Aon Benfield has released its annual Evolving Criteria report that reviews the latest developments in rating agency protocol in the US and their impact on the insurance industry.
The report reveals that rating agencies Standard and Poor (S&P) and A.M. Best released 23 criteria updates with an additional seven updates in draft status.
Significant developments included the release of S&P’s insurance rating criteria and A.M. Best’s BCAR (Best’s Capital Adequacy Ratio) model.
A.M. Best also released its analysis of the expiration of TRIPRA, the US federal terrorism backstop, and its treatment of Florida hurricane catastrophe fund cover.
The report highlights an increase in ratings upgrades across the US property and casualty (P&C) insurance sector, outpacing downgrades and reflecting improved market conditions of near record capitalisation and favourable levels of profitability.
P&C insurers’ aggregate combined ratios improved during the 12-month period decreased from 102 percent to 98 percent.
Patrick Matthews, head of Aon Benfield rating agency Americas, said: “Today is an unprecedented time for the US P&C industry, where success can be attained by generating profit in the face of a slowly improving economy, low interest rates, and frequent catastrophic events.”
“It is important that insurers can effectively manage risk at all levels of their enterprise in the face of an increasingly complex risk landscape. Meanwhile, understanding and managing rating agencies’ evolving criteria has, and will continue to be an integral component of their success.”
The report also reveals that insurers are concerned over the expiration of TRIPRA in December 2014, and highlights the growing importance of enterprise risk management (ERM) for insurers.
Matthews added: “ERM has evolved to become an increasingly complex, yet essential feature in the operation and management of a successful insurance company. The growing sophistication of ERM within the industry has raised the bar for companies to build a risk framework that fits their internal culture and demonstrates that they are constantly managing and mitigating risk effectively throughout the organisation.”
