Washington, D.CD.C. 20549
FORM 10-K
_X_Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 2017
___ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Commission file number 1-14527
EVEREST REINSURANCE HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Delaware (State or other jurisdiction of incorporation or organization) | 22-3263609 (I.R.S Employer Identification No.) |
100 Everest Way
Warren, New Jersey 07938-0830
(908) 604-3000
(Address, including zip code, and telephone number, including area code, of registrant'sregistrant’s principal executive office)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class | Name of Each Exchange on Which Registered | ||||||||||
4.868% Senior Notes Due 2044 3.50% Senior Notes Due 2050 | NYSE NYSE | ||||||||||
6.60% Long Term Notes Due 2067 | NYSE | ||||||||||
Securities registered pursuant to Section 12(g) of the Act: None | |||||||||||
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes | X | No |
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes | No | X |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes | X | No |
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes | X | No |
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant'sregistrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]
Yes | X | No |
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large“large accelerated filer," "accelerated” “accelerated filer," "smaller” “smaller reporting company"company” and "emerging“emerging growth company"company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | Accelerated filer | |||
Non-accelerated filer | X | Smaller reporting company | ||
Emerging growth company |
Indicate by check mark if the registrant is an emerging growth company and has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange act.
Yes | No | X |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.)
Yes | No | X |
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.
Yes | No | X |
The aggregate market value on June 30, 2017,2020, the last business day of the registrant'sregistrant’s most recently completed second quarter, of the voting stock held by non-affiliates of the registrant was zero.
At March 15, 2018,2021, the number of shares outstanding of the registrant common shares was 1,000, all of which are owned by Everest Underwriting Group (Ireland) Limited, a wholly-owned direct subsidiary of Everest Re Group, Ltd.
The Registrant meets the conditions set forth in General Instruction I(1)(a) and (b) of Form 10-K and is therefore filing this form with the reduced disclosure format permitted by General Instruction I of Form 10-K.
EVEREST REINSURANCE HOLDINGS, INC.
FORM 10-K
Page | ||
PART I | ||
Item 1. | 1 | |
Item 1A. | 6 | |
Item 1B. | 13 | |
Item 2. | 14 | |
Item 3. | 14 | |
Item 4. | 14 | |
PART II | ||
Item 5. | 14 | |
Item 6. | 15 | |
Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 15 |
Item 7A. | 29 | |
Item 8. | 32 | |
Item 9. | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure | 32 |
Item 9A. | 32 | |
Item 9B. | 32 | |
PART III | ||
Item 10. | 33 | |
Item 11. | 33 | |
Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | 33 |
Item 13. | Certain Relationships and Related Transactions, and Director Independence | 33 |
Item 14. | 33 | |
PART IV | ||
Item 15. | 34 |
PART I
Unless otherwise indicated, all financial data in this document have been prepared using accounting principles generally accepted in the United States of America ("GAAP"(“GAAP”). As used in this document, "Holdings"“Holdings” means Everest Reinsurance Holdings, Inc., a Delaware company and direct subsidiary of Everest Underwriting Group (Ireland) Limited ("(“Holdings Ireland"Ireland”); "Group"“Group” means Everest Re Group, Ltd. (Holdings Ireland'sIreland’s parent); "Bermuda Re"“Bermuda Re” means Everest Reinsurance (Bermuda), Ltd., a subsidiary of Group; "Everest Re"“Everest Re” means Everest Reinsurance Company and its subsidiaries, a subsidiary of Holdings (unless the context otherwise requires); and the "Company"“Company”, "we"“we”, "us"“us”, and "our"“our” means Holdings and its subsidiaries (unless the context otherwise requires).
Holdings, a Delaware corporation, is a wholly-owned subsidiary of Holdings Ireland. On December 30, 2008, Group contributed Holdings to its recently established Irish holding company, Holdings Ireland. Holdings Ireland is a direct subsidiary of Group and serves as a holding company for the U.S. reinsurance and insurance subsidiaries. Group is a Bermuda holding company whose common shares are publicly traded in the U.S. on the New York Stock Exchange under the symbol "RE"“RE”. Group files an annual report on Form 10-K with the Securities and Exchange Commission (the "SEC"“SEC”) with respect to its consolidated operations, including Holdings.
The Company'sCompany’s principal business, conducted through its operating segments, is the underwriting of reinsurance and insurance in the U.S. and international markets. The Company had gross written premiums, in 2017,2020, of $5.8$8.0 billion, with approximately 68%66% representing reinsurance and 32%34% representing insurance. Stockholder'sStockholder’s equity at December 31, 20172020 was $5.4$6.4 billion. The Company underwrites reinsurance both through brokers and directly with ceding companies, giving it the flexibility to pursue business based on the ceding company'scompany’s preferred reinsurance purchasing method. The Company underwrites insurance through brokers, surplus lines brokers and general agent relationships. Holdings'Holdings’ active operating subsidiaries are each rated A+ ("Superior"(“Superior”) by A.M. Best Company ("(“A.M. Best"Best”), a leading provider of insurer ratings that assigns financial strength ratings to insurance companies based on their ability to meet their obligations to policyholders.
Following is a summary of the Company'sCompany’s operating subsidiaries:
·Everest Re, a Delaware insurance company and a direct subsidiary of Holdings, is a licensed property and casualty insurer and/or reinsurer in all states, the District of Columbia, Puerto Rico and Guam and is authorized to conduct reinsurance business in Canada, Singapore and Brazil. Everest Re underwrites property and casualty reinsurance for insurance and reinsurance companies in the U.S. and international markets. Everest Re has engaged in reinsurance transactions with Bermuda Re, Everest International Reinsurance, Ltd. (“Everest International”), Mt. Logan Re, Ltd. (“Mt. Logan Re”) and Everest Insurance Company of Canada (“Everest Canada”), which are affiliated companies, primarily driven by enterprise risk and capital management considerations under which business is transacted at market rates and terms. At December 31, 2020, Everest Re had statutory surplus of $5.3 billion.
·Everest National Insurance Company (“Everest National”), a Delaware insurance company and a direct subsidiary of Everest Re, is licensed in 50 states, the District of Columbia and Puerto Rico and is authorized to write property and casualty insurance on an admitted basis in the jurisdictions in which it is licensed. The majority of Everest National’s business is reinsured by its parent, Everest Re.
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·Everest Indemnity Insurance Company (“Everest Indemnity”), a Delaware insurance company and a direct subsidiary of Everest Re, writes excess and surplus lines insurance business in the U.S. on a non-admitted basis. Excess and surplus lines insurance is specialty property and liability coverage that an insurer not licensed to write insurance in a particular jurisdiction is permitted to provide to insureds when the specific specialty coverage is unavailable from admitted insurers. Everest Indemnity is licensed in Delaware and is eligible to write business on a non-admitted basis in all other states, the District of Columbia and Puerto Rico. The majority of Everest Indemnity’s business is reinsured by its parent, Everest Re.
·Everest Security Insurance Company (“Everest Security”), a Georgia insurance company and a direct subsidiary of Everest Re, writes property and casualty insurance on an admitted basis in Georgia and Alabama and is approved as an eligible surplus lines insurer in Delaware. The majority of Everest Security’s business is reinsured by its parent, Everest Re.
·Everest Denali Insurance Company (“Everest Denali”), a Delaware insurance company and a direct subsidiary of Everest Re, is licensed to write property and casualty insurance in 50 states and the District of Columbia. The majority of Everest Denali’s business is reinsured by its parent, Everest Re.
·Everest Premier Insurance Company (“Everest Premier”), a Delaware insurance company and a direct subsidiary of Everest Re, is licensed to write property and casualty insurance in 50 states and the District of Columbia. The majority of Everest Premier’s business is reinsured by its parent, Everest Re.
·Everest International Assurance, Ltd. (“Everest Assurance”), a Bermuda company and a direct subsidiary of Holdings is registered in Bermuda as a Class 3A general business insurer and as a Class C long-term insurer. Everest Assurance has made a one-time election under section 953(d) of the U.S. Internal Revenue Code to be a U.S. income tax paying “Controlled Foreign Corporation.” By making this election, Everest Assurance will be authorized to write life reinsurance and casualty reinsurance in both Bermuda and the U.S.
Reinsurance is an arrangement in which an insurance company, the reinsurer, agrees to indemnify another insurance or reinsurance company, the ceding company, against all or a portion of the insurance risks underwritten by the ceding company under one or more insurance contracts. Reinsurance can provide a ceding company with several benefits, including a reduction in its net liability on individual risks or classes of risks, catastrophe protection from large and/or multiple losses and/or a reduction in operating leverage as measured by the ratio of net premiums and reserves to capital. Reinsurance also provides a ceding company with additional underwriting capacity by permitting it to accept larger risks and write more business than would be acceptable relative to the ceding company'scompany’s financial resources. Reinsurance does not discharge the ceding company from its liability to policyholders; rather, it reimburses the ceding company for covered losses.
There are two basic types of reinsurance arrangements: treaty and facultative. Treaty reinsurance obligates the ceding company to cede and the reinsurer to assume a specified portion of a type or category of risks insured by the ceding company. Treaty reinsurers do not separately evaluate each of the individual risks assumed under their treaties, instead, the reinsurer relies upon the pricing and underwriting decisions made by the ceding company. In facultative reinsurance, the ceding company cedes and the reinsurer assumes all or part of the risk under a single insurance contract. Facultative reinsurance is negotiated separately for each insurance contract that is reinsured. Facultative reinsurance, when purchased by ceding companies, usually is intended to cover individual risks not covered by their reinsurance treaties because of the dollar limits involved or because the risk is unusual.
Both treaty and facultative reinsurance can be written on either a pro rata basis or an excess of loss basis. Under pro rata reinsurance, the ceding company and the reinsurer share the premiums as well as the losses and expenses in an agreed proportion. Under excess of loss reinsurance, the reinsurer indemnifies the ceding company against all or a specified portion of losses and expenses in excess of a specified dollar amount, known as the ceding company's retention or reinsurer's attachment point, generally subject to a negotiated reinsurance contract limit.
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In pro rata reinsurance, the reinsurer generally pays the ceding company a ceding commission. The ceding commission generally is based on the ceding company'scompany’s cost of acquiring the business being reinsured (commissions, premium taxes, assessments and miscellaneous administrative expense and may contain profit sharing provisions, whereby the ceding commission is adjusted based on loss experience). Premiums paid by the ceding company to a reinsurer for excess of loss reinsurance are not directly proportional to the premiums that the ceding company receives because the reinsurer does not assume a proportionate risk. There is usually no ceding commission on excess of loss reinsurance.
Reinsurers may purchase reinsurance to cover their own risk exposure. Reinsurance of a reinsurer's business is called a retrocession. Reinsurance companies cede risks under retrocessional agreements to other reinsurers, known as retrocessionaires, for reasons similar to those that cause insurers to purchase reinsurance: to reduce net liability on individual or classes of risks, protect against catastrophic losses, stabilize financial ratios and obtain additional underwriting capacity.
Reinsurance can be written through intermediaries, generally professional reinsurance brokers, or directly with ceding companies. From a ceding company's perspective, the broker and the direct distribution channels have advantages and disadvantages. A ceding company's decision to select one distribution channel over the other will be influenced by its perception of such advantages and disadvantages relative to the reinsurance coverage being placed.
Business Strategy.
The Company'sCompany’s business strategy is to sustain its leadership position within targeted reinsurance and insurance markets, provide effective management throughout the property and casualty underwriting cycle and thereby achieve an attractive return for its stockholder. The Company'sCompany’s underwriting strategies seek to capitalize on its i) financial strength and capacity, ii) global franchise, iii) stable and experienced management team, iv) diversified product and distribution offerings, v) underwriting expertise and disciplined approach, vi) efficient and low-cost operating structure and vii) effective enterprise risk management practices.
The Company offers treaty and facultative reinsurance and admitted and non-admitted insurance. The Company'sCompany’s products include the full range of property and casualty reinsurance and insurance coverages, including marine, aviation, surety, errors and omissions liability ("(“E&O"&O”), directors'directors’ and officers'officers’ liability ("(“D&O"&O”), medical malpractice, other specialty lines, accident and health ("(“A&H"&H”) and workers'workers’ compensation.
The Company'sCompany’s underwriting strategies emphasizes underwriting profitability over premium volume. Key elements of this strategy include careful risk selection, appropriate pricing through strict underwriting discipline and adjustment of the Company'sCompany’s business mix in response to changing market conditions. The Company focuses on reinsuring companies that effectively manage the underwriting cycle through proper analysis and pricing of underlying risks and whose underwriting guidelines and performance are compatible with its objectives.
The Company'sCompany’s underwriting strategies emphasize flexibility and responsiveness to changing market conditions. The Company believes that its existing strengths, including its broad underwriting expertise, global presence, strong financial ratings and substantial capital, facilitate adjustments to its mix of business geographically, by line of business and by type of coverage, allowing it to participate in those market opportunities that provide the greatest potential for underwriting profitability. The Company'sCompany’s insurance operations complement these strategies by accessing business that is not available on a reinsurance basis. The Company carefully monitors its mix of business across all operations to avoid unacceptable geographic or other risk concentrations.
Commencing 2015, the Company initiated a strategic build out of its insurance platform through the investment in key leadership hires which in turn has brought significant underwriting talent and stronger direction in achieving its insurance program strategic goals of increased premium volume and improved underwriting results. Recent growth is coming from highly diversified areas including newly launched lines of business, as well as, product and geographic expansion in existing lines of business. The Company is building a world-class insurance platform capable of offering products across lines and geographies, complementing its leading global reinsurance franchise.
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Capital Transactions.
The Company'sCompany’s business operations are in part dependent on its financial strength and financial strength ratings, and the market'smarket’s perception of its financial strength. The Company's stockholder'sCompany stockholder’s equity was $5,412.7$6,414.3 million and $5,298.6$5,857.4 million at December 31, 20172020 and 2016,2019, respectively. The Company possesses significant financial flexibility with access to the debt markets and, through its ultimate parent, equity markets, as a result of its perceived financial strength, as evidenced by the financial strength ratings as assigned by independent rating agencies. The Company'sCompany’s capital position remains strong, commensurate with its financial ratings and the Company has ample liquidity to meet its financial obligations for the foreseeable future.
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The following table shows the current financial strength ratings of the Company'sCompany’s operating subsidiaries as reported by A.M. Best, Standard & Poor's Financial Services, LLC ("Standard & Poor's")Poor’s (S&P), and Moody's Investors Services, Inc. ("Moody's").Moody’s. These ratings are based upon factors of concernrelevant to policyholders and shouldare not intended to be considered an indication of the degree or lack of risk involved in a direct or indirect equity investment in an insurance or reinsurance company.
All of the below-mentioned ratings are continually monitored and revised, if necessary, by each of the rating agencies. The ratings presented in the following table were in effect as of January 30, 2018.
The Company believes that its ratings are important as they provide the Company'sCompany’s customers and its investorsothers with an independent assessment of the Company'sCompany’s financial strength using a rating scale that provides for relative comparisons. Strong financial ratings are particularly important for reinsurance companies. Cedingand insurance companies mustgiven that customers may rely on their reinsurersa company to pay covered losses well into the future. As a result, a highly rated reinsurercompany is generally preferred.
Operating Subsidiary: | A.M. Best | S&P | Moody's | |||||
Everest | A+ (Superior) | A+ (Strong) | A1 (upper-medium) | |||||
Everest National Insurance Company | A+ (Superior) | A+ (Strong) | Not Rated | |||||
Everest Indemnity Insurance Company | A+ (Superior) | A+ (Strong) | Not Rated | |||||
Everest Security Insurance Company | A+ (Superior) | Not Rated | Not Rated | |||||
Everest International Assurance, Ltd. | A+ (Superior) | A+ (Strong) | Not Rated | |||||
Everest Denali Insurance Company | A+ (Superior) | A+ (Strong) | Not Rated | |||||
Everest Premier Insurance Company | A+ (Superior) | A+ (Strong) | Not Rated |
A.M. Best states that the "A+" ("Superior"“A+” (“Superior”) rating is assigned to those companies which, in its opinion, have a superior ability to meet their ongoing insurance policy and contract obligations based on A.M. Best'sBest’s comprehensive quantitative and qualitative evaluation of a company'scompany’s balance sheet strength, operating performance and business profile. A.M. Best affirmed these ratings on February 10, 2017. Standard & Poor'sMay 29, 2020. S&P states that the "A+"“A+”/"A"”A” ratings are assigned to those insurance companies which, in its opinion, have strong financial security characteristics with respect to their ability to pay under its insurance policies and contracts in accordance with their terms. Standard & Poor'sS&P issued a new rating to Everest Denali Insurance Co and Everest Premier Insurance Co of A+ (Strong), upgraded the rating of Everest International Assurance Ltd from A to A+ (Strong) and affirmed theseall other ratings on July 13, 2017. Moody'sMay 29, 2020. Moody’s states that an "A1"“A1” rating is assigned to companies that, in their opinion, offer upper-medium grade security and are subject to low credit risk. Moody'sMoody’s affirmed these ratings on September 19, 2017.
Subsidiaries other than Everest Re may not be rated by some or any rating agencies because such ratings are not considered essential by the individual subsidiary'ssubsidiary’s customers or because of the limited nature of the subsidiary'ssubsidiary’s operations or because the subsidiaries are newly established and have not yet been rated by the agencies.
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Debt Ratings.
The following table shows the debt ratings by A.M. Best, Standard & Poor'sS&P and Moody'sMoody’s of the Holdings'Holdings’ senior notes due June 1, 2044, senior notes due October 15, 2050, and long termJunior Subordinated notes due May 1, 2067 bothall of which are considered investment grade. Debt ratings are the rating agencies'agencies’ current assessment of the credit worthiness of an obligor with respect to a specific obligation.
A.M. Best | S&P | Moody's | |||||||||
Senior Notes due June 1, 2044 | a- | (Strong) | A- | (Strong) | Baa1 | (Medium Grade) | |||||
Senior Notes due October 15, 2050 | a- | (Strong) | A- | (Strong) | Baa1 | (Medium Grade) | |||||
Long Term Notes | bbb | (Adequate) | BBB | (Adequate) | Baa2 | (Medium Grade) |
The worldwide reinsurance and insurance businesses are highly competitive, as well as cyclical by product and market. As such, financial results tend to fluctuate with periods of constrained availability, higher rates and stronger profits followed by periods of abundant capacity, lower rates and constrained profitability. Competition in the types of reinsurance and insurance business that we underwrite is based on many factors, including the perceived overall financial strength of the reinsurer or insurer, ratings of the reinsurer or insurer by A.M. Best and/or Standard & Poor's,Poor’s, underwriting expertise, the jurisdictions where the reinsurer or insurer is licensed or otherwise authorized, capacity and coverages offered, premiums charged, other terms and conditions of the reinsurance and insurance business offered, services offered, speed of claims payment and reputation and experience in lines written. Furthermore, the market impact from these competitive factors related to reinsurance and insurance is generally not consistent across lines of business, domestic and international geographical areas and distribution channels.
We compete in the U.S. and international reinsurance and insurance markets with numerous global competitors. Our competitors include independent reinsurance and insurance companies, subsidiaries or affiliates of established worldwide insurance companies, reinsurance departments of certain insurance companies, domestic and international underwriting operations, including underwriting syndicates at Lloyd's of London and certain government sponsored risk transfer vehicles. Some of these competitors have greater financial resources than the Company doeswe do and have established long term and continuing business relationships, which can be a significant competitive advantage. In addition, the lack of strong barriers to entry into the reinsurance business and recently, the securitization of reinsurance and insurance risks through capital markets provide additional sources of potential reinsurance and insurance capacity and competition.
Worldwide insurance and reinsurance market conditions continued to be very competitive, particularly in the property catastrophe and casualty reinsurance lines of business.historically have been competitive. Generally, there was ample insurance and reinsurance capacity relative to demand, as well as, additional capital from the capital markets through insurance linked financial instruments. These financial instruments such as side cars, catastrophe bonds and collateralized reinsurance funds, provideprovided capital markets with access to insurance and reinsurance risk exposure. The capital markets demand for these products iswas being primarily driven by the currenta low interest rate environment and the desire to achieve greater risk diversification and potentially higher returns on their investments. This increased competition iswas generally having a negative impact on rates, terms and conditions; however, the impact varies widely by market and coverage.
The industry continues to fluctuate by specific regiondeal with the impacts of a global pandemic, COVID-19. Globally, many countries mandated that their citizens remain at home and products, particularly areas recently impacted by large catastrophic events. There was an unprecedented seriesmany non-essential businesses have continued to be physically closed. We activated our operational resiliency plan across our global footprint and all of catastrophesour critical operations are functioning effectively from remote locations. We continue to service and meet the needs of our clients while ensuring the safety and health of our employees and customers.
The pandemic has caused significant volatility in the third quarterglobal financial markets. Interest rates plummeted, credit spreads widened and the equity markets lost value. We saw our fixed maturity and equity portfolios decline in value resulting in unrealized investment losses in our March 31, 2020 financial statements. However, the financial markets rebounded during the remaining quarters of 2017 with Hurricanes Harvey, Irma2020 and Maria, as well aswe recognized after-tax unrealized gains of $338.2 million in our financial statements for these three quarters. Nevertheless, the lack of business activity may lead to an increase in bankruptcies and corresponding credit losses.
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There will also be a negative impact on future industry underwriting results. With the closing of non-essential businesses, there has been a significant earthquakedecline in Mexico City. Additional catastrophe events occurredbusiness activity. To the extent that premiums are based on business activity, there will be a decline in premium volume. Incurred losses from the fourth quarter of 2017 with the wild fires in California and Hurricanes Nate and Ophelia. The total industry losses for all of these events could exceed $100 billion. This is the second consecutive year with higher than average catastrophe losses. During 2016, catastrophe losses included the Fort McMurray Canadian wildfire, Hurricane Matthew which affected a large area of the Caribbean and southeastern United States, storms and an earthquake in Ecuador. There are industry reports that the catastrophe losses for 2016 reached their highest level in four years and the United States experienced the most loss events since 1980 and the highest total losses since 2012. While the future impact on market conditions from these catastrophes cannotpandemic will be determined at this time, there was some firming in the markets impacted by the 2016 catastrophesduration of the event and as catastrophewill vary by line of business and geographical location. For the full year 2020, our underwriting results include $154.8 million of estimated losses increasedrelated to the pandemic.
Many regulators had issued moratoriums on the cancellation of policies for the non-payment of premiums and also on non-renewals. We are complying with the various regulatory requests for accommodations to policyholders during this difficult period. The moratoriums combined with the forced closure of businesses may lead to an increase in 2017,uncollectible premium expense.
Prior to the pandemic, there iswas a growing industry consensus that there will be a generalwas some firming of the (re)insurance markets resultingrates for the areas impacted by the recent catastrophes. The increased frequency of catastrophe losses in rate increases, not only for catastrophe exposures, but2020 appears to be further pressuring the increase of rates. Rates also potentially for most other linesappear to be firming in some of business.
While we are unable to predict the full impact the pandemic will have on the insurance platform capable of offering products across lines and geographies, complementing our leading global reinsurance franchise.
As of February 1, 2018,2021, the Company employed 9021,487 persons. Management believes that employee relations are good. None of the Company'sCompany’s employees are subject to collective bargaining agreements, and the Company is not aware of any current efforts to implement such agreements.
Available Information.
The Company'sCompany’s Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports are available free of charge through the Company'sCompany’s internet website at http://www.everestregroup.com as soon as reasonably practicable after such reports are electronically filed with the SEC.
In addition to the other information provided in this report, the following risk factors should be considered when evaluating an investment in our securities. If the circumstances contemplated by the individual risk factors materialize, our business, financial condition and results of operations could be materially and adversely affected and our ability to service our debt, our debt ratings and our ability to issue new debt could decline significantly.
Risks relating to our Business
Fluctuations in the financial markets could result in investment losses.
Prolonged and severe disruptions in the overall public debt and equity markets, such as occurred during 2008, or temporary disruption, as occurred in early 2020 related to the Covid-19 pandemic, could result in significant realized and unrealized losses in our investment portfolio. Although financial markets have significantly improved since 2008, they could deteriorate in the future. There could also be disruption in individual market sectors, such as occurred in the energy sector in recent years. Such declines in the financial markets could result in significant realized and unrealized losses on investments and could have a material adverse impact on our results of operations, equity, business and insurer financial strength and debt ratings.
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We are exposed to unpredictable catastrophic events, including weather-related and other natural catastrophes, as well as acts of terrorism. Any material reduction in our operating results caused by the occurrence of one or more catastrophes could inhibit our ability to pay dividends or to meet our interest and principal payment obligations. By way of illustration, during the past five calendar years, pre-tax catastrophe losses, net of reinsurance, were as follows:
Calendar year: | Pre-tax catastrophe losses | |
(Dollars in millions) |
|
|
2020 | $ | 397.4 |
2019 |
| 573.7 |
2018 |
| 1,712.6 |
2017 |
| 941.4 |
2016 |
| 109.2 |
Calendar year: | Pre-tax catastrophe losses | |||
(Dollars in millions) | ||||
2017 | $ | 941.4 | ||
2016 | 109.2 | |||
2015 | 31.9 | |||
2014 | 18.2 | |||
2013 | 76.6 |
Our losses from future catastrophic events could exceed our projections.
We use projections of possible losses from future catastrophic events of varying types and magnitudes as a strategic underwriting tool. We use these loss projections to estimate our potential catastrophe losses in certain geographic areas and decide on the placement of retrocessional coverage or other actions to limit the extent of potential losses in a given geographic area. These loss projections are approximations, reliant on a mix of quantitative and qualitative processes, and actual losses may exceed the projections by a material amount, resulting in a material adverse effect on our financial condition and results of operations.
If our loss reserves are inadequate to meet our actual losses, our net income would be reduced or we could incur a loss.
We are required to maintain reserves to cover our estimated ultimate liability of losses and loss adjustment expenses ("LAE"(“LAE”) for both reported and unreported claims incurred. These reserves are only estimates of what we believe the settlement and administration of claims will cost based on facts and circumstances known to us. In setting reserves for our reinsurance liabilities, we rely on claim data supplied by our ceding companies and brokers and we employ actuarial and statistical projections. The information received from our ceding companies is not always timely or accurate, which can contribute to inaccuracies in our loss projections. Because of the uncertainties that surround our estimates of loss and LAE reserves, we cannot be certain that ultimate losses and LAE payments will not exceed our estimates. If our reserves are deficient, we would be required to increase loss reserves in the period in which such deficiencies are identified which would cause a charge to our earnings and a reduction of capital. By way of illustration, during the past five calendar years, the reserve re-estimation process resulted in an increasea decrease to our pre-tax net income all years:in 2020, 2019 and 2018, and an increase for the years 2017 and 2016:
Calendar year: | Effect on pre-tax net income | ||
(Dollars in millions) |
|
|
|
2020 | $ | 200.3 | decrease |
2019 |
| 44.4 | decrease |
2018 |
| 558.8 | decrease |
2017 |
| 117.7 | increase |
2016 |
| 91.7 | increase |
Calendar year: | Effect on pre-tax net income | ||||
(Dollars in millions) | |||||
2017 | $ | 117.7 | increase | ||
2016 | 91.7 | increase | |||
2015 | 6.5 | increase | |||
2014 | 39.2 | decrease | |||
2013 | 44.6 | decrease |
The difficulty in estimating our reserves is significantly more challenging as it relates to reserving for potential asbestos and environmental ("(“A&E"&E”) liabilities. At December 31, 2017, 4.8%2020, 1.9% of our gross reserves were comprised of A&E reserves. A&E liabilities are especially hard to estimate for many reasons, including the long delays between exposure and manifestation of any bodily injury or property damage, difficulty in identifying the source of the asbestos or environmental contamination, long reporting delays and difficulty in properly
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allocating liability for the asbestos or environmental damage. Legal tactics and judicial and legislative developments affecting the scope of insurers'insurers’ liability, which can be difficult to predict, also contribute to uncertainties in estimating reserves for A&E liabilities.
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Our success depends on our ability to accurately assess the risks associated with the businesses on which the risk is retained. If we fail to accurately assess the risks we retain, we may fail to establish adequate premium rates to cover our losses and LAE. This could reduce our net income and even result in a net loss.
In addition, losses may arise from events or exposures that are not anticipated when the coverage is priced. In addition to unanticipated events, we also face the unanticipated expansion of our exposures, particularly in long-tail liability lines. An example of this is the expansion over time of the scope of insurers'insurers’ legal liability within the mass tort arena, particularly for A&E exposures discussed above.
Decreases in pricing for property and casualty reinsurance and insurance could reduce our net income.
The worldwide reinsurance and insurance businesses are highly competitive, as well as cyclical by product and market. These cycles, as well as other factors that influence aggregate supply and demand for property and casualty insurance and reinsurance products, are outside of our control. The supply of (re)insurance is driven by prevailing prices and levels of capacity that may fluctuate in response to a number of factors including large catastrophic losses and investment returns being realized in the insurance industry. Demand for (re)insurance is influenced by underwriting results of insurers and insureds, including catastrophe losses, and prevailing general economic conditions. If any of these factors were to result in a decline in the demand for (re)insurance or an overall increase in (re)insurance capacity, our net income could decrease.
If rating agencies downgrade the ratings of our insurance subsidiaries, future prospects for growth and profitability could be significantly and adversely affected.
Our active insurance company subsidiaries currently hold financial strength ratings assigned by third-party rating agencies which assess and rate the claims paying ability and financial strength of insurers and reinsurers. Our active subsidiaries that have been rated carry an "A+" ("Superior"“A+” (“Superior”) rating from A.M. Best. Everest Re, Everest National, Everest Indemnity and Everest IndemnityAssurance all hold an "A+" ("Strong"“A+” (“Strong”) rating from Standard & Poor'sPoor’s and Everest Assurance holds an "A" ("Strong"“A” (“Strong”) rating from this same agency. Everest Re holds an "A1" ("“A1” (“upper-medium grade"grade”) rating from Moody's.Moody’s. Financial strength ratings are used by client companies and agents and brokers that place the business as an important means of assessing the financial strength and quality of reinsurers. A downgrade or withdrawal of any of these ratings might adversely affect our ability to market our insurance products and could have a material and adverse effect on future prospects for growth and profitability.
Consistent with market practice, much of our treaty reinsurance business allows the ceding company to terminate the contract or seek collateralization of our obligations in the event of a rating downgrade below a certain threshold. The termination provision would generally be triggered if a rating fell below A.M. Best'sBest’s A- rating level, which is three levels below Everest Re'sRe’s current rating of A+. To a lesser extent, Everest Re also has modest exposure to reinsurance contracts that contain provisions for obligatory funding of outstanding liabilities in the event of a rating agency downgrade. Those provisions would also generally be triggered if Everest Re'sRe’s rating fell below A.M. Best'sBest’s A- rating level.
The failure of our insureds, intermediaries and reinsurers to satisfy their obligations to us could reduce our income.
In accordance with industry practice, we have uncollateralized receivables from insureds, agents and brokers and/or rely on agents and brokers to process our payments. We may not be able to collect amounts due from insureds, agents and brokers, resulting in a reduction to net income.
8
We are subject to credit risk of reinsurers in connection with retrocessional arrangements because the transfer of risk to a reinsurer does not relieve us of our liability to the insured. In addition, reinsurers may be unwilling to pay us even though they are able to do so. The failure of one or more of our reinsurers to honor their obligations to us in a timely fashion would impact our cash flow and reduce our net income and could cause us to incur a significant loss.
9
We are generally less reliant on the purchase of reinsurance than many of our competitors, in part because of our strategic emphasis on underwriting discipline and management of the cycles inherent in our business. We try to separate our risk taking process from our risk mitigation process in order to avoid developing too great a reliance on reinsurance. Historically, we generally purchased reinsurance from other third parties only when we expect a net benefit. With the expansion of the capital markets into insurance linked financial instruments, we increased our use of capital market products for catastrophe reinsurance starting in 2014. In addition, some of our quota share contracts with larger retrocessions were increased during 2014.have increased. The percentage of business that we reinsure may vary considerably from year to year, depending on our view of the relationship between cost and expected benefit for the contract period.
We have entered into affiliated whole account quota share reinsurance agreements for 2002 through 2017 with Bermuda Re but we have decideddid not to renew the quota share reinsurance agreement with Bermuda Re as of December 31,after 2017. We believe that the terms, conditions and pricing of the quota share agreements reflect arm'sarm’s length market conditions. These affiliated reinsurance arrangements allow us to more effectively leverage our capital, expertise, distribution platform and market presence than our stand alone capital position would otherwise allow.
Percentage of ceded written premiums to gross written premiums | 2020 |
| 2019 |
| 2018 |
| 2017 |
| 2016 | |||||
Unaffiliated | 14.9 | % |
| 16.7 | % |
| 14.7 | % |
| 14.6 | % |
| 13.6 | % |
Affiliated | 1.7 | % |
| 1.4 | % |
| 8.7 | % |
| 38.4 | % |
| 45.9 | % |
Percentage of ceded written premiums to gross written premiums | 2017 | 2016 | 2015 | 2014 | 2013 | |||||
Unaffiliated | 14.6% | 13.6% | 8.2% | 9.3% | 5.0% | |||||
Affiliated | 38.4% | 45.9% | 49.9% | 48.2% | 47.3% |
If we are unable to purchase affiliated or unaffiliated reinsurance in the future, we may have to reduce our premium volume and we may be more exposed to reductions in net income from large losses.
Our industry is highly competitive and we may not be able to compete successfully in the future.
Our industry is highly competitive and subject to pricing cycles that can be pronounced. We compete globally in the United States, international reinsurance and insurance markets with numerous competitors. Our competitors include independent reinsurance and insurance companies, subsidiaries or affiliates of established worldwide insurance companies, reinsurance departments of certain insurance companies and domestic and international underwriting operations, including underwriting syndicates at Lloyd'sLloyd’s of London.
According to Standard & Poor's,Poor’s, Group ranks among the top ten global reinsurance groups, where more than 70%two-thirds of the market share is concentrated. The worldwide net premium written by the Top 40 global reinsurance groups, for both life and non-life business, was estimated to be $201$225.1 billion in 20162018 according to data compiled by Standard & Poor's. The leaders in this market are Swiss Re, Munich Re, Hannover Rueck SE, Berkshire Hathaway Re, SCOR SE, RGA and syndicates at Lloyd's of London. Some of these competitors have greater financial resources than we do and have established long term and continuing business relationships throughout the industry, which can be a significant competitive advantage.Poor’s. In addition the lack of strong barriers to entry into the reinsurance business andcompetitors, the entry of alternative capital market products and vehicles provide additional sources of reinsurance and insurance capacity and increased competition.
We are dependent on our key personnel.
Our success has been, and will continue to be, dependent on our ability to retain the services of our Chairman, Joseph V. Taranto (age 71) and existing key executive officers and to attract and retain additional qualified personnel in the future. The loss of the services of any key executive officer or the inability to hire and retain other highly qualified personnel in the future could adversely affect our ability to conduct business. Generally, we consider key executive officers to be those individuals who have the greatest influence in setting overall policy and controlling operations: Chairman, President and Chief Executive Officer, Dominic J. AddessoJuan C. Andrade (age 64)55), Executive Vice President and Chief Financial Officer, Craig HowieMark Kociancic (age 54)51), Executive Vice President and Chief Operating Officer, Jim Williamson (age 47), Executive Vice President and Chief Executive Officer Reinsurance Division, John P. Doucette (age 52)55), Executive Vice President, General Counsel, Chief Compliance Officer and
9
Our investment values and investment income could decline because they are exposed to interest rate, credit and market risks.
A significant portion of our investment portfolio consists of fixed income securities and smaller portions consist of equity securities and other investments. Both the fair market value of our invested assets and associated investment income fluctuate depending on general economic and market conditions. For example, the fair market value of our predominant fixed income portfolio generally increases or decreases inversely to fluctuations in interest rates. The market value of our fixed income securities could also decrease as a result of a downturn in the business cycle that causes the credit quality of such securities to deteriorate. The net investment income that we realize from future investments in fixed income securities will generally increase or decrease with interest rates.
Interest rate fluctuations also can cause net investment income from fixed income investments that carry prepayment risk, such as mortgage-backed and other asset-backed securities, to differ from the income anticipated from those securities at the time of purchase. In addition, if issuers of individual investments are unable to meet their obligations, investment income will be reduced and realized capital losses may arise.
The majority of our fixed income securities are classified as available for sale and temporary changes in the market value of these investments are reflected as changes to our stockholder'sstockholder’s equity. Our actively managed equity security portfolios are fair valued and any changes in fair value are reflected as net realized capital gains or losses. As a result, a decline in the value of our securities reduces our capital or could cause us to incur a loss.
We have invested a portion of our investment portfolio in equity securities. The value of these assets fluctuates with changes in the markets. In times of economic weakness, the fair value of these assets may decline, and may negatively impact net income. We also invest in non-traditional investments which have different risk characteristics than traditional fixed income and equity securities. These alternative investments are comprised primarily of private equity limited partnerships. The changes in value and investment income/(loss) for these partnerships may be more volatile than over-the-counter securities.
The following table quantifies the portion of our investment portfolio that consists of fixed income securities, equity securities and investments that carry prepayment risk.
| At |
|
|
|
| |
(Dollars in millions) | December 31, 2020 |
| % of Total | |||
Mortgage-backed securities |
|
|
|
|
|
|
Commercial | $ | 550.1 |
|
| 3.5 | % |
Agency residential |
| 965.1 |
|
| 6.1 | % |
Non-agency residential |
| 3.2 |
|
| - | % |
Other asset-backed |
| 2,474.2 |
|
| 15.6 | % |
Total asset-backed |
| 3,992.6 |
|
| 25.1 | % |
Other fixed income |
| 6,651.0 |
|
| 41.8 | % |
Total fixed income, at market value |
| 10,643.6 |
|
| 66.9 | % |
Equity securities - at fair value |
| 1,288.8 |
|
| 8.1 | % |
Other invested assets |
| 1,094.9 |
|
| 6.9 | % |
Other invested assets, at fair value |
| 1,796.5 |
|
| 11.3 | % |
Cash and short-term investments |
| 1,086.4 |
|
| 6.8 | % |
Total investments and cash | $ | 15,910.2 |
|
| 100.0 | % |
10
At | ||||||||
(Dollars in millions) | December 31, 2017 | % of Total | ||||||
Mortgage-backed securities | ||||||||
Commercial | $ | 51.7 | 0.6 | % | ||||
Agency residential | 113.3 | 1.3 | % | |||||
Non-agency residential | 0.1 | 0.0 | % | |||||
Other asset-backed | 138.0 | 1.5 | % | |||||
Total asset-backed | 303.1 | 3.4 | % | |||||
Other fixed income | 4,668.8 | 52.4 | % | |||||
Total fixed income, at market value | 4,971.9 | 55.8 | % | |||||
Equity securities, at fair value | 822.4 | 9.2 | % | |||||
Other invested assets, at market value | 838.7 | 9.4 | % | |||||
Other invested assets, at fair value | 1,807.5 | 20.3 | % | |||||
Cash and short-term investments | 471.0 | 5.3 | % | |||||
Total investments and cash | $ | 8,911.5 | 100.0 | % |
11
Through our international operations, we conduct business in a variety of foreign (non-U.S.) currencies, principally the Canadian dollar and the Singapore dollar. Assets, liabilities, revenues and expenses denominated in foreign currencies are exposed to changes in currency exchange rates. Our reporting currency is the U.S. dollar, and exchange rate fluctuations, especially relative to the U.S. dollar, may materially impact our results and financial position. In 2017,2020, we wrote approximately 15.3%15.8% of our coverages in non-U.S. currencies; as of December 31, 2017,2020, we maintained approximately 10.5%8.6% of our investment portfolio in investments denominated in non-U.S. currencies. During 2017, 20162020, 2019 and 2015,2018, the impact on our quarterly pre-tax net income from exchange rate fluctuations ranged from a loss of $12.3$7.7 million to a gain of $15.4$5.2 million.
Changes in the method for determining LIBOR and the potential replacement of LIBOR may affect our cost of capital and net investment income.
On July 27, 2017, the UK Financial Conduct Authority announced that it intends to stop persuading or compelling banks to submit LIBOR rates after 2021, which is expected to result in these widely used reference rates no longer being available. Potential changes to LIBOR, as well as uncertainty related to such potential changes and the establishment of any alternative reference rates, may adversely affect the market for LIBOR-based securities and could adversely impact the interest rate on our long term subordinate notes. In addition, the discontinuance of LIBOR or changes or reforms to the determination or supervision of LIBOR may result in a sudden or prolonged increase or decrease in reported LIBOR, which could have an adverse impact on the market for LIBOR-based securities or the value of our investment portfolio.
We are subject to cybersecurity risks that could negatively impact our business operations.
We are dependent upon our information technology platform, including our processing systems, data and electronic transmissions in our business operations. Security breaches could expose us to the loss or misuse of our information, litigation and potential liability. In addition, cyber incidents that impact the availability, reliability, speed, accuracy or other proper functioning of these systems could have a significant negative impact on our operations and possibly our results. An incident could also result in a violation of applicable privacy and other laws, damage our reputation, cause a loss of customers or give rise to monetary fines and other penalties, which could be significant. Management is not aware of a cybersecurity incident that has had a material impact on our operations.
The NAIC has adopted an Insurance Data Security Model Law, which, when adopted by the states will require insurers, insurance producers and other entities required to be licensed under state insurance laws to comply with certain requirements under state insurance laws, such as developing and maintaining a written information security program, conducting risk assessments and overseeing the data security practices of third-party vendors. In addition, certain state insurance regulators are developing or have developed regulations that may impose regulatory requirements relating to cybersecurity on insurance and reinsurance companies (potentially including insurance and reinsurance companies that are not domiciled, but are licensed, in the relevant state). For example, the New York State Department of Financial Services has adopted a regulation pertaining to cybersecurity for all banking and insurance entities under its jurisdiction, effective as of March 1, 2017, which applies to us. We cannot predict the impact these laws and regulations will have on our business, financial condition or results of operations, but our insurance and reinsurance companies could incur additional costs resulting from compliance with such laws and regulations.
The continuing COVID-19 pandemic has adversely affected, and may materially and adversely affect, our results of operations, financial position and liquidity in the future.
The ongoing COVID-19 pandemic, including the related impact on the U.S. and global economies, has adversely affected our results of operations. We expect the pandemic and its impact on our business to continue and potentially even worsen, but we cannot predict the magnitude or duration of its continued impact, particularly given the great uncertainties associated with COVID-19, including regarding the reopening of the U.S. and global economies and the recovery from its economic and other effects. The full impact of COVID-19 on our results of operations, financial position and liquidity is not yet known, and likely will not be known for some time, but includes the following:
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Claim Losses Related to COVID-19 May Exceed Reserves: We have established reserves for COVID-19-related losses. Our reserves represent management’s best estimate of what the settlement and claims administration will cost for claims that have occurred, whether reported or unreported. Given the great uncertainties associated with COVID-19 and its impact and the limited information upon which our current assumptions and assessments have been made, our preliminary reserves and the underlying estimated level of claim losses and costs arising from COVID-19 may materially change.
Adverse Legislative and Regulatory Action: Legislative and regulatory initiatives taken or which may be taken in response to COVID-19 may adversely affect us. For example, our business may be subject to, certain initiatives, including, but not limited to: legislative and regulatory action that seeks to retroactively mandate coverage for losses which our insurance policies would not otherwise cover and which were not priced to cover; actions prohibiting us from cancelling insurance policies in accordance with our policy terms or non-renewing policies at their natural expiration; and/or orders to provide premium refunds, grant extended grace periods for premium payments, and provide extended time to pay past due premiums. Any such action would likely increase both our underwriting losses and our expenses and any legal challenges to any such action could take years to resolve.
Reduction in Premiums: The demand for insurance is significantly influenced by general economic conditions. Consequently, reduced economic activity relating to the COVID-19 pandemic is likely to decrease demand for our insurance products and services and negatively impact our premium volumes (and, in certain cases, may result in return of premiums due to a decrease in exposures). This may continue for an indefinite period, with the magnitude of the impact impossible to predict.
Investments: Further disruptions in global financial markets due to the continuing impact of COVID-19 could cause us to incur additional unrealized and/or realized investment losses, including credit impairments in our fixed maturity portfolio. In addition, the economic uncertainty resulting from COVID-19 may result in a decline in interest rates, which may negatively impact our future net investment income.
Credit Risk: As credit risk is generally a function of the economy, we face greater credit risk from our policyholders, independent agents and brokers in connection with the payment and remittance of premiums as a result of the economic conditions caused by COVID-19. Similarly, our credit risk related to the reimbursement of deductibles from policyholders and in connection with reinsurance recoverables has increased.
Operational Disruptions and Costs: Our operations could be disrupted if key members of our senior management or a significant percentage of our workforce or the workforce of our agents, brokers, suppliers or other third party service providers are unable to continue to work because of illness, government directives or otherwise. In addition, our agents, brokers, suppliers and other third party service providers, which we rely on for key aspects of our operations, are subject to risks and uncertainties related to the COVID-19 pandemic, which may interfere with their ability to fulfill their respective commitments and responsibilities to us in a timely manner and in accordance with the agreed-upon terms. In response to the COVID-19 pandemic, we have implemented remote working policies which have resulted in disruptions to our business routines, heightened risk to cybersecurity attacks and data security incidents and a greater dependency on internet and telecommunication access and capabilities.
Risks Relating to Regulation
Insurance laws and regulations restrict our ability to operate and any failure to comply with those laws and regulations could have a material adverse effect on our business.
We are subject to extensive and increasing regulation under U.S., state and foreign insurance laws. These laws limit the amount of dividends that can be paid to us by our operating subsidiaries, impose restrictions on the amount and type of investments that we can hold, prescribe solvency, accounting and internal control standards that must be met and maintained and require us to maintain reserves. These laws also require disclosure of material inter-affiliate transactions and require prior approval of "extraordinary"“extraordinary” transactions. Such "extraordinary"“extraordinary” transactions include declaring dividends from operating subsidiaries that exceed
12
statutory thresholds. These laws also generally require approval of changes of control of insurance companies. The application of these laws could affect our liquidity and ability to pay dividends, interest and other payments on securities, as applicable, and could restrict our ability to expand our business operations through acquisitions of new insurance subsidiaries. We may not have or maintain all required licenses and approvals or fully comply with the wide variety of applicable laws and regulations or the relevant authority'sauthority’s interpretation of the laws and regulations. If we do not have the requisite licenses and approvals or do not comply with applicable regulatory requirements, the insurance regulatory authorities could preclude or temporarily suspend us from carrying on some or all of our activities or monetarily penalize us. These types of actions could have a material adverse effect on our business. To date, no material fine, penalty or restriction has been imposed on us for failure to comply with any insurance law or regulation.
As a result of the previous dislocation of the financial markets, Congress and the previous Presidential administration in the United States implemented changes in the way the financial services industry is regulated. Some of these changes are also impacting the insurance industry. For example, the United States Department ofU.S. Treasury established the Federal Insurance Office with the authority to monitor all aspects of the insurance sector, monitor the extent to which traditionally underserved communities and consumers have access to affordable non-health insurance products, to represent the United States on prudential aspects of international insurance matters, to assist with administration of the Terrorism Risk Insurance Program and to advise on important national and international insurance matters. In addition, several European regulatory bodies are in process of updating existing or developing new capital adequacy directives for insurers and reinsurers. The future impact of such initiatives or new initiatives from the incoming Presidential administration,current Government Administration, if any, on our operation, net income (loss) or financial condition cannot be determined at this time.
12Risk Relating to our seCURITIES
Because of our holding company structure, our ability to pay dividends, interest and principal is dependent on our receipt of dividends, loan payments and other funds from our subsidiaries.
We are a holding company, whose most significant asset consists of the stock of our operating subsidiaries. As a result, our ability to pay dividends, interest or other payments on our securities in the future will depend on the earnings and cash flows of the operating subsidiaries and the ability of the subsidiaries to pay dividends or to advance or repay funds to us. This ability is subject to general economic, financial, competitive, regulatory and other factors beyond our control. Payment of dividends and advances and repayments from some of the operating subsidiaries are regulated by U.S., state and foreign insurance laws and regulatory restrictions, including minimum solvency and liquidity thresholds. Accordingly, the operating subsidiaries may not be able to pay dividends or advance or repay funds to us in the future, which could prevent us from paying dividends, interest or other payments on our securities.
Risk Relating to taxation
If U.S. tax law changes, our net income may be impacted.
The recently enacted Tax Cut2017 TCJA addressed concerns by members of Congress regarding U.S. corporations moving their place of incorporation to low-tax jurisdictions to obtain a competitive advantage over domestic corporations that are subject to the U.S. corporate tax rate of 21%. Specifically, it addressed their concern over a perceived competitive advantage that foreign-controlled insurers and Jobs Act ("TCJA") includes a provision for additional taxes onreinsurers may have had over U.S. controlled insurers and reinsurers resulting from the purchase of reinsurance transactions withby U.S. insurers from affiliates operating in foreign jurisdictions.jurisdictions, including Bermuda. Such affiliated reinsurance transactions are nowmay subject the U.S. ceding companies to a Base Erosion and Anti-abuse Tax ("BEAT"(“BEAT”) of 5% in 2018, 10% from 2019 to 2025 and 12.5% thereafter.thereafter which may exceed its regular income tax. In addition, it is anticipated that new regulations will be issued with respect to the BEAT. These newproposed and final regulations may further limit the ability of the Company to execute alternative capital balancing transactions with unrelated parties. This would further impact our net income and effective tax rate.
As of December 2020, Everest Re'sRe has relocated its corporate offices are located into Warren, NJ with approximately 230,500321,500 square feet of leased office space in Liberty Corner, New Jersey.space. The Company'sCompany’s other eighteen18 locations occupy a total of approximately 168,876219,950 square feet, all of which are leased. Management believes that the above described office space is adequate for its current and anticipated needs.
In the ordinary course of business, the Company is involved in lawsuits, arbitrations and other formal and informal dispute resolution procedures, the outcomes of which will determine the Company'sCompany’s rights and obligations under insurance and reinsurance agreements. In some disputes, the Company seeks to enforce its rights under an agreement or to collect funds owing to it. In other matters, the Company is resisting attempts by others to collect funds or enforce alleged rights. These disputes arise from time to time and are ultimately resolved through both informal and formal means, including negotiated resolution, arbitration and litigation. In all such matters, the Company believes that its positions are legally and commercially reasonable. The Company considers the statuses of these proceedings when determining its reserves for unpaid loss and loss adjustment expenses.
Aside from litigation and arbitrations related to these insurance and reinsurance agreements, the Company is not a party to any other material litigation or arbitration.
Not applicable.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
As of December 31, 2017,2020, all of the Company'sCompany’s common stock was owned by Holdings Ireland and was not publicly traded.
Information for Item 6 is not required pursuant to General Instruction I(2) of Form 10-K.
The following is a discussion and analysis of our results of operations and financial condition. It should be read in conjunction with the Consolidated Financial Statements and accompanying notes thereto presented under ITEM 8, "Financial“Financial Statements and Supplementary Data"Data”.
Industry Conditions.
The worldwide reinsurance and insurance businesses are highly competitive, as well as cyclical by product and market. As such, financial results tend to fluctuate with periods of constrained availability, higher rates and stronger profits followed by periods of abundant capacity, lower rates and constrained profitability. Competition in the types of reinsurance and insurance business that we underwrite is based on many factors, including the perceived overall financial strength of the reinsurer or insurer, ratings of the reinsurer or insurer by A.M. Best and/or Standard & Poor's,Poor’s, underwriting expertise, the jurisdictions where the reinsurer or insurer is licensed or otherwise authorized, capacity and coverages offered, premiums charged, other terms and conditions of the reinsurance and insurance business offered, services offered, speed of claims payment and reputation and experience in lines written. Furthermore, the market impact from these competitive factors related to reinsurance and insurance is generally not consistent across lines of business, domestic and international geographical areas and distribution channels.
We compete in the U.S. and international reinsurance and insurance markets with numerous global competitors. Our competitors include independent reinsurance and insurance companies, subsidiaries or affiliates of established worldwide insurance companies, reinsurance departments of certain insurance companies, domestic and international underwriting operations, including underwriting syndicates at Lloyd's of London and certain government sponsored risk transfer vehicles. Some of these competitors have greater financial resources than we do and have established long term and continuing business relationships, which can be a significant competitive advantage. In addition, the lack of strong barriers to entry into the reinsurance business and recently, the securitization of reinsurance and insurance risks through capital markets provide additional sources of potential reinsurance and insurance capacity and competition.
Worldwide insurance and reinsurance market conditions continued to be very competitive, particularly in the property catastrophe and casualty reinsurance lines of business.historically have been competitive. Generally, there was ample insurance and reinsurance capacity relative to demand, as well as, additional capital from the capital markets through insurance linked financial instruments. These financial instruments such as side cars, catastrophe bonds and collateralized reinsurance funds, provideprovided capital markets with access to insurance and reinsurance risk exposure. The capital markets demand for these products iswas being primarily driven by the currenta low interest rate environment and the desire to achieve greater risk diversification and potentially higher returns on their investments. This increased competition iswas generally having a negative impact on rates, terms and conditions; however, the impact varies widely by market and coverage.
The industry continues to fluctuate by specific regiondeal with the impacts of a global pandemic, COVID-19. Globally, many countries mandated that their citizens remain at home and products, particularly areas recently impacted by large catastrophic events. There was an unprecedented seriesmany non-essential businesses have continued to be physically closed. We activated our operational resiliency plan across our global footprint and all of catastrophesour critical operations are functioning effectively from remote locations. We continue to service and meet the needs of our clients while ensuring the safety and health of our employees and customers.
The pandemic has caused significant volatility in the third quarterglobal financial markets. Interest rates plummeted, credit spreads widened and the equity markets lost value. We saw our fixed maturity and equity portfolios decline in value resulting in unrealized investment losses in our March 31, 2020 financial statements. However, the financial markets rebounded during the remaining quarters of 2017 with Hurricanes Harvey, Irma2020 and Maria, as well aswe recognized after-tax unrealized gains of $338.2 million in our financial statements for these three quarters. Nevertheless, the lack of business activity may lead to an increase in bankruptcies and corresponding credit losses.
15
There will also be a negative impact on future industry underwriting results. With the closing of non-essential businesses, there has been a significant earthquakedecline in Mexico City. Additional catastrophe events occurredbusiness activity. To the extent that premiums are based on business activity, there will be a decline in premium volume. Incurred losses from the fourth quarter of 2017 with the wildfires in California and Hurricanes Nate and Ophelia. The total industry losses for all of these events could exceed $100 billion. This is the second consecutive year with higher than average catastrophe losses. During 2016, catastrophe losses included the Fort McMurray Canadian wildfire, Hurricane Matthew which affected a large area of the Caribbean and southeastern United States, storms and an earthquake in Ecuador. There are industry reports that the catastrophe losses for 2016 reached their highest level in four years and the United States experienced the most loss events since 1980 and the highest total losses since 2012. While the future impact on market conditions from these catastrophes cannotpandemic will be determined at this time, there was some firming in the markets impacted by the 2016 catastrophesduration of the event and as catastrophewill vary by line of business and geographical location. For the full year 2020, our underwriting results include $154.8 million of estimated losses increasedrelated to the pandemic.
Many regulators had issued moratoriums on the cancellation of policies for the non-payment of premiums and also on non-renewals. We are complying with the various regulatory requests for accommodations to policyholders during this difficult period. The moratoriums combined with the forced closure of businesses may lead to an increase in 2017,uncollectible premium expense.
Prior to the pandemic, there iswas a growing industry consensus that there will be a generalwas some firming of the (re)insurance markets resultingrates for the areas impacted by the recent catastrophes. The increased frequency of catastrophe losses in rate increases, not only for catastrophe exposures, but2020 appears to be further pressuring the increase of rates. Rates also potentially for most other linesappear to be firming in some of business.
While we are unable to predict the full impact the pandemic will have on the insurance industry as it continues to have a negative impact on the global economy, we are well as, product and geographic expansion in existing lines of business. We are building a world-class insurance platform capable of offering products across lines and geographies, complementing our leading global reinsurance franchise.
16
We monitor and evaluate our overall performance based upon financial results. The following table displays a summary of the consolidated net income (loss), ratios and stockholder'sstockholder’s equity for the periods indicated:
| Years Ended December 31, |
| Percentage Increase/(Decrease) | ||||||||||
(Dollars in millions) | 2020 |
| 2019 |
| 2018 |
| 2020/2019 |
| 2019/2018 | ||||
Gross written premiums | $ | 7,957.0 |
| $ | 7,053.1 |
| $ | 6,573.7 |
|
| 12.8% |
| 7.3% |
Net written premiums |
| 6,638.7 |
|
| 5,774.9 |
|
| 5,031.9 |
|
| 15.0% |
| 14.8% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REVENUES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums earned | $ | 6,406.6 |
| $ | 5,489.0 |
| $ | 4,839.1 |
|
| 16.7% |
| 13.4% |
Net investment income |
| 375.9 |
|
| 356.2 |
|
| 314.4 |
|
| 5.5% |
| 13.3% |
Net realized capital gains (losses) |
| 49.8 |
|
| 419.4 |
|
| (185.4) |
|
| -88.1% |
| NM |
Other income (expense) |
| (14.6) |
|
| (1.6) |
|
| (9.6) |
|
| NM |
| -83.4% |
Total revenues |
| 6,817.7 |
|
| 6,263.0 |
|
| 4,958.5 |
|
| 8.9% |
| 26.3% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CLAIMS AND EXPENSES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Incurred losses and loss adjustment expenses |
| 4,608.1 |
|
| 3,829.1 |
|
| 4,811.0 |
|
| 20.3% |
| -20.4% |
Commission, brokerage, taxes and fees |
| 1,373.4 |
|
| 1,270.1 |
|
| 1,141.7 |
|
| 8.1% |
| 11.2% |
Other underwriting expenses |
| 401.0 |
|
| 350.9 |
|
| 293.3 |
|
| 14.3% |
| 19.6% |
Corporate expense |
| 16.0 |
|
| 13.1 |
|
| 11.0 |
|
| 22.4% |
| 18.4% |
Interest, fee and bond issue cost amortization expense |
| 35.7 |
|
| 34.9 |
|
| 30.6 |
|
| 2.1% |
| 14.1% |
Total claims and expenses |
| 6,434.2 |
|
| 5,498.1 |
|
| 6,287.7 |
|
| 17.0% |
| -12.6% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS) BEFORE TAXES |
| 383.5 |
|
| 765.0 |
|
| (1,329.2) |
|
| -49.9% |
| -157.5% |
Income tax expense (benefit) |
| 31.7 |
|
| 135.2 |
|
| (367.0) |
|
| -76.6% |
| -136.8% |
NET INCOME (LOSS) | $ | 351.9 |
| $ | 629.7 |
| $ | (962.2) |
|
| -44.1% |
| -165.4% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RATIOS: |
|
|
|
|
|
|
|
|
|
| Point Change | ||
Loss ratio |
| 71.9% |
|
| 69.8% |
|
| 99.4% |
|
| 2.1 |
| (29.6) |
Commission and brokerage ratio |
| 21.4% |
|
| 23.1% |
|
| 23.6% |
|
| (1.7) |
| (0.5) |
Other underwriting expense ratio |
| 6.3% |
|
| 6.4% |
|
| 6.1% |
|
| (0.1) |
| 0.3 |
Combined ratio |
| 99.6% |
|
| 99.3% |
|
| 129.1% |
|
| 0.3 |
| (29.8) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| At December 31, |
| Percentage Increase/ (Decrease) | ||||||||||
(Dollars in millions) | 2020 |
| 2019 |
| 2018 |
| 2020/2019 |
| 2019/2018 | ||||
Balance sheet data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments and cash | $ | 15,910.2 |
| $ | 11,956.3 |
| $ | 10,707.4 |
|
| 33.1% |
| 11.7% |
Total assets |
| 23,717.1 |
|
| 19,706.2 |
|
| 18,680.3 |
|
| 20.4% |
| 5.5% |
Loss and loss adjustment expense reserves |
| 11,655.0 |
|
| 10,209.5 |
|
| 10,167.0 |
|
| 14.2% |
| 0.4% |
Total debt |
| 1,910.4 |
|
| 633.8 |
|
| 933.6 |
|
| 201.4% |
| -32.1% |
Total liabilities |
| 17,302.8 |
|
| 13,848.8 |
|
| 13,643.5 |
|
| 24.9% |
| 1.5% |
Stockholder's equity |
| 6,414.3 |
|
| 5,857.4 |
|
| 5,036.8 |
|
| 9.5% |
| 16.3% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Some amounts may not reconcile due to rounding) | |||||||||||||
(NM, not meaningful) |
17
Years Ended December 31, | Percentage Increase/(Decrease) | |||||||||||||||||||
(Dollars in millions) | 2017 | 2016 | 2015 | 2017/2016 | 2016/2015 | |||||||||||||||
Gross written premiums | $ | 5,788.5 | $ | 5,063.7 | $ | 4,995.6 | 14.3 | % | 1.4 | % | ||||||||||
Net written premiums | 2,723.8 | 2,048.1 | 2,093.3 | 33.0 | % | -2.2 | % | |||||||||||||
REVENUES: | ||||||||||||||||||||
Premiums earned | $ | 1,949.6 | $ | 2,094.0 | $ | 2,143.8 | -6.9 | % | -2.3 | % | ||||||||||
Net investment income | 286.3 | 264.8 | 273.3 | 8.1 | % | -3.1 | % | |||||||||||||
Net realized capital gains (losses) | 161.6 | (28.9 | ) | 50.3 | NM | -157.5 | % | |||||||||||||
Other income (expense) | 23.8 | (10.5 | ) | 29.3 | NM | -136.0 | % | |||||||||||||
Total revenues | 2,421.2 | 2,319.4 | 2,496.6 | 4.4 | % | -7.1 | % | |||||||||||||
CLAIMS AND EXPENSES: | ||||||||||||||||||||
Incurred losses and loss adjustment expenses | 2,039.8 | 1,350.3 | 1,319.6 | 51.1 | % | 2.3 | % | |||||||||||||
Commission, brokerage, taxes and fees | 210.9 | 281.4 | 312.3 | -25.1 | % | -9.9 | % | |||||||||||||
Other underwriting expenses | 254.9 | 245.0 | 214.8 | 4.0 | % | 14.0 | % | |||||||||||||
Corporate expense | 7.4 | 8.3 | 7.2 | -10.7 | % | 15.3 | % | |||||||||||||
Interest, fee and bond issue cost amortization expense | 31.2 | 35.4 | 35.4 | -12.0 | % | 0.0 | % | |||||||||||||
Total claims and expenses | 2,544.1 | 1,920.4 | 1,889.3 | 32.5 | % | 1.6 | % | |||||||||||||
INCOME (LOSS) BEFORE TAXES | (123.0 | ) | 399.0 | 607.3 | -130.8 | % | -34.3 | % | ||||||||||||
Income tax expense (benefit) | (201.2 | ) | 97.3 | 194.9 | NM | -50.1 | % | |||||||||||||
NET INCOME (LOSS) | $ | 78.2 | $ | 301.6 | $ | 412.4 | -74.1 | % | -26.9 | % | ||||||||||
RATIOS: | Point Change | |||||||||||||||||||
Loss ratio | 104.6 | % | 64.5 | % | 61.6 | % | 40.1 | 2.9 | ||||||||||||
Commission and brokerage ratio | 10.8 | % | 13.4 | % | 14.6 | % | (2.6 | ) | (1.2 | ) | ||||||||||
Other underwriting expense ratio | 13.1 | % | 11.7 | % | 9.9 | % | 1.4 | 1.8 | ||||||||||||
Combined ratio | 128.5 | % | 89.6 | % | 86.1 | % | 38.9 | 3.5 | ||||||||||||
At December 31, | Percentage Increase/ (Decrease) | |||||||||||||||||||
(Dollars in millions) | 2017 | 2016 | 2015 | 2017/2016 | 2016/2015 | |||||||||||||||
Balance sheet data: | ||||||||||||||||||||
Total investments and cash | $ | 8,911.5 | $ | 9,842.7 | $ | 9,516.3 | -9.5 | % | 3.4 | % | ||||||||||
Total assets | 17,888.5 | 17,083.4 | 16,689.0 | 4.2 | % | 2.4 | % | |||||||||||||
Loss and loss adjustment expense reserves | 9,343.0 | 8,331.3 | 7,940.7 | 12.1 | % | 4.9 | % | |||||||||||||
Total debt | 633.4 | 633.2 | 633.0 | 0.0 | % | 0.0 | % | |||||||||||||
Total liabilities | 12,475.8 | 11,784.9 | 11,730.6 | 5.1 | % | 0.5 | % | |||||||||||||
Stockholder's equity | 5,412.7 | 5,298.6 | 4,958.3 | 2.2 | % | 6.9 | % | |||||||||||||
(Some amounts may not reconcile due to rounding) | ||||||||||||||||||||
(NM, not meaningful) |
16Revenues.
