EVEREST RE GROUP LTD
10-Ks and 10-Qs
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UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C.
20549
FORM
_
_
For the quarterly period ended
Commission file number
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
Seon Place – 4th Floor
,
-
(Address, including zip code, and telephone number, including area code,
of registrant’s principal executive office)
Indicate
by
check
mark
whether
the
registrant:
(1)
has
filed
all
reports
required
to
be
filed
by
Section
13
or
15(d)
of
the
Securities
Exchange Act
of 1934
during the
preceding 12
months (or
for such
shorter period
that the
registrant
was required
to file
such reports),
and (2) has been subject to such filing requirements for the past 90 days.
X
No
Indicate by check mark
whether the registrant
has submitted electronically
every Interactive Data
File required to be
submitted pursuant
to Rule 405 of
Regulation S-T during the
preceding 12 months (or
for such shorter period
that the registrant
was required to
submit such
files).
X
No
Indicate by check mark
whether the registrant
is a large accelerated
filer, an
accelerated filer,
a non-accelerated filer,
a smaller reporting
company
or
an
emerging
growth
company.
See
the
definitions
of
“large
accelerated
filer,”
“accelerated
filer,”
“smaller
reporting
company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
X
Accelerated filer
Non-accelerated filer
Indicate by
check mark
if the
registrant
is an
emerging growth
company
and has
elected not
to use
the extended
transition period
for
complying with any new or revised financial accounting standards provided
pursuant to Section 13(a) of the Exchange act.
YES
X
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
YES
X
Securities registered pursuant to Section 12(b) of the Act:
Class
Trading Symbol
Name of Exchange where
Number of Shares Outstanding
At August 1, 2022
EVEREST RE GROUP,
LTD
Table of Contents
Form 10-Q
Page
PART I
FINANCIAL INFORMATION
Item 1.
Financial Statements
1
2
3
4
5
Item 2.
28
Item 3.
48
Item 4.
48
PART II
OTHER INFORMATION
Item 1.
48
Item 1A.
48
Item 2.
49
Item 3.
49
Item 4.
49
Item 5.
49
Item 6.
50
1
EVEREST RE GROUP,
LTD.
CONSOLIDATED
BALANCE SHEETS
June 30,
(Dollars and share amounts in thousands, except par value per share)
2022
2021
(unaudited)
ASSETS:
Fixed maturities - available for sale, at fair value
$
$
(amortized cost: 2022, $
; 2021, $
, credit allowances: 2022, $
(
42,714
)
; 2021, $
(
29,738
)
)
Fixed maturities - held to maturity, at amortized cost, net of credit allowances
(fair value: 2022, $
, credit allowances: 2022, $
(
366
)
)
-
Equity securities, at fair value
Short-term investments (cost: 2022, $
; 2021, $
)
Other invested assets
Cash
Total investments and cash
Accrued investment income
Premiums receivable
Reinsurance recoverables
Funds held by reinsureds
Deferred acquisition costs
Prepaid reinsurance premiums
Income taxes
Other assets
TOTAL
ASSETS
$
$
LIABILITIES:
Reserve for losses and loss adjustment expenses
$
$
Future policy benefit reserve
Unearned premium reserve
Funds held under reinsurance treaties
Other net payable to reinsurers
Losses in course of payment
Senior notes
Long term notes
Borrowings from FHLB
Accrued interest on debt and borrowings
Unsettled securities payable
Other liabilities
Total liabilities
Commitments and contingencies (Note 7)
(nil)
(nil)
SHAREHOLDERS' EQUITY:
Preferred shares, par value: $
;
-
-
Common shares, par value: $
;
and (2021)
Additional paid-in capital
Accumulated other comprehensive income (loss), net of deferred income
tax expense (benefit) of $
(
208,066
)
(
1,576,854
)
Treasury shares, at cost;
(
3,848,630
)
(
3,847,308
)
Retained earnings
Total shareholders' equity
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
$
$
The accompanying notes are an integral part of the consolidated
financial statements.
2
EVEREST RE GROUP,
LTD.
CONSOLIDATED
STATEMENTS
OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
Three Months Ended
Six Months Ended
June 30,
June 30,
(Dollars in thousands, except per share amounts)
2022
2021
2022
2021
(unaudited)
(unaudited)
REVENUES:
Premiums earned
$
$
$
$
Net investment income
Net gains (losses) on investments:
Credit allowances on fixed maturity securities
(
1,490
)
(
15,927
)
(
13,343
)
(
22,904
)
Gains (losses) from fair value adjustments
(
188,924
)
(
325,784
)
Net realized gains (losses) from
dispositions
(
45,851
)
(
50,765
)
Total net gains
(losses) on investments
(
236,265
)
(
389,892
)
Other income (expense)
(
71,337
)
(
55,977
)
Total revenues
CLAIMS AND EXPENSES:
Incurred losses and loss adjustment expenses
Commission, brokerage, taxes
and fees
Other underwriting expenses
Corporate expenses
Interest, fees and bond issue
cost amortization expense
Total claims and expenses
INCOME (LOSS) BEFORE TAXES
Income tax expense (benefit)
(
3,507
)
NET INCOME (LOSS)
$
$
$
$
Other comprehensive income (loss), net
of tax:
Unrealized appreciation (depreciation)
("URA(D)") on securities arising during the period
(
732,364
)
(
1,547,540
)
(
204,444
)
Reclassification adjustment for
realized losses (gains) included
in net income (loss)
(
2,076
)
Total URA(D) on
securities arising during the period
(
716,523
)
(
1,527,521
)
(
206,520
)
Foreign currency translation adjustments
(
28,269
)
(
62,371
)
Reclassification adjustment for
amortization of net (gain) loss included
in net income (loss)
Total benefit plan
net gain (loss) for the period
Total other comprehensive
income (loss), net of tax
(
744,034
)
(
1,588,377
)
(
177,721
)
COMPREHENSIVE INCOME (LOSS)
$
(
621,404
)
$
$
(
1,167,996
)
$
EARNINGS PER COMMON SHARE:
Basic
$
$
$
$
Diluted
The accompanying notes are an integral part of the consolidated
financial statements.
3
EVEREST RE GROUP,
LTD.
CONSOLIDATED
STATEMENTS
OF
CHANGES IN SHAREHOLDERS’ EQUITY
Three Months Ended
Six Months Ended
June 30,
June 30,
(Dollars in thousands, except share and dividends per share
amounts)
2022
2021
2022
2021
(unaudited)
(unaudited)
COMMON SHARES (shares outstanding):
Balance beginning of period
Issued (redeemed) during the period, net
(
30,923
)
Treasury shares acquired
(
68,100
)
(
5,000
)
(
165,562
)
Balance end of period
COMMON SHARES (par value):
Balance beginning of period
$
$
$
$
Issued during the period, net
-
-
Balance end of period
ADDITIONAL PAID-IN CAPITAL:
Balance beginning of period
Share-based compensation plans
Balance end of period
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS),
NET OF DEFERRED INCOME TAXES:
Balance beginning of period
(
832,820
)
Net increase (decrease) during the period
(
744,034
)
(
1,588,377
)
(
177,721
)
Balance end of period
(
1,576,854
)
(
1,576,854
)
RETAINED EARNINGS:
Balance beginning of period
Net income (loss)
Dividends declared ($
in 2022; $
(
64,982
)
(
62,046
)
(
126,079
)
(
124,274
)
Balance, end of period
TREASURY SHARES AT COST:
Balance beginning of period
(
3,848,630
)
(
3,645,717
)
(
3,847,308
)
(
3,622,172
)
Purchase of treasury shares
-
(
16,782
)
(
1,322
)
(
40,327
)
Balance end of period
(
3,848,630
)
(
3,662,499
)
(
3,848,630
)
(
3,662,499
)
TOTAL
SHAREHOLDERS' EQUITY, END OF PERIOD
$
$
$
$
The accompanying notes are an integral part
of the consolidated financial statements.
4
EVEREST RE GROUP,
LTD.
CONSOLIDATED
STATEMENTS
OF CASH FLOWS
Six Months Ended
June 30,
(Dollars in thousands)
2022
2021
(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)
$
$
Adjustments to reconcile net income to net cash provided by operating activities:
Decrease (increase) in premiums receivable
(
223,030
)
(
499,647
)
Decrease (increase) in funds held by reinsureds, net
(
51,451
)
(
79,485
)
Decrease (increase) in reinsurance recoverables
(
236,849
)
Decrease (increase) in income taxes
(
100,230
)
Decrease (increase) in prepaid reinsurance premiums
(
109,716
)
(
71,566
)
Increase (decrease) in reserve for losses and loss adjustment expenses
Increase (decrease) in future policy benefit reserve
(
2,089
)
(
1,226
)
Increase (decrease) in unearned premiums
Increase (decrease) in other net payable to reinsurers
Increase (decrease) in losses in course of payment
(
178,091
)
Change in equity adjustments in limited partnerships
(
156,868
)
(
377,120
)
Distribution of limited partnership income
Change in other assets and liabilities, net
(
11,031
)
(
206,994
)
Non-cash compensation expense
Amortization of bond premium (accrual of bond discount)
Net (gains) losses on investments
(
143,011
)
Net cash provided by (used in) operating activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from fixed maturities matured/called/repaid - available for sale
Proceeds from fixed maturities matured/called/repaid - held to maturity
-
Proceeds from fixed maturities sold - available for sale
Proceeds from equity securities sold, at fair value
Distributions from other invested assets
Cost of fixed maturities acquired - available for sale
(
4,070,949
)
(
3,949,973
)
Cost of fixed maturities acquired - held to maturity
(
72,061
)
-
Cost of equity securities acquired, at fair value
(
283,352
)
(
360,016
)
Cost of other invested assets acquired
(
307,525
)
(
309,691
)
Net change in short-term investments
Net change in unsettled securities transactions
(
103,527
)
Net cash provided by (used in) investing activities
(
756,801
)
(
1,132,588
)
CASH FLOWS FROM FINANCING ACTIVITIES:
Common shares issued (redeemed) during the period for share-based compensation, net of expense
(
14,835
)
(
11,349
)
Purchase of treasury shares
(
1,322
)
(
40,328
)
Dividends paid to shareholders
(
126,079
)
(
124,274
)
Cost of shares withheld on settlements of share-based compensation awards
(
17,352
)
(
13,713
)
Net cash provided by (used in) financing activities
(
159,588
)
(
189,664
)
EFFECT OF EXCHANGE RATE CHANGES ON CASH
(
1,016
)
Net increase (decrease) in cash
Cash, beginning of period
Cash, end of period
$
$
SUPPLEMENTAL CASH FLOW INFORMATION:
Income taxes paid (recovered)
$
$
Interest paid
The accompanying notes are an integral
part of the consolidated financial statements.
5
NOTES TO CONSOLIDATED
INTERIM FINANCIAL STATEMENTS
(UNAUDITED)
For the Three and Six Months Ended June 30, 2022 and 2021
1.
GENERAL
Everest
Re Group,
Ltd. (“Group”),
a Bermuda company,
through its
subsidiaries, principally
provides reinsurance
and
insurance
in
the
U.S.,
Bermuda
and
international
markets.
As
used
in
this
document,
“Company”
means
Group and its subsidiaries.
2.
BASIS OF PRESENTATION
The unaudited
consolidated
financial statements
of the
Company
as
of June
30,
2022 and
December
31,
2021
and
for
the three
and six
months
ended June
30,
2022 and
2021
include
all
adjustments,
consisting
of normal
recurring accruals,
which, in the
opinion of management,
are necessary
for a
fair statement
of the results
on an
interim basis.
Certain financial
information,
which is
normally included
in annual
financial statements
prepared
in accordance
with accounting
principles generally
accepted in
the United States
of America (“GAAP”),
has been
omitted
since
it
is
not
required
for
interim
reporting
purposes.
The
December
31,
2021
consolidated
balance
sheet data was
derived from audited
financial statements
but does not
include all disclosures
required by
GAAP.
The
results
for
the
three
and
six
months
ended
June
30,
2022
and
2021
are
not
necessarily
indicative
of
the
results
for
a full
year.
These financial
statements
should be
read
in conjunction
with the
audited
consolidated
financial statements
and notes
thereto for
the years
ended December
31, 2021,
2020 and
2019, included
in the
Company’s most recent
Form 10-K filing.
The Company
consolidates
the results
of operations
and financial
position of
all voting
interest
entities ("VOE")
in
which
the
Company
has
a controlling
financial
interest
and
all
variable
interest
entities
("VIE")
in
which
the
Company is considered to be the primary beneficiary.
The consolidation assessment, including
the determination
as
to
whether
an
entity
qualifies
as
a
VIE
or
VOE,
depends
on
the
facts
and
circumstances
surrounding
each
entity.
The preparation
of financial
statements
in conformity
with GAAP
requires
management
to make
estimates
and
assumptions
that
affect
the reported
amounts
of assets
and liabilities
(and disclosure
of contingent
assets
and
liabilities) at the date of the financial
statements and the reported
amounts of revenues and expenses
during the
reporting period.
Ultimate actual results could differ,
possibly materially,
from those estimates.
All intercompany accounts
and transactions have been eliminated.
Certain
reclassifications
and
format
changes
have
been
made
to
prior
years’
amounts
to
conform
to
the
2022
presentation.
Application of Recently Issued Accounting
Standard Changes.
The Company
did not
adopt any
new accounting
standards
that had
a material
impact during
the three
and six
months
ended
June
30,
2022.
The
Company
assessed
the
adoption
impacts
of
recently
issued
accounting
standards
by the
Financial Accounting
Standards
Board on
the Company’s
consolidated
financial statements
as
well as
material updates
to previous
assessments,
if any,
from the
Company’s
Annual Report
on Form
10-K for
the year ended
December 31, 2021.
There were
no new material
accounting standards
issued in the
six months
ended June 30, 2022, that impacted Group.
Any
issued
guidance
and
pronouncements,
other
than
those
directly
referenced
above,
are
deemed
by
the
Company to be either not applicable or immaterial to
its financial statements.
6
3.
INVESTMENTS
The
following
tables
show
amortized
cost,
allowance
for
credit
losses,
gross
unrealized
appreciation/(depreciation) and fair
value of fixed maturity securities available
for sale as of the dates indicated:
At June 30, 2022
Amortized
Allowance for
Unrealized
Unrealized
Fair
(Dollars in thousands)
Cost
Credit Losses
Appreciation
Depreciation
Value
Fixed maturity securities - available for
sale
U.S. Treasury securities and
obligations of
U.S. government agencies and corporations
$
$
-
$
$
(
54,571
)
$
Obligations of U.S. states and
political subdivisions
(
151
)
(
24,348
)
Corporate securities
(
25,583
)
(
524,848
)
Asset-backed securities
-
(
183,241
)
Mortgage-backed securities
Commercial
-
(
72,820
)
Agency residential
-
(
186,656
)
Non-agency residential
-
-
(
208
)
Foreign government securities
-
(
115,421
)
Foreign corporate securities
(
16,980
)
(
403,480
)
Total fixed
maturity securities - available for
sale
$
$
(
42,714
)
$
$
(
1,565,593
)
$
At December 31, 2021
Amortized
Allowance for
Unrealized
Unrealized
Fair
(Dollars in thousands)
Cost
Credit Losses
Appreciation
Depreciation
Value
Fixed maturity securities - available for
sale
U.S. Treasury securities and
obligations of
U.S. government agencies and corporations
$
$
-
$
$
(
10,358
)
$
Obligations of U.S. states and
political subdivisions
(
151
)
(
1,150
)
Corporate securities
(
19,267
)
(
62,580
)
Asset-backed securities
(
7,679
)
(
11,848
)
Mortgage-backed securities
Commercial
-
(
5,690
)
Agency residential
-
(
18,873
)
Non-agency residential
-
(
16
)
Foreign government securities
-
(
28,079
)
Foreign corporate securities
(
2,641
)
(
64,536
)
Total fixed
maturity securities - available for
sale
$
$
(
29,738
)
$
$
(
203,130
)
$
The amortized
cost and
fair value
of fixed
maturity securities
available for
sale are
shown in
the following
table
by
contractual
maturity.
Mortgage-backed
securities
are
generally
more
likely
to
be
prepaid
than
other
fixed
maturity securities. As the stated
maturity of such securities may not
be indicative of actual maturities, the totals
for mortgage-backed and
asset-backed securities
are shown separately.
At June 30, 2022
At December 31, 2021
Amortized
Fair
Amortized
Fair
(Dollars in thousands)
Cost
Value
Cost
Value
Fixed maturity securities – available for sale:
$
$
$
$
Asset-backed securities
Mortgage-backed securities:
Commercial
Agency residential
Non-agency residential
Total fixed maturity securities
$
$
$
$
7
During
the
second
quarter
of
2022,
the
Company
purchased
fixed
maturity
securities
classified
as
held
to
maturity
with
an
amortized
cost
of
$
maturity securities held to maturity
consist of debt securities for which the
Company has both the positive intent
and ability
to hold
to
maturity or
redemption
and
are
reported
at
amortized
cost,
net of
the current
expected
credit loss
allowance.
Interest
income for
fixed
maturity
securities held
to maturity
is determined
in the
same
manner as interest income for
fixed maturity securities available
for sale.
These fixed maturity
securities held to maturity
are comprised of asset-backed
securities, with an amortized
cost
of $
fair
value
of
$
appreciation of
$
2022. The
contractual
maturity
of the
corporate
securities
held to
maturity
is
stated maturity of asset-backed
securities held to maturity may not be indicative
of actual maturities.
The Company evaluated
fixed maturity
securities classified as
held to maturity
for current
expected credit
losses
as
of
June
30,
2022
utilizing
risk
characteristics
of
each
security,
including
credit
rating,
remaining
time
to
maturity,
adjusted
for
prepayment
considerations,
and
subordination
level,
and
applying
default
and
recovery
rates,
which
include
the
incorporation
of
historical
credit
loss
experience
and
macroeconomic
forecasts,
to
develop an estimate
of current expected
credit losses. These
fixed maturities classified
as held to maturity
are of
a
high
credit
quality
and
are
all
rated
investment
grade
as
of
June
30,
2022.
The
allowance
for
credit
losses
expected to be
recognized over
the remaining life
of the fixed
maturity securities classified
as held to maturity
is
$
The changes
in
net
unrealized
appreciation
(depreciation)
for
the
Company’s
available
for
sale
and
short-term
investments are derived
from the following sources for
the periods indicated:
Three Months Ended
Six Months Ended
June 30,
June 30,
(Dollars in thousands)
2022
2021
2022
2021
Increase (decrease) during the period between the fair value and cost
of investments carried at fair value, and deferred taxes thereon:
Fixed maturity securities - available for sale and short-term investments
$
(
832,237
)
$
$
(
1,759,644
)
$
(
235,581
)
Change in unrealized appreciation (depreciation), pre-tax
(
832,237
)
(
1,759,644
)
(
235,581
)
Deferred tax benefit (expense)
(
11,366
)
Change in unrealized appreciation (depreciation),
net of deferred taxes, included in shareholders’ equity
$
(
716,523
)
$
$
(
1,527,521
)
$
(
206,520
)
8
The tables
below display
the aggregate
fair value
and gross
unrealized
depreciation
of fixed
maturity securities
available for
sale, by security
type and contractual
maturity,
in each case
subdivided according
to length
of time
that individual securities had been in a continuous unrealized
loss position for the periods indicated.
