UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
_X_ Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 2018
___ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Commission file number 1-14527
EVEREST REINSURANCE HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction
of incorporation or organization)
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22-3263609
(I.R.S Employer
Identification No.)
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477 Martinsville Road
Post Office Box 830
Liberty Corner, New Jersey 07938-0830
(908) 604-3000
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive office)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
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Name of Each Exchange on Which Registered
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4.868% Senior Notes Due 2044
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NYSE
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6.60% Long Term Notes Due 2067
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NYSE
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Securities registered pursuant to Section 12(g) of the Act: None
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Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
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Accelerated filer
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Non-accelerated filer
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X
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Smaller reporting company
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Emerging growth company
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Indicate by check mark if the registrant is an emerging growth company and has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.)
The aggregate market value on June 30, 2018, the last business day of the registrant’s most recently completed second quarter, of the voting
stock held by non-affiliates of the registrant was zero.
At March 15, 2019, the number of shares outstanding of the registrant common shares was 1,000, all of which are owned by Everest Underwriting
Group (Ireland) Limited, a wholly-owned direct subsidiary of Everest Re Group, Ltd.
The Registrant meets the conditions set forth in General Instruction I(1)(a) and (b) of Form 10-K and is therefore filing this form with the
reduced disclosure format permitted by General Instruction I of Form 10-K.
EVEREST REINSURANCE HOLDINGS, INC.
Table of Contents
FORM 10-K
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Page
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PART I
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Item 1.
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Business
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1
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Item 1A.
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Risk Factors
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6
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Item 1B.
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Unresolved Staff Comments
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13
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Item 2.
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Properties
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13
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Item 3.
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Legal Proceedings
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13
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Item 4.
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Mine Safety Disclosures
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14
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PART II
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Item 5.
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Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
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14
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Item 6.
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Selected Financial Data
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14
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Item 7.
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Management’s Discussion and Analysis of Financial Condition and Results of
Operations
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15
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Item 7A.
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Quantitative and Qualitative Disclosures About Market Risk
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29
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Item 8.
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Financial Statements and Supplementary Data
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31
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Item 9.
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Changes in and Disagreements With Accountants on Accounting and Financial
Disclosure
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32
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Item 9A.
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Controls and Procedures
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32
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Item 9B.
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Other Information
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32
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PART III
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Item 10.
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Directors, Executive Officers and Corporate Governance
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33
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Item 11.
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Executive Compensation
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33
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Item 12.
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Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
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33
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Item 13.
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Certain Relationships and Related Transactions, and Director Independence
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33
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Item 14.
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Principal Accountant Fees and Services
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33
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PART IV
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Item 15.
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Exhibits and Financial Statement Schedules
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34
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PART I
Unless otherwise indicated, all financial data in this document have been prepared using accounting principles generally accepted in the
United States of America (“GAAP”). As used in this document, “Holdings” means Everest Reinsurance Holdings, Inc., a Delaware company and direct subsidiary of Everest Underwriting Group (Ireland) Limited (“Holdings Ireland”); “Group” means
Everest Re Group, Ltd. (Holdings Ireland’s parent); “Bermuda Re” means Everest Reinsurance (Bermuda), Ltd., a subsidiary of Group; “Everest Re” means Everest Reinsurance Company and its subsidiaries, a subsidiary of Holdings (unless the
context otherwise requires); and the “Company”, “we”, “us”, and “our” means Holdings and its subsidiaries (unless the context otherwise requires).
ITEM 1. BUSINESS
The Company.
Holdings, a Delaware corporation, is a wholly-owned subsidiary of Holdings Ireland. On December 30, 2008, Group contributed Holdings to its
recently established Irish holding company, Holdings Ireland. Holdings Ireland is a direct subsidiary of Group and serves as a holding company for the U.S. reinsurance and insurance subsidiaries. Group is a Bermuda holding company whose
common shares are publicly traded in the U.S. on the New York Stock Exchange under the symbol “RE”. Group files an annual report on Form 10-K with the Securities and Exchange Commission (the “SEC”) with respect to its consolidated
operations, including Holdings.
The Company’s principal business, conducted through its operating segments, is the underwriting of reinsurance and insurance in the U.S. and
international markets. The Company had gross written premiums, in 2018, of $6.6 billion, with approximately 70% representing reinsurance and 30% representing insurance. Stockholder’s equity at December 31, 2018 was $5.0 billion. The
Company underwrites reinsurance both through brokers and directly with ceding companies, giving it the flexibility to pursue business based on the ceding company’s preferred reinsurance purchasing method. The Company underwrites insurance
through brokers, surplus lines brokers and general agent relationships. Holdings’ active operating subsidiaries are each rated A+ (“Superior”) by A.M. Best Company (“A.M. Best”), a leading provider of insurer ratings that assigns financial
strength ratings to insurance companies based on their ability to meet their obligations to policyholders.
Following is a summary of the Company’s operating subsidiaries:
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Everest Re, a Delaware insurance company and a direct subsidiary of Holdings, is a licensed property and casualty insurer and/or
reinsurer in all states, the District of Columbia, Puerto Rico and Guam and is authorized to conduct reinsurance business in Canada, Singapore and Brazil. Everest Re underwrites property and casualty reinsurance for insurance and
reinsurance companies in the U.S. and international markets. Everest Re has engaged in reinsurance transactions with Bermuda Re, Everest International Reinsurance, Ltd. (“Everest International”), Mt. Logan Re, Ltd. (“Mt. Logan
Re”) and Everest Insurance Company of Canada (“Everest Canada”), which are affiliated companies, primarily driven by enterprise risk and capital management considerations under which business is transacted at market rates and
terms. At December 31, 2018, Everest Re had statutory surplus of $3.7 billion.
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Everest National Insurance Company (“Everest National”), a Delaware insurance company and a direct subsidiary of Everest Re, is
licensed in 50 states, the District of Columbia and Puerto Rico and is authorized to write property and casualty insurance on an admitted basis in the jurisdictions in which it is licensed. The majority of Everest National’s
business is reinsured by its parent, Everest Re.
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Everest Indemnity Insurance Company (“Everest Indemnity”), a Delaware insurance company and a direct subsidiary of Everest Re, writes
excess and surplus lines insurance business in the U.S. on a non-admitted basis. Excess and surplus lines insurance is specialty property and liability coverage that an insurer not licensed to write insurance in a particular
jurisdiction is permitted to provide to insureds when the specific specialty coverage is unavailable from admitted insurers. Everest Indemnity is licensed in Delaware and is eligible to write business on a non-admitted basis in all
other states, the District of Columbia and Puerto Rico. The majority of Everest Indemnity’s business is reinsured by its parent, Everest Re.
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Everest Security Insurance Company (“Everest Security”), a Georgia insurance company and a direct subsidiary of Everest Re, writes
property and casualty insurance on an admitted basis in Georgia and Alabama and is approved as an eligible surplus lines insurer in Delaware. The majority of Everest Security’s business is reinsured by its parent, Everest Re.
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Everest Denali Insurance Company (“Everest Denali”), a Delaware insurance company and a direct subsidiary of Everest Re, is licensed
to write property and casualty insurance in 49 states and the District of Columbia.
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Everest Premier Insurance Company (“Everest Premier”), a Delaware insurance company and a direct subsidiary of Everest Re, is licensed
to write property and casualty insurance in 49 states and the District of Columbia.
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Everest International Assurance, Ltd. (“Everest Assurance”), a Bermuda company and a direct subsidiary of Holdings is registered in
Bermuda as a Class 3A general business insurer and as a Class C long-term insurer. Everest Assurance has made a one-time election under section 953(d) of the U.S. Internal Revenue Code to be a U.S. income tax paying “Controlled
Foreign Corporation.” By making this election, Everest Assurance will be authorized to write life reinsurance and casualty reinsurance in both Bermuda and the U.S.
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Heartland Crop Insurance Company (“Heartland”), a Kansas based managing general agent and a direct subsidiary of Holdings, was
acquired on January 2, 2011. Heartland specializes in crop insurance, which is written mainly through Everest National. Effective August 24, 2016, the Company sold Heartland to CGB Diversified Services, Inc. (“CGB”). The
operating results of Heartland for the period owned are included within the Company’s financial statements.
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Reinsurance Industry Overview.
Reinsurance is an arrangement in which an insurance company, the reinsurer, agrees to indemnify another insurance or reinsurance company, the
ceding company, against all or a portion of the insurance risks underwritten by the ceding company under one or more insurance contracts. Reinsurance can provide a ceding company with several benefits, including a reduction in its net
liability on individual risks or classes of risks, catastrophe protection from large and/or multiple losses and/or a reduction in operating leverage as measured by the ratio of net premiums and reserves to capital. Reinsurance also provides
a ceding company with additional underwriting capacity by permitting it to accept larger risks and write more business than would be acceptable relative to the ceding company’s financial resources. Reinsurance does not discharge the ceding
company from its liability to policyholders; rather, it reimburses the ceding company for covered losses.
There are two basic types of reinsurance arrangements: treaty and facultative. Treaty reinsurance obligates the ceding company to cede and the
reinsurer to assume a specified portion of a type or category of risks insured by the ceding company. Treaty reinsurers do not separately evaluate each of the individual risks assumed under their treaties, instead, the reinsurer relies upon
the pricing and underwriting decisions made by the ceding company. In facultative reinsurance, the ceding company cedes and the reinsurer assumes all or part of the risk under a single insurance contract. Facultative reinsurance is
negotiated separately for each insurance contract that is reinsured. Facultative reinsurance, when purchased by ceding companies, usually is intended to cover individual risks not covered by their reinsurance treaties because of the dollar
limits involved or because the risk is unusual.
Both treaty and facultative reinsurance can be written on either a pro rata basis or an excess of loss basis. Under pro rata reinsurance, the ceding company
and the reinsurer share the premiums as well as the losses and expenses in an agreed proportion. Under excess of loss reinsurance, the reinsurer indemnifies the ceding company against all or a specified portion of losses and expenses in excess
of a specified dollar amount, known as the ceding company's retention or reinsurer's attachment point, generally subject to a negotiated reinsurance contract limit.
In pro rata reinsurance, the reinsurer generally pays the ceding company a ceding commission. The ceding commission generally is based on the
ceding company’s cost of acquiring the business being reinsured (commissions, premium taxes, assessments and miscellaneous administrative expense and may contain profit sharing provisions, whereby the ceding commission is adjusted based on
loss experience). Premiums paid by the ceding company to a reinsurer for excess of loss reinsurance are not directly proportional to the premiums that the ceding company receives because the reinsurer does not assume a proportionate risk.
There is usually no ceding commission on excess of loss reinsurance.
Reinsurers may purchase reinsurance to cover their own risk exposure. Reinsurance of a reinsurer's business is called a retrocession.
Reinsurance companies cede risks under retrocessional agreements to other reinsurers, known as retrocessionaires, for reasons similar to those that cause insurers to purchase reinsurance: to reduce net liability on individual or classes of
risks, protect against catastrophic losses, stabilize financial ratios and obtain additional underwriting capacity.
Reinsurance can be written through intermediaries, generally professional reinsurance brokers, or directly with ceding companies. From a ceding
company's perspective, the broker and the direct distribution channels have advantages and disadvantages. A ceding company's decision to select one distribution channel over the other will be influenced by its perception of such advantages
and disadvantages relative to the reinsurance coverage being placed.
Business Strategy.
The Company’s business strategy is to sustain its leadership position within targeted reinsurance and insurance markets, provide effective
management throughout the property and casualty underwriting cycle and thereby achieve an attractive return for its stockholder. The Company’s underwriting strategies seek to capitalize on its i) financial strength and capacity, ii) global
franchise, iii) stable and experienced management team, iv) diversified product and distribution offerings, v) underwriting expertise and disciplined approach, vi) efficient and low-cost operating structure and vii) effective enterprise risk
management practices.
The Company offers treaty and facultative reinsurance and admitted and non-admitted insurance. The Company’s products include the full range of
property and casualty reinsurance and insurance coverages, including marine, aviation, surety, errors and omissions liability (“E&O”), directors’ and officers’ liability (“D&O”), medical malpractice, other specialty lines, accident
and health (“A&H”) and workers’ compensation.
The Company’s underwriting strategies emphasizes underwriting profitability over premium volume. Key elements of this strategy include careful
risk selection, appropriate pricing through strict underwriting discipline and adjustment of the Company’s business mix in response to changing market conditions. The Company focuses on reinsuring companies that effectively manage the
underwriting cycle through proper analysis and pricing of underlying risks and whose underwriting guidelines and performance are compatible with its objectives.
The Company’s underwriting strategies emphasize flexibility and responsiveness to changing market conditions. The Company believes that its
existing strengths, including its broad underwriting expertise, global presence, strong financial ratings and substantial capital, facilitate adjustments to its mix of business geographically, by line of business and by type of coverage,
allowing it to participate in those market opportunities that provide the greatest potential for underwriting profitability. The Company’s insurance operations complement these strategies by accessing business that is not available on a
reinsurance basis. The Company carefully monitors its mix of business across all operations to avoid unacceptable geographic or other risk concentrations.
Commencing 2015, the Company initiated a strategic build out of its insurance platform through
the investment in key leadership hires which in turn has brought significant underwriting talent and stronger direction in achieving its insurance program strategic goals of increased premium volume and improved underwriting results. Recent
growth is coming from highly diversified areas including newly launched lines of business, as well as, product and geographic expansion in existing lines of business. The Company is building a world-class insurance platform capable of
offering products across lines and geographies, complementing its leading global reinsurance franchise.
Capital Transactions.
The Company’s business operations are in part dependent on its financial strength and financial strength
ratings, and the market’s perception of its financial strength. The Company stockholder’s equity was $5,044.7 million and $5,412.7 million at December 31, 2018 and 2017, respectively. The Company possesses significant financial flexibility
with access to the debt markets and, through its ultimate parent, equity markets, as a result of its perceived financial strength, as evidenced by the financial strength ratings as assigned by independent rating agencies. The Company’s
capital position remains strong, commensurate with its financial ratings and the Company has ample liquidity to meet its financial obligations for the foreseeable future.
Financial Strength Ratings.
The following table shows the current financial strength ratings of the Company’s operating subsidiaries as
reported by A.M. Best, Standard & Poor’s Financial Services, LLC (“Standard & Poor’s”) and Moody’s Investors Services, Inc. (“Moody’s”). These ratings are based upon factors of concern to policyholders and should not be considered
an indication of the degree or lack of risk involved in a direct or indirect equity investment in an insurance or reinsurance company.
All of the below-mentioned ratings are continually monitored and revised, if necessary, by each of the rating agencies. The ratings presented
in the following table were in effect as of January 29, 2019.
The Company believes that its ratings are important as
they provide the Company’s customers and its investors with an independent assessment of the Company’s financial strength using a rating scale that provides for relative comparisons. Strong financial ratings are particularly important for
reinsurance companies. Ceding companies must rely on their reinsurers to pay covered losses well into the future. As a result, a highly rated reinsurer is generally preferred.
Operating Subsidiary:
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A.M. Best
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Standard & Poor's
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Moody's
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Everest Re
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A+ (Superior)
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A+ (Strong)
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A1 (upper-medium)
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Everest National
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A+ (Superior)
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A+ (Strong)
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Not Rated
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Everest Indemnity
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A+ (Superior)
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A+ (Strong)
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Not Rated
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Everest Security
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A+ (Superior)
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Not Rated
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Not Rated
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Everest International Assurance, Ltd.
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A+ (Superior)
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A (Strong)
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Not Rated
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Everest Denali
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A+ (Superior)
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Not Rated
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Not Rated
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Everest Premier
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A+ (Superior)
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Not Rated
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Not Rated
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A.M. Best states that the “A+” (“Superior”) rating is assigned to those companies which, in its opinion, have a superior ability to meet their ongoing
insurance policy and contract obligations based on A.M. Best’s comprehensive quantitative and qualitative evaluation of a company’s balance sheet strength, operating performance and business profile. A.M. Best affirmed these ratings on March
16, 2018. Standard & Poor’s states that the “A+”/”A” ratings are assigned to those insurance companies which, in its opinion, have strong financial security characteristics with respect to their ability to pay under its insurance policies
and contracts in accordance with their terms. Standard & Poor’s affirmed these ratings on July 28, 2018. Moody’s states that an “A1” rating is assigned to companies that, in their opinion, offer upper-medium grade security and are subject
to low credit risk. Moody’s affirmed these ratings on September 26, 2018.
Subsidiaries other than Everest Re may not be rated by some or any rating agencies because such ratings are not considered essential by the
individual subsidiary’s customers or because of the limited nature of the subsidiary’s operations or because the subsidiaries are newly established and have not yet been rated by the agencies.
Debt Ratings.
The following table shows the debt ratings by A.M. Best, Standard & Poor’s and Moody’s of the Holdings’ senior notes due June 1, 2044 and
long term notes due May 1, 2067 both of which are considered investment grade. Debt ratings are the rating agencies’ current assessment of the credit worthiness of an obligor with respect to a specific obligation.
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A.M. Best
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Standard & Poor's
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Moody's
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Senior Notes
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a-
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(Strong)
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A-
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(Strong)
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Baa1
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(Medium Grade)
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Long Term Notes
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bbb
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(Adequate)
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BBB
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(Adequate)
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Baa2
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(Medium Grade)
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Competition.
The worldwide reinsurance and insurance businesses are highly competitive, as well as cyclical by product and market. As such, financial
results tend to fluctuate with periods of constrained availability, higher rates and stronger profits followed by periods of abundant capacity, lower rates and constrained profitability. Competition in the types of reinsurance and insurance
business that we underwrite is based on many factors, including the perceived overall financial strength of the reinsurer or insurer, ratings of the reinsurer or insurer by A.M. Best and/or Standard & Poor’s, underwriting expertise, the
jurisdictions where the reinsurer or insurer is licensed or otherwise authorized, capacity and coverages offered, premiums charged, other terms and conditions of the reinsurance and insurance business offered, services offered, speed of
claims payment and reputation and experience in lines written. Furthermore, the market impact from these competitive factors related to reinsurance and insurance is generally not consistent across lines of business, domestic and
international geographical areas and distribution channels.
The Company competes in the U.S. and international reinsurance and insurance markets with numerous global competitors. The Company’s competitors
include independent reinsurance and insurance companies, subsidiaries or affiliates of established worldwide insurance companies, reinsurance departments of certain insurance companies, domestic and international underwriting operations,
including underwriting syndicates at Lloyd’s of London and certain government sponsored risk transfer vehicles. Some of these competitors have greater financial resources than we do and have established long term and continuing business
relationships, which can be a significant competitive advantage. In addition, the lack of strong barriers to entry into the reinsurance business and recently, the securitization of reinsurance and insurance risks through capital markets
provide additional sources of potential reinsurance and insurance capacity and competition.
Worldwide insurance and reinsurance market conditions continued to be very competitive, particularly in the property catastrophe and casualty
reinsurance lines of business. Generally, there was ample insurance and reinsurance capacity relative to demand, as well as, additional capital from the capital markets through insurance linked financial instruments. These financial
instruments such as side cars, catastrophe bonds and collateralized reinsurance funds, provide capital markets with access to insurance and reinsurance risk exposure. The capital markets demand for these products is being primarily driven by
the current low interest environment and the desire to achieve greater risk diversification and potentially higher returns on their investments. This increased competition is generally having a negative impact on rates, terms and conditions;
however, the impact varies widely by market and coverage.
Rates tend to fluctuate by specific region and products, particularly areas recently impacted by large catastrophic events. There
were numerous natural catastrophes in 2018, with total industry losses estimated to be $90 billion. The costliest event was the Camp Wildfire in California, the deadliest and most destructive California fire on record. These 2018 catastrophe
losses followed another record year of catastrophes in 2017 where total industry losses for the worldwide events were estimated at $140 billion. These catastrophe losses included an unprecedented series of catastrophes in the third quarter of
2017 with Hurricanes Harvey, Irma and Maria, as well as a significant earthquake in Mexico City. Additional catastrophe events occurred in the fourth quarter of 2017 with the wildfires in California and Hurricanes Nate and Ophelia. During
2016, catastrophe losses included the Fort McMurray Canadian wildfire, Hurricane Matthew which affected a large area of the Caribbean and southeastern United States, storms and an earthquake in Ecuador. While the future impact on market
conditions from these catastrophes cannot be determined at this time, there was some firming in the markets impacted by the 2016 catastrophes and as
catastrophe losses increased in 2017, there is a growing industry consensus that there will be some firming of (re)insurance rates for the areas impacted by
the catastrophes.
Commencing in 2015, the Company initiated a strategic build out of its insurance platform through the investment in key leadership hires which
in turn has brought significant underwriting talent and stronger direction in achieving its insurance program strategic goals of increased premium volume and improved underwriting results. Recent growth is coming from highly diversified
areas including newly launched lines of business, as well as, product and geographic expansion in existing lines of business. The Company is building a world-class insurance platform capable of offering products across lines and geographies,
complementing its leading global reinsurance franchise.
Overall, the Company believes that given its size, strong ratings, distribution system, reputation, expertise and capital market vehicle
activity the current marketplace conditions provide profit opportunities. The Company continues to employ its strategy of targeting business that offers the greatest profit potential, while maintaining balance and diversification in its
overall portfolio.
Employees.
As of February 1, 2019, the Company employed 1,237 persons. Management believes that employee relations are good. None of the Company’s
employees are subject to collective bargaining agreements, and the Company is not aware of any current efforts to implement such agreements.
Available Information.
The Company’s Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports are
available free of charge through the Company’s internet website at http://www.everestregroup.com as soon as reasonably practicable after such reports are electronically filed with the SEC.
ITEM 1A. RISK FACTORS
In addition to the other information provided in this report, the following risk factors should be considered when evaluating an investment in
our securities. If the circumstances contemplated by the individual risk factors materialize, our business, financial condition and results of operations could be materially and adversely affected and our ability to service our debt, our
debt ratings and our ability to issue new debt could decline significantly.
RISKS RELATING TO OUR BUSINESS
Fluctuations in the financial markets could result in investment losses.
Prolonged and severe disruptions in the overall public debt and equity markets, such as occurred during 2008, could result in significant
realized and unrealized losses in our investment portfolio. Although financial markets have significantly improved since 2008, they could deteriorate in the future. There could also be disruption in individual market sectors, such as
occurred in the energy sector in recent years. Such declines in the financial markets could result in significant realized and unrealized losses on investments and could have a material adverse impact on our results of operations, equity,
business and insurer financial strength and debt ratings.
Our results could be adversely affected by catastrophic events.
We are exposed to unpredictable catastrophic events, including weather-related and other natural catastrophes, as well as acts of terrorism.
Any material reduction in our operating results caused by the occurrence of one or more catastrophes could inhibit our ability to pay dividends or to meet our interest and principal payment obligations. By way of illustration, during the
past five calendar years, pre-tax catastrophe losses, net of reinsurance, were as follows:
Calendar year:
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Pre-tax catastrophe losses
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(Dollars in millions)
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2018
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$
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1,712.6
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2017
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941.4
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2016
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109.2
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2015
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31.9
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2014
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18.2
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Our losses from future catastrophic events could exceed our projections.
We use projections of possible losses from future catastrophic events of varying types and magnitudes as a strategic underwriting tool. We use
these loss projections to estimate our potential catastrophe losses in certain geographic areas and decide on the placement of retrocessional coverage or other actions to limit the extent of potential losses in a given geographic area. These
loss projections are approximations, reliant on a mix of quantitative and qualitative processes, and actual losses may exceed the projections by a material amount, resulting in a material adverse effect on our financial condition and results
of operations.
If our loss reserves are inadequate to meet our actual losses, our net income would be reduced or we could incur a loss.
We are required to maintain reserves to cover our estimated ultimate liability of losses and loss adjustment expenses (“LAE”) for both reported
and unreported claims incurred. These reserves are only estimates of what we believe the settlement and administration of claims will cost based on facts and circumstances known to us. In setting reserves for our reinsurance liabilities, we
rely on claim data supplied by our ceding companies and brokers and we employ actuarial and statistical projections. The information received from our ceding companies is not always timely or accurate, which can contribute to inaccuracies in
our loss projections. Because of the uncertainties that surround our estimates of loss and LAE reserves, we cannot be certain that ultimate losses and LAE payments will not exceed our estimates. If our reserves are deficient, we would be
required to increase loss reserves in the period in which such deficiencies are identified which would cause a charge to our earnings and a reduction of capital. By way of illustration, during the past five calendar years, the reserve
re-estimation process resulted in a decrease to our pre-tax net income in 2018, an increase for the years 2017 through 2015 and a decrease in 2014:
Calendar year:
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Effect on pre-tax net income
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(Dollars in millions)
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2018
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$
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558.8
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decrease
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2017
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117.7
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increase
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2016
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91.7
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increase
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2015
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|
|
6.5
|
|
increase
|
|
2014
|
|
|
39.2
|
|
decrease
|
|
The difficulty in estimating our reserves is significantly more challenging as it relates to reserving for potential asbestos and environmental (“A&E”)
liabilities. At December 31, 2018, 3.4% of our gross reserves were comprised of A&E reserves. A&E liabilities are especially hard to estimate for many reasons, including the long delays between exposure and manifestation of any bodily
injury or property damage, difficulty in identifying the source of the asbestos or environmental contamination, long reporting delays and difficulty in properly allocating liability for the asbestos or environmental damage. Legal tactics and
judicial and legislative developments affecting the scope of insurers’ liability, which can be difficult to predict, also contribute to uncertainties in estimating reserves for A&E liabilities.
The failure to accurately assess underwriting risk and establish adequate premium rates could reduce our net income or
result in a net loss.
Our success depends on our ability to accurately assess the risks associated with the businesses on which the risk is retained. If we fail to
accurately assess the risks we retain, we may fail to establish adequate premium rates to cover our losses and LAE. This could reduce our net income and even result in a net loss.
In addition, losses may arise from events or exposures that are not anticipated when the coverage is priced. In addition to unanticipated
events, we also face the unanticipated expansion of our exposures, particularly in long-tail liability lines. An example of this is the expansion over time of the scope of insurers’ legal liability within the mass tort arena, particularly
for A&E exposures discussed above.
Decreases in pricing for property and casualty reinsurance and insurance could reduce our net income.
The worldwide reinsurance and insurance businesses are highly competitive, as well as cyclical by product and market. These
cycles, as well as other factors that influence aggregate supply and demand for property and casualty insurance and reinsurance products, are outside of our control. The supply of (re)insurance is driven by prevailing prices and levels of
capacity that may fluctuate in response to a number of factors including large catastrophic losses and investment returns being realized in the insurance industry. Demand for (re)insurance is influenced by underwriting results of insurers and
insureds, including catastrophe losses, and prevailing general economic conditions. If any of these factors were to result in a decline in the demand for (re)insurance or an overall increase in (re)insurance capacity, our net income could
decrease.
If rating agencies downgrade the ratings of our insurance subsidiaries, future prospects for growth and profitability could
be significantly and adversely affected.
Our active insurance company subsidiaries currently hold financial strength ratings assigned by third-party rating agencies which assess and
rate the claims paying ability and financial strength of insurers and reinsurers. Our active subsidiaries that have been rated carry an “A+” (“Superior”) rating from A.M. Best. Everest Re, Everest National and Everest Indemnity hold an “A+”
(“Strong”) rating from Standard & Poor’s and Everest Assurance holds an “A” (“Strong”) rating from this same agency. Everest Re holds an “A1” (“upper-medium grade”) rating from Moody’s. Financial strength ratings are used by client
companies and agents and brokers that place the business as an important means of assessing the financial strength and quality of reinsurers. A downgrade or withdrawal of any of these ratings might adversely affect our ability to market our
insurance products and could have a material and adverse effect on future prospects for growth and profitability.
Consistent with market practice, much of our treaty reinsurance business allows the ceding company to terminate the contract or seek
collateralization of our obligations in the event of a rating downgrade below a certain threshold. The termination provision would generally be triggered if a rating fell below A.M. Best’s A- rating level, which is three levels below Everest
Re’s current rating of A+. To a lesser extent, Everest Re also has modest exposure to reinsurance contracts that contain provisions for obligatory funding of outstanding liabilities in the event of a rating agency downgrade. Those provisions
would also generally be triggered if Everest Re’s rating fell below A.M. Best’s A- rating level.
The failure of our insureds, intermediaries and reinsurers to satisfy their obligations to us could reduce our income.
In accordance with industry practice, we have uncollateralized receivables from insureds, agents and brokers and/or rely on agents and brokers
to process our payments. We may not be able to collect amounts due from insureds, agents and brokers, resulting in a reduction to net income.
We are subject to credit risk of reinsurers in connection with retrocessional arrangements because the transfer of risk to a reinsurer does not
relieve us of our liability to the insured. In addition, reinsurers may be unwilling to pay us even though they are able to do so. The failure of one or more of our reinsurers to honor their obligations to us in a timely fashion would impact
our cash flow and reduce our net income and could cause us to incur a significant loss.
If we are unable or choose not to purchase reinsurance and transfer risk to the reinsurance markets, our net income could be
reduced or we could incur a net loss in the event of unusual loss experience.
We are generally less reliant on the purchase of reinsurance than many of our competitors, in part because of our strategic emphasis on
underwriting discipline and management of the cycles inherent in our business. We try to separate our risk taking process from our risk mitigation process in order to avoid developing too great a reliance on reinsurance. Historically, we
generally purchased reinsurance from other third parties only when we expect a net benefit. With the expansion of the capital markets into insurance linked financial instruments, we increased our use of capital market products for
catastrophe reinsurance starting in 2014. In addition, some of our quota share contracts with larger retrocessions were increased during 2014. The percentage of business that we reinsure may vary considerably from year to year, depending on
our view of the relationship between cost and expected benefit for the contract period.
We entered into affiliated whole account quota share reinsurance agreements for 2002 through 2017 with Bermuda Re but we did not renew the quota
share reinsurance agreement with Bermuda Re as of December 31, 2017. We believe that the terms, conditions and pricing of the quota share agreements reflect arm’s length market conditions. These affiliated reinsurance arrangements allow us
to more effectively leverage our capital, expertise, distribution platform and market presence than our stand alone capital position would otherwise allow.
Percentage of ceded written premiums to gross written premiums
|
|
2018
|
|
2017
|
|
2016
|
|
2015
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
Unaffiliated
|
|
14.7%
|
|
14.6%
|
|
13.6%
|
|
8.2%
|
|
9.3%
|
Affiliated
|
|
8.7%
|
|
38.4%
|
|
45.9%
|
|
49.9%
|
|
48.2%
|
If we are unable to purchase affiliated or unaffiliated reinsurance in the future, we may have to reduce our premium volume and we may be more exposed to
reductions in net income from large losses.
Our industry is highly competitive and we may not be able to compete successfully in the future.
Our industry is highly competitive and subject to pricing cycles that can be pronounced. We compete globally in the United States, international
reinsurance and insurance markets with numerous competitors. Our competitors include independent reinsurance and insurance companies, subsidiaries or affiliates of established worldwide insurance companies, reinsurance departments of certain
insurance companies and domestic and international underwriting operations, including underwriting syndicates at Lloyd’s of London.
According to Standard & Poor’s, Group ranks among the top ten global reinsurance groups, where more than two-thirds of the market share is
concentrated. The worldwide net premium written by the Top 40 global reinsurance groups, for both life and non-life business, was estimated to be $232.0 billion in 2017 according to data compiled by Standard & Poor’s. The leaders in
this market are Munich Re, Swiss Re, Berkshire Hathaway Re, Hannover Rueck SE, SCOR SE and syndicates at Lloyd’s of London. Some of these competitors have greater financial resources than we do and have established long term and continuing
business relationships throughout the industry, which can be a significant competitive advantage. In addition, the lack of strong barriers to entry into the reinsurance business and the entry of alternative capital
market products and vehicles provide additional sources of reinsurance and insurance capacity and increased competition.
We are dependent on our key personnel.
Our success has been, and will continue to be, dependent on our ability to retain the services of our existing key executive officers and to
attract and retain additional qualified personnel in the future. The loss of the services of any key executive officer or the inability to hire and retain other highly qualified personnel in the future could adversely affect our ability to
conduct business. Generally, we consider key executive officers to be those individuals who have the greatest influence in setting overall policy and controlling operations: Chairman, President and Chief Executive Officer, Dominic J. Addesso
(age 65), Executive Vice President and Chief Financial Officer, Craig Howie (age 55), Executive Vice President and Chief Executive Officer Reinsurance Division, John P. Doucette (age 53), Executive Vice President, General Counsel, Chief
Compliance Officer, Secretary and Managing Director and Chief Executive Officer of Bermuda Re, Sanjoy Mukherjee (age 52) and Executive Vice President, President and Chief Executive Officer of the Everest Insurance® Division, Jonathan Zaffino (age 46). Through Group and its affiliates, we have employment contracts with Mr. Addesso, Mr. Howie, Mr. Doucette, Mr. Mukherjee and Mr. Zaffino, which have
been filed with the SEC and provide for terms of employment ending on December 31, 2019 for Mr. Addesso, April 1, 2019 for Mr. Howie, June 1, 2019 for Mr. Doucette, January 1, 2020 for Mr. Mukherjee and September 6, 2020 for Mr. Zaffino.
On January 7, 2019, the Company announced that Mr. Addesso has informed the Group’s Board of Directors that he will retire at the end of his
contract term on December 31, 2019. As a result, the Board is undertaking a search as part of its succession planning process, which will include a review of internal and external candidates for the position.
The other officer agreements referenced above contain automatic renewal provisions that provide for the contracts to continue indefinitely
unless sooner terminated in accordance with the contract or as otherwise may be agreed.
Our investment values and investment income could decline because they are exposed to interest rate, credit and market
risks.
A significant portion of our investment portfolio consists of fixed income securities and smaller portions consist of equity securities and
other investments. Both the fair market value of our invested assets and associated investment income fluctuate depending on general economic and market conditions. For example, the fair market value of our predominant fixed income
portfolio generally increases or decreases inversely to fluctuations in interest rates. The market value of our fixed income securities could also decrease as a result of a downturn in the business cycle that causes the credit quality of
such securities to deteriorate. The net investment income that we realize from future investments in fixed income securities will generally increase or decrease with interest rates.
Interest rate fluctuations also can cause net investment income from fixed income investments that carry prepayment risk, such as
mortgage-backed and other asset-backed securities, to differ from the income anticipated from those securities at the time of purchase. In addition, if issuers of individual investments are unable to meet their obligations, investment income
will be reduced and realized capital losses may arise.
The majority of our fixed income securities are classified as available for sale and temporary changes in the market value of these investments
are reflected as changes to our stockholder’s equity. Our actively managed equity security portfolios are fair valued and any changes in fair value are reflected as net realized capital gains or losses. As a result, a decline in the value
of our securities reduces our capital or could cause us to incur a loss.
We have invested a portion of our investment portfolio in equity securities. The value of these assets fluctuates with changes in the markets. In times of
economic weakness, the fair value of these assets may decline, and may negatively impact net income. We also invest in non-traditional investments which have different risk characteristics than traditional fixed income and equity securities.
These alternative investments are comprised primarily of private equity limited partnerships. The changes in value and investment income/(loss) for these partnerships may be more volatile than over-the-counter securities.
The following table quantifies the portion of our investment portfolio that consists of fixed income securities, equity securities and
investments that carry prepayment risk.
|
|
At
|
|
|
|
|
(Dollars in millions)
|
|
December 31, 2018
|
|
|
% of Total
|
|
Mortgage-backed securities
|
|
|
|
|
|
|
Commercial
|
|
$
|
136.6
|
|
|
|
1.3
|
%
|
Agency residential
|
|
|
148.8
|
|
|
|
1.4
|
%
|
Non-agency residential
|
|
|
3.1
|
|
|
|
0.0
|
%
|
Other asset-backed
|
|
|
221.2
|
|
|
|
2.1
|
%
|
Total asset-backed
|
|
|
509.7
|
|
|
|
4.8
|
%
|
Other fixed income
|
|
|
6,452.4
|
|
|
|
60.3
|
%
|
Total fixed income, at market value
|
|
|
6,962.1
|
|
|
|
65.1
|
%
|
Fixed maturities, at fair value
|
|
|
2.3
|
|
|
|
0.0
|
%
|
Equity securities, at fair value
|
|
|
564.3
|
|
|
|
5.3
|
%
|
Other invested assets, at market value
|
|
|
882.7
|
|
|
|
8.2
|
%
|
Other invested assets, at fair value
|
|
|
1,717.3
|
|
|
|
16.0
|
%
|
Cash and short-term investments
|
|
|
578.7
|
|
|
|
5.4
|
%
|
Total investments and cash
|
|
$
|
10,707.4
|
|
|
|
100.0
|
%
|
We may experience foreign currency exchange losses that reduce our net income and capital levels.
Through our international operations, we conduct business in a variety of foreign (non-U.S.) currencies, principally the Canadian dollar and the
Singapore dollar. Assets, liabilities, revenues and expenses denominated in foreign currencies are exposed to changes in currency exchange rates. Our reporting currency is the U.S. dollar, and exchange rate fluctuations, especially relative
to the U.S. dollar, may materially impact our results and financial position. In 2018, we wrote approximately 16.8% of our coverages in non-U.S. currencies; as of December 31, 2018, we maintained approximately 9.1% of our investment
portfolio in investments denominated in non-U.S. currencies. During 2018, 2017 and 2016, the impact on our quarterly pre-tax net income from exchange rate fluctuations ranged from a loss of $12.3 million to a gain of $15.4 million.
Changes in the method for determining LIBOR and the potential replacement of LIBOR may affect our cost of capital and net
investment income.
On July 27, 2017, the UK Financial Conduct Authority announced that it intends to stop persuading or compelling banks to submit LIBOR rates
after 2021, which is expected to result in these widely used reference rates no longer being available. Potential changes to LIBOR, as well as uncertainty related to such potential changes and the establishment of any alternative reference
rates, may adversely affect the market for LIBOR-based securities and could adversely impact the interest rate on our long term subordinate notes. In addition, the discontinuance of LIBOR or changes or reforms to the determination or
supervision of LIBOR may result in a sudden or prolonged increase or decrease in reported LIBOR, which could have an adverse impact on the market for LIBOR-based securities or the value of our investment portfolio.
We are subject to cybersecurity risks that could negatively impact our business operations.
We are dependent upon our information technology platform, including our processing systems, data and electronic transmissions in our business
operations. Security breaches could expose us to the loss or misuse of our information, litigation and potential liability. In addition, cyber incidents that impact the availability, reliability, speed, accuracy or other proper functioning
of these systems could have a significant
negative impact on our operations and possibly our results. An incident could also result in a violation of applicable privacy and other laws,
damage our reputation, cause a loss of customers or give rise to monetary fines and other penalties, which could be significant. Management is not aware of a cybersecurity incident that has had a material impact on our operations.
The NAIC has adopted an Insurance Data Security Model Law, which, when adopted by the states will require insurers, insurance producers and
other entities required to be licensed under state insurance laws to comply with certain requirements under state insurance laws, such as developing and maintaining a written information security program, conducting risk assessments and
overseeing the data security practices of third-party vendors. In addition, certain state insurance regulators are developing or have developed regulations that may impose regulatory requirements relating to cybersecurity on insurance and
reinsurance companies (potentially including insurance and reinsurance companies that are not domiciled, but are licensed, in the relevant state). For example, the New York State Department of Financial Services has adopted a regulation
pertaining to cybersecurity for all banking and insurance entities under its jurisdiction, effective as of March 1, 2017, which applies to us. We cannot predict the impact these laws and regulations will have on our business, financial
condition or results of operations, but our insurance and reinsurance companies could incur additional costs resulting from compliance with such laws and regulations.
RISKS RELATING TO REGULATION
Insurance laws and regulations restrict our ability to operate and any failure to comply with those laws and regulations
could have a material adverse effect on our business.
We are subject to extensive and increasing regulation under U.S., state and foreign insurance laws. These laws limit the amount of dividends
that can be paid to us by our operating subsidiaries, impose restrictions on the amount and type of investments that we can hold, prescribe solvency, accounting and internal control standards that must be met and maintained and require us to
maintain reserves. These laws also require disclosure of material inter-affiliate transactions and require prior approval of “extraordinary” transactions. Such “extraordinary” transactions include declaring dividends from operating
subsidiaries that exceed statutory thresholds. These laws also generally require approval of changes of control of insurance companies. The application of these laws could affect our liquidity and ability to pay dividends, interest and
other payments on securities, as applicable, and could restrict our ability to expand our business operations through acquisitions of new insurance subsidiaries. We may not have or maintain all required licenses and approvals or fully comply
with the wide variety of applicable laws and regulations or the relevant authority’s interpretation of the laws and regulations. If we do not have the requisite licenses and approvals or do not comply with applicable regulatory requirements,
the insurance regulatory authorities could preclude or temporarily suspend us from carrying on some or all of our activities or monetarily penalize us. These types of actions could have a material adverse effect on our business. To date, no
material fine, penalty or restriction has been imposed on us for failure to comply with any insurance law or regulation.
As a result of the previous dislocation of the financial markets, Congress and the previous Presidential administration in the United States
implemented changes in the way the financial services industry is regulated. Some of these changes are also impacting the insurance industry. For example, the U.S. Treasury established the Federal Insurance Office with the authority to
monitor all aspects of the insurance sector, monitor the extent to which traditionally underserved communities and consumers have access to affordable non-health insurance products, to represent the United States on prudential aspects of
international insurance matters, to assist with administration of the Terrorism Risk Insurance Program and to advise on important national and international insurance matters. In addition, several European regulatory bodies are in process of
updating existing or developing new capital adequacy directives for insurers and reinsurers. The future impact of such initiatives or new initiatives from the current Government Administration, if any, on our operation, net income (loss) or
financial condition cannot be determined at this time.
RISK RELATING TO OUR SECURITIES
Because of our holding company structure, our ability to pay dividends, interest and principal is dependent on our receipt
of dividends, loan payments and other funds from our subsidiaries.
We are a holding company, whose most significant asset consists of the stock of our operating subsidiaries. As a result, our ability to pay
dividends, interest or other payments on our securities in the future will depend on the earnings and cash flows of the operating subsidiaries and the ability of the subsidiaries to pay dividends or to advance or repay funds to us. This
ability is subject to general economic, financial, competitive, regulatory and other factors beyond our control. Payment of dividends and advances and repayments from some of the operating subsidiaries are regulated by U.S., state and foreign
insurance laws and regulatory restrictions, including minimum solvency and liquidity thresholds. Accordingly, the operating subsidiaries may not be able to pay dividends or advance or repay funds to us in the future, which could prevent us
from paying dividends, interest or other payments on our securities.
RISK RELATING TO TAXATION
If U.S. tax law changes, our net income may be impacted.
The 2017 enacted Tax Cut and Jobs Act (“TCJA”) includes a provision for additional taxes on reinsurance transactions with affiliates in foreign
jurisdictions. Such affiliated reinsurance transactions are now subject to a Base Erosion and Anti-abuse Tax (“BEAT”) of 10% from 2019 to 2025 and 12.5% thereafter. In addition, new regulations may further limit the ability of the Company
to execute alternative capital balancing transactions with unrelated parties. This would further impact our net income and effective tax rate.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
Everest Re’s corporate offices are located in approximately 230,500 square feet of leased office space in Liberty Corner, New Jersey. The
Company’s other eighteen locations occupy a total of approximately 190,540 square feet, all of which are leased. Management believes that the above described office space is adequate for its current and anticipated needs.
ITEM 3. LEGAL PROCEEDINGS
In the ordinary course of business, the Company is involved in lawsuits, arbitrations and other formal and informal dispute resolution
procedures, the outcomes of which will determine the Company’s rights and obligations under insurance and reinsurance agreements. In some disputes, the Company seeks to enforce its rights under an agreement or to collect funds owing to it.
In other matters, the Company is resisting attempts by others to collect funds or enforce alleged rights. These disputes arise from time to time and are ultimately resolved through both informal and formal means, including negotiated
resolution, arbitration and litigation. In all such matters, the Company believes that its positions are legally and commercially reasonable. The Company considers the statuses of these proceedings when determining its reserves for unpaid
loss and loss adjustment expenses.
Aside from litigation and arbitrations related to these insurance and reinsurance agreements, the Company is not a party to any other material
litigation or arbitration.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
PART II
ITEM 5. |
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
|
Market Information and Holder of Common Stock.
As of December 31, 2018, all of the Company’s common stock was owned by Holdings Ireland and was not publicly traded.
Dividend History and Restrictions.
The Company did not pay any dividends in 2018, 2017 and 2016. The declaration and payment of future dividends, if any, by the Company will be
at the discretion of the Board of Directors and will depend upon many factors, including the Company’s earnings, financial condition, business needs and growth objectives, capital and surplus requirements of its operating subsidiaries,
regulatory restrictions, rating agency considerations and other factors. As an insurance holding company, the Company is dependent on dividends and other permitted payments from its subsidiaries to pay cash dividends to its stockholder. The
payment of dividends to Holdings by Everest Re is subject to limitations imposed by Delaware law. Generally, Everest Re may only pay dividends out of its statutory earned surplus, which was $3,650.6 million at December 31, 2018, and only
after it has given 10 days prior notice to the Delaware Insurance Commissioner. During this 10-day period, the Commissioner may, by order, limit or disallow the payment of ordinary dividends if the Commissioner finds the insurer to be
presently or potentially in financial distress. Further, the maximum amount of dividends that may be paid without the prior approval of the Delaware Insurance Commissioner in any twelve month period is the greater of (1) 10% of an insurer’s
statutory surplus as of the end of the prior calendar year or (2) the insurer’s statutory net income, not including realized capital gains, for the prior calendar year. The maximum amount that is available for the payment of dividends by
Everest Re in 2019 without prior regulatory approval is $365.0 million.
