Issuer credit rating downgrades for US property/casualty (P/C) insurers declined to 43 in 2024 from 55 in the previous year, despite ongoing challenges in the personal lines segment, according to a new AM Best special report.
The report, titled US Property/Casualty: Rating Upgrades Up, Downgrades Down in 2024 highlighted inflation and rising reinsurance costs as continuing factors affecting P/C insurers. Most downgrades in 2024 were among insurers with property exposures, reflecting increased catastrophe risk, losses from secondary perils and higher reinsurance costs and retentions.
Meanwhile, rating upgrades rose to 42, compared to 35 in 2023. The commercial lines segment contributed to this increase, recording 34 upgrades and 12 downgrades, an improvement from 21 upgrades and 15 downgrades, respectively, in the previous year.
“The underwriting performance and overall reserve development for commercial lines insurers has been consistently solid, with positive pricing momentum and underwriting discipline positioning the segment to navigate the headwinds,” said Helen Andersen, industry research analyst at AM Best.
AM Best assigned 33 initial ratings in 2024, representing 4.5% of rating actions, up from 26 in 2023. Most initial ratings were in the commercial lines segment, with three in personal lines and one in reinsurance.
As of Dec. 31, 2024, 25.6% of personal lines insurers had negative outlooks, up from 17.9% a year earlier. The percentage of personal lines insurers with positive outlooks rose slightly to 1.8% from 1.3%, while those under review increased from 4.7% to 6.7%.
Operating performance was the most common factor for rating upgrades, cited in 40.5% of cases. Another 23.8% of upgrades resulted from a change in rating unit due to an insurer merging with a higher-rated group.
Changes in balance sheet strength accounted for 34.9% of downgrades, while poor operating performance was a factor in 27.9%. Another 14% of downgrades resulted from adjustments to multiple rating components, all of which included balance sheet strength, AM Best reported.
In September, AM Best reported that rating downgrades for US-based insurers rose by 60% in 2023, compared to two years prior. Companies domiciled in California, Florida and Texas represented 27% of downgrades over the past three years, with personal line carriers becoming a significant factor in this trend.
