EVEREST GROUP, LTD. (EG) FY 2022 MD&A
This page reproduces the company's own Item 7 MD&A text from the linked SEC filing. It is filer text, not grepcent analysis, scoring, or investment advice.
ITEM 7.
MANAGEMENT’S
DISCUSSION
AND
ANALYSIS
OF
FINANCIAL
CONDITION
AND
RESULTS
OF
OPERATION
The following is
a discussion and analysis
of our results of
operations and financial
condition for the
years ended
December
31,
2022
and
2021.
This
discussion
should
be
read
in
conjunction
with
the
Consolidated
Financial
Statements
and
related
Notes,
under
ITEM
8
of
this
Form
10-K.
Pursuant
to
the
FAST
Act
Modernization
and
Simplification
of Regulation
S-K, comparisons
between
2020 and
2019 have
been omitted
from this
Form 10-K
but can be
found in "Management's
Discussion and Analysis
of Financial Condition
and Results of
Operations" in
Part II, Item 7 of our Form 10-K for the
year ended December 31, 2020.
All comparisons in this discussion are to the corresponding
prior year unless otherwise indicated.
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 is
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
is
primarily driven
by the
desire to
achieve
greater
risk
diversification
and
potentially
higher
returns
on
their
investments.
This
competition
generally has a negative impact
on rates, terms and conditions;
however,
the impact varies widely by market
and
coverage.
Based on recent competitive
behaviors in the
insurance and reinsurance
industry, natural
catastrophe
events
and
the
macroeconomic
backdrop,
there
has
been
some
dislocation
in
the
market
which
we
expect
to
have a positive impact on rates
and terms and conditions, generally,
though local market specificities can
vary.
The
increased
frequency
of
catastrophe
losses
experienced
throughout
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.
42
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.
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 losses related
to the Ukraine/Russia war during 2022.
43
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.
Years Ended December 31,
Percentage Increase/(Decrease)
(Dollars in millions)
2022
2021
2020
2022/2021
2021/2020
Gross written premiums
$
13,952
$
13,050
$
10,482
6.9%
24.5%
Net written premiums
12,344
11,446
9,117
7.9%
25.5%
REVENUES:
Premiums earned
$
11,787
$
10,406
$
8,682
13.3%
19.9%
Net investment income
830
1,165
643
(28.8)%
81.3%
Net gains (losses) on investments
(455)
258
268
(276.4)%
-3.6%
Other income (expense)
(102)
37
7
NM
NM
Total revenues
12,060
11,866
9,598
1.6%
23.6%
CLAIMS AND EXPENSES:
Incurred losses and loss adjustment expenses
8,100
7,391
6,551
9.6%
12.8%
Commission, brokerage, taxes
and fees
2,528
2,209
1,873
14.5%
17.9%
Other underwriting expenses
682
583
511
17.0%
14.0%
Corporate expenses
61
68
41
(10.1)%
65.0%
Interest, fees and bond issue
cost amortization expense
101
70
36
43.9%
93.1%
Total claims and expenses
11,472
10,321
9,013
11.2%
14.5%
INCOME (LOSS) BEFORE TAXES
588
1,546
585
(62.0)%
164.1%
Income tax expense (benefit)
(9)
167
71
(105.3)%
133.9%
NET INCOME (LOSS)
$
597
$
1,379
$
514
(56.7)%
168.2%
RATIOS:
Point Change
Loss ratio
68.7%
71.0%
75.5%
(2.3)
(4.5)
Commission and brokerage ratio
21.4%
21.2%
21.6%
0.2
(0.4)
Other underwriting expense ratio
5.8%
5.6%
5.8%
0.2
(0.2)
Combined ratio
96.0%
97.8%
102.9%
(1.8)
(5.1)
At December 31,
Percentage Increase/(Decrease)
(Dollars in millions, except per share amounts)
2022
2021
2020
2022/2021
2021/2020
Balance sheet data:
Total investments
and cash
$
29,872
$
29,673
$
25,462
0.7%
16.5%
Total assets
39,966
38,185
32,712
4.7%
16.7%
Loss and loss adjustment expense reserves
22,065
19,009
16,322
16.1%
16.5%
Total debt
3,084
3,089
1,910
(0.2)%
61.7%
Total liabilities
31,525
28,046
22,985
12.4%
22.0%
Shareholders' equity
8,441
10,139
9,726
(16.8)%
4.2%
Book value per share
215.54
258.21
243.25
(16.5)%
6.2%
(NM, not meaningful)
(Some amounts may not reconcile due to rounding.)
44
Revenues.
Premiums.
Gross
written
premiums
increased
by
6.9%
to
$14.0
billion
in
2022,
compared
to
$13.1
billion
in
2021,
reflecting
a
$653.4
million,
or
16.4%,
increase
in
our
insurance
business
and
a
$248.8
million,
or
2.7%,
increase
in our
reinsurance
business.
The increase
in insurance
premiums
reflects
growth
across
most lines
of
business,
particularly
specialty
casualty
business
and
property/short
tail
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
7.9% to
$12.3 billion
in
2022, compared
to
$11.4
billion
in
2021.
The
higher
percentage
increase
in
net
written
premiums
compared
to
gross
written
premiums was primarily
due to a reduction
in business ceded to
the segregated
accounts of Mt. Logan
Re during
2022
compared
to
2021.
Premiums
earned
increased
by
13.3%
to
$11.8
billion
in
2022,
compared
to
$10.4
billion
in
2021.
The
change
in
premiums
earned
relative
to
net
written
premiums
was
primarily
the
result
of
timing; premiums
are
earned
ratably
over
the coverage
period whereas
written
premiums
are
recorded
at
the
initiation of
the coverage
period.
Accordingly,
the significant
increase in
gross written
premiums from
pro rata
business
during
the
latter
half
of
2021
contributed
to
the
current
year-to-date
percentage
increases
in
net
earned premiums.
Other Income
(Expense).
We
recorded
other expense
of $102
million and
other income
of $37
million in
2022
and 2021, respectively.
The changes were primarily
the result of fluctuations
in foreign currency exchange
rates.
We
recognized
foreign
currency
exchange
expense
of
$103
million
in
2022
and
foreign
currency
exchange
income of $28 million in 2021.
45
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.
Years Ended December 31,
Current
Ratio %/
Prior
Ratio %/
Total
Ratio %/
(Dollars in millions)
Year
Pt Change
Years
Pt Change
Incurred
Pt Change
2022
Attritional
$
7,047
59.8%
$
(2)
—%
$
7,045
59.8%
Catastrophes
1,055
9.0%
—
—%
1,055
9.0%
Total segment
$
8,102
68.8%
$
(2)
—%
$
8,100
68.7%
2021
Attritional
$
6,265
60.2%
$
(9)
(0.1)%
$
6,256
60.1%
Catastrophes
1,135
10.9%
—
—%
1,135
10.9%
Total segment
$
7,400
71.1%
$
(9)
(0.1)%
$
7,391
71.0%
2020
Attritional
$
5,724
66.0%
$
401
4.7%
$
6,126
70.7%
Catastrophes
425
4.9%
—
—%
425
4.9%
Total segment
$
6,150
70.9%
$
401
4.7%
$
6,551
75.5%
Variance 2022/2021
Attritional
$
782
(0.4)
pts
$
7
0.1
pts
$
789
(0.3)
pts
Catastrophes
(80)
(1.9)
pts
—
—
pts
(80)
(1.9)
pts
Total segment
$
702
(2.3)
pts
$
7
0.1
pts
$
709
(2.2)
pts
Variance 2021/2020
Attritional
$
541
(5.8)
pts
$
(411)
(4.8)
pts
$
130
(10.6)
pts
Catastrophes
710
6.0
pts
—
—
pts
710
6.0
pts
Total segment
$
1,251
0.2
pts
$
(411)
(4.8)
pts
$
840
(4.6)
pts
(Some amounts may not reconcile due to rounding.)
Incurred losses and LAE
increased by 9.6% to
$8.1 billion in 2022, compared
to $7.4 billion in 2021,
primarily due
to
an
increase
of $782
million
in
current
year
attritional
losses,
partially
offset
by
a
decrease
of $80
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
$1.1 billion
in 2022
related primarily
to Hurricane
Ian ($699
million), the
2022
Australia
floods
($88
million),
the
2022
Western
Europe
hailstorms
($69
million),
the
2022
South
Africa
flood ($50
million), the
2022 Western
Europe Convective
Storm ($35
million), Hurricane
Fiona ($27
million), the
2022
European
storms
($21
million)
and
the
2022
Canada
derecho
($21
million),
with
the
remaining
losses
resulting from various
storm events.
The $1.1 billion of current
year catastrophe
losses in 2021 related
primarily
to Hurricane
Ida ($460
million), the
Texas
winter storms
($294 million),
the European
floods ($242
million), the
Canada
drought
loss
($80
million)
and
the
Quad
State
tornadoes
($45
million)
with
the
rest
of
the
losses
emanating from the South Africa riots and
the 2021 Australia floods.
