Estimated pre-tax catastrophe and weather-related losses, net of reinsurance and reinstatement premiums, of $160$240 million (insurance: $41$132 million and reinsurance: $119$108 million), or 14.122.2 points on the current accident year loss ratio, primarily relatedattributable to Hurricane Dorian,Hurricanes Laura and Sally, the Japanese typhoonsMidwest derecho, wildfires across the West Coast of the United States, the Beirut port explosion and other weather-related events.
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• | Reserve for losses and loss expenses of $12.5 billion and reinsurance recoverable on unpaid and paid losses and loss expenses of $4.0 billion
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• | Total debt of $1.4 billion and debt to total capital ratio(3) of 19.9%
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• | Common shareholders’ equity of $4.8 billion; book value per diluted common share of $56.26
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(1) | Operating income (loss) and operating income (loss) per diluted common share are non-GAAP financial measures as defined in Item 10(e) of SEC Regulation S-K. The reconciliations of non-GAAP financial measures to the most comparable GAAP financial measures, net income (loss) available (attributable) to common shareholders and earnings (loss) per diluted common share, respectively, are provided in 'Management’s Discussion and Analysis of Financial Condition and Results of Operations – Executive Summary – Results of Operations' and a discussion of the rationale for the presentation of these items is provided in'Management’s Discussion and Analysis of Financial Condition and Results of Operations – Executive Summary – Non GAAP Financial Measures'.
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(2) | Consolidated underwriting income (loss) is a non-GAAP financial measure as defined in Item 10(e) of SEC Regulation S-K. The reconciliation to income (loss) before income taxes and interest in income (loss) of equity method investments, the most comparable GAAP financial measure, is presented in 'Management’s Discussion and Analysis of Financial Condition and Results of Operations – Executive Summary – Results of Operations'.
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(3) | The debt to total capital ratio is calculated by dividing senior notes by total capital. Total capital represents the sum of total shareholders’ equity and senior notes. |
EXECUTIVE SUMMARY
Business Overview
AXIS Capital Holdings Limited ("AXIS Capital"), through its operating subsidiaries, is a global provider of specialty lines insurance and treaty reinsurance with operations in Bermuda, the U.S., Europe, Singapore, Canada and the Middle East. Our underwriting operations are organized around our global underwriting platforms, AXIS Insurance and AXIS Re.
We provide our clients and distribution partners with a broad range of risk transfer products and services, and meaningful capacity, backed by significant financial strength. We manage our portfolio holistically, aiming to construct the optimum consolidated portfolio of risks, consistent with our risk appetite and development of our franchise. We nurture an ethical, entrepreneurial and disciplined culture that promotes outstanding client service, intelligent risk taking and the achievement of superior risk-adjusted returns for our shareholders. We believe that the achievement of our objectives will position us as a global leader in specialty risks. The execution of our strategy for the first nine months of 20192020 included the following:
•implementing a global response strategy to help manage and mitigate the impact of COVID-19, spanning underwriting, capital management, investments, operations and employee welfare;
•increasing our relevance in a select number of attractive specialty lines insurance and treaty reinsurance markets, and continuing the implementation of a more focused distribution strategy;
•continuing to grow a leadership position in the areas of our business lines with strong potential for profitable growth potential including U.S. excess and surplus lines, and North America professional lines;lines and Lloyd's specialty insurance business;
increasing our presence at Lloyd's of London ("Lloyd's") achieved through our acquisition of Novae Group plc ("Novae") in 2017 which provides us with access to Lloyd's worldwide licenses and an extensive distribution network;
•continuing to re-balance our portfolio towards less volatile lines of business that carry attractive rates;
launching a new phase of our transformation efforts, an enterprise-wide program to enhance all of our functions and position us to lead in a transforming industry;
•continuing to improve in the effectiveness and efficiency of our operating platforms and processes;
increasing investment•investing in data and analytics;technology capabilities, and tools to empower our underwriters and enhance the service that we provide to our customers;
•broadening risk-funding sources and the development of vehicles that utilize third-party capital.capital; and
•growing our corporate citizenship program to give back to our communities and help contribute to a more sustainable future.
Outlook
We are committed to leadership in specialty insurance risk and global reinsurance, areas where we have depth of talent and expertise. As a mid-sized player that is both sophisticated and agile, weWe believe we are well-positioned to succeed in the rapidly evolving insurance and reinsurance marketplace. Through our hybrid strategy, we have developed substantial platforms, in insurance and reinsurance, providing us with both balance and diversification.diversification, enabling us to take advantage of positive opportunities in either market to generate the most attractive risk-return portfolio for our shareholders. We believe our market positioning, underwriting expertise, best-in-class claims management capabilities, and strong relationships with our distributors and clients will provide opportunities for increased profitability, with variancesdifferences among our lines driven by our tactical response to market conditions.
Rates, and terms and conditions across mostvirtually all insurance lines generally continued to see accelerating improvement in 2019, with U.S. excess and primary casualty, marine and catastrophe exposed property insurance lines experiencing the most upward rate momentum.improvement. While the insurance market remains competitive with capacity and capital willing to support business with a broad range of return hurdles in certain pockets, there has been more consistent signs of firming rates.firming. We expect many specialty segments will experience further pricing improvements as carriers assess pricing, portfolio construction and account preferences through the courseof the year. In this competitive market environment, with mixed market conditions, we are focusing on lines of business and market segments that are adequately priced, and we are trading off growth for profitability in other areas.
The reinsurance market is also experiencing increased momentumacceleration in rates, and improved terms and conditions, due toas well as restructuring of treaties and demand for more reinsurance. This is being driven by meaningful adjustments to both supply and demand given the significant losses in recent years and mounting pressure in the industry with uncertainty of future loss costs, record low interest rates, and pressure on reserves in long-tail lines. We believe this will contribute to a healthier, more profitable market that still requires strong underwriting discipline and portfolio management. During the last few years, we have repositioned our portfolio while emphasizing strong underwriting and, at the same time, have achieved increased relevance with our clients in the markets where we choose to compete. The external environment is dynamic with reinsurance markets improving quickly, and conditions now expected to be favorable in several areas. These conditions allow for profitable growth in some areas and continued discipline in others. Overall, we believe our business is well-positioned for the current market environment.
We are encouraged by the pricing improvements that we are seeing across manyboth the insurance and reinsurance segments and – at the same time – maintain a disciplined approach to our underwriting. While there is positive rate momentum across most lines and markets, not all lines are at adequate levels and, in multiple cases, more rate is needed to deliver adequate returns, particularly given recent high loss experience in the market, COVID-19, and lower interest rates. Where prices appropriately reflect these trends to deliver adequate profitability we will look to grow within our risk and volatility guidelines. With the most balanced book in the history of our company, we believe AXIS is well positioned to drive profitable growth within the current market environment.
Recent Developments Related to COVID-19
On March 11, 2020, COVID-19, a novel coronavirus outbreak, was declared a pandemic by the World Health Organization. The COVID-19 crisis upended the marketplace and society on a global scale, and its impact is being felt within the insurance and reinsurance industry and at AXIS Capital.
COVID-19, and its related impacts, are an emerging and evolving risk to which we are exposed from an underwriting, investments, capital and liquidity, operations and employee welfare perspective. We have implemented a global response strategy to help manage and mitigate these risks.
Our team continues to track the situation closely, including stress and scenario testing on existing underwriting and investment exposures, taking into consideration among other assumptions, the possible severity and duration of the outbreak.
Reserving
At September 30, 2020 estimated pre-tax catastrophe and weather-related losses, net of reinstatement premiums, associated with first party coverages attributable to the COVID-19 pandemic, remains unchanged from the first quarter at $235 million. First party losses are primarily associated with property related coverages, but also includes event cancellation, and accident and health coverages.
The estimate of net reserves for losses and loss expenses related to the COVID-19 pandemic is subject to significant uncertainty. This uncertainty is driven by the inherent difficulty in making assumptions around the impact of the COVID-19 pandemic due to the lack of comparable events, the ongoing nature of the event, and its far-reaching impacts to world-wide economies and the health of the global population.
The estimate does not include an explicit estimate of potential losses arising from the indirect impacts of COVID-19 which would primarily impact third party coverages such as professional lines, liability and credit lines. We expect that it may take several quarters, or potentially several years, for the full impact of COVID-19 and its economic repercussions on these lines of business overto fully emerge.
While we believe the last coupleoverall estimate of years.net reserves for losses and loss expenses is adequate for losses and loss adjustment expenses that have been incurred at September 30, 2020 based on current facts and circumstances, we will continue to monitor the appropriateness of our assumptions as new information comes to light and will adjust the estimate of net reserves for losses and loss adjustment expenses, as appropriate. Refer to 'Management’s Discussion and Analysis of Financial Condition and Results of Operations – Results by Segment' for further information.
Actual losses for this event may ultimately differ materially from current estimates.
Underwriting
As our industry and society continues to navigate the challenges brought on by COVID-19, we are closely monitoring cash receipts from our customers and reinsurers, giving due consideration to related directives issued by certain government agencies. At September 30, 2020, we considered the potential financial impact of COVID-19 when determining allowances for expected credit losses for insurance and reinsurance premium balances receivable and reinsurance recoverable balances on unpaid losses. Based on facts and circumstances at that time, we did not adjust allowances for expected credit losses at September 30, 2020. We will continue to monitor the appropriateness of allowances for expected credit losses as new information comes to light. Adjustments to allowances for expected credit losses in subsequent periods could be material.
Our underwriters are reassessing risk appetite in light of the COVID-19 pandemic, in particular as it relates to exposure to communicable diseases, viruses, pathogens and other similar risks. We are taking appropriate steps to mitigate exposure to these types of risks, including increasing pricing and adding policy terms and conditions, including exclusions. During the remainder of 2020, premium volume may be adversely impacted due to the disruption to both society and the insurance and reinsurance marketplace on a global scale. Adjustments to premiums in subsequent periods could be material.
Capital and Liquidity
Following two debt issuances in 2019 that raised $725 million at favorable rates, we redeemed our Series D preferred shares of $225 million at par in January 2020 and we repaid unsecured senior notes of $500 million at maturity in June 2020. At September 30, 2020, no long-term debt will mature until the end of 2027. In addition, our common share repurchase plan expired in 2017 and has not been renewed. We continue to emphasize underwriting disciplinehave capital above the level required by our group regulator, the Bermuda Monetary Authority.
We have a prudently constructed fixed maturity portfolio of $13 billion, with an average credit rating of AA-, which closely matches the duration of our liabilities. Unrestricted cash and cash equivalents of $1 billion and equity securities of 0.4 billion at September 30, 2020 provide additional liquidity.
In the first quarter, we reduced our 2020 expense budget by approximately $50 million based on the specific impacts of the COVID-19 pandemic on our business. A significant amount of these temporary expense savings were realized in recent quarters by reducing performance related compensation and travel and entertainment costs, given remote working. In addition, we have deferred non-critical hires and delayed certain projects.
We expect cash flows generated from operations, combined with liquidity provided by our investment portfolio, will be sufficient to actively managecover cash outflows and other contractual commitments that become due within one year after the date that the financial statements are issued. We review each claim on an individual basis and where our portfolio profitability. In parallel,policies provide coverage, we are capitalizing on opportunitiesmake payments to support clients in a worldhelp our insureds overcome financial setbacks.
CONSOLIDATED RESULTS OF OPERATIONS
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, | |
| | 2020 | | % Change | | 2019 | | 2020 | | % Change | | 2019 | |
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| Underwriting revenues: | | | | | | | | | | | | |
| Gross premiums written | $ | 1,331,178 | | | (5%) | | $ | 1,406,506 | | | $ | 5,478,519 | | | (3%) | | $ | 5,637,491 | | |
| Net premiums written | 815,982 | | | (5%) | | 856,081 | | | 3,550,960 | | | (4%) | | 3,703,460 | | |
| Net premiums earned | 1,091,312 | | | (6%) | | 1,157,307 | | | 3,283,941 | | | (4%) | | 3,415,126 | | |
| Other insurance related income (loss) | 1,440 | | | (6%) | | 1,533 | | | (5,270) | | | nm | | 11,385 | | |
| Underwriting expenses: | | | | | | | | | | | | |
| Net losses and loss expenses | (879,677) | | | 3% | | (850,913) | | | (2,464,012) | | | 13% | | (2,187,403) | | |
| Acquisition costs | (230,564) | | | (11%) | | (260,026) | | | (697,716) | | | (9%) | | (762,807) | | |
| Underwriting-related general and administrative expenses(1) | (117,835) | | | (7%) | | (126,619) | | | (361,623) | | | (9%) | | (398,540) | | |
| Underwriting income (loss) | $ | (135,324) | | | | | $ | (78,718) | | | $ | (244,680) | | | | | $ | 77,761 | | |
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| Net investment income | 101,956 | | | (12%) | | 115,763 | | | 240,098 | | | (33%) | | 361,014 | | |
| Net investment gains | 55,609 | | | nm | | 14,527 | | | 45,777 | | | (6%) | | 48,522 | | |
| Corporate expenses(1) | (20,988) | | | (27%) | | (28,903) | | | (74,915) | | | (23%) | | (97,468) | | |
| Other (expenses) revenues, net | (76,308) | | | nm | | 41,501 | | | (68,401) | | | nm | | 15,323 | | |
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| Reorganization expenses | (1,413) | | | nm | | (11,215) | | | (822) | | | nm | | (29,310) | | |
| Amortization of value of business acquired | (1,028) | | | nm | | (4,368) | | | (4,111) | | | nm | | (24,666) | | |
| Amortization of intangible assets | (2,838) | | | —% | | (2,831) | | | (8,564) | | | (2%) | | (8,744) | | |
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| Income (loss) before income taxes and interest in income (loss) of equity method investments | (80,334) | | | | | 45,756 | | | (115,618) | | | | | 342,432 | | |
| Income tax (expense) benefit | 12,056 | | | nm | | (8,147) | | | 6,030 | | | nm | | (23,850) | | |
| Interest in income (loss) of equity method investments | 2,896 | | | nm | | 792 | | | (13,579) | | | nm | | 5,645 | | |
| Net income (loss) | $ | (65,382) | | | | | $ | 38,401 | | | $ | (123,167) | | | | | $ | 324,227 | | |
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| Preferred share dividends | (7,563) | | | (29%) | | (10,656) | | | (22,688) | | | (29%) | | (31,969) | | |
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| Net income (loss) available (attributable) to common shareholders | $ | (72,945) | | | | | $ | 27,745 | | | $ | (145,855) | | | | | $ | 292,258 | | |
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nm – not meaningful
(1)Underwriting-related general and reinsurance panels. We believe that thereadministrative expenses is a real opportunitynon-GAAP financial measure as defined in Item 10(e) of SEC Regulation S-K. The reconciliation to achieve more relevancegeneral and administrative expenses, the most comparable GAAP financial measure, also included corporate expenses of $20,988 and $28,903 for the three months ended September 30, 2020 and 2019, respectively, and $74,915 and $97,468 for the nine months ended September 30, 2020 and 2019, respectively. Refer to produce new streams'Management’s Discussion and Analysis of income in the future while still driving improvements in our existing portfolio. We areFinancial Condition and Results of Operations – Other Expenses (Revenues), Net' for additional information on corporate expenses. Refer also focused on managing the volatilityto 'Management’s Discussion and capital efficiencyAnalysis of our portfolio by further expanding our already strong groupFinancial Condition and Results of strategic capital partners.
Operations – Non-GAAP Financial Measures
Reconciliation' for additional information.
We present our results
Underwriting Revenues
Underwriting revenues by segment were as follows:
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| | Three months ended September 30, | | Nine months ended September 30, | |
| | 2020 | | % Change | | 2019 | | 2020 | | % Change | | 2019 | |
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| Gross premiums written: | | | | | | | | | | | | |
| Insurance | $ | 935,817 | | | 5% | | $ | 894,902 | | | $ | 2,914,100 | | | 7% | | $ | 2,714,322 | | |
| Reinsurance | 395,361 | | | (23%) | | 511,604 | | | 2,564,419 | | | (12%) | | 2,923,169 | | |
| Total gross premiums written | $ | 1,331,178 | | | (5%) | | $ | 1,406,506 | | | $ | 5,478,519 | | | (3%) | | $ | 5,637,491 | | |
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| Percent of gross premiums written ceded | | | | | | | | | | | | |
| Insurance | 42% | | — pts | | 42% | | 41% | | 1 pt | | 40% | |
| Reinsurance | 31% | | (3) pts | | 34% | | 29% | | — pts | | 29% | |
| Total percent of gross premiums ceded | 39% | | — pts | | 39% | | 35% | | 1 pt | | 34% | |
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| Net premiums written: | | | | | | | | | | | | |
| Insurance | $ | 544,857 | | | 5% | | $ | 517,050 | | | $ | 1,729,268 | | | 6% | | $ | 1,638,197 | | |
| Reinsurance | 271,125 | | | (20%) | | 339,031 | | | 1,821,692 | | | (12%) | | 2,065,263 | | |
| Total net premiums written | $ | 815,982 | | | (5%) | | $ | 856,081 | | | $ | 3,550,960 | | | (4%) | | $ | 3,703,460 | | |
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| Net premiums earned: | | | | | | | | | | | | |
| Insurance | $ | 570,184 | | | 6% | | $ | 536,451 | | | $ | 1,709,268 | | | 5% | | $ | 1,630,473 | | |
| Reinsurance | 521,128 | | | (16%) | | 620,856 | | | 1,574,673 | | | (12%) | | 1,784,653 | | |
| Total net premiums earned | $ | 1,091,312 | | | (6%) | | $ | 1,157,307 | | | $ | 3,283,941 | | | (4%) | | $ | 3,415,126 | | |
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Refer to investors, analysts, rating agencies and others who use our financial information to evaluate our performance. Some of the measurements we use are considered non-GAAP financial measures under SEC rules and regulations. In this 'Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A"), we present underwriting-related- Results by Segment' for additional information on underwriting revenues.
Underwriting Expenses
The components of the combined ratio were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, | |
| | 2020 | | % Point Change | | 2019 | | 2020 | | % Point Change | | 2019 | |
| | | | | | | | | | | | | |
| Current accident year loss ratio excluding catastrophe and weather-related losses | 58.5 | % | | (3.2) | | 61.7 | % | | 57.8 | % | | (2.3) | | 60.1 | % | |
| Catastrophe and weather-related losses ratio | 22.2 | % | | 8.1 | | 14.1 | % | | 17.5 | % | | 11.6 | | 5.9 | % | |
| Current accident year loss ratio | 80.7 | % | | 4.9 | | 75.8 | % | | 75.3 | % | | 9.3 | | 66.0 | % | |
| Prior year reserve development ratio | (0.1 | %) | | 2.2 | | (2.3 | %) | | (0.3 | %) | | 1.6 | | (1.9 | %) | |
| Net losses and loss expenses ratio | 80.6 | % | | 7.1 | | 73.5 | % | | 75.0 | % | | 10.9 | | 64.1 | % | |
| Acquisition cost ratio | 21.1 | % | | (1.4) | | 22.5 | % | | 21.2 | % | | (1.1) | | 22.3 | % | |
| General and administrative expense ratio(1) | 12.8 | % | | (0.6) | | 13.4 | % | | 13.4 | % | | (1.1) | | 14.5 | % | |
| Combined ratio | 114.5 | % | | 5.1 | | 109.4 | % | | 109.6 | % | | 8.7 | | 100.9 | % | |
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(1) The general and administrative expense ratio included corporate expenses consolidatednot allocated to underwriting income (loss), operating income (loss) (segments in totalof 1.9% and on a per share basis2.5% fo), annualized operating return on average common equity ("operating ROACE"), amounts presented on a constant currency basis, pre-tax total return on cashr the three months ended September 30, 2020 and investments excluding foreign exchange movements, ex-PGAAP operating income (loss) (2019, respectively, and in total2.3% and on a per share basis2.9%) for the nine months endedSeptember 30, 2020 and annualized ex-PGAAP operating ROACE which are non-GAAP financial measures as defined in Item 10(e) of SEC Regulation S-K. We believe that these non-GAAP financial measures, which may be defined and calculated differently by other companies, better explain and enhance the understanding of our results of operations. However, these measures should not be viewed as a substitute for those determined in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP").
Underwriting-Related General and Administrative Expenses
Underwriting-related general and administrative expenses include those general and administrative expenses that are incremental and/or directly attributable2019, respectively. Refer to our individual underwriting operations. While this measure is presented in Item 1, Note 2 to the Consolidated Financial Statements 'Segment Information', it is considered a non-GAAP financial measure when presented elsewhere on a consolidated basis.
Corporate expenses include holding company costs necessary to support our worldwide insurance and reinsurance operations and costs associated with operating as a publicly-traded company. As these costs are not incremental and/or directly attributable to our individual underwriting operations, these costs are excluded from underwriting-related general and administrative expenses and, therefore, consolidated underwriting income (loss). General and administrative expenses, the most comparable GAAP financial measure to underwriting-related general and administrative expenses, also includes corporate expenses.
The reconciliation of underwriting-related general and administrative expenses to general and administrative expenses, the most comparable GAAP financial measure, is presented in 'Management’s Discussion and Analysis of Financial Condition and Results of Operations – Executive Summary – Results of Operations'Other Expenses (Revenues), Net' for further details.
Consolidated Underwriting Income (Loss)
Consolidated underwriting income (loss) is a pre-tax measure of underwriting profitability that takes into account net premiums earned and other insurance related income (losses) as revenues and net losses and loss expenses, acquisition costs and underwriting-related general and administrative expenses as expenses. While this measure is presented in Item 1, Note 2Refer to the Consolidated Financial Statements ''Segment Information', it is considered a non-GAAP financial measure when presented elsewhere on a consolidated basis.
We evaluate our underwriting results separately from the performance of our investment portfolio. As a result, we believe it is appropriate to exclude net investment income and net investment gains (losses) from our underwriting profitability measure.
Foreign exchange losses (gains) in our consolidated statements of operations primarily relate to the impact of foreign exchange rate movements on our net insurance-related liabilities. However, we manage our investment portfolio in such a way that unrealized and realized foreign exchange losses (gains) on our investment portfolio generally offset a large portion of the foreign exchange losses (gains) arising from our underwriting portfolio. As a result, we believe that foreign exchange losses (gains) are not a meaningful contributor to our underwriting performance, therefore, foreign exchange losses (gains) are excluded from consolidated underwriting income (loss).
Interest expense and financing costs primarily relate to interest payable on our senior notes. As these expenses are not incremental and/or directly attributable to our individual underwriting operations, these expenses are excluded from underwriting-related general and administrative expenses, and therefore, consolidated underwriting income (loss).
Transaction and reorganization expenses are primarily driven by business decisions, the nature and timing of which are not related to the underwriting process, therefore, these expenses are excluded from consolidated underwriting income (loss).
Amortization of intangible assets including value of business acquired ("VOBA") arose from business decisions, the nature and timing of which are not related to the underwriting process, therefore, these expenses are excluded from consolidated underwriting income (loss).
We believe that the presentation of underwriting-related general and administrative expenses and consolidated underwriting income (loss) provides investors with an enhanced understanding of our results of operations, by highlighting the underlying pre-tax profitability of our underwriting activities. The reconciliation of consolidated underwriting income (loss) to income (loss) before income taxes and interest in income (loss) of equity method investments, the most comparable GAAP financial measure, is presented in Management’sManagement's Discussion and Analysis of Financial Condition and Results of Operations – Executive Summary –- Results of Operations'by Segment.' for additional information on underwriting expenses.
Operating Income (Loss)52
Operating income (loss) represents after-tax operational results exclusive of net investment gains (losses), foreign exchange losses (gains), transaction and reorganization expenses, and interest in income (loss) of equity method investments.
RESULTS BY SEGMENT
Insurance Segment
Results for the investment of premiums to generate income and investment gains (losses) is an integral part of our operations, the determination to realize investment gains (losses) is independent of the underwriting process and is heavily influenced by the availability of market opportunities. Furthermore, many users believe that the timing of the realization of investment gains (losses) is somewhat opportunistic for many companies.insurance segment were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, | |
| | 2020 | | % Change | | 2019 | | 2020 | | % Change | | 2019 | |
| | | | | | | | | | | | | |
| Revenues: | | | | | | | | | | | | |
| Gross premiums written | $ | 935,817 | | | 5% | | $ | 894,902 | | | $ | 2,914,100 | | | 7% | | $ | 2,714,322 | | |
| Net premiums written | 544,857 | | | 5% | | 517,050 | | | 1,729,268 | | | 6% | | 1,638,197 | | |
| Net premiums earned | 570,184 | | | 6% | | 536,451 | | | 1,709,268 | | | 5% | | 1,630,473 | | |
| Other insurance related income | 688 | | | 6% | | 733 | | | 2,091 | | | 18% | | 1,779 | | |
| | | | | | | | | | | | | |
| Expenses: | | | | | | | | | | | | |
| Current accident year net losses and loss expenses | (443,659) | | | | | (353,575) | | | (1,257,090) | | | | | (1,004,293) | | |
| Prior year reserve development | 270 | | | | | 14,609 | | | 4,521 | | | | | 42,849 | | |
| Acquisition costs | (114,569) | | | | | (115,551) | | | (343,579) | | | | | (344,981) | | |
| Underwriting-related general and administrative expenses | (94,379) | | | | | (100,559) | | | (284,909) | | | | | (311,491) | | |
| | | | | | | | | | | | | |
| Underwriting income (loss) | $ | (81,465) | | | | | $ | (17,892) | | | $ | (169,698) | | | | | $ | 14,336 | | |
| | | | | | | | | | | | | |
| Ratios: | | | % Point Change | | | | | | % Point Change | | | |
| Current accident year loss ratio excluding catastrophe and weather-related losses | 54.7 | % | | (3.5) | | 58.2 | % | | 54.8 | % | | (2.9) | | 57.7 | % | |
| Catastrophe and weather-related losses ratio | 23.1 | % | | 15.4 | | 7.7 | % | | 18.7 | % | | 14.8 | | 3.9 | % | |
| Current accident year loss ratio | 77.8 | % | | 11.9 | | 65.9 | % | | 73.5 | % | | 11.9 | | 61.6 | % | |
| Prior year reserve development ratio | — | % | | 2.7 | | (2.7 | %) | | (0.2 | %) | | 2.4 | | (2.6 | %) | |
| Net losses and loss expenses ratio | 77.8 | % | | 14.6 | | 63.2 | % | | 73.3 | % | | 14.3 | | 59.0 | % | |
| Acquisition cost ratio | 20.1 | % | | (1.4) | | 21.5 | % | | 20.1 | % | | (1.1) | | 21.2 | % | |
| Underwriting-related general and administrative expense ratio | 16.5 | % | | (2.3) | | 18.8 | % | | 16.7 | % | | (2.3) | | 19.0 | % | |
| Combined ratio | 114.4 | % | | 10.9 | | 103.5 | % | | 110.1 | % | | 10.9 | | 99.2 | % | |
| | | | | | | | | | | | | |
Foreign exchange losses (gains) in our consolidated statements of operations primarily relate to the impact of foreign exchange rate movements on net insurance related-liabilities. In addition, we recognize unrealized foreign exchange losses (gains) on our equity securities and foreign exchange losses (gains) realized upon the sale of our available for sale investments and equity securities in net investment gains (losses). However, these movements are only one element of the overall impact of foreign exchange rate fluctuations on our financial position. We also recognize unrealized foreign exchange losses (gains) on our available for sale investments in other comprehensive income (loss). These unrealized foreign exchange losses (gains) generally offset a large portion of the foreign exchange losses (gains) reported in net income (loss) available (attributable) to common shareholders, thereby minimizing the impact of foreign exchange rate movements on total shareholders' equity. As such, foreign exchange losses (gains) in our consolidated statements of operations in isolation arenm – not a fair representation of the performance of our business.
meaningful
Transaction and reorganization expenses are primarily driven by business decisions, the nature and timing of which are not related to the underwriting process, therefore, these expenses are excluded from operating income (loss).
Interest in income (loss) of equity method investments is primarily driven by business decisions, the nature and timing of which are not related to the underwriting process, therefore, this income (loss) is excluded from operating income (loss).
Certain users of our financial statements evaluate performance exclusive of after-tax net investment gains (losses), foreign exchange losses (gains), transaction and reorganization expenses, and interest in income (loss) of equity method investments to understand the profitability of recurring sources of income.
Gross Premiums Written
We believe that showing net income (loss) available (attributable) to common shareholders exclusive
Gross premiums written by line of after-tax net investment gains (losses), foreign exchange losses (gains), transaction and reorganization expenses, and interest in income (loss) of equity method investments reflects the underlying fundamentals of our business. In addition, we believe that this presentation enables investors and other users of our financial information to analyze performance in a manner similar to how our management analyzes the underlying business performance. We also believe this measure follows industry practice and, therefore, facilitates comparison of our performance with our peer group. We believe that equity analysts and certain rating agencies that follow us, and the insurance industrywere as a whole, generally exclude these items from their analysesfollows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | | | Nine months ended September 30, | | | |
| | 2020 | | | | 2019 | | | | % Change | | 2020 | | | | 2019 | | | | % Change | |
| | | | | | | | | | | | | | | | | | | | | |
| Property | $ | 238,599 | | | 26 | % | | $ | 241,517 | | | 27 | % | | (1%) | | $ | 741,043 | | | 27 | % | | $ | 701,314 | | | 27 | % | | 6% | |
| Marine | 82,810 | | | 9 | % | | 91,161 | | | 10 | % | | (9%) | | 355,503 | | | 12 | % | | 337,529 | | | 12 | % | | 5% | |
| Terrorism | 14,767 | | | 2 | % | | 17,284 | | | 2 | % | | (15%) | | 42,296 | | | 1 | % | | 46,803 | | | 2 | % | | (10%) | |
| Aviation | 22,702 | | | 2 | % | | 17,623 | | | 2 | % | | 29% | | 63,725 | | | 2 | % | | 53,832 | | | 2 | % | | 18% | |
| Credit and political risk | 24,473 | | | 3 | % | | 32,528 | | | 4 | % | | (25%) | | 100,151 | | | 3 | % | | 114,511 | | | 4 | % | | (13%) | |
| Professional lines | 338,907 | | | 36 | % | | 272,362 | | | 30 | % | | 24% | | 943,635 | | | 32 | % | | 820,953 | | | 30 | % | | 15% | |
| Liability | 172,747 | | | 18 | % | | 186,253 | | | 21 | % | | (7%) | | 548,023 | | | 19 | % | | 518,925 | | | 19 | % | | 6% | |
| Accident and health | 39,262 | | | 4 | % | | 34,054 | | | 4 | % | | 15% | | 117,743 | | | 4 | % | | 113,228 | | | 4 | % | | 4% | |
| Discontinued lines - Novae | 1,550 | | | — | % | | 2,120 | | | — | % | | (27%) | | 1,981 | | | — | % | | 7,227 | | | — | % | | nm | |
| Total | $ | 935,817 | | | 100 | % | | $ | 894,902 | | | 100 | % | | 5% | | $ | 2,914,100 | | | 100 | % | | $ | 2,714,322 | | | 100 | % | | 7% | |
| | | | | | | | | | | | | | | | | | | | | |
nm – not meaningful
Gross premiums written for the same reasons. The reconciliation of operating income (loss) to net income (loss) available (attributable) to common shareholders, the most comparable GAAP financial measure, is presented in three months ended September 30, 2020, increased by $41 million, or 5%,'Management’s Discussion and Analysis of Financial Condition and Results of Operations – Executive Summary – Results of Operations'.
