AM Best announced a negative revision in its outlook for Everen Specialty Ltd. (Everen Specialty) to negative from stable reflecting the impact of Everen Specialty’s declining risk-adjusted capitalisation.
The revision pertains to the Financial Strength Rating of A- (Excellent) and the Long-Term Issuer Credit Rating of “a-” (Excellent) for Everen Specialty, as well as its affiliate, OCIL Specialty Ltd (OSL).
Additionally, AM Best has revised the outlook for Everen Specialty’s $200 million, 8.00% deferrable subordinated debentures, due 2034, from stable to negative while affirming the Long-Term Issue Credit Rating at “bbb” (Good).
This adjustment in outlook is primarily attributed to Everen Specialty’s declining risk-adjusted capitalisation, assessed by AM Best through its Best’s Capital Adequacy Ratio (BCAR).
The BCAR, once rated at the strongest level, has now been downgraded to a strong level, indicating a worrisome trend over the past five years.
The decrease in capitalisation has been a result of consistent capital erosion over this period, exacerbated by operating losses and investment setbacks in 2022. In addition, unfavourable reserve development over the past four years has further strained the company’s balance sheet strength.
Everen Specialty’s operating performance has been rated as marginal, driven primarily by erratic underwriting results, with occasional significant losses.
The company has employed reinsurance and limit management cover as risk mitigation strategies, with some success, especially in reducing volatility.
Investment returns have offset underwriting losses in four out of the past five years; however, in 2022, rising interest rates led to net unrealised losses, AM Best noted.
The company maintains a neutral business profile, supported by experienced management and robust distribution channels. Everen Specialty aims to be a diversified multi-line, stable capacity provider for the energy industry, but the effectiveness of its diversification and growth initiatives is vital to maintain this profile, according to AM Best.
AM Best also acknowledges Everen Specialty’s Enterprise Risk Management (ERM) assessment as appropriate, reflecting a well-established risk framework with governance committees focused on risk emergence, reporting, and mitigation.
AM Best has communicated its intent to closely monitor Everen Specialty’s capital levels and its ability to meet short-term forecasts through year-end 2023.
The success of diversification and growth initiatives will play a critical role in Everen Specialty’s operating performance over the intermediate term. Negative rating actions may follow if the company’s risk-adjusted capitalisation continues to decline, AM Best concluded.
In June 2022, Mutual insurance company Oil Insurance Limited rebranded itself as Everen, while Oil Casualty Insurance rebranded as Everen Specialty.
