Washington, D.C. 20549
For the quarterly period ended March 31, 2021
☐ 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 | |
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.
Form 10-Q
Page | |||||||
PART I | |||||||
FINANCIAL INFORMATION | |||||||
Item 1. | Financial Statements | ||||||
Consolidated Balance Sheets at | 1 | ||||||
Consolidated Statements of Operations and Comprehensive Income (Loss) for the three months ended March 31, 2021 and 2020 (unaudited) | 2 | ||||||
Consolidated Statements of Changes in | 3 | ||||||
Consolidated Statements of Cash Flows for the | 4 | ||||||
Notes to Consolidated Interim Financial Statements (unaudited) | 5 | ||||||
Item 2. | Management’s Discussion and Analysis of Financial Condition and | ||||||
Results of Operation | 30 | ||||||
Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 41 | |||||
Item 4. | Controls and Procedures | 41 | |||||
PART II | |||||||
OTHER INFORMATION | |||||||
Item 1. | Legal Proceedings | 42 | |||||
Item 1A. | Risk Factors | 42 | |||||
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 42 | |||||
Item 3. | Defaults Upon Senior Securities | 42 | |||||
Item 4. | Mine Safety Disclosures | 42 | |||||
Item 5. | Other Information | 42 | |||||
Item 6. | Exhibits | 43 |
EVEREST REINSURANCE HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
|
|
|
| ||
(Dollars in thousands, except share amounts and par value per share) | March 31, 2021 |
| December 31, 2020 | ||
| (unaudited) |
|
|
| |
ASSETS: |
|
|
|
|
|
Fixed maturities - available for sale, at market value (amortized cost: 2021, $10,799,513; 2020, $10,248,650 allowances for credit losses: 2021, ($8,708); 2020, ($1,566)) | $ | 11,050,001 |
| $ | 10,643,565 |
Equity securities, at fair value |
| 1,226,120 |
|
| 1,288,767 |
Short-term investments (cost: 2021, $620,398; 2020, $708,043) |
| 620,395 |
|
| 707,905 |
Other invested assets (cost: 2021, $1,177,837; 2020, $1,094,933) |
| 1,177,837 |
|
| 1,094,933 |
Other invested assets, at fair value |
| 1,889,558 |
|
| 1,796,479 |
Cash |
| 518,681 |
|
| 378,518 |
Total investments and cash |
| 16,482,592 |
|
| 15,910,167 |
Note Receivable - affiliated |
| 300,000 |
|
| 300,000 |
Accrued investment income |
| 94,239 |
|
| 80,196 |
Premiums receivable |
| 1,611,678 |
|
| 1,591,980 |
Reinsurance receivables - unaffiliated |
| 1,562,846 |
|
| 1,505,650 |
Reinsurance receivables - affiliated |
| 2,578,710 |
|
| 2,701,655 |
Funds held by reinsureds |
| 275,084 |
|
| 267,599 |
Deferred acquisition costs |
| 388,746 |
|
| 379,707 |
Prepaid reinsurance premiums |
| 363,706 |
|
| 363,489 |
Other assets |
| 651,421 |
|
| 616,640 |
TOTAL ASSETS | $ | 24,309,022 |
|
| 23,717,083 |
|
|
|
|
|
|
LIABILITIES: |
|
|
|
|
|
Reserve for losses and loss adjustment expenses | $ | 12,184,204 |
| $ | 11,654,950 |
Unearned premium reserve |
| 2,454,077 |
|
| 2,385,174 |
Funds held under reinsurance treaties |
| 44,769 |
|
| 46,894 |
Other net payable to reinsurers |
| 358,519 |
|
| 277,390 |
Losses in course of payment |
| 141,053 |
|
| 161,154 |
Income taxes net payable |
| 193,453 |
|
| 192,877 |
Senior notes due 6/1/2044 |
| 397,224 |
|
| 397,194 |
Senior notes due 10/15/2050 |
| 979,654 |
|
| 979,524 |
Long term notes due 5/1/2067 |
| 223,699 |
|
| 223,674 |
Borrowings from FHLB |
| 310,000 |
|
| 310,000 |
Accrued interest on debt and borrowings |
| 24,035 |
|
| 10,460 |
Unsettled securities payable |
| 127,283 |
|
| 206,693 |
Other liabilities |
| 441,251 |
|
| 456,786 |
Total liabilities |
| 17,879,221 |
|
| 17,302,770 |
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 (2021 and 2020) |
| - |
|
| - |
Additional paid-in capital |
| 1,101,200 |
|
| 1,101,092 |
Accumulated other comprehensive income (loss), net of deferred income tax expense (benefit) of $43,436 at 2021 and $71,080 at 2020 |
| 163,955 |
|
| 268,018 |
Retained earnings |
| 5,164,646 |
|
| 5,045,203 |
Total stockholder's equity |
| 6,429,801 |
|
| 6,414,313 |
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY | $ | 24,309,022 |
| $ | 23,717,083 |
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated financial statements. |
1
EVEREST REINSURANCE HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETSSTATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
| Three Months Ended | ||||
| March 31, | ||||
(Dollars in thousands) | 2021 |
| 2020 | ||
| (unaudited) | ||||
REVENUES: |
|
|
|
|
|
Premiums earned | $ | 1,696,900 |
| $ | 1,494,005 |
Net investment income |
| 147,723 |
|
| 74,201 |
Net realized capital gains (losses): |
|
|
|
|
|
Credit allowances on fixed maturity securities |
| (7,142) |
|
| (12,099) |
Other net realized capital gains (losses) |
| 142,153 |
|
| 268,966 |
Total net realized capital gains (losses) |
| 135,011 |
|
| 256,867 |
Other income (expense) |
| 3,979 |
|
| (4,498) |
Total revenues |
| 1,983,613 |
|
| 1,820,575 |
|
|
|
|
|
|
CLAIMS AND EXPENSES: |
|
|
|
|
|
Incurred losses and loss adjustment expenses |
| 1,354,084 |
|
| 1,029,513 |
Commission, brokerage, taxes and fees |
| 349,854 |
|
| 323,104 |
Other underwriting expenses |
| 109,795 |
|
| 101,208 |
Corporate expenses |
| 4,581 |
|
| 3,721 |
Interest, fee and bond issue cost amortization expense |
| 15,534 |
|
| 7,460 |
Total claims and expenses |
| 1,833,848 |
|
| 1,465,006 |
|
|
|
|
|
|
INCOME (LOSS) BEFORE TAXES |
| 149,765 |
|
| 355,569 |
Income tax expense (benefit) |
| 30,322 |
|
| 38,924 |
|
|
|
|
|
|
NET INCOME (LOSS) | $ | 119,443 |
| $ | 316,645 |
|
|
|
|
|
|
Other comprehensive income (loss), net of tax: |
|
|
|
|
|
Unrealized appreciation (depreciation) ("URA(D)") on securities arising during the period |
| (109,858) |
|
| (177,524) |
Less: reclassification adjustment for realized losses (gains) included in net income (loss) |
| 1,490 |
|
| 27,886 |
Total URA(D) on securities arising during the period |
| (108,368) |
|
| (149,638) |
|
|
|
|
|
|
Foreign currency translation adjustments |
| 2,262 |
|
| (29,633) |
Reclassification adjustment for amortization of net (gain) loss included in net income (loss) |
| 2,043 |
|
| 920 |
Total benefit plan net gain (loss) for the period |
| 2,043 |
|
| 920 |
Total other comprehensive income (loss), net of tax |
| (104,063) |
|
| (178,351) |
|
|
|
|
|
|
COMPREHENSIVE INCOME (LOSS) | $ | 15,380 |
| $ | 138,294 |
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated financial statements. |
|
|
|
|
|
2
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
CONSOLIDATED STATEMENTS OF OPERATIONS
CHANGES IN STOCKHOLDER’S EQUITY
(Dollars in thousands, except share amounts) | 2021 |
| 2020 | ||
| (unaudited) | ||||
COMMON STOCK (shares outstanding): |
|
|
|
|
|
Balance, January 1 |
| 1,000 |
|
| 1,000 |
Balance, March 31 |
| 1,000 |
|
| 1,000 |
|
|
|
|
|
|
ADDITIONAL PAID-IN CAPITAL: |
|
|
|
|
|
Balance, January 1 | $ | 1,101,092 |
| $ | 1,100,678 |
Share-based compensation plans |
| 108 |
|
| 103 |
Balance, March 31 |
| 1,101,200 |
|
| 1,100,781 |
|
|
|
|
|
|
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS), NET OF DEFERRED INCOME TAXES: |
|
|
|
|
|
Balance, January 1 |
| 268,018 |
|
| 64,324 |
Net increase (decrease) during the period |
| (104,063) |
|
| (178,351) |
Balance, March 31 |
| 163,955 |
|
| (114,027) |
|
|
|
|
|
|
RETAINED EARNINGS: |
|
|
|
|
|
Balance, January 1 |
| 5,045,203 |
|
| 4,692,423 |
Change to beginning balance due to adoption of ASU 2016-13 |
| - |
|
| 907 |
Net income (loss) |
| 119,443 |
|
| 316,645 |
Balance, March 31 |
| 5,164,646 |
|
| 5,009,975 |
|
|
|
|
|
|
TOTAL STOCKHOLDER'S EQUITY, March 31 | $ | 6,429,801 |
| $ | 5,996,729 |
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated financial statements. |
3
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
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. |
CONSOLIDATED STATEMENTS OF CASH FLOWS
| Three Months Ended | ||||
| March 31, | ||||
(Dollars in thousands) | 2021 |
| 2020 | ||
| (unaudited) | ||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
Net income (loss) | $ | 119,443 |
| $ | 316,645 |
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
Decrease (increase) in premiums receivable |
| (20,229) |
|
| (88,422) |
Decrease (increase) in funds held by reinsureds, net |
| (9,734) |
|
| (20,983) |
Decrease (increase) in reinsurance receivables |
| 70,548 |
|
| 97,388 |
Decrease (increase) in income taxes |
| 28,199 |
|
| 35,413 |
Decrease (increase) in prepaid reinsurance premiums |
| 404 |
|
| 30,259 |
Increase (decrease) in reserve for losses and loss adjustment expenses |
| 528,062 |
|
| 106,144 |
Increase (decrease) in unearned premiums |
| 68,743 |
|
| 112,401 |
Increase (decrease) in other net payable to reinsurers |
| 80,245 |
|
| 84,561 |
Increase (decrease) in losses in course of payment |
| (19,876) |
|
| 976 |
Change in equity adjustments in limited partnerships |
| (54,558) |
|
| 6,063 |
Distribution of limited partnership income |
| 11,015 |
|
| 9,486 |
Change in other assets and liabilities, net |
| (25,976) |
|
| (76,651) |
Non-cash compensation expense |
| 9,004 |
|
| 7,528 |
Amortization of bond premium (accrual of bond discount) |
| 6,823 |
|
| 1,385 |
Net realized capital (gains) losses |
| (135,011) |
|
| (256,867) |
Net cash provided by (used in) operating activities |
| 657,102 |
|
| 365,327 |
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
Proceeds from fixed maturities matured/called - available for sale, at market value |
| 76,628 |
|
| 257,000 |
Proceeds from fixed maturities sold - available for sale, at market value |
| 492,943 |
|
| 164,244 |
Proceeds from equity securities sold - at fair value |
| 281,313 |
|
| 204,161 |
Distributions from other invested assets |
| 32,201 |
|
| 76,391 |
Cost of fixed maturities acquired - available for sale, at market value |
| (1,140,719) |
|
| (713,474) |
Cost of equity securities acquired - at fair value |
| (174,877) |
|
| (167,914) |
Cost of other invested assets acquired |
| (51,719) |
|
| (101,663) |
Net change in short-term investments |
| 87,694 |
|
| (45,503) |
Net change in unsettled securities transactions |
| (99,747) |
|
| (34,793) |
Net cash provided by (used in) investing activities |
| (496,283) |
|
| (361,551) |
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
Tax benefit from share-based compensation, net of expense |
| (8,896) |
|
| (7,425) |
Cost of debt repurchase |
| - |
|
| (1,198) |
Net cash provided by (used in) financing activities |
| (8,896) |
|
| (8,623) |
|
|
|
|
|
|
EFFECT OF EXCHANGE RATE CHANGES ON CASH |
| (11,760) |
|
| (20,301) |
|
|
|
|
|
|
Net increase (decrease) in cash |
| 140,163 |
|
| (25,148) |
Cash, beginning of period |
| 378,518 |
|
| 411,122 |
Cash, end of period | $ | 518,681 |
| $ | 385,974 |
|
|
|
|
|
|
SUPPLEMENTAL CASH FLOW INFORMATION: |
|
|
|
|
|
Income taxes paid (recovered) | $ | 2,001 |
| $ | 3,558 |
Interest paid |
| 1,775 |
|
| 2,712 |
|
|
|
|
|
|
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
For the Three and Nine Months Ended September 30, 2017March 31, 2021, and 2016
The unaudited interim consolidated financial statements of the Company for the three and nine months ended September 30, 2017March 31, 2021 and 20162020 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, 20162020 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, 2017March 31, 2021 and 20162020 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, 20152020, 2019 and 20142018 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.