We also present operating income (loss) per diluted common share and annualized operating ROACE, which are derived from the operating income (loss) measure and are reconciled to the most comparable GAAP financial measures, earnings (loss) per diluted common share and annualized return on average common equity ("ROACE"), respectively, in 'Management’s Discussion and Analysis of Financial Condition and Results of Operations – Executive Summary – Results of Operations'.
Constant Currency Basis
We present gross premiums written, net premiums written and net premiums earned ($31 million, or 3% on a constant currency basis(1)), compared to the three months ended September 30, 2019. The increase was primarily attributable to professional lines, accident and health, and aviation lines, partially offset by decreases in this MD&A. liability, marine, and credit and political risk lines.
The amountsincrease in professional lines was due to new business and favorable rate changes. The increase in accident and health lines was due to new business. The increase in aviation lines was due to a timing difference and favorable rate changes. The decreases in liability and credit and political risk lines were due to a higher level of non-renewals and reduced business opportunities related to the current economic climate. The decrease in marine lines was due to a timing difference and non-renewals.
Gross premiums written for the nine months ended September 30, 2020, increased by $200 million, or 7%, compared to the nine months ended September 30, 2019. The increase was primarily attributable to professional lines, property, liability, marine, and aviation lines, partially offset by a decrease in credit and political risk lines.
The increases in professional lines, property, liability, and marine lines were due to new business and favorable rate changes. The increase in aviation lines was due to timing differences. The decrease in credit and political risk lines was due to non-renewals and reduced business opportunities related to the current economic climate.
Ceded Premiums Written
Ceded premiums written for the three months ended September 30, 2020, was $391 million, or 42% of gross premiums written, compared to $378 million, or 42% of gross premiums written for the three months ended September 30, 2019. The increase in ceded premiums written of $13 million or 3% was primarily driven by increases in professional lines and property lines, partially offset by decreases in liability, marine, and credit and political risk lines.
Ceded premiums written for the nine months ended September 30, 2020, was $1,185 million, or 41% of gross premiums written, compared to $1,076 million, or 40% of gross premiums written for the nine months ended September 30, 2019. The increase in ceded premiums written of $109 million, or 10%, was primarily driven by increases in professional lines, property, liability, and marine lines, partially offset by a decrease in credit and political risk lines.
(1) Amounts presented on a constant currency basis are non-GAAP financial measures as defined in Item10 (e) of SEC Regulation S-K. The constant currency basis is calculated by applying the average foreign exchange rate from the current year to the prior year amounts. We believe this presentation enables investors and other usersbalance.
Net Premiums Earned
Net premiums earned by line of business were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | | | Nine months ended September 30, | | | |
| | 2020 | | | | 2019 | | | | % Change | | 2020 | | | | 2019 | | | | % Change | |
| | | | | | | | | | | | | | | | | | | | | |
| Property | $ | 145,717 | | | 27 | % | | $ | 154,751 | | | 29 | % | | (6%) | | $ | 452,876 | | | 26 | % | | $ | 481,450 | | | 30 | % | | (6%) | |
| Marine | 76,544 | | | 13 | % | | 65,437 | | | 12 | % | | 17% | | 220,248 | | | 13 | % | | 209,629 | | | 13 | % | | 5% | |
| Terrorism | 11,728 | | | 2 | % | | 11,605 | | | 2 | % | | 1% | | 34,675 | | | 2 | % | | 35,635 | | | 2 | % | | (3%) | |
| Aviation | 19,039 | | | 3 | % | | 10,993 | | | 2 | % | | nm | | 51,236 | | | 3 | % | | 38,603 | | | 2 | % | | 33% | |
| Credit and political risk | 23,781 | | | 4 | % | | 19,432 | | | 4 | % | | 22% | | 77,721 | | | 5 | % | | 66,412 | | | 4 | % | | 17% | |
| Professional lines | 179,441 | | | 31 | % | | 172,280 | | | 32 | % | | 4% | | 530,651 | | | 31 | % | | 490,928 | | | 30 | % | | 8% | |
| Liability | 76,487 | | | 13 | % | | 68,002 | | | 13 | % | | 12% | | 234,522 | | | 14 | % | | 192,352 | | | 12 | % | | 22% | |
| Accident and health | 37,151 | | | 7 | % | | 32,368 | | | 6 | % | | 15% | | 106,015 | | | 6 | % | | 108,402 | | | 7 | % | | (2%) | |
| Discontinued lines - Novae | 296 | | | — | % | | 1,583 | | | — | % | | nm | | 1,324 | | | — | % | | 7,062 | | | — | % | | nm | |
| Total | $ | 570,184 | | | 100 | % | | $ | 536,451 | | | 100 | % | | 6% | | $ | 1,709,268 | | | 100 | % | | $ | 1,630,473 | | | 100 | % | | 5% | |
| | | | | | | | | | | | | | | | | | | | | |
nm – not meaningful
Net premiums earned for the three months ended September 30, 2020, increased by $34 million, or 6%, ($27 million, or 5% on a constant currency basis), compared to analyze growththe three months ended September 30, 2019. The increase was primarily driven by increases in gross premiums written, net premiums writtenearned in professional lines, liability, and netmarine lines, together with a decrease in ceded premiums earned onin aviation lines, partially offset by increases in ceded premiums earned in professional lines and liability lines, and a constant basis. The reconciliation todecrease in gross premiums written, net premiums written and netearned in property lines.
Net premiums earned on for the nine months ended September 30, 2020, increased by $79 million, or 5%, compared to the nine months ended September 30, 2019. The increase was primarily driven by increases in gross premiums earned in liability, professional lines, marine, and credit and political risk lines, together with decreases in ceded premiums earned in property and aviation lines, partially offset by increases in ceded premiums earned in liability and professional lines, and a GAAP basis is presenteddecrease in 'gross premiums earned in property lineManagement’s Discussion and Analysis of Financial Condition and Results of Operations – Underwriting Results – Consolidated'.s.
Pre-Tax Total Return on Cash and Investments excluding Foreign Exchange Movement
Pre-tax total return on cash
Loss Ratio
The components of the loss ratio were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, | |
| | 2020 | | % Point Change | | 2019 | | 2020 | | % Point Change | | 2019 | |
| | | | | | | | | | | | | |
| Current accident year | 77.8 | % | | 11.9 | | 65.9 | % | | 73.5 | % | | 11.9 | | 61.6 | % | |
| Prior year reserve development | — | % | | 2.7 | | (2.7 | %) | | (0.2 | %) | | 2.4 | | (2.6 | %) | |
| Loss ratio | 77.8 | % | | 14.6 | | 63.2 | % | | 73.3 | % | | 14.3 | | 59.0 | % | |
| | | | | | | | | | | | | |
Current Accident Year Loss Ratio
The current accident year loss ratio increased to 77.8% and investments excluding foreign exchange movements measures73.5% for the three and nine months ended September 30, 2020, respectively, from 65.9% and 61.6% for the three and nine months ended September 30, 2019, respectively.
During the three and nine months ended September 30, 2020, catastrophe and weather-related losses, net investment income (loss), net investments gains (losses), interest in income (loss) of equity method investments,reinstatement premiums, were $132 million, or 23.1 points, and change in unrealized gains (losses) generated by our average cash$325 million, or 18.7 points, respectively. During the three months ended September 30, 2020, these losses were primarily attributable to Hurricanes Laura and investment balances.Sally, the Beirut port explosion, wildfires across the West Coast of the United States, and other weather-related events. During the nine months ended September 30, 2020 catastrophe and weather-related losses included $137 million associated with first party coverages attributable to the COVID-19 pandemic. These losses were primarily associated with property-related coverages, but also included event cancellation coverages. The reconciliationremaining losses of pre-tax total return on cash$188 million were primarily attributable to Hurricanes Laura and investments excluding foreign exchange movementsSally, the Beirut port explosion, wildfires across the West Coast of the United States, and other weather-related events. Comparatively, during the three and nine months ended September 30, 2019, catastrophe and weather-related losses were $41 million, or 7.7 points, and $64 million, or 3.9 points, respectively.
After adjusting for the impact of the catastrophe and weather-related losses, the current accident year loss ratio decreased to pre-tax total return on cash and investments,54.7% for the most comparable GAAP financial measure, is presentedthree months ended September 30, 2020, from 58.2% for the three months ended September 30, 2019. The decrease in the 'current accident year loss ratio after adjusting for the impact of the catastrophe and weather-related losses was principally due to the impact of favorable pricing over loss trends, improved loss experience in property, marine, credit and political risk, and aviation lines largely associated with the repositioning of the portfolio.
After adjusting for the impact of the catastrophe and weather-related losses, the current accident year loss ratio decreased to 54.8% for the nine months ended September 30, 2020, from 57.7% for the nine months ended September 30, 2019. The decrease in the current accident year loss ratio after adjusting for the impact of the catastrophe and weather-related losses was principally due to the impact of favorable pricing over loss trends, improved loss experience in property, credit and political risk, marine and aviation lines, partially offset by changes in business mix.
Prior Year Reserve Development
The following table maps lines of business to reserve classes and the expected claim tails:
| | | | | | | | | | | | | | | | | | | | |
Insurance segment | | | | | |
| Reserve class and tail |
| | | | | | |
| Property and other | Marine | Aviation | Credit and political risk | Professional lines | Liability |
| | | | | | |
| Short | Short | Short/Medium | Medium | Medium | Long |
| | | | | | |
Reported lines of business | | | | | | |
Property | X | | | | | |
Marine | | X | | | | |
Terrorism | X | | | | | |
Aviation | | | X | | | |
Credit and political risk | | | | X | | |
Professional lines | | | | | X | |
Liability | | | | | | X |
Accident and health | X | | | | | |
Discontinued lines - Novae | X | | | | X | X |
Prior year reserve development by reserve class were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, | |
| | 2020 | | 2019 | | 2020 | | 2019 | |
| | | | | | | | | |
| Property and other | $ | 6,907 | | | $ | 11,427 | | | $ | 42,688 | | | $ | (4,426) | | |
| Marine | 4,095 | | | 2,119 | | | 633 | | | 23,753 | | |
| Aviation | (326) | | | 471 | | | 5,667 | | | 1,671 | | |
| Credit and political risk | 871 | | | 1,217 | | | (223) | | | 10,278 | | |
| Professional lines | (7,287) | | | 3,656 | | | (19,086) | | | 13,899 | | |
| Liability | (3,990) | | | (4,281) | | | (25,158) | | | (2,326) | | |
| Total | $ | 270 | | | $ | 14,609 | | | $ | 4,521 | | | $ | 42,849 | | |
| | | | | | | | | |
For the three months ended September 30, 2020, we recognized $0.3 million ofManagement’s Discussion and Analysis net favorable prior year reserve development, the principal components of Financial Condition and Resultswhich were:
•$7 million of Operations – Net Investment Income and Net Investment Gains (Losses)'. We believe this presentation enables investorsnet favorable prior year reserve development on property and other users of our financial informationbusiness primarily due to better analyzethan expected loss emergence attributable to the performance2019 catastrophe events.
•$4 million of our investment portfolio.net favorable prior year reserve development on marine business primarily due better than expected loss emergence mainly related to the 2018 accident year.
Ex-PGAAP Operating Income (Loss)
•$7 million of net adverse prior year reserve development on professional lines business primarily due to reserve strengthening within the European professional indemnity and financial institutions books of business mainly related to the 2018 accident year and an increase in case reserves attributable to a specific large claim related to the 2009 accident year.
Ex-PGAAP operating income (loss) represents operating income (loss) exclusive•$4 million of amortizationnet adverse prior year reserve development on liability business primarily due to reserve strengthening within the primary casualty, U.S. excess casualty and program books of VOBAbusiness mainly related to 2017 and intangible assets,2018 accident years.
For the three months ended September 30, 2019, we recognized $15 million of net favorable prior year reserve development, the principal components of taxwhich were:
•$11 million of net favorable prior year reserve development on property and amortizationother business primarily due to better than expected loss emergence attributable to the 2017 catastrophe events and SuperStorm Sandy.
•$4 million of net favorable prior year reserve development on professional lines business primarily due to better than expected loss emergence mainly related to the 2013 and 2014 accident years.
•$4 million of net adverse prior year reserve development on liability business primarily due to reserve strengthening within the U.S. excess casualty book of business related to older accident years.
For the nine months ended September 30, 2020, we recognized $5 million of net favorable prior year reserve development, the principal components of which were:
•$43 million of net favorable prior year reserve development on property and other business primarily due to better than expected loss emergence mainly related to the 2018 and 2019 accident years, better than expected loss emergence attributable to the 2017, 2018 and 2019 catastrophe events, and decreases in case reserves attributable to specific claims related to the 2014 and 2016 accident years.
•$6 million of net favorable prior year reserve development on aviation business primarily due to better than expected loss emergence mainly related to the 2018 and 2019 accident years.
•$25 million of net adverse prior year reserve development on liability business primarily due to reserve strengthening within the primary casualty, U.S. excess casualty and program books of business mainly related to the 2017 and 2018 accident years.
•$19 million of net adverse prior year reserve development on professional lines business primarily due to reserve strengthening within the European professional indemnity and financial institutions books of business and the commercial management solutions book of business mainly related to the 2018 and 2019 accident year and an increase in case reserves attributable to a specific large claim related to the 2009 accident year.
For the nine months ended September 30, 2019, we recognized $43 million of net favorable prior year reserve development, the principal components of which were:
•$24 million of net favorable prior year reserve development on marine business primarily due to better than expected loss emergence mainly related to the 2015 to 2017 accident years.
•$14 million of net favorable prior year reserve development on professional lines business primarily due to better than expected loss emergence mainly related to the 2013 to 2015 accident years.
•$10 million of net favorable prior year reserve development on credit and political risk business primarily due to better than expected loss emergence mainly related to the 2018 accident year.
•$4 million of net adverse prior year reserve development on property and other business primarily due to reserve strengthening within the international book of business mainly related to the 2018 accident year, partially offset by better than expected loss emergence attributable to the 2017 catastrophe events and SuperStorm Sandy.
Acquisition Cost Ratio
The acquisition costs, net of taxcost ratio decreased to 20.1% for the three months ended September 30, 2020, from 21.5% for the three months ended September 30, 2019, principally related to an increase in ceding commissions.
The acquisition cost ratio decreased to 20.1% for the nine months ended September 30, 2020, from 21.2% for the nine months ended September 30, 2019, associated with Novae's balance sheet at October 2, 2017 (the "closing date" or "acquisition date"). The reconciliationthe acquisition of ex-PGAAP operating income (loss) to net income (loss) available (attributable) to common shareholders, the most comparable GAAP financial measure, is presentedNovae and an increase in 'Management’s Discussion and Analysis of Financial Condition and Results of Operations – Executive Summary – Results of Operations'.
We also present ex-PGAAP operating income (loss) per diluted common share and annualized ex-PGAAP operating ROACE, which are derived from the ex-PGAAP operating income (loss) measure and are reconciled to the most comparable GAAP financial
measures, earnings (loss) per diluted common share and annualized ROACE, respectively, are also presented in 'Management’s Discussion and Analysis of Financial Condition and Results of Operations – Executive Summary – Results of Operations'.
We believe the presentation of ex-PGAAP operating income (loss), ex-PGAAP operating income (loss) per diluted common share and annualized ex-PGAAP operating ROACE enables investors and other users of our financial information to better analyze the performance of our business.
Acquisition of Novae
On October 2, 2017, we acquired Novae.ceding commissions. At the acquisition date, we identified VOBA which represents the present value of the expected underwriting profit within policies that were in-force at the closing date of the transaction. In addition, the allocation of the acquisition price to the assets acquired and liabilities assumed based on estimated fair values at the acquisitionthat date, resulted in the write-off of the deferred acquisition cost asset on Novae's balance sheet at the acquisition date as the value of policies in-force on that date are considered within VOBA.value of business acquired ("VOBA"). Consequently, underwritingthe absence of $1 million and $11 million of acquisition expense related to premiums earned in the nine months ended September 30, 2020 and 2019, respectively, benefited the acquisition cost by 0.1 points and 0.6 points, respectively. Adjusting the acquisition cost rate for these amounts, the acquisition cost ratio decreased by 1.6 points.
Underwriting-Related General and Administrative Expense Ratio
The underwriting-related general and administrative expense ratio decreased to 16.5%for thethree months ended September 30, 2020, from 18.8% for the three months ended September 30, 2019, mainly driven by a decrease in personnel costs and travel and entertainment expenses, together with an increase in net premiums earned.
The underwriting-related general and administrative expense ratio decreased to 16.7% for the nine months ended September 30, 2020, from 19.0% for the nine months ended September 30, 2019, mainly driven by decreases in travel and entertainment expenses, and professional fees, together with an increase in net premiums earned.
Reinsurance Segment
Results from the reinsurance segment were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, | |
| | 2020 | | % Change | | 2019 | | 2020 | | % Change | | 2019 | |
| | | | | | | | | | | | | |
| Revenues: | | | | | | | | | | | | |
| Gross premiums written | $ | 395,361 | | | (23%) | | $ | 511,604 | | | $ | 2,564,419 | | | (12%) | | $ | 2,923,169 | | |
| Net premiums written | 271,125 | | | (20%) | | 339,031 | | | 1,821,692 | | | (12%) | | 2,065,263 | | |
| Net premiums earned | 521,128 | | | (16%) | | 620,856 | | | 1,574,673 | | | (12%) | | 1,784,653 | | |
| Other insurance related income (loss) | 752 | | | (6%) | | 800 | | | (7,361) | | | nm | | 9,606 | | |
| | | | | | | | | | | | | |
| Expenses: | | | | | | | | | | | | |
| Current year net losses and loss expenses | (436,602) | | | | | (524,065) | | | (1,216,273) | | | | | (1,248,131) | | |
| Prior year reserve development | 314 | | | | | 12,118 | | | 4,830 | | | | | 22,172 | | |
| Acquisition costs | (115,995) | | | | | (144,475) | | | (354,137) | | | | | (417,826) | | |
| Underwriting-related general and administrative expenses | (23,456) | | | | | (26,060) | | | (76,714) | | | | | (87,049) | | |
| | | | | | | | | | | | | |
| Underwriting income (loss) | $ | (53,859) | | | | | $ | (60,826) | | | $ | (74,982) | | | | | $ | 63,425 | | |
| Ratios: | | | % Point Change | | | | | | % Point Change | | | |
| Current accident year loss ratio excluding catastrophe and weather-related losses | 62.7 | % | | (2.1) | | 64.8 | % | | 61.1 | % | | (1.2) | | 62.3 | % | |
| Catastrophe and weather-related losses ratio | 21.1 | % | | 1.5 | | 19.6 | % | | 16.1 | % | | 8.5 | | 7.6 | % | |
| Current accident year loss ratio | 83.8 | % | | (0.6) | | 84.4 | % | | 77.2 | % | | 7.3 | | 69.9 | % | |
| Prior year reserve development ratio | (0.1 | %) | | 1.8 | | (1.9 | %) | | (0.3 | %) | | 0.9 | | (1.2 | %) | |
| Net losses and loss expenses ratio | 83.7 | % | | 1.2 | | 82.5 | % | | 76.9 | % | | 8.2 | | 68.7 | % | |
| Acquisition cost ratio | 22.3 | % | | (1.0) | | 23.3 | % | | 22.5 | % | | (0.9) | | 23.4 | % | |
| Underwriting-related general and administrative expense ratio | 4.5 | % | | 0.4 | | 4.1 | % | | 4.9 | % | | — | | 4.9 | % | |
| Combined ratio | 110.5 | % | | 0.6 | | 109.9 | % | | 104.3 | % | | 7.3 | | 97.0 | % | |
| | | | | | | | | | | | | |
nm – not meaningful
Gross Premiums Written:
Gross premiums written by line of business were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | | | | Nine months ended September 30, | | | | |
| | 2020 | | | | 2019 | | | | % Change | | | 2020 | | | | 2019 | | | | % Change | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Catastrophe | $ | 74,656 | | | 18 | % | | $ | 94,833 | | | 18 | % | | (21%) | | | $ | 526,646 | | | 21 | % | | $ | 698,169 | | | 24 | % | | (25%) | | |
| Property | 58,907 | | | 15 | % | | 67,972 | | | 13 | % | | (13%) | | | 246,859 | | | 10 | % | | 283,849 | | | 10 | % | | (13%) | | |
| Professional lines | 31,752 | | | 8 | % | | 23,540 | | | 5 | % | | 35% | | | 267,047 | | | 10 | % | | 226,283 | | | 8 | % | | 18% | | |
| Credit and surety | 38,110 | | | 10 | % | | 50,989 | | | 10 | % | | (25%) | | | 189,180 | | | 7 | % | | 241,358 | | | 8 | % | | (22%) | | |
| Motor | (2,235) | | | (1 | %) | | 25,367 | | | 5 | % | | nm | | | 319,867 | | | 12 | % | | 313,614 | | | 11 | % | | 2% | | |
| Liability | 136,791 | | | 35 | % | | 146,690 | | | 29 | % | | (7%) | | | 505,322 | | | 20 | % | | 458,000 | | | 16 | % | | 10% | | |
| Agriculture | 7,455 | | | 2 | % | | 5,074 | | | 1 | % | | 47% | | | 69,599 | | | 3 | % | | 201,592 | | | 7 | % | | (65%) | | |
| Engineering | 1,408 | | | — | % | | 8,841 | | | 2 | % | | nm | | | 20,334 | | | 1 | % | | 39,207 | | | 1 | % | | (48%) | | |
| Marine and other | 6,341 | | | 2 | % | | 9,727 | | | 2 | % | | (35%) | | | 62,202 | | | 2 | % | | 68,104 | | | 2 | % | | (9%) | | |
| Accident and health | 41,820 | | | 11 | % | | 78,474 | | | 15 | % | | (47%) | | | 356,123 | | | 14 | % | | 393,789 | | | 13 | % | | (10%) | | |
| Discontinued lines - Novae | 356 | | | — | % | | 97 | | | — | % | | nm | | | 1,240 | | | — | % | | (796) | | | — | % | | nm | | |
| Total | $ | 395,361 | | | 100 | % | | $ | 511,604 | | | 100 | % | | (23%) | | | $ | 2,564,419 | | | 100 | % | | $ | 2,923,169 | | | 100 | % | | (12%) | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
nm – not meaningful
Gross premiums written for the three months ended September 30, 2020, decreased by $116 million, or 23%, ($109 million, or 21% on a constant currency basis), compared to the three months ended September 30, 2019. The decrease was primarily attributable to accident and health, motor, catastrophe, credit and surety, liability and property lines, partially offset by an increase in professional lines.
The decrease in accident and health lines was driven by non-renewals following the decision to exit the Middle East business. The decrease in motor lines was due to premium adjustments. The decrease in catastrophe lines was driven by a timing difference associated with a significant contract, non-renewals, and decreased line sizes on a number of treaties. The decrease in credit and surety lines was attributable to the current economic climate. The decrease in liability lines was due to a reduced line size on a significant contract, partially offset by new business due to favorable market conditions and timing differences. The decrease in property lines was due to non-renewals and a timing difference. The increase in professional lines was due to premium adjustments.
Gross premiums written for the nine months ended September 30, 2020, decreased by $359 million, or 12%, compared to the nine months ended September 30, 2019. The decrease was primarily attributable to catastrophe, agriculture, credit and surety, accident and health, property, and engineering lines, partially offset by increases in liability and professional lines.
The decreases in catastrophe, agriculture, credit and surety, accident and health, property, and engineering lines were driven by non-renewals and decreased line sizes consistent with optimization of the segment's portfolio. The increases in liability and professional lines were driven by premium adjustments, and favorable market conditions associated with renewals and new business.
Ceded Premiums Written:
Ceded premiums written for the three months ended September 30, 2020 was $124 million, or 31% of gross premiums written, compared to $173 million, or 34% of gross premiums written for the three months ended September 30, 2019.
The decrease in ceded premiums written of $48 million, or 28%, was primarily driven by catastrophe, accident and health, credit and surety, and liability lines. The decrease in catastrophe lines was attributable to a non-renewal of a catastrophe bond and a decrease in premiums ceded to strategic capital partners. The decrease in accident and health lines was attributable to the restructuring of an existing quota share retrocessional treaty. The decrease in credit and surety lines was attributable to a decrease in premiums ceded to an existing quota share retrocessional treaty. The decrease in liability lines was attributable to the restructuring of an existing quota share retrocessional treaty, partially offset by an increase in premiums ceded to a new quota share retrocessional treaty.
Ceded premiums written for the nine months ended September 30, 2020, was $743 million, or 29% of gross premiums written, compared to $858 million, or 29% of gross premiums written for the nine months ended September 30, 2019.
The decrease in ceded premiums written of $115 million, or 13%, was primarily driven by catastrophe, credit and surety, accident and health, and agriculture lines, partially offset by increases in professional lines, liability, motor, and property lines.
The decrease in catastrophe lines was attributable to decreases in premiums ceded to strategic partners and a non-renewal of a catastrophe bond. The decrease in credit and surety lines was attributable to a decrease in premiums ceded to a quota share retrocessional treaty and the restructuring of existing quota share retrocessional treaties. The decrease in accident and health lines was attributable to the restructuring of an existing quota share retrocessional treaty. The decrease in agriculture lines was attributable to a non-renewal of a large quota share retrocessional treaty.
The increases in liability and professional lines were attributable to an increase in premiums ceded to a new quota share retrocessional treaty, partially offset by the restructuring of an existing quota share retrocessional treaty. The increase in motor lines was attributable to an increase in premiums ceded to a new quota share retrocessional treaty. The increase in property lines was attributable to an increase in premiums ceded to a new aggregate excess of loss treaty.
Net Premiums Earned:
Net premiums earned by line of business were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | | | Nine months ended September 30, | | | |
| | 2020 | | | | 2019 | | | | % Change | | 2020 | | | | 2019 | | | | % Change | |
| | | | | | | | | | | | | | | | | | | | | |
| Catastrophe | $ | 64,163 | | | 13 | % | | $ | 68,910 | | | 11 | % | | (7%) | | $ | 194,987 | | | 12 | % | | $ | 205,468 | | | 11 | % | | (5%) | |
| Property | 62,704 | | | 12 | % | | 78,271 | | | 13 | % | | (20%) | | 196,229 | | | 12 | % | | 226,515 | | | 13 | % | | (13%) | |
| Professional lines | 54,424 | | | 10 | % | | 50,966 | | | 8 | % | | 7% | | 154,482 | | | 10 | % | | 154,390 | | | 9 | % | | —% | |
| Credit and surety | 43,730 | | | 8 | % | | 55,625 | | | 9 | % | | (21%) | | 134,988 | | | 9 | % | | 154,638 | | | 9 | % | | (13%) | |
| Motor | 63,298 | | | 12 | % | | 107,930 | | | 17 | % | | (41%) | | 203,776 | | | 13 | % | | 301,622 | | | 17 | % | | (32%) | |
| Liability | 96,671 | | | 19 | % | | 95,632 | | | 15 | % | | 1% | | 293,918 | | | 19 | % | | 279,639 | | | 16 | % | | 5% | |
| Agriculture | 17,750 | | | 3 | % | | 47,519 | | | 8 | % | | (63%) | | 57,949 | | | 4 | % | | 131,746 | | | 7 | % | | (56%) | |
| Engineering | 14,548 | | | 3 | % | | 16,611 | | | 3 | % | | (12%) | | 43,742 | | | 3 | % | | 47,290 | | | 3 | % | | (8%) | |
| Marine and other | 14,742 | | | 3 | % | | 17,924 | | | 3 | % | | (18%) | | 37,275 | | | 2 | % | | 44,529 | | | 2 | % | | (16%) | |
| Accident and health | 89,087 | | | 17 | % | | 81,500 | | | 13 | % | | 9% | | 256,303 | | | 16 | % | | 239,388 | | | 13 | % | | 7% | |
| Discontinued lines - Novae | 11 | | | — | % | | (32) | | | — | % | | nm | | 1,024 | | | — | % | | (572) | | | — | % | | nm | |
| Total | $ | 521,128 | | | 100 | % | | $ | 620,856 | | | 100 | % | | (16%) | | $ | 1,574,673 | | | 100 | % | | $ | 1,784,653 | | | 100 | % | | (12%) | |
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| | | | | | | | | | | | | | | | | | | | | |
nm – not meaningful
Net premiums earned for the three months ended September 30, 2020, decreased by $100 million, or 16% ($93 million, or 15% on a constant currency basis), compared to the three months ended September 30, 2019. The decrease was primarily driven by decreases in gross premiums earned in motor, agriculture, credit and surety, and property lines.
Net premiums earned for the nine months ended September 30, 2020, decreased by $210 million, or 12% ($186 million, or 10% on a constant currency basis), compared to the nine months ended September 30, 2019. The decrease was primarily driven by decreases in gross premiums earned in agriculture, motor, catastrophe, property, and credit and surety lines, together with an increase in ceded premiums earned in liability lines, partially offset by decreases in ceded premiums earned in catastrophe, agriculture, and accident and health lines, and an increase in gross premiums earned in liability lines.
Other Insurance Related Income (Loss):
Other insurance related income was $1 million for the three months ended September 30, 2020, compared to other insurance related income (loss)of $1 million for the three months ended September 30, 2019.
Other insurance related loss was $7 million for the nine months ended September 30, 2020, compared to other insurance related income of $10 million for the nine months ended September 30, 2019. The decrease of $17 million was primarily due to the recognition of a full limit loss of $10 million associated with the WHO pandemic risk-linked swap and a decrease in fees associated with arrangements with strategic capital partners.
Loss Ratio:
The components of the loss ratio were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, | |
| | 2020 | | % Point Change | | 2019 | | 2020 | | % Point Change | | 2019 | |
| | | | | | | | | | | | | |
| Current accident year | 83.8 | % | | (0.6) | | 84.4 | % | | 77.2 | % | | 7.3 | | 69.9 | % | |
| Prior year reserve development | (0.1 | %) | | 1.8 | | (1.9 | %) | | (0.3 | %) | | 0.9 | | (1.2 | %) | |
| Loss ratio | 83.7 | % | | 1.2 | | 82.5 | % | | 76.9 | % | | 8.2 | | 68.7 | % | |
| | | | | | | | | | | | | |
Current Accident Year Loss Ratio:
The current accident year loss ratio decreased to 83.8% for the three months ended September 30, 2020, from 84.4% for the three months ended September 30, 2019. The current accident year loss ratio increased to 77.2% for the nine months ended September 30, 2020, from 69.9% for the nine months ended September 30, 2019.