Premiums. Gross written premiums increased by 14.3%12.8% to $5,788.5$7,957.0 million in 2017,2020, compared to $5,063.7$7,053.1 million in 2016,2019, reflecting a $537.7$665.3 million, or 15.8%14.5%, increase in our reinsurance business and a $187.1$238.6 million, or 11.2%9.7%, increase in our insurance business. The increaserise in reinsurance premiums was mainly due to the new crop reinsurance transactions, increases in treaty property pro rata business, casualty excess of loss writings and financial linesproperty catastrophe excess of business and the influx of reinstatement premiums related to multiple catastrophe events in the third quarter.loss business. The rise in insurance premiums was primarilymainly due to increases in many lines ofspecialty casualty business, including property retail casualtybusiness and accident and health, partially offset by the impact of the sale of Heartland.professional liability business. Net written premiums increased by 33.0%15.0% to $2,723.8$6,638.7 million in 2017,2020, compared to $2,048.1$5,774.9 million in 2016.2019. The difference between the change in gross written premiums compared to the change in net written premiums is primarily due to the impact of changes in affiliated quota share contracts, particularly the non-renewal of the quota share agreement between Everest Re and Bermuda Re as of December 31, 2017, which resulted in a $799.0 million increase to net written premiums in 2017.reinsurance contracts. Premiums earned decreasedincreased by 6.9%16.7% to $1,949.6$6,406.6 million in 2017,2020, compared to $2,094.0$5,489.0 million in 2016.2019. The change in premiums earned relative to net written premiums is partially due to the impact of the non-renewal of the quota share contract between Everest Re and Bermuda Re and is also the result of timing; premiums are earned ratably over the coverage period whereas written premiums are recorded at the initiation of the coverage period.
Gross written premiums increased by 1.4%7.3% to $5,063.7$7,053.1 million in 2016,2019, compared to $4,995.6$6,573.7 million in 2015,2018, reflecting a $195.0$445.7 million, or 13.2%22.2%, increase in our insurance business partially offset byand a $127.0$33.7 million, or 3.6%0.7%, decreaseincrease in our reinsurance business. The rise in insurance premiums was primarily due to increases in mostmany lines of business, as we have focused on expanding the insurance operations.including casualty, energy and accident and health. The declineincrease in reinsurance premiums was mainly due to the increase in treaty casualty writings, partially offset by a decreasedecline in treaty property business, a decline in international premiums related to quota share agreements and a negative impact of $42.9 million from the year over year movement in foreign exchange rates.business. Net written premiums decreasedincreased by 2.2%14.8% to $2,048.1$5,774.9 million in 2016,2019, compared to $2,093.3$5,031.9 million in 2015.2018. The declinedifference between the change in netgross written premiums compared to the increasechange in grossnet written premiums is primarily due to a higher levelthe impact of changes in affiliated reinsurance purchased on the insurance business.contracts. Premiums ceded to Bermuda Re in 2019 were $100.1 million compared with $572.6 million in 2018. Premiums earned decreasedincreased by 2.3%13.4% to $2,094.0$5,489.0 million in 2016,2019, compared to $2,143.8$4,839.1 million in 2015.2018. The change in premiums earned is consistent with the change inrelative to net written premiums.
Net Investment Income. Net investment income increased 8.1%5.5% to $286.3$375.9 million in 20172020 compared with net investment income of $264.8$356.2 million in 2016.2019. Net pre-tax investment income as a percentage of average invested assets was 2.8% in 2020 and 3.2% in 2019. The increase in income was primarily the result of higher income from our growing fixed maturity portfolio, offsetting the impact from the lower interest rate environment, and from our limited partnerships.
Net investment income increased 13.3% to $356.2 million in 2019 compared with net investment income of $314.4 million in 2018. Net pre-tax investment income as a percentage of average invested assets was 3.2% in 2017, compared to 2.8% in 2016.both 2019 and 2018. The increasesincrease in income and yield in 2017 werewas primarily the result of higher income from our limited partnerships and higher income from the growing fixed incomematurity portfolio, partially offset by lower income from our limited partnerships and lower dividend income from our equity portfolio.
Net Realized Capital Gains (Losses). Net realized capital gains were $161.6$49.8 million in 2017,2020 and $419.4 million in 2019 and net realized capital losses were $28.9 million in 2016 and net realized capital gains were $50.3$185.4 million in 2015. 2018. The net realized capital gains of $161.6$49.8 million in 2020, were comprised of $158.591.9 million of gains from fair value re-measurements, partially offset by $40.6 million of losses from sales of investments and $1.6 million increase in allowances for credit loss. The net realized capital gains of $419.4 million in 2019, were comprised of $420.8 million of gains from fair value re-measurements, on equity securities and other invested assets and $9.118.2 million of gains from sales on our fixed maturity and equity portfolio, of investments, partially offset by $6.1 $19.6 million of other-than-temporary impairments.The net realized capital losses of $28.9$185.4 million in 20162018 were comprised of a realized capital loss of $$28.0 million from the sale of our Heartland subsidiary, $25.7 million of other-than-temporary impairments and $21.1 million of losses from sales on our fixed maturity and equity securities, partially offset by $45.9 million of gains from fair value re-measurements on fixed maturity securities, equity securities and other invested assets. The $50.3 million of net realized capital gains in 2015 were comprised of a $94.7 million gain on the sale of a subsidiary and $44.1 million of net gains from sales on our fixed maturity and equity securities, partially
Other Income (Expense). We recorded other incomeexpense of $23.8$14.6 million $1.6 million and $9.6 million in 2017, other expense of $10.5 million in 20162020, 2019 and other income of $29.3 million in 2015.2018, respectively. The changes were primarily the result of fluctuations in foreign currency exchange rates.
Claims and Expenses.
Incurred Losses and Loss Adjustment Expenses. The following table presents our incurred losses and loss adjustment expenses ("LAE"(“LAE”) for the periods indicated.
18
| Total | ||||||||||||||||
| Current |
| Ratio %/ |
| Prior |
| Ratio %/ |
| Total |
| Ratio %/ | ||||||
(Dollars in millions) | Year |
| Pt Change |
| Years |
| Pt Change |
| Incurred |
| Pt Change | ||||||
2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attritional (a) | $ | 3,997.2 |
| 62.4% |
|
| $ | 213.5 |
| 3.3% |
|
| $ | 4,210.8 |
| 65.7% |
|
Catastrophes |
| 410.6 |
| 6.4% |
|
|
| (13.2) |
| (0.2)% |
|
|
| 397.4 |
| 6.2% |
|
Total | $ | 4,407.8 |
| 68.8% |
|
| $ | 200.3 |
| 3.1% |
|
| $ | 4,608.1 |
| 71.9% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attritional (a) | $ | 3,271.4 |
| 59.6% |
|
| $ | (16.0) |
| -0.3% |
|
| $ | 3,255.5 |
| 59.3% |
|
Catastrophes |
| 513.3 |
| 9.4% |
|
|
| 60.3 |
| 1.1% |
|
|
| 573.7 |
| 10.5% |
|
Total | $ | 3,784.8 |
| 69.0% |
|
| $ | 44.4 |
| 0.8% |
|
| $ | 3,829.1 |
| 69.8% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attritional (a) | $ | 3,092.6 |
| 63.9% |
|
| $ | 5.8 |
| 0.1% |
|
| $ | 3,098.4 |
| 64.0% |
|
Catastrophes |
| 1,159.6 |
| 24.0% |
|
|
| 553.0 |
| 11.4% |
|
|
| 1,712.6 |
| 35.4% |
|
Total | $ | 4,252.2 |
| 87.9% |
|
| $ | 558.8 |
| 11.5% |
|
| $ | 4,811.0 |
| 99.4% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variance 2020/2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attritional (a) | $ | 725.8 |
| 2.8 | pts |
| $ | 229.5 |
| 3.6 | pts |
| $ | 955.3 |
| 6.4 | pts |
Catastrophes |
| (102.7) |
| (3.0) | pts |
|
| (73.5) |
| (1.3) | pts |
|
| (176.3) |
| (4.3) | pts |
Total | $ | 623.0 |
| (0.2) | pts |
| $ | 155.9 |
| 2.3 | pts |
| $ | 779.0 |
| 2.1 | pts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variance 2019/2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attritional (a) | $ | 178.8 |
| (4.3) | pts |
| $ | (21.8) |
| (0.4) | pts |
| $ | 157.1 |
| (4.7) | pts |
Catastrophes |
| (646.3) |
| (14.6) | pts |
|
| (492.7) |
| (10.3) | pts |
|
| (1,138.9) |
| (24.9) | pts |
Total | $ | (467.4) |
| (18.9) | pts |
| $ | (514.4) |
| (10.7) | pts |
| $ | (981.9) |
| (29.6) | pts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) Attritional losses exclude catastrophe losses. | |||||||||||||||||
(Some amounts may not reconcile due to rounding.) |
Years Ended December 31, | |||||||||||||||||||||||||||
Current | Ratio %/ | Prior | Ratio %/ | Total | Ratio %/ | ||||||||||||||||||||||
(Dollars in millions) | Year | Pt Change | Years | Pt Change | Incurred | Pt Change | |||||||||||||||||||||
2017 | |||||||||||||||||||||||||||
Attritional (a) | $ | 1,200.6 | 61.5 | % | $ | (102.3 | ) | -5.2 | % | $ | 1,098.4 | 56.3 | % | ||||||||||||||
Catastrophes | 956.9 | 49.1 | % | (15.5 | ) | -0.8 | % | 941.4 | 48.3 | % | |||||||||||||||||
Total | $ | 2,157.5 | 110.6 | % | $ | (117.7 | ) | -6.0 | % | $ | 2,039.8 | 104.6 | % | ||||||||||||||
2016 | |||||||||||||||||||||||||||
Attritional (a) | $ | 1,287.2 | 61.5 | % | $ | (46.1 | ) | -2.2 | % | $ | 1,241.1 | 59.3 | % | ||||||||||||||
Catastrophes | 154.8 | 7.4 | % | (45.6 | ) | -2.2 | % | 109.2 | 5.2 | % | |||||||||||||||||
Total | $ | 1,442.0 | 68.9 | % | $ | (91.7 | ) | -4.4 | % | $ | 1,350.3 | 64.5 | % | ||||||||||||||
2015 | |||||||||||||||||||||||||||
Attritional (a) | $ | 1,282.9 | 59.8 | % | $ | 4.7 | 0.3 | % | $ | 1,287.6 | 60.1 | % | |||||||||||||||
Catastrophes | 43.1 | 2.0 | % | (11.2 | ) | -0.5 | % | 31.9 | 1.5 | % | |||||||||||||||||
Total | $ | 1,326.0 | 61.8 | % | $ | (6.5 | ) | -0.2 | % | $ | 1,319.6 | 61.6 | % | ||||||||||||||
Variance 2017/2016 | |||||||||||||||||||||||||||
Attritional (a) | $ | (86.6 | ) | - | pts | $ | (56.2 | ) | (3.0 | ) | pts | $ | (142.7 | ) | (3.0 | ) | pts | ||||||||||
Catastrophes | 802.1 | 41.7 | pts | 30.1 | 1.4 | pts | 832.2 | 43.1 | pts | ||||||||||||||||||
Total | $ | 715.5 | 41.7 | pts | $ | (26.1 | ) | (1.6 | ) | pts | $ | 689.5 | 40.1 | pts | |||||||||||||
Variance 2016/2015 | |||||||||||||||||||||||||||
Attritional (a) | $ | 4.3 | 1.7 | pts | $ | (50.8 | ) | (2.5 | ) | pts | $ | (46.5 | ) | (0.8 | ) | pts | |||||||||||
Catastrophes | 111.7 | 5.4 | pts | (34.4 | ) | (1.7 | ) | pts | 77.3 | 3.7 | pts | ||||||||||||||||
Total | $ | 116.0 | 7.1 | pts | $ | (85.2 | ) | (4.2 | ) | pts | $ | 30.7 | 2.9 | pts | |||||||||||||
(a) Attritional losses exclude catastrophe losses. | |||||||||||||||||||||||||||
(Some amounts may not reconcile due to rounding.) |
Incurred losses and LAE increased by 51.1%20.3% to $2,039.8$4,608.1 million in 20172020 compared to $1,350.3$3,829.1 million in 2016,2019, primarily due to an increase of $802.1$725.8 million in current year attritional losses, related to $154.8 million of losses from the COVID-19 pandemic and the impact of the increase in premiums earned and $229.5 million increase in development on prior years attritional losses in 2020 compared to 2019. The increase in incurred losses was partially offset by a decrease of $102.7 million in current year catastrophe losses and less favorablea $73.5 million improvement in development on prior years catastrophe losses. The current year catastrophe losses of $30.1$410.6 million in 2020 related to Hurricane Laura ($115.0 million), the Northern California wildfires ($44.1 million), Hurricane Zeta ($36.5 million), Hurricane Sally ($31.4 million), the California Glass wildfire ($29.5 million), the Nashville tornadoes ($22.8 million), the Derecho storms ($20.5 million), Hurricane Isaias ($20.0 million), Hurricane Delta ($18.5 million), the Calgary storms in Canada ($17.4 million), Oregon wildfires ($17.0 million), the U.S. Civil Unrest ($14.5 million) the Queensland hailstorm ($10.0 million), the Australia East Coast storm ($6.8 million) and the 2020 Australia fires ($6.5 million). The current year catastrophe losses of $513.3 million in 2019 related to Typhoon Hagibis ($184.0 million), Hurricane Dorian ($161.0 million), Typhoon Faxai ($119.3 million), the Dallas tornadoes ($25.0 million), and the Townsville Monsoon in Australia ($24.0 million).
Incurred losses and LAE decreased by 20.4% to $3,829.1 million in 2019 compared to $4,811.0 million in 2018, primarily due to a decrease in current year catastrophe losses of $646.3 million and a decrease in unfavorable development on prior year catastrophe losses of $492.7 million mainly related to the development on Hurricanes Harvey, Irma and Maria and the California wildfires in 2017 compared to 2016. These increases were2018. The decrease in losses was partially offset by a decreasean increase of $86.6$178.8 million ofon current year attritional losses mainly due to the impact of the declineincrease in premiums earned and an additional $56.2 million of favorable development on prior years attritional losses in 2017 compared to 2016. The $102.3 million of favorable development on prior years attritional losses in 2017 was mainly comprised of $68.8 million of favorable development on reinsurance business related to property and short tail business in the United States, partially offset by $25.2 million of adverse development on A&E reserves and $33.5 million of favorable development on insurance business, mainly related to workers compensation business.earned. The current year catastrophe losses of $956.9 million in 2017 related to Hurricane Irma ($333.7 million), Hurricane Maria ($268.1 million), Hurricane Harvey ($235.8 million), the Northern California wildfires ($75.3 million), the South Africa Knysna fires ($9.6 million), the Mexico City earthquake ($9.3 million), Cyclone Debbie in Australia ($8.5 million), the Peru storms ($7.1 million), the 2017 US Midwest storms ($5.0 million) and the Southern California wildfires ($4.4 million). Current year catastrophe losses of $154.8$513.3 million in 2016 were related to Hurricane Matthew ($62.3 million), the Fort McMurray Canada wildfire ($26.6 million), the 2016 U.S. Storms ($25.7 million), the Ecuador earthquake ($11.6 million), the 2016 Taiwan earthquake ($7.5 million), the Tennessee wildfire ($7.3 million), the New Zealand earthquake ($6.9 million) and Hurricane Hermine ($6.8 million).2019 are outlined above. The
19
Commission, Brokerage, Taxes and Fees. Commission, brokerage, taxes and fees deincreased by 25.1% to $210.9$1,373.4 million in 20172020 compared to $281.41,270.1 million in 2016.2019. The decreaseincrease was primarilymainly due to the impact of the decreaseincreases in premiums earned the impact of higher reinstatement premiums in 2017 and the impact of changes in affiliated quota share contracts.
Commission, brokerage, taxes and fees increased to $1,270.1 million in 2019 compared to $1,141.7 million in 2018. The increase was mainly due to changes in affiliated reinsurance agreements, increases in premiums earned and changes in the mix of business toward additional pro rata business.
Other Underwriting Expenses. Other underwriting expenses were $254.9$401.0 million, $245.0$350.9 million and $214.8$293.3 million in 2017, 20162020, 2019 and 2015,2018, respectively. The increase in other underwriting expenses between the years wasincreases were mainly due to the impact of increases in premium earned, costs incurred related to support the expansion of the insurance business.business and changes in affiliated reinsurance agreements.
Corporate Expenses. Corporate expenses, which are general operating expenses that are not allocated to segments, have remained consistent at $7.4were $16.0 million, $8.3$13.1 million and $7.2$11.0 million for the years ended December 31, 2017, 20162020, 2019 and 2015,2018, respectively. The variances were mainly due to changes in variable compensation.
Interest, Fees and Bond Issue Cost Amortization Expense. Interest, fees and other bond amortization expense were $31.2$35.7 million, $35.4$34.9 million and 35.4$30.6 million in 2017, 20162020, 2019 and 2015,2018, respectively. The decreaseschanges in expense for 2017 waswere primarily due to the conversion ofmovements in the floating interest rate related to the long term subordinated notes, from a fixed rate of 6.6% to a floating rate, which is reset quarterly per the note agreement. The floating rate was 3.8%2.6% as of December 31, 2017.2020. The increase from 2019 to 2020 was also related to the interest expense incurred on the $1,000.0 million senior note issuance in October 2020.
Income Tax Expense (Benefit). We The Company had an income tax expense of $31.7 million in 2020, an income tax expense of $135.2 million in 2019, and an income tax benefit of $201.2$367.0 million in 2017, which includes $123.1 million of2018. The TCJA impact was an income tax benefit related to the enactment of the TCJA, and income tax expense of $97.3$28.4 million and $194.9 million for December 31, 2016, and 2015, respectively.in 2018. Variations in income taxes generally result from changes in the relative levels of pre-tax income, including the impact of catastrophe losses and net capital gains (losses) as well as changes in tax exempt investment income and creditable foreign taxes. The change in income tax expense (benefit) for 2017 compared to 2016 was primarily due to the significant catastropheincrease in incurred losses, including from COVID 19 reserves and a reserve charge from 2019 to 2020.
The Coronavirus Aid, Relief, and Economic Security (“CARES”) Act, enacted on March 27, 2020, provided that U.S. companies could carryback for five years net operating losses incurred in 2017.
19
Our net income was $78.2 million, $301.6$351.9 million and $412.4$629.7 million in 2017, 20162020 and 2015, respectively.2019, respectively and our net loss was $962.2 million in 2018. The changes were primarily driven by the financial component fluctuations explained above.
20
Ratios.
Our combined ratio increased by 38.90.3 points to 128.5% 99.6% in 2017,2020 compared to 89.6% 99.3% in 2016.2019. The loss ratio componentscomponent increased 40.1by 2.1 points in 20172020 over the same period last year. The changes wereyear mainly due to the increases in current year catastrophe losses. The commission and brokerage ratio components decreased to 10.8% in 2017 from 13.4% in 2016. The decrease reflects changes in the mix of business, the impact of affiliated quota share contracts and the impact from reinstatement premiums. The other underwriting expense ratios increased to 13.1% in 2017 from 11.7% in 2016. The$229.5 million increase in 2017 was due to costs associated with the continued expansion of the insurance business, partially offset by lower variable compensation costs.
Our combined ratio decreased by 29.8 points to 99.3% in 2019 compared to 129.1% in 2018. The loss ratio component decreased by 29.6 points in 20162019 over the same period last year mainly due to a lower loss ratio on current year catastrophe losses and less unfavorable development on prior years catastrophe losses in 2019 compared to 2018. The commission and brokerage ratio component decreased slightly to 23.1% in 2019 compared to 23.6% in 2018, reflecting changes in affiliated reinsurance agreements and changes in the mix of business. The other underwriting expense ratio increased focus on the expansion of the insurance business.
Stockholder's Equity.
Stockholder’s equity increased by $114.2$556.9 million to $5,412.7$6,414.3 million at December 31, 20172020 from $5,298.6$5,857.4 million at December 31, 2016,2019, principally as a result of $78.2$351.9 million of net income, $37.4 million of net foreign currency translation adjustments, $6.5 million of net benefit plan obligation adjustments and $0.3 million of share-based compensation transactions, partially offset by $8.2 million of net unrealized depreciation on investments, net of tax.
Stockholder’s equity increased by $820.6 million to $5,857.4 million at December 31, 2019 from $5,036.8 million at December 31, 2018, principally as a result of $629.7 million of net income, $180.6 million of net unrealized appreciation on investments, net of tax, $17.2 million of net foreign currency translation adjustments and $0.4 million of capital contributions, partially offset by $7.1 million of net benefit plan obligation adjustments.
Consolidated Investment Results
Net Investment Income.
Net investment income increased by 8.1%5.5% to $286.3$375.9 million in 20120207 compared to $264.8$356.2 million in 20120196.. The increase in 2017 were2020 was primarily due to an increase in limited partnership income and higher income from theour growing fixed maturity portfolio, offsetting the impact of the lower interest rate environment, and from our limited partnerships.
Net investment income increased by 13.3% to $356.2 million in 2019 compared to $314.4 million in 2018. The increase in 2019 was primarily due to higher income from our growing fixed maturity portfolio, partially offset by lower income from our limited partnerships and lower dividend income from our equity portfolio.
21
The following table shows the components of net investment income for the periods indicated:
| Years Ended December 31, | |||||||
(Dollars in millions) | 2020 |
| 2019 |
| 2018 | |||
Fixed maturities | $ | 305.4 |
| $ | 273.1 |
| $ | 201.1 |
Equity securities |
| 11.5 |
|
| 10.8 |
|
| 14.9 |
Short-term investments and cash |
| 3.0 |
|
| 10.2 |
|
| 7.7 |
Other invested assets |
|
|
|
|
|
|
|
|
Limited partnerships |
| 48.9 |
|
| 43.3 |
|
| 61.6 |
Dividends from preferred shares of affiliate |
| 31.0 |
|
| 31.0 |
|
| 31.0 |
Other |
| 1.7 |
|
| 14.1 |
|
| 17.8 |
Gross investment income before adjustments |
| 401.5 |
|
| 382.6 |
|
| 334.2 |
Funds held interest income (expense) |
| 5.7 |
|
| 6.5 |
|
| 5.2 |
Interest income from Parent |
| 5.2 |
|
| 0.2 |
|
| 4.1 |
Gross investment income |
| 412.3 |
|
| 389.3 |
|
| 343.5 |
Investment expenses |
| (36.4) |
|
| (33.1) |
|
| (29.1) |
Net investment income | $ | 375.9 |
| $ | 356.2 |
| $ | 314.4 |
|
|
|
|
|
|
|
|
|
(Some amounts may not reconcile due to rounding.) |
|
|
|
|
|
|
|
|
Years Ended December 31, | ||||||||||||
(Dollars in millions) | 2017 | 2016 | 2015 | |||||||||
Fixed maturities | $ | 193.7 | $ | 182.1 | $ | 188.3 | ||||||
Equity securities | 25.9 | 32.3 | 34.4 | |||||||||
Short-term investments and cash | 2.9 | 1.2 | 1.0 | |||||||||
Other invested assets | ||||||||||||
Limited partnerships | 36.6 | 25.2 | 19.6 | |||||||||
Dividends from Parent's shares | - | - | 38.9 | |||||||||
Dividends from preferred shares of affiliate | 31.0 | 31.0 | - | |||||||||
Other | 6.7 | 1.0 | 1.8 | |||||||||
Gross investment income before adjustments | 296.8 | 272.9 | 284.0 | |||||||||
Funds held interest income (expense) | 5.0 | 6.1 | 5.6 | |||||||||
Interest income from Parent | 4.3 | 4.3 | 4.3 | |||||||||
Gross investment income | 306.0 | 283.3 | 293.9 | |||||||||
Investment expenses | (19.8 | ) | (18.5 | ) | (20.6 | ) | ||||||
Net investment income | $ | 286.3 | $ | 264.8 | $ | 273.3 | ||||||
(Some amounts may not reconcile due to rounding.) |
The following table shows a comparison of various investment yields for the periods indicated:
| 2020 |
| 2019 |
| 2018 | |||
Imbedded pre-tax yield of cash and invested assets at December 31 | 3.1 | % |
| 3.5 | % |
| 3.5 | % |
Imbedded after-tax yield of cash and invested assets at December 31 | 2.5 | % |
| 2.8 | % |
| 2.8 | % |
|
|
|
|
|
|
|
|
|
Annualized pre-tax yield on average cash and invested assets | 2.8 | % |
| 3.2 | % |
| 3.2 | % |
Annualized after-tax yield on average cash and invested assets | 2.3 | % |
| 2.6 | % |
| 2.6 | % |
22
2017 | 2016 | 2015 | |
Imbedded pre-tax yield of cash and invested assets at December 31 | 3.4% | 2.9% | 2.9% |
Imbedded after-tax yield of cash and invested assets at December 31 | 2.7% | 2.0% | 2.1% |
Annualized pre-tax yield on average cash and invested assets | 3.2% | 2.8% | 3.1% |
Annualized after-tax yield on average cash and invested assets | 2.2% | 2.0% | 2.2% |
21
The following table presents the composition of our net realized capital gains (losses) for the periods indicated:
| Years Ended December 31, |
| 2020/2019 |
| 2019/2018 | |||||||||
(Dollars in millions) | 2020 |
| 2019 |
| 2018 |
| Variance |
| Variance | |||||
Gains (losses) from sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities, market value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains | $ | 24.2 |
| $ | 24.7 |
| $ | 15.3 |
| $ | (0.5) |
| $ | 9.4 |
Losses |
| (56.8) |
|
| (17.1) |
|
| (14.4) |
|
| (39.7) |
|
| (2.7) |
Total |
| (32.6) |
|
| 7.6 |
|
| 0.9 |
|
| (40.2) |
|
| 6.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities, fair value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains |
| — |
|
| 0.4 |
|
| — |
|
| (0.4) |
|
| 0.4 |
Losses |
| (2.9) |
|
| — |
|
| (1.8) |
|
| (2.9) |
|
| 1.8 |
Total |
| (2.9) |
|
| 0.4 |
|
| (1.8) |
|
| (3.3) |
|
| 2.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities, fair value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains |
| 37.4 |
|
| 14.2 |
|
| 25.2 |
|
| 23.2 |
|
| (11.0) |
Losses |
| (45.3) |
|
| (10.1) |
|
| (57.3) |
|
| (35.2) |
|
| 47.2 |
Total |
| (7.9) |
|
| 4.1 |
|
| (32.1) |
|
| (12.0) |
|
| 36.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other invested assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains |
| 7.7 |
|
| 6.7 |
|
| 1.8 |
|
| 1.0 |
|
| 4.9 |
Losses |
| (6.0) |
|
| (0.7) |
|
| — |
|
| (5.3) |
|
| (0.7) |
Total |
| 1.7 |
|
| 6.0 |
|
| 1.8 |
|
| (4.3) |
|
| 4.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short Term Investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains |
| 1.1 |
|
| 0.2 |
|
| — |
|
| 0.9 |
|
| 0.2 |
Losses |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
Total |
| 1.1 |
|
| 0.2 |
|
| — |
|
| 0.9 |
|
| 0.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net realized gains (losses) from sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains |
| 70.4 |
|
| 46.3 |
|
| 42.3 |
|
| 24.1 |
|
| 4.0 |
Losses |
| (111.0) |
|
| (27.9) |
|
| (73.5) |
|
| (83.1) |
|
| 45.6 |
Total |
| (40.6) |
|
| 18.4 |
|
| (31.2) |
|
| (59.0) |
|
| 49.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowances for credit losses: |
| (1.6) |
|
| — |
|
| — |
|
| (1.6) |
|
| — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other than temporary impairments: |
| — |
|
| (19.6) |
|
| (6.2) |
|
| 19.6 |
|
| (13.4) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains (losses) from fair value adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturities, fair value |
| 1.9 |
|
| 1.8 |
|
| 1.5 |
|
| 0.1 |
|
| 0.3 |
Equity securities, fair value |
| 276.1 |
|
| 153.7 |
|
| (59.4) |
|
| 122.4 |
|
| 213.1 |
Other invested assets, fair value |
| (186.1) |
|
| 265.2 |
|
| (90.1) |
|
| (451.3) |
|
| 355.3 |
Total |
| 91.9 |
|
| 420.7 |
|
| (148.0) |
|
| (328.8) |
|
| 568.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net realized gains (losses) | $ | 49.8 |
| $ | 419.4 |
| $ | (185.4) |
| $ | (369.6) |
| $ | 604.8 |
(Some amounts may not reconcile due to rounding.) |
23
Years Ended December 31, | 2017/2016 | 2016/2015 | ||||||||||||||||||
(Dollars in millions) | 2017 | 2016 | 2015 | Variance | Variance | |||||||||||||||
Gains (losses) from sales: | ||||||||||||||||||||
Fixed maturity securities, market value | ||||||||||||||||||||
Gains | $ | 31.3 | $ | 18.6 | $ | 10.9 | $ | 12.7 | $ | 7.7 | ||||||||||
Losses | (28.9 | ) | (25.6 | ) | (47.2 | ) | (3.3 | ) | 21.6 | |||||||||||
Total | 2.5 | (7.0 | ) | (36.3 | ) | 9.5 | 29.3 | |||||||||||||
Fixed maturity securities, fair value | ||||||||||||||||||||
Gains | - | 0.3 | - | (0.3 | ) | 0.3 | ||||||||||||||
Losses | - | (1.9 | ) | - | 1.9 | (1.9 | ) | |||||||||||||
Total | - | (1.6 | ) | - | 1.6 | (1.6 | ) | |||||||||||||
Equity securities, fair value | ||||||||||||||||||||
Gains | 23.2 | 16.2 | 26.1 | 7.0 | (9.9 | ) | ||||||||||||||
Losses | (16.7 | ) | (28.8 | ) | (34.1 | ) | 12.1 | 5.3 | ||||||||||||
Total | 6.6 | (12.6 | ) | (8.0 | ) | 19.2 | (4.6 | ) | ||||||||||||
Other invested assets, fair value | ||||||||||||||||||||
Gains on exchange | 0.1 | - | 88.4 | 0.1 | (88.4 | ) | ||||||||||||||
Losses | - | - | - | - | - | |||||||||||||||
Total | 0.1 | - | 88.4 | 0.1 | (88.4 | ) | ||||||||||||||
Total net realized gains (losses) from sales | ||||||||||||||||||||
Gains | 54.6 | 35.1 | 125.4 | 19.5 | (90.3 | ) | ||||||||||||||
Losses | (45.6 | ) | (56.3 | ) | (81.3 | ) | 10.7 | 25.0 | ||||||||||||
Total | 9.1 | (21.1 | ) | 44.1 | 30.2 | (65.3 | ) | |||||||||||||
Gain (loss) on sale of subsidiary: | - | (28.0 | ) | 94.7 | 28.0 | (122.7 | ) | |||||||||||||
Other than temporary impairments: | (6.1 | ) | (25.7 | ) | (78.8 | ) | 19.6 | 53.1 | ||||||||||||
Gains (losses) from fair value adjustments: | ||||||||||||||||||||
Fixed maturities, fair value | - | 1.4 | - | (1.4 | ) | 1.4 | ||||||||||||||
Equity securities, fair value | 117.7 | 51.1 | (39.1 | ) | 66.6 | 90.2 | ||||||||||||||
Other invested assets, fair value | 40.8 | (6.6 | ) | 29.5 | 47.4 | (36.1 | ) | |||||||||||||
Total | 158.5 | 45.9 | (9.6 | ) | 112.6 | 55.5 | ||||||||||||||
Total net realized gains (losses) | $ | 161.6 | $ | (28.9 | ) | $ | 50.3 | $ | 190.5 | $ | (79.2 | ) | ||||||||
(Some amounts may not reconcile due to rounding.) |
Net realized capital gains were $161.6$49.8 million in 2017,2020 and $419.4 million in 2019 and net realized capital losses were $28.9$185.4 million in 2016, and2018. The net realized capital gains were $50.3of $49.8 million in 2015. In 2017, we recorded 2020, were comprised of $158.591.9 million of gains from fair value re-measurements, on equity securities partially offset by $40.6 million of losses from sales of investments and other invested assets and$1.6 million increase in allowances for credit loss. The net realized capital gains of $419.4 million in 2019, were comprised of $9.1420.8 million of gains from fair value re-measurements, $18.2 million of gains from sales on our fixed maturity and equity securities, of investments, partially offset by $6.1 $19.6 million of other-than-temporary impairments. In 2016, we recorded a realized capital loss of $28.0 million from the sale of our Heartland subsidiary, $25.7 million of other-than-temporary impairments and $21.1 million of The net realized capital losses of $185.4 million in 2018 were comprised of $148.0 million of losses from fair value re-measurements, $31.2 million of losses from sales of fixed maturityinvestments and equity securities, partially offset by $45.9 million of net realized capital gains due to fair value re-measurements on fixed maturity securities, equity securities and other invested assets. In 2015, we recorded a $94.7 million gain on the sale of a subsidiary and $44.1 million of net realized capital gains from sales of fixed maturity and equity securities, partially offset by $78.8$6.2 million of other-than-temporary impairments and $9.6 million of net realized capital losses due to fair value re-measurements on equity securities and other invested assets. The fixed maturity and equity sales related primarily to adjusting the portfolios for overall market changes and individual credit shifts.
22
The U.S. Reinsurance operation writes property and casualty reinsurance and specialty lines of business, including Marine, Aviation, Surety and A&H business, on both a treaty and facultative basis, through reinsurance brokers, as well as directly with ceding companiescompanies. Business is primarily withinwritten in the U.S. The International operation writes non-U.S. property and casualty reinsuranceas well as through Everest Re's branches in Canada Singapore and through offices in Brazil, Miami and New Jersey.Singapore. The Insurance operation writes property and casualty insurance directly, through brokers, surplus lines brokers and general agents mainly within the U.S.
These segments are managed independently, but conform with corporate guidelines with respect to pricing, risk management, control of aggregate catastrophe exposures, capital, investments and support operations. Management generally monitors and evaluates the financial performance of these operating segments based upon their underwriting results.
Underwriting results include earned premium less losses and LAE incurred, commission and brokerage expenses and other underwriting expenses. We measure our underwriting results using ratios, in particular loss, commission and brokerage and other underwriting expense ratios, which respectively, divide incurred losses, commissions and brokerage and other underwriting expenses by premiums earned.
Our loss and LAE reserves are management'smanagement’s best estimate of our ultimate liability for unpaid claims. We re-evaluate our estimates on an ongoing basis, including all prior period reserves, taking into consideration all available information and, in particular, recently reported loss claim experience and trends related to prior periods. Such re-evaluations are recorded in incurred losses in the period in which the re-evaluation is made.
The following discusses the underwriting results for each of our segments for the periods indicated:
24
Reinsurance.
The following table presents the underwriting results and ratios for the U.S. Reinsurance segment for the periods indicated.
| Years Ended December 31, |
| 2020/2019 |
| 2019/2018 | |||||||||||||||
(Dollars in millions) | 2020 |
| 2019 |
| 2018 |
| Variance |
|
| % Change |
| Variance |
|
| % Change | |||||
Gross written premiums | $ | 5,265.7 |
| $ | 4,600.4 |
| $ | 4,569.5 |
| $ | 665.3 |
|
| 14.5% |
| $ | 30.9 |
|
| 0.7% |
Net written premiums |
| 4,632.3 |
|
| 3,923.8 |
|
| 3,519.7 |
|
| 708.5 |
|
| 18.1% |
|
| 404.1 |
|
| 11.5% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums earned | $ | 4,484.7 |
| $ | 3,796.2 |
| $ | 3,386.4 |
| $ | 688.5 |
|
| 18.1% |
| $ | 409.8 |
|
| 12.1% |
Incurred losses and LAE |
| 3,209.2 |
|
| 2,692.7 |
|
| 3,811.7 |
|
| 516.5 |
|
| 19.2% |
|
| (1,119.0) |
|
| (29.4)% |
Commission and brokerage |
| 1,120.0 |
|
| 1,027.3 |
|
| 923.9 |
|
| 92.7 |
|
| 9.0% |
|
| 103.4 |
|
| 11.2% |
Other underwriting expenses |
| 119.3 |
|
| 110.0 |
|
| 97.9 |
|
| 9.3 |
|
| 8.5% |
|
| 12.1 |
|
| 12.4% |
Underwriting gain (loss) | $ | 36.2 |
| $ | (33.9) |
| $ | (1,447.2) |
| $ | 70.1 |
|
| -207.0% |
| $ | 1,413.3 |
|
| (97.7)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Point Chg |
|
|
|
|
| Point Chg |
Loss ratio |
| 71.6% |
|
| 70.9% |
|
| 112.6% |
|
|
|
|
| 0.7 |
|
|
|
|
| (41.7) |
Commission and brokerage ratio |
| 25.0% |
|
| 27.1% |
|
| 27.3% |
|
|
|
|
| (2.1) |
|
|
|
|
| (0.2) |
Other underwriting expense ratio |
| 2.6% |
|
| 2.9% |
|
| 2.8% |
|
|
|
|
| (0.3) |
|
|
|
|
| 0.1 |
Combined ratio |
| 99.2% |
|
| 100.9% |
|
| 142.7% |
|
|
|
|
| (1.7) |
|
|
|
|
| (41.8) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Some amounts may not reconcile due to rounding) |
Years Ended December 31, | 2017/2016 | 2016/2015 | ||||||||||||||||||||||||||
(Dollars in millions) | 2017 | 2016 | 2015 | Variance | % Change | Variance | % Change | |||||||||||||||||||||
Gross written premiums | $ | 2,593.1 | $ | 2,125.8 | $ | 2,147.9 | $ | 467.3 | 22.0 | % | $ | (22.1 | ) | -1.0 | % | |||||||||||||
Net written premiums | 1,135.6 | 930.2 | 899.9 | 205.4 | 22.1 | % | 30.3 | 3.4 | % | |||||||||||||||||||
Premiums earned | $ | 858.2 | $ | 990.1 | $ | 951.5 | $ | (131.9 | ) | -13.3 | % | $ | 38.6 | 4.1 | % | |||||||||||||
Incurred losses and LAE | 912.1 | 554.1 | 413.3 | 358.0 | 64.6 | % | 140.8 | 34.1 | % | |||||||||||||||||||
Commission and brokerage | 160.3 | 189.5 | 199.0 | (29.2 | ) | -15.4 | % | (9.5 | ) | -4.8 | % | |||||||||||||||||
Other underwriting expenses | 55.9 | 54.1 | 50.1 | 1.8 | 3.3 | % | 4.0 | 8.0 | % | |||||||||||||||||||
Underwriting gain (loss) | $ | (270.2 | ) | $ | 192.4 | $ | 289.1 | $ | (462.5 | ) | -240.5 | % | $ | (96.7 | ) | -33.4 | % | |||||||||||
Point Chg | Point Chg | |||||||||||||||||||||||||||
Loss ratio | 106.3 | % | 56.0 | % | 43.4 | % | 50.3 | 12.6 | ||||||||||||||||||||
Commission and brokerage ratio | 18.7 | % | 19.1 | % | 20.9 | % | (0.4 | ) | (1.8 | ) | ||||||||||||||||||
Other underwriting expense ratio | 6.5 | % | 5.5 | % | 5.3 | % | 1.0 | 0.2 | ||||||||||||||||||||
Combined ratio | 131.5 | % | 80.6 | % | 69.6 | % | 50.9 | 11.0 | ||||||||||||||||||||
(Some amounts may not reconcile due to rounding) |
Premiums.Gross written premiums increased by 22.0%14.5% to $2,593.1$5,265.7 million in2020 from $4,600.4 million in 20172019 from $2,125.8 million in 2016, primarily due to an increaseincreases in the new crop reinsuranceproperty pro rata business, an increase in treatycasualty excess of loss writings and property business, the influxcatastrophe excess of reinstatement premiums due to the catastrophe losses and an increase in mortgageloss business. Net written premiums increased by 22.1%18.1% to $1,135.6$4,632.3 million in2020 compared to $3,923,8 million in 20172019. compared to $930.2 million in 2016, partially due to the changes in affiliated quota agreements including the non-renewal of the quota share agreement between Everest Re and Bermuda Re. Premiums earned decreased 13.3% to $858.2 million in 2017 compared to $990.1 million in 2016. The change in premiums earned relative to net written premiums is partially due to the impact of the non-renewal of the quota share contract between
Years Ended December 31, | |||||||||||||||||||||||||||
Current | Ratio %/ | Prior | Ratio %/ | Total | Ratio %/ | ||||||||||||||||||||||
(Dollars in millions) | Year | Pt Change | Years | Pt Change | Incurred | Pt Change | |||||||||||||||||||||
2017 | |||||||||||||||||||||||||||
Attritional | $ | 522.3 | 61.0 | % | $ | (80.4 | ) | -9.4 | % | $ | 441.9 | 51.6 | % | ||||||||||||||
Catastrophes | 485.2 | 56.5 | % | (15.1 | ) | -1.8 | % | 470.2 | 54.7 | % | |||||||||||||||||
Total segment | $ | 1,007.5 | 117.5 | % | $ | (95.5 | ) | -11.2 | % | $ | 912.1 | 106.3 | % | ||||||||||||||
2016 | |||||||||||||||||||||||||||
Attritional | $ | 555.5 | 56.1 | % | $ | (49.0 | ) | -4.9 | % | $ | 506.5 | 51.2 | % | ||||||||||||||
Catastrophes | 67.0 | 6.8 | % | (19.5 | ) | -2.0 | % | 47.6 | 4.8 | % | |||||||||||||||||
Total segment | $ | 622.5 | 62.9 | % | $ | (68.5 | ) | -6.9 | % | $ | 554.1 | 56.0 | % | ||||||||||||||
2015 | |||||||||||||||||||||||||||
Attritional | $ | 473.5 | 49.8 | % | $ | (63.7 | ) | -6.8 | % | $ | 409.8 | 43.0 | % | ||||||||||||||
Catastrophes | 8.4 | 0.9 | % | (4.9 | ) | -0.5 | % | 3.5 | 0.4 | % | |||||||||||||||||
Total segment | $ | 481.9 | 50.7 | % | $ | (68.6 | ) | -7.2 | % | $ | 413.3 | 43.4 | % | ||||||||||||||
Variance 2017/2016 | |||||||||||||||||||||||||||
Attritional | $ | (33.2 | ) | 4.9 | pts | $ | (31.4 | ) | (4.5 | ) | pts | $ | (64.6 | ) | 0.4 | pts | |||||||||||
Catastrophes | 418.2 | 49.7 | pts | 4.4 | 0.2 | pts | 422.6 | 49.9 | pts | ||||||||||||||||||
Total segment | $ | 385.0 | 54.6 | pts | $ | (27.0 | ) | (4.3 | ) | pts | $ | 358.0 | 50.3 | pts | |||||||||||||
Variance 2016/2015 | |||||||||||||||||||||||||||
Attritional | $ | 82.0 | 6.3 | pts | $ | 14.7 | 1.9 | pts | $ | 96.7 | 8.2 | pts | |||||||||||||||
Catastrophes | 58.6 | 5.9 | pts | (14.6 | ) | (1.5 | ) | pts | 44.1 | 4.4 | pts | ||||||||||||||||
Total segment | $ | 140.6 | 12.2 | pts | $ | 0.1 | 0.3 | pts | $ | 140.8 | 12.6 | pts | |||||||||||||||
(Some amounts may not reconcile due to rounding.) |
Years Ended December 31, | 2017/2016 | 2016/2015 | ||||||||||||||||||||||||||
(Dollars in millions) | 2017 | 2016 | 2015 | Variance | % Change | Variance | % Change | |||||||||||||||||||||
Gross written premiums | $ | 1,339.5 | $ | 1,269.1 | $ | 1,374.0 | $ | 70.4 | 5.5 | % | $ | (104.9 | ) | -7.6 | % | |||||||||||||
Net written premiums | 615.4 | 497.6 | 562.7 | 117.8 | 23.7 | % | (65.1 | ) | -11.6 | % | ||||||||||||||||||
Premiums earned | $ | 502.3 | $ | 510.9 | $ | 581.2 | $ | (8.6 | ) | -1.7 | % | $ | (70.3 | ) | -12.1 | % | ||||||||||||
Incurred losses and LAE | 622.8 | 207.6 | 394.8 | 415.2 | 200.0 | % | (187.2 | ) | -47.4 | % | ||||||||||||||||||
Commission and brokerage | 101.9 | 111.5 | 121.2 | (9.6 | ) | -8.6 | % | (9.6 | ) | -8.0 | % | |||||||||||||||||
Other underwriting expenses | 36.3 | 34.3 | 34.3 | 2.0 | 5.9 | % | - | 0.0 | % | |||||||||||||||||||
Underwriting gain (loss) | $ | (258.7 | ) | $ | 157.5 | $ | 30.9 | $ | (416.2 | ) | NM | $ | 126.5 | NM | ||||||||||||||
Point Chg | Point Chg | |||||||||||||||||||||||||||
Loss ratio | 124.0 | % | 40.6 | % | 67.9 | % | 83.4 | (27.3 | ) | |||||||||||||||||||
Commission and brokerage ratio | 20.3 | % | 21.8 | % | 20.8 | % | (1.5 | ) | 1.0 | |||||||||||||||||||
Other underwriting expense ratio | 7.2 | % | 6.8 | % | 6.0 | % | 0.4 | 0.8 | ||||||||||||||||||||
Combined ratio | 151.5 | % | 69.2 | % | 94.7 | % | 82.3 | (25.5 | ) | |||||||||||||||||||
(Some amounts may not reconcile due to rounding) | ||||||||||||||||||||||||||||
(NM, not meaningful) |
Years Ended December 31, | |||||||||||||||||||||||||||
Current | Ratio %/ | Prior | Ratio %/ | Total | Ratio %/ | ||||||||||||||||||||||
(Dollars in millions) | Year | Pt Change | Years | Pt Change | Incurred | Pt Change | |||||||||||||||||||||
2017 | |||||||||||||||||||||||||||
Attritional | $ | 255.0 | 50.8 | % | $ | 11.6 | 2.3 | % | $ | 266.6 | 53.1 | % | |||||||||||||||
Catastrophes | 357.2 | 71.1 | % | (1.0 | ) | -0.2 | % | 356.2 | 70.9 | % | |||||||||||||||||
Total segment | $ | 612.2 | 121.9 | % | $ | 10.6 | 2.1 | % | $ | 622.8 | 124.0 | % | |||||||||||||||
2016 | |||||||||||||||||||||||||||
Attritional | $ | 261.5 | 51.2 | % | $ | (93.6 | ) | -18.3 | % | $ | 167.9 | 32.8 | % | ||||||||||||||
Catastrophes | 65.5 | 12.8 | % | (25.8 | ) | -5.1 | % | 39.7 | 7.8 | % | |||||||||||||||||
Total segment | $ | 327.0 | 64.0 | % | $ | (119.4 | ) | -23.4 | % | $ | 207.6 | 40.6 | % | ||||||||||||||
2015 | |||||||||||||||||||||||||||
Attritional | $ | 378.1 | 65.1 | % | $ | (11.4 | ) | -2.1 | % | $ | 366.7 | 63.0 | % | ||||||||||||||
Catastrophes | 34.7 | 6.0 | % | (6.6 | ) | -1.1 | % | 28.1 | 4.9 | % | |||||||||||||||||
Total segment | $ | 412.8 | 71.1 | % | $ | (18.0 | ) | -3.2 | % | $ | 394.8 | 67.9 | % | ||||||||||||||
Variance 2017/2016 | |||||||||||||||||||||||||||
Attritional | $ | (6.5 | ) | (0.4 | ) | pts | $ | 105.2 | 20.6 | pts | $ | 98.7 | 20.3 | pts | |||||||||||||
Catastrophes | 291.7 | 58.3 | pts | 24.8 | 4.9 | pts | 316.5 | 63.1 | pts | ||||||||||||||||||
Total segment | $ | 285.2 | 57.9 | pts | $ | 130.0 | 25.5 | pts | $ | 415.2 | 83.4 | pts | |||||||||||||||
Variance 2016/2015 | |||||||||||||||||||||||||||
Attritional | $ | (116.6 | ) | (13.9 | ) | pts | $ | (82.2 | ) | (16.2 | ) | pts | $ | (198.8 | ) | (30.2 | ) | pts | |||||||||
Catastrophes | 30.8 | 6.8 | pts | (19.2 | ) | (4.0 | ) | pts | 11.6 | 2.9 | pts | ||||||||||||||||
Total segment | $ | (85.8 | ) | (7.1 | ) | pts | $ | (101.4 | ) | (20.2 | ) | pts | $ | (187.2 | ) | (27.3 | ) | pts | |||||||||
(Some amounts may not reconcile due to rounding.) |
Years Ended December 31, | 2017/2016 | 2016/2015 | ||||||||||||||||||||||||||
(Dollars in millions) | 2017 | 2016 | 2015 | Variance | % Change | Variance | % Change | |||||||||||||||||||||
Gross written premiums | $ | 1,855.9 | $ | 1,668.8 | $ | 1,473.8 | $ | 187.1 | 11.2 | % | $ | 195.0 | 13.2 | % | ||||||||||||||
Net written premiums | 972.8 | 620.3 | 630.7 | 352.5 | 56.8 | % | (10.4 | ) | -1.6 | % | ||||||||||||||||||
Premiums earned | $ | 589.1 | $ | 593.1 | $ | 611.1 | $ | (4.0 | ) | -0.7 | % | $ | (18.0 | ) | -2.9 | % | ||||||||||||
Incurred losses and LAE | 504.9 | 588.6 | 511.5 | (83.7 | ) | -14.2 | % | 77.1 | 15.1 | % | ||||||||||||||||||
Commission and brokerage | (51.3 | ) | (19.6 | ) | (7.8 | ) | (31.7 | ) | 162.0 | % | (11.8 | ) | 150.6 | % | ||||||||||||||
Other underwriting expenses | 162.7 | 156.6 | 130.4 | 6.1 | 3.9 | % | 26.2 | 20.1 | % | |||||||||||||||||||
Underwriting gain (loss) | $ | (27.1 | ) | $ | (132.5 | ) | $ | (23.0 | ) | $ | 105.4 | -79.5 | % | $ | (109.5 | ) | NM | |||||||||||
Point Chg | Point Chg | |||||||||||||||||||||||||||
Loss ratio | 85.7 | % | 99.2 | % | 83.7 | % | (13.5 | ) | 15.5 | |||||||||||||||||||
Commission and brokerage ratio | -8.7 | % | -3.3 | % | -1.3 | % | (5.4 | ) | (2.0 | ) | ||||||||||||||||||
Other underwriting expense ratio | 27.6 | % | 26.5 | % | 21.3 | % | 1.1 | 5.2 | ||||||||||||||||||||
Combined ratio | 104.6 | % | 122.3 | % | 103.8 | % | (17.7 | ) | 18.5 | |||||||||||||||||||
(Some amounts may not reconcile due to rounding) | ||||||||||||||||||||||||||||
(NM, not meaningful) |
Gross written premiums increased by 13.2%0.7% to $1,668.8$4,600.4 million in2019 from $4,569.5 million in 2016 compared to $1,473.8 million in 20152018. This increase was, primarily driven by expansion of various insurance lines of business anddue to an increase in accidenttreaty casualty writings and health business.mortgage business, partially offset by a decline in treaty property business, including lower reinstatement premiums. Net written premiums decreasedincreased by 1.6%11.5% to $620.3$3,923.8 million in 2016 2019 compared to $630.7$3,519.7 million in 2015. 2018. The difference between the change in gross written premiums compared to the change in net written premiums is primarily due to the transferimpact of the crop business to the U.S. Reinsurance segment as a result of the Heartland sale.changes in affiliated reinsurance contracts. Premiums earned decreased 2.9%increased 12.1% to $593.1$3,796.2 million in 20162019 compared to $611.1$3,386.4 million in 20152018. The change in premiums earned relative to net written premiums is the result of timing; premiums are earned ratably over the coverage period whereas written premiums are recorded at the initiation of the coverage period.
25
27
| Years Ended December 31, | ||||||||||||||||
| Current |
| Ratio %/ |
| Prior |
| Ratio %/ |
| Total |
| Ratio %/ | ||||||
(Dollars in millions) | Year |
| Pt Change |
| Years |
| Pt Change |
| Incurred |
| Pt Change | ||||||
2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attritional | $ | 2,692.2 |
| 60.0% |
|
| $ | 187.3 |
| 4.2% |
|
| $ | 2,879.5 |
| 64.2% |
|
Catastrophes |
| 342.5 |
| 7.6% |
|
|
| (12.8) |
| (0.3)% |
|
|
| 329.7 |
| 7.4% |
|
Total segment | $ | 3,034.7 |
| 67.7% |
|
| $ | 174.5 |
| 3.9% |
|
| $ | 3,209.2 |
| 71.6% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attritional | $ | 2,140.1 |
| 56.4% |
|
| $ | (15.4) |
| (0.4)% |
|
| $ | 2,124.7 |
| 56.0% |
|
Catastrophes |
| 509.3 |
| 13.4% |
|
|
| 58.7 |
| 1.5% |
|
|
| 568.0 |
| 14.9% |
|
Total segment | $ | 2,649.4 |
| 69.8% |
|
| $ | 43.3 |
| 1.1% |
|
| $ | 2,692.7 |
| 70.9% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attritional | $ | 2,130.0 |
| 62.9% |
|
| $ | 5.8 |
| 0.2% |
|
| $ | 2,135.8 |
| 63.1% |
|
Catastrophes |
| 1,117.5 |
| 33.0% |
|
|
| 558.4 |
| 16.5% |
|
|
| 1,675.9 |
| 49.5% |
|
Total segment | $ | 3,247.6 |
| 95.9% |
|
| $ | 564.2 |
| 16.7% |
|
| $ | 3,811.7 |
| 112.6% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variance 2020/2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attritional | $ | 552.1 |
| 3.6 | pts |
| $ | 202.7 |
| 4.6 | pts |
| $ | 754.8 |
| 8.2 | pts |
Catastrophes |
| (166.8) |
| (5.8) | pts |
|
| (71.5) |
| (1.8) | pts |
|
| (238.3) |
| (7.5) | pts |
Total segment | $ | 385.3 |
| (2.1) | pts |
| $ | 131.2 |
| 2.8 | pts |
| $ | 516.5 |
| 0.7 | pts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variance 2019/2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attritional | $ | 10.1 |
| (6.5) | pts |
| $ | (21.2) |
| (0.6) | pts |
| $ | (11.1) |
| (7.1) | pts |
Catastrophes |
| (608.2) |
| (19.6) | pts |
|
| (499.7) |
| (15.0) | pts |
|
| (1,107.9) |
| (34.6) | pts |
Total segment | $ | (598.2) |
| (26.1) | pts |
| $ | (520.9) |
| (15.6) | pts |
| $ | (1,119.0) |
| (41.7) | pts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Some amounts may not reconcile due to rounding.) |
Incurred losses increased by 19.2% to $3,209.2 million in 2020 compared to $2,692.7 millionin 2019. The increase was primarily due to an increase of $552.1 million in current year attritional losses, primarily related to $116.4 million of losses from the COVID-19 pandemic and the impact of the increase in premiums earned, as well as a $202.7 million increase in development on prior years attritional losses in 2020 compared to 2019. The increase in incurred losses was partially offset by a decline of $166.8 million in current year catastrophe losses and $71.5 million of improvement in development on prior years catastrophe losses in 2020 compared to 2019. The current year catastrophe losses of $342.5 million in 2020 primarily related to Hurricane Laura ($96.5 million), the Northern California wildfires ($44.1 million), the California Glass wildfire ($29.5 million), Hurricane Zeta ($28.5 million), Hurricane Isaias ($17.8 million), the Derecho storms ($17.5 million), the Nashville tornadoes ($17.3 million), Oregon wildfires ($17.0 million), Hurricane Delta ($16.5 million), Hurricane Sally ($15.5 million), the Calgary storms in Canada ($14.9 million), the Queensland hailstorm ($10.0 million), the Australia East Coast storm ($6.8 million), the 2020 Australia fires ($6.5 million), and the U.S. Civil Unrest ($4.1 million). The current year catastrophe losses of $509.3 million in 2019 primarily related to Typhoon Hagibis ($184.0 million), Hurricane Dorian ($157.0 million), Typhoon Faxai ($119.3 million), the Dallas tornadoes ($25.0 million), and the Townsville Monsoon in Australia ($24.1 million).
Incurred losses decreased by 29.4% to $2,692.7 million in2019 compared to $3,811.7 millionin 2018. The decrease was primarily due to a decline of $608.2 million in current year catastrophe losses and a $499.7 million decrease in development on prior year catastrophe losses in 2019 compared to 2018, primarily related to development on Hurricane Harvey, Irma and Maria and the 2017 California wildfires in 2018. The increases
26
in loss estimates in 2018 for Hurricane Harvey, Irma and Maria were mostly driven by re-opened claims reported in the second quarter of 2018 and loss inflation from higher than expected loss adjustment expenses and in particular, their impact on aggregate covers. The current year catastrophe losses of $509.3 million in 2019 are outlined above. The current year catastrophe losses of $1,117.5 million in 2018 primarily related to Hurricane Michael ($419.5 million), Camp wildfire ($297.0 million), Woolsey wildfire ($151.0 million), Typhoon Jebi ($66.6 million), Hurricane Florence ($51.3 million), Cyclone Mekunu ($43.7 million), Typhoon Trami ($25.0 million), Australia hailstorm ($24.0 million), other 2018 California wildfires ($23.1 million), Japan Floods ($5.5 million), and the U.S. winter storms ($1.3 million).
Segment Expenses. Commission and brokerage increased to $1,120.0 million in 2020 compared to $1,027.3 million in 2019. The increase was mainly due to the impact of the increase in premiums earned and changes in the mix of business. Segment other underwriting expenses increased to $119.3 million in 2020 from $110.0 million in 2019, mainly due to the impact of the increase in premiums earned.
Commission and brokerage increased to $1,027.3 million in 2019 compared to $923.9 million in 2018. The increase was mainly due to changes in affiliated reinsurance agreements, the impact of the increase in premiums earned and changes in the mix of business. Segment other underwriting expenses increased to $110.0 million in 2019 from $97.9 million in 2018, mainly due to the impact of changes in affiliated reinsurance contracts and the impact of the increases in premiums earned.
Insurance.
