EVEREST GROUP, LTD. - Quarter Report: 2022 September (Form 10-Q)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
10-Q
_
X
_
For the quarterly period ended
September 30, 2022
___
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 every Interactive Data File required to be submitted pursuant
to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such
files).
Yes
X
No
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
X
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
Indicate by check mark if the registrant is an emerging growth company and has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange act.
YES
NO
X
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
YES
NO
X
Securities registered pursuant to Section 12(b) of the Act:
Class
Trading Symbol
Name of Exchange where
Number of Shares Outstanding
At November 1, 2022
Common Shares, $0.01 par value
RE
New York Stock Exchange
39,165,034
EVEREST RE GROUP, LTD
Table of Contents
Form 10-Q
Page
PART I
FINANCIAL INFORMATION
Item 1.
Financial Statements
1
2
3
4
5
Item 2.
29
Item 3.
48
Item 4.
48
PART II
OTHER INFORMATION
Item 1.
48
Item 1A.
49
Item 2.
49
Item 3.
49
Item 4.
49
Item 5.
49
Item 6.
50
1
EVEREST RE GROUP, LTD.
CONSOLIDATED BALANCE SHEETS
September 30,
(Dollars and share amounts in millions, except par value per share)
2022
2021
(unaudited)
ASSETS:
Fixed maturities - available for sale, at fair value
$
21,009
$
22,308
(amortized cost: 2022, $
23,204
; 2021, $
22,064
, credit allowances: 2022, $
(
38
); 2021, $
(
30
))
Fixed maturities - held to maturity, at amortized cost, net of credit allowances
(fair value: 2022, $
817
, credit allowances: 2022, $
(
9
))
837
-
Equity securities, at fair value
1,301
1,826
Short-term investments (cost: 2022, $
611
; 2021, $
1,178
)
611
1,178
Other invested assets
3,079
2,920
Cash
1,679
1,441
Total investments and cash
28,516
29,673
Accrued investment income
200
149
Premiums receivable
3,452
3,294
Reinsurance recoverables
2,240
2,053
Funds held by reinsureds
893
869
Deferred acquisition costs
867
872
Prepaid reinsurance premiums
556
515
Income taxes
544
2
Other assets
876
757
TOTAL ASSETS
$
38,144
$
38,185
LIABILITIES:
Reserve for losses and loss adjustment expenses
$
21,222
$
19,009
Future policy benefit reserve
34
36
Unearned premium reserve
4,795
4,610
Funds held under reinsurance treaties
18
18
Other net payable to reinsurers
511
450
Losses in course of payment
110
261
Senior notes
2,347
2,346
Long term notes
218
224
Borrowings from FHLB
519
519
Accrued interest on debt and borrowings
39
17
Unsettled securities payable
134
17
Other liabilities
548
540
Total liabilities
30,495
28,046
Commitments and contingencies (Note 7)
(nil)
(nil)
SHAREHOLDERS' EQUITY:
Preferred shares, par value: $
0.01
;
50.0
no
-
-
Common shares, par value: $
0.01
;
200.0
69.9
and (2021)
69.8
1
1
Additional paid-in capital
2,293
2,274
Accumulated other comprehensive income (loss), net of deferred income
tax expense (benefit) of $
(269)
27
(2,348)
12
Treasury shares, at cost;
30.8
30.5
(3,907)
(3,847)
Retained earnings
11,610
11,700
Total shareholders' equity
7,649
10,139
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
$
38,144
$
38,185
The accompanying notes are an integral part of the consolidated financial statements.
2
EVEREST RE GROUP, LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
Three Months Ended
Nine Months Ended
September 30,
September 30,
(Dollars in millions, except per share amounts)
2022
2021
2022
2021
(unaudited)
(unaudited)
REVENUES:
Premiums earned
$
3,067
$
2,656
$
8,775
$
7,603
Net investment income
151
293
620
960
Net gains (losses) on investments:
Credit allowances on fixed maturity securities
(5)
(7)
(18)
(30)
Gains (losses) from fair value adjustments
(136)
(5)
(462)
128
Net realized gains (losses) from dispositions
12
8
(39)
41
Total net gains (losses) on investments
(129)
(4)
(519)
139
Other income (expense)
(16)
(20)
(71)
44
Total revenues
3,073
2,925
8,805
8,746
CLAIMS AND EXPENSES:
Incurred losses and loss adjustment expenses
2,623
2,274
6,289
5,572
Commission, brokerage, taxes and fees
641
564
1,877
1,611
Other underwriting expenses
169
141
500
424
Corporate expenses
16
18
45
46
Interest, fees and bond issue cost amortization expense
25
16
74
47
Total claims and expenses
3,474
3,013
8,785
7,700
INCOME (LOSS) BEFORE TAXES
(401)
(88)
20
1,046
Income tax expense (benefit)
(82)
(14)
(81)
97
NET INCOME (LOSS)
$
(319)
$
(73)
$
101
$
948
Other comprehensive income (loss), net of tax:
Unrealized appreciation (depreciation) ("URA(D)") on securities arising during the period
(712)
(100)
(2,260)
(304)
Reclassification adjustment for realized losses (gains) included in net income (loss)
41
(1)
61
(3)
Total URA(D) on securities arising during the period
(671)
(101)
(2,199)
(308)
Foreign currency translation adjustments
(101)
(54)
(163)
(29)
Reclassification adjustment for amortization of net (gain) loss included in net income (loss)
1
2
2
6
Total benefit plan net gain (loss) for the period
1
2
2
6
Total other comprehensive income (loss), net of tax
(771)
(153)
(2,360)
(331)
COMPREHENSIVE INCOME (LOSS)
$
(1,090)
$
(227)
$
(2,259)
$
617
EARNINGS PER COMMON SHARE:
Basic
$
(8.22)
$
(1.88)
$
2.57
$
23.74
Diluted
(8.22)
(1.88)
2.57
23.72
The accompanying notes are an integral part of the consolidated financial statements.
3
EVEREST RE GROUP, LTD.
CONSOLIDATED STATEMENTS OF
CHANGES IN SHAREHOLDERS’ EQUITY
Three Months Ended
Nine Months Ended
September 30,
September 30,
(Dollars in millions, except dividends per share amounts)
2022
2021
2022
2021
(unaudited)
(unaudited)
COMMON SHARES (shares outstanding):
Balance beginning of period
39
40
39
40
Issued (redeemed) during the period, net
-
-
-
-
Treasury shares acquired
-
(1)
-
(1)
Balance end of period
39
39
39
39
COMMON SHARES (par value):
Balance beginning of period
$
1
$
1
$
1
$
1
Issued during the period, net
-
-
-
-
Balance end of period
1
1
1
1
ADDITIONAL PAID-IN CAPITAL:
Balance beginning of period
2,284
2,256
2,274
2,245
Share-based compensation plans
9
10
19
21
Balance end of period
2,293
2,266
2,293
2,266
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS),
NET OF DEFERRED INCOME TAXES:
Balance beginning of period
(1,577)
357
12
535
Net increase (decrease) during the period
(771)
(153)
(2,360)
(331)
Balance end of period
(2,348)
204
(2,348)
204
RETAINED EARNINGS:
Balance beginning of period
11,994
11,465
11,700
10,567
Net income (loss)
(319)
(73)
101
948
Dividends declared ($
1.65
4.85
in 2022; $
1.55
4.65
(65)
(61)
(191)
(186)
Balance, end of period
11,610
11,330
11,610
11,330
TREASURY SHARES AT COST:
Balance beginning of period
(3,849)
(3,662)
(3,847)
(3,622)
Purchase of treasury shares
(58)
(160)
(60)
(200)
Balance end of period
(3,907)
(3,822)
(3,907)
(3,822)
TOTAL SHAREHOLDERS' EQUITY, END OF PERIOD
$
7,649
$
9,979
$
7,649
$
9,979
The accompanying notes are an integral part of the consolidated financial statements.
4
EVEREST RE GROUP, LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended
September 30,
(Dollars in millions)
2022
2021
(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)
$
101
$
948
Adjustments to reconcile net income to net cash provided by operating activities:
Decrease (increase) in premiums receivable
(405)
(737)
Decrease (increase) in funds held by reinsureds, net
(35)
(93)
Decrease (increase) in reinsurance recoverables
(662)
(231)
Decrease (increase) in income taxes
(249)
57
Decrease (increase) in prepaid reinsurance premiums
(194)
(147)
Increase (decrease) in reserve for losses and loss adjustment expenses
3,117
2,560
Increase (decrease) in future policy benefit reserve
(2)
(1)
Increase (decrease) in unearned premiums
435
928
Increase (decrease) in other net payable to reinsurers
242
199
Increase (decrease) in losses in course of payment
(150)
24
Change in equity adjustments in limited partnerships
(126)
(543)
Distribution of limited partnership income
139
106
Change in other assets and liabilities, net
(134)
(230)
Non-cash compensation expense
35
33
Amortization of bond premium (accrual of bond discount)
49
57
Net (gains) losses on investments
519
(139)
Net cash provided by (used in) operating activities
2,680
2,791
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from fixed maturities matured/called/repaid - available for sale
2,171
2,757
Proceeds from fixed maturities matured/called/repaid - held to maturity
18
-
Proceeds from fixed maturities sold - available for sale
1,177
883
Proceeds from equity securities sold, at fair value
1,030
579
Distributions from other invested assets
244
217
Cost of fixed maturities acquired - available for sale
(5,958)
(5,671)
Cost of fixed maturities acquired - held to maturity
(133)
-
Cost of equity securities acquired, at fair value
(960)
(508)
Cost of other invested assets acquired
(455)
(604)
Net change in short-term investments
568
423
Net change in unsettled securities transactions
102
(177)
Net cash provided by (used in) investing activities
(2,196)
(2,102)
CASH FLOWS FROM FINANCING ACTIVITIES:
Common shares issued (redeemed) during the period for share-based compensation, net of expense
(16)
(12)
Purchase of treasury shares
(60)
(200)
Dividends paid to shareholders
(191)
(186)
Cost of debt repurchase
(6)
-
Cost of shares withheld on settlements of share-based compensation awards
(19)
(15)
Net cash provided by (used in) financing activities
(292)
(413)
EFFECT OF EXCHANGE RATE CHANGES ON CASH
46
(9)
Net increase (decrease) in cash
238
267
Cash, beginning of period
1,441
802
Cash, end of period
$
1,679
$
1,068
SUPPLEMENTAL CASH FLOW INFORMATION:
Income taxes paid (recovered)
$
167
$
40
Interest paid
51
33
NON-CASH TRANSACTIONS:
Reclassification of specific investments from fixed maturity securities, available for sale
at fair value to fixed maturity securities, held to maturity at amortized cost net of credit allowances
$
722
$
-
The accompanying notes are an integral part of the consolidated financial statements.
5
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)
For the Three and Nine Months Ended September 30, 2022 and 2021
1. GENERAL
Everest Re Group, Ltd. (“Group”), a Bermuda company, through its subsidiaries, principally provides reinsurance
and insurance in the U.S., Bermuda and international markets. As used in this document, “Company” means
Group and its subsidiaries.
2. BASIS OF PRESENTATION
The unaudited consolidated financial statements of the Company as of September 30, 2022 and December 31,
2021 and for the three and nine months ended September 30, 2022 and 2021 include all adjustments, consisting
of normal recurring accruals, which, in the opinion of management, are necessary for a fair statement of the
results on an interim basis. Certain financial information, which is normally included in annual financial
statements prepared in accordance with accounting principles generally accepted in the United States of
America (“GAAP”), has been omitted since it is not required for interim reporting purposes. The December 31,
2021 consolidated balance sheet data was derived from audited financial statements but does not include all
disclosures required by GAAP. The results for the three and nine months ended September 30, 2022 and 2021
are not necessarily indicative of the results for a full year. These financial statements should be read in
conjunction with the audited consolidated financial statements and notes thereto for the years ended December
31, 2021, 2020 and 2019, included in the Company’s most recent Form 10-K filing.
The Company consolidates the results of operations and financial position of all voting interest entities ("VOE")
in which the Company has a controlling financial interest and all variable interest entities ("VIE") in which the
Company is considered to be the primary beneficiary. The consolidation assessment, including the determination
as to whether an entity qualifies as a VIE or VOE, depends on the facts and circumstances surrounding each
entity.
The preparation of financial statements in conformity with GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities (and disclosure of contingent assets and
liabilities) at the date of the financial statements and the reported amounts of revenues and expenses during the
reporting period. Ultimate actual results could differ, possibly materially, from those estimates.
All intercompany accounts and transactions have been eliminated.
Certain reclassifications and format changes have been made to prior years’ amounts to conform to the 2022
presentation.
Application of Recently Issued Accounting Standard Changes.
The Company did not adopt any new accounting standards that had a material impact during the three and nine
months ended September 30, 2022. The Company assessed the adoption impacts of recently issued accounting
standards by the Financial Accounting Standards Board on the Company’s consolidated financial statements as
well as material updates to previous assessments, if any, from the Company’s Annual Report on Form 10-K for
the year ended December 31, 2021. There were no accounting standards issued in the nine months ended
September 30, 2022, that are expected to have a material impact to Group.
Any issued guidance and pronouncements, other than those directly referenced above, are deemed by the
Company to be either not applicable or immaterial to its financial statements.
6
3. INVESTMENTS
The following tables show amortized cost, allowance for credit losses, gross unrealized
appreciation/(depreciation) and fair value of fixed maturity securities available for sale as of the dates indicated:
At September 30, 2022
Amortized
Allowance 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
$
1,367
$
-
$
19
$
(79)
$
1,308
Obligations of U.S. states and political subdivisions
519
-
1
(38)
481
Corporate securities
7,010
(29)
69
(653)
6,397
Asset-backed securities
3,935
-
1
(164)
3,772
Mortgage-backed securities
Commercial
1,016
-
-
(108)
908
Agency residential
3,058
-
2
(337)
2,723
Non-agency residential
5
-
-
-
5
Foreign government securities
1,528
-
13
(205)
1,335
Foreign corporate securities
4,768
(9)
47
(726)
4,080
Total fixed maturity securities - available for sale
$
23,204
$
(38)
$
153
$
(2,310)
$
21,009
(Some amounts may not reconcile due to rounding.)
At December 31, 2021
Amortized
Allowance 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
$
1,407
$
-
$
24
$
(10)
$
1,421
Obligations of U.S. states and political subdivisions
559
-
29
(1)
587
Corporate securities
7,444
(19)
195
(63)
7,557
Asset-backed securities
3,579
(8)
22
(12)
3,582
Mortgage-backed securities
Commercial
1,033
-
38
(6)
1,064
Agency residential
2,361
-
33
(19)
2,375
Non-agency residential
7
-
-
-
7
Foreign government securities
1,424
-
42
(28)
1,438
Foreign corporate securities
4,251
(3)
95
(65)
4,279
Total fixed maturity securities - available for sale
$
22,064
$
(30)
$
478
$
(203)
$
22,308
(Some amounts may not reconcile due to rounding.)
