OLDWICK, N.J.–(BUSINESS WIRE)–Credit rating activity for the U.S. property/casualty (P/C) industry in
the first half of 2017 was favorable, with upgrades outpacing
downgrades. Nearly one-third of the 2017 upgrades were driven by
increased parental support, on-going mergers and acquisitions (M&A) and
the generally enhanced importance of companies within specific
organizations. Other positive rating actions were due to tightened
underwriting standards that have led to sustained favorable results in
recent years, increases in risk-adjusted capital and improvements in
enterprise risk management, according to a new A.M. Best
The Best’s Special Report, “Favorable Ratings Activity Continues
for U.S. Property/Casualty Industry,” states that Long-Term Issuer
Credit Rating (Long-Term ICR) upgrades significantly outpaced Long-Term
ICR downgrades in the first half of 2017 (25 versus 8), with most of the
changes occurring in the personal lines segment. This continues a
prior-year trend of upgrades outnumbering downgrades, although in 2016,
the split was closer (27 versus 21).
Macroeconomic factors have generally been positive over the past year,
with lower levels of unemployment, coupled with higher housing starts
and new car sales. However, after three years of posting underwriting
profits, the P/C industry recorded an underwriting loss of nearly $6.6
billion in 2016, driven by an increase in frequency and severity,
particularly in the automobile business. Affirmations remained the most
common rating action at 86%, reflecting the overall stability of the
U.S. P/C industry.
Although nearly 80% of the commercial and personal lines segments’
ratings have a stable outlook, the percentage of negative outlooks
continues to outpace the percentage of positive outlooks in each
segment. In the commercial lines segment, 10% of its rating units had a
negative outlook versus 7% on the positive side, and in the personal
lines segment, the split was 13% to 8%. The report also summarizes
rating activity among the top 10 largest rating unit/companies in the
two major segments.
A.M. Best maintains a negative outlook on the commercial lines segment,
owing to a competitive pricing environment; rising losses, particularly
in the commercial automobile sector; and the prolonged low interest rate
environment, which will strain operating profitability. The personal
lines segment has a stable outlook from A.M. Best; however, there are
challenges as demonstrated through the first three months of 2017, the
P/C industry posted an underwriting loss of more than $840 million, the
first, first-quarter underwriting loss since 2012. The deterioration in
profitability was driven by the ongoing pressure on the automobile
business, as well as above average catastrophe losses.
To access the full copy of this special report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=264693.
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