Best’s: Life/Health Rating Activity Mixed for 2021 As Insurers Navigate Headwinds
The increased number of Credit Ratings in the U.S. life/health insurance industry placed under review in 2021 mainly reflects the return of merger and acquisition (M&A) activity that was depressed in the previous year amid the pandemic surge, along with earnings declines in the life/annuity segment from heightened mortality, according to a new AM Best report.
The Best’s Special Report, titled, “Life/Health Rating Activity Mixed for 2021 as Insurers Navigate Headwinds,” states that the number of life/health insurers that saw their ratings placed under review by AM Best rose to 38 compared with nine in the previous year. Of the 38 rating actions, 18 were on health insurers, with the remainder on life/annuity insurers.
Rating downgrades were slightly elevated in 2021 compared with 2020, while upgrades and assigned ratings were in line with previous years. Overall rating activity increased slightly in 2021, with 355 rating actions taking place in aggregate for the life/health carriers, compared to 326 during 2020. Rating affirmations continued to account for the bulk of rating actions, at 76%.
Other highlights from the report include:
In 2021, there were 17 rating upgrades and 4 downgrades in the health segment. By comparison, there were 13 upgrades and two downgrades throughout 2020. Rating activity has reflected overall favorable earnings over the past few years, bolstered by the pandemic, as insurers reported higher-than-expected earnings in 2020, favorably contributing to higher absolute and risk-adjusted capitalization levels; and
During 2021, there were 12 rating upgrades and 12 rating downgrades in the life/annuity (L/A) segment, compared to 15 upgrades and eight downgrades in 2020. L/A carriers continued to face COVID-related challenges in 2021, with heightened mortality, extreme fluctuations in equity markets, a low interest rate environment and tightening spreads. L/A insurers’ risk management frameworks have helped them navigate the pandemic.
The impact of inflation on the economy and the way the COVID-19 pandemic progresses will continue to challenge the health and L/A segments. Over the past few years, health insurance carriers have strengthened their resilience and bolstered their ability to adjust to a rapidly changing market and regulatory environment, which when coupled with better financial wherewithal, puts the segment in a good position to navigate complexities and challenges in 2022. The L/A segment will continue to face hurdles in 2022, but AM Best believes the industry will be able to address these challenges because of improved capitalization, profitability and enterprise risk management practices resulting from the COVID-19 pandemic. Still, some adverse factors could negatively impact the segments. AM Best will continue to monitor changing conditions and take any necessary actions.
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.