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
9.0
percentage
points
to
the
combined
ratio
in
2022,
compared
with
10.9
percentage
points
in
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 $47.4 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.
46
Commission,
Brokerage,
Taxes
and
Fees.
Commission,
brokerage,
taxes
and
fees
increased
by
14.5%
to
$2.5
billion for
the year
ended December
31, 2022
compared
to $2.2
billion for
the year
ended December
31, 2021.
The
increase
was
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
$682
million
and
$583
million
in
2022
and
2021, respectively.
The increase in
other underwriting expenses
was 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, were $61
million and $68 million
for the years
ended December 31, 2022
and 2021, respectively.
The
decrease from 2021 to 2022 was mainly
due to a decrease in variable incentive compensation.
Interest,
Fees and
Bond Issue
Cost
Amortization
Expense.
Interest,
fees
and other
bond
amortization
expense
was
$101
million
and
$70
million
in
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
6.99% as of December 31, 2022 compared to 2.54% as of December 31,
2021.
Income Tax
Expense (Benefit).
We had
income tax
benefit of $9
million and income
tax expense
of $167 million
in
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
repurchase excise tax
and do not expect the legislation to have
a material impact on our results of operations.
As
the IRS issues additional guidance, we will evaluate
any impact to our consolidated
financial statements.
Net Income (Loss).
Our
net
income
was
$597
million
and
$1.4
billion
in
2022
and
2021,
respectively.
The
change
was
primarily
driven by the consolidated investment
results explained below.
Ratios.
Our
combined
ratio
decreased
by
1.8
points
to
96.0%
in
2022,
compared
to
97.8%
in
2021.
The
loss
ratio
component decreased by
2.3 points in 2022 over
the same period last year
mainly due to a decline $80 million
in
catastrophe
losses.
The
commission
and
brokerage
ratio
components
increased
slightly
to
21.4%
in
2022
compared
to
21.2%
in
2021.
The
increase
was
mainly
due
to
changes
in
the
mix
of
business.
The
other
underwriting expense ratios
increased slightly
to 5.8% in
2022 compared
to 5.6% in
2021.
These increases
were
mainly due to higher insurance operations
costs.
Shareholders’ Equity.
Shareholders’
equity
decreased
by
$1.7
billion
to
$8.4
billion
at
December
31,
2022
from
$10.1
billion
at
December
31,
2021,
principally
as
a
result
of $1.9
billion
of unrealized
depreciation
on
available
for
sale
fixed
maturity
portfolio
net
of
tax,
$255
million
of
shareholder
dividends,
$77
million
of
net
foreign
currency
translation adjustments,
and the repurchase
of 241,273 common
shares for
$61 million,
partially offset
by $597
million of net income.
47
Consolidated Investment
Results
Net Investment Income.
Net
investment
income
decreased
by
28.8% to
$830 million
in 2022
compared
with
net
investment
income
of
$1.2
billion
in
2021.
The
decrease
was
primarily
the
result
of
a
decline
of
$490
million
in
limited
partnership
income,
partially
offset
by
an
additional
$181
million
of
income
from
fixed
maturity
investments.
The
limited
partnership
income
primarily
reflects
decreases
in
their
reported
net
asset
values.
As
such,
until
these
asset
values are monetized and the
resultant income is distributed,
they are subject to future increases
or decreases in
the asset value, and the results may be volatile.
The following table shows the components
of net investment income for
the periods indicated.
Years Ended December 31,
(Dollars in millions)
2022
2021
2020
Fixed maturities
$
742
$
561
$
542
Equity securities
16
17
19
Short-term investments and cash
28
1
5
Other invested assets
Limited partnerships
75
565
113
Other
29
63
2
Gross investment income before adjustments
890
1,208
681
Funds held interest income (expense)
2
12
13
Future policy benefit reserve income (expense)
—
(1)
(1)
Gross investment income
892
1,219
692
Investment expenses
(62)
(54)
(50)
Net investment income
$
830
$
1,165
$
643
(Some amounts may not reconcile due to rounding.)
The following tables show a comparison
of various investment yields for
the periods indicated.
2022
2021
2020
Annualized pre-tax yield on average cash and invested assets
2.7
%
4.4
%
2.9
%
Annualized after-tax yield on average cash and invested assets
2.3
%
3.8
%
2.5
%
Annualized return on invested assets
1.2
%
5.3
%
4.0
%
2022
2021
2020
Fixed income portfolio total return
(5.9)
%
0.5
%
6.3
%
Barclay's Capital - U.S. aggregate index
(13.0)
%
(1.5)
%
7.5
%
Common equity portfolio total return
(18.5)
%
19.0
%
26.7
%
S&P 500 index
(18.1)
%
28.7
%
18.4
%
Other invested asset portfolio total return
4.5
%
36.5
%
8.3
%
The pre
-tax
equivalent
total
return
for
the
bond
portfolio
was
approximately
(5.9)%
and
0.5%,
respectively,
in
2022
and
2021.
The
pre-tax
equivalent
return
adjusts
the
yield
on
tax-exempt
bonds
to
the
fully
taxable
equivalent.
Our
fixed
income
and
equity
portfolios
have
different
compositions
than
the
benchmark
indexes.
Our
fixed
income portfolios have
a shorter duration
because we align our investment
portfolio with our liabilities.
We also
hold
foreign
securities
to
match
our
foreign
liabilities
while
the
index
is
comprised
of
only
U.S.
securities.
Our
equity portfolios
reflect an
emphasis on
dividend yield
and growth
equities, while
the index
is comprised
of the
largest 500 equities by market
capitalization.
48
Net Realized Capital Gains (Losses).
The following table presents the composition
of our net realized capital gains
(losses) for the periods indicated.
Years Ended December 31,
2022/2021
2021/2020
(Dollars in millions)
2022
2021
2020
Variance
Variance
Realized gains (losses) from dispositions:
Fixed maturity securities - available for sale:
Gains
$
40
$
72
$
80
$
(32)
$
(8)
Losses
(127)
(55)
(85)
(72)
27
Total
(87)
17
(5)
(104)
19
Equity securities:
Gains
165
42
37
123
5
Losses
(53)
(15)
(46)
(38)
32
Total
112
28
(9)
85
37
Other Invested Assets
Gains
18
10
8
8
2
Losses
(5)
(4)
(6)
(1)
2
Total
13
6
2
7
4
Short Term Investments
Gains
—
—
1
—
(1)
Losses
—
—
—
—
—
Total
—
—
1
—
(1)
Total net realized gains (losses) from dispositions:
Gains
223
124
126
99
(2)
Losses
(185)
(74)
(137)
(111)
63
Total
38
50
(11)
(12)
61
Allowance for credit losses:
(33)
(28)
(2)
(5)
(26)
Gains (losses) from fair value adjustments:
Fixed maturities
—
—
2
—
(2)
Equity securities
(460)
236
279
(696)
(43)
Total
(460)
236
280
(696)
(45)
Total net gains (losses) on investments
$
(455)
$
258
$
268
$
(713)
$
(10)
(Some amounts may not reconcile due to rounding.)
Net
gains
(losses)
on
investments
in
2022
primarily
relate
to
net
losses
from
fair
value
adjustments
on
equity
securities in
the amount
of $460
million as
a result
of equity
market
declines in
2022.
In addition,
we realized
$38 million
of gains
due to
the disposition
of investments
and recorded
an increase
to the
allowance for
credit
losses of $33 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.
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
49
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 branches located
in the Netherlands, France, Germany and Spain.
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
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-evaluation
is made.
The following discusses the underwriting results for
each of our segments for the periods indicated.
Reinsurance.
The
following
table
presents
the
underwriting
results
and
ratios
for
the
Reinsurance
segment
for
the
periods
indicated.
Years Ended December 31,
2022/2021
2021/2020
(Dollars in millions)
2022
2021
2020
Variance
% Change
Variance
% Change
Gross written premiums
$
9,316
$
9,067
$
7,282
$
249
2.7%
$
1,786
24.5%
Net written premiums
8,983
8,536
6,768
447
5.2%
1,768
26.1%
Premiums earned
$
8,663
$
7,758
$
6,466
$
905
11.7%
$
1,291
20.0%
Incurred losses and LAE
5,997
5,556
4,933
441
7.9%
623
12.6%
Commission and brokerage
2,134
1,855
1,552
279
15.1%
302
19.5%
Other underwriting expenses
218
199
176
19
9.6%
23
13.3%
Underwriting gain (loss)
$
313
$
147
$
(195)
$
166
112.6%
$
343
175.4%
Point Chg
Point Chg
Loss ratio
69.2%
71.6%
76.3%
(2.4)
(4.7)
Commission and brokerage ratio
24.6%
23.9%
24.0%
0.7
(0.1)
Other underwriting expense ratio
2.5%
2.6%
2.7%
(0.1)
(0.1)
Combined ratio
96.4%
98.1%
103.0%
(1.8)
(4.9)
(NM, not meaningful)
(Some amounts may not reconcile due to rounding.)
Premiums.
Gross written
premiums increased by
2.7% to $9.3 billion
in 2022 from $9.1
billion in 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 5.2%
to
$9.0 billion
in 2022
compared
to
$8.5
billion in
2021.