All intercompany accounts and transactions have been eliminated.
Application of Recently Issued Accounting Standard Changes.
Amortization of Bond Premium. Accounting for Income Taxes. In March 2017, FASBDecember 2019, The Financial Accounting Standards Board (“FASB”) issued ASU 2017-082019-12, which outlinesprovides simplification of existing guidance for income taxes, including the removal of certain exceptions related to recognition of deferred tax liabilities on the 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.foreign subsidiaries. The guidance is effective for annual and interim reporting periods beginning after December 15, 2019.2020 and interim periods within that annual reporting period. The Company does not expectadopted the guidance effective January 1, 2021. The adoption of ASU 2017-08 to2019-12 did not have a material impact on itsthe Company’s financial statements.
Presentation and Disclosure of Net Periodic Benefit Costs.Accounting for Cloud Computing Arrangement. In March 2017,August 2018, FASB issued ASU 2017-072018-15, which outlines guidance on the presentation of net periodicaccounting for implementation costs of benefit plans. The newa 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 service cost componentexisting provisions provided in Subtopic 350-40 regarding development of net periodic benefit costs be reported within the same line item of the statements of operations as other compensation costs are reported. Other components of net periodic benefitinternal use software. In addition, any capitalized implementation costs should be reported separately. Footnote disclosure is required to state within which line itemsamortized over the term of the statements of operations the components are reported.hosting arrangement. The guidance is effective for annual and interim reporting periods beginning after December 15, 2017.2019 and interim periods within that annual reporting period. The Company does not expectadopted the
5
guidance as of January 1, 2020. The adoption of ASU 2017-07 to2018-15 did 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 throughrequiring an allowance for estimated credit related losses rather than a permanent impairment, which will be limited to the amount by which fair value is below amortized cost. The guidance is effective for annual and interim reporting periods beginning after December 15, 2019. The Company is currently evaluating the impact of the adoption of ASU 2016-13 on its financial statements.
Any issued guidance and pronouncements, other than those directly referencesreferenced above, are deemed by the Company to be either not applicable or immaterial to its financial statements.
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 |
| At March 31, 2021 | |||||||||||||
| 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 | $ | 622,352 |
| $ | - |
| $ | 16,658 |
| $ | (167) |
| $ | 638,843 |
Obligations of U.S. states and political subdivisions |
| 565,697 |
|
| - |
|
| 32,092 |
|
| (2,741) |
|
| 595,048 |
Corporate securities |
| 3,660,209 |
|
| (3,588) |
|
| 114,692 |
|
| (41,884) |
|
| 3,729,429 |
Asset-backed securities |
| 2,471,769 |
|
| (4,915) |
|
| 25,459 |
|
| (2,210) |
|
| 2,490,103 |
Mortgage-backed securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
| 554,472 |
|
| - |
|
| 23,276 |
|
| (5,158) |
|
| 572,590 |
Agency residential |
| 989,178 |
|
| - |
|
| 24,826 |
|
| (8,153) |
|
| 1,005,851 |
Non-agency residential |
| 6,262 |
|
| - |
|
| 4 |
|
| (2) |
|
| 6,264 |
Foreign government securities |
| 734,630 |
|
| - |
|
| 38,724 |
|
| (4,065) |
|
| 769,289 |
Foreign corporate securities |
| 1,194,944 |
|
| (205) |
|
| 55,057 |
|
| (7,212) |
|
| 1,242,584 |
Total fixed maturity securities | $ | 10,799,513 |
| $ | (8,708) |
| $ | 330,788 |
| $ | (71,592) |
| $ | 11,050,001 |
6
| At December 31, 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 | $ | 659,957 |
| $ | - |
| $ | 22,032 |
| $ | - |
| $ | 681,989 |
Obligations of U.S. states and political subdivisions |
| 543,646 |
|
| - |
|
| 34,655 |
|
| (1,255) |
|
| 577,046 |
Corporate securities |
| 3,316,525 |
|
| (1,205) |
|
| 166,072 |
|
| (31,480) |
|
| 3,449,912 |
Asset-backed securities |
| 2,450,807 |
|
| - |
|
| 28,585 |
|
| (5,222) |
|
| 2,474,170 |
Mortgage-backed securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
| 512,388 |
|
| - |
|
| 37,875 |
|
| (183) |
|
| 550,080 |
Agency residential |
| 937,166 |
|
| - |
|
| 28,630 |
|
| (696) |
|
| 965,100 |
Non-agency residential |
| 3,164 |
|
| - |
|
| 2 |
|
| (2) |
|
| 3,164 |
Foreign government securities |
| 694,132 |
|
| - |
|
| 51,317 |
|
| (3,211) |
|
| 742,238 |
Foreign corporate securities |
| 1,130,865 |
|
| (361) |
|
| 73,265 |
|
| (3,903) |
|
| 1,199,866 |
Total fixed maturity securities | $ | 10,248,650 |
| $ | (1,566) |
| $ | 442,433 |
| $ | (45,952) |
| $ | 10,643,565 |
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, 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 |
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 March 31, 2021 |
| At December 31, 2020 | ||||||||
| Amortized |
| Market |
| Amortized |
| Market | ||||
(Dollars in thousands) | Cost |
| Value |
| Cost |
| Value | ||||
Fixed maturity securities – available for sale |
|
|
|
|
|
|
|
|
|
|
|
Due in one year or less | $ | 710,217 |
| $ | 715,721 |
| $ | 658,561 |
| $ | 659,622 |
Due after one year through five years |
| 2,970,305 |
|
| 3,077,551 |
|
| 2,911,285 |
|
| 3,036,151 |
Due after five years through ten years |
| 2,348,514 |
|
| 2,421,105 |
|
| 1,927,265 |
|
| 2,079,866 |
Due after ten years |
| 748,796 |
|
| 760,816 |
|
| 848,014 |
|
| 875,412 |
Asset-backed securities |
| 2,471,769 |
|
| 2,490,103 |
|
| 2,450,807 |
|
| 2,474,170 |
Mortgage-backed securities |
|
|
|
|
|
|
|
|
|
|
|
Commercial |
| 554,472 |
|
| 572,590 |
|
| 512,388 |
|
| 550,080 |
Agency residential |
| 989,178 |
|
| 1,005,851 |
|
| 937,166 |
|
| 965,100 |
Non-agency residential |
| 6,262 |
|
| 6,264 |
|
| 3,164 |
|
| 3,164 |
Total fixed maturity securities | $ | 10,799,513 |
| $ | 11,050,001 |
| $ | 10,248,650 |
| $ | 10,643,565 |
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 | ||||
|
| March 31, | ||||
(Dollars in thousands) |
| 2021 |
| 2020 | ||
Increase (decrease) during the period between the market value and cost of investments carried at market value, and deferred taxes thereon: |
|
|
|
|
|
|
Fixed maturity securities |
| $ | (137,150) |
| $ | (188,407) |
Change in unrealized appreciation (depreciation), pre-tax |
|
| (137,150) |
|
| (188,407) |
Deferred tax benefit (expense) |
|
| 28,782 |
|
| 38,769 |
Change in unrealized appreciation (depreciation), net of deferred taxes, included in stockholder's equity |
| $ | (108,368) |
| $ | (149,638) |
7
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 |
12
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.
8
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 March 31, 2021 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 | $ | 38,242 |
| $ | (167) |
| $ | - |
| $ | - |
| $ | 38,242 |
| $ | (167) |
Obligations of U.S. states and political subdivisions |
| 56,822 |
|
| (1,710) |
|
| 12,079 |
|
| (1,031) |
|
| 68,901 |
|
| (2,741) |
Corporate securities |
| 790,015 |
|
| (24,012) |
|
| 187,655 |
|
| (17,872) |
|
| 977,670 |
|
| (41,884) |
Asset-backed securities |
| 240,987 |
|
| (1,749) |
|
| 22,773 |
|
| (461) |
|
| 263,760 |
|
| (2,210) |
Mortgage-backed securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
| 120,334 |
|
| (5,158) |
|
| - |
|
| - |
|
| 120,334 |
|
| (5,158) |
Agency residential |
| 529,830 |
|
| (8,000) |
|
| 12,012 |
|
| (153) |
|
| 541,842 |
|
| (8,153) |
Non-agency residential |
| 3,529 |
|
| - |
|
| 156 |
|
| (2) |
|
| 3,685 |
|
| (2) |
Foreign government securities |
| 69,597 |
|
| (1,550) |
|
| 22,968 |
|
| (2,515) |
|
| 92,565 |
|
| (4,065) |
Foreign corporate securities |
| 248,667 |
|
| (5,705) |
|
| 14,374 |
|
| (1,507) |
|
| 263,041 |
|
| (7,212) |
Total fixed maturity securities | $ | 2,098,023 |
| $ | (48,051) |
| $ | 272,017 |
| $ | (23,541) |
| $ | 2,370,040 |
| $ | (71,592) |
| Duration of Unrealized Loss at March 31, 2021 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 | $ | 45,431 |
| $ | (823) |
| $ | 27,415 |
| $ | (3,064) |
| $ | 72,846 |
| $ | (3,887) |
Due in one year through five years |
| 434,857 |
|
| (7,796) |
|
| 112,809 |
|
| (3,662) |
|
| 547,666 |
|
| (11,458) |
Due in five years through ten years |
| 544,227 |
|
| (18,240) |
|
| 9,671 |
|
| (658) |
|
| 553,898 |
|
| (18,898) |
Due after ten years |
| 178,828 |
|
| (6,285) |
|
| 87,181 |
|
| (15,541) |
|
| 266,009 |
|
| (21,826) |
Asset-backed securities |
| 240,987 |
|
| (1,749) |
|
| 22,773 |
|
| (461) |
|
| 263,760 |
|
| (2,210) |
Mortgage-backed securities |
| 653,693 |
|
| (13,158) |
|
| 12,168 |
|
| (155) |
|
| 665,861 |
|
| (13,313) |
Total fixed maturity securities | $ | 2,098,023 |
| $ | (48,051) |
| $ | 272,017 |
| $ | (23,541) |
| $ | 2,370,040 |
| $ | (71,592) |
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 | ) |
9
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.
The Company, given the size of its investment portfolio and capital position, does not have the intent to sell these securities; and it is more likely than not that the Company will not have to sell the security before recovery of its cost basis. In addition, all securities currently in an unrealized loss position are current with respect to principal and interest payments.
