Fitch Affirms Everest Reinsurance Ratings; Outlook Stable

CHICAGO--(BUSINESS WIRE)--Fitch Ratings has affirmed the ratings of Everest Re Group, Ltd.'s debt-issuing holding company, Everest Reinsurance Holdings, Inc. and its subsidiaries (Everest Group). Additionally, Fitch assigned an 'AA-' Insurer Financial Strength (IFS) rating to Everest Reinsurance Company (Ireland), Limited, Everest Group's new European operating entity. 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 track record of favorable operating performance, solid balance sheet, 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 recent reductions in underwriting profitability reflecting in part the effect of significant competition in the company's chosen markets, earnings volatility from catastrophe losses, and lingering exposure to asbestos-related claims. A continuing trend of unfavorable underwriting performance and returns on capital would add significant downward pressure on Everest's ratings.

Through June 30, 2010, Everest Group's combined ratio was a comparatively high 108.5% including $400 million, or 22 points, of net pre-tax catastrophe losses primarily related to the Chilean earthquake which occurred during the first quarter of 2010. In 2009 Everest Group reported solid operating performance characterized by improved investment performance and low combined ratios, reflecting modest reserve development and comparatively light catastrophe losses. The company reported under-break even combined ratios of 89.6% and 95.6% for years ended Dec. 31, 2009 and 2008, respectively.

Fitch believes Everest Group's year-end 2009 operating leverage and financial leverage ratios are reasonable for the rating category and approximate year-end 2007 levels (pre-recession). The company's net premiums written to equity and equity-credit adjusted ratio of debt plus preferred equity to capital ratios were 0.64 times (x) at year-end 2009 and 7.5% at June 30, 2010, respectively. The company has recently reduced its financial leverage with a tender offer of its subordinated notes which reduced debt by $161 million, and the pay-off of its $200 million senior debt due in 2010. Fitch views this debt reduction favorably.

Everest Group has had a share repurchase authorization in place since 2004. Based on current market prices, the company has roughly $400 million of its common shares remaining available for repurchase under the authorization. As of June 30, 2010, Everest Group had repurchased 3.2 million shares, or 5.5% of total shares outstanding for a cost of $247 million. In 2009, the company repurchased 2.4 million shares for a cost of $191 million. If Everest Group was to repurchase the remaining $400 million (5.2 million shares), the pro forma net premiums written to equity and equity-credit adjusted ratio of debt plus preferred equity to capital ratios would roughly be 0.7x and 8%, respectively. Fitch believes these metrics are acceptable at the current rating level.

Fitch believes that Everest Group's asbestos survival ratio (a measure of reserve adequacy) has been historically low relative to peers and industry averages, and therefore, Fitch expects some volatility with the company's asbestos reserves. However, Fitch also notes that Everest Group's gross asbestos reserves have consistently been decreasing as a percentage of total reserves as claims are settled and the exposure runs off, reducing the risk for material reserve charges.

Fitch's rating of Everest Reinsurance Company (Ireland), Limited, Everest Group's European operating entity formed in 2009, reflects Fitch's belief that this subsidiary is important to the group and as such, has been assigned the same rating as Everest Group's other rated operating entities. The Ireland entity will consist of Everest Group's Continental European operations and will compliment existing operations overseas.

Fitch affirms the following ratings with a Stable Outlook:

Everest Reinsurance Holdings, Inc.

--Issuer Default Rating (IDR) at 'A+';

--5.4% senior notes due 2014 at 'A';

--6.60% junior subordinated debenture due 2037 at 'BBB+'.

Everest Re Capital Trust II

--6.2% trust preferred securities due 2034 at 'BBB+'.

Fitch affirms the IFS ratings for the following companies 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 assigns an IFS rating of 'AA-' with a Stable Outlook to the following company:

--Everest Reinsurance Company (Ireland), Limited.

Applicable criteria available on Fitch's web site at 'www.fitchratings.com' include:

--'Insurance Rating Methodology' (Dec. 29, 2009);

--'Non-Life Insurance Rating Methodology' (March 24, 2010);

--'Fitch's Approach to Rating Insurance Groups' (March 24, 2010);

--'Equity Credit for Hybrids and Other Capital Securities - Amended' (Dec. 29, 2009);

--'Rating Hybrid Securities' (Dec. 29, 2009).

Additional information is available at 'www.fitchratings.com'.

Related Research:

Insurance Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=493126

Rating Hybrid Securities

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=493086

Non-Life Insurance Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=506369

Fitch's Approach to Rating Insurance Groups

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=506368

Equity Credit for Hybrids & Other Capital Securities - Amended

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=493112

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