The following table presents the underwriting results and ratios for the Insurance segment for the periods indicated.
| Years Ended December 31, |
| 2020/2019 |
| 2019/2018 | |||||||||||||||
(Dollars in millions) | 2020 |
| 2019 |
| 2018 |
| Variance |
| % Change |
| Variance |
| % Change | |||||||
Gross written premiums | $ | 2,691.3 |
| $ | 2,452.7 |
| $ | 2,004.1 |
| $ | 238.6 |
|
| 9.7% |
| $ | 448.6 |
|
| 22.4% |
Net written premiums |
| 2,006.4 |
|
| 1,851.2 |
|
| 1,512.2 |
|
| 155.2 |
|
| 8.4% |
|
| 339.0 |
|
| 22.4% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums earned | $ | 1,921.9 |
| $ | 1,692.9 |
| $ | 1,452.7 |
| $ | 229.0 |
|
| 13.5% |
| $ | 240.2 |
|
| 16.5% |
Incurred losses and LAE |
| 1,399.0 |
|
| 1,136.4 |
|
| 999.3 |
|
| 262.7 |
|
| 23.1% |
|
| 137.2 |
|
| 13.7% |
Commission and brokerage |
| 253.4 |
|
| 242.8 |
|
| 217.8 |
|
| 10.6 |
|
| 4.4% |
|
| 25.0 |
|
| 11.5% |
Other underwriting expenses |
| 281.7 |
|
| 240.9 |
|
| 195.4 |
|
| 40.7 |
|
| 16.9% |
|
| 45.4 |
|
| 23.2% |
Underwriting gain (loss) | $ | (12.2) |
| $ | 72.8 |
| $ | 40.2 |
| $ | (84.9) |
|
| (116.7)% |
| $ | 32.7 |
|
| 81.3% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Point Chg |
|
|
|
|
| Point Chg |
Loss ratio |
| 72.8% |
|
| 67.1% |
|
| 68.8% |
|
|
|
|
| 5.7 |
|
|
|
|
| (1.7) |
Commission and brokerage ratio |
| 13.2% |
|
| 14.3% |
|
| 15.0% |
|
|
|
|
| (1.1) |
|
|
|
|
| (0.7) |
Other underwriting expense ratio |
| 14.6% |
|
| 14.3% |
|
| 13.4% |
|
|
|
|
| 0.3 |
|
|
|
|
| 0.9 |
Combined ratio |
| 100.6% |
|
| 95.7% |
|
| 97.2% |
|
|
|
|
| 4.9 |
|
|
|
|
| (1.5) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Some amounts may not reconcile due to rounding) | ||||||||||||||||||||
(NM, not meaningful) |
Premiums. Gross written premiums increased by 9.7% to $2,691.3 million in 2020 compared to $2,452.7 million in 2019. This increase was related to increases in specialty casualty business, property business and professional liability business. Net written premiums increased by 8.4% to $2,006.4 million in 2020 compared to $1,851.2 million in 2019 which is consistent with the change in gross written premiums. Premiums earned increased 13.5% to $1,921.9 million in 2020 compared to $1,692.9 million in 2019. The change in premiums earned is the result of timing; premiums are earned ratably over the coverage period whereas written premiums are recorded at the initiation of the coverage period.
27
Gross written premiums increased by 22.4% to $2,452.7 million in 2019 compared to $2,004.1 million in 2018. This increase was related to most lines of business including casualty, energy and accident and health. Net written premiums increased by 22.4% to $1,851.2 million in 2019 compared to $1,512.2 million in 2018 which is consistent with the change in gross written premiums. Premiums earned increased 16.5% to $1,692.9 million in 2019 compared to $1,452.7 million in 2018. The change in premiums earned is the result of timing; premiums are earned ratably over the coverage period whereas written premiums are recorded at the initiation of the coverage period.
Incurred Losses and LAE.The following table presents the incurred losses and LAE for the Insurance segment for the periods indicated.
| Years Ended December 31, | ||||||||||||||||
| Current |
| Ratio %/ |
| Prior |
| Ratio %/ |
| Total |
| Ratio %/ | ||||||
(Dollars in millions) | Year |
| Pt Change |
| Years |
| Pt Change |
| Incurred |
| Pt Change | ||||||
2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attritional | $ | 1,305.1 |
| 67.9% |
|
| $ | 26.3 |
| 1.4% |
|
| $ | 1,331.3 |
| 69.3% |
|
Catastrophes |
| 68.0 |
| 3.5% |
|
|
| (0.4) |
| (0.0)% |
|
|
| 67.7 |
| 3.5% |
|
Total segment | $ | 1,373.1 |
| 71.4% |
|
| $ | 25.9 |
| 1.3% |
|
| $ | 1,399.0 |
| 72.8% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attritional | $ | 1,131.3 |
| 66.8% |
|
| $ | (0.5) |
| —% |
|
| $ | 1,130.8 |
| 66.8% |
|
Catastrophes |
| 4.0 |
| 0.2% |
|
|
| 1.7 |
| 0.1% |
|
|
| 5.7 |
| 0.3% |
|
Total segment | $ | 1,135.3 |
| 67.0% |
|
| $ | 1.2 |
| 0.1% |
|
| $ | 1,136.4 |
| 67.1% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attritional | $ | 962.6 |
| 66.3% |
|
| $ | — |
| —% |
|
| $ | 962.6 |
| 66.3% |
|
Catastrophes |
| 42.1 |
| 2.9% |
|
|
| (5.4) |
| (0.4)% |
|
|
| 36.7 |
| 2.5% |
|
Total segment | $ | 1,004.7 |
| 69.2% |
|
| $ | (5.4) |
| (0.4)% |
|
| $ | 999.3 |
| 68.8% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variance 2020/2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attritional | $ | 173.8 |
| 1.1 | pts |
| $ | 26.8 |
| 1.4 | pts |
| $ | 200.6 |
| 2.5 | pts |
Catastrophes |
| 64.0 |
| 3.3 | pts |
|
| (2.1) |
| (0.1) | pts |
|
| 62.0 |
| 3.2 | pts |
Total segment | $ | 237.8 |
| 4.4 | pts |
| $ | 24.7 |
| 1.2 | pts |
| $ | 262.7 |
| 5.7 | pts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variance 2019/2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attritional | $ | 168.7 |
| 0.5 | pts |
| $ | (0.5) |
| — | pts |
| $ | 168.2 |
| 0.5 | pts |
Catastrophes |
| (38.1) |
| (2.7) | pts |
|
| 7.1 |
| 0.5 | pts |
|
| (31.0) |
| (2.2) | pts |
Total segment | $ | 130.6 |
| (2.2) | pts |
| $ | 6.6 |
| 0.5 | pts |
| $ | 137.2 |
| (1.7) | pts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Some amounts may not reconcile due to rounding.) |
Years Ended December 31, | |||||||||||||||||||||||||||
Current | Ratio %/ | Prior | Ratio %/ | Total | Ratio %/ | ||||||||||||||||||||||
(Dollars in millions) | Year | Pt Change | Years | Pt Change | Incurred | Pt Change | |||||||||||||||||||||
2017 | |||||||||||||||||||||||||||
Attritional | $ | 423.4 | 71.9 | % | $ | (33.5 | ) | -5.7 | % | $ | 389.9 | 66.2 | % | ||||||||||||||
Catastrophes | 114.5 | 19.4 | % | 0.6 | 0.1 | % | 115.0 | 19.5 | % | ||||||||||||||||||
Total segment | $ | 537.9 | 91.3 | % | $ | (32.9 | ) | -5.6 | % | $ | 504.9 | 85.7 | % | ||||||||||||||
2016 | |||||||||||||||||||||||||||
Attritional | $ | 470.2 | 79.2 | % | $ | 96.5 | 16.3 | % | $ | 566.7 | 95.5 | % | |||||||||||||||
Catastrophes | 22.2 | 3.7 | % | (0.3 | ) | 0.0 | % | 21.9 | 3.7 | % | |||||||||||||||||
Total segment | $ | 492.4 | 82.9 | % | $ | 96.2 | 16.3 | % | $ | 588.6 | 99.2 | % | |||||||||||||||
2015 | |||||||||||||||||||||||||||
Attritional | $ | 431.4 | 70.6 | % | $ | 79.8 | 13.1 | % | $ | 511.2 | 83.7 | % | |||||||||||||||
Catastrophes | - | 0.0 | % | 0.3 | 0.0 | % | 0.3 | 0.0 | % | ||||||||||||||||||
Total segment | $ | 431.4 | 70.6 | % | $ | 80.1 | 13.1 | % | $ | 511.5 | 83.7 | % | |||||||||||||||
Variance 2017/2016 | |||||||||||||||||||||||||||
Attritional | $ | (46.8 | ) | (7.3 | ) | pts | $ | (130.0 | ) | (22.0 | ) | pts | $ | (176.8 | ) | (29.3 | ) | pts | |||||||||
Catastrophes | 92.3 | 15.7 | pts | 0.9 | 0.1 | pts | 93.1 | 15.8 | pts | ||||||||||||||||||
Total segment | $ | 45.5 | 8.4 | pts | $ | (129.1 | ) | (21.9 | ) | pts | $ | (83.7 | ) | (13.5 | ) | pts | |||||||||||
Variance 2016/2015 | |||||||||||||||||||||||||||
Attritional | $ | 38.8 | 8.6 | pts | $ | 16.7 | 3.2 | pts | $ | 55.5 | 11.8 | pts | |||||||||||||||
Catastrophes | 22.2 | 3.7 | pts | (0.6 | ) | - | pts | 21.6 | 3.7 | pts | |||||||||||||||||
Total segment | $ | 61.0 | 12.3 | pts | $ | 16.1 | 3.2 | pts | $ | 77.1 | 15.5 | pts | |||||||||||||||
(Some amounts may not reconcile due to rounding.) |
Incurred losses and LAE decreasedincreased by 14.2%23.1% to $504.9$1,399.0 million in 20172020 compared to $588.6$1,136.4 million in 20162019, , mainly due to $130.0an increase of $173.8 million in current year attritional losses, resulting from $38.4 million of more favorablelosses from the COVID-19 pandemic and the impact of the increase in premiums earned, an increase of $64.0 million in current year catastrophe losses and a $26.8 million increase in development on prior years attritional losses in 2020 compared to 2019.The $68.0 million of current year catastrophe losses in 2020, primarily related to Hurricane Laura ($18.5 million), Hurricane Sally ($15.9 million), the U.S. Civil Unrest ($10.4 million), Hurricane Zeta ($8.0 million), the Nashville tornadoes ($5.5 million), the Derecho storms ($3.0 million), the Calgary storms in Canada ($2.5 million), Hurricane Isaias ($2.2 million), and a decreaseHurricane Delta ($2.0 million).The current year catastrophe losses of $46.8$4.0 million in 2019 primarily related to Hurricane Dorian ($4.0 million).
28
Incurred losses and LAE increased by 13.7% to $1,136.4 million in 2019 compared to $999.3 million in 2018, mainly due to an increase of $168.7 million in current year attritional losses, resulting from the impact of the increase in premiums earned, partially offset by an increasea decrease of $92.3$38.1 million in current year catastrophe losses. The decrease in current year attritionalcatastrophe losses of $4.0 million in 2019 primarily related to changes in the mix of business and the impact of affiliated quota share agreements. The $33.5 million of favorable development on prior years attritional losses in 2017 mainly related to workers compensation business. Hurricane Dorian ($4.0 million). The current year catastrophe losses of $114.5$42.1 million in 20172018 primarily related to Hurricane IrmaMichael ($53.924.0 million), Hurricane HarveyFlorence ($47.0 million), Hurricane Maria ($8.79.5 million), the 2017 US MidwestU.S. winter storms ($2.47.1 million), the Northern and other 2018 California wildfires ($1.71.5 million).
Segment Expenses.Commission and the Southern California wildfires ($0.8 million).brokerage increased to $253.4 million The $22.2 million of current year catastrophe losses in 2016 were due to the U.S. storms ($15.0 million), Hurricane Matthew ($5.5 million) and the Fort McMurray Canada wildfire ($1.7 million).
28
SAFE HARBOR DISCLOSURE
This report contains forward-looking statements within the meaning of the U.S. federal securities laws. We intend these forward-looking statements to be covered by the safe harbor provisions for forward-looking statements in the federal securities laws. In some cases, these statements can be identified by the use of forward-looking words such as "may"“may”, "will"“will”, "should"“should”, "could"“could”, "anticipate"“anticipate”, "estimate"“estimate”, "expect"“expect”, "plan"“plan”, "believe"“believe”, "predict"“predict”, "potential"“potential” and "intend"“intend”. Forward-looking statements contained in this report include information regarding our reserves for losses and LAE, the impact of the TCJA, the adequacy of our provision for uncollectible balances, estimates of our catastrophe exposure, the effects of catastrophic and pandemic events on our financial statements and the ability of our subsidiaries to pay dividends. Forward-looking statements only reflect our expectations and are not guarantees of performance. These statements involve risks, uncertainties and assumptions. Actual events or results may differ materially from our expectations. Important factors that could cause our actual events or results to be materially different from our expectations include those discussed under the caption ITEM 1A, "Risk Factors"“Risk Factors”. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.
Market Sensitive Instruments.
The SEC'sSEC’s Financial Reporting Release #48 requires registrants to clarify and expand upon the existing financial statement disclosure requirements for derivative financial instruments, derivative commodity instruments and other financial instruments (collectively, "market“market sensitive instruments"instruments”). We do not generally enter into market sensitive instruments for trading purposes.
Our current investment strategy seeks to maximize after-tax income through a high quality, diversified, taxable and tax-preferenced fixed maturity portfolio, while maintaining an adequate level of liquidity. Our mix of taxable and tax-preferenced investments is adjusted periodically, consistent with our current and projected operating results, market conditions and our tax position. The fixed maturity securities in the investment portfolio are comprised of non-trading available for sale securities. Additionally, we have invested in equity securities.
The overall investment strategy considers the scope of present and anticipated Company operations. In particular, estimates of the financial impact resulting from non-investment asset and liability transactions, together with our capital structure and other factors, are used to develop a net liability analysis. This analysis includes estimated payout characteristics for which our investments provide liquidity. This analysis is considered in the development of specific investment strategies for asset allocation, duration and credit quality. The change in overall market sensitive risk exposure principally reflects the asset changes that took place during the period.
29
Interest Rate Risk. Our $8.9$15.9 billion investment portfolio, atDecember 31, 2017,2020, is principally comprised of fixed maturity securities, which are generally subject to interest rate risk and some foreign currency exchange rate risk, and some equity securities, which are subject to price fluctuations and some foreign exchange rate risk. The overall economic impact of the foreign exchange risks on the investment portfolio is partially mitigated by changes in the dollar value of foreign currency denominated liabilities and their associated income statement impact.
Interest rate risk is the potential change in value of the fixed maturity securities portfolio, including short-term investments, from a change in market interest rates. In a declining interest rate environment, it includes prepayment risk on the $165.1$1,518.4 million of mortgage-backed securities in the $4,971.9$10,643.6 million fixed maturity portfolio. Prepayment risk results from potential accelerated principal payments that shorten the average life and thus the expected yield of the security.
The tablestable below displaydisplays the potential impact of market value fluctuations and after-tax unrealized appreciation on our fixed maturity portfolio (including $241.5$707.9 million of short-term investments) for the period indicated based on upward and downward parallel and immediate 100 and 200 basis point shifts in interest rates. For legal entities with a U.S. dollar functional currency, this modeling was performed on each security individually. To generate appropriate price estimate on mortgage-backed securities, changes in prepayment expectations under different interest rate environments were taken into account. For legal entities with non-U.S. dollar functional currency, the effective duration of the involved portfolio of securities was used as a proxy for the market value change under the various interest rate change scenarios.
| Impact of Interest Rate Shift in Basis Points |
| |||||||||||||||||
| At December 31, 2020 | ||||||||||||||||||
(Dollars in millions) | -200 |
|
| -100 |
|
| O |
|
| 100 |
|
| 200 |
| |||||
Total Market/Fair Value | $ | 12,041.1 |
|
| $ | 11,696.3 |
|
| $ | 11,351.5 |
|
| $ | 11,006.7 |
|
| $ | 10,661.9 |
|
Market/Fair Value Change from Base (%) |
| 6.1 | % |
|
| 3.0 | % |
|
| - | % |
|
| -3.0 | % |
|
| -6.1 | % |
Change in Unrealized Appreciation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
After-tax from Base ($) | $ | 544.8 |
|
| $ | 272.4 |
|
| $ | — |
|
| $ | (272.4) |
|
| $ | (544.8) |
|
| Impact of Interest Rate Shift in Basis Points |
| |||||||||||||||||
| At December 31, 2019 |
| |||||||||||||||||
(Dollars in millions) | -200 |
|
| -100 |
|
| O |
|
| 100 |
|
| 200 |
| |||||
Total Market/Fair Value | $ | 8,314.4 |
|
| $ | 8,046.1 |
|
| $ | 7,777.8 |
|
| $ | 7,509.5 |
|
| $ | 7,241.2 |
|
Market/Fair Value Change from Base (%) |
| 6.9 | % |
|
| 3.4 | % |
|
| - | % |
|
| -3.4 | % |
|
| -6.9 | % |
Change in Unrealized Appreciation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
After-tax from Base ($) | $ | 423.9 |
|
| $ | 211.9 |
|
| $ | — |
|
| $ | (211.9) |
|
| $ | (423.9) |
|
Impact of Interest Rate Shift in Basis Points | ||||||||||||||||||||
At December 31, 2017 | ||||||||||||||||||||
(Dollars in millions) | -200 | -100 | 0 | 100 | 200 | |||||||||||||||
Total Market/Fair Value | $ | 5,524.8 | $ | 5,367.4 | $ | 5,213.4 | $ | 5,061.3 | $ | 4,910.9 | ||||||||||
Market/Fair Value Change from Base (%) | 6.0 | % | 3.0 | % | 0.0 | % | -2.9 | % | -5.8 | % | ||||||||||
Change in Unrealized Appreciation | ||||||||||||||||||||
After-tax from Base ($) | $ | 202.4 | $ | 100.1 | $ | - | $ | (98.9 | ) | $ | (196.6 | ) |
Impact of Interest Rate Shift in Basis Points | ||||||||||||||||||||
At December 31, 2016 | ||||||||||||||||||||
(Dollars in millions) | -200 | -100 | 0 | 100 | 200 | |||||||||||||||
Total Market/Fair Value | $ | 6,630.2 | $ | 6,456.9 | $ | 6,276.8 | $ | 6,089.0 | $ | 5,900.4 | ||||||||||
Market/Fair Value Change from Base (%) | 5.6 | % | 2.9 | % | 0.0 | % | -3.0 | % | -6.0 | % | ||||||||||
Change in Unrealized Appreciation | ||||||||||||||||||||
After-tax from Base ($) | $ | 229.7 | $ | 117.1 | $ | - | $ | (122.0 | ) | $ | (244.6 | ) |
We had $9,343.0$11,654.9 million and $8,331.3$10,209.5 million of gross reserves for losses and LAE as of December 31, 20172020 and December 31, 2016,2019, respectively. These amounts are recorded at their nominal value, as opposed to present value, which would reflect a discount adjustment to reflect the time value of money. Since losses are paid out over a period of time, the present value of the reserves is less than the nominal value. As interest rates rise, the present value of the reserves decreases and, conversely, as interest rates decline, the present value increases. These movements are the opposite of the interest rate impacts on the fair value of investments. While the difference between present value and nominal value is not reflected in our financial statements, our financial results will include investment income over time from the investment portfolio until the claims are paid. Our loss and loss reserve obligations have an expected duration that is reasonably consistent with our fixed income portfolio.
30
Equity Risk. Equity risk is the potential change in fair and/or market value of the common stock, preferred stock and mutual fund portfolios arising from changing prices. Our equity investments consist of a diversified portfolio of individual securities. The primary objective of the equity portfolio is to obtain greater total return relative to our core bonds over time through market appreciation and income.
The tablestable below displaydisplays the impact on fair/market value and after-tax change in fair/market value of a 10% and 20% change in equity prices up and down for the periods indicated.
| Impact of Percentage Change in Equity Fair/Market Values | |||||||||||||
| At December 31, 2020 | |||||||||||||
(Dollars in millions) | -20% |
| -10% |
| 0% |
| 10% |
| 20% | |||||
Fair/Market Value of the Equity Portfolio | $ | 1,031.0 |
| $ | 1,159.9 |
| $ | 1,288.8 |
| $ | 1,417.6 |
| $ | 1,546.5 |
After-tax Change in Fair/Market Value |
| (203.6) |
|
| (101.8) |
|
| — |
|
| 101.8 |
|
| 203.6 |
| Impact of Percentage Change in Equity Fair/Market Values | |||||||||||||
| At December 31, 2019 | |||||||||||||
(Dollars in millions) | -20% |
| -10% |
| 0% |
| 10% |
| 20% | |||||
Fair/Market Value of the Equity Portfolio | $ | 611.2 |
| $ | 687.6 |
| $ | 764.0 |
| $ | 840.5 |
| $ | 916.9 |
After-tax Change in Fair/Market Value |
| (120.7) |
|
| (60.4) |
|
| — |
|
| 60.4 |
|
| 120.7 |
Impact of Percentage Change in Equity Fair/Market Values | ||||||||||||||||||||
At December 31, 2017 | ||||||||||||||||||||
(Dollars in millions) | -20% | -10% | 0% | 10% | 20% | |||||||||||||||
Fair/Market Value of the Equity Portfolio | $ | 657.9 | $ | 740.1 | $ | 822.4 | $ | 904.6 | $ | 986.9 | ||||||||||
After-tax Change in Fair/Market Value | (106.9 | ) | (53.5 | ) | - | 53.5 | 106.9 |
Impact of Percentage Change in Equity Fair/Market Values | ||||||||||||||||||||
At December 31, 2016 | ||||||||||||||||||||
(Dollars in millions) | -20% | -10% | 0% | 10% | 20% | |||||||||||||||
Fair/Market Value of the Equity Portfolio | $ | 710.2 | $ | 799.0 | $ | 887.8 | $ | 976.6 | $ | 1,065.4 | ||||||||||
After-tax Change in Fair/Market Value | (115.4 | ) | (57.7 | ) | - | 57.7 | 115.4 |
30
The tables below display the potential impact of a parallel and immediate 10% and 20% increase and decrease in foreign exchange rates on the valuation of invested assets subject to foreign currency exposure for the periods indicated. This analysis includes the after-tax impact of translation from transactional currency to functional currency as well as the after-tax impact of translation from functional currency to the U.S. dollar reporting currency.
| Change in Foreign Exchange Rates in Percent | |||||||||||||
| At December 31, 2020 | |||||||||||||
(Dollars in millions) | -20% |
| -10% |
| 0% |
| 10% |
| 20% | |||||
Total After-tax Foreign Exchange Exposure | $ | (162.3) |
| $ | (81.1) |
| $ | — |
| $ | 81.1 |
| $ | 162.3 |
| Change in Foreign Exchange Rates in Percent | |||||||||||||
| At December 31, 2019 | |||||||||||||
(Dollars in millions) | -20% |
| -10% |
| 0% |
| 10% |
| 20% | |||||
Total After-tax Foreign Exchange Exposure | $ | (159.4) |
| $ | (79.7) |
| $ | — |
| $ | 79.7 |
| $ | 159.4 |
31
Change in Foreign Exchange Rates in Percent | ||||||||||||||||||||
At December 31, 2017 | ||||||||||||||||||||
(Dollars in millions) | -20% | -10% | 0% | 10% | 20% | |||||||||||||||
Total After-tax Foreign Exchange Exposure | $ | (131.8 | ) | $ | (65.9 | ) | $ | - | $ | 65.9 | $ | 131.8 |
Change in Foreign Exchange Rates in Percent | ||||||||||||||||||||
At December 31, 2016 | ||||||||||||||||||||
(Dollars in millions) | -20% | -10% | 0% | 10% | 20% | |||||||||||||||
Total After-tax Foreign Exchange Exposure | $ | (130.8 | ) | $ | (65.4 | ) | $ | - | $ | 65.4 | $ | 130.8 |
The financial statements and schedules listed in the accompanying Index to Financial Statements and Schedules on page F-1 are filed as part of this report.
As required by Rule 13a-15(b) of the Securities Exchange Act of 1934 (the Exchange Act), our management, including our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act). Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of the end of the period covered by this annual report.
31
Our management is responsible for establishing and maintaining adequate internal controls over financial reporting. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our financial statements for external purposes in accordance with generally accepted accounting principles.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management has assessed the effectiveness of our internal control over financial reporting as of December 31, 2017.2020. In making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control – Integrated Framework (2013). Based on our assessment we concluded that, as of December 31, 2017,2020, our internal control over financial reporting is effective based on those criteria.
Attestation Report of the Registered Public Accounting Firm
This annual report does not include an attestation report of the Company'sCompany’s registered public accounting firm regarding internal control over financial reporting. Management's report wasManagement’s internal controls are not subject to attestation by the Company'sCompany’s registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the Company to provide only management'smanagement’s report in this annual report due to the Company'sCompany’s status as a non-accelerated filer.
Changes in Internal Control Over Financial Reporting
As required by Rule 13a-15(d) of the Exchange Act, our management, including our Chief Executive Officer and Chief Financial Officer, has evaluated our internal control over financial reporting to determine whether any changes occurred during the fourth fiscal quarter covered by this annual report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Based on that evaluation, there has been no such change during the fourth quarter.
PART III
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The PricewaterhouseCoopers LLP (and its worldwide affiliates) fees incurred are as follows for the periods indicated:
(Dollars in thousands) |
| 2020 |
| 2019 | |||
(1) | Audit Fees |
| $ | 3,406.1 |
| $ | 3,519.7 |
(2) | Audit-Related Fees |
|
| 133.7 |
|
| 181.6 |
(3) | Tax Fees |
|
| 691.0 |
|
| 497.0 |
(4) | All Other Fees |
|
| 17.0 |
|
| 17.5 |
(Dollars in thousands) | 2017 | 2016 | |||||||
(1) | Audit Fees | $ | 2,641.0 | $ | 2,092.3 | ||||
(2) | Audit-Related Fees | 133.1 | 89.7 | ||||||
(3) | Tax Fees | 561.5 | 331.3 | ||||||
(4) | All Other Fees | 13.6 | 6.3 |
Audit fees include the annual audit and quarterly financial statement reviews, subsidiary audits, and procedures required to be performed by the independent auditor to be able to form an opinion on our consolidated financial statements. These other procedures include information systems and procedural reviews and testing performed in order to understand and place reliance on the systems of internal control, and consultations relating to the audit or quarterly review. Audit fees may also include statutory audits or financial audits for our subsidiaries or affiliates and services associated with SEC registration statements, periodic reports and other documents filed with the SEC or other documents issued in connection with securities offerings.
Audit-related fees include assurance and related services that are reasonably related to the performance of the audit or review of our financial statements, including due diligence services pertaining to potential business acquisitions/dispositions, accounting consultations related to accounting, financial reporting or disclosure matters not classified as "audit services"“audit services”; assistance with understanding and implementing new accounting and financial reporting guidance from rule making authorities; financial audits of employee benefit plans; agreed-upon or expanded audit procedures related to accounting and/or billing records required to respond to or comply with financial, accounting or regulatory reporting matters and assistance with internal control reporting requirements.
Tax fees include tax compliance, tax planning and tax advice and is granted general pre-approval by Group'sGroup’s Audit Committee.
All other fees represent an accounting research subscription and software.
Under its Charter and the "Audit“Audit and Non-Audit Services Pre-Approval Policy"Policy” (the "Policy"“Policy”), the Audit Committee is required to pre-approve the audit and non-audit services to be performed by the independent auditors. The Policy mandates specific approval by the Audit Committee for any service that has not received a
33
general pre-approval or that exceeds pre-approved cost levels or budgeted amounts. For both specific and general pre-approval, the Audit Committee considers whether such services are consistent with the SEC'sSEC’s rules on auditor independence. The Audit Committee also considers whether the independent auditors are best positioned to provide the most effective and efficient service and whether the service might enhance the Company'sCompany’s ability to manage or control risk or improve audit quality. The Audit Committee is also mindful of the relationship between fees for audit and non-audit services in deciding whether to pre-approve any such services. It may determine, for each fiscal year, the appropriate ratio between the total amount of audit, audit-related and tax fees and a total amount of fees for certain permissible non-audit services classified below as "All“All Other Fees"Fees”. All such factors are considered as a whole, and no one factor is determinative. The Audit Committee further considered whether the performance by PricewaterhouseCoopers LLP of the non-audit related services disclosed below is compatible with maintaining their independence. The Audit Committee approved all of the audit-related fees, tax fees and all other fees for 20172020 and 2016.
The exhibits listed on the accompanying Index to Exhibits on page E-1 are filed as part of this report except that the certifications in Exhibit 32 are being furnished to the SEC, rather than filed with the SEC, as permitted under applicable SEC rules.
The financial statements and schedules listed in the accompanying Index to Financial Statements and Schedules on page F-1 are filed as part of this report.
34SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on March 30, 2018.
EVEREST REINSURANCE HOLDINGS, INC. | |||
By: | /S/ | ||
Juan C. Andrade (Chairman, President and Chief Executive Officer) |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature | Title | Date | |||
/S/ | Chairman, President and Chief Executive Officer (Principal Executive Officer) | March 30, | |||
Juan C. Andrade | |||||
/S/ | Executive Vice President and Chief Financial Officer (Principal Financial Officer) | March 30, | |||
Mark Kociancic | |||||
/S/ KEITH T. SHOEMAKER | Comptroller (Principal Accounting Officer) | March 30, | |||
Keith T. Shoemaker |
34
INDEX TO EXHIBITS | ||||
Exhibit No. | ||||
2. | 1 | Agreement and Plan of Merger among Everest Reinsurance Holdings, Inc., Everest Re Group, Ltd. and Everest Re Merger Corporation, incorporated herein by reference to Exhibit 2.1 to the Registration Statement on Form S-4 (No. 333-87361) | ||
3. | 1 | Certificate of Incorporation of Everest Reinsurance Holdings, Inc., incorporated herein by reference to Exhibit 4.1 to the Registration Statement on Form S-8 (No. 333-05771) | ||
3. | 2 | By-Laws of Everest Reinsurance Holdings, Inc., incorporated herein by reference to Exhibit 3.2 to the Everest Reinsurance Holdings, Inc. Quarterly Report on Form 10-Q for the quarter ended March 31, 2000 | ||
4. | 1 | Indenture, dated March 14, 2000, between Everest Reinsurance Holdings, Inc. and The Chase Manhattan Bank, as Trustee, incorporated herein by reference to Exhibit 4.1 to Everest Reinsurance Holdings, Inc. Form 8-K filed on March 15, 2000 | ||
4. | 2 | Third Supplemental Indenture relating to Holdings 5.40% Senior Notes due October 15, 2014, dated as of October 12, 2004, among Holdings and JPMorgan Chase Bank, as Trustee, incorporated herein by reference to Exhibit 4.1 to Everest Reinsurance Holdings, Inc. Form 8-K filed on October 12, 2004 | ||
4. | 3 | Fourth Supplemental Indenture relating to Holdings $400.0 million 4.868% Senior Notes due June 1, 2044, dated June 5 2014, between Holdings and the Bank of New York Mellon, as Trustee, incorporated herein by reference to Exhibit 4.1 to Everest Reinsurance Holdings, Inc. Form 8-K filed on June 5, 2014 | ||
10. | 1 | Completion of Tender Offer relating to Everest Reinsurance Holdings, Inc. 6.60% Fixed to Floating Rate Long Term Subordinated Notes (LoTSSM) dated March 19, 2009, incorporated herein by reference to Exhibit 99.1 to Everest Re Group, Ltd. Form 8-K filed on March 31, 2009 | ||
*10. | 2 | Employment agreement between Everest Global Services, Inc., Everest Reinsurance Holdings, Inc. and Dominic J. Addesso, dated July 1, 2012, incorporated herein by reference to Exhibit 10.1 to Everest Re Group, Ltd. Form 8-K filed on July 20, 2012 | ||
*10. | 3 | Employment agreement between Everest Global Services, Inc., Everest Reinsurance Holdings Inc. and Dominic J. Addesso, dated December 4, 2015, incorporated herein by reference to Exhibit 10.1 to Everest Re Group, Ltd. Form 8-K filed on December 8, 2015. | ||
*10. | 4 | Employment agreement between Everest National Insurance Company and Jonathan M. Zaffino, dated September 8, 2017, incorporated herein by reference to Exhibit 10.1 to Everest Re Group, Ltd. Form 8-K filed on September 12, 2017. | ||
*10. | 5 | Amendment of employment agreement between Everest Global Services, Inc., Everest Re Group, Ltd., Everest Reinsurance Holdings Inc. and Dominic J. Addesso, dated November 20, 2017, incorporated herein by reference to Exhibit 10.1 to Everest Re Group, Ltd. Form 8-K filed November 20, 2017 | ||
31. | 1 | Section 302 Certification of Dominic J. Addesso, filed herewith | ||
31. | 2 | Section 302 Certification of Craig Howie, filed herewith | ||
32. | 1 | Section 906 Certification of Dominic J. Addesso and Craig Howie, filed herewith |
2.1 | |||
3.1 | |||
3.2 | |||
4.1 | |||
4.2 | |||
4.3 | |||
10.1 | |||
*10.2 | |||
*10.3 | |||
*10.4 | |||
*10.5 | |||
*10.6 | |||
*10.7 |
* E-Management contract or compensatory plan or arrangement.2
23.1 | |||
31.1 | Section 302 Certification of Juan C. Andrade, filed herewith | ||
31.2 | |||
32.1 | Section 906 Certification of Juan C. Andrade and Mark Kociancic, filed herewith | ||
101 INS | XBRL Instance Document | ||
101 SCH | XBRL Taxonomy Extension Schema | ||
101 CAL | XBRL Taxonomy Extension Calculation Linkbase | ||
101 DEF | XBRL Taxonomy Extension Definition Linkbase | ||
101 LAB | XBRL Taxonomy Extension Label Linkbase | ||
101 PRE | XBRL Taxonomy Extension Presentation Linkbase |
E-3
E-2
Pages | ||
Report of Independent Registered Public Accounting Firm | F-2 | |
Consolidated Balance Sheets at December 31, | F-4 | |
Consolidated Statements of Operations and Comprehensive Income (Loss) for the Years Ended | ||
December 31, | F-5 | |
Consolidated Statements of Changes in | ||
December 31, | F-6 | |
Consolidated Statements of Cash Flows for the Years Ended | ||
December 31, | F-7 | |
Notes to Consolidated Financial Statements | F-8 | |
Schedules | ||
I | Summary of Investments Other Than Investments in Related Parties at December 31, | S-1 |
II | Condensed Financial Information of Registrant: | |
Balance Sheets as of December 31, | S-2 | |
Statements of Operations for the Years Ended December 31, | S-3 | |
Statements of Cash Flows for the Years Ended December 31, | S-4 | |
Notes to Condensed Financial Information | S-5 | |
III | Supplementary Insurance Information as of and for the Years Ended | |
December 31, | S-6 | |
IV | Reinsurance for the Years Ended December 31, | S-7 |
Schedules other than those listed above are omitted for the reason that they are not applicable or the information is otherwise contained in the Financial Statements. |
F-1
F-1
We have audited the accompanying consolidated financial statements, including the related notes and financial statement schedules,balance sheets of Everest Reinsurance Holdings, Inc. and its subsidiaries (the “Company”) as of December 31, 2020 and 2019, and the related consolidated statements of operations and comprehensive income (loss), of changes in stockholder's equity and of cash flows for each of the three years in the period ended December 31, 2020, including the related notes and financial statement schedules listed in the accompanying index (collectively referred to as the "consolidated“consolidated financial statements"statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 20172020 and 2016,2019, and the results of theirits operations and theirits cash flows for each of the three years in the period ended December 31, 20172020 in conformity with accounting principles generally accepted in the United States of America.
These consolidated financial statements are the responsibility of the Company'sCompany’s management. Our responsibility is to express an opinion on the Company'sCompany’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB")(PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Valuation of the Reserve for Losses and Loss Adjustment Expenses
As described in Notes 1 and 3 to the consolidated financial statements, the Company maintains reserves equal to the estimated ultimate liability for losses and loss adjustment expense for reported and unreported claims for both insurance and reinsurance businesses. The Company’s reserve for losses and loss adjustment expenses as of December 31, 2020 was $11.7 billion. Reserves are based on estimates of ultimate losses and loss adjustment expenses by underwriting or accident year. Management uses a variety of statistical and
F-2
actuarial techniques to monitor reserve adequacy over time, evaluate new information as it becomes known and adjust reserves as warranted. Management considers many factors when setting reserves including (i) exposure base and projected ultimate premium; (ii) expected loss ratios by product and class of business, which are developed collaboratively by underwriters and actuaries; (iii) actuarial methodologies and assumptions which analyze loss reporting and payment experience, reports from ceding companies and historical trends, such as reserving patterns, loss payments and product mix; (iv) current legal interpretations of coverage and liability; and (v) economic conditions.
The principal considerations for our determination that performing procedures relating to the valuation of the reserve for losses and loss adjustment expenses is a critical audit matter are the significant judgment by management when developing their estimate; this in turn led to a high degree of auditor subjectivity, judgment and effort in performing procedures and evaluating the audit evidence relating to the methodologies and the significant assumptions related to expected loss ratios and historical trends, such as reserving patterns, loss payments and product mix, and the audit effort involved the use of professionals with specialized skill and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s valuation of the reserve for losses and loss adjustment expenses, including controls over the selection of methodologies and development of significant assumptions. These procedures also included, among others, testing the completeness and accuracy of data provided by management and the involvement of professionals with specialized skill and knowledge to assist in performing procedures for a sample of products and lines of business including: (i) evaluating management’s methodologies and assumptions related to expected loss ratios and historical trends, such as, reserving patterns, loss payment and product mix used for determining reserves for losses and loss adjustment expenses; and (ii) developing an independent estimate of the reserve for losses and loss adjustment expenses and comparing the independent estimate to management’s actuarially determined reserves.
/s/ PricewaterhouseCoopers LLP
New York, New York
March 30, 2018
F-2EVEREST REINSURANCE HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
| December 31, | ||||
(Dollars in thousands, except share amounts and par value per share) | 2020 |
| 2019 | ||
|
|
|
|
| |
ASSETS: |
|
|
|
|
|
Fixed maturities - available for sale, at market value (amortized cost: 2020, $10,248,650; 2019, $7,334,425 allowances for credit losses: 2020, $1,566; 2019, $0) | $ | 10,643,565 |
| $ | 7,492,079 |
Fixed maturities - available for sale, at fair value |
| - |
|
| 5,826 |
Equity securities, at fair value |
| 1,288,767 |
|
| 764,049 |
Short-term investments (cost: 2020, $708,043; 2019, $279,824) |
| 707,905 |
|
| 279,879 |
Other invested assets (cost: 2020, $1,094,933; 2019, $1,020,766) |
| 1,094,933 |
|
| 1,020,766 |
Other invested assets, at fair value |
| 1,796,479 |
|
| 1,982,582 |
Cash |
| 378,518 |
|
| 411,122 |
Total investments and cash |
| 15,910,167 |
|
| 11,956,303 |
Note Receivable - affiliated |
| 300,000 |
|
| 300,000 |
Accrued investment income |
| 80,196 |
|
| 54,383 |
Premiums receivable |
| 1,591,980 |
|
| 1,337,344 |
Reinsurance receivables - unaffiliated |
| 1,505,650 |
|
| 1,318,820 |
Reinsurance receivables - affiliated |
| 2,701,655 |
|
| 3,125,269 |
Income taxes net recoverable |
| - |
|
| 65,793 |
Funds held by reinsureds |
| 267,599 |
|
| 228,297 |
Deferred acquisition costs |
| 379,707 |
|
| 388,238 |
Prepaid reinsurance premiums |
| 363,489 |
|
| 413,612 |
Other assets |
| 616,640 |
|
| 518,127 |
TOTAL ASSETS | $ | 23,717,083 |
| $ | 19,706,186 |
|
|
|
|
|
|
LIABILITIES: |
|
|
|
|
|
Reserve for losses and loss adjustment expenses | $ | 11,654,950 |
| $ | 10,209,519 |
Unearned premium reserve |
| 2,385,174 |
|
| 2,198,932 |
Funds held under reinsurance treaties |
| 46,894 |
|
| 41,233 |
Other net payable to reinsurers |
| 277,390 |
|
| 267,367 |
Losses in course of payment |
| 161,154 |
|
| 70,541 |
Income taxes net payable |
| 192,877 |
|
| - |
Senior notes due 6/1/2044 |
| 397,194 |
|
| 397,074 |
Senior notes due 10/15/2050 |
| 979,524 |
|
| - |
Long term notes due 5/1/2067 |
| 223,674 |
|
| 236,758 |
Borrowings from FHLB |
| 310,000 |
|
| - |
Accrued interest on debt and borrowings |
| 10,460 |
|
| 2,878 |
Unsettled securities payable |
| 206,693 |
|
| 25,230 |
Other liabilities |
| 456,786 |
|
| 399,229 |
Total liabilities |
| 17,302,770 |
|
| 13,848,761 |
|
|
|
|
|
|
Commitments and Contingencies (Note 15) |
| (nil) |
|
| (nil) |
|
|
|
|
|
|
STOCKHOLDER'S EQUITY: |
|
|
|
|
|
Common stock, par value: $0.01; 3,000 shares authorized; 1,000 shares issued and outstanding (2020 and 2019) |
| - |
|
| - |
Additional paid-in capital |
| 1,101,092 |
|
| 1,100,678 |
Accumulated other comprehensive income (loss), net of deferred income tax expense (benefit) of $71,080 at 2020 and $16,997 at 2019 |
| 268,018 |
|
| 64,324 |
Retained earnings |
| 5,045,203 |
|
| 4,692,423 |
Total stockholder's equity |
| 6,414,313 |
|
| 5,857,425 |
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY | $ | 23,717,083 |
| $ | 19,706,186 |
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated financial statements. |
|
|
|
|
|
|
F-4
EVEREST REINSURANCE HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETSSTATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
|
| |||||||
| Years Ended December 31, | |||||||
(Dollars in thousands) | 2020 |
| 2019 |
| 2018 | |||
|
|
|
|
|
|
|
|
|
REVENUES: |
|
|
|
|
|
|
|
|
Premiums earned | $ | 6,406,576 |
| $ | 5,489,035 |
| $ | 4,839,058 |
Net investment income |
| 375,906 |
|
| 356,211 |
|
| 314,381 |
Net realized capital gains (losses): |
|
|
|
|
|
|
|
|
Credit allowances on fixed maturity securities |
| (1,566) |
|
| - |
|
| - |
Other-than-temporary impairments on fixed maturity securities |
| - |
|
| (19,643) |
|
| (6,164) |
Other net realized capital gains (losses) |
| 51,370 |
|
| 439,010 |
|
| (179,192) |
Total net realized capital gains (losses) |
| 49,804 |
|
| 419,367 |
|
| (185,356) |
Other income (expense) |
| (14,579) |
|
| (1,589) |
|
| (9,568) |
Total revenues |
| 6,817,707 |
|
| 6,263,024 |
|
| 4,958,515 |
|
|
|
|
|
|
|
|
|
CLAIMS AND EXPENSES: |
|
|
|
|
|
|
|
|
Incurred losses and loss adjustment expenses |
| 4,608,144 |
|
| 3,829,122 |
|
| 4,811,018 |
Commission, brokerage, taxes and fees |
| 1,373,355 |
|
| 1,270,053 |
|
| 1,141,714 |
Other underwriting expenses |
| 401,033 |
|
| 350,901 |
|
| 293,347 |
Corporate expenses |
| 15,985 |
|
| 13,063 |
|
| 11,034 |
Interest, fee and bond issue cost amortization expense |
| 35,659 |
|
| 34,931 |
|
| 30,611 |
Total claims and expenses |
| 6,434,176 |
|
| 5,498,070 |
|
| 6,287,724 |
|
|
|
|
|
|
|
|
|
INCOME (LOSS) BEFORE TAXES |
| 383,531 |
|
| 764,955 |
|
| (1,329,209) |
Income tax expense (benefit) |
| 31,658 |
|
| 135,228 |
|
| (367,025) |
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS) | $ | 351,873 |
| $ | 629,727 |
| $ | (962,184) |
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss), net of tax: |
|
|
|
|
|
|
|
|
Unrealized appreciation (depreciation) ("URA(D)") on securities arising during the period |
| 163,080 |
|
| 175,482 |
|
| (92,966) |
Less: reclassification adjustment for realized losses (gains) included in net income (loss) |
| 25,468 |
|
| 5,080 |
|
| 2,021 |
Total URA(D) on securities arising during the period |
| 188,548 |
|
| 180,562 |
|
| (90,945) |
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments |
| 14,461 |
|
| 17,153 |
|
| (36,431) |
|
|
|
|
|
|
|
|
|
Benefit plan actuarial net gain (loss) for the period |
| (5,615) |
|
| (12,591) |
|
| (510) |
Reclassification adjustment for amortization of net (gain) loss included in net income (loss) |
| 6,300 |
|
| 5,453 |
|
| 5,021 |
Total benefit plan net gain (loss) for the period |
| 685 |
|
| (7,138) |
|
| 4,511 |
Total other comprehensive income (loss), net of tax |
| 203,694 |
|
| 190,577 |
|
| (122,865) |
|
|
|
|
|
|
|
|
|
COMPREHENSIVE INCOME (LOSS) | $ | 555,567 |
| $ | 820,304 |
| $ | (1,085,049) |
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated financial statements. |
|
|
|
F-5
December 31, | ||||||||
(Dollars in thousands, except par value per share) | 2017 | 2016 | ||||||
(unaudited) | ||||||||
ASSETS: | ||||||||
Fixed maturities - available for sale, at market value | $ | 4,971,921 | $ | 5,970,496 | ||||
(amortized cost: 2017, $4,927,622; 2016, $5,910,494) | ||||||||
Equity securities - available for sale, at fair value | 822,375 | 887,800 | ||||||
Short-term investments | 241,506 | 306,286 | ||||||
Other invested assets (cost: 2017, $835,597; 2016, $613,680) | 838,694 | 613,740 | ||||||
Other invested assets, at fair value | 1,807,473 | 1,766,626 | ||||||
Cash | 229,552 | 297,794 | ||||||
Total investments and cash | 8,911,521 | 9,842,742 | ||||||
Note receivable - affiliated | 250,000 | 250,000 | ||||||
Accrued investment income | 35,376 | 45,323 | ||||||
Premiums receivable | 1,301,827 | 1,128,639 | ||||||
Reinsurance receivables - unaffiliated | 1,180,648 | 887,657 | ||||||
Reinsurance receivables - affiliated | 4,940,039 | 3,686,130 | ||||||
Income Taxes | 87,110 | - | ||||||
Funds held by reinsureds | 210,939 | 190,421 | ||||||
Deferred acquisition costs | 307,741 | 68,621 | ||||||
Prepaid reinsurance premiums | 346,708 | 781,384 | ||||||
Other assets | 316,603 | 202,519 | ||||||
TOTAL ASSETS | $ | 17,888,512 | $ | 17,083,436 | ||||
LIABILITIES: | ||||||||
Reserve for losses and loss adjustment expenses | $ | 9,343,028 | $ | 8,331,288 | ||||
Unearned premium reserve | 1,607,622 | 1,312,386 | ||||||
Funds held under reinsurance treaties | 40,536 | 110,836 | ||||||
Commission reserves | 21,464 | 52,037 | ||||||
Other net payable to reinsurers | 491,299 | 815,298 | ||||||
4.868% Senior notes due 6/1/2044 | 396,834 | 396,714 | ||||||
6.6% Long term notes due 5/1/2067 | 236,561 | 236,462 | ||||||
Accrued interest on debt and borrowings | 2,727 | 3,537 | ||||||
Income taxes | - | 148,940 | ||||||
Unsettled securities payable | 25,338 | 27,121 | ||||||
Other liabilities | 310,380 | 350,264 | ||||||
Total liabilities | 12,475,789 | 11,784,883 | ||||||
Commitments and Contingencies (Note 15) | ||||||||
STOCKHOLDER'S EQUITY: | ||||||||
Common stock, par value: $0.01; 3,000 shares authorized; | ||||||||
1,000 shares issued and outstanding (2017 and 2016) | - | - | ||||||
Additional paid-in capital | 387,841 | 387,567 | ||||||
Accumulated other comprehensive income (loss), net of deferred income tax expense | ||||||||
(benefit) of ($299) at 2017 and ($19,549) at 2016 | (942 | ) | (36,315 | ) | ||||
Retained earnings | 5,025,824 | 4,947,301 | ||||||
Total stockholder's equity | 5,412,723 | 5,298,553 | ||||||
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY | $ | 17,888,512 | $ | 17,083,436 | ||||
The accompanying notes are an integral part of the consolidated financial statements. |
F-3
CONSOLIDATED STATEMENTS OF OPERATIONS
CHANGES IN STOCKHOLDER’S EQUITY
| Years Ended December 31, | |||||||
(Dollars in thousands, except share amounts) | 2020 |
| 2019 |
| 2018 | |||
|
|
|
|
|
|
|
|
|
COMMON STOCK (shares outstanding): |
|
|
|
|
|
|
|
|
Balance, January 1 |
| 1,000 |
|
| 1,000 |
|
| 1,000 |
Balance, December 31 |
| 1,000 |
|
| 1,000 |
|
| 1,000 |
|
|
|
|
|
|
|
|
|
ADDITIONAL PAID-IN CAPITAL: |
|
|
|
|
|
|
|
|
Balance, January 1 | $ | 1,100,678 |
| $ | 1,100,315 |
| $ | 387,841 |
Capital contribution from parent |
| - |
|
| - |
|
| 712,253 |
Share-based compensation plans |
| 414 |
|
| 363 |
|
| 221 |
Balance, December 31 |
| 1,101,092 |
|
| 1,100,678 |
|
| 1,100,315 |
|
|
|
|
|
|
|
|
|
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS), NET OF DEFERRED INCOME TAXES: |
|
|
|
|
|
|
|
|
Balance, January 1 |
| 64,324 |
|
| (126,254) |
|
| (942) |
Change to beginning balance due to adoption of ASU 2016-01 |
| - |
|
| - |
|
| (2,447) |
Net increase (decrease) during the period |
| 203,694 |
|
| 190,577 |
|
| (122,865) |
Balance, December 31 |
| 268,018 |
|
| 64,324 |
|
| (126,254) |
|
|
|
|
|
|
|
|
|
RETAINED EARNINGS: |
|
|
|
|
|
|
|
|
Balance, January 1 |
| 4,692,423 |
|
| 4,062,696 |
|
| 5,022,433 |
Change to beginning balance due to adoption of ASU 2016-01 |
| - |
|
| - |
|
| 2,447 |
Change to beginning balance due to adoption of ASU 2016-13 |
| 907 |
|
| - |
|
| - |
Net income (loss) |
| 351,873 |
|
| 629,727 |
|
| (962,184) |
Balance, December 31 |
| 5,045,203 |
|
| 4,692,423 |
|
| 4,062,696 |
|
|
|
|
|
|
|
|
|
TOTAL STOCKHOLDER'S EQUITY, December 31 | $ | 6,414,313 |
| $ | 5,857,425 |
| $ | 5,036,757 |
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated financial statements. |
|
|
|
F-6
Years Ended December 31, | ||||||||||||
(Dollars in thousands) | 2017 | 2016 | 2015 | |||||||||
REVENUES: | ||||||||||||
Premiums earned | $ | 1,949,595 | $ | 2,094,049 | $ | 2,143,760 | ||||||
Net investment income | 286,259 | 264,807 | 273,253 | |||||||||
Net realized capital gains (losses): | ||||||||||||
Other-than-temporary impairments on fixed maturity securities | (6,077 | ) | (25,679 | ) | (78,833 | ) | ||||||
Other-than-temporary impairments on fixed maturity securities | ||||||||||||
transferred to other comprehensive income (loss) | - | - | - | |||||||||
Realized gain (loss) on sale of subsidiary | - | (28,032 | ) | 94,704 | ||||||||
Other net realized capital gains (losses) | 167,630 | 24,770 | 34,464 | |||||||||
Total net realized capital gains (losses) | 161,553 | (28,941 | ) | 50,335 | ||||||||
Other income (expense) | 23,750 | (10,542 | ) | 29,256 | ||||||||
Total revenues | 2,421,157 | 2,319,373 | 2,496,604 | |||||||||
CLAIMS AND EXPENSES: | ||||||||||||
Incurred losses and loss adjustment expenses | 2,039,751 | 1,350,280 | 1,319,561 | |||||||||
Commission, brokerage, taxes and fees | 210,925 | 281,424 | 312,325 | |||||||||
Other underwriting expenses | 254,886 | 244,966 | 214,819 | |||||||||
Corporate expenses | 7,394 | 8,277 | 7,179 | |||||||||
Interest, fee and bond issue cost amortization expense | 31,183 | 35,435 | 35,434 | |||||||||
Total claims and expenses | 2,544,139 | 1,920,382 | 1,889,318 | |||||||||
INCOME (LOSS) BEFORE TAXES | (122,982 | ) | 398,991 | 607,286 | ||||||||
Income tax expense (benefit) | (201,180 | ) | 97,347 | 194,896 | ||||||||
NET INCOME (LOSS) | $ | 78,198 | $ | 301,644 | $ | 412,390 | ||||||
Other comprehensive income (loss), net of tax: | ||||||||||||
Unrealized appreciation (depreciation) ("URA(D)") on securities arising during the period | (10,536 | ) | 4,114 | (23,157 | ) | |||||||
Less: reclassification adjustment for realized losses (gains) included in net income (loss) | 2,303 | 21,273 | (817 | ) | ||||||||
Total URA(D) on securities arising during the period | (8,233 | ) | 25,387 | (23,974 | ) | |||||||
Foreign currency translation adjustments | 37,427 | 2,849 | (54,578 | ) | ||||||||
Benefit plan actuarial net gain (loss) for the period | 1,027 | (7,488 | ) | 5,681 | ||||||||
Reclassification adjustment for amortization of net (gain) loss included in net income (loss) | 5,477 | 5,073 | 6,216 | |||||||||
Total benefit plan net gain (loss) for the period | 6,504 | (2,415 | ) | 11,897 | ||||||||
Total other comprehensive income (loss), net of tax | 35,698 | 25,821 | (66,655 | ) | ||||||||
COMPREHENSIVE INCOME (LOSS) | $ | 113,896 | $ | 327,465 | $ | 345,735 | ||||||
The accompanying notes are an integral part of the consolidated financial statements. |
F-4
Years Ended December 31, | ||||||||||||
(Dollars in thousands, except share amounts) | 2017 | 2016 | 2015 | |||||||||
COMMON STOCK (shares outstanding): | ||||||||||||
Balance, beginning of period | 1,000 | 1,000 | 1,000 | |||||||||
Balance, end of period | 1,000 | 1,000 | 1,000 | |||||||||
ADDITIONAL PAID-IN CAPITAL: | ||||||||||||
Balance, beginning of period | 387,567 | $ | 374,789 | $ | 362,293 | |||||||
Share-based compensation plans | 274 | 12,778 | 12,496 | |||||||||
Balance, end of period | 387,841 | 387,567 | 374,789 | |||||||||
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS), | ||||||||||||
NET OF DEFERRED INCOME TAXES: | ||||||||||||
Balance, beginning of period | (36,315 | ) | (62,136 | ) | 4,519 | |||||||
Net increase (decrease) during the period | 35,698 | 25,821 | (66,655 | ) | ||||||||
Reclass due to early adoption of Accounting Standards Update 2018-02 | (325 | ) | - | - | ||||||||
Balance, end of period | (942 | ) | (36,315 | ) | (62,136 | ) | ||||||
RETAINED EARNINGS: | ||||||||||||
Balance, beginning of period | 4,947,301 | 4,645,657 | 4,233,267 | |||||||||
Net income (loss) | 78,198 | 301,644 | 412,390 | |||||||||
Reclass due to early adoption of Accounting Standards Update 2018-02 | 325 | - | - | |||||||||
Balance, end of period | 5,025,824 | 4,947,301 | 4,645,657 | |||||||||
TOTAL STOCKHOLDER'S EQUITY, END OF PERIOD | $ | 5,412,723 | $ | 5,298,553 | $ | 4,958,310 | ||||||
The accompanying notes are an integral part of the consolidated financial statements. |
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
| Years Ended December 31, | |||||||
(Dollars in thousands) | 2020 |
| 2019 |
| 2018 | |||
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
Net income (loss) | $ | 351,873 |
| $ | 629,727 |
| $ | (962,184) |
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
Decrease (increase) in premiums receivable |
| (252,850) |
|
| (24,618) |
|
| (171,642) |
Decrease (increase) in funds held by reinsureds, net |
| (33,519) |
|
| (57) |
|
| (20,963) |
Decrease (increase) in reinsurance receivables |
| 247,165 |
|
| 405,574 |
|
| 1,260,865 |
Decrease (increase) in income taxes |
| 204,419 |
|
| 295,667 |
|
| (292,728) |
Decrease (increase) in prepaid reinsurance premiums |
| 51,352 |
|
| (84,181) |
|
| 17,302 |
Increase (decrease) in reserve for losses and loss adjustment expenses |
| 1,427,214 |
|
| 21,399 |
|
| 859,691 |
Increase (decrease) in unearned premiums |
| 183,417 |
|
| 370,246 |
|
| 221,850 |
Increase (decrease) in other net payable to reinsurers |
| 8,078 |
|
| (50,560) |
|
| (173,810) |
Increase (decrease) in losses in course of payment |
| 90,044 |
|
| 113,306 |
|
| 66,148 |
Change in equity adjustments in limited partnerships |
| (39,880) |
|
| (45,843) |
|
| (70,494) |
Distribution of limited partnership income |
| 91,403 |
|
| 51,982 |
|
| 55,350 |
Change in other assets and liabilities, net |
| (84,902) |
|
| (60,250) |
|
| (143,047) |
Non-cash compensation expense |
| 32,217 |
|
| 27,421 |
|
| 13,863 |
Amortization of bond premium (accrual of bond discount) |
| 13,926 |
|
| 4,308 |
|
| 3,735 |
Net realized capital (gains) losses |
| (49,804) |
|
| (419,367) |
|
| 185,356 |
Net cash provided by (used in) operating activities |
| 2,240,153 |
|
| 1,234,754 |
|
| 849,292 |
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
Proceeds from fixed maturities matured/called - available for sale, at market value |
| 1,126,309 |
|
| 937,871 |
|
| 741,360 |
Proceeds from fixed maturities sold - available for sale, at market value |
| 626,378 |
|
| 2,400,869 |
|
| 791,368 |
Proceeds from fixed maturities sold - available for sale, at fair value |
| 4,907 |
|
| 2,917 |
|
| 1,751 |
Proceeds from equity securities sold - at fair value |
| 375,112 |
|
| 283,707 |
|
| 1,029,920 |
Distributions from other invested assets |
| 243,002 |
|
| 185,116 |
|
| 1,043,131 |
Cost of fixed maturities acquired - available for sale, at market value |
| (4,695,090) |
|
| (3,626,139) |
|
| (3,714,695) |
Cost of fixed maturities acquired - available for sale, at fair value |
| - |
|
| (4,243) |
|
| (4,381) |
Cost of equity securities acquired - at fair value |
| (625,694) |
|
| (325,546) |
|
| (702,221) |
Cost of other invested assets acquired |
| (363,101) |
|
| (323,453) |
|
| (1,138,317) |
Net change in short-term investments |
| (425,878) |
|
| (102,302) |
|
| 193,623 |
Net change in unsettled securities transactions |
| 200,070 |
|
| (30,904) |
|
| 55,967 |
Proceeds from repayment of long term note receivable, affiliated |
| - |
|
| (300,000) |
|
| 250,000 |
Net cash provided by (used in) investing activities |
| (3,533,985) |
|
| (902,107) |
|
| (1,452,494) |
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
Tax benefit from share-based compensation, net of expense |
| (31,803) |
|
| (27,059) |
|
| (11,195) |
Capital contribution from parent |
| - |
|
| - |
|
| 500,324 |
FHLB advances (repayments) |
| 310,000 |
|
| - |
|
| - |
Cost of debt repurchase |
| (10,647) |
|
| - |
|
| - |
Proceeds from issuance of senior notes |
| 979,417 |
|
| - |
|
| - |
Proceeds from issuance (cost of repayment) of note payable-affiliated |
| - |
|
| (300,000) |
|
| 300,000 |
Net cash provided by (used in) financing activities |
| 1,246,967 |
|
| (327,059) |
|
| 789,129 |
|
|
|
|
|
|
|
|
|
EFFECT OF EXCHANGE RATE CHANGES ON CASH |
| 14,261 |
|
| 1,012 |
|
| (10,957) |
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash |
| (32,604) |
|
| 6,600 |
|
| 174,970 |
Cash, beginning of period |
| 411,122 |
|
| 404,522 |
|
| 229,552 |
Cash, end of period | $ | 378,518 |
| $ | 411,122 |
| $ | 404,522 |
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL CASH FLOW INFORMATION: |
|
|
|
|
|
|
|
|
Income taxes paid (recovered) | $ | (173,056) |
| $ | (160,748) |
| $ | (73,669) |
Interest paid |
| 27,670 |
|
| 34,928 |
|
| 30,027 |
|
|
|
|
|
|
|
|
|
NON-CASH TRANSACTIONS |
|
|
|
|
|
|
|
|
Equity value of non-cash capital contribution of affiliate from parent, net of cash held by affiliate | $ | - |
| $ | - |
| $ | 211,928 |
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated financial statements. |
F-7
Years Ended December 31, | ||||||||||||
(Dollars in thousands) | 2017 | 2016 | 2015 | |||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||||
Net income (loss) | $ | 78,198 | $ | 301,644 | $ | 412,390 | ||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||
Decrease (increase) in premiums receivable | (170,234 | ) | 1,140 | (49,602 | ) | |||||||
Decrease (increase) in funds held by reinsureds, net | (90,410 | ) | (4,445 | ) | 4,737 | |||||||
Decrease (increase) in reinsurance receivables | (731,292 | ) | (112,797 | ) | (465,761 | ) | ||||||
Decrease (increase) in income taxes | (250,118 | ) | 62,991 | 60,494 | ||||||||
Decrease (increase) in prepaid reinsurance premiums | 436,571 | (8,083 | ) | 30,985 | ||||||||
Increase (decrease) in reserve for losses and loss adjustment expenses | 964,415 | 384,628 | 184,845 | |||||||||
Increase (decrease) in unearned premiums | 291,108 | (38,271 | ) | (82,494 | ) | |||||||
Increase (decrease) in other net payable to reinsurers | (329,946 | ) | (371,856 | ) | 195,936 | |||||||
Increase (decrease) in losses in course of payment | (31,815 | ) | (42,643 | ) | (51,416 | ) | ||||||
Change in equity adjustments in limited partnerships | (35,749 | ) | (24,486 | ) | (18,144 | ) | ||||||
Distribution of limited partnership income | 33,629 | 32,613 | 45,235 | |||||||||
Change in other assets and liabilities, net | (367,338 | ) | 15,148 | 13,349 | ||||||||
Non-cash compensation expense | 10,212 | 9,481 | 8,025 | |||||||||
Amortization of bond premium (accrual of bond discount) | 17,690 | 18,051 | 18,160 | |||||||||
Net realized capital (gains) losses | (161,553 | ) | 28,941 | (50,335 | ) | |||||||
Net cash provided by (used in) operating activities | (336,632 | ) | 252,056 | 256,404 | ||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||
Proceeds from fixed maturities matured/called - available for sale, at market value | 1,005,532 | 781,744 | 902,932 | |||||||||
Proceeds from fixed maturities sold - available for sale, at market value | 1,676,203 | 704,191 | 544,955 | |||||||||
Proceeds from fixed maturities sold - available for sale, at fair value | - | 5,837 | 1,824 | |||||||||
Proceeds from equity securities sold - available for sale, at market value | - | - | 16 | |||||||||
Proceeds from equity securities sold - available for sale, at fair value | 586,496 | 695,039 | 567,069 | |||||||||
Proceeds from sale of subsidiary (net of cash disposed) | - | 47,721 | 3,934 | |||||||||
Distributions from other invested assets | 2,327,206 | 1,756,484 | 51,494 | |||||||||
Cost of fixed maturities acquired - available for sale, at market value | (2,431,780 | ) | (2,110,113 | ) | (1,811,463 | ) | ||||||
Cost of fixed maturities acquired - available for sale, at fair value | - | (3,940 | ) | (2,436 | ) | |||||||
Cost of equity securities acquired - available for sale, at fair value | (396,056 | ) | (324,407 | ) | (530,538 | ) | ||||||
Cost of other invested assets acquired | (2,546,289 | ) | (1,928,119 | ) | (93,728 | ) | ||||||
Net change in short-term investments | 67,164 | 257,792 | (6,145 | ) | ||||||||
Net change in unsettled securities transactions | (40,530 | ) | 10,474 | (23,447 | ) | |||||||
Net cash provided by (used in) investing activities | 247,946 | (107,297 | ) | (395,533 | ) | |||||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||
Tax benefit from share-based compensation, net of expense | (9,938 | ) | 3,298 | 4,472 | ||||||||
Net cash provided by (used in) financing activities | (9,938 | ) | 3,298 | 4,472 | ||||||||
EFFECT OF EXCHANGE RATE CHANGES ON CASH | 30,382 | (5,692 | ) | (33,889 | ) | |||||||
Net increase (decrease) in cash | (68,242 | ) | 142,365 | (168,546 | ) | |||||||
Cash, beginning of period | 297,794 | 155,429 | 323,975 | |||||||||
Cash, end of period | $ | 229,552 | $ | 297,794 | $ | 155,429 | ||||||
SUPPLEMENTAL CASH FLOW INFORMATION: | ||||||||||||
Income taxes paid (recovered) | $ | 53,019 | $ | 31,018 | $ | 131,632 | ||||||
Interest paid | $ | 31,775 | 35,217 | 35,217 | ||||||||
NON-CASH TRANSACTION: | ||||||||||||
Transfer of fixed maturities, available for sale, at market value to Bermuda Re as part of | $ | 790,583 | $ | - | $ | - | ||||||
settlement for loss portfolio transfer agreement as of 12/31/17 | ||||||||||||
Exchange of common shares of parent company, held as other invested assets at fair value, | $ | - | $ | - | $ | 1,773,214 | ||||||
for preferred shares of an affiliated company, held as other invested assets at fair value | ||||||||||||
The accompanying notes are an integral part of the consolidated financial statements. |
F-6
Everest Reinsurance Holdings, Inc. ("Holdings"(“Holdings”), a Delaware company and direct subsidiary of Everest Underwriting Group (Ireland) Limited ("(“Holdings Ireland"Ireland”), which is a direct subsidiary of Everest Re Group, Ltd. ("Group"(“Group”), through its subsidiaries, principally provides property and casualty reinsurance and insurance in the United States of America and internationally. As used in this document, "Company"“Company” means Holdings and its subsidiaries.
