UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED: SeptemberJune 30, 20162017
| | Commission file number: 1-14527 |
EVEREST REINSURANCE HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Delaware | | 22-3263609 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
477 Martinsville Road
Post Office Box 830
Liberty Corner, New Jersey 07938-0830
(908) 604-3000
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive office)
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.
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).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer" andfiler," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer | | | Accelerated filer | |
Non-accelerated filer | X | | Smaller reporting company | |
(Do not check if 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.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
| | Number of Shares Outstanding |
Class | | At NovemberAugust 1, 20162017 |
Common Shares, $0.01 par value | | 1,000 |
The Registrant meets the conditions set forth in General Instruction H (1)(a) and (b) of Form 10-Q and is therefore filing this form with the reduced disclosure format permitted by General Instruction H of Form 10-Q.
EVEREST REINSURANCE HOLDINGS, INC.
Table of Contents
Form 10-Q
Page
PART I
FINANCIAL INFORMATION
| | | | |
Item 1. | | Financial Statements | |
| | | | |
| | Consolidated Balance Sheets at SeptemberJune 30, 20162017 (unaudited) and | |
| | | December 31, 20152016 | 1 |
| | | |
| | Consolidated Statements of Operations and Comprehensive Income (Loss) for the | |
| | | three and ninesix months ended SeptemberJune 30, 20162017 and 20152016 (unaudited) | 2 |
| | | | |
| | Consolidated Statements of Changes in Stockholder's Equity for the three and nine | |
| | | six months ended SeptemberJune 30, 20162017 and 20152016 (unaudited) | 3 |
| | | | |
| | Consolidated Statements of Cash Flows for the ninesix months ended | |
| | | SeptemberJune 30, 20162017 and 20152016 (unaudited) | 4 |
| | | | |
| | Notes to Consolidated Interim Financial Statements (unaudited) | 5 |
| | | | |
Item 2. | | Management's Discussion and Analysis of Financial Condition and | |
| | | Results of Operation | 2832 |
| | | |
Item 3. | | Quantitative and Qualitative Disclosures About Market Risk | 4448 |
| | | | |
Item 4. | | Controls and Procedures | 4448 |
| | | | |
PART II
OTHER INFORMATION
| | | | |
Item 1. | | Legal Proceedings | 4548 |
| | | | |
Item 1A. | | Risk Factors | 4549 |
| | | |
Item 2. | | Unregistered Sales of Equity Securities and Use of Proceeds | 4549 |
| | | |
Item 3. | | Defaults Upon Senior Securities | 4549 |
| | | |
Item 4. | | Mine Safety Disclosures | 4549 |
| | | |
Item 5. | | Other Information | 4549 |
| | | |
Item 6. | | Exhibits | 4650 |
EVEREST REINSURANCE HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
| | September 30, | | | December 31, | | | June 30, | | | December 31, | |
(Dollars in thousands, except par value per share) | | 2016 | | | 2015 | | | 2017 | | | 2016 | |
| | (unaudited) | | | | | | (unaudited) | |
ASSETS: | | | | | | | | | | | | |
Fixed maturities - available for sale, at market value | | $ | 6,014,941 | | | $ | 5,356,477 | | | $ | 6,140,028 | | | $ | 5,970,496 | |
(amortized cost: 2016, $5,862,000; 2015, $5,335,472) | | | | | | | | | |
Fixed maturities - available for sale, at fair value | | | 3,982 | | | | 2,102 | | |
(amortized cost: 2017, $6,071,568; 2016, $5,910,494) | | | | | | | | | |
Equity securities - available for sale, at fair value | | | 961,115 | | | | 1,215,377 | | | | 934,110 | | | | 887,800 | |
Short-term investments | | | 188,359 | | | | 563,536 | | | | 176,405 | | | | 306,286 | |
Other invested assets (cost: 2016, $615,735 2015, $450,154) | | | 615,735 | | | | 450,154 | | |
Other invested assets (cost: 2017, 773,322; 2016, $613,680) | | | | 774,646 | | | | 613,740 | |
Other invested assets, at fair value | | | 1,725,367 | | | | 1,773,214 | | | | 1,724,532 | | | | 1,766,626 | |
Cash | | | 285,178 | | | | 155,429 | | | | 242,565 | | | | 297,794 | |
Total investments and cash | | | 9,794,677 | | | | 9,516,289 | | | | 9,992,286 | | | | 9,842,742 | |
Note receivable - affiliated | | | 250,000 | | | | 250,000 | | | | 250,000 | | | | 250,000 | |
Accrued investment income | | | 47,699 | | | | 41,727 | | | | 43,799 | | | | 45,323 | |
Premiums receivable | | | 1,288,137 | | | | 1,129,656 | | | | 1,343,051 | | | | 1,128,639 | |
Reinsurance receivables - unaffiliated | | | 827,281 | | | | 716,982 | | | | 893,608 | | | | 887,657 | |
Reinsurance receivables - affiliated | | | 3,771,322 | | | | 3,742,105 | | | | 3,798,963 | | | | 3,686,130 | |
Funds held by reinsureds | | | 189,984 | | | | 176,712 | | | | 193,800 | | | | 190,421 | |
Deferred acquisition costs | | | 77,725 | | | | 92,651 | | | | 48,827 | | | | 68,621 | |
Prepaid reinsurance premiums | | | 869,282 | | | | 772,686 | | | | 965,909 | | | | 781,384 | |
Other assets | | | 318,615 | | | | 256,395 | | | | 231,416 | | | | 202,519 | |
TOTAL ASSETS | | $ | 17,434,722 | | | $ | 16,695,203 | | | $ | 17,761,659 | | | $ | 17,083,436 | |
| | | | | | | | | | | | | | | | |
LIABILITIES: | | | | | | | | | | | | | | | | |
Reserve for losses and loss adjustment expenses | | $ | 8,306,404 | | | $ | 7,940,720 | | | $ | 8,286,599 | | | $ | 8,331,288 | |
Unearned premium reserve | | | 1,448,915 | | | | 1,349,799 | | | | 1,424,957 | | | | 1,312,386 | |
Funds held under reinsurance treaties | | | 113,566 | | | | 101,531 | | | | 116,397 | | | | 110,836 | |
Losses in the course of payment | | | 127,976 | | | | 125,592 | | | | 333,262 | | | | 82,915 | |
Commission reserves | | | 71,518 | | | | 51,873 | | | | 39,236 | | | | 52,037 | |
Other net payable to reinsurers | | | 1,020,995 | | | | 1,225,260 | | | | 906,305 | | | | 815,298 | |
4.868% Senior notes due 6/1/2044 | | | 396,684 | | | | 396,594 | | | | 396,774 | | | | 396,714 | |
6.6% Long term notes due 5/1/2067 | | | 236,438 | | | | 236,364 | | | | 236,511 | | | | 236,462 | |
Accrued interest on debt and borrowings | | | 12,341 | | | | 3,537 | | | | 2,632 | | | | 3,537 | |
Income taxes | | | 163,956 | | | | 68,024 | | | | 173,693 | | | | 148,940 | |
Unsettled securities payable | | | 66,976 | | | | 15,040 | | | | 46,183 | | | | 27,121 | |
Other liabilities | | | 227,998 | | | | 249,658 | | | | 276,316 | | | | 267,349 | |
Total liabilities | | | 12,193,767 | | | | 11,763,992 | | | | 12,238,865 | | | | 11,784,883 | |
| | | | | | | | | | | | | | | | |
Commitments and Contingencies (Note 5) | | | | | | | | | |
Commitments and Contingencies (Note 7) | | | | | | | | | |
| | | | | | | | | | | | | | | | |
STOCKHOLDER'S EQUITY: | | | | | | | | | | | | | | | | |
Common stock, par value: $0.01; 3,000 shares authorized; | | | | | | | | | | | | | | | | |
1,000 shares issued and outstanding (2016 and 2015) | | | - | | | | - | | |
1,000 shares issued and outstanding (2017 and 2016) | | | | - | | | | - | |
Additional paid-in capital | | | 384,974 | | | | 374,789 | | | | 387,705 | | | | 387,567 | |
Accumulated other comprehensive income (loss), net of deferred income tax expense | | | | | | | | | | | | | | | | |
(benefit) of $29,808 at 2016 and ($33,458) at 2015 | | | 55,349 | | | | (62,136 | ) | |
(benefit) of ($9,175) at 2017 and ($19,549) at 2016 | | | | (17,048 | ) | | | (36,315 | ) |
Retained earnings | | | 4,800,632 | | | | 4,618,558 | | | | 5,152,137 | | | | 4,947,301 | |
Total stockholder's equity | | | 5,240,955 | | | | 4,931,211 | | | | 5,522,794 | | | | 5,298,553 | |
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY | | $ | 17,434,722 | | | $ | 16,695,203 | | | $ | 17,761,659 | | | $ | 17,083,436 | |
| | | | | | | | | | | | | | | | |
The accompanying notes are an integral part of the consolidated financial statements. | | | | | | | | | | | | | | | | |
EVEREST REINSURANCE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
| | Three Months Ended | | | Nine Months Ended | |
| | September 30, | | | September 30, | |
(Dollars in thousands) | | 2016 | | | 2015 | | | 2016 | | | 2015 | |
| | (unaudited) | | (unaudited) | |
REVENUES: | | | | | | | | | | | | |
Premiums earned | | $ | 556,653 | | | $ | 546,050 | | | $ | 1,527,433 | | | $ | 1,588,536 | |
Net investment income | | | 64,570 | | | | 63,363 | | | | 196,887 | | | | 206,869 | |
Net realized capital gains (losses): | | | | | | | | | | | | | | | | |
Other-than-temporary impairments on fixed maturity securities | | | (836 | ) | | | (10,502 | ) | | | (25,242 | ) | | | (43,433 | ) |
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 | | | | (28,032 | ) | | | 94,704 | |
Other net realized capital gains (losses) | | | (21,195 | ) | | | (205,897 | ) | | | (34,001 | ) | | | (100,445 | ) |
Total net realized capital gains (losses) | | | (50,063 | ) | | | (121,695 | ) | | | (87,275 | ) | | | (49,174 | ) |
Other income (expense) | | | (13,208 | ) | | | 10,828 | | | | (10,806 | ) | | | 38,950 | |
Total revenues | | | 557,952 | | | | 498,546 | | | | 1,626,239 | | | | 1,785,181 | |
| | | | | | | | | | | | | | | | |
CLAIMS AND EXPENSES: | | | | | | | | | | | | | | | | |
Incurred losses and loss adjustment expenses | | | 301,603 | | | | 370,754 | | | | 936,201 | | | | 1,002,513 | |
Commission, brokerage, taxes and fees | | | 85,563 | | | | 72,151 | | | | 226,511 | | | | 241,635 | |
Other underwriting expenses | | | 64,149 | | | | 56,953 | | | | 181,706 | | | | 157,069 | |
Corporate expenses | | | 1,835 | | | | 1,637 | | | | 6,181 | | | | 5,031 | |
Interest, fee and bond issue cost amortization expense | | | 8,859 | | | | 8,859 | | | | 26,576 | | | | 26,576 | |
Total claims and expenses | | | 462,009 | | | | 510,354 | | | | 1,377,175 | | | | 1,432,824 | |
| | | | | | | | | | | | | | | | |
INCOME (LOSS) BEFORE TAXES | | | 95,943 | | | | (11,808 | ) | | | 249,064 | | | | 352,357 | |
Income tax expense (benefit) | | | 21,145 | | | | (7,149 | ) | | | 66,990 | | | | 107,306 | |
| | | | | | | | | | | | | | | | |
NET INCOME (LOSS) | | $ | 74,798 | | | $ | (4,659 | ) | | $ | 182,074 | | | $ | 245,051 | |
| | | | | | | | | | | | | | | | |
Other comprehensive income (loss), net of tax: | | | | | | | | | | | | | | | | |
Unrealized appreciation (depreciation) ("URA(D)") on securities arising during the period | | | 3,808 | | | | (29,878 | ) | | | 62,672 | | | | (49,866 | ) |
Less: reclassification adjustment for realized losses (gains) included in net income (loss) | | | (2,767 | ) | | | 11,625 | | | | 23,085 | | | | 48,951 | |
Total URA(D) on securities arising during the period | | | 1,041 | | | | (18,253 | ) | | | 85,757 | | | | (915 | ) |
| | | | | | | | | | | | | | | | |
Foreign currency translation adjustments | | | (2,642 | ) | | | (27,473 | ) | | | 27,779 | | | | (44,636 | ) |
| | | | | | | | | | | | | | | | |
Benefit plan actuarial net gain (loss) for the period | | | - | | | | - | | | | - | | | | - | |
Reclassification adjustment for amortization of net (gain) loss included in net income (loss) | | | 1,268 | | | | 1,556 | | | | 3,949 | | | | 4,769 | |
Total benefit plan net gain (loss) for the period | | | 1,268 | | | | 1,556 | | | | 3,949 | | | | 4,769 | |
Total other comprehensive income (loss), net of tax | | | (333 | ) | | | (44,170 | ) | | | 117,485 | | | | (40,782 | ) |
| | | | | | | | | | | | | | | | |
COMPREHENSIVE INCOME (LOSS) | | $ | 74,465 | | | $ | (48,829 | ) | | $ | 299,559 | | | $ | 204,269 | |
| | | | | | | | | | | | | | | | |
The accompanying notes are an integral part of the consolidated financial statements. | | | | | | | | | | | | | | | | |
| | Three Months Ended | | | Six Months Ended | |
| | June 30, | | | June 30, | |
(Dollars in thousands) | | 2017 | | | 2016 | | | 2017 | | | 2016 | |
| | (unaudited) | | | (unaudited) | |
REVENUES: | | | | | | | | | | | | |
Premiums earned | | $ | 468,197 | | | $ | 488,855 | | | $ | 939,252 | | | $ | 970,780 | |
Net investment income | | | 71,900 | | | | 73,872 | | | | 132,749 | | | | 132,317 | |
Net realized capital gains (losses): | | | | | | | | | | | | | | | | |
Other-than-temporary impairments on fixed maturity securities | | | (1,574 | ) | | | (1,391 | ) | | | (2,706 | ) | | | (24,406 | ) |
Other-than-temporary impairments on fixed maturity securities | | | | | | | | | | | | | | | | |
transferred to other comprehensive income (loss) | | | - | | | | - | | | | - | | | | - | |
Other net realized capital gains (losses) | | | (90,717 | ) | | | 30,556 | | | | 28,183 | | | | (12,806 | ) |
Total net realized capital gains (losses) | | | (92,291 | ) | | | 29,165 | | | | 25,477 | | | | (37,212 | ) |
Other income (expense) | | | 10,655 | | | | (10,700 | ) | | | 20,510 | | | | 2,402 | |
Total revenues | | | 458,461 | | | | 581,192 | | | | 1,117,988 | | | | 1,068,287 | |
| | | | | | | | | | | | | | | | |
CLAIMS AND EXPENSES: | | | | | | | | | | | | | | | | |
Incurred losses and loss adjustment expenses | | | 297,228 | | | | 338,536 | | | | 586,950 | | | | 634,598 | |
Commission, brokerage, taxes and fees | | | 60,513 | | | | 70,409 | | | | 113,020 | | | | 136,774 | |
Other underwriting expenses | | | 64,197 | | | | 58,330 | | | | 124,092 | | | | 117,557 | |
Corporate expenses | | | 1,512 | | | | 2,010 | | | | 5,109 | | | | 4,346 | |
