UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| | | | | |
X | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended September 30, 2023March 31, 2024
| | | | | |
| 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 | | 22-3263609 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
| | | | | | | | |
100 Everest Way Warren, New Jersey | | 07059 |
(Address of principal executive offices) | | (Zip Code) |
(908) 604-3000
(Registrant’s telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report) 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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
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.
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Large accelerated filer | | | Accelerated filer | |
| | | | |
Non-accelerated filer | X | | Smaller reporting company | |
| | | | |
| | | Emerging growth company | |
If an emerging growth company, indicate by check mark if the registrant 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).
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
| | | | | | | | |
| | Number of Shares Outstanding |
Class | | At NovemberMay 1, 20232024 |
Common Shares, $0.01 par value | | 1,000 |
The Registrant meets the conditions set forth in General Instruction H (1)(a) and (b) of Form 10-Q and is therefore filing this form with the reduced disclosure format permitted by General Instruction H of Form 10-Q.
EVEREST REINSURANCE HOLDINGS, INC.
Table of Contents
Form 10-Q
Safe Harbor Disclosure.
This report contains forward-looking statements within the meaning of the United States Private Securities Litigation Reform Act of 1995 and other 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 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 are discussed in our filings with the U.S. Securities and Exchange Commission (the “SEC”) including those discussed under the caption “Item 1A - Risk Factors” in our most recent Annual Report on Form 10-K (the “Form 10-K filing”). These factors include:
•the effects of catastrophic events on our financial statements;
•our losses from catastrophe exposure could exceed our projections;
•information regarding our reserves for losses and loss adjustment expenses or LAE;
•our failure to accurately assess underwriting risk and establish adequate premium rates;
•decreases in pricing for property and casualty reinsurance and insurance;
•our inability or failure to purchase reinsurance;
•our ability to maintain our financial strength ratings;
•the failure of our insured, intermediaries and reinsurers to satisfy their obligations to us;
•decline in our investment values and investment income due to exposure to financial markets conditions;
•the failure to maintain enough cash to meet near-term financial obligations;
•our ability to pay dividends, interest and principal, which is dependent on our ability to receive dividends, loan payments and other funds from our subsidiaries due to our holding company structure;
•reduced net income and capital levels due to foreign currency exchange losses;
•our sensitivity to unanticipated levels of inflation;
•the effects of measures taken by domestic or foreign governments on our business;
•our ability to retain our key executive officers and to attract or retain the executives and employees necessary to manage our business;
•the effect of cybersecurity risks, including technology breaches or failure, and regulatory and legislative developments related to cybersecurity on our business;
•our dependence on brokers and agents for business developments;
•material variation of analytical models used in decision making from actual results;
•the effects of business continuation risk on our operations;
•the effect on our business of the highly competitive nature of our industry, including the effects of new entrants to, competing products for and consolidation in the (re)insurance industry;
•an anti-takeover effect caused by insurance laws; and
•our failure to comply with insurance laws and regulations and other regulatory challenges.
We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
EVEREST REINSURANCE HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
| | September 30, | | December 31, |
(Dollars in millions, except share amounts and par value per share) | 2023 | | 2022 |
| (unaudited) | | |
| March 31, | | | March 31, | | December 31, |
(In millions of U.S. dollars, par value per share) | | (In millions of U.S. dollars, par value per share) | 2024 | | 2023 |
| (unaudited) | |
ASSETS: | |
ASSETS: | |
ASSETS: | ASSETS: | |
Fixed maturities - available for sale, at fair value | Fixed maturities - available for sale, at fair value | $ | 14,434 | | | $ | 12,671 | |
(amortized cost: 2023, $15,520; 2022, $13,699, credit allowances: 2023, $(58); 2022, $(46)) | |
Fixed maturities - available for sale, at fair value | |
Fixed maturities - available for sale, at fair value | |
(amortized cost: 2024, $16,532; 2023, $16,304, credit allowances: 2024, $(46); 2023, $(48)) | |
Fixed maturities - held to maturity, at amortized cost | Fixed maturities - held to maturity, at amortized cost | |
(fair value: 2023, $759; 2022, $793, net of credit allowances: 2023, $(8); 2022, $(9)) | 782 | | | 811 | |
Fixed maturities - held to maturity, at amortized cost | |
Fixed maturities - held to maturity, at amortized cost | |
(fair value: 2024, $839; 2023, $850, net of credit allowances: 2024, $(9); 2023, $(8)) | |
(fair value: 2024, $839; 2023, $850, net of credit allowances: 2024, $(9); 2023, $(8)) | |
(fair value: 2024, $839; 2023, $850, net of credit allowances: 2024, $(9); 2023, $(8)) | |
Equity securities, at fair value | Equity securities, at fair value | 79 | | | 194 | |
Other invested assets | Other invested assets | 2,916 | | | 2,754 | |
Other invested assets, at fair value | Other invested assets, at fair value | 1,440 | | | 1,472 | |
Short-term investments | Short-term investments | 1,660 | | | 812 | |
Cash | Cash | 531 | | | 481 | |
Total investments and cash | Total investments and cash | 21,841 | | | 19,195 | |
Notes receivable - affiliated | — | | | 840 | |
| Accrued investment income | Accrued investment income | 212 | | | 150 | |
Premiums receivable (net of credit allowances:2023, $(25); 2022, $(21)) | 2,106 | | | 1,721 | |
Reinsurance recoverables - unaffiliated (net of credit allowances: 2023, $(22); 2022, $(21)) | 1,981 | | | 1,841 | |
Accrued investment income | |
Accrued investment income | |
Premiums receivable (net of credit allowances:2024, $(28); 2023, $(28)) | |
Reinsurance recoverables - unaffiliated (net of credit allowances: 2024, $(22); 2023, $(22)) | |
Reinsurance recoverables - affiliated | Reinsurance recoverables - affiliated | 1,650 | | | 1,935 | |
Income tax asset, net | Income tax asset, net | 328 | | | 288 | |
Funds held by reinsureds | Funds held by reinsureds | 302 | | | 303 | |
Deferred acquisition costs | Deferred acquisition costs | 596 | | | 499 | |
Prepaid reinsurance premiums | Prepaid reinsurance premiums | 580 | | | 463 | |
Other assets (net of credit allowances: 2023, $(8); 2022, $(5)) | 838 | | | 722 | |
Other assets (net of credit allowances: 2024, $(10); 2023, $(9)) | |
TOTAL ASSETS | TOTAL ASSETS | $ | 30,434 | | | $ | 27,957 | |
| LIABILITIES: | LIABILITIES: | |
LIABILITIES: | |
LIABILITIES: | |
Reserve for losses and loss adjustment expenses | |
Reserve for losses and loss adjustment expenses | |
Reserve for losses and loss adjustment expenses | Reserve for losses and loss adjustment expenses | $ | 15,669 | | | $ | 14,977 | |
Unearned premium reserve | Unearned premium reserve | 3,761 | | | 3,177 | |
Funds held under reinsurance treaties | Funds held under reinsurance treaties | 57 | | | 43 | |
Amounts due to reinsurers | Amounts due to reinsurers | 651 | | | 436 | |
Losses in course of payment | Losses in course of payment | 233 | | | 77 | |
| Income tax liability, net | |
Senior notes | Senior notes | 2,348 | | | 2,347 | |
Long-term notes | Long-term notes | 218 | | | 218 | |
Borrowings from FHLB | Borrowings from FHLB | 519 | | | 519 | |
Accrued interest on debt and borrowings | Accrued interest on debt and borrowings | 41 | | | 19 | |
Unsettled securities payable | Unsettled securities payable | 111 | | | 1 | |
Other liabilities | Other liabilities | 438 | | | 489 | |
Total liabilities | Total liabilities | 24,047 | | | 22,303 | |
| Commitments and Contingencies (Note 11) | Commitments and Contingencies (Note 11) | |
Commitments and Contingencies (Note 11) | |
Commitments and Contingencies (Note 11) | | | | |
| STOCKHOLDER'S EQUITY: | STOCKHOLDER'S EQUITY: | |
STOCKHOLDER'S EQUITY: | |
STOCKHOLDER'S EQUITY: | |
Common stock, par value: $0.01; 3,000 shares authorized; | Common stock, par value: $0.01; 3,000 shares authorized; | |
1,000 shares issued and outstanding (2023 and 2022) | — | | | — | |
Common stock, par value: $0.01; 3,000 shares authorized; | |
Common stock, par value: $0.01; 3,000 shares authorized; | |
1,000 shares issued and outstanding (2024 and 2023) | |
1,000 shares issued and outstanding (2024 and 2023) | |
1,000 shares issued and outstanding (2024 and 2023) | |
Additional paid-in capital | Additional paid-in capital | 1,102 | | | 1,102 | |
Accumulated other comprehensive income (loss), net of deferred income tax | Accumulated other comprehensive income (loss), net of deferred income tax | |
expense (benefit) of $(236) at 2023 and $(225) at 2022 | (886) | | | (848) | |
expense (benefit) of $(97) at 2024 and $(76) at 2023 | |
expense (benefit) of $(97) at 2024 and $(76) at 2023 | |
expense (benefit) of $(97) at 2024 and $(76) at 2023 | |
Retained earnings | Retained earnings | 6,171 | | | 5,400 | |
Total stockholder's equity | Total stockholder's equity | 6,388 | | | 5,654 | |
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY | TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY | $ | 30,434 | | | $ | 27,957 | |
The accompanying notes are an integral part of the consolidated financial statements.
EVEREST REINSURANCE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
| | Three Months Ended March 31, | |
| Three Months Ended March 31, | |
| Three Months Ended March 31, | |
(In millions of U.S. dollars) | |
(In millions of U.S. dollars) | |
(In millions of U.S. dollars) | |
| (unaudited) | |
| (unaudited) | |
| (unaudited) | |
REVENUES: | |
REVENUES: | |
REVENUES: | |
Premiums earned | |
Premiums earned | |
Premiums earned | |
Net investment income | |
Net investment income | |
Net investment income | |
Total net gains (losses) on investments | |
Total net gains (losses) on investments | |
Total net gains (losses) on investments | |
Other income (expense) | |
Other income (expense) | |
Other income (expense) | |
Total revenues | |
Total revenues | |
Total revenues | |
| | | Three Months Ended September 30, | | Nine Months Ended September 30, |
(Dollars in millions) | 2023 | | 2022 | | 2023 | | 2022 |
| (unaudited) | | (unaudited) |
REVENUES: | |
Premiums earned | $ | 2,139 | | | $ | 2,104 | | | $ | 6,339 | | | $ | 5,887 | |
Net investment income | 278 | | | 124 | | | 711 | | | 457 | |
Total net gains (losses) on investments | (59) | | | (237) | | | (59) | | | (842) | |
Other income (expense) | 2 | | | 7 | | | (12) | | | (2) | |
Total revenues | 2,361 | | | 1,998 | | | 6,979 | | | 5,500 | |
| | | | | | | | |
CLAIMS AND EXPENSES: | CLAIMS AND EXPENSES: | | | | | |
CLAIMS AND EXPENSES: | |
CLAIMS AND EXPENSES: | |
Incurred losses and loss adjustment expenses | |
Incurred losses and loss adjustment expenses | |
Incurred losses and loss adjustment expenses | Incurred losses and loss adjustment expenses | 1,471 | | | 2,094 | | | 4,190 | | | 4,624 | |
Commission, brokerage, taxes and fees | Commission, brokerage, taxes and fees | 454 | | | 423 | | | 1,323 | | | 1,216 | |
Commission, brokerage, taxes and fees | |
Commission, brokerage, taxes and fees | |
Other underwriting expenses | |
Other underwriting expenses | |
Other underwriting expenses | Other underwriting expenses | 149 | | | 127 | | | 424 | | | 365 | |
Corporate expenses | Corporate expenses | 8 | | | 5 | | | 18 | | | 17 | |
Corporate expenses | |
Corporate expenses | |
Interest, fees and bond issue cost amortization expense | |
Interest, fees and bond issue cost amortization expense | |
Interest, fees and bond issue cost amortization expense | Interest, fees and bond issue cost amortization expense | 34 | | | 26 | | | 99 | | | 74 | |
Total claims and expenses | Total claims and expenses | 2,115 | | | 2,675 | | | 6,053 | | | 6,296 | |
Total claims and expenses | |
Total claims and expenses | |
| |
| |
| | | | | | | | |
INCOME (LOSS) BEFORE TAXES | INCOME (LOSS) BEFORE TAXES | 246 | | | (677) | | | 926 | | | (796) | |
INCOME (LOSS) BEFORE TAXES | |
INCOME (LOSS) BEFORE TAXES | |
Income tax expense (benefit) | |
Income tax expense (benefit) | |
Income tax expense (benefit) | Income tax expense (benefit) | 25 | | | (135) | | | 154 | | | (170) | |
| | | | | | | | |
| |
| |
NET INCOME (LOSS) | |
NET INCOME (LOSS) | |
NET INCOME (LOSS) | NET INCOME (LOSS) | $ | 222 | | | $ | (542) | | | $ | 771 | | | $ | (626) | |
| | | | | | |
| |
| |
Other comprehensive income (loss), net of tax: | |
Other comprehensive income (loss), net of tax: | |
Other comprehensive income (loss), net of tax: | Other comprehensive income (loss), net of tax: | | | | | |
Unrealized appreciation (depreciation) ("URA(D)") on securities arising during the period | Unrealized appreciation (depreciation) ("URA(D)") on securities arising during the period | (124) | | | (282) | | | (56) | | | (1,087) | |
Unrealized appreciation (depreciation) ("URA(D)") on securities arising during the period | |
Unrealized appreciation (depreciation) ("URA(D)") on securities arising during the period | |
Less: reclassification adjustment for realized losses (gains) included in net income (loss) | |
Less: reclassification adjustment for realized losses (gains) included in net income (loss) | |
Less: reclassification adjustment for realized losses (gains) included in net income (loss) | Less: reclassification adjustment for realized losses (gains) included in net income (loss) | 11 | | | 40 | | | 26 | | | 48 | |
Total URA(D) on securities arising during the period | Total URA(D) on securities arising during the period | (113) | | | (242) | | | (31) | | | (1,039) | |
Total URA(D) on securities arising during the period | |
Total URA(D) on securities arising during the period | |
| |
| |
| | | | | | |
Foreign currency translation adjustments | Foreign currency translation adjustments | (11) | | | (29) | | | (9) | | | (41) | |
Foreign currency translation adjustments | |
Foreign currency translation adjustments | |
| |
| |
| | | | | | |
Reclassification adjustment for amortization of net (gain) loss included in net income (loss) | Reclassification adjustment for amortization of net (gain) loss included in net income (loss) | — | | | — | | | 1 | | | 2 | |
Reclassification adjustment for amortization of net (gain) loss included in net income (loss) | |
Reclassification adjustment for amortization of net (gain) loss included in net income (loss) | |
Total benefit plan net gain (loss) for the period | |
Total benefit plan net gain (loss) for the period | |
Total benefit plan net gain (loss) for the period | Total benefit plan net gain (loss) for the period | — | | | — | | | 1 | | | 2 | |
Total other comprehensive income (loss), net of tax | Total other comprehensive income (loss), net of tax | (124) | | | (271) | | | (38) | | | (1,078) | |
Total other comprehensive income (loss), net of tax | |
Total other comprehensive income (loss), net of tax | |
| |
| |
| | | | | | | | |
COMPREHENSIVE INCOME (LOSS) | COMPREHENSIVE INCOME (LOSS) | $ | 97 | | | $ | (813) | | | $ | 733 | | | $ | (1,704) | |
COMPREHENSIVE INCOME (LOSS) | |
COMPREHENSIVE INCOME (LOSS) | |
The accompanying notes are an integral part of the consolidated financial statements.
EVEREST REINSURANCE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF
CHANGES IN STOCKHOLDER’S EQUITY
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
(Dollars in millions, except share amounts) | 2023 | | 2022 | | 2023 | | 2022 |
| (unaudited) | | (unaudited) |
| Three Months Ended March 31, | |
| Three Months Ended March 31, | |
| Three Months Ended March 31, | |
(In millions of U.S. dollars, except share amounts) | |
(In millions of U.S. dollars, except share amounts) | |
(In millions of U.S. dollars, except share amounts) | |
| (unaudited) | |
| (unaudited) | |
| (unaudited) | |
COMMON STOCK (shares outstanding): | |
COMMON STOCK (shares outstanding): | |
COMMON STOCK (shares outstanding): | COMMON STOCK (shares outstanding): | |
Balance, beginning of period | Balance, beginning of period | 1,000 | | 1,000 | | 1,000 | | 1,000 |
Balance, beginning of period | |
Balance, beginning of period | |
Balance, end of period | |
Balance, end of period | |
Balance, end of period | Balance, end of period | 1,000 | | 1,000 | | 1,000 | | 1,000 |
| ADDITIONAL PAID-IN CAPITAL: | ADDITIONAL PAID-IN CAPITAL: | |
| ADDITIONAL PAID-IN CAPITAL: | |
| ADDITIONAL PAID-IN CAPITAL: | |
Balance, beginning of period | |
Balance, beginning of period | |
Balance, beginning of period | Balance, beginning of period | $ | 1,102 | | | $ | 1,102 | | | $ | 1,102 | | | $ | 1,102 | |
| Balance, end of period | Balance, end of period | 1,102 | | | 1,102 | | | 1,102 | | | 1,102 | |
| Balance, end of period | |
| Balance, end of period | |
| ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS), NET OF DEFERRED INCOME TAXES: | |
| ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS), NET OF DEFERRED INCOME TAXES: | |
| ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS), NET OF DEFERRED INCOME TAXES: | ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS), NET OF DEFERRED INCOME TAXES: | |
Balance, beginning of period | Balance, beginning of period | (762) | | | (716) | | | (848) | | | 91 | |
Balance, beginning of period | |
Balance, beginning of period | |
Net increase (decrease) during the period | Net increase (decrease) during the period | (124) | | | (271) | | | (38) | | | (1,078) | |
Net increase (decrease) during the period | |
Net increase (decrease) during the period | |
Balance, end of period | |
Balance, end of period | |
Balance, end of period | Balance, end of period | (886) | | | (987) | | | (886) | | | (987) | |
| RETAINED EARNINGS: | RETAINED EARNINGS: | |
| RETAINED EARNINGS: | |
| RETAINED EARNINGS: | |
Balance, beginning of period | |
Balance, beginning of period | |
Balance, beginning of period | Balance, beginning of period | 5,950 | | | 5,760 | | | 5,400 | | | 5,845 | |
Net income (loss) | Net income (loss) | 222 | | | (542) | | | 771 | | | (626) | |
Net income (loss) | |
Net income (loss) | |
Balance, end of period | |
Balance, end of period | |
Balance, end of period | Balance, end of period | 6,171 | | | 5,219 | | | 6,171 | | | 5,219 | |
| | | | | | | | |
| |
| |
TOTAL STOCKHOLDER'S EQUITY, END OF PERIOD | TOTAL STOCKHOLDER'S EQUITY, END OF PERIOD | $ | 6,388 | | | $ | 5,334 | | | $ | 6,388 | | | $ | 5,334 | |
TOTAL STOCKHOLDER'S EQUITY, END OF PERIOD | |
TOTAL STOCKHOLDER'S EQUITY, END OF PERIOD | |
The accompanying notes are an integral part of the consolidated financial statements.
EVEREST REINSURANCE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
| | Nine Months Ended September 30, |
(Dollars in millions) | 2023 | | 2022 |
| (unaudited) |
| Three Months Ended March 31, | | | Three Months Ended March 31, |
(In millions of U.S. dollars) | | (In millions of U.S. dollars) | 2024 | | 2023 |
| (unaudited) | | | (unaudited) |
CASH FLOWS FROM OPERATING ACTIVITIES: | CASH FLOWS FROM OPERATING ACTIVITIES: | |
Net income (loss) | Net income (loss) | $ | 771 | | | $ | (626) | |
Net income (loss) | |
Net income (loss) | |
Adjustments to reconcile net income to net cash provided by operating activities: | Adjustments to reconcile net income to net cash provided by operating activities: | |
Decrease (increase) in premiums receivable | |
Decrease (increase) in premiums receivable | |
Decrease (increase) in premiums receivable | Decrease (increase) in premiums receivable | (389) | | | (50) | |
Decrease (increase) in funds held by reinsureds, net | Decrease (increase) in funds held by reinsureds, net | 15 | | | 7 | |
Decrease (increase) in reinsurance recoverables | Decrease (increase) in reinsurance recoverables | 143 | | | 40 | |
Decrease (increase) in income taxes | Decrease (increase) in income taxes | (24) | | | (341) | |
Decrease (increase) in prepaid reinsurance premiums | Decrease (increase) in prepaid reinsurance premiums | (117) | | | (30) | |
Increase (decrease) in reserve for losses and loss adjustment expenses | Increase (decrease) in reserve for losses and loss adjustment expenses | 701 | | | 1,791 | |
Increase (decrease) in unearned premiums | Increase (decrease) in unearned premiums | 587 | | | 159 | |
Increase (decrease) in amounts due to reinsurers | Increase (decrease) in amounts due to reinsurers | 215 | | | 45 | |
Increase (decrease) in losses in course of payment | Increase (decrease) in losses in course of payment | 157 | | | (131) | |
Change in equity adjustments in limited partnerships | Change in equity adjustments in limited partnerships | (61) | | | (94) | |
Distribution of limited partnership income | Distribution of limited partnership income | 38 | | | 72 | |
Change in other assets and liabilities, net | Change in other assets and liabilities, net | (300) | | | (62) | |
Non-cash compensation expense | Non-cash compensation expense | 29 | | | 28 | |
Amortization of bond premium (accrual of bond discount) | Amortization of bond premium (accrual of bond discount) | (24) | | | 21 | |
Net (gains) losses on investments | Net (gains) losses on investments | 59 | | | 842 | |
Net cash provided by (used in) operating activities | Net cash provided by (used in) operating activities | 1,799 | | | 1,671 | |
| CASH FLOWS FROM INVESTING ACTIVITIES: | CASH FLOWS FROM INVESTING ACTIVITIES: | |
CASH FLOWS FROM INVESTING ACTIVITIES: | |
CASH FLOWS FROM INVESTING ACTIVITIES: | |
Proceeds from fixed maturities matured/called/repaid - available for sale | |
Proceeds from fixed maturities matured/called/repaid - available for sale | |
Proceeds from fixed maturities matured/called/repaid - available for sale | Proceeds from fixed maturities matured/called/repaid - available for sale | 818 | | | 1,124 | |
Proceeds from fixed maturities sold - available for sale | Proceeds from fixed maturities sold - available for sale | 318 | | | 812 | |
Proceeds from fixed maturities matured/called/repaid - held to maturity | Proceeds from fixed maturities matured/called/repaid - held to maturity | 59 | | | 18 | |
Proceeds from equity securities sold | Proceeds from equity securities sold | 126 | | | 1,016 | |
Distributions from other invested assets | Distributions from other invested assets | 90 | | | 126 | |
Cost of fixed maturities acquired - available for sale | Cost of fixed maturities acquired - available for sale | (2,996) | | | (3,358) | |
Cost of fixed maturities acquired - held to maturity | Cost of fixed maturities acquired - held to maturity | (23) | | | (105) | |
Cost of equity securities acquired | (1) | | | (949) | |
| Cost of other invested assets acquired | |
Cost of other invested assets acquired | |
Cost of other invested assets acquired | Cost of other invested assets acquired | (234) | | | (224) | |
Net change in short-term investments | Net change in short-term investments | (821) | | | 243 | |
Net change in unsettled securities transactions | Net change in unsettled securities transactions | 112 | | | 79 | |
Proceeds from repayment (cost of issuance) of notes receivable - affiliated | 840 | | | (215) | |
| Net cash provided by (used in) investing activities | |
Net cash provided by (used in) investing activities | |
Net cash provided by (used in) investing activities | Net cash provided by (used in) investing activities | (1,711) | | | (1,433) | |
| CASH FLOWS FROM FINANCING ACTIVITIES: | CASH FLOWS FROM FINANCING ACTIVITIES: | |
CASH FLOWS FROM FINANCING ACTIVITIES: | |
CASH FLOWS FROM FINANCING ACTIVITIES: | |
Tax benefit from share-based compensation, net of expense | Tax benefit from share-based compensation, net of expense | (29) | | | (28) | |
Cost of debt repurchase | — | | | (6) | |
Tax benefit from share-based compensation, net of expense | |
Tax benefit from share-based compensation, net of expense | |
| Net cash provided by (used in) financing activities | |
Net cash provided by (used in) financing activities | |
Net cash provided by (used in) financing activities | Net cash provided by (used in) financing activities | (29) | | | (34) | |
| EFFECT OF EXCHANGE RATE CHANGES ON CASH | EFFECT OF EXCHANGE RATE CHANGES ON CASH | (9) | | | (25) | |
EFFECT OF EXCHANGE RATE CHANGES ON CASH | |
EFFECT OF EXCHANGE RATE CHANGES ON CASH | |
| Net increase (decrease) in cash | |
Net increase (decrease) in cash | |
Net increase (decrease) in cash | Net increase (decrease) in cash | 50 | | | 179 | |
Cash, beginning of period | Cash, beginning of period | 481 | | | 699 | |
Cash, end of period | Cash, end of period | $ | 531 | | | $ | 878 | |
| SUPPLEMENTAL CASH FLOW INFORMATION: | SUPPLEMENTAL CASH FLOW INFORMATION: | |
SUPPLEMENTAL CASH FLOW INFORMATION: | |
SUPPLEMENTAL CASH FLOW INFORMATION: | |
Income taxes paid (recovered) | |
Income taxes paid (recovered) | |
Income taxes paid (recovered) | Income taxes paid (recovered) | $ | 181 | | | $ | 170 | |
Interest paid | Interest paid | 75 | | | 51 | |
| NON-CASH TRANSACTIONS | |
Reclassification of specific investments from fixed maturity securities, available for sale at fair value | $ | — | | | $ | 722 | |
to fixed maturity securities, held to maturity at amortized cost net of credit allowances | |
|
The accompanying notes are an integral part of the consolidated financial statements.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)
For the Three and Nine Months Ended September 30,March 31, 2024 and 2023 and 2022
1. GENERAL
Everest Reinsurance Holdings, Inc. (“Holdings”), a Delaware company and direct subsidiary of Everest Underwriting Group (Ireland) Limited, which is a direct subsidiary of Everest 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. “Bermuda Re” means Everest Reinsurance (Bermuda), Ltd., a subsidiary of Group; “Everest Re” means Everest Reinsurance Company, a subsidiary of Holdings, and its subsidiaries (unless the context otherwise requires).
