Fitch Ratings announced that it has affirmed all ratings related to Everest Re Group, Ltd., including the “A-” senior debt and long-term issuer rating of intermediate holding company, Everest Reinsurance Holdings, Inc. (Everest Holdings), and the “AA-” insurer financial strength rating (IFS) of Everest Reinsurance Company (Everest Re). Fitch also assigned a long-term issuer rating of “A-” to Everest Group. The outlook on all the ratings is stable.
Fitch’s analysis is as follows:
The ratings continue to be based on Everest Group’s competitive position in chosen markets, favorable recent operating performance, diversified underwriting portfolio in primary insurance and reinsurance markets, adequate capital position, and conservative investment portfolio. Everest Group, through its subsidiaries, provides a wide range of property and casualty reinsurance and insurance coverage in the U.S., Bermuda, and certain international markets.
While Everest Group’s consolidated capital position is adequate relative to expectations for the rating category, capital adequacy of the lead U.S. based (re)insurance company, Everest Re was below rating norms, with an NAIC risk-based capital ratio of 113 percent of the company action level at year-end 2003. Operating leverage, as measured by net premiums written to policyholder surplus, was 1.8 times (x) at year-end 2003 for the combined U.S. insurance operation. Everest Re’s statutory capitalization has improved in 2004 as the company received a $147 million parent capital contribution earlier in the year. Also, risk-based capital ratios will be affected favorably by the sale of the group’s London branch in 2004 from Everest Re to another subsidiary, Everest Reinsurance (Bermuda) Ltd.
The company’s primary insurance operations are currently concentrated in workers’ compensation insurance in California. Fitch expects the composition of the primary insurance portfolio to change significantly going forward, as the company recently announced that the underwriting agreement with the agency that wrote the bulk of its California workers’ compensation business and approximately 12.7 percent of total gross written premium in 2003 terminated in October 2004. It is uncertain how much of the business written through this agent will be retained by Everest Group going forward.
For the nine months ended Sept. 30, 2004, net written premium increased by 9.1 percent, which is down significantly compared with a net written premium increase of 64 percent in full-year 2003, and reflects changing market pricing conditions. The underwriting combined ratio increased to 97.3 percent in the first nine months of 2004 from 94.7 percent in the corresponding period for 2003. Net income for the nine months ended Sept. 30, 2004 was $401.5 million, up from $304.2 million for the same period in 2003. Third-quarter 2004 results were affected by losses from recent hurricanes in the southeastern U.S. Everest Group has estimated an after-tax loss of $190 million from these events.
Following completion of an issuance of $250 million in new 10-year notes in October 2004, Everest Group’s pro forma ratio of debt and trust preferred securities to total capital is approximately 27 percent. Fitch expects this ratio to decline going forward due to growth in retained earnings and repayment of debt that matures in 2005. Interest coverage for Everest Group has been favorable, and was 8.3x for the nine months ended Sept. 30, 2004.
Topics USA Reinsurance
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