In a recent report by AM Best, the number of credit rating downgrades for U.S. property and casualty (P/C) insurers has dropped significantly. In 2024, there were 43 downgrades, down from 55 in 2023. This decline comes despite ongoing challenges, particularly in the personal lines segment of the insurance market.
The report, titled "US Property/Casualty: Rating Upgrades Up, Downgrades Down in 2024," highlights that inflation and rising reinsurance costs continue to impact P/C insurers. Most of the downgrades in 2024 were among insurers with property risks, reflecting the increased threat from natural disasters and secondary risks, along with higher costs associated with reinsurance.
On a more positive note, the report also revealed that rating upgrades increased to 42 in 2024, compared to 35 the previous year. The commercial lines sector saw the most upgrades, with 34 upgrades against 12 downgrades, an improvement from 21 upgrades and 15 downgrades in 2023.
Helen Andersen, an industry research analyst at AM Best, noted that commercial lines insurers have shown solid underwriting performance. Positive pricing trends and good management practices have helped them weather the challenges they face.
In 2024, AM Best assigned 33 initial ratings, which accounted for 4.5% of all rating actions. This was an increase from 26 in 2023. Most of these initial ratings were in the commercial lines segment, with only a few in personal lines and reinsurance.
As of the end of 2024, about 25.6% of personal lines insurers had negative outlooks, up from 17.9% the previous year. Meanwhile, the percentage of those with positive outlooks rose slightly from 1.3% to 1.8%. The number of insurers under review also increased, moving from 4.7% to 6.7%.
Operating performance was the main reason for rating upgrades, accounting for 40.5% of cases. Changes in balance sheet strength were cited in 34.9% of downgrades, with poor operating performance being a factor in 27.9% of cases.
This report comes on the heels of AM Best’s earlier findings that rating downgrades for U.S.-based insurers surged by 60% in 2023 compared to two years prior. Insurers based in California, Florida, and Texas made up 27% of those downgrades, with personal line carriers significantly influencing this trend.
As the insurance market continues to evolve, these ratings provide valuable insights into the health and stability of the industry.