The tables below display the aggregate market value and gross unrealized depreciation of fixed maturity 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, 2020 By Security Type | ||||||||||||||||
| Less than 12 months |
| Greater than 12 months |
| Total | ||||||||||||
|
|
|
| Gross |
|
|
|
| Gross |
|
|
|
| Gross | |||
| Market |
| Unrealized |
| Market |
| Unrealized |
| Market |
| Unrealized | ||||||
(Dollars in thousands) | Value |
| Depreciation |
| Value |
| Depreciation |
| Value |
| Depreciation | ||||||
Fixed maturity securities - available for sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of U.S. states and political subdivisions |
| 19,524 |
|
| (999) |
|
| 4,059 |
|
| (256) |
|
| 23,583 |
|
| (1,255) |
Corporate securities |
| 240,601 |
|
| (7,799) |
|
| 188,853 |
|
| (23,681) |
|
| 429,454 |
|
| (31,480) |
Asset-backed securities |
| 223,919 |
|
| (4,573) |
|
| 81,952 |
|
| (649) |
|
| 305,871 |
|
| (5,222) |
Mortgage-backed securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
| 37,414 |
|
| (182) |
|
| 3,983 |
|
| (1) |
|
| 41,397 |
|
| (183) |
Agency residential |
| 235,809 |
|
| (682) |
|
| 1,573 |
|
| (14) |
|
| 237,382 |
|
| (696) |
Non-agency residential |
| 161 |
|
| (2) |
|
| - |
|
| - |
|
| 161 |
|
| (2) |
Foreign government securities |
| 10,505 |
|
| (373) |
|
| 25,793 |
|
| (2,838) |
|
| 36,298 |
|
| (3,211) |
Foreign corporate securities |
| 57,900 |
|
| (2,182) |
|
| 18,349 |
|
| (1,721) |
|
| 76,249 |
|
| (3,903) |
Total fixed maturity securities | $ | 825,833 |
| $ | (16,792) |
| $ | 324,562 |
| $ | (29,160) |
| $ | 1,150,395 |
| $ | (45,952) |
| Duration of Unrealized Loss at December 31, 2020 By Maturity | ||||||||||||||||
| Less than 12 months |
| Greater than 12 months |
| Total | ||||||||||||
|
|
|
| Gross |
|
|
|
| Gross |
|
|
|
| Gross | |||
| Market |
| Unrealized |
| Market |
| Unrealized |
| Market |
| Unrealized | ||||||
(Dollars in thousands) | Value |
| Depreciation |
| Value |
| Depreciation |
| Value |
| Depreciation | ||||||
Fixed maturity securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due in one year or less | $ | 28,802 |
| $ | (1,218) |
| $ | 34,555 |
| $ | (4,142) |
| $ | 63,357 |
| $ | (5,360) |
Due in one year through five years |
| 150,106 |
|
| (5,828) |
|
| 116,987 |
|
| (4,783) |
|
| 267,093 |
|
| (10,611) |
Due in five years through ten years |
| 81,492 |
|
| (1,634) |
|
| 13,118 |
|
| (435) |
|
| 94,610 |
|
| (2,069) |
Due after ten years |
| 68,130 |
|
| (2,673) |
|
| 72,394 |
|
| (19,136) |
|
| 140,524 |
|
| (21,809) |
Asset-backed securities |
| 223,919 |
|
| (4,573) |
|
| 81,952 |
|
| (649) |
|
| 305,871 |
|
| (5,222) |
Mortgage-backed securities |
| 273,384 |
|
| (866) |
|
| 5,556 |
|
| (15) |
|
| 278,940 |
|
| (881) |
Total fixed maturity securities | $ | 825,833 |
| $ | (16,792) |
| $ | 324,562 |
| $ | (29,160) |
| $ | 1,150,395 |
| $ | (45,952) |
Duration of Unrealized Loss at December 31, 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, 20162020 were $2,510,133$1,150,395 thousand and $66,508$45,952 thousand, respectively. The market value of securities for the single issuer whose securities comprised the largest unrealized loss position at December 31, 2016,2020, 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$16,792 thousand of unrealized losses related to fixed maturity securities that have been in an unrealized loss position for less than one year were generally comprised of obligations of U.S. states and political subdivisions, domestic and foreign corporate securities agency residential mortgage-backed securities and foreign governmentas well as asset backed securities. Of these unrealized losses, $36,646$12,522 thousand were related to securities that were rated investment grade by at least one nationally recognized statistical rating agency. The $25,971$29,160 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
10
government securities and agency residential mortgage-backed securities. Of these unrealized losses $22,882$5,856 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.
The components of net investment income are presented in the tables below for the periods indicated:
| Three Months Ended | ||||
| March 31, | ||||
(Dollars in thousands) | 2021 |
| 2020 | ||
Fixed maturities | $ | 85,121 |
| $ | 74,088 |
Equity securities |
| 2,923 |
|
| 1,592 |
Short-term investments and cash |
| 153 |
|
| 1,570 |
Other invested assets |
|
|
|
|
|
Limited partnerships |
| 52,151 |
|
| 6,996 |
Dividends from preferred shares of affiliate |
| 7,758 |
|
| 7,758 |
Other |
| 6,019 |
|
| (13,072) |
Gross investment income before adjustments |
| 154,125 |
|
| 78,932 |
Funds held interest income (expense) |
| 3,489 |
|
| 3,257 |
Interest income from Parent |
| 1,268 |
|
| 1,282 |
Gross investment income |
| 158,882 |
|
| 83,471 |
Investment expenses |
| (11,159) |
|
| (9,270) |
Net investment income | $ | 147,723 |
| $ | 74,201 |
|
|
|
|
|
|
(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$1,025,888 thousand in limited partnerships and private placement loans at September 30, 2017.March 31, 2021. 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 March 31, 2021, the market value of investments in the facility consolidated within the Company’s balance sheets was $409,481 thousand.
11
Other invested assets, at fair value, as of September 30, 2017March 31, 2021 and December 31, 2016,2020, 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 | ||||
| March 31, | ||||
(Dollars in thousands) | 2021 |
| 2020 | ||
Fixed maturity securities, market value: |
|
|
|
|
|
Allowances for credit losses | $ | (7,142) |
| $ | (12,099) |
Gains (losses) from sales |
| 3,927 |
|
| (20,937) |
Fixed maturity securities, fair value: |
|
|
|
|
|
Gains (losses) from fair value adjustments |
| - |
|
| (1,123) |
Equity securities, fair value: |
|
|
|
|
|
Gains (losses) from sales |
| 6,238 |
|
| (27,602) |
Gains (losses) from fair value adjustments |
| 37,551 |
|
| (121,669) |
Other invested assets |
| 1,346 |
|
| (2,327) |
Other invested assets, fair value: |
|
|
|
|
|
Gains (losses) from fair value adjustments |
| 93,078 |
|
| 442,479 |
Short-term investment gains (losses) |
| 13 |
|
| 145 |
Total net realized capital gains (losses) | $ | 135,011 |
| $ | 256,867 |
| Roll Forward of Allowance for Credit Losses | ||||||||||||||||||||||
| Three Months Ended March 31, 2021 |
| Three Months Ended March 31, 2020 | ||||||||||||||||||||
|
|
|
| Asset |
| Foreign |
|
|
|
|
|
|
| Asset |
| Foreign |
|
|
| ||||
| Corporate |
| Backed |
| Corporate |
|
|
|
| Corporate |
| Backed |
| Corporate |
|
|
| ||||||
| Securities |
| Securities |
| Securities |
| Total |
| Securities |
| Securities |
| Securities |
| Total | ||||||||
Beginning Balance | $ | (1,205) |
| $ | - |
| $ | (361) |
| $ | (1,566) |
| $ | - |
| $ | - |
| $ | - |
| $ | - |
Credit losses on securities where credit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
losses were not previously recorded |
| (2,383) |
|
| (4,915) |
|
| - |
|
| (7,298) |
|
| (11,468) |
|
| (70) |
|
| (561) |
|
| (12,099) |
Increases in allowance on previously |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
impaired securities |
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
Decreases in allowance on previously |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
impaired securities |
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
Reduction in allowance due to disposals |
| - |
|
| - |
|
| 156 |
|
| 156 |
|
| - |
|
| - |
|
| - |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of March 31 | $ | (3,588) |
| $ | (4,915) |
| $ | (205) |
| $ | (8,708) |
| $ | (11,468) |
| $ | (70) |
| $ | (561) |
| $ | (12,099) |
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 | ) |
12
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 | ||||
| March 31, | ||||
(Dollars in thousands) | 2021 |
| 2020 | ||
Proceeds from sales of fixed maturity securities | $ | 492,943 |
| $ | 164,244 |
Gross gains from sales |
| 6,349 |
|
| 1,846 |
Gross losses from sales |
| (2,422) |
|
| (22,783) |
|
|
|
|
|
|
Proceeds from sales of equity securities | $ | 281,313 |
| $ | 204,161 |
Gross gains from sales |
| 12,304 |
|
| 2,581 |
Gross losses from sales |
| (6,066) |
|
| (30,183) |
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:
| Three Months Ended March 31, | ||||
(Dollars in thousands) |
| 2021 |
|
| 2020 |
Gross reserves beginning of period | $ | 11,654,950 |
| $ | 10,209,519 |
Less reinsurance recoverables |
| (3,951,474) |
|
| (4,215,348) |
Net reserves beginning of period |
| 7,703,476 |
|
| 5,994,171 |
Incurred related to: |
|
|
|
|
|
Current year |
| 1,338,891 |
|
| 1,026,442 |
Prior years |
| 15,193 |
|
| 3,071 |
Total incurred losses and LAE |
| 1,354,084 |
|
| 1,029,513 |
Paid related to: |
|
|
|
|
|
Current year |
| 168,423 |
|
| 138,778 |
Prior years |
| 527,470 |
|
| 593,482 |
Total paid losses and LAE |
| 695,893 |
|
| 732,260 |
|
|
|
|
|
|
Foreign exchange/translation adjustment and cumulative adjustment due to adoption of ASU 2016-13 |
| (6,819) |
|
| (36,673) |
|
|
|
|
|
|
Net reserves end of period |
| 8,354,848 |
|
| 6,254,751 |
Plus reinsurance recoverables |
| 3,829,356 |
|
| 4,016,471 |
Gross reserves end of period | $ | 12,184,204 |
| $ | 10,271,222 |
|
|
|
|
|
|
(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$1,338,891 thousand for the ninethree months ended September 30, 2017 compared to $1,441,962March 31, 2021 and $1,026,442 thousand for the full year 2016.three months ended March 31, 2020, respectively. The increase in current year incurred losses in 2021 compared to 2020 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 Harvey and the Mexico City earthquake. The $688,924a $230,500 thousand increase in reinsurance recoverables from December 31, 2016 is primarily due to recoverables from thesecurrent year 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
13
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. DueAt March 31, 2021, $1,424,851 thousand of fixed maturities, market value were fair valued using unobservable inputs. The majority of the fixed maturities, market 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 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 at September 30, 2017. Due to the unavailability of prices for forty-two private placement securities, the investment manager's valuation committee valued the forty-two securities at $86,536 thousand atevaluate these independent third party valuations. 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 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.
14
The composition and valuation inputs for the presented fixed maturities categories Level 1 and Level 2 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, 2017March 31, 2021 and December 31, 2016,2020, 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.