Interest, fee and bond issue cost amortization expense | | | 7,954 | | | | 8,858 | | | | 16,813 | | | | 17,717 | |
Total claims and expenses | | | 431,404 | | | | 478,143 | | | | 845,984 | | | | 910,992 | |
| | | | | | | | | | | | | | | | |
INCOME (LOSS) BEFORE TAXES | | | 27,057 | | | | 103,049 | | | | 272,004 | | | | 157,295 | |
Income tax expense (benefit) | | | (8,601 | ) | | | 33,677 | | | | 67,168 | | | | 46,933 | |
| | | | | | | | | | | | | | | | |
NET INCOME (LOSS) | | $ | 35,658 | | | $ | 69,372 | | | $ | 204,836 | | | $ | 110,362 | |
| | | | | | | | | | | | | | | | |
Other comprehensive income (loss), net of tax: | | | | | | | | | | | | | | | | |
Unrealized appreciation (depreciation) ("URA(D)") on securities arising during the period | | | 3,825 | | | | 39,264 | | | | 13,264 | | | | 58,864 | |
Less: reclassification adjustment for realized losses (gains) included in net income (loss) | | | (3,477 | ) | | | (63 | ) | | | (6,944 | ) | | | 25,852 | |
Total URA(D) on securities arising during the period | | | 348 | | | | 39,201 | | | | 6,320 | | | | 84,716 | |
| | | | | | | | | | | | | | | | |
Foreign currency translation adjustments | | | 5,372 | | | | 15,489 | | | | 8,939 | | | | 30,421 | |
| | | | | | | | | | | | | | | | |
Benefit plan actuarial net gain (loss) for the period | | | - | | | | - | | | | - | | | | - | |
Reclassification adjustment for amortization of net (gain) loss included in net income (loss) | | | 2,004 | | | | 1,341 | | | | 4,008 | | | | 2,681 | |
Total benefit plan net gain (loss) for the period | | | 2,004 | | | | 1,341 | | | | 4,008 | | | | 2,681 | |
Total other comprehensive income (loss), net of tax | | | 7,724 | | | | 56,031 | | | | 19,267 | | | | 117,818 | |
| | | | | | | | | | | | | | | | |
COMPREHENSIVE INCOME (LOSS) | | $ | 43,382 | | | $ | 125,403 | | | $ | 224,103 | | | $ | 228,180 | |
| | | | | | | | | | | | | | | | |
The accompanying notes are an integral part of the consolidated financial statements. | | | | | | | | | | | | | | | | |
EVEREST REINSURANCE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF
CHANGES IN STOCKHOLDER'S EQUITY
| | Three Months Ended | | | Nine Months Ended | | | Three Months Ended | | | Six Months Ended | |
| | September 30, | | | September 30, | | | June 30, | | | June 30, | |
(Dollars in thousands, except share amounts) | | 2016 | | | 2015 | | | 2016 | | | 2015 | | | 2017 | | | 2016 | | | 2017 | | | 2016 | |
| | (unaudited) | | | (unaudited) | | | (unaudited) | | | (unaudited) | |
COMMON STOCK (shares outstanding): | | | | | | | | | | | | | | | | | | | | | | | | |
Balance, beginning of period | | | 1,000 | | | | 1,000 | | | | 1,000 | | | | 1,000 | | | | 1,000 | | | | 1,000 | | | | 1,000 | | | | 1,000 | |
Balance, end of period | | | 1,000 | | | | 1,000 | | | | 1,000 | | | | 1,000 | | | | 1,000 | | | | 1,000 | | | | 1,000 | | | | 1,000 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
ADDITIONAL PAID-IN CAPITAL: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance, beginning of period | | $ | 382,537 | | | $ | 369,284 | | | $ | 374,789 | | | $ | 362,293 | | | $ | 387,637 | | | $ | 379,582 | | | $ | 387,567 | | | $ | 374,789 | |
Share-based compensation plans | | | 2,437 | | | | 3,282 | | | | 10,185 | | | | 10,273 | | | | 68 | | | | 2,955 | | | | 138 | | | | 7,748 | |
Balance, end of period | | | 384,974 | | | | 372,566 | | | | 384,974 | | | | 372,566 | | | | 387,705 | | | | 382,537 | | | | 387,705 | | | | 382,537 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS), | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
NET OF DEFERRED INCOME TAXES: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance, beginning of period | | | 55,682 | | | | 7,907 | | | | (62,136 | ) | | | 4,519 | | | | (24,772 | ) | | | (349 | ) | | | (36,315 | ) | | | (62,136 | ) |
Net increase (decrease) during the period | | | (333 | ) | | | (44,170 | ) | | | 117,485 | | | | (40,782 | ) | | | 7,724 | | | | 56,031 | | | | 19,267 | | | | 117,818 | |
Balance, end of period | | | 55,349 | | | | (36,263 | ) | | | 55,349 | | | | (36,263 | ) | | | (17,048 | ) | | | 55,682 | | | | (17,048 | ) | | | 55,682 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
RETAINED EARNINGS: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance, beginning of period | | | 4,725,834 | | | | 4,455,615 | | | | 4,618,558 | | | | 4,205,905 | | | | 5,116,479 | | | | 4,686,647 | | | | 4,947,301 | | | | 4,645,657 | |
Net income (loss) | | | 74,798 | | | | (4,659 | ) | | | 182,074 | | | | 245,051 | | | | 35,658 | | | | 69,372 | | | | 204,836 | | | | 110,362 | |
Balance, end of period | | | 4,800,632 | | | | 4,450,956 | | | | 4,800,632 | | | | 4,450,956 | | | | 5,152,137 | | | | 4,756,019 | | | | 5,152,137 | | | | 4,756,019 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
TOTAL STOCKHOLDER'S EQUITY, END OF PERIOD | | $ | 5,240,955 | | | $ | 4,787,259 | | | $ | 5,240,955 | | | $ | 4,787,259 | | | $ | 5,522,794 | | | $ | 5,194,238 | | | $ | 5,522,794 | | | $ | 5,194,238 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
The accompanying notes are an integral part of the consolidated financial statements. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
EVEREST REINSURANCE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
| | Nine Months Ended | | | Six Months Ended | |
| | September 30, | | | June 30, | |
(Dollars in thousands) | | 2016 | | | 2015 | | | 2017 | | | 2016 | |
| | (unaudited) | | | (unaudited) | |
CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | | | | | | | | |
Net income (loss) | | $ | 182,074 | | | $ | 245,051 | | | $ | 204,836 | | | $ | 110,362 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | | | | | | | | | | |
Decrease (increase) in premiums receivable | | | (155,717 | ) | | | (225,922 | ) | | | (213,530 | ) | | | 13,635 | |
Decrease (increase) in funds held by reinsureds, net | | | (948 | ) | | | 589 | | | | 2,353 | | | | (3,111 | ) |
Decrease (increase) in reinsurance receivables | | | (120,745 | ) | | | (169,328 | ) | | | (115,273 | ) | | | (9,694 | ) |
Decrease (increase) in income taxes | | | 33,279 | | | | (212 | ) | | | 14,411 | | | | 9,279 | |
Decrease (increase) in prepaid reinsurance premiums | | | (94,400 | ) | | | (44,177 | ) | | | (184,385 | ) | | | 24,418 | |
Increase (decrease) in reserve for losses and loss adjustment expenses | | | 322,226 | | | | 107,006 | | | | (55,590 | ) | | | 257,415 | |
Increase (decrease) in unearned premiums | | | 94,847 | | | | 34,627 | | | | 111,848 | | | | (89,903 | ) |
Increase (decrease) in other net payable to reinsurers | | | (209,260 | ) | | | (50,813 | ) | | | 89,702 | | | | (373,353 | ) |
Increase (decrease) in losses in course of payment | | | 1,860 | | | | 133,244 | | | | 250,153 | | | | 1,813 | |
Change in equity adjustments in limited partnerships | | | (17,067 | ) | | | (16,409 | ) | | | (8,728 | ) | | | (11,352 | ) |
Distribution of limited partnership income | | | 31,739 | | | | 36,883 | | | | 12,483 | | | | 22,822 | |
Change in other assets and liabilities, net | | | (124,955 | ) | | | (2,719 | ) | | | (10,031 | ) | | | 13,152 | |
Non-cash compensation expense | | | 7,453 | | | | 6,303 | | | | 5,186 | | | | 5,433 | |
Amortization of bond premium (accrual of bond discount) | | | 13,754 | | | | 13,978 | | | | 9,107 | | | | 8,972 | |
Amortization of underwriting discount on senior notes | | | 3 | | | | 3 | | | | 2 | | | | 2 | |
Net realized capital (gains) losses | | | 87,275 | | | | 49,174 | | | | (25,477 | ) | | | 37,212 | |
Net cash provided by (used in) operating activities | | | 51,418 | | | | 117,278 | | | | 87,067 | | | | 17,102 | |
| | | | | | | | | | | | | | | | |
CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | | | | | | | | | | | | |
Proceeds from fixed maturities matured/called - available for sale, at market value | | | 572,224 | | | | 696,268 | | | | 555,649 | | | | 368,179 | |
Proceeds from fixed maturities sold - available for sale, at market value | | | 433,655 | | | | 418,284 | | | | 652,490 | | | | 296,888 | |
Proceeds from fixed maturities sold - available for sale, at fair value | | | 1,587 | | | | 1,824 | | | | - | | | | 1,587 | |
Proceeds from equity securities sold - available for sale, at market value | | | - | | | | 16 | | |
Proceeds from equity securities sold - available for sale, at fair value | | | 531,894 | | | | 442,276 | | | | 249,653 | | | | 421,980 | |
Proceeds from sale of subsidiary (net of cash disposed) | | | 47,721 | | | | 3,934 | | |
Distributions from other invested assets | | | 1,119,428 | | | | 36,130 | | | | 1,018,997 | | | | 696,889 | |
Cost of fixed maturities acquired - available for sale, at market value | | | (1,516,092 | ) | | | (1,403,187 | ) | | | (1,348,415 | ) | | | (923,755 | ) |
Cost of fixed maturities acquired - available for sale, at fair value | | | (3,940 | ) | | | (234 | ) | |
Cost of equity securities acquired - available for sale, at fair value | | | (253,041 | ) | | | (442,306 | ) | | | (237,894 | ) | | | (180,406 | ) |
Cost of other invested assets acquired | | | (1,299,682 | ) | | | (49,575 | ) | | | (1,182,157 | ) | | | (862,717 | ) |
Net change in short-term investments | | | 376,832 | | | | 176,876 | | | | 130,362 | | | | 178,128 | |
Net change in unsettled securities transactions | | | 40,771 | | | | (12,069 | ) | | | 6,648 | | | | 36,119 | |
Net cash provided by (used in) investing activities | | | 51,357 | | | | (131,763 | ) | | | (154,667 | ) | | | 32,892 | |
| | | | | | | | | | | | | | | | |
CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | | | | | | | | | | | |
Tax benefit from share-based compensation | | | 2,732 | | | | 3,970 | | | | (5,048 | ) | | | 2,315 | |
Net cash provided by (used in) financing activities | | | 2,732 | | | | 3,970 | | | | (5,048 | ) | | | 2,315 | |
| | | | | | | | | | | | | | | | |
EFFECT OF EXCHANGE RATE CHANGES ON CASH | | | 24,242 | | | | (37,328 | ) | | | 17,419 | | | | 22,189 | |
| | | | | | | | | | | | | | | | |
Net increase (decrease) in cash | | | 129,749 | | | | (47,843 | ) | | | (55,229 | ) | | | 74,498 | |
Cash, beginning of period | | | 155,429 | | | | 323,975 | | | | 297,794 | | | | 155,429 | |
Cash, end of period | | $ | 285,178 | | | $ | 276,132 | | | $ | 242,565 | | | $ | 229,927 | |
| | | | | | | | | | | | | | | | |
SUPPLEMENTAL CASH FLOW INFORMATION: | | | | | | | | | | | | | | | | |
Income taxes paid (recovered) | | $ | 30,877 | | | $ | 104,727 | | | $ | 52,641 | | | $ | 35,375 | |
Interest paid | | | 17,608 | | | | 17,608 | | | | 17,608 | | | | 17,608 | |
| | | | | | | | | | | | | | | | |
The accompanying notes are an integral part of the consolidated financial statements. | | | | | | | | | | | | | | | | |
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)
For the Three and NineSix Months Ended SeptemberJune 30, 20162017 and 20152016
1. GENERAL
As used in this document, "Holdings" means Everest Reinsurance Holdings, Inc., a Delaware company and direct subsidiary of Everest Underwriting Group (Ireland) Limited ("Holdings Ireland"); "Group" means Everest Re Group, Ltd. (Holdings Ireland's parent); "Bermuda Re" means Everest Reinsurance (Bermuda), Ltd., a subsidiary of Group; "Everest Re" means Everest Reinsurance Company and its subsidiaries, a subsidiary of Holdings (unless the context otherwise requires) and the "Company" means Holdings and its subsidiaries.
During the third quarter of 2016, the Company established domestic subsidiaries, Everest Premier Insurance Company ("Everest Premier") and Everest Denali Insurance Company ("Everest Denali"), which will be used in the continued expansion of the Insurance operations.
Effective August 24, 2016, the Company sold its wholly-owned subsidiary, Heartland Crop Insurance Company ("Heartland"), a managing agent for crop insurance, to CGB Diversified Services, Inc. ("CGB"). The operating results of Heartland for the period owned are included within the Company's financial statements.
Effective July 13, 2015, the Company sold all of the outstanding shares of capital stock of a wholly-owned subsidiary entity, Mt. McKinley Insurance Company ("Mt. McKinley"), to Clearwater Insurance Company. The operating results of Mt. McKinley for the three and nine months ended September 30, 2015 are included within the Company's financial statements.
2. BASIS OF PRESENTATION
The unaudited consolidated financial statements of the Company for the three and ninesix months ended SeptemberJune 30, 20162017 and 20152016 include all adjustments, consisting of normal recurring accruals, which, in the opinion of management, are necessary for a fair statement of the results on an interim basis. Certain financial information, which is normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"), has been omitted since it is not required for interim reporting purposes. The December 31, 20152016 consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP. The results for the three and ninesix months ended SeptemberJune 30, 20162017 and 20152016 are not necessarily indicative of the results for a full year. These financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the years ended December 31, 2016, 2015 2014 and 20132014 included in the Company's most recent Form 10-K filing.
