Endurance ‘puzzled’ by Moody’s downgrade
Bermuda's Endurance Specialty Holdings says it's “extremely disappointed and puzzled” by Moody's decision to downgrade its ratings.
The re/insurer accused the ratings agency of disregarding its recent financial improvements and strong stock market performance.
Moody's Investors Service said the downgrades result from “a deterioration in the company's credit profile over the past couple of years, including higher financial and operational leverage, as well as muted profitability that has been suppressed by catastrophe losses”.
Moody's downgraded the financial strength ratings of Endurance Specialty Holdings principal operating subsidiaries to A3 from A2.
Responding yesterday, Endurance CFO Michael J McGuire said: “We are extremely disappointed and puzzled by Moody's decision to downgrade the ratings of Endurance in spite of the demonstrable improvements that have taken place at Endurance over the last 18 months.
“Capital levels are higher, leverage is lower, catastrophe exposure has been significantly reduced and the leadership and management of the Company has been significantly enhanced. Furthermore, Endurance's financial results over the last five years have been distinctly positive in spite of significant catastrophe losses, the worst financial crisis since the Great Depression and suppressed interest rates globally.
“Endurance's common shares are currently trading at or very close to all-time highs, and our 2013 share price performance is significantly ahead of the majority of our peers.
“These are not the traits of a Company with a deteriorated credit profile and it would appear that these improvements have been completely disregarded by Moody's in their rating process.
“Further, it would appear that in evaluating Endurance's profile and performance, Moody's has disregarded the rating criteria for Endurance which they published at the time our ratings were put on negative outlook.”
In its report, Moody's said the re/insurer's common equity capital remains 12.8 percent below YE2010 levels, “the result of $344 million in share repurchases executed in 1Q2011 and an inability to fully replenish equity capital following two heavy back-to-back catastrophe loss years in 2011 and 2012”.
The ratings agency said: “While the company is performing better in 2013 and has meaningfully reduced its catastrophe risk exposure to levels more in line with its peers, Moody's views Endurance's overall credit profile to be more appropriately positioned at A3 for insurance financial strength at the current time.”
In May, Endurance elected John R Charman as its chairman and CEO, replacing David Cash.
Mr Charman was previously CEO of AXIS Capital Holdings Limited for 11 years, Moody's noted, following a long and distinguished track record in the Lloyd's market.
“Mr Charman has articulated a strategy that would enhance Endurance's credit profile over time, in our opinion, including increasing the scale of the company, maintaining moderate peak risk exposures, improving core underwriting profitability and increasing geographic and product diversification,” the agency said.
“If successful, these strategic and operational initiatives could improve Endurance's competitive position and its business and financial profile relative to its peers over the next few years.”
According to Moody's, Endurance's ratings are based on the group's good position in specialty insurance and reinsurance lines, its conservative reserving philosophy and investment profile and its sizeable capital base.
“These strengths are tempered by the company's weaker diversification by product and geography relative to some of its peers, weak core profitability and increased financial and operational leverage metrics relative to historical levels and by the inherent underwriting volatility in many of the company's core lines of business, including catastrophe exposed property risks and certain casualty-based exposures.”