15
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) |
| March 31, 2021 |
| (Level 1) |
| (Level 2) |
| (Level 3) | ||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturities, market value |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities and obligations of U.S. government agencies and corporations |
| $ | 638,843 |
| $ | - |
| $ | 638,843 |
| $ | - |
Obligations of U.S. States and political subdivisions |
|
| 595,048 |
|
| - |
|
| 595,048 |
|
| - |
Corporate securities |
|
| 3,729,429 |
|
| - |
|
| 3,095,536 |
|
| 633,893 |
Asset-backed securities |
|
| 2,490,103 |
|
| - |
|
| 1,704,743 |
|
| 785,360 |
Mortgage-backed securities |
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
| 572,590 |
|
| - |
|
| 572,590 |
|
| - |
Agency residential |
|
| 1,005,851 |
|
| - |
|
| 1,005,851 |
|
| - |
Non-agency residential |
|
| 6,264 |
|
| - |
|
| 6,264 |
|
| - |
Foreign government securities |
|
| 769,289 |
|
| - |
|
| 769,289 |
|
| - |
Foreign corporate securities |
|
| 1,242,584 |
|
| - |
|
| 1,236,986 |
|
| 5,598 |
Total fixed maturities, market value |
|
| 11,050,001 |
|
| - |
|
| 9,625,150 |
|
| 1,424,851 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities, fair value |
|
| 1,226,120 |
|
| 1,191,064 |
|
| 35,056 |
|
| - |
Other invested assets, fair value |
|
| 1,889,558 |
|
| - |
|
| - |
|
| 1,889,558 |
16
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 |
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, 2020 |
| (Level 1) |
| (Level 2) |
| (Level 3) | ||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
Fixed maturities, market value |
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities and obligations of U.S. government agencies and corporations | $ | 681,989 |
| $ | - |
| $ | 681,989 |
| $ | - |
Obligations of U.S. States and political subdivisions |
| 577,046 |
|
| - |
|
| 577,046 |
|
| - |
Corporate securities |
| 3,449,912 |
|
| - |
|
| 2,819,068 |
|
| 630,844 |
Asset-backed securities |
| 2,474,170 |
|
| - |
|
| 1,851,137 |
|
| 623,033 |
Mortgage-backed securities |
|
|
|
|
|
|
|
|
|
|
|
Commercial |
| 550,080 |
|
| - |
|
| 550,080 |
|
| - |
Agency residential |
| 965,100 |
|
| - |
|
| 965,100 |
|
| - |
Non-agency residential |
| 3,164 |
|
| - |
|
| 3,164 |
|
| - |
Foreign government securities |
| 742,238 |
|
| - |
|
| 742,238 |
|
| - |
Foreign corporate securities |
| 1,199,866 |
|
| - |
|
| 1,194,167 |
|
| 5,699 |
Total fixed maturities, market value |
| 10,643,565 |
|
| - |
|
| 9,383,989 |
|
| 1,259,576 |
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities, fair value |
| 1,288,767 |
|
| 1,222,158 |
|
| 66,609 |
|
| - |
Other invested assets, fair value |
| 1,796,479 |
|
| - |
|
| - |
|
| 1,796,479 |
Fair Value Measurement Using: | ||||||||||||||||
Quoted Prices | ||||||||||||||||
in Active | Significant | |||||||||||||||
Markets for | Other | Significant | ||||||||||||||
Identical | Observable | Unobservable | ||||||||||||||
Assets | Inputs | Inputs | ||||||||||||||
(Dollars in thousands) | December 31, 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$240,892 thousand and $18,801$224,698 thousand of investments within other invested assets on the consolidated balance sheets as of September 30, 2017March 31, 2021 and December 31, 2016,2020, 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.
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 March 31, 2021 | ||||||||||
| Corporate |
| Asset |
| Foreign |
|
|
| |||
(Dollars in thousands) | Securities |
| Backed Securities |
| Corporate |
| Total | ||||
Beginning balance | $ | 630,843 |
| $ | 623,033 |
| $ | 5,700 |
| $ | 1,259,576 |
Total gains or (losses) (realized/unrealized) |
|
|
|
|
|
|
|
|
|
|
|
Included in earnings |
| (1,788) |
|
| (4,168) |
|
| 2 |
|
| (5,954) |
Included in other comprehensive income (loss) |
| 2,835 |
|
| (3,135) |
|
| 49 |
|
| (251) |
Purchases, issuances and settlements |
| 2,003 |
|
| 169,630 |
|
| (153) |
|
| 171,480 |
Transfers in and/or (out) of Level 3 |
| - |
|
| - |
|
| - |
|
| - |
Ending balance | $ | 633,893 |
| $ | 785,360 |
| $ | 5,598 |
| $ | 1,424,851 |
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.) |
17
| Total Fixed Maturities, Market Value | ||||||||||
| Three Months Ended March 31, 2020 | ||||||||||
| Corporate |
| Asset |
| Foreign |
|
|
| |||
(Dollars in thousands) | Securities |
| Backed Securities |
| Corporate |
| Total | ||||
Beginning balance | $ | 546,939 |
| $ | 153,641 |
| $ | 1,751 |
| $ | 702,331 |
Total gains or (losses) (realized/unrealized) |
|
|
|
|
|
|
|
|
|
|
|
Included in earnings |
| (214) |
|
| 4 |
|
| - |
|
| (210) |
Included in other comprehensive income (loss) |
| (3,357) |
|
| (15,882) |
|
| - |
|
| (19,239) |
Purchases, issuances and settlements |
| 99,064 |
|
| 100,868 |
|
| (1,751) |
|
| 198,181 |
Transfers in and/or (out) of Level 3 |
| - |
|
| - |
|
| - |
|
| - |
Ending balance | $ | 642,432 |
| $ | 238,631 |
| $ | - |
| $ | 881,063 |
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.) |
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 March 31, 2021 | |||||
Foreign | |||||
(Dollars in thousands) | Corporate | Total | |||
Beginning balance fixed maturities at fair value | $ | - | $ | - | |
Total gains or (losses) (realized/unrealized) | |||||
Included in earnings | - | - | |||
Included in other comprehensive income (loss) | - | - | |||
Purchases, issuances and settlements | - | - | |||
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.) |
| Total Fixed Maturities, Fair Value | ||||
| Three Months Ended March 31, 2020 | ||||
| Foreign |
|
|
| |
(Dollars in thousands) | Corporate |
| Total | ||
Beginning balance fixed maturities at fair value | $ | 5,826 |
| $ | 5,826 |
Total gains or (losses) (realized/unrealized) |
|
|
|
|
|
Included in earnings |
| (1,123) |
|
| (1,123) |
Included in other comprehensive income (loss) |
| - |
|
| - |
Purchases, issuances and settlements |
| - |
|
| - |
Transfers in and/or (out) of Level 3 |
| - |
|
| - |
Ending balance | $ | 4,703 |
| $ | 4,703 |
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.) |
|
|
|
|
|
18
21
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.) |
| Three Months Ended | ||||
| March 31, | ||||
(Dollars in thousands) | 2021 |
| 2020 | ||
Other invested assets, fair value: |
|
|
|
|
|
Beginning balance | $ | 1,796,479 |
| $ | 1,982,582 |
Total gains or (losses) (realized/unrealized) |
|
|
|
|
|
Included in earnings |
| 93,079 |
|
| 442,479 |
Included in other comprehensive income (loss) |
| - |
|
| - |
Purchases, issuances and settlements |
| - |
|
| - |
Transfers in and/or (out) of Level 3 |
| - |
|
| - |
Ending balance | $ | 1,889,558 |
| $ | 2,425,061 |
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 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 March 31, 2021 |
| At December 31, 2020 | ||
(Dollars in thousands) |
| ||||
The Prudential | $ | 139,981 |
| $ | 140,773 |
Unaffiliated life insurance company |
| 32,835 |
|
| 35,128 |
19
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 |
7. COMPREHENSIVE INCOME (LOSS)
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 March 31, 2021 | |||||||
(Dollars in thousands) | Before Tax |
| Tax Effect |
| Net of Tax | |||
Unrealized appreciation (depreciation) ("URA(D)") on securities - non-credit related temporary | $ | (139,019) |
|
| 29,161 |
| $ | (109,858) |
Reclassification of net realized losses (gains) included in net income (loss) |
| 1,870 |
|
| (379) |
|
| 1,490 |
Foreign currency translation adjustments |
| 2,856 |
|
| (594) |
|
| 2,262 |
Reclassification of amortization of net gain (loss) included in net income (loss) |
| 2,586 |
|
| (543) |
|
| 2,043 |
Total other comprehensive income (loss) | $ | (131,708) |
| $ | 27,645 |
| $ | (104,063) |
|
|
|
|
|
|
|
|
|
(Some amounts may not reconcile due to rounding) |
|
|
|
|
|
|
|
|
| Three Months Ended March 31, 2020 | |||||||
(Dollars in thousands) | Before Tax |
| Tax Effect |
| Net of Tax | |||
Unrealized appreciation (depreciation) ("URA(D)") on securities - temporary | $ | (223,770) |
| $ | 46,246 |
| $ | (177,524) |
Reclassification of net realized losses (gains) included in net income (loss) |
| 35,364 |
|
| (7,478) |
|
| 27,886 |
Foreign currency translation adjustments |
| (37,532) |
|
| 7,899 |
|
| (29,633) |
Reclassification of amortization of net gain (loss) included in net income (loss) |
| 1,165 |
|
| (245) |
|
| 920 |
Total other comprehensive income (loss) | $ | (224,773) |
| $ | 46,422 |
| $ | (178,351) |
|
|
|
|
|
|
|
|
|
(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) |
| Three Months Ended |
| Affected line item within the | ||||
| March 31, |
| statements of operations and | ||||
AOCI component | 2021 |
| 2020 |
| comprehensive income (loss) | ||
(Dollars in thousands) |
|
|
|
|
|
|
|
URA(D) on securities | $ | 1,870 |
| $ | 35,364 |
| Other net realized capital gains (losses) |
|
| (379) |
|
| (7,478) |
| Income tax expense (benefit) |
| $ | 1,490 |
| $ | 27,886 |
| Net income (loss) |
Benefit plan net gain (loss) | $ | 2,586 |
| $ | 1,165 |
| Other underwriting expenses |
|
| (543) |
|
| (245) |
| Income tax expense (benefit) |
| $ | 2,043 |
| $ | 920 |
| Net income (loss) |
|
|
|
|
|
|
|
|
(Some amounts may not reconcile due to rounding) |
20
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 | ||||
| March 31, | ||||
(Dollars in thousands) | 2021 |
| 2020 | ||
Beginning balance of URA (D) on securities | $ | 313,161 |
| $ | 124,612 |
Current period change in URA (D) of investments - non-credit related |
| (108,368) |
|
| (149,638) |
Ending balance of URA (D) on securities |
| 204,793 |
|
| (25,025) |
|
|
|
|
|
|
Beginning balance of foreign currency translation adjustments |
| 28,727 |
|
| 14,267 |
Current period change in foreign currency translation adjustments |
| 2,262 |
|
| (29,633) |
Ending balance of foreign currency translation adjustments |
| 30,989 |
|
| (15,367) |
|
|
|
|
|
|
Beginning balance of benefit plan net gain (loss) |
| (73,870) |
|
| (74,556) |
Current period change in benefit plan net gain (loss) |
| 2,043 |
|
| 920 |
Ending balance of benefit plan net gain (loss) |
| (71,827) |
|
| (73,635) |
|
|
|
|
|
|
Ending balance of accumulated other comprehensive income (loss) | $ | 163,955 |
| $ | (114,027) |
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 | ) |
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,March 31, 2021, the total amount on deposit in the trust account was $659,548$928,624 thousand.
On April 24, 2014,December 1, 2015, 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$300,000 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.
24
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 agreement provides up to $300,000 thousand of reinsurance coverage from named storms and earthquakes in the United States, Puerto Rico and Canada. The second agreement provides up to $325,000 thousand of reinsurance coverage from named storms and earthquakes in the United States, Puerto Rico and Canada.