The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America ("GAAP"(“GAAP”). The statements include all of the following domestic and foreign direct and indirect subsidiaries of the Company: Everest Reinsurance Company ("(“Everest Re"Re”), Everest Global Services, Inc. (“Global Services”), Everest National Insurance Company ("(“Everest National"National”), Everest Indemnity Insurance Company ("(“Everest Indemnity"Indemnity”), Everest Security Insurance Company ("(“Everest Security"Security”), Everest Reinsurance Company – Escritório de Representação No Brasil Ltda. ("(“Everest Brazil"Brazil”), Mt. Whitney Securities, Inc., Everest Denali Insurance Company ("(“Everest Denali"Denali”), Everest Premier Insurance Company ("(“Everest Premier"Premier”), Everest Specialty Underwriters Services, LLC, Heartland Crop Insurance, Inc. ("Heartland"), Everest International Assurance, Ltd. ("(“Everest Assurance"Assurance”), Specialty Insurance Group, Inc. ("Specialty"(“Specialty”), Specialty Insurance Group - Leisure and Entertainment Risk Purchasing Group LLC ("(“Specialty RPG"RPG”), Salus Systems (“Salus”) and Mt. McKinley Managers, L.L.C. and Mt. McKinley Insurance Company ("Mt. McKinley"). All amounts are reported in U.S. dollars.
During the thirdfourth quarter of 2016, the Company established Delaware domiciled property and casualty insurance subsidiaries, Everest Premier and Everest Denali, which are used in the continued expansion of the Insurance operations.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities (and disclosure of contingent assets and liabilities) at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Ultimate actual results could differ, possibly materially, from those estimates.
All intercompany accounts and transactions have been eliminated.
Certain reclassifications and format changes have been made to prior years'years’ amounts to conform to the 20172020 presentation.
Fixed maturity investments available for sale, at market value, reflect unrealized appreciation and depreciation, as a result of temporary changes in market value during the period, in stockholder'sstockholder’s equity, net of income taxes in "accumulated“accumulated other comprehensive income (loss)"” in the consolidated balance sheets. Equity securities and other invested assets carried at fair value reflect fair value re-measurements as net realized capital gains and losses in the consolidated statements of operations and comprehensive income (loss). The Company records changes in fair value for its fixed maturities-available for sale, at market value through stockholder's equity, net of taxes in accumulated other comprehensive income (loss)sheets, since cash flows from these investments will be primarily used to settle its reserve for losses and loss adjustment expense liabilities. The Company anticipates holding these investments for an extended period as the cash flow from interest and maturities will fund the projected payout of these liabilities. The Company carriesreviews all of its equityfixed maturity, available for sale securities atwhose fair value excepthas fallen below their amortized cost at the time of review. The Company then assesses whether the decline in value is due to non-credit related or credit related factors. In making its assessment, the Company evaluates the current market and interest rate environment as well as specific issuer information. Generally, a change in a security’s value caused by a change in the market, interest rate or foreign exchange environment does not constitute a credit impairment, but rather a non-credit related decline in market value. Non-credit related declines in market value are recorded as unrealized losses in accumulated other comprehensive income (loss). If the Company intends to sell the security or is more likely than not to sell the security, the Company records the entire fair value adjustment in net realized capital gains (losses) in the Company’s consolidated statements of operations and comprehensive income (loss). If the Company determines that the decline is credit related and the Company does not have the intent to sell the security; and it is more likely than not that the Company will not have to sell
F-8
the security before recovery of its cost basis, the Company establishes a credit allowance equal to the estimated credit loss and is recorded in net realized capital gains (losses) in the Company’s consolidated statements of operations and comprehensive income (loss). The amount of the allowance for mutual fund investments whose underlying investments are compriseda given security will generally be the difference between a discounted cash flow model and the Company’s carrying value. The fair value adjustment that is non-credit related is recorded as a component of fixed maturity securities. other comprehensive income (loss), net of tax, and is included in accumulated other comprehensive income (loss) in the Company’s consolidated balance sheets. The Company will adjust the credit allowance account for future changes in credit loss estimates for a security and record this adjustment through net realized capital gains (losses) in the Company’s consolidated statements of operations and comprehensive income (loss).
For equity securities, available for sale, at fair value, the Company reflects changes in value as net realized capital gains and losses since these securities may be sold in the near term depending on financial market conditions. Interest income on all fixed maturities and dividend income on all equity securities are included as part of net investment income in the consolidated statements of operations and comprehensive income (loss). Unrealized losses on fixed maturities, which are deemed other-than-temporary and related to the credit quality of a security, are charged to net income (loss) as net realized capital losses. Short-term investments are stated at cost, which approximates market value. Realized gains or losses on sales of investments are determined on the basis of identified cost. For some non-publicly traded securities, market prices are determined through the use of pricing models that evaluate securities relative to the U.S. Treasury yield curve, taking into account the issue type, credit quality, and cash flow characteristics of each security. For other non-publicly traded securities, an investment manager'smanagers’ valuation committeecommittees will estimate fair value, and in many instances, these fair values are supported with opinions from qualified independent third parties. For publicly traded securities, market value is based on quoted market prices or valuation models that use observable market inputs. When a sector of the financial markets is inactive or illiquid, the Company may use its own assumptions about future cash flows and risk-adjusted discount rates to determine fair value. Retrospective adjustments are employed to recalculate the values of asset-backed securities. Each acquisition lot is reviewed to recalculate the effective yield. The recalculated effective yield is used to derive a book value as if the new yield were applied at the time of acquisition. Outstanding principal factors from the time of acquisition to the adjustment date are used to calculate the prepayment history for all applicable securities. Conditional prepayment rates, computed with life to date factor histories and weighted average maturities, are used to effect the calculation of projected and prepayments for pass-through security types. Other invested assets includesinclude limited partnerships, rabbi trusts and, prior to July 1, 2018, a private placement liquidity sweep facility and rabbi trusts.facility. Cash contributions to and cash distributions from the sweep facility arewere reported gross in cash flows from investing activities in the consolidated statements of cash flows. Limited partnerships are accounted for under the equity method of accounting, which can be recorded on a monthly or quarterly lag. Other invested assets, at fair value, are comprised of convertible preferred stock of Everest Preferred International Holdings, Ltd. ("(“Preferred Holdings"Holdings”), an affiliated entity. The fair valuevalues of the Preferred Holdings convertible preferred stock at December 31, 20172020 and December 31, 20162019 were determined using a pricing model.
Effective January 1, 2020, the Company adopted the Current Expected Credit Losses (CECL) methodology for estimating allowances for credit losses. The Company provides reservesevaluates the recoverability of its premiums and reinsurance receivable balances and establishes an allowance for estimated uncollectible amounts. Prior to the adoption of CECL, an allowance for doubtful accounts was estimated on the basis of periodic evaluations of balances due from third parties, considering historical collection experience, solvency and current economic conditions.
Premiums receivable, excluding receivables for losses within a deductible and retrospectively-rated policy premiums, are primarily comprised of premiums due from policyholders/ cedants. Balances are considered past due when amounts that have been billed are not collected within contractually stipulated time periods. For these balances, the allowance is estimated based on recent historical credit loss and collection experience, adjusted for current economic conditions and reasonable and supportable forecasts, when appropriate. In response to significant economic stress experienced as a result of the COVID-19 pandemic, during 2020, the Company increased the expected loss factors used to estimate the allowance based on collection experience during past moderate and severe recessions as well as experience during periods when we provided policyholders additional time to make premiums payments.
F-9
A portion of the Company's Commercial Lines business is written with large deductibles or under retrospectively-rated plans. Under some commercial insurance contracts with a large deductible, the Company is obligated to pay the claimant the full amount of the claim and the Company is subsequently reimbursed by the policyholder for the deductible amount. As such, the Company is subject to credit risk until reimbursement is made. Retrospectively-rated policies are policies whereby the ultimate premium is adjusted based on actual losses incurred. Although the premium adjustment feature of a retrospectively-rated policy substantially reduces insurance risk for the Company, it presents credit risk to the Company. The Company’s results of operations could be adversely affected if a significant portion of such policyholders failed to reimburse the Company for the deductible amount or the amount of additional premium owed under retrospectively-rated policies. The Company manages these credit risks through credit analysis, collateral requirements, and oversight. The allowance for receivables for loss within a deductible and retrospectively-rated policy premiums is estimated as the amount of the receivable exposed to loss multiplied by estimated factors for probability of default. The probability of default is assigned based on each policyholder's credit rating, or a rating is estimated if no external rating is available. Credit ratings are reviewed and updated at least annually. The exposure amount is estimated net of collateral and other offsets, considering the nature of the collateral, potential future changes in collateral values, and historical loss information for the type of collateral obtained. The probability of default factors are historical corporate defaults for receivables with similar durations estimated through multiple economic cycles. Credit ratings are forward-looking and consider a variety of economic outcomes. The Company's evaluation of the required allowance for receivables for loss within a deductible and retrospectively-rated policy premiums considers the current economic environment as well as the probability-weighted macroeconomic scenarios.
In response to significant economic stress experienced as a result of the COVID-19 pandemic, the Company increased the weight of both a moderate and severe recession scenario in our estimate of the allowance for loss within a deductible and retrospectively-rated policy premiums. The ultimate impact to the Company’s financial statements from the COVID-19 pandemic could vary significantly from our estimates depending on the duration and severity of the pandemic, the duration and severity of the economic downturn and the degree to which federal, state and local government actions to mitigate the economic impact of COVID-19 are effective.
The Company records total credit loss expenses related to premiums receivable in other underwriting expenses and records credit loss expenses related to deductibles through losses incurred
The allowance for uncollectible reinsurance recoverablereflects management’s best estimate of reinsurance cessions that may be uncollectible in the future due to reinsurers’ unwillingness or inability to pay. The allowance for uncollectible reinsurance comprises an allowance and premiuman allowance for disputed balances. Based on this analysis, the Company may adjust the allowance for uncollectible reinsurance or charge off reinsurer balances that are determined to be uncollectible.
The allowance is estimated as the amount of reinsurance receivable balances based on management's assessmentexposed to loss multiplied by estimated factors for the probability of default. The reinsurance receivable exposed is the amount of reinsurance receivable net of collateral and other offsets, considering the nature of the collectabilitycollateral, potential future changes in collateral values, and historical loss information for the type of collateral obtained. The probability of default factors are historical insurer and reinsurer defaults for liabilities with similar durations to the reinsured liabilities as estimated through multiple economic cycles. Credit ratings are forward-looking and consider a variety of economic outcomes. The Company's evaluation of the outstanding balances. Such reservesrequired allowance for reinsurance receivable considers the current economic environment as well as macroeconomic scenarios.
The Company expects the impact of the COVID-19 pandemic to reinsurers to be somewhat mitigated by their regulated capital and liquidity positions. The ultimate impact to the Company's financial statements could vary significantly from our estimates depending on the duration and severity of the pandemic, the duration and severity of the economic downturn and the degree to which federal, state and local government actions to mitigate the economic impact of COVID-19 are effective.
The Company records credit loss expenses related to reinsurance receivable in losses and loss adjustment expenses. Write-offs of reinsurance receivable and any related allowance are recorded in the period in which the balance is deemed uncollectible.
F-10
Allowances are presented in the table below for the periods indicated.
|
|
|
| Years Ended December 31, | ||||
(Dollars in thousands) |
|
|
| 2020 |
| 2019 | ||
Reinsurance receivables and premium receivables |
|
|
| $ | 33,370 |
| $ | 25,163 |
Years Ended December 31, | ||||||||
(Dollars in thousands) | 2017 | 2016 | ||||||
Reinsurance recoverable and premium receivables | $ | 23,011 | $ | 23,011 |
Acquisition costs, consisting principally of commissions and brokerage expenses and certain premium taxes and fees incurred at the time a contract or policy is issued and that vary with and are directly related to the Company'sCompany’s reinsurance and insurance business, are deferred and amortized over the period in which the related premiums are earned. Deferred acquisition costs are limited to their estimated realizable value by line of business based on the related unearned premiums, anticipated claims and claim expenses and anticipated investment income. Deferred acquisition costs amortized to income are presented in the table below for the periods indicated.
| Years Ended December 31, | |||||||
(Dollars in thousands) | 2020 |
| 2019 |
| 2018 | |||
Deferred acquisition costs | $ | 1,373,355 |
| $ | 1,270,053 |
| $ | 1,141,714 |
Years Ended December 31, | ||||||||||||
(Dollars in thousands) | 2017 | 2016 | 2015 | |||||||||
Deferred acquisition costs | $ | 210,925 | $ | 281,424 | $ | 312,325 |
The reserve for losses and loss adjustment expenses ("LAE"(“LAE”) is based on individual case estimates and reports received from ceding companies. A provision is included for losses and LAE incurred but not reported ("IBNR"(“IBNR”) based on past experience. A provision is also included for certain potential liabilities relating to asbestos and environmental ("(“A&E"&E”) exposures, for which liabilities cannot be estimated using traditional reserving techniques. See also Note 3. The reserves are reviewed periodically and any changes in estimates are reflected in earnings in the period the adjustment is made. The Company'sCompany’s loss and LAE reserves represent management'smanagement’s best estimate of the ultimate liability. Loss and LAE reserves are presented gross of reinsurance receivables and incurred losses and LAE are presented net of reinsurance.
Accruals for commissions are established for reinsurance contracts that provide for the stated commission percentage to increase or decrease based on the loss experience of the contract. Changes in estimates for such arrangements are recorded as commission expense. Commission accruals for contracts with adjustable features are estimated based on expected loss and LAE.
Written premiums are earned ratably over the periods of the related insurance and reinsurance contracts. Written premiums related to crop insurance are earned on a seasonal pattern, which is based upon the planting and harvesting periods of each crop season. Unearned premium reserves are established relative to the unexpired contract period. SuchFor reinsurance contracts, such reserves are established based upon reports received from ceding companies or estimated using pro rata methods based on statistical data. Reinstatement premiums represent additional premium received on reinsurance coverages, most prevalently catastrophe related, when limits have been depleted under the original reinsurance contract and additional coverage is granted. Written and earned premiums and the related costs, which have not yet been reported to the Company, are estimated and accrued. Premiums are net of ceded reinsurance.
Prepaid reinsurance premiums represent unearned premium reserves ceded to other reinsurers. Prepaid reinsurance premiums for any foreign reinsurers comprising more than 10%10% of the outstanding balance at December 31, 20172020 were collateralized either through collateralized trust arrangements, rights of offset or letters of credit, thereby limiting the credit risk to the Company.
The Company and its wholly-ownedwholly owned subsidiaries file a consolidated U.S. Corporation Income Tax Return. The Company'sCompany’s foreign subsidiaries and foreign branches of its USU.S. subsidiaries file country and local corporation income tax returns as required. Deferred U.S. federal and foreign income taxes have been recorded to
F-11
recognize the tax effect of temporary differences between the GAAP and income tax bases of assets and liabilities, which arise because of differences between the financial reporting and income tax rules.
As an accounting policy, the Company has adopted the aggregate portfolio approach for releasing disproportionate income tax effects from AOCI.
As a global entity, the Company transacts business in numerous currencies through business units located around the world. The base transactional currency for each business unit is determined by the local currency used for most economic activity in that area. Movements in exchange rates related to assets and liabilities at the business units between the original currency and the base currency are recorded through the consolidated statements of operations and comprehensive income (loss) in other income (expense), except
The business units'units’ base currency financial statements are translated to U.S. dollars using the exchange rates at the end of period for the balance sheets and the average exchange rates in effect for the reporting period for the income statements. Gains and losses resulting from translating the foreign currency financial statements, net of deferred income taxes, are excluded from net income loss and accumulated in stockholder'sstockholder’s equity.
With recent changes in executive management and organizational structure, the Company throughmanages its subsidiaries, operates in three segments:reinsurance and insurance operations as autonomous units and key strategic decisions are based on the aggregate operating results and projections for these segments of business. Accordingly, effective January 1, 2020, the Company revised it reporting segments to Reinsurance Operations and Insurance Operations. This replaces the previous reported segments of U.S. Reinsurance, International (reinsurance) and Insurance. The prior year presented segment information has been reformatted to reflect this change. See also Note 17.
Premiums on ceded retroactive contracts are earned when written with a corresponding reinsurance recoverable established for the amount of reserves ceded. The initial gain, if applicable, is deferred and amortized into income over an actuarially determined expected payout period. Any future loss is recognized immediately and charged against earnings.
Accounting for Deferred Taxes in Accumulated Other Comprehensive Income (AOCI).Taxes. In February 2018, FASBDecember 2019, The Financial Accounting Standards Board (“FASB”) issued ASU 2018-02Accounting Standards Update (“ASU”) 2019-12, which outlinesprovides simplification of existing guidance for income taxes, including the removal of certain exceptions related to recognition of deferred tax liabilities on the treatment of trapped deferred taxes contained within AOCI on the consolidated balance sheets. The new guidance allows the amount of trapped deferred taxes in AOCI, resulting from the change in the U.S. tax rate from 35% to 21% upon enactment of the Tax Cut and Jobs Act ("TCJA"), to be reclassed as part of retained earnings in the consolidated balance sheets.foreign subsidiaries. The guidance is effective for annual and interim reporting periods beginning after December 15, 2018, but early adoption is allowed.2020 and interim periods within that annual reporting period. The Company has decided to early adoptis currently evaluating the impact of the adoption of ASU 2019-12 on its financial statements.
Accounting for Cloud Computing Arrangement. In August 2018, FASB issued ASU 2018-15, which outlines accounting for implementation costs of a cloud computing arrangement that is a service contract. This guidance asrequires that implementation costs of a cloud computing arrangement that is a service contract must be capitalized and expensed in accordance with the existing provisions provided in Subtopic 350-40 regarding development of internal use software. In addition, any capitalized implementation costs should be amortized over the term of the hosting arrangement. The guidance is effective for annual reporting periods beginning after December 31, 2017.15, 2019 and interim periods within that annual reporting period. The adoption has resulted inof ASU 2018-15 did not have a reclass of $325 thousand between AOCI and retained earnings, which is disclosed separately withinmaterial impact on the consolidated statement of changes in stockholder's equity.
Accounting for Impact on Income Taxes due to Tax Reform. Reform. In December 2017, the SEC issued Staff Accounting Bulletin ("SAB"(“SAB”) 118, which provides guidance on the application of FASB Accounting Standards Codification ("ASC"(“ASC”) Topic 740, Income Taxes, due to the enactment of TCJA. SAB 118 became effective upon release. The Company has adopted the provisions of SAB 118 with respect to measuring the tax effects for the modifications to the determination of tax basis loss reserves. Because of uncertainty in how the Internal Revenue Service ("IRS") intends to implement the modifications and the necessary transition calculation, the Company has determined that a reasonable estimate cannot be determined and has followed the provisions of the tax laws that were in effect prior to the modifications. In 2018, the Company expects to recordrecorded adjustments to
F-12
the amount of tax expense it recorded in 2017 with respect to the TCJA as estimated amounts are finalized. Further adjustments arewere finalized, which did not expected to have a material impact on the Company'sCompany’s financial statements.
Amortization of Bond Premium.In March 2017, FASB issued ASU 2017-08, which outlines guidance on the amortization period for premium on callable debt securities. The new guidance requires that the premium on callable debt securities be amortized through the earliest call date rather than through the maturity date of the callable security. The guidance is effective for annual and interim reporting periods beginning after December 15, 2019. The Company does not expect the adoption of ASU 2017-08 todid not have a material impact on itsthe Company’s financial statements.
Valuation of Financial Instruments.In June 2016, FASB issued ASU 2016-13 (and has subsequently issued related guidance and amendments in ASU 2019-11 and ASU 2019-10 in November 2019) which outlinesoutline guidance on the valuation of and accounting for assets measured at amortized cost and available for sale debt securities. The new guidance requires the carrying value of assets measured at amortized cost, will nowincluding reinsurance and premiums receivables to be presented as the net amount expected to be collected on the financial asset (amortized cost less an allowance for credit losses valuation account). Available for saleThe allowance reflects expected credit losses of the financial asset which considers available information using a combination both historical information, current market conditions and reasonable and supportable forecasts. For available-for-sale debt securities, willthe guidance modified the previous other than temporary impairment model, now record credit losses throughrequiring an allowance for estimated credit related losses rather than a permanent impairment, which will be limited to the amount by which fair value is below amortized cost. The guidance is effective for annual and interim reporting periods beginning after December 15, 2019. The Company adopted the guidance effective January 1, 2020, on a modified retrospective basis. The adoption resulted in a cumulative adjustment of $907 thousand in retained earnings, net of tax, which is currently evaluatingdisclosed separately within the impactConsolidated Statements of the adoption of ASU 2016-13 on its financial statements.
Leases. In February 2016, FASB issued ASU 2016-02 (and subsequently issued ASU 2018-11 in July, 2018) which outlinesoutline new guidance on the accounting for leases. The new guidance requires the recognition of lease assets and lease liabilities on the balance sheets for most leases that were previously deemed operating leases and required only lease expense presentation in the statements of operations. The guidance is effective for annual and interim reporting periods beginning after December 15, 2018. The Company is currently evaluatingadopted ASU 2016-02 effective January 1, 2019 and elected to utilize a cumulative-effect adjustment to the impactopening balance of retained earnings for the year of adoption. Accordingly, the Company’s reporting for the comparative periods prior to adoption continue to be presented in the financial statements in accordance with previous lease accounting guidance. The Company also elected to apply the package of practical expedients applicable to the Company in the updated guidance for transition for leases in effect at adoption. The Company did not elect the hindsight practical expedient to determine the lease term of existing leases (e.g. The Company did not re-assess lease renewals, termination options nor purchase options in determining lease terms). The adoption of the updated guidance resulted in the Company recognizing a right-of-use asset of $60,325 thousand as part of other assets and a lease liability of $66,551 thousand as part of other liabilities in the consolidated balance sheet, as well as de-recognizing the liability for deferred rent that was required under the previous guidance. The cumulative effect adjustment to the opening balance of retained earnings was zero. The adoption of ASU 2016-02the updated guidance did not have a material effect on its financial statements.
Recognition and Measurement of Financial Instruments. Instruments. In January 2016, the FASB issued ASU 2016-01, which outlines revised guidance on the accounting for equity investments. The new guidance states that all equity investments in unconsolidated entities will be measured at fair value, with the change in value being recorded through the income statement rather than being recorded within other comprehensive income. The updated guidance is effective for annual and interim reporting periods beginning after December 15, 2017. The Company does not expectadopted the guidance effective January 1, 2018. The adoption of ASU 2016-01 to haveresulted in a material impact on its financial statements.
Any issued guidance and pronouncements, other than those directly referencesreferenced above, are deemed by the Company to be either not applicable or immaterial to its financial statements.
F-13
Effective January 1, 2020, the Company altered its processing of ceding certain commissions and deferred acquisition costs under an affiliated quota share agreement. In previous reporting periods, these expenses were ceded based upon a quarter lag. In the second quarter of 2017, the quarter lag was eliminated and these expenses are now recorded on a current quarter basis. Although management determined that the impact of the ceding lag was not material to prior period financial statements, the impact of eliminating the ceding lag would have significantly impacted results within the second quarter of 2017. As a result, prior period balances have been revised in the applicable financial statements and corresponding footnotes to eliminate the impact ofadopted ASU 2016-13 which modified the previous recording lag.
CONSOLIDATED BALANCE SHEETS | December 31, 2016 | December 31, 2015 | ||||||||||||||||||||||
As Previously | Impact of | As Previously | Impact of | |||||||||||||||||||||
Reported | Revisions | As Revised | Reported | Revisions | As Revised | |||||||||||||||||||
(Dollars in thousands, except par value per share) | ||||||||||||||||||||||||
ASSETS: | ||||||||||||||||||||||||
Deferred acquisition costs | $ | 73,924 | $ | (5,303 | ) | $ | 68,621 | $ | 92,651 | $ | (6,249 | ) | $ | 86,402 | ||||||||||
TOTAL ASSETS | $ | 17,088,739 | $ | (5,303 | ) | $ | 17,083,436 | $ | 16,695,203 | $ | (6,249 | ) | $ | 16,688,954 | ||||||||||
LIABILITIES: | ||||||||||||||||||||||||
Other net payable to reinsurers | $ | 860,391 | $ | (45,093 | ) | $ | 815,298 | $ | 1,225,260 | $ | (37,480 | ) | $ | 1,187,780 | ||||||||||
Income taxes | 142,143 | 6,797 | 148,940 | 68,024 | 4,132 | 72,156 | ||||||||||||||||||
Total liabilities | 11,823,179 | (38,296 | ) | 11,784,883 | 11,763,992 | (33,348 | ) | 11,730,644 | ||||||||||||||||
STOCKHOLDERS EQUITY: | ||||||||||||||||||||||||
Retained earnings | 4,914,308 | 32,993 | 4,947,301 | 4,618,558 | 27,099 | 4,645,657 | ||||||||||||||||||
Total stockholder's equity | 5,265,560 | 32,993 | 5,298,553 | 4,931,211 | 27,099 | 4,958,310 | ||||||||||||||||||
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY | $ | 17,088,739 | $ | (5,303 | ) | $ | 17,083,436 | $ | 16,695,203 | $ | (6,249 | ) | $ | 16,688,954 |
CONSOLIDATED STATEMENTS OF OPERATIONS | Year Ended December 31, 2016 | Year Ended December 31, 2015 | ||||||||||||||||||||||
AND COMPREHENSIVE INCOME (LOSS): | As Previously | Impact of | As Previously | Impact of | ||||||||||||||||||||
Reported | Revisions | As Revised | Reported | Revisions | As Revised | |||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||
CLAIMS AND EXPENSES: | ||||||||||||||||||||||||
Commission, brokerage, taxes and fees | $ | 289,982 | $ | (8,558 | ) | $ | 281,424 | $ | 315,069 | $ | (2,744 | ) | $ | 312,325 | ||||||||||
Total claims and expenses | 1,928,940 | (8,558 | ) | 1,920,382 | 1,892,062 | (2,744 | ) | 1,889,318 | ||||||||||||||||
INCOME (LOSS) BEFORE TAXES | 390,433 | 8,558 | 398,991 | 604,542 | 2,744 | 607,286 | ||||||||||||||||||
Income tax expense (benefit) | 94,683 | 2,664 | 97,347 | 191,889 | 3,007 | 194,896 | ||||||||||||||||||
NET INCOME (LOSS) | $ | 295,750 | $ | 5,894 | $ | 301,644 | $ | 412,653 | $ | (263 | ) | $ | 412,390 | |||||||||||
COMPREHENSIVE INCOME (LOSS) | $ | 321,571 | $ | 5,894 | $ | 327,465 | $ | 345,998 | $ | (263 | ) | $ | 345,735 |
CONSOLIDATED STATEMENTS OF OPERATIONS | Year Ended December 31, 2014 | |||||||||||
AND COMPREHENSIVE INCOME (LOSS): | As Previously | Impact of | ||||||||||
Reported | Revisions | As Revised | ||||||||||
(Dollars in thousands) | ||||||||||||
CLAIMS AND EXPENSES: | ||||||||||||
Commission, brokerage, taxes and fees | $ | 339,402 | $ | (427 | ) | $ | 338,975 | |||||
Total claims and expenses | 1,930,749 | (427 | ) | 1,930,322 | ||||||||
INCOME (LOSS) BEFORE TAXES | 657,688 | 427 | 658,115 | |||||||||
Income tax expense (benefit) | 203,562 | 1,125 | 204,687 | |||||||||
NET INCOME (LOSS) | $ | 454,126 | $ | (698 | ) | $ | 453,428 | |||||
COMPREHENSIVE INCOME (LOSS) | $ | 370,997 | $ | (698 | ) | $ | 370,299 |
CONSOLIDATED STATEMENTS OF | Year Ended December 31, 2016 | Year Ended December 31, 2015 | ||||||||||||||||||||||
CHANGES IN STOCKHOLDER'S EQUITY | As Previously | Impact of | As Previously | Impact of | ||||||||||||||||||||
Reported | Revisions | As Revised | Reported | Revisions | As Revised | |||||||||||||||||||
(Dollars in thousands, except share amounts) | ||||||||||||||||||||||||
RETAINED EARNINGS: | ||||||||||||||||||||||||
Balance, beginning of period | $ | 4,618,558 | $ | 27,099 | $ | 4,645,657 | $ | 4,205,905 | $ | 27,362 | $ | 4,233,267 | ||||||||||||
Net income (loss) | 295,750 | 5,894 | 301,644 | 412,653 | (263 | ) | 412,390 | |||||||||||||||||
Balance, end of period | 4,914,308 | 32,993 | 4,947,301 | 4,618,558 | 27,099 | 4,645,657 | ||||||||||||||||||
TOTAL STOCKHOLDER'S EQUITY, END OF PERIOD | $ | 5,265,560 | $ | 32,993 | $ | 5,298,553 | $ | 4,931,211 | $ | 27,099 | $ | 4,958,310 |
CONSOLIDATED STATEMENTS OF | Year Ended December 31, 2014 | |||||||||||
CHANGES IN STOCKHOLDER'S EQUITY | As Previously | Impact of | ||||||||||
Reported | Revisions | As Revised | ||||||||||
(Dollars in thousands, except share amounts) | ||||||||||||
RETAINED EARNINGS: | ||||||||||||
Balance, beginning of period | $ | 3,751,779 | $ | 28,060 | $ | 3,779,839 | ||||||
Net income (loss) | 454,126 | (698 | ) | 453,428 | ||||||||
Balance, end of period | 4,205,905 | 27,362 | 4,233,267 | |||||||||
TOTAL STOCKHOLDER'S EQUITY, END OF PERIOD | $ | 4,572,717 | $ | 27,362 | $ | 4,600,079 |
CONSOLIDATED STATEMENTS OF CASH FLOWS | Year Ended December 31, 2016 | Year Ended December 31, 2015 | ||||||||||||||||||||||
As Previously | Impact of | As Previously | Impact of | |||||||||||||||||||||
Reported | Revisions | As Revised | Reported | Revisions | As Revised | |||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||||||||||||||||
Net income (loss) | $ | 295,750 | $ | 5,894 | $ | 301,644 | $ | 412,653 | $ | (263 | ) | $ | 412,390 | |||||||||||
Decrease (increase) in income taxes | 60,325 | 2,666 | 62,991 | 57,487 | 3,007 | 60,494 | ||||||||||||||||||
Increase (decrease) in other net payable to reinsurers | (364,242 | ) | (7,614 | ) | (371,856 | ) | 204,526 | (8,590 | ) | 195,936 | ||||||||||||||
Change in other assets and liabilities, net | 16,090 | (946 | ) | 15,144 | 7,499 | 5,846 | 13,345 |
CONSOLIDATED STATEMENTS OF CASH FLOWS | Year Ended December 31, 2014 | |||||||||||
As Previously | Impact of | |||||||||||
Reported | Revisions | As Revised | ||||||||||
(Dollars in thousands) | ||||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||||
Net income (loss) | $ | 454,126 | $ | (698 | ) | $ | 453,428 | |||||
Decrease (increase) in income taxes | 68,206 | 1,125 | 69,331 | |||||||||
Increase (decrease) in other net payable to reinsurers | 5,130 | (3,216 | ) | 1,914 | ||||||||
Change in other assets and liabilities, net | 81,388 | 2,789 | 84,177 |
| At December 31, 2020 | |||||||||||||
| Amortized |
| Allowances for |
| Unrealized |
| Unrealized |
| Market | |||||
(Dollars in thousands) | Cost |
| Credit Loss |
| Appreciation |
| Depreciation |
| Value | |||||
Fixed maturity securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities and obligations of U.S. government agencies and corporations | $ | 659,957 |
| $ | - |
| $ | 22,032 |
| $ | - |
| $ | 681,989 |
Obligations of U.S. states and political subdivisions |
| 543,646 |
|
| - |
|
| 34,655 |
|
| (1,255) |
|
| 577,046 |
Corporate securities |
| 3,316,525 |
|
| (1,205) |
|
| 166,072 |
|
| (31,480) |
|
| 3,449,912 |
Asset-backed securities |
| 2,450,807 |
|
| - |
|
| 28,585 |
|
| (5,222) |
|
| 2,474,170 |
Mortgage-backed securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
| 512,388 |
|
| - |
|
| 37,875 |
|
| (183) |
|
| 550,080 |
Agency residential |
| 937,166 |
|
| - |
|
| 28,630 |
|
| (696) |
|
| 965,100 |
Non-agency residential |
| 3,164 |
|
| - |
|
| 2 |
|
| (2) |
|
| 3,164 |
Foreign government securities |
| 694,132 |
|
| - |
|
| 51,317 |
|
| (3,211) |
|
| 742,238 |
Foreign corporate securities |
| 1,130,865 |
|
| (361) |
|
| 73,265 |
|
| (3,903) |
|
| 1,199,866 |
Total fixed maturity securities | $ | 10,248,650 |
| $ | (1,566) |
| $ | 442,433 |
| $ | (45,952) |
| $ | 10,643,565 |
F-14
| At December 31, 2019 | |||||||||||||
| Amortized |
| Unrealized |
| Unrealized |
| Market |
| OTTI in AOCI | |||||
(Dollars in thousands) | Cost |
| Appreciation |
| Depreciation |
| Value |
| (a) | |||||
Fixed maturity securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities and obligations of U.S. government agencies and corporations | $ | 768,374 |
| $ | 10,128 |
| $ | (987) |
| $ | 777,515 |
| $ | - |
Obligations of U.S. states and political subdivisions |
| 506,347 |
|
| 29,651 |
|
| (87) |
|
| 535,911 |
|
| - |
Corporate securities |
| 2,777,097 |
|
| 70,898 |
|
| (26,438) |
|
| 2,821,557 |
|
| 245 |
Asset-backed securities |
| 761,607 |
|
| 5,659 |
|
| (1,309) |
|
| 765,957 |
|
| - |
Mortgage-backed securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
| 311,961 |
|
| 17,242 |
|
| (154) |
|
| 329,049 |
|
| - |
Agency residential |
| 625,612 |
|
| 19,395 |
|
| (320) |
|
| 644,687 |
|
| - |
Non-agency residential |
| 1,638 |
|
| - |
|
| - |
|
| 1,638 |
|
| - |
Foreign government securities |
| 646,149 |
|
| 18,908 |
|
| (7,050) |
|
| 658,007 |
|
| 27 |
Foreign corporate securities |
| 935,640 |
|
| 31,257 |
|
| (9,139) |
|
| 957,758 |
|
| 333 |
Total fixed maturity securities | $ | 7,334,425 |
| $ | 203,138 |
| $ | (45,484) |
| $ | 7,492,079 |
| $ | 605 |
At December 31, 2017 | ||||||||||||||||||||
Amortized | Unrealized | Unrealized | Market | OTTI in AOCI | ||||||||||||||||
(Dollars in thousands) | Cost | Appreciation | Depreciation | Value | (a) | |||||||||||||||
Fixed maturity securities | ||||||||||||||||||||
U.S. Treasury securities and obligations of | ||||||||||||||||||||
U.S. government agencies and corporations | $ | 671,449 | $ | 658 | $ | (7,594 | ) | $ | 664,513 | $ | - | |||||||||
Obligations of U.S. states and political subdivisions | 563,789 | 22,124 | (444 | ) | 585,469 | - | ||||||||||||||
Corporate securities | 2,009,665 | 28,003 | (13,459 | ) | 2,024,209 | 129 | ||||||||||||||
Asset-backed securities | 138,203 | 207 | (386 | ) | 138,024 | - | ||||||||||||||
Mortgage-backed securities | ||||||||||||||||||||
Commercial | 52,121 | 115 | (485 | ) | 51,751 | - | ||||||||||||||
Agency residential | 114,435 | 511 | (1,658 | ) | 113,288 | - | ||||||||||||||
Non-agency residential | 51 | 7 | - | 58 | - | |||||||||||||||
Foreign government securities | 514,048 | 17,065 | (7,493 | ) | 523,620 | - | ||||||||||||||
Foreign corporate securities | 863,861 | 20,121 | (12,993 | ) | 870,989 | 377 | ||||||||||||||
Total fixed maturity securities | $ | 4,927,622 | $ | 88,811 | $ | (44,512 | ) | $ | 4,971,921 | $ | 506 |
At December 31, 2016 | ||||||||||||||||||||
Amortized | Unrealized | Unrealized | Market | OTTI in AOCI | ||||||||||||||||
(Dollars in thousands) | Cost | Appreciation | Depreciation | Value | (a) | |||||||||||||||
Fixed maturity securities | ||||||||||||||||||||
U.S. Treasury securities and obligations of | ||||||||||||||||||||
U.S. government agencies and corporations | $ | 693,005 | $ | 2,509 | $ | (4,434 | ) | $ | 691,080 | $ | - | |||||||||
Obligations of U.S. states and political subdivisions | 723,938 | 18,016 | (11,970 | ) | 729,984 | - | ||||||||||||||
Corporate securities | 2,119,324 | 50,665 | (15,786 | ) | 2,154,203 | 4,868 | ||||||||||||||
Asset-backed securities | 136,826 | 330 | (129 | ) | 137,027 | - | ||||||||||||||
Mortgage-backed securities | ||||||||||||||||||||
Commercial | 75,435 | 510 | (452 | ) | 75,493 | - | ||||||||||||||
Agency residential | 721,772 | 2,365 | (8,993 | ) | 715,144 | - | ||||||||||||||
Non-agency residential | 76 | 12 | - | 88 | - | |||||||||||||||
Foreign government securities | 495,572 | 22,088 | (10,383 | ) | 507,277 | - | ||||||||||||||
Foreign corporate securities | 944,546 | 30,015 | (14,361 | ) | 960,200 | 175 | ||||||||||||||
Total fixed maturity securities | $ | 5,910,494 | $ | 126,510 | $ | (66,508 | ) | $ | 5,970,496 | $ | 5,043 |
(a) Represents the amount of OTTI recognized in AOCI. Amount includes unrealized gains and losses on impaired securities relating to changes in the value of such securities subsequent to the impairment measurement date.
The amortized cost and market value of fixed maturity securities are shown in the following tables by contractual maturity. Mortgage-backed securities are generally more likely to be prepaid than other fixed maturity securities. As the stated maturity of such securities may not be indicative of actual maturities, the totals for mortgage-backed and asset-backed securities are shown separately.
| At December 31, 2020 |
| At December 31, 2019 | ||||||||
| Amortized |
| Market |
| Amortized |
| Market | ||||
(Dollars in thousands) | Cost |
| Value |
| Cost |
| Value | ||||
Fixed maturity securities – available for sale |
|
|
|
|
|
|
|
|
|
|
|
Due in one year or less | $ | 658,561 |
| $ | 659,622 |
| $ | 569,506 |
| $ | 563,730 |
Due after one year through five years |
| 2,911,285 |
|
| 3,036,151 |
|
| 2,919,966 |
|
| 2,963,903 |
Due after five years through ten years |
| 1,927,265 |
|
| 2,079,866 |
|
| 1,541,695 |
|
| 1,602,642 |
Due after ten years |
| 848,014 |
|
| 875,412 |
|
| 602,440 |
|
| 620,473 |
Asset-backed securities |
| 2,450,807 |
|
| 2,474,170 |
|
| 761,607 |
|
| 765,957 |
Mortgage-backed securities |
|
|
|
|
|
|
|
|
|
|
|
Commercial |
| 512,388 |
|
| 550,080 |
|
| 311,961 |
|
| 329,049 |
Agency residential |
| 937,166 |
|
| 965,100 |
|
| 625,612 |
|
| 644,687 |
Non-agency residential |
| 3,164 |
|
| 3,164 |
|
| 1,638 |
|
| 1,638 |
Total fixed maturity securities | $ | 10,248,650 |
| $ | 10,643,565 |
| $ | 7,334,425 |
| $ | 7,492,079 |
F-15
At December 31, 2017 | At December 31, 2016 | |||||||||||||||
Amortized | Market | Amortized | Market | |||||||||||||
(Dollars in thousands) | Cost | Value | Cost | Value | ||||||||||||
Fixed maturity securities – available for sale | ||||||||||||||||
Due in one year or less | $ | 319,858 | $ | 320,746 | $ | 394,401 | $ | 392,824 | ||||||||
Due after one year through five years | 2,601,898 | 2,595,237 | 2,925,786 | 2,955,325 | ||||||||||||
Due after five years through ten years | 1,051,431 | 1,069,617 | 879,762 | 894,166 | ||||||||||||
Due after ten years | 649,625 | 683,200 | 776,436 | 800,429 | ||||||||||||
Asset-backed securities | 138,203 | 138,024 | 136,826 | 137,027 | ||||||||||||
Mortgage-backed securities | ||||||||||||||||
Commercial | 52,121 | 51,751 | 75,435 | 75,493 | ||||||||||||
Agency residential | 114,435 | 113,288 | 721,772 | 715,144 | ||||||||||||
Non-agency residential | 51 | 58 | 76 | 88 | ||||||||||||
Total fixed maturity securities | $ | 4,927,622 | $ | 4,971,921 | $ | 5,910,494 | $ | 5,970,496 |
The changes in net unrealized appreciation (depreciation) for the Company'sCompany’s investments are derived from the following sources for the periods as indicated:
| Years Ended December 31, | ||||
(Dollars in thousands) | 2020 |
| 2019 | ||
Increase (decrease) during the period between the market value and cost of investments carried at market value, and deferred taxes thereon: |
|
|
|
|
|
Fixed maturity securities | $ | 238,634 |
| $ | 228,953 |
Fixed maturity securities, other-than-temporary impairment |
| - |
|
| (546) |
Change in unrealized appreciation (depreciation), pre-tax |
| 238,634 |
|
| 228,408 |
Deferred tax benefit (expense) |
| (50,086) |
|
| (47,959) |
Deferred tax benefit (expense), other-than-temporary impairment |
| - |
|
| 115 |
Change in unrealized appreciation (depreciation), net of deferred taxes, included in stockholder's equity | $ | 188,548 |
| $ | 180,562 |
Years Ended December 31, | ||||||||
(Dollars in thousands) | 2017 | 2016 | ||||||
Increase (decrease) during the period between the market value and cost | ||||||||
of investments carried at market value, and deferred taxes thereon: | ||||||||
Fixed maturity securities | $ | (11,166 | ) | $ | 33,883 | |||
Fixed maturity securities, other-than-temporary impairment | (4,537 | ) | 5,113 | |||||
Other invested assets | 3,037 | 60 | ||||||
Change in unrealized appreciation (depreciation), pre-tax | (12,666 | ) | 39,056 | |||||
Deferred tax benefit (expense) | 2,845 | (11,880 | ) | |||||
Deferred tax benefit (expense), other-than-temporary impairment | 1,588 | (1,789 | ) | |||||
Change in unrealized appreciation (depreciation), | ||||||||
net of deferred taxes, included in stockholder's equity | $ | (8,233 | ) | $ | 25,387 |
The Company frequently reviews all of its fixed maturity, available for sale securities for declines in market value and focuses its attention on securities whose fair value has fallen below 80% of their amortized cost at the time of review. The Company then assesses whether the decline in value is temporarydue to non-credit related or other-than-temporary.credit related factors. In making its assessment, the Company evaluates the current market and interest rate environment as well as specific issuer information. Generally, a change in a security'ssecurity’s value caused by a change in the market, interest rate or foreign exchange environment does not constitute an other-than-temporarya credit impairment, but rather a temporarynon-credit related decline in market value. TemporaryNon-credit related declines in market value are recorded as unrealized losses in accumulated other comprehensive income (loss). If the Company intends to sell the security or is more likely than not to sell the security, the Company records the entire fair value adjustment in net realized capital gains (losses) in the Company’s consolidated statements of operations and comprehensive income (loss). If the Company determines that the decline is other-than-temporarycredit related and the Company does not have the intent to sell the security; and it is more likely than not that the Company will not have to sell the security before recovery of its cost basis, the carrying value ofCompany establishes a credit allowance equal to the investment is written down to fair value. The fair value adjustment that isestimated credit or foreign exchange relatedloss and is recorded in net realized capital gains (losses) in the Company'sCompany’s consolidated statements of operations and comprehensive income (loss). The amount of the allowance for a given security will generally be the difference between a discounted cash flow model and the Company’s carrying value. The fair value adjustment that is non-credit related is recorded as a component of other comprehensive income (loss), net of tax, and is included in accumulated other comprehensive income (loss) in the Company'sCompany’s consolidated balance sheets. The Company'sCompany will adjust the credit allowance account for future changes in credit loss estimates for a security and record this adjustment through net realized capital gains (losses) in the Company’s consolidated statements of operations and comprehensive income (loss).
The Company does not create an allowance for uncollectible interest. If interest is not received when due, the interest receivable is immediately reversed and no additional interest is accrued. If future interest is received that has not been accrued, it is recorded as income at that time.
Prior to the adoption of ASU 2016-13 effective January 1, 2020, estimated credit losses were recorded as adjustments to the carrying value of the security and any subsequent improvement in market value were recorded through other comprehensive income.
The Company’s assessments are based on the issuers'issuers’ current and expected future financial position, timeliness with respect to interest and/or principal payments, speed of repayments and any applicable credit enhancements or breakeven constant default rates on mortgage-backed and asset-backed securities, as well as relevant information provided by rating agencies, investment advisors and analysts.
Retrospective adjustments are employed to recalculate the values of asset-backed securities. All of the Company'sCompany’s asset-backed and mortgage-backed securities have a pass-through structure. Each acquisition lot is reviewed to recalculate the effective yield. The recalculated effective yield is used to derive a book value as if the new yield were applied at the time of acquisition. Outstanding principal factors from the time of acquisition to the adjustment date are used to calculate the prepayment history for all applicable securities. Conditional prepayment rates, computed with life to date factor histories and weighted average maturities, are used in the calculation of projected prepayments for pass-through security types.
F-16
The tables below display the aggregate market value and gross unrealized depreciation of fixed maturity securities, by security type and contractual maturity, in each case subdivided according to length of time that individual securities had been in a continuous unrealized loss position for the periods indicated:
| Duration of Unrealized Loss at December 31, 2020 By Security Type | ||||||||||||||||
| Less than 12 months |
| Greater than 12 months |
| Total | ||||||||||||
|
|
|
| Gross |
|
|
|
| Gross |
|
|
|
| Gross | |||
| Market |
| Unrealized |
| Market |
| Unrealized |
| Market |
| Unrealized | ||||||
(Dollars in thousands) | Value |
| Depreciation |
| Value |
| Depreciation |
| Value |
| Depreciation | ||||||
Fixed maturity securities - available for sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of U.S. states and political subdivisions |
| 19,524 |
|
| (999) |
|
| 4,059 |
|
| (256) |
|
| 23,583 |
|
| (1,255) |
Corporate securities |
| 240,601 |
|
| (7,799) |
|
| 188,853 |
|
| (23,681) |
|
| 429,454 |
|
| (31,480) |
Asset-backed securities |
| 223,919 |
|
| (4,573) |
|
| 81,952 |
|
| (649) |
|
| 305,871 |
|
| (5,222) |
Mortgage-backed securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
| 37,414 |
|
| (182) |
|
| 3,983 |
|
| (1) |
|
| 41,397 |
|
| (183) |
Agency residential |
| 235,809 |
|
| (682) |
|
| 1,573 |
|
| (14) |
|
| 237,382 |
|
| (696) |
Non-agency residential |
| 161 |
|
| (2) |
|
| - |
|
| - |
|
| 161 |
|
| (2) |
Foreign government securities |
| 10,505 |
|
| (373) |
|
| 25,793 |
|
| (2,838) |
|
| 36,298 |
|
| (3,211) |
Foreign corporate securities |
| 57,900 |
|
| (2,182) |
|
| 18,349 |
|
| (1,721) |
|
| 76,249 |
|
| (3,903) |
Total fixed maturity securities | $ | 825,833 |
| $ | (16,792) |
| $ | 324,562 |
| $ | (29,160) |
| $ | 1,150,395 |
| $ | (45,952) |
| Duration of Unrealized Loss at December 31, 2020 By Maturity | ||||||||||||||||
| Less than 12 months |
| Greater than 12 months |
| Total | ||||||||||||
|
|
|
| Gross |
|
|
|
| Gross |
|
|
|
| Gross | |||
| Market |
| Unrealized |
| Market |
| Unrealized |
| Market |
| Unrealized | ||||||
(Dollars in thousands) | Value |
| Depreciation |
| Value |
| Depreciation |
| Value |
| Depreciation | ||||||
Fixed maturity securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due in one year or less | $ | 28,802 |
| $ | (1,218) |
| $ | 34,555 |
| $ | (4,142) |
| $ | 63,357 |
| $ | (5,360) |
Due in one year through five years |
| 150,106 |
|
| (5,828) |
|
| 116,987 |
|
| (4,783) |
|
| 267,093 |
|
| (10,611) |
Due in five years through ten years |
| 81,492 |
|
| (1,634) |
|
| 13,118 |
|
| (435) |
|
| 94,610 |
|
| (2,069) |
Due after ten years |
| 68,130 |
|
| (2,673) |
|
| 72,394 |
|
| (19,136) |
|
| 140,524 |
|
| (21,809) |
Asset-backed securities |
| 223,919 |
|
| (4,573) |
|
| 81,952 |
|
| (649) |
|
| 305,871 |
|
| (5,222) |
Mortgage-backed securities |
| 273,384 |
|
| (866) |
|
| 5,556 |
|
| (15) |
|
| 278,940 |
|
| (881) |
Total fixed maturity securities | $ | 825,833 |
| $ | (16,792) |
| $ | 324,562 |
| $ | (29,160) |
| $ | 1,150,395 |
| $ | (45,952) |
Duration of Unrealized Loss at December 31, 2017 By Security Type | ||||||||||||||||||||||||
Less than 12 months | Greater than 12 months | Total | ||||||||||||||||||||||
Gross | Gross | Gross | ||||||||||||||||||||||
Unrealized | Unrealized | Unrealized | ||||||||||||||||||||||
(Dollars in thousands) | Market Value | Depreciation | Market Value | Depreciation | Market Value | Depreciation | ||||||||||||||||||
Fixed maturity securities - available for sale | ||||||||||||||||||||||||
U.S. Treasury securities and obligations of | ||||||||||||||||||||||||
U.S. government agencies and corporations | $ | 446,963 | $ | (2,921 | ) | $ | 198,684 | $ | (4,673 | ) | $ | 645,647 | $ | (7,594 | ) | |||||||||
Obligations of U.S. states and political subdivisions | 4,400 | (27 | ) | 37,886 | (417 | ) | 42,286 | (444 | ) | |||||||||||||||
Corporate securities | 455,431 | (6,674 | ) | 216,715 | (6,785 | ) | 672,146 | (13,459 | ) | |||||||||||||||
Asset-backed securities | 75,196 | (328 | ) | 7,991 | (58 | ) | 83,187 | (386 | ) | |||||||||||||||
Mortgage-backed securities | ||||||||||||||||||||||||
Commercial | 26,650 | (264 | ) | 5,972 | (221 | ) | 32,622 | (485 | ) | |||||||||||||||
Agency residential | 46,234 | (322 | ) | 58,135 | (1,336 | ) | 104,369 | (1,658 | ) | |||||||||||||||
Foreign government securities | 159,852 | (1,567 | ) | 121,018 | (5,926 | ) | 280,870 | (7,493 | ) | |||||||||||||||
Foreign corporate securities | 263,547 | (4,590 | ) | 109,727 | (8,403 | ) | 373,274 | (12,993 | ) | |||||||||||||||
Total fixed maturity securities | $ | 1,478,273 | $ | (16,693 | ) | $ | 756,128 | $ | (27,819 | ) | $ | 2,234,401 | $ | (44,512 | ) |
Duration of Unrealized Loss at December 31, 2017 By Maturity | ||||||||||||||||||||||||
Less than 12 months | Greater than 12 months | Total | ||||||||||||||||||||||
Gross | Gross | Gross | ||||||||||||||||||||||
Unrealized | Unrealized | Unrealized | ||||||||||||||||||||||
(Dollars in thousands) | Market Value | Depreciation | Market Value | Depreciation | Market Value | Depreciation | ||||||||||||||||||
Fixed maturity securities | ||||||||||||||||||||||||
Due in one year or less | $ | 102,939 | $ | (498 | ) | $ | 40,006 | $ | (1,627 | ) | $ | 142,945 | $ | (2,125 | ) | |||||||||
Due in one year through five years | 973,217 | (10,291 | ) | 488,945 | (18,917 | ) | 1,462,162 | (29,208 | ) | |||||||||||||||
Due in five years through ten years | 189,103 | (3,713 | ) | 116,136 | (5,216 | ) | 305,239 | (8,929 | ) | |||||||||||||||
Due after ten years | 64,934 | (1,277 | ) | 38,943 | (444 | ) | 103,877 | (1,721 | ) | |||||||||||||||
Asset-backed securities | 75,196 | (328 | ) | 7,991 | (58 | ) | 83,187 | (386 | ) | |||||||||||||||
Mortgage-backed securities | 72,884 | (586 | ) | 64,107 | (1,557 | ) | 136,991 | (2,143 | ) | |||||||||||||||
Total fixed maturity securities | $ | 1,478,273 | $ | (16,693 | ) | $ | 756,128 | $ | (27,819 | ) | $ | 2,234,401 | $ | (44,512 | ) |
The aggregate market value and gross unrealized losses related to investments in an unrealized loss position at December 31, 20172020 were $2,234,401$1,150,395 thousand and $44,512$45,952 thousand, respectively. The market value of securities for the single issuer (the United States government) whose securities comprised the largest unrealized loss position at December 31, 2017,2020, did not exceed 13.0%0.2% of the overall market value of the Company's fixed maturity securities. The market value of securities for the issuer with the second largest unrealized loss comprised less than 0.9% of the company'sCompany’s fixed maturity securities. In addition, as indicated on the above table, there was no significant concentration of unrealized losses in any one market sector. The $16,693$16,792 thousand of unrealized losses related to fixed maturity securities that have been in an unrealized loss position for less than one year were generally comprised of domestic and foreign corporate securities U.S. government agencies and corporations and foreign governmentas well as asset backed securities. Of these unrealized losses, $13,043$12,522 thousand were related to securities that were rated investment grade by at least one nationally recognized statistical rating agency. The $27,819$29,160 thousand of unrealized losses related to fixed maturity securities in an unrealized loss position for more than one year related primarily due to foreigndomestic and domesticforeign corporate securities and foreign government securities, U.S. government agencies and corporations and agency residential mortgage-backed securities. Of these unrealized losses $26,463$5,856 thousand were related to securities that were rated investment grade by at least one nationally recognized
F-17
The Company, given the size of its investment portfolio and capital position, does not have the intent to sell these securities; and it is more likely than not that the Company will not have to sell the security before recovery of its cost basis. In addition, all securities currently in an unrealized loss position are current with respect to principal and interest payments.
