All but three insurers reduced leverage in 2024, with the most notable reductions coming from AIG, Liberty Mutual and Progressive. (Credit: Montri Thipsorn/Adobe Stock)
Financial leverage in P&C insurance is expected to remain relatively low in 2025, Fitch Ratings reports, thanks to elevated interest rates and limited pressure from upcoming maturities.
Fitch’s most recent report on the industry found that the aggregate financial leverage ratio (FLR) for the group of 33 North American P&C re-insurers included in its research improved to 17% at the end of 2024. The FLR calculation mainly includes unrealized losses on fixed-income investments. Overall, trends remained consistent with all but four of the insurers reducing leverage last year.
Dividend capacity increased in 2024, Fitch found, with around a 7% bump in industry policyholders’ surplus. This, combined with a return to underwriting profitability, “increased the maximum statutory dividend capacity available for insurance subsidiary payments in 2025.”
Aggregate holding company cash and liquid securities increased nearly threefold to almost $123 billion for the group.
These results were reportedly heavily influenced by Berkshire Hathaway, which Fitch says holds more than half of this group of insurers’ total debt. Berkshire Hathaway reportedly held almost 80% of the insurers’ total of holding company cash and liquid securities, which drove a year-over-year increase.
Fitch’s report says this level of financial flexibility is sufficient to meet holding company expenses for 2025.
All but three insurers reduced leverage in 2024, with the most notable reductions coming from AIG, Liberty Mutual and Progressive. Liberty Mutual reportedly redeemed €500 million of junior subordinated notes and repaid the same amount of notes at maturity. Meanwhile, Progressive benefited from a 26% increase in common equity.
Fitch reports that AIG’s outstanding debt and preferred shares dropped by more than $10 million due to the removal of Corebridge Financial obligations from its balance sheet. This caused the company’s FLR to fall to 15% from the 23% recorded in 2023.
At the end of 2024, insurers with the lowest FLR were Cincinnati Financial Corporation (5.4%), RLICorp. (5.6%) and Hamilton Insurance Group (6.4%). The highest FLRs in 2024 were recorded at Kemper Corporation (31.1%), Fairfax Financial Holdings Limited (30.7%) and SiriusPoint Ltd. (28.7%).
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