During the three and nine months ended September 30, 2020, catastrophe and weather-related losses, net of reinstatement premiums, were $108 million, or 21.1 points, and $251 million, or 16.1, respectively. During the three months ended September 30, 2020, these losses were primarily attributable to the Midwest derecho, wildfires across the West Coast of the United States, Hurricanes Laura and Sally, the Beirut port explosion, and other weather-related events. During the nine months ended September 30, 2020, catastrophe and weather-related losses included $98 million associated with first party coverages attributable to the COVID-19 pandemic. These losses were primarily associated with property-related coverages, but also included accident and health coverages. The remaining losses of $153 million were attributable to the Midwest derecho, wildfires across the West Coast of the United States, Hurricanes Laura and Sally, the Beirut port explosion and other weather-related events. Comparatively, during the three and nine months ended September 30, 2019, and 2018 included the recognition of premiums attributable to Novae's balance sheet at the acquisition date without the recognition of the associated acquisition costs.
Results of Operations |
| | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, | |
| | 2019 | | % Change | | 2018 | | 2019 | | % Change | | 2018 | |
| | | | | | | | | | | | | |
| Underwriting revenues: | | | | | | | | | | | | |
| Net premiums earned | $ | 1,157,307 |
| | (5%) | | $ | 1,224,075 |
| | $ | 3,415,126 |
| | (5%) | | $ | 3,577,026 |
| |
| Other insurance related income | 1,533 |
| | nm | | 8,475 |
| | 11,385 |
| | (39%) | | 18,811 |
| |
| Underwriting expenses: | | | | | | | | | | | | |
| Net losses and loss expenses | (850,913 | ) | | 7% | | (794,959 | ) | | (2,187,403 | ) | | 1% | | (2,162,945 | ) | |
| Acquisition costs | (260,026 | ) | | 5% | | (248,314 | ) | | (762,807 | ) | | 8% | | (709,527 | ) | |
| Underwriting-related general and administrative expenses(1) | (126,619 | ) | | (3%) | | (130,251 | ) | | (398,540 | ) | | (2%) | | (404,875 | ) | |
| Underwriting income (loss) | $ | (78,718 | ) | | | | $ | 59,026 |
| | $ | 77,761 |
| | | | $ | 318,490 |
| |
| | | | | | | | | | | | | |
| Net investment income | 115,763 |
| | 1% | | 114,421 |
| | 361,014 |
| | 11% | | 325,380 |
| |
| Net investment gains (losses) | 14,527 |
| | nm | | (17,628 | ) | | 48,522 |
| | nm | | (77,551 | ) | |
| Corporate expenses(1) | (28,903 | ) | | 17% | | (24,643 | ) | | (97,468 | ) | | 15% | | (85,069 | ) | |
| Other (expenses) revenues, net | 41,501 |
| | nm | | (25,202 | ) | | 15,323 |
| | nm | | (52,824 | ) | |
| Transaction and reorganization expenses | (11,215 | ) | | (31%) | | (16,300 | ) | | (29,310 | ) | | (39%) | | (48,125 | ) | |
| Amortization of value of business acquired | (4,368 | ) | | nm | | (39,018 | ) | | (24,666 | ) | | nm | | (149,535 | ) | |
| Amortization of intangible assets | (2,831 | ) | — |
| 61% | | (1,753 | ) | | (8,744 | ) | | 2% | | (8,564 | ) | |
| Income before income taxes and interest in income of equity method investments | 45,756 |
| | | | 48,903 |
| | 342,432 |
| |
| | 222,202 |
| |
| Income tax (expense) benefit | (8,147 | ) | | nm | | 3,525 |
| | (23,850 | ) | | nm | | 3,565 |
| |
| Interest in income of equity method investments | 792 |
| | (52%) | | 1,667 |
| | 5,645 |
| | 12% | | 5,045 |
| |
| Net income | $ | 38,401 |
| | | | $ | 54,095 |
| | $ | 324,227 |
| | | | $ | 230,812 |
| |
| Preferred share dividends | (10,656 | ) | | —% | | (10,656 | ) | | (31,969 | ) | | —% | | (31,969 | ) | |
| Net income available to common shareholders | $ | 27,745 |
| | (36%) | | $ | 43,439 |
| | $ | 292,258 |
| | 47% | | $ | 198,843 |
| |
| | | | | | | | | | | | | |
| Net investment (gains) losses(2) | $ | (14,527 | ) | | nm | | $ | 17,628 |
| | $ | (48,522 | ) | | nm | | $ | 77,551 |
| |
| Foreign exchange losses (gains) (3) | (59,543 | ) | | nm | | 8,305 |
| | (64,868 | ) | | nm | | 2,066 |
| |
| Transaction and reorganization expenses(4) | 11,215 |
| | (31%) | | 16,300 |
| | 29,310 |
| | (39%) | | 48,125 |
| |
| Interest in (income) of equity method investments(5) | (792 | ) | | (52%) | | (1,667 | ) | | (5,645 | ) | | 12% | | (5,045 | ) | |
| Income tax expense (benefit) | 3,361 |
| | nm | | (4,882 | ) | | 6,524 |
| | nm | | (16,539 | ) | |
| Operating income (loss) (6) | $ | (32,541 | ) | | nm | | $ | 79,123 |
| | $ | 209,057 |
| | (31%) | | $ | 305,001 |
| |
| | | | | | | | | | | | | |
nm – not meaningful | |
(1) | Underwriting-related general and administrative expenses is a non-GAAP financial measure as defined in Item 10(e) of SEC Regulation S-K. The reconciliation to total general and administrative expenses, the most comparable GAAP financial measure, also included corporate expenses of $28,903 and $24,643 for the three months ended September 30, 2019 and 2018, respectively, and $97,468 and $85,069 for the nine months ended September 30, 2019 and 2018, respectively. Refer to 'Management’s Discussion and Analysis of Financial Condition and Results of Operations – Other Expenses (Revenues), Net' for additional information on corporate expenses. Refer also to 'Management’s Discussion and Analysis of Financial Condition and Results of Operations – Non-GAAP Financial Measures' for additional information.
|
| |
(2) | Tax cost (benefit) of $897 and ($623) for the three months ended September 30, 2019 and 2018, respectively, and $6,667 and $(4,011) for the nine months ended September 30, 2019 and 2018, respectively. Tax impact is estimated by applying the statutory rates of applicable jurisdictions, after consideration of other relevant factors including the ability to utilize capital losses. |
| |
(3) | Tax cost (benefit) of $4,784 and ($1,870) for the three months ended September 30, 2019 and 2018, respectively, and $5,372 and $(5,424) for the nine months ended September 30, 2019 and 2018, respectively. Tax impact is estimated by applying the statutory rates of applicable jurisdictions, after consideration of other relevant factors including the tax status of specific foreign exchange transactions. |
| |
(4) | Tax cost (benefit) of ($2,320) and ($2,389) for the three months ended September 30, 2019 and 2018, respectively, and ($5,515) and ($7,416) for the nine months ended September 30, 2019 and 2018, respectively. Tax impact is estimated by applying the statutory rates of applicable jurisdictions. |
| |
(5) | Tax cost (benefit) of $nil for the three months ended September 30, 2019 and 2018, and $nil and $312 for the nine months ended September 30, 2019 and 2018, respectively. Tax impact is estimated by applying the statutory rates of applicable jurisdictions. |
| |
(6) | Operating income (loss) is a non-GAAP financial measure as defined in Item 10(e) of SEC Regulation S-K. The reconciliations to the most comparable GAAP financial measure, net income (loss) available (attributable) to common shareholders, is presented in the table above, and a discussion of the rationale for its presentation is included in 'Management’s Discussion and Analysis of Financial Condition and Results of Operations – Non-GAAP Financial Measures'.
|
Non-GAAP Financial Measures
We also present operating income (loss) per diluted common share and annualized operating ROACE, which are derived from the operating income (loss) measure and can be reconciled to the most comparable GAAP financial measures as follows: |
| | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, | |
| | 2019 | | 2018 | | 2019 | | 2018 | |
| | | | | | | | | |
| Net income available to common shareholders | $ | 27,745 |
| | $ | 43,439 |
| | $ | 292,258 |
| | $ | 198,843 |
| |
| Operating income (loss) | (32,541 | ) | | 79,123 |
| | 209,057 |
| | 305,001 |
| |
| Weighted average diluted common shares outstanding(1) | 83,947 |
| | 84,107 |
| | 84,420 |
| | 83,939 |
| |
| | | | | | | | | |
| Earnings per diluted common share | $ | 0.33 |
| | $ | 0.52 |
| | $ | 3.46 |
| | $ | 2.37 |
| |
| Operating income (loss) per diluted common share(2) | $ | (0.39 | ) | | $ | 0.94 |
| | $ | 2.48 |
| | $ | 3.62 |
| |
| | | | | | | | | |
| Average common shareholders’ equity | $ | 4,801,174 |
| | $ | 4,487,639 |
| | $ | 4,532,971 |
| | $ | 4,531,768 |
| |
| | | | | | | | | |
| Annualized return on average common equity(3) | 2.3 | % | | 3.9 | % | | 8.6 | % | | 5.9 | % | |
| Annualized operating return on average common equity(4) | (2.7 | %) | | 7.1 | % | | 6.1 | % | | 9.0 | % | |
| | | | | | | | | |
| |
(1) | Refer to Item 1, Note 7 to our Consolidated Financial Statements 'Earnings per Common Share' for additional information on the dilution calculation.
|
| |
(2) | Operating income (loss) per diluted common share is a non-GAAP financial measure as defined in Item 10(e) of SEC Regulation S-K. The reconciliation to the most comparable GAAP financial measure, earnings (loss) per diluted common share, is presented in the table above, and a discussion of the rationale for its presentation is included in 'Management’s Discussion and Analysis of Financial Condition and Results of Operations – Non-GAAP Financial Measures'.
|
| |
(3) | Annualized ROACE is calculated by dividing annualized net income (loss) available (attributable) to common shareholders for the period by the average common shareholders' equity determined using the common shareholders' equity balances at the beginning and end of the period. |
| |
(4) | Annualized operating ROACE, a non-GAAP financial measure as defined in Item 10(e) of SEC Regulation S-K, is calculated by dividing annualized operating income (loss) for the period by the average common shareholders' equity balances determined using the common shareholders' equity balances at the beginning and end of the period. Annualized operating ROACE for the three months ended September 30, 2019, was calculated using weighted average common shares outstanding due to the operating loss recognized in the period. The reconciliation to the most comparable GAAP financial measure, ROACE, is presented in the table above and a discussion of the rationale for its presentation is included in 'Management’s Discussion and Analysis of Financial Condition and Results of Operations – Non-GAAP Financial Measures'.
|
Ex-PGAAP Operating Income
We also present ex-PGAAP operating income (loss), ex-PGAAP operating income (loss) per diluted common share and ex-PGAAP operating ROACE which are derived from the operating income (loss) measure and can be reconciled to the most comparable GAAP financial measures as follows:
|
| | | | | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
| 2019 | | 2018 | | 2019 | | 2018 |
| | | | | | | |
| | | | | | | |
Net income available to common shareholders | $ | 27,745 |
| | $ | 43,439 |
| | $ | 292,258 |
| | $ | 198,843 |
|
Net investment (gains) losses | (14,527 | ) | | 17,628 |
| | (48,522 | ) | | 77,551 |
|
Foreign exchange losses (gains) | (59,543 | ) | | 8,305 |
| | (64,868 | ) | | 2,066 |
|
Transaction and reorganization expenses | 11,215 |
| | 16,300 |
| | 29,310 |
| | 48,125 |
|
Interest in (income) of equity method investments | (792 | ) | | (1,667 | ) | | (5,645 | ) | | (5,045 | ) |
Income tax expense (benefit) | 3,361 |
| | (4,882 | ) | | 6,524 |
| | (16,539 | ) |
Operating income (loss) | $ | (32,541 | ) | | $ | 79,123 |
| | $ | 209,057 |
| | $ | 305,001 |
|
Amortization of VOBA and intangible assets(2) | 6,891 |
| | 40,664 |
| | 32,985 |
| | 156,882 |
|
Amortization of acquisition costs(3) | (1,568 | ) | | (29,344 | ) | | (10,689 | ) | | (109,434 | ) |
Income tax expense (benefit) | (1,011 | ) | | (2,151 | ) | | (4,236 | ) | | (9,015 | ) |
Ex-PGAAP operating income (loss)(1) | $ | (28,229 | ) | | $ | 88,292 |
| | $ | 227,117 |
| | $ | 343,434 |
|
| | | | | | | |
Earnings per diluted common share | $ | 0.33 |
| | $ | 0.52 |
| | $ | 3.46 |
| | $ | 2.37 |
|
Net investment (gains) losses | (0.17 | ) | | 0.21 |
| | (0.57 | ) | | 0.92 |
|
Foreign exchange losses (gains) | (0.71 | ) | | 0.10 |
| | (0.77 | ) | | 0.02 |
|
Transaction and reorganization expenses | 0.13 |
| | 0.19 |
| | 0.35 |
| | 0.57 |
|
Interest in (income) of equity method investments | (0.01 | ) | | (0.02 | ) | | (0.07 | ) | | (0.06 | ) |
Income tax expense (benefit) | 0.04 |
| | (0.06 | ) | | 0.08 |
| | (0.20 | ) |
Operating income (loss) per diluted common share | $ | (0.39 | ) | | $ | 0.94 |
| | $ | 2.48 |
| | $ | 3.62 |
|
Amortization of VOBA and intangible assets(2) | 0.08 |
| | 0.48 |
| | 0.39 |
| | 1.87 |
|
Amortization of acquisition cost(3) | (0.02 | ) | | (0.35 | ) | | (0.13 | ) | | (1.30 | ) |
Income tax expense (benefit) | (0.01 | ) | | (0.03 | ) | | (0.05 | ) | | (0.11 | ) |
Ex-PGAAP operating income (loss) per diluted common share(1) | $ | (0.34 | ) | | $ | 1.04 |
| | $ | 2.69 |
| | $ | 4.08 |
|
| | | | | | | |
Weighted average diluted common shares outstanding | 83,947 |
| | 84,107 |
| | 84,420 |
| | 83,939 |
|
| | | | | | | |
Average common shareholders' equity | $ | 4,801,174 |
| | $ | 4,487,639 |
| | $ | 4,532,971 |
| | $ | 4,531,768 |
|
| | | | | | | |
Annualized return on average common equity | 2.3 | % | | 3.9 | % | | 8.6 | % | | 5.9 | % |
Annualized operating return on average common equity | (2.7 | %) | | 7.1 | % | | 6.1 | % | | 9.0 | % |
Annualized ex-PGAAP operating return on average common equity(1) | (2.4 | %) | | 7.9 | % | | 6.7 | % | | 10.1 | % |
| | | | | | | |
| |
(1) | Ex-PGAAP operating income (loss), ex-PGAAP operating income (loss) per diluted common share and annualized ex-PGAAP operating ROACE are non-GAAP financial measures as defined in Item 10(e) of SEC Regulation S-K. The reconciliation to the most comparable GAAP financial measures, net income (loss) available (attributable) to common shareholders, earnings (loss) per diluted common share, and annualized ROACE, respectively, are provided in the table above, and a discussion of the rationale for the presentation of these items is included in 'Management’s Discussion and Analysis of Financial Condition and Results of Operations – Non-GAAP Financial Measures'. Annualized ex-PGAAP operating ROACE for the three months ended September 30, 2019, was calculated using weighted average common shares outstanding due to the ex-PGAAP operating loss recognized in the period.
|
| |
(2) | Tax cost (benefit) of $(1,309) and $(7,726) for the three months ended September 30, 2019 and 2018, respectively, and $(6,267) and $(29,808) for the nine months ended September 30, 2019 and 2018, respectively. Tax impact is estimated by applying the statutory rates of applicable jurisdictions. |
| |
(3) | Tax cost (benefit) of $298 and $5,575 for the three months ended September 30, 2019 and 2018, respectively, and $2,031 and $20,792 for the nine months ended September 30, 2019 and 2018, respectively. Tax impact is estimated by applying the statutory rates of applicable jurisdictions. |
Underwriting Results
Total underwriting loss for the three months ended September 30, 2019 was $79 million, compared to the underwriting income of $59 million for the three months ended September 30, 2018. The underwriting loss in the quarter was primarily driven by a decrease in net premiums earned and an increase in catastrophe and weather-related losses together with a decrease in net favorable prior year reserve development.were $119 million, or 19.6 points, and $132 million, or 7.6, respectively.
The reinsurance segment underwriting loss was $61 millionAfter adjusting for the three months ended September 30, 2019, compared to underwriting incomeimpact of $71 million for the three months ended September 30, 2018. The underwriting loss in the quarter was primarily driven by an increase in catastrophe and weather-related losses, together with a decrease in net favorable prior year reserve development, an increase in the current accident year loss ratio excluding catastrophe and weather-related losses, partially offset by an increase in net premiums earned.
The insurance segment underwriting loss increased by $6 milliondecreased to 62.7% for the three months ended September 30, 2020 from 64.8% for the three months ended September 30, 2019, compared to the underwriting loss of $12 million for the three months ended September 30, 2018.2019. The increase in the underwriting loss was primarily driven by a decrease in net premiums earned, partially offset by a decrease in catastrophe and weather-related losses, and a decrease in the current accident year loss ratio excludingafter adjusting for the impact of catastrophe and weather-related losses.losses was principally due to changes in business mix and improved performance in aviation, professional lines and liability lines.
Total underwriting incomeAfter adjusting for the impact of the catastrophe and weather-related losses, the current accident year loss ratio decreased to 61.1% for the nine months ended September 30, 2019 was $78 million, compared to underwriting income of $318 million2020 from 62.3% for the nine months ended September 30, 2018.2019. The decrease in underwriting income was primarily driven by a decrease in net premiums earned, a decrease in net favorable prior year reserve development, an increase in catastrophe and weather-related losses, and an increase in acquisition costs.
The reinsurance segment underwriting income decreased by $141 million for the nine months ended September 30, 2019, compared to the nine months ended September 30, 2018. The decrease in underwriting income was primarily driven by an increase in catastrophe and weather-related losses and a decrease in net favorable prior year reserve development, partially offset by a decrease in the current accident year loss ratio excludingafter adjusting for the impact of catastrophe and weather-related losses.losses was principally due to changes in business mix and improved performance in aviation, motor and liability lines.
Prior Year Reserve Development
The insurance segment underwriting incomefollowing table maps lines of business to reserve classes and the expected claim tails:
| | | | | | | | | | | | | | | | | |
Reinsurance segment | | | | |
| Reserve class and tail |
| | | | | |
| Property and other | Credit and surety | Professional lines | Motor | Liability |
| | | | | |
| Short | Medium | Medium | Long | Long |
| | | | | |
Reported lines of business | | | | | |
Catastrophe | X | | | | |
Property | X | | | | |
Credit and surety | | X | | | |
Professional lines | | | X | | |
Motor | | | | X | |
Liability | | | | | X |
Engineering | X | | | | |
Agriculture | X | | | | |
Marine and other | X | | | | |
Accident and health | X | | | | |
Discontinued lines - Novae | X | | | X | X |
Prior year reserve development by reserve class were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, | |
| | 2020 | | 2019 | | 2020 | | 2019 | |
| | | | | | | | | |
| Property and other | $ | 3,126 | | | $ | (12,283) | | | $ | (4,961) | | | $ | (71,227) | | |
| Credit and surety | 11,184 | | | 5,652 | | | 27,927 | | | 32,659 | | |
| Professional lines | (13,776) | | | (7,303) | | | (13,493) | | | 641 | | |
| Motor | 1,214 | | | 22,902 | | | 18,732 | | | 33,964 | | |
| Liability | (1,434) | | | 3,150 | | | (23,375) | | | 26,135 | | |
| Total | $ | 314 | | | $ | 12,118 | | | $ | 4,830 | | | $ | 22,172 | | |
| | | | | | | | | |
For the three months ended September 30, 2020, we recognized $0.3 million of net favorable prior year reserve development, the principal components of which were:
•$11 million of net favorable prior year reserve development on credit and surety business primarily due to better than expected loss emergence mainly related to 2017 and 2019 accident years.
•$14 million of net adverse prior year reserve development on professional lines business primarily due to an increase in case reserves attributable to a specific large claim related to the 2016 accident year and reserve strengthening within the European book of business mainly related to the 2016 to 2018 accident years.
For the three months ended September 30, 2019, we recognized $12 million of net favorable prior year reserve development, the principal components of which were:
•$23 million of net favorable prior year reserve development on motor business primarily due to non-proportional treaty business related to recent accident years.
•$6 million of net favorable prior year reserve development on credit and surety business primarily due to better than expected loss emergence related to several accident years.
•$12 million of net adverse prior year reserve development on property and other business primarily due to reserve strengthening attributable to late reporting of claims bordereaux associated with the European proportional book of business related to the 2018 accident year.
•$7 million of net adverse prior year reserve development on professional lines business primarily due to reserve strengthening within the European book of business mainly related to the 2015 and 2016 accident years.
For the nine months ended September 30, 2020, we recognized $5 million of net favorable prior year reserve development, the principal components of which were:
•$28 million of net favorable prior year reserve development on credit and surety business primarily due to better than expected loss emergence related to multiple accident years.
•$19 million of net favorable prior year reserve development on motor business primarily due to non-proportional treaty business mainly related to the 2019 and older accident years.
•$23 million of net adverse prior year development on liability business primarily due to reserve strengthening within the U.S. casualty, the U.S. multiline/regional and the European books of business mainly related to the 2016 to 2019 accident years.
•$13 million of net adverse prior year reserve development on professional lines business primarily due to an increase in case reserves attributable to a specific large claim related to the 2016 accident year and reserve strengthening within the European book of business mainly related to the 2016 to 2018 accident years.
•$5 million of net adverse prior year development on property and other business primarily due to reserve strengthening within the engineering line of business mainly related to the 2016 to 2018 accident years, and the marine and other line of business mainly related to the 2017 accident years, partially offset by net favorable prior year reserve development within the property line of business due to better than expected loss emergence attributable to the 2019 catastrophe events.
For the nine months ended September 30, 2019, we recognized $22 million of net favorable prior year reserve development, the principal components of which were:
•$34 million of net favorable prior year reserve development on motor business primarily due to non-proportional treaty business related to several accident years.
•$33 million of net favorable prior year reserve development on credit and surety business primarily due to better than expected loss emergence mainly related to the 2015 and 2016 accident years.
•$26 million of net favorable prior year reserve development on liability business primarily due to increased weight given by management to experience based indications on older accident years.
•$71 million of net adverse prior year reserve development on property and other business primarily due to an increase in loss estimates attributable to Typhoons Jebi and Trami consistent with updated industry insured loss estimates, an increase in loss estimates attributable to Hurricane Michael, and reserve strengthening attributable to late reporting of claims bordereaux associated within the European proportional book of business related to the 2018 accident year.
Acquisition Cost Ratio:
The acquisition cost ratio decreased by $100 millionto 22.3% and 22.5% for the three and nine months ended September 30, 2020, respectively, from 23.3% and 23.4% for the three and nine months ended September 30, 2019, comparedrespectively, principally related to changes in business mix.
Underwriting-Related General and Administrative Expense Ratio:
The underwriting-related general and administrative expense ratio of 4.5% and 4.9% for the three and nine months ended September 30, 2018. The decrease in underwriting income2020, respectively, was primarily driven by decrease in net premiums earnedcomparable to 4.1% and an increase in acquisition costs, together with a decrease in net favorable prior year reserve development, partially offset by a decrease in catastrophe4.9% for the three and weather-related losses.nine months ended September 30, 2019, respectively.
NET INVESTMENT INCOME AND NET INVESTMENT GAINS (LOSSES)
Net Investment IncomeUnderwriting Revenues
Underwriting revenues by segment were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, | |
| | 2020 | | % Change | | 2019 | | 2020 | | % Change | | 2019 | |
| | | | | | | | | | | | | |
| Gross premiums written: | | | | | | | | | | | | |
| Insurance | $ | 935,817 | | | 5% | | $ | 894,902 | | | $ | 2,914,100 | | | 7% | | $ | 2,714,322 | | |
| Reinsurance | 395,361 | | | (23%) | | 511,604 | | | 2,564,419 | | | (12%) | | 2,923,169 | | |
| Total gross premiums written | $ | 1,331,178 | | | (5%) | | $ | 1,406,506 | | | $ | 5,478,519 | | | (3%) | | $ | 5,637,491 | | |
| | | | | | | | | | | | | |
| Percent of gross premiums written ceded | | | | | | | | | | | | |
| Insurance | 42% | | — pts | | 42% | | 41% | | 1 pt | | 40% | |
| Reinsurance | 31% | | (3) pts | | 34% | | 29% | | — pts | | 29% | |
| Total percent of gross premiums ceded | 39% | | — pts | | 39% | | 35% | | 1 pt | | 34% | |
| | | | | | | | | | | | | |
| Net premiums written: | | | | | | | | | | | | |
| Insurance | $ | 544,857 | | | 5% | | $ | 517,050 | | | $ | 1,729,268 | | | 6% | | $ | 1,638,197 | | |
| Reinsurance | 271,125 | | | (20%) | | 339,031 | | | 1,821,692 | | | (12%) | | 2,065,263 | | |
| Total net premiums written | $ | 815,982 | | | (5%) | | $ | 856,081 | | | $ | 3,550,960 | | | (4%) | | $ | 3,703,460 | | |
| | | | | | | | | | | | | |
| Net premiums earned: | | | | | | | | | | | | |
| Insurance | $ | 570,184 | | | 6% | | $ | 536,451 | | | $ | 1,709,268 | | | 5% | | $ | 1,630,473 | | |
| Reinsurance | 521,128 | | | (16%) | | 620,856 | | | 1,574,673 | | | (12%) | | 1,784,653 | | |
| Total net premiums earned | $ | 1,091,312 | | | (6%) | | $ | 1,157,307 | | | $ | 3,283,941 | | | (4%) | | $ | 3,415,126 | | |
| | | | | | | | | | | | | |
Refer to 'Management's Discussion and Analysis of Financial Condition and Results of Operations - Results by Segment' for additional information on underwriting revenues.
Underwriting Expenses
The components of the combined ratio were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, | |
| | 2020 | | % Point Change | | 2019 | | 2020 | | % Point Change | | 2019 | |
| | | | | | | | | | | | | |
| Current accident year loss ratio excluding catastrophe and weather-related losses | 58.5 | % | | (3.2) | | 61.7 | % | | 57.8 | % | | (2.3) | | 60.1 | % | |
| Catastrophe and weather-related losses ratio | 22.2 | % | | 8.1 | | 14.1 | % | | 17.5 | % | | 11.6 | | 5.9 | % | |
| Current accident year loss ratio | 80.7 | % | | 4.9 | | 75.8 | % | | 75.3 | % | | 9.3 | | 66.0 | % | |
| Prior year reserve development ratio | (0.1 | %) | | 2.2 | | (2.3 | %) | | (0.3 | %) | | 1.6 | | (1.9 | %) | |
| Net losses and loss expenses ratio | 80.6 | % | | 7.1 | | 73.5 | % | | 75.0 | % | | 10.9 | | 64.1 | % | |
| Acquisition cost ratio | 21.1 | % | | (1.4) | | 22.5 | % | | 21.2 | % | | (1.1) | | 22.3 | % | |
| General and administrative expense ratio(1) | 12.8 | % | | (0.6) | | 13.4 | % | | 13.4 | % | | (1.1) | | 14.5 | % | |
| Combined ratio | 114.5 | % | | 5.1 | | 109.4 | % | | 109.6 | % | | 8.7 | | 100.9 | % | |
| | | | | | | | | | | | | |
(1) The general and administrative expense ratio included corporate expenses not allocated to underwriting segments of 1.9% and 2.5% for the three months ended September 30, 2020 and 2019, respectively, and 2.3% and 2.9% for the nine months endedSeptember 30, 2020 and 2019, respectively. Refer to 'Management’s Discussion and Analysis of Financial Condition and Results of Operations – Other Expenses (Revenues), Net' for further details.
Refer to 'Management's Discussion and Analysis of Financial Condition and Results of Operations - Results by Segment' for additional information on underwriting expenses.
