Best’s Special Report: U.S. Life/Health Industry Sees Upgrades Slightly Outpace Downgrades in First-Half 2017

By a News Reporter-Staff News Editor at Investment Weekly News -- The U.S. life/health industry's Credit Rating activity over the first half of 2017 saw upgrades slightly outpace downgrades, as opposed to first-half 2016 when the number of upgrades and downgrades remained relatively balanced, according to a new A.M. Best special report.

The Best's Special Report, "Life/Health Sector Rating Upgrades Slightly Outpace Downgrades in First-Half 2017," states that the year-over-year change in Long-Term Issuer Credit Rating (Long-Term ICR) development was due to improving levels of risk-adjusted capital among life/annuity carriers, driven partially by benign credit market conditions and favorable equity markets, which acted as a tailwind for earnings in 2016. However, a persistently low interest rate environment and a lack of substantial organic growth continued to pressure the earnings of several life/annuity insurers.

In December 2016, A.M. Best revised its outlook on the U.S. life/annuity segment to negative from stable. The driving factors behind the negative outlook were the expectation of depressed premiums, hindered capital growth and struggle to interact with policyholders more quickly and efficiently. A.M. Best also maintains a negative outlook on the U.S. health sector, mainly due to the ongoing impact of The Patient Protection and Affordable Care Act.

Still, affirmations remained the most common rating action for the U.S. life/health industry at 78%, consistent with most years.

The number of Long-Term ICR upgrades and downgrades increased over the same period a year ago. A.M. Best reported 15 upgrades and 13 downgrades among life/annuity and health carriers through June 30, 2017, compared with seven upgrades and seven downgrades in first-half 2016. Although the health segment reported improved earnings at year-end 2016, the health insurance exchange population continues to consist of higher-risk and greater utilizers of services, which has adversely impacted earnings and led to higher premiums and added pressure to levels of risk-adjusted capital. As a result, health insurer downgrades continued to exceed upgrades through the first half of 2017.

The proportion of life/annuity and health carriers with stable outlooks increased to 87% in first-half 2017 from 82% in first-half 2016. Additionally, the percentage of ratings under review decreased to 3% from 8%. The proportion of positive outlooks declined slightly, while negative outlooks increased. The outlook was stable for 88.5% of the life/annuity segment and 84.1% of the health segment. In addition to having fewer ratings under review, health carriers had slightly fewer positive outlooks and slightly more negative outlooks than life/annuity carriers.

A.M. Best will continue to monitor closely earnings, premium trends and risk-adjusted capital levels over the remainder of this year, as well as hold discussions with company managements regarding their plans for 2018, in the U.S. life/annuity and health markets.

To access the full copy of this special report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=264691. A.M. Best is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com. Copyright © 2017 by A.M. Best Rating Services, Inc. and/or its subsidiaries. ALL RIGHTS RESERVED. View source version on businesswire.com: http://www.businesswire.com/news/home/20170818005371/en/

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