UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
For the quarterly period ended September 30, 2020
☐ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Commission file number 1-14527
EVEREST REINSURANCE HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
(Address, including zip code, and telephone number, including area code,
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, a smaller reporting company or an emerging growth company. See the definitions of "large“large accelerated filer," "accelerated” “accelerated filer," "smaller” “smaller reporting company" company” and "emerging“emerging growth company"company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer☐ | Accelerated filer | ☐ | ||
Filer ☑ | Smaller reporting company | ☐ | ||
Emerging growth company | ☐ |
Indicate by check mark if the registrant is an emerging growth company and has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange act.
YES ☐ NO ☑
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'sissuer’s classes of common stock, as of the latest practicable date.
Number of Shares Outstanding | ||
Class | At November 1, | |
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 September 30, | 1 | ||||||
Consolidated Statements of Operations and Comprehensive Income (Loss) for the | |||||||
three and nine months ended September 30, | 2 | ||||||
Consolidated Statements of Changes in | |||||||
nine months ended September 30, | 3 | ||||||
Consolidated Statements of Cash Flows for the nine months ended September 30, 2020 and 2019 (unaudited) | 4 | ||||||
Notes to Consolidated Interim Financial Statements (unaudited) | 5 | ||||||
Item 2. | Management’s Discussion and Analysis of Financial Condition and | ||||||
Results of Operation | 35 | ||||||
Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 51 | |||||
Item 4. | Controls and Procedures | 51 | |||||
PART II | |||||||
OTHER INFORMATION | |||||||
Item 1. | Legal Proceedings | 52 | |||||
Item 1A. | Risk Factors | 52 | |||||
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 53 | |||||
Item 3. | Defaults Upon Senior Securities | 53 | |||||
Item 4. | Mine Safety Disclosures | 53 | |||||
Item 5. | Other Information | 53 | |||||
Item 6. | Exhibits | 54 |
EVEREST REINSURANCE HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
|
|
|
| ||
(Dollars in thousands, except share amounts and par value per share) | September 30, 2020 |
| December 31, 2019 | ||
| (unaudited) |
|
|
| |
ASSETS: |
|
|
|
|
|
Fixed maturities - available for sale, at market value (amortized cost: 2020, $8,267,172; 2019, $7,334,425 allowances for credit losses: 2020, $17,636; 2019, $0) | $ | 8,576,687 |
| $ | 7,492,079 |
Fixed maturities - available for sale, at fair value |
| 3,748 |
|
| 5,826 |
Equity securities, at fair value |
| 1,010,264 |
|
| 764,049 |
Short-term investments (cost: 2020, $908,334; 2019, $279,824) |
| 907,889 |
|
| 279,879 |
Other invested assets (cost: 2020, $1,069,726; 2019, $1,020,766) |
| 1,069,726 |
|
| 1,020,766 |
Other invested assets, at fair value |
| 1,801,743 |
|
| 1,982,582 |
Cash |
| 451,512 |
|
| 411,122 |
Total investments and cash |
| 13,821,569 |
|
| 11,956,303 |
Note Receivable - affiliated |
| 300,000 |
|
| 300,000 |
Accrued investment income |
| 76,463 |
|
| 54,383 |
Premiums receivable |
| 1,517,550 |
|
| 1,337,344 |
Reinsurance receivables - unaffiliated |
| 1,451,992 |
|
| 1,318,820 |
Reinsurance receivables - affiliated |
| 2,704,519 |
|
| 3,125,269 |
Income taxes net recoverable |
| - |
|
| 65,793 |
Funds held by reinsureds |
| 264,597 |
|
| 228,297 |
Deferred acquisition costs |
| 380,863 |
|
| 388,238 |
Prepaid reinsurance premiums |
| 395,776 |
|
| 413,612 |
Other assets |
| 572,171 |
|
| 518,127 |
TOTAL ASSETS | $ | 21,485,500 |
|
| 19,706,186 |
|
|
|
|
|
|
LIABILITIES: |
|
|
|
|
|
Reserve for losses and loss adjustment expenses | $ | 11,042,011 |
| $ | 10,209,519 |
Unearned premium reserve |
| 2,399,154 |
|
| 2,198,932 |
Funds held under reinsurance treaties |
| 46,803 |
|
| 41,233 |
Other net payable to reinsurers |
| 343,165 |
|
| 267,367 |
Losses in course of payment |
| 186,466 |
|
| 70,541 |
Income taxes net payable |
| 131,824 |
|
| - |
Senior notes due 6/1/2044 |
| 397,164 |
|
| 397,074 |
Long term notes due 5/1/2067 |
| 223,649 |
|
| 236,758 |
Borrowings from FHLB |
| 90,000 |
|
| - |
Accrued interest on debt and borrowings |
| 7,215 |
|
| 2,878 |
Unsettled securities payable |
| 98,898 |
|
| 25,230 |
Other liabilities |
| 363,485 |
|
| 399,229 |
Total liabilities |
| 15,329,834 |
|
| 13,848,761 |
|
|
|
|
|
|
Commitments and Contingencies (Note 6) |
| (nil) |
|
| (nil) |
|
|
|
|
|
|
STOCKHOLDER'S EQUITY: |
|
|
|
|
|
Common stock, par value: $0.01; 3,000 shares authorized; 1,000 shares issued and outstanding (2020 and 2019) |
| - |
|
| - |
Additional paid-in capital |
| 1,100,983 |
|
| 1,100,678 |
Accumulated other comprehensive income (loss), net of deferred income tax expense (benefit) of $51,941 at 2020 and $16,977 at 2019 |
| 195,495 |
|
| 64,324 |
Retained earnings |
| 4,859,188 |
|
| 4,692,423 |
Total stockholder's equity |
| 6,155,666 |
|
| 5,857,425 |
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY | $ | 21,485,500 |
| $ | 19,706,186 |
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated financial statements. |
|
|
|
|
|
September 30, | December 31, | |||||||
(Dollars in thousands, except par value per share) | 2017 | 2016 | ||||||
(unaudited) | ||||||||
ASSETS: | ||||||||
Fixed maturities - available for sale, at market value | $ | 6,039,361 | $ | 5,970,496 | ||||
(amortized cost: 2017, $5,974,256; 2016, $5,910,494) | ||||||||
Equity securities - available for sale, at fair value | 998,071 | 887,800 | ||||||
Short-term investments | 229,999 | 306,286 | ||||||
Other invested assets (cost: 2017, $736,566; 2016, $613,680) | 739,486 | 613,740 | ||||||
Other invested assets, at fair value | 1,922,402 | 1,766,626 | ||||||
Cash | 302,331 | 297,794 | ||||||
Total investments and cash | 10,231,650 | 9,842,742 | ||||||
Note receivable - affiliated | 250,000 | 250,000 | ||||||
Accrued investment income | 45,575 | 45,323 | ||||||
Premiums receivable | 1,564,491 | 1,128,639 | ||||||
Reinsurance receivables - unaffiliated | 1,116,370 | 887,657 | ||||||
Reinsurance receivables - affiliated | 4,137,998 | 3,686,130 | ||||||
Funds held by reinsureds | 204,989 | 190,421 | ||||||
Deferred acquisition costs | 65,519 | 68,621 | ||||||
Prepaid reinsurance premiums | 1,115,344 | 781,384 | ||||||
Other assets | 411,425 | 202,519 | ||||||
TOTAL ASSETS | $ | 19,143,361 | $ | 17,083,436 | ||||
LIABILITIES: | ||||||||
Reserve for losses and loss adjustment expenses | $ | 9,969,148 | $ | 8,331,288 | ||||
Unearned premium reserve | 1,628,717 | 1,312,386 | ||||||
Funds held under reinsurance treaties | 125,463 | 110,836 | ||||||
Losses in the course of payment | 193,948 | 82,915 | ||||||
Commission reserves | 24,932 | 52,037 | ||||||
Other net payable to reinsurers | 1,158,259 | 815,298 | ||||||
4.868% Senior notes due 6/1/2044 | 396,804 | 396,714 | ||||||
6.6% Long term notes due 5/1/2067 | 236,536 | 236,462 | ||||||
Accrued interest on debt and borrowings | 7,564 | 3,537 | ||||||
Income taxes | (29,533 | ) | 148,940 | |||||
Unsettled securities payable | 39,660 | 27,121 | ||||||
Other liabilities | 224,219 | 267,349 | ||||||
Total liabilities | 13,975,717 | 11,784,883 | ||||||
Commitments and Contingencies (Note 7) | ||||||||
STOCKHOLDER'S EQUITY: | ||||||||
Common stock, par value: $0.01; 3,000 shares authorized; | ||||||||
1,000 shares issued and outstanding (2017 and 2016) | - | - | ||||||
Additional paid-in capital | 387,772 | 387,567 | ||||||
Accumulated other comprehensive income (loss), net of deferred income tax expense | ||||||||
(benefit) of $9,405 at 2017 and ($19,549) at 2016 | 17,459 | (36,315 | ) | |||||
Retained earnings | 4,762,413 | 4,947,301 | ||||||
Total stockholder's equity | 5,167,644 | 5,298,553 | ||||||
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY | $ | 19,143,361 | $ | 17,083,436 | ||||
The accompanying notes are an integral part of the consolidated financial statements. |
1
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) | 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
| (unaudited) |
| (unaudited) | ||||||||
REVENUES: |
|
|
|
|
|
|
|
|
|
|
|
Premiums earned | $ | 1,615,457 |
| $ | 1,428,400 |
| $ | 4,648,422 |
| $ | 4,074,477 |
Net investment income |
| 135,428 |
|
| 95,592 |
|
| 244,782 |
|
| 270,835 |
Net realized capital gains (losses): |
|
|
|
|
|
|
|
|
|
|
|
Credit allowances on fixed maturity securities |
| 2,289 |
|
| - |
|
| (17,636) |
|
| - |
Other-than-temporary impairments on fixed maturity securities |
| - |
|
| (6,968) |
|
| - |
|
| (14,187) |
Other net realized capital gains (losses) |
| 112,904 |
|
| 119,510 |
|
| (89,664) |
|
| 404,348 |
Total net realized capital gains (losses) |
| 115,193 |
|
| 112,542 |
|
| (107,300) |
|
| 390,161 |
Other income (expense) |
| (1,790) |
|
| (2,673) |
|
| (11,410) |
|
| (8,459) |
Total revenues |
| 1,864,288 |
|
| 1,633,861 |
|
| 4,774,494 |
|
| 4,727,014 |
|
|
|
|
|
|
|
|
|
|
|
|
CLAIMS AND EXPENSES: |
|
|
|
|
|
|
|
|
|
|
|
Incurred losses and loss adjustment expenses |
| 1,277,851 |
|
| 1,098,093 |
|
| 3,283,196 |
|
| 2,737,411 |
Commission, brokerage, taxes and fees |
| 322,404 |
|
| 357,681 |
|
| 1,001,207 |
|
| 962,674 |
Other underwriting expenses |
| 109,366 |
|
| 95,693 |
|
| 304,705 |
|
| 257,426 |
Corporate expenses |
| 4,206 |
|
| 3,183 |
|
| 11,441 |
|
| 7,353 |
Interest, fee and bond issue cost amortization expense |
| 6,535 |
|
| 7,802 |
|
| 20,917 |
|
| 27,314 |
Total claims and expenses |
| 1,720,362 |
|
| 1,562,452 |
|
| 4,621,466 |
|
| 3,992,178 |
|
|
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS) BEFORE TAXES |
| 143,926 |
|
| 71,409 |
|
| 153,028 |
|
| 734,836 |
Income tax expense (benefit) |
| 24,120 |
|
| 10,272 |
|
| (12,830) |
|
| 141,169 |
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS) | $ | 119,806 |
| $ | 61,137 |
| $ | 165,858 |
| $ | 593,667 |
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss), net of tax: |
|
|
|
|
|
|
|
|
|
|
|
Unrealized appreciation (depreciation) ("URA(D)") on securities arising during the period |
| 38,572 |
|
| 24,454 |
|
| 104,598 |
|
| 180,998 |
Less: reclassification adjustment for realized losses (gains) included in net income (loss) |
| (2,605) |
|
| 2,085 |
|
| 28,824 |
|
| 6,927 |
Total URA(D) on securities arising during the period |
| 35,967 |
|
| 26,539 |
|
| 133,422 |
|
| 187,925 |
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments |
| 14,414 |
|
| 2,881 |
|
| (6,783) |
|
| 4,970 |
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification adjustment for amortization of net (gain) loss included in net income (loss) |
| 1,806 |
|
| 1,364 |
|
| 4,532 |
|
| 3,666 |
Total benefit plan net gain (loss) for the period |
| 1,806 |
|
| 1,364 |
|
| 4,532 |
|
| 3,666 |
Total other comprehensive income (loss), net of tax |
| 52,187 |
|
| 30,784 |
|
| 131,171 |
|
| 196,561 |
|
|
|
|
|
|
|
|
|
|
|
|
COMPREHENSIVE INCOME (LOSS) | $ | 171,992 |
| $ | 91,921 |
| $ | 297,028 |
| $ | 790,228 |
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated financial statements. |
|
|
|
|
|
|
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
(Dollars in thousands) | 2017 | 2016 | 2017 | 2016 | ||||||||||||
(unaudited) | (unaudited) | |||||||||||||||
REVENUES: | ||||||||||||||||
Premiums earned | $ | 518,507 | $ | 556,653 | $ | 1,457,759 | $ | 1,527,433 | ||||||||
Net investment income | 73,417 | 64,570 | 206,166 | 196,887 | ||||||||||||
Net realized capital gains (losses): | ||||||||||||||||
Other-than-temporary impairments on fixed maturity securities | (1,473 | ) | (836 | ) | (4,179 | ) | (25,242 | ) | ||||||||
Other-than-temporary impairments on fixed maturity securities | ||||||||||||||||
transferred to other comprehensive income (loss) | - | - | - | - | ||||||||||||
Realized gain(loss) on sale of subsidiary | - | (28,032 | ) | - | (28,032 | ) | ||||||||||
Other net realized capital gains (losses) | 229,962 | (21,195 | ) | 258,145 | (34,001 | ) | ||||||||||
Total net realized capital gains (losses) | 228,489 | (50,063 | ) | 253,966 | (87,275 | ) | ||||||||||
Other income (expense) | 1,486 | (13,208 | ) | 21,996 | (10,806 | ) | ||||||||||
Total revenues | 821,899 | 557,952 | 1,939,887 | 1,626,239 | ||||||||||||
CLAIMS AND EXPENSES: | ||||||||||||||||
Incurred losses and loss adjustment expenses | 1,331,558 | 301,603 | 1,918,508 | 936,201 | ||||||||||||
Commission, brokerage, taxes and fees | 34,545 | 82,778 | 147,565 | 219,552 | ||||||||||||
Other underwriting expenses | 57,713 | 64,149 | 181,805 | 181,706 | ||||||||||||
Corporate expenses | 1,132 | 1,835 | 6,241 | 6,181 | ||||||||||||
Interest, fee and bond issue cost amortization expense | 7,161 | 8,859 | 23,974 | 26,576 | ||||||||||||
Total claims and expenses | 1,432,109 | 459,224 | 2,278,093 | 1,370,216 | ||||||||||||
INCOME (LOSS) BEFORE TAXES | (610,210 | ) | 98,728 | (338,206 | ) | 256,023 | ||||||||||
Income tax expense (benefit) | (220,486 | ) | 22,425 | (153,318 | ) | 69,358 | ||||||||||
NET INCOME (LOSS) | $ | (389,724 | ) | $ | 76,303 | $ | (184,888 | ) | $ | 186,665 | ||||||
Other comprehensive income (loss), net of tax: | ||||||||||||||||
Unrealized appreciation (depreciation) ("URA(D)") on securities arising during the period | 530 | 3,808 | 13,794 | 62,672 | ||||||||||||
Less: reclassification adjustment for realized losses (gains) included in net income (loss) | (1,674 | ) | (2,767 | ) | (8,618 | ) | 23,085 | |||||||||
Total URA(D) on securities arising during the period | (1,144 | ) | 1,041 | 5,176 | 85,757 | |||||||||||
Foreign currency translation adjustments | 34,281 | (2,642 | ) | 43,220 | 27,779 | |||||||||||
Benefit plan actuarial net gain (loss) for the period | - | - | - | - | ||||||||||||
Reclassification adjustment for amortization of net (gain) loss included in net income (loss) | 1,369 | 1,268 | 5,377 | 3,949 | ||||||||||||
Total benefit plan net gain (loss) for the period | 1,369 | 1,268 | 5,377 | 3,949 | ||||||||||||
Total other comprehensive income (loss), net of tax | 34,507 | (333 | ) | 53,774 | 117,485 | |||||||||||
COMPREHENSIVE INCOME (LOSS) | $ | (355,217 | ) | $ | 75,970 | $ | (131,114 | ) | $ | 304,150 | ||||||
The accompanying notes are an integral part of the consolidated financial statements. |
2
EVEREST REINSURANCE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF
CHANGES IN STOCKHOLDER'SSTOCKHOLDER’S EQUITY
(Dollars in thousands, except share amounts) | 2020 |
| 2019 | ||
| (unaudited) | ||||
COMMON STOCK (shares outstanding): |
|
|
|
|
|
Balance, January 1 |
| 1,000 |
|
| 1,000 |
Balance, March 31 |
| 1,000 |
|
| 1,000 |
Balance, June 30 |
| 1,000 |
|
| 1,000 |
Balance, September 30 |
| 1,000 |
|
| 1,000 |
|
|
|
|
|
|
ADDITIONAL PAID-IN CAPITAL: |
|
|
|
|
|
Balance, January 1 | $ | 1,100,678 |
| $ | 1,100,315 |
Share-based compensation plans |
| 103 |
|
| 87 |
Balance, March 31 |
| 1,100,781 |
|
| 1,100,402 |
Share-based compensation plans |
| 101 |
|
| 87 |
Balance, June 30 |
| 1,100,882 |
|
| 1,100,489 |
Share-based compensation plans |
| 101 |
|
| 84 |
Balance, September 30 |
| 1,100,983 |
|
| 1,100,573 |
|
|
|
|
|
|
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS), NET OF DEFERRED INCOME TAXES: |
|
|
|
|
|
Balance, January 1 |
| 64,324 |
|
| (126,254) |
Net increase (decrease) during the period |
| (178,351) |
|
| 98,148 |
Balance, March 31 |
| (114,027) |
|
| (28,106) |
Net increase (decrease) during the period |
| 257,335 |
|
| 67,629 |
Balance, June 30 |
| 143,308 |
|
| 39,523 |
Net increase (decrease) during the period |
| 52,187 |
|
| 30,784 |
Balance, September 30 |
| 195,495 |
|
| 70,307 |
|
|
|
|
|
|
RETAINED EARNINGS: |
|
|
|
|
|
Balance, January 1 |
| 4,692,423 |
|
| 4,062,696 |
Change to beginning balance due to adoption of ASU 2016-13 |
| 907 |
|
| - |
Net income (loss) |
| 316,645 |
|
| 251,610 |
Balance, March 31 |
| 5,009,975 |
|
| 4,314,306 |
Net income (loss) |
| (270,593) |
|
| 280,921 |
Balance, June 30 |
| 4,739,382 |
|
| 4,595,227 |
Net income (loss) |
| 119,806 |
|
| 61,137 |
Balance, September 30 |
| 4,859,188 |
|
| 4,656,364 |
|
|
|
|
|
|
TOTAL STOCKHOLDER'S EQUITY, September 30 | $ | 6,155,666 |
| $ | 5,827,244 |
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated financial statements. |
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
(Dollars in thousands, except share amounts) | 2017 | 2016 | 2017 | 2016 | ||||||||||||
(unaudited) | (unaudited) | |||||||||||||||
COMMON STOCK (shares outstanding): | ||||||||||||||||
Balance, beginning of period | 1,000 | 1,000 | 1,000 | 1,000 | ||||||||||||
Balance, end of period | 1,000 | 1,000 | 1,000 | 1,000 | ||||||||||||
ADDITIONAL PAID-IN CAPITAL: | ||||||||||||||||
Balance, beginning of period | $ | 387,705 | $ | 382,537 | $ | 387,567 | $ | 374,789 | ||||||||
Share-based compensation plans | 67 | 2,437 | 205 | 10,185 | ||||||||||||
Balance, end of period | 387,772 | 384,974 | 387,772 | 384,974 | ||||||||||||
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS), | ||||||||||||||||
NET OF DEFERRED INCOME TAXES: | ||||||||||||||||
Balance, beginning of period | (17,048 | ) | 55,682 | (36,315 | ) | (62,136 | ) | |||||||||
Net increase (decrease) during the period | 34,507 | (333 | ) | 53,774 | 117,485 | |||||||||||
Balance, end of period | 17,459 | 55,349 | 17,459 | 55,349 | ||||||||||||
RETAINED EARNINGS: | ||||||||||||||||
Balance, beginning of period | 5,152,137 | 4,756,019 | 4,947,301 | 4,645,657 | ||||||||||||
Net income (loss) | (389,724 | ) | 76,303 | (184,888 | ) | 186,665 | ||||||||||
Balance, end of period | 4,762,413 | 4,832,322 | 4,762,413 | 4,832,322 | ||||||||||||
TOTAL STOCKHOLDER'S EQUITY, END OF PERIOD | $ | 5,167,644 | $ | 5,272,645 | $ | 5,167,644 | $ | 5,272,645 | ||||||||
The accompanying notes are an integral part of the consolidated financial statements. |
3
EVEREST REINSURANCE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
| Nine Months Ended | ||||
| September 30, | ||||
(Dollars in thousands) | 2020 |
| 2019 | ||
| (unaudited) | ||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
Net income (loss) | $ | 165,858 |
| $ | 593,667 |
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
Decrease (increase) in premiums receivable |
| (182,948) |
|
| (115,834) |
Decrease (increase) in funds held by reinsureds, net |
| (30,632) |
|
| (18,129) |
Decrease (increase) in reinsurance receivables |
| 288,732 |
|
| 107,427 |
Decrease (increase) in income taxes |
| 162,490 |
|
| 226,147 |
Decrease (increase) in prepaid reinsurance premiums |
| 17,584 |
|
| (114,587) |
Increase (decrease) in reserve for losses and loss adjustment expenses |
| 843,790 |
|
| 240,321 |
Increase (decrease) in unearned premiums |
| 201,163 |
|
| 321,643 |
Increase (decrease) in other net payable to reinsurers |
| 76,161 |
|
| 24,093 |
Increase (decrease) in losses in course of payment |
| 116,447 |
|
| (44,192) |
Change in equity adjustments in limited partnerships |
| 7,020 |
|
| (42,959) |
Distribution of limited partnership income |
| 41,167 |
|
| 39,247 |
Change in other assets and liabilities, net |
| (94,329) |
|
| (33,863) |
Non-cash compensation expense |
| 23,901 |
|
| 20,425 |
Amortization of bond premium (accrual of bond discount) |
| 7,109 |
|
| 3,416 |
Net realized capital (gains) losses |
| 107,300 |
|
| (390,161) |
Net cash provided by (used in) operating activities |
| 1,750,813 |
|
| 816,661 |
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
Proceeds from fixed maturities matured/called - available for sale, at market value |
| 681,605 |
|
| 672,207 |
Proceeds from fixed maturities sold - available for sale, at market value |
| 420,491 |
|
| 2,217,734 |
Proceeds from fixed maturities sold - available for sale, at fair value |
| 2,054 |
|
| 2,706 |
Proceeds from equity securities sold - at fair value |
| 328,519 |
|
| 184,898 |
Distributions from other invested assets |
| 157,703 |
|
| 133,130 |
Cost of fixed maturities acquired - available for sale, at market value |
| (2,084,790) |
|
| (3,071,436) |
Cost of equity securities acquired - at fair value |
| (459,572) |
|
| (269,672) |
Cost of other invested assets acquired |
| (253,357) |
|
| (212,910) |
Net change in short-term investments |
| (627,143) |
|
| (100,012) |
Net change in unsettled securities transactions |
| 73,467 |
|
| (30,252) |
Net cash provided by (used in) investing activities |
| (1,761,023) |
|
| (473,607) |
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
Tax benefit from share-based compensation, net of expense |
| (23,596) |
|
| (20,166) |
FHLB advances (repayments) |
| 90,000 |
|
| - |
Cost of debt repurchase |
| (10,647) |
|
| - |
Proceeds from issuance (cost of repayment) of note payable-affiliated |
| - |
|
| (300,000) |
Net cash provided by (used in) financing activities |
| 55,757 |
|
| (320,166) |
|
|
|
|
|
|
EFFECT OF EXCHANGE RATE CHANGES ON CASH |
| (5,156) |
|
| (6,578) |
|
|
|
|
|
|
Net increase (decrease) in cash |
| 40,390 |
|
| 16,310 |
Cash, beginning of period |
| 411,122 |
|
| 404,522 |
Cash, end of period | $ | 451,512 |
| $ | 420,832 |
|
|
|
|
|
|
SUPPLEMENTAL CASH FLOW INFORMATION: |
|
|
|
|
|
Income taxes paid (recovered) | $ | (175,535) |
| $ | (85,216) |
Interest paid |
| 16,416 |
|
| 22,421 |
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated financial statements. |
Nine Months Ended | ||||||||
September 30, | ||||||||
(Dollars in thousands) | 2017 | 2016 | ||||||
(unaudited) | ||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net income (loss) | $ | (184,888 | ) | $ | 186,665 | |||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Decrease (increase) in premiums receivable | (432,477 | ) | (155,717 | ) | ||||
Decrease (increase) in funds held by reinsureds, net | 415 | (948 | ) | |||||
Decrease (increase) in reinsurance receivables | (649,539 | ) | (120,745 | ) | ||||
Decrease (increase) in income taxes | (206,857 | ) | 35,647 | |||||
Decrease (increase) in prepaid reinsurance premiums | (330,345 | ) | (94,400 | ) | ||||
Increase (decrease) in reserve for losses and loss adjustment expenses | 1,579,394 | 322,226 | ||||||
Increase (decrease) in unearned premiums | 310,237 | 94,847 | ||||||
Increase (decrease) in other net payable to reinsurers | 336,582 | (216,024 | ) | |||||
Increase (decrease) in losses in course of payment | 110,669 | 1,860 | ||||||
Change in equity adjustments in limited partnerships | (20,415 | ) | (17,067 | ) | ||||
Distribution of limited partnership income | 23,174 | 31,739 | ||||||
Change in other assets and liabilities, net | (88,583 | ) | (125,150 | ) | ||||
Non-cash compensation expense | 7,675 | 7,453 | ||||||
Amortization of bond premium (accrual of bond discount) | 13,675 | 13,754 | ||||||
Amortization of underwriting discount on senior notes | 3 | 3 | ||||||
Net realized capital (gains) losses | (253,966 | ) | 87,275 | |||||
Net cash provided by (used in) operating activities | 214,754 | 51,418 | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Proceeds from fixed maturities matured/called - available for sale, at market value | 771,950 | 572,224 | ||||||
Proceeds from fixed maturities sold - available for sale, at market value | 1,063,126 | 433,655 | ||||||
Proceeds from fixed maturities sold - available for sale, at fair value | - | 1,587 | ||||||
Proceeds from equity securities sold - available for sale, at fair value | 302,407 | 531,894 | ||||||
Proceeds from sale of subsidiary (net of cash disposed) | - | 47,721 | ||||||
Distributions from other invested assets | 1,459,677 | 1,119,428 | ||||||
Cost of fixed maturities acquired - available for sale, at market value | (1,809,485 | ) | (1,516,092 | ) | ||||
Cost of fixed maturities acquired - available for sale, at fair value | - | (3,940 | ) | |||||
Cost of equity securities acquired - available for sale, at fair value | (326,444 | ) | (253,041 | ) | ||||
Cost of other invested assets acquired | (1,584,617 | ) | (1,299,682 | ) | ||||
Net change in short-term investments | 79,509 | 376,832 | ||||||
Net change in unsettled securities transactions | (189,980 | ) | 40,771 | |||||
Net cash provided by (used in) investing activities | (233,857 | ) | 51,357 | |||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Tax benefit from share-based compensation | (7,471 | ) | 2,732 | |||||
Net cash provided by (used in) financing activities | (7,471 | ) | 2,732 | |||||
EFFECT OF EXCHANGE RATE CHANGES ON CASH | 31,111 | 24,242 | ||||||
Net increase (decrease) in cash | 4,537 | 129,749 | ||||||
Cash, beginning of period | 297,794 | 155,429 | ||||||
Cash, end of period | $ | 302,331 | $ | 285,178 | ||||
SUPPLEMENTAL CASH FLOW INFORMATION: | ||||||||
Income taxes paid (recovered) | $ | 53,273 | $ | 30,877 | ||||
Interest paid | 19,783 | 17,608 | ||||||
The accompanying notes are an integral part of the consolidated financial statements. |
4
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)
For the Three and Nine Months Ended September 30, 20172020, and 2016
As used in this document, "Holdings"“Holdings” means Everest Reinsurance Holdings, Inc., a Delaware company and direct subsidiary of Everest Underwriting Group (Ireland) Limited ("(“Holdings Ireland"Ireland”); "Group"“Group” means Everest Re Group, Ltd. (Holdings Ireland'sIreland’s parent); "Bermuda Re"“Bermuda Re” means Everest Reinsurance (Bermuda), Ltd., a subsidiary of Group; "Everest Re"“Everest Re” means Everest Reinsurance Company and its subsidiaries, a subsidiary of Holdings (unless the context otherwise requires) and the "Company"“Company” means Holdings and its subsidiaries.
During the thirdfourth quarter of 2016, the Company established domestic subsidiaries,2018, 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.
The unaudited interim consolidated financial statements of the Company for the three and nine months ended September 30, 20172020 and 20162019 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"(“GAAP”), has been omitted since it is not required for interim reporting purposes. The December 31, 20162019 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 nine months ended September 30, 20172020 and 20162019 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, 20152019, 2018 and 20142017 included in the Company'sCompany’s most recent Form 10-K filing.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities (and disclosure of contingent assets and liabilities) at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Ultimate actual results could differ, possibly materially, from those estimates. This is particularly true given the fluid and continuing nature of the COVID-19 pandemic. This is an ongoing event and so is the Company’s evaluation and analysis. While the Company’s analysis considers all aspects of its operations, it does not take into account legal, regulatory or legislative intervention that could retroactively mandate or expand coverage provisions. Given the uncertainties in the current public health and economic environment, there could be an adverse impact on results for the Property & Casualty industry and the Company for the remainder of the year. The impact is dependent on the shape and length of the economic recovery.
With recent changes in executive management and organizational structure, the Company manages its reinsurance and insurance operations as autonomous units and key strategic decisions are based on the aggregate operating results and projections for these segments of business. Accordingly, effective January 1, 2020, the Company revised its reporting segments to Reinsurance Operations and Insurance Operations. This replaces the previous reported segments of U.S. Reinsurance, International (reinsurance) and Insurance. The prior year presented segment information has been reformatted to reflect this change.
All intercompany accounts and transactions have been eliminated.
Certain reclassifications and format changes have been made to prior years'years’ amounts to conform to the 20172020 presentation.
Application of Recently Issued Accounting Standard Changes.
Modernization of Regulation S-K Disclosures. In August 2020, the Securities and Exchange Commission (“SEC”) issued Final Rule Release #33-10825 which addresses the modernization of the disclosure
5
requirements for business, legal proceeding and risk factor disclosures in Regulation S-K filings. Rule #33-10825 will become effective for all financial reports filed after November 9, 2020 (30 days after its publication in the Federal Register) and will be adopted by the Company in the fourth quarter of 2020 for implementation within its 2020 10-K filings.
Accounting for Income Taxes. In December 2019, The Financial Accounting Standards Board (“FASB”) issued ASU 2019-12, which provides simplification of existing guidance for income taxes, including the removal of certain exceptions related to recognition of deferred tax liabilities on foreign subsidiaries. The guidance is effective for annual reporting periods beginning after December 15, 2020 and interim periods within that annual reporting period. The Company is currently evaluating the impact of the adoption of ASU 2019-12 on its financial statements.
Simplification of Disclosure Requirements. In August 2018, the SEC issued Final Rule Release #33-10532 (“the Rule”) which addresses the simplification of the SEC’s disclosure requirements for quarterly and annual financial reports. The main change addressed by the Rule that is applicable to the Company is a new requirement to disclose changes in equity by line item with subtotals for each interim reporting period on the Statements of Changes in Shareholders’ Equity. The Rule became effective for all financial reports filed after November 5, 2018 (30 days after its publication in the Federal Register), except for the additional requirement for the Statements of Changes in Shareholders’ Equity which was to be implemented for first quarter 2019 reporting. The Company has adopted the portions of the Rule that became effective November 5, 2018. The portion of the Rule related to the new requirement for the Statements of Changes in Shareholders’ Equity was adopted by the Company in the first quarter of 2019.
Accounting for Cloud Computing Arrangement. In August 2018, FASB issued ASU 2018-15, which outlines accounting for implementation costs of a cloud computing arrangement that is a service contract. This guidance requires that implementation costs of a cloud computing arrangement that is a service contract must be capitalized and expensed in accordance with the existing provisions provided in Subtopic 350-40 regarding development of internal use software. In addition, any capitalized implementation costs should be amortized over the term of the hosting arrangement. The guidance is effective for annual reporting periods beginning after December 15, 2019 and interim periods within that annual reporting period. The Company adopted the guidance as of January 1, 2020. The adoption of ASU 2018-15 did not have a material impact on the Company’s financial statements.
Accounting for Impact on Income Taxes due to Tax Reform. In December 2017, the SEC issued Staff Accounting Bulletin (“SAB”) 118, which provides guidance on the application of FASB Accounting Standards Codification (“ASC”) Topic 740, Income Taxes, due to the enactment of TCJA. SAB 118 became effective upon release. The Company has adopted the provisions of SAB 118 with respect to measuring the tax effects for the modifications to the determination of tax basis loss reserves. In 2018, the Company recorded adjustments to the amount of tax expense it recorded in 2017 with respect to the TCJA as estimated amounts were finalized, which did not have a material impact on the Company’s financial statements.