The following tables show amortized cost, allowance for credit losses, gross unrealized
appreciation/(depreciation) and fair value of fixed maturity securities held to maturity as of the dates indicated:
At September 30, 2022
Amortized
Allowance for
Unrealized
Unrealized
Fair
(Dollars in millions)
Cost
Credit Losses
Appreciation
Depreciation
Value
Fixed maturity securities - held to maturity
Corporate securities
$
160
$
(2)
$
-
$
(11)
$
147
Asset-backed securities
653
(6)
1
(10)
639
Mortgage-backed securities
Commercial
6
-
-
-
6
Foreign corporate securities
28
(1)
-
(1)
26
Total fixed maturity securities - held to maturity
$
846
(9)
$
1
$
(21)
$
817
(Some amounts may not reconcile due to rounding.)
7
The amortized cost and fair value of fixed maturity securities available for sale are shown in the following table
by contractual maturity. Mortgage-backed securities are generally more likely to be prepaid than other fixed
maturity securities. As the stated maturity of such securities may not be indicative of actual maturities, the totals
for mortgage-backed and asset-backed securities are shown separately.
At September 30, 2022
At December 31, 2021
Amortized
Fair
Amortized
Fair
(Dollars in millions)
Cost
Value
Cost
Value
Fixed maturity securities – available for sale:
$
1,257
$
1,258
$
1,399
$
1,398
7,875
7,216
7,075
7,154
4,603
3,938
5,004
5,101
1,456
1,189
1,606
1,627
Asset-backed securities
3,935
3,772
3,579
3,582
Mortgage-backed securities:
Commercial
1,016
908
1,033
1,064
Agency residential
3,058
2,723
2,361
2,375
Non-agency residential
5
5
7
7
Total fixed maturity securities - available for sale
$
23,204
$
21,009
$
22,064
$
22,308
(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.
At September 30, 2022
Amortized
Fair
(Dollars in millions)
Cost
Value
Fixed maturity securities – held to maturity:
$
61
$
58
46
41
80
74
Asset-backed securities
653
639
Mortgage-backed securities:
Commercial
6
6
Total fixed maturity securities - held to maturity
$
846
$
817
(Some amounts may not reconcile due to rounding.)
During the third quarter of 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
losses, which was subsequently recognized as the new amortized cost basis. As of the date of transfer, these
securities had an unrealized loss of $
53
the balance sheet and will be 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 September 30, 2022 utilizing risk characteristics of each security, including credit rating, remaining time to
maturity, adjusted for prepayment considerations, and subordination level, and applying default and recovery
rates, which include the incorporation of historical credit loss experience and macroeconomic forecasts, to
develop an estimate of current expected credit losses. These fixed maturities classified as held to maturity are of
a high credit quality and are all rated investment grade as of September 30, 2022.
8
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
Nine Months Ended
September 30,
September 30,
(Dollars in millions)
2022
2021
2022
2021
Increase (decrease) during the period between the fair value and cost
of investments carried at fair value, and deferred taxes thereon:
Fixed maturity securities and short-term investments
$
(724)
$
(109)
$
(2,484)
$
(344)
Change in unrealized appreciation (depreciation), pre-tax
(724)
(109)
(2,484)
(344)
Deferred tax benefit (expense)
53
7
285
36
Change in unrealized appreciation (depreciation),
net of deferred taxes, included in shareholders’ equity
$
(671)
$
(101)
$
(2,199)
$
(308)
(Some amounts may not reconcile due to rounding.)
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 September 30, 2022 By Security Type
Less than 12 months
Greater than 12 months
Total
Gross
Gross
Gross
Unrealized
Unrealized
Unrealized
(Dollars in millions)
Fair Value
Depreciation
Fair Value
Depreciation
Fair Value
Depreciation
Fixed maturity securities - available for sale
U.S. Treasury securities and obligations of
U.S. government agencies and corporations
$
807
$
(47)
$
273
$
(32)
$
1,080
$
(79)
Obligations of U.S. states and political subdivisions
326
(30)
25
(8)
351
(38)
Corporate securities
4,247
(447)
996
(189)
5,243
(636)
Asset-backed securities
2,827
(158)
55
(5)
2,882
(164)
Mortgage-backed securities
Commercial
877
(104)
27
(4)
904
(108)
Agency residential
2,086
(222)
588
(115)
2,674
(337)
Non-agency residential
3
-
2
-
5
-
Foreign government securities
971
(137)
250
(68)
1,221
(205)
Foreign corporate securities
2,792
(496)
808
(229)
3,600
(726)
Total
$
14,937
$
(1,640)
$
3,023
$
(651)
$
17,960
$
(2,291)
Securities where an allowance for credit loss was recorded
23
(19)
-
-
23
(19)
Total fixed maturity securities
$
14,960
$
(1,659)
$
3,023
$
(651)
$
17,983
$
(2,310)
(Some amounts may not reconcile due to rounding.)
9
Duration of Unrealized Loss at September 30, 2022 By Maturity
Less than 12 months
Greater than 12 months
Total
Gross
Gross
Gross
Unrealized
Unrealized
Unrealized
(Dollars in millions)
Fair Value
Depreciation
Fair Value
Depreciation
Fair Value
Depreciation
Fixed maturity securities - available for sale
Due in one year or less
$
895
$
(21)
$
59
$
(6)
$
954
$
(27)
Due in one year through five years
4,908
(502)
1,264
(204)
6,173
(706)
Due in five years through ten years
2,517
(459)
812
(239)
3,329
(697)
Due after ten years
823
(174)
217
(77)
1,040
(252)
Asset-backed securities
2,827
(158)
55
(5)
2,882
(164)
Mortgage-backed securities
2,967
(325)
616
(120)
3,583
(445)
Total
$
14,937
$
(1,640)
$
3,023
$
(651)
$
17,960
$
(2,291)
Securities where an allowance for credit loss was recorded
23
(19)
-
-
23
(19)
Total fixed maturity securities
$
14,960
$
(1,659)
$
3,023
$
(651)
$
17,983
$
(2,310)
(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 September 30, 2022 were $
18.0
2.3
securities for the single issuer (the United States government) whose securities comprised the largest unrealized
loss position at September 30, 2022, did not exceed
5.2
% 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 September 30, 2022, comprised less than
0.9
% 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 $
1.7
securities available for sale that have been in an unrealized loss position for less than one year were generally
comprised of foreign and domestic corporate securities, agency residential and commercial mortgage-backed
securities, asset-backed securities and foreign government securities. Of these unrealized losses, $
1.5
were related to securities that were rated investment grade by at least one nationally recognized rating agency.
The $
651
position for more than one year related primarily to foreign and domestic corporate securities, agency
residential mortgage-backed securities and foreign government securities. Of these unrealized losses, $
616
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 September 30, 2022, the unrealized losses are due to changes in
interest rates and non-issuer specific credit spreads and are not credit-related. In addition, the contractual
terms of these securities do not permit these securities to be settled at a price less than their amortized cost.
The Company, given the size of its investment portfolio and capital position, does not have the intent to sell
these securities; and it is more likely than not that the Company will not have to sell the security before recovery
of its cost basis. In addition, all securities currently in an unrealized loss position are current with respect to
principal and interest payments.
10
The tables below display the aggregate fair value and gross unrealized depreciation of fixed maturity securities
available for sale, by security type and contractual maturity, in each case subdivided according to length of time
that individual securities had been in a continuous unrealized loss position for the periods indicated. The
amounts presented in the tables below include $
16
0.4
) million of gross unrealized
depreciation as of December 31, 2021 related to fixed maturity securities available for sale for which the
Company has recorded an allowance for credit losses.
Duration of Unrealized Loss at December 31, 2021 By Security Type
Less than 12 months
Greater than 12 months
Total
Gross
Gross
Gross
Unrealized
Unrealized
Unrealized
(Dollars in millions)
Fair Value
Depreciation
Fair Value
Depreciation
Fair Value
Depreciation
Fixed maturity securities - available for sale
U.S. Treasury securities and obligations of
U.S. government agencies and corporations
$
504
$
(6)
$
92
$
(4)
$
596
$
(10)
Obligations of U.S. states and political subdivisions
51
(1)
3
-
54
(1)
Corporate securities
2,133
(38)
473
(24)
2,605
(63)
Asset-backed securities
1,954
(11)
42
(1)
1,996
(12)
Mortgage-backed securities
Commercial
222
(3)
40
(3)
262
(6)
Agency residential
1,101
(12)
280
(7)
1,381
(19)
Non-agency residential
2
-
-
-
2
-
Foreign government securities
392
(10)
101
(18)
493
(28)
Foreign corporate securities
1,735
(46)
211
(18)
1,945
(65)
Total fixed maturity securities
$
8,094
$
(128)
$
1,241
$
(75)
$
9,335
$
(203)
(Some amounts may not reconcile due to rounding.)
Duration of Unrealized Loss at December 31, 2021 By Maturity
Less than 12 months
Greater than 12 months
Total
Gross
Gross
Gross
Unrealized
Unrealized
Unrealized
(Dollars in millions)
Fair Value
Depreciation
Fair Value
Depreciation
Fair Value
Depreciation
Fixed maturity securities - available for sale
Due in one year or less
$
130
$
(2)
$
137
$
(12)
$
267
$
(14)
Due in one year through five years
2,165
(35)
446
(29)
2,612
(64)
Due in five years through ten years
1,728
(47)
244
(22)
1,972
(69)
Due after ten years
792
(16)
51
(3)
843
(19)
Asset-backed securities
1,954
(11)
42
(1)
1,996
(12)
Mortgage-backed securities
1,325
(15)
320
(10)
1,646
(25)
Total fixed maturity securities
$
8,094
$
(128)
$
1,241
$
(75)
$
9,335
$
(203)
(Some amounts may not reconcile due to rounding.)
The aggregate fair value and gross unrealized losses related to investments in an unrealized loss position at
December 31, 2021 were $
9.3
203
issuer (the United States government) whose securities comprised the largest unrealized loss position at
December 31, 2021, did not exceed
2.7
% 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
0.5
% 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 $
128
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,
agency residential mortgage-backed securities, asset-backed securities and foreign government securities. Of
these unrealized losses, $
116
nationally recognized rating agency. The $
75
available for sale in an unrealized loss position for more than one year related primarily to domestic and foreign
corporate securities, foreign government securities and agency residential mortgage-backed securities. Of these
11
unrealized losses, $
72
nationally recognized rating agency. In all instances, there were no projected cash flow shortfalls to recover the
full book value of the investments and the related interest obligations. The mortgage-backed securities still have
excess credit coverage and are current on interest and principal payments.
The components of net investment income are presented in the table below for the periods indicated:
Three Months Ended
Nine Months Ended
September 30,
September 30,
(Dollars in millions)
2022
2021
2022
2021
Fixed maturities
$
186
$
134
$
503
$
423
Equity securities
6
4
15
12
Short-term investments and cash
5
-
12
1
Other invested assets:
Limited partnerships
(42)
139
94
493
Other
11
31
37
63
Gross investment income before adjustments
167
308
661
992
Funds held interest income (expense)
-
1
4
12
Future policy benefit reserve income (expense)
-
-
-
(1)
Gross investment income
167
309
665
1,004
Investment expenses
(15)
(16)
(45)
(44)
Net investment income
$
151
$
293
$
620
$
960
(Some amounts may not reconcile due to rounding.)
The Company records results from limited partnership investments on the equity method of accounting with
changes in value reported through net investment income. The net investment income from limited
partnerships is dependent upon the Company’s share of the net asset values of interests underlying each limited
partnership. Due to the timing of receiving financial information from these partnerships, the results are
generally reported on a one month or quarter lag. If the Company determines there has been a significant
decline in value of a limited partnership during this lag period, a loss will be recorded in the period in which the
Company identifies the decline.
The Company had contractual commitments to invest up to an additional $
2.5
private placement loan securities at September 30, 2022. These commitments will be funded when called in
accordance with the partnership and loan agreements, which have investment periods that expire, unless
extended, through
2026
.
The Company participates in a private placement liquidity sweep facility (“the facility”). The primary purpose of
the facility is to enhance the Company’s return on its short-term investments and cash positions. The facility
invests in high quality, short-duration securities and permits daily liquidity. The Company consolidates its
participation in the facility. As of September 30, 2022, the fair value of investments in the facility consolidated
within the Company’s balance sheets was $
368
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
12
Consolidated Financial Statements. As of September 30, 2022 and December 31, 2021, the Company did
no
t
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 September 30, 2022 and
December 31, 2021 is limited to the total carrying value of $
3.1
2.9
included in general and limited partnerships and other alternative investments in Other Invested Assets in the
Company's Consolidated Balance Sheets. As of September 30, 2022, the Company has outstanding
commitments totaling $
2.2
called by the partnership during the commitment period to fund the purchase of new investments and
partnership expenses. These investments are generally of a passive nature in that the Company does not take
an active role in management.
In addition, the Company makes passive investments in structured securities issued by VIEs for which the
Company is not the manager. These investments are included in asset-backed securities, which includes
collateralized loan obligations and are reported in fixed maturities, available-for -sale and fixed maturities held to
maturity. The Company has not provided financial or other support with respect to these investments other
than its original investment. For these investments, the Company determined it is not the primary beneficiary
due to the relative size of the Company’s investment in comparison to the principal amount of the structured
securities issued by the VIEs, the level of credit subordination which reduces the Company’s obligation to absorb
losses or right to receive benefits and the Company’s inability to direct the activities that most significantly
impact the economic performance of the VIEs. The Company’s maximum exposure to loss on these investments
is limited to the amount of the Company’s investment.
The components of net gains (losses) on investments are presented in the tables below for the periods indicated:
Three Months Ended
Nine Months Ended
September 30,
September 30,
(Dollars in millions)
2022
2021
2022
2021
Fixed maturity securities:
Allowance for credit losses
$
(5)
$
(7)
$
(18)
$
(30)
Net realized gains (losses) from dispositions
(53)
6
(66)
25
Equity securities, fair value:
Net realized gains (losses) from dispositions
58
-
15
10
Gains (losses) from fair value adjustments
(136)
(5)
(462)
128
Other invested assets
6
2
11
6
Short-term investments gain (loss)
1
-
1
-
Total net gains (losses) on investments
$
(129)
$
(4)
$
(519)
$
139
(Some amounts may not reconcile due to rounding.)
13
Roll Forward of Allowance for Credit Losses – Fixed maturities
Three Months Ended September 30, 2022
Nine Months Ended September 30, 2022
Foreign
Foreign
Corporate
Asset-Backed
Corporate
Corporate
Asset-Backed
Corporate
Securities
Securities
Securities
Total
Securities
Securities
Securities
Total
(Dollars in millions)
Beginning Balance
$
(26)
$
-
$
(17)
$
(43)
$
(19)
$
(8)
$
(3)
$
(30)
Credit losses on securities where credit
losses were not previously recorded
(2)
(6)
(1)
(9)
(9)
(6)
(17)
(32)
Increases in allowance on previously
impaired securities
(3)
-
-
(3)
(4)
-
(1)
(4)
Decreases in allowance on previously
impaired securities
-
-
-
-
-
-
-
-
Reduction in allowance due to disposals
-
-
8
8
1
8
10
19
Balance as of September 30, 2022
$
(31)
$
(6)
$
(10)
$
(47)
$
(31)
$
(6)
$
(10)
$
(47)
(Some amounts may not reconcile due to rounding.)
