This report prepared by Gallagher Re’s Strategic and Financial Analytics team, summarizes how carriers suffering from negative rating actions and continuing financial challenges can explore various reinsurance solutions that offer capital.
Key findings in this report:
- The number of ratings downgrades of US property/casualty (re)insurers jumped significantly in the eight months to the end of August 2023, compared to the calendar year 2022, and continuing an upward trend from 2021, according to Gallagher Re’s analysis of ratings actions by leading agency AM Best.
- Overall, negative rating actions (including outlook changes) outnumbered positive actions, as AM Best placed more scrutiny on performance metrics, due to a number of factors, including an increase in costly secondary perils; inflation; and volatility in investment markets.
- Between the start of 2022 and the end of August 2023, a total of 109 companies experienced 60 rating downgrades and 64 negative outlook changes (15 experienced both). 77 of these companies have a focus on personal lines, and 32 on commercial lines.
- Of the companies with negative rating actions, common themes were a drop in surplus of over 20% and combined ratios on average rising to over 117%. Most of these companies reported an operating ratio greater than 100%, because investment income was not sufficient to offset underwriting losses.
- 45% of these companies also reported adverse claims development greater than 10%. This is a common contributor to negative ratings actions.
- Gallagher Re also analyzed further ratings actions undertaken in the last four months of 2023. An additional 13 companies were downgraded in this period, while 26 companies had their outlook worsened. Meanwhile, 39 companies experienced improvements in their outlook.
- These favorable outlook changes are the result of positive actions taken by company management, rather than an improvement in market conditions. These are expected to remain challenging in the near-term, prompting AM Best to maintain a “negative” outlook for personal lines going into 2024.
- Reinsurance can be an effective solution to prevent a negative rating action.
For more information, please reach out to our Strategic & Financial Advisory team:
Roshan Soni - Analyst
+1 646 416 7320
Michelle Baurkot – Executive Vice President
+1 973 434 1223
Ralph Cagnetta - Executive Vice President
+1 732 986 1601