Recent Sales of Unregistered Securities.
None.
ITEM 6. SELECTED FINANCIAL DATA
Information for Item 6 is not required pursuant to General Instruction I(2) of Form 10-K.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
The following is a discussion and analysis of our results of operations and financial condition. It should be read in conjunction with the Consolidated
Financial Statements and accompanying notes thereto presented under ITEM 8, “Financial Statements and Supplementary Data”.
Industry Conditions.
The worldwide reinsurance and insurance businesses are highly competitive, as well as cyclical by product and market. As such, financial
results tend to fluctuate with periods of constrained availability, higher rates and stronger profits followed by periods of abundant capacity, lower rates and constrained profitability. Competition in the types of reinsurance and insurance
business that we underwrite is based on many factors, including the perceived overall financial strength of the reinsurer or insurer, ratings of the reinsurer or insurer by A.M. Best and/or Standard & Poor’s, underwriting expertise, the
jurisdictions where the reinsurer or insurer is licensed or otherwise authorized, capacity and coverages offered, premiums charged, other terms and conditions of the reinsurance and insurance business offered, services offered, speed of
claims payment and reputation and experience in lines written. Furthermore, the market impact from these competitive factors related to reinsurance and insurance is generally not consistent across lines of business, domestic and
international geographical areas and distribution channels.
We compete in the U.S. and international reinsurance and insurance markets with numerous global competitors. Our competitors include independent
reinsurance and insurance companies, subsidiaries or affiliates of established worldwide insurance companies, reinsurance departments of certain insurance companies, domestic and international underwriting operations, including underwriting
syndicates at Lloyd’s of London and certain government sponsored risk transfer vehicles. Some of these competitors have greater financial resources than we do and have established long term and continuing business relationships, which can be
a significant competitive advantage. In addition, the lack of strong barriers to entry into the reinsurance business and recently, the securitization of reinsurance and insurance risks through capital markets provide additional sources of
potential reinsurance and insurance capacity and competition.
Worldwide insurance and reinsurance market conditions continued to be very competitive, particularly in the property catastrophe and casualty
reinsurance lines of business. Generally, there was ample insurance and reinsurance capacity relative to demand, as well as, additional capital from the capital markets through insurance linked financial instruments. These financial
instruments such as side cars, catastrophe bonds and collateralized reinsurance funds, provide capital markets with access to insurance and reinsurance risk exposure. The capital markets demand for these products is being primarily driven by
the current low interest rate environment and the desire to achieve greater risk diversification and potentially higher returns on their investments. This increased competition is generally having a negative impact on rates, terms and
conditions; however, the impact varies widely by market and coverage.
Rates tend to fluctuate by specific region and products, particularly areas recently impacted by large catastrophic events. There were numerous
natural catastrophes in 2018 with total industry losses estimated to be $90 billion. The costliest event was the Camp Wildfire in California, the deadliest and most destructive California fire on record. These 2018 catastrophe losses
followed another record year of catastrophes in 2017 where total industry losses for the worldwide events were estimated at $140 billion. These catastrophe losses included an unprecedented series of catastrophes in the third quarter of 2017
with Hurricanes Harvey, Irma and Maria, as well as a significant earthquake in Mexico City. Additional catastrophe events occurred in the fourth quarter of 2017 with the wild fires in California and Hurricanes Nate and Ophelia. During 2016,
catastrophe losses included the Fort McMurray Canadian wildfire, Hurricane Matthew which affected a large area of the Caribbean and southeastern United States, storms and an earthquake in Ecuador. While the future impact on market conditions
from these catastrophes cannot be determined at this time, there was some firming in the markets impacted by the 2016 catastrophes and as catastrophe losses increased in 2017, there is a growing industry consensus that there will be some
firming of (re)insurance rates for the areas impacted by the catastrophes.
Commencing in 2015, we initiated a strategic build out of our insurance platform through the investment in key leadership hires, which in turn has brought
significant underwriting talent and stronger direction in achieving our insurance program strategic goals of increased premium volume and improved underwriting results. Recent growth is coming from highly diversified areas including newly
launched lines of business, as well as, product and geographic expansion in existing lines of business. We are building a world-class insurance platform capable of offering products across lines and geographies, complementing our leading
global reinsurance franchise.
Overall, we believe that given our size, strong ratings, distribution system, reputation, expertise and capital market vehicle activity the
current marketplace conditions provide profit opportunities. We continue to employ our strategy of targeting business that offers the greatest profit potential, while maintaining balance and diversification in our overall portfolio.
Financial Summary.
We monitor and evaluate our overall performance based upon financial results. The following table displays a summary of the consolidated net
income (loss), ratios and stockholder’s equity for the periods indicated:
|
|
Years Ended December 31,
|
|
|
Percentage Increase/(Decrease)
|
|
(Dollars in millions)
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
|
2018/2017
|
|
|
|
2017/2016
|
|
Gross written premiums
|
|
$
|
6,573.7
|
|
|
$
|
5,788.5
|
|
|
$
|
5,063.7
|
|
|
|
13.6
|
%
|
|
|
14.3
|
%
|
Net written premiums
|
|
|
5,031.9
|
|
|
|
2,723.8
|
|
|
|
2,048.1
|
|
|
|
84.7
|
%
|
|
|
33.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REVENUES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums earned
|
|
$
|
4,839.1
|
|
|
$
|
1,949.6
|
|
|
$
|
2,094.0
|
|
|
|
148.2
|
%
|
|
|
-6.9
|
%
|
Net investment income
|
|
|
314.4
|
|
|
|
286.3
|
|
|
|
264.8
|
|
|
|
9.8
|
%
|
|
|
8.1
|
%
|
Net realized capital gains (losses)
|
|
|
(185.4
|
)
|
|
|
161.6
|
|
|
|
(28.9
|
)
|
|
|
-214.7
|
%
|
|
NM
|
Other income (expense)
|
|
|
(3.9
|
)
|
|
|
23.8
|
|
|
|
(10.5
|
)
|
|
|
-116.2
|
%
|
|
NM
|
Total revenues
|
|
|
4,964.2
|
|
|
|
2,421.2
|
|
|
|
2,319.4
|
|
|
|
105.0
|
%
|
|
|
4.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CLAIMS AND EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incurred losses and loss adjustment expenses
|
|
|
4,811.0
|
|
|
|
2,039.8
|
|
|
|
1,350.3
|
|
|
|
135.9
|
%
|
|
|
51.1
|
%
|
Commission, brokerage, taxes and fees
|
|
|
1,141.7
|
|
|
|
210.9
|
|
|
|
281.4
|
|
|
NM
|
|
|
-25.1
|
%
|
Other underwriting expenses
|
|
|
293.3
|
|
|
|
254.9
|
|
|
|
245.0
|
|
|
|
15.1
|
%
|
|
|
4.0
|
%
|
Corporate expense
|
|
|
11.0
|
|
|
|
7.4
|
|
|
|
8.3
|
|
|
|
49.2
|
%
|
|
|
-10.7
|
%
|
Interest, fee and bond issue cost amortization expense
|
|
|
30.6
|
|
|
|
31.2
|
|
|
|
35.4
|
|
|
|
-1.8
|
%
|
|
|
-12.0
|
%
|
Total claims and expenses
|
|
|
6,287.7
|
|
|
|
2,544.1
|
|
|
|
1,920.4
|
|
|
|
147.1
|
%
|
|
|
32.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS) BEFORE TAXES
|
|
|
(1,323.5
|
)
|
|
|
(123.0
|
)
|
|
|
399.0
|
|
|
NM
|
|
|
-130.8
|
%
|
Income tax expense (benefit)
|
|
|
(365.8
|
)
|
|
|
(201.2
|
)
|
|
|
97.3
|
|
|
|
81.8
|
%
|
|
NM
|
NET INCOME (LOSS)
|
|
$
|
(957.7
|
)
|
|
$
|
78.2
|
|
|
$
|
301.6
|
|
|
NM
|
|
|
-74.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RATIOS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Point Change
|
|
Loss ratio
|
|
|
99.4
|
%
|
|
|
104.6
|
%
|
|
|
64.5
|
%
|
|
|
(5.2
|
)
|
|
|
40.1
|
|
Commission and brokerage ratio
|
|
|
23.6
|
%
|
|
|
10.8
|
%
|
|
|
13.4
|
%
|
|
|
12.8
|
|
|
|
(2.6
|
)
|
Other underwriting expense ratio
|
|
|
6.1
|
%
|
|
|
13.1
|
%
|
|
|
11.7
|
%
|
|
|
(7.0
|
)
|
|
|
1.4
|
|
Combined ratio
|
|
|
129.1
|
%
|
|
|
128.5
|
%
|
|
|
89.6
|
%
|
|
|
0.6
|
|
|
|
38.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31,
|
|
|
Percentage Increase/ (Decrease)
|
|
(Dollars in millions)
|
|
|
2018
|
|
|
|
2017
|
|
|
|
2016
|
|
|
|
2018/2017
|
|
|
|
2017/2016
|
|
Balance sheet data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments and cash
|
|
$
|
10,707.4
|
|
|
$
|
8,911.5
|
|
|
$
|
9,842.7
|
|
|
|
20.2
|
%
|
|
|
-9.5
|
%
|
Total assets
|
|
|
18,688.2
|
|
|
|
17,888.5
|
|
|
|
17,083.4
|
|
|
|
4.5
|
%
|
|
|
4.7
|
%
|
Loss and loss adjustment expense reserves
|
|
|
10,167.0
|
|
|
|
9,343.0
|
|
|
|
8,331.3
|
|
|
|
8.8
|
%
|
|
|
12.1
|
%
|
Total debt
|
|
|
933.6
|
|
|
|
633.4
|
|
|
|
633.2
|
|
|
|
47.4
|
%
|
|
|
0.0
|
%
|
Total liabilities
|
|
|
13,643.5
|
|
|
|
12,475.8
|
|
|
|
11,784.9
|
|
|
|
9.4
|
%
|
|
|
5.9
|
%
|
Stockholder's equity
|
|
|
5,044.7
|
|
|
|
5,412.7
|
|
|
|
5,298.6
|
|
|
|
-6.8
|
%
|
|
|
2.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Some amounts may not reconcile due to rounding)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(NM, not meaningful)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues.
Premiums. Gross written premiums increased by
13.6% to $6,573.7 million in 2018, compared to $5,788.5 million in 2017, reflecting a $637.0 million, or 16.2%, increase in our reinsurance business and a $148.2 million, or 8.0%, increase in our insurance business. The increase in
reinsurance premiums was mainly due to the increases in treaty property and treaty casualty writings, rise in mortgage business and growth in Latin American business. The rise in insurance premiums was primarily due to increases in many
lines of business, including casualty, energy and accident and health. Net written premiums increased by 84.7% to $5,031.9 million in 2018, compared to $2,723.8 million in 2017. The difference between the change in gross written premiums
compared to the change in net written premiums is primarily due to the impact of changes in affiliated reinsurance contracts, particularly the non-renewal of the quota share agreement between Everest Re and Bermuda Re as of December 31,
2017. Effective January 1, 2018, Everest Re entered into an aggregate stop loss agreement with Bermuda Re. Premiums ceded to Bermuda Re in 2018 were $572.6 million compared with $2,219.4 million in 2017. Premiums earned increased by 148.2%
to $4,839.1 million in 2018, compared to $1,949.6 million in 2017. The change in premiums earned relative to net written premiums is partially due to the impact of the non-renewal of the quota share contract between Everest Re and Bermuda Re
and is also the result of timing; premiums are earned ratably over the coverage period whereas written premiums are recorded at the initiation of the coverage period.
Gross written premiums increased by 14.3% to $5,788.5 million in 2017, compared to $5,063.7 million in 2016, reflecting a $537.7
million, or 15.8%, increase in our reinsurance business and a $187.1 million, or 11.2%, increase in our insurance business. The increase in reinsurance premiums was mainly due to the new crop reinsurance transactions, increases in treaty
property and financial lines of business and the influx of reinstatement premiums related to multiple catastrophe events in the third quarter. The rise in insurance premiums was primarily due to increases in many lines of business, including
property, retail casualty and accident and health, partially offset by the impact of the sale of Heartland. Net written premiums increased by 33.0% to $2,723.8 million in 2017, compared to $2,048.1 million in 2016. The difference between
the change in gross written premiums compared to the change in net written premiums is primarily due to the impact of changes in affiliated quota share contracts, particularly the non-renewal of the quota share agreement between Everest Re
and Bermuda Re as of December 31, 2017, which resulted in a $799.0 million increase to net written premiums in 2017. Premiums earned decreased by 6.9% to $1,949.6 million in 2017, compared to $2,094.0 million in 2016. The change in premiums
earned relative to net written premiums is partially due to the impact of the non-renewal of the quota share contract between Everest Re and Bermuda Re and is also the result of timing; premiums are earned ratably over the coverage period
whereas written premiums are recorded at the initiation of the coverage period.
Net Investment Income. Net investment income increased 9.8% to $314.4 million in 2018 compared with net investment income of $286.3 million in 2017. Net pre-tax
investment income as a percentage of average invested assets was 3.2% in both 2018 and 2017. The increase in income was primarily the result of higher income from our limited partnerships and from our growing fixed maturity portfolio,
partially offset by lower dividend income from our equity portfolio.
Net investment income increased 8.1% to $286.3 million in 2017 compared with net investment income of $264.8
million in 2016. Net pre-tax investment income as a percentage of average invested assets was 3.2% in 2017, compared to 2.8% in 2016. The increases in income and yield in 2017 were primarily the result of higher income from our limited
partnerships and higher income from the growing fixed income portfolio, partially offset by lower dividend income from our equity portfolio.
Net Realized Capital Gains (Losses). Net
realized capital losses were $185.4 million in 2018, net realized capital gains were $161.6 million in 2017 and net realized capital losses were $28.9 million in 2016. The net realized capital losses of $185.4 million in 2018, were comprised of $148.0 million
of losses from fair value re-measurements, $31.2 million of losses from sales of investments and $6.2 million of other-than-temporary
impairments. The net realized capital gains of $161.6 million were comprised of $158.5 million of gains from fair value
re-measurements and $9.1 million of gains from sales of investments, partially offset by $6.1 million of other-than-temporary impairments. The net realized losses of $28.9 million in 2016 were comprised of a realized capital loss of $28.0 million from the sale of our Heartland subsidiary, $25.7 million of other-than-temporary
impairments and $21.1 million
of losses from sales of investments, partially offset by $45.9 million of gains from fair value re-measurements.
Other Income (Expense). We recorded other expense of $3.9 million in 2018,
other income of $23.8 million in 2017, and other expense of $10.5 million in 2016. The changes were primarily the result of fluctuations in foreign currency exchange rates.
Claims and Expenses.
Incurred Losses and Loss Adjustment Expenses. The following
table presents our incurred losses and loss adjustment expenses (“LAE”) for the periods indicated.
|
|
Years Ended December 31,
|
|
|
Current
|
|
|
Ratio %/
|
|
Prior
|
|
|
Ratio %/
|
|
Total
|
|
|
Ratio %/
|
(Dollars in millions)
|
|
Year
|
|
|
Pt Change
|
|
Years
|
|
|
Pt Change
|
|
Incurred
|
|
|
Pt Change
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attritional (a)
|
|
$
|
3,092.6
|
|
|
|
63.9
|
%
|
|
|
$
|
5.8
|
|
|
|
0.1
|
%
|
|
|
$
|
3,098.4
|
|
|
|
64.0
|
%
|
|
Catastrophes
|
|
|
1,159.6
|
|
|
|
24.0
|
%
|
|
|
|
553.0
|
|
|
|
11.4
|
%
|
|
|
|
1,712.6
|
|
|
|
35.4
|
%
|
|
Total
|
|
$
|
4,252.2
|
|
|
|
87.9
|
%
|
|
|
$
|
558.8
|
|
|
|
11.5
|
%
|
|
|
$
|
4,811.0
|
|
|
|
99.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attritional (a)
|
|
$
|
1,200.6
|
|
|
|
61.5
|
%
|
|
|
$
|
(102.3
|
)
|
|
|
-5.2
|
%
|
|
|
$
|
1,098.4
|
|
|
|
56.3
|
%
|
|
Catastrophes
|
|
|
956.9
|
|
|
|
49.1
|
%
|
|
|
|
(15.5
|
)
|
|
|
-0.8
|
%
|
|
|
|
941.4
|
|
|
|
48.3
|
%
|
|
Total
|
|
$
|
2,157.5
|
|
|
|
110.6
|
%
|
|
|
$
|
(117.7
|
)
|
|
|
-6.0
|
%
|
|
|
$
|
2,039.8
|
|
|
|
104.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attritional (a)
|
|
$
|
1,287.2
|
|
|
|
61.5
|
%
|
|
|
$
|
(46.1
|
)
|
|
|
-2.2
|
%
|
|
|
$
|
1,241.1
|
|
|
|
59.3
|
%
|
|
Catastrophes
|
|
|
154.8
|
|
|
|
7.4
|
%
|
|
|
|
(45.6
|
)
|
|
|
-2.2
|
%
|
|
|
|
109.2
|
|
|
|
5.2
|
%
|
|
Total
|
|
$
|
1,442.0
|
|
|
|
68.9
|
%
|
|
|
$
|
(91.7
|
)
|
|
|
-4.4
|
%
|
|
|
$
|
1,350.3
|
|
|
|
64.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variance 2018/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attritional (a)
|
|
$
|
1,892.0
|
|
|
|
2.4
|
|
pts
|
|
$
|
108.1
|
|
|
|
5.3
|
|
pts
|
|
$
|
2,000.0
|
|
|
|
7.7
|
|
pts
|
Catastrophes
|
|
|
202.7
|
|
|
|
(25.1
|
)
|
pts
|
|
|
568.5
|
|
|
|
12.2
|
|
pts
|
|
|
771.2
|
|
|
|
(12.9
|
)
|
pts
|
Total
|
|
$
|
2,094.7
|
|
|
|
(22.7
|
)
|
pts
|
|
$
|
676.5
|
|
|
|
17.5
|
|
pts
|
|
$
|
2,771.2
|
|
|
|
(5.2
|
)
|
pts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variance 2017/2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attritional (a)
|
|
$
|
(86.6
|
)
|
|
|
-
|
|
pts
|
|
$
|
(56.2
|
)
|
|
|
(3.0
|
)
|
pts
|
|
$
|
(142.7
|
)
|
|
|
(3.0
|
)
|
pts
|
Catastrophes
|
|
|
802.1
|
|
|
|
41.7
|
|
pts
|
|
|
30.1
|
|
|
|
1.4
|
|
pts
|
|
|
832.2
|
|
|
|
43.1
|
|
pts
|
Total
|
|
$
|
715.5
|
|
|
|
41.7
|
|
pts
|
|
$
|
(26.1
|
)
|
|
|
(1.6
|
)
|
pts
|
|
$
|
689.5
|
|
|
|
40.1
|
|
pts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) Attritional losses exclude catastrophe losses.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Some amounts may not reconcile due to rounding.)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incurred losses and LAE increased by 135.9% to $4,811.0 million in 2018
compared to $2,039.8 million in 2017, primarily due to an increase in current year attritional losses of $1,892.0 million, mainly due to the impact of the increase in premiums earned resulting primarily from changes in affiliated reinsurance
agreements, including the non-renewal of the quota share agreement with Bermuda Re as of December 31, 2017 and the implementation of an aggregate stop loss agreement with Bermuda Re as of January 1, 2018. The increase in incurred losses also
resulted from $553.0 million of unfavorable development on prior years catastrophe losses in 2018, mainly related to Hurricanes Harvey, Irma and Maria and the California wildfires and an increase in current year catastrophe losses of $202.7
million. The current year catastrophe losses of $1,159.6 million in 2018 related to Hurricane Michael ($443.5 million), Camp wildfire ($297.0 million), Woolsey wildfire (151.0 million), Typhoon Jebi ($66.6 million), Hurricane Florence ($60.8
million), Cyclone Mekunu ($43.7 million), Typhoon Trami ($25.0 million), other 2018 California wildfires ($24.6 million), Australian hailstorm ($24.0 million), Japan Floods ($15.0 million) and the U.S. winter storms ($8.4 million). Current
year catastrophe losses of $956.9 million in 2017 related to Hurricane Irma ($333.7 million), Hurricane Maria ($268.1 million), Hurricane Harvey
($235.8 million), the Northern California wildfires ($75.3 million), the South Africa Knysna fires ($9.6 million), the Mexico City earthquake ($9.3 million), Cyclone Debbie in Australia ($8.5 million), the Peru storms ($7.1 million), the 2017
US Midwest storms ($5.0 million) and the Southern California wildfires ($4.4 million).
Incurred losses and LAE increased by 51.1% to $2,039.8 million in 2017 compared to $1,350.3 million in 2016, primarily due to an
increase of $802.1 million in current year catastrophe losses and less favorable development of $30.1 million on prior year catastrophe losses in 2017 compared to 2016. These increases were partially offset by a decrease of $86.6 million of
current year attritional losses, mainly due to the impact of the decline in premiums earned and an additional $56.2 million of favorable development on prior years attritional losses in 2017 compared to 2016. The $102.3 million of favorable
development on prior years
attritional losses in 2017 was mainly comprised of $68.8 million of
favorable development on reinsurance business related to property and short tail business in the United States, partially offset by $25.2 million of adverse development on A&E reserves and $33.5 million of favorable development on
insurance business, mainly related to workers compensation business. The current year catastrophe losses of $956.9 million in 2017 are outlined
above. Current year catastrophe losses of $154.8 million in 2016 were related to Hurricane Matthew ($62.3 million), the Fort McMurray Canada wildfire ($26.6 million), the 2016 U.S. Storms ($25.7 million), the Ecuador earthquake ($11.6
million), the 2016 Taiwan earthquake ($7.5 million), the Tennessee wildfire ($7.3 million), the New Zealand earthquake ($6.9 million) and Hurricane Hermine ($6.8 million).
Commission, Brokerage, Taxes and Fees. Commission, brokerage,
taxes and fees increased to $1,141.7 million in 2018 compared to
$210.9 million in 2017. The increase was mainly due to changes in affiliated reinsurance agreements, including the non-renewal of the quota share agreement with Bermuda Re as of December 31, 2017,
increases in premiums earned and changes in the mix of business toward additional pro rata business.
Commission, brokerage, taxes and fees decreased by 25.1% to
$210.9 million in 2017 compared to $281.4 million in
2016. The decrease was primarily due to the impact of the decrease in premiums earned, the impact of higher reinstatement premiums in 2017 and the impact of
changes in affiliated quota share contracts.
Other Underwriting Expenses. Other underwriting expenses were $293.3 million, $254.9 million and $245.0 million in 2018, 2017 and 2016, respectively. The increases were mainly due to changes in affiliated
reinsurance agreements, including the non-renewal of the quota share agreement with Bermuda Re as of December 31, 2017, impact of increases in premium earned and costs incurred to support the expansion of the insurance business.
Corporate Expenses. Corporate expenses, which are general operating expenses that are not allocated to segments, have remained consistent at $11.0 million, $7.4 million and $8.3 million for the years ended
December 31, 2018, 2017 and 2016, respectively.
Interest, Fees and Bond Issue Cost Amortization Expense. Interest, fees and other bond amortization expense were $30.6 million, $31.2 million and 35.4 million in 2018, 2017 and 2016, respectively. The changes in expense
were primarily due to the movements in the floating interest rate related to the long term subordinated notes, which is reset quarterly per the note agreement. The floating rate was 5.0% as of December 31, 2018.
Income Tax Expense (Benefit). We had an income tax benefit of
$365.8 million in 2018 and $201.2 million in 2017, which included $123.1 million of tax benefit related to the enactment of the TCJA, and income tax expense of $97.3 million for December 31, 2016. Variations in taxes generally result from
changes in the relative levels of pre-tax income, including the impact of catastrophe losses and net capital gains (losses) as well as changes in tax exempt investment income and creditable foreign taxes. The change in income tax expense
(benefit) was primarily due to the increase in catastrophe losses from 2017 to 2018. In addition, the enactment of the TCJA on December 22, 2017 reduced the U.S. corporate income tax rate to 21% from 35%.
During 2018, the Company completed its accounting and interpreted the additional guidance issued by the IRS and U.S. Department of Treasury and
recognized an income tax benefit of $28.8 million primarily related to the 2017 tax return to provision true-up recorded in 2018.
Net Income (Loss).
Our net loss was $957.7 million in 2018, and our net income was $78.2 million and $301.6 million in 2017 and 2016,
respectively. The changes were primarily driven by the financial component fluctuations explained above.
Ratios.
Our combined ratio increased by 0.6 points to 129.1% in
2018 compared to 128.5% in 2017. The loss ratio component
decreased by 5.2 points in 2018 over the same period last year mainly due to a lower loss ratio on current year catastrophe losses and changes in affiliated reinsurance agreements, partially offset by higher unfavorable development on prior
years catastrophe losses in 2018 compared to 2017. The commission and brokerage ratio component increased to 23.6% in 2018 compared to 10.8% in
2017, reflecting changes in affiliated reinsurance agreements and changes in the mix of business. The other underwriting expense ratio decreased to 6.1% in 2018 from 13.1% in 2017, mainly due to the impact of changes in affiliated reinsurance contracts.
Our combined ratio increased by 38.9 points to 128.5% in 2017, compared to 89.6% in 2016. The loss ratio components increased
40.1 points in 2017 over the same period last year. The changes were mainly due to the increases in current year catastrophe losses. The commission and brokerage ratio components decreased to 10.8% in 2017 from 13.4% in 2016. The decrease
reflects changes in the mix of business, the impact of affiliated quota share contracts and the impact from reinstatement premiums. The other underwriting expense ratios increased to 13.1% in 2017 from 11.7% in 2016. The increase in 2017 was
due to costs associated with the continued expansion of the insurance business, partially offset by lower variable compensation costs.
Stockholder's Equity.
Stockholder’s equity decreased by $368.1 million to $5,044.7 million at December 31, 2018 from $5,412.7 million at December 31, 2017, principally as a result of $957.7 million of net loss, $90.9 million of net unrealized depreciation on investments, net of tax and $36.4 million of net
foreign currency translation adjustments, partially offset by $712.3 million of capital contributions and $4.5 million of net benefit plan obligation adjustments.
Stockholder’s equity increased by $114.2 million to $5,412.7 million at December 31, 2017 from $5,298.6 million at December 31, 2016, principally as a result of $78.2 million of net income, $37.4 million of net foreign currency translation adjustments, $6.5 million of net benefit plan
obligation adjustments and $0.3 million of share-based compensation transactions, partially offset by $8.2 million of net unrealized depreciation on investments, net of tax.
Consolidated Investment Results
Net Investment Income.
Net investment income increased by 9.8% to $314.4 million in
2018 compared to $286.3 million in 2017. The increase in 2018 was
primarily due to higher income from our limited partnerships and from our growing fixed maturity portfolio, partially offset by a lower dividend income from our equity portfolio.
Net investment income increased by 8.1% to $286.3 million in
2017 compared to $264.8 million in 2016. The increase in 2017 was
primarily due to an increase in limited partnership income and higher income from the growing fixed income portfolio, partially offset by lower dividend income from our equity portfolio.
The following table shows the components of net investment income for the periods indicated:
|
|
Years Ended December 31,
|
|
(Dollars in millions)
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Fixed maturities
|
|
$
|
201.1
|
|
|
$
|
193.7
|
|
|
$
|
182.1
|
|
Equity securities
|
|
|
14.9
|
|
|
|
25.9
|
|
|
|
32.3
|
|
Short-term investments and cash
|
|
|
7.7
|
|
|
|
2.9
|
|
|
|
1.2
|
|
Other invested assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Limited partnerships
|
|
|
61.6
|
|
|
|
36.6
|
|
|
|
25.2
|
|
Dividends from preferred shares of affiliate
|
|
|
31.0
|
|
|
|
31.0
|
|
|
|
31.0
|
|
Other
|
|
|
17.8
|
|
|
|
6.7
|
|
|
|
1.0
|
|
Gross investment income before adjustments
|
|
|
334.2
|
|
|
|
296.8
|
|
|
|
272.9
|
|
Funds held interest income (expense)
|
|
|
5.2
|
|
|
|
5.0
|
|
|
|
6.1
|
|
Interest income from Parent
|
|
|
4.1
|
|
|
|
4.3
|
|
|
|
4.3
|
|
Gross investment income
|
|
|
343.5
|
|
|
|
306.0
|
|
|
|
283.3
|
|
Investment expenses
|
|
|
(29.1
|
)
|
|
|
(19.8
|
)
|
|
|
(18.5
|
)
|
Net investment income
|
|
$
|
314.4
|
|
|
$
|
286.3
|
|
|
$
|
264.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Some amounts may not reconcile due to rounding.)
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table shows a comparison of various investment yields for the periods indicated:
|
2018
|
2017
|
2018
|
Imbedded pre-tax yield of cash and invested assets at December 31
|
3.5%
|
3.4%
|
2.9%
|
Imbedded after-tax yield of cash and invested assets at December 31
|
2.8%
|
2.7%
|
2.0%
|
|
|
|
|
Annualized pre-tax yield on average cash and invested assets
|
3.2%
|
3.2%
|
2.8%
|
Annualized after-tax yield on average cash and invested assets
|
2.6%
|
2.2%
|
2.0%
|
Net Realized Capital Gains (Losses).
The following table presents the composition of our net realized capital gains (losses) for the periods indicated:
|
|
Years Ended December 31,
|
|
|
|
2018/2017
|
|
|
|
2017/2016
|
|
(Dollars in millions)
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
Variance
|
|
|
Variance
|
|
Gains (losses) from sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities, market value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains
|
|
$
|
15.3
|
|
|
$
|
31.3
|
|
|
$
|
18.6
|
|
|
$
|
(16.0
|
)
|
|
$
|
12.7
|
|
Losses
|
|
|
(14.4
|
)
|
|
|
(28.9
|
)
|
|
|
(25.6
|
)
|
|
|
14.5
|
|
|
|
(3.3
|
)
|
Total
|
|
|
0.9
|
|
|
|
2.5
|
|
|
|
(7.0
|
)
|
|
|
(1.6
|
)
|
|
|
9.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities, fair value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains
|
|
|
-
|
|
|
|
-
|
|
|
|
0.3
|
|
|
|
-
|
|
|
|
(0.3
|
)
|
Losses
|
|
|
(1.8
|
)
|
|
|
-
|
|
|
|
(1.9
|
)
|
|
|
(1.8
|
)
|
|
|
1.9
|
|
Total
|
|
|
(1.8
|
)
|
|
|
-
|
|
|
|
(1.6
|
)
|
|
|
(1.8
|
)
|
|
|
1.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities, fair value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains
|
|
|
25.2
|
|
|
|
23.2
|
|
|
|
16.2
|
|
|
|
2.0
|
|
|
|
7.0
|
|
Losses
|
|
|
(57.3
|
)
|
|
|
(16.7
|
)
|
|
|
(28.8
|
)
|
|
|
(40.6
|
)
|
|
|
12.1
|
|
Total
|
|
|
(32.1
|
)
|
|
|
6.6
|
|
|
|
(12.6
|
)
|
|
|
(38.7
|
)
|
|
|
19.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other invested assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains
|
|
|
1.8
|
|
|
|
0.1
|
|
|
|
-
|
|
|
|
1.7
|
|
|
|
0.1
|
|
Losses
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
|
1.8
|
|
|
|
0.1
|
|
|
|
-
|
|
|
|
1.7
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net realized gains (losses) from sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains
|
|
|
42.3
|
|
|
|
54.6
|
|
|
|
35.1
|
|
|
|
(12.3
|
)
|
|
|
19.5
|
|
Losses
|
|
|
(73.5
|
)
|
|
|
(45.6
|
)
|
|
|
(56.3
|
)
|
|
|
(27.9
|
)
|
|
|
10.7
|
|
Total
|
|
|
(31.2
|
)
|
|
|
9.1
|
|
|
|
(21.1
|
)
|
|
|
(40.3
|
)
|
|
|
30.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) on sale of subsidiary:
|
|
|
-
|
|
|
|
-
|
|
|
|
(28.0
|
)
|
|
|
-
|
|
|
|
28.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other than temporary impairments:
|
|
|
(6.2
|
)
|
|
|
(6.1
|
)
|
|
|
(25.7
|
)
|
|
|
(0.1
|
)
|
|
|
19.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains (losses) from fair value adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturities, fair value
|
|
|
1.5
|
|
|
|
-
|
|
|
|
1.4
|
|
|
|
1.5
|
|
|
|
(1.4
|
)
|
Equity securities, fair value
|
|
|
(59.4
|
)
|
|
|
117.7
|
|
|
|
51.1
|
|
|
|
(177.1
|
)
|
|
|
66.6
|
|
Other invested assets, fair value
|
|
|
(90.1
|
)
|
|
|
40.8
|
|
|
|
(6.6
|
)
|
|
|
(130.9
|
)
|
|
|
47.4
|
|
Total
|
|
|
(148.0
|
)
|
|
|
158.5
|
|
|
|
45.9
|
|
|
|
(306.5
|
)
|
|
|
112.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net realized gains (losses)
|
|
$
|
(185.4
|
)
|
|
$
|
161.6
|
|
|
$
|
(28.9
|
)
|
|
$
|
(347.0
|
)
|
|
$
|
190.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Some amounts may not reconcile due to rounding.)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net realized capital losses were $185.4 million in 2018, net realized capital gains were $161.6 million in 2017 and net realized capital losses were $28.9
million in 2016. In 2018, we recorded $148.0 million of
losses from fair value re-measurements, $31.2 million of losses from sales of investments and $6.2 million of other-than-temporary impairments. In
2017, we recorded $158.5 million of gains from fair value re-measurements and $9.1 million of gains from sales of investments, partially offset by $6.1 million of other-than-temporary impairments. In 2016, we recorded a realized capital loss of $28.0 million from the sale of our Heartland
subsidiary, $25.7 million of other-than-temporary impairments and $21.1 million of net realized capital losses from sales of investments, partially offset by $45.9 million of net realized capital gains due to fair value re-measurements. The
fixed maturity and equity sales related primarily to adjusting the portfolios for overall market changes and individual credit shifts.
Segment Results.
The U.S. Reinsurance operation writes property and casualty reinsurance and specialty lines of business, including Marine, Aviation, Surety and
A&H business, on both a treaty and facultative basis, through reinsurance brokers, as well as directly with ceding companies primarily within the U.S. The International operation writes non-U.S. property and casualty reinsurance through
Everest Re’s branches in Canada, Singapore and through offices in Brazil, Miami and New Jersey. The Insurance operation writes property and casualty insurance directly, through brokers, surplus lines brokers and general agents mainly within
the U.S.
These segments are managed independently, but conform with corporate guidelines with respect to pricing, risk management, control of aggregate
catastrophe exposures, capital, investments and support operations. Management generally monitors and evaluates the financial performance of these operating segments based upon their underwriting results.
Underwriting results include earned premium less losses and LAE incurred, commission and brokerage expenses and other underwriting expenses. We
measure our underwriting results using ratios, in particular loss, commission and brokerage and other underwriting expense ratios, which respectively, divide incurred losses, commissions and brokerage and other underwriting expenses by
premiums earned.
Our loss and LAE reserves are management’s best estimate of our ultimate liability for unpaid claims. We re-evaluate our estimates on an
ongoing basis, including all prior period reserves, taking into consideration all available information and, in particular, recently reported loss claim experience and trends related to prior periods. Such re-evaluations are recorded in
incurred losses in the period in which the re-evaluation is made.
The following discusses the underwriting results for each of our segments for the periods indicated:
U.S. Reinsurance.
The following table presents the underwriting results and ratios for the U.S. Reinsurance segment for the periods indicated.
|
|
Years
Ended December 31,
|
|
2018/2017
|
|
2017/2016
|
(Dollars in millions) |
|
2018 |
|
|
2017 |
|
|
2016 |
|
|
Variance
|
|
|
% Change
|
|
|
Variance
|
|
|
% Change
|
|
Gross written premiums
|
|
$
|
3,014.3
|
|
|
$
|
2,593.1
|
|
|
$
|
2,125.8
|
|
|
$
|
421.3
|
|
|
|
16.2
|
%
|
|
$
|
467.3
|
|
|
|
22.0
|
%
|
Net written premiums
|
|
|
2,093.1
|
|
|
|
1,135.6
|
|
|
|
930.2
|
|
|
|
957.5
|
|
|
|
84.3
|
%
|
|
|
205.4
|
|
|
|
22.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums earned
|
|
$
|
1,979.9
|
|
|
$
|
858.2
|
|
|
$
|
990.1
|
|
|
$
|
1,121.7
|
|
|
|
130.7
|
%
|
|
$
|
(131.9
|
)
|
|
|
-13.3
|
%
|
Incurred losses and LAE
|
|
|
2,790.8
|
|
|
|
912.1
|
|
|
|
554.1
|
|
|
|
1,878.7
|
|
|
|
206.0
|
%
|
|
|
358.0
|
|
|
|
64.6
|
%
|
Commission and brokerage
|
|
|
568.4
|
|
|
|
160.3
|
|
|
|
189.5
|
|
|
|
408.1
|
|
|
NM
|
|
|
|
(29.2
|
)
|
|
|
-15.4
|
%
|
Other underwriting expenses
|
|
|
60.3
|
|
|
|
55.9
|
|
|
|
54.1
|
|
|
|
4.4
|
|
|
|
7.8
|
%
|
|
|
1.8
|
|
|
|
3.3
|
%
|
Underwriting gain (loss)
|
|
$
|
(1,439.5
|
)
|
|
$
|
(270.2
|
)
|
|
$
|
192.4
|
|
|
$
|
(1,169.4
|
)
|
|
NM
|
|
|
$
|
(462.5
|
)
|
|
|
-240.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Point Chg
|
|
|
|
|
|
|
Point Chg
|
|
Loss ratio
|
|
|
141.0
|
%
|
|
|
106.3
|
%
|
|
|
56.0
|
%
|
|
|
|
|
|
|
34.7
|
|
|
|
|
|
|
|
50.3
|
|
Commission and brokerage ratio
|
|
|
28.7
|
%
|
|
|
18.7
|
%
|
|
|
19.1
|
%
|
|
|
|
|
|
|
10.0
|
|
|
|
|
|
|
|
(0.4
|
)
|
Other underwriting expense ratio
|
|
|
3.0
|
%
|
|
|
6.5
|
%
|
|
|
5.5
|
%
|
|
|
|
|
|
|
(3.5
|
)
|
|
|
|
|
|
|
1.0
|
|
Combined ratio
|
|
|
172.7
|
%
|
|
|
131.5
|
%
|
|
|
80.6
|
%
|
|
|
|
|
|
|
41.2
|
|
|
|
|
|
|
|
50.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Some amounts may not reconcile due to rounding)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums. Gross written premiums increased by 16.2% to $3,014.3 million in 2018 from $2,593.1 million in 2017, primarily due to an increase in treaty property and treaty casualty writings as well as growth in the mortgage business. Net written premiums
increased by 84.3% to $2,093.1 million in 2018 compared to $1,135.6 million in 2017. The difference between the change in gross written premiums compared to the change in net written premiums is primarily due
to the impact of changes in affiliated reinsurance contracts, including the non-renewal of the quota share agreement with Bermuda Re as of December 31, 2017 and the implementation of an aggregate stop loss agreement with Bermuda Re for
2018. Premiums earned increased 130.7% to $1,979.9 million in 2018 compared to $858.2 million in 2017. The change in premiums earned relative to net written premiums is partially due to the impact of the non-renewal of the
quota share contract between Everest Re and Bermuda Re and is also the result of timing; premiums are earned ratably over the coverage period
whereas written premiums are recorded at the initiation of the coverage period.
Gross written premiums increased by 22.0% to $2,593.1 million in 2017 from $2,125.8 million in 2016, primarily due to an increase in the new crop reinsurance business, an increase in treaty property
business, the influx of reinstatement premiums due to the catastrophe losses and an increase in mortgage business. Net written premiums increased by 22.1% to $1,135.6 million in 2017 compared to $930.2 million in 2016, partially due to the changes in affiliated quota agreements including the non-renewal
of the quota share agreement between Everest Re and Bermuda Re. Premiums earned decreased 13.3% to $858.2 million in 2017 compared to $990.1
million in 2016. The change in premiums earned relative to net written premiums is partially due to the impact of the non-renewal of the quota share
contract between Everest Re and Bermuda Re and is also the result of timing; premiums are earned ratably over the coverage period whereas written premiums are recorded at the initiation of the coverage period.
Incurred Losses and LAE. The following table presents the incurred losses and LAE for the U.S. Reinsurance segment for the periods indicated.
|
|
Years Ended December 31,
|
|
|
Current
|
|
|
Ratio %/
|
|
Prior
|
|
|
Ratio %/
|
|
Total
|
|
|
Ratio %/
|
(Dollars in millions)
|
|
Year
|
|
|
Pt Change
|
|
Years
|
|
|
Pt Change
|
|
Incurred
|
|
|
Pt Change
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attritional
|
|
$
|
1,378.5
|
|
|
|
69.7
|
%
|
|
|
$
|
5.8
|
|
|
|
0.3
|
%
|
|
|
$
|
1,384.3
|
|
|
|
70.0
|
%
|
|
Catastrophes
|
|
|
952.2
|
|
|
|
48.1
|
%
|
|
|
|
454.3
|
|
|
|
22.9
|
%
|
|
|
|
1,406.5
|
|
|
|
71.0
|
%
|
|
Total segment
|
|
$
|
2,330.7
|
|
|
|
117.8
|
%
|
|
|
$
|
460.1
|
|
|
|
23.2
|
%
|
|
|
$
|
2,790.8
|
|
|
|
141.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attritional
|
|
$
|
522.3
|
|
|
|
61.0
|
%
|
|
|
$
|
(80.4
|
)
|
|
|
-9.4
|
%
|
|
|
$
|
441.9
|
|
|
|
51.6
|
%
|
|
Catastrophes
|
|
|
485.2
|
|
|
|
56.5
|
%
|
|
|
|
(15.1
|
)
|
|
|
-1.8
|
%
|
|
|
|
470.2
|
|
|
|
54.7
|
%
|
|
Total segment
|
|
$
|
1,007.5
|
|
|
|
117.5
|
%
|
|
|
$
|
(95.5
|
)
|
|
|
-11.2
|
%
|
|
|
$
|
912.1
|
|
|
|
106.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attritional
|
|
$
|
555.5
|
|
|
|
56.1
|
%
|
|
|
$
|
(49.0
|
)
|
|
|
-4.9
|
%
|
|
|
$
|
506.5
|
|
|
|
51.2
|
%
|
|
Catastrophes
|
|
|
67.0
|
|
|
|
6.8
|
%
|
|
|
|
(19.5
|
)
|
|
|
-2.0
|
%
|
|
|
|
47.6
|
|
|
|
4.8
|
%
|
|
Total segment
|
|
$
|
622.5
|
|
|
|
62.9
|
%
|
|
|
$
|
(68.5
|
)
|
|
|
-6.9
|
%
|
|
|
$
|
554.1
|
|
|
|
56.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variance 2018/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attritional
|
|
$
|
856.2
|
|
|
|
8.7
|
|
pts
|
|
$
|
86.2
|
|
|
|
9.7
|
|
pts
|
|
$
|
942.4
|
|
|
|
18.4
|
|
pts
|
Catastrophes
|
|
|
467.0
|
|
|
|
(8.4
|
)
|
pts
|
|
|
469.4
|
|
|
|
24.7
|
|
pts
|
|
|
936.3
|
|
|
|
16.3
|
|
pts
|
Total segment
|
|
$
|
1,323.2
|
|
|
|
0.3
|
|
pts
|
|
$
|
555.6
|
|
|
|
34.4
|
|
pts
|
|
$
|
1,878.7
|
|
|
|
34.7
|
|
pts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variance 2017/2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attritional
|
|
$
|
(33.2
|
)
|
|
|
4.9
|
|
pts
|
|
$
|
(31.4
|
)
|
|
|
(4.5
|
)
|
pts
|
|
$
|
(64.6
|
)
|
|
|
0.4
|
|
pts
|
Catastrophes
|
|
|
418.2
|
|
|
|
49.7
|
|
pts
|
|
|
4.4
|
|
|
|
0.2
|
|
pts
|
|
|
422.6
|
|
|
|
49.9
|
|
pts
|
Total segment
|
|
$
|
385.0
|
|
|
|
54.6
|
|
pts
|
|
$
|
(27.0
|
)
|
|
|
(4.3
|
)
|
pts
|
|
$
|
358.0
|
|
|
|
50.3
|
|
pts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Some amounts may not reconcile due to rounding.)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incurred losses increased by 206.0% to $2,790.8 million in 2018
compared to $912.1 million in 2017. The increase was
primarily due to a rise of $856.2 million in current year attritional losses mainly due to the impact of the increase in premiums earned resulting primarily
from changes in affiliated reinsurance agreements, including the non-renewal of the quota share agreement with Bermuda Re as of December 31, 2017 and the implementation of an aggregate stop loss agreement with Bermuda Re as of January 1,
2018. The increase in incurred losses also resulted from an increase of $467.0 million in current year catastrophe losses and $454.3 million of unfavorable development on prior years catastrophe losses in 2018 primarily related to
Hurricane Harvey, Irma and Maria and the 2017 California wildfires. The increases in loss estimates for Hurricane Harvey, Irma and Maria were mostly driven by re-opened claims reported in the second quarter of 2018 and loss inflation from
higher than expected loss adjustment expenses and in particular, their impact on aggregate covers. The current year catastrophe losses of $952.2 million in
2018 primarily related to Hurricane Michael ($416.5 million), Camp wildfire ($297.0 million), Woolsey wildfire ($151.0 million),Hurricane Florence ($49.3 million), other 2018 California wildfires ($23.1 million), Typhoon Jebi ($6.5
million), Japan Floods ($5.5 million), Typhoon Trami ($2.0 million) and the U.S. winter storms ($1.3 million). The current year catastrophe losses of $485.2 million in 2017 related to Hurricane Irma
($200.5 million), Hurricane Harvey ($185.4 million), the Northern California wildfires ($73.6 million), Hurricane Maria ($20.8 million), the
Southern California wildfires ($3.6 million) and the 2017 US Midwest storms ($2.6 million).