RESULTS BY SEGMENT
Insurance Segment
Results for the insurance segment were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, | |
| | 2020 | | % Change | | 2019 | | 2020 | | % Change | | 2019 | |
| | | | | | | | | | | | | |
| Revenues: | | | | | | | | | | | | |
| Gross premiums written | $ | 935,817 | | | 5% | | $ | 894,902 | | | $ | 2,914,100 | | | 7% | | $ | 2,714,322 | | |
| Net premiums written | 544,857 | | | 5% | | 517,050 | | | 1,729,268 | | | 6% | | 1,638,197 | | |
| Net premiums earned | 570,184 | | | 6% | | 536,451 | | | 1,709,268 | | | 5% | | 1,630,473 | | |
| Other insurance related income | 688 | | | 6% | | 733 | | | 2,091 | | | 18% | | 1,779 | | |
| | | | | | | | | | | | | |
| Expenses: | | | | | | | | | | | | |
| Current accident year net losses and loss expenses | (443,659) | | | | | (353,575) | | | (1,257,090) | | | | | (1,004,293) | | |
| Prior year reserve development | 270 | | | | | 14,609 | | | 4,521 | | | | | 42,849 | | |
| Acquisition costs | (114,569) | | | | | (115,551) | | | (343,579) | | | | | (344,981) | | |
| Underwriting-related general and administrative expenses | (94,379) | | | | | (100,559) | | | (284,909) | | | | | (311,491) | | |
| | | | | | | | | | | | | |
| Underwriting income (loss) | $ | (81,465) | | | | | $ | (17,892) | | | $ | (169,698) | | | | | $ | 14,336 | | |
| | | | | | | | | | | | | |
| Ratios: | | | % Point Change | | | | | | % Point Change | | | |
| Current accident year loss ratio excluding catastrophe and weather-related losses | 54.7 | % | | (3.5) | | 58.2 | % | | 54.8 | % | | (2.9) | | 57.7 | % | |
| Catastrophe and weather-related losses ratio | 23.1 | % | | 15.4 | | 7.7 | % | | 18.7 | % | | 14.8 | | 3.9 | % | |
| Current accident year loss ratio | 77.8 | % | | 11.9 | | 65.9 | % | | 73.5 | % | | 11.9 | | 61.6 | % | |
| Prior year reserve development ratio | — | % | | 2.7 | | (2.7 | %) | | (0.2 | %) | | 2.4 | | (2.6 | %) | |
| Net losses and loss expenses ratio | 77.8 | % | | 14.6 | | 63.2 | % | | 73.3 | % | | 14.3 | | 59.0 | % | |
| Acquisition cost ratio | 20.1 | % | | (1.4) | | 21.5 | % | | 20.1 | % | | (1.1) | | 21.2 | % | |
| Underwriting-related general and administrative expense ratio | 16.5 | % | | (2.3) | | 18.8 | % | | 16.7 | % | | (2.3) | | 19.0 | % | |
| Combined ratio | 114.4 | % | | 10.9 | | 103.5 | % | | 110.1 | % | | 10.9 | | 99.2 | % | |
| | | | | | | | | | | | | |
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Gross Premiums Written
Gross premiums written by line of business were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | | | Nine months ended September 30, | | | |
| | 2020 | | | | 2019 | | | | % Change | | 2020 | | | | 2019 | | | | % Change | |
| | | | | | | | | | | | | | | | | | | | | |
| Property | $ | 238,599 | | | 26 | % | | $ | 241,517 | | | 27 | % | | (1%) | | $ | 741,043 | | | 27 | % | | $ | 701,314 | | | 27 | % | | 6% | |
| Marine | 82,810 | | | 9 | % | | 91,161 | | | 10 | % | | (9%) | | 355,503 | | | 12 | % | | 337,529 | | | 12 | % | | 5% | |
| Terrorism | 14,767 | | | 2 | % | | 17,284 | | | 2 | % | | (15%) | | 42,296 | | | 1 | % | | 46,803 | | | 2 | % | | (10%) | |
| Aviation | 22,702 | | | 2 | % | | 17,623 | | | 2 | % | | 29% | | 63,725 | | | 2 | % | | 53,832 | | | 2 | % | | 18% | |
| Credit and political risk | 24,473 | | | 3 | % | | 32,528 | | | 4 | % | | (25%) | | 100,151 | | | 3 | % | | 114,511 | | | 4 | % | | (13%) | |
| Professional lines | 338,907 | | | 36 | % | | 272,362 | | | 30 | % | | 24% | | 943,635 | | | 32 | % | | 820,953 | | | 30 | % | | 15% | |
| Liability | 172,747 | | | 18 | % | | 186,253 | | | 21 | % | | (7%) | | 548,023 | | | 19 | % | | 518,925 | | | 19 | % | | 6% | |
| Accident and health | 39,262 | | | 4 | % | | 34,054 | | | 4 | % | | 15% | | 117,743 | | | 4 | % | | 113,228 | | | 4 | % | | 4% | |
| Discontinued lines - Novae | 1,550 | | | — | % | | 2,120 | | | — | % | | (27%) | | 1,981 | | | — | % | | 7,227 | | | — | % | | nm | |
| Total | $ | 935,817 | | | 100 | % | | $ | 894,902 | | | 100 | % | | 5% | | $ | 2,914,100 | | | 100 | % | | $ | 2,714,322 | | | 100 | % | | 7% | |
| | | | | | | | | | | | | | | | | | | | | |
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Gross premiums written for the three months ended September 30, 2020, increased by $41 million, or 5%, ($31 million, or 3% on a constant currency basis(1)), compared to the three months ended September 30, 2019. The increase was primarily attributable to professional lines, accident and health, and aviation lines, partially offset by decreases in liability, marine, and credit and political risk lines.
The increase in professional lines was due to new business and favorable rate changes. The increase in accident and health lines was due to new business. The increase in aviation lines was due to a timing difference and favorable rate changes. The decreases in liability and credit and political risk lines were due to a higher level of non-renewals and reduced business opportunities related to the current economic climate. The decrease in marine lines was due to a timing difference and non-renewals.
Gross premiums written for the nine months ended September 30, 2020, increased by $200 million, or 7%, compared to the nine months ended September 30, 2019. The increase was primarily attributable to professional lines, property, liability, marine, and aviation lines, partially offset by a decrease in credit and political risk lines.
The increases in professional lines, property, liability, and marine lines were due to new business and favorable rate changes. The increase in aviation lines was due to timing differences. The decrease in credit and political risk lines was due to non-renewals and reduced business opportunities related to the current economic climate.
Ceded Premiums Written
Ceded premiums written for the three months ended September 30, 2020, was $391 million, or 42% of gross premiums written, compared to $378 million, or 42% of gross premiums written for the three months ended September 30, 2019. The increase in ceded premiums written of $13 million or 3% was primarily driven by increases in professional lines and property lines, partially offset by decreases in liability, marine, and credit and political risk lines.
Ceded premiums written for the nine months ended September 30, 2020, was $1,185 million, or 41% of gross premiums written, compared to $1,076 million, or 40% of gross premiums written for the nine months ended September 30, 2019. The increase in ceded premiums written of $109 million, or 10%, was primarily driven by increases in professional lines, property, liability, and marine lines, partially offset by a decrease in credit and political risk lines.
(1) Amounts presented on a constant currency basis are non-GAAP financial measures as defined in Item10 (e) of SEC Regulation S-K. The constant currency basis is calculated by applying the average foreign exchange rate from the current year to the prior year balance.
Net investment incomePremiums Earned
Net premiums earned by line of $116business were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | | | Nine months ended September 30, | | | |
| | 2020 | | | | 2019 | | | | % Change | | 2020 | | | | 2019 | | | | % Change | |
| | | | | | | | | | | | | | | | | | | | | |
| Property | $ | 145,717 | | | 27 | % | | $ | 154,751 | | | 29 | % | | (6%) | | $ | 452,876 | | | 26 | % | | $ | 481,450 | | | 30 | % | | (6%) | |
| Marine | 76,544 | | | 13 | % | | 65,437 | | | 12 | % | | 17% | | 220,248 | | | 13 | % | | 209,629 | | | 13 | % | | 5% | |
| Terrorism | 11,728 | | | 2 | % | | 11,605 | | | 2 | % | | 1% | | 34,675 | | | 2 | % | | 35,635 | | | 2 | % | | (3%) | |
| Aviation | 19,039 | | | 3 | % | | 10,993 | | | 2 | % | | nm | | 51,236 | | | 3 | % | | 38,603 | | | 2 | % | | 33% | |
| Credit and political risk | 23,781 | | | 4 | % | | 19,432 | | | 4 | % | | 22% | | 77,721 | | | 5 | % | | 66,412 | | | 4 | % | | 17% | |
| Professional lines | 179,441 | | | 31 | % | | 172,280 | | | 32 | % | | 4% | | 530,651 | | | 31 | % | | 490,928 | | | 30 | % | | 8% | |
| Liability | 76,487 | | | 13 | % | | 68,002 | | | 13 | % | | 12% | | 234,522 | | | 14 | % | | 192,352 | | | 12 | % | | 22% | |
| Accident and health | 37,151 | | | 7 | % | | 32,368 | | | 6 | % | | 15% | | 106,015 | | | 6 | % | | 108,402 | | | 7 | % | | (2%) | |
| Discontinued lines - Novae | 296 | | | — | % | | 1,583 | | | — | % | | nm | | 1,324 | | | — | % | | 7,062 | | | — | % | | nm | |
| Total | $ | 570,184 | | | 100 | % | | $ | 536,451 | | | 100 | % | | 6% | | $ | 1,709,268 | | | 100 | % | | $ | 1,630,473 | | | 100 | % | | 5% | |
| | | | | | | | | | | | | | | | | | | | | |
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Net premiums earned for the three months ended September 30, 2020, increased by $34 million, or 6%, ($27 million, or 5% on a constant currency basis), compared to the three months ended September 30, 2019. The increase was primarily driven by increases in gross premiums earned in professional lines, liability, and marine lines, together with a decrease in ceded premiums earned in aviation lines, partially offset by increases in ceded premiums earned in professional lines and liability lines, and a decrease in gross premiums earned in property lines.
Net premiums earned for the nine months ended September 30, 2020, increased by $79 million, or 5%, compared to the nine months ended September 30, 2019. The increase was primarily driven by increases in gross premiums earned in liability, professional lines, marine, and credit and political risk lines, together with decreases in ceded premiums earned in property and aviation lines, partially offset by increases in ceded premiums earned in liability and professional lines, and a decrease in gross premiums earned in property lines.
Loss Ratio
The components of the loss ratio were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, | |
| | 2020 | | % Point Change | | 2019 | | 2020 | | % Point Change | | 2019 | |
| | | | | | | | | | | | | |
| Current accident year | 77.8 | % | | 11.9 | | 65.9 | % | | 73.5 | % | | 11.9 | | 61.6 | % | |
| Prior year reserve development | — | % | | 2.7 | | (2.7 | %) | | (0.2 | %) | | 2.4 | | (2.6 | %) | |
| Loss ratio | 77.8 | % | | 14.6 | | 63.2 | % | | 73.3 | % | | 14.3 | | 59.0 | % | |
| | | | | | | | | | | | | |
Current Accident Year Loss Ratio
The current accident year loss ratio increased to 77.8% and 73.5% for the three and nine months ended September 30, 2020, respectively, from 65.9% and 61.6% for the three and nine months ended September 30, 2019, respectively.
During the three and nine months ended September 30, 2020, catastrophe and weather-related losses, net of reinstatement premiums, were $132 million, or 23.1 points, and $325 million, or 18.7 points, respectively. During the three months ended September 30, 2020, these losses were primarily attributable to Hurricanes Laura and Sally, the Beirut port explosion, wildfires across the West Coast of the United States, and other weather-related events. During the nine months ended September 30, 2020 catastrophe and weather-related losses included $137 million associated with first party coverages attributable to the COVID-19 pandemic. These losses were primarily associated with property-related coverages, but also included event cancellation coverages. The remaining losses of $188 million were primarily attributable to Hurricanes Laura and Sally, the Beirut port explosion, wildfires across the West Coast of the United States, and other weather-related events. Comparatively, during the three and nine months ended September 30, 2019, catastrophe and weather-related losses were $41 million, or 7.7 points, and $64 million, or 3.9 points, respectively.
After adjusting for the impact of the catastrophe and weather-related losses, the current accident year loss ratio decreased to 54.7% for the three months ended September 30, 2020, from 58.2% for the three months ended September 30, 2019. The decrease in the current accident year loss ratio after adjusting for the impact of the catastrophe and weather-related losses was principally due to the impact of favorable pricing over loss trends, improved loss experience in property, marine, credit and political risk, and aviation lines largely associated with the repositioning of the portfolio.
After adjusting for the impact of the catastrophe and weather-related losses, the current accident year loss ratio decreased to 54.8% for the nine months ended September 30, 2020, from 57.7% for the nine months ended September 30, 2019. The decrease in the current accident year loss ratio after adjusting for the impact of the catastrophe and weather-related losses was principally due to the impact of favorable pricing over loss trends, improved loss experience in property, credit and political risk, marine and aviation lines, partially offset by changes in business mix.
Prior Year Reserve Development
The following table maps lines of business to reserve classes and the expected claim tails:
| | | | | | | | | | | | | | | | | | | | |
Insurance segment | | | | | |
| Reserve class and tail |
| | | | | | |
| Property and other | Marine | Aviation | Credit and political risk | Professional lines | Liability |
| | | | | | |
| Short | Short | Short/Medium | Medium | Medium | Long |
| | | | | | |
Reported lines of business | | | | | | |
Property | X | | | | | |
Marine | | X | | | | |
Terrorism | X | | | | | |
Aviation | | | X | | | |
Credit and political risk | | | | X | | |
Professional lines | | | | | X | |
Liability | | | | | | X |
Accident and health | X | | | | | |
Discontinued lines - Novae | X | | | | X | X |
Prior year reserve development by reserve class were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, | |
| | 2020 | | 2019 | | 2020 | | 2019 | |
| | | | | | | | | |
| Property and other | $ | 6,907 | | | $ | 11,427 | | | $ | 42,688 | | | $ | (4,426) | | |
| Marine | 4,095 | | | 2,119 | | | 633 | | | 23,753 | | |
| Aviation | (326) | | | 471 | | | 5,667 | | | 1,671 | | |
| Credit and political risk | 871 | | | 1,217 | | | (223) | | | 10,278 | | |
| Professional lines | (7,287) | | | 3,656 | | | (19,086) | | | 13,899 | | |
| Liability | (3,990) | | | (4,281) | | | (25,158) | | | (2,326) | | |
| Total | $ | 270 | | | $ | 14,609 | | | $ | 4,521 | | | $ | 42,849 | | |
| | | | | | | | | |
For the three months ended September 30, 2020, we recognized $0.3 million of net favorable prior year reserve development, the principal components of which were:
•$7 million of net favorable prior year reserve development on property and other business primarily due to better than expected loss emergence attributable to the 2019 catastrophe events.
•$4 million of net favorable prior year reserve development on marine business primarily due better than expected loss emergence mainly related to the 2018 accident year.
•$7 million of net adverse prior year reserve development on professional lines business primarily due to reserve strengthening within the European professional indemnity and financial institutions books of business mainly related to the 2018 accident year and an increase in case reserves attributable to a specific large claim related to the 2009 accident year.
•$4 million of net adverse prior year reserve development on liability business primarily due to reserve strengthening within the primary casualty, U.S. excess casualty and program books of business mainly related to 2017 and 2018 accident years.
For the three months ended September 30, 2019, we recognized $15 million of net favorable prior year reserve development, the principal components of which were:
•$11 million of net favorable prior year reserve development on property and other business primarily due to better than expected loss emergence attributable to the 2017 catastrophe events and SuperStorm Sandy.
•$4 million of net favorable prior year reserve development on professional lines business primarily due to better than expected loss emergence mainly related to the 2013 and 2014 accident years.
•$4 million of net adverse prior year reserve development on liability business primarily due to reserve strengthening within the U.S. excess casualty book of business related to older accident years.
For the nine months ended September 30, 2020, we recognized $5 million of net favorable prior year reserve development, the principal components of which were:
•$43 million of net favorable prior year reserve development on property and other business primarily due to better than expected loss emergence mainly related to the 2018 and 2019 accident years, better than expected loss emergence attributable to the 2017, 2018 and 2019 catastrophe events, and decreases in case reserves attributable to specific claims related to the 2014 and 2016 accident years.
•$6 million of net favorable prior year reserve development on aviation business primarily due to better than expected loss emergence mainly related to the 2018 and 2019 accident years.
•$25 million of net adverse prior year reserve development on liability business primarily due to reserve strengthening within the primary casualty, U.S. excess casualty and program books of business mainly related to the 2017 and 2018 accident years.
•$19 million of net adverse prior year reserve development on professional lines business primarily due to reserve strengthening within the European professional indemnity and financial institutions books of business and the commercial management solutions book of business mainly related to the 2018 and 2019 accident year and an increase in case reserves attributable to a specific large claim related to the 2009 accident year.
For the nine months ended September 30, 2019, we recognized $43 million of net favorable prior year reserve development, the principal components of which were:
•$24 million of net favorable prior year reserve development on marine business primarily due to better than expected loss emergence mainly related to the 2015 to 2017 accident years.
•$14 million of net favorable prior year reserve development on professional lines business primarily due to better than expected loss emergence mainly related to the 2013 to 2015 accident years.
•$10 million of net favorable prior year reserve development on credit and political risk business primarily due to better than expected loss emergence mainly related to the 2018 accident year.
•$4 million of net adverse prior year reserve development on property and other business primarily due to reserve strengthening within the international book of business mainly related to the 2018 accident year, partially offset by better than expected loss emergence attributable to the 2017 catastrophe events and SuperStorm Sandy.
Acquisition Cost Ratio
The acquisition cost ratio decreased to 20.1% for the three months ended September 30, 2020, from 21.5% for the three months ended September 30, 2019, was comparableprincipally related to net investment incomean increase in ceding commissions.
The acquisition cost ratio decreased to 20.1% for the nine months ended September 30, 2020, from 21.2% for the nine months ended September 30, 2019, associated with the acquisition of $114Novae and an increase in ceding commissions. At the acquisition date, the allocation of the acquisition price to the assets acquired and liabilities assumed based on estimated fair values at that date, resulted in the write-off of the deferred acquisition cost asset on Novae's balance sheet as the value of policies in-force on that date are considered within value of business acquired ("VOBA"). Consequently, the absence of $1 million and $11 million of acquisition expense related to premiums earned in the nine months ended September 30, 2020 and 2019, respectively, benefited the acquisition cost by 0.1 points and 0.6 points, respectively. Adjusting the acquisition cost rate for these amounts, the acquisition cost ratio decreased by 1.6 points.
Underwriting-Related General and Administrative Expense Ratio
The underwriting-related general and administrative expense ratio decreased to 16.5%for thethree months ended September 30, 2020, from 18.8% for the three months ended September 30, 2018.2019, mainly driven by a decrease in personnel costs and travel and entertainment expenses, together with an increase in net premiums earned.
The underwriting-related general and administrative expense ratio decreased to 16.7% for the nine months ended September 30, 2020, from 19.0% for the nine months ended September 30, 2019, mainly driven by decreases in travel and entertainment expenses, and professional fees, together with an increase in net premiums earned.
Reinsurance Segment
Results from the reinsurance segment were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, | |
| | 2020 | | % Change | | 2019 | | 2020 | | % Change | | 2019 | |
| | | | | | | | | | | | | |
| Revenues: | | | | | | | | | | | | |
| Gross premiums written | $ | 395,361 | | | (23%) | | $ | 511,604 | | | $ | 2,564,419 | | | (12%) | | $ | 2,923,169 | | |
| Net premiums written | 271,125 | | | (20%) | | 339,031 | | | 1,821,692 | | | (12%) | | 2,065,263 | | |
| Net premiums earned | 521,128 | | | (16%) | | 620,856 | | | 1,574,673 | | | (12%) | | 1,784,653 | | |
| Other insurance related income (loss) | 752 | | | (6%) | | 800 | | | (7,361) | | | nm | | 9,606 | | |
| | | | | | | | | | | | | |
| Expenses: | | | | | | | | | | | | |
| Current year net losses and loss expenses | (436,602) | | | | | (524,065) | | | (1,216,273) | | | | | (1,248,131) | | |
| Prior year reserve development | 314 | | | | | 12,118 | | | 4,830 | | | | | 22,172 | | |
| Acquisition costs | (115,995) | | | | | (144,475) | | | (354,137) | | | | | (417,826) | | |
| Underwriting-related general and administrative expenses | (23,456) | | | | | (26,060) | | | (76,714) | | | | | (87,049) | | |
| | | | | | | | | | | | | |
| Underwriting income (loss) | $ | (53,859) | | | | | $ | (60,826) | | | $ | (74,982) | | | | | $ | 63,425 | | |
| Ratios: | | | % Point Change | | | | | | % Point Change | | | |
| Current accident year loss ratio excluding catastrophe and weather-related losses | 62.7 | % | | (2.1) | | 64.8 | % | | 61.1 | % | | (1.2) | | 62.3 | % | |
| Catastrophe and weather-related losses ratio | 21.1 | % | | 1.5 | | 19.6 | % | | 16.1 | % | | 8.5 | | 7.6 | % | |
| Current accident year loss ratio | 83.8 | % | | (0.6) | | 84.4 | % | | 77.2 | % | | 7.3 | | 69.9 | % | |
| Prior year reserve development ratio | (0.1 | %) | | 1.8 | | (1.9 | %) | | (0.3 | %) | | 0.9 | | (1.2 | %) | |
| Net losses and loss expenses ratio | 83.7 | % | | 1.2 | | 82.5 | % | | 76.9 | % | | 8.2 | | 68.7 | % | |
| Acquisition cost ratio | 22.3 | % | | (1.0) | | 23.3 | % | | 22.5 | % | | (0.9) | | 23.4 | % | |
| Underwriting-related general and administrative expense ratio | 4.5 | % | | 0.4 | | 4.1 | % | | 4.9 | % | | — | | 4.9 | % | |
| Combined ratio | 110.5 | % | | 0.6 | | 109.9 | % | | 104.3 | % | | 7.3 | | 97.0 | % | |
| | | | | | | | | | | | | |
nm – not meaningful
Gross Premiums Written:
Gross premiums written by line of business were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | | | | Nine months ended September 30, | | | | |
| | 2020 | | | | 2019 | | | | % Change | | | 2020 | | | | 2019 | | | | % Change | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Catastrophe | $ | 74,656 | | | 18 | % | | $ | 94,833 | | | 18 | % | | (21%) | | | $ | 526,646 | | | 21 | % | | $ | 698,169 | | | 24 | % | | (25%) | | |
| Property | 58,907 | | | 15 | % | | 67,972 | | | 13 | % | | (13%) | | | 246,859 | | | 10 | % | | 283,849 | | | 10 | % | | (13%) | | |
| Professional lines | 31,752 | | | 8 | % | | 23,540 | | | 5 | % | | 35% | | | 267,047 | | | 10 | % | | 226,283 | | | 8 | % | | 18% | | |
| Credit and surety | 38,110 | | | 10 | % | | 50,989 | | | 10 | % | | (25%) | | | 189,180 | | | 7 | % | | 241,358 | | | 8 | % | | (22%) | | |
| Motor | (2,235) | | | (1 | %) | | 25,367 | | | 5 | % | | nm | | | 319,867 | | | 12 | % | | 313,614 | | | 11 | % | | 2% | | |
| Liability | 136,791 | | | 35 | % | | 146,690 | | | 29 | % | | (7%) | | | 505,322 | | | 20 | % | | 458,000 | | | 16 | % | | 10% | | |
| Agriculture | 7,455 | | | 2 | % | | 5,074 | | | 1 | % | | 47% | | | 69,599 | | | 3 | % | | 201,592 | | | 7 | % | | (65%) | | |
| Engineering | 1,408 | | | — | % | | 8,841 | | | 2 | % | | nm | | | 20,334 | | | 1 | % | | 39,207 | | | 1 | % | | (48%) | | |
| Marine and other | 6,341 | | | 2 | % | | 9,727 | | | 2 | % | | (35%) | | | 62,202 | | | 2 | % | | 68,104 | | | 2 | % | | (9%) | | |
| Accident and health | 41,820 | | | 11 | % | | 78,474 | | | 15 | % | | (47%) | | | 356,123 | | | 14 | % | | 393,789 | | | 13 | % | | (10%) | | |
| Discontinued lines - Novae | 356 | | | — | % | | 97 | | | — | % | | nm | | | 1,240 | | | — | % | | (796) | | | — | % | | nm | | |
| Total | $ | 395,361 | | | 100 | % | | $ | 511,604 | | | 100 | % | | (23%) | | | $ | 2,564,419 | | | 100 | % | | $ | 2,923,169 | | | 100 | % | | (12%) | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
nm – not meaningful
Gross premiums written for the three months ended September 30, 2020, decreased by $116 million, or 23%, ($109 million, or 21% on a constant currency basis), compared to the three months ended September 30, 2019. The decrease was primarily attributable to accident and health, motor, catastrophe, credit and surety, liability and property lines, partially offset by an increase in professional lines.
The decrease in accident and health lines was driven by non-renewals following the decision to exit the Middle East business. The decrease in motor lines was due to premium adjustments. The decrease in catastrophe lines was driven by a timing difference associated with a significant contract, non-renewals, and decreased line sizes on a number of treaties. The decrease in credit and surety lines was attributable to the current economic climate. The decrease in liability lines was due to a reduced line size on a significant contract, partially offset by new business due to favorable market conditions and timing differences. The decrease in property lines was due to non-renewals and a timing difference. The increase in professional lines was due to premium adjustments.
Gross premiums written for the nine months ended September 30, 2020, decreased by $359 million, or 12%, compared to the nine months ended September 30, 2019. The decrease was primarily attributable to catastrophe, agriculture, credit and surety, accident and health, property, and engineering lines, partially offset by increases in liability and professional lines.
The decreases in catastrophe, agriculture, credit and surety, accident and health, property, and engineering lines were driven by non-renewals and decreased line sizes consistent with optimization of the segment's portfolio. The increases in liability and professional lines were driven by premium adjustments, and favorable market conditions associated with renewals and new business.
Ceded Premiums Written:
Ceded premiums written for the three months ended September 30, 2020 was $124 million, or 31% of gross premiums written, compared to $173 million, or 34% of gross premiums written for the three months ended September 30, 2019.
The decrease in ceded premiums written of $48 million, or 28%, was primarily driven by catastrophe, accident and health, credit and surety, and liability lines. The decrease in catastrophe lines was attributable to a non-renewal of a catastrophe bond and a decrease in premiums ceded to strategic capital partners. The decrease in accident and health lines was attributable to the restructuring of an existing quota share retrocessional treaty. The decrease in credit and surety lines was attributable to a decrease in premiums ceded to an existing quota share retrocessional treaty. The decrease in liability lines was attributable to the restructuring of an existing quota share retrocessional treaty, partially offset by an increase in premiums ceded to a new quota share retrocessional treaty.
Ceded premiums written for the nine months ended September 30, 2020, was $743 million, or 29% of gross premiums written, compared to $858 million, or 29% of gross premiums written for the nine months ended September 30, 2019.
The decrease in ceded premiums written of $115 million, or 13%, was primarily driven by catastrophe, credit and surety, accident and health, and agriculture lines, partially offset by increases in professional lines, liability, motor, and property lines.
The decrease in catastrophe lines was attributable to decreases in premiums ceded to strategic partners and a non-renewal of a catastrophe bond. The decrease in credit and surety lines was attributable to a decrease in premiums ceded to a quota share retrocessional treaty and the restructuring of existing quota share retrocessional treaties. The decrease in accident and health lines was attributable to the restructuring of an existing quota share retrocessional treaty. The decrease in agriculture lines was attributable to a non-renewal of a large quota share retrocessional treaty.
The increases in liability and professional lines were attributable to an increase in premiums ceded to a new quota share retrocessional treaty, partially offset by the restructuring of an existing quota share retrocessional treaty. The increase in motor lines was attributable to an increase in premiums ceded to a new quota share retrocessional treaty. The increase in property lines was attributable to an increase in premiums ceded to a new aggregate excess of loss treaty.
Net Premiums Earned:
Net investmentpremiums earned by line of business were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | | | Nine months ended September 30, | | | |
| | 2020 | | | | 2019 | | | | % Change | | 2020 | | | | 2019 | | | | % Change | |
| | | | | | | | | | | | | | | | | | | | | |
| Catastrophe | $ | 64,163 | | | 13 | % | | $ | 68,910 | | | 11 | % | | (7%) | | $ | 194,987 | | | 12 | % | | $ | 205,468 | | | 11 | % | | (5%) | |
| Property | 62,704 | | | 12 | % | | 78,271 | | | 13 | % | | (20%) | | 196,229 | | | 12 | % | | 226,515 | | | 13 | % | | (13%) | |
| Professional lines | 54,424 | | | 10 | % | | 50,966 | | | 8 | % | | 7% | | 154,482 | | | 10 | % | | 154,390 | | | 9 | % | | —% | |
| Credit and surety | 43,730 | | | 8 | % | | 55,625 | | | 9 | % | | (21%) | | 134,988 | | | 9 | % | | 154,638 | | | 9 | % | | (13%) | |
| Motor | 63,298 | | | 12 | % | | 107,930 | | | 17 | % | | (41%) | | 203,776 | | | 13 | % | | 301,622 | | | 17 | % | | (32%) | |
| Liability | 96,671 | | | 19 | % | | 95,632 | | | 15 | % | | 1% | | 293,918 | | | 19 | % | | 279,639 | | | 16 | % | | 5% | |
| Agriculture | 17,750 | | | 3 | % | | 47,519 | | | 8 | % | | (63%) | | 57,949 | | | 4 | % | | 131,746 | | | 7 | % | | (56%) | |
| Engineering | 14,548 | | | 3 | % | | 16,611 | | | 3 | % | | (12%) | | 43,742 | | | 3 | % | | 47,290 | | | 3 | % | | (8%) | |
| Marine and other | 14,742 | | | 3 | % | | 17,924 | | | 3 | % | | (18%) | | 37,275 | | | 2 | % | | 44,529 | | | 2 | % | | (16%) | |
| Accident and health | 89,087 | | | 17 | % | | 81,500 | | | 13 | % | | 9% | | 256,303 | | | 16 | % | | 239,388 | | | 13 | % | | 7% | |
| Discontinued lines - Novae | 11 | | | — | % | | (32) | | | — | % | | nm | | 1,024 | | | — | % | | (572) | | | — | % | | nm | |
| Total | $ | 521,128 | | | 100 | % | | $ | 620,856 | | | 100 | % | | (16%) | | $ | 1,574,673 | | | 100 | % | | $ | 1,784,653 | | | 100 | % | | (12%) | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
nm – not meaningful
Net premiums earned for the three months ended September 30, 2020, decreased by $100 million, or 16% ($93 million, or 15% on a constant currency basis), compared to the three months ended September 30, 2019. The decrease was primarily driven by decreases in gross premiums earned in motor, agriculture, credit and surety, and property lines.
Net premiums earned for the nine months ended September 30, 2020, decreased by $210 million, or 12% ($186 million, or 10% on a constant currency basis), compared to the nine months ended September 30, 2019. The decrease was primarily driven by decreases in gross premiums earned in agriculture, motor, catastrophe, property, and credit and surety lines, together with an increase in ceded premiums earned in liability lines, partially offset by decreases in ceded premiums earned in catastrophe, agriculture, and accident and health lines, and an increase in gross premiums earned in liability lines.
Other Insurance Related Income (Loss):
Other insurance related income was $1 million for the three months ended September 30, 2020, compared to other insurance related income of $1 million for the three months ended September 30, 2019.
Other insurance related loss was $361$7 million for the nine months ended September 30, 2019,2020, compared to $325other insurance related income of $10 million for the nine months ended September 30, 2018, an increase2019. The decrease of $36$17 million mainly attributable to an increase in income from fixed maturitieswas primarily due to the increase in yields andrecognition of a larger allocationfull limit loss of the portfolio to fixed maturities, together with a realized gain$10 million associated with the saleWHO pandemic risk-linked swap and a decrease in fees associated with arrangements with strategic capital partners.
Loss Ratio:
The components of a privately held investment, partially offset by lower returns from CLO-equities.the loss ratio were as follows:
Net Investment Gains (Losses) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, | |
| | 2020 | | % Point Change | | 2019 | | 2020 | | % Point Change | | 2019 | |
| | | | | | | | | | | | | |
| Current accident year | 83.8 | % | | (0.6) | | 84.4 | % | | 77.2 | % | | 7.3 | | 69.9 | % | |
| Prior year reserve development | (0.1 | %) | | 1.8 | | (1.9 | %) | | (0.3 | %) | | 0.9 | | (1.2 | %) | |
| Loss ratio | 83.7 | % | | 1.2 | | 82.5 | % | | 76.9 | % | | 8.2 | | 68.7 | % | |
| | | | | | | | | | | | | |
Net investment gains were $15 millionCurrent Accident Year Loss Ratio:
The current accident year loss ratio decreased to 83.8% for the three months ended September 30, 2019, compared to net investment losses of $18 million2020, from 84.4% for the same period of 2018.
