EVEREST GROUP, LTD. - Quarter Report: 2016 March (Form 10-Q)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED:
March 31, 2016
|
Commission file number:
1-15731
|
EVEREST RE GROUP, LTD.
(Exact name of registrant as specified in its charter)
Bermuda
|
98-0365432
|
|
(State or other jurisdiction of
incorporation or organization)
|
(I.R.S. Employer
Identification No.)
|
Seon Place – 4th Floor
141 Front Street
PO Box HM 845
Hamilton HM 19, Bermuda
441-295-0006
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive office)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
YES
|
X
|
NO
|
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
YES
|
X
|
NO
|
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
|
X
|
Accelerated filer
|
||
Non-accelerated filer
|
Smaller reporting company
|
|||
(Do not check if smaller reporting company)
|
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
YES
|
NO
|
X
|
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, 2016
|
|
Common Shares, $0.01 par value
|
42,339,036
|
EVEREST RE GROUP, LTD
Table of Contents
Form 10-Q
Page
PART I
FINANCIAL INFORMATION
Item 1.
|
Financial Statements
|
|
Consolidated Balance Sheets March 31, 2016 (unaudited)
|
||
and December 31, 2015 (unaudited)
|
1
|
|
Consolidated Statements of Operations and Comprehensive Income (Loss) for the
|
||
three months ended March 31, 2016 and 2015 (unaudited)
|
2
|
|
Consolidated Statements of Changes in Shareholders' Equity for the three
|
||
months ended March 31, 2016 and 2015 (unaudited)
|
3
|
|
Consolidated Statements of Cash Flows for the three months ended
|
||
March 31, 2016 and 2015 (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
|
53
|
Item 4.
|
Controls and Procedures
|
53
|
PART II
OTHER INFORMATION
Item 1.
|
Legal Proceedings
|
54
|
Item 1A.
|
Risk Factors
|
54
|
Item 2.
|
Unregistered Sales of Equity Securities and Use of Proceeds
|
54
|
Item 3.
|
Defaults Upon Senior Securities
|
54
|
Item 4.
|
Mine Safety Disclosures
|
55
|
Item 5.
|
Other Information
|
55
|
Item 6.
|
Exhibits
|
55
|
EVEREST RE GROUP, LTD.
CONSOLIDATED BALANCE SHEETS
March 31,
|
December 31,
|
|||||||
(Dollars and share amounts in thousands, except par value per share)
|
2016
|
2015
|
||||||
(unaudited)
|
||||||||
ASSETS:
|
||||||||
Fixed maturities - available for sale, at market value
|
$
|
13,761,652
|
$
|
13,357,294
|
||||
(amortized cost: 2016, $13,480,045; 2015, $13,276,206)
|
||||||||
Fixed maturities - available for sale, at fair value
|
1,870
|
2,102
|
||||||
Equity securities - available for sale, at market value (cost: 2016, $123,354; 2015, $122,271)
|
114,388
|
108,940
|
||||||
Equity securities - available for sale, at fair value
|
1,313,404
|
1,337,733
|
||||||
Short-term investments
|
441,528
|
799,684
|
||||||
Other invested assets (cost: 2016, $1,109,186; 2015, $786,994)
|
1,109,186
|
786,994
|
||||||
Cash
|
328,943
|
283,658
|
||||||
Total investments and cash
|
17,070,971
|
16,676,405
|
||||||
Accrued investment income
|
101,789
|
100,942
|
||||||
Premiums receivable
|
1,475,155
|
1,483,090
|
||||||
Reinsurance receivables
|
920,039
|
894,037
|
||||||
Funds held by reinsureds
|
225,320
|
278,673
|
||||||
Deferred acquisition costs
|
357,335
|
372,351
|
||||||
Prepaid reinsurance premiums
|
176,741
|
164,971
|
||||||
Income taxes
|
223,507
|
258,541
|
||||||
Other assets
|
304,997
|
321,818
|
||||||
TOTAL ASSETS
|
$
|
20,855,854
|
$
|
20,550,828
|
||||
LIABILITIES:
|
||||||||
Reserve for losses and loss adjustment expenses
|
$
|
9,985,979
|
$
|
9,951,798
|
||||
Future policy benefit reserve
|
58,438
|
58,910
|
||||||
Unearned premium reserve
|
1,588,506
|
1,613,390
|
||||||
Funds held under reinsurance treaties
|
20,745
|
13,544
|
||||||
Commission reserves
|
55,960
|
60,098
|
||||||
Other net payable to reinsurers
|
179,072
|
173,087
|
||||||
Losses in course of payment
|
137,267
|
112,170
|
||||||
4.868% Senior notes due 6/1/2044
|
400,000
|
400,000
|
||||||