Amortization of Bond Premium. In March 2017, FASB issued ASU 2017-08 which outlines guidance on the amortization period for premium on callable debt securities. The new guidance requires that the premium on callable debt securities be amortized through the earliest call date rather than through the maturity date of the callable security. The guidance is effective for annual and interim reporting periods beginning after December 15, 2019.2018. The Company does not expectadopted the guidance effective January 1, 2019. The adoption of ASU 2017-08 todid not have a material impact on itsthe Company’s financial statements.
Valuation of Financial Instruments. In June 2016, FASB issued ASU 2016-13 (and has subsequently issued related guidance and amendments in ASU 2019-11 and ASU 2019-10 in November 2019) which outlinesoutline guidance on the valuation of and accounting for assets measured at amortized cost and available for sale debt securities. The new guidance requires the carrying value of assets measured at amortized cost, will nowincluding reinsurance and premiums receivable, to be presented as the net amount expected to be collected on the financial asset (amortized cost less an allowance for credit losses valuation account). Available for saleThe allowance reflects expected credit losses of the financial asset which considers available information using a combination both historical information, current market conditions and reasonable and supportable forecasts. For available-for-sale debt securities, willthe guidance modified the previous other than temporary impairment model, now record credit losses through
6
requiring an allowance for estimated credit related losses rather than a permanent impairment, which will be limited to the amount by which fair value is below amortized cost. The guidance is effective for annual and interim reporting periods beginning after December 15, 2019. The Company adopted the guidance effective January 1, 2020, on a modified retrospective basis. The adoption resulted in a cumulative adjustment of $907 thousand in retained earnings, net of tax, which is currently evaluatingdisclosed separately within the impactConsolidated Statements of the adoption of ASU 2016-13 on its financial statements.
Leases. In February 2016, FASB issued ASU 2016-02 (and subsequently issued ASU 2018-11 in July, 2018) which outlinesoutline new guidance on the accounting for leases. The new guidance requires the recognition of lease assets and lease liabilities on the balance sheets for most leases that were previously deemed operating leases and required only lease expense presentation in the statements of operations. The guidance is effective for annual and interim reporting periods beginning after December 15, 2018. The Company is currently evaluatingadopted ASU 2016-02 effective January 1, 2019 and elected to utilize a cumulative-effect adjustment to the impactopening balance of retained earnings for the year of adoption. Accordingly, the Company’s reporting for the comparative periods prior to adoption continue to be presented in the financial statements in accordance with previous lease accounting guidance. The Company also elected to apply the package of practical expedients applicable to the Company in the updated guidance for transition for leases in effect at adoption. The Company did not elect the hindsight practical expedient to determine the lease term of existing leases (e.g. The Company did not re-assess lease renewals, termination options nor purchase options in determining lease terms). The adoption of the updated guidance resulted in the Company recognizing a right-of-use asset of $60,325 thousand as part of other assets and a lease liability of $66,551 thousand as part of other liabilities in the consolidated balance sheet, as well as de-recognizing the liability for deferred rent that was required under the previous guidance. The cumulative effect adjustment to the opening balance of retained earnings was zero. The adoption of ASU 2016-02 on its financial statements.
6
Effective January 1, 2020, the Company altered its processing of ceding certain commissions and deferred acquisition costs under an affiliated quota share agreement. In previous reporting periods, these expenses were ceded based upon a quarter lag. In the second quarter of 2017, the quarter lag was eliminated and these expenses are now recorded on a current quarter basis. Although management determined that the impact of the ceding lag was not material to prior period financial statements, the impact of eliminating the ceding lag would have significantly impacted results within the second quarter of 2017. As a result, prior period balances have been revised in the applicable financial statements and corresponding footnotes to eliminate the impact ofadopted ASU 2016-13 which modified the previous recording lag.
CONSOLIDATED BALANCE SHEETS | 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 |
7
| At September 30, 2020 | |||||||||||||
| Amortized |
| Allowances for |
| Unrealized |
| Unrealized |
| Market | |||||
(Dollars in thousands) | Cost |
| Credit Losses |
| Appreciation |
| Depreciation |
| Value | |||||
Fixed maturity securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities and obligations of U.S. government agencies and corporations | $ | 744,050 |
| $ | - |
| $ | 28,063 |
| $ | - |
| $ | 772,113 |
Obligations of U.S. states and political subdivisions |
| 513,785 |
|
| - |
|
| 30,938 |
|
| (2,440) |
|
| 542,283 |
Corporate securities |
| 3,060,951 |
|
| (17,237) |
|
| 144,769 |
|
| (52,567) |
|
| 3,135,916 |
Asset-backed securities |
| 1,239,605 |
|
| - |
|
| 20,867 |
|
| (11,316) |
|
| 1,249,156 |
Mortgage-backed securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
| 387,944 |
|
| - |
|
| 36,166 |
|
| (1,071) |
|
| 423,039 |
Agency residential |
| 685,446 |
|
| - |
|
| 34,218 |
|
| (382) |
|
| 719,282 |
Non-agency residential |
| 337 |
|
| - |
|
| - |
|
| (3) |
|
| 334 |
Foreign government securities |
| 648,542 |
|
| - |
|
| 45,532 |
|
| (3,426) |
|
| 690,648 |
Foreign corporate securities |
| 986,512 |
|
| (399) |
|
| 63,622 |
|
| (5,819) |
|
| 1,043,916 |
Total fixed maturity securities | $ | 8,267,172 |
| $ | (17,636) |
| $ | 404,175 |
| $ | (77,024) |
| $ | 8,576,687 |
At September 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 | $ | 657,018 | $ | 2,088 | $ | (3,220 | ) | $ | 655,886 | $ | - | |||||||||
Obligations of U.S. states and political subdivisions | 652,525 | 24,061 | (4,744 | ) | 671,842 | - | ||||||||||||||
Corporate securities | 2,213,498 | 38,058 | (11,965 | ) | 2,239,591 | 695 | ||||||||||||||
Asset-backed securities | 153,400 | 451 | (62 | ) | 153,789 | - | ||||||||||||||
Mortgage-backed securities | ||||||||||||||||||||
Commercial | 59,311 | 334 | (622 | ) | 59,023 | - | ||||||||||||||
Agency residential | 683,178 | 1,904 | (7,252 | ) | 677,830 | - | ||||||||||||||
Non-agency residential | 55 | 7 | - | 62 | - | |||||||||||||||
Foreign government securities | 520,431 | 19,038 | (7,996 | ) | 531,473 | - | ||||||||||||||
Foreign corporate securities | 1,034,840 | 25,601 | (10,576 | ) | 1,049,865 | 374 | ||||||||||||||
Total fixed maturity securities | $ | 5,974,256 | $ | 111,542 | $ | (46,437 | ) | $ | 6,039,361 | $ | 1,069 |
| At December 31, 2019 | |||||||||||||
| Amortized |
| Unrealized |
| Unrealized |
| Market |
| OTTI in AOCI | |||||
(Dollars in thousands) | Cost |
| Appreciation |
| Depreciation |
| Value |
| (a) | |||||
Fixed maturity securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities and obligations of U.S. government agencies and corporations | $ | 768,374 |
| $ | 10,128 |
| $ | (987) |
| $ | 777,515 |
| $ | - |
Obligations of U.S. states and political subdivisions |
| 506,347 |
|
| 29,651 |
|
| (87) |
|
| 535,911 |
|
| - |
Corporate securities |
| 2,777,097 |
|
| 70,898 |
|
| (26,438) |
|
| 2,821,557 |
|
| 245 |
Asset-backed securities |
| 761,607 |
|
| 5,659 |
|
| (1,309) |
|
| 765,957 |
|
| - |
Mortgage-backed securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
| 311,961 |
|
| 17,242 |
|
| (154) |
|
| 329,049 |
|
| - |
Agency residential |
| 625,612 |
|
| 19,395 |
|
| (320) |
|
| 644,687 |
|
| - |
Non-agency residential |
| 1,638 |
|
| - |
|
| - |
|
| 1,638 |
|
| - |
Foreign government securities |
| 646,149 |
|
| 18,908 |
|
| (7,050) |
|
| 658,007 |
|
| 27 |
Foreign corporate securities |
| 935,640 |
|
| 31,257 |
|
| (9,139) |
|
| 957,758 |
|
| 333 |
Total fixed maturity securities | $ | 7,334,425 |
| $ | 203,138 |
| $ | (45,484) |
| $ | 7,492,079 |
| $ | 605 |
At December 31, 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 |
8
The amortized cost and market value of fixed maturity securities are shown in the following tables by contractual maturity. Mortgage-backed securities are generally more likely to be prepaid than other fixed maturity securities. As the stated maturity of such securities may not be indicative of actual maturities, the totals for mortgage-backed and asset-backed securities are shown separately.
| At September 30, 2020 |
| At December 31, 2019 | ||||||||
| Amortized |
| Market |
| Amortized |
| Market | ||||
(Dollars in thousands) | Cost |
| Value |
| Cost |
| Value | ||||
Fixed maturity securities – available for sale |
|
|
|
|
|
|
|
|
|
|
|
Due in one year or less | $ | 774,274 |
| $ | 771,432 |
| $ | 569,506 |
| $ | 563,730 |
Due after one year through five years |
| 2,745,236 |
|
| 2,840,648 |
|
| 2,919,966 |
|
| 2,963,903 |
Due after five years through ten years |
| 1,723,844 |
|
| 1,862,590 |
|
| 1,541,695 |
|
| 1,602,642 |
Due after ten years |
| 710,486 |
|
| 710,206 |
|
| 602,440 |
|
| 620,473 |
Asset-backed securities |
| 1,239,605 |
|
| 1,249,156 |
|
| 761,607 |
|
| 765,957 |
Mortgage-backed securities |
|
|
|
|
|
|
|
|
|
|
|
Commercial |
| 387,944 |
|
| 423,039 |
|
| 311,961 |
|
| 329,049 |
Agency residential |
| 685,446 |
|
| 719,282 |
|
| 625,612 |
|
| 644,687 |
Non-agency residential |
| 337 |
|
| 334 |
|
| 1,638 |
|
| 1,638 |
Total fixed maturity securities | $ | 8,267,172 |
| $ | 8,576,687 |
| $ | 7,334,425 |
| $ | 7,492,079 |
At September 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 | $ | 403,948 | $ | 405,602 | $ | 394,401 | $ | 392,824 | ||||||||
Due after one year through five years | 2,918,422 | 2,931,495 | 2,925,786 | 2,955,325 | ||||||||||||
Due after five years through ten years | 1,024,154 | 1,045,455 | 879,762 | 894,166 | ||||||||||||
Due after ten years | 731,788 | 766,105 | 776,436 | 800,429 | ||||||||||||
Asset-backed securities | 153,400 | 153,789 | 136,826 | 137,027 | ||||||||||||
Mortgage-backed securities | ||||||||||||||||
Commercial | 59,311 | 59,023 | 75,435 | 75,493 | ||||||||||||
Agency residential | 683,178 | 677,830 | 721,772 | 715,144 | ||||||||||||
Non-agency residential | 55 | 62 | 76 | 88 | ||||||||||||
Total fixed maturity securities | $ | 5,974,256 | $ | 6,039,361 | $ | 5,910,494 | $ | 5,970,496 |
The changes in net unrealized appreciation (depreciation) for the Company'sCompany’s investments are derived from the following sources for the periods as indicated:
| Three Months Ended |
| Nine Months Ended | ||||||||
| September 30, |
| September 30, | ||||||||
(Dollars in thousands) | 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
Increase (decrease) during the period between the market value and cost of investments carried at market value, and deferred taxes thereon: |
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities | $ | 45,476 |
| $ | 33,473 |
| $ | 168,996 |
| $ | 238,301 |
Fixed maturity securities, other-than-temporary impairment |
| - |
|
| 119 |
|
| - |
|
| (581) |
Change in unrealized appreciation (depreciation), pre-tax |
| 45,476 |
|
| 33,592 |
|
| 168,996 |
|
| 237,720 |
Deferred tax benefit (expense) |
| (9,509) |
|
| (7,028) |
|
| (35,574) |
|
| (49,917) |
Deferred tax benefit (expense), other-than-temporary impairment |
| - |
|
| (25) |
|
| - |
|
| 122 |
Change in unrealized appreciation (depreciation), net of deferred taxes, included in stockholder's equity | $ | 35,967 |
| $ | 26,539 |
| $ | 133,422 |
| $ | 187,925 |
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 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 | $ | (3,197 | ) | $ | 4,047 | $ | 9,077 | $ | 127,736 | |||||||
Fixed maturity securities, other-than-temporary impairment | (158 | ) | (2,444 | ) | (3,974 | ) | 4,199 | |||||||||
Other invested assets | 1,595 | - | 2,860 | - | ||||||||||||
Change in unrealized appreciation (depreciation), pre-tax | (1,760 | ) | 1,603 | 7,963 | 131,935 | |||||||||||
Deferred tax benefit (expense) | 561 | (1,418 | ) | (4,178 | ) | (44,709 | ) | |||||||||
Deferred tax benefit (expense), other-than-temporary impairment | 55 | 856 | 1,391 | (1,469 | ) | |||||||||||
Change in unrealized appreciation (depreciation), | ||||||||||||||||
net of deferred taxes, included in stockholder's equity | $ | (1,144 | ) | $ | 1,041 | $ | 5,176 | $ | 85,757 |
9
consolidated balance sheets. The Company'sCompany will adjust the credit allowance account for future changes in credit loss estimates for a security and record this adjustment through net realized capital gains (losses) in the Company’s consolidated statements of operations and comprehensive income (loss).
The Company does not create an allowance for uncollectible interest. If interest is not received when due, the interest receivable is immediately reversed and no additional interest is accrued. If future interest is received that has not been accrued, it is recorded as income at that time.
Prior to the adoption of ASU 2016-13 effective January 1, 2020, estimated credit losses were recorded as adjustments to the carrying value of the security and any subsequent improvement in market value were recorded through other comprehensive income.
The Company’s assessments are based on the issuersissuers’ current and expected future financial position, timeliness with respect to interest and/or principal payments, speed of repayments and any applicable credit enhancements or breakeven constant default rates on mortgage-backed and asset-backed securities, as well as relevant information provided by rating agencies, investment advisors and analysts.
Retrospective adjustments are employed to recalculate the values of asset-backed securities. All of the Company'sCompany’s asset-backed and mortgage-backed securities have a pass-through structure. Each acquisition lot is reviewed to recalculate the effective yield. The recalculated effective yield is used to derive a book value as if the new yield were applied at the time of acquisition. Outstanding principal factors from the time of acquisition to the adjustment date are used to calculate the prepayment history for all applicable securities. Conditional prepayment rates, computed with life to date factor histories and weighted average maturities, are used in the calculation of projected prepayments for pass-through security types.
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 September 30, 2020 By Security Type | ||||||||||||||||
| Less than 12 months |
| Greater than 12 months |
| Total | ||||||||||||
|
|
| �� | Gross |
|
|
|
| Gross |
|
|
|
| Gross | |||
| Market |
| Unrealized |
| Market |
| Unrealized |
| Market |
| Unrealized | ||||||
(Dollars in thousands) | Value |
| Depreciation |
| Value |
| Depreciation |
| Value |
| Depreciation | ||||||
Fixed maturity securities - available for sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of U.S. states and political subdivisions |
| 49,369 |
|
| (2,275) |
|
| 4,943 |
|
| (165) |
|
| 54,312 |
|
| (2,440) |
Corporate securities |
| 422,208 |
|
| (15,327) |
|
| 145,733 |
|
| (37,240) |
|
| 567,941 |
|
| (52,567) |
Asset-backed securities |
| 316,075 |
|
| (8,299) |
|
| 152,001 |
|
| (3,017) |
|
| 468,076 |
|
| (11,316) |
Mortgage-backed securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
| 61,148 |
|
| (1,067) |
|
| 3,980 |
|
| (4) |
|
| 65,128 |
|
| (1,071) |
Agency residential |
| 114,935 |
|
| (378) |
|
| 697 |
|
| (4) |
|
| 115,632 |
|
| (382) |
Non-agency residential |
| 161 |
|
| (2) |
|
| 173 |
|
| (1) |
|
| 334 |
|
| (3) |
Foreign government securities |
| 6,698 |
|
| (94) |
|
| 26,876 |
|
| (3,332) |
|
| 33,574 |
|
| (3,426) |
Foreign corporate securities |
| 102,945 |
|
| (2,080) |
|
| 28,774 |
|
| (3,739) |
|
| 131,719 |
|
| (5,819) |
Total fixed maturity securities | $ | 1,073,539 |
| $ | (29,522) |
| $ | 363,177 |
| $ | (47,502) |
| $ | 1,436,716 |
| $ | (77,024) |
10
| Duration of Unrealized Loss at September 30, 2020 By Maturity | ||||||||||||||||
| Less than 12 months |
| Greater than 12 months |
| Total | ||||||||||||
|
|
|
| Gross |
|
|
|
| Gross |
|
|
|
| Gross | |||
| Market |
| Unrealized |
| Market |
| Unrealized |
| Market |
| Unrealized | ||||||
(Dollars in thousands) | Value |
| Depreciation |
| Value |
| Depreciation |
| Value |
| Depreciation | ||||||
Fixed maturity securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due in one year or less | $ | 26,900 |
| $ | (651) |
| $ | 47,826 |
| $ | (8,288) |
| $ | 74,726 |
| $ | (8,939) |
Due in one year through five years |
| 234,922 |
|
| (9,460) |
|
| 83,469 |
|
| (5,596) |
|
| 318,391 |
|
| (15,056) |
Due in five years through ten years |
| 174,002 |
|
| (3,638) |
|
| 18,334 |
|
| (1,158) |
|
| 192,336 |
|
| (4,796) |
Due after ten years |
| 145,396 |
|
| (6,027) |
|
| 56,697 |
|
| (29,434) |
|
| 202,093 |
|
| (35,461) |
Asset-backed securities |
| 316,075 |
|
| (8,299) |
|
| 152,001 |
|
| (3,017) |
|
| 468,076 |
|
| (11,316) |
Mortgage-backed securities |
| 176,244 |
|
| (1,447) |
|
| 4,850 |
|
| (9) |
|
| 181,094 |
|
| (1,456) |
Total fixed maturity securities | $ | 1,073,539 |
| $ | (29,522) |
| $ | 363,177 |
| $ | (47,502) |
| $ | 1,436,716 |
| $ | (77,024) |
Duration of Unrealized Loss at September 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 | $ | 239,038 | $ | (2,191 | ) | $ | 37,447 | $ | (1,029 | ) | $ | 276,485 | $ | (3,220 | ) | |||||||||
Obligations of U.S. states and political subdivisions | 89,509 | (2,104 | ) | 67,956 | (2,640 | ) | 157,465 | (4,744 | ) | |||||||||||||||
Corporate securities | 415,341 | (6,124 | ) | 155,808 | (5,841 | ) | 571,149 | (11,965 | ) | |||||||||||||||
Asset-backed securities | 30,657 | (55 | ) | 1,912 | (7 | ) | 32,569 | (62 | ) | |||||||||||||||
Mortgage-backed securities | ||||||||||||||||||||||||
Commercial | 31,221 | (487 | ) | 3,803 | (135 | ) | 35,024 | (622 | ) | |||||||||||||||
Agency residential | 417,521 | (4,374 | ) | 115,934 | (2,878 | ) | 533,455 | (7,252 | ) | |||||||||||||||
Non-agency residential | - | - | - | - | - | - | ||||||||||||||||||
Foreign government securities | 199,311 | (4,486 | ) | 56,732 | (3,510 | ) | 256,043 | (7,996 | ) | |||||||||||||||
Foreign corporate securities | 254,015 | (4,069 | ) | 89,121 | (6,507 | ) | 343,136 | (10,576 | ) | |||||||||||||||
Total fixed maturity securities | $ | 1,676,613 | $ | (23,890 | ) | $ | 528,713 | $ | (22,547 | ) | $ | 2,205,326 | $ | (46,437 | ) |
Duration of Unrealized Loss at September 30, 2017 By Maturity | ||||||||||||||||||||||||
Less than 12 months | Greater than 12 months | Total | ||||||||||||||||||||||
Gross | Gross | Gross | ||||||||||||||||||||||
Unrealized | Unrealized | Unrealized | ||||||||||||||||||||||
(Dollars in thousands) | Market Value | Depreciation | Market Value | Depreciation | Market Value | Depreciation | ||||||||||||||||||
Fixed maturity securities | ||||||||||||||||||||||||
Due in one year or less | $ | 127,207 | $ | (514 | ) | $ | 16,129 | $ | (1,148 | ) | $ | 143,336 | $ | (1,662 | ) | |||||||||
Due in one year through five years | 741,570 | (10,638 | ) | 246,865 | (12,047 | ) | 988,435 | (22,685 | ) | |||||||||||||||
Due in five years through ten years | 220,432 | (5,290 | ) | 76,295 | (3,682 | ) | 296,727 | (8,972 | ) | |||||||||||||||
Due after ten years | 108,005 | (2,532 | ) | 67,775 | (2,650 | ) | 175,780 | (5,182 | ) | |||||||||||||||
Asset-backed securities | 30,657 | (55 | ) | 1,912 | (7 | ) | 32,569 | (62 | ) | |||||||||||||||
Mortgage-backed securities | 448,742 | (4,861 | ) | 119,737 | (3,013 | ) | 568,479 | (7,874 | ) | |||||||||||||||
Total fixed maturity securities | $ | 1,676,613 | $ | (23,890 | ) | $ | 528,713 | $ | (22,547 | ) | $ | 2,205,326 | $ | (46,437 | ) |
The Company, given the size of its investment portfolio and capital position, does not have the intent to sell these securities; and it is more likely than not that the Company will not have to sell the security before recovery of its cost basis. In addition, all securities currently in an unrealized loss position are current with respect to principal and interest payments.
11
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 December 31, 2019 By Security Type | ||||||||||||||||
| Less than 12 months |
| Greater than 12 months |
| Total | ||||||||||||
|
|
|
| Gross |
|
|
|
| Gross |
|
|
|
| Gross | |||
| Market |
| Unrealized |
| Market |
| Unrealized |
| Market |
| Unrealized | ||||||
(Dollars in thousands) | Value |
| Depreciation |
| Value |
| Depreciation |
| Value |
| Depreciation | ||||||
Fixed maturity securities - available for sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities and obligations of U.S. government agencies and corporations | $ | 8,997 |
| $ | (141) |
| $ | 203,780 |
| $ | (846) |
| $ | 212,777 |
| $ | (987) |
Obligations of U.S. states and political subdivisions |
| 4,600 |
|
| (38) |
|
| 4,518 |
|
| (49) |
|
| 9,118 |
|
| (87) |
Corporate securities |
| 334,973 |
|
| (5,186) |
|
| 230,679 |
|
| (21,252) |
|
| 565,652 |
|
| (26,438) |
Asset-backed securities |
| 159,695 |
|
| (887) |
|
| 76,351 |
|
| (422) |
|
| 236,046 |
|
| (1,309) |
Mortgage-backed securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
| 13,083 |
|
| (87) |
|
| 16,374 |
|
| (67) |
|
| 29,457 |
|
| (154) |
Agency residential |
| 19,019 |
|
| (82) |
|
| 17,147 |
|
| (238) |
|
| 36,166 |
|
| (320) |
Non-agency residential |
| - |
|
| - |
|
| 690 |
|
| - |
|
| 690 |
|
| - |
Foreign government securities |
| 113,256 |
|
| (858) |
|
| 109,953 |
|
| (6,192) |
|
| 223,209 |
|
| (7,050) |
Foreign corporate securities |
| 105,551 |
|
| (1,260) |
|
| 121,710 |
|
| (7,879) |
|
| 227,261 |
|
| (9,139) |
Total fixed maturity securities | $ | 759,174 |
| $ | (8,539) |
| $ | 781,202 |
| $ | (36,945) |
| $ | 1,540,376 |
| $ | (45,484) |
| Duration of Unrealized Loss at December 31, 2019 By Maturity | ||||||||||||||||
| Less than 12 months |
| Greater than 12 months |
| Total | ||||||||||||
|
|
|
| Gross |
|
|
|
| Gross |
|
|
|
| Gross | |||
| Market |
| Unrealized |
| Market |
| Unrealized |
| Market |
| Unrealized | ||||||
(Dollars in thousands) | Value |
| Depreciation |
| Value |
| Depreciation |
| Value |
| Depreciation | ||||||
Fixed maturity securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due in one year or less | $ | 34,542 |
| $ | (1,067) |
| $ | 188,755 |
| $ | (6,411) |
| $ | 223,297 |
| $ | (7,478) |
Due in one year through five years |
| 226,521 |
|
| (2,554) |
|
| 357,728 |
|
| (11,562) |
|
| 584,249 |
|
| (14,116) |
Due in five years through ten years |
| 251,967 |
|
| (3,292) |
|
| 43,129 |
|
| (6,785) |
|
| 295,096 |
|
| (10,077) |
Due after ten years |
| 54,347 |
|
| (570) |
|
| 81,028 |
|
| (11,460) |
|
| 135,375 |
|
| (12,030) |
Asset-backed securities |
| 159,695 |
|
| (887) |
|
| 76,351 |
|
| (422) |
|
| 236,046 |
|
| (1,309) |
Mortgage-backed securities |
| 32,102 |
|
| (169) |
|
| 34,211 |
|
| (305) |
|
| 66,313 |
|
| (474) |
Total fixed maturity securities | $ | 759,174 |
| $ | (8,539) |
| $ | 781,202 |
| $ | (36,945) |
| $ | 1,540,376 |
| $ | (45,484) |
Duration of Unrealized Loss at December 31, 2016 By Security Type | ||||||||||||||||||||||||
Less than 12 months | Greater than 12 months | Total | ||||||||||||||||||||||
Gross | Gross | Gross | ||||||||||||||||||||||
Unrealized | Unrealized | Unrealized | ||||||||||||||||||||||
(Dollars in thousands) | Market Value | Depreciation | Market Value | Depreciation | Market Value | Depreciation | ||||||||||||||||||
Fixed maturity securities - available for sale | ||||||||||||||||||||||||
U.S. Treasury securities and obligations of | ||||||||||||||||||||||||
U.S. government agencies and corporations | $ | 469,571 | $ | (4,434 | ) | $ | - | $ | - | $ | 469,571 | $ | (4,434 | ) | ||||||||||
Obligations of U.S. states and political subdivisions | 221,088 | (11,486 | ) | 564 | (484 | ) | 221,652 | (11,970 | ) | |||||||||||||||
Corporate securities | 431,757 | (10,121 | ) | 118,172 | (5,665 | ) | 549,929 | (15,786 | ) | |||||||||||||||
Asset-backed securities | 35,065 | (122 | ) | 5,745 | (7 | ) | 40,810 | (129 | ) | |||||||||||||||
Mortgage-backed securities | ||||||||||||||||||||||||
Commercial | 27,230 | (391 | ) | 3,060 | (61 | ) | 30,290 | (452 | ) | |||||||||||||||
Agency residential | 487,000 | (6,320 | ) | 90,740 | (2,673 | ) | 577,740 | (8,993 | ) | |||||||||||||||
Non-agency residential | - | - | - | - | - | - | ||||||||||||||||||
Foreign government securities | 218,171 | (2,713 | ) | 61,542 | (7,670 | ) | 279,713 | (10,383 | ) | |||||||||||||||
Foreign corporate securities | 264,939 | (4,950 | ) | 75,489 | (9,411 | ) | 340,428 | (14,361 | ) | |||||||||||||||
Total fixed maturity securities | $ | 2,154,821 | $ | (40,537 | ) | $ | 355,312 | $ | (25,971 | ) | $ | 2,510,133 | $ | (66,508 | ) |
Duration of Unrealized Loss at December 31, 2016 By Maturity | ||||||||||||||||||||||||
Less than 12 months | Greater than 12 months | Total | ||||||||||||||||||||||
Gross | Gross | Gross | ||||||||||||||||||||||
Unrealized | Unrealized | Unrealized | ||||||||||||||||||||||
(Dollars in thousands) | Market Value | Depreciation | Market Value | Depreciation | Market Value | Depreciation | ||||||||||||||||||
Fixed maturity securities | ||||||||||||||||||||||||
Due in one year or less | $ | 111,926 | $ | (322 | ) | $ | 21,691 | $ | (3,625 | ) | $ | 133,617 | $ | (3,947 | ) | |||||||||
Due in one year through five years | 1,015,066 | (10,567 | ) | 190,960 | (16,511 | ) | 1,206,026 | (27,078 | ) | |||||||||||||||
Due in five years through ten years | 243,082 | (10,369 | ) | 41,371 | (2,961 | ) | 284,453 | (13,330 | ) | |||||||||||||||
Due after ten years | 235,452 | (12,446 | ) | 1,745 | (133 | ) | 237,197 | (12,579 | ) | |||||||||||||||
Asset-backed securities | 35,065 | (122 | ) | 5,745 | (7 | ) | 40,810 | (129 | ) | |||||||||||||||
Mortgage-backed securities | 514,230 | (6,711 | ) | 93,800 | (2,734 | ) | 608,030 | (9,445 | ) | |||||||||||||||
Total fixed maturity securities | $ | 2,154,821 | $ | (40,537 | ) | $ | 355,312 | $ | (25,971 | ) | $ | 2,510,133 | $ | (66,508 | ) |
The aggregate market value and gross unrealized losses related to investments in an unrealized loss position at December 31, 20162019 were $2,510,133$1,540,376 thousand and $66,508$45,484 thousand, respectively. The market value of securities for the single issuer whose securities comprised the largest unrealized loss position at December 31, 2016,2019, did not exceed 1.0%0.2% of the overall market value of the Company'sCompany’s fixed maturity securities. In addition, as indicated on the above table, there was no significant concentration of unrealized losses in any one market sector. The $40,537$8,539 thousand of unrealized losses related to fixed maturity securities that have been in an unrealized loss position for less than one year were generally comprised of obligations of U.S. states and political subdivisions, domestic and foreign corporate securities, agency residential mortgage-backed securities and foreign government securities. Of these unrealized losses, $36,646$5,645 thousand were related to securities that were rated investment grade by at least one nationally recognized statistical rating agency. The $25,971$36,945 thousand of unrealized losses related to fixed maturity securities in an unrealized loss position for more than one year related primarily to domestic and foreign corporate securities and foreign government securities and agency residential mortgage-backed securities. Of these unrealized losses $22,882$16,976 thousand is attributablewere related to net unrealized foreign exchange losses, as the U.S. dollar has strengthened against other currencies.securities that were rated investment grade by at least one nationally recognized statistical rating agency. There was no gross unrealized depreciation for mortgage-backed securities related to sub-prime and alt-A loans. In all instances, there were no projected cash flow shortfalls to recover the full book value of the investments and the related interest obligations. The mortgage-backed securities still have excess credit coverage and are current on interest and principal payments.
12
The components of net investment income are presented in the tables below for the periods indicated:
| Three Months Ended |
| Nine Months Ended | ||||||||
| September 30, |
| September 30, | ||||||||
(Dollars in thousands) | 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
Fixed maturities | $ | 78,272 |
| $ | 68,178 |
| $ | 227,257 |
| $ | 200,606 |
Equity securities |
| 2,504 |
|
| 1,971 |
|
| 6,120 |
|
| 5,721 |
Short-term investments and cash |
| 410 |
|
| 2,210 |
|
| 2,558 |
|
| 8,115 |
Other invested assets |
|
|
|
|
|
|
|
|
|
|
|
Limited partnerships |
| 35,908 |
|
| 15,102 |
|
| 2,439 |
|
| 38,273 |
Dividends from preferred shares of affiliate |
| 7,758 |
|
| 7,758 |
|
| 23,274 |
|
| 23,274 |
Other |
| 14,743 |
|
| 7,285 |
|
| (1,291) |
|
| 13,564 |
Gross investment income before adjustments |
| 139,595 |
|
| 102,504 |
|
| 260,358 |
|
| 289,553 |
Funds held interest income (expense) |
| 957 |
|
| 1,108 |
|
| 5,115 |
|
| 5,434 |
Interest income from Parent |
| 1,295 |
|
| - |
|
| 3,858 |
|
| - |
Gross investment income |
| 141,848 |
|
| 103,612 |
|
| 269,331 |
|
| 294,987 |
Investment expenses |
| (6,420) |
|
| (8,020) |
|
| (24,549) |
|
| (24,152) |
Net investment income | $ | 135,428 |
| $ | 95,592 |
| $ | 244,782 |
| $ | 270,835 |
|
|
|
|
|
|
|
|
|
|
|
|
(Some amounts may not reconcile due to rounding.) |
|
|
|
|
|
|
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
(Dollars in thousands) | 2017 | 2016 | 2017 | 2016 | ||||||||||||
Fixed maturities | $ | 48,335 | $ | 44,810 | $ | 144,916 | $ | 134,931 | ||||||||
Equity securities | 6,267 | 7,870 | 19,385 | 25,752 | ||||||||||||
Short-term investments and cash | 648 | 296 | 1,628 | 851 | ||||||||||||
Other invested assets | ||||||||||||||||
Limited partnerships | 11,878 | 6,020 | 20,632 | 17,698 | ||||||||||||
Dividends from preferred shares of affiliate | 7,758 | 7,758 | 23,274 | 23,274 | ||||||||||||
Other | 1,484 | 522 | 4,232 | 339 | ||||||||||||
Gross investment income before adjustments | 76,370 | 67,276 | 214,067 | 202,845 | ||||||||||||
Funds held interest income (expense) | 1,098 | 1,090 | 4,015 | 4,718 | ||||||||||||
Interest income from Parent | 1,075 | 1,075 | 3,225 | 3,225 | ||||||||||||
Gross investment income | 78,543 | 69,441 | 221,307 | 210,788 | ||||||||||||
Investment expenses | (5,126 | ) | (4,871 | ) | (15,141 | ) | (13,901 | ) | ||||||||
Net investment income | $ | 73,417 | $ | 64,570 | $ | 206,166 | $ | 196,887 | ||||||||
(Some amounts may not reconcile due to rounding.) |
The Company records results from limited partnership investments on the equity method of accounting with changes in value reported through net investment income. Due to the timing of receiving financial information from these partnerships, the results are generally reported on a one month or quarter lag. If the Company determines there has been a significant decline in value of a limited partnership during this lag period, a loss will be recorded in the period in which the Company identifies the decline.