All intercompany accounts and transactions have been eliminated.
Certain reclassifications and format changes have been made to prior years' amounts to conform to the 20162017 presentation.
Application of Recently Issued Accounting Standard Changes.
Disclosures about Short-Duration Contracts. In May 2015, the FASB issued ASU 2015-09, authoritative guidance regarding required disclosures associated with short duration insurance contracts. The new disclosure requirements focus on information about initial claim estimates and subsequent claim estimate adjustment, methodologies in estimating claims and the timing, frequency and severity of claims related to short duration insurance contracts. This guidance is effective for annual reporting periods beginning after December 15, 2015 and interim reporting periods beginning after December 15, 2016. Therefore, the initial presentation ofThe Company implemented this guidance in the Company's financial statements and footnotes will befourth quarter of 2016.
Disclosures for its 10-K filing as ofInvestments in Certain Entities that Calculate Net Asset Value Per Share. In May 2015, the FASB issued ASU 2015-07, which removes the requirement to categorize, within the fair value hierarchy, investments for which fair values are estimated using the net asset value practical expedient provided by Accounting Standards Codification 820, Fair Value Measurement. The updated guidance is effective for annual reporting periods beginning after December 31, 2016.15, 2015. The Company doesadoption did not anticipate that it will have a significantmaterial impact on itsthe Company's financial statements.
Debt Issuance Costs. In April 2015, The FASB issued ASU 2015–03, authoritative guidance on the presentation of debt issuance costs. This guidance requires that debt issuance costs be presented within the balance sheet as a reduction of the carrying value of the debt liability, rather than as a separate asset. This guidance is effective for annual reporting periods beginning after December 15, 2015 and related interim reporting periods. Based uponThe Company implemented this guidance effective in the Company has adjusted priorsecond quarter of 2016. This adoption did not have any material impact on the Company's financial statements and footnotes to conform with this new presentation.statements.
Consolidation. In February 2015, the FASB issued ASU 2015-02, authoritative guidance regarding consolidation of reporting entities. The new guidance focuses on the required evaluation of whether certain legal entities should be consolidated. This guidance is effective for annual and interim reporting periods beginning after December 15, 2015. The Company has determined that the guidance willadoption did not have a significantmaterial impact on itsthe Company's financial statements.
3. REVISIONS TO FINANCIAL STATEMENTS
In preparing its current period financial statements, 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 current period, 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 current period. As a result, prior period balances have been revised in the applicable financial statements and corresponding footnotes to eliminate the impact of the previous recording lag.
Management assessed the materiality of this change within prior period financial statements based upon SEC Staff Accounting Bulletin Number 99, Materiality, which is since codified in Accounting Standards Codification ("ASC") 250, Accounting Changes and Error Corrections. In accordance with ASC 250, the prior period comparative financial statements that are presented herein have been revised.
The following tables present line items for prior period financial statements that have been affected by the revision. For these line items, the tables detail the amounts as previously reported, the impact upon those line items due to the revision, and the amounts as currently revised within the financial statements.
CONSOLIDATED BALANCE SHEETS | | March 31, 2017 | |
| | As Previously | | | Impact of | | | | |
| | Reported | | | Revisions | | | As Revised | |
(Dollars in thousands, except par value per share) | | | | | | | | | |
ASSETS: | | | | | | | | | |
Deferred acquisition costs | | $ | 62,308 | | | $ | (4,994 | ) | | $ | 57,314 | |
TOTAL ASSETS | | $ | 17,587,840 | | | $ | (4,994 | ) | | $ | 17,582,846 | |
| | | | | | | | | | | | |
LIABILITIES: | | | | | | | | | | | | |
Other net payable to reinsurers | | $ | 832,307 | | | $ | (41,746 | ) | | $ | 790,561 | |
Income taxes | | | 223,629 | | | | 5,625 | | | | 229,254 | |
Total liabilities | | | 12,139,623 | | | | (36,121 | ) | | | 12,103,502 | |
| | | | | | | | | | | | |
STOCKHOLDERS EQUITY: | | | | | | | | | | | | |
Retained earnings | | | 5,085,352 | | | | 31,127 | | | | 5,116,479 | |
Total stockholder's equity | | | 5,448,217 | | | | 31,127 | | | | 5,479,344 | |
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY | | $ | 17,587,840 | | | $ | (4,994 | ) | | $ | 17,582,846 | |
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 | | | Three Months Ended March 31, 2017 | |
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 | | $ | 339,402 | | | $ | (427 | ) | | $ | 338,975 | | | $ | 49,470 | | | $ | 3,037 | | | $ | 52,507 | |
Total claims and expenses | | | 1,930,749 | | | | (427 | ) | | | 1,930,322 | | | | 411,543 | | | | 3,037 | | | | 414,580 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
INCOME (LOSS) BEFORE TAXES | | | 657,688 | | | | 427 | | | | 658,115 | | | | 247,984 | | | | (3,037 | ) | | | 244,947 | |
Income tax expense (benefit) | | | 203,562 | | | | 1,125 | | | | 204,687 | | | | 76,940 | | | | (1,171 | ) | | | 75,769 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
NET INCOME (LOSS) | | $ | 454,126 | | | $ | (698 | ) | | $ | 453,428 | | | $ | 171,044 | | | $ | (1,866 | ) | | $ | 169,178 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
COMPREHENSIVE INCOME (LOSS) | | $ | 370,997 | | | $ | (698 | ) | | $ | 370,299 | | | $ | 182,587 | | | $ | (1,866 | ) | | $ | 180,721 | |
CONSOLIDATED STATEMENTS OF OPERATIONS | | Three Months Ended September 30, 2016 | | | Nine 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 | | $ | 85,563 | | | $ | (2,785 | ) | | $ | 82,778 | | | $ | 226,511 | | | $ | (6,959 | ) | | $ | 219,552 | |
Total claims and expenses | | | 462,009 | | | | (2,785 | ) | | | 459,224 | | | | 1,377,175 | | | | (6,959 | ) | | | 1,370,216 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
INCOME (LOSS) BEFORE TAXES | | | 95,943 | | | | 2,785 | | | | 98,728 | | | | 249,064 | | | | 6,959 | | | | 256,023 | |
Income tax expense (benefit) | | | 21,145 | | | | 1,280 | | | | 22,425 | | | | 66,990 | | | | 2,368 | | | | 69,358 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
NET INCOME (LOSS) | | $ | 74,798 | | | $ | 1,505 | | | $ | 76,303 | | | $ | 182,074 | | | $ | 4,591 | | | $ | 186,665 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
COMPREHENSIVE INCOME (LOSS) | | $ | 74,465 | | | $ | 1,505 | | | $ | 75,970 | | | $ | 299,559 | | | $ | 4,591 | | | $ | 304,150 | |
CONSOLIDATED STATEMENTS OF OPERATIONS | | Three Months Ended June 30, 2016 | | | Six Months Ended June 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 | | $ | 72,126 | | | $ | (1,717 | ) | | $ | 70,409 | | | $ | 140,948 | | | $ | (4,174 | ) | | $ | 136,774 | |
Total claims and expenses | | | 479,860 | | | | (1,717 | ) | | | 478,143 | | | | 915,166 | | | | (4,174 | ) | | | 910,992 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
INCOME (LOSS) BEFORE TAXES | | | 101,332 | | | | 1,717 | | | | 103,049 | | | | 153,121 | | | | 4,174 | | | | 157,295 | |
Income tax expense (benefit) | | | 32,982 | | | | 695 | | | | 33,677 | | | | 45,845 | | | | 1,088 | | | | 46,933 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
NET INCOME (LOSS) | | $ | 68,350 | | | $ | 1,022 | | | $ | 69,372 | | | $ | 107,276 | | | $ | 3,086 | | | $ | 110,362 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
COMPREHENSIVE INCOME (LOSS) | | $ | 124,381 | | | $ | 1,022 | | | $ | 125,403 | | | $ | 225,094 | | | $ | 3,086 | | | $ | 228,180 | |
CONSOLIDATED STATEMENTS OF OPERATIONS | | Three Months Ended March 31, 2016 | |
AND COMPREHENSIVE INCOME (LOSS): | | As Previously | | | Impact of | | | | |
| | Reported | | | Revisions | | | As Revised | |
(Dollars in thousands) | | | | | | | | | |
CLAIMS AND EXPENSES: | | | | | | | | | |
Commission, brokerage, taxes and fees | | $ | 68,822 | | | $ | (2,457 | ) | | $ | 66,365 | |
Total claims and expenses | | | 435,306 | | | | (2,457 | ) | | | 432,849 | |
| | | | | | | | | | | | |
INCOME (LOSS) BEFORE TAXES | | | 51,789 | | | | 2,457 | | | | 54,246 | |
Income tax expense (benefit) | | | 12,863 | | | | 393 | | | | 13,256 | |
| | | | | | | | | | | | |
NET INCOME (LOSS) | | $ | 38,926 | | | $ | 2,064 | | | $ | 40,990 | |
| | | | | | | | | | | | |
COMPREHENSIVE INCOME (LOSS) | | $ | 100,713 | | | $ | 2,064 | | | $ | 102,777 | |
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 | | | Three Months Ended March 31, 2017 | |
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 | | $ | 3,751,779 | | | $ | 28,060 | | | $ | 3,779,839 | | | $ | 4,914,308 | | | $ | 32,993 | | | $ | 4,947,301 | |
Net income (loss) | | | 454,126 | | | | (698 | ) | | | 453,428 | | | | 171,044 | | | | (1,866 | ) | | | 169,178 | |
Balance, end of period | | | 4,205,905 | | | | 27,362 | | | | 4,233,267 | | | | 5,085,352 | | | | 31,127 | | | | 5,116,479 | |
TOTAL STOCKHOLDER'S EQUITY, END OF PERIOD | | $ | 4,572,717 | | | $ | 27,362 | | | $ | 4,600,079 | | | $ | 5,448,217 | | | $ | 31,127 | | | $ | 5,479,344 | |
CONSOLIDATED STATEMENTS OF | | Three Months Ended September 30, 2016 | | | Nine 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 | | $ | 4,725,834 | | | $ | 30,185 | | | $ | 4,756,019 | | | $ | 4,618,558 | | | $ | 27,099 | | | $ | 4,645,657 | |
Net income (loss) | | | 74,798 | | | | 1,505 | | | | 76,303 | | | | 182,074 | | | | 4,591 | | | | 186,665 | |
Balance, end of period | | | 4,800,632 | | | | 31,690 | | | | 4,832,322 | | | | 4,800,632 | | | | 31,690 | | | | 4,832,322 | |
TOTAL STOCKHOLDER'S EQUITY, END OF PERIOD | | $ | 5,240,955 | | | $ | 31,690 | | | $ | 5,272,645 | | | $ | 5,240,955 | | | $ | 31,690 | | | $ | 5,272,645 | |
CONSOLIDATED STATEMENTS OF | | Three Months Ended June 30, 2016 | | | Six Months Ended June 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 | | $ | 4,657,484 | | | $ | 29,163 | | | $ | 4,686,647 | | | $ | 4,618,558 | | | $ | 27,099 | | | $ | 4,645,657 | |
Net income (loss) | | | 68,350 | | | | 1,022 | | | | 69,372 | | | | 107,276 | | | | 3,086 | | | | 110,362 | |
Balance, end of period | | | 4,725,834 | | | | 30,185 | | | | 4,756,019 | | | | 4,725,834 | | | | 30,185 | | | | 4,756,019 | |
TOTAL STOCKHOLDER'S EQUITY, END OF PERIOD | | $ | 5,164,053 | | | $ | 30,185 | | | $ | 5,194,238 | | | $ | 5,164,053 | | | $ | 30,185 | | | $ | 5,194,238 | |
CONSOLIDATED STATEMENTS OF | | Three Months Ended March 31, 2016 | |
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 | | $ | 4,618,558 | | | $ | 27,099 | | | $ | 4,645,657 | |
Net income (loss) | | | 38,926 | | | | 2,064 | | | | 40,990 | |
Balance, end of period | | | 4,657,484 | | | | 29,163 | | | | 4,686,647 | |
TOTAL STOCKHOLDER'S EQUITY, END OF PERIOD | | $ | 5,036,717 | | | $ | 29,163 | | | $ | 5,065,880 | |
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 | | | Three Months Ended March 31, 2017 | |
| | 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) | | $ | 454,126 | | | $ | (698 | ) | | $ | 453,428 | | | $ | 171,044 | | | $ | (1,866 | ) | | $ | 169,178 | |
Decrease (increase) in income taxes | | | 68,206 | | | | 1,125 | | | | 69,331 | | | | 75,304 | | | | (1,172 | ) | | | 74,132 | |
Increase (decrease) in other net payable to reinsurers | | | 5,130 | | | | (3,216 | ) | | | 1,914 | | | | (30,525 | ) | | | 3,347 | | | | (27,178 | ) |
Change in other assets and liabilities, net | | | 81,388 | | | | 2,789 | | | | 84,177 | | | | 18,204 | | | | (309 | ) | | | 17,895 | |
CONSOLIDATED STATEMENTS OF CASH FLOWS | | Nine Months Ended September 30, 2016 | | | Six Months Ended June 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) | | $ | 182,074 | | | $ | 4,591 | | | $ | 186,665 | | | $ | 107,276 | | | $ | 3,086 | | | $ | 110,362 | |
Decrease (increase) in income taxes | | | 33,279 | | | | 2,368 | | | | 35,647 | | | | 8,190 | | | | 1,089 | | | | 9,279 | |
Increase (decrease) in other net payable to reinsurers | | | (209,260 | ) | | | (6,764 | ) | | | (216,024 | ) | | | (370,242 | ) | | | (3,111 | ) | | | (373,353 | ) |
Change in other assets and liabilities, net | | | (124,955 | ) | | | (195 | ) | | | (125,150 | ) | | | 14,216 | | | | (1,064 | ) | | | 13,152 | |
CONSOLIDATED STATEMENTS OF CASH FLOWS | | Three Months Ended March 31, 2016 | |
| | As Previously | | | Impact of | | | | |
| | Reported | | | Revisions | | | As Revised | |
(Dollars in thousands) | | | | | | | | | |
CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | | | | | |
Net income (loss) | | $ | 38,926 | | | $ | 2,064 | | | $ | 40,990 | |
Decrease (increase) in income taxes | | | 6,546 | | | | 393 | | | | 6,939 | |
Increase (decrease) in other net payable to reinsurers | | | (106,588 | ) | | | (1,122 | ) | | | (107,710 | ) |
Change in other assets and liabilities, net | | | 24,496 | | | | (1,335 | ) | | | 23,161 | |
4. INVESTMENTS
The amortized cost, market value and gross unrealized appreciation and depreciation of available for sale, fixed maturity, equity security investments, carried at market value and other-than-temporary impairments ("OTTI") in accumulated other comprehensive income ("AOCI") are as follows for the periods indicated:
| | At June 30, 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 | | $ | 667,000 | | | $ | 2,961 | | | $ | (3,184 | ) | | $ | 666,777 | | | $ | - | |
Obligations of U.S. states and political subdivisions | | | 679,940 | | | | 22,970 | | | | (6,127 | ) | | | 696,783 | | | | - | |
Corporate securities | | | 2,274,212 | | | | 40,765 | | | | (13,976 | ) | | | 2,301,001 | | | | 908 | |
Asset-backed securities | | | 189,598 | | | | 433 | | | | (42 | ) | | | 189,989 | | | | - | |
Mortgage-backed securities | | | | | | | | | | | | | | | | | | | | |
Commercial | | | 73,127 | | | | 507 | | | | (389 | ) | | | 73,245 | | | | - | |
Agency residential | | | 688,735 | | | | 2,163 | | | | (7,217 | ) | | | 683,681 | | | | - | |
Non-agency residential | | | 61 | | | | 9 | | | | - | | | | 70 | | | | - | |
Foreign government securities | | | 489,750 | | | | 20,205 | | | | (8,568 | ) | | | 501,387 | | | | - | |