6.6% Long term notes due 5/1/2067
|
238,369
|
238,368
|
||||||
Accrued interest on debt and borrowings
|
12,341
|
3,537
|
||||||
Equity index put option liability
|
43,725
|
40,705
|
||||||
Unsettled securities payable
|
54,984
|
15,314
|
||||||
Other liabilities
|
240,169
|
261,322
|
||||||
Total liabilities
|
13,015,555
|
12,942,243
|
||||||
Commitments and contingencies (Note 7)
|
||||||||
SHAREHOLDERS' EQUITY:
|
||||||||
Preferred shares, par value: $0.01; 50,000 shares authorized;
|
||||||||
no shares issued and outstanding
|
-
|
-
|
||||||
Common shares, par value: $0.01; 200,000 shares authorized; (2016) 68,776
|
||||||||
and (2015) 68,606 outstanding before treasury shares
|
688
|
686
|
||||||
Additional paid-in capital
|
2,111,828
|
2,103,638
|
||||||
Accumulated other comprehensive income (loss), net of deferred income tax expense
|
||||||||
(benefit) of $22,446 at 2016 and ($15,863) at 2015
|
(45,299
|
)
|
(231,755
|
)
|
||||
Treasury shares, at cost; 26,377 shares (2016) and 25,912 shares (2015)
|
(2,971,870
|
)
|
(2,885,956
|
)
|
||||
Retained earnings
|
8,744,952
|
8,621,972
|
||||||
Total shareholders' equity
|
7,840,299
|
7,608,585
|
||||||
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
|
$
|
20,855,854
|
$
|
20,550,828
|
||||
The accompanying notes are an integral part of the consolidated financial statements.
|
1
EVEREST RE GROUP, LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
Three Months Ended
|
||||||||
March 31,
|
||||||||
(Dollars in thousands, except per share amounts)
|
2016
|
2015
|
||||||
(unaudited)
|
||||||||
REVENUES:
|
||||||||
Premiums earned
|
$
|
1,218,867
|
$
|
1,272,488
|
||||
Net investment income
|
102,524
|
122,566
|
||||||
Net realized capital gains (losses):
|
||||||||
Other-than-temporary impairments on fixed maturity securities
|
(28,793
|
)
|
(26,018
|
)
|
||||
Other-than-temporary impairments on fixed maturity securities
|
||||||||
transferred to other comprehensive income (loss)
|
-
|
-
|
||||||
Other net realized capital gains (losses)
|
(45,466
|
)
|
15,513
|
|||||
Total net realized capital gains (losses)
|
(74,259
|
)
|
(10,505
|
)
|
||||
Net derivative gain (loss)
|
(3,020
|
)
|
(242
|
)
|
||||
Other income (expense)
|
(2,066
|
)
|
51,281
|
|||||
Total revenues
|
1,242,046
|
1,435,588
|
||||||
CLAIMS AND EXPENSES:
|
||||||||
Incurred losses and loss adjustment expenses
|
700,749
|
715,155
|
||||||
Commission, brokerage, taxes and fees
|
275,006
|
283,094
|
||||||
Other underwriting expenses
|
72,110
|
58,741
|
||||||
Corporate expenses
|
7,886
|
5,463
|
||||||
Interest, fees and bond issue cost amortization expense
|
9,228
|
8,990
|
||||||
Total claims and expenses
|
1,064,979
|
1,071,443
|
||||||
INCOME (LOSS) BEFORE TAXES
|
177,067
|
364,145
|
||||||
Income tax expense (benefit)
|
5,381
|
41,167
|
||||||
NET INCOME (LOSS)
|
$
|
171,686
|
$
|
322,978
|
||||
Other comprehensive income (loss), net of tax:
|
||||||||
Unrealized appreciation (depreciation) ("URA(D)") on securities arising during the period
|
142,962
|
83,205
|
||||||
Reclassification adjustment for realized losses (gains) included in net income (loss)
|
32,381
|
22,183
|
||||||
Total URA(D) on securities arising during the period
|
175,343
|
105,388
|
||||||
Foreign currency translation adjustments
|
9,773
|
(102,340
|
)
|
|||||
Benefit plan actuarial net gain (loss) for the period
|
-
|
-
|
||||||
Reclassification adjustment for amortization of net (gain) loss included in net income (loss)
|
1,340
|
1,604
|
||||||
Total benefit plan net gain (loss) for the period
|
1,340
|
1,604
|
||||||
Total other comprehensive income (loss), net of tax
|
186,456
|
4,652
|
||||||
COMPREHENSIVE INCOME (LOSS)
|
$
|
358,142
|
$
|
327,630
|
||||
EARNINGS PER COMMON SHARE
|
||||||||
Basic
|
$
|
4.03
|
$
|
7.26
|
||||
Diluted
|
4.00
|
7.19
|
||||||
Dividends declared
|
1.15
|
0.95
|
||||||
The accompanying notes are an integral part of the consolidated financial statements.