The tables below display the aggregate market value and gross unrealized depreciation of fixed maturity securities, by security type and contractual maturity, in each case subdivided according to length of time that individual securities had been in a continuous unrealized loss position for the periods indicated:
| Duration of Unrealized Loss at December 31, 2019 By Security Type | ||||||||||||||||
| Less than 12 months |
| Greater than 12 months |
| Total | ||||||||||||
|
|
|
| Gross |
|
|
|
| Gross |
|
|
|
| Gross | |||
| Market |
| Unrealized |
| Market |
| Unrealized |
| Market |
| Unrealized | ||||||
(Dollars in thousands) | Value |
| Depreciation |
| Value |
| Depreciation |
| Value |
| Depreciation | ||||||
Fixed maturity securities - available for sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities and obligations of U.S. government agencies and corporations | $ | 8,997 |
| $ | (141) |
| $ | 203,780 |
| $ | (846) |
| $ | 212,777 |
| $ | (987) |
Obligations of U.S. states and political subdivisions |
| 4,600 |
|
| (38) |
|
| 4,518 |
|
| (49) |
|
| 9,118 |
|
| (87) |
Corporate securities |
| 334,973 |
|
| (5,186) |
|
| 230,679 |
|
| (21,252) |
|
| 565,652 |
|
| (26,438) |
Asset-backed securities |
| 159,695 |
|
| (887) |
|
| 76,351 |
|
| (422) |
|
| 236,046 |
|
| (1,309) |
Mortgage-backed securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
| 13,083 |
|
| (87) |
|
| 16,374 |
|
| (67) |
|
| 29,457 |
|
| (154) |
Agency residential |
| 19,019 |
|
| (82) |
|
| 17,147 |
|
| (238) |
|
| 36,166 |
|
| (320) |
Non-agency residential |
| - |
|
| - |
|
| 690 |
|
| - |
|
| 690 |
|
| - |
Foreign government securities |
| 113,256 |
|
| (858) |
|
| 109,953 |
|
| (6,192) |
|
| 223,209 |
|
| (7,050) |
Foreign corporate securities |
| 105,551 |
|
| (1,260) |
|
| 121,710 |
|
| (7,879) |
|
| 227,261 |
|
| (9,139) |
Total fixed maturity securities | $ | 759,174 |
| $ | (8,539) |
| $ | 781,202 |
| $ | (36,945) |
| $ | 1,540,376 |
| $ | (45,484) |
| Duration of Unrealized Loss at December 31, 2019 By Maturity | ||||||||||||||||
| Less than 12 months |
| Greater than 12 months |
| Total | ||||||||||||
|
|
|
| Gross |
|
|
|
| Gross |
|
|
|
| Gross | |||
| Market |
| Unrealized |
| Market |
| Unrealized |
| Market |
| Unrealized | ||||||
(Dollars in thousands) | Value |
| Depreciation |
| Value |
| Depreciation |
| Value |
| Depreciation | ||||||
Fixed maturity securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due in one year or less | $ | 34,542 |
| $ | (1,067) |
| $ | 188,755 |
| $ | (6,411) |
| $ | 223,297 |
| $ | (7,478) |
Due in one year through five years |
| 226,521 |
|
| (2,554) |
|
| 357,728 |
|
| (11,562) |
|
| 584,249 |
|
| (14,116) |
Due in five years through ten years |
| 251,967 |
|
| (3,292) |
|
| 43,129 |
|
| (6,785) |
|
| 295,096 |
|
| (10,077) |
Due after ten years |
| 54,347 |
|
| (570) |
|
| 81,028 |
|
| (11,460) |
|
| 135,375 |
|
| (12,030) |
Asset-backed securities |
| 159,695 |
|
| (887) |
|
| 76,351 |
|
| (422) |
|
| 236,046 |
|
| (1,309) |
Mortgage-backed securities |
| 32,102 |
|
| (169) |
|
| 34,211 |
|
| (305) |
|
| 66,313 |
|
| (474) |
Total fixed maturity securities | $ | 759,174 |
| $ | (8,539) |
| $ | 781,202 |
| $ | (36,945) |
| $ | 1,540,376 |
| $ | (45,484) |
Duration of Unrealized Loss at December 31, 2016 By Security Type | ||||||||||||||||||||||||
Less than 12 months | Greater than 12 months | Total | ||||||||||||||||||||||
Gross | Gross | Gross | ||||||||||||||||||||||
Unrealized | Unrealized | Unrealized | ||||||||||||||||||||||
(Dollars in thousands) | Market Value | Depreciation | Market Value | Depreciation | Market Value | Depreciation | ||||||||||||||||||
Fixed maturity securities - available for sale | ||||||||||||||||||||||||
U.S. Treasury securities and obligations of | ||||||||||||||||||||||||
U.S. government agencies and corporations | $ | 469,571 | $ | (4,434 | ) | $ | - | $ | - | $ | 469,571 | $ | (4,434 | ) | ||||||||||
Obligations of U.S. states and political subdivisions | 221,088 | (11,486 | ) | 564 | (484 | ) | 221,652 | (11,970 | ) | |||||||||||||||
Corporate securities | 431,757 | (10,121 | ) | 118,172 | (5,665 | ) | 549,929 | (15,786 | ) | |||||||||||||||
Asset-backed securities | 35,065 | (122 | ) | 5,745 | (7 | ) | 40,810 | (129 | ) | |||||||||||||||
Mortgage-backed securities | ||||||||||||||||||||||||
Commercial | 27,230 | (391 | ) | 3,060 | (61 | ) | 30,290 | (452 | ) | |||||||||||||||
Agency residential | 487,000 | (6,320 | ) | 90,740 | (2,673 | ) | 577,740 | (8,993 | ) | |||||||||||||||
Foreign government securities | 218,171 | (2,713 | ) | 61,542 | (7,670 | ) | 279,713 | (10,383 | ) | |||||||||||||||
Foreign corporate securities | 264,939 | (4,950 | ) | 75,489 | (9,411 | ) | 340,428 | (14,361 | ) | |||||||||||||||
Total fixed maturity securities | $ | 2,154,821 | $ | (40,537 | ) | $ | 355,312 | $ | (25,971 | ) | $ | 2,510,133 | $ | (66,508 | ) |
Duration of Unrealized Loss at December 31, 2016 By Maturity | ||||||||||||||||||||||||
Less than 12 months | Greater than 12 months | Total | ||||||||||||||||||||||
Gross | Gross | Gross | ||||||||||||||||||||||
Unrealized | Unrealized | Unrealized | ||||||||||||||||||||||
(Dollars in thousands) | Market Value | Depreciation | Market Value | Depreciation | Market Value | Depreciation | ||||||||||||||||||
Fixed maturity securities | ||||||||||||||||||||||||
Due in one year or less | $ | 111,926 | $ | (322 | ) | $ | 21,691 | $ | (3,625 | ) | $ | 133,617 | $ | (3,947 | ) | |||||||||
Due in one year through five years | 1,015,066 | (10,567 | ) | 190,960 | (16,511 | ) | 1,206,026 | (27,078 | ) | |||||||||||||||
Due in five years through ten years | 243,082 | (10,369 | ) | 41,371 | (2,961 | ) | 284,453 | (13,330 | ) | |||||||||||||||
Due after ten years | 235,452 | (12,446 | ) | 1,745 | (133 | ) | 237,197 | (12,579 | ) | |||||||||||||||
Asset-backed securities | 35,065 | (122 | ) | 5,745 | (7 | ) | 40,810 | (129 | ) | |||||||||||||||
Mortgage-backed securities | 514,230 | (6,711 | ) | 93,800 | (2,734 | ) | 608,030 | (9,445 | ) | |||||||||||||||
Total fixed maturity securities | $ | 2,154,821 | $ | (40,537 | ) | $ | 355,312 | $ | (25,971 | ) | $ | 2,510,133 | $ | (66,508 | ) |
The aggregate market value and gross unrealized losses related to investments in an unrealized loss position at December 31, 20162019 were $2,510,133$1,540,376 thousand and $66,508$45,484 thousand, respectively. The market value of securities for the single issuer whose securities comprised the largest unrealized loss position at December 31, 2016,2019, did not exceed 1.0%0.2% of the overall market value of the Company'sCompany’s fixed maturity securities. In addition, as indicated on the above table, there was no significant concentration of unrealized losses in any one market sector. The $40,537$8,539 thousand of unrealized losses related to fixed maturity securities that have been in an unrealized loss position for less than one year were generally comprised of obligations of U.S. states and political subdivisions, domestic and foreign corporate securities, agency residential mortgage-backed securities and foreign government securities. Of these unrealized losses, $36,646$5,645 thousand were related to securities that were rated investment grade by at least one nationally recognized statistical rating agency. The $25,971$36,945 thousand of unrealized losses related to fixed maturity securities in an unrealized loss position for more than one year related primarily to domestic and foreign corporate securities and foreign government securities and agency residential mortgage-backed securities. Of these unrealized losses $22,882$16,976 thousand is attributablewere related to net unrealized foreign exchange losses, as the U.S. dollar has strengthened against other currencies.securities that were rated investment grade by at least
F-18
The components of net investment income are presented in the tables below for the periods indicated:
| Years Ended December 31, | |||||||
(Dollars in thousands) | 2020 |
| 2019 |
| 2018 | |||
Fixed maturities | $ | 305,399 |
| $ | 273,122 |
| $ | 201,108 |
Equity securities |
| 11,466 |
|
| 10,782 |
|
| 14,909 |
Short-term investments and cash |
| 2,978 |
|
| 10,231 |
|
| 7,715 |
Other invested assets |
|
|
|
|
|
|
|
|
Limited partnerships |
| 48,899 |
|
| 43,316 |
|
| 61,645 |
Dividends from preferred shares of affiliate |
| 31,032 |
|
| 31,031 |
|
| 31,032 |
Other |
| 1,699 |
|
| 14,117 |
|
| 17,825 |
Gross investment income before adjustments |
| 401,473 |
|
| 382,599 |
|
| 334,234 |
Funds held interest income (expense) |
| 5,705 |
|
| 6,459 |
|
| 5,188 |
Interest income from Parent |
| 5,154 |
|
| 211 |
|
| 4,085 |
Gross investment income |
| 412,332 |
|
| 389,269 |
|
| 343,507 |
Investment expenses |
| (36,426) |
|
| (33,058) |
|
| (29,126) |
Net investment income | $ | 375,906 |
| $ | 356,211 |
| $ | 314,381 |
|
|
|
|
|
|
|
|
|
(Some amounts may not reconcile due to rounding.) |
|
|
|
Years Ended December 31, | ||||||||||||
(Dollars in thousands) | 2017 | 2016 | 2015 | |||||||||
Fixed maturities | $ | 193,676 | $ | 182,132 | $ | 188,300 | ||||||
Equity securities | 25,852 | 32,317 | 34,418 | |||||||||
Short-term investments and cash | 2,870 | 1,234 | 964 | |||||||||
Other invested assets | ||||||||||||
Limited partnerships | 36,603 | 25,194 | 19,613 | |||||||||
Dividends from Parent's shares | - | - | 38,880 | |||||||||
Dividends from preferred shares of affiliate | 31,032 | 31,032 | - | |||||||||
Other | 6,675 | 1,017 | 1,804 | |||||||||
Gross investment income before adjustments | 296,708 | 272,926 | 283,979 | |||||||||
Funds held interest income (expense) | 5,006 | 6,073 | 5,611 | |||||||||
Interest income from Parent | 4,300 | 4,300 | 4,300 | |||||||||
Gross investment income | 306,014 | 283,299 | 293,890 | |||||||||
Investment expenses | (19,755 | ) | (18,492 | ) | (20,637 | ) | ||||||
Net investment income | $ | 286,259 | $ | 264,807 | $ | 273,253 | ||||||
(Some amounts may not reconcile due to rounding.) |
The Company records results from limited partnership investments on the equity method of accounting with changes in value reported through net investment income. Due to the timing of receiving financial information from these partnerships, the results are generally reported on a one month or quarter lag. If the Company determines there has been a significant decline in value of a limited partnership during this lag period, a loss will be recorded in the period in which the Company identifies the decline.
The Company had contractual commitments to invest up to an additional $318,213$1,187,996 thousand in limited partnerships and private placement loans at December 31, 2017.2020. These commitments will be funded when called in accordance with the partnership and loan agreements, which have investment periods that expire, unless extended, through 2023.
The Company's other invested assets at December 31, 2017 and December 31, 2016 included $131,998 thousand and $57,126 thousand, respectively, related toCompany participates in a private placement liquidity sweep facility.facility (“the facility”). The primary purpose of the facility is to enhance the Company'sCompany’s return on its short-term investments and cash positions. The facility invests in high quality, short-duration securities and permits daily liquidity.
Other invested assets, at fair value, as of December 31, 20172020 and December 31, 2016,2019, were comprised of preferred shares held in Preferred Holdings, an affiliated company.
F-19
The components of net realized capital gains (losses) are presented in the table below for the periods indicated:
| Years Ended December 31, | |||||||
(Dollars in thousands) | 2020 |
| 2019 |
| 2018 | |||
Fixed maturity securities, market value: |
|
|
|
|
|
|
|
|
Allowances for credit losses | $ | (1,566) |
| $ | - |
| $ | - |
Other-than-temporary impairments |
| - |
|
| (19,643) |
|
| (6,164) |
Gains (losses) from sales |
| (32,614) |
|
| 7,571 |
|
| 933 |
Fixed maturity securities, fair value: |
|
|
|
|
|
|
|
|
Gains (losses) from sales |
| (2,863) |
|
| 355 |
|
| (1,799) |
Gains (losses) from fair value adjustments |
| 1,944 |
|
| 1,808 |
|
| 1,506 |
Equity securities, fair value: |
|
|
|
|
|
|
|
|
Gains (losses) from sales |
| (7,931) |
|
| 4,144 |
|
| (32,092) |
Gains (losses) from fair value adjustments |
| 276,093 |
|
| 153,728 |
|
| (59,409) |
Other invested assets |
| 1,705 |
|
| 6,003 |
|
| 1,815 |
Other invested assets, fair value: |
|
|
|
|
|
|
|
|
Gains (losses) from fair value adjustments |
| (186,102) |
|
| 265,245 |
|
| (90,136) |
Short-term investment gains (losses) |
| 1,138 |
|
| 156 |
|
| (10) |
Total net realized capital gains (losses) | $ | 49,804 |
| $ | 419,367 |
| $ | (185,356) |
|
| Roll Forward of Allowance for Credit Losses | ||||||||||
|
| Twelve Months Ended December 31, 2020 | ||||||||||
|
|
|
|
| Foreign |
| Foreign |
|
|
| ||
|
| Corporate |
| Government |
| Corporate |
|
|
| |||
|
| Securities |
| Securities |
| Securities |
| Total | ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning Balance |
| $ | - |
| $ | - |
| $ | - |
| $ | - |
Credit losses on securities where credit |
|
|
|
|
|
|
|
|
|
|
|
|
losses were not previously recorded |
|
| (21,829) |
|
| (70) |
|
| (561) |
|
| (22,460) |
Increases in allowance on previously |
|
|
|
|
|
|
|
|
|
|
|
|
impaired securities |
|
| (5,909) |
|
| - |
|
| (211) |
|
| (6,120) |
Decreases in allowance on previously |
|
|
|
|
|
|
|
|
|
|
|
|
impaired securities |
|
| 1,824 |
|
| - |
|
| 282 |
|
| 2,106 |
Reduction in allowance due to disposals |
|
| 24,709 |
|
| 70 |
|
| 129 |
|
| 24,908 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2020 |
| $ | (1,205) |
| $ | - |
| $ | (361) |
| $ | (1,566) |
Years Ended December 31, | ||||||||||||
(Dollars in thousands) | 2017 | 2016 | 2015 | |||||||||
Fixed maturity securities, market value: | ||||||||||||
Other-than-temporary impairments | $ | (6,077 | ) | $ | (25,679 | ) | $ | (78,833 | ) | |||
Gains (losses) from sales | 2,473 | (6,981 | ) | (36,299 | ) | |||||||
Fixed maturity securities, fair value: | ||||||||||||
Gains (losses) from sales | - | (1,586 | ) | 25 | ||||||||
Gains (losses) from fair value adjustments | - | 1,381 | (44 | ) | ||||||||
Equity securities, market value: | ||||||||||||
Gains (losses) from sales | - | - | 1 | |||||||||
Equity securities, fair value: | ||||||||||||
Gains (losses) from sales | 6,556 | (12,561 | ) | (8,010 | ) | |||||||
Gains (losses) from fair value adjustments | 117,695 | 51,077 | (39,119 | ) | ||||||||
Other invested assets | 61 | 18 | - | |||||||||
Other invested assets, fair value: | ||||||||||||
Gains (losses) from exchange | - | - | 88,354 | |||||||||
Gains (losses) from fair value adjustments | 40,846 | (6,588 | ) | 29,549 | ||||||||
Gains (losses) on sale of subsidiary | - | (28,032 | ) | 94,704 | ||||||||
Short-term investment gains (losses) | (1 | ) | 10 | 7 | ||||||||
Total net realized capital gains (losses) | $ | 161,553 | $ | (28,941 | ) | $ | 50,335 |
The Company recorded as net realized capital gains (losses) in the consolidated statements of operations and comprehensive income (loss) both fair value re-measurements, allowances for credit losses per ASU 2016-13 and write-downs in the value of securities deemed to be impaired on an other-than-temporary basis in prior years as displayed in the table above. The Company had no other-than-temporary impaired securities where the impairment had both a credit and non-credit component.
F-20
The proceeds and split between gross gains and losses, from sales of fixed maturity and equity securities, are presented in the table below for the periods indicated:
|
| |||||||
| Years Ended December 31, | |||||||
(Dollars in thousands) | 2020 |
| 2019 |
| 2018 | |||
Proceeds from sales of fixed maturity securities | $ | 631,285 |
| $ | 2,403,786 |
| $ | 793,119 |
Gross gains from sales |
| 24,177 |
|
| 25,076 |
|
| 15,349 |
Gross losses from sales |
| (59,654) |
|
| (17,150) |
|
| (16,215) |
|
|
|
|
|
|
|
|
|
Proceeds from sales of equity securities | $ | 375,112 |
| $ | 283,707 |
| $ | 1,029,920 |
Gross gains from sales |
| 37,403 |
|
| 14,270 |
|
| 25,160 |
Gross losses from sales |
| (45,334) |
|
| (10,126) |
|
| (57,252) |
Years Ended December 31, | ||||||||||||
(Dollars in thousands) | 2017 | 2016 | 2015 | |||||||||
Proceeds from sales of fixed maturity securities | $ | 1,676,203 | $ | 710,028 | $ | 546,779 | ||||||
Gross gains from sales | 31,328 | 18,907 | 10,935 | |||||||||
Gross losses from sales | (28,855 | ) | (27,474 | ) | (47,209 | ) | ||||||
Proceeds from sales of equity securities | $ | 586,496 | $ | 695,039 | $ | 567,085 | ||||||
Gross gains from sales | 23,214 | 16,223 | 26,136 | |||||||||
Gross losses from sales | (16,658 | ) | (28,784 | ) | (34,146 | ) |
Securities with a carrying value amount of $1,482,707$1,617,928 thousand at December 31, 2017,2020, were on deposit with various state or governmental insurance departments in compliance with insurance laws.
Activity in the reserve for losses and LAE is summarized for the periods indicated:
| At December 31, | |||||||
(Dollars in thousands) | 2020 |
| 2019 |
| 2018 | |||
Gross reserves beginning of period | $ | 10,209,519 |
| $ | 10,167,018 |
| $ | 9,343,028 |
Less reinsurance recoverables |
| (4,215,348) |
|
| (4,697,543) |
|
| (5,727,268) |
Net reserves beginning of period |
| 5,994,171 |
|
| 5,469,475 |
|
| 3,615,760 |
|
|
|
|
|
|
|
|
|
Incurred related to: |
|
|
|
|
|
|
|
|
Current year |
| 4,407,795 |
|
| 3,784,771 |
|
| 4,252,220 |
Prior years |
| 200,349 |
|
| 44,351 |
|
| 558,798 |
Total incurred losses and LAE |
| 4,608,144 |
|
| 3,829,122 |
|
| 4,811,018 |
|
|
|
|
|
|
|
|
|
Paid related to: |
|
|
|
|
|
|
|
|
Current year |
| 1,901,971 |
|
| 1,885,443 |
|
| 1,524,635 |
Prior years |
| 1,020,761 |
|
| 1,431,336 |
|
| 1,408,256 |
Total paid losses and LAE |
| 2,922,731 |
|
| 3,316,778 |
|
| 2,932,891 |
|
|
|
|
|
|
|
|
|
Foreign exchange/translation adjustment |
| 23,892 |
|
| 12,352 |
|
| (24,412) |
|
|
|
|
|
|
|
|
|
Net reserves end of period |
| 7,703,476 |
|
| 5,994,171 |
|
| 5,469,475 |
Plus reinsurance recoverables |
| 3,951,474 |
|
| 4,215,348 |
|
| 4,697,543 |
Gross reserves end of period | $ | 11,654,950 |
| $ | 10,209,519 |
| $ | 10,167,018 |
|
|
|
|
|
|
|
|
|
(Some amounts may not reconcile due to rounding.) |
|
|
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|
|
At December 31, | ||||||||||||
(Dollars in thousands) | 2017 | 2016 | 2015 | |||||||||
Gross reserves at January 1 | $ | 8,331,288 | $ | 7,940,720 | $ | 7,843,856 | ||||||
Less reinsurance recoverables | (4,199,791 | ) | (3,875,073 | ) | (3,702,782 | ) | ||||||
Net reserves at January 1 | 4,131,497 | 4,065,647 | 4,141,074 | |||||||||
Incurred related to: | ||||||||||||
Current year | 2,157,498 | 1,441,962 | 1,326,015 | |||||||||
Prior years | (117,747 | ) | (91,682 | ) | (6,454 | ) | ||||||
Total incurred losses and LAE | 2,039,751 | 1,350,280 | 1,319,561 | |||||||||
Paid related to: | ||||||||||||
Current year | 1,607,601 | 400,489 | 357,819 | |||||||||
Prior years | 957,933 | 892,207 | 946,337 | |||||||||
Total paid losses and LAE | 2,565,534 | 1,292,696 | 1,304,156 | |||||||||
Foreign exchange/translation adjustment | 10,046 | 8,266 | (90,832 | ) | ||||||||
Net reserves at December 31 | 3,615,760 | 4,131,497 | 4,065,647 | |||||||||
Plus reinsurance recoverables | 5,727,268 | 4,199,791 | 3,875,073 | |||||||||
Gross reserves at December 31 | $ | 9,343,028 | $ | 8,331,288 | $ | 7,940,720 |
Current year incurred losses were $2,157,498$4,407,795 thousand, $3,784,771 thousand and $4,252,220 thousand at December 31, 2017 compared to $1,441,962 thousand for 2016.2020, 2019 and 2018, respectively. The increase in current year incurred losses in 2020 compared to 2019 was primarily due to $956,852$154,812 thousand of catastropheincurred losses incurred in the year ended December 31, 2017, mainly related to Hurricane Irma, Hurricane Maria, Hurricane Harvey and the California wildfires. The $1,527,477 thousand increase in reinsurance recoverables from December 31, 2016 is primarily due to recoverables from these catastrophe lossesCOVID-19 as well as a loss portfolio transfer agreement with Everest Reinsurance (Bermuda), Ltd. effective December 31, 2017. The loss portfolio transfer agreement also impacted current year paid losses by $1,000,000 thousand.
Incurred prior years'years’ reserves decreasedincreased by $117,747$200,349 thousand, $91,682$44,351 thousand and 6,454$558,798 thousand for the years ended December 31, 2017, 2016in 2020, 2019 and 2015,2018 respectively. The decreaseincrease for 2017 was attributable2020 primarily related to favorable developmenthigher ultimate loss estimates for long-tail casualty business in the reinsurance segments of $84,809 thousand relatedsegment for accident years 2015 to 2018, notably general liability, professional lines, and auto liability. The reserve charge also includes actions on non-CAT
F-21
property lines, primarily for the 2017 to property2019 accident years and short-tail business in the U.S., as well as favorabledriven by a few large losses to aggregate programs.
The increase for 2019 was mainly due to adverse development on prior yearyears catastrophe losses, partially offset by $25,194losses.
The increase for 2018 was mainly due to $553,036 thousand of adverse development on A&E reserves. The insurance segment also experienced favorable development on prior year reserves of $32,938 thousand mainly on its workers compensation business, which is largely written in California.
The following is information about incurred and paid claims development as of December 31, 2017,2020, net of reinsurance, as well as cumulative claim frequency and the total of incurred but not reported liabilities (IBNR) plus expected development on reported claims included within the net incurred claims amounts. Each of the Company'sCompany’s financial reporting segments has been disaggregated into casualty and property business. The casualty and property segregation results in groups that have homogeneous loss development characteristics and are large enough to represent credible trends. Generally, casualty claims take longer to be reported and settled, resulting in longer payout patterns and increased volatility. Property claims on the other hand, tend to be reported and settled quicker and therefore tend to exhibit less volatility. The property business is more exposed to catastrophe losses, which can result in year over year fluctuations in incurred claims depending on the frequency and severity of catastrophes claims in any one accident year.
The information about incurred and paid claims development for the years ended December 31, 2012 to December 31, 20162019 is presented as supplementary information.
These tables present sixnine years of incurred and paid claims development as it is impracticable to retrospectively create the tables for ten years. For the reinsurance groups, for the years prior to 2012, the total of IBNR plus expected development on reported claims was not prepared on an accident year basis. The Company calculated these IBNR amounts in the aggregate for each business unit in total as of prior year end points in time. While business written in the United States would have been allocated to accident year for regulatory reporting purposes, business written outside of the United States would not have been similarly allocated. Attempting to allocate the non-U.S. business IBNR reserves to accident year currently for older year end valuations would require making assumptions and estimates which may not be in line with assumptions that would have been made at the time. A similar situation applies to insurance where the accumulation of the business lines reported in the regulatory filings are not consistent with the breakout of the tables presented below. As a result of not being able to present the information prior to 2012, prospectively an additional year will be added to the tables each reporting year until a ten year table is presented.
The Cumulative Number of Reported Claims is shown only for Insurance Casualty as it is impracticable to provide the information for the remaining groups. The reinsurance groups each include pro rata contracts for which ceding companies provide only summary information via a bordereau. This summary information does not include the number of reported claims underlying the paid and reported losses. Therefore, it is not possible to provide this information. The Insurance Property group includes Accident & Health insurance business. This business is written via a master contract and individual claim counts are not provided. This business represents a significant enough portion of the business in the Insurance Property group so that including the number of reported claims for the remaining business would distort any analytics performed on the group.
The Cumulative Number of Reported Claims shown for the Insurance Casualty is determined by claim and line of business. For example, a claim event with three claimants in the same line of business is a single claim. However, a claim event with a single claimant that spans two lines of business contributes two claims. Cessions under affiliated quota share agreements reduce net losses but do not impact claim counts.
The following tables present the incurred loss and ALAE and the paid loss and ALAE, net of reinsurance for casualty and property, as well as the average annual percentage payout of incurred claims by age, net of reinsurance for each of our disclosed lines of business.
F-22
Reinsurance – Casualty Business
|
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| At December 31, 2020 | ||
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| Total of |
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|
|
|
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| IBNR Liabilities |
|
|
|
|
| Incurred Claims and Allocated Claim Adjustment Expenses, Net of reinsurance |
| Plus Expected |
|
| ||||||||||||||||||||||||
|
|
| Years Ended December 31, |
| Development |
| Cumulative | ||||||||||||||||||||||||
|
|
| 2012 |
|
| 2013 |
|
| 2014 |
|
| 2015 |
|
| 2016 |
|
| 2017 |
|
| 2018 |
|
| 2019 |
|
| 2020 |
| on Reported |
| Number of |
Accident Year |
|
| (unaudited) |
|
| (unaudited) |
|
| (unaudited) |
|
| (unaudited) |
|
| (unaudited) |
|
| (unaudited) |
|
| (unaudited) |
|
| (unaudited) |
|
|
|
| Claims |
| Reported Claims |
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
2012 |
| $ | 374,581 |
| $ | 268,305 |
| $ | 175,657 |
| $ | 183,055 |
| $ | 189,967 |
| $ | 192,489 |
| $ | 192,489 |
| $ | 192,489 |
| $ | 192,489 |
| 5,251 |
| N/A |
2013 |
|
|
|
|
| 178,120 |
|
| 224,394 |
|
| 222,607 |
|
| 229,607 |
|
| 219,107 |
|
| 219,107 |
|
| 219,107 |
|
| 219,107 |
| 9,966 |
| N/A |
2014 |
|
|
|
|
|
|
|
| 255,906 |
|
| 235,921 |
|
| 258,526 |
|
| 230,089 |
|
| 230,089 |
|
| 230,089 |
|
| 230,089 |
| 14,699 |
| N/A |
2015 |
|
|
|
|
|
|
|
|
|
|
| 209,024 |
|
| 250,053 |
|
| 238,770 |
|
| 238,770 |
|
| 238,770 |
|
| 238,770 |
| 22,961 |
| N/A |
2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 242,764 |
|
| 240,268 |
|
| 240,268 |
|
| 240,268 |
|
| 240,268 |
| 53,538 |
| N/A |
2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 198,615 |
|
| 204,376 |
|
| 204,376 |
|
| 204,376 |
| 52,439 |
| N/A |
2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 776,194 |
|
| 760,762 |
|
| 807,055 |
| 256,591 |
| N/A |
2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 981,818 |
|
| 1,029,966 |
| 577,799 |
| N/A |
2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 1,031,905 |
| 701,538 |
| N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 4,194,026 |
|
|
|
|
|
|
|
|
|
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|
|
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|
|
|
|
|
|
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|
|
|
|
|
|
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|
|
|
|
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|
|
(Some amounts may not reconcile due to rounding.) |
|
|
| Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance | ||||||||||||||||||||||||
|
|
| Years Ended December 31, | ||||||||||||||||||||||||
|
|
| 2012 |
|
| 2013 |
|
| 2014 |
|
| 2015 |
|
| 2016 |
|
| 2017 |
|
| 2018 |
|
| 2019 |
|
| 2020 |
Accident Year |
|
| (unaudited) |
|
| (unaudited) |
|
| (unaudited) |
|
| (unaudited) |
|
| (unaudited) |
|
| (unaudited) |
|
| (unaudited) |
|
| (unaudited) |
|
|
|
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
2012 |
| $ | 13,409 |
| $ | 30,203 |
| $ | 60,838 |
| $ | 95,914 |
| $ | 121,840 |
| $ | 126,832 |
| $ | 153,361 |
| $ | 155,900 |
| $ | 160,352 |
2013 |
|
|
|
|
| 12,781 |
|
| 29,008 |
|
| 64,796 |
|
| 98,583 |
|
| 127,230 |
|
| 159,352 |
|
| 180,489 |
|
| 185,773 |
2014 |
|
|
|
|
|
|
|
| 15,040 |
|
| 35,248 |
|
| 76,829 |
|
| 107,438 |
|
| 144,211 |
|
| 176,451 |
|
| 185,767 |
2015 |
|
|
|
|
|
|
|
|
|
|
| 15,673 |
|
| 39,048 |
|
| 85,397 |
|
| 147,974 |
|
| 171,247 |
|
| 189,227 |
2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 17,534 |
|
| 52,958 |
|
| 89,871 |
|
| 147,881 |
|
| 163,012 |
2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 25,552 |
|
| 83,783 |
|
| 97,788 |
|
| 133,265 |
2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 121,180 |
|
| 201,861 |
|
| 301,050 |
2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 155,949 |
|
| 251,999 |
2020 |
|
|
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|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
| 136,609 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 1,707,054 | ||||||||||||
All outstanding liabilities prior to 2012, net of reinsurance |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 434,553 | ||||||||||||
Liabilities for claims and claim adjustment expenses, net of reinsurance |
|
|
|
|
|
|
|
|
|
| $ | 2,921,525 | |||||||||||||||
|
|
|
|
|
|
| |||||||||||||||||||||
(Some amounts may not reconcile due to rounding.) |
|
|
|
|
| Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance (unaudited) | |||||||||||||||||||||||||
Years |
| 1 |
|
| 2 |
|
| 3 |
|
| 4 |
|
| 5 |
|
| 6 |
|
| 7 |
|
| 8 |
|
| 9 |
|
Casualty |
| 12.2 | % |
| 11.0 | % |
| 14.3 | % |
| 19.3 | % |
| 11.6 | % |
| 9.9 | % |
| 8.9 | % |
| 1.9 | % |
| 2.3 | % |
At December 31, 2017 | ||||||||||||||||||||||||||||||||
Total of | ||||||||||||||||||||||||||||||||
IBNR Liabilites | ||||||||||||||||||||||||||||||||
Incurred Claims and Allocated Claim Adjustment Expenses, Net of reinsurance | Plus Expected | |||||||||||||||||||||||||||||||
Years Ended December 31, | Development | Cumulative | ||||||||||||||||||||||||||||||
2012 | 2013 | 2014 | 2015 | 2016 | 2017 | on Reported | Number of | |||||||||||||||||||||||||
Accident Year | (unaudited) | (unaudited) | (unaudited) | (unaudited) | (unaudited) | Claims | Reported Claims | |||||||||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||||||||||
2012 | $ | 249,691 | $ | 211,786 | $ | 140,589 | $ | 140,493 | $ | 147,015 | $ | 146,847 | 26,083 | N/A | ||||||||||||||||||
2013 | 117,346 | 184,186 | 181,955 | 187,213 | 179,452 | 50,471 | N/A | |||||||||||||||||||||||||
2014 | 197,684 | 190,020 | 194,290 | 186,191 | 72,929 | N/A | ||||||||||||||||||||||||||
2015 | 155,977 | 178,512 | 173,668 | 90,945 | N/A | |||||||||||||||||||||||||||
2016 | 171,585 | 173,645 | 119,179 | N/A | ||||||||||||||||||||||||||||
2017 | 149,929 | 27,637 | N/A | |||||||||||||||||||||||||||||
$ | 1,009,732 | |||||||||||||||||||||||||||||||
(Some amounts may not reconcile due to rounding.) |
F-23
Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance | ||||||||||||||||||||||||
Years Ended December 31, | ||||||||||||||||||||||||
2012 | 2013 | 2014 | 2015 | 2016 | 2017 | |||||||||||||||||||
Accident Year | (unaudited) | (unaudited) | (unaudited) | (unaudited) | (unaudited) | |||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||
2012 | $ | 2,547 | $ | 11,856 | $ | 25,239 | $ | 55,234 | $ | 77,028 | $ | 92,652 | ||||||||||||
2013 | 4,798 | 15,952 | 43,754 | 74,503 | 94,790 | |||||||||||||||||||
2014 | 7,213 | 22,023 | 48,193 | 75,107 | ||||||||||||||||||||
2015 | 7,957 | 21,967 | 46,849 | |||||||||||||||||||||
2016 | 7,454 | 25,128 | ||||||||||||||||||||||
2017 | 102,715 | |||||||||||||||||||||||
$ | 437,242 | |||||||||||||||||||||||
All outstanding liabilities prior to 2012, net of reinsurance | 763,940 | |||||||||||||||||||||||
Liabilities for claims and claim adjustment expenses, net of reinsurance | $ | 1,336,431 | ||||||||||||||||||||||
(Some amounts may not reconcile due to rounding.) |
Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance (unaudited) | ||||||||||||
Years | 1 | 2 | 3 | 4 | 5 | 6 | ||||||
Casualty | 13.1% | 7.8% | 13.4% | 17.1% | 12.9% | 10.6% |
F-23
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| At December 31, 2020 | ||
|
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| Total of |
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|
|
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|
|
|
|
|
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|
|
|
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|
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|
|
| IBNR Liabilities |
|
|
|
|
| Incurred Claims and Allocated Claim Adjustment Expenses, Net of reinsurance |
|
|
|
| Plus Expected |
|
| |||||||||||||||||||||
|
|
| Years Ended December 31, |
|
|
|
| Development |
| Cumulative | |||||||||||||||||||||
|
|
| 2012 |
|
| 2013 |
|
| 2014 |
|
| 2015 |
|
| 2016 |
|
| 2017 |
|
| 2018 |
|
| 2019 |
|
| 2020 |
| on Reported |
| Number of |
Accident Year |
|
| (unaudited) |
|
| (unaudited) |
|
| (unaudited) |
|
| (unaudited) |
|
| (unaudited) |
|
| (unaudited) |
|
| (unaudited) |
|
| (unaudited) |
|
|
|
| Claims |
| Reported Claims |
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
2012 |
| $ | 694,850 |
| $ | 603,498 |
| $ | 549,946 |
| $ | 565,581 |
| $ | 555,562 |
| $ | 557,723 |
| $ | 543,215 |
| $ | 540,256 |
| $ | 538,697 |
| 1,822 |
| N/A |
2013 |
|
|
|
|
| 409,477 |
|
| 309,139 |
|
| 267,409 |
|
| 228,629 |
|
| 228,071 |
|
| 227,969 |
|
| 227,969 |
|
| 227,969 |
| 853 |
| N/A |
2014 |
|
|
|
|
|
|
|
| 603,513 |
|
| 528,498 |
|
| 407,734 |
|
| 378,739 |
|
| 379,860 |
|
| 379,860 |
|
| 379,860 |
| 908 |
| N/A |
2015 |
|
|
|
|
|
|
|
|
|
|
| 561,942 |
|
| 373,099 |
|
| 347,758 |
|
| 347,758 |
|
| 347,758 |
|
| 347,758 |
| 2,305 |
| N/A |
2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 639,055 |
|
| 665,589 |
|
| 665,904 |
|
| 662,060 |
|
| 660,691 |
| 6,623 |
| N/A |
2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 1,291,894 |
|
| 1,876,143 |
|
| 2,044,656 |
|
| 2,138,415 |
| 12,396 |
| N/A |
2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2,261,663 |
|
| 2,150,440 |
|
| 2,140,579 |
| 57,122 |
| N/A |
2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 1,784,412 |
|
| 1,790,026 |
| 340,939 |
| N/A |
2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 1,903,989 |
| 927,203 |
| N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 10,127,985 |
|
|
|
|
| |||||||||||||||||||||||||||||||
(Some amounts may not reconcile due to rounding.) |
|
|
| Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance | ||||||||||||||||||||||||
|
|
| Years Ended December 31, | ||||||||||||||||||||||||
|
|
| 2012 |
|
| 2013 |
|
| 2014 |
|
| 2015 |
|
| 2016 |
|
| 2017 |
|
| 2018 |
|
| 2019 |
|
| 2020 |
Accident Year |
|
| (unaudited) |
|
| (unaudited) |
|
| (unaudited) |
|
| (unaudited) |
|
| (unaudited) |
|
| (unaudited) |
|
| (unaudited) |
|
| (unaudited) |
|
|
|
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
2012 |
| $ | 157,927 |
| $ | 303,383 |
| $ | 380,761 |
| $ | 447,169 |
| $ | 465,594 |
| $ | 495,246 |
| $ | 504,145 |
| $ | 504,486 |
| $ | 506,738 |
2013 |
|
|
|
|
| 139,086 |
|
| 169,750 |
|
| 183,757 |
|
| 199,224 |
|
| 208,135 |
|
| 214,946 |
|
| 217,457 |
|
| 222,290 |
2014 |
|
|
|
|
|
|
|
| 159,408 |
|
| 250,751 |
|
| 308,906 |
|
| 339,654 |
|
| 353,890 |
|
| 356,600 |
|
| 367,141 |
2015 |
|
|
|
|
|
|
|
|
|
|
| 161,844 |
|
| 241,406 |
|
| 296,128 |
|
| 313,689 |
|
| 318,938 |
|
| 332,022 |
2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 238,620 |
|
| 502,419 |
|
| 603,988 |
|
| 627,130 |
|
| 649,604 |
2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 791,142 |
|
| 1,577,892 |
|
| 1,992,968 |
|
| 2,122,476 |
2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 501,315 |
|
| 1,402,713 |
|
| 1,731,440 |
2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 701,324 |
|
| 1,084,988 |
2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 562,144 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 7,578,843 | |||||||||
All outstanding liabilities prior to 2012, net of reinsurance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 20,682 | |||||||||
Liabilities for claims and claim adjustment expenses, net of reinsurance |
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 2,569,824 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Some amounts may not reconcile due to rounding.) |
|
|
|
| Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance (unaudited) | |||||||||||||||||||||||||
Years | 1 |
|
| 2 |
|
| 3 |
|
| 4 |
|
| 5 |
|
| 6 |
|
| 7 |
|
| 8 |
|
| 9 |
|
Property | 33.7 | % |
| 32.6 | % |
| 16.3 | % |
| 6.6 | % |
| 3.2 | % |
| 3.5 | % |
| 1.9 | % |
| 0.7 | % |
| 0.4 | % |
At December 31, 2017 | ||||||||||||||||||||||||||||||||
Total of | ||||||||||||||||||||||||||||||||
IBNR Liabilites | ||||||||||||||||||||||||||||||||
Incurred Claims and Allocated Claim Adjustment Expenses, Net of reinsurance | Plus Expected | |||||||||||||||||||||||||||||||
Years Ended December 31, | Development | Cumulative | ||||||||||||||||||||||||||||||
2012 | 2013 | 2014 | 2015 | 2016 | 2017 | on Reported | Number of | |||||||||||||||||||||||||
Accident Year | (unaudited) | (unaudited) | (unaudited) | (unaudited) | (unaudited) | Claims | Reported Claims | |||||||||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||||||||||
2012 | $ | 582,480 | $ | 470,886 | $ | 376,541 | $ | 373,760 | $ | 364,758 | $ | 361,957 | 283 | N/A | ||||||||||||||||||
2013 | 282,446 | 304,558 | 280,289 | 249,573 | 243,423 | 467 | N/A | |||||||||||||||||||||||||
2014 | 327,498 | 298,331 | 239,518 | 222,827 | 473 | N/A | ||||||||||||||||||||||||||
2015 | 325,255 | 260,247 | 236,234 | 9,036 | N/A | |||||||||||||||||||||||||||
2016 | 424,195 | 372,282 | 54,584 | N/A | ||||||||||||||||||||||||||||
2017 | 845,311 | 24,650 | N/A | |||||||||||||||||||||||||||||
$ | 2,282,034 | |||||||||||||||||||||||||||||||
(Some amounts may not reconcile due to rounding.) |
Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance | ||||||||||||||||||||||||
Years Ended December 31, | ||||||||||||||||||||||||
2012 | 2013 | 2014 | 2015 | 2016 | 2017 | |||||||||||||||||||
Accident Year | (unaudited) | (unaudited) | (unaudited) | (unaudited) | (unaudited) | |||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||
2012 | $ | 130,188 | $ | 229,715 | $ | 287,323 | $ | 312,109 | $ | 324,606 | $ | 338,646 | ||||||||||||
2013 | 120,406 | 166,467 | 200,350 | 214,930 | 223,670 | |||||||||||||||||||
2014 | 110,418 | 164,817 | 191,034 | 204,407 | ||||||||||||||||||||
2015 | 113,685 | 167,662 | 199,094 | |||||||||||||||||||||
2016 | 157,228 | 254,315 | ||||||||||||||||||||||
2017 | 638,087 | |||||||||||||||||||||||
$ | 1,858,218 | |||||||||||||||||||||||
All outstanding liabilities prior to 2012, net of reinsurance | 50,232 | |||||||||||||||||||||||
Liabilities for claims and claim adjustment expenses, net of reinsurance | $ | 474,048 | ||||||||||||||||||||||
(Some amounts may not reconcile due to rounding.) |
Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance (unaudited) | ||||||||||||
Years | 1 | 2 | 3 | 4 | 5 | 6 | ||||||
Property | 55.7% | 24.4% | 14.0% | 6.4% | 3.5% | 3.9% |
At December 31, 2017 | ||||||||||||||||||||||||||||||||
Total of | ||||||||||||||||||||||||||||||||
IBNR Liabilites | ||||||||||||||||||||||||||||||||
Incurred Claims and Allocated Claim Adjustment Expenses, Net of reinsurance | Plus Expected | |||||||||||||||||||||||||||||||
Years Ended December 31, | Development | Cumulative | ||||||||||||||||||||||||||||||
2012 | 2013 | 2014 | 2015 | 2016 | 2017 | on Reported | Number of | |||||||||||||||||||||||||
Accident Year | (unaudited) | (unaudited) | (unaudited) | (unaudited) | (unaudited) | Claims | Reported Claims | |||||||||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||||||||||
2012 | $ | 126,700 | $ | 59,517 | $ | 38,593 | $ | 46,518 | $ | 48,276 | $ | 46,973 | 4,551 | N/A | ||||||||||||||||||
2013 | 62,527 | 43,751 | 45,647 | 57,830 | 52,270 | 10,765 | N/A | |||||||||||||||||||||||||
2014 | 60,855 | 50,808 | 70,504 | 60,531 | 17,867 | N/A | ||||||||||||||||||||||||||
2015 | 55,651 | 75,411 | 65,128 | 27,749 | N/A | |||||||||||||||||||||||||||
2016 | 72,919 | 71,357 | 42,937 | N/A | ||||||||||||||||||||||||||||
2017 | 58,592 | 38,157 | N/A | |||||||||||||||||||||||||||||
$ | 354,851 | |||||||||||||||||||||||||||||||
(Some amounts may not reconcile due to rounding.) |
Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance | ||||||||||||||||||||||||
Years Ended December 31, | ||||||||||||||||||||||||
2012 | 2013 | 2014 | 2015 | 2016 | 2017 | |||||||||||||||||||
Accident Year | (unaudited) | (unaudited) | (unaudited) | (unaudited) | (unaudited) | |||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||
2012 | $ | 7,412 | $ | 11,327 | $ | 17,537 | $ | 21,147 | $ | 24,530 | $ | 29,603 | ||||||||||||
2013 | 6,153 | 14,608 | 18,949 | 22,878 | 25,506 | |||||||||||||||||||
2014 | 8,712 | 15,831 | 22,258 | 26,193 | ||||||||||||||||||||
2015 | 8,920 | 19,123 | 26,281 | |||||||||||||||||||||
2016 | 11,159 | 19,917 | ||||||||||||||||||||||
2017 | 14,610 | |||||||||||||||||||||||
$ | 142,110 | |||||||||||||||||||||||
All outstanding liabilities prior to 2012, net of reinsurance | 81,593 | |||||||||||||||||||||||
Liabilities for claims and claim adjustment expenses, net of reinsurance | $ | 294,333 | ||||||||||||||||||||||
(Some amounts may not reconcile due to rounding.) |
Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance (unaudited) | ||||||||||||
Years | 1 | 2 | 3 | 4 | 5 | 6 | ||||||
Casualty | 16.1% | 13.0% | 10.7% | 7.2% | 6.1% | 10.8% |
At December 31, 2017 | ||||||||||||||||||||||||||||||||
Total of | ||||||||||||||||||||||||||||||||
IBNR Liabilites | ||||||||||||||||||||||||||||||||
Incurred Claims and Allocated Claim Adjustment Expenses, Net of reinsurance | Plus Expected | |||||||||||||||||||||||||||||||
Years Ended December 31, | Development | Cumulative | ||||||||||||||||||||||||||||||
2012 | 2013 | 2014 | 2015 | 2016 | 2017 | on Reported | Number of | |||||||||||||||||||||||||
Accident Year | (unaudited) | (unaudited) | (unaudited) | (unaudited) | (unaudited) | Claims | Reported Claims | |||||||||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||||||||||
2012 | $ | 274,427 | $ | 261,133 | $ | 213,598 | $ | 217,808 | $ | 212,116 | $ | 216,055 | 224 | N/A | ||||||||||||||||||
2013 | 182,787 | 181,737 | 175,106 | 163,018 | 166,604 | 614 | N/A | |||||||||||||||||||||||||
2014 | 321,628 | 267,210 | 208,494 | 185,453 | 2,339 | N/A | ||||||||||||||||||||||||||
2015 | 266,445 | 173,301 | 179,097 | 976 | N/A | |||||||||||||||||||||||||||
2016 | 200,573 | 223,771 | 48,657 | N/A | ||||||||||||||||||||||||||||
2017 | 520,595 | 72,861 | N/A | |||||||||||||||||||||||||||||
$ | 1,491,576 | |||||||||||||||||||||||||||||||
(Some amounts may not reconcile due to rounding.) |
Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance | ||||||||||||||||||||||||
Years Ended December 31, | ||||||||||||||||||||||||
2012 | 2013 | 2014 | 2015 | 2016 | 2017 | |||||||||||||||||||
Accident Year | (unaudited) | (unaudited) | (unaudited) | (unaudited) | (unaudited) | |||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||
2012 | $ | 86,473 | $ | 148,124 | $ | 182,018 | $ | 193,189 | $ | 197,721 | $ | 203,445 | ||||||||||||
2013 | 50,452 | 105,132 | 127,050 | 142,290 | 149,041 | |||||||||||||||||||
2014 | 61,652 | 112,207 | 143,786 | 159,213 | ||||||||||||||||||||
2015 | 59,487 | 110,526 | 143,624 | |||||||||||||||||||||
2016 | 59,620 | 117,693 | ||||||||||||||||||||||
2017 | 330,759 | |||||||||||||||||||||||
$ | 1,103,774 | |||||||||||||||||||||||
All outstanding liabilities prior to 2012, net of reinsurance | 55,445 | |||||||||||||||||||||||
Liabilities for claims and claim adjustment expenses, net of reinsurance | $ | 443,247 | ||||||||||||||||||||||
(Some amounts may not reconcile due to rounding.) | �� |
Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance (unaudited) | ||||||||||||
Years | 1 | 2 | 3 | 4 | 5 | 6 | ||||||
Property | 43.5% | 28.4% | 16.1% | 7.4% | 2.9% | 2.6% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| At December 31, 2020 | ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| IBNR Liabilities |
|
|
|
|
| Incurred Claims and Allocated Claim Adjustment Expenses, Net of reinsurance |
|
|
|
| Plus Expected |
|
| |||||||||||||||||||||
|
|
| Years Ended December 31, |
|
|
|
| Development |
| Cumulative | |||||||||||||||||||||
|
|
| 2012 |
|
| 2013 |
|
| 2014 |
|
| 2015 |
|
| 2016 |
|
| 2017 |
|
| 2018 |
|
| 2019 |
|
| 2020 |
| on Reported |
| Number of |
Accident Year |
|
| (unaudited) |
|
| (unaudited) |
|
| (unaudited) |
|
| (unaudited) |
|
| (unaudited) |
|
| (unaudited) |
|
| (unaudited) |
|
| (unaudited) |
|
|
|
| Claims |
| Reported Claims |
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
2012 |
| $ | 212,023 |
| $ | 175,030 |
| $ | 185,371 |
| $ | 184,659 |
| $ | 188,273 |
| $ | 185,810 |
| $ | 185,809 |
| $ | 185,861 |
| $ | 185,862 |
| 986 |
| 15,780 |
2013 |
|
|
|
|
| 256,187 |
|
| 228,227 |
|
| 230,748 |
|
| 224,724 |
|
| 194,739 |
|
| 194,748 |
|
| 194,914 |
|
| 194,914 |
| 1,283 |
| 21,385 |
2014 |
|
|
|
|
|
|
|
| 238,086 |
|
| 239,091 |
|
| 240,985 |
|
| 255,041 |
|
| 255,166 |
|
| 255,125 |
|
| 255,125 |
| 1,550 |
| 25,221 |
2015 |
|
|
|
|
|
|
|
|
|
|
| 259,243 |
|
| 259,563 |
|
| 278,217 |
|
| 278,217 |
|
| 278,388 |
|
| 278,388 |
| 1,028 |
| 26,996 |
2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 352,060 |
|
| 276,960 |
|
| 279,684 |
|
| 281,780 |
|
| 281,771 |
| 1,944 |
| 31,673 |
2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 304,361 |
|
| 238,006 |
|
| 238,187 |
|
| 237,491 |
| 2,293 |
| 35,020 |
2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 645,825 |
|
| 645,109 |
|
| 665,436 |
| 219,887 |
| 34,884 |
2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 768,845 |
|
| 757,958 |
| 355,225 |
| 37,597 |
2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 819,368 |
| 562,143 |
| 26,068 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 3,676,311 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Some amounts may not reconcile due to rounding.) |
F-24
|
|
| Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance | ||||||||||||||||||||||||
|
|
| Years Ended December 31, | ||||||||||||||||||||||||
|
|
| 2012 |
|
| 2013 |
|
| 2014 |
|
| 2015 |
|
| 2016 |
|
| 2017 |
|
| 2018 |
|
| 2019 |
|
| 2020 |
Accident Year |
|
| (unaudited) |
|
| (unaudited) |
|
| (unaudited) |
|
| (unaudited) |
|
| (unaudited) |
|
| (unaudited) |
|
| (unaudited) |
|
| (unaudited) |
|
|
|
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
2012 |
| $ | 15,688 |
| $ | 55,230 |
| $ | 84,408 |
| $ | 116,622 |
| $ | 133,279 |
| $ | 147,011 |
| $ | 154,412 |
| $ | 168,867 |
| $ | 170,944 |
2013 |
|
|
|
|
| 17,120 |
|
| 68,588 |
|
| 101,649 |
|
| 129,756 |
|
| 149,775 |
|
| 167,584 |
|
| 182,789 |
|
| 189,215 |
2014 |
|
|
|
|
|
|
|
| 20,377 |
|
| 71,918 |
|
| 114,199 |
|
| 143,893 |
|
| 229,001 |
|
| 229,608 |
|
| 250,490 |
2015 |
|
|
|
|
|
|
|
|
|
|
| 19,962 |
|
| 67,996 |
|
| 116,982 |
|
| 199,532 |
|
| 244,477 |
|
| 260,269 |
2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 24,810 |
|
| 101,234 |
|
| 275,801 |
|
| 299,145 |
|
| 308,358 |
2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 22,808 |
|
| 151,283 |
|
| 157,000 |
|
| 216,893 |
2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 63,229 |
|
| 189,299 |
|
| 271,737 |
2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 10,612 |
|
| 216,483 |
2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 78,760 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 1,963,148 | |||||||||
All outstanding liabilities prior to 2012, net of reinsurance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 20,931 | |||||||||
Liabilities for claims and claim adjustment expenses, net of reinsurance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 1,734,095 | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Some amounts may not reconcile due to rounding.) |
|
|
|
|
| Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance (unaudited) | |||||||||||||||||||||||||
Years |
| 1 |
|
| 2 |
|
| 3 |
|
| 4 |
|
| 5 |
|
| 6 |
|
| 7 |
|
| 8 |
|
| 9 |
|
Casualty |
| 7.4 | % |
| 12.5 | % |
| 19.8 | % |
| 17.8 | % |
| 14.7 | % |
| 5.2 | % |
| 6.8 | % |
| 5.5 | % |
| 1.1 | % |
At December 31, 2017 | ||||||||||||||||||||||||||||||||
Total of | ||||||||||||||||||||||||||||||||
IBNR Liabilites | ||||||||||||||||||||||||||||||||
Incurred Claims and Allocated Claim Adjustment Expenses, Net of reinsurance | Plus Expected | |||||||||||||||||||||||||||||||
Years Ended December 31, | Development | Cumulative | ||||||||||||||||||||||||||||||
2012 | 2013 | 2014 | 2015 | 2016 | 2017 | on Reported | Number of | |||||||||||||||||||||||||
Accident Year | (unaudited) | (unaudited) | (unaudited) | (unaudited) | (unaudited) | Claims | Reported Claims | |||||||||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||||||||||
2012 | $ | 212,122 | $ | 175,129 | $ | 185,458 | $ | 184,711 | $ | 188,326 | $ | 179,442 | 3,471 | 15,956 | ||||||||||||||||||
2013 | 256,284 | 228,328 | 230,837 | 224,793 | 182,930 | 6,722 | 20,755 | |||||||||||||||||||||||||
2014 | 238,231 | 239,245 | 241,140 | 247,782 | 60,434 | 25,009 | ||||||||||||||||||||||||||
2015 | 259,451 | 259,843 | 263,492 | 100,270 | 26,472 | |||||||||||||||||||||||||||
2016 | 355,423 | 343,273 | 211,847 | 30,384 | ||||||||||||||||||||||||||||
2017 | 268,321 | (67,464 | ) | 26,419 | ||||||||||||||||||||||||||||
$ | 1,485,239 | |||||||||||||||||||||||||||||||
(Some amounts may not reconcile due to rounding.) |
Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance | ||||||||||||||||||||||||
Years Ended December 31, | ||||||||||||||||||||||||
2012 | 2013 | 2014 | 2015 | 2016 | 2017 | |||||||||||||||||||
Accident Year | (unaudited) | (unaudited) | (unaudited) | (unaudited) | (unaudited) | |||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||
2012 | $ | 15,692 | $ | 55,242 | $ | 84,429 | $ | 116,651 | $ | 133,314 | $ | 147,053 | ||||||||||||
2013 | 17,124 | 68,607 | 101,675 | 129,790 | 149,819 | |||||||||||||||||||
2014 | 20,382 | 71,940 | 114,236 | 143,953 | ||||||||||||||||||||
2015 | 19,974 | 68,033 | 117,096 | |||||||||||||||||||||
2016 | 24,815 | 101,292 | ||||||||||||||||||||||
2017 | 286,370 | |||||||||||||||||||||||
$ | 945,583 | |||||||||||||||||||||||
All outstanding liabilities prior to 2012, net of reinsurance | 330,473 | |||||||||||||||||||||||
Liabilities for claims and claim adjustment expenses, net of reinsurance | $ | 870,129 | ||||||||||||||||||||||
(Some amounts may not reconcile due to rounding.) |
Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance (unaudited) | ||||||||||||
Years | 1 | 2 | 3 | 4 | 5 | 6 | ||||||
Casualty | 25.9% | 22.0% | 17.6% | 14.8% | 10.1% | 7.7% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| At December 31, 2020 | ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| IBNR Liabilities |
|
|
|
|
| Incurred Claims and Allocated Claim Adjustment Expenses, Net of reinsurance |
|
|
|
| Plus Expected |
|
| |||||||||||||||||||||
|
|
| Years Ended December 31, |
|
|
|
| Development |
| Cumulative | |||||||||||||||||||||
|
|
| 2012 |
|
| 2013 |
|
| 2014 |
|
| 2015 |
|
| 2016 |
|
| 2017 |
|
| 2018 |
|
| 2019 |
|
| 2020 |
| on Reported |
| Number of |
Accident Year |
|
| (unaudited) |
|
| (unaudited) |
|
| (unaudited) |
|
| (unaudited) |
|
| (unaudited) |
|
| (unaudited) |
|
| (unaudited) |
|
| (unaudited) |
|
|
|
| Claims |
| Reported Claims |
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
2012 |
| $ | 58,483 |
| $ | 47,228 |
| $ | 43,423 |
| $ | 44,867 |
| $ | 44,297 |
| $ | 44,105 |
| $ | 44,150 |
| $ | 44,098 |
| $ | 44,097 |
| - |
| N/A |
2013 |
|
|
|
|
| 64,493 |
|
| 56,351 |
|
| 52,176 |
|
| 52,866 |
|
| 52,677 |
|
| 52,668 |
|
| 52,502 |
|
| 52,443 |
| 2 |
| N/A |
2014 |
|
|
|
|
|
|
|
| 67,660 |
|
| 70,077 |
|
| 67,447 |
|
| 66,645 |
|
| 66,520 |
|
| 66,561 |
|
| 66,561 |
| 3 |
| N/A |
2015 |
|
|
|
|
|
|
|
|
|
|
| 81,137 |
|
| 75,673 |
|
| 75,830 |
|
| 75,787 |
|
| 75,616 |
|
| 75,666 |
| 8 |
| N/A |
2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 143,279 |
|
| 169,791 |
|
| 165,078 |
|
| 164,045 |
|
| 164,144 |
| 67 |
| N/A |
2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 230,638 |
|
| 293,577 |
|
| 297,588 |
|
| 299,199 |
| 229 |
| N/A |
2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 376,805 |
|
| 373,389 |
|
| 377,079 |
| 339 |
| N/A |
2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 337,993 |
|
| 349,750 |
| 514 |
| N/A |
2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 546,870 |
| 232,975 |
| N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 1,975,810 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Some amounts may not reconcile due to rounding.) |
|
|
| Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance | ||||||||||||||||||||||||
|
|
| Years Ended December 31, | ||||||||||||||||||||||||
|
|
| 2012 |
|
| 2013 |
|
| 2014 |
|
| 2015 |
|
| 2016 |
|
| 2017 |
|
| 2018 |
|
| 2019 |
|
| 2020 |
Accident Year |
|
| (unaudited) |
|
| (unaudited) |
|
| (unaudited) |
|
| (unaudited) |
|
| (unaudited) |
|
| (unaudited) |
|
| (unaudited) |
|
| (unaudited) |
|
|
|
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
2012 |
| $ | 26,868 |
| $ | 44,408 |
| $ | 42,865 |
| $ | 44,517 |
| $ | 44,230 |
| $ | 44,040 |
| $ | 44,049 |
| $ | 44,075 |
| $ | 44,098 |
2013 |
|
|
|
|
| 35,201 |
|
| 54,220 |
|
| 52,588 |
|
| 52,849 |
|
| 52,474 |
|
| 52,459 |
|
| 52,467 |
|
| 52,441 |
2014 |
|
|
|
|
|
|
|
| 40,277 |
|
| 66,436 |
|
| 66,601 |
|
| 65,968 |
|
| 66,449 |
|
| 66,482 |
|
| 66,558 |
2015 |
|
|
|
|
|
|
|
|
|
|
| 45,422 |
|
| 70,398 |
|
| 75,168 |
|
| 75,192 |
|
| 75,049 |
|
| 75,240 |
2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 72,264 |
|
| 153,120 |
|
| 169,134 |
|
| 164,445 |
|
| 163,274 |
2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 161,592 |
|
| 293,417 |
|
| 282,607 |
|
| 296,805 |
2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 236,430 |
|
| 342,828 |
|
| 368,756 |
2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 218,339 |
|
| 337,091 |
2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 263,379 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 1,667,642 |
All outstanding liabilities prior to 2012, net of reinsurance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 33 |
Liabilities for claims and claim adjustment expenses, net of reinsurance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 308,201 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Some amounts may not reconcile due to rounding.) |
|
| Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance (unaudited) | |||||||||||||||||||||||||
Years |
| 1 |
|
| 2 |
|
| 3 |
|
| 4 |
|
| 5 |
|
| 6 |
|
| 7 |
|
| 8 |
|
| 9 |
|
Property |
| 55.7 | % |
| 36.8 | % |
| 3.0 | % |
| 1.5 | % |
| 1.6 | % |
| 1.3 | % |
| 0.1 | % |
| - | % |
| 0.1 | % |
At December 31, 2017 | ||||||||||||||||||||||||||||||||
Total of | ||||||||||||||||||||||||||||||||
IBNR Liabilites | ||||||||||||||||||||||||||||||||
Incurred Claims and Allocated Claim Adjustment Expenses, Net of reinsurance | Plus Expected | |||||||||||||||||||||||||||||||
Years Ended December 31, | Development | Cumulative | ||||||||||||||||||||||||||||||
2012 | 2013 | 2014 | 2015 | 2016 | 2017 | on Reported | Number of | |||||||||||||||||||||||||
Accident Year | (unaudited) | (unaudited) | (unaudited) | (unaudited) | (unaudited) | Claims | Reported Claims | |||||||||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||||||||||
2012 | $ | 58,377 | $ | 46,909 | $ | 43,553 | $ | 44,881 | $ | 44,312 | $ | 44,109 | 6 | N/A | ||||||||||||||||||
2013 | 63,888 | 57,016 | 52,211 | 52,909 | 52,593 | 80 | N/A | |||||||||||||||||||||||||
2014 | 68,190 | 69,901 | 67,484 | 66,600 | 489 | N/A | ||||||||||||||||||||||||||
2015 | 80,597 | 76,065 | 75,661 | (685 | ) | N/A | ||||||||||||||||||||||||||
2016 | 151,956 | 157,316 | (870 | ) | N/A | |||||||||||||||||||||||||||
2017 | 243,586 | (8,456 | ) | N/A | ||||||||||||||||||||||||||||
$ | 639,866 | |||||||||||||||||||||||||||||||
(Some amounts may not reconcile due to rounding.) |
F-25
Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance | ||||||||||||||||||||||||
Years Ended December 31, | ||||||||||||||||||||||||
2012 | 2013 | 2014 | 2015 | 2016 | 2017 | |||||||||||||||||||
Accident Year | (unaudited) | (unaudited) | (unaudited) | (unaudited) | (unaudited) | |||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||
2012 | $ | 26,872 | $ | 44,422 | $ | 42,880 | $ | 44,531 | $ | 44,246 | $ | 44,055 | ||||||||||||
2013 | 35,211 | 54,260 | 52,632 | 52,892 | 52,516 | |||||||||||||||||||
2014 | 40,292 | 66,466 | 66,633 | 66,003 | ||||||||||||||||||||
2015 | 45,462 | 70,460 | 75,245 | |||||||||||||||||||||
2016 | 72,264 | 153,245 | ||||||||||||||||||||||
2017 | 185,862 | |||||||||||||||||||||||
$ | 576,927 | |||||||||||||||||||||||
All outstanding liabilities prior to 2012, net of reinsurance | 1,258 | |||||||||||||||||||||||
Liabilities for claims and claim adjustment expenses, net of reinsurance | $ | 64,198 | ||||||||||||||||||||||
(Some amounts may not reconcile due to rounding.) |
Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance (unaudited) | ||||||||||||
Years | 1 | 2 | 3 | 4 | 5 | 6 | ||||||
Property | 63.4% | 42.6% | 0.7% | 0.8% | -0.7% | -0.4% |
F-28
The reconciliation of the net incurred and paid claims development tables to the liability for claims and claim adjustment expenses in the consolidated statement of financial position is as follows.
| At December 31, | |
| 2020 | |
(Dollars in thousands) |
|
|
Net outstanding liabilities |
|
|
Reinsurance Casualty | $ | 2,921,525 |
Reinsurance Property |
| 2,569,824 |
Insurance Casualty |
| 1,734,095 |
Insurance Property |
| 308,201 |
Liabilities for unpaid claims and claim adjustment expenses, net of reinsurance |
| 7,533,645 |
|
|
|
Reinsurance recoverable on unpaid claims |
|
|
Reinsurance Casualty |
| 1,163,264 |
Reinsurance Property |
| 1,097,995 |
Insurance Casualty |
| 1,505,962 |
Insurance Property |
| 184,253 |
Total reinsurance recoverable on unpaid claims |
| 3,951,474 |
|
|
|
Unallocated claims adjustment expenses |
| 142,289 |
Other |
| 27,542 |
|
| 169,831 |
|
|
|
Total gross liability for unpaid claims and claim adjustment expense | $ | 11,654,950 |
|
|
|
(Some amounts may not reconcile due to rounding.) |
|
|
At December 31, | |||
2017 | |||
(Dollars in thousands) | |||
Net outstanding liabilities | |||
U.S. Reinsurance Casualty | $ | 1,336,431 | |
U.S. Reinsurance Property | 474,048 | ||
International Casualty | 294,333 | ||
International Property | 443,247 | ||
Insurance Casualty | 870,129 | ||
Insurance Property | 64,198 | ||
Liabilities for unpaid claims and claim adjustment expenses, net of reinsurance | 3,482,386 | ||
Reinsurance recoverable on unpaid claims | |||
U.S. Reinsurance Casualty | 1,069,721 | ||
U.S. Reinsurance Property | 1,243,787 | ||
International Casualty | 557,581 | ||
International Property | 829,828 | ||
Insurance Casualty | 1,705,312 | ||
Insurance Property | 321,038 | ||
Total reinsurance recoverable on unpaid claims | 5,727,267 | ||
Unallocated claims adjustment expenses | 110,950 | ||
Other | 22,425 | ||
133,375 | |||
Total gross liability for unpaid claims and claim adjustment expense | $ | 9,343,028 | |
(Some amounts may not reconcile due to rounding.) |
The Company maintains reserves equal to our estimated ultimate liability for losses and loss adjustment expense (LAE) for reported and unreported claims for our insurance and reinsurance businesses. Because reserves are based on estimates of ultimate losses and LAE by underwriting or accident year, the Company uses a variety of statistical and actuarial techniques to monitor reserve adequacy over time, evaluate new information as it becomes known, and adjust reserves whenever an adjustment appears warranted. The Company considers many factors when setting reserves including: (1) exposure base and projected ultimate premium; (2) expected loss ratios by product and class of business, which are developed collaboratively by underwriters and actuaries; (3) actuarial methodologies and assumptions which analyze loss reporting and payment experience, reports from ceding companies and historical trends, such as reserving patterns, loss payments, and product mix; (4) current legal interpretations of coverage and liability; and (5) economic conditions. Insurance and reinsurance loss and LAE reserves represent the Company'sCompany’s best estimate of its ultimate liability. Actual loss and LAE ultimately paid may deviate, perhaps substantially, from such reserves. Net income (gain or loss) will be impacted in a period in which the change in estimated ultimate loss and LAE is recorded.