Duration of Unrealized Loss at June
30, 2022 By Security Type
Less than 12 months
Greater than 12 months
Total
Gross
Gross
Gross
Unrealized
Unrealized
Unrealized
(Dollars in thousands)
Fair Value
Depreciation
Fair Value
Depreciation
Fair Value
Depreciation
Fixed maturity securities - available for
sale
U.S. Treasury securities and
obligations of
U.S. government agencies and corporations
$
$
(
39,469
)
$
$
(
15,102
)
$
$
(
54,571
)
Obligations of U.S. states and
political subdivisions
(
21,935
)
(
2,366
)
(
24,301
)
Corporate securities
(
420,055
)
(
104,127
)
(
524,182
)
Asset-backed securities
(
180,189
)
(
3,052
)
(
183,241
)
Mortgage-backed securities
Commercial
(
69,573
)
(
3,247
)
(
72,820
)
Agency residential
(
116,105
)
(
70,551
)
(
186,656
)
Non-agency residential
(
188
)
(
20
)
(
208
)
Foreign government securities
(
73,986
)
(
41,435
)
(
115,421
)
Foreign corporate securities
(
329,255
)
(
73,849
)
(
403,104
)
Total
$
$
(
1,250,755
)
$
$
(
313,749
)
$
$
(
1,564,504
)
Securities where an allowance for credit
loss was recorded
(
1,089
)
-
-
(
1,089
)
Total fixed
maturity securities
$
$
(
1,251,844
)
$
$
(
313,749
)
$
$
(
1,565,593
)
Duration of Unrealized Loss at June
30, 2022 By Maturity
Less than 12 months
Greater than 12 months
Total
Gross
Gross
Gross
Unrealized
Unrealized
Unrealized
(Dollars in thousands)
Fair Value
Depreciation
Fair Value
Depreciation
Fair Value
Depreciation
Fixed maturity securities
- available for sale
Due in one year or less
$
$
(
4,878
)
$
$
(
7,477
)
$
$
(
12,355
)
Due in one year through five years
(
300,876
)
(
79,426
)
(
380,302
)
Due in five years through ten years
(
359,536
)
(
114,767
)
(
474,303
)
Due after ten years
(
219,410
)
(
35,209
)
(
254,619
)
Asset-backed securities
(
180,189
)
(
3,052
)
(
183,241
)
Mortgage-backed securities
(
185,866
)
(
73,818
)
(
259,684
)
Total
$
$
(
1,250,755
)
$
$
(
313,749
)
$
$
(
1,564,504
)
Securities where an allowance for credit
loss was recorded
(
1,089
)
-
-
(
1,089
)
Total fixed
maturity securities
$
$
(
1,251,844
)
$
$
(
313,749
)
$
$
(
1,565,593
)
9
The aggregate
fair
value
and gross
unrealized
losses related
to
fixed
maturity
securities available
for
sale in
an
unrealized
loss
position
at
June 30,
2022
were
$
securities for the
single issuer (the United
States government)
whose securities comprised
the largest unrealized
loss
position
at
June 30,
2022,
did
not
exceed
%
of
the
overall
fair
value
of
the
Company’s
fixed
maturity
securities available
for sale.
The fair
value of
the securities
for the
issuer with
the second
largest unrealized
loss
position at June 30,
2022, comprised less than
% of the Company’s
fixed maturity
securities available
for sale.
In addition,
as indicated
on the
above
table,
there
was
no significant
concentration
of unrealized
losses
in any
one market sector.
The $
have been in an unrealized
loss position for
less than one year were generally
comprised of foreign and domestic
corporate securities,
agency residential and
commercial mortgage-backed
securities, asset-backed
securities, U.S
government
securities and
foreign
government
securities.
Of these
unrealized
losses, $
to securities
that were
rated
investment
grade by
at least
one nationally
recognized
rating
agency.
The $
million of unrealized
losses related to
fixed maturity securities
available for sale
in an unrealized
loss position for
more
than
one
year
related
primarily
to
domestic
and
foreign
corporate
securities,
foreign
government
securities,
agency
residential
mortgage-backed
securities
and
U.S.
government
securities.
Of
these
unrealized
losses,
$
recognized
rating
agency.
In all
instances, there
were no
projected cash
flow shortfalls
to recover
the full
book
value of
the investments
and the
related
interest
obligations.
The mortgage
-backed
securities still
have excess
credit
coverage
and
are
current
on
interest
and
principal
payments.
Based
upon
the
Company’s
current
evaluation
of
securities
in
an
unrealized
loss
position
as
of
June
30,
2022,
the
unrealized
losses
are
due
to
changes
in
interest
rates
and
non-issuer
specific
credit
spreads
and
are
not
credit-related.
In
addition,
the
contractual
terms
of
these
securities
do
not
permit
these
securities
to
be
settled
at
a
price
less
than
their
amortized cost.
The
Company,
given
the
size
of
its
investment
portfolio
and
capital
position,
does
not
have
the
intent
to
sell
these securities; and it is more
likely than not that
the Company will not have
to sell the security before
recovery
of
its
cost
basis.
In
addition,
all
securities
currently
in
an
unrealized
loss
position
are
current
with
respect
to
principal and interest payments.
The tables
below display
the aggregate
fair value
and gross
unrealized
depreciation
of fixed
maturity securities
available for
sale, by security
type and contractual
maturity,
in each case
subdivided according
to length
of time
that
individual
securities
had
been
in
a
continuous
unrealized
loss
position
for
the
periods
indicated.
The
amounts presented
in the
tables below
include $
) million
of gross
unrealized
depreciation
as
of
December
31,
2021
related
to
fixed
maturity
securities
available
for
sale
for
which
the
Company has recorded an allowance
for credit losses.
Duration of Unrealized Loss at December
31, 2021 By Security Type
Less than 12 months
Greater than 12 months
Total
Gross
Gross
Gross
Unrealized
Unrealized
Unrealized
(Dollars in thousands)
Fair Value
Depreciation
Fair Value
Depreciation
Fair Value
Depreciation
Fixed maturity securities
- available for sale
U.S. Treasury securities and
obligations of
U.S. government agencies and corporations
$
$
(
6,264
)
$
$
(
4,094
)
$
$
(
10,358
)
Obligations of U.S. states and
political subdivisions
(
1,038
)
(
112
)
(
1,150
)
Corporate securities
(
38,316
)
(
24,264
)
(
62,580
)
Asset-backed securities
(
11,180
)
(
668
)
(
11,848
)
Mortgage-backed securities
Commercial
(
2,854
)
(
2,836
)
(
5,690
)
Agency residential
(
12,178
)
(
6,695
)
(
18,873
)
Non-agency residential
(
14
)
(
2
)
(
16
)
Foreign government securities
(
9,709
)
(
18,370
)
(
28,079
)
Foreign corporate securities
(
46,247
)
(
18,289
)
(
64,536
)
Total fixed
maturity securities
$
$
(
127,800
)
$
$
(
75,330
)
$
$
(
203,130
)
10
Duration of Unrealized Loss at December
31, 2021 By Maturity
Less than 12 months
Greater than 12 months
Total
Gross
Gross
Gross
Unrealized
Unrealized
Unrealized
(Dollars in thousands)
Fair Value
Depreciation
Fair Value
Depreciation
Fair Value
Depreciation
Fixed maturity securities - available for
sale
Due in one year or less
$
$
(
2,415
)
$
$
(
11,832
)
$
$
(
14,247
)
Due in one year through five years
(
35,264
)
(
28,685
)
(
63,949
)
Due in five years through ten years
(
47,413
)
(
22,038
)
(
69,451
)
Due after ten years
(
16,482
)
(
2,574
)
(
19,056
)
Asset-backed securities
(
11,180
)
(
668
)
(
11,848
)
Mortgage-backed securities
(
15,046
)
(
9,533
)
(
24,579
)
Total fixed
maturity securities
$
$
(
127,800
)
$
$
(
75,330
)
$
$
(
203,130
)
The
aggregate
fair
value
and
gross
unrealized
losses
related
to
investments
in
an
unrealized
loss
position
at
December 31, 2021
were $
issuer
(the
United
States
government)
whose
securities
comprised
the
largest
unrealized
loss
position
at
December
31,
2021,
did
not
exceed
%
of
the
overall
fair
value
of
the
Company’s
fixed
maturity
securities
available for sale.
The fair value of the securities
for the issuer with the second
largest unrealized
loss comprised
less
than
%
of
the
Company’s
fixed
maturity
securities
available
for
sale.
In
addition,
as
indicated
on
the
above
table,
there was
no significant
concentration
of unrealized
losses
in any
one market
sector.
The $
million of unrealized
losses related
to fixed
maturity securities
available for
sale that
have been
in an unrealized
loss
position
for
less
than
one
year
were
generally
comprised
of
domestic
and
foreign
corporate
securities,
agency
residential
mortgage-backed
securities,
asset-backed
securities
and
foreign
government
securities.
Of
these unrealized
losses,
$
one
nationally
recognized
rating
agency.
The
$
securities available
for
sale in
an unrealized
loss position
for
more than
one year
related
primarily to
domestic
and
foreign
corporate
securities,
foreign
government
securities
and
agency
residential
mortgage-backed
securities.
Of these unrealized
losses, $
by at least one
nationally recognized
rating agency.
In all instances,
there were no projected
cash flow shortfalls
to
recover
the
full
book
value
of
the
investments
and
the
related
interest
obligations.
The
mortgage-backed
securities still have excess
credit coverage and are
current on interest and
principal payments.
The components of net investment
income are presented in the table
below for the periods indicated:
Three Months Ended
Six Months Ended
June 30,
June 30,
(Dollars in thousands)
2022
2021
2022
2021
Fixed maturities
$
$
$
$
Equity securities
Short-term investments and cash
Other invested assets:
Limited partnerships
Other
Gross investment income before
adjustments
Funds held interest income (expense)
Future policy benefit reserve income (expense)
(
128
)
(
170
)
(
350
)
(
461
)
Gross investment income
Investment expenses
(
16,197
)
(
14,371
)
(
29,629
)
(
27,919
)
Net investment income
$
$
$
$
The
Company
records
results
from
limited
partnership
investments
on
the
equity
method
of
accounting
with
changes
in
value
reported
through
net
investment
income.
The
net
investment
income
from
limited
partnerships is dependent
upon the Company’s
share of the net asset
values of interests
underlying each limited
partnership.
Due
to
the
timing
of
receiving
financial
information
from
these
partnerships,
the
results
are
generally
reported
on
a
one
month
or
quarter
lag.
If
the
Company
determines
there
has
been
a
significant
11
decline in value
of a limited
partnership during
this lag period,
a loss will
be recorded
in the period
in which the
Company identifies the decline.
The Company had
contractual commitments
to invest
up to an additional
$
private
placement
loan
securities
at
June
30,
2022.
These
commitments
will
be
funded
when
called
in
accordance
with
the
partnership
and
loan
agreements,
which
have
investment
periods
that
expire,
unless
extended, through
2026
.
The Company
participates in
a private
placement liquidity
sweep facility
(“the facility”).
The primary purpose
of
the
facility
is
to
enhance
the
Company’s
return
on
its
short-term
investments
and
cash
positions.
The
facility
invests
in
high
quality,
short-duration
securities
and
permits
daily
liquidity.
The
Company
consolidates
its
participation in
the facility.
As of
June 30,
2022, the
fair value
of investments
in the
facility consolidated
within
the Company’s balance sheets
was $
Variable Interest
Entities
The
Company
is
engaged
with
various
special
purpose
entities
and
other
entities
that
are
deemed
to
be
VIEs
primarily
as
an
investor
through
normal
investment
activities
but
also
as
an
investment
manager.
A
VIE
is
an
entity that
either has
investors
that lack
certain essential
characteristics
of a
controlling
financial interest,
such
as simple
majority kick-out
rights, or
lacks sufficient
funds to
finance its
own activities
without financial
support
provided
by
other
entities.
The
Company
performs
ongoing
qualitative
assessments
of
its
VIEs
to
determine
whether the Company has
a controlling financial interest
in the VIE and therefore
is the primary beneficiary.
The
Company
is
deemed to
have
a
controlling
financial
interest
when
it
has
both
the
ability to
direct
the
activities
that most
significantly impact
the economic
performance of
the VIE
and the
obligation to
absorb losses
or right
to
receive
benefits
from
the
VIE
that
could
potentially
be
significant
to
the
VIE.
Based
on
the
Company’s
assessment,
if it
determines
it
is
the
primary
beneficiary,
the
Company
consolidates
the
VIE
in
the
Company’s
Consolidated Financial
Statements.
As of June
30, 2022 and
December 31, 2021, the
Company did
t hold any
securities for which it is the primary beneficiary.
The
Company,
through
normal
investment
activities,
makes
passive
investments
in
general
and
limited
partnerships
and other
alternative
investments.
For these
non-consolidated
VIEs, the
Company has
determined
it is not the
primary beneficiary as
it has no ability
to direct activities
that could significantly
affect the economic
performance
of
the
investments.
The
Company’s
maximum
exposure
to
loss
as
of
June
30,
2022
and
December 31, 2021
is limited
to the
total
carrying value
of $
included in
general
and limited
partnerships
and
other alternative
investments
in Other
Invested
Assets
in the
Company's
Consolidated
Balance
Sheets.
As
of
June
30,
2022,
the
Company
has
outstanding
commitments
totaling
$
partnership during
the commitment period
to fund
the purchase
of new investments
and partnership
expenses.
These
investments
are
generally
of
a
passive
nature
in
that
the
Company
does
not
take
an
active
role
in
management.
In
addition,
the
Company
makes
passive
investments
in
structured
securities
issued
by
VIEs
for
which
the
Company
is
not
the
manager.
These
investments
are
included
in
asset-backed
securities,
which
includes
collateralized loan
obligations and are
reported in fixed
maturities, available
-for-sale and fixed
maturities held to
maturity.
The
Company
has
not
provided
financial
or
other
support
with
respect
to
these
investments
other
than its
original investment.
For these
investments,
the Company
determined
it is
not the
primary beneficiary
due
to
the
relative
size
of the
Company’s
investment
in
comparison
to
the principal
amount
of the
structured
securities issued by the
VIEs, the level of
credit subordination
which reduces the Company’s
obligation to absorb
losses
or
right
to
receive
benefits
and
the
Company’s
inability
to
direct
the
activities
that
most
significantly
impact the economic performance
of the VIEs.
The Company’s
maximum exposure
to loss on
these investments
is limited to the amount of the Company’s
investment.
12
The components of net gains (losses) on investments
are presented in the tables below for
the periods indicated:
Three Months Ended
Six Months Ended
June 30,
June 30,
(Dollars in thousands)
2022
2021
2022
2021
Fixed maturity securities:
Allowance for credit losses
$
(
1,490
)
$
(
15,927
)
$
(
13,343
)
$
(
22,904
)
Net realized gains (losses) from dispositions
(
15,560
)
(
12,761
)
Equity securities, fair value:
Net realized gains (losses) from dispositions
(
30,926
)
(
42,713
)
Gains (losses) from fair value adjustments
(
188,924
)
(
325,784
)
Other invested assets
Short-term investments gain (loss)
(
52
)
(
26
)
Total net gains (losses) on investments
$
(
236,265
)
$
$
(
389,892
)
$
(Some amounts may not reconcile due to rounding.)
Roll Forward of Allowance for Credit Losses – Fixed maturities, available for sale
Three Months Ended June 30, 2022
Six Months Ended June 30, 2022
Obligations of
Obligations of
U.S. States
Foreign
U.S. States
Foreign
Corporate
Asset-Backed
and Political
Corporate
Corporate
Asset-Backed
and Political
Corporate
Securities
Securities
Subdivisions
Securities
Total
Securities
Securities
Subdivisions
Securities
Total
(Dollars in thousands)
Beginning Balance
$
(
20,049
)
$
(
7,679
)
$
(
151
)
$
(
13,712
)
$
(
41,591
)
$
(
19,267
)
$
(
7,679
)
$
(
151
)
$
(
2,641
)
$
(
29,738
)
Credit losses on securities where credit
losses were not previously recorded
(
4,887
)
-
-
(
4,706
)
(
9,593
)
(
6,816
)
-
-
(
15,890
)
(
22,706
)
Increases in allowance on previously
impaired securities
(
654
)
-
-
(
732
)
(
1,386
)
(
654
)
-
-
(
732
)
(
1,386
)
Decreases in allowance on previously
impaired securities
-
-
-
-
-
-
-
-
-
-
Reduction in allowance due to disposals
-
-
Balance as of June 30, 2022
$
(
25,583
)
$
-
$
(
151
)
$
(
16,980
)
$
(
42,714
)
$
(
25,583
)
$
-
$
(
151
)
$
(
16,980
)
$
(
42,714
)
Roll Forward of Allowance for Credit Losses – Fixed maturities,
available for sale
Three Months Ended June 30, 2021
Six Months Ended June 30, 2021
Foreign
Foreign
Foreign
Corporate
Asset-Backed
Corporate
Corporate
Asset-Backed
Government
Corporate
Securities
Securities
Securities
Total
Securities
Securities
Securities
Securities
Total
(Dollars in thousands)
Beginning Balance
$
(
3,603
)
$
(
4,915
)
$
(
205
)
$
(
8,723
)
$
(
1,220
)
$
-
$
(
22
)
$
(
503
)
$
(
1,745
)
Credit losses on securities where credit
losses were not previously recorded
(
13,537
)
-
(
1,055
)
(
14,592
)
(
15,920
)
(
4,915
)
-
(
1,055
)
(
21,890
)
Increases in allowance on previously
impaired securities
(
1,468
)
-
-
(
1,468
)
(
1,468
)
-
-
-
(
1,468
)
Decreases in allowance on previously
impaired securities
-
-
-
-
-
-
-
-
-
Reduction in allowance due to disposals
-
-
-
Balance as of June 30, 2021
$
(
18,475
)
$
(
4,915
)
$
(
1,260
)
$
(
24,650
)
$
(
18,475
)
$
(
4,915
)
$
-
$
(
1,260
)
$
(
24,650
)
13
The proceeds
and split
between gross
gains and
losses from
dispositions of
fixed maturity
and equity
securities,
are presented in the table below
for the periods indicated:
Three Months Ended
Six Months Ended
June 30,
June 30,
(Dollars in thousands)
2022
2021
2022
2021
Proceeds from sales of fixed maturity securities, available for sale
$
$
$
$
Gross gains from dispositions
Gross losses from dispositions
(
23,016
)
(
9,810
)
(
40,339
)
(
15,500
)
Proceeds from sales of equity securities
$
$
$
$
Gross gains from dispositions
Gross losses from dispositions
(
35,061
)
(
2,048
)
(
50,356
)
(
8,114
)
4.
RESERVE FOR LOSSES, LAE AND FUTURE
POLICY BENEFIT RESERVE
Activity in the reserve for losses and LAE is summarized
for the periods indicated:
Six Months Ended
June 30,
(Dollars in thousands)
2022
2021
Gross reserves beginning of period
$
$
(
1,946,365
)
(
1,843,691
)
Incurred related to:
(
1,659
)
(
4,453
)
Paid related to:
Foreign exchange/translation adjustment
(
259,484
)
Net reserves end of period
$
$
(Some amounts may not reconcile due
to rounding.)
Current year
incurred losses
were $
respectively.
Gross and net
reserves increased
for the six
months ended June
30, 2022, reflecting
an increase
in
underlying
exposure
due
to premium
growth
and
the
impact
of $
Ukraine/Russia war,
partially offset by a reduction of $
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
$
months ended June 30, 2022.
14
5.
FAIR VALUE
GAAP guidance
regarding
fair
value
measurements
addresses
how
companies
should
measure
fair
value
when
they are
required to
use fair
value measures
for recognition
or disclosure
purposes under
GAAP and
provides
a
common
definition
of fair
value
to
be used
throughout
GAAP.
It
defines
fair
value
as
the
price that
would
be
received
to
sell an
asset
or paid
to
transfer
a liability
in an
orderly
fashion
between market
participants
at the
measurement
date.
In
addition,
it
establishes
a
three-level
valuation
hierarchy
for
the
disclosure
of fair
value
measurements.
The valuation
hierarchy
is based
on the
transparency
of inputs
to
the valuation
of an
asset or
liability.
The level in the
hierarchy within
which a given fair
value measurement
falls is determined
based on the
lowest
level
input
that
is
significant
to
the
measurement,
with
Level
1
being
the
highest
priority
and
Level
3
being the lowest priority.
