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Best's Special Report: Downgrades for U.S. Property/Casualty Industry Increase in First Half 2018

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Catastrophic weather events in 2017 helped spur an increase in rating
downgrades for the U.S. property/casualty (P/C) industry during the
first half of 2018, according to a new A.M. Best report.
But the report also notes that overall ratings activity in that same
period was modestly favorable, with upgrades outnumbering downgrades.

The Best's Special Report, titled, "Downgrades for U.S. P/C
Industry Increase in First Half 2018," notes that these positive rating
actions were driven by tightened underwriting standards that have led to
favorable results over several years, higher risk-adjusted
capitalization and improved enterprise risk management capabilities. The
majority of companies managed their exposures effectively, reflecting
improved risk management capabilities and robust reinsurance programs.
However, the P/C industry does face challenges, including growing
frequency and severity issues in the automobile segment; the cost and
time devoted to systems implementation; and, in the reinsurance segment,
the impact of soft pricing margins.

The percentage of affirmations for U.S. P/C carriers' issuer credit
ratings (ICR) through mid-year 2018 declined slightly in comparison with
the same period in 2017, although affirmations were again the most
common rating action, at 78.6%, reflecting the overall stability of the
U.S. P/C industry. The number of upgrades outpaced downgrades for a
third consecutive year. Upgrades were similar to the prior year period,
7.1% of rating actions, compared to 7.4% in 2017. Downgrades increased
to 6.3% of total actions, up from 2.4% in the first half of 2017.

Included in the total number of rating changes in the first half of 2018
were the assignment of 13 P/C ratings, or 3.4% of total rating changes,
up from 5%, or 1.5%, in the first half of 2017. Three of the ratings
assigned were in the commercial property segment, along with two each
for the personal property, commercial casualty and warranty groups.
Rounding out the other segments were the private passenger automobile &
home, commercial automobile, workers' compensation, and credit group,
each with one new rating. Most of the assigned ratings involved new or
recently formed companies created to provide greater capacity and rate
filing flexibility in their organizations.

In the first quarter of 2018, the P/C industry posted an underwriting
profit of $3.9 billion, reversing the $840 million loss posted in the
first quarter of 2017. The improvement in profitability was driven by
lower average catastrophe loss experience and nearly $7 billion in
favorable loss development.

A.M. Best is maintaining its stable outlook on both the personal and
commercial lines segments, although the industry continues to face
challenges. A.M. Best is also maintaining its negative outlook on the
reinsurance segment.

To access the full copy of this special report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=277010.

A.M. Best is a global rating agency and information provider with a
unique focus on the insurance industry. Visit
www.ambest.com
for more information
.

Copyright © 2018 by A.M. Best Rating Services, Inc. and/or its
affiliates. ALL RIGHTS RESERVED.

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