14 November 2016Bermuda analysis

AM Best downgrades Evergreen’s Bermuda-based captive

AM Best has downgraded the Financial Strength Rating of captive insurer, Evergreen Insurance Company (EIC), to A- (Excellent) from A (Excellent).

EICL is a Bermuda-based captive of the Evergreen Group underwriting risks in marine, aviation, property, engineering, motor and other liability related to the group’s operations.

The rating reflects the company’s reduced risk-adjusted capitalisation due to a dividend payment made in 2016, which exceeded the total net income it generated in the past three fiscal years, and EICL’s issuance of a loan to the parent company, Evergreen International SA, AM Best said.

“In addition, EIC underwrites sizeable gross risks relative to its capital level. Under the stress test scenario assuming a portion of EICL’s reinsurance ceded losses are unrecoverable due to reinsurer default, EICL would have less cash and capital buffer to support this reinsurance credit risk,” the rating agency added.

According to AM Best, the company’s profitability remains strong and its risk-adjusted capitalisation is expected to improve gradually with no dividend payout in the medium term, notwithstanding the current soft market conditions and the company’s expectation of exposure growth from the group’s business expansion.

Positive rating action is unlikely in the near term. Negative rating action could occur if EICL’s absolute capitalization declines materially or its risk-adjusted capitalization further decreases sharply, AM Best warned.