The levels in the hierarchy
are defined as follows:
Level 1:
Inputs
to
the valuation
methodology
are
observable
inputs that
reflect unadjusted
quoted
prices for
identical assets or liabilities in an active market;
Level 2:
Inputs
to
the
valuation
methodology
include
quoted
prices
for
similar
assets
and
liabilities
in
active
markets,
and
inputs
that
are
observable
for
the
asset
or
liability,
either
directly
or
indirectly,
for
substantially the full term of the financial instrument;
Level 3:
Inputs to the valuation methodology are
unobservable and significant to the fair
value measurement.
The
Company’s
fixed
maturity
and
equity
securities
are
primarily
managed
by
third
party
investment
asset
managers.
The
investment
asset
managers
managing
publicly
traded
securities
obtain
prices
from
nationally
recognized
pricing
services.
These
services
seek
to
utilize
market
data
and
observations
in
their
evaluation
process.
They use pricing
applications that
vary by asset
class and incorporate
available market
information and
when fixed
maturity securities
do not trade
on a daily
basis the services
will apply available
information through
processes
such
as
benchmark
curves,
benchmarking
of
like
securities,
sector
groupings
and
matrix
pricing.
In
addition,
they
use
model
processes,
such
as
the
Option
Adjusted
Spread
model
to
develop
prepayment
and
interest rate scenarios
for securities that have
prepayment features.
The investment
asset managers
do not
make any
changes to
prices received
from either
the pricing
services or
the
investment
brokers.
In
addition,
the
investment
asset
managers
have
procedures
in
place
to
review
the
reasonableness
of
the
prices
from
the
service
providers
and
may
request
verification
of
the
prices.
The
Company
also
continually
performs
quantitative
and
qualitative
analysis
of prices,
including
but
not
limited
to
initial
and
ongoing
review
of
pricing
methodologies,
review
of
prices
obtained
from
pricing
services
and
third
party
investment
asset
managers,
review
of
pricing
statistics
and
trends,
and
comparison
of
prices
for
certain
securities
with
a
secondary
price
source
for
reasonableness.
No
material
variances
were
noted
during
these
price validation
procedures.
In limited
situations,
where financial
markets
are inactive
or illiquid,
the Company
may use
its own
assumptions
about future
cash flows
and risk-adjusted
discount
rates
to determine
fair value.
At
June
30,
2022,
$
these fixed maturities were
valued by investment
managers’ valuation
committees and many
of these fair values
were
substantiated
by
valuations
from
independent
third
parties.
The
Company
has
procedures
in
place
to
evaluate
these independent
third party
valuations.
At December
31, 2021,
$
fair valued using unobservable inputs.
The Company internally
manages a public equity
portfolio which had
a fair value at
June 30, 2022 and
December
31, 2021 of $
to
internally
manage
a
portfolio
of collateralized
loan
obligations
included
in
asset-backed
securities,
available
for
sale,
which
had
a
fair
value
of
$
respectively.
All
prices
for
these
securities
were
obtained
from
publicly
published
sources
or
nationally
recognized pricing vendors.
15
Equity
securities
denominated
in
U.S.
currency
with
quoted
prices
in
active
markets
for
identical
assets
are
categorized
as
Level
1
since
the
quoted
prices
are
directly
observable.
Equity
securities
traded
on
foreign
exchanges are
categorized as
Level 2 due to
the added input of
a foreign exchange
conversion
rate to determine
fair value.
The Company uses foreign currency exchange
rates published by national
ly recognized sources.
Fixed maturity
securities listed in
the tables have
been categorized
as Level 2, since
a particular security may
not
have
traded
but
the
pricing
services
are
able
to
use
valuation
models
with
observable
market
inputs
such
as
interest rate yield
curves and prices for similar fixed
maturity securities in terms of issuer,
maturity and seniority.
For
foreign
government
securities
and
foreign
corporate
securities,
the
fair
values
provided
by
the
third
party
pricing services
in local
currencies, and
where applicable,
are converted
to U.S.
dollars using
currency exchange
rates from nationally recognized
sources.
In
addition
to
the
valuations
from
investment
managers,
some
of
the
fixed
maturities
with
fair
values
categorized
as
Level
3 result
when
prices
are
not
available
from
the
nationally
recognized
pricing
services
and
are
derived
using
unobservable
inputs.
The
Company
will
value
the
securities
with
unobservable
inputs
using
comparable
market
information
or
receive
fair
values
from
investment
managers.
The
investment
managers
may obtain
non-binding price
quotes for
the securities
from brokers.
The single
broker
quotes are
provided by
market
makers
or
broker-dealers
who
are
recognized
as
market
participants
in
the
markets
in
which
they
are
providing the quotes.
The prices received from
brokers are
reviewed for
reasonableness by the
third party asset
managers
and
the
Company.
If
the
broker
quotes
are
for
foreign
denominated
securities,
the
quotes
are
converted to U.S. dollars
using currency exchange rates
from nationally recognized
sources.
The composition
and
valuation
inputs
for
the
presented
fixed
maturities
categories
Level
1 and
Level
2
are
as
follows:
•
U.S.
Treasury
securities
and
obligations
of
U.S.
government
agencies
and
corporations
are
primarily
comprised
of U.S.
Treasury
bonds
and the
fair
value
is based
on observable
market
inputs
such as
quoted
prices, reported trades, quoted
prices for similar issuances or benchmark yields;
•
Obligations of U.S.
states and political
subdivisions are comprised
of state and municipal
bond issuances and
the
fair
values
are
based
on
observable
market
inputs
such
as
quoted
market
prices,
quoted
prices
for
similar securities, benchmark yields and credit spreads;
•
Corporate securities
are primarily
comprised of U.S.
corporate
and public
utility bond issuances
and the fair
values
are
based
on
observable
market
inputs
such
as
quoted
market
prices,
quoted
prices
for
similar
securities, benchmark yields and credit spreads;
•
Asset-backed
and
mortgage-backed
securities
fair
values
are
based
on
observable
inputs
such
as
quoted
prices, reported
trades, quoted
prices for
similar issuances
or benchmark yields
and cash flow
models using
observable inputs such as prepayment speeds,
collateral performance and default
spreads;
•
Foreign
government
securities
are
comprised
of
global
non-U.S.
sovereign
bond
issuances
and
the
fair
values
are
based
on
observable
market
inputs
such
as
quoted
market
prices,
quoted
prices
for
similar
securities and
models with observable
inputs such
as benchmark
yields and
credit spreads
and then,
where
applicable, converted to U.S.
dollars using an exchange rate
from a nationally recognized
source;
•
Foreign corporate
securities are
comprised of
global non-U.S.
corporate
bond issuances
and the
fair values
are
based
on
observable
market
inputs
such
as
quoted
market
prices,
quoted
prices
for
similar
securities
and models with observable inputs
such as benchmark yields and
credit spreads and then, where
applicable,
converted to U.S. dollars
using an exchange rate
from a nationally recognized
source.
16
The following
tables present
the fair
value measurement
levels for
all assets
and liabilities,
which the
Company
has recorded at fair value
as of the periods indicated:
Fair Value Measurement Using:
Quoted Prices
in Active
Significant
Markets for
Other
Significant
Identical
Observable
Unobservable
Assets
Inputs
Inputs
(Dollars in thousands)
June 30, 2022
(Level 1)
(Level 2)
(Level 3)
Assets:
Fixed maturities, available for sale
U.S. Treasury securities and obligations of
U.S. government agencies and corporations
$
$
-
$
$
-
Obligations of U.S. States and political subdivisions
-
-
Corporate securities
-
Asset-backed securities
-
Mortgage-backed securities
Commercial
-
Agency residential
-
-
Non-agency residential
-
-
Foreign government securities
-
-
Foreign corporate securities
-
Total fixed maturities, available for sale
-
Equity securities, fair value
-
Fair Value Measurement Using:
Quoted Prices
in Active
Significant
Markets for
Other
Significant
Identical
Observable
Unobservable
Assets
Inputs
Inputs
(Dollars in thousands)
December 31, 2021
(Level 1)
(Level 2)
(Level 3)
Assets:
Fixed maturities, available for sale
U.S. Treasury securities and obligations of
U.S. government agencies and corporations
$
$
-
$
$
-
Obligations of U.S. States and political subdivisions
-
-
Corporate securities
-
Asset-backed securities
-
Mortgage-backed securities
Commercial
-
-
Agency residential
-
-
Non-agency residential
-
-
Foreign government securities
-
-
Foreign corporate securities
-
Total fixed maturities, available for sale
-
Equity securities, fair value
-
In addition,
$
balance sheets
as of
June 30,
2022 and
December 31,
2021, respectively,
are not
included within
the fair
value
hierarchy tables as
the assets are measured at NAV
as a practical expedient to determine
fair value.
17
The following
table presents
the activity
under Level
3, fair
value measurements
using significant
unobservable
inputs for fixed maturities available
for sale, for the periods indicated:
Total Fixed Maturities,
Available for Sale
Three Months Ended June 30, 2022
Six Months Ended June 30, 2022
Corporate
Asset-Backed
Foreign
Corporate
Asset-Backed
Foreign
(Dollars in thousands)
Securities
Securities
CMBS
Corporate
Total
Securities
Securities
CMBS
Corporate
Total
Beginning balance fixed maturities
$
$
$
$
$
$
$
$
-
$
$
Total gains or (losses) (realized/unrealized)
Included in earnings
(
4,534
)
-
(
4,483
)
-
Included in other comprehensive income (loss)
(
3,003
)
(
47,202
)
(
199
)
(
3,747
)
(
54,151
)
(
7,170
)
(
75,990
)
(
222
)
(
3,808
)
(
87,190
)
Purchases, issuances and settlements
-
(
69,944
)
Transfers in/(out) of Level
3 and reclassification of
securities in/(out) of investment categories
(
147,692
)
-
-
(
147,692
)
-
-
Ending balance
$
$
$
$
$
$
$
$
$
$
The amount of total gains or losses for the period
included in earnings (or changes in net assets)
attributable to the change in unrealized gains
or losses relating to assets still held
$
(
5,261
)
$
$
-
$
-
$
$
(
4,943
)
$
$
-
$
-
$
(Some amounts may not reconcile due to rounding.)
Total Fixed Maturities,
Available for Sale
Three Months Ended June 30, 2021
Six Months Ended June 30, 2021
Corporate
Asset-Backed
Foreign
Corporate
Asset-Backed
Foreign
(Dollars in thousands)
Securities
Securities
Corporate
Total
Securities
Securities
Corporate
Total
Beginning balance fixed maturities
$
$
$
$
$
$
$
$
Total gains or (losses) (realized/unrealized)
Included in earnings
(
13,761
)
(
13,418
)
(
15,550
)
(
3,962
)
(
19,372
)
Included in other comprehensive income (loss)
(
85
)
(
36
)
Purchases, issuances and settlements
(
763
)
(
916
)
Transfers in/(out) of Level
3 and reclassification of
securities in/(out) of investment categories
-
-
-
-
-
-
-
-
Ending balance
$
$
$
$
$
$
$
$
The amount of total gains or losses for the period
included in earnings (or changes in net assets)
attributable to the change in unrealized gains
or losses relating to assets still held
$
(
17,279
)
$
(
4,915
)
$
-
$
(
22,194
)
$
(
17,279
)
$
(
4,915
)
$
-
$
(
22,194
)
(Some amounts may not reconcile due to rounding.)
The
Company’s
fixed
maturity
securities
held
to
maturity
are
recorded
at
amortized
cost,
net
of
credit
allowances,
with a
carrying value
of $
values
of
these
securities
are
determined
in
a
similar
manner
as
the
Company’s
fixed
maturity
securities
available
for
sale
as
described
above.
The
fair
values
of
these
securities
incorporate
the
use
of
significant
unobservable inputs and therefore
are classified as Level 3 within the fair
value hierarchy as
of June 30, 2022.
6.
EARNINGS PER COMMON SHARE
Basic
earnings
per
share
are
calculated
by
dividing
net
income
by
the
weighted
average
number
of
common
shares outstanding.
Diluted earnings per
share reflect
the potential
dilution that
would occur if
options granted
under various
share-based compensation
plans were
exercised
resulting in
the issuance
of common
shares that
would participate in the earnings of the entity.
18
Net income
(loss) per
common share
has been
computed as
per below,
based upon
weighted average
common
basic and dilutive shares outstanding.
Three Months Ended
Six Months Ended
June 30,
June 30,
(Dollars in thousands, except per share amounts)
2022
2021
2022
2021
Net income (loss) per share:
Numerator
Net income (loss)
$
$
$
$
Less:
dividends declared-common shares and unvested
common shares
(
64,982
)
(
62,045
)
(
126,079
)
(
124,274
)
Undistributed earnings
Percentage allocated to
common shareholders (1)
%
%
%
%
Add:
dividends declared-common shareholders
Numerator for basic and diluted
earnings per common share
$
$
$
$
Denominator
Denominator for basic earnings per weighted
-average common shares
Effect of dilutive securities:
Options
-
Denominator for diluted earnings per adjusted
weighted-average common shares
Per common share net income (loss)
Basic
$
$
$
$
Diluted
$
$
$
$
(1)
Basic weighted-average common shares outstanding
Basic weighted-average common shares outstanding and unvested common shares expected to vest
Percentage allocated to common shareholders
%
%
%
%
(Some amounts may not reconcile due to rounding.)
There were
All outstanding options granted
under share-based compensation
plans expire on
.
7.
COMMITMENTS AND CONTINGENCIES
In
the
ordinary
course
of
business,
the
Company
is
involved
in
lawsuits,
arbitrations
and
other
formal
and
informal
dispute
resolution
procedures,
the
outcomes
of
which
will
determine
the
Company’s
rights
and
obligations
under insurance
and reinsurance
agreements.
In some
disputes,
the Company
seeks
to
enforce
its
rights under an agreement or to
collect funds owing to it.
In other matters, the Company
is resisting attempts by
others
to
collect
funds
or
enforce
alleged
rights.
These
disputes
arise
from
time
to
time
and
are
ultimately
resolved through
both informal
and formal
means, including
negotiated resolution,
arbitration and
litigation.
In
all such matters,
the Company believes
that its positions
are legally and
commercially reasonable.
The Company
considers
the statuses
of these
proceedings
when determining
its reserves
for unpaid
loss and
loss adjustment
expenses.
Aside
from
litigation
and
arbitrations
related
to
these
insurance
and
reinsurance
agreements,
the
Company
is
not a party to any other material litigation
or arbitration.
19
8.
OTHER COMPREHENSIVE INCOME (LOSS)
The following
table presents
the components
of comprehensive
income (loss) in
the consolidated
statements
of
operations for the periods indicated:
Three Months Ended June
30, 2022
Six Months Ended June 30, 2022
(Dollars in thousands)
Before Tax
Tax Effect
Net of Tax
Before Tax
Tax Effect
Net of Tax
Unrealized appreciation (depreciation)
("URA(D)") on securities - non-
credit related
$
(
848,704
)
$
$
(
732,364
)
$
(
1,781,013
)
$
$
(
1,547,540
)
Reclassification of net realized
losses (gains) included in net income
(loss)
(
626
)
(
1,350
)
Foreign currency translation adjustments
(
30,896
)
(
28,269
)
(
65,499
)
(
62,371
)
Reclassification of benefit plan liability amortization
included in net
income (loss)
(
201
)
(
404
)
Total other comprehensive
income (loss)
$
(
862,174
)
$
$
(
744,034
)
$
(
1,823,224
)
$
$
(
1,588,377
)
Three Months Ended June 30, 2021
Six Months Ended June 30, 2021
(Dollars in thousands)
Before Tax
Tax Effect
Net of Tax
Before Tax
Tax Effect
Net of Tax
Unrealized appreciation (depreciation)
("URA(D)") on securities - non-
credit related
$
$
(
9,838
)
$
$
(
235,157
)
$
$
(
204,444
)
Reclassification of net realized
losses (gains) included in net income
(loss)
(
1,528
)
(
424
)
(
1,652
)
(
2,076
)
Foreign currency translation adjustments
(
3,727
)
(
4,321
)
Reclassification of benefit plan liability amortization
included in net
income (loss)
(
543
)
(
1,086
)
Total other comprehensive
income (loss)
$
$
(
15,636
)
$
$
(
201,375
)
$
$
(
177,721
)
The following table presents details
of the amounts reclassified from AOCI for
the periods indicated:
Three Months Ended
Six Months Ended
June 30,
June 30,
Affected line item within the statements of
AOCI component
2022
2021
2022
2021
operations and comprehensive income (loss)
(Dollars in thousands)
URA(D) on securities
$
$
$
$
(
424
)
Other net realized capital gains (losses)
(
626
)
(
1,528
)
(
1,350
)
(
1,652
)
Income tax expense (benefit)
$
$
$
$
(
2,076
)
Net income (loss)
Benefit plan net gain (loss)
$
$
$
$
Other underwriting expenses
(
201
)
(
543
)
(
404
)
(
1,086
)
Income tax expense (benefit)
$
$
$
$
Net income (loss)
20
The following
table presents
the components
of accumulated
other comprehensive
income (loss),
net of
tax, in
the consolidated balance sheets for the periods
indicated:
Three Months Ended
Six Months Ended
June 30,
June 30,
(Dollars in thousands)
2022
2021
2022
2021
Beginning balance of URA (D) on securities
$
(
571,602
)
$
$
$
Current period change in URA (D) of investments - non-credit related
(
716,523
)
(
1,527,521
)
(
206,520
)
Ending balance of URA (D) on securities
(
1,288,124
)
(
1,288,124
)
Beginning balance of foreign currency translation adjustments
(
211,583
)
(
124,972
)
(
177,481
)
(
115,390
)
Current period change in foreign currency translation adjustments
(
28,269
)
(
62,371
)
Ending balance of foreign currency translation adjustments
(
239,852
)
(
90,677
)
(
239,852
)
(
90,677
)
Beginning balance of benefit plan net gain (loss)
(
49,634
)
(
71,827
)
(
50,392
)
(
73,870
)
Current period change in benefit plan net gain (loss)
Ending balance of benefit plan net gain (loss)
(
48,877
)
(
69,784
)
(
48,877
)
(
69,784
)
Ending balance of accumulated other comprehensive income (loss)
$
(
1,576,854
)
$
$
(
1,576,854
)
$
(Some amounts may not reconcile due to rounding.)
9.
CREDIT FACILITIES
The Company
has multiple active
letter of
credit facilities
for a
total commitment
of up to
$
30, 2022.
The Company
also has
additional uncommitted
letter of
credit facilities
of up to
$
may be
accessible via
written
request and
corresponding
authorization
from the
applicable lender.
There is
no
guarantee the uncommitted
capacity will be available to us on
a future date.
The terms and outstanding amounts for
each facility are discussed below:
Group Credit Facility
Effective
May
26,
2016, Group,
Everest
Reinsurance
(Bermuda),
Ltd.
(“Bermuda
Re”)
and
Everest
International
Reinsurance,
Ltd.
(“Everest
International”),
both
direct
subsidiaries
of
Group,
entered
into
a
,
$
million senior credit
facility with
a syndicate
of lenders,
which amended and
restated
in its entirety
the June 22,
2012,
,
$
facilities, which
have similar
terms, are
referred
to as
the “2016 Group
Credit Facility”.
Wells Fargo
Corporation
(“Wells Fargo Bank”) is
the administrative agent
for the 2016 Group Credit Facility.
Effective
May 26,
2021, the
term of
the 2016
Group Credit
Facility expired.
The Company
elected not
to renew
this facility
to allow
for the
replacement
by other
collateralized
bi-lateral
letter
of credit
facilities such
as those
described
below.
As
a
result
of
the
non-renewal
in
May
2021,
letter
of
credit
commitment/availability
in
the
2016 Group
Credit Facility
was
limited only
to the
letters
of credit
already
issued.
