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TMCNet:  Fitch Affirms Everest Re's IDR at 'A+' & IFS at 'AA-'; Outlook Stable

[February 01, 2013]

Fitch Affirms Everest Re's IDR at 'A+' & IFS at 'AA-'; 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). The Rating Outlook is Stable. A full list of ratings follows at the end of this release.

The Stable Outlook reflects Fitch's view that Everest's capital strength remains supportive of its current rating category. This despite Hurricane Sandy losses and in the aftermath of the large catastrophe losses suffered in 2011. The company remains well positioned to take advantage of anticipated rate improvement in catastrophe-exposed lines and certain others. Fitch also anticipates that steps taken by Everest's management to reduce its exposure to large catastrophe events will result in lower earnings volatility in the near to medium term.

The ratings also reflect Everest's strong franchise, high quality balance sheet and financial flexibility, and historical track record of favorable operating performance and capital replenishment. Favorably, Everest also has a diversified underwriting portfolio in primary insurance and reinsurance markets. Offsetting these positives are the current competitive market conditions and the company's potential for earnings volatility from significant exposure to low-frequency, high-severity loss events. Minimal reinsurance usage and a history of varied reserve development point to further volatility.

Everest announced an initial net loss estimate from Hurricane Sandy of roughly $220 million (net of reinstatement premiums and taxes) to impact fourth quarter results. Fitch considers this level to be manageable given Everest's conservative balance sheet with solid capitalization.

The company reported strong earnings and improved underwriting results through Sept. 30, 2012 with net income of $770 million compared to a loss of $122 million for the same nine-month period in 2011. The combined ratio improved to 88.4% compared to 114.6% in 2011 primarily as a result of reduced catastrophe losses. For the first nine months of 2012, net pretax catastrophe losses were below average totaling $71 million, compared to above average losses of $867 million for the same period in 2011. Improved operating performance was also due to modest improvement in underlying accident year results, along with favorable reserve development and continued reasonable investment performance.

In 2011, net pretax catastrophe losses totaled roughly $1.2 billion and resulted in a $234 million pretax ($93.6 million after-tax) operating loss. This contributed to a 118.5% combined ratio and a 3.4% decline in equity. Although significant, Fitch notes that this was less than the declines experienced by other reinsurers it rates.

Positively, Fitch believes that Everest continues to maintain a solid, high-quality balance sheet with minimal leverage risk and ample financial flexibility. Fitch believes Everest's operating leverage and financial leverage ratios are modest for the rating category. Net premiums written to equity and total debt to capital ratios were 0.58 times (annualized) and 10.8% at Sept. 30, 2012, respectively.

Everest has more-than replenished capital internally following the record 2011 catastrophe losses. At Sept. 30, 2012, stockholders' equity was at an all-time high of $6.8 billion which includes a return of capital to shareholders. During the first nine months of 2012, Everest repurchased $250 million of shares. Fitch's current ratings incorporate expectations that any future share repurchases will not exceed earnings over an extended time.

Sensitivity/Rating Drivers

Key ratings triggers that, if observed over the next 12-to-18 months, could result in a downgrade include:

--Material investment write downs or adverse loss reserve development of a magnitude that caused Fitch to question the strength of Everest's balance sheet; or

--If Everest were to report significantly worse underwriting results and overall profitability than comparably rated peers.

Additional ratings triggers that could result in a downgrade when viewed on a run-rate or multi-year rolling average basis include:

--Failure to report calendar year combined ratios in the mid 90%'s;

--Operating-earnings-based interest and preferred dividend coverage ratios that fall below roughly 10 times (x);

--Barring a significant shift in business mix toward less volatile lines, an increase in net written premium to equity exceeding 1.1x;

--An increase in financial leverage to over 20%.

Due to Everest's current high rating category, Fitch views a near-term ratings upgrade as unlikely. This in the absence of a material increase in capitalization or a change in risk profile resulting in significantly lower underwriting volatility observed over an extended period.

Fitch has affirmed the following ratings:

Everest Reinsurance Holdings, Inc.

--Long-term 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+'.

Everest Reinsurance Company;

Everest National Insurance Company;

Everest Indemnity Insurance Company;

Everest Security Insurance Company;

Everest Reinsurance Company (Ireland), Limited;

Everest Reinsurance (Bermuda) Ltd.

--Insurer Financial Strength (IFS) at 'AA-'.

The Rating Outlook is Stable.

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

Applicable Criteria and Related Research:

--'Insurance Rating Methodology' (Jan. 11, 2013).

Applicable Criteria and Related Research:

Insurance Rating Methodology ??? Amended

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm rpt_id=698731

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON (News - Alert) THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE.


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