Roll Forward of Allowance for Credit Losses – Fixed maturities
Three Months Ended September 30, 2021
Nine Months Ended September 30, 2021
Foreign
Foreign
Corporate
Asset-Backed
Corporate
Corporate
Asset-Backed
Corporate
Securities
Securities
Securities
Total
Securities
Securities
Securities
Total
(Dollars in millions)
Beginning Balance
$
(18)
$
(5)
$
(1)
$
(25)
$
(1)
$
-
$
(1)
$
(2)
Credit losses on securities where credit
losses were not previously recorded
(5)
-
-
(5)
(21)
(5)
(1)
(27)
Increases in allowance on previously
impaired securities
-
(3)
-
(3)
(2)
(3)
-
(5)
Decreases in allowance on previously
impaired securities
-
-
-
-
-
-
-
-
Reduction in allowance due to disposals
1
-
-
1
2
-
-
2
Balance as of September 30, 2021
$
(23)
(8)
$
(1)
$
(32)
$
(23)
$
(8)
$
(1)
$
(32)
(Some amounts may not reconcile due to rounding.)
The proceeds and split between gross gains and losses from dispositions of fixed maturity and equity securities,
are presented in the table below for the periods indicated:
Three Months Ended
Nine Months Ended
September 30,
September 30,
(Dollars in millions)
2022
2021
2022
2021
Proceeds from sales of fixed maturity securities
$
405
$
283
$
1,177
$
883
Gross gains from dispositions
5
17
33
52
Gross losses from dispositions
(58)
(11)
(98)
(26)
Proceeds from sales of equity securities
$
592
$
104
$
1,030
$
579
Gross gains from dispositions
59
3
67
21
Gross losses from dispositions
(3)
(3)
(53)
(11)
14
4. RESERVE FOR LOSSES, LAE AND FUTURE POLICY BENEFIT RESERVE
Activity in the reserve for losses and LAE is summarized for the periods indicated:
Nine Months Ended
September 30,
(Dollars in millions)
2022
2021
Gross reserves beginning of period
$
19,009
$
16,322
(1,946)
(1,844)
17,063
14,478
Incurred related to:
6,291
5,578
(2)
(6)
6,289
5,572
Paid related to:
1,794
1,376
1,841
1,803
3,635
3,179
Foreign exchange/translation adjustment
(605)
(41)
Net reserves end of period
19,112
16,831
2,110
2,033
$
21,222
$
18,864
(Some amounts may not reconcile due to rounding.)
Current year incurred losses were $
6.3
5.6
and 2021, respectively. Gross and net reserves increased for the nine months ended September 30, 2022,
reflecting an increase in underlying exposure due to earned premium growth, year over year, the impact of $
45
million of incurred losses related to the Ukraine/Russia war and an increase of $
30
catastrophe losses compared to 2021.
The war in the Ukraine is ongoing and an evolving event. Economic and legal sanctions have been levied against
Russia, specific named individuals and entities connected to the Russian government, as well as businesses
located in the Russian Federation and/or owned by Russian nationals by numerous countries, including the
United States. The significant political and economic uncertainty surrounding the war and associated sanctions
have impacted economic and investment markets both within Russia and around the world. The Company has
recorded $
45
ended September 30, 2022.
5. FAIR VALUE
GAAP guidance regarding fair value measurements addresses how companies should measure fair value when
they are required to use fair value measures for recognition or disclosure purposes under GAAP and provides a
common definition of fair value to be used throughout GAAP. It defines fair value as the price that would be
received to sell an asset or paid to transfer a liability in an orderly fashion between market participants at the
measurement date. In addition, it establishes a three-level valuation hierarchy for the disclosure of fair value
measurements. The valuation hierarchy is based on the transparency of inputs to the valuation of an asset or
liability. The level in the hierarchy within which a given fair value measurement falls is determined based on the
lowest level input that is significant to the measurement, with Level 1 being the highest priority and Level 3
being the lowest priority.
15
The levels in the hierarchy are defined as follows:
Level 1: Inputs to the valuation methodology are observable inputs that reflect unadjusted quoted prices for
identical assets or liabilities in an active market;
Level 2: Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active
markets, and inputs that are observable for the asset or liability, either directly or indirectly, for
substantially the full term of the financial instrument;
Level 3: Inputs to the valuation methodology are unobservable and significant to the fair value measurement.
The Company’s fixed maturity and equity securities are primarily managed by third party investment asset
managers. The investment asset managers managing publicly traded securities obtain prices from nationally
recognized pricing services. These services seek to utilize market data and observations in their evaluation
process. They use pricing applications that vary by asset class and incorporate available market information and
when fixed maturity securities do not trade on a daily basis the services will apply available information through
processes such as benchmark curves, benchmarking of like securities, sector groupings and matrix pricing. In
addition, they use model processes, such as the Option Adjusted Spread model to develop prepayment and
interest rate scenarios for securities that have prepayment features.
The investment asset managers do not make any changes to prices received from either the pricing services or
the investment brokers. In addition, the investment asset managers have procedures in place to review the
reasonableness of the prices from the service providers and may request verification of the prices. The
Company also continually performs quantitative and qualitative analysis of prices, including but not limited to
initial and ongoing review of pricing methodologies, review of prices obtained from pricing services and third
party investment asset managers, review of pricing statistics and trends, and comparison of prices for certain
securities with a secondary price source for reasonableness. No material variances were noted during these
price validation procedures. In limited situations, where financial markets are inactive or illiquid, the Company
may use its own assumptions about future cash flows and risk-adjusted discount rates to determine fair value.
At September 30, 2022, $
1.6
of these fixed maturities were valued by investment managers’ valuation committees and many of these fair
values were substantiated by valuations from independent third parties. The Company has procedures in place
to evaluate these independent third party valuations. At December 31, 2021, $
2.1
were fair valued using unobservable inputs.
The Company internally manages a public equity portfolio which had a fair value at September 30, 2022 and
December 31, 2021 of $
1.2
1.3
began to internally manage a portfolio of collateralized loan obligations included in asset-backed securities,
available for sale, which had a fair value of $
2.4
2.0
2021, respectively. All prices for these securities were obtained from publicly published sources or nationally
recognized pricing vendors.
Equity securities denominated in U.S. currency with quoted prices in active markets for identical assets are
categorized as Level 1 since the quoted prices are directly observable. Equity securities traded on foreign
exchanges are categorized as Level 2 due to the added input of a foreign exchange conversion rate to determine
fair value. The Company uses foreign currency exchange rates published by nationally recognized sources.
Fixed maturity securities listed in the tables have been categorized as Level 2, since a particular security may not
have traded but the pricing services are able to use valuation models with observable market inputs such as
interest rate yield curves and prices for similar fixed maturity securities in terms of issuer, maturity and seniority.
For foreign government securities and foreign corporate securities, the fair values provided by the third party
pricing services in local currencies, and where applicable, are converted to U.S. dollars using currency exchange
rates from nationally recognized sources.
16
In addition to the valuations from investment managers, some of the fixed maturities with fair values
categorized as Level 3 result when prices are not available from the nationally recognized pricing services 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.
The composition and valuation inputs for the presented fixed maturities categories Level 1 and Level 2 are as
follows:
•
U.S. Treasury securities and obligations of U.S. government agencies and corporations are primarily
comprised of U.S. Treasury bonds and the fair value is based on observable market inputs such as quoted
prices, reported trades, quoted prices for similar issuances or benchmark yields;
• Obligations of U.S. states and political subdivisions are comprised of state and municipal bond issuances and
the fair values are based on observable market inputs such as quoted market prices, quoted prices for
similar securities, benchmark yields and credit spreads;
•
Corporate securities are primarily comprised of U.S. corporate and public utility bond issuances and the fair
values are based on observable market inputs such as quoted market prices, quoted prices for similar
securities, benchmark yields and credit spreads;
•
Asset-backed and mortgage-backed securities fair values are based on observable inputs such as quoted
prices, reported trades, quoted prices for similar issuances or benchmark yields and cash flow models using
observable inputs such as prepayment speeds, collateral performance and default spreads;
•
Foreign government securities are comprised of global non-U.S. sovereign bond issuances and the fair
values are based on observable market inputs such as quoted market prices, quoted prices for similar
securities and models with observable inputs such as benchmark yields and credit spreads and then, where
applicable, converted to U.S. dollars using an exchange rate from a nationally recognized source;
•
Foreign corporate securities are comprised of global non-U.S. corporate bond issuances and the fair values
are based on observable market inputs such as quoted market prices, quoted prices for similar securities
and models with observable inputs such as benchmark yields and credit spreads and then, where applicable,
converted to U.S. dollars using an exchange rate from a nationally recognized source.
17
The following tables present the fair value measurement levels for all assets and liabilities, which the Company
has recorded at fair value as of the periods indicated:
Fair Value Measurement Using:
Quoted Prices
in Active
Significant
Markets for
Other
Significant
Identical
Observable
Unobservable
Assets
Inputs
Inputs
(Dollars in millions)
September 30, 2022
(Level 1)
(Level 2)
(Level 3)
Assets:
Fixed maturities, available for sale
U.S. Treasury securities and obligations of
U.S. government agencies and corporations
$
1,308
$
-
$
1,308
$
-
Obligations of U.S. States and political subdivisions
481
-
481
-
Corporate securities
6,397
-
5,678
719
Asset-backed securities
3,772
-
2,880
893
Mortgage-backed securities
Commercial
908
-
908
-
Agency residential
2,723
-
2,723
-
Non-agency residential
5
-
5
-
Foreign government securities
1,335
-
1,335
-
Foreign corporate securities
4,080
-
4,064
16
Total fixed maturities, available for sale
21,009
-
19,381
1,628
Equity securities, fair value
1,301
1,212
89
-
(Some amounts may not reconcile due to rounding.)
Fair Value Measurement Using:
Quoted Prices
in Active
Significant
Markets for
Other
Significant
Identical
Observable
Unobservable
Assets
Inputs
Inputs
(Dollars in millions)
December 31, 2021
(Level 1)
(Level 2)
(Level 3)
Assets:
Fixed maturities, available for sale
U.S. Treasury securities and obligations of
U.S. government agencies and corporations
$
1,421
$
-
$
1,421
$
-
Obligations of U.S. States and political subdivisions
587
-
587
-
Corporate securities
7,557
-
6,756
801
Asset-backed securities
3,582
-
2,330
1,251
Mortgage-backed securities
Commercial
1,064
-
1,064
-
Agency residential
2,375
-
2,375
-
Non-agency residential
7
-
7
-
Foreign government securities
1,438
-
1,438
-
Foreign corporate securities
4,279
-
4,262
16
Total fixed maturities, available for sale
22,308
-
20,240
2,068
Equity securities, fair value
1,826
1,742
84
-
(Some amounts may not reconcile due to rounding.)
In addition, $
309
287
balance sheets as of September 30, 2022 and December 31, 2021, respectively, are not included within the fair
value hierarchy tables as the assets are measured at NAV as a practical expedient to determine fair value.
18
The following table presents 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 September 30, 2022
Nine Months Ended September 30, 2022
Corporate
Asset-Backed
Foreign
Corporate
Asset-Backed
Foreign
(Dollars in millions)
Securities
Securities
CMBS
Corporate
Total
Securities
Securities
CMBS
Corporate
Total
Beginning balance fixed maturities
$
863
$
1,255
$
6
$
40
$
2,164
$
801
$
1,251
$
-
$
16
$
2,068
Total gains or (losses) (realized/unrealized)
Included in earnings
(2)
-
-
-
(2)
9
-
-
-
9
Included in other comprehensive income (loss)
(6)
65
-
-
59
(13)
(11)
-
(4)
(28)
Purchases, issuances and settlements
27
159
-
-
186
(43)
387
6
8
358
Transfers in/(out) of Level 3 and reclassification of
securities in/(out) of investment categories
(163)
(587)
(6)
(24)
(779)
(35)
(735)
(6)
(4)
(779)
Ending balance
$
719
$
893
$
-
$
16
$
1628
$
719
$
893
$
-
$
16
$
1628
The amount of total gains or losses for the period
included in earnings (or changes in net assets)
attributable to the change in unrealized gains
or losses relating to assets still held
$
(3)
$
-
$
-
$
-
$
(3)
$
(8)
$
8
$
-
$
-
$
-
(Some amounts may not reconcile due to rounding.)
Total Fixed Maturities, Available for Sale
Three Months Ended September 30, 2021
Nine Months Ended September 30, 2021
Corporate
Asset-Backed
Foreign
Corporate
Asset-Backed
Foreign
(Dollars in millions)
Securities
Securities
Corporate
Total
Securities
Securities
Corporate
Total
Beginning balance fixed maturities
$
706
$
815
$
5
$
1,526
$
701
$
623
$
6
$
1,330
Total gains or (losses) (realized/unrealized)
Included in earnings
3
(3)
-
-
(12)
(7)
-
(19)
Included in other comprehensive income (loss)
(1)
-
-
(2)
6
4
-
10
Purchases, issuances and settlements
87
192
-
279
99
384
(1)
482
Transfers in/(out) of Level 3 and reclassification of
securities in/(out) of investment categories
-
-
-
-
-
-
-
-
Ending balance
$
794
$
1,004
$
5
$
1,803
$
794
$
1,004
$
5
$
1,803
The amount of total gains or losses for the period
included in earnings (or changes in net assets)
attributable to the change in unrealized gains
or losses relating to assets still held
$
1
$
(3)
$
-
$
(2)
$
(16)
$
(8)
$
-
$
(24)
(Some amounts may not reconcile due to rounding.)
The $
779
categories for the three and nine months ended September 30, 2022 relate mainly to previously designated
Level 3 securities that the Company has reclassified from “fixed maturities – available for sale” to “fixed
maturities – held to maturity” during the third quarter of 2022. As “fixed maturities – held to maturity" are
carried at amortized cost, net of credit allowances rather than at fair value as “fixed maturities – available for
sale”, these securities are no longer included within the fair value hierarchy table or in the rollforward of Level 3
securities. The fair values of these securities are determined in a similar manner as the Company’s fixed
maturity securities available for sale as described above. The fair values of these securities incorporate the use of
significant unobservable inputs and therefore are classified as Level 3 within the fair value hierarchy as of
September 30, 2022.
19
6. EARNINGS PER COMMON SHARE
Basic earnings per share are calculated by dividing net income by the weighted average number of common
shares outstanding. Diluted earnings per share reflect the potential dilution that would occur if options granted
under various share-based compensation plans were exercised resulting in the issuance of common shares that
would participate in the earnings of the entity.
Net income (loss) per common share has been computed as per below, based upon weighted average common
basic and dilutive shares outstanding.
Three Months Ended
Nine Months Ended
September 30,
September 30,
(Dollars in millions, except per share amounts)
2022
2021
2022
2021
Net income (loss) per share:
Numerator
Net income (loss)
$
(319)
$
(73)
$
101
$
948
Less: dividends declared-common shares and unvested common shares
(65)
(61)
(191)
(186)
Undistributed earnings
(384)
(135)
(90)
763
Percentage allocated to common shareholders
(1)
100.0
%
100.0
%
98.7
%
98.7
%
(384)
(135)
(88)
752
Add: dividends declared-common shareholders
65
61
188
183
Numerator for basic and diluted earnings per common share
$
(319)
$
(73)
$
100
$
936
Denominator
Denominator for basic earnings per weighted-average common shares
38.8
39.2
38.8
39.4
Effect of dilutive securities:
Options
-
-
-
-
Denominator for diluted earnings per adjusted weighted-average common shares
38.8
39.2
38.8
39.5
Per common share net income (loss)
Basic
$
(8.22)
$
(1.88)
$
2.57
$
23.74
Diluted
$
(8.22)
$
(1.88)
$
2.57
$
23.72
(1)
Basic weighted-average common shares outstanding
38.8
39.2
38.8
39.4
Basic weighted-average common shares outstanding and unvested common shares
expected to vest
38.8
39.2
39.4
39.9
Percentage allocated to common shareholders
100.0
%
100.0
%
98.7
%
98.7
%
(Some amounts may not reconcile due to rounding.)
