P&C Insurers Faced Rising Downgrades, Higher Costs in 2023

Rising reinsurance costs and inflation contributed to an increase in rating downgrades for U.S. property and casualty insurers in 2023, according to AM Best.
By: | March 12, 2024
Insurer ratings analysis

U.S. property and casualty insurers faced a challenging 2023, with increasing reinsurance costs, economic and social inflation, and rising loss costs leading to a higher rate of rating downgrades and deteriorating results, as per a report by rating agency AM Best.

The report reveals that downgrades rose to 7.4% through December 31, 2023, from 4.2% of rating actions in 2022. The rise in P&C ratings downgrades was due primarily to the personal property segment of the market, Best stated.

The number of ratings under review almost doubled to 41 in 2023, accounting for 5.5% of all rating actions, most with negative implications. Total rating actions for P&C carriers rose from 711 in 2022 to 741 in 2023.

In the commercial lines segment, 21 ratings were upgraded and 15 were downgraded in 2023, compared to 26 upgrades and 11 downgrades in 2022. The downgrades were primarily due to weakened balance sheets and deteriorating operating performance, Best stated. In comparison, the personal lines sector saw nine upgrades and 39 downgrades last year, the report noted.

“Despite some volatility over the last five years, the commercial segment has generally reported profitable underwriting results,” the report’s authors said. “Commercial casualty companies accounted for half the downgrades in the commercial segment. Social inflation and litigation financing pose challenges for casualty insurers, which have responded by seeking rate increases while tightening terms and conditions. Lingering concerns about reserves in the casualty segment still remain.”

The overall distribution of ratings for P&C insurance units at the end of 2023 was similar to the distribution at year-end 2022. The proportion of rating units with “Good” to “Exceptional” ratings declined slightly to 95.9% from 97%. The percentage of ratings with “Fair” or lower ratings increased to 4.1% from 3.0% of U.S. P&C rating units.

The report indicates that the commercial lines segment accounted for the majority of Stable outlooks in the broader U.S. P&C segment, as 88% of commercial carriers have a Stable ratings outlook, although this percentage was down from 91.2% at Dec. 31, 2022. The number of Positive outlooks doubled in 2023, to 7% from 3.3%, while Negative outlooks increased to 4% from 2.5%.

Despite the challenges, AM Best maintained its Stable outlook for the US commercial lines segment in December 2023, due to strong underwriting performance, positive pricing momentum, favorable aggregate reserve development, and higher fixed income investments bolstering operating performance.

Looking ahead to 2024, P&C insurers face a number of challenges including economic inflation, climate risk, secondary perils, social inflation, and rising reinsurance costs, AM Best said. The commercial segment also faces headwinds, although it remains solidly capitalized on a risk-adjusted basis owing to companies’ conservative investment profiles, sound reserve positions, and enhanced risk management discipline.

To view the report, visit the AM Best website. &

The R&I Editorial Team can be reached at [email protected].

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