U.S. P&C Insurers’ Financial Leverage Remains Stable: Fitch

U.S property and casualty (P&C) insurers’ financial leverage remained stable year-on-year, according to Fitch Ratings, who recorded the sector’s aggregate financial leverage ratio (FLR) at ‘A-‘.

Source: Reinsurance News | Published on May 13, 2019

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Fitch explained that the ratio implied debt rating guidelines at 22.6% for year-end 2018, which was down minimally from 22.9% at year-end 2017.

“In the medium term, Fitch expects the group’s average FLR to hover around the cusp of the implied ‘A-‘ and ‘BBB+’ debt rating guidelines, consistent with a ‘BBB’ category average debt rating for the universe,” said Martha Butler, Senior Director, Fitch Ratings.

The group’s operating earnings improved by $10.4 billion, or 21%, to $60 billion, analysts noted, more than reversing the decline of $7.8 billion from 2016 to 2017.

They attributed the improvement primarily to lower catastrophe losses, which declined 34% from 2017 to $17 billion.

Fixed-charge coverage on an operating basis also improved to 7.2x for the group, compared with 5.1x in 2017 and 7.5x in 2016.

Fitch added that the three-year average of 6.6x was consistent with a ‘BBB’ category average debt rating for the universe.

The rating agency anticipates that fixed-charge coverage ratios will remain at the 7.0x range in 2019, provided that insured catastrophe losses do not exceed average historical levels, and does not expect core underwriting results to materially deteriorate.

Finally, analysts observed that aggregate holding company cash and liquid securities increased 19% in 2018, with some companies continuing to hold material levels of holding company liquidity, improving their flexibility and near-term debt-servicing capacity.