There were
no
2022 and 2021. During the three months ended September 30, 2022 and 2021, the Company did not exclude
the dividends declared to unvested common shares as doing so would have an anti-dilutive effect on the
numerator for basic and diluted earnings per common share.
Options granted under share-based compensation plans have all expired as of
September 19, 2022
.
7. 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
20
considers the statuses of these proceedings when determining its reserves for unpaid loss and loss adjustment
expenses (“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.
8. OTHER COMPREHENSIVE INCOME (LOSS)
The following table presents the components of comprehensive income (loss) in the consolidated statements of
operations for the periods indicated:
Three Months Ended September 30, 2022
Nine Months Ended September 30, 2022
(Dollars in millions)
Before Tax
Tax Effect
Net of Tax
Before Tax
Tax Effect
Net of Tax
Unrealized appreciation (depreciation) ("URA(D)") on securities - non-
credit related
$
(776)
$
64
$
(712)
$
(2,557)
$
297
$
(2,260)
Reclassification of net realized losses (gains) included in net income
(loss)
51
(10)
41
73
(12)
61
Foreign currency translation adjustments
(109)
8
(101)
(174)
11
(163)
Reclassification of benefit plan liability amortization included in net
income (loss)
2
(1)
1
3
(1)
2
Total other comprehensive income (loss)
$
(832)
$
61
$
(771)
$
(2,655)
$
295
$
(2,360)
Three Months Ended September 30, 2021
Nine Months Ended September 30, 2021
(Dollars in millions)
Before Tax
Tax Effect
Net of Tax
Before Tax
Tax Effect
Net of Tax
Unrealized appreciation (depreciation) ("URA(D)") on securities - non-
credit related
$
(108)
$
8
$
(100)
$
(343)
$
39
$
(304)
Reclassification of net realized losses (gains) included in net income
(loss)
(1)
(1)
(1)
(1)
(2)
(3)
Foreign currency translation adjustments
(59)
5
(54)
(30)
1
(29)
Reclassification of benefit plan liability amortization included in net
income (loss)
2
-
2
7
(2)
6
Total other comprehensive income (loss)
$
(166)
$
12
$
(153)
$
(367)
$
36
$
(331)
The following table presents details of the amounts reclassified from AOCI for the periods indicated:
Three Months Ended
Nine Months Ended
September 30,
September 30,
Affected line item within the statements of
AOCI component
2022
2021
2022
2021
operations and comprehensive income (loss)
(Dollars in millions)
URA(D) on securities
$
51
$
(1)
$
73
$
(1)
Other net realized capital gains (losses)
(10)
(1)
(12)
(2)
Income tax expense (benefit)
$
41
$
(1)
$
61
$
(3)
Net income (loss)
Benefit plan net gain (loss)
$
2
$
2
$
3
$
7
Other underwriting expenses
(1)
-
(1)
(2)
Income tax expense (benefit)
$
1
$
2
$
2
$
6
Net income (loss)
21
The following table presents the components of accumulated other comprehensive income (loss), net of tax, in
the consolidated balance sheets for the periods indicated:
Three Months Ended
Nine Months Ended
September 30,
September 30,
(Dollars in millions)
2022
2021
2022
2021
Beginning balance of URA (D) on securities
$
(1,288)
$
518
$
239
$
724
Current period change in URA (D) of investments - non-credit related
(671)
(101)
(2,199)
(308)
Ending balance of URA (D) on securities
(1,959)
416
(1,959)
416
Beginning balance of foreign currency translation adjustments
(240)
(91)
(177)
(115)
Current period change in foreign currency translation adjustments
(101)
(54)
(163)
(29)
Ending balance of foreign currency translation adjustments
(341)
(144)
(341)
(144)
Beginning balance of benefit plan net gain (loss)
(49)
(70)
(50)
(74)
Current period change in benefit plan net gain (loss)
1
2
2
6
Ending balance of benefit plan net gain (loss)
(48)
(68)
(48)
(68)
Ending balance of accumulated other comprehensive income (loss)
$
(2,348)
$
204
$
(2,348)
$
204
(Some amounts may not reconcile due to rounding.)
9. CREDIT FACILITIES
The Company has multiple active letter of credit facilities for a total commitment of up to $
1.2
September 30, 2022. The Company also has additional uncommitted letter of credit facilities of up to $
340
million which may be accessible via written request and corresponding authorization from the applicable lender.
There is no guarantee the uncommitted capacity will be available to us on a future date.
The terms and outstanding amounts for each facility are discussed below:
Bermuda Re Wells Fargo Letter of Credit Facility
Effective February 23, 2021, Bermuda Re entered into a letter of credit issuance facility with Wells Fargo referred
to as the “2021 Bermuda Re Wells Fargo Letter of Credit Facility.” The Bermuda Re Wells Fargo Letter of Credit
Facility originally provided for the issuance of up to $
50
2021, the agreement was amended to provide for the issuance of up to $
500
The following table summarizes the outstanding letters of credit for the periods indicated:
(Dollars in millions)
At September 30, 2022
At December 31, 2021
Bank
Capacity
In Use
Date of Expiry
Capacity
In Use
Date of Expiry
Wells Fargo Bank Bilateral LOC Agreement
$
500
$
387
12/30/2022
$
500
$
351
12/30/2022
47
12/29/2023
-
Total Wells Fargo Bank Bilateral LOC Agreement
$
500
$
435
$
500
$
351
(Some amounts may not reconcile due to rounding.)
Bermuda Re Citibank Letter of Credit Facility
Effective August 9, 2021, Bermuda Re entered into a letter of credit issuance facility with Citibank N.A. which
superseded the previous letter of credit issuance facility with Citibank N.A. that was effective December 31,
2020. Both of these agreements are referred to as the “Bermuda Re Citibank Letter of Credit Facility”. The
current Bermuda Re Citibank Letter of Credit Facility provides for the committed issuance of up to $
230
of secured letters of credit. In addition, the facility provided for the uncommitted issuance of up the $
140
million, which may be accessible via written request by the Company and corresponding authorization from
Citibank N.A.
22
The following table summarizes the outstanding letters of credit for the periods indicated:
(Dollars in millions)
At September 30, 2022
At December 31, 2021
Bank
Capacity
In Use
Date of Expiry
Capacity
In Use
Date of Expiry
Bermuda Re Citibank LOC Facility- Committed
$
230
$
201
12/31/2022
$
230
$
4
2/28/2022
1
1/21/2023
1
3/1/2022
4
2/28/2023
1
11/24/2022
1
3/1/2023
–
12/16/2022
3
9/23/2023
217
12/31/2022
–
12/20/2023
1
8/15/2023
6
12/31/2023
1
9/23/2023
Bermuda Re Citibank LOC Facility - Uncommitted
140
84
12/31/2022
140
84
12/31/2022
20
9/30/2026
23
12/30/2025
Total Citibank Bilateral Agreement
$
370
$
322
$
370
$
333
(Some amounts may not reconcile due to rounding.)
Bermuda Re Bayerische Landesbank Credit Facility
Effective August 27, 2021 Bermuda Re entered into a letter of credit issuance facility with Bayerische
Landesbank, an agreement referred to as the “Bermuda Re Bayerische Landesbank Bilateral LOC Facility”. The
Bermuda Re Bayerische Landesbank Bilateral LOC Facility provides for the committed issuance of up to $
200
million of secured letters of credit.
The following table summarizes the outstanding letters of credit for the periods indicated:
(Dollars in millions)
At September 30, 2022
At December 31, 2021
Bank
Capacity
In Use
Date of Expiry
Capacity
In Use
Date of Expiry
Bayerische Landesbank Bilateral LOC Agreement
$
200
$
153
12/31/2022
$
200
$
155
12/31/2022
Total Bayerische Landesbank Bilateral LOC Agreement
$
200
$
153
$
200
$
155
Bermuda Re Lloyd’s Bank Credit Facility.
Effective October 8, 2021 Bermuda Re entered into a letter of credit issuance facility with Lloyd’s Bank Corporate
Markets PLC, an agreement referred to as the “Bermuda Re Lloyd’s Bank Credit Facility”. The Bermuda Re
Lloyd’s Bank Credit Facility provides for the committed issuance of up to $
50
and subject to credit approval a maximum total facility amount of $
250
The following table summarizes the outstanding letters of credit for the periods indicated:
(Dollars in millions)
At September 30, 2022
At December 31, 2021
Bank
Capacity
In Use
Date of Expiry
Capacity
In Use
Date of Expiry
Bermuda Re Lloyd's Bank Credit Facility-Committed
$
50
$
46
12/31/2022
$
50
$
46
12/31/2022
Bermuda Re Lloyd's Bank Credit Facility-Uncommitted
200
85
12/31/2022
-
-
Total Bermuda Re Lloyd's Bank Credit Facility
$
250
$
131
$
50
$
46
Bermuda Re Barclays Bank Credit Facility.
Effective November 3, 2021 Bermuda Re entered into a letter of credit issuance facility with Barclays Bank PLC,
an agreement referred to as the “Bermuda Re Barclays Credit Facility”. The Bermuda Re Barclays Credit Facility
provides for the committed issuance of up to $
200
23
The following table summarizes the outstanding letters of credit for the periods indicated:
(Dollars in millions)
At September 30, 2022
At December 31, 2021
Bank
Capacity
In Use
Date of Expiry
Capacity
In Use
Date of Expiry
Bermuda Re Barclays Bilateral Letter of Credit Facility
$
200
$
172
12/31/2022
$
200
$
186
12/31/2022
Total Bermuda Re Barclays Bilateral Letter of Credit Facility
$
200
$
172
$
200
$
186
Federal Home Loan Bank Membership
Everest Reinsurance Company (“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 September 30,
2022, Everest Re had admitted assets of approximately $
22.0
approximately $
2.2
519
with maturities in November and December, 2022, and interest payable at interest rates between
0.53
% and
0.65
%. Everest Re incurred interest expense of $
0.8
0.3
September 30, 2022 and 2021, respectively. Everest Re incurred interest expense of $
2.3
0.8
million for the nine months ended September 30, 2022 and 2021, respectively. The FHLBNY membership
agreement requires that
4.5
% of borrowed funds be used to acquire additional membership stock.
10. COLLATERALIZED REINSURANCE AND TRUST AGREEMENTS
Certain subsidiaries of Group have established trust agreements, which effectively use the Company’s
investments as collateral, as security for assumed losses payable to certain non-affiliated ceding companies. At
September 30, 2022, the total amount on deposit in trust accounts was $
2.2
107
of restricted cash.
The Company reinsures some of its catastrophe exposures with the segregated accounts of Mt. Logan Re. Mt.
Logan Re is a Collateralized insurer registered in Bermuda and
100
% of the voting common shares are owned by
Group. Each segregated account invests predominantly in a diversified set of catastrophe exposures, diversified
by risk/peril and across different geographic regions globally.
The following table summarizes the premiums and losses that are ceded by the Company to Mt. Logan Re
segregated accounts and assumed by the Company from Mt. Logan Re segregated accounts.
Three Months Ended
Nine Months Ended
September 30,
September 30,
Mt. Logan Re Segregated Accounts
2022
2021
2022
2021
(Dollars in millions)
Ceded written premiums
$
68
$
115
$
150
$
270
Ceded earned premiums
57
100
149
250
Ceded losses and LAE
99
170
161
282
Assumed written premiums
2
4
3
9
Assumed earned premiums
2
4
3
9
Assumed losses and LAE
-
-
-
-
Effective April 1, 2018, the Company entered into a retroactive reinsurance transaction with one of the Mt.
Logan Re segregated accounts to retrocede $
269
accident years
2002
2015
. As consideration for entering the agreement, the Company transferred cash
of $
252
agreement of $
319
Effective July 1, 2022, the Company has commuted this reinsurance agreement with the Mt. Logan segregated
account.
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
6/22/2025
300
Aggregate
Total available limit as of September 30, 2022
$
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. Currently, none of the published insured loss estimates for
catastrophe events during the applicable covered periods of the various agreements have exceeded the single
event retentions or aggregate retentions under the terms of the agreements that would result in a recovery.
25
Kilimanjaro has financed the various property catastrophe reinsurance coverages by issuing catastrophe bonds
to unrelated, external investors. The proceeds from the issuance of the Notes listed below are held in
reinsurance trusts throughout the duration of the applicable reinsurance agreements and invested solely in U.S.
government money market funds with a rating of at least “AAAm” by Standard & Poor’s.
(Dollars in millions)
Note Series
Issue Date
Maturity Date
Amount
Series 2018-1 Class A-2
4/30/2018
5/5/2023
$
63
Series 2018-1 Class B-2
4/30/2018
5/5/2023
200
Series 2019-1 Class A-1
12/12/2019
12/19/2023
150
Series 2019-1 Class B-1
12/12/2019
12/19/2023
275
Series 2019-1 Class A-2
12/12/2019
12/19/2024
150
Series 2019-1 Class B-2
12/12/2019
12/19/2024
275
Series 2021-1 Class A-1
4/8/2021
4/21/2025
150
Series 2021-1 Class B-1
4/8/2021
4/21/2025
85
Series 2021-1 Class C-1
4/8/2021
4/21/2025
85
Series 2021-1 Class A-2
4/8/2021
4/20/2026
150
Series 2021-1 Class B-2
4/8/2021
4/20/2026
90
Series 2021-1 Class C-2
4/8/2021
4/20/2026
90
Series 2022-1 Class A
6/22/2022
6/22/2025
300
$
2,063
11. SENIOR NOTES
The table below displays Everest Reinsurance Holdings’ (“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.
September 30, 2022
December 31, 2021
Principal
Consolidated Balance
Consolidated Balance
(Dollars in millions)
Date Issued
Date Due
Amounts
Sheet Amount
Fair Value
Sheet Amount
Fair Value
4.868
% Senior notes
6/5/2014
6/1/2044
$
400
$
397
$
339
$
397
$
504
3.5
% Senior notes
10/7/2020
10/15/2050
1,000
980
669
980
1,055
3.125
% Senior notes
10/4/2021
10/15/2052
1,000
969
627
969
983
$
2,400
$
2,347
$
1,635
$
2,346
$
2,542
Interest expense incurred in connection with these senior notes is as follows for the periods indicated:
Three Months Ended
Nine Months Ended
September 30,
September 30,
(Dollars in millions)
2022
2021
2022
2021
Interest expense incurred
4.868
% Senior notes
$
5
$
5
$
15
$
15
Interest expense incurred
3.5
% Senior notes
9
9
26
26
Interest expense incurred
3.125
% Senior notes
8
-
24
-
$
22
$
14
$
65
$
41
26
12. 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.
