Fitch Ratings has affirmed the ratings of Everest Re Group, Ltd.'s
debt-issuing holding company, Everest Reinsurance Holdings, Inc. and its
subsidiaries (Everest). The Rating Outlook is Stable. A full list of
ratings follows at the end of this release.
The Stable Outlook reflects Fitch's view that Everest's capital strength
remains supportive of its current rating category in the aftermath of
the losses suffered in 2011 and that the company remains well positioned
to take advantage of anticipated rate improvement in catastrophe-exposed
lines and certain others.
Fitch also anticipates that recent steps taken by management to reduce
its exposure to large catastrophe events will result in lower earnings
volatility in the near to medium term.
The ratings reflect Everest's strong franchise, high quality balance
sheet and financial flexibility, historical track record of favorable
operating performance and capital replenishment, and its diversified
underwriting portfolio in primary insurance and reinsurance markets.
Offsetting these positives is the company's 2011 net loss primarily
reflecting the effect of record catastrophe losses and competitive
market conditions. While not historically typical, Fitch notes that
Everest's diverse international focus likely contributed to the
company's underwriting loss in 2011 due to the widespread locations of
Everest reported record earnings and improved underwriting results
through March 31, 2012 with net income of $305 million compared to a
loss of $316 million for the same period in 2011. The combined ratio
improved to 89.0% compared to 151.4% in 2011 primarily as a result of
reduced catastrophe losses.
For the full year 2011, Everest reported deterioration in its operating
performance due to large catastrophe losses and modest unfavorable
reserve development offset by improved underlying accident year
underwriting results and reasonable investment performance. The combined
ratio was 118.5%, including $1.2 billion, or 32 points, of net pretax
catastrophe losses, compared to 102.8% for 2010. Fitch notes that
after-tax catastrophe losses as a percentage of beginning shareholders'
equity amounted to roughly 15%, which was in line with the peer average.
Positively, Fitch believes that Everest continues to maintain a solid,
high-quality balance sheet with minimal leverage risk and ample
financial flexibility. Fitch believes Everest's operating leverage and
financial leverage ratios are modest for the rating category. The
company's net premiums written to equity and total debt to capital
ratios were 0.64 times (x) and 11.4% at March 31, 2012, respectively.
The company has more-than replenished capital internally following the
record catastrophe losses and at March 31, 2012, stockholders' equity
was at an all-time high of $6.3 billion which includes a return of
capital to shareholders. Shareholders' equity decreased 3.4% in 2011 due
primarily to an $80 million net loss and $196 million of share
repurchases and dividends.
During the first quarter of 2012, the company repurchased $125 million
of shares and paid $26 million of dividends. Fitch's current ratings
incorporate expectations that any future share repurchases will not
exceed earnings over an extended time.
Key ratings triggers that, if observed over the next 12 - 18 months,
could result in a downgrade include a failure to return to underwriting
profitability, investment write downs or adverse loss reserve
development of a magnitude that caused Fitch to question the strength of
Everest's balance sheet, or if Everest were to report significantly
worse underwriting results and overall profitability than comparably
Additional ratings triggers that could result in a downgrade when viewed
on a run-rate or multi-year rolling average basis include:
--Failure to report calendar year combined ratios in the mid 90%'s;
--Operating-earnings-based interest and preferred dividend coverage
ratios that fall below roughly 10 times (x);
--Barring a significant shift in business mix toward less volatile
lines, an increase in net written premium to equity exceeding 1.1x;
--An increase in financial leverage to over 20%.
Due to Everest's current high rating category, Fitch views a near-term
ratings upgrade as unlikely, in the absence of a material increase in
capitalization or a change in risk profile resulting in significantly
lower underwriting volatility observed over an extended period.
Fitch has affirmed the following ratings:
Everest Reinsurance Holdings, Inc.
--Issuer Default Rating (IDR) at 'A+';
--5.4% senior notes due 2014 at 'A';
--6.60% junior subordinated debenture due 2037 at 'BBB+'.
Everest Re Capital Trust II
--6.2% trust preferred securities due 2034 at 'BBB+'.
Everest Reinsurance Company;
Everest National Insurance Company;
Everest Indemnity Insurance Company;
Everest Security Insurance Company;
Everest Reinsurance Company (Ireland), Limited;
Everest Reinsurance (Bermuda) Ltd.
--IFS at 'AA-'.
The Rating Outlook is Stable.
Additional information is available at 'www.fitchratings.com'.
The ratings above were unsolicited and have been provided by Fitch as a
service to investors.
Applicable Criteria and Related Research:
--'Insurance Rating Methodology' (Sept. 22, 2011).
Insurance Rating Methodology
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Fitch RatingsPrimary AnalystGretchen Roetzer, +1-312-606-2327DirectorFitch,
Inc.70 W. Madison StreetChicago, IL 60602orSecondary
AnalystDouglas M. Pawlowski, CFA, +1-312-368-2054Senior
DirectororCommittee ChairpersonDouglas L. Meyer, CFA,
FLMI, +1-312-368-2061Managing DirectororMedia RelationsBrian
Bertsch, New York, +firstname.lastname@example.org
Source: Fitch Ratings