Foreign corporate securities | | | 1,009,145 | | | | 28,358 | | | | (10,408 | ) | | | 1,027,095 | | | | 319 | |
Total fixed maturity securities | | $ | 6,071,568 | | | $ | 118,371 | | | $ | (49,911 | ) | | $ | 6,140,028 | | | $ | 1,227 | |
| | 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 | |
| | At September 30, 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 | | $ | 423,167 | | | $ | 6,471 | | | $ | (470 | ) | | $ | 429,168 | | | $ | - | |
Obligations of U.S. states and political subdivisions | | | 725,149 | | | | 40,657 | | | | (802 | ) | | | 765,004 | | | | - | |
Corporate securities | | | 2,192,089 | | | | 57,124 | | | | (10,576 | ) | | | 2,238,637 | | | | 3,802 | |
Asset-backed securities | | | 167,721 | | | | 1,316 | | | | (12 | ) | | | 169,025 | | | | - | |
Mortgage-backed securities | | | | | | | | | | | | | | | | | | | | |
Commercial | | | 75,965 | | | | 1,567 | | | | (35 | ) | | | 77,497 | | | | - | |
Agency residential | | | 750,339 | | | | 7,983 | | | | (875 | ) | | | 757,447 | | | | - | |
Non-agency residential | | | 89 | | | | 14 | | | | - | | | | 103 | | | | - | |
Foreign government securities | | | 530,381 | | | | 29,667 | | | | (6,127 | ) | | | 553,921 | | | | - | |
Foreign corporate securities | | | 997,100 | | | | 34,616 | | | | (7,577 | ) | | | 1,024,139 | | | | 327 | |
Total fixed maturity securities | | $ | 5,862,000 | | | $ | 179,415 | | | $ | (26,474 | ) | | $ | 6,014,941 | | | $ | 4,129 | |
Equity securities | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | |
| | At December 31, 2015 | |
| | 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 | | $ | 329,281 | | | $ | 2,422 | | | $ | (718 | ) | | $ | 330,985 | | | $ | - | |
Obligations of U.S. states and political subdivisions | | | 669,945 | | | | 34,020 | | | | (890 | ) | | | 703,075 | | | | - | |
Corporate securities | | | 2,011,997 | | | | 27,286 | | | | (70,725 | ) | | | 1,968,558 | | | | (86 | ) |
Asset-backed securities | | | 145,755 | | | | 290 | | | | (1,063 | ) | | | 144,982 | | | | - | |
Mortgage-backed securities | | | | | | | | | | | | | | | | | | | | |
Commercial | | | 61,527 | | | | 1,430 | | | | (511 | ) | | | 62,446 | | | | - | |
Agency residential | | | 714,907 | | | | 3,994 | | | | (6,603 | ) | | | 712,298 | | | | - | |
Non-agency residential | | | 126 | | | | 24 | | | | - | | | | 150 | | | | - | |
Foreign government securities | | | 447,244 | | | | 24,255 | | | | (8,425 | ) | | | 463,074 | | | | - | |
Foreign corporate securities | | | 954,690 | | | | 27,616 | | | | (11,397 | ) | | | 970,909 | | | | 17 | |
Total fixed maturity securities | | $ | 5,335,472 | | | $ | 121,337 | | | $ | (100,332 | ) | | $ | 5,356,477 | | | $ | (69 | ) |
(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 tabletables 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 June 30, 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 | | $ | 438,873 | | | $ | 439,218 | | | $ | 394,401 | | | $ | 392,824 | |
Due after one year through five years | | | 2,912,173 | | | | 2,932,487 | | | | 2,925,786 | | | | 2,955,325 | |
Due after five years through ten years | | | 1,043,485 | | | | 1,063,492 | | | | 879,762 | | | | 894,166 | |
Due after ten years | | | 725,516 | | | | 757,846 | | | | 776,436 | | | | 800,429 | |
Asset-backed securities | | | 189,598 | | | | 189,989 | | | | 136,826 | | | | 137,027 | |
Mortgage-backed securities | | | | | | | | | | | | | | | | |
Commercial | | | 73,127 | | | | 73,245 | | | | 75,435 | | | | 75,493 | |
Agency residential | | | 688,735 | | | | 683,681 | | | | 721,772 | | | | 715,144 | |
Non-agency residential | | | 61 | | | | 70 | | | | 76 | | | | 88 | |
Total fixed maturity securities | | $ | 6,071,568 | | | $ | 6,140,028 | | | $ | 5,910,494 | | | $ | 5,970,496 | |
| | At September 30, 2016 | | | At December 31, 2015 | |
| | Amortized | | | Market | | | Amortized | | | Market | |
(Dollars in thousands) | | Cost | | | Value | | | Cost | | | Value | |
Fixed maturity securities – available for sale | | | | | | | | | | | | |
Due in one year or less | | $ | 350,845 | | | $ | 349,366 | | | $ | 330,029 | | | $ | 330,509 | |
Due after one year through five years | | | 2,916,564 | | | | 2,967,946 | | | | 2,617,079 | | | | 2,618,056 | |
Due after five years through ten years | | | 803,666 | | | | 833,389 | | | | 870,266 | | | | 856,230 | |
Due after ten years | | | 796,811 | | | | 860,168 | | | | 595,783 | | | | 631,806 | |
Asset-backed securities | | | 167,721 | | | | 169,025 | | | | 145,755 | | | | 144,982 | |
Mortgage-backed securities | | | | | | | | | | | | | | | | |
Commercial | | | 75,965 | | | | 77,497 | | | | 61,527 | | | | 62,446 | |
Agency residential | | | 750,339 | | | | 757,447 | | | | 714,907 | | | | 712,298 | |
Non-agency residential | | | 89 | | | | 103 | | | | 126 | | | | 150 | |
Total fixed maturity securities | | $ | 5,862,000 | | | $ | 6,014,941 | | | $ | 5,335,472 | | | $ | 5,356,477 | |
The changes in net unrealized appreciation (depreciation) for the Company's investments are derived from the following sources for the periods as indicated:
| | Three Months Ended | | | Six Months Ended | |
| | June 30, | | | June 30, | |
(Dollars in thousands) | | 2017 | | | 2016 | | | 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 | | $ | 32 | | | $ | 53,863 | | | $ | 12,274 | | | $ | 123,689 | |
Fixed maturity securities, other-than-temporary impairment | | | (317 | ) | | | 6,446 | | | | (3,816 | ) | | | 6,643 | |
Other invested assets | | | 821 | | | | - | | | | 1,265 | | | | - | |
Change in unrealized appreciation (depreciation), pre-tax | | | 536 | | | | 60,309 | | | | 9,723 | | | | 130,332 | |
Deferred tax benefit (expense) | | | (299 | ) | | | (18,852 | ) | | | (4,739 | ) | | | (43,291 | ) |
Deferred tax benefit (expense), other-than-temporary impairment | | | 111 | | | | (2,256 | ) | | | 1,336 | | | | (2,325 | ) |
Change in unrealized appreciation (depreciation), | | | | | | | | | | | | | | | | |
net of deferred taxes, included in stockholder's equity | | $ | 348 | | | $ | 39,201 | | | $ | 6,320 | | | $ | 84,716 | |
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 temporary or other-than-temporary. 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 an other-than-temporary impairment, but rather a temporary decline in market value. Temporary declines in market value are recorded as unrealized losses in accumulated other comprehensive income (loss). If the Company determines that the decline is other-than-temporary 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 of the investment is written down to fair value. The fair value adjustment that is credit or foreign exchange related is recorded in net realized capital gains (losses) in the Company's consolidated statements of operations and comprehensive income (loss). 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's consolidated balance sheets. The Company's assessments are based on the 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'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.
The tables below display the aggregate market value and gross unrealized depreciation of fixed maturity and equity 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 June 30, 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 | | $ | 261,624 | | | $ | (3,184 | ) | | $ | - | | | $ | - | | | $ | 261,624 | | | $ | (3,184 | ) |
Obligations of U.S. states and political subdivisions | | | 157,890 | | | | (6,127 | ) | | | - | | | | - | | | | 157,890 | | | | (6,127 | ) |
Corporate securities | | | 528,750 | | | | (10,097 | ) | | | 68,699 | | | | (3,879 | ) | | | 597,449 | | | | (13,976 | ) |
Asset-backed securities | | | 56,504 | | | | (39 | ) | | | 2,525 | | | | (3 | ) | | | 59,029 | | | | (42 | ) |
Mortgage-backed securities | | | | | | | | | | | | | | | | | | | | | | | | |
Commercial | | | 13,797 | | | | (317 | ) | | | 2,991 | | | | (72 | ) | | | 16,788 | | | | (389 | ) |
Agency residential | | | 445,347 | | | | (5,091 | ) | | | 82,351 | | | | (2,126 | ) | | | 527,698 | | | | (7,217 | ) |
Non-agency residential | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | |
Foreign government securities | | | 177,440 | | | | (2,308 | ) | | | 56,133 | | | | (6,260 | ) | | | 233,573 | | | | (8,568 | ) |
Foreign corporate securities | | | 201,847 | | | | (2,108 | ) | | | 73,620 | | | | (8,300 | ) | | | 275,467 | | | | (10,408 | ) |
Total fixed maturity securities | | $ | 1,843,199 | | | $ | (29,271 | ) | | $ | 286,319 | | | $ | (20,640 | ) | | $ | 2,129,518 | | | $ | (49,911 | ) |
The following discusses the underwriting results for each of our segments for the periods indicated:
U.S. Reinsurance.
The following table presents the underwriting results and ratios for the U.S. Reinsurance segment for the periods indicated.
| | Three Months Ended September 30, | | | Nine Months Ended September 30, | | | Three Months Ended June 30, | | | Six Months Ended June 30, | |
(Dollars in millions) | | 2016 | | | 2015 | | | Variance | | | % Change | | | 2016 | | | 2015 | | | Variance | | | % Change | | | 2017 | | | 2016 | | | Variance | | | % Change | | | 2017 | | | 2016 | | | Variance | | | % Change | |
Gross written premiums | | $ | 654.8 | | | $ | 601.6 | | | $ | 53.2 | | | | 8.8 | % | | $ | 1,597.0 | | | $ | 1,615.3 | | | $ | (18.3 | ) | | | -1.1 | % | | $ | 475.0 | | | $ | 405.5 | | | $ | 69.5 | | | | 17.1 | % | | $ | 1,054.0 | | | $ | 942.2 | | | $ | 111.7 | | | | 11.9 | % |
Net written premiums | | | 327.2 | | | | 247.4 | | | | 79.9 | | | | 32.3 | % | | | 711.7 | | | | 672.8 | | | | 38.9 | | | | 5.8 | % | | | 135.2 | | | | 161.0 | | | | (25.9 | ) | | | -16.1 | % | | | 354.2 | | | | 384.5 | | | | (30.2 | ) | | | -7.9 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Premiums earned | | $ | 249.2 | | | $ | 235.3 | | | $ | 13.9 | | | | 5.9 | % | | $ | 709.1 | | | $ | 726.1 | | | $ | (17.0 | ) | | | -2.3 | % | | $ | 202.3 | | | $ | 224.6 | | | $ | (22.3 | ) | | | -9.9 | % | | $ | 410.6 | | | $ | 459.9 | | | $ | (49.3 | ) | | | -10.7 | % |
Incurred losses and LAE | | | 137.2 | | | | 109.1 | | | | 28.1 | | | | 25.8 | % | | | 363.6 | | | | 337.1 | | | | 26.5 | | | | 7.9 | % | | | 119.7 | | | | 110.2 | | | | 9.6 | | | | 8.7 | % | | | 240.2 | | | | 226.3 | | | | 13.9 | | | | 6.1 | % |
Commission and brokerage | | | 48.1 | | | | 48.9 | | | | (0.8 | ) | | | -1.6 | % | | | 148.0 | | | | 141.9 | | | | 6.0 | | | | 4.2 | % | | | 43.2 | | | | 50.1 | | | | (7.0 | ) | | | -13.9 | % | | | 83.5 | | | | 99.9 | | | | (16.3 | ) | | | -16.3 | % |
Other underwriting expenses | | | 14.3 | | | | 13.7 | | | | 0.5 | | | | 4.0 | % | | | 39.9 | | | | 37.1 | | | | 2.8 | | | | 7.6 | % | | | 14.3 | | | | 12.1 | | | | 2.1 | | | | 17.7 | % | | | 28.5 | | | | 25.6 | | | | 2.9 | | | | 11.5 | % |
Underwriting gain (loss) | | $ | 49.6 | | | $ | 63.5 | | | $ | (14.0 | ) | | | -22.0 | % | | $ | 157.7 | | | $ | 210.0 | | | $ | (52.4 | ) | | | -25.0 | % | | $ | 25.1 | | | $ | 52.2 | | | $ | (27.1 | ) | | | -51.9 | % | | $ | 58.3 | | | $ | 108.1 | | | $ | (49.7 | ) | | | -46.0 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | Point Chg | | | | | | | | | | | | | | | Point Chg | | | | | | | | | | | | | | | Point Chg | | | | | | | | | | | | | | | Point Chg | |
Loss ratio | | | 55.1 | % | | | 46.4 | % | | | | | | | 8.7 | | | | 51.3 | % | | | 46.4 | % | | | | | | | 4.9 | | | | 59.1 | % | | | 49.0 | % | | | | | | | 10.1 | | | | 58.5 | % | | | 49.2 | % | | | | | | | 9.3 | |
Commission and brokerage ratio | | | 19.3 | % | | | 20.8 | % | | | | | | | (1.5 | ) | | | 20.9 | % | | | 19.5 | % | | | | | | | 1.4 | | | | 21.3 | % | | | 22.3 | % | | | | | | | (1.0 | ) | | | 20.3 | % | | | 21.7 | % | | | | | | | (1.4 | ) |
Other underwriting ratio | | | 5.7 | % | | | 5.8 | % | | | | | | | (0.1 | ) | | | 5.6 | % | | | 5.2 | % | | | | | | | 0.4 | | | | 7.2 | % | | | 5.5 | % | | | | | | | 1.7 | | | | 7.0 | % | | | 5.6 | % | | | | | | | 1.4 | |
Combined ratio | | | 80.1 | % | | | 73.0 | % | | | | | | | 7.1 | | | | 77.8 | % | | | 71.2 | % | | | | | | | 6.7 | | | | 87.6 | % | | | 76.8 | % | | | | | | | 10.8 | | | | 85.8 | % | | | 76.5 | % | | | | | | | 9.3 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(Some amounts may not reconcile due to rounding.) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Premiums. Gross written premiums increased by 8.8%17.1% to $654.8$475.0 million for the three months ended SeptemberJune 30, 20162017 from $601.6$405.5 million for the three months ended SeptemberJune 30, 20152016, primarily due to the new crop reinsurance business and an increase in treaty casualty business. Net written premiums increaseddecreased by 32.3%16.1% to $327.2$135.2 million for the three months ended SeptemberJune 30, 20162017 compared to $247.4$161.0 million for the three months ended SeptemberJune 30, 2015.2016. The difference between the change in gross written premiums compared to the change in net written premiums is primarily due to the assumptiona varying utilization of the crop business duereinsurance primarily related to the sale of Heartland and a concurrent new crop reinsurance contract.affiliated quota share contracts. Premiums earned increased 5.9%decreased 9.9% to $249.2$202.3 million for the three months ended SeptemberJune 30, 20162017 compared to $235.3$224.6 million for the three months ended SeptemberJune 30, 20152016. The change in premiums earned relative to net written premiums is primarily 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 decreasedincreased by 1.1%11.9% to $1,597.0$1,054.0 million for the ninesix months ended SeptemberJune 30, 20162017 from $1,615.3$942.2 million for the ninesix months ended SeptemberJune 30, 20152016, primarily due to a decrease in treaty propertythe new crop reinsurance business partially offset byand an increase in treaty casualty business. Net written premiums increaseddecreased by 5.8%7.9% to $711.7$354.2 million for the ninesix months ended SeptemberJune 30, 20162017 compared to $672.8$384.5 million for the ninesix months ended SeptemberJune 30, 2015.2016. The difference between the change in gross written premiums compared to the change in net written premiums is primarily due to a varying utilization of reinsurance primarily related to the crop transaction described above.affiliated quota share contracts. Premiums earned decreased 2.3%10.7% to $709.1$410.6 million for the ninesix months ended SeptemberJune 30, 20162017 compared to $726.1$459.9 million for the ninesix months ended SeptemberJune 30, 20152016. The change in premiums earned relative to net written premiums is primarily the result of timing; premiums are earned ratably over the coverage period whereas written premiums are recorded at the initiation of the coverage period.