Maturity Date
September 30, 2022
December 31, 2021
Original
Consolidated Balance
Fair
Consolidated Balance
Fair
(Dollars in millions)
Date Issued
Principal Amount
Scheduled
Final
Sheet Amount
Value
Sheet Amount
Value
Long term subordinated notes
4/26/2007
$
400
5/15/2037
5/1/2067
$
218
$
179
$
224
$
216
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
for up to
ten
quarterly for periods from and including May 15, 2017. The reset quarterly interest rate for August 15, 2022 to
November 14, 2022 is
5.29
%.
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 noted due on
October 15, 2050
3.125
% senior notes
due on
October 15, 2052
subordinated notes.
In 2009, the Company had reduced its outstanding amount of long term subordinated notes by $
161
through the initiation of a cash tender offer for any and all of the long term subordinated notes. In addition, the
Company repurchased and retired $
13
quarter of 2022, the Company repurchased and retired $
6
notes. The Company realized a gain of $
1
Interest expense incurred in connection with these long term subordinated notes is as follows for the periods
indicated:
Three Months Ended
Nine Months Ended
September 30,
September 30,
(Dollars in millions)
2022
2021
2022
2021
Interest expense incurred
$
3
$
1
$
6
$
4
13. 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 U.S., Bermuda, and Ireland offices, as well as, through branches in Canada, Singapore,
the United Kingdom and Switzerland. The Insurance operation writes property and casualty insurance directly
and through brokers, surplus lines brokers and general agents within the U.S., Bermuda, Canada, Europe,
Singapore and South America through its offices in the U.S., Canada, Chile, Singapore, United Kingdom, Ireland
and a branch in the Netherlands.
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.
27
Management generally monitors and evaluates the financial performance of these operating segments based
upon their underwriting results.
Underwriting results include earned premium less losses and loss adjustment expenses (“LAE”) 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 September 30, 2022
Nine Months Ended September 30, 2022
(Dollars in millions)
Reinsurance
Insurance
Total
Reinsurance
Insurance
Total
Gross written premiums
$
2,551
$
1,129
$
3,680
$
6,938
$
3,376
$
10,313
Net written premiums
2,460
862
3,323
6,664
2,492
9,156
Premiums earned
$
2,245
$
822
$
3,067
$
6,451
$
2,324
$
8,775
Incurred losses and LAE
1,992
631
2,623
4,699
1,591
6,289
Commission and brokerage
537
104
641
1,582
295
1,877
Other underwriting expenses
54
115
169
156
344
500
Underwriting gain (loss)
$
(338)
$
(29)
$
(367)
$
14
$
95
$
109
Net investment income
151
620
Net gains (losses) on investments
(129)
(519)
Corporate expenses
(16)
(45)
Interest, fee and bond issue cost amortization expense
(25)
(74)
Other income (expense)
(16)
(71)
Income (loss) before taxes
$
(401)
$
20
(Some amounts may not reconcile due to rounding.)
Three Months Ended September 30, 2021
Nine Months Ended September 30, 2021
(Dollars in millions)
Reinsurance
Insurance
Total
Reinsurance
Insurance
Total
Gross written premiums
$
2,488
$
1,009
$
3,498
$
6,696
$
2,924
$
9,619
Net written premiums
2,293
733
3,026
6,266
2,123
8,389
Premiums earned
$
1,976
$
680
$
2,656
$
5,675
$
1,928
$
7,603
Incurred losses and LAE
1,766
508
2,274
4,206
1,366
5,572
Commission and brokerage
471
93
564
1,353
258
1,611
Other underwriting expenses
45
96
141
144
280
424
Underwriting gain (loss)
$
(306)
$
(17)
$
(323)
$
(29)
$
24
$
(5)
Net investment income
293
960
Net gains (losses) on investments
(4)
139
Corporate expenses
(18)
(46)
Interest, fee and bond issue cost amortization expense
(16)
(47)
Other income (expense)
(20)
44
Income (loss) before taxes
$
(88)
$
1,046
(Some amounts may not reconcile due to rounding.)
28
The Company produces business in the U.S., Bermuda and internationally. The net income deriving from and
assets residing in the individual foreign countries in which the Company writes business are not identifiable in
the Company’s financial records. Based on gross written premium, the table below presents the largest country,
other than the U.S., in which the Company writes business, for the periods indicated:
Three Months Ended
Nine Months Ended
September 30,
September 30,
(Dollars in thousands)
2022
2021
2022
2021
United Kingdom gross written premium
$
312
$
282
$
936
$
897
14. SHARE-BASED COMPENSATION PLANS
For the three months ended September 30, 2022, a total of
4,070
September 8, 2022 with a fair value of $283.72 per share.
For the nine months ended September 30, 2022, a total of
203,208
187,760
,
9,048
,
2,330
4,070
May 10, 2022 and September 8, 2022, with a fair value of $
301.54
287.94
share and $
283.72
18,340
February 23, 2022, with a fair value of $
301.54
15. INCOME TAXES
The Company is domiciled in Bermuda and has subsidiaries and/or branches in Canada, Chile, Ireland, the
Netherlands, Singapore, Switzerland, the United Kingdom, and the United States. The Company’s Bermuda
domiciled subsidiaries are exempt from income taxation under Bermuda law until 2035. The Company’s non-
Bermudian subsidiaries and branches are subject to income taxation at varying rates in their respective
domiciles.
The Company generally applies the estimated Annualized Effective Tax Rate (“AETR”) approach for calculating its
tax provision for interim periods as prescribed by ASC 740-270, Interim Reporting. Under the AETR approach,
the estimated annualized 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 annualized effective tax
rate.
16. SUBSEQUENT EVENTS
The Company has evaluated known recognized and non-recognized subsequent events. The Company does not
have any subsequent events to report.
29
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., Bermuda and international reinsurance and insurance markets with numerous global
competitors. Our competitors include independent reinsurance and insurance companies, subsidiaries or
affiliates of established worldwide insurance companies, reinsurance departments of certain insurance
companies, domestic and international underwriting operations, including underwriting syndicates at Lloyd’s of
London and certain government sponsored risk transfer vehicles. Some of these competitors have greater
financial resources than we do and have established long term and continuing business relationships, which can
be a significant competitive advantage. In addition, the lack of strong barriers to entry into the reinsurance
business and recently, the securitization of reinsurance and insurance risks through capital markets provide
additional sources of potential reinsurance and insurance capacity and competition.
Worldwide insurance and reinsurance market conditions historically have been competitive. Generally, there
was ample insurance and reinsurance capacity relative to demand, as well as additional capital from the capital
markets through insurance linked financial instruments. These financial instruments such as side cars,
catastrophe bonds and collateralized reinsurance funds, provided capital markets with access to insurance and
reinsurance risk exposure. The capital markets demand for these products was being primarily driven by a low
interest environment and the desire to achieve greater risk diversification and potentially higher returns on their
investments. This increased competition was generally having a negative impact on rates, terms and conditions;
however, the impact varies widely by market and coverage. Based on recent competitive behaviors in the
insurance and reinsurance activity, natural catastrophe events and the macroeconomic backdrop, there has
been some dislocation in the market which should 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 2021 and thus far in 2022 appears to be
pressuring the increase of rates. As business activity continues to regain strength after the pandemic and
current macroeconomic uncertainty, rates appear to be firming in most lines of business, particularly in the
casualty lines that had seen significant losses such as excess casualty and directors’ and officers’ liability. Other
casualty lines are experiencing modest rate increase, while some lines such as workers’ compensation were
experiencing softer market conditions. It is too early to tell what the impact on pricing conditions will be, but it is
likely to change depending on the line of business and geography.
While we are unable to predict the full impact the pandemic will have on the insurance industry as it continues
to have a negative impact on the global economy, we are well positioned to continue to service our clients. Our
capital position remains a source of strength, with high quality invested assets, significant liquidity and a low
operating expense ratio. Our diversified global platform with its broad mix of products, distribution and
geography is resilient.
30
The war in the Ukraine is ongoing and an evolving event. Economic and legal sanctions have been levied against
Russia, specific named individuals and entities connected to the Russian government, as well as businesses
located in the Russian Federation and/or owned by Russian nationals by numerous countries, including the
United States. The significant political and economic uncertainty surrounding the war and associated sanctions
have impacted economic and investment markets both within Russia and around the world. The Company has
recorded $45 million of incurred underwriting losses related to the Ukraine/Russia war as of the nine months
ended September 30, 2022.
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 shareholders’ equity for the periods indicated.
Three Months Ended
Percentage
Nine Months Ended
Percentage
September 30,
Increase/
September 30,
Increase/
(Dollars in millions)
2022
2021
(Decrease)
2022
2021
(Decrease)
Gross written premiums
$
3,680
$
3,498
5.2
%
$
10,313
$
9,619
7.2
%
Net written premiums
3,323
3,026
9.8
%
9,156
8,389
9.1
%
REVENUES:
Premiums earned
$
3,067
$
2,656
15.5
%
$
8,775
$
7,603
15.4
%
Net investment income
151
293
-48.3
%
620
960
-35.4
%
Net gains (losses) on investments
(129)
(4)
NM
(519)
139
NM
Other income (expense)
(16)
(20)
-20.0
(71)
44
NM
Total revenues
3,073
2,925
5.1
%
8,805
8,746
0.7
%
CLAIMS AND EXPENSES:
Incurred losses and loss adjustment expenses
2,623
2,274
15.3
%
6,289
5,572
12.9
%
Commission, brokerage, taxes and fees
641
564
13.7
%
1,877
1,611
16.5
%
Other underwriting expenses
169
141
19.8
%
500
424
17.8
%
Corporate expenses
16
18
-11.9
%
45
46
-3.5
%
Interest, fees and bond issue cost amortization expense
25
16
62.1
%
74
47
57.5
%
Total claims and expenses
3,474
3,013
15.3
%
8,785
7,700
14.1
%
INCOME (LOSS) BEFORE TAXES
(401)
(88)
NM
20
1,046
-98.1
%
Income tax expense (benefit)
(82)
(14)
NM
(81)
97
-183.8
%
NET INCOME (LOSS)
$
(319)
$
(73)
NM
$
101
$
948
-89.3
%
RATIOS:
Point
Change
Point
Change
Loss ratio
85.5
%
85.6
%
(0.1)
71.7
%
73.3
%
(1.6)
Commission and brokerage ratio
20.9
%
21.2
%
(0.3)
21.4
%
21.2
%
0.2
Other underwriting expense ratio
5.5
%
5.3
%
0.2
5.7
%
5.6
%
0.1
Combined ratio
112.0
%
112.2
%
(0.2)
98.8
%
100.1
%
(1.3)
At
At
Percentage
September 30,
December 31,
Increase/
(Dollars in millions, except per share amounts)
2022
2021
(Decrease)
Balance sheet data:
Total investments and cash
$
28,516
$
29,673
-3.9
%
Total assets
38,144
38,185
-0.1
%
Loss and loss adjustment expense reserves
21,222
19,009
11.6
%
Total debt
3,084
3,089
-0.2
%
Total liabilities
30,495
28,046
8.7
%
Shareholders' equity
7,649
10,139
-24.6
%
Book value per share
195.27
258.21
-24.4
%
(NM, not meaningful)
(Some amounts may not reconcile due to rounding.)
31
Revenues.
Premiums. Gross written premiums increased by 5.2% to $3.7 billion for the three months ended September 30,
2022, compared to $3.5 billion for the three months ended September 30, 2021, reflecting a $120 million, or
11.9%, increase in our insurance business and a $62 million, or 2.5%, increase in our reinsurance business. The
increase in insurance premiums reflects growth across most lines of business driven by positive rate and
exposure increases, new business and strong renewal retention. The increase in reinsurance premiums was
primarily due to increases in casualty pro rata business and casualty excess of loss business, partially offset by a
decline in property pro rata business and property casualty excess of loss business. Gross written premiums
increased by 7.2% to $10.3 billion for the nine months ended September 30, 2022, compared to $9.6 billion for
the nine months ended September 30, 2021, reflecting a $452 million, or 15.5%, increase in our insurance
business and a $242 million, or 3.6%, increase in our reinsurance business. The increase in insurance premiums
reflects growth across most lines of business driven by positive rate and exposure increases, new business and
strong renewal retention. The increase in reinsurance premiums was primarily due to increases in casualty pro
rata business and financial lines of business , partially offset by a decline in property pro rata business.
Net written premiums increased by 9.8% to $3.3 billion for the three months ended September 30, 2022,
compared to $3.0 billion for the three months ended September 30, 2021. Net written premiums increased by
9.1% to $9.2 billion for the nine months ended September 30, 2022, compared to $8.4 billion for the nine
months ended September 30, 2021. The higher percentage increases in net written premiums compared to
gross written premiums were primarily due to a reduction in business ceded to the segregated accounts of Mt.
Logan Re during the three and nine months ended September 30, 2022 compared to the three and nine months
ended September 30, 2021. Premiums earned increased by 15.5% to $3.1 billion for the three months ended
September 30, 2022, compared to $2.7 billion for the three months ended September 30, 2021. Premiums
earned increased by 15.4% to $8.8 billion for the nine months ended September 30, 2022, compared to $7.6
billion for the nine months ended September 30, 2021. The changes in premiums earned relative to net written
premiums are primarily the result of timing; premiums are earned ratably over the coverage period whereas
written premiums are recorded at the initiation of the coverage period. Accordingly, the significant increases in
gross written premiums from pro rata business during the latter half of 2021 contributed to the current quarter
and year-to-date percentage increases in net earned premiums.
Other Income (Expense). We recorded other expense of $16 million and $20 million for the three months ended
September 30, 2022 and 2021, respectively. We recorded other expense of $71 million and other income of $44
million for the nine months ended September 30, 2022 and 2021, respectively. The changes were primarily the
result of fluctuations in foreign currency exchange rates. We recognized foreign currency exchange expense of
$9 million and $17 million for the three months ended September 30, 2022 and 2021, respectively. We
recognized foreign currency exchange expense of $70 million and foreign currency exchange income of $44
million for the nine months ended September 30, 2022 and 2021, respectively.
Net Investment Income. Refer to Consolidated Investments Results Section below.
Net Gains (Losses) on Investments. Refer to Consolidated Investments Results Section below.
32
Claims and Expenses.
Incurred Losses and Loss Adjustment Expenses. The following table presents our incurred losses and loss
adjustment expenses (“LAE”) for the periods indicated.
