Special Report from Best: Mixed U.S. Life/Health Rating Activity for 2021 as Insurers Navigate Headwinds

OLDWICK, NJ–(BUSINESS WIRE)–The increase in the number of credit ratings in the U.S. life/health insurance sector subject to review in 2021 primarily reflects the return of mergers and acquisitions (M&A) activity which has been depressed over the previous year in the context of the pandemic outbreak, as well as lower profits in the life/annuity segment from increased mortality, according to a new AM Best report.

the Best Special Report, titled “Life/Health Rating Activity Mixed for 2021 as Insurers Navigate Headwinds,” says the number of life/health insurers that had their ratings reviewed by AM Best rose to 38 from nine the previous year. Of the 38 rating actions, 18 concerned health insurers, the rest life/annuity insurers. Rating downgrades were slightly higher in 2021 compared to 2020, while upgrades and assigned ratings were in line with previous years. Overall rating activity increased slightly in 2021, with 355 rating actions in total for life/health insurers, compared to 326 in 2020. Rating affirmations continued to account for the bulk of rating actions, at 76% .

Other highlights of the report include:

  • In 2021, there were 17 rating upgrades and 4 downgrades in the healthcare segment. By comparison, there were 13 upgrades and two downgrades throughout 2020. Rating activity reflected broadly favorable earnings in recent years, bolstered by the pandemic as insurers reported higher earnings than expected in 2020, contributing favorably to higher absolute upside and higher risk. – adjusted capitalization levels; and

  • In 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 challenges related to COVID in 2021, with increased mortality, extreme fluctuations in equity markets, low interest rate environment and tightening of spreads. L/A insurers’ risk management frameworks have helped them through the pandemic.

The impact of inflation on the economy and the progression of the COVID-19 pandemic will continue to challenge the healthcare and L/A segments. Over the past few years, health insurance companies have strengthened their resilience and increased their ability to adapt to a rapidly changing market and regulatory environment, which, together with better financial resources, places the segment in well positioned to face 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 meet these challenges through improved L/A practices. capitalization, profitability and business risk management resulting from the COVID-19 pandemic. Nevertheless, some unfavorable factors could have a negative impact on the segments. AM Best will continue to monitor evolving conditions and take any necessary action.

To access the full copy of this special report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=317542.

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 more than 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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