Last week the rating agency, A.M. Best affirmed the issuer credit ratings (“ICR”) of “a-” of Everest Re Group, Ltd.
(RE - Analyst Report
). The company’s debt ratings were also affirmed along with the ratings of its subsidiaries. All the ratings carry a Stable outlook.
This rating affirmation indicates Everest Re’s strong balance sheet profile and better-than-average underwriting performance, along with its ability to perform favorably amidst tough market conditions, a seasoned management team and huge market share in the insurance and reinsurance industry.
Everest Re has adequate capital flexibility, which shields the company from market uncertainties. Moreover, its combined ratio, signifying an insurer’s profitability, remained below the breakeven levels over the past decade.
The company also has a liquid investment portfolio that has a short duration maturity. It has kept its investment portfolio conservative by investing just 10% of the total investment money in equities. A low incidence of equity in the investment portfolio will protect the company from equity market volatility. The company has also successfully increased its cash flows year-over- year.
The rating agency noted that Everest is well-run by a seasoned and experienced management team, which has kept the company’s operating costs under control and successfully delivered underwriting profitability year after year. The company is also well-diversified across different regions with a wide product portfolio, which helps it to garner a greater market share.
The rating agency also praised Everest Re for managing its enterprise risk effectively over the years. The company’s effective risk management capability has helped it to reduce risk across its business, and at the same time enabled it to allocate capital efficiently.
Nevertheless, factors negating the positives include Everest Re’s exposure to catastrophe losses, which impart volatility to its earnings. Though the company uses catastrophe models and has maintained risk limits to control catastrophe losses, occurrence of such incidents reduce the company’s earnings.
Everest Re also carries net asbestos and environmental (A&E) exposure of approximately $426 million, which has been going down recently. Reserves against these policies are monitored on a quarterly basis and the current review shows that the company has adequate reserves against these liabilities.
Going forward, the rating agency is likely to give a positive review to Everest Re's ratings if it continues to deliver consistent underwriting profitability as well as maintain strong capital profile.
However, reduced profitability and capital levels, along with greater-than-expected exposure to catastrophe loss and declining capital reserves may compel the agency to provide a negative rating.
Everest Re currently retains a Zacks Rank #2. Other players, ACE Limited
, XL Group Plc
(XL - Analyst Report
), and Chubb Corp.
(CB - Analyst Report
) all carry investment grade ratings from A.M. Best.