Three Months Ended September 30,
Current
Ratio %/
Prior
Ratio %/
Total
Ratio %/
(Dollars in millions)
Year
Pt Change
Years
Pt Change
Incurred
Pt Change
2022
Attritional
$
1,783
58.1
%
$
-
-
%
$
1,783
58.1
%
Catastrophes
840
27.4
%
-
-
%
840
27.4
%
Total
$
2,623
85.5
%
$
-
-
%
$
2,623
85.5
%
2021
Attritional
$
1,581
59.5
%
$
(2)
-0.1
%
$
1,579
59.4
%
Catastrophes
695
26.2
%
-
-
%
695
26.2
%
Total
$
2,276
85.7
%
$
(2)
-0.1
%
$
2,274
85.6
%
Variance 2022/2021
Attritional
$
202
(1.4)
pts
$
2
0.1
pts
$
204
(1.3)
pts
Catastrophes
145
1.2
pts
-
-
pts
145
1.2
pts
Total
$
347
(0.2)
pts
$
2
0.1
pts
$
349
(0.1)
pts
Nine Months Ended September 30,
Current
Ratio %/
Prior
Ratio %/
Total
Ratio %/
(Dollars in millions)
Year
Pt Change
Years
Pt Change
Incurred
Pt Change
2022
Attritional
$
5,251
59.8
%
$
(2)
-
%
5,249
59.8
%
Catastrophes
1,040
11.9
%
-
-
%
1,040
11.9
%
Total
$
6,291
71.7
%
$
(2)
-
%
$
6,289
71.7
%
2021
Attritional
$
4,568
60.1
%
$
(6)
-0.1
%
4,562
60.0
%
Catastrophes
1,010
13.3
%
-
-
%
1,010
13.3
%
Total
$
5,578
73.4
%
$
(6)
-0.1
%
$
5,572
73.3
%
Variance 2022/2021
Attritional
$
683
(0.3)
pts
$
4
0.1
pts
$
688
(0.2)
pts
Catastrophes
30
(1.4)
pts
-
-
pts
30
(1.4)
pts
Total
$
713
(1.7)
pts
$
4
0.1
pts
$
718
(1.6)
pts
(Some amounts may not reconcile due to rounding.)
Incurred losses and LAE increased by 15.3% to $2.6 billion for the three months ended September 30, 2022,
compared to $2.3 billion for the three months ended September 30, 2021, primarily due to an increase of $202
million in current year attritional losses and an increase of $145 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 $840 million for the three months ended September 30, 2022 related
primarily to Hurricane Ian ($700 million), the 2022 Western Europe hailstorms ($75 million), Hurricane Fiona
($25 million), Typhoon Nanmadol ($20 million) and the 2022 Western Europe Convective storm ($20 million).
The $695 million of current year catastrophe losses for the three months ended September 30, 2021 related to
Hurricane Ida ($463 million) and the European floods ($232 million).
Incurred losses and LAE increased by 12.9% to $6.3 billion for the nine months ended September 30, 2022,
compared to $5.6 billion for the nine months ended September 30, 2021, primarily due to an increase of $683
million in current year attritional losses and an increase of $30 million in current year catastrophe losses. The
increase in current year attritional losses was mainly due to the impact of the increase in premiums earned and
$45 million of attritional losses incurred due to the Ukraine/Russia war. The current year catastrophe losses of
$1.0 billion for the nine months ended September 30, 2022 related primarily to Hurricane Ian ($700 million), the
2022 Australia floods ($85 million), the 2022 Western Europe hailstorms ($75 million), the 2022 South Africa
flood ($45 million), the 2022 Western Europe Convective Storm ($30 million), Hurricane Fiona ($25 million), the
2022 European storms ($21 million), Typhoon Nanmadol ($20 million), the 2022 Canada derecho ($18 million),
33
the 2022 2
nd
current year catastrophe losses for the nine months ended September 30, 2021 related primarily to Hurricane
Ida ($463 million), the Texas winter storms ($285 million) and the European floods ($242 million) with the rest of
the losses emanating from the 2021 Australia floods and Victoria Australia flooding.
Catastrophe losses and loss expenses typically have a material effect on our incurred losses and loss adjustment
expense results and can vary significantly from period to period. Losses from natural catastrophes contributed
27.4 percentage points to the combined ratio for the three months ended September 30, 2022, compared with
26.2 percentage points in the same period of 2021, and 11.9 percentage points to the combined ratio for the
nine months ended September 30, 2022, compared with 13.3 percentage points in the same period of 2021. The
Company has up to $350.0 million of catastrophe bond protection (“CAT Bond”) that attaches at a $48.1 billion
PCS Industry loss threshold. This recovery would be recognized on a pro-rata basis up to a $63.8 billion PCS
Industry loss level. PCS’s current industry estimate of $40.9 million is below the attachment point. The potential
recovery under the CAT Bond is not included in the Company’s estimate for Hurricane Ian but would provide
significant downside protection should the industry loss estimate increase.
Commission, Brokerage, Taxes and Fees. Commission, brokerage, taxes and fees increased by 13.7% to $641
million for the three months ended September 30, 2022, compared to $564 million for the three months ended
September 30, 2021. Commission, brokerage, taxes and fees increased by 16.5% to $1.9 billion for the nine
months ended September 30, 2022, compared to $1.6 billion for the nine months ended September 30, 2021.
The increases were primarily due to the impact of the increases in premiums earned and changes in the mix of
business.
Other Underwriting Expenses. Other underwriting expenses were $169 million and $141 million for the three
months ended September 30, 2022 and 2021, respectively. Other underwriting expenses were $500 million and
$424 million for the nine months ended September 30, 2022 and 2021, respectively. The increases in other
underwriting expenses were mainly due to the impact of the increase in premiums earned as well as the
continued build out of our insurance operations , including an expansion of the international insurance platform.
Corporate Expenses. Corporate expenses, which are general operating expenses that are not allocated to
segments, remained relatively flat at $16 million and $18 million for the three months ended September 30,
2022 and 2021, respectively, and $45 million and $46 million for the nine months ended September 30, 2022
and 2021, respectively.
Interest, Fees and Bond Issue Cost Amortization Expense. Interest, fees and other bond amortization expense
was $25 million and $16 million for the three months ended September 30, 2022 and 2021, respectively.
Interest, fees and other bond amortization expense was $74 million and $47 million for the nine months ended
September 30, 2022 and 2021, respectively. The increases were primarily due to the issuance of $1.0 billion of
senior notes in October 2021. Interest expense was also impacted by the movements in the floating interest
rate related to the long term subordinated notes, which is reset quarterly per the note agreement. The floating
rate was 5.29% as of September 30, 2022.
Income Tax Expense (Benefit). We had income tax benefit of $82 million and $14 million for the three months
ended September 30, 2022 and 2021, respectively. We had income tax benefit of $81 million and income tax
expense of $97 million for the nine months ended September 30, 2022 and 2021, respectively. Income tax
expense is primarily a function of the geographic location of the Company’s pre-tax income and the statutory tax
rates in those jurisdictions. The effective tax rate (“ETR”) is primarily affected by tax-exempt investment income,
foreign tax credits and dividends. Variations in the ETR generally result from changes in the relative levels of
pre-tax income, including the impact of catastrophe losses and net capital gains (losses), 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
34
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 loss was $319 million and $73 million for the three months ended September 30, 2022 and 2021,
respectively. Our net income was $101 million and $948 million for the nine months ended September 30, 2022
and 2021, respectively. These changes were primarily driven by the financial component fluctuations explained
above.
Ratios.
Our combined ratio decreased slightly by 0.2 points to 112.0% for the three months ended September 30, 2022,
compared to 112.2% for the three months ended September 30, 2021 and decreased by 1.3 points to 98.8% for
the nine months ended September 30, 2022, compared to 100.1% for the nine months ended September 30,
2021. The loss ratio component decreased slightly by 0.1 points for the three months ended September 30,
2022 over the same period last year. The loss ratio component decreased 1.6 points for the nine months ended
September 30, 2022 over the same period last year due to a lower loss ratio on current year catastrophe losses.
Although current year catastrophe losses increased by $30 million, earned premium increased by $1.2 billion
resulting in a lower loss ratio related to catastrophe losses. The commission and brokerage ratio components
decreased slightly to 20.9% for the three months ended September 30, 2022 compared to 21.2% for the three
months ended September 30, 2021 and increased to 21.4% for the nine months ended September 30, 2022
compared to 21.2% for the nine months ended September 30, 2021. These changes were mainly due to changes
in the mix of business. The other underwriting expense ratios increased to 5.5% for the three months ended
September 30, 2022 compared to 5.3% for the three months ended September 30, 2021 and increased slightly
to 5.7% for the nine months ended September 30, 2022 compared to 5.6% for the nine months ended
September 30, 2021. These increases were mainly due to higher insurance operations costs.
Shareholders’ Equity.
Shareholders’ equity decreased by $2.5 billion to $7.6 billion at September 30, 2022 from $10.1 billion at
December 31, 2021, principally as a result of $2.2 billion of unrealized depreciation on fixed maturity portfolio
net of tax, $191 million of shareholder dividends, $163 million of net foreign currency translation adjustments,
and the repurchase of 238,771 common shares for $60 million, partially offset by $101 million of net income,
$19 million of share -based compensation transactions and $2 million of net benefit plan obligation adjustments,
net of tax.
Consolidated Investment Results
Net Investment Income.
Net investment income decreased by 48.3% to $151 million for the three months ended September 30, 2022
compared with net investment income of $29 3 million for the three months ended September 30, 2021. The
decrease for the three months ended September 30, 2022 was primarily the result of a decline of $181 million in
limited partnership income, partially offset by an additional $52 million of income from fixed maturity
investments. Net investment income decreased by 35.4% to $620 million for the nine months ended September
30, 2022 compared with investment income of $960 million for the nine months ended September 30, 2021.
The decrease for the nine months ended September 30, 2022 was primarily the result of a decline of $399
million in limited partnership income, partially offset by an additional $80 million of income from fixed maturity
investments. The limited partnership income primarily reflects increases 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.
35
The following table shows the components of net investment income for the periods indicated.
Three Months Ended
Nine Months Ended
September 30,
September 30,
(Dollars in millions)
2022
2021
2022
2021
Fixed maturities
$
186
$
134
$
503
$
423
Equity securities
6
4
15
12
Short-term investments and cash
5
-
12
1
Other invested assets
Limited partnerships
(42)
139
94
493
Other
11
31
37
63
Gross investment income before adjustments
167
308
661
992
Funds held interest income (expense)
-
1
4
12
Future policy benefit reserve income (expense)
-
-
-
(1)
Gross investment income
167
309
665
1,004
Investment expenses
(15)
(16)
(45)
(44)
Net investment income
$
151
$
293
$
620
$
960
(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
Nine Months Ended
September 30,
September 30,
2022
2021
2022
2021
Annualized pre-tax yield on average cash and invested assets
2.0
%
4.4
%
2.8
%
5.0
%
Annualized after-tax yield on average cash and invested assets
1.7
%
3.8
%
2.4
%
4.4
%
Annualized return on invested assets
0.3
%
4.3
%
0.5
%
5.6
%
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 September 30,
Nine Months Ended September 30,
(Dollars in millions)
2022
2021
Variance
2022
2021
Variance
Realized gains (losses) from dispositions:
$
5
$
17
$
(12)
$
33
$
52
$
(20)
(58)
(11)
(47)
(98)
(26)
(72)
(53)
6
(59)
(66)
26
(92)
60
3
57
67
21
46
(2)
(3)
1
(53)
(11)
(42)
58
-
58
15
10
5
7
2
5
15
8
7
(1)
(1)
-
(4)
(2)
(2)
6
2
4
11
6
5
1
-
1
1
-
1
-
-
-
-
-
-
1
-
1
1
-
1
Total net realized gains (losses) from dispositions:
73
22
51
116
81
35
(62)
(15)
(47)
(155)
(40)
(115)
12
8
4
(40)
41
(81)
Allowance for credit losses:
(5)
(7)
2
(18)
(30)
12
Gains (losses) from fair value adjustments:
(136)
(5)
(131)
(462)
128
(590)
Total
(136)
(5)
(131)
(462)
128
(590)
Total net gains (losses) on investments
$
(129)
$
(4)
$
(125)
$
(519)
$
139
$
(658)
(Some amounts may not reconcile due to rounding.)
Net gains (losses) on investments during the three months ended September 30, 2022 primarily relate to net
losses from fair value adjustments on equity securities in the amount of $136 million as a result of equity market
declines during the third quarter of 2022. In addition, we realized $12 million of gains due to the disposition of
investments and recorded an increase to the allowance for credit losses of $5 million.
Net gains (losses) on investments during the nine months ended September 30, 2022 primarily relate to net
losses from fair value adjustments on equity securities in the amount of $462 million as a result of equity market
declines during the first nine months of 2022. In addition, we realized $40 million of losses due to the
disposition of investments and recorded an increase to the allowance for credit losses of $18 million primarily
related to our direct holdings of Russian corporate fixed maturity securities.
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 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.
37
Business is written in the U.S., Bermuda, and Ireland offices, as well as, through branches in Canada, Singapore,
the United Kingdom and Switzerland. The Insurance operation writes property and casualty insurance directly
and through brokers, surplus lines brokers and general agents within the U.S., Bermuda, Canada, Europe,
Singapore and South America through its offices in the U.S., Canada, Chile, Singapore, the United Kingdom,
Ireland and a branch located in the Netherlands.
These segments are managed independently, but conform with corporate guidelines with respect to pricing, risk
management, control of aggregate catastrophe exposures, capital, investments and support operations.
Management generally monitors and evaluates the financial performance of these operating segments based
upon their underwriting results.
Underwriting results include earned premium less losses and loss adjustment expenses (“LAE”) incurred,
commission and brokerage expenses and other underwriting expenses. We measure our underwriting results
using ratios, in particular loss, commission and brokerage and other underwriting expense ratios, which,
respectively, divide incurred losses, commissions and brokerage and other underwriting expenses by premiums
earned.
The Company does not maintain separate balance sheet data for its operating segments. Accordingly, the
Company does not review and evaluate the financial results of its operating segments based upon balance sheet
data.
Our loss and LAE reserves are management’s best estimate of our ultimate liability for unpaid claims. We re-
evaluate our estimates on an ongoing basis, including all prior period reserves, taking into consideration all
available information, and in particular, recently reported loss claim experience and trends related to prior
periods. Such re-evaluations are recorded in incurred losses in the period in which re-evalu ation is made.
The following discusses the underwriting results for each of our segments for the periods indicated.
Reinsurance.
The following table presents the underwriting results and ratios for the Reinsurance segment for the periods
indicated.
Three Months Ended September 30,
Nine Months Ended September 30,
(Dollars in millions)
2022
2021
Variance
% Change
2022
2021
Variance
% Change
Gross written premiums
$
2,551
$
2,488
$
62
2.5
%
$
6,938
$
6,696
$
242
3.6
%
Net written premiums
2,460
2,293
167
7.3
%
6,664
6,266
398
6.4
%
Premiums earned
$
2,245
$
1,976
$
269
13.6
%
$
6,451
$
5,675
$
776
13.7
%
Incurred losses and LAE
1,992
1,766
226
12.8
%
4,699
4,206
493
11.7
%
Commission and brokerage
537
471
66
14.0
%
1,582
1,353
229
16.9
%
Other underwriting expenses
54
45
8
18.3
%
156
144
12
8.1
%
Underwriting gain (loss)
$
(338)
$
(306)
$
(32)
10.3
%
$
14
$
(29)
$
43
147.1
%
Point Chg
Point Chg
Loss ratio
88.7
%
89.4
%
(0.7)
72.8
%
74.1
%
(1.3)
Commission and brokerage ratio
23.9
%
23.8
%
0.1
24.5
%
23.8
%
0.7
Other underwriting expense ratio
2.4
%
2.3
%
0.1
2.4
%
2.5
%
(0.1)
Combined ratio
115.0
%
115.5
%
(0.5)
99.8
%
100.5
%
(0.7)
(NM, Not Meaningful)
(Some amounts may not reconcile due to rounding.)