The higher
percentage
increase
in net
written
premiums
compared
to gross
written
premiums
50
mainly related to
a reduction in business ceded
to the segregated
accounts of Mt. Logan
Re in 2022 compared
to
2021.
Premiums
earned
increased
by
11.7%
to
$8.7
billion
in
2022,
compared
to
$7.8
billion
in
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.
Incurred Losses
and LAE.
The following table
presents the
incurred losses
and LAE for
the Reinsurance
segment
for the periods indicated.
Years Ended December 31,
Current
Ratio %/
Prior
Ratio %/
Total
Ratio %/
(Dollars in millions)
Year
Pt Change
Years
Pt Change
Incurred
Pt Change
2022
Attritional
$
5,070
58.5%
$
(2)
—%
$
5,067
58.5%
Catastrophes
930
10.7%
—
—%
930
10.7%
Total segment
$
6,000
69.2%
$
(2)
—%
$
5,997
69.2%
2021
Attritional
$
4,582
59.1%
$
(8)
(0.1)%
$
4,574
59.0%
Catastrophes
983
12.7%
—
—%
983
12.7%
Total segment
$
5,564
71.8%
$
(8)
(0.1)%
$
5,556
71.6%
2020
Attritional
$
4,180
64.6%
$
397
6.1%
$
4,576
70.7%
Catastrophes
357
5.5%
—
—%
357
5.5%
Total segment
$
4,537
70.1%
$
397
6.1%
$
4,933
76.3%
Variance 2022/2021
Attritional
$
488
(0.6)
pts
$
6
0.1
pts
$
494
(0.5)
pts
Catastrophes
(53)
(2.0)
pts
—
—
pts
(53)
(2.0)
pts
Total segment
$
435
(2.6)
pts
$
6
0.1
pts
$
441
(2.4)
pts
Variance 2021/2020
Attritional
$
402
(5.5)
pts
$
(405)
(6.2)
pts
$
(3)
(11.7)
pts
Catastrophes
626
7.2
pts
—
—
pts
626
7.2
pts
Total segment
$
1,028
1.7
pts
$
(405)
(6.2)
pts
$
623
(4.5)
pts
(Some amounts may not reconcile due to rounding.)
Incurred
losses
increased
by
7.9%
to
$6.0
billion
in
2022, compared
to
$5.6
billion
in
2021.
The
increase
was
primarily due to an increase
of $488 million in current
year attritional losses,
partially offset by a decrease
of $53
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
$930
million
in
2022
related
primarily
to
Hurricane
Ian
($599
million),
the
2022
Australia
floods
($88
million),
the
Western
Europe
hailstorms
($69
million),
the
2022
South
Africa
flood
($50
million),
the
2022
Western
Europe
Convective
storm
($29
million),
Hurricane
Fiona
($22
million), the 2022 European
storms ($21 million)
and the 2022 Canada
derecho ($21 million),
with the remaining
losses resulting
from various
storm events.
The $983
million of
current year
catastrophe
losses in
2021 related
primarily
to
Hurricane
Ida
($380
million),
the
Texas
winter
storms
($237
million),
the
European
floods
($242
million), the
Canada drought
loss ($80
million) and
the Quad
state
tornadoes ($30
million), with
the rest
of the
losses emanating from the 2021 South Africa riots and
the 2021 Australia floods.
Segment Expenses.
Commission and
brokerage
expense increased
by 15.1% to
$2.1 billion in
2022 compared to
$1.9 billion in 2021.
The increase was mainly
due to the impact of the
increase in premiums earned
and changes
51
in
the
mix
of
business.
Segment
other
underwriting
expenses
increased
to
$218
million
in
2022
from
$199
million
in
2021.
The
increase
was
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.
Years Ended December 31,
2022/2021
2021/2020
(Dollars in millions)
2022
2021
2020
Variance
% Change
Variance
% Change
Gross written premiums
$
4,636
$
3,983
$
3,201
$
653
16.4%
$
782
24.4%
Net written premiums
3,361
2,910
2,349
451
15.5%
561
23.9%
Premiums earned
$
3,124
$
2,649
$
2,215
$
475
17.9%
$
434
19.6%
Incurred losses and LAE
2,103
1,835
1,617
268
14.6%
217
13.4%
Commission and brokerage
394
354
321
40
11.3%
33
10.4%
Other underwriting expenses
463
384
336
79
20.8%
48
14.3%
Underwriting gain (loss)
$
164
$
76
$
(58)
$
88
114.4%
$
135
230.7%
Point Chg
Point Chg
Loss ratio
67.3%
69.3%
73.0%
(2.0)
(3.7)
Commission and brokerage ratio
12.6%
13.4%
14.5%
(0.8)
(1.1)
Other underwriting expense ratio
14.8%
14.5%
15.1%
0.3
(0.6)
Combined ratio
94.8%
97.1%
102.6%
(2.5)
(5.5)
(Some amounts may not reconcile due to rounding.)
Premiums.
Gross written
premiums increased
by 16.4% to
$4.6 billion in
2022 compared
to $4.0 billion
in 2021.
The increase
in insurance
premiums reflects
growth across
most lines
of business,
particularly specialty
casualty
and
property/short
tail
business,
driven
by
positive
rate
and
exposure
increases,
new
business
and
strong
renewal retention.
Net written
premiums increased
by 15.5% to
$3.4 billion in
2022 compared
to $2.9 billion
in
2021, which
is consistent
with the
percentage
change
in gross
written
premiums.
Premiums
earned increased
17.9% to
$3.1 million
in 2022
compared to
$2.6 billion
in 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.
52
Incurred Losses and
LAE.
The following table presents
the incurred losses
and LAE for the Insurance
segment for
the periods indicated.
Years Ended December 31,
Current
Ratio %/
Prior
Ratio %/
Total
Ratio %/
(Dollars in millions)
Year
Pt Change
Years
Pt Change
Incurred
Pt Change
2022
Attritional
$
1,977
63.3%
$
1
—%
$
1,978
63.3%
Catastrophes
125
4.0%
—
—%
125
4.0%
Total segment
$
2,102
67.3%
$
1
—%
$
2,103
67.3%
2021
Attritional
$
1,684
63.6%
$
(1)
—%
$
1,682
63.6%
Catastrophes
153
5.8%
—
—%
153
5.8%
Total segment
$
1,836
69.4%
$
(1)
—%
$
1,835
69.3%
2020
Attritional
$
1,545
69.7%
$
5
0.2%
$
1,549
69.9%
Catastrophes
68
3.1%
—
—%
68
3.1%
Total segment
$
1,613
72.8%
$
5
0.2%
$
1,617
73.0%
Variance 2022/2021
Attritional
$
293
(0.3)
pts
$
1
—
pts
$
294
(0.3)
pts
Catastrophes
(28)
(1.8)
pts
—
—
pts
(28)
(1.8)
pts
Total segment
$
265
(2.1)
pts
$
1
—
pts
$
266
(2.0)
pts
Variance 2021/2020
Attritional
$
139
(6.1)
pts
$
(6)
(0.2)
pts
$
133
(6.3)
pts
Catastrophes
85
2.7
pts
—
—
pts
85
2.7
pts
Total segment
$
223
(3.4)
pts
$
(6)
(0.2)
pts
$
217
(3.7)
pts
(Some amounts may not reconcile due to rounding.)
Incurred losses and LAE increased by
14.6% to $2.1 billion in 2022 compared to $1.8 billion
in 2021.
The increase
was mainly
due to
an increase
of $293
million in
current year
attritional
losses,
partially offset
by a
decrease in
current year
catastrophe
losses of
$28 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 $125
million primarily
related to
Hurricane Ian
($99 million),
with the
remaining losses
resulting from
various storm
events.
The $153
million of current
year catastrophe
losses in 2021 related
to Hurricane Ida
($80 million), the Texas
winter storms
($58 million) and the Quad State tornadoes
($15 million).
Segment
Expenses.
Commission and
brokerage
increased by
11.3% to
$394 million
in 2022
compared
to
$354
million
in
2021.
Segment
other
underwriting
expenses
increased
to
$463
million
in
2022
compared
to
$384
million
in
2021.
These
increases
were
mainly
due
to
the
impact
of
the
increase
in
premiums
earned
and
increased expenses
related
to the
continued
build out
of the
insurance
business, including
an expansion
of the
international insurance platform.
Critical Accounting Estimates
The following
is a
summary of
the critical
accounting estimates
related to
accounting estimates
that (1)
require
management
to
make
assumptions
about
highly
uncertain
matters
and
(2)
could
materially
impact
the
consolidated financial statements
if management made different
assumptions.
Loss and LAE
Reserves.
Our most critical
accounting estimate
is the determination
of our loss
and LAE reserves.
We
maintain
reserves
equal to
our estimated
ultimate
liability for
losses
and LAE
for
reported
and unreported
53
claims for our insurance and reinsurance
businesses.
