Moody’s Investors Service announced that it has assigned prospective ratings to the $975 million universal shelf registration of Everest Re Group, Ltd. (Everest Re Group) — prospective senior unsecured debt at (P)A2), Everest Reinsurance Holdings, Inc. (“Everest Re Holdings) — prospective senior unsecured debt at (P)A3), and Everest Re Capital Trusts II and III (prospective preferred securities at (P)Baa1).
Moody’s also affirmed the insurance financial strength ratings of Everest Reinsurance Company and Everest Reinsurance (Bermuda), Ltd. (“Everest Re Bermuda”) at Aa3, the ratings on the senior unsecured debt of Everest Re Holdings at A3 and the preferred securities of Everest Re Capital Trust at Baa1. The outlook for the ratings is stable.
“The shelf registration provides for the possibility that securities issued by U.S.-based Everest Re Holdings may be guaranteed by Bermuda-based Everest Re Group,” said Moody’s. It noted that “securities issued with such a guaranty would be rated one notch higher than those without the benefit of the guaranty from the ultimate parent company.”
The rating agency stated that this differential exists due to the increasing importance of Everest Re Bermuda in the overall capital structure of Everest Re Group and the relatively modest regulatory restrictions on Everest Re Group receiving dividends from Everest Re Bermuda. Moody’s said it “believes that this additional financial flexibility results in an improved credit profile for investors.”
Everest Re Group also benefits “from its strong balance sheet, good product and customer diversification, its strong track record of operating profitability, its prudent capital management approach and its organic capital generation,” the bulletin continued.
Moody’s indicated, however, “that Everest Re’s opportunistic approach to the insurance and reinsurance marketplace brings with it increased risks that can often accompany the substantial premium growth exhibited by Everest Re Group.” It said specifically that it “remains concerned about the significant growth of Everest’s California workers’ compensation business in recent years, as well as the potential for adverse loss reserve development in Everest’s U.S. casualty reinsurance operations for business written during the previous soft reinsurance pricing cycle.”
In addition, Moody’s noted that Everest Re Group’s exposure to asbestos liabilities remains a concern, “as industry estimates for asbestos-related claims have increased significantly as a result of bankruptcies among major manufacturers, a broadening of litigation to include peripheral defendant classes, and an expanded range of coverages being asserted, among other factors.”
Discussing the situation, the rating agency indicated that it remains cautious about asbestos litigation trends and the “associated volatility inherent in asbestos reserves, particularly with respect to non-products liability and other emerging exposures.” It noted that “while Everest Re Group has $54 million in remaining reinsurance protection for asbestos claims, continued adverse asbestos reserve development could become a more significant drag on earnings and capital formation at the company once this cover has been exhausted.”
Moody’s views underwriting conditions in 2004 as favorable for Everest Re Group, “particularly in casualty reinsurance.” It added that a key rating consideration for the Group will be its ability “to maintain its current business platform and strong capital position while balancing growth and profitability.”