Everest Re Group, Ltd. — FY 2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. The filing is an annual report, not a standalone fourth-quarter filing; it also provides unaudited quarterly results. The registrant’s legal name is Everest Re Group, Ltd.
Business context
Everest is a global property-and-casualty insurer and reinsurer, reporting Reinsurance and Insurance operations. Gross written premiums were $10.48 billion: 69.5% reinsurance and 30.5% insurance. Management says its strategy prioritizes underwriting profitability and disciplined risk selection over premium volume. Subsidiaries held A.M. Best financial strength ratings of A+.
Key financial results
| Metric | 2020 | 2019 |
|---|---|---|
| Gross written premiums | $10.48 billion | $9.13 billion |
| Net written premiums | $9.12 billion | $7.82 billion |
| Premiums earned | $8.68 billion | $7.40 billion |
| Total revenues | $9.60 billion | $8.23 billion |
| Net income | $514.2 million | $1.01 billion |
| Diluted earnings per share | $12.78 | $24.70 |
| Combined ratio | 102.9% | 95.5% |
| Operating cash flow | $2.87 billion | $1.85 billion |
| Shareholders’ equity | $9.73 billion | $9.13 billion |
| Debt, carrying value | $1.91 billion | $633.8 million |
- Investment income was $642.5 million, down 0.7%; net realized capital gains were $267.6 million, including $280.4 million of fair-value remeasurement gains. The investment portfolio’s effective pre-tax yield declined to 2.76% from 3.30%.
- Investments and cash totaled $25.46 billion, including $1.94 billion of cash and short-term investments. Of fixed maturities, 93.5% were investment grade. The fixed-income portfolio duration was 3.6 years.
- Gross loss and loss-adjustment-expense reserves increased to $16.40 billion from $13.61 billion. Reinsurance receivables were $1.99 billion.
- The company paid $249.1 million in shareholder dividends and repurchased 970,892 shares for $200.0 million. Book value per share was $243.25, up from $223.85.
Material changes versus 2019
- Premiums earned rose 17.3%, while net income fell 49.1%. The combined ratio worsened by 7.4 percentage points to 102.9%, indicating an underwriting loss before investment and other income.
- Incurred losses and LAE increased 33.1% to $6.55 billion. Current-year COVID-19 losses were estimated at $511.1 million; the filing also reports $401.4 million of adverse prior-year reserve development, primarily in long-tail reinsurance casualty lines and some non-catastrophe property programs. In 2019, prior-year development was favorable by $63.6 million.
- Reinsurance underwriting produced a $195.4 million loss, versus a $255.0 million gain in 2019. Insurance produced a $58.4 million loss, versus an $81.1 million gain. Segment combined ratios were 103.0% and 102.6%, respectively.
- Investments and cash rose 22.7%. Debt increased mainly following issuance of $1.0 billion of 3.5% senior notes due 2050 and $310 million of Federal Home Loan Bank borrowings. The company reported compliance with its credit-facility covenants.
- Operating cash flow strengthened, but included the effects of reserve growth and tax recoveries. The CARES Act enabled a five-year NOL carryback, producing a $32.5 million tax benefit and $182.5 million in federal tax refunds, including interest.
Fourth-quarter snapshot
Unaudited Q4 2020 net income was $63.6 million, or $1.59 per diluted share, compared with $217.6 million, or $5.32 per diluted share, in Q4 2019. Q4 2020 premiums earned were $2.40 billion, net investment income was $222.3 million, and net realized capital gains were $183.4 million.
Outlook, risks and unusual items
- Outlook: No quantified earnings, premium, or combined-ratio guidance is provided. Management said rates appeared to be firming in catastrophe-exposed and certain casualty lines, while workers’ compensation remained softer; pricing conditions vary by line and geography.
- COVID-19: Management cautioned that claim estimates, premium volumes, collections, investment values, and credit losses could change as the pandemic and economic effects develop. Business closures and premium-payment accommodations could increase uncollectible premiums. The company reported its critical operations were functioning remotely.
- Reserving: Loss reserves depend on estimates and ceding-company information, and actual claims may differ materially. The auditor identified valuation of the $16.4 billion loss reserve as a critical audit matter. The filing’s actuarial range for gross reserves was approximately $14.6 billion to $18.2 billion.
- Catastrophe exposure: Management estimated its largest single-zone 1-in-100-year net economic loss at about 6.7% of year-end equity. It cautioned that models are imprecise and actual or multiple events could exceed estimates.
- Other contingencies: A February 2021 severe winter storm in Texas and other southern states was expected to adversely affect Q1 2021 results; the company could not yet estimate the loss. A theoretical maximum payout on an S&P 500 put option was $147.9 million, although management estimated the probability of a payout at less than 0.2%. Ordinary-course insurance and reinsurance disputes remain, with no other material litigation reported.
- Liquidity and capital: Management described liquidity as ample and reported statutory capital above applicable regulatory thresholds. However, subsidiary dividends are subject to regulatory limits, and the holding company depends partly on subsidiary distributions.
Most important facts for investors to verify
- How COVID-19 claims develop relative to the $511.1 million estimate, and whether premium contraction or collection issues emerge.
- Whether 2020 adverse reserve development—especially in long-tail casualty—is followed by further strengthening; review the actuarial reserve range and claims development disclosures.
- Whether premium growth can translate into underwriting profitability after the 102.9% combined ratio and losses in both operating segments.
- The quality and sustainability of investment gains, portfolio yield, and exposure to market, credit, interest-rate, and foreign-currency movements.
- Debt service and capital allocation following the 2020 debt issuance and borrowing increase, alongside dividends, buybacks, and regulatory constraints on subsidiary distributions.
- The eventual loss from the February 2021 winter storm and any other catastrophe accumulation beyond modeled estimates.