The Company had contractual commitments to invest up to an additional $348,144$1,008,757 thousand in limited partnerships and private placement loans at September 30, 2017.2020. These commitments will be funded when called in accordance with the partnership and loan agreements, which have investment periods that expire, unless extended, through 2023.
The Company's other invested assets at September 30, 2017 and December 31, 2016 included $54,718 thousand and $57,126 thousand, respectively, related toCompany participates in a private placement liquidity sweep facility.facility (“the facility”). The primary purpose of the facility is to enhance the Company'sCompany’s return on its short-term investments and cash positions. The facility invests in high quality, short-duration securities and permits daily liquidity. The Company consolidates its participation in the facility. As of September 30, 2020, the market value of investments in the facility consolidated within the Company’s balance sheets was $765,573 thousand.
13
Other invested assets, at fair value, as of September 30, 20172020 and December 31, 2016,2019, were comprised of preferred shares held in Preferred Holdings, an affiliated company.
The components of net realized capital gains (losses) are presented in the table below for the periods indicated:
| Three Months Ended |
| Nine Months Ended | ||||||||
| September 30, |
| September 30, | ||||||||
(Dollars in thousands) | 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
Fixed maturity securities, market value: |
|
|
|
|
|
|
|
|
|
|
|
Allowances for credit losses | $ | 2,289 |
| $ | - |
| $ | (17,636) |
| $ | - |
Other-than-temporary impairments |
| - |
|
| (6,968) |
|
| - |
|
| (14,187) |
Gains (losses) from sales |
| (31) |
|
| 2,200 |
|
| (19,005) |
|
| 3,313 |
Fixed maturity securities, fair value: |
|
|
|
|
|
|
|
|
|
|
|
Gains (losses) from sales |
| (1,968) |
|
| - |
|
| (1,968) |
|
| 356 |
Gains (losses) from fair value adjustments |
| 3,339 |
|
| - |
|
| 1,944 |
|
| 13 |
Equity securities, fair value: |
|
|
|
|
|
|
|
|
|
|
|
Gains (losses) from sales |
| (281) |
|
| (1,192) |
|
| (11,609) |
|
| 2,538 |
Gains (losses) from fair value adjustments |
| 94,260 |
|
| (10,326) |
|
| 120,796 |
|
| 93,349 |
Other invested assets |
| 1,085 |
|
| 2,097 |
|
| 50 |
|
| 2,341 |
Other invested assets, fair value: |
|
|
|
|
|
|
|
|
|
|
|
Gains (losses) from fair value adjustments |
| 15,741 |
|
| 126,655 |
|
| (180,838) |
|
| 302,306 |
Short-term investment gains (losses) |
| 759 |
|
| 76 |
|
| 966 |
|
| 132 |
Total net realized capital gains (losses) | $ | 115,193 |
| $ | 112,542 |
| $ | (107,300) |
| $ | 390,161 |
| Roll Forward of Allowance for Credit Losses | ||||||||||||||||||||||
| Three Months Ended September 30, 2020 |
| Nine Months Ended September 30, 2020 | ||||||||||||||||||||
|
|
|
| Foreign |
| Foreign |
|
|
|
|
|
|
| Foreign |
| Foreign |
|
|
| ||||
| Corporate |
| Government |
| Corporate |
|
|
|
| Corporate |
| Government |
| Corporate |
|
|
| ||||||
| Securities |
| Securities |
| Securities |
| Total |
| Securities |
| Securities |
| Securities |
| Total | ||||||||
Beginning Balance | $ | (19,398) |
| $ | - |
| $ | (527) |
| $ | (19,925) |
| $ | - |
| $ | - |
| $ | - |
| $ | - |
Credit losses on securities where credit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
losses were not previously recorded |
| (6) |
|
| - |
|
| - |
|
| (6) |
|
| (21,829) |
|
| (70) |
|
| (561) |
|
| (22,460) |
Increases in allowance on previously |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
impaired securities |
| (5,354) |
|
| - |
|
| - |
|
| (5,354) |
|
| (5,909) |
|
| - |
|
| (211) |
|
| (6,120) |
Decreases in allowance on previously |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
impaired securities |
| 65 |
|
| - |
|
| 128 |
|
| 193 |
|
| 1,303 |
|
| - |
|
| 244 |
|
| 1,547 |
Reduction in allowance due to disposals |
| 7,456 |
|
| - |
|
| - |
|
| 7,456 |
|
| 9,198 |
|
| 70 |
|
| 129 |
|
| 9,397 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of September 30, 2020 | $ | (17,237) |
| $ | - |
| $ | (399) |
| $ | (17,636) |
| $ | (17,237) |
| $ | - |
| $ | (399) |
| $ | (17,636) |
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
(Dollars in thousands) | 2017 | 2016 | 2017 | 2016 | ||||||||||||
Fixed maturity securities, market value: | ||||||||||||||||
Other-than-temporary impairments | $ | (1,473 | ) | $ | (836 | ) | $ | (4,179 | ) | $ | (25,242 | ) | ||||
Gains (losses) from sales | 3,842 | 4,338 | 16,814 | (10,273 | ) | |||||||||||
Fixed maturity securities, fair value: | ||||||||||||||||
Gain (losses) from sales | - | (1 | ) | - | (1,855 | ) | ||||||||||
Gains (losses) from fair value adjustments | - | 42 | - | 1,381 | ||||||||||||
Equity securities, fair value: | ||||||||||||||||
Gains (losses) from sales | (1,479 | ) | 5,452 | 3,465 | (10,134 | ) | ||||||||||
Gains (losses) from fair value adjustments | 29,645 | 16,063 | 82,006 | 34,725 | ||||||||||||
Other invested assets | 85 | - | 84 | - | ||||||||||||
Other invested assets, fair value: | ||||||||||||||||
Gains (losses) from fair value adjustments | 197,869 | (47,090 | ) | 155,775 | (47,846 | ) | ||||||||||
Gain (loss) on sale of subsidiary | - | (28,032 | ) | - | (28,032 | ) | ||||||||||
Short-term investment gains (losses) | - | 1 | 1 | 1 | ||||||||||||
Total net realized capital gains (losses) | $ | 228,489 | $ | (50,063 | ) | $ | 253,966 | $ | (87,275 | ) |
14
The proceeds and split between gross gains and losses, from sales of fixed maturity and equity securities, are presented in the table below for the periods indicated:
| Three Months Ended |
| Nine Months Ended | ||||||||
| September 30, |
| September 30, | ||||||||
(Dollars in thousands) | 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
Proceeds from sales of fixed maturity securities | $ | 84,822 |
| $ | 213,132 |
| $ | 422,545 |
| $ | 2,220,440 |
Gross gains from sales |
| 4,977 |
|
| 6,638 |
|
| 15,578 |
|
| 17,875 |
Gross losses from sales |
| (6,976) |
|
| (4,438) |
|
| (36,551) |
|
| (14,206) |
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sales of equity securities | $ | 115,516 |
| $ | 35,925 |
| $ | 328,519 |
| $ | 184,898 |
Gross gains from sales |
| 9,503 |
|
| 1,035 |
|
| 30,256 |
|
| 9,283 |
Gross losses from sales |
| (9,784) |
|
| (2,227) |
|
| (41,865) |
|
| (6,745) |
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
(Dollars in thousands) | 2017 | 2016 | 2017 | 2016 | ||||||||||||
Proceeds from sales of fixed maturity securities | $ | 410,636 | $ | 136,767 | $ | 1,063,126 | $ | 435,242 | ||||||||
Gross gains from sales | 7,931 | 6,257 | 23,674 | 13,875 | ||||||||||||
Gross losses from sales | (4,089 | ) | (1,920 | ) | (6,860 | ) | (26,003 | ) | ||||||||
Proceeds from sales of equity securities | $ | 52,754 | $ | 109,914 | $ | 302,407 | $ | 531,894 | ||||||||
Gross gains from sales | 2,199 | 6,874 | 13,774 | 13,509 | ||||||||||||
Gross losses from sales | (3,678 | ) | (1,422 | ) | (10,309 | ) | (23,643 | ) |
Activity in the reserve for losses and LAE is summarized for the periods indicated:
| Nine Months Ended September 30, | ||||
(Dollars in thousands) |
| 2020 |
|
| 2019 |
Gross reserves beginning of period | $ | 10,209,519 |
| $ | 10,167,018 |
Less reinsurance recoverables |
| (4,215,348) |
|
| (4,697,543) |
Net reserves beginning of period |
| 5,994,171 |
|
| 5,469,475 |
Incurred related to: |
|
|
|
|
|
Current year |
| 3,288,049 |
|
| 2,709,367 |
Prior years |
| (4,853) |
|
| 28,044 |
Total incurred losses and LAE |
| 3,283,196 |
|
| 2,737,411 |
Paid related to: |
|
|
|
|
|
Current year |
| 856,707 |
|
| 505,856 |
Prior years |
| 1,275,408 |
|
| 1,600,956 |
Total paid losses and LAE |
| 2,132,115 |
|
| 2,106,812 |
|
|
|
|
|
|
Foreign exchange/translation adjustment and cumulative adjustment due to adoption of ASU 2016-13 |
| (5,954) |
|
| (2,720) |
|
|
|
|
|
|
Net reserves end of period |
| 7,139,298 |
|
| 6,097,354 |
Plus reinsurance recoverables |
| 3,902,713 |
|
| 4,314,820 |
Gross reserves end of period | $ | 11,042,011 |
| $ | 10,412,174 |
|
|
|
|
|
|
(Some amounts may not reconcile due to rounding.) |
|
|
|
|
|
Nine Months Ended | Twelve Months Ended | |||||||
September 30, | At December 31, | |||||||
(Dollars in thousands) | 2017 | 2016 | ||||||
Gross reserves at beginning of period | $ | 8,331,288 | $ | 7,940,720 | ||||
Less reinsurance recoverables | (4,199,791 | ) | (3,875,073 | ) | ||||
Net reserves at beginning of period | 4,131,497 | 4,065,647 | ||||||
Incurred related to: | ||||||||
Current year | 1,918,055 | 1,441,962 | ||||||
Prior years | 453 | (91,682 | ) | |||||
Total incurred losses and LAE | 1,918,508 | 1,350,280 | ||||||
Paid related to: | ||||||||
Current year | 441,480 | 400,489 | ||||||
Prior years | 547,176 | 892,207 | ||||||
Total paid losses and LAE | 988,656 | 1,292,696 | ||||||
Foreign exchange/translation adjustment | 19,084 | 8,266 | ||||||
Net reserves at end of period | 5,080,433 | 4,131,497 | ||||||
Plus reinsurance recoverables | 4,888,715 | 4,199,791 | ||||||
Gross reserves at end of period | $ | 9,969,148 | $ | 8,331,288 |
Current year incurred losses were $1,918,055$3,288,049 thousand for the nine months ended September 30, 2017 compared to $1,441,962 thousand for the full year 2016. The increase in current year incurred losses was primarily due to $1,039,295 thousand of catastrophe losses incurred in the nine months ended September 30, 2017, mainly related to Hurricane Irma, Hurricane Maria, Hurricane Harvey2020 and the Mexico City earthquake. The $688,924 thousand increase in reinsurance recoverables from December 31, 2016 is primarily due to recoverables from these catastrophe losses.
GAAP guidance regarding fair value measurements address how companies should measure fair value when they are required to use fair value measures for recognition or disclosure purposes under GAAP and provides a common definition of fair value to be used throughout GAAP. It defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly fashion between market participants at the measurement date. In addition, it establishes a three-level valuation hierarchy for the disclosure of fair value measurements. The valuation hierarchy is based on the transparency of inputs to the valuation of an asset or liability. The level in the hierarchy within which a given fair value measurement falls is determined based on
15
the lowest level input that is significant to the measurement, with Level 1 being the highest priority and Level 3 being the lowest priority.
The levels in the hierarchy are defined as follows:
Level 1: | Inputs to the valuation methodology are observable inputs that reflect unadjusted quoted prices for identical assets or liabilities in an active market; |
Level 2: | Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument; |
Level 3: | Inputs to the valuation methodology are unobservable and significant to the fair value measurement. |
The Company'sCompany’s fixed maturity and equity securities are primarily managed by third party investment asset managers. The investment asset managers managing publicly traded securities obtain prices from nationally recognized pricing services. These services seek to utilize market data and observations in their evaluation process. They use pricing applications that vary by asset class and incorporate available market information and when fixed maturity securities do not trade on a daily basis the services will apply available information through processes such as benchmark curves, benchmarking of like securities, sector groupings and matrix pricing. In addition, they use model processes, such as the Option Adjusted Spread model to develop prepayment and interest rate scenarios for securities that have prepayment features.
In limited instances where prices are not provided by pricing services or in rare instances when a manager may not agree with the pricing service, price quotes on a non-binding basis are obtained from investment brokers. The investment asset managers do not make any changes to prices received from either the pricing services or the investment brokers. In addition, the investment asset managers have procedures in place to review the reasonableness of the prices from the service providers and may request verification of the prices. In addition, the Company continually performs analytical reviews of price changes and tests the prices on a random basis to an independent pricing source. No material variances were noted during these price validation procedures. In limited situations, where financial markets are inactive or illiquid, the Company may use its own assumptions about future cash flows and risk-adjusted discount rates to determine fair value. Due to the unavailability of prices for forty-eight private placement securities, the investment manager's valuation committee valued the forty-eight securities at $105,199 thousand atAt September 30, 2017. Due2020, $1,063,886 thousand of fixed maturities, market value and $3,748 thousand of fixed maturities, fair value were fair valued using unobservable inputs. The majority of the fixed maturities, market value, $805,061 thousand and all of the $3,748 thousand of fixed maturities, fair value, were valued by investment managers’ valuation committees and many of these fair values were substantiated by valuations from independent third parties. The Company has procedures in place to evaluate these independent third party valuations. The remaining Level 3 fixed maturities of $258,825 thousand were fair valued by the unavailability of prices for forty-two private placement securities,Company at either par or amortized cost, which the investment manager's valuation committee valued the forty-two securities at $86,536 thousand atCompany believes approximates fair value. At December 31, 2016.
18
Equity securities denominated in U.S. currency with quoted prices in active markets for identical assets are categorized as levelLevel 1 since the quoted prices are directly observable. Equity securities traded on foreign exchanges are categorized as levelLevel 2 due to the added input of a foreign exchange conversion rate to determine fair or market value. The Company uses foreign currency exchange rates published by nationally recognized sources.
All categories of fixed maturity securities listed in the tables below are generally categorized as levelLevel 2, since a particular security may not have traded but the pricing services are able to use valuation models with
16
observable market inputs such as interest rate yield curves and prices for similar fixed maturity securities in terms of issuer, maturity and seniority. For foreign government securities and foreign corporate securities, the fair values provided by the third party pricing services in local currencies, and where applicable, are converted to U.S. dollars using currency exchange rates from nationally recognized sources.
The fixed maturities with fair values categorized as levelLevel 3 result when prices are not available from the nationally recognized pricing services. The asset managers will then obtain non-binding price quotes for the securities from brokers. The single broker quotes are provided by market makers or broker-dealers who are recognized as market participants in the markets in which they are providing the quotes. The prices received from brokers are reviewed for reasonableness by the third party asset managers and the Company. If the broker quotes are for foreign denominated securities, the quotes are converted to U.S. dollars using currency exchange rates from nationally recognized sources. In limited circumstances when broker prices are not available for private placements, the Company will value the securities using comparable market information.
The composition and valuation inputs for the presented fixed maturities categories are as follows:
19·
·Obligations of U.S. states and political subdivisions are comprised of state and municipal bond issuances and the fair values are based on observable market inputs such as quoted market prices, quoted prices for similar securities, benchmark yields and credit spreads;
·Corporate securities are primarily comprised of U.S. corporate and public utility bond issuances and the fair values are based on observable market inputs such as quoted market prices, quoted prices for similar securities, benchmark yields and credit spreads;
·Asset-backed and mortgage-backed securities fair values are based on observable inputs such as quoted prices, reported trades, quoted prices for similar issuances or benchmark yields and cash flow models using observable inputs such as prepayment speeds, collateral performance and default spreads;
·Foreign government securities are comprised of global non-U.S. sovereign bond issuances and the fair values are based on observable market inputs such as quoted market prices, quoted prices for similar securities and models with observable inputs such as benchmark yields and credit spreads and then, where applicable, converted to U.S. dollars using an exchange rate from a nationally recognized source;
·Foreign corporate securities are comprised of global non-U.S. corporate bond issuances and the fair values are based on observable market inputs such as quoted market prices, quoted prices for similar securities and models with observable inputs such as benchmark yields and credit spreads and then, where applicable, converted to U.S. dollars using an exchange rate from a nationally recognized source.
Other invested assets, at fair value, waswere categorized as Level 3 at September 30, 20172020 and December 31, 2016,2019, since it represented a privately placed convertible preferred stock issued by an affiliate. The stock was received in exchange for shares of the Company'sCompany’s parent. The fair value of the25 year redeemable, convertible preferred stock at September 30, 2017 and December 31, 2016 was determinedwith a 1.75% coupon is valued using a pricing model. The pricing model includes observable inputs such as the U.S. Treasury yield curve rate T note constant maturity 10 year and the swap rate on the Company’s June 1, 2044, 4.868% senior notes, with adjustments to reflect the Company’s own assumptions about the inputs that market participants would use in pricing the asset.
17
The following table presents the fair value measurement levels for all assets, which the Company has recorded at fair value (fair and market value) as of the period indicated:
|
|
|
|
| Fair Value Measurement Using: | |||||||
|
|
|
|
| Quoted Prices |
|
|
|
|
|
| |
|
|
|
|
| in Active |
| Significant |
|
|
| ||
|
|
|
|
| Markets for |
| Other |
| Significant | |||
|
|
|
|
| Identical |
| Observable |
| Unobservable | |||
|
|
|
| Assets |
| Inputs |
| Inputs | ||||
(Dollars in thousands) |
| September 30, 2020 |
| (Level 1) |
| (Level 2) |
| (Level 3) | ||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturities, market value |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities and obligations of U.S. government agencies and corporations |
| $ | 772,113 |
| $ | - |
| $ | 772,113 |
| $ | - |
Obligations of U.S. States and political subdivisions |
|
| 542,283 |
|
| - |
|
| 542,283 |
|
| - |
Corporate securities |
|
| 3,135,916 |
|
| - |
|
| 2,482,521 |
|
| 653,395 |
Asset-backed securities |
|
| 1,249,156 |
|
| - |
|
| 844,367 |
|
| 404,789 |
Mortgage-backed securities |
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
| 423,039 |
|
| - |
|
| 423,039 |
|
| - |
Agency residential |
|
| 719,282 |
|
| - |
|
| 719,282 |
|
| - |
Non-agency residential |
|
| 334 |
|
| - |
|
| 334 |
|
| - |
Foreign government securities |
|
| 690,648 |
|
| - |
|
| 690,648 |
|
| - |
Foreign corporate securities |
|
| 1,043,916 |
|
| - |
|
| 1,038,214 |
|
| 5,702 |
Total fixed maturities, market value |
|
| 8,576,687 |
|
| - |
|
| 7,512,801 |
|
| 1,063,886 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturities, fair value |
|
| 3,748 |
|
| - |
|
| - |
|
| 3,748 |
Equity securities, fair value |
|
| 1,010,264 |
|
| 946,928 |
|
| 63,336 |
|
| - |
Other invested assets, fair value |
|
| 1,801,743 |
|
| - |
|
| - |
|
| 1,801,743 |
Fair Value Measurement Using: | ||||||||||||||||
Quoted Prices | ||||||||||||||||
in Active | Significant | |||||||||||||||
Markets for | Other | Significant | ||||||||||||||
Identical | Observable | Unobservable | ||||||||||||||
Assets | Inputs | Inputs | ||||||||||||||
(Dollars in thousands) | September 30, 2017 | (Level 1) | (Level 2) | (Level 3) | ||||||||||||
Assets: | ||||||||||||||||
Fixed maturities, market value | ||||||||||||||||
U.S. Treasury securities and obligations of | ||||||||||||||||
U.S. government agencies and corporations | $ | 655,886 | $ | - | $ | 655,886 | $ | - | ||||||||
Obligations of U.S. States and political subdivisions | 671,842 | - | 671,842 | - | ||||||||||||
Corporate securities | 2,239,591 | - | 2,137,522 | 102,069 | ||||||||||||
Asset-backed securities | 153,789 | - | 153,789 | - | ||||||||||||
Mortgage-backed securities | ||||||||||||||||
Commercial | 59,023 | - | 59,023 | - | ||||||||||||
Agency residential | 677,830 | - | 677,830 | - | ||||||||||||
Non-agency residential | 62 | - | 62 | - | ||||||||||||
Foreign government securities | 531,473 | - | 531,473 | - | ||||||||||||
Foreign corporate securities | 1,049,865 | - | 1,046,734 | 3,131 | ||||||||||||
Total fixed maturities, market value | 6,039,361 | - | 5,934,161 | 105,200 | ||||||||||||
Equity securities, fair value | 998,071 | 951,679 | 46,392 | - | ||||||||||||
Other invested assets, fair value | 1,922,402 | - | - | 1,922,402 |
There were no transfers between Level 1 and Level 2 for the three and nine months ended September 30, 2017.2020.
18
20
|
|
|
| Fair Value Measurement Using: | |||||||
|
|
|
| Quoted Prices |
|
|
|
|
|
| |
|
|
|
| in Active |
| Significant |
|
|
| ||
|
|
|
| Markets for |
| Other |
| Significant | |||
|
|
|
| Identical |
| Observable |
| Unobservable | |||
|
|
| Assets |
| Inputs |
| Inputs | ||||
(Dollars in thousands) | December 31, 2019 |
| (Level 1) |
| (Level 2) |
| (Level 3) | ||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
Fixed maturities, market value |
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities and obligations of U.S. government agencies and corporations | $ | 777,515 |
| $ | - |
| $ | 777,515 |
| $ | - |
Obligations of U.S. States and political subdivisions |
| 535,911 |
|
| - |
|
| 535,911 |
|
| - |
Corporate securities |
| 2,821,557 |
|
| - |
|
| 2,274,618 |
|
| 546,939 |
Asset-backed securities |
| 765,957 |
|
| - |
|
| 612,316 |
|
| 153,641 |
Mortgage-backed securities |
|
|
|
|
|
|
|
|
|
|
|
Commercial |
| 329,049 |
|
| - |
|
| 329,049 |
|
| - |
Agency residential |
| 644,687 |
|
| - |
|
| 644,687 |
|
| - |
Non-agency residential |
| 1,638 |
|
| - |
|
| 1,638 |
|
| - |
Foreign government securities |
| 658,007 |
|
| - |
|
| 658,007 |
|
| - |
Foreign corporate securities |
| 957,758 |
|
| - |
|
| 956,007 |
|
| 1,751 |
Total fixed maturities, market value |
| 7,492,079 |
|
| - |
|
| 6,789,748 |
|
| 702,331 |
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturities, fair value |
| 5,826 |
|
| - |
|
| - |
|
| 5,826 |
Equity securities, fair value |
| 764,049 |
|
| 719,548 |
|
| 44,501 |
|
| - |
Other invested assets, fair value |
| 1,982,582 |
|
| - |
|
| - |
|
| 1,982,582 |
Fair Value Measurement Using: | ||||||||||||||||
Quoted Prices | ||||||||||||||||
in Active | Significant | |||||||||||||||
Markets for | Other | Significant | ||||||||||||||
Identical | Observable | Unobservable | ||||||||||||||
Assets | Inputs | Inputs | ||||||||||||||
(Dollars in thousands) | December 31, 2016 | (Level 1) | (Level 2) | (Level 3) | ||||||||||||
Assets: | ||||||||||||||||
Fixed maturities, market value | ||||||||||||||||
U.S. Treasury securities and obligations of | ||||||||||||||||
U.S. government agencies and corporations | $ | 691,080 | $ | - | $ | 691,080 | $ | - | ||||||||
Obligations of U.S. States and political subdivisions | 729,984 | - | 729,984 | - | ||||||||||||
Corporate securities | 2,154,203 | - | 2,089,006 | 65,197 | ||||||||||||
Asset-backed securities | 137,027 | - | 137,027 | - | ||||||||||||
Mortgage-backed securities | ||||||||||||||||
Commercial | 75,493 | - | 75,493 | - | ||||||||||||
Agency residential | 715,144 | - | 715,144 | - | ||||||||||||
Non-agency residential | 88 | - | 88 | - | ||||||||||||
Foreign government securities | 507,277 | - | 507,277 | - | ||||||||||||
Foreign corporate securities | 960,200 | - | 957,662 | 2,538 | ||||||||||||
Total fixed maturities, market value | 5,970,496 | - | 5,902,761 | 67,735 | ||||||||||||
Equity securities, fair value | 887,800 | 827,237 | 60,563 | - | ||||||||||||
Other invested assets, fair value | 1,766,626 | - | - | 1,766,626 |
In addition, $70,657$218,821 thousand and $18,801$209,578 thousand of investments within other invested assets on the consolidated balance sheets as of September 30, 20172020 and December 31, 2016,2019, respectively, are not included within the fair value hierarchy tables as the assets are valued using themeasured at NAV as a practical expedient guidance within ASU 2015-07.to determine fair value.
19
The following table presentstables present the activity under Level 3, fair value measurements using significant unobservable inputs by asset type, for the periods indicated:
| Total Fixed Maturities, Market Value | ||||||||||||||||||||||
| Three Months Ended September 30, 2020 |
| Nine Months Ended September 30, 2020 | ||||||||||||||||||||
| Corporate |
| Asset |
| Foreign |
|
|
| Corporate |
| Asset |
| Foreign |
|
|
| |||||||
(Dollars in thousands) | Securities |
| Backed Securities |
| Corporate |
| Total |
| Securities |
| Backed Securities |
| Corporate |
| Total | ||||||||
Beginning balance | $ | 651,186 |
| $ | 295,730 |
| $ | 6,274 |
| $ | 953,190 |
| $ | 546,939 |
| $ | 153,641 |
| $ | 1,751 |
| $ | 702,331 |
Total gains or (losses) (realized/unrealized) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in earnings |
| 361 |
|
| 457 |
|
| 26 |
|
| 844 |
|
| (101) |
|
| 582 |
|
| (71) |
|
| 410 |
Included in other comprehensive income (loss) |
| (992) |
|
| 5,028 |
|
| 126 |
|
| 4,162 |
|
| (4,898) |
|
| 7,238 |
|
| 86 |
|
| 2,426 |
Purchases, issuances and settlements |
| (1,349) |
|
| 103,574 |
|
| 139 |
|
| 102,364 |
|
| 112,061 |
|
| 243,328 |
|
| 3,822 |
|
| 359,211 |
Transfers in and/or (out) of Level 3 |
| 4,189 |
|
| - |
|
| (863) |
|
| 3,326 |
|
| (606) |
|
| - |
|
| 114 |
|
| (492) |
Ending balance | $ | 653,395 |
| $ | 404,789 |
| $ | 5,702 |
| $ | 1,063,886 |
| $ | 653,395 |
| $ | 404,789 |
| $ | 5,702 |
| $ | 1,063,886 |
The amount of total gains or losses for the period included in earnings (or changes in net assets) attributable to the change in unrealized gains or losses relating to assets still held at the reporting date | $ | - |
| $ | - |
| $ | - |
| $ | - |
| $ | (539) |
| $ | - |
| $ | - |
| $ | (539) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Some amounts may not reconcile due to rounding.) |
| Total Fixed Maturities, Market Value | ||||||||||||||||||||||
| Three Months Ended September 30, 2019 |
| Nine Months Ended September 30, 2019 | ||||||||||||||||||||
| Corporate |
| Asset |
| Foreign |
|
|
| Corporate |
| Asset |
| Foreign |
|
|
| |||||||
(Dollars in thousands) | Securities |
| Backed Securities |
| Corporate |
| Total |
| Securities |
| Backed Securities |
| Corporate |
| Total | ||||||||
Beginning balance | $ | 472,229 |
| $ | - |
| $ | 2,093 |
| $ | 474,322 |
| $ | 376,250 |
| $ | - |
| $ | 7,744 |
| $ | 383,994 |
Total gains or (losses) (realized/unrealized) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in earnings |
| 1,018 |
|
| - |
|
| - |
|
| 1,018 |
|
| 3,348 |
|
| - |
|
| (119) |
|
| 3,229 |
Included in other comprehensive income (loss) |
| (1,314) |
|
| 644 |
|
| - |
|
| (670) |
|
| 1,130 |
|
| 644 |
|
| - |
|
| 1,774 |
Purchases, issuances and settlements |
| 42,289 |
|
| 40,000 |
|
| - |
|
| 82,289 |
|
| 131,975 |
|
| 40,000 |
|
| (5,532) |
|
| 166,443 |
Transfers in and/or (out) of Level 3 |
| 3,176 |
|
| - |
|
| - |
|
| 3,176 |
|
| 4,695 |
|
| - |
|
| - |
|
| 4,695 |
Ending balance | $ | 517,398 |
| $ | 40,644 |
| $ | 2,093 |
| $ | 560,135 |
| $ | 517,398 |
| $ | 40,644 |
| $ | 2,093 |
| $ | 560,135 |
The amount of total gains or losses for the period included in earnings (or changes in net assets) attributable to the change in unrealized gains or losses relating to assets still held at the reporting date | $ | - |
| $ | - |
| $ | - |
| $ | - |
| $ | - |
| $ | - |
| $ | - |
| $ | - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Some amounts may not reconcile due to rounding.) |
20
| Total Fixed Maturities, Fair Value | ||||||||||
| Three Months Ended September 30, 2020 |
| Nine Months Ended September 30, 2020 | ||||||||
| Foreign |
|
|
| Foreign |
|
|
| |||
(Dollars in thousands) | Corporate |
| Total |
| Corporate |
| Total | ||||
Beginning balance fixed maturities at fair value | $ | 4,431 |
| $ | 4,431 |
| $ | 5,826 |
| $ | 5,826 |
Total gains or (losses) (realized/unrealized) |
|
|
|
|
|
|
|
|
|
|
|
Included in earnings |
| 1,371 |
|
| 1,371 |
|
| (24) |
|
| (24) |
Included in other comprehensive income (loss) |
| - |
|
| - |
|
| - |
|
| - |
Purchases, issuances and settlements |
| (2,054) |
|
| (2,054) |
|
| (2,054) |
|
| (2,054) |
Transfers in and/or (out) of Level 3 |
| - |
|
| - |
|
| - |
|
| - |
Ending balance | $ | 3,748 |
| $ | 3,748 |
| $ | 3,748 |
| $ | 3,748 |
The amount of total gains or losses for the period included in earnings (or changes in net assets) attributable to the change in unrealized gains or losses relating to assets still held at the reporting date | $ | - |
| $ | - |
| $ | - |
| $ | - |
|
|
|
|
|
|
|
|
|
|
|
|
(Some amounts may not reconcile due to rounding.) |
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2017 | Nine Months Ended September 30, 2017 | |||||||||||||||||||||||
Corporate | Foreign | Corporate | Foreign | |||||||||||||||||||||
(Dollars in thousands) | Securities | Corporate | Total | Securities | Corporate | Total | ||||||||||||||||||
Beginning balance | $ | 86,140 | $ | 3,151 | $ | 89,291 | $ | 65,197 | $ | 2,538 | $ | 67,735 | ||||||||||||
Total gains or (losses) (realized/unrealized) | ||||||||||||||||||||||||
Included in earnings | 283 | 210 | 493 | 1,208 | 314 | 1,522 | ||||||||||||||||||
Included in other comprehensive income (loss) | 18 | (230 | ) | (212 | ) | 161 | (230 | ) | (69 | ) | ||||||||||||||
Purchases, issuances and settlements | 15,628 | - | 15,628 | 35,503 | 509 | 36,012 | ||||||||||||||||||
Transfers in and/or (out) of Level 3 | - | - | - | - | - | - | ||||||||||||||||||
Ending balance | $ | 102,069 | $ | 3,131 | $ | 105,200 | $ | 102,069 | $ | 3,131 | $ | 105,200 | ||||||||||||
The amount of total gains or losses for the period included | ||||||||||||||||||||||||
in earnings (or changes in net assets) attributable to the | ||||||||||||||||||||||||
change in unrealized gains or losses relating to assets | ||||||||||||||||||||||||
still held at the reporting date | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||||
(Some amounts may not reconcile due to rounding.) |
| Total Fixed Maturities, Fair Value | ||||||||||
| Three Months Ended September 30, 2019 |
| Nine Months Ended September 30, 2019 | ||||||||
| Foreign |
|
|
| Foreign |
|
|
| |||
(Dollars in thousands) | Corporate |
| Total |
| Corporate |
| Total | ||||
Beginning balance fixed maturities at fair value | $ | - |
| $ | - |
| $ | 2,337 |
| $ | 2,337 |
Total gains or (losses) (realized/unrealized) |
|
|
|
|
|
|
|
|
|
|
|
Included in earnings |
| - |
|
| - |
|
| 369 |
|
| 369 |
Included in other comprehensive income (loss) |
| - |
|
| - |
|
| - |
|
| - |
Purchases, issuances and settlements |
| - |
|
| - |
|
| (2,706) |
|
| (2,706) |
Transfers in and/or (out) of Level 3 |
| - |
|
| - |
|
| - |
|
| - |
Ending balance | $ | - |
| $ | - |
| $ | - |
| $ | - |
The amount of total gains or losses for the period included in earnings (or changes in net assets) attributable to the change in unrealized gains or losses relating to assets still held at the reporting date | $ | - |
| $ | - |
| $ | - |
| $ | - |
|
|
|
|
|
|
|
|
|
|
|
|
(Some amounts may not reconcile due to rounding.) |
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2016 | Nine Months Ended September 30, 2016 | |||||||||||||||||||||||||||||||
Corporate | Foreign | Corporate | Foreign | |||||||||||||||||||||||||||||
(Dollars in thousands) | Securities | CMBS | Corporate | Total | Securities | CMBS | Corporate | Total | ||||||||||||||||||||||||
Beginning balance | $ | 32,410 | $ | - | $ | 2,021 | $ | 34,431 | $ | 3,933 | $ | - | $ | 1,593 | $ | 5,526 | ||||||||||||||||
Total gains or (losses) (realized/unrealized) | ||||||||||||||||||||||||||||||||
Included in earnings | (12 | ) | - | 27 | 15 | (22 | ) | - | (970 | ) | (992 | ) | ||||||||||||||||||||
Included in other comprehensive income (loss) | (48 | ) | (34 | ) | (1,285 | ) | (1,367 | ) | (81 | ) | (34 | ) | 140 | 25 | ||||||||||||||||||
Purchases, issuances and settlements | 25,877 | (40 | ) | 2,231 | 28,068 | 54,397 | (40 | ) | 2,231 | 56,588 | ||||||||||||||||||||||
Transfers in and/or (out) of Level 3 | (1,932 | ) | 3,553 | - | 1,621 | (1,932 | ) | 3,553 | - | 1,621 | ||||||||||||||||||||||
Ending balance | $ | 56,295 | $ | 3,479 | $ | 2,994 | $ | 62,768 | $ | 56,295 | $ | 3,479 | $ | 2,994 | $ | 62,768 | ||||||||||||||||
The amount of total gains or losses for the period included | ||||||||||||||||||||||||||||||||
in earnings (or changes in net assets) attributable to the | ||||||||||||||||||||||||||||||||
change in unrealized gains or losses relating to assets | ||||||||||||||||||||||||||||||||
still held at the reporting date | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | (997 | ) | $ | (997 | ) | ||||||||||||||
(Some amounts may not reconcile due to rounding.) |
21
The following table presents the activity under Level 3, fair value measurements using significant unobservable inputs by equity securities, for the periods indicated:
| Three Months Ended |
| Nine Months Ended | ||||||||
| September 30, |
| September 30, | ||||||||
(Dollars in thousands) | 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
Equity securities |
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of period | $ | 9,877 |
| $ | - |
| $ | - |
| $ | - |
Total (gains) or losses (realized/unrealized) |
|
|
|
|
|
|
|
|
|
|
|
Included in earnings |
| - |
|
| - |
|
| - |
|
| - |
Included in other comprehensive income (loss) |
| - |
|
| - |
|
| - |
|
| - |
Purchases, issuances and settlements |
| - |
|
| - |
|
| 9,877 |
|
| - |
Transfers in and/or (out) of Level 3 |
| (9,877) |
|
| - |
|
| (9,877) |
|
| - |
Balance, end of period | $ | - |
| $ | - |
| $ | - |
| $ | - |
|
|
|
|
|
|
|
|
|
|
|
|
The amount of total gains or losses for the period included in earnings |
|
|
|
|
|
|
|
|
|
|
|
(or changes in net assets) attributable to the change in unrealized |
|
|
|
|
|
|
|
|
|
|
|
gains or losses relating to liabilities still held at the reporting date | $ | - |
| $ | - |
| $ | - |
| $ | - |
|
|
|
|
|
|
|
|
|
|
|
|
(Some amounts may not reconcile due to rounding.) |
The net transfers to/(from) Level 3, fair value measurements using significant unobservable inputs for equity securities, fair value were ($9,877) thousand for both the three and nine months ended September 30, 20162020. The transfers of ($9,877) thousand during both the three and nine months ended September 30, 2020, were related to preferred stock in a private entity purchased during the net impactsecond quarter of securities no longer2020 which was priced by a recognized pricing service.
