Standard & Poor’s Ratings Services announced that it has affirmed its ‘A-‘ counterparty credit and preliminary senior debt, ‘BBB+’ subordinated debt, and ‘BBB’ preferred stock shelf ratings on Bermuda-based Everest Re Group Ltd.
S&P also said it has affirmed its ‘A-‘ counterparty credit and senior debt, ‘BBB’ preferred stock ratings, and preliminary ‘BBB+’ subordinated debt on U.S-based Everest Reinsurance Holdings Inc., an intermediary holding company that is ultimately owned by Everest, and its ‘AA-‘ counterparty credit and financial strength ratings on Everest Reinsurance Co., Everest National Insurance Co., and Everest Reinsurance (Bermuda) Ltd. “The outlook on all of these ratings was revised to Stable from Positive,” said the bulletin.
“The ratings are based on Everest’s strong business position as the fifth-largest U.S. reinsurer based on 2002 net premiums written, very strong (and substantially better than industry peers) operating performance, conservative investment strategy, extremely strong capital adequacy, and strong financial flexibility,” said S&P. “These positive factors are partially mitigated by the group’s aggressive premium growth during the past two years and its reduced reinsurance program, which could increase earnings volatility in coming years.”
S&P explained that it had changed the outlook to stable as a result of “concerns about the overall health of the global and U.S. reinsurance industries, and in that context the relatively aggressive pace of Everest’s premium growth and its rapid entrance into the primary workers’ compensation line of business beginning in 2000 (particularly in California).”
“While Standard & Poor’s recognizes that market conditions in the workers’ compensation line have improved in recent years, Standard & Poor’s believes Everest’s exposure to this long-tail line of business could lead to some volatility in its reserve position prospectively,” stated S&P credit analyst Laline Carvalho. The rating agency did indicate that in its opinion “any deficiencies in the group’s reserves would be modest and offset by capital, which is above the current rating level.”
Everest Re is expected to have a combined ratio of between 94 and 96 percent for 2003, assuming normal catastrophe loss activity. S&P added “Capital adequacy is expected to remain extremely strong in the 190%-200% range at year-end 2003. Premium growth for full-year 2003 is expected to hover in the 50%-55% range as the group continues to take advantage of favorable market conditions. Financial leverage as measured by total debt plus preferreds-to-total capital is expected to remain within the rating range during the next two years at about 25%-27%, including any issuances under the group’s recently filed $975 million universal shelf.”
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