Those letters
of credit
were
subsequently cancelled from
this facility and the
facility is now fully
matured.
Prior to its maturity,
the Company
was in compliance with all Group Credit
Facility covenants.
The following table summarizes the
outstanding letters of credit
and/or borrowings for the periods
indicated:
(Dollars in thousands)
At June 30, 2022
At December 31, 2021
Bank
Capacity
In Use
Date of Expiry
Capacity
In Use
Date of Expiry
Wells Fargo Bank Group
Credit Facility
$
-
$
-
$
$
Total Wells
Fargo Bank Group Credit Facility
$
-
$
-
$
$
21
Bermuda Re Wells Fargo
Letter of Credit Facility
Effective February
23, 2021, Bermuda Re entered into
a letter of credit issuance facility
with Wells Fargo
referred
to as
the “2021
Bermuda Re
Wells
Fargo
Letter of
Credit Facility.”
The Bermuda
Re Wells
Fargo
Letter of
Credit
Facility
originally provided
for
the issuance
of up
to $
2021,
the
agreement
was
amended
to
provide
for
the
issuance
of
up
to
$
credit.
The following table summarizes the
outstanding letters of credit
for the periods indicated:
(Dollars in thousands)
At June 30, 2022
At December 31, 2021
Bank
Capacity
In Use
Date of Expiry
Capacity
In Use
Date of Expiry
Wells Fargo Bank Bilateral
LOC Agreement
$
$
$
$
Total Wells
Fargo Bank Bilateral
LOC Agreement
$
$
$
$
Bermuda Re Citibank Letter of Credit Facility
Effective
August
9,
2021,
Bermuda
Re
entered
into
a
new
letter
of
credit
issuance
facility
with
Citibank
N.A.
which superseded
the previous
letter
of credit
issuance facility
with Citibank
N.A. that
was effective
December
31, 2020.
Both of
these agreements
are referred
to as
the “Bermuda
Re Citibank
Letter of
Credit Facility”.
The
current Bermuda Re
Citibank Letter of Credit
Facility provides
for the committed
issuance of up to $
of
secured
letters
of
credit.
In
addition,
the
facility
provided
for
the
uncommitted
issuance
of
up
the
$
million,
which
may
be
accessible
via
written
request
by
the
Company
and
corresponding
authorization
from
Citibank N.A.
The following table summarizes the
outstanding letters of credit
for the periods indicated:
(Dollars in thousands)
At June 30, 2022
At December 31, 2021
Bank
Capacity
In Use
Date of Expiry
Capacity
In Use
Date of Expiry
Bermuda Re Citibank LOC Facility-
Committed
$
$
12/16/22
$
$
02/28/22
12/31/22
03/01/22
01/21/23
11/24/22
02/28/23
12/16/22
03/01/23
12/20/22
08/15/23
12/31/22
09/23/23
01/21/23
12/20/23
08/15/23
–
09/23/23
Bermuda Re Citibank LOC Facility
- Uncommitted
12/31/22
12/31/22
03/30/26
12/30/25
Total Citibank
Bilateral Agreement
$
$
$
$
Bermuda Re Bayerische Landesbank
Credit Facility
Effective
August
27,
2021
Bermuda
Re
entered
into
a
letter
of
credit
issuance
facility
with
Bayerische
Landesbank,
an agreement
referred
to as
the “Bermuda
Re Bayerische
Landesbank
Bilateral
LOC
Facility”.
The
Bermuda Re
Bayerische
Landesbank
Bilateral
LOC
Facility
provides
for
the committed
issuance
of up
to $
million of secured letters of credit.
The following table summarizes the
outstanding letters of credit
for the periods indicated:
(Dollars in thousands)
At June 30, 2022
At December 31, 2021
Bank
Capacity
In Use
Date of Expiry
Capacity
In Use
Date of Expiry
Bayerische Landesbank Bilateral LOC
Agreement
$
$
$
$
Total Bayerische
Landesbank Bilateral LOC Agreement
$
$
$
$
22
Bermuda Re Lloyd’s
Bank Credit Facility.
Effective October
8, 2021 Bermuda Re entered
into a letter of credit
issuance facility with Lloyd’s
Bank Corporate
Markets
PLC,
an
agreement
referred
to
as
the
“Bermuda
Re
Lloyd’s
Bank
Credit
Facility”.
The
Bermuda
Re
Lloyd’s
Bank
Credit
Facility
provides
for
the
committed
issuance
of
up
to
$
credit, and subject to credit approval
a maximum total facility amount of $
The following table summarizes the
outstanding letters of credit
for the periods indicated:
(Dollars in thousands)
At June 30, 2022
At December 31, 2021
Bank
Capacity
In Use
Date of Expiry
Capacity
In Use
Date of Expiry
Bermuda Re Lloyd's Bank Credit Facility
-Committed
$
$
$
$
Bermuda Re Lloyd's Bank Credit Facility
-Uncommitted
-
-
Total Bermuda Re
Lloyd's Bank Credit Facility
$
$
$
$
Bermuda Re Barclays Bank Credit
Facility.
Effective
November 3,
2021 Bermuda
Re entered
into a
letter of
credit issuance
facility with
Barclays
Bank PLC,
an agreement
referred
to as
the “Bermuda
Re Barclays
Credit Facility”.
The Bermuda
Re Barclays
Credit Facility
provides for the committed issuance
of up to $
The following table summarizes the
outstanding letters of credit
for the periods indicated:
(Dollars in thousands)
At June 30, 2022
At December 31, 2021
Bank
Capacity
In Use
Date of Expiry
Capacity
In Use
Date of Expiry
Bermuda Re Barclays Bilateral
Letter of Credit Facility
$
$
$
$
Total Bermuda Re
Barclays Bilateral Letter
of Credit Facility
$
$
$
$
Federal Home Loan Bank Membership
Everest
Reinsurance
Company
(“Everest
Re”)
is
a
member
of
the
Federal
Home
Loan
Bank
of
New
York
(“FHLBNY”), which allows
Everest
Re to
borrow up
to
% of its
statutory
admitted assets.
As of June
30, 2022,
Everest
Re
had
admitted
assets
of
approximately
$
approximately
$
maturities in
November and
December,
2022, and
interest
payable
at interest
rates
between
% and
%.
Everest
Re incurred
interest
expense of
$
and 2021,
respectively.
Everest
Re incurred
interest
expense of
$
ended
June
30,
2022
and
2021,
respectively.
The
FHLBNY
membership
agreement
requires
that
%
of
borrowed funds be used to acquire additional
membership stock.
10.
COLLATERALIZED
REINSURANCE AND TRUST AGREEMENTS
Certain
subsidiaries
of
Group
have
established
trust
agreements,
which
effectively
use
the
Company’s
investments
as collateral,
as security
for assumed
losses payable
to certain
non-affiliated
ceding companies.
At
June 30, 2022, the total amount on deposit in trust
accounts was $
The Company
reinsures
some of
its catastrophe
exposures
with the
segregated
accounts
of Mt.
Logan
Re.
Mt.
Logan Re is
a Collateralized
insurer registered
in Bermuda and
% of the voting
common shares
are owned by
Group.
Each segregated
account invests
predominantly in
a diversified
set of catastrophe
exposures, diversified
by risk/peril and across different
geographic regions globally.
23
The
following
table
summarizes
the
premiums
and
losses
that
are
ceded
by
the
Company
to
Mt.
Logan
Re
segregated accounts and
assumed by the Company from Mt. Logan
Re segregated accounts.
Three Months Ended
Six Months Ended
June 30,
June 30,
Mt. Logan Re Segregated Accounts
2022
2021
2022
2021
(Dollars in thousands)
Ceded written premiums
$
$
$
$
Ceded earned premiums
Ceded losses and LAE
Assumed written premiums
Assumed earned premiums
Assumed losses and LAE
-
-
-
-
Effective
April
1,
2018,
the
Company
entered
into
a
retroactive
reinsurance
transaction
with
one
of
the
Mt.
Logan
Re segregated
accounts
to
retrocede
$
accident years
.
As consideration
for entering
the agreement,
the Company
transferred
cash
of $
agreement
will
be
$
liability.
As
of
June
30,
2022
and
December
31,
2021,
the
Company
has
a
reinsurance
recoverable
of
$
million and
$
and $
The
Company
entered
into
various
collateralized
reinsurance
agreements
with
Kilimanjaro
Re
Limited
(“Kilimanjaro”),
a
Bermuda
based
special
purpose
reinsurer,
to
provide
the
Company
with
catastrophe
reinsurance
coverage.
These
agreements
are
multi-year
reinsurance
contracts
which
cover
named
storm
and
earthquake events.
The table below summarizes the various
agreements.
(Dollars in thousands)
Class
Description
Effective Date
Expiration Date
Limit
Coverage Basis
Series 2018-1 Class A-2
US, Canada, Puerto Rico – Named Storm and Earthquake
Events
$
Aggregate
Series 2018-1 Class B-2
US, Canada, Puerto Rico – Named Storm and Earthquake
Events
Aggregate
Series 2019-1 Class A-1
US, Canada, Puerto Rico – Named Storm and Earthquake
Events
Occurrence
Series 2019-1 Class B-1
US, Canada, Puerto Rico – Named Storm and Earthquake
Events
Aggregate
Series 2019-1 Class A-2
US, Canada, Puerto Rico – Named Storm and Earthquake
Events
Occurrence
Series 2019-1 Class B-2
US, Canada, Puerto Rico – Named Storm and Earthquake
Events
Aggregate
Series 2021-1 Class A-1
US, Canada, Puerto Rico – Named Storm and Earthquake
Events
Occurrence
Series 2021-1 Class B-1
US, Canada, Puerto Rico – Named Storm and Earthquake
Events
Aggregate
Series 2021-1 Class C-1
US, Canada, Puerto Rico – Named Storm and Earthquake
Events
Aggregate
Series 2021-1 Class A-2
US, Canada, Puerto Rico – Named Storm and Earthquake
Events
Occurrence
Series 2021-1 Class B-2
US, Canada, Puerto Rico – Named Storm and Earthquake
Events
Aggregate
Series 2021-1 Class C-2
US, Canada, Puerto Rico – Named Storm and Earthquake
Events
Aggregate
Series 2022-1 Class A
US, Canada, Puerto Rico – Named Storm and Earthquake
Events
Aggregate
Total available limit as of
June 30, 2022
$
Recoveries
under
these
collateralized
reinsurance
agreements
with
Kilimanjaro
are
primarily
dependent
on
estimated
industry
level
insured
losses
from
covered
events,
as
well
as
the
geographic
location
of
the
events.
The
estimated
industry
level
of
insured
losses
is
obtained
from
published
estimates
by
an
independent
recognized
authority
on
insured
property
losses.
Currently,
none
of
the
published
insured
loss
estimates
for
catastrophe
events
during
the applicable
covered
periods
of the
various
agreements
have
exceeded
the
single
event retentions or aggregate
retentions under the terms of the agreements
that would result in a recovery.
24
Kilimanjaro
has
financed the
various
property
catastrophe
reinsurance
coverages
by
issuing catastrophe
bonds
to
unrelated,
external
investors.
The
proceeds
from
the
issuance
of
the
Notes
listed
below
are
held
in
reinsurance trusts
throughout the
duration of
the applicable reinsurance
agreements and
invested
solely in U.S.
government money market
funds with a rating of at least
“AAAm” by Standard
& Poor’s.
(Dollars in thousands)
Note Series
Issue Date
Maturity Date
Amount
Series 2018-1 Class A-2
$
Series 2018-1 Class B-2
Series 2019-1 Class A-1
Series 2019-1 Class B-1
Series 2019-1 Class A-2
Series 2019-1 Class B-2
Series 2021-1 Class A-1
Series 2021-1 Class B-1
Series 2021-1 Class C-1
Series 2021-1 Class A-2
Series 2021-1 Class B-2
Series 2021-1 Class C-2
Series 2022-1 Class A
$
11.
SENIOR NOTES
The
table
below
displays
Everest
Reinsurance
Holdings’
(“Holdings”)
outstanding
senior
notes.
Fair
value
is
based on
quoted market
prices, but
due to
limited trading
activity,
these senior
notes are
considered Level
2 in
the fair value hierarchy.
June 30, 2022
December 31, 2021
Consolidated Balance
Consolidated Balance
(Dollars in thousands)
Date Issued
Date Due
Principal Amounts
Sheet Amount
Fair Value
Sheet Amount
Fair Value
% Senior notes
$
$
$
$
$
% Senior notes
% Senior notes
$
$
$
$
$
Interest expense incurred in
connection with these senior notes is as follows
for the periods indicated:
Three Months Ended
Six Months Ended
June 30,
June 30,
(Dollars In thousands
2022
2021
2022
2021
Interest expense incurred
% Senior notes
$
$
$
$
Interest expense incurred
% Senior notes
Interest expense incurred
% Senior notes
-
-
$
$
$
$
25
12.
LONG TERM SUBORDINATED
NOTES
The table below
displays Holdings’
outstanding fixed
to floating rate
long term subordinated
notes.
Fair value
is
based
on
quoted
market
prices,
but
due
to
limited
trading
activity,
these
subordinated
notes
are
considered
Level 2 in the fair value hierarchy.
Maturity Date
June 30, 2022
December 31, 2021
Original
Consolidated Balance
Fair
Consolidated Balance
Fair
(Dollars in thousands)
Date Issued
Principal Amount
Scheduled
Final
Sheet Amount
Value
Sheet Amount
Value
Long term subordinated notes
$
$
$
$
$
During the fixed
rate interest
period from
, interest
was at the
annual rate
of
%, payable semi-annually in arrears
on November 15 and May 15 of each year,
commencing on
.
During the floating rate
interest period from
May 15, 2017 through
maturity,
interest will be based
on the
3
month
LIBOR
plus
August 15
and November
15 of
each year,
subject to
Holdings’ right
to defer
interest
on
for up
to
ten
quarterly
for
periods
from
and
including
May
15,
2017.
The
reset
quarterly
interest
rate
for
May
16,
2022
to
August 14, 2022 is
%.
Holdings may redeem
the long term subordinated
notes on or after
May 15, 2017, in
whole or in part at
% of
the principal amount
plus accrued and unpaid
interest; however,
redemption on or
after the scheduled
maturity
date and
prior to
certain
senior
note
holders
and
it
mandates
that
Holdings
receive
proceeds
from
the
sale
of
another
subordinated
debt issue,
of at
least similar
size, before
it may
redeem the
subordinated
notes.
The Company’s
% senior notes,
due on
,
% senior noted
due on
% senior notes
due
on
subordinated notes.
On March
19, 2009,
Group
announced the
commencement
of a
cash tender
offer
for
any
and all
of the
%
fixed
to
floating
rate
long
term
subordinated
notes.
Upon
expiration
of
the
tender
offer,
the
Company
had
reduced its
outstanding debt
by $
$
Interest
expense
incurred
in
connection
with
these
long
term
subordinated
notes
is
as follows
for
the
periods
indicated:
Three Months Ended
Six Months Ended
June 30,
June 30,
(Dollars in thousands)
2022
2021
2022
2021
Interest expense incurred
$
$
$
$
13.
SEGMENT REPORTING
The Reinsurance
operation
writes worldwide
property
and casualty
reinsurance
and specialty
lines of
business,
on both
a treaty
and facultative
basis,
through
reinsurance
brokers,
as well
as directly
with ceding
companies.
Business is
written in
the U.S.,
Bermuda, and
Ireland offices,
as well as,
through branches
in Canada,
Singapore,
the United
Kingdom
and Switzerland.
The Insurance
operation
writes property
and casualty
insurance
directly
and
through
brokers,
surplus
lines
brokers
and
general
agents
within
the
U.S.,
Bermuda,
Canada,
Europe,
Singapore
and South
America through
its offices
in the
U.S.,
Canada, Chile,
Singapore,
United Kingdom,
Ireland
and a branch in the Netherlands.
These segments are
managed independently,
but conform
with corporate
guidelines with respect
to pricing, risk
management,
control
of
aggregate
catastrophe
exposures,
capital,
investments
and
support
operations.
26
Management
generally
monitors
and
evaluates
the
financial
performance
of
these
operating
segments
based
upon their underwriting results.
Underwriting
results
include
earned
premium
less
losses
and
loss
adjustment
expenses
(“LAE”)
incurred,
commission and brokerage
expenses and other
underwriting expenses.
The Company measures
its underwriting
results using
ratios, in
particular loss,
commission and
brokerage
and other
underwriting expense
ratios, which,
respectively,
divide incurred
losses, commissions
and brokerage
and other
underwriting expenses
by premiums
earned.
The
Company
does
not
maintain
separate
balance
sheet
data
for
its
operating
segments.
Accordingly,
the
Company does not
review and evaluate
the financial results
of its operating
segments based upon
balance sheet
data.
The following tables present the underwriting
results for the operating segments
for the periods indicated:
Three Months Ended June 30, 2022
Six Months Ended June 30, 2022
(Dollars in thousands)
Reinsurance
Insurance
Total
Reinsurance
Insurance
Total
Gross written premiums
$
$
$
$
$
$
Net written premiums
Premiums earned
$
$
$
$
$
$
Incurred losses and LAE
Commission and brokerage
Other underwriting expenses
Underwriting gain (loss)
$
$
$
$
$
$
Net investment income
Net gains (losses) on investments
(
236,265
)
(
389,892
)
Corporate expenses
(
15,018
)
(
29,038
)
Interest, fee and bond
issue cost amortization expense
(
24,398
)
(
48,476
)
Other income (expense)
(
71,337
)
(
55,977
)
Income (loss) before taxes
$
$
(Some amounts may not reconcile due to rounding.)
Three Months Ended June 30, 2021
Six Months Ended June 30, 2021
(Dollars in thousands)
Reinsurance
Insurance
Total
Reinsurance
Insurance
Total
Gross written premiums
$
$
$
$
$
$
Net written premiums
Premiums earned
$
$
$
$
$
$
Incurred losses and LAE
Commission and brokerage
Other underwriting expenses
Underwriting gain (loss)
$
$
$
$
$
$
Net investment income
Net gains (losses) on investments
Corporate expenses
(
16,168
)
(
28,546
)
Interest, fee and bond
issue cost amortization expense
(
15,607
)
(
31,246
)
Other income (expense)
Income (loss) before taxes
$
$
(Some amounts may not reconcile due to rounding.)
27
The
Company
produces
business
in
the
U.S.,
Bermuda
and
internationally.
The
net
income
deriving
from
and
assets
residing
in the
individual
foreign
countries
in which
the Company
writes
business
are
not identifiable
in
the Company’s
financial records.
Based on gross written
premium, the table below
presents the largest
country,
other than the U.S., in which the Company writes business,
for the periods indicated:
Three Months Ended
Six Months Ended
June 30,
June 30,
(Dollars in thousands)
2022
2021
2022
2021
United Kingdom gross written premium
$
$
$
$
14.
SHARE-BASED COMPENSATION
PLANS
For
the
three
months
ended
June
30,
2022, a
total
of
2022 with a fair value of $
For
the
six
months
ended
June
30,
2022,
a
total
of
,
2022,
with
a
fair
value
of
$
Additionally,
$
15.
INCOME TAXES
The
Company
is
domiciled
in
Bermuda
and
has
subsidiaries
and/or
branches
in
Canada,
Chile,
Ireland,
the
Netherlands,
Singapore,
Switzerland,
the
United
Kingdom,
and
the
United
States.
The
Company’s
Bermuda
domiciled
subsidiaries
are
exempt
from
income
taxation
under
Bermuda
law
until
2035.
The
Company’s
non-
Bermudian
subsidiaries
and
branches
are
subject
to
income
taxation
at
varying
rates
in
their
respective
domiciles.
The Company generally
applies the estimated
Annualized Effective
Tax
Rate (“AETR”)
approach for
calculating its
tax
provision
for
interim
periods
as prescribed
by
ASC 740-270,
Interim
Reporting.
