EVEREST RE GROUP, LTD. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. Everest Re Group conducts property and casualty reinsurance and insurance operations in the U.S., Bermuda, and international markets. Amounts below are in U.S. dollars; financial figures are in millions unless stated otherwise.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Gross written premiums | $3,497.6 | $2,791.6 | $9,619.2 | $7,731.8 |
| Net written premiums | $3,025.8 | $2,448.7 | $8,389.1 | $6,667.6 |
| Earned premiums | $2,656.4 | $2,205.8 | $7,602.6 | $6,285.0 |
| Net investment income | $292.8 | $234.2 | $960.3 | $420.1 |
| Net realized investment gains (losses) | $(4.2) | $110.2 | $138.8 | $84.3 |
| Pre-tax income (loss) | $(87.7) | $272.5 | $1,045.6 | $466.0 |
| Net income (loss) | $(73.5) | $243.1 | $948.4 | $450.5 |
| Diluted EPS | $(1.88) | $6.07 | $23.72 | $11.18 |
| Combined ratio | 112.2% | 105.2% | 100.1% | 100.6% |
- Underwriting: Q3 catastrophe losses were $695 million, including $463 million from Hurricane Ida and $232 million from European floods. Nine-month catastrophe losses were $1.010 billion, primarily from Ida, Texas winter storms, and European floods. Q3 loss ratio rose to 85.6% from 78.7%; the nine-month ratio was 73.3% versus 72.8%.
- Segment results: Reinsurance reported underwriting losses of $306.2 million for Q3 and $29.0 million for nine months; its combined ratios were 115.5% and 100.5%, respectively. Insurance reported Q3 underwriting loss of $17.2 million and nine-month underwriting gain of $24.5 million; its combined ratios were 102.5% and 98.7%.
- Investment contribution: Nine-month investment income rose sharply, mainly from limited partnership income ($493.0 million versus $22.1 million in 2020) and other alternative investments. Partnership valuations are generally reported with a lag and may be volatile until realized and distributed. Q3 realized losses contrasted with prior-year gains, which had benefited from equity valuation rebounds.
Financial position, cash flow, and liquidity
- At September 30, 2021, total assets were $36.606 billion, investments and cash were $27.784 billion, shareholders’ equity was $9.979 billion, and book value per share was $253.40. Equity increased 2.6% from year-end 2020.
- Gross loss and LAE reserves were $18.957 billion, up from $16.399 billion at December 31, 2020. Total debt was $1.911 billion, consisting principally of senior and subordinated notes and $310 million of FHLB borrowings.
- Nine-month operating cash flow was $2.791 billion, compared with $2.191 billion in 2020. Investing cash flow was $(2.102) billion and financing cash flow was $(413) million; cash ended the period at $1.068 billion.
- Cash and short-term investments totaled $1.782 billion. Management cited the liquid investment portfolio, maturities, operating cash flow, and credit facilities as sources to meet claims; it did not expect to sell a significant amount of securities to pay losses. Management cautioned that catastrophe payments could reduce or temporarily make operating cash flow negative.
- Committed credit and letter-of-credit facilities included up to $1.530 billion and £52.2 million. The prior $200 million unsecured revolving tranche expired in May 2021; the remaining $600 million collateralized letter-of-credit tranche was in run-off through year-end. The company reported compliance with facility covenants. FHLB borrowings of $310 million were due in November and December 2021.
Changes, outlook, and risks
- Premium growth was broad-based: Q3 gross written premiums increased 25.3% year over year, with reinsurance up 19.2% and insurance up 43.2%. Management attributed growth to expansion in casualty, specialty, professional liability, and property lines, among others.
- Q3 net loss reflected catastrophe activity and higher claims and expenses despite premium growth and higher investment income. For the nine-month period, net income more than doubled, with higher premiums and investment income contributing; 2020 included COVID-19 losses that did not recur in 2021.
- Management described pricing as firming in many lines, especially casualty areas, while conditions varied by line and geography. The filing provides no specific earnings or premium guidance. Management said the pandemic’s ultimate industry and company effects remained uncertain and dependent on the economic recovery.
- Reserve estimates may change materially as claims develop; management noted that catastrophe and pandemic effects, and possible legal, regulatory, or legislative actions affecting coverage, remain uncertain. The filing states that risk factors were not materially changed from the latest Form 10-K.
- Market exposures include interest rates, equity prices, foreign exchange, and mortgage-backed-security prepayments. A 100-basis-point rate increase was modeled to reduce fixed-income market value by 3.5%; a 10% equity-price decline would reduce equity portfolio value by about $120.6 million after tax.
- Other notable items: the company issued $1 billion of 3.125% senior notes on October 4, 2021, after quarter-end. It had up to $2.648 billion of additional limited-partnership and private-placement commitments. A $151.2 million present-value theoretical maximum payout was disclosed for an S&P 500 put option, although management estimated the probability of falling below the strike at less than 0.1%. Ordinary-course insurance and reinsurance disputes remain; the company reported no other material litigation or arbitration.
Investor verification priorities
- Track development of the $18.957 billion loss and LAE reserve balance, including catastrophe claims and prior-year reserve estimates.
- Assess whether the elevated alternative-investment income is sustainable and how reported partnership values convert into realized cash returns.
- Monitor catastrophe exposure, claims payments, and operating cash flow following Ida, the Texas winter storms, and European floods.
- Confirm replacement letter-of-credit capacity as the legacy facility ran off at year-end 2021, and review the terms and use of the post-quarter $1 billion debt issuance.
- Review liquidity and capital implications of the $2.648 billion investment commitments, share repurchases, dividends, and contingent exposures.