Market Overview

Best's Special Report: U.S. Life/Health Industry Sees Credit Rating Upgrades Outpace Downgrades in First-Half 2018


The U.S. life/health industry's Credit Rating activity in the first half
of 2018 saw upgrades outpace downgrades by a wider margin than in the
first half of 2017, according to a new A.M. Best report.
However, the number of ratings placed under review more than doubled the
amount over the prior-year period.

The Best's Special Report, titled, "Upgrades Outpace Downgrades
for U.S. Life/Health in First Half 2018," states that the year-over-year
change in Long-Term Issuer Credit Rating development was driven
primarily by improved levels of risk-adjusted capitalization for health
and life/annuity carriers.

Health insurers reported better operating results for the Patient
Protection and Affordable Care Act individual exchange business, and to
a lesser extent, overall slower premium revenue growth. Improved
operating results were driven partly by both consecutive years of high
rate increases and a narrowing of provider networks. Life/annuity
carriers reported improved levels of risk-adjusted capitalization, owing
partly to benign credit market conditions and generally favorable equity
markets, which buoyed earnings. However, a prolonged low interest rate
environment and a lack of organic growth continue to pressure earnings.

A.M. Best upgraded 18 ratings and downgraded eight from among
life/annuity and health carriers in the first half of 2018, compared
with 15 upgrades and 13 downgrades in the first half of 2017. Upgrades
were almost evenly divided between the two segments, while the
life/annuity segment reported slightly more downgrades than the health
segment. In the first half of 2017, more ratings were upgraded in the
life/annuity segment than in the health segment, while downgrades were
evenly divided between the two segments.

In the first-half of 2018, 25 life/health rating units were placed under
review, compared with 11 in the first-half of 2017, mainly reflecting
elevated merger and acquisition activity. Affirmations remained the most
common rating action for the life/health industry at 76%, consistent
with most years.

A.M. Best maintains its negative market segment outlook on the
life/annuity industry segment and has a stable outlook on the health
segment. A.M. Best believes that, despite expectations of modest premium
growth for the remainder of 2018 in the life/annuity segment, many
insurers will continue to struggle with the complexities of managing the
heavy regulatory environment, while attempting to make the necessary
distribution enhancements to gain market share. Additionally, A.M. Best
will continue to monitor health insurer earnings, premium growth trends
and risk-adjusted capital, as well as closely follow any legislative
developments that could impact health insurers.

To access the full copy of this special report, please visit

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

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