Under
the
AETR approach,
the
estimated
annualized
effective
tax
rate
is
applied
to
the
interim
year-to-date
pre-tax
income/(loss)
to
determine
the
income
tax
expense
or
benefit
for
the
year-to-date
period.
The
tax
expense
or
benefit
for
the
quarter represents
the difference
between the
year-to-date
tax expense
or benefit
for the
current year
-to-date
period less such
amount for
the immediately
preceding year-to-date
period.
Management considers
the impact
of all known events
in its estimation
of the Company’s
annual pre-tax
income/(loss) and annualized
effective tax
rate.
16.
SUBSEQUENT EVENTS
The Company
has evaluated
known recognized
and non-recognized
subsequent events.
The Company
does not
have any subsequent
events to report.
28
ITEM 2.
MANAGEMENT’S
DISCUSSION
AND
ANALYSIS
OF
FINANCIAL
CONDITION
AND
RESULTS
OF
OPERATION
Industry Conditions.
The worldwide
reinsurance
and
insurance
businesses
are highly
competitive,
as well
as cyclical
by
product
and
market.
As
such,
financial
results
tend
to
fluctuate
with
periods
of
constrained
availability,
higher
rates
and
stronger
profits
followed
by
periods
of
abundant
capacity,
lower
rates
and
constrained
profitability.
Competition
in
the
types
of reinsurance
and
insurance
business
that
we
underwrite
is
based
on
many
factors,
including the perceived overall
financial strength of
the reinsurer or insurer,
ratings of the reinsurer
or insurer by
A.M. Best
and/or
Standard
& Poor’s,
underwriting expertise,
the jurisdictions
where the
reinsurer
or insurer
is
licensed
or
otherwise
authorized,
capacity
and
coverages
offered,
premiums
charged,
other
terms
and
conditions
of
the
reinsurance
and
insurance
business
offered,
services
offered,
speed
of
claims
payment
and
reputation
and
experience
in
lines
written.
Furthermore,
the
market
impact
from
these
competitive
factors
related
to
reinsurance
and
insurance
is
generally
not
consistent
across
lines
of
business,
domestic
and
international geographical
areas and distribution channels.
We
compete
in
the
U.S.,
Bermuda
and
international
reinsurance
and
insurance
markets
with
numerous
global
competitors.
Our
competitors
include
independent
reinsurance
and
insurance
companies,
subsidiaries
or
affiliates
of
established
worldwide
insurance
companies,
reinsurance
departments
of
certain
insurance
companies, domestic
and international
underwriting operations,
including underwriting
syndicates
at Lloyd’s
of
London
and
certain
government
sponsored
risk
transfer
vehicles.
Some
of
these
competitors
have
greater
financial resources
than we do
and have
established long
term and continuing
business relationships,
which can
be
a
significant
competitive
advantage.
In
addition,
the
lack
of
strong
barriers
to
entry
into
the
reinsurance
business
and
recently,
the
securitization
of
reinsurance
and
insurance
risks
through
capital
markets
provide
additional sources of potential reinsurance
and insurance capacity and competition.
Worldwide
insurance
and
reinsurance
market
conditions
historically
have
been
competitive.
Generally,
there
was ample
insurance and
reinsurance
capacity relative
to demand,
as well
as additional
capital from
the capital
markets
through
insurance
linked
financial
instruments.
These
financial
instruments
such
as
side
cars,
catastrophe
bonds and
collateralized
reinsurance
funds, provided
capital
markets
with access
to insurance
and
reinsurance
risk exposure.
The capital
markets
demand for
these products
was being
primarily driven
by a
low
interest environment
and the desire to
achieve greater risk
diversification and
potentially higher returns
on their
investments.
This increased competition
was generally
having a negative
impact on rates,
terms and conditions;
however,
the impact varies widely by market
and coverage.
The industry continues to deal with the impacts of a global
pandemic, COVID-19 and its subsequent
variants.
We
continue to service and
meet the needs of our clients
while ensuring the safety
and health of our employees
and
customers.
Prior
to
the
pandemic,
there
was
a
growing
industry
consensus
that
there
was
some
firming
of
(re)insurance
rates
for
the
areas
impacted
by
the
recent
catastrophes.
The
increased
frequency
of
catastrophe
losses
that
continued
to
be
experienced
in
2022
and
throughout
2021
appears
to
be
further
pressuring
the
increase
of
rates.
As business activity continues
to regain strength,
rates also appear
to be firming in
most lines of business,
particularly
in
the
casualty
lines
that
had
seen
significant
losses
such
as
excess
casualty
and
directors’
and
officers’ liability.
Other casualty
lines are
experiencing modest
rate increase,
while some
lines such
as workers’
compensation
were
experiencing
softer
market
conditions.
It
is
too
early
to
tell
what
the
impact
on
pricing
conditions will be, but it is likely to change
depending on the line of business and geography.
While we
are unable
to predict
the full
impact the
pandemic will
have on
the insurance
industry as
it continues
to have
a negative
impact on the global
economy,
we are well
positioned to continue
to service our clients.
Our
capital
position
remains
a
source
of
strength,
with
high
quality
invested
assets,
significant
liquidity
and
a
low
operating
expense
ratio.
Our
diversified
global
platform
with
its
broad
mix
of
products,
distribution
and
geography is resilient.
29
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 $45.0
million of
incurred underwriting
losses related
to the
Ukraine/Russia
war as
of the
three and
six
months ended June 30, 2022.
Financial Summary.
We
monitor and
evaluate
our overall
performance
based upon
financial results.
The following
table displays
a
summary of the consolidated net income (loss), ratios
and shareholders’ equity for the periods
indicated.
Three Months Ended
Percentage
Six Months Ended
Percentage
June 30,
Increase/
June 30,
Increase/
(Dollars in millions)
2022
2021
(Decrease)
2022
2021
(Decrease)
Gross written premiums
$
3,447.0
$
3,190.1
8.1
%
$
6,633.4
$
6,121.6
8.4
%
Net written premiums
3,021.5
2,809.4
7.5
%
5,833.5
5,363.3
8.8
%
REVENUES:
Premiums earned
$
2,916.2
$
2,558.4
14.0
%
$
5,708.0
$
4,946.2
15.4
%
Net investment income
226.0
407.1
-44.5
%
468.8
667.5
-29.8
%
Net gains (losses) on investments
(236.3)
104.1
NM
(389.9)
143.0
NM
Other income (expense)
(71.3)
7.1
NM
(56.0)
63.7
-187.9
%
Total revenues
2,834.6
3,076.7
-7.9
%
5,730.9
5,820.5
-1.5
%
CLAIMS AND EXPENSES:
Incurred losses and loss adjustment expenses
1,876.2
1,586.1
18.3
%
3,666.1
3,297.6
11.2
%
Commission, brokerage, taxes
and fees
630.3
557.7
13.0
%
1,235.5
1,046.8
18.0
%
Other underwriting expenses
169.5
140.8
20.4
%
330.8
283.1
16.9
%
Corporate expenses
15.0
16.2
-7.1
%
29.0
28.5
1.7
%
Interest, fees and bond issue
cost amortization expense
24.4
15.6
56.3
%
48.5
31.2
55.1
%
Total claims and expenses
2,715.4
2,316.5
17.2
%
5,309.9
4,687.2
13.3
%
INCOME (LOSS) BEFORE TAXES
119.1
760.2
-84.3
%
421.0
1,133.3
-62.9
%
Income tax expense (benefit)
(3.5)
80.2
-104.4
%
0.6
111.4
-99.5
%
NET INCOME (LOSS)
$
122.6
$
680.0
-82.0
$
420.4
$
1,021.8
-58.9
%
RATIOS:
Point
Change
Point
Change
Loss ratio
64.3
%
62.0
%
2.3
64.2
%
66.7
%
(2.5)
Commission and brokerage ratio
21.6
%
21.8
%
(0.2)
21.6
%
21.2
%
0.4
Other underwriting expense ratio
5.8
%
5.5
%
0.3
5.8
%
5.7
%
0.1
Combined ratio
91.8
%
89.3
%
2.5
91.7
%
93.6
%
(1.9)
At
At
Percentage
June 30,
December 31,
Increase/
(Dollars in millions, except per share amounts)
2022
2021
(Decrease)
Balance sheet data:
Total investments
and cash
$
28,723.3
$
29,673.3
-3.2
%
Total assets
37,907.7
38,185.3
-0.7
%
Loss and loss adjustment expense reserves
19,993.1
19,009.5
5.2
%
Total debt
3,089.3
3,088.6
-
%
Total liabilities
29,054.8
28,046.1
3.6
%
Shareholders' equity
8,852.9
10,139.2
-12.7
%
Book value per share
224.59
258.21
-13.0
%
(NM, not meaningful)
(Some amounts may not reconcile due to rounding.)
30
Revenues.
Premiums.
Gross written premiums
increased by 8.1% to
$3.4 billion for the
three months ended
June 30, 2022,
compared
to
$3.2
billion
for
the
three
months
ended
June
30,
2021,
reflecting
a
$203.9
million,
or
19.6%,
increase in our
insurance business
and a $53.0 million,
or 2.5%, increase
in our reinsurance
business.
The rise in
insurance
premiums
was
primarily
due
to
increases
across
all
lines
of
business,
notably
specialty
casualty
business,
professional liability
business and other
specialty business.
The increase in
reinsurance premiums
was
primarily
due
to
increases
in
property
catastrophe
excess
of
loss
business
and
casualty
pro
rata
business,
partially
offset
by
a
decline
in
property
pro
rata
business.
Gross
written
premiums
increased
by
8.4%
to
$6.6
billion for the six
months ended June 30,
2022, compared to
$6.1 billion for the
six months ended June
30, 2021,
reflecting a $332.2 million, or 17.4%, increase
in our insurance business and a $179.6
million, or 4.3%, increase in
our
reinsurance
business.
The
rise
in
insurance
premiums
was
primarily
due
to
increases
across
all
lines
of
business,
notably
specialty
casualty
business,
professional
liability
business
and
other
specialty
business.
The
increase in reinsurance
premiums was
primarily due to
increases in casualty
pro rata
business and financial
lines
of business.
Net written premiums
increased by
7.5% to $3.0
billion for the
three months ended
June 30, 2022, compared
to
$2.8 billion
for the
three months
ended June
30, 2021.
Net written
premiums increased
by 8.8%
to $5.8
billion
for the
six months
ended June
30, 2022,
compared to
$5.4 billion
for the
six months
ended June
30, 2021.
The
percentage
increases
in
net
written
premiums
are
consistent
with
the
percentage
changes
in
gross
written
premiums.
Premiums
earned
increased
by
14.0%
to
$2.9
billion
for
the
three
months
ended
June
30,
2022,
compared
to
$2.6 billion
for
the three
months
ended June
30, 2021.
Premiums
earned
increased
by
15.4% to
$5.7 billion for
the six months
ended June 30,
2022, compared
to $4.9
billion for
the six months
ended June 30,
2021.
The
changes
in
premiums
earned
relative
to
net
written
premiums
are
primarily
the
result
of
timing;
premiums are
earned ratably
over the
coverage period
whereas written
premiums are
recorded at
the initiation
of the
coverage
period.
Accordingly,
the significant
increases in
gross written
premiums from
pro rata
business
during
the
latter
half
of 2021
contributed
to
the
current
quarter
and
year-to-date
percentage
increases
in
net
earned premiums.
Other
Income
(Expense).
We
recorded
other
expense
of
$71.3
million
and
$56.0
million
for
the
three
and
six
months ended
June 30,
2022, respectively.
We recorded
other income
of $7.1
million and
$63.7 million
for the
three and six months
ended June 30, 2021, respectively.
The changes were primarily
the result of fluctuations
in
foreign currency exchange
rates.
We recognized
foreign currency exchange
expense of $73.9 million and
foreign
currency exchange
income of $8.8 million
for the three months
ended June 30, 2022 and 2021,
respectively.
We
recognized
foreign
currency exchange
expense of
$60.8 million
and foreign
currency exchange
income of
$60.6
million for the six months ended June 30, 2022 and 2021, respectively.
Net Investment Income.
Refer to Consolidated
Investments Results Section below.
Net Gains (Losses) on Investments.
Refer to Consolidated Investments
Results Section below.
31
Claims and Expenses.
Incurred
Losses
and
Loss
Adjustment
Expenses.
The
following
table
presents
our
incurred
losses
and
loss
adjustment expenses (“LAE”) for
the periods indicated.
Three Months Ended June 30,
Current
Ratio %/
Prior
Ratio %/
Total
Ratio %/
(Dollars in millions)
Year
Pt Change
Years
Pt Change
Incurred
Pt Change
2022
Attritional
$
1,792.0
61.4
%
$
(0.7)
-
%
$
1,791.2
61.4
%
Catastrophes
85.0
2.9
%
-
-
%
85.0
2.9
%
Total
$
1,877.0
64.3
%
$
(0.7)
-
%
$
1,876.2
64.3
%
2021
Attritional
$
1,543.8
60.3
%
$
(2.6)
-0.1
%
$
1,541.1
60.2
%
Catastrophes
45.0
1.8
%
-
-
%
45.0
1.8
%
Total
$
1,588.8
62.1
%
$
(2.6)
-0.1
%
$
1,586.1
62.0
%
Variance 2022/2021
Attritional
$
248.2
1.1
pts
$
1.9
0.1
pts
$
250.1
1.2
pts
Catastrophes
40.0
1.1
pts
-
-
pts
40.0
1.1
pts
Total
$
288.2
2.2
pts
$
1.9
0.1
pts
$
290.1
2.3
pts
Six Months Ended June 30,
Current
Ratio %/
Prior
Ratio %/
Total
Ratio %/
(Dollars in millions)
Year
Pt Change
Years
Pt Change
Incurred
Pt Change
2022
Attritional
$
3,467.8
60.8
%
$
(1.7)
-
%
3,466.1
60.8
%
Catastrophes
200.0
3.5
%
-
-
%
200.0
3.5
%
Total
$
3,667.8
64.3
%
$
(1.7)
-
%
$
3,666.1
64.2
%
2021
Attritional
$
2,987.0
60.4
%
$
(4.5)
-0.1
%
2,982.6
60.3
%
Catastrophes
315.0
6.4
%
-
-
%
315.0
6.4
%
Total
$
3,302.0
66.8
%
$
(4.5)
-0.1
%
$
3,297.6
66.7
%
Variance 2022/2021
Attritional
$
480.8
0.4
pts
$
2.8
0.1
pts
$
483.5
0.5
pts
Catastrophes
(115.0)
(2.9)
pts
-
-
pts
(115.0)
(2.9)
pts
Total
$
365.8
(2.5)
pts
$
2.8
0.1
pts
$
368.5
(2.5)
pts
(Some amounts may not reconcile due to rounding.)
Incurred losses and
LAE increased by
18.3% to $1.9 billion
for the three
months ended June
30, 2022, compared
to
$1.6
billion
for
the
three
months
ended
June
30,
2021,
primarily
due
to
an
increase
of
$248.2
million
in
current year attritional losses
and an increase of $40.0 million in current
year catastrophe losses.
The increase in
current
year
attritional
losses
was
mainly
due
to
the
impact
of
the
increase
in
premiums
earned
and
$45.0
million of attritional losses
incurred due to the
Ukraine/Russia war.
The current year catastrophe
losses of $85.0
million
for
the
three
months
ended
June
30,
2022
related
primarily
to
the
2022
South
Africa
flood
($45.0
million), the 2022
Canada derecho
($18.0 million), the
2022 2
nd
Western
Europe
Convective
storm
($10.0 million).
The $45.0
million of
current
year catastrophe
losses for
the
three
months
ended
June
30,
2021
related
to
Tropical
Storm
Claudette,
the
Texas
winter
storms,
the
2021
Australia floods and the Europe Convective
storms.
Incurred losses
and LAE increased
by 11.2% to
$3.7 billion for
the six months
ended June 30,
2022, compared
to
$3.3 billion for the six months ended
June 30, 2021, primarily due to an increase
of $480.8 million in current year
attritional
losses, partially
offset by
a decline
of $115.0
million in
current year
catastrophe
losses.
The increase
in
current
year
attritional
losses
was
mainly
due
to
the
impact
of
the
increase
in
premiums
earned
and
$45.0
million
of
attritional
losses
incurred
due
to
the
Ukraine/Russia
war.
The
current
year
catastrophe
losses
of
$200.0
million
for
the
six
months
ended
June
30,
2022
related
primarily
to
the
2022
Australia
floods
($76.4
million), the 2022
South Africa flood
($45.0 million), the
2022 European
storms ($30.0 million),
the 2022 Canada
derecho ($18.0
million), the
2022 2
nd
32
Storm
($10.0
million)
and
the
2022
March
U.S.
storms
($8.6
million).
The
$315.0
million
of
current
year
catastrophe
losses for
the six
months ended
June 30,
2021 related
primarily to
the Texas
winter storms
($270.0
million) with
the rest
of the
losses emanating
from Tropical
Storm Claudette,
the 2021
Australia
floods, Victoria
Australia flooding and the Europe Convective
storms.
Commission,
Brokerage,
Taxes
and Fees.
Commission, brokerage,
taxes
and fees
increased by
13.0% to
$630.3
million for the
three months
ended June 30,
2022, compared to
$557.7 million for
the three months
ended June
30, 2021.
Commission,
brokerage,
taxes
and fees
increased
by
18.0% to
$1.2 billion
for
the six
months
ended
June 30,
2022, compared
to $1.0
billion for
the six
months ended
June 30,
2021.
The increases
were primarily
due to the impact of the increases in premiums earned and
changes in the mix of business.
Other
Underwriting
Expenses.
Other
underwriting
expenses
were
$169.5
million
and
$140.8
million
for
the
three
months
ended
June
30,
2022
and
2021,
respectively.
Other
underwriting
expenses
were
$330.8
million
and
$283.1
million
for
the
six
months
ended
June
30,
2022
and
2021,
respectively.
The
increases
in
other
underwriting
expenses
were
mainly
due
to
the
impact
of
the
increase
in
premiums
earned
as
well
as
the
continued build out of our insurance operations
,
including an expansion of the international insurance
platform.
Corporate
Expenses.
Corporate
expenses,
which
are
general
operating
expenses
that
are
not
allocated
to
segments,
were
$15.0
million
and
$16.2
million
for
the
three
months
ended
June
30,
2022
and
2021,
respectively,
and $29.0 million
and $28.5 million
for the six
months ended June
30, 2022 and
2021, respectively.
The variances are mainly due to the changes
in variable incentive compensative expenses.
Interest,
Fees and
Bond Issue
Cost
Amortization
Expense.
Interest,
fees
and other
bond
amortization
expense
was $24.4
million and $15.6
million for
the three
months ended
June 30, 2022
and 2021,
respectively.
Interest,
fees and other bond
amortization expense was
$48.5 million and $31.2 million for
the six months ended June 30,
2022 and
2021, respectively.
The increases
were primarily
due to
the issuance
of $1.0
billion of
senior notes
in
October 2021.
Interest expense
was also impacted
by the movements
in the floating
interest rate
related to
the
long term
subordinated
notes, which
is reset
quarterly per
the note
agreement.
The floating
rate was
3.80% as
of June 30, 2022.
Income
Tax
Expense
(Benefit).
We
had
income
tax
benefit
of
$3.5
million
and
income
tax
expense
of
$80.2
million for
the three
months ended
June 30,
2022 and
2021,
respectively.
We
had income
tax
expense of
$0.6
million and $111.4 million for
the six months ended June
30, 2022 and 2021, respectively.
Income tax expense
is
primarily a
function
of the
geographic
location
of the
Company’s
pre-tax
income and
the statutory
tax
rates
in
those jurisdictions.
The effective tax
rate (“ETR”) is primarily
affected by tax
-exempt investment
income, foreign
tax
credits
and
dividends.
