UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
10-Q
☑
For the quarterly period ended
June 30, 2022
☐
Commission file number
1-14527
EVEREST REINSURANCE HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Delaware
22-3263609
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
100 Everest Way
Warren
,
New Jersey
07059
908
)
604-3000
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive office)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for the past 90 days.
YES
☑
☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted
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 such files).
YES
☑
☐
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 accelerated filer,” “accelerated filer,”
“smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
☐
Accelerated filer
☐
Non-accelerated 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
☐
☑
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
YES
☐
☑
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Number of Shares Outstanding
Class
At August 1, 2022
Common Shares, $0.01 par value
1,000
The Registrant meets the conditions set forth in General Instruction H (1)(a) and (b) of Form 10-Q and is therefore filing this
form with the reduced disclosure format permitted by General Instruction H of Form 10-Q.
EVEREST REINSURANCE HOLDINGS, INC.
Table of Contents
Form 10-Q
Page
PART I
FINANCIAL INFORMATION
Item 1.
Financial Statements
Consolidated Balance Sheets as of June 30, 2022 (unaudited) and December 31,
2021
1
Consolidated Statements of Operations and Comprehensive Income (Loss) for
the three and six months ended June 30, 2022 and 2021 (unaudited)
2
Consolidated Statements of Changes in Stockholder’s Equity for the three and
six months ended June 30, 2022 and 2021 (unaudited)
3
Consolidated Statements of Cash Flows for the six months ended June 30, 2022
and 2021 (unaudited)
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
45
Item 4.
Controls and Procedures
46
PART II
OTHER INFORMATION
Item 1.
Legal Proceedings
46
Item 1A.
Risk Factors
46
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
46
Item 3.
Defaults Upon Senior Securities
46
Item 4.
Mine Safety Disclosures
46
Item 5.
Other Information
47
Item 6.
Exhibits
47
1
EVEREST REINSURANCE HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share amounts and par value per share)
June 30, 2022
December 31, 2021
(unaudited)
ASSETS:
$
12,873,421
$
12,860,395
(amortized cost: 2022, $
13,754,572
; 2021, $
12,733,499
, allowances for credit losses: 2022, ($
27,274
); 2021, ($
27,491
))
Fixed maturities - held to maturity, at amortized cost, net of credit allowances
71,390
-
(fair value: 2022, $
71,245
, credit allowances: 2022, ($
366
))
Equity securities, at fair value
1,249,310
1,757,792
Short-term investments (cost: 2022, $230,929; 2021, $695,935)
230,929
695,886
Other invested assets
1,791,521
1,674,639
Other invested assets, at fair value
1,791,539
2,030,816
Cash
843,746
699,266
Total investments and cash
18,851,856
19,718,794
Notes receivable - affiliated
715,000
500,000
Accrued investment income
119,010
89,966
Premiums receivable
1,707,740
1,719,961
Reinsurance recoverables - unaffiliated
1,660,791
1,569,328
Reinsurance recoverables - affiliated
2,096,416
2,298,769
Funds held by reinsureds
299,030
299,204
Deferred acquisition costs
438,412
471,931
Prepaid reinsurance premiums
474,936
431,055
Income tax asset, net
106,686
-
Other assets
638,134
595,970
TOTAL ASSETS
$
27,108,011
$
27,694,978
LIABILITIES:
Reserve for losses and loss adjustment expenses
$
13,738,357
$
13,121,177
Unearned premium reserve
3,042,059
2,992,878
Funds held under reinsurance treaties
42,230
48,410
Other net payable to reinsurers
425,910
391,577
Losses in course of payment
97,508
272,592
Income tax liability, net
-
246,348
Senior notes
2,346,495
2,345,800
Long term notes
223,824
223,774
Borrowings from FHLB
519,000
519,000
Accrued interest on debt and borrowings
16,664
17,348
Unsettled securities payable
56,336
15,196
Other liabilities
453,217
462,831
20,961,600
20,656,931
Commitments and Contingencies (Note 6)
(nil)
(nil)
STOCKHOLDER'S EQUITY:
Common stock, par value: $
0.01
;
3,000
1,000
-
-
Additional paid-in capital
1,101,750
1,101,527
Accumulated other comprehensive income (loss), net of deferred income
189,705
) at 2022 and $
24,279
(715,759)
91,469
Retained earnings
5,760,420
5,845,051
Total stockholder's equity
6,146,411
7,038,047
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY
$
27,108,011
$
27,694,978
The accompanying notes are an integral part of the consolidated financial statements.
2
EVEREST REINSURANCE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
Three Months Ended
Six Months Ended
June 30,
June 30,
(Dollars in thousands)
2022
2021
2022
2021
(unaudited)
(unaudited)
REVENUES:
Premiums earned
$
1,954,229
$
1,766,555
$
3,782,821
$
3,463,455
Net investment income
176,499
248,135
332,633
395,858
Net gains (losses) on investments:
Credit allowances on fixed maturity securities
1,500
(15,075)
(149)
(22,217)
Gains (losses) from fair value adjustments
(340,523)
191,376
(555,944)
322,005
Net realized gains (losses) from dispositions
(39,250)
7,462
(48,767)
18,986
Total net gains (losses) on investments
(378,273)
183,763
(604,860)
318,774
Other income (expense)
493
(1,867)
(8,904)
2,112
Total revenues
1,752,948
2,196,586
3,501,690
4,180,199
CLAIMS AND EXPENSES:
Incurred losses and loss adjustment expenses
1,303,937
1,095,618
2,529,627
2,449,702
Commission, brokerage, taxes and fees
408,663
386,848
793,293
736,702
Other underwriting expenses
120,263
109,930
238,018
219,725
Corporate expenses
5,886
7,618
11,652
12,199
Interest, fees and bond issue cost amortization expense
24,398
15,537
48,476
31,071
Total claims and expenses
1,863,147
1,615,551
3,621,066
3,449,399
INCOME (LOSS) BEFORE TAXES
(110,199)
581,035
(119,376)
730,800
Income tax expense (benefit)
(24,516)
115,228
(34,745)
145,550
NET INCOME (LOSS)
$
(85,683)
$
465,807
$
(84,631)
$
585,250
Other comprehensive income (loss), net of tax:
Unrealized appreciation (depreciation) ("URA(D)") on securities arising
(411,103)
43,410
(805,382)
(66,448)
Less: reclassification adjustment for realized losses (gains) included
6,171
6,442
8,426
7,932
Total URA(D) on securities arising during the period
(404,932)
49,852
(796,956)
(58,516)
Foreign currency translation adjustments
(9,849)
13,985
(11,788)
16,247
Reclassification adjustment for amortization of net (gain) loss included
758
2,043
1,515
4,086
Total benefit plan net gain (loss) for the period
758
2,043
1,515
4,086
Total other comprehensive income (loss), net of tax
(414,023)
65,880
(807,228)
(38,183)
COMPREHENSIVE INCOME (LOSS)
$
(499,706)
$
531,687
$
(891,859)
$
547,067
The accompanying notes are an integral part of the consolidated financial statements.
3
EVEREST REINSURANCE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF
CHANGES IN STOCKHOLDER’S EQUITY
Three Months Ended
Six Months Ended
June 30,
June 30,
(Dollars in thousands, except share amounts)
2022
2021
2022
2021
(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
$
1,101,640
$
1,101,200
$
1,101,527
$
1,101,092
Share-based compensation plans
110
116
223
224
Balance, end of period
1,101,750
1,101,316
1,101,750
1,101,316
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS),
NET OF DEFERRED INCOME TAXES:
Balance, beginning of period
(301,735)
163,955
91,469
268,018
Net increase (decrease) during the period
(414,023)
65,880
(807,228)
(38,183)
Balance, end of period
(715,759)
229,835
(715,759)
229,835
RETAINED EARNINGS:
Balance, beginning of period
5,846,103
5,164,646
5,845,051
5,045,203
Net income (loss)
(85,683)
465,807
(84,631)
585,250
Balance, end of period
5,760,420
5,630,453
5,760,420
5,630,453
TOTAL STOCKHOLDER'S EQUITY, END OF PERIOD
$
6,146,411
$
6,961,604
$
6,146,411
$
6,961,604
The accompanying notes are an integral part of the consolidated financial statements.
4
EVEREST REINSURANCE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended
June 30,
(Dollars in thousands)
2022
2021
(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)
$
(84,631)
$
585,250
Adjustments to reconcile net income to net cash provided by operating activities:
Decrease (increase) in premiums receivable
9,684
(233,770)
Decrease (increase) in funds held by reinsureds, net
(6,320)
(21,256)
Decrease (increase) in reinsurance recoverables
105,327
226,291
Decrease (increase) in income taxes
(139,313)
116,483
Decrease (increase) in prepaid reinsurance premiums
(44,429)
(40,542)
Increase (decrease) in reserve for losses and loss adjustment expenses
636,696
807,984
Increase (decrease) in unearned premiums
51,183
272,722
Increase (decrease) in other net payable to reinsurers
35,068
66,461
Increase (decrease) in losses in course of payment
(174,622)
39,117
Change in equity adjustments in limited partnerships
(109,613)
(201,379)
Distribution of limited partnership income
48,802
27,905
Change in other assets and liabilities, net
(19,372)
(88,949)
Non-cash compensation expense
19,766
18,406
Amortization of bond premium (accrual of bond discount)
14,784
15,535
Net (gains) losses on investments
604,860
(318,774)
Net cash provided by (used in) operating activities
947,870
1,271,484
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from fixed maturities matured/called/repaid - available for sale
875,642
1,153,258
Proceeds from fixed maturities sold - available for sale
511,218
242,072
Proceeds from fixed maturities matured/called/repaid - held to maturity
333
-
Proceeds from equity securities sold - at fair value
425,380
346,088
Proceeds from distributions and sales of other invested assets
98,653
70,811
Cost of fixed maturities acquired - available for sale
(2,464,587)
(2,401,534)
Cost of fixed maturities acquired - held to maturity
(72,061)
-
Cost of equity securities acquired - at fair value
(271,842)
(358,790)
Cost of other invested assets acquired
(153,486)
(210,373)
Net change in short-term investments
465,116
205,323
Net change in unsettled securities transactions
28,647
(129,026)
Proceeds from repayment (cost of issuance) of note receivable - affiliated
(215,000)
-
Net cash provided by (used in) investing activities
(771,987)
(1,082,171)
CASH FLOWS FROM FINANCING ACTIVITIES:
Tax benefit from share-based compensation, net of expense
(19,543)
(18,182)
Net cash provided by (used in) financing activities
(19,543)
(18,182)
EFFECT OF EXCHANGE RATE CHANGES ON CASH
(11,860)
(3,903)
Net increase (decrease) in cash
144,480
167,228
Cash, beginning of period
699,266
378,518
Cash, end of period
$
843,746
$
545,746
SUPPLEMENTAL CASH FLOW INFORMATION:
Income taxes paid (recovered)
$
104,325
$
28,859
Interest paid
48,414
31,520
The accompanying notes are an integral part of the consolidated financial statements.
5
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)
For the Three and Six Months Ended June 30, 2022, and 2021
1. GENERAL
Everest Reinsurance Holdings, Inc. (“Holdings”), a Delaware company and direct subsidiary of Everest Underwriting
Group (Ireland) Limited (“Holdings Ireland”), which is a direct subsidiary of Everest Re Group, Ltd. (“Group”),
through its subsidiaries, principally provides property and casualty reinsurance and insurance in the United States
of America and internationally. As used in this document, “Company” means Holdings and its subsidiaries.
“Bermuda Re” means Everest Reinsurance (Bermuda), Ltd., a subsidiary of Group; “Everest Re” means Everest
Reinsurance Company and its subsidiaries, a subsidiary of Holdings (unless the context otherwise requires).
2. BASIS OF PRESENTATION
The unaudited consolidated financial statements of the Company as of June 30, 2022 and December 31, 2021 and
for the three and six months ended June 30, 2022 and 2021 include all adjustments, consisting of normal recurring
accruals, which, in the opinion of management, are necessary for a fair statement of the results on an interim
basis. Certain financial information, which is normally included in annual financial statements prepared in
accordance with accounting principles generally accepted in the United States of America (“GAAP”), has been
omitted since it is not required for interim reporting purposes. The December 31, 2021 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 six months ended June 30, 2022 and 2021 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, 2021, 2020 and 2019, included in the Company’s
most recent Form 10-K filing.
The Company consolidates the results of operations and financial position of all voting interest entities ("VOE") in
which the Company has a controlling financial interest and all variable interest entities ("VIE") in which the
Company is considered to be the primary beneficiary. The consolidation assessment, including the determination
as to whether an entity qualifies as a VIE or VOE, depends on the facts and circumstances surrounding each entity.
The preparation of financial statements in conformity with GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities (and disclosure of contingent assets and
liabilities) at the date of the financial statements and the reported amounts of revenues and expenses during the
reporting period. Ultimate actual results could differ, possibly materially, from those estimates.
All intercompany accounts and transactions have been eliminated.
Certain reclassifications and format changes have been made to prior years’ amounts to conform to the 2022
presentation.
Application of Recently Issued Accounting Standard Changes.
The Company did not adopt any new accounting standards that had a material impact during the three and six
months ended June 30, 2022. The Company assessed the adoption impacts of recently issued accounting standards
by the Financial Accounting Standards Board on the Company’s consolidated financial statements as well as
material updates to previous assessments, if any, from the Company’s Annual Report on Form 10-K for the year
ended December 31, 2021. There were no new material accounting standards issued in the six months ended June
30, 2022, that impacted Holdings.
Any issued guidance and pronouncements, other than those directly referenced above, are deemed by the
Company to be either not applicable or immaterial to its financial statements.