Because reserves are based on estimates
of ultimate losses
and
LAE
by
underwriting
or
accident
year,
we
use
a
variety
of
statistical
and
actuarial
techniques
to
monitor
reserve
adequacy
over
time, evaluate
new information
as it
becomes known
and adjust
reserves
whenever
an
adjustment
appears
warranted.
We
consider
many
factors
when
setting
reserves
including:
(1)
our
exposure
base
and
projected
ultimate
premiums
earned;
(2)
our
expected
loss
ratios
by
product
and
class
of
business,
which are developed collaboratively
by underwriters and actuaries;
(3) actuarial methodologies and
assumptions
which analyze
our loss
reporting and
payment experience,
reports from
ceding companies
and historical
trends,
such
as
reserving
patterns,
loss
payments
and
product
mix;
(4)
current
legal
interpretations
of
coverage
and
liability;
and
(5)
economic
conditions.
Our
insurance
and
reinsurance
loss
and
LAE
reserves
represent
management’s best
estimate of our ultimate
liability. Actual
losses and LAE ultimately
paid may deviate,
perhaps
substantially,
from
such
reserves.
Our
net
income
(loss)
will
be
impacted
in
a
period
in
which
the
change
in
estimated ultimate losses
and LAE is recorded.
See also ITEM 8, “Financial Statements
and Supplementary Data”
- Note 1 of Notes to the Consolidated Financial
Statements.
It is more
difficult to
accurately
estimate loss
reserves for
reinsurance
liabilities than
for insurance
liabilities.
At
December 31,
2022, we
had reinsurance
reserves of
$16.1 billion,
of which
$278 million
were loss
reserves for
A&E
liabilities,
and
insurance
loss
reserves
of
$5.9
billion.
A
detailed
discussion
of
additional
considerations
related to A&E exposures
follows later in this section.
The
detailed
data
required
to
evaluate
ultimate
losses
for
our
insurance
business
is
accumulated
from
our
underwriting and claim systems.
Reserving for reinsurance
requires evaluation of loss
information received
from
ceding companies.
Ceding companies
report losses
to us
in many
forms dependent
on the type
of contract
and
the
agreed
or
contractual
reporting
requirements.
Generally,
proportional/quota
share
contracts
require
the
submission
of
a
monthly/quarterly
account,
which
includes
premium
and
loss
activity
for
the
period
with
corresponding reserves
as established by
the ceding company.
This information
is recorded into
our records.
For
certain
proportional
contracts,
we
may
require
a
detailed
loss
report
for
claims
that
exceed
a
certain
dollar
threshold
or
relate
to
a
particular
type
of
loss.
Excess
of
loss
and
facultative
contracts
generally
require
individual loss reporting
with precautionary notices
provided when a
loss reaches a
significant percentage
of the
attachment point
of the contract
or when certain causes
of loss or types
of injury occur.
Our experienced claims
staff
handles
individual
loss reports
and supporting
claim information.
Based on
our evaluation
of a
claim, we
may establish
additional case
reserves (ACRs)
in addition
to the
case reserves
reported by
the ceding
company.
To
ensure
ceding
companies
are
submitting
required
and accurate
data,
the
Underwriting,
Claim,
Reinsurance
Accounting
and Internal
Audit departments
of the
Company
perform various
reviews
of our
ceding companies,
particularly larger ceding companies, including
on-site audits of domestic ceding companies.
We sort
both our
reinsurance
and insurance
reserves into
exposure
groupings
for actuarial
analysis.
We assign
our
business
to
exposure
groupings
so
that
the
underlying
exposures
have
reasonably
homogeneous
loss
development
characteristics
and
are
large
enough
to
facilitate
credible
estimation
of
ultimate
losses.
We
periodically
review
our
exposure
groupings
and
we
may
change
our
groupings
over
time
as
our
business
changes.
We
currently
use
over
200
exposure
groupings
to
develop
our
reserve
estimates.
One
of
the
key
selection characteristics
for
the
exposure
groupings
is the
historical
duration
of the
claims
settlement
process.
Business in
which claims
are reported
and settled
relatively quickly
are commonly
referred
to as
short tail
lines,
principally property
lines.
Casualty claims
tend to
take
longer to
be reported
and settled
and casualty
lines are
generally referred
to as
long tail
lines.
Our estimates
of ultimate
losses for
shorter tail
lines, with
the exception
of loss estimates for large catastrophic
events,
generally exhibit less volatility
than those for the longer tail lines.
We
use
similar
actuarial
methodologies,
such
as
expected
loss
ratio,
chain
ladder
reserving
methods
and
Bornhuetter-Ferguson,
supplemented
by judgment
where appropriate,
to estimate
our ultimate
losses and
LAE
for each
exposure group.
Although we
use similar
actuarial methodologies
for both
short tail
and long
tail lines,
the faster reporting
of experience for
the short tail lines
allows us to
have greater confidence
in our estimates
of
ultimate
losses
for
short
tail
lines
at
an
earlier
stage
than
for
long
tail
lines.
As
a
result,
we
utilize,
as
well,
exposure-based
methods
to
estimate
our ultimate
losses
for
longer
tail
lines,
especially
for
immature
accident
years.
For
both
short
and
long
tail
lines,
we
supplement
these
general
approaches
with
analytically
based
54
judgments.
We
cannot
estimate
losses
from
widespread
catastrophic
events,
such
as
hurricanes
and
earthquakes,
using
traditional
actuarial
methods.
We
estimate
losses
for
these
types
of
events
based
on
information
derived
from
catastrophe
models,
quantitative
and
qualitative
exposure
analyses,
reports
and
communications
from
ceding
companies
and
development
patterns
for
historically
similar
events.
Due
to
the
inherent
uncertainty
in
estimating
such
losses,
these
estimates
are
subject
to
variability,
which
increases
with
the severity and complexity of the underlying event.
Our key
actuarial assumptions
contain
no explicit
provisions
for reserve
uncertainty
nor do
we supplement
the
actuarially determined reserves for uncertainty.
Our carried
reserves at
each reporting
date are
management’s
best estimate
of ultimate
unpaid losses
and LAE
at
that
date.
We
complete
detailed
reserve
studies
for
each exposure
group
annually
for our
reinsurance
and
insurance
operations.
The
completed
annual
reinsurance
reserve
studies
are
“rolled
forward”
for
each
accounting period
until the
subsequent reserve
study is
completed.
Analyzing the
roll-forward
process involves
comparing
actual
reported
losses
to
expected
losses
based
on
the
most
recent
reserve
study.
We
analyze
significant
variances
between
actual
and
expected
losses
and
also
consider
recent
market,
underwriting
and
management
criteria
to
determine
management’s
best
estimate
of
ultimate
unpaid
losses
and
LAE.
Management’s
best estimate
is developed
through
collaboration
with actuarial,
underwriting, claims,
legal
and
finance
departments
and
culminates
with
the
input
of
reserve
committees.
Each
segment
reserve
committee
includes the participation of the relevant parties
from actuarial, finance, claims and segment senior management
and has
the responsibility
for recommending
and approving
management’s
best estimate.
Reserves are
further
reviewed
by
Everest’s
Chief
Reserving
Actuary
and
senior
management.
The
objective
of
such
process
is
to
determine a single best
estimate viewed by
management to be
the best estimate
of its ultimate loss
liability.
As
a result of
these additional factors,
in some instances
the selected reserve
level may be
higher or lower than
the
actuarial indicated estimate.
Given
the
inherent
variability
in
our
loss
reserves,
we
have
developed
an
estimated
range
of
possible
gross
reserve
levels.
A
table
of
ranges
by
segment,
accompanied
by
commentary
on
potential
and
historical
variability,
is
included
in
“Financial
Condition
- Loss
and
LAE Reserves”.
The ranges
are
statistically
developed
using the exposure groups used in
the reserve estimation process
and aggregated to the segment
level.
For each
exposure
group,
our actuaries
calculate
a range
for each
accident year
based principally
on two
variables.
The
first
is
the
historical
changes
in
losses
and
LAE incurred
but not
reported
(“IBNR”)
for
each
accident
year
over
time; the second is
volatility of each
accident year’s
held reserves related
to estimated
ultimate losses, also
over
time.
Both are measured at various
ages from the end of the accident year through
the final payout of the year’s
losses.
Ranges are
developed for
the exposure
groups using
statistical
methods to
adjust for
diversification;
the
ranges
for
the
exposure
groups
are
aggregated
to
the
segment
level,
likewise,
with
an
adjustment
for
diversification.
Our
estimates
of
our
reserve
variability
may
not
be
comparable
to
those
of
other
companies
because there
are no
consistently
applied actuarial
or accounting
standards
governing such
presentations.
Our
recorded
reserves
reflect
our
best
point
estimate
of
our
liabilities
and
our
actuarial
methodologies
focus
on
developing
such
point
estimates.
We
calculate
the
ranges
subsequently,
based
on
the
historical
variability
of
such reserves.
Asbestos and Environmental
Exposures.
We continue to
receive claims under expired
insurance and reinsurance
contracts asserting
injuries and/or damages
relating to
or resulting
from environmental
pollution and hazardous
substances,
including
asbestos.
