Gallagher Re: Negative rating actions outpace positive in US P&C market

By Mia MacGregor

July 16 - (The Insurer) - Negative rating actions by AM Best in the U.S. property and casualty market have outpaced positive actions during the 2024-2025 period, with personal lines insurers facing particular pressure, according to a new report from Gallagher Re.

The report, titled US Personal Lines Insurers Face Ongoing Ratings Pressure in a Challenging Market, documented 263 rating actions between January 2024 and March 2025, with negative actions accounting for 40% and positive actions for 38%. This compares to 44% and 40%, respectively, in the same period a year before.

The trend continues a pattern from previous years, highlighting financial stress and weak underwriting performance, particularly among personal lines insurers.

Gallagher Re noted an increase in companies with worsening outlooks, rising from 23% in 2022-23 to 24% in 2024-25, suggesting the potential for further downgrades if financial pressures persist.

However, rating downgrades accounted for a smaller share of AM Best’s actions in 2024-25, as many insurers had already been downgraded or withdrawn in 2023 and subsequently aligned more closely with AM Best’s assessments.

Of AM Best's rating actions during the period, 48 involved companies that experienced a drop in surplus, with personal lines insurers more affected than commercial lines.

Surplus erosion and weak underwriting performance remain key drivers of negative rating actions, according to the report.

Among companies subject to rating actions, personal lines carriers posted higher combined ratios on average compared to their commercial lines peers. Combined ratios improved by nine points in 2024 among personal lines insurers that incurred negative rating actions.

“The fact that improvements in their finances did not insulate these carriers from negative actions reflects AM Best's ongoing concerns over diminished capital strength and lagging performance relative to expectations. Commitment to pricing adequacy and exposure management are critical in limiting future deterioration,” the report said.

Gallagher Re highlighted persistent challenges for the P&C market, including catastrophe loss volatility, secondary perils, inflation impacts and tariff uncertainties affecting investment returns, reserves, rate adequacy and surplus strength.

The report noted 21 multibillion-dollar loss events in 2024, driven by secondary perils such as severe convective storms and increased economic uncertainty.

Gallagher Re advised that risk financing solutions, including increased insurance-linked securities capacity and modeled loss covers, can help counter negative rating actions.

The report recommended vigilant pricing strategies, active exposure management and evolving stress testing to maintain capital strength and limit volatility. Modeling outcomes can also support insurers in evaluating reinsurance solutions to prevent surplus erosion and ensure robust economic capital.