Business context and reporting period
Everest Re Group, Ltd. is a Bermuda-based global property and casualty reinsurer and insurer, operating through U.S. Reinsurance, International, Bermuda and Insurance segments. This Form 10-K covers the fiscal year ended December 31, 2019; quarterly figures below identify the fourth quarter where reported. Unless noted, amounts are U.S. dollars.
Financial performance and position
| Metric | 2019 | 2018 | Change / context |
|---|---|---|---|
| Gross written premiums | $9.133bn | $8.475bn | +7.8%; Insurance grew 23.4%, while Reinsurance grew 2.1% |
| Net written premiums | $7.824bn | $7.414bn | +5.5% |
| Premiums earned | $7.404bn | $6.932bn | +6.8% |
| Total revenues | $8.231bn | $7.361bn | +11.8% |
| Net income | $1.009bn | $89.0m | Recovery from catastrophe-heavy 2018 |
| Diluted EPS | $24.70 | $2.17 | Reflects the earnings recovery |
| Net investment income | $647.1m | $581.2m | +11.3%; reported pre-tax yield was 3.3% |
| Net realized investment gains (losses) | $185.0m | $(127.1)m | 2019 included $167.0m of fair-value remeasurement gains |
| Combined ratio | 95.5% | 108.8% | Improved 13.3 points; below 100% indicates an underwriting profit |
| Operating cash flow | $1.852bn | $610.1m | Increased; includes timing effects from claims, premiums and taxes |
| Shareholders’ equity | $9.133bn | $7.861bn | +16.2%; book value per share was $223.85 |
| Loss and LAE reserves | $13.611bn | $13.119bn | +3.8%; reserves are estimates and may develop adversely |
At year-end, total investments and cash were $20.749bn, including $16.825bn of fixed maturities and $808.0m of cash. Cash and short-term investments totaled $1.223bn. Total debt was $633.8m at carrying value: $397.1m of senior notes and $236.8m of subordinated notes. No short-term borrowings were outstanding under the revolving credit line; the company reported compliance with credit-facility covenants.
Net catastrophe losses were $550.0m in 2019 versus $1.670bn in 2018. Prior-year reserve development was favorable by $63.6m in 2019, compared with adverse development of $387.1m in 2018, driven mainly by prior catastrophe claims. Segment underwriting results for 2019 were: U.S. Reinsurance gain $184.7m; International loss $102.2m; Bermuda gain $172.6m; and Insurance gain $81.1m.
Material changes and quarterly results
- Fourth-quarter 2019 gross written premiums were $2.436bn, compared with $2.278bn in fourth-quarter 2018. Quarterly net income was $217.6m versus a $385.3m loss; diluted EPS was $5.32 versus a loss of $9.58 per share.
- The 2019 earnings rebound primarily reflected lower catastrophe losses and less adverse prior-year catastrophe development, alongside higher premiums and investment income. The 2019 improvement also included realized investment gains; therefore, reported earnings were not solely from underwriting.
- Insurance premium growth continued the company’s strategic expansion of that platform. Insurance gross written premiums increased 23.4%; its combined ratio was 95.8%, compared with 95.3% in 2018.
- The filing revises prior-period financial statements for foreign-exchange errors involving premium funds held from reinsureds. Management said the errors were not material to prior periods, but revised 2018 net income from $103.6m to $89.0m and 2017 net income from $469.0m to $482.8m.
Outlook, commentary, risks and unusual items
Management provided no numerical earnings or premium guidance. It described the market as competitive, with ample capacity weighing on rates and terms in many lines, while noting some rate firming in catastrophe-affected areas and selected casualty lines. Management said it would prioritize underwriting profitability and portfolio diversification. It expected positive annual operating cash flow generally, but noted catastrophe claim payments could reduce or temporarily turn cash flow negative.
- Catastrophe exposure: Management estimated the largest single-zone 100-year event’s net economic loss at approximately 6% of year-end equity. Models are inherently uncertain and actual losses may materially exceed estimates or affect multiple zones.
- Reserving: Gross reserves were $13.6bn; management’s stated gross reserve range, excluding any guarantee of outcomes, was approximately $12.2bn–$15.0bn. Reserve adequacy was identified by the auditor as a critical audit matter. Long-tail, asbestos and environmental claims carry heightened estimation uncertainty.
- Reinsurance credit risk: Reinsurance receivables were $1.764bn; 38.7% was due from Mt. Logan Re collateralized segregated accounts. Ceding risk does not remove the company’s underlying obligations to policyholders.
- Capital and distributions: Insurance-subsidiary dividends are subject to regulatory limits. Everest Re had $373.9m available for dividends in 2020 without prior regulatory approval. The company paid $234.3m in shareholder dividends in 2019 and declared a $1.55-per-share quarterly dividend for payment in March 2020.
- Subsequent events: The filing said Australian wildfires, flooding and hailstorms, and the coronavirus outbreak, could adversely affect first-quarter 2020 results; the company could not estimate losses at filing time.
- Other items: CEO Juan Andrade succeeded Dominic Addesso effective January 1, 2020. The company amended and partially commuted a legacy retrocession treaty in December 2019, reducing gross asbestos and environmental reserves and related receivables by $43.4m, and raising its maximum retroceded liability to $450.3m. Ordinary-course insurance and reinsurance disputes remained outstanding; the company reported no other material litigation.
- Controls: Management and the auditor concluded internal control over financial reporting was effective at December 31, 2019.
Important facts for investors to verify
- Review the revised comparative financial statements and the foreign-exchange error’s effect on prior periods and quarterly trends.
- Assess reserve development, the range around booked loss reserves, and the exposure to long-tail, catastrophe and asbestos/environmental claims.
- Separate recurring underwriting and investment income from the 2019 investment fair-value gains when assessing earnings quality.
- Monitor catastrophe exposure, reinsurance recoverability and concentration in Mt. Logan Re, as well as the impact of subsequent-event losses on 2020 results.
- Confirm the sustainability of premium growth and underwriting profitability by segment, particularly the International segment’s 106.9% combined ratio.
- Track regulatory capital and dividend capacity, debt and credit-facility terms, and the effects of the CEO transition and competitive pricing conditions.