Environmental
claims
typically
assert
liability
for
(a)
the
mitigation
or
remediation
of environmental
contamination
or (b)
bodily injury
or property
damage
caused
by
the release
of
hazardous
substances
into the
land, air
or water.
Asbestos claims
typically assert
liability for
bodily injury
from
exposure to asbestos or for
property damage resulting from asbestos
or products containing asbestos.
Our
reserves
include
an
estimate
of
our
ultimate
liability
for
A&E
claims.
There
are
significant
uncertainties
surrounding our
estimates of
our potential
losses from
A&E claims.
Among the
uncertainties
are: (a)
potentially
long waiting periods
between exposure
and manifestation
of any
bodily injury or
property damage;
(b) difficulty
in
identifying
sources
of
asbestos
or
environmental
contamination;
(c)
difficulty
in
properly
allocating
55
responsibility
and/or liability
for asbestos
or environmental
damage; (d)
changes in
underlying laws
and judicial
interpretation
of those laws;
(e) the potential
for an
asbestos or
environmental
claim to involve
many insurance
providers
over
many
policy
periods;
(f)
questions
concerning
interpretation
and
application
of
insurance
and
reinsurance coverage;
and (g) uncertainty
regarding the
number and identity
of insureds with
potential asbestos
or environmental exposure.
Due to the uncertainties
discussed above, the ultimate
losses attributable to
A&E, and particularly asbestos,
may
be subject to more variability
than are non-A&E reserves
and such variation
could have a material
adverse effect
on our
financial condition,
results of
operations
and/or cash
flows.
See also
ITEM 8,
“Financial Statements
and
Supplementary Data” - Notes 1 and 3
of Notes to the Consolidated Financial Statements.
Reinsurance
Recoverables.
We
have
purchased
reinsurance
to
reduce
our
exposure
to
adverse
claim
experience,
large
claims
and catastrophic
loss
occurrences.
Our ceded
reinsurance
provides
for
recovery
from
reinsurers
of
a
portion
of
losses
and
loss
expenses
under
certain
circumstances.
Such
reinsurance
does
not
relieve us of our
obligation to
our policyholders.
In the event our
reinsurers are
unable to meet their obligations
under these agreements
or are able to successfully
challenge losses ceded by
us under the contracts,
we will not
be
able
to
realize
the
full
value
of
the
reinsurance
recoverable
balance.
In
some
cases,
we
may
hold
full
or
partial collateral
for the
receivable,
including letters
of credit,
trust assets
and cash.
Additionally,
creditworthy
foreign
reinsurers
of
business
written
in
the
U.S.,
as
well
as
capital
markets’
reinsurance
mechanisms,
are
generally required
to secure their
obligations.
We have
established reserves
for uncollectible balances
based on
our
assessment
of
the
collectability
of
the
outstanding
balances.
The
allowance
for
uncollectible
reinsurance
reflects
management’s
best
estimate
of
reinsurance
cessions
that
may
be
uncollectible
in
the
future
due
to
reinsurers’
unwillingness or
inability to pay.
The allowance for
uncollectible reinsurance
comprises an
allowance
and
an
allowance
for
disputed
balances.
Based
on
this
analysis,
the
Company
may
adjust
the
allowance
for
uncollectible reinsurance or charge
off reinsurer balances that are
determined to be uncollectible.
Due to the inherent
uncertainties as to
collection and the length
of time before reinsurance
recoverable become
due, it is possible that future adjustments
to the Company’s reinsurance
recoverable, net of the
allowance, could
be required,
which could
have a
material adverse
effect on
the Company’s
consolidated results
of operations
or
cash flows in a particular quarter or annual period.
The allowance
is
estimated
as
the
amount
of reinsurance
recoverable
exposed
to
loss multiplied
by
estimated
factors
for
the
probability
of
default.
The
reinsurance
recoverable
exposed
is
the
amount
of
reinsurance
recoverable
net of collateral
and other offsets,
considering the nature
of the collateral,
potential future
changes
in collateral
values, and
historical loss
information for
the type of
collateral obtained.
The probability
of default
factors are
historical insurer
and reinsurer
defaults for
liabilities with similar
durations to
the reinsured liabilities
as
estimated
through
multiple
economic
cycles.
Credit
ratings
are
forward-looking
and
consider
a
variety
of
economic outcomes.
The Company's
evaluation of
the required allowance
for reinsurance
recoverable
considers
the current economic environment
as well as macroeconomic scenarios.
The
Company
records
credit
loss
expenses
related
to
reinsurance
recoverable
in
Incurred
losses
and
loss
adjustment expenses in the Company’s
consolidated statements
of operations and comprehensive
income (loss).
Write-offs of
reinsurance recoverable
and any related
allowance are recorded
in the period in
which the balance
is deemed uncollectible.
Premiums
Written
and
Earned.
Premiums
written
by
us
are
earned
ratably
over
the
coverage
periods
of
the
related insurance
and reinsurance
contracts.
We
establish
unearned premium
reserves
to cover
the unexpired
portion of
each contract.
Such reserves,
for assumed
reinsurance,
are computed
using pro
rata
methods based
on statistical
data received from
ceding companies.
Premiums earned, and the
related costs,
which have not yet
been
reported
to
us,
are
estimated
and
accrued.
Because
of
the
inherent
lag
in
the
reporting
of
written
and
earned
premiums
by
our
ceding
companies,
we
use
standard
accepted
actuarial
methodologies
to
estimate
earned but not reported
premium at each financial reporting
date. These earned but
not reported premiums
are
combined
with
reported
earned
premiums
to
comprise
our
total
premiums
earned
for
determination
of
our
56
incurred
losses
and
loss
and
LAE
reserves.
Commission
expense
and
incurred
losses
related
to
the
change
in
earned
but
not
reported
premium are
included
in
current
period
company
and segment
financial
results.
See
also
ITEM
8,
“Financial
Statements
and
Supplementary
Data”
-
Note
1
of Notes
to
the
Consolidated
Financial
Statements.
The following table displays
the estimated components of net earned but
not reported premiums by segment for
the periods indicated.
At December 31,
(Dollars in millions)
2022
2021
2020
Reinsurance
$
2,255
$
2,055
$
1,774
Insurance
—
—
—
Total
$
2,255
$
2,055
$
1,774
(Some amounts may not reconcile due to rounding.)
Investment
Valuation.
Our fixed
income
investments
are
classified for
accounting
purposes
as either
available
for sale
or held to
maturity.
The available
for sale
fixed maturity
securities are
carried at fair
value and
the held
to maturity fixed
maturity portfolio
is carried at
amortized cost,
net of current
expected credit
allowance on our
consolidated
balance
sheets.
Our
equity
securities
are
all
carried
at
fair
value.
Most
securities
we
own
are
traded
on
national
exchanges
where
market
values
are
readily
available.
Some
of
our
commercial
mortgage-
backed
securities (“CMBS”)
are valued
using cash
flow models
and risk-adjusted
discount rates.
We hold
some
privately
placed securities,
less than
10% of
the portfolio,
that
are
either valued
by investment
advisors
or the
Company.
In
some
instances,
values
provided
by
an
investment
advisor
are
supported
with
opinions
from
qualified independent third parties.
The Company has procedures
in place to review the values
received from its
investment
advisors.
At
December 31,
2022 and
2021, our
investment
portfolio
included
$3.8 billion
and $2.6
billion,
respectively,
of
limited
partnership
investments
whose
values
are
reported
pursuant
to
the
equity
method
of
accounting.
We
carry
these
investments
at
values
provided
by
the
managements
of
the
limited
partnerships and
due to inherent
reporting lags,
the carrying values
are based on
values with “as
of” dates from
one month to one quarter prior to our financial statement
date.
At December 31, 2022, we had
net unrealized losses on our available
for sale fixed maturity
securities, net of tax,
of $1.7 billion
compared to
net unrealized
gains on
our available
for sale
fixed maturity
securities, net
of tax,
of
$239 million
at December
31, 2021.
Gains (losses)
from market
fluctuations on
available for
sale fixed
maturity
securities
at
fair
value
are
reflected
as
accumulated
other
comprehensive
income
(loss)
in
the
consolidated
balance sheets.
Market
value declines
for available
for sale
fixed income
portfolio,
which are
considered credit
related, are reflected
in our consolidated
statements of operations
and comprehensive income
(loss), as realized
capital
losses.
We
consider
many
factors
when
determining
whether
a
market
value
decline
is
credit
related,
including:
(1) we
have no
intent
to sell
and, more
likely than
not, will
not be
required to
sell prior
to recovery,
(2) the
length of
time the
market
value has
been below
book value,
(3) the
credit strength
of the
issuer,
(4) the
issuer’s
market
sector,
(5)
the
length
of
time
to
maturity
and
(6)
for
asset-backed
securities,
changes
in
prepayments,
credit
enhancements
and
underlying
default
rates.
If management’s
assessments
change
in
the
future, we may
ultimately record
a realized loss
after management
originally concluded that
the decline in value
was temporary.
