AM Best has downgraded the Financial Strength Rating to B++ (Good) from A- (Excellent) and the Long-Term Issuer Credit Rating to “bbb+” (Good) from “a-” (Excellent) of Everen Specialty Ltd. (Everen Specialty) and its affiliate, OCIL Specialty Ltd (OSL). Concurrently, AM Best has downgraded the Long-Term Issue Credit Rating to “bbb-” (Good) from “bbb” (Good) on the $200 million, 8.00% deferrable subordinated debentures, due 2034, of Everen Specialty. The outlook of these Credit Ratings (ratings) has been revised to stable from negative. Both companies are domiciled in Hamilton, Bermuda.

These ratings reflect Everen Specialty’s balance sheet strength, which AM Best assesses as very strong, as well as its marginal operating performance, neutral business profile and appropriate enterprise risk management (ERM).

Everen Specialty experienced a further deterioration of the adverse reserve development it has shown over the previous five years, reflecting significant volatility in its loss reserves while demonstrating a trend of declining capital in the same period. Everen Specialty’s strategic diversification efforts have also resulted in operating losses that eroded its risk-adjusted capital levels. However, the company’s risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), improved to the very strong level in 2023 due to corrective actions and was maintained there in 2024. These actions included exiting non-energy property and assumed reinsurance business, reducing core excess general liability limits and enhancing underwriting, and strengthening the leadership team.

While AM Best recognizes the company’s efforts to stabilize capital by focusing on its core business of providing stable capacity for the energy industry, its ability to reverse these negative trends has not yet positively affected operating results.

Everen Specialty’s operating performance is marginal, mostly driven by underwriting performance that has been volatile with underwriting losses reported in each of the past five years. While Everen Specialty’s investment income has hedged underwriting losses over that span, it reported unrealized losses during 2022 associated with its fixed-income securities. However, these losses were temporary and subsequently recovered through the duration of the securities.

The neutral business profile assessment is supported by a management team that is seasoned, with its members having experience in the insurance, financial and energy industries, and by strong distribution channels. The company’s strategy has pivoted to concentrate on being a dedicated provider of excess general liability coverage that operates primarily in the energy industry, rather than pursuing diversification initiatives in unrelated business.

Everen Specialty’s ERM assessment of appropriate reflects an established risk framework and governance. While the company has taken strategic action to improve its business and investment portfolio since 2022, AM Best recognizes that the company has been impacted by continued adverse development and will continue to monitor reserve development as well as its capital and surplus in the near term.

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