Incurred losses increased by 64.6% to $912.1 million in 2017
compared to $554.1 million in 2016, primarily due to an increase of $418.2 million in current year catastrophe losses, partially offset by $31.4
million of more favorable development on prior years attritional losses in 2017 compared to 2016. The $80.4 million of favorable development on prior years attritional losses in 2017 was mainly related to property and short-tail business,
partially offset by $25.2 million of adverse development on A&E reserves. The current year catastrophe losses of $485.2 million in 2017 are outlined above. The current year catastrophe losses of $67.0 million in 2016 related to Hurricane Matthew ($43.1 million), the 2016 U.S. Storms ($10.2
million), the Tennessee wildfire ($7.3 million) and Hurricane Hermine ($6.7 million).
Segment Expenses. Commission and brokerage increased to
$568.4 million in 2018 compared to $160.3 million in 2017.
The increase was mainly due to changes in affiliated reinsurance agreements, including the non-renewal of the quota share agreement with Bermuda Re as of
December 31, 2017, the impact of the increases in premiums earned and changes in the mix of business towards additional pro rata business. Segment other underwriting expenses increased to $60.3 million in 2018 from $55.9 million in 2017, mainly due to the impact of changes in affiliated
reinsurance contracts and the impact of the increases in premiums earned.
Commission and brokerage decreased by 15.4% to $160.3 million in 2017 compared to $189.5 million in 2016. The decrease is mainly due to the impact of the influx of reinstatement premiums in
2017, the impact of affiliated quota share contracts and changes in the mix of business. Segment other underwriting expenses increased slightly to $55.9 million in 2017 from $54.1 million in 2016.
International.
The following table presents the underwriting results and ratios for the International segment for the periods indicated.
|
|
Years
Ended December 31, |
|
2018/2017 |
|
2017/2016 |
(Dollars in millions)
|
|
2018 |
|
|
2017 |
|
|
2016 |
|
|
Variance |
|
|
% Change |
|
|
Variance |
|
|
% Change |
|
Gross written premiums
|
|
$
|
1,555.2
|
|
|
$
|
1,339.5
|
|
|
$
|
1,269.1
|
|
|
$
|
215.7
|
|
|
|
16.1
|
%
|
|
$
|
70.4
|
|
|
|
5.5
|
%
|
Net written premiums
|
|
|
1,426.6
|
|
|
|
615.4
|
|
|
|
497.6
|
|
|
|
811.2
|
|
|
|
131.8
|
%
|
|
|
117.8
|
|
|
|
23.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums earned
|
|
$
|
1,406.5
|
|
|
$
|
502.3
|
|
|
$
|
510.9
|
|
|
$
|
904.2
|
|
|
|
180.0
|
%
|
|
$
|
(8.6
|
)
|
|
|
-1.7
|
%
|
Incurred losses and LAE
|
|
|
1,020.9
|
|
|
|
622.8
|
|
|
|
207.6
|
|
|
|
398.2
|
|
|
|
63.9
|
%
|
|
|
415.2
|
|
|
|
200.0
|
%
|
Commission and brokerage
|
|
|
355.5
|
|
|
|
101.9
|
|
|
|
111.5
|
|
|
|
253.6
|
|
|
|
248.8
|
%
|
|
|
(9.6
|
)
|
|
|
-8.6
|
%
|
Other underwriting expenses
|
|
|
37.7
|
|
|
|
36.3
|
|
|
|
34.3
|
|
|
|
1.4
|
|
|
|
3.8
|
%
|
|
|
2.0
|
|
|
|
5.9
|
%
|
Underwriting gain (loss)
|
|
$
|
(7.7
|
)
|
|
$
|
(258.7
|
)
|
|
$
|
157.5
|
|
|
$
|
251.0
|
|
|
|
-97.0
|
%
|
|
$
|
(416.2
|
)
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Point Chg
|
|
|
|
|
|
|
Point Chg
|
|
Loss ratio
|
|
|
72.6
|
%
|
|
|
124.0
|
%
|
|
|
40.6
|
%
|
|
|
|
|
|
|
(51.4
|
)
|
|
|
|
|
|
|
83.4
|
|
Commission and brokerage ratio
|
|
|
25.3
|
%
|
|
|
20.3
|
%
|
|
|
21.8
|
%
|
|
|
|
|
|
|
5.0
|
|
|
|
|
|
|
|
(1.5
|
)
|
Other underwriting expense ratio
|
|
|
2.6
|
%
|
|
|
7.2
|
%
|
|
|
6.8
|
%
|
|
|
|
|
|
|
(4.6
|
)
|
|
|
|
|
|
|
0.4
|
|
Combined ratio
|
|
|
100.5
|
%
|
|
|
151.5
|
%
|
|
|
69.2
|
%
|
|
|
|
|
|
|
(51.0
|
)
|
|
|
|
|
|
|
82.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Some amounts may not reconcile due to rounding)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(NM, not meaningful)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums. Gross written premiums increased by 16.1% to $1,555.2 million in 2018 compared to $1,339.5 million in 2017, primarily due to increases in Latin American business and business written through our Canada and Singapore branches, partially offset by the
negative impact of $20.6 million from the movement of foreign exchange rates. Net written premiums increased by 131.8% to $1,426.6 million in 2018
compared to $615.4 million in 2017. The difference between the change in gross written premiums compared to the change in net written premiums is
primarily due to the impact of changes in affiliated reinsurance contracts including the non-renewal of the quota share agreement with Bermuda Re as of December 31, 2017. Premiums earned increased 180.0% to $1,406.5 million in 2018 compared to $502.3 million in 2017. The change in premiums earned relative to net written premiums is partially due to
the impact of the non-renewal of the quota share contract between Everest Re and Bermuda Re and is also the result of timing; premiums are
earned ratably over the coverage period whereas written premiums are recorded at the initiation of the coverage period.
Gross written premiums increased by 5.5% to $1,339.5 million in 2017 compared to $1,269.1 million in 2016, primarily due to increases in Middle East, African and Asian business and the positive impact of $22.0 million from the movement of foreign exchange rates, partially offset by
a decline in Latin American business. Net written premiums increased by 23.7% to $615.4 million in 2017 compared to $497.6 million in 2016. The difference between the change in gross written premiums compared to the change in net written premiums is primarily due to varying utilization of
reinsurance related to quota share contracts, including the impact of the non-renewal of the quota share contract between Everest Re and Bermuda Re. Premiums earned decreased 1.7% to $502.3 million in 2017 compared to $510.9 million in 2016. The change in premiums earned relative to net
written premiums is partially due to the impact of the non-renewal of the quota share contract between Everest Re and Bermuda Re and is also the result of timing; premiums are earned ratably over the coverage period whereas written premiums
are recorded at the initiation of the coverage period.
Incurred Losses and LAE. The following table presents the incurred losses and LAE for the International segment for the periods indicated.
|
|
Years Ended December 31,
|
|
|
Current
|
|
|
Ratio %/
|
|
|
|
Prior
|
|
|
Ratio %/
|
|
|
|
Total
|
|
|
Ratio %/
|
(Dollars in millions)
|
|
Year
|
|
|
Pt Change
|
|
Years
|
|
|
Pt Change
|
|
Incurred
|
|
|
Pt Change
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attritional
|
|
$
|
751.5
|
|
|
|
53.4
|
%
|
|
|
$
|
-
|
|
|
|
0.0
|
%
|
|
|
$
|
751.5
|
|
|
|
53.4
|
%
|
|
Catastrophes
|
|
|
165.3
|
|
|
|
11.8
|
%
|
|
|
|
104.1
|
|
|
|
7.4
|
%
|
|
|
|
269.4
|
|
|
|
19.2
|
%
|
|
Total segment
|
|
$
|
916.8
|
|
|
|
65.2
|
%
|
|
|
$
|
104.1
|
|
|
|
7.4
|
%
|
|
|
$
|
1,020.9
|
|
|
|
72.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attritional
|
|
$
|
255.0
|
|
|
|
50.8
|
%
|
|
|
$
|
11.6
|
|
|
|
2.3
|
%
|
|
|
$
|
266.6
|
|
|
|
53.1
|
%
|
|
Catastrophes
|
|
|
357.2
|
|
|
|
71.1
|
%
|
|
|
|
(1.0
|
)
|
|
|
-0.2
|
%
|
|
|
|
356.2
|
|
|
|
70.9
|
%
|
|
Total segment
|
|
$
|
612.2
|
|
|
|
121.9
|
%
|
|
|
$
|
10.6
|
|
|
|
2.1
|
%
|
|
|
$
|
622.8
|
|
|
|
124.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attritional
|
|
$
|
261.5
|
|
|
|
51.2
|
%
|
|
|
$
|
(93.6
|
)
|
|
|
-18.3
|
%
|
|
|
$
|
167.9
|
|
|
|
32.8
|
%
|
|
Catastrophes
|
|
|
65.5
|
|
|
|
12.8
|
%
|
|
|
|
(25.8
|
)
|
|
|
-5.1
|
%
|
|
|
|
39.7
|
|
|
|
7.8
|
%
|
|
Total segment
|
|
$
|
327.0
|
|
|
|
64.0
|
%
|
|
|
$
|
(119.4
|
)
|
|
|
-23.4
|
%
|
|
|
$
|
207.6
|
|
|
|
40.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variance 2018/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attritional
|
|
$
|
496.5
|
|
|
|
2.6
|
|
pts
|
|
$
|
(11.6
|
)
|
|
|
(2.3
|
)
|
pts
|
|
$
|
484.9
|
|
|
|
0.3
|
|
pts
|
Catastrophes
|
|
|
(191.9
|
)
|
|
|
(59.3
|
)
|
pts
|
|
|
105.1
|
|
|
|
7.6
|
|
pts
|
|
|
(86.8
|
)
|
|
|
(51.7
|
)
|
pts
|
Total segment
|
|
$
|
304.6
|
|
|
|
(56.7
|
)
|
pts
|
|
$
|
93.5
|
|
|
|
5.3
|
|
pts
|
|
$
|
398.1
|
|
|
|
(51.4
|
)
|
pts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variance 2017/2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attritional
|
|
$
|
(6.5
|
)
|
|
|
(0.4
|
)
|
pts
|
|
$
|
105.2
|
|
|
|
20.6
|
|
pts
|
|
$
|
98.7
|
|
|
|
20.3
|
|
pts
|
Catastrophes
|
|
|
291.7
|
|
|
|
58.3
|
|
pts
|
|
|
24.8
|
|
|
|
4.9
|
|
pts
|
|
|
316.5
|
|
|
|
63.1
|
|
pts
|
Total segment
|
|
$
|
285.2
|
|
|
|
57.9
|
|
pts
|
|
$
|
130.0
|
|
|
|
25.5
|
|
pts
|
|
$
|
415.2
|
|
|
|
83.4
|
|
pts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Some amounts may not reconcile due to rounding.)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incurred losses and LAE increased by 63.9% to $1,020.9 million in 2018
compared to $622.8 million in 2017, primarily due to an
increase of $496.5 million in current year attritional losses related to the increase in premiums earned resulting primarily from changes in affiliated
reinsurance agreements, including the non-renewal of the quota share agreement with Bermuda Re as of December 31, 2017, as well as $104.1 million of unfavorable development on prior years catastrophe losses, mainly related to
Hurricane Harvey, Irma and Maria and the 2017 Mexico earthquake. The increase was partially offset by a decrease of $191.9 million in current year catastrophe losses. The current year catastrophe losses of $165.3 million in 2018 primarily related to Typhoon Jebi ($60.1 million), Cyclone Mekunu ($43.7 million), Australia hailstorm ($24.0 million), Typhoon Trami ($23.0 million), Japan
Floods ($9.5 million), Hurricane Michael ($3.0 million) and Hurricane Florence ($2.0 million). The current year catastrophe losses of $357.2 million in 2017 related to Hurricane Maria ($238.6 million), Hurricane Irma ($79.2 million), the Mexico City earthquake ($10.2 million),
the South Africa Knysna fires ($9.9 million), Cyclone Debbie in Australia ($8.4 million), the Peru storms ($7.4 million) and Hurricane Harvey
($3.4 million).
Incurred losses and LAE increased by 200.0% to $622.8 million in 2017 compared to $207.6 million in 2016,
primarily due to an increase of $291.7 million in current catastrophe losses, favorable development of $105.2 million on prior years attritional losses and $24.8 million on prior years catastrophe losses. The current year catastrophe losses of $357.2 million in 2017 are outlined above. The
$65.5 million of current year catastrophe losses in 2016 were due to the Fort McMurray Canada wildfire ($24.9 million), Hurricane Matthew ($13.7 million),
the Ecuador earthquake ($11.8 million), the 2016 Taiwan earthquake ($7.6 million) and the New Zealand earthquake ($6.9 million).
Segment Expenses. Commission and brokerage increased to $355.5 million in 2018 compared to $101.9 million in 2017. The increase was mainly due to changes in affiliated
reinsurance agreements, including the non-renewal of the quota share agreement with Bermuda Re as of December 31, 2017, the impact of increases in premiums earned and changes in the mix of business. Segment other underwriting
expenses increased slightly to $37.7 million in 2018 from $36.3 million in 2017.
Commission and brokerage decreased 8.6% to $101.9 million in
2017 compared to $111.5 million in 2016. The decrease was due to the impact of the decrease in premiums earned, the impact of affiliated
quota share agreements and the changes in the mix of business. Segment other underwriting expenses increased slightly to $36.3 million in 2017
compared to $34.3 million in 2016.
Insurance.
The following table presents the underwriting results and ratios for the Insurance segment for the periods indicated.
|
|
Years
Ended December 31,
|
|
2018/2017
|
|
2017/2016
|
(Dollars in millions) |
|
2018 |
|
|
2017 |
|
|
2016 |
|
|
Variance |
|
|
% Change |
|
|
Variance |
|
|
% Change |
|
Gross written premiums
|
|
$
|
2,004.1
|
|
|
$
|
1,855.9
|
|
|
$
|
1,668.8
|
|
|
$
|
148.2
|
|
|
|
8.0
|
%
|
|
$
|
187.1
|
|
|
|
11.2
|
%
|
Net written premiums
|
|
|
1,512.2
|
|
|
|
972.8
|
|
|
|
620.3
|
|
|
|
539.3
|
|
|
|
55.4
|
%
|
|
|
352.5
|
|
|
|
56.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums earned
|
|
$
|
1,452.7
|
|
|
$
|
589.1
|
|
|
$
|
593.1
|
|
|
$
|
863.6
|
|
|
|
146.6
|
%
|
|
$
|
(4.0
|
)
|
|
|
-0.7
|
%
|
Incurred losses and LAE
|
|
|
999.3
|
|
|
|
504.9
|
|
|
|
588.6
|
|
|
|
494.4
|
|
|
|
97.9
|
%
|
|
|
(83.7
|
)
|
|
|
-14.2
|
%
|
Commission and brokerage
|
|
|
217.8
|
|
|
|
(51.3
|
)
|
|
|
(19.6
|
)
|
|
|
269.1
|
|
|
NM
|
|
|
|
(31.7
|
)
|
|
|
162.0
|
%
|
Other underwriting expenses
|
|
|
195.4
|
|
|
|
162.7
|
|
|
|
156.6
|
|
|
|
32.7
|
|
|
|
20.1
|
%
|
|
|
6.1
|
|
|
|
3.9
|
%
|
Underwriting gain (loss)
|
|
$
|
40.2
|
|
|
$
|
(27.1
|
)
|
|
$
|
(132.5
|
)
|
|
$
|
67.3
|
|
|
|
-248.0
|
%
|
|
$
|
105.4
|
|
|
|
-79.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Point Chg
|
|
|
|
|
|
|
Point Chg
|
|
Loss ratio
|
|
|
68.8
|
%
|
|
|
85.7
|
%
|
|
|
99.2
|
%
|
|
|
|
|
|
|
(16.9
|
)
|
|
|
|
|
|
|
(13.5
|
)
|
Commission and brokerage ratio
|
|
|
15.0
|
%
|
|
|
-8.7
|
%
|
|
|
-3.3
|
%
|
|
|
|
|
|
|
23.7
|
|
|
|
|
|
|
|
(5.4
|
)
|
Other underwriting expense ratio
|
|
|
13.4
|
%
|
|
|
27.6
|
%
|
|
|
26.5
|
%
|
|
|
|
|
|
|
(14.2
|
)
|
|
|
|
|
|
|
1.1
|
|
Combined ratio
|
|
|
97.2
|
%
|
|
|
104.6
|
%
|
|
|
122.3
|
%
|
|
|
|
|
|
|
(7.4
|
)
|
|
|
|
|
|
|
(17.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Some amounts may not reconcile due to rounding)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(NM, not meaningful)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums. Gross written premiums increased by 8.0% to $2,004.1 million in 2018 compared to $1,855.9 million in 2017. This increase was related to most lines of business including casualty, energy and accident and health. Net written premiums increased by 55.4%
to $1,512.2 million in 2018 compared to $972.8 million in 2017.
The difference between the change in gross written premiums compared to the change in net written premiums is primarily due to the impact of affiliated
reinsurance agreements, including the impact of the non-renewal of the quota share agreement between Everest Re and Bermuda Re. Premiums earned increased 146.6% to $1,452.7 million in 2018 compared to $589.1 million in 2017. The change in premiums earned relative to net written premiums is partially due to the impact of the non-renewal of the quota share contract between Everest Re and Bermuda Re and is also the result of
timing; premiums are earned ratably over the coverage period whereas written premiums are recorded at the initiation of the coverage period.
Gross written premiums increased by 11.2% to $1,855.9 million in 2017
compared to $1,668.8 million in 2016. Excluding the impact of the sale of Heartland, which accounted for $230.4 million of gross written premiums in
2016, gross written premiums increased $417.4 million. This increase was primarily driven by expansion of many lines of business, including retail casualty, retail property and accident and health. Net written premiums increased by 56.8% to
$972.8 million in 2017 compared to $620.3 million in 2016.
The difference between the change in gross written premiums compared to the change in net written premiums is primarily due to the impact of affiliated quota
share agreements, including the impact of the non-renewal of the quota share agreement between Everest Re and Bermuda Re. Premiums earned decreased slightly to $589.1 million in 2017 compared to $593.1 million in 2016. The change in premiums earned relative to net written premiums
is the result of timing; premiums are earned ratably over the coverage period whereas written premiums are recorded at the initiation of the coverage period.
Incurred Losses and LAE. The following table presents the incurred losses and LAE for the Insurance segment for the periods indicated.
|
|
Years Ended December 31,
|
|
|
Current
|
|
|
Ratio %/
|
|
Prior
|
|
|
Ratio %/
|
|
Total
|
|
|
Ratio %/
|
(Dollars in millions)
|
|
Year
|
|
|
Pt Change
|
|
Years
|
|
|
Pt Change
|
|
Incurred
|
|
|
Pt Change
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attritional
|
|
$
|
962.6
|
|
|
|
66.3
|
%
|
|
|
$
|
-
|
|
|
|
0.0
|
%
|
|
|
$
|
962.6
|
|
|
|
66.3
|
%
|
|
Catastrophes
|
|
|
42.1
|
|
|
|
2.9
|
%
|
|
|
|
(5.4
|
)
|
|
|
-0.4
|
%
|
|
|
|
36.7
|
|
|
|
2.5
|
%
|
|
Total segment
|
|
$
|
1,004.7
|
|
|
|
69.2
|
%
|
|
|
$
|
(5.4
|
)
|
|
|
-0.4
|
%
|
|
|
$
|
999.3
|
|
|
|
68.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attritional
|
|
$
|
423.4
|
|
|
|
71.9
|
%
|
|
|
$
|
(33.5
|
)
|
|
|
-5.7
|
%
|
|
|
$
|
389.9
|
|
|
|
66.2
|
%
|
|
Catastrophes
|
|
|
114.5
|
|
|
|
19.4
|
%
|
|
|
|
0.6
|
|
|
|
0.1
|
%
|
|
|
|
115.0
|
|
|
|
19.5
|
%
|
|
Total segment
|
|
$
|
537.9
|
|
|
|
91.3
|
%
|
|
|
$
|
(32.9
|
)
|
|
|
-5.6
|
%
|
|
|
$
|
504.9
|
|
|
|
85.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attritional
|
|
$
|
470.2
|
|
|
|
79.2
|
%
|
|
|
$
|
96.5
|
|
|
|
16.3
|
%
|
|
|
$
|
566.7
|
|
|
|
95.5
|
%
|
|
Catastrophes
|
|
|
22.2
|
|
|
|
3.7
|
%
|
|
|
|
(0.3
|
)
|
|
|
0.0
|
%
|
|
|
|
21.9
|
|
|
|
3.7
|
%
|
|
Total segment
|
|
$
|
492.4
|
|
|
|
82.9
|
%
|
|
|
$
|
96.2
|
|
|
|
16.3
|
%
|
|
|
$
|
588.6
|
|
|
|
99.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variance 2018/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attritional
|
|
$
|
539.2
|
|
|
|
(5.6
|
)
|
pts
|
|
$
|
33.5
|
|
|
|
5.7
|
|
pts
|
|
$
|
572.7
|
|
|
|
0.1
|
|
pts
|
Catastrophes
|
|
|
(72.4
|
)
|
|
|
(16.5
|
)
|
pts
|
|
|
(6.0
|
)
|
|
|
(0.5
|
)
|
pts
|
|
|
(78.3
|
)
|
|
|
(17.0
|
)
|
pts
|
Total segment
|
|
$
|
466.8
|
|
|
|
(22.1
|
)
|
pts
|
|
$
|
27.5
|
|
|
|
5.2
|
|
pts
|
|
$
|
494.4
|
|
|
|
(16.9
|
)
|
pts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variance 2017/2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attritional
|
|
$
|
(46.8
|
)
|
|
|
(7.3
|
)
|
pts
|
|
$
|
(130.0
|
)
|
|
|
(22.0
|
)
|
pts
|
|
$
|
(176.8
|
)
|
|
|
(29.3
|
)
|
pts
|
Catastrophes
|
|
|
92.3
|
|
|
|
15.7
|
|
pts
|
|
|
0.9
|
|
|
|
0.1
|
|
pts
|
|
|
93.1
|
|
|
|
15.8
|
|
pts
|
Total segment
|
|
$
|
45.5
|
|
|
|
8.4
|
|
pts
|
|
$
|
(129.1
|
)
|
|
|
(21.9
|
)
|
pts
|
|
$
|
(83.7
|
)
|
|
|
(13.5
|
)
|
pts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Some amounts may not reconcile due to rounding.)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incurred losses and LAE increased by 97.9% to $999.3 million in 2018
compared to $504.9 million in 2017, mainly due to an increase of $539.2 million in current year attritional losses, resulting from the impact of the
increase in premiums earned resulting primarily from changes in affiliated reinsurance agreements, including the non-renewal of the quota share agreement with
Bermuda Re as of December 31, 2017. The increase was partially offset by a decrease of $72.4 million in current year catastrophe losses. The current year catastrophe losses of $42.1 million in 2018 primarily related to Hurricane Michael
($24.0 million), Hurricane Florence ($9.5 million), the U.S. winter storms ($7.1 million) and other 2018 California wildfires ($1.5 million). The current year catastrophe losses of $114.5 million in 2017 primarily related to Hurricane Irma ($53.9 million), Hurricane Harvey ($47.0 million), Hurricane Maria ($8.7 million), the 2017 US Midwest storms ($2.4 million), the Northern California
wildfires ($1.7 million) and the Southern California wildfires ($0.8 million).
Incurred losses and LAE decreased by 14.2% to $504.9 million in 2017 compared to $588.6 million in 2016, mainly due to $130.0 million of more favorable development on prior years attritional losses
and a decrease of $46.8 million in current year attritional losses, partially offset by an increase of $92.3 million in current year catastrophe losses. The decrease in current year attritional losses primarily related to changes in the mix
of business and the impact of affiliated quota share agreements. The $33.5 million of favorable
development on prior years attritional losses in 2017 mainly related to workers compensation business. The current year catastrophe losses of $114.5 million in 2017 are outlined above. The $22.2 million of current
year catastrophe losses in 2016 were due to the U.S. storms ($15.0 million), Hurricane Matthew ($5.5 million) and the Fort McMurray Canada wildfire
($1.7 million).
Segment Expenses. Commission and brokerage increased to $217.8 million in 2018 compared to ($51.3) million in 2017. The increase was mainly due to changes in affiliated
reinsurance agreements, including the non-renewal of the quota share agreement with Bermuda Re as of December 31, 2017, the impact of increases in premiums earned and changes in the mix of business. Segment other underwriting
expenses increased to $195.4 million in 2018 compared to $162.7 million in 2017. The increases were mainly due to the impact of the increases in premiums earned and expenses related to the continued build out of the insurance business.
Commission and brokerage decreased to ($51.3) million in
2017 compared to ($19.6) million in 2016. The decrease was mainly due to the impact of changes in the mix of business and the impacts from
affiliated quota share agreements. Segment other underwriting expenses increased to $162.7 million in 2017 compared to $156.6 million in 2016. The increase was primarily due to the impact of the increased expenses related to the continued build out of the insurance business.
SAFE HARBOR DISCLOSURE
This report contains forward-looking statements within the meaning of the U.S. federal securities laws. We intend these forward-looking
statements to be covered by the safe harbor provisions for forward-looking statements in the federal securities laws. In some cases, these statements can be identified by the use of forward-looking words such as “may”, “will”, “should”,
“could”, “anticipate”, “estimate”, “expect”, “plan”, “believe”, “predict”, “potential” and “intend”. Forward-looking statements contained in this report include information regarding our reserves for losses and LAE, the impact of the TCJA,
the adequacy of our provision for uncollectible balances, estimates of our catastrophe exposure, the effects of catastrophic events on our financial statements and the ability of our subsidiaries to pay dividends. Forward-looking statements
only reflect our expectations and are not guarantees of performance. These statements involve risks, uncertainties and assumptions. Actual events or results may differ materially from our expectations. Important factors that could cause
our actual events or results to be materially different from our expectations include those discussed under the caption ITEM 1A, “Risk Factors”. We undertake no obligation to update or revise publicly any forward-looking statements, whether
as a result of new information, future events or otherwise.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market Sensitive Instruments.
The SEC’s Financial Reporting Release #48 requires registrants to clarify and expand upon the existing financial statement disclosure
requirements for derivative financial instruments, derivative commodity instruments and other financial instruments (collectively, “market sensitive instruments”). We do not generally enter into market sensitive instruments for trading
purposes.
Our current investment strategy seeks to maximize after-tax income through a high quality, diversified, taxable and tax-preferenced fixed
maturity portfolio, while maintaining an adequate level of liquidity. Our mix of taxable and tax-preferenced investments is adjusted periodically, consistent with our current and projected operating results, market conditions and our tax
position. The fixed maturity securities in the investment portfolio are comprised of non-trading available for sale securities. Additionally, we have invested in equity securities.
The overall investment strategy considers the scope of present and anticipated Company operations. In particular, estimates of the financial
impact resulting from non-investment asset and liability transactions, together with our capital structure and other factors, are used to develop a net liability analysis. This analysis includes estimated payout characteristics for which our
investments provide liquidity. This analysis is considered in the development of specific investment strategies for asset allocation, duration and credit quality. The change in overall market sensitive risk exposure principally reflects the
asset changes that took place during the period.
Interest Rate Risk. Our $10.7 billion investment portfolio, at December 31, 2018, is principally comprised of fixed maturity securities, which are generally subject to interest rate risk and some foreign currency exchange rate risk,
and some equity securities, which are subject to price fluctuations and some foreign exchange rate risk. The overall economic impact of the foreign exchange risks on the investment portfolio is partially mitigated by changes in the dollar
value of foreign currency denominated liabilities and their associated income statement impact.
Interest rate risk is the potential change in value of the fixed maturity securities portfolio, including short-term investments, from a change
in market interest rates. In a declining interest rate environment, it includes prepayment risk on the $288.5 million of mortgage-backed securities in the $6,964.4 million fixed maturity portfolio. Prepayment risk results from potential
accelerated principal payments that shorten the average life and thus the expected yield of the security.
The table below displays the potential impact of market value fluctuations and after-tax unrealized appreciation on our fixed maturity portfolio
(including $174.1 million of short-term investments) for the period indicated based on upward and downward parallel and immediate 100 and 200 basis point shifts in interest rates. For legal entities with a U.S. dollar functional currency,
this modeling was performed on each security individually. To generate appropriate price estimate on mortgage-backed securities, changes in prepayment expectations under different interest rate environments were taken into account. For
legal entities with non-U.S. dollar functional currency, the effective duration of the involved portfolio of securities was used as a proxy for the market value change under the various interest rate change scenarios.
|
|
Impact of Interest Rate Shift in Basis Points
|
|
|
At December 31, 2018
|
(Dollars in millions)
|
|
-200
|
|
-100
|
|
0
|
|
100
|
|
200
|
Total Market/Fair Value
|
|
$
|
7,505.3
|
|
|
$
|
7,320.6
|
|
|
$
|
7,138.5
|
|
|
$
|
6,957.6
|
|
|
$
|
6,778.5
|
|
Market/Fair Value Change from Base (%)
|
|
|
5.1
|
%
|
|
|
2.6
|
%
|
|
|
0.0
|
%
|
|
|
-2.5
|
%
|
|
|
-5.0
|
%
|
Change in Unrealized Appreciation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
After-tax from Base ($)
|
|
$
|
289.7
|
|
|
$
|
143.9
|
|
|
$
|
-
|
|
|
$
|
(143.0
|
)
|
|
$
|
(284.4
|
)
|
|
|
Impact of Interest Rate Shift in Basis Points
|
|
|
At December 31, 2017
|
(Dollars in millions)
|
|
-200
|
|
-100
|
|
0
|
|
100
|
|
200
|
Total Market/Fair Value
|
|
$
|
5,524.8
|
|
|
$
|
5,367.4
|
|
|
$
|
5,213.4
|
|
|
$
|
5,061.3
|
|
|
$
|
4,910.9
|
|
Market/Fair Value Change from Base (%)
|
|
|
6.0
|
%
|
|
|
3.0
|
%
|
|
|
0.0
|
%
|
|
|
-2.9
|
%
|
|
|
-5.8
|
%
|
Change in Unrealized Appreciation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
After-tax from Base ($)
|
|
$
|
202.4
|
|
|
$
|
100.1
|
|
|
$
|
-
|
|
|
$
|
(98.9
|
)
|
|
$
|
(196.6
|
)
|
We had $10,167.0 million and $9,343.0 million of gross reserves for losses and LAE as of December 31, 2018 and December 31, 2017, respectively. These amounts
are recorded at their nominal value, as opposed to present value, which would reflect a discount adjustment to reflect the time value of money. Since losses are paid out over a period of time, the present value of the reserves is less than the
nominal value. As interest rates rise, the present value of the reserves decreases and, conversely, as interest rates decline, the present value increases. These movements are the opposite of the interest rate impacts on the fair value of
investments. While the difference between present value and nominal value is not reflected in our financial statements, our financial results will include investment income over time from the investment portfolio until the claims are paid.
Our loss and loss reserve obligations have an expected duration that is reasonably consistent with our fixed income portfolio.
Equity Risk. Equity risk is the potential change in fair
and/or market value of the common stock, preferred stock and mutual fund portfolios arising from changing prices. Our equity investments consist of a diversified portfolio of individual securities. The primary objective of the equity
portfolio is to obtain greater total return relative to our core bonds over time through market appreciation and income.
The table below displays the impact on fair/market value and after-tax change in fair/market value of a 10% and 20% change in equity prices up
and down for the periods indicated.
|
|
Impact of Percentage Change in Equity Fair/Market Values
|
|
|
At December 31, 2018
|
(Dollars in millions)
|
|
-20%
|
|
-10%
|
|
0%
|
|
10%
|
|
20%
|
Fair/Market Value of the Equity Portfolio
|
|
$
|
451.5
|
|
|
$
|
507.9
|
|
|
$
|
564.3
|
|
|
$
|
620.8
|
|
|
$
|
677.2
|
|
After-tax Change in Fair/Market Value
|
|
|
(89.2
|
)
|
|
|
(44.6
|
)
|
|
|
-
|
|
|
|
44.6
|
|
|
|
89.2
|
|
|
|
Impact of Percentage Change in Equity Fair/Market Values
|
|
|
At December 31, 2017
|
(Dollars in millions)
|
|
-20%
|
|
-10%
|
|
0%
|
|
10%
|
|
20%
|
Fair/Market Value of the Equity Portfolio
|
|
$
|
657.9
|
|
|
$
|
740.1
|
|
|
$
|
822.4
|
|
|
$
|
904.6
|
|
|
$
|
986.9
|
|
After-tax Change in Fair/Market Value
|
|
|
(106.9
|
)
|
|
|
(53.5
|
)
|
|
|
-
|
|
|
|
53.5
|
|
|
|
106.9
|
|
Foreign Currency Risk. Foreign currency risk is the potential change in
value, income and cash flow arising from adverse changes in foreign currency exchange rates. Each of our non-U.S. (“foreign”) operations maintains capital in the currency of the country of its geographic location consistent with local
regulatory guidelines. Each foreign operation may conduct business in its local currency, as well as the currency of other countries in which it operates. The primary foreign currency exposures for these foreign operations are the Singapore
and Canadian Dollars. We mitigate foreign exchange exposure by generally matching the currency and duration of our assets to our corresponding operating liabilities. In accordance with FASB guidance, the impact on the market value of
available for sale fixed maturities due to changes in foreign currency exchange rates, in relation to functional currency, is reflected as part of other comprehensive income. Conversely, the impact of changes in foreign currency exchange
rates, in relation to functional currency, on other assets and liabilities is reflected through net income as a component of other income (expense). In addition, we translate the assets, liabilities and income of non-U.S. dollar functional
currency legal entities to the U.S. dollar. This translation amount is reported as a component of other comprehensive income.
The tables below display the potential impact of a parallel and immediate 10% and 20% increase and decrease in foreign exchange rates on the
valuation of invested assets subject to foreign currency exposure for the periods indicated. This analysis includes the after-tax impact of translation from transactional currency to functional currency as well as the after-tax impact of
translation from functional currency to the U.S. dollar reporting currency.
|
|
Change in Foreign Exchange Rates in Percent
|
|
|
At December 31, 2018
|
(Dollars in millions)
|
|
-20%
|
|
-10%
|
|
0%
|
|
10%
|
|
20%
|
Total After-tax Foreign Exchange Exposure
|
|
$
|
(166.9
|
)
|
|
$
|
(83.4
|
)
|
|
$
|
-
|
|
|
$
|
83.4
|
|
|
$
|
166.9
|
|
|
|
Change in Foreign Exchange Rates in Percent
|
|
|
At December 31, 2017
|
(Dollars in millions)
|
|
-20%
|
|
-10%
|
|
0%
|
|
10%
|
|
20%
|
Total After-tax Foreign Exchange Exposure
|
|
$
|
(131.8
|
)
|
|
$
|
(65.9
|
)
|
|
$
|
-
|
|
|
$
|
65.9
|
|
|
$
|
131.8
|
|
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and schedules listed in the accompanying Index to Financial Statements and Schedules on page F-1 are filed as part of
this report.
ITEM 9. |
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
|
None.
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
As required by Rule 13a-15(b) of the Securities Exchange Act of 1934 (the Exchange Act), our management, including our Chief Executive Officer
and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act). Based on that evaluation, the Chief Executive Officer and Chief Financial Officer
have concluded that our disclosure controls and procedures were effective as of the end of the period covered by this annual report.
Management’s Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal controls over financial reporting. Our internal control over
financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our financial statements for external purposes in accordance with generally accepted accounting
principles.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of
any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management has assessed the effectiveness of our internal control over financial reporting as of December 31, 2018. In making this assessment,
we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control – Integrated Framework
(2013) Based on our assessment we concluded that, as of December 31, 2018, our internal control over financial reporting is effective based on those criteria.
Attestation Report of the Registered Public Accounting Firm
This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over
financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the Company to provide only management’s report
in this annual report due to the Company’s status as a non-accelerated filer.
Changes in Internal Control Over Financial Reporting
As required by Rule 13a-15(d) of the Exchange Act, our management, including our Chief Executive Officer and Chief Financial Officer, has
evaluated our internal control over financial reporting to determine whether any changes occurred during the fourth fiscal quarter covered by this annual report that have materially affected, or are reasonably likely to materially affect, our
internal control over financial reporting. Based on that evaluation, there has been no such change during the fourth quarter.
ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information for Item 10 is not required pursuant to General Instruction I(2) of Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
Information for Item 11 is not required pursuant to General Instruction I(2) of Form 10-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Information for Item 12 is not required pursuant to General Instruction I(2) of Form 10-K.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Information for Item 13 is not required pursuant to General Instruction I(2) of Form 10-K.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The PricewaterhouseCoopers LLP (and its worldwide affiliates) fees incurred are as follows for the periods indicated:
(Dollars in thousands)
|
|
2018
|
|
|
2017
|
|
(1)
|
Audit Fees
|
|
$
|
2,633.1
|
|
|
$
|
2,666.3
|
|
(2)
|
Audit-Related Fees
|
|
|
159.8
|
|
|
|
133.1
|
|
(3)
|
Tax Fees
|
|
|
172.0
|
|
|
|
561.5
|
|
(4)
|
All Other Fees
|
|
|
14.0
|
|
|
|
13.6
|
|
Audit fees include the annual audit and quarterly financial statement reviews, subsidiary audits, and procedures required to be performed by the independent
auditor to be able to form an opinion on our consolidated financial statements. These other procedures include information systems and procedural reviews and testing performed in order to understand and place reliance on the systems of
internal control, and consultations relating to the audit or quarterly review. Audit fees may also include statutory audits or financial audits for our subsidiaries or affiliates and services associated with SEC registration statements,
periodic reports and other documents filed with the SEC or other documents issued in connection with securities offerings.
Audit-related fees include assurance and related services that are reasonably related to the performance of the audit or review of our financial
statements, including due diligence services pertaining to potential business acquisitions/dispositions, accounting consultations related to accounting, financial reporting or disclosure matters not classified as “audit services”; assistance
with understanding and implementing new accounting and financial reporting guidance from rule making authorities; financial audits of employee benefit plans; agreed-upon or expanded audit procedures related to accounting and/or billing
records required to respond to or comply with financial, accounting or regulatory reporting matters and assistance with internal control reporting requirements.
Tax fees include tax compliance, tax planning and tax advice and is granted general pre-approval by Group’s Audit Committee.
All other fees represent an accounting research subscription and software.
Under its Charter and the “Audit and Non-Audit Services Pre-Approval Policy” (the “Policy”), the Audit Committee is required to pre-approve the audit and
non-audit services to be performed by the independent auditors. The Policy mandates specific approval by the Audit Committee for any service that has not received a general pre-approval or that exceeds pre-approved cost levels or budgeted
amounts. For both specific and general pre-approval, the Audit Committee considers whether such services are consistent with the SEC’s rules on auditor independence. The Audit Committee also considers whether the independent auditors are best
positioned to provide the most effective and efficient service and whether the service might enhance the Company’s ability to manage or control risk or improve audit quality. The Audit Committee is also mindful of the relationship between fees
for audit and non-audit services in deciding whether to pre-approve any such services. It may determine, for each fiscal year, the appropriate ratio between the total amount of audit, audit-related and tax fees and a total amount of fees for
certain permissible non-audit services classified below as “All Other Fees”. All such factors are considered as a whole, and no one factor is determinative. The Audit Committee further considered whether the performance by
PricewaterhouseCoopers LLP of the non-audit related services disclosed below is compatible with maintaining their independence. The Audit Committee approved all of the audit-related fees, tax fees and all other fees for 2018 and 2017.
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
Exhibits
The exhibits listed on the accompanying Index to Exhibits on page E-1 are filed as part of this report except that the certifications in Exhibit
32 are being furnished to the SEC, rather than filed with the SEC, as permitted under applicable SEC rules.
Financial Statements and Schedules.
The financial statements and schedules listed in the accompanying Index to Financial Statements and Schedules on page F-1 are filed as part of
this report.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized on April 1, 2019.
|
EVEREST REINSURANCE HOLDINGS, INC.
|
|
|
|
|
|
|
|
|
|
|
By:
|
/S/DOMINIC J. ADDESSO
|
|
|
|
Dominic J. Addesso
(Chairman, President and
Chief Executive Officer)
|
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature
|
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/S/ DOMINIC J. ADDESSO
|
|
|
Chairman, President and Chief Executive Officer (Principal Executive Officer)
|
|
April 1, 2019
|
Dominic J. Addesso
|
|
|
|
|
|
|
|
/S/ CRAIG HOWIE
|
|
|
Executive Vice President and Chief Financial Officer (Principal Financial Officer)
|
|
April 1, 2019
|
Craig Howie
|
|
|
|
|
|
|
|
/S/ KEITH T. SHOEMAKER
|
|
|
Comptroller (Principal Accounting Officer)
|
|
April 1, 2019
|
Keith T. Shoemaker
|
|
INDEX TO EXHIBITS
|
|
|
|
|
Exhibit No.
|
|
|
|
|
|
2.
|
1
|
Agreement and Plan of Merger among Everest Reinsurance Holdings, Inc., Everest Re Group, Ltd. and Everest Re Merger Corporation,
incorporated herein by reference to Exhibit 2.1 to the Registration Statement on Form S-4 (No. 333-87361)
|
|
|
|
|
|
3.
|
1
|
Certificate of Incorporation of Everest Reinsurance Holdings, Inc., incorporated herein by reference to Exhibit 4.1 to the Registration
Statement on Form S-8 (No. 333-05771)
|
|
|
|
|
|
3.
|
2
|
By-Laws of Everest Reinsurance Holdings, Inc., incorporated herein by reference to Exhibit 3.2 to the Everest Reinsurance Holdings, Inc.
Quarterly Report on Form 10-Q for the quarter ended March 31, 2000
|
|
|
|
|
|
4.
|
1
|
Indenture, dated March 14, 2000, between Everest Reinsurance Holdings, Inc. and The Chase Manhattan Bank, as Trustee, incorporated
herein by reference to Exhibit 4.1 to Everest Reinsurance Holdings, Inc. Form 8-K filed on March 15, 2000
|
|
|
|
|
|
4.
|
2
|
Fourth Supplemental Indenture relating to Holdings $400.0 million 4.868% Senior Notes due June 1, 2044, dated June 5 2014, between
Holdings and the Bank of New York Mellon, as Trustee, incorporated herein by reference to Exhibit 4.1 to Everest Reinsurance Holdings, Inc. Form 8-K filed on June 5, 2014
|
|
|
|
|
|
10.
|
1
|
Completion of Tender Offer relating to Everest Reinsurance Holdings, Inc. 6.60% Fixed to Floating Rate Long Term Subordinated Notes
(LoTSSM) dated March 19, 2009, incorporated herein by reference to Exhibit 99.1 to Everest Re Group, Ltd. Form 8-K filed on March 31, 2009
|
|
|
|
|
|
*10.
|
2
|
Employment agreement between Everest Global Services, Inc., Everest Reinsurance Holdings Inc. and Dominic J.
Addesso, dated December 4, 2015, incorporated herein by reference to Exhibit 10.1 to Everest Re Group, Ltd. Form 8-K filed on December 8, 2015.
|
|
|
|
|
|
*10.
|
3
|
Employment agreement between Everest National Insurance Company and Jonathan M. Zaffino, dated September 8, 2017,
incorporated herein by reference to Exhibit 10.1 to Everest Re Group, Ltd. Form 8-K filed on September 12, 2017.
|
|
|
|
|
|
*10.
|
4
|
Amendment of employment agreement between Everest Global Services, Inc., Everest Re Group, Ltd., Everest Reinsurance
Holdings Inc. and Dominic J. Addesso, dated November 20, 2017, incorporated herein by reference to Exhibit 10.1 to Everest Re Group, Ltd. Form 8-K filed November 20, 2017
|
|
|
|
|
|
31.
|
1
|
Section 302 Certification of Dominic J. Addesso, filed herewith
|
|
|
|
|
|
31.
|
2
|
Section 302 Certification of Craig Howie, filed herewith
|
|
|
|
|
|
32.
|
1
|
Section 906 Certification of Dominic J. Addesso and Craig Howie, filed herewith
|
|
|
|
|
|
101.
|
INS
|
XBRL Instance Document
|
|
|
|
|
|
101.
|
SCH
|
XBRL Taxonomy Extension Schema
|
|
|
|
|
|
101.
|
CAL
|
XBRL Taxonomy Extension Calculation Linkbase
|
|
|
|
|
|
101.
|
DEF
|
XBRL Taxonomy Extension Definition Linkbase
|
|
|
|
|
|
101.
|
LAB
|
XBRL Taxonomy Extension Label Linkbase
|
|
|
|
|
|
101.
|
PRE
|
XBRL Taxonomy Extension Presentation Linkbase
|
__________________________________________
* Management contract or compensatory plan or arrangement.