21
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 reinsurance coverage from named storms and earthquakes in the United State, Puerto Rico, the U.S. Virgin Islands and Canada.
On April 8, 2021, the Company entered into six 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 three agreements are four year reinsurance contracts which provide up to $150,000 thousand, $85,000 thousand and $85,000 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 three agreements are five year reinsurance contracts which provide up to $150,000 thousand, $90,000 thousand and $90,000 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.
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"). On November 18, 2014, Kilimanjaro issued $500,000 thousand of notes ("Series 2014-2 Notes"). On December 1, 2015, Kilimanjaro issued $625,000 thousand of notes ("(“Series 2015-1 Notes). The $625,000 thousand of Series 2015-1 Notes were fully redeemed and are no longer outstanding. 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’”). On April 8, 2021 Kilimanjaro issued $320,000 thousand of notes (“Series 2021-1 Notes”) and $330,000 thousand of notes (“Series 2021-2 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.
|
|
|
|
|
|
| March 31, 2021 |
| December 31, 2020 | ||||||||
|
|
|
|
|
|
| Consolidated |
|
|
|
| Consolidated |
|
|
| ||
|
|
|
|
| Principal |
| Balance Sheet |
| Market |
| Balance Sheet |
| Market | ||||
(Dollars in thousands) | Date Issued |
| Date Due |
| Amounts |
| Amount |
| Value |
| Amount |
| Value | ||||
4.868% Senior notes | 06/05/2014 |
| 06/01/2044 |
| 400,000 |
| $ | 397,224 |
| $ | 479,616 |
| $ | 397,194 |
| $ | 528,000 |
3.5% Senior notes | 10/07/2020 |
| 10/15/2050 |
| 1,000,000 |
| $ | 979,654 |
| $ | 976,480 |
| $ | 979,524 |
| $ | 1,138,100 |
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$400,000 thousand of 30 year senior notes at 4.868%, which will mature on June 1, 2044. Interest will be paid semi-annually on June 1 and December 1 of each year.
22
25On October 7, 2020, Holdings issued $1,000,000 thousand of 30 year senior notes an interest coupon rate of 3.5% which will mature on October 15, 2050. Interest will be paid semi-annually on April 15th and October 15th of each year.
Interest expense incurred in connection with these senior notes is as follows for the periods indicated:
| Three Months Ended | ||||
| March 31, | ||||
(Dollars in thousands) | 2021 |
| 2020 | ||
Interest expense incurred 4.868% Senior Notes | $ | 4,868 |
| $ | 4,868 |
Interest expense incurred 3.5% Senior Notes | $ | 8,805 |
| $ | - |
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 |
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.
|
|
|
|
|
|
|
|
|
| March 31, 2021 |
| December 31, 2020 | ||||||||
|
|
| 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 |
| $ | 223,699 |
| $ | 207,648 |
| $ | 223,674 |
| $ | 206,447 |
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%, 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, 2017February 16, 2021 to November 15, 2017May 16, 2021 is 3.70%2.58%.
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 $1,700 thousand of its outstanding long term subordinated notes during the three months ended March 31, 2021 and 2020, respectively. The Company realized a gain of $0 thousand and $502 thousand from the repurchase of the long term subordinated notes during the three months ended March 31, 2021 and 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. In addition, during 2020, the Company repurchased and retired $13,183 thousand of these notes.
23
Interest expense incurred in connection with these long term subordinated notes is as follows for the periods indicated:
| Three Months Ended | ||||
| March 31, | ||||
(Dollars in thousands) | 2021 |
| 2020 | ||
Interest expense incurred | $ | 1,462 |
| $ | 2,538 |
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 |
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 March 31, 2021, Everest Re had admitted assets of approximately $17,280,068 thousand which provides borrowing capacity of up to approximately $1,728,007 thousand.
During 2020, Everest Re borrowed $400,000 thousand under its FHLBNY capacity. The borrowings have interest payable at an interest rate of 0.35%. As of March 31, 2021, $310,000 of these borrowings remain outstanding, with maturities in November and December 2021. The FHLBNY membership agreement requires that 4.5% of borrowed funds be used to acquire additional membership stock.
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.
24
The following tables present the underwriting results for the operating segments for the periods indicated:
| Three Months Ended | ||||
Reinsurance | March 31, | ||||
(Dollars in thousands) | 2021 |
| 2020 | ||
Gross written premiums | $ | 1,420,082 |
| $ | 1,308,194 |
Net written premiums |
| 1,208,813 |
|
| 1,114,235 |
|
|
|
|
|
|
Premiums earned | $ | 1,177,170 |
| $ | 1,007,034 |
Incurred losses and LAE |
| 970,318 |
|
| 682,707 |
Commission and brokerage |
| 290,556 |
|
| 260,901 |
Other underwriting expenses |
| 36,289 |
|
| 29,847 |
Underwriting gain (loss) | $ | (119,994) |
| $ | 33,579 |
| Three Months Ended | ||||
Insurance | March 31, | ||||
(Dollars in thousands) | 2021 |
| 2020 | ||
Gross written premiums | $ | 713,252 |
| $ | 666,771 |
Net written premiums |
| 556,530 |
|
| 524,474 |
|
|
|
|
|
|
Premiums earned | $ | 519,730 |
| $ | 486,970 |
Incurred losses and LAE |
| 383,766 |
|
| 346,805 |
Commission and brokerage |
| 59,298 |
|
| 62,203 |
Other underwriting expenses |
| 73,505 |
|
| 71,361 |
Underwriting gain (loss) | $ | 3,161 |
| $ | 6,601 |
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 |
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 | ) |
| Three Months Ended | ||||
| March 31, | ||||
(Dollars in thousands) | 2021 |
| 2020 | ||
Underwriting gain (loss) | $ | (116,833) |
| $ | 40,180 |
Net investment income |
| 147,723 |
|
| 74,201 |
Net realized capital gains (losses) |
| 135,011 |
|
| 256,867 |
Corporate expense |
| (4,581) |
|
| (3,721) |
Interest, fee and bond issue cost amortization expense |
| (15,534) |
|
| (7,460) |
Other income (expense) |
| 3,979 |
|
| (4,498) |
Income (loss) before taxes | $ | 149,765 |
| $ | 355,569 |
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 | ||||
| March 31, | ||||
(Dollars in thousands) | 2021 |
| 2020 | ||
Canada gross written premiums | $ | 34,330 |
| $ | 63,637 |
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 |
13. RELATED-PARTY TRANSACTIONS
Group entered into a $250,000$300,000 thousand long term promissory note agreement with HoldingsEverest Re as of December 31, 2014.17, 2019. The note will mature on December 31, 2023 and has anpay interest annually at a rate of 1.72% that1.69% and is payable annually.scheduled to mature in December, 2028. This transaction is presented as a Note Receivable – Affiliated in the Consolidated Balance SheetsSheet of Holdings. InterestThe Company recognized interest income in the amountrelated to this long term note of $3,225$1,268 thousand and $3,225$1,282 thousand was recorded by Holdings for the ninethree months ended September 30, 2017,March 31, 2021 and September 30, 2016,2020, 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 | ||||
| March 31, | ||||
(Dollars in thousands) | 2021 |
| 2020 | ||
Dividends received on preferred stock of affiliate | $ | 7,758 |
| $ | 7,758 |
26
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 |
The Company has engaged in reinsurance transactions with Bermuda Re, Everest Global Services, Inc. ("Global Services"International Reinsurance Ltd. (“Everest International”), an affiliateMt. Logan Re, Everest Insurance Company of Holdings, provides centralized managementCanada (“Everest Canada”) and home office services, through a management agreement, to Holdings and otherLloyd’s Syndicate 2786, which are affiliated companies within Holdings' consolidated structure. Services providedprimarily driven by Everest Global include executive managerial services, legal services, actuarial services, accounting services, information technology servicesenterprise risk and others.
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 |
The table below represents affiliated quota share reinsurance agreements ("whole account quota share") for all new and renewal business for the indicated coverage period:
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Single |
|
|
|
|
|
|
| Percent |
| Assuming |
|
|
| Occurrence |
| Aggregate |
| |
Coverage Period |
| Ceding Company |
| Ceded |
| Company |
| Type of Business |
| Limit |
| Limit |
| |
01/01/2010-12/31/2010 |
| Everest Re |
| 44.0 | % |
| Bermuda Re |
| property / casualty business |
| 150,000 |
| 325,000 |
|
01/01/2011-12/31/2011 |
| Everest Re |
| 50.0 | % |
| Bermuda Re |
| property / casualty business |
| 150,000 |
| 300,000 |
|
01/01/2012-12/31/2014 |
| Everest Re |
| 50.0 | % |
| Bermuda Re |
| property / casualty business |
| 100,000 |
| 200,000 |
|
01/01/2015-12/31/2016 |
| Everest Re |
| 50.0 | % |
| Bermuda Re |
| property / casualty business |
| 162,500 |
| 325,000 |
|
01/01/2017-12/31/2017 |
| Everest Re |
| 60.0 | % |
| Bermuda Re |
| property / casualty business |
| 219,000 |
| 438,000 |
|
01/01/2010-12/31/2010 |
| Everest Re- Canadian Branch |
| 60.0 | % |
| Bermuda Re |
| property business |
| 350,000 | (1) | - |
|
01/01/2011-12/31/2011 |
| Everest Re- Canadian Branch |
| 60.0 | % |
| Bermuda Re |
| property business |
| 350,000 | (1) | - |
|
01/01/2012-12/31/2012 |
| Everest Re- Canadian Branch |
| 75.0 | % |
| Bermuda Re |
| property / casualty business |
| 206,250 | (1) | 412,500 | (1) |
01/01/2013-12/31/2013 |
| Everest Re- Canadian Branch |
| 75.0 | % |
| Bermuda Re |
| property / casualty business |
| 150,000 | (1) | 412,500 | (1) |
01/01/2014-12/31/2017 |
| Everest Re- Canadian Branch |
| 75.0 | % |
| Bermuda Re |
| property / casualty business |
| 262,500 | (1) | 412,500 | (1) |
01/01/2012-12/31/2017 |
| Everest Canada |
| 80.0 | % |
| Everest Re- Canadian Branch |
| property business |
| - |
| - |
|
01/01/2020 |
| Everest International Assurance |
| 100.0 | % |
| Bermuda Re |
| life business |
| - |
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Amounts shown are Canadian dollars. |
(Dollars in thousands) | |||||||||||||||
Percent | Assuming | Single | Aggregate | ||||||||||||
Coverage Period | Ceding Company | Ceded | Company | Type of Business | Occurrence Limit | Limit | |||||||||
01/01/2010-12/31/2010 | Everest Re | 44.0% | Bermuda Re | property / casualty business | 150,000 | 325,000 | |||||||||
01/01/2011-12/31/2011 | Everest Re | 50.0% | Bermuda Re | property / casualty business | 150,000 | 300,000 | |||||||||
01/01/2012-12/31/2014 | Everest Re | 50.0% | Bermuda Re | property / casualty business | 100,000 | 200,000 | |||||||||
01/01/2015-12/31/2016 | Everest Re | 50.0% | Bermuda Re | property / casualty business | 162,500 | 325,000 | |||||||||
01/01/2017 | 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, 2021.
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.