Net investment gains for the three months ended September 30, 2019 were primarily due2019. The current accident year loss ratio increased to net realized gains on sales of U.S. government bonds and agency RMBS, partially offset by net unrealized losses on equity securities.
Net investment losses for the three months ended September 30, 2018 were primarily due to net realized losses on sales of U.S. government, agency RMBS and corporate debt securities, together with an Other Than Temporary Impairment ("OTTI") charge, partially offset by net unrealized gains on equity securities.
Net investment gains were $49 million77.2% for the nine months ended September 30, 2019, compared to net investment losses of $78 million for the same period of 2018.
Net investment gains for nine months ended September 30, 2019 were primarily due to net unrealized gains on equity securities and net realized gains on sales of U.S. government bonds and agency RMBS, partially offset by an OTTI charge.
Net investment losses2020, from 69.9% for the nine months ended September 30, 20182019.
During the three and nine months ended September 30, 2020, catastrophe and weather-related losses, net of reinstatement premiums, were $108 million, or 21.1 points, and $251 million, or 16.1, respectively. During the three months ended September 30, 2020, these losses were primarily attributable to the Midwest derecho, wildfires across the West Coast of the United States, Hurricanes Laura and Sally, the Beirut port explosion, and other weather-related events. During the nine months ended September 30, 2020, catastrophe and weather-related losses included $98 million associated with first party coverages attributable to the COVID-19 pandemic. These losses were primarily associated with property-related coverages, but also included accident and health coverages. The remaining losses of $153 million were attributable to the Midwest derecho, wildfires across the West Coast of the United States, Hurricanes Laura and Sally, the Beirut port explosion and other weather-related events. Comparatively, during the three and nine months ended September 30, 2019, catastrophe and weather-related losses were $119 million, or 19.6 points, and $132 million, or 7.6, respectively.
After adjusting for the impact of the catastrophe and weather-related losses, the current accident year loss ratio decreased to 62.7% for the three months ended September 30, 2020 from 64.8% for the three months ended September 30, 2019. The decrease in the current accident year loss ratio after adjusting for the impact of catastrophe and weather-related losses was principally due to changes in business mix and improved performance in aviation, professional lines and liability lines.
After adjusting for the impact of the catastrophe and weather-related losses, the current accident year loss ratio decreased to 61.1% for the nine months ended September 30, 2020 from 62.3% for the nine months ended September 30, 2019. The decrease in the current accident year loss ratio after adjusting for the impact of catastrophe and weather-related losses was principally due to changes in business mix and improved performance in aviation, motor and liability lines.
Prior Year Reserve Development
The following table maps lines of business to reserve classes and the expected claim tails:
| | | | | | | | | | | | | | | | | |
Reinsurance segment | | | | |
| Reserve class and tail |
| | | | | |
| Property and other | Credit and surety | Professional lines | Motor | Liability |
| | | | | |
| Short | Medium | Medium | Long | Long |
| | | | | |
Reported lines of business | | | | | |
Catastrophe | X | | | | |
Property | X | | | | |
Credit and surety | | X | | | |
Professional lines | | | X | | |
Motor | | | | X | |
Liability | | | | | X |
Engineering | X | | | | |
Agriculture | X | | | | |
Marine and other | X | | | | |
Accident and health | X | | | | |
Discontinued lines - Novae | X | | | X | X |
Prior year reserve development by reserve class were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, | |
| | 2020 | | 2019 | | 2020 | | 2019 | |
| | | | | | | | | |
| Property and other | $ | 3,126 | | | $ | (12,283) | | | $ | (4,961) | | | $ | (71,227) | | |
| Credit and surety | 11,184 | | | 5,652 | | | 27,927 | | | 32,659 | | |
| Professional lines | (13,776) | | | (7,303) | | | (13,493) | | | 641 | | |
| Motor | 1,214 | | | 22,902 | | | 18,732 | | | 33,964 | | |
| Liability | (1,434) | | | 3,150 | | | (23,375) | | | 26,135 | | |
| Total | $ | 314 | | | $ | 12,118 | | | $ | 4,830 | | | $ | 22,172 | | |
| | | | | | | | | |
For the three months ended September 30, 2020, we recognized $0.3 million of net favorable prior year reserve development, the principal components of which were:
•$11 million of net favorable prior year reserve development on credit and surety business primarily due to better than expected loss emergence mainly related to 2017 and 2019 accident years.
•$14 million of net realized lossesadverse prior year reserve development on salesprofessional lines business primarily due to an increase in case reserves attributable to a specific large claim related to the 2016 accident year and reserve strengthening within the European book of business mainly related to the 2016 to 2018 accident years.
For the three months ended September 30, 2019, we recognized $12 million of net favorable prior year reserve development, the principal components of which were:
•$23 million of net favorable prior year reserve development on motor business primarily due to non-proportional treaty business related to recent accident years.
•$6 million of net favorable prior year reserve development on credit and surety business primarily due to better than expected loss emergence related to several accident years.
•$12 million of net adverse prior year reserve development on property and other business primarily due to reserve strengthening attributable to late reporting of claims bordereaux associated with the European proportional book of business related to the 2018 accident year.
•$7 million of net adverse prior year reserve development on professional lines business primarily due to reserve strengthening within the European book of business mainly related to the 2015 and 2016 accident years.
For the nine months ended September 30, 2020, we recognized $5 million of net favorable prior year reserve development, the principal components of which were:
•$28 million of net favorable prior year reserve development on credit and surety business primarily due to better than expected loss emergence related to multiple accident years.
•$19 million of net favorable prior year reserve development on motor business primarily due to non-proportional treaty business mainly related to the 2019 and older accident years.
•$23 million of net adverse prior year development on liability business primarily due to reserve strengthening within the U.S. government, agency RMBScasualty, the U.S. multiline/regional and corporate debt securities, togetherthe European books of business mainly related to the 2016 to 2019 accident years.
•$13 million of net adverse prior year reserve development on professional lines business primarily due to an increase in case reserves attributable to a specific large claim related to the 2016 accident year and reserve strengthening within the European book of business mainly related to the 2016 to 2018 accident years.
•$5 million of net adverse prior year development on property and other business primarily due to reserve strengthening within the engineering line of business mainly related to the 2016 to 2018 accident years, and the marine and other line of business mainly related to the 2017 accident years, partially offset by net favorable prior year reserve development within the property line of business due to better than expected loss emergence attributable to the 2019 catastrophe events.
For the nine months ended September 30, 2019, we recognized $22 million of net favorable prior year reserve development, the principal components of which were:
•$34 million of net favorable prior year reserve development on motor business primarily due to non-proportional treaty business related to several accident years.
•$33 million of net favorable prior year reserve development on credit and surety business primarily due to better than expected loss emergence mainly related to the 2015 and 2016 accident years.
•$26 million of net favorable prior year reserve development on liability business primarily due to increased weight given by management to experience based indications on older accident years.
•$71 million of net adverse prior year reserve development on property and other business primarily due to an increase in loss estimates attributable to Typhoons Jebi and Trami consistent with updated industry insured loss estimates, an OTTI chargeincrease in loss estimates attributable to Hurricane Michael, and net unrealized losses on equity securities.reserve strengthening attributable to late reporting of claims bordereaux associated within the European proportional book of business related to the 2018 accident year.
Other Expenses (Revenues), NetAcquisition Cost Ratio:
Corporate expenses were $29 millionThe acquisition cost ratio decreased to 22.3% and $97 million22.5% for the three and nine months ended September 30, 2020, respectively, from 23.3% and 23.4% for the three and nine months ended September 30, 2019, respectively, comparedprincipally related to $25 millionchanges in business mix.
Underwriting-Related General and $85 millionAdministrative Expense Ratio:
The underwriting-related general and administrative expense ratio of 4.5% and 4.9% for the three and nine months ended September 30, 2018, respectively. The increase2020, respectively, was primarily attributable to ongoing investments in information technology and digital capabilities, professional fees, and adjustments associated with performance-related compensation costs, partially offset by a decrease in office costs and an increase in allocations of corporate costs to the reinsurance segment. In addition, the increase in corporate expenses for the nine months ended September 30, 2019, was partially offset by an increase in the allocation of corporate costs to the insurance segment.
Foreign exchange gains were $60 million and $65 million for the three and nine months ended September 30, 2019, respectively, compared to foreign exchange losses of $8 million and $2 million for the three and nine months ended September 30, 2018, respectively.
Foreign exchange gains for the three and nine months ended September 30, 2019, were primarily attributable to the impact of the strengthening of the U.S. dollar on the remeasurement of net insurance-related liabilities denominated in pound sterling and euro.
Foreign exchange losses for the three and nine months ended September 30, 2018, were primarily attributable to the impact of the strengthening of the U.S. dollar on the remeasurement of other investments, specifically, overseas deposits mainly denominated in australian dollar and pound sterling.
Interest expenses and financing costs of $18 million and $50 million for the three and nine months ended September 30, 2019, respectively, were comparable to interest expenses4.1% and financing costs of $17 million and $51 million for the three and nine months ended September 30, 2018, respectively.
The financial results for the three and nine months ended September 30, 2019 resulted in tax expenses of $8 million and $24 million, respectively, compared to tax benefits of $4 million for the three and nine months ended September 30, 2018.
The tax expenses of $8 million and $24 million for the three and nine months ended September 30, 2019, respectively, was attributable to the generation of pre-tax income in our U.S. and European operations, partially offset by pre-tax losses in our U.K. operations.
The tax benefits of $4 million for the three and nine months ended September 30, 2018 were primarily driven by the generation of pre-tax losses in our U.K. and European operations, largely offset by the generation of pre-tax income in our U.S. operations.
Transaction and Reorganization Expenses
Transaction and reorganization expenses were $11 million and $29 million for the three and nine months ended September 30, 2019, respectively, compared to $16 million and $48 million for the three and nine months ended September 30, 2018, respectively, related to the transformation program launched in 2017. This program encompasses the integration of Novae which commenced in the fourth quarter of 2017, the realignment of our accident and health business, together with other initiatives designed to increase our efficiency and enhance our profitability while delivering a customer-centric operating model. These expenses are not included in operating income.
At September 30, 2019, we remained on track to deliver $100 million of expense savings by the end of 2020. These expense savings will be achieved through the elimination of redundant roles, efficiencies introduced through organizational redesign, operating efficiency improvements, integration of systems, and the rationalization of third party contracts and professional fees.
Amortization of Value of Business Acquired
On October 2, 2017, we acquired Novae. The acquisition of Novae was undertaken to accelerate the growth strategy of our international insurance business, and to significantly scale up its capabilities to enable us to even better serve our clients and brokers. At the acquisition date, we identified VOBA, which represents the present value of the expected underwriting profit within policies that were in-force at the closing date of the transaction, of $257 million.
VOBA is amortized over its economic useful life and this expense is included in amortization of value of business acquired in the consolidated statement of operations.
Interest in Income of Equity Method Investments
Interest income (loss) of equity method investments represents our share of income (loss) related to investments where we have significant influence over the operating and financial policies of the investee.
Interest in income of equity method investments was $1 million and $6 million4.9% for the three and nine months ended September 30, 2019, respectively.
Financial Measures
Contents
We believe the following financial indicators are important in evaluating our performance and measuring the overall growth in value generated for our common shareholders:
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| | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, | |
| | 2019 | | 2018 | | 2019 | | 2018 | |
| | | | | | | | | |
| Annualized return on average common equity | 2.3 | % | | 3.9 | % | | 8.6 | % | | 5.9 | % | |
| Annualized operating return on average common equity | (2.7 | %) | | 7.1 | % | | 6.1 | % | | 9.0 | % | |
| Annualized ex-PGAAP operating return on average common equity | (2.4 | %) | | 7.9 | % | | 6.7 | % | | 10.1 | % | |
| Book value per diluted common share(1) | $ | 56.26 |
| | $ | 52.70 |
| | $ | 56.26 |
| | $ | 52.70 |
| |
| Cash dividends declared per common share | $ | 0.40 |
| | $ | 0.39 |
| | $ | 1.20 |
| | $ | 1.17 |
| |
| Increase (decrease) in book value per diluted common share adjusted for dividends | $ | 0.67 |
| | $ | 0.62 |
| | $ | 5.16 |
| | $ | (1.07 | ) | |
| | | | | | | | | |
| | |
(1) | Book value per diluted common share represents total common shareholders’ equity divided by the number of diluted common shares outstanding, determined using the treasury stock method. Cash-settled restricted stock units are excluded. |
Return on Average Common Equity
Our objective is to generate superior returns on capital that appropriately reward our common shareholders for the risks we assume and to grow revenue only when we expect the returns will meet or exceed our requirements. We recognize that the nature of underwriting cycles and the frequency or severity of large loss events in any one year may challenge the ability to achieve a profitability target in any specific period.
ROACE reflects the impact of net income (loss) available (attributable) to common shareholders including net investment gains (losses), foreign exchange losses (gains), transaction and reorganization expenses, and interest in income (loss) of equity method investments.NET INVESTMENT INCOME AND NET INVESTMENT GAINS (LOSSES)
The decrease in ROACE for the three months ended September 30, 2019, compared to the three months ended September 30, 2018, was primarily driven by the underwriting loss in the quarter, partially offset by the foreign exchange gains and net investment gains in the quarter, together with a decrease in amortization of VOBA associated with the acquisition of Novae. In addition, ROACE was impacted by an increase in average common shareholders' equity.
The increase in ROACE for the nine months ended September 30, 2019, compared to the nine months ended September 30, 2018, was primarily driven by the investment gains and foreign exchange gains in the period, and a decrease in amortization of VOBA associated with the acquisition of Novae, together with an increase in net investment income and a decrease in transaction and reorganization expenses, partially offset by a decrease in underwriting income and an increase in corporate expenses.
Operating ROACE excludes the impact of net investment gains (losses), foreign exchange losses (gains), transaction and reorganization expenses, and interest in income (loss) of equity method investments.
The decrease in operating ROACE for the three months ended September 30, 2019, compared to the three months ended September 30, 2018, was primarily driven by the underwriting loss in the quarter, partially offset by a decrease in amortization of VOBA associated with the acquisition of Novae.
The decrease in operating ROACE for the nine months ended September 30, 2019, compared to the nine months ended September 30, 2018, was primarily driven by a decrease in underwriting income in the period, together with an increase in corporate expenses, partially offset by a decrease in amortization of VOBA associated with the acquisition of Novae, together with an increase in net investment income.
Ex-PGAAP operating ROACE excludes the impact of amortization of VOBA and intangible assets, net of tax, and amortization of acquisition costs, net of tax, associated with Novae's balance sheet at October 2, 2017. Ex-PGAAP operating ROACE for the three and nine months ended September 30, 2019 was (2.4%) and 6.7%, respectively, compared to 7.9% and 10.1% for the three and nine months ended September 30, 2018, respectively.
Book Value per Diluted Common Share
We consider book value per diluted common share to be an appropriate measure of our returns to common shareholders, as we believe growth in our book value on a diluted basis will ultimately translate into appreciation of our stock price.
Book value per diluted common share increased to $56.26 at September 30, 2019, from $55.99 at June 30, 2019, an increase of $0.27, due to net income generated during the period and net unrealized investment gains reported in other comprehensive income, partially offset by common share dividends declared.
Book value per diluted common share increased to $56.26 at September 30, 2019, from $52.70 at September 30, 2018, an increase of 7%, due to net income generated during the period and net unrealized investment gains reported in other comprehensive income, partially offset by common share dividends declared.
Cash Dividends Declared per Common Share
We believe in returning excess capital to our shareholders by way of dividends and share repurchases. Accordingly, our dividend policy is an integral part of the value we create for our shareholders. Our cumulative strong earnings have permitted our Board of Directors to approve fifteen successive annual increases in quarterly common share dividends.
Book Value per Diluted Common Share Adjusted for Dividends
Book value per diluted common share adjusted for dividends increased by $0.67, or 1% per common share for the three months ended September 30, 2019, and increased $5.16 or 10% over the past twelve months.
Taken together, we believe that growth in book value per diluted common share and common share dividends declared represent the total value created for our common shareholders. As companies in the insurance industry have differing dividend payout policies, we believe investors use the book value per diluted common share adjusted for dividends metric to measure comparable performance across the industry.
During the three months ended September 30, 2019, total value created was driven by the net income generated in the quarter and unrealized investment gains reported in accumulated other comprehensive income.
During the nine months ended September 30, 2019, total value created was driven by the net income generated in the period and unrealized investment gains reported in accumulated other comprehensive income.
During the three months ended September 30, 2018, total value created was primarily driven by the net income generated in the quarter.
During the nine months ended September 30, 2018, the reduction in total value was primarily driven by the unrealized investment losses reported in accumulated other comprehensive income, partially offset by net income generated in the period.
UNDERWRITING RESULTS – CONSOLIDATED
The following table provides our underwriting results for the periods indicated. Underwriting income is a pre-tax measure of underwriting profitability that takes into account net premiums earned and other insurance related income (loss) as revenues and net losses and loss expenses, acquisition costs and underwriting-related general and administrative costs as expenses.
|
| | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, | |
| | 2019 | | % Change | | 2018 | | 2019 | | % Change | | 2018 | |
| | | | | | | | | | | | | |
| Revenues: | | | | | | | | | | | | |
| Gross premiums written | $ | 1,406,506 |
| | (1%) | | $ | 1,423,707 |
| | $ | 5,637,491 |
| | (2%) | | $ | 5,737,327 |
| |
| Net premiums written | 856,081 |
| | (7%) | | 919,938 |
| | 3,703,460 |
| | (5%) | | 3,906,264 |
| |
| Net premiums earned | 1,157,307 |
| | (5%) | | 1,224,075 |
| | 3,415,126 |
| | (5%) | | 3,577,026 |
| |
| Other insurance related income | 1,533 |
| | nm | | 8,475 |
| | 11,385 |
| | (39%) | | 18,811 |
| |
| | | | | | | | | | | | | |
| Expenses: | | | | | | | | | | | | |
| Current year net losses and loss expenses | (877,640 | ) | |
| | (840,619 | ) | | (2,252,424 | ) | |
| | (2,323,028 | ) | |
| Prior year reserve development | 26,727 |
| |
| | 45,660 |
| | 65,021 |
| |
| | 160,083 |
| |
| Acquisition costs | (260,026 | ) | |
| | (248,314 | ) | | (762,807 | ) | |
| | (709,527 | ) | |
| Underwriting-related general and administrative expenses(1) | (126,619 | ) | |
| | (130,251 | ) | | (398,540 | ) | | | | (404,875 | ) | |
| Underwriting income (loss)(2) | $ | (78,718 | ) | | nm | | $ | 59,026 |
| | $ | 77,761 |
| | nm | | $ | 318,490 |
| |
| | | | | | | | | | | | | |
| General and administrative expenses(1) | $ | 155,522 |
| |
| | $ | 154,894 |
| | $ | 496,008 |
| |
| | $ | 489,944 |
| |
| Income before income taxes and interest in income of equity method investments(2) | $ | 45,756 |
| |
| | $ | 48,903 |
| | $ | 342,432 |
| |
| | $ | 222,202 |
| |
| | | | | | | | | | | | | |
nm – not meaningful
| | |
(1) | Underwriting-related general and administrative expenses is a non-GAAP financial measure as defined in Item 10(e) of SEC Regulation S-K. The reconciliation to total general and administrative expenses, the most comparable GAAP financial measure, is presented in 'Management’s Discussion and Analysis of Financial Condition and Results of Operations – Executive Summary – Results of Operations'.
|
| |
(2) | Consolidated underwriting income (loss) is a non-GAAP financial measure as defined in Item 10(e) of SEC Regulation S-K. The reconciliation to income (loss) before income taxes and interest in income (loss) of equity investments, the most comparable GAAP financial measure, is presented in 'Management’s Discussion and Analysis of Financial Condition and Results of Operations – Executive Summary – Results of Operations'.
|
Underwriting Revenues
Gross and net premiums written by segment were as follows: |
| | | | | | | | | | | | | | | | | | | | | |
| | Gross premiums written | |
| | Three months ended September 30, | | Nine months ended September 30, | |
| | 2019 | | % Change | | 2018 | | 2019 | | % Change | | 2018 | |
| | | | | | | | | | | | | |
| Insurance | $ | 894,902 |
| | (8%) | | $ | 969,364 |
| | $ | 2,714,322 |
| | (6%) | | $ | 2,876,856 |
| |
| Reinsurance | 511,604 |
| | 13% | | 454,343 |
| | 2,923,169 |
| | 2% | | 2,860,471 |
| |
| Total | $ | 1,406,506 |
| | (1%) | | $ | 1,423,707 |
| | $ | 5,637,491 |
| | (2%) | | $ | 5,737,327 |
| |
| | | | | | | | | | | | | |
| % ceded | | | | | | | | | | | | |
| Insurance | 42% | | 4 pts | | 38% | | 40% | | 1 pts | | 39% | |
| Reinsurance | 34% | | 4 pts | | 30% | | 29% | | 4 pts | | 25% | |
| Total | 39% | | 4 pts | | 35% | | 34% | | 2 pts | | 32% | |
| | | | | | | | | | | | | |
| | Net premiums written | |
| | Three months ended September 30, | | Nine months ended September 30, | |
| | 2019 | | % Change | | 2018 | | 2019 | | % Change | | 2018 | |
| | | | | | | | | | | | | |
| Insurance | $ | 517,050 |
| | (14%) | | $ | 602,070 |
| | $ | 1,638,197 |
| | (6%) | | $ | 1,748,142 |
| |
| Reinsurance | 339,031 |
| | 7% | | 317,868 |
| | 2,065,263 |
| | (4%) | | 2,158,122 |
| |
| Total | $ | 856,081 |
| | (7%) | | $ | 919,938 |
| | $ | 3,703,460 |
| | (5%) | | $ | 3,906,264 |
| |
| | | | | | | | | | | | | |
Gross Premiums Written:
Gross premiums written for the three and nine months ended September 30, 2019 decreased by $17 million or 1% ($8 million or 1% on a constant currency basis1) and $100 million or 2% ($15 million or 0% on a constant currency basis), respectively, compared to the three and nine months ended September 30, 2018.
The decrease for the three and nine months ended September 30, 2019, compared to the same period in 2018, was due to a decrease in the insurance segment, partially offset by an increase in the reinsurance segment.
The insurance segment's gross premiums written decreased by $74 million or 8% ($63 million or 7% on a constant currency basis) and $163 million or 6% ($125 million or 4% on a constant currency basis) for the three and nine months ended September 30, 2019, respectively, compared to the same period in 2018.
The decrease for the three months ended September 30, 2019 was attributable to property, credit and political risk, professional lines, and accident and health lines, partially offset by an increase in liability lines. The decrease for the nine months ended September 30, 2019 was attributable to property, and accident and health lines, partially offset by increases in liability, professional lines and marine lines.
The reinsurance segment's gross premiums written increased by $57 million or 13% ($55 million or 12% on a constant currency basis) and $63 million or 2% ($110 million or 4% on a constant currency basis) for the three and nine months ended September 30, 2019, respectively, compared to the same period in 2018.
The increase for the three months ended September 30, 2019 was primarily attributable to catastrophe, accident and health, liability, marine and other, and engineering lines, partially offset by decreases in property and agriculture lines. The increase for the nine months ended September 30, 2019 was attributable to catastrophe, accident and health lines, marine and other, and liability lines, partially offset by decreases in motor, property, credit and surety, professional lines, and agriculture lines.
(1) Amounts presented on a constant currency basis are non-GAAP financial measures as defined in Item10 (e) of SEC Regulation S-K. The constant currency basis is calculated by applying the average foreign exchange rate from the current year to the prior year balance.
Ceded Premiums Written:
Ceded premiums written for the three and nine months ended September 30, 2019 were $550 million or 39% of gross premiums written and $1.9 billion or 34% of gross premiums written, respectively, compared to ceded premiums of $504 million or 35% of gross premiums written and $1.8 billion or 32% of gross premiums written for the three and nine months ended September 30, 2018, respectively.
The increase in ceded premiums written for the three months ended September 30, 2019, compared to the same period in 2018, was due to increases in both segments. The increase in ceded premiums written for the nine months ended September 30, 2019, compared to the same period in 2018, was attributable to the reinsurance segment, partially offset by a decrease in the insurance segment.
The increase in the reinsurance segment ceded premiums written of $36 million or 26% for the three months ended September 30, 2019, compared to the same period in 2018, was attributable to catastrophe lines, partially offset by a decrease in property lines.
The increase in the reinsurance segment ceded premiums written of $156 million or 22% for the nine months ended September 30, 2019, compared to the same period in 2018, was attributable to catastrophe, liability, and credit and surety lines, partially offset by decreases in agriculture and property lines.
The increase in the insurance segment ceded premiums written of $11 million or 3% for the three months ended September 30, 2019, compared to the same period in 2018, was primarily driven by liability and marine lines, partially offset by a decrease in property lines.
The decrease in the insurance segment ceded premiums written of $53 million or 5% for the nine months ended September 30, 2019, compared to the same period in 2018, was primarily driven by property and professional lines, partially offset by an increase in liability lines.
Reinsurance Agreement with Northshore Re II Limited ("Northshore")
In June 2019, we obtained catastrophe protection for our insurance and reinsurance segments through a reinsurance agreement with Northshore. In connection with the reinsurance agreement, Northshore issued notes to unrelated investors in an amount equal to the full $165 million of coverage provided under the reinsurance agreement covering a four year period. At the time of the agreement, we performed an evaluation of Northshore to determine if it meets the definition of a variable interest entity ("VIE"). We concluded that Northshore is a VIE. In addition, we concluded that we do not have a variable interest in the entity, as the variability in results is expected to be absorbed entirely by the investors in Northshore. Accordingly, the results of Northshore are not included in our consolidated financial statements.
Reinsurance Agreement with Alturas Re Ltd ("Alturas")
In July 2019, we obtained protection for our reinsurance segment through a reinsurance agreement with Alturas. In connection with the reinsurance agreement, Alturas issued notes on June 28, 2019 to unrelated investors in an amount equal to the full $39 million of coverage provided under the reinsurance agreement covering a one year period. At the time of the agreement, we concluded that we do not have a variable interest in Alturas as the variability in results is expected to be absorbed entirely by the investors in Alturas. Accordingly, the results of Alturas are not included in our consolidated financial statements.
Net Premiums Earned:
Net premiums earnedUnderwriting revenues by segment were as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | | | Nine months ended September 30, | | | |
| | 2019 | | | | 2018 | | | | % Change | | 2019 | | | | 2018 | | | | % Change | |
| | | | | | | | | | | | | | | | | | | | | |
| Insurance | $ | 536,451 |
| | 46 | % | | $ | 614,795 |
| | 50 | % | | (13%) | | $ | 1,630,473 |
| | 48 | % | | $ | 1,772,126 |
| | 50 | % | | (8%) | |
| Reinsurance | 620,856 |
| | 54 | % | | 609,280 |
| | 50 | % | | 2% | | 1,784,653 |
| | 52 | % | | 1,804,900 |
| | 50 | % | | (1%) | |
| Total | $ | 1,157,307 |
| | 100 | % | | $ | 1,224,075 |
| | 100 | % | | (5%) | | $ | 3,415,126 |
| | 100 | % | | $ | 3,577,026 |
| | 100 | % | | (5%) | |
| | | | | | | | | | | | | | | | | | | | | |
Net premiums earned for the three and nine months ended September 30, 2019 decreased by $67 million or 5% ($53 million or 4% on a constant currency basis) and $162 million or 5% ($128 million or 4% on a constant currency basis), respectively, compared to the three and nine months ended September 30, 2018. The decrease for the three months ended September 30, 2019, compared to the same period in 2018, was driven by the insurance segment, partially offset by an increase in the reinsurance segment. The decrease for the nine months ended September 30, 2019, compared to the same period in 2018, was driven by decreases in both segments.
Net premiums earned decreased by $78 million or 13% ($68 million or 11% on a constant currency basis) in the insurance segment for the three months ended September 30, 2019, compared to the same period in 2018. The decrease was driven by property, marine, and accident and health lines, partially offset by increases in professional lines and liability lines.
Net premiums earned decreased by $142 million or 8% ($117 million or 7% on a constant currency basis) in our insurance segment for the nine months ended September 30, 2019, compared to the same period in 2018. The decrease was driven by property, accident and health, and marine lines, partially offset by increases in professional lines and liability lines.
Net premiums earned increased by $12 million or 2% ($16 million or 3% on a constant currency basis) in the reinsurance segment for the three months ended September 30, 2019, compared to the same period in 2018. The increase was driven by accident and health, and marine and other lines, partially offset by a decrease in credit and surety lines.
Net premiums earned decreased by $20 million or 1% ($11 million or 1% on a constant currency basis) in our reinsurance segment for the nine months ended September 30, 2019, compared to the same period in 2018. The decrease was driven by credit and surety, and motor lines, partially offset by increases in accident and health, and marine and other lines.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, | |
| | 2020 | | % Change | | 2019 | | 2020 | | % Change | | 2019 | |
| | | | | | | | | | | | | |
| Gross premiums written: | | | | | | | | | | | | |
| Insurance | $ | 935,817 | | | 5% | | $ | 894,902 | | | $ | 2,914,100 | | | 7% | | $ | 2,714,322 | | |
| Reinsurance | 395,361 | | | (23%) | | 511,604 | | | 2,564,419 | | | (12%) | | 2,923,169 | | |
| Total gross premiums written | $ | 1,331,178 | | | (5%) | | $ | 1,406,506 | | | $ | 5,478,519 | | | (3%) | | $ | 5,637,491 | | |
| | | | | | | | | | | | | |
| Percent of gross premiums written ceded | | | | | | | | | | | | |
| Insurance | 42% | | — pts | | 42% | | 41% | | 1 pt | | 40% | |
| Reinsurance | 31% | | (3) pts | | 34% | | 29% | | — pts | | 29% | |
| Total percent of gross premiums ceded | 39% | | — pts | | 39% | | 35% | | 1 pt | | 34% | |
| | | | | | | | | | | | | |
| Net premiums written: | | | | | | | | | | | | |
| Insurance | $ | 544,857 | | | 5% | | $ | 517,050 | | | $ | 1,729,268 | | | 6% | | $ | 1,638,197 | | |
| Reinsurance | 271,125 | | | (20%) | | 339,031 | | | 1,821,692 | | | (12%) | | 2,065,263 | | |
| Total net premiums written | $ | 815,982 | | | (5%) | | $ | 856,081 | | | $ | 3,550,960 | | | (4%) | | $ | 3,703,460 | | |
| | | | | | | | | | | | | |
| Net premiums earned: | | | | | | | | | | | | |
| Insurance | $ | 570,184 | | | 6% | | $ | 536,451 | | | $ | 1,709,268 | | | 5% | | $ | 1,630,473 | | |
| Reinsurance | 521,128 | | | (16%) | | 620,856 | | | 1,574,673 | | | (12%) | | 1,784,653 | | |
| Total net premiums earned | $ | 1,091,312 | | | (6%) | | $ | 1,157,307 | | | $ | 3,283,941 | | | (4%) | | $ | 3,415,126 | | |
| | | | | | | | | | | | | |
Other Insurance Related Income (Loss):
Refer to 'Management's Discussion and Analysis of Financial Condition and Results of Operations - Results by Segment' for additional information on underwriting revenues.
