Best’s Special Report: U.S. Life/Health Sector Credit Rating Upgrades Outnumber Downgrades in 2020
March 15, 2021 by AM Best
OLDWICK, N.J.–(BUSINESS WIRE)–Despite the pandemic, the U.S. life/health industry saw positive Credit Rating action in 2020, with the number of downgrades and ratings put under review declining compared with the previous year, according to a new AM Best report.
The Best’s Special Report, titled, “Life/Health Rating Upgrades Outnumber Downgrades in 2020,” states that rating upgrades remained essentially flat in 2020, with 28 ratings upgraded versus 10 downgrades for life/annuity (L/A) and health carriers in 2020, compared with 29 upgrades and 19 downgrades in 2019. The positive rating movement was driven primarily by improved levels of risk-adjusted capitalization for life/annuity and health carriers. The vast majority of rating actions in 2020 were affirmations, with the percentage of them increasing year over year. Upgrades were relatively consistent for both the L/A and health segments, however, downgrades were more concentrated in the L/A segment in 2020, while the life reinsurance segment had no rating movements.
Compared to prior year there were nine rating units placed under review in 2020, compared with 24 in 2019, reflecting significant lower merger and acquisition activity as pandemic-related uncertainties shifted the L/A and health industries’ focus to operations through this period. L/A ratings activity generally reflected increased strategic value to parent companies, strong risk-adjusted capitalization and more robust enterprise risk management practices, while health ratings development generally reflected growth in capital and surplus over the past couple of years, supported by strong operating earnings across the major lines of business.
In December 2020, AM Best maintained its negative market segment outlook on the L/A segment, mainly due to the impact of the COVID-19 pandemic. Interest rates, expected to be lower for longer, will impact credit spreads, and also likely lead to lower long-term interest rate assumptions, which in turn could lead to reserve increases or asset adequacy reserve charges. Furthermore, the current economic and business environment could lead to credit rating downgrades, followed by asset impairments. AM Best is keeping a stable outlook on the health segment for 2021, despite the widespread effect of COVID-19. Key factors are significantly higher-than-expected earnings in 2020, partially due to delays in medical elective and routine care, strong risk-adjusted capitalization and relatively modest cost of COVID-19 treatments for most individuals.
To access the full copy of this special report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=306632.
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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