Fitch Affirms Everest Reinsurance’s Ratings; Outlook Stable

CHICAGO--(BUSINESS WIRE)-- 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 catastrophe events.

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 rated peers.

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).

Applicable Criteria and Related Research:

Insurance Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=651018

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Fitch Ratings
Primary AnalystGretchen Roetzer, +1-312-606-2327
Director
Fitch, Inc.
70 W. Madison Street
Chicago, IL 60602
or
Secondary AnalystDouglas M. Pawlowski, CFA, +1-312-368-2054
Senior Director
or
Committee ChairpersonDouglas L. Meyer, CFA, FLMI, +1-312-368-2061
Managing Director
or
Media RelationsBrian Bertsch, New York, +1-212-908-0549
brian.bertsch@fitchratings.com

Source: Fitch Ratings