27
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 | ||||
Bermuda Re | March 31, | ||||
(Dollars in thousands) | 2021 |
| 2020 | ||
Ceded written premiums | $ | 70,798 |
| $ | 30,500 |
Ceded earned premiums |
| 70,877 |
|
| 30,500 |
Ceded losses and LAE |
| (30,150) |
|
| (22,159) |
| Three Months Ended | ||||
Everest International | March 31, | ||||
(Dollars in thousands) | 2021 |
| 2020 | ||
Ceded written premiums | $ | - |
| $ | - |
Ceded earned premiums |
| - |
|
| - |
Ceded losses and LAE |
| - |
|
| 22 |
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 | ||||
Everest Canada | March 31, | ||||
(Dollars in thousands) | 2021 |
| 2020 | ||
Assumed written premiums | $ | - |
| $ | 236 |
Assumed earned premiums |
| - |
|
| 39 |
Assumed losses and LAE |
| 59 |
|
| 1,598 |
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 | ||||
Lloyd's Syndicate 2786 | March 31, | ||||
(Dollars in thousands) | 2021 |
| 2020 | ||
Assumed written premiums | $ | 599 |
| $ | (3,031) |
Assumed earned premiums |
| 529 |
|
| (2,822) |
Assumed losses and LAE |
| (1,582) |
|
| 814 |
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 | - |
| Three Months Ended | ||||
Mt. Logan Re Segregated Accounts | March 31, | ||||
(Dollars in thousands) | 2021 |
| 2020 | ||
Ceded written premiums | $ | 81,371 |
| $ | 95,350 |
Ceded earned premiums |
| 65,988 |
|
| 79,855 |
Ceded losses and LAE |
| 72,994 |
|
| 37,465 |
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 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.
28
Net periodic benefit cost for U.S. employees included the following components for the periods indicated:
Pension Benefits | Three Months Ended | ||||
| March 31, | ||||
(Dollars in thousands) | 2021 |
| 2020 | ||
Service cost | $ | 2,738 |
| $ | 4,011 |
Interest cost |
| 1,999 |
|
| 2,483 |
Expected return on plan assets |
| (5,580) |
|
| (5,197) |
Amortization of net (income) loss |
| 2,730 |
|
| 1,213 |
Net periodic benefit cost | $ | 1,887 |
| $ | 2,510 |
Other Benefits | Three Months Ended | ||||
| March 31, | ||||
(Dollars in thousands) | 2021 |
| 2020 | ||
Service cost | $ | 281 |
| $ | 141 |
Interest cost |
| 181 |
|
| 215 |
Amortization of prior service cost |
| (144) |
|
| (48) |
Net periodic benefit cost | $ | 318 |
| $ | 308 |
|
|
|
|
|
|
(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 threeMarch 31, 2021 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 Nate impacted the Southern 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. DueThe Company does not have any subsequent events 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 these events will adversely impact the fourth quarter 2017 financial results.report.
29
ITEM 2.MANAGEMENT'SMANAGEMENT’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.
We compete in the U.S. and international reinsurance and insurance markets with numerous global competitors. Our competitors include independent reinsurance and insurance companies, subsidiaries or affiliates of established worldwide insurance companies, reinsurance departments of certain insurance companies, domestic and international underwriting operations, including underwriting syndicates at Lloyd's of London and certain government sponsored risk transfer vehicles. Some of these competitors have greater financial resources than we do and have established long term and continuing business relationships, which can be a significant competitive advantage. In addition, the lack of strong barriers to entry into the reinsurance business and recently, the securitization of reinsurance and insurance risks through capital markets provide additional sources of potential reinsurance and insurance capacity and competition.
Worldwide insurance and reinsurance market conditions continued to be very competitive, particularly in the property catastrophe and casualty reinsurance lines of business.historically have been competitive. Generally, there was ample insurance and reinsurance capacity relative to demand, as well as, additional capital from the capital markets through insurance linked financial instruments. These financial instruments such as side cars, catastrophe bonds and collateralized reinsurance funds, provideprovided capital markets with access to insurance and reinsurance risk exposure. The capital markets demand for these products iswas being primarily driven by the currenta low interest rate environment and the desire to achieve greater risk diversification and potentially higher returns on their investments. This increased competition iswas generally having a negative impact on rates, terms and conditions; however, the impact varies widely by market and coverage.
The industry continues to fluctuate by specific regiondeal with the impacts of a global pandemic, COVID-19. Globally, many countries mandated that their citizens remain at home and products, particularly areas recently impacted by large catastrophic events. many non-essential businesses have continued to be physically closed. 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.
There was an unprecedented seriescontinues to be a negative impact on industry underwriting results from the pandemic. These impacts vary significantly from country to country depending on the rate of catastrophes in the third quarter of 2017 with Hurricanes Harvey, Irma and Maria, as well as a significant earthquake in Mexico City. Additional catastrophe events occurred in October 2017 with Hurricanes Nate and Opheliainfections and the wild fires in California. The total industry losses for all of these events could exceed $100 billion. This iscorresponding mandated business restrictions.
Prior to 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. The increased frequency of catastrophe losses in rate increases, not only for catastrophe exposures, but2020 appears to be further pressuring the increase of rates. Rates also potentially forappear to be firming in most other lines 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
30
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 | ||||
| March 31, |
| Increase/ | ||||
(Dollars in millions) | 2021 |
| 2020 |
| (Decrease) | ||
Gross written premiums | $ | 2,133.3 |
| $ | 1,975.0 |
| 8.0% |
Net written premiums |
| 1,765.3 |
|
| 1,638.7 |
| 7.7% |
|
|
|
|
|
|
|
|
REVENUES: |
|
|
|
|
|
|
|
Premiums earned | $ | 1,696.9 |
| $ | 1,494.0 |
| 13.6% |
Net investment income |
| 147.7 |
|
| 74.2 |
| 99.1% |
Net realized capital gains (losses) |
| 135.0 |
|
| 256.9 |
| -47.4% |
Other income (expense) |
| 4.0 |
|
| (4.5) |
| -188.5% |
Total revenues |
| 1,983.6 |
|
| 1,820.6 |
| 9.0% |
|
|
|
|
|
|
|
|
CLAIMS AND EXPENSES: |
|
|
|
|
|
|
|
Incurred losses and loss adjustment expenses |
| 1,354.1 |
|
| 1,029.5 |
| 31.5% |
Commission, brokerage, taxes and fees |
| 349.9 |
|
| 323.1 |
| 8.3% |
Other underwriting expenses |
| 109.8 |
|
| 101.2 |
| 8.5% |
Corporate expense |
| 4.6 |
|
| 3.7 |
| 23.1% |
Interest, fee and bond issue cost amortization expense |
| 15.5 |
|
| 7.5 |
| 108.2% |
Total claims and expenses |
| 1,833.8 |
|
| 1,465.0 |
| 25.2% |
|
|
|
|
|
|
|
|
INCOME (LOSS) BEFORE TAXES |
| 149.8 |
|
| 355.6 |
| -57.9% |
Income tax expense (benefit) |
| 30.3 |
|
| 38.9 |
| -22.1% |
NET INCOME (LOSS) | $ | 119.4 |
| $ | 316.6 |
| -62.3% |
|
|
|
|
|
|
|
|
RATIOS: |
|
|
|
|
|
| Point Change |
Loss ratio |
| 79.8% |
|
| 68.9% |
| 10.9 |
Commission and brokerage ratio |
| 20.6% |
|
| 21.6% |
| (1.0) |
Other underwriting expense ratio |
| 6.5% |
|
| 6.8% |
| (0.3) |
Combined ratio |
| 106.9% |
|
| 97.3% |
| 9.6 |
|
|
|
|
|
|
|
|
| At |
| At |
| Percentage | ||
| March 31, |
| December 31, |
| Increase/ | ||
(Dollars in millions) | 2021 |
| 2020 |
| (Decrease) | ||
Balance sheet data: |
|
|
|
|
|
|
|
Total investments and cash | $ | 16,482.6 |
| $ | 15,910.2 |
| 3.6% |
Total assets |
| 24,309.0 |
|
| 23,717.1 |
| 2.5% |
Loss and loss adjustment expense reserves |
| 12,184.2 |
|
| 11,655.0 |
| 4.5% |
Total debt |
| 1,910.6 |
|
| 1,910.4 |
| 0.0% |
Total liabilities |
| 17,879.2 |
|
| 17,302.8 |
| 3.3% |
Stockholder's equity |
| 6,429.8 |
|
| 6,414.3 |
| 0.2% |
|
|
|
|
|
|
|
|
(Some amounts may not reconcile due to rounding) | |||||||
(NM, not meaningful) |
31
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%8.0% to $1,701.1$2,133.3 million for the three months March 31, 2021, compared to $1,975.0 million for the three months ended September 30, 2017, compared to $1,505.9 million for the three months ended September 30, 2016,March 31, 2020, reflecting a $263.6$111.9 million, or 26.1%8.6%, increase in our reinsurance business and a $68.4$46.5 million, or 13.7%, decrease in our insurance business. The increase in reinsurance premiums was mainly due to the new crop reinsurance transactions, increases in financial lines of 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. Gross written premiums increased by 12.5% to $4,289.1 million for the nine months ended September 30, 2017, compared to $3,813.6 million for the nine months ended September 30, 2016, reflecting a $400.7 million, or 15.8%, increase in our reinsurance business and a $74.7 million, or 5.9%7.0%, increase in our insurance business. The increase in reinsurance premiums was mainly due to the new crop reinsurance transactions, increases in treaty property and financial linespro rata business, property excess of loss business and the influxcasualty excess of reinstatement premiums related to multiple catastrophe events in the third quarter.loss writings. The rise in insurance premiums was primarily due to increases in many lines ofspecialty casualty business, including retail casualty, accidentproperty business and health and surety,professional liability business, partially offset by the impact of the sale of Heartland.a decline in workers’ compensation business.
Net written premiums decreasedincreased by 8.3%7.7% to $570.8$1,765.3 million for the three months ended
Net Investment Income. Net investment income increased 13.7%99.1% to $73.4$147.7 million for the three months ended September 30, 2017March 31, 2021 compared with net investment income of $64.6$74.2 million for the three months ended September 30, 2016 and increased 4.7% to $206.2 million for the nine months ended September 30, 2017 compared with net investment income of $196.9 million for the nine months ended September 30, 2016.March 31, 2020. Net pre-tax investment income as a percentage of average invested assets was 3.0%3.8% and 2.6% for the three months ended March 31, 2021 and 2020, respectively. The increases in both income and yield were Septemberprimarily the result of an increase in limited partnership income and higher income from our fixed income portfolio.
Net Realized Capital Gains (Losses). 30, 2017, compared to 2.7%Net realized capital gains were $135.0 million and $256.9 million for the three months ended SeptemberMarch 31, 2021 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 partnerships and higher income from the growing fixed income portfolio, partially offset by lower dividend income from our equity portfolio.
Other Income (Expense). We recorded other income of $1.5$4.0 million and $22.0 million for the three and nine months ended September 30, 2017, respectively. We recorded other expense of $13.2 million and $10.8$4.5 million for the three and nine months ended September 30, 2016, respectively.March 31, 2021 and 2020, respectively. The changes werechange was primarily the result of fluctuations in foreign currency exchange rates.