Other insurance related income was $2 million for the three months ended September 30, 2019, compared to $8 million for the same period in 2018.
Other insurance related income was $11 million for the nine months ended September 30, 2019, compared to $19 million for the same period in 2018.
Underwriting Expenses
The following table provides a breakdowncomponents of ourthe combined ratio:ratio were as follows:
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| | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, | |
| | 2019 | | % Point Change | | 2018 | | 2019 | | % Point Change | | 2018 | |
| | | | | | | | | | | | | |
| Current accident year loss ratio excluding catastrophe and weather-related losses | 61.7 | % | | 0.5 | | 61.2 | % | | 60.1 | % | | (0.3) | | 60.4 | % | |
| Catastrophe and weather-related losses ratio | 14.1 | % | | 6.6 | | 7.5 | % | | 5.9 | % | | 1.4 | | 4.5 | % | |
| Current accident year loss ratio | 75.8 | % | | 7.1 | | 68.7 | % | | 66.0 | % | | 1.1 | | 64.9 | % | |
| Prior year reserve development ratio | (2.3 | %) | | 1.5 | | (3.8 | %) | | (1.9 | %) | | 2.5 | | (4.4 | %) | |
| Net losses and loss expenses ratio | 73.5 | % | | 8.6 | | 64.9 | % | | 64.1 | % | | 3.6 | | 60.5 | % | |
| Acquisition cost ratio | 22.5 | % | | 2.2 | | 20.3 | % | | 22.3 | % | | 2.5 | | 19.8 | % | |
| General and administrative expense ratio(1) | 13.4 | % | | 0.7 | | 12.7 | % | | 14.5 | % | | 0.8 | | 13.7 | % | |
| Combined ratio | 109.4 | % | | 11.5 | | 97.9 | % | | 100.9 | % | | 6.9 | | 94.0 | % | |
| | | | | | | | | | | | | |
| |
(1) | The general and administrative expense ratio includes corporate expenses not allocated to reportable segments of 2.5% and 2.0% for the three months ended September 30, 2019 and 2018, respectively and 2.9% and 2.4% for the nine months ended September 30, 2019 and 2018, respectively. These costs are further discussed in 'Management’s Discussion and Analysis of Financial Condition and Results of Operations – Other Expenses (Revenues), Net'.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, | |
| | 2020 | | % Point Change | | 2019 | | 2020 | | % Point Change | | 2019 | |
| | | | | | | | | | | | | |
| Current accident year loss ratio excluding catastrophe and weather-related losses | 58.5 | % | | (3.2) | | 61.7 | % | | 57.8 | % | | (2.3) | | 60.1 | % | |
| Catastrophe and weather-related losses ratio | 22.2 | % | | 8.1 | | 14.1 | % | | 17.5 | % | | 11.6 | | 5.9 | % | |
| Current accident year loss ratio | 80.7 | % | | 4.9 | | 75.8 | % | | 75.3 | % | | 9.3 | | 66.0 | % | |
| Prior year reserve development ratio | (0.1 | %) | | 2.2 | | (2.3 | %) | | (0.3 | %) | | 1.6 | | (1.9 | %) | |
| Net losses and loss expenses ratio | 80.6 | % | | 7.1 | | 73.5 | % | | 75.0 | % | | 10.9 | | 64.1 | % | |
| Acquisition cost ratio | 21.1 | % | | (1.4) | | 22.5 | % | | 21.2 | % | | (1.1) | | 22.3 | % | |
| General and administrative expense ratio(1) | 12.8 | % | | (0.6) | | 13.4 | % | | 13.4 | % | | (1.1) | | 14.5 | % | |
| Combined ratio | 114.5 | % | | 5.1 | | 109.4 | % | | 109.6 | % | | 8.7 | | 100.9 | % | |
| | | | | | | | | | | | | |
Current Accident Year Loss Ratio(1) The general and administrative expense ratio included corporate expenses not allocated to underwriting segments :
The current accident year loss ratio increased to 75.8%of 1.9% and 66.0% for the three and nine months ended September 30, 2019, respectively, from 68.7% and 64.9% for the three and nine months ended September 30, 2018, respectively.
The increase in the current accident year loss ratio for the three and nine months ended September 30, 2019, compared to the same periods in 2018, was impacted by a higher level of catastrophe and weather-related losses. During the three and nine months ended September 30, 2019, we incurred pre-tax catastrophe and weather-related losses, net of reinstatement premiums, of $160 million or 14.1 points and $196 million or 5.9 points, respectively, primarily attributable to Hurricane Dorian, the Japanese typhoons, and other weather-related events. Comparatively, during the three and nine months ended September 30, 2018, we incurred pre-tax catastrophe and weather-related losses, of $92 million or 7.5 points and $162 million or 4.5 points, respectively.
After adjusting for the impact of catastrophe and weather-related losses, our current accident year loss ratio for the three and nine months ended September 30, 2019 was 61.7% and 60.1%, respectively, compared to 61.2% and 60.4% for the three and nine months ended September 30, 2018, respectively.
The increase in the current accident year loss ratio after adjusting for the impact of catastrophe and weather-related losses for2.5% for the three months ended September 30, 2020 and 2019, compared to the same periods in 2018, was principally due to changes in business mix, partially offset by the impact of improved pricing over loss trends.
The decrease in the current accident year loss ratio after adjusting for the impact of catastropherespectively, and weather-related losses2.3% and 2.9% for the nine months endedSeptember 30, 2020 and 2019, comparedrespectively. Refer to the same periods in 2018, was principally due'Management’s Discussion and Analysis of Financial Condition and Results of Operations – Other Expenses (Revenues), Net' for further details.
Refer to the impact'Management's Discussion and Analysis of improved pricing over loss trends.
For further discussionFinancial Condition and Results of Operations - Results by Segment' for additional information on current accident year loss ratios, refer to the insurance and reinsurance segment discussions below.
Estimates of Significant Catastrophe Events:
Our September 30, 2019, net reserves for losses and loss expenses included estimated amounts for numerous catastrophe events. We caution that the magnitude and/or complexity of losses arising from certain of these events, in particular Hurricane Dorian, Japanese Typhoons Faxai and Tapah which occurred in 2019 together with the California Wildfires, Hurricanes Michael and Florence, and Typhoons Jebi and Trami which occurred in 2018 as well as Hurricanes Harvey, Irma and Maria and the California Wildfires which occurred in 2017, inherently increase the level of uncertainty and, therefore, the level of management judgment involved in arriving at our estimated net reserves for losses and lossunderwriting expenses. As a result, our actual losses for these events may ultimately differ materially from our current estimates.
Our estimated net reserves for losses and loss expenses in relation to the catastrophe events described above were derived from ground-up assessments of our in-force contracts and treaties providing coverage in the affected regions. These assessments take into account the latest information available from clients, brokers and loss adjusters. In addition, we consider industry insured loss estimates, market share analyses and catastrophe modeling analyses, when appropriate. Our estimates remain subject to change, as additional loss data becomes available.
We continue to monitor paid and incurred loss development for catastrophe events and update our estimates of ultimate losses accordingly.
Prior Year Reserve Development:
Net favorable prior year reserve development arises from changes to estimates of losses and loss expenses related to loss events that occurred in previous calendar years. The following table presents net prior year reserve development by segment:
|
| | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, | |
| | 2019 | | 2018 | | 2019 | | 2018 | |
| | | | | | | | | |
| Insurance | $ | 14,609 |
| | $ | 13,478 |
| | $ | 42,849 |
| | $ | 60,547 |
| |
| Reinsurance | 12,118 |
| | 32,182 |
| | 22,172 |
| | 99,536 |
| |
| Total | $ | 26,727 |
| | $ | 45,660 |
| | $ | 65,021 |
| | $ | 160,083 |
| |
| | | | | | | | | |
Overview
Short-tail business
Short-tail business includes the underlying exposures in the property and other, marine and aviation reserve classes in the insurance segment, and the property and other reserve class in the reinsurance segment.
These reserve classes contributed net favorable prior year reserve development of $2 million for the three months ended September 30, 2019, including net favorable prior year reserve development of $11 million contributed by the insurance property and other reserve class and net favorable prior year reserve development of $3 million contributed by the insurance marine and aviation reserve classes, partially offset by net adverse prior year reserve development of $12 million recognized by the reinsurance property and other reserve class.
These reserve classes recognized net adverse prior year reserve development of $50 million for the nine months ended September 30, 2019, including net adverse prior year reserve development of $71 million recognized by the reinsurance property and other reserve class and net adverse prior year reserve development of $4 million recognized by the insurance property and other reserve class, partially offset by net favorable prior year reserve development of $24 million contributed by the insurance marine reserve class. The net adverse prior year reserve development of $71 million recognized by the reinsurance property and other reserve class reflected overall better than expected loss emergence related to the 2018 catastrophe events and reserve strengthening within our European proportional book of business.
These reserve classes contributed net favorable prior year reserve development of $12 million and $92 million for the three and nine months ended September 30, 2018, respectively, reflecting overall better than expected loss emergence related to the 2017 catastrophe events.
Medium-tail business
Medium-tail business consists primarily of insurance and reinsurance professional lines reserve classes, insurance credit and political risk reserve class and reinsurance credit and surety reserve class.
Insurance professional lines reserve class recorded net favorable prior year reserve development of $4 million and $14 million for the three and nine months ended September 30, 2019, respectively, and $10 million and $12 million for the three and nine months ended
September 30, 2018, respectively, reflecting generally favorable experience as we continued to transition to more experienced based actuarial methods.
Reinsurance professional lines reserve class recorded net adverse prior year reserve development of $7 million for the three months ended September 30, 2019, primarily due to reserve strengthening within our European book of business.
Reinsurance professional lines reserve class recorded net favorable prior year reserve development of $10 million and $18 million for the three and nine months ended September 30, 2018, respectively, reflecting generally favorable experience on older accident years as we continued to transition to more experienced based actuarial methods.
Insurance credit and political risk reserve class recorded net favorable prior year reserve development of $10 million for the nine months ended September 30, 2019, reflecting the recognition of better than expected loss emergence.
Reinsurance credit and surety reserve class recorded net favorable prior year reserve development of $6 million and $33 million for the three and nine months ended September 30, 2019, respectively, and $6 million and $21 million for the three and nine months ended September 30, 2018, respectively, reflecting the recognition of better than expected loss emergence.
Long-tail business
Long-tail business consists primarily of insurance and reinsurance liability reserve classes and reinsurance motor reserve class.
Insurance liability reserve class recorded net adverse prior year reserve development of $4 million for the three months ended September 30, 2019, and $11 million and $18 million for the three and nine months ended September 30, 2018, respectively, primarily due to reserve strengthening within our U.S. excess casualty book of business.
Reinsurance liability reserve class contributed net favorable prior year reserve development of $26 million for the nine months ended September 30, 2019, due to increased weight given by management to experience based indications on older accident years.
Reinsurance liability reserve class contributed net favorable prior year reserve development of $11 million and $19 million for the three and nine months ended September 30, 2018, respectively, largely associated with multi-line contracts due to overall better than expected loss emergence related to the 2017 catastrophe events. The net favorable prior year reserve development for the nine months ended September 30, 2018 was also due to increased weight given by management to experience based indications on older accident years.
Reinsurance motor reserve class contributed net favorable prior year reserve development of $23 million and $34 million for the three and nine months ended September 30, 2019, respectively, and $7 million and $15 million for the three and nine months ended September 30, 2018, respectively, primarily attributable to non proportional treaty business.
We caution that conditions and trends that impacted the development of our liabilities in the past may not necessarily occur in the future.
The following tables map our lines of business to reserve classes and the expected claim tails:
|
| | | | | | |
Insurance segment | | | | | |
| Reserve class and tail |
| | | | | | |
| Property and other | Marine | Aviation | Credit and political risk | Professional lines | Liability |
| | | | | | |
| Short | Short | Short/Medium | Medium | Medium | Long |
| | | | | | |
Reported lines of business | | | | | | |
Property | X | | | | | |
Marine | | X | | | | |
Terrorism | X | | | | | |
Aviation | | | X | | | |
Credit and political risk | | | | X | | |
Professional lines | | | | | X | |
Liability | | | | | | X |
Accident and health | X | | | | | |
Discontinued lines - Novae | X | | | | X | X |
|
| | | | | |
Reinsurance segment | | | | |
| Reserve class and tail |
| | | | | |
| Property and other | Credit and surety | Professional lines | Motor | Liability |
| | | | | |
| Short | Medium | Medium | Long | Long |
| | | | | |
Reported lines of business | | | | | |
Catastrophe | X | | | | |
Property | X | | | | |
Credit and surety | | X | | | |
Professional lines | | | X | | |
Motor | | | | X | |
Liability | | | | | X |
Engineering | X | | | | |
Agriculture | X | | | | |
Marine and other | X | | | | |
Accident and health | X | | | | |
Discontinued lines - Novae | X | | | X | X |
The following sections provide further details on prior year reserve development by segment, reserve class and accident year.
Insurance Segment:
|
| | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, | |
| | 2019 | | 2018 | | 2019 | | 2018 | |
| | | | | | | | | |
| Property and other | $ | 11,427 |
| | $ | 16,365 |
| | $ | (4,426 | ) | | $ | 55,872 |
| |
| Marine | 2,119 |
| | (220 | ) | | 23,753 |
| | 14,415 |
| |
| Aviation | 471 |
| | (2,299 | ) | | 1,671 |
| | (4,752 | ) | |
| Credit and political risk | 1,217 |
| | 1,164 |
| | 10,278 |
| | 1,241 |
| |
| Professional lines | 3,656 |
| | 9,964 |
| | 13,899 |
| | 12,199 |
| |
| Liability | (4,281 | ) | | (11,496 | ) | | (2,326 | ) | | (18,428 | ) | |
| Total | $ | 14,609 |
| | $ | 13,478 |
| | $ | 42,849 |
| | $ | 60,547 |
| |
| | | | | | | | | |
For the three months ended September 30, 2019, we recognized $15 million of net favorable prior year reserve development, the principal components of which were:
$11 million of net favorable prior year reserve development on property and other business primarily due to better than expected loss emergence attributable to the 2017 catastrophe events and SuperStorm Sandy.
$4 million of net favorable prior year reserve development on professional lines business primarily due to better than expected loss emergence related to the 2013 and 2014 accident years.
$4 million of net adverse prior year reserve development on liability business primarily due to reserve strengthening within our U.S. excess casualty book of business related to older accident years.
For the three months ended September 30, 2018, we recognized $13 million of net favorable prior year reserve development, the principal components of which were:
$16 million of net favorable prior year reserve development on property and other business primarily due to overall better than expected loss emergence related to the 2017 catastrophe events.
$10 million of net favorable prior year reserve development on professional lines business primarily due to better than expected development related to the 2015 accident year.
$11 million of net adverse prior year reserve development on liability business primarily due to reserve strengthening within our U.S. excess casualty book of business mainly driven by a higher frequency of large auto and general liability claims related to the 2015 accident year.
For the nine months ended September 30, 2019, we recognized $43 million of net favorable prior year reserve development, the principal components of which were:
$24 million of net favorable prior year reserve development on marine business primarily due to better than expected loss emergence related to the 2015 to 2017 accident years.
$14 million of net favorable prior year reserve development on professional lines business primarily due to better than expected loss emergence related to the 2013 to 2015 accident years.
$10 million of net favorable prior year reserve development on credit and political risk business primarily due to better than expected loss emergence related to the 2018 accident year.
$4 million of net adverse prior year reserve development on property and other business primarily due to reserve strengthening within our international book of business mainly related to the 2018 accident year, partially offset by the recognition of better than expected loss emergence attributable to the 2017 catastrophe events and SuperStorm Sandy.
For the nine months ended September 30, 2018, we recognized $61 million of net favorable prior year reserve development, the principal components of which were:
$56 million of net favorable prior year reserve development on property and other business primarily due to overall better than expected loss emergence related to the 2017 catastrophe events.
$14 million of net favorable prior year reserve development on marine business primarily due to better than expected loss emergence on recent accident years.
$12 million of net favorable prior year reserve development on professional lines business primarily due to better than expected loss emergence related to the 2015 accident year, partially offset by net adverse reserve development related to the 2017 accident year.
$18 million of net adverse prior year reserve development on liability business primarily due to reserve strengthening within our U.S. excess casualty book of business mainly driven by a higher frequency of large auto and general liability claims related to the 2015 and 2017 accident years.
Reinsurance Segment:
|
| | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, | |
| | 2019 | | 2018 | | 2019 | | 2018 | |
| | | | | | | | | |
| Property and other | $ | (12,283 | ) | | $ | (1,691 | ) | | $ | (71,227 | ) | | $ | 26,461 |
| |
| Credit and surety | 5,652 |
| | 6,334 |
| | 32,659 |
| | 21,001 |
| |
| Professional lines | (7,303 | ) | | 10,279 |
| | 641 |
| | 18,385 |
| |
| Motor | 22,902 |
| | 6,512 |
| | 33,964 |
| | 15,037 |
| |
| Liability | 3,150 |
| | 10,748 |
| | 26,135 |
| | 18,652 |
| |
| Total | $ | 12,118 |
| | $ | 32,182 |
| | $ | 22,172 |
| | $ | 99,536 |
| |
| | | | | | | | | |
For the three months ended September 30, 2019, we recognized $12 million of net favorable prior year reserve development, the principal components of which were:
$23 million of net favorable prior year reserve development on motor business primarily attributable to non proportional treaty business related to recent accident years.
$6 million of net favorable prior year reserve development on credit and surety business primarily due to generally better than expected loss emergence related to several accident years.
$12 million of net adverse prior year reserve development on property and other business primarily due to reserve strengthening due to late reporting of claims bordereaux associated with our European proportional book of business related to the 2018 accident year.
| |
• | $7 million of net adverse prior year reserve development on professional lines business primarily due to reserve strengthening within our European book of business related to the 2015 and 2016 accident years.
|
For the three months ended September 30, 2018, we recognized $32 million of net favorable prior year reserve development, the principal components of which were:
$11 million of net favorable prior year reserve development on liability business largely associated with multi-line contracts due to overall better than expected loss emergence related to the 2017 catastrophe events.
$10 million of net favorable prior year reserve development on professional lines business reflecting the generally favorable experience on older accident years as we continued to transition to more experience based actuarial methods.
$7 million of net favorable prior year reserve development on motor business primarily due to favorable experience on non proportional treaty business related to older accident years.
$6 million of net favorable prior year reserve development on credit and surety business primarily due to generally better than expected loss emergence.
For the nine months ended September 30, 2019, we recognized $22 million of net favorable prior year reserve development, the principal components of which were:
$34 million of net favorable prior year reserve development on motor business primarily attributable to non proportional treaty business related to several accident years.
$33 million of net favorable prior year reserve development on credit and surety business primarily due to generally better than expected loss emergence primarily related to the 2015 and 2016 accident years.
$26 million of net favorable prior year reserve development on liability business primarily due to increased weight given by management to experience based indications on older accident years.
$71 million of net adverse prior year reserve development on property and other business primarily due to an increase in loss estimates attributable to Typhoons Jebi and Trami consistent with updated industry insured loss estimates, an increase in loss estimates attributable to Hurricane Michael, and reserve strengthening due to late reporting of claims bordereaux associated with our European proportional book of business related to the 2018 accident year.
For the nine months ended September 30, 2018, we recognized $100 million of net favorable prior year reserve development, the principal components of which were:
$26 million of net favorable prior year reserve development on property and other business primarily due to overall better than expected loss emergence related to the 2017 catastrophe events and better than expected loss emergence related to agriculture business.
$21 million of net favorable prior year reserve development on credit and surety business primarily due to generally better than expected loss emergence primarily related to older accident years.
$19 million of net favorable prior year reserve development on liability business largely associated with multi-line contracts due to overall better than expected loss emergence related to the 2017 catastrophe events and due to increased weight given by management to experience based indications on older accident years.
$18 million of net favorable prior year reserve development on professional lines business reflecting the generally favorable experience on older accident years as we continued to transition to more experience based actuarial methods.
$15 million of net favorable prior year reserve development on motor business primarily due to favorable experience on non proportional treaty business related to older accident years.
Acquisition Cost Ratio:
The acquisition cost ratio increased to 22.5% and 22.3% for the three and nine months ended September 30, 2019, respectively, from 20.3% and 19.8% for the three and nine months ended September 30, 2018. The increase was primarily attributable to the insurance segment, largely associated with the acquisition of Novae.
General and Administrative Expense Ratio:
The general and administrative expense ratio increased to 13.4% and 14.5% for the three and nine months ended September 30, 2019, respectively, from 12.7% and 13.7% for the three and nine months ended September 30, 2018 The increase was primarily attributable to the insurance segment primarily driven by a decrease in net premiums earned.
RESULTS BY SEGMENT
Insurance Segment
Results fromfor the insurance segment were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, | |
| | 2020 | | % Change | | 2019 | | 2020 | | % Change | | 2019 | |
| | | | | | | | | | | | | |
| Revenues: | | | | | | | | | | | | |
| Gross premiums written | $ | 935,817 | | | 5% | | $ | 894,902 | | | $ | 2,914,100 | | | 7% | | $ | 2,714,322 | | |
| Net premiums written | 544,857 | | | 5% | | 517,050 | | | 1,729,268 | | | 6% | | 1,638,197 | | |
| Net premiums earned | 570,184 | | | 6% | | 536,451 | | | 1,709,268 | | | 5% | | 1,630,473 | | |
| Other insurance related income | 688 | | | 6% | | 733 | | | 2,091 | | | 18% | | 1,779 | | |
| | | | | | | | | | | | | |
| Expenses: | | | | | | | | | | | | |
| Current accident year net losses and loss expenses | (443,659) | | | | | (353,575) | | | (1,257,090) | | | | | (1,004,293) | | |
| Prior year reserve development | 270 | | | | | 14,609 | | | 4,521 | | | | | 42,849 | | |
| Acquisition costs | (114,569) | | | | | (115,551) | | | (343,579) | | | | | (344,981) | | |
| Underwriting-related general and administrative expenses | (94,379) | | | | | (100,559) | | | (284,909) | | | | | (311,491) | | |
| | | | | | | | | | | | | |
| Underwriting income (loss) | $ | (81,465) | | | | | $ | (17,892) | | | $ | (169,698) | | | | | $ | 14,336 | | |
| | | | | | | | | | | | | |
| Ratios: | | | % Point Change | | | | | | % Point Change | | | |
| Current accident year loss ratio excluding catastrophe and weather-related losses | 54.7 | % | | (3.5) | | 58.2 | % | | 54.8 | % | | (2.9) | | 57.7 | % | |
| Catastrophe and weather-related losses ratio | 23.1 | % | | 15.4 | | 7.7 | % | | 18.7 | % | | 14.8 | | 3.9 | % | |
| Current accident year loss ratio | 77.8 | % | | 11.9 | | 65.9 | % | | 73.5 | % | | 11.9 | | 61.6 | % | |
| Prior year reserve development ratio | — | % | | 2.7 | | (2.7 | %) | | (0.2 | %) | | 2.4 | | (2.6 | %) | |
| Net losses and loss expenses ratio | 77.8 | % | | 14.6 | | 63.2 | % | | 73.3 | % | | 14.3 | | 59.0 | % | |
| Acquisition cost ratio | 20.1 | % | | (1.4) | | 21.5 | % | | 20.1 | % | | (1.1) | | 21.2 | % | |
| Underwriting-related general and administrative expense ratio | 16.5 | % | | (2.3) | | 18.8 | % | | 16.7 | % | | (2.3) | | 19.0 | % | |
| Combined ratio | 114.4 | % | | 10.9 | | 103.5 | % | | 110.1 | % | | 10.9 | | 99.2 | % | |
| | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, | |
| | 2019 | | % Change | | 2018 | | 2019 | | % Change | | 2018 | |
| | | | | | | | | | | | | |
| Revenues: | | | | | | | | | | | | |
| Gross premiums written | $ | 894,902 |
| | (8%) | | $ | 969,364 |
| | $ | 2,714,322 |
| | (6%) | | $ | 2,876,856 |
| |
| Net premiums written | 517,050 |
| | (14%) | | 602,070 |
| | 1,638,197 |
| | (6%) | | 1,748,142 |
| |
| Net premiums earned | 536,451 |
| | (13%) | | 614,795 |
| | 1,630,473 |
| | (8%) | | 1,772,126 |
| |
| Other insurance related income | 733 |
| | (52%) | | 1,526 |
| | 1,779 |
| | (47%) | | 3,359 |
| |
| | | | | | | | | | | | | |
| Expenses: | | | | | | | | | | | | |
| Current year net losses and loss expenses | (353,575 | ) | | | | (428,966 | ) | | (1,004,293 | ) | | | | (1,126,346 | ) | |
| Prior year reserve development | 14,609 |
| | | | 13,478 |
| | 42,849 |
| | | | 60,547 |
| |
| Acquisition costs | (115,551 | ) | | | | (111,888 | ) | | (344,981 | ) | | | | (290,082 | ) | |
| General and administrative expenses | (100,559 | ) | | | | (100,656 | ) | | (311,491 | ) | | | | (305,394 | ) | |
| | | | | | | | | | | | | |
| Underwriting income (loss) | $ | (17,892 | ) | | 53% | | $ | (11,711 | ) | | $ | 14,336 |
| | (87%) | | $ | 114,210 |
| |
| | | | | | | | | | | | | |
| Ratios: | | | % Point Change | | | | | | % Point Change | | | |
| Current accident year loss ratio excluding catastrophe and weather-related losses | 58.2 | % | | (1.5) | | 59.7 | % | | 57.7 | % | | 0.4 | | 57.3 | % | |
| Catastrophe and weather-related losses ratio | 7.7 | % | | (2.4) | | 10.1 | % | | 3.9 | % | | (2.4) | | 6.3 | % | |
| Current accident year loss ratio | 65.9 | % | | (3.9) | | 69.8 | % | | 61.6 | % | | (2.0) | | 63.6 | % | |
| Prior year reserve development ratio | (2.7 | %) | | (0.5) | | (2.2 | %) | | (2.6 | %) | | 0.9 | | (3.5 | %) | |
| Net losses and loss expenses ratio | 63.2 | % | | (4.4) | | 67.6 | % | | 59.0 | % | | (1.1) | | 60.1 | % | |
| Acquisition cost ratio | 21.5 | % | | 3.3 | | 18.2 | % | | 21.2 | % | | 4.8 | | 16.4 | % | |
| General and administrative expense ratio | 18.8 | % | | 2.4 | | 16.4 | % | | 19.0 | % | | 1.8 | | 17.2 | % | |
| Combined ratio | 103.5 | % | | 1.3 | | 102.2 | % | | 99.2 | % | | 5.5 | | 93.7 | % | |
| | | | | | | | | | | | | |
nm – not meaningful
Gross Premiums Written
:
The following table provides grossGross premiums written by line of business:business were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | | | Nine months ended September 30, | | | |
| | 2020 | | | | 2019 | | | | % Change | | 2020 | | | | 2019 | | | | % Change | |
| | | | | | | | | | | | | | | | | | | | | |
| Property | $ | 238,599 | | | 26 | % | | $ | 241,517 | | | 27 | % | | (1%) | | $ | 741,043 | | | 27 | % | | $ | 701,314 | | | 27 | % | | 6% | |
| Marine | 82,810 | | | 9 | % | | 91,161 | | | 10 | % | | (9%) | | 355,503 | | | 12 | % | | 337,529 | | | 12 | % | | 5% | |
| Terrorism | 14,767 | | | 2 | % | | 17,284 | | | 2 | % | | (15%) | | 42,296 | | | 1 | % | | 46,803 | | | 2 | % | | (10%) | |
| Aviation | 22,702 | | | 2 | % | | 17,623 | | | 2 | % | | 29% | | 63,725 | | | 2 | % | | 53,832 | | | 2 | % | | 18% | |
| Credit and political risk | 24,473 | | | 3 | % | | 32,528 | | | 4 | % | | (25%) | | 100,151 | | | 3 | % | | 114,511 | | | 4 | % | | (13%) | |
| Professional lines | 338,907 | | | 36 | % | | 272,362 | | | 30 | % | | 24% | | 943,635 | | | 32 | % | | 820,953 | | | 30 | % | | 15% | |
| Liability | 172,747 | | | 18 | % | | 186,253 | | | 21 | % | | (7%) | | 548,023 | | | 19 | % | | 518,925 | | | 19 | % | | 6% | |
| Accident and health | 39,262 | | | 4 | % | | 34,054 | | | 4 | % | | 15% | | 117,743 | | | 4 | % | | 113,228 | | | 4 | % | | 4% | |
| Discontinued lines - Novae | 1,550 | | | — | % | | 2,120 | | | — | % | | (27%) | | 1,981 | | | — | % | | 7,227 | | | — | % | | nm | |
| Total | $ | 935,817 | | | 100 | % | | $ | 894,902 | | | 100 | % | | 5% | | $ | 2,914,100 | | | 100 | % | | $ | 2,714,322 | | | 100 | % | | 7% | |
| | | | | | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | | | Nine months ended September 30, | | | |
| | 2019 | | | | 2018 | | | | % Change | | 2019 | | | | 2018 | | | | % Change | |
| | | | | | | | | | | | | | | | | | | | | |
| Property | $ | 241,517 |
| | 27 | % | | $ | 307,014 |
| | 33 | % | | (21%) | | $ | 701,314 |
| | 27 | % | | $ | 946,956 |
| | 34 | % | | (26%) | |
| Marine | 91,161 |
| | 10 | % | | 88,412 |
| | 9 | % | | 3% | | 337,529 |
| | 12 | % | | 310,844 |
| | 11 | % | | 9% | |
| Terrorism | 17,284 |
| | 2 | % | | 16,032 |
| | 2 | % | | 8% | | 46,803 |
| | 2 | % | | 48,743 |
| | 2 | % | | (4%) | |
| Aviation | 17,623 |
| | 2 | % | | 24,116 |
| | 2 | % | | (27%) | | 53,832 |
| | 2 | % | | 66,178 |
| | 2 | % | | (19%) | |
| Credit and political risk | 32,528 |
| | 4 | % | | 44,761 |
| | 5 | % | | (27%) | | 114,511 |
| | 4 | % | | 120,227 |
| | 4 | % | | (5%) | |
| Professional lines | 272,362 |
| | 30 | % | | 281,928 |
| | 29 | % | | (3%) | | 820,953 |
| | 30 | % | | 787,136 |
| | 27 | % | | 4% | |
| Liability | 186,253 |
| | 21 | % | | 153,356 |
| | 16 | % | | 21% | | 518,925 |
| | 19 | % | | 409,184 |
| | 14 | % | | 27% | |
| Accident and health | 34,054 |
| | 4 | % | | 42,883 |
| | 4 | % | | (21%) | | 113,228 |
| | 4 | % | | 173,421 |
| | 6 | % | | (35%) | |
| Discontinued lines - Novae | 2,120 |
| | — | % | | 10,862 |
| | 1 | % | | (80%) | | 7,227 |
| | — | % | | 14,167 |
| | — | % | | (49%) | |
| Total | $ | 894,902 |
| | 100 | % | | $ | 969,364 |
| | 100 | % | | (8%) | | $ | 2,714,322 |
| | 100 | % | | $ | 2,876,856 |
| | 100 | % | | (6%) | |
| | | | | | | | | | | | | | | | | | | | | |
nm – not meaningful
Gross premiums written for the three months ended September 30, 2019 decreased2020, increased by $74$41 million, or 8%5%, ($6331 million, or 3% on a constant currency basis(1)), compared to the three months ended September 30, 2019. The increase was primarily attributable to professional lines, accident and health, and aviation lines, partially offset by decreases in liability, marine, and credit and political risk lines.