The following table presents the activity under Level 3, fair value measurements using significant unobservable inputs by other invested assets, for the periods indicated:
| Three Months Ended |
| Nine Months Ended | ||||||||
| September 30, |
| September 30, | ||||||||
(Dollars in thousands) | 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
Other invested assets, fair value: |
|
|
|
|
|
|
|
|
|
|
|
Beginning balance | $ | 1,786,003 |
| $ | 1,892,988 |
| $ | 1,982,582 |
| $ | 1,717,336 |
Total gains or (losses) (realized/unrealized) |
|
|
|
|
|
|
|
|
|
|
|
Included in earnings |
| 15,740 |
|
| 126,655 |
|
| (180,839) |
|
| 302,306 |
Included in other comprehensive income (loss) |
| - |
|
| - |
|
| - |
|
| - |
Purchases, issuances and settlements |
| - |
|
| - |
|
| - |
|
| - |
Transfers in and/or (out) of Level 3 |
| - |
|
| - |
|
| - |
|
| - |
Ending balance | $ | 1,801,743 |
| $ | 2,019,642 |
| $ | 1,801,743 |
| $ | 2,019,642 |
The amount of total gains or losses for the period included in earnings (or changes in net assets) attributable to the change in unrealized gains or losses relating to assets still held at the reporting date | $ | - |
| $ | - |
| $ | - |
| $ | - |
|
|
|
|
|
|
|
|
|
|
|
|
(Some amounts may not reconcile due to rounding.) |
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
(Dollars in thousands) | 2017 | 2016 | 2017 | 2016 | ||||||||||||
Other invested assets, fair value: | ||||||||||||||||
Beginning balance | $ | 1,724,532 | $ | 1,772,458 | $ | 1,766,626 | $ | 1,773,214 | ||||||||
Total gains or (losses) (realized/unrealized) | ||||||||||||||||
Included in earnings | 197,870 | (47,090 | ) | 155,776 | (47,846 | ) | ||||||||||
Included in other comprehensive income (loss) | - | - | - | - | ||||||||||||
Purchases, issuances and settlements | - | - | - | - | ||||||||||||
Transfers in and/or (out) of Level 3 | - | - | - | - | ||||||||||||
Ending balance | $ | 1,922,402 | $ | 1,725,367 | $ | 1,922,402 | $ | 1,725,367 | ||||||||
The amount of total gains or losses for the period included in earnings | ||||||||||||||||
(or changes in net assets) attributable to the change in unrealized | ||||||||||||||||
gains or losses relating to assets still held at the reporting date | $ | - | $ | - | $ | - | $ | - | ||||||||
(Some amounts may not reconcile due to rounding.) |
In the ordinary course of business, the Company is involved in lawsuits, arbitrations and other formal and informal dispute resolution procedures, the outcomes of which will determine the Company'sCompany’s rights and obligations under insurance and reinsurance agreements. In some disputes, the Company seeks to enforce its rights under an agreement or to collect funds owing to it. In other matters, the Company is resisting attempts
22
by others to collect funds or enforce alleged rights. These disputes arise from time to time and are ultimately resolved through both informal and formal means, including negotiated resolution, arbitration and litigation. In all such matters, the Company believes that its positions are legally and commercially reasonable. The Company considers the statuses of these proceedings when determining its reserves for unpaid loss and loss adjustment expenses.
Aside from litigation and arbitrations related to these insurance and reinsurance agreements, the Company is not a party to any other material litigation or arbitration.
The Company has entered into separate annuity agreements with The Prudential Insurance Company of America ("(“The Prudential"Prudential”) and an additional unaffiliated life insurance company in which the Company has either purchased annuity contracts or become the assignee of annuity proceeds that are meant to settle claim payment obligations in the future. In both instances, the Company would become contingently liable if either
The table below presents the estimated cost to replace all such annuities for which the Company was contingently liable for the periods indicated:
| At September 30, 2020 |
| At December 31, 2019 | ||
(Dollars in thousands) |
| ||||
The Prudential | $ | 141,488 |
| $ | 141,703 |
Unaffiliated life insurance company |
| 34,441 |
|
| 35,082 |
At September 30, | At December 31, | |||||||
(Dollars in thousands) | 2017 | 2016 | ||||||
The Prudential | $ | 144,331 | $ | 146,507 | ||||
Unaffiliated life insurance company | 33,769 | 33,860 |
The following table presentstables present the components of comprehensive income (loss) in the consolidated statements of operations and comprehensive income (loss) for the periods indicated:
| Three Months Ended September 30, 2020 |
| Nine Months Ended September 30, 2020 | ||||||||||||||
(Dollars in thousands) | Before Tax |
| Tax Effect |
| Net of Tax |
| Before Tax |
| Tax Effect |
| Net of Tax | ||||||
Unrealized appreciation (depreciation) ("URA(D)") on securities - non-credit related temporary | $ | 48,819 |
|
| (10,247) |
| $ | 38,572 |
| $ | 132,405 |
|
| (27,807) |
| $ | 104,598 |
URA(D) on securities - non-credit related OTTI |
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
Reclassification of net realized losses (gains) included in net income (loss) |
| (3,343) |
|
| 738 |
|
| (2,605) |
|
| 36,591 |
|
| (7,767) |
|
| 28,824 |
Foreign currency translation adjustments |
| 18,239 |
|
| (3,825) |
|
| 14,414 |
|
| (8,618) |
|
| 1,835 |
|
| (6,783) |
Reclassification of amortization of net gain (loss) included in net income (loss) |
| 2,285 |
|
| (480) |
|
| 1,806 |
|
| 5,736 |
|
| (1,205) |
|
| 4,532 |
Total other comprehensive income (loss) | $ | 66,000 |
| $ | (13,814) |
| $ | 52,187 |
| $ | 166,114 |
| $ | (34,944) |
| $ | 131,171 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Some amounts may not reconcile due to rounding) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2017 | Nine Months Ended September 30, 2017 | |||||||||||||||||||||||
(Dollars in thousands) | Before Tax | Tax Effect | Net of Tax | Before Tax | Tax Effect | Net of Tax | ||||||||||||||||||
Unrealized appreciation (depreciation) ("URA(D)") on securities - temporary | $ | 852 | $ | (219 | ) | $ | 633 | $ | 24,656 | $ | (8,279 | ) | $ | 16,377 | ||||||||||
URA(D) on securities - OTTI | (158 | ) | 55 | (103 | ) | (3,974 | ) | 1,391 | (2,583 | ) | ||||||||||||||
Reclassification of net realized losses (gains) included in net income (loss) | (2,454 | ) | 780 | (1,674 | ) | (12,719 | ) | 4,101 | (8,618 | ) | ||||||||||||||
Foreign currency translation adjustments | 52,740 | (18,459 | ) | 34,281 | 66,492 | (23,272 | ) | 43,220 | ||||||||||||||||
Benefit plan actuarial net gain (loss) | - | - | - | - | - | - | ||||||||||||||||||
Reclassification of amortization of net gain (loss) included in net income (loss) | 2,107 | (738 | ) | 1,369 | 8,273 | (2,896 | ) | 5,377 | ||||||||||||||||
Total other comprehensive income (loss) | $ | 53,088 | $ | (18,581 | ) | $ | 34,507 | $ | 82,729 | $ | (28,955 | ) | $ | 53,774 | ||||||||||
(Some amounts may not reconcile due to rounding) |
Three Months Ended September 30, 2016 | Nine Months Ended September 30, 2016 | |||||||||||||||||||||||
(Dollars in thousands) | Before Tax | Tax Effect | Net of Tax | Before Tax | Tax Effect | Net of Tax | ||||||||||||||||||
Unrealized appreciation (depreciation) ("URA(D)") on securities - temporary | $ | 8,305 | $ | (2,909 | ) | $ | 5,396 | $ | 92,221 | $ | (32,279 | ) | $ | 59,942 | ||||||||||
URA(D) on securities - OTTI | (2,444 | ) | 856 | (1,588 | ) | 4,199 | (1,469 | ) | 2,730 | |||||||||||||||
Reclassification of net realized losses (gains) included in net income (loss) | (4,258 | ) | 1,491 | (2,767 | ) | 35,515 | (12,430 | ) | 23,085 | |||||||||||||||
Foreign currency translation adjustments | (4,066 | ) | 1,424 | (2,642 | ) | 42,741 | (14,962 | ) | 27,779 | |||||||||||||||
Benefit plan actuarial net gain (loss) | - | - | - | - | - | - | ||||||||||||||||||
Reclassification of amortization of net gain (loss) included in net income (loss) | 1,951 | (683 | ) | 1,268 | 6,076 | (2,127 | ) | 3,949 | ||||||||||||||||
Total other comprehensive income (loss) | $ | (512 | ) | $ | 179 | $ | (333 | ) | $ | 180,752 | $ | (63,267 | ) | $ | 117,485 | |||||||||
(Some amounts may not reconcile due to rounding) |
23
| Three Months Ended September 30, 2019 |
| Nine Months Ended September 30, 2019 | ||||||||||||||
(Dollars in thousands) | Before Tax |
| Tax Effect |
| Net of Tax |
| Before Tax |
| Tax Effect |
| Net of Tax | ||||||
Unrealized appreciation (depreciation) ("URA(D)") on securities - temporary | $ | 30,803 |
| $ | (6,443) |
| $ | 24,360 |
| $ | 229,768 |
| $ | (48,311) |
| $ | 181,457 |
URA(D) on securities - OTTI |
| 119 |
|
| (25) |
|
| 94 |
|
| (581) |
|
| 122 |
|
| (459) |
Reclassification of net realized losses (gains) included in net income (loss) |
| 2,671 |
|
| (586) |
|
| 2,085 |
|
| 8,533 |
|
| (1,606) |
|
| 6,927 |
Foreign currency translation adjustments |
| 3,641 |
|
| (760) |
|
| 2,881 |
|
| 6,286 |
|
| (1,316) |
|
| 4,970 |
Reclassification of amortization of net gain (loss) included in net income (loss) |
| 1,726 |
|
| (362) |
|
| 1,364 |
|
| 4,640 |
|
| (974) |
|
| 3,666 |
Total other comprehensive income (loss) | $ | 38,960 |
| $ | (8,176) |
| $ | 30,784 |
| $ | 248,646 |
| $ | (52,085) |
| $ | 196,561 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Some amounts may not reconcile due to rounding) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents details of the amounts reclassified from AOCI for the periods indicated:
| Three Months Ended |
| Nine Months Ended |
| Affected line item within the | ||||||||
| September 30, |
| September 30, |
| statements of operations and | ||||||||
AOCI component | 2020 |
| 2019 |
| 2020 |
| 2019 |
| comprehensive income (loss) | ||||
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
URA(D) on securities | $ | (3,343) |
| $ | 2,671 |
| $ | 36,591 |
| $ | 8,533 |
| Other net realized capital gains (losses) |
|
| 738 |
|
| (586) |
|
| (7,767) |
|
| (1,606) |
| Income tax expense (benefit) |
| $ | (2,605) |
| $ | 2,085 |
| $ | 28,824 |
| $ | 6,927 |
| Net income (loss) |
Benefit plan net gain (loss) | $ | 2,285 |
| $ | 1,726 |
| $ | 5,736 |
| $ | 4,640 |
| Other underwriting expenses |
|
| (480) |
|
| (362) |
|
| (1,205) |
|
| (974) |
| Income tax expense (benefit) |
| $ | 1,806 |
| $ | 1,364 |
| $ | 4,532 |
| $ | 3,666 |
| Net income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Some amounts may not reconcile due to rounding) |
Three Months Ended | Nine Months Ended | |||||||||||||||||
September 30, | September 30, | Affected line item within the statements of | ||||||||||||||||
AOCI component | 2017 | 2016 | 2017 | 2016 | operations and comprehensive income (loss) | |||||||||||||
(Dollars in thousands) | ||||||||||||||||||
URA(D) on securities | $ | (2,454 | ) | $ | (4,258 | ) | $ | (12,719 | ) | $ | 35,515 | Other net realized capital gains (losses) | ||||||
780 | 1,491 | 4,101 | (12,430 | ) | Income tax expense (benefit) | |||||||||||||
$ | (1,674 | ) | $ | (2,767 | ) | $ | (8,618 | ) | $ | 23,085 | Net income (loss) | |||||||
Benefit plan net gain (loss) | $ | 2,107 | $ | 1,951 | $ | 8,273 | $ | 6,076 | Other underwriting expenses | |||||||||
(738 | ) | (683 | ) | (2,896 | ) | (2,127 | ) | Income tax expense (benefit) | ||||||||||
$ | 1,369 | $ | 1,268 | $ | 5,377 | $ | 3,949 | Net income (loss) | ||||||||||
(Some amounts may not reconcile due to rounding) |
The following table presents the components of accumulated other comprehensive income (loss), net of tax, in the consolidated balance sheets for the periods indicated:
| Three Months Ended |
| Nine Months Ended | ||||||||
| September 30, |
| September 30, | ||||||||
(Dollars in thousands) | 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
Beginning balance of URA (D) on securities | $ | 222,068 |
| $ | 105,436 |
| $ | 124,612 |
| $ | (55,950) |
Current period change in URA (D) of investments - non-credit related |
| 35,967 |
|
| 26,446 |
|
| 133,422 |
|
| 188,385 |
Current period change in URA (D) of investments - non-credit OTTI |
| - |
|
| 94 |
|
| - |
|
| (459) |
Ending balance of URA (D) on securities |
| 258,034 |
|
| 131,976 |
|
| 258,034 |
|
| 131,976 |
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance of foreign currency translation adjustments |
| (6,931) |
|
| (797) |
|
| 14,267 |
|
| (2,886) |
Current period change in foreign currency translation adjustments |
| 14,414 |
|
| 2,880 |
|
| (6,783) |
|
| 4,969 |
Ending balance of foreign currency translation adjustments |
| 7,483 |
|
| 2,083 |
|
| 7,483 |
|
| 2,083 |
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance of benefit plan net gain (loss) |
| (71,829) |
|
| (65,116) |
|
| (74,556) |
|
| (67,418) |
Current period change in benefit plan net gain (loss) |
| 1,806 |
|
| 1,364 |
|
| 4,532 |
|
| 3,666 |
Ending balance of benefit plan net gain (loss) |
| (70,023) |
|
| (63,752) |
|
| (70,023) |
|
| (63,752) |
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance of accumulated other comprehensive income (loss) | $ | 195,495 |
| $ | 70,307 |
| $ | 195,495 |
| $ | 70,307 |
24
Nine Months Ended | Twelve Months Ended | |||||||
September 30, | December 31, | |||||||
(Dollars in thousands) | 2017 | 2016 | ||||||
Beginning balance of URA (D) on securities | $ | 39,041 | $ | 13,654 | ||||
Current period change in URA (D) of investments - temporary | 7,759 | 22,063 | ||||||
Current period change in URA (D) of investments - non-credit OTTI | (2,583 | ) | 3,324 | |||||
Ending balance of URA (D) on securities | 44,218 | 39,041 | ||||||
Beginning balance of foreign currency translation adjustments | (9,852 | ) | (12,701 | ) | ||||
Current period change in foreign currency translation adjustments | 43,220 | 2,849 | ||||||
Ending balance of foreign currency translation adjustments | 33,368 | (9,852 | ) | |||||
Beginning balance of benefit plan net gain (loss) | (65,504 | ) | (63,089 | ) | ||||
Current period change in benefit plan net gain (loss) | 5,377 | (2,415 | ) | |||||
Ending balance of benefit plan net gain (loss) | (60,127 | ) | (65,504 | ) | ||||
Ending balance of accumulated other comprehensive income (loss) | $ | 17,459 | $ | (36,315 | ) |
8. COLLATERALIZED REINSURANCE AND TRUST AGREEMENTS
A subsidiary of the Company, Everest Re, has established a trust agreement, which effectively uses Everest Re'sRe’s investments as collateral, as security for assumed losses payable to a non-affiliated ceding company.companies. At September 30, 2017,2020, the total amount on deposit in the trust account was $659,548$849,953 thousand.
On April 24, 2014, the Company entered into two collateralized reinsurance agreements with Kilimanjaro Re Limited ("Kilimanjaro"(“Kilimanjaro”), a Bermuda based special purpose reinsurer, to provide the Company with catastrophe reinsurance coverage. These agreements are multi-year reinsurance contracts, which cover specified named storm and earthquake events. The first agreement provides up to $250,000 thousand of reinsurance coverage from named storms in specified states of the Southeastern United States. The second agreement provides up to $200,000 thousand of reinsurance coverage from named storms in specified states of the Southeast, Mid-Atlantic and Northeast regions of the United States and Puerto Rico as well as reinsurance coverage from earthquakes in specified states of the Southeast, Mid-Atlantic, Northeast and West regions of the United States, Puerto Rico and British Columbia.
On November 18, 2014, the Company entered into a collateralized reinsurance agreement with Kilimanjaro to provide the Company with catastrophe reinsurance coverage. This agreement is a multi-year reinsurance contract which covers specified earthquake events. The agreement provides up to $500,000 thousand of reinsurance coverage from earthquakes in the United States, Puerto Rico and Canada.
24
On April 13, 2017, the Company entered into six collateralized reinsurance agreements with Kilimanjaro to provide the Company with annual aggregate catastrophe reinsurance coverage. The initial three agreements are four year reinsurance contracts which cover named storm and earthquake events. These agreements provide up to $225,000 thousand, $400,000 thousand and $325,000 thousand, respectively, of annual aggregate reinsurance coverage from named storms and earthquakes in the United States, Puerto Rico and Canada. The subsequent three agreements are five year reinsurance contracts which cover named storm and earthquake events. These agreements provide up to $50,000 thousand, $75,000 thousand and $175,000 thousand, respectively, of annual aggregate reinsurance coverage from named storms and earthquakes in the United States, Puerto Rico and Canada.
On April 30, 2018, the Company entered into four collateralized reinsurance agreements with Kilimanjaro to provide the Company with catastrophe reinsurance coverage. These agreements are multi-year reinsurance contracts which cover named storm and earthquake events. The first two agreements are four year reinsurance contracts which provide up to $62,500 thousand and $200,000 thousand, respectively, of annual aggregate reinsurance coverage from named storms and earthquakes in the United States, Puerto Rico, the U.S. Virgin Islands and Canada. The remaining two agreements are five year reinsurance contracts which provide up to $62,500 thousand and $200,000 thousand, respectively, of annual aggregate reinsurance coverage from named storms and earthquakes in the United States, Puerto Rico, the U.S. Virgin Islands and Canada.
On December 12, 2019, the Company entered into four collateralized reinsurance agreements with Kilimanjaro to provide the Company with catastrophe reinsurance coverage. These agreements are multi-year reinsurance contracts which cover named storm and earthquake events. The first two agreements are four year reinsurance contracts which provide up to $150,000 thousand and $275,000 thousand, respectively, of annual aggregate reinsurance coverage from named storms and earthquakes in the United States, Puerto Rico, the U.S. Virgin Islands and Canada. The remaining two agreements are five year reinsurance contracts which provide up to $150,000 thousand and $275,000 thousand, respectively, of annual aggregate
25
reinsurance coverage from named storms and earthquakes in the United State, Puerto Rico, the U.S. Virgin Islands and Canada.
Recoveries under these collateralized reinsurance agreements with Kilimanjaro are primarily dependent on estimated industry level insured losses from covered events, as well as, the geographic location of the events. The estimated industry level of insured losses is obtained from published estimates by an independent recognized authority on insured property losses. As of September 30, 2017,Currently, none of the published insured loss estimates for the 2017 catastrophe events during the applicable covered periods of the various agreements have exceeded the single event retentions or aggregate retentions under the terms of the agreements that would result in a recovery. In addition, the aggregation of the to date published insured loss estimates for the 2017 covered events have not exceeded the aggregated retentions for recovery. However, if the published estimates for insured losses for the covered 2017 events increase or if there are additional covered events during the remainder of 2017, the aggregate losses may exceed the aggregate event retentions under the agreements, resulting in a recovery.
Kilimanjaro has financed the various property catastrophe reinsurance coverages by issuing catastrophe bonds to unrelated, external investors. On April 24, 2014, Kilimanjaro issued $450,000 thousand of notes ("(“Series 2014-1 Notes"Notes”). The $450,000 thousand of Series 2014-1 Notes were fully redeemed on April 30, 2018 and are no longer outstanding. On November 18, 2014, Kilimanjaro issued $500,000 thousand of notes ("(“Series 2014-2 Notes"Notes”). The $500,000 thousand of Series 2014-2 Notes were fully redeemed in November 2019 and are no longer outstanding. On December 1, 2015, Kilimanjaro issued $625,000 thousand of notes ("(“Series 2015-1 Notes). On April 13, 2017, Kilimanjaro issued $950,000 thousand of notes ("(“Series 2017-1 Notes) and $300,000 thousand of notes ("(“Series 2017-2 Notes). On April 30, 2018, Kilimanjaro issued $262,500 thousand of notes (“Series 2018-1 Notes”) and $262,500 thousand of notes (“Series 2018-2 Notes”). On December 12, 2019 Kilimanjaro issued $425,000 thousand of notes (“Series 2019-1 Notes”) and $425,000 thousand of notes (“Series 2019-2 Notes’”). The proceeds from the issuance of the Notes listed above are held in reinsurance trust throughout the duration of the applicable reinsurance agreements and invested solely in US government money market funds with a rating of at least "AAAm"“AAAm” by Standard & Poor's.
The table below displays Holdings'Holdings’ outstanding senior notes. Market value is based on quoted market prices, but due to limited trading activity, these senior notes are considered Level 2 in the fair value hierarchy.
|
|
|
|
|
|
| September 30, 2020 |
| December 31, 2019 | ||||||||
|
|
|
|
|
|
| Consolidated |
|
|
|
| Consolidated |
|
|
| ||
|
|
|
|
| Principal |
| Balance Sheet |
| Market |
| Balance Sheet |
| Market | ||||
(Dollars in thousands) | Date Issued |
| Date Due |
| Amounts |
| Amount |
| Value |
| Amount |
| Value | ||||
Senior notes | 06/05/2014 |
| 06/01/2044 |
| 400,000 |
| $ | 397,164 |
| $ | 460,252 |
| $ | 397,074 |
| $ | 452,848 |
September 30, 2017 | December 31, 2016 | ||||||||||||||||||||||
Consolidated Balance | Consolidated Balance | ||||||||||||||||||||||
(Dollars in thousands) | Date Issued | Date Due | Principal Amounts | Sheet Amount | Market Value | Sheet Amount | Market Value | ||||||||||||||||
4.868% Senior notes | 06/05/2014 | 06/01/2044 | 400,000 | $ | 396,804 | $ | 420,008 | $ | 396,714 | $ | 383,612 |
On June 5, 2014, Holdings issued $400,000 thousand of 30 year senior notes at 4.868%4.868%, which will mature on June 1, 2044.2044. Interest will be paid semi-annually on June 1 and December 1 of each year.
Interest expense incurred in connection with these senior notes is as follows for the periods indicated:
| Three Months Ended |
| NIne Months Ended | ||||||||
| September 30, |
| September 30, | ||||||||
(Dollars in thousands) | 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
Interest expense incurred | $ | 4,868 |
| $ | 4,868 |
| $ | 14,604 |
| $ | 14,604 |
In addition to the above senior notes outstanding, Holdings issued $1,000,000 thousand of 30 year senior notes on October 7, 2020 at an interest rate of 3.5%. These senior notes will mature on October 15, 2050 and will pay interest semi-annually on April 15th and October 15th of each year.
26
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
(Dollars in thousands) | 2017 | 2016 | 2017 | 2016 | ||||||||||||
Interest expense incurred | $ | 4,868 | $ | 4,868 | $ | 14,604 | $ | 14,604 |
10. LONG TERM SUBORDINATED NOTES
The table below displays Holdings'Holdings’ outstanding fixed to floating rate long term subordinated notes. Market value is based on quoted market prices, but due to limited trading activity, these subordinated notes are considered Level 2 in the fair value hierarchy.
|
|
|
|
|
|
|
|
|
| September 30, 2020 |
| December 31, 2019 | ||||||||
|
|
| Original |
|
|
|
|
| Consolidated |
|
|
|
| Consolidated |
|
|
| |||
|
|
| Principal |
| Maturity Date |
| Balance |
| Market |
| Balance |
| Market | |||||||
(Dollars in thousands) | Date Issued |
| Amount |
| Scheduled |
| Final |
| Sheet Amount |
| Value |
| Sheet Amount |
| Value | |||||
Long term subordinated notes | 04/26/2007 |
| $ | 400,000 |
| 05/15/2037 |
| 05/01/2067 |
| $ | 223,649 |
| $ | 191,301 |
| $ | 236,758 |
| $ | 233,191 |
Maturity Date | September 30, 2017 | December 31, 2016 | |||||||||||||||||||||||
Original | Consolidated Balance | Consolidated Balance | |||||||||||||||||||||||
(Dollars in thousands) | Date Issued | Principal Amount | Scheduled | Final | Sheet Amount | Market Value | Sheet Amount | Market Value | |||||||||||||||||
6.6% Long term subordinated notes | 04/26/2007 | $ | 400,000 | 05/15/2037 | 05/01/2067 | $ | 236,536 | $ | 221,380 | $ | 236,462 | $ | 204,636 |
During the fixed rate interest period from May 3, 2007 through May 14, 2017, interest was at the annual rate of 6.6%6.6%, payable semi-annually in arrears on November 15 and May 15 of each year, commencing on November 15, 2007. During the floating rate interest period from May 15, 2017 through maturity, interest will be based on the 3 month LIBOR plus 238.5 basis points, reset quarterly, payable quarterly in arrears on February 15, May 15, August 15 and November 15 of each year, subject to Holdings'Holdings’ right to defer interest on one or more occasions for up to ten consecutive years. Deferred interest will accumulate interest at the applicable rate compounded quarterly for periods from and including AugustMay 15, 2017. The reset quarterly interest rate for November 15, 2017August 17, 2020 to November 15, 20172020 is 3.70%2.67%.
Holdings may redeem the long term subordinated notes on or after May 15, 2017, in whole or in part at 100%100% of the principal amount plus accrued and unpaid interest; however, redemption on or after the scheduled maturity date and prior to May 1, 2047 is subject to a replacement capital covenant. This covenant is for the benefit of certain senior note holders and it mandates that Holdings receive proceeds from the sale of another subordinated debt issue, of at least similar size, before it may redeem the subordinated notes. Effective upon the maturity of the Company's 5.40%Company’s 5.40% senior notes on October 15, 2014, the Company's 4.868%Company’s 4.868% senior notes, due on June 1, 2044, have become the Company'sCompany’s long term indebtedness that ranks senior to the long term subordinated notes.
The Company repurchased and retired $0 thousand and $13,183 thousand of its outstanding long term subordinated notes during the three and nine months ended September 30, 2020, respectively. The Company realized a gain of $0 thousand and $2,536 thousand from the repurchase of the long term subordinated notes during the three and nine months ended September 30, 2020, respectively.
On March 19, 2009, Group announced the commencement of a cash tender offer for any and all of the 6.60%6.60% fixed to floating rate long term subordinated notes. Upon expiration of the tender offer, the Company had reduced its outstanding debt by $161,441 thousand.
Interest expense incurred in connection with these long term subordinated notes is as follows for the periods indicated:
| Three Months Ended |
| NIne Months Ended | ||||||||
| September 30, |
| September 30, | ||||||||
(Dollars in thousands) | 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
Interest expense incurred | $ | 1,587 |
| $ | 2,881 |
| $ | 6,126 |
| $ | 8,892 |
11. FEDERAL HOME LOAN BANK MEMBERSHIP
Effective August 15, 2019, Everest Reinsurance Company (“Everest Re”) became a member of the Federal Home Loan Bank of New York (“FHLBNY”), which allows Everest Re to borrow up to 10% of its statutory admitted assets. As of September 30, 2020, Everest Re had admitted assets of approximately $14,667,099 thousand which provides borrowing capacity of up to approximately $1,466,709 thousand.
On August 31, 2020, Everest Re borrowed $90,000 thousand under its FHLBNY available capacity. The $90,000 thousand collateralized borrowing has interest payable at a rate of 0.35% and will mature on
27
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
(Dollars in thousands) | 2017 | 2016 | 2017 | 2016 | ||||||||||||
Interest expense incurred | $ | 2,240 | $ | 3,937 | $ | 9,210 | $ | 11,811 |
November 30, 2020. The FHLBNY membership agreement requires that 4.5% of borrowed funds be used to acquire additional membership stock.
Effective January 1, 2019, the Company adopted ASU 2016-02 and ASU 2018-11 which outline new guidance on the accounting for leases. The Company enters into lease agreements for real estate that is primarily used for office space in the ordinary course of business. These leases are accounted for as operating leases, whereby lease expense is recognized on a straight-line basis over the term of the lease. Most leases include an option to extend or renew the lease term. The exercise of the renewal is at the Company’s discretion. The operating lease liability includes lease payments related to options to extend or renew the lease term if the Company is reasonably certain of exercise those options. The Company, in determining the present value of lease payments utilizes either the rate implicit in the lease if that rate is readily determinable or the Company’s incremental secured borrowing rate commensurate with terms of the underlying lease.
