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Rating Action:

Moody's assigns Baa1 to Everest Re Holdings' jr. sub notes

27 Apr 2007
Moody's assigns Baa1 to Everest Re Holdings' jr. sub notes

New York, April 27, 2007 -- Moody's Investors Service has assigned a Baa1 rating to the $400 million offering of junior subordinated notes ("LoTS" or the "Securities") issued by Everest Reinsurance Holdings, Inc. ("Everest Re Holdings"), an intermediate holding company ultimately owned by Everest Re Group, Ltd. (NYSE: RE). The issuance constitutes a drawdown from an existing shelf registration. The net proceeds from the debt offering are expected to be used for general corporate purposes, including share repurchases and redemption of outstanding debt. Moody's currently rates Everest Reinsurance Company and Everest Reinsurance (Bermuda) Ltd., the primary operating subsidiaries of Everest Re Group, Aa3 for insurance financial strength. The outlook for the ratings is stable.

The Baa1 rating on the Securities considers the group's fundamental credit profile, Everest Re Holding's underlying A3 senior rating, the junior subordinated claim of the Securities within the company's capital structure, in conjunction with certain structural features of the Securities such as optional only (i.e. without mandatory) interest deferral and the cash cumulative nature of interest deferral.

In Moody's opinion, Everest Re Group benefits from its strong balance sheet, its strong track record of operating profitability, and its prudent capital management approach. The group benefited from very favorable underwriting conditions in 2006, particularly for property catastrophe and retrocessional reinsurance, coupled with an unusually mild catastrophe season. However, Everest Re's results can be volatile given its exposure to catastrophic events as evidenced by significant hurricane losses in 2005. In addition, Everest Re Group's exposure to asbestos liabilities remains a concern. The ability of the company to maintain its strong capital position while balancing growth and profitability remains a key rating consideration for the group.

The Securities will, in Moody's view, have sufficient equity-like features to allow it to receive basket "B" treatment, i.e. 25% equity and 75% debt, for financial leverage purposes (please refer to Moody's Rating Methodology "Refinements to Moody's Tool Kit: Evolutionary, not Revolutionary!" of February 2005). This basket designation will shift from "B" to "A" in 10 years, and will be basket "A" for the remaining 50 years. The basket designation is based on the following rankings for the three dimensions of equity:

(i.) No Maturity: Moderate -- The Securities have a 60-year final maturity with a scheduled maturity after 30 years, subject to a Replacement Capital Covenant (RCC), which will not become operational until year 30. The RCC obligates Everest Re Holdings not to redeem or repurchase the Securities unless it has previously issued qualifying replacement securities, which have been clearly specified for the benefit of Covered Debtholders identified at closing. On the scheduled maturity date, if a qualifying replacement security (a Basket B security, 75% debt & 25% equity, at a minimum) is not issued, the Securities will remain outstanding until the earlier to occur of the issuance of a qualifying replacement security or the final repayment date. Prior to year 30, when the RCC becomes operational, there will be intent-based replacement language, which results in a Moderate ranking on No Maturity.

(ii.) No ongoing payments: Weak -- The Securities contain an optional deferral feature but any deferred interest payments would accumulate and must be settled with cash. Everest Re Holdings will have the option to defer payment of interest on one or more occasions for a period of up to ten consecutive years without triggering an event of default.

(iii.) Loss absorption: Moderate -- The Securities are pari passu to the most junior subordinated debt issued by Everest Re Holdings with limited rights and limited ability to cause acceleration.

Following the issuance of the Securities, debt to capital ratios (reflecting 25% equity credit for the Securities and including debt equivalents for operating lease commitments and under-funded pension plans) for the consolidated Everest Re Group and at Everest Re Holdings will be temporarily elevated to approximately 21% and 36%, respectively. However, these ratios should moderate over the medium term as the group generates retained earnings and redeems outstanding debt. Moody's expects financial leverage at Everest Re Group and Everest Holdings to remain below 25% and 40%, respectively. Financial leverage in excess of our expectations could precipitate downward pressure on Everest Re's ratings.

The following rating has been assigned:

Everest Reinsurance Holdings, Inc. - $400 million fixed to floating rate junior subordinated notes (LoTS) due May 2067 at Baa1.

The last rating action for the company occurred on January 13, 2006 when Moody's rated the new universal shelf registration of Everest Re Group Ltd., Everest Reinsurance Holdings Inc., and Everest Re Capital Trust III.

Everest Re Group, Ltd. is a Bermuda-based holding company that is engaged, through its subsidiaries, in property and casualty insurance and reinsurance worldwide. For the three months ended March 31, 2007, Everest Re Group, Ltd. reported net income of $298 million. As of March 31, 2007, shareholders' equity was $5.2 billion.

For more information, visit our website at www.moodys.com/insurance

New York
Kevin Lee
Analyst
Financial Institutions Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Robert Riegel
Managing Director
Financial Institutions Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

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