Unless noted otherwise, all tabular dollar amounts are in millions of United States (“U.S.”) dollars (“U.S. dollars” or “$”). Some amounts may not reconcile due to rounding.
2. BASIS OF PRESENTATION
The unaudited consolidated financial statements of the Company as of September 30, 2023March 31, 2024 and December 31, 20222023 and for the three and nine months ended September 30,March 31, 2024 and 2023 and 2022 include all adjustments, consisting of normal recurring accruals, which, in the opinion of management, are necessary for a fair statement of the results on an interim basis. Certain financial information, which is normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”), has been omitted since it is not required for interim reporting purposes. The December 31, 20222023 consolidated balance sheet data was derived from audited financial statements but does not include all disclosures required by GAAP. The results for the three and nine months ended September 30,March 31, 2024 and 2023 and 2022 are not necessarily indicative of the results for a full year. These financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the years ended December 31, 2023, 2022 2021 and 2020,2021, included in the Company’s most recent Form 10-K filing.
The Company consolidates the results of operations and financial position of all voting interest entities ("VOE") in which the Company has a controlling financial interest and all variable interest entities ("VIE") in which the Company is considered to be the primary beneficiary. The consolidation assessment, including the determination as to whether an entity qualifies as a VIE or VOE, depends on the facts and circumstances surrounding each entity.
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.
ApplicationAdoption of Recently IssuedNew Accounting Standard Changes.Standards
The Company did not adopt any new accounting standards that had a material impact during the three and nine months ended September 30, 2023. March 31, 2024.
Future Adoption of Recently Issued Accounting Standard Changes.
The Company assessed the adoption impacts of recently issued accounting standards that are effective after 2024 by the Financial Accounting Standards Board (“FASB”) on the Company’s consolidated financial statements as well asstatements. Additionally, the Company assessed whether there have been material updates to previous assessments, if any, from the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.previously issued accounting standards that are effective after 2024. There were no accounting standards issued in the nine months ended September 30, 2023,identified, other than those directly referenced below, that are expected to have a material impact on Holdings.
Improvements to Income Tax Disclosures. InDecember 2023, the Financial Accounting Standards Board issued Accounting Standard Update No. 2023-09, which requires expanded income tax disclosures, including the disaggregation of existing disclosures related to the tax rate reconciliation and income taxes paid. The guidance is effective for annual periods beginning after December 15, 2024. Prospective application is required, with retrospective application permitted. The Company is currently evaluating the effect the updated guidance will have on the Company's financial statement disclosures.
Application of Methods and Assumption Changes.
During 2023, theThe Company refined its premium estimation methodology for its risk attaching reinsurance contracts within its Reinsurance Segment to continue to recognize gross written premium over the term of the treaty, albeit over a different pattern than what was previously used. The refined estimate resulted in an increase of gross written premium duringfor the three and nine months ended September 30, 2023 periodsMarch 31, 2024, and has further aligned the estimation methodology across the reinsurance division globally. This change had no impact on the total written premium to be recognized over the term of the treaty. There was no impact on net earned premium and therefore, no impact on income from continuing operations, net income, or any related per-share amounts.
3. INVESTMENTS
The following tables below presentshow the amortized cost, allowance for credit losses, gross unrealized appreciation/(depreciation) (“URA(D)”) and fair value of fixed maturity securities - available for sale for the periods indicated:
| | At September 30, 2023 |
| At March 31, 2024 | | | At March 31, 2024 |
(Dollars in millions) | (Dollars in millions) | Amortized Cost | | Allowances for Credit Losses | | Unrealized Appreciation | | Unrealized Depreciation | | Fair Value | (Dollars in millions) | Amortized Cost | | Allowances for Credit Losses | | Unrealized Appreciation | | Unrealized Depreciation | | Fair Value |
Fixed maturity securities – available for sale | | | | | | | | | |
Fixed maturity securities - available for sale | |
U.S. Treasury securities and obligations of | U.S. Treasury securities and obligations of | |
U.S. Treasury securities and obligations of | |
U.S. Treasury securities and obligations of | |
U.S. government agencies and corporations | |
U.S. government agencies and corporations | |
U.S. government agencies and corporations | U.S. government agencies and corporations | $ | 450 | | | $ | — | | | $ | — | | | $ | (38) | | | $ | 412 | |
Obligations of U.S. states and political subdivisions | Obligations of U.S. states and political subdivisions | 406 | | | (1) | | | — | | | (42) | | | 363 | |
Corporate securities | Corporate securities | 4,577 | | | (57) | | | 11 | | | (371) | | | 4,160 | |
Asset-backed securities | Asset-backed securities | 5,029 | | | — | | | 14 | | | (63) | | | 4,980 | |
Mortgage-backed securities | Mortgage-backed securities | |
Commercial | Commercial | 626 | | | — | | | — | | | (70) | | | 556 | |
Commercial | |
Commercial | |
Agency residential | Agency residential | 1,777 | | | — | | | — | | | (240) | | | 1,537 | |
Non-agency residential | Non-agency residential | 216 | | | — | | | — | | | (9) | | | 207 | |
Foreign government securities | Foreign government securities | 749 | | | — | | | 1 | | | (66) | | | 683 | |
Foreign corporate securities | Foreign corporate securities | 1,690 | | | (1) | | | 2 | | | (157) | | | 1,534 | |
Total fixed maturity securities - available for sale | Total fixed maturity securities - available for sale | $ | 15,520 | | | $ | (58) | | | $ | 29 | | | $ | (1,057) | | | $ | 14,434 | |
(Some amounts may not reconcile due to rounding.)
| | At December 31, 2022 |
| At December 31, 2023 | | | At December 31, 2023 |
(Dollars in millions) | (Dollars in millions) | Amortized Cost | | Allowances for Credit Losses | | Unrealized Appreciation | | Unrealized Depreciation | | Fair Value | (Dollars in millions) | Amortized Cost | | Allowances for Credit Losses | | Unrealized Appreciation | | Unrealized Depreciation | | Fair Value |
Fixed maturity securities – available for sale | | | | | | | | | |
Fixed maturity securities - available for sale | |
U.S. Treasury securities and obligations of | U.S. Treasury securities and obligations of | |
U.S. Treasury securities and obligations of | |
U.S. Treasury securities and obligations of | |
U.S. government agencies and corporations | |
U.S. government agencies and corporations | |
U.S. government agencies and corporations | U.S. government agencies and corporations | $ | 575 | | | $ | — | | | $ | — | | | $ | (40) | | | $ | 535 | |
Obligations of U.S. states and political subdivisions | Obligations of U.S. states and political subdivisions | 444 | | | — | | | 2 | | | (32) | | | 413 | |
Corporate securities | Corporate securities | 3,913 | | | (45) | | | 14 | | | (322) | | | 3,561 | |
Asset-backed securities | Asset-backed securities | 4,111 | | | — | | | 5 | | | (165) | | | 3,951 | |
Mortgage-backed securities | Mortgage-backed securities | |
Commercial | Commercial | 569 | | | — | | | — | | | (59) | | | 509 | |
Commercial | |
Commercial | |
Agency residential | Agency residential | 1,792 | | | — | | | 3 | | | (167) | | | 1,628 | |
Non-agency residential | Non-agency residential | 3 | | | — | | | — | | | — | | | 3 | |
Foreign government securities | Foreign government securities | 696 | | | — | | | 2 | | | (61) | | | 637 | |
Foreign corporate securities | Foreign corporate securities | 1,597 | | | (1) | | | 4 | | | (167) | | | 1,433 | |
Total fixed maturity securities - available for sale | Total fixed maturity securities - available for sale | $ | 13,699 | | | $ | (46) | | | $ | 30 | | | $ | (1,013) | | | $ | 12,671 | |
(Some amounts may not reconcile due to rounding.)
The following tables show amortized cost, allowance for credit losses, gross URA(D) and fair value of fixed maturity securities - held to maturity for the periods indicated:
| | At September 30, 2023 |
| At March 31, 2024 | | | At March 31, 2024 |
(Dollars in millions) | (Dollars in millions) | Amortized Cost | | Allowances for Credit Loss | | Unrealized Appreciation | | Unrealized Depreciation | | Fair Value | (Dollars in millions) | Amortized Cost | | Allowances for Credit Loss | | Unrealized Appreciation | | Unrealized Depreciation | | Fair Value |
Fixed maturity securities – held to maturity | | | | | | | | | |
Fixed maturity securities - held to maturity | |
Corporate securities | |
Corporate securities | |
Corporate securities | Corporate securities | $ | 156 | | | $ | (2) | | | $ | 1 | | | $ | (9) | | | $ | 146 | |
Asset-backed securities | Asset-backed securities | 595 | | | (5) | | | 3 | | | (18) | | | 574 | |
Mortgage-backed securities | Mortgage-backed securities | |
Commercial | Commercial | 15 | | | — | | | — | | | — | | | 15 | |
Commercial | |
Commercial | |
Foreign corporate securities | Foreign corporate securities | 24 | | | (1) | | | 1 | | | — | | | 24 | |
Total fixed maturity securities - held to maturity | Total fixed maturity securities - held to maturity | $ | 791 | | | $ | (8) | | | $ | 4 | | | $ | (27) | | | $ | 759 | |
(Some amounts may not reconcile due to rounding.)
| | At December 31, 2022 |
| At December 31, 2023 | | | At December 31, 2023 |
(Dollars in millions) | (Dollars in millions) | Amortized Cost | | Allowances for Credit Loss | | Unrealized Appreciation | | Unrealized Depreciation | | Fair Value | (Dollars in millions) | Amortized Cost | | Allowances for Credit Loss | | Unrealized Appreciation | | Unrealized Depreciation | | Fair Value |
Fixed maturity securities – held to maturity | | | | | | | | | |
Fixed maturity securities - held to maturity | |
Corporate securities | |
Corporate securities | |
Corporate securities | Corporate securities | $ | 152 | | | $ | (2) | | | $ | — | | | $ | (6) | | | $ | 144 | |
Asset-backed securities | Asset-backed securities | 634 | | | (6) | | | 2 | | | (15) | | | 614 | |
Mortgage-backed securities | Mortgage-backed securities | |
Commercial | Commercial | 7 | | | — | | | — | | | — | | | 7 | |
Commercial | |
Commercial | |
Foreign corporate securities | Foreign corporate securities | 28 | | | (1) | | | 2 | | | — | | | 28 | |
Total fixed maturity securities - held to maturity | Total fixed maturity securities - held to maturity | $ | 820 | | | $ | (9) | | | $ | 3 | | | $ | (22) | | | $ | 793 | |
(Some amounts may not reconcile due to rounding.)
The amortized cost and fair value of fixed maturity securities - available for sale are shown in the following table by contractual maturity. 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 September 30, 2023 | | At December 31, 2022 |
| At March 31, 2024 | | | At March 31, 2024 | | At December 31, 2023 |
(Dollars in millions) | (Dollars in millions) | Amortized Cost | | Fair Value | | Amortized Cost | | Fair Value | (Dollars in millions) | Amortized Cost | | Fair Value | | Amortized Cost | | Fair Value |
Fixed maturity securities – available for sale | | | | | | | |
Fixed maturity securities - available for sale | |
Due in one year or less | |
Due in one year or less | |
Due in one year or less | Due in one year or less | $ | 803 | | | $ | 774 | | | $ | 581 | | | $ | 563 | |
Due after one year through five years | Due after one year through five years | 3,632 | | | 3,368 | | | 3,684 | | | 3,429 | |
Due after five years through ten years | Due after five years through ten years | 2,046 | | | 1,802 | | | 2,003 | | | 1,760 | |
Due after ten years | Due after ten years | 1,391 | | | 1,210 | | | 958 | | | 827 | |
Asset-backed securities | Asset-backed securities | 5,029 | | | 4,980 | | | 4,111 | | | 3,951 | |
Mortgage-backed securities | Mortgage-backed securities | |
Commercial | Commercial | 626 | | | 556 | | | 569 | | | 509 | |
Commercial | |
Commercial | |
Agency residential | Agency residential | 1,777 | | | 1,537 | | | 1,792 | | | 1,628 | |
Non-agency residential | Non-agency residential | 216 | | | 207 | | | 3 | | | 3 | |
Total fixed maturity securities - available for sale | Total fixed maturity securities - available for sale | $ | 15,520 | | | $ | 14,434 | | | $ | 13,699 | | | $ | 12,671 | |
(Some amounts may not reconcile due to rounding.)
The amortized cost and fair value of fixed maturity securities - held to maturity are shown in the following table by contractual maturity. 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 September 30, 2023 | | At December 31, 2022 |
| At March 31, 2024 | | | At March 31, 2024 | | At December 31, 2023 |
(Dollars in millions) | (Dollars in millions) | Amortized Cost | | Fair Value | | Amortized Cost | | Fair Value | (Dollars in millions) | Amortized Cost | | Fair Value | | Amortized Cost | | Fair Value |
Fixed maturity securities – held to maturity | | | | | | | |
Fixed maturity securities - held to maturity | |
Due in one year or less | |
Due in one year or less | |
Due in one year or less | Due in one year or less | $ | 5 | | | $ | 5 | | | $ | 5 | | | $ | 5 | |
Due after one year through five years | Due after one year through five years | 64 | | | 62 | | | 63 | | | 61 | |
Due after five years through ten years | Due after five years through ten years | 44 | | | 41 | | | 43 | | | 41 | |
Due after ten years | Due after ten years | 68 | | | 62 | | | 68 | | | 65 | |
Asset-backed securities | Asset-backed securities | 595 | | | 574 | | | 634 | | | 614 | |
Mortgage-backed securities | Mortgage-backed securities | |
Commercial | Commercial | 15 | | | 15 | | | 7 | | | 7 | |
Commercial | |
Commercial | |
Total fixed maturity securities - held to maturity | Total fixed maturity securities - held to maturity | $ | 791 | | | $ | 759 | | | $ | 820 | | | $ | 793 | |
(Some amounts may not reconcile due to rounding.)
During the third quarter of 2022, the Company re-designated a portion of its fixed maturity securities from its fixed maturity – available for sale portfolio to its fixed maturity – held to maturity portfolio. The fair value of the securities reclassified at the date of transfer was $722 million, net of allowance for current expected credit losses, which was subsequently recognized as the new amortized cost basis. As of September 30, 2023, these securities had an unrealized loss of $44 million, which remained in accumulated other comprehensive income (“AOCI”) on the balance sheet and will be amortized into income through an adjustment to the yields of the underlying securities over the remaining life of the
securities. The fair values of these securities incorporate the use of significant unobservable inputs and therefore are classified as Level 3 within the fair value hierarchy.
The Company evaluated fixed maturity securities classified as held to maturity for current expected credit losses as of September 30, 2023 utilizing risk characteristics of each security, including credit rating, remaining time to maturity, adjusted for prepayment considerations, and subordination level, and applying default and recovery rates, which include the incorporation of historical credit loss experience and macroeconomic forecasts, to develop an estimate of current expected credit losses. These fixed maturities classified as held to maturity are of a high credit quality and are all rated investment grade as of September 30, 2023.
The changes in net URA(D) for the Company’s investments are as follows:
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| Three Months Ended March 31, | |
| Three Months Ended March 31, | |
| Three Months Ended March 31, | |
(Dollars in millions) | |
(Dollars in millions) | |
(Dollars in millions) | (Dollars in millions) | 2023 | | 2022 | | 2023 | | 2022 |
Increase (decrease) during the period between the fair value and cost of | Increase (decrease) during the period between the fair value and cost of | | | | | | | |
Increase (decrease) during the period between the fair value and cost of | |
Increase (decrease) during the period between the fair value and cost of | |
investments carried at fair value, and deferred taxes thereon: | |
investments carried at fair value, and deferred taxes thereon: | |
investments carried at fair value, and deferred taxes thereon: | investments carried at fair value, and deferred taxes thereon: | |
Fixed maturity securities - available for sale and short-term investments | Fixed maturity securities - available for sale and short-term investments | $ | (144) | | | $ | (307) | | | $ | (39) | | | $ | (1,315) | |
Fixed maturity securities - available for sale and short-term investments | |
Fixed maturity securities - available for sale and short-term investments | |
Change in URA(D), pre-tax | |
Change in URA(D), pre-tax | |
Change in URA(D), pre-tax | Change in URA(D), pre-tax | (144) | | | (307) | | | (39) | | | (1,315) | |
Deferred tax benefit (expense) | Deferred tax benefit (expense) | 30 | | | 65 | | | 8 | | | 276 | |
Deferred tax benefit (expense) | |
Deferred tax benefit (expense) | |
Change in URA(D), net of deferred taxes, included in stockholder's equity | Change in URA(D), net of deferred taxes, included in stockholder's equity | $ | (113) | | | $ | (242) | | | $ | (31) | | | $ | (1,039) | |
Change in URA(D), net of deferred taxes, included in stockholder's equity | |
Change in URA(D), net of deferred taxes, included in stockholder's equity | |
(Some amounts may not reconcile due to rounding.)
The tables below display the aggregate fair value and gross unrealized depreciation of fixed maturity securities - available for sale 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 September 30, 2023 By Security Type |
| Less than 12 months | | Greater than 12 months | | Total |
| Duration of Unrealized Loss at March 31, 2024 By Security Type | | | Duration of Unrealized Loss at March 31, 2024 By Security Type |
| Less than 12 months | | | Less than 12 months | | Greater than 12 months | | Total |
(Dollars in millions) | (Dollars in millions) | Fair Value | | Gross Unrealized Depreciation | | Fair Value | | Gross Unrealized Depreciation | | Fair Value | | Gross Unrealized Depreciation | (Dollars in millions) | Fair Value | | Gross Unrealized Depreciation | | Fair Value | | Gross Unrealized Depreciation | | Fair Value | | Gross Unrealized Depreciation |
Fixed maturity securities - available for sale | Fixed maturity securities - available for sale | | | | | | | | | | | |
U.S. Treasury securities and obligations of | U.S. Treasury securities and obligations of | |
U.S. Treasury securities and obligations of | |
U.S. Treasury securities and obligations of | |
U.S. government agencies and corporations | |
U.S. government agencies and corporations | |
U.S. government agencies and corporations | U.S. government agencies and corporations | $ | 28 | | | $ | (1) | | | $ | 384 | | | $ | (37) | | | $ | 412 | | | $ | (38) | |
Obligations of U.S. states and political subdivisions | Obligations of U.S. states and political subdivisions | 108 | | | (3) | | | 206 | | | (39) | | | 314 | | | (42) | |
Corporate securities | Corporate securities | 1,386 | | | (120) | | | 2,217 | | | (249) | | | 3,603 | | | (369) | |
Asset-backed securities | Asset-backed securities | 747 | | | (20) | | | 2,177 | | | (43) | | | 2,923 | | | (63) | |
Mortgage-backed securities | Mortgage-backed securities | |
Commercial | |
Commercial | |
Commercial | Commercial | 84 | | | (1) | | | 472 | | | (69) | | | 556 | | | (70) | |
Agency residential | Agency residential | 393 | | | (20) | | | 1,143 | | | (220) | | | 1,536 | | | (240) | |
Non-agency residential | Non-agency residential | 163 | | | (9) | | | 3 | | | — | | | 166 | | | (9) | |
Foreign government securities | Foreign government securities | 137 | | | (5) | | | 504 | | | (61) | | | 642 | | | (66) | |
Foreign corporate securities | Foreign corporate securities | 313 | | | (12) | | | 1,105 | | | (145) | | | 1,418 | | | (157) | |
Total | Total | 3,359 | | | (193) | | | 8,210 | | | (862) | | | 11,569 | | | (1,055) | |
Securities where an allowance for credit loss was recorded | Securities where an allowance for credit loss was recorded | — | | | (1) | | | — | | | (1) | | | 1 | | | (1) | |
Total fixed maturity securities - available for sale | Total fixed maturity securities - available for sale | $ | 3,360 | | | $ | (194) | | | $ | 8,210 | | | $ | (863) | | | $ | 11,569 | | | $ | (1,057) | |
(Some amounts may not reconcile due to rounding.)
| | Duration of Unrealized Loss at September 30, 2023 By Maturity |
| Less than 12 months | | Greater than 12 months | | Total |
| Duration of Unrealized Loss at March 31, 2024 By Maturity | | | Duration of Unrealized Loss at March 31, 2024 By Maturity |
| Less than 12 months | | | Less than 12 months | | Greater than 12 months | | Total |
(Dollars in millions) | (Dollars in millions) | Fair Value | | Gross Unrealized Depreciation | | Fair Value | | Gross Unrealized Depreciation | | Fair Value | | Gross Unrealized Depreciation | (Dollars in millions) | Fair Value | | Gross Unrealized Depreciation | | Fair Value | | Gross Unrealized Depreciation | | Fair Value | | Gross Unrealized Depreciation |
Fixed maturity securities - available for sale | Fixed maturity securities - available for sale | | | | | | | | | | | |
Due in one year or less | |
Due in one year or less | |
Due in one year or less | Due in one year or less | $ | 96 | | | $ | (1) | | | $ | 593 | | | $ | (15) | | | $ | 688 | | | $ | (16) | |
Due in one year through five years | Due in one year through five years | 477 | | | (20) | | | 2,447 | | | (245) | | | 2,923 | | | (265) | |
Due in five years through ten years | Due in five years through ten years | 584 | | | (30) | | | 1,098 | | | (212) | | | 1,682 | | | (242) | |
Due after ten years | Due after ten years | 816 | | | (93) | | | 278 | | | (58) | | | 1,094 | | | (151) | |
Asset-backed securities | Asset-backed securities | 747 | | | (20) | | | 2,177 | | | (43) | | | 2,923 | | | (63) | |
Mortgage-backed securities | Mortgage-backed securities | 640 | | | (31) | | | 1,617 | | | (288) | | | 2,257 | | | (319) | |
Total | Total | 3,359 | | | (193) | | | 8,210 | | | (862) | | | 11,569 | | | (1,055) | |
Securities where an allowance for credit loss was recorded | Securities where an allowance for credit loss was recorded | — | | | (1) | | | — | | | (1) | | | 1 | | | (1) | |
Total fixed maturity securities - available for sale | Total fixed maturity securities - available for sale | $ | 3,360 | | | $ | (194) | | | $ | 8,210 | | | $ | (863) | | | $ | 11,569 | | | $ | (1,057) | |
(Some amounts may not reconcile due to rounding.)
The aggregate fair value and gross unrealized losses related to fixed maturity securities - available for sale in an unrealized loss position at September 30, 2023March 31, 2024 were $11.6$7.9 billion and $1.1$0.5 billion, respectively. The fair value of securities for the single issuer (the United States government), whose securities comprised the largest unrealized loss position at September 30, 2023, amounted to less than 2.9%March 31, 2024, did not exceed 1.4% of the overall fair value of the Company’s fixed maturity securities - available for sale. The fair value of the securities for the issuer with the second largest unrealized loss position at September 30, 2023March 31, 2024 comprised less than 0.5% of the Company’s fixed maturity securities - available for sale. In addition, as indicated on the above table, there was no significant concentration of unrealized losses in any one market sector. The $194$51 million of unrealized losses related to fixed maturity securities - available for sale that have been in an unrealized loss position for less than one year were generally comprised of domestic and foreign corporate securities, asset-backed securitiesagency residential and agencynon-agency residential mortgage-backed securities. Of these unrealized losses, $162$43 million were related to securities that were rated investment grade by at least one nationally recognized rating agency. The $863$499 million of unrealized losses related to fixed maturity securities - available for sale in an unrealized loss position for more than one year related primarily to domestic and foreign corporate securities, asset-backed securities, agency residential and commercial mortgage-backed securities (“CMBS”), as well as foreign government securities and asset-backed securities. Of these unrealized losses, $819$475 million were related to securities that were rated investment grade by at least one nationally recognized rating agency. 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. Based upon the Company’s current evaluation of securities in an unrealized loss position as of September 30, 2023,March 31, 2024, the unrealized losses are due to changes in interest rates and non-issuer-specific credit spreads and are not credit-related. In addition, the contractual terms of these securities do not permit these securities to be settled at a price less than their amortized cost.