Supplemental information related to operating leases is as follows for the periods indicated:
| Three Months Ended |
| Nine Months Ended | ||||||||
(Dollars in thousands) | September 30, |
| September 30, | ||||||||
| 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
Lease expense incurred: |
|
|
|
|
|
|
|
|
|
|
|
Operating lease cost | $ | 7,591 |
| $ | 4,791 |
| $ | 22,263 |
| $ | 14,146 |
(Dollars in thousands) | At September 30, 2020 |
| At December 31, 2019 | ||
Operating lease right of use assets | $ | 139,972 |
| $ | 152,978 |
Operating lease liabilities |
| 153,322 |
|
| 160,387 |
| Three Months Ended |
| Nine Months Ended | ||||||||
(Dollars in thousands) | September 30, |
| September 30, | ||||||||
| 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
Operating cash flows from operating leases | $ | (4,538) |
| $ | (4,297) |
| $ | (13,396) |
| $ | (12,914) |
| At September 30, 2020 |
| At December 31, 2019 | ||
Weighted average remaining operating lease term | 12.6 years |
| 12.8 years |
| |
Weighted average discount rate on operating leases | 4.03 | % | 3.91 | % | |
Maturities of the existing lease liabilities are expected to occur as follows:
(Dollars in thousands) |
|
|
Remainder of 2020 | $ | 4,582 |
2021 |
| 16,181 |
2022 |
| 18,615 |
2023 |
| 18,202 |
2024 |
| 18,208 |
2025 |
| 15,217 |
Thereafter |
| 116,149 |
Undiscounted lease payments |
| 207,154 |
Less: present value adjustment |
| 53,832 |
Total operating lease liability | $ | 153,322 |
On July 2, 2019, the Company entered into a lease agreement to relocate its corporate offices from Liberty Corner, New Jersey to a corporate complex in Warren, New Jersey. The new lease, which covers approximately 315,000 square feet of office space, was effective October 1, 2019 and runs through 2036. The initial base rent payment of the lease will be approximately $650 thousand per month or $7,800 thousand per year. The
28
Company expects to relocate the existing operations and employees of the Liberty Corner, New Jersey facility to the new corporate complex during 2021.
The U.S. Reinsurance operation writes worldwide property and casualty reinsurance and specialty lines of business, including Marine, Aviation, Surety and Accident and Health ("A&H") business, on both a treaty and facultative basis, through reinsurance brokers, as well as directly with ceding companies primarily withincompanies. Business is written in the U.S. The International operation writes non-U.S. property and casualty reinsuranceUnited States as well as through Everest Re's branches in Canada Singapore and through offices in Brazil, Miami and New Jersey.Singapore. The Insurance operation writes property and casualty insurance directly and through brokers, surplus lines brokers and general agents mainly within the U.S.
These segments are managed independently, but conform with corporate guidelines with respect to pricing, risk management, control of aggregate catastrophe exposures, capital, investments and support operations. Management generally monitors and evaluates the financial performance of these operating segments based upon their underwriting results.
Underwriting results include earned premium less losses and loss adjustment expenses ("LAE")LAE incurred, commission and brokerage expenses and other underwriting expenses. We measure our underwriting results using ratios, in particular loss, commission and brokerage and other underwriting expense ratios, which, respectively, divide incurred losses, commissions and brokerage and other underwriting expenses by premiums earned.
The Company does not maintain separate balance sheet data for its operating segments. Accordingly, the Company does not review and evaluate the financial results of its operating segments based upon balance sheet data.
The following tables present the underwriting results for the operating segments for the periods indicated:
| Three Months Ended |
| Nine Months Ended | ||||||||
Reinsurance | September 30, |
| September 30, | ||||||||
(Dollars in thousands) | 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
Gross written premiums | $ | 1,473,266 |
| $ | 1,297,228 |
| $ | 3,906,355 |
| $ | 3,464,773 |
Net written premiums |
| 1,296,107 |
|
| 1,141,437 |
|
| 3,403,090 |
|
| 2,955,349 |
|
|
|
|
|
|
|
|
|
|
|
|
Premiums earned | $ | 1,153,740 |
| $ | 996,545 |
| $ | 3,223,608 |
| $ | 2,852,045 |
Incurred losses and LAE |
| 936,904 |
|
| 800,711 |
|
| 2,250,270 |
|
| 1,935,706 |
Commission and brokerage |
| 265,095 |
|
| 297,499 |
|
| 818,282 |
|
| 793,027 |
Other underwriting expenses |
| 35,697 |
|
| 30,406 |
|
| 92,143 |
|
| 79,822 |
Underwriting gain (loss) | $ | (83,956) |
| $ | (132,071) |
| $ | 62,913 |
| $ | 43,490 |
| Three Months Ended |
| Nine Months Ended | ||||||||
Insurance | September 30, |
| September 30, | ||||||||
(Dollars in thousands) | 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
Gross written premiums | $ | 591,695 |
| $ | 592,775 |
| $ | 1,971,818 |
| $ | 1,798,149 |
Net written premiums |
| 429,594 |
|
| 428,518 |
|
| 1,462,869 |
|
| 1,326,714 |
|
|
|
|
|
|
|
|
|
|
|
|
Premiums earned | $ | 461,717 |
| $ | 431,855 |
| $ | 1,424,814 |
| $ | 1,222,432 |
Incurred losses and LAE |
| 340,947 |
|
| 297,382 |
|
| 1,032,926 |
|
| 801,705 |
Commission and brokerage |
| 57,309 |
|
| 60,182 |
|
| 182,925 |
|
| 169,647 |
Other underwriting expenses |
| 73,669 |
|
| 65,287 |
|
| 212,562 |
|
| 177,604 |
Underwriting gain (loss) | $ | (10,208) |
| $ | 9,004 |
| $ | (3,599) |
| $ | 73,476 |
Three Months Ended | Nine Months Ended | |||||||||||||||
U.S. Reinsurance | September 30, | September 30, | ||||||||||||||
(Dollars in thousands) | 2017 | 2016 | 2017 | 2016 | ||||||||||||
Gross written premiums | $ | 908,346 | $ | 654,770 | $ | 1,962,297 | $ | 1,597,006 | ||||||||
Net written premiums | 295,645 | 327,242 | 649,883 | 711,700 | ||||||||||||
Premiums earned | $ | 242,350 | $ | 249,203 | $ | 652,953 | $ | 709,064 | ||||||||
Incurred losses and LAE | 678,926 | 137,245 | 919,107 | 363,567 | ||||||||||||
Commission and brokerage | 31,698 | 48,107 | 115,243 | 147,968 | ||||||||||||
Other underwriting expenses | 12,094 | 14,265 | 40,623 | 39,856 | ||||||||||||
Underwriting gain (loss) | $ | (480,368 | ) | $ | 49,586 | $ | (422,020 | ) | $ | 157,673 |
29
Three Months Ended | Nine Months Ended | |||||||||||||||
International | September 30, | September 30, | ||||||||||||||
(Dollars in thousands) | 2017 | 2016 | 2017 | 2016 | ||||||||||||
Gross written premiums | $ | 363,186 | $ | 353,195 | $ | 975,296 | $ | 939,851 | ||||||||
Net written premiums | 130,180 | 141,295 | 345,387 | 353,449 | ||||||||||||
Premiums earned | $ | 123,915 | $ | 128,358 | $ | 355,366 | $ | 372,816 | ||||||||
Incurred losses and LAE | 410,543 | 41,830 | 557,416 | 206,672 | ||||||||||||
Commission and brokerage | 25,101 | 30,193 | 72,426 | 82,443 | ||||||||||||
Other underwriting expenses | 8,241 | 9,219 | 26,293 | 25,011 | ||||||||||||
Underwriting gain (loss) | $ | (319,970 | ) | $ | 47,116 | $ | (300,769 | ) | $ | 58,690 |
Three Months Ended | Nine Months Ended | |||||||||||||||
Insurance | September 30, | September 30, | ||||||||||||||
(Dollars in thousands) | 2017 | 2016 | 2017 | 2016 | ||||||||||||
Gross written premiums | $ | 429,593 | $ | 497,958 | $ | 1,351,491 | $ | 1,276,761 | ||||||||
Net written premiums | 144,935 | 154,079 | 442,237 | 462,791 | ||||||||||||
Premiums earned | $ | 152,242 | $ | 179,092 | $ | 449,440 | $ | 445,553 | ||||||||
Incurred losses and LAE | 242,089 | 122,528 | 441,985 | 365,962 | ||||||||||||
Commission and brokerage | (22,254 | ) | 4,478 | (40,104 | ) | (10,859 | ) | |||||||||
Other underwriting expenses | 37,378 | 40,665 | 114,889 | 116,839 | ||||||||||||
Underwriting gain (loss) | $ | (104,971 | ) | $ | 11,421 | $ | (67,330 | ) | $ | (26,389 | ) |
The following table reconciles the underwriting results for the operating segments to income (loss) before taxes as reported in the consolidated statements of operations and comprehensive income (loss) for the periods indicated:
| Three Months Ended |
| Nine Months Ended | ||||||||
| September 30, |
| September 30, | ||||||||
(Dollars in thousands) | 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
Underwriting gain (loss) | $ | (94,164) |
| $ | (123,067) |
| $ | 59,314 |
| $ | 116,966 |
Net investment income |
| 135,428 |
|
| 95,592 |
|
| 244,782 |
|
| 270,835 |
Net realized capital gains (losses) |
| 115,193 |
|
| 112,542 |
|
| (107,300) |
|
| 390,161 |
Corporate expense |
| (4,206) |
|
| (3,183) |
|
| (11,441) |
|
| (7,353) |
Interest, fee and bond issue cost amortization expense |
| (6,535) |
|
| (7,802) |
|
| (20,917) |
|
| (27,314) |
Other income (expense) |
| (1,790) |
|
| (2,673) |
|
| (11,410) |
|
| (8,459) |
Income (loss) before taxes | $ | 143,926 |
| $ | 71,409 |
| $ | 153,028 |
| $ | 734,836 |
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
(Dollars in thousands) | 2017 | 2016 | 2017 | 2016 | ||||||||||||
Underwriting gain (loss) | $ | (905,309 | ) | $ | 108,123 | $ | (790,119 | ) | $ | 189,974 | ||||||
Net investment income | 73,417 | 64,570 | 206,166 | 196,887 | ||||||||||||
Net realized capital gains (losses) | 228,489 | (50,063 | ) | 253,966 | (87,275 | ) | ||||||||||
Corporate expense | (1,132 | ) | (1,835 | ) | (6,241 | ) | (6,181 | ) | ||||||||
Interest, fee and bond issue cost amortization expense | (7,161 | ) | (8,859 | ) | (23,974 | ) | (26,576 | ) | ||||||||
Other income (expense) | 1,486 | (13,208 | ) | 21,996 | (10,806 | ) | ||||||||||
Income (loss) before taxes | $ | (610,210 | ) | $ | 98,728 | $ | (338,206 | ) | $ | 256,023 |
The Company produces business in the U.S. and internationally. The net income deriving from assets residing in the individual foreign countries in which the Company writes business are not identifiable in the Company'sCompany’s financial records. Based on gross written premium, the table below presents the largest country, other than the U.S., in which the Company writes business, for the periods indicated:
| Three Months Ended |
| Nine Months Ended | ||||||||
| September 30, |
| September 30, | ||||||||
(Dollars in thousands) | 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
Canada gross written premiums | $ | 65,785 |
| $ | 52,136 |
| $ | 200,443 |
| $ | 138,392 |
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
(Dollars in thousands) | 2017 | 2016 | 2017 | 2016 | ||||||||||||
Canada gross written premiums | $ | 30,625 | $ | 35,856 | $ | 94,777 | $ | 94,072 |
Parent
Group entered into a $300,000 thousand long term note agreement with Everest Re as of December 17, 2019. The note will pay interest annually at a rate of 1.69% and is scheduled to mature in December, 2028. This transaction is presented as a Note Receivable – Affiliated in the Consolidated Balance Sheet of Holdings. The Company recognized interest income related to this long term note of $1,296 thousand and $0 thousand for the three months ended September 30, 2020 and 2019, respectively and $3,859 thousand and $0 thousand for the nine months ended September 30, 2020 and 2019, respectively.
Group entered into a $250,000 thousand long term promissory note agreement with Holdings as of December 31, 2014. The note will mature onwas repaid in December 31, 2023 and has an interest rate of 1.72% that is payable annually. This transaction is presented as a Note Receivable – Affiliated in the Consolidated Balance Sheets of Holdings. Interest income in the amount of $3,225 thousand and $3,225 thousand was recorded by Holdings for the nine months ended September 2018.
30 2017, and September 30, 2016, respectively.
Group’s Board of Directors approved an amended share repurchase program authorizing Group and/or its subsidiary Holdings to purchase Group'sGroup’s common shares through open market transactions, privately negotiated transactions or both. The table below represents the amendments to the share repurchase program for the common shares approved for repurchase.
Common | ||
Shares | ||
Authorized for | ||
Amendment Date | Repurchase | |
(Dollars in thousands) | ||
09/21/2004 | 5,000,000 | |
07/21/ | 5,000,000 | |
02/24/2010 | 5,000,000 | |
02/ | 5,000,000 | |
05/15/2013 | 5,000,000 | |
11/19/2014 | 5,000,000 | |
05/22/2020 | 2,000,000 | |
32,000,000 |
In December, 2015, Holdings transferred the 9,719,971 Common Shares of Group, which it held as other invested assets, at fair value, valued at $1,773,214 thousand, to Preferred Holdings, an affiliated entity and subsidiary of Group, in exchange for 1,773.214 preferred shares of Preferred Holdings with a $1,000 thousand par value and 1.75%1.75% annual dividend rate. After the exchange, Holdings no longer holds any shares or has any ownership interest in Group.
Holdings has reported both its Parent shares andthe preferred shares in Preferred Holdings, as other invested assets, fair value, in the consolidated balance sheets with changes in fair value re-measurement recorded in net realized capital gains (losses) in the consolidated statements of operations and comprehensive income (loss). The following table presents the dividends received on the preferred shares of Preferred Holdings and on the Parent shares that are reported as net investment income in the consolidated statements of operations and comprehensive income (loss) for the period indicated.
| Three Months Ended |
| Nine Months Ended | ||||||||
| September 30, |
| September 30, | ||||||||
(Dollars in thousands) | 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
Dividends received on preferred stock of affiliate | $ | 7,758 |
| $ | 7,758 |
| $ | 23,274 |
| $ | 23,274 |
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
(Dollars in thousands) | 2017 | 2016 | 2017 | 2016 | ||||||||||||
Dividends received on preferred stock of affiliate | $ | 7,758 | $ | 7,758 | $ | 23,274 | $ | 23,274 |
Effective December 31, 2018, Holdings entered into a $300,000 thousand long-term promissory note agreement with Bermuda Re. The note was repaid in May, 2019. Interest expense of $0 thousand and $3,658 thousand was recorded by Holdings for the three and nine months ended September 30, 2019, respectively.
Effective October 1, 2018, Holdings Ireland made a capital contribution of Global Services, Inc. ("an affiliated entity, to Holdings. Global Services"),Services had an affiliateequity value of Holdings, provides centralized management$227,253 thousand at the time of contribution and home office services, through a management agreement, to Holdings and other affiliated companies within Holdings'that value is classified as additional paid in capital in the Company’s consolidated structure. Services provided by Everest Global include executive managerial services, legal services, actuarial services, accounting services, information technology services and others.balance sheets.
31
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
(Dollars in thousands) | 2017 | 2016 | 2017 | 2016 | ||||||||||||
Expenses incurred | $ | 25,465 | $ | 21,242 | $ | 71,694 | $ | 62,701 |
29Affiliates
The table below represents affiliated quota share reinsurance agreements ("whole account quota share") for all new and renewal business for the indicated coverage period:
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Single |
|
|
|
|
|
|
| Percent |
| Assuming |
|
|
| Occurrence |
| Aggregate |
| |
Coverage Period |
| Ceding Company |
| Ceded |
| Company |
| Type of Business |
| Limit |
| Limit |
| |
01/01/2010-12/31/2010 |
| Everest Re |
| 44.0 | % |
| Bermuda Re |
| property / casualty business |
| 150,000 |
| 325,000 |
|
01/01/2011-12/31/2011 |
| Everest Re |
| 50.0 | % |
| Bermuda Re |
| property / casualty business |
| 150,000 |
| 300,000 |
|
01/01/2012-12/31/2014 |
| Everest Re |
| 50.0 | % |
| Bermuda Re |
| property / casualty business |
| 100,000 |
| 200,000 |
|
01/01/2015-12/31/2016 |
| Everest Re |
| 50.0 | % |
| Bermuda Re |
| property / casualty business |
| 162,500 |
| 325,000 |
|
01/01/2017-12/31/2017 |
| Everest Re |
| 60.0 | % |
| Bermuda Re |
| property / casualty business |
| 219,000 |
| 438,000 |
|
01/01/2010-12/31/2010 |
| Everest Re- Canadian Branch |
| 60.0 | % |
| Bermuda Re |
| property business |
| 350,000 | (1) | - |
|
01/01/2011-12/31/2011 |
| Everest Re- Canadian Branch |
| 60.0 | % |
| Bermuda Re |
| property business |
| 350,000 | (1) | - |
|
01/01/2012-12/31/2012 |
| Everest Re- Canadian Branch |
| 75.0 | % |
| Bermuda Re |
| property / casualty business |
| 206,250 | (1) | 412,500 | (1) |
01/01/2013-12/31/2013 |
| Everest Re- Canadian Branch |
| 75.0 | % |
| Bermuda Re |
| property / casualty business |
| 150,000 | (1) | 412,500 | (1) |
01/01/2014-12/31/2017 |
| Everest Re- Canadian Branch |
| 75.0 | % |
| Bermuda Re |
| property / casualty business |
| 262,500 | (1) | 412,500 | (1) |
01/01/2012-12/31/2017 |
| Everest Canada |
| 80.0 | % |
| Everest Re- Canadian Branch |
| property business |
| - |
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Amounts shown are Canadian dollars. |
(Dollars in thousands) | |||||||||||||||
Percent | Assuming | Single | Aggregate | ||||||||||||
Coverage Period | Ceding Company | Ceded | Company | Type of Business | Occurrence Limit | Limit | |||||||||
01/01/2010-12/31/2010 | Everest Re | 44.0% | Bermuda Re | property / casualty business | 150,000 | 325,000 | |||||||||
01/01/2011-12/31/2011 | Everest Re | 50.0% | Bermuda Re | property / casualty business | 150,000 | 300,000 | |||||||||
01/01/2012-12/31/2014 | Everest Re | 50.0% | Bermuda Re | property / casualty business | 100,000 | 200,000 | |||||||||
01/01/2015-12/31/2016 | Everest Re | 50.0% | Bermuda Re | property / casualty business | 162,500 | 325,000 | |||||||||
01/01/2017 | Everest Re | 60.0% | Bermuda Re | property / casualty business | 219,000 | 438,000 | |||||||||
01/01/2010-12/31/2010 | Everest Re- Canadian Branch | 60.0% | Bermuda Re | property business | 350,000 | (1) | - | ||||||||
01/01/2011-12/31/2011 | Everest Re- Canadian Branch | 60.0% | Bermuda Re | property business | 350,000 | (1) | - | ||||||||
01/01/2012-12/31/2012 | Everest Re- Canadian Branch | 75.0% | Bermuda Re | property / casualty business | 206,250 | (1) | 412,500 | (1) | |||||||
01/01/2013-12/31/2013 | Everest Re- Canadian Branch | 75.0% | Bermuda Re | property / casualty business | 150,000 | (1) | 412,500 | (1) | |||||||
01/01/2014 | Everest Re- Canadian Branch | 75.0% | Bermuda Re | property / casualty business | 262,500 | (1) | 412,500 | (1) | |||||||
01/01/2012 | Everest Canada | 80.0% | Everest Re- Canadian Branch | property business | - | - | |||||||||
(1) Amounts shown are Canadian dollars. |
Effective January 1, 2018, Everest Re entered into a twelve month whole account aggregate stop loss reinsurance contract (“stop loss agreement”) with Bermuda Re. The stop loss agreement provides coverage for ultimate net losses on applicable net earned premiums above a retention level, subject to certain other coverage limits and conditions. The stop loss agreement was most recently renewed effective January 1, 2020.
In addition, Everest Re entered into a property catastrophe excess of loss reinsurance contract with Bermuda Re, effective January 1, 2019. The contract provides $100,000 thousand of reinsurance coverage for property catastrophe losses above certain attachment points. This agreement expired on December 31, 2019 and was not renewed.
The table below represents loss portfolio transfer (“LPT”) reinsurance agreements whereby net insurance exposures and reserves were transferred to an affiliate.
(Dollars in thousands) | |||||||||||
Effective |
| Transferring |
| Assuming |
|
| % of Business or |
|
| Covered Period | |
Date |
| Company |
| Company |
|
| Amount of Transfer |
|
| of Transfer | |
10/01/2001 |
| Everest Re (Belgium Branch) |
| Bermuda Re |
|
| 100 | % |
|
| All years |
10/01/2008 |
| Everest Re |
| Bermuda Re |
| $ | 747,022 |
|
|
| 01/01/2002-12/31/2007 |
12/31/2017 |
| Everest Re |
| Bermuda Re |
| $ | 970,000 |
|
|
| All years |
Effective | Transferring | Assuming | % of Business or | Covered Period | ||||||
Date | Company | Company | Amount of Transfer | of Transfer | ||||||
09/19/2000 | Mt. McKinley | Bermuda Re | 100 | % | All years | |||||
10/01/2001 | Everest Re (Belgium Branch) | Bermuda Re | 100 | % | All years | |||||
10/01/2008 | Everest Re | Bermuda Re | $ | 747,022 | 01/01/2002-12/31/2007 |
On July 13, 2015,December 31, 2017, the Company sold Mt. McKinleyentered into a LPT agreement with Bermuda Re. The LPT agreement covers subject loss reserves of $2,336,242 thousand for accident years 2017 and prior. As a result of the LPT agreement, the Company transferred $1,000,000 thousand of cash and fixed maturity securities and transferred $970,000 thousand of loss reserves to Clearwater Insurance Company, a Delaware domiciled insurance company.Bermuda Re. As part of that date, Mt. McKinley is no longer deemedthe LPT agreement, Bermuda Re will provide an affiliated company or related party.additional $500,000 thousand of adverse development coverage on the subject loss reserves.
32
The following tables summarize the premiums and losses ceded by the Company to Bermuda Re and Everest International, respectively, and premiums and losses assumed by the Company from Everest Canada and Lloyd'sLloyd’s syndicate 2786 for the periods indicated:
| Three Months Ended |
| Nine Months Ended | ||||||||
Bermuda Re | September 30, |
| September 30, | ||||||||
(Dollars in thousands) | 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
Ceded written premiums | $ | 32,224 |
| $ | 14,660 |
| $ | 94,393 |
| $ | 85,667 |
Ceded earned premiums |
| 32,273 |
|
| 16,510 |
|
| 94,587 |
|
| 85,632 |
Ceded losses and LAE |
| 12,573 |
|
| (16,836) |
|
| 2,622 |
|
| (8,521) |
| Three Months Ended |
| Nine Months Ended | ||||||||
Everest International | September 30, |
| September 30, | ||||||||
(Dollars in thousands) | 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
Ceded written premiums | $ | - |
| $ | - |
| $ | - |
| $ | - |
Ceded earned premiums |
| - |
|
| - |
|
| - |
|
| - |
Ceded losses and LAE |
| - |
|
| 10 |
|
| 16 |
|
| (26) |
Three Months Ended | Nine Months Ended | |||||||||||||||
Bermuda Re | September 30, | September 30, | ||||||||||||||
(Dollars in thousands) | 2017 | 2016 | 2017 | 2016 | ||||||||||||
Ceded written premiums | $ | 911,866 | $ | 685,798 | $ | 2,228,538 | $ | 1,746,976 | ||||||||
Ceded earned premiums | 796,194 | 585,993 | 2,005,965 | 1,718,295 | ||||||||||||
Ceded losses and LAE (a) | 650,460 | 344,789 | 1,379,164 | 1,039,932 |
| Three Months Ended |
| Nine Months Ended | ||||||||
Everest Canada | September 30, |
| September 30, | ||||||||
(Dollars in thousands) | 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
Assumed written premiums | $ | - |
| $ | - |
| $ | 1 |
| $ | - |
Assumed earned premiums |
| - |
|
| - |
|
| (7) |
|
| - |
Assumed losses and LAE |
| (1,709) |
|
| (1,633) |
|
| (1,059) |
|
| (938) |
Three Months Ended | Nine Months Ended | |||||||||||||||
Everest International | September 30, | September 30, | ||||||||||||||
(Dollars in thousands) | 2017 | 2016 | 2017 | 2016 | ||||||||||||
Ceded written premiums | $ | 21 | $ | (5 | ) | $ | (4 | ) | $ | 26 | ||||||
Ceded earned premiums | 38 | (3 | ) | 13 | 36 | |||||||||||
Ceded losses and LAE | (13 | ) | 479 | (631 | ) | 1,377 |
| Three Months Ended |
| Nine Months Ended | ||||||||
Lloyd's Syndicate 2786 | September 30, |
| September 30, | ||||||||
(Dollars in thousands) | 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
Assumed written premiums | $ | (1,743) |
| $ | 24 |
| $ | (4,144) |
| $ | (8,702) |
Assumed earned premiums |
| (1,743) |
|
| 850 |
|
| (3,926) |
|
| (16,380) |
Assumed losses and LAE |
| 293 |
|
| 1,141 |
|
| (331) |
|
| (2,386) |
Three Months Ended | Nine Months Ended | |||||||||||||||
Everest Canada | September 30, | September 30, | ||||||||||||||
(Dollars in thousands) | 2017 | 2016 | 2017 | 2016 | ||||||||||||
Assumed written premiums | $ | 13,028 | $ | 12,667 | $ | 39,008 | $ | 39,094 | ||||||||
Assumed earned premiums | 13,464 | 11,611 | 38,201 | 34,740 | ||||||||||||
Assumed losses and LAE | 7,448 | 13,287 | 21,418 | 34,714 |
Three Months Ended | Nine Months Ended | |||||||||||||||
Lloyd's Syndicate 2786 | September 30, | September 30, | ||||||||||||||
(Dollars in thousands) | 2017 | 2016 | 2017 | 2016 | ||||||||||||
Assumed written premiums | $ | 15,984 | $ | 351 | $ | 34,069 | $ | 890 | ||||||||
Assumed earned premiums | 15,042 | 173 | 31,766 | 289 | ||||||||||||
Assumed losses and LAE | 7,893 | - | 16,157 | - |
In 2013, Group established a new subsidiary, Mt. Logan Re, which is a Class 3 insurer based in Bermuda. Effective July 1, 2013, Mt. Logan Re then established separate segregated accounts for its business activity, which will invest in a diversified set of catastrophe exposures.
The following table summarizes the premiums and losses that are ceded by the Company to Mt. Logan Re segregated accounts and assumed by the Company from Mt. Logan Re segregated accounts.
| Three Months Ended |
| Nine Months Ended | ||||||||
Mt. Logan Re Segregated Accounts | September 30, |
| September 30, | ||||||||
(Dollars in thousands) | 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
Ceded written premiums | $ | 74,215 |
| $ | 79,152 |
| $ | 211,429 |
| $ | 193,664 |
Ceded earned premiums |
| 62,543 |
|
| 69,942 |
|
| 202,810 |
|
| 176,576 |
Ceded losses and LAE |
| 68,879 |
|
| 81,136 |
|
| 143,179 |
|
| 145,918 |
Assumed written premiums |
| - |
|
| - |
|
| - |
|
| - |
Assumed earned premiums |
| - |
|
| - |
|
| - |
|
| - |
Assumed losses and LAE |
| - |
|
| - |
|
| - |
|
| - |
Three Months Ended | Nine Months Ended | |||||||||||||||
Mt. Logan Re Segregated Accounts | September 30, | September 30, | ||||||||||||||
(Dollars in thousands) | 2017 | 2016 | 2017 | 2016 | ||||||||||||
Ceded written premiums | $ | 54,057 | $ | 57,911 | $ | 131,939 | $ | 128,292 | ||||||||
Ceded earned premiums | 46,696 | 44,548 | 131,361 | 118,776 | ||||||||||||
Ceded losses and LAE | 180,540 | 7,420 | 223,973 | 32,750 | ||||||||||||
Assumed written premiums | $ | 2,587 | $ | 5,032 | $ | 9,082 | $ | 11,666 | ||||||||
Assumed earned premiums | 2,587 | 5,032 | 9,082 | 11,666 | ||||||||||||
Assumed losses and LAE | - | - | - | - |
The Company maintains both qualified and non-qualified defined benefit pension plans and a retiree health plan for its U.S. employees employed prior to April 1, 2010. Generally, the Company computes the benefits based on average earnings over a period prescribed by the plans and credited length of service. The Company’s non-qualified defined benefit pension plan provided compensating pension benefits for participants whose benefits have been
33
curtailed under the qualified plan due to Internal Revenue Code limitations. Effective January 1, 2018, participants of the Company’s non-qualified defined benefit pension plan may no longer accrue additional service benefits.
Net periodic benefit cost for U.S. employees included the following components for the periods indicated:
Pension Benefits | Three Months Ended |
| Nine Months Ended | ||||||||
| September 30, |
| September 30, | ||||||||
(Dollars in thousands) | 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
Service cost | $ | 2,040 |
| $ | 2,064 |
| $ | 8,092 |
| $ | 6,616 |
Interest cost |
| 2,562 |
|
| 2,928 |
|
| 7,608 |
|
| 8,788 |
Expected return on plan assets |
| (5,197) |
|
| (4,492) |
|
| (15,591) |
|
| (14,523) |
Amortization of net (income) loss |
| 2,462 |
|
| 1,909 |
|
| 6,137 |
|
| 5,111 |
Settlement charge |
| 871 |
|
| 102 |
|
| 871 |
|
| 309 |
Net periodic benefit cost | $ | 2,738 |
| $ | 2,511 |
| $ | 7,117 |
| $ | 6,301 |
Other Benefits | Three Months Ended |
| Nine Months Ended | ||||||||
| September 30, |
| September 30, | ||||||||
(Dollars in thousands) | 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
Service cost | $ | 311 |
| $ | 245 |
| $ | 763 |
| $ | 818 |
Interest cost |
| 215 |
|
| 245 |
|
| 644 |
|
| 835 |
Amortization of prior service cost |
| (177) |
|
| (144) |
|
| (401) |
|
| (433) |
Amortization of net (income) loss |
| - |
|
| (39) |
|
| - |
|
| (39) |
Net periodic benefit cost | $ | 349 |
| $ | 307 |
| $ | 1,006 |
| $ | 1,181 |
|
|
|
|
|
|
|
|
|
|
|
|
(Some amounts may not reconcile due to rounding.) |
|
|
|
|
|
|
Pension Benefits | Three Months Ended | Nine Months Ended | ||||||||||||||
September 30, | September 30, | |||||||||||||||
(Dollars in thousands) | 2017 | 2016 | 2017 | 2016 | ||||||||||||
Service cost | $ | 2,737 | $ | 2,731 | $ | 9,335 | $ | 8,524 | ||||||||
Interest cost | 2,509 | 2,371 | 7,060 | 7,093 | ||||||||||||
Expected return on plan assets | (3,263 | ) | (2,789 | ) | (9,572 | ) | (7,757 | ) | ||||||||
Amortization of net (income) loss | 2,091 | 1,984 | 8,172 | 6,012 | ||||||||||||
Net periodic benefit cost | $ | 4,074 | $ | 4,297 | $ | 14,995 | $ | 13,872 |
Other Benefits | Three Months Ended | Nine Months Ended | ||||||||||||||
September 30, | September 30, | |||||||||||||||
(Dollars in thousands) | 2017 | 2016 | 2017 | 2016 | ||||||||||||
Service cost | $ | 392 | $ | 354 | $ | 1,273 | $ | 1,230 | ||||||||
Interest cost | 295 | 252 | 793 | 844 | ||||||||||||
Amortization of prior service cost | (33 | ) | (33 | ) | (98 | ) | (33 | ) | ||||||||
Amortization of net (income) loss | 48 | - | 199 | 96 | ||||||||||||
Net periodic benefit cost | $ | 703 | $ | 573 | $ | 2,167 | $ | 2,137 | ||||||||
(Some amounts may not reconcile due to rounding.) |
The service cost component of net periodic benefit costs is included within other underwriting expenses on the consolidated statement of operations and comprehensive income (loss). In accordance with ASU 2017-07, other staff compensation costs are also primarily recorded within this line item.
The Company contributed $10,000 thousanddid not make any contributions to the qualified pension benefit plan for the three and nine months ended September 30, 2017. The Company contributed $30,000 thousand to the qualified pension benefit plan for the three2020 and nine months ended September 30, 2016.
The Company is domiciled in the United States and has subsidiaries domiciled within the United States with significant branches in Canada and Singapore. The Company'sCompany’s non-U.S. branches are subject to income taxation at varying rates in their respective domiciles.
The Company generally applies the estimated annual effective tax rate approach for calculating its tax provision for interim periods as prescribed by ASC 740-270, Interim Reporting. Under the estimated annual effective tax rate approach, the estimated annual effective tax rate is applied to the interim year-to-date pre-tax income/loss to determine the income tax expense or benefit for the year-to-date period. If the annual effective tax rate approach produces a year-to-date tax benefit which exceeds the amount which is estimated to be recoverable for the full year, then the tax benefit for the interim reporting period will be limited as
The Company has evaluated known recognized and non-recognized subsequent events. In October 2017, Hurricane Nateand November 2020, Hurricanes Delta, Zeta and Eta impacted the SouthernCaribbean and southeastern United States and Central America and Hurricane Ophelia impacted Ireland, the United Kingdom and Northern Europe. Also, in October 2017, a number of wildfires affected California.States. Due to the recentness of these events, the Company is unable to estimate the amount of losses related to Hurricane Nate, Hurricane Ophelia or the California wildfires at this time. However, the Company anticipates that the losses from these events will adversely impact theits fourth quarter 20172020 financial results.statements.
34
ITEM 2.MANAGEMENT'S MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
Industry Conditions.
