Everest Re Group, Ltd. — 2022 Form 10-K
Business context and period. This annual report covers the fiscal year ended December 31, 2022. Everest Re Group underwrites property and casualty reinsurance and insurance through two segments, Reinsurance and Insurance, in the U.S., Bermuda and international markets. The filing reports in U.S. dollars under GAAP. The company reported $14.0 billion of gross written premiums, with 66.8% from reinsurance and 33.2% from insurance.
Financial performance and position
| Metric | 2022 | 2021 | Change |
|---|---|---|---|
| Gross written premiums | $13.952 billion | $13.050 billion | +6.9% |
| Net written premiums | $12.344 billion | $11.446 billion | +7.9% |
| Premiums earned | $11.787 billion | $10.406 billion | +13.3% |
| Total revenues | $12.060 billion | $11.866 billion | +1.6% |
| Net investment income | $830 million | $1.165 billion | -28.8% |
| Net investment gains (losses) | $(455) million | $258 million | — |
| Net income | $597 million | $1.379 billion | -56.7% |
| Diluted earnings per share | $15.19 | $34.62 | — |
| Combined ratio | 96.0% | 97.8% | Improved 1.8 points |
| Operating cash flow | $3.695 billion | $3.833 billion | — |
The 2022 combined ratio reflected a 68.7% loss ratio, 21.4% commission and brokerage ratio, and 5.8% other underwriting expense ratio. By segment, the combined ratio was 96.4% for Reinsurance and 94.8% for Insurance.
At December 31, 2022, total assets were $39.966 billion, total liabilities $31.525 billion, shareholders’ equity $8.441 billion and book value per share $215.54. Total debt was $3.084 billion, comprising $2.347 billion of senior notes, $218 million of long-term subordinated notes and $519 million of Federal Home Loan Bank borrowings. Cash and short-term investments totaled approximately $2.4 billion; total investments and cash were $29.872 billion.
Material changes versus 2021
- Premium growth came from both segments: Insurance gross written premiums rose 16.4% to $4.636 billion, while Reinsurance rose 2.7% to $9.316 billion. Insurance growth was broad, especially in specialty casualty and property/short-tail lines; Reinsurance growth included casualty pro rata and financial lines, partly offset by lower property pro rata premiums.
- Underwriting performance improved: the combined ratio fell to 96.0% from 97.8%, mainly as catastrophe losses declined by $80 million and contributed 9.0 points to the ratio versus 10.9 points in 2021. Total catastrophe losses were $1.055 billion, including $699 million from Hurricane Ian.
- Net income fell despite improved underwriting, principally because net investment results weakened. Limited partnership income declined by $490 million, partly offset by higher fixed-maturity income. Investment losses included $460 million of equity fair-value losses; net investment income fell to $830 million.
- Shareholders’ equity declined $1.698 billion, or 16.8%, primarily from $1.9 billion of after-tax unrealized depreciation on available-for-sale fixed maturities, dividends, foreign-currency translation and share repurchases, partly offset by net income. The portfolio’s after-tax unrealized loss on available-for-sale fixed maturities was $1.7 billion at year-end, compared with a $239 million gain in 2021.
- Loss and LAE reserves increased 16.1% to $22.065 billion. The 2022 prior-year reserve re-estimation produced $2 million of favorable development, compared with $9 million favorable in 2021; 2020 had $401 million of adverse development.
Outlook, commentary, risks and unusual items
- Outlook: The filing provides no formal earnings or premium guidance. Management described rates as firming in many markets, particularly some casualty lines, with softer conditions in workers’ compensation. It cautioned that pricing trends will vary by line and geography. Management cited capital strength, high-quality invested assets, liquidity and a diversified global platform as strengths.
- War-related losses: The company recorded $45 million of losses related to the Ukraine/Russia war in 2022 and increased credit-loss allowances, primarily for Russian corporate fixed-maturity holdings.
- Asbestos and environmental claims: A comprehensive actuarial review led to $138 million of additional A&E reserves in 2022. Gross A&E reserves were $278 million, or 1.3% of total gross reserves; net asbestos reserves were $233 million. Management highlights substantial uncertainty in estimating these long-tail liabilities.
- Catastrophe exposure: Management estimated its largest single-zone 1-in-100-year net economic loss at 6.9% of year-end equity. The largest 1-in-100-year modeled net PML was $878 million for Southeast U.S. wind, with estimated net economic loss of $515 million. These estimates depend on models and assumptions and may be exceeded.
- Liquidity and capital: Operating cash flow was positive at $3.695 billion. The company held $2.4 billion of cash and short-term investments and had up to $1.5 billion in committed letter-of-credit facilities, plus up to $440 million of uncommitted facilities that may not be available. Management noted catastrophe payments could reduce or temporarily reverse operating cash flow.
- Dividends: The company paid $6.50 per share in 2022 and declared a $1.65-per-share dividend in February 2023. Subsidiary dividends are subject to regulatory and statutory limits; Everest Re had $555 million available for dividends in 2023 without prior regulatory approval.
- Subsequent event: The February 2023 Turkey-Syria earthquake was expected to adversely affect first-quarter 2023 results, but the company said it could not yet estimate the loss magnitude.
- Other key risks: Reserve estimation, catastrophe and climate-related losses, investment and interest-rate volatility, foreign-exchange movements, reinsurance recoverability, competition and regulation. The top 10 brokers generated 52.7% of gross written premiums; Marsh & McLennan alone generated 20.0%. PwC identified reserve valuation as a critical audit matter. Management and the auditor reported effective internal control over financial reporting.
Most important facts for investors to verify
- Whether investment income, equity valuations and unrealized fixed-maturity losses stabilize or materially affect future earnings and book value.
- Whether the $22.1 billion loss-reserve estimate develops as expected, particularly for casualty and A&E exposures, and whether catastrophe estimates prove adequate.
- Whether renewal pricing and premium growth remain profitable as market conditions differ by line and geography.
- Whether reinsurance recoverables of approximately $2.2 billion remain collectible and whether catastrophe protection responds as expected.
- Whether operating cash flow, subsidiary dividend capacity, debt service and the regular dividend remain supported by earnings and regulatory capital.
- How the Turkey-Syria earthquake and other subsequent catastrophe losses affect 2023 results; the filing does not provide a clear loss estimate for that event.