The life and health insurance segment in the US experienced more credit rating upgrades than downgrades in 2023, according to a new AM Best report. The Best’s Special Report, titled US Life/Health Upgrades Slightly Outpace Downgrades in 2023, shows a decline in credit rating upgrades to 18 from 26 the previous year, while downgrades increased slightly to 17 from 15 in 2022. AM Best's analysis highlights that balance sheet strength was a primary factor influencing both upgrades and downgrades, with inflation also impacting profitability across both sectors. In the health insurance segment, upgrades decreased to eight from 11 in 2022, and downgrades increased to nine from eight, largely due to declines in risk-adjusted capital caused by higher-than-expected operating losses, challenges in the investment market, and unfavourable trends in admitted assets. In contrast, the life/annuity segment saw 10 upgrades and eight downgrades in 2023, compared to 15 upgrades and seven downgrades in the previous year. The reasons for downgrades included competitive pressures, capital strain from captive use, and negative business run-off results. The report also notes a dramatic increase in negative outlooks, rising to 9 per cent at the end of 2023 from 5.3 per cent at the end of 2022, predominantly in the life/annuity segment. Researchers attribute this trend to declining capitalisation as a result of mortality experience, increased execution risk from business initiatives, and new business strain.
