Fitch Ratings has affirmed the ratings of Everest Re Group, Ltd. and its subsidiaries (Everest Group). The Rating Outlook is Stable. A full list of ratings is available at the end of this release.
The affirmation of Everest Group's ratings reflects the company's good capital position, strong franchise and competitive position in chosen markets, and diversified underwriting portfolio in primary insurance and reinsurance markets. The ratings also reflect the company's lingering exposure to asbestos-related claims, earnings volatility from catastrophe losses, and the effect of significant competition in the company's chosen markets.
Fitch's rating actions also consider the 13% decline in shareholder's equity Everest Group reported in 2008 due to difficult capital market conditions, significant losses from Hurricanes Ike and Gustav, dividend payments and share repurchases, as well as foreign currency adjustments. Fitch views this as a material decline but not outside a range of reasonably foreseeable outcomes and notes that in 2007 and 2006 Everest Group's shareholders' equity increased 11% and 23% over the prior year-end levels.
Despite the decline in shareholders' equity, Everest Re's year-end 2008 operating leverage and financial leverage ratios approximate year-end 2007 levels and are below their averages for the five-year period ending in 2008. The company's net premiums written to surplus, net leverage, and equity-credit adjusted ratio of debt plus preferred equity to capital ratios at year-end 2008 were materially unchanged at 0.72 times (x), 3.4x and 10% respectively.
Going forward, Fitch believes that Everest Group's capital position is less likely to be materially affected by equity-market volatility than it was in 2008. The company sold much of its equity portfolio in 2008 reinvesting the majority of the proceeds in short-term investments. These sales along with mark-to-market adjustments reduced the carrying value of Everest Group's equity portfolio to $137 million at year-end 2008 compared to $1.6 billion at year-end 2007.
Everest Group has had a share repurchase authorization in place since 2004 which, based on current market prices, authorized the company to repurchase up to approximately $340 million of its common shares. Fitch's current ratings incorporate expectations that Everest Group will manage any future share repurchases in such a way that they, along with the company's then current earnings and capital formation rate, do not generate a meaningful increase in the company's current leverage ratios and are commensurate with the company's current rating levels.
The following ratings are affirmed by Fitch with a Stable Outlook:
Everest Reinsurance Holdings, Inc.
--Issuer Default Rating (IDR) at 'A+';
--5.4% senior notes due 2014 at 'A';
--8.75% senior notes due 2010 at 'A';
--6.60% junior subordinated debenture due 2037 at 'A-'.
Everest Re Capital Trust II
--6.2% trust preferred securities due 2034 at 'A-'.
The following Insurer Financial Strength ratings are affirmed at 'AA-' with a Stable Outlook:
--Everest Reinsurance Company;
--Everest National Insurance Company;
--Everest Indemnity Insurance Company;
--Everest Security Insurance Company;
--Everest Reinsurance (Bermuda) Ltd.
Fitch Ratings, Chicago
Gretchen K. Roetzer, +1-312-606-2327
Mark E. Rouck, CPA, CFA, +1-312-368-2085
Sandro Scenga, +1-212-908-0278
(Media Relations, New York)