Everest Re Group, Ltd. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; unaudited. Everest Re Group, Ltd. is a Bermuda-domiciled global insurer and reinsurer operating primarily through Reinsurance and Insurance segments. Comparisons below are with Q1 2022 unless otherwise stated. Dollar amounts are in millions unless noted.
Financial results and key metrics
- Premiums and revenue: Gross written premiums rose 17.5% to $3,743; net written premiums rose 18.4% to $3,329; earned premiums rose 11.0% to $3,100. Total revenues increased 13.5% to $3,286.
- Profit: Net income increased 22.6% to $365; diluted EPS was $9.31 versus $7.56. Income before taxes was $408, with income tax expense of $43 versus $4 a year earlier.
- Underwriting: Combined ratio improved 0.4 percentage points to 91.2%; loss ratio was 63.4%, commission and brokerage ratio 21.3%, and other underwriting expense ratio 6.4%. Underwriting gain was $273, compared with $235.
- Segments: Reinsurance earned premiums of $2,242 and underwriting gain of $207, with a 90.8% combined ratio. Insurance earned premiums of $858 and underwriting gain of $66, with a 92.4% combined ratio.
- Cash flow: Operating cash flow was $1,064, up from $846. Investing activities used $752 and financing activities used $103. Cash ended the quarter at $1,610, up from $1,398 at year-end.
- Investments and returns: Net investment income rose 7.0% to $260, mainly from higher fixed-maturity and short-term investment income, partly offset by limited-partnership losses. Net investment gains were $5 versus losses of $154, largely reflecting the prior-year $137 equity fair-value loss. Annualized pre-tax yield on average cash and invested assets was 3.2% versus 3.3%.
- Balance sheet and capital: Total assets were $41,839, investments and cash $31,435, shareholders’ equity $9,014, and book value per share $229.49 at March 31. Equity rose 6.8% from year-end, and book value per share rose 6.5%. Gross loss and LAE reserves were $22,878.
- Debt and liquidity: Total debt was approximately $3,085, essentially unchanged from year-end: $2,348 senior notes, $218 subordinated notes, and $519 FHLB borrowings. Cash and short-term investments totaled about $2.6 billion. Committed letter-of-credit facilities totaled up to $1.5 billion; additional uncommitted capacity of up to $440 was not guaranteed to be available.
Material changes versus the prior comparable period
- Premium growth reflected higher Reinsurance premiums, particularly casualty pro rata, property pro rata, and financial lines, and higher Insurance property/short-tail and specialty business.
- Incurred losses and LAE increased 9.9% to $1,966, mainly due to $175 higher current-year attritional losses alongside earned-premium growth. Catastrophe losses were $115 in both periods; Q1 2023 losses related mainly to Turkey earthquakes ($75) and New Zealand storms ($40).
- The combined ratio improved despite higher dollar expenses: the loss ratio fell 0.7 points and commission ratio fell 0.4 points, while the other underwriting expense ratio increased 0.6 points, primarily reflecting insurance operations expansion.
- Other expense was $79 versus $15 of other income, driven mainly by foreign-exchange expense of $85 versus foreign-exchange income of $13.
- After-tax other comprehensive income was $280, compared with a loss of $844, mainly reflecting a reversal in unrealized investment movements. Accumulated other comprehensive loss improved to $1,716 from $1,996 at year-end.
Outlook, commentary, risks, and unusual items
- Management described market conditions as generally firming, with favorable rate and terms trends in some markets following catastrophe losses and market dislocation; conditions vary by line and geography. It cited strong capital, high-quality investments, liquidity, and a diversified global platform. No specific earnings or premium guidance was provided.
- Management said it generally expects positive annual operating cash flow, but recent catastrophe events could reduce cash flow or make it negative in the near term as claims are paid. It believes liquid assets and operating cash flows provide ample near-term liquidity.
- A potential catastrophe-bond recovery tied to industry losses from covered events was estimated at $19, subject to revision; no recovery was included in Q1 results. The filing states the relevant industry loss estimate exceeded the attachment point.
- Available-for-sale fixed maturities had $1.7 billion of gross unrealized losses at quarter-end, predominantly attributed by management to interest rates and non-issuer-specific spreads rather than credit deterioration. Management stated it did not intend, and was not likely required, to sell before recovery; investors should note the potential sensitivity of fair values to rates and liquidity needs.
- Reserve estimates are inherently uncertain and may increase materially. A&E reserves were $271 gross and $251 net; management cautioned ultimate A&E payments could exceed estimates.
- The company reported $2.7 billion of commitments to invest in limited partnerships and private-placement loan securities; non-consolidated VIE investments had a $4.2 billion carrying value and $2.2 billion of outstanding funding commitments.
- Ordinary-course insurance and reinsurance disputes are considered in reserving; the company reported no other material litigation or arbitration. No material changes to risk factors were reported. Management stated disclosure controls were effective and no material quarterly change in internal control over financial reporting occurred.
Important facts for investors to verify
- Track reserve development, especially current-year attritional losses, catastrophe claims, and A&E exposures.
- Assess whether premium growth and market pricing translate into sustainable underwriting margins, particularly as Insurance operating expenses rise.
- Monitor portfolio unrealized losses, interest-rate sensitivity, credit quality, and the potential effect of required asset sales on capital.
- Confirm the final amount and timing of any catastrophe-bond recovery; none was recognized in Q1.
- Review liquidity and funding demands, including the $2.7 billion investment commitments, credit-facility availability, and $519 million of FHLB borrowings due in 2023.
- Reconcile share activity: the filing says no open-market repurchases occurred in Q1, while its issuer-purchase table reports 51,210 shares acquired, identified as employee tax-withholding shares rather than purchases under the public program.