AM Best has downgraded the credit ratings of Bermudian-based Everen Specialty Ltd and its affiliate, OCIL Specialty Ltd, citing continued reserve volatility and declining capital levels.

The companies’ financial strength rating fell from A- (excellent) to B++ (good), and their long-term issuer credit rating was lowered from “a-” (excellent) to “bbb+” (good). In addition, AM Best downgraded the rating on Everen Specialty’s $200 million, 8 per cent subordinated debentures due 2034 to “bbb-” (good) from “bbb” (good). The outlook on all ratings has been revised to stable from negative.

According to AM Best, the downgrades reflect Everen Specialty’s marginal operating performance and continued adverse reserve development over the past five years, which has led to declining capital despite efforts to fix the issue.

The company, which provides excess general liability coverage primarily for the energy industry, has taken steps to strengthen its balance sheet by exiting non-energy property and assumed reinsurance lines, reducing liability limits and bolstering its underwriting leadership team. Those actions helped improve its Best’s capital adequacy ratio to the “very strong” level in 2023, where it remained in 2024.

However, AM Best noted that Everen Specialty’s efforts to diversify in earlier years had produced operating losses that eroded capital, and that underwriting results have remained volatile, with losses reported in each of the past five years. While investment income has helped offset some of these losses, the agency said the company’s ability to reverse the negative trends has yet to translate into better performance.

AM Best said Everen Specialty’s business profile remains neutral, supported by an experienced management team and strong distribution relationships, and its enterprise risk management framework is considered appropriate. The agency added that it will continue to monitor the company’s reserve development and capital position in the near term.