32
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 March 31, | ||||||||||||||||
| Current |
| Ratio %/ |
| Prior |
| Ratio %/ |
| Total |
| Ratio %/ | ||||||
(Dollars in millions) | Year |
| Pt Change |
| Years |
| Pt Change |
| Incurred |
| Pt Change | ||||||
2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attritional | $ | 1,078.4 |
| 63.6% |
|
| $ | (1.0) |
| -0.1% |
|
| $ | 1,077.4 |
| 63.5% |
|
Catastrophes |
| 260.5 |
| 15.4% |
|
|
| 16.2 |
| 1.0% |
|
|
| 276.7 |
| 16.4% |
|
Total | $ | 1,338.9 |
| 79.0% |
|
| $ | 15.2 |
| 0.9% |
|
| $ | 1,354.1 |
| 79.8% |
|
2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attritional | $ | 996.4 |
| 66.7% |
|
| $ | (1.1) |
| -0.1% |
|
| $ | 995.3 |
| 66.6% |
|
Catastrophes |
| 30.0 |
| 2.0% |
|
|
| 4.2 |
| 0.3% |
|
|
| 34.2 |
| 2.3% |
|
Total | $ | 1,026.4 |
| 68.7% |
|
| $ | 3.1 |
| 0.2% |
|
| $ | 1,029.5 |
| 68.9% |
|
Variance 2021/2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attritional | $ | 82.0 |
| (3.1) | pts |
| $ | 0.1 |
| - | pts |
| $ | 82.1 |
| (3.1) | pts |
Catastrophes |
| 230.5 |
| 13.4 | pts |
|
| 12.0 |
| 0.7 | pts |
|
| 242.5 |
| 14.1 | pts |
Total | $ | 312.5 |
| 10.3 | pts |
| $ | 12.1 |
| 0.7 | pts |
| $ | 324.6 |
| 10.9 | pts |
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.) |
Incurred losses and LAE increased by 31.5% to $1,331.6$1,354.1 million for the three months ended September 30, 2017March 31, 2021 compared to $301.6$1,029.5 million for the three months ended September 30, 2016,March 31, 2020, primarily due to an increase of $986.9$230.5 million in current year catastrophe losses and an increase of $82.0 million in current year attritional losses, of $25.2 million and $19.8 million of favorable development on prior years catastrophe losses in 2016, primarilymainly related to the 2011 Japan earthquake, which did not recur in 2017. The increase in attritional losses was primarily due to the impact of changesthe increase in affiliated quota share contracts and changespremiums earned partially offset by $35.7 million of COVID-19 losses incurred in the mix of business.2020. The current year catastrophe losses of $1,007.8$260.5 million for the three months ended September 30, 2017March 31, 2021 related to Hurricane IrmaTexas winter storms ($476.2253.0 million), Hurricane Maria ($318.9 million), Hurricane Harvey ($180.7 million) and the Mexico City earthquake2021 Aussie floods ($32.17.5 million). The current year catastrophe losses of $20.9$30.0 million for the three months ended September 30, 2016 wereMarch 31, 2020 related to Hurricane Herminethe Nashville tornadoes ($6.810.0 million), 2016 U.S. StormsAustralia East Coast storms ($6.6 million), the Fort McMurray Canada wildfire ($5.0 million), the Taiwan earthquake ($2.310.0 million) and the Ecuador earthquake ($0.2 million).
Commission, Brokerage, Taxes and Fees. Commission, brokerage, taxes and fees decreased by 58.3%increased to $34.5 million for the three months ended September 30, 2017 compared to $82.8$349.9 million for the three months ended SeptemberMarch 31, 2021 30, 2016. Commission, brokerage, taxes and fees decreased by 32.8% to $147.6 million for the nine months ended September 30, 2017 compared to $219.6$323.1 million for the ninethree months ended September 30, 2016.March 31, 2020. The decreases were primarilyincrease was mainly due to the impact of the decreaseincrease in premiums earned and the impact ofchanges in affiliated quota share contracts.reinsurance agreements.
Other Underwriting Expenses. Other underwriting expenses were $57.7 million and $64.1increased to $109.8 million for the three months ended September 30, 2017 and September 30, 2016, respectively. The decreaseMarch 31, 2021 compared to $101.2 million for the three month period was primarilymonths ended March 31, 2020. These increases were mainly due to lower variable compensation costs. Other underwriting expenses were flat at $181.8 millionchanges in affiliated reinsurance agreements, impact of increase in premiums earned and costs incurred to support the expansion of the insurance business. and
$181.7 million for the nine months ended September 30, 2017 and September 30, 2016, respectively.
2017 and 2016, respectively.
38
33
foreign tax credits and as calculated under the annualized effective tax rate ("AETR") method.credits. Variations in income tax expensethe ETR generally 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 and 2016, respectively. Ourhad eliminated net operating loss was $184.9carrybacks for most companies. The Company determined that the special five year loss carryback tax provision provided a tax benefit of $31.0 million and ourwhich it recorded in the quarter ended March 31, 2020.
Net Income (Loss).
Our net income was $186.7$119.4 million and $316.6 million, for the ninethree months ended September 30, 2017March 31, 2021 and 2016,2020 respectively. The changes were primarily driven by the financial component fluctuations explained above.
Ratios.
Our combined ratio increased by 194.09.6 points to 274.6%106.9% for the three months ended September 30, 2017,March 31, 2021 compared to 80.6%97.3% for the three months ended September 30, 2016, and increased by 66.6 points to 154.2% for the nine months ended September 30, 2017, compared to 87.6% for the nine months ended September 30, 2016.March 31, 2020. The loss ratio componentscomponent increased 202.6 points and 70.3by 10.9 points for the three and nine months ended September 30, 2017, respectively,March 31, 2021 over the same period last year. The changes wereyear mainly due to the increasesan increase of $230.5 million in current year catastrophe losses. The commission and brokerage ratio componentscomponent decreased to 6.7% from 14.9%20.6% for the three months ended September 30, 2017 and 2016, respectively, and decreasedMarch 31, 2021 compared to 10.1% from 14.4%21.6% for the ninethree months ended September 30, 2017March 31, 2020, reflecting changes in affiliated reinsurance agreements and 2016, respectively. The decreases reflect changes in the mix of business, the impact of affiliated quota share contracts and the impact from reinstatement premiums.business. The other underwriting expense ratiosratio decreased slightly to 11.1% from 11.5%6.5% for the three months ended September 30, 2017 and 2016, respectively, and increased to 12.5%March 31, 2021 from 11.9%6.8% for the ninethree months ended September 30, 2017 and 2016, respectively. The decrease in the three month period was mainly due to lower variable compensation costs. The increase in the nine month period was due to costs associated with the continued expansion of the insurance business, partially offsetMarch 31, 2020.
Stockholder's Equity.
Stockholder’s equity increased by lower variable compensation costs.
39
Net Investment Income.
Net investment income increased by 13.7%99.1% to $73.4$147.7 million for the three months ended September 30, 2017March 31, 2021 compared to $64.6$74.2 million for the three months ended September 30, 201March 31, 2020. 6. Net investment income increased by 4.7% to $206.2 million forThis increase was primarily the nine months ended September 30, 2017 compared to $196.9 million for the nine months ended September 30, 2016. The increases for the three and nine month periods were primarily due toresult of an increase in limited partnership income and higher income from the growingour fixed income portfolio, partially offset by lower dividend income from our equity portfolio.
34
The following table shows the components of net investment income for the periods indicated:
| Three Months Ended | ||||
| March 31, | ||||
(Dollars in millions) | 2021 |
| 2020 | ||
Fixed maturities | $ | 85.1 |
| $ | 74.1 |
Equity securities |
| 2.9 |
|
| 1.6 |
Short-term investments and cash |
| 0.1 |
|
| 1.6 |
Other invested assets |
|
|
|
|
|
Limited partnerships |
| 52.2 |
|
| 7.0 |
Dividends from preferred shares of affiliate |
| 7.8 |
|
| 7.8 |
Other |
| 6.0 |
|
| (13.1) |
Gross investment income before adjustments |
| 154.1 |
|
| 79.0 |
Funds held interest income (expense) |
| 3.5 |
|
| 3.2 |
Interest income from Parent |
| 1.3 |
|
| 1.3 |
Gross investment income |
| 158.9 |
|
| 83.5 |
Investment expenses |
| 11.2 |
|
| 9.3 |
Net investment income | $ | 147.7 |
| $ | 74.2 |
|
|
|
|
|
|
(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 |
| March 31, |
| December 31, |
| 2021 |
| 2020 |
Imbedded pre-tax yield of cash and invested assets | 3.0% |
| 3.1% |
Imbedded after-tax yield of cash and invested assets | 2.4% |
| 2.5% |
| Three Months Ended | ||
| March 31, | ||
| 2021 |
| 2020 |
Annualized pre-tax yield on average cash and invested assets | 3.8% |
| 2.6% |
Annualized after-tax yield on average cash and invested assets | 3.1% |
| 2.1% |
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% |
35
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 March 31, | |||||||
(Dollars in millions) | 2021 |
| 2020 |
| Variance | |||
Gains (losses) from sales: |
|
|
|
|
|
|
|
|
Fixed maturity securities, market value |
|
|
|
|
|
|
|
|
Gains | $ | 6.3 |
| $ | 1.8 |
| $ | 4.5 |
Losses |
| (2.4) |
|
| (22.8) |
|
| 20.4 |
Total |
| 3.9 |
|
| (21.0) |
|
| 24.9 |
Equity securities, fair value |
|
|
|
|
|
|
|
|
Gains |
| 12.3 |
|
| 2.6 |
|
| 9.7 |
Losses |
| (6.1) |
|
| (30.2) |
|
| 24.1 |
Total |
| 6.2 |
|
| (27.6) |
|
| 33.8 |
Other invested assets |
|
|
|
|
|
|
|
|
Gains |
| 1.4 |
|
| 3.0 |
|
| (1.6) |
Losses |
| (0.1) |
|
| (5.4) |
|
| 5.3 |
Total |
| 1.3 |
|
| (2.4) |
|
| 3.7 |
Short Term Investments: |
|
|
|
|
|
|
|
|
Gains |
| - |
|
| 0.1 |
|
| (0.1) |
Losses |
| - |
|
| - |
|
| - |
Total |
| - |
|
| 0.1 |
|
| (0.1) |
Total net realized gains (losses) from sales |
|
|
|
|
|
|
|
|
Gains |
| 20.1 |
|
| 7.5 |
|
| 12.6 |
Losses |
| (8.6) |
|
| (58.4) |
|
| 49.8 |
Total |
| 11.5 |
|
| (50.7) |
|
| 62.2 |
|
|
|
|
|
|
|
|
|
Allowances for credit losses: |
| (7.1) |
|
| (12.1) |
|
| 5.0 |
|
|
|
|
|
|
|
|
|
Gains (losses) from fair value adjustments: |
|
|
|
|
|
|
|
|
Fixed maturities, fair value |
| - |
|
| (1.1) |
|
| 1.1 |
Equity securities, fair value |
| 37.6 |
|
| (121.7) |
|
| 159.3 |
Other invested assets, fair value |
| 93.1 |
|
| 442.5 |
|
| (349.4) |
Total |
| 130.6 |
|
| 319.7 |
|
| (189.1) |
|
|
|
|
|
|
|
|
|
Total net realized gains (losses) | $ | 135.0 |
| $ | 256.9 |
| $ | (121.9) |
|
|
|
|
|
|
|
|
|
(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$135.0 million and net realized capital losses were $50.1$256.9 million for the three months ended September 30, 2017March 31, 2021 and 2016,2020, 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 $135.0 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, 2017March 31, 2021, were comprised of $130.6 million of gains from fair value re-measurements and 2016 related primarily to adjusting the portfolios$11.5 million of gains from sales of investments, partially offset by $7.1 million in net allowances for overall market changes and individual credit shifts.
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.United States.
36
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 March 31, | |||||||||
(Dollars in millions) | 2021 |
| 2020 |
| Variance |
| % Change | |||
Gross written premiums | $ | 1,420.1 |
| $ | 1,308.2 |
| $ | 111.9 |
| 8.6% |
Net written premiums |
| 1,208.8 |
|
| 1,114.2 |
|
| 94.6 |
| 8.5% |
|
|
|
|
|
|
|
|
|
|
|
Premiums earned | $ | 1,177.2 |
| $ | 1,007.0 |
| $ | 170.2 |
| 16.9% |
Incurred losses and LAE |
| 970.3 |
|
| 682.7 |
|
| 287.6 |
| 42.1% |
Commission and brokerage |
| 290.6 |
|
| 260.9 |
|
| 29.7 |
| 11.4% |
Other underwriting expenses |
| 36.3 |
|
| 29.8 |
|
| 6.5 |
| 21.6% |
Underwriting gain (loss) | $ | (120.0) |
| $ | 33.6 |
| $ | (153.6) |
| NM |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Point Chg |
Loss ratio |
| 82.4% |
|
| 67.8% |
|
|
|
| 14.6 |
Commission and brokerage ratio |
| 24.7% |
|
| 25.9% |
|
|
|
| (1.2) |
Other underwriting ratio |
| 3.1% |
|
| 3.0% |
|
|
|
| 0.1 |
Combined ratio |
| 110.2% |
|
| 96.7% |
|
|
|
| 13.5 |
|
|
|
|
|
|
|
|
|
|
|
(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.