The detailed data required to evaluate ultimate losses for the Company'sCompany’s insurance business is accumulated from its underwriting and claim systems. Reserving for reinsurance requires evaluation of loss information received from ceding companies. Ceding companies report losses in many forms depending on the type of contract and the agreed or contractual reporting requirements. Generally, pro rata contracts require the submission of a monthly/quarterly account, which includes premium and loss activity for the period with
F-26
The Company segments both reinsurance and insurance reserves into exposure groupings for actuarial analysis. The Company assigns business to exposure groupings so that the underlying exposures have reasonably homogeneous loss development characteristics and are large enough to facilitate credible estimation of ultimate losses. The Company periodically reviews its exposure groupings and may change groupings over time as business changes. The Company currently uses approximately 150200 exposure groupings to develop reserve estimates. One of the key selection characteristics for the exposure groupings is the historical duration of the claims settlement process. Business in which claims are reported and settled relatively quickly are commonly referred to as short tail lines, principally property lines. On the other hand, casualty claims tend to take longer to be reported and settled and casualty lines are generally referred to as long tail lines. Estimates of ultimate losses for shorter tail lines, with the exception of loss estimates for large catastrophic events, generally exhibit less volatility than those for the longer tail lines.
The Company uses a variety of actuarial methodologies, such as the expected loss ratio method, chain ladder methods, and Bornhuetter-Ferguson methods, supplemented by judgment where appropriate, to estimate ultimate loss and LAE for each exposure group.
Expected Loss Ratio Method: The expected loss ratio method uses earned premium times an expected loss ratio to calculate ultimate losses for a given underwriting or accident year. This method relies entirely on expectation to project ultimate losses with no consideration given to actual losses. As such, it may be appropriate for an immature underwriting or accident year where few, if any, losses have been reported or paid, but less appropriate for a more mature year.
Chain Ladder Method: Chain ladder methods use a standard loss development triangle to project ultimate losses. Age-to-age development factors are selected for each development period and combined to calculate age-to-ultimate development factors which are then applied to paid or reported losses to project ultimate losses. This method relies entirely on actual paid or reported losses to project ultimate losses. No other factors such as changes in pricing or other expectations are taken into account. It is most appropriate for groups with homogeneous, stable experience where past development patterns are expected to continue in the future. It is least appropriate for groups which have changed significantly over time or which are more volatile.
Bornhuetter-Ferguson Method: The Bornhuetter-Ferguson method is a combination of the expected loss ratio method and the chain ladder method. Ultimate losses are projected based partly on actual paid or reported losses and partly on expectation. Incurred but not reported (IBNR) reserves are calculated using earned premium, an a priori loss ratio, and selected age-to-age development factors and added to actual reported (paid) losses to determine ultimate losses. It is more responsive to actual reported or paid development than the expected loss ratio method but less responsive than the chain ladder method. The reliability of the method depends on the accuracy of the selected a priori loss ratio.
Although the Company uses similar actuarial methods for both short tail and long tail lines, the faster reporting of experience for the short tail lines allows the Company to have greater confidence in its estimates of ultimate losses for short tail lines at an earlier stage than for long tail lines. As a result, the Company utilizes, as well, exposure-based methods to estimate its ultimate losses for longer tail lines, especially for immature underwriting or accident years. For both short and long tail lines, the Company supplements these general approaches with analytically based judgments.
F-27
Key actuarial assumptions contain no explicit provisions for reserve uncertainty nor does the Company supplement the actuarially determined reserves for uncertainty.
Carried reserves at each reporting date are the Company'sCompany’s best estimate of ultimate unpaid losses and LAE at that date. The Company completes detailed reserve studies for each exposure group annually for both reinsurance and insurance operations. The completed annual reserve studies are "rolled-forward"“rolled-forward” for each accounting period until the subsequent reserve study is completed. Analyzing the roll-forward process involves comparing actual reported losses to expected losses based on the most recent reserve study. The Company analyzes significant variances between actual and expected losses and post adjustments to its reserves as warranted.
Certain reserves, including losses from widespread catastrophic events and COVID-19 related losses, cannot be estimated using traditional actuarial methods. These types of events are reserved for separately using a variety of statistical and actuarial techniques. We estimate losses for these types of events based on information derived from catastrophe models, quantitative and qualitative exposure analyses, reports and communications from ceding companies and development patterns for historically similar events, where available.
The Company continues to receive claims under expired insurance and reinsurance contracts asserting injuries and/or damages relating to or resulting from environmental pollution and hazardous substances, including asbestos. Environmental claims typically assert liability for (a) the mitigation or remediation of environmental contamination or (b) bodily injury or property damage caused by the release of hazardous substances into the land, air or water. Asbestos claims typically assert liability for bodily injury from exposure to asbestos or for property damage resulting from asbestos or products containing asbestos.
The Company'sCompany’s reserves include an estimate of the Company'sCompany’s ultimate liability for A&E claims. The Company'sCompany’s A&E liabilities emanate from direct insurance business and Everest Re'sRe’s assumed reinsurance business. All of the contracts of insurance and reinsurance, under which the Company has received claims during the past three years, expired more than 20 years ago. There are significant uncertainties surrounding the Company'sCompany’s reserves for its A&E losses.
A&E exposures represent a separate exposure group for monitoring and evaluating reserve adequacy. The following table summarizes incurred losses with respect to A&E reserves on both a gross and net of reinsurance basis for the periods indicated:
| At December 31, | |||||||
(Dollars in thousands) |
| 2020 |
|
| 2019 |
|
| 2018 |
Gross basis: |
|
|
|
|
|
|
|
|
Beginning of period reserves | $ | 257,921 |
| $ | 347,495 |
| $ | 448,993 |
Incurred losses |
| 1,540 |
|
| 2,071 |
|
| (2,473) |
Paid losses |
| (40,120) |
|
| (91,645) |
|
| (99,026) |
End of period reserves | $ | 219,341 |
| $ | 257,921 |
| $ | 347,495 |
|
|
|
|
|
|
|
|
|
Net basis: |
|
|
|
|
|
|
|
|
Beginning of period reserves | $ | 196,574 |
| $ | 223,548 |
| $ | 269,153 |
Incurred losses |
| (4,753) |
|
| - |
|
| - |
Paid losses |
| (24,382) |
|
| (26,974) |
|
| (45,605) |
End of period reserves | $ | 167,439 |
| $ | 196,574 |
| $ | 223,548 |
At December 31, | ||||||||||||
(Dollars in thousands) | 2017 | 2016 | 2015 | |||||||||
Gross basis: | ||||||||||||
Beginning of period reserves | $ | 441,111 | $ | 433,117 | $ | 476,205 | ||||||
Incurred losses | 90,009 | 73,336 | 40,000 | |||||||||
Paid losses | (82,126 | ) | (65,342 | ) | (83,088 | ) | ||||||
End of period reserves | $ | 448,993 | $ | 441,111 | $ | 433,117 | ||||||
Net basis: | ||||||||||||
Beginning of period reserves | $ | 274,409 | $ | 276,540 | $ | 304,286 | ||||||
Incurred losses | 25,194 | 45,668 | 30,879 | |||||||||
Paid losses | (30,451 | ) | (47,798 | ) | (58,625 | ) | ||||||
End of period reserves | $ | 269,153 | $ | 274,409 | $ | 276,540 | ||||||
(Some amounts may not reconcile due to rounding.) |
Reinsurance Receivables.Receivables. Reinsurance receivables for both paid and unpaid losses totaled $6,120,687$4,207,305 thousand and $4,573,787$4,444,089 thousand at December 31, 20172020 and 2016,2019, respectively. At December 31, 2017, $4,912,8002020, $2,687,497 thousand, or 80.3%63.9%, was receivable from Everest Reinsurance (Bermuda), Ltd. ("(“Bermuda Re"Re”), an affiliated entity, and is fully collateralized by a trust agreement and $310,415$349,447 thousand, or 5.18.3%, was
F-28
receivable from Mt. Logan Re Ltd. (Bermuda) (“Mt. Logan Re”) collateralized segregated accounts. No other retrocessionaire accounted for more than 5%5% of reinsurance receivables.
GAAP guidance regarding fair value measurements address how companies should measure fair value when they are required to use fair value measures for recognition or disclosure purposes under GAAP and provides a common definition of fair value to be used throughout GAAP. It defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly fashion between market participants at the measurement date. In addition, it establishes a three-level valuation hierarchy for the disclosure of fair value measurements. The valuation hierarchy is based on the transparency of inputs to the valuation of an asset or liability. The level in the hierarchy within which a given fair value measurement falls is determined based on the lowest level input that is significant to the measurement, with Level 1 being the highest priority and Level 3 being the lowest priority.
The levels in the hierarchy are defined as follows:
Level 1: | Inputs to the valuation methodology are observable inputs that reflect unadjusted quoted prices for identical assets or liabilities in an active market; |
Level 2: | Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument; |
Level 3: | Inputs to the valuation methodology are unobservable and significant to the fair value measurement. |
The Company'sCompany’s fixed maturity and equity securities are primarily managed by third party investment asset managers. The investment asset managers managing publicly traded securities obtain prices from nationally recognized pricing services. These services seek to utilize market data and observations in their evaluation process. They use pricing applications that vary by asset class and incorporate available market information and when fixed maturity securities do not trade on a daily basis the services will apply available information through processes such as benchmark curves, benchmarking of like securities, sector groupings and matrix pricing. In addition, they use model processes, such as the Option Adjusted Spread model to develop prepayment and interest rate scenarios for securities that have prepayment features.
The investment asset managers do not make any changes to prices received from either the pricing services or the investment brokers. In addition, the investment asset managers have procedures in place to review the reasonableness of the prices from the service providers and may request verification of the prices. In addition, the Company continually performs analytical reviews of price changes and tests the prices on a random basis to an independent pricing source. No material variances were noted during these price validation procedures. In limited situations, where financial markets are inactive or illiquid, the Company may use its own assumptions about future cash flows and risk-adjusted discount rates to determine fair value. Due to the unavailability of prices for sixty-five private placement securities atAt December 31, 2017, the investment manager's valuation committee2020, $1,259,576 thousand of fixed maturities, market value were fair valued the sixty-five securities at $165,173 thousand. Ausing unobservable inputs. The majority of the fixed maturities, market value, were valued by investment managers’ valuation committees and many of these fair values determined by the valuation committee arewere substantiated by valuations from independent third parties. DueThe Company has procedures in place to the unavailability of prices for forty-two private placement securities atevaluate these independent third party valuations. At December 31, 2016, the investment manager's valuation committee2019, $702,331 thousand of fixed maturities, market value and $5,826 thousand of fixed maturities, fair value were fair valued the forty-two securities at $86,536 thousand.
The Company internally manages a public equity portfolio which had a fair value at December 31, 20172020 and December 31, 20162019 of $245,043$784,746 thousand and $133,755$170,888 thousand, respectively, and all prices were obtained from publicly published sources.
Equity securities denominated in U.S. currency with quoted prices in active markets for identical assets are categorized as levelLevel 1 since the quoted prices are directly observable. Equity securities traded on foreign exchanges are categorized as levelLevel 2 due to the added input of a foreign exchange conversion rate to
F-29
All categories of fixed maturity securities listed in the tables below are generally categorized as levelLevel 2, since a particular security may not have traded but the pricing services are able to use valuation models with observable market inputs such as interest rate yield curves and prices for similar fixed maturity securities in terms of issuer, maturity and seniority. For foreign government securities and foreign corporate securities, the fair values provided by the third party pricing services in local currencies, and where applicable, are converted to U.S. dollars using currency exchange rates from nationally recognized sources.
The fixed maturities with fair values categorized as levelLevel 3 result when prices are not available from the nationally recognized pricing services. The asset managers will then obtain non-binding price quotes for the securities from brokers. The single broker quotes are provided by market makers or broker-dealers who are recognized as market participants in the markets in which they are providing the quotes. The prices received from brokers are reviewed for reasonableness by the third party asset managers and the Company. If the broker quotes are for foreign denominated securities, the quotes are converted to U.S. dollars using currency exchange rates from nationally recognized sources. In limited circumstances when broker prices are not available for private placements, the Company will value the securities using comparable market information or receive fair values from investment managers.
The composition and valuation inputs for the presented fixed maturities categories Level 1 and Level 2 are as follows:
·U.S. Treasury securities and obligations of U.S. government agencies and corporations are primarily comprised of U.S. Treasury bonds and the fair value is based on observable market inputs such as quoted prices, reported trades, quoted prices for similar issuances or benchmark yields;
·Obligations of U.S. states and political subdivisions are comprised of state and municipal bond issuances and the fair values are based on observable market inputs such as quoted market prices, quoted prices for similar securities, benchmark yields and credit spreads;
·Corporate securities are primarily comprised of U.S. corporate and public utility bond issuances and the fair values are based on observable market inputs such as quoted market prices, quoted prices for similar securities, benchmark yields and credit spreads;
·Asset-backed and mortgage-backed securities fair values are based on observable inputs such as quoted prices, reported trades, quoted prices for similar issuances or benchmark yields and cash flow models using observable inputs such as prepayment speeds, collateral performance and default spreads;
·Foreign government securities are comprised of global non-U.S. sovereign bond issuances and the fair values are based on observable market inputs such as quoted market prices, quoted prices for similar securities and models with observable inputs such as benchmark yields and credit spreads and then, where applicable, converted to U.S. dollars using an exchange rate from a nationally recognized source;
·Foreign corporate securities are comprised of global non-U.S. corporate bond issuances and the fair values are based on observable market inputs such as quoted market prices, quoted prices for similar securities and models with observable inputs such as benchmark yields and credit spreads and then, where applicable, converted to U.S. dollars using an exchange rate from a nationally recognized source.
Other invested assets, at fair value, waswere categorized as Level 3 at December 31, 20172020 and 2016,December 31, 2019, since it represented a privately placed convertible preferred stock issued by an affiliate. The stock was received in exchange for shares of the Company'sCompany’s parent. The 25 year redeemable, convertible preferred stock with a 1.75%1.75% coupon is valued using a pricing model. The pricing model includes observable inputs such as the U.S. Treasury yield curve rate T note constant maturity 2010 year and the swap rate on the Company'sCompany’s June 1, 2044 4.868%, 4.868% senior notes, with adjustments to reflect the Company'sCompany’s own assumptions about the inputs that market participants would use in pricing the asset.
F-30
The following table presents the fair value measurement levels for all assets, which the Company has recorded at fair value (fair and market value) as of the period indicated:
|
|
|
| Fair Value Measurement Using: | |||||||
|
|
|
| Quoted Prices |
|
|
|
|
|
| |
|
|
|
| in Active |
| Significant |
|
|
| ||
|
|
|
| Markets for |
| Other |
| Significant | |||
|
|
|
| Identical |
| Observable |
| Unobservable | |||
| December 31, |
| Assets |
| Inputs |
| Inputs | ||||
(Dollars in thousands) | 2020 |
| (Level 1) |
| (Level 2) |
| (Level 3) | ||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
Fixed maturities, market value |
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities and obligations of U.S. government agencies and corporations | $ | 681,989 |
| $ | - |
| $ | 681,989 |
| $ | - |
Obligations of U.S. States and political subdivisions |
| 577,046 |
|
| - |
|
| 577,046 |
|
| - |
Corporate securities |
| 3,449,912 |
|
| - |
|
| 2,819,068 |
|
| 630,844 |
Asset-backed securities |
| 2,474,170 |
|
| - |
|
| 1,851,137 |
|
| 623,033 |
Mortgage-backed securities |
|
|
|
|
|
|
|
|
|
|
|
Commercial |
| 550,080 |
|
| - |
|
| 550,080 |
|
| - |
Agency residential |
| 965,100 |
|
| - |
|
| 965,100 |
|
| - |
Non-agency residential |
| 3,164 |
|
| - |
|
| 3,164 |
|
| - |
Foreign government securities |
| 742,238 |
|
| - |
|
| 742,238 |
|
| - |
Foreign corporate securities |
| 1,199,866 |
|
| - |
|
| 1,194,167 |
|
| 5,699 |
Total fixed maturities, market value |
| 10,643,565 |
|
| - |
|
| 9,383,989 |
|
| 1,259,576 |
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities, fair value |
| 1,288,767 |
|
| 1,222,158 |
| - | 66,609 |
|
| - |
Other invested assets, fair value |
| 1,796,479 |
|
| - |
|
| - |
|
| 1,796,479 |
Fair Value Measurement Using: | ||||||||||||||||
Quoted Prices | ||||||||||||||||
in Active | Significant | |||||||||||||||
Markets for | Other | Significant | ||||||||||||||
Identical | Observable | Unobservable | ||||||||||||||
Assets | Inputs | Inputs | ||||||||||||||
(Dollars in thousands) | December 31, 2017 | (Level 1) | (Level 2) | (Level 3) | ||||||||||||
Assets: | ||||||||||||||||
Fixed maturities, market value | ||||||||||||||||
U.S. Treasury securities and obligations of | ||||||||||||||||
U.S. government agencies and corporations | $ | 664,513 | $ | - | $ | 664,513 | $ | - | ||||||||
Obligations of U.S. States and political subdivisions | 585,469 | - | 585,469 | - | ||||||||||||
Corporate securities | 2,024,209 | - | 1,865,988 | 158,221 | ||||||||||||
Asset-backed securities | 138,024 | - | 138,024 | - | ||||||||||||
Mortgage-backed securities | ||||||||||||||||
Commercial | 51,751 | - | 51,751 | - | ||||||||||||
Agency residential | 113,288 | - | 113,288 | - | ||||||||||||
Non-agency residential | 58 | - | 58 | - | ||||||||||||
Foreign government securities | 523,620 | - | 523,620 | - | ||||||||||||
Foreign corporate securities | 870,989 | - | 864,037 | 6,952 | ||||||||||||
Total fixed maturities, market value | 4,971,921 | - | 4,806,748 | 165,173 | ||||||||||||
Equity securities, fair value | 822,375 | 800,542 | 21,833 | - | ||||||||||||
Other invested assets, fair value | 1,807,473 | - | - | 1,807,473 |
There were no transfers between Level 1 and Level 2 for the twelve months ended December 31, 2017.2020.
F-31
The following table presents the fair value measurement levels for all assets, which the Company has recorded at fair value (fair and market value) as of the period indicated:indicated.
|
|
|
| Fair Value Measurement Using: | |||||||
|
|
|
| Quoted Prices |
|
|
|
|
|
| |
|
|
|
| in Active |
| Significant |
|
|
| ||
|
|
|
| Markets for |
| Other |
| Significant | |||
|
|
|
| Identical |
| Observable |
| Unobservable | |||
| December 31, |
| Assets |
| Inputs |
| Inputs | ||||
(Dollars in thousands) | 2019 |
| (Level 1) |
| (Level 2) |
| (Level 3) | ||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
Fixed maturities, market value |
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities and obligations of U.S. government agencies and corporations | $ | 777,515 |
| $ | - |
| $ | 777,515 |
| $ | - |
Obligations of U.S. States and political subdivisions |
| 535,911 |
|
| - |
|
| 535,911 |
|
| - |
Corporate securities |
| 2,821,557 |
|
| - |
|
| 2,274,618 |
|
| 546,939 |
Asset-backed securities |
| 765,957 |
|
| - |
|
| 612,316 |
|
| 153,641 |
Mortgage-backed securities |
|
|
|
|
|
|
|
|
|
|
|
Commercial |
| 329,049 |
|
| - |
|
| 329,049 |
|
| - |
Agency residential |
| 644,687 |
|
| - |
|
| 644,687 |
|
| - |
Non-agency residential |
| 1,638 |
|
| - |
|
| 1,638 |
|
| - |
Foreign government securities |
| 658,007 |
|
| - |
|
| 658,007 |
|
| - |
Foreign corporate securities |
| 957,758 |
|
| - |
|
| 956,007 |
|
| 1,751 |
Total fixed maturities, market value |
| 7,492,079 |
|
| - |
|
| 6,789,748 |
|
| 702,331 |
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturities, fair value |
| 5,826 |
|
| - |
|
| - |
|
| 5,826 |
Equity securities, fair value |
| 764,049 |
|
| 719,548 |
|
| 44,501 |
|
| - |
Other invested assets, fair value |
| 1,982,582 |
|
| - |
|
| - |
|
| 1,982,582 |
Fair Value Measurement Using: | ||||||||||||||||
Quoted Prices | ||||||||||||||||
in Active | Significant | |||||||||||||||
Markets for | Other | Significant | ||||||||||||||
Identical | Observable | Unobservable | ||||||||||||||
Assets | Inputs | Inputs | ||||||||||||||
(Dollars in thousands) | December 31, 2016 | (Level 1) | (Level 2) | (Level 3) | ||||||||||||
Assets: | ||||||||||||||||
Fixed maturities, market value | ||||||||||||||||
U.S. Treasury securities and obligations of | ||||||||||||||||
U.S. government agencies and corporations | $ | 691,080 | $ | - | $ | 691,080 | $ | - | ||||||||
Obligations of U.S. States and political subdivisions | 729,984 | - | 729,984 | - | ||||||||||||
Corporate securities | 2,154,203 | - | 2,089,006 | 65,197 | ||||||||||||
Asset-backed securities | 137,027 | - | 137,027 | - | ||||||||||||
Mortgage-backed securities | ||||||||||||||||
Commercial | 75,493 | - | 75,493 | - | ||||||||||||
Agency residential | 715,144 | - | 715,144 | - | ||||||||||||
Non-agency residential | 88 | - | 88 | - | ||||||||||||
Foreign government securities | 507,277 | - | 507,277 | - | ||||||||||||
Foreign corporate securities | 960,200 | - | 957,662 | 2,538 | ||||||||||||
Total fixed maturities, market value | 5,970,496 | - | 5,902,761 | 67,735 | ||||||||||||
Equity securities, fair value | 887,800 | 827,237 | 60,563 | - | ||||||||||||
Other invested assets, fair value | 1,766,626 | - | - | 1,766,626 |
F-32
The following table presentstables present the activity under Level 3, fair value measurements using significant unobservable inputs by asset type, for the periods indicated:
| Total Fixed Maturities, Market Value | ||||||||||||||||||||||
| December 31, 2020 |
| December 31, 2019 | ||||||||||||||||||||
| Corporate |
| Asset |
| Foreign |
|
|
| Corporate |
| Asset |
| Foreign |
|
|
| |||||||
(Dollars in thousands) | Securities |
| Backed Securities |
| Corporate |
| Total |
| Securities |
| Backed Securities |
| Corporate |
| Total | ||||||||
Beginning balance | $ | 546,939 |
| $ | 153,641 |
| $ | 1,751 |
| $ | 702,331 |
| $ | 376,250 |
| $ | - |
| $ | 7,744 |
| $ | 383,994 |
Total gains or (losses) (realized/unrealized) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in earnings |
| 1,216 |
|
| 681 |
|
| (125) |
|
| 1,772 |
|
| 4,937 |
|
| - |
|
| (12) |
|
| 4,925 |
Included in other comprehensive income (loss) |
| (1,115) |
|
| 11,678 |
|
| 147 |
|
| 10,710 |
|
| (21) |
|
| 3,632 |
|
| (110) |
|
| 3,501 |
Purchases, issuances and settlements |
| 84,840 |
|
| 457,033 |
|
| 3,814 |
|
| 545,687 |
|
| 161,078 |
|
| 150,009 |
|
| (5,871) |
|
| 305,216 |
Transfers in and/or (out) of Level 3 |
| (1,037) |
|
| - |
|
| 113 |
|
| (924) |
|
| 4,695 |
|
| - |
|
| - |
|
| 4,695 |
Ending balance | $ | 630,843 |
| $ | 623,033 |
| $ | 5,700 |
| $ | 1,259,576 |
| $ | 546,939 |
| $ | 153,641 |
| $ | 1,751 |
| $ | 702,331 |
The amount of total gains or losses for the period included in earnings (or changes in net assets) attributable to the change in unrealized gains or losses relating to assets still held at the reporting date | $ | (539) |
| $ | - |
| $ | - |
| $ | (539) |
| $ | - |
| $ | - |
| $ | - |
| $ | - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Some amounts may not reconcile due to rounding.) |
|
|
|
|
|
|
|
|
|
|
|
|
| Total Fixed Maturities, Fair Value | ||||||||||
| December 31, 2020 |
| December 31, 2019 | ||||||||
| Foreign |
|
|
| Foreign |
|
|
| |||
(Dollars in thousands) | Corporate |
| Total |
| Corporate |
| Total | ||||
Beginning balance fixed maturities at fair value |
| 5,826 |
|
| 5,826 |
|
| 2,337 |
|
| 2,337 |
Total gains or (losses) (realized/unrealized) |
|
|
|
|
|
|
|
|
|
|
|
Included in earnings |
| (919) |
|
| (919) |
|
| 2,163 |
|
| 2,163 |
Included in other comprehensive income (loss) |
| - |
|
| - |
|
| - |
|
| - |
Purchases, issuances and settlements |
| (4,907) |
|
| (4,907) |
|
| 1,326 |
|
| 1,326 |
Transfers in and/or (out) of Level 3 |
| - |
|
| - |
|
| - |
|
| - |
Ending balance | $ | - |
| $ | - |
| $ | 5,826 |
| $ | 5,826 |
The amount of total gains or losses for the period included in earnings (or changes in net assets) attributable to the change in unrealized gains or losses relating to assets still held at the reporting date | $ | - |
| $ | - |
| $ | 1,796 |
| $ | 1,796 |
(Some amounts may not reconcile due to rounding.) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017 | December 31, 2016 | |||||||||||||||||||||||||||
Corporate | Foreign | Corporate | Foreign | |||||||||||||||||||||||||
(Dollars in thousands) | Securities | Corporate | Total | Securities | CMBS | Corporate | Total | |||||||||||||||||||||
Beginning balance | $ | 65,197 | $ | 2,538 | $ | 67,735 | $ | 3,933 | $ | - | $ | 1,593 | $ | 5,526 | ||||||||||||||
Total gains or (losses) (realized/unrealized) | ||||||||||||||||||||||||||||
Included in earnings | 1,654 | 356 | 2,010 | 100 | - | (1,193 | ) | (1,093 | ) | |||||||||||||||||||
Included in other comprehensive income (loss) | (991 | ) | - | (991 | ) | 41 | 15 | - | 56 | |||||||||||||||||||
Purchases, issuances and settlements | 92,361 | 4,058 | 96,419 | 63,054 | (40 | ) | 2,138 | 65,152 | ||||||||||||||||||||
Transfers in and/or (out) of Level 3 | - | - | - | (1,931 | ) | 25 | - | (1,906 | ) | |||||||||||||||||||
Ending balance | $ | 158,221 | $ | 6,952 | $ | 165,173 | $ | 65,197 | $ | - | $ | 2,538 | $ | 67,735 | ||||||||||||||
The amount of total gains or losses for the period included | ||||||||||||||||||||||||||||
in earnings (or changes in net assets) attributable to the | ||||||||||||||||||||||||||||
change in unrealized gains or losses relating to assets | ||||||||||||||||||||||||||||
still held at the reporting date | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||||||
(Some amounts may not reconcile due to rounding.) |
The net transfers to/(from) levelLevel 3, fair value measurements using significant unobservable inputs for fixed maturities, market value were $0 $(924) thousand and ($1,906)$4,695 thousand of investments primarily related to securities that were priced using single non-binding broker quotes as offor the years ended December 31, 2015.2020 and 2019, respectively. The securitiestransfers during 2020 were previously priced with investment managers and were subsequently priced usingby a recognized pricing service as of December 31, 20162020. The transfers during 2019 were previously priced by a recognized pricing service and were classified as level 2subsequently priced using investment managers as of those dates.December 31, 2019.
The following table presents the activity under Level 3, fair value measurements using significant unobservable inputs by equity securities, for the periods indicated:
F-33
| December 31, | ||||
(Dollars in thousands) | 2020 |
| 2019 | ||
Equity securities |
|
|
|
|
|
Balance, beginning of period | $ | - |
| $ | - |
Total (gains) or losses (realized/unrealized) |
|
|
|
|
|
Included in earnings |
| - |
|
| - |
Included in other comprehensive income (loss) |
| - |
|
| - |
Purchases, issuances and settlements |
| 9,877 |
|
| - |
Transfers in and/or (out) of Level 3 |
| (9,877) |
|
| - |
Balance, end of period | $ | - |
| $ | - |
|
|
|
|
|
|
The amount of total gains or losses for the period included in earnings |
|
|
|
|
|
(or changes in net assets) attributable to the change in unrealized |
|
|
|
|
|
gains or losses relating to liabilities still held at the reporting date | $ | - |
| $ | - |
|
|
|
|
|
|
(Some amounts may not reconcile due to rounding.) |
|
|
|
|
|
The net transfers to/(from) Level 3, fair value measurements using significant unobservable inputs for equity securities, fair value were $(9,877) thousand for 2020 and $0 Thousand for 2019. The transfers of ($9,877) thousand during 2020, were related to preferred stock in a private entity purchased during the second quarter of 2020 which was priced at cost originally and was subsequently priced based upon the book value of the underlying private entity as of December 31, 2020.
The following table presents the activity under Level 3, fair value measurements using significant unobservable inputs by other invested assets, for the periods indicated:
| Years Ended December 31, | ||||
(Dollars in thousands) | 2020 |
| 2019 | ||
Other invested assets, fair value: |
|
|
|
|
|
Beginning balance | $ | 1,982,582 |
| $ | 1,717,336 |
Total gains or (losses) (realized/unrealized) |
|
|
|
|
|
Included in earnings |
| (186,103) |
|
| 265,246 |
Included in other comprehensive income (loss) |
| - |
|
| - |
Purchases, issuances and settlements |
| - |
|
| - |
Transfers in and/or (out) of Level 3 |
| - |
|
| - |
Ending balance | $ | 1,796,479 |
| $ | 1,982,582 |
The amount of total gains or losses for the period included in earnings (or changes in net assets) attributable to the change in unrealized gains or losses relating to assets still held at the reporting date | $ | - |
| $ | - |
|
|
|
|
|
|
(Some amounts may not reconcile due to rounding.) |
|
|
|
|
|
F-34
Years Ended December 31, | ||||||||
(Dollars in thousands) | 2017 | 2016 | ||||||
Other invested assets, fair value: | ||||||||
Beginning balance | $ | 1,766,626 | $ | 1,773,214 | ||||
Total gains or (losses) (realized/unrealized) | ||||||||
Included in earnings | 40,846 | (6,588 | ) | |||||
Included in other comprehensive income (loss) | - | - | ||||||
Purchases, issuances and settlements | - | - | ||||||
Transfers in and/or (out) of Level 3 | - | - | ||||||
Ending balance | $ | 1,807,473 | $ | 1,766,626 | ||||
The amount of total gains or losses for the period included in earnings | ||||||||
(or changes in net assets) attributable to the change in unrealized | ||||||||
gains or losses relating to assets still held at the reporting date | $ | - | $ | - | ||||
(Some amounts may not reconcile due to rounding.) |
The table below displays Holdings'Holdings’ outstanding senior notes. Market value is based on quoted market prices, but due to limited trading activity, these senior notes are considered Level 2 in the fair value hierarchy.
|
|
|
|
|
|
| December 31, 2020 |
| December 31, 2019 | ||||||||
|
|
|
|
|
|
| Consolidated |
|
|
|
| Consolidated |
|
|
| ||
|
|
|
|
| Principal |
| Balance Sheet |
| Market |
| Balance Sheet |
| Market | ||||
(Dollars in thousands) | Date Issued |
| Date Due |
| Amounts |
| Amount |
| Value |
| Amount |
| Value | ||||
4.868% Senior notes | 06/05/2014 |
| 06/01/2044 |
| 400,000 |
| $ | 397,194 |
| $ | 528,000 |
| $ | 397,074 |
| $ | 452,848 |
3.5% Senior notes | 10/07/2020 |
| 10/15/2050 |
| 1,000,000 |
| $ | 979,524 |
| $ | 1,138,100 |
| $ | - |
| $ | - |
December 31, 2017 | December 31, 2016 | |||||||||||||||||||||
Consolidated Balance | Consolidated Balance | |||||||||||||||||||||
(Dollars in thousands) | Date Issued | Date Due | Principal Amounts | Sheet Amount | Market Value | Sheet Amount | Market Value | |||||||||||||||
4.868% Senior notes | 06/05/2014 | 06/01/2044 | 400,000 | $ | 396,834 | $ | 420,340 | $ | 396,714 | $ | 383,612 |
On June 5, 2014, Holdings issued $400,000$400,000 thousand of 30 year senior notes at with an annual coupon rate of 4.868%, which will mature on June 1, 2044. Interest will be paid semi-annually on June 1 and December 1 of each year.
On October 7, 2020, Holdings issued $1,000,000 thousand of 30 year senior notes an interest coupon rate of 3.5% which will mature on October 15, 2050. Interest will be paid semi-annually on April 15th and October 15th of each year.
Interest expense incurred in connection with these senior notes is as follows for the periods indicated:
| Years Ended December 31, | |||||||
(Dollars in thousands) | 2020 |
| 2019 |
| 2018 | |||
Interest expense incurred | $ | 19,472 |
| $ | 19,472 |
| $ | 19,472 |
10/15/2050 Senior Note | $ | 8,115 |
| $ | - |
| $ | - |
Years Ended December 31, | ||||||||||||
(Dollars in thousands) | 2017 | 2016 | 2015 | |||||||||
Interest expense incurred | $ | 19,472 | $ | 19,472 | $ | 19,472 |
The table below displays Holdings'Holdings’ outstanding fixed to floating rate long term subordinated notes. Market value is based on quoted market prices, but due to limited trading activity, these subordinated notes are considered Level 2 in the fair value hierarchy.
|
|
|
|
|
|
|
|
|
| December 31, 2020 |
| December 31, 2019 | ||||||||
|
|
| Original |
|
|
|
|
| Consolidated |
|
|
|
| Consolidated |
|
|
| |||
|
|
| Principal |
| Maturity Date |
|
|
| Balance |
| Market |
| Balance |
| Market | |||||
(Dollars in thousands) | Date Issued |
| Amount |
| Scheduled |
| Final |
| Sheet Amount |
| Value |
| Sheet Amount |
| Value | |||||
Long term subordinated notes | 04/26/2007 |
| $ | 400,000 |
| 05/15/2037 |
| 05/01/2067 |
| $ | 223,674 |
| $ | 206,447 |
| $ | 236,758 |
| $ | 233,191 |
Maturity Date | December 31, 2017 | December 31, 2016 | |||||||||||||||||||||||
Original | Consolidated Balance | Consolidated Balance | |||||||||||||||||||||||
(Dollars in thousands) | Date Issued | Principal Amount | Scheduled | Final | Sheet Amount | Market Value | Sheet Amount | Market Value | |||||||||||||||||
6.6% Long term subordinated notes | 04/26/2007 | $ | 400,000 | 05/15/2037 | 05/01/2067 | $ | 236,561 | $ | 233,072 | $ | 236,462 | $ | 204,636 |
During the fixed rate interest period from May 3, 2007 through May 14, 2017, interest was at the annual rate of 6.6%, payable semi-annually in arrears on November 15 and May 15 of each year, commencing on November 15, 2007. During the floating rate interest period from May 15, 2017 through maturity, interest will be based on the 3 month LIBOR plus 238.5 basis points, reset quarterly, payable quarterly in arrears on February 15, May 15, August 15 and November 15 of each year, subject to Holdings'Holdings’ right to defer interest on one or more occasions for up to ten consecutive years. Deferred interest will accumulate interest at the applicable rate compounded quarterly for periods from and including AugustMay 15, 2017. The reset quarterly interest rate for November 16, 20172020 to February 15, 20182021 is 3.80%2.6%.
Holdings may redeem the long term subordinated notes on or after May 15, 2017, in whole or in part at 100%100% of the principal amount plus accrued and unpaid interest; however, redemption on or after the scheduled maturity date and prior to May 1, 2047 is subject to a replacement capital covenant. This covenant is for the benefit of certain senior note holders and it mandates that Holdings receive proceeds from the sale of another subordinated debt issue, of at least similar size, before it may redeem the subordinated notes. Effective upon the maturity of the Company's 5.40%Company’s 5.40% senior notes on October 15, 2014, the Company's 4.868%Company’s 4.868% senior notes, due on June 1, 2044, have become the Company'sCompany’s long term indebtedness that ranks senior to the long term subordinated notes.
F-35
The Company repurchased and retired $13,183 thousand and $0 thousand of its outstanding long term subordinated notes during the years ended December, 2020 and 2019, respectively. The Company realized a gain of $2,536 thousand and $0 thousand from the repurchase of the long term subordinated notes the years ended December, 2020 and 2019, respectively.
On March 19, 2009, Group announced the commencement of a cash tender offer for any and all of the 6.60%6.60% fixed to floating rate long term subordinated notes. Upon expiration of the tender offer, the Company had reduced its outstanding debt by $161,441 thousand.
| Years Ended December 31, | |||||||
(Dollars in thousands) | 2020 |
| 2019 |
| 2018 | |||
Interest expense incurred | $ | 7,645 |
| $ | 11,587 |
| $ | 10,926 |
Effective August 15, 2019, Everest Reinsurance Company (“Everest Re”) became a member of the Federal Home Loan Bank of New York (“FHLBNY”), which allows Everest Re to borrow up to 10% of its statutory admitted assets. As of December 31, 2020, Everest Re had admitted assets of approximately $16,840,721 thousand which provides borrowing capacity of up to approximately $1,684,072 thousand. During 2020, Everest Re borrowed $400,000 thousand under its FHLBNY capacity. The borrowings have interest payable at an interest rate of 0.35%. As of December 31, 2020, $310,000 of these borrowings remain outstanding, with maturities in connection with these long term subordinated notes is as follows for the periods indicated:
Years Ended December 31, | ||||||||||||
(Dollars in thousands) | 2017 | 2016 | 2015 | |||||||||
Interest expense incurred | $ | 11,498 | $ | 15,749 | $ | 15,749 |
A subsidiary of the Company, Everest Re, has established a trust agreement, which effectively uses Everest Re'sRe’s investments as collateral, as security for assumed losses payable to a non-affiliated ceding company.companies. At December 31, 2017,2020, the total amount on deposit in the trust account was $678,154$886,148 thousand.
On April 24, 2014, the Company entered into two collateralized reinsurance agreements with Kilimanjaro Re Limited ("Kilimanjaro"(“Kilimanjaro”), a Bermuda based special purpose reinsurer, to provide the Company with catastrophe reinsurance coverage. These agreements are multi-year reinsurance contracts, which cover specified named storm and earthquake events. The first agreement provides up to $250,000 thousand of reinsurance coverage from named storms in specified states of the Southeastern United States. The second agreement provides up to $200,000 thousand of reinsurance coverage from named storms in specified states of the Southeast, Mid-Atlantic and Northeast regions of the United States and Puerto Rico as well as reinsurance coverage from earthquakes in specified states of the Southeast, Mid-Atlantic, Northeast and West regions of the United States, Puerto Rico and British Columbia.
On November 18, 2014, the Company entered into a collateralized reinsurance agreement with Kilimanjaro to provide the Company with catastrophe reinsurance coverage. This agreement is a multi-year reinsurance contract which covers specified earthquake events. The agreement provides up to $500,000 thousand of reinsurance coverage from earthquakes in the United States, Puerto Rico and Canada.
On December 1, 2015, the Company entered into two collateralized reinsurance agreements with Kilimanjaro to provide the Company with catastrophe reinsurance coverage. These agreements are multi-year reinsurance contracts which cover named storm and earthquake events. The first agreement provides up to $300,000 thousand of reinsurance coverage from named storms and earthquakes in the United States, Puerto Rico and Canada. The second agreement provides up to $325,000 thousand of reinsurance coverage from named storms and earthquakes in the United States, Puerto Rico and Canada.
On April 13, 2017, the Company entered into six collateralized reinsurance agreements with Kilimanjaro to provide the Company with annual aggregate catastrophe reinsurance coverage. The initial three agreements
F-36
are four year reinsurance contracts which cover named storm and earthquake events. These agreements provide up to $225,000 thousand, $400,000 thousand and $325,000 thousand, respectively, of annual aggregate reinsurance coverage from named storms and earthquakes in the United States, Puerto Rico and Canada. The subsequent three agreements are five year reinsurance contracts which cover named storm and earthquake events. These agreements provide up to $50,000 thousand, $75,000 thousand and $175,000 thousand, respectively, of annual aggregate reinsurance coverage from named storms and earthquakes in the United States, Puerto Rico and Canada.
On April 30, 2018, the Company entered into with Kilimanjaro on April 24, 2014 will expire in April, 2018. As a result of the expiration of these April, 2014four collateralized reinsurance agreements the Company is currently evaluating whether to enter into additional collateralized reinsurance agreementswith Kilimanjaro to provide the Company with future catastrophe reinsurance coverage. Any termsThese agreements are multi-year reinsurance contracts which cover named storm and earthquake events. The first two agreements are four year reinsurance contracts which provide up to $62,500 thousand and $200,000 thousand, respectively, of additionalannual aggregate reinsurance coverage from named storms and earthquakes in the United States, Puerto Rico, the U.S. Virgin Islands and Canada. The remaining two agreements are five year reinsurance contracts which provide up to $62,500 thousand and $200,000 thousand, respectively, of annual aggregate reinsurance coverage from named storms and earthquakes in the United States, Puerto Rico, the U.S. Virgin Islands and Canada.
On December 12, 2019, the Company entered into four collateralized reinsurance agreements will be disclosed oncewith Kilimanjaro to provide the Company with catastrophe reinsurance coverage. These agreements have been finalized.
Recoveries under these collateralized reinsurance agreements with Kilimanjaro are primarily dependent on estimated industry level insured losses from covered events, as well as, the geographic location of the events. The estimated industry level of insured losses is obtained from published estimates by an independent recognized authority on insured property losses. As of December 31, 2017,Currently, none of the published insured loss estimates for the 2017 catastrophe events during the applicable covered periods of the various agreements have exceeded the single event retentions
Kilimanjaro has financed the various property catastrophe reinsurance coverages by issuing catastrophe bonds to unrelated, external investors. On April 24, 2014, Kilimanjaro issued $450,000 thousand of notes ("(“Series 2014-1 Notes"Notes”). The $450,000 thousand of Series 2014-1 Notes were fully redeemed on April 30, 2018 and are no longer outstanding. On November 18, 2014, Kilimanjaro issued $500,000 thousand of notes ("(“Series 2014-2 Notes"Notes”). The $500,000 thousand of Series 2014-2 Notes were fully redeemed in November 2019 and are no longer outstanding. On December 1, 2015, Kilimanjaro issued $625,000 thousand of notes ("(“Series 2015-1 Notes). On April 13, 2017, Kilimanjaro issued $950,000 thousand of notes ("(“Series 2017-1 Notes) and $300,000 thousand of notes ("(“Series 2017-2 Notes). On April 30, 2018, Kilimanjaro issued $262,500 thousand of notes (“Series 2018-1 Notes”) and $262,500 thousand of notes (“Series 2018-2 Notes”). On December 12, 2019 Kilimanjaro issued $425,000 thousand of notes (“Series 2019-1 Notes”) and $425,000 thousand of notes (“Series 2019-2 Notes’”). The proceeds from the issuance of the Notes listed above are held in reinsurance trust throughout the duration of the applicable reinsurance agreements and invested solely in US government money market funds with a rating of at least "AAAm"“AAAm” by Standard & Poor's.
Effective January 1, 2019, the Company adopted ASU 2016-02 and ASU 2018-11 which outline new guidance on the accounting for leases. The future minimum rental commitments, exclusiveCompany enters into lease agreements for real estate that is primarily used for office space in the ordinary course of cost escalation clauses, at December 31, 2017,business. These leases are accounted for allas operating leases, whereby lease expense is recognized on a straight-line basis over the term of the Company'slease. Most leases include an option to extend or renew the lease term. The exercise of the renewal is at the Company’s discretion. The
F-37
operating lease liability includes lease payments related to options to extend or renew the lease term if the Company is reasonably certain of exercise those options. The Company, in determining the present value of lease payments utilizes either the rate implicit in the lease if that rate is readily determinable or the Company’s incremental secured borrowing rate commensurate with terms of the underlying lease.
Supplemental information related to operating leases with remaining non-cancelable terms in excess of one year areis as follows:
(Dollars in thousands) | |||
2018 | $ | 15,740 | |
2019 | 16,026 | ||
2020 | 15,569 | ||
2021 | 6,718 | ||
2022 | 6,335 | ||
Thereafter | 14,628 | ||
Net commitments | $ | 75,016 | |
(Some amounts may not reconcile due to rounding.) |
| Year Ended | ||||
| December 31, | ||||
(Dollars in thousands) | 2020 |
| 2019 | ||
Lease expense incurred: |
|
|
|
|
|
Operating lease cost | $ | 29,822 |
| $ | 21,471 |
| At December 31, | ||||
(Dollars in thousands) | 2020 |
| 2019 | ||
Operating lease right of use assets | $ | 139,835 |
| $ | 152,978 |
Operating lease liabilities |
| 155,144 |
|
| 160,387 |
| Year Ended | ||||
| December 31, | ||||
(Dollars in thousands) | 2020 |
| 2019 | ||
Operating cash flows from operating leases | $ | (18,411) |
| $ | (17,617) |
|
| At December 31, | ||||
|
| 2020 |
| 2019 |
| |
Weighted average remaining operating lease term |
| 12.5 years |
|
| 12.8 years |
|
Weighted average discount rate on operating leases |
| 4.02 | % |
| 3.91 | % |
Maturities of the existing lease liabilities are expected to occur as follows:
(Dollars in thousands) |
|
|
|
|
|
2021 | $ | 16,191 |
2022 |
| 18,623 |
2023 |
| 18,211 |
2024 |
| 18,217 |
2025 |
| 15,225 |
Thereafter |
| 116,197 |
Undiscounted lease payments |
| 202,664 |
Less: present value adjustment |
| 47,520 |
Total operating lease liability | $ | 155,144 |
On July 2, 2019, the Company entered into a lease agreement to relocate its U.S. corporate offices from Liberty Corner, New Jersey to Warren, New Jersey. The new lease, which covers approximately 315,000 square feet of office space. Rental expensespace, was $16,209effective October 1, 2019 and runs through 2036. The initial base rent payment of the lease will be approximately $650 thousand $14,841per month or $7,800 thousand per year. The Company relocated the existing operations and $14,145 thousand foremployees of the years endedLiberty Corner, New Jersey facility to the new corporate complex as of December 31, 2017, 2016 and 2015, respectively.2020.
F-38
10. INCOME TAXES
All of the income of Holdings U.S. subsidiaries, including its foreign branches, is subject to the applicable federal, foreign, state and local income taxes on corporations. The provision for income taxes in the consolidated statement of operations and comprehensive income (loss) has been determined by applying the respective tax laws to the income of each entity.
The TCJACoronavirus Aid, Relief, and Economic Security (“CARES”) Act, enacted on December 22, 2017 causedMarch 27, 2020, provided that U.S. companies could carryback for five years net operating losses incurred in 2018, 2019 and/or 2020. This beneficial tax provision in the CARES Act enabled the Company to carryback its significant 2018 net operating losses to prior tax years with higher effective tax rates of 35% versus 21% in 2018 and later years. As a result, the Company was able to record ana net income tax benefit from the five-year carryback of $123,143 thousand in 2017. The$32.5 million and obtain federal income tax provision reflects the lower 21% tax expense/(benefit) to be realized by the Company under the TCJA upon the reversalcash refunds of the temporary differences$182.5 million including interest in its deferred tax inventory account versus the 35% tax expense/(benefit) that had been expected to be realized before the TCJA. 2020.
The significant components of the provision are as follows for the periods indicated:
| Years Ended December 31, | |||||||
(Dollars in thousands) | 2020 |
| 2019 |
| 2018 | |||
Current tax expense (benefit): |
|
|
|
|
| |||
U.S. | $ | (106,719) |
| $ | (1,684) |
| $ | (50,964) |
Foreign |
| (11) |
|
| 77 |
|
| 8 |
Total current tax expense (benefit) |
| (106,730) |
|
| (1,607) |
|
| (50,956) |
Total deferred U.S. tax expense (benefit) |
| 138,388 |
|
| 136,834 |
|
| (316,069) |
Total income tax expense (benefit) | $ | 31,658 |
| $ | 135,228 |
| $ | (367,025) |
Years Ended December 31, | ||||||||||||
(Dollars in thousands) | 2017 | 2016 | 2015 | |||||||||
Current tax expense (benefit): | ||||||||||||
U.S. | $ | (123,083 | ) | $ | 16,004 | $ | 55,354 | |||||
Foreign | 221 | 12,682 | 30,373 | |||||||||
Total current tax expense (benefit) | (122,862 | ) | 28,686 | 85,727 | ||||||||
Total deferred U.S. tax expense (benefit) | (78,318 | ) | 68,661 | 109,169 | ||||||||
Total income tax expense (benefit) | $ | (201,180 | ) | $ | 97,347 | $ | 194,896 |
(Dollars in thousands) | 2020 |
| 2019 |
| 2018 | |||
Expected income tax provision at the U.S. statutory tax rate | $ | 80,588 |
| $ | 160,762 |
| $ | (279,216) |
Increase (decrease) in taxes resulting from: |
|
|
|
|
|
|
|
|
Tax exempt income |
| (3,598) |
|
| (3,680) |
|
| (3,824) |
Dividend received deduction |
| (1,100) |
|
| (998) |
|
| (1,277) |
Proration |
| 1,049 |
|
| 1,050 |
|
| 1,150 |
Creditable foreign premium tax |
| (11,513) |
|
| (9,852) |
|
| (13,475) |
Tax audit settlement |
| - |
|
| (1,576) |
|
| (2,060) |
U.S. rate differential on carryback of net operation losses to PY |
| - |
|
| - |
|
| (43,734) |
U.S. rate differential on deferred tax 2017 return to provision |
| - |
|
| - |
|
| (28,832) |
Share based compensation tax benefits formerly in APIC |
| (2,612) |
|
| (2,987) |
|
| (1,450) |
Impact of CARES Act |
| (32,500) |
|
| - |
|
| - |
Change in uncertain tax positions |
| - |
|
| (8,434) |
|
| 8,434 |
Other |
| 1,345 |
|
| 942 |
|
| (2,741) |
Total income tax provision | $ | 31,658 |
| $ | 135,228 |
| $ | (367,025) |
|
|
|
|
|
|
|
|
|
(Some amounts may not reconcile due to rounding.) |
|
|
|
|
|
|
|
|
F-39
Years Ended December 31, | ||||||||||||
(Dollars in thousands) | 2017 | 2016 | 2015 | |||||||||
Expected income tax provision at the U.S. statutory tax rate | $ | (43,044 | ) | $ | 139,646 | $ | 212,548 | |||||
Increase (reduction) in taxes resulting from: | ||||||||||||
Tax exempt income | (8,488 | ) | (9,078 | ) | (10,004 | ) | ||||||
Dividend received deduction | (4,063 | ) | (4,335 | ) | (4,851 | ) | ||||||
Proration | 1,760 | 1,931 | 2,160 | |||||||||
Creditable foreign premium tax | (7,515 | ) | (6,134 | ) | (7,492 | ) | ||||||
Tax audit settlement | (11,565 | ) | (19,204 | ) | - | |||||||
Share based compensation tax benefits formerly in APIC | (3,308 | ) | - | - | ||||||||
Impact of U.S. tax reform | (123,143 | ) | - | - | ||||||||
Other | (1,814 | ) | (5,479 | ) | 2,535 | |||||||
Total income tax provision | $ | (201,180 | ) | $ | 97,347 | $ | 194,896 | |||||
(Some amounts may not reconcile due to rounding.) |
A reconciliation of the Companybeginning and ending unrecognized tax benefits, for the 2009 through 2013periods indicated, is as follows:
(Dollars in thousands) | 2020 |
| 2019 |
| 2018 | |||
Balance at January 1 | $ | - |
| $ | 8,434 |
| $ | - |
Additions based on tax positions related to the current year |
| - |
|
| - |
|
| 8,434 |
Additions for tax positions of prior years |
| - |
|
| - |
|
| - |
Reductions for tax positions of prior years |
| - |
|
| (8,434) |
|
| - |
Settlements with taxing authorities |
| - |
|
| - |
|
| - |
Lapses of applicable statutes of limitations |
| - |
|
| - |
|
| - |
Balance at December 31 | $ | - |
| $ | - |
| $ | 8,434 |
At December 31, 2020, the Company’s unrecognized tax yearsbenefits, excluding interest and issued a final Revenue Agent Report ("RAR"). The RAR reflectedpenalties, that would impact the IRS owedeffective tax rate were $0 thousand. Interest and penalties related to unrecognized tax benefits are recognized in income tax expense. At December 31, 2020, the Company a net refundaccrued $0 thousand for the five yearspayment of $44,241 thousand plus interest (net of $1,326 thousand. the federal benefit) and penalties. At December 31, 2020 and 2019, there were no accrued liabilities, respectively, for the payment of interest and penalties.
The net refund due to the Company resulted primarily from the carryback of capital losses incurred in 2009 and 2010 to 2006 and 2007, from the conversion of foreign premium tax deductions into Foreign Tax Credits ("FTCs") and from increased utilization of such FTCs as well as the increased utilization of Alternative Minimum Tax ("AMT") credit carryforwards. The gross refunds, by year, which were $5,000 thousand or greater, had to be reviewed and approved by IRS Joint Committee and were approved in July, 2017. The Company received the expected tax refunds from the IRS in early 2018.
In 2019, the IRS opened an audit of the 2015 through 2017 tax years. To date, the Company has not received any Information Document Requests (“IDRs”) or notices of proposed adjustment. The Company had filed amended tax returns for 2006, 2007, 2008, the RAR years and 2014 and plans to file amended 2015 and 2016 for $1,519 thousand and $4,685 thousand respectively.
During 2020, the IRS added 2018 to the audit and indicated that, subsequent to the CARES Act, it would audit tax returns for $29,385 thousand in additional net refunds plus interest. These additional net refunds also result primarily fromyears 2014 – 2018 all together and conclude its audits simultaneously. To date, the conversion of foreign premium tax deductions into FTCs.
F-40
Deferred income taxes reflect the tax effect of the temporary differences between the value of assets and liabilities for financial statement purposes and such values as measured by U.S. tax laws and regulations. Under the TCJA, temporary differences at December 31, 2017, are now expected to reverse at a 21% tax rate whereas at December 31, 2016, such items were expected to reverse at a 35% tax rate. The principal items making up the net deferred income tax assets/(liabilities) are as follows for the periods indicated:
| At December 31, | ||||
(Dollars in thousands) | 2020 |
| 2019 | ||
Deferred tax assets: |
|
|
|
|
|
Loss reserves | $ | 96,840 |
| $ | 66,025 |
Unearned premium reserve |
| 85,028 |
|
| 75,130 |
Foreign tax credits |
| 46,109 |
|
| 186,706 |
Lease Liability |
| 31,989 |
|
| 33,042 |
Net unrecognized losses on benefit plans |
| 19,636 |
|
| 19,818 |
Equity compensation |
| 6,749 |
|
| 7,229 |
Other tax credits |
| 4,591 |
|
| 2,294 |
Uncollectible reinsurance reserve |
| 3,142 |
|
| 3,142 |
Investment impairments |
| 1,121 |
|
| 3,961 |
Net operating loss |
| 684 |
|
| 19,027 |
Deferred expense |
| 622 |
|
| 517 |
Unrealized foreign currency losses |
| 597 |
|
| 7,958 |
Other assets |
| 6,559 |
|
| 5,885 |
Total deferred tax assets |
| 303,667 |
|
| 430,734 |
|
|
|
|
|
|
Deferred tax liabilities: |
|
|
|
|
|
Net fair value income |
| 277,525 |
|
| 266,850 |
Net unrealized investment gains |
| 84,869 |
|
| 38,074 |
Deferred acquisition costs |
| 79,994 |
|
| 81,931 |
Right of use asset |
| 28,822 |
|
| 31,510 |
Partnership Investments |
| 26,119 |
|
| 15,039 |
Bond market discount |
| 2,257 |
|
| 1,466 |
Benefit plan asset |
| 1,765 |
|
| 2,333 |
Other liabilities |
| 5,056 |
|
| 3,796 |
Total deferred tax liabilities |
| 506,407 |
|
| 440,999 |
|
|
|
|
|
|
Net deferred tax assets/(liabilities) | $ | (202,740) |
| $ | (10,265) |
|
|
|
|
|
|
At December 31, | ||||||||
(Dollars in thousands) | 2017 | 2016 | ||||||
Deferred tax assets: | ||||||||
Unearned premium reserve | $ | 55,034 | $ | 37,573 | ||||
Loss reserve | 52,649 | 104,547 | ||||||
Net unrecognized losses on benefit plans | 19,120 | 35,271 | ||||||
Foreign tax credits | 15,913 | - | ||||||
Benefit plan liability | 10,417 | 14,576 | ||||||
Uncollectible reinsurance reserve | 3,320 | 5,534 | ||||||
Deferred expenses | 1,759 | 2,884 | ||||||
Investment impairments | 1,144 | 3,093 | ||||||
Unrealized foreign currency losses | 547 | 28,111 | ||||||
Other assets | 8,633 | 10,845 | ||||||
Total deferred tax assets | 168,536 | 242,434 | ||||||
Deferred tax liabilities: | ||||||||
Net fair value income | 252,349 | 398,270 | ||||||
Deferred acquisition costs | 64,997 | 26,652 | ||||||
Net unrealized investment gains | 12,819 | 20,626 | ||||||
Gain on tender of debt | 3,287 | 10,958 | ||||||
Partnership Investments | 2,019 | 11,269 | ||||||
Bond market discount | 1,243 | 1,092 | ||||||
Other liabilities | 840 | 2,008 | ||||||
Total deferred tax liabilities | 337,554 | 470,875 | ||||||
Net deferred tax assets/(liabilities) | $ | (169,018 | ) | $ | (228,441 | ) | ||
(Some amounts may not reconcile due to rounding.) |
Due to the passage of the CARES Act in 2020, which allowed for a five-year carryback of NOLs, as of December 31, 2017,2020 the Company no longer has $15,913 thousand FTCs and no AMT credit carry forwards. The FTCs expire ata Consolidated U.S. NOL carryforward. Without the end of 2027. Management believes that it is more likely than not thatConsolidated U.S. NOL carryforward, the Company will realize allwas able to utilize a significant amount of U.S. Foreign Tax Credits (“FTCs”) in both 2019 and 2020. As a result, its deferred tax assets. Accordingly, no valuation allowance has been recordedFTC carryforwards were significantly reduced at December 31, 2020 to only $46,109 thousand. The remaining FTC carryforwards expire between 2025 and 2030.
During 2018, the Company completed its accounting for the periods presented.
Tax effected U.S. Separate Return Limitation Year NOLs of the TCJA on its' deferred tax inventory at December 31, 2017 of $123,143 thousand. Any adjustments, if necessary, during the measurement period guidance outlined$684 thousand begin to expire in SAB 118 will be included in net earnings from continuing operations as an adjustment to income tax expense in the reporting period when such adjustments are determined.
F-40
F-41
effects of restricted stock vestings and stock options exercisedoption exercises resulting from the change in value of share based compensation awards between the grant date and settlement (vesting/exercising) date be recorded as part of income tax expense (benefit) within the consolidated statements of operations and comprehensive income (loss). Per the new guidance, the Company recorded excess tax benefits of $3,308$2,612 thousand, $2,987 thousand and $1,450 thousand related to restricted stock vestings and stock option exercises as part of income tax expense (benefit) within the consolidated statements of operations and comprehensive income (loss) in 2017.
In years prior to 2017, the Company recorded tax benefits related to restricted stock vestings and stock option exercises as part of additional paid-in capital in the stockholder'sstockholder’s equity section of the consolidated balance sheets. In 2016, the Company recorded excess tax benefits of $3,028 thousand related to restricted stock vestings and stock option exercises as part of additional paid-in capital.
The adoption of ASU 2016-09 did not impact the accounting treatment of tax benefits related to dividends on restricted stock. The tax benefits related to the payment of dividends on restricted stock have been recorded as part of additional paid-in capital in the stockholder'sstockholder’s equity section of the consolidated balance sheets in all years. The tax benefits related to the payment of dividends on restricted stock were $287$414 thousand, $363 thousand and $263$241 thousand in 20172020, 2019 and 20162018, respectively.
