Everest Re Group, Ltd. — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. Everest provides property and casualty reinsurance and insurance through its Reinsurance and Insurance operations. Amounts below are in U.S. dollars unless stated otherwise.
Financial performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Premiums earned | $3,067 million | $2,656 million | $8,775 million | $7,603 million |
| Total revenues | $3,073 million | $2,925 million | $8,805 million | $8,746 million |
| Net investment income | $151 million | $293 million | $620 million | $960 million |
| Net income (loss) | $(319) million | $(73) million | $101 million | $948 million |
| Diluted EPS | $(8.22) | $(1.88) | $2.57 | $23.72 |
| Combined ratio | 112.0% | 112.2% | 98.8% | 100.1% |
Gross written premiums grew 5.2% in Q3 and 7.2% year to date; net written premiums rose 9.8% and 9.1%, respectively. Insurance premium growth reflected rate and exposure increases, new business and renewal retention. Reinsurance growth was driven mainly by casualty business, partly offset by lower property premiums.
Q3 underwriting loss was $367 million, compared with $323 million a year earlier. Year-to-date underwriting gain was $109 million, versus a $5 million loss. The Q3 loss ratio was 85.5%; year-to-date it improved to 71.7% from 73.3%. The Insurance segment’s year-to-date combined ratio improved to 95.9%, while Reinsurance’s was 99.8%.
Q3 catastrophe losses were $840 million, including an estimated $700 million from Hurricane Ian; year-to-date catastrophe losses were $1.04 billion. Q3 losses also included European hailstorms, Hurricane Fiona and Typhoon Nanmadol. The company recorded $45 million of underwriting losses related to the Ukraine/Russia war for the nine-month period. Favorable prior-year reserve development was $2 million year to date.
Financial position, cash flow and liquidity
- At September 30, total assets were $38.1 billion and total liabilities were $30.5 billion. Shareholders’ equity was $7.6 billion, down from $10.1 billion at December 31, 2021; book value per share declined 24.4% to $195.27.
- Loss and LAE reserves were $21.2 billion, up 11.6% from year-end. Reinsurance recoverables were $2.2 billion.
- Investments and cash totaled $28.5 billion, including $1.7 billion cash and $611 million short-term investments. Cash and short-term investments together were approximately $2.3 billion.
- Operating cash flow was $2.68 billion for the first nine months, versus $2.79 billion in 2021. Investing cash outflow was $2.20 billion; financing cash outflow was $292 million. Cash ended the period at $1.68 billion.
- Total debt was approximately $3.08 billion: $2.35 billion senior notes, $218 million subordinated notes and $519 million FHLB borrowings. The FHLB borrowings mature in November and December 2022.
- Management said liquid investments, operating cash flow and credit facilities provide ample near-term liquidity. Committed letter-of-credit capacity was up to $1.2 billion; additional uncommitted capacity of up to $340 million is not guaranteed to be available.
Material changes and unusual items
- Net investment income fell 35.4% year to date, primarily because limited partnership income declined $399 million, partly offset by higher fixed-maturity income. Limited partnership results can be volatile and are generally reported with a lag.
- Investment losses were $519 million year to date, versus $139 million of gains in 2021, driven mainly by $462 million of fair-value losses on equity securities and realized losses on dispositions.
- Higher interest rates contributed to $2.2 billion of after-tax unrealized investment depreciation in other comprehensive income. Accumulated other comprehensive loss reached $2.35 billion. The company reported $2.3 billion of gross unrealized depreciation on available-for-sale fixed maturities, attributing losses mainly to rates and non-issuer-specific spreads; management stated it did not intend, and was more likely than not would not need, to sell the securities before recovery.
- During Q3, $722 million fair value of available-for-sale securities was reclassified to held-to-maturity. The transfer-date unrealized loss of $53 million remains in accumulated other comprehensive income and will be amortized over the securities’ remaining lives.
- Shareholders received $191 million in dividends year to date; the company repurchased $60 million of shares. The Q3 dividend declared was $1.65 per share.
Outlook, commentary and risks
Management described pricing as generally firming, particularly in casualty lines affected by prior losses, while noting conditions vary by business line and geography. The filing provides no specific earnings or premium guidance. Management said catastrophe claim payments could reduce operating cash flow and potentially make it negative in the near term, but stated liquidity was sufficient for expected catastrophe claims.
Key risks include catastrophe severity and frequency, uncertainty in loss-reserve estimates, market competition, investment-market volatility and interest-rate sensitivity, foreign exchange movements, and the evolving effects of the Ukraine/Russia war and related sanctions. The company had $2.5 billion of contractual commitments to invest in limited partnerships and private-placement loan securities. Routine insurance and reinsurance disputes are ongoing; the company reported no other material litigation or arbitration. Management reported effective disclosure controls and no material change in internal control over financial reporting.
Important facts for investors to verify
- Hurricane Ian loss estimates and any subsequent development, including the potential recovery under catastrophe protection.
- Reserve adequacy and the effect of catastrophe, inflation and Ukraine/Russia-related claims on future incurred losses and payments.
- Whether investment fair values and limited partnership results recover or deteriorate, and the liquidity implications of the held-to-maturity reclassification.
- Near-term cash needs, including the maturity of $519 million of FHLB borrowings and the timing of investment commitments.
- Premium growth and rate adequacy relative to rising claims and underwriting expenses across Reinsurance and Insurance.