Fitch: U.S. Property/Casualty Insurers' Financial Leverage and Debt-Servicing Capacity

CHICAGO--(BUSINESS WIRE)--Fitch Ratings today released a Special Report that details its examination of U.S. property-casualty companies' financial leverage and debt-servicing capacity.

Fitch analyzes key holding company financial factors of property/casualty insurance organizations, such as financial leverage and debt-servicing capacity for the last several years, and how well insurers can meet debt-servicing requirements in 2008, examining 10-K filing data from all publicly traded property/casualty insurers in its debt rating universe.

The results illustrate recent reductions in holding company financial leverage considering equity credit for hybrid securities and improvements in debt-servicing capability, as a result of strong recent earnings and cash flow. Adding further support to companies' ability to service debt is the dividend capacity provided by insurance subsidiaries and holding company cash for select insurers. The regulatory maximum dividends allowable by insurance subsidiaries in 2008, which are driven by earnings and/or surplus at year-end 2007, remained strong. While Fitch believes it is prudent to hold enough cash to cover one year of interest, some companies consistently hold significantly more, thus creating a cushion for debt holders.

Looking forward, the industry faces greater earnings pressure due to cyclical factors and more competitive insurance market pricing, which will likely lead to some deterioration in coverage ratios and debt-servicing capacity. The industry's strong capital position is a key contributor to the current market pricing competitiveness. Many insurers are challenged currently by limited organic revenue growth opportunities and excess capital. The manner in which companies deploy excess capital and manage their capital structure to help meet profit objectives will have a significant impact on property/casualty insurers' capital strength and holding company financial leverage in the next few years.

Given liquidity and credit market issues, Fitch evaluated property/casualty insurers' refinancing risk. Fitch believes this risk is modest in the near term, as most insurers with significant amounts of debt maturing in 2008 have already pre-funded or replaced it with new long-term debt issues.

For more information and for a copy of the Special Report, 'Property/Casualty Insurers' Financial Leverage and Debt-Servicing Capacity' please visit www.fitchratings.com under the following headers: Financial Institutions > Insurance > Special Reports.

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