EVEREST REINSURANCE HOLDINGS, INC.
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
|
Pages
|
|
Report of Independent Registered Public Accounting Firm
|
F-2
|
|
|
|
Consolidated Balance Sheets at December 31, 2018 and 2017
|
F-3
|
|
|
|
Consolidated Statements of Operations and Comprehensive Income (Loss) for the Years Ended
|
|
|
December 31, 2018, 2017 and 2016
|
F-4
|
|
|
|
Consolidated Statements of Changes in Stockholder’s Equity for the Years Ended
|
|
|
December 31, 2018, 2017 and 2016
|
F-5
|
|
|
|
Consolidated Statements of Cash Flows for the Years Ended
|
|
|
December 31, 2018, 2017 and 2016
|
F-6
|
|
|
|
Notes to Consolidated Financial Statements
|
F-7
|
|
|
|
Schedules
|
|
|
|
|
I
|
Summary of Investments Other Than Investments in Related Parties at December 31, 2018
|
S-1
|
|
|
|
II
|
Condensed Financial Information of Registrant:
|
|
|
|
|
|
Balance Sheets as of December 31, 2018 and 2017
|
S-2
|
|
|
|
|
Statements of Operations for the Years Ended December 31, 2018, 2017 and 2016
|
S-3
|
|
|
|
|
Statements of Cash Flows for the Years Ended December 31, 2018, 2017 and 2016
|
S-4
|
|
|
|
|
Notes to Condensed Financial Information
|
S-5
|
|
|
|
III
|
Supplementary Insurance Information for the Years Ended
|
|
|
December 31, 2018, 2017 and 2016
|
S-6
|
|
|
|
IV
|
Reinsurance for the Years Ended December 31, 2018, 2017 and 2016
|
S-7
|
Schedules other than those listed above are omitted for the reason that they are not applicable or the information is
otherwise contained in the Financial Statements.
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholder
of Everest Reinsurance Holdings, Inc.:
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Everest Reinsurance Holdings, Inc. and its subsidiaries (the “Company”) as of
December 31, 2018 and 2017, and the related consolidated statements of operations and comprehensive income (loss), changes in stockholder’s equity, and cash flows for each of the three years in the period ended December 31, 2018, including the
related notes and financial statement schedules listed in the index appearing on page F-1 (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2018 in conformity with accounting
principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the
Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the
Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform,
an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of
the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error
or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating
the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
New York, New York
April 1, 2019
We have served as the Company's auditor since 1996.
EVEREST REINSURANCE HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
|
|
December 31,
|
|
(Dollars in thousands, except share amounts and par value per share)
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
ASSETS:
|
|
|
|
|
|
|
Fixed maturities - available for sale, at market value
|
|
$
|
6,962,075
|
|
|
$
|
4,971,921
|
|
(amortized cost: 2018, $7,032,749; 2017, $4,927,622)
|
|
|
|
|
|
|
|
|
Fixed maturities - available for sale, at fair value
|
|
|
2,337
|
|
|
|
-
|
|
Equity securities, at fair value
|
|
|
564,338
|
|
|
|
822,375
|
|
Short-term investments (cost: 2018, $174,155; 2017, $241,506)
|
|
|
174,131
|
|
|
|
241,506
|
|
Other invested assets (cost: 2018, $882,647; 2017, $835,597)
|
|
|
882,647
|
|
|
|
838,694
|
|
Other invested assets, at fair value
|
|
|
1,717,336
|
|
|
|
1,807,473
|
|
Cash
|
|
|
404,522
|
|
|
|
229,552
|
|
Total investments and cash
|
|
|
10,707,386
|
|
|
|
8,911,521
|
|
Note receivable - affiliated
|
|
|
-
|
|
|
|
250,000
|
|
Accrued investment income
|
|
|
47,232
|
|
|
|
35,376
|
|
Premiums receivable
|
|
|
1,471,805
|
|
|
|
1,301,827
|
|
Reinsurance receivables - unaffiliated
|
|
|
1,295,961
|
|
|
|
1,180,648
|
|
Reinsurance receivables - affiliated
|
|
|
3,544,975
|
|
|
|
4,940,039
|
|
Income taxes
|
|
|
409,892
|
|
|
|
87,110
|
|
Funds held by reinsureds
|
|
|
238,566
|
|
|
|
210,939
|
|
Deferred acquisition costs
|
|
|
353,630
|
|
|
|
307,741
|
|
Prepaid reinsurance premiums
|
|
|
328,796
|
|
|
|
346,708
|
|
Other assets
|
|
|
289,962
|
|
|
|
316,603
|
|
TOTAL ASSETS
|
|
$
|
18,688,205
|
|
|
$
|
17,888,512
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES:
|
|
|
|
|
|
|
|
|
Reserve for losses and loss adjustment expenses
|
|
$
|
10,167,018
|
|
|
$
|
9,343,028
|
|
Unearned premium reserve
|
|
|
1,826,868
|
|
|
|
1,607,622
|
|
Funds held under reinsurance treaties
|
|
|
41,600
|
|
|
|
40,536
|
|
Other net payable to reinsurers
|
|
|
316,826
|
|
|
|
491,299
|
|
Senior notes due 6/1/2044
|
|
|
396,954
|
|
|
|
396,834
|
|
Long term notes due 5/1/2067
|
|
|
236,659
|
|
|
|
236,561
|
|
Note payable - affiliated
|
|
|
300,000
|
|
|
|
-
|
|
Accrued interest on debt and borrowings
|
|
|
3,093
|
|
|
|
2,727
|
|
Unsettled securities payable
|
|
|
50,912
|
|
|
|
25,338
|
|
Other liabilities
|
|
|
303,610
|
|
|
|
331,844
|
|
Total liabilities
|
|
|
13,643,540
|
|
|
|
12,475,789
|
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies (Note 15)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDER'S EQUITY:
|
|
|
|
|
|
|
|
|
Common stock, par value: $0.01; 3,000 shares authorized;
|
|
|
|
|
|
|
|
|
1,000 shares issued and outstanding (2018 and 2017)
|
|
|
-
|
|
|
|
-
|
|
Additional paid-in capital
|
|
|
1,100,315
|
|
|
|
387,841
|
|
Accumulated other comprehensive income (loss), net of deferred income tax expense
|
|
|
|
|
|
|
|
|
(benefit) of ($33,506) at 2018 and ($299) at 2017
|
|
|
(126,254
|
)
|
|
|
(942
|
)
|
Retained earnings
|
|
|
4,070,604
|
|
|
|
5,025,824
|
|
Total stockholder's equity
|
|
|
5,044,665
|
|
|
|
5,412,723
|
|
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY
|
|
$
|
18,688,205
|
|
|
$
|
17,888,512
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated financial statements.
|
|
|
|
|
|
|
|
|
EVEREST REINSURANCE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
|
|
Years Ended December 31,
|
|
(Dollars in thousands)
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
REVENUES:
|
|
|
|
|
|
|
|
|
|
Premiums earned
|
|
$
|
4,839,058
|
|
|
$
|
1,949,595
|
|
|
$
|
2,094,049
|
|
Net investment income
|
|
|
314,381
|
|
|
|
286,259
|
|
|
|
264,807
|
|
Net realized capital gains (losses):
|
|
|
|
|
|
|
|
|
|
|
|
|
Other-than-temporary impairments on fixed maturity securities
|
|
|
(6,164
|
)
|
|
|
(6,077
|
)
|
|
|
(25,679
|
)
|
Other-than-temporary impairments on fixed maturity securities
|
|
|
|
|
|
|
|
|
|
|
|
|
transferred to other comprehensive income (loss)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Realized gain (loss) on sale of subsidiary
|
|
|
-
|
|
|
|
-
|
|
|
|
(28,032
|
)
|
Other net realized capital gains (losses)
|
|
|
(179,192
|
)
|
|
|
167,630
|
|
|
|
24,770
|
|
Total net realized capital gains (losses)
|
|
|
(185,356
|
)
|
|
|
161,553
|
|
|
|
(28,941
|
)
|
Other income (expense)
|
|
|
(3,851
|
)
|
|
|
23,750
|
|
|
|
(10,542
|
)
|
Total revenues
|
|
|
4,964,232
|
|
|
|
2,421,157
|
|
|
|
2,319,373
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CLAIMS AND EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Incurred losses and loss adjustment expenses
|
|
|
4,811,018
|
|
|
|
2,039,751
|
|
|
|
1,350,280
|
|
Commission, brokerage, taxes and fees
|
|
|
1,141,714
|
|
|
|
210,925
|
|
|
|
281,424
|
|
Other underwriting expenses
|
|
|
293,347
|
|
|
|
254,886
|
|
|
|
244,966
|
|
Corporate expenses
|
|
|
11,034
|
|
|
|
7,394
|
|
|
|
8,277
|
|
Interest, fee and bond issue cost amortization expense
|
|
|
30,611
|
|
|
|
31,183
|
|
|
|
35,435
|
|
Total claims and expenses
|
|
|
6,287,724
|
|
|
|
2,544,139
|
|
|
|
1,920,382
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS) BEFORE TAXES
|
|
|
(1,323,492
|
)
|
|
|
(122,982
|
)
|
|
|
398,991
|
|
Income tax expense (benefit)
|
|
|
(365,825
|
)
|
|
|
(201,180
|
)
|
|
|
97,347
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS)
|
|
$
|
(957,667
|
)
|
|
$
|
78,198
|
|
|
$
|
301,644
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss), net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized appreciation (depreciation) ("URA(D)") on securities arising during the period
|
|
|
(92,966
|
)
|
|
|
(10,536
|
)
|
|
|
4,114
|
|
Less: reclassification adjustment for realized losses (gains) included in net income (loss)
|
|
|
2,021
|
|
|
|
2,303
|
|
|
|
21,273
|
|
Total URA(D) on securities arising during the period
|
|
|
(90,945
|
)
|
|
|
(8,233
|
)
|
|
|
25,387
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
(36,431
|
)
|
|
|
37,427
|
|
|
|
2,849
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit plan actuarial net gain (loss) for the period
|
|
|
(510
|
)
|
|
|
1,027
|
|
|
|
(7,488
|
)
|
Reclassification adjustment for amortization of net (gain) loss included in net income (loss)
|
|
|
5,021
|
|
|
|
5,477
|
|
|
|
5,073
|
|
Total benefit plan net gain (loss) for the period
|
|
|
4,511
|
|
|
|
6,504
|
|
|
|
(2,415
|
)
|
Total other comprehensive income (loss), net of tax
|
|
|
(122,865
|
)
|
|
|
35,698
|
|
|
|
25,821
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMPREHENSIVE INCOME (LOSS)
|
|
$
|
(1,080,532
|
)
|
|
$
|
113,896
|
|
|
$
|
327,465
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated financial statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
EVEREST REINSURANCE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF
CHANGES IN STOCKHOLDER’S EQUITY
|
|
Years Ended December 31,
|
|
(Dollars in thousands, except share amounts)
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
COMMON STOCK (shares outstanding):
|
|
|
|
|
|
|
|
|
|
Balance, beginning of period
|
|
|
1,000
|
|
|
|
1,000
|
|
|
|
1,000
|
|
Balance, end of period
|
|
|
1,000
|
|
|
|
1,000
|
|
|
|
1,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ADDITIONAL PAID-IN CAPITAL:
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of period
|
|
$
|
387,841
|
|
|
$
|
387,567
|
|
|
$
|
374,789
|
|
Capital contribution from parent
|
|
|
712,253
|
|
|
|
-
|
|
|
|
-
|
|
Share-based compensation plans
|
|
|
221
|
|
|
|
274
|
|
|
|
12,778
|
|
Balance, end of period
|
|
|
1,100,315
|
|
|
|
387,841
|
|
|
|
387,567
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS),
|
|
|
|
|
|
|
|
|
|
|
|
|
NET OF DEFERRED INCOME TAXES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of period
|
|
|
(942
|
)
|
|
|
(36,315
|
)
|
|
|
(62,136
|
)
|
Change to beginning balance due to adoption of Accounting Standards Update 2016-01
|
|
|
(2,447
|
)
|
|
|
-
|
|
|
|
-
|
|
Reclass due to early adoption of Accounting Standards Update 2018-02
|
|
|
-
|
|
|
|
(325
|
)
|
|
|
-
|
|
Net increase (decrease) during the period
|
|
|
(122,865
|
)
|
|
|
35,698
|
|
|
|
25,821
|
|
Balance, end of period
|
|
|
(126,254
|
)
|
|
|
(942
|
)
|
|
|
(36,315
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RETAINED EARNINGS:
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of period
|
|
|
5,025,824
|
|
|
|
4,947,301
|
|
|
|
4,645,657
|
|
Change to beginning balance due to adoption of Accounting Standards Update 2016-01
|
|
|
2,447
|
|
|
|
-
|
|
|
|
-
|
|
Reclass due to early adoption of Accounting Standards Update 2018-02
|
|
|
-
|
|
|
|
325
|
|
|
|
-
|
|
Net income (loss)
|
|
|
(957,667
|
)
|
|
|
78,198
|
|
|
|
301,644
|
|
Balance, end of period
|
|
|
4,070,604
|
|
|
|
5,025,824
|
|
|
|
4,947,301
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL STOCKHOLDER'S EQUITY, END OF PERIOD
|
|
$
|
5,044,665
|
|
|
$
|
5,412,723
|
|
|
$
|
5,298,553
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated financial statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
EVEREST REINSURANCE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
Years Ended December 31,
|
|
(Dollars in thousands)
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(957,667
|
)
|
|
$
|
78,198
|
|
|
$
|
301,644
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease (increase) in premiums receivable
|
|
|
(171,642
|
)
|
|
|
(170,234
|
)
|
|
|
1,140
|
|
Decrease (increase) in funds held by reinsureds, net
|
|
|
(26,680
|
)
|
|
|
(90,410
|
)
|
|
|
(4,445
|
)
|
Decrease (increase) in reinsurance receivables
|
|
|
1,260,865
|
|
|
|
(731,292
|
)
|
|
|
(112,797
|
)
|
Decrease (increase) in income taxes
|
|
|
(291,528
|
)
|
|
|
(250,118
|
)
|
|
|
62,991
|
|
Decrease (increase) in prepaid reinsurance premiums
|
|
|
17,302
|
|
|
|
436,571
|
|
|
|
(8,083
|
)
|
Increase (decrease) in reserve for losses and loss adjustment expenses
|
|
|
859,691
|
|
|
|
964,415
|
|
|
|
384,628
|
|
Increase (decrease) in unearned premiums
|
|
|
221,850
|
|
|
|
291,108
|
|
|
|
(38,271
|
)
|
Increase (decrease) in other net payable to reinsurers
|
|
|
(173,810
|
)
|
|
|
(329,946
|
)
|
|
|
(371,856
|
)
|
Increase (decrease) in losses in course of payment
|
|
|
66,148
|
|
|
|
(31,815
|
)
|
|
|
(42,643
|
)
|
Change in equity adjustments in limited partnerships
|
|
|
(70,494
|
)
|
|
|
(35,749
|
)
|
|
|
(24,486
|
)
|
Distribution of limited partnership income
|
|
|
55,350
|
|
|
|
33,629
|
|
|
|
32,613
|
|
Change in other assets and liabilities, net
|
|
|
(143,047
|
)
|
|
|
(367,338
|
)
|
|
|
15,148
|
|
Non-cash compensation expense
|
|
|
13,863
|
|
|
|
10,212
|
|
|
|
9,481
|
|
Amortization of bond premium (accrual of bond discount)
|
|
|
3,735
|
|
|
|
17,690
|
|
|
|
18,051
|
|
Net realized capital (gains) losses
|
|
|
185,356
|
|
|
|
(161,553
|
)
|
|
|
28,941
|
|
Net cash provided by (used in) operating activities
|
|
|
849,292
|
|
|
|
(336,632
|
)
|
|
|
252,056
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from fixed maturities matured/called - available for sale, at market value
|
|
|
741,360
|
|
|
|
1,005,532
|
|
|
|
781,744
|
|
Proceeds from fixed maturities sold - available for sale, at market value
|
|
|
791,368
|
|
|
|
1,676,203
|
|
|
|
704,191
|
|
Proceeds from fixed maturities sold - available for sale, at fair value
|
|
|
1,751
|
|
|
|
-
|
|
|
|
5,837
|
|
Proceeds from equity securities sold - at fair value
|
|
|
1,029,920
|
|
|
|
586,496
|
|
|
|
695,039
|
|
Proceeds from sale of subsidiary (net of cash disposed)
|
|
|
-
|
|
|
|
-
|
|
|
|
47,721
|
|
Distributions from other invested assets
|
|
|
1,043,131
|
|
|
|
2,327,206
|
|
|
|
1,756,484
|
|
Cost of fixed maturities acquired - available for sale, at market value
|
|
|
(3,714,695
|
)
|
|
|
(2,431,780
|
)
|
|
|
(2,110,113
|
)
|
Cost of fixed maturities acquired - available for sale, at fair value
|
|
|
(4,381
|
)
|
|
|
-
|
|
|
|
(3,940
|
)
|
Cost of equity securities acquired - at fair value
|
|
|
(702,221
|
)
|
|
|
(396,056
|
)
|
|
|
(324,407
|
)
|
Cost of other invested assets acquired
|
|
|
(1,138,317
|
)
|
|
|
(2,546,289
|
)
|
|
|
(1,928,119
|
)
|
Net change in short-term investments
|
|
|
193,623
|
|
|
|
67,164
|
|
|
|
257,792
|
|
Net change in unsettled securities transactions
|
|
|
55,967
|
|
|
|
(40,530
|
)
|
|
|
10,474
|
|
Proceeds from repayment of long term note receivable,
affiliated |
|
|
250,000 |
|
|
|
- |
|
|
|
- |
|
Net cash provided by (used in) investing activities
|
|
|
(1,452,494
|
)
|
|
|
247,946
|
|
|
|
(107,297
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax benefit from share-based compensation, net of expense
|
|
|
(11,195
|
)
|
|
|
(9,938
|
)
|
|
|
3,298
|
|
Capital contribution from parent
|
|
|
500,324
|
|
|
|
-
|
|
|
|
-
|
|
Proceeds from borrowing for long term note payable, affiliated
|
|
|
300,000
|
|
|
|
-
|
|
|
|
-
|
|
Net cash provided by (used in) financing activities
|
|
|
789,129
|
|
|
|
(9,938
|
)
|
|
|
3,298
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EFFECT OF EXCHANGE RATE CHANGES ON CASH
|
|
|
(10,957
|
)
|
|
|
30,382
|
|
|
|
(5,692
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash
|
|
|
174,970
|
|
|
|
(68,242
|
)
|
|
|
142,365
|
|
Cash, beginning of period
|
|
|
229,552
|
|
|
|
297,794
|
|
|
|
155,429
|
|
Cash, end of period
|
|
$
|
404,522
|
|
|
$
|
229,552
|
|
|
$
|
297,794
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes paid (recovered)
|
|
$
|
(73,669
|
)
|
|
$
|
53,019
|
|
|
$
|
31,018
|
|
Interest paid
|
|
|
30,027
|
|
|
|
31,775
|
|
|
|
35,217
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NON-CASH TRANSACTION:
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity value of non-cash capital contribution of affiliate from parent, net of cash held by affiliate
|
|
$
|
211,928
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Transfer of fixed maturities, available for sale, at market value to Bermuda Re as part of
|
|
|
|
|
|
|
|
|
|
|
|
|
settlement for loss portfolio transfer agreement as of 12/31/17
|
|
|
-
|
|
|
|
790,583
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated financial statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2018, 2017 and 2016
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Business and Basis of Presentation.
Everest Reinsurance Holdings, Inc. (“Holdings”), a Delaware company and direct subsidiary of Everest Underwriting Group (Ireland) Limited (“Holdings
Ireland”), which is a direct subsidiary of Everest Re Group, Ltd. (“Group”), through its subsidiaries, principally provides property and casualty reinsurance and insurance in the United States of America and internationally. As used in this
document, “Company” means Holdings and its subsidiaries.
The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United
States of America (“GAAP”). The statements include all of the following domestic and foreign direct and indirect subsidiaries of the Company: Everest Reinsurance Company (“Everest Re”), Everest Global Services, Inc. (“Global Services”), Everest
National Insurance Company (“Everest National”), Everest Indemnity Insurance Company (“Everest Indemnity”), Everest Security Insurance Company (“Everest Security”), Everest Reinsurance Company – Escritório de Representação No Brasil Ltda.
(“Everest Brazil”), Mt. Whitney Securities, Inc., Everest Denali Insurance Company (“Everest Denali”), Everest Premier Insurance Company (“Everest Premier”), Everest Specialty Underwriters Services, LLC, Heartland Crop Insurance, Inc.
(“Heartland”), Everest International Assurance, Ltd. (“Everest Assurance”), Specialty Insurance Group, Inc. (“Specialty”), Specialty Insurance Group - Leisure and Entertainment Risk Purchasing Group LLC (“Specialty RPG”) and Mt. McKinley
Managers, L.L.C. All amounts are reported in U.S. dollars.
During the fourth quarter of 2018, Global Services was contributed to Holdings from its parent company, Holdings Ireland. The operating results of
Global Services for the fourth quarter of 2018 are included within the Company’s consolidated financial statements.
During the third quarter of 2016, the Company established Delaware domiciled property and casualty insurance subsidiaries, Everest Premier and
Everest Denali, which are used in the continued expansion of the Insurance operations.
Effective August 24, 2016, the Company sold its wholly owned subsidiary, Heartland, a managing agent for crop insurance, to CGB Diversified
Services, Inc. (“CGB”). The operating results of Heartland through August 24, 2016 are included within the Company’s financial statements.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities (and disclosure of contingent assets and liabilities) at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Ultimate actual results could differ,
possibly materially, from those estimates.
All intercompany accounts and transactions have been eliminated.
Certain reclassifications and format changes have been made to prior years’ amounts to conform to the 2018 presentation.
B. Investments.
Fixed maturity investments available for sale, at market value, reflect unrealized appreciation and depreciation, as a result of temporary changes
in market value during the period, in stockholder’s equity, net of income taxes in “accumulated other comprehensive income (loss)” in the consolidated balance sheets. Fixed maturity, equity securities and other invested assets carried at fair
value reflect fair value re-measurements as net realized capital gains and losses in the consolidated statements of operations and comprehensive income (loss). The Company records changes in fair value for its fixed maturities-available for
sale, at market value through stockholder’s equity, net of taxes in accumulated other comprehensive
income (loss) since cash flows from these investments will be primarily used to settle its reserve for losses and loss adjustment expense
liabilities. The Company anticipates holding these investments for an extended period as the cash flow from interest and maturities will fund the projected payout of these liabilities. As of January 1, 2018, the Company carries all of its
equity securities at fair value. For equity securities, at fair value, the Company reflects changes in value as net realized capital gains and losses since these securities may be sold in the near term depending on financial market conditions.
Interest income on all fixed maturities and dividend income on all equity securities are included as part of net investment income in the consolidated statements of operations and comprehensive income (loss). Unrealized losses on fixed
maturities, which are deemed other-than-temporary and related to the credit quality of a security, are charged to net income (loss) as net realized capital losses. Short-term investments are stated at cost, which approximates market value.
Realized gains or losses on sales of investments are determined on the basis of identified cost. For some non-publicly traded securities, market prices are determined through the use of pricing models that evaluate securities relative to the
U.S. Treasury yield curve, taking into account the issue type, credit quality, and cash flow characteristics of each security. For other non-publicly traded securities, investment managers’ valuation committees will estimate fair value, and in
many instances, these fair values are supported with opinions from qualified independent third parties. For publicly traded securities, market value is based on quoted market prices or valuation models that use observable market inputs. When a
sector of the financial markets is inactive or illiquid, the Company may use its own assumptions about future cash flows and risk-adjusted discount rates to determine fair value. Retrospective adjustments are employed to recalculate the values
of asset-backed securities. Each acquisition lot is reviewed to recalculate the effective yield. The recalculated effective yield is used to derive a book value as if the new yield were applied at the time of acquisition. Outstanding principal
factors from the time of acquisition to the adjustment date are used to calculate the prepayment history for all applicable securities. Conditional prepayment rates, computed with life to date factor histories and weighted average maturities,
are used to effect the calculation of projected and prepayments for pass-through security types. Other invested assets include limited partnerships, rabbi trusts and, prior to July 1, 2018, a private placement liquidity sweep facility. Cash
contributions to and cash distributions from the sweep facility were reported gross in cash flows from investing activities in the consolidated statements of cash flows. Limited partnerships are accounted for under the equity method of
accounting, which can be recorded on a monthly or quarterly lag. Other invested assets, at fair value, are comprised of convertible preferred stock of Everest Preferred International Holdings, Ltd. (“Preferred Holdings”), an affiliated entity.
The fair values of the Preferred Holdings convertible preferred stock at December 31, 2018 and December 31, 2017 were determined using a pricing model.
C. Uncollectible Receivable Balances.
The Company provides reserves for uncollectible reinsurance recoverable and premium receivable balances based on management’s assessment of the
collectability of the outstanding balances. Such reserves are presented in the table below for the periods indicated.
|
|
Years Ended December 31,
|
|
(Dollars in thousands)
|
|
2018
|
|
|
2017
|
|
Reinsurance recoverable and premium receivables
|
|
$
|
25,163
|
|
|
$
|
23,011
|
|
D. Deferred Acquisition Costs.
Acquisition costs, consisting principally of commissions and brokerage expenses and certain premium taxes and fees incurred at the time a contract
or policy is issued and that vary with and are directly related to the Company’s reinsurance and insurance business, are deferred and amortized over the period in which the related premiums are earned. Deferred acquisition costs are limited to
their estimated realizable value by line of business based on the related unearned premiums, anticipated claims and claim expenses and anticipated investment income. Deferred acquisition costs amortized to income are presented in the table below
for the periods indicated.
|
|
Years Ended December 31,
|
|
(Dollars in thousands)
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Deferred acquisition costs
|
|
$
|
1,141,714
|
|
|
$
|
210,925
|
|
|
$
|
281,424
|
|
E. Reserve for Losses and Loss Adjustment Expenses.
The reserve for losses and loss adjustment expenses (“LAE”) is based on individual case estimates and reports received from ceding companies. A
provision is included for losses and LAE incurred but not reported (“IBNR”) based on past experience. A provision is also included for certain potential liabilities relating to asbestos and environmental (“A&E”) exposures, for which
liabilities cannot be estimated using traditional reserving techniques. See also Note 3. The reserves are reviewed periodically and any changes in estimates are reflected in earnings in the period the adjustment is made. The Company’s loss and
LAE reserves represent management’s best estimate of the ultimate liability. Loss and LAE reserves are presented gross of reinsurance receivables and incurred losses and LAE are presented net of reinsurance.
Accruals for commissions are established for reinsurance contracts that provide for the stated commission percentage to increase or decrease based
on the loss experience of the contract. Changes in estimates for such arrangements are recorded as commission expense. Commission accruals for contracts with adjustable features are estimated based on expected loss and LAE.
F. Premium Revenues.
Written premiums are earned ratably over the periods of the related insurance and reinsurance contracts. Written premiums related to crop insurance
are earned on a seasonal pattern, which is based upon the planting and harvesting periods of each crop season. Unearned premium reserves are established relative to the unexpired contract period. For reinsurance contracts, such reserves are
established based upon reports received from ceding companies or estimated using pro rata methods based on statistical data. Reinstatement premiums represent additional premium received on reinsurance coverages, most prevalently catastrophe
related, when limits have been depleted under the original reinsurance contract and additional coverage is granted. Written and earned premiums and the related costs, which have not yet been reported to the Company, are estimated and accrued.
Premiums are net of ceded reinsurance.
G. Prepaid Reinsurance Premiums.
Prepaid reinsurance premiums represent unearned premium reserves ceded to other reinsurers. Prepaid reinsurance premiums for any foreign reinsurers
comprising more than 10% of the outstanding balance at December 31, 2018 were collateralized either through collateralized trust arrangements, rights of offset or letters of credit, thereby limiting the credit risk to the Company.
H. Income Taxes.
The Company and its wholly-owned subsidiaries file a consolidated U.S. Corporation Income Tax Return. The Company’s foreign subsidiaries and
foreign branches of its US subsidiaries file country and local corporation income tax returns as required. Deferred U.S. federal and foreign income taxes have been recorded to recognize the tax effect of temporary differences between the GAAP
and income tax bases of assets and liabilities, which arise because of differences between the financial reporting and income tax rules.
I. Foreign Currency.
As a global entity, the Company transacts business in numerous currencies through business units located around the world. The base transactional
currency for each business unit is determined by the local currency used for most economic activity in that area. Movements in exchange rates related to assets and liabilities at the business units between the original currency and the base
currency are recorded through the consolidated statements of operations and comprehensive income (loss) in other income (expense), except for currency movements related to available for sale investments, which are excluded from net income (loss)
and accumulated in stockholder’s equity, net of deferred taxes.
The business units’ base currency financial statements are translated to U.S. dollars using the exchange rates at the end of period for the balance
sheets and the average exchange rates in effect for the reporting period for the income statements. Gains and losses resulting from translating the foreign currency financial statements, net of deferred income taxes, are excluded from net income
loss and accumulated in stockholder’s equity.
J. Segmentation.
The Company, through its subsidiaries, operates in three segments: U.S. Reinsurance, International and Insurance. See also Note 17.
K. Retroactive Reinsurance.
Premiums on ceded retroactive contracts are earned when written with a corresponding reinsurance recoverable established for the amount of reserves
ceded. The initial gain, if applicable, is deferred and amortized into income over an actuarially determined expected payout period. Any future loss is recognized immediately and charged against earnings.
L. Application of Recently Issued Accounting Standard Changes.
Simplification of Disclosure Requirements. In
August 2018, the Securities and Exchange Commission (“SEC”) issued Final Rule Release #33-10532 (“the Rule”) which addresses the simplification of the SEC’s disclosure requirements for quarterly and annual financial reports. The main change
addressed by the Rule that is applicable to the Company is a new requirement to disclose changes in equity by line item with subtotals for each interim reporting period on the Statements of Changes in Shareholders’ Equity. The Rule became
effective for all financial reports filed after November 5, 2018 (30 days after its publication in the Federal Register), except for the additional requirement for the Statements of Changes in Shareholders’ Equity which can be implemented for
first quarter 2019 reporting. The Company has adopted the portions of the Rule that became effective November 5, 2018. The portion of the Rule related to the new requirement for the Statements of Changes in Shareholders’ Equity will be adopted
by the Company in the first quarter of 2019.
Accounting for Cloud Computing Arrangement. In
August 2018, The Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2018-15, which outlines accounting for implementation costs of a cloud computing arrangement that is a service contract. This guidance
requires that implementation costs of a cloud computing arrangement that is a service contract must be capitalized and expensed in accordance with the existing provisions provided in Subtopic 350-40 regarding development of internal use
software. In addition, any capitalized implementation costs should be amortized over the term of the hosting arrangement. The guidance is effective for annual reporting periods beginning after December 15, 2019 and interim periods within that
annual reporting period. The Company is currently evaluating the impact of the adoption of ASU 2018-15 on its financial statements.
Accounting for Long Duration Contracts. In August
2018, FASB issued ASU 2018-12, which discusses changes to the recognition, measurement and presentation of long duration contracts. The main provisions of this guidance address the following: 1) In determining liability for future policy
benefits, companies must review cash flow assumptions at least annually and the discount rate assumption at each reporting period date 2) Amortization of deferred acquisition costs has been simplified to be in constant level proportion to either
premiums, gross profits or gross margins 3) Disaggregated roll forwards of beginning and ending liabilities for future policy benefits are required. The guidance is effective for annual reporting periods beginning after December 15, 2020 and
interim periods within that annual reporting period. The Company is currently evaluating the impact of the adoption of ASU 2018-12 on its financial statements.
Accounting for Deferred Taxes in Accumulated Other
Comprehensive Income (AOCI). In February 2018, FASB issued ASU 2018-02, which outlines guidance on the treatment of trapped deferred taxes contained within AOCI on the consolidated balance sheets. The new guidance allows the amount of
trapped deferred taxes in AOCI, resulting from the change in the U.S. tax rate from 35% to 21% upon enactment of the Tax Cuts and Jobs Act (“TCJA”), to be reclassed as part of retained earnings in the consolidated balance sheets. The guidance is
effective for annual and interim reporting periods beginning after December 15, 2018, but early adoption is allowed. The Company decided to early adopt the guidance as of December 31, 2017. The adoption resulted in a reclass of $325 thousand
between AOCI and retained earnings during the fourth quarter of 2017. As an accounting policy, the Company has adopted the aggregate portfolio approach for releasing disproportionate income tax effects from AOCI.
Accounting for Impact on Income Taxes due to Tax Reform. In
December 2017, the SEC issued Staff Accounting Bulletin (“SAB”) 118, which provides guidance on the application of FASB Accounting Standards Codification (“ASC”) Topic 740, Income Taxes, due to the enactment of TCJA. SAB 118 became effective
upon release. The Company has adopted the provisions of SAB 118 with respect to measuring the tax effects for the modifications to the determination of tax basis loss reserves. In 2018, the Company recorded adjustments to the amount of tax
expense it recorded in 2017 with respect to the TCJA as estimated amounts were finalized, which did not have a material impact on the Company’s financial statements.
Amortization of Bond Premium. In March 2017, FASB
issued ASU 2017-08, which outlines guidance on the amortization period for premium on callable debt securities. The new guidance requires that the premium on callable debt securities be amortized through the earliest call date rather than
through the maturity date of the callable security. The guidance is effective for annual and interim reporting periods beginning after December 15, 2019. The Company does not expect the adoption of ASU 2017-08 to have a material impact on its
financial statements.
Presentation and Disclosure of Net Periodic Benefit Costs.
In March 2017, FASB issued ASU 2017-07, which outlines guidance on the presentation of net periodic costs of benefit plans. The new guidance requires that the service cost component of net periodic benefit costs be reported within the
same line item of the statements of operations as other compensation costs are reported. Other components of net periodic benefit costs should be reported separately. Footnote disclosure is required to state within which line items of the
statements of operations the components are reported. The guidance is effective for annual and interim reporting periods beginning after December 15, 2017. The Company adopted the guidance effective January 1, 2018. The adoption of ASU 2017-07
did not have a material impact on the Company’s financial statements.
Disclosure of Restricted Cash. In November 2016,
FASB issued ASU 2016-18 and in August 2016, FASB issued ASU 2016-15, which outlines guidance on the presentation in the statements of cash flows of changes in restricted cash. The new guidance requires that the statements of cash flows should
reflect all changes in cash, cash equivalents and restricted cash in total and not segregated individually. The guidance is effective for annual and interim reporting periods beginning after December 15, 2017. The Company adopted the guidance
effective January 1, 2018. The adoption of ASU 2016-18 and ASU 2016-15 did not have a material impact on the Company’s financial statements.
Intra-Entity Asset Transfers. In October 2016, FASB
issued ASU 2016-16, which outlines guidance on the tax accounting for intra-entity asset sales and transfers, other than inventory. The new guidance requires that reporting entities recognize tax expense from the intra-entity transfer of an
asset in the seller’s tax jurisdiction at the time of transfer and recognize any deferred tax asset in the buyer’s tax jurisdiction at the time of transfer. The guidance is effective for annual and interim reporting periods beginning after
December 15, 2017. The Company adopted the guidance effective January 1, 2018. The adoption of ASU 2016-16 did not have a material impact on the Company’s financial statements.
Valuation of Financial Instruments. In June 2016,
FASB issued ASU 2016-13, which outline guidance on the valuation of and accounting for assets measured at amortized cost and available for sale debt securities. The carrying value of assets measured at amortized cost will now be presented as the
amount expected to be collected on the financial asset (amortized cost less an allowance for credit losses valuation account). Available for sale debt securities will now record credit losses through an allowance for credit losses, which will be
limited to the amount by which fair value is below amortized cost. The guidance is effective for annual and interim reporting periods beginning after December 15, 2019. The Company is currently evaluating the impact of the adoption of ASU
2016-13 on its financial statements.
Leases. In February 2016, FASB issued ASU 2016-02
(and subsequently issued ASU 2018-11 in July 2018) which outlines new guidance on the accounting for leases. The new guidance requires the recognition of lease assets and lease liabilities on the balance sheets for most leases that were
previously deemed operating leases and required only lease expense presentation in the statements of operations. The guidance is effective for annual and interim reporting periods beginning after December 15, 2018. The Company will adopt ASU
2016-02 effective January 1, 2019 and estimates that its increase in lease liability will be $65,000 thousand with no impact on shareholders’ equity upon adoption and no material impact on future consolidated statements of operation and
comprehensive income (loss).
Recognition and Measurement of Financial Instruments. In
January 2016, the FASB issued ASU 2016-01, which outlines revised guidance on the accounting for equity investments. The new guidance states that all equity investments in unconsolidated entities will be measured at fair value, with the change
in value being recorded through the income statement rather than being recorded within other comprehensive income. The updated guidance is effective for annual and interim reporting periods beginning after December 15, 2017. The Company adopted
the guidance effective January 1, 2018. The adoption of ASU 2016-01 resulted in a cumulative change adjustment of $2,447 thousand between AOCI and retained earnings, which is disclosed separately within the consolidated statement of changes in
shareholders equity.
Disclosures about Short-Duration Contracts. In May
2015, the FASB issued ASU 2015-09, authoritative guidance regarding required disclosures associated with short duration insurance contracts. The new disclosure requirements focus on information about initial claim estimates and subsequent claim
estimate adjustment, methodologies in estimating claims and the timing, frequency and severity of claims related to short duration insurance contracts. This guidance is effective for annual reporting periods beginning after December 15, 2015 and
interim reporting periods beginning after December 15, 2016. The Company implemented this guidance effective in the fourth quarter of 2016.
Disclosures for Investments in Certain Entities that
Calculate Net Asset Value Per Share. In May 2015, the FASB issued ASU 2015-07, which removes the requirement to categorize, within the fair value hierarchy, investments for which fair values are estimated using the net asset value
practical expedient provided by Accounting Standards Codification 820, Fair Value Measurement. The updated guidance is effective for annual reporting periods beginning after December 15, 2015. The Company implemented this guidance effective in
the fourth quarter of 2016. The adoption did not have a material impact on the Company’s financial statements.
Debt Issuance Costs. In April 2015, The FASB issued
ASU 2015–03, authoritative guidance on the presentation of debt issuance costs. This guidance requires that debt issuance costs be presented within the balance sheet as a reduction of the carrying value of the debt liability, rather than as a
separate asset. This guidance is effective for annual reporting periods beginning after December 15, 2015 and related interim reporting periods. The Company implemented this guidance effective in the second quarter of 2016. The adoption did
not have a material impact on the Company’s financial statements.
Revenue Recognition. In May 2014, the FASB issued
ASU 2014-09 and in August 2015, FASB issued ASU 2015-14, which outline revised guidance on the recognition of revenue arising from contracts with customers. The new guidance states that reporting entities should apply certain steps to determine
when revenue should be recognized, based upon fulfillment of performance obligations to complete contracts. The updated guidance is effective for annual and interim reporting periods beginning after December 15, 2017. The Company adopted the
guidance effective January 1, 2018. The adoption of ASU 2014-09 and ASU 2015-14 did not have a material impact on the Company’s financial statements.
Any issued guidance and pronouncements, other than those directly referenced above, are deemed by the Company to be either not applicable or
immaterial to its financial statements.
2. REVISIONS TO FINANCIAL STATEMENTS
In preparing its second quarter of 2017 financial statements, the Company altered its processing of ceding certain commissions and deferred
acquisition costs under an affiliated quota share agreement. In previous reporting periods, these expenses were ceded based upon a quarter lag. In the second quarter of 2017, the quarter lag was eliminated and these expenses are now recorded on
a current quarter basis. Although management determined that the impact of the ceding lag was not material to prior period financial statements, the impact of eliminating the ceding lag would have significantly impacted results within the second
quarter of 2017. As a result, prior period balances have been revised in the applicable financial statements and corresponding footnotes to eliminate the impact of the previous recording lag.
Management assessed the materiality of this change within prior period financial statements based upon SEC Staff Accounting Bulletin Number 99,
Materiality, which is since codified in Accounting Standards Codification (“ASC”) 250, Accounting Changes and Error Corrections. In accordance with ASC 250, the prior period comparative financial statements that are presented herein have been
revised.
The following tables present line items for prior period financial statements that have been affected by the revision. For these line items, the
tables detail the amounts as originally reported, the impact upon those line items due to the revision, and the amounts as currently revised within the financial statements.
CONSOLIDATED BALANCE SHEETS
|
|
December 31, 2016
|
|
|
|
As Originally
|
|
|
Impact of
|
|
|
|
|
|
|
Reported
|
|
|
Revisions
|
|
|
As Revised
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
ASSETS:
|
|
|
|
|
|
|
|
|
|
Deferred acquisition costs
|
|
$
|
73,924
|
|
|
$
|
(5,303
|
)
|
|
$
|
68,621
|
|
TOTAL ASSETS
|
|
$
|
17,088,739
|
|
|
$
|
(5,303
|
)
|
|
$
|
17,083,436
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Other net payable to reinsurers
|
|
$
|
860,391
|
|
|
$
|
(45,093
|
)
|
|
$
|
815,298
|
|
Income taxes
|
|
|
142,143
|
|
|
|
6,797
|
|
|
|
148,940
|
|
Total liabilities
|
|
|
11,823,179
|
|
|
|
(38,296
|
)
|
|
|
11,784,883
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS EQUITY:
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained earnings
|
|
|
4,914,308
|
|
|
|
32,993
|
|
|
|
4,947,301
|
|
Total stockholder's equity
|
|
|
5,265,560
|
|
|
|
32,993
|
|
|
|
5,298,553
|
|
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY
|
|
$
|
17,088,739
|
|
|
$
|
(5,303
|
)
|
|
$
|
17,083,436
|
|
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
Year Ended December 31, 2016
|
|
AND COMPREHENSIVE INCOME (LOSS):
|
|
As Originally
|
|
|
Impact of
|
|
|
|
|
|
|
Reported
|
|
|
Revisions
|
|
|
As Revised
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
CLAIMS AND EXPENSES:
|
|
|
|
|
|
|
|
|
|
Commission, brokerage, taxes and fees
|
|
$
|
289,982
|
|
|
$
|
(8,558
|
)
|
|
$
|
281,424
|
|
Total claims and expenses
|
|
|
1,928,940
|
|
|
|
(8,558
|
)
|
|
|
1,920,382
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS) BEFORE TAXES
|
|
|
390,433
|
|
|
|
8,558
|
|
|
|
398,991
|
|
Income tax expense (benefit)
|
|
|
94,683
|
|
|
|
2,664
|
|
|
|
97,347
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS)
|
|
$
|
295,750
|
|
|
$
|
5,894
|
|
|
$
|
301,644
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMPREHENSIVE INCOME (LOSS)
|
|
$
|
321,571
|
|
|
$
|
5,894
|
|
|
$
|
327,465
|
|
CONSOLIDATED STATEMENTS OF
|
|
Year Ended December 31, 2016
|
|
CHANGES IN STOCKHOLDER'S EQUITY
|
|
As Originally
|
|
|
Impact of
|
|
|
|
|
|
|
Reported
|
|
|
Revisions
|
|
|
As Revised
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
RETAINED EARNINGS:
|
|
|
|
|
|
|
|
|
|
Balance, beginning of period
|
|
$
|
4,618,558
|
|
|
$
|
27,099
|
|
|
$
|
4,645,657
|
|
Net income (loss)
|
|
|
295,750
|
|
|
|
5,894
|
|
|
|
301,644
|
|
Balance, end of period
|
|
|
4,914,308
|
|
|
|
32,993
|
|
|
|
4,947,301
|
|
TOTAL STOCKHOLDER'S EQUITY, END OF PERIOD
|
|
$
|
5,265,560
|
|
|
$
|
32,993
|
|
|
$
|
5,298,553
|
|
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
Year Ended December 31, 2016
|
|
|
|
As Originally
|
|
|
Impact of
|
|
|
|
|
|
|
Reported
|
|
|
Revisions
|
|
|
As Revised
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
295,750
|
|
|
$
|
5,894
|
|
|
$
|
301,644
|
|
Decrease (increase) in income taxes
|
|
|
60,325
|
|
|
|
2,666
|
|
|
|
62,991
|
|
Increase (decrease) in other net payable to reinsurers
|
|
|
(364,242
|
)
|
|
|
(7,614
|
)
|
|
|
(371,856
|
)
|
Change in other assets and liabilities, net
|
|
|
16,090
|
|
|
|
(946
|
)
|
|
|
15,144
|
|
3. INVESTMENTS
The amortized cost, market value and gross unrealized appreciation and depreciation of available for sale, fixed maturity, investments, carried at
market value and other-than-temporary impairments (“OTTI”) in accumulated other comprehensive income (“AOCI”) are as follows for the periods indicated:
|
|
At December 31, 2018
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Market
|
|
|
OTTI in AOCI
|
|
(Dollars in thousands)
|
|
Cost
|
|
|
Appreciation
|
|
|
Depreciation
|
|
|
Value
|
|
|
(a)
|
|
Fixed maturity securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities and obligations of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government agencies and corporations
|
|
$
|
2,250,312
|
|
|
$
|
3,573
|
|
|
$
|
(11,088
|
)
|
|
$
|
2,242,797
|
|
|
$
|
-
|
|
Obligations of U.S. states and political subdivisions
|
|
|
489,013
|
|
|
|
12,915
|
|
|
|
(2,839
|
)
|
|
|
499,089
|
|
|
|
440
|
|
Corporate securities
|
|
|
2,273,581
|
|
|
|
12,487
|
|
|
|
(69,915
|
)
|
|
|
2,216,153
|
|
|
|
430
|
|
Asset-backed securities
|
|
|
223,192
|
|
|
|
102
|
|
|
|
(2,039
|
)
|
|
|
221,255
|
|
|
|
-
|
|
Mortgage-backed securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
135,380
|
|
|
|
1,947
|
|
|
|
(723
|
)
|
|
|
136,604
|
|
|
|
-
|
|
Agency residential
|
|
|
149,306
|
|
|
|
1,177
|
|
|
|
(1,709
|
)
|
|
|
148,774
|
|
|
|
-
|
|
Non-agency residential
|
|
|
3,115
|
|
|
|
3
|
|
|
|
(4
|
)
|
|
|
3,114
|
|
|
|
-
|
|
Foreign government securities
|
|
|
576,540
|
|
|
|
14,399
|
|
|
|
(11,353
|
)
|
|
|
579,586
|
|
|
|
-
|
|
Foreign corporate securities
|
|
|
932,310
|
|
|
|
13,325
|
|
|
|
(30,932
|
)
|
|
|
914,703
|
|
|
|
281
|
|
Total fixed maturity securities
|
|
$
|
7,032,749
|
|
|
$
|
59,928
|
|
|
$
|
(130,602
|
)
|
|
$
|
6,962,075
|
|
|
$
|
1,151
|
|
|
|
At December 31, 2017
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Market
|
|
|
OTTI in AOCI
|
|
(Dollars in thousands)
|
|
Cost
|
|
|
Appreciation
|
|
|
Depreciation
|
|
|
Value
|
|
|
(a)
|
|
Fixed maturity securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities and obligations of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government agencies and corporations
|
|
$
|
671,449
|
|
|
$
|
658
|
|
|
$
|
(7,594
|
)
|
|
$
|
664,513
|
|
|
$
|
-
|
|
Obligations of U.S. states and political subdivisions
|
|
|
563,789
|
|
|
|
22,124
|
|
|
|
(444
|
)
|
|
|
585,469
|
|
|
|
-
|
|
Corporate securities
|
|
|
2,009,665
|
|
|
|
28,003
|
|
|
|
(13,459
|
)
|
|
|
2,024,209
|
|
|
|
129
|
|
Asset-backed securities
|
|
|
138,203
|
|
|
|
207
|
|
|
|
(386
|
)
|
|
|
138,024
|
|
|
|
-
|
|
Mortgage-backed securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
52,121
|
|
|
|
115
|
|
|
|
(485
|
)
|
|
|
51,751
|
|
|
|
-
|
|
Agency residential
|
|
|
114,435
|
|
|
|
511
|
|
|
|
(1,658
|
)
|
|
|
113,288
|
|
|
|
-
|
|
Non-agency residential
|
|
|
51
|
|
|
|
7
|
|
|
|
-
|
|
|
|
58
|
|
|
|
-
|
|
Foreign government securities
|
|
|
514,048
|
|
|
|
17,065
|
|
|
|
(7,493
|
)
|
|
|
523,620
|
|
|
|
-
|
|
Foreign corporate securities
|
|
|
863,861
|
|
|
|
20,121
|
|
|
|
(12,993
|
)
|
|
|
870,989
|
|
|
|
377
|
|
Total fixed maturity securities
|
|
$
|
4,927,622
|
|
|
$
|
88,811
|
|
|
$
|
(44,512
|
)
|
|
$
|
4,971,921
|
|
|
$
|
506
|
|
(a) Represents the amount of OTTI
recognized in AOCI. Amount includes unrealized gains and losses on impaired securities relating to changes in the value of such securities subsequent to the impairment measurement date.
