S. P/C carriers’ issuer credit ratings (ICR) through mid-year 2018 declined slightly in comparison with the same period in 2017, although affirmations were again the most common rating action, at 78.6%, reflecting the overall stability of the U.S. P/C industry. The number of upgrades outpaced downgrades for a third consecutive year. Upgrades were similar to the prior year period, 7.1% of rating actions, compared to 7.4% in 2017. Downgrades increased to 6.3% of total actions, up from 2.4% in the first half of 2017.
Included in the total number of rating changes in the first half of 2018 were the assignment of 13 P/C ratings, or 3.4% of total rating changes, up from 5%, or 1.5%, in the first half of 2017. Three of the ratings assigned were in the commercial property segment, along with two each for the personal property, commercial casualty and warranty groups. Rounding out the other segments were the private passenger automobile & home, commercial automobile, workers’ compensation, and credit group, each with one new rating. Most of the assigned ratings involved new or recently formed companies created to provide greater capacity and rate filing flexibility in their organizations.
In the first quarter of 2018, the P/C industry posted an underwriting profit of $3.9 billion, reversing the $840 million loss posted in the first quarter of 2017. The improvement in profitability was driven by lower average catastrophe loss experience and nearly $7 billion in favorable loss development.
A.M. Best is maintaining its stable outlook on both the personal and commercial lines segments, although the industry continues to face challenges. A.M. Best is also maintaining its negative outlook on the reinsurance segment.
To access the full copy of this special report, click here.
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