The worldwide reinsurance and insurance businesses are highly competitive, as well as cyclical by product and market. As such, financial results tend to fluctuate with periods of constrained availability, higher rates and stronger profits followed by periods of abundant capacity, lower rates and constrained profitability. Competition in the types of reinsurance and insurance business that we underwrite is based on many factors, including the perceived overall financial strength of the reinsurer or insurer, ratings of the reinsurer or insurer by A.M. Best and/or Standard & Poor's,Poor’s, underwriting expertise, the jurisdictions where the reinsurer or insurer is licensed or otherwise authorized, capacity and coverages offered, premiums charged, other terms and conditions of the reinsurance and insurance business offered, services offered, speed of claims payment and reputation and experience in lines written. Furthermore, the market impact from these competitive factors related to reinsurance and insurance is generally not consistent across lines of business, domestic and international geographical areas and distribution channels.
The Company competes in the U.S. and internationalglobal reinsurance and insurance markets with numerous global competitors. OurThe Company’s competitors include independent reinsurance and insurance companies, subsidiaries or affiliates of established worldwide insurance companies, reinsurance departments of certain insurance companies, domestic and international underwriting operations, including underwriting syndicates at Lloyd'sLloyd’s of London and certain government sponsored risk transfer vehicles. Some of these competitors have greater financial resources than we do and have established long term and continuing business relationships, which can be a significant competitive advantage. In addition, the lack of strong barriers to entry into the reinsurance business and recently, the securitization of reinsurance and insurance risks through capital markets provide additional sources of potential reinsurance and insurance capacity and competition.
Worldwide insurance and reinsurance market conditions continued to be very competitive, particularly in the property catastrophe and casualty reinsurance lines of business.historically have been competitive. Generally, there was ample insurance and reinsurance capacity relative to demand, as well as, additional capital from the capital markets through insurance linked financial instruments. These financial instruments such as side cars, catastrophe bonds and collateralized reinsurance funds, provideprovided capital markets with access to insurance and reinsurance risk exposure. The capital markets demand for these products iswas being primarily driven by the currenta low interest rate environment and the desire to achieve greater risk diversification and potentially higher returns on their investments. This increased competition iswas generally having a negative impact on rates, terms and conditions; however, the impact varies widely by market and coverage.
The industry continues to fluctuate by specific regiondeal with the impacts of a global pandemic, COVID-19. Globally, many countries mandated that their citizens remain at home and products, particularly areas recentlymany non-essential businesses have continued to be physically closed. We closed our physical offices; however, we activated our operational resiliency plan across our global footprint and all of our critical operations are functioning effectively from remote locations. We continue to service and meet the needs of our clients while ensuring the safety and health of our employees and customers.
The pandemic has caused significant volatility in the global financial markets. Interest rates plummeted, credit spreads widened and the equity markets lost value. We saw our fixed maturity and equity portfolios decline in value resulting in realized and unrealized investment losses in our March 31, 2020 financial statements. However, the financial markets rebounded during the second and third quarters and we recognized after-tax unrealized gains of $283.1 million in these periods. Nevertheless, the lack of business activity may lead to an increase in bankruptcies and corresponding credit losses.
There will also be a negative impact on future industry underwriting results. With the closing of non-essential businesses, there has been a significant decline in business activity. To the extent that premiums are based on business activity, there will be a decline in premium volume. Incurred losses from the pandemic will be impacted by large catastrophic events. There was an unprecedented seriesthe duration of catastrophes in the thirdevent and will vary by line of business and geographical location. For the quarter ended September 30, 2020, our underwriting results include $31.1 million of 2017 with Hurricanes Harvey, Irmaestimated losses related to the pandemic and Maria,$104.8 million for the nine months ended September 30, 2020. We anticipate this Pandemic could have a meaningful impact on our revenue, as well as net and operating income in future quarters as a significant earthquakeresult of reinsurance and insurance claims due to the pandemic and resulting macro-economic market conditions.
35
Many regulators have issued moratoriums on the cancellation of policies for the non-payment of premiums and also on non-renewals. We are complying with the various regulatory requests for accommodations to policyholders during this difficult period. The moratoriums combined with the forced closure of businesses may lead to an increase in Mexico City. Additional catastrophe events occurred in October 2017 with Hurricanes Nate and Ophelia anduncollectible premium expense.
Prior to the wild fires in California. The total industry losses for all of these events could exceed $100 billion. This is the second consecutive year with higher than average catastrophe losses. During 2016, catastrophe losses included the Fort McMurray Canadian wildfire, Hurricane Matthew which affected a large area of the Caribbean and southeastern United States, storms and an earthquake in Ecuador. There are industry reports that the catastrophe losses for 2016 reached their highest level in four years and the United States experienced the most loss events since 1980 and the highest total losses since 2012. While the future impact on market conditions from these catastrophes cannot be determined at this time,pandemic, there was some firming in the markets impacted by the 2016 catastrophes and as catastrophe losses continue to increase in 2017, there is a growing industry consensus that there will be a generalwas some firming of the (re)insurance markets resultingrates for the areas impacted by the recent catastrophes. Rates also appeared to be firming in rate increases, not only for catastrophe exposures, but also potentially for most other linessome of business.
While we are unable to predict the full impact the pandemic will have on the insurance industry as it continues to have a negative impact on the global economy, we are well as, product and geographic expansion in existing lines of business. We are building a world-class
36
Financial Summary.
We monitor and evaluate our overall performance based upon financial results. The following table displays a summary of the consolidated net income (loss), ratios and stockholder'sstockholder’s equity for the periods indicated:
| Three Months Ended |
| Percentage |
| Nine Months Ended |
| Percentage | ||||||||
| September 30, |
| Increase/ |
| September 30, |
| Increase/ | ||||||||
(Dollars in millions) | 2020 |
| 2019 |
| (Decrease) |
| 2020 |
| 2019 |
| (Decrease) | ||||
Gross written premiums | $ | 2,065.0 |
| $ | 1,890.0 |
| 9.3% |
| $ | 5,878.2 |
| $ | 5,262.9 |
| 11.7% |
Net written premiums |
| 1,725.7 |
|
| 1,570.0 |
| 9.9% |
|
| 4,866.0 |
|
| 4,282.1 |
| 13.6% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REVENUES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums earned | $ | 1,615.5 |
| $ | 1,428.4 |
| 13.1% |
|
| 4,648.4 |
| $ | 4,074.5 |
| 14.1% |
Net investment income |
| 135.4 |
|
| 95.6 |
| 41.7% |
| $ | 244.8 |
|
| 270.8 |
| -9.6% |
Net realized capital gains (losses) |
| 115.2 |
|
| 112.6 |
| 2.4% |
|
| (107.3) |
|
| 390.2 |
| -127.5% |
Other income (expense) |
| (1.8) |
|
| (2.7) |
| -33.1% |
|
| (11.4) |
|
| (8.5) |
| 34.1% |
Total revenues |
| 1,864.3 |
|
| 1,633.9 |
| 14.1% |
|
| 4,774.5 |
|
| 4,727.0 |
| 1.0% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CLAIMS AND EXPENSES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incurred losses and loss adjustment expenses |
| 1,277.9 |
|
| 1,098.1 |
| 16.4% |
|
| 3,283.2 |
|
| 2,737.4 |
| 19.9% |
Commission, brokerage, taxes and fees |
| 322.4 |
|
| 357.7 |
| -9.9% |
|
| 1,001.2 |
|
| 962.7 |
| 4.0% |
Other underwriting expenses |
| 109.4 |
|
| 95.7 |
| 14.3% |
|
| 304.7 |
|
| 257.4 |
| 18.4% |
Corporate expense |
| 4.2 |
|
| 3.2 |
| 32.2% |
|
| 11.4 |
|
| 7.4 |
| 55.6% |
Interest, fee and bond issue cost amortization expense |
| 6.5 |
|
| 7.8 |
| -16.2% |
|
| 20.9 |
|
| 27.3 |
| -23.4% |
Total claims and expenses |
| 1,720.4 |
|
| 1,562.5 |
| 10.1% |
|
| 4,621.5 |
|
| 3,992.2 |
| 15.8% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS) BEFORE TAXES |
| 143.9 |
|
| 71.4 |
| 101.6% |
|
| 153.0 |
|
| 734.8 |
| -79.2% |
Income tax expense (benefit) |
| 24.1 |
|
| 10.3 |
| 134.8% |
|
| (12.8) |
|
| 141.2 |
| -109.1% |
NET INCOME (LOSS) | $ | 119.8 |
| $ | 61.1 |
| 96.0% |
|
| 165.9 |
| $ | 593.7 |
| -72.1% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RATIOS: |
|
|
|
|
|
| Point Change |
|
|
|
|
|
|
| Point Change |
Loss ratio |
| 79.1% |
|
| 76.9% |
| 2.2 |
| $ | 70.6% |
|
| 67.2% |
| 3.4 |
Commission and brokerage ratio |
| 20.0% |
|
| 25.0% |
| (5.0) |
|
| 21.5% |
|
| 23.6% |
| (2.1) |
Other underwriting expense ratio |
| 6.7% |
|
| 6.7% |
| - |
|
| 6.6% |
|
| 6.3% |
| 0.3 |
Combined ratio |
| 105.8% |
|
| 108.6% |
| (2.8) |
|
| 98.7% |
|
| 97.1% |
| 1.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| At |
| At |
| Percentage |
|
|
|
|
|
|
|
| ||
| September 30, |
| December 31, |
| Increase/ |
|
|
|
|
|
|
|
| ||
(Dollars in millions) | 2020 |
| 2019 |
| (Decrease) |
|
|
|
|
|
|
|
| ||
Balance sheet data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments and cash | $ | 13,821.6 |
| $ | 11,956.3 |
| 15.6% |
|
|
|
|
|
|
|
|
Total assets |
| 21,485.5 |
|
| 19,706.2 |
| 9.0% |
|
|
|
|
|
|
|
|
Loss and loss adjustment expense reserves |
| 11,042.0 |
|
| 10,209.5 |
| 8.2% |
|
|
|
|
|
|
|
|
Total debt |
| 710.8 |
|
| 633.8 |
| 12.1% |
|
|
|
|
|
|
|
|
Total liabilities |
| 15,329.8 |
|
| 13,848.8 |
| 10.7% |
|
|
|
|
|
|
|
|
Stockholder's equity |
| 6,155.7 |
|
| 5,857.4 |
| 5.1% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Some amounts may not reconcile due to rounding) | |||||||||||||||
(NM, not meaningful) |
37
Three Months Ended | Percentage | Nine Months Ended | Percentage | |||||||||||||||||||||
September 30, | Increase/ | September 30, | Increase/ | |||||||||||||||||||||
(Dollars in millions) | 2017 | 2016 | (Decrease) | 2017 | 2016 | (Decrease) | ||||||||||||||||||
Gross written premiums | $ | 1,701.1 | $ | 1,505.9 | 13.0 | % | $ | 4,289.1 | $ | 3,813.6 | 12.5 | % | ||||||||||||
Net written premiums | 570.8 | 622.6 | -8.3 | % | 1,437.5 | 1,527.9 | -5.9 | % | ||||||||||||||||
REVENUES: | ||||||||||||||||||||||||
Premiums earned | $ | 518.5 | $ | 556.7 | -6.9 | % | $ | 1,457.8 | $ | 1,527.4 | -4.6 | % | ||||||||||||
Net investment income | 73.4 | 64.6 | 13.7 | % | 206.2 | 196.9 | 4.7 | % | ||||||||||||||||
Net realized capital gains (losses) | 228.5 | (50.1 | ) | NM | 254.0 | (87.3 | ) | NM | ||||||||||||||||
Other income (expense) | 1.5 | (13.2 | ) | -111.3 | % | 22.0 | (10.8 | ) | NM | |||||||||||||||
Total revenues | 821.9 | 558.0 | 47.3 | % | 1,939.9 | 1,626.2 | 19.3 | % | ||||||||||||||||
CLAIMS AND EXPENSES: | ||||||||||||||||||||||||
Incurred losses and loss adjustment expenses | 1,331.6 | 301.6 | NM | 1,918.5 | 936.2 | 104.9 | % | |||||||||||||||||
Commission, brokerage, taxes and fees | 34.5 | 82.8 | -58.3 | % | 147.6 | 219.6 | -32.8 | % | ||||||||||||||||
Other underwriting expenses | 57.7 | 64.1 | -10.0 | % | 181.8 | 181.7 | 0.1 | % | ||||||||||||||||
Corporate expense | 1.1 | 1.8 | -38.3 | % | 6.2 | 6.2 | 1.0 | % | ||||||||||||||||
Interest, fee and bond issue cost amortization expense | 7.2 | 8.9 | -19.2 | % | 24.0 | 26.6 | -9.8 | % | ||||||||||||||||
Total claims and expenses | 1,432.1 | 459.2 | 211.9 | % | 2,278.1 | 1,370.2 | 66.3 | % | ||||||||||||||||
INCOME (LOSS) BEFORE TAXES | (610.2 | ) | 98.7 | NM | (338.2 | ) | 256.0 | -232.1 | % | |||||||||||||||
Income tax expense (benefit) | (220.5 | ) | 22.4 | NM | (153.3 | ) | 69.4 | NM | ||||||||||||||||
NET INCOME (LOSS) | $ | (389.7 | ) | $ | 76.3 | NM | $ | (184.9 | ) | $ | 186.7 | -199.0 | % | |||||||||||
RATIOS: | Point Change | Point Change | ||||||||||||||||||||||
Loss ratio | 256.8 | % | 54.2 | % | 202.6 | 131.6 | % | 61.3 | % | 70.3 | ||||||||||||||
Commission and brokerage ratio | 6.7 | % | 14.9 | % | (8.2 | ) | 10.1 | % | 14.4 | % | (4.3 | ) | ||||||||||||
Other underwriting expense ratio | 11.1 | % | 11.5 | % | (0.4 | ) | 12.5 | % | 11.9 | % | 0.6 | |||||||||||||
Combined ratio | 274.6 | % | 80.6 | % | 194.0 | 154.2 | % | 87.6 | % | 66.6 | ||||||||||||||
At | At | Percentage | ||||||||||||||||||||||
September 30, | December 31, | Increase/ | ||||||||||||||||||||||
(Dollars in millions) | 2017 | 2016 | (Decrease) | |||||||||||||||||||||
Balance sheet data: | ||||||||||||||||||||||||
Total investments and cash | $ | 10,231.7 | $ | 9,842.7 | 4.0 | % | ||||||||||||||||||
Total assets | 19,143.4 | 17,083.4 | 12.1 | % | ||||||||||||||||||||
Loss and loss adjustment expense reserves | 9,969.1 | 8,331.3 | 19.7 | % | ||||||||||||||||||||
Total debt | 633.3 | 633.2 | 0.0 | % | ||||||||||||||||||||
Total liabilities | 13,975.7 | 11,784.9 | 18.6 | % | ||||||||||||||||||||
Stockholder's equity | 5,167.6 | 5,298.6 | -2.5 | % | ||||||||||||||||||||
(Some amounts may not reconcile due to rounding) | ||||||||||||||||||||||||
(NM, not meaningful) |
35Revenues.
Premiums. Gross written premiums increased by 13.0%9.3% to $1,701.1$2,065.0 million for the three months ended September 30, 2017,2020, compared to $1,505.9$1,890.0 million for the three months ended September 30, 2016,2019, reflecting a $263.6$176.0 million, or 26.1%13.6%, increase in our reinsurance business and a $68.4 million, or 13.7%, decrease inwhile our insurance business.business remained basically flat with a slight decline of $1.1 million. The increase in reinsurance premiums was mainly due to the new crop reinsurance transactions, increasesincrease in financial lines oftreaty casualty writings, treaty property business and the influx of reinstatement premiums related to multiple catastrophe events in the third quarter. The decline in insurance premiums was due to the sale of Heartland Crop Insurance, Inc. ("Heartland") which accounted for $162.4 million of gross written premium in the third quarter of 2016. Excluding the impact of Heartland, insurance premiums rose by $94.0 million due to increased production in many lines of business, including retail casualty, surety and accident and health.facultative business. Gross written premiums increased by 12.5%11.7% to $4,289.1$5,878.2 million for the nine months ended September 30, 2017,2020, compared to $3,813.6$5,262.9 million for the nine months ended September 30, 2016,2019, reflecting a $400.7$441.6 million, or 15.8%12.7%, increase in our reinsurance business and a $74.7$173.7 million, or 5.9%9.7%, increase in our insurance business. The increase in reinsurance premiums was mainly due to the new crop reinsurance transactions, increases in treaty casualty writings and property and financial lines of business and the influx of reinstatement premiums related to multiple catastrophe events in the third quarter.business. The rise in insurance premiums was primarily due to increases in many lines of business, including retailproperty, casualty and accident and health and surety, partially offset by the impact of the sale of Heartland.health.
Net written premiums decreasedincreased by 8.3%9.9% to $570.8$1,725.7 million for the three months ended September 30, 2017,2020, compared to $622.6$1,570.0 million for the three months ended September 30, 2016,2019 and decreasedincreased by 5.9%13.6% to $1,437.5$4,866.0 million for the nine months ended September 30, 2017,2020, compared to $1,527.9$4,282.1 million for the nine months ended September 30, 2016.2019. The differencedifferences between the changechanges in gross written premiums compared to the changechanges in net written premiums isare primarily due to varying utilization of reinsurance mainly related to affiliated quota share contracts.reinsurance. Premiums earned decreasedincreased by 6.9%13.1% to $518.5$1,615.5 million for the three months ended September 30, 2017,2020, compared to $556.7$1,428.4 million for the three months ended September 30, 20162019 and decreasedincreased by 4.6%14.1% to $1,457.8$4,648.4 million for the nine months ended September 30, 2017,2020, compared to $1,527.4$4,074.5 million for the nine months ended September 30, 2016.2019. 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.
Net Investment Income. Net investment income increased 13.7%41.7% to $73.4$135.4 million for the three months ended September 30, 20172020 compared with net investment income of $64.6$95.6 million for the three months ended September 30, 20162019. This increase was primarily the result of an increase in limited partnership income, as the improvement in the equity markets during the second quarter had a positive impact on the limited partnership valuations, and increased 4.7%we had higher income from our growing fixed income portfolio. Net investment income decreased 9.6% to $206.2$244.8 million for the nine months ended September 30, 20172020 compared with net investment income of $196.9$270.8 million for the nine months ended September 30, 2016. 2019. This decrease in income was primarily the result of losses from our limited partnerships in the second quarter, partially offset by higher income from our growing fixed maturity portfolio. Net pre-tax investment income as a percentage of average invested assets was 3.0%4.3% and 3.4% for the three months ended September 30, 2020 and 2019, respectively and was 2.6% and 3.3% for the nine months ended September 30, 2020 and 2019, respectively.September
Net Realized Capital Gains (Losses). 30, 2017, compared to 2.7%Net realized capital gains were $115.2 million and $112.6 million for the three months ended September 30, 2016 and remained flat at 2.8% for the nine months ended September 30, 2017 and 2016. The increases in income for the three and nine months ended September 30, 2017 were primarily the result of higher income from our limited partnerships2020 and higher income from the growing fixed income portfolio, partially offset by lower dividend income from our equity portfolio.
Net realized capital losses were $107.3 million and net realized capital gains were $390.2 million for the nine months ended September 30, 2020 and 2019, respectively. The net realized capital losses of $50.1$107.3 million for the threenine months ended September 30, 2016 2020 were comprised of $$30.958.1 million of losses from fair value re-measurements, on fixed maturity securities, equity securities$31.6 million of losses from sales of investments and other invested assets,$17.6 million of net allowances for credit losses. The net realized capital lossesgains of $28.0$390.2 million fromfor the salenine months ended September 30, 2019 were comprised of our Heartland subsidiary and $0.8 million of other-than-temporary impairments, partially offset by $$395.69.6 million of gains from fair value re-measurements and $8.7million of net gains from sales on our fixed maturity and equity securities.of investments, partially offset by $14.2 million of other-than-temporary impairments.
38
36Other Income (Expense).
Claims and Expenses.
Incurred Losses and Loss Adjustment Expenses. The following table presents our incurred losses and loss adjustment expenses ("LAE"(“LAE”) for the periods indicated.
| Three Months Ended September 30, | ||||||||||||||||
| Current |
| Ratio %/ |
| Prior |
| Ratio %/ |
| Total |
| Ratio %/ | ||||||
(Dollars in millions) | Year |
| Pt Change |
| Years |
| Pt Change |
| Incurred |
| Pt Change | ||||||
2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attritional | $ | 980.8 |
| 60.7% |
|
| $ | - |
| 0.0% |
|
| $ | 980.8 |
| 60.7% |
|
Catastrophes |
| 300.2 |
| 18.6% |
|
|
| (3.2) |
| -0.2% |
|
|
| 297.0 |
| 18.4% |
|
Total | $ | 1,281.1 |
| 79.3% |
|
| $ | (3.2) |
| -0.2% |
|
| $ | 1,277.9 |
| 79.1% |
|
2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attritional | $ | 814.6 |
| 57.0% |
|
| $ | (13.4) |
| -0.9% |
|
| $ | 801.2 |
| 56.1% |
|
Catastrophes |
| 279.5 |
| 19.6% |
|
|
| 17.4 |
| 1.2% |
|
|
| 296.9 |
| 20.8% |
|
Total | $ | 1,094.1 |
| 76.6% |
|
| $ | 4.0 |
| 0.3% |
|
| $ | 1,098.1 |
| 76.9% |
|
Variance 2020/2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attritional | $ | 166.2 |
| 3.7 | pts |
| $ | 13.4 |
| 0.9 | pts |
| $ | 179.6 |
| 4.6 | pts |
Catastrophes |
| 20.7 |
| (1.0) | pts |
|
| (20.6) |
| (1.4) | pts |
|
| 0.1 |
| (2.4) | pts |
Total | $ | 187.0 |
| 2.7 | pts |
| $ | (7.2) |
| (0.5) | pts |
| $ | 179.8 |
| 2.2 | pts |
| Nine Months Ended September 30, | ||||||||||||||||
| Current |
| Ratio %/ |
| Prior |
| Ratio %/ |
| Total |
| Ratio %/ | ||||||
(Dollars in millions) | Year |
| Pt Change |
| Years |
| Pt Change |
| Incurred |
| Pt Change | ||||||
2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attritional | $ | 2,943.2 |
| 63.3% |
|
| $ | (1.0) |
| 0.0% |
|
| $ | 2,942.2 |
| 63.3% |
|
Catastrophes |
| 344.9 |
| 7.4% |
|
|
| (3.9) |
| -0.1% |
|
|
| 341.0 |
| 7.3% |
|
Total | $ | 3,288.0 |
| 70.7% |
|
| $ | (4.9) |
| -0.1% |
|
| $ | 3,283.2 |
| 70.6% |
|
2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attritional | $ | 2,405.0 |
| 59.0% |
|
| $ | (27.2) |
| -0.7% |
|
| $ | 2,377.8 |
| 58.4% |
|
Catastrophes |
| 304.4 |
| 7.5% |
|
|
| 55.3 |
| 1.4% |
|
|
| 359.6 |
| 8.8% |
|
Total | $ | 2,709.4 |
| 66.5% |
|
| $ | 28.1 |
| 0.7% |
|
| $ | 2,737.4 |
| 67.2% |
|
Variance 2020/2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attritional | $ | 538.2 |
| 4.3 | pts |
| $ | 26.2 |
| 0.7 | pts |
| $ | 564.4 |
| 4.9 | pts |
Catastrophes |
| 40.5 |
| (0.1) | pts |
|
| (59.2) |
| (1.5) | pts |
|
| (18.6) |
| (1.5) | pts |
Total | $ | 578.6 |
| 4.2 | pts |
| $ | (33.0) |
| (0.8) | pts |
| $ | 545.8 |
| 3.4 | pts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Some amounts may not reconcile due to rounding.) |
Three Months Ended September 30, | |||||||||||||||||||||||||||
Current | Ratio %/ | Prior | Ratio %/ | Total | Ratio %/ | ||||||||||||||||||||||
(Dollars in millions) | Year | Pt Change | Years | Pt Change | Incurred | Pt Change | |||||||||||||||||||||
2017 | |||||||||||||||||||||||||||
Attritional | $ | 325.6 | 62.8 | % | $ | (0.9 | ) | -0.2 | % | $ | 324.7 | 62.6 | % | ||||||||||||||
Catastrophes | 1,007.8 | 194.4 | % | (0.9 | ) | -0.2 | % | 1,006.9 | 194.2 | % | |||||||||||||||||
Total | $ | 1,333.4 | 257.2 | % | $ | (1.8 | ) | -0.4 | % | $ | 1,331.6 | 256.8 | % | ||||||||||||||
2016 | |||||||||||||||||||||||||||
Attritional | $ | 300.4 | 54.0 | % | $ | 0.1 | 0.0 | % | $ | 300.6 | 54.0 | % | |||||||||||||||
Catastrophes | 20.9 | 3.8 | % | (19.8 | ) | -3.6 | % | 1.0 | 0.2 | % | |||||||||||||||||
Total | $ | 321.3 | 57.8 | % | $ | (19.7 | ) | -3.6 | % | $ | 301.6 | 54.2 | % | ||||||||||||||
Variance 2017/2016 | |||||||||||||||||||||||||||
Attritional | $ | 25.2 | 8.8 | pts | $ | (1.0 | ) | (0.2 | ) | pts | $ | 24.1 | 8.6 | pts | |||||||||||||
Catastrophes | 986.9 | 190.6 | pts | 18.9 | 3.4 | pts | 1,005.9 | 194.0 | pts | ||||||||||||||||||
Total | $ | 1,012.1 | 199.4 | pts | $ | 17.9 | 3.2 | pts | $ | 1,030.0 | 202.6 | pts |
Nine Months Ended September 30, | |||||||||||||||||||||||||||
Current | Ratio %/ | Prior | Ratio %/ | Total | Ratio %/ | ||||||||||||||||||||||
(Dollars in millions) | Year | Pt Change | Years | Pt Change | Incurred | Pt Change | |||||||||||||||||||||
2017 | |||||||||||||||||||||||||||
Attritional | $ | 878.8 | 60.3 | % | $ | 4.4 | 0.3 | % | $ | 883.2 | 60.6 | % | |||||||||||||||
Catastrophes | 1,039.3 | 71.3 | % | (3.9 | ) | -0.3 | % | 1,035.3 | 71.0 | % | |||||||||||||||||
Total | $ | 1,918.1 | 131.6 | % | $ | 0.5 | 0.0 | % | $ | 1,918.5 | 131.6 | % | |||||||||||||||
2016 | |||||||||||||||||||||||||||
Attritional | $ | 894.7 | 58.5 | % | $ | 0.9 | 0.1 | % | $ | 895.6 | 58.6 | % | |||||||||||||||
Catastrophes | 77.6 | 5.1 | % | (37.0 | ) | -2.4 | % | 40.6 | 2.7 | % | |||||||||||||||||
Total | $ | 972.3 | 63.6 | % | $ | (36.1 | ) | -2.3 | % | $ | 936.2 | 61.3 | % | ||||||||||||||
Variance 2017/2016 | |||||||||||||||||||||||||||
Attritional | $ | (15.9 | ) | 1.8 | pts | $ | 3.5 | 0.2 | pts | $ | (12.4 | ) | 2.0 | pts | |||||||||||||
Catastrophes | 961.7 | 66.2 | pts | 33.1 | 2.1 | pts | 994.7 | 68.3 | pts | ||||||||||||||||||
Total | $ | 945.8 | 68.0 | pts | $ | 36.6 | 2.3 | pts | $ | 982.3 | 70.3 | pts | |||||||||||||||
(Some amounts may not reconcile due to rounding.) |
37
39
partially offset by a reduction in the loss estimate for the Australia East Coast Storm ($3.2 million) and the 2020 Australia fires ($1.3 million). The current year catastrophe losses of $279.5 million for the three months ended September 30, 2019, mainly related to Hurricane Dorian ($154.5 million) and Typhoon Faxai ($126.0 million).
Incurred losses and LAE increased by 104.9%19.9% to $1,918.5$3,283.2 million for the nine months ended September 30, 20172020 compared to $936.2$2,734.4 million for the nine months ended September 30, 2016,2019, primarily due to an increase of $961.7$538.2 million in current year attritional losses, related primarily to $104.8 million of losses from the COVID-19 pandemic and the impact of the increase in premiums earned , an increase of $40.5 million in current year catastrophe losses and $26.2 million less of favorable development of $37.0 million on prior yearyears attritional losses in 2020 compared to 2019. The increase in incurred losses was partially offset by a $59.2 million improvement in development on prior years catastrophe losses in 2016, primarily related2020 compared to the 2011 Japan earthquake, which did not recur in 2017.2019. The current year catastrophe losses of $1,039.3 million for the nine months ended September 30, 2017 related to Hurricane Irma ($476.2 million), Hurricane Maria ($318.9 million), Hurricane Harvey ($180.7 million), the Mexico City earthquake ($32.1 million), the South Africa Knysna fires ($10.0 million), Cyclone Debbie in Australia ($8.3 million), the Peru storms ($6.9 million) and the 2017 US Midwest storms ($6.2 million). The current year catastrophe losses of $77.6$344.9 million for the nine months ended September 30, 2016 were2020 related to the Fort McMurray Canada wildfireHurricane Laura ($26.9122.4 million), the 2016 U.S. StormsNorthern California wildfires ($24.952.0 million), the Ecuador earthquakeCalifornia Glass wildfire ($11.630.0 million), Hurricane Sally ($24.6 million), Oregon wildfires ($21.0 million), Hurricane Isaias ($19.9 million), the 2016 Taiwan earthquakeU.S. Civil Unrest ($7.517.4 million), the Derecho storms ($15.1 million), the Nashville tornadoes ($15.1 million), the Calgary storms in Canada ($15.0 million), the Australia East Coast storm ($6.8 million) and Hurricane Herminethe 2020 Australia fires ($6.85.6 million). The current
Other Underwriting Expenses.Commission, Brokerage, Taxes and Fees. Other underwriting expenses were $57.7 million Commission, brokerage, taxes and $64.1 fees decreased to $322.4 million for the three months ended September 30, 2017 and September 30, 2016, respectively. The decrease2020 compared to $357.7 million for the three month periodmonths ended September 30, 2019. The decrease was primarilymainly due to lower variable compensation costs. Other underwriting expenses were flat at $181.8 million the impact of the commutation of a multi-year contract in 2019 which increased the level of prior year commission expense and changes in affiliated reinsurance agreements. Commission, brokerage, taxes and fees inand $181.7creased to $1,001.2 million for the nine months ended September 30, 2017 and2020 compared to $962.7 million for the nine months ended September 30, 2016, respectively.2019.
Other Underwriting Expenses. Other underwriting expenses increased to $109.4 million for the three months ended September 30, 2020 compared to $95.7 million for the three months ended September 30, 2019. Other underwriting expenses increased to $304.7 million for the nine months ended September 30, 2020 compared to $257.4 million for the nine months ended September 30, 2019. These increases were mainly due to changes in affiliated reinsurance agreements, impact of increases in premium earned and costs incurred to support the expansion of the insurance business.
Corporate Expenses. Corporate expenses, which are general operating expenses that are not allocated to segments, decreased slightlyhave increased to $1.1$4.2 million from $1.8 $3.2 million for the three months ended September 30, 20172020 and 2016,2019, respectively, and were flat at $6.2increased to $11.4 million from $7.4 million for the nine months ended September 30, 20172020 and 2016,2019, respectively. The increases were mainly due to costs associated with the relocation of our U.S. headquarters.
Interest, Fees and Bond Issue Cost Amortization Expense. Interest, fees and other bond amortization were $7.2expense was $6.5 million and $8.9$7.8 million for the three months ended September 30, 2017 2020 and 2016,2019, respectively. Interest, fees and other bond amortization were $24.0expense was $20.9 million and $26.6$27.3 million for the nine months ended September 30, 2017 2020 and 2016,2019, respectively. The decreases in expense for both the three and nine month periods were primarily due to interest expense on the conversion of$300.0 million affiliated loan agreement with Bermuda Re in 2019 and the movement in the floating interest rate related to the long term subordinated notes, from a fixed rate of 6.6% to a floating rate, which is reset quarterly per the note agreement. The floating rate was 3.70%2.67% as of September 30, 2017.2020.
38
40
result from changes in the relative levels of pre-tax income, including the impact of catastrophe losses and net capital gains (losses). However, if the AETR approach produces a year-to-date, among jurisdictions with different tax benefit which exceeds the amount which is estimated to be recoverable for the full year, then the tax benefit for the interim reporting period will be limited, as prescribed under ASC 740-270, to the estimated tax recoverable based on the year-to-date result.rates. The decreasechange in income tax expense for the three and nine months ended September 30, 2017 compared to the three and nine months ended September 30, 2016 was primarily due to the significant catastrophe losses incurred during the third quarter of 2017.
The CARES Act was passed by Congress and signed into law by the President on March 27, 2020 in response to the COVID-19 pandemic. Among the provisions of the CARES Act was a special tax provision which allows companies to elect to carryback five years net operating losses incurred in the 2018, 2019 and/or 2020 tax years. The Tax Cuts and Jobs Act of 2017 had eliminated net operating loss carrybacks for most companies. The Company determined that the special 5 year loss carryback tax provision provided a tax benefit of $31.0 million which it recorded in the quarter ended March 31, 2020.
Net Income (Loss).
Our net income was $119.8 million and 2016,$61.1 million, for the three months ended September 30, 2020 and 2019 respectively. Our net income was $165.9 million and $593.7 million, for the nine months ended September 30, 2020 and 2019 respectively. The changes were primarily driven by the financial component fluctuations explained above.
Ratios.