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 fair value and gross unrealized depreciation of fixed maturity securities - available for sale, 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, 2022 By Security Type |
| Less than 12 months | | Greater than 12 months | | Total |
| Duration of Unrealized Loss at December 31, 2023 By Security Type | | | Duration of Unrealized Loss at December 31, 2023 By Security Type |
| Less than 12 months | | | Less than 12 months | | Greater than 12 months | | Total |
(Dollars in millions) | (Dollars in millions) | Fair Value | | Gross Unrealized Depreciation | | Fair Value | | Gross Unrealized Depreciation | | Fair Value | | Gross Unrealized Depreciation | (Dollars in millions) | Fair Value | | Gross Unrealized Depreciation | | Fair Value | | Gross Unrealized Depreciation | | Fair Value | | Gross Unrealized Depreciation |
Fixed maturity securities - available for sale | Fixed maturity securities - available for sale | | | | | | | | | | | |
U.S. Treasury securities and obligations of | U.S. Treasury securities and obligations of | |
U.S. Treasury securities and obligations of | |
U.S. Treasury securities and obligations of | |
U.S. government agencies and corporations | |
U.S. government agencies and corporations | |
U.S. government agencies and corporations | U.S. government agencies and corporations | $ | 290 | | | $ | (14) | | | $ | 245 | | | $ | (26) | | | $ | 535 | | | $ | (40) | |
Obligations of U.S. states and political subdivisions | Obligations of U.S. states and political subdivisions | 235 | | | (23) | | | 27 | | | (9) | | | 261 | | | (32) | |
Corporate securities | Corporate securities | 2,138 | | | (175) | | | 841 | | | (146) | | | 2,979 | | | (321) | |
Asset-backed securities | Asset-backed securities | 3,120 | | | (138) | | | 436 | | | (27) | | | 3,556 | | | (165) | |
Mortgage-backed securities | Mortgage-backed securities | |
Commercial | |
Commercial | |
Commercial | Commercial | 464 | | | (50) | | | 36 | | | (9) | | | 500 | | | (59) | |
Agency residential | Agency residential | 852 | | | (54) | | | 605 | | | (113) | | | 1,456 | | | (167) | |
Non-agency residential | Non-agency residential | 2 | | | — | | | 1 | | | — | | | 3 | | | — | |
Foreign government securities | Foreign government securities | 455 | | | (36) | | | 144 | | | (25) | | | 599 | | | (61) | |
Foreign corporate securities | Foreign corporate securities | 967 | | | (100) | | | 365 | | | (67) | | | 1,332 | | | (167) | |
Total | Total | $ | 8,522 | | | $ | (591) | | | $ | 2,698 | | | $ | (421) | | | $ | 11,220 | | | $ | (1,012) | |
Securities where an allowance for credit loss was recorded | Securities where an allowance for credit loss was recorded | 2 | | | (1) | | | — | | | — | | | 2 | | | (1) | |
Total fixed maturity securities - available for sale | Total fixed maturity securities - available for sale | $ | 8,524 | | | $ | (591) | | | $ | 2,698 | | | $ | (421) | | | $ | 11,222 | | | $ | (1,013) | |
(Some amounts may not reconcile due to rounding.)
| | Duration of Unrealized Loss at December 31, 2022 By Maturity |
| Less than 12 months | | Greater than 12 months | | Total |
| Duration of Unrealized Loss at December 31, 2023 By Maturity | | | Duration of Unrealized Loss at December 31, 2023 By Maturity |
| Less than 12 months | | | Less than 12 months | | Greater than 12 months | | Total |
(Dollars in millions) | (Dollars in millions) | Fair Value | | Gross Unrealized Depreciation | | Fair Value | | Gross Unrealized Depreciation | | Fair Value | | Gross Unrealized Depreciation | (Dollars in millions) | Fair Value | | Gross Unrealized Depreciation | | Fair Value | | Gross Unrealized Depreciation | | Fair Value | | Gross Unrealized Depreciation |
Fixed maturity securities - available for sale | Fixed maturity securities - available for sale | | | | | | | | | | | |
Due in one year or less | |
Due in one year or less | |
Due in one year or less | Due in one year or less | $ | 463 | | | $ | (8) | | | $ | 29 | | | $ | (4) | | | $ | 491 | | | $ | (11) | |
Due in one year through five years | Due in one year through five years | 2,020 | | | (143) | | | 936 | | | (107) | | | 2,956 | | | (250) | |
Due in five years through ten years | Due in five years through ten years | 1,162 | | | (148) | | | 395 | | | (98) | | | 1,557 | | | (246) | |
Due after ten years | Due after ten years | 439 | | | (50) | | | 262 | | | (64) | | | 701 | | | (114) | |
Asset-backed securities | Asset-backed securities | 3,120 | | | (138) | | | 436 | | | (27) | | | 3,556 | | | (165) | |
Mortgage-backed securities | Mortgage-backed securities | 1,318 | | | (105) | | | 641 | | | (122) | | | 1,959 | | | (226) | |
Total | Total | $ | 8,522 | | | $ | (591) | | | $ | 2,698 | | | $ | (421) | | | $ | 11,220 | | | $ | (1,012) | |
Securities where an allowance for credit loss was recorded | Securities where an allowance for credit loss was recorded | 2 | | | (1) | | | — | | | — | | | 2 | | | (1) | |
Total fixed maturity securities - available for sale | Total fixed maturity securities - available for sale | $ | 8,524 | | | $ | (591) | | | $ | 2,698 | | | $ | (421) | | | $ | 11,222 | | | $ | (1,013) | |
(Some amounts may not reconcile due to rounding.)
The aggregate fair value and gross unrealized losses related to fixed maturity securities - available for sale in an unrealized loss position at December 31, 20222023 were $11.2$7.6 billion and $1.0 billion,$536 million, respectively. The fair value of securities for the single issuer (the United States government), whose securities comprised the largest unrealized loss position at December 31, 2022, amounted to less than 4.3%2023, did not exceed 1.4% of the overall fair value of the Company’s fixed maturity securities - available for sale. The fair value of the securities for the issuer with the second largest unrealized loss comprised less than 0.6%0.5% of the Company’s fixed maturity securities - available for sale. In addition, as indicated on the above table, there was no significant concentration of unrealized losses in any one market sector. The $591$55 million of unrealized losses related to fixed maturity securities - available for sale 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, asset-backed securities as well as commercial and agency residential mortgage-backed securities. Of these unrealized losses, $520$39 million were related to securities that were rated investment grade by at least one nationally recognized rating agency. The $421$481 million of unrealized losses related to fixed maturity securities - available for sale in an unrealized loss position for more than one year related primarily to domestic and foreign corporate securities as well as agency residential mortgage-backed securities. Of these unrealized losses, $392$455 million were related to securities that were rated investment grade by
at least one nationally recognized rating agency. 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 table below for the periods indicated:
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| Three Months Ended March 31, | |
| Three Months Ended March 31, | |
| Three Months Ended March 31, | |
(Dollars in millions) | |
(Dollars in millions) | |
(Dollars in millions) | (Dollars in millions) | 2023 | | 2022 | | 2023 | | 2022 |
Fixed maturities | Fixed maturities | $ | 214 | | | $ | 129 | | | $ | 587 | | | $ | 339 | |
Fixed maturities | |
Fixed maturities | |
Equity securities | |
Equity securities | |
Equity securities | Equity securities | 1 | | | 7 | | | 3 | | | 15 | |
Short-term investments and cash | Short-term investments and cash | 24 | | | 4 | | | 51 | | | 4 | |
Short-term investments and cash | |
Short-term investments and cash | |
Other invested assets | |
Other invested assets | |
Other invested assets | Other invested assets | |
Limited partnerships | Limited partnerships | 31 | | | (25) | | | 30 | | | 63 | |
Limited partnerships | |
Limited partnerships | |
Dividends from preferred shares of affiliate | |
Dividends from preferred shares of affiliate | |
Dividends from preferred shares of affiliate | Dividends from preferred shares of affiliate | 8 | | | 8 | | | 23 | | | 23 | |
Other | Other | 15 | | | 11 | | | 42 | | | 37 | |
Other | |
Other | |
Gross investment income before adjustments | |
Gross investment income before adjustments | |
Gross investment income before adjustments | Gross investment income before adjustments | 291 | | | 132 | | | 736 | | | 482 | |
Funds held interest income (expense) | Funds held interest income (expense) | 1 | | | 1 | | | 3 | | | 5 | |
Funds held interest income (expense) | |
Funds held interest income (expense) | |
Interest income from Group | |
Interest income from Group | |
Interest income from Group | Interest income from Group | — | | | 3 | | | 7 | | | 7 | |
Gross investment income | Gross investment income | 292 | | | 137 | | | 745 | | | 494 | |
Gross investment income | |
Gross investment income | |
Investment expenses | |
Investment expenses | |
Investment expenses | Investment expenses | 14 | | | 13 | | | 35 | | | 37 | |
Net investment income | Net investment income | $ | 278 | | | $ | 124 | | | $ | 711 | | | $ | 457 | |
Net investment income | |
Net investment income | |
(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. The net investment income from limited partnerships is dependent upon the Company’s share of the net asset values (“NAVs”) of interests underlying each limited partnership. 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 $1.1$1.0 billion in limited partnerships and private placement loan securitiesloans at September 30, 2023.March 31, 2024. These commitments will be funded when called in accordance with the partnership and loan agreements, which have investment periods that expire, unless extended, through 2027.2034.
During the fourth quarter ofIn 2022, the Company entered into corporate-owned life insurance (“COLI”) policies, which are invested in debt and equity securities. The COLI policies are carried within other invested assets at the policy cash surrender value of $984 million$1.4 billion and $939 million$1.3 billion as of September 30, 2023March 31, 2024 and December 31, 2022,2023, respectively.
The Company participates 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. The Company consolidates its participation in the facility. As of September 30, 2023, the fair value of investments in the facility consolidated within the Company’s balance sheets was $316 million.
Other invested assets, at fair value, as of September 30, 2023March 31, 2024 and December 31, 2022,2023, were comprised of preferred shares held in Everest Preferred International Holdings, Ltd. (“Preferred Holdings”), a wholly-owned subsidiary of Group. See Note 13.
Variable Interest Entities
The Company is engaged with various special purpose entities and other entities that are deemed to be VIEs primarily as an investor through normal investment activities but also as an investment manager. A VIE is an entity that either has investors that lack certain essential characteristics of a controlling financial interest, such as simple majority kick-out rights, or lacks sufficient funds to finance its own activities without financial support provided by other entities. The Company performs ongoing qualitative assessments of its VIEs to determine whether the Company has a controlling financial interest in the VIE and therefore is the primary beneficiary. The Company is deemed to have a controlling financial interest when it has both the ability to direct the activities that most significantly impact the economic performance of the VIE and the obligation to absorb losses or right to receive benefits from the VIE that could potentially
be significant to the VIE. Based on the Company’s assessment, if it determines it is the primary beneficiary, the Company consolidates the VIE in the Company’s Consolidated Financial Statements. As of September 30, 2023March 31, 2024 and December 31, 2022,2023, the Company did not hold any securitiesinterests for which it is the primary beneficiary.
The Company, through normal investment activities, makes passive investments in general and limited partnerships and other alternative investments. For these non-consolidated VIEs, the Company has determined it is not the primary beneficiary as it has no ability to direct activities that could significantly affect the economic performance of the investments. The Company’s maximum exposure to loss as of September 30, 2023March 31, 2024 and December 31, 20222023 is limited to the total carrying value of $2.9$3.3 billion and $2.8$3.3 billion, respectively, which are included in general and limited partnerships, COLI policies and other alternative investments in Other Invested Assetsother invested assets in the Company's Consolidated Balance Sheets. consolidated balance sheets.
As of September 30, 2023,March 31, 2024, the Company has outstanding commitments totaling $1.0 billion$980 million whereby the Company is committed to fund these investments and may be called by the partnership during the commitment period to fund the purchase of new investments and partnership expenses. These investments are generally of a passive nature in that the Company does not take an active role in management.
In addition, the Company makes passive investments in structured securities issued by VIEs for which the Company is not the manager. These investments are included in asset-backed securities, which includes collateralized loan obligations and are classified as fixed maturities.maturities - available for sale. The Company has not provided financial or other support with respect to these investments other than its original investment. For these investments, the Company determined it is not the primary beneficiary due to the relative size of the Company’s investment in comparison to the principal amount of the structured securities issued by the VIEs, the level of credit subordination thatwhich reduces the Company’s obligation to absorb losses or right to receive benefits orand the Company’s inability to direct the activities that most significantly impact the economic performance of the VIEs. The Company’s maximum exposure to loss on these investments is limited to the amount of the Company’s investment.
The components of net gains (losses) on investments are presented in the table below for the periods indicated:
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| Three Months Ended March 31, | |
| Three Months Ended March 31, | |
| Three Months Ended March 31, | |
(Dollars in millions) | |
(Dollars in millions) | |
(Dollars in millions) | (Dollars in millions) | 2023 | | 2022 | | 2023 | | 2022 |
Fixed maturity securities | Fixed maturity securities | | | | | | | |
Fixed maturity securities | |
Fixed maturity securities | |
Allowances for credit losses | |
Allowances for credit losses | |
Allowances for credit losses | Allowances for credit losses | $ | (1) | | | $ | (12) | | | $ | (12) | | | $ | (12) | |
Net realized gains (losses) from dispositions | Net realized gains (losses) from dispositions | (12) | | | (45) | | | (21) | | | (60) | |
Net realized gains (losses) from dispositions | |
Net realized gains (losses) from dispositions | |
Equity securities, fair value | |
Equity securities, fair value | |
Equity securities, fair value | Equity securities, fair value | |
Net realized gains (losses) from dispositions | Net realized gains (losses) from dispositions | 1 | | | 57 | | | 8 | | | 19 | |
Net realized gains (losses) from dispositions | |
Net realized gains (losses) from dispositions | |
Gains (losses) from fair value adjustments | |
Gains (losses) from fair value adjustments | |
Gains (losses) from fair value adjustments | Gains (losses) from fair value adjustments | (13) | | | (134) | | | (2) | | | (451) | |
Other invested assets | Other invested assets | — | | | 6 | | | — | | | 10 | |
Other invested assets | |
Other invested assets | |
Other invested assets, fair value | |
Other invested assets, fair value | |
Other invested assets, fair value | Other invested assets, fair value | |
Gains (losses) from fair value adjustments | Gains (losses) from fair value adjustments | (34) | | | (111) | | | (32) | | | (350) | |
Gains (losses) from fair value adjustments | |
Gains (losses) from fair value adjustments | |
Short-term investment gains (losses) | |
Short-term investment gains (losses) | |
Short-term investment gains (losses) | Short-term investment gains (losses) | — | | | 1 | | | — | | | 1 | |
Total net gains (losses) on investments | Total net gains (losses) on investments | $ | (59) | | | $ | (237) | | | $ | (59) | | | $ | (842) | |
Total net gains (losses) on investments | |
Total net gains (losses) on investments | |
(Some amounts may not reconcile due to rounding.)
The following tables provide a roll forward of the Company’s beginning and ending balance of allowance for credit losses for the periods indicated:
| | Roll Forward of Allowance for Credit Losses – Fixed Maturities - Available for Sale |
| Three Months Ended September 30, 2023 | | Nine Months Ended September 30, 2023 |
| Corporate Securities | | | Municipals | | Foreign Corporate Securities | | Total | | Corporate Securities | | | Municipals | | Foreign Corporate Securities | | Total |
| Roll Forward of Allowance for Credit Losses – Fixed Maturities - Available for Sale | |
| Roll Forward of Allowance for Credit Losses – Fixed Maturities - Available for Sale | |
| Roll Forward of Allowance for Credit Losses – Fixed Maturities - Available for Sale | |
| Three Months Ended March 31, 2024 | |
| Corporate Securities | |
| Corporate Securities | |
| Corporate Securities | |
(Dollars in millions) | |
(Dollars in millions) | |
(Dollars in millions) | (Dollars in millions) | | | | | | | | | | | | | | | | | |
Beginning balance | Beginning balance | $ | (55) | | | | $ | — | | | $ | (1) | | | $ | (57) | | | $ | (45) | | | | $ | — | | | $ | (1) | | | $ | (46) | |
Beginning balance | |
Beginning balance | |
Credit losses on securities where credit | |
Credit losses on securities where credit | |
Credit losses on securities where credit | Credit losses on securities where credit | | | | | |
losses were not previously recorded | losses were not previously recorded | (3) | | | | — | | | — | | | (3) | | | (17) | | | | — | | | — | | | (17) | |
losses were not previously recorded | |
losses were not previously recorded | |
Increases in allowance on previously | |
Increases in allowance on previously | |
Increases in allowance on previously | Increases in allowance on previously | | | | | |
impaired securities | impaired securities | — | | | | — | | | — | | | — | | | — | | | | — | | | — | | | — | |
impaired securities | |
impaired securities | |
Decreases in allowance on previously | |
Decreases in allowance on previously | |
Decreases in allowance on previously | Decreases in allowance on previously | | | | | |
impaired securities | impaired securities | — | | | | — | | | — | | | — | | | — | | | | — | | | — | | | — | |
impaired securities | |
impaired securities | |
Reduction in allowance due to disposals | |
Reduction in allowance due to disposals | |
Reduction in allowance due to disposals | Reduction in allowance due to disposals | 2 | | | | — | | | — | | | 2 | | | 5 | | | | — | | | — | | | 5 | |
Balance, end of period | Balance, end of period | $ | (57) | | | | $ | (1) | | | $ | (1) | | | $ | (58) | | | $ | (57) | | | | $ | (1) | | | $ | (1) | | | $ | (58) | |
Balance, end of period | |
Balance, end of period | |
(Some amounts may not reconcile due to rounding.)
| | Roll Forward of Allowance for Credit Losses – Fixed Maturities - Available for Sale |
| Three Months Ended September 30, 2022 | | Nine Months Ended September 30, 2022 |
| Roll Forward of Allowance for Credit Losses – Fixed Maturities - Available for Sale | |
| Roll Forward of Allowance for Credit Losses – Fixed Maturities - Available for Sale | |
| Roll Forward of Allowance for Credit Losses – Fixed Maturities - Available for Sale | |
| Three Months Ended March 31, 2023 | |
(Dollars in millions) | |
(Dollars in millions) | |
(Dollars in millions) | (Dollars in millions) | Corporate Securities | | Asset Backed Securities | | Foreign Corporate Securities | | Total | | Corporate Securities | | Asset Backed Securities | | Foreign Corporate Securities | | Total |
Beginning balance | Beginning balance | $ | (26) | | | $ | — | | | $ | (2) | | | $ | (27) | | | $ | (19) | | | $ | (8) | | | $ | — | | | $ | (27) | |
Beginning balance | |
Beginning balance | |
Credit losses on securities where credit | |
Credit losses on securities where credit | |
Credit losses on securities where credit | Credit losses on securities where credit | |
losses were not previously recorded | losses were not previously recorded | — | | | — | | | — | | | — | | | (7) | | | — | | | (1) | | | (8) | |
losses were not previously recorded | |
losses were not previously recorded | |
Increases in allowance on previously | |
Increases in allowance on previously | |
Increases in allowance on previously | Increases in allowance on previously | |
impaired securities | impaired securities | (3) | | | — | | | — | | | (3) | | | (4) | | | — | | | — | | | (4) | |
impaired securities | |
impaired securities | |
Decreases in allowance on previously | |
Decreases in allowance on previously | |
Decreases in allowance on previously | Decreases in allowance on previously | |
impaired securities | impaired securities | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
impaired securities | |
impaired securities | |
Reduction in allowance due to disposals | |
Reduction in allowance due to disposals | |
Reduction in allowance due to disposals | Reduction in allowance due to disposals | — | | | — | | | — | | | — | | | 1 | | | 8 | | | 1 | | | 9 | |
Balance, end of period | Balance, end of period | $ | (29) | | | $ | — | | | $ | (1) | | | $ | (30) | | | $ | (29) | | | $ | — | | | $ | (1) | | | $ | (30) | |
Balance, end of period | |
Balance, end of period | |
(Some amounts may not reconcile due to rounding.)
| | Roll Forward of Allowance for Credit Losses – Fixed Maturities - Held to Maturity |
| Three Months Ended September 30, 2023 | | Nine Months Ended September 30, 2023 |
| Corporate Securities | | Asset Backed Securities | | Foreign Corporate Securities | | Total | | Corporate Securities | | Asset Backed Securities | | Foreign Corporate Securities | | Total |
| Roll Forward of Allowance for Credit Losses – Fixed Maturities - Held to Maturity | |
| Roll Forward of Allowance for Credit Losses – Fixed Maturities - Held to Maturity | |
| Roll Forward of Allowance for Credit Losses – Fixed Maturities - Held to Maturity | |
| Three Months Ended March 31, 2024 | |
| Corporate Securities | |
| Corporate Securities | |
| Corporate Securities | |
(Dollars in millions) | |
(Dollars in millions) | |
(Dollars in millions) | (Dollars in millions) | | | | | | | | | | | | | | | |
Beginning balance | Beginning balance | $ | (2) | | | $ | (6) | | | $ | (1) | | | $ | (8) | | | $ | (2) | | | $ | (6) | | | $ | (1) | | | $ | (9) | |
Beginning balance | |
Beginning balance | |
Credit losses on securities where credit | |
Credit losses on securities where credit | |
Credit losses on securities where credit | Credit losses on securities where credit | |
losses were not previously recorded | losses were not previously recorded | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
losses were not previously recorded | |
losses were not previously recorded | |
Increases in allowance on previously | |
Increases in allowance on previously | |
Increases in allowance on previously | Increases in allowance on previously | |
impaired securities | impaired securities | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
impaired securities | |
impaired securities | |
Decreases in allowance on previously | |
Decreases in allowance on previously | |
Decreases in allowance on previously | Decreases in allowance on previously | |
impaired securities | impaired securities | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
impaired securities | |
impaired securities | |
Reduction in allowance due to disposals | |
Reduction in allowance due to disposals | |
Reduction in allowance due to disposals | Reduction in allowance due to disposals | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Balance, end of period | Balance, end of period | $ | (2) | | | $ | (5) | | | $ | (1) | | | $ | (8) | | | $ | (2) | | | $ | (5) | | | $ | (1) | | | $ | (8) | |
Balance, end of period | |
Balance, end of period | |
(Some amounts may not reconcile due to rounding.)
| | Roll Forward of Allowance for Credit Losses – Fixed Maturities - Held to Maturity |
| Three Months Ended September 30, 2022 | | Nine Months Ended September 30, 2022 |
| Roll Forward of Allowance for Credit Losses – Fixed Maturities - Held to Maturity | |
| Roll Forward of Allowance for Credit Losses – Fixed Maturities - Held to Maturity | |
| Roll Forward of Allowance for Credit Losses – Fixed Maturities - Held to Maturity | |
| Three Months Ended March 31, 2023 | |
(Dollars in millions) | |
(Dollars in millions) | |
(Dollars in millions) | (Dollars in millions) | Corporate Securities | | Asset Backed Securities | | Foreign Corporate Securities | | Total | | Corporate Securities | | Asset Backed Securities | | Foreign Corporate Securities | | Total |
Beginning balance | Beginning balance | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
Beginning balance | |
Beginning balance | |
Credit losses on securities where credit | |
Credit losses on securities where credit | |
Credit losses on securities where credit | Credit losses on securities where credit | |
losses were not previously recorded | losses were not previously recorded | (2) | | | (6) | | | (1) | | | (9) | | | (2) | | | (6) | | | (1) | | | (9) | |
losses were not previously recorded | |
losses were not previously recorded | |
Increases in allowance on previously | |
Increases in allowance on previously | |
Increases in allowance on previously | Increases in allowance on previously | |
impaired securities | impaired securities | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
impaired securities | |
impaired securities | |
Decreases in allowance on previously | |
Decreases in allowance on previously | |
Decreases in allowance on previously | Decreases in allowance on previously | |
impaired securities | impaired securities | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
impaired securities | |
impaired securities | |
Reduction in allowance due to disposals | |
Reduction in allowance due to disposals | |
Reduction in allowance due to disposals | Reduction in allowance due to disposals | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Balance, end of period | Balance, end of period | $ | (2) | | | $ | (6) | | | $ | (1) | | | $ | (9) | | | $ | (2) | | | $ | (6) | | | $ | (1) | | | $ | (9) | |
Balance, end of period | |
Balance, end of period | |
(Some amounts may not reconcile due to rounding.)
The proceeds and split between gross gains and losses from dispositionssales of fixed maturity securities - available for sale and equity securities are presented in the table below for the periods indicated:
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| Three Months Ended March 31, | |
| Three Months Ended March 31, | |
| Three Months Ended March 31, | |
(Dollars in millions) | |
(Dollars in millions) | |
(Dollars in millions) | (Dollars in millions) | 2023 | | 2022 | | 2023 | | 2022 |
Proceeds from sales of fixed maturity securities - available for sale | Proceeds from sales of fixed maturity securities - available for sale | $ | 209 | | | $ | 301 | | | $ | 318 | | | $ | 812 | |
Proceeds from sales of fixed maturity securities - available for sale | |
Proceeds from sales of fixed maturity securities - available for sale | |
Gross gains from dispositions | Gross gains from dispositions | 1 | | | 1 | | | 4 | | | 7 | |
Gross gains from dispositions | |
Gross gains from dispositions | |
Gross losses from dispositions | |
Gross losses from dispositions | |
Gross losses from dispositions | Gross losses from dispositions | (13) | | | (46) | | | (25) | | | (67) | |
| Proceeds from sales of equity securities | Proceeds from sales of equity securities | $ | 80 | | | $ | 591 | | | $ | 126 | | | $ | 1,016 | |
| Proceeds from sales of equity securities | |
| Proceeds from sales of equity securities | |
Gross gains from dispositions | |
Gross gains from dispositions | |
Gross gains from dispositions | Gross gains from dispositions | 2 | | | 59 | | | 8 | | | 67 | |
Gross losses from dispositions | Gross losses from dispositions | — | | | (2) | | | — | | | (48) | |
Gross losses from dispositions | |
Gross losses from dispositions | |
(Some amounts may not reconcile due to rounding.)
4. FAIR VALUE
GAAP guidance regarding fair value measurements addresses 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 both internally and on an external basis by third-partyindependent, professional investment asset managers.managers using portfolio guidelines approved by the Company. The investment asset managers managing publicly traded securities obtainCompany obtains prices from nationally recognized pricing services. These services seek to utilize market data and observations in their evaluation process. TheyThese services 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,
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.
The investment asset managers doCompany does not make any changes to prices received from either the pricing services or the investment brokers.services. In addition, the investment asset managers haveCompany has procedures in place to review the reasonableness of the prices from the service providers and may request verification of the prices. The Company also continually performs quantitative and qualitative analysis of prices, including but not limited to initial and ongoing review of pricing methodologies, review of prices obtained from pricing services and third-party investment asset managers, review of pricing statistics and trends, and comparison of prices for certain securities with a secondary price source for reasonableness. 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 September 30, 2023, $1.9March 31, 2024, $2.0 billion of fixed maturities were fair valued using unobservable inputs. The majority of these fixed maturities were valued by investment managers’ valuation committees and many of these fair values were substantiated by valuations from independent third parties. The Company has procedures in place to evaluate these independent third-party valuations. At December 31, 2022, $1.72023, $2.0 billion of fixed maturities were fair valued using unobservable inputs.
The Company internally manages a portfolio of assets which had a fair value at September 30, 2023 and December 31, 2022 of $5.0 billion and $2.7 billion, respectively, primarily comprised of collateralized loan obligations included in asset-backed securities and U.S. treasury fixed maturities. All prices for these securities were obtained from publicly published sources or nationally recognized pricing vendors.
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 value. The Company uses foreign currency exchange rates published by a nationally recognized sources.source.
Fixed maturity securities listed in the tables below are generallyhave been 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 are 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.
In addition, to the valuations from investment managers, some of the fixed maturities with fair values categorized as Level 3 result when prices are not available from the nationally recognized pricing services and are obtained from investment managers and are derived using unobservable inputs. The Company will value the securities with unobservable inputs using comparable market information or receive fair values from investment managers. The investment managers may 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 investment 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.
