A.M. Best Co. announced that it has affirmed the financial strength rating (FSR) of “A+” (Superior) and the issuer credit ratings (ICR) of “aa-“of the reinsurance operating subsidiaries of the Bermuda-based Everest Re Group Limited. Best also affirmed the ICRs of “a-” of Everest Re and Everest Reinsurance Holdings, Inc. (Delaware) and all existing debt ratings of Everest Re. The outlook for all the ratings is stable.
“These ratings continue to reflect Everest Re’s strong historical track record of generating favorable earnings despite interim setbacks from significant industry events,” said Best. “The rating affirmations also consider Everest Re’s strong risk-adjusted capital position, excellent financial flexibility and a well-established global reinsurance franchise. Despite taking almost $1.8 billion in catastrophe-related storm losses–incurred over the past two years–the group still maintains a relatively favorable 10-year average return on equity of 11 percent.
“Offsetting these positive factors is the profile of Everest Re’s reserve leverage, which makes the group’s capitalization susceptible to potential deterioration. The group’s loss reserve base consists of a significant amount of reserves from long-tailed lines of business, which are potentially subject to more variability than short- tailed lines. Everest Re’s reserve base includes $460 million of asbestos and environmental reserves. At March 2006, the group maintained shareholders’ equity in excess of $4.27 billion, net loss reserves exceeded $8.2 billion.”
Best said it “believes that the property/casualty insurance and reinsurance remains highly cyclical and that the current hard market for property classes is narrowly focused and may not have the longevity that some participants are anticipating. Also, the commercial casualty segment, while still profitable, continues to soften.
“As a result, it will be challenging for management to continue to generate returns in line with its historical performance. Nonetheless, Everest Re has demonstrated its ability to successfully navigate through the prior soft market cycle, and the group continues to maintain a significant amount of capital to support both its insurance and debt obligations.” Best added that it “expects Everest Re to continue to manage its outstanding debt and preferred issues at a level no greater than 30 percent of total capital, with its fixed charge coverage in the upper single-digit range or higher.”
The rating agency also noted: “Everest Re continues to benefit from a stable, seasoned management team, which has successfully deployed its low cost operating structure to profitably distribute its insurance and reinsurance products globally through a large network of insurance and reinsurance intermediaries. Accordingly, A.M. Best believes Everest Re is well positioned within its business sector to continue to outperform its peer group.”
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