P&C financial leverage up on low rates and liquidity needs: Fitch

Analysts at Fitch Ratings have reported that, in the aggregate, U.S. property/casualty insurers’ financial leverage increased to 22.3% at year-end 2020 from 21.4% at year-end 2019.

A report by the rating agency, which looked at a group of 31 companies, concluded that financial leverage is expected to increase modestly over the medium term.

This is based on the material amount of 2020 financing activity used to prefund 2021 maturities in light of a favourable interest rate environment.

Over a longer-term horizon, Fitch expects the financial leverage ratio to remain supportive of a ‘BBB’ category average debt rating.

For the insurers analysed by Fitch, fixed-charge coverage deteriorated, falling to 6.2x in 2020 from 8.2x in 2019 as higher catastrophe losses and lower investment income combined to reduce earnings before tax by nearly one-quarter during the year.

However, fixed-charge coverage in 2021 is expected to improve, reverting toward previous norms as underwriting results will benefit from sharp price increases and tighter underwriting terms in commercial lines.

In addition, favorable prior period reserve development is expected given reduced claims frequency during the pandemic across many segments.

But the prevailing low interest rate environment will continue to challenge net investment income and remain a drag on earnings.

Fitch also found that aggregate holding company cash and liquid securities increased by nearly one-fifth in 2020 to $78 billion as companies carried elevated levels of holding company liquidity given pandemic-related uncertainties.

Meanwhile, acquisition activity and share repurchases are likely to reduce cash holdings during 2021 as markets return to more recognized patterns.

The post P&C financial leverage up on low rates and liquidity needs: Fitch appeared first on ReinsuranceNe.ws.

Source: https://www.reinsurancene.ws/pc-financial-leverage-up-on-low-rates-and-liquidity-needs-fitch/

Join the Discussion

  • BrokerEUR/USD
    SpreadEX 0.6pips (variable) margin: 3.33%
    OANDA 1.3pips (variable) margin: 3.33%
  • Back to top