AM Best downgraded Evergreen Insurance due to its plan to end new insurance in 2024 and expected earnings declines with a stable outlook.

A statement from the credit rating agency said, “AM Best has downgraded the Financial Strength Rating to A- (Excellent) from A (Excellent) and the Long-Term Issuer Credit Rating to ‘a-‘ (Excellent) from ‘a’ (Excellent) ) from Evergreen Insurance Company Limited (EICL) (Bermuda).The outlook for these credit ratings (ratings) is stable.

“The ratings reflect EICL’s balance sheet strength, which AM Best rates as very strong, as well as its adequate operating results, limited business profile and appropriate enterprise risk management. The ratings also reflect the parent support EICL receives from Evergreen International SA and Evergreen International Corporation in terms of capital, business development, operations and risk management.

“The downgrade reflects changes in EICL’s assessment of operating performance and business profile, based on EICL’s latest business plan to stop underwriting new business from mid-May 2024. AM Best revised the company’s assessment of operating performance to adequate from strong given that its top line and earnings are expected to decline substantially over the next two years.In addition, AM Best revised the company’s business profile rating to limited from neutral due to the planned reduction of business scale.

“EICL’s balance sheet strength is underpinned by its risk-adjusted capitalization, which was at its strongest level at year-end 2023 as measured by Best’s capital adequacy ratio (BCAR). Despite the significant forecast reduction in the absolute capital level according to the company’s capital and business plan, AM Best expects that EICL’s risk-adjusted capitalization will be maintained at the strongest level in the medium term due to the significantly reduced underwriting risks. Other supporting factors for balance sheet strength include a highly liquid and conservative investment portfolio, a track record of prudent reserving and a comprehensive reinsurance program.

“As a pure capture of Evergreen Group, EICL’s existing underwriting portfolio consists primarily of marine, aviation and property risks related to the group’s operations. The company has outsourced the majority of its risk exposures to a panel of financially sound reinsurers and has maintained a low retention ratio. EICL’s overall capital position and profitability have been stable over the past five years, thanks to prudent underwriting practices, conservative reserve assumptions and long-term EICL’s risk management is well embedded in the Group’s risk framework and is seen as appropriate to support its risk profile.

“EICL’s five-year average return on equity was 12.2% (2019-2023). Operating profit is expected to remain favorable and stable in 2024, supported by profitable underwriting and higher investment income. However, minimal future revenue is estimated in 2025 and 2026 based on its business plan.

“EICL has historically benefited from the support of its shareholders and the wider parent group. AM Best expects that EICL’s shareholders will remain engaged and continue to provide support to the company during the winding-up period in terms of capital, risk management and operations, if required .

“Negative rating actions may occur if there is a significant deterioration in EICL’s risk-adjusted capitalization to a level that no longer supports the current balance sheet strength assessment. Negative rating actions may occur if there is a significant deterioration in the level of support from its shareholders, Evergreen International SA and Evergreen International Corporation Negative rating actions may occur if there are material adverse deviations in the execution of the business plan that no longer support an adequate assessment of the business’s performance if deemed unlikely, positive rating action may occur if there is a significant improvement in the company’s balance sheet strength.”

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