Ratings agency A.M. Best Co. has given the thumbs up to Bermuda reinsurer Everest Re and its group of companies due to the company's strong capital position, among other things.

On Friday the agency, whose ratings are used by investors as a guide to buying shares, affirmed the financial strength rating of A+ (Superior) of Everest Re Group, Ltd.'s (Bermuda) core reinsurance and insurance subsidiaries.

A.M. Best also affirmed the debt rating of "a" relative to senior debt obligations issued by the intermediate U.S. holding company, Everest Reinsurance Holdings, Inc. and the "a-" debt rating of the trust preferred securities issued by Everest Re Capital Trust and guaranteed by Everest Reinsurance Holdings, Inc.

The company said, "These ratings reflect Everest Re's favourable earnings trends, strong risk-adjusted capital position, excellent financial flexibility and well-established global reinsurance franchise."

The report on the company went on to add that in 2002, Everest Re generated a return on equity of 14.1 percent, which was comprised of a small underwriting gain and solid level of net investment earnings.

"This favourable trend continued in first quarter 2003, with the group earning net income of $94 million, benefiting from a sustainable improvement in underwriting activities, which generated a 93.5 percent combined ratio," added the report.

It also said that in addition to historically favourable operating earnings, the group's capital formation has been supplemented by Everest Re's ability to raise over $850 million in capital since January, 2002 through the issuance of common stock and trust preferred securities.

It said this has increased the group's shareholders' equity as of March 31, 2003, to almost $2.5 billion and total capital in excess of $3.2 billion. It went on to say that Everest Re's financial leverage ratios are commensurate with its rating, and A.M. Best expects the group to maintain its level of debt and preferred capital at no greater than 30 percent, with its fixed charge coverage being in the high single-digit range. But it said that offsetting these positive factors is Everest Re's elevated operating leverage position within its U.S. operations, which is compounded by the recent growth in its primary business, specifically workers' compensation in California.

It added that the group has a large long-tailed loss reserve base, which includes $521 million of asbestos and environmental (A&E) reserves, and results in its capitalisation being more susceptible to deterioration in its carried reserve position.

It said that in 2002, Everest Re strengthened prior year loss reserves by $140 million, which included $23 million for A&E.

Everest Re does continue to maintain $75 million in adverse loss development protection from a stop loss cover. It added: "More importantly, Everest Re continues to benefit from a stable, seasoned management team, which has successfully leveraged its capital resources and low cost operating structure to profitably distribute its reinsurance and insurance products globally through a large network of customers.