The amortized cost and market value of fixed maturity securities are shown in the following tables by contractual maturity. Mortgage-backed
securities are generally more likely to be prepaid than other fixed maturity securities. As the stated maturity of such securities may not be indicative of actual maturities, the totals for mortgage-backed and asset-backed securities are shown
separately.
|
|
At December 31, 2018
|
|
|
At December 31, 2017
|
|
|
|
Amortized
|
|
|
Market
|
|
|
Amortized
|
|
|
Market
|
|
(Dollars in thousands)
|
|
Cost
|
|
|
Value
|
|
|
Cost
|
|
|
Value
|
|
Fixed maturity securities – available for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
Due in one year or less
|
|
$
|
511,193
|
|
|
$
|
507,572
|
|
|
$
|
319,858
|
|
|
$
|
320,746
|
|
Due after one year through five years
|
|
|
4,271,245
|
|
|
|
4,230,451
|
|
|
|
2,601,898
|
|
|
|
2,595,237
|
|
Due after five years through ten years
|
|
|
1,177,752
|
|
|
|
1,163,831
|
|
|
|
1,051,431
|
|
|
|
1,069,617
|
|
Due after ten years
|
|
|
561,566
|
|
|
|
550,474
|
|
|
|
649,625
|
|
|
|
683,200
|
|
Asset-backed securities
|
|
|
223,192
|
|
|
|
221,255
|
|
|
|
138,203
|
|
|
|
138,024
|
|
Mortgage-backed securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
135,380
|
|
|
|
136,604
|
|
|
|
52,121
|
|
|
|
51,751
|
|
Agency residential
|
|
|
149,306
|
|
|
|
148,774
|
|
|
|
114,435
|
|
|
|
113,288
|
|
Non-agency residential
|
|
|
3,115
|
|
|
|
3,114
|
|
|
|
51
|
|
|
|
58
|
|
Total fixed maturity securities
|
|
$
|
7,032,749
|
|
|
$
|
6,962,075
|
|
|
$
|
4,927,622
|
|
|
$
|
4,971,921
|
|
The changes in net unrealized appreciation (depreciation) for the Company’s investments are derived from the following sources for the periods as
indicated:
|
|
Years Ended December 31,
|
|
(Dollars in thousands)
|
|
2018
|
|
|
2017
|
|
Increase (decrease) during the period between the market value and cost
|
|
|
|
|
|
|
of investments carried at market value, and deferred taxes thereon:
|
|
|
|
|
|
|
Fixed maturity securities
|
|
$
|
(115,642
|
)
|
|
$
|
(11,166
|
)
|
Fixed maturity securities, other-than-temporary impairment
|
|
|
645
|
|
|
|
(4,537
|
)
|
Other invested assets
|
|
|
-
|
|
|
|
3,037
|
|
Change in unrealized appreciation (depreciation), pre-tax
|
|
|
(114,997
|
)
|
|
|
(12,666
|
)
|
Deferred tax benefit (expense)
|
|
|
24,187
|
|
|
|
2,845
|
|
Deferred tax benefit (expense), other-than-temporary impairment
|
|
|
(135
|
)
|
|
|
1,588
|
|
Change in unrealized appreciation (depreciation),
|
|
|
|
|
|
|
|
|
net of deferred taxes, included in stockholder's equity
|
|
$
|
(90,945
|
)
|
|
$
|
(8,233
|
)
|
The Company frequently reviews all of its fixed maturity, available for sale securities for declines in market value and focuses its attention on
securities whose fair value has fallen below 80% of their amortized cost at the time of review. The Company then assesses whether the decline in value is temporary or other-than-temporary. In making its assessment, the Company evaluates the
current market and interest rate environment as well as specific issuer information. Generally, a change in a security’s value caused by a change in the market, interest rate or foreign exchange environment does not constitute an
other-than-temporary impairment, but rather a temporary decline in market value. Temporary declines in market value are recorded as unrealized losses in accumulated other comprehensive income (loss). If the Company determines that the decline
is other-than-temporary and the Company does not have the intent to sell the security; and it is more likely than not that the Company will not have to sell the security before recovery of its cost basis, the carrying value of the investment is
written down to fair value. The fair value adjustment that is credit or foreign exchange related is recorded in net realized capital gains (losses) in the Company’s consolidated statements of operations and comprehensive income (loss). The fair
value adjustment that is non-credit related is recorded as a component of other comprehensive income (loss), net of tax, and is included in accumulated other comprehensive income (loss) in the Company’s consolidated balance sheets. The Company’s
assessments are based on the issuers’ current and expected future financial position, timeliness with respect to interest and/or principal payments, speed of repayments and any applicable credit enhancements or breakeven constant default rates on
mortgage-backed and asset-backed securities, as well as relevant information provided by rating agencies, investment advisors and analysts.
Retrospective adjustments are employed to recalculate the values of asset-backed securities. All of the Company’s asset-backed and mortgage-backed
securities have a pass-through structure. Each acquisition lot is reviewed to recalculate the effective yield. The recalculated effective yield is used to derive a book value as if the new yield were applied at the time of acquisition.
Outstanding principal factors from the time of acquisition to the adjustment date are used to calculate the prepayment history for all applicable securities. Conditional prepayment rates, computed with life to date factor histories and weighted
average maturities, are used in the calculation of projected prepayments for pass-through security types.
The tables below display the aggregate market value and gross unrealized depreciation of fixed maturity securities, by security type and contractual
maturity, in each case subdivided according to length of time that individual securities had been in a continuous unrealized loss position for the periods indicated:
|
|
Duration of Unrealized Loss at December 31, 2018 By Security Type
|
|
|
|
Less than 12 months
|
|
|
Greater than 12 months
|
|
|
Total
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
Gross
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
Unrealized
|
|
(Dollars in thousands)
|
|
Market Value
|
|
|
Depreciation
|
|
|
Market Value
|
|
|
Depreciation
|
|
|
Market Value
|
|
|
Depreciation
|
|
Fixed maturity securities - available for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities and obligations of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government agencies and corporations
|
|
$
|
245,357
|
|
|
$
|
(6,099
|
)
|
|
$
|
373,377
|
|
|
$
|
(4,989
|
)
|
|
$
|
618,734
|
|
|
$
|
(11,088
|
)
|
Obligations of U.S. states and political subdivisions
|
|
|
107,183
|
|
|
|
(2,829
|
)
|
|
|
1,475
|
|
|
|
(10
|
)
|
|
|
108,658
|
|
|
|
(2,839
|
)
|
Corporate securities
|
|
|
1,390,942
|
|
|
|
(57,043
|
)
|
|
|
194,770
|
|
|
|
(12,872
|
)
|
|
|
1,585,712
|
|
|
|
(69,915
|
)
|
Asset-backed securities
|
|
|
127,052
|
|
|
|
(1,408
|
)
|
|
|
47,551
|
|
|
|
(631
|
)
|
|
|
174,603
|
|
|
|
(2,039
|
)
|
Mortgage-backed securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
51,357
|
|
|
|
(695
|
)
|
|
|
2,259
|
|
|
|
(28
|
)
|
|
|
53,616
|
|
|
|
(723
|
)
|
Agency residential
|
|
|
44,071
|
|
|
|
(1,221
|
)
|
|
|
21,889
|
|
|
|
(488
|
)
|
|
|
65,960
|
|
|
|
(1,709
|
)
|
Non-agency residential
|
|
|
3,093
|
|
|
|
(4
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
3,093
|
|
|
|
(4
|
)
|
Foreign government securities
|
|
|
192,510
|
|
|
|
(10,690
|
)
|
|
|
101,137
|
|
|
|
(663
|
)
|
|
|
293,647
|
|
|
|
(11,353
|
)
|
Foreign corporate securities
|
|
|
501,532
|
|
|
|
(25,821
|
)
|
|
|
65,279
|
|
|
|
(5,111
|
)
|
|
|
566,811
|
|
|
|
(30,932
|
)
|
Total fixed maturity securities
|
|
$
|
2,663,097
|
|
|
$
|
(105,810
|
)
|
|
$
|
807,737
|
|
|
$
|
(24,792
|
)
|
|
$
|
3,470,834
|
|
|
$
|
(130,602
|
)
|
|
|
Duration of Unrealized Loss at December 31, 2018 By Maturity
|
|
|
|
Less than 12 months
|
|
|
Greater than 12 months
|
|
|
Total
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
Gross
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
Unrealized
|
|
(Dollars in thousands)
|
|
Market Value
|
|
|
Depreciation
|
|
|
Market Value
|
|
|
Depreciation
|
|
|
Market Value
|
|
|
Depreciation
|
|
Fixed maturity securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due in one year or less
|
|
$
|
165,545
|
|
|
$
|
(7,618
|
)
|
|
$
|
118,322
|
|
|
$
|
(1,164
|
)
|
|
$
|
283,867
|
|
|
$
|
(8,782
|
)
|
Due in one year through five years
|
|
|
1,423,431
|
|
|
|
(44,924
|
)
|
|
|
525,554
|
|
|
|
(9,530
|
)
|
|
|
1,948,985
|
|
|
|
(54,454
|
)
|
Due in five years through ten years
|
|
|
624,875
|
|
|
|
(35,360
|
)
|
|
|
42,902
|
|
|
|
(2,773
|
)
|
|
|
667,777
|
|
|
|
(38,133
|
)
|
Due after ten years
|
|
|
223,673
|
|
|
|
(14,580
|
)
|
|
|
49,260
|
|
|
|
(10,178
|
)
|
|
|
272,933
|
|
|
|
(24,758
|
)
|
Asset-backed securities
|
|
|
127,052
|
|
|
|
(1,408
|
)
|
|
|
47,551
|
|
|
|
(631
|
)
|
|
|
174,603
|
|
|
|
(2,039
|
)
|
Mortgage-backed securities
|
|
|
98,521
|
|
|
|
(1,920
|
)
|
|
|
24,148
|
|
|
|
(516
|
)
|
|
|
122,669
|
|
|
|
(2,436
|
)
|
Total fixed maturity securities
|
|
$
|
2,663,097
|
|
|
$
|
(105,810
|
)
|
|
$
|
807,737
|
|
|
$
|
(24,792
|
)
|
|
$
|
3,470,834
|
|
|
$
|
(130,602
|
)
|
The aggregate market value and gross unrealized losses related to investments in an unrealized loss position at December 31,
2018 were $3,470,834 thousand and $130,602 thousand, respectively. The market value of securities for the single issuer (the United States government) whose securities comprised the largest unrealized loss position at December 31, 2018, did not
exceed 9.0% of the overall market value of the Company’s fixed maturity securities. The market value of securities for the issuer with the second largest unrealized loss comprised less than 0.8% of the company’s fixed maturity securities. In
addition, as indicated on the above table, there was no significant concentration of unrealized losses in any one market sector. The $105,810 thousand of unrealized losses related to fixed maturity securities that have been in an unrealized loss
position for less than one year were generally comprised of domestic and foreign corporate securities, foreign government securities and U.S. government agencies and corporations. Of these unrealized losses, $68,010 thousand related to
securities that were rated investment grade by at least one nationally recognized statistical rating agency. The $24,792 thousand of unrealized losses related to fixed maturity securities in an unrealized loss position for more than one year
related primarily to domestic and foreign corporate securities and U.S. government agencies. Of these unrealized losses, $14,802 thousand related to securities that were rated investment grade by at least one nationally
recognized statistical rating agency. There was no gross unrealized depreciation for mortgage-backed securities related to
sub-prime and alt-A loans. In all instances, there were no projected cash flow shortfalls to recover the full book value of the investments and the related interest obligations. The mortgage-backed securities still have excess credit coverage
and are current on interest and principal payments.
The Company, given the size of its investment portfolio and capital position, does not have the intent to sell these securities; and it is more
likely than not that the Company will not have to sell the security before recovery of its cost basis. In addition, all securities currently in an unrealized loss position are current with respect to principal and interest payments.
The tables below display the aggregate market value and gross unrealized depreciation of fixed maturity securities, by security type and contractual
maturity, in each case subdivided according to length of time that individual securities had been in a continuous unrealized loss position for the periods indicated:
|
|
Duration of Unrealized Loss at December 31, 2017 By Security Type
|
|
|
|
Less than 12 months
|
|
|
Greater than 12 months
|
|
|
Total
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
Gross
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
Unrealized
|
|
(Dollars in thousands)
|
|
Market Value
|
|
|
Depreciation
|
|
|
Market Value
|
|
|
Depreciation
|
|
|
Market Value
|
|
|
Depreciation
|
|
Fixed maturity securities - available for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities and obligations of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government agencies and corporations
|
|
$
|
446,963
|
|
|
$
|
(2,921
|
)
|
|
$
|
198,684
|
|
|
$
|
(4,673
|
)
|
|
$
|
645,647
|
|
|
$
|
(7,594
|
)
|
Obligations of U.S. states and political subdivisions
|
|
|
4,400
|
|
|
|
(27
|
)
|
|
|
37,886
|
|
|
|
(417
|
)
|
|
|
42,286
|
|
|
|
(444
|
)
|
Corporate securities
|
|
|
455,431
|
|
|
|
(6,674
|
)
|
|
|
216,715
|
|
|
|
(6,785
|
)
|
|
|
672,146
|
|
|
|
(13,459
|
)
|
Asset-backed securities
|
|
|
75,196
|
|
|
|
(328
|
)
|
|
|
7,991
|
|
|
|
(58
|
)
|
|
|
83,187
|
|
|
|
(386
|
)
|
Mortgage-backed securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
26,650
|
|
|
|
(264
|
)
|
|
|
5,972
|
|
|
|
(221
|
)
|
|
|
32,622
|
|
|
|
(485
|
)
|
Agency residential
|
|
|
46,234
|
|
|
|
(322
|
)
|
|
|
58,135
|
|
|
|
(1,336
|
)
|
|
|
104,369
|
|
|
|
(1,658
|
)
|
Foreign government securities
|
|
|
159,852
|
|
|
|
(1,567
|
)
|
|
|
121,018
|
|
|
|
(5,926
|
)
|
|
|
280,870
|
|
|
|
(7,493
|
)
|
Foreign corporate securities
|
|
|
263,547
|
|
|
|
(4,590
|
)
|
|
|
109,727
|
|
|
|
(8,403
|
)
|
|
|
373,274
|
|
|
|
(12,993
|
)
|
Total fixed maturity securities
|
|
$
|
1,478,273
|
|
|
$
|
(16,693
|
)
|
|
$
|
756,128
|
|
|
$
|
(27,819
|
)
|
|
$
|
2,234,401
|
|
|
$
|
(44,512
|
)
|
|
|
Duration of Unrealized Loss at December 31, 2017 By Maturity
|
|
|
|
Less than 12 months
|
|
|
Greater than 12 months
|
|
|
Total
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
Gross
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
Unrealized
|
|
(Dollars in thousands)
|
|
Market Value
|
|
|
Depreciation
|
|
|
Market Value
|
|
|
Depreciation
|
|
|
Market Value
|
|
|
Depreciation
|
|
Fixed maturity securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due in one year or less
|
|
$
|
102,939
|
|
|
$
|
(498
|
)
|
|
$
|
40,006
|
|
|
$
|
(1,627
|
)
|
|
$
|
142,945
|
|
|
$
|
(2,125
|
)
|
Due in one year through five years
|
|
|
973,217
|
|
|
|
(10,291
|
)
|
|
|
488,945
|
|
|
|
(18,917
|
)
|
|
|
1,462,162
|
|
|
|
(29,208
|
)
|
Due in five years through ten years
|
|
|
189,103
|
|
|
|
(3,713
|
)
|
|
|
116,136
|
|
|
|
(5,216
|
)
|
|
|
305,239
|
|
|
|
(8,929
|
)
|
Due after ten years
|
|
|
64,934
|
|
|
|
(1,277
|
)
|
|
|
38,943
|
|
|
|
(444
|
)
|
|
|
103,877
|
|
|
|
(1,721
|
)
|
Asset-backed securities
|
|
|
75,196
|
|
|
|
(328
|
)
|
|
|
7,991
|
|
|
|
(58
|
)
|
|
|
83,187
|
|
|
|
(386
|
)
|
Mortgage-backed securities
|
|
|
72,884
|
|
|
|
(586
|
)
|
|
|
64,107
|
|
|
|
(1,557
|
)
|
|
|
136,991
|
|
|
|
(2,143
|
)
|
Total fixed maturity securities
|
|
$
|
1,478,273
|
|
|
$
|
(16,693
|
)
|
|
$
|
756,128
|
|
|
$
|
(27,819
|
)
|
|
$
|
2,234,401
|
|
|
$
|
(44,512
|
)
|
The aggregate market value and gross unrealized losses related to investments in an unrealized loss position at December 31,
2017 were $2,234,401 thousand and $44,512 thousand, respectively. The market value of securities for the single issuer (the United States government) whose securities comprised the largest unrealized loss position at December 31, 2017, did not
exceed 13.0% of the overall market value of the Company’s fixed maturity securities. The market value of securities for the issuer with the second largest unrealized loss comprised less than 0.9% of the company’s fixed maturity securities. In
addition, as indicated on the above table, there was no significant concentration of unrealized losses in any one market sector. The $16,693 thousand of unrealized losses related to fixed maturity securities that have been in an unrealized loss
position for less than one year were generally comprised of domestic and foreign corporate securities, U.S. government agencies and corporations and foreign government securities. Of these unrealized losses, $13,043 thousand were related to
securities that were rated investment grade by at least one nationally recognized statistical rating agency. The $27,819 thousand of unrealized losses related to fixed maturity securities in an unrealized loss position for more than one year
related primarily due to foreign and domestic corporate securities, foreign government securities, U.S. government agencies and
corporations and agency residential mortgage-backed securities. Of these unrealized losses, $26,463 thousand were related to
securities that were rated investment grade by at least one nationally recognized statistical rating agency. There was no gross unrealized depreciation for mortgage-backed securities related to sub-prime and alt-A loans. In all instances, there
were no projected cash flow shortfalls to recover the full book value of the investments and the related interest obligations. The mortgage-backed securities still have excess credit coverage and are current on interest and principal payments.
The components of net investment income are presented in the tables below for the periods indicated:
|
|
Years Ended December 31,
|
|
(Dollars in thousands)
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Fixed maturities
|
|
$
|
201,108
|
|
|
$
|
193,676
|
|
|
$
|
182,132
|
|
Equity securities
|
|
|
14,909
|
|
|
|
25,852
|
|
|
|
32,317
|
|
Short-term investments and cash
|
|
|
7,715
|
|
|
|
2,870
|
|
|
|
1,234
|
|
Other invested assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Limited partnerships
|
|
|
61,645
|
|
|
|
36,603
|
|
|
|
25,194
|
|
Dividends from preferred shares of affiliate
|
|
|
31,032
|
|
|
|
31,032
|
|
|
|
31,032
|
|
Other
|
|
|
17,825
|
|
|
|
6,675
|
|
|
|
1,017
|
|
Gross investment income before adjustments
|
|
|
334,234
|
|
|
|
296,708
|
|
|
|
272,926
|
|
Funds held interest income (expense)
|
|
|
5,188
|
|
|
|
5,006
|
|
|
|
6,073
|
|
Interest income from Parent
|
|
|
4,085
|
|
|
|
4,300
|
|
|
|
4,300
|
|
Gross investment income
|
|
|
343,507
|
|
|
|
306,014
|
|
|
|
283,299
|
|
Investment expenses
|
|
|
(29,126
|
)
|
|
|
(19,755
|
)
|
|
|
(18,492
|
)
|
Net investment income
|
|
$
|
314,381
|
|
|
$
|
286,259
|
|
|
$
|
264,807
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Some amounts may not reconcile due to rounding.)
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company records results from limited partnership investments on the equity method of accounting with changes in value reported through net
investment income. Due to the timing of receiving financial information from these partnerships, the results are generally reported on a one month or quarter lag. If the Company determines there has been a significant decline in value of a
limited partnership during this lag period, a loss will be recorded in the period in which the Company identifies the decline.
The Company had contractual commitments to invest up to an additional $322,932 thousand in limited partnerships at December 31, 2018. These
commitments will be funded when called in accordance with the partnership agreements, which have investment periods that expire, unless extended, through 2023.
Beginning in the first quarter of 2016, the Company participated in a private placement liquidity sweep facility (“the facility”). The primary
purpose of the facility is to enhance the Company’s return on its short-term investments and cash positions. The facility invests in high quality, short-duration securities and permits daily liquidity. Through the second quarter of 2018, the
Company’s participation in the facility was classified within other invested assets on the Company’s Balance Sheets.
As of the third quarter of 2018, the Company has consolidated its participation in the facility. As a result, the underlying investments are now
recorded in the various investment line items within the Company’s balance sheet, rather than as part of other invested assets. As of December 31, 2018, the market value of investments in the facility consolidated within the Company’s balance
sheets was $120,109 thousand.
Other invested assets, at fair value, as of December 31, 2018 and December 31, 2017, were comprised of preferred shares held in Preferred Holdings,
an affiliated company.
The components of net realized capital gains (losses) are presented in the table below for the periods indicated:
|
|
Years Ended December 31,
|
|
(Dollars in thousands)
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Fixed maturity securities, market value:
|
|
|
|
|
|
|
|
|
|
Other-than-temporary impairments
|
|
$
|
(6,164
|
)
|
|
$
|
(6,077
|
)
|
|
$
|
(25,679
|
)
|
Gains (losses) from sales
|
|
|
933
|
|
|
|
2,473
|
|
|
|
(6,981
|
)
|
Fixed maturity securities, fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains (losses) from sales
|
|
|
(1,799
|
)
|
|
|
-
|
|
|
|
(1,586
|
)
|
Gains (losses) from fair value adjustments
|
|
|
1,506
|
|
|
|
-
|
|
|
|
1,381
|
|
Equity securities, fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains (losses) from sales
|
|
|
(32,092
|
)
|
|
|
6,556
|
|
|
|
(12,561
|
)
|
Gains (losses) from fair value adjustments
|
|
|
(59,409
|
)
|
|
|
117,695
|
|
|
|
51,077
|
|
Other invested assets
|
|
|
1,815
|
|
|
|
61
|
|
|
|
18
|
|
Other invested assets, fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains (losses) from fair value adjustments
|
|
|
(90,136
|
)
|
|
|
40,846
|
|
|
|
(6,588
|
)
|
Gains (losses) on sale of subsidiary
|
|
|
-
|
|
|
|
-
|
|
|
|
(28,032
|
)
|
Short-term investment gains (losses)
|
|
|
(10
|
)
|
|
|
(1
|
)
|
|
|
10
|
|
Total net realized capital gains (losses)
|
|
$
|
(185,356
|
)
|
|
$
|
161,553
|
|
|
$
|
(28,941
|
)
|
The Company recorded as net realized capital gains (losses) in the consolidated statements of operations and comprehensive income (loss) both fair
value re-measurements and write-downs in the value of securities deemed to be impaired on an other-than-temporary basis as displayed in the table above. The Company had no other-than-temporary impaired securities where the impairment had both a
credit and non-credit component.
Effective August 24, 2016, the Company sold Heartland, its crop Managing General Agent to CGB. The Company has recognized a pre-tax loss on the
sale of Heartland of $28,032 thousand.
The proceeds and split between gross gains and losses, from sales of fixed maturity and equity securities, are presented in the table below for the
periods indicated:
|
|
Years Ended December 31,
|
|
(Dollars in thousands)
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Proceeds from sales of fixed maturity securities
|
|
$
|
793,119
|
|
|
$
|
1,676,203
|
|
|
$
|
710,028
|
|
Gross gains from sales
|
|
|
15,349
|
|
|
|
31,328
|
|
|
|
18,907
|
|
Gross losses from sales
|
|
|
(16,215
|
)
|
|
|
(28,855
|
)
|
|
|
(27,474
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sales of equity securities
|
|
$
|
1,029,920
|
|
|
$
|
586,496
|
|
|
$
|
695,039
|
|
Gross gains from sales
|
|
|
25,160
|
|
|
|
23,214
|
|
|
|
16,223
|
|
Gross losses from sales
|
|
|
(57,252
|
)
|
|
|
(16,658
|
)
|
|
|
(28,784
|
)
|
Securities with a carrying value amount of $1,471,451 thousand at December 31, 2018, were on deposit with various state or governmental insurance
departments in compliance with insurance laws.
4. RESERVES FOR LOSSES AND LAE
Reserves for losses and LAE.
Activity in the reserve for losses and LAE is summarized for the periods indicated:
|
|
At December 31,
|
|
(Dollars in thousands)
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Gross reserves at January 1
|
|
$
|
9,343,028
|
|
|
$
|
8,331,288
|
|
|
$
|
7,940,720
|
|
Less reinsurance recoverables
|
|
|
(5,727,268
|
)
|
|
|
(4,199,791
|
)
|
|
|
(3,875,073
|
)
|
Net reserves at January 1
|
|
|
3,615,760
|
|
|
|
4,131,497
|
|
|
|
4,065,647
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incurred related to:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year
|
|
|
4,252,220
|
|
|
|
2,157,498
|
|
|
|
1,441,962
|
|
Prior years
|
|
|
558,798
|
|
|
|
(117,747
|
)
|
|
|
(91,682
|
)
|
Total incurred losses and LAE
|
|
|
4,811,018
|
|
|
|
2,039,751
|
|
|
|
1,350,280
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paid related to:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year
|
|
|
1,524,635
|
|
|
|
1,607,601
|
|
|
|
400,489
|
|
Prior years
|
|
|
1,408,256
|
|
|
|
957,933
|
|
|
|
892,207
|
|
Total paid losses and LAE
|
|
|
2,932,891
|
|
|
|
2,565,534
|
|
|
|
1,292,696
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange/translation adjustment
|
|
|
(24,412
|
)
|
|
|
10,046
|
|
|
|
8,266
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net reserves at December 31
|
|
|
5,469,475
|
|
|
|
3,615,760
|
|
|
|
4,131,497
|
|
Plus reinsurance recoverables
|
|
|
4,697,543
|
|
|
|
5,727,268
|
|
|
|
4,199,791
|
|
Gross reserves at December 31
|
|
$
|
10,167,018
|
|
|
$
|
9,343,028
|
|
|
$
|
8,331,288
|
|
Current year incurred losses were $4,252,220 thousand, $2,157,498 thousand and $1,441,962 thousand at December 31, 2018, 2017 and 2016,
respectively. The increase in current year incurred losses was primarily due to the increase in attritional losses, due to a 148.2% increase in premiums earned. The $1,029,725 decrease in reinsurance recoverables from December 31, 2018 to
December 31, 2017 is primarily related to the December 31, 2017 cancellation of a whole account quota share agreement with Bermuda Re.
Incurred prior years’ reserves increased by $558,798 thousand in 2018 and decreased by $117,747 thousand and $91,682 thousand in 2017 and 2016,
respectively. The increase for 2018 was mainly due to $553,036 thousand of adverse development on prior years catastrophe losses, primarily related to Hurricanes Harvey, Irma and Maria, as well as the 2017 California wildfires. The increase in
loss estimates for Hurricanes Harvey, Irma and Maria was mostly driven by re-opened claims, loss inflation from higher than expected loss adjustment expenses and in particular, their impact on aggregate covers.
The decrease for 2017 was attributable to favorable development in the reinsurance segments of $84,809 thousand related primarily to property and
short-tail business in the U.S., as well as favorable development on prior year catastrophe losses, partially offset by $25,194 thousand of adverse development on A&E reserves. The insurance segment also experienced favorable development on
prior year reserves of $32,938 thousand mainly on its workers compensation business, which is largely written in California.
The decrease for 2016 was attributable to favorable development in the reinsurance segments of $187,909 thousand related primarily to property and
short-tail business in the U.S., property business in Canada, Latin America, Middle East and Africa, as well as favorable development on prior year catastrophe losses, partially offset by $45,668 thousand of adverse development on A&E
reserves. Part of the favorable development in the reinsurance segment related to the 2015 loss from the explosion at the Chinese port of Tianjin. In 2015, this loss was originally estimated to be $21,566 thousands. At December 31, 2016, this
loss was projected to be $6,261 thousands resulting in $15,305 thousands of favorable development in 2016. The net favorable development in the reinsurance segments was partially offset by $96,227 thousand of unfavorable development in the
insurance segment primarily related to run-off construction liability and umbrella program business.
The following is information about incurred and paid claims development as of December 31, 2018, net of reinsurance, as well as
cumulative claim frequency and the total of incurred but not reported liabilities (IBNR) plus expected development on reported claims included within the net incurred claims amounts. Each of the Company’s financial reporting segments has been
disaggregated into casualty and property business. The casualty and property segregation results in groups that have homogeneous loss development characteristics and are large enough to represent credible trends. Generally, casualty claims take
longer to be reported and settled, resulting in longer payout patterns and increased volatility. Property claims on the other hand, tend to be reported and settled quicker and therefore tend to exhibit less volatility. The property business is
more exposed to catastrophe losses, which can result in year over year fluctuations in incurred claims depending on the frequency and severity of catastrophes claims in any one accident year.
The information about incurred and paid claims development for the years ended December 31, 2012 to December 31, 2017 is presented as supplementary
information.
These tables present seven years of incurred and paid claims development as it is impracticable to retrospectively create the tables for ten years.
For the reinsurance groups, for the years prior to 2012, the total of IBNR plus expected development on reported claims was not prepared on an accident year basis. The Company calculated these IBNR amounts in the aggregate for each business unit
in total as of prior year end points in time. While business written in the United States would have been allocated to accident year for regulatory reporting purposes, business written outside of the United States would not have been similarly
allocated. Attempting to allocate the non-U.S. business IBNR reserves to accident year currently for older year end valuations would require making assumptions and estimates which may not be in line with assumptions that would have been made at
the time. A similar situation applies to insurance where the accumulation of the business lines reported in the regulatory filings are not consistent with the breakout of the tables presented below. As a result of not being able to present the
information prior to 2012, prospectively an additional year will be added to the tables each reporting year until a ten year table is presented.
The Cumulative Number of Reported Claims is shown only for Insurance Casualty as it is impracticable to provide the information for the remaining
groups. The reinsurance groups each include pro rata contracts for which ceding companies provide only summary information via a bordereau. This summary information does not include the number of reported claims underlying the paid and reported
losses. Therefore, it is not possible to provide this information. The Insurance Property group includes Accident & Health insurance business. This business is written via a master contract and individual claim counts are not provided.
This business represents a significant enough portion of the business in the Insurance Property group so that including the number of reported claims for the remaining business would distort any analytics performed on the group.
The Cumulative Number of Reported Claims shown for the Insurance Casualty is determined by claim and line of business. For example, a claim event
with three claimants in the same line of business is a single claim. However, a claim event with a single claimant that spans two lines of business contributes two claims. Cessions under affiliated quota share agreements reduce net losses but
do not impact claim counts.
The following tables present the incurred loss and ALAE and the paid loss and ALAE, net of reinsurance for casualty and property, as well as the
average annual percentage payout of incurred claims by age, net of reinsurance for each of our disclosed lines of business.
U.S. Reinsurance – Casualty Business
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IBNR Liabilites
|
|
|
|
|
|
|
Incurred Claims and Allocated Claim Adjustment Expenses, Net of reinsurance
|
|
|
Plus Expected
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
Development
|
|
|
Cumulative
|
|
|
|
2012
|
|
|
2013
|
|
|
2014
|
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
2018
|
|
|
on Reported
|
|
|
Number of
|
|
Accident Year
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
|
|
|
Claims
|
|
|
Reported Claims
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
$
|
249,554
|
|
|
$
|
211,395
|
|
|
$
|
139,986
|
|
|
$
|
139,696
|
|
|
$
|
146,130
|
|
|
$
|
145,884
|
|
|
$
|
123,133
|
|
|
|
3,743
|
|
|
|
N/A
|
|
2013
|
|
|
|
|
|
|
117,165
|
|
|
|
183,817
|
|
|
|
181,370
|
|
|
|
186,496
|
|
|
|
178,745
|
|
|
|
144,901
|
|
|
|
2,399
|
|
|
|
N/A
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
197,550
|
|
|
|
189,747
|
|
|
|
193,907
|
|
|
|
185,993
|
|
|
|
142,503
|
|
|
|
6,238
|
|
|
|
N/A
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
155,907
|
|
|
|
178,397
|
|
|
|
173,915
|
|
|
|
128,718
|
|
|
|
7,043
|
|
|
|
N/A
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
171,566
|
|
|
|
174,166
|
|
|
|
139,377
|
|
|
|
4,856
|
|
|
|
N/A
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
147,709
|
|
|
|
101,680
|
|
|
|
1,796
|
|
|
|
N/A
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
423,119
|
|
|
|
304,803
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,203,431
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Some amounts may not reconcile due to rounding.)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
|
|
|
|
Years Ended December 31,
|
|
|
|
2012
|
|
|
2013
|
|
|
2014
|
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
2018
|
|
Accident Year
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
$
|
2,464
|
|
|
$
|
11,644
|
|
|
$
|
24,865
|
|
|
$
|
54,728
|
|
|
$
|
76,423
|
|
|
$
|
95,999
|
|
|
$
|
97,958
|
|
2013
|
|
|
|
|
|
|
4,716
|
|
|
|
15,745
|
|
|
|
43,426
|
|
|
|
74,059
|
|
|
|
102,101
|
|
|
|
112,924
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
7,151
|
|
|
|
21,883
|
|
|
|
47,975
|
|
|
|
86,187
|
|
|
|
101,462
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,918
|
|
|
|
21,898
|
|
|
|
60,936
|
|
|
|
85,081
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,442
|
|
|
|
43,696
|
|
|
|
96,070
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29,027
|
|
|
|
58,699
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44,519
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
596,712
|
|
All outstanding liabilities prior to 2012, net of reinsurance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
541,109
|
|
Liabilities for claims and claim adjustment expenses, net of reinsurance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,147,829
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Some amounts may not reconcile due to rounding.)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance (unaudited)
|
Years
|
|
1
|
|
2
|
|
3
|
|
4
|
|
5
|
|
6
|
|
7
|
Casualty
|
|
8.6%
|
|
14.7%
|
|
23.3%
|
|
22.8%
|
|
15.8%
|
|
11.3%
|
|
1.6%
|
U.S. Reinsurance – Property Business
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IBNR Liabilites
|
|
|
|
|
|
|
Incurred Claims and Allocated Claim Adjustment Expenses, Net of reinsurance
|
|
|
Plus Expected
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
Development
|
|
|
Cumulative
|
|
|
|
2012
|
|
|
2013
|
|
|
2014
|
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
2018
|
|
|
on Reported
|
|
|
Number of
|
|
Accident Year
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
|
|
|
Claims
|
|
|
Reported Claims
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
$
|
581,725
|
|
|
$
|
469,901
|
|
|
$
|
375,492
|
|
|
$
|
372,721
|
|
|
$
|
363,703
|
|
|
$
|
360,924
|
|
|
$
|
354,161
|
|
|
|
26
|
|
|
|
N/A
|
|
2013
|
|
|
|
|
|
|
281,827
|
|
|
|
303,786
|
|
|
|
279,500
|
|
|
|
248,747
|
|
|
|
242,639
|
|
|
|
237,786
|
|
|
|
29
|
|
|
|
N/A
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
327,225
|
|
|
|
297,624
|
|
|
|
238,821
|
|
|
|
222,143
|
|
|
|
223,170
|
|
|
|
139
|
|
|
|
N/A
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
324,762
|
|
|
|
259,740
|
|
|
|
235,896
|
|
|
|
237,046
|
|
|
|
252
|
|
|
|
N/A
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
423,787
|
|
|
|
372,960
|
|
|
|
400,328
|
|
|
|
585
|
|
|
|
N/A
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
840,673
|
|
|
|
920,568
|
|
|
|
3,800
|
|
|
|
N/A
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,505,374
|
|
|
|
1,014,015
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,878,433
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Some amounts may not reconcile due to rounding.)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
|
|
|
|
Years Ended December 31,
|
|
|
|
2012
|
|
|
2013
|
|
|
2014
|
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
2018
|
|
Accident Year
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
$
|
129,954
|
|
|
$
|
229,146
|
|
|
$
|
286,539
|
|
|
$
|
311,224
|
|
|
$
|
323,662
|
|
|
$
|
337,889
|
|
|
$
|
338,245
|
|
2013
|
|
|
|
|
|
|
120,006
|
|
|
|
165,868
|
|
|
|
199,684
|
|
|
|
214,193
|
|
|
|
223,295
|
|
|
|
226,132
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
110,228
|
|
|
|
164,187
|
|
|
|
190,381
|
|
|
|
204,116
|
|
|
|
209,383
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
113,245
|
|
|
|
167,216
|
|
|
|
205,980
|
|
|
|
219,870
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
156,893
|
|
|
|
298,459
|
|
|
|
347,039
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
582,183
|
|
|
|
726,980
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
923,030
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,990,680
|
|
All outstanding liabilities prior to 2012, net of reinsurance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34,584
|
|
Liabilities for claims and claim adjustment expenses, net of reinsurance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,922,337
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Some amounts may not reconcile due to rounding.)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance (unaudited)
|
Years
|
|
1
|
|
2
|
|
3
|
|
4
|
|
5
|
|
6
|
|
7
|
Casualty
|
|
43.8%
|
|
22.7%
|
|
14.1%
|
|
6.4%
|
|
3.3%
|
|
2.9%
|
|
0.1%
|
International – Casualty Business
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IBNR Liabilites
|
|
|
|
|
|
|
Incurred Claims and Allocated Claim Adjustment Expenses, Net of reinsurance
|
|
|
Plus Expected
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
Development
|
|
|
Cumulative
|
|
|
|
2012
|
|
|
2013
|
|
|
2014
|
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
2018
|
|
|
on Reported
|
|
|
Number of
|
|
Accident Year
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
|
|
|
Claims
|
|
|
Reported Claims
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
$
|
122,763
|
|
|
$
|
55,825
|
|
|
$
|
35,057
|
|
|
$
|
43,269
|
|
|
$
|
45,029
|
|
|
$
|
43,365
|
|
|
$
|
40,567
|
|
|
|
822
|
|
|
|
N/A
|
|
2013
|
|
|
|
|
|
|
60,593
|
|
|
|
41,151
|
|
|
|
42,907
|
|
|
|
54,954
|
|
|
|
48,909
|
|
|
|
40,501
|
|
|
|
1,268
|
|
|
|
N/A
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
59,019
|
|
|
|
48,528
|
|
|
|
67,890
|
|
|
|
57,324
|
|
|
|
45,528
|
|
|
|
2,450
|
|
|
|
N/A
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
54,588
|
|
|
|
73,853
|
|
|
|
62,508
|
|
|
|
41,042
|
|
|
|
2,811
|
|
|
|
N/A
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
72,485
|
|
|
|
69,605
|
|
|
|
42,783
|
|
|
|
3,150
|
|
|
|
N/A
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
58,016
|
|
|
|
32,424
|
|
|
|
3,176
|
|
|
|
N/A
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
213,031
|
|
|
|
138,910
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
455,876
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Some amounts may not reconcile due to rounding.)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
|
|
|
|
Years Ended December 31,
|
|
|
|
2012
|
|
|
2013
|
|
|
2014
|
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
2018
|
|
Accident Year
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
$
|
7,028
|
|
|
$
|
10,482
|
|
|
$
|
16,325
|
|
|
$
|
19,636
|
|
|
$
|
22,886
|
|
|
$
|
27,297
|
|
|
$
|
30,102
|
|
2013
|
|
|
|
|
|
|
5,809
|
|
|
|
13,726
|
|
|
|
17,460
|
|
|
|
21,080
|
|
|
|
23,763
|
|
|
|
27,378
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
8,257
|
|
|
|
14,464
|
|
|
|
20,480
|
|
|
|
24,756
|
|
|
|
29,040
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,261
|
|
|
|
17,874
|
|
|
|
25,263
|
|
|
|
26,421
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,504
|
|
|
|
19,654
|
|
|
|
29,081
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,910
|
|
|
|
23,462
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42,745
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
208,227
|
|
All outstanding liabilities prior to 2012, net of reinsurance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
67,223
|
|
Liabilities for claims and claim adjustment expenses, net of reinsurance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
314,872
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Some amounts may not reconcile due to rounding.)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance (unaudited)
|
Years
|
|
1
|
|
2
|
|
3
|
|
4
|
|
5
|
|
6
|
|
7
|
Casualty
|
|
20.5%
|
|
20.1%
|
|
15.4%
|
|
7.4%
|
|
8.1%
|
|
9.9%
|
|
6.9%
|
International – Property Business
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IBNR Liabilites
|
|
|
|
|
|
|
Incurred Claims and Allocated Claim Adjustment Expenses, Net of reinsurance
|
|
|
Plus Expected
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
Development
|
|
|
Cumulative
|
|
|
|
2012
|
|
|
2013
|
|
|
2014
|
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
2018
|
|
|
on Reported
|
|
|
Number of
|
|
Accident Year
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
|
|
|
Claims
|
|
|
Reported Claims
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
$
|
264,921
|
|
|
$
|
248,925
|
|
|
$
|
199,910
|
|
|
$
|
204,200
|
|
|
$
|
198,522
|
|
|
$
|
202,585
|
|
|
$
|
201,769
|
|
|
|
75
|
|
|
|
N/A
|
|
2013
|
|
|
|
|
|
|
172,238
|
|
|
|
168,763
|
|
|
|
161,548
|
|
|
|
148,630
|
|
|
|
152,596
|
|
|
|
152,405
|
|
|
|
60
|
|
|
|
N/A
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
311,914
|
|
|
|
252,932
|
|
|
|
192,433
|
|
|
|
169,450
|
|
|
|
168,289
|
|
|
|
184
|
|
|
|
N/A
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
256,784
|
|
|
|
161,440
|
|
|
|
165,801
|
|
|
|
172,825
|
|
|
|
103
|
|
|
|
N/A
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
195,917
|
|
|
|
216,061
|
|
|
|
223,203
|
|
|
|
437
|
|
|
|
N/A
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
514,348
|
|
|
|
478,896
|
|
|
|
4,585
|
|
|
|
N/A
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
899,094
|
|
|
|
281,798
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,296,481
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Some amounts may not reconcile due to rounding.)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
|
|
|
|
Years Ended December 31,
|
|
|
|
2012
|
|
|
2013
|
|
|
2014
|
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
2018
|
|
Accident Year
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
$
|
81,030
|
|
|
$
|
138,788
|
|
|
$
|
170,517
|
|
|
$
|
181,010
|
|
|
$
|
185,233
|
|
|
$
|
190,854
|
|
|
$
|
190,908
|
|
2013
|
|
|
|
|
|
|
45,630
|
|
|
|
95,774
|
|
|
|
115,537
|
|
|
|
129,824
|
|
|
|
136,661
|
|
|
|
139,277
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
56,523
|
|
|
|
101,869
|
|
|
|
130,791
|
|
|
|
146,616
|
|
|
|
152,076
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
54,363
|
|
|
|
101,657
|
|
|
|
133,197
|
|
|
|
149,359
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
56,745
|
|
|
|
142,237
|
|
|
|
180,237
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
295,078
|
|
|
|
376,012
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
331,806
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,519,676
|
|
All outstanding liabilities prior to 2012, net of reinsurance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
79,444
|
|
Liabilities for claims and claim adjustment expenses, net of reinsurance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
856,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Some amounts may not reconcile due to rounding.)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance (unaudited)
|
Years
|
|
1
|
|
2
|
|
3
|
|
4
|
|
5
|
|
6
|
|
7
|
Casualty
|
|
40.1%
|
|
26.3%
|
|
16.3%
|
|
8.2%
|
|
3.2%
|
|
2.3%
|
|
0.0%
|
Insurance – Casualty Business
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IBNR Liabilites
|
|
|
|
|
|
|
Incurred Claims and Allocated Claim Adjustment Expenses, Net of reinsurance
|
|
|
Plus Expected
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
Development
|
|
|
Cumulative
|
|
|
|
2012
|
|
|
2013
|
|
|
2014
|
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
2018
|
|
|
on Reported
|
|
|
Number of
|
|
Accident Year
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
|
|
|
Claims
|
|
|
Reported Claims
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
$
|
211,523
|
|
|
$
|
174,501
|
|
|
$
|
184,912
|
|
|
$
|
184,312
|
|
|
$
|
187,963
|
|
|
$
|
178,128
|
|
|
$
|
180,350
|
|
|
|
367
|
|
|
|
15,746
|
|
2013
|
|
|
|
|
|
|
255,598
|
|
|
|
227,657
|
|
|
|
230,182
|
|
|
|
224,303
|
|
|
|
181,527
|
|
|
|
189,032
|
|
|
|
831
|
|
|
|
21,314
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
237,162
|
|
|
|
238,146
|
|
|
|
240,081
|
|
|
|
245,461
|
|
|
|
209,777
|
|
|
|
1,696
|
|
|
|
25,112
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
257,735
|
|
|
|
257,873
|
|
|
|
260,086
|
|
|
|
250,808
|
|
|
|
8,702
|
|
|
|
26,729
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
352,952
|
|
|
|
339,026
|
|
|
|
332,455
|
|
|
|
21,239
|
|
|
|
31,120
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
272,757
|
|
|
|
224,603
|
|
|
|
10,894
|
|
|
|
33,822
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
642,029
|
|
|
|
475,782
|
|
|
|
27,224
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,029,053
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Some amounts may not reconcile due to rounding.)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
|
|
|
|
Years Ended December 31,
|
|
|
|
2012
|
|
|
2013
|
|
|
2014
|
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
2018
|
|
Accident Year
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
$
|
15,659
|
|
|
$
|
55,166
|
|
|
$
|
84,285
|
|
|
$
|
116,460
|
|
|
$
|
133,075
|
|
|
$
|
146,765
|
|
|
$
|
160,874
|
|
2013
|
|
|
|
|
|
|
17,101
|
|
|
|
68,498
|
|
|
|
101,517
|
|
|
|
129,588
|
|
|
|
149,542
|
|
|
|
168,907
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
20,351
|
|
|
|
71,807
|
|
|
|
113,996
|
|
|
|
143,553
|
|
|
|
176,325
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,904
|
|
|
|
67,798
|
|
|
|
116,418
|
|
|
|
202,792
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,662
|
|
|
|
100,846
|
|
|
|
292,645
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
286,290
|
|
|
|
173,839
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
61,104
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,236,488
|
|
All outstanding liabilities prior to 2012, net of reinsurance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
147,649
|
|
Liabilities for claims and claim adjustment expenses, net of reinsurance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
940,215
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Some amounts may not reconcile due to rounding.)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance (unaudited)
|
Years
|
|
1
|
|
2
|
|
3
|
|
4
|
|
5
|
|
6
|
|
7
|
Casualty
|
|
21.9%
|
|
8.9%
|
|
28.7%
|
|
20.2%
|
|
11.0%
|
|
8.4%
|
|
7.3%
|
Insurance – Property Business
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IBNR Liabilites
|
|
|
|
|
|
|
Incurred Claims and Allocated Claim Adjustment Expenses, Net of reinsurance
|
|
|
Plus Expected
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
Development
|
|
|
Cumulative
|
|
|
|
2012
|
|
|
2013
|
|
|
2014
|
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
2018
|
|
|
on Reported
|
|
|
Number of
|
|
Accident Year
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
|
|
|
Claims
|
|
|
Reported Claims
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
$
|
58,235
|
|
|
$
|
46,857
|
|
|
$
|
43,471
|
|
|
$
|
44,799
|
|
|
$
|
44,227
|
|
|
$
|
43,845
|
|
|
$
|
44,086
|
|
|
|
1
|
|
|
|
N/A
|
|
2013
|
|
|
|
|
|
|
63,803
|
|
|
|
56,727
|
|
|
|
51,965
|
|
|
|
52,674
|
|
|
|
52,144
|
|
|
|
52,611
|
|
|
|
12
|
|
|
|
N/A
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
67,951
|
|
|
|
69,700
|
|
|
|
67,297
|
|
|
|
66,135
|
|
|
|
66,418
|
|
|
|
12
|
|
|
|
N/A
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
80,165
|
|
|
|
75,670
|
|
|
|
74,906
|
|
|
|
74,967
|
|
|
|
25
|
|
|
|
N/A
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
150,671
|
|
|
|
155,382
|
|
|
|
167,406
|
|
|
|
76
|
|
|
|
N/A
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
244,273
|
|
|
|
291,322
|
|
|
|
779
|
|
|
|
N/A
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
386,403
|
|
|
|
79,448
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,083,213
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Some amounts may not reconcile due to rounding.)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
|
|
|
|
Years Ended December 31,
|
|
|
|
2012
|
|
|
2013
|
|
|
2014
|
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
2018
|
|
Accident Year
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
$
|
26,851
|
|
|
$
|
44,345
|
|
|
$
|
42,800
|
|
|
$
|
44,452
|
|
|
$
|
44,161
|
|
|
$
|
43,973
|
|
|
$
|
44,041
|
|
2013
|
|
|
|
|
|
|
35,157
|
|
|
|
54,039
|
|
|
|
52,394
|
|
|
|
52,658
|
|
|
|
52,284
|
|
|
|
52,521
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
40,211
|
|
|
|
66,300
|
|
|
|
66,460
|
|
|
|
65,813
|
|
|
|
66,302
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45,244
|
|
|
|
70,125
|
|
|
|
74,829
|
|
|
|
74,590
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
71,580
|
|
|
|
152,075
|
|
|
|
167,807
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
185,541
|
|
|
|
278,905
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
252,936
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
937,103
|
|
All outstanding liabilities prior to 2012, net of reinsurance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
75
|
|
Liabilities for claims and claim adjustment expenses, net of reinsurance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
146,185
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Some amounts may not reconcile due to rounding.)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance (unaudited)
|
Years
|
|
1
|
|
2
|
|
3
|
|
4
|
|
5
|
|
6
|
|
7
|
Casualty
|
|
60.7%
|
|
37.2%
|
|
1.8%
|
|
0.7%
|
|
-0.1%
|
|
0.1%
|
|
0.2%
|
Reconciliation of the Disclosure of Incurred and Paid Claims Development to the Liability for Unpaid Claims and Claim Adjustment
Expenses
The reconciliation of the net incurred and paid claims development tables to the liability for claims and claim adjustment expenses in the
consolidated statement of financial position is as follows.
