Fitch: Financial Leverage Stable but Fixed-Charge Coverage Peaks for U.S. Prop/Casualty Insurers

CHICAGO--()--In a report published today, Fitch Ratings notes that U.S. property/casualty (P/C) insurers continue to maintain stable financial leverage, but operating fixed-charge coverage may have peaked.

GAAP fixed-charge coverage, excluding investment gains and losses, improved slightly in 2014 to 9.3x from 9.1x in 2013 and 6.4x in 2012. This is comfortably above a 'BBB' debt rating median guideline.

Operating EBIT and fixed-charge coverage ratios could deteriorate in 2015, as premium rate changes are flat to declining in commercial lines and reinsurance rates continue to drop. Diminished loss reserve releases, a return to normalized catastrophe activity and lower investment yields add further pressure to 2015 earnings. The potential for further reductions in interest costs through refinancing of debt maturities with lower coupon debt is also somewhat limited as a relatively small portion of outstanding debt matures in 2015 and 2016.

In aggregate, the group's financial leverage remained the same in 2014, as growth in borrowings kept pace with internal capital growth The financial leverage ratio (FLR) for Fitch's rated universe was 21.5% at year-end 2014, the same as the prior year end. The industry's financial leverage ratio is consistent with an 'A' debt rating median.

Fitch estimates the amount of statutory dividend capacity available to be paid in 2015 increased significantly and covers estimated fixed charges by 6.5x. This metric is significantly affected by greater dividend capacity for non-U.S. insurers due to less restrictive regulatory requirements. Holding companies that own Bermuda (re)insurance entities had very strong average dividend capacity at 13.5x, which is consistent with a 'AA' debt rating median, compared with 5.4x for U.S. insurers, which is closer to a 'BBB' median.

Additionally, a number of companies continue to hold elevated levels of cash at the holding company, which improves flexibility and near-term debt-servicing capacity. Some holding companies may maintain cash balances to prefund upcoming debt maturities.

The report 'Property/Casualty Insurers' Financial Leverage and Debt-Servicing Capacity' dated April 13, 2015, is available at 'www.fitchratings.com' under 'Insurance' and 'Special Reports' or by clicking on the link.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research: U.S. P/C Insurers¬タル Leverage and Debt-Servicing Capacity (Leverage Stable, but Fixed-Charge Coverage Has Peaked)

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=864306

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Contacts

Fitch Ratings
Martha M. Butler, CFA
Senior Director
+1-312-368-3191
Fitch Ratings, Inc.
70 West Madison St.
Chicago, IL 60602
Jeremy R. Graczyk
Analyst
+1-312-368-3208
or
Media Relations:
Alyssa Castelli, +1-212-908-0540
alyssa.castelli@fitchratings.com
Elizabeth Fogerty, +1-212-908-0526
elizabeth.fogerty@fitchratings.com

Contacts

Fitch Ratings
Martha M. Butler, CFA
Senior Director
+1-312-368-3191
Fitch Ratings, Inc.
70 West Madison St.
Chicago, IL 60602
Jeremy R. Graczyk
Analyst
+1-312-368-3208
or
Media Relations:
Alyssa Castelli, +1-212-908-0540
alyssa.castelli@fitchratings.com
Elizabeth Fogerty, +1-212-908-0526
elizabeth.fogerty@fitchratings.com