The composition and valuation inputs for the presented fixed maturities categories Level 1 and Level 2 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 March 31, 2024 and December 31, 2023, 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 10 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 tables present the fair value measurement levels for all assets, which the Company has recorded at fair value as of the periods indicated:
| | Fair Value Measurement Using |
| | | Fair Value Measurement Using | | | | | Fair Value Measurement Using |
(Dollars in millions) | (Dollars in millions) | September 30, 2023 | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | (Dollars in millions) | March 31, 2024 | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
Assets: | Assets: | | | | | | | |
Fixed maturities - available for sale | Fixed maturities - available for sale | |
Fixed maturities - available for sale | |
Fixed maturities - available for sale | |
U.S. Treasury securities and obligations of U.S. government | U.S. Treasury securities and obligations of U.S. government | |
U.S. Treasury securities and obligations of U.S. government | |
U.S. Treasury securities and obligations of U.S. government | |
agencies and corporations | |
agencies and corporations | |
agencies and corporations | agencies and corporations | $ | 412 | | | $ | — | | | $ | 412 | | | $ | — | |
Obligations of U.S. states and political subdivisions | Obligations of U.S. states and political subdivisions | 363 | | | — | | | 363 | | | — | |
Corporate securities | Corporate securities | 4,160 | | | — | | | 3,436 | | | 725 | |
Asset-backed securities | Asset-backed securities | 4,980 | | | — | | | 3,800 | | | 1,180 | |
Mortgage-backed securities | Mortgage-backed securities | |
Commercial | |
Commercial | |
Commercial | Commercial | 556 | | | — | | | 556 | | | — | |
Agency residential | Agency residential | 1,537 | | | — | | | 1,537 | | | — | |
Non-agency residential | Non-agency residential | 207 | | | — | | | 207 | | | — | |
Foreign government securities | Foreign government securities | 683 | | | — | | | 683 | | | — | |
Foreign corporate securities | Foreign corporate securities | 1,534 | | | — | | | 1,518 | | | 16 | |
Total fixed maturities - available for sale | Total fixed maturities - available for sale | 14,434 | | | — | | | 12,513 | | | 1,921 | |
| | |
Equity securities, fair value | Equity securities, fair value | 79 | | | 58 | | | 21 | | | — | |
Equity securities, fair value | |
Equity securities, fair value | |
Other invested assets, fair value | Other invested assets, fair value | 1,440 | | | — | | | — | | | 1,440 | |
(Some amounts may not reconcile due to rounding.)
| | Fair Value Measurement Using |
| Fair Value Measurement Using | | | Fair Value Measurement Using |
(Dollars in millions) | (Dollars in millions) | December 31, 2022 | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | (Dollars in millions) | December 31, 2023 | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
Assets: | Assets: | | | | | | | |
Fixed maturities - available for sale | Fixed maturities - available for sale | |
Fixed maturities - available for sale | |
Fixed maturities - available for sale | |
U.S. Treasury securities and obligations of U.S. government | U.S. Treasury securities and obligations of U.S. government | |
U.S. Treasury securities and obligations of U.S. government | |
U.S. Treasury securities and obligations of U.S. government | |
agencies and corporations | |
agencies and corporations | |
agencies and corporations | agencies and corporations | $ | 535 | | | $ | — | | | $ | 535 | | | $ | — | |
Obligations of U.S. states and political subdivisions | Obligations of U.S. states and political subdivisions | 413 | | | — | | | 413 | | | — | |
Corporate securities | Corporate securities | 3,561 | | | — | | | 2,846 | | | 715 | |
Asset-backed securities | Asset-backed securities | 3,951 | | | — | | | 2,957 | | | 994 | |
Mortgage-backed securities | Mortgage-backed securities | |
Commercial | |
Commercial | |
Commercial | Commercial | 509 | | | — | | | 509 | | | — | |
Agency residential | Agency residential | 1,628 | | | — | | | 1,628 | | | — | |
Non-agency residential | Non-agency residential | 3 | | | — | | | 3 | | | — | |
Foreign government securities | Foreign government securities | 637 | | | — | | | 637 | | | — | |
Foreign corporate securities | Foreign corporate securities | 1,433 | | | — | | | 1,417 | | | 16 | |
Total fixed maturities - available for sale | Total fixed maturities - available for sale | 12,671 | | | — | | | 10,946 | | | 1,725 | |
| Equity securities, fair value | Equity securities, fair value | 194 | | | 132 | | | 63 | | | — | |
Equity securities, fair value | |
Equity securities, fair value | |
Other invested assets, fair value | Other invested assets, fair value | 1,472 | | | — | | | — | | | 1,472 | |
(Some amounts may not reconcile due to rounding.)
In addition, $284 million and $292 million of investments within other invested assets on the consolidated balance sheets as of September 30, 2023 and December 31, 2022, 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 tables present the activity under Level 3, fair value measurements using significant unobservable inputs for fixed maturities - available for sale, for the periods indicated:
| | Total Fixed Maturities - Available for Sale | |
| Total Fixed Maturities - Available for Sale | |
| Total Fixed Maturities - Available for Sale | |
| Three Months Ended March 31, 2024 | |
(Dollars in millions) | |
(Dollars in millions) | |
(Dollars in millions) | |
Beginning balance of fixed maturities | |
Beginning balance of fixed maturities | |
Beginning balance of fixed maturities | |
Total gains or (losses) (realized/unrealized) | |
Total gains or (losses) (realized/unrealized) | |
Total gains or (losses) (realized/unrealized) | |
Included in earnings (or changes in net assets) | |
Included in earnings (or changes in net assets) | |
Included in earnings (or changes in net assets) | |
Included in other comprehensive income (loss) | |
Included in other comprehensive income (loss) | |
Included in other comprehensive income (loss) | |
Purchases, issuances and settlements | |
Purchases, issuances and settlements | |
Purchases, issuances and settlements | |
Transfers in/(out) of Level 3 and reclassification of securities in/(out) investment categories | |
Transfers in/(out) of Level 3 and reclassification of securities in/(out) investment categories | |
Transfers in/(out) of Level 3 and reclassification of securities in/(out) investment categories | |
Ending balance | |
Ending balance | |
Ending balance | |
| | | Total Fixed Maturities - Available for Sale |
| | Three Months Ended September 30, 2023 | | Nine Months Ended September 30, 2023 |
(Dollars in millions) | Corporate Securities | | Asset Backed Securities | | | Foreign Corporate | | Total | | Corporate Securities | | Asset Backed Securities | | | Foreign Corporate | | Total |
Beginning balance of fixed maturities | $ | 711 | | | $ | 1,115 | | | | $ | 16 | | | $ | 1,842 | | | $ | 715 | | | $ | 994 | | | | $ | 16 | | | $ | 1,725 | |
Total gains or (losses) (realized/unrealized) | | | | | |
Included in earnings | 1 | | | — | | | | — | | | 1 | | | 3 | | | — | | | | — | | | 3 | |
Included in other comprehensive income (loss) | — | | | (3) | | | | — | | | (3) | | | (5) | | | 7 | | | | — | | | 2 | |
Purchases, issuances and settlements | 12 | | | 68 | | | | — | | | 80 | | | 12 | | | 179 | | | | — | | | 191 | |
Transfers in/(out) of Level 3 and reclassification of securities in/(out) investment categories | — | | | — | | | | — | | | — | | | — | | | — | | | | — | | | — | |
Ending balance of fixed maturities | $ | 725 | | | $ | 1,180 | | | | $ | 16 | | | $ | 1,921 | | | $ | 725 | | | $ | 1,180 | | | | $ | 16 | | | $ | 1,921 | |
| | | | | | | | | | | | | | | | | |
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 | 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 | $ | — | | | $ | — | | | | $ | — | | | $ | — | | | $ | 1 | | | $ | — | | | | $ | — | | | $ | 1 | |
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 | |
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 - Available for Sale |
| Three Months Ended September 30, 2022 | | Nine Months Ended September 30, 2022 |
| Total Fixed Maturities - Available for Sale | |
| Total Fixed Maturities - Available for Sale | |
| Total Fixed Maturities - Available for Sale | |
| Three Months Ended March 31, 2023 | |
(Dollars in millions) | |
(Dollars in millions) | |
(Dollars in millions) | (Dollars in millions) | Corporate Securities | | Asset Backed Securities | | CMBS | | Foreign Corporate | | Total | | Corporate Securities | | Asset Backed Securities | | CMBS | | Foreign Corporate | | Total |
Beginning balance of fixed maturities | Beginning balance of fixed maturities | $ | 862 | | | $ | 1,255 | | | $ | 6 | | | $ | 40 | | | $ | 2,163 | | | $ | 730 | | | $ | 1,251 | | | $ | — | | | $ | 16 | | | $ | 1,997 | |
Beginning balance of fixed maturities | |
Beginning balance of fixed maturities | |
Total gains or (losses) (realized/unrealized) | Total gains or (losses) (realized/unrealized) | |
Included in earnings | (3) | | | — | | | — | | | — | | | (3) | | | (6) | | | — | | | — | | | — | | | (6) | |
Total gains or (losses) (realized/unrealized) | |
Total gains or (losses) (realized/unrealized) | |
Included in earnings (or changes in net assets) | |
Included in earnings (or changes in net assets) | |
Included in earnings (or changes in net assets) | |
Included in other comprehensive income (loss) | |
Included in other comprehensive income (loss) | |
Included in other comprehensive income (loss) | Included in other comprehensive income (loss) | (6) | | | 65 | | | — | | | — | | | 59 | | | (13) | | | (11) | | | — | | | (4) | | | (28) | |
Purchases, issuances and settlements | Purchases, issuances and settlements | 27 | | | 159 | | | — | | | — | | | 186 | | | 42 | | | 387 | | | 6 | | | 8 | | | 443 | |
Purchases, issuances and settlements | |
Purchases, issuances and settlements | |
Transfers in/(out) of Level 3 and reclassification of securities in/(out) investment categories | Transfers in/(out) of Level 3 and reclassification of securities in/(out) investment categories | (163) | | | (587) | | | (6) | | | (24) | | | (779) | | | (35) | | | (735) | | | (6) | | | (4) | | | (779) | |
Ending balance of fixed maturities | $ | 719 | | | $ | 893 | | | $ | — | | | $ | 16 | | | $ | 1,628 | | | $ | 719 | | | $ | 893 | | | $ | — | | | $ | 16 | | | $ | 1,628 | |
Transfers in/(out) of Level 3 and reclassification of securities in/(out) investment categories | |
Transfers in/(out) of Level 3 and reclassification of securities in/(out) investment categories | |
Ending balance | |
Ending balance | |
Ending balance | |
| 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 | 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 | $ | (3) | | | $ | — | | | $ | — | | | $ | — | | | $ | (3) | | | $ | (8) | | | $ | 8 | | | $ | — | | | $ | — | | | $ | — | |
| 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 | |
| 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.)
There were no transfers of assets in/(out) of Level 3 for the three and nine months ended September 30, 2023.
The $779 million shown as transfers in/(out) of Level 3 and reclassification of securities in/(out) of investment categories for the three and nine months ended September 30, 2022 relate mainly to previously designated Level 3 securities that the Company has reclassified from “fixed maturities – available for sale” to “fixed maturities – held to maturity” during the third quarter of 2022. As “fixed maturities – held to maturity" are carried at amortized cost, net of credit allowances rather than at fair value as “fixed maturities – available for sale”, these securities are no longer included within the fair value hierarchy table or in the roll forward of Level 3 securities. The fair values of these securities are determined in a similar manner as the Company’s fixed maturity securities available for sale as described above. The fair values of these securities incorporate the use of significant unobservable inputs and therefore are classified as Level 3 within the fair value hierarchy as of September 30, 2022.March 31, 2024.
Financial Instruments Disclosed, But Not Reported, at Fair Value
Certain financial instruments disclosed, but not reported, at fair value are excluded from the fair value hierarchy tables above. Fair values and valuation hierarchy of fixed maturity securities - held to maturity, senior notes and long-term subordinated notes can be found within Notes 3, 7 and 8, respectively. Fair values of long-term notes receivable from affiliates can be found within Note 13. Short-term investments are stated at cost, which approximates fair value.
Exempt from Fair Value Disclosure Requirements
Certain financial instruments are exempt from the requirements for fair value disclosure, such as limited partnerships accounted for under the equity method and pension and other postretirement obligations. The Company’s investment in COLI policies are recorded at their cash surrender value and are therefore not required to be included in the tables above. See Note 3 of the Notes to these Consolidated Financial Statements for details of investments in COLI policies.
In addition, $258 million and $274 million of investments within other invested assets on the consolidated balance sheets as of March 31, 2024 and December 31, 2023, 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.
5. RESERVES FOR LOSSES LAE AND FUTURE POLICY BENEFIT RESERVELAE
Activity inThe following table provides a roll forward of the reserveCompany’s beginning and ending reserves for losses and loss adjustment expenses (“LAE”) and is summarized for the periods indicated:
| | Nine Months Ended September 30, |
| Three Months Ended March 31, | | | Three Months Ended March 31, |
(Dollars in millions) | (Dollars in millions) | 2023 | | 2022 | (Dollars in millions) | 2024 | | 2023 |
Gross reserves beginning of period | $ | 14,977 | | | $ | 13,121 | |
Gross reserve beginning of period | |
Less reinsurance recoverables on unpaid losses | Less reinsurance recoverables on unpaid losses | (3,684) | | | (3,651) | |
Net reserves beginning of period | Net reserves beginning of period | 11,294 | | | 9,470 | |
| Incurred related to: | Incurred related to: | |
Incurred related to: | |
Incurred related to: | |
Current year | |
Current year | |
Current year | Current year | 4,159 | | | 4,606 | |
Prior years | Prior years | 31 | | | 18 | |
Total incurred losses and LAE | Total incurred losses and LAE | 4,190 | | | 4,624 | |
| Paid related to: | Paid related to: | |
Paid related to: | |
Paid related to: | |
Current year | |
Current year | |
Current year | Current year | 1,737 | | | 1,502 | |
Prior years | Prior years | 1,380 | | | 1,303 | |
Total paid losses and LAE | Total paid losses and LAE | 3,118 | | | 2,805 | |
| Foreign exchange/translation adjustment | Foreign exchange/translation adjustment | — | | | (70) | |
Foreign exchange/translation adjustment | |
Foreign exchange/translation adjustment | |
| Net reserves end of period | |
Net reserves end of period | |
Net reserves end of period | Net reserves end of period | 12,365 | | | 11,221 | |
Plus reinsurance recoverables on unpaid losses | Plus reinsurance recoverables on unpaid losses | 3,304 | | | 3,628 | |
Gross reserves end of period | Gross reserves end of period | $ | 15,669 | | | $ | 14,849 | |
(Some amounts may not reconcile due to rounding.)
Current year incurred losses were $4.2$1.4 billion and $4.6$1.4 billion for the ninethree months ended September 30,March 31, 2024 and 2023, and 2022, respectively. Gross and net reserves increased for the ninethree months ended September 30, 2023,March 31, 2024, reflecting an increase in underlying exposure due to earned premium growth, year over year, amounting to approximately $275$56 million in 20232024 current year attritional losses compared to 2022,2023, offset by a decrease of $723$60 million in current year catastrophe losses in 2023.2024. Prior year incurred net favorable development of $31$24 million is primarily driven by the commutationreleases of stop loss agreements between Everest Re and Bermuda Re that were effective for 2018 and 2019. Additional details can be found within Note 13. property catastrophe reserves.
6. SEGMENT REPORTING
The Company operates through two operating segments. The Reinsurance operation writes worldwide property and casualty reinsurance and specialty lines of business, on both a treaty and facultative basis, through reinsurance brokers, as well as directly with ceding companies. Business is written in the United States and Bermuda as well as through branches in Canada and Singapore. The Insurance operation writes property and casualty insurance directly and through brokers, including for surplus lines, brokers and general agents within the United States and Bermuda.
TheseStates. The two 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.
Our two operating segments each have executive leadership who are responsible for the overall performance of their respective segments and who are directly accountable to our chief operating decision maker (“CODM”), the Chief Executive Officer of Everest Group, Ltd., who is ultimately responsible for reviewing the business to assess performance, make operating decisions and allocate resources. We report the results of our operations consistent with the manner in which our CODM reviews the business.
During the fourth quarter of 2023, the Company revised the classification and presentation of certain products related to its accident and health business within the segment groupings. These products have been realigned from within the Reinsurance segment to the Insurance segment to appropriately reflect how the business segments are managed. These changes have been reflected retrospectively.
The Company does not review and evaluate the financial results of its operating segments based upon balance sheet data. 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. The Company measures itsWe measure our underwriting results using ratios, in particular loss, commission and brokerage and other underwriting expense ratios, which, respectively, result from dividingdivide 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,Management has determined that these measures are appropriate and align with how the Company does not reviewbusiness is managed. We continue to evaluate our segments as our business evolves and evaluate themay further refine our segments and 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:
| | Three Months Ended September 30, 2023 | | Nine Months Ended September 30, 2023 |
| Three Months Ended March 31, 2024 | |
| Three Months Ended March 31, 2024 | |
| Three Months Ended March 31, 2024 | |
(Dollars in millions) | |
(Dollars in millions) | |
(Dollars in millions) | (Dollars in millions) | Reinsurance | | Insurance | | Total | | Reinsurance | | Insurance | | Total |
Gross written premiums | Gross written premiums | $ | 1,985 | | | $ | 884 | | | $ | 2,869 | | | $ | 5,420 | | | $ | 2,860 | | | $ | 8,280 | |
Gross written premiums | |
Gross written premiums | |
Net written premiums | |
Net written premiums | |
Net written premiums | Net written premiums | 1,703 | | | 647 | | | 2,350 | | | 4,656 | | | 2,153 | | | 6,809 | |
| Premiums earned | Premiums earned | $ | 1,437 | | | $ | 702 | | | $ | 2,139 | | | $ | 4,220 | | | $ | 2,118 | | | $ | 6,339 | |
| Premiums earned | |
| Premiums earned | |
Incurred losses and LAE | |
Incurred losses and LAE | |
Incurred losses and LAE | Incurred losses and LAE | 1,010 | | | 460 | | | 1,471 | | | 2,804 | | | 1,386 | | | 4,190 | |
Commission and brokerage | Commission and brokerage | 378 | | | 76 | | | 454 | | | 1,102 | | | 221 | | | 1,323 | |
Commission and brokerage | |
Commission and brokerage | |
Other underwriting expenses | Other underwriting expenses | 46 | | | 103 | | | 149 | | | 121 | | | 303 | | | 424 | |
Other underwriting expenses | |
Other underwriting expenses | |
Underwriting gain (loss) | |
Underwriting gain (loss) | |
Underwriting gain (loss) | Underwriting gain (loss) | $ | 3 | | | $ | 63 | | | $ | 66 | | | $ | 194 | | | $ | 208 | | | $ | 402 | |
| Net investment income | Net investment income | | 278 | | | 711 | |
| Net investment income | |
| Net investment income | |
Net gains (losses) on investments | |
Net gains (losses) on investments | |
Net gains (losses) on investments | Net gains (losses) on investments | | (59) | | | (59) | |
Corporate expenses | Corporate expenses | | (8) | | | (18) | |
Interest, fee and bond issue cost amortization expense | | (34) | | | (99) | |
Corporate expenses | |
Corporate expenses | |
Interest, fees and bond issue cost amortization expense | |
Interest, fees and bond issue cost amortization expense | |
Interest, fees and bond issue cost amortization expense | |
Other income (expense) | |
Other income (expense) | |
Other income (expense) | Other income (expense) | | 2 | | | (12) | |
Income (loss) before taxes | Income (loss) before taxes | | $ | 246 | | | $ | 926 | |
Income (loss) before taxes | |
Income (loss) before taxes | |
(Some amounts may not reconcile due to rounding)
| | Three Months Ended March 31, 2023 | |
| Three Months Ended March 31, 2023 | |
| Three Months Ended March 31, 2023 | |
(Dollars in millions) | |
(Dollars in millions) | |
(Dollars in millions) | |
Gross written premiums | |
Gross written premiums | |
Gross written premiums | |
Net written premiums | |
Net written premiums | |
Net written premiums | |
| | | Three Months Ended September 30, 2022 | | Nine Months Ended September 30, 2022 |
(Dollars in millions) | Reinsurance | | Insurance | | Total | | Reinsurance | | Insurance | | Total |
Gross written premiums | $ | 1,681 | | | $ | 905 | | | $ | 2,585 | | | $ | 4,454 | | | $ | 2,773 | | | $ | 7,227 | |
Net written premiums | 1,506 | | | 722 | | | 2,228 | | | 3,936 | | | 2,083 | | | 6,019 | |
| | |
Premiums earned | Premiums earned | $ | 1,398 | | | $ | 706 | | | $ | 2,104 | | | $ | 3,902 | | | $ | 1,985 | | | $ | 5,887 | |
Premiums earned | |
Premiums earned | |
Incurred losses and LAE | |
Incurred losses and LAE | |
Incurred losses and LAE | Incurred losses and LAE | 1,531 | | | 564 | | | 2,094 | | | 3,227 | | | 1,398 | | | 4,624 | |
Commission and brokerage | Commission and brokerage | 337 | | | 85 | | | 423 | | | 985 | | | 231 | | | 1,216 | |
Commission and brokerage | |
Commission and brokerage | |
Other underwriting expenses | |
Other underwriting expenses | |
Other underwriting expenses | Other underwriting expenses | 33 | | | 94 | | | 127 | | | 97 | | | 269 | | | 365 | |
Underwriting gain (loss) | Underwriting gain (loss) | $ | (504) | | | $ | (37) | | | $ | (541) | | | $ | (406) | | | $ | 87 | | | $ | (319) | |
Underwriting gain (loss) | |
Underwriting gain (loss) | |
| |
| |
| | |
Net investment income | Net investment income | | 124 | | | 457 | |
Net investment income | |
Net investment income | |
Net gains (losses) on investments | |
Net gains (losses) on investments | |
Net gains (losses) on investments | Net gains (losses) on investments | | (237) | | | (842) | |
Corporate expenses | Corporate expenses | | (5) | | | (17) | |
Interest, fee and bond issue cost amortization expense | | (26) | | | (74) | |
Corporate expenses | |
Corporate expenses | |
Interest, fees and bond issue cost amortization expense | |
Interest, fees and bond issue cost amortization expense | |
Interest, fees and bond issue cost amortization expense | |
Other income (expense) | |
Other income (expense) | |
Other income (expense) | Other income (expense) | | 7 | | | (2) | |
Income (loss) before taxes | Income (loss) before taxes | | $ | (677) | | | $ | (796) | |
Income (loss) before taxes | |
Income (loss) before taxes | |
(Some amounts may not reconcile due to rounding)
Further classifications of revenues by geographic location are impracticable to disclose and, therefore, are not provided. Additionally, such information is not utilized by the Company’s CODM when reviewing the business to assess performance, make operating decisions or allocate resources.
7. SENIOR NOTES
The table below displays Holdings’ outstanding senior notes. Fair 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.
| | September 30, 2023 | | December 31, 2022 |
| | | | | | | March 31, 2024 | | | | | | | | | March 31, 2024 | | December 31, 2023 |
(Dollars in millions) | (Dollars in millions) | Date Issued | | Date Due | | Principal Amounts | | Consolidated Balance Sheet Amount | | Fair Value | | Consolidated Balance Sheet Amount | | Fair Value | (Dollars in millions) | Date Issued | | Date Due | | Principal Amounts | | Consolidated Balance Sheet Amount | | Fair Value | | Consolidated Balance Sheet Amount | | Fair Value |
4.868% Senior notes | 4.868% Senior notes | 6/5/2014 | | 6/1/2044 | | $ | 400 | | | $ | 398 | | | $ | 331 | | | $ | 397 | | | $ | 343 | |
3.5% Senior notes | 3.5% Senior notes | 10/7/2020 | | 10/15/2050 | | 1,000 | | | 981 | | | 642 | | | 981 | | | 677 | |
3.125% Senior notes | 3.125% Senior notes | 10/4/2021 | | 10/15/2052 | | 1,000 | | | 970 | | | 595 | | | 969 | | | 627 | |
| $ | 2,400 | | | $ | 2,348 | | | $ | 1,567 | | | $ | 2,347 | | | $ | 1,647 | |
| | | | | $ | |
(Some amounts may not reconcile due to rounding.)
Interest expense incurred in connection with these senior notes is as follows for the periods indicated:
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | | | | Three Months Ended March 31, | |
| | | | | Three Months Ended March 31, | |
| | | | | Three Months Ended March 31, | |
(Dollars in millions) | |
(Dollars in millions) | |
(Dollars in millions) | (Dollars in millions) | Interest Paid | | Payable Dates | | 2023 | | 2022 | | 2023 | | 2022 |
4.868% Senior notes | 4.868% Senior notes | semi-annually | | June 1/December 1 | | $ | 5 | | | $ | 5 | | | $ | 15 | | | $ | 15 | |
4.868% Senior notes | |
4.868% Senior notes | |
3.5% Senior notes | |
3.5% Senior notes | |
3.5% Senior notes | 3.5% Senior notes | semi-annually | | April 15/October 15 | | 9 | | | 9 | | | 26 | | | 26 | |
3.125% Senior notes | 3.125% Senior notes | semi-annually | | April 15/October 15 | | 8 | | | 8 | | | 24 | | | 24 | |
| $ | 22 | | | $ | 22 | | | $ | 65 | | | $ | 65 | |
3.125% Senior notes | |
3.125% Senior notes | |
| | | | | $ | |
| | | | | $ | |
| | | | | $ | |
(Some amounts may not reconcile due to rounding.)