36
Incurred Losses and LAE. The following tables presenttable presents the incurred losses and LAE for the U.S. Reinsurance segment for the periods indicated.
| | Three Months Ended September 30, | | Three Months Ended June 30, |
| | Current | | | Ratio %/ | | Prior | | | Ratio %/ | | Total | | | Ratio %/ | | Current | | | Ratio %/ | | Prior | | | Ratio %/ | | Total | | | Ratio %/ |
(Dollars in millions) | | Year | | | Pt Change | | Years | | | Pt Change | | Incurred | | | Pt Change | | Year | | | Pt Change | | Years | | | Pt Change | | Incurred | | | Pt Change |
2017 | | | | | | | | | | | | | | | | | | | | | | |
Attritional | | | $ | 126.2 | | | | 62.3 | % | | | $ | (3.8 | ) | | | -1.9 | % | | | $ | 122.4 | | | | 60.5 | % | |
Catastrophes | | | | 1.2 | | | | 0.6 | % | | | | (3.8 | ) | | | -1.9 | % | | | | (2.6 | ) | | | -1.3 | % | |
Total segment | | | $ | 127.4 | | | | 62.9 | % | | | $ | (7.6 | ) | | | -3.8 | % | | | $ | 119.7 | | | | 59.1 | % | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
2016 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Attritional | | $ | 129.8 | | | | 52.1 | % | | $ | (1.0 | ) | | | -0.4 | % | | $ | 128.8 | | | | 51.7 | % | | | $ | 117.1 | | | | 52.2 | % | | | $ | 1.9 | | | | 0.8 | % | | | $ | 119.0 | | | | 53.1 | % | |
Catastrophes | | | 14.4 | | | | 5.8 | % | | | | (5.9 | ) | | | -2.4 | % | | | | 8.5 | | | | 3.4 | % | | | | 1.4 | | | | 0.6 | % | | | | (10.2 | ) | | | -4.6 | % | | | | (8.8 | ) | | | -3.9 | % | |
Total segment | | $ | 144.2 | | | | 57.9 | % | | | $ | (6.9 | ) | | | -2.8 | % | | | $ | 137.2 | | | | 55.1 | % | | | $ | 118.5 | | | | 52.9 | % | | | $ | (8.4 | ) | | | -3.8 | % | | | $ | 110.2 | | | | 49.0 | % | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
2015 | | | | | | | | | | | | | | | | | | | | | | | | | | |
Variance 2017/2016 | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Attritional | | $ | 108.1 | | | | 45.9 | % | | $ | 1.5 | | | | 0.6 | % | | $ | 109.6 | | | | 46.5 | % | | | $ | 9.1 | | | | 10.1 | | pts | | $ | (5.7 | ) | | | (2.7 | ) | pts | | $ | 3.4 | | | | 7.4 | | pts |
Catastrophes | | | 0.1 | | | | 0.1 | % | | | | (0.5 | ) | | | -0.2 | % | | | | (0.4 | ) | | | -0.1 | % | | | | (0.2 | ) | | | - | | pts | | | 6.4 | | | | 2.7 | | pts | | | 6.2 | | | | 2.6 | | pts |
Total segment | | $ | 108.2 | | | | 46.0 | % | | | $ | 0.9 | | | | 0.4 | % | | | $ | 109.1 | | | | 46.4 | % | | | $ | 8.9 | | | | 10.0 | | pts | | $ | 0.8 | | | | - | | pts | | $ | 9.6 | | | | 10.1 | | pts |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Variance 2016/2015 | | | | | | | | | | | | | | | | | | | | | | | | | | |
Attritional | | $ | 21.7 | | | | 6.2 | | pts | | $ | (2.5 | ) | | | (1.0 | ) | pts | | $ | 19.2 | | | | 5.2 | | pts | |
Catastrophes | | | 14.3 | | | | 5.7 | | pts | | | (5.4 | ) | | | (2.2 | ) | pts | | | 8.9 | | | | 3.5 | | pts | |
Total segment | | $ | 36.0 | | | | 11.9 | | pts | | $ | (7.8 | ) | | | (3.2 | ) | pts | | $ | 28.1 | | | | 8.7 | | pts | |
| | Nine Months Ended September 30, | | Six Months Ended June 30, |
| | Current | | | Ratio %/ | | Prior | | | Ratio %/ | | Total | | | Ratio %/ | | Current | | | Ratio %/ | | Prior | | | Ratio %/ | | Total | | | Ratio %/ |
(Dollars in millions) | | Year | | | Pt Change | | Years | | | Pt Change | | Incurred | | | Pt Change | | Year | | | Pt Change | | Years | | | Pt Change | | Incurred | | | Pt Change |
2017 | | | | | | | | | | | | | | | | | | | | | | |
Attritional | | | $ | 246.8 | | | | 60.1 | % | | | $ | (4.3 | ) | | | -1.0 | % | | | $ | 242.5 | | | | 59.1 | % | |
Catastrophes | | | | 1.6 | | | | 0.4 | % | | | | (3.9 | ) | | | -1.0 | % | | | | (2.3 | ) | | | -0.6 | % | |
Total segment | | | $ | 248.4 | | | | 60.5 | % | | | $ | (8.2 | ) | | | -2.0 | % | | | $ | 240.2 | | | | 58.5 | % | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
2016 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Attritional | | $ | 365.2 | | | | 51.6 | % | | $ | (1.3 | ) | | | -0.2 | % | | $ | 363.9 | | | | 51.4 | % | | | $ | 235.4 | | | | 51.2 | % | | | $ | (0.4 | ) | | | -0.1 | % | | | $ | 235.1 | | | | 51.1 | % | |
Catastrophes | | | 15.8 | | | | 2.2 | % | | | | (16.1 | ) | | | -2.3 | % | | | | (0.3 | ) | | | -0.1 | % | | | | 1.4 | | | | 0.3 | % | | | | (10.2 | ) | | | -2.2 | % | | | | (8.8 | ) | | | -1.9 | % | |
Total segment | | $ | 381.0 | | | | 53.8 | % | | | $ | (17.4 | ) | | | -2.5 | % | | | $ | 363.6 | | | | 51.3 | % | | | $ | 236.9 | | | | 51.5 | % | | | $ | (10.6 | ) | | | -2.3 | % | | | $ | 226.3 | | | | 49.2 | % | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
2015 | | | | | | | | | | | | | | | | | | | | | | | | | | |
Attritional | | $ | 360.9 | | | | 49.7 | % | | | $ | (17.5 | ) | | | -2.4 | % | | $ | 343.5 | | | | 47.3 | % | | |
Catastrophes | | | 0.1 | | | | 0.0 | % | | | | (6.5 | ) | | | -0.9 | % | | | | (6.4 | ) | | | -0.9 | % | | |
Total segment | | $ | 361.1 | | | | 49.7 | % | | | $ | (24.0 | ) | | | -3.3 | % | | | $ | 337.1 | | | | 46.4 | % | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Variance 2016/2015 | | | | | | | | | | | | | | | | | | | | | | | | | | |
Variance 2017/2016 | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Attritional | | $ | 4.3 | | | | 1.9 | | pts | | $ | 16.2 | | | | 2.2 | | pts | | $ | 20.4 | | | | 4.1 | | pts | | $ | 11.4 | | | | 8.9 | | pts | | $ | (3.9 | ) | | | (0.9 | ) | pts | | $ | 7.4 | | | | 8.0 | | pts |
Catastrophes | | | 15.7 | | | | 2.2 | | pts | | | (9.6 | ) | | | (1.4 | ) | pts | | | 6.1 | | | | 0.8 | | pts | | | 0.2 | | | | 0.1 | | pts | | | 6.3 | | | | 1.2 | | pts | | | 6.5 | | | | 1.3 | | pts |
Total segment | | $ | 19.9 | | | | 4.1 | | pts | | $ | 6.6 | | | | 0.8 | | pts | | $ | 26.5 | | | | 4.9 | | pts | | $ | 11.5 | | | | 9.0 | | pts | | $ | 2.4 | | | | 0.3 | | pts | | $ | 13.9 | | | | 9.3 | | pts |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(Some amounts may not reconcile due to rounding.) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Incurred losses increased 25.8%by 8.7% to $137.2$119.7 million for the three months ended SeptemberJune 30, 20162017 compared to $109.1$110.2 million for the three months ended SeptemberJune 30, 20152016, primarily due to a $21.7an increase of $9.1 million increase in current year attritional losses, related toresulting mainly from the change in the mix of business and including the impact of the increase in premiums earned, and an increase of $14.3 million on current year catastrophe losses. This increase was partially offset bynew crop reinsurance contract, which generally has a higher favorable development of $5.4 million on prior years' catastrophe losses, mainly related to the 2013 U.S. storms.loss ratio. The current year catastrophe losses of $14.4$1.2 million for the three months ended SeptemberJune 30, 2016 were2017 primarily related to Hurricane Hermine ($6.8 million), U.S.the 2017 US Midwest Storms ($6.3 million) and the Fort McMurray Canada Wildfire ($1.31.2 million). The $0.1$1.4 million of current year catastrophe losses for the three months ended SeptemberJune 30, 2015 2016 were mainly due to the New South Wales2016 U.S. storms.
Incurred losses increased by 7.9%6.1% to $363.6$240.2 million for the ninesix months ended SeptemberJune 30, 20162017 compared to $337.1$226.3 million for the ninesix months ended SeptemberJune 30, 20152016, primarily due to a $16.2 million impact from year over year lower favorable development on prior years attritional losses and an increase of $15.7$11.4 million in current year catastrophe losses. These increases were partially offset by more favorable developmentattritional losses, resulting mainly from the change in the mix of $9.6 million on prior years' catastrophe losses.business and including the impact of the new crop reinsurance contract, which generally has a higher loss ratio. The current year catastrophe losses of $15.8$1.6 million for the ninesix months ended SeptemberJune 30, 2016 were2017 primarily related to Hurricane Herminethe 2017 US Midwest Storms ($6.81.2 million) and U.S. StormsCyclone Debbie in Australia ($9.60.5 million). The $0.1$1.4 million of current year catastrophe losses for the
nine six months ended SeptemberJune 30, 2015 2016 were mainly due to the New South Wales2016 U.S. storms. The $16.1 million of prior years' catastrophes for the nine months ended September 30, 2016 mainly related to the 2011 Japan earthquake.
Segment Expenses. Commission and brokerage decreased by 1.6%13.9% to $48.1$43.2 million for the three months ended SeptemberJune 30, 20162017 compared to $48.9$50.1 million for the three months ended SeptemberJune 30, 2015. Commission and brokerage increased by 4.2% to $148.0 million for the nine months ended September 30, 2016 compared to $141.9 million for the nine months ended September 30, 2015. The increases weredecrease was mainly due to the impact fromof the decrease in premiums earned and the impact of affiliated quota share agreements and changes in the mix of business.
contracts. Segment other underwriting expenses increased to $14.3 million for the three months ended SeptemberJune 30, 20162017 from $13.7$12.1 million for the three months ended SeptemberJune 30, 2015. Segment other underwriting expenses increased to $39.9 million for the nine months ended September 30, 2016 from $37.1 million for the nine months ended September 30, 2015.2016. The increases wereincrease was primarily due to the impact of changes in the mix of business and higher compensation costs.affiliated quota share contracts.
Commission and brokerage decreased by 16.3% to $83.5 million for the six months ended June 30, 2017 compared to $99.9 million for the six months ended June 30, 2016. The decrease was mainly due to the impact of the decrease in premiums earned and the impact of affiliated quota share contracts. Segment other underwriting expenses increased to $28.5 million for the six months ended June 30, 2017 from $25.6 million for the six months ended June 30, 2016. The increase was primarily due to the impact of changes in the mix of business and affiliated quota share contracts.
International.