Variations
in
the
ETR
generally
result
from
changes
in
the
relative
levels
of
pre-tax
income,
including
the
impact
of
catastrophe
losses
and
net
capital
gains
(losses),
among
jurisdictions
with
different tax rates.
Net Income (Loss).
Our
net
income
was
$122.6
million
and
$680.0
million
for
the
three
months
ended
June
30,
2022
and
2021,
respectively.
Our
net income
was
$420.4 million
and
$1.0 billion
for
the six
months
ended June
30,
2022 and
2021,
respectively.
These
changes
were
primarily
driven
by
the
financial
component
fluctuations
explained
above.
33
Ratios.
Our combined
ratio
increased
by
2.5 points
to
91.8% for
the three
months
ended June
30, 2022,
compared
to
89.3% for the three
months ended June 30,
2021 and decreased by
1.9 points to 91.7% for
the six months ended
June 30, 2022, compared
to 93.6% for
the six months
ended June 30,
2021.
The loss ratio
component increased
2.3 points for the
three months ended June
30, 2022 over the same period
last year mainly
due to an increase
of
$40.0 million in current
year catastrophe
losses and an increase
of $45.0 million in
current year
attritional losses
due to
the Ukraine/Russia
war.
The loss
ratio
component
decreased
2.5 points
for
the six
months
ended June
30,
2022 over
the
same
period
last
year
mainly
due to
a decline
of $115.0
million
in
current
year
catastrophe
losses,
partially offset
by an increase
of $45.0 million
in current
year attritional
losses due to
the Ukraine/Russia
war.
The commission
and brokera
ge ratio
components decreased
slightly to
21.6% for
the three
months ended
June 30, 2022
compared to
21.8%
for the
three months
ended June
30, 2021 and
increased to
21.6% for
the six
months ended
June 30,
2022 compared
to 21.2%
for the
six months
ended June
30, 2021.
These changes
were
mainly due
to changes
in the
mix of
business.
The other
underwriting expense
ratios
increased to
5.8% for
the
three months
ended June
30, 2022 compared
to 5.5%
for the
three months
ended June
30, 2021
and increased
slightly
to
5.8% for
the
six
months
ended
June 30,
2022 compared
to
5.7% for
the
six
months
ended
June
30,
2021.
These increases were mainly due to
higher insurance operations costs.
Shareholders’ Equity.
Shareholders’ equity decreased
by $1.3 billion to $8.9
billion at June 30, 2022 from
$10.1 billion at December 31,
2021,
principally
as
a
result
of
$1.5
billion
of
unrealized
depreciation
on
fixed
maturity
portfolio
net
of
tax,
$126.1 million
of shareholde
r
dividends,
$62.4 million
of net
foreign
currency translation
adjustments,
and the
repurchase of 5,000 common shares
for $1.3 million, partially offset by $420.4
million of net income,
$9.1 million
of
share-based
compensation
transactions
and
$1.5
million
of
net
benefit
plan
obligation
adjustments,
net
of
tax.
Consolidated Investment
Results
Net Investment Income.
Net
investment
income
decreased
by
44.5%
to
$226.0
million
for
the
three
months
ended
June
30,
2022
compared
with
net
investment
income
of
$407.1
million
for
the
three
months
ended
June
30,
2021.
The
decrease
for
the
three
months
ended
June
30,
2022
was
primarily
the
result
of
a
decline
of
$192.4
million
in
limited
partnership
income,
partially
offset
by
an
additional
$20.5
million
of
income
from
fixed
maturity
investments.
Net investment
income decreased
by
29.8% to
$468.8 million
for
the six
months
ended June
30,
2022 compared with investment
income of $667.5 million for the six
months ended June 30, 2021.
The decrease
for
the
six
months
ended
June
30,
2022
was
primarily
the
result
of
a
decline
of
$218.3
million
in
limited
partnership
income,
partially
offset
by
an
additional
$27.8
million
of
income
from
fixed
maturity
investments.
The
limited
partnership
income
primarily
reflects
increases
in
their
reported
net
asset
values.
As
such,
until
these asset values
are monetized
and the resultant
income is distributed,
they are subject
to future increases
or
decreases in the asset value, and the results
may be volatile.
34
The following table shows the components
of net investment income for
the periods indicated.
Three Months Ended
Six Months Ended
June 30,
June 30,
(Dollars in millions)
2022
2021
2022
2021
Fixed maturities
$
168.8
$
148.3
$
317.0
$
289.2
Equity securities
4.6
3.5
8.7
8.3
Short-term investments and cash
6.6
0.7
6.7
1.0
Other invested assets
Limited partnerships
47.6
240.0
136.0
354.3
Other
14.0
25.9
25.8
31.9
Gross investment income before adjustments
241.5
418.3
494.3
684.6
Funds held interest income (expense)
0.8
3.3
4.5
11.3
Future policy benefit reserve income (expense)
(0.1)
(0.2)
(0.4)
(0.5)
Gross investment income
242.2
421.5
498.4
695.4
Investment expenses
(16.2)
(14.4)
(29.6)
(27.9)
Net investment income
$
226.0
$
407.1
$
468.8
$
667.5
(Some amounts may not reconcile due
to rounding.)
The following table shows a comparison
of various investment yields for
the periods indicated.
Three Months Ended
Six Months Ended
June 30,
June 30,
2022
2021
2022
2021
Annualized pre-tax yield on average cash and invested assets
3.0
%
6.3
%
3.2
%
5.3
%
Annualized after-tax yield on average cash and invested assets
2.6
%
5.5
%
2.7
%
4.6
%
Annualized return on invested assets
-0.1
%
7.9
%
-0.5
%
6.3
%
35
Net Gains (Losses) on Investments.
The following table presents the composition
of our net gains (losses) on investments
for the periods indicated.
Three Months Ended June 30,
Six Months Ended June 30,
(Dollars in millions)
2022
2021
Variance
2022
2021
Variance
Realized gains (losses) from dispositions:
$
7.4
$
19.8
$
(12.4)
$
27.6
$
34.7
$
(7.1)
(23.0)
(9.8)
(13.2)
(40.3)
(15.5)
(24.8)
(15.6)
10.0
(25.6)
(12.8)
19.2
(32.0)
4.1
5.8
(1.7)
7.6
18.1
(10.5)
(35.1)
(2.0)
(33.1)
(50.4)
(8.1)
(42.3)
(30.9)
3.8
(34.7)
(42.7)
10.0
(52.7)
3.4
4.1
(0.8)
7.9
5.6
2.3
(2.8)
(1.4)
(1.4)
(3.1)
(1.5)
(1.6)
0.6
2.7
(2.1)
4.7
4.1
0.6
Total net realized gains (losses) from dispositions:
14.9
29.7
(14.8)
43.1
58.4
(15.4)
(60.8)
(13.2)
(47.6)
(93.8)
(25.1)
(68.7)
(45.9)
16.5
(62.3)
(50.8)
33.3
(84.1)
Allowance for credit losses:
(1.5)
(15.9)
14.4
(13.3)
(22.9)
9.6
Gains (losses) from fair value adjustments:
(188.9)
103.5
(292.4)
(325.8)
132.6
(458.4)
Total
(188.9)
103.5
(292.4)
(325.8)
132.6
(458.4)
Total net gains (losses) on investments
$
(236.3)
$
104.1
$
(340.3)
$
(389.9)
$
143.0
$
(532.9)
(Some amounts may not reconcile due to rounding.)
Net
gains
(losses)
on
investments
during
the
three
months
ended
June
30,
2022
primarily
relate
to
net
losses
from
fair
value
adjustments
on
equity
securities
in
the
amount
of
$188.9
million
as
a
result
of
equity
market
declines
during
the
second
quarter
of
2022.
In
addition,
we
realized
$45.9
million
of
losses
due
to
the
disposition of investments and recorded
an increase to the allowance for credit
losses of $1.5 million.
Net gains
(losses) on investments
during the six
months ended
June 30, 2022
primarily relate
to net
losses from
fair value
adjustments on
equity securities
in the amount
of $325.8 million
as a
result of equity
market declines
during
the
first
six
months
of
2022.
In
addition,
we
realized
$50.8
million
of
losses
due
to
the
disposition
of
investments and
recorded an
increase to the
allowance for
credit losses of
$13.3 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
and
through
brokers,
surplus
lines
brokers
and
general
agents
within
the
U.S.,
Bermuda,
Canada,
Europe,
Singapore
and
South
America
through
its
offices
in
the
U.S.,
Canada,
Chile,
Singapore,
the
United
Kingdom,
Ireland and a branch located in
the Netherlands.
36
These segments are
managed independently,
but conform
with corporate
guidelines with respect
to pricing, risk
management,
control
of
aggregate
catastrophe
exposures,
capital,
investments
and
support
operations.
Management
generally
monitors
and
evaluates
the
financial
performance
of
these
operating
segments
based
upon their underwriting results.
Underwriting
results
include
earned
premium
less
losses
and
loss
adjustment
expenses
(“LAE”)
incurred,
commission
and
brokerage
expenses
and
other
underwriting
expenses.
We
measure
our
underwriting
results
using
ratios,
in
particular
loss,
commission
and
brokerage
and
other
underwriting
expense
ratios,
which,
respectively,
divide incurred
losses, commissions
and brokerage
and other
underwriting expenses
by premiums
earned.
The
Company
does
not
maintain
separate
balance
sheet
data
for
its
operating
segments.
Accordingly,
the
Company does not
review and evaluate
the financial results
of its operating
segments based upon
balance sheet
data.
Our
loss
and LAE
reserves
are
management’s
best
estimate
of our
ultimate
liability
for
unpaid
claims.
We
re-
evaluate
our
estimates
on
an
ongoing
basis,
including
all
prior
period
reserves,
taking
into
consideration
all
available
information,
and
in
particular,
recently
reported
loss
claim
experience
and
trends
related
to
prior
periods.
Such re-evaluations are recorded
in incurred losses in the period in which re-evaluation
is made.
The following discusses the underwriting results for
each of our segments for the periods indicated.
Reinsurance.
The
following
table
presents
the
underwriting
results
and
ratios
for
the
Reinsurance
segment
for
the
periods
indicated.
Three Months Ended June 30,
Six Months Ended June 30,
(Dollars in millions)
2022
2021
Variance
% Change
2022
2021
Variance
% Change
Gross written premiums
$
2,201.2
$
2,148.2
$
53.0
2.5
%
$
4,386.8
$
4,207.3
$
179.6
4.3
%
Net written premiums
2,122.2
2,059.9
62.3
3.0
%
4,203.7
3,972.9
230.8
5.8
%
Premiums earned
$
2,139.6
$
1,920.8
$
218.8
11.4
%
$
4,205.8
$
3,698.3
$
507.6
13.7
%
Incurred losses and LAE
1,382.1
1,168.1
214.0
18.3
%
2,706.8
2,440.0
266.8
10.9
%
Commission and brokerage
530.9
473.3
57.6
12.2
%
1,045.1
882.0
163.1
18.5
%
Other underwriting expenses
52.1
47.1
5.0
10.6
%
102.5
99.1
3.4
3.5
%
Underwriting gain (loss)
$
174.5
$
232.3
$
(57.8)
-24.9
%
$
351.4
$
277.2
$
74.2
26.8
%
Point Chg
Point Chg
Loss ratio
64.6
%
60.8
%
3.8
64.4
%
66.0
%
(1.6)
Commission and brokerage ratio
24.8
%
24.6
%
0.2
24.8
%
23.8
%
1.0
Other underwriting expense ratio
2.4
%
2.5
%
(0.1)
2.4
%
2.7
%
(0.3)
Combined ratio
91.8
%
87.9
%
3.9
91.6
%
92.5
%
(0.9)
(NM, Not Meaningful)
(Some amounts may not reconcile due to rounding.)
37
Premiums.
Gross written
premiums increased
by 2.5% to
$2.2 billion for
the three months
ended June 30,
2022
from $2.1
billion for
the three
months ended
June 30,
2021, primarily
due to
increases in
property catastrophe
excess of
loss business
and casualty pro
rata business
,
partially offset
by a decline
in property
pro rata
business.
Net written premiums
increased by 3.0% to
$2.12 billion for the
three months ended June
30, 2022 compared to
$2.06
billion
for
the
three
months
ended
June
30,
2021.
The
higher
percentage
increase
in
net
written
premiums
compared
to
gross
written
premiums
mainly
related
to
a
reduction
in
business
ceded
to
the
segregated
accounts
of Mt.
Logan Re
in the
three months
ended June
30, 2022
compared
to the
three months
ended June 30,
2021.
Premiums earned increased
by 11.4% to
$2.1 billion for
the three months
ended June 30,
2022,
compared
to
$1.9
billion
for
the
three
months
ended
June
30,
2021.
The
change
in
premiums
earned
relative to net written premiums
is primarily the result of timing; premiums are
earned ratably over the
coverage
period
whereas
written
premiums
are
recorded
at
the
initiation
of
the
coverage
period.
Accordingly,
the
significant increases
in gross written
premiums from
pro rata
business during the
latter half
of 2021 contributed
to the current quarter percentage
increase in net earned premiums.
Gross
written
premiums
increased
by
4.3%
to
$4.4
billion
for
the
six
months
ended
June
30,
2022
from
$4.2
billion
for
the
six
months
ended
June
30,
2021,
primarily
due
to
increases
in
casualty
pro
rata
business
and
financial lines of business.
Net written premiums increased
by 5.8% to $4.2 billion for the
six months ended June
30, 2022
compared
to
$4.0 billion
for
the six
months
ended June
30, 2021.
The higher
percentage
increase
in
net written
premiums
compared
to gross
written
premiums
mainly related
to a
reduction
in business
ceded to
the
segregated
accounts
of
Mt.
Logan
Re
in
the
six
months
ended
June
30,
2022
compared
to
the
six
months
ended
June
30,
2021.
Premiums
earned
increased
by
13.7%
to
$4.2 billion
for
the
six months
ended
June 30,
2022, compared to $3.7
billion for the six
months ended June 30, 2021.
The change in premiums
earned relative
to net written
premiums is primarily
the result of
timing; premiums
are earned ratably
over the coverage
period
whereas
written
premiums
are
recorded
at
the
initiation
of
the
coverage
period.
Accordingly,
the
significant
increases
in
gross
written
premiums
from
pro
rata
business
during
the
latter
half
of
2021
contributed
to
the
current year-to-date percentage
increase
in net earned premiums.
38
Incurred Losses
and LAE
.
The following
table presents
the incurred
losses and
LAE for
the Reinsurance
segment
for the periods indicated.
Three Months Ended June 30,
Current
Ratio %/
Prior
Ratio %/
Total
Ratio %/
(Dollars in millions)
Year
Pt Change
Years
Pt Change
Incurred
Pt Change
2022
Attritional
$
1,302.8
60.9
%
$
(0.7)
-
%
1,302.1
60.9
%
Catastrophes
80.0
3.7
%
-
-
%
80.0
3.7
%
Total Segment
$
1,382.8
64.6
%
$
(0.7)
-
%
$
1,382.1
64.6
%
2021
Attritional
$
1,134.6
59.1
%
$
(1.4)
-0.1
%
1,133.1
59.0
%
Catastrophes
35.0
1.8
%
-
-
%
35.0
1.8
%
Total Segment
$
1,169.6
60.9
%
$
(1.4)
-0.1
%
$
1,168.1
60.8
%
Variance 2022/2021
Attritional
$
168.2
1.8
pts
$
0.7
0.1
pts
$
169.0
1.9
pts
Catastrophes
45.0
1.9
pts
-
-
pts
45.0
1.9
pts
Total Segment
$
213.2
3.7
pts
$
0.7
0.1
pts
$
214.0
3.8
pts
Six Months Ended June 30,
Current
Ratio %/
Prior
Ratio %/
Total
Ratio %/
(Dollars in millions)
Year
Pt Change
Years
Pt Change
Incurred
Pt Change
2022
Attritional
$
2,519.1
59.9
%
$
(2.3)
-0.1
%
2,516.8
59.9
%
Catastrophes
190.0
4.5
%
-
-
%
190.0
4.5
%
Total Segment
$
2,709.1
64.4
%
$
(2.3)
-0.1
%
$
2,706.8
64.4
%
2021
Attritional
$
2,185.8
59.1
%
$
(3.3)
-0.1
%
2,182.5
59.0
%
Catastrophes
257.5
7.0
%
-
-
%
257.5
7.0
%
Total Segment
$
2,443.3
66.1
%
$
(3.3)
-0.1
%
$
2,440.0
66.0
%
Variance 2022/2021
Attritional
$
333.3
0.8
pts
$
0.9
-
pts
$
334.2
0.8
pts
Catastrophes
(67.5)
(2.5)
pts
-
-
pts
(67.5)
(2.5)
pts
Total Segment
$
265.8
(1.7)
pts
$
0.9
-
pts
$
266.7
(1.6)
pts
Incurred losses
increased by
18.3% to
$1.4 billion
for the
three months
ended June
30, 2022,
compared to
$1.2
billion
for
the
three
months
ended
June
30,
2021.
The
increase
was
primarily
due
to
an
increase
of
$168.2
million in current
year attritional
losses and
an increase of
$45.0 million in
current year
catastrophe
losses.
The
increase in
current
year attritional
losses was
mainly related
to the
impact of
the increase
in premiums
earned
and
$45.0
million
of
attritional
losses
incurred
due
to
the
Ukraine/Russia
war.
The
current
year
catastrophe
losses of $80.0 million for the three
months ended June 30, 2022 related
primarily to the 2022 South Africa
flood
($45.0
million),
the
2022
Canada
derecho
($18.0
million),
the
2022
Western
Europe
Convective
storm
($10.0
million) and the 2022
2
nd
for
the three
months
ended June
30, 2021
related
primarily
to
Tropical
Storm Claudette,
the Victoria
Australia
flooding and the Europe Convective storms.
Incurred
losses
increased
by
10.9%
to
$2.7
billion
for
the
six
months
ended
June
30,
2022,
compared
to
$2.4
billion for
the six
months ended
June 30,
2021.
The increase
was primarily
due to
an increase
of $333.3
million
in current year attritional losses,
partially offset by a decrease
of $67.5 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 $45.0 million of attritional losses
due to the Ukraine/Russia war.
The current year catastrophe
losses
of $190.0
million
for
the
six
months
ended June
30, 2022
related
primarily
to
the 2022
Australia
floods ($76.4
million), the 2022
South Africa flood
($45.0 million), the
2022 European
storms ($30.0 million),
the 2022 Canada
derecho
($18.0
million),
the
2022 Western
Europe
Convective
storm
($10.0
million),
the
2022
2
nd
storms
($7.0
million)
and
the
2022
March
U.S.
storms
($3.6
million).
The
$257.5
million
of
current
year
catastrophe
losses for
the six months
ended June
30, 2021
primarily related
to the
Texas
winter storms
($212.5
39
million)
with
the
rest
of
the
losses
emanating
from
Tropical
Storm
Claudette,
the
2021
Australia
floods,
the
Victoria Australia flooding and the Europe
Convective storms.
Segment
Expenses.
Commission
and
brokerage
expense
increased
by
12.2%
to
$530.9
million
for
the
three
months
ended
June
30,
2022
compared
to
$473.3
million
for
the
three
months
ended
June
30,
2021.
Commission and
brokerage
expense increased
by 18.5%
to $1.0
billion for
the six
months
ended June
30, 2022
compared
to
$882.0
million
for
the
six
months
ended
June
30,
2021.
The
increases
were
mainly
due
to
the
impact of the increases
in premiums earned and changes in the mix of business.
Segment other underwriting expenses increased
to $52.1 million for the three
months ended June 30, 2022 from
$47.1
million
for
the
three
months
ended
June
30,
2021.
Segment
other
underwriting
expenses
increased
to
$102.5
million
for
the
six
months
ended
June
30,
2022
from
$99.1
million
for
the
six
months
ended
June
30,
2021.
The increases
were mainly due to the impact of increases
in premiums earned.
Insurance.