8. LONG-TERM SUBORDINATED NOTES
The table below displays Holdings’ outstanding fixed to floating rate long-term subordinated notes (“Subordinated Notes Issued 2007”). Fair 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.
| | September 30, 2023 | | December 31, 2022 |
| Original Principal Amount | | Maturity Date | | Consolidated Balance Sheet Amount | | Fair Value | | Consolidated Balance Sheet Amount | | Fair Value |
| | | | | | | | | March 31, 2024 | | | | | | | | | | | March 31, 2024 | | December 31, 2023 |
| | | Original Principal Amount | | | | | Original Principal Amount | | Maturity Date | | Consolidated Balance Sheet Amount | | Fair Value | | Consolidated Balance Sheet Amount | | Fair Value |
(Dollars in millions) | (Dollars in millions) | Date Issued | | Original Principal Amount | | Scheduled | | Final | | Consolidated Balance Sheet Amount | | Fair Value | | Consolidated Balance Sheet Amount | | Fair Value |
Long-term subordinated notes | Long-term subordinated notes | 4/26/2007 | | 5/15/2037 | | 5/1/2067 | |
Long-term subordinated notes | |
Long-term subordinated notes | |
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 AugustFebruary 15, 20232024 to NovemberMay 14, 20232024 is 8.01%8.03%. Following the cessation of LIBOR, for periods from and including August 15, 2023, interest will be based on 3-month CMEChicago Mercantile Exchange (“CME”) Term SOFRSecured Overnight Financing Rate (“SOFR”) plus a spread.
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. The Company’s 4.868% senior notes, due on June 1, 2044, 3.5% senior notes due on October 15, 2050 and 3.125% senior notes due on October 15, 2052 are the Company’s long-term indebtedness that rank senior to the long-term subordinated notes.
In 2009, the Company had reduced its outstanding amount of long-term subordinated notes through the initiation of a cash tender offer for any and all of the long-term subordinated notes.
Interest expense incurred in connection with these long-term subordinated notes is as follows for the periods indicated:
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| Three Months Ended March 31, | |
| Three Months Ended March 31, | |
| Three Months Ended March 31, | |
(Dollars in millions) | |
(Dollars in millions) | |
(Dollars in millions) | (Dollars in millions) | 2023 | | 2022 | | 2023 | | 2022 |
Interest expense incurred | Interest expense incurred | $ | 4 | | | $ | 3 | | | $ | 12 | | | $ | 6 | |
Interest expense incurred | |
Interest expense incurred | |
9. FEDERAL HOME LOAN BANK MEMBERSHIP
Everest Re is a member of the Federal Home Loan Bank of New York (“FHLBNY”), which allows Everest Re to borrow up to 10% of its statutory admitted assets. As of September 30, 2023,March 31, 2024, Everest Re had admitted assets of approximately $25$27.0 billion which provides borrowing capacity in excess of $2.5$2.7 billion. As of September 30, 2023,March 31, 2024, Everest Re had $519$819 million of borrowings outstanding, all of which expiresexpire in 2023.2024. Everest Re incurred interest expense of $7$11 million and $0.8$6 million for the three months ended September 30,March 31, 2024 and 2023, and 2022, respectively. Everest Re incurred interest expense of $21 million and $2 million for the nine months ended September 30, 2023 and 2022, respectively. The FHLBNY membership agreement requires that 4.5% of borrowed funds be used to acquire additional membership stock. Additionally, the FHLBNY membership requires that members must have sufficient qualifying collateral pledged. As of March 31, 2024, Everest Re had $1.1 billion of collateral pledged. See Note 10.
10. COLLATERALIZED REINSURANCE, AND TRUST AGREEMENTS AND OTHER RESTRICTED ASSETS
A subsidiary of theThe Company Everest Re, has established a trust agreement, which effectively uses Everest Re’s investments as collateral,maintains certain restricted assets as security for assumed losses payablepotential future obligations, primarily to certain non-affiliated ceding companies.support its underwriting operations. The following table summarizes the Company’s restricted assets:
| | | | | | | | | | | |
(Dollars in millions) | March 31, 2024 | | December 31, 2023 |
Collateral in trust for non-affiliated agreements (1) | $ | 764 | | | $ | 825 | |
| | | |
Collateral for FHLB borrowings | 1,067 | | | 1,077 | |
Securities on deposit with or regulated by government authorities | 1,415 | | | 1,447 | |
Funds held by reinsureds | 313 | | | 306 | |
Total restricted assets | $ | 3,559 | | | $ | 3,654 | |
(1) At September 30,March 31, 2024 and December 31, 2023 the total amount on deposit in the trust account was $702includes $121 million which included $100and $116 millionof restricted cash.cash, respectively.
The Company entered into various 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 named storm and earthquake events. The table below summarizes the various agreements:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(Dollars in millions) | | | | | | | | |
Class | | Description | | Effective Date | | Expiration Date | | Limit | | Coverage Basis |
Series 2019-1 Class A-1A-2 | | US, Canada, Puerto Rico – Named Storm and Earthquake Events | | 12/12/2019 | | 12/19/20232024 | | 150 | | | Occurrence |
Series 2019-1 Class B-1B-2 | | US, Canada, Puerto Rico – Named Storm and Earthquake Events | | 12/12/2019 | | 12/19/20232024 | | 275 | | | Aggregate |
Series 2019-12021-1 Class A-2A-1 | | US, Canada, Puerto Rico – Named Storm and Earthquake Events | | 12/12/20194/8/2021 | | 12/19/20244/21/2025 | | 150 | | | Occurrence |
Series 2019-12021-1 Class B-2B-1 | | US, Canada, Puerto Rico – Named Storm and Earthquake Events | | 12/12/20194/8/2021 | | 12/19/20244/21/2025 | | 27585 | | | Aggregate |
Series 2021-1 Class A-1C-1 | | US, Canada, Puerto Rico – Named Storm and Earthquake Events | | 4/8/2021 | | 4/21/2025 | | 15085 | | | OccurrenceAggregate |
Series 2021-1 Class B-1A-2 | | US, Canada, Puerto Rico – Named Storm and Earthquake Events | | 4/8/2021 | | 4/21/202520/2026 | | 85150 | | | AggregateOccurrence |
Series 2021-1 Class C-1B-2 | | US, Canada, Puerto Rico – Named Storm and Earthquake Events | | 4/8/2021 | | 4/21/202520/2026 | | 8590 | | | Aggregate |
Series 2021-1 Class A-2C-2 | | US, Canada, Puerto Rico – Named Storm and Earthquake Events | | 4/8/2021 | | 4/20/2026 | | 15090 | | | OccurrenceAggregate |
Series 2021-12022-1 Class B-2A | | US, Canada, Puerto Rico – Named Storm and Earthquake Events | | 4/8/20216/22/2022 | | 4/20/20266/25/2025 | | 90300 | | | Aggregate |
| Series 2021-1 Class C-2 | US, Canada, Puerto Rico – Named Storm and Earthquake Events | | 4/8/2021 | | 4/20/2026 | | 90 | | | Aggregate |
Series 2022-1 Class A | | US, Canada, Puerto Rico – Named Storm and Earthquake Events | | 6/22/2022 | | 6/25/2025 | | 300 | | | Aggregate |
| | Total available limit as of September 30, 2023March 31, 2024 | | | | | | $ | 1,8001,375 | | | |
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. As of September 30, 2023, the
The Company had up to $350 million of catastrophe loss protection, including a catastrophe bond protection (“CAT Bond”) that attaches at a $48.1 billion Property Claims Services (“PCS”) Industry loss threshold. This recovery would be recognized on a pro-rata basis up to a $63.8 billion PCS Industry loss level. As a result of Hurricane Ian, PCS’s current industry estimate of $48.4
$48.3 billion issued in October 2023April 2024 exceeds the attachment point. As of September 30, 2023, theThe potential recovery under the CAT Bond included in the Company’s financial results, is currently estimatednot expected to be $20 million, subject to further revision of the industry loss estimate.material.
Kilimanjaro has financed the various property catastrophe reinsurance coverages by issuing catastrophe bonds to unrelated, external investors. The proceeds from the issuance of the catastrophe bonds are held in reinsurance trusts throughout the duration of the applicable reinsurance agreements and invested solely in U.S. government money market funds with a rating of at least “AAAm” by Standard & Poor’s. The catastrophe bonds’ issue dates, maturity dates and amounts correspond to the reinsurance agreements listed above.
11. 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 LAE.
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.
12. OTHER COMPREHENSIVE INCOME (LOSS)
The following tables present the components of comprehensive income (loss) in the consolidated statements of operations for the periods indicated:
| | Three Months Ended September 30, 2023 | | Nine Months Ended September 30, 2023 |
| Three Months Ended March 31, 2024 | |
| Three Months Ended March 31, 2024 | |
| Three Months Ended March 31, 2024 | |
(Dollars in millions) | |
(Dollars in millions) | |
(Dollars in millions) | (Dollars in millions) | Before Tax | | Tax Effect | | Net of Tax | | Before Tax | | Tax Effect | | Net of Tax |
URA(D) on securities - non-credit related | URA(D) on securities - non-credit related | $ | (157) | | | $ | 33 | | | $ | (124) | | | $ | (72) | | | $ | 15 | | | $ | (56) | |
URA(D) on securities - non-credit related | |
URA(D) on securities - non-credit related | |
Reclassification of net realized losses (gains) included in net income (loss) | |
Reclassification of net realized losses (gains) included in net income (loss) | |
Reclassification of net realized losses (gains) included in net income (loss) | Reclassification of net realized losses (gains) included in net income (loss) | 14 | | | (3) | | | 11 | | | 33 | | | (7) | | | 26 | |
Foreign currency translation adjustments | Foreign currency translation adjustments | (14) | | | 3 | | | (11) | | | (11) | | | 2 | | | (9) | |
Foreign currency translation adjustments | |
Foreign currency translation adjustments | |
Reclassification of amortization of net gain (loss) included in net income (loss) | |
Reclassification of amortization of net gain (loss) included in net income (loss) | |
Reclassification of amortization of net gain (loss) included in net income (loss) | Reclassification of amortization of net gain (loss) included in net income (loss) | 1 | | | — | | | — | | | 2 | | | — | | | 1 | |
Total other comprehensive income (loss) | Total other comprehensive income (loss) | $ | (157) | | | $ | 33 | | | $ | (124) | | | $ | (48) | | | $ | 10 | | | $ | (38) | |
Total other comprehensive income (loss) | |
Total other comprehensive income (loss) | |
(Some amounts may not reconcile due to rounding)
| | Three Months Ended September 30, 2022 | | Nine Months Ended September 30, 2022 |
| Three Months Ended March 31, 2023 | |
| Three Months Ended March 31, 2023 | |
| Three Months Ended March 31, 2023 | |
(Dollars in millions) | |
(Dollars in millions) | |
(Dollars in millions) | (Dollars in millions) | Before Tax | | Tax Effect | | Net of Tax | | Before Tax | | Tax Effect | | Net of Tax |
URA(D) on securities - non-credit related | URA(D) on securities - non-credit related | $ | (357) | | | $ | 75 | | | $ | (282) | | | $ | (1,376) | | | $ | 288 | | | $ | (1,087) | |
URA(D) on securities - non-credit related | |
URA(D) on securities - non-credit related | |
Reclassification of net realized losses (gains) included in net income (loss) | |
Reclassification of net realized losses (gains) included in net income (loss) | |
Reclassification of net realized losses (gains) included in net income (loss) | Reclassification of net realized losses (gains) included in net income (loss) | 50 | | | (11) | | | 40 | | | 61 | | | (13) | | | 48 | |
Foreign currency translation adjustments | Foreign currency translation adjustments | (37) | | | 8 | | | (29) | | | (52) | | | 11 | | | (41) | |
Foreign currency translation adjustments | |
Foreign currency translation adjustments | |
Reclassification of amortization of net gain (loss) included in net income (loss) | |
Reclassification of amortization of net gain (loss) included in net income (loss) | |
Reclassification of amortization of net gain (loss) included in net income (loss) | Reclassification of amortization of net gain (loss) included in net income (loss) | — | | | — | | | — | | | 3 | | | (1) | | | 2 | |
Total other comprehensive income (loss) | Total other comprehensive income (loss) | $ | (343) | | | $ | 72 | | | $ | (271) | | | $ | (1,364) | | | $ | 285 | | | $ | (1,078) | |
Total other comprehensive income (loss) | |
Total other comprehensive income (loss) | |
(Some amounts may not reconcile due to rounding)
The following table presents details of the amounts reclassified from AOCI for the periods indicated:
| | Three Months Ended September 30, | | Nine Months Ended September 30, | | Affected line item within the statements of operations and comprehensive income (loss) |
| | Three Months Ended March 31, | |
| | Three Months Ended March 31, | |
| | Three Months Ended March 31, | | | | | Affected line item within the statements of operations and comprehensive income (loss) |
AOCI component | AOCI component | | 2023 | | 2022 | | 2023 | | 2022 | | Affected line item within the statements of operations and comprehensive income (loss) |
(Dollars in millions) | (Dollars in millions) | | | | | | | | | |
(Dollars in millions) | |
(Dollars in millions) | |
URA(D) on securities | URA(D) on securities | | $ | 14 | | | $ | 50 | | | $ | 33 | | | $ | 61 | | | Other net gains (losses) on investments |
| (3) | | | (11) | | | (7) | | | (13) | | | Income tax expense (benefit) |
| $ | 11 | | | $ | 40 | | | $ | 26 | | | $ | 48 | | | Net income (loss) |
URA(D) on securities | |
URA(D) on securities | | | $ | 4 | | | $ | 11 | | | | | | | Other net gains (losses) on investments |
| | (1) | | | | (1) | | | (2) | | | | | | | Income tax expense (benefit) |
| | $ | | | | $ | 3 | | | $ | 9 | | | | | | | Net income (loss) |
| | | | | | | | | | |
Benefit plan net gain (loss) | Benefit plan net gain (loss) | | $ | 1 | | | $ | — | | | $ | 2 | | | $ | 3 | | | Other underwriting expenses |
| — | | | — | | | — | | | (1) | | | Income tax expense (benefit) |
| $ | — | | | $ | — | | | $ | 1 | | | $ | 2 | | | Net income (loss) |
Benefit plan net gain (loss) | |
Benefit plan net gain (loss) | | | $ | 1 | | | $ | — | | | | | | | Other underwriting expenses |
| | — | | | | — | | | — | | | | | | | Income tax expense (benefit) |
| | $ | | | | $ | — | | | $ | — | | | | | | | 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:
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| Three Months Ended March 31, | |
| Three Months Ended March 31, | |
| Three Months Ended March 31, | |
(Dollars in millions) | |
(Dollars in millions) | |
(Dollars in millions) | (Dollars in millions) | 2023 | | 2022 | | 2023 | | 2022 |
Beginning balance of URA(D) on securities | Beginning balance of URA(D) on securities | $ | (734) | | | $ | (675) | | | $ | (816) | | | $ | 122 | |
Beginning balance of URA(D) on securities | |
Beginning balance of URA(D) on securities | |
Current period change in URA(D) of investments - non-credit related | Current period change in URA(D) of investments - non-credit related | (113) | | | (242) | | | (31) | | | (1,039) | |
Current period change in URA(D) of investments - non-credit related | |
Current period change in URA(D) of investments - non-credit related | |
Ending balance of URA(D) on securities | |
Ending balance of URA(D) on securities | |
Ending balance of URA(D) on securities | Ending balance of URA(D) on securities | (847) | | | (917) | | | (847) | | | (917) | |
| Beginning balance of foreign currency translation adjustments | Beginning balance of foreign currency translation adjustments | 4 | | | 8 | | | 2 | | | 20 | |
| Beginning balance of foreign currency translation adjustments | |
| Beginning balance of foreign currency translation adjustments | |
Current period change in foreign currency translation adjustments | Current period change in foreign currency translation adjustments | (11) | | | (29) | | | (9) | | | (41) | |
Current period change in foreign currency translation adjustments | |
Current period change in foreign currency translation adjustments | |
Ending balance of foreign currency translation adjustments | |
Ending balance of foreign currency translation adjustments | |
Ending balance of foreign currency translation adjustments | Ending balance of foreign currency translation adjustments | (7) | | | (21) | | | (7) | | | (21) | |
| Beginning balance of benefit plan net gain (loss) | Beginning balance of benefit plan net gain (loss) | (32) | | | (49) | | | (33) | | | (51) | |
| Beginning balance of benefit plan net gain (loss) | |
| Beginning balance of benefit plan net gain (loss) | |
Current period change in benefit plan net gain (loss) | Current period change in benefit plan net gain (loss) | — | | | — | | | 1 | | | 2 | |
Current period change in benefit plan net gain (loss) | |
Current period change in benefit plan net gain (loss) | |
Ending balance of benefit plan net gain (loss) | |
Ending balance of benefit plan net gain (loss) | |
Ending balance of benefit plan net gain (loss) | Ending balance of benefit plan net gain (loss) | (32) | | | (49) | | | (32) | | | (49) | |
| Ending balance of accumulated other comprehensive income (loss) | Ending balance of accumulated other comprehensive income (loss) | $ | (886) | | | $ | (987) | | | $ | (886) | | | $ | (987) | |
| Ending balance of accumulated other comprehensive income (loss) | |
| Ending balance of accumulated other comprehensive income (loss) | |
(Some amounts may not reconcile due to rounding.)
13. RELATED-PARTY TRANSACTIONS
The table below displays long-term note agreements that Group entered into with Everest Re for the periods indicated. These transactions are presented as Notes Receivable – Affiliated in the Consolidated Balance Sheet of Holdings. All note agreements listed were repaid in full during the second quarter of 2023 and are no longer outstanding as of September 30, 2023. The fair value of these long-term notes is considered Level 2 in the fair value hierarchy.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | September 30, 2023 | | December 31, 2022 |
(Dollars in millions) | Date Issued | | Date Due | | Principal Amounts | | Consolidated Balance Sheet Amount | | Fair Value | | Consolidated Balance Sheet Amount | | Fair Value |
1.69% Long-term Note | 12/17/2019 | | 12/17/2028 | | $ | 300 | | | $ | — | | | $ | — | | | $ | 300 | | | $ | 242 | |
1.00% Long-term Note | 8/5/2021 | | 8/5/2030 | | 200 | | | — | | | — | | | 200 | | | 151 | |
3.11% Long-term Note | 6/14/2022 | | 6/14/2052 | | 215 | | | — | | | — | | | 215 | | | 171 | |
4.34%Long-term Note | 12/12/2022 | | 12/12/2052 | | 125 | | | — | | | — | | | 125 | | | 125 | |
| | | | | $ | 840 | | | $ | — | | | $ | — | | | $ | 840 | | | $ | 689 | |
(Some amounts may not reconcile due to rounding)
Interest income recognized in connection with these long-term notes is as follows for the periods indicated:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Three Months Ended September 30, | | Nine Months Ended September 30, |
(Dollars in millions) | Interest Received | | Receivable Dates | | 2023 | | 2022 | | 2023 | | 2022 |
1.69% Long-term Note | annually | | December 17 | | $ | — | | | $ | 1 | | | $ | 2 | | | $ | 4 | |
1.00% Long-term Note | annually | | August 5 | | — | | | 1 | | | 1 | | | 2 | |
3.11% Long-term Note | annually | | June 14 | | — | | | 2 | | | 3 | | | 2 | |
4.34% Long-term Note | annually | | December 12 | | — | | | — | | | 2 | | | — | |
| | | | | $ | — | | | $ | 3 | | | $ | 7 | | | $ | 7 | |
(Some amounts may not reconcile due to rounding)
Holdings holds 1,773.214 preferred shares of Preferred Holdings with a $1 million par value and 1.75% annual dividend rate. Holdings received these shares in December 2015 in exchange for previously held 9,719,971 common shares of Group. 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 gains (losses) on investments in the consolidated
statements of operations and comprehensive income (loss). The following table presents the dividends received on the preferred shares of Preferred Holdings that are reported as net investment income in the consolidated statements of operations and comprehensive income (loss) for the period indicated:
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| Three Months Ended March 31, | |
| Three Months Ended March 31, | |
| Three Months Ended March 31, | |
(Dollars in millions) | |
(Dollars in millions) | |
(Dollars in millions) | (Dollars in millions) | 2023 | | 2022 | | 2023 | | 2022 |
Dividends received on preferred stock of affiliate | Dividends received on preferred stock of affiliate | $ | 8 | | | $ | 8 | | | $ | 23 | | | $ | 23 | |
Dividends received on preferred stock of affiliate | |
Dividends received on preferred stock of affiliate | |
Affiliates
The Company has engaged in reinsurance transactions with Bermuda Re, Everest Reinsurance Company (Ireland), dac (“Ireland Re”), Everest Insurance (Ireland), dac (“Ireland Insurance”), Everest International Reinsurance Ltd. (“Everest International”), Everest Insurance Company of Canada (“Everest Canada”), Lloyd’s Syndicate 2786 and Mt. Logan Re,
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 for all new and renewal business for the indicated coverage period:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(Dollars in millions) | | | | | | | | | | | | |
Coverage Period | Ceding Company | | Percent Ceded | | Assuming Company | | Type of Business | | Single Occurrence Limit | | Aggregate Limit | |
01/01/2010-12/31/2010 | Everest Re | | 44.0 | % | | Bermuda Re | | property / casualty business | | 150 | | | 325 | | |
01/01/2011-12/31/2011 | Everest Re | | 50.0 | % | | Bermuda Re | | property / casualty business | | 150 | | | 300 | | |
01/01/2012-12/31/2014 | Everest Re | | 50.0 | % | | Bermuda Re | | property / casualty business | | 100 | | | 200 | | |
01/01/2015-12/31/2016 | Everest Re | | 50.0 | % | | Bermuda Re | | property / casualty business | | 163 | | | 325 | | |
01/01/2017-12/31/2017 | Everest Re | | 60.0 | % | | Bermuda Re | | property / casualty business | | 219 | | | 438 | | |
01/01/2010-12/31/2010 | Everest Re- Canadian Branch | | 60.0 | % | | Bermuda Re | | property business | | 350 | | (1) | — | | |
01/01/2011-12/31/2011 | Everest Re- Canadian Branch | | 60.0 | % | | Bermuda Re | | property business | | 350 | | (1) | — | | |
01/01/2012-12/31/2012 | Everest Re- Canadian Branch | | 75.0 | % | | Bermuda Re | | property / casualty business | | 206 | | (1) | 413 | | (1) |
01/01/2013-12/31/2013 | Everest Re- Canadian Branch | | 75.0 | % | | Bermuda Re | | property / casualty business | | 150 | | (1) | 413 | | (1) |
01/01/2014-12/31/2017 | Everest Re- Canadian Branch | | 75.0 | % | | Bermuda Re | | property / casualty business | | 263 | | (1) | 413 | | (1) |
01/01/2012-12/31/2017 | Everest Canada | | 80.0 | % | | Everest Re- Canadian Branch | | property business | | — | | | — | | |
01/01/2018 | Everest International Assurance | | 100.0 | % | | Bermuda Re | | life business | | — | | | — | | |
(1)Amounts shown are Canadian dollars.
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 stop loss agreement was most recently renewed effective January 1, 2023.2024.
The stop loss agreements between Everest Re and Bermuda Re that were effective for 2018 and 2019 were both commuted during the third quarter of 2023. The commutations of the agreements resulted in the recognition of an aggregate loss of $37 million for Everest Re.Re in the third quarter of 2023.
Everest Re entered into a catastrophe excess of loss reinsurance contract with Bermuda Re (UK Branch), effective January 1, 2021 through December 31, 2021. The contract provides Bermuda Re (UK Branch) with up to £110£100 million of reinsurance coverage for each catastrophe occurrence above £29£24 million. Bermuda Re (UK Branch) paid Everest Re £4£5 million for this coverage. This contract was most recently renewed effective January 1, 2023.2024.
Everest Re entered into a catastrophe excess of loss reinsurance contract with Ireland Re, effective February 1, 20232021 through January 31, 2024.2022. The contract provides Ireland Re with up to €121€210 million of reinsurance coverage for each catastrophe occurrence above €18 million. Ireland Re paid Everest Re €10€14 million for this coverage. This agreement was most recently renewed effective February 1, 2024.
Everest Re entered into a catastrophe excess of loss reinsurance contract with Ireland Re, effective March 31, 2023 through January 31, 2024. The contract provides Ireland Re with up to €61 million of reinsurance coverage for each catastrophe occurrence above €139 million. Ireland Re paid Everest Re €2 million for this coverage. This agreement was not renewed for 2024.
Everest Re had quota share reinsurance agreements in place with Bermuda Re from 2002 through the end of 2017. Quota share percentages ranged from 20% to 60% depending on the year. As of December 31, 2017, the quota share reinsurance agreements between Everest Re and Bermuda Re were not renewed and the existing quota share were put into run-off. As of March 31, 2024 and December 31, 2023, Everest Re had reinsurance recoverables on unpaid losses of $718 million and $759 million in connection with these agreements.
Everest Re - Canadian Branch had quota share reinsurance agreements in place with Bermuda Re from 2007 through the end of 2017. Quota share percentages ranged from 60% to 75% depending on the year. As of December 31, 2017, the quota share reinsurance agreements between Everest Re - Canadian Branch and Bermuda Re were not renewed and the existing quota share were put into run-off. As of March 31, 2024 and as of December 31, 2023, Everest Re had reinsurance recoverables on unpaid losses of $41 million and $45 million in connection with these agreements.
Everest Re had quota share reinsurance agreements in place with Everest International Reinsurance, Ltd. (“EIR”) from 2004 through the end of 2009. Quota share percentages ranged from 2% to 8% depending on the year. As of December 31, 2009, the quota share reinsurance agreements between Everest Re and EIR were not renewed and the existing quota share were put into run-off. As of March 31, 2024 and as of December 31, 2023, Everest Re had reinsurance recoverables on unpaid losses of $7 million and $7 million in connection with these agreements.
The table below represents loss portfolio transfer (“LPT”) reinsurance agreements whereby net insurance exposures and reserves were transferred to an affiliate:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
(Dollars in millions) |
Effective Date | | Transferring Company | | Assuming Company | | % of Business or Amount of Transfer | | Covered Period of Transfer |
| 10/01/2001 | | Everest Re (Belgium Branch) | | Bermuda Re | | 100 | % | All years |
| 10/01/2008 | | Everest Re | | Bermuda Re | | $ | 747 | | 01/01/2002-12/31/2007 |
12/31/2017 | | Everest Re | | Bermuda Re | | $ | 970 | | | All years |
On December 31, 2017, the Company entered into a LPT agreement with Bermuda Re. The LPT agreement covers subject loss reserves of $2.3 billion for accident years 2017 and prior. As a result of the LPT agreement, the Company transferred $1.0 billion of cash and fixed maturity securities and transferred $970 million of loss reserves to Bermuda Re. As part of the LPT agreement, Bermuda Re will provide an additional $500 million of adverse development coverage on the subject loss reserves. As of September 30, 2023March 31, 2024 and December 31, 2022,2023, the Company has a reinsurance recoverable of $804$807 million and $804$807 million, respectively, recorded on its balance sheet due from Bermuda Re.