|
|
At December 31,
|
|
|
|
2018
|
|
(Dollars in thousands)
|
|
|
|
Net outstanding liabilities
|
|
|
|
U.S. Reinsurance Casualty
|
|
$
|
1,147,829
|
|
U.S. Reinsurance Property
|
|
|
1,922,337
|
|
International Casualty
|
|
|
314,872
|
|
International Property
|
|
|
856,250
|
|
Insurance Casualty
|
|
|
940,215
|
|
Insurance Property
|
|
|
146,185
|
|
Liabilities for unpaid claims and claim adjustment expenses, net of reinsurance
|
|
|
5,327,686
|
|
|
|
|
|
|
Reinsurance recoverable on unpaid claims
|
|
|
|
|
U.S. Reinsurance Casualty
|
|
|
1,231,742
|
|
U.S. Reinsurance Property
|
|
|
602,369
|
|
International Casualty
|
|
|
619,873
|
|
International Property
|
|
|
359,469
|
|
Insurance Casualty
|
|
|
1,689,132
|
|
Insurance Property
|
|
|
194,958
|
|
Total reinsurance recoverable on unpaid claims
|
|
|
4,697,543
|
|
|
|
|
|
|
Unallocated claims adjustment expenses
|
|
|
113,603
|
|
Other
|
|
|
28,185
|
|
|
|
|
141,788
|
|
|
|
|
|
|
Total gross liability for unpaid claims and claim adjustment expense
|
|
$
|
10,167,018
|
|
|
|
|
|
|
(Some amounts may not reconcile due to rounding.)
|
|
|
|
|
Reserving Methodology
The Company maintains reserves equal to our estimated ultimate liability for losses and loss adjustment expense (LAE) for reported and unreported
claims for our insurance and reinsurance businesses. Because reserves are based on estimates of ultimate losses and LAE by underwriting or accident year, the Company uses a variety of statistical and actuarial techniques to monitor reserve
adequacy over time, evaluate new information as it becomes known, and adjust reserves whenever an adjustment appears warranted. The Company considers many factors when setting reserves including: (1) exposure base and projected ultimate
premium; (2) expected loss ratios by product and class of business, which are developed collaboratively by underwriters and actuaries; (3) actuarial methodologies which analyze loss reporting and payment experience, reports from ceding companies
and historical trends, such as reserving patterns, loss payments, and product mix; (4) current legal interpretations of coverage and liability; and (5) economic conditions. Insurance and reinsurance loss and LAE reserves represent the Company’s
best estimate of its ultimate liability. Actual loss and LAE ultimately paid may deviate, perhaps substantially, from such reserves. Net income (gain or loss) will be impacted in a period in which the change in estimated ultimate loss and LAE
is recorded.
The detailed data required to evaluate ultimate losses for the Company’s insurance business is accumulated from its underwriting and claim systems.
Reserving for reinsurance requires evaluation of loss information received from ceding companies. Ceding companies report losses in many forms depending on the type of contract and the agreed or contractual reporting requirements. Generally,
pro rata contracts require the submission of a monthly/quarterly account, which includes premium and loss activity for the period with corresponding reserves as established by the ceding company. This information is recorded into the
Company’s records. For certain pro rata contracts, the Company may require a detailed loss report for claims that exceed a certain dollar threshold
or relate to a particular type of loss. Excess of loss and facultative contracts generally require individual loss reporting with precautionary notices provided when a loss reaches a significant percentage of the attachment point of the contract
or when certain causes of loss or types of injury occur. Experienced claims staff handles individual loss reports and supporting claim information. Based on evaluation of a claim, the Company may establish additional case reserves in addition
to the case reserves reported by the ceding company. To ensure ceding companies are submitting required and accurate data, Everest’s Underwriting, Claim, Reinsurance Accounting, and Internal Audit Departments perform various reviews of ceding
companies, particularly larger ceding companies, including on-site audits.
The Company segments both reinsurance and insurance reserves into exposure groupings for actuarial analysis. The Company assigns business to
exposure groupings so that the underlying exposures have reasonably homogeneous loss development characteristics and are large enough to facilitate credible estimation of ultimate losses. The Company periodically reviews its exposure groupings
and may change groupings over time as business changes. The Company currently uses approximately 150 exposure groupings to develop reserve estimates. One of the key selection characteristics for the exposure groupings is the historical duration
of the claims settlement process. Business in which claims are reported and settled relatively quickly are commonly referred to as short tail lines, principally property lines. On the other hand, casualty claims tend to take longer to be
reported and settled and casualty lines are generally referred to as long tail lines. Estimates of ultimate losses for shorter tail lines, with the exception of loss estimates for large catastrophic events, generally exhibit less volatility than
those for the longer tail lines.
The Company uses a variety of actuarial methodologies, such as the expected loss ratio method, chain ladder methods, and Bornhuetter-Ferguson
methods, supplemented by judgment where appropriate, to estimate ultimate loss and LAE for each exposure group.
Expected Loss Ratio Method: The expected loss ratio method uses earned premium times an expected loss ratio to calculate ultimate losses for a
given underwriting or accident year. This method relies entirely on expectation to project ultimate losses with no consideration given to actual losses. As such, it may be appropriate for an immature underwriting or accident year where few, if
any, losses have been reported or paid, but less appropriate for a more mature year.
Chain Ladder Method: Chain ladder methods use a standard loss development triangle to project ultimate losses. Age-to-age development factors are
selected for each development period and combined to calculate age-to-ultimate development factors which are then applied to paid or reported losses to project ultimate losses. This method relies entirely on actual paid or reported losses to
project ultimate losses. No other factors such as changes in pricing or other expectations are taken into account. It is most appropriate for groups with homogeneous, stable experience where past development patterns are expected to continue in
the future. It is least appropriate for groups which have changed significantly over time or which are more volatile.
Bornhuetter-Ferguson Method: The Bornhuetter-Ferguson method is a combination of the expected loss ratio method and the chain ladder method.
Ultimate losses are projected based partly on actual paid or reported losses and partly on expectation. Incurred but not reported (IBNR) reserves are calculated using earned premium, an a priori loss ratio, and selected age-to-age development
factors and added to actual reported (paid) losses to determine ultimate losses. It is more responsive to actual reported or paid development than the expected loss ratio method but less responsive than the chain ladder method. The reliability
of the method depends on the accuracy of the selected a priori loss ratio.
Although the Company uses similar actuarial methods for both short tail and long tail lines, the faster reporting of experience for the short tail
lines allows the Company to have greater confidence in its estimates of ultimate losses for short tail lines at an earlier stage than for long tail lines. As a result, the Company utilizes, as well, exposure-based methods to estimate its
ultimate losses for longer tail lines, especially for immature underwriting or accident years. For both short and long tail lines, the Company supplements these general approaches with analytically based judgments.
Key actuarial assumptions contain no explicit provisions for reserve uncertainty nor does the Company supplement the actuarially determined reserves
for uncertainty.
Carried reserves at each reporting date are the Company’s best estimate of ultimate unpaid losses and LAE at that date. The Company completes
detailed reserve studies for each exposure group annually for both reinsurance and insurance operations. The completed annual reserve studies are “rolled-forward” for each accounting period until the subsequent reserve study is completed.
Analyzing the roll-forward process involves comparing actual reported losses to expected losses based on the most recent reserve study. The Company analyzes significant variances between actual and expected losses and post adjustments to its
reserves as warranted.
The Company continues to receive claims under expired insurance and reinsurance contracts asserting injuries and/or damages relating to or resulting
from environmental pollution and hazardous substances, including asbestos. Environmental claims typically assert liability for (a) the mitigation or remediation of environmental contamination or (b) bodily injury or property damage caused by the
release of hazardous substances into the land, air or water. Asbestos claims typically assert liability for bodily injury from exposure to asbestos or for property damage resulting from asbestos or products containing asbestos.
The Company’s reserves include an estimate of the Company’s ultimate liability for A&E claims. The Company’s A&E liabilities emanate from
direct insurance business and Everest Re’s assumed reinsurance business. All of the contracts of insurance and reinsurance under which the Company has received claims during the past three years, expired more than 20 years ago. There are
significant uncertainties surrounding the Company’s reserves for its A&E losses.
A&E exposures represent a separate exposure group for monitoring and evaluating reserve adequacy. The following table summarizes incurred losses
with respect to A&E reserves on both a gross and net of reinsurance basis for the periods indicated:
|
|
At December 31,
|
|
(Dollars in thousands)
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Gross basis:
|
|
|
|
|
|
|
|
|
|
Beginning of period reserves
|
|
$
|
448,993
|
|
|
$
|
441,111
|
|
|
$
|
433,117
|
|
Incurred losses
|
|
|
(2,473
|
)
|
|
|
90,009
|
|
|
|
73,336
|
|
Paid losses
|
|
|
(99,026
|
)
|
|
|
(82,126
|
)
|
|
|
(65,342
|
)
|
End of period reserves
|
|
$
|
347,495
|
|
|
$
|
448,993
|
|
|
$
|
441,111
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of period reserves
|
|
$
|
269,153
|
|
|
$
|
274,409
|
|
|
$
|
276,540
|
|
Incurred losses
|
|
|
-
|
|
|
|
25,194
|
|
|
|
45,668
|
|
Paid losses
|
|
|
(45,605
|
)
|
|
|
(30,451
|
)
|
|
|
(47,798
|
)
|
End of period reserves
|
|
$
|
223,548
|
|
|
$
|
269,153
|
|
|
$
|
274,409
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Some amounts may not reconcile due to rounding.)
|
|
|
|
|
|
|
|
|
|
|
|
|
Reinsurance Receivables. Reinsurance receivables for both paid and unpaid
losses totaled $4,840,936 thousand and $6,120,687 thousand at December 31, 2018 and 2017, respectively. At December 31, 2018, $3,524,750 thousand, or 72.8%, was receivable from Everest Reinsurance (Bermuda), Ltd. (“Bermuda Re”), an affiliated
entity, and is fully collateralized by a trust agreement and $326,241 thousand, or 6.7%, was receivable from Mt. Logan Re Ltd. (Bermuda) (“Mt. Logan Re”) collateralized segregated accounts. No other retrocessionaire accounted for more than 5% of reinsurance receivables.
5. FAIR VALUE
GAAP guidance regarding fair value measurements address how companies should measure fair value when they are required to use fair value measures
for recognition or disclosure purposes under GAAP and provides a common definition of fair value to be used throughout GAAP. It defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly
fashion between market participants at the measurement date. In addition, it establishes a three-level valuation hierarchy for the disclosure of fair value measurements. The valuation hierarchy is based on the transparency of inputs to the
valuation of an asset or liability. The level in the hierarchy within which a given fair value measurement falls is determined based on the lowest level input that is significant to the measurement, with Level 1 being the highest priority and
Level 3 being the lowest priority.
The levels in the hierarchy are defined as follows:
Level 1: |
Inputs to the valuation methodology are observable inputs that reflect unadjusted quoted prices for identical assets or liabilities in an active market;
|
Level 2: |
Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or
liability, either directly or indirectly, for substantially the full term of the financial instrument;
|
Level 3: |
Inputs to the valuation methodology are unobservable and significant to the fair value measurement.
|
The Company’s fixed maturity and equity securities are primarily managed by third party investment asset managers. The investment asset managers
obtain prices from nationally recognized pricing services. These services seek to utilize market data and observations in their evaluation process. They use pricing applications that vary by asset class and incorporate available market
information and when fixed maturity securities do not trade on a daily basis the services will apply available information through processes such as benchmark curves, benchmarking of like securities, sector groupings and matrix pricing. In
addition, they use model processes, such as the Option Adjusted Spread model to develop prepayment and interest rate scenarios for securities that have prepayment features.
In limited instances where prices are not provided by pricing services or in rare instances when a manager may not agree with the pricing service,
price quotes on a non-binding basis are obtained from investment brokers. The investment asset managers do not make any changes to prices received from either the pricing services or the investment brokers. In addition, the investment asset
managers have procedures in place to review the reasonableness of the prices from the service providers and may request verification of the prices. In addition, the Company continually performs analytical reviews of price changes and tests the
prices on a random basis to an independent pricing source. No material variances were noted during these price validation procedures. In limited situations, where financial markets are inactive or illiquid, the Company may use its own
assumptions about future cash flows and risk-adjusted discount rates to determine fair value. At December 31, 2018, $383,994 thousand of fixed maturities, market value and $2,337 thousand of fixed maturities, fair value were fair valued using
unobservable inputs. The majority of the fixed maturities, market value, $354,133 thousand and all of the $2,337 thousand of fixed maturities, fair value, were valued by investment managers’ valuation committees and a majority of these fair
values were substantiated by valuations from independent third parties. The Company has procedures in place to review and evaluate these independent third party valuations. The remaining Level 3 fixed maturities of $28,708 thousand were fair
valued by the Company at either par or amortized cost and $1,153 thousand were priced using a non-binding broker quote. Due to the unavailability of prices for private placement securities at December 31, 2017, an investment manager’s valuation
committee valued these private placement securities at $165,173 thousand.
The Company internally manages a public equity portfolio, which had a fair value at December 31, 2018 and December 31, 2017 of $124,228 thousand and
$245,043 thousand, respectively, and all prices were obtained from publicly published sources.
Equity securities denominated in U.S. currency with quoted prices in active markets for identical assets are categorized as level 1 since the quoted
prices are directly observable. Equity securities traded on foreign exchanges are categorized as level 2 due to the added input of a foreign exchange conversion rate to determine fair or market value. The Company uses foreign currency exchange
rates published by nationally recognized sources.
All categories of fixed maturity securities listed in the tables below are generally categorized as level 2, since a particular security may not
have traded but the pricing services are able to use valuation models with observable market inputs such as interest rate yield curves and prices for similar fixed maturity securities in terms of issuer, maturity and seniority. For foreign
government securities and foreign corporate securities, the fair values provided by the third party pricing services in local currencies, and where applicable, are converted to U.S. dollars using currency exchange rates from nationally recognized
sources.
The fixed maturities with fair values categorized as level 3 result when prices are not available from the nationally recognized pricing services.
The asset managers will then obtain non-binding price quotes for the securities from brokers. The single broker quotes are provided by market makers or broker-dealers who are recognized as market participants in the markets in which they are
providing the quotes. The prices received from brokers are reviewed for reasonableness by the third party asset managers and the Company. If the broker quotes are for foreign denominated securities, the quotes are converted to U.S. dollars
using currency exchange rates from nationally recognized sources. In limited circumstances when broker prices are not available for private placements, the Company will value the securities using comparable market information or receive fair
values from investment managers.
The composition and valuation inputs for the presented fixed maturities categories are as follows:
·
|
U.S. Treasury securities and obligations of U.S. government agencies and corporations are primarily comprised of U.S. Treasury bonds and
the fair value is based on observable market inputs such as quoted prices, reported trades, quoted prices for similar issuances or benchmark yields;
|
·
|
Obligations of U.S. states and political subdivisions are comprised of state and municipal bond issuances and the fair values are based on
observable market inputs such as quoted market prices, quoted prices for similar securities, benchmark yields and credit spreads;
|
·
|
Corporate securities are primarily comprised of U.S. corporate and public utility bond issuances and the fair values are based on
observable market inputs such as quoted market prices, quoted prices for similar securities, benchmark yields and credit spreads;
|
·
|
Asset-backed and mortgage-backed securities fair values are based on observable inputs such as quoted prices, reported trades, quoted
prices for similar issuances or benchmark yields and cash flow models using observable inputs such as prepayment speeds, collateral performance and default spreads;
|
·
|
Foreign government securities are comprised of global non-U.S. sovereign bond issuances and the fair values are based on observable market
inputs such as quoted market prices, quoted prices for similar securities and models with observable inputs such as benchmark yields and credit spreads and then, where applicable, converted to U.S. dollars using an exchange rate from a
nationally recognized source;
|
·
|
Foreign corporate securities are comprised of global non-U.S. corporate bond issuances and the fair values are based on observable market
inputs such as quoted market prices, quoted prices for similar securities and models with observable inputs such as benchmark yields and credit spreads and then, where applicable, converted to U.S. dollars using an exchange rate from a
nationally recognized source.
|
Other invested assets, at fair value, were categorized as Level 3 at December 31, 2018 and December 31, 2017, since it represented a privately
placed convertible preferred stock issued by an affiliate. The stock was received in exchange for shares of the Company’s parent. The 25 year redeemable, convertible preferred stock with a 1.75% coupon is valued using a pricing model. The
pricing model includes observable inputs such as the U.S. Treasury yield curve rate T note constant maturity 20 year and the swap rate on the
Company’s June 1, 2044, 4.868% senior notes, with adjustments to reflect the Company’s own assumptions about the inputs that market participants
would use in pricing the asset.
The following table presents the fair value measurement levels for all assets, which the Company has recorded at fair value (fair and market value)
as of the period indicated:
|
|
|
|
|
Fair Value Measurement Using:
|
|
|
|
|
|
|
Quoted Prices
|
|
|
|
|
|
|
|
|
|
|
|
|
in Active
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
Markets for
|
|
|
Other
|
|
|
Significant
|
|
|
|
|
|
|
Identical
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
|
|
|
Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
(Dollars in thousands)
|
|
December 31, 2018
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturities, market value
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities and obligations of
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government agencies and corporations
|
|
$
|
2,242,797
|
|
|
$
|
-
|
|
|
$
|
2,242,797
|
|
|
$
|
-
|
|
Obligations of U.S. States and political subdivisions
|
|
|
499,089
|
|
|
|
-
|
|
|
|
499,089
|
|
|
|
-
|
|
Corporate securities
|
|
|
2,216,153
|
|
|
|
-
|
|
|
|
1,839,903
|
|
|
|
376,250
|
|
Asset-backed securities
|
|
|
221,255
|
|
|
|
-
|
|
|
|
221,255
|
|
|
|
-
|
|
Mortgage-backed securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
136,604
|
|
|
|
-
|
|
|
|
136,604
|
|
|
|
-
|
|
Agency residential
|
|
|
148,774
|
|
|
|
-
|
|
|
|
148,774
|
|
|
|
-
|
|
Non-agency residential
|
|
|
3,114
|
|
|
|
-
|
|
|
|
3,114
|
|
|
|
-
|
|
Foreign government securities
|
|
|
579,586
|
|
|
|
-
|
|
|
|
579,586
|
|
|
|
-
|
|
Foreign corporate securities
|
|
|
914,703
|
|
|
|
-
|
|
|
|
906,959
|
|
|
|
7,744
|
|
Total fixed maturities, market value
|
|
|
6,962,075
|
|
|
|
-
|
|
|
|
6,578,081
|
|
|
|
383,994
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturities, fair value
|
|
|
2,337
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,337
|
|
Equity securities, fair value
|
|
|
564,338
|
|
|
|
540,894
|
|
|
|
23,444
|
|
|
|
-
|
|
Other invested assets, fair value
|
|
|
1,717,336
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,717,336
|
|
There were no transfers between Level 1 and Level 2 for the twelve months ended December 31, 2018.
The following table presents the fair value measurement levels for all assets, which the Company has recorded at fair value (fair and market value)
as of the period indicated:
|
|
|
|
|
Fair Value Measurement Using:
|
|
|
|
|
|
|
Quoted Prices
|
|
|
|
|
|
|
|
|
|
|
|
|
in Active
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
Markets for
|
|
|
Other
|
|
|
Significant
|
|
|
|
|
|
|
Identical
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
|
|
|
Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
(Dollars in thousands)
|
|
December 31, 2017
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturities, market value
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities and obligations of
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government agencies and corporations
|
|
$
|
664,513
|
|
|
$
|
-
|
|
|
$
|
664,513
|
|
|
$
|
-
|
|
Obligations of U.S. States and political subdivisions
|
|
|
585,469
|
|
|
|
-
|
|
|
|
585,469
|
|
|
|
-
|
|
Corporate securities
|
|
|
2,024,209
|
|
|
|
-
|
|
|
|
1,865,988
|
|
|
|
158,221
|
|
Asset-backed securities
|
|
|
138,024
|
|
|
|
-
|
|
|
|
138,024
|
|
|
|
-
|
|
Mortgage-backed securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
51,751
|
|
|
|
-
|
|
|
|
51,751
|
|
|
|
-
|
|
Agency residential
|
|
|
113,288
|
|
|
|
-
|
|
|
|
113,288
|
|
|
|
-
|
|
Non-agency residential
|
|
|
58
|
|
|
|
-
|
|
|
|
58
|
|
|
|
-
|
|
Foreign government securities
|
|
|
523,620
|
|
|
|
-
|
|
|
|
523,620
|
|
|
|
-
|
|
Foreign corporate securities
|
|
|
870,989
|
|
|
|
-
|
|
|
|
864,037
|
|
|
|
6,952
|
|
Total fixed maturities, market value
|
|
|
4,971,921
|
|
|
|
-
|
|
|
|
4,806,748
|
|
|
|
165,173
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities, fair value
|
|
|
822,375
|
|
|
|
800,542
|
|
|
|
21,833
|
|
|
|
-
|
|
Other invested assets, fair value
|
|
|
1,807,473
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,807,473
|
|
In addition, $117,662 thousand and $79,505 thousand of investments within other invested assets on the consolidated balance sheets as of December
31, 2018 and 2017, respectively, are not included within the fair value hierarchy tables as the assets are measured at NAV as a practical expedient to determine fair value.
The following table presents the activity under Level 3, fair value measurements using significant unobservable inputs by asset type, for the
periods indicated:
|
|
Total Fixed Maturities, Market Value
|
|
|
|
December 31, 2018
|
|
|
December 31, 2017
|
|
|
|
Corporate
|
|
|
Foreign
|
|
|
|
|
|
Corporate
|
|
|
Foreign
|
|
|
|
|
(Dollars in thousands)
|
|
Securities
|
|
|
Corporate
|
|
|
Total
|
|
|
Securities
|
|
|
Corporate
|
|
|
Total
|
|
Beginning balance
|
|
$
|
158,221
|
|
|
$
|
6,952
|
|
|
$
|
165,173
|
|
|
$
|
65,197
|
|
|
$
|
2,538
|
|
|
$
|
67,735
|
|
Total gains or (losses) (realized/unrealized)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in earnings
|
|
|
(93
|
)
|
|
|
(660
|
)
|
|
|
(753
|
)
|
|
|
1,654
|
|
|
|
356
|
|
|
|
2,010
|
|
Included in other comprehensive income (loss)
|
|
|
1,090
|
|
|
|
-
|
|
|
|
1,090
|
|
|
|
(991
|
)
|
|
|
-
|
|
|
|
(991
|
)
|
Purchases, issuances and settlements
|
|
|
215,839
|
|
|
|
(298
|
)
|
|
|
215,541
|
|
|
|
92,361
|
|
|
|
4,058
|
|
|
|
96,419
|
|
Transfers in and/or (out) of Level 3
|
|
|
1,193
|
|
|
|
1,750
|
|
|
|
2,943
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Ending balance
|
|
$
|
376,250
|
|
|
$
|
7,744
|
|
|
$
|
383,994
|
|
|
$
|
158,221
|
|
|
$
|
6,952
|
|
|
$
|
165,173
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The amount of total gains or losses for the period included
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in earnings (or changes in net assets) attributable to the
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
change in unrealized gains or losses relating to assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
still held at the reporting date
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Some amounts may not reconcile due to rounding.)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Fixed Maturities, Fair Value
|
|
|
|
December 31, 2018
|
|
|
December 31, 2017
|
|
|
|
Foreign
|
|
|
|
|
|
Foreign
|
|
|
|
|
(Dollars in thousands)
|
|
Corporate
|
|
|
Total
|
|
|
Corporate
|
|
|
Total
|
|
Beginning balance fixed maturities at fair value
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Total gains or (losses) (realized/unrealized)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in earnings
|
|
|
(293
|
)
|
|
|
(293
|
)
|
|
|
-
|
|
|
|
-
|
|
Included in other comprehensive income (loss)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Purchases, issuances and settlements
|
|
|
2,630
|
|
|
|
2,630
|
|
|
|
-
|
|
|
|
-
|
|
Transfers in and/or (out) of Level 3
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Ending balance
|
|
$
|
2,337
|
|
|
$
|
2,337
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The amount of total gains or losses for the period included
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in earnings (or changes in net assets) attributable to the
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
change in unrealized gains or losses relating to assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
still held at the reporting date
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Some amounts may not reconcile due to rounding.)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The net transfers to/(from) level 3, fair value measurements using significant unobservable inputs were $2,943 thousand and $0 thousand for the
years ended December 31, 2018 and 2017, respectively, for fixed maturities, market value. The transfers were related to securities that were priced using a recognized pricing service as of December 31, 2017. The securities were subsequently
priced using single non-binding broker quotes as of December 31, 2018.
The following table presents the activity under Level 3, fair value measurements using significant unobservable inputs by other invested assets, for
the periods indicated:
|
|
Years Ended December 31,
|
|
(Dollars in thousands)
|
|
2018
|
|
|
2017
|
|
Other invested assets, fair value:
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
1,807,473
|
|
|
$
|
1,766,626
|
|
Total gains or (losses) (realized/unrealized)
|
|
|
|
|
|
|
|
|
Included in earnings
|
|
|
(90,136
|
)
|
|
|
40,846
|
|
Included in other comprehensive income (loss)
|
|
|
-
|
|
|
|
-
|
|
Purchases, issuances and settlements
|
|
|
-
|
|
|
|
-
|
|
Transfers in and/or (out) of Level 3
|
|
|
-
|
|
|
|
-
|
|
Ending balance
|
|
$
|
1,717,336
|
|
|
$
|
1,807,473
|
|
|
|
|
|
|
|
|
|
|
The amount of total gains or losses for the period included in earnings
|
|
|
|
|
|
|
|
|
(or changes in net assets) attributable to the change in unrealized
|
|
|
|
|
|
|
|
|
gains or losses relating to assets still held at the reporting date
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
(Some amounts may not reconcile due to rounding.)
|
|
|
|
|
|
|
|
|
6. SENIOR NOTES
The table below displays Holdings’ outstanding senior notes. Market value is based on quoted market prices, but due to limited trading activity,
these senior notes are considered Level 2 in the fair value hierarchy.
|
|
|
|
|
|
|
|
December 31, 2018
|
|
|
December 31, 2017
|
|
|
|
|
|
|
|
|
|
Consolidated Balance
|
|
|
|
|
|
Consolidated Balance
|
|
|
|
|
(Dollars in thousands)
|
Date Issued
|
|
Date Due
|
|
Principal Amounts
|
|
|
Sheet Amount
|
|
|
Market Value
|
|
|
Sheet Amount
|
|
|
Market Value
|
|
Senior notes
|
06/05/2014
|
|
06/01/2044
|
|
|
400,000
|
|
|
$
|
396,954
|
|
|
$
|
396,968
|
|
|
$
|
396,834
|
|
|
$
|
420,340
|
|
On June 5, 2014, Holdings issued $400,000 thousand of 30 year senior notes at 4.868%, which will mature on June 1, 2044. Interest will be paid
semi-annually on June 1 and December 1 of each year.
Interest expense incurred in connection with these senior notes is as follows for the periods indicated:
|
|
Years Ended December 31,
|
|
(Dollars in thousands)
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Interest expense incurred
|
|
$
|
19,472
|
|
|
$
|
19,472
|
|
|
$
|
19,472
|
|
7. LONG TERM SUBORDINATED NOTES
The table below displays Holdings’ outstanding fixed to floating rate long term subordinated notes. Market value is based on quoted market prices,
but due to limited trading activity, these subordinated notes are considered Level 2 in the fair value hierarchy.
|
|
|
|
|
Maturity Date
|
|
December 31, 2018
|
|
|
December 31, 2017
|
|
|
|
|
Original
|
|
|
|
|
|
Consolidated Balance
|
|
|
|
|
|
Consolidated Balance
|
|
|
|
|
(Dollars in thousands)
|
Date Issued
|
|
Principal Amount
|
|
Scheduled
|
|
Final
|
|
Sheet Amount
|
|
|
Market Value
|
|
|
Sheet Amount
|
|
|
Market Value
|
|
Long term subordinated notes
|
04/26/2007
|
|
$
|
400,000
|
|
05/15/2037
|
|
05/01/2067
|
|
$
|
236,659
|
|
|
$
|
200,390
|
|
|
$
|
236,561
|
|
|
$
|
233,072
|
|
During the fixed rate interest period from May 3, 2007 through May 14, 2017, interest was at the annual rate of 6.6%, payable semi-annually in
arrears on November 15 and May 15 of each year, commencing on November 15, 2007. During the floating rate interest period from May 15, 2017 through maturity, interest will be based on the 3 month LIBOR plus 238.5 basis points, reset quarterly,
payable quarterly in arrears on February 15, May 15, August 15 and November 15 of each year, subject to Holdings’ right to defer interest on one or more occasions for up to ten consecutive years. Deferred interest will accumulate interest at the
applicable rate compounded quarterly for periods from and including May 15, 2017. The reset quarterly interest rate for November 15, 2018 to February 14, 2019 is 5.0%.
Holdings may redeem the long term subordinated notes on or after May 15, 2017, in whole or in part at 100% of the principal amount plus accrued and
unpaid interest; however, redemption on or after the scheduled maturity date and prior to May 1, 2047 is subject to a replacement capital covenant. This covenant is for the benefit of certain senior note holders and it mandates that Holdings
receive proceeds from the sale of another subordinated debt issue, of at least similar size, before it may redeem the subordinated notes. Effective upon the maturity of the Company’s 5.40% senior notes on October 15, 2014, the Company’s 4.868%
senior notes, due on June 1, 2044, have become the Company’s long term indebtedness that ranks senior to the long term subordinated notes.
On March 19, 2009, Group announced the commencement of a cash tender offer for any and all of the 6.60% fixed to floating rate long term
subordinated notes. Upon expiration of the tender offer, the Company had reduced its outstanding debt by $161,441 thousand.
Interest expense incurred in connection with these long term subordinated notes is as follows for the periods indicated:
|
|
Years Ended December 31,
|
|
(Dollars in thousands)
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Interest expense incurred
|
|
$
|
10,926
|
|
|
$
|
11,498
|
|
|
$
|
15,749
|
|
8. COLLATERALIZED REINSURANCE AND TRUST AGREEMENTS
A subsidiary of the Company, Everest Re, has established a trust agreement, which effectively uses Everest Re’s investments as collateral, as
security for assumed losses payable to non-affiliated ceding companies. At December 31, 2018, the total amount on deposit in the trust account was $565,668 thousand.
On April 24, 2014, the Company entered into two collateralized reinsurance agreements with Kilimanjaro Re Limited (“Kilimanjaro”), a Bermuda based
special purpose reinsurer, to provide the Company with catastrophe reinsurance coverage. These agreements are multi-year reinsurance contracts, which cover specified named storm and earthquake events. The first agreement provides up to $250,000
thousand of reinsurance coverage from named storms in specified states of the Southeastern United States. The second
agreement provides up to $200,000 thousand of reinsurance coverage from named storms in specified states of the Southeast, Mid-Atlantic and
Northeast regions of the United States and Puerto Rico as well as reinsurance coverage from earthquakes in specified states of the Southeast, Mid-Atlantic, Northeast and West regions of the United States, Puerto Rico and British Columbia. These
reinsurance agreements expired in April 2018.
On November 18, 2014, the Company entered into a collateralized reinsurance agreement with Kilimanjaro to provide the Company with catastrophe
reinsurance coverage. This agreement is a multi-year reinsurance contract which covers specified earthquake events. The agreement provides up to $500,000 thousand of reinsurance coverage from earthquakes in the United States, Puerto Rico and
Canada.
On December 1, 2015, the Company entered into two collateralized reinsurance agreements with Kilimanjaro to provide the Company with catastrophe
reinsurance coverage. These agreements are multi-year reinsurance contracts which cover named storm and earthquake events. The first agreement provides up to $300,000 thousand of reinsurance coverage from named storms and earthquakes in the
United States, Puerto Rico and Canada. The second agreement provides up to $325,000 thousand of reinsurance coverage from named storms and earthquakes in the United States, Puerto Rico and Canada.
On April 13, 2017, the Company entered into six collateralized reinsurance agreements with Kilimanjaro to provide the Company with annual aggregate
catastrophe reinsurance coverage. The initial three agreements are four year reinsurance contracts which cover named storm and earthquake events. These agreements provide up to $225,000 thousand, $400,000 thousand and $325,000 thousand,
respectively, of annual aggregate reinsurance coverage from named storms and earthquakes in the United States, Puerto Rico and Canada. The subsequent three agreements are five year reinsurance contracts which cover named storm and earthquake
events. These agreements provide up to $50,000 thousand, $75,000 thousand and $175,000 thousand, respectively, of annual aggregate reinsurance coverage from named storms and earthquakes in the United States, Puerto Rico and Canada.
On April 30, 2018, the Company entered into four collateralized reinsurance agreements with Kilimanjaro to provide the Company with catastrophe
reinsurance coverage. These agreements are multi-year reinsurance contracts which cover named storm and earthquake events. The first two agreements are four year reinsurance contracts which provide up to $62,500 thousand and $200,000 thousand,
respectively, of annual aggregate reinsurance coverage from named storms and earthquakes in the United States, Puerto Rico, the U.S. Virgin Islands and Canada. The remaining two agreements are five year reinsurance contracts which provide up to
$62,500 thousand and $200,000 thousand, respectively, of annual aggregate reinsurance coverage from named storms and earthquakes in the United States, Puerto Rico, the U.S. Virgin Islands and Canada.
Recoveries under these collateralized reinsurance agreements with Kilimanjaro are primarily dependent on estimated industry level insured losses
from covered events, as well as, the geographic location of the events. The estimated industry level of insured losses is obtained from published estimates by an independent recognized authority on insured property losses. Currently, none of
the published insured loss estimates for the 2017 catastrophe events have exceeded the single event retentions under the terms of the agreements that would result in a recovery. In addition, the aggregation of the to date published insured loss
estimates for the 2017 covered events have not exceeded the aggregated retentions for recovery. However, if the published estimates for insured losses for the covered 2017 events increase, the aggregate losses may exceed the aggregate event
retentions under the agreements, resulting in a recovery.
Kilimanjaro has financed the various property catastrophe reinsurance coverages by issuing catastrophe bonds to unrelated, external investors. On
April 24, 2014, Kilimanjaro issued $450,000 thousand of notes (“Series 2014-1 Notes”). The $450,000 thousand of Series 2014-1 Notes were fully redeemed on April 30, 2018 and are no longer outstanding. On November 18, 2014, Kilimanjaro issued
$500,000 thousand of notes (“Series 2014-2 Notes”). On December 1, 2015, Kilimanjaro issued $625,000 thousand of notes (“Series 2015-1 Notes). On April 13, 2017, Kilimanjaro issued $950,000 thousand of notes (“Series 2017-1 Notes) and $300,000
thousand of notes (“Series 2017-2 Notes). On April 30, 2018, Kilimanjaro issued $262,500 thousand of notes (“Series 2018-1 Notes”) and $262,500 thousand of notes (“Series 2018-2 Notes”). The proceeds from the issuance of the Notes listed above
are held in reinsurance trust throughout the duration of the applicable reinsurance agreements and invested solely in US government money market funds with a rating of at least “AAAm” by Standard & Poor’s.
9. OPERATING LEASE AGREEMENTS
The future minimum rental commitments, exclusive of cost escalation clauses, at December 31, 2018, for all of the Company’s operating leases with
remaining non-cancelable terms in excess of one year are as follows:
(Dollars in thousands)
|
|
|
|
2019
|
|
$
|
17,004
|
|
2020
|
|
|
16,594
|
|
2021
|
|
|
7,806
|
|
2022
|
|
|
7,501
|
|
2023
|
|
|
7,385
|
|
Thereafter
|
|
|
17,583
|
|
Net commitments
|
|
$
|
73,873
|
|
|
|
|
|
|
(Some amounts may not reconcile due to rounding.)
|
|
|
|
|
All of these leases, the expiration terms of which range from 2019 to 2028, are for the rental of office space. Rental expense was $19,288
thousand, $16,209 thousand and $14,841 thousand for the years ended December 31, 2018, 2017 and 2016, respectively.
