Everest Re Group, Ltd. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021; comparisons are with the corresponding 2020 periods unless noted. The company provides global property and casualty reinsurance and insurance through its Reinsurance and Insurance segments. Figures below are in U.S. dollars; financial amounts are rounded to millions.
Key financial results
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Gross written premiums | $3,190.1 | $2,369.3 | $6,121.6 | $4,940.2 |
| Net written premiums | $2,809.4 | $2,017.5 | $5,363.3 | $4,219.0 |
| Premiums earned | $2,558.4 | $2,042.4 | $4,946.2 | $4,079.2 |
| Net investment income | $407.1 | $38.1 | $667.5 | $185.9 |
| Net realized investment gains (losses) | $104.1 | $184.6 | $143.0 | $(25.9) |
| Net income | $680.0 | $190.9 | $1,021.8 | $207.5 |
| Diluted earnings per share | $16.95 | $4.77 | $25.47 | $5.13 |
| Combined ratio | 89.3% | 97.5% | 93.6% | 98.1% |
Q2 underwriting gain was $273.6 million, versus $50.9 million a year earlier. Reinsurance contributed $232.3 million of Q2 underwriting gain (combined ratio 87.9%); Insurance contributed $41.3 million (93.5%). For the first half, segment underwriting gains were $277.2 million for Reinsurance and $41.7 million for Insurance.
First-half operating cash flow was $1,628.0 million, compared with $1,104.6 million in 2020. Investing cash flow was $(1,132.6) million and financing cash flow was $(189.7) million. Cash ended the period at $1,106.3 million.
Financial position and liquidity
- At June 30, 2021, total assets were $35,370.1 million, total liabilities $24,953.3 million, and shareholders’ equity $10,416.8 million, up 7.1% from year-end 2020. Book value per share was $260.32, up from $243.25.
- Investments and cash totaled $27,056.0 million. Cash plus short-term investments was $1,736.3 million. The company cited additional liquidity from marketable securities and operating cash flow.
- Loss and loss adjustment expense reserves were $17,645.8 million, up 7.6% from December 31, 2020. Debt was approximately $1,910.8 million, essentially unchanged; it included $310 million of Federal Home Loan Bank borrowings.
- Available credit facilities included up to $1.3 billion and £52.2 million for letters of credit and/or revolving credit lines. The $200 million unsecured revolving tranche of the former Group facility expired in May 2021; its remaining $600 million letter-of-credit capacity was to run off through year-end. The company reported compliance with facility covenants.
Material changes and management commentary
- Gross written premiums rose 34.6% in Q2 and 23.9% in the first half, with growth in both segments. Reinsurance growth reflected broad increases, including property and casualty lines; Insurance growth reflected specialty casualty, property, and professional liability.
- Combined ratio improved by 8.2 percentage points in Q2 and 4.5 points for the first half. Management attributed much of the improvement to COVID-19-related losses in 2020 that did not recur, partly offset by higher 2021 catastrophe losses.
- First-half catastrophe losses were $315 million, including $270 million from the Texas winter storms. Q2 catastrophe losses were $45 million. Prior-year reserve development was modestly favorable: $4.5 million for the first half.
- Investment income increased sharply, mainly due to limited partnership income of $354.3 million for the first half, compared with a loss of $66.7 million in 2020, and higher fixed-income income. Management cautioned that partnership values are reported with a lag and can be volatile until monetized. First-half realized gains also included $132.6 million from fair-value adjustments, primarily equity securities.
- Fixed-income portfolio duration was 3.6 years; composite credit quality was A1, compared with Aa3 at year-end 2020. First-half total return was 0.5% for fixed income, 11.1% for common equities, and 25.1% for other invested assets.
- The company repurchased 165,562 shares for $40.3 million and paid $124.3 million in dividends during the first half. Quarterly dividends declared were $1.55 per share.
Outlook, risks, and unusual items
- No specific earnings, premium, or combined-ratio guidance was provided. Management said pricing appeared to be firming in many lines, particularly some casualty lines, while conditions varied by business and geography. It also noted that pandemic and economic impacts remained uncertain.
- After quarter-end, western U.S. wildfires and severe Central European floods occurred. The company was still assessing their effects and expected losses to negatively affect Q3 2021 results; it said estimates were not yet reliable.
- Management warned that COVID-19’s effects, catastrophe claims, reserve estimates, and economic recovery remained uncertain. Loss reserves are estimates and could increase materially. A&E reserve ultimate losses are especially difficult to project; net A&E reserves were $176.0 million at June 30.
- Investment risks include interest-rate and equity-price movements, foreign exchange, and the valuation uncertainty and reporting lag of limited partnerships. The filing disclosed $1,525.7 million of fixed maturities valued using significant unobservable inputs.
- Ordinary-course insurance and reinsurance disputes continue; the company reported no other material litigation or arbitration. It also disclosed one S&P 500 put option, with estimated probability of falling below its strike below 0.1% at quarter-end.
Most important facts for investors to verify
- How Q3 wildfire and flood losses, and subsequent catastrophe activity, affect earnings, reserves, and liquidity.
- Whether premium growth and improved combined ratios persist after adjusting for the nonrecurrence of 2020 COVID-19 losses and the unusually high investment contribution.
- The sustainability and realizability of limited partnership returns, including the effect of reporting lags and potential valuation declines.
- Reserve development, especially catastrophe, casualty, and asbestos/environmental exposures, and the adequacy of reinsurance recoverables.
- The replacement of expired credit capacity, remaining letter-of-credit availability, and compliance with capital and facility covenants.