The
following
table
presents
the
underwriting
results
and
ratios
for
the
Insurance
segment
for
the
periods
indicated.
Three Months Ended June 30,
Six Months Ended June 30,
(Dollars in millions)
2022
2021
Variance
% Change
2022
2021
Variance
% Change
Gross written premiums
$
1,245.8
$
1,041.9
$
203.9
19.6
%
$
2,246.7
$
1,914.3
$
332.2
17.4
%
Net written premiums
899.2
749.5
149.7
20.0
%
1,629.8
1,390.5
239.3
17.2
%
Premiums earned
$
776.7
$
637.6
$
139.1
21.8
%
$
1,502.2
$
1,248.0
$
254.2
20.4
%
Incurred losses and LAE
494.1
418.0
76.1
18.2
%
959.3
857.5
101.8
11.9
%
Commission and brokerage
99.4
84.5
14.9
17.7
%
190.4
164.8
25.6
15.6
%
Other underwriting expenses
117.5
93.8
23.7
25.3
%
228.3
184.0
44.3
24.1
%
Underwriting gain (loss)
$
65.6
$
41.3
$
24.3
58.9
%
$
124.2
$
41.7
$
82.5
197.9
%
Point Chg
Point Chg
Loss ratio
63.6
%
65.6
%
-2.0
63.9
%
68.7
%
(4.8)
Commission and brokerage ratio
12.8
%
13.3
%
-0.5
12.7
%
13.2
%
(0.5)
Other underwriting
expense ratio
15.1
%
14.6
%
0.5
15.2
%
14.8
%
0.4
Combined ratio
91.5
%
93.5
%
-2.0
91.7
%
96.7
%
(4.9)
(NM not meaningful)
(Some amounts may not reconcile due to rounding.)
Premiums.
Gross written premiums increased
by 19.6% to $1.2 billion for the three
months ended June 30, 2022
compared to
$1.0 billion for
the three
months ended
June 30, 2021.
This rise was
primarily related
to increases
across all
lines of business,
notably specialty
casualty business,
professional liability
business and other
specialty
business.
Net written premiums increased
by 20.0% to $899.2 million
for the three months
ended June 30, 2022
compared
to
$749.5 million
for
the three
months
ended June
30, 2021,
which is
consistent
with the
change
in
gross written
premiums.
Premiums earned
increased 21.8%
to $776.7
million for
the three
months ended
June
30,
2022
compared
to
$637.6
million
for
the
three
months
ended
June
30,
2021.
The
change
in
premiums
earned relative
to net
written premiums
is the
result of
timing; premiums
are earned
ratably
over the
coverage
period
whereas
written
premiums
are
recorded
at
the
initiation
of
the
coverage
period.
Accordingly,
the
significant increases
in gross
written premiums
during the
latter half
of 2021 contributed
to the
current quarter
percentage increase in net earned
premiums.
Gross written
premiums increased
by 17.4% to
$2.2 billion for
the six months
ended June 30,
2022 compared
to
$1.9 billion for the six
months ended June 30, 2021.
This rise was primarily related
to increases across
all lines of
business,
notably
specialty
casualty
business,
professional
liability
business
and
other
specialty
business.
Net
written premiums
increased by
17.2% to
$1.6 billion
for the
six months
ended June
30, 2022
compared to
$1.4
billion for
the six
months ended
June 30,
2021, which
is consistent
with the
change in
gross
written premiums.
40
Premiums
earned
increased
20.4%
to
$1.5
million
for
the
six
months
ended
June
30,
2022
compared
to
$1.2
billion
for
the
six
months
ended
June
30,
2021.
The
change
in
premiums
earned
relative
to
net
written
premiums
is
the
result
of
timing;
premiums
are
earned
ratably
over
the
coverage
period
whereas
written
premiums
are
recorded
at
the
initiation
of the
coverage
period.
Accordingly,
the significant
increases
in gross
written premiums
during the
latter
half of
2021 contributed
to the
current year
-to-date
percentage
increase in
net earned premiums.
Incurred Losses and
LAE.
The following table presents
the incurred losses
and LAE for the Insurance
segment for
the periods indicated.
Three Months Ended June 30,
Current
Ratio %/
Prior
Ratio %/
Total
Ratio %/
(Dollars in millions)
Year
Pt Change
Years
Pt Change
Incurred
Pt Change
2022
Attritional
$
489.1
63.0
%
$
-
-
%
489.1
63.0
%
Catastrophes
5.0
0.6
%
-
-
%
5.0
0.6
%
Total Segment
$
494.1
63.6
%
$
-
-
%
$
494.1
63.6
%
2021
Attritional
$
409.2
64.2
%
$
(1.2)
-0.2
%
408.0
64.0
%
Catastrophes
10.0
1.6
%
-
-
%
10.0
1.6
%
Total Segment
$
419.2
65.8
%
$
(1.2)
-0.2
%
$
418.0
65.6
%
Variance 2022/2021
Attritional
$
79.9
(1.2)
pts
$
1.2
0.2
pts
$
81.1
(1.0)
pts
Catastrophes
(5.0)
(1.0)
pts
-
-
pts
(5.0)
(1.0)
pts
Total Segment
$
74.9
(2.2)
pts
$
1.2
0.2
pts
$
76.1
(2.0)
pts
Six Months Ended June 30,
Current
Ratio %/
Prior
Ratio %/
Total
Ratio %/
(Dollars in millions)
Year
Pt Change
Years
Pt Change
Incurred
Pt Change
2022
Attritional
$
948.6
63.1
%
$
0.7
-
%
949.3
63.1
%
Catastrophes
10.0
0.7
%
-
-
%
10.0
0.7
%
Total Segment
$
958.6
63.8
%
$
0.7
-
%
$
959.3
63.9
%
2021
Attritional
$
801.2
64.2
%
$
(1.2)
-0.1
%
800.0
64.1
%
Catastrophes
57.5
4.6
%
-
-
%
57.5
4.6
%
Total Segment
$
858.7
68.8
%
$
(1.2)
-0.1
%
$
857.5
68.7
%
Variance 2022/2021
Attritional
$
147.4
(1.1)
pts
$
1.9
0.1
pts
$
149.3
(1.0)
pts
Catastrophes
(47.5)
(3.9)
pts
-
-
pts
(47.5)
(3.9)
pts
Total Segment
$
99.9
(5.0)
pts
$
1.9
0.1
pts
$
101.8
(4.8)
pts
(Some amounts may not reconcile due to rounding.)
Incurred
losses
and
LAE
increased
by
18.2%
to
$494.1
million
for
the
three
months
ended
June
30,
2022
compared
to
$418.0
million
for
the
three
months
ended
June
30,
2021.
The
increase
was
mainly
due
to
an
increase
of
$79.9
million
in
current
year
attritional
losses,
partially
offset
by
a
decrease
in
current
year
catastrophe losses
of $5.0 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 $5.0
million related
to the
2022 2
nd
quarter U.S.
storms.
The $10.0
million of
current
year catastrophe
losses for
the three
months ended
June 30,
2021 related to the Texas
winter storms.
Incurred losses
and LAE increased
by 11.9% to
$959.3 million
for the
six months
ended June 30,
2022 compared
to $857.5 million
for the six
months ended June
30, 2021.
The increase was
mainly due to
an increase of
$147.4
million in current
year attritional
losses, partially offset
by a decrease in
current year
catastrophe losses
of $47.5
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
$10.0 million
related
to the
2022 March
U.S. storms
41
($5.0 million) and
the 2022
2
nd
losses for the six months ended June 30, 2021 related
to the Texas
winter storms.
Segment Expenses.
Commission and brokerage
increased by 17.7%
to $99.4 million
for the three
months ended
June 30, 2022 compared to
$84.5 million for the
three months ended
June 30, 2021.
Commission and brokerage
increased by 15.6% to
$190.4 million for
the six months ended
June 30, 2022 compared
to $164.8 million for
the
six months
ended June
30, 2021.
These increase
s
were
mainly due
to
the impact
of the
increase
in premiums
earned.
Segment
other
underwriting
expenses
increased
to
$117.5
million
for
the
three
months
ended
June
30,
2022
compared
to
$93.8
million
for
the
three
months
ended
June
30,
2021.
Segment
other
underwriting
expenses
increased
to
$228.3
million
for
the
six
months
ended
June
30,
2022
compared
to
$184.0
million
for
the
six
months
ended
June
30,
2021.
These
increases
were
mainly
due
to
the
impact
of
the
increases
in
premiums
earned
and
increased
expenses
related
to
the
continued
build
out
of
the
insurance
business,
including
an
expansion of the international insurance
platform.
FINANCIAL CONDITION
Investments.
Total
investments
were
$26.6
billion
at
June
30,
2022,
a
decrease
of
$1.6
million
compared
to
$28.2 billion
at December
31, 2021.
This decrease
was primarily
related
to declines
in fixed
maturity securities,
equity securities
and short
-term investments.
Fixed
maturity
securities decreased
due to
declines in
fair values
resulting primarily from
higher interest
rates, partially
offset by
net purchases
of fixed maturity
securities during
the period.
Equity securities
decreased due
to declines
in fair
values due
to diminished
market performance
as
well
as
net
sales
of
equity
securities
during
the
period.
Short-term
investments
decreased
as
a
result
of
the
reinvestment of funds into
other vehicles.
The
Company’s
limited
partnership
investments
are
comprised
of
limited
partnerships
that
invest
in
private
equities.
Generally,
the limited
partnerships are
reported on
a quarter lag.
We receive
annual audited
financial
statements
for all of
the limited
partnerships which
are prepared
using fair
value accounting
in accordance
with
FASB guidance.
For the quarterly
reports, the Company
reviews the
financial reports for
any unusual
changes in
carrying value.
If the
Company becomes
aware of
a significant
decline in
value during
the lag
reporting period,
the loss will be recorded in the period in which the Company
identifies the decline.
The
table
below
summarize
the
composition
and
characteristics
of
our
investment
portfolio
as
of
the
dates
indicated.
At
At
June 30, 2022
December 31, 2021
Fixed income portfolio duration (years)
3.1
3.2
Fixed income composite credit quality
A+
A+
Reinsurance Recoverables
.
Reinsurance
recoverables
for
both paid
and unpaid
losses totaled
$2.1 billion
and $2.1
billion at
June 30,
2022
and December 31, 2021, respectively.
At June 30, 2022, $618.1 million,
or 29.5%, was receivable
from Mt. Logan
Re
collateralized
segregated
accounts;
$224.2
million,
or
10.7%,
was
receivable
from
Munich
Reinsurance
America, Inc.
(“Munich Re”)
and $131.5
million, or
6.3% was
receivable from
Endurance Specialty
Holdings, Ltd.
(“Endurance”).
No other retrocessionaire accounted
for more than 5% of our recoverables
.
Loss and
LAE Reserves.
Gross loss
and LAE reserves
totaled $20.0
billion and $19.0
billion at
June 30, 2022
and
December 31, 2021, respectively.
42
The following
tables summarize
gross outstanding
loss and
LAE reserves
by segment,
classified by
case reserves
and IBNR reserves, for the periods indicated.
At June 30, 2022
Case
IBNR
Total
% of
(Dollars in millions)
Reserves
Reserves
Reserves
Total
Reinsurance
$
5,853.5
$
8,623.4
$
14,476.9
72.4
%
Insurance
1,639.8
3,731.1
5,370.9
26.9
%
Total excluding A&E
7,493.3
12,354.6
19,847.8
99.3
%
A&E
145.2
-
145.2
0.7
%
Total including A&E
$
7,638.5
$
12,354.6
$
19,993.1
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
$
5,415.0
$
8,312.3
$
13,727.3
72.2
%
Insurance
1,546.2
3,562.4
5,108.6
26.9
%
Total excluding A&E
6,961.2
11,874.7
18,835.9
99.1
%
A&E
163.7
9.9
173.6
0.9
%
Total including A&E
$
7,124.8
$
11,884.7
$
19,009.5
100.0
%
(Some amounts may not reconcile due
to rounding.)
Changes
in
premiums
earned
and
business
mix,
reserve
re-estimations,
catastrophe
losses
and
changes
in
catastrophe loss reserves
and claim settlement activity all impact loss and LAE
reserves by segment and in total.
Our loss and
LAE reserves represent
management’s best
estimate of
our ultimate liability
for unpaid claims.
We
continuously
re-evaluate
our reserves,
including re-estimates
of prior
period reserves,
taking into
consideration
all
available
information
and,
in
particular,
newly
reported
loss
and
claim
experience.
Changes
in
reserves
resulting from
such re-evaluations
are reflected
in incurred
losses in the
period when the
re-evaluation
is made.
Our analytical
methods and
processes operate
at multiple
levels including
individual contracts,
groupings of
like
contracts, classes
and lines of business,
internal business units,
segments, legal entities,
and in the aggregate.
In
order to set appropriate
reserves, we make
qualitative and quantitative
analyses and judgments at
these various
levels.
Additionally,
the attribution
of reserves,
changes
in
reserves
and incurred
losses
among accident
years
requires
qualitative
and
quantitative
adjustments
and
allocations
at
these
various
levels.
We
utilize
actuarial
science,
business
expertise
and
management
judgment
in
a
manner
intended
to
ensure
the
accuracy
and
consistency of
our reserving
practices.
Nevertheless, our
reserves are
estimates, which
are subject
to variation,
which may be significant.
There
can
be no
assurance
that reserves
for,
and losses
from,
claim obligations
will not
increase
in the
future,
possibly
by
a
material
amount.
However,
we
believe
that
our
existing
reserves
and
reserving
methodologies
lessen
the
probability
that
any
such
increase
would
have
a
material
adverse
effect
on
our
financial
condition,
results of operations or cash flows.
43
Asbestos and Environmental
Exposures.
A&E exposures represent a separate
exposure group for monitoring
and
evaluating reserve
adequacy.
The following table
summarizes the
outstanding loss
reserves with respect
to A&E
reserves on both a gross and net of retrocessions
basis for the periods indicated.
At
At
June 30,
December 31,
(Dollars in millions)
2022
2021
Gross reserves
$
145.2
$
175.2
Ceded reserves
(15.8)
(19.0)
Net reserves
$
129.4
$
156.1
(Some amounts may not reconcile due
to rounding.)
With respect
to asbestos
only,
at June 30,
2022, we had
net asbestos
loss reserves
of $129.7 million,
or 100.2%,
of total net A&E reserves, all of which was for
assumed business.
Ultimate
loss
projections
for
A&E
liabilities
cannot
be
accomplished
using
standard
actuarial
techniques.
We
believe
that
our
A&E
reserves
represent
management’s
best
estimate
of the
ultimate
liability;
however,
there
can be no assurance that ultimate loss
payments will not exceed such reserves,
perhaps by a significant amount.
Industry
analysts
use
the
“survival
ratio”
to
compare
the
A&E
reserves
among
companies
with
such
liabilities.
The survival ratio is typically calculated
by dividing a company’s
current net reserves by the three year
average of
annual
paid
losses.
Hence,
the
survival
ratio
equals
the
number
of
years
that
it
would
take
to
exhaust
the
current reserves
if future
loss payments
were to
continue at
historical
levels.
Using this
measurement,
our net
three
year
asbestos
survival
ratio
was
3.6
years
at
June
30,
2022.
These
metrics
can
be
skewed
by
individual
large settlements
occurring in
the prior
three years
and therefore,
may not
be indicative
of the
timing of
future
payments.
LIQUIDITY AND CAPITAL RESOURCES
Capital.
Shareholders’
equity
at
June
30,
2022
and
December
31,
2021
was
$8.9
billion
and
$10.1
billion,
respectively.
Management’s
objective
in
managing
capital
is
to
ensure
its
overall
capital
level,
as
well
as
the
capital
levels
of
its
operating
subsidiaries,
exceed
the
amounts
required
by
regulators,
the
amount
needed
to
support
our current
financial strength
ratings
from rating
agencies and
our own
economic capital
models.
The
Company’s capital
has historically exceeded these benchmark
levels.
Our
two
main
operating
companies
Bermuda
Re
and
Everest
Re
are
regulated
by
the
Bermuda
Monetary
Authority
(“BMA”)
and
the
State
of
Delaware,
Department
of
Insurance,
respectively.
Both
regulatory
bodies
have their
own capital
adequacy models
based on
statutory capital
as opposed
to GAAP basis
equity.
Failure to
meet
the
required
statutory
capital
levels
could
result
in
various
regulatory
restrictions,
including
business
activity and the payment of dividends to
their parent companies.
The regulatory targeted
capital and the actual statutory
capital for Bermuda Re and Everest
Re were as follows:
Bermuda Re
(1)
Everest Re
(2)
At December 31,
At December 31,
(Dollars in millions)
2021
2020
2021
2020
Regulatory targeted capital
$
2,169.3
$
1,923.2
$
2,960.0
$
2,489.8
Actual capital
$
3,184.1
$
2,930.3
$
5,717.1
$
5,276.0
(1)
Regulatory targeted capital
represents the target capital
level from the applicable year's BSCR
calculation.
(2)
Regulatory targeted capital
represents 200% of the RBC authorized
control level calculation for
the applicable year.
Our financial strength
ratings as determined
by A.M. Best, Standard
& Poor’s and
Moody’s are important
as they
provide
our
customers
and
investors
with
an
independent
assessment
of
our
financial
strength
using
a
rating
scale that provides
for relative
comparisons.
We continue
to possess significant
financial flexibility and
access to
44
debt
and
equity markets
as a
result
of our
financial
strength,
as evidenced
by
the
financial strength
ratings
as
assigned by independent rating agencies.
We maintain
our own
economic capital
models to
monitor and
project our
overall capital,
as well
as the
capital
at
our
operating
subsidiaries.
A
key
input
to
the
economic
models
is
projected
income
and
this
input
is
continually compared to actual results,
which may require a change in the capital
strategy.
As
part
of
our
capital
strategy,
we
model
our
potential
exposure
to
catastrophe
losses
arising
from
a
single
event.
Projected catastrophe
losses are generally summarized
in term of probable maximum
loss (“PML”).
A full
discussion
on
PMLs
is
included
in
our
December
31,
2021
Form
10-K
filing
in
PART
1,
Item
1.
Business,
Risk
Management
of
Underwriting
and
Reinsurance
Arrangements.
We
focus
on
the
projected
net
economic
loss
from a catastrophe
in a given zone as compared
to our shareholders’ equity.
Economic loss is the PML exposure,
net of third
party reinsurance,
reduced by estimated
reinstatement
premiums to renew
coverage and
estimated
income taxes.
In our December 31,
2021 Form 10-K, we
reported that
our projected net
economic loss from
our
largest
projected
100-year
event
represented
approximately
4.8%
of
our
December
31,
2021
shareholders’
equity.
During the first half of 2022, our net
exposure to catastrophes
has changed due to the market
conditions
and business
decisions.
As a
result, our
projected net
economic loss
from our
largest 100
-year event
in a
given
zone represents approximately
7.4% of our June 30, 2022 shareholders’ equity.
The table
below reflects
the Company’s
PML exposure,
net of
third
party reinsurance
at various
return
periods
for its
top zones/perils
(as ranked
by largest
1 in
100 year
economic loss)
based on
projection data
as of
July 1,
2022.
Return Periods (in years)
1 in 20
1 in 50
1 in 100
1 in 250
1 in 500
1 in 1,000
Exceeding Probability
5.0%
2.0%
1.0%
0.4%
0.2%
0.1%
(Dollars in millions)
Zone/ Peril
California, Earthquake
$
161
$
649
$
913
$
1,299
$
1,636
$
2,469
Southeast U.S., Wind
484
652
837
1,055
1,263
1,696
Texas Wind
140
385
587
889
1,111
1,350
Europe Wind
147
335
506
781
928
1,036
Chile Earthquake
89
218
407
686
932
1,084
The
projected
economic
losses,
defined
as
PML
exposures,
net
of
third
party
reinsurance,
reinstatement
premiums and estimated income taxes,
for the top zones/perils scheduled
are as follows:
Return Periods (in years)
1 in 20
1 in 50
1 in 100
1 in 250
1 in 500
1 in 1,000
Exceeding Probability
5.0%
2.0%
1.0%
0.4%
0.2%
0.1%
(Dollars in millions)
Zone/ Peril
California, Earthquake
$
127
$
478
$
659
$
943
$
1,226
$
1,834
Southeast U.S., Wind
304
418
527
685
838
1,165
Texas Wind
104
273
406
586
752
909
Europe Wind
120
263
383
608
704
802
Chile Earthquake
67
164
307
531
721
845
On October 4, 2021, we issued $1.0 billion of 31 year senior
notes with an interest coupon
rate of 3.125%.
