AM Best has affirmed the Financial Strength Rating of A- (Excellent) and the Long-Term Issuer Credit Rating of “a-” (Excellent) of Everen Specialty Ltd. (Everen Specialty) and its affiliate, OCIL Specialty Ltd (OSL). Concurrently, AM Best has affirmed the Long-Term Issue Credit Rating of “bbb” (Good) on the $200 million, 8.00% deferrable subordinated debentures, due 2034, of Everen Specialty. The outlook of these Credit Ratings (ratings) is negative. Both companies are domiciled in Hamilton, Bermuda.

These ratings reflect Everen Specialty’s balance sheet strength, which AM Best assesses as very strong, as well as its marginal operating performance, neutral business profile and appropriate enterprise risk management (ERM).

The company’s risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), is assessed at the very strong level, moving up from the strong level in the prior year. The improvement in risk-adjusted capitalization is mostly attributed to an increase in overall levels of Everen Specialty’s capital at year-end 2023, following five years of consistent decline. Although still a negative factor for Everen’s risk-adjusted capitalization, the recent decline in loss reserve development is worth noting. Everen Specialty’s strategic diversification efforts had resulted in operating losses that had eroded risk-adjusted capital levels for a few years. However, the company’s objective going forward is to stabilize capital by focusing on its core business of being a stable capacity provider for the energy industry.

Everen Specialty’s operating performance is marginal, mostly driven by underwriting performance that has been volatile over the past five years, as the company experienced occasional shock losses. These are mitigated somewhat by retrocessional reinsurance cover purchased by the company and initiatives to reduce non-core lines of business. Investment returns hedged underwriting losses in 2023, during which the company recovered most of its unrealized losses reported in 2022 amid the fast-rising interest rate environment.

The neutral business profile assessment is supported by a management team that is seasoned, with its members having experience in the insurance, financial and energy industries, as well as strong distribution channels. The company’s strategy has pivoted to concentrate on being a dedicated provider of excess general liability coverage that operates primarily in the energy industry, rather than pursuing diversification initiatives in unrelated business.

Everen Specialty’s ERM assessment of appropriate reflects an established risk framework with governance committees that focus on all aspects of risk emergence, reporting and mitigation, with the added benefit of its member’s knowledge base.

AM Best will monitor the status of the company’s risk-adjusted capital levels and its ability to meet its forecast over the medium term. Negative rating actions could result from a reduction in Everen Specialty’s risk-adjusted capitalization.

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