The Company utilizes reinsurance agreements to reduce its exposure to large claims and catastrophic loss occurrences. These agreements provide for recovery from reinsurers of a portion of losses and LAE under certain circumstances without relieving the Company of its underlying obligations to the policyholders. Losses and LAE incurred and premiums earned are reported after deduction for reinsurance. In the event that one or more of the reinsurers were unable to meet their obligations under these reinsurance agreements, the Company would not realize the full value of the reinsurance recoverable balances. The Company's procedures include carefully selecting its reinsurers, structuring agreements to provide collateral funds where necessary, and regularly monitoring the financial condition and ratings of its reinsurers. Reinsurance receivables include balances due from reinsurance companies and are presented net of an allowance for uncollectible reinsurance. Reinsurance receivables include an estimate of the amount of gross losses and loss adjustment expense reserves that may be ceded under the terms of the reinsurance agreements, including incurred but not reported unpaid losses. The Company’s estimate of losses and loss adjustment expense reserves ceded to reinsurers is based on assumptions that are consistent with those used in establishing the gross reserves for amounts the Company owes to its claimants. The Company estimates its ceded reinsurance receivable based on the terms of any applicable facultative and treaty reinsurance, including an estimate of how incurred but not reported losses will ultimately be ceded under reinsurance agreements. Accordingly, the Company’s estimate of reinsurance receivables is subject to similar risks and uncertainties as the estimate of the gross reserve for unpaid losses and loss adjustment expenses. The Company may hold partial collateral, including letters of credit and funds held, under these agreements. See also Note 1C, Note 43 and Note 8.
Balances are considered past due when amounts that have been billed are not collected within contractually stipulated time periods, generally 30, 60 or 90 days. To manage reinsurer credit risk, a reinsurance security review committee evaluates the credit standing, financial performance, management and operational quality of each potential reinsurer. In placing reinsurance, the Company considers the nature of the risk reinsured, including the expected liability payout duration, and establishes limits tiered by reinsurer credit rating.
Where its contracts permit, the Company secures future claim obligations with various forms of collateral or other credit enhancement, including irrevocable letters of credit, secured trusts, funds held accounts and group wide offsets.
The Company periodically evaluates the recoverability of its reinsurance receivable assets and establishes an allowance for uncollectible reinsurance. The allowance for uncollectible reinsurance reflects management’s best estimate of reinsurance cessions that may be uncollectible in the future due to reinsurers’ unwillingness or inability to pay. The allowance for uncollectible reinsurance comprises an allowance and an allowance for disputed balances. Based on this analysis, the Company may adjust the allowance for uncollectible reinsurance or charge off reinsurer balances that are determined to be uncollectible.
F-42
Due to the inherent uncertainties as to collection and the length of time before reinsurance receivable become due, it is possible that future adjustments to the Company’s reinsurance receivable, net of the allowance, could be required, which could have a material adverse effect on the Company’s consolidated results of operations or cash flows in a particular quarter or annual period.
The allowance is estimated as the amount of reinsurance receivable exposed to loss multiplied by estimated factors for the probability of default. The probability of default is assigned based on each reinsurer's credit rating, or a rating is estimated if no external rating is available. Credit ratings are reviewed and updated at least annually. The probability of default factors are historical insurer and reinsurer defaults for liabilities with similar durations to the reinsured liabilities as estimated through multiple economic cycles. Credit ratings are forward-looking and consider a variety of economic outcomes. The Company's evaluation of the required allowance for reinsurance receivable considers the current economic environment as well as macroeconomic scenarios.
Insurance companies, including reinsurers, are regulated and hold risk-based capital to mitigate the risk of loss due to economic factors and other risks. Non-U.S. reinsurers are either subject to a capital regime substantively equivalent to domestic insurers or we hold collateral to support collection of reinsurance receivable. As a result, there is limited history of losses from insurer defaults.
The Company expects the impact of the COVID-19 pandemic to reinsurers to be somewhat mitigated by their regulated capital and liquidity positions. The ultimate impact to the Company's financial statements could vary significantly from our estimates depending on the duration and severity of the pandemic, the duration and severity of the economic downturn and the degree to which federal, state and local government actions to mitigate the economic impact of COVID-19 are effective.
The Company records credit loss expenses related to reinsurance receivable in losses and loss adjustment expenses. Write-offs of reinsurance receivable and any related allowance are recorded in the period in which the balance is deemed uncollectible. The allowance for the reinsurance receivables is $14,233 thousand and $12,836 thousand as of December 31, 2020 and 2019, respectively.
Premiums written and earned and incurred losses and LAE are comprised of the following for the periods indicated:
| Years Ended December 31, | |||||||
(Dollars in thousands) | 2020 |
| 2019 |
| 2018 | |||
Written premiums: |
|
|
|
|
|
|
|
|
Direct | $ | 2,698,100 |
| $ | 2,449,198 |
| $ | 1,996,606 |
Assumed |
| 5,258,938 |
|
| 4,603,866 |
|
| 4,577,070 |
Ceded |
| (1,318,338) |
|
| (1,278,115) |
|
| (1,541,814) |
Net written premiums | $ | 6,638,700 |
| $ | 5,774,949 |
| $ | 5,031,862 |
|
|
|
|
|
|
|
|
|
Premiums earned: |
|
|
|
|
|
|
|
|
Direct | $ | 2,591,613 |
| $ | 2,255,388 |
| $ | 1,903,576 |
Assumed |
| 5,183,399 |
|
| 4,427,006 |
|
| 4,447,862 |
Ceded |
| (1,368,436) |
|
| (1,193,359) |
|
| (1,512,380) |
Net premiums earned | $ | 6,406,576 |
| $ | 5,489,035 |
| $ | 4,839,058 |
|
|
|
|
|
|
|
|
|
Incurred losses and LAE: |
|
|
|
|
|
|
|
|
Direct | $ | 1,784,616 |
| $ | 1,401,251 |
| $ | 1,182,399 |
Assumed |
| 3,576,252 |
|
| 2,913,987 |
|
| 4,162,776 |
Ceded |
| (752,724) |
|
| (486,116) |
|
| (534,157) |
Net incurred losses and LAE | $ | 4,608,144 |
| $ | 3,829,122 |
| $ | 4,811,018 |
Years Ended December 31, | ||||||||||||
(Dollars in thousands) | 2017 | 2016 | 2015 | |||||||||
Written premiums: | ||||||||||||
Direct | $ | 1,873,115 | $ | 1,699,204 | $ | 1,511,217 | ||||||
Assumed | 3,915,374 | 3,364,524 | 3,484,414 | |||||||||
Ceded | (3,064,645 | ) | (3,015,606 | ) | (2,902,348 | ) | ||||||
Net written premiums | $ | 2,723,844 | $ | 2,048,122 | $ | 2,093,283 | ||||||
Premiums earned: | ||||||||||||
Direct | $ | 1,655,023 | $ | 1,608,783 | $ | 1,439,795 | ||||||
Assumed | 3,842,836 | 3,492,598 | 3,637,484 | |||||||||
Ceded | (3,548,264 | ) | (3,007,332 | ) | (2,933,519 | ) | ||||||
Net premiums earned | $ | 1,949,595 | $ | 2,094,049 | $ | 2,143,760 | ||||||
Incurred losses and LAE: | ||||||||||||
Direct | $ | 1,196,323 | $ | 1,415,933 | $ | 1,235,012 | ||||||
Assumed | 3,108,753 | 1,674,342 | 1,728,661 | |||||||||
Ceded | (2,265,325 | ) | (1,739,995 | ) | (1,644,112 | ) | ||||||
Net incurred losses and LAE | $ | 2,039,751 | $ | 1,350,280 | $ | 1,319,561 |
The Company has engaged in reinsurance transactions with Bermuda Re, Everest International Reinsurance, Ltd. ("(“Everest International"International”), Mt. Logan Re, Ltd. ("Mt. Logan Re"), Everest Insurance Company of Canada ("(“Everest Canada"Canada”) and Lloyd'sLloyd’s Syndicate 2786, which are affiliated companies primarily driven by enterprise risk and capital management considerations under which business is ceded at market rates and terms.
F-43
The table below represents affiliated quota share reinsurance agreements ("whole account quota share") for all new and renewal business for the indicated coverage period:
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Single |
|
|
|
|
|
|
| Percent |
| Assuming |
|
|
| Occurrence |
| Aggregate |
| |
Coverage Period |
| Ceding Company |
| Ceded |
| Company |
| Type of Business |
| Limit |
| Limit |
| |
01/01/2010-12/31/2010 |
| Everest Re |
| 44.0 | % |
| Bermuda Re |
| property / casualty business |
| 150,000 |
| 325,000 |
|
01/01/2011-12/31/2011 |
| Everest Re |
| 50.0 | % |
| Bermuda Re |
| property / casualty business |
| 150,000 |
| 300,000 |
|
01/01/2012-12/31/2014 |
| Everest Re |
| 50.0 | % |
| Bermuda Re |
| property / casualty business |
| 100,000 |
| 200,000 |
|
01/01/2015-12/31/2016 |
| Everest Re |
| 50.0 | % |
| Bermuda Re |
| property / casualty business |
| 162,500 |
| 325,000 |
|
01/01/2017-12/31/2017 |
| Everest Re |
| 60.0 | % |
| Bermuda Re |
| property / casualty business |
| 219,000 |
| 438,000 |
|
01/01/2010-12/31/2010 |
| Everest Re- Canadian Branch |
| 60.0 | % |
| Bermuda Re |
| property business |
| 350,000 | (1) | - |
|
01/01/2011-12/31/2011 |
| Everest Re- Canadian Branch |
| 60.0 | % |
| Bermuda Re |
| property business |
| 350,000 | (1) | - |
|
01/01/2012-12/31/2012 |
| Everest Re- Canadian Branch |
| 75.0 | % |
| Bermuda Re |
| property / casualty business |
| 206,250 | (1) | 412,500 | (1) |
01/01/2013-12/31/2013 |
| Everest Re- Canadian Branch |
| 75.0 | % |
| Bermuda Re |
| property / casualty business |
| 150,000 | (1) | 412,500 | (1) |
01/01/2014-12/31/2017 |
| Everest Re- Canadian Branch |
| 75.0 | % |
| Bermuda Re |
| property / casualty business |
| 262,500 | (1) | 412,500 | (1) |
01/01/2012-12/31/2017 |
| Everest Canada |
| 80.0 | % |
| Everest Re- Canadian Branch |
| property business |
| - |
| - |
|
01/01/2020-01/01/2021 |
| Everest International Assurance |
| 100.0 | % |
| Bermuda Re |
| life business |
| - |
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Amounts shown are Canadian dollars. |
|
(Dollars in thousands) | |||||||||||||
Percent | Assuming | Single | Aggregate | ||||||||||
Coverage Period | Ceding Company | Ceded | Company | Type of Business | Occurrence Limit | Limit | |||||||
01/01/2010-12/31/2010 | Everest Re | 44.0% | Bermuda Re | property / casualty business | 150,000 | 325,000 | |||||||
01/01/2011-12/31/2011 | Everest Re | 50.0% | Bermuda Re | property / casualty business | 150,000 | 300,000 | |||||||
01/01/2012-12/31/2014 | Everest Re | 50.0% | Bermuda Re | property / casualty business | 100,000 | 200,000 | |||||||
01/01/2015-12/31/2016 | Everest Re | 50.0% | Bermuda Re | property / casualty business | 162,500 | 325,000 | |||||||
01/01/2017-12/31/2017 | Everest Re | 60.0% | Bermuda Re | property / casualty business | 219,000 | 438,000 | |||||||
01/01/2010-12/31/2010 | Everest Re- Canadian Branch | 60.0% | Bermuda Re | property business | 350,000 | (1) | - | ||||||
01/01/2011-12/31/2011 | Everest Re- Canadian Branch | 60.0% | Bermuda Re | property business | 350,000 | (1) | - | ||||||
01/01/2012-12/31/2012 | Everest Re- Canadian Branch | 75.0% | Bermuda Re | property / casualty business | 206,250 | (1) | 412,500 | ||||||
01/01/2013-12/31/2013 | Everest Re- Canadian Branch | 75.0% | Bermuda Re | property / casualty business | 150,000 | (1) | 412,500 | ||||||
01/01/2014-12/31/2017 | Everest Re- Canadian Branch | 75.0% | Bermuda Re | property / casualty business | 262,500 | (1) | 412,500 | ||||||
01/01/2012-12/31/2017 | Everest Canada | 80.0% | Everest Re- Canadian Branch | property business | - | - | |||||||
(1) Amounts shown are Canadian dollars. |
Effective January 1, 2018, Everest Re entered into a twelve month whole account aggregate stop loss reinsurance contract (“stop loss agreement”) with Bermuda Re. The stop loss agreement provides coverage for ultimate net losses on applicable net earned premiums above a retention level, subject to certain other coverage limits and conditions. The stop loss agreement has been renewed annually and was most recently renewed effective January 1, 2020.
In addition, Everest Re entered into a property catastrophe excess of loss reinsurance contract with Bermuda Re, effective January 1, 2019. The contract provided $100,000 thousand of reinsurance coverage for property catastrophe losses above certain attachment points. This contract was not renewed and expired as of December 31, 2017, the Company decided not to renew its quota share reinsurance agreements between Everest Re and Bermuda Re, between Everest Re-Canadian branch and Bermuda Re and between Everest Canada and the Everest Re-Canadian branch due to economic implications of the enactment of TCJA on December 22, 2017.
The table below represents loss portfolio transfer ("LPT"(“LPT”) reinsurance agreements whereby net insurance exposures and reserves were transferred to an affiliate.
(Dollars in thousands) | |||||||||||
Effective |
| Transferring |
| Assuming |
|
| % of Business or |
|
| Covered Period | |
Date |
| Company |
| Company |
|
| Amount of Transfer |
|
| of Transfer | |
10/01/2001 |
| Everest Re (Belgium Branch) |
| Bermuda Re |
|
| 100 | % |
|
| All years |
10/01/2008 |
| Everest Re |
| Bermuda Re |
| $ | 747,022 |
|
|
| 01/01/2002-12/31/2007 |
12/31/2017 |
| Everest Re |
| Bermuda Re |
| $ | 970,000 |
|
|
| All years |
(Dollars in thousands) | ||||||||||
Effective | Transferring | Assuming | % of Business or | Covered Period | ||||||
Date | Company | Company | Amount of Transfer | of Transfer | ||||||
09/19/2000 | Mt. McKinley | Bermuda Re | 100 | % | All years | |||||
10/01/2001 | Everest Re (Belgium Branch) | Bermuda Re | 100 | % | All years | |||||
10/01/2008 | Everest Re | Bermuda Re | $ | 747,022 | 01/01/2002-12/31/2007 | |||||
12/31/2017 | Everest Re | Bermuda Re | $ | 970,000 | All years |
On December 31, 2017, the Company entered into a LPT agreement with Bermuda Re. The LPT agreement covers subject loss reserves of $3,070,383$2,336,242 thousand for accident years 2017 and prior. As a result of the LPT agreement, the Company transferred $1,000,000$1,000,000 thousand of cash and fixed maturity securities and transferred $970,000$970,000 thousand of loss reserves to Bermuda Re. As part of the LPT agreement, Bermuda Re will provide an additional $500,000$500,000 thousand of adverse development coverage on the subject loss reserves.
The following tables summarize the premiums and losses ceded by the Company to Bermuda Re and Everest International, respectively, and premiums and losses assumed by the Company from Everest Canada and Lloyd'sLloyd’s syndicate 2786 for the periods indicated:
|
| |||||||
Bermuda Re | Years Ended December 31, | |||||||
(Dollars in thousands) | 2020 |
| 2019 |
| 2018 | |||
Ceded written premiums | $ | 131,341 |
| $ | 100,084 |
| $ | 572,620 |
Ceded earned premiums |
| 131,574 |
|
| 101,681 |
|
| 586,120 |
Ceded losses and LAE |
| 108,477 |
|
| (51,686) |
|
| (49,955) |
F-44
|
| |||||||
Everest International | Years Ended December 31, | |||||||
(Dollars in thousands) | 2020 |
| 2019 |
| 2018 | |||
Ceded written premiums | $ | - |
| $ | - |
| $ | - |
Ceded earned premiums |
| - |
|
| - |
|
| - |
Ceded losses and LAE |
| (503) |
|
| 324 |
|
| (753) |
|
| |||||||
Everest Canada | Years Ended December 31, | |||||||
(Dollars in thousands) | 2020 |
| 2019 |
| 2018 | |||
Assumed written premiums | $ | 1 |
| $ | - |
| $ | - |
Assumed earned premiums |
| (7) |
|
| - |
|
| - |
Assumed losses and LAE |
| (2,102) |
|
| 3,024 |
|
| 6,238 |
Bermuda Re | Years Ended December 31, | |||||||||||
(Dollars in thousands) | 2017 | 2016 | 2015 | |||||||||
Ceded written premiums | $ | 2,219,352 | $ | 2,324,314 | $ | 2,283,815 | ||||||
Ceded earned premiums | 2,796,939 | 2,353,801 | 2,316,096 | |||||||||
Ceded losses and LAE (a) | 1,687,659 | 1,307,722 | 1,293,997 |
|
| |||||||
Lloyd's Syndicate 2786 | Years Ended December 31, | |||||||
(Dollars in thousands) | 2020 |
| 2019 |
| 2018 | |||
Assumed written premiums | $ | (3,592) |
| $ | (11,470) |
| $ | 10,800 |
Assumed earned premiums |
| (3,375) |
|
| (18,650) |
|
| 35,826 |
Assumed losses and LAE |
| (2,636) |
|
| 8,355 |
|
| 27,550 |
Everest International | Years Ended December 31, | |||||||||||
(Dollars in thousands) | 2017 | 2016 | 2015 | |||||||||
Ceded written premiums | $ | 10 | $ | 98 | $ | 395 | ||||||
Ceded earned premiums | 44 | 110 | 522 | |||||||||
Ceded losses and LAE | (990 | ) | 3,467 | 673 |
Everest Canada | Years Ended December 31, | |||||||||||
(Dollars in thousands) | 2017 | 2016 | 2015 | |||||||||
Assumed written premiums | $ | 25,871 | $ | 53,653 | $ | 39,819 | ||||||
Assumed earned premiums | 54,558 | 49,156 | 35,988 | |||||||||
Assumed losses and LAE | 29,389 | 38,568 | 20,345 |
Lloyd's Syndicate 2786 | Years Ended December 31, | |||||||||||
(Dollars in thousands) | 2017 | 2016 | 2015 | |||||||||
Assumed written premiums | $ | 35,607 | $ | 18,994 | $ | - | ||||||
Assumed earned premiums | 33,590 | 5,038 | - | |||||||||
Assumed losses and LAE | 17,688 | 4,938 | - |
In 2013, Group established a new subsidiary, Mt. Logan Re, which is a Class 3 insurer based in Bermuda. Effective July 1, 2013, Mt. Logan Re then established separate segregated accounts for its business activity, which will invest in a diversified set of catastrophe exposures.
The following table summarizes the premiums and losses that are ceded by the Company to Mt. Logan Re segregated accounts and assumed by the Company from Mt. Logan Re segregated accounts.
|
| |||||||
Mt. Logan Re Segregated Accounts | Years Ended December 31, | |||||||
(Dollars in thousands) | 2020 |
| 2019 |
| 2018 | |||
Ceded written premiums | $ | 263,487 |
| $ | 240,721 |
| $ | 207,439 |
Ceded earned premiums |
| 265,381 |
|
| 235,500 |
|
| 212,046 |
Ceded losses and LAE |
| 175,087 |
|
| 171,900 |
|
| 234,471 |
Assumed written premiums |
| - |
|
| - |
|
| 10,582 |
Assumed earned premiums |
| - |
|
| - |
|
| 10,582 |
Assumed losses and LAE |
| - |
|
| - |
|
| - |
Mt. Logan Re Segregated Accounts | Years Ended December 31, | |||||||||||
(Dollars in thousands) | 2017 | 2016 | 2015 | |||||||||
Ceded written premiums | $ | 192,928 | $ | 160,091 | $ | 209,162 | ||||||
Ceded earned premiums | 192,573 | 155,010 | 201,416 | |||||||||
Ceded losses and LAE | 283,511 | 38,739 | 40,753 | |||||||||
Assumed written premiums | 11,984 | 14,563 | 15,421 | |||||||||
Assumed earned premiums | 11,984 | 14,563 | 15,421 | |||||||||
Assumed losses and LAE | - | - | - |
The following table presentstables present the components of comprehensive income (loss) in the consolidated statements of operations and comprehensive income (loss) for the periods indicated:
| Year Ended |
| Year Ended |
| Year Ended | |||||||||||||||||||||
(Dollars in thousands) | December 31, 2020 |
| December 31, 2019 |
| December 31, 2018 | |||||||||||||||||||||
| Before Tax |
| Tax Effect |
| Net of Tax |
| Before Tax |
| Tax Effect |
| Net of Tax |
| Before Tax |
| Tax Effect |
| Net of Tax | |||||||||
Unrealized appreciation (depreciation) ("URA(D)") on securities - temporary | $ | 206,159 |
|
| (43,078) |
| $ | 163,080 |
| $ | 222,884 |
|
| (46,971) |
| $ | 175,913 |
| $ | (119,058) |
| $ | 25,582 |
| $ | (93,476) |
URA(D) on securities - OTTI |
| - |
|
| - |
|
| - |
|
| (546) |
|
| 115 |
|
| (431) |
|
| 645 |
|
| (135) |
|
| 510 |
Reclassification of net realized losses (gains) included in net income (loss) |
| 32,475 |
|
| (7,007) |
|
| 25,468 |
|
| 6,068 |
|
| (988) |
|
| 5,080 |
|
| 3,416 |
|
| (1,395) |
|
| 2,021 |
Foreign currency translation adjustments |
| 18,277 |
|
| (3,815) |
|
| 14,461 |
|
| 21,708 |
|
| (4,555) |
|
| 17,153 |
|
| (46,136) |
|
| 9,705 |
|
| (36,431) |
Benefit plan actuarial net gain (loss) |
| (7,107) |
|
| 1,492 |
|
| (5,615) |
|
| (15,938) |
|
| 3,347 |
|
| (12,591) |
|
| (646) |
|
| 136 |
|
| (510) |
Reclassification of amortization of net gain (loss) included in net income (loss) |
| 7,974 |
|
| (1,674) |
|
| 6,300 |
|
| 6,902 |
|
| (1,449) |
|
| 5,453 |
|
| 6,356 |
|
| (1,335) |
|
| 5,021 |
Total other comprehensive income (loss) | $ | 257,778 |
| $ | (54,082) |
| $ | 203,694 |
| $ | 241,078 |
| $ | (50,501) |
| $ | 190,577 |
| $ | (155,423) |
| $ | 32,558 |
| $ | (122,865) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Some amounts may not reconcile due to rounding) |
F-45
Years Ended December 31, | ||||||||||||||||||||||||||||||||||||
2017 | 2016 | 2015 | ||||||||||||||||||||||||||||||||||
(Dollars in thousands) | Before Tax | Tax Effect | Net of Tax | Before Tax | Tax Effect | Net of Tax | Before Tax | Tax Effect | Net of Tax | |||||||||||||||||||||||||||
Unrealized appreciation (depreciation) ("URA(D)") on securities - temporary | $ | (11,672 | ) | $ | 4,085 | $ | (7,587 | ) | $ | 1,302 | $ | (512 | ) | $ | 790 | $ | (43,777 | ) | $ | 14,337 | $ | (29,440 | ) | |||||||||||||
URA(D) on securities - OTTI | (4,537 | ) | 1,588 | (2,949 | ) | 5,113 | (1,789 | ) | 3,324 | 9,666 | (3,383 | ) | 6,283 | |||||||||||||||||||||||
Reclassification of net realized losses (gains) included in net income (loss) | 3,543 | (1,240 | ) | 2,303 | 32,642 | (11,369 | ) | 21,273 | (2,772 | ) | 1,955 | (817 | ) | |||||||||||||||||||||||
Foreign currency translation adjustments | 57,564 | (20,137 | ) | 37,427 | 4,388 | (1,539 | ) | 2,849 | (83,966 | ) | 29,388 | (54,578 | ) | |||||||||||||||||||||||
Benefit plan actuarial net gain (loss) | 1,300 | (273 | ) | 1,027 | (11,520 | ) | 4,032 | (7,488 | ) | 8,740 | (3,059 | ) | 5,681 | |||||||||||||||||||||||
Reclassification of amortization of net gain (loss) included in net income (loss) | 8,426 | (2,949 | ) | 5,477 | 7,805 | (2,732 | ) | 5,073 | 9,563 | (3,347 | ) | 6,216 | ||||||||||||||||||||||||
Total other comprehensive income (loss) | $ | 54,624 | $ | (18,926 | ) | $ | 35,698 | $ | 39,730 | $ | (13,909 | ) | $ | 25,821 | $ | (102,546 | ) | $ | 35,891 | $ | (66,655 | ) | ||||||||||||||
(Some amounts may not reconcile due to rounding) |
The following table presents details of the amounts reclassified from AOCI for the periods indicated:
|
|
| Affected line item within the | ||||
| Years Ended December 31, |
| statements of operations and | ||||
AOCI component | 2020 |
| 2019 |
| comprehensive income (loss) | ||
(Dollars in thousands) |
|
|
|
|
|
|
|
URA(D) on securities | $ | 32,475 |
| $ | 6,068 |
| Other net realized capital gains (losses) |
|
| (7,007) |
|
| (988) |
| Income tax expense (benefit) |
| $ | 25,468 |
| $ | 5,080 |
| Net income (loss) |
Benefit plan net gain (loss) | $ | 7,974 |
| $ | 6,902 |
| Other underwriting expenses |
|
| (1,674) |
|
| (1,449) |
| Income tax expense (benefit) |
| $ | 6,300 |
| $ | 5,453 |
| Net income (loss) |
|
|
|
|
|
|
|
|
(Some amounts may not reconcile due to rounding) |
Years Ended December 31, | Affected line item within the statements of | |||||||||
AOCI component | 2017 | 2016 | operations and comprehensive income (loss) | |||||||
(Dollars in thousands) | ||||||||||
URA(D) on securities | $ | 3,543 | $ | 32,642 | Other net realized capital gains (losses) | |||||
(1,240 | ) | (11,369 | ) | Income tax expense (benefit) | ||||||
$ | 2,303 | $ | 21,273 | Net income (loss) | ||||||
Benefit plan net gain (loss) | $ | 8,426 | $ | 7,805 | Other underwriting expenses | |||||
(2,949 | ) | (2,732 | ) | Income tax expense (benefit) | ||||||
$ | 5,477 | $ | 5,073 | Net income (loss) | ||||||
(Some amounts may not reconcile due to rounding) |
The following table presents the components of accumulated other comprehensive income (loss), net of tax, in the consolidated balance sheets for the periods indicated:
| Years Ended December 31, | ||||
(Dollars in thousands) | 2020 |
| 2019 | ||
Beginning balance of URA (D) on securities | $ | 124,612 |
| $ | (55,950) |
Current period change in URA (D) of investments - temporary |
| 188,548 |
|
| 180,993 |
Current period change in URA (D) of investments - non-credit OTTI |
| - |
|
| (431) |
Ending balance of URA (D) on securities |
| 313,161 |
|
| 124,612 |
Beginning balance of foreign currency translation adjustments |
| 14,267 |
|
| (2,886) |
Current period change in foreign currency translation adjustments |
| 14,461 |
|
| 17,153 |
Ending balance of foreign currency translation adjustments |
| 28,727 |
|
| 14,267 |
Beginning balance of benefit plan net gain (loss) |
| (74,556) |
|
| (67,418) |
Current period change in benefit plan net gain (loss) |
| 685 |
|
| (7,138) |
Ending balance of benefit plan net gain (loss) |
| (73,870) |
|
| (74,556) |
Ending balance of accumulated other comprehensive income (loss) | $ | 268,018 |
| $ | 64,324 |
Years Ended December 31, | ||||||||
(Dollars in thousands) | 2017 | 2016 | ||||||
Beginning balance of URA (D) on securities | $ | 39,041 | $ | 13,654 | ||||
Current period change in URA (D) of investments - temporary | (5,284 | ) | 22,063 | |||||
Current period change in URA (D) of investments - non-credit OTTI | (2,949 | ) | 3,324 | |||||
Reclass due to early adoption of ASU 2018-02 | 6,634 | - | ||||||
Ending balance of URA (D) on securities | 37,442 | 39,041 | ||||||
Beginning balance of foreign currency translation adjustments | (9,852 | ) | (12,701 | ) | ||||
Current period change in foreign currency translation adjustments | 37,427 | 2,849 | ||||||
Reclass due to early adoption of ASU 2018-02 | 5,970 | - | ||||||
Ending balance of foreign currency translation adjustments | 33,545 | (9,852 | ) | |||||
Beginning balance of benefit plan net gain (loss) | (65,504 | ) | (63,089 | ) | ||||
Current period change in benefit plan net gain (loss) | 6,504 | (2,415 | ) | |||||
Reclass due to early adoption of ASU 2018-02 | (12,929 | ) | - | |||||
Ending balance of benefit plan net gain (loss) | (71,929 | ) | (65,504 | ) | ||||
Ending balance of accumulated other comprehensive income (loss) | $ | (942 | ) | $ | (36,315 | ) |
Defined Benefit Pension Plans.
The Company maintains both qualified and non-qualified defined benefit pension plans for its U.S. employees employed prior to April 1, 2010. Generally, the Company computes the benefits based on average earnings over a period prescribed by the plans and credited length of service. The Company'sCompany’s non-qualified defined benefit pension plan effective from October 1995 through December 31, 2017, provided compensating pension benefits for participants whose benefits have been curtailed under the qualified plan due to Internal Revenue Code limitations.
Although not required to make contributions under IRS regulations, the following table summarizes the Company'sCompany’s contributions to the defined benefit pension plans for the periods indicated:
F-46
| Years Ended December 31, | |||||||
(Dollars in thousands) | 2020 |
| 2019 |
| 2018 | |||
Company contributions | $ | 6,825 |
| $ | 4,750 |
| $ | 77,743 |
Years Ended December 31, | ||||||||||||
(Dollars in thousands) | 2017 | 2016 | 2015 | |||||||||
Company contributions | $ | 10,534 | $ | 30,821 | $ | 5,949 |
The following table summarizes the Company'sCompany’s pension expense for the periods indicated:
| Years Ended December 31, | |||||||
(Dollars in thousands) | 2020 |
| 2019 |
| 2018 | |||
Pension expense | $ | 8,429 |
| $ | 10,042 |
| $ | 9,728 |
Years Ended December 31, | ||||||||||||
(Dollars in thousands) | 2017 | 2016 | 2015 | |||||||||
Pension expense | $ | 16,299 | $ | 17,188 | $ | 22,682 |
The following table summarizes the status of these defined benefit plans for U.S. employees for the periods indicated:
| Years Ended December 31, | ||||
(Dollars in thousands) | 2020 |
| 2019 | ||
Change in projected benefit obligation: |
|
|
|
|
|
Benefit obligation at beginning of year | $ | 355,356 |
| $ | 300,244 |
Service cost |
| 9,522 |
|
| 8,255 |
Interest cost |
| 10,112 |
|
| 11,712 |
Actuarial (gain)/loss |
| 43,595 |
|
| 46,206 |
Curtailment |
| - |
|
| - |
Benefits paid |
| (14,115) |
|
| (11,062) |
Projected benefit obligation at end of year |
| 404,471 |
|
| 355,356 |
|
|
|
|
|
|
Change in plan assets: |
|
|
|
|
|
Fair value of plan assets at beginning of year |
| 301,467 |
|
| 260,531 |
Actual return on plan assets |
| 60,286 |
|
| 47,247 |
Actual contributions during the year |
| 6,825 |
|
| 4,750 |
Benefits paid |
| (14,115) |
|
| (11,062) |
Fair value of plan assets at end of year |
| 354,464 |
|
| 301,467 |
|
|
|
|
|
|
Funded status at end of year | $ | (50,007) |
| $ | (53,889) |
|
|
|
|
|
|
(Some amounts may not reconcile due to rounding.) |
Years Ended December 31, | ||||||||
(Dollars in thousands) | 2017 | 2016 | ||||||
Change in projected benefit obligation: | ||||||||
Benefit obligation at beginning of year | $ | 281,853 | $ | 254,022 | ||||
Service cost | 10,949 | 10,924 | ||||||
Interest cost | 10,034 | 9,485 | ||||||
Actuarial (gain)/loss | 24,679 | 12,155 | ||||||
Curtailment | (6,209 | ) | - | |||||
Benefits paid | (5,104 | ) | (4,733 | ) | ||||
Projected benefit obligation at end of year | 316,202 | 281,853 | ||||||
Change in plan assets: | ||||||||
Fair value of plan assets at beginning of year | 171,506 | 135,087 | ||||||
Actual return on plan assets | 33,331 | 10,331 | ||||||
Actual contributions during the year | 10,534 | 30,821 | ||||||
Benefits paid | (5,104 | ) | (4,733 | ) | ||||
Fair value of plan assets at end of year | 210,267 | 171,506 | ||||||
Funded status at end of year | $ | (105,935 | ) | $ | (110,348 | ) | ||
(Some amounts may not reconcile due to rounding.) |
Amounts recognized in the consolidated balance sheets for the periods indicated:
F-47
At December 31, | ||||||||
(Dollars in thousands) | 2017 | 2016 | ||||||
Other assets (due beyond one year) | $ | - | $ | - | ||||
Other liabilities (due within one year) | (3,871 | ) | (2,371 | ) | ||||
Other liabilities (due beyond one year) | (102,065 | ) | (107,977 | ) | ||||
Net amount recognized in the consolidated balance sheets | $ | (105,935 | ) | $ | (110,348 | ) |
| At December 31, | ||||
(Dollars in thousands) | 2020 |
| 2019 | ||
Other assets (due beyond one year) | $ | - |
| $ | - |
Other liabilities (due within one year) |
| (2,197) |
|
| (7,362) |
Other liabilities (due beyond one year) |
| (47,810) |
|
| (46,527) |
Net amount recognized in the consolidated balance sheets | $ | (50,007) |
| $ | (53,889) |
| At December 31, | ||||
(Dollars in thousands) | 2020 |
| 2019 | ||
Accumulated income (loss) | $ | (91,979) |
| $ | (97,466) |
Accumulated other comprehensive income (loss) | $ | (91,979) |
| $ | (97,466) |
|
|
|
|
|
|
(Some amounts may not reconcile due to rounding.) |
At December 31, | ||||||||
(Dollars in thousands) | 2017 | 2016 | ||||||
Prior service cost | $ | - | $ | - | ||||
Accumulated income (loss) | (86,788 | ) | (96,965 | ) | ||||
Accumulated other comprehensive income (loss) | $ | (86,788 | ) | $ | (96,965 | ) | ||
(Some amounts may not reconcile due to rounding.) |
Other changes in other comprehensive income (loss) for the periods indicated are as follows:
| Years Ended December 31, | ||||
(Dollars in thousands) | 2020 |
| 2019 | ||
Other comprehensive income (loss) at December 31, prior year | $ | (97,466) |
| $ | (88,580) |
Net gain (loss) arising during period |
| (4,090) |
|
| (16,927) |
Recognition of amortizations in net periodic benefit cost: |
|
|
|
|
|
Actuarial loss |
| 9,576 |
|
| 8,042 |
Curtailment loss recognized |
| - |
|
| - |
Other comprehensive income (loss) at December 31, current year | $ | (91,979) |
| $ | (97,466) |
|
|
|
|
|
|
(Some amounts may not reconcile due to rounding.) |
Years Ended December 31, | ||||||||
(Dollars in thousands) | 2017 | 2016 | ||||||
Other comprehensive income (loss) at December 31, prior year | $ | (96,965 | ) | $ | (91,920 | ) | ||
Net gain (loss) arising during period | (4,398 | ) | (12,982 | ) | ||||
Recognition of amortizations in net periodic benefit cost: | ||||||||
Prior service cost | - | - | ||||||
Actuarial loss | 8,366 | 7,937 | ||||||
Curtailment loss recognized | 6,209 | - | ||||||
Other comprehensive income (loss) at December 31, current year | $ | (86,788 | ) | $ | (96,965 | ) | ||
(Some amounts may not reconcile due to rounding.) |
Net periodic benefit cost for U.S. employees included the following components for the periods indicated:
F-48
| Years Ended December 31, | |||||||
(Dollars in thousands) | 2020 |
| 2019 |
| 2018 | |||
Service cost | $ | 9,522 |
| $ | 8,255 |
| $ | 9,801 |
Interest cost |
| 10,112 |
|
| 11,712 |
|
| 10,290 |
Expected return on assets |
| (20,781) |
|
| (17,968) |
|
| (17,202) |
Amortization of actuarial loss from earlier periods |
| 8,551 |
|
| 7,635 |
|
| 6,839 |
Settlement |
| 1,025 |
|
| 408 |
|
| - |
Net periodic benefit cost | $ | 8,429 |
| $ | 10,042 |
| $ | 9,728 |
|
|
|
|
|
|
|
|
|
Other changes recognized in other comprehensive income (loss): |
|
|
|
|
|
|
|
|
Other comprehensive income (loss) attributable to change from prior year |
| (5,486) |
|
| 8,885 |
|
|
|
|
|
|
|
|
|
|
|
|
Total recognized in net periodic benefit cost and other |
|
|
|
|
|
|
|
|
comprehensive income (loss) | $ | 2,943 |
| $ | 18,927 |
|
|
|
|
|
|
|
|
|
|
|
|
(Some amounts may not reconcile due to rounding.) |
Years Ended December 31, | ||||||||||||
(Dollars in thousands) | 2017 | 2016 | 2015 | |||||||||
Service cost | 10,949 | $ | 10,924 | $ | 12,511 | |||||||
Interest cost | 10,034 | 9,485 | 10,759 | |||||||||
Expected return on assets | (13,050 | ) | (11,158 | ) | (11,620 | ) | ||||||
Amortization of actuarial loss from earlier periods | 8,366 | 7,937 | 9,243 | |||||||||
Amortization of unrecognized prior service cost | - | - | 21 | |||||||||
Settlement | - | - | 1,768 | |||||||||
Net periodic benefit cost | $ | 16,299 | $ | 17,188 | $ | 22,682 | ||||||
Other changes recognized in other comprehensive income (loss): | ||||||||||||
Other comprehensive income (loss) attributable to change from prior year | (10,177 | ) | 5,045 | |||||||||
Total recognized in net periodic benefit cost and other | ||||||||||||
comprehensive income (loss) | $ | 6,122 | $ | 22,233 | ||||||||
(Some amounts may not reconcile due to rounding.) |
The estimated transition obligation, actuarial loss and prior service cost that will be amortized from accumulated other comprehensive income into net periodic benefit cost over the next year are $0$0 thousand, $6,899$7,709 thousand and $0$0 thousand, respectively.
The weighted average discount rates used to determine net periodic benefit cost for 2017, 20162020, 2019 and 20152018 were 4.16%3.28%, 4.38%4.27% and 4.00%3.62%, respectively. The rate of compensation increase used to determine the net periodic benefit cost for 2017, 20162020, 2019 and 20152018 was 4.00%4.00%. The expected long-term rate of return on plan assets was 7.00% for 2017, 20162020, 2019 and 2015 was 7.50% and was2018 based on expected portfolio returns and allocations.
The weighted average discount rates used to determine the actuarial present value of the projected benefit obligation for years end 2017, 20162020, 2019 and 20152018 were 3.62%2.55%, 4.16%3.28% and 4.38%4.27%, respectively.
The following table summarizes the accumulated benefit obligation for the periods indicated:
| At December 31, | ||||
(Dollars in thousands) | 2020 |
| 2019 | ||
Qualified Plan | $ | 336,027 |
| $ | 288,328 |
Non-qualified Plan |
| 16,258 |
|
| 21,642 |
Total | $ | 352,285 |
| $ | 309,970 |
|
|
|
|
|
|
(Some amounts may not reconcile due to rounding.) |
At December 31, | ||||||||
(Dollars in thousands) | 2017 | 2016 | ||||||
Qualified Plan | $ | 245,430 | $ | 211,720 | ||||
Non-qualified Plan | 24,482 | 21,123 | ||||||
Total | $ | 269,912 | $ | 232,843 | ||||
(Some amounts may not reconcile due to rounding.) |
The following table displays the plans with projected benefit obligations in excess of plan assets for the periods indicated:
F-49
| At December 31, | ||||
(Dollars in thousands) | 2020 |
| 2019 | ||
Qualified Plan |
|
|
|
|
|
Projected benefit obligation | $ | 388,213 |
| $ | 333,715 |
Fair value of plan assets |
| 354,464 |
|
| 301,467 |
Non-qualified Plan |
|
|
|
|
|
Projected benefit obligation | $ | 16,258 |
| $ | 21,642 |
Fair value of plan assets |
| - |
|
| - |
At December 31, | ||||||||
(Dollars in thousands) | 2017 | 2016 | ||||||
Qualified Plan | ||||||||
Projected benefit obligation | $ | 291,720 | $ | 254,320 | ||||
Fair value of plan assets | 210,267 | 171,506 | ||||||
Non-qualified Plan | ||||||||
Projected benefit obligation | $ | 24,482 | $ | 27,534 | ||||
Fair value of plan assets | - | - |
The following table displays the plans with accumulated benefit obligations in excess of plan assets for the periods indicated:
| At December 31, | ||||
(Dollars in thousands) | 2020 |
| 2019 | ||
Qualified Plan |
|
|
|
|
|
Accumulated benefit obligation | $ | - |
| $ | - |
Fair value of plan assets |
| - |
|
| - |
Non-qualified Plan |
|
|
|
|
|
Accumulated benefit obligation | $ | 16,258 |
| $ | 21,642 |
Fair value of plan assets |
| - |
|
| - |
At December 31, | ||||||||
(Dollars in thousands) | 2017 | 2016 | ||||||
Qualified Plan | ||||||||
Accumulated benefit obligation | $ | 245,430 | $ | 211,720 | ||||
Fair value of plan assets | 210,267 | 171,506 | ||||||
Non-qualified Plan | ||||||||
Accumulated benefit obligation | $ | 24,482 | $ | 21,123 | ||||
Fair value of plan assets | - | - | ||||||
(N/A, not applicable) |
The following table displays the expected benefit payments in the periods indicated:
(Dollars in thousands) |
| |
2021 | $ | 11,757 |
2022 |
| 12,220 |
2023 |
| 13,064 |
2024 |
| 14,100 |
2025 |
| 15,190 |
Next 5 years |
| 90,808 |
(Dollars in thousands) | |||
2018 | $ | 10,205 | |
2019 | 10,288 | ||
2020 | 12,452 | ||
2021 | 12,331 | ||
2022 | 12,132 | ||
Next 5 years | 74,239 |
Plan assets consist of shares in investment trusts with 76%72%, 12%27%, 11%1% and 1%0% of the underlying assets consisting of equity securities, fixed maturities, limited partnerships and multi-strategy equity fund, fixed maturitiesfunds and cash, respectively. The Company manages the qualified plan investments for U.S. employees. The assets in the plan consist of debt and equity mutual funds. Due to the long term nature of the plan, the target asset allocation has historically been 70%70% equities and 30%30% bonds.
The following tables present the fair value measurement levels for the qualified plan assets at fair value for the periods indicated:
F-50
|
|
| Fair Value Measurement Using: | ||||||||
|
|
| Quoted Prices |
|
|
|
| ||||
|
|
| in Active |
| Significant |
|
| ||||
|
|
| Markets for |
| Other |
| Significant | ||||
|
|
| Identical |
| Observable |
| Unobservable | ||||
| December 31, |
| Assets |
| Inputs |
| Inputs | ||||
(Dollars in thousands) | 2020 |
| (Level 1) |
| (Level 2) |
| (Level 3) | ||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
Short-term investments, which approximates fair value (a) | $ | 1,204 |
| $ | 1,204 |
| $ | - |
| $ | - |
Mutual funds, fair value |
|
|
|
|
|
|
|
|
|
|
|
Fixed income (b) |
| 93,609 |
|
| 93,609 |
|
| - |
|
| - |
Equities (c) |
| 255,054 |
|
| 255,054 |
|
| - |
|
| - |
Total | $ | 349,867 |
| $ | 349,867 |
| $ | - |
| $ | - |
|
|
|
|
|
|
|
|
|
|
|
|
(Some amounts may not reconcile due to rounding.) |
Fair Value Measurement Using: | ||||||||||||||||
Quoted Prices | ||||||||||||||||
in Active | Significant | |||||||||||||||
Markets for | Other | Significant | ||||||||||||||
Identical | Observable | Unobservable | ||||||||||||||
Assets | Inputs | Inputs | ||||||||||||||
(Dollars in thousands) | December 31, 2017 | (Level 1) | (Level 2) | (Level 3) | ||||||||||||
Assets: | ||||||||||||||||
Short-term investments, which approximates fair value (a) | $ | 1,031 | $ | 1,031 | $ | - | $ | - | ||||||||
Mutual funds, fair value | ||||||||||||||||
Fixed income (b) | 23,361 | 23,361 | - | - | ||||||||||||
Equities (c) | 159,578 | 159,578 | - | - | ||||||||||||
Total | $ | 183,970 | $ | 183,970 | $ | - | $ | - | ||||||||
(Some amounts may not reconcile due to rounding.) |
(a) This category includes high quality, short-term money market instruments, which are issued and payable in U.S. dollars.
(b) This category includes fixed income funds, which invest in investment grade securities of corporations, governments and government agencies with approximately 70% in U.S. securities and 30% in international securities.
(c) This category includes funds, which invest in small, mid and multi-cap equity securities including common stocks, securities convertible into common stock and securities with common stock characteristics, such as rights and warrants, with approximately 50% in U.S. equities and 50% in international equities.
There were no transfers between Level 1 and Level 2 for the twelve months ended December 31, 2017.2020.
|
|
| Fair Value Measurement Using: | ||||||||
|
|
| Quoted Prices |
|
|
|
| ||||
|
|
| in Active |
| Significant |
|
| ||||
|
|
| Markets for |
| Other |
| Significant | ||||
|
|
| Identical |
| Observable |
| Unobservable | ||||
| December 31, |
| Assets |
| Inputs |
| Inputs | ||||
(Dollars in thousands) | 2019 |
| (Level 1) |
| (Level 2) |
| (Level 3) | ||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
Short-term investments, which approximates fair value (a) | $ | 1,749 |
| $ | 1,749 |
| $ | - |
| $ | - |
Mutual funds, fair value |
|
|
|
|
|
|
|
|
|
|
|
Fixed income (b) |
| 90,483 |
|
| 90,483 |
|
| - |
|
| - |
Equities (c) |
| 188,884 |
|
| 188,884 |
|
| - |
|
| - |
Total | $ | 281,116 |
| $ | 281,116 |
| $ | - |
| $ | - |
|
|
|
|
|
|
|
|
|
|
|
|
(Some amounts may not reconcile due to rounding.) |
(a) This category includes high quality, short-term money market instruments, which are issued and payable in U.S. dollars.
(b) This category includes fixed income funds, which invest in investment grade securities of corporations, governments and government agencies with approximately 50% in U.S. securities and 50% in international securities.
(c) This category includes funds, which invest in small, mid and multi-cap equity securities including common stocks, securities convertible into common stock and securities with common stock characteristics, such as rights and warrants, with approximately 50% in U.S. equities and 50% in international equities.
F-51
Fair Value Measurement Using: | ||||||||||||||||
Quoted Prices | ||||||||||||||||
in Active | Significant | |||||||||||||||
Markets for | Other | Significant | ||||||||||||||
Identical | Observable | Unobservable | ||||||||||||||
Assets | Inputs | Inputs | ||||||||||||||
(Dollars in thousands) | December 31, 2016 | (Level 1) | (Level 2) | (Level 3) | ||||||||||||
Assets: | ||||||||||||||||
Short-term investments, which approximates fair value (a) | $ | 3,665 | $ | 3,665 | $ | - | $ | - | ||||||||
Mutual funds, fair value | ||||||||||||||||
Fixed income (b) | 21,445 | 21,445 | - | - | ||||||||||||
Equities (c) | 122,213 | 122,213 | - | - | ||||||||||||
Total | $ | 147,323 | $ | 147,323 | $ | - | $ | - | ||||||||
(Some amounts may not reconcile due to rounding.) |
In addition, $26,297$4,596 thousand and $24,183$20,351 thousand of investments which were recorded as part of the qualified plan assets at December 31, 20172020 and 2016,2019, respectively, are not included within the fair value hierarchy tables as the assets are valued using the NAV practical expedient guidance within ASU 2015-07.
The Company contributed $10,000 thousand and $30,000$0 thousand to the qualified pension benefit plan infor the years ended December 31, 20172020 and 2016, respectively.
F-48
The Company also maintains both qualified and non-qualified defined contribution plans ("(“Savings Plan"Plan” and "Non-Qualified“Non-Qualified Savings Plan"Plan”, respectively) covering U.S. employees. Under the plans, the Company contributes up to a maximum 3%3% of the participants'participants’ compensation based on the contribution percentage of the employee. The Non-Qualified Savings Plan provides compensating savings plan benefits for participants whose benefits have been curtailed under the Savings Plan due to Internal Revenue Code limitations. In addition, effective for new hires (and rehires) on or after April 1, 2010, the Company will contribute between 3%3% and 8%8% of an employee'semployee’s earnings for each payroll period based on the employee'semployee’s age. These contributions will be 100%100% vested after three years.
The following table presents the Company'sCompany’s incurred expenses related to these plans for the periods indicated:
| Years Ended December 31, | |||||||
(Dollars in thousands) | 2020 |
| 2019 |
| 2018 | |||
Incurred expenses | $ | 14,386 |
| $ | 10,794 |
| $ | 9,301 |
Years Ended December 31, | ||||||||||||
(Dollars in thousands) | 2017 | 2016 | 2015 | |||||||||
Incurred expenses | $ | 7,167 | $ | 6,058 | $ | 5,468 |
In addition, the Company maintains several defined contribution pension plans covering non-U.S. employees. Each non-U.S. office (Brazil, Canada and Singapore) maintains a separate plan for the non-U.S. employees working in that location. The Company contributes various amounts based on salary, age and/or years of service. The contributions as a percentage of salary for the branch offices range from 6.3%7.9% to 9.9%8.8%. The contributions are generally used to purchase pension benefits from local insurance providers.
The following table presents the Company'sCompany’s incurred expenses related to these plans for the periods indicated:
| Years Ended December 31, | |||||||
(Dollars in thousands) | 2020 |
| 2019 |
| 2018 | |||
Incurred expenses | $ | 774 |
| $ | 474 |
| $ | 489 |
Years Ended December 31, | ||||||||||||
(Dollars in thousands) | 2017 | 2016 | 2015 | |||||||||
Incurred expenses | $ | 514 | $ | 494 | $ | 447 |
The Company sponsors a Retiree Health Plan for employees employed prior to April 1, 2010. This plan provides healthcare benefits for eligible retired employees (and their eligible dependents), who have elected coverage. The Company anticipates that most covered employees will become eligible for these benefits if they retire while working for the Company. The cost of these benefits is shared with the retiree. The Company accrues the post-retirement benefit expense during the period of the employee'semployee’s service.
A medical cost trend rates were used to determine net periodic cost: a healthcare inflation rate for pre-Medicare claims of 7.5%6.75% in 20172020 was assumed to decrease gradually to 4.5%4.75% in 20292030 and then remain at that level; and a healthcare inflation rate for post-Medicare claims of 7.5% in 2017 was assumed to decrease gradually to 4.5% in 2029 and then remain at that level.
F-52
Percentage | Percentage | |||||||
Point Increase | Point Decrease | |||||||
(Dollars in thousands) | ($ Impact) | ($ Impact) | ||||||
a. Effect on total service and interest cost components | $ | 614 | $ | (476 | ) | |||
b. Effect on accumulated post-retirement benefit obligation | 7,313 | (5,674 | ) |
F-49
| Years Ended December 31, | |||||||
(Dollars in thousands) | 2020 |
| 2019 |
| 2018 | |||
Post-retirement benefit expenses | $ | 1,334 |
| $ | 1,231 |
| $ | 1,829 |
Years Ended December 31, | ||||||||||||
(Dollars in thousands) | 2017 | 2016 | 2015 | |||||||||
Post-retirement benefit expenses | $ | 2,814 | $ | 2,293 | $ | 3,280 |
The following table summarizes the status of this plan for the periods indicated:
| At December 31, | ||||
(Dollars in thousands) | 2020 |
| 2019 | ||
Change in projected benefit obligation: |
|
|
|
|
|
Benefit obligation at beginning of year | $ | 29,376 |
| $ | 28,483 |
Service cost |
| 1,066 |
|
| 983 |
Interest cost |
| 845 |
|
| 980 |
Amendments |
| - |
|
| - |
Actuarial (gain)/loss |
| 4,042 |
|
| (582) |
Benefits paid |
| (232) |
|
| (488) |
Benefit obligation at end of year |
| 35,098 |
|
| 29,376 |
|
|
|
|
|
|
Change in plan assets: |
|
|
|
|
|
Fair value of plan assets at beginning of year |
| - |
|
| - |
Employer contributions |
| 232 |
|
| 488 |
Benefits paid |
| (232) |
|
| (488) |
Fair value of plan assets at end of year |
| - |
|
| - |
|
|
|
|
|
|
Funded status at end of year | $ | (35,098) |
| $ | (29,376) |
At December 31, | ||||||||
(Dollars in thousands) | 2017 | 2016 | ||||||
Change in projected benefit obligation: | ||||||||
Benefit obligation at beginning of year | $ | 32,071 | $ | 31,687 | ||||
Service cost | 1,570 | 1,418 | ||||||
Interest cost | 1,184 | 1,007 | ||||||
Amendments | (3,526 | ) | (794 | ) | ||||
Actuarial (gain)/loss | 4,038 | (668 | ) | |||||
Benefits paid | (619 | ) | (579 | ) | ||||
Benefit obligation at end of year | 34,717 | 32,071 | ||||||
Change in plan assets: | ||||||||
Fair value of plan assets at beginning of year | - | - | ||||||
Employer contributions | 619 | 579 | ||||||
Benefits paid | (619 | ) | (579 | ) | ||||
Fair value of plan assets at end of year | - | - | ||||||
Funded status at end of year | $ | (34,717 | ) | $ | (32,071 | ) |
Amounts recognized in the consolidated balance sheets for the periods indicated:
| At December 31, | ||||
(Dollars in thousands) | 2020 |
| 2019 | ||
Other liabilities (due within one year) | $ | (613) |
| $ | (611) |
Other liabilities (due beyond one year) |
| (34,484) |
|
| (28,764) |
Net amount recognized in the consolidated balance sheets | $ | (35,098) |
| $ | (29,376) |
|
|
|
|
|
|
(Some amounts may not reconcile due to rounding.) |
At December 31, | ||||||||
(Dollars in thousands) | 2017 | 2016 | ||||||
Other liabilities (due within one year) | $ | (655 | ) | $ | (614 | ) | ||
Other liabilities (due beyond one year) | (34,062 | ) | (31,457 | ) | ||||
Net amount recognized in the consolidated balance sheets | $ | (34,717 | ) | $ | (32,071 | ) | ||
(Some amounts may not reconcile due to rounding.) |
Amounts not yet reflected in net periodic benefit cost and included in accumulated other comprehensive income (loss) for the periods indicated:
F-53
| At December 31, | ||||
(Dollars in thousands) | 2020 |
| 2019 | ||
Accumulated income (loss) | $ | (3,854) |
| $ | 188 |
Accumulated prior service credit (cost) |
| 2,327 |
|
| 2,904 |
Accumulated other comprehensive income (loss) | $ | (1,527) |
| $ | 3,092 |
At December 31, | ||||||||
(Dollars in thousands) | 2017 | 2016 | ||||||
Accumulated income (loss) | $ | (8,317 | ) | $ | (4,471 | ) | ||
Accumulated prior service credit (cost) | 4,057 | $ | 662 | |||||
Accumulated other comprehensive income (loss) | $ | (4,260 | ) | $ | (3,809 | ) |
Other changes in other comprehensive income (loss) for the periods indicated are as follows:
| Years Ended December 31, | ||||
(Dollars in thousands) | 2020 |
| 2019 | ||
Other comprehensive income (loss) at December 31, prior year | $ | 3,092 |
| $ | 3,242 |
Net gain (loss) arising during period |
| (4,042) |
|
| 582 |
Prior Service credit (cost) arising during period |
| - |
|
| - |
Recognition of amortizations in net periodic benefit cost: |
|
|
|
|
|
Actuarial loss (gain) |
| - |
|
| (155) |
Prior service cost |
| (577) |
|
| (577) |
Other comprehensive income (loss) at December 31, current year | $ | (1,527) |
| $ | 3,092 |
Years Ended December 31, | ||||||||
(Dollars in thousands) | 2017 | 2016 | ||||||
Other comprehensive income (loss) at December 31, prior year | $ | (3,809 | ) | $ | (5,139 | ) | ||
Net gain (loss) arising during period | (4,038 | ) | 668 | |||||
Prior Service credit (cost) arising during period | 3,526 | 794 | ||||||
Recognition of amortizations in net periodic benefit cost: | ||||||||
Actuarial loss (gain) | 192 | - | ||||||
Prior service cost | (131 | ) | (132 | ) | ||||
Other comprehensive income (loss) at December 31, current year | $ | (4,260 | ) | $ | (3,809 | ) |
| Years Ended December 31, | |||||||
(Dollars in thousands) | 2020 |
| 2019 |
| 2018 | |||
Service cost | $ | 1,066 |
| $ | 983 |
| $ | 1,312 |
Interest cost |
| 845 |
|
| 980 |
|
| 999 |
Prior service credit recognition |
| (577) |
|
| (577) |
|
| (577) |
Net gain recognition |
| - |
|
| (155) |
|
| 94 |
Net periodic cost | $ | 1,334 |
| $ | 1,231 |
| $ | 1,829 |
|
|
|
|
|
|
|
|
|
Other changes recognized in other comprehensive income (loss): |
|
|
|
|
|
|
|
|
Other comprehensive gain (loss) attributable to change from prior year |
| 4,619 |
|
| 150 |
|
|
|
|
|
|
|
|
|
|
|
|
Total recognized in net periodic benefit cost and |
|
|
|
|
|
|
|
|
other comprehensive income (loss) | $ | 5,953 |
| $ | 1,381 |
|
|
|
|
|
|
|
|
|
|
|
|
(Some amounts may not reconcile due to rounding.) |
Years Ended December 31, | ||||||||||||
(Dollars in thousands) | 2017 | 2016 | 2015 | |||||||||
Service cost | $ | 1,570 | $ | 1,418 | $ | 1,794 | ||||||
Interest cost | 1,184 | 1,007 | 1,187 | |||||||||
Net loss recognition | (131 | ) | (132 | ) | 300 | |||||||
Net gain recognition | 192 | - | - | |||||||||
Net periodic cost | $ | 2,814 | $ | 2,293 | $ | 3,280 | ||||||
Other changes recognized in other comprehensive income (loss): | ||||||||||||
Other comprehensive gain (loss) attributable to change from prior year | 451 | (1,330 | ) | |||||||||
Total recognized in net periodic benefit cost and | ||||||||||||
other comprehensive income (loss) | $ | 3,265 | $ | 963 | ||||||||
(Some amounts may not reconcile due to rounding.) |
The estimated transition obligation, actuarial lossgain and prior service costcredit that will be amortized from accumulated other comprehensive income (loss) into net periodic benefit cost over the next fiscal year are $0 thousand, $543$46 thousand and ($577)$577 thousand, respectively.
The weighted average discount rates used to determine net periodic benefit cost for 2017, 20162020, 2019 and 20152018 were 4.16%3.28%, 4.38%4.27% and 4.00%3.62%, respectively.
The weighted average discount rates used to determine the actuarial present value of the projected benefit obligation at year end 2017, 20162020, 2019 and 20152018 were 3.62%2.55%, 4.16%3.28% and 4.38%4.27%, respectively.
F-54
The following table displays the expected benefit payments in the years indicated:
(Dollars in thousands) |
|
|
2021 | $ | 613 |
2022 |
| 715 |
2023 |
| 806 |
2024 |
| 851 |
2025 |
| 989 |
Next 5 years |
| 6,955 |
(Dollars in thousands) | |||
2018 | $ | 655 | |
2019 | 765 | ||
2020 | 877 | ||
2021 | 975 | ||
2022 | 1,156 | ||
Next 5 years | 7,965 |
Holdings and its operating subsidiaries are subject to various regulatory restrictions, including the amount of dividends that may be paid and the level of capital that the operating entities must maintain. These regulatory restrictions are based upon statutory capital as opposed to GAAP basis equity or net assets. Holdings'Holdings’ primary operating subsidiary, Everest Re, is regulated by Delaware law and is subject to the Risk-Based Capital Model ("RBC"(“RBC”) developed by the National Association of Insurance Commissioners ("NAIC"(“NAIC”). This model represents the aggregate regulatory restrictions on net assets and statutory capital and surplus.
Dividend Restrictions.
Delaware law provides that an insurance company which is a member of an insurance holding company system and is domiciled in the state shall not pay dividends without giving prior notice to the Insurance Commissioner of Delaware and may not pay dividends without the approval of the Insurance Commissioner if the value of the proposed dividend, together with all other dividends and distributions made in the preceding twelve months, exceeds the greater of (1) 10%10% of statutory surplus or (2) net income, not including realized capital gains, each as reported in the prior year'syear’s statutory annual statement. In addition, no dividend may be paid in excess of unassigned earned surplus. At December 31, 2017,2020, Everest Re has $339,185$592,082 thousand available for payment of dividends in 20182021 without the need for prior regulatory approval.
F-51
Everest Re prepares its statutory financial statements in accordance with accounting practices prescribed or permitted by the NAIC and the Delaware Insurance Department. Prescribed statutory accounting practices are set forth in the NAIC Accounting Practices and Procedures Manual. The capital and statutory surplus of Everest Re was $3,391,852$5,276,003 thousand and $3,635,121$3,739,140 thousand at December 31, 20172020 and 2016,2019, respectively. The statutory net income of Everest Re was $595,077 thousand and $363,034 thousand, for the years ended December 31, 2020 and 2019, respectively. The statutory net loss of Everest Re was $391,419 thousand$1,317,991 for the year ended December 31, 2017 and statutory income of Everest Re was, $523,547 thousand and $498,455 thousand for the years ended December 31, 2016 and 2015, respectively.