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) |
37
Incurred Losses and LAE.The following tables present the incurred losses and LAE for the Reinsurance segment for the periods indicated.
| Three Months Ended March 31, | ||||||||||||||||
| Current |
| Ratio %/ |
| Prior |
| Ratio %/ |
| Total |
| Ratio %/ | ||||||
(Dollars in millions) | Year |
| Pt Change |
| Years |
| Pt Change |
| Incurred |
| Pt Change | ||||||
2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attritional | $ | 741.8 |
| 63.0% |
|
| $ | - |
| 0.0% |
|
| $ | 741.8 |
| 63.0% |
|
Catastrophes |
| 213.0 |
| 18.1% |
|
|
| 15.5 |
| 1.3% |
|
|
| 228.5 |
| 19.4% |
|
Total segment | $ | 954.8 |
| 81.1% |
|
| $ | 15.5 |
| 1.3% |
|
| $ | 970.3 |
| 82.4% |
|
2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attritional | $ | 654.7 |
| 65.0% |
|
| $ | (0.6) |
| -0.1% |
|
| $ | 654.0 |
| 64.9% |
|
Catastrophes |
| 24.5 |
| 2.4% |
|
|
| 4.2 |
| 0.4% |
|
|
| 28.7 |
| 2.8% |
|
Total segment | $ | 679.2 |
| 67.4% |
|
| $ | 3.5 |
| 0.3% |
|
| $ | 682.7 |
| 67.8% |
|
Variance 2021/2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attritional | $ | 87.1 |
| (2.0) | pts |
| $ | 0.6 |
| 0.1 | pts |
| $ | 87.8 |
| (1.9) | pts |
Catastrophes |
| 188.5 |
| 15.7 | pts |
|
| 11.3 |
| 0.9 | pts |
|
| 199.8 |
| 16.6 | pts |
Total segment | $ | 275.6 |
| 13.7 | pts |
| $ | 12.0 |
| 1.0 | pts |
| $ | 287.6 |
| 14.6 | pts |
Incurred losses increased by 42.1% to $970.3 million for the three months ended March 31, 2021 compared to $682.7 million for the three months ended March 31, 2020. The rise in incurred losses was primarily due to an increase of $188.5 million on current years catastrophe losses and an increase of $87.1 million in current year attritional losses, primarily related to the impact of the increase in premiums earned. The $213.0 million of current year catastrophe losses for the three months ended March 31, 2021 related to Texas winter storms ($205.5 million), and the 2021 Aussie floods ($7.5 million).The current year catastrophe losses of $24.5 million for the three months ended March 31, 2020 primarily related to Australia East Coast storms ($10.0 million), Australia fires (10.0 million) and the Nashville tornadoes ($4.5 million).
Segment Expenses. Commission and brokerage increased to $290.6 million for the three months ended March 31, 2021 compared to $260.9 million for the three months ended March 31, 2020. The increase was mainly due to the impact of the increase in premiums earned. Segment other underwriting expenses increased to $36.3 million for the three months ended March 31, 2021 from $29.8 million for the three months ended March 31, 2020,mainly due to the impact of the increase in premiums earned and changes in affiliated reinsurance agreements.
Insurance.
The following table presents the underwriting results and ratios for the Insurance segment for the periods indicated.
| Three Months Ended March 31, | |||||||||
(Dollars in millions) | 2021 |
| 2020 |
| Variance |
| % Change | |||
Gross written premiums | $ | 713.3 |
| $ | 666.8 |
| $ | 46.5 |
| 7.0% |
Net written premiums |
| 556.5 |
|
| 524.5 |
|
| 32.0 |
| 6.1% |
|
|
|
|
|
|
|
|
|
|
|
Premiums earned | $ | 519.7 |
| $ | 487.0 |
| $ | 32.7 |
| 6.7% |
Incurred losses and LAE |
| 383.8 |
|
| 346.8 |
|
| 37.0 |
| 10.7% |
Commission and brokerage |
| 59.3 |
|
| 62.2 |
|
| (2.9) |
| -4.7% |
Other underwriting expenses |
| 73.5 |
|
| 71.4 |
|
| 2.1 |
| 2.9% |
Underwriting gain (loss) | $ | 3.2 |
| $ | 6.6 |
| $ | (3.4) |
| -52.1% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Point Chg |
Loss ratio |
| 73.8% |
|
| 71.2% |
|
|
|
| 2.6 |
Commission and brokerage ratio |
| 11.4% |
|
| 12.8% |
|
|
|
| (1.4) |
Other underwriting ratio |
| 14.1% |
|
| 14.6% |
|
|
|
| (0.5) |
Combined ratio |
| 99.4% |
|
| 98.6% |
|
|
|
| 0.7 |
|
|
|
|
|
|
|
|
|
|
|
(Some amounts may not reconcile due to rounding.) | ||||||||||
(NM, not meaningful) |
38
Premiums.Gross written premiums increased by 5.9%7.0% to $1,351.5$713.3 million for the ninethree months ended September 30, 2017March 31, 2021 compared to $1,276.8$666.8 million for the ninethree months ended September 30, 2016. Excluding the impact of the sale of Heartland, which accounted for $229.9 million ofMarch 31, 2020. The rise in gross written premiums was primarily due to increases in the nine months
Incurred Losses and LAE.The following table presentstables present the incurred losses and LAE for the Insurance segment for the periods indicated.
| Three Months Ended March 31, | ||||||||||||||||
| Current |
| Ratio %/ |
| Prior |
| Ratio %/ |
| Total |
| Ratio %/ | ||||||
(Dollars in millions) | Year |
| Pt Change |
| Years |
| Pt Change |
| Incurred |
| Pt Change | ||||||
2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attritional | $ | 336.6 |
| 64.8% |
|
| $ | (1.0) |
| -0.2% |
|
| $ | 335.6 |
| 64.6% |
|
Catastrophes |
| 47.5 |
| 9.1% |
|
|
| 0.7 |
| 0.1% |
|
|
| 48.2 |
| 9.3% |
|
Total segment | $ | 384.1 |
| 73.9% |
|
| $ | (0.3) |
| -0.1% |
|
| $ | 383.8 |
| 73.8% |
|
2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attritional | $ | 341.8 |
| 70.2% |
|
| $ | (0.5) |
| -0.1% |
|
| $ | 341.3 |
| 70.1% |
|
Catastrophes |
| 5.5 |
| 1.1% |
|
|
| - |
| 0.0% |
|
|
| 5.5 |
| 1.1% |
|
Total segment | $ | 347.3 |
| 71.3% |
|
| $ | (0.5) |
| -0.1% |
|
| $ | 346.8 |
| 71.2% |
|
Variance 2021/2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attritional | $ | (5.2) |
| (5.4) | pts |
| $ | (0.5) |
| (0.1) | pts |
| $ | (5.7) |
| (5.5) | pts |
Catastrophes |
| 42.0 |
| 8.0 | pts |
|
| 0.7 |
| 0.1 | pts |
|
| 42.7 |
| 8.2 | pts |
Total segment | $ | 36.8 |
| 2.6 | pts |
| $ | 0.2 |
| - | pts |
| $ | 37.0 |
| 2.6 | pts |
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%10.7% to $242.1$383.8 million for the three months ended September 30, 2017March 31, 2021 compared to $122.5$346.8 million for the three months ended September 30, 2016,March 31, 2020, mainly due to an increase of $109.6$42.0 million in current year catastrophe losses and an increase 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, 2017 related to Hurricane Harvey ($50.8 million), Hurricane Irma ($50.1 million) and Hurricane Maria ($8.7 million). There were no current year catastrophe losses for the three months ended September 30, 2016.
Segment Expenses.Commission and brokerage decreased to ($22.3)$59.3 million for the three months ended September 30, 2017March 31, 2021 compared to $4.5$62.2 million for the three months ended September 30, 2016. Commission and brokerage decreasedMarch 31, 2020. The decrease was primarily due to ($40.1)changes in the mix of business. Segment other underwriting expenses increased to $73.5 million for the ninethree months ended September 30, 2017March 31, 2021 compared to ($10.9)$71.4 million for the ninethree months ended September 30, 2016. The decreases wereMarch 31, 2020, mainly due to the impact of changesthe increase in premiums earned and expenses related to the mixcontinued build out of business and the impacts from affiliated quota share agreements.
7 compared to $40.7 million for the three months ended September 30, 2016. Segment other underwriting expenses decreased to $114.9 million for the nine months ended September 30, 2017 compared to $116.8 million for the nine months ended September 30, 2016. These decreases were mainly due to lower variable compensation costs.
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.
39
The overall investment strategy considers the scope of present and anticipated Company operations. In particular, estimates of the financial impact resulting from non-investment asset and liability transactions, together with our capital structure and other factors, are used to develop a net liability analysis. This analysis includes estimated payout characteristics for which our investments provide liquidity. This analysis is considered in the development of specific investment strategies for asset allocation, duration and credit quality. The change in overall market sensitive risk exposure principally reflects the asset changes that took place during the period.
Interest Rate Risk.Risk. Our $10.2$16.5 billion investment portfolio, at September 30, 2017,March 31, 2021, 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$1,584.7 million of mortgage-backed securities in the $6,039.4$11,050.0 million fixed maturity portfolio. Prepayment risk results from potential accelerated principal payments that shorten the average life and thus the expected yield of the security.
The table below displays the potential impact of market value fluctuations and after-tax unrealized appreciation on our fixed maturity portfolio (including $230.0$620.4 million of short-term investments) for the period indicated based on upward and downward parallel and immediate 100 and 200 basis point shifts in interest rates. For legal entities with a U.S. dollar functional currency, this modeling was performed on each security individually. To generate appropriate price 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 March 31, 2021 | |||||||||||||
(Dollars in millions) | -200 |
| -100 |
| - |
| 100 |
| 200 | |||||
Total Market/Fair Value | $ | 12,388.5 |
| $ | 12,029.4 |
| $ | 11,670.4 |
| $ | 11,311.4 |
| $ | 10,952.3 |
Market/Fair Value Change from Base (%) |
| 6.2% |
|
| 3.1% |
|
| 0.0% |
|
| -3.1% |
|
| -6.2% |
Change in Unrealized Appreciation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
After-tax from Base ($) | $ | 567.3 |
| $ | 283.6 |
| $ | - |
| $ | (283.6) |
| $ | (567.3) |
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$12,184.2 million and $8,331.3$11,654.9 million of gross reserves for losses and LAE as of September 30, 2017March 31, 2021 and December 31, 2016,2020, 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.
40
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 March 31, 2021 | |||||||||||||
(Dollars in millions) | -20% |
| -10% |
| 0% |
| 10% |
| 20% | |||||
Fair/Market Value of the Equity Portfolio | $ | 980.9 |
| $ | 1,103.5 |
| $ | 1,226.1 |
| $ | 1,348.7 |
| $ | 1,471.3 |
After-tax Change in Fair/Market Value |
| (193.7) |
|
| (96.9) |
|
| - |
|
| 96.9 |
|
| 193.7 |
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.
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
41
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.
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.
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 | |
43
52
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: May 17, 2021 | |||||||
44