Our combined ratio increaseddecreased by 194.02.8 points to 274.6%105.8% for the three months ended September 30, 2017,2020 compared to 80.6%108.6% for the three months ended September 30, 2016,2019, and increased by 66.61.6 points to 154.2%98.7% for the nine months ended September 30, 2017,2020 compared to 87.6%97.1% for the nine months ended September 30, 2016.2019. The loss ratio componentscomponent increased 202.6by 2.2 points and 70.33.4 points in for the three and nine months ended September 30, 2017,2020, respectively, over the same period last year. The changes wereyear mainly due to the increases in current year catastrophe losses.higher attritional losses due to COVID-19. The commission and brokerage ratio componentscomponent decreased to 6.7% from 14.9%20.0% for the three months ended September 30, 2017 and 2016, respectively,2020 compared to 25.0% for the three months ended September 30, 2019, and decreased to 10.1% from 14.4%21.5% for the nine months ended September 30, 20172020 compared to 23.6% for the nine months ended September 30, 2019, reflecting the impact of the commutation of a multi-year contract in 2019 which increased the commission ratio, the impact of changes in affiliated reinsurance agreements and 2016, respectively. The decreases reflectthe impact of changes in the mix of business, the impact of affiliated quota share contracts and the impact from reinstatement premiums.business. The other underwriting expense ratios decreased to 11.1% from 11.5%ratio remained flat at 6.7% for the three months ended September 30, 20172020 and 2016, respectively,2019 and increased slightly to 12.5% from 11.9%6.6% for the nine months ended September 30, 2017 and 2016, respectively.2020 from 6.3% for the nine months ended September 30, 2019. The decrease inincrease for the threenine month period was mainly due to lower variable compensation costs. The increasethe impact of changes in the nine month period was due to costs associated with the continued expansion of the insurance business, partially offsetaffiliated reinsurance contracts.
Stockholder's Equity.
Stockholder’s equity increased by lower variable compensation costs.
39
Net Investment Income.
Net investment income increased by 13.7%41.7% to $73.4$135.4 million for the three months ended September 30, 20172020 compared to $64.6$95.6 million for the three months ended September 30, 2012019. 6. This increase was primarily the result of an increase in limited partnership income, as the improvement in the equity markets during the second quarter had a positive impact on the limited partnership valuations, and we had higher income from our growing fixed income portfolio. Net investment income increaseddecreased by 4.7%9.6% to $206.2$244.8 million for the nine months ended September 30, 20172020 compared to $196.9$270.8 million for the nine months ended September 30, 2012019. 6. The increases forThis decrease in income was primarily the three and nine month periods were primarily due to an increaseresult of losses from our limited partnerships in limited partnership income andthe second quarter, partially offset by higher income from theour growing fixed income portfolio, partially offset by lower dividend income from our equitymaturity portfolio.
41
The following table shows the components of net investment income for the periods indicated:
| Three Months Ended |
| Nine Months Ended | ||||||||
| September 30, |
| September 30, | ||||||||
(Dollars in millions) | 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
Fixed maturities | $ | 78.3 |
| $ | 68.2 |
| $ | 227.3 |
| $ | 200.6 |
Equity securities |
| 2.5 |
|
| 1.9 |
|
| 6.1 |
|
| 5.7 |
Short-term investments and cash |
| 0.5 |
|
| 2.2 |
|
| 2.6 |
|
| 8.1 |
Other invested assets |
|
|
|
|
|
|
|
|
|
|
|
Limited partnerships |
| 35.9 |
|
| 15.1 |
|
| 2.4 |
|
| 38.3 |
Dividends from preferred shares of affiliate |
| 7.8 |
|
| 7.8 |
|
| 23.3 |
|
| 23.3 |
Other |
| 14.7 |
|
| 7.3 |
|
| (1.3) |
|
| 13.6 |
Gross investment income before adjustments |
| 139.7 |
|
| 102.5 |
|
| 260.4 |
|
| 289.6 |
Funds held interest income (expense) |
| 0.9 |
|
| 1.1 |
|
| 5.1 |
|
| 5.4 |
Interest income from Parent |
| 1.3 |
|
| - |
|
| 3.9 |
|
| - |
Gross investment income |
| 141.8 |
|
| 103.6 |
|
| 269.3 |
|
| 295.0 |
Investment expenses |
| (6.4) |
|
| (8.0) |
|
| (24.5) |
|
| (24.2) |
Net investment income | $ | 135.4 |
| $ | 95.6 |
| $ | 244.8 |
| $ | 270.8 |
|
|
|
|
|
|
|
|
|
|
|
|
(Some amounts may not reconcile due to rounding.) |
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
(Dollars in millions) | 2017 | 2016 | 2017 | 2016 | ||||||||||||
Fixed maturities | $ | 48.3 | $ | 44.8 | $ | 144.9 | $ | 134.9 | ||||||||
Equity securities | 6.3 | 7.9 | 19.4 | 25.8 | ||||||||||||
Short-term investments and cash | 0.6 | 0.3 | 1.6 | 0.9 | ||||||||||||
Other invested assets | ||||||||||||||||
Limited partnerships | 11.8 | 6.0 | 20.6 | 17.7 | ||||||||||||
Dividends from preferred shares of affiliate | 7.8 | 7.8 | 23.3 | 23.3 | ||||||||||||
Other | 1.5 | 0.5 | 4.2 | 0.3 | ||||||||||||
Gross investment income before adjustments | 76.4 | 67.3 | 214.1 | 202.8 | ||||||||||||
Funds held interest income (expense) | 1.1 | 1.1 | 4.0 | 4.7 | ||||||||||||
Interest income from Parent | 1.1 | 1.1 | 3.2 | 3.2 | ||||||||||||
Gross investment income | 78.5 | 69.5 | 221.3 | 210.8 | ||||||||||||
Investment expenses | (5.1 | ) | (4.9 | ) | (15.1 | ) | (13.9 | ) | ||||||||
Net investment income | $ | 73.4 | $ | 64.6 | $ | 206.2 | $ | 196.9 | ||||||||
(Some amounts may not reconcile due to rounding.) |
The following tables show a comparison of various investment yields for the periods indicated:
| At |
| At |
|
| September 30, |
| December 31, |
|
| 2020 |
| 2019 |
|
Imbedded pre-tax yield of cash and invested assets | 3.2% |
| 3.5% |
|
Imbedded after-tax yield of cash and invested assets | 2.5% |
| 2.8% |
|
| Three Months Ended |
| Nine Months Ended | ||||
| September 30, |
| September 30, | ||||
| 2020 |
| 2019 |
| 2020 |
| 2019 |
Annualized pre-tax yield on average cash and invested assets | 4.3% |
| 3.4% |
| 2.6% |
| 3.3% |
Annualized after-tax yield on average cash and invested assets | 3.4% |
| 2.7% |
| 2.1% |
| 2.6% |
At | At | |||
September 30, | December 31, | |||
2017 | 2016 | |||
Imbedded pre-tax yield of cash and invested assets at December 31 | 3.1% | 2.9% | ||
Imbedded after-tax yield of cash and invested assets at December 31 | 2.1% | 2.0% |
42
Three Months Ended | Nine Months Ended | ||||||
September 30, | September 30, | ||||||
2017 | 2016 | 2017 | 2016 | ||||
Annualized pre-tax yield on average cash and invested assets | 3.0% | 2.7% | 2.8% | 2.8% | |||
Annualized after-tax yield on average cash and invested assets | 2.1% | 1.9% | 2.0% | 1.9% |
40
The following table presents the composition of our net realized capital gains (losses) for the periods indicated:
| Three Months Ended September 30, |
| Nine Months Ended September 30, | ||||||||||||||
(Dollars in millions) | 2020 |
| 2019 |
| Variance |
| 2020 |
| 2019 |
| Variance | ||||||
Gains (losses) from sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities, market value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains | $ | 5.0 |
| $ | 6.6 |
| $ | (1.6) |
| $ | 15.6 |
| $ | 17.5 |
| $ | (1.9) |
Losses |
| (5.0) |
|
| (4.5) |
|
| (0.5) |
|
| (34.6) |
|
| (14.2) |
|
| (20.4) |
Total |
| - |
|
| 2.1 |
|
| (2.1) |
|
| (19.0) |
|
| 3.3 |
|
| (22.3) |
Fixed maturity securities, fair value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains |
| - |
|
| - |
|
| - |
|
| - |
|
| 0.4 |
|
| (0.4) |
Losses |
| (2.0) |
|
| - |
|
| (2.0) |
|
| (2.0) |
|
| - |
|
| (2.0) |
Total |
| (2.0) |
|
| - |
|
| (2.0) |
|
| (2.0) |
|
| 0.4 |
|
| (2.4) |
Equity securities, fair value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains |
| 9.5 |
|
| 1.1 |
|
| 8.4 |
|
| 30.3 |
|
| 9.3 |
|
| 21.0 |
Losses |
| (9.8) |
|
| (2.2) |
|
| (7.6) |
|
| (41.9) |
|
| (6.7) |
|
| (35.2) |
Total |
| (0.3) |
|
| (1.1) |
|
| 0.8 |
|
| (11.6) |
|
| 2.6 |
|
| (14.2) |
Other invested assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains |
| 1.4 |
|
| 2.6 |
|
| (1.2) |
|
| 6.0 |
|
| 2.9 |
|
| 3.1 |
Losses |
| (0.3) |
|
| (0.5) |
|
| 0.2 |
|
| (5.9) |
|
| (0.6) |
|
| (5.3) |
Total |
| 1.1 |
|
| 2.1 |
|
| (1.0) |
|
| 0.1 |
|
| 2.3 |
|
| (2.2) |
Short Term Investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains |
| 0.8 |
|
| - |
|
| 0.8 |
|
| 1.0 |
|
| 0.1 |
|
| 0.9 |
Losses |
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
Total |
| 0.8 |
|
| - |
|
| 0.8 |
|
| 1.0 |
|
| 0.1 |
|
| 0.9 |
Total net realized gains (losses) from sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains |
| 16.7 |
|
| 10.3 |
|
| 6.4 |
|
| 52.9 |
|
| 30.2 |
|
| 22.7 |
Losses |
| (17.1) |
|
| (7.2) |
|
| (9.9) |
|
| (84.4) |
|
| (21.5) |
|
| (62.9) |
Total |
| (0.5) |
|
| 3.1 |
|
| (3.6) |
|
| (31.6) |
|
| 8.7 |
|
| (40.3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowances for credit losses: |
| 2.3 |
|
| - |
|
| 2.3 |
|
| (17.6) |
|
| - |
|
| (17.6) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other than temporary impairments: |
| - |
|
| (7.0) |
|
| 7.0 |
|
| - |
|
| (14.2) |
|
| 14.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains (losses) from fair value adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturities, fair value |
| 3.3 |
|
| - |
|
| 3.3 |
|
| 1.9 |
|
| - |
|
| 1.9 |
Equity securities, fair value |
| 94.3 |
|
| (10.3) |
|
| 104.6 |
|
| 120.8 |
|
| 93.3 |
|
| 27.5 |
Other invested assets, fair value |
| 15.8 |
|
| 126.7 |
|
| (110.9) |
|
| (180.8) |
|
| 302.3 |
|
| (483.1) |
Total |
| 113.4 |
|
| 116.4 |
|
| (3.0) |
|
| (58.1) |
|
| 395.6 |
|
| (453.7) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net realized gains (losses) | $ | 115.2 |
| $ | 112.6 |
| $ | 2.6 |
| $ | (107.3) |
| $ | 390.2 |
| $ | (497.5) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Some amounts may not reconcile due to rounding.) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||
(Dollars in millions) | 2017 | 2016 | Variance | 2017 | 2016 | Variance | ||||||||||||||||||
Gains (losses) from sales: | ||||||||||||||||||||||||
Fixed maturity securities, market value | ||||||||||||||||||||||||
Gains | $ | 8.0 | $ | 6.3 | $ | 1.7 | $ | 23.7 | $ | 13.9 | $ | 9.8 | ||||||||||||
Losses | (4.1 | ) | (1.9 | ) | (2.2 | ) | (6.9 | ) | (24.1 | ) | 17.2 | |||||||||||||
Total | 3.9 | 4.4 | (0.5 | ) | 16.8 | (10.3 | ) | 27.0 | ||||||||||||||||
Fixed maturity securities, fair value | ||||||||||||||||||||||||
Gains | - | - | - | - | - | - | ||||||||||||||||||
Losses | - | - | - | - | (1.9 | ) | 1.9 | |||||||||||||||||
Total | - | - | - | - | (1.9 | ) | 1.9 | |||||||||||||||||
Equity securities, fair value | ||||||||||||||||||||||||
Gains | 2.2 | 6.9 | (4.7 | ) | 13.8 | 13.5 | 0.3 | |||||||||||||||||
Losses | (3.7 | ) | (1.4 | ) | (2.3 | ) | (10.3 | ) | (23.6 | ) | 13.3 | |||||||||||||
Total | (1.5 | ) | 5.5 | (7.0 | ) | 3.5 | (10.1 | ) | 13.6 | |||||||||||||||
Total net realized gains (losses) from sales | ||||||||||||||||||||||||
Gains | 10.2 | 13.2 | (3.0 | ) | 37.5 | 27.4 | 10.1 | |||||||||||||||||
Losses | (7.8 | ) | (3.4 | ) | (4.5 | ) | (17.2 | ) | (49.7 | ) | 32.5 | |||||||||||||
Total | 2.4 | 9.6 | (7.5 | ) | 20.3 | (22.4 | ) | 42.6 | ||||||||||||||||
Gain (losses) on sale of subsidiary: | - | (28.0 | ) | 28.0 | - | (28.0 | ) | 28.0 | ||||||||||||||||
Other than temporary impairments: | (1.5 | ) | (0.8 | ) | (0.7 | ) | (4.2 | ) | (25.2 | ) | 21.0 | |||||||||||||
Gains (losses) from fair value adjustments: | ||||||||||||||||||||||||
Fixed maturities, fair value | - | 0.1 | (0.1 | ) | - | 1.4 | (1.4 | ) | ||||||||||||||||
Equity securities, fair value | 29.6 | 16.0 | 13.6 | 82.0 | 34.7 | 47.3 | ||||||||||||||||||
Other invested assets, fair value | 197.9 | (47.0 | ) | 244.9 | 155.8 | (47.8 | ) | 203.6 | ||||||||||||||||
Total | 227.5 | (30.9 | ) | 258.4 | 237.8 | (11.7 | ) | 249.5 | ||||||||||||||||
Total net realized gains (losses) | $ | 228.5 | $ | (50.1 | ) | $ | 278.6 | $ | 254.0 | $ | (87.3 | ) | $ | 341.3 | ||||||||||
(Some amounts may not reconcile due to rounding.) |
Net Realized Capital Gains (Losses).Net realized capital gains were $228.5$115.2 million and net realized capital losses were $50.1$112.6 million for the three months ended September 30, 20172020 and 2016,2019, respectively. For the three months ended September 30, 2017 we recorded $227.5 million ofThe net realized capital gains due to fair value re-measurements on equity securities and other invested assets and $2.4of $115.2 million of net realized capital gains from sales of fixed maturity and equity securities, partially offset by $1.5 million of other-than-temporary impairments. For the three months ended September 30, 2016, we recorded $30.9 million of net realized capital losses due to fair value re-measurements on fixed maturity securities, equity securities and other invested assets, net realized capital losses of $28.0 million from the sale of our Heartland subsidiary and $0.8 million of other-than-temporary impairments, partially offset by $9.6 million of net realized capital gains from sales of fixed maturity and equity securities. The fixed maturity and equity sales for the three months ended September 30, 20172020, were comprised of $113.4 million of gains from fair value re-measurements, resulting primarily from increases in equity security valuations which further rebounded from declines in the first quarter of 2020, and 2016 related primarily to adjusting$2.3 million from a decline in net allowances for credit losses partially offset by 0.5 million of losses from sales of investments. The net realized capital gains of $112.6 million for the portfolios for overall market changesthree months ended September 30, 2019 were comprised of $116.4 million of gains from fair value re-measurements and individual credit shifts.3.1 million of gains from sales of investments, partially offset by $7.0 million of other than temporary impairments.
43
Net realized capital gainslosses were $254.0$107.3 million and net realized capital lossesgains were $87.3$390.2 million for the nine months ended September 30, 20172020 and 2016,2019, respectively. For the nine months ended September 30, 2017 we recorded $237.8 million of net realized capital gains due to fair value re-measurements on equity securities and other invested assets and $20.3 million of net realized capital gains from sales of fixed maturity and equity securities, partially offset by $4.2 million of other-than-temporary impairments. For the nine months ended September 30, 2016, we recordedThe net realized capital losses of $28.0$107.3 million from the
Segment Results.
The U.S. Reinsurance operation writes worldwide property and casualty reinsurance and specialty lines of business, including Marine, Aviation, Surety and A&H business, on both a treaty and facultative basis, through reinsurance brokers, as well as directly with ceding companies primarily withincompanies. Business is written in the U.S. The International operation writes non-U.S. property and casualty reinsuranceUnited States as well as through Everest Re's branches in Canada Singapore and through offices in Brazil, Miami and New Jersey.Singapore. The Insurance operation writes property and casualty insurance directly and through brokers, surplus lines brokers and general agents mainly within the U.S.
These segments are managed independently, but conform with corporate guidelines with respect to pricing, risk management, control of aggregate catastrophe exposures, capital, investments and support operations. Management generally monitors and evaluates the financial performance of these operating segments based upon their underwriting results.
Underwriting results include earned premium less losses and LAE incurred, commission and brokerage expenses and other underwriting expenses. We measure our underwriting results using ratios, in particular loss, commission and brokerage and other underwriting expense ratios, which respectively, divide incurred losses, commissions and brokerage and other underwriting expenses by premiums earned.
Our loss and LAE reserves are management'smanagement’s best estimate of our ultimate liability for unpaid claims. We re-evaluate our estimates on an ongoing basis, including all prior period reserves, taking into consideration all available information and, in particular, recently reported loss claim experience and trends related to prior periods. Such re-evaluations are recorded in incurred losses in the period in which the re-evaluation is made.
The following discusses the underwriting results for each of our segments for the periods indicated:
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, | ||||||||||||||||||
(Dollars in millions) | 2020 |
| 2019 |
| Variance |
| % Change |
| 2020 |
| 2019 |
| Variance |
| % Change | ||||||
Gross written premiums | $ | 1,473.3 |
| $ | 1,297.2 |
| $ | 176.1 |
| 13.6% |
| $ | 3,906.4 |
| $ | 3,464.8 |
| $ | 441.6 |
| 12.7% |
Net written premiums |
| 1,296.1 |
|
| 1,141.4 |
|
| 154.7 |
| 13.6% |
|
| 3,403.1 |
|
| 2,955.3 |
|
| 447.8 |
| 15.2% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums earned | $ | 1,153.7 |
| $ | 996.5 |
| $ | 157.2 |
| 15.8% |
| $ | 3,223.6 |
| $ | 2,852.0 |
| $ | 371.6 |
| 13.0% |
Incurred losses and LAE |
| 936.9 |
|
| 800.7 |
|
| 136.2 |
| 17.0% |
|
| 2,250.3 |
|
| 1,935.7 |
|
| 314.6 |
| 16.3% |
Commission and brokerage |
| 265.1 |
|
| 297.5 |
|
| (32.4) |
| -10.9% |
|
| 818.3 |
|
| 793.0 |
|
| 25.3 |
| 3.2% |
Other underwriting expenses |
| 35.7 |
|
| 30.4 |
|
| 5.3 |
| 17.4% |
|
| 92.1 |
|
| 79.8 |
|
| 12.3 |
| 15.4% |
Underwriting gain (loss) | $ | (84.0) |
| $ | (132.1) |
| $ | 48.1 |
| -36.4% |
| $ | 62.9 |
| $ | 43.5 |
| $ | 19.4 |
| 44.6% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Point Chg |
|
|
|
|
|
|
|
|
|
| Point Chg |
Loss ratio |
| 81.2% |
|
| 80.3% |
|
|
|
| 0.9 |
|
| 69.8% |
|
| 67.9% |
|
|
|
| 1.9 |
Commission and brokerage ratio |
| 23.0% |
|
| 29.9% |
|
|
|
| (6.9) |
|
| 25.4% |
|
| 27.8% |
|
|
|
| (2.4) |
Other underwriting ratio |
| 3.1% |
|
| 3.1% |
|
|
|
| - |
|
| 2.8% |
|
| 2.8% |
|
|
|
| - |
Combined ratio |
| 107.3% |
|
| 113.3% |
|
|
|
| (6.0) |
|
| 98.0% |
|
| 98.5% |
|
|
|
| (0.5) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Some amounts may not reconcile due to rounding.) | |||||||||||||||||||||
(NM, not meaningful) |
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||||||||
(Dollars in millions) | 2017 | 2016 | Variance | % Change | 2017 | 2016 | Variance | % Change | ||||||||||||||||||||||||
Gross written premiums | $ | 908.3 | $ | 654.8 | $ | 253.6 | 38.7 | % | $ | 1,962.3 | $ | 1,597.0 | $ | 365.3 | 22.9 | % | ||||||||||||||||
Net written premiums | 295.6 | 327.2 | (31.6 | ) | -9.7 | % | 649.9 | 711.7 | (61.8 | ) | -8.7 | % | ||||||||||||||||||||
Premiums earned | $ | 242.4 | $ | 249.2 | $ | (6.9 | ) | -2.8 | % | $ | 653.0 | $ | 709.1 | $ | (56.1 | ) | -7.9 | % | ||||||||||||||
Incurred losses and LAE | 678.9 | 137.2 | 541.7 | NM | 919.1 | 363.6 | 555.5 | 152.8 | % | |||||||||||||||||||||||
Commission and brokerage | 31.7 | 48.1 | (16.4 | ) | -34.1 | % | 115.2 | 148.0 | (32.7 | ) | -22.1 | % | ||||||||||||||||||||
Other underwriting expenses | 12.1 | 14.3 | (2.2 | ) | -15.2 | % | 40.6 | 39.9 | 0.8 | 1.9 | % | |||||||||||||||||||||
Underwriting gain (loss) | $ | (480.4 | ) | $ | 49.6 | $ | (530.0 | ) | NM | $ | (422.0 | ) | $ | 157.7 | $ | (579.7 | ) | NM | ||||||||||||||
Point Chg | Point Chg | |||||||||||||||||||||||||||||||
Loss ratio | 280.1 | % | 55.1 | % | 225.0 | 140.8 | % | 51.3 | % | 89.5 | ||||||||||||||||||||||
Commission and brokerage ratio | 13.1 | % | 19.3 | % | (6.2 | ) | 17.6 | % | 20.9 | % | (3.2 | ) | ||||||||||||||||||||
Other underwriting ratio | 5.0 | % | 5.7 | % | (0.7 | ) | 6.2 | % | 5.6 | % | 0.6 | |||||||||||||||||||||
Combined ratio | 298.2 | % | 80.1 | % | 218.1 | 164.6 | % | 77.8 | % | 86.9 | ||||||||||||||||||||||
(Some amounts may not reconcile due to rounding.) | ||||||||||||||||||||||||||||||||
(NM, not meaningful) |
42Premiums.
44
earned increased 15.8% to the change in net written premiums is primarily due to a varying utilization of reinsurance primarily related to the affiliated quota share contracts. Premiums earned decreased 2.8% to $242.4$1,153.7 million for the three months ended September 30, 20172020 compared to $249.2$996.5 million for the three months ended September 30, 2016. 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.
Three Months Ended September 30, | |||||||||||||||||||||||||||
Current | Ratio %/ | Prior | Ratio %/ | Total | Ratio %/ | ||||||||||||||||||||||
(Dollars in millions) | Year | Pt Change | Years | Pt Change | Incurred | Pt Change | |||||||||||||||||||||
2017 | |||||||||||||||||||||||||||
Attritional | $ | 128.0 | 52.8 | % | $ | (0.4 | ) | -0.2 | % | $ | 127.5 | 52.6 | % | ||||||||||||||
Catastrophes | 551.6 | 227.6 | % | (0.2 | ) | -0.1 | % | 551.4 | 227.5 | % | |||||||||||||||||
Total segment | $ | 679.6 | 280.4 | % | $ | (0.6 | ) | -0.3 | % | $ | 678.9 | 280.1 | % | ||||||||||||||
2016 | |||||||||||||||||||||||||||
Attritional | $ | 129.8 | 52.1 | % | $ | (1.0 | ) | -0.4 | % | $ | 128.8 | 51.7 | % | ||||||||||||||
Catastrophes | 14.4 | 5.8 | % | (5.9 | ) | -2.4 | % | 8.5 | 3.4 | % | |||||||||||||||||
Total segment | $ | 144.2 | 57.9 | % | $ | (6.9 | ) | -2.8 | % | $ | 137.2 | 55.1 | % | ||||||||||||||
Variance 2017/2016 | |||||||||||||||||||||||||||
Attritional | $ | (1.8 | ) | 0.7 | pts | $ | 0.6 | 0.2 | pts | $ | (1.3 | ) | 0.9 | pts | |||||||||||||
Catastrophes | 537.2 | 221.8 | pts | 5.7 | 2.3 | pts | 542.9 | 224.1 | pts | ||||||||||||||||||
Total segment | $ | 535.4 | 222.5 | pts | $ | 6.3 | 2.5 | pts | $ | 541.7 | 225.0 | pts |
Nine Months Ended September 30, | |||||||||||||||||||||||||||
Current | Ratio %/ | Prior | Ratio %/ | Total | Ratio %/ | ||||||||||||||||||||||
(Dollars in millions) | Year | Pt Change | Years | Pt Change | Incurred | Pt Change | |||||||||||||||||||||
2017 | |||||||||||||||||||||||||||
Attritional | $ | 374.8 | 57.4 | % | $ | (4.7 | ) | -0.7 | % | $ | 370.0 | 56.7 | % | ||||||||||||||
Catastrophes | 553.2 | 84.7 | % | (4.1 | ) | -0.6 | % | 549.1 | 84.1 | % | |||||||||||||||||
Total segment | $ | 928.0 | 142.1 | % | $ | (8.8 | ) | -1.3 | % | $ | 919.1 | 140.8 | % | ||||||||||||||
2016 | |||||||||||||||||||||||||||
Attritional | $ | 365.2 | 51.6 | % | $ | (1.3 | ) | -0.2 | % | $ | 363.9 | 51.4 | % | ||||||||||||||
Catastrophes | 15.8 | 2.2 | % | (16.1 | ) | -2.3 | % | (0.3 | ) | -0.1 | % | ||||||||||||||||
Total segment | $ | 381.0 | 53.8 | % | $ | (17.4 | ) | -2.5 | % | $ | 363.6 | 51.3 | % | ||||||||||||||
Variance 2017/2016 | |||||||||||||||||||||||||||
Attritional | $ | 9.6 | 5.8 | pts | $ | (3.4 | ) | (0.5 | ) | pts | $ | 6.1 | 5.3 | pts | |||||||||||||
Catastrophes | 537.4 | 82.5 | pts | 12.0 | 1.7 | pts | 549.4 | 84.2 | pts | ||||||||||||||||||
Total segment | $ | 547.0 | 88.3 | pts | $ | 8.6 | 1.2 | pts | $ | 555.5 | 89.5 | pts | |||||||||||||||
(Some amounts may not reconcile due to rounding.) |
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||||||||
(Dollars in millions) | 2017 | 2016 | Variance | % Change | 2017 | 2016 | Variance | % Change | ||||||||||||||||||||||||
Gross written premiums | $ | 363.2 | $ | 353.2 | $ | 10.0 | 2.8 | % | $ | 975.3 | $ | 939.9 | $ | 35.4 | 3.8 | % | ||||||||||||||||
Net written premiums | 130.2 | 141.3 | (11.1 | ) | -7.9 | % | 345.4 | 353.4 | (8.1 | ) | -2.3 | % | ||||||||||||||||||||
Premiums earned | $ | 123.9 | $ | 128.4 | $ | (4.4 | ) | -3.5 | % | $ | 355.4 | $ | 372.8 | $ | (17.5 | ) | -4.7 | % | ||||||||||||||
Incurred losses and LAE | 410.5 | 41.8 | 368.7 | NM | 557.4 | 206.7 | 350.7 | 169.7 | % | |||||||||||||||||||||||
Commission and brokerage | 25.1 | 30.2 | (5.1 | ) | -16.9 | % | 72.4 | 82.4 | (10.0 | ) | -12.2 | % | ||||||||||||||||||||
Other underwriting expenses | 8.2 | 9.2 | (1.0 | ) | -10.6 | % | 26.3 | 25.0 | 1.3 | 5.1 | % | |||||||||||||||||||||
Underwriting gain (loss) | $ | (320.0 | ) | $ | 47.1 | $ | (367.1 | ) | NM | $ | (300.8 | ) | $ | 58.7 | $ | (359.5 | ) | NM | ||||||||||||||
Point Chg | Point Chg | |||||||||||||||||||||||||||||||
Loss ratio | 331.3 | % | 32.6 | % | 298.7 | 156.9 | % | 55.4 | % | 101.5 | ||||||||||||||||||||||
Commission and brokerage ratio | 20.3 | % | 23.5 | % | (3.3 | ) | 20.4 | % | 22.1 | % | (1.7 | ) | ||||||||||||||||||||
Other underwriting ratio | 6.6 | % | 7.2 | % | (0.6 | ) | 7.3 | % | 6.8 | % | 0.5 | |||||||||||||||||||||
Combined ratio | 358.2 | % | 63.3 | % | 294.9 | 184.6 | % | 84.3 | % | 100.4 | ||||||||||||||||||||||
(Some amounts may not reconcile due to rounding.) | ||||||||||||||||||||||||||||||||
(NM, not meaningful) |
Three Months Ended September 30, | |||||||||||||||||||||||||||
Current | Ratio %/ | Prior | Ratio %/ | Total | Ratio %/ | ||||||||||||||||||||||
(Dollars in millions) | Year | Pt Change | Years | Pt Change | Incurred | Pt Change | |||||||||||||||||||||
2017 | |||||||||||||||||||||||||||
Attritional | $ | 64.0 | 51.7 | % | $ | 0.7 | 0.6 | % | $ | 64.7 | 52.3 | % | |||||||||||||||
Catastrophes | 346.6 | 279.7 | % | (0.8 | ) | -0.7 | % | 345.8 | 279.0 | % | |||||||||||||||||
Total segment | $ | 410.6 | 331.4 | % | $ | (0.1 | ) | -0.1 | % | $ | 410.5 | 331.3 | % | ||||||||||||||
2016 | |||||||||||||||||||||||||||
Attritional | $ | 49.3 | 38.4 | % | $ | - | 0.0 | % | $ | 49.3 | 38.4 | % | |||||||||||||||
Catastrophes | 6.5 | 5.1 | % | (14.0 | ) | -10.9 | % | (7.5 | ) | -5.8 | % | ||||||||||||||||
Total segment | $ | 55.8 | 43.5 | % | $ | (14.0 | ) | -10.9 | % | $ | 41.8 | 32.6 | % | ||||||||||||||
Variance 2017/2016 | |||||||||||||||||||||||||||
Attritional | $ | 14.7 | 13.3 | pts | $ | 0.7 | 0.6 | pts | $ | 15.4 | 13.9 | pts | |||||||||||||||
Catastrophes | 340.1 | 274.6 | pts | 13.2 | 10.2 | pts | 353.3 | 284.8 | pts | ||||||||||||||||||
Total segment | $ | 354.8 | 287.9 | pts | $ | 13.9 | 10.8 | pts | $ | 368.7 | 298.7 | pts |
Nine Months Ended September 30, | |||||||||||||||||||||||||||
Current | Ratio %/ | Prior | Ratio %/ | Total | Ratio %/ | ||||||||||||||||||||||
(Dollars in millions) | Year | Pt Change | Years | Pt Change | Incurred | Pt Change | |||||||||||||||||||||
2017 | |||||||||||||||||||||||||||
Attritional | $ | 182.9 | 51.5 | % | $ | 2.6 | 0.7 | % | $ | 185.5 | 52.2 | % | |||||||||||||||
Catastrophes | 371.7 | 104.6 | % | 0.2 | 0.1 | % | 371.9 | 104.7 | % | ||||||||||||||||||
Total segment | $ | 554.6 | 156.1 | % | $ | 2.8 | 0.8 | % | $ | 557.4 | 156.9 | % | |||||||||||||||
2016 | |||||||||||||||||||||||||||
Attritional | $ | 185.6 | 49.8 | % | $ | (3.4 | ) | -0.9 | % | $ | 182.3 | 48.9 | % | ||||||||||||||
Catastrophes | 45.2 | 12.1 | % | (20.8 | ) | -5.6 | % | 24.4 | 6.5 | % | |||||||||||||||||
Total segment | $ | 230.8 | 61.9 | % | $ | (24.1 | ) | -6.5 | % | $ | 206.7 | 55.4 | % | ||||||||||||||
Variance 2017/2016 | |||||||||||||||||||||||||||
Attritional | $ | (2.7 | ) | 1.7 | pts | $ | 6.0 | 1.6 | pts | $ | 3.2 | 3.3 | pts | ||||||||||||||
Catastrophes | 326.5 | 92.5 | pts | 21.0 | 5.7 | pts | 347.5 | 98.2 | pts | ||||||||||||||||||
Total segment | $ | 323.8 | 94.2 | pts | $ | 26.9 | 7.3 | pts | $ | 350.7 | 101.5 | pts | |||||||||||||||
(Some amounts may not reconcile due to rounding.) |
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||||||||
(Dollars in millions) | 2017 | 2016 | Variance | % Change | 2017 | 2016 | Variance | % Change | ||||||||||||||||||||||||
Gross written premiums | $ | 429.6 | $ | 498.0 | $ | (68.4 | ) | -13.7 | % | $ | 1,351.5 | $ | 1,276.8 | $ | 74.7 | 5.9 | % | |||||||||||||||
Net written premiums | 144.9 | 154.1 | (9.1 | ) | -5.9 | % | 442.2 | 462.8 | (20.6 | ) | -4.4 | % | ||||||||||||||||||||
Premiums earned | $ | 152.2 | $ | 179.1 | $ | (26.9 | ) | -15.0 | % | $ | 449.4 | $ | 445.6 | $ | 3.9 | 0.9 | % | |||||||||||||||
Incurred losses and LAE | 242.1 | 122.5 | 119.6 | 97.6 | % | 442.0 | 366.0 | 76.0 | 20.8 | % | ||||||||||||||||||||||
Commission and brokerage | (22.3 | ) | 4.5 | (26.7 | ) | NM | (40.1 | ) | (10.9 | ) | (29.2 | ) | NM | |||||||||||||||||||
Other underwriting expenses | 37.4 | 40.7 | (3.3 | ) | -8.1 | % | 114.9 | 116.8 | (2.0 | ) | -1.7 | % | ||||||||||||||||||||
Underwriting gain (loss) | $ | (105.0 | ) | $ | 11.4 | $ | (116.4 | ) | NM | $ | (67.3 | ) | $ | (26.4 | ) | $ | (40.9 | ) | NM | |||||||||||||
Point Chg | Point Chg | |||||||||||||||||||||||||||||||
Loss ratio | 159.0 | % | 68.4 | % | 90.6 | 98.3 | % | 82.1 | % | 16.2 | ||||||||||||||||||||||
Commission and brokerage ratio | -14.6 | % | 2.5 | % | (17.1 | ) | -8.9 | % | -2.5 | % | (6.4 | ) | ||||||||||||||||||||
Other underwriting ratio | 24.5 | % | 22.7 | % | 1.8 | 25.6 | % | 26.3 | % | (0.7 | ) | |||||||||||||||||||||
Combined ratio | 168.9 | % | 93.6 | % | 75.3 | 115.0 | % | 105.9 | % | 9.1 | ||||||||||||||||||||||
(Some amounts may not reconcile due to rounding.) | ||||||||||||||||||||||||||||||||
(NM, not meaningful) |
Gross written premiums increased by 5.9%12.7% to $1,351.5$3,906.4 million for the nine months ended September 30, 2017 compared to $1,276.82020 from $3,464.8 million for the nine months ended September 30, 2016. Excluding the impact of the sale of Heartland, which accounted for $229.9 million of gross written premiums2019 primarily due to increases in the nine months
Incurred Losses and LAE.The following tables present the incurred losses and LAE for the Reinsurance 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 | ||||||
2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attritional | $ | 677.2 |
| 58.7% |
|
| $ | - |
| 0.0% |
|
| $ | 677.2 |
| 58.7% |
|
Catastrophes |
| 262.7 |
| 22.8% |
|
|
| (3.0) |
| -0.3% |
|
|
| 259.7 |
| 22.5% |
|
Total segment | $ | 939.9 |
| 81.5% |
|
| $ | (3.0) |
| -0.3% |
|
| $ | 936.9 |
| 81.2% |
|
2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attritional | $ | 524.9 |
| 52.7% |
|
| $ | (14.7) |
| -1.5% |
|
| $ | 510.2 |
| 51.2% |
|
Catastrophes |
| 275.5 |
| 27.6% |
|
|
| 15.0 |
| 1.5% |
|
|
| 290.5 |
| 29.1% |
|
Total segment | $ | 800.4 |
| 80.3% |
|
| $ | 0.2 |
| 0.0% |
|
| $ | 800.7 |
| 80.3% |
|
Variance 2020/2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attritional | $ | 152.3 |
| 6.0 | pts |
| $ | 14.7 |
| 1.5 | pts |
| $ | 167.0 |
| 7.5 | pts |
Catastrophes |
| (12.8) |
| (4.8) | pts |
|
| (18.0) |
| (1.8) | pts |
|
| (30.8) |
| (6.6) | pts |
Total segment | $ | 139.5 |
| 1.2 | pts |
| $ | (3.3) |
| (0.3) | pts |
| $ | 136.2 |
| 0.7 | pts |
| Nine Months Ended September 30, | ||||||||||||||||
| Current |
| Ratio %/ |
| Prior |
| Ratio %/ |
| Total |
| Ratio %/ | ||||||
(Dollars in millions) | Year |
| Pt Change |
| Years |
| Pt Change |
| Incurred |
| Pt Change | ||||||
2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attritional | $ | 1,967.2 |
| 61.0% |
|
| $ | (0.6) |
| 0.0% |
|
| $ | 1,966.6 |
| 61.0% |
|
Catastrophes |
| 286.9 |
| 8.9% |
|
|
| (3.2) |
| -0.1% |
|
|
| 283.7 |
| 8.8% |
|
Total segment | $ | 2,254.1 |
| 69.9% |
|
| $ | (3.8) |
| -0.1% |
|
| $ | 2,250.3 |
| 69.8% |
|
2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attritional | $ | 1,594.4 |
| 55.9% |
|
| $ | (9.9) |
| -0.3% |
|
| $ | 1,584.6 |
| 55.6% |
|
Catastrophes |
| 300.4 |
| 10.5% |
|
|
| 50.8 |
| 1.8% |
|
|
| 351.2 |
| 12.3% |
|
Total segment | $ | 1,894.8 |
| 66.4% |
|
| $ | 40.9 |
| 1.5% |
|
| $ | 1,935.7 |
| 67.9% |
|
Variance 2020/2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attritional | $ | 372.8 |
| 5.1 | pts |
| $ | 9.3 |
| 0.3 | pts |
| $ | 382.0 |
| 5.4 | pts |
Catastrophes |
| (13.5) |
| (1.6) | pts |
|
| (54.0) |
| (1.9) | pts |
|
| (67.5) |
| (3.5) | pts |
Total segment | $ | 359.3 |
| 3.5 | pts |
| $ | (44.7) |
| (1.6) | pts |
| $ | 314.6 |
| 1.9 | pts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Some amounts may not reconcile due to rounding.) |
Incurred losses increased by 17.0% to $936.9 million for the three months ended September 30, 2020 compared to $800.7 million for the three months ended September 30, 2019. The increase was primarily due
45
to an increase of $152.3 million in current year attritional losses, primarily related to $27.1 million of losses from the COVID-19 pandemic and the impact of the increase in premiums earned, as well as $14.7 million less of favorable development on prior years attritional losses in 2020 compared to 2019. The increase in incurred losses was partially offset by a decline of $12.8 million in current year catastrophe losses and $18.0 million of improvement in development on prior years catastrophe losses in 2020 compared to 2019. The $262.7 million of current year catastrophe losses for the three months ended September 30, 2020 related to Hurricane Laura ($107.4 million), the Northern California wildfires ($52.0 million), the California Glass wildfire ($30.0 million), Oregon wildfires ($21.0 million), Hurricane Isaias ($17.9 million), the Derecho storms ($13.1 million), Calgary storms in Canada ($12.5 million), Hurricane Sally ($8.6 million), the U.S. Civil Unrest ($2.4 million) and the Nashville tornadoes ($2.3 million), partially offset by a reduction in the loss estimate for the Australia East Coast storm ($3.2 million) and the 2020 Australia fires ($1.3 million). The current year catastrophe losses of $275.5 million for the three months ended September 30, 2019 related to Hurricane Dorian ($150.5 million) and Typhoon Faxai ($126.0 million)..