The increase in professional lines was due to new business and favorable rate changes. The increase in accident and health lines was due to new business. The increase in aviation lines was due to a timing difference and favorable rate changes. The decreases in liability and credit and political risk lines were due to a higher level of non-renewals and reduced business opportunities related to the current economic climate. The decrease in marine lines was due to a timing difference and non-renewals.
Gross premiums written for the nine months ended September 30, 2020, increased by $200 million, or 7%, compared to the nine months ended September 30, 2019. The increase was primarily attributable to professional lines, property, liability, marine, and aviation lines, partially offset by a decrease in credit and political risk lines.
The increases in professional lines, property, liability, and marine lines were due to new business and favorable rate changes. The increase in aviation lines was due to timing differences. The decrease in credit and political risk lines was due to non-renewals and reduced business opportunities related to the current economic climate.
Ceded Premiums Written
Ceded premiums written for the three months ended September 30, 2020, was $391 million, or 42% of gross premiums written, compared to $378 million, or 42% of gross premiums written for the three months ended September 30, 2019. The increase in ceded premiums written of $13 million or 3% was primarily driven by increases in professional lines and property lines, partially offset by decreases in liability, marine, and credit and political risk lines.
Ceded premiums written for the nine months ended September 30, 2020, was $1,185 million, or 41% of gross premiums written, compared to $1,076 million, or 40% of gross premiums written for the nine months ended September 30, 2019. The increase in ceded premiums written of $109 million, or 10%, was primarily driven by increases in professional lines, property, liability, and marine lines, partially offset by a decrease in credit and political risk lines.
(1) Amounts presented on a constant currency basis are non-GAAP financial measures as defined in Item10 (e) of SEC Regulation S-K. The constant currency basis is calculated by applying the average foreign exchange rate from the current year to the prior year balance.
Net Premiums Earned
Net premiums earned by line of business were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | | | Nine months ended September 30, | | | |
| | 2020 | | | | 2019 | | | | % Change | | 2020 | | | | 2019 | | | | % Change | |
| | | | | | | | | | | | | | | | | | | | | |
| Property | $ | 145,717 | | | 27 | % | | $ | 154,751 | | | 29 | % | | (6%) | | $ | 452,876 | | | 26 | % | | $ | 481,450 | | | 30 | % | | (6%) | |
| Marine | 76,544 | | | 13 | % | | 65,437 | | | 12 | % | | 17% | | 220,248 | | | 13 | % | | 209,629 | | | 13 | % | | 5% | |
| Terrorism | 11,728 | | | 2 | % | | 11,605 | | | 2 | % | | 1% | | 34,675 | | | 2 | % | | 35,635 | | | 2 | % | | (3%) | |
| Aviation | 19,039 | | | 3 | % | | 10,993 | | | 2 | % | | nm | | 51,236 | | | 3 | % | | 38,603 | | | 2 | % | | 33% | |
| Credit and political risk | 23,781 | | | 4 | % | | 19,432 | | | 4 | % | | 22% | | 77,721 | | | 5 | % | | 66,412 | | | 4 | % | | 17% | |
| Professional lines | 179,441 | | | 31 | % | | 172,280 | | | 32 | % | | 4% | | 530,651 | | | 31 | % | | 490,928 | | | 30 | % | | 8% | |
| Liability | 76,487 | | | 13 | % | | 68,002 | | | 13 | % | | 12% | | 234,522 | | | 14 | % | | 192,352 | | | 12 | % | | 22% | |
| Accident and health | 37,151 | | | 7 | % | | 32,368 | | | 6 | % | | 15% | | 106,015 | | | 6 | % | | 108,402 | | | 7 | % | | (2%) | |
| Discontinued lines - Novae | 296 | | | — | % | | 1,583 | | | — | % | | nm | | 1,324 | | | — | % | | 7,062 | | | — | % | | nm | |
| Total | $ | 570,184 | | | 100 | % | | $ | 536,451 | | | 100 | % | | 6% | | $ | 1,709,268 | | | 100 | % | | $ | 1,630,473 | | | 100 | % | | 5% | |
| | | | | | | | | | | | | | | | | | | | | |
nm – not meaningful
Net premiums earned for the three months ended September 30, 2020, increased by $34 million, or 6%, ($27 million, or 5% on a constant currency basis), compared to the three months ended September 30, 2018.2019. The decreaseincrease was attributable to property, credit and political risk,primarily driven by increases in gross premiums earned in professional lines, liability, and accident and healthmarine lines, together with a decrease in ceded premiums earned in aviation lines, partially offset by increases in liability lines.
The decrease in property lines was due to non-renewals associated with underwriting actions taken in recent years to reposition the portfolio, partially offset by new business. The decrease in credit and political risk was due to reduced business opportunities. The decreasesceded premiums earned in professional lines and accidentliability lines, and health lines were due to non-renewals and the cancellation of certain program business associated with underwriting actions taken in recent years to reposition the portfolio. The increasea decrease in gross premiums writtenearned in liability lines was driven by new business and favorable rate changes.property lines.
GrossNet premiums writtenearned for the nine months ended September 30, 2019 decreased2020, increased by $163$79 million, or 6% ($125 million or 4% on a constant currency basis)5%, compared to the nine months ended September 30, 2018.2019. The decreaseincrease was attributable toprimarily driven by increases in gross premiums earned in liability, professional lines, marine, and credit and political risk lines, together with decreases in ceded premiums earned in property and accident and healthaviation lines, partially offset by increases in ceded premiums earned in liability and professional lines, and marine lines.
Thea decrease in property lines was due to the non-renewals associated with underwriting actions taken in recent years to reposition the portfolio and timing differences, partially offset by new business. The decrease in accident and health lines was due to the cancellation of certain program business associated with underwriting actions taken in recent years to reposition the portfolio. The increases in gross premiums writtenearned in liabilityproperty lines.
Loss Ratio
The components of the loss ratio were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, | |
| | 2020 | | % Point Change | | 2019 | | 2020 | | % Point Change | | 2019 | |
| | | | | | | | | | | | | |
| Current accident year | 77.8 | % | | 11.9 | | 65.9 | % | | 73.5 | % | | 11.9 | | 61.6 | % | |
| Prior year reserve development | — | % | | 2.7 | | (2.7 | %) | | (0.2 | %) | | 2.4 | | (2.6 | %) | |
| Loss ratio | 77.8 | % | | 14.6 | | 63.2 | % | | 73.3 | % | | 14.3 | | 59.0 | % | |
| | | | | | | | | | | | | |
Current Accident Year Loss Ratio
The current accident year loss ratio increased to 77.8% and marine lines were driven by new business73.5% for the three and favorable rate changes. The increase in professional lines was due to new business.
Ceded Premiums Written:
Ceded premiums writtennine months ended September 30, 2020, respectively, from 65.9% and 61.6% for the three and nine months ended September 30, 2019, were $378 million or 42% of gross premiums written and $1.08 billion or 40%, of gross premiums written, respectively, compared to $367 million or 38% of gross premiums written and $1.13 billion or 39% of gross premiums written, respectively, for the three and nine months ended September 30, 2018.
The increase in ceded premiums written of $11 million or 3% for the three months ended September 30, 2019 compared to the same period in 2018 was driven by increases in liability, marine and credit and political risk lines, partially offset by a decrease in property lines. The decrease of $53 million or 5% for the nine months ended September 30, 2019 compared to the same period in 2018, was primarily driven by decreases in property and professional lines, partially offset by increases in liability and credit and political risk lines.
respectively.
Net Premiums Earned:
The following table provides net premiums earned by line of business:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | | | Nine months ended September 30, | | | |
| | 2019 | | | | 2018 | | | | % Change | | 2019 | | | | 2018 | | | | % Change | |
| | | | | | | | | | | | | | | | | | | | | |
| Property | $ | 154,751 |
| | 29 | % | | $ | 212,883 |
| | 34 | % | | (27%) | | $ | 481,450 |
| | 30 | % | | $ | 598,896 |
| | 33 | % | | (20%) | |
| Marine | 65,437 |
| | 12 | % | | 90,661 |
| | 15 | % | | (28%) | | 209,629 |
| | 13 | % | | 240,230 |
| | 14 | % | | (13%) | |
| Terrorism | 11,605 |
| | 2 | % | | 12,606 |
| | 2 | % | | (8%) | | 35,635 |
| | 2 | % | | 38,992 |
| | 2 | % | | (9%) | |
| Aviation | 10,993 |
| | 2 | % | | 17,467 |
| | 3 | % | | (37%) | | 38,603 |
| | 2 | % | | 53,656 |
| | 3 | % | | (28%) | |
| Credit and political risk | 19,432 |
| | 4 | % | | 15,670 |
| | 3 | % | | 24% | | 66,412 |
| | 4 | % | | 69,670 |
| | 4 | % | | (5%) | |
| Professional lines | 172,280 |
| | 32 | % | | 147,336 |
| | 24 | % | | 17% | | 490,928 |
| | 30 | % | | 419,254 |
| | 24 | % | | 17% | |
| Liability | 68,002 |
| | 13 | % | | 57,185 |
| | 9 | % | | 19% | | 192,352 |
| | 12 | % | | 166,745 |
| | 9 | % | | 15% | |
| Accident and health | 32,368 |
| | 6 | % | | 51,063 |
| | 8 | % | | (37%) | | 108,402 |
| | 7 | % | | 155,753 |
| | 9 | % | | (30%) | |
| Discontinued lines - Novae | 1,583 |
| | — | % | | 9,924 |
| | 2 | % | | (84%) | | 7,062 |
| | — | % | | 28,930 |
| | 2 | % | | (76%) | |
| Total | $ | 536,451 |
| | 100 | % | | $ | 614,795 |
| | 100 | % | | (13%) | | $ | 1,630,473 |
| | 100 | % | | $ | 1,772,126 |
| | 100 | % | | (8%) | |
| | | | | | | | | | | | | | | | | | | | | |
Net premiums earned for the three months ended September 30, 2019 decreased by $78 million or 13% ($68 million or 11% on a constant currency basis), compared to the three months ended September 30, 2018. The decrease was primarily by driven by decreases in gross premiums earned in property, marine, and accident and health lines, together with an increase in ceded premiums earned in
liability lines, partially offset by increases in gross premiums earned in liability and professional lines as well as a decrease in ceded premiums earned in property lines.
Net premiums earned for the nine months ended September 30, 2019 decreased by $142 million or 8% ($117 million or 7% on a constant currency basis), compared to the nine months ended September 30, 2018. The decrease was primarily by driven by decreases in gross premiums earned in property, accident and health, and marine lines, as well as an increase in ceded premiums earned in liability lines, partially offset by increases in gross premiums earned in liability and professional lines.
Loss Ratio:
The table below shows the components of our loss ratio:
|
| | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, | |
| | 2019 | | % Point Change | | 2018 | | 2019 | | % Point Change | | 2018 | |
| | | | | | | | | | | | | |
| Current accident year | 65.9 | % | | (3.9) | | 69.8 | % | | 61.6 | % | | (2.0) | | 63.6 | % | |
| Prior year reserve development | (2.7 | %) | | (0.5) | | (2.2 | %) | | (2.6 | %) | | 0.9 | | (3.5 | %) | |
| Loss ratio | 63.2 | % | | (4.4) | | 67.6 | % | | 59.0 | % | | (1.1) | | 60.1 | % | |
| | | | | | | | | | | | | |
Current Accident Year Loss Ratio:
The current accident year loss ratio decreased to 65.9% for the three months ended September 30, 2019, from 69.8% for the three months ended September 30, 2018. For the nine months ended September 30, 2019, the current accident year loss ratio decreased to 61.6% from 63.6% for the same period in 2018.
The current accident year loss ratio for the three and nine months ended September 30, 2019, compared to the same periods in 2018, was impacted by a lower level of catastrophe and weather-related losses. During the three and nine months ended September 30, 2019, we incurred pre-tax2020, catastrophe and weather-related losses, net of $41reinstatement premiums, were $132 million, or 7.723.1 points, and $64$325 million, or 3.918.7 points, respectively,respectively. During the three months ended September 30, 2020, these losses were primarily attributable to Hurricane DorianHurricanes Laura and U.S.Sally, the Beirut port explosion, wildfires across the West Coast of the United States, and other weather-related events. During the nine months ended September 30, 2020 catastrophe and weather-related losses included $137 million associated with first party coverages attributable to the COVID-19 pandemic. These losses were primarily associated with property-related coverages, but also included event cancellation coverages. The remaining losses of $188 million were primarily attributable to Hurricanes Laura and Sally, the Beirut port explosion, wildfires across the West Coast of the United States, and other weather-related events. Comparatively, during the three and nine months ended September 30, 2018, we incurred pre-tax2019, catastrophe and weather-related losses of $62were $41 million, or 10.17.7 points, and $112$64 million, or 6.33.9 points, respectively.
After adjusting for the impact of the catastrophe and weather-related losses, ourthe current accident year loss ratio decreased to 54.7% for the three and nine months ended September 30, 2019 was2020, from 58.2% and 57.7%, respectively, compared to 59.7% and 57.3% for the three and nine months ended September 30, 2018, respectively.
2019. The decrease in the current accident year loss ratio after adjusting for the impact of the catastrophe and weather-related losses for the three months ended September 30, 2019, compared to the same periods in 2018, was principally due to the impact of improvedfavorable pricing over loss trends, and a decrease in attritionalimproved loss experience in property, and marine, lines, partially offset by changes in business mix, , and elevated mid-size loss experience in credit and political risk, and aviation lines largely associated with the repositioning of the portfolio.
After adjusting for the impact of the catastrophe and marine lines.
weather-related losses, the current accident year loss ratio decreased to 54.8% for the nine months ended September 30, 2020, from 57.7% for the nine months ended September 30, 2019. The increasedecrease in the current accident year loss ratio after adjusting for the impact of the catastrophe and weather-related losses forwas principally due to the impact of favorable pricing over loss trends, improved loss experience in property, credit and political risk, marine and aviation lines, partially offset by changes in business mix.
Prior Year Reserve Development
The following table maps lines of business to reserve classes and the expected claim tails:
| | | | | | | | | | | | | | | | | | | | |
Insurance segment | | | | | |
| Reserve class and tail |
| | | | | | |
| Property and other | Marine | Aviation | Credit and political risk | Professional lines | Liability |
| | | | | | |
| Short | Short | Short/Medium | Medium | Medium | Long |
| | | | | | |
Reported lines of business | | | | | | |
Property | X | | | | | |
Marine | | X | | | | |
Terrorism | X | | | | | |
Aviation | | | X | | | |
Credit and political risk | | | | X | | |
Professional lines | | | | | X | |
Liability | | | | | | X |
Accident and health | X | | | | | |
Discontinued lines - Novae | X | | | | X | X |
Prior year reserve development by reserve class were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, | |
| | 2020 | | 2019 | | 2020 | | 2019 | |
| | | | | | | | | |
| Property and other | $ | 6,907 | | | $ | 11,427 | | | $ | 42,688 | | | $ | (4,426) | | |
| Marine | 4,095 | | | 2,119 | | | 633 | | | 23,753 | | |
| Aviation | (326) | | | 471 | | | 5,667 | | | 1,671 | | |
| Credit and political risk | 871 | | | 1,217 | | | (223) | | | 10,278 | | |
| Professional lines | (7,287) | | | 3,656 | | | (19,086) | | | 13,899 | | |
| Liability | (3,990) | | | (4,281) | | | (25,158) | | | (2,326) | | |
| Total | $ | 270 | | | $ | 14,609 | | | $ | 4,521 | | | $ | 42,849 | | |
| | | | | | | | | |
For the three months ended September 30, 2020, we recognized $0.3 million of net favorable prior year reserve development, the principal components of which were:
•$7 million of net favorable prior year reserve development on property and other business primarily due to better than expected loss emergence attributable to the 2019 catastrophe events.
•$4 million of net favorable prior year reserve development on marine business primarily due better than expected loss emergence mainly related to the 2018 accident year.
•$7 million of net adverse prior year reserve development on professional lines business primarily due to reserve strengthening within the European professional indemnity and financial institutions books of business mainly related to the 2018 accident year and an increase in case reserves attributable to a specific large claim related to the 2009 accident year.
•$4 million of net adverse prior year reserve development on liability business primarily due to reserve strengthening within the primary casualty, U.S. excess casualty and program books of business mainly related to 2017 and 2018 accident years.
For the three months ended September 30, 2019, we recognized $15 million of net favorable prior year reserve development, the principal components of which were:
•$11 million of net favorable prior year reserve development on property and other business primarily due to better than expected loss emergence attributable to the 2017 catastrophe events and SuperStorm Sandy.
•$4 million of net favorable prior year reserve development on professional lines business primarily due to better than expected loss emergence mainly related to the 2013 and 2014 accident years.
•$4 million of net adverse prior year reserve development on liability business primarily due to reserve strengthening within the U.S. excess casualty book of business related to older accident years.
For the nine months ended September 30, 2020, we recognized $5 million of net favorable prior year reserve development, the principal components of which were:
•$43 million of net favorable prior year reserve development on property and other business primarily due to better than expected loss emergence mainly related to the 2018 and 2019 accident years, better than expected loss emergence attributable to the 2017, 2018 and 2019 catastrophe events, and decreases in case reserves attributable to specific claims related to the 2014 and 2016 accident years.
•$6 million of net favorable prior year reserve development on aviation business primarily due to better than expected loss emergence mainly related to the 2018 and 2019 accident years.
•$25 million of net adverse prior year reserve development on liability business primarily due to reserve strengthening within the primary casualty, U.S. excess casualty and program books of business mainly related to the 2017 and 2018 accident years.
•$19 million of net adverse prior year reserve development on professional lines business primarily due to reserve strengthening within the European professional indemnity and financial institutions books of business and the commercial management solutions book of business mainly related to the 2018 and 2019 accident year and an increase in case reserves attributable to a specific large claim related to the 2009 accident year.
For the nine months ended September 30, 2019, comparedwe recognized $43 million of net favorable prior year reserve development, the principal components of which were:
•$24 million of net favorable prior year reserve development on marine business primarily due to better than expected loss emergence mainly related to the same period in 2018, was principally2015 to 2017 accident years.
•$14 million of net favorable prior year reserve development on professional lines business primarily due to an increase in mid-sizebetter than expected loss experience in marine,emergence mainly related to the 2013 to 2015 accident years.
•$10 million of net favorable prior year reserve development on credit and political risk lines,business primarily due to better than expected loss emergence mainly related to the 2018 accident year.
•$4 million of net adverse prior year reserve development on property and aviation lines, together with changes inother business mix,primarily due to reserve strengthening within the international book of business mainly related to the 2018 accident year, partially offset by a decrease in attritionalbetter than expected loss experience in property lines, and the impact of improved pricing over loss trends.
Referemergence attributable to the ‘Prior Year Reserve Development’ section for further details.2017 catastrophe events and SuperStorm Sandy.
Acquisition Cost Ratio:
The acquisition cost ratio increaseddecreased to 20.1% for the three months ended September 30, 2020, from 21.5% for the three months ended September 30, 2019, from 18.2%principally related to an increase in ceding commissions.
The acquisition cost ratio decreased to 20.1% for the threenine months ended September 30, 2018 primarily attributable to2020, from 21.2% for the nine months ended September 30, 2019, associated with the acquisition of Novae.Novae and an increase in ceding commissions. At the acquisition date, the allocation of the acquisition price to the assets acquired and liabilities assumed based on estimated fair values at that date, resulted in the write-off of the deferred acquisition cost asset on Novae's balance sheet as the value of policies in-force on that date are considered within VOBA.value of business acquired ("VOBA"). Consequently, the absence of $2$1 million and $29 million of acquisition expense related to premiums earned in the three months ended September 30, 2019 and 2018, respectively, benefited the acquisition cost ratio by 0.3 points and 4.7 points, respectively. Adjusting the acquisition cost ratio for these amounts, the acquisition cost ratio decreased by 1.1 point compared to the same period in 2018 due to changes in business mix.
The acquisition cost ratio increased to 21.2% for the nine months ended September 30, 2019 from 16.4% for the nine months ended September 30, 2018 primarily attributable to the acquisition of Novae. The absence of $11 million and $105 million of acquisition expense related to premiums earned in the nine months ended September 30, 20192020 and 2018,2019, respectively, benefited the acquisition cost ratio by 0.60.1 points and 5.90.6 points, respectively. Adjusting the acquisition cost ratiorate for these amounts, the acquisition cost ratio decreased 0.5 points compared to the same period in 2018.
by 1.6 points.
Underwriting-Related General and Administrative Expense Ratio
:
The underwriting-related general and administrative expense ratio increaseddecreased to 16.5%for thethree months ended September 30, 2020, from 18.8% for the three months ended September 30, 2019, from 16.4% for the three months ended September 30, 2018mainly driven by a decrease in personnel costs and travel and entertainment expenses, together with an increase in net premiums earned.earned.
The underwriting-related general and administrative expense ratio increaseddecreased to 16.7% for the nine months ended September 30, 2020, from 19.0% for the nine months ended September 30, 2019, from 17.2% for the nine months ended September 30, 2018mainly driven by decreasedecreases in a net premiums earned,travel and entertainment expenses, and professional fees, together with an increase in the allocation of corporate costs to the segment, partially offset by a decrease in personnel costs.
net premiums earned.
Reinsurance Segment
Results from the reinsurance segment were as follows:
|
| | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, | |
| | 2019 | | % Change | | 2018 | | 2019 | | % Change | | 2018 | |
| | | | | | | | | | | | | |
| Revenues: | | | | | | | | | | | | |
| Gross premiums written | $ | 511,604 |
| | 13% | | $ | 454,343 |
| | $ | 2,923,169 |
| | 2% | | $ | 2,860,471 |
| |
| Net premiums written | 339,031 |
| | 7% | | 317,868 |
| | 2,065,263 |
| | (4%) | | 2,158,122 |
| |
| Net premiums earned | 620,856 |
| | 2% | | 609,280 |
| | 1,784,653 |
| | (1%) | | 1,804,900 |
| |
| Other insurance related income | 800 |
| | nm | | 6,949 |
| | 9,606 |
| | (38%) | | 15,452 |
| |
| | | | | | | | | | | | | |
| Expenses: | | | | | | | | | | | | |
| Current year net losses and loss expenses | (524,065 | ) | | | | (411,653 | ) | | (1,248,131 | ) | | | | (1,196,682 | ) | |
| Prior year reserve development | 12,118 |
| | | | 32,182 |
| | 22,172 |
| | | | 99,536 |
| |
| Acquisition costs | (144,475 | ) | | | | (136,426 | ) | | (417,826 | ) | | | | (419,445 | ) | |
| General and administrative expenses | (26,060 | ) | | | | (29,595 | ) | | (87,049 | ) | | | | (99,481 | ) | |
| | | | | | | | | | | | | |
| Underwriting (loss) income | $ | (60,826 | ) | | nm | | $ | 70,737 |
| | $ | 63,425 |
| | (69%) | | $ | 204,280 |
| |
| Ratios: | | | % Point Change | | | | | | % Point Change | | | |
| Current accident year loss ratio excluding catastrophe and weather-related losses | 64.8 | % | | 2.2 | | 62.6 | % | | 62.3 | % | | (1.2) | | 63.5 | % | |
| Catastrophe and weather-related losses ratio | 19.6 | % | | 14.6 | | 5.0 | % | | 7.6 | % | | 4.8 | | 2.8 | % | |
| Current accident year loss ratio | 84.4 | % | | 16.8 | | 67.6 | % | | 69.9 | % | | 3.6 | | 66.3 | % | |
| Prior year reserve development ratio | (1.9 | %) | | 3.4 | | (5.3 | %) | | (1.2 | %) | | 4.3 | | (5.5 | %) | |
| Net losses and loss expenses ratio | 82.5 | % | | 20.2 | | 62.3 | % | | 68.7 | % | | 7.9 | | 60.8 | % | |
| Acquisition cost ratio | 23.3 | % | | 0.9 | | 22.4 | % | | 23.4 | % | | 0.2 | | 23.2 | % | |
| General and administrative expense ratio | 4.1 | % | | (0.7) | | 4.8 | % | | 4.9 | % | | (0.6) | | 5.5 | % | |
| Combined ratio | 109.9 | % | | 20.4 | | 89.5 | % | | 97.0 | % | | 7.5 | | 89.5 | % | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, | |
| | 2020 | | % Change | | 2019 | | 2020 | | % Change | | 2019 | |
| | | | | | | | | | | | | |
| Revenues: | | | | | | | | | | | | |
| Gross premiums written | $ | 395,361 | | | (23%) | | $ | 511,604 | | | $ | 2,564,419 | | | (12%) | | $ | 2,923,169 | | |
| Net premiums written | 271,125 | | | (20%) | | 339,031 | | | 1,821,692 | | | (12%) | | 2,065,263 | | |
| Net premiums earned | 521,128 | | | (16%) | | 620,856 | | | 1,574,673 | | | (12%) | | 1,784,653 | | |
| Other insurance related income (loss) | 752 | | | (6%) | | 800 | | | (7,361) | | | nm | | 9,606 | | |
| | | | | | | | | | | | | |
| Expenses: | | | | | | | | | | | | |
| Current year net losses and loss expenses | (436,602) | | | | | (524,065) | | | (1,216,273) | | | | | (1,248,131) | | |
| Prior year reserve development | 314 | | | | | 12,118 | | | 4,830 | | | | | 22,172 | | |
| Acquisition costs | (115,995) | | | | | (144,475) | | | (354,137) | | | | | (417,826) | | |
| Underwriting-related general and administrative expenses | (23,456) | | | | | (26,060) | | | (76,714) | | | | | (87,049) | | |
| | | | | | | | | | | | | |
| Underwriting income (loss) | $ | (53,859) | | | | | $ | (60,826) | | | $ | (74,982) | | | | | $ | 63,425 | | |
| Ratios: | | | % Point Change | | | | | | % Point Change | | | |
| Current accident year loss ratio excluding catastrophe and weather-related losses | 62.7 | % | | (2.1) | | 64.8 | % | | 61.1 | % | | (1.2) | | 62.3 | % | |
| Catastrophe and weather-related losses ratio | 21.1 | % | | 1.5 | | 19.6 | % | | 16.1 | % | | 8.5 | | 7.6 | % | |
| Current accident year loss ratio | 83.8 | % | | (0.6) | | 84.4 | % | | 77.2 | % | | 7.3 | | 69.9 | % | |
| Prior year reserve development ratio | (0.1 | %) | | 1.8 | | (1.9 | %) | | (0.3 | %) | | 0.9 | | (1.2 | %) | |
| Net losses and loss expenses ratio | 83.7 | % | | 1.2 | | 82.5 | % | | 76.9 | % | | 8.2 | | 68.7 | % | |
| Acquisition cost ratio | 22.3 | % | | (1.0) | | 23.3 | % | | 22.5 | % | | (0.9) | | 23.4 | % | |
| Underwriting-related general and administrative expense ratio | 4.5 | % | | 0.4 | | 4.1 | % | | 4.9 | % | | — | | 4.9 | % | |
| Combined ratio | 110.5 | % | | 0.6 | | 109.9 | % | | 104.3 | % | | 7.3 | | 97.0 | % | |
| | | | | | | | | | | | | |
nm – not meaningful
59
Gross Premiums Written:
The following table provides grossGross premiums written by line of business:business were as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | | | Nine months ended September 30, | | | |
| | 2019 | | | | 2018 | | | | % Change | | 2019 | | | | 2018 | | | | % Change | |
| | | | | | | | | | | | | | | | | | | | | |
| Catastrophe | $ | 94,833 |
| | 18 | % | | $ | 64,919 |
| | 14 | % | | 46% | | $ | 698,169 |
| | 24 | % | | $ | 495,106 |
| | 17 | % | | 41% | |
| Property | 67,972 |
| | 13 | % | | 85,135 |
| | 19 | % | | (20%) | | 283,849 |
| | 10 | % | | 346,135 |
| | 12 | % | | (18%) | |
| Professional lines | 23,540 |
| | 5 | % | | 26,418 |
| | 6 | % | | (11%) | | 226,283 |
| | 8 | % | | 248,870 |
| | 9 | % | | (9%) | |
| Credit and surety | 50,989 |
| | 10 | % | | 51,683 |
| | 11 | % | | (1%) | | 241,358 |
| | 8 | % | | 300,683 |
| | 11 | % | | (20%) | |
| Motor | 25,367 |
| | 5 | % | | 22,450 |
| | 5 | % | | 13% | | 313,614 |
| | 11 | % | | 477,805 |
| | 17 | % | | (34%) | |
| Liability | 146,690 |
| | 29 | % | | 137,625 |
| | 30 | % | | 7% | | 458,000 |
| | 16 | % | | 387,977 |
| | 14 | % | | 18% | |
| Agriculture | 5,074 |
| | 1 | % | | 12,765 |
| | 3 | % | | (60%) | | 201,592 |
| | 7 | % | | 212,114 |
| | 7 | % | | (5%) | |
| Engineering | 8,841 |
| | 2 | % | | 3,149 |
| | 1 | % | | nm | | 39,207 |
| | 1 | % | | 36,259 |
| | 1 | % | | 8% | |
| Marine and other | 9,727 |
| | 2 | % | | 1,107 |
| | — | % | | nm | | 68,104 |
| | 2 | % | | 41,388 |
| | 1 | % | | 65% | |
| Accident and health | 78,474 |
| | 15 | % | | 49,114 |
| | 11 | % | | 60% | | 393,789 |
| | 13 | % | | 314,610 |
| | 11 | % | | 25% | |
| Discontinued lines - Novae | 97 |
| | — | % | | (22 | ) | | — | % | | nm | | (796 | ) | | — | % | | (476 | ) | | — | % | | 67% | |
| Total | $ | 511,604 |
| | 100 | % | | $ | 454,343 |
| | 100 | % | | 13% | | $ | 2,923,169 |
| | 100 | % | | $ | 2,860,471 |
| | 100 | % | | 2% | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | | | | Nine months ended September 30, | | | | |
| | 2020 | | | | 2019 | | | | % Change | | | 2020 | | | | 2019 | | | | % Change | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Catastrophe | $ | 74,656 | | | 18 | % | | $ | 94,833 | | | 18 | % | | (21%) | | | $ | 526,646 | | | 21 | % | | $ | 698,169 | | | 24 | % | | (25%) | | |
| Property | 58,907 | | | 15 | % | | 67,972 | | | 13 | % | | (13%) | | | 246,859 | | | 10 | % | | 283,849 | | | 10 | % | | (13%) | | |
| Professional lines | 31,752 | | | 8 | % | | 23,540 | | | 5 | % | | 35% | | | 267,047 | | | 10 | % | | 226,283 | | | 8 | % | | 18% | | |
| Credit and surety | 38,110 | | | 10 | % | | 50,989 | | | 10 | % | | (25%) | | | 189,180 | | | 7 | % | | 241,358 | | | 8 | % | | (22%) | | |
| Motor | (2,235) | | | (1 | %) | | 25,367 | | | 5 | % | | nm | | | 319,867 | | | 12 | % | | 313,614 | | | 11 | % | | 2% | | |
| Liability | 136,791 | | | 35 | % | | 146,690 | | | 29 | % | | (7%) | | | 505,322 | | | 20 | % | | 458,000 | | | 16 | % | | 10% | | |
| Agriculture | 7,455 | | | 2 | % | | 5,074 | | | 1 | % | | 47% | | | 69,599 | | | 3 | % | | 201,592 | | | 7 | % | | (65%) | | |
| Engineering | 1,408 | | | — | % | | 8,841 | | | 2 | % | | nm | | | 20,334 | | | 1 | % | | 39,207 | | | 1 | % | | (48%) | | |
| Marine and other | 6,341 | | | 2 | % | | 9,727 | | | 2 | % | | (35%) | | | 62,202 | | | 2 | % | | 68,104 | | | 2 | % | | (9%) | | |
| Accident and health | 41,820 | | | 11 | % | | 78,474 | | | 15 | % | | (47%) | | | 356,123 | | | 14 | % | | 393,789 | | | 13 | % | | (10%) | | |
| Discontinued lines - Novae | 356 | | | — | % | | 97 | | | — | % | | nm | | | 1,240 | | | — | % | | (796) | | | — | % | | nm | | |
| Total | $ | 395,361 | | | 100 | % | | $ | 511,604 | | | 100 | % | | (23%) | | | $ | 2,564,419 | | | 100 | % | | $ | 2,923,169 | | | 100 | % | | (12%) | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
nm – not meaningful
Gross premiums written for the three months ended September 30, 2019, increased2020, decreased by $57$116 million, or 13%23%, ($55109 million, or 12%21% on a constant currency basis), compared to the three months ended September 30, 2018.2019. The increasedecrease was primarily attributable to catastrophe, accident and health, motor, catastrophe, credit and surety, liability marine and other, and engineeringproperty lines, partially offset by decreases in property and agriculturean increase in professional lines.
