Issuer credit rating downgrades for US property/casualty (P/C) insurers decreased in 2024, according to a new report from AM Best. The number of downgrades dropped to 43, a decrease from 55 in the previous year, despite persistent challenges, particularly in the personal lines segment.
AM Best’s report, titled “US Property/Casualty: Rating Upgrades Up, Downgrades Down in 2024,” highlighted the influence of inflation and rising reinsurance costs on P/C insurers. The majority of downgrades in 2024 affected insurers with substantial property exposures. These downgrades reflect heightened catastrophe risk, losses stemming from secondary perils, and increased reinsurance costs and retentions.
In contrast, rating upgrades grew to 42, compared to 35 in 2023. The commercial lines segment significantly contributed to this positive trend, registering 34 upgrades and 12 downgrades, an improvement relative to the previous year’s 21 upgrades and 15 downgrades.
“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 also assigned 33 initial ratings in 2024, which accounted for approximately 4.5% of all rating actions, an increase from 26 in 2023. The majority of these initial ratings were concentrated in the commercial lines segment, with three in personal lines and one in reinsurance.
As of December 31, 2024, 25.6% of insurers in the personal lines segment held negative outlooks, up from 17.9% a year earlier. The percentage of personal lines insurers with positive outlooks saw a slight increase, rising to 1.8% from 1.3%. Those under review also rose, going from 4.7% to 6.7%.
Operating performance was the main driver cited for rating upgrades, accounting for 40.5% of cases. Another 23.8% of upgrades resulted from changes in the 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%. Furthermore, 14% of downgrades were the result of adjustments to multiple rating components, all of which involved balance sheet strength, AM Best reported.
In September, AM Best reported that rating downgrades for US-based insurers had increased by 60% in 2023 compared to two years prior. Carriers domiciled in California, Florida, and Texas accounted for 27% of those downgrades over the past three years, with personal line carriers playing a significant role in this trend.