10. INCOME TAXES
All of the income of Holdings U.S. subsidiaries, including its foreign branches, is subject to the applicable federal, foreign, state and local income taxes
on corporations. The provision for income taxes in the consolidated statement of operations and comprehensive income (loss) has been determined by applying the respective tax laws to the income of each entity. The TCJA enacted on December 22,
2017 caused the Company to record an income tax benefit of $123,143 thousand in 2017. The income tax provision reflects the lower 21% tax expense/(benefit) to be realized by the Company under the TCJA upon the reversal of the temporary
differences in its deferred tax inventory account versus the 35% tax expense/(benefit) that had been expected to be realized before the TCJA. The significant components of the provision are as follows for the periods indicated:
|
|
Years Ended December 31,
|
|
(Dollars in thousands)
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Current tax expense (benefit):
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
$
|
(50,964
|
)
|
|
$
|
(123,083
|
)
|
|
$
|
16,004
|
|
Foreign
|
|
|
8
|
|
|
|
221
|
|
|
|
12,682
|
|
Total current tax expense (benefit)
|
|
|
(50,956
|
)
|
|
|
(122,862
|
)
|
|
|
28,686
|
|
Total deferred U.S. tax expense (benefit)
|
|
|
(314,869
|
)
|
|
|
(78,318
|
)
|
|
|
68,661
|
|
Total income tax expense (benefit)
|
|
$
|
(365,825
|
)
|
|
$
|
(201,180
|
)
|
|
$
|
97,347
|
|
A reconciliation of the total income tax provision using the statutory U.S. Federal Income tax rate to the Company’s total income tax provision is as follows
for the periods indicated:
|
|
Years Ended December 31,
|
|
(Dollars in thousands)
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Expected income tax provision at the U.S. statutory tax rate
|
|
$
|
(278,016
|
)
|
|
$
|
(43,044
|
)
|
|
$
|
139,646
|
|
Increase (reduction) in taxes resulting from:
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax exempt income
|
|
|
(3,824
|
)
|
|
|
(8,488
|
)
|
|
|
(9,078
|
)
|
Dividend received deduction
|
|
|
(1,277
|
)
|
|
|
(4,063
|
)
|
|
|
(4,335
|
)
|
Proration
|
|
|
1,150
|
|
|
|
1,760
|
|
|
|
1,931
|
|
Creditable foreign premium tax
|
|
|
(13,475
|
)
|
|
|
(7,515
|
)
|
|
|
(6,134
|
)
|
Tax audit settlement
|
|
|
(2,060
|
)
|
|
|
(11,565
|
)
|
|
|
(19,204
|
)
|
U.S. rate differential on carryback of net operation losses to PY
|
|
|
(43,734
|
)
|
|
|
-
|
|
|
|
-
|
|
U.S. rate differential on deferred tax 2017 return to provision
|
|
|
(28,832
|
)
|
|
|
-
|
|
|
|
-
|
|
Share based compensation tax benefits formerly in APIC
|
|
|
(1,450
|
)
|
|
|
(3,308
|
)
|
|
|
-
|
|
Impact of U.S. tax reform
|
|
|
-
|
|
|
|
(123,143
|
)
|
|
|
-
|
|
Change in uncertain tax positions
|
|
|
8,434
|
|
|
|
-
|
|
|
|
-
|
|
Other
|
|
|
(2,741
|
)
|
|
|
(1,814
|
)
|
|
|
(5,479
|
)
|
Total income tax provision
|
|
$
|
(365,825
|
)
|
|
$
|
(201,180
|
)
|
|
$
|
97,347
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Some amounts may not reconcile due to rounding.)
|
|
|
|
|
|
|
|
|
|
|
|
|
A reconciliation of the beginning and ending unrecognized tax benefits, for the periods indicated, is as follows:
(Dollars in thousands)
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Balance at January 1
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Additions based on tax positions related to the current year
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Additions for tax positions of prior years
|
|
|
8,434
|
|
|
|
-
|
|
|
|
-
|
|
Reductions for tax positions of prior years
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Settlements with taxing authorities
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Lapses of applicable statutes of limitations
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Balance at December 31
|
|
$
|
8,434
|
|
|
$
|
-
|
|
|
$
|
-
|
|
At December 31, 2018, The Company’s unrecognized tax benefits, excluding interest and penalties, that would impact the effective tax rate were $8,434 thousand
and is related to the Company’s U.S. operations.
Interest and penalties related to unrecognized tax benefits are recognized in income tax expense. At December 31, 2018, the Company accrued $0
thousand for the payment of interest (net of the federal benefit) and penalties. Although it is reasonably possible that a change in the balance of unrecognized tax benefits may occur within the next 12 months, based on the information
currently available, we do not expect any change to be material to the Company’s financial statements.
During 2016, the Internal Revenue Service (“IRS”) completed its audit of the Company for the 2009 through 2013 tax years and issued a final
Revenue Agent Report (“RAR”). The Company received the expected net refund of $44,241 thousand plus interest of $1,326 thousand from the IRS in January, 2018.
The Company’s 2014 and subsequent tax years are open to audit by the IRS, and in 2018, the IRS opened an audit of the 2014 tax year. To date,
the Company has not received any notices of proposed adjustments. The Company did propose affirmative beneficial tax return adjustments to the IRS at the start of the audit. In total, the Company expects a net tax refund of $35,087 thousand
plus net interest of $1,539 thousand for the 2014 tax year. This refund is subject to IRS Joint Committee review and approval.
For the tax year 2015, the total amount expected to be refunded from the IRS is $44,611 thousand plus net interest of $668 thousand as a result of the Company
amending their originally filed tax return and filing of a Net Operating Loss (“NOL”) carryback claim with the IRS in 2018 for the 2017 NOL incurred in the U.S.
For the tax year 2016, the total amount expected to be refunded from the IRS is $48,268 thousand plus net interest of $267 thousand as a result of
the Company planning to file an amended U.S. income tax return and carryback of its 2018 NOL incurred in the U.S.
Deferred income taxes reflect the tax effect of the temporary differences between the value of assets and liabilities for financial statement
purposes and such values as measured by U.S. tax laws and regulations. The principal items making up the net deferred income tax assets/ (liabilities) are as follows for the periods indicated:
|
|
At December 31,
|
|
(Dollars in thousands)
|
|
2018
|
|
|
2017
|
|
Deferred tax assets:
|
|
|
|
|
|
|
Foreign tax credits
|
|
$
|
167,685
|
|
|
$
|
15,913
|
|
Net operating loss
|
|
|
96,693
|
|
|
|
-
|
|
Loss reserves
|
|
|
64,135
|
|
|
|
52,649
|
|
Unearned premium reserve
|
|
|
63,309
|
|
|
|
55,034
|
|
Net unrecognized losses on benefit plans
|
|
|
17,921
|
|
|
|
19,120
|
|
Unrealized foreign currency losses
|
|
|
12,590
|
|
|
|
547
|
|
Net unrealized investment losses
|
|
|
9,745
|
|
|
|
-
|
|
Uncollectible reinsurance reserve
|
|
|
3,142
|
|
|
|
3,320
|
|
Deferred expenses
|
|
|
1,992
|
|
|
|
1,759
|
|
Investment impairments
|
|
|
1,291
|
|
|
|
1,144
|
|
Benefit plan liability
|
|
|
-
|
|
|
|
10,417
|
|
Other assets
|
|
|
11,624
|
|
|
|
8,633
|
|
Total deferred tax assets
|
|
|
450,127
|
|
|
|
168,536
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Net fair value income
|
|
|
178,018
|
|
|
|
252,349
|
|
Deferred acquisition costs
|
|
|
74,736
|
|
|
|
64,997
|
|
Partnership Investments
|
|
|
14,936
|
|
|
|
2,019
|
|
Benefit plan asset
|
|
|
3,600
|
|
|
|
-
|
|
Bond market discount
|
|
|
1,845
|
|
|
|
1,243
|
|
Net unrealized investment gains
|
|
|
-
|
|
|
|
12,819
|
|
Gain on tender of debt
|
|
|
-
|
|
|
|
3,287
|
|
Other liabilities
|
|
|
2,022
|
|
|
|
840
|
|
Total deferred tax liabilities
|
|
|
275,157
|
|
|
|
337,554
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets/(liabilities)
|
|
$
|
174,970
|
|
|
$
|
(169,018
|
)
|
|
|
|
|
|
|
|
|
|
(Some amounts may not reconcile due to rounding.)
|
|
|
|
|
|
|
|
|
At December 31, 2018, the Company has $167,685 thousand Foreign Tax Credits (“FTC”) and no Alternative Minimum Tax (“AMT”) credit carry forwards. The FTCs expire
between 2019 and 2028. Beginning in 2018, AMT credits are recorded as a current receivable as a result of TCJA converting them into refundable credits to be received no later than with the filing of the 2021 US corporation income tax return. The
Company also has a tax effected U.S. NOL carryforward of $96,564 thousand. The NOL carryforward does not expire until 2038.
Management believes that it is more likely than not that the Company will realize all of its deferred tax assets. Accordingly, no valuation
allowance has been recorded for the periods presented.
In performing our assessment of the recoverability of the deferred tax asset pursuant to ASC 740, the Company considered tax laws governing the utilization of
the net operating loss and foreign tax credit carryforwards and other deferred tax assets in each applicable jurisdiction. Under U.S. tax law, a company generally must use its net operating loss carryforwards before it can use its foreign tax
credit carryforwards. The Company evaluated all negative and positive evidence impacting the realization of its deferred tax assets as of December 31, 2018 in the U.S. tax jurisdiction. Evidence considered in our analysis included the Company’s
ability to carryback net operating losses generated in 2017 and 2018. In addition, the Company implemented planning actions during 2018 and early 2019 to increase its planned U.S. source and foreign source income to better enable it to utilize
its U.S. deferred tax assets and tax attributes. As of December 31, 2018, based on all available evidence, the Company has concluded it is more likely than not that the U.S. net operating loss and foreign tax credit carryforwards will be
utilized prior to expiration and, thus, no valuation allowance has been established in the U.S. jurisdiction.
As a result of the TCJA, the Company recognized a $123,143 thousand tax benefit in the Company’s Consolidated Statements of Operations for the
year ended December 31, 2017. In accordance with SEC Staff Accounting Bulletin 118, in 2017 the Company recorded the effects of the TCJA using reasonable estimates due to the need for further analysis to complete the accounting.
During 2018, the Company completed its accounting, and interpreted the additional guidance issued by the IRS and U.S. Department of the Treasury,
and recognized an income tax benefit of $28,832 thousand primarily related to the 2017 tax return to tax provision true-up recorded in 2018.
Effective January 1, 2017, the Company adopted ASU 2016-09 which provided new guidance on the treatment of the tax effects of share based
compensation transactions. ASU 2016-09 required that the income tax effects of restricted stock vestings and stock options exercises resulting from the change in value of share based compensation awards between the grant date and settlement
(vesting/exercising) date be recorded as part of income tax expense (benefit) within the consolidated statements of operations and comprehensive income (loss). Per the new guidance, the Company recorded excess tax benefits of $1,450 thousand
and $3,308 thousand related to restricted stock vestings and stock option exercises as part of income tax expense (benefit) within the consolidated statements of operations and comprehensive income (loss) in 2018 and 2017.
In years prior to 2017, the Company recorded tax benefits related to restricted stock vestings and stock option exercises as part of additional
paid-in capital in the stockholder’s equity section of the consolidated balance sheets.
The adoption of ASU 2016-09 did not impact the accounting treatment of tax benefits related to dividends on restricted stock. The tax benefits
related to the payment of dividends on restricted stock have been recorded as part of additional paid-in capital in the stockholder’s equity section of the consolidated balance sheets in all years. The tax benefits related to the payment of
dividends on restricted stock were $241 thousand and $287 thousand in 2018 and 2017 respectively.
11. REINSURANCE
The Company utilizes reinsurance agreements to reduce its exposure to large claims and catastrophic loss occurrences. These agreements provide for
recovery from reinsurers of a portion of losses and LAE under certain circumstances without relieving the Company of its underlying obligations to the policyholders. Losses and LAE incurred and premiums earned are reported after deduction for
reinsurance. In the event that one or more of the reinsurers were unable to meet their obligations under these reinsurance agreements, the Company would not realize the full value of the reinsurance recoverable balances. The Company may hold
partial collateral, including letters of credit and funds held, under these agreements. See also Note 1C, Note 4 and Note 8.
Premiums written and earned and incurred losses and LAE are comprised of the following for the periods indicated:
|
|
Years Ended December 31,
|
|
(Dollars in thousands)
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Written premiums:
|
|
|
|
|
|
|
|
|
|
Direct
|
|
$
|
1,996,606
|
|
|
$
|
1,873,115
|
|
|
$
|
1,699,204
|
|
Assumed
|
|
|
4,577,070
|
|
|
|
3,915,374
|
|
|
|
3,364,524
|
|
Ceded
|
|
|
(1,541,814
|
)
|
|
|
(3,064,645
|
)
|
|
|
(3,015,606
|
)
|
Net written premiums
|
|
$
|
5,031,862
|
|
|
$
|
2,723,844
|
|
|
$
|
2,048,122
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums earned:
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct
|
|
$
|
1,903,576
|
|
|
$
|
1,655,023
|
|
|
$
|
1,608,783
|
|
Assumed
|
|
|
4,447,862
|
|
|
|
3,842,836
|
|
|
|
3,492,598
|
|
Ceded
|
|
|
(1,512,380
|
)
|
|
|
(3,548,264
|
)
|
|
|
(3,007,332
|
)
|
Net premiums earned
|
|
$
|
4,839,058
|
|
|
$
|
1,949,595
|
|
|
$
|
2,094,049
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incurred losses and LAE:
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct
|
|
$
|
1,182,399
|
|
|
$
|
1,196,323
|
|
|
$
|
1,415,933
|
|
Assumed
|
|
|
4,162,776
|
|
|
|
3,108,753
|
|
|
|
1,674,342
|
|
Ceded
|
|
|
(534,157
|
)
|
|
|
(2,265,325
|
)
|
|
|
(1,739,995
|
)
|
Net incurred losses and LAE
|
|
$
|
4,811,018
|
|
|
$
|
2,039,751
|
|
|
$
|
1,350,280
|
|
The Company has engaged in reinsurance transactions with Bermuda Re, Everest International Reinsurance, Ltd. (“Everest International”), Mt. Logan Re, Everest
Insurance Company of Canada (“Everest Canada”) and Lloyd’s Syndicate 2786, which are affiliated companies primarily driven by enterprise risk and capital management considerations under which business is ceded at market rates and terms.
The table below represents affiliated quota share reinsurance agreements ("whole account quota share") for all new and renewal
business for the indicated coverage period:
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent
|
|
Assuming
|
|
|
|
Single
|
|
|
Aggregate
|
|
Coverage Period
|
|
Ceding Company
|
|
Ceded
|
|
Company
|
|
Type of Business
|
|
Occurrence Limit
|
|
|
Limit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
01/01/2010-12/31/2010
|
|
Everest Re
|
|
44.0%
|
|
Bermuda Re
|
|
property / casualty business
|
|
150,000
|
|
|
325,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
01/01/2011-12/31/2011
|
|
Everest Re
|
|
50.0%
|
|
Bermuda Re
|
|
property / casualty business
|
|
150,000
|
|
|
300,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
01/01/2012-12/31/2014
|
|
Everest Re
|
|
50.0%
|
|
Bermuda Re
|
|
property / casualty business
|
|
100,000
|
|
|
200,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
01/01/2015-12/31/2016
|
|
Everest Re
|
|
50.0%
|
|
Bermuda Re
|
|
property / casualty business
|
|
162,500
|
|
|
325,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
01/01/2017-12/31/2017
|
|
Everest Re
|
|
60.0%
|
|
Bermuda Re
|
|
property / casualty business
|
|
219,000
|
|
|
438,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
01/01/2010-12/31/2010
|
|
Everest Re- Canadian Branch
|
|
60.0%
|
|
Bermuda Re
|
|
property business
|
|
350,000
|
(1)
|
|
-
|
|
01/01/2011-12/31/2011
|
|
Everest Re- Canadian Branch
|
|
60.0%
|
|
Bermuda Re
|
|
property business
|
|
350,000
|
(1)
|
|
- |
|
01/01/2012-12/31/2012
|
|
Everest Re- Canadian Branch
|
|
75.0%
|
|
Bermuda Re
|
|
property / casualty business
|
|
206,250
|
(1)
|
|
412,500
|
(1) |
01/01/2013-12/31/2013
|
|
Everest Re- Canadian Branch
|
|
75.0%
|
|
Bermuda Re
|
|
property / casualty business
|
|
150,000
|
(1)
|
|
412,500
|
(1) |
01/01/2014-12/31/2017
|
|
Everest Re- Canadian Branch
|
|
75.0%
|
|
Bermuda Re
|
|
property / casualty business
|
|
262,500
|
(1)
|
|
412,500
|
(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
01/01/2012-12/31/2017
|
|
Everest Canada
|
|
80.0%
|
|
Everest Re- Canadian Branch
|
|
property business
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Amounts shown are Canadian dollars.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2017, the Company decided not to renew its quota share reinsurance agreements between Everest Re and Bermuda Re, between Everest
Re-Canadian branch and Bermuda Re and between Everest Canada and the Everest Re-Canadian branch due to economic implications of the enactment of TCJA on December 22, 2017.
Effective January 1, 2018, Everest Re entered into a twelve month whole account aggregate stop loss reinsurance contract (“stop loss agreement”)
with Bermuda Re. The stop loss agreement provides coverage for ultimate net losses on applicable net earned premiums above a retention level, subject to certain other coverage limits and conditions.
The table below represents loss portfolio transfer (“LPT”) reinsurance agreements whereby net insurance exposures and reserves were
transferred to an affiliate.
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective
|
|
Transferring
|
|
Assuming
|
|
% of Business or
|
|
|
Covered Period
|
Date
|
|
Company
|
|
Company
|
|
Amount of Transfer
|
|
|
of Transfer
|
|
|
|
|
|
|
|
|
|
|
10/01/2001
|
|
Everest Re (Belgium Branch)
|
|
Bermuda Re
|
|
|
100
|
%
|
|
All years
|
10/01/2008
|
|
Everest Re
|
|
Bermuda Re
|
|
$
|
747,022
|
|
|
01/01/2002-12/31/2007
|
12/31/2017
|
|
Everest Re
|
|
Bermuda Re
|
|
$
|
970,000
|
|
|
All years
|
On December 31, 2017, the Company entered into a LPT agreement with Bermuda Re. The LPT agreement covers subject loss reserves of $2,336,242
thousand for accident years 2017 and prior. As a result of the LPT agreement, the Company transferred $1,000,000 thousand of cash and fixed maturity securities and transferred $970,000 thousand of loss reserves to Bermuda Re. As part of the LPT
agreement, Bermuda Re will provide an additional $500,000 thousand of adverse development coverage on the subject loss reserves.
The following tables summarize the premiums and losses ceded by the Company to Bermuda Re and Everest International, respectively, and premiums and
losses assumed by the Company from Everest Canada and Lloyd’s syndicate 2786 for the periods indicated:
Bermuda Re
|
|
Years Ended December 31,
|
|
(Dollars in thousands)
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Ceded written premiums
|
|
$
|
572,620
|
|
|
$
|
2,219,352
|
|
|
$
|
2,324,314
|
|
Ceded earned premiums
|
|
|
586,120
|
|
|
|
2,796,939
|
|
|
|
2,353,801
|
|
Ceded losses and LAE
|
|
|
(49,955
|
)
|
|
|
1,687,659
|
|
|
|
1,307,722
|
|
Everest International
|
|
Years Ended December 31,
|
(Dollars in thousands)
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Ceded written premiums
|
|
$
|
-
|
|
|
$
|
10
|
|
|
$
|
98
|
|
Ceded earned premiums
|
|
|
-
|
|
|
|
44
|
|
|
|
110
|
|
Ceded losses and LAE
|
|
|
(753
|
)
|
|
|
(990
|
)
|
|
|
3,467
|
|
Everest Canada
|
|
Years Ended December 31,
|
(Dollars in thousands)
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Assumed written premiums
|
|
$
|
-
|
|
|
$
|
25,871
|
|
|
$
|
53,653
|
|
Assumed earned premiums
|
|
|
-
|
|
|
|
54,558
|
|
|
|
49,156
|
|
Assumed losses and LAE
|
|
|
6,238
|
|
|
|
29,389
|
|
|
|
38,568
|
|
Lloyd's Syndicate 2786
|
|
Years Ended December 31,
|
(Dollars in thousands)
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Assumed written premiums
|
|
$
|
10,800
|
|
|
$
|
35,607
|
|
|
$
|
18,994
|
|
Assumed earned premiums
|
|
|
35,826
|
|
|
|
33,590
|
|
|
|
5,038
|
|
Assumed losses and LAE
|
|
|
27,550
|
|
|
|
17,688
|
|
|
|
4,938
|
|
Everest Re sold net assets of its UK branch to Bermuda Re and provided Bermuda Re with a reserve indemnity agreement allowing for indemnity payments
of up to 90% of ₤25.0 million of the excess of 2002 and prior reserves, provided that any recognition of profit from the reserves for 2002 and prior underwriting years is taken into account.
In 2013, Group established Mt. Logan Re, which is a Class 3 insurer based in Bermuda. Mt. Logan Re then established separate segregated accounts
for its business activity, which invest in a diversified set of catastrophe exposures.
The following table summarizes the premiums and losses that are ceded by the Company to Mt. Logan Re segregated accounts and assumed by the Company
from Mt. Logan Re segregated accounts.
Mt. Logan Re Segregated Accounts
|
|
Years Ended December 31,
|
(Dollars in thousands)
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Ceded written premiums
|
|
$
|
207,439
|
|
|
$
|
192,928
|
|
|
$
|
160,091
|
|
Ceded earned premiums
|
|
|
212,046
|
|
|
|
192,573
|
|
|
|
155,010
|
|
Ceded losses and LAE
|
|
|
234,471
|
|
|
|
283,511
|
|
|
|
38,739
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assumed written premiums
|
|
|
10,582
|
|
|
|
11,984
|
|
|
|
14,563
|
|
Assumed earned premiums
|
|
|
10,582
|
|
|
|
11,984
|
|
|
|
14,563
|
|
Assumed losses and LAE
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
12. COMPREHENSIVE INCOME (LOSS)
The following table presents the components of comprehensive income (loss) in the consolidated statements of operations and comprehensive income
(loss) for the periods indicated:
|
|
Years Ended December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
(Dollars in thousands)
|
|
Before Tax
|
|
|
Tax Effect
|
|
|
Net of Tax
|
|
|
Before Tax
|
|
|
Tax Effect
|
|
|
Net of Tax
|
|
|
Before Tax
|
|
|
Tax Effect
|
|
|
Net of Tax
|
|
Unrealized appreciation (depreciation) ("URA(D)") on securities - temporary
|
|
$
|
(119,058
|
)
|
|
$
|
25,582
|
|
|
$
|
(93,476
|
)
|
|
$
|
(11,672
|
)
|
|
$
|
4,085
|
|
|
$
|
(7,587
|
)
|
|
$
|
1,302
|
|
|
$
|
(512
|
)
|
|
$
|
790
|
|
URA(D) on securities - OTTI
|
|
|
645
|
|
|
|
(135
|
)
|
|
|
510
|
|
|
|
(4,537
|
)
|
|
|
1,588
|
|
|
|
(2,949
|
)
|
|
|
5,113
|
|
|
|
(1,789
|
)
|
|
|
3,324
|
|
Reclassification of net realized losses (gains) included in net income (loss)
|
|
|
3,416
|
|
|
|
(1,395
|
)
|
|
|
2,021
|
|
|
|
3,543
|
|
|
|
(1,240
|
)
|
|
|
2,303
|
|
|
|
32,642
|
|
|
|
(11,369
|
)
|
|
|
21,273
|
|
Foreign currency translation adjustments
|
|
|
(46,136
|
)
|
|
|
9,705
|
|
|
|
(36,431
|
)
|
|
|
57,564
|
|
|
|
(20,137
|
)
|
|
|
37,427
|
|
|
|
4,388
|
|
|
|
(1,539
|
)
|
|
|
2,849
|
|
Benefit plan actuarial net gain (loss)
|
|
|
(646
|
)
|
|
|
136
|
|
|
|
(510
|
)
|
|
|
1,300
|
|
|
|
(273
|
)
|
|
|
1,027
|
|
|
|
(11,520
|
)
|
|
|
4,032
|
|
|
|
(7,488
|
)
|
Reclassification of amortization of net gain (loss) included in net income (loss)
|
|
|
6,356
|
|
|
|
(1,335
|
)
|
|
|
5,021
|
|
|
|
8,426
|
|
|
|
(2,949
|
)
|
|
|
5,477
|
|
|
|
7,805
|
|
|
|
(2,732
|
)
|
|
|
5,073
|
|
Total other comprehensive income (loss)
|
|
$
|
(155,423
|
)
|
|
$
|
32,558
|
|
|
$
|
(122,865
|
)
|
|
$
|
54,624
|
|
|
$
|
(18,926
|
)
|
|
$
|
35,698
|
|
|
$
|
39,730
|
|
|
$
|
(13,909
|
)
|
|
$
|
25,821
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Some amounts may not reconcile due to rounding)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents details of the amounts reclassified from AOCI for the periods indicated:
|
|
Years Ended December 31,
|
|
|
Affected line item within the statements of
|
AOCI component
|
|
2018
|
|
|
2017
|
|
|
operations and comprehensive income (loss)
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
URA(D) on securities
|
|
$
|
3,416
|
|
|
$
|
3,543
|
|
|
Other net realized capital gains (losses)
|
|
|
|
(1,395
|
)
|
|
|
(1,240
|
)
|
|
Income tax expense (benefit)
|
|
|
$
|
2,021
|
|
|
$
|
2,303
|
|
|
Net income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
Benefit plan net gain (loss)
|
|
$
|
6,356
|
|
|
$
|
8,426
|
|
|
Other underwriting expenses
|
|
|
|
(1,335
|
)
|
|
|
(2,949
|
)
|
|
Income tax expense (benefit)
|
|
|
$
|
5,021
|
|
|
$
|
5,477
|
|
|
Net income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
(Some amounts may not reconcile due to rounding)
|
|
|
|
|
|
|
|
|
|
|
The following table presents the components of accumulated other comprehensive income (loss), net of tax, in the consolidated balance sheets for the
periods indicated:
|
|
Years Ended December 31,
|
|
(Dollars in thousands)
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Beginning balance of URA (D) on securities
|
|
$
|
37,442
|
|
|
$
|
39,041
|
|
Change to beginning balance due to adoption of ASU 2016-01
|
|
|
(2,447
|
)
|
|
|
-
|
|
Reclass due to early adoption of ASU 2018-02
|
|
|
-
|
|
|
|
6,634
|
|
Current period change in URA (D) of investments - temporary
|
|
|
(91,455
|
)
|
|
|
(5,284
|
)
|
Current period change in URA (D) of investments - non-credit OTTI
|
|
|
510
|
|
|
|
(2,949
|
)
|
Ending balance of URA (D) on securities
|
|
|
(55,950
|
)
|
|
|
37,442
|
|
|
|
|
|
|
|
|
|
|
Beginning balance of foreign currency translation adjustments
|
|
|
33,545
|
|
|
|
(9,852
|
)
|
Reclass due to early adoption of ASU 2018-02
|
|
|
-
|
|
|
|
5,970
|
|
Current period change in foreign currency translation adjustments
|
|
|
(36,431
|
)
|
|
|
37,427
|
|
Ending balance of foreign currency translation adjustments
|
|
|
(2,886
|
)
|
|
|
33,545
|
|
|
|
|
|
|
|
|
|
|
Beginning balance of benefit plan net gain (loss)
|
|
|
(71,929
|
)
|
|
|
(65,504
|
)
|
Reclass due to early adoption of ASU 2018-02
|
|
|
-
|
|
|
|
(12,929
|
)
|
Current period change in benefit plan net gain (loss)
|
|
|
4,511
|
|
|
|
6,504
|
|
Ending balance of benefit plan net gain (loss)
|
|
|
(67,418
|
)
|
|
|
(71,929
|
)
|
|
|
|
|
|
|
|
|
|
Ending balance of accumulated other comprehensive income (loss)
|
|
$
|
(126,254
|
)
|
|
$
|
(942
|
)
|
13. EMPLOYEE BENEFIT PLANS
Defined Benefit Pension Plans.
The Company maintains both qualified and non-qualified defined benefit pension plans for its U.S. employees employed prior to April 1, 2010.
Generally, the Company computes the benefits based on average earnings over a period prescribed by the plans and credited length of service. The Company’s non-qualified defined benefit pension plan provided compensating pension benefits for
participants whose benefits have been curtailed under the qualified plan due to Internal Revenue Code limitations. Effective January 1, 2018, participants of the Company’s non-qualified defined benefit pension plan may no longer accrue
additional service benefits.
Although not required to make contributions under IRS regulations, the following table summarizes the Company’s contributions to the defined benefit
pension plans for the periods indicated:
|
|
Years Ended December 31,
|
|
(Dollars in thousands)
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Company contributions
|
|
$
|
77,743
|
|
|
$
|
10,534
|
|
|
$
|
30,821
|
|
The following table summarizes the Company’s pension expense for the periods indicated:
|
|
Years Ended December 31,
|
|
(Dollars in thousands)
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Pension expense
|
|
$
|
9,728
|
|
|
$
|
16,299
|
|
|
$
|
17,188
|
|
The following table summarizes the status of these defined benefit plans for U.S. employees for the periods indicated:
|
|
Years Ended December 31,
|
|
(Dollars in thousands)
|
|
2018
|
|
|
2017
|
|
Change in projected benefit obligation:
|
|
|
|
|
|
|
Benefit obligation at beginning of year
|
|
$
|
316,202
|
|
|
$
|
281,853
|
|
Service cost
|
|
|
9,801
|
|
|
|
10,949
|
|
Interest cost
|
|
|
10,290
|
|
|
|
10,034
|
|
Actuarial (gain)/loss
|
|
|
(29,966
|
)
|
|
|
24,679
|
|
Curtailment
|
|
|
-
|
|
|
|
(6,209
|
)
|
Benefits paid
|
|
|
(6,084
|
)
|
|
|
(5,104
|
)
|
Projected benefit obligation at end of year
|
|
|
300,244
|
|
|
|
316,202
|
|
|
|
|
|
|
|
|
|
|
Change in plan assets:
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year
|
|
|
210,267
|
|
|
|
171,506
|
|
Actual return on plan assets
|
|
|
(21,395
|
)
|
|
|
33,331
|
|
Actual contributions during the year
|
|
|
77,743
|
|
|
|
10,534
|
|
Benefits paid
|
|
|
(6,084
|
)
|
|
|
(5,104
|
)
|
Fair value of plan assets at end of year
|
|
|
260,531
|
|
|
|
210,267
|
|
|
|
|
|
|
|
|
|
|
Funded status at end of year
|
|
$
|
(39,713
|
)
|
|
$
|
(105,935
|
)
|
|
|
|
|
|
|
|
|
|
(Some amounts may not reconcile due to rounding.)
|
|
|
|
|
|
|
|
|
Amounts recognized in the consolidated balance sheets for the periods indicated:
|
|
At December 31,
|
|
(Dollars in thousands)
|
|
2018
|
|
|
2017
|
|
Other assets (due beyond one year)
|
|
$
|
-
|
|
|
$
|
-
|
|
Other liabilities (due within one year)
|
|
|
(7,530
|
)
|
|
|
(3,871
|
)
|
Other liabilities (due beyond one year)
|
|
|
(32,182
|
)
|
|
|
(102,065
|
)
|
Net amount recognized in the consolidated balance sheets
|
|
$
|
(39,713
|
)
|
|
$
|
(105,935
|
)
|
Amounts not yet reflected in net periodic benefit cost and included in accumulated other comprehensive income (loss) for the periods indicated:
|
|
At December 31,
|
|
(Dollars in thousands)
|
|
2018
|
|
|
2017
|
|
Accumulated income (loss)
|
|
$ |
(88,580
|
)
|
|
$
|
(86,788
|
)
|
Accumulated other comprehensive income (loss)
|
|
$
|
(88,580
|
)
|
|
$
|
(86,788
|
)
|
|
|
|
|
|
|
|
|
|
(Some amounts may not reconcile due to rounding.)
|
|
|
|
|
|
|
|
|
Other changes in other comprehensive income (loss) for the periods indicated are as follows:
|
|
Years Ended December 31,
|
|
(Dollars in thousands)
|
|
2018
|
|
|
2017
|
|
Other comprehensive income (loss) at December 31, prior year
|
|
$
|
(86,788
|
)
|
|
$
|
(96,965
|
)
|
Net gain (loss) arising during period
|
|
|
(8,631
|
)
|
|
|
(4,398
|
)
|
Recognition of amortizations in net periodic benefit cost:
|
|
|
|
|
|
|
|
|
Actuarial loss
|
|
|
6,839
|
|
|
|
8,366
|
|
Curtailment loss recognized
|
|
|
-
|
|
|
|
6,209
|
|
Other comprehensive income (loss) at December 31, current year
|
|
$
|
(88,580
|
)
|
|
$
|
(86,788
|
)
|
|
|
|
|
|
|
|
|
|
(Some amounts may not reconcile due to rounding.)
|
|
|
|
|
|
|
|
|
Net periodic benefit cost for U.S. employees included the following components for the periods indicated:
|
|
Years Ended December 31,
|
|
(Dollars in thousands)
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Service cost
|
|
|
9,801
|
|
|
$
|
10,949
|
|
|
$
|
10,924
|
|
Interest cost
|
|
|
10,290
|
|
|
|
10,034
|
|
|
|
9,485
|
|
Expected return on assets
|
|
|
(17,202
|
)
|
|
|
(13,050
|
)
|
|
|
(11,158
|
)
|
Amortization of actuarial loss from earlier periods
|
|
|
6,839
|
|
|
|
8,366
|
|
|
|
7,937
|
|
Net periodic benefit cost
|
|
$
|
9,728
|
|
|
$
|
16,299
|
|
|
$
|
17,188
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other changes recognized in other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss) attributable to change from prior year
|
|
|
1,792
|
|
|
|
(10,177
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recognized in net periodic benefit cost and other
|
|
|
|
|
|
|
|
|
|
|
|
|
comprehensive income (loss)
|
|
$
|
11,520
|
|
|
$
|
6,122
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Some amounts may not reconcile due to rounding.)
|
|
|
|
|
|
|
|
|
|
|
|
|
The estimated transition obligation, actuarial loss and prior service cost that will be amortized from accumulated other comprehensive income into
net periodic benefit cost over the next year are $0 thousand, $8,107 thousand and $0 thousand, respectively.
The weighted average discount rates used to determine net periodic benefit cost for 2018, 2017 and 2016 were 3.62%, 4.16% and 4.38%, respectively.
The rate of compensation increase used to determine the net periodic benefit cost for 2018, 2017 and 2016 was 4.00%. The expected long-term rate of return on plan assets was 7.00% for 2018 and was 7.50% for both 2017 and 2016 based on expected
portfolio returns and allocations.
The weighted average discount rates used to determine the actuarial present value of the projected benefit obligation for years end 2018, 2017 and
2016 were 4.27%, 3.62% and 4.16%, respectively.
The following table summarizes the accumulated benefit obligation for the periods indicated:
|
|
At December 31,
|
|
(Dollars in thousands)
|
|
2018
|
|
|
2017
|
|
Qualified Plan
|
|
$
|
237,855
|
|
|
$
|
245,430
|
|
Non-qualified Plan
|
|
|
24,472
|
|
|
|
24,482
|
|
Total
|
|
$
|
262,327
|
|
|
$
|
269,912
|
|
|
|
|
|
|
|
|
|
|
(Some amounts may not reconcile due to rounding.)
|
|
|
|
|
|
|
|
|
The following table displays the plans with projected benefit obligations in excess of plan assets for the periods indicated:
|
|
At December 31,
|
|
(Dollars in thousands)
|
|
2018
|
|
|
2017
|
|
Qualified Plan
|
|
|
|
|
|
|
Projected benefit obligation
|
|
$
|
275,772
|
|
|
$
|
291,720
|
|
Fair value of plan assets
|
|
|
260,531
|
|
|
|
210,267
|
|
Non-qualified Plan
|
|
|
|
|
|
|
|
|
Projected benefit obligation
|
|
$
|
24,472
|
|
|
$
|
24,482
|
|
Fair value of plan assets
|
|
|
-
|
|
|
|
-
|
|
The following table displays the plans with accumulated benefit obligations in excess of plan assets for the periods indicated:
|
|
At December 31,
|
|
(Dollars in thousands)
|
|
2018
|
|
|
2017
|
|
Qualified Plan
|
|
|
|
|
|
|
Accumulated benefit obligation
|
|
$
|
-
|
|
|
$
|
245,430
|
|
Fair value of plan assets
|
|
|
-
|
|
|
|
210,267
|
|
Non-qualified Plan
|
|
|
|
|
|
|
|
|
Accumulated benefit obligation
|
|
$
|
24,472
|
|
|
$
|
24,482
|
|
Fair value of plan assets
|
|
|
-
|
|
|
|
-
|
|
The following table displays the expected benefit payments in the periods indicated:
(Dollars in thousands)
|
|
|
|
2019
|
|
$
|
14,772
|
|
2020
|
|
|
13,087
|
|
2021
|
|
|
11,137
|
|
2022
|
|
|
12,104
|
|
2023
|
|
|
12,779
|
|
Next 5 years
|
|
|
79,289
|
|
Plan assets consist of shares in investment trusts with 59%, 32%, 8% and 1% of the underlying assets consisting of equity securities, fixed
maturities, limited partnerships and multi-strategy equity funds and cash, respectively. The Company manages the qualified plan investments for U.S. employees. The assets in the plan consist of debt and equity mutual funds. Due to the long
term nature of the plan, the target asset allocation has historically been 70% equities and 30% bonds.
The following tables present the fair value measurement levels for the qualified plan assets at fair value for the periods indicated:
|
|
|
|
|
Fair Value Measurement Using:
|
|
|
|
|
|
|
Quoted Prices
|
|
|
|
|
|
|
|
|
|
|
|
|
in Active
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
Markets for
|
|
|
Other
|
|
|
Significant
|
|
|
|
|
|
|
Identical
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
|
|
|
Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
(Dollars in thousands)
|
|
December 31, 2018
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments, which approximates fair value (a)
|
|
$
|
2,872
|
|
|
$
|
2,872
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Mutual funds, fair value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed income (b)
|
|
|
82,633
|
|
|
|
82,633
|
|
|
|
-
|
|
|
|
-
|
|
Equities (c)
|
|
|
154,935
|
|
|
|
154,935
|
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
$
|
240,440
|
|
|
$
|
240,440
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Some amounts may not reconcile due to rounding.)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
This category includes high quality, short-term money market instruments, which are issued and payable in U.S. dollars.
|
(b)
|
This category includes fixed income funds, which invest in investment grade securities of corporations, governments and
government agencies with approximately 70% in U.S. securities and 30% in international securities.
|
(c)
|
This category includes funds, which invest in small, mid and multi-cap equity securities including common stocks, securities
convertible into common stock and securities with common stock characteristics, such as rights and warrants, with approximately 50% in U.S. equities and 50% in international equities.
|
There were no transfers between Level 1 and Level 2 for the twelve months ended December 31, 2018.
|
|
|
|
|
Fair Value Measurement Using:
|
|
|
|
|
|
|
Quoted Prices
|
|
|
|
|
|
|
|
|
|
|
|
|
in Active
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
Markets for
|
|
|
Other
|
|
|
Significant
|
|
|
|
|
|
|
Identical
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
|
|
|
Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
(Dollars in thousands)
|
|
December 31, 2017
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments, which approximates fair value (a)
|
|
$
|
1,031
|
|
|
$
|
1,031
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Mutual funds, fair value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed income (b)
|
|
|
23,361
|
|
|
|
23,361
|
|
|
|
-
|
|
|
|
-
|
|
Equities (c)
|
|
|
159,578
|
|
|
|
159,578
|
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
$
|
183,970
|
|
|
$
|
183,970
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Some amounts may not reconcile due to rounding.)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
This category includes high quality, short-term money market instruments, which are issued and payable in U.S. dollars.
|
(b)
|
This category includes fixed income funds, which invest in investment grade securities of corporations, governments and
government agencies with approximately 50% in U.S. securities and 50% in international securities.
|
(c)
|
This category includes funds, which invest in small, mid and multi-cap equity securities including common stocks, securities
convertible into common stock and securities with common stock characteristics, such as rights and warrants, with approximately 90% in U.S. equities and 10% in international equities.
|
In addition, $20,091 thousand and $26,297 thousand of investments which were recorded as part of the qualified plan assets at December 31, 2018 and
2017, respectively, are not included within the fair value hierarchy tables as the assets are valued using the NAV practical expedient guidance within ASU 2015-07.
The Company contributed $77,000 thousand and $10,000 thousand to the qualified pension benefit plan for the years ended December 31, 2018 and 2017,
respectively.
Defined Contribution Plans.
The Company also maintains both qualified and non-qualified defined contribution plans (“Savings Plan” and “Non-Qualified Savings Plan”,
respectively) covering U.S. employees. Under the plans, the Company contributes up to a maximum 3% of the participants’ compensation based on the contribution percentage of the employee. The Non-Qualified Savings Plan provides compensating
savings plan benefits for participants whose benefits have been curtailed under the Savings Plan due to Internal Revenue Code limitations. In addition, effective for new hires (and rehires) on or after April 1, 2010, the Company will contribute
between
3% and 8% of an employee’s earnings for each payroll period based on the employee’s age. These contributions will be 100% vested after three years.
The following table presents the Company’s incurred expenses related to these plans for the periods indicated:
|
|
Years Ended December 31,
|
|
(Dollars in thousands)
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Incurred expenses
|
|
$
|
9,301
|
|
|
$
|
7,167
|
|
|
$
|
6,058
|
|
In addition, the Company maintains several defined contribution pension plans covering non-U.S. employees. Each non-U.S. office (Brazil, Canada and
Singapore) maintains a separate plan for the non-U.S. employees working in that location. The Company contributes various amounts based on salary, age and/or years of service. The contributions as a percentage of salary for the branch offices
range from 6.2% to 9.0%. The contributions are generally used to purchase pension benefits from local insurance providers. The following table presents the Company’s incurred expenses related to these plans for the periods indicated:
|
|
Years Ended December 31,
|
|
(Dollars in thousands)
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Incurred expenses
|
|
$
|
489
|
|
|
$
|
514
|
|
|
$
|
494
|
|
Post-Retirement Plan.
The Company sponsors a Retiree Health Plan for employees employed prior to April 1, 2010. This plan provides healthcare benefits for eligible
retired employees (and their eligible dependants), who have elected coverage. The Company anticipates that most covered employees will become eligible for these benefits if they retire while working for the Company. The cost of these benefits
is shared with the retiree. The Company accrues the post-retirement benefit expense during the period of the employee’s service.
A medical cost trend rate of 7.25% in 2018 was assumed to decrease gradually to 4.50% in 2029 and then remain at that level.
