Evergreen ratings downgraded by AM Best

Bermuda-based captive insurer Evergreen Insurance Company (ECIL) has had its rating downgraded by AM Best from A to A- following its decision to cease underwriting new business.

The rating agency said that 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 also 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,” said AM Best. “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.”

AM Best added that 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 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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