|
2
EVEREST RE GROUP, LTD.
CONSOLIDATED STATEMENTS OF
CHANGES IN SHAREHOLDERS' EQUITY
Three Months Ended
|
||||||||
March 31,
|
||||||||
(Dollars in thousands, except share and dividends per share amounts)
|
2016
|
2015
|
||||||
(unaudited)
|
||||||||
COMMON SHARES (shares outstanding):
|
||||||||
Balance, beginning of period
|
42,694,252
|
44,685,637
|
||||||
Issued during the period, net
|
169,774
|
159,661
|
||||||
Treasury shares acquired
|
(464,360
|
)
|
(434,878
|
)
|
||||
Balance, end of period
|
42,399,666
|
44,410,420
|
||||||
COMMON SHARES (par value):
|
||||||||
Balance, beginning of period
|
$
|
686
|
$
|
683
|
||||
Issued during the period, net
|
2
|
2
|
||||||
Balance, end of period
|
688
|
685
|
||||||
ADDITIONAL PAID-IN CAPITAL:
|
||||||||
Balance, beginning of period
|
2,103,638
|
2,068,807
|
||||||
Share-based compensation plans
|
8,190
|
5,170
|
||||||
Balance, end of period
|
2,111,828
|
2,073,977
|
||||||
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS),
|
||||||||
NET OF DEFERRED INCOME TAXES:
|
||||||||
Balance, beginning of period
|
(231,755
|
)
|
48,317
|
|||||
Net increase (decrease) during the period
|
186,456
|
4,652
|
||||||
Balance, end of period
|
(45,299
|
)
|
52,969
|
|||||
RETAINED EARNINGS:
|
||||||||
Balance, beginning of period
|
8,621,972
|
7,819,210
|
||||||
Net income (loss)
|
171,686
|
322,978
|
||||||
Dividends declared ($1.15 per share in 2016 and $0.95 per share in 2015)
|
(48,706
|
)
|
(42,252
|
)
|
||||
Balance, end of period
|
8,744,952
|
8,099,936
|
||||||
TREASURY SHARES AT COST:
|
||||||||
Balance, beginning of period
|
(2,885,956
|
)
|
(2,485,897
|
)
|
||||
Purchase of treasury shares
|
(85,914
|
)
|
(75,040
|
)
|
||||
Balance, end of period
|
(2,971,870
|
)
|
(2,560,937
|
)
|
||||
TOTAL SHAREHOLDERS' EQUITY, END OF PERIOD
|
$
|
7,840,299
|
$
|
7,666,630
|
||||
The accompanying notes are an integral part of the consolidated financial statements.