6
3. INVESTMENTS
The following tables show amortized cost, allowance for credit losses, gross unrealized appreciation, gross
unrealized depreciation and fair value of available for sale, fixed maturity securities available for sale as of the
dates indicated:
At June 30, 2022
Amortized
Allowances for
Unrealized
Unrealized
Fair
(Dollars in thousands)
Cost
Credit Losses
Appreciation
Depreciation
Value
Fixed maturity securities – available for sale
U.S. Treasury securities and obligations of
$
615,312
$
-
$
618
$
(26,187)
$
589,743
Obligations of U.S. states and political
528,830
(151)
3,951
(24,349)
508,281
Corporate securities
4,355,517
(25,584)
15,127
(337,377)
4,007,683
Asset-backed securities
3,928,582
-
679
(177,890)
3,751,371
Mortgage-backed securities
Commercial
566,417
-
-
(41,999)
524,418
Agency residential
1,522,073
-
185
(112,358)
1,409,900
Non-agency residential
3,536
-
-
(143)
3,393
Foreign government securities
697,135
-
6,339
(38,860)
664,614
Foreign corporate securities
1,537,170
(1,539)
4,439
(126,052)
1,414,018
Total fixed maturity securities – available for sale
$
13,754,572
$
(27,274)
$
31,338
$
(885,215)
$
12,873,421
At December 31, 2021
Amortized
Allowances for
Unrealized
Unrealized
Fair
(Dollars in thousands)
Cost
Credit Losses
Appreciation
Depreciation
Value
Fixed maturity securities – available for sale
U.S. Treasury securities and obligations of
$
656,742
$
-
$
9,303
$
(3,296)
$
662,749
Obligations of U.S. states and political
558,842
(151)
29,080
(1,150)
586,621
Corporate securities
4,036,000
(19,267)
89,172
(31,000)
4,074,905
Asset-backed securities
3,464,248
(7,680)
20,732
(11,014)
3,466,286
Mortgage-backed securities
Commercial
586,441
-
20,538
(4,085)
602,894
Agency residential
1,255,186
-
15,568
(10,076)
1,260,678
Non-agency residential
4,398
-
16
(6)
4,408
Foreign government securities
677,327
-
21,658
(7,005)
691,980
Foreign corporate securities
1,494,315
(393)
34,449
(18,497)
1,509,874
Total fixed maturity securities – available for sale
$
12,733,499
$
(27,491)
$
240,516
$
(86,129)
$
12,860,395
7
The amortized cost and fair value of fixed maturity securities available for sale 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 June 30, 2022
At December 31, 2021
Amortized
Fair
Amortized
Fair
(Dollars in thousands)
Cost
Value
Cost
Value
Fixed maturity securities – available for sale
Due in one year or less
$
550,584
$
545,751
$
586,432
$
583,676
Due after one year through five years
3,688,680
3,513,385
3,488,358
3,526,854
Due after five years through ten years
2,134,269
1,933,772
2,260,481
2,309,870
Due after ten years
1,360,431
1,191,431
1,087,955
1,105,729
Asset-backed securities
3,928,582
3,751,371
3,464,248
3,466,286
Mortgage-backed securities
Commercial
566,417
524,418
586,441
602,894
Agency residential
1,522,073
1,409,900
1,255,186
1,260,678
Non-agency residential
3,536
3,393
4,398
4,408
Total fixed maturity securities
$
13,754,572
$
12,873,421
$
12,733,499
$
12,860,395
During the second quarter of 2022, the Company purchased fixed maturity securities classified as held to maturity
with an amortized cost of $
71.8
71.2
securities held to maturity consist of debt securities for which the Company has both the positive intent and ability
to hold to maturity or redemption and are reported at amortized cost, net of the current expected credit loss
allowance. Interest income for fixed maturity securities held to maturity is determined in the same manner as
interest income for fixed maturity securities available for sale.
These fixed maturity securities held to maturity are comprised of asset-backed securities, with an amortized cost
of $
62.8
0.1
0.2
fair value of $
62.4
9.0
of $
0.0
0.1
8.8
contractual maturity of the corporate securities held to maturity is
5 years
of asset-backed securities held to maturity may not be indicative of actual maturities.
The Company evaluated fixed maturity securities classified as held to maturity for current expected credit losses as
of June 30, 2022 utilizing risk characteristics of each security, including credit rating, remaining time to maturity,
adjusted for prepayment considerations, and subordination level, and applying default and recovery rates, which
include the incorporation of historical credit loss experience and macroeconomic forecasts, to develop an estimate
of current expected credit losses. These fixed maturities classified as held to maturity are of a high credit quality
and are all rated investment grade as of June 30, 2022. The allowance for credit losses expected to be recognized
over the remaining life of the fixed maturity securities classified as held to maturity is $
0.4
2022.
8
The changes in net unrealized appreciation (depreciation) for the Company’s available for sale and short term
investments are derived from the following sources for the periods as indicated:
Three Months Ended
Six Months Ended
June 30,
June 30,
(Dollars in thousands)
2022
2021
2022
2021
Increase (decrease) during the period between the fair value and cost of
investments carried at fair value, and deferred taxes thereon:
Fixed maturity securities, available for sale and short-term investments
$
(512,342)
$
63,124
$
(1,008,216)
$
(74,026)
Change in unrealized appreciation (depreciation), pre-tax
(512,342)
63,124
(1,008,216)
(74,026)
Deferred tax benefit (expense)
107,410
(13,272)
211,260
15,510
Change in unrealized appreciation (depreciation), net of deferred taxes, included
in stockholder's equity
$
(404,932)
$
49,852
$
(796,956)
$
(58,516)
The tables below display the aggregate fair value and gross unrealized depreciation of fixed maturity securities
available for sale, by security type and contractual maturity, in each case subdivided according to length of time
that individual securities had been in a continuous unrealized loss position for the periods indicated:
Duration of Unrealized Loss at June 30, 2022 By Security Type
Less than 12 months
Greater than 12 months
Total
Gross
Gross
Gross
Fair
Unrealized
Fair
Unrealized
Fair
Unrealized
(Dollars in thousands)
Value
Depreciation
Value
Depreciation
Value
Depreciation
Fixed maturity securities -
U.S. Treasury securities and
$
520,687
$
(23,947)
$
26,566
$
(2,240)
$
547,253
$
(26,187)
Obligations of U.S. states and
207,489
(21,199)
15,223
(3,102)
222,712
(24,301)
Corporate securities
2,907,008
(282,978)
411,811
(53,735)
3,318,819
(336,713)
Asset-backed securities
3,518,224
(177,153)
9,307
(737)
3,527,531
(177,890)
Mortgage-backed securities
Commercial
515,599
(40,620)
8,818
(1,379)
524,417
(41,999)
Agency residential
1,130,396
(77,988)
266,332
(34,370)
1,396,728
(112,358)
Non-agency residential
3,393
(143)
-
-
3,393
(143)
Foreign government securities
475,696
(29,114)
66,955
(9,746)
542,651
(38,860)
Foreign corporate securities
1,102,644
(109,378)
132,205
(16,531)
1,234,849
(125,909)
Total
10,381,136
(762,520)
937,217
(121,840)
11,318,353
(884,360)
Securities where an allowance for
credit losses was recorded
7,054
(855)
-
-
7,054
(855)
Total fixed maturity securities
$
10,388,190
$
(763,375)
$
937,217
$
(121,840)
$
11,325,407
$
(885,215)
9
Duration of Unrealized Loss at June 30, 2022 By Maturity
Less than 12 months
Greater than 12 months
Total
Gross
Gross
Gross
Fair
Unrealized
Fair
Unrealized
Fair
Unrealized
(Dollars in thousands)
Value
Depreciation
Value
Depreciation
Value
Depreciation
Fixed maturity securities - available for sale
Due in one year or less
$
342,251
$
(2,566)
$
39,994
$
(3,187)
$
382,245
$
(5,753)
Due in one year through five years
2,518,832
(149,344)
315,227
(23,856)
2,834,059
(173,200)
Due in five years through ten years
1,401,318
(158,998)
248,982
(46,474)
1,650,300
(205,472)
Due after ten years
951,123
(155,708)
48,557
(11,837)
999,680
(167,545)
Asset-backed securities
3,518,224
(177,153)
9,307
(737)
3,527,531
(177,890)
Mortgage-backed securities
1,649,388
(118,751)
275,150
(35,749)
1,924,538
(154,500)
Total
10,381,136
(762,520)
937,217
(121,840)
11,318,353
(884,360)
Securities where an allowance for credit
losses was recorded
7,054
(855)
-
-
7,054
(855)
Total fixed maturity securities
$
10,388,190
$
(763,375)
$
937,217
$
(121,840)
$
11,325,407
$
(885,215)
The aggregate fair value and gross unrealized losses related to fixed maturity securities available for sale in an
unrealized loss position at June 30, 2022 were $
11.3
885.2
securities for the single issuer (the United States government) whose securities comprised the largest unrealized
loss position at June 30, 2022, did not exceed
4.3
% of the overall fair value of the Company’s fixed maturity
securities available for sale. The fair value of the securities for the issuer with the second largest unrealized loss
position at June 30, 2022, comprised less than
2.2
% of the Company’s fixed maturity securities available for sale. In
addition, as indicated on the above table, there was no significant concentration of unrealized losses in any one
market sector. The $
763.4
have been in an unrealized loss position for less than one year were generally comprised of domestic and foreign
corporate securities, asset backed securities and agency residential mortgage backed securities. Of these
unrealized losses, $
662.6
nationally recognized rating agency. The $
121.8
available for sale in an unrealized loss position for more than one year related primarily to domestic and foreign
corporate securities as well as agency residential mortgage-backed securities. Of these unrealized losses $
114.2
million were related to securities that were rated investment grade by at least one nationally recognized rating
agency. 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. Based upon the Company’s current evaluation of securities in
an unrealized loss position as of June 30, 2022, the unrealized losses are due to changes in interest rates and non-
issuer specific credit spreads and are not credit related. In addition, the contractual terms of these securities do
not permit these securities to be settled at a price less than their amortized cost.
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.
10
The tables below display the aggregate fair value and gross unrealized depreciation of fixed maturity securities
available for sale, 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. The amounts
presented in the tables below include $
15.7
0.4
) million of gross unrealized depreciation
as of December 31, 2021 related to fixed maturity securities available for sale for which the Company has recorded
an allowance for credit losses.
Duration of Unrealized Loss at December 31, 2021 By Security Type
Less than 12 months
Greater than 12 months
Total
Gross
Gross
Gross
Fair
Unrealized
Fair
Unrealized
Fair
Unrealized
(Dollars in thousands)
Value
Depreciation
Value
Depreciation
Value
Depreciation
Fixed maturity securities -
U.S. Treasury securities and
$
266,953
$
(3,296)
$
-
$
-
$
266,953
$
(3,296)
Obligations of U.S. states and
51,094
(1,038)
2,558
(112)
53,652
(1,150)
Corporate securities
1,465,259
(24,853)
200,637
(6,147)
1,665,896
(31,000)
Asset-backed securities
1,890,876
(10,713)
37,910
(301)
1,928,786
(11,014)
Mortgage-backed securities
Commercial
138,934
(2,467)
34,967
(1,618)
173,901
(4,085)
Agency residential
698,896
(6,879)
167,923
(3,197)
866,819
(10,076)
Non-agency residential
1,401
(4)
156
(2)
1,557
(6)
Foreign government securities
200,294
(4,778)
14,612
(2,227)
214,906
(7,005)
Foreign corporate securities
676,609
(16,871)
33,057
(1,626)
709,666
(18,497)
Total fixed maturity securities
$
5,390,316
$
(70,899)
$
491,820
$
(15,230)
$
5,882,136
$
(86,129)
Duration of Unrealized Loss at December 31, 2021 By Maturity
Less than 12 months
Greater than 12 months
Total
Gross
Gross
Gross
Fair
Unrealized
Fair
Unrealized
Fair
Unrealized
(Dollars in thousands)
Value
Depreciation
Value
Depreciation
Value
Depreciation
Fixed maturity securities - available for
sale
Due in one year or less
$
81,412
$
(1,878)
$
35,515
$
(3,829)
$
116,927
$
(5,707)
Due in one year through five years
1,209,378
(18,614)
154,449
(3,418)
1,363,827
(22,032)
Due in five years through ten years
852,857
(20,678)
34,164
(1,977)
887,021
(22,655)
Due after ten years
516,562
(9,666)
26,736
(888)
543,298
(10,554)
Asset-backed securities
1,890,876
(10,713)
37,910
(301)
1,928,786
(11,014)
Mortgage-backed securities
839,231
(9,350)
203,046
(4,817)
1,042,277
(14,167)
Total fixed maturity securities
$
5,390,316
$
(70,899)
$
491,820
$
(15,230)
$
5,882,136
$
(86,129)
The aggregate fair value and gross unrealized losses related to investments in an unrealized loss position at
December 31, 2021 were $
5.9
86.1
United States government) whose securities comprised the largest unrealized loss position at December 31, 2021,
did not exceed
2.1
% of the overall fair value of the Company’s fixed maturity securities available for sale. The fair
value of the securities for the issuer with the second largest unrealized loss comprised less than
0.4
% of the
Company’s fixed maturity securities available for sale. In addition, as indicated on the above table, there was no
significant concentration of unrealized losses in any one market sector. The $
70.9
related to fixed maturity securities that have been in an unrealized loss position for less than one year were
generally comprised of domestic and foreign corporate securities, foreign government securities, asset backed
securities and agency residential mortgage backed securities. Of these unrealized losses, $
61.5
related to securities that were rated investment grade by at least one nationally recognized rating agency. The
$
15.2
11
for more than one year related primarily to domestic and foreign corporate securities as well as agency residential
mortgage backed securities. Of these unrealized losses $
12.3
investment grade by at least one nationally recognized rating agency. 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
Six Months Ended
June 30,
June 30,
(Dollars in thousands)
2022
2021
2022
2021
Fixed maturities
$
115,510
$
91,895
$
209,941
$
177,016
Equity securities
4,600
3,385
8,746
6,308
Short-term investments and cash
635
83
850
236
Other invested assets
Limited partnerships
45,244
126,407
88,766
178,558
Dividends from preferred shares of affiliate
7,758
7,758
15,516
15,516
Other
13,991
25,856
25,822
31,875
Gross investment income before adjustments
187,738
255,384
349,641
409,509
Funds held interest income (expense)
525
2,732
3,348
6,221
Interest income from Parent
1,800
1,281
3,568
2,549
Gross investment income
190,063
259,397
356,557
418,279
Investment expenses
(13,564)
(11,262)
(23,924)
(22,421)
Net investment income
$
176,499
$
248,135
$
332,633
$
395,858
(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. The net investment income from limited partnerships is
dependent upon the Company’s share of the net asset values of interests underlying each limited partnership. 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 $
983.5
and private placement loan securities at June 30, 2022. These commitments will be funded when called in
accordance with the partnership and loan agreements, which have investment periods that expire, unless
extended, through
2026
.