The following tables summarize the significant premiums and losses ceded and assumed by the Company toin transactions with affiliated entities:entities for the periods indicated:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Bermuda Re | | Three Months Ended September 30, | | Nine Months Ended September 30, |
(Dollars in millions) | | 2023 | | 2022 | | 2023 | | 2022 |
Ceded written premiums | | $ | 107 | | | $ | 95 | | | $ | 321 | | | $ | 279 | |
Ceded earned premiums | | 107 | | | 95 | | | 321 | | | 279 | |
Ceded losses and LAE | | (40) | | | (2) | | | (49) | | | (1) | |
| | | | | | | | |
Assumed written premiums | | 1 | | | — | | | 5 | | | 3 | |
Assumed earned premiums | | 1 | | | — | | | 4 | | | 5 | |
Assumed losses and LAE | | — | | | — | | | — | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Ireland Re | | Three Months Ended September 30, | | Nine Months Ended September 30, |
(Dollars in millions) | | 2023 | | 2022 | | 2023 | | 2022 |
Assumed written premiums | | $ | 3 | | | $ | 2 | | | $ | 9 | | | $ | 6 | |
Assumed earned premiums | | 3 | | | 2 | | | 9 | | | 6 | |
Assumed losses and LAE | | 1 | | | (4) | | | 2 | | | (2) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Ireland Insurance | | Three Months Ended September 30, | | Nine Months Ended September 30, |
(Dollars in millions) | | 2023 | | 2022 | | 2023 | | 2022 |
Assumed written premiums | | $ | 1 | | | $ | 3 | | | $ | 13 | | | $ | 7 | |
Assumed earned premiums | | 4 | | | 2 | | | 14 | | | 6 | |
Assumed losses and LAE | | 1 | | | 1 | | | 4 | | | 3 | |
| | | | | | | | | | | | | | | |
Bermuda Re | Three Months Ended March 31, | | |
(Dollars in millions) | 2024 | | 2023 | | | | |
Ceded written premiums | $ | 116 | | | $ | 106 | | | | | |
Ceded earned premiums | 116 | | | 106 | | | | | |
Ceded losses and LAE | 2 | | | (4) | | | | | |
| | | | | | | |
The following table summarizes the premiums and losses that are ceded by the Company to Mt. Logan Re segregated accounts:
| Mt. Logan Re Segregated Accounts | Mt. Logan Re Segregated Accounts | | Three Months Ended September 30, | | Nine Months Ended September 30, |
Mt. Logan Re Segregated Accounts | |
Mt. Logan Re Segregated Accounts | |
(Dollars in millions) | |
(Dollars in millions) | |
(Dollars in millions) | (Dollars in millions) | | 2023 | | 2022 | | 2023 | | 2022 |
Ceded written premiums | Ceded written premiums | | $ | 76 | | | $ | 60 | | | $ | 158 | | | $ | 122 | |
Ceded written premiums | |
Ceded written premiums | |
Ceded earned premiums | |
Ceded earned premiums | |
Ceded earned premiums | Ceded earned premiums | | 65 | | | 51 | | | 147 | | | 122 | |
Ceded losses and LAE | Ceded losses and LAE | | 17 | | | 82 | | | 49 | | | 142 | |
Ceded losses and LAE | |
Ceded losses and LAE | |
14. INCOME TAXES
The Company is domiciled in the United States and has subsidiaries domiciled within the United States with significant branches in Canada and Singapore. The Company’s non-U.S. branches are subject to income taxation at varying rates in their respective domiciles.
The Company generally applies the estimated annual effective tax rate (“AETR”) approach for calculating its tax provision for interim periods as prescribed by ASC 740-270, Interim Reporting. Under the estimated AETR approach, the estimated AETR is applied to the interim year-to-date pre-tax income/(loss) to determine the income tax expense or benefit for the year-to-date period. The tax expense or benefit for the quarter represents the difference between the year-to-date tax expense or benefit for the current year-to-date period less such amount for the immediately preceding year-to-date period. Management considers the impact of all known events in its estimation of the Company’s annual pre-tax income/(loss) and AETR.
On August 16, 2022, the Inflation Reduction Act of 2022 (“IRA”) was enacted. We have evaluated the tax provisions of the IRA, the most significant of which areis the corporate alternative minimum tax and the share repurchase excise tax and do not expect the legislation to have a material impact on our results of operations. As the IRS issues additional guidance, we will evaluate any impact to our consolidated financial statements.
15. SUBSEQUENT EVENTS
The Company has evaluated known recognized and non-recognized subsequent events. The Company does not have any subsequent events to report.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
Industry Conditions.
The worldwide reinsurance and insurance businesses are highly competitive, as well as cyclical by product and market. As a result, 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, 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 the securitization of reinsurance and insurance risks through capital markets provide additional sources of potential reinsurance and insurance capacity and competition.
Worldwide reinsurance and insurance market conditions historically have been competitive. Generally, there is ample reinsurance and insurance capacity relative to demand, as well as additional capital from the capital markets through insurance-linked financial instruments. These financialFinancial instruments such as side cars, catastrophe bonds and collateralized reinsurance funds, provide capital markets with access to reinsurance and insurance risk exposure. The capital markets demand for these products is primarily driven by the desire to achieve greater risk diversification and potentially higher returns on their investments. This competition generally has a negative impact on rates, terms and conditions; however, the impact varies widely by market and coverage. Based on recent competitive behaviors in the reinsurance and insurance industry, natural catastrophe events and the macroeconomic backdrop, there has been dislocation in the market which has had a positive impact on rates and terms and conditions, generally, though specifics in local markets can vary.
Specifically, recent market conditions in property, particularly catastrophe excess of loss, have resulted in rate increases. As a result of the rate increases, most of the lines within property have been affected. Other casualty lines have been experiencing modest rate increases, while some lines such as workers’ compensation and directors and officers liability have been experiencing softer market conditions. The impact on pricing conditions is likely to change depending on the line of business and geography.
Our capital position isremains a source of strength, with high-quality invested assets, significant liquidity and a low operating expense ratio. Our diversified global platform with its broad mix of products, distribution and geography is resilient.
The war in the recent emergence of the Middle East war and the ongoing war in the Ukraine are evolving events. Economic and legal sanctions have been levied against Russia, specific named individuals and entities connected to the Russian government, as well as businesses located in the Russian Federation and/or owned by Russian nationals in numerous countries, including the United States. The significant political and economic uncertainty surrounding these wars and associated sanctions have impacted economic and investment markets both within Russia, Ukraine, the Middle East region, and around the world.
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:
| | Three Months Ended September 30, | | Percentage Increase/ (Decrease) | | Nine Months Ended September 30, | | Percentage Increase/ (Decrease) |
| Three Months Ended March 31, | |
| Three Months Ended March 31, | |
| Three Months Ended March 31, | |
(Dollars in millions) | |
(Dollars in millions) | |
(Dollars in millions) | (Dollars in millions) | 2023 | | 2022 | | Percentage Increase/ (Decrease) | | 2023 | | 2022 | | Percentage Increase/ (Decrease) |
Gross written premiums | Gross written premiums | $ | 2,869 | | | $ | 2,585 | | | $ | 8,280 | | | $ | 7,227 | | |
Gross written premiums | |
Gross written premiums | |
Net written premiums | |
Net written premiums | |
Net written premiums | Net written premiums | 2,350 | | | 2,228 | | | 5.5 | % | | 6,809 | | | 6,019 | | | 13.1 | % |
| REVENUES: | REVENUES: | |
| REVENUES: | |
| REVENUES: | |
Premiums earned | |
Premiums earned | |
Premiums earned | Premiums earned | $ | 2,139 | | | $ | 2,104 | | | 1.7 | % | | $ | 6,339 | | | $ | 5,887 | | | 7.7 | % |
Net investment income | Net investment income | 278 | | | 124 | | | NM | | 711 | | | 457 | | | 55.5 | % |
Net investment income | |
Net investment income | |
Net gains (losses) on investments | |
Net gains (losses) on investments | |
Net gains (losses) on investments | Net gains (losses) on investments | (59) | | | (237) | | | (75.1) | % | | (59) | | | (842) | | | (93.0) | % |
Other income (expense) | Other income (expense) | 2 | | | 7 | | | (63.2) | % | | (12) | | | (2) | | | NM |
Other income (expense) | |
Other income (expense) | |
Total revenues | |
Total revenues | |
Total revenues | Total revenues | 2,361 | | | 1,998 | | | 18.2 | % | | 6,979 | | | 5,500 | | | 26.9 | % |
| CLAIMS AND EXPENSES: | CLAIMS AND EXPENSES: | |
| CLAIMS AND EXPENSES: | |
| CLAIMS AND EXPENSES: | |
Incurred losses and loss adjustment expenses | |
Incurred losses and loss adjustment expenses | |
Incurred losses and loss adjustment expenses | Incurred losses and loss adjustment expenses | 1,471 | | | 2,094 | | | (29.8) | % | | 4,190 | | | 4,624 | | | (9.4) | % |
Commission, brokerage, taxes and fees | Commission, brokerage, taxes and fees | 454 | | | 423 | | | 7.3 | % | | 1,323 | | | 1,216 | | | 8.8 | % |
Commission, brokerage, taxes and fees | |
Commission, brokerage, taxes and fees | |
Other underwriting expenses | |
Other underwriting expenses | |
Other underwriting expenses | Other underwriting expenses | 149 | | | 127 | | | 17.0 | % | | 424 | | | 365 | | | 16.1 | % |
Corporate expenses | Corporate expenses | 8 | | | 5 | | | 54.4 | % | | 18 | | | 17 | | | 7.3 | % |
Corporate expenses | |
Corporate expenses | |
Interest, fees and bond issue cost amortization expense | Interest, fees and bond issue cost amortization expense | 34 | | | 26 | | | 33.4 | % | | 99 | | | 74 | | | 33.8 | % |
Interest, fees and bond issue cost amortization expense | |
Interest, fees and bond issue cost amortization expense | |
Total claims and expenses | |
Total claims and expenses | |
Total claims and expenses | Total claims and expenses | 2,115 | | | 2,675 | | | (21.0) | % | | 6,053 | | | 6,296 | | | (3.9) | % |
| INCOME (LOSS) BEFORE TAXES | INCOME (LOSS) BEFORE TAXES | 246 | | | (677) | | | NM | | 926 | | | (796) | | | NM |
| INCOME (LOSS) BEFORE TAXES | |
| INCOME (LOSS) BEFORE TAXES | |
Income tax expense (benefit) | Income tax expense (benefit) | 25 | | | (135) | | | NM | | 154 | | | (170) | | | NM |
Income tax expense (benefit) | |
Income tax expense (benefit) | |
NET INCOME (LOSS) | |
NET INCOME (LOSS) | |
NET INCOME (LOSS) | NET INCOME (LOSS) | $ | 222 | | | $ | (542) | | | NM | | $ | 771 | | | $ | (626) | | | NM |
| RATIOS: | RATIOS: | | Point Change | | Point Change |
| RATIOS: | |
| RATIOS: | |
Loss ratio | |
Loss ratio | |
Loss ratio | Loss ratio | 68.8 | % | | 99.6 | % | | (30.8) | | | 66.1 | % | | 78.6 | % | | (12.5) | |
Commission and brokerage ratio | Commission and brokerage ratio | 21.2 | % | | 20.1 | % | | 1.1 | | | 20.9 | % | | 20.7 | % | | 0.2 | |
Commission and brokerage ratio | |
Commission and brokerage ratio | |
Other underwriting expense ratio | |
Other underwriting expense ratio | |
Other underwriting expense ratio | Other underwriting expense ratio | 7.0 | % | | 6.1 | % | | 0.9 | | | 6.7 | % | | 6.2 | % | | 0.5 | |
Combined ratio | Combined ratio | 96.9 | % | | 125.7 | % | | (28.8) | | | 93.7 | % | | 105.4 | % | | (11.7) | |
Combined ratio | |
Combined ratio | |
| | At September 30, | | At December 31, | | Percentage Increase/ (Decrease) |
| At March 31, | | | At March 31, | | At December 31, | | Percentage Increase/ (Decrease) |
(Dollars in millions) | (Dollars in millions) | 2023 | | 2022 | | Percentage Increase/ (Decrease) |
Balance sheet data: | Balance sheet data: | | | | |
Balance sheet data: | |
Balance sheet data: | |
Total investments and cash | |
Total investments and cash | |
Total investments and cash | Total investments and cash | $ | 21,841 | | | $ | 19,195 | | | 13.8 | % | $ | 23,858 | | | $ | | $ | 23,439 | | | 1.8 | | 1.8 | % |
Total assets | Total assets | 30,434 | | | 27,957 | | | 8.9 | % | Total assets | 32,184 | | | 31,638 | | 31,638 | | | 1.7 | | 1.7 | % |
Loss and loss adjustment expense reserves | 15,669 | | | 14,977 | | | 4.6 | % |
Reserve for losses and loss adjustment expenses | | Reserve for losses and loss adjustment expenses | 15,949 | | | 15,796 | | | 1.0 | % |
Total debt | Total debt | 3,085 | | | 3,084 | | | — | % | Total debt | 3,386 | | | 3,385 | | 3,385 | | | — | | — | % |
Total liabilities | Total liabilities | 24,047 | | | 22,303 | | | 7.8 | % | Total liabilities | 24,665 | | | 24,451 | | 24,451 | | | 0.9 | | 0.9 | % |
Stockholder's equity | Stockholder's equity | 6,388 | | | 5,654 | | | 13.0 | % | Stockholder's equity | 7,518 | | | 7,187 | | 7,187 | | | 4.6 | | 4.6 | % |
(NM, not meaningful)
(Some amounts may not reconcile due to rounding)
Revenues.
Premiums. Gross written premiums increased by 11.0%11.1% to $2.9$2.8 billion for the three months ended September 30, 2023,March 31, 2024, compared to $2.6$2.5 billion for the three months ended September 30, 2022,March 31, 2023, reflecting a $305$308 million, or 18.1%18.9%, increase in our reinsurance business, and an $21partially offset by $32 million, or 2.4%3.7%, decrease in our insurance business. The increase in reinsurance premiums was primarily due to increases across all lines of business, particularlyin property pro rata business,and casualty pro rata business and casualty excess of loss business. The decrease in insurance premiums was primarily due to lower workers’decreases in financial lines, worker’s compensation and financial lines business, partially offset by increases in propertyaccident and specialtyhealth lines of business. Gross written premiums increased by 14.6% to $8.3 billion for the nine months ended September 30, 2023, compared to $7.2 billion for the nine months ended September 30, 2022, reflecting a $965 million, or 21.7%, increase in our reinsurance business and a $87 million, or 3.2%, increase in our insurance business. The increase in reinsurance premiums was mainly
due to increases across all lines of business, particularly property pro rata business and casualty pro rata business. The increase in insurance premiums reflects increases in property/short tail business and other specialty lines of business.
Net written premiums increased by 5.5%9.9% to $2.4$2.3 billion for the three months ended September 30,March 31, 2024, compared to $2.1 billion for the three months ended March 31, 2023, comparedwhich is consistent with the percentage change in gross written premiums. Premiums earned increased by 7.8% to $2.2 billion for the three months ended September 30, 2022 and increased by 13.1% to $6.8 billion for the nine months ended September 30, 2023,March 31, 2024, compared to $6.0 billion for the nine months ended September 30, 2022. Premiums earned generally reflect the portion of net premiums written that was recorded as revenues for the period as the exposure periods expire. Premiums earned increased by 1.7% to $2.14$2.1 billion for the three months ended September 30, 2023, comparedMarch 31, 2023. The change in premiums earned relative to $2.10 billion fornet written premiums is primarily the three months ended September 30, 2022 and increased by 7.7% to $6.3 billion forresult of timing; premiums are earned ratably over the nine months ended September 30, 2023, compared to $5.9 billion forcoverage period whereas written premiums are generally recorded at the nine months ended September 30, 2022.initiation of the coverage period.
Other Income (Expense). We recorded other income of $2$7 million and $7other expense $4 million for the three months ended September 30,March 31, 2024 and 2023, and 2022, respectively. We recorded other expense of $12 million and $2 million for the nine months ended September 30, 2023 and 2022, respectively. The changes werechange was primarily the result of fluctuations in foreign currency exchange rates.
Net Investment Income. Refer to Consolidated Investments Results Section below.
Net Gains (Losses) on Investments. Refer to Consolidated Investments Results Section below.
Claims and Expenses.
Incurred Losses and Loss Adjustment Expenses. The following tables present our incurred losses and LAEloss adjustment expenses (“LAE”) for the periods indicated:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, |
(Dollars in millions) | Current Year | | Ratio %/ Pt Change | | Prior Years | | Ratio %/ Pt Change | | Total Incurred | | Ratio %/ Pt Change |
2023 | | | | | | | | | | | |
Attritional | $ | 1,313 | | | 61.4 | % | | $ | 38 | | | 1.8 | % | | $ | 1,350 | | | 63.1 | % |
Catastrophes | 127 | | | 5.9 | % | | (7) | | | (0.3) | % | | 120 | | | 5.6 | % |
Total | $ | 1,440 | | | 67.3 | % | | $ | 31 | | | 1.5 | % | | $ | 1,471 | | | 68.8 | % |
| | | | | | | | | | | |
2022 | | | | | | | | | | | |
Attritional | $ | 1,260 | | | 59.9 | % | | $ | 7 | | | 0.3 | % | | $ | 1,267 | | | 60.2 | % |
Catastrophes | 826 | | | 39.2 | % | | 1 | | | 0.1 | % | | 827 | | | 39.3 | % |
Total | $ | 2,086 | | | 99.1 | % | | $ | 8 | | | 0.4 | % | | $ | 2,094 | | | 99.6 | % |
| | | | | | | | | | | |
Variance 2023/2022 | | | | | | | | | | | |
Attritional | $ | 52 | | | 1.5 | pts | | $ | 31 | | | 1.4 | pts | | $ | 83 | | | 2.9 | pts |
Catastrophes | (699) | | | (33.3) | pts | | (8) | | | (0.4) | pts | | (707) | | | (33.7) | pts |
Total | $ | (646) | | | (31.8) | pts | | $ | 23 | | | 1.0 | pts | | $ | (623) | | | (30.8) | pts |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, |
(Dollars in millions) | Current Year | | Ratio %/ Pt Change | | Prior Years | | Ratio %/ Pt Change | | Total Incurred | | Ratio %/ Pt Change |
2023 | | | | | | | | | | | |
Attritional | $ | 3,911 | | | 61.7 | % | | $ | 37 | | | 0.6 | % | | $ | 3,948 | | | 62.3 | % |
Catastrophes | 249 | | | 3.9 | % | | (7) | | | (0.1) | % | | 242 | | | 3.8 | % |
Total | $ | 4,159 | | | 65.6 | % | | $ | 31 | | | 0.5 | % | | $ | 4,190 | | | 66.1 | % |
| | | | | | | | | | | |
2022 | | | | | | | | | | | |
Attritional | $ | 3,636 | | | 61.8 | % | | $ | 7 | | | 0.1 | % | | $ | 3,643 | | | 61.9 | % |
Catastrophes | 971 | | | 16.5 | % | | 10 | | | 0.2 | % | | 981 | | | 16.7 | % |
Total | $ | 4,606 | | | 78.3 | % | | $ | 18 | | | 0.3 | % | | $ | 4,624 | | | 78.6 | % |
| | | | | | | | | | | |
Variance 2023/2022 | | | | | | | | | | | |
Attritional | $ | 275 | | | (0.1) | pts | | $ | 30 | | | 0.5 | pts | | 305 | | | 0.4 | pts |
Catastrophes | (723) | | | (12.6) | pts | | (17) | | | (0.3) | pts | | (740) | | | (12.9) | pts |
Total | $ | (447) | | | (12.6) | pts | | $ | 13 | | | 0.2 | pts | | $ | (434) | | | (12.5) | pts |
(Some amounts may not reconcile due to rounding.)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, |
(Dollars in millions) | Current Year | | Ratio %/ Pt Change | | Prior Years | | Ratio %/ Pt Change | | Total Incurred | | Ratio %/ Pt Change |
2024 | | | | | | | | | | | |
Attritional | $ | 1,357 | | | 60.8 | % | | $ | 6 | | | 0.3 | % | | $ | 1,362 | | | 61.1 | % |
Catastrophes | 42 | | | 1.9 | % | | (29) | | | (1.3) | % | | 13 | | | 0.6 | % |
Total | $ | 1,399 | | | 62.7 | % | | $ | (24) | | | (1.1) | % | | $ | 1,375 | | | 61.6 | % |
| | | | | | | | | | | |
2023 | | | | | | | | | | | |
Attritional | $ | 1,300 | | | 62.9 | % | | $ | (2) | | | -0.1 | % | | $ | 1,299 | | | 62.8 | % |
Catastrophes | 103 | | | 5.0 | % | | (7) | | | (0.3) | % | | 96 | | | 4.6 | % |
Total | $ | 1,403 | | | 67.8 | % | | $ | (9) | | | -0.4 | % | | $ | 1,394 | | | 67.4 | % |
| | | | | | | | | | | |
Variance 2024/2023 | | | | | | | | | | | |
Attritional | $ | 56 | | | (2.1) | pts | | $ | 8 | | | 0.3 | pts | | $ | 64 | | | (1.7) | pts |
Catastrophes | (60) | | | (3.1) | pts | | (22) | | | (1.0) | pts | | (83) | | | (4.0) | pts |
Total | $ | (4) | | | (5.1) | pts | | $ | (15) | | | (0.6) | pts | | $ | (19) | | | (5.7) | pts |
Incurred losses and LAE decreased by 29.8% to $1.51.4%, but remained consistent at $1.4 billion for the three months ended September 30, 2023March 31, 2024 compared to $2.1$1.4 billion for the three months ended September 30, 2022,March 31, 2023, primarily due to a decrease of $699$60 million in current year catastrophe losses, offset by an increase of $52$56 million in current year attritional losses. The increase in current year attritional losses was mainly due to the impact of the increase in underlying exposures due to increased premiums earned. The current year catastrophe losses of $127$42 million for the three months ended September 30, 2023March 31, 2024 mainly related to the 2023 Morocco earthquake2024 Baltimore bridge collapse ($4027 million), Hurricane Idalia ($40 million), the 2023 Hawaii wildfire ($28 million), and the 2023 3rd quarter 2024 United States (“U.S.”) East Coast convective storms ($2015 million). The current year catastrophe losses of $826$103 million for the three months ended September 30, 2022March 31, 2023 mainly related to Hurricane Ianthe 2023 Turkey earthquakes ($76965 million), Hurricane Fiona ($25 million), Typhoon Nanmadol ($20 million), and the 2022 Western Europe hailstorms2023 New Zealand storms ($938 million). Prior year incurred favorable development of $31$24 million for the three months ended September 30, 2023 isMarch 31, 2024 primarily driven by the commutation of stop loss agreements between Everest Re and Bermuda Re that were effective for 2018 and 2019.
Incurred losses and LAE decreased by 9.4% to $4.2 billion for the nine months ended September 30, 2023 compared to $4.6 billion for the nine months ended September 30, 2022, primarily due to a decrease of $723 millionreduction in currentprior year catastrophe losses, partially offset by an increase of $275 million in current year attritional losses. The increase in current year attritional losses was mainly due to the impact of the increase in underlying exposures due to increased premiums earned. The current year catastrophe losses of $249 million for the nine months ended September 30, 2023 related to 2023 Turkey earthquakes ($84 million), the 2023 New Zealand storms ($42 million), the 2023 Morocco earthquake ($40 million), Hurricane Idalia ($40 million), the 2023 Hawaii wildfire ($28 million), the 2023 3rd quarter U.S. storms ($20 million), Typhoon Mawar ($11 million), and the 2023 2nd quarter U.S. storms ($4 million), partially offset by $20 million of reinsurance recoverables related to Hurricane Ian. The current year catastrophe losses of $971 million for the nine months ended September 30, 2022 primarily related to Hurricane Ian ($769 million), the 2022 Australia floods ($74 million), the 2022 South Africa flood ($38 million), Hurricane Fiona ($25 million), Typhoon Nanmadol ($20 million), the 2022 Canada derecho ($16 million), the 2022 2nd quarter U.S. storms ($12 million), the 2022 Western Europe hailstorms ($9 million) and the 2022 March U.S. storms ($8 million). Prior year incurred development of $31 million for the nine months ended September 30, 2023 is primarily driven by the commutation of stop loss agreements between Everest Re and Bermuda Re that were effective for 2018 and 2019.reserves.
Commission, Brokerage, Taxes and Fees. Commission, brokerage, taxes and fees increased to $454$472 million for the three months ended September 30, 2023March 31, 2024 compared to $423$436 million for the three months ended September 30, 2022. Commission, brokerage, taxes and fees increased to $1.3 billion for the nine months ended September 30, 2023 compared to $1.2 billion for the nine months ended September 30, 2022.March 31, 2023. The increases wereincrease was mainly due to the impact of the increase in premiums earned and changes in the mix of business.
Other Underwriting Expenses. Other underwriting expenses increased to $149$146 million for the three months ended September 30, 2023March 31, 2024 compared to $127$139 million for the three months ended September 30, 2022. Other underwriting expenses increased to $424 million for the nine months ended September 30, 2023 compared to $365 million for the nine months ended September 30, 2022.March 31, 2023. The increases wereincrease was mainly due to increased expenditures supporting the impactincreased premium volume of the increase in premiums earned and costs incurred to support the expansion of the insurance business.segment.
Corporate Expenses. Corporate expenses, which are general operating expenses that are not allocated to segments, have increased to $8were $5 million from $5and $6 million for the three months ended September 30,March 31, 2024 and 2023, and 2022, respectively, and increased slightly to $18 million from $17 million for the nine months ended September 30, 2023 and 2022, respectively. The increases are mainly due to changes in variable incentive compensation expenses.