Fixed
maturity
securities
designated
as
held
to
maturity
consist
of
debt
securities
for
which
the
Company
has
both the positive
intent and ability
to hold to
maturity or redemption
and are reported
at amortized cost,
net of
the
current
expected
credit
loss
allowance.
Interest
income
for
fixed
maturity
securities
held
to
maturity
is
determined in the
same manner as interest
income for fixed
maturity securities available
for sale.
The Company
evaluates
fixed
maturity
securities
classified as
held to
maturity
for
current
expected
credit
losses
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
57
incorporation
of
historical
credit
loss
experience
and
macroeconomic
forecasts,
to
develop
an
estimate
of
current expected credit losses.
See also ITEM 8, “Financial
Statements and
Supplementary Data”
- Note 1 of Notes
to the Consolidated
Financial
Statements.
FINANCIAL CONDITION
Investments.
Total
investments were
$28.5 billion at
December 31, 2022,
an increase
of $241 million
compared
to
$28.2
billion
at
December
31,
2021.
The
rise
in
investments
was
primarily
related
to
an
increase
in
other
invested assets, partially
offset by a decline in equity
securities.
The increase in other invested
assets was due to
the inclusion
of assets held
for the implementation
of a Company
Owned Life Insurance
(“COLI”) program
in the
fourth quarter
of 2022.
A portion of
the equity securities
portfolio was
sold in order
to invest
in the COLI
assets
which accounted for the decline in equity
securities.
The
Company’s
limited
partnership
investments
are
comprised
of
limited
partnerships
that
invest
in
private
equity,
private
credit
and
private
real
estate.
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
summarizes
the
composition
and
characteristics
of
our
investment
portfolio
as
of
the
dates
indicated.
At December 31,
2022
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
at
December
31,
2022
and
$2.1
billion at
December 31,
2021.
At
December 31,
2022, $520
million, or
23.2%, was
recoverable
from Mt.
Logan
Re
collateralized
segregated
accounts;
$283
million,
or
12.6%,
was
recoverable
from
Munich
Re
and
$148
million, or 6.6%, was
recoverable
from Endurance
Re.
No other retrocessionaire
accounted for
more than 5% of
our recoverables.
Loss and LAE Reserves.
Gross loss and LAE reserves
totaled $22.1 billion and
$19.0 billion at December 31,
2022
and 2021, respectively.
58
The following
tables summarize
gross outstanding
loss and
LAE reserves
by segment,
classified by
case reserves
and IBNR reserves, for the periods indicated.
At December 31, 2022
Case
IBNR
Total
% of
(Dollars in millions)
Reserves
Reserves
Reserves
Total
Reinsurance
$
6,045
$
9,818
$
15,862
71.9%
Insurance
1,863
4,062
5,925
26.9%
Total excluding A&E
7,908
13,880
21,787
98.7%
A&E
138
140
278
1.3%
Total including A&E
$
8,046
$
14,019
$
22,065
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
carried
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,
accident years,
legal
entities,
and
in
the
aggregate.
In
order
to
set
appropriate
reserves,
we
make
qualitative
and
quantitative
analyses
and
judgments
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.
Management’s
best estimate
is developed
through
collaboration
with actuarial,
underwriting, claims,
legal
and
finance
departments
and
culminates
with
the
input
of
reserve
committees.
Each
segment
reserve
committee
includes the participation of the relevant parties
from actuarial, finance, claims and segment senior management
and has
the responsibility
for recommending
and approving
management’s
best estimate.
Reserves are
further
reviewed
by
Everest’s
Chief
Reserving
Actuary
and
senior
management.
The
objective
of
such
process
is
to
determine
a
single
best
estimate
viewed
by
management
to
be
the
best
estimate
of
its
ultimate
loss
liability.
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.
We
have
included
ranges
for
loss
reserve
estimates
determined
by
our
actuaries,
which
have
been
developed
through
a
combination
of
objective
and
subjective
criteria.
Our
presentation
of
this
information
may
not
be
directly comparable
to similar presentations
of other companies
as there are
no consistently
applied actuarial or
59
accounting standards
governing such presentations.
Our recorded reserves
are an aggregation
of our best
point
estimates
for
approximately
200
reserve
groups
and
reflect
our
best
point
estimate
of
our
liabilities.
Our
actuarial methodologies develop
point estimates
rather than ranges
and the ranges
are developed subsequently
based upon historical and prospective
variability measures.
The
following
table
below
represents
the
reserve
levels
and
ranges
for
each
of
our
business
segments
for
the
period indicated.
Outstanding Reserves and Ranges By Segment (1)
At December 31, 2022
As
Low
Low
High
High
(Dollars in millions)
Reported
Range %
Range
Range %
Range
Gross Reserves By Segment
Reinsurance
$
15,862
-7.4%
$
14,689
7.8%
$
17,095
Insurance
5,925
-9.9%
5,340
10.8%
6,565
Total Gross Reserves (excluding A&E)
21,787
-8.1%
20,029
8.6%
23,660
A&E (All Segments)
278
-22.9%
214
22.7%
341
Total Gross Reserves
$
22,065
-8.3%
20,243
8.8%
24,001
(Some amounts may not reconcile due
to rounding.)
______________________________________________________
(1)
There can be no assurance that reserves
will not ultimately exceed the
indicated ranges requiring additional
income (loss) statement expense.
Depending
on
the
specific
segment,
the
range
derived
for
the
loss
reserves,
excluding
reserves
for
A&E
exposures,
ranges
from minus
7.4% to
minus 9.9%
for the
low range
and from
plus 7.8%
to plus
10.8% for
the
high range.
Both the higher
and lower ranges
are associated
with the Insurance
segment.
The size of
the range
is
dependent
upon
the
level
of
confidence
associated
with
the
reserve
estimates.
Within
each
range,
management’s
best
estimate
of
loss
reserves
is
based
upon
the
point
estimate
derived
by
our
actuaries
in
detailed reserve
studies.
Such ranges
are necessarily
subjective due
to the
lack of
generally
accepted actuarial
standards with
respect to their
development.
There can be
no assurance that
our claim obligations
will not vary
outside of these ranges.
Additional losses, including
those relating to
latent injuries, and
other exposures, which
are as yet
unrecognized,
the type
or magnitude
of which
cannot be
foreseen
by us
or the
reinsurance
and insurance
industry
generally,
may
emerge
in
the
future.
Such
future
emergence,
to
the
extent
not
covered
by
existing
retrocessional
contracts,
could have
material
adverse
effects
on our
future financial
condition,
results of
operations
and cash
flows.
Asbestos and Environmental
Exposures.
A&E exposures represent a separate
exposure group for monitoring
and
evaluating reserve adequacy.
With
respect
to
asbestos
only,
at
December
31,
2022,
we
had
net
asbestos
loss
reserves
of
$233
million,
or
90.5%, of total net A&E reserves, all of which was
for assumed business.
See
Note
3
of
Notes
to
Consolidated
Financial
Statements
for
a
summary
of
Asbestos
and
Environmental
Exposures.
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
60
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
6.9
years
at
December
31,
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
December 31,
2022 and
December 31,
2021 was
$8.4 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)
2022
(3)
2021
2022
2021
Regulatory targeted capital
$
—
$
2,169
$
3,353
$
2,960
Actual capital
$
2,759
$
3,184
$
5,553
$
5,717
(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.
(3)
The 2022 BSCR calculation is not
yet due to be completed;
however,
the Company anticipates that
Bermuda Re's December
31, 2022 actual capital will
exceed
the targeted capital level.
Our financial strength
ratings as determined
by A.M. Best, Moody’s
and Standard & Poor’s
are important as
they
provide
our
customers
and
investors
with
an
independent
assessment
of
our
financial
strength
using
a
rating
scale that provides
for relative comparisons.
We continue
to possess significant
financial flexibility and
access to
debt
and
equity markets
as a
result
of our
financial
strength,
as evidenced
by
the
financial strength
ratings
as
assigned by independent rating agencies.
See also ITEM 1, Business – “Financial Strength Ratings”.
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.
In 2022,
we repurchased
241,273 shares
for $61
million in
the open
market
and paid
$255 million
in dividends.
During
2021,
we
repurchased
887,622
shares
for
$225
million
in
the
open
market
and
paid
$247
million
in
dividends.
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
December 31,
2022, we
had repurchased
30.8 million shares under this authorization.
We 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
61
conditions,
our
liquidity
requirements,
contractual
restrictions
and
other
factors.
The amounts
involved
in
any
such transactions, individually or in the aggregate,
may be material.
On October 7,
2020, we
issued
an additional
$1.0 billion of
30 year senior
notes with
an interest
coupon rate
of
3.5%.
These senior notes will mature on October
15, 2050 and will pay interest
semi-annually.
On October 4,
2021, we
issued an
additional $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.
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 $3.7
billion and
$3.8 billion
for the
years
ended December
31, 2022
and 2021,
respectively.
Additionally,
these cash
flows reflected
net catastrophe
loss payments
of $677
million and
$834 million
for the
years
ended
December 31,
2022
and 2021,
respectively
and net
tax
payments
of $171
million and
$98 million
for the
years
ended December 31, 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 - both
short-term investments
and longer
term maturities
are available
to supplement other
operating cash
flows.
