Everest Re Group, Ltd. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; balance-sheet comparisons are to December 31, 2021. Everest Re Group is a Bermuda-based reinsurance and insurance group operating in the U.S., Bermuda, and international markets. Amounts below are U.S. dollars.
Financial results
| Metric | Q1 2022 | Q1 2021 or prior year-end | Change |
|---|---|---|---|
| Gross written premiums | $3.186 billion | $2.931 billion | +8.7% |
| Net written premiums | $2.812 billion | $2.554 billion | +10.1% |
| Premiums earned | $2.792 billion | $2.388 billion | +16.9% |
| Total revenues | $2.896 billion | $2.744 billion | +5.6% |
| Net investment income | $242.8 million | $260.4 million | -6.8% |
| Net investment gains (losses) | $(153.6) million | $38.9 million | Decline of $192.5 million |
| Incurred losses and LAE | $1.790 billion | $1.711 billion | +4.6% |
| Income before taxes | $301.8 million | $373.1 million | -19.1% |
| Net income | $297.8 million | $341.9 million | -12.9% |
| Diluted EPS | $7.56 | $8.52 | Down $0.96 |
| Operating cash flow | $846.4 million | $904.4 million | Down $58.0 million |
- Underwriting: Combined ratio improved to 91.6% from 98.1%; the loss ratio fell to 64.1% from 71.7%. Commission and brokerage ratio rose to 21.7% from 20.5%, while other underwriting expense ratio was 5.8% versus 5.9%.
- Segment results: Reinsurance underwriting gain was $176.8 million, up from $44.8 million, with a 91.4% combined ratio. Insurance underwriting gain was $58.5 million versus $0.4 million, with a 91.9% combined ratio.
- Cash and liquidity: Cash was $1.778 billion at quarter-end; cash plus short-term investments totaled about $2.602 billion. Management cited positive operating cash flow and liquid investments as sources to meet claims. The company had $1.4 billion of fixed maturities due within one year and $7.1 billion due within one to five years.
- Debt: Total debt was approximately $3.089 billion, broadly unchanged from year-end: $2.346 billion of senior notes, $223.8 million of subordinated notes, and $519 million of FHLB borrowings.
Material changes and financial position
- Premium growth reflected higher insurance specialty casualty and other specialty business, and higher reinsurance casualty pro rata and financial lines. Earned-premium growth also reflected business written in the second half of 2021.
- Current-year catastrophe losses were $115 million, versus $270 million in Q1 2021. Q1 2022 losses primarily reflected Australia floods ($75 million), European storms ($30 million), and U.S. storms ($10 million); the prior-year quarter included $260 million from Texas winter storms.
- Investment losses were driven principally by a $136.9 million fair-value loss on equity securities amid market declines, compared with a $29.1 million gain in Q1 2021. Net investment income declined mainly because limited-partnership income fell by $25.9 million, partly offset by higher fixed-maturity income.
- Shareholders’ equity fell 6.0% to $9.528 billion from $10.139 billion; book value per share declined 6.5% to $241.52. The principal factor was $811.0 million of after-tax unrealized depreciation on investments, partly offset by net income.
- Gross loss and LAE reserves increased 2.6% to $19.496 billion. Fixed maturities available for sale had $806.8 million of gross unrealized depreciation at quarter-end, versus $203.1 million at year-end. Management attributed these unrealized losses primarily to interest rates and non-issuer-specific credit spreads, and said it did not intend to sell the securities and expected recovery of cost basis.
Outlook, risks and unusual items
- The filing provides no specific numerical earnings or premium guidance. Management described market conditions as varying by line and geography, with rates firming in many areas, particularly casualty lines affected by losses; some lines, including workers’ compensation, remained softer.
- Management generally expects positive annual operating cash flow, but warned it could decline or become negative in the near term as catastrophe claims are paid. It stated the company has ample liquidity for expected catastrophe claims.
- The company reported $11.9 million of additional fixed-maturity credit-loss allowance, primarily related to direct Russian corporate holdings. Management said the company’s known financial exposure to the Russia-Ukraine war was limited, but a reasonable estimate of potential loss was not possible given uncertainty around exposures and coverage.
- Management reported $115 million of Q1 catastrophe losses and noted that reserve estimates may vary significantly; ultimate claims could exceed recorded reserves. Prior-year reserve development was a modest $0.9 million benefit.
- Net asbestos and environmental reserves were $135.6 million; the reported net asbestos survival ratio was 3.8 years. The filing cautions that ultimate asbestos and environmental losses could exceed reserves.
- Investment commitments included up to $2.5 billion for limited partnerships and private-placement loan securities. The filing also reports $2.2 billion of outstanding commitments for non-consolidated VIE investments. Ordinary-course insurance and reinsurance disputes are ongoing; the company reported no other material litigation or arbitration.
- The company had $1.2 billion of committed letter-of-credit facilities and up to $340 million of additional uncommitted facilities, whose availability is not guaranteed. No subsequent events were reported; management said disclosure controls were effective and there were no material changes to internal control over financial reporting.
Important facts for investors to verify
- Whether premium growth and improved combined ratios persist after accounting for business mix, acquisition costs, and future catastrophe experience.
- Reserve adequacy, including the effects of claims emergence, catastrophe losses, and asbestos and environmental exposures.
- The extent and potential earnings or capital effects of Russian-related insurance exposures and investment credit risk.
- Whether investment-portfolio valuations and unrealized losses recover, and how interest-rate and equity-market changes affect book value and liquidity.
- The timing and funding of investment commitments, and availability of committed and uncommitted credit facilities.
- Regulatory statutory capital and rating-agency capital measures; the capital figures disclosed in this filing are primarily as of December 31, 2021, not March 31, 2022.