Fitch: TFC Ratio an Alternative View of Leverage

CHICAGO--(BUSINESS WIRE)-- The level of total financing and commitments (TFC) has become a key indicator of capitalization in Fitch Ratings' analysis of North American insurance companies, as insurers' funding sources and access to capital markets have varied, according to a Fitch Ratings report published today.

The TFC ratio is Fitch's comprehensive non-risk-based leverage measure for an insurance organization. TFC captures financial debt and operating debt, as well as various off-balance sheet exposures and debt-like commitments. This includes securitizations, LOC facilities used for third-party collateral, securities lending, Federal Home Loan Bank borrowings, debt guarantees and derivative obligations such as credit default swaps (CDS).

Fitch considers the TFC ratio a key trigger for rating downgrade and/or upgrades in select cases where insurers have relatively high TFC levels. A high dependence on financing and commitments can be a direct source of vulnerability to an insurer in a stress scenario.

The year-end 2014 average TFC ratio for North American insurers in Fitch's coverage universe is 0.49x using shareholders' equity adjusted for FAS 115. This is at the low end of Fitch's 'medium' (0.4x - 0.8x) level guideline. At this level, Fitch believes that TFC ratios are neutral to ratings. However, approximately 45% of the industry's TFC ratio is derived from non-traditional financial leverage, illustrating that the industry may be more exposed to financing and capital markets' funding risks than investors realize.

The full report 'TFC Ratio - An Alternative View of Leverage (Year-End 2014 Results for North American Insurers)' is available at 'www.fitchratings.com' under 'Insurance' and 'Special Reports'.

Additional information is available on www.fitchratings.com

TFC Ratio - An Alternate View of Leverage (Year-End 2014 Results for North American Insurers)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=872405

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Source: Fitch Ratings