The increasesdecrease in catastrophe, accident and health and liability lines werewas driven by timing differences.In addition,non-renewals following the increase in catastrophe lines was duedecision to newexit the Middle East business. The increasedecrease in marine and othermotor lines was due to premium adjustments. The increasedecrease in engineeringcatastrophe lines was driven by new business.
The decrease in property lines was driven by the non-renewal of a large treatytiming difference associated with a significant contract, non-renewals, and decreased line sizes on a number of treaties, partially offset by premium adjustments.treaties. The decrease in agriculturecredit and surety lines was attributable to the current economic climate. The decrease in liability lines was due to timing differences,a reduced line size on a significant contract, partially offset by new business due to favorable market conditions and timing differences. The decrease in property lines was due to non-renewals and a timing difference. The increase in professional lines was due to premium adjustments.
Gross premiums written for the nine months ended September 30, 2019, increased2020, decreased by $63$359 million, or 2% ($110 million or 4% on a constant currency basis)12%, compared to the nine months ended September 30, 2018.2019. The increasedecrease was primarily attributable to catastrophe, agriculture, credit and surety, accident and health, marineproperty, and other, and liabilityengineering lines, partially offset by decreases in motor, property, credit and surety, professional lines and agriculture lines.
The increases in catastrophe, liability, accident and health, and marine and other lines were driven by new business. Increased line sizes on a number of treaties and the restructuring of several treaties which impacted the timing of premium recognition also contributed to the increase in catastrophe lines. In addition, the increase in catastrophe lines was due to a higher level of premiums written on a multi-year basis. The increases in liability and accident and health were also due to timing differences.professional lines.
The decreases in motor, andcatastrophe, agriculture, credit and surety, accident and health, property, and engineering lines were driven by non-renewals and premium adjustments. Decreased line sizes on a number of treaties and the impact of foreign exchange movements as the strengthening of the U.S. dollar drove comparative premium decreases in treaties denominated in foreign currencies, also contributed to the decrease in motor lines. The decrease in property lines was primarily due to non-renewals and decreased line sizes on a numberconsistent with optimization of treaties, partially offset by favorable rate changes, the restructuring of several treaties,segment's portfolio. The increases in liability and premium adjustments. The decrease in professional lines was primarily due to non-renewalswere driven by premium adjustments, and decreased line sizes on a number of treaties, partially offset byfavorable market conditions associated with renewals and new business.
Ceded Premiums Written:
Ceded premiums written for the three and nine months ended September 30, 2019 were $1732020 was $124 million, or 34% and $858 million or 29%, respectively,31% of gross premiums written, compared to $136$173 million, or 30% and $702 million or 25%34% of gross premiums written for the three and nine months ended September 30, 2018, respectively.2019.
The increasedecrease in ceded premiums written of $36$48 million, or 26% for the three months ended September 30, 2019, compared to the three months ended September 30, 2018,28%, was attributable toprimarily driven by catastrophe, lines, partially offset by aaccident and health, credit and surety, and liability lines. The decrease in property lines.
The increase in catastrophe lines was attributable to a timing difference associated with the purchasenon-renewal of a catastrophe bond protection and an increasea decrease in premiums ceded to strategic capital partners. The decrease in accident and health lines was attributable to the restructuring of an existing quota share retrocessional treaties with Alturas, effective January 1, 2019 and July 1, 2019.treaty. The decrease in propertycredit and surety lines was attributable to a decrease in premiums ceded to an existing quota share and facultative retrocessional covers with Harrington Re Ltd ("Harrington Re").
treaty. The decrease in liability lines was attributable to the restructuring of an existing quota share retrocessional treaty, partially offset by an increase in premiums ceded to a new quota share retrocessional treaty.
Ceded premiums written of $156 million or 22% for the nine months ended September 30, 2019,2020, was $743 million, or 29% of gross premiums written, compared to $858 million, or 29% of gross premiums written for the nine months ended September 30, 2018,2019.
The decrease in ceded premiums written of $115 million, or 13%, was primarily driven by catastrophe, credit and surety, accident and health, and agriculture lines, partially offset by increases in professional lines, liability, motor, and property lines.
The decrease in catastrophe lines was attributable to decreases in premiums ceded to strategic partners and a non-renewal of a catastrophe liability,bond. The decrease in credit and surety lines was attributable to a decrease in premiums ceded to a quota share retrocessional treaty and the restructuring of existing quota share retrocessional treaties. The decrease in accident and health lines partially offset by decreaseswas attributable to the restructuring of an existing quota share retrocessional treaty. The decrease in agriculture and property lines.
lines was attributable to a non-renewal of a large quota share retrocessional treaty.
The increaseincreases in catastropheliability and professional lines waswere attributable to an increase in premiums ceded to a new aggregate excess of loss treaty and premiums ceded to the quota share retrocessional treaties with Alturas, together with increases in premium ceded to our strategic capital partners and costs associated withtreaty, partially offset by the purchaserestructuring of catastrophe bond protection. The increases in liability, and accident and health lines were attributable to the increase in premiums ceded to thean existing quota share retrocessional cover with Harrington Re.treaty. The increase in credit and suretymotor lines was attributable to an increase in premiums ceded to a new quota share retrocessional treaty. The decrease in agriculture lines was attributable to a non-renewal of a large fronting arrangement and the restructuring of a quota share retrocessional treaty. The decreaseincrease in property lines was attributable to the non-renewals of two significant fronting arrangements, together with decreasesan increase in premiums ceded to the retrocessional and facultative covers with Harrington Re.a new aggregate excess of loss treaty.
Net Premiums Earned:
The following table provides netNet premiums earned by line of business:business were as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | | | Nine months ended September 30, | | | |
| | 2019 | | | | 2018 | | | | % Change | | 2019 | | | | 2018 | | | | % Change | |
| | | | | | | | | | | | | | | | | | | | | |
| Catastrophe | $ | 68,910 |
| | 11 | % | | $ | 70,601 |
| | 11 | % | | (2%) | | $ | 205,468 |
| | 11 | % | | $ | 191,952 |
| | 12 | % | | 7% | |
| Property | 78,271 |
| | 13 | % | | 84,766 |
| | 14 | % | | (8%) | | 226,515 |
| | 13 | % | | 241,687 |
| | 13 | % | | (6%) | |
| Professional lines | 50,966 |
| | 8 | % | | 54,658 |
| | 9 | % | | (7%) | | 154,390 |
| | 9 | % | | 162,407 |
| | 9 | % | | (5%) | |
| Credit and surety | 55,625 |
| | 9 | % | | 67,926 |
| | 11 | % | | (18%) | | 154,638 |
| | 9 | % | | 186,408 |
| | 10 | % | | (17%) | |
| Motor | 107,930 |
| | 17 | % | | 102,178 |
| | 17 | % | | 6% | | 301,622 |
| | 17 | % | | 323,685 |
| | 18 | % | | (7%) | |
| Liability | 95,632 |
| | 15 | % | | 96,017 |
| | 16 | % | | —% | | 279,639 |
| | 16 | % | | 275,120 |
| | 15 | % | | 2% | |
| Agriculture | 47,519 |
| | 8 | % | | 47,401 |
| | 8 | % | | —% | | 131,746 |
| | 7 | % | | 121,289 |
| | 7 | % | | 9% | |
| Engineering | 16,611 |
| | 3 | % | | 15,541 |
| | 3 | % | | 7% | | 47,290 |
| | 3 | % | | 49,839 |
| | 3 | % | | (5%) | |
| Marine and other | 17,924 |
| | 3 | % | | 6,349 |
| | 1 | % | | nm | | 44,529 |
| | 2 | % | | 25,424 |
| | 1 | % | | 75% | |
| Accident and health | 81,500 |
| | 13 | % | | 62,382 |
| | 10 | % | | 31% | | 239,388 |
| | 13 | % | | 219,381 |
| | 12 | % | | 9% | |
| Discontinued lines - Novae | (32 | ) | | — | % | | 1,461 |
| | — | % | | nm | | (572 | ) | | — | % | | 7,708 |
| | — | % | | nm | |
| Total | $ | 620,856 |
| | 100 | % | | $ | 609,280 |
| | 100 | % | | 2% | | $ | 1,784,653 |
| | 100 | % | | $ | 1,804,900 |
| | 100 | % | | (1%) | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | | | Nine months ended September 30, | | | |
| | 2020 | | | | 2019 | | | | % Change | | 2020 | | | | 2019 | | | | % Change | |
| | | | | | | | | | | | | | | | | | | | | |
| Catastrophe | $ | 64,163 | | | 13 | % | | $ | 68,910 | | | 11 | % | | (7%) | | $ | 194,987 | | | 12 | % | | $ | 205,468 | | | 11 | % | | (5%) | |
| Property | 62,704 | | | 12 | % | | 78,271 | | | 13 | % | | (20%) | | 196,229 | | | 12 | % | | 226,515 | | | 13 | % | | (13%) | |
| Professional lines | 54,424 | | | 10 | % | | 50,966 | | | 8 | % | | 7% | | 154,482 | | | 10 | % | | 154,390 | | | 9 | % | | —% | |
| Credit and surety | 43,730 | | | 8 | % | | 55,625 | | | 9 | % | | (21%) | | 134,988 | | | 9 | % | | 154,638 | | | 9 | % | | (13%) | |
| Motor | 63,298 | | | 12 | % | | 107,930 | | | 17 | % | | (41%) | | 203,776 | | | 13 | % | | 301,622 | | | 17 | % | | (32%) | |
| Liability | 96,671 | | | 19 | % | | 95,632 | | | 15 | % | | 1% | | 293,918 | | | 19 | % | | 279,639 | | | 16 | % | | 5% | |
| Agriculture | 17,750 | | | 3 | % | | 47,519 | | | 8 | % | | (63%) | | 57,949 | | | 4 | % | | 131,746 | | | 7 | % | | (56%) | |
| Engineering | 14,548 | | | 3 | % | | 16,611 | | | 3 | % | | (12%) | | 43,742 | | | 3 | % | | 47,290 | | | 3 | % | | (8%) | |
| Marine and other | 14,742 | | | 3 | % | | 17,924 | | | 3 | % | | (18%) | | 37,275 | | | 2 | % | | 44,529 | | | 2 | % | | (16%) | |
| Accident and health | 89,087 | | | 17 | % | | 81,500 | | | 13 | % | | 9% | | 256,303 | | | 16 | % | | 239,388 | | | 13 | % | | 7% | |
| Discontinued lines - Novae | 11 | | | — | % | | (32) | | | — | % | | nm | | 1,024 | | | — | % | | (572) | | | — | % | | nm | |
| Total | $ | 521,128 | | | 100 | % | | $ | 620,856 | | | 100 | % | | (16%) | | $ | 1,574,673 | | | 100 | % | | $ | 1,784,653 | | | 100 | % | | (12%) | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
nm – not meaningful
Net premiums earned for the three months ended September 30, 2019, increased2020, decreased by $12$100 million, or 2%16% ($1693 million, or 3%15% on a constant currency basis), compared to the three months ended September 30, 2018.2019. The increasedecrease was primarilyprimarily driven by increasesdecreases in gross premiums earned in accident and health, and marine and other lines, partially offset by a decrease in gross premium earned in credit and surety lines, and increases in ceded premiums earned inmotor, agriculture, credit and surety, and accident and healthproperty lines.
Net premiums earned for the nine months ended September 30, 2019,2020, decreased by $20$210 million, or 1%12% ($11186 million, or 1%10% on a constant currency basis), compared to the nine months ended September 30, 2018.2019. The decrease was primarily driven by increasesdecreases in cededgross premiums earned in accident and health,agriculture, motor, catastrophe, property, and credit and surety lines, together with an increase in ceded premiums earned in liability lines, partially offset by decreases in ceded premiums earned in catastrophe, agriculture, and accident and health lines, and an increase in gross premiums earned in motor, and credit and surety lines, partially offset by increases in gross premiums earned in accident and health, and marine and otherliability lines.
Other Insurance Related Income (Loss):
Other insurance related income was $1 million for the three months ended September 30, 2020, compared to other insurance related income of $1 million for the three months ended September 30, 2019.
Other insurance related incomeloss was $1 million and $10$7 million for the three and nine months ended September 30, 2019, respectively,2020, compared to $7 million and $15other insurance related income of $10 million for the three and nine months ended September 30, 2018, respectively.2019. The decreasesdecrease of $6$17 million and $5was primarily due to the recognition of a full limit loss of $10 million forassociated with the threeWHO pandemic risk-linked swap and nine months ended September 30, 2019, respectively, were due to a decrease in fees associated with arrangements with strategic capital partners.
Loss Ratio:
The table below shows the components of ourthe loss ratio:ratio were as follows: |
| | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, | |
| | 2019 | | % Point Change | | 2018 | | 2019 | | % Point Change | | 2018 | |
| | | | | | | | | | | | | |
| Current accident year | 84.4 | % | | 16.8 | | 67.6 | % | | 69.9 | % | | 3.6 | | 66.3 | % | |
| Prior year reserve development | (1.9 | %) | | 3.4 | | (5.3 | %) | | (1.2 | %) | | 4.3 | | (5.5 | %) | |
| Loss ratio | 82.5 | % | | 20.2 | | 62.3 | % | | 68.7 | % | | 7.9 | | 60.8 | % | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, | |
| | 2020 | | % Point Change | | 2019 | | 2020 | | % Point Change | | 2019 | |
| | | | | | | | | | | | | |
| Current accident year | 83.8 | % | | (0.6) | | 84.4 | % | | 77.2 | % | | 7.3 | | 69.9 | % | |
| Prior year reserve development | (0.1 | %) | | 1.8 | | (1.9 | %) | | (0.3 | %) | | 0.9 | | (1.2 | %) | |
| Loss ratio | 83.7 | % | | 1.2 | | 82.5 | % | | 76.9 | % | | 8.2 | | 68.7 | % | |
| | | | | | | | | | | | | |
Current Accident Year Loss Ratio:
The current accident year loss ratio decreased to 83.8% for the three months ended September 30, 2020, from 84.4% for the three months ended September 30, 2019. The current accident year loss ratio increased to 84.4% and 69.9%77.2% for the three and nine months ended September 30, 2019, respectively,2020, from 67.6% and 66.3%69.9% for the three and nine months ended September 30, 2018, respectively.2019.
The increase in the current accident year loss ratio for three and nine months ended September 30, 2019, compared to the same period in 2018, was impacted by a higher level of catastrophe and weather-related losses. During the three and nine months ended September 30, 2019, we incurred pre-tax2020, catastrophe and weather-related losses, net of reinstatement premiums, of $119were $108 million, or 19.621.1 points, and $132$251 million, or 7.6 points, respectively,16.1, respectively. During the three months ended September 30, 2020, these losses were primarily attributable to Hurricane Dorian, the Japanese typhoons,Midwest derecho, wildfires across the West Coast of the United States, Hurricanes Laura and Sally, the Beirut port explosion, and other weather-related events. During the nine months ended September 30, 2020, catastrophe and weather-related losses included $98 million associated with first party coverages attributable to the COVID-19 pandemic. These losses were primarily associated with property-related coverages, but also included accident and health coverages. The remaining losses of $153 million were attributable to the Midwest derecho, wildfires across the West Coast of the United States, Hurricanes Laura and Sally, the Beirut port explosion and other weather-related events. Comparatively, during the three and nine months ended September 30, 2018, we incurred pre-tax2019, catastrophe and weather-related losses of $30were $119 million, or 5.019.6 points, and $50$132 million, or 2.8 points,7.6, respectively.
After adjusting for the impact of the catastrophe and weather-related losses, ourthe current accident year loss ratio decreased to 62.7% for the three and nine months ended September 30, 2019 was2020 from 64.8% and 62.3%, respectively, compared to 62.6% and 63.5% for the three and nine months ended September 30, 2018, respectively.
2019. The increasedecrease in the current accident year loss ratio after adjusting for the impact of catastrophe and weather-related losses was principally due to changes in business mix and improved performance in aviation, professional lines and liability lines.
After adjusting for the threeimpact of the catastrophe and weather-related losses, the current accident year loss ratio decreased to 61.1% for the nine months ended September 30, 2019, compared to2020 from 62.3% for the same period in 2018, was principally due to an increase in mid-size loss experience in aviation (included in marine and other), and credit and surety lines, partially offset by a decrease in mid-size loss experience in property and engineering lines, and the impact of improved pricing over loss trends.
nine months ended September 30, 2019. The decrease in the current accident year loss ratio after adjusting for the impact of the catastrophe and weather-related losses was principally due to changes in business mix and improved performance in aviation, motor and liability lines.
Prior Year Reserve Development
The following table maps lines of business to reserve classes and the expected claim tails:
| | | | | | | | | | | | | | | | | |
Reinsurance segment | | | | |
| Reserve class and tail |
| | | | | |
| Property and other | Credit and surety | Professional lines | Motor | Liability |
| | | | | |
| Short | Medium | Medium | Long | Long |
| | | | | |
Reported lines of business | | | | | |
Catastrophe | X | | | | |
Property | X | | | | |
Credit and surety | | X | | | |
Professional lines | | | X | | |
Motor | | | | X | |
Liability | | | | | X |
Engineering | X | | | | |
Agriculture | X | | | | |
Marine and other | X | | | | |
Accident and health | X | | | | |
Discontinued lines - Novae | X | | | X | X |
Prior year reserve development by reserve class were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, | |
| | 2020 | | 2019 | | 2020 | | 2019 | |
| | | | | | | | | |
| Property and other | $ | 3,126 | | | $ | (12,283) | | | $ | (4,961) | | | $ | (71,227) | | |
| Credit and surety | 11,184 | | | 5,652 | | | 27,927 | | | 32,659 | | |
| Professional lines | (13,776) | | | (7,303) | | | (13,493) | | | 641 | | |
| Motor | 1,214 | | | 22,902 | | | 18,732 | | | 33,964 | | |
| Liability | (1,434) | | | 3,150 | | | (23,375) | | | 26,135 | | |
| Total | $ | 314 | | | $ | 12,118 | | | $ | 4,830 | | | $ | 22,172 | | |
| | | | | | | | | |
For the three months ended September 30, 2020, we recognized $0.3 million of net favorable prior year reserve development, the principal components of which were:
•$11 million of net favorable prior year reserve development on credit and surety business primarily due to better than expected loss emergence mainly related to 2017 and 2019 accident years.
•$14 million of net adverse prior year reserve development on professional lines business primarily due to an increase in case reserves attributable to a specific large claim related to the 2016 accident year and reserve strengthening within the European book of business mainly related to the 2016 to 2018 accident years.
For the three months ended September 30, 2019, we recognized $12 million of net favorable prior year reserve development, the principal components of which were:
•$23 million of net favorable prior year reserve development on motor business primarily due to non-proportional treaty business related to recent accident years.
•$6 million of net favorable prior year reserve development on credit and surety business primarily due to better than expected loss emergence related to several accident years.
•$12 million of net adverse prior year reserve development on property and other business primarily due to reserve strengthening attributable to late reporting of claims bordereaux associated with the European proportional book of business related to the 2018 accident year.
•$7 million of net adverse prior year reserve development on professional lines business primarily due to reserve strengthening within the European book of business mainly related to the 2015 and 2016 accident years.
For the nine months ended September 30, 2020, we recognized $5 million of net favorable prior year reserve development, the principal components of which were:
•$28 million of net favorable prior year reserve development on credit and surety business primarily due to better than expected loss emergence related to multiple accident years.
•$19 million of net favorable prior year reserve development on motor business primarily due to non-proportional treaty business mainly related to the 2019 and older accident years.
•$23 million of net adverse prior year development on liability business primarily due to reserve strengthening within the U.S. casualty, the U.S. multiline/regional and the European books of business mainly related to the 2016 to 2019 accident years.
•$13 million of net adverse prior year reserve development on professional lines business primarily due to an increase in case reserves attributable to a specific large claim related to the 2016 accident year and reserve strengthening within the European book of business mainly related to the 2016 to 2018 accident years.
•$5 million of net adverse prior year development on property and other business primarily due to reserve strengthening within the engineering line of business mainly related to the 2016 to 2018 accident years, and the marine and other line of business mainly related to the 2017 accident years, partially offset by net favorable prior year reserve development within the property line of business due to better than expected loss emergence attributable to the 2019 catastrophe events.
For the nine months ended September 30, 2019, we recognized $22 million of net favorable prior year reserve development, the principal components of which were:
•$34 million of net favorable prior year reserve development on motor business primarily due to non-proportional treaty business related to several accident years.
•$33 million of net favorable prior year reserve development on credit and surety business primarily due to better than expected loss emergence mainly related to the 2015 and 2016 accident years.
•$26 million of net favorable prior year reserve development on liability business primarily due to increased weight given by management to experience based indications on older accident years.
•$71 million of net adverse prior year reserve development on property and other business primarily due to an increase in loss estimates attributable to Typhoons Jebi and Trami consistent with updated industry insured loss estimates, an increase in loss estimates attributable to Hurricane Michael, and reserve strengthening attributable to late reporting of claims bordereaux associated within the European proportional book of business related to the 2018 accident year.
Acquisition Cost Ratio:
The acquisition cost ratio decreased to 22.3% and 22.5% for the three and nine months ended September 30, 2020, respectively, from 23.3% and 23.4% for the three and nine months ended September 30, 2019, respectively, principally related to changes in business mix.
Underwriting-Related General and Administrative Expense Ratio:
The underwriting-related general and administrative expense ratio of 4.5% and 4.9% for the three and nine months ended September 30, 2020, respectively, was comparable to 4.1% and 4.9% for the three and nine months ended September 30, 2019, respectively.
NET INVESTMENT INCOME AND NET INVESTMENT GAINS (LOSSES)
Net Investment Income
Net investment income from our cash and investment portfolio by major asset class was as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, | |
| | 2020 | | % Change | | 2019 | | 2020 | | % Change | | 2019 | |
| | | | | | | | | | | | | |
| Fixed maturities | $ | 73,992 | | (23%) | | $ | 96,311 | | $ | 244,394 | | (14%) | | $ | 285,062 | |
| Other investments | 25,125 | | nm | | 11,143 | | (14,574) | | nm | | 49,271 | |
| Equity securities | 1,871 | | (16%) | | 2,232 | | 6,258 | | (19%) | | 7,757 | |
| Mortgage loans | 3,609 | | (9%) | | 3,984 | | 11,322 | | 5% | | 10,735 | |
| Cash and cash equivalents | 2,491 | | (65%) | | 7,034 | | 9,814 | | (53%) | | 20,974 | |
| Short-term investments | 440 | | (55%) | | 973 | | 2,303 | | (61%) | | 5,975 | |
| Gross investment income | 107,528 | | (12%) | | 121,677 | | 259,517 | | (32%) | | 379,774 | |
| Investment expense | (5,572) | | (6%) | | (5,914) | | (19,419) | | 4% | | (18,760) | |
| Net investment income | $ | 101,956 | | (12%) | | $ | 115,763 | | $ | 240,098 | | (33%) | | $ | 361,014 | |
| | | | | | | | | | | | | |
| Pre-tax yield:(1) | | | | | | | | | | | | |
| Fixed maturities | 2.5 | % | | | | 3.1 | % | | 2.7 | % | | | | 3.2 | % | |
| | | | | | | | | | | | | |
nm - not meaningful
(1) Pre-tax yield is calculated by dividing annualized net investment income by the average month-end amortized cost balances.
Fixed Maturities
Net investment income attributable to fixed maturities for the three and nine months ended September 30, 2020 was $74 million and $244 million, respectively, compared to net investment income of $96 million and $285 million for the three and nine months ended September 30, 2019, respectively. The decrease for the three and nine months ended September 30, 2020, compared to the same period in 2019, was due to the decrease in yields.
Other Investments
Net investment income from other investments was as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, | |
| | 2020 | | 2019 | | 2020 | | 2019 | |
| | | | | | | | | |
| Hedge, direct lending, private equity and real estate funds | $ | 24,982 | | $ | 10,411 | | $ | (11,552) | | $ | 32,665 | |
| Other privately held investments | 565 | | 2,040 | | 570 | | 16,666 | |
| CLO-Equities | (422) | | (1,308) | | (3,592) | | (60) | |
| Net investment income (loss) from other investments (1) | $ | 25,125 | | $ | 11,143 | | $ | (14,574) | | $ | 49,271 | |
| | | | | | | | | |
| Pre-tax return on other investments(2) | 3.5 | % | | 1.6 | % | | (2.0 | %) | | 7.0 | % | |
| | | | | | | | | |
(1)Excluding overseas deposits.
(2)The pre-tax return on other investments is calculated by dividing total net investment income from other investments (non-annualized) by the average month-end fair value balances held for the periods indicated, excluding overseas deposits.
Net investment income (loss) attributable to other investments for the three and nine months ended September 30, 2020 was $25 million and $(15) million, respectively, compared to net investment income of $11 million and $49 million for the three and nine months ended September 30, 2019, respectively. The increase for the three months ended September 30, 2020, compared to the same period in 2019, was due to higher returns from direct lending funds. The decrease for the nine months ended September 30, 2020, compared to the same period in 2019, was attributable to negative returns from direct lending and real estate funds and a realized gain of $13 million associated with the sale of a privately held investment in the nine months ended September 30, 2019.
Net Investment Gains
Net investment gains were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, | |
| | 2020 | | 2019 | | 2020 | | 2019 | |
| | | | | | | | | |
| On sale of investments: | | | | | | | | |
| Fixed maturities and short-term investments | $ | 29,532 | | | $ | 17,918 | | | $ | 42,658 | | | $ | 17,069 | | |
| Equity securities | 519 | | | 1,745 | | | 18,675 | | | 3,221 | | |
| | 30,051 | | | 19,663 | | | 61,333 | | | 20,290 | | |
| Allowance for expected credit losses | 3,759 | | | — | | | (2,498) | | | — | | |
| Impairment losses | (184) | | | — | | | (1,486) | | | — | | |
| OTTI losses | — | | | (1,458) | | | — | | | (6,328) | | |
| Change in fair value of investment derivatives | (1,346) | | | 2,592 | | | 1,970 | | | 287 | | |
| Net unrealized gains (losses) on equity securities | 23,329 | | | (6,270) | | | (13,542) | | | 34,273 | | |
| Net investment gains | $ | 55,609 | | | $ | 14,527 | | | $ | 45,777 | | | $ | 48,522 | | |
| | | | | | | | | |
Net investment gains for the three months ended September 30, 2020 were $56 million compared to net investment gains of $15 million for the three months ended September 30, 2019, an increase of $41 million. For the three months ended September 30, 2020, the net investment gains were primarily due to net realized gains on the sale of corporate debt and U.S. government securities and net unrealized gains on equity securities. For the three months ended September 30, 2019, the net investment gains were primarily due to net realized gains on the sale of U.S. government and agency RMBS securities partially offset by net unrealized losses on equity securities.
Net investment gains for the nine months ended September 30, 2020 were $46 million, compared to net investment gains of $49 million for the nine months ended September 30, 2019, a decrease of $3 million. For the nine months ended September 30, 2020, the net investment gains were primarily due to net realized gains on the sale of U.S. government, agency RMBS and equity securities partially offset by net unrealized losses on equity securities. For the nine months ended September 30, 2019, the net investment gains were primarily due to net unrealized gains on equity securities and net realized gains on the sale of U.S. government and agency RMBS securities.
On Sale of Investments
Generally, sales of individual securities occur when there are changes in the relative value, credit quality or duration of a particular issue. We may also sell securities to re-balance our investment portfolio in order to change exposure to particular asset classes or sectors.
Impairment and OTTI Losses
The impairment losses for the three and nine months ended September 30, 2020 were $nil and $1 million, respectively, compared to OTTI losses of $1 million and $6 million for the same period in 2018, wasthree and nine months ended September 30, 2019. For the three and nine months ended September 30, 2020, these losses were principally due to a decrease in mid-size