The Company participates in a private placement liquidity sweep facility (“the facility”). The primary purpose of the
facility is to enhance the Company’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 June 30, 2022, the fair value of investments in the facility consolidated within the Company’s balance
sheets was $
262.3
Other invested assets, at fair value, as of June 30, 2022 and December 31, 2021, were comprised of preferred
shares held in Everest Preferred International Holdings, Ltd. (“Preferred Holdings”), a wholly-owned subsidiary of
Group.
Variable Interest Entities
The Company is engaged with various special purpose entities and other entities that are deemed to be VIEs
primarily as an investor through normal investment activities but also as an investment manager. A VIE is an entity
that either has investors that lack certain essential characteristics of a controlling financial interest, such as simple
12
majority kick-out rights, or lacks sufficient funds to finance its own activities without financial support provided by
other entities. The Company performs ongoing qualitative assessments of its VIEs to determine whether the
Company has a controlling financial interest in the VIE and therefore is the primary beneficiary. The Company is
deemed to have a controlling financial interest when it has both the ability to direct the activities that most
significantly impact the economic performance of the VIE and the obligation to absorb losses or right to receive
benefits from the VIE that could potentially be significant to the VIE. Based on the Company’s assessment, if it
determines it is the primary beneficiary, the Company consolidates the VIE in the Company’s Consolidated
Financial Statements. As of June 30, 2022 and December 31, 2021, the Company did not hold any securities for
which it is the primary beneficiary.
The Company, through normal investment activities, makes passive investments in general and limited
partnerships and other alternative investments. For these non-consolidated VIEs, the Company has determined it
is not the primary beneficiary as it has no ability to direct activities that could significantly affect the economic
performance of the investments. The Company’s maximum exposure to loss as of June 30, 2022 and December 31,
2021 is limited to the total carrying value of $
1.8
1.7
and limited partnerships and other alternative investments in Other Invested Assets in the Company's
Consolidated Balance Sheets. As of June 30, 2022, the Company has outstanding commitments totaling $
0.8
whereby the Company is committed to fund these investments and may be called by the partnership during the
commitment period to fund the purchase of new investments and partnership expenses. These investments are
generally of a passive nature in that the Company does not take an active role in management.
In addition, the Company makes passive investments in structured securities issued by VIEs for which the Company
is not the manager. These investments are included in asset-backed securities, which includes collateralized loan
obligations and are reported in fixed maturities available-for-sale and fixed maturities held to maturity. The
Company has not provided financial or other support with respect to these investments other than its original
investment. For these investments, the Company determined it is not the primary beneficiary due to the relative
size of the Company’s investment in comparison to the principal amount of the structured securities issued by the
VIEs, the level of credit subordination which reduces the Company’s obligation to absorb losses or right to receive
benefits and the Company’s inability to direct the activities that most significantly impact the economic
performance of the VIEs. The Company’s maximum exposure to loss on these investments is limited to the amount
of the Company’s investment.
The components of net gains (losses) on investments are presented in the table below for the periods indicated:
Three Months Ended
Six Months Ended
June 30,
June 30,
(Dollars in thousands)
2022
2021
2022
2021
Fixed maturity securities:
Allowances for credit losses
$
1,500
$
(15,075)
$
(149)
$
(22,217)
Net realized gains (losses) from dispositions
(9,875)
4,128
(14,964)
8,055
Equity securities, fair value:
Net realized gains (losses) from dispositions
(30,009)
585
(38,277)
6,823
Gains (losses) from fair value adjustments
(185,865)
103,824
(316,667)
141,375
Other invested assets
583
2,748
4,502
4,094
Other invested assets, fair value:
Gains (losses) from fair value adjustments
(154,658)
87,552
(239,277)
180,630
Short-term investment gains (losses)
51
1
(28)
14
Total net gains (losses) on investments
$
(378,273)
$
183,763
$
(604,860)
$
318,774
13
Roll Forward of Allowance for Credit Losses – Fixed maturities, available for sale
Three Months Ended June 30, 2022
Six Months Ended June 30, 2022
Asset
Obligations of U.S.
states and
political
subdivisions
Foreign
Asset
Obligations of
U.S. states and
political
subdivisions
Foreign
Corporate
Backed
Corporate
Corporate
Backed
Corporate
Securities
Securities
Securities
Total
Securities
Securities
Securities
Total
Beginning Balance
$
(20,049)
$
(7,680)
$
(151)
$
(1,260)
$
(29,140)
$
(19,267)
$
(7,680)
$
(151)
$
(393)
$
(27,491)
Credit losses on securities where credit
losses were not previously recorded
(4,888)
-
-
(172)
(5,060)
(6,817)
-
-
(1,141)
(7,958)
Increases in allowance on previously
impaired securities
(653)
-
-
(107)
(760)
(653)
-
-
(107)
(760)
Decreases in allowance on previously
impaired securities
-
-
-
-
-
-
-
-
-
-
Reduction in allowance due to disposals
6
7,680
-
-
7,686
1,153
7,680
-
102
8,935
Balance as of June 30, 2022
$
(25,584)
$
-
$
(151)
$
(1,539)
$
(27,274)
$
(25,584)
$
-
$
(151)
$
(1,539)
$
(27,274)
Roll Forward of Allowance for Credit Losses – Fixed maturities, available for sale
Three Months Ended June 30, 2021
Six Months Ended June 30, 2021
Asset
Foreign
Asset
Foreign
Corporate
Backed
Corporate
Corporate
Backed
Corporate
Securities
Securities
Securities
Total
Securities
Securities
Securities
Total
Beginning Balance
$
(3,588)
$
(4,915)
$
(205)
$
(8,708)
$
(1,205)
$
-
$
(361)
$
(1,566)
Credit losses on securities where credit
losses were not previously recorded
(13,538)
-
(188)
(13,726)
(15,921)
(4,915)
(188)
(21,024)
Increases in allowance on previously
impaired securities
(1,468)
-
-
(1,468)
(1,468)
-
-
(1,468)
Decreases in allowance on previously
impaired securities
-
-
-
-
-
-
-
-
Reduction in allowance due to disposals
119
-
-
119
119
-
156
275
Balance as of June 30, 2021
$
(18,475)
$
(4,915)
$
(393)
$
(23,783)
$
(18,475)
$
(4,915)
$
(393)
$
(23,783)
The proceeds and split between gross gains and losses from dispositions of fixed maturity and equity securities, are
presented in the table below for the periods indicated:
Three Months Ended
Six Months Ended
June 30,
June 30,
(Dollars in thousands)
2022
2021
2022
2021
Proceeds from sales of fixed maturity securities, available for sale
$
244,553
$
165,443
$
511,218
$
242,072
Gross gains from dispositions
3,119
8,850
6,274
15,199
Gross losses from dispositions
(12,994)
(4,722)
(21,238)
(7,144)
Proceeds from sales of equity securities
$
343,405
$
64,775
$
425,380
$
346,088
Gross gains from dispositions
4,126
2,633
7,634
14,937
Gross losses from dispositions
(34,135)
(2,048)
(45,911)
(8,114)
14
4. RESERVES FOR LOSSES, LAE AND FUTURE POLICY BENEFIT RESERVE
Activity in the reserve for losses and LAE is summarized for the periods indicated:
Six Months Ended June 30,
(Dollars in thousands)
2022
2021
Gross reserves beginning of period
$
13,121,177
$
11,578,096
Less reinsurance recoverables on unpaid losses
(3,650,716)
(3,951,474)
Net reserves beginning of period
9,470,461
7,626,622
Incurred related to:
Current year
2,520,596
2,450,567
Prior years
9,031
(865)
Total incurred losses and LAE
2,529,627
2,449,702
Paid related to:
Current year
775,023
550,907
Prior years
1,063,144
903,025
Total paid losses and LAE
1,838,167
1,453,932
Foreign exchange/translation adjustment
(16,668)
9,986
Net reserves end of period
10,145,252
8,632,376
Plus reinsurance recoverables on unpaid losses
3,593,105
3,772,228
Gross reserves end of period
$
13,738,357
$
12,404,604
(Some amounts may not reconcile due to rounding.)
Current year incurred losses were $
2.5
2.5
respectively. Gross and net reserves increased for the six months ended June 30, 2022, reflecting an increase in
underlying exposure due to premium growth and the impact of $
24.6
Ukraine/Russia war, partially offset by a reduction of $
150.0
incurred development of $
9.0
The war in the Ukraine is ongoing and an evolving event. Economic and legal sanctions have been levied against
Russia, specific named individuals and entities connected to the Russian government, as well as businesses located
in the Russian Federation and/or owned by Russian nationals by numerous countries, including the United States.
The significant political and economic uncertainty surrounding the war and associated sanctions have impacted
economic and investment markets both within Russia and around the world. The Company has recorded $
24.6
million of incurred underwriting losses related to the Ukraine and Russia conflict for the three and six months
ended June 30, 2022.
5. FAIR VALUE
GAAP guidance regarding fair value measurements addresses how companies should measure fair value when they
are required to use fair value measures for recognition or disclosure purposes under GAAP and provides a common
definition of fair value to be used throughout GAAP. It defines fair value as the price that would be received to sell
an asset or paid to transfer a liability in an orderly fashion between market participants at the measurement date.
In addition, it establishes a three-level valuation hierarchy for the disclosure of fair value measurements. The
valuation hierarchy is based on the transparency of inputs to the valuation of an asset or liability. The level in the
hierarchy within which a given fair value measurement falls is determined based on the lowest level input that is
significant to the measurement, with Level 1 being the highest priority and Level 3 being the lowest priority.
15
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’s fixed maturity and equity securities are primarily managed by third party investment asset
managers. The investment asset managers managing publicly traded securities obtain prices from nationally
recognized pricing services. These services seek to utilize market data and observations in their evaluation process.
They use pricing applications that vary by asset class and incorporate available market information and when fixed
maturity securities do not trade on a daily basis the services will apply available information through processes
such as benchmark curves, benchmarking of like securities, sector groupings and matrix pricing. In addition, they
use model processes, such as the Option Adjusted Spread model to develop prepayment and interest rate
scenarios for securities that have prepayment features.
The investment asset managers do not make any changes to prices received from either the pricing services or the
investment brokers. In addition, the investment asset managers have procedures in place to review the
reasonableness of the prices from the service providers and may request verification of the prices. The Company
also continually performs quantitative and qualitative analysis of prices, including but not limited to initial and
ongoing review of pricing methodologies, review of prices obtained from pricing services and third party
investment asset managers, review of pricing statistics and trends, and comparison of prices for certain securities
with a secondary price source for reasonableness. 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. At June 30, 2022,
$
2.2
were valued by investment managers’ valuation committees and many of these fair values were substantiated by
valuations from independent third parties. The Company has procedures in place to evaluate these independent
third party valuations. At December 31, 2021, $
2.0
inputs.
The Company internally manages a public equity portfolio which had a fair value at June 30, 2022 and
December 31, 2021 of $
896.9
1.3
Company began to internally manage a portfolio of collateralized loan obligations included in asset-backed
securities available for sale, which had a fair value of $
2.1
2.0
31, 2021, respectively. All prices for these securities were obtained from publicly published sources or nationally
recognized pricing vendors.
Equity securities denominated in U.S. currency with quoted prices in active markets for identical assets are
categorized as Level 1 since the quoted prices are directly observable. Equity securities traded on foreign
exchanges are categorized as Level 2 due to the added input of a foreign exchange conversion rate to determine
fair value. The Company uses foreign currency exchange rates published by nationally recognized sources.
Fixed maturity securities listed in the tables below are generally categorized as Level 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.
16
In addition to the valuations from investment managers, some of the fixed maturities with fair values categorized
as Level 3 result when prices are not available from the nationally recognized pricing services. The asset managers
may 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.
The composition and valuation inputs for the presented fixed maturities categories Level 1 and Level 2 are as
follows:
●
U.S. Treasury securities and obligations of U.S. government agencies and corporations are primarily comprised
of U.S. Treasury bonds and the fair value is based on observable market inputs such as quoted prices, reported
trades, quoted prices for similar issuances or benchmark yields;
●
Obligations of U.S. states and political subdivisions are comprised of state and municipal bond issuances and
the fair values are based on observable market inputs such as quoted market prices, quoted prices for similar
securities, benchmark yields and credit spreads;
●
Corporate securities are primarily comprised of U.S. corporate and public utility bond issuances and the fair
values are based on observable market inputs such as quoted market prices, quoted prices for similar
securities, benchmark yields and credit spreads;
●
Asset-backed and mortgage-backed securities fair values are based on observable inputs such as quoted
prices, reported trades, quoted prices for similar issuances or benchmark yields and cash flow models using
observable inputs such as prepayment speeds, collateral performance and default spreads;
●
Foreign government securities are comprised of global non-U.S. sovereign bond issuances and the fair values
are based on observable market inputs such as quoted market prices, quoted prices for similar securities and
models with observable inputs such as benchmark yields and credit spreads and then, where applicable,
converted to U.S. dollars using an exchange rate from a nationally recognized source;
●
Foreign corporate securities are comprised of global non-U.S. corporate bond issuances and the fair values are
based on observable market inputs such as quoted market prices, quoted prices for similar securities and
models with observable inputs such as benchmark yields and credit spreads and then, where applicable,
converted to U.S. dollars using an exchange rate from a nationally recognized source.
17
The following table presents the fair value measurement levels for all assets, which the Company has recorded at
fair 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)
June 30, 2022
(Level 1)
(Level 2)
(Level 3)
Assets:
Fixed maturities, available for sale
U.S. Treasury securities and obligations of
$
589,743
$
-
$
589,743
$
-
Obligations of U.S. states and political subdivisions
508,281
-
508,281
-
Corporate securities
4,007,683
-
3,145,256
862,427
Asset-backed securities
3,751,371
-
2,495,974
1,255,397
Mortgage-backed securities
Commercial
524,418
-
518,727
5,691
Agency residential
1,409,900
-
1,409,900
-
Non-agency residential
3,393
-
3,393
-
Foreign government securities
664,614
-
664,614
-
Foreign corporate securities
1,414,018
-
1,374,057
39,961
Total fixed maturities, available for sale
12,873,421
-
10,709,945
2,163,476
Equity securities, fair value
1,249,310
1,226,921
22,389
-
Other invested assets, fair value
1,791,539
-
-
1,791,539
Fair Value Measurement Using:
Quoted Prices
in Active
Significant
Markets for
Other
Significant
Identical
Observable
Unobservable
Assets
Inputs
Inputs
(Dollars in thousands)
December 31, 2021
(Level 1)
(Level 2)
(Level 3)
Assets:
Fixed maturities, available for sale
U.S. Treasury securities and obligations of
$
662,749
$
-
$
662,749
$
-
Obligations of U.S. states and political subdivisions
586,621
-
586,621
-
Corporate securities
4,074,905
-
3,344,980
729,925
Asset-backed securities
3,466,286
-
2,215,005
1,251,281
Mortgage-backed securities
Commercial
602,894
-
602,894
-
Agency residential
1,260,678
-
1,260,678
-
Non-agency residential
4,408
-
4,408
-
Foreign government securities
691,980
-
691,980
-
Foreign corporate securities
1,509,874
-
1,493,859
16,015
Total fixed maturities, available for sale
12,860,395
-
10,863,174
1,997,221
Equity securities, fair value
1,757,792
1,721,762
36,030
-
Other invested assets, fair value
2,030,816
-
-
2,030,816
18
In addition, $
297.2
286.6
balance sheets as of June 30, 2022 and December 31, 2021, respectively, are not included within the fair value
hierarchy tables as the assets are measured at NAV as a practical expedient to determine fair value.
The following tables present the activity under Level 3, fair value measurements using significant unobservable
inputs for fixed maturities available for sale, for the periods indicated:
Total Fixed Maturities, Available for Sale
Three Months Ended June 30, 2022
Six Months Ended June 30, 2022
Corporate
Asset Backed
Foreign
Corporate
Asset Backed
Foreign
(Dollars in thousands)
Securities
Securities
CMBS
Corporate
Total
Securities
Securities
CMBS
Corporate
Total
Beginning balance fixed maturities
$
714,656
$
1,388,691
$
5,890
$
15,926
$
2,125,163
$
729,925
$
1,251,281
$
-
$
16,015
$
1,997,221
Total gains or (losses) (realized/unrealized)
Included in earnings
(4,534)
35
-
16
(4,483)
(3,105)
137
-
29
(2,939)
Included in other comprehensive
(3,003)
(47,202)
(199)
(3,747)
(54,151)
(7,170)
(75,990)
(222)
(3,808)
(87,190)
Purchases, issuances and settlements
27,750
61,565
-
7,632
96,947
15,219
227,661
5,913
7,591
256,384
Transfers in (out) of Level 3 and reclassification of
securities in/(out) investment categories
127,558
(147,692)
-
20,134
-
127,558
(147,692)
-
20,134
-
Ending balance
$
862,427
$
1,255,397
$
5,691
$
39,961
$
2,163,476
$
862,427
$
1,255,397
$
5,691
$
39,961
$
2,163,476
The amount of total gains or losses for the
$
(5,261)
$
7,679
$
-
$
-
$
2,418
$
(4,943)
$
7,679
$
-
$
-
$
2,736
(Some amounts may not reconcile due to rounding.)
Total Fixed Maturities, Available for Sale
Three Months Ended June 30, 2021
Six Months Ended June 30, 2021
Corporate
Asset Backed
Foreign
Corporate
Asset Backed
Foreign
(Dollars in thousands)
Securities
Securities
Corporate
Total
Securities
Securities
Corporate
Total
Beginning balance fixed maturities
$
633,893
$
785,360
$
5,598
$
1,424,851
$
630,843
$
623,033
$
5,700
$
1,259,576
Total gains or (losses) (realized/unrealized)
Included in earnings
(13,762)
206
138
(13,418)
(15,550)
(3,962)
140
(19,372)
Included in other comprehensive income (loss)
4,583
7,610
(85)
12,108
7,418
4,475
(36)
11,857
Purchases, issuances and settlements
10,209
22,100
(765)
31,544
12,212
191,730
(918)
203,024
Transfers in (out) of Level 3 and reclassification of
securities in/(out) investment categories
-
-
-
-
-
-
-
-
Ending balance
$
634,923
$
815,276
$
4,886
$
1,455,085
$
634,923
$
815,276
$
4,886
$
1,455,085
The amount of total gains or losses for the
$
(17,279)
$
(4,915)
$
-
$
(22,194)
$
(17,279)
$
(4,915)
$
-
$
(22,194)
(Some amounts may not reconcile due to rounding.)
19
The Company’s fixed maturity securities held to maturity are recorded at amortized cost net of credit allowances,
with a carrying value of $
71.4
71.2
securities are determined in a similar manner as the Company’s fixed maturity securities available for sale as
described above. The fair values of these securities incorporate the use of significant unobservable inputs and
therefore are classified as Level 3 within the fair value hierarchy as of June 30, 2022.
6. COMMITMENTS AND CONTINGENCIES
In the ordinary course of business, the Company is involved in lawsuits, arbitrations and other formal and informal
dispute resolution procedures, the outcomes of which will determine the Company’s rights and obligations under
insurance and reinsurance agreements. In some disputes, the Company seeks to enforce its rights under an
agreement or to collect funds owing to it. In other matters, the Company is resisting attempts by others to collect
funds or enforce alleged rights. These disputes arise from time to time and are ultimately resolved through both
informal and formal means, including negotiated resolution, arbitration and litigation. In all such matters, the
Company believes that its positions are legally and commercially reasonable. The Company considers the statuses
of these proceedings when determining its reserves for unpaid loss and loss adjustment expenses.
Aside from litigation and arbitrations related to these insurance and reinsurance agreements, the Company is not a
party to any other material litigation or arbitration.
7. COMPREHENSIVE INCOME (LOSS)
The following tables present the components of comprehensive income (loss) in the consolidated statements of
operations and comprehensive income (loss) for the periods indicated:
Three Months Ended
June 30, 2022
Six Months Ended
June 30, 2022
(Dollars in thousands)
Before Tax
Tax Effect
Net of Tax
Before Tax
Tax Effect
Net of Tax
Unrealized appreciation (depreciation) ("URA(D)")
on securities - non-credit related
$
(520,134)
109,031
$
(411,103)
$
(1,018,827)
213,445
$
(805,382)
Reclassification of net realized losses (gains)
included in net income (loss)
7,793
(1,622)
6,171
10,611
(2,185)
8,426
Foreign currency translation adjustments
(12,475)
2,626
(9,849)
(14,915)
3,127
(11,788)
Reclassification of amortization of net gain (loss)
included in net income (loss)
959
(202)
758
1,919
(404)
1,515
Total other comprehensive income (loss)
$
(523,857)
$
109,833
$
(414,023)
$
(1,021,212)
$
213,983
$
(807,228)
(Some amounts may not reconcile due to rounding)
20
Three Months Ended
June 30, 2021
Six Months Ended
June 30, 2021
(Dollars in thousands)
Before Tax
Tax Effect
Net of Tax
Before Tax
Tax Effect
Net of Tax
Unrealized appreciation (depreciation) ("URA(D)")
on securities - non-credit related
$
54,925
(11,515)
$
43,410
$
(84,094)
17,646
$
(66,448)
Reclassification of net realized losses (gains)
included in net income (loss)
8,198
(1,757)
6,442
10,068
(2,136)
7,932
Foreign currency translation adjustments
17,712
(3,727)
13,985
20,568
(4,321)
16,247
Reclassification of amortization of net gain (loss)
included in net income (loss)
2,586
(543)
2,043
5,172
(1,086)
4,086
Total other comprehensive income (loss)
$
83,421
$
(17,542)
$
65,880
$
(48,286)
$
10,103
$
(38,183)
(Some amounts may not reconcile due to rounding)
The following table presents details of the amounts reclassified from AOCI for the periods indicated:
Three Months Ended
Six Months Ended
Affected line item within the
June 30,
June 30,
statements of operations and
AOCI component
2022
2021
2022
2021
comprehensive income (loss)
(Dollars in thousands)
URA(D) on securities
$
7,793
$
8,198
$
10,611
$
10,068
Other net gains (losses) on investments
(1,622)
(1,757)
(2,185)
(2,136)
Income tax expense (benefit)
$
6,171
$
6,442
$
8,426
$
7,932
Net income (loss)
Benefit plan net gain (loss)
$
959
$
2,586
$
1,919
$
5,172
Other underwriting expenses
(202)
(543)
(404)
(1,086)
Income tax expense (benefit)
$
758
$
2,043
$
1,515
$
4,086
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
Six Months Ended
June 30,
June 30,
(Dollars in thousands)
2022
2021
2022
2021
Beginning balance of URA (D) on securities
$
(270,155)
$
204,793
$
121,869
$
313,161
Current period change in URA (D) of investments - non-credit related
(404,932)
49,852
(796,956)
(58,516)
Ending balance of URA (D) on securities
(675,087)
254,645
(675,087)
254,645
Beginning balance of foreign currency translation adjustments
18,053
30,989
19,992
28,727
Current period change in foreign currency translation adjustments
(9,849)
13,985
(11,788)
16,247
Ending balance of foreign currency translation adjustments
8,204
44,974
8,204
44,974
Beginning balance of benefit plan net gain (loss)
(49,634)
(71,827)
(50,392)
(73,870)
Current period change in benefit plan net gain (loss)
758
2,043
1,515
4,086
Ending balance of benefit plan net gain (loss)
(48,876)
(69,784)
(48,876)
(69,784)
Ending balance of accumulated other comprehensive income (loss)
$
(715,759)
$
229,835
$
(715,759)
$
229,835
21
8. COLLATERALIZED REINSURANCE AND TRUST AGREEMENTS
A subsidiary of the Company, Everest Reinsurance company (“Everest Re”), has established a trust agreement,
which effectively uses Everest Re’s investments as collateral, as security for assumed losses payable to non-
affiliated ceding companies. At June 30, 2022, the total amount on deposit in the trust account was $
554.1
The Company entered into various collateralized reinsurance agreements with Kilimanjaro Re Limited
(“Kilimanjaro”), a Bermuda based special purpose reinsurer, to provide the Company with catastrophe reinsurance
coverage. These agreements are multi-year reinsurance contracts which cover named storm and earthquake
events. The table below summarizes the various agreements:
(Dollars in thousands)
Class
Description
Effective Date
Expiration Date
Limit
Coverage Basis
Series 2018-1 Class A-2
US, Canada, Puerto Rico – Named Storm and Earthquake Events
4/30/2018
5/5/2023
62,500
Aggregate
Series 2018-1 Class B-2
US, Canada, Puerto Rico – Named Storm and Earthquake Events
4/30/2018
5/5/2023
200,000
Aggregate
Series 2019-1 Class A-1
US, Canada, Puerto Rico – Named Storm and Earthquake Events
12/12/2019
12/19/2023
150,000
Occurrence
Series 2019-1 Class B-1
US, Canada, Puerto Rico – Named Storm and Earthquake Events
12/12/2019
12/19/2023
275,000
Aggregate
Series 2019-1 Class A-2
US, Canada, Puerto Rico – Named Storm and Earthquake Events
12/12/2019
12/19/2024
150,000
Occurrence
Series 2019-1 Class B-2
US, Canada, Puerto Rico – Named Storm and Earthquake Events
12/12/2019
12/19/2024
275,000
Aggregate
Series 2021-1 Class A-1
US, Canada, Puerto Rico – Named Storm and Earthquake Events
4/8/2021
4/21/2025
150,000
Occurrence
Series 2021-1 Class B-1
US, Canada, Puerto Rico – Named Storm and Earthquake Events
4/8/2021
4/21/2025
85,000
Aggregate
Series 2021-1 Class C-1
US, Canada, Puerto Rico – Named Storm and Earthquake Events
4/8/2021
4/21/2025
85,000
Aggregate
Series 2021-1 Class A-2
US, Canada, Puerto Rico – Named Storm and Earthquake Events
4/8/2021
4/20/2026
150,000
Occurrence
Series 2021-1 Class B-2
US, Canada, Puerto Rico – Named Storm and Earthquake Events
4/8/2021
4/20/2026
90,000
Aggregate
Series 2021-1 Class C-2
US, Canada, Puerto Rico – Named Storm and Earthquake Events
4/8/2021
4/20/2026
90,000
Aggregate
Series 2022-1 Class A
US, Canada, Puerto Rico – Named Storm and Earthquake Events
6/22/2022
6/22/2025
300,000
Aggregate
Total available limit as of June 30, 2022
$
2,062,500
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. Currently, none of the published insured loss estimates for 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.
22
Kilimanjaro has financed the various property catastrophe reinsurance coverages by issuing catastrophe bonds to
unrelated, external investors. The proceeds from the issuance of the Notes listed below are held in reinsurance
trusts throughout the duration of the applicable reinsurance agreements and invested solely in US government
money market funds with a rating of at least “AAAm” by Standard & Poor’s.
(Dollars in thousands)
Note Series
Issue Date
Maturity Date
Amount
Series 2018-1 Class A-2
4/30/2018
5/5/2023
62,500
Series 2018-1 Class B-2
4/30/2018
5/5/2023
200,000
Series 2019-1 Class A-1
12/12/2019
12/19/2023
150,000
Series 2019-1 Class B-1
12/12/2019
12/19/2023
275,000
Series 2019-1 Class A-2
12/12/2019
12/19/2024
150,000
Series 2019-1 Class B-2
12/12/2019
12/19/2024
275,000
Series 2021-1 Class A-1
4/8/2021
4/21/2025
150,000
Series 2021-1 Class B-1
4/8/2021
4/21/2025
85,000
Series 2021-1 Class C-1
4/8/2021
4/21/2025
85,000
Series 2021-1 Class A-2
4/8/2021
4/20/2026
150,000
Series 2021-1 Class B-2
4/8/2021
4/20/2026
90,000
Series 2021-1 Class C-2
4/8/2021
4/20/2026
90,000
Series 2022-1 Class A
6/22/2022
6/22/2025
300,000
$
2,062,500
9. SENIOR NOTES
The table below displays Holdings’ outstanding senior notes. Fair 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.
June 30, 2022
December 31, 2021
Consolidated
Consolidated
Principal
Balance Sheet
Fair
Balance Sheet
Fair
(Dollars in thousands)
Date Issued
Date Due
Amounts
Amount
Value
Amount
Value
4.868
% Senior notes
06/05/2014
06/01/2044
400,000
$
397,373
$
374,212
$
397,314
$
503,840
3.5
% Senior notes
10/07/2020
10/15/2050
1,000,000
$
980,310
$
769,220
$
980,046
$
1,054,520
3.125
% Senior notes
10/04/2021
10/15/2052
1,000,000
$
968,811
$
701,820
$
968,440
$
983,140
2,400,000
$
2,346,495
$
1,845,252
$
2,345,800
$
2,541,500
Interest expense incurred in connection with these senior notes is as follows for the periods indicated:
Three Months Ended
Six Months Ended
June 30,
June 30,
(Dollars in thousands)
2022
2021
2022
2021
Interest expense incurred
4.868
% Senior notes
$
4,868
$
4,868
$
9,736
$
9,736
Interest expense incurred
3.5
% Senior notes
$
8,807
$
8,805
$
17,614
$
17,610
Interest expense incurred
3.125
% Senior notes
$
7,827
$
-
$
15,741
$
-
$
21,502
$
13,673
$
43,090
$
27,346
23
10. LONG TERM SUBORDINATED NOTES
The table below displays Holdings’ outstanding fixed to floating rate long term subordinated notes. Fair 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.
June 30, 2022
December 31, 2021
Original
Consolidated
Consolidated
Principal
Maturity Date
Balance
Fair
Balance
Fair
(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
$
223,824
$
189,012
$
223,774
$
216,289
During the fixed rate interest period from
May 3, 2007
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
August 15 and November 15 of each year, subject to Holdings’ right to defer interest on
1
up to
ten consecutive years
. Deferred interest will accumulate interest at the applicable rate compounded
quarterly for periods from and including May 15, 2017. The reset quarterly interest rate for May 16, 2022 to
August 14, 2022 is
3.80
%.
Holdings may redeem the long term subordinated notes on or after
May 15, 2017
, in whole or in part at
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
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. The Company’s
4.868
% senior
notes, due on
June 1, 2044
,
3.5
% senior notes due on
October 15, 2050
3.125
% senior notes due on
October
15, 2052
Interest expense incurred in connection with these long term subordinated notes is as follows for the periods
indicated:
Three Months Ended
Six Months Ended
June 30,
June 30,
(Dollars in thousands)
2022
2021
2022
2021
Interest expense incurred
$
1,927
$
1,460
$
3,458
$
2,922
11. FEDERAL HOME LOAN BANK MEMBERSHIP
Everest Re is 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 June 30, 2022, Everest Re had admitted assets of
approximately $
20.8
2.1
2022, Everest Re has $
519.0
and interest payable at interest rates between
0.53
% and
0.65
%. Everest Re incurred interest expense of $
0.8
million and $
0.3
interest expense of $
1.5
0.6
The FHLBNY membership agreement requires that
4.5
% of borrowed funds be used to acquire additional
membership stock.
12. SEGMENT REPORTING
The Reinsurance operation writes worldwide property and casualty reinsurance and specialty lines of business, on
both a treaty and facultative basis, through reinsurance brokers, as well as directly with ceding companies.
24
Business is written in the United States as well as through branches in Canada and Singapore. The Insurance
operation writes property and casualty insurance directly and through brokers, surplus lines brokers and general
agents within the United States.
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. The Company measures its underwriting results using ratios, in particular loss,
commission and brokerage and other underwriting expense ratios, which, respectively, divide incurred losses,
commissions and brokerage and other underwriting expenses by premiums earned.
The Company does not maintain separate balance sheet data for its operating segments. Accordingly, the
Company does not review and evaluate the financial results of its operating segments based upon balance sheet
data.
The following tables present the underwriting results for the operating segments for the periods indicated:
Three Months Ended June 30, 2022
Six Months Ended June 30, 2022
(Dollars in thousands)
Reinsurance
Insurance
Total
Reinsurance
Insurance
Total
Gross written premiums
$
1,394,004
$
1,042,883
$
2,436,887
$
2,773,675
$
1,868,220
$
4,641,895
Net written premiums
1,245,074
749,551
1,994,625
2,430,415
1,360,419
3,790,834
Premiums earned
$
1,294,903
$
659,326
$
1,954,229
$
2,504,217
$
1,278,605
$
3,782,821
Incurred losses and LAE
875,402
428,536
1,303,937
1,695,872
833,755
2,529,627
Commission and brokerage
331,917
76,747
408,663
647,246
146,047
793,293
Other underwriting expenses
32,451
87,812
120,263
63,425
174,594
238,018
Underwriting gain (loss)
$
55,134
$
66,232
$
121,366
$
97,674
$
124,209
$
221,883
Net investment income
176,499
332,633
Net gains (losses) on investments
(378,273)
(604,860)
Corporate expense
(5,886)
(11,652)
Interest, fee and bond issue cost amortization expense
(24,398)
(48,476)
Other income (expense)
493
(8,904)
Income (loss) before taxes
$
(110,199)
$
(119,376)
25
Three Months Ended June 30, 2021
Six Months Ended June 30, 2021
(Dollars in thousands)
Reinsurance
Insurance
Total
Reinsurance
Insurance
Total
Gross written premiums
$
1,439,254
$
877,776
$
2,317,030
$
2,859,337
$
1,591,028
$
4,450,365
Net written premiums
1,291,229
637,106
1,928,335
2,500,042
1,193,636
3,693,678
Premiums earned
$
1,232,157
$
534,398
$
1,766,555
$
2,409,327
$
1,054,128
$
3,463,455
Incurred losses and LAE
739,440
356,177
1,095,618
1,709,757
739,944
2,449,702
Commission and brokerage
324,989
61,859
386,848
615,545
121,157
736,702
Other underwriting expenses
32,999
76,932
109,930
69,288
150,437
219,725
Underwriting gain (loss)
$
134,729
$
39,430
$
174,159
$
14,737
$
42,590
$
57,327
Net investment income
248,135
395,858
Net gains (losses) on investments
183,763
318,774
Corporate expense
(7,618)
(12,199)
Interest, fee and bond issue cost amortization expense
(15,537)
(31,071)
Other income (expense)
(1,867)
2,112
Income (loss) before taxes
$
581,035
$
730,800
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’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
Six Months Ended
June 30,
June 30,
(Dollars in thousands)
2022
2021
2022
2021
Canada gross written premiums
$
80,714
$
68,955
$
148,479
$
103,285
No other country represented more than
5
% of the Company’s revenues.
13. RELATED-PARTY TRANSACTIONS
Parent
Group entered into a $
300.0
pays interest annually at a rate of
1.69
% and is scheduled to mature in December, 2028. The Company recognized
interest income related to this long term note of $
1.3
1.3
2022 and 2021, respectively and $
2.5
2.5
respectively.
Group entered into a $
200.0
interest annually at a rate of
1.00
% and is scheduled to mature in August, 2030. The Company recognized interest
income related to this long term note of $
0.5
0
2021, respectively and $
1.0
0
Group entered into a $
215.0
interest annually at a rate of
3.11
% and is scheduled to mature in June, 2052.
26
Group’s Board of Directors approved an amended share repurchase program authorizing Group and/or its
subsidiary Holdings to purchase Group’s common shares through open market transactions, privately negotiated
transactions or both. The most recent amendment from the Board, approved on May 22, 2020, increased the
cumulative number of shares that may be repurchased under the program to
32.0
Holdings had purchased and held
9,719,971
between February 2007 and March 2011.
In December, 2015, Holdings transferred the
9,719,971
assets, at fair value, valued at $
1.8
1,773.214
Preferred Holdings with a $
1.0
1.75
% annual dividend rate. After the exchange, Holdings no
longer holds any shares or has any ownership interest in Group.
Holdings has reported the 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 gains (losses) on
investments 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
Six Months Ended
June 30,
June 30,
(Dollars in thousands)
2022
2021
2022
2021
Dividends received on preferred stock of affiliate
$
7,758
$
7,758
$
15,516
$
15,516
Affiliates
The Company has engaged in reinsurance transactions with Everest Reinsurance (Bermuda), Ltd. (“Bermuda Re”),
Everest Reinsurance Company (Ireland) dac (“Ireland Re”), Everest Insurance (Ireland) dac (“Ireland Insurance”),
Everest International Reinsurance Ltd. (“Everest International”), Everest Insurance Company of Canada (“Everest
Canada”), Lloyd’s Syndicate 2786 and Mt. Logan Re, which are affiliated companies primarily driven by enterprise
risk and capital management considerations under which business is ceded at market rates and terms.
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.
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
27
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, 2022.
Everest Re entered into a catastrophe excess of loss reinsurance contract with Bermuda Re (UK Branch), effective
January 1, 2021 through December 31, 2021, subject to renewal thereafter. The contract provides Bermuda Re (UK
Branch), with up to £
100.0
40.0
Bermuda Re (UK Branch) paid Everest Re £
3.5
effective January 1, 2022.
Everest Re entered into a catastrophe excess of loss reinsurance contract with Ireland Re, effective February 1,
2021 through January 31, 2022, subject to renewal thereafter. The contract provides Ireland Re with up to €
145.0
million of reinsurance coverage for each catastrophe occurrence above €
16.0
€
9.8
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
On December 31, 2017, the Company entered into a LPT agreement with Bermuda Re. The LPT agreement covers
subject loss reserves of $
2.3
Company transferred $
1.0
970.0
reserves to Bermuda Re. As part of the LPT agreement, Bermuda Re will provide an additional $
500.0
adverse development coverage on the subject loss reserves. As of June 30, 2022, and December 31, 2021, the
Company has a reinsurance recoverable of $
854.0
856.4
sheet due from Bermuda Re.
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, Everest
Ireland and Lloyd’s syndicate 2786 for the periods indicated:
Three Months Ended
Six Months Ended
Bermuda Re
June 30,
June 30,
(Dollars in thousands)
2022
2021
2022
2021
Ceded written premiums
$
91,385
$
74,948
$
183,823
$
145,801
Ceded earned premiums
91,370
73,799
183,807
144,676
Ceded losses and LAE
2,955
20,990
1,111
(9,114)
Assumed written premiums
1,065
-
3,323
-
Assumed earned premiums
1,065
62
4,504
123
Assumed losses and LAE
3
40
(191)
66
28
Three Months Ended
Six Months Ended
Everest International & Canada
June 30,
June 30,
(Dollars in thousands)
2022
2021
2022
2021
Assumed written premiums
-
-
-
-
Assumed earned premiums
-
-
-
-
Assumed losses and LAE
45
7
(1,824)
66
Three Months Ended
Six Months Ended
Ireland Re
June 30,
June 30,
(Dollars in thousands)
2022
2021
2022
2021
Assumed written premiums
$
2,037
$
2,978
$
4,338
$
5,901
Assumed earned premiums
2,037
2,978
4,549
4,927
Assumed losses and LAE
-
-
2,441
-
Three Months Ended
Six Months Ended
Ireland Insurance
June 30,
June 30,
(Dollars in thousands)
2022
2021
2022
2021
Assumed written premiums
$
1,905
$
1,489
$
3,864
$
2,790
Assumed earned premiums
2,338
1,252
3,978
2,514
Assumed losses and LAE
(4,784)
308
1,608
1,005
Three Months Ended
Six Months Ended
Lloyd's Syndicate 2786
June 30,
June 30,
(Dollars in thousands)
2022
2021
2022
2021
Assumed written premiums
$
(250)
$
73
$
(257)
$
672
Assumed earned premiums
(250)
112
(257)
641
Assumed losses and LAE
132
1,796
387
214
The following table summarizes the premiums and losses that are ceded by the Company to Mt. Logan Re
segregated accounts and assumed by the Company from Mt. Logan Re segregated accounts.
Three Months Ended
Six Months Ended
Mt. Logan Re Segregated Accounts
June 30,
June 30,
(Dollars in thousands)
2022
2021
2022
2021
Ceded written premiums
$
21,760
$
46,571
$
62,426
$
127,943
Ceded earned premiums
29,171
60,117
71,655
126,105
Ceded losses and LAE
22,884
21,613
59,648
94,607
14. INCOME TAXES
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’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. The tax expense or benefit for the
quarter represents the difference between the year-to-date tax expense or benefit for the current year-to-date
period less such amount for the immediately preceding year-to-date period. Management considers the impact of
all known events in its estimation of the Company’s annual pre-tax income/(loss) and effective tax rate.
29
15. SUBSEQUENT EVENTS
The Company has evaluated known recognized and non-recognized subsequent events. The Company does not
have any subsequent events to report.
30
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
Industry Conditions.
The worldwide reinsurance and insurance businesses are highly competitive, as well as cyclical by product and
market. As such, financial results tend to fluctuate with periods of constrained availability, higher rates and
stronger profits followed by periods of abundant capacity, lower rates and constrained profitability. Competition
in the types of reinsurance and insurance business that we underwrite is based on many factors, including the
perceived overall financial strength of the reinsurer or insurer, ratings of the reinsurer or insurer by A.M. Best
and/or Standard & Poor’s, 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, 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 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, provided capital markets with access to insurance and reinsurance risk
exposure. The capital markets demand for these products was being primarily driven by a low interest
environment and the desire to achieve greater risk diversification and potentially higher returns on their
investments. This increased competition was generally having a negative impact on rates, terms and conditions;
however, the impact varies widely by market and coverage.
The industry continues to deal with the impacts of a global pandemic, COVID-19 and its subsequent variants. We
continue to service and meet the needs of our clients while ensuring the safety and health of our employees and
customers.
Prior to the pandemic, there was a growing industry consensus that there was some firming of (re)insurance rates
for the areas impacted by the recent catastrophes. The increased frequency of catastrophe losses that continued
to be experienced in 2022 and throughout 2021 appears to be further pressuring the increase of rates. As business
activity continues to regain strength, rates also appear to be firming in most lines of business, particularly in the
casualty lines that had seen significant losses such as excess casualty and directors’ and officers’ liability. Other
casualty lines are experiencing modest rate increase, while some lines such as workers’ compensation were
experiencing softer market conditions. It is too early to tell what the impact on pricing conditions will be, but it is
likely to change depending on the line of business and geography.
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 positioned to continue to service our clients. Our
capital position remains a source of strength, with high quality invested assets, significant liquidity and a low
operating expense ratio. Our diversified global platform with its broad mix of products, distribution and geography
is resilient.
31
The war in the Ukraine is ongoing and an evolving event. Economic and legal sanctions have been levied against
Russia, specific named individuals and entities connected to the Russian government, as well as businesses located
in the Russian Federation and/or owned by Russian nationals by numerous countries, including the United States.
The significant political and economic uncertainty surrounding the war and associated sanctions have impacted
economic and investment markets both within Russia and around the world. The Company has recorded $24.6
million of incurred underwriting losses related to the Ukraine and Russia conflict as of the three and six months
ended June 30, 2022.
32
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’s equity for the periods indicated:
Three Months Ended
Six Months Ended
June 30,
Increase/
June 30,
Increase/
(Dollars in millions)
2022
2021
(Decrease)
2022
2021
(Decrease)
Gross written premiums
$
2,436.9
$
2,317.1
5.2%
$
4,641.9
$
4,450.4
4.3%
Net written premiums
1,994.6
1,928.4
3.4%
3,790.8
3,693.7
2.6%
REVENUES:
Premiums earned
$
1,954.2
$
1,766.6
10.6%
$
3,782.8
$
3,463.5
9.2%
Net investment income
176.5
248.1
-28.9%
332.6
395.9
-16.0%
Net gains (losses) on investments
(378.3)
183.8
NM
(604.9)
318.8
NM
Other income (expense)
0.5
(1.9)
NM
(8.9)
2.1
NM
Total revenues
1,753.0
2,196.5
-20.2%
3,501.7
4,180.2
-16.2%
CLAIMS AND EXPENSES:
Incurred losses and loss adjustment expenses
1,303.9
1,095.6
19.0%
2,529.6
2,449.7
3.3%
Commission, brokerage, taxes and fees
408.7
386.8
5.6%
793.3
736.7
7.7%
Other underwriting expenses
120.3
109.9
9.4%
238.0
219.7
8.3%
Corporate expense
5.9
7.6
-22.7%
11.7
12.2
-4.5%
Interest, fee and bond issue cost amortization expense
24.4
15.6
56.5%
48.5
31.1
56.0%
Total claims and expenses
1,863.1
1,615.5
15.3%
3,621.1
3,449.4
5.0%
INCOME (LOSS) BEFORE TAXES
(110.2)
581.0
-119.0%
(119.4)
730.8
-116.3%
Income tax expense (benefit)
(24.5)
115.3
-121.3%
(34.7)
145.6
-123.9%
NET INCOME (LOSS)
$
(85.7)
$
465.8
-118.4%
$
(84.6)
$
585.3
-114.5%
RATIOS:
Point
Change
Point
Change
Loss ratio
66.7%
62.0%
4.7
66.9%
70.7%
(3.8)
Commission and brokerage ratio
20.9%
21.9%
(1.0)
21.0%
21.3%
(0.3)
Other underwriting expense ratio
6.2%
6.2%
-
6.3%
6.3%
-
Combined ratio
93.8%
90.1%
3.7
94.1%
98.3%
(4.2)
At
At
June 30,
December 31,
Increase/
(Dollars in millions)
2022
2021
(Decrease)
Balance sheet data:
Total investments and cash
$
18,851.9
$
19,718.8
-4.4%
Total assets
27,108.0
27,695.0
-2.1%
Loss and loss adjustment expense reserves
13,738.4
13,121.2
4.7%
Total debt
3,089.3
3,088.6
0.0%
Total liabilities
20,961.6
20,656.9
1.5%
Stockholder's equity
6,146.4
7,038.0
-12.7%
(Some amounts may not reconcile due to rounding)
(NM, not meaningful)
33
Revenues.
Premiums. Gross written premiums increased by 5.2% to $2.4 billion for the three months ended June 30, 2022,
compared to $2.3 billion for the three months ended June 30, 2021, reflecting a $165.1 million, or 18.8%, increase
in our Insurance business and a $45.3 million, or 3.1%, decrease in our reinsurance business. The rise in insurance
premiums was primarily due to increases across most lines of business, notably specialty casualty business,
professional liability business and other specialty business. The decrease in reinsurance premiums was mainly due
to a decline property pro rata business. Gross written premiums increased by 4.3% to $4.6 billion for the six
months ended June 30, 2022, compared to $4.5 billion for the six months ended June 30, 2021, reflecting a $277.2
million, or 17.4%, increase in our Insurance business and a $85.7 million, or 3.0%, decrease in our reinsurance
business. The rise in insurance premiums was primarily due to increases in most lines of business, notably specialty
casualty business, professional liability business and other specialty business. The decrease in reinsurance
premiums was mainly due to a decline property pro rata business.
Net written premiums increased by 3.4% to $2.0 billion for the three months ended June 30, 2022, compared to
$1.9 billion for the three months ended June 30, 2021 and increased by 2.6% to $3.8 billion for the six months
ended June 30, 2022, compared to $3.7 billion for the six months ended June 30, 2021. The percentage increases
in net written premiums are consistent with the percentage changes in gross written premiums. Premiums earned
increased by 10.6% to $2.0 billion for the three months ended June 30, 2022, compared to $1.8 billion for the
three months ended June 30, 2021 and increased by 9.2% to $3.8 billion for the six months ended June 30, 2022,
compared to $3.5 billion for the six months ended June 30, 2021. The change in premiums earned relative to net
written premiums is primarily the result of timing; premiums are earned ratably over the coverage period whereas
written premiums are recorded at the initiation of the coverage period. Accordingly, the significant increases in
gross written premiums from pro rata business during the latter half of 2021 contributed to the current quarter
percentage increase in net earned premiums.
Other Income (Expense). We recorded other income of $0.5 million and other expense of $1.9 million for the
three months ended June 30, 2022 and 2021, respectively. We recorded other expense of $8.9 million and other
income of $2.1 million for the six months ended June 30, 2022 and 2021, respectively. The change was primarily
the result of fluctuations in foreign currency exchange rates.
Net Investment Income. Refer to Consolidated Investments Results Section below.
Net Gains (Losses) on Investments. Refer to Consolidated Investments Results Section below.
34
Claims and Expenses.
Incurred Losses and Loss Adjustment Expenses. The following table presents our incurred losses and loss
adjustment expenses (“LAE”) for the periods indicated.
Three Months Ended June 30,
Current
Ratio %/
Prior
Ratio %/
Total
Ratio %/
(Dollars in millions)
Year
Pt Change
Years
Pt Change
Incurred
Pt Change
2022
Attritional
$
1,236.6
63.3%
$
-
0.0%
$
1,236.6
63.3%
Catastrophes
65.0
3.3%
2.3
0.1%
67.3
3.4%
Total
$
1,301.7
66.6%
$
2.3
0.1%
$
1,303.9
66.7%
2021
Attritional
$
1,076.7
60.9%
$
(0.5)
0.0%
$
1,076.2
60.9%
Catastrophes
35.0
2.0%
(15.6)
-0.9%
19.4
1.1%
Total
$
1,111.7
62.9%
$
(16.1)
-0.9%
$
1,095.6
62.0%
Variance 2022/2021
Attritional
$
160.0
2.4
pts
$
0.5
-
pts
$
160.5
2.4
pts
Catastrophes
30.0
1.3
pts
17.8
1.0
pts
47.9
2.3
pts
Total
$
190.0
3.7
pts
$
18.3
1.0
pts
$
208.3
4.7
pts
Six Months Ended June 30,
Current
Ratio %/
Prior
Ratio %/
Total
Ratio %/
(Dollars in millions)
Year
Pt Change
Years
Pt Change
Incurred
Pt Change
2022
Attritional
$
2,375.1
62.8%
$
-
0.0%
$
2,375.1
62.7%
Catastrophes
145.5
3.8%
9.0
0.2%
154.5
4.0%
Total
$
2,520.6
66.6%
$
9.0
0.2%
$
2,529.6
66.9%
2021
Attritional
$
2,155.1
62.2%
$
(1.5)
0.0%
$
2,153.6
62.2%
Catastrophes
295.5
8.5%
0.6
0.0%
296.1
8.5%
Total
$
2,450.6
70.7%
$
(0.9)
0.0%
$
2,449.7
70.7%
Variance 2022/2021
Attritional
$
220.0
0.6
pts
$
1.5
-
pts
$
221.5
0.6
pts
Catastrophes
(150.0)
(4.7)
pts
8.4
0.2
pts
(141.6)
(4.5)
pts
Total
$
70.0
(4.1)
pts
$
9.9
0.2
pts
$
79.9
(3.8)
pts
(Some amounts may not reconcile due to rounding.)
Incurred losses and LAE increased by 19.0% to $1.3 billion for the three months ended June 30, 2022 compared to
$1.1 billion for the three months ended June 30, 2021, primarily due to an increase of $160.0 million in current
year attritional losses and an increase of $30.0 million in current year catastrophe losses. The increase in current
year attritional losses was mainly due to the impact of the increase in premiums earned and $24.6 million of
attritional losses incurred due to the Ukraine/Russia war. The current year catastrophe losses of $65.0 million for
the three months ended June 30, 2022 mainly related to 2022 South Africa flood ($37.5 million), the 2022 Canada
derecho ($16.0 million) and the 2022 2
nd
$35.0 million for the three months ended June 30, 2021 related to Tropical Storm Claudette, Texas winter storms,
and the Victoria Australia floods.
Incurred losses and LAE increased by 3.3% to $2.5 billion for the six months ended June 30, 2022 compared to $2.4
billion for the six months ended June 30, 2021, primarily due to an increase of $220.0 million in current year
attritional losses, partially offset by a decline of $150.0 million in current year catastrophe losses. The increase in
current year attritional losses was mainly due to the impact of the increase in premiums earned and $24.6 million
35
of attritional losses incurred due to the Ukraine/Russia war. The current year catastrophe losses of $145.5 million
for the six months ended June 30, 2022 related to 2022 Australia floods ($71.4 million), 2022 South Africa flood
($37.5 million), the 2022 Canada derecho ($16.0 million), 2022 2
nd
2022 March U.S. storms ($8.6 million). The current year catastrophe losses of $295.5 million for the six months
ended June 30, 2021 primarily related to the Texas winter storms ($263.0 million), with the remaining losses
emanating from Tropical Storm Claudette, Victoria Australia floods and the 2021 Australia floods.
Commission, Brokerage, Taxes and Fees. Commission, brokerage, taxes and fees increased to $408.7 million for
the three months ended June 30, 2022 compared to $386.8 million for the three months ended June 30, 2021.
Commission, brokerage, taxes and fees increased to $793.3 million for the six months ended June 30, 2022
compared to $736.7 million for the six months ended June 30, 2021. The increase s were mainly due to the impact
of the increase in premiums earned and changes in the mix of business.
Other Underwriting Expenses. Other underwriting expenses increased to $120.3 million for the three months
ended June 30, 2022 compared to $109.9 million for the three months ended June 30, 2021. Other underwriting
expenses increased to $238.0 million for the six months ended June 30, 2022 compared to $219.7 million for the
six months ended June 30, 2021. The increases were mainly due to the impact of increase in premiums earned and
costs incurred to support the expansion of the insurance business.
Corporate Expenses. Corporate expenses, which are general operating expenses that are not allocated to
segments, have decreased to $5.9 million from $7.6 million for the three months ended June 30, 2022 and 2021,
respectively and decreased slightly to $11.7 million from $12.2 million for the six months ended June 30, 2022 and
2021, respectively. The variances are mainly due to changes in variable incentive compensation expenses.
Interest, Fees and Bond Issue Cost Amortization Expense. Interest, fees and other bond amortization expense was
$24.4 million and $15.6 million for the three months ended June 30, 2022 and 2021, respectively. Interest, fees
and other bond amortization expense was $48.5 million and $31.1 million for the six months ended June 30, 2022
and 2021, respectively. The variances in expenses were primarily due to the issuance of $1.0 billion of senior notes
in October 2021. Interest expense was also impacted by the movements in the floating interest rate related to the
long term subordinated notes, which is reset quarterly per the note agreement. The floating rate was 3.80% as of
June 30, 2022.
Income Tax Expense (Benefit). We had income tax benefit of $24.5 million and $34.7 million for the three and six
months ended June 30, 2022, respectively. We had an income tax expense of $115.3 million and $145.6 million for
the three and six months ended June 30, 2021, respectively. Income tax expense is primarily a function of the
geographic location of the Company’s pre-tax income and the statutory tax rates in those jurisdictions. The
effective tax rate (“ETR”) is primarily affected by tax-exempt investment income, foreign tax credits and dividends.
Variations in the ETR generally result from changes in the relative levels of pre -tax income, including the impact of
catastrophe losses, foreign exchange gains (losses) and net gains (losses) on investments, among jurisdictions with
different tax rates.
Net Income (Loss).
Our net loss was $85.7 million and net income was $465.8 million, for the three months ended June 30, 2022 and
2021 respectively. Our net loss was $84.6 million and net income was $585.3 million, for the six months ended
June 30, 2022 and 2021 respectively. The changes were primarily driven by the financial component fluctuations
explained above.
36
Ratios.
Our combined ratio increased by 3.7 points to 93.8% for the three months ended June 30, 2022, compared to
90.1% for the three months ended June 30, 2021 and decreased by 4.2 points to 94.1% for the six months ended
June 30, 2022 compared to 98.3% for the six months ended June 30, 2021. The loss ratio component increased by
4.7 points for the three months ended June 30, 2022 over the same period last year mainly due to an increase of
$30.0 million in current year catastrophe losses and an increase of $24.6 million in current year attritional losses
due to the Ukraine/Russia war. The loss ratio component decreased by 3.8 points for the six months ended June
30, 2022 over the same period last year mainly due to a decline of $150.0 million in current year catastrophe
losses, partially offset by an increase of $24.6 million in current year attritional losses due to the Ukraine Russia
conflict. The commission and brokerage ratio components decreased to 20.9% for the three months ended June
30, 2022 compared to 21.9% for the three months ended June 30, 2021 and decreased slightly to 21.0% for the six
months ended June 30, 2022 compared to 21.3% for the six months ended June 30, 2021. These changes were
mainly due to changes in the mix of business. The other underwriting expense ratios remained the same at 6.2%
for the three months ended June 30, 2022 and 2021, respectively and remained the same at 6.3% for the six
months ended June 30, 2022 and 2021, respectively.
Stockholder's Equity.
Stockholder’s equity decreased by $891.6 million to $6.1 billion at June 30, 2022 from $7.0 billion at December 31,
2021, principally as a result of $797.0 million of net unrealized depreciation on investments, net of tax, $84.6
million of net loss and $11.8 million of net foreign currency translation adjustments , partially offset by $1.5 million
of net benefit plan obligation adjustments, net of tax. The movement in the unrealized depreciation on
investments was driven by the change in interest rates on the Company’s fixed maturity portfolio.
Consolidated Investment Results
Net Investment Income.
Net investment income decreased to $176.5 million for the three months ended June 30, 2022 compared to
$248.1 million for the three months ended June 30, 2021. Net investment income decreased to $332.6 million for
the six months ended June 30, 2022 compared to $395.9 million for the six months ended June 30, 2021. The
decreases were primarily the result of reductions in income from limited partnerships and other alternative
investments, partially offset by an increase in income from fixed maturity securities. The limited partnership
income primarily reflects changes in their reported net asset values. As such, until these asset values are
monetized and the resultant income is distributed, they are subject to future increases or decreases in the asset
value, and the results may be volatile.
37
The following table shows the components of net investment income for the periods indicated:
Three Months Ended
Six Months Ended
June 30,
June 30,
(Dollars in millions)
2022
2021
2022
2021
Fixed maturities
$
115.5
$
91.9
$
209.9
$
177.0
Equity securities
4.6
3.4
8.7
6.3
Short-term investments and cash
0.7
0.1
0.9
0.2
Other invested assets
Limited partnerships
45.3
126.4
88.8
178.6
Dividends from preferred shares of affiliate
7.7
7.7
15.5
15.5
Other
14.0
25.9
25.8
31.9
Gross investment income before adjustments
187.8
255.4
349.6
409.5
Funds held interest income (expense)
0.5
2.7
3.3
6.2
Interest income from Parent
1.8
1.2
3.6
2.6
Gross investment income
191.1
259.3
356.5
418.3
Investment expenses
13.6
11.2
23.9
22.4
Net investment income
$
176.5
$
248.1
$
332.6
$
395.9
(Some amounts may not reconcile due to rounding.)
The following table shows a comparison of various investment yields for the periods indicated.
Three Months Ended
Six Months Ended
June 30,
June 30,
2022
2021
2022
2021
Annualized pre-tax yield on average cash and invested assets
3.6%
6.1%
3.5%
5.0%
Annualized after-tax yield on average cash and invested assets
2.9%
4.9%
2.8%
4.0%
38
Net Gains (Losses) on Investments.
The following table presents the composition of our net gains (losses) on investments for the periods indicated:
Three Months Ended June 30,
Six Months Ended June 30,
(Dollars in millions)
2022
2021
Variance
2022
2021
Variance
Realized gains (losses) from dispositions:
Fixed maturity securities available for sale
Gains
$
3.1
$
8.9
$
(5.8)
$
6.3
$
15.2
$
(8.9)
Losses
(13.0)
(4.7)
(8.4)
(21.2)
(7.1)
(14.1)
Total
(10.0)
4.2
(14.1)
(15.0)
8.1
(23.1)
Equity securities, fair value
Gains
4.1
2.6
1.5
7.6
14.9
(7.3)
Losses
(34.1)
(2.0)
(32.1)
(45.9)
(8.1)
(37.8)
Total
(30.0)
0.6
(30.5)
(38.3)
6.8
(45.1)
Other invested assets
Gains
3.3
4.2
(0.9)
7.6
5.6
2.0
Losses
(2.8)
(1.5)
(1.4)
(3.1)
(1.6)
(1.6)
Total
0.5
2.8
(2.3)
4.5
4.1
0.4
Total net realized gains (losses) from dispositions
Gains
10.5
15.7
(5.2)
21.5
35.7
(14.2)
Losses
(50.0)
(8.2)
(41.8)
(70.4)
(16.8)
(53.6)
Total
(39.4)
7.5
(47.0)
(48.8)
19.0
(67.8)
Allowances for credit losses:
1.5
(15.1)
16.6
(0.1)
(22.2)
22.1
Gains (losses) from fair value adjustments:
Equity securities, fair value
(185.9)
103.8
(289.7)
(316.7)
141.4
(458.1)
Other invested assets, fair value
(154.7)
87.5
(242.2)
(239.3)
180.6
(419.9)
Total
(340.5)
191.4
(531.9)
(555.9)
322.0
(877.9)
Total net gains (losses) on investments
$
(378.5)
$
183.8
$
(562.3)
$
(604.9)
$
318.8
$
(923.7)
(Some amounts may not reconcile due to rounding.)
Net gains (losses) on investments during the three months ended June 30, 2022 primarily relate to net losses from
fair value adjustments on equity securities of $185.9 million as a result of equity market declines during the second
quarter of 2022, net losses of $154.7 million from fair value adjustments on other invested assets and $39.4 million
of net realized losses from disposition of investments.
Net gains (losses) on investments during the six months ended June 30, 2022 primarily relate to net losses from fair
value adjustments on equity securities of $316.7 million as a result of equity market declines during the first six
months of 2022, net losses of $239.3 million from fair value adjustments on other invested assets and $48.8 million
of net realized losses from disposition of investments.
Segment Results.
The Company manages its reinsurance and insurance operations as autonomous units and key strategic decisions
are based on the aggregate operating results and projections for these segments of business.
The Reinsurance operation writes risks on a worldwide basis in property and casualty reinsurance and specialty
lines of business, on both a treaty and facultative basis, through reinsurance brokers, as well as directly with ceding
companies. Business is written in the United States as well as through branches in Canada and Singapore. The
Insurance operation writes property and casualty insurance directly and through brokers, surplus lines brokers and
general agents within the United States.
39
These segments are managed independently, but conform with corporate guidelines with respect to pricing, risk
management, control of aggregate catastrophe exposures, capital, investments and support operations.
Management generally monitors and evaluates the financial performance of these operating segments based upon
their underwriting results.
Underwriting results include earned premium less losses and LAE incurred, commission and brokerage expenses
and other underwriting expenses. We measure our underwriting results using ratios, in particular loss, commission
and brokerage and other underwriting expense ratios, which respectively, divide incurred losses, commissions and
brokerage and other underwriting expenses by premiums earned.
The Company does not maintain separate balance sheet data for its operating segments. Accordingly, the
Company does not review and evaluate the financial results of its operating segments based upon balance sheet
data.
Our loss and LAE reserves are management’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 Reinsurance segment for the periods
indicated.
Three Months Ended June 30,
Six Months Ended June 30,
(Dollars in millions)
2022
2021
Variance
% Change
2022
2021
Variance
% Change
Gross written premiums
$
1,394.0
$
1,439.3
$
(45.3)
-3.1%
$
2,773.7
$
2,859.3
$
(85.7)
-3.0%
Net written premiums
1,245.1
1,291.2
(46.2)
-3.6%
2,430.4
2,500.0
(69.6)
-2.8%
Premiums earned
$
1,294.9
$
1,232.2
$
62.7
5.1%
$
2,504.2
$
2,409.3
$
94.9
3.9%
Incurred losses and LAE
875.4
739.4
136.0
18.4%
1,695.9
1,709.8
(13.9)
-0.8%
Commission and brokerage
331.9
325.0
6.9
2.1%
647.2
615.5
31.7
5.1%
Other underwriting expenses
32.5
33.0
(0.5)
-1.5%
63.4
69.3
(5.9)
-8.5%
Underwriting gain (loss)
$
55.1
$
134.7
$
(79.6)
-59.1%
$
97.7
$
14.7
$
82.9
NM
Point Chg
Point Chg
Loss ratio
67.6%
60.0%
7.6
67.7%
71.0%
(3.3)
Commission and brokerage ratio
25.6%
26.4%
(0.8)
25.8%
25.5%
0.3
Other underwriting ratio
2.5%
2.7%
(0.2)
2.5%
2.9%
(0.4)
Combined ratio
95.7%
89.1%
6.6
96.1%
99.4%
(3.3)
(Some amounts may not reconcile due to rounding.)
(NM, not meaningful)
Premiums.
Gross written premiums decreased by 3.1% to $1.39 billion for the three months ended June 30, 2022
from $1.44 billion for the three months ended June 30, 2021 primarily due to a decline in property pro rata
business. Net written premiums decreased by 3.6% to $1.25 billion for the three months ended June 30, 2022
compared to $1.29 billion for the three months ended June 30, 2021, which is consistent with the change in gross
written premiums. Premiums earned increased 5.1% to $1.3 billion for the three months ended June 30, 2022
compared to $1.2 billion for the three months ended June 30, 2021. The change in premiums earned relative to
net written premiums is the result of timing; premiums are earned ratably over the coverage period whereas
written premiums are recorded at the initiation of the coverage period. Accordingly, the increases in gross written
premiums from pro rata business during the latter half of 2021 contributed to the current quarter percentage
increase in net earned premiums.
Gross written premiums decreased by 3.0% to $2.8 billion for the six months ended June 30, 2022 from $2.9 billion
for the six months ended June 30, 2021 primarily due to a decline in property pro rata business. Net written
40
premiums decreased by 2.8% to $2.4 billion for the six months ended June 30, 2022 compared to $2.5 billion for
the six months ended June 30, 2021, which is consistent with the change in gross written premiums. Premiums
earned increased 3.9% to $2.5 billion for the six months ended June 30, 2022 compared to $2.4 billion for the six
months ended June 30, 2021. The change in premiums earned relative to net written premiums is the result of
timing; premiums are earned ratably over the coverage period whereas written premiums are recorded at the
initiation of the coverage period. Accordingly, the increases in gross written premiums from pro rata business
during the latter half of 2021 contributed to the current quarter percentage increase in net earned premiums.
Incurred Losses and LAE.
The following tables present the incurred losses and LAE for the Reinsurance segment for
the periods indicated.
Three Months Ended June 30,
Current
Ratio %/
Prior
Ratio %/
Total
Ratio %/
(Dollars in millions)
Year
Pt Change
Years
Pt Change
Incurred
Pt Change
2022
Attritional
$
812.8
62.8%
$
-
0.0%
$
812.8
62.8%
Catastrophes
60.0
4.6%
2.6
0.2%
62.6
4.8%
Total segment
$
872.8
67.4%
$
2.6
0.2%
$
875.4
67.6%
2021
Attritional
$
730.7
59.3%
$
0.5
0.0%
$
731.2
59.3%
Catastrophes
25.0
2.0%
(16.7)
-1.4%
8.3
0.7%
Total segment
$
755.7
61.3%
$
(16.2)
-1.3%
$
739.4
60.0%
Variance 2022/2021
Attritional
$
82.1
3.5
pts
$
(0.5)
-
pts
$
81.6
3.5
pts
Catastrophes
35.0
2.6
pts
19.3
1.6
pts
54.3
4.1
pts
Total segment
$
117.1
6.1
pts
$
18.8
1.6
pts
$
136.0
7.6
pts
Six Months Ended June 30,
Current
Ratio %/
Prior
Ratio %/
Total
Ratio %/
(Dollars in millions)
Year
Pt Change
Years
Pt Change
Incurred
Pt Change
2022
Attritional
$
1,550.4
61.9%
$
0.4
0.0%
$
1,550.8
61.9%
Catastrophes
135.5
5.4%
9.6
0.4%
145.1
5.8%
Total segment
$
1,685.9
67.3%
$
10.0
0.4%
$
1,695.9
67.7%
2021
Attritional
$
1,472.5
61.1%
$
0.5
0.0%
$
1,472.9
61.1%
Catastrophes
238.0
9.9%
(1.2)
0.0%
236.8
9.8%
Total segment
$
1,710.5
71.0%
$
(0.7)
0.0%
$
1,709.8
71.0%
Variance 2022/2021
Attritional
$
77.9
0.8
pts
$
(0.1)
-
pts
$
77.8
0.8
pts
Catastrophes
(102.5)
(4.5)
pts
10.8
0.4
pts
(91.7)
(4.0)
pts
Total segment
$
(24.6)
(3.7)
pts
$
10.7
0.4
pts
$
(13.9)
(3.3)
pts
(Some amounts may not reconcile due to rounding.)
Incurred losses increased by 18.4% to $875.4 million for the three months ended June 30, 2022, compared to
$739.4 million for the three months ended June 30, 2021. The increase was primarily due to an increase of $82.1
million in current year attritional losses and an increase of $35.0 million in current year catastrophe losses. The
increase in current year attritional losses was mainly related to the impact of the increase in premiums earned and
$24.6 million of attritional losses incurred due to the Ukraine /Russia war. The current year catastrophe losses of
$60.0 million for the three months ended June 30, 2022 related primarily to 2022 South Africa flood ($37.5
million), the 2022 Canada derecho ($16.0 million) and the 2022 2
nd
41
million of current year catastrophe losses for the three months ended June 30, 2021 related to Tropical Storm
Claudette and the Victoria Australia floods.
Incurred losses decreased by 0.8% to $1.70 billion for the six months ended June 30, 2022, compared to $1.71
billion for the six months ended June 30, 2021. The decrease was primarily due to a decline of $102.5 million in
current year catastrophe losses, partially offset by an increase of $77.9 million in current year attritional losses.
The increase in current year attritional losses was mainly related to the impact of the increase in premiums earned
and $24.6 million of attritional losses incurred due to the Ukraine/Russia war. The current year catastrophe losses
of $135.5 million for the six months ended June 30, 2022 related primarily to 2022 Australia floods ($71.4 million),
2022 South Africa flood ($37.5 million), the 2022 Canada derecho ($16.0 million), 2022 2
nd
($7.0 million), and the 2022 March U.S. storms ($3.6 million). The $238.0 million of current year catastrophe losses
for the six months ended June 30, 2021 primarily related to the Texas winter storms ($205.5 million), with the
remaining losses emanating from Tropical Storm Claudette, Victoria Australia floods and the 2021 Australia floods.
Segment Expenses. Commission and brokerage expense increased by 2.1% to $331.9 million for the three months
ended June 30, 2022 compared to $325.0 million for the three months ended June 30, 2021. Commission and
brokerage expense increased by 5.1% to $647.2 million for the six months ended June 30, 2022 compared to
$615.5 million for the six months ended June 30, 2021. The increases were mainly due to changes in the mix of
business.
Segment other underwriting expenses decreased to $32.5 million for the three months ended June 30, 2022 from
$33.0 million for the three months ended June 30, 2021. Segment other underwriting expenses decreased to $63.4
million for the six months ended June 30, 2022 from $69.3 million for the six months ended June 30, 2021. The
decreases were mainly due to the impact of decreases in premiums earned and changes in the mix of business.
Insurance.
The following table presents the underwriting results and ratios for the Insurance segment for the periods
indicated.
Three Months Ended June 30,
Six Months Ended June 30,
(Dollars in millions)
2022
2021
Variance
% Change
2022
2021
Variance
% Change
Gross written premiums
$
1,042.9
$
877.8
$
165.1
18.8%
$
1,868.2
$
1,591.0
$
277.2
17.4%
Net written premiums
749.6
637.1
112.4
17.6%
1,360.4
1,193.6
166.8
14.0%
Premiums earned
$
659.3
$
534.4
$
124.9
23.4%
$
1,278.6
$
1,054.1
$
224.5
21.4%
Incurred losses and LAE
428.5
356.2
72.4
20.3%
833.8
739.9
93.8
12.7%
Commission and brokerage
76.7
61.9
14.9
24.1%
146.0
121.2
24.9
20.6%
Other underwriting expenses
87.8
76.9
10.9
14.2%
174.6
150.4
24.2
16.1%
Underwriting gain (loss)
$
66.2
$
39.4
$
26.8
68.0%
$
124.2
$
42.6
$
81.6
191.6%
Point Chg
Point Chg
Loss ratio
65.0%
66.7%
(1.7)
65.2%
70.2%
(5.0)
Commission and brokerage ratio
11.6%
11.6%
-
11.4%
11.5%
(0.1)
Other underwriting ratio
13.3%
14.4%
(0.9)
13.7%
14.3%
(0.6)
Combined ratio
90.0%
92.6%
(2.6)
90.3%
96.0%
(5.7)
(Some amounts may not reconcile due to rounding.)
(NM, not meaningful)
42
Premiums.
Gross written premiums increased by 18.8% to $1.0 billion for the three months ended June 30, 2022
compared to $877.8 million for the three months ended June 30, 2021. The rise in gross written premiums was
primarily related to increases across most lines of business, notably specialty casualty business, professional
liability business and other specialty business. Net written premiums increased by 17.6% to $749.6 million for the
three months ended June 30, 2022 compared to $637.1 million for the three months ended June 30, 2021, which is
consistent with the change in gross written premiums. Premiums earned increased 23.4% to $659.3 million for the
three months ended June 30, 2022 compared to $534.4 million for the three months ended June 30, 2021. The
change in premiums earned is the result of timing; premiums are earned ratably over the coverage period whereas
written premiums are recorded at the initiation of the coverage period. Accordingly, the significant increases in
gross written premiums during the latter half of 2021 contributed to the current quarter percentage increase in
net earned premiums.
Gross written premiums increased by 17.4% to $1.9 billion for the six months ended June 30, 2022 compared to
$1.6 billion for the six months ended June 30, 2021. The rise in gross written premiums was primarily related to
increases across most lines of business, notably specialty casualty business, professional liability business and
other specialty business. Net written premiums increased by 14.0% to $1.4 billion for the six months ended June
30, 2022 compared to $1.2 billion for the six months ended June 30, 2021, which is consistent with the change in
gross written premiums. Premiums earned increased 21.4% to $1.3 billion for the six months ended June 30, 2022
compared to $1.1 billion for the six months ended June 30, 2021. The change in premiums earned is the result of
timing; premiums are earned ratably over the coverage period whereas written premiums are recorded at the
initiation of the coverage period. Accordingly, the significant increases in gross written premiums during the latter
half of 2021 contributed to the current quarter percentage increase in net earned premiums.
Incurred Losses and LAE.
The following tables present the incurred losses and LAE for the Insurance segment for
the periods indicated.
Three Months Ended June 30,
Current
Ratio %/
Prior
Ratio %/
Total
Ratio %/
(Dollars in millions)
Year
Pt Change
Years
Pt Change
Incurred
Pt Change
2022
Attritional
$
423.9
64.3%
$
-
0.0%
$
423.9
64.3%
Catastrophes
5.0
0.8%
(0.3)
0.0%
4.7
0.7%
Total segment
$
428.9
65.0%
$
(0.3)
0.0%
$
428.5
65.0%
2021
Attritional
$
346.0
64.7%
$
(1.0)
-0.2%
$
345.0
64.6%
Catastrophes
10.0
1.9%
1.1
0.2%
11.1
2.1%
Total segment
$
356.0
66.6%
$
0.2
0.0%
$
356.2
66.7%
Variance 2022/2021
Attritional
$
77.9
(0.4)
pts
$
1.0
0.2
pts
$
78.8
(0.3)
pts
Catastrophes
(5.0)
(1.1)
pts
(1.5)
(0.2)
pts
(6.5)
(1.4)
pts
Total segment
$
72.9
(1.5)
pts
$
(0.5)
-
pts
$
72.4
(1.7)
pts
43
Six Months Ended June 30,
Current
Ratio %/
Prior
Ratio %/
Total
Ratio %/
(Dollars in millions)
Year
Pt Change
Years
Pt Change
Incurred
Pt Change
2022
Attritional
$
824.7
64.5%
$
(0.4)
0.0%
$
824.3
64.5%
Catastrophes
10.0
0.8%
(0.6)
0.0%
9.4
0.7%
Total segment
$
834.7
65.3%
$
(1.0)
0.0%
$
833.8
65.2%
2021
Attritional
$
682.6
64.8%
$
(2.0)
-0.2%
$
680.6
64.6%
Catastrophes
57.5
5.5%
1.8
0.2%
59.3
5.6%
Total segment
$
740.1
70.2%
$
(0.2)
0.0%
$
739.9
70.2%
Variance 2022/2021
Attritional
$
142.1
(0.3)
pts
$
1.6
0.2
pts
$
143.7
(0.1)
pts
Catastrophes
(47.5)
(4.7)
pts
(2.4)
(0.2)
pts
(49.9)
(4.9)
pts
Total segment
$
94.6
(5.0)
pts
$
(0.8)
-
pts
$
93.8
(5.0)
pts
(Some amounts may not reconcile due to rounding.)
Incurred losses and LAE increased by 20.3% to $428.5 million for the three months ended June 30, 2022 compared
to $356.2 million for the three months ended June 30, 2021, mainly due to an increase of $77.9 million in current
year attritional losses which is primarily related to the impact of the increase in premiums earned, partially offset
by a decrease of $5.0 million in current year catastrophe losses. The $5.0 million of current year catastrophe losses
for the three months ended June 30, 2022, related to the 2022 2
nd
million of current year catastrophe losses for the three months ended June 30, 2021, related to Texas winter
storms.
Incurred losses and LAE increased by 12.7% to $833.8 million for the six months ended June 30, 2022 compared to
$739.9 million for the six months ended June 30, 2021, mainly due to an increase of $142.1 million in current year
attritional losses which is primarily related to the impact of the increase in premiums earned, partially offset by a
decrease of $47.5 million in current year catastrophe losses. The $10.0 million of current year catastrophe losses
for the six months ended June 30, 2022, related to the 2022 2
nd
March U.S. storms ($5.0 million). The $57.5 million of current year catastrophe losses for the six months ended
June 30, 2021, related to Texas winter storms.
Segment Expenses. Commission and brokerage increased by 24.1% to $76.7 million for the three months ended
June 30, 2022 compared to $61.9 million for the three months ended June 30, 2021. Commission and brokerage
increased by 20.6% to $146.0 million for the six months ended June 30, 2022 compared to $121.2 million for the
six months ended June 30, 2021. These increases were mainly due to the impact of the increase in premiums
earned.
Segment other underwriting expenses increased to $87.8 million for the three months ended June 30, 2022
compared to $76.9 million for the three months ended June 30, 2021. Segment other underwriting expenses
increased to $174.6 million for the six months ended June 30, 2022 compared to $150.4 million for the six months
ended June 30, 2021. These increases were mainly due to the impact of the increases in premiums earned and
increased expenses related to the continued build out of the insurance business.
Market Sensitive Instruments.
The SEC’s Financial Reporting Release #48 requires registrants to clarify and expand upon the existing financial
statement disclosure requirements for derivative financial instruments, derivative commodity instruments and
other financial instruments (collectively, “market sensitive instruments”). We do not generally enter into market
sensitive instruments for trading purposes.
44
Our current investment strategy seeks to maximize after-tax income through a high quality, diversified, taxable
and tax -preferenced fixed maturity portfolio, while maintaining an adequate level of liquidity. Our mix of taxable
and tax-preferenced investments is adjusted periodically, consistent with our current and projected operating
results, market conditions and our tax position. The fixed maturity securities in the investment portfolio are
comprised of non-trading available for sale securities. Additionally, we have invested in equity securities.
The overall investment strategy considers the scope of present and anticipated Company operations. In particular,
estimates of the financial impact resulting from non-investment asset and liability transactions, together with our
capital structure and other factors, are used to develop a net liability analysis. This analysis includes estimated
payout characteristics for which our investments provide liquidity. This analysis is considered in the development
of specific investment strategies for asset allocation, duration and credit quality. The change in overall market
sensitive risk exposure principally reflects the asset changes that took place during the period.
Interest Rate Risk. Our $18.9 billion investment portfolio, at June 30, 2022, 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 $1.9 billion of mortgage-backed securities in the $12.9 billion 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 fair value fluctuations and after-tax unrealized appreciation on
our fixed maturity portfolio (including $230.9 million of short-term investments) for the period indicated based on
upward and downward parallel and immediate 100 and 200 basis point shifts in interest rates. For legal entities
with a U.S. dollar functional currency, this modeling was performed on each security individually. To generate
appropriate price estimate on mortgage-backed securities, changes in prepayment expectations under different
interest rate environments were taken into account. For legal entities with non-U.S. dollar functional currency, the
effective duration of the involved portfolio of securities was used as a proxy for the fair value change under the
various interest rate change scenarios.
Impact of Interest Rate Shift in Basis Points
At June 30, 2022
(Dollars in millions)
-200
-100
0
100
200
Total Fair Value
$
13,937.1
$
13,556.4
$
13,175.7
$
12,795.0
$
12,414.4
Fair Value Change from Base (%)
5.8%
2.9%
0.0%
-2.9%
-5.8%
Change in Unrealized Appreciation
After-tax from Base ($)
$
601.5
$
300.7
$
-
$
(300.7)
$
(601.5)
We had $13.7 billion and $13.1 billion of gross reserves for losses and LAE as of June 30, 2022 and December 31,
2021, 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.
45
Equity Risk. Equity risk is the potential change in fair value of the common stock, preferred stock and mutual fund
portfolios arising from changing prices. Our equity investments consist of a diversified portfolio of individual
securities. The primary objective of the equity portfolio is to obtain greater total return relative to our core bonds
over time through market appreciation and income.
The table below displays the impact on fair value and after-tax change in fair value of a 10% and 20% change in
equity prices up and down for the periods indicated.
Impact of Percentage Change in Equity Fair Value
At June 30, 2022
(Dollars in millions)
-20%
-10%
0%
10%
20%
Fair Value of the Equity Portfolio
$
999.4
$
1,124.4
$
1,249.3
$
1,374.2
$
1,499.2
After-tax Change in Fair Value
(197.4)
(98.7)
-
98.7
197.4
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”) 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 fair value of available
for sale fixed maturities due to changes in foreign currency exchange rates, in relation to functional currency, is
reflected as part of other comprehensive income. Conversely, the impact of changes in foreign currency exchange
rates, in relation to functional currency, on other assets and liabilities is reflected through net income as a
component of other income (expense). In addition, we translate the assets, liabilities and income of non-U.S. dollar
functional currency legal entities to the U.S. dollar. This translation amount is reported as a component of other
comprehensive income.
SAFE HARBOR DISCLOSURE
This report contains forward -looking statements within the meaning of the U.S. federal securities laws. We intend
these forward -looking statement s to be covered by the safe harbor provisions for forward-looking statements in
the federal securities laws. In some cases, these statements can be identified by the use of forward-looking words
such as “may”, “will”, “should”, “could”, “anticipate”, “estimate”, “expect”, “plan”, “believe”, “predict”,
“potential” and “intend”. Forward-looking statements contained in this report include information regarding our
reserves for losses and LAE, the 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” in the Company’s most recent 10-K filing. We undertake no obligation to
update or revise publicly any forward-looking statements, whether as a result of new information, future events or
otherwise.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market Risk Instruments.
See “Market Sensitive Instruments” in PART I – ITEM 2.
46
ITEM 4. CONTROLS AND PROCEDURES
As of the end of the period covered by this report, our management carried out an evaluation, with the
participation of the Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure
controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange
Act”)). Based on their evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our
disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the
reports that we file or submit under the Exchange Act are recorded, processed, summarized and reported within
the time periods specified in the Securities and Exchange Commission’s rules and forms. Our management, with
the participation of the Chief Executive Officer and Chief Financial Officer, also conducted an evaluation of our
internal control over financial reporting to determine whether any changes occurred during the quarter covered by
this report that have materially affected, or are reasonably likely to materially affect, our internal control over
financial reporting. Based on that evaluation, there has been no such change during the quarter covered by this
report.
PART II
ITEM 1. LEGAL PROCEEDINGS
In the ordinary course of business, the Company is involved in lawsuits, arbitrations and other formal and informal
dispute resolution procedures, the outcomes of which will determine the Company’s rights and obligations under
insurance and reinsurance agreements. In some disputes, the Company seeks to enforce its rights under an
agreement or to collect funds owing to it. In other matters, the Company is resisting attempts by others to collect
funds or enforce alleged rights. These disputes arise from time to time and are ultimately resolved through both
informal and formal means, including negotiated resolution, arbitration and litigation. In all such matters, the
Company believes that its positions are legally and commercially reasonable. The Company considers the statuses
of these proceedings when determining its reserves for unpaid loss and loss adjustment expenses.
Aside from litigation and arbitrations related to these insurance and reinsurance agreements, the Company is not a
party to any other material litigation or arbitration.
ITEM 1A. RISK FACTORS
No material changes.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
47
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
Exhibit Index:
Exhibit No.
Description
31.1
31.2
32.1
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
104
Cover Page Interactive Data File (embedded within the Inline XBRL document)
48
Everest Reinsurance Holdings, Inc.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned thereunto duly authorized.
Everest Reinsurance Holdings, Inc.
(Registrant)
/S/ MARK KOCIANCIC
Mark Kociancic
Executive Vice President and
Chief Financial Officer
(Duly Authorized Officer and Principal Financial Officer)
Dated: August 11, 2022