Everest Group, Ltd. — Q3 2023 Form 10-Q
Business and period: Bermuda-domiciled insurer and reinsurer operating through Reinsurance and Insurance segments. This unaudited filing covers the three and nine months ended September 30, 2023, compared with the corresponding 2022 periods. The company changed its name from Everest Re Group, Ltd. to Everest Group, Ltd. effective July 10, 2023.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Gross written premiums | $4.391bn | $3.680bn | $12.314bn | $10.313bn |
| Premiums earned | $3.513bn | $3.067bn | $9.865bn | $8.775bn |
| Net investment income | $406m | $151m | $1.023bn | $620m |
| Net investment gains (losses) | $(31)m | $(129)m | $(21)m | $(519)m |
| Net income (loss) | $678m | $(319)m | $1.713bn | $101m |
| Diluted earnings per share | $15.63 | $(8.22) | $41.49 | $2.57 |
| Combined ratio | 91.4% | 112.0% | 90.1% | 98.8% |
| Operating cash flow | — | — | $3.536bn | $2.680bn |
Q3 pre-tax income was $725m, versus a $401m loss a year earlier; nine-month pre-tax income was $1.883bn, versus $20m. No separate quarterly cash-flow figure is provided in the filing.
Balance sheet, liquidity and capital
- At September 30, total assets were $46.318bn, liabilities $35.092bn and shareholders’ equity $11.226bn, compared with $39.966bn, $31.526bn and $8.441bn at December 31, 2022. Book value per share was $258.71, up 20% from $215.54.
- Investments and cash totaled $34.635bn, including $25.159bn of available-for-sale fixed maturities and $4.168bn of cash and short-term investments. Fixed-income portfolio duration was 2.7 years and composite credit quality AA-.
- Gross loss and LAE reserves were $23.833bn, up from $22.065bn. Debt totaled $3.085bn: $2.348bn senior notes, $218m subordinated notes and $519m FHLB borrowings.
- Nine-month financing cash flow was $1.188bn, including $1.445bn net proceeds from a May public share offering and $212m of dividends paid. The company reported no open-market share repurchases in the first three quarters.
Material changes and management commentary
- Written premiums grew 19.3% in Q3 and 19.4% year to date. Reinsurance gross written premiums increased 26.2% in Q3 and 24.3% year to date; Insurance increased 3.8% and 9.4%, respectively.
- The combined ratio improved substantially year over year, mainly because catastrophe losses were lower than in 2022, when Hurricane Ian drove significant claims. Q3 2023 catastrophe losses were $175m versus $840m; nine-month losses were $317m versus $1.040bn. Attritional losses rose with exposure and earned-premium growth.
- Net investment income benefited from higher fixed-maturity and short-term investment income in the rising-rate environment. Limited-partnership results may be volatile and are generally reported with a lag.
- Available-for-sale fixed maturities had $2.1bn of gross unrealized depreciation at September 30. Management attributed losses to interest rates and non-issuer-specific credit spreads, reported no projected cash-flow shortfalls, and said it did not intend, and was not more likely than not, to have to sell before recovery.
- Management described market conditions as generally supportive of rates and terms, particularly property catastrophe excess-of-loss, while noting softer conditions in some lines. It cited a diversified global platform, capital strength and liquidity. The filing provides no quantified earnings or premium guidance.
Risks, contingencies and unusual items
- Catastrophe losses, reserve-estimation uncertainty, competitive pricing, investment performance, interest-rate and foreign-exchange movements, and reinsurer or counterparty performance may materially affect results. Management cautions that reserves are estimates and could increase materially.
- A CAT bond with up to $350m of protection attaches at a $48.1bn PCS industry-loss threshold. The October 2023 industry estimate of $48.4bn exceeded attachment; the company included an estimated $20m recovery, subject to revision. Total current Hurricane Ian reinsurance recoverables were stated as $50m.
- The company had $2.8bn of contractual commitments to limited partnerships and private-placement loan securities and $2.2bn of outstanding commitments to fund non-consolidated VIE investments; these commitment disclosures may overlap and should not be added without checking the notes.
- The filing identifies ordinary-course insurance and reinsurance disputes but no other material litigation or arbitration. A potential Bermuda 15% corporate income tax for qualifying multinational groups, proposed for effectiveness in 2025, could affect net income; implementation and impact remained subject to further guidance.
- Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Key facts for investors to verify
- Whether premium growth and improved combined ratios persist after the unusually high 2022 catastrophe comparison, and how attritional loss trends develop.
- Reserve adequacy, particularly as gross reserves rose and management notes that ultimate claim liabilities may differ materially from estimates.
- Investment-portfolio exposure to rates and credit spreads, the $2.1bn unrealized depreciation, and the sensitivity of reported earnings to limited-partnership valuations.
- The final CAT-bond recovery and other catastrophe recoverables as industry loss estimates develop.
- Funding calls on investment commitments, availability of committed and uncommitted letter-of-credit capacity, and the eventual effect of Bermuda tax changes.