AM Best has downgraded the credit ratings of Evergreen Insurance Company Ltd, the Bermudian-based captive insurer.

The ratings agency adjusted Evergreen’s financial strength rating to A- (Excellent) from A (Excellent) and the long-term issuer credit rating to “a-” (Excellent) from “a” (Excellent).

The outlook of these credit ratings is stable.

The ratings reflect EICL’s balance sheet strength, which AM Best assesses as very strong, as well as its adequate operating performance, limited business profile and appropriate enterprise risk management.

The ratings also reflect the parental support EICL receives from Evergreen International SA and Evergreen International Corporation in terms of capital, business development, operations and risk management.

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 of this year.

AM Best said it 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.

Despite the significant projected decline in the absolute capital level as per the company’s capital and business plan, AM Best said it 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, AM Best said.

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.

AM Best 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.

It added that 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 per cent (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.