AM Best shifts Everest outlook to negative on operational risk concerns
AM Best has followed Moody’s in revising its outlook on Everest Group to negative, marking the second major rating agency this week to flag concerns around the reinsurer’s operational risks.
The ratings agency affirmed Everest’s financial strength rating (FSR) of A+ (superior) and long-term issuer credit ratings (long-term ICR) of “aa-” (superior) for the group’s operating subsidiaries. It also affirmed the long-term ICRs of “a-” (excellent) for Everest Group and Everest Reinsurance Holdings, as well as the long-term issue credit ratings (long-term IRs) on the group’s debt instruments. However, the outlooks across all entities were revised to negative from stable.
AM Best said the revised outlooks reflect heightened uncertainty surrounding the group’s business profile and enterprise risk management (ERM) capabilities, following $478 million in third-quarter reserve charges, largely tied to its retail commercial insurance business.
This marks Everest’s second material reserve charge in 12 months, after $1.5 billion of adverse development reported in the fourth quarter of 2024 – both driven primarily by its retail commercial portfolio.
In response, Everest announced two key moves namely the sale of renewal rights for its retail commercial insurance book to American International Group (AIG), and the signing of an adverse development cover (ADC) for accident years 2024 and prior, offering additional protection against future reserve deterioration.
AM Best said these actions “provide more confidence that Everest’s prospective performance will return to historically stronger levels.”
Despite this, the agency cautioned that the strategic shift introduces heightened operational risk as Everest restructures to focus exclusively on its reinsurance and global specialty insurance segments, which together represent more than 80% of its business and have historically performed well.
AM Best said further adverse reserve development or execution challenges during the transition could place additional downward pressure on Everest’s ratings.
The agency continues to assess Everest’s balance sheet strength as strongest, supported by adequate operating performance, a very favourable business profile and appropriate ERM.
The following Everest subsidiaries retain their A+ (superior) FSRs and “aa-” (superior) long-term ICRs, all with revised negative outlooks: Everest Reinsurance (Bermuda), Everest Reinsurance Company, Everest International Reinsurance, Everest Reinsurance Company (Ireland) DAC, Everest Insurance (Ireland) DAC, Everest National Insurance Company, Everest Indemnity Insurance Company, Everest Security Insurance Company, Everest Insurance Company of Canada, Everest International Assurance, Everest Denali Insurance Company, and Everest Premier Insurance Company.
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