There are certain regulatory and contractual restrictions on the ability of Holdings'Holdings’ operating subsidiaries to transfer funds to Holdings in the form of cash dividends, loans or advances. The insurance laws of the State of Delaware, where Holdings'Holdings’ direct insurance subsidiaries are domiciled, require regulatory approval before those subsidiaries can pay dividends or make loans or advances to Holdings that exceed certain statutory thresholds.
Capital Restrictions.
In the United States, Everest Re is subject to the RBC developed by the NAIC which determines an authorized control level risk-based capital. As long as the total adjusted capital is 200%200% or more of the authorized control level capital, no action is required by the Company.
F-55
The regulatory targeted capital and the actual statutory capital for Everest Re is as follows:
| Everest Re (1) | ||||
| At December 31, | ||||
(Dollars in thousands) | 2020 |
| 2019 | ||
Regulatory targeted capital | $ | 2,489,772 |
| $ | 2,001,226 |
Actual capital | $ | 5,276,003 |
| $ | 3,739,140 |
Everest Re (1) | ||||||||
At December 31, | ||||||||
(Dollars in thousands) | 2017 | 2016 | ||||||
Regulatory targeted capital | $ | 2,076,892 | $ | 1,411,440 | ||||
Actual capital | $ | 3,391,852 | $ | 3,635,121 |
(1) Regulatory targeted capital represents 200%200% of the RBC authorized control level calculation for the applicable year.
In the ordinary course of business, the Company is involved in lawsuits, arbitrations and other formal and informal dispute resolution procedures, the outcomes of which will determine the Company'sCompany’s rights and obligations under insurance and reinsurance agreements. In some disputes, the Company seeks to enforce its rights under an agreement or to collect funds owing to it. In other matters, the Company is resisting attempts by others to collect funds or enforce alleged rights. These disputes arise from time to time and are ultimately resolved through both informal and formal means, including negotiated resolution, arbitration and litigation. In all such matters, the Company believes that its positions are legally and commercially reasonable. The Company considers the statuses of these proceedings when determining its reserves for unpaid loss and loss adjustment expenses.
Aside from litigation and arbitrations related to these insurance and reinsurance agreements, the Company is not a party to any other material litigation or arbitration.
The Company has entered into separate annuity agreements with The Prudential Insurance Company of America ("(“The Prudential"Prudential”) and an additional unaffiliated life insurance company in which the Company has either purchased annuity contracts or become the assignee of annuity proceeds that are meant to settle claim payment obligations in the future. In both instances, the Company would become contingently liable if either The Prudential or the unaffiliated life insurance company were unable to make payments related to the respective annuity contact.
The table below presents the estimated cost to replace all such annuities for which the Company was contingently liable for the periods indicated:
| At December 31, | ||||
(Dollars in thousands) | 2020 |
| 2019 | ||
The Prudential | $ | 140,773 |
| $ | 141,703 |
Unaffiliated life insurance company |
| 35,128 |
|
| 35,082 |
At December 31, | ||||||||
(Dollars in thousands) | 2017 | 2016 | ||||||
The Prudential | $ | 144,618 | $ | 146,507 | ||||
Unaffiliated life insurance company | $ | 34,444 | $ | 33,860 |
Group entered into a $300,000 thousand long term note agreement with Everest Re as of December 17, 2019. The note will pay interest annually at a rate of 1.69% and is scheduled to mature in December, 2028. This transaction is presented as a Note Receivable – Affiliated in the Consolidated Balance Sheet of Holdings. The Company recognized interest income related to this long term note of $5,155 thousand and $211 thousand for years ended December 31, 2020 and 2019, respectively.
Group entered into a $250,000 thousand long term promissory note agreement with Holdings as of December 31, 2014. The note will mature onwas repaid in December 31, 2023 and has an2018, including $4,085 thousand of interest rate of 1.72% that is payable annually. This transaction is presented as a Note Receivable – Affiliated in the Consolidated Balance Sheets of Holdings. Interest income in the amount of $4,300 thousand was recorded by Holdings for the year ended December 31, 2017 and December 31, 2016, respectively.income.
F-56
Group’s Board of Directors approved an amended share repurchase program authorizing Group and/or its subsidiary Holdings to purchase Group'sGroup’s common shares through open market transactions, privately negotiated transactions or both. The table below represents the amendments to the share repurchase program for the common shares approved for repurchase.
Common | ||
Shares | ||
Authorized for | ||
Amendment Date | Repurchase | |
(Dollars in thousands) | ||
09/21/2004 | 5,000,000 | |
07/21/ | 5,000,000 | |
02/24/2010 | 5,000,000 | |
02/ | 5,000,000 | |
05/15/2013 | 5,000,000 | |
11/19/2014 | 5,000,000 | |
05/22/2020 | 2,000,000 | |
32,000,000 |
Holdings had purchased and held 9,719,971 Common Shares of Group, which were purchased in the open market between February 2007 and March 2011.
In December, 2015, Holdings transferred the 9,719,971 Common Shares of Group, which it held as other invested assets, at fair value, valued at $1,773,214 thousand, to Preferred Holdings, an affiliated entity and subsidiary of Group, in exchange for 1,773.214 preferred shares of Preferred Holdings with a $1,000 thousand par value and 1.75%1.75% annual dividend rate. After the exchange, Holdings no longer holds any shares or has any ownership interest in Group.
Holdings has reported both its Parent shares andthe preferred shares in Preferred Holdings, as other invested assets, fair value, in the consolidated balance sheets with changes in fair value re-measurement recorded in net realized capital gains (losses) in the consolidated statements of operations and comprehensive income (loss). The following table presents the dividends received on the preferred shares of Preferred Holdings and on the Parent shares that are reported as net investment income in the consolidated statements of operations and comprehensive income (loss) for the period indicated.
| Years Ended December 31, | |||||||
(Dollars in thousands) | 2020 |
| 2019 |
| 2018 | |||
Dividends received on preferred stock of affiliate | $ | 31,032 |
| $ | 31,032 |
| $ | 31,032 |
Years Ended December 31, | ||||||||||||
(Dollars in thousands) | 2017 | 2016 | 2015 | |||||||||
Dividends received on Parent shares | $ | - | $ | - | $ | 38,880 | ||||||
Dividends received on preferred stock of affiliate | 31,032 | 31,032 | - |
Effective December 31, 2018, Holdings entered into a $300,000 thousand long-term promissory note agreement with Bermuda Re. The note was repaid in May, 2019. This transaction was presented as a Note Payable – Affiliated in the consolidated balance sheets of Holdings as of December 31, 2018. Interest expense in the amount of $0 thousand and $3,658 thousand was recorded by Holdings for the years ended December 2020 and 2019, respectively.
Effective October 1, 2018, Holdings Ireland made a capital contribution of Global Services, an affiliated entity, to Holdings. Global Services had an equity value of $227,253 thousand at the time of contribution and that value is classified as additional paid in capital in the Company’s consolidated balance sheet as of December 31, 2018.
Everest Global Services, Inc. ("(“Global Services"Services”), an affiliate of Holdings, provides centralized management and home office services, through a management agreement, to Holdings and other affiliated companies within Holdings'Holdings’ consolidated structure. Services provided by Everest Global include executive managerial services, legal services, actuarial services, accounting services, information technology services and others.
F-57
The following table presents the expenses incurred by Holdings from services provided by Everest Global for the periods indicated.
| Years Ended December 31, | |||||||
(Dollars in thousands) | 2020 |
| 2019 |
| 2018 | |||
Expenses incurred | $ | 124,486 |
| $ | 107,851 |
| $ | 81,346 |
Years Ended December 31, | ||||||||||||
(Dollars in thousands) | 2017 | 2016 | 2015 | |||||||||
Expenses incurred | $ | 91,927 | $ | 84,823 | $ | 81,122 |
The U.S. Reinsurance operation writes worldwide property and casualty reinsurance and specialty lines of business, including Marine, Aviation, Surety and Accident and Health ("A&H") business, on both a treaty and facultative basis, through reinsurance brokers, as well as directly with ceding companies primarily withincompanies. Business is written in the U.S. The International operation writes non-U.S. property and casualty reinsuranceUnited States as well as through Everest Re's branches in Canada Singapore and through offices in Brazil, Miami and New Jersey.Singapore. The Insurance operation writes property and casualty insurance directly and through brokers, surplus lines brokers and general agents mainly within the U.S.
These segments are managed independently, but conform with corporate guidelines with respect to pricing, risk management, control of aggregate catastrophe exposures, capital, investments and support operations. Management generally monitors and evaluates the financial performance of these operating segments based upon their underwriting results.
Underwriting results include earned premium less losses and LAE incurred, commission and brokerage expenses and other underwriting expenses. We measure our underwriting results using ratios, in particular loss, commission and brokerage and other underwriting expense ratios, which, respectively, divide incurred losses, commissions and brokerage and other underwriting expenses by premiums earned.
The Company does not maintain separate balance sheet data for its operating segments. Accordingly, the Company does not review and evaluate the financial results of its operating segments based upon balance sheet data.
The following tables present the underwriting results for the operating segments for the periods indicated:
Reinsurance | Years Ended December 31, | |||||||
(Dollars in thousands) | 2020 |
| 2019 |
| 2018 | |||
Gross written premiums | $ | 5,265,698 |
| $ | 4,600,373 |
| $ | 4,569,582 |
Net written premiums |
| 4,632,265 |
|
| 3,923,799 |
|
| 3,519,704 |
Premiums earned | $ | 4,484,693 |
| $ | 3,796,136 |
| $ | 3,386,386 |
Incurred losses and LAE |
| 3,209,160 |
|
| 2,692,680 |
|
| 3,811,747 |
Commission and brokerage |
| 1,119,966 |
|
| 1,027,286 |
|
| 923,902 |
Other underwriting expenses |
| 119,320 |
|
| 110,032 |
|
| 97,927 |
Underwriting gain (loss) | $ | 36,247 |
| $ | (33,862) |
| $ | (1,447,190) |
Insurance | Years Ended December 31, | |||||||
(Dollars in thousands) | 2020 |
| 2019 |
| 2018 | |||
Gross written premiums | $ | 2,691,340 |
| $ | 2,452,691 |
| $ | 2,004,093 |
Net written premiums |
| 2,006,435 |
|
| 1,851,150 |
|
| 1,512,158 |
Premiums earned | $ | 1,921,883 |
| $ | 1,692,899 |
| $ | 1,452,672 |
Incurred losses and LAE |
| 1,398,984 |
|
| 1,136,442 |
|
| 999,271 |
Commission and brokerage |
| 253,389 |
|
| 242,767 |
|
| 217,812 |
Other underwriting expenses |
| 281,713 |
|
| 240,869 |
|
| 195,420 |
Underwriting gain (loss) | $ | (12,203) |
| $ | 72,821 |
| $ | 40,169 |
F-58
U.S. Reinsurance | Years Ended December 31, | |||||||||||
(Dollars in thousands) | 2017 | 2016 | 2015 | |||||||||
Gross written premiums | $ | 2,593,063 | $ | 2,125,792 | $ | 2,147,893 | ||||||
Net written premiums | 1,135,604 | 930,178 | 899,918 | |||||||||
Premiums earned | $ | 858,155 | $ | 990,055 | $ | 951,457 | ||||||
Incurred losses and LAE | 912,124 | 554,100 | 413,292 | |||||||||
Commission and brokerage | 160,311 | 189,495 | 198,983 | |||||||||
Other underwriting expenses | 55,881 | 54,107 | 50,089 | |||||||||
Underwriting gain (loss) | $ | (270,161 | ) | $ | 192,353 | $ | 289,093 |
F-54
International | Years Ended December 31, | |||||||||||
(Dollars in thousands) | 2017 | 2016 | 2015 | |||||||||
Gross written premiums | $ | 1,339,546 | $ | 1,269,125 | $ | 1,373,978 | ||||||
Net written premiums | 615,395 | 497,645 | 562,691 | |||||||||
Premiums earned | $ | 502,322 | $ | 510,915 | $ | 581,216 | ||||||
Incurred losses and LAE | 622,753 | 207,605 | 394,819 | |||||||||
Commission and brokerage | 101,936 | 111,514 | 121,158 | |||||||||
Other underwriting expenses | 36,291 | 34,254 | 34,303 | |||||||||
Underwriting gain (loss) | $ | (258,658 | ) | $ | 157,542 | $ | 30,936 |
Insurance | Years Ended December 31, | |||||||||||
(Dollars in thousands) | 2017 | 2016 | 2015 | |||||||||
Gross written premiums | $ | 1,855,881 | $ | 1,668,811 | $ | 1,473,760 | ||||||
Net written premiums | 972,845 | 620,299 | 630,674 | |||||||||
Premiums earned | $ | 589,118 | $ | 593,079 | $ | 611,087 | ||||||
Incurred losses and LAE | 504,874 | 588,575 | 511,450 | |||||||||
Commission and brokerage | (51,322 | ) | (19,585 | ) | (7,816 | ) | ||||||
Other underwriting expenses | 162,714 | 156,605 | 130,427 | |||||||||
Underwriting gain (loss) | $ | (27,148 | ) | $ | (132,516 | ) | $ | (22,974 | ) |
| Years Ended December 31, | |||||||
(Dollars in thousands) | 2020 |
| 2019 |
| 2018 | |||
Underwriting gain (loss) | $ | 24,044 |
| $ | 38,959 |
| $ | (1,407,021) |
Net investment income |
| 375,906 |
|
| 356,211 |
|
| 314,381 |
Net realized capital gains (losses) |
| 49,804 |
|
| 419,367 |
|
| (185,356) |
Corporate expense |
| (15,985) |
|
| (13,063) |
|
| (11,034) |
Interest, fee and bond issue cost amortization expense |
| (35,659) |
|
| (34,931) |
|
| (30,611) |
Other income (expense) |
| (14,579) |
|
| (1,589) |
|
| (9,568) |
Income (loss) before taxes | $ | 383,531 |
| $ | 764,955 |
| $ | (1,329,209) |
Years Ended December 31, | ||||||||||||
(Dollars in thousands) | 2017 | 2016 | 2015 | |||||||||
Underwriting gain (loss) | $ | (555,967 | ) | $ | 217,379 | $ | 297,055 | |||||
Net investment income | 286,259 | 264,807 | 273,253 | |||||||||
Net realized capital gains (losses) | 161,553 | (28,941 | ) | 50,335 | ||||||||
Corporate expense | (7,394 | ) | (8,277 | ) | (7,179 | ) | ||||||
Interest, fee and bond issue cost amortization expense | (31,183 | ) | (35,435 | ) | (35,434 | ) | ||||||
Other income (expense) | 23,750 | (10,542 | ) | 29,256 | ||||||||
Income (loss) before taxes | $ | (122,982 | ) | $ | 398,991 | $ | 607,286 |
The Company produces business in the U.S. and internationally. The net income deriving from assets residing in the individual foreign countries in which the Company writes business are not identifiable in the Company'sCompany’s financial records. Based on gross written premium, the table below presents the largest country, other than the U.S., in which the Company writes business, for the periods indicated:
| Years Ended December 31, | |||||||
(Dollars in thousands) | 2020 |
| 2019 |
| 2018 | |||
Canada gross written premiums | $ | 320,665 |
| $ | 214,594 |
| $ | 173,530 |
Years Ended December 31, | ||||||||||||
(Dollars in thousands) | 2017 | 2016 | 2015 | |||||||||
Canada gross written premiums | $ | 130,136 | $ | 124,612 | $ | 114,859 |
Approximately 21.5%20.1%, 15.3%25.8% and 16.3%21.1% of the Company'sCompany’s gross written premiums in 2017, 20162020, 2019 and 2015,2018, respectively, were sourced through the Company'sCompany’s largest intermediary.
The Company has evaluated known recognized and non-recognized subsequent events. TheIn February 2021, a severe winter storm impacted Texas and other southern states. Due to the recentness of this event, the Company does not have any subsequent eventsis unable to report.
Summarized quarterly financial data for the periods indicated:
| 2020 | ||||||||||
(Dollars in thousands) | 1st Quarter |
| 2nd Quarter |
| 3rd Quarter |
| 4th Quarter | ||||
|
|
|
|
|
|
|
|
|
|
|
|
Operating data: |
|
|
|
|
|
|
|
|
|
|
|
Gross written premiums | $ | 1,974,965 |
| $ | 1,838,247 |
| $ | 2,064,961 |
| $ | 2,078,865 |
Net written premiums |
| 1,638,708 |
|
| 1,501,550 |
|
| 1,725,701 |
|
| 1,772,741 |
|
|
|
|
|
|
|
|
|
|
|
|
Premiums earned |
| 1,494,005 |
|
| 1,538,960 |
|
| 1,615,457 |
|
| 1,758,154 |
Net investment income |
| 74,201 |
|
| 35,153 |
|
| 135,428 |
|
| 131,124 |
Net realized capital gains (losses) |
| 256,867 |
|
| (479,360) |
|
| 115,193 |
|
| 157,104 |
Total claims and underwriting expenses |
| 1,465,006 |
|
| 1,436,098 |
|
| 1,720,362 |
|
| 1,812,710 |
Net income (loss) |
| 316,645 |
|
| (270,593) |
|
| 119,806 |
|
| 186,015 |
F-59
| 2019 | ||||||||||
(Dollars in thousands) | 1st Quarter |
| 2nd Quarter |
| 3rd Quarter |
| 4th Quarter | ||||
|
|
|
|
|
|
|
|
|
|
|
|
Operating data: |
|
|
|
|
|
|
|
|
|
|
|
Gross written premiums | $ | 1,684,882 |
| $ | 1,688,038 |
| $ | 1,890,002 |
| $ | 1,790,142 |
Net written premiums |
| 1,392,243 |
|
| 1,319,865 |
|
| 1,569,954 |
|
| 1,492,886 |
|
|
|
|
|
|
|
|
|
|
|
|
Premiums earned |
| 1,270,454 |
|
| 1,375,623 |
|
| 1,428,400 |
|
| 1,414,558 |
Net investment income |
| 84,534 |
|
| 90,709 |
|
| 95,592 |
|
| 85,376 |
Net realized capital gains (losses) |
| 135,056 |
|
| 142,563 |
|
| 112,542 |
|
| 29,206 |
Total claims and underwriting expenses |
| 1,174,175 |
|
| 1,255,551 |
|
| 1,562,452 |
|
| 1,505,892 |
Net income (loss) |
| 251,608 |
|
| 280,922 |
|
| 61,137 |
|
| 36,060 |
F-60
2017 | ||||||||||||||||
(Dollars in thousands) | 1st Quarter | 2nd Quarter | 3rd Quarter | 4th Quarter | ||||||||||||
Operating data: | ||||||||||||||||
Gross written premiums | $ | 1,252,384 | $ | 1,335,574 | $ | 1,701,126 | $ | 1,499,405 | ||||||||
Net written premiums | 448,836 | 417,912 | 570,760 | 1,286,337 | ||||||||||||
Premiums earned | 471,055 | 468,197 | 518,507 | 491,836 | ||||||||||||
Net investment income | 60,849 | 71,900 | 73,417 | 80,093 | ||||||||||||
Net realized capital gains (losses) | 117,768 | (92,291 | ) | 228,489 | (92,413 | ) | ||||||||||
Total claims and underwriting expenses | 402,124 | 421,938 | 1,423,816 | 257,684 | ||||||||||||
Net income (loss) | 169,178 | 35,658 | (389,724 | ) | 263,086 |
SCHEDULE I - SUMMARY OF INVESTMENTS - |
|
|
|
|
|
|
|
|
OTHER THAN INVESTMENTS IN RELATED PARTIES |
|
|
|
|
|
|
|
|
DECEMBER 31, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Column A |
| Column B |
|
| Column C |
|
| Column D |
|
|
|
|
|
|
|
| Amount |
|
|
|
|
|
|
|
| Shown in |
|
|
|
|
| Market |
|
| Balance |
(Dollars in thousands) |
| Cost |
|
| Value |
|
| Sheet |
Fixed maturities-available for sale |
|
|
|
|
|
|
|
|
Bonds: |
|
|
|
|
|
|
|
|
U.S. government and government agencies | $ | 659,957 |
| $ | 681,989 |
| $ | 681,989 |
State, municipalities and political subdivisions |
| 543,646 |
|
| 577,046 |
|
| 577,046 |
Foreign government securities |
| 694,132 |
|
| 742,238 |
|
| 742,238 |
Foreign corporate securities |
| 1,130,865 |
|
| 1,199,866 |
|
| 1,199,866 |
Public utilities |
| 113,206 |
|
| 120,749 |
|
| 120,749 |
All other corporate bonds |
| 5,645,979 |
|
| 5,796,383 |
|
| 5,796,383 |
Mortgage - backed securities |
|
|
|
|
|
|
|
|
Commercial |
| 512,388 |
|
| 550,080 |
|
| 550,080 |
Agency residential |
| 937,166 |
|
| 965,100 |
|
| 965,100 |
Non-agency residential |
| 3,164 |
|
| 3,164 |
|
| 3,164 |
Redeemable preferred stock |
| 8,147 |
|
| 6,950 |
|
| 6,950 |
Total fixed maturities-available for sale |
| 10,248,650 |
|
| 10,643,565 |
|
| 10,643,565 |
Equity securities at fair value(1) |
| 927,324 |
|
| 1,288,767 |
|
| 1,288,767 |
Short-term investments |
| 708,043 |
|
| 707,905 |
|
| 707,905 |
Other invested assets |
| 1,094,933 |
|
| 1,094,933 |
|
| 1,094,933 |
Other invested assets, at fair value (1) |
| 1,773,214 |
|
| 1,796,479 |
|
| 1,796,479 |
Cash |
| 378,518 |
|
| 378,518 |
|
| 378,518 |
Total investments and cash | $ | 15,130,682 |
| $ | 15,910,167 |
| $ | 15,910,167 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Some amounts may not reconcile due to rounding.) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Original cost does not reflect adjustments, which have been realized through the statements of operations and comprehensive income. |
S-1
2016 | ||||||||||||||||
(Dollars in thousands) | 1st Quarter | 2nd Quarter | 3rd Quarter | 4th Quarter | ||||||||||||
Operating data: | ||||||||||||||||
Gross written premiums | $ | 1,129,904 | $ | 1,177,791 | $ | 1,505,923 | $ | 1,250,110 | ||||||||
Net written premiums | 464,070 | 441,255 | 622,616 | 520,181 | ||||||||||||
Premiums earned | 481,925 | 488,855 | 556,653 | 566,616 | ||||||||||||
Net investment income | 58,445 | 73,872 | 64,570 | 67,920 | ||||||||||||
Net realized capital gains (losses) | (66,377 | ) | 29,165 | (50,063 | ) | 58,334 | ||||||||||
Total claims and underwriting expenses | 421,654 | 467,275 | 448,530 | 539,211 | ||||||||||||
Net income (loss) | 40,990 | 69,372 | 76,303 | 114,979 |
SCHEDULE II - CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT |
|
|
|
|
|
CONDENSED BALANCE SHEETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| At December 31, | ||||
(Dollars in thousands, except share amounts and par value per share) | 2020 |
| 2019 | ||
ASSETS: |
|
|
|
|
|
Fixed maturities - available for sale, at market value | $ | - |
| $ | 1,750 |
(amortized cost: 2020, $0; 2019, $1,750) |
|
|
|
|
|
Equity securities - available for sale, at fair value |
| 311,009 |
|
| 75,585 |
Other invested assets |
| 146,968 |
|
| 56,909 |
Other invested assets, at fair value |
| 1,796,479 |
|
| 1,982,582 |
Short-term investments |
| 9,985 |
|
| 20,514 |
Cash |
| 10,482 |
|
| 10,384 |
Total investments and cash |
| 2,274,923 |
|
| 2,147,724 |
Investment in subsidiaries, at equity in the underlying net assets |
| 6,115,130 |
|
| 4,580,852 |
Note receivable - affiliated |
| - |
|
| 10,000 |
Accrued investment income |
| 87 |
|
| 573 |
Advances to affiliates |
| 165 |
|
| (39) |
Other assets |
| (104) |
|
| 162 |
TOTAL ASSETS | $ | 8,390,201 |
| $ | 6,739,272 |
|
|
|
|
|
|
LIABILITIES: |
|
|
|
|
|
Senior notes due 6/1/2044 | $ | 397,194 |
| $ | 397,074 |
Senior notes due 10/15/2050 |
| 979,524 |
|
| - |
Long term notes due 5/1/2067 |
| 223,674 |
|
| 236,758 |
Accrued interest on debt and borrowings |
| 10,388 |
|
| 2,878 |
Income taxes |
| 362,393 |
|
| 243,062 |
Due to affiliates |
| 1,835 |
|
| 1,016 |
Other liabilities |
| 880 |
|
| 1,059 |
Total liabilities | $ | 1,975,888 |
| $ | 881,847 |
|
|
|
|
|
|
STOCKHOLDER'S EQUITY: |
|
|
|
|
|
Common stock, par value: $0.01; 3,000 shares authorized; |
|
|
|
|
|
1,000 shares issued and outstanding (2020 and 2019) |
| - |
|
| - |
Additional paid-in capital |
| 1,101,092 |
|
| 1,100,678 |
Accumulated other comprehensive income (loss), net of deferred income |
|
|
|
|
|
tax expense (benefit) of $71,080 at 2020 and $16,997 at 2019 |
| 268,018 |
|
| 64,324 |
Retained earnings |
| 5,045,203 |
|
| 4,692,423 |
Total stockholder's equity |
| 6,414,313 |
|
| 5,857,425 |
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY | $ | 8,390,201 |
| $ | 6,739,272 |
|
|
|
|
|
|
See notes to consolidated financial statements. |
|
|
|
|
|
S-2
SCHEDULE II - CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT |
|
|
|
|
|
|
|
|
CONDENSED STATEMENTS OF OPERATIONS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Years Ended December 31, | |||||||
(Dollars in thousands) | 2020 |
| 2019 |
| 2018 | |||
REVENUES: |
|
|
|
|
|
|
|
|
Net investment income | $ | 26,021 |
| $ | 34,970 |
| $ | 38,951 |
Net investment income - Affiliated |
| 320 |
|
| 412 |
|
| 4,085 |
Net realized capital gains (losses) |
| (73,338) |
|
| 274,110 |
|
| (87,267) |
Other income (expense) |
| 3,105 |
|
| 524 |
|
| (6,085) |
Net income (loss) of subsidiaries |
| 393,552 |
|
| 370,084 |
|
| (906,211) |
Total revenues |
| 349,659 |
|
| 680,100 |
|
| (956,527) |
|
|
|
|
|
|
|
|
|
EXPENSES: |
|
|
|
|
|
|
|
|
Interest expense |
| 35,508 |
|
| 34,931 |
|
| 30,611 |
Corporate expense |
| 9,392 |
|
| 6,810 |
|
| 6,337 |
Total expenses |
| 44,900 |
|
| 41,741 |
|
| 36,948 |
|
|
|
|
|
|
|
|
|
INCOME (LOSS) BEFORE TAXES |
| 304,760 |
|
| 638,359 |
|
| (993,475) |
Income tax expense (benefit) |
| (47,113) |
|
| 8,632 |
|
| (31,291) |
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS) | $ | 351,873 |
| $ | 629,727 |
| $ | (962,184) |
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss), net of tax : |
|
|
|
|
|
|
|
|
Unrealized appreciation (depreciation) ("URA(D)") on securities arising during the period |
| 163,080 |
|
| 175,482 |
|
| (92,966) |
Less: reclassification adjustment for realized losses (gains) included in net income (loss) |
| 25,468 |
|
| 5,080 |
|
| 2,021 |
Total URA(D) on securities arising during the period |
| 188,548 |
|
| 180,562 |
|
| (90,945) |
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments |
| 14,461 |
|
| 17,153 |
|
| (36,431) |
|
|
|
|
|
|
|
|
|
Benefit plan actuarial net gain (loss) for the period |
| (5,615) |
|
| (12,591) |
|
| (510) |
Reclassification adjustment for amortization of net (gain) loss included in net income (loss) |
| 6,300 |
|
| 5,453 |
|
| 5,021 |
Total benefit plan net gain (loss) for the period |
| 685 |
|
| (7,138) |
|
| 4,511 |
Total other comprehensive income (loss), net of tax |
| 203,694 |
|
| 190,577 |
|
| (122,865) |
|
|
|
|
|
|
|
|
|
COMPREHENSIVE INCOME (LOSS) | $ | 555,567 |
| $ | 820,304 |
| $ | (1,085,049) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements. |
|
|
|
|
|
|
|
|
S-3
SCHEDULE II - CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT |
|
|
|
|
|
|
|
|
|
|
CONDENSED STATEMENTS OF CASH FLOWS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Years Ended December 31, |
|
| |||||||
(Dollars in thousands) | 2020 |
| 2019 |
| 2018 |
|
| |||
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
Net income (loss) | $ | 351,873 |
| $ | 629,727 |
| $ | (962,184) |
|
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
Equity in (earnings) deficit of subsidiaries |
| (393,552) |
|
| (370,084) |
|
| 906,211 |
|
|
Dividends received from subsidiary |
| - |
|
| 300,000 |
|
| 90,000 |
|
|
Increase (decrease) in income taxes |
| 119,331 |
|
| 40,695 |
|
| 4,687 |
|
|
Change in equity adjustments in limited partnerships |
| 8,491 |
|
| 2,468 |
|
| (2,617) |
|
|
Change in other assets and liabilities, net |
| 20,179 |
|
| (16,615) |
|
| (20,450) |
|
|
Amortization of bond premium (accrual of bond discount) |
| 63 |
|
| 13 |
|
| 370 |
|
|
Net realized capital losses (gains) |
| 73,338 |
|
| (274,110) |
|
| 87,267 |
|
|
Net cash provided by (used in) operating activities |
| 179,722 |
|
| 312,094 |
|
| 103,284 |
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
Additional investment in subsidiaries |
| (949,464) |
|
| 15,174 |
|
| (1,383,659) |
|
|
Proceeds from fixed maturities matured/called - available for sale, at market value |
| 1,750 |
|
| - |
|
| 9,385 |
|
|
Proceeds from fixed maturities sold - available for sale, at market value |
| - |
|
| 12,000 |
|
| 96,836 |
|
|
Proceeds from equity maturities sold - at fair value |
| 61,883 |
|
| 18,905 |
|
| 182,552 |
|
|
Distributions from other invested assets |
| 1,113,176 |
|
| 389,200 |
|
| 1,401,606 |
|
|
Cost of fixed maturities acquired - available for sale, at market value |
| - |
|
| - |
|
| (13,510) |
|
|
Cost of equity securities acquired - at fair value |
| (184,542) |
|
| (32,597) |
|
| (39,449) |
|
|
Cost of other invested assets acquired |
| (1,211,726) |
|
| (388,598) |
|
| (1,407,352) |
|
|
Net change in short-term investments |
| 10,529 |
|
| (16,403) |
|
| 396 |
|
|
Net change in unsettled securities transaction |
| - |
|
| - |
|
| (99) |
|
|
Proceeds from repayment (cost of issuance) of note receivable, affiliated |
| 10,000 |
|
| (10,000) |
|
| 250,000 |
|
|
Net cash provided by (used in) investing activities |
| (1,148,394) |
|
| (12,319) |
|
| (903,294) |
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
Capital contribution from parent |
| - |
|
| - |
|
| 500,324 |
|
|
Proceeds from issuance of senior notes |
| 979,417 |
|
| - |
|
| - |
|
|
Cost of debt repurchase |
| (10,647) |
|
| - |
|
| - |
|
|
Proceeds from issuance (cost of repayment) for note payable, affiliated |
| - |
|
| (300,000) |
|
| 300,000 |
|
|
Net cash provided by (used in) financing activities |
| 968,770 |
|
| (300,000) |
|
| 800,324 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash |
| 98 |
|
| (225) |
|
| 314 |
|
|
Cash, beginning of period |
| 10,384 |
|
| 10,609 |
|
| 10,295 |
|
|
Cash, end of period | $ | 10,482 |
| $ | 10,384 |
| $ | 10,609 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash financing transaction: |
|
|
|
|
|
|
|
|
|
|
Equity value of non-cash capital contribution of affiliate from |
|
|
|
|
|
|
|
|
|
|
parent, net of cash held by affiliate | $ | - |
| $ | - |
| $ | 211,928 |
|
|
Non-cash contribution from parent |
| - |
|
| - |
|
| 221 |
|
|
Non-cash contribution to subsidiaries |
| - |
|
| - |
|
| (221) |
|
|
See notes to consolidated financial statements. |
|
|
S-4
F-56
CONSOLIDATED STATEMENTS OF OPERATIONS | Three Months Ended March 31, 2017 | |||||||||||
AND COMPREHENSIVE INCOME (LOSS): | As Previously | Impact of | ||||||||||
Reported | Revisions | As Revised | ||||||||||
(Dollars in thousands) | ||||||||||||
CLAIMS AND EXPENSES: | ||||||||||||
Commission, brokerage, taxes and fees | $ | 49,470 | $ | 3,037 | $ | 52,507 | ||||||
Total claims and expenses | 411,543 | 3,037 | 414,580 | |||||||||
INCOME (LOSS) BEFORE TAXES | 247,984 | (3,037 | ) | 244,947 | ||||||||
Income tax expense (benefit) | 76,940 | (1,171 | ) | 75,769 | ||||||||
NET INCOME (LOSS) | $ | 171,044 | $ | (1,866 | ) | $ | 169,178 | |||||
COMPREHENSIVE INCOME (LOSS) | $ | 182,587 | $ | (1,866 | ) | $ | 180,721 |
CONSOLIDATED STATEMENTS OF OPERATIONS | Three Months Ended December 31, 2016 | Three Months Ended September 30, 2016 | ||||||||||||||||||||||
AND COMPREHENSIVE INCOME (LOSS): | As Previously | Impact of | As Previously | Impact of | ||||||||||||||||||||
Reported | Revisions | As Revised | Reported | Revisions | As Revised | |||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||
CLAIMS AND EXPENSES: | ||||||||||||||||||||||||
Commission, brokerage, taxes and fees | $ | 63,471 | $ | (1,599 | ) | $ | 61,872 | $ | 85,563 | $ | (2,785 | ) | $ | 82,778 | ||||||||||
Total claims and expenses | 551,765 | (1,599 | ) | 550,166 | 462,009 | (2,785 | ) | 459,224 | ||||||||||||||||
INCOME (LOSS) BEFORE TAXES | 141,369 | 1,599 | 142,968 | 95,943 | 2,785 | 98,728 | ||||||||||||||||||
Income tax expense (benefit) | 27,693 | 296 | 27,989 | 21,145 | 1,280 | 22,425 | ||||||||||||||||||
NET INCOME (LOSS) | $ | 113,676 | $ | 1,303 | $ | 114,979 | $ | 74,798 | $ | 1,505 | $ | 76,303 | ||||||||||||
COMPREHENSIVE INCOME (LOSS) | $ | 22,012 | $ | 1,303 | $ | 23,315 | $ | 74,465 | $ | 1,505 | $ | 75,970 |
CONSOLIDATED STATEMENTS OF OPERATIONS | Three Months Ended June 30, 2016 | Three Months Ended March 31, 2016 | ||||||||||||||||||||||
AND COMPREHENSIVE INCOME (LOSS): | As Previously | Impact of | As Previously | Impact of | ||||||||||||||||||||
Reported | Revisions | As Revised | Reported | Revisions | As Revised | |||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||
CLAIMS AND EXPENSES: | ||||||||||||||||||||||||
Commission, brokerage, taxes and fees | $ | 72,126 | $ | (1,717 | ) | $ | 70,409 | $ | 68,822 | $ | (2,457 | ) | $ | 66,365 | ||||||||||
Total claims and expenses | 479,860 | (1,717 | ) | 478,143 | 435,306 | (2,457 | ) | 432,849 | ||||||||||||||||
INCOME (LOSS) BEFORE TAXES | 101,332 | 1,717 | 103,049 | 51,789 | 2,457 | 54,246 | ||||||||||||||||||
Income tax expense (benefit) | 32,982 | 695 | 33,677 | 12,863 | 393 | 13,256 | ||||||||||||||||||
NET INCOME (LOSS) | $ | 68,350 | $ | 1,022 | $ | 69,372 | $ | 38,926 | $ | 2,064 | $ | 40,990 | ||||||||||||
COMPREHENSIVE INCOME (LOSS) | $ | 124,381 | $ | 1,022 | $ | 125,403 | $ | 100,713 | $ | 2,064 | $ | 102,777 |
CONSOLIDATED STATEMENTS OF | Three Months Ended March 31, 2017 | |||||||||||
CHANGES IN STOCKHOLDER'S EQUITY | As Previously | Impact of | ||||||||||
Reported | Revisions | As Revised | ||||||||||
(Dollars in thousands, except share amounts) | ||||||||||||
RETAINED EARNINGS: | ||||||||||||
Balance, beginning of period | $ | 4,914,308 | $ | 32,993 | $ | 4,947,301 | ||||||
Net income (loss) | 171,044 | (1,866 | ) | 169,178 | ||||||||
Balance, end of period | 5,085,352 | 31,127 | 5,116,479 | |||||||||
TOTAL STOCKHOLDER'S EQUITY, END OF PERIOD | $ | 5,448,217 | $ | 31,127 | $ | 5,479,344 |
CONSOLIDATED STATEMENTS OF | Three Months Ended December 31, 2016 | Three Months Ended September 30, 2016 | ||||||||||||||||||||||
CHANGES IN STOCKHOLDER'S EQUITY | As Previously | Impact of | As Previously | Impact of | ||||||||||||||||||||
Reported | Revisions | As Revised | Reported | Revisions | As Revised | |||||||||||||||||||
(Dollars in thousands, except share amounts) | ||||||||||||||||||||||||
RETAINED EARNINGS: | ||||||||||||||||||||||||
Balance, beginning of period | $ | 4,800,632 | $ | 31,690 | $ | 4,832,322 | $ | 4,725,834 | $ | 30,185 | $ | 4,756,019 | ||||||||||||
Net income (loss) | 113,676 | 1,303 | 114,979 | 74,798 | 1,505 | 76,303 | ||||||||||||||||||
Balance, end of period | 4,914,308 | 32,993 | 4,947,301 | 4,800,632 | 31,690 | 4,832,322 | ||||||||||||||||||
TOTAL STOCKHOLDER'S EQUITY, END OF PERIOD | $ | 5,265,560 | $ | 32,993 | $ | 5,298,553 | $ | 5,240,955 | $ | 31,690 | $ | 5,272,645 |
CONSOLIDATED STATEMENTS OF | Three Months Ended June 30, 2016 | Three Months Ended March 31, 2016 | ||||||||||||||||||||||
CHANGES IN STOCKHOLDER'S EQUITY | As Previously | Impact of | As Previously | Impact of | ||||||||||||||||||||
Reported | Revisions | As Revised | Reported | Revisions | As Revised | |||||||||||||||||||
(Dollars in thousands, except share amounts) | ||||||||||||||||||||||||
RETAINED EARNINGS: | ||||||||||||||||||||||||
Balance, beginning of period | $ | 4,657,484 | $ | 29,163 | $ | 4,686,647 | $ | 4,618,558 | $ | 27,099 | $ | 4,645,657 | ||||||||||||
Net income (loss) | 68,350 | 1,022 | 69,372 | 38,926 | 2,064 | 40,990 | ||||||||||||||||||
Balance, end of period | 4,725,834 | 30,185 | 4,756,019 | 4,657,484 | 29,163 | 4,686,647 | ||||||||||||||||||
TOTAL STOCKHOLDER'S EQUITY, END OF PERIOD | $ | 5,164,053 | $ | 30,185 | $ | 5,194,238 | $ | 5,036,717 | $ | 29,163 | $ | 5,065,880 |
CONSOLIDATED STATEMENTS OF CASH FLOWS | Three Months Ended March 31, 2017 | |||||||||||
As Previously | Impact of | |||||||||||
Reported | Revisions | As Revised | ||||||||||
(Dollars in thousands) | ||||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||||
Net income (loss) | $ | 171,044 | $ | (1,866 | ) | $ | 169,178 | |||||
Decrease (increase) in income taxes | 75,304 | (1,172 | ) | 74,132 | ||||||||
Increase (decrease) in other net payable to reinsurers | (30,525 | ) | 3,347 | (27,178 | ) | |||||||
Change in other assets and liabilities, net | 18,204 | (309 | ) | 17,895 |
CONSOLIDATED STATEMENTS OF CASH FLOWS | Three Months Ended December 31, 2016 | Three Months Ended September 30, 2016 | ||||||||||||||||||||||
As Previously | Impact of | As Previously | Impact of | |||||||||||||||||||||
Reported | Revisions | As Revised | Reported | Revisions | As Revised | |||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||||||||||||||||
Net income (loss) | $ | 113,676 | $ | 1,303 | $ | 114,979 | $ | 74,798 | $ | 1,505 | $ | 76,303 | ||||||||||||
Decrease (increase) in income taxes | 27,046 | 298 | 27,344 | 25,089 | 1,279 | 26,368 | ||||||||||||||||||
Increase (decrease) in other net payable to reinsurers | (154,982 | ) | (850 | ) | (155,832 | ) | 160,982 | (3,653 | ) | 157,329 | ||||||||||||||
Change in other assets and liabilities, net | 141,045 | (751 | ) | 140,294 | (139,171 | ) | 869 | (138,302 | ) |
CONSOLIDATED STATEMENTS OF CASH FLOWS | Three Months Ended June 30, 2016 | Three Months Ended March 31, 2016 | ||||||||||||||||||||||
As Previously | Impact of | As Previously | Impact of | |||||||||||||||||||||
Reported | Revisions | As Revised | Reported | Revisions | As Revised | |||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||||||||||||||||
Net income (loss) | $ | 68,350 | $ | 1,022 | $ | 69,372 | $ | 38,926 | $ | 2,064 | $ | 40,990 | ||||||||||||
Decrease (increase) in income taxes | 1,644 | 696 | 2,340 | 6,546 | 393 | 6,939 | ||||||||||||||||||
Increase (decrease) in other net payable to reinsurers | (263,654 | ) | (1,989 | ) | (265,643 | ) | (106,588 | ) | (1,122 | ) | (107,710 | ) | ||||||||||||
Change in other assets and liabilities, net | (10,280 | ) | 271 | (10,009 | ) | 24,496 | (1,335 | ) | 23,161 |
Column A | Column B | Column C | Column D | |||||||||
Amount | ||||||||||||
Shown in | ||||||||||||
Market | Balance | |||||||||||
(Dollars in thousands) | Cost | Value | Sheet | |||||||||
Fixed maturities-available for sale | ||||||||||||
Bonds: | ||||||||||||
U.S. government and government agencies | $ | 671,449 | $ | 664,513 | $ | 664,513 | ||||||
State, municipalities and political subdivisions | 563,789 | 585,469 | 585,469 | |||||||||
Foreign government securities | 514,048 | 523,620 | 523,620 | |||||||||
Foreign corporate securities | 863,861 | 870,989 | 870,989 | |||||||||
Public utilities | 52,712 | 52,860 | 52,860 | |||||||||
All other corporate bonds | 2,093,124 | 2,107,350 | 2,107,350 | |||||||||
Mortgage - backed securities | ||||||||||||
Commercial | 52,121 | 51,751 | 51,751 | |||||||||
Agency residential | 114,435 | 113,288 | 113,288 | |||||||||
Non-agency residential | 51 | 58 | 58 | |||||||||
Redeemable preferred stock | 2,032 | 2,023 | 2,023 | |||||||||
Total fixed maturities-available for sale | 4,927,622 | 4,971,921 | 4,971,921 | |||||||||
Equity securities - available for sale, at fair value(1) | 592,816 | 822,375 | 822,375 | |||||||||
Short-term investments | 241,506 | 241,506 | 241,506 | |||||||||
Other invested assets | 835,597 | 838,694 | 838,694 | |||||||||
Other invested assets, at fair value (1) | 1,773,214 | 1,807,473 | 1,807,473 | |||||||||
Cash | 229,552 | 229,552 | 229,552 | |||||||||
Total investments and cash | $ | 8,600,307 | $ | 8,911,521 | $ | 8,911,521 | ||||||
(Some amounts may not reconcile due to rounding.) |
At December 31, | ||||||||
(Dollars and share amounts in thousands, except par value per share) | 2017 | 2016 | ||||||
ASSETS: | ||||||||
Fixed maturities - available for sale, at market value | $ | 108,010 | $ | 98,143 | ||||
(amortized cost: 2017, $109,008; 2016, $99,391) | ||||||||
Equity securities - available for sale, at fair value | 191,098 | 133,755 | ||||||
Other invested assets | 51,616 | 31,113 | ||||||
Other invested assets, at fair value | 1,807,473 | 1,766,626 | ||||||
Short-term investments | 4,507 | 13,013 | ||||||
Cash | 10,295 | 10,222 | ||||||
Total investments and cash | 2,172,999 | 2,052,872 | ||||||
Investment in subsidiaries, at equity in the underlying net assets | 3,842,806 | 3,931,264 | ||||||
Note receivable - affiliated | 250,000 | 250,000 | ||||||
Accrued investment income | 644 | 4,938 | ||||||
Advances to affiliates | (72 | ) | 218 | |||||
Other assets | 4,832 | 17,618 | ||||||
TOTAL ASSETS | $ | 6,271,209 | $ | 6,256,910 | ||||
LIABILITIES: | ||||||||
4.868% Senior notes due 6/1/2044 | $ | 396,834 | $ | 396,714 | ||||
6.6% Long term notes due 5/1/2067 | 236,561 | 236,462 | ||||||
Accrued interest on debt and borrowings | 2,727 | 3,537 | ||||||
Income taxes | 196,270 | 309,816 | ||||||
Due to affiliates | 25,475 | 9,705 | ||||||
Other liabilities | 619 | 2,123 | ||||||
Total liabilities | 858,486 | 958,357 | ||||||
STOCKHOLDER'S EQUITY: | ||||||||
Common stock, par value: $0.01; 3,000 shares authorized; | ||||||||
1,000 shares issued and outstanding (2017 and 2016) | - | - | ||||||
Additional paid-in capital | 387,841 | 387,567 | ||||||
Accumulated other comprehensive income (loss), net of deferred income | ||||||||
tax expense (benefit) of ($299) at 2017 and ($19,549) at 2016 | (942 | ) | (36,315 | ) | ||||
Retained earnings | 5,025,824 | 4,947,301 | ||||||
Total stockholder's equity | 5,412,723 | 5,298,553 | ||||||
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY | $ | 6,271,209 | $ | 6,256,910 | ||||
See notes to consolidated financial statements. |
Years Ended December 31, | ||||||||||||
(Dollars in thousands) | 2017 | 2016 | 2015 | |||||||||
REVENUES: | ||||||||||||
Net investment income | $ | 34,813 | $ | 33,748 | $ | 40,441 | ||||||
Net investment income - Affiliated | 4,300 | 4,300 | 4,300 | |||||||||
Net realized capital gains (losses) | 81,027 | (12,635 | ) | 119,075 | ||||||||
Realized gain of sale of subsidiary | - | (28,032 | ) | 94,704 | ||||||||
Other income (expense) | (297 | ) | (268 | ) | (263 | ) | ||||||
Net income (loss) of subsidiaries | (124,269 | ) | 288,851 | 274,362 | ||||||||
Total revenues | (4,426 | ) | 285,964 | 532,619 | ||||||||
EXPENSES: | ||||||||||||
Interest expense | 31,183 | 35,435 | 35,434 | |||||||||
Corporate expense | 5,233 | 6,713 | 5,251 | |||||||||
Total expenses | 36,416 | 42,148 | 40,685 | |||||||||
INCOME (LOSS) BEFORE TAXES | (40,842 | ) | 243,816 | 491,934 | ||||||||
Income tax expense (benefit) | (119,040 | ) | (57,828 | ) | 79,544 | |||||||
NET INCOME (LOSS) | $ | 78,198 | $ | 301,644 | $ | 412,390 | ||||||
Other comprehensive income (loss), net of tax : | ||||||||||||
Unrealized appreciation (depreciation) ("URA(D)") on securities arising during the period | (10,536 | ) | 4,114 | (23,157 | ) | |||||||
Less: reclassification adjustment for realized losses (gains) included in net income (loss) | 2,303 | 21,273 | (817 | ) | ||||||||
Total URA(D) on securities arising during the period | (8,233 | ) | 25,387 | (23,974 | ) | |||||||
Foreign currency translation adjustments | 37,427 | 2,849 | (54,578 | ) | ||||||||
Benefit plan actuarial net gain (loss) for the period | 1,027 | (7,488 | ) | 5,681 | ||||||||
Reclassification adjustment for amortization of net (gain) loss included in net income (loss) | 5,477 | 5,073 | 6,216 | |||||||||
Total benefit plan net gain (loss) for the period | 6,504 | (2,415 | ) | 11,897 | ||||||||
Total other comprehensive income (loss), net of tax | 35,698 | 25,821 | (66,655 | ) | ||||||||
COMPREHENSIVE INCOME (LOSS) | $ | 113,896 | $ | 327,465 | $ | 345,735 | ||||||
See notes to consolidated financial statements. |
Years Ended December 31, | ||||||||||||
(Dollars in thousands) | 2017 | 2016 | 2015 | |||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||||
Net income (loss) | $ | 78,198 | $ | 301,644 | $ | 412,390 | ||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||
Equity in (earnings) deficit of subsidiaries | 124,269 | (288,851 | ) | (274,362 | ) | |||||||
Decrease (increase) in advances to affiliates | - | - | 20,243 | |||||||||
Increase (decrease) in income taxes | (113,773 | ) | (44,260 | ) | 1,082 | |||||||
Change in equity adjustments in limited partnerships | (121 | ) | (220 | ) | - | |||||||
Change in other assets and liabilities, net | 31,044 | (2,187 | ) | (6,872 | ) | |||||||
Amortization of bond premium (accrual of bond discount) | 450 | 400 | 259 | |||||||||
Net realized capital losses (gains) | (81,027 | ) | 40,667 | (119,075 | ) | |||||||
Net cash provided by (used in) operating activities | 39,040 | 7,193 | 33,665 | |||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||
Additional investment in subsidiaries | 741 | (4,815 | ) | (2,837 | ) | |||||||
Proceeds from fixed maturities matured/called - available for sale, at market value | 6,612 | 5,244 | 2,972 | |||||||||
Proceeds from fixed maturities sold - available for sale, at market value | 7,189 | - | - | |||||||||
Proceeds from equity maturities sold - available for sale, at fair value | 37,634 | 23,777 | 43,402 | |||||||||
Proceeds from sale of subdisidiary (net of cash disposed) | - | 47,721 | 3,934 | |||||||||
Distributions from other invested assets | 132,064 | 93,959 | - | |||||||||
Cost of fixed maturities acquired - available for sale, at market value | (24,058 | ) | (39,214 | ) | (60,240 | ) | ||||||
Cost of equity securities acquired - available for sale, at fair value | (54,605 | ) | (32,361 | ) | (76,559 | ) | ||||||
Cost of other invest assets acquired | (152,446 | ) | (121,806 | ) | - | |||||||
Net change in short-term investments | 8,506 | 24,789 | 54,588 | |||||||||
Net change in unsettled securities transaction | (604 | ) | (497 | ) | 1,101 | |||||||
Net cash provided by (used in) investing activities | (38,967 | ) | (3,203 | ) | (33,639 | ) | ||||||
Net increase (decrease) in cash | 73 | 3,990 | 26 | |||||||||
Cash, beginning of period | 10,222 | 6,232 | 6,206 | |||||||||
Cash, end of period | $ | 10,295 | $ | 10,222 | $ | 6,232 | ||||||
Non-cash financing transaction: | ||||||||||||
Non-cash contribution from parent | $ | 598 | $ | 12,778 | $ | 12,497 | ||||||
Non-cash contribution to subsidiaries | (598 | ) | (12,778 | ) | (12,497 | ) | ||||||
NON-CASH TRANSACTION (2015): | ||||||||||||
Exchange of common shares of parent company, held as other invested assets at fair value, | $ | - | $ | - | $ | 1,773,214 | ||||||
for preferred shares of an affiliated company, held as other invested assets at fair value | ||||||||||||
See notes to consolidated financial statements. |
NOTES TO CONDENSED FINANCIAL INFORMATION
1) The accompanying condensed financial information should be read in conjunction with the Consolidated Financial Statements and related Notes of Everest Reinsurance Holdings, Inc. and its Subsidiaries.
2) The Senior Notes and Long-Term Subordinated Notes presented in Notes 5 and 6 are direct obligations of the Registrant.
3) Everest Re Group, Ltd., the parent company, entered into a $250,000 thousand long term promissory note agreement with Everest Reinsurance Holdings, Inc. as of December 31, 2014. The note was scheduled to mature on December 31, 2023 but was repaid in December 2018.
4) Effective December 31, 2018, Everest Reinsurance Holdings, Inc. entered into a $300,000 thousand long-term promissory note agreement with Everest Reinsurance (Bermuda) Ltd., an affiliated entity. The note was scheduled to mature on December 31, 2023 but was repaid in May, 2019.
5) Effective February 19, 2019, Everest Reinsurance Holdings, Inc. entered into a $10,000 thousand long term promissory note with Everest Indemnity Insurance Company, an affiliated entity. The note was scheduled to mature on February 19, 2049 but was repaid in September 2020.
6) In December, 2015, Holdings transferred the 9,719,971 Common Shares of Group, which it held as other invested assets, at fair value, valued at $1,773,214 thousand, to Preferred Holdings, an affiliated entity and subsidiary of Group, in exchange for 1,773.214 preferred shares of Preferred Holdings with a $1,000 thousand par value and 1.75% annual dividend rate. After the exchange, Holdings no longer holds any shares or has any ownership interest in Group.
S-5
EVEREST REINSURANCE HOLDINGS, INC. | ||||||||||||||||||||||||||
SCHEDULE III - SUPPLEMENTARY INSURANCE INFORMATION | ||||||||||||||||||||||||||
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Column A |
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| Column D |
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| Column E |
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| Column G |
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| Column H |
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| Column I |
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| Column J |
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| Reserve |
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| Incurred |
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Segment |
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| Loss and |
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| Amortization |
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| Deferred |
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| Unearned |
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| Net |
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| of Deferred |
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| Other |
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| Net |
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| Acquisition |
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| Adjustment |
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| Premium |
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| Premiums |
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| Investment |
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| Adjustment |
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| Acquisition |
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| Operating |
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(Dollars in thousands) |
| Costs |
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| Expenses |
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| Reserves |
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| Earned |
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| Income |
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| Expenses |
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| Costs |
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| Expenses |
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| Premium |
As of and for the year ended December 31, 2020 |
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Reinsurance | $ | 169,346 |
| $ | 7,896,076 |
| $ | 1,127,815 |
| $ | 4,484,693 |
| $ | 254,671 |
| $ | 3,209,160 |
| $ | 1,119,966 |
| $ | 119,320 |
| $ | 4,632,265 |
Insurance |
| 210,361 |
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| 3,758,874 |
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| 1,257,359 |
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| 1,921,883 |
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| 121,235 |
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| 1,398,984 |
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| 253,389 |
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| 281,713 |
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| 2,006,435 |
Total | $ | 379,707 |
| $ | 11,654,950 |
| $ | 2,385,174 |
| $ | 6,406,576 |
| $ | 375,906 |
| $ | 4,608,144 |
| $ | 1,373,355 |
| $ | 401,033 |
| $ | 6,638,700 |
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As of and for the year ended December 31, 2019 |
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Reinsurance | $ | 182,531 |
| $ | 7,138,800 |
| $ | 1,069,829 |
| $ | 3,796,136 |
| $ | 249,073 |
| $ | 2,692,680 |
| $ | 1,027,286 |
| $ | 110,032 |
| $ | 3,923,799 |
Insurance |
| 205,707 |
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| 3,070,719 |
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| 1,129,103 |
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| 1,692,899 |
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| 107,138 |
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| 1,136,442 |
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| 242,767 |
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| 240,869 |
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| 1,851,150 |
Total | $ | 388,238 |
| $ | 10,209,519 |
| $ | 2,198,932 |
| $ | 5,489,035 |
| $ | 356,211 |
| $ | 3,829,122 |
| $ | 1,270,053 |
| $ | 350,901 |
| $ | 5,774,949 |
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As of and for the year ended December 31, 2018 |
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Reinsurance | $ | 185,328 |
| $ | 7,417,941 |
| $ | 939,693 |
| $ | 3,386,386 |
| $ | 229,375 |
| $ | 3,811,747 |
| $ | 923,902 |
| $ | 97,927 |
| $ | 3,519,704 |
Insurance |
| 168,302 |
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| 2,749,077 |
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| 887,175 |
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| 1,452,672 |
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| 85,006 |
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| 999,271 |
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| 217,812 |
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| 195,420 |
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| 1,512,158 |
Total | $ | 353,630 |
| $ | 10,167,018 |
| $ | 1,826,868 |
| $ | 4,839,058 |
| $ | 314,381 |
| $ | 4,811,018 |
| $ | 1,141,714 |
| $ | 293,347 |
| $ | 5,031,862 |
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(Some amounts may not reconcile due to rounding.) |
S-6
SCHEDULE IV - REINSURANCE |
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Column A |
| Column B |
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| Column C |
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| Column D |
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| Column E |
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| Column F |
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| Ceded to |
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| Assumed |
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| Gross |
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| Other |
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| Net |
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(Dollars in thousands) |
| Amount |
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| Companies |
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| to Net |
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December 31, 2020 |
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Total property and liability |
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insurance premiums earned | $ | 2,591,613 |
| $ | 1,368,436 |
| $ | 5,183,399 |
| $ | 6,406,576 |
| $ | 80.9% |
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December 31, 2019 |
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Total property and liability |
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insurance premiums earned | $ | 2,255,387 |
| $ | 1,193,359 |
| $ | 4,427,006 |
| $ | 5,489,034 |
| $ | 80.7% |
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December 31, 2018 |
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Total property and liability |
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insurance premiums earned | $ | 1,903,576 |
| $ | 1,512,380 |
| $ | 4,447,862 |
| $ | 4,839,058 |
| $ | 91.9% |
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S-5S-
Column A | Column B | Column C | Column D | Column E | Column F | Column G | Column H | Column I | Column J | |||||||||||||||||||||||||||
Reserve | Incurred | |||||||||||||||||||||||||||||||||||
Geographic Area | for Losses | Loss and | Amortization | |||||||||||||||||||||||||||||||||
Deferred | and Loss | Unearned | Net | Loss | of Deferred | Other | Net | |||||||||||||||||||||||||||||
Acquisition | Adjustment | Premium | Premiums | Investment | Adjustment | Acquisition | Operating | Written | ||||||||||||||||||||||||||||
(Dollars in thousands) | Costs | Expenses | Reserves | Earned | Income | Expenses | Costs | Expenses | Premium | |||||||||||||||||||||||||||
December 31, 2017 | ||||||||||||||||||||||||||||||||||||
Domestic | $ | 260,706 | $ | 7,070,895 | $ | 1,352,987 | $ | 1,447,273 | $ | 253,852 | $ | 1,416,998 | $ | 108,989 | $ | 218,595 | $ | 2,108,449 | ||||||||||||||||||
International | 47,035 | 2,272,133 | 254,635 | 502,322 | 32,407 | 622,753 | 101,936 | 36,291 | 615,395 | |||||||||||||||||||||||||||
Total | $ | 307,741 | $ | 9,343,028 | $ | 1,607,622 | $ | 1,949,595 | $ | 286,259 | $ | 2,039,751 | $ | 210,925 | $ | 254,886 | $ | 2,723,844 | ||||||||||||||||||
�� | ||||||||||||||||||||||||||||||||||||
December 31, 2016 | ||||||||||||||||||||||||||||||||||||
Domestic | $ | 44,301 | $ | 6,489,232 | $ | 1,054,832 | $ | 1,583,134 | $ | 231,748 | $ | 1,142,675 | $ | 169,910 | $ | 210,712 | $ | 1,550,477 | ||||||||||||||||||
International | 24,320 | 1,842,056 | 257,553 | 510,915 | 33,059 | 207,605 | 111,514 | 34,254 | 497,645 | |||||||||||||||||||||||||||
Total | $ | 68,621 | $ | 8,331,288 | $ | 1,312,386 | $ | 2,094,049 | $ | 264,807 | $ | 1,350,280 | $ | 281,424 | $ | 244,966 | $ | 2,048,122 | ||||||||||||||||||
December 31, 2015 | ||||||||||||||||||||||||||||||||||||
Domestic | $ | 61,807 | $ | 6,033,374 | $ | 1,059,530 | $ | 1,562,544 | $ | 239,072 | $ | 924,742 | $ | 191,167 | $ | 180,516 | $ | 1,530,592 | ||||||||||||||||||
International | 24,596 | 1,907,346 | 290,269 | 581,216 | 34,181 | 394,819 | 121,158 | 34,303 | 562,691 | |||||||||||||||||||||||||||
Total | $ | 86,402 | $ | 7,940,720 | $ | 1,349,799 | $ | 2,143,760 | $ | 273,253 | $ | 1,319,561 | $ | 312,325 | $ | 214,819 | $ | 2,093,283 | ||||||||||||||||||
(Some amounts may not reconcile due to rounding.) |
Column A | Column B | Column C | Column D | Column E | Column F | |||||||||||||||
Ceded to | Assumed | |||||||||||||||||||
Gross | Other | from Other | Net | Assumed | ||||||||||||||||
(Dollars in thousands) | Amount | Companies | Companies | Amount | to Net | |||||||||||||||
December 31, 2017 | ||||||||||||||||||||
Total property and liability | ||||||||||||||||||||
insurance premiums earned | $ | 1,655,023 | $ | 3,548,264 | $ | 3,842,836 | $ | 1,949,595 | 197.1 | % | ||||||||||
December 31, 2016 | ||||||||||||||||||||
Total property and liability | ||||||||||||||||||||
insurance premiums earned | $ | 1,608,783 | $ | 3,007,332 | $ | 3,492,598 | $ | 2,094,049 | 166.8 | % | ||||||||||
December 31, 2015 | ||||||||||||||||||||
Total property and liability | ||||||||||||||||||||
insurance premiums earned | $ | 1,439,795 | $ | 2,933,519 | $ | 3,637,484 | $ | 2,143,760 | 169.7 | % |