Best’s Special Report: Credit Rating Downgrades in U.S. Life/Health Insurance Segment Outpace Upgrades in 2024

Issuer Credit Rating (rating) downgrades in the U.S. life/health insurance segments increased to 27 in 2024 from 17 in the previous year, while the number of ratings placed under review more than tripled to 37, according to a new AM Best special report.

The Best’s Special Report, titled, “US Life/Health Downgrades Outnumber Upgrades in 2024,” notes that balance sheet strength levels drove the downgrades in addition to the upgrades, underscoring the importance of proper capitalization needed to address market challenges. An increase in rating downgrades affected primarily life/annuity (L/A) carriers. The majority of these rating downgrades also involved companies being placed under review while AM Best monitors the outcome of revised capital plans and the impact of organizational improvement changes.

“Most US L/A insurers benefited from consistent profitability, bolstered by favorable interest rates, strong capitalization, and top-line growth in most of their core lines of business,” said Helen Andersen, industry analyst, AM Best. “But they must contend with the potential for further interest rate cuts, increased use of higher risk assets, and the ongoing drag of legacy liabilities.”

According to the report, the L/A segment experienced narrowing margins in the face of interest rate cuts, which then placed more emphasis on the use of higher-risk assets to narrow the gap between crediting and earned rates to meet policyholder guarantees. Annuity sales are expected to remain strong, but life sales will be pressured.

Other highlights from the report include:

• More than half the rating downgrades were driven by deterioration in capitalization and balance sheet metrics. A decline in the enterprise risk management assessment was the second most common reason for the downgrades, driving 18.5% of downgrades, followed by operating performance, at 14.8%.
• The health segment saw five upgrades and seven downgrades in 2024, both counts down from 2023.
• The L/A segment saw six upgrades and 20 downgrades, with four fewer upgrades and 12 more downgrades than in 2023.
• AM Best assigned eight initial ratings in 2024—six were L/A writers and two for health.

To access the full copy of this special report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=352009.

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 London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

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