Evergreen captive to cease underwriting
Bermuda-based captive insurer Evergreen Insurance Company has had its rating downgraded from A to A- following its decision to cease underwriting new business.
Ratings agency AM Best said the ratings reflected changes to EICL’s operating performance and business profile assessment, based on its 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,” the ratings agency said. “Additionally, AM Best revised the company’s business profile assessment to limited from neutral due to the planned reduction in business scale.”
Am Best said that 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.
It said 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.
AM Best said 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,” the agency said. “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.”
“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,” AM Best said. “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.”
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