Best’s Special Report: U.S. Property/Casualty Companies’ Debt Issuance Continues; Leverage Stable

OLDWICK, N.J.--(BUSINESS WIRE)--Publicly traded U.S. property/casualty (P/C) insurers and reinsurers continue to take advantage of low refinancing rates to extend debt maturities and to replace higher-cost debt with lower-cost debt, according to a new AM Best special report.

The Best’s Special Report, titled, “Property/Casualty Companies’ Debt Issuance Continues; Leverage Stable,” states that debt issuance declined moderately in 2020 following record issuance in 2019, when the market broadly expected that the Federal Reserve would raise interest rates. Since that did not occur, refinancing continued at high rates through 2020. Many P/C insurers and reinsurers continue to take advantage of low refinancing rates to extend their debt maturity profiles, retiring debt with higher coupon rates and replacing it with less costly debt.

According to the report, the aggregate unadjusted debt-to-capital ratio of 44 publicly traded P/C insurers and reinsurers has been within a fairly narrow range, between 22% and 25%, since the beginning of 2013. Unadjusted financial leverage has been at the lower end of that range for the last few years, despite the total amount of debt outstanding increasing by approximately $70 billion since year-end 2018.

Approximately 58% of the debt the P/C (re)insurers issued in 2020 was issued from the end of the first quarter through the second quarter for extra liquidity protection, owing to concerns about COVID and the capital markets seizing up. Although the maturity dates for outstanding P/C company public debt span the next few decades, approximately $28 billion (14%) will mature within the next three years, presenting opportunities for some companies to further lower their weighted average cost of capital.

Share repurchases by publicly traded P/C companies also has rebounded, according to the report. After peaking in 2015, share repurchases declined moderately in 2016 before dropping off sharply in 2017 following hurricanes Harvey, Irma, and Maria. Share repurchases increased in 2019, as earnings improved. Despite another active year for catastrophe losses, including the impact of COVID-19, share repurchases nearly tripled in 2020. However, the roughly $20 billion annual increase in share repurchases during 2020 was almost entirely attributable to an increase in share repurchases by Berkshire Hathaway Inc. The level of profits generated in the P/C industry over the last several years has allowed carriers to fund share repurchases and common dividends by internally generated funds, as opposed to using capital raised through debt issuances to fund the repurchases.

AM Best expects P/C insurers and reinsurers will continue to benefit from good financial flexibility and low refinancing risk.

To access the full copy of this special report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=312284 .

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in New York, London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

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