These
senior notes will mature on October 15, 2052 and will pay
interest semi-annually.
During the
first half
of 2022,
we repurchased
5,000 shares
for $1.3
million in
the open
market
and paid
$126.1
million in
dividends to
adjust our
capital position
and enhance
long term
expected
returns to
our shareholders.
In
2021,
we
repurchased
887,622
shares
for
$225.1
million
in
the
open
market
and
paid
$246.7
million
in
dividends to adjust our capital position
and enhance long term expected returns
to our shareholders.
We may at
times enter
into
a
Rule 10b5-1
repurchase
plan agreement
to
facilitate
the
repurchase
of shares.
On May
22,
45
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
June
30,
2022,
we
had
repurchased
30.5
million
shares
under
this
authorization.
We may
continue, from
time to
time, to
seek to
retire portions
of our
outstanding
debt securities
through cash
repurchases, in open-market
purchases, privately negotiated
transactions or otherwise. Such
repurchases, if any,
will
be
subject
to
and
depend
on
prevailing
market
conditions,
our
liquidity
requirements,
contractual
restrictions
and other
factors.
The amounts
involved
in any
such
transactions,
individually
or
in the
aggregate,
may be material.
Liquidity.
Our liquidity
requirements
are generally
met from
positive
cash flow
from operations.
Positive
cash
flow results
from reinsurance
and insurance
premiums being
collected prior
to disbursements
for claims,
which
disbursements
generally
take
place
over
an
extended
period
after
the
collection
of
premiums,
sometimes
a
period of many
years.
Collected premiums
are generally
invested,
prior to
their use in
such disbursements,
and
investment
income provides
additional funding
for loss
payments.
Our net
cash flows
from operating
activities
were $1.6
billion and
$1.6 billion
for the
six months
ended June
30, 2022
and 2021,
respectively.
Additionally,
these cash flows reflected
net catastrophe
loss payments of
$377.1 million and $334.7
million for the six
months
ended June 30,
2022 and 2021,
respectively and
net tax payments
of $100.5 million
and $34.8 million
for the six
months ended June 30, 2022 and 2021, respectively.
If disbursements
for claims
and benefits,
policy acquisition
costs and
other operating
expenses
were to
exceed
premium inflows,
cash flow
from reinsurance
and insurance
operations
would be
negative.
The effect
on cash
flow
from
insurance
operations
would
be
partially
offset
by
cash
flow
from
investment
income.
Additionally,
cash
inflows
from
investment
maturities
and
dispositions,
both
short-term
investments
and
longer
term
maturities are available to supplement
other operating cash flows.
As the
timing of
payments for
claims and
benefits cannot
be predicted
with certainty,
we maintain
portfolios of
long
term
invested
assets
with
varying
maturities,
along
with
short-term
investments
that
provide
additional
liquidity
for
payment
of
claims.
At
June
30,
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
June
30,
2022,
we
had
$1.3
billion
of
available
for
sale
fixed
maturity
securities
maturing
within
one
year
or
less,
$7.2
billion
maturing
within
one
to
five
years
and
$5.9
billion
maturing
after
five
years.
Our
$1.3
billion
of
equity
securities
are
comprised
primarily
of
publicly
traded
securities
that
can
be
easily
liquidated.
We
believe
that
these fixed maturity and
equity securities, in conjunction
with the short-term investments
and positive cash flow
from operations,
provide ample
sources of
liquidity for
the expected
payment
of losses
in the
near future.
We
do
not anticipate
selling
a significant
amount
of securities
to
pay
losses
and LAE
but have
the
ability
to
do so.
Sales of
securities might
result in
net gains
(losses) on
investments.
At June
30, 2022
we had
$1.5 billion
of net
pre-tax
unrealized
depreciation
related
to
fixed
maturity
securities,
comprised
of
$1.6
billion
of
pre-tax
unrealized depreciation and $80.3 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.
In addition to our cash flows from operations
and liquid investments, we also have
multiple active credit facilities
that
provide
commitments
of
up
to
$1.2
billion
of
collateralized
standby
letters
of
credit
to
support
business
written by
our Bermuda operating
subsidiaries.
In addition, the
Company has
the ability to
request access
to an
additional
$340.0
million
of
uncommitted
credit
facilities,
which
would
require
approval
from
the
applicable
lender.
There is
no guarantee
the uncommitted
capacity will
be available
to us
on a
future date.
See Note
9 –
Credit Facilities for further details.
46
Market Sensitive Instruments.
The SEC’s
Financial Reporting
Release
#48 requires
registrants
to clarify
and expand
upon the
existing
financial
statement
disclosure
requirements
for
derivative
financial
instruments,
derivative
commodity
instruments
and
other financial instruments (collectively,
“market sensitive
instruments”).
We do not generally
enter into market
sensitive instruments for trading
purposes.
Our
current
investment
strategy
seeks
to
maximize
after-tax
income
through
a
high
quality,
diversified,
fixed
maturity
portfolio,
while
maintaining
an
adequate
level
of
liquidity.
Our
mix
of
investments
is
adjusted
periodically,
consistent
with
our
current
and
projected
operating
results
and
market
conditions.
The
fixed
maturity
securities
in
the
investment
portfolio
are
comprised
of
non-trading
available
for
sale
securities.
Additionally, we
have invested
in equity securities.
The
overall
investment
strategy
considers
the
scope
of
present
and
anticipated
Company
operations.
In
particular,
estimates
of
the
financial
impact
resulting
from
non-investment
asset
and
liability
transactions,
together
with our
capital
structure
and other
factors,
are used
to
develop
a net
liability analysis.
This analysis
includes estimated payout
characteristics for
which our investments
provide liquidity.
This analysis is considered
in the development of specific investment
strategies for asset
allocation, duration and
credit quality.
The change
in overall market sensi
tive risk exposure principally reflects
the asset changes that took place during the period.
Interest
Rate
Risk.
Our
$28.7
billion
investment
portfolio,
at
June
30,
2022,
is
principally
comprised
of
fixed
maturity
securities,
which
are
generally
subject
to
interest
rate
risk
and
some
foreign
currency
exchange
rate
risk, and some equity securities, which are subject to price
fluctuations and some foreign exchange
rate risk.
The
overall
economic
impact
of
the
foreign
exchange
risks
on
the
investment
portfolio
is
partially
mitigated
by
changes
in
the
dollar
value
of
foreign
currency
denominated
liabilities
and
their
associated
income
statement
impact.
Interest
rate
risk is
the potential
change in
value of
the fixed
maturity securities
portfolio,
including short-term
investments,
from
a
change
in
market
interest
rates.
In
a
declining
interest
rate
environment,
it
includes
prepayment
risk
on
the
$3.6 billion
of mortgage
-backed
securities
in
the
$22.0 billion
fixed
maturity
portfolio.
Prepayment risk results
from potential accelerated
principal payments that
shorten the average
life and thus
the
expected yield of the security.
The table
below displays
the potential
impact of
fair value
fluctuations and
after-tax unrealized
appreciation on
our fixed
maturity portfolio
(including $300.8
million of
short-term
investments)
for the
period indicated
based
on
upward
and
downward
parallel
and
immediate
100
and
200
basis
point
shifts
in
interest
rates.
For
legal
entities
with
a
U.S.
dollar
functional
currency,
this
modeling
was
performed
on
each
security
individually.
To
generate appropriate
price estimates on mortgage
-backed securities, changes in prepayment
expectations under
different interest
rate environments
were taken
into account.
For legal entities
with a non-U.S. dollar
functional
currency,
the
effective
duration
of
the
involved
portfolio
of
securities
was
used
as
a
proxy
for
the
fair
value
change under the various interest
rate change scenarios.
Impact of Interest Rate Shift in Basis Points
At June 30, 2022
-200
-100
0
100
200
(Dollars in millions)
Total Fair Value
$
23,745.3
$
22,999.0
$
22,252.7
$
21,506.4
$
20,760.1
Fair Value Change from Base (%)
6.7
%
3.4
%
0.0
%
(3.4)
%
(6.7)
%
Change in Unrealized Appreciation
After-tax from Base ($)
$
1,296.2
$
648.1
$
-
$
(648.1)
$
(1,296.2)
We had $20.0
billion and $19.0 billion
of gross reserves
for losses and
LAE as of June 30, 20
22 and December 31,
2021,
respectively.
These
amounts
are
recorded
at
their
nominal
value,
as
opposed
to
present
value,
which
would reflect
a discount
adjustment to
reflect the
time value
of money.
Since losses
are paid
out over
a period
of time, the present
value of the reserves
is less than the nominal
value.
As interest rates
rise, the present value
47
of
the
reserves
decreases
and,
conversely,
as
interest
rates
decline,
the
present
value
increases.
These
movements are
the opposite
of the interest
rate impacts
on the
fair value
of investments.
While the difference
between
present
value
and nominal
value
is not
reflected
in our
financial statements,
our financial
results
will
include investment
income over
time from
the investment
portfolio until
the claims
are paid.
Our loss
and loss
reserve
obligations
have
an expected
duration
of approximately
3.7 years,
which is
reasonably
consistent
with
our fixed income portfolio.
If we were to
discount our loss and
LAE reserves, net of
ceded reserves, the discount
would
be
approximately
$2.5
billion
resulting
in
a
discounted
reserve
balance
of
approximately
$15.5
billion,
representing approximately
69.8%
of the value of the fixed maturity
investment portfolio funds.
Equity
Risk.
Equity
risk is
the potential
change
in
fair
value
of the
common
stock,
preferred
stock
and
mutual
fund
portfolios
arising
from
changing
prices.
Our
equity
investments
consist
of
a
diversified
portfolio
of
individual securities and mutual
funds, which invest
principally in high quality
common and preferred
stocks that
are
traded
on
the
major
exchanges,
and
mutual
fund
investments
in
emerging
market
debt.
The
primary
objective
of the
equity
portfolio
is
to
obtain
greater
total
return
relative
to
our
core
bonds
over
time through
market appreciation and income.
The table
below displays
the impact on
fair value
and after-tax
change in
fair value
of a 10%
and 20%
change in
equity prices up and down for the period indicated.
Impact of Percentage Change in Equity Fair/Market Values
At June 30, 2022
(Dollars in millions)
-20%
-10%
0%
10%
20%
Fair Value of the Equity Portfolio
$
1,039.4
$
1,169.3
$
1,299.2
$
1,429.1
$
1,559.1
After-tax Change in Fair Value
$
(206.0)
$
(103.0)
$
-
$
103.0
$
206.0
Foreign Currency
Risk.
Foreign currency
risk is the
potential change
in value,
income and
cash flow arising
from
adverse
changes
in
foreign
currency
exchange
rates.
Each
of
our
non-U.S./Bermuda
(“foreign”)
operations
maintains
capital
in
the
currency
of
the
country
of
its
geographic
location
consistent
with
local
regulatory
guidelines.
Each
foreign
operation
may
conduct
business in
its local
currency,
as well
as the
currency of
other
countries
in
which
it
operates.
The
primary
foreign
currency
exposures
for
these
foreign
operations
are
the
Canadian
Dollar,
the
Singapore
Dollar,
the
British
Pound
Sterling
and
the
Euro.
We
mitigate
foreign
exchange
exposure
by
generally
matching
the
currency
and
duration
of
our
assets
to
our
corresponding
operating
liabilities.
In accordance
with FASB
guidance, the
impact
on the
fair value
of available
for sale
fixed
maturities
due to changes in
foreign currency exchange
rates, in relation
to functional currency,
is reflected as part of
other
comprehensive
income.
Conversely,
the
impact
of
changes
in
foreign
currency
exchange
rates,
in
relation
to
functional
currency,
on
other
assets
and
liabilities
is
reflected
through
net
income
as
a
component
of
other
income
(expense).
In
addition,
we
translate
the
assets,
liabilities
and
income
of
non-U.S.
dollar
functional
currency
legal
entities
to
the
U.S.
dollar.
This
translation
amount
is
reported
as
a
component
of
other
comprehensive income.
Safe Harbor Disclosure.
This
report
contains
forward-looking
statements
within
the
meaning
of
the
U.S.
federal
securities
laws.
We
intend
these
forward-looking
statements
to
be
covered
by
the
safe
harbor
provisions
for
forward-looking
statements
in
the
federal
securities
laws.
In
some
cases,
these
statements
can
be
identified
by
the
use
of
forward-looking
words
such
as
“may”,
“will”,
“should”,
“could”,
“anticipate”,
“estimate”,
“expect”,
“plan”,
“believe”,
“predict”,
“potential”
and
“intend”.
Forward-looking
statements
contained
in
this
report
include
information regarding
our reserves for losses and LAE,
the CARES Act, the impact of the Tax
Cut and Jobs Act, the
adequacy
of
capital
in
relation
to
regulatory
required
capital,
the
adequacy
of
our
provision
for
uncollectible
balances,
estimates
of
our
catastrophe
exposure,
the
effects
of
catastrophic
and
pandemic
events
on
our
financial
statements,
the
ability
of
Everest
Re,
Holdings,
Holdings
Ireland,
Dublin
Holdings,
Bermuda
Re
and
Everest
International
to
pay
dividends
and
the
settlement
costs
of
our
specialized
equity
index
put
option
contracts.
Forward-looking
statements
only
reflect
our
expectations
and
are
not
guarantees
of
performance.
These
statements
involve
risks,
uncertainties
and
assumptions.
Actual
events
or
results
may
differ
materially
from our expectations.
Important factors
that could cause
our actual events
or results to
be materially different
48
from our expectations
include those discussed
under the caption ITEM
1A, “Risk Factors”
in the Company’s
most
recent
10-K
filing.
We
undertake
no
obligation
to
update
or
revise
publicly
any
forward-looking
statements,
whether as a result of new information,
future events or otherwise.
ITEM 3.
QUANTITATIVE
AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
Market Risk Instruments.
2.
ITEM 4.
CONTROLS AND PROCEDURES
As
of
the
end
of
the
period
covered
by
this
report,
our
management
carried
out
an
evaluation,
with
the
participation
of
the
Chief
Executive
Officer
and
Chief
Financial
Officer,
of
the
effectiveness
of
our
disclosure
controls and
procedures (as
defined in Rule
13a-15(e) under the
Securities Exchange
Act of 1934
(the “Exchange
Act”)).
Based
on
their
evaluation,
the
Chief
Executive
Officer
and
Chief
Financial
Officer
concluded
that
our
disclosure controls
and procedures are
effective to
ensure that
information required
to be disclosed
by us in the
reports that
it files
or submits
under the
Exchange Act
is recorded,
processed, summarized
and reported
within
the time periods specified in
Securities and Exchange
Commission’s
rules and forms.
Our management, with
the
participation
of
the
Chief
Executive
Officer
and
Chief
Financial
Officer,
also
conducted
an
evaluation
of
our
internal control
over financial reporting
to determine
whether any
changes occurred
during the quarter
covered
by this report that have
materially affected,
or are reasonably
likely to materially
affect, our internal
control over
financial reporting.
Based on that
evaluation, there
has been no
such change during
the quarter covered
by this
report.
PART II
ITEM 1.
LEGAL PROCEEDINGS
In
the
ordinary
course
of
business,
the
Company
is
involved
in
lawsuits,
arbitrations
and
other
formal
and
informal
dispute
resolution
procedures,
the
outcomes
of
which
will
determine
the
Company’s
rights
and
obligations
under insurance
and reinsurance
agreements.
In some
disputes,
the Company
seeks
to
enforce
its
rights under an agreement or to
collect funds owing to it.
In other matters, the Company
is resisting attempts by
others
to
collect
funds
or
enforce
alleged
rights.
These
disputes
arise
from
time
to
time
and
are
ultimately
resolved through
both informal
and formal
means, including
negotiated resolution,
arbitration and
litigation.
In
all such matters,
the Company believes
that its positions
are legally and
commercially reasonable.
The Company
considers
the statuses
of these
proceedings
when determining
its reserves
for unpaid
loss and
loss adjustment
expenses.
Aside
from
litigation
and
arbitrations
related
to
these
insurance
and
reinsurance
agreements,
the
Company
is
not a party to any other material litigation
or arbitration.
ITEM 1A.
RISK FACTORS
No material changes.
49
ITEM 2.
UNREGISTERED SALES OF EQUITY SECURITIES
AND USE OF PROCEEDS
Issuer Purchases of Equity Securities.
Issuer Purchases of Equity Securities
(a)
(b)
(c)
(d)
Maximum Number (or
Total Number of
Approximate Dollar
Shares (or Units)
Value) of Shares (or
Purchased as Part
Units) that May Yet
Total Number of
of Publicly
Be Purchased Under
Shares (or Units)
Average Price Paid
Announced Plans or
the Plans or
Period
Purchased
per Share (or Unit)
Programs
Programs (1)
April 1 - 30, 2022
-
$
-
-
1,465,181
May 1 - 31, 2022
1,601
$
276.8129
-
1,465,181
June 1 - 30, 2022
801
$
270.2875
-
1,465,181
Total
2,402
$
-
-
-
(1)
On
May
22,
2020,
the
Company’s
executive
committee
of
the
Board
of
Directors
approved
an
amendment
to
the
share
repurchase
program
authorizing the
Company
and/or its
subsidiary
Holdings, to
purchase
up to
a current
aggregate
of 32.0
million of
the Company’s
shares (recognizing
that the
number
of
shares
authorized
for
repurchase
has
been
reduced
by
those
shares
that
have
already
been
purchased)
in
open
market
transactions,
privately
negotiated transactions or both.
Currently, the Company
and/or its subsidiary Holdings have repurchased
30.5 million of the Company’s shares.
ITEM 3.
DEFAULTS
UPON SENIOR SECURITIES
None.
ITEM 4.
MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5.
OTHER INFORMATION
None.
50
ITEM 6.
EXHIBITS
Exhibit Index
Exhibit No.
Description
101.INS
XBRL Instance Document
101.SCH
XBRL Taxonomy
Extension Schema
101.CAL
XBRL Taxonomy
Extension Calculation Linkbase
101.DEF
XBRL Taxonomy
Extension Definition Linkbase
101.LAB
XBRL Taxonomy
Extension Labels Linkbase
101.PRE
XBRL Taxonomy
Extension Presentation Linkbase
104
Cover Page Interactive
Data File (embedded within the Inline XBRL document)
51
Everest Re Group,
Ltd.
Signatures
Pursuant
to the
requirements
of the
Securities Exchange
Act of
1934, the
registrant
has duly
caused this
report
to be signed on its behalf by the undersigned thereunto
duly authorized.
Everest Re Group,
Ltd.
(Registrant)
/S/ MARK KOCIANCIC
Mark Kociancic
Executive Vice President and
(Duly Authorized Officer and Principal Financial Officer)
Dated:
August 4, 2022
TABLE OF CONTENTS
Part IPart IIItem 2. Management S Discussion and Analysis Of Financial Condition and Results OfItem 3. Quantitative and Qualitative Disclosures About Market RiskItem 4. Controls and ProceduresItem 1. Legal ProceedingsItem 1A. Risk FactorsItem 2. Unregistered Sales Of Equity Securities and Use Of ProceedsItem 3. Defaults Upon Senior SecuritiesItem 4. Mine Safety DisclosuresItem 5. Other InformationItem 6. Exhibits