Everest Re Group, Ltd. — FY2021 Form 10-K
Business context and period. Bermuda-based global property and casualty insurer and reinsurer, reporting under U.S. GAAP for the year ended December 31, 2021. Operations comprise Reinsurance and Insurance; approximately 69.5% of gross written premiums came from reinsurance. The filing is an annual report, not a standalone fourth-quarter report.
Financial performance and position
| Metric | 2021 | 2020 |
|---|---|---|
| Gross written premiums | $13.05 billion | $10.48 billion |
| Net written premiums | $11.45 billion | $9.12 billion |
| Premiums earned | $10.41 billion | $8.68 billion |
| Total revenues | $11.87 billion | $9.60 billion |
| Net investment income | $1.16 billion | $642.5 million |
| Net income | $1.38 billion | $514.2 million |
| Diluted EPS | $34.62 | $12.78 |
| Combined ratio | 97.8% | 102.9% |
| Operating cash flow | $3.83 billion | $2.87 billion |
| Investments and cash | $29.67 billion | $25.46 billion |
| Total debt | $3.09 billion | $1.91 billion |
| Shareholders’ equity | $10.14 billion | $9.73 billion |
Both segments grew premiums about 24%. Reinsurance underwriting produced a $147 million gain and a 98.1% combined ratio; Insurance produced a $76 million gain and a 97.1% combined ratio. The company paid $246.7 million in shareholder dividends and repurchased 887,622 shares for $225.1 million.
Material changes and notable items
- Net income rose 168% and the combined ratio improved by 5.1 percentage points, returning below 100% (underwriting profitability).
- Higher catastrophe losses partially offset improvement: net catastrophe losses were $1.065 billion, versus $415 million in 2020. Major events included Hurricane Ida, Texas winter storms and European floods.
- Prior-year reserve development was a $9.1 million benefit in 2021, versus $401.4 million of adverse development in 2020, which included fourth-quarter reserve strengthening.
- Investment income increased 81%, largely because limited-partnership income rose to $565 million from $113 million. Partnership valuations are reported with a lag and may be volatile. Net realized capital gains were $258 million; fixed-maturity unrealized depreciation reduced equity by $485 million, net of tax.
- Debt increased following issuance of $1.0 billion of 3.125% senior notes due 2052. The company also had $519 million of Federal Home Loan Bank borrowings, scheduled to mature in 2022.
Outlook, risks and contingencies
- No quantified earnings or premium guidance was provided. Management reported that rates were firming in many markets, particularly excess casualty and directors’ and officers’ liability, while workers’ compensation remained softer; pricing may vary by line and geography.
- Management cited strong capital, liquidity, high-quality invested assets and a diversified global platform, while cautioning that the pandemic’s ultimate effects remain uncertain.
- Key risks include catastrophe frequency and severity, climate-related uncertainty, reserve estimation (especially long-tail casualty and asbestos/environmental claims), investment-market and interest-rate movements, reinsurer credit risk, foreign exchange, competition, regulation, cybersecurity and COVID-19-related claims or economic disruption.
- Gross loss and loss-adjustment reserves were $19.01 billion, including $173.6 million of asbestos and environmental reserves. The auditor identified reserve valuation as a critical audit matter; actual claims may differ materially from estimates.
- Reinsurance recoverables were $2.05 billion; 33.7% was from Mt. Logan Re collateralized segregated accounts. The company reported $2.6 billion of cash and short-term investments and positive operating cash flow, but noted catastrophe payments could reduce near-term cash flows.
- Ordinary-course insurance and reinsurance disputes are considered in reserves; the company reported no other material litigation. It disclosed an S&P 500 put option with a theoretical maximum payout present value of $152.3 million, while estimating the probability of a payout at less than 0.1%.
- Subsidiary dividends are subject to regulatory and solvency limits. Everest Re could pay up to $578.9 million in 2022 without prior regulatory approval. The company declared a quarterly dividend of $1.55 per share in February 2022.
Investor verification priorities
- Review reserve development by accident year and segment, especially long-tail casualty and COVID-19 claims; compare ultimate losses with the company’s reserve ranges.
- Assess catastrophe-loss assumptions, retrocessional protection, recoverability and collateral, including exposure to Mt. Logan Re.
- Separate recurring investment returns from the unusually large limited-partnership contribution to 2021 investment income; monitor valuation lags, commitments and unrealized losses.
- Reconcile debt growth, 2022 FHLB maturities, interest costs and regulated-subsidiary dividend capacity with capital returns and liquidity needs.
- Track rate and premium trends against catastrophe costs and segment combined ratios. The filing provides no formal quantified outlook.
The independent auditor issued an unqualified opinion on the financial statements and internal control over financial reporting; management also concluded controls were effective at year-end.