AM Best: More P&C rating downgrades than upgrades in 2023
Affirmations accounted the majority of rating actions taken by AM Best in 2023.
This past year, the U.S. property and casualty industry saw 55 rating downgrades from AM Best compared with 35 upgrades, the ratings agency reported. The number of downgrades increased slightly more than 7% compared with 2022′s results.
According to AM Best, downgrades across the P&C industry were largely driven by “weakening balance sheets and deteriorating profitability” as many carriers struggled as economic uncertainties flourished. Higher losses and inflation also played a role.
Overall 2023 rating changes — up or down — increased 15.6% compared with 2022, AM Best reported. The number of total rating actions in 2023 reached 741, up from 711 in 2022. Affirmations accounted for 78.9% of rating actions taken this past year, which also saw 25 carriers receive their initial ratings.
Personal lines performance
In 2023, 39 personal line carriers had rating downgrades and nine had upgrades compared with 15 downgrades for commercial carriers, AM Best reported.
According to Helen Andersen, an industry analyst with AM Best, downgrades in personal lines were largely a result of declines in capitalization and worsening operating performance. The rating agency anticipates these market trends to continue and has a negative outlook for the U.S. personal lines segment.
“Carriers that are slow to address challenges or do not have the means, expertise or technological capabilities to keep pace with changes in the environment will likely face ratings pressure,” Andersen said in a release.
Commercial lines performance
Overall, commercial carriers saw more upgrades during 2023, with 21 ratings improving during the year. This reflects the commercial side’s ability to remain profitable despite the challenging operating environment, according to AM Best.
Upgrades on the commercial side were primarily driven by companies being folded into a higher-rated carrier group or seeing more support from a parent company.
The 15 downgrades seen on the commercial side were largely a result of declining financial strength and diminishing profitability, the ratings agency reported.
Half of the downgrades on the commercial side came from casualty companies, according to AM Best, which explained this reflects social inflation and other litigation-related challenges the sector faces.
Related: