UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
10-Q
☑
For the quarterly period ended
March 31, 2023
☐
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
(Address of principal executive offices)
(Zip Code)
(
908
)
604-3000
(Registrant’s Telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
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 (§232.405 of this chapter) 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
☐
If an emerging growth company, indicate by check mark if the registrant 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 May 1, 2023
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 March 31, 2023 (unaudited) and
December 31, 2022
1
Consolidated Statements of Operations and Comprehensive Income (Loss) for
the three months ended March 31, 2023 and 2022 (unaudited)
2
Consolidated Statements of Changes in Stockholder’s Equity for the three
months ended March 31, 2023 and 2022 (unaudited)
3
Consolidated Statements of Cash Flows for the three months ended March 31,
2023 and 2022 (unaudited)
4
Notes to Consolidated Interim Financial Statements (unaudited)
5
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of
Operation
31
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
44
Item 4.
Controls and Procedures
44
PART II
OTHER INFORMATION
Item 1.
Legal Proceedings
44
Item 1A.
Risk Factors
44
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
44
Item 3.
Defaults Upon Senior Securities
44
Item 4.
Mine Safety Disclosures
45
Item 5.
Other Information
45
Item 6.
Exhibits
45
1
EVEREST REINSURANCE HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
March 31,
December 31,
(Dollars in millions, except share amounts and par value per share)
2023
2022
(unaudited)
ASSETS:
Fixed maturities - available for sale, at fair value
$
13,414
$
12,671
(amortized cost: 2023, $
14,304
; 2022, $
13,699
, credit allowances: 2023, $
(56)
; 2022, $
(46)
)
Fixed maturities - held to maturity, at amortized cost
(fair value: 2023, $
787
; 2022, $
793
, net of credit allowances: 2023, $
(9)
; 2022, $
(9)
)
797
811
Equity securities, at fair value
158
194
Other invested assets
2,816
2,754
Other invested assets, at fair value
1,497
1,472
Short-term investments
822
812
Cash
492
481
Total investments and cash
19,996
19,195
Notes receivable - affiliated
840
840
Accrued investment income
170
150
Premiums receivable (net of credit allowances: 2023, $
(22)
; 2022, $
(21)
)
1,805
1,721
Reinsurance recoverables - unaffiliated (net of credit allowances: 2023, $
(21)
; 2022, $
(21)
)
1,896
1,841
Reinsurance recoverables - affiliated
1,896
1,935
Income tax asset, net
207
288
Funds held by reinsureds
297
303
Deferred acquisition costs
499
499
Prepaid reinsurance premiums
446
463
Other assets (net of credit allowances: 2023, $
(7)
; 2022, $
(5)
)
731
722
TOTAL ASSETS
$
28,783
$
27,957
LIABILITIES:
Reserve for losses and loss adjustment expenses
$
15,315
$
14,977
Unearned premium reserve
3,155
3,177
Funds held under reinsurance treaties
40
43
Other net payable to reinsurers
476
436
Losses in course of payment
72
77
Senior notes
2,348
2,347
Long-term notes
218
218
Borrowings from FHLB
519
519
Accrued interest on debt and borrowings
40
19
Unsettled securities payable
197
1
Other liabilities
401
489
22,781
22,303
Commitments and Contingencies (Note 6)
(nil)
(nil)
STOCKHOLDER'S EQUITY:
Common stock, par value: $
0.01
;
3,000
1,000
-
-
Additional paid-in capital
1,102
1,102
Accumulated other comprehensive income (loss), net of deferred income
(191)
(225)
(720)
(848)
Retained earnings
5,620
5,400
6,002
5,654
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY
$
28,783
$
27,957
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
March 31,
(Dollars in millions)
2023
2022
(unaudited)
REVENUES:
Premiums earned
$
2,068
$
1,829
Net investment income
190
156
Net gains (losses) on investments:
Credit allowances on fixed maturity securities
(10)
(2)
Gains (losses) from fair value adjustments
27
(215)
Net realized gains (losses) from dispositions
5
(10)
Total net gains (losses) on investments
22
(227)
Other income (expense)
(4)
(9)
Total revenues
2,276
1,749
CLAIMS AND EXPENSES:
Incurred losses and loss adjustment expenses
1,394
1,226
Commission, brokerage, taxes and fees
436
385
Other underwriting expenses
139
118
Corporate expenses
6
6
Interest, fees and bond issue cost amortization expense
32
24
Total claims and expenses
2,007
1,758
INCOME (LOSS) BEFORE TAXES
269
(9)
Income tax expense (benefit)
49
(10)
NET INCOME (LOSS)
$
220
$
1
Other comprehensive income (loss), net of tax:
Unrealized appreciation (depreciation) ("URA(D)") on securities arising during the period
112
(394)
Less: reclassification adjustment for realized losses (gains) included in net income (loss)
9
2
Total URA(D) on securities arising during the period
121
(392)
Foreign currency translation adjustments
7
(2)
Reclassification adjustment for amortization of net (gain) loss included in net income (loss)
-
1
Total benefit plan net gain (loss) for the period
-
1
Total other comprehensive income (loss), net of tax
128
(393)
COMPREHENSIVE INCOME (LOSS)
$
348
$
(392)
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
March 31,
(Dollars in millions, except share amounts)
2023
2022
(unaudited)
COMMON STOCK (shares outstanding):
Balance, beginning of period
1,000
1,000
Balance, end of period
1,000
1,000
ADDITIONAL PAID-IN CAPITAL:
Balance, beginning of period
$
1,102
$
1,102
Share-based compensation plans
-
-
Balance, end of period
1,102
1,102
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS),
NET OF DEFERRED INCOME TAXES:
Balance, beginning of period
(848)
91
Net increase (decrease) during the period
128
(393)
Balance, end of period
(720)
(302)
RETAINED EARNINGS:
Balance, beginning of period
5,400
5,845
Net income (loss)
220
1
Balance, end of period
5,620
5,846
TOTAL STOCKHOLDER'S EQUITY, END OF PERIOD
$
6,002
$
6,646
The accompanying notes are an integral part of the consolidated financial statements.
4
EVEREST REINSURANCE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended
March 31,
(Dollars in millions)
2023
2022
(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)
$
220
$
1
Adjustments to reconcile net income to net cash provided by operating activities:
Decrease (increase) in premiums receivable
(83)
101
Decrease (increase) in funds held by reinsureds, net
3
(15)
Decrease (increase) in reinsurance recoverables
(15)
127
Decrease (increase) in income taxes
47
(12)
Decrease (increase) in prepaid reinsurance premiums
17
12
Increase (decrease) in reserve for losses and loss adjustment expenses
331
288
Increase (decrease) in unearned premiums
(23)
(45)
Increase (decrease) in other net payable to reinsurers
39
8
Increase (decrease) in losses in course of payment
(5)
(134)
Change in equity adjustments in limited partnerships
4
(53)
Distribution of limited partnership income
14
40
Change in other assets and liabilities, net
(149)
(31)
Non-cash compensation expense
9
10
Amortization of bond premium (accrual of bond discount)
(3)
8
Net (gains) losses on investments
(22)
227
Net cash provided by (used in) operating activities
384
531
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from fixed maturities matured/called/repaid - available for sale
257
518
Proceeds from fixed maturities sold - available for sale
49
267
Proceeds from fixed maturities matured/called/repaid - held to maturity
28
-
Proceeds from equity securities sold
46
82
Distributions from other invested assets
86
76
Cost of fixed maturities acquired - available for sale
(903)
(1,253)
Cost of fixed maturities acquired - held to maturity
(11)
-
Cost of equity securities acquired
-
(195)
Cost of other invested assets acquired
(163)
(75)
Net change in short-term investments
(5)
123
Net change in unsettled securities transactions
245
29
Net cash provided by (used in) investing activities
(372)
(429)
CASH FLOWS FROM FINANCING ACTIVITIES:
Tax benefit from share-based compensation, net of expense
(9)
(10)
Net cash provided by (used in) financing activities
(9)
(10)
EFFECT OF EXCHANGE RATE CHANGES ON CASH
8
(4)
Net increase (decrease) in cash
11
88
Cash, beginning of period
481
699
Cash, end of period
$
492
$
787
SUPPLEMENTAL CASH FLOW INFORMATION:
Income taxes paid (recovered)
$
1
$
2
Interest paid
10
2
The accompanying notes are an integral part of the consolidated financial statements.
5
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)
For the Three Months Ended March 31, 2023, and 2022
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 March 31, 2023 and December 31, 2022
and for the three months ended March 31, 2023 and 2022 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, 2022 consolidated balance sheet
data was derived from audited financial statements but does not include all disclosures required by GAAP. The
results for the three months ended March 31, 2023 and 2022 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, 2022, 2021 and 2020, 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.
Application of Recently Issued Accounting Standard Changes.
The Company did not adopt any new accounting standards that had a material impact during the three months
ended March 31, 2023. 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, 2022. There were no accounting standards issued in the three months ended March 31, 2023, that
are expected to have a material impact on Holdings.
6
3. INVESTMENTS
The tables below present the amortized cost, allowance for credit losses, gross unrealized
appreciation/(depreciation) and fair value of fixed maturity securities - available for sale for the periods indicated:
At March 31, 2023
Amortized
Allowances for
Unrealized
Unrealized
Fair
(Dollars in millions)
Cost
Credit Losses
Appreciation
Depreciation
Value
Fixed maturity securities – available for sale
U.S. Treasury securities and obligations of
U.S. government agencies and corporations
$
543
$
-
$
-
$
(33)
$
510
Obligations of U.S. states and political
424
-
2
(28)
398
Corporate securities
4,088
(55)
15
(288)
3,759
Asset-backed securities
4,455
-
5
(124)
4,335
Mortgage-backed securities
Commercial
569
-
-
(58)
511
Agency residential
1,853
-
9
(143)
1,719
Non-agency residential
3
-
-
-
3
Foreign government securities
691
-
2
(50)
643
Foreign corporate securities
1,680
(1)
5
(146)
1,537
Total fixed maturity securities - available for sale
$
14,304
$
(56)
$
37
$
(871)
$
13,414
(Some amounts may not reconcile due to rounding.)
At December 31, 2022
Amortized
Allowances for
Unrealized
Unrealized
Fair
(Dollars in millions)
Cost
Credit Losses
Appreciation
Depreciation
Value
Fixed maturity securities – available for sale
U.S. Treasury securities and obligations of
U.S. government agencies and corporations
$
575
$
-
$
-
$
(40)
$
535
Obligations of U.S. states and political
444
-
2
(32)
413
Corporate securities
3,913
(45)
14
(322)
3,561
Asset-backed securities
4,111
-
5
(165)
3,951
Mortgage-backed securities
Commercial
569
-
-
(59)
509
Agency residential
1,792
-
3
(167)
1,628
Non-agency residential
3
-
-
-
3
Foreign government securities
696
-
2
(61)
637
Foreign corporate securities
1,597
(1)
4
(167)
1,433
Total fixed maturity securities - available for sale
$
13,699
$
(46)
$
30
$
(1,013)
$
12,671
(Some amounts may not reconcile due to rounding.)
7
The following tables show amortized cost, allowance for credit losses, gross unrealized appreciation/(depreciation)
and fair value of fixed maturity securities - held to maturity for the periods indicated:
At March 31, 2023
Amortized
Allowances for
Unrealized
Unrealized
Fair
(Dollars in millions)
Cost
Credit Loss
Appreciation
Depreciation
Value
Fixed maturity securities – held to maturity
Corporate securities
$
152
$
(2)
$
1
$
(3)
$
148
Asset-backed securities
612
(6)
1
(12)
596
Mortgage-backed securities
Commercial
14
-
-
-
13
Foreign corporate securities
28
(1)
2
-
29
Total fixed maturity securities - held to maturity
$
806
$
(9)
$
4
$
(15)
$
787
(Some amounts may not reconcile due to rounding.)
At December 31, 2022
Amortized
Allowances for
Unrealized
Unrealized
Fair
(Dollars in millions)
Cost
Credit Loss
Appreciation
Depreciation
Value
Fixed maturity securities – held to maturity
Corporate securities
$
152
$
(2)
$
-
$
(6)
$
144
Asset-backed securities
634
(6)
2
(15)
614
Mortgage-backed securities
Commercial
7
-
-
-
7
Foreign corporate securities
28
(1)
2
-
28
Total fixed maturity securities - held to maturity
$
820
$
(9)
$
3
$
(22)
$
793
(Some amounts may not reconcile due to rounding.)
The amortized cost and fair value of fixed maturity securities - available for sale are shown in the following table by
contractual maturity. As the stated maturity of such securities may not be indicative of actual maturities, the totals
for mortgage-backed and asset-backed securities are shown separately.
At March 31, 2023
At December 31, 2022
Amortized
Fair
Amortized
Fair
(Dollars in millions)
Cost
Value
Cost
Value
Fixed maturity securities – available for sale
$
719
$
694
$
581
$
563
3,687
3,461
3,684
3,429
1,981
1,787
2,003
1,760
1,038
905
958
827
Asset-backed securities
4,455
4,335
4,111
3,951
Mortgage-backed securities
Commercial
569
511
569
509
Agency residential
1,853
1,719
1,792
1,628
Non-agency residential
3
3
3
3
Total fixed maturity securities - available for sale
$
14,304
$
13,414
$
13,699
$
12,671
(Some amounts may not reconcile due to rounding.)
The amortized cost and fair value of fixed maturity securities - held to maturity are shown in the following table by
contractual maturity. 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.
8
At March 31, 2023
At December 31, 2022
Amortized
Fair
Amortized
Fair
(Dollars in millions)
Cost
Value
Cost
Value
Fixed maturity securities – held to maturity:
$
5
$
5
$
5
$
5
63
63
63
61
43
42
43
41
68
67
68
65
Asset-backed securities
612
596
634
614
Mortgage-backed securities
Commercial
14
13
7
7
Total fixed maturity securities - held to maturity
$
806
$
787
$
820
$
793
(Some amounts may not reconcile due to rounding.)
During 2022, the Company re-designated a portion of its fixed maturity securities from its fixed maturity –
available for sale portfolio to its fixed maturity – held to maturity portfolio. The fair value of the securities
reclassified at the date of transfer was $
722
subsequently recognized as the new amortized cost basis. As of March 31, 2023, these securities had an unrealized
loss of $
48
amortized into income through an adjustment to the yields of the underlying securities over the remaining life of
the securities.
The Company evaluated fixed maturity securities classified as held to maturity for current expected credit losses as
of March 31, 2023 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 March 31, 2023.
The changes in net unrealized appreciation (depreciation) for the Company’s investments are derived from the
following sources for the periods indicated:
Three Months Ended
March 31,
(Dollars in millions)
2023
2022
Increase (decrease) during the period between the fair value and cost of
Fixed maturity securities - available for sale and short-term investments
$
153
$
(496)
Change in unrealized appreciation (depreciation), pre-tax
153
(496)
Deferred tax benefit (expense)
(32)
104
Change in unrealized appreciation (depreciation), net of deferred taxes,
$
121
$
(392)
(Some amounts may not reconcile due to rounding.)
9
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 March 31, 2023 By Security Type
Less than 12 months
Greater than 12 months
Total
Gross
Gross
Gross
Fair
Unrealized
Fair
Unrealized
Fair
Unrealized
(Dollars in millions)
Value
Depreciation
Value
Depreciation
Value
Depreciation
Fixed maturity securities - available for sale
U.S. Treasury securities and obligations of
U.S. government agencies and corporations
$
153
$
(3)
$
348
$
(30)
$
501
$
(33)
Obligations of U.S. states and political subdivisions
113
(6)
119
(22)
232
(28)
Corporate securities
1,255
(52)
1,814
(235)
3,069
(287)
Asset-backed securities
1,614
(37)
1,819
(87)
3,434
(124)
Mortgage-backed securities
Commercial
170
(11)
334
(47)
504
(58)
Agency residential
589
(24)
749
(119)
1,338
(143)
Non-agency residential
-
-
3
-
3
-
Foreign government securities
171
(5)
406
(45)
578
(50)
Foreign corporate securities
478
(18)
905
(128)
1,383
(146)
Total
$
4,543
$
(157)
$
6,499
$
(713)
$
11,042
$
(870)
Securities where an allowance for credit loss was
recorded
2
(1)
1
(1)
3
(1)
Total fixed maturity securities - available for sale
$
4,545
$
(158)
$
6,499
$
(713)
$
11,045
$
(871)
(Some amounts may not reconcile due to rounding.)
Duration of Unrealized Loss at March 31, 2023 By Maturity
Less than 12 months
Greater than 12 months
Total
Gross
Gross
Gross
Fair
Unrealized
Fair
Unrealized
Fair
Unrealized
(Dollars in millions)
Value
Depreciation
Value
Depreciation
Value
Depreciation
Fixed maturity securities - available for sale
Due in one year or less
$
485
$
(7)
$
111
$
(9)
$
596
$
(17)
Due in one year through five years
893
(31)
2,073
(192)
2,966
(223)
Due in five years through ten years
542
(31)
965
(169)
1,507
(200)
Due after ten years
249
(15)
445
(90)
694
(105)
Asset-backed securities
1,614
(37)
1,819
(87)
3,434
(124)
Mortgage-backed securities
759
(36)
1,086
(166)
1,845
(201)
Total
$
4,543
$
(157)
$
6,499
$
(713)
$
11,042
$
(870)
Securities where an allowance for credit loss was
recorded
2
(1)
1
(1)
3
(1)
Total fixed maturity securities - available for sale
$
4,545
$
(158)
$
6,499
$
(713)
$
11,045
$
(871)
(Some amounts may not reconcile due to rounding.)
10
The aggregate fair value and gross unrealized losses related to fixed maturity securities - available for sale in an
unrealized loss position at March 31, 2023 were $
11.0
871
securities for the single issuer (the United States government) whose securities comprised the largest unrealized
loss position at March 31, 2023, did not exceed
3.8
% 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 March 31, 2023, comprised less than
0.6
% 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 $
158
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, $
126
nationally recognized rating agency. The $
713
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 $
657
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 March 31, 2023, 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.
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:
11
Duration of Unrealized Loss at December 31, 2022 By Security Type
Less than 12 months
Greater than 12 months
Total
Gross
Gross
Gross
Fair
Unrealized
Fair
Unrealized
Fair
Unrealized
(Dollars in millions)
Value
Depreciation
Value
Depreciation
Value
Depreciation
Fixed maturity securities - available for sale
U.S. Treasury securities and obligations of
U.S. government agencies and corporations
$
290
$
(14)
$
245
$
(26)
$
535
$
(40)
Obligations of U.S. states and political subdivisions
235
(23)
27
(9)
261
(32)
Corporate securities
2,138
(175)
841
(146)
2,979
(321)
Asset-backed securities
3,120
(138)
436
(27)
3,556
(165)
Mortgage-backed securities
Commercial
464
(50)
36
(9)
500
(59)
Agency residential
852
(54)
605
(113)
1,456
(167)
Non-agency residential
2
-
1
-
3
-
Foreign government securities
455
(36)
144
(25)
599
(61)
Foreign corporate securities
967
(100)
365
(67)
1,332
(167)
Total
$
8,522
$
(591)
$
2,698
$
(421)
$
11,220
$
(1,012)
Securities where an allowance for credit loss was
recorded
2
(1)
-
-
2
(1)
Total fixed maturity securities - available for sale
$
8,524
$
(591)
$
2,698
$
(421)
$
11,222
$
(1,013)
(Some amounts may not reconcile due to rounding.)
Duration of Unrealized Loss at December 31, 2022 By Maturity
Less than 12 months
Greater than 12 months
Total
Gross
Gross
Gross
Fair
Unrealized
Fair
Unrealized
Fair
Unrealized
(Dollars in millions)
Value
Depreciation
Value
Depreciation
Value
Depreciation
Fixed maturity securities - available for sale
Due in one year or less
$
463
$
(8)
$
29
$
(4)
$
491
$
(11)
Due in one year through five years
2,020
(143)
936
(107)
2,956
(250)
Due in five years through ten years
1,162
(148)
395
(98)
1,557
(246)
Due after ten years
439
(50)
262
(64)
701
(114)
Asset-backed securities
3,120
(138)
436
(27)
3,556
(165)
Mortgage-backed securities
1,318
(105)
641
(122)
1,959
(226)
Total
$
8,522
$
(591)
$
2,698
$
(421)
$
11,220
$
(1,012)
Securities where an allowance for credit loss was recorded
2
(1)
-
-
2
(1)
Total fixed maturity securities - available for sale
$
8,524
$
(591)
$
2,698
$
(421)
$
11,222
$
(1,013)
(Some amounts may not reconcile due to rounding.)
The aggregate fair value and gross unrealized losses related to fixed maturity securities - available for sale in an
unrealized loss position at December 31, 2022 were $
11.2
1.0
securities for the issuer (the United States government) whose securities comprised the largest unrealized loss
position at December 31, 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
comprised less than
0.6
% 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 $
591
million of unrealized losses related to fixed maturity securities - available for sale 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 as well as commercial and agency residential mortgage backed
securities. Of these unrealized losses, $
520
at least one nationally recognized rating agency. The $
421
securities - available for sale in an unrealized loss position for more than one year related primarily to domestic
12
and foreign corporate securities as well as agency residential mortgage backed securities. Of these unrealized
losses $
392
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 table below for the periods indicated:
Three Months Ended
March 31,
(Dollars in millions)
2023
2022
Fixed maturities
$
174
$
94
Equity securities
1
4
Short-term investments and cash
11
-
Other invested assets
Limited partnerships
(24)
44
Dividends from preferred shares of affiliate
8
8
Other
22
12
Gross investment income before adjustments
192
162
Funds held interest income (expense)
3
3
Interest income from Parent
5
2
Gross investment income
200
166
Investment expenses
(10)
(10)
Net investment income
$
190
$
156
(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 has contractual commitments to invest up to an additional $
931
private placement loan securities at March 31, 2023. These commitments will be funded when called in
accordance with the partnership and loan agreements, which have investment periods that expire, unless
extended, through
2027
.
During the fourth quarter of 2022, the Company entered into corporate-owned life insurance policies, which are
carried within other invested assets at policy cash surrender value of $
954
939
2023 and December 31, 2022, respectively.
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 March 31, 2023, the fair value of investments in the facility consolidated within the Company’s
balance sheets was $
287
Other invested assets, at fair value, as of March 31, 2023 and December 31, 2022, were comprised of preferred
shares held in Everest Preferred International Holdings, Ltd. (“Preferred Holdings”), a wholly-owned subsidiary of
Group.
13
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
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 March 31, 2023 and December 31, 2022, 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 March 31, 2023 and
December 31, 2022 is limited to the total carrying value of $
2.82
2.75
included in general and limited partnerships and other alternative investments in Other Invested Assets in the
Company's Consolidated Balance Sheets. As of March 31, 2023, the Company has outstanding commitments
totaling $
869
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 classified as fixed maturities. 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
March 31,
(Dollars in millions)
2023
2022
Fixed maturity securities:
Allowances for credit losses
$
(10)
$
(2)
Net realized gains (losses) from dispositions
(1)
(5)
Equity securities, fair value:
Net realized gains (losses) from dispositions
7
(8)
Gains (losses) from fair value adjustments
3
(131)
Other invested assets
-
4
Other invested assets, fair value:
Gains (losses) from fair value adjustments
24
(85)
Total net gains (losses) on investments
$
22
$
(227)
(Some amounts may not reconcile due to rounding.)
14
The following tables provide a roll forward of the Company’s beginning and ending balance of allowance for credit
losses for the periods indicated:
Roll Forward of Allowance for Credit Losses - Fixed Maturities - Available for Sale
Three Months Ended March 31, 2023
Foreign Corporate Securities
Corporate Securities
Total
(Dollars in millions)
Beginning Balance
$
(45)
$
(1)
$
(46)
Credit losses on securities where credit
losses were not previously recorded
(12)
-
(12)
Increases in allowance on previously
impaired securities
-
-
-
Decreases in allowance on previously
impaired securities
-
-
-
Reduction in allowance due to disposals
2
-
2
Balance, end of period
$
(55)
$
(1)
$
(56)
(Some amounts may not reconcile due to rounding.)
Roll Forward of Allowance for Credit Losses - Fixed Maturities - Held to Maturity
Three Months Ended March 31, 2023
Asset
Foreign
Corporate
Backed
Corporate
Securities
Securities
Securities
Total
(Dollars in millions)
Beginning Balance
$
(2)
$
(6)
$
(1)
$
(9)
Credit losses on securities where credit
losses were not previously recorded
-
-
-
-
Increases in allowance on previously
impaired securities
-
-
-
-
Decreases in allowance on previously
impaired securities
-
-
-
-
Reduction in allowance due to disposals
-
-
-
-
Balance, end of period
$
(2)
$
(6)
$
(1)
$
(9)
(Some amounts may not reconcile due to rounding.)
15
Roll Forward of Allowance for Credit Losses - Fixed Maturities - Available for Sale
Three Months Ended March 31, 2022
Asset
Foreign
Corporate
Backed
Corporate
Securities
Securities
Securities
Total
(Dollars in millions)
Beginning Balance
$
(19)
$
(8)
$
-
$
(27)
Credit losses on securities where credit
losses were not previously recorded
(2)
-
(1)
(3)
Increases in allowance on previously
impaired securities
-
-
-
-
Decreases in allowance on previously
impaired securities
-
-
-
-
Reduction in allowance due to disposals
1
-
-
1
Balance, end of period
$
(20)
$
(8)
$
(1)
$
(29)
(Some amounts may not reconcile due to rounding.)
The proceeds and split between gross gains and losses from dispositions of fixed maturity securities – available for
sale and equity securities, are presented in the table below for the periods indicated:
Three Months Ended
March 31,
(Dollars in millions)
2023
2022
Proceeds from sales of fixed maturity securities, available for sale
$
49
$
267
Gross gains from dispositions
3
3
Gross losses from dispositions
(4)
(8)
Proceeds from sales of equity securities
$
46
$
82
Gross gains from dispositions
7
4
Gross losses from dispositions
-
(12)
(Some amounts may not reconcile due to rounding.)
16
4. RESERVES FOR LOSSES, LAE AND FUTURE POLICY BENEFIT RESERVE
Activity in the reserve for losses and loss adjustment expenses (“LAE”) is summarized for the periods indicated:
Three Months Ended March 31,
(Dollars in millions)
2023
2022
Gross reserves beginning of period
$
14,977
$
13,121
Less reinsurance recoverables on unpaid losses
(3,684)
(3,651)
Net reserves beginning of period
11,293
9,470
Incurred related to:
Current year
1,403
1,219
Prior years
(9)
7
Total incurred losses and LAE
1,394
1,226
Paid related to:
Current year
585
248
Prior years
379
676
Total paid losses and LAE
964
924
Foreign exchange/translation adjustment
5
7
Net reserves end of period
11,729
9,778
Plus reinsurance recoverables on unpaid losses
3,586
3,625
Gross reserves end of period
$
15,315
$
13,404
(Some amounts may not reconcile due to rounding.)
Current year incurred losses were $
1.4
1.2
2022, respectively. Gross and net reserves increased for the three months ended March 31, 2023, reflecting an
increase in underlying exposure due to earned premium growth year over year and the impact of an increase of
$
22
9
million is primarily driven by favorable movement on prior year catastrophes.
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.
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.
17
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 March 31, 2023,
$
1.7
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, 2022, $
1.7
inputs.
The Company internally manages a portfolio of assets which had a fair value at March 31, 2023 and December 31,
2022 of $
3.4
2.7
asset-backed securities and US treasury fixed maturities. 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 are 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.
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 and are derived using
unobservable inputs. The Company will value the securities with unobservable inputs using comparable market
information or receive fair values from investment managers. The investment 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.
18
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.
��
19
The following tables present 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 millions)
March 31, 2023
(Level 1)
(Level 2)
(Level 3)
Assets:
Fixed maturities, available for sale
U.S. Treasury securities and obligations of
$
510
$
-
$
510
$
-
Obligations of U.S. states and political subdivisions
398
-
398
-
Corporate securities
3,759
-
3,050
709
Asset-backed securities
4,335
-
3,315
1,020
Mortgage-backed securities
Commercial
511
-
511
-
Agency residential
1,719
-
1,719
-
Non-agency residential
3
-
3
-
Foreign government securities
643
-
643
-
Foreign corporate securities
1,537
-
1,521
16
Total fixed maturities, available for sale
13,414
-
11,669
1,745
Equity securities, fair value
158
140
19
-
Other invested assets, fair value
1,497
-
-
1,497
(Some amounts may not reconcile due to rounding.)
20
Fair Value Measurement Using:
Quoted Prices
in Active
Significant
Markets for
Other
Significant
Identical
Observable
Unobservable
Assets
Inputs
Inputs
(Dollars in millions)
December 31, 2022
(Level 1)
(Level 2)
(Level 3)
Assets:
Fixed maturities, available for sale
U.S. Treasury securities and obligations of
$
535
$
-
$
535
$
-
Obligations of U.S. states and political subdivisions
413
-
413
-
Corporate securities
3,561
-
2,846
715
Asset-backed securities
3,951
-
2,957
994
Mortgage-backed securities
Commercial
509
-
509
-
Agency residential
1,628
-
1,628
-
Non-agency residential
3
-
3
-
Foreign government securities
637
-
637
-
Foreign corporate securities
1,433
-
1,417
16
Total fixed maturities, available for sale
12,671
-
10,946
1,725
Equity securities, fair value
194
132
63
-
Other invested assets, fair value
1,472
-
-
1,472
(Some amounts may not reconcile due to rounding.)
In addition, $
316
292
sheets as of March 31, 2023 and December 31, 2022, respectively, are not included within the fair value hierarchy
tables as the assets are measured at net asset value (“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 March 31, 2023
Corporate
Asset Backed
Foreign
(Dollars in millions)
Securities
Securities
Corporate
Total
Beginning balance fixed maturities
$
715
$
994
$
16
$
1,725
Total gains or (losses) (realized/unrealized)
Included in earnings
1
-
-
1
Included in other comprehensive income (loss)
(4)
18
-
14
Purchases, issuances and settlements
(3)
9
-
5
Transfers in (out) of Level 3 and reclassification of securities in/(out)
investment categories
-
-
-
-
Ending balance
$
709
$
1,020
$
16
$
1,745
The amount of total gains or losses for the
$
-
$
-
$
-
$
-
(Some amounts may not reconcile due to rounding.)
21
Total Fixed Maturities, Available for Sale
Three Months Ended March 31, 2022
Corporate
Asset Backed
Foreign
(Dollars in millions)
Securities
Securities
CMBS
Corporate
Total
Beginning balance fixed maturities
$
730
$
1,251
$
-
$
16
$
1,997
Total gains or (losses) (realized/unrealized)
Included in earnings
1
-
-
-
2
Included in other comprehensive income (loss)
(4)
(29)
-
-
(33)
Purchases, issuances and settlements
(13)
166
6
-
159
Transfers in (out) of Level 3 and reclassification of securities
in/(out) investment categories
-
-
-
-
-
Ending balance
$
715
$
1,389
$
6
$
16
$
2,125
The amount of total gains or losses for the
$
-
$
-
$
-
$
-
$
-
(Some amounts may not reconcile due to rounding.)
There were
no
Financial Instruments Disclosed, But Not Reported, at Fair Value
Certain financial instruments disclosed, but not reported, at fair value are excluded from the fair value hierarchy
tables above. Fair values of fixed maturity securities held to maturity, senior notes and long-term subordinated
notes can be found within Notes 3, 9 and 10, respectively. Fair values of long-term notes receivable from affiliates
can be found within Note 13. Short-term investments are stated at cost, which approximates fair value.
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 LAE.
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.
22
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
March 31, 2023
(Dollars in millions)
Before Tax
Tax Effect
Net of Tax
Unrealized appreciation (depreciation)
$
142
(30)
$
112
Reclassification of net realized losses
11
(2)
9
Foreign currency translation adjustments
8
(1)
7
Reclassification of amortization of net gain
-
-
-
Total other comprehensive income (loss)
$
161
$
(33)
$
128
(Some amounts may not reconcile due to rounding)
Three Months Ended
March 31, 2022
(Dollars in millions)
Before Tax
Tax Effect
Net of Tax
Unrealized appreciation (depreciation)
$
(499)
104
$
(394)
Reclassification of net realized losses
3
(1)
2
Foreign currency translation adjustments
(2)
1
(2)
Reclassification of amortization of net gain
1
-
1
Total other comprehensive income (loss)
$
(497)
$
104
$
(393)
(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
Affected line item within the
March 31,
statements of operations and
AOCI component
2023
2022
comprehensive income (loss)
(Dollars in millions)
URA(D) on securities
$
11
$
3
Other net gains (losses) on investments
(2)
(1)
Income tax expense (benefit)
$
9
$
2
Net income (loss)
Benefit plan net gain (loss)
$
-
$
1
Other underwriting expenses
-
-
Income tax expense (benefit)
$
-
$
1
Net income (loss)
(Some amounts may not reconcile due to rounding)
23
The following table presents the components of accumulated other comprehensive income (loss), net of tax, in the
consolidated balance sheets for the periods indicated:
Three Months Ended
March 31,
(Dollars in millions)
2023
2022
Beginning balance of URA (D) on securities
$
(816)
$
122
Current period change in URA (D) of investments - non-credit related
121
(392)
Ending balance of URA (D) on securities
(695)
(270)
Beginning balance of foreign currency translation adjustments
1
20
Current period change in foreign currency translation adjustments
7
(2)
Ending balance of foreign currency translation adjustments
8
18
Beginning balance of benefit plan net gain (loss)
(33)
(50)
Current period change in benefit plan net gain (loss)
-
1
Ending balance of benefit plan net gain (loss)
(33)
(50)
Ending balance of accumulated other comprehensive income (loss)
$
(720)
$
(302)
(Some amounts may not reconcile due to rounding.)
8. COLLATERALIZED REINSURANCE AND TRUST AGREEMENTS
A subsidiary of the 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 March 31,
2023, the total amount on deposit in the trust account was $
751
52
cash. At March 31, 2022, the total amount on deposit in the trust account was $
567
173
million of restricted cash.
24
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 millions)
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
$
63
Aggregate
Series 2018-1 Class B-2
US, Canada, Puerto Rico – Named Storm and Earthquake Events
4/30/2018
5/5/2023
200
Aggregate
Series 2019-1 Class A-1
US, Canada, Puerto Rico – Named Storm and Earthquake Events
12/12/2019
12/19/2023
150
Occurrence
Series 2019-1 Class B-1
US, Canada, Puerto Rico – Named Storm and Earthquake Events
12/12/2019
12/19/2023
275
Aggregate
Series 2019-1 Class A-2
US, Canada, Puerto Rico – Named Storm and Earthquake Events
12/12/2019
12/19/2024
150
Occurrence
Series 2019-1 Class B-2
US, Canada, Puerto Rico – Named Storm and Earthquake Events
12/12/2019
12/19/2024
275
Aggregate
Series 2021-1 Class A-1
US, Canada, Puerto Rico – Named Storm and Earthquake Events
4/8/2021
4/21/2025
150
Occurrence
Series 2021-1 Class B-1
US, Canada, Puerto Rico – Named Storm and Earthquake Events
4/8/2021
4/21/2025
85
Aggregate
Series 2021-1 Class C-1
US, Canada, Puerto Rico – Named Storm and Earthquake Events
4/8/2021
4/21/2025
85
Aggregate
Series 2021-1 Class A-2
US, Canada, Puerto Rico – Named Storm and Earthquake Events
4/8/2021
4/20/2026
150
Occurrence
Series 2021-1 Class B-2
US, Canada, Puerto Rico – Named Storm and Earthquake Events
4/8/2021
4/20/2026
90
Aggregate
Series 2021-1 Class C-2
US, Canada, Puerto Rico – Named Storm and Earthquake Events
4/8/2021
4/20/2026
90
Aggregate
Series 2022-1 Class A
US, Canada, Puerto Rico – Named Storm and Earthquake Events
6/22/2022
6/25/2025
300
Aggregate
Total available limit as of March 31, 2023
$
2,063
Recoveries under these collateralized reinsurance agreements with Kilimanjaro are primarily dependent on
estimated industry level insured losses from covered events as well as the geographic location of the events. The
estimated industry level of insured losses is obtained from published estimates by an independent recognized
authority on insured property losses. As of March 31, 2023, 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.
Kilimanjaro has financed the various property catastrophe reinsurance coverages by issuing catastrophe bonds to
unrelated, external investors. The proceeds from the issuance of the catastrophe bonds are held in reinsurance
trusts throughout the duration of the applicable reinsurance agreements and invested solely in U.S. government
money market funds with a rating of at least “AAAm” by Standard & Poor’s. The catastrophe bonds’ issue date,
maturity date and amount correspond to the reinsurance agreements listed above.
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.
March 31, 2023
December 31, 2022
Consolidated
Consolidated
Principal
Balance Sheet
Fair
Balance Sheet
Fair
(Dollars in millions)
Date Issued
Date Due
Amounts
Amount
Value
Amount
Value
4.868
% Senior notes
06/05/2014
06/01/2044
400
$
397
$
373
$
397
$
343
3.5
% Senior notes
10/07/2020
10/15/2050
1,000
981
728
981
677
3.125
% Senior notes
10/04/2021
10/15/2052
1,000
969
677
969
627
2,400
$
2,348
$
1,778
$
2,347
$
1,647
25
Interest expense incurred in connection with these senior notes is as follows for the periods indicated:
Three Months Ended
March 31,
(Dollars in millions)
Interest Paid
Payable Dates
2023
2022
4.868% Senior notes
semi-annually
June 1/December 1
$
5
$
5
3.5% Senior notes
semi-annually
April 15/October 15
9
9
3.125% Senior notes
semi-annually
April 15/October 15
8
8
$
22
$
22
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.
March 31, 2023
December 31, 2022
Original
Consolidated
Consolidated
Principal
Maturity Date
Balance
Fair
Balance
Fair
(Dollars in millions)
Date Issued
Amount
Scheduled
Final
Sheet Amount
Value
Sheet Amount
Value
Long term subordinated notes
04/26/2007
$
400
05/15/2037
05/01/2067
$
218
$
197
$
218
$
187
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
one
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 February 15, 2023 to
May 14, 2023 is
7.25
%.
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
In 2009, the Company had reduced its outstanding amount of long-term subordinated notes through the initiation
of a cash tender offer for any and all of the long-term subordinated notes.
Interest expense incurred in connection with these long-term subordinated notes is as follows for the periods
indicated:
Three Months Ended
March 31,
(Dollars in millions)
2023
2022
Interest expense incurred
$
4
$
2
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 March 31, 2023, Everest Re had admitted assets of
approximately $
23.1
2.3
26
2023, Everest Re has $
519
interest expense of $
6
0.7
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.
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 March 31, 2023
Three Months Ended March 31, 2022
(Dollars in millions)
Reinsurance
Insurance
Total
Reinsurance
Insurance
Total
Gross written premiums
$
1,643
$
852
$
2,496
$
1,380
$
825
$
2,205
Net written premiums
1,373
690
2,063
1,185
611
1,796
Premiums earned
$
1,367
$
702
$
2,068
$
1,209
$
619
$
1,829
Incurred losses and LAE
929
465
1,394
820
405
1,226
Commission and brokerage
361
76
436
315
69
385
Other underwriting expenses
39
100
139
31
87
118
Underwriting gain (loss)
$
38
$
61
$
99
$
43
$
58
$
101
Net investment income
190
156
Net gains (losses) on investments
22
(227)
Corporate expense
(6)
(6)
Interest, fee and bond issue cost amortization
expense
(32)
(24)
Other income (expense)
(4)
(9)
Income (loss) before taxes
$
269
$
(9)
(Some amounts may not reconcile due to rounding)
27
13. RELATED-PARTY TRANSACTIONS
The table below displays long-term note agreements that Group entered into with Everest Re for the periods
indicated. These transactions are presented as Notes Receivable – Affiliated in the Consolidated Balance Sheet of
Holdings. Fair value of these long-term notes is considered Level 2 in the fair value hierarchy.
March 31, 2023
December 31, 2022
Consolidated
Consolidated
Principal
Balance Sheet
Fair
Balance Sheet
Fair
(Dollars in millions)
Date Issued
Date Due
Amounts
Amount
Value
Amount
Value
1.69
% Long-term Note
12/17/2019
12/17/2028
300
$
300
$
242
$
300
$
242
1.00
% Long-term Note
08/05/2021
08/05/2030
200
200
151
200
151
3.11
% Long-term Note
06/14/2022
06/14/2052
215
215
171
215
171
4.34
% Long-term Note
12/12/2022
12/12/2052
125
125
125
125
125
840
$
840
$
689
$
840
$
689
(Some amounts may not reconcile due to rounding.)
Interest income recognized in connection with these long-term notes is as follows for the periods indicated:
Three Months Ended
March 31,
(Dollars in millions)
Interest Received
Receivable Dates
2023
2022
1.69
% Long-term Note
annually
December 17
$
1
$
1
1.00
% Long-term Note
annually
August 5
1
1
3.11
% Long-term Note
annually
June 14
2
-
4.34
% Long-term Note
annually
December 12
1
-
$
5
$
2
(Some amounts may not reconcile due to rounding.)
Holdings holds
1,773.214
1
1.75
% annual
dividend rate. Holdings received these shares in December 2015 in exchange for previously held
9,719,971
Common Shares of Group. 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
March 31,
(Dollars in millions)
2023
2022
Dividends received on preferred stock of affiliate
$
8
$
8
28
Affiliates
The Company has engaged in reinsurance transactions with 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 millions)
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
325
01/01/2011-12/31/2011
Everest Re
50.0
%
Bermuda Re
property / casualty business
150
300
01/01/2012-12/31/2014
Everest Re
50.0
%
Bermuda Re
property / casualty business
100
200
01/01/2015-12/31/2016
Everest Re
50.0
%
Bermuda Re
property / casualty business
163
325
01/01/2017-12/31/2017
Everest Re
60.0
%
Bermuda Re
property / casualty business
219
438
01/01/2010-12/31/2010
Everest Re- Canadian Branch
60.0
%
Bermuda Re
property business
350
(1)
-
01/01/2011-12/31/2011
Everest Re- Canadian Branch
60.0
%
Bermuda Re
property business
350
(1)
-
01/01/2012-12/31/2012
Everest Re- Canadian Branch
75.0
%
Bermuda Re
property / casualty business
206
(1)
413
(1)
01/01/2013-12/31/2013
Everest Re- Canadian Branch
75.0
%
Bermuda Re
property / casualty business
150
(1)
413
(1)
01/01/2014-12/31/2017
Everest Re- Canadian Branch
75.0
%
Bermuda Re
property / casualty business
263
(1)
413
(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
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, 2023.
Everest Re entered into a catastrophe excess of loss reinsurance contract with Bermuda Re (UK Branch), effective
January 1, 2021 through December 31, 2021. The contract provides Bermuda Re (UK Branch), with up to £
110
million of reinsurance coverage for each catastrophe occurrence above £
29
Everest Re £
4
Everest Re entered into a catastrophe excess of loss reinsurance contract with Ireland Re, effective February 1,
2023 through January 31, 2024. The contract provides Ireland Re with up to €
121
for each catastrophe occurrence above €
18
10
Everest Re entered into a catastrophe excess of loss reinsurance contract with Ireland Re, effective March 31, 2023
through January 31, 2024. The contract provides Ireland Re with up to €
61
catastrophe occurrence above €
139
2
The table below represents loss portfolio transfer (“LPT”) reinsurance agreements whereby net insurance
exposures and reserves were transferred to an affiliate.
(Dollars in millions)
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
01/01/2002-12/31/2007
12/31/2017
Everest Re
Bermuda Re
$
970
All years
29
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
to Bermuda Re. As part of the LPT agreement, Bermuda Re will provide an additional $
500
development coverage on the subject loss reserves. As of March 31, 2023 and December 31, 2022, the Company
has a reinsurance recoverable of $
803.6
803.7
from Bermuda Re.
The following tables summarize the significant premiums and losses ceded and assumed by the Company to
affiliated entities:
Three Months Ended
Bermuda Re
March 31,
(Dollars in millions)
2023
2022
Ceded written premiums
$
106
$
92
Ceded earned premiums
106
92
Ceded losses and LAE
(4)
(2)
Assumed written premiums
-
2
Assumed earned premiums
-
3
Assumed losses and LAE
-
-
Three Months Ended
Ireland Re
March 31,
(Dollars in millions)
2023
2022
Assumed written premiums
$
3
$
2
Assumed earned premiums
3
3
Assumed losses and LAE
-
2
Three Months Ended
Ireland Insurance
March 31,
(Dollars in millions)
2023
2022
Assumed written premiums
$
1
$
2
Assumed earned premiums
2
2
Assumed losses and LAE
1
6
The following table summarizes the premiums and losses that are ceded by the Company to Mt. Logan Re
segregated accounts.
Three Months Ended
Mt. Logan Re Segregated Accounts
March 31,
(Dollars in millions)
2023
2022
Ceded written premiums
$
42
$
41
Ceded earned premiums
38
42
Ceded losses and LAE
13
37
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
30
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.
On August 16, 2022, the Inflation Reduction Act of 2022 (“IRA”) was enacted. We have evaluated the tax provisions
of the IRA, the most significant of which are the corporate alternative minimum tax and the share repurchase
excise tax and do not expect the legislation to have a material impact on our results of operations. As the IRS issues
additional guidance, we will evaluate any impact to our consolidated financial statements.
15. SUBSEQUENT EVENTS
The Company has evaluated known recognized and non-recognized subsequent events. The Company does not
have any subsequent events to report.
31
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 the securitization of reinsurance and insurance risks through capital markets provide
additional sources of potential reinsurance and insurance capacity and competition.
Worldwide reinsurance and insurance market conditions historically have been competitive. Generally, there is
ample reinsurance and insurance 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 reinsurance and insurance risk
exposure. The capital markets demand for these products is primarily driven by the desire to achieve greater risk
diversification and potentially higher returns on their investments. This competition generally has a negative
impact on rates, terms and conditions; however, the impact varies widely by market and coverage. Based on
recent competitive behaviors in the reinsurance and insurance industry, natural catastrophe events and the
macroeconomic backdrop, there has been some dislocation in the market which we expect to have a positive
impact on rates and terms and conditions generally, though local market specificities can vary.
The increased frequency of catastrophe losses experienced throughout recent years appears to be pressuring the
increase of rates. As business activity continues to regain strength after the pandemic and current macroeconomic
uncertainty, 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. The impact on pricing conditions is likely to change depending on the line of business and
geography.
Our capital position is 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.
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.
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
March 31,
Increase/
(Dollars in millions)
2023
2022
(Decrease)
Gross written premiums
$
2,496
$
2,205
13.2%
Net written premiums
2,063
1,796
14.8%
REVENUES:
Premiums earned
$
2,068
$
1,829
13.1%
Net investment income
190
156
21.8%
Net gains (losses) on investments
22
(227)
-109.9%
Other income (expense)
(4)
(9)
-54.2%
Total revenues
2,276
1,749
30.2%
CLAIMS AND EXPENSES:
Incurred losses and loss adjustment expenses
1,394
1,226
13.7%
Commission, brokerage, taxes and fees
436
385
13.5%
Other underwriting expenses
139
118
18.0%
Corporate expenses
6
6
11.5%
Interest, fees and bond issue cost amortization expense
32
24
33.1%
Total claims and expenses
2,007
1,758
14.2%
INCOME (LOSS) BEFORE TAXES
269
(9)
NM
Income tax expense (benefit)
49
(10)
NM
NET INCOME (LOSS)
$
220
$
1
NM
RATIOS:
Point
Change
Loss ratio
67.4%
67.0%
0.4
Commission and brokerage ratio
21.1%
21.0%
0.1
Other underwriting expense ratio
6.7%
6.4%
0.3
Combined ratio
95.2%
94.5%
0.7
At
At
March 31,
December 31,
Increase/
(Dollars in millions)
2023
2022
(Decrease)
Balance sheet data:
Total investments and cash
$
19,996
$
19,195
4.2%
Total assets
28,783
27,957
3.0%
Loss and loss adjustment expense reserves
15,315
14,977
2.3%
Total debt
3,085
3,084
0.0%
Total liabilities
22,781
22,303
2.1%
Stockholder's equity
6,002
5,654
6.2%
(Some amounts may not reconcile due to rounding)
(NM, not meaningful)
33
Revenues.
Premiums. Gross written premiums increased by 13.2% to $2.5 billion for the three months ended March 31,
2023, compared to $2.2 billion for the three months ended March 31, 2022, reflecting a $27 million, or 3.3%,
increase in our insurance business and a $264 million, or 19.1%, increase in our reinsurance business. The increase
in insurance premiums was primarily due to increases in property/short tail business and other specialty lines of
business. The increase in reinsurance premiums was primarily due to increases in casualty pro rata business,
property pro rata business and financial lines of business.
Net written premiums increased by 14.8% to $2.1 billion for the three months ended March 31, 2023, compared to
$1.8 billion for the three months ended March 31, 2022, which is consistent with the percentage change in gross
written premiums. Premiums earned increased by 13.1% to $2.1 billion for the three months ended March 31,
2023, compared to $1.8 billion for the three months ended March 31, 2022. The change in premiums earned
relative to net written premiums was 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.
Other Income (Expense). We recorded other expense of $4 million and $9 million for the three months ended
March 31, 2023 and 2022, 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.
Claims and Expenses.
Incurred Losses and Loss Adjustment Expenses. The following table presents our incurred losses and LAE for the
periods indicated.
Three Months Ended March 31,
Current
Ratio %/
Prior
Ratio %/
Total
Ratio %/
(Dollars in millions)
Year
Pt Change
Years
Pt Change
Incurred
Pt Change
2023
Attritional
$
1,300
62.9%
$
(2)
-0.1%
$
1,299
62.8%
Catastrophes
103
5.0%
(7)
-0.3%
96
4.6%
Total
$
1,403
67.8%
$
(9)
-0.4%
$
1,394
67.4%
2022
Attritional
$
1,138
62.3%
$
-
0.0%
$
1,138
62.3%
Catastrophes
80
4.4%
7
0.4%
87
4.8%
Total
$
1,219
66.7%
$
7
0.4%
$
1,226
67.0%
Variance 2023/2022
Attritional
$
162
0.6
pts
$
(2)
(0.1)
pts
$
160
0.5
pts
Catastrophes
22
0.6
pts
(14)
(0.7)
pts
8
(0.2)
pts
Total
$
184
1.2
pts
$
(16)
(0.8)
pts
$
168
0.4
pts
Incurred losses and LAE increased by 13.7% to $1.4 billion for the three months ended March 31, 2023 compared
to $1.2 billion for the three months ended March 31, 2022, primarily due to an increase of $162 million in current
year attritional losses and an increase of $22 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. The current year
catastrophe losses of $103 million for the three months ended March 31, 2023 mainly related to the 2023 Turkey
earthquakes ($65 million) and the 2023 New Zealand storms ($38 million). The current year catastrophe losses of
$80 million for the three months ended March 31, 2022 related to 2022 Australia floods ($71 million) and the 2022
34
March U.S. storms ($10 million). Prior year incurred development of $9 million for the three months ended March
31, 2023 is primarily driven by favorable movement on prior year catastrophes.
Commission, Brokerage, Taxes and Fees. Commission, brokerage, taxes and fees increased to $436 million for the
three months ended March 31, 2023 compared to $385 million for the three months ended March 31, 2022. The
increase was mainly due to the impact of the increase in premiums earned and changes in the mix of business .
Other Underwriting Expenses. Other underwriting expense s increased to $139 million for the three months ended
March 31, 2023 compared to $118 million for the three months ended March 31, 2022. The increase was mainly
due to the impact of the increase in premiums earned and increased expenses related to the continued build out
of the insurance platform.
Corporate Expenses. Corporate expenses, which are general operating expenses that are not allocated to
segments, remained consistent at $6 million for the three months ended March 31, 2023 and 2022, respectively.
Interest, Fees and Bond Issue Cost Amortization Expense. Interest, fees and other bond amortization expense was
$32 million and $24 million for the three months ended March 31, 2023 and 2022, respectively. Interest expense
was mainly impacted by the movement in the floating interest rate related to the long-term subordinated notes,
which is reset quarterly per the note agreement , as well as variable interest rate costs on borrowings from FHLB.
Income Tax Expense (Benefit). We had income tax expense of $49 million and benefit of $10 million for the three
months ended March 31, 2023 and 2022, 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.
On August 16, 2022, the Inflation Reduction Act of 2022 (“IRA”) was enacted. We have evaluated the tax provisions
of the IRA, the most significant of which are the corporate alternative minimum tax and the share repurchase
excise tax and do not expect the legislation to have a material impact on our results of operations. As the IRS issues
additional guidance, we will evaluate any impact to our consolidated financial statements.
Net Income (Loss).
Our net income was $220 million and $1 million, for the three months ended March 31, 2023 and 2022,
respectively. The changes were primarily driven by the financial component fluctuations explained above.
Ratios.
Our combined ratio increased by 0.7 points to 95.2% for the three months ended March 31, 2023, compared to
94.5% for the three months ended March 31, 2022. The loss ratio component increased by 0.4 points for the three
months ended March 31, 2023 over the same period last year mainly due to an increase of $22 million in current
year catastrophe losses. The commission and brokerage ratio components increased slightly to 21.1% for the three
months ended March 31, 2023 compared to 21.0% for the three months ended March 31, 2022. The other
underwriting expense ratios increased to 6.7% from 6.4% for the three months ended March 31, 2023 and 2022,
respectively. These variances were mainly due to changes in the mix of business.
Stockholder’s Equity.
Stockholder’s equity increased by $348 million to $6.0 billion at March 31, 2023 from $5.7 billion at December 31,
2022, principally as a result of $220 million of net income, $121 million of net unrealized appreciation on
investments, net of tax, and $7 million of net foreign currency translation adjustments. The movement in the
unrealized appreciation on investments was driven by the change in interest rates on the Company’s fixed maturity
- available for sale portfolio.
35
Consolidated Investment Results
Net Investment Income.
Net investment income increased to $190 million for the three months ended March 31, 2023 compared to $156
million for the three months ended March 31, 2022. The increase was primarily the result of higher income from
fixed maturity securities and short-term investments due to rising reinvestment rates , partially offset by reductions
in income from limited partnerships. 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.
The following table shows the components of net investment income for the periods indicated:
Three Months Ended
March 31,
(Dollars in millions)
2023
2022
Fixed maturities
$
174
$
94
Equity securities
1
4
Short-term investments and cash
11
-
Other invested assets
Limited partnerships
(24)
44
Dividends from preferred shares of affiliate
8
8
Other
22
12
Gross investment income before adjustments
192
162
Funds held interest income (expense)
3
3
Interest income from Parent
5
2
Gross investment income
200
167
Investment expenses
(10)
(10)
Net investment income
$
190
$
156
(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
March 31,
2023
2022
Annualized pre-tax yield on average cash and invested assets
3.7%
3.3%
Annualized after-tax yield on average cash and invested assets
3.0%
2.6%
36
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 March 31,
(Dollars in millions)
2023
2022
Variance
Realized gains (losses) from dispositions:
Fixed maturity securities available for sale
Gains
$
3
$
3
$
(1)
Losses
(4)
(8)
4
Total
(1)
(5)
4
Equity securities
Gains
7
4
3
Losses
-
(12)
12
Total
7
(8)
15
Other invested assets
Gains
-
4
(4)
Losses
-
-
-
Total
-
4
(4)
Total net realized gains (losses) from dispositions
Gains
9
11
(2)
Losses
(4)
(20)
17
Total
5
(10)
15
Allowances for credit losses:
(10)
(2)
(9)
Gains (losses) from fair value adjustments:
Equity securities
3
(131)
134
Other invested assets
24
(85)
109
Total
27
(215)
242
Total net gains (losses) on investments
$
22
$
(227)
$
249
(Some amounts may not reconcile due to rounding.)
Net gains (losses) on investments during the three months ended March 31, 2023 primarily relate to net gains from
fair value adjustments of $27 million as a result of market increases during the first quarter of 2023. In addition, we
recorded $5 million of net realized gains from disposition of investments and recorded an increase to the
allowance for credit losses of $10 million.
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.
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.
37
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
reevaluate 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.
Management’s best estimate is developed through collaboration with actuarial, underwriting, claims, legal and
finance departments and culminates with the input of reserve committees. Each segment reserve committee
includes the participation of the relevant parties from actuarial, finance, claims and segment senior management
and has the responsibility for recommending and approving management’s best estimate. Reserves are further
reviewed by Everest’s Chief Reserving Actuary and senior management. The objective of such process is to
determine a single best estimate viewed by management to be the best estimate of its ultimate loss liability.
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 March 31,
(Dollars in millions)
2023
2022
Variance
% Change
Gross written premiums
$
1,643
$
1,380
$
264
19.1%
Net written premiums
1,373
1,185
188
15.8%
Premiums earned
$
1,367
$
1,209
$
157
13.0%
Incurred losses and LAE
929
820
109
13.3%
Commission and brokerage
361
315
46
14.5%
Other underwriting expenses
39
31
8
25.0%
Underwriting gain (loss)
$
38
$
43
$
(5)
-11.3%
Point Chg
Loss ratio
68.0%
67.8%
0.2
Commission and brokerage ratio
26.4%
26.1%
0.3
Other underwriting ratio
2.8%
2.6%
0.2
Combined ratio
97.2%
96.5%
0.7
(Some amounts may not reconcile due to rounding.)
(NM, not meaningful)
Premiums.
Gross written premiums increased by 19.1% to $1.6 billion for the three months ended March 31, 2023
from $1.4 billion for the three months ended March 31, 2022 primarily due to increases in casualty pro rata
business, property pro rata business and financial lines of business. Net written premiums increased by 15.8% to
$1.4 billion for the three months ended March 31, 2023 compared to $1.2 billion for the three months ended
March 31, 2022, which is consistent with the percentage change in gross written premiums. Premiums earned
increased by 13.0% to $1.4 billion for the three months ended March 31, 2023 compared to $1.2 billion for the
three months ended March 31, 2022. 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.
38
Incurred Losses and LAE.
The following tables present the incurred losses and LAE for the Reinsurance segment for
the periods indicated.
Three Months Ended March 31,
Current
Ratio %/
Prior
Ratio %/
Total
Ratio %/
(Dollars in millions)
Year
Pt Change
Years
Pt Change
Incurred
Pt Change
2023
Attritional
$
834
61.1%
$
1
0.0%
$
835
61.1%
Catastrophes
101
7.4%
(7)
-0.5%
94
6.9%
Total segment
$
935
68.4%
$
(6)
-0.5%
$
929
68.0%
2022
Attritional
$
738
61.0%
$
-
0.0%
$
738
61.0%
Catastrophes
75
6.2%
7
0.6%
82
6.8%
Total segment
$
813
67.2%
$
7
0.6%
$
820
67.8%
Variance 2023/2022
Attritional
$
97
0.1
pts
$
-
-
pts
$
97
0.1
pts
Catastrophes
26
1.2
pts
(14)
(1.1)
pts
12
0.1
pts
Total segment
$
122
1.3
pts
$
(14)
(1.1)
pts
$
109
0.2
pts
Incurred losses increased by 13.3% to $929 million for the three months ended March 31, 2023, compared to $820
million for the three months ended March 31, 2022. The increase was primarily due to an increase of $97 million in
current year attritional losses and an increase of $26 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. The current
year catastrophe losses of $101 million for the three months ended March 31, 2023 related primarily to the 2023
Turkey earthquakes ($65 million) and the 2023 New Zealand storms ($36 million). The $75 million of current year
catastrophe losses for the three months ended March 31, 2022 related primarily to 2022 Australia floods ($71
million) and the 2022 March U.S. storms ($5 million). Prior year incurred development of $6 million for the three
months ended March 31, 2023 is primarily driven by favorable movement on prior year catastrophes.
Segment Expenses. Commission and brokerage expense increased by 14.5% to $361 million for the three months
ended March 31, 2023 compared to $315 million for the three months ended March 31, 2022. The increase was
mainly due to the impact of the increase in premiums earned and changes in the mix of business.
Segment other underwriting expenses increased to $39 million for the three months ended March 31, 2023 from
$31 million for the three months ended March 31, 2022. The increase was due to increased personnel and direct
and indirect expenditures supporting the increased premium volume of the segment.
39
Insurance.
The following table presents the underwriting results and ratios for the Insurance segment for the periods
indicated.
Three Months Ended March 31,
(Dollars in millions)
2023
2022
Variance
% Change
Gross written premiums
$
852
$
825
$
27
3.3%
Net written premiums
690
611
79
12.9%
Premiums earned
$
702
$
619
$
83
13.3%
Incurred losses and LAE
465
405
60
14.7%
Commission and brokerage
76
69
6
9.0%
Other underwriting expenses
100
87
13
15.5%
Underwriting gain (loss)
$
61
$
58
$
3
5.4%
Point Chg
Loss ratio
66.2%
65.4%
0.8
Commission and brokerage ratio
10.8%
11.2%
(0.4)
Other underwriting ratio
14.3%
14.0%
0.3
Combined ratio
91.3%
90.6%
0.7
(Some amounts may not reconcile due to rounding.)
(NM, not meaningful)
Premiums.
Gross written premiums increased by 3.3% to $852 million for the three months ended March 31, 2023
compared to $825 million for the three months ended March 31, 2022. The increase in insurance premiums was
primarily due to increases in property/short tail business and other specialty lines of business. Net written
premiums increased by 12.9% to $690 million for the three months ended March 31, 2023 compared to $611
million for the three months ended March 31, 2022. The higher percentage of net written premiums compared to
gross written premiums was mainly due to business mix and higher retention in certain lines of business.
Premiums earned increased 13.3% to $702 million for the three months ended March 31, 2023 compared to $619
million for the three months ended March 31, 2022.
Incurred Losses and LAE.
The following tables present the incurred losses and LAE for the Insurance segment for
the periods indicated.
Three Months Ended March 31,
Current
Ratio %/
Prior
Ratio %/
Total
Ratio %/
(Dollars in millions)
Year
Pt Change
Years
Pt Change
Incurred
Pt Change
2023
Attritional
$
466
66.4%
$
(2)
-0.3%
$
464
66.1%
Catastrophes
2
0.2%
-
-0.1%
1
0.2%
Total segment
$
468
66.6%
$
(3)
-0.4%
$
465
66.2%
2022
Attritional
$
401
64.7%
$
-
-0.1%
$
400
64.7%
Catastrophes
5
0.8%
-
0.0%
5
0.8%
Total segment
$
406
65.5%
$
(1)
-0.1%
$
405
65.4%
Variance 2023/2022
Attritional
$
65
1.7
pts
$
(2)
(0.2)
pts
$
63
1.4
pts
Catastrophes
(3)
(0.6)
pts
-
(0.1)
pts
(4)
(0.6)
pts
Total segment
$
62
1.1
pts
$
(2)
(0.3)
pts
$
60
0.8
pts
Incurred losses and LAE increased by 14.7% to $465 million for the three months ended March 31, 2023 compared
to $405 million for the three months ended March 31, 2022, mainly due to an increase of $65 million in current
year attritional losses which is primarily related to the impact of the increase in premiums earned. The $2 million
of current year catastrophe losses for the three months ended March 31, 2023, related to the 2023 New Zealand
40
storms. The $5 million of current year catastro phe losses for the three months ended March 31, 2022, related to
the 2022 March U.S. storms. Prior year incurred development of $3 million for the three months ended March 31,
2023 is primarily driven by favorable movement on prior year catastrophes.
Segment Expenses. Commission and brokerage increased by 9.0% to $76 million for the three months ended
March 31, 2023 compared to $69 million for the three months ended March 31, 2022. The increase was mainly
due to the impact of the increase in premiums earned and changes in the mix of business.
Segment other underwriting expenses increased to $100 million for the three months ended March 31, 2023
compared to $87 million for the three months ended March 31, 2022. The increase was mainly due to the impact
of the increase in premiums earned and increased expenses related to the continued build out of the insurance
platform.
Liquidity and Capital Resources
Capital. Stockholder’s equity at March 31, 2023 and December 31, 2022 was $6.0 billion and $5.7 billion,
respectively. Management’s objective in managing capital is to ensure its overall capital level, as well as the capital
levels of its operating subsidiaries, exceed the amounts required by regulators, the amount needed to support our
current financial strength ratings from rating agencies and our own economic capital models. The Company’s
capital has historically exceeded these benchmark levels.
Our main operating company, Everest Re is regulated by the State of Delaware, Department of Insurance. The
regulatory body has its own capital adequacy models based on statutory capital as opposed to GAAP basis equity.
Failure to meet the required statutory capital levels could result in various regulatory restrictions.
The regulatory targeted capital and the actual statutory capital for Everest Re was as follows:
Everest Re (1)
At December 31,
(Dollars in millions)
2022
2021
Regulatory targeted capital
$3,353
$2,960
Actual capital
$5,553
$5,717
(1)
Regulatory targeted capital represents 200% of the RBC authorized control level calculation for the applicable year.
Our financial strength ratings as determined by A.M. Best, Standard & Poor’s and Moody’s are important as they
provide our customers and investors with an independent assessment of our financial strength using a rating scale
that provides for relative comparisons. We continue to possess significant financial flexibility and access to debt
and equity markets as a result of our financial strength, as evidenced by the financial strength ratings as assigned
by independent rating agencies.
We maintain our own economic capital models to monitor and project our overall capital, as well as the capital at
our operating subsidiaries. A key input to the economic models is projected income and this input is continually
compared to actual results, which may require a change in the capital strategy.
We may continue, from time to time, to seek to retire portions of our outstanding debt securities through cash
repurchases, in open-market purchases, privately negotiated transactions or otherwise. Such repurchases, if any,
will be subject to and depend on prevailing market conditions, our liquidity requirements, contractual restrictions
and other factors. The amounts involved in any such transactions, individually or in the aggregate, may be
material.
Liquidity. Our liquidity requirements are generally met from positive cash flow from operations. Positive cash flow
results from reinsurance and insurance premiums being collected prior to disbursements for claims, which
disbursements generally take place over an extended period after the collection of premiums, sometimes a period
41
of many years. Collected premiums are generally invested, prior to their use in such disbursements, and
investment income provides additional funding for loss payments. Our net cash flows from operating activities
were $384 million and $531 million for the three months ended March 31, 2023 and 2022, respectively.
If disbursements for claims and benefits, policy acquisition costs and other operating expenses were to exceed
premium inflows, cash flow from reinsurance and insurance operations would be negative. The effect on cash flow
from insurance operations would be partially offset by cash flow from investment income. Additionally, cash
inflows from investment maturities - both short-term investments and longer-term maturities are available to
supplement other operating cash flows. We do not expect to supplement negative insurance operations cash
flows from investment dispositions.
As the timing of payments for claims and benefits cannot be predicted with certainty, we maintain portfolios of
long-term invested assets with varying maturities, along with short-term investments that provide additional
liquidity for payment of claims. At March 31, 2023 and December 31, 2022, we held cash and short-term
investments of $1.31 billion and $1.29 billion, respectively. Our short-term investments are generally readily
marketable and can be converted to cash. In addition to these cash and short-term investments, at March 31,
2023, we had $694 million of fixed maturity securities - available for sale maturing within one year or less, $3.5
billion maturing within one to five years and $2.7 billion maturing after five years. Our $158 million of equity
securities are comprised primarily of publicly traded securities that we believe can be easily liquidated. We believe
that these fixed maturity and equity securities, in conjunction with the short-term investments and positive cash
flow from operations, provide ample sources of liquidity for the expected payment of losses in the near future.
We do not anticipate selling a significant amount of securities to pay losses and LAE. At March 31, 2023 we had
$834 million of net pre-tax unrealized depreciation related to fixed maturity - available for sale securities,
comprised of $871 million of pre-tax unrealized depreciation and $37 million of pre-tax unrealized appreciation.
Management generally expects annual positive cash flow from operations, which reflects the strength of overall
pricing. However, given the recent set of catastrophic events, cash flow from operations may decline and could
become negative in the near term as significant claim payments are made related to the catastrophes. However,
as indicated above, the Company has ample liquidity to settle its catastrophe claims and/or any payments due for
its catastrophe bond progra m.
Market Sensitive Instruments.
The SEC’s Financial Reporting Release #48 requires registrants to clarify and expand upon the existing financial
statement disclosure requirements for derivative financial instruments, derivative commodity instruments and
other financial instruments (collectively, “market sensitive instruments”). We do not generally enter into market
sensitive instruments for trading purposes.
Our current investment strategy seeks to maximize after-tax income through a high quality, diversified, taxable
and tax -preferenced fixed maturity portfolio, while maintaining an adequate level of liquidity. Our mix of taxable
and tax-preferenced investments is adjusted periodically, consistent with our current and projected operating
results, market conditions and our tax position. The fixed maturity securities in the investment portfolio are
comprised of non-trading available for sale securities. Additionally, we have invested in equity securities.
The overall investment strategy considers the scope of present and anticipated Company operations. In particular,
estimates of the financial impact resulting from non-investment asset and liability transactions, together with our
capital structure and other factors, are used to develop a net liability analysis. This analysis includes estimated
payout characteristics for which our investments provide liquidity. This analysis is considered in the development
of specific investment strategies for asset allocation, duration and credit quality. The change in overall market
sensitive risk exposure principally reflects the asset changes that took place during the period.
42
Interest Rate Risk. Our $20.0 billion investment portfolio, at March 31, 2023, 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 $2.2 billion of mortgage-backed securities in the $14.2 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 $822 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 March 31, 2023
(Dollars in millions)
-200
-100
0
100
200
Total Fair Value
$
15,735
$
15,384
$
15,033
$
14,682
$
14,331
Fair Value Change from Base (%)
4.7%
2.3%
0.0%
-2.3%
-4.7%
Change in Unrealized Appreciation
After-tax from Base ($)
$
554
$
277
$
-
$
(277)
$
(554)
We had $15.3 billion and $15.0 billion of gross reserves for losses and LAE as of March 31, 2023 and December 31,
2022, respectively. These amounts are recorded at their nominal value, as opposed to present value, which would
reflect a discount adjustment to reflect the time value of money. Since losses are paid out over a period of time,
the present value of the reserves is less than the nominal value. As interest rates rise, the present value of the
reserves decreases and, conversely, as interest rates decline, the present value increases. These movements are
the opposite of the interest rate impacts on the fair value of investments. While the difference between present
value and nominal value is not reflected in our financial statements, our financial results will include investment
income over time from the investment portfolio until the claims are paid. Our loss and loss reserve obligations
have an expected duration that is reasonably consistent with our fixed income portfolio.
Equity Risk. Equity risk is the potential change in fair 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 March 31, 2023
(Dollars in millions)
-20%
-10%
0%
10%
20%
Fair Value of the Equity Portfolio
$
127
$
142
$
158
$
174
$
190
After-tax Change in Fair Value
(25)
(13)
-
13
25
43
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:
●
the effects of catastrophic and pandemic events on our financial statements;
●
●
information regarding our reserves for losses and LAE;
●
our failure to accurately assess underwriting risk;
●
decreases in pricing for property and casualty reinsurance and insurance;
●
our ability to maintain our financial strength ratings;
●
the failure of our insured, intermediaries and reinsurers to satisfy their obligations;
●
our inability or failure to purchase reinsurance;
●
consolidation of competitors, customers and insurance and reinsurance brokers;
●
the effect on our business of the highly competitive nature of our industry, including the effect of new
entrants to, competing products for and consolidation in the (re)insurance industry;
●
our ability to retain our key executive officers and to attract or retain the executives and employees
necessary to manage our business;
●
the performance of our investment portfolio;
●
our ability to determine any impairments taken on our investments;
●
foreign currency exchange rate fluctuations;
●
the effect of cybersecurity risks, including technology breaches or failure, on our business;
●
the CARES Act;
●
the impact of the Tax Cut and Jobs Act and;
●
the adequacy of capital in relation to regulatory required capital.
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.
44
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market Risk Instruments.
See “Market Sensitive Instruments” in PART I – ITEM 2.
ITEM 4. CONTROLS AND PROCEDURES
As of the end of the period covered by this report, our management carried out an evaluation, with the
participation of the Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure
controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange
Act”)). Based on their evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our
disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the
reports that we file or submit under the Exchange Act are recorded, processed, summarized and reported within
the time periods specified in the Securities and Exchange Commission’s rules and forms. Our management, with
the participation of the Chief Executive Officer and Chief Financial Officer, also conducted an evaluation of our
internal control over financial reporting to determine whether any changes occurred during the quarter covered by
this report that have materially affected, or are reasonably likely to materially affect, our internal control over
financial reporting. Based on that evaluation, there has been no such change during the quarter covered by this
report.
PART II
ITEM 1. LEGAL PROCEEDINGS
In the ordinary course of business, the Company is involved in lawsuits, arbitrations and other formal and informal
dispute resolution procedures, the outcomes of which will determine the Company’s rights and obligations under
insurance and reinsurance agreements. In some disputes, the Company seeks to enforce its rights under an
agreement or to collect funds owing to it. In other matters, the Company is resisting attempts by others to collect
funds or enforce alleged rights. These disputes arise from time to time and are ultimately resolved through both
informal and formal means, including negotiated resolution, arbitration and litigation. In all such matters, the
Company believes that its positions are legally and commercially reasonable. The Company considers the statuses
of these proceedings when determining its reserves for unpaid loss and loss adjustment expenses.
Aside from litigation and arbitrations related to these insurance and reinsurance agreements, the Company is not a
party to any other material litigation or arbitration.
ITEM 1A. RISK FACTORS
No material changes.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
45
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
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)
46
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: May 11, 2023