Best’s Special Report: U.S. Life/Health Sector Credit Rating Upgrades Outnumber Downgrades in 2019

OLDWICK, N.J.--(BUSINESS WIRE)--Similar to 2018, Credit Rating (rating) upgrades for the U.S. life/health industry outpaced downgrades in 2019, marking a turnaround from the previous three years, according to a new AM Best report.

The Best’s Special Report, titled, “Life/Health Rating Upgrades Outnumber Downgrades in 2019,” states that the positive rating developments were driven primarily by strong capitalization and improved liquidity; a more manageable regulatory environment; and measured, but growing, investment risk. However, earnings were dampened by low top-line growth and low interest rates for traditional products. Additionally, the cost of innovation and technology enhancements continue to challenge life/annuity (L/A) carriers as very little has translated to the bottom line performance.

Rating developments for health insurers were generally positive, with growth in capital and surplus driven by positive earnings. Earnings continued to improve in 2019 owing to favorable claims experience in the individual Affordable Care Act (ACA) exchange market business, lower medical cost trends, a broad-based decline in utilization and fewer new high cost prescription drugs coming to market. The rise in earnings contributed to the ongoing growth in capital. While the rate of capital expansion has slowed, growth remained in the double-digit range, with health insurers reporting strengthening levels of risk-adjusted capitalization in aggregate.

The vast majority of rating actions in 2019 were affirmations.

The following are some other highlights from the report.

• Ratings were upgraded for 29 life/health carriers and downgraded for 19 in 2019, as these segments were positively impacted by stronger financial performance in the latter part of 2019. This compares to 39 upgrades and 18 downgrades in 2018;
• In 2019, there were 18 rating upgrades and 15 downgrades in the L/A segment, 10 upgrades and four downgrades in the health segment, and one upgrade in life reinsurance;
• L/A ratings activity generally reflected strong capital and improved liquidity, a more manageable regulatory/legislative environment and a more measured increase in investment risk. The life reinsurance segment saw a stable operating performance with an increasingly diverse block of longevity, mortality and health products and a robust pipeline; and
• Health ratings activity generally reflected growth in capital and surplus, a favorable medical cost trend, the stabilizing performance of commercial individual segment and strong earnings.

To access the full copy of this special report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=295225.

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in New York, London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

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