US Insurers Face Increased Downgrades Amid Challenging Market Conditions

Rating downgrades for AM Best-rated US insurers increased by 60 percent in 2023 compared to 2 years prior, driven by worsening market conditions and rising loss costs, according to a recent Best's Special Report.

The report highlights that secondary perils are reshaping geographic risk, with insurers writing business in fewer than six states accounting for 60 percent of the 2023 downgrades. Companies in California, Florida, and Texas represented 27 percent of downgrades over the past 3 years, primarily impacting personal lines insurers. 

David Lopes, senior industry analyst at AM Best, said, "Some of the factors driving these rating actions are cyclical in nature, while others reflect a more permanent shift in operating conditions."

Key contributors to downgrades include deteriorating operating performance, especially within the personal lines segment, which has faced a negative outlook since September 2022. While rising interest rates have boosted investment income and premium growth, they have not been enough to counteract broader challenges, particularly for personal lines insurers.

The report notes that personal lines insurers accounted for 43 percent of long-term issuer credit rating downgrades in the past 3 years. Meanwhile, commercial lines insurers saw more upgrades than downgrades during the same period, though the number of downgrades increased in 2023.

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