We do not
expect to supplement
negative insurance
operations cash
flows from investment dispositions.
As the
timing of
payments for
claims and
benefits cannot
be predicted
with certainty,
we maintain
portfolios of
long
term
invested
assets
with
varying
maturities,
along
with
short-term
investments
that
provide
additional
liquidity
for
payment
of claims.
At
December
31,
2022
and
December
31,
2021,
we
held
cash
and short
-term
investments
of
$2.4
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 December
31, 2022, we had
$1.3 billion of
available for
sale fixed
maturity securities
maturing within one
year or less,
$7.5
billion maturing
within one
to
five years
and
$5.3 billion
maturing
after
five
years.
Our
$281 million
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
do not anticipate selling
a significant amount
of securities or using available
credit facilities to
pay losses and LAE
but have
the ability to
do so.
Sales of securities
might result
in realized capital
gains or losses.
At December 31,
2022
we
had
$1.9
billion
of
net
pre-tax
unrealized
depreciation
related
to
available
for
sale
fixed
maturity
securities,
comprised
of
$2.0
billion
of
pre-tax
unrealized
depreciation
and
$81
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
$1.5
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
$440
million
of
uncommitted
credit
facilities,
which
would
require
approval
from
the
applicable
62
lender.
There is
no guarantee
the uncommitted
capacity will
be available
to us
on a
future date.
See Note
5 –
Credit Facilities for further details.
Exposure to
Catastrophes.
Like other insurance
and reinsurance
companies, we are
exposed to
multiple insured
losses arising out of a
single occurrence, whether a
natural event,
such as a hurricane
or an earthquake,
or other
catastrophe,
such
as
an
explosion
at
a
major
factory.
A
large
catastrophic
event
can
be
expected
to
generate
insured
losses
to
multiple
reinsurance
treaties,
facultative
certificates
and
direct
insurance
policies
across
various lines of business.
We focus on
potential losses that
could result from
any single event,
or series of events
as part of our evaluation
and monitoring
of our
aggregate
exposures
to
catastrophic
events.
Accordingly,
we employ
various
techniques
to estimate
the amount of
loss we could
sustain from
any single catastrophic
event or series
of events in
various
geographic
areas.
These
techniques
range
from
deterministic
approaches,
such
as
tracking
aggregate
limits
exposed
in
catastrophe-prone
zones
and
applying
reasonable
damage
factors,
to
modeled
approaches
that
attempt
to
scientifically
measure
catastrophe
loss
exposure
using
sophisticated
Monte
Carlo
simulation
techniques that forecast
frequency and severity of potential losses
on a probabilistic basis.
No single
computer
model or
group
of models
is currently
capable of
projecting
the amount
and probability
of
loss in
all global geographic
regions in
which we
conduct business.
In addition,
the form,
quality and
granularity
of underwriting exposure
data furnished
by (re)insureds
is not uniformly
compatible with the
data requirements
for
our
licensed
models,
which
adds
to
the
inherent
imprecision
in
the
potential
loss
projections.
Further,
the
results
from
multiple
models
and
analytical
methods
must
be
combined
to
estimate
potential
losses
by
and
across
business
units.
Also,
while
most
models
have
been
updated
to
incorporate
claims
information
from
recent
catastrophic
events,
catastrophe
model
projections
are
still
inherently
imprecise.
In
addition,
uncertainties with respect
to future climatic patterns
and cycles could add
further uncertainty to loss
projections
from models based on historical data.
Nevertheless,
when combined
with traditional
risk management
techniques
and sound
underwriting judgment,
catastrophe
models
are
a
useful
tool
for
underwriters
to
price
catastrophe
exposed
risks
and
for
providing
management with
quantitative
analyses with
which to monitor
and manage
catastrophic
risk exposures
by zone
and across zones for individual and
multiple events.
Projected catastrophe
losses are
generally summarized
in terms
of the
PML.
We define
PML as
our anticipated
loss, taking
into account
contract
terms and
limits, caused
by a
single catastrophe
affecting
a broad
contiguous
geographic
area,
such
as
that
caused
by
a
hurricane
or
earthquake.
The
PML
will
vary
depending
upon
the
modeled simulated
losses
and the
make-up
of the
in force
book
of business.
The projected
severity
levels
are
described
in
terms
of “return
periods”,
such
as
“100-year
events”
and
“250-year
events”.
For
example,
a
100-
year PML is
the estimated loss
to the current
in-force portfolio
from a single
event which has
a 1% probability
of
being exceeded in
a twelve month
period.
In other words, it
corresponds to a
99% probability that
the loss from
a
single
event
will
fall
below
the
indicated
PML.
It
is
important
to
note
that
PMLs
are
estimates.
Modeled
events are
hypothetical events
produced by
a stochastic
model.
As a result,
there can be
no assurance
that any
actual event
will align
with the
modeled event
or that
actual losses
from events
similar to
the modeled
events
will not vary materially from the modeled event
PML.
From
an
enterprise
risk
management
perspective,
management
sets
limits
on
the
levels
of
catastrophe
loss
exposure we
may underwrite.
The limits are
revised periodically
based on a
variety of factors,
including but not
limited
to
our
financial
resources
and
expected
earnings
and
risk/reward
analyses
of
the
business
being
underwritten.
Management estimates
that the projected
net economic loss
from its largest
100-year event in
a given zone is
to
an
Earthquake
event
affecting
California
which
represents
approximately
6.9%
of
its
December
31,
2022
shareholders’
equity.
Economic
loss
is the
PML
exposure,
net of
third
party
reinsurance
including
catastrophe
industry loss
warranty
cover,
reduced by
estimated
reinstatement
premiums
to renew
coverage
and estimated
63
income taxes.
The impact
of income
taxes
on the
PML depends
on the
distribution
of the
losses
by corporate
entity,
which is
also affected
by
inter-affiliate
reinsurance.
Management
also monitors
and controls
its largest
PMLs at
multiple points
along the
loss distribution
curve, such
as loss
amounts at
the 20,
50, 100,
250, and
500
year return
periods.
This process
enables management
to identify
and control
exposure
accumulations
and to
integrate such exposures
into enterprise risk, underwriting and capital
management decisions.
Our
catastrophe
loss
projections,
segmented
by
risk
zones,
are
updated
quarterly
and
reviewed
as
part
of
a
formal risk management review
process.
We
believe
that our
greatest
worldwide 1
in 100
year
exposure
to a
single catastrophic
event
is to
a hurricane
event
affecting
Southeast
U.S.,
where
we
estimate
we
have
a
PML
exposure,
net
of
third
party
reinsurance
including catastrophe
industry loss warranty
cover,
of $878 million. See also
table under ITEM
1, “Business -
Risk
Management of Underwriting and Retrocession
Arrangements”.
If such a single catastrophe
loss were to occur,
management estimates that
the net economic loss to us would be
approximately
$515
million.
The
estimate
involves
multiple
variables,
including
which
Everest
entity
would
experience the loss, and as a result there can be no
assurance that this amount would not be exceeded.
We may
purchase reinsurance
to cover specific
business written
or the potential
accumulation or aggregation
of
exposures
across
some or
all of
our operations.
Reinsurance
purchasing
decisions
consider
both
the
potential
coverage
and
market
conditions
including
the
pricing,
terms,
conditions,
availability
and
collectability
of
coverage, with the
aim of securing cost
effective protection
from financially secure counterparts.
The amount of
reinsurance purchased has varied
over
time, reflecting our view of our exposures
and the cost of reinsurance.
Information
Technology.
Everest’s
information
technology
is
a
key
component
of
its
business
operations.
Information
technology
systems
and
services
are
hosted
at
public
and
private
cloud
service
providers
across
multiple
datacenters
with
processing
performed
at
the
office
locations
of
our
operating
subsidiaries
and
branches.
We have
implemented security
procedures,
and regularly
assess and
enhance our
security protocols,
to ensure
that our
key business
systems
are protected,
secured and
backed up
at off-site
locations so
that they
can be restored
promptly if necessary.
We have business
continuity plans and disaster
recovery plans along with
periodic testing
of those
plans
to
ensure
we are
capable
of providing
uninterrupted
technology
services in
the
event of major systems
outages with alternative secure datacenters
available in case of broader outages.
Our
business
operations
depend
on
the
proper
functioning
and
availability
of
our
information
technology
platform,
which
includes
data
processing
and
related
electronic
communications.
We
communicate
electronically
internally
and
externally
with
our
brokers,
program
managers,
clients,
third-party
vendors,
regulators,
and
others.
These
communications
and
the
data
we
handle
may
include
personal,
confidential
or
proprietary
information.
We
ensure
that
all
our
systems,
data
and
electronic
transmissions
are
appropriately
protected with the latest technology
safeguards and meet regulatory
standards.
Despite these safeguards,
a significant cyber incident,
including system
failure, security
breach and disruption
by
malware or other
damage could
interrupt or delay
our operations
and possibly our
results.
