A.M. Best Affirms Everest Re Group’s ‘A+’ Ratings

June 23, 2003

A.M. Best Co. has affirmed the financial strength rating of A+ (Superior) of the Bermuda-based Everest Re Group, Ltd’s core reinsurance and insurance subsidiaries.

Best also said it had “affirmed the debt rating of “a” relative to senior debt obligations issued by the intermediate U.S. holding company, Everest Reinsurance Holdings, Inc. and the “a-” debt rating of the trust preferred securities issued by Everest Re Capital Trust and guaranteed by Everest Reinsurance Holdings, Inc.”

“These ratings reflect Everest Re’s favorable earnings trends, strong risk-adjusted capital position, excellent financial flexibility and well-established global reinsurance franchise,” said Best “In 2002, Everest Re generated a return on equity of 14.1 percent, which was comprised of a small underwriting gain and solid level of net investment earnings. This favorable trend continued in first quarter 2003, with the group earning net income of $94 million, benefiting from a sustainable improvement in underwriting activities, which generated a 93.5 percent combined ratio.”

The rating agency also observed that “In addition to historically favorable operating earnings, the group’s capital formation has been supplemented by Everest Re’s ability to raise over $850 million in capital since January 2002 through the issuance of common stock and trust preferred securities. This has increased the group’s shareholders’ equity as of March 31, 2003, to almost $2.5 billion and total capital in excess of $3.2 billion. Everest Re’s financial leverage ratios are commensurate with its rating, and A.M. Best expects the group to maintain its level of debt and preferred capital at no greater than 30 percent, with its fixed charge coverage being in the high single-digit range. “

Best noted that “offsetting these positive factors is Everest Re’s elevated operating leverage position within its U.S. operations, which is compounded by the recent growth in its primary business, specifically workers’ compensation in California. The group has a large long-tailed loss reserve base, which includes $521 million of asbestos and environmental (A&E) reserves, and results in its capitalization being more susceptible to deterioration in its carried reserve position. In 2002, Everest Re strengthened prior year loss reserves by $140 million, which included $23 million for A&E. Everest Re does continue to maintain $75 million in adverse loss development protection from a stop loss cover. “

Best said, however, that the company “continues to benefit from a stable, seasoned management team, which has successfully leveraged its capital resources and low cost operating structure to profitably distribute its reinsurance and insurance products globally through a large network of customers.” It also indicated that it “believes Everest Re is strongly positioned to continue generating superior returns through the current hardened market cycle.”

It listed the core operating reinsurance and insurance subsidiaries affected by the financial strength ratings as follows:
– Everest Reinsurance Company
– Everest National Insurance Company
– Everest Security Insurance Company
– Everest Indemnity Insurance Company
– Everest Reinsurance (Bermuda), Ltd.

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