Best Affirms Everest Re Group and Affiliates Ratings; Outlook Stable

July 26, 2013

A.M. Best Co. has affirmed the financial strength rating (FSR) of ‘A+’ (Superior) and issuer credit ratings (ICR) of “aa-” of Bermuda-based Everest Reinsurance and its reinsurance and insurance affiliates.

Best also affirmed the ICRs of “a-” of Everest Re Group, Ltd., based in Bermuda, and Everest Reinsurance Holdings Inc., which is based in Delaware, as well as the debt ratings of Everest Re Group, Ltd., Everest Reinsurance Holdings Inc. and Everest Capital Trust III. The outlook for all of the ratings is stable.

The ratings reflect Everest Re’s “consistently superior risk-adjusted capital position, long-term track record of generating favorable earnings, experienced management team and market profile as a leading global provider of insurance and reinsurance products,” Best said.

“Given its conservative financial leverage measures, Everest Re maintains strong financial flexibility with the ability to effectively manage its capital through market cycles. This is evidenced by Everest Re’s 10-year average combined ratio, which is below breakeven, representing underwriting profitability. Cash flows from operations also have consistently been strong. Everest Re’s balance sheet is supported by its conservative investment strategy with the current investment portfolio held at a shorter duration and equities at less than 10 percent of total investments.”

Best also indicated that “Everest Re continues to benefit from a seasoned management team, which has successfully deployed its low-cost operating structure, in order to profitably distribute its reinsurance and insurance products globally through a large network of insurance and reinsurance intermediaries.”

The report explained that “due to its diversified product offering and geographic spread, Best believes Everest Re is well positioned within its business sector to continue to perform in line or better than its peer group despite the potential for reductions in near- to mid-term operating margins.”

Best also said it “believes that Everest Re has maintained strong traditional risk management capabilities and has established an enterprise risk management (ERM) framework that effectively identifies, measures and monitors both existing and emerging risks across its respective businesses and enables the efficient allocation of capital.” In Best’s opinion “Everest Re will continue to enhance its ERM and internal modeling capabilities.”

A significant partial offsetting factor is “the organization’s exposure to large catastrophe losses,” Best said. “As part of its catastrophe management process, Everest Re utilizes catastrophe modeling and establishes risk limits to control catastrophic exposures on both a probable maximum loss and aggregate basis, although catastrophe losses could impact earnings in a given year.

“The organization also maintains net asbestos and environmental (A&E) exposure of approximately $426 million, which has been declining in recent years. A&E reserves are monitored on a quarterly basis against emerging trends with the most recent review indicating that current reserve levels are adequate.

“Rating factors that could lead to Everest Re’s ratings being upgraded and/or a revised outlook to positive include the continuation of long-term, consistently strong operating profitability relative to its peers and maintaining strong risk-adjusted capital levels.

“Rating factors that could lead to Everest Re’s ratings being downgraded and/or a revised outlook to negative include unfavorable operating profitability trends, outsized catastrophe or investment losses relative to its peers (and/or A.M. Best’s expectations), significant adverse loss reserve development and/or a material decline in its risk-adjusted capital.”

Best summarized the companies included in the ratings report as follows:
The FSR of ‘A+’ (Superior) and ICRs of “aa-” have been affirmed for Everest Reinsurance (Bermuda) Ltd. and its following reinsurance and insurance affiliates:
— Everest Reinsurance Company
— Everest International Reinsurance, Ltd.
— Everest Reinsurance Company (Ireland), Limited
— Everest National Insurance Company
— Everest Indemnity Insurance Company
— Everest Security Insurance Company
— Everest Insurance Company Canada

In addition Best listed the following debt ratings as having been affirmed:
Everest Reinsurance Holdings, Inc.—
— “a-” on $250 million 5.4 percent senior unsecured notes, due 2014
— “bbb” on $400 million 6.6 percent fixed to floating long term junior subordinated notes, due 2067

The following indicative ratings have been affirmed under the shelf registration:
Everest Re Group, Ltd.—
— “a-” on senior unsecured debt
— “bbb+” on subordinated debt
— “bbb” on preferred stock

Everest Reinsurance Holdings, Inc.—
— “a-” on senior unsecured debt
— “bbb+” on subordinated debt

Everest Re Capital Trust III—(guaranteed by Everest Reinsurance Holdings,
— “bbb+” on trust preferred securities

Source: A.M. Best

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