The following table presents the underwriting results and ratios for the International segment for the periods indicated.
| | Three Months Ended September 30, | | | Nine Months Ended September 30, | | | Three Months Ended June 30, | | | Six Months Ended June 30, | |
(Dollars in millions) | | 2016 | | | 2015 | | | Variance | | | % Change | | | 2016 | | | 2015 | | | Variance | | | % Change | | | 2017 | | | 2016 | | | Variance | | | % Change | | | 2017 | | | 2016 | | | Variance | | | % Change | |
Gross written premiums | | $ | 353.2 | | | $ | 374.1 | | | $ | (20.9 | ) | | | -5.6 | % | | $ | 939.9 | | | $ | 1,019.4 | | | $ | (79.6 | ) | | | -7.8 | % | | $ | 333.5 | | | $ | 348.2 | | | $ | (14.6 | ) | | | -4.2 | % | | $ | 612.1 | | | $ | 586.7 | | | $ | 25.5 | | | | 4.3 | % |
Net written premiums | | | 141.3 | | | | 148.0 | | | | (6.7 | ) | | | -4.5 | % | | | 353.4 | | | | 417.1 | | | | (63.6 | ) | | | -15.3 | % | | | 112.0 | | | | 124.4 | | | | (12.5 | ) | | | -10.0 | % | | | 215.2 | | | | 212.2 | | | | 3.1 | | | | 1.4 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Premiums earned | | $ | 128.4 | | | $ | 135.1 | | | $ | (6.8 | ) | | | -5.0 | % | | $ | 372.8 | | | $ | 433.8 | | | $ | (60.9 | ) | | | -14.0 | % | | $ | 113.3 | | | $ | 131.3 | | | $ | (18.0 | ) | | | -13.7 | % | | $ | 231.5 | | | $ | 244.5 | | | $ | (13.0 | ) | | | -5.3 | % |
Incurred losses and LAE | | | 41.8 | | | | 128.5 | | | | (86.7 | ) | | | -67.4 | % | | | 206.7 | | | | 339.9 | | | | (133.2 | ) | | | -39.2 | % | | | 78.5 | | | | 91.4 | | | | (13.0 | ) | | | -14.2 | % | | | 146.9 | | | | 164.8 | | | | (18.0 | ) | | | -10.9 | % |
Commission and brokerage | | | 30.2 | | | | 27.9 | | | | 2.3 | | | | 8.1 | % | | | 82.4 | | | | 93.2 | | | | (10.7 | ) | | | -11.5 | % | | | 23.8 | | | | 26.1 | | | | (2.4 | ) | | | -8.9 | % | | | 47.3 | | | | 52.3 | | | | (4.9 | ) | | | -9.4 | % |
Other underwriting expenses | | | 9.2 | | | | 9.1 | | | | 0.1 | | | | 1.0 | % | | | 25.0 | | | | 25.3 | | | | (0.3 | ) | | | -1.1 | % | | | 9.2 | | | | 8.0 | | | | 1.2 | | | | 15.0 | % | | | 18.1 | | | | 15.8 | | | | 2.3 | | | | 14.3 | % |
Underwriting gain (loss) | | $ | 47.1 | | | $ | (30.4 | ) | | $ | 77.5 | | | NM | | $ | 58.7 | | | $ | (24.6 | ) | | $ | 83.3 | | | NM | | $ | 1.9 | | | $ | 5.7 | | | $ | (3.9 | ) | | | -67.2 | % | | $ | 19.2 | | | $ | 11.6 | | | $ | 7.6 | | | | 65.9 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | Point Chg | | | | | | | | | | | | | | | Point Chg | | | | | | | | | | | | | | | Point Chg | | | | | | | | | | | | | | | Point Chg | |
Loss ratio | | | 32.6 | % | | | 95.1 | % | | | | | | | (62.5 | ) | | | 55.4 | % | | | 78.4 | % | | | | | | | (23.0 | ) | | | 69.2 | % | | | 69.6 | % | | | | | | | (0.4 | ) | | | 63.5 | % | | | 67.4 | % | | | | | | | (3.9 | ) |
Commission and brokerage ratio | | | 23.5 | % | | | 20.7 | % | | | | | | | 2.8 | | | | 22.1 | % | | | 21.5 | % | | | | | | | 0.6 | | | | 21.0 | % | | | 19.9 | % | | | | | | | 1.1 | | | | 20.4 | % | | | 21.4 | % | | | | | | | (1.0 | ) |
Other underwriting ratio | | | 7.2 | % | | | 6.7 | % | | | | | | | 0.5 | | | | 6.8 | % | | | 5.8 | % | | | | | | | 1.0 | | | | 8.1 | % | | | 6.1 | % | | | | | | | 2.0 | | | | 7.8 | % | | | 6.5 | % | | | | | | | 1.3 | |
Combined ratio | | | 63.3 | % | | | 122.5 | % | | | | | | | (59.2 | ) | | | 84.3 | % | | | 105.7 | % | | | | | | | (21.4 | ) | | | 98.3 | % | | | 95.6 | % | | | | | | | 2.7 | | | | 91.7 | % | | | 95.3 | % | | | | | | | (3.6 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(NM, not meaningful) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(Some amounts may not reconcile due to rounding.) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Premiums. Gross written premiums decreased by 5.6%4.2% to $353.2$333.5 million for the three months ended SeptemberJune 30, 20162017 compared to $374.1$348.2 million for the three months ended SeptemberJune 30, 20152016, primarily due to athe decline in Middle EastLatin American business, andpartially offset by the negativepositive impact of approximately $6.2$11.7 million from the movement of foreign exchange rates. Net written premiums decreased by 4.5%10.0% to $141.3$112.0 million for the three months ended SeptemberJune 30, 20162017 compared to $148.0$124.4 million for the three months ended SeptemberJune 30, 2015, which is consistent with2016. The difference between the change in gross written premiums. compared to the change in net written premiums is primarily due to varying utilization of reinsurance related to the quota share contracts, including affiliated quota share contracts. Premiums earned decreased 5.0%13.7% to $128.4$113.3 million for the three months ended SeptemberJune 30, 20162017 compared to $135.1$131.3 million for the three months ended SeptemberJune 30, 20152016. The change in premiums earned relative to net written premiums is primarily 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 decreasedincreased by 7.8%4.3% to $939.9$612.1 million for the ninesix months ended SeptemberJune 30, 20162017 compared to $1,019.4$586.7 million for the ninesix months ended SeptemberJune 30, 20152016, primarily due to declinesincreases in Latin American, Middle East, African and Asian business and the negativepositive impact of approximately $38.1$23.4 million from the movement of foreign exchange rates. Net written premiums decreasedincreased by 15.3%1.4% to $353.4$215.2 million for the ninesix months ended SeptemberJune 30, 20162017 compared to $417.1$212.2 million for the ninesix months ended SeptemberJune 30, 20152016. The difference between the change in gross written premiums compared to the change in net written premiums is primarily due to
varying utilization of reinsurance related to the quota share contracts, including affiliated quota share contracts. Premiums earned decreased 14.0%5.3% to $372.8$231.5 million for the ninesix months ended
38
September June 30, 20162017 compared to $433.8$244.5 million for the ninesix months ended SeptemberJune 30, 20152016. The change in premiums earned relative to net written premiums is primarily 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 tables presenttable presents the incurred losses and LAE for the International segment for the periods indicated.
| | Three Months Ended September 30, | | Three Months Ended June 30, |
| | Current | | | Ratio %/ | | Prior | | | Ratio %/ | | Total | | | Ratio %/ | | Current | | | Ratio %/ | | Prior | | | Ratio %/ | | Total | | | Ratio %/ |
(Dollars in millions) | | Year | | | Pt Change | | Years | | | Pt Change | | Incurred | | | Pt Change | | Year | | | Pt Change | | Years | | | Pt Change | | Incurred | | | Pt Change |
2017 | | | | | | | | | | | | | | | | | | | | | | |
Attritional | | | $ | 57.8 | | | | 51.0 | % | | | $ | 1.1 | | | | 0.9 | % | | | $ | 58.9 | | | | 51.9 | % | |
Catastrophes | | | | 18.3 | | | | 16.1 | % | | | | 1.4 | | | | 1.2 | % | | | | 19.6 | | | | 17.3 | % | |
Total segment | | | $ | 76.1 | | | | 67.1 | % | | | $ | 2.5 | | | | 2.1 | % | | | $ | 78.5 | | | | 69.2 | % | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
2016 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Attritional | | $ | 49.3 | | | | 38.4 | % | | $ | - | | | | 0.0 | % | | $ | 49.3 | | | | 38.4 | % | | | $ | 65.0 | | | | 49.5 | % | | | $ | (0.6 | ) | | | -0.4 | % | | | $ | 64.4 | | | | 49.1 | % | |
Catastrophes | | | 6.5 | | | | 5.1 | % | | | | (14.0 | ) | | | -10.9 | % | | | | (7.5 | ) | | | -5.8 | % | | | | 33.4 | | | | 25.4 | % | | | | (6.4 | ) | | | -4.9 | % | | | | 27.0 | | | | 20.5 | % | |
Total segment | | $ | 55.8 | | | | 43.5 | % | | | $ | (14.0 | ) | | | -10.9 | % | | | $ | 41.8 | | | | 32.6 | % | | | $ | 98.4 | | | | 74.9 | % | | | $ | (7.0 | ) | | | -5.3 | % | | | $ | 91.4 | | | | 69.6 | % | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
2015 | | | | | | | | | | | | | | | | | | | | | | | | | | |
Variance 2017/2016 | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Attritional | | $ | 111.0 | | | | 82.2 | % | | $ | 0.9 | | | | 0.7 | % | | $ | 112.0 | | | | 82.9 | % | | | $ | (7.2 | ) | | | 1.5 | | pts | | $ | 1.7 | | | | 1.3 | | pts | | $ | (5.5 | ) | | | 2.8 | | pts |
Catastrophes | | | 17.0 | | | | 12.6 | % | | | | (0.6 | ) | | | -0.4 | % | | | | 16.5 | | | | 12.2 | % | | | | (15.1 | ) | | | (9.3 | ) | pts | | | 7.8 | | | | 6.1 | | pts | | | (7.4 | ) | | | (3.2 | ) | pts |
Total segment | | $ | 128.1 | | | | 94.8 | % | | | $ | 0.4 | | | | 0.3 | % | | | $ | 128.5 | | | | 95.1 | % | | | $ | (22.3 | ) | | | (7.8 | ) | pts | | $ | 9.5 | | | | 7.4 | | pts | | $ | (13.0 | ) | | | (0.4 | ) | pts |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Variance 2016/2015 | | | | | | | | | | | | | | | | | | | | | | | | | | |
Attritional | | $ | (61.7 | ) | | | (43.8 | ) | pts | | $ | (0.9 | ) | | | (0.7 | ) | pts | | $ | (62.7 | ) | | | (44.5 | ) | pts | |
Catastrophes | | | (10.5 | ) | | | (7.5 | ) | pts | | | (13.4 | ) | | | (10.5 | ) | pts | | | (24.0 | ) | | | (18.0 | ) | pts | |
Total segment | | $ | (72.3 | ) | | | (51.3 | ) | pts | | $ | (14.3 | ) | | | (11.2 | ) | pts | | $ | (86.7 | ) | | | (62.5 | ) | pts | |
| | Nine Months Ended September 30, | | Six Months Ended June 30, |
| | Current | | | Ratio %/ | | Prior | | | Ratio %/ | | Total | | | Ratio %/ | | Current | | | Ratio %/ | | Prior | | | Ratio %/ | | Total | | | Ratio %/ |
(Dollars in millions) | | Year | | | Pt Change | | Years | | | Pt Change | | Incurred | | | Pt Change | | Year | | | Pt Change | | Years | | | Pt Change | | Incurred | | | Pt Change |
2017 | | | | | | | | | | | | | | | | | | | | | | |
Attritional | | | $ | 118.9 | | | | 51.5 | % | | | $ | 1.9 | | | | 0.8 | % | | | $ | 120.7 | | | | 52.3 | % | |
Catastrophes | | | | 25.1 | | | | 10.8 | % | | | | 1.0 | | | | 0.4 | % | | | | 26.1 | | | | 11.3 | % | |
Total segment | | | $ | 144.0 | | | | 62.3 | % | | | $ | 2.9 | | | | 1.3 | % | | | $ | 146.9 | | | | 63.5 | % | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
2016 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Attritional | | $ | 185.6 | | | | 49.8 | % | | $ | (3.4 | ) | | | -0.9 | % | | $ | 182.3 | | | | 48.9 | % | | | $ | 136.4 | | | | 55.8 | % | | | $ | (3.4 | ) | | | -1.4 | % | | | $ | 133.0 | | | | 54.4 | % | |
Catastrophes | | | 45.2 | | | | 12.1 | % | | | | (20.8 | ) | | | -5.6 | % | | | | 24.4 | | | | 6.5 | % | | | | 38.6 | | | | 15.8 | % | | | | (6.8 | ) | | | -2.8 | % | | | | 31.8 | | | | 13.0 | % | |
Total segment | | $ | 230.8 | | | | 61.9 | % | | | $ | (24.1 | ) | | | -6.5 | % | | | $ | 206.7 | | | | 55.4 | % | | | $ | 175.0 | | | | 71.6 | % | | | $ | (10.2 | ) | | | -4.2 | % | | | $ | 164.8 | | | | 67.4 | % | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
2015 | | | | | | | | | | | | | | | | | | | | | | | | | | |
Attritional | | $ | 304.9 | | | | 70.3 | % | | $ | 1.6 | | | | 0.4 | % | | $ | 306.5 | | | | 70.7 | % | | |
Catastrophes | | | 35.1 | | | | 8.1 | % | | | | (1.7 | ) | | | -0.4 | % | | | | 33.4 | | | | 7.7 | % | | |
Total segment | | $ | 340.0 | | | | 78.4 | % | | | $ | (0.1 | ) | | | 0.0 | % | | | $ | 339.9 | | | | 78.4 | % | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Variance 2016/2015 | | | | | | | | | | | | | | | | | | | | | | | | | | |
Variance 2017/2016 | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Attritional | | $ | (119.3 | ) | | | (20.5 | ) | pts | | $ | (5.0 | ) | | | (1.3 | ) | pts | | $ | (124.2 | ) | | | (21.8 | ) | pts | | $ | (17.5 | ) | | | (4.3 | ) | pts | | $ | 5.3 | | | | 2.2 | | pts | | $ | (12.3 | ) | | | (2.1 | ) | pts |
Catastrophes | | | 10.1 | | | | 4.0 | | pts | | | (19.1 | ) | | | (5.2 | ) | pts | | | (9.0 | ) | | | (1.2 | ) | pts | | | (13.5 | ) | | | (5.0 | ) | pts | | | 7.8 | | | | 3.2 | | pts | | | (5.7 | ) | | | (1.7 | ) | pts |
Total segment | | $ | (109.2 | ) | | | (16.5 | ) | pts | | $ | (24.0 | ) | | | (6.5 | ) | pts | | $ | (133.2 | ) | | | (23.0 | ) | pts | | $ | (31.0 | ) | | | (9.3 | ) | pts | | $ | 13.1 | | | | 5.5 | | pts | | $ | (18.0 | ) | | | (3.9 | ) | pts |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(Some amounts may not reconcile due to rounding.) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Incurred losses and LAE decreased by 67.4%14.2% to $41.8$78.5 million for the three months ended SeptemberJune 30, 20162017 compared to $128.5$91.4 million for the three months ended SeptemberJune 30, 20152016, primarily due to a decrease of $15.1 million in current year catastrophe losses and a decrease in current year attritional losses of $7.2 million, partially offset by $7.8 million of less favorable development on prior year catastrophe losses. The current year catastrophe losses of $18.3 million for the three months ended June 30, 2017 related to the South Africa Knysna Fires ($9.8 million), the Peru Storms ($6.8 million) and Cyclone Debbie in Australia ($1.6 million). The $33.4 million of current year catastrophe losses for the three months ended June 30, 2016 were due to the Fort McMurray Canada wildfire ($21.7 million) and the Ecuador earthquake ($11.6 million).