This type of incident
may result
in a
violation of
applicable data
security,
privacy,
or other
laws, damage
our reputation,
cause a
loss
of customers
or give
rise to
regulatory
scrutiny
as well
as monetary
fines and
other penalties.
Management
is
not aware of a cybersecurity incident that
has had a material impact on our operations.
64
Expected
Cash
Outflows.
The
following
table
shows
our
significant
expected
cash
outflows
for
the
period
indicated.
Payments due by period
Less than
More than
(Dollars in millions)
Total
1 year
1-3 years
3-5 years
5 years
Senior notes
$
2,400
$
—
$
—
$
—
$
2,400
Long term notes
219
—
—
—
219
Interest expense (1)
3,018
101
202
202
2,513
Operating lease agreements
187
21
38
32
95
Gross reserve for losses and LAE (2)
22,065
2,430
7,971
5,230
6,435
Total
$
28,409
$
3,071
$
8,211
$
5,464
$
11,662
(Some amounts may not reconcile due to rounding.)
(1)
Interest expense on long term notes is calculated
at the variable floating rate of 6.99% as of
December 31, 2022.
(2)
Loss and LAE reserves
represent management’s
best estimate of
losses from claim
and related settlement
costs.
Both the amounts
and timing of such
payments are
estimates, and
the inherent
variability of
resolving claims as
well as
changes in
market conditions
make the
timing of
cash flows
uncertain.
Therefore,
the ultimate
amount and timing of loss and LAE payments could differ
from our estimates.
The cash
outflows for
senior notes
and long
term notes
are the
responsibility
of Holdings.
We
strive to
ensure
that
we
have
sufficient
cash
flow,
liquidity,
investments
and
access
to
capital
markets
to
satisfy
these
obligations.
Holdings generally
depends upon
dividends from
Everest
Re, its
operating
insurance
subsidiary for
its funding,
capital contributions
from Group
or access
to the
capital markets.
Our various
operating
insurance
and reinsurance
subsidiaries
have
sufficient
cash
flow,
liquidity
and investments
to settle
outstanding
reserves
for losses and LAE.
Management believes that
we, and each of our entities,
have sufficient financial
resources or
ready access thereto, to
meet all obligations.
Dividends.
During 2022
and 2021,
we declared
and paid
common shareholder
dividends
of $255
million and
$247 million,
respectively.
As
an insurance
holding
company,
we
are
partially
dependent
on dividends
and other
permitted
payments from
our subsidiaries
to pay
cash dividends
to our
shareholders.
The payment
of dividends
to Group
by
Holdings
Ireland
and
Everest
Dublin
Holdings
is
subject
to
Irish
corporate
and
regulatory
restrictions;
the
payment
of
dividends
to
Holdings
Ireland
by
Holdings
and
to
Holdings
by
Everest
Re
is
subject
to
Delaware
regulatory
restrictions;
and
the
payment
of
dividends
to
Group
by
Bermuda
Re,
Everest
International,
Everest
Preferred International
Holdings (“Preferred
Holdings”), Everest
Re Advisors Ltd.
(“Advisors
Re”) or Mt. Logan
Re
is
subject
to
Bermuda
insurance
regulatory
restrictions.
Management
expects
that,
absent
extraordinary
catastrophe
losses, such restrictions
should not affect
Everest Re’s
ability to declare
and pay
dividends sufficient
to
support
Holdings’
general
corporate
needs
and
that
Holdings
Ireland,
Everest
Dublin
Holdings,
Bermuda
Re
and Everest
International will
have the
ability to declare
and pay dividends
sufficient to
support Group’s
general
corporate needs.
For the years
ended December 31, 2022
and 2021, Everest
Re paid $250 million
and $0 million
of
cash
dividends
to
Holdings.
For
the
years
ended
December
31,
2022
and
2021,
Bermuda
Re
paid
cash
dividends
to Group
of $430
million and
$300 million,
respectively;
Everest
International
paid no
cash dividends
to Group;
Preferred
Holdings paid
cash dividends
to Group
of $46 million
and $10 million,
respectively; Advisors
Re
paid
cash
dividends
to
Group
of
$0
million
and
$10
million,
respectively;
and
Mt.
Logan
Re
paid
no
cash
dividends to Group.
See ITEM 1, “Business
– Regulatory Matters
– Dividends” and ITEM 8,
“Financial Statements
and Supplementary Data” - Note 14 of Notes
to Consolidated Financial Statements.
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.
65
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
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 $29.9 billion investment
portfolio at December
31, 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
$4.0 billion
of mortgage
-backed
securities
in
the
$23.1 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 tables below
display the
potential impact
of market
value fluctuations
and after-tax
unrealized appreciation
on our
fixed maturity
portfolio (including
$1.0 billion
of short-term
investments)
for the
period indicated
based
on
upward
and
downward
parallel
and
immediate
100
and
200
basis
point
shifts
in
interest
rates.
For
legal
entities
with
a
U.S.
dollar
functional
currency,
this
modeling
was
performed
on
each
security
individually.
To
generate appropriate
price 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
market
value
change under the various interest
rate change scenarios.
Impact of Interest Rate Shift in Basis Points
At December 31, 2022
-200
-100
-
100
200
(Dollars in millions)
Total Fair Value
$
25,618
$
24,863
$
24,107
$
23,352
$
22,596
Fair Value Change from Base (%)
6.3%
3.1%
-%
(3.1)%
(6.3)%
Change in Unrealized Appreciation
After-tax from Base ($)
$
1,316
$
658
$
—
$
(658)
$
(1,316)
Impact of Interest Rate Shift in Basis Points
At December 31, 2021
-200
-100
-
100
200
(Dollars in millions)
Total Fair Value
$
24,973
$
24,230
$
23,487
$
22,744
$
22,001
Fair Value Change from Base (%)
6.3%
3.2%
-%
(3.2)%
(6.3)%
Change in Unrealized Appreciation
After-tax from Base ($)
$
1,294
$
647
$
—
$
(647)
$
(1,294)
66
We
had $22.1
billion and
$19.0 billion
of gross
reserves for
losses and
LAE as
of December
31, 2022
and 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
3.8
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
$3.6 billion resulting
in a discounted
reserve balance
of approximately
$16.4 billion,
representing
approximately 67.9% of the value
of the fixed maturity investment
portfolio funds.
Equity Risk.
Equity risk is
the potential change
in fair and/or
market value
of the common
stock, preferred
stock
and mutual fund portfolios
arising from changing prices.
Our equity investments
consist of a diversified
portfolio
of individual
securities and
mutual funds,
which invest
principally in
high quality
common and
preferred
stocks
that are
traded on
the major exchanges.
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 tables below display the impact on fair/market
value and after-tax change
in fair/market value
of a 10% and
20% change in equity prices up and down for the period indicated.
Impact of Percentage Change in Equity Fair/Market Values
At December 31, 2022
(Dollars in millions)
-20%
-10%
0%
10%
20%
Fair Value of the Equity Portfolio
$
225
$
253
$
281
$
309
$
337
After-tax Change in Fair Value
$
(46)
$
(23)
$
—
$
23
$
46
Impact of Percentage Change in Equity Fair/Market Values
At December 31, 2021
(Dollars in millions)
-20%
-10%
0%
10%
20%
Fair Value of the Equity Portfolio
$
1,461
$
1,643
$
1,826
$
2,009
$
2,191
After-tax Change in Fair Value
$
(290)
$
(145)
$
—
$
145
$
290
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
market
value
of
available
for
sale
fixed
maturities due
to changes
in foreign
currency exchange
rates,
in relation
to functional
currency,
is reflected
as
part of
other comprehensive
income.
Conversely,
the impact
of changes
in foreign
currency exchange
rates,
in
relation to functional
currency,
on other assets
and liabilities is
reflected through
net income as
a component
of
other income
(expense).
In addition,
we translate
the assets,
liabilities and income
of non-U.S.
dollar functional
currency
legal
entities
to
the
U.S.
dollar.
This
translation
amount
is
reported
as
a
component
of
other
comprehensive income.
67
The tables below display
the potential impact of a
parallel and immediate 10%
and 20% increase and decrease
in
foreign exchange
rates
on the
valuation
of invested
assets subject
to foreign
currency exposure
for the
periods
indicated.
This
analysis
includes
the
after-tax
impact
of
translation
from
transactional
currency
to
functional
currency
as
well
as
the
after-tax
impact
of
translation
from
functional
currency
to
the
U.S.
dollar
reporting
currency.
Change in Foreign Exchange Rates in Percent
At December 31, 2022
(Dollars in millions)
-20%
-10%
0%
10%
20%
Total After-tax
Foreign Exchange Exposure
$
(814)
$
(407)
$
—
$
407
$
814
Change in Foreign Exchange Rates in Percent
At December 31, 2021
(Dollars in millions)
-20%
-10%
0%
10%
20%
Total After-tax
Foreign Exchange Exposure
$
(688)
$
(344)
$
—
$
303
$
606
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 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”.
We undertake
no obligation
to
update or revise
publicly any
forward-looking statements,
whether as a result
of new information,
future events
or otherwise.