38
Premiums. Gross written premiums increased by 2.5% to $2.6 billion for the three months ended September 30,
2022 from $2.5 billion for the three months ended September 30, 2021, primarily due to increases in casualty
pro rata business and catastrophe excess of loss business due to additional reinstatement premiums, partially
offset by a decline in property pro rata business and property casualty excess of loss business. Net written
premiums increased by 7.3% to $2.5 billion for the three months ended September 30, 2022 compared to $2.3
billion for the three months ended September 30, 2021. The higher percentage increase in net written
premiums compared to gross written premiums mainly related to a reduction in business ceded to the
segregated accounts of Mt. Logan Re in the three months ended September 30, 2022 compared to the three
months ended September 30, 2021. Premiums earned increased by 13.6% to $2.3 billion for the three months
ended September 30, 2022, compared to $2.0 billion for the three months ended September 30, 2021. The
change in premiums earned relative to net written premiums is primarily the result of timing; premiums are
earned ratably over the coverage period whereas written premiums are recorded at the initiation of the
coverage period. Accordingly, the significant increases in gross written premiums from pro rata business during
the latter half of 2021 contributed to the current quarter percentage increase in net earned premiums.
Gross written premiums increase d by 3.6% to $6.9 billion for the nine months ended September 30, 2022 from
$6.7 billion for the nine months ended September 30, 2021, primarily due to increases in casualty pro rata
business and financial lines of business, partially offset by a decline in property pro rata business. Net written
premiums increased by 6.4% to $6.7 billion for the nine months ended September 30, 2022 compared to $6.3
billion for the nine months ended September 30, 2021. The higher percentage increase in net written premiums
compared to gross written premiums mainly related to a reduction in business ceded to the segregated accounts
of Mt. Logan Re in the nine months ended September 30, 2022 compared to the nine months ended September
30, 2021. Premiums earned increased by 13.7% to $6.5 billion for the nine months ended September 30, 2022,
compared to $5.7 billion for the nine months ended September 30, 2021. The change in premiums earned
relative to net written premiums is primarily the result of timing; premiums are earned ratably over the coverage
period whereas written premiums are recorded at the initiation of the coverage period. Accordingly, the
significant increases in gross written premiums from pro rata business during the latter half of 2021 contributed
to the current year-to-date percentage increase in net earned premiums.
39
Incurred Losses and LAE
. The following table presents the incurred losses and LAE for the Reinsurance segment
for the periods indicated.
Three Months Ended September 30,
Current
Ratio %/
Prior
Ratio %/
Total
Ratio %/
(Dollars in millions)
Year
Pt Change
Years
Pt Change
Incurred
Pt Change
2022
Attritional
$
1,262
56.2
%
$
-
-
%
1,262
56.2
%
Catastrophes
730
32.5
%
-
-
%
730
32.5
%
Total Segment
$
1,992
88.7
%
$
-
-
%
$
1,992
88.7
%
2021
Attritional
$
1,153
58.3
%
$
(2)
-0.1
%
1,151
58.2
%
Catastrophes
615
31.1
%
-
-
%
615
31.1
%
Total Segment
$
1,768
89.4
%
$
(2)
-0.1
%
$
1,766
89.4
%
Variance 2022/2021
Attritional
$
109
(2.1)
pts
$
2
0.1
pts
$
111
(2.1)
pts
Catastrophes
115
1.4
pts
-
-
pts
115
1.4
pts
Total Segment
$
224
(0.7)
pts
$
2
0.1
pts
$
226
(0.7)
pts
Nine Months Ended September 30,
Current
Ratio %/
Prior
Ratio %/
Total
Ratio %/
(Dollars in millions)
Year
Pt Change
Years
Pt Change
Incurred
Pt Change
2022
Attritional
$
3,781
58.6
%
$
(2)
-
%
3,779
58.6
%
Catastrophes
920
14.3
%
-
-
%
920
14.3
%
Total Segment
$
4,701
72.9
%
$
(2)
-
%
$
4,699
72.8
%
2021
Attritional
$
3,339
58.8
%
$
(5)
-0.1
%
3,334
58.7
%
Catastrophes
873
15.4
%
-
-
%
873
15.4
%
Total Segment
$
4,211
74.2
%
$
(5)
-0.1
%
$
4,206
74.1
%
Variance 2022/2021
Attritional
$
443
(0.2)
pts
$
3
0.1
pts
$
445
(0.1)
pts
Catastrophes
48
(1.1)
pts
-
-
pts
48
(1.1)
pts
Total Segment
$
490
(1.3)
pts
$
3
0.1
pts
$
493
(1.3)
pts
Incurred losses increased by 12.8% to $2.0 billion for the three months ended September 30, 2022, compared to
$1.8 billion for the three months ended September 30, 2021. The increase was primarily due to an increase of
$115 million in current year catastrophe losses and an increase of $109 million in current year attritional losses.
The increase in current year attritional losses was mainly related to the impact of the increase in premiums
earned. The current year catastrophe losses of $730 million for the three months ended September 30, 2022
related primarily to Hurricane Ian ($600 million), the Western Europe hailstorms ($70 million), Typhoon
Nanmadol ($20 million), Hurricane Fiona ($20 million) and the 2022 Western Europe Convective storm ($20
million). The $615 million of current year catastrophe losses for the three months ended September 30, 2021
related primarily to Hurricane Ida ($383 million) and the European floods ($232 million).
Incurred losses increased by 11.7% to $4.7 billion for the nine months ended September 30, 2022, compared to
$4.2 billion for the nine months ended September 30, 2021. The increase was primarily due to an increase of
$443 million in current year attritional losses and an increase of $48 million in current year catastrophe losses.
The increase in current year attritional losses was mainly related to the impact of the increase in premiums
earned and $45 million of attritional losses due to the Ukraine/Russia war . The current year catastrophe losses
of $920 million for the nine months ended September 30, 2022 related primarily to Hurricane Ian ($600 million),
the 2022 Australia floods ($85 million), the Western Europe hailstorms ($70 million), the 2022 South Africa flood
($45 million), the 2022 Western Europe Convective storm ($30 million), the 2022 European storms ($21 million),
Typhoon Nanmadol ($20 million), Hurricane Fiona ($20 million), the 2022 Canada derecho ($18 million), the
2022 2
nd
current year catastrophe losses for the nine months ended September 30, 2021 related primarily to Hurricane
40
Ida ($383 million), the European floods ($242 million) and the Texas winter storms ($228 million) with the rest of
the losses emanating from the 2021 Australia floods and the Victoria Australia flooding.
Segment Expenses. Commission and brokerage expense increased by 14.0% to $537 million for the three
months ended September 30, 2022 compared to $471 million for the three months ended September 30, 2021.
Commission and brokerage expense increased by 16.9% to $1.6 billion for the nine months ended September 30,
2022 compared to $1.4 billion for the nine months ended September 30, 2021. The increases were mainly due
to the impact of the increases in premiums earned and changes in the mix of business.
Segment other underwriting expenses increased to $54 million for the three months ended September 30, 2022
from $45 million for the three months ended September 30, 2021. Segment other underwriting expenses
increased to $156 million for the nine months ended September 30, 2022 from $144 million for the nine months
ended September 30, 2021. The increases were mainly due to the increase in written premium attributable to
the planned expansion of the business.
Insurance.
The following table presents the underwriting results and ratios for the Insurance segment for the periods
indicated.
Three Months Ended September 30,
Nine Months Ended September 30,
(Dollars in millions)
2022
2021
Variance
% Change
2022
2021
Variance
% Change
Gross written premiums
$
1,129
$
1,009
$
120
11.9
%
$
3,376
$
2,924
$
452
15.5
%
Net written premiums
862
733
129
17.6
%
2,492
2,123
369
17.4
%
Premiums earned
$
822
$
680
$
142
20.9
%
$
2,324
$
1,928
$
396
20.6
%
Incurred losses and LAE
631
508
123
24.2
%
1,591
1,366
225
16.5
%
Commission and brokerage
104
93
11
12.0
%
295
258
37
14.3
%
Other underwriting expenses
115
96
20
20.5
%
344
280
64
22.8
%
Underwriting gain (loss)
$
(29)
$
(17)
$
(12)
68.6
%
$
95
$
24
$
71
288.9
%
Point Chg
Point Chg
Loss ratio
76.8
%
74.7
%
2.1
68.4
%
70.8
%
(2.4)
Commission and brokerage ratio
12.7
%
13.7
%
-1.0
12.7
%
13.4
%
(0.7)
Other underwriting expense ratio
14.0
%
14.1
%
-0.1
14.8
%
14.5
%
0.3
Combined ratio
103.5
%
102.5
%
1.0
95.9
%
98.7
%
(2.8)
(NM not meaningful)
(Some amounts may not reconcile due to rounding.)
Premiums. Gross written premiums increased by 11.9% to $1.1 billion for the three months ended September
30, 2022 compared to $1.0 billion for the three months ended September 30, 2021. The increase in insurance
premiums reflects growth across most lines of business driven by positive rate and exposure increases, new
business and strong renewal retention. Net written premiums increased by 17.6% to $862 million for the three
months ended September 30, 2022 compared to $733 million for the three months ended September 30, 2021.
The higher percentage increase in net written premiums compared to gross written premiums was mainly due to
a change in business mix. Premiums earned increased 20.9% to $822 million for the three months ended
September 30, 2022 compared to $680 million for the three months ended September 30, 2021. The change in
premiums earned relative to net written premiums is the result of timing; premiums are earned ratably over the
coverage period whereas written premiums are recorded at the initiation of the coverage period. Accordingly,
the significant increases in gross written premiums during the latter half of 2021 contributed to the current
quarter percentage increase in net earned premiums.
Gross written premiums increased by 15.5% to $3.4 billion for the nine months ended September 30, 2022
compared to $2.9 billion for the nine months ended September 30, 2021. The increase in insurance premiums
reflects growth across most lines of business driven by positive rate and exposure increases, new business and
41
strong renewal retention. Net written premiums increased by 17.4% to $2.5 billion for the nine months ended
September 30, 2022 compared to $2.1 billion for the nine months ended September 30, 2021. The higher
percentage increase in net written premiums compared to gross written premiums was mainly due to a change
in business mix. Premiums earned increased 20.6% to $2.3 million for the nine months ended September 30,
2022 compared to $1.9 billion for the nine months ended September 30, 2021. The change in premiums earned
relative to net written premiums is the result of timing; premiums are earned ratably over the coverage period
whereas written premiums are recorded at the initiation of the coverage period. Accordingly, the significant
increases in gross written premiums during the latter half of 2021 contributed to the current year-to-date
percentage increase in net earned premiums.
Incurred Losses and LAE. The following table presents the incurred losses and LAE for the Insurance segment for
the periods indicated.
Three Months Ended September 30,
Current
Ratio %/
Prior
Ratio %/
Total
Ratio %/
(Dollars in millions)
Year
Pt Change
Years
Pt Change
Incurred
Pt Change
2022
Attritional
$
521
63.4
%
$
-
-
%
521
63.4
%
Catastrophes
110
13.4
%
-
-
%
110
13.4
%
Total Segment
$
631
76.8
%
$
-
-
%
$
631
76.8
%
2021
Attritional
$
428
63.0
%
$
-
-
%
428
63.0
%
Catastrophes
80
11.8
%
-
-
%
80
11.8
%
Total Segment
$
508
74.7
%
$
-
-
%
$
508
74.7
%
Variance 2022/2021
Attritional
$
93
0.4
pts
$
-
-
pts
$
93
0.4
pts
Catastrophes
30
1.6
pts
-
-
pts
30
1.6
pts
Total Segment
$
123
2.1
pts
$
-
-
pts
$
123
2.1
pts
Nine Months Ended September 30,
Current
Ratio %/
Prior
Ratio %/
Total
Ratio %/
(Dollars in millions)
Year
Pt Change
Years
Pt Change
Incurred
Pt Change
2022
Attritional
$
1,470
63.2
%
$
1
-
%
1,471
63.2
%
Catastrophes
120
5.2
%
-
-
%
120
5.2
%
Total Segment
$
1,590
68.4
%
$
1
-
%
$
1,591
68.4
%
2021
Attritional
$
1,229
63.8
%
$
(1)
-0.1
%
1,228
63.7
%
Catastrophes
138
7.1
%
-
-
%
138
7.1
%
Total Segment
$
1,366
70.9
%
$
(1)
-0.1
%
$
1,366
70.8
%
Variance 2022/2021
Attritional
$
241
(0.6)
pts
$
2
0.1
pts
$
242
(0.5)
pts
Catastrophes
(18)
(1.9)
pts
-
-
pts
(18)
(1.9)
pts
Total Segment
$
223
(2.5)
pts
$
2
0.1
pts
$
225
(2.4)
pts
(Some amounts may not reconcile due to rounding.)
Incurred losses and LAE increased by 24.2% to $631 million for the three months ended September 30, 2022
compared to $508 million for the three months ended September 30, 2021. The increase was mainly due to an
increase of $93 million in current year attritional losses and an increase in current year catastrophe losses of $30
million. The increase in current year attritional losses was primarily due to the impact of the increase in
premiums earned. The current year catastrophe losses of $110 million related to Hurricane Ian ($100 million),
Hurricane Fiona ($5 million) and the Western Europe hailstorms ($5 million). The $80 million of current year
catastrophe losses for the three months ended September 30, 2021 related to Hurricane Ida.
Incurred losses and LAE increased by 16.5% to $1.6 billion for the nine months ended September 30, 2022
compared to $1.4 billion for the nine months ended September 30, 2021. The increase was mainly due to an
42
increase of $241 million in current year attritional losses, partially offset by a decrease in current year
catastrophe losses of $18 million. The increase in current year attritional losses was primarily due to the impact
of the increase in premiums earned. The current year catastrophe losses of $120 million related to Hurricane Ian
($100 million), Hurricane Fiona ($5 million), the Western Europe hailstorms ($5 million), the 2022 March U.S.
storms ($5 million) and the 2022 2
nd
catastrophe losses for the nine months ended September 30, 2021 related to Hurricane Ida ($80 million) and the
Texas winter storms ($58 million).
Segment Expenses. Commission and brokerage increased by 12.0% to $104 million for the three months ended
September 30, 2022 compared to $93 million for the three months ended September 30, 2021. Commission and
brokerage increased by 14.3% to $295 million for the nine months ended September 30, 2022 compared to $258
million for the nine months ended September 30, 2021. These increases were mainly due to the impact of the
increases in premiums earned and increased expenses related to the continued build out of the insurance
business, including an expansion of the international insurance platform.
Segment other underwriting expenses increased to $115 million for the three months ended September 30,
2022 compared to $96 million for the three months ended September 30, 2021. Segment other underwriting
expenses increased to $344 million for the nine months ended September 30, 2022 compared to $280 million for
the nine months ended September 30, 2021. These increases were mainly due to the impact of the increase s in
premiums earned and increased expenses related to the continued build out of the insurance business, including
an expansion of the international insurance platform.
FINANCIAL CONDITION
Investments. Total investments were $26.8 billion at September 30, 2022, a decrease of $1.4 million compared
to $28.2 billion at December 31, 2021. This decrease was primarily related to declines in fixed maturity
securities, equity securities and short -term investments. Fixed maturity securities decreased due to declines in
fair values resulting primarily from higher interest rates, as well as net purchases of fixed maturity securities
during the period. Equity securities decreased due to declines in fair values due to diminished market
performance as well as net sales of equity securities during the period.
