A.M. Best Affirms Everest Re A+ (Superior) Ratings

April 15, 2002

A.M. Best announced that it has affirmed the financial strength rating of A+ (Superior) of Bermuda-based Everest Re Group for all of its “core operating reinsurance and insurance subsidiaries as well as the ‘a” debt rating of the unsecured senior notes issued by the intermediate U.S. holding company, Everest Reinsurance Holdings, Inc.”

Best’s announcement stressed “Everest Re’s consistent earnings trends, strong capital position and well-established global reinsurance franchise,” and praised the strengths and the strategies employed by its long-term experienced management team,” which emphasizes underwriting discipline in distributing a broad range of products through multiple distribution channels for its primary and reinsurance operations.”

The report noted that the company had a relatively small exposure of $75 million relating to Sept. 11 claims, and has consistently generated a good return on equity, managing to generate a 6 percent return last year despite its loss exposures.

Everest Re’s capital was recently bolstered by the sale of 5 million shares of common stock, which netted the company $346 million in additional capital.

Best stated, however, that “offsetting these positive factors is Everest Re’s high operating leverage ratio relative to its peers compounded by growth in new business segments.” It’s “operating leverage results from its large long-tailed loss reserve base, which includes $568 million of asbestos & environmental (A&E) reserves. Historically, while Everest Re’s reported loss reserves have developed with only relatively minor slippage, a slight deterioration of its reserve position will have a more material impact on its surplus relative to peer companies with lower operating leverage.”

Another concern for A.M. Best is Everest Re’s entrance into new markets, led by its domestic insurance company, Everest National Insurance Company, Phoenix. The company is “writing large amounts of primary workers’ compensation insurance in California with the intent of taking advantage of significant rate increases.” While expressing confidence that Everest re’s management was “maintaining conservatism while being opportunistic in California,” A.M. Best said it would “closely monitor this business as it matures and loss patterns develop.”

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