Changes in the assumed healthcare cost trend can have a significant effect on the amounts reported for the healthcare plans. A one percent change
in the rate would have the following effects on:
|
|
Percentage
|
|
|
Percentage
|
|
|
|
Point Increase
|
|
|
Point Decrease
|
|
(Dollars in thousands)
|
|
($ Impact)
|
|
|
($ Impact)
|
|
a. Effect on total service and interest cost components
|
|
$
|
577
|
|
|
$
|
(436
|
)
|
b. Effect on accumulated post-retirement benefit obligation
|
|
|
5,987
|
|
|
|
(4,643
|
)
|
The following table presents the post-retirement benefit expenses for the periods indicated:
|
|
Years Ended December 31,
|
|
(Dollars in thousands)
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Post-retirement benefit expenses
|
|
$
|
1,829
|
|
|
$
|
2,814
|
|
|
$
|
2,293
|
|
The following table summarizes the status of this plan for the periods indicated:
|
|
At December 31,
|
|
(Dollars in thousands)
|
|
2018
|
|
|
2017
|
|
Change in projected benefit obligation:
|
|
|
|
|
|
|
Benefit obligation at beginning of year
|
|
$
|
34,717
|
|
|
$
|
32,071
|
|
Service cost
|
|
|
1,312
|
|
|
|
1,570
|
|
Interest cost
|
|
|
999
|
|
|
|
1,184
|
|
Amendments
|
|
|
-
|
|
|
|
(3,526
|
)
|
Actuarial (gain)/loss
|
|
|
(7,985
|
)
|
|
|
4,038
|
|
Benefits paid
|
|
|
(561
|
)
|
|
|
(619
|
)
|
Benefit obligation at end of year
|
|
|
28,483
|
|
|
|
34,717
|
|
|
|
|
|
|
|
|
|
|
Change in plan assets:
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year
|
|
|
-
|
|
|
|
-
|
|
Employer contributions
|
|
|
561
|
|
|
|
619
|
|
Benefits paid
|
|
|
(561
|
)
|
|
|
(619
|
)
|
Fair value of plan assets at end of year
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Funded status at end of year
|
|
$
|
(28,483
|
)
|
|
$
|
(34,717
|
)
|
Amounts recognized in the consolidated balance sheets for the periods indicated:
|
|
At December 31,
|
|
(Dollars in thousands)
|
|
2018
|
|
|
2017
|
|
Other liabilities (due within one year)
|
|
$
|
(608
|
)
|
|
$
|
(655
|
)
|
Other liabilities (due beyond one year)
|
|
|
(27,875
|
)
|
|
|
(34,062
|
)
|
Net amount recognized in the consolidated balance sheets
|
|
$
|
(28,483
|
)
|
|
$
|
(34,717
|
)
|
|
|
|
|
|
|
|
|
|
(Some amounts may not reconcile due to rounding.)
|
|
|
|
|
|
|
|
|
Amounts not yet reflected in net periodic benefit cost and included in accumulated other comprehensive income (loss) for the periods indicated:
|
|
At December 31,
|
|
(Dollars in thousands)
|
|
2018
|
|
|
2017
|
|
Accumulated income (loss)
|
|
$
|
(238
|
)
|
|
$
|
(8,317
|
)
|
Accumulated prior service credit (cost)
|
|
|
3,480
|
|
|
|
4,057
|
|
Accumulated other comprehensive income (loss)
|
|
$
|
3,242
|
|
|
$
|
(4,260
|
)
|
Other changes in other comprehensive income (loss) for the periods indicated are as follows:
|
|
Years Ended December 31,
|
|
(Dollars in thousands)
|
|
2018
|
|
|
2017
|
|
Other comprehensive income (loss) at December 31, prior year
|
|
$
|
(4,260
|
)
|
|
$
|
(3,809
|
)
|
Net gain (loss) arising during period
|
|
|
7,985
|
|
|
|
(4,038
|
)
|
Prior Service credit (cost) arising during period
|
|
|
-
|
|
|
|
3,526
|
|
Recognition of amortizations in net periodic benefit cost:
|
|
|
|
|
|
|
|
|
Actuarial loss (gain)
|
|
|
94
|
|
|
|
192
|
|
Prior service cost
|
|
|
(577
|
)
|
|
|
(131
|
)
|
Other comprehensive income (loss) at December 31, current year
|
|
$
|
3,242
|
|
|
$
|
(4,260
|
)
|
Net periodic benefit cost included the following components for the periods indicated:
|
|
Years Ended December 31,
|
|
(Dollars in thousands)
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Service cost
|
|
$
|
1,312
|
|
|
$
|
1,570
|
|
|
$
|
1,418
|
|
Interest cost
|
|
|
999
|
|
|
|
1,184
|
|
|
|
1,007
|
|
Prior service credit recognition
|
|
|
(577
|
)
|
|
|
(131
|
)
|
|
|
(132
|
)
|
Net gain recognition
|
|
|
94
|
|
|
|
192
|
|
|
|
-
|
|
Net periodic cost
|
|
$
|
1,829
|
|
|
$
|
2,814
|
|
|
$
|
2,293
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other changes recognized in other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive gain (loss) attributable to change from prior year
|
|
|
(7,502
|
)
|
|
|
451
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recognized in net periodic benefit cost and
|
|
|
|
|
|
|
|
|
|
|
|
|
other comprehensive income (loss)
|
|
$
|
(5,673
|
)
|
|
$
|
3,265
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Some amounts may not reconcile due to rounding.)
|
|
|
|
|
|
|
|
|
|
|
|
|
The estimated transition obligation, actuarial loss and prior service credit that will be amortized from accumulated other comprehensive income
(loss) into net periodic benefit cost over the next fiscal year are $0 thousand, $0 thousand and ($577) thousand, respectively.
The weighted average discount rates used to determine net periodic benefit cost for 2018, 2017 and 2016 were 3.62%, 4.16% and
4.38%, respectively.
The weighted average discount rates used to determine the actuarial present value of the projected benefit obligation at year end 2018, 2017 and
2016 were 4.27%, 3.62% and 4.16%, respectively.
The following table displays the expected benefit payments in the years indicated:
(Dollars in thousands)
|
|
|
|
2019
|
|
$
|
608
|
|
2020
|
|
|
663
|
|
2021
|
|
|
740
|
|
2022
|
|
|
852
|
|
2023
|
|
|
944
|
|
Next 5 years
|
|
|
6,469
|
|
14. DIVIDEND RESTRICTIONS AND STATUTORY FINANCIAL INFORMATION
Holdings and its operating subsidiaries are subject to various regulatory restrictions, including the amount of dividends that may be paid and the
level of capital that the operating entities must maintain. These regulatory restrictions are based upon statutory capital as opposed to GAAP basis equity or net assets. Holdings’ primary operating subsidiary, Everest Re, is regulated by
Delaware law and is subject to the Risk-Based Capital Model (“RBC”) developed by the National Association of Insurance Commissioners (“NAIC”). This model represents the aggregate regulatory restrictions on net assets and statutory capital and
surplus.
Dividend Restrictions.
Delaware law provides that an insurance company which is a member of an insurance holding company system and is domiciled in the state shall not pay
dividends without giving prior notice to the Insurance Commissioner of Delaware and may not pay dividends without the approval of the Insurance Commissioner if the value of the proposed dividend, together with all other dividends and
distributions made in the preceding twelve months, exceeds the greater of (1) 10% of statutory surplus or (2) net income, not including realized capital gains, each as reported in the prior year’s statutory annual statement. In addition, no
dividend may be paid in excess of unassigned earned surplus. At December 31, 2018, Everest Re has $365,059 thousand available for payment of dividends in 2019 without the need for prior regulatory approval.
Statutory Financial Information.
Everest Re prepares its statutory financial statements in accordance with accounting practices prescribed or permitted by the NAIC and the Delaware
Insurance Department. Prescribed statutory accounting practices are set forth in the NAIC Accounting Practices and Procedures Manual. The capital and statutory surplus of Everest Re was $3,650,594 thousand and $3,391,852 thousand at December
31, 2018 and 2017, respectively. The statutory net loss of Everest Re was $1,317,991 thousand and $391,419 thousand for the years ended December 31, 2018 and 2017, respectively. The statutory net income of Everest Re was $523,547 thousand for
the year ended December 31, 2016.
There are certain regulatory and contractual restrictions on the ability of Holdings’ operating subsidiaries to transfer funds to Holdings in the
form of cash dividends, loans or advances. The insurance laws of the State of Delaware, where Holdings’ direct insurance subsidiaries are domiciled, require regulatory approval before those subsidiaries can pay dividends or make loans or
advances to Holdings that exceed certain statutory thresholds.
Capital Restrictions.
In the United States, Everest Re is subject to the RBC developed by the NAIC which determines an authorized control level risk-based capital. As
long as the total adjusted capital is 200% or more of the authorized control level capital, no action is required by the Company.
The regulatory targeted capital and the actual statutory capital for Everest Re is as follows:
|
|
Everest Re (1)
|
|
|
|
At December 31,
|
|
(Dollars in thousands)
|
|
2018
|
|
|
2017
|
|
Regulatory targeted capital
|
|
$
|
2,172,958
|
|
|
$
|
2,076,892
|
|
Actual capital
|
|
$
|
3,650,594
|
|
|
$
|
3,391,852
|
|
(1) Regulatory
targeted capital represents 200% of the RBC authorized control level calculation for the applicable year.
15. COMMITMENTS AND CONTINGENCIES
In the ordinary course of business, the Company is involved in lawsuits, arbitrations and other formal and informal dispute resolution procedures,
the outcomes of which will determine the Company’s rights and obligations under insurance and reinsurance agreements. In some disputes, the Company seeks to enforce its rights under an agreement or to collect funds owing to it. In other
matters, the Company is resisting attempts by others to collect funds or enforce alleged rights. These disputes arise from time to time and are ultimately resolved through both informal and formal means, including negotiated resolution,
arbitration and litigation. In all such matters, the Company believes that its positions are legally and commercially reasonable. The Company considers the statuses of these proceedings when determining its reserves for unpaid loss and loss
adjustment expenses.
Aside from litigation and arbitrations related to these insurance and reinsurance agreements, the Company is not a party to any other material
litigation or arbitration.
The Company has entered into separate annuity agreements with The Prudential Insurance Company of America (“The Prudential”) and an additional
unaffiliated life insurance company in which the Company has either purchased annuity contracts or become the assignee of annuity proceeds that are meant to settle claim payment obligations in the future. In both instances, the Company would
become contingently liable if either The Prudential or the unaffiliated life insurance company were unable to make payments related to the respective annuity contact.
The table below presents the estimated cost to replace all such annuities for which the Company was contingently liable for the periods indicated:
|
|
At December 31,
|
|
(Dollars in thousands)
|
|
2018
|
|
|
2017
|
|
The Prudential
|
|
$
|
142,754
|
|
|
$
|
144,618
|
|
Unaffiliated life insurance company
|
|
|
34,717
|
|
|
|
34,444
|
|
16. RELATED-PARTY TRANSACTIONS
Group
Group entered into a $250,000 thousand long term promissory note agreement with Holdings as of December 31, 2014. The note was repaid in December
2018. At December 31, 2017, this transaction is presented as a Note Receivable – Affiliated in the Consolidated Balance Sheets of Holdings. Interest income in the amount of $4,085 thousand and $4,300 thousand was recorded by Holdings for the
years ended December 31, 2018 and 2017, respectively.
Group’s Board of Directors approved an amended share repurchase program authorizing Group and/or its subsidiary Holdings to purchase Group’s common
shares through open market transactions, privately negotiated transactions or both. The table below represents the amendments to the share repurchase program
for the common shares approved for repurchase.
|
|
Common Shares
|
|
|
Authorized for
|
Amendment Date
|
|
Repurchase
|
(Dollars in thousands)
|
|
|
09/21/2004
|
|
5,000,000
|
07/21/2008
|
|
5,000,000
|
02/24/2010
|
|
5,000,000
|
02/22/2012
|
|
5,000,000
|
05/15/2013
|
|
5,000,000
|
11/19/2014
|
|
5,000,000
|
|
|
30,000,000
|
Holdings had purchased and held 9,719,971 Common Shares of Group, which were purchased in the open market between February 2007 and March 2011.
In December, 2015, Holdings transferred the 9,719,971 Common Shares of Group, which it held as other invested assets, at fair value, valued at
$1,773,214 thousand, to Preferred Holdings, an affiliated entity and subsidiary of Group, in exchange for 1,773.214 preferred shares of Preferred Holdings with a $1,000 thousand par value and 1.75% annual dividend rate. After the exchange,
Holdings no longer holds any shares or has any ownership interest in Group.
Holdings has reported the preferred shares in Preferred Holdings, as other invested assets, fair value, in the consolidated balance sheets with
changes in fair value re-measurement recorded in net realized capital gains (losses) in the consolidated statements of operations and comprehensive income (loss). The following table presents the dividends received on the preferred shares of
Preferred Holdings and on the Parent shares that are reported as net investment income in the consolidated statements of operations and comprehensive income (loss) for the period indicated.
|
|
Years Ended December 31,
|
(Dollars in thousands)
|
|
2018
|
|
2017
|
|
2016
|
Dividends received on preferred stock of affiliate
|
|
31,032
|
|
31,032
|
|
31,032
|
Affiliated Companies
Effective December 31, 2018, Holdings entered into a $300,000 thousand long-term promissory note agreement with Bermuda Re. The note will mature
on December 31, 2023 and has an interest rate of 3.07% that is payable annually. This transaction is presented as a Note Payable – Affiliated in the consolidated balance sheets of Holdings.
Effective October 1, 2018, Holdings Ireland made a capital contribution of Global Services, an affiliated entity, to Holdings. Global Services had
an equity value of $227,253 thousand at the time of contribution and that value is classified as additional paid in capital in the Company’s consolidated balance sheet as of December 31, 2018.
Everest Global Services, Inc. (“Global Services”), an affiliate of Holdings, provides centralized management and home office services, through a
management agreement, to Holdings and other affiliated companies within Holdings’ consolidated structure. Services provided by Everest Global include executive managerial services, legal services, actuarial services, accounting services,
information technology services and others.
The following table presents the expenses incurred by Holdings from services provided by Everest Global for the periods indicated.
|
|
Years Ended December 31,
|
|
(Dollars in thousands)
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Expenses incurred
|
|
$
|
81,346
|
|
|
$
|
91,927
|
|
|
$
|
84,823
|
|
17. SEGMENT REPORTING
The U.S. Reinsurance operation writes property and casualty reinsurance and specialty lines of business, including Marine, Aviation, Surety and
Accident and Health (“A&H”) business, on both a treaty and facultative basis, through reinsurance brokers, as well as directly with ceding companies primarily within the U.S. The International operation writes non-U.S. property and casualty
reinsurance through Everest Re’s branches in Canada, Singapore and through offices in Brazil, Miami and New Jersey. The Insurance operation writes property and casualty insurance directly and through brokers, surplus lines brokers and general
agents mainly within the U.S.
These segments are managed independently, but conform with corporate guidelines with respect to pricing, risk management, control of aggregate
catastrophe exposures, capital, investments and support operations. Management generally monitors and evaluates the financial performance of these operating segments based upon their underwriting results.
Underwriting results include earned premium less losses and LAE incurred, commission and brokerage expenses and other underwriting expenses. We
measure our underwriting results using ratios, in particular loss, commission and brokerage and other underwriting expense ratios, which, respectively, divide incurred losses, commissions and brokerage and other underwriting expenses by premiums
earned.
The Company does not maintain separate balance sheet data for its operating segments. Accordingly, the Company does not review and evaluate the
financial results of its operating segments based upon balance sheet data.
The following tables present the underwriting results for the operating segments for the periods indicated:
U.S. Reinsurance
|
|
Years Ended December 31,
|
|
(Dollars in thousands)
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Gross written premiums
|
|
$
|
3,014,337
|
|
|
$
|
2,593,063
|
|
|
$
|
2,125,792
|
|
Net written premiums
|
|
|
2,093,116
|
|
|
|
1,135,604
|
|
|
|
930,178
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums earned
|
|
$
|
1,979,926
|
|
|
$
|
858,155
|
|
|
$
|
990,055
|
|
Incurred losses and LAE
|
|
|
2,790,818
|
|
|
|
912,124
|
|
|
|
554,100
|
|
Commission and brokerage
|
|
|
568,374
|
|
|
|
160,311
|
|
|
|
189,495
|
|
Other underwriting expenses
|
|
|
60,266
|
|
|
|
55,881
|
|
|
|
54,107
|
|
Underwriting gain (loss)
|
|
$
|
(1,439,532
|
)
|
|
$
|
(270,161
|
)
|
|
$
|
192,353
|
|
International
|
|
Years Ended December 31,
|
|
(Dollars in thousands)
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Gross written premiums
|
|
$
|
1,555,245
|
|
|
$
|
1,339,546
|
|
|
$
|
1,269,125
|
|
Net written premiums
|
|
|
1,426,588
|
|
|
|
615,395
|
|
|
|
497,645
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums earned
|
|
$
|
1,406,460
|
|
|
$
|
502,322
|
|
|
$
|
510,915
|
|
Incurred losses and LAE
|
|
|
1,020,929
|
|
|
|
622,753
|
|
|
|
207,605
|
|
Commission and brokerage
|
|
|
355,528
|
|
|
|
101,936
|
|
|
|
111,514
|
|
Other underwriting expenses
|
|
|
37,661
|
|
|
|
36,291
|
|
|
|
34,254
|
|
Underwriting gain (loss)
|
|
$
|
(7,658
|
)
|
|
$
|
(258,658
|
)
|
|
$
|
157,542
|
|
Insurance
|
|
Years Ended December 31,
|
|
(Dollars in thousands)
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Gross written premiums
|
|
$
|
2,004,093
|
|
|
$
|
1,855,881
|
|
|
$
|
1,668,811
|
|
Net written premiums
|
|
|
1,512,158
|
|
|
|
972,845
|
|
|
|
620,299
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums earned
|
|
$
|
1,452,672
|
|
|
$
|
589,118
|
|
|
$
|
593,079
|
|
Incurred losses and LAE
|
|
|
999,271
|
|
|
|
504,874
|
|
|
|
588,575
|
|
Commission and brokerage
|
|
|
217,812
|
|
|
|
(51,322
|
)
|
|
|
(19,585
|
)
|
Other underwriting expenses
|
|
|
195,420
|
|
|
|
162,714
|
|
|
|
156,605
|
|
Underwriting gain (loss)
|
|
$
|
40,169
|
|
|
$
|
(27,148
|
)
|
|
$
|
(132,516
|
)
|
The following table reconciles the underwriting results for the operating segments to income (loss) before taxes as reported in the consolidated
statements of operations and comprehensive income (loss) for the periods indicated:
|
|
Years Ended December 31,
|
|
(Dollars in thousands)
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Underwriting gain (loss)
|
|
$
|
(1,407,021
|
)
|
|
$
|
(555,967
|
)
|
|
$
|
217,379
|
|
Net investment income
|
|
|
314,381
|
|
|
|
286,259
|
|
|
|
264,807
|
|
Net realized capital gains (losses)
|
|
|
(185,356
|
)
|
|
|
161,553
|
|
|
|
(28,941
|
)
|
Corporate expense
|
|
|
(11,034
|
)
|
|
|
(7,394
|
)
|
|
|
(8,277
|
)
|
Interest, fee and bond issue cost amortization expense
|
|
|
(30,611
|
)
|
|
|
(31,183
|
)
|
|
|
(35,435
|
)
|
Other income (expense)
|
|
|
(3,851
|
)
|
|
|
23,750
|
|
|
|
(10,542
|
)
|
Income (loss) before taxes
|
|
$
|
(1,323,492
|
)
|
|
$
|
(122,982
|
)
|
|
$
|
398,991
|
|
The Company produces business in the U.S. and internationally. The net income deriving from assets residing in the individual foreign countries in
which the Company writes business are not identifiable in the Company’s financial records. Based on gross written premium, the table below presents the largest country, other than the U.S., in which the Company writes business, for the periods
indicated:
|
|
Years Ended December 31,
|
|
(Dollars in thousands)
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Canada gross written premiums
|
|
$
|
173,530
|
|
|
$
|
130,136
|
|
|
$
|
124,612
|
|
No other country represented more than 5% of the Company’s revenues.
Approximately 21.1%, 21.5% and 15.3% of the Company’s gross written premiums in 2018, 2017 and 2016, respectively, were sourced through the
Company’s largest intermediary.
18. DISPOSITIONS
On August 24, 2016 the Company sold Heartland, its crop Managing General Agent to CGB for $49,000 thousand. The sale agreement includes a provision
for a long term strategic reinsurance relationship with CGB. The Company has recognized an after-tax loss on the sale of Heartland of $12,942 thousand. Under the terms of the reinsurance arrangement, there has not been a material fluctuation in
the level of crop business, although it has been reflected as reinsurance rather than insurance.
19. SUBSEQUENT EVENTS
The Company has evaluated known recognized and non-recognized subsequent events. The Company does not have any subsequent events to report
20. UNAUDITED QUARTERLY FINANCIAL DATA
Summarized quarterly financial data for the periods indicated:
|
|
2018
|
|
(Dollars in thousands)
|
|
1st Quarter
|
|
|
2nd Quarter
|
|
|
3rd Quarter
|
|
|
4th Quarter
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating data:
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross written premiums
|
|
$
|
1,466,231
|
|
|
$
|
1,632,284
|
|
|
$
|
1,759,190
|
|
|
$
|
1,715,970
|
|
Net written premiums
|
|
|
1,107,027
|
|
|
|
1,190,354
|
|
|
|
1,378,481
|
|
|
|
1,356,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums earned
|
|
|
1,116,010
|
|
|
|
1,179,836
|
|
|
|
1,230,771
|
|
|
|
1,312,441
|
|
Net investment income
|
|
|
69,909
|
|
|
|
72,070
|
|
|
|
90,298
|
|
|
|
82,104
|
|
Net realized capital gains (losses)
|
|
|
(60,201
|
)
|
|
|
(42,271
|
)
|
|
|
30,018
|
|
|
|
(112,902
|
)
|
Total claims and underwriting expenses
|
|
|
1,047,063
|
|
|
|
1,590,988
|
|
|
|
1,337,309
|
|
|
|
2,270,719
|
|
Net income (loss)
|
|
|
(12,172
|
)
|
|
|
(265,408
|
)
|
|
|
24,665
|
|
|
|
(704,752
|
)
|
|
|
2017
|
|
(Dollars in thousands)
|
|
1st Quarter
|
|
|
2nd Quarter
|
|
|
3rd Quarter
|
|
|
4th Quarter
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating data:
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross written premiums
|
|
$
|
1,252,384
|
|
|
$
|
1,335,574
|
|
|
$
|
1,701,126
|
|
|
$
|
1,499,405
|
|
Net written premiums
|
|
|
448,836
|
|
|
|
417,912
|
|
|
|
570,760
|
|
|
|
1,286,337
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums earned
|
|
|
471,055
|
|
|
|
468,197
|
|
|
|
518,507
|
|
|
|
491,836
|
|
Net investment income
|
|
|
60,849
|
|
|
|
71,900
|
|
|
|
73,417
|
|
|
|
80,093
|
|
Net realized capital gains (losses)
|
|
|
117,768
|
|
|
|
(92,291
|
)
|
|
|
228,489
|
|
|
|
(92,413
|
)
|
Total claims and underwriting expenses
|
|
|
402,124
|
|
|
|
421,938
|
|
|
|
1,423,816
|
|
|
|
257,684
|
|
Net income (loss)
|
|
|
169,178
|
|
|
|
35,658
|
|
|
|
(389,724
|
)
|
|
|
263,086
|
|
In preparing its second quarter of 2017 financial statements, the Company altered its processing of ceding certain commissions and deferred
acquisition costs under an affiliated quota share agreement. In previous reporting periods, these expenses were ceded based upon a quarter lag. In the second quarter of 2017, the quarter lag was eliminated and these expenses are now recorded on
a current quarter basis. Although management determined that the impact of the ceding lag was not material to prior period financial statements, the impact of eliminating the ceding lag would have significantly impacted results within the second
quarter of 2017. As a result, prior period balances have been revised in the applicable financial statements and corresponding footnotes to eliminate the impact of the previous recording lag.
Management assessed the materiality of this change within prior period financial statements based upon SEC Staff Accounting Bulletin Number 99,
Materiality, which is since codified in Accounting Standards Codification (“ASC”) 250, Accounting Changes and Error Corrections. In accordance with ASC 250, the prior period comparative financial statements that are presented herein have been
revised.
The following tables present line items for prior period financial statements that have been affected by the revision. For these line items, the
tables detail the amounts as previously reported, the impact upon those line items due to the revision, and the amounts as currently revised within the financial statements.
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
Three Months Ended March 31, 2017
|
|
AND COMPREHENSIVE INCOME (LOSS):
|
|
As Previously
|
|
|
Impact of
|
|
|
|
|
|
|
Reported
|
|
|
Revisions
|
|
|
As Revised
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
CLAIMS AND EXPENSES:
|
|
|
|
|
|
|
|
|
|
Commission, brokerage, taxes and fees
|
|
$
|
49,470
|
|
|
$
|
3,037
|
|
|
$
|
52,507
|
|
Total claims and expenses
|
|
|
411,543
|
|
|
|
3,037
|
|
|
|
414,580
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS) BEFORE TAXES
|
|
|
247,984
|
|
|
|
(3,037
|
)
|
|
|
244,947
|
|
Income tax expense (benefit)
|
|
|
76,940
|
|
|
|
(1,171
|
)
|
|
|
75,769
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS)
|
|
$
|
171,044
|
|
|
$
|
(1,866
|
)
|
|
$
|
169,178
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMPREHENSIVE INCOME (LOSS)
|
|
$
|
182,587
|
|
|
$
|
(1,866
|
)
|
|
$
|
180,721
|
|
CONSOLIDATED STATEMENTS OF
|
|
Three Months Ended March 31, 2017
|
|
CHANGES IN STOCKHOLDER'S EQUITY
|
|
As Previously
|
|
|
Impact of
|
|
|
|
|
|
|
Reported
|
|
|
Revisions
|
|
|
As Revised
|
|
(Dollars in thousands, except share amounts)
|
|
|
|
|
|
|
|
|
|
RETAINED EARNINGS:
|
|
|
|
|
|
|
|
|
|
Balance, beginning of period
|
|
$
|
4,914,308
|
|
|
$
|
32,993
|
|
|
$
|
4,947,301
|
|
Net income (loss)
|
|
|
171,044
|
|
|
|
(1,866
|
)
|
|
|
169,178
|
|
Balance, end of period
|
|
|
5,085,352
|
|
|
|
31,127
|
|
|
|
5,116,479
|
|
TOTAL STOCKHOLDER'S EQUITY, END OF PERIOD
|
|
$
|
5,448,217
|
|
|
$
|
31,127
|
|
|
$
|
5,479,344
|
|
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
Three Months Ended March 31, 2017
|
|
|
|
As Previously
|
|
|
Impact of
|
|
|
|
|
|
|
Reported
|
|
|
Revisions
|
|
|
As Revised
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
171,044
|
|
|
$
|
(1,866
|
)
|
|
$
|
169,178
|
|
Decrease (increase) in income taxes
|
|
|
75,304
|
|
|
|
(1,172
|
)
|
|
|
74,132
|
|
Increase (decrease) in other net payable to reinsurers
|
|
|
(30,525
|
)
|
|
|
3,347
|
|
|
|
(27,178
|
)
|
Change in other assets and liabilities, net
|
|
|
18,204
|
|
|
|
(309
|
)
|
|
|
17,895
|
|
SCHEDULE I – SUMMARY OF INVESTMENTS -
OTHER THAN INVESTMENTS IN RELATED PARTIES
DECEMBER 31, 2018
Column A
|
|
Column B
|
|
|
Column C
|
|
|
Column D
|
|
|
|
|
|
|
|
|
|
Amount
|
|
|
|
|
|
|
|
|
|
Shown in
|
|
|
|
|
|
|
Market
|
|
|
Balance
|
|
(Dollars in thousands)
|
|
Cost
|
|
|
Value
|
|
|
Sheet
|
|
Fixed maturities-available for sale
|
|
|
|
|
|
|
|
|
|
Bonds:
|
|
|
|
|
|
|
|
|
|
U.S. government and government agencies
|
|
$
|
2,250,312
|
|
|
$
|
2,242,797
|
|
|
$
|
2,242,797
|
|
State, municipalities and political subdivisions
|
|
|
489,013
|
|
|
|
499,089
|
|
|
|
499,089
|
|
Foreign government securities
|
|
|
576,540
|
|
|
|
579,586
|
|
|
|
579,586
|
|
Foreign corporate securities
|
|
|
932,310
|
|
|
|
914,703
|
|
|
|
914,703
|
|
Public utilities
|
|
|
58,373
|
|
|
|
57,503
|
|
|
|
57,503
|
|
All other corporate bonds
|
|
|
2,434,354
|
|
|
|
2,376,701
|
|
|
|
2,376,701
|
|
Mortgage - backed securities
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
135,380
|
|
|
|
136,604
|
|
|
|
136,604
|
|
Agency residential
|
|
|
149,306
|
|
|
|
148,774
|
|
|
|
148,774
|
|
Non-agency residential
|
|
|
3,115
|
|
|
|
3,114
|
|
|
|
3,114
|
|
Redeemable preferred stock
|
|
|
4,046
|
|
|
|
3,204
|
|
|
|
3,204
|
|
Total fixed maturities-available for sale
|
|
|
7,032,749
|
|
|
|
6,962,075
|
|
|
|
6,962,075
|
|
Fixed maturities - available for sale, at fair value
|
|
|
2,337
|
|
|
|
2,337
|
|
|
|
2,337
|
|
Equity securities at fair value(1)
|
|
|
597,103
|
|
|
|
564,338
|
|
|
|
564,338
|
|
Short-term investments
|
|
|
174,155
|
|
|
|
174,131
|
|
|
|
174,131
|
|
Other invested assets
|
|
|
882,647
|
|
|
|
882,647
|
|
|
|
882,647
|
|
Other invested assets, at fair value (1)
|
|
|
1,773,214
|
|
|
|
1,717,336
|
|
|
|
1,717,336
|
|
Cash
|
|
|
404,522
|
|
|
|
404,522
|
|
|
|
404,522
|
|
Total investments and cash
|
|
$
|
10,866,727
|
|
|
$
|
10,707,386
|
|
|
$
|
10,707,386
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Some amounts may not reconcile due to rounding.)
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Original cost does not reflect adjustments, which have been realized through the statements of operations and comprehensive
income.
SCHEDULE II – CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT
CONDENSED BALANCE SHEETS
|
|
At December 31,
|
|
(Dollars in thousands, except share amounts and par value per share)
|
|
2018
|
|
|
2017
|
|
ASSETS:
|
|
|
|
|
|
|
Fixed maturities - available for sale, at market value
|
|
$
|
13,750
|
|
|
$
|
108,010
|
|
(amortized cost: 2018, $13,390; 2017, $109,008)
|
|
|
|
|
|
|
|
|
Equity securities - available for sale, at fair value
|
|
|
53,401
|
|
|
|
191,098
|
|
Other invested assets
|
|
|
59,979
|
|
|
|
51,616
|
|
Other invested assets, at fair value
|
|
|
1,717,336
|
|
|
|
1,807,473
|
|
Short-term investments
|
|
|
4,111
|
|
|
|
4,507
|
|
Cash
|
|
|
10,609
|
|
|
|
10,295
|
|
Total investments and cash
|
|
|
1,859,186
|
|
|
|
2,172,999
|
|
Investment in subsidiaries, at equity in the underlying net assets
|
|
|
4,326,130
|
|
|
|
3,842,806
|
|
Note receivable - affiliated
|
|
|
-
|
|
|
|
250,000
|
|
Accrued investment income
|
|
|
19
|
|
|
|
644
|
|
Advances to affiliates
|
|
|
(72
|
)
|
|
|
(72
|
)
|
Other assets
|
|
|
32
|
|
|
|
4,832
|
|
TOTAL ASSETS
|
|
$
|
6,185,295
|
|
|
$
|
6,271,209
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES:
|
|
|
|
|
|
|
|
|
Senior notes due 6/1/2044
|
|
$
|
396,954
|
|
|
$
|
396,834
|
|
Long term notes due 5/1/2067
|
|
|
236,659
|
|
|
|
236,561
|
|
Note payable - affiliated
|
|
|
300,000
|
|
|
|
-
|
|
Accrued interest on debt and borrowings
|
|
|
3,093
|
|
|
|
2,727
|
|
Income taxes
|
|
|
202,442
|
|
|
|
196,270
|
|
Due to affiliates
|
|
|
544
|
|
|
|
25,475
|
|
Other liabilities
|
|
|
938
|
|
|
|
619
|
|
Total liabilities
|
|
|
1,140,630
|
|
|
|
858,486
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDER'S EQUITY:
|
|
|
|
|
|
|
|
|
Common stock, par value: $0.01; 3,000 shares authorized;
|
|
|
|
|
|
|
|
|
1,000 shares issued and outstanding (2018 and 2017)
|
|
|
-
|
|
|
|
-
|
|
Additional paid-in capital
|
|
|
1,100,315
|
|
|
|
387,841
|
|
Accumulated other comprehensive income (loss), net of deferred income
|
|
|
|
|
|
|
|
|
tax expense (benefit) of ($33,506) at 2018 and ($299) at 2017
|
|
|
(126,254
|
)
|
|
|
(942
|
)
|
Retained earnings
|
|
|
4,070,604
|
|
|
|
5,025,824
|
|
Total stockholder's equity
|
|
|
5,044,665
|
|
|
|
5,412,723
|
|
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY
|
|
$
|
6,185,295
|
|
|
$
|
6,271,209
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
|
|
|
|
|
|
|
|
|
SCHEDULE II – CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT
CONDENSED STATEMENTS OF OPERATIONS
|
|
Years Ended December 31,
|
|
(Dollars in thousands)
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
REVENUES:
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
$
|
38,951
|
|
|
$
|
34,813
|
|
|
$
|
33,748
|
|
Net investment income - Affiliated
|
|
|
4,085
|
|
|
|
4,300
|
|
|
|
4,300
|
|
Net realized capital gains (losses)
|
|
|
(87,267
|
)
|
|
|
81,027
|
|
|
|
(12,635
|
)
|
Realized gain of sale of subsidiary
|
|
|
-
|
|
|
|
-
|
|
|
|
(28,032
|
)
|
Other income (expense)
|
|
|
(368
|
)
|
|
|
(297
|
)
|
|
|
(268
|
)
|
Net income (loss) of subsidiaries
|
|
|
(906,211
|
)
|
|
|
(124,269
|
)
|
|
|
288,851
|
|
Total revenues
|
|
|
(950,810
|
)
|
|
|
(4,426
|
)
|
|
|
285,964
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
30,611
|
|
|
|
31,183
|
|
|
|
35,435
|
|
Corporate expense
|
|
|
6,337
|
|
|
|
5,233
|
|
|
|
6,713
|
|
Total expenses
|
|
|
36,948
|
|
|
|
36,416
|
|
|
|
42,148
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS) BEFORE TAXES
|
|
|
(987,758
|
)
|
|
|
(40,842
|
)
|
|
|
243,816
|
|
Income tax expense (benefit)
|
|
|
(30,091
|
)
|
|
|
(119,040
|
)
|
|
|
(57,828
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS)
|
|
$
|
(957,667
|
)
|
|
$
|
78,198
|
|
|
$
|
301,644
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss), net of tax :
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized appreciation (depreciation) ("URA(D)") on securities arising during the period
|
|
|
(92,966
|
)
|
|
|
(10,536
|
)
|
|
|
4,114
|
|
Less: reclassification adjustment for realized losses (gains) included in net income (loss)
|
|
|
2,021
|
|
|
|
2,303
|
|
|
|
21,273
|
|
Total URA(D) on securities arising during the period
|
|
|
(90,945
|
)
|
|
|
(8,233
|
)
|
|
|
25,387
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
(36,431
|
)
|
|
|
37,427
|
|
|
|
2,849
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit plan actuarial net gain (loss) for the period
|
|
|
(510
|
)
|
|
|
1,027
|
|
|
|
(7,488
|
)
|
Reclassification adjustment for amortization of net (gain) loss included in net income (loss)
|
|
|
5,021
|
|
|
|
5,477
|
|
|
|
5,073
|
|
Total benefit plan net gain (loss) for the period
|
|
|
4,511
|
|
|
|
6,504
|
|
|
|
(2,415
|
)
|
Total other comprehensive income (loss), net of tax
|
|
|
(122,865
|
)
|
|
|
35,698
|
|
|
|
25,821
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMPREHENSIVE INCOME (LOSS)
|
|
$
|
(1,080,532
|
)
|
|
$
|
113,896
|
|
|
$
|
327,465
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
SCHEDULE II – CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT
CONDENSED STATEMENTS OF CASH FLOWS
|
|
Years Ended December 31,
|
|
(Dollars in thousands)
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(957,667
|
)
|
|
$
|
78,198
|
|
|
$
|
301,644
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in (earnings) deficit of subsidiaries
|
|
|
906,211
|
|
|
|
124,269
|
|
|
|
(288,851
|
)
|
Dividends received from subsidiary
|
|
|
90,000
|
|
|
|
-
|
|
|
|
-
|
|
Increase (decrease) in income taxes
|
|
|
5,887
|
|
|
|
(113,773
|
)
|
|
|
(44,260
|
)
|
Change in equity adjustments in limited partnerships
|
|
|
(2,617
|
)
|
|
|
(121
|
)
|
|
|
(220
|
)
|
Change in other assets and liabilities, net
|
|
|
(26,167
|
)
|
|
|
31,044
|
|
|
|
(2,187
|
)
|
Amortization of bond premium (accrual of bond discount)
|
|
|
370
|
|
|
|
450
|
|
|
|
400
|
|
Net realized capital losses (gains)
|
|
|
87,267
|
|
|
|
(81,027
|
)
|
|
|
40,667
|
|
Net cash provided by (used in) operating activities
|
|
|
103,284
|
|
|
|
39,040
|
|
|
|
7,193
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional investment in subsidiaries
|
|
|
(1,383,659
|
)
|
|
|
741
|
|
|
|
(4,815
|
)
|
Proceeds from fixed maturities matured/called - available for sale, at market value
|
|
|
9,385
|
|
|
|
6,612
|
|
|
|
5,244
|
|
Proceeds from fixed maturities sold - available for sale, at market value
|
|
|
96,836
|
|
|
|
7,189
|
|
|
|
-
|
|
Proceeds from equity maturities sold - available for sale, at fair value
|
|
|
182,552
|
|
|
|
37,634
|
|
|
|
23,777
|
|
Proceeds from sale of subsidiary (net of cash disposed)
|
|
|
-
|
|
|
|
-
|
|
|
|
47,721
|
|
Distributions from other invested assets
|
|
|
1,401,606
|
|
|
|
132,064
|
|
|
|
93,959
|
|
Cost of fixed maturities acquired - available for sale, at market value
|
|
|
(13,510
|
)
|
|
|
(24,058
|
)
|
|
|
(39,214
|
)
|
Cost of equity securities acquired - available for sale, at fair value
|
|
|
(39,449
|
)
|
|
|
(54,605
|
)
|
|
|
(32,361
|
)
|
Cost of other invest assets acquired
|
|
|
(1,407,352
|
)
|
|
|
(152,446
|
)
|
|
|
(121,806
|
)
|
Net change in short-term investments
|
|
|
396
|
|
|
|
8,506
|
|
|
|
24,789
|
|
Net change in unsettled securities transaction
|
|
|
(99
|
)
|
|
|
(604
|
)
|
|
|
(497
|
)
|
Proceeds from repayment of long
term note receivable, affiliated
|
|
|
250,000 |
|
|
|
- |
|
|
|
- |
|
Net cash provided by (used in) investing activities
|
|
|
(903,294
|
)
|
|
|
(38,967
|
)
|
|
|
(3,203
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital contribution from parent
|
|
|
500,324
|
|
|
|
-
|
|
|
|
-
|
|
Proceeds from borrowing for long term note payable, affiliated
|
|
|
300,000
|
|
|
|
-
|
|
|
|
-
|
|
Net cash provided by (used in) financing activities
|
|
|
800,324
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash
|
|
|
314
|
|
|
|
73
|
|
|
|
3,990
|
|
Cash, beginning of period
|
|
|
10,295
|
|
|
|
10,222
|
|
|
|
6,232
|
|
Cash, end of period
|
|
$
|
10,609
|
|
|
$
|
10,295
|
|
|
$
|
10,222
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash financing transaction:
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity value of non-cash capital contribution of affiliate from
|
|
|
|
|
|
|
|
|
|
|
|
|
parent, net of cash held by affiliate
|
|
$
|
211,928
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Non-cash contribution from parent
|
|
|
221
|
|
|
|
598
|
|
|
|
12,778
|
|
Non-cash contribution to subsidiaries
|
|
|
(221
|
)
|
|
|
(598
|
)
|
|
|
(12,778
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
SCHEDULE II – CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT
NOTES TO CONDENSED FINANCIAL INFORMATION
1)
|
The accompanying condensed financial information should be read in conjunction with the Consolidated Financial Statements and related
Notes of Everest Reinsurance Holdings, Inc. and its Subsidiaries.
|
2)
|
The Senior Notes and Long-Term Subordinated Notes presented in Notes 6 and 7 are direct obligations of the Registrant.
|
3)
|
Everest Re Group, Ltd., the parent company, entered into a $250,000 thousand long term promissory note agreement with Everest Reinsurance
Holdings, Inc. as of December 31, 2014. The note was scheduled to mature on December 31, 2023 but was repaid in December 2018. As of December 31, 2017, this transaction was presented as a Note Receivable – Affiliated in the Condensed
Balance Sheets of Everest Reinsurance Holdings, Inc.
|
4)
|
Effective December 31, 2018, Everest Reinsurance Holdings, Inc. entered into a $300,000 thousand long-term promissory note agreement with
Everest Reinsurance (Bermuda) Ltd., an affiliated entity. The note will mature on December 31, 2023 and has an interest rate of 3.07% that will be paid annually. This transaction is presented as a Note Payable – Affiliated in the
condensed balance sheet of Everest Reinsurance Holdings, Inc. as of December 31, 2018.
|
5)
|
In December, 2015, Holdings transferred the 9,719,971 Common Shares of Group, which it held as other invested assets, at fair value,
valued at $1,773,214 thousand, to Preferred Holdings, an affiliated entity and subsidiary of Group, in exchange for 1,773.214 preferred shares of Preferred Holdings with a $1,000 thousand par value and 1.75% annual dividend rate. After
the exchange, Holdings no longer holds any shares or has any ownership interest in Group.
|
SCHEDULE III – SUPPLEMENTARY INSURANCE INFORMATION
Column A
|
|
Column B
|
|
|
Column C
|
|
|
Column D
|
|
|
Column E
|
|
|
Column F
|
|
|
Column G
|
|
|
Column H
|
|
|
Column I
|
|
|
Column J
|
|
|
|
|
|
|
Reserve
|
|
|
|
|
|
|
|
|
|
|
|
Incurred
|
|
|
|
|
|
|
|
|
|
|
Geographic Area
|
|
|
|
|
for Losses
|
|
|
|
|
|
|
|
|
|
|
|
Loss and
|
|
|
Amortization
|
|
|
|
|
|
|
|
|
|
Deferred
|
|
|
and Loss
|
|
|
Unearned
|
|
|
|
|
|
Net
|
|
|
Loss
|
|
|
of Deferred
|
|
|
Other
|
|
|
Net
|
|
|
|
Acquisition
|
|
|
Adjustment
|
|
|
Premium
|
|
|
Premiums
|
|
|
Investment
|
|
|
Adjustment
|
|
|
Acquisition
|
|
|
Operating
|
|
|
Written
|
|
(Dollars in thousands)
|
|
Costs
|
|
|
Expenses
|
|
|
Reserves
|
|
|
Earned
|
|
|
Income
|
|
|
Expenses
|
|
|
Costs
|
|
|
Expenses
|
|
|
Premium
|
|
December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
$
|
304,513
|
|
|
$
|
7,908,776
|
|
|
$
|
1,575,931
|
|
|
$
|
3,432,598
|
|
|
$
|
279,415
|
|
|
$
|
3,790,089
|
|
|
$
|
786,186
|
|
|
$
|
255,686
|
|
|
$
|
3,605,274
|
|
International
|
|
|
49,117
|
|
|
|
2,258,242
|
|
|
|
250,937
|
|
|
|
1,406,460
|
|
|
|
34,966
|
|
|
|
1,020,929
|
|
|
|
355,528
|
|
|
|
37,661
|
|
|
|
1,426,588
|
|
Total
|
|
$
|
353,630
|
|
|
$
|
10,167,018
|
|
|
$
|
1,826,868
|
|
|
$
|
4,839,058
|
|
|
$
|
314,381
|
|
|
$
|
4,811,018
|
|
|
$
|
1,141,714
|
|
|
$
|
293,347
|
|
|
$
|
5,031,862
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
$
|
260,706
|
|
|
$
|
7,070,895
|
|
|
$
|
1,352,987
|
|
|
$
|
1,447,273
|
|
|
$
|
253,852
|
|
|
$
|
1,416,998
|
|
|
$
|
108,989
|
|
|
$
|
218,595
|
|
|
$
|
2,108,449
|
|
International
|
|
|
47,035
|
|
|
|
2,272,133
|
|
|
|
254,635
|
|
|
|
502,322
|
|
|
|
32,407
|
|
|
|
622,753
|
|
|
|
101,936
|
|
|
|
36,291
|
|
|
|
615,395
|
|
Total
|
|
$
|
307,741
|
|
|
$
|
9,343,028
|
|
|
$
|
1,607,622
|
|
|
$
|
1,949,595
|
|
|
$
|
286,259
|
|
|
$
|
2,039,751
|
|
|
$
|
210,925
|
|
|
$
|
254,886
|
|
|
$
|
2,723,844
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
$
|
44,301
|
|
|
$
|
6,489,232
|
|
|
$
|
1,054,832
|
|
|
$
|
1,583,134
|
|
|
$
|
231,748
|
|
|
$
|
1,142,675
|
|
|
$
|
169,910
|
|
|
$
|
210,712
|
|
|
$
|
1,550,477
|
|
International
|
|
|
24,320
|
|
|
|
1,842,056
|
|
|
|
257,553
|
|
|
|
510,915
|
|
|
|
33,059
|
|
|
|
207,605
|
|
|
|
111,514
|
|
|
|
34,254
|
|
|
|
497,645
|
|
Total
|
|
$
|
68,621
|
|
|
$
|
8,331,288
|
|
|
$
|
1,312,386
|
|
|
$
|
2,094,049
|
|
|
$
|
264,807
|
|
|
$
|
1,350,280
|
|
|
$
|
281,424
|
|
|
$
|
244,966
|
|
|
$
|
2,048,122
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Some amounts may not reconcile due to rounding.)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SCHEDULE IV – REINSURANCE
Column A
|
|
Column B
|
|
|
Column C
|
|
|
Column D
|
|
|
Column E
|
|
|
Column F
|
|
|
|
|
|
|
Ceded to
|
|
|
Assumed
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Other
|
|
|
from Other
|
|
|
Net
|
|
|
Assumed
|
|
(Dollars in thousands)
|
|
Amount
|
|
|
Companies
|
|
|
Companies
|
|
|
Amount
|
|
|
to Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total property and liability
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
insurance premiums earned
|
|
$
|
1,903,576
|
|
|
$
|
1,512,380
|
|
|
$
|
4,447,862
|
|
|
$
|
4,839,058
|
|
|
|
91.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total property and liability
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
insurance premiums earned
|
|
$
|
1,655,023
|
|
|
$
|
3,548,264
|
|
|
$
|
3,842,836
|
|
|
$
|
1,949,595
|
|
|
|
197.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total property and liability
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
insurance premiums earned
|
|
$
|
1,608,783
|
|
|
$
|
3,007,332
|
|
|
$
|
3,492,598
|
|
|
$
|
2,094,049
|
|
|
|
166.8
|
%
|