Incurred losses and LAE decreased by 10.9% to $146.9 million for the six months ended June 30, 2017 compared to $164.8 million for the six months ended June 30, 2016, primarily due to a decrease in current year attritional losses of $61.7$17.5 million, mainly related to lower Latin American and Asian losses in 2016 and $14.9 million of losses from the explosion at the Chinese port of Tianjin in 2015, a decrease of $10.5 million in current year catastrophe losses and $13.4 million of more favorable development in prior years catastrophe losses. The current year catastrophe losses of $6.5 million for the three months ended September 30, 2016 were related to the Fort McMurray Canada Wildfire ($3.7 million), the Taiwan earthquake ($2.3 million) U.S. Storms ($0.3 million) and the Ecuador earthquake ($0.2 million). The $17.0 million of current year catastrophe losses for the three months ended September 30, 2015 were entirely related to the 2015 Chilean earthquake. The $14.0 million of favorable development of prior years' catastrophe losses for the three months ended September 30, 2016 related primarily to the 2015 Chilean earthquake.
Incurred losses and LAE decreased by 39.2% to $206.7 million for the nine months ended September 30, 2016 compared to $339.9 million for the nine months ended September 30, 2015, primarily due to a decrease in current year attritional losses of $119.3 million, related to lower Latin American and Asian losses in 2016 and $14.9 million of losses from the explosion at the Chinese Port of Tianjin in 2015, more favorable development of prior year catastrophe losses of $19.1 million and the impact of the decrease in premiums earned, partially offset by an increase of $10.1 million in current year catastrophe losses. The $45.2 million of current year catastrophe losses for the nine months ended September 30, 2016 were due to the Fort McMurray Canada wildfire ($25.4 million), the Ecuador earthquake ($11.8 million), the Taiwan earthquake ($7.6 million) and U.S. Storms ($0.3 million). The $35.1 million of current year catastrophe losses for the nine months ended September 30, 2015 were due to the 2015 Chilean earthquake ($17.4 million), Northern Chile storms ($9.8 million) and the New South Wales storms ($7.9 million). The 2016 favorable development in prior years' catastrophe losses related primarily to the 2015 Chilean and 2011 Japanese earthquakes.
Segment Expenses. Commission and brokerage increased 8.1% to $30.2 million for the three months ended September 30, 2016 compared to $27.9 million for the three months ended September 30, 2015. The quarter over quarter increase is due to higher contingent commission and the impact of quota share contracts. Commission and brokerage decreased 11.5% to $82.4 million for the nine months ended September 30, 2016 compared to $93.2 million for the nine months ended September 30, 2015. The year over year decrease was mainly due to the impact of the decrease in premiums earned and changes in the affiliated quota share contracts, and a decrease of $13.5 million in current catastrophe losses, partially offset by the impact of favorable development on prior year attritional losses and prior year catastrophe losses in 2016 which did not recur in 2017. The current year catastrophe losses of $25.1 million for the six months ended June 30, 2017 related to the South Africa Knysna Fires ($9.8 million), Cyclone Debbie in Australia ($8.4 million) and the Peru Storms ($6.8 million). The $38.6 million of current year catastrophe losses for the six months ended June 30, 2016 were due to the Fort McMurray Canada wildfire ($21.7 million), the Ecuador earthquake ($11.6 million) and the Taiwan earthquake ($5.3 million).
Segment Expenses. Commission and brokerage decreased 8.9% to $23.8 million for the three months ended June 30, 2017 compared to $26.1 million for the three months ended June 30, 2016. Commission and brokerage decreased 9.4% to $47.3 million for the six months ended June 30, 2017 compared to $52.3 million for the six months ended June 30, 2016. The decreases were due to the impact of the decreases in premiums earned, the impact of affiliated quota share agreements and changes in the mix of business.
Segment other underwriting expenses increased slightly to $9.2 million for the three months ended SeptemberJune 30, 20162017 compared to $9.1from $8.0 million for the three months ended SeptemberJune 30, 2015,2016, and decreased slightlyincreased to $25.0$18.1 million for the ninesix months ended SeptemberJune 30, 2016 2017compared to $25.3 from $15.8 million for the ninesix months ended SeptemberJune 30, 2015.2016. The increases were mainly due to the impact of affiliated quota share agreements and changes in the mix of business.
Insurance.
The following table presents the underwriting results and ratios for the Insurance segment for the periods indicated.
| | Three Months Ended September 30, | | | Nine Months Ended September 30, | | | Three Months Ended June 30, | | | Six Months Ended June 30, | |
(Dollars in millions) | | 2016 | | | 2015 | | | Variance | | | % Change | | | 2016 | | | 2015 | | | Variance | | | % Change | | | 2017 | | | 2016 | | | Variance | | | % Change | | | 2017 | | | 2016 | | | Variance | | | % Change | |
Gross written premiums | | $ | 498.0 | | | $ | 473.0 | | | $ | 25.0 | | | | 5.3 | % | | $ | 1,276.8 | | | $ | 1,130.2 | | | $ | 146.5 | | | | 13.0 | % | | $ | 527.0 | | | $ | 424.1 | | | $ | 102.9 | | | | 24.3 | % | | $ | 921.9 | | | $ | 778.8 | | | $ | 143.1 | | | | 18.4 | % |
Net written premiums | | | 154.1 | | | | 203.7 | | | | (49.7 | ) | | | -24.4 | % | | | 462.8 | | | | 490.1 | | | | (27.3 | ) | | | -5.6 | % | | | 170.8 | | | | 155.8 | | | | 15.0 | | | | 9.6 | % | | | 297.3 | | | | 308.7 | | | | (11.4 | ) | | | -3.7 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Premiums earned | | $ | 179.1 | | | $ | 175.6 | | | $ | 3.4 | | | | 2.0 | % | | $ | 445.6 | | | $ | 428.7 | | | $ | 16.9 | | | | 3.9 | % | | $ | 152.6 | | | $ | 133.0 | | | $ | 19.7 | | | | 14.8 | % | | $ | 297.2 | | | $ | 266.5 | | | $ | 30.7 | | | | 11.5 | % |
Incurred losses and LAE | | | 122.5 | | | | 133.2 | | | | (10.7 | ) | | | -8.0 | % | | | 366.0 | | | | 325.5 | | | | 40.5 | | | | 12.4 | % | | | 99.0 | | | | 137.0 | | | | (37.9 | ) | | | -27.7 | % | | | 199.9 | | | | 243.4 | | | | (43.5 | ) | | | -17.9 | % |
Commission and brokerage | | | 7.3 | | | | (4.7 | ) | | | 11.9 | | | NM | | | (3.9 | ) | | | 6.5 | | | | (10.4 | ) | | | -159.9 | % | | | (6.5 | ) | | | (5.9 | ) | | | (0.6 | ) | | | 10.0 | % | | | (17.9 | ) | | | (15.3 | ) | | | (2.5 | ) | | | 16.4 | % |
Other underwriting expenses | | | 40.7 | | | | 34.1 | | | | 6.6 | | | | 19.2 | % | | | 116.8 | | | | 94.7 | | | | 22.1 | | | | 23.3 | % | | | 40.8 | | | | 38.2 | | | | 2.5 | | | | 6.6 | % | | | 77.5 | | | | 76.2 | | | | 1.3 | | | | 1.8 | % |
Underwriting gain (loss) | | $ | 8.6 | | | $ | 13.0 | | | $ | (4.4 | ) | | | -33.8 | % | | $ | (33.3 | ) | | $ | 1.9 | | | $ | (35.3 | ) | | NM | | $ | 19.3 | | | $ | (36.4 | ) | | $ | 55.7 | | | NM | | $ | 37.6 | | | $ | (37.8 | ) | | $ | 75.5 | | | NM |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | Point Chg | | | | | | | | | | | | | | | Point Chg | | | | | | | | | | | | | | | Point Chg | | | | | | | | | | | | | | | Point Chg | |
Loss ratio | | | 68.4 | % | | | 75.8 | % | | | | | | | (7.4 | ) | | | 82.1 | % | | | 75.9 | % | | | | | | | 6.2 | | | | 64.9 | % | | | 103.0 | % | | | | | | | (38.1 | ) | | | 67.3 | % | | | 91.4 | % | | | | | | | (24.1 | ) |
Commission and brokerage ratio | | | 4.1 | % | | | -2.7 | % | | | | | | | 6.8 | | | | -0.9 | % | | | 1.5 | % | | | | | | | (2.4 | ) | | | -4.2 | % | | | -4.3 | % | | | | | | | 0.1 | | | | -6.0 | % | | | -5.8 | % | | | | | | | (0.3 | ) |
Other underwriting ratio | | | 22.7 | % | | | 19.5 | % | | | | | | | 3.2 | | | | 26.3 | % | | | 22.2 | % | | | | | | | 4.1 | | | | 26.7 | % | | | 28.7 | % | | | | | | | (2.0 | ) | | | 26.0 | % | | | 28.6 | % | | | | | | | (2.6 | ) |
Combined ratio | | | 95.2 | % | | | 92.6 | % | | | | | | | 2.6 | | | | 107.5 | % | | | 99.6 | % | | | | | | | 7.9 | | | | 87.4 | % | | | 127.4 | % | | | | | | | (39.9 | ) | | | 87.3 | % | | | 114.2 | % | | | | | | | (26.9 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(NM, not meaningful) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(Some amounts may not reconcile due to rounding.) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Premiums. Gross written premiums increased by 5.3%24.3% to $498.0$527.0 million for the three months ended SeptemberJune 30, 20162017 compared to $473.0$424.1 million for the three months ended SeptemberJune 30, 20152016. This increase was primarily driven by increases inexpansion of many lines of business, including retail property, retail casualty, surety and accident and health business and additional expansion of other insurance lines of business.health. Net written premiums decreasedincreased by 24.4%9.6% to $154.1$170.8 million for the three months ended SeptemberJune 30, 20162017 compared to $203.7$155.8 million for the three months ended SeptemberJune 30, 20152016. The difference between the change in gross written premiums compared to the change in net written premiums is primarily due to the transfermore conservative reinsurance position we have taken to support our new business and the impact of the crop business to the U.S. Reinsurance segment as a result of the Heartland sale and entering into a new crop reinsurance contract.affiliated quota share agreements. Premiums earned increased 2.0%14.8% to $179.1$152.6 million
for the three months ended SeptemberJune 30, 20162017 compared to $175.6$133.0 million for the
three months ended SeptemberJune 30, 2015. 2016. 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.
Gross written premiums increased by 13.0%18.4% to $1,276.8$921.9 million for the ninesix months ended SeptemberJune 30, 20162017 compared to $1,130.2$778.8 million for the ninesix months ended SeptemberJune 30, 20152016. This increase was primarily driven by increases inexpansion of many lines of business, including retail property, retail casualty, surety and accident and health business and additional expansion of other insurance lines of business.health. Net written premiums decreased by 5.6%3.7% to $462.8$297.3 million for the ninesix months ended SeptemberJune 30, 20162017 compared to $490.1$308.7 million for the ninesix months ended SeptemberJune 30, 20152016. The difference between the change in gross written premiums compared to the change in the net written premiums is primarily due to the transfermore conservative reinsurance position we have taken to support our new business and the impact of the crop business as described above. affiliated quota share agreements. Premiums earned increased 3.9%11.5% to $445.6$297.2 million for the ninesix months ended SeptemberJune 30, 20162017 compared to $428.7$266.5 million for the ninesix months ended SeptemberJune 30, 20152016. 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.
Incurred Losses and LAE. The following tables presenttable presents the incurred losses and LAE for the Insurance segment for the periods indicated.
