AM Best has revised the outlooks to negative from stable and affirmed the Financial Strength Rating of A- (Excellent) and the Long-Term Issuer Credit Rating of “a-” (Excellent) of Everen Specialty Ltd. (Everen Specialty) and its affiliate, OCIL Specialty Ltd (OSL). Concurrently, AM Best has revised the outlook to negative from stable and affirmed the Long-Term Issue Credit Rating of “bbb” (Good) on the $200 million, 8.00% deferrable subordinated debentures, due 2034 of Everen Specialty. Both companies are domiciled in Hamilton, Bermuda.
These Credit Ratings (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.
The revision in the outlooks to negative from stable reflects the impact of Everen Specialty’s declining risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), which was assessed at the strong level, moving down from the strongest level in prior years. The deterioration in the measure is mostly due to the overall levels of capital, which have consistently declined over the past five years. While capitalization remained sufficient to support the company’s strategic diversification efforts, operating losses have eroded capital buffers over the past year, which further declined in 2022 due to investment losses. In addition, reserve development over the past four years has been unfavorable, further pressuring balance sheet strength.
Everen Specialty’s operating performance is marginal, mostly driven by underwriting performance that has been volatile over the past five years, as the company experiences occasional shock losses. However, the company does use reinsurance and limit management cover to mitigate its exposures. Everen Specialty’s reinsurance program has been proven effective in reducing some of the volatility. Investment returns have hedged underwriting losses over four of the past five years; however, in 2022 rising interest rates led to net unrealized losses.
The neutral business profile is supported by a management team that is seasoned, with its members having experience in the insurance, financial and energy industries, as well as strong distribution channels. This is further supplemented by the company’s mission to be a diversified multi line, stable capacity provider for the energy industry. However, if the diversification and growth initiatives fail to meet company’s expectation, the business profile could be pressured.
Everen Specialty’s ERM assessment of appropriate reflects an established risk framework with governance committees that focus on all aspects of risk emergence, reporting and mitigation, with the added benefit of its member’s knowledge base.
AM Best will closely monitor the status of the company’s capital levels and its ability to meet its forecast over the short term, through year-end 2023. Furthermore, diversification and growth initiatives will need to prove to be additive and beneficial to the group’s operating performance over the intermediate term. Negative rating actions could result from a continued reduction in Everen Specialty’s risk-adjusted capitalization.
This press release relates to Credit Ratings that have been published on AM Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Guide to Best's Credit Ratings. For information on the proper use of Best’s Credit Ratings, Best’s Performance Assessments, Best’s Preliminary Credit Assessments and AM Best press releases, please view Guide to Proper Use of Best’s Ratings & Assessments.
AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.
Copyright © 2023 by A.M. Best Rating Services, Inc. and/or its affiliates. ALL RIGHTS RESERVED.
Senior Financial Analyst
+1 908 882 1901
Guilherme Monteiro Simoes, CFA
Senior Financial Analyst
+1 908 882 2317
Associate Director, Public Relations
+1 908 882 2310
Senior Public Relations Specialist
+1 908 882 2318