|
3
EVEREST RE GROUP, LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended
|
||||||||
March 31,
|
||||||||
(Dollars in thousands)
|
2016
|
2015
|
||||||
(unaudited)
|
||||||||
CASH FLOWS FROM OPERATING ACTIVITIES:
|
||||||||
Net income (loss)
|
$
|
171,686
|
$
|
322,978
|
||||
Adjustments to reconcile net income to net cash provided by operating activities:
|
||||||||
Decrease (increase) in premiums receivable
|
7,604
|
(101,728
|
)
|
|||||
Decrease (increase) in funds held by reinsureds, net
|
60,592
|
(12,027
|
)
|
|||||
Decrease (increase) in reinsurance receivables
|
(32,865
|
)
|
(90,028
|
)
|
||||
Decrease (increase) in income taxes
|
(3,883
|
)
|
14,214
|
|||||
Decrease (increase) in prepaid reinsurance premiums
|
(10,219
|
)
|
(12,868
|
)
|
||||
Increase (decrease) in reserve for losses and loss adjustment expenses
|
50,497
|
55,334
|
||||||
Increase (decrease) in future policy benefit reserve
|
(473
|
)
|
(127
|
)
|
||||
Increase (decrease) in unearned premiums
|
(26,116
|
)
|
(40,934
|
)
|
||||
Increase (decrease) in other net payable to reinsurers
|
5,254
|
81,172
|
||||||
Increase (decrease) in losses in course of payment
|
24,473
|
71,568
|
||||||
Change in equity adjustments in limited partnerships
|
6,181
|
(6,762
|
)
|
|||||
Distribution of limited partnership income
|
15,915
|
8,600
|
||||||
Change in other assets and liabilities, net
|
3,844
|
32,168
|
||||||
Non-cash compensation expense
|
8,041
|
5,170
|
||||||
Amortization of bond premium (accrual of bond discount)
|
12,354
|
13,333
|
||||||
Amortization of underwriting discount on senior notes
|
1
|
1
|
||||||
Net realized capital (gains) losses
|
74,259
|
10,505
|
||||||
Net cash provided by (used in) operating activities
|
367,145
|
350,569
|
||||||
CASH FLOWS FROM INVESTING ACTIVITIES:
|
||||||||
Proceeds from fixed maturities matured/called - available for sale, at market value
|
503,428
|
594,807
|
||||||
Proceeds from fixed maturities sold - available for sale, at market value
|
324,118
|
355,812
|
||||||
Proceeds from fixed maturities sold - available for sale, at fair value
|
-
|
1,236
|
||||||
Proceeds from equity securities sold - available for sale, at market value
|
203
|
83
|
||||||
Proceeds from equity securities sold - available for sale, at fair value
|
92,245
|
137,966
|
||||||
Distributions from other invested assets
|
1,111,710
|
10,797
|
||||||
Cost of fixed maturities acquired - available for sale, at market value
|
(1,078,990
|
)
|
(1,370,458
|
)
|
||||
Cost of equity securities acquired - available for sale, at market value
|
(1,105
|
)
|
(4,464
|
)
|
||||
Cost of equity securities acquired - available for sale, at fair value
|
(96,297
|
)
|
(171,411
|
)
|
||||
Cost of other invested assets acquired
|
(1,454,123
|
)
|
(41,961
|
)
|
||||
Net change in short-term investments
|
360,238
|
222,952
|
||||||
Net change in unsettled securities transactions
|
30,390
|
(505
|
)
|
|||||
Net cash provided by (used in) investing activities
|
(208,183
|
)
|
(265,146
|
)
|
||||
CASH FLOWS FROM FINANCING ACTIVITIES:
|
||||||||
Common shares issued during the period, net
|
151
|
2
|
||||||
Purchase of treasury shares
|
(85,914
|
)
|
(75,040
|
)
|
||||
Dividends paid to shareholders
|
(48,706
|
)
|
(42,252
|
)
|
||||
Net cash provided by (used in) financing activities
|
(134,469
|
)
|
(117,290
|
)
|
||||
EFFECT OF EXCHANGE RATE CHANGES ON CASH
|
20,792
|
(7,032
|
)
|
|||||
Net increase (decrease) in cash
|
45,285
|
(38,899
|
)
|
|||||
Cash, beginning of period
|
283,658
|
437,474
|
||||||
Cash, end of period
|
$
|
328,943
|
$
|
398,575
|
||||
SUPPLEMENTAL CASH FLOW INFORMATION:
|
||||||||
Income taxes paid (recovered)
|
$
|
5,000
|
$
|
24,266
|
||||
Interest paid
|
370
|
132
|
||||||
The accompanying notes are an integral part of the consolidated financial statements.
|
4