| | Three Months Ended September 30, |
| | Current | | | Ratio %/ | | Prior | | | Ratio %/ | | Total | | | Ratio %/ |
(Dollars in millions) | | Year | | | Pt Change | | Years | | | Pt Change | | Incurred | | | Pt Change |
2016 | | | | | | | | | | | | | | | | | | | | | |
Attritional | | $ | 121.4 | | | | 67.8 | % | | | $ | 1.1 | | | | 0.6 | % | | | $ | 122.5 | | | | 68.4 | % | |
Catastrophes | | | - | | | | 0.0 | % | | | | - | | | | 0.0 | % | | | | 0.0 | | | | 0.0 | % | |
Total segment | | $ | 121.4 | | | | 67.8 | % | | | $ | 1.1 | | | | 0.6 | % | | | $ | 122.5 | | | | 68.4 | % | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
2015 | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Attritional | | $ | 132.0 | | | | 75.2 | % | | | $ | 0.9 | | | | 0.5 | % | | | $ | 132.9 | | | | 75.7 | % | |
Catastrophes | | | - | | | | 0.0 | % | | | | 0.2 | | | | 0.1 | % | | | | 0.2 | | | | 0.1 | % | |
Total segment | | $ | 132.0 | | | | 75.2 | % | | | $ | 1.2 | | | | 0.7 | % | | | $ | 133.2 | | | | 75.8 | % | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Variance 2016/2015 | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Attritional | | $ | (10.6 | ) | | | (7.4 | ) | pts | | $ | 0.2 | | | | 0.1 | | pts | | $ | (10.4 | ) | | | (7.3 | ) | pts |
Catastrophes | | | - | | | | - | | pts | | | (0.2 | ) | | | (0.1 | ) | pts | | | (0.2 | ) | | | (0.1 | ) | pts |
Total segment | | $ | (10.6 | ) | | | (7.4 | ) | pts | | $ | (0.1 | ) | | | (0.1 | ) | pts | | $ | (10.7 | ) | | | (7.4 | ) | pts |
| | Nine Months Ended September 30, | | Three Months Ended June 30, |
| | Current | | | Ratio %/ | | Prior | | | Ratio %/ | | Total | | | Ratio %/ | | Current | | | Ratio %/ | | Prior | | | Ratio %/ | | Total | | | Ratio %/ |
(Dollars in millions) | | Year | | | Pt Change | | Years | | | Pt Change | | Incurred | | | Pt Change | | Year | | | Pt Change | | Years | | | Pt Change | | Incurred | | | Pt Change |
2017 | | | | | | | | | | | | | | | | | | | | | | |
Attritional | | | $ | 90.3 | | | | 59.2 | % | | | $ | 4.0 | | | | 2.6 | % | | | $ | 94.2 | | | | 61.8 | % | |
Catastrophes | | | | 4.8 | | | | 3.1 | % | | | | - | | | | 0.0 | % | | | | 4.8 | | | | 3.1 | % | |
Total segment | | | $ | 95.1 | | | | 62.4 | % | | | $ | 4.0 | | | | 2.6 | % | | | $ | 99.0 | | | | 64.9 | % | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
2016 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Attritional | | $ | 343.8 | | | | 77.1 | % | | $ | 5.6 | | | | 1.3 | % | | $ | 349.4 | | | | 78.4 | % | | | $ | 118.8 | | | | 89.3 | % | | | $ | 1.5 | | | | 1.2 | % | | | $ | 120.3 | | | | 90.5 | % | |
Catastrophes | | | 16.7 | | | | 3.7 | % | | | | (0.2 | ) | | | 0.0 | % | | | | 16.5 | | | | 3.7 | % | | | | 16.7 | | | | 12.5 | % | | | | - | | | | 0.0 | % | | | | 16.7 | | | | 12.5 | % | |
Total segment | | $ | 360.5 | | | | 80.8 | % | | | $ | 5.4 | | | | 1.3 | % | | | $ | 366.0 | | | | 82.1 | % | | | $ | 135.5 | | | | 101.8 | % | | | $ | 1.5 | | | | 1.2 | % | | | $ | 137.0 | | | | 103.0 | % | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
2015 | | | | | | | | | | | | | | | | | | | | | | | | | | |
Variance 2017/2016 | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Attritional | | $ | 307.4 | | | | 71.7 | % | | $ | 17.9 | | | | 4.1 | % | | $ | 325.3 | | | | 75.8 | % | | | $ | (28.5 | ) | | | (30.1 | ) | pts | | $ | 2.5 | | | | 1.4 | | pts | | $ | (26.1 | ) | | | (28.7 | ) | pts |
Catastrophes | | | - | | | | 0.0 | % | | | | 0.3 | | | | 0.1 | % | | | | 0.3 | | | | 0.1 | % | | | | (11.9 | ) | | | (9.4 | ) | pts | | | 0.0 | | | | - | | pts | | | (11.9 | ) | | | (9.4 | ) | pts |
Total segment | | $ | 307.4 | | | | 71.7 | % | | | $ | 18.2 | | | | 4.2 | % | | | $ | 325.5 | | | | 75.9 | % | | | $ | (40.4 | ) | | | (39.4 | ) | pts | | $ | 2.5 | | | | 1.4 | | pts | | $ | (37.9 | ) | | | (38.1 | ) | pts |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Variance 2016/2015 | | | | | | | | | | | | | | | | | | | | | | | | | | |
Attritional | | $ | 36.4 | | | | 5.4 | | pts | | $ | (12.3 | ) | | | (2.8 | ) | pts | | $ | 24.1 | | | | 2.6 | | pts | |
Catastrophes | | | 16.7 | | | | 3.7 | | pts | | | (0.5 | ) | | | (0.1 | ) | pts | | | 16.2 | | | | 3.6 | | pts | |
Total segment | | $ | 53.1 | | | | 9.1 | | pts | | $ | (12.8 | ) | | | (2.9 | ) | pts | | $ | 40.5 | | | | 6.2 | | pts | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
(Some amounts may not reconcile due to rounding.) | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Six Months Ended June 30, |
| | Current | | | Ratio %/ | | Prior | | | Ratio %/ | | Total | | | Ratio %/ |
(Dollars in millions) | | Year | | | Pt Change | | Years | | | Pt Change | | Incurred | | | Pt Change |
2017 | | | | | | | | | | | | | | | | | | | | | |
Attritional | | $ | 187.6 | | | | 63.1 | % | | | $ | 7.7 | | | | 2.6 | % | | | $ | 195.2 | | | | 65.7 | % | |
Catastrophes | | | 4.8 | | | | 1.6 | % | | | | (0.1 | ) | | | 0.0 | % | | | | 4.7 | | | | 1.6 | % | |
Total segment | | $ | 192.4 | | | | 64.7 | % | | | $ | 7.6 | | | | 2.6 | % | | | $ | 199.9 | | | | 67.3 | % | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
2016 | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Attritional | | $ | 222.4 | | | | 83.5 | % | | | $ | 4.5 | | | | 1.7 | % | | | $ | 226.9 | | | | 85.2 | % | |
Catastrophes | | | 16.7 | | | | 6.3 | % | | | | (0.2 | ) | | | -0.1 | % | | | | 16.5 | | | | 6.2 | % | |
Total segment | | $ | 239.1 | | | | 89.8 | % | | | $ | 4.3 | | | | 1.6 | % | | | $ | 243.4 | | | | 91.4 | % | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Variance 2017/2016 | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Attritional | | $ | (34.8 | ) | | | (20.4 | ) | pts | | $ | 3.2 | | | | 0.9 | | pts | | $ | (31.7 | ) | | | (19.5 | ) | pts |
Catastrophes | | | (11.9 | ) | | | (4.7 | ) | pts | | | 0.1 | | | | 0.1 | | pts | | | (11.8 | ) | | | (4.6 | ) | pts |
Total segment | | $ | (46.7 | ) | | | (25.1 | ) | pts | | $ | 3.3 | | | | 1.0 | | pts | | $ | (43.5 | ) | | | (24.1 | ) | pts |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
(Some amounts may not reconcile due to rounding.) | | | | | | | | | | | | | | | | | | | | | | | | | | | |
41
Incurred losses and LAE decreased by 8.0%27.7% to $122.5$99.0 million for the three months ended SeptemberJune 30, 20162017 compared to $133.2$137.0 million for the three months ended SeptemberJune 30, 20152016, mainly due to a decrease of $10.6
$28.5 million in current year attritional losses primarily due toand a declinedecrease of $11.9 million in the workers' compensation loss ratio. There were no current year catastrophe losses for the three months ended September 30, 2016 and 2015.
Incurred losses and LAE increased by 12.4% to $366.0 million for the nine months ended September 30, 2016 compared to $325.5 million for the nine months ended September 30, 2015, mainly due to an increase of $36.4 millionlosses. The decrease in current year attritional losses primarily related to changes in the mix of business and the impact of the increase in premiums earned and an increase of $16.7 million inaffiliated quota share agreements. The current year catastrophe losses partially offset byof $4.8 million for the impact from less unfavorable development of $12.3 million in prior years' attritional losses mainlythree months ended June 30, 2017 primarily related to runoff umbrella and construction liability business. 2017 US Midwest Storms (4.8 million).The $16.7 million of current year catastrophe losses for the ninethree months ended SeptemberJune 30, 2016 were due to the 2016 U.S. storms ($15.0 million) and the Fort McMurray Canada wildfire ($1.7 million). There were no
Incurred losses and LAE decreased by 17.9% to $199.9 million for the six months ended June 30, 2017 compared to $243.4 million for the six months ended June 30, 2016, mainly due to a decrease of $34.8 million in current year attritional losses and a decrease of $11.9 million in current catastrophe losses. The decrease in current year attritional losses primarily related to changes in the mix of business and the impact of affiliated quota share agreements. The current year catastrophe losses of $4.8 million for the ninesix months ended SeptemberJune 30, 20152017 primarily related to 2017 US Midwest Storms (4.8 million). The $16.7 million of current year catastrophe losses for the six months ended June 30, 2016 were due to the 2016 U.S. storms ($15.0 million) and the Fort McMurray Canada wildfire ($1.7 million).
Segment Expenses. Commission and brokerage increaseddecreased to $7.3($6.5) million for the three months ended SeptemberJune 30, 20162017 compared to $(4.7)($5.9) million for the three months ended SeptemberJune 30, 20152016. Commission and brokerage decreased to ($3.9)17.9) million for the ninesix months ended SeptemberJune 30, 20162017 compared to $6.5($15.3) million for the ninesix months ended SeptemberJune 30, 2015.2016. The fluctuations weredecrease was mainly due to the impact of changes in the mix of business and the impacts from affiliated quota share agreements and changes in mix of business.agreements.
Segment other underwriting expenses increased to $40.7$40.8 million for the three months ended SeptemberJune 30, 20162017 compared to $34.1$38.2 million for the three months ended SeptemberJune 30, 2015 and2016. Segment other underwriting expenses increased to $116.8$77.5 million for the ninesix months ended SeptemberJune 30, 20162017 compared to $94.7$76.2 million for the ninesix months ended SeptemberJune 30, 2015. The2016. These increases were primarilymainly due to the impactcosts incurred related to the expansion of the increases in premiums earned and increased expenses due to the build out of our insurance platform.operations.
Market Sensitive Instruments.
The SEC'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 sensitive 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.
Interest Rate Risk. Our $9.8$10.0 billion investment portfolio, at SeptemberJune 30, 2016,2017, 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.
42
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 $835.0$757.0 million of mortgage-backed securities in the $6,018.9$6,140.0 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 table below displays the potential impact of market value fluctuations and after-tax unrealized appreciation on our fixed maturity portfolio (including $188.4$176.4 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 estimates forestimate 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 | | | Impact of Interest Rate Shift in Basis Points |
| | At September 30, 2016 | | | At June 30, 2017 |
(Dollars in millions) | | | -200 | | | | -100 | | | | 0 | | | | 100 | | | | 200 | | | -200 | | -100 | | 0 | | 100 | | 200 |
Total Market/Fair Value | | $ | 6,552.1 | | | $ | 6,379.8 | | | $ | 6,207.3 | | | $ | 6,023.8 | | | $ | 5,835.2 | | | $ | 6,685.0 | | | $ | 6,503.3 | | | $ | 6,316.4 | | | $ | 6,122.5 | | | $ | 5,928.0 | |
Market/Fair Value Change from Base (%) | | | 5.6 | % | | | 2.8 | % | | | 0.0 | % | | | -3.0 | % | | | -6.0 | % | | | 5.8 | % | | | 3.0 | % | | | 0.0 | % | | | -3.1 | % | | | -6.1 | % |
Change in Unrealized Appreciation | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
After-tax from Base ($) | | $ | 224.1 | | | $ | 112.2 | | | $ | - | | | $ | (119.3 | ) | | $ | (241.9 | ) | | $ | 239.6 | | | $ | 121.4 | | | $ | - | | | $ | (126.1 | ) | | $ | (252.5 | ) |
We had $8,306.4$8,286.6 million and $7,940.7$8,331.3 million of gross reserves for losses and LAE as of SeptemberJune 30, 20162017 and December 31, 2015,2016, 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.
Equity Risk. Equity risk is the potential change in fair and/or market value of the common stock, and 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 table below displays 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 | | | Impact of Percentage Change in Equity Fair/Market Values |
| | At September 30, 2016 | | | At June 30, 2017 |
(Dollars in millions) | | | -20% | | | -10% | | | 0% | | | 10% | | | 20% | | -20% | | -10% | | 0% | | 10% | | 20% |
Fair/Market Value of the Equity Portfolio | | $ | 768.9 | | | $ | 865.0 | | | $ | 961.1 | | | $ | 1,057.2 | | | $ | 1,153.3 | | | $ | 747.3 | | | $ | 840.7 | | | $ | 934.1 | | | $ | 1,027.5 | | | $ | 1,120.9 | |
After-tax Change in Fair/Market Value | | | (124.9 | ) | | | (62.5 | ) | | | - | | | | 62.5 | | | | 124.9 | | | | (121.4 | ) | | | (60.7 | ) | | | - | | | | 60.7 | | | | 121.4 | |
Foreign ExchangeCurrency Risk. Foreign currency risk is the potential change in value, income and cash flow arising from adverse changes in foreign currency exchange rates. Each of our non-U.S. ("foreign") operations maintains capital in the currency of the country of its geographic location consistent with local regulatory guidelines. Each foreign operation may conduct business in its local currency, as well as the currency of other countries in which it operates. The primary foreign currency exposures for these foreign operations are the Singapore and Canadian Dollars. We mitigate foreign exchange exposure by generally matching the currency and duration of our assets to our corresponding operating liabilities. In accordance with FASB
guidance, the impact on the market value of available for sale fixed maturities due to changes in foreign currency exchange rates, in relation to functional currency, is reflected as part of other comprehensive income. Conversely, the impact of changes in foreign currency exchange rates, in relation to functional currency, on other assets and liabilities is reflected through net income as a component of other income (expense). In addition, we translate the assets, liabilities and income of non-U.S. dollar functional currency legal entities to the U.S. dollar. This translation amount is reported as a component of other comprehensive income.
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", "will", "should", "could", "anticipate", "estimate", "expect", "plan", "believe", "predict", "potential" and "intend". Forward-looking statements contained in this report include information regarding our reserves for losses and LAE, the adequacy of our provision for uncollectible balances, estimates of our catastrophe exposure, the effects of catastrophic 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" in the Company's most recent 10-K filing. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market Risk Instruments. See "Market Sensitive Instruments" in PART I – ITEM 2.
ITEM 4. CONTROLS AND PROCEDURES
As of the end of the period covered by this report, our management carried out an evaluation, with the participation of the Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the "Exchange Act")). Based on their evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act are recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms. Our management, with the participation of the Chief Executive Officer and Chief Financial Officer, also conducted an evaluation of our internal control over financial reporting to determine whether any changes occurred during the quarter covered by this 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 quarter covered by this report.
PART II
ITEM 1. LEGAL PROCEEDINGS
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'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.
ITEM 1A. RISK FACTORS
No material changes.
ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.
45
ITEM 6. EXHIBITS
Exhibit Index: | | |
| | |
Exhibit No. | Description | |
| | |
31.1 | Section 302 Certification of Dominic J. Addesso | |
| | |
31.2 | Section 302 Certification of Craig Howie | |
| | |
32.1 | Section 906 Certification of Dominic J. Addesso and Craig Howie | |
| | |
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 Labels Linkbase | |
| | |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase | |
| | |
Everest Reinsurance Holdings, Inc.
Signatures
Pursuant to the requirements 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.
| | | | |
| | Everest Reinsurance Holdings, Inc. | | |
| | (Registrant) | | |
| | | | |
| | | | |
| | /S/ CRAIG HOWIE | | |
| | Craig Howie | | |
| | Executive Vice President and | | |
| | | Chief Financial Officer | | |
| | | | |
| | (Duly Authorized Officer and Principal Financial Officer) |
| | | | |
| | | | |
| | | | |
Dated: NovemberAugust 14, 2016 | | | 2017 | |