Incurred losses increased by 16.3% to $2,250.3 million for the nine months ended September 30, 2020 compared to $1,935.7 million for the nine months ended September 30, 2019. The increase was primarily due to an increase of $372.8 million in current year attritional losses, primarily related to $72.6 million of losses from the COVID-19 pandemic and the impact of the increase in premiums earned, as well as $9.3 million less of favorable development on prior years attritional losses in 2020 compared to 2019. The increase in incurred losses was partially offset by a decline of $13.5 million in current year catastrophe losses and $54.0 million of improvement in development on prior years catastrophe losses in 2020 compared to 2019. The current year catastrophe losses of $286.9 million for the nine months ended September 30, 2020 primarily related to Hurricane Laura ($107.4 million), the Northern California wildfires ($52.0 million), the California Glass wildfire ($30.0 million), Oregon wildfires ($21.0 million), Hurricane Isaias ($17.9 million), , the Derecho storms ($13.1 million), the Nashville tornadoes ($9.6 million), the Calgary storms in Canada ($12.5 million), Hurricane Sally ($8.6 million), the Australia East Coast storm ($6.8 million), the 2020 Australia fires ($5.6 million) and the U.S. Civil Unrest ($2.4 million),. The current year catastrophe losses of $300.4 million for the nine months ended September 30, 2019mainly related to Hurricane Dorian ($150.5 million), Typhoon Faxai ($126.0 million), and the Townsville monsoon in Australia ($23.9 million).
Segment Expenses. Commission and brokerage decreased to $265.1 million for the three months ended September 30, 2020 compared to $297.5 million for the three months ended September 30, 2019. The decrease was mainly due to the impact of the commutation of a multi-year contract in 2019 which increased prior year commission expense and the impact of changes in affiliated reinsurance agreements. Commission and brokerage increased to $818.3 million for the nine months ended September 30, 2020 compared to $793.0 million for the nine months ended September 30, 2019. The increase was mainly due to the impact of the increase in premiums earned. Segment other underwriting expenses increased to $35.7 million for the three months ended September 30, 2020 from $30.4 million for the three months ended September 30, 2019. Segment other underwriting expenses increased to $92.1 million for the nine months ended September 30, 2020 from $79.8 million for the nine months ended September 30, 2019. These were mainly due to the impact of the increase in premiums earned and changes in affiliated reinsurance agreements.
46
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, | ||||||||||||||||||
(Dollars in millions) | 2020 |
| 2019 |
| Variance |
| % Change |
| 2020 |
| 2019 |
| Variance |
| % Change | ||||||
Gross written premiums | $ | 591.7 |
| $ | 592.8 |
| $ | (1.1) |
| -0.2% |
| $ | 1,971.8 |
| $ | 1,798.1 |
| $ | 173.7 |
| 9.7% |
Net written premiums |
| 429.6 |
|
| 428.5 |
|
| 1.1 |
| 0.3% |
|
| 1,462.9 |
|
| 1,326.7 |
|
| 136.2 |
| 10.3% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums earned | $ | 461.7 |
| $ | 431.9 |
| $ | 29.9 |
| 6.9% |
| $ | 1,424.8 |
| $ | 1,222.4 |
| $ | 202.4 |
| 16.6% |
Incurred losses and LAE |
| 340.9 |
|
| 297.4 |
|
| 43.6 |
| 14.7% |
|
| 1,032.9 |
|
| 801.7 |
|
| 231.2 |
| 28.8% |
Commission and brokerage |
| 57.3 |
|
| 60.2 |
|
| (2.9) |
| -4.8% |
|
| 182.9 |
|
| 169.6 |
|
| 13.3 |
| 7.8% |
Other underwriting expenses |
| 73.7 |
|
| 65.3 |
|
| 8.4 |
| 12.9% |
|
| 212.6 |
|
| 177.6 |
|
| 35.0 |
| 19.7% |
Underwriting gain (loss) | $ | (10.2) |
| $ | 9.0 |
| $ | (19.2) |
| -213.2% |
| $ | (3.6) |
| $ | 73.5 |
| $ | (77.1) |
| 104.9% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Point Chg |
|
|
|
|
|
|
|
|
|
| Point Chg |
Loss ratio |
| 73.8% |
|
| 68.9% |
|
|
|
| 4.9 |
|
| 72.5% |
|
| 65.6% |
|
|
|
| 6.9 |
Commission and brokerage ratio |
| 12.4% |
|
| 13.9% |
|
|
|
| (1.5) |
|
| 12.8% |
|
| 13.9% |
|
|
|
| (1.1) |
Other underwriting ratio |
| 16.0% |
|
| 15.1% |
|
|
|
| 0.9 |
|
| 15.0% |
|
| 14.5% |
|
|
|
| 0.5 |
Combined ratio |
| 102.2% |
|
| 97.9% |
|
|
|
| 4.3 |
|
| 100.3% |
|
| 94.0% |
|
|
|
| 6.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Some amounts may not reconcile due to rounding.) | |||||||||||||||||||||
(NM, not meaningful) |
Premiums.Gross written premiums remained basically flat at $591.7 million for the three months ended September 30, 2020 compared to $592.8 million for the three months ended September 30, 2019. Net written premiums increased by 0.3% to $429.6 million for the three months ended September 30, 2020 compared to $428.5 million for the three months ended September 30, 2019. 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. Premiums earned increased 6.9% to $461.7 million for the three months ended September 30, 2020 compared to $431.9 million for the three months ended September 30, 2019. The change in premiums earned is the result of timing; premiums are earned ratably over the coverage period whereas written premiums are recorded at the initiation of the coverage period.
Gross written premiums increased by 9.7% to $1,971.8 million for the nine months ended September 30, 2020 compared to $1,798.1 million for the nine months ended September 30, 2019. This increase was related to most lines of business including casualty, property, specialty lines and accident and health. Net written premiums increased by 10.3% to $1,462.9 million for the nine months ended September 30, 2020 compared to $1,326.7 million for the nine months ended September 30, 2019, which is consistent with the change in gross written premiums. Premiums earned increased 16.6% to $1,424.8 million for the nine months ended September 30, 2020 compared to $1,222.4 million for the nine months ended September 30, 2019. The change in premiums earned is the result of timing; premiums are earned ratably over the coverage period whereas written premiums are recorded at the initiation of the coverage period.
47
Incurred Losses and LAE.The following tables present 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 | ||||||
2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attritional | $ | 303.7 |
| 65.8% |
|
| $ | - |
| 0.0% |
|
| $ | 303.7 |
| 65.8% |
|
Catastrophes |
| 37.5 |
| 8.1% |
|
|
| (0.2) |
| -0.1% |
|
|
| 37.3 |
| 8.1% |
|
Total segment | $ | 341.2 |
| 73.9% |
|
| $ | (0.2) |
| -0.1% |
|
| $ | 340.9 |
| 73.8% |
|
2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attritional | $ | 289.7 |
| 67.1% |
|
| $ | 1.3 |
| 0.3% |
|
| $ | 291.0 |
| 67.4% |
|
Catastrophes |
| 4.0 |
| 0.9% |
|
|
| 2.3 |
| 0.5% |
|
|
| 6.3 |
| 1.5% |
|
Total segment | $ | 293.7 |
| 68.0% |
|
| $ | 3.7 |
| 0.9% |
|
| $ | 297.4 |
| 68.9% |
|
Variance 2020/2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attritional | $ | 14.0 |
| (1.3) | pts |
| $ | (1.3) |
| (0.3) | pts |
| $ | 12.7 |
| (1.6) | pts |
Catastrophes |
| 33.5 |
| 7.2 | pts |
|
| (2.5) |
| (0.6) | pts |
|
| 31.0 |
| 6.6 | pts |
Total segment | $ | 47.5 |
| 5.9 | pts |
| $ | (3.9) |
| (1.0) | pts |
| $ | 43.6 |
| 4.9 | pts |
| Nine Months Ended September 30, | ||||||||||||||||
| Current |
| Ratio %/ |
| Prior |
| Ratio %/ |
| Total |
| Ratio %/ | ||||||
(Dollars in millions) | Year |
| Pt Change |
| Years |
| Pt Change |
| Incurred |
| Pt Change | ||||||
2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attritional | $ | 976.0 |
| 68.5% |
|
| $ | (0.3) |
| 0.0% |
|
| $ | 975.6 |
| 68.5% |
|
Catastrophes |
| 58.0 |
| 4.1% |
|
|
| (0.7) |
| 0.0% |
|
|
| 57.3 |
| 4.0% |
|
Total segment | $ | 1,034.0 |
| 72.6% |
|
| $ | (1.0) |
| -0.1% |
|
| $ | 1,032.9 |
| 72.5% |
|
2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attritional | $ | 810.6 |
| 66.3% |
|
| $ | (17.3) |
| -1.4% |
|
| $ | 793.2 |
| 64.9% |
|
Catastrophes |
| 4.0 |
| 0.3% |
|
|
| 4.5 |
| 0.4% |
|
|
| 8.5 |
| 0.7% |
|
Total segment | $ | 814.6 |
| 66.6% |
|
| $ | (12.9) |
| -1.1% |
|
| $ | 801.7 |
| 65.6% |
|
Variance 2020/2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attritional | $ | 165.4 |
| 2.2 | pts |
| $ | 17.0 |
| 1.4 | pts |
| $ | 182.4 |
| 3.6 | pts |
Catastrophes |
| 54.0 |
| 3.8 | pts |
|
| (5.2) |
| (0.4) | pts |
|
| 48.8 |
| 3.3 | pts |
Total segment | $ | 219.4 |
| 6.0 | pts |
| $ | 11.9 |
| 1.1 | pts |
| $ | 231.2 |
| 6.9 | pts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Some amounts may not reconcile due to rounding.) |
Three Months Ended September 30, | |||||||||||||||||||||||||||
Current | Ratio %/ | Prior | Ratio %/ | Total | Ratio %/ | ||||||||||||||||||||||
(Dollars in millions) | Year | Pt Change | Years | Pt Change | Incurred | Pt Change | |||||||||||||||||||||
2017 | |||||||||||||||||||||||||||
Attritional | $ | 133.6 | 87.7 | % | $ | (1.2 | ) | -0.8 | % | $ | 132.4 | 86.9 | % | ||||||||||||||
Catastrophes | 109.6 | 72.0 | % | 0.1 | 0.1 | % | 109.7 | 72.1 | % | ||||||||||||||||||
Total segment | $ | 243.2 | 159.7 | % | $ | (1.1 | ) | -0.7 | % | $ | 242.1 | 159.0 | % | ||||||||||||||
2016 | |||||||||||||||||||||||||||
Attritional | $ | 121.4 | 67.8 | % | $ | 1.1 | 0.6 | % | $ | 122.5 | 68.4 | % | |||||||||||||||
Catastrophes | - | 0.0 | % | - | 0.0 | % | - | 0.0 | % | ||||||||||||||||||
Total segment | $ | 121.4 | 67.8 | % | $ | 1.1 | 0.6 | % | $ | 122.5 | 68.4 | % | |||||||||||||||
Variance 2017/2016 | |||||||||||||||||||||||||||
Attritional | $ | 12.2 | 19.9 | pts | $ | (2.3 | ) | (1.4 | ) | pts | $ | 9.9 | 18.5 | pts | |||||||||||||
Catastrophes | 109.6 | 72.0 | pts | 0.1 | 0.1 | pts | 109.7 | 72.1 | pts | ||||||||||||||||||
Total segment | $ | 121.8 | 91.9 | pts | $ | (2.2 | ) | (1.3 | ) | pts | $ | 119.6 | 90.6 | pts |
Nine Months Ended September 30, | |||||||||||||||||||||||||||
Current | Ratio %/ | Prior | Ratio %/ | Total | Ratio %/ | ||||||||||||||||||||||
(Dollars in millions) | Year | Pt Change | Years | Pt Change | Incurred | Pt Change | |||||||||||||||||||||
2017 | |||||||||||||||||||||||||||
Attritional | $ | 321.2 | 71.4 | % | $ | 6.5 | 1.4 | % | $ | 327.7 | 72.8 | % | |||||||||||||||
Catastrophes | 114.4 | 25.5 | % | (0.1 | ) | 0.0 | % | 114.3 | 25.5 | % | |||||||||||||||||
Total segment | $ | 435.6 | 96.9 | % | $ | 6.4 | 1.4 | % | $ | 442.0 | 98.3 | % | |||||||||||||||
2016 | |||||||||||||||||||||||||||
Attritional | $ | 343.8 | 77.1 | % | $ | 5.6 | 1.3 | % | $ | 349.4 | 78.4 | % | |||||||||||||||
Catastrophes | 16.7 | 3.7 | % | (0.2 | ) | 0.0 | % | 16.5 | 3.7 | % | |||||||||||||||||
Total segment | $ | 360.5 | 80.8 | % | $ | 5.4 | 1.3 | % | $ | 366.0 | 82.1 | % | |||||||||||||||
Variance 2017/2016 | |||||||||||||||||||||||||||
Attritional | $ | (22.6 | ) | (5.7 | ) | pts | $ | 0.9 | 0.1 | pts | $ | (21.7 | ) | (5.6 | ) | pts | |||||||||||
Catastrophes | 97.7 | 21.8 | pts | 0.1 | - | pts | 97.8 | 21.8 | pts | ||||||||||||||||||
Total segment | $ | 75.1 | 16.1 | pts | $ | 1.0 | 0.1 | pts | $ | 76.0 | 16.2 | pts | |||||||||||||||
(Some amounts may not reconcile due to rounding.) |
Incurred losses and LAE increased by 97.6%14.7% to $242.1$340.9 million for the three months ended September 30, 20172020 compared to $122.5$297.4 million for the three months ended September 30, 2016,2019, mainly due to an increase of $109.6$14.0 million in current year attritional losses, resulting from $4.0 million of losses from the COVID-19 pandemic and the impact of the increase in premiums earned and an increase of $33.5 million in current year catastrophe losses and an increaselosses. The $37.5 million of $12.2 million in current year attritional losses. The current year catastrophe losses of $109.6 million for the three months ended September 30, 20172020, related to Hurricane HarveySally ($50.816.0 million), Hurricane IrmaLaura ($50.115.0 million), the Calgary storms in Canada ($2.5 million), Hurricane Isaias ($2.0 million) and Hurricane Mariathe Derecho storms ($8.72.0 million). There were noThe current year catastrophe losses of $4.0 million for the three months ended September 30, 2016.2019, related to Hurricane Dorian ($4.0 million).
48
48
million), the Derecho storms ($2.0 million) and Hurricane Isaias ($2.0 million). The current year catastrophe losses of $4.0 million for the Fort McMurray Canada wildfirenine months ended September 30, 2019, related to Hurricane Dorian ($1.74.0 million).
Segment Expenses.Commission and brokerage decreased to ($22.3)$57.3 million for the three months ended September 30, 20172020 compared to $4.5$60.2 million for the three months ended September 30, 2016.2019. The three month decrease was primarily due to changes in the mix of business. Commission and brokerage decreasedincreased to ($40.1)$182.9 million for the nine months ended September 30, 2012020 7compared to ($10.9)$169.6 million for the nine months ended September 30, 20120196. The decreases were mainlynine month increase was due to the impact of changesthe increase in the mix of business and the impacts from affiliated quota share agreements.
Market Sensitive Instruments.
The SEC'sSEC’s Financial Reporting Release #48 requires registrants to clarify and expand upon the existing financial statement disclosure requirements for derivative financial instruments, derivative commodity instruments and other financial instruments (collectively, "market“market sensitive instruments"instruments”). We do not generally enter into market sensitive instruments for trading purposes.
Our current investment strategy seeks to maximize after-tax income through a high quality, diversified, taxable and tax-preferenced fixed maturity portfolio, while maintaining an adequate level of liquidity. Our mix of taxable and tax-preferenced investments is adjusted periodically, consistent with our current and projected operating results, market conditions and our tax position. The fixed maturity securities in the investment portfolio are comprised of non-trading available for sale securities. Additionally, we have invested in equity securities.
The overall investment strategy considers the scope of present and anticipated Company operations. In particular, estimates of the financial impact resulting from non-investment asset and liability transactions, together with our capital structure and other factors, are used to develop a net liability analysis. This analysis includes estimated payout characteristics for which our investments provide liquidity. This analysis is considered in the development of specific investment strategies for asset allocation, duration and credit quality. The change in overall market sensitive risk exposure principally reflects the asset changes that took place during the period.
49
Interest Rate Risk.Risk. Our $10.2$13.8 billion investment portfolio, at September 30, 2017,2020, is principally comprised of fixed maturity securities, which are generally subject to interest rate risk and some foreign currency exchange rate risk, and some equity securities, which are subject to price fluctuations and some foreign exchange rate risk. The overall economic impact of the foreign exchange risks on the investment portfolio is partially mitigated by changes in the dollar value of foreign currency denominated liabilities and their associated income statement impact.
Interest rate risk is the potential change in value of the fixed maturity securities portfolio, including short-term investments, from a change in market interest rates. In a declining interest rate environment, it includes prepayment risk on the $736.9$1,142.6 million of mortgage-backed securities in the $6,039.4$8,580.4 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 $230.0$907.9 million of short-term investments) for the period indicated based on upward and downward parallel and immediate 100 and 200 basis point shifts in interest rates. For legal entities with a U.S. dollar functional currency, this modeling was performed on each security individually. To generate appropriate price estimate on mortgage-backed securities, changes in prepayment expectations under different interest rate environments were taken into account. For legal entities with non-U.S. dollar functional currency, the effective duration of the involved portfolio of securities was used as a proxy for the market value change under the various interest rate change scenarios.
| Impact of Interest Rate Shift in Basis Points | |||||||||||||
| At September 30, 2020 | |||||||||||||
(Dollars in millions) | -200 |
| -100 |
| - |
| 100 |
| 200 | |||||
Total Market/Fair Value | $ | 10,079.3 |
| $ | 9,783.8 |
| $ | 9,488.3 |
| $ | 9,192.8 |
| $ | 8,897.3 |
Market/Fair Value Change from Base (%) |
| 6.2% |
|
| 3.1% |
|
| 0.0% |
|
| -3.1% |
|
| -6.2% |
Change in Unrealized Appreciation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
After-tax from Base ($) | $ | 466.9 |
| $ | 233.4 |
| $ | - |
| $ | (233.4) |
| $ | (466.9) |
Impact of Interest Rate Shift in Basis Points | ||||||||||||||||||||
At September 30, 2017 | ||||||||||||||||||||
(Dollars in millions) | -200 | -100 | 0 | 100 | 200 | |||||||||||||||
Total Market/Fair Value | $ | 6,634.4 | $ | 6,454.2 | $ | 6,269.4 | $ | 6,077.2 | $ | 5,883.9 | ||||||||||
Market/Fair Value Change from Base (%) | 5.8 | % | 2.9 | % | 0.0 | % | -3.1 | % | -6.1 | % | ||||||||||
Change in Unrealized Appreciation | ||||||||||||||||||||
After-tax from Base ($) | $ | 237.3 | $ | 120.1 | $ | - | $ | (124.9 | ) | $ | (250.6 | ) |
We had $9,969.1$11,042.0 million and $8,331.3$10,209.5 million of gross reserves for losses and LAE as of September 30, 20172020 and December 31, 2016,2019, respectively. These amounts are recorded at their nominal value, as opposed to present value, which would reflect a discount adjustment to reflect the time value of money. Since losses are paid out over a period of time, the present value of the reserves is less than the nominal value. As interest rates rise, the present value of the reserves decreases and, conversely, as interest rates decline, the present value increases. These movements are the opposite of the interest rate impacts on the fair value of investments. While the difference between present value and nominal value is not reflected in our financial statements, our financial results will include investment income over time from the investment portfolio until the claims are paid. Our loss and loss reserve obligations have an expected duration that is reasonably consistent with our fixed income portfolio.
Equity Risk.Risk. Equity risk is the potential change in fair and/or market value of the common stock, preferred stock and mutual fund portfolios arising from changing prices. Our equity investments consist of a diversified portfolio of individual securities. The primary objective of the equity portfolio is to obtain greater total return relative to our core bonds over time through market appreciation and income.
The 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 | |||||||||||||
| At September 30, 2020 | |||||||||||||
(Dollars in millions) | -20% |
| -10% |
| 0% |
| 10% |
| 20% | |||||
Fair/Market Value of the Equity Portfolio | $ | 808.2 |
| $ | 909.2 |
| $ | 1,010.3 |
| $ | 1,111.3 |
| $ | 1,212.3 |
After-tax Change in Fair/Market Value |
| (159.6) |
|
| (79.8) |
|
| - |
|
| 79.8 |
|
| 159.6 |
50
Impact of Percentage Change in Equity Fair/Market Values | ||||||||||||||||||||
At September 30, 2017 | ||||||||||||||||||||
(Dollars in millions) | -20% | -10% | 0% | 10% | 20% | |||||||||||||||
Fair/Market Value of the Equity Portfolio | $ | 798.5 | $ | 898.3 | $ | 998.1 | $ | 1,097.9 | $ | 1,197.7 | ||||||||||
After-tax Change in Fair/Market Value | (129.7 | ) | (64.9 | ) | - | 64.9 | 129.7 |
Foreign Currency 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"(“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.
50
This report contains forward-looking statements within the meaning of the U.S. federal securities laws. We intend these forward-looking statements to be covered by the safe harbor provisions for forward-looking statements in the federal securities laws. In some cases, these statements can be identified by the use of forward-looking words such as "may"“may”, "will"“will”, "should"“should”, "could"“could”, "anticipate"“anticipate”, "estimate"“estimate”, "expect"“expect”, "plan"“plan”, "believe"“believe”, "predict"“predict”, "potential"“potential” and "intend"“intend”. Forward-looking statements contained in this report include information regarding our reserves for losses and LAE, the CARES Act, the impact of the TCJA, the adequacy of our provision for uncollectible balances, estimates of our catastrophe exposure, the effects of catastrophic and pandemic events on our financial statements and the ability of our subsidiaries to pay dividends. Forward-looking statements only reflect our expectations and are not guarantees of performance. These statements involve risks, uncertainties and assumptions. Actual events or results may differ materially from our expectations. Important factors that could cause our actual events or results to be materially different from our expectations include those discussed under the caption ITEM 1A, "Risk Factors"“Risk Factors” in the Company'sCompany’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.
Market Risk Instruments. See "Market“Market Sensitive Instruments"Instruments” in PART I – ITEM 2.
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"“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'sCommission’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.
51
PART II
In the ordinary course of business, the Company is involved in lawsuits, arbitrations and other formal and informal dispute resolution procedures, the outcomes of which will determine the Company'sCompany’s rights and obligations under insurance and reinsurance agreements. In some disputes, the Company seeks to enforce its rights under an agreement or to collect funds owing to it. In other matters, the Company is resisting attempts by others to collect funds or enforce alleged rights. These disputes arise from time to time and are ultimately resolved through both informal and formal means, including negotiated resolution, arbitration and litigation. In all such matters, the Company believes that its positions are legally and commercially reasonable. The Company considers the statuses of these proceedings when determining its reserves for unpaid loss and loss adjustment expenses.
Aside from litigation and arbitrations related to these insurance and reinsurance agreements, the Company is not a party to any other material litigation or arbitration.
Other than as set forth below, there have been no material changes.changes from the risk factors previously disclosed in the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2019.
The continuing COVID-19 pandemic has adversely affected, and may materially and adversely affect, our results of operations, financial position and liquidity in the future.
The ongoing COVID-19 pandemic, including the related impact on the U.S. and global economies, has adversely affected our results of operations. We expect the pandemic and its impact on our business to continue and potentially even worsen, but we cannot predict the magnitude or duration of its continued impact, particularly given the great uncertainties associated with COVID-19, including regarding the reopening of the U.S. and global economies and the recovery from its economic and other effects. The full impact of COVID-19 on our results of operations, financial position and liquidity is not yet known, and likely will not be known for some time, but includes the following:
Claim Losses Related to COVID-19 May Exceed Reserves: We have established reserves for COVID-19-related losses. Our reserves represent management’s best estimate of what the settlement and claims administration will cost for claims that have occurred, whether reported or unreported. Given the great uncertainties associated with COVID-19 and its impact and the limited information upon which our current assumptions and assessments have been made, our preliminary reserves and the underlying estimated level of claim losses and costs arising from COVID-19 may materially change.
Adverse Legislative and Regulatory Action: Legislative and regulatory initiatives taken or which may be taken in response to COVID-19 may adversely affect us. For example, our business may be subject to, certain initiatives, including, but not limited to: legislative and regulatory action that seeks to retroactively mandate coverage for losses which our insurance policies would not otherwise cover and which were not priced to cover; actions prohibiting us from cancelling insurance policies in accordance with our policy terms or non-renewing policies at their natural expiration; and/or orders to provide premium refunds, grant extended grace periods for premium payments, and provide extended time to pay past due premiums. Any such action would likely increase both our underwriting losses and our expenses and any legal challenges to any such action could take years to resolve.
Reduction in Premiums: The demand for insurance is significantly influenced by general economic conditions. Consequently, reduced economic activity relating to the COVID-19 pandemic is likely to decrease demand for our insurance products and services and negatively impact our premium volumes (and, in certain cases, may result in return of premiums due to a decrease in exposures). This may continue for an indefinite period, with the magnitude of the impact impossible to predict.
52
Investments: Further disruptions in global financial markets due to the continuing impact of COVID-19 could cause us to incur additional unrealized and/or realized investment losses, including credit impairments in our fixed maturity portfolio. In addition, the economic uncertainty resulting from COVID-19 may result in a decline in interest rates, which may negatively impact our future net investment income.
Credit Risk: As credit risk is generally a function of the economy, we face greater credit risk from our policyholders, independent agents and brokers in connection with the payment and remittance of premiums as a result of the economic conditions caused by COVID-19. Similarly, our credit risk related to the reimbursement of deductibles from policyholders and in connection with reinsurance recoverables has increased.
Operational Disruptions and Costs: Our operations could be disrupted if key members of our senior management or a significant percentage of our workforce or the workforce of our agents, brokers, suppliers or other third party service providers are unable to continue to work because of illness, government directives or otherwise. In addition, our agents, brokers, suppliers and other third party service providers, which we rely on for key aspects of our operations, are subject to risks and uncertainties related to the COVID-19 pandemic, which may interfere with their ability to fulfill their respective commitments and responsibilities to us in a timely manner and in accordance with the agreed-upon terms. In response to the COVID-19 pandemic, we have implemented remote working policies which have resulted in disruptions to our business routines, heightened risk to cybersecurity attacks and data security incidents and a greater dependency on internet and telecommunication access and capabilities.
Exhibit Index: | ||
Exhibit No. | Description | |
31.1 | Juan C. Andrade | |
31.2 | Mark Kociancic | |
32.1 | Section 906 Certification of | Mark Kociancic |
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 | |
54
52
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/ | |||||||
Mark Kociancic | |||||||
Executive Vice President and | |||||||
Chief Financial Officer | |||||||
(Duly Authorized Officer and Principal Financial Officer) | |||||||
Dated: November 16, 2020 | |||||||
55