The Company’s limited partnership investments are comprised of limited partnerships that invest in private
equities. Generally, the limited partnerships are reported on a month or quarter lag. We receive annual audited
financial statements for all of the limited partnerships which are prepared using fair value accounting in
accordance with FASB guidance. For the quarterly reports, the Company reviews the financial reports for any
unusual changes in carrying value. If the Company becomes aware of a significant decline in value during the lag
reporting period, the loss will be recorded in the period in which the Company identifies the decline.
The table below summarize the composition and characteristics of our investment portfolio as of the dates
indicated.
At
At
September 30, 2022
December 31, 2021
Fixed income portfolio duration (years)
3.1
3.2
Fixed income composite credit quality
A+
A+
Reinsurance Recoverables .
Reinsurance recoverables for both paid and unpaid losses totaled $2.2 billion and $2.1 billion at September 30,
2022 and December 31, 2021, respectively. At September 30, 2022, $526 million, or 23.5%, was receivable from
Mt. Logan Re collateralized segregated accounts; $234 million, or 10.4%, was receivable from Munich
Reinsurance America, Inc. (“Munich Re”) and $140 million, or 6.3% was receivable from Endurance Specialty
Holdings, Ltd. (“Endurance”). No other retrocessionaire accoun ted for more than 5% of our recoverables .
43
Loss and LAE Reserves. Gross loss and LAE reserves totaled $21.2 billion and $19.0 billion at September 30,
2022 and December 31, 2021, respectively.
The following tables summarize gross outstanding loss and LAE reserves by segment, classified by case reserves
and IBNR reserves, for the periods indicated.
At September 30, 2022
Case
IBNR
Total
% of
(Dollars in millions)
Reserves
Reserves
Reserves
Total
Reinsurance
$
5,763
$
9,620
$
15,383
72.5
%
Insurance
1,728
3,973
5,701
26.9
%
Total excluding A&E
7,491
13,592
21,083
99.4
%
A&E
139
-
139
0.6
%
Total including A&E
$
7,630
$
13,592
$
21,222
100.0
%
(Some amounts may not reconcile due to rounding.)
At December 31, 2021
Case
IBNR
Total
% of
(Dollars in millions)
Reserves
Reserves
Reserves
Total
Reinsurance
$
5,415
$
8,312
$
13,727
72.2
%
Insurance
1,546
3,562
5,109
26.9
%
Total excluding A&E
6,961
11,875
18,836
99.1
%
A&E
164
10
174
0.9
%
Total including A&E
$
7,125
$
11,885
$
19,009
100.0
%
(Some amounts may not reconcile due to rounding.)
Changes in premiums earned and business mix, reserve re-estimations, catastrophe losses and changes in
catastrophe loss reserves and claim settlement activity all impact loss and LAE reserves by segment and in total.
Our loss and LAE reserves represent management’s best estimate of our ultimate liability for unpaid claims. We
continuously re-evaluate our reserves, including re-estimates of prior period reserves, taking into consideration
all available information and, in particular, newly reported loss and claim experience. Changes in reserves
resulting from such re-evaluations are reflected in incurred losses in the period when the re-evaluation is made.
Our analytical methods and processes operate at multiple levels including individual contracts, groupings of like
contracts, classes and lines of business, internal business units, segments, legal entities, and in the aggregate. In
order to set appropriate reserves, we make qualitative and quantitative analyses and judgments at these various
levels. Additionally, the attribution of reserves, changes in reserves and incurred losses among accident years
requires qualitative and quantitative adjustments and allocations at these various levels. We utilize actuarial
science, business expertise and management judgment in a manner intended to ensure the accuracy and
consistency of our reserving practices. Nevertheless, our reserves are estimates, which are subject to variation,
which may be significant.
There can be no assurance that reserves for, and losses from, claim obligations will not increase in the future,
possibly by a material amount. However, we believe that our existing reserves and reserving methodologies
lessen the probability that any such increase would have a material adverse effect on our financial condition,
results of operations or cash flows.
44
Asbestos and Environmental Exposures. Asbestos and Environmental (“A&E”) exposures represent a separate
exposure group for monitoring and evaluating reserve adequacy. The following table summarizes the
outstanding loss reserves with respect to A&E reserves on both a gross and net of retrocessions basis for the
periods indicated.
At
At
September 30,
December 31,
(Dollars in millions)
2022
2021
Gross reserves
$
139
$
175
Ceded reserves
(15)
(19)
Net reserves
$
124
$
156
(Some amounts may not reconcile due to rounding.)
With respect to asbestos only, at September 30, 2022, we had net asbestos loss reserves of $125 million, or
101.0%, of total net A&E reserves, all of which was for assumed business.
Ultimate loss projections for A&E liabilities cannot be accomplished using standard actuarial techniques. We
believe that our A&E reserves represent management’s best estimate of the ultimate liability; however, there
can be no assurance that ultimate loss payments will not exceed such reserves, perhaps by a significant amount.
Industry analysts use the “survival ratio” to compare the A&E reserves among companies with such liabilities.
The survival ratio is typically calculated by dividing a company’s current net reserves by the three year average of
annual paid losses. Hence, the survival ratio equals the number of years that it would take to exhaust the
current reserves if future loss payments were to continue at historical levels. Using this measurement, our net
three year asbestos survival ratio was 3.5 years at September 30, 2022. These metrics can be skewed by
individual large settlements occurring in the prior three years and therefore, may not be indicative of the timing
of future payments.
LIQUIDITY AND CAPITAL RESOURCES
Capital. Shareholders’ equity at September 30, 2022 and December 31, 2021 was $7.6 billion and $10.1 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 two main operating companies Bermuda Re and Everest Re are regulated by the Bermuda Monetary
Authority (“BMA”) and the State of Delaware, Department of Insurance, respectively. Both regulatory bodies
have their 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, including business
activity and the payment of dividends to their parent companies.
The regulatory targeted capital and the actual statutory capital for Bermuda Re and Everest Re were as follows:
Bermuda Re
(1)
Everest Re
(2)
At December 31,
At December 31,
(Dollars in millions)
2021
2020
2021
2020
Regulatory targeted capital
$
2,169
$
1,923
$
2,960
$
2,490
Actual capital
$
3,184
$
2,930
$
5,717
$
5,276
(1)
Regulatory targeted capital represents the target capital level from the applicable year's BSCR calculation.
(2)
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
45
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.
On October 4, 2021, we issued $1.0 billion of 31 year senior notes with an interest coupon rate of 3.125%. These
senior notes will mature on October 15, 2052 and will pay interest semi-annually.
During the first three quarters of 2022, we repurchased 238,771 shares for $60 million in the open market and
paid $191 million in dividends to adjust our capital position and enhance long term expected returns to our
shareholders. In 2021, we repurchased 887,622 shares for $225 million in the open market and paid $247
million in dividends to adjust our capital position and enhance long term expected returns to our shareholders.
We may at times enter into a Rule 10b5-1 repurchase plan agreement to facilitate the repurchase of shares. On
May 22, 2020, our existing Board authorization to purchase up to 30 million of our shares was amended to
authorize the purchase of up to 32 million shares. As of September 30, 2022, we had repurchased 30.8 million
shares under this authorization.
We also repurchased $6 million of our long term subordinated notes during the third quarter of 2022 and
recognized a gain of $1 million on the repurchase. 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 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 $2.7 billion and $2.8 billion for the nine months ended September 30, 2022 and 2021, respectively.
Additionally, these cash flows reflected net catastrophe loss payments of $534 million and $526 million for the
nine months ended September 30, 2022 and 2021, respectively and net tax payments of $167 million and $40
million for the nine months ended September 30, 2022 and 2021, 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 and dispositions, both short-term investments and longer term
maturities are available to supplement other operating cash flows.
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 September 30, 2022 and December 31, 2021, we held cash and short-term
investments of $2.3 billion and $2.6 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 September
30, 2022, we had $1.3 billion of available for sale fixed maturity securities maturing within one year or less, $7.2
billion maturing within one to five years and $5.1 billion maturing after five years. Our $1.3 billion of equity
securities are comprised primarily of publicly traded securities that 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
46
do not anticipate selling a significant amount of securities to pay losses and LAE but have the ability to do so.
Sales of securities might result in net gains (losses) on investments . At September 30, 2022 we had $2.5 billion
of net pre-tax unrealized depreciation related to fixed maturity securities, comprised of $2.3 billion of pre-tax
unrealized depreciation and $153 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 program .
In addition to our cash flows from operations and liquid investments, we also have multiple active credit facilities
that provide commitments of up to $1.2 billion of collateralized standby letters of credit to support business
written by our Bermuda operating subsidiaries. In addition, the Company has the ability to request access to an
additional $340 million of uncommitted credit facilities, which would require approval from the applicable
lender. There is no guarantee the uncommitted capacity will be available to us on a future date. See Note 9 –
Credit Facilities for further details.
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, fixed
maturity portfolio, while maintaining an adequate level of liquidity. Our mix of investments is adjusted
periodically, consistent with our current and projected operating results and market conditions. The fixed
maturity securities in the investment portfolio are comprised of non-trading available for sale securities.
Additionally, we have invested in equity securities.
The overall investment strategy considers the scope of present and anticipated Company operations. In
particular, estimates of the financial impact resulting from non-investment asset and liability transactions,
together with our capital structure and other factors, are used to develop a net liability analysis. This analysis
includes estimated payout characteristics for which our investments provide liquidity. This analysis is considered
in the development of specific investment strategies for asset allocation, duration and credit quality. The change
in overall market sensitive risk exposure principally reflects the asset changes that took place during the period.
Interest Rate Risk. Our $28.6 billion investment portfolio, at September 30, 2022, is principally comprised of
fixed maturity securities, which are generally subject to interest rate risk and some foreign currency exchange
rate risk, and some equity securities, which are subject to price fluctuations and some foreign exchange rate risk.
The overall economic impact of the foreign exchange risks on the investment portfolio is partially mitigated by
changes in the dollar value of foreign currency denominated liabilities and their associated income statement
impact.
Interest rate risk is the potential change in value of the fixed maturity securities portfolio, including short-term
investments, from a change in market interest rates. In a declining interest rate environment, it includes
prepayment risk on the $3.6 billion of mortgage -backed securities in the $21.0 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 $611 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
47
with a U.S. dollar functional currency, this modeling was performed on each security individually. To generate
appropriate price estimates on mortgage-backed securities, changes in prepayment expectations under different
interest rate environments were taken into account. For legal entities with a 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 September 30, 2022
-200
-100
0
100
200
(Dollars in millions)
Total Fair Value
$
25,586
$
24,861
$
24,135
$
23,410
$
22,684
Fair Value Change from Base (%)
6.0
%
3.0
%
0.0
%
(3.0)
%
(6.0)
%
Change in Unrealized Appreciation
After-tax from Base ($)
$
1,266
$
633
$
-
$
(633)
$
(1,266)
We had $21.2 billion and $19.0 billion of gross reserves for losses and LAE as of September 30, 2022 and
December 31, 2021, respectively. These amounts are recorded at their nominal value, as opposed to present
value, which would reflect a discount adjustment to reflect the time value of money. Since losses are paid out
over a period of time, the present value of the reserves is less than the nominal value. As interest rates rise, the
present value of the reserves decreases and, conversely, as interest rates decline, the present value increases.
These movements are the opposite of the interest rate impacts on the fair value of investments. While the
difference between present value and nominal value is not reflected in our financial statements, our financial
results will include investment income over time from the investment portfolio until the claims are paid. Our
loss and loss reserve obligations have an expected duration of approximately 3.7 years, which is reasonably
consistent with our fixed income portfolio. If we were to discount our loss and LAE reserves, net of ceded
reserves, the discount would be approximately $2.8 billion resulting in a discounted reserve balance of
approximately $16.3 billion, representing approximately 72.8% of the value of the fixed maturity investment
portfolio funds.
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 and mutual funds, which invest principally in high quality common and preferred stocks that
are traded on the major exchanges, and mutual fund investments in emerging market debt. 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 period indicated.
Impact of Percentage Change in Equity Fair/Market Values
At September 30, 2022
(Dollars in millions)
-20%
-10%
0%
10%
20%
Fair Value of the Equity Portfolio
$
1,041
$
1,171
$
1,301
$
1,431
$
1,561
After-tax Change in Fair Value
$
(206)
$
(103)
$
-
$
103
$
206
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./Bermuda (“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
Canadian Dollar, the Singapore Dollar, the British Pound Sterling and the Euro. 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
48
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 statements to be covered by the safe harbor provisions for forward-looking
statements in the federal securities laws. In some cases, these statements can be identified by the use of
forward-looking words such as “may”, “will”, “should”, “could”, “anticipate”, “estimate”, “expect”, “plan”,
“believe”, “predict”, “potential” and “intend”. Forward-looking statements contained in this report include
information regarding our reserves for losses and LAE, the CARES Act, the impact of the Tax Cut and Jobs Act, the
adequacy of capital in relation to regulatory required capital, the adequacy of our provision for uncollectible
balances, estimates of our catastrophe exposure, the effects of catastrophic and pandemic events on our
financial statements, the ability of Everest Re, Holdings, Holdings Ireland, Dublin Holdings, Bermuda Re and
Everest International to pay dividends and the settlement costs of our specialized equity index put option
contracts. Forward-looking statements only reflect our expectations and are not guarantees of performance.
These statements involve risks, uncertainties and assumptions. Actual events or results may differ materially
from our expectations. Important factors that could cause our actual events or results to be materially different
from our expectations include those discussed under the caption ITEM 1A, “Risk Factors” in the Company’s most
recent 10-K filing. We undertake no obligation to update or revise publicly any forward-looking statements,
whether as a result of new information, future events or otherwise.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market Risk Instruments.
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 it files or submits under the Exchange Act is recorded, processed, summarized and reported within
the time periods specified in 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
49
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
Issuer Purchases of Equity Securities.
Issuer Purchases of Equity Securities
(a)
(b)
(c)
(d)
Maximum Number (or
Total Number of
Approximate Dollar
Shares (or Units)
Value) of Shares (or
Purchased as Part
Units) that May Yet
Total Number of
of Publicly
Be Purchased Under
Shares (or Units)
Average Price Paid
Announced Plans or
the Plans or
Period
Purchased
per Share (or Unit)
Programs
Programs (1)
July 1 - 31, 2022
-
$
-
-
1,465,181
August 1 - 31, 2022
128,764
$
252.6871
128,764
1,336,417
September 1 - 30, 2022
110,531
$
252.6578
105,007
1,231,410
Total
239,295
$
-
233,771
1,231,410
(1) On May 22, 2020, the Company’s executive committee of the Board of Directors approved an amendment to the share repurchase program
authorizing the Company and/or its subsidiary Holdings, to purchase up to a current aggregate of 32.0 million of the Company’s shares (recognizing that the
number of shares authorized for repurchase has been reduced by those shares that have already been purchased) in open market transactions, privately
negotiated transactions or both. Currently, the Company and/or its subsidiary Holdings have repurchased 30.8 million of the Company’s shares.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.
50
ITEM 6. EXHIBITS
Exhibit Index
Exhibit No.
Description
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)
51
Everest Re Group, Ltd.
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 Re Group, Ltd.
(Registrant)
/S/ MARK KOCIANCIC
Mark Kociancic
Executive Vice President and
(Duly Authorized Officer and Principal Financial Officer)
Dated: November 3, 2022