AM Best Downgrades Credit Ratings of Evergreen Insurance Company Limited

HONG KONG--(BUSINESS WIRE)--AM Best has downgraded the Financial Strength Rating to A- (Excellent) from A (Excellent) and the Long-Term Issuer Credit Rating to “a-” (Excellent) from “a” (Excellent) of Evergreen Insurance Company Limited (EICL) (Bermuda). The outlook of these Credit Ratings (ratings) is stable.

The ratings reflect EICL’s balance sheet strength, which AM Best assesses as very strong, as well as its adequate operating performance, limited business profile and appropriate enterprise risk management. The ratings also reflect the parental support EICL receives from Evergreen International S.A. and Evergreen International Corporation in terms of capital, business development, operations and risk management.

The rating downgrades reflect changes to EICL’s operating performance and business profile assessment, based on EICL’s latest business plan to cease underwriting new business starting from mid-May 2024. AM Best revised the company’s operating performance assessment to adequate from strong given that its top-line and bottom-line results are projected to drop materially in the next two years. Additionally, AM Best revised the company’s business profile assessment to limited from neutral due to the planned reduction in business scale.

EICL’s balance sheet strength is underpinned by its risk-adjusted capitalisation, which was at the strongest level at year-end 2023, as measured by Best’s Capital Adequacy Ratio (BCAR). Despite the significant projected decline in the absolute capital level as per the company’s capital and business plan, AM Best expects EICL’s risk-adjusted capitalisation to be maintained at the strongest level in the intermediate term due to the significantly reduced underwriting risks. Other supportive factors of the balance sheet strength include a highly liquid and conservative investment portfolio, a track record of prudent reserving, and a comprehensive reinsurance programme.

As a pure captive of Evergreen Group, EICL’s in-force underwriting portfolio primarily consists of marine, aviation and property risks related to the group’s operations. The company has ceded the majority of its risk exposures to a panel of financially sound reinsurers and maintained a low retention ratio. EICL’s overall capital position and profitability have been stable over the past five years, owing to prudent underwriting practices, conservative reserving assumptions and long-term reinsurance relationships. EICL’s risk management is well-embedded into the group’s risk framework and is viewed as appropriate to support its risk profile.

EICL’s five-year average return-on-equity ratio was 12.2% (2019-2023). Operating results are expected to remain favourable and stable in 2024, supported by profitable underwriting and higher investment income. However, minimal prospective earnings are projected in 2025 and 2026 based on its business plan.

EICL has historically been a beneficiary of support from its shareholders and the wider parent group. AM Best expects EICL’s shareholders will remain committed and continue to render support to the company during the run-off period in terms of capital, risk management and operations, if needed.

Negative rating actions could occur if there is a significant deterioration in EICL’s risk-adjusted capitalisation to a level that no longer supports the current balance sheet strength assessment. Negative rating actions could occur if there is significant deterioration in the level of support from its shareholders, Evergreen International S.A. and Evergreen International Corporation. Negative rating actions could occur if there is material adverse deviation in the execution of the business plan that no longer supports an adequate assessment of operating performance. Although it is deemed unlikely, positive rating actions could occur if there is a significant improvement in the company’s balance sheet strength.

AM Best remains the leading rating agency of alternative risk transfer entities, with more than 200 such vehicles rated throughout the world. For current Best’s Credit Ratings and independent data on the captive and alternative risk transfer insurance market, please visit www.ambest.com/captive.

Ratings are communicated to rated entities prior to publication. Unless stated otherwise, the ratings were not amended subsequent to that communication.

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