Interest, Fees and Bond Issue Cost Amortization Expense. Interest, fees and other bond amortization expense was $34$37 million and $26$32 million for the three months ended September 30,March 31, 2024 and 2023, and 2022, respectively. Interest, fees and other bond amortization expense was $99 million and $74 million for the nine months ended September 30, 2023 and 2022, respectively. The increases were mainly due to higher interest costs on the FHLBNY borrowing as a result of the rising interest rate environment. Interest expense was alsomainly impacted by the movementsmovement in the floating interest rate related to the Company’s long-term Subordinated Notes,subordinated notes, which is reset quarterly per the note agreement. The floatingagreement, as well as variable interest rate was 8.01% as of September 30, 2023.costs on borrowings from FHLB.
Income Tax Expense (Benefit). We had income tax expense of $25$99 million and $154$49 million for the three and nine months ended September 30,March 31, 2024, and 2023, respectively. We had income tax benefit of $135 million and $170 million for the three and nine months ended September 30, 2022, respectively. Income tax expense is primarily a function of the geographic location of the Company’s pre-tax income and the statutory tax rates in those jurisdictions. The effective tax rate (“ETR”) is primarily affected by tax-exempt investment income, foreign tax credits and dividends. Variations in the ETR generally result from changes in the relative levels of pre-tax income, including the impact of catastrophe losses, foreign exchange gains (losses) and net gains (losses) on investments, among jurisdictions with different tax rates.
On August 16, 2022, the Inflation Reduction Act of 2022 (“IRA”) was enacted. We have evaluated the tax provisions of the IRA, the most significant of which areis the corporate alternative minimum tax and the share repurchase excise tax and do not expect the legislation to have a material impact on our results of operations. As the IRS issues additional guidance, we will evaluate any impact to our consolidated financial statements.
Net Income (Loss).
Our net income was $222$408 million and our net loss was $542$220 million, for the three months ended September 30,March 31, 2024 and 2023 and 2022, respectively. Our net income was $771 million and our net loss was $626 million, for the nine months ended September 30, 2023 and 2022, respectively. The changes were primarily driven by the financial component fluctuations explained above.
Ratios.
Our combined ratio decreased by 28.85.8 points to 96.9%89.4% for the three months ended September 30, 2023,March 31, 2024, compared to 125.7%95.2% for the three months ended September 30, 2022 and decreased by 11.7 points to 93.7% for the nine months ended September 30, 2023 compared to 105.4% for the nine months ended September 30, 2022.March 31, 2023. The loss ratio component decreased by 30.85.8 points for the three months ended September 30, 2023March 31, 2024 over the correspondingsame period last year primarilymainly due to a decrease of $699$60 million in current year catastrophe losses. The loss ratio component decreased by 12.5 points for the nine months ended September 30, 2023 over the corresponding period last year primarily due to a decrease of $723 million in current year catastrophe losses and no losses from the war in Ukraine in 2023. The commission and brokerage ratio components increased slightly to 21.2% for the three months ended September 30, 2023March 31, 2024 compared to 20.1%21.1% for the three months ended September 30, 2022 and increased slightlyMarch 31, 2023. The other underwriting expense ratios decreased to 20.9%6.6% from 6.7% for the ninethree months ended September 30,March 31, 2024 and 2023, compared to 20.7% for the nine months ended September 30, 2022.respectively. These changesvariances were mainly due to changes in the mix of business. The other underwriting expense ratios increased to 7.0% from 6.1% for the three months ended September 30, 2023 and 2022, respectively, and increased to 6.7% from 6.2% for the nine months ended September 30, 2023 and 2022, respectively. These increases were mainly due to insurance operations costs associated with the continued build out of the insurance platform.
Stockholder’s Equity.
Stockholder’s equity increased by $733$331 million to $6.4$7.5 billion at September 30, 2023March 31, 2024 from $5.7$7.2 billion at December 31, 2022,2023, principally as a result of $771$408 million of net income, partially offset by $31$59 million of net unrealized depreciation on investments, net of tax and $9$19 million of net foreign currency translation adjustments. The movement in the unrealized depreciation on investments was driven by the change in interest rates on the Company’s fixed maturity - available for sale portfolio.
Consolidated Investment Results
Net Investment Income.
Net investment income increased to $278$312 million for the three months ended September 30, 2023,March 31, 2024 compared to $124$190 million for the three months ended September 30, 2022.March 31, 2023. The increase for the three months ended September 30, 2023 was primarily the result of an increase of $85 million inhigher income from fixed maturity securities and an increase of $20 million from short termshort-term investments mainly due to the rising interest rate environmentreinvestment rates, as well as an increase of $56 million from limited partnership income. Net investment income increased to $711 million for the nine months ended September 30, 2023, compared to $457 million for the nine months ended September 30, 2022. The increase for the nine months ended September 30, 2023 was primarily the result of an increase of $249 million in income from fixed maturity securities and an increase of $46 million from short-term investments, partially offset by a decrease of $34 million fromlimited partnerships. The limited partnership income. Accordingly,income primarily reflects changes in their reported net asset values. As such, until these asset values are monetized and the resultant income is distributed, they are subject to future increases or decreases in the NAV,asset value, and the results may be volatile.
The following table shows the components of net investment income for the periods indicated:
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| Three Months Ended March 31, | |
| Three Months Ended March 31, | |
| Three Months Ended March 31, | |
(Dollars in millions) | |
(Dollars in millions) | |
(Dollars in millions) | (Dollars in millions) | 2023 | | 2022 | | 2023 | | 2022 |
Fixed maturities | Fixed maturities | $ | 214 | | | $ | 129 | | | $ | 587 | | | $ | 339 | |
Fixed maturities | |
Fixed maturities | |
Equity securities | |
Equity securities | |
Equity securities | Equity securities | 1 | | | 7 | | | 3 | | | 15 | |
Short-term investments and cash | Short-term investments and cash | 24 | | | 4 | | | 51 | | | 4 | |
Short-term investments and cash | |
Short-term investments and cash | |
Other invested assets | |
Other invested assets | |
Other invested assets | Other invested assets | |
Limited partnerships | Limited partnerships | 31 | | | (25) | | | 30 | | | 63 | |
Limited partnerships | |
Limited partnerships | |
Dividends from preferred shares of affiliate | |
Dividends from preferred shares of affiliate | |
Dividends from preferred shares of affiliate | Dividends from preferred shares of affiliate | 8 | | | 8 | | | 23 | | | 23 | |
Other | Other | 15 | | | 11 | | | 42 | | | 37 | |
Other | |
Other | |
Gross investment income before adjustments | |
Gross investment income before adjustments | |
Gross investment income before adjustments | Gross investment income before adjustments | 291 | | | 132 | | | 736 | | | 482 | |
Funds held interest income (expense) | Funds held interest income (expense) | 1 | | | 1 | | | 3 | | | 5 | |
Funds held interest income (expense) | |
Funds held interest income (expense) | |
Interest income from Group | |
Interest income from Group | |
Interest income from Group | Interest income from Group | — | | | 3 | | | 7 | | | 7 | |
Gross investment income | Gross investment income | 292 | | | 137 | | | 745 | | | 494 | |
Gross investment income | |
Gross investment income | |
Investment expenses | |
Investment expenses | |
Investment expenses | Investment expenses | 14 | | | 13 | | | 35 | | | 37 | |
Net investment income | Net investment income | $ | 278 | | | $ | 124 | | | $ | 711 | | | $ | 457 | |
Net investment income | |
Net investment income | |
(Some amounts may not reconcile due to rounding.)
The following table shows a comparison of various investment yields for the periods indicated:
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
| Three Months Ended March 31, | |
| Three Months Ended March 31, | |
| Three Months Ended March 31, | |
| 2024 | |
| 2024 | |
| 2024 | |
Annualized pre-tax yield on average cash and invested assets | |
Annualized pre-tax yield on average cash and invested assets | |
Annualized pre-tax yield on average cash and invested assets | Annualized pre-tax yield on average cash and invested assets | 4.9 | % | | 2.5 | % | | 4.4 | % | | 3.1 | % |
Annualized after-tax yield on average cash and invested assets | Annualized after-tax yield on average cash and invested assets | 4.0 | % | | 2.0 | % | | 3.5 | % | | 2.5 | % |
Annualized after-tax yield on average cash and invested assets | |
Annualized after-tax yield on average cash and invested assets | |
Net Gains (Losses) on Investments.
The following table presents the composition of our net gains (losses) on investments for the periods indicated:
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| Three Months Ended March 31, | |
| Three Months Ended March 31, | |
| Three Months Ended March 31, | |
(Dollars in millions) | |
(Dollars in millions) | |
(Dollars in millions) | (Dollars in millions) | 2023 | | 2022 | | Variance | | 2023 | | 2022 | | Variance |
Realized gains (losses) from dispositions: | Realized gains (losses) from dispositions: | | | | | | | | | | | |
Realized gains (losses) from dispositions: | |
Realized gains (losses) from dispositions: | |
Fixed maturity securities - available for sale | |
Fixed maturity securities - available for sale | |
Fixed maturity securities - available for sale | Fixed maturity securities - available for sale | |
Gains | Gains | $ | 1 | | | $ | 1 | | | $ | — | | | $ | 4 | | | $ | 7 | | | (2) | |
Gains | |
Gains | |
Losses | Losses | (13) | | | (46) | | | 32 | | | (25) | | | (67) | | | 41 | |
Losses | |
Losses | |
Total | |
Total | |
Total | Total | (12) | | | (45) | | | 33 | | | (21) | | | (60) | | | 39 | |
| Equity securities | Equity securities | |
| Equity securities | |
| Equity securities | |
Gains | |
Gains | |
Gains | Gains | 2 | | | 59 | | | (58) | | | 8 | | | 67 | | | (59) | |
Losses | Losses | — | | | (2) | | | 2 | | | — | | | (48) | | | 48 | |
Losses | |
Losses | |
Total | |
Total | |
Total | Total | 1 | | | 57 | | | (56) | | | 8 | | | 19 | | | (11) | |
| Other Invested Assets | Other Invested Assets | |
| Other Invested Assets | |
| Other Invested Assets | |
Gains | |
Gains | |
Gains | Gains | — | | | 7 | | | (7) | | | — | | | 15 | | | (15) | |
Losses | Losses | — | | | (1) | | | 1 | | | — | | | (4) | | | 4 | |
Losses | |
Losses | |
Total | |
Total | |
Total | Total | — | | | 6 | | | (6) | | | — | | | 10 | | | (10) | |
| Short-Term Investments | |
Gains | — | | | 1 | | | (1) | | | 1 | | | 1 | | | — | |
Losses | — | | | — | | | — | | | — | | | — | | | — | |
Total | — | | | 1 | | | (1) | | | — | | | 1 | | | (1) | |
| Total net realized gains (losses) from dispositions | |
| Total net realized gains (losses) from dispositions | |
| | Total net realized gains (losses) from dispositions | Total net realized gains (losses) from dispositions | |
Gains | Gains | 2 | | | 68 | | | (66) | | | 13 | | | 90 | | | (76) | |
Gains | |
Gains | |
Losses | Losses | (13) | | | (49) | | | 36 | | | (26) | | | (119) | | | 94 | |
Losses | |
Losses | |
Total | |
Total | |
Total | Total | (11) | | | 20 | | | (30) | | | (12) | | | (29) | | | 17 | |
| Allowance for credit losses | Allowance for credit losses | (1) | | | (12) | | | 10 | | | (12) | | | (12) | | | — | |
| Allowance for credit losses | |
| Allowance for credit losses | |
| Gains (losses) from fair value adjustments | |
| Gains (losses) from fair value adjustments | |
| Gains (losses) from fair value adjustments | Gains (losses) from fair value adjustments | |
Equity securities | Equity securities | (13) | | | (134) | | | 121 | | | (2) | | | (451) | | | 449 | |
Equity securities | |
Equity securities | |
Other invested assets | Other invested assets | (34) | | | (111) | | | 78 | | | (32) | | | (350) | | | 318 | |
Other invested assets | |
Other invested assets | |
Total | |
Total | |
Total | Total | (47) | | | (245) | | | 199 | | | (34) | | | (801) | | | 767 | |
| Total net gains (losses) on investments | Total net gains (losses) on investments | $ | (59) | | | $ | (237) | | | $ | 178 | | | $ | (59) | | | $ | (842) | | | $ | 784 | |
| Total net gains (losses) on investments | |
| Total net gains (losses) on investments | |
(Some amounts may not reconcile due to rounding.)
Net gains (losses) on investments during the three months ended September 30, 2023March 31, 2024 primarily relatedrelate to $4 million of net losses from fair value adjustments, of $47 million. In addition, we recorded $11$4 million of net realized losses from disposition of investments, andpartially offset by a decrease to the allowance for credit losses of $1 million of credit allowances on fixed maturity securities.
Net gains (losses) on investments during the nine months ended September 30, 2023 primarily related to net losses from fair value adjustments of $34 million. In addition, we recorded $12 million of net realized losses from disposition of investments and $12 million of credit allowances on fixed maturity securities.
Segment Results.
The Company manages its reinsurance and insurance operations as autonomous units, and key strategic decisions are based on the aggregateoperates through two operating results and projections for these segments of business.
segments. The Reinsurance operation writes risks on a worldwide basis in property and casualty reinsurance and specialty lines of business, on both a treaty and facultative basis, through reinsurance brokers, as well as directly with ceding companies. We write reinsurance business from entities charteredBusiness is written in the United States and Bermuda as well as through branches of those entities established in Canada and Singapore. The Insurance operation writes property and casualty insurance directly and through brokers, including for surplus lines, brokers and general agents within the United States and Bermuda.
TheseStates. The two 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.
Our two operating segments each have executive leadership who are responsible for the overall performance of their respective segments and who are directly accountable to our chief operating decision maker (“CODM”), the Chief Executive Officer of Everest Group, Ltd., who is ultimately responsible for reviewing the business to assess performance,
make operating decisions and allocate resources. We report the results of our operations consistent with the manner in which our CODM reviews the business.
During the fourth quarter of 2023, the Company revised the classification and presentation of certain products related to its accident and health business within the segment groupings. These products have been realigned from within the Reinsurance segment to the Insurance segment to appropriately reflect how the business segments are managed. These changes have been reflected retrospectively.
The Company does not review and evaluate the financial results of its operating segments based upon balance sheet data. Management generally monitors and evaluates the financial performance of thesethe two 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 ourThe Company measures its underwriting results using ratios, in particular loss, commission and brokerage and other underwriting expense ratios, which respectively, result from dividingdivide 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, Management has determined that these measures are appropriate and align with how the Company does not reviewbusiness is managed. We continue to evaluate our segments as our business evolves and evaluate themay further refine our segments and financial results of its operating segments based upon balance sheet data.performance measures.
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. Management’s best estimate is developed through collaboration with actuarial, underwriting, claims, legal and finance departments and culminates with the input of reserve committees. Each segment reserve committee includes the participation of the relevant parties from actuarial, finance, claims and segment senior management and has the responsibility for recommending and approving management’s best estimate. Reserves are further reviewed by Everest’s Chief Reserving Actuary and senior management. The objective of such process is to determine a single best estimate viewed by management to be the best estimate of its ultimate loss liability.
The following discusses the underwriting results for each of our segments for the periods indicated:
Reinsurance.
The following table presents the underwriting results and ratios for the Reinsurance segment for the periods indicated:
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| Three Months Ended March 31, | |
| Three Months Ended March 31, | |
| Three Months Ended March 31, | |
(Dollars in millions) | |
(Dollars in millions) | |
(Dollars in millions) | (Dollars in millions) | 2023 | | 2022 | | Variance | | % Change | | 2023 | | 2022 | | Variance | | % Change |
Gross written premiums | Gross written premiums | $ | 1,985 | | | $ | 1,681 | | | 305 | | | 18.1 | % | | $ | 5,420 | | | $ | 4,454 | | | $ | 965 | | | 21.7 | % |
Gross written premiums | |
Gross written premiums | |
Net written premiums | |
Net written premiums | |
Net written premiums | Net written premiums | 1,703 | | | 1,506 | | | 198 | | | 13.1 | % | | 4,656 | | | 3,936 | | | 720 | | | 18.3 | % |
| Premiums earned | Premiums earned | $ | 1,437 | | | $ | 1,398 | | | $ | 39 | | | 2.8 | % | | $ | 4,220 | | | $ | 3,902 | | | $ | 318 | | | 8.2 | % |
| Premiums earned | |
| Premiums earned | |
Incurred losses and LAE | |
Incurred losses and LAE | |
Incurred losses and LAE | Incurred losses and LAE | 1,010 | | | 1,531 | | | (520) | | | (34.0) | % | | 2,804 | | | 3,227 | | | (423) | | | (13.1) | % |
Commission and brokerage | Commission and brokerage | 378 | | | 337 | | | 40 | | | 11.9 | % | | 1,102 | | | 985 | | | 117 | | | 11.9 | % |
Commission and brokerage | |
Commission and brokerage | |
Other underwriting expenses | |
Other underwriting expenses | |
Other underwriting expenses | Other underwriting expenses | 46 | | | 33 | | | 13 | | | 38.4 | % | | 121 | | | 97 | | | 24 | | | 25.1 | % |
Underwriting gain (loss) | Underwriting gain (loss) | $ | 3 | | | $ | (504) | | | $ | 506 | | | NM | | $ | 194 | | | $ | (406) | | | $ | 600 | | | NM |
Underwriting gain (loss) | |
Underwriting gain (loss) | |
| | | | | | | | Point Chg | |
| | Point Chg | | Point Chg |
| | | | | | | Point Chg | |
| | | | | | | | Point Chg | |
Loss ratio | |
Loss ratio | |
Loss ratio | Loss ratio | 70.3 | % | | 109.5 | % | | (39.2) | | | 66.4 | % | | 82.7 | % | | (16.3) | |
Commission and brokerage ratio | Commission and brokerage ratio | 26.3 | % | | 24.1 | % | | 2.1 | | | 26.1 | % | | 25.2 | % | | 0.9 | |
Commission and brokerage ratio | |
Commission and brokerage ratio | |
Other underwriting expense ratio | |
Other underwriting expense ratio | |
Other underwriting expense ratio | Other underwriting expense ratio | 3.2 | % | | 2.4 | % | | 0.8 | | | 2.9 | % | | 2.5 | % | | 0.4 | |
Combined ratio | Combined ratio | 99.8 | % | | 136.0 | % | | (36.2) | | | 95.4 | % | | 110.4 | % | | (15.0) | |
Combined ratio | |
Combined ratio | |
(Some amounts may not reconcile due to rounding.)
(NM, not meaningful)
Premiums. Gross written premiums increased by 18.1%18.9% to $2.0$1.9 billion for the three months ended September 30, 2023March 31, 2024 from $1.7$1.6 billion for the three months ended September 30, 2022,March 31, 2023, primary due to increases across all lines of business, particularly property pro rata business,and casualty pro rata business and casualty excess of loss business. Net written
premiums increased by 13.1%19.7% to $1.7$1.6 billion for the three months ended September 30, 2023,March 31, 2024, compared to $1.5$1.4 billion for the three months ended September 30, 2022,March 31, 2023, which is consistent with the percentage change in gross written premiums. Premiums earned generally reflect the portion of net premiums written that was recorded as revenues for the
period as the exposure periods expire. Premiums earned increased by 2.8%15.4% to $1.44$1.6 billion for the three months ended September 30, 2023March 31, 2024 compared to $1.40$1.4 billion for the three months ended September 30, 2022.
Gross written premiums increased by 21.7% to $5.4 billion for the nine months ended September 30,March 31, 2023 from $4.5 billion for the nine months ended September 30, 2022 primarily due to increases across all lines of business, particularly property pro rata business and casualty pro rata business. Net written premiums increased by 18.3% to $4.7 billion for the nine months ended September 30, 2023, compared to $3.9 billion for the nine months ended September 30, 2022, which is consistent with the change in gross written premiums. Premiums earned generally reflect the portion of net premiums written that was recorded as revenues for the period as the exposure periods expire. Premiums earned increased by 8.2% to $4.2 billion for the nine months ended September 30, 2023, compared to $3.9 billion for the nine months ended September 30, 2022.
Incurred Losses and LAE. The following tables present the incurred losses and LAE for the Reinsurance segment for the periods indicated:
| | Three Months Ended September 30, |
| Three Months Ended March 31, | | | Three Months Ended March 31, |
(Dollars in millions) | (Dollars in millions) | Current Year | | Ratio %/ Pt Change | | Prior Years | | Ratio %/ Pt Change | | Total Incurred | | Ratio %/ Pt Change | (Dollars in millions) | Current Year | | Ratio %/ Pt Change | | Prior Years | | Ratio %/ Pt Change | | Total Incurred | | Ratio %/ Pt Change |
2023 | | | | | | | | | | | |
2024 | |
Attritional | |
Attritional | |
Attritional | Attritional | $ | 862 | | | 60.0 | % | | $ | 38 | | | 2.6 | % | | 900 | | | 62.6 | % | $ | 913 | | | 58.6 | | 58.6 | % | | $ | 6 | | | 0.4 | | 0.4 | % | | 919 | | | 59.0 | | 59.0 | % |
Catastrophes | Catastrophes | 117 | | | 8.2 | % | | (6) | | | (0.4) | % | | 111 | | | 7.7 | % | Catastrophes | 42 | | | 2.7 | | 2.7 | % | | (29) | | | (1.8) | | (1.8) | % | | 13 | | | 0.9 | | 0.9 | % |
Total Segment | Total Segment | $ | 979 | | | 68.1 | % | | $ | 32 | | | 2.2 | % | | $ | 1,010 | | | 70.3 | % | Total Segment | $ | 955 | | | 61.3 | | 61.3 | % | | $ | (23) | | | -1.5 | | -1.5 | % | | $ | 932 | | | 59.8 | | 59.8 | % |
| 2022 | |
2023 | |
2023 | |
2023 | |
Attritional | |
Attritional | |
Attritional | Attritional | $ | 800 | | | 57.2 | % | | $ | 7 | | | 0.5 | % | | 807 | | | 57.7 | % | $ | 824 | | | 61.0 | | 61.0 | % | | $ | 1 | | | 0.0 | | 0.0 | % | | 825 | | | 61.1 | | 61.1 | % |
Catastrophes | Catastrophes | 722 | | | 51.7 | % | | 2 | | | 0.1 | % | | 724 | | | 51.8 | % | Catastrophes | 101 | | | 7.5 | | 7.5 | % | | (7) | | | -0.5 | | -0.5 | % | | 94 | | | 7.0 | | 7.0 | % |
Total Segment | Total Segment | $ | 1,522 | | | 108.9 | % | | $ | 9 | | | 0.6 | % | | $ | 1,531 | | | 109.5 | % | Total Segment | $ | 925 | | | 68.5 | | 68.5 | % | | $ | (6) | | | -0.5 | | -0.5 | % | | $ | 919 | | | 68.1 | | 68.1 | % |
| Variance 2023/2022 | |
Variance 2024/2023 | |
Variance 2024/2023 | |
Variance 2024/2023 | |
Attritional | |
Attritional | |
Attritional | Attritional | $ | 62 | | | 2.8 | pts | | $ | 31 | | | 2.1 | pts | | $ | 93 | | | 4.9 | pts | $ | 89 | | | (2.4) | | (2.4) | pts | | $ | 5 | | | 0.3 | | 0.3 | pts | | $ | 94 | | | (2.1) | | (2.1) | pts |
Catastrophes | Catastrophes | (605) | | | (43.5) | pts | | (8) | | | (0.6) | pts | | (613) | | | (44.1) | pts | Catastrophes | (59) | | | (4.8) | | (4.8) | pts | | (22) | | | (1.4) | | (1.4) | pts | | (81) | | | (6.1) | | (6.1) | pts |
Total Segment | Total Segment | $ | (543) | | | (40.7) | pts | | $ | 22 | | | 1.5 | pts | | $ | (520) | | | (39.2) | pts | Total Segment | $ | 30 | | | (7.2) | | (7.2) | pts | | $ | (17) | | | (1.0) | | (1.0) | pts | | $ | 13 | | | (8.2) | | (8.2) | pts |
(Some amounts may not reconcile due to rounding.)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, |
(Dollars in millions) | Current Year | | Ratio %/ Pt Change | | Prior Years | | Ratio %/ Pt Change | | Total Incurred | | Ratio %/ Pt Change |
2023 | | | | | | | | | | | |
Attritional | $ | 2,532 | | | 60.0 | % | | $ | 40 | | | 0.9 | % | | 2,572 | | | 60.9 | % |
Catastrophes | 237 | | | 5.6 | % | | (6) | | | (0.1) | % | | 232 | | | 5.5 | % |
Total Segment | $ | 2,770 | | | 65.6 | % | | $ | 34 | | | 0.8 | % | | $ | 2,804 | | | 66.4 | % |
| | | | | | | | | | | |
2022 | | | | | | | | | | | |
Attritional | $ | 2,350 | | | 60.2 | % | | $ | 8 | | | 0.2 | % | | 2,358 | | | 60.4 | % |
Catastrophes | 857 | | | 22.0 | % | | 11 | | | 0.3 | % | | 868 | | | 22.3 | % |
Total Segment | $ | 3,207 | | | 82.2 | % | | $ | 19 | | | 0.5 | % | | $ | 3,227 | | | 82.7 | % |
| | | | | | | | | | | |
Variance 2023/2022 | | | | | | | | | | | |
Attritional | $ | 182 | | | (0.2) | pts | | $ | 32 | | | 0.7 | pts | | $ | 214 | | | 0.5 | pts |
Catastrophes | $ | (620) | | | (16.4) | pts | | (17) | | | (0.4) | pts | | (636) | | | (16.8) | pts |
Total Segment | $ | (437) | | | (16.6) | pts | | $ | 15 | | | 0.3 | pts | | $ | (423) | | | (16.3) | pts |
(Some amounts may not reconcile due to rounding.)
Incurred losses decreasedincreased by 34.0%1.4% to $1.0 billion$932 million for the three months ended September 30, 2023,March 31, 2024, compared to $1.5 billion$919 million for the three months ended September 30, 2022.March 31, 2023. The decreaseincrease was primarily due to a decrease of $605$59 million in current year catastrophe losses, partially offset by an increase of $62$89 million in current year attritional losses. The increase in current year attritional losses was mainly related to the impact of the increase in premiums earned. The current year catastrophe losses of $117$42 million for the three months ended September 30, 2023March 31, 2024 related primarily due to the 2023 Morocco earthquake2024 Baltimore bridge collapse ($4027 million), Hurricane Idalia ($40 million), the 2023 Hawaii wildfire ($23 million), and the 2023 3rd quarter 2024 United States (“U.S.”) East Coast convective storms ($15 million). The $722$101 million of current year catastrophe losses for the three months ended September 30, 2022March 31, 2023 related primarily to Hurricane Ian ($670 million), Typhoon Nanmadol ($20 million), Hurricane Fiona ($20the 2023 Turkey earthquakes ($65 million) and the Western Europe hailstorms2023 New Zealand storms ($936 million). Prior year incurred development of $32$23 million for the three months ended September 30, 2023March 31, 2024 is primarily driven by the commutationa reduction of stop loss agreements between Everest Re and Bermuda Re that were effective for 2018 and 2019.
Incurred losses decreased by 13.1% to $2.8 billion for the nine months ended September 30, 2023, compared to $3.2 billion for the nine months ended September 30, 2022. The decrease was primarily due to a decrease of $620 million in current prior year catastrophe losses, partially offset by an increase of $182 million in current year attritional losses. The increase in current year attritional losses was mainly related to the impact of the increase in premiums earned. The current year catastrophe losses of $237 million for the nine months ended September 30, 2023 related primarily to 2023 Turkey earthquakes ($84 million), the 2023 New Zealand storms ($41 million), the 2023 Morocco earthquake ($40 million), Hurricane Idalia ($40 million), the 2023 Hawaii wildfire ($23 million), the 2023 3rd quarter U.S. storms ($15 million), Typhoon Mawar ($11 million), and the 2023 2nd quarter U.S. storms ($4 million), partially offset by $20 million of reinsurance recoverables related to Hurricane Ian. The $857 million of current year catastrophe losses for the nine months ended September 30, 2022 related primarily to Hurricane Ian ($670 million), the 2022 Australia floods ($74 million), the 2022 South Africa flood ($38 million), Hurricane Fiona ($20 million), Typhoon Nanmadol ($20 million), the 2022 Canada derecho ($16 million), the 2022 Western Europe hailstorms ($9 million), the 2022 2nd quarter U.S. storms ($7 million) and the 2022 March U.S. storms ($4 million). Prior year incurred development of $34 million for the nine months ended September 30, 2023 is primarily driven by the commutation of stop loss agreements between Everest Re and Bermuda Re that were effective for 2018 and 2019.reserves.
Segment Expenses. Commission and brokerage expense increased by 11.9%12.7% to $378$402 million for the three months ended September 30, 2023,March 31, 2024 compared to $337$357 million for the three months ended September 30, 2022. Commission and brokerage expense increased by 11.9% to $1.1 billion for the nine months ended September 30, 2023, compared to $985 million for the nine months ended September 30, 2022.March 31, 2023. The increases wereincrease was mainly due to the impact of the increase in premiums earned and changes in the mix of business and the impact of the increases in premiums earned.business.
Segment other underwriting expenses increased to $46 million for the three months ended September 30, 2023March 31, 2024 from $33$38 million for the three months ended September 30, 2022. Segment other underwriting expenses increased to $121 million for the nine months ended September 30, 2023 from $97 million for the nine months ended September 30, 2022.March 31, 2023. The increases were mainlyincrease was due to increased expenditures supporting the impactincreased premium volume of the increase in premiums earned.segment.
Insurance.
The following table presents the underwriting results and ratios for the Insurance segment for the periods indicated.
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| Three Months Ended March 31, | |
| Three Months Ended March 31, | |
| Three Months Ended March 31, | |
(Dollars in millions) | |
(Dollars in millions) | |
(Dollars in millions) | (Dollars in millions) | 2023 | | 2022 | | Variance | | % Change | | 2023 | | 2022 | | Variance | | % Change |
Gross written premiums | Gross written premiums | $ | 884 | | | $ | 905 | | | $ | (21) | | | (2.4) | % | | $ | 2,860 | | | $ | 2,773 | | | $ | 87 | | | 3.2 | % |
Gross written premiums | |
Gross written premiums | |
Net written premiums | |
Net written premiums | |
Net written premiums | Net written premiums | 647 | | | 722 | | | (75) | | | (10.4) | % | | 2,153 | | | 2,083 | | | 70 | | | 3.4 | % |
| Premiums earned | Premiums earned | $ | 702 | | | $ | 706 | | | $ | (4) | | | (0.5) | % | | $ | 2,118 | | | $ | 1,985 | | | $ | 134 | | | 6.7 | % |
| Premiums earned | |
| Premiums earned | |
Incurred losses and LAE | |
Incurred losses and LAE | |
Incurred losses and LAE | Incurred losses and LAE | 460 | | | 564 | | | (104) | | | (18.4) | % | | 1,386 | | | 1,398 | | | (12) | | | (0.9) | % |
Commission and brokerage | Commission and brokerage | 76 | | | 85 | | | (9) | | | (11.1) | % | | 221 | | | 231 | | | (10) | | | (4.5) | % |
Commission and brokerage | |
Commission and brokerage | |
Other underwriting expenses | |
Other underwriting expenses | |
Other underwriting expenses | Other underwriting expenses | 103 | | | 94 | | | 9 | | | 9.5 | % | | 303 | | | 269 | | | 34 | | | 12.8 | % |
Underwriting gain (loss) | Underwriting gain (loss) | $ | 63 | | | $ | (37) | | | $ | 101 | | | NM | | $ | 208 | | | $ | 87 | | | $ | 122 | | | NM |
Underwriting gain (loss) | |
Underwriting gain (loss) | |
| | | | | | | | Point Chg | |
| | Point Chg | | Point Chg |
| | | | | | | Point Chg | |
| | | | | | | | Point Chg | |
Loss ratio | |
Loss ratio | |
Loss ratio | Loss ratio | 65.5% | | 79.9% | | (14.3) | | 65.4% | | 70.4% | | (5.0) |
Commission and brokerage ratio | Commission and brokerage ratio | 10.8% | | 12.1% | | (1.3) | | 10.4% | | 11.7% | | (1.2) |
Commission and brokerage ratio | |
Commission and brokerage ratio | |
Other underwriting expense ratio | |
Other underwriting expense ratio | |
Other underwriting expense ratio | Other underwriting expense ratio | 14.7% | | 13.3% | | 1.3 | | 14.3% | | 13.5% | | 0.8 |
Combined ratio | Combined ratio | 91.0% | | 105.3% | | (14.3) | | 90.2% | | 95.6% | | (5.5) |
Combined ratio | |
Combined ratio | |
(Some amounts may not reconcile due to rounding.)
(NM, not meaningful)
Premiums. Gross written premiums decreased by 2.4%3.7% to $884$837 million for the three months ended September 30, 2023,March 31, 2024, compared to $905$869 million for the three months ended September 30, 2022.March 31, 2023. The decrease in insurance premiums was primarily due to lower workers’financial lines, worker’s compensation and financial lines business, partially offset by increases in propertyaccident and specialtyhealth lines of business. Net written premiums decreased by 10.4%9.0% to $647$642 million for the three months ended September 30, 2023,March 31, 2024, compared to $722$706 million for the three months ended September 30, 2022.March 31, 2023. The lower percentage of net written premiums compared to gross written premiums was mainly due to business mix and lower retention in certain lines of business. Premiums earned decreased 0.5%6.4% to $702$672 million for the three months ended September 30, 2023,March 31, 2024, compared to $706$718 million for the three months ended September 30, 2022.
Gross written premiums increased by 3.2%March 31, 2023 primarily due to $2.9 billion for the nine months ended September 30, 2023, compared to $2.8 billion for the nine months ended September 30, 2022. The increase in insurance premiums reflects increases in property/short tail businesslower financial lines, worker’s compensation and other specialtyaccident and health lines of business. Net written premiums increased by 3.4% to $2.2 billion for the nine months ended September 30, 2023, compared to $2.1 billion for the nine months ended September 30, 2022, which is consistent with the percentage change in gross written premiums. Premiums earned increased by 6.7% to $2.1 billion for the nine months ended September 30, 2023, compared to $2.0 billion for the nine months ended September 30, 2022. The change in premiums earned 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 tables present the incurred losses and LAE for the Insurance segment for the periods indicated.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, |
(Dollars in millions) | Current Year | | Ratio %/ Pt Change | | Prior Years | | Ratio %/ Pt Change | | Total Incurred | | Ratio %/ Pt Change |
2023 | | | | | | | | | | | |
Attritional | $ | 451 | | | 64.2 | % | | $ | — | | | — | % | | 451 | | | 64.2 | % |
Catastrophes | 10 | | | 1.4 | % | | — | | | (0.1) | % | | 9 | | | 1.3 | % |
Total Segment | $ | 461 | | | 65.6 | % | | $ | — | | | (0.1) | % | | $ | 460 | | | 65.5 | % |
| | | | | | | | | | | |
2022 | | | | | | | | | | | |
Attritional | $ | 461 | | | 65.3 | % | | $ | — | | | — | % | | 461 | | | 65.3 | % |
Catastrophes | 104 | | | 14.7 | % | | — | | | (0.1) | % | | 104 | | | 14.6 | % |
Total Segment | $ | 565 | | | 80.0 | % | | $ | — | | | (0.1) | % | | $ | 564 | | | 79.9 | % |
| | | | | | | | | | | |
Variance 2023/2022 | | | | | | | | | | | |
Attritional | $ | (10) | | | (1.1) | pts | | $ | — | | | — | pts | | $ | (10) | | | (1.1) | pts |
Catastrophes | (94) | | | (13.3) | pts | | — | | | — | pts | | (95) | | | (13.3) | pts |
Total Segment | $ | (104) | | | (14.4) | pts | | $ | — | | | — | pts | | $ | (103) | | | (14.3) | pts |
(Some amounts may not reconcile due to rounding.)
| | Nine Months Ended September 30, |
| Three Months Ended March 31, | | | Three Months Ended March 31, |
(Dollars in millions) | (Dollars in millions) | Current Year | | Ratio %/ Pt Change | | Prior Years | | Ratio %/ Pt Change | | Total Incurred | | Ratio %/ Pt Change | (Dollars in millions) | Current Year | | Ratio %/ Pt Change | | Prior Years | | Ratio %/ Pt Change | | Total Incurred | | Ratio %/ Pt Change |
2023 | | | | | | | | | | | |
2024 | |
Attritional | |
Attritional | |
Attritional | Attritional | $ | 1,378 | | | 65.1 | % | | $ | (2) | | | (0.1) | % | | 1,376 | | | 65.0 | % | $ | 443 | | | 66.0 | | 66.0 | % | | $ | — | | | — | | — | % | | 443 | | | 66.0 | | 66.0 | % |
Catastrophes | Catastrophes | 11 | | | 0.5 | % | | (1) | | | (0.1) | % | | 10 | | | 0.5 | % | Catastrophes | — | | | — | | — | % | | (1) | | | (0.1) | | (0.1) | % | | (1) | | | (0.1) | | (0.1) | % |
Total Segment | Total Segment | $ | 1,389 | | | 65.6 | % | | $ | (4) | | | (0.2) | % | | $ | 1,386 | | | 65.4 | % | Total Segment | $ | 443 | | | 66.0 | | 66.0 | % | | $ | (1) | | | (0.1) | | (0.1) | % | | $ | 443 | | | 65.9 | | 65.9 | % |
| 2022 | |
2023 | |
2023 | |
2023 | |
Attritional | |
Attritional | |
Attritional | Attritional | $ | 1,285 | | | 64.8 | % | | $ | — | | | — | % | | 1,285 | | | 64.8 | % | $ | 476 | | | 66.3 | | 66.3 | % | | $ | (2) | | | (0.3) | | (0.3) | % | | 474 | | | 66.0 | | 66.0 | % |
Catastrophes | Catastrophes | 114 | | | 5.7 | % | | (1) | | | (0.1) | % | | 113 | | | 5.6 | % | Catastrophes | 2 | | | 0.2 | | 0.2 | % | | — | | | (0.1) | | (0.1) | % | | 1 | | | 0.2 | | 0.2 | % |
Total Segment | Total Segment | $ | 1,399 | | | 70.5 | % | | $ | (1) | | | (0.1) | % | | $ | 1,398 | | | 70.4 | % | Total Segment | $ | 478 | | | 66.5 | | 66.5 | % | | $ | (3) | | | (0.4) | | (0.4) | % | | $ | 475 | | | 66.1 | | 66.1 | % |
| Variance 2023/2022 | |
Variance 2024/2023 | |
Variance 2024/2023 | |
Variance 2024/2023 | |
Attritional | |
Attritional | |
Attritional | Attritional | $ | 93 | | | 0.3 | pts | | $ | (2) | | | (0.1) | pts | | 91 | | | 0.2 | pts | $ | (33) | | | (0.3) | | (0.3) | pts | | $ | 2 | | | 0.3 | | 0.3 | pts | | $ | (30) | | | — | | — | pts |
Catastrophes | Catastrophes | (102) | | | (5.2) | pts | | — | | | — | pts | | (103) | | | (5.1) | pts | Catastrophes | (2) | | | (0.2) | | (0.2) | pts | | — | | | — | | — | pts | | (2) | | | (0.3) | | (0.3) | pts |
Total Segment | Total Segment | $ | (10) | | | (4.9) | pts | | $ | (2) | | | (0.1) | pts | | $ | (12) | | | (4.9) | pts | Total Segment | $ | (34) | | | (0.6) | | (0.6) | pts | | $ | 2 | | | 0.3 | | 0.3 | pts | | $ | (32) | | | (0.3) | | (0.3) | pts |
(Some amounts may not reconcile due to rounding.)
Incurred losses and LAE decreased by 18.4%6.8% to $460$443 million for the three months ended September 30, 2023,March 31, 2024, compared to $564$475 million for the three months ended September 30, 2022,March 31, 2023, mainly due to a decrease of $94$2 million in current year catastrophe losses and a decrease of $10$33 million in current year attritional losses, which is primarily related to a change in
mix of business. TheThere were no current year catastrophe losses of $10 million for the three months ended September 30, 2023 related to the 2023 Hawaii wildfire ($5 million) and the 2023 3rd quarter U.S. storms ($5 million).March 31, 2024. The $104$2 million of current year catastrophe losses for the three months ended September 30, 2022, related to Hurricane Ian ($99 million) and Hurricane Fiona ($5 million).
Incurred losses and LAE decreased slightly by 0.9% to $1.39 billion for the nine months ended September 30, 2023 compared to $1.40 billion for the nine months ended September 30, 2022, mainly due to a decrease of $102 million in current year catastrophe losses, partially offset by an increase of $93 million in current year attritional losses, which is primarily related to a change in mix of business. The $11 million of current year catastrophe losses for the nine months ended September 30,March 31, 2023, related to the 2023 Hawaii wildfire ($5 million), the 2023 3rd quarter U.S. storms ($5 million), and the 2023 New Zealand storms ($1 million). The $114 million of current year catastrophe losses for the nine months ended September 30, 2022, related to Hurricane Ian ($99 million), Hurricane Fiona ($5 million), the 2022 March U.S. storms ($5 million) and the 2022 2nd quarter U.S. storms ($5 million).storms.
Segment Expenses. Commission and brokerage expenses decreased by 11.1%11.7% to $76$70 million for the three months ended September 30, 2023March 31, 2024 compared to $85$80 million for the three months ended September 30, 2022. Commission and brokerage expenses decreased by 4.5% to $221 million for the nine months ended September 30, 2023 compared to $231 million for the nine months ended September 30, 2022. These decreases wereMarch 31, 2023. The decrease was mainly due to the impact of the decrease in premiums earned and changes in the mix of business.
Segment other underwriting expenses increaseddecreased to $103$100 million for the three months ended September 30, 2023,March 31, 2024 compared to $94$101 million for the three months ended September 30, 2022. Segment other underwriting expenses increased to $303 million for the nine months ended September 30, 2023, compared to $269 million for the nine months ended September 30, 2022. These increases wereMarch 31, 2023. The decrease was mainly due to the impact of the increasedecrease in premiums earned and increased expenses related to the continued build out of the insurance business.
.
LIQUIDITY AND CAPITAL RESOURCES
Capital. Stockholder’s equity at September 30, 2023March 31, 2024 and December 31, 20222023 was $6.4$7.5 billion and $5.7$7.2 billion, respectively.Management’s objective in managing capital is to ensure its overall capital level, as well as the capital levels of its operating subsidiaries, exceed the amounts required by regulators, the amount needed to support our current financial strength ratings from rating agencies and our own economic capital models.The Company’s capital has historically exceeded these benchmark levels.
Our main operating company, Everest Re, is regulated by the State of Delaware’s Department of Insurance. The regulatory body has its own capital adequacy models based on statutory capital as opposed to GAAP basis equity.Failure to meet the required statutory capital levels could result in various regulatory restrictions.
The regulatory targeted capital and the actual statutory capital for Everest Re was as follows:
| | Everest Re (1) |
| At December 31, |
| Everest Re (1) | | | Everest Re (1) |
| At December 31, | | | At December 31, |
(Dollars in millions) | (Dollars in millions) | 2022 | | 2021 | (Dollars in millions) | 2023 | | 2022 |
Regulatory targeted capital | Regulatory targeted capital | $ | 3,353 | | | $ | 2,960 | |
Actual capital | Actual capital | $ | 5,553 | | | $ | 5,717 | |
(1) Regulatory targeted capital represents 200% of the RBC authorized control level calculation for the applicable year.
Our financial strength ratings as determined by A.M. Best, Standard & Poor’s and Moody’s are important as they provide our customers and investors with an independent assessment of our financial strength using a rating scale that provides for relative comparisons.We continue to possess significant financial flexibility and access to debt and equity markets as a result of our financial strength, as evidenced by the financial strength ratings as assigned by independent rating agencies.
We maintain our own economic capital models to monitor and project our overall capital, as well as the capital at our operating subsidiaries.A key input to the economic models is projected income, and this input is continually compared to actual results, which may require a change in the capital strategy.
We may continue, from time to time, to seek to retire portions of our outstanding debt securities through cash repurchases, in open-market purchases, privately negotiated transactions or otherwise. Such repurchases, if any, will be subject to and depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved in any such transactions, individually or in the aggregate, may be material.
Liquidity. Our liquidity requirements are generally met from positive cash flow from operations.Positive cash flow results from reinsurance and insurance premiums being collected prior to disbursements for claims, whichwith disbursements generally taketaking place over an extended period after the collection of premiums, sometimes a period of many years.Collected premiums are generally invested, prior to their use in such disbursements, and investment income provides additional funding for loss payments. Our net cash flows from operating activities were $1.8 billion$372 million and $1.7 billion$384 million for the ninethree months ended September 30,March 31, 2024 and 2023, and 2022, respectively.
If disbursements for losses and LAE, policy acquisition costs and other operating expenses were to exceed premium inflows, cash flow from reinsurance and insurance operations would be negative. The effect on cash flow from insurance operations would be partially offset by cash flow from investment income. Additionally, cash inflows from investment
maturities of both short-term investments and longer-term maturities are available to supplement other operating cash flows. We do not expect to supplement negative insurance operations cash flows with investment dispositions.
As the timing of payments for losses and LAE cannot be predicted with certainty, we maintain portfolios of long-term invested assets with varying maturities, along with short-term investments that provide additional liquidity for payment of claims. At September 30, 2023March 31, 2024 and December 31, 2022,2023, we held cash and short-term investments of $2.2$2.1 billion and $1.3$1.8 billion, respectively. Our short-term investments are generally readily marketable and can be converted to cash. In addition to these cash and short-term investments, at September 30, 2023,March 31, 2024, we had $774$539 million of fixed maturity securities - available for sale maturing within one year or less, $3.4$2.4 billion maturing within one to five years and $3.0$4.7 billion maturing after five years. We believe that these fixed maturity securities, in conjunction with the short-term investments and positive cash flow from operations, provide ample sources of liquidity for the expected payment of losses and LAE in the near future. We do not anticipate selling a significant amount of securities to pay losses and LAE. At September 30, 2023,March 31, 2024, we had $1.0$0.4 billion of net pre-tax unrealized depreciation related to fixed maturity - available for sale securities, comprised of $1.1$0.5 billion of pre-tax unrealized depreciation and $29$149 million of pre-tax unrealized appreciation.
Management generally expects annual positive cash flow from operations, which reflects the strength of overall pricing.pricing, as well as the growth in business written. However, given the catastrophic events observed in recent periods, cash flow from operations may decline and could become negative in the near term as significant claim payments are made related to the catastrophes.However, as indicated above, the Company has ample liquidity to settle its catastrophe claims and/or any payments due for its catastrophe bond program.
Market Sensitive Instruments.
The Securities and Exchange Commission’s (“SEC”) 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 and held to maturity 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 $21.8$23.9 billion investment portfolio at September 30, 2023March 31, 2024 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, interest rate riskit includes prepayment risk on the $2.3$3.6 billion of mortgage-backed securities in the $15.2$16.9 billion 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 fair value fluctuations and after-tax unrealized appreciation on our fixed maturity portfolio (including $1.7$1.6 billion of short-term investments) for the period indicated based on upward and
downward parallel and immediateshifts of 100 and 200 basis point shiftspoints 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 estimates 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 fairThe market value change under the various interest rate change scenarios.changes scenarios was estimated taking duration into account with modeling done at the individual security level.
| | Impact of Interest Rate Shift in Basis Points At September 30, 2023 |
| -200 | | -100 | | 0 | | 100 | | 200 |
| Impact of Interest Rate Shift in Basis Points At March 31, 2024 | | | Impact of Interest Rate Shift in Basis Points At March 31, 2024 |
| -200 | | | -200 | | -100 | | 0 | | 100 | | 200 |
(Dollars in millions) | (Dollars in millions) | | | | | | | | | |
Total Fair Value | |
Total Fair Value | |
Total Fair Value | Total Fair Value | $ | 17,726 | | | $ | 17,301 | | | $ | 16,875 | | | $ | 16,450 | | | $ | 16,025 | |
Fair Value Change from Base (%) | Fair Value Change from Base (%) | 5.0 | % | | 2.5 | % | | — | % | | (2.5) | % | | (5.0) | % | Fair Value Change from Base (%) | 6.5 | % | | 3.3 | % | | — | % | | (3.3) | % | | (6.5) | % |
Change in Unrealized Appreciation | Change in Unrealized Appreciation | |
After-tax from Base ($) | After-tax from Base ($) | $ | 672 | | | $ | 336 | | | $ | — | | | $ | (336) | | | $ | (672) | |
After-tax from Base ($) | |
After-tax from Base ($) | |
We had $15.7$15.9 billion and $15.0$15.8 billion of gross reserves for losses and LAE as of September 30, 2023March 31, 2024 and December 31, 2022,2023, 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 ofsimilar to the interest rate impacts on the fair value of investments.investments held. 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 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 value and after-tax change in fair value of a 10% and 20% change in equity prices up and down for the periods indicated:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Impact of Percentage Change in Equity Fair Values At September 30, 2023 |
(Dollars in millions) | -20% | | -10% | | 0% | | 10% | | 20% |
Fair Value of the Equity Portfolio | $ | 63 | | | $ | 71 | | | $ | 79 | | | $ | 87 | | | $ | 95 | |
After-tax Change in Fair Value | (12) | | | (6) | | | — | | | 6 | | | 12 | |
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. operations maintains capital in the currency of the country of its geographic location consistent with local regulatory guidelines. Each non-U.S. 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 non-U.S. 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 U.S. GAAP guidance, the impact on the fair 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.
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:
•the effects of catastrophic and pandemic events on our financial statements;
•estimates of our catastrophe exposure;
•information regarding our reserves for losses and LAE;
•our failure to accurately assess underwriting risk;
•decreases in pricing for property and casualty reinsurance and insurance;
•our ability to maintain our financial strength ratings;
•the failure of our insured, intermediaries and reinsurers to satisfy their obligations;
•our inability or failure to purchase reinsurance;
•consolidation of competitors, customers and insurance and reinsurance brokers;
•the effect on our business of the highly competitive nature of our industry, including the effect of new entrants to, competing products for and consolidation in the (re)insurance industry;
•our ability to retain our key executive officers and to attract or retain the executives and employees necessary to manage our business;
•the performance of our investment portfolio;
•our ability to determine any impairments taken on our investments;
•foreign currency exchange rate fluctuations;
•the effect of cybersecurity risks, including technology breaches or failure, on our business;
•the CARES Act;
•the impact of the Tax Cut and Jobs Act; and
•the adequacy of capital in relation to regulatory required capital.
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” in the Company’s most recent 10-K filing. 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 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market Risk Instruments. See “Market Sensitive Instruments” in PART I – ITEM 2.
ITEM 4. CONTROLS AND PROCEDURES
As of the end of the period covered by this report, our management carried out an evaluation, with the participation of the Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”). Based on their evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act are recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Our management, with the participation of the Chief Executive Officer and Chief Financial Officer, also conducted an evaluation of our internal control over financial reporting to determine whether any changes occurred during the quarter covered by this 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 quarter covered by this report.
PART II. OTHER INFORMATION
ITEM 1. 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 LAE.
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 1A. RISK FACTORS
No material changes.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
| | | | | | | | |
Exhibit Index: |
| | |
Exhibit No. | | Description |
10.1* | | |
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10.2* | | |
| | |
10.3* | | |
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10.4* | | |
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10.5* | | |
| | |
31.1 | | |
| | |
31.2 | | |
| | |
32.1 | | |
| | |
101.INS | | XBRL Instance Document |
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101.SCH | | XBRL Taxonomy Extension Schema |
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101.CAL | | XBRL Taxonomy Extension Calculation Linkbase |
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101.DEF | | XBRL Taxonomy Extension Definition Linkbase |
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101.LAB | | XBRL Taxonomy Extension Labels Linkbase |
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101.PRE | | XBRL Taxonomy Extension Presentation Linkbase |
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104 | | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
_________________
*Management contract or compensatory plan or arrangement.
Everest Reinsurance Holdings, Inc.
Signatures
Pursuant to the requirements 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.
| | | | | |
| Everest Reinsurance Holdings, Inc. |
| (Registrant) |
| |
| /S/ MARK KOCIANCIC |
| Mark Kociancic |
| Executive Vice President and |
| Chief Financial Officer |
| |
| (Duly Authorized Officer and Principal Financial Officer) |
| |
Dated: November 8, 2023May 10, 2024 | |