Fitch Affirms Everest Re's IDR at 'A+' & IFS at 'AA-'; Outlook Stable
CHICAGO -- February 1, 2013
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. This despite Hurricane
Sandy losses and in the aftermath of the large catastrophe losses suffered in
2011. The company remains well positioned to take advantage of anticipated
rate improvement in catastrophe-exposed lines and certain others. Fitch also
anticipates that steps taken by Everest's management to reduce its exposure to
large catastrophe events will result in lower earnings volatility in the near
to medium term.
The ratings also reflect Everest's strong franchise, high quality balance
sheet and financial flexibility, and historical track record of favorable
operating performance and capital replenishment. Favorably, Everest also has a
diversified underwriting portfolio in primary insurance and reinsurance
markets. Offsetting these positives are the current competitive market
conditions and the company's potential for earnings volatility from
significant exposure to low-frequency, high-severity loss events. Minimal
reinsurance usage and a history of varied reserve development point to further
Everest announced an initial net loss estimate from Hurricane Sandy of roughly
$220 million (net of reinstatement premiums and taxes) to impact fourth
quarter results. Fitch considers this level to be manageable given Everest's
conservative balance sheet with solid capitalization.
The company reported strong earnings and improved underwriting results through
Sept. 30, 2012 with net income of $770 million compared to a loss of $122
million for the same nine-month period in 2011. The combined ratio improved to
88.4% compared to 114.6% in 2011 primarily as a result of reduced catastrophe
losses. For the first nine months of 2012, net pretax catastrophe losses were
below average totaling $71 million, compared to above average losses of $867
million for the same period in 2011. Improved operating performance was also
due to modest improvement in underlying accident year results, along with
favorable reserve development and continued reasonable investment performance.
In 2011, net pretax catastrophe losses totaled roughly $1.2 billion and
resulted in a $234 million pretax ($93.6 million after-tax) operating loss.
This contributed to a 118.5% combined ratio and a 3.4% decline in equity.
Although significant, Fitch notes that this was less than the declines
experienced by other reinsurers it rates.
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. Net premiums written to
equity and total debt to capital ratios were 0.58 times (annualized) and 10.8%
at Sept. 30, 2012, respectively.
Everest has more-than replenished capital internally following the record 2011
catastrophe losses. At Sept. 30, 2012, stockholders' equity was at an all-time
high of $6.8 billion which includes a return of capital to shareholders.
During the first nine months of 2012, Everest repurchased $250 million of
shares. 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-to-18 months, could
result in a downgrade include:
--Material investment write downs or adverse loss reserve development of a
magnitude that caused Fitch to question the strength of Everest's balance
--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. This 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.
--Long-term 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.
--Insurer Financial Strength (IFS) at 'AA-'.
The Rating Outlook is Stable.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Insurance Rating Methodology' (Jan. 11, 2013).
Applicable Criteria and Related Research:
Insurance Rating Methodology ￢ﾀﾔ Amended
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Gretchen Roetzer, +1-312-606-2327
Fitch Ratings, Inc.
70 W. Madison Street
Chicago, IL 60602
Douglas M. Pawlowski, CFA, +1-312-368-2054
Douglas L. Meyer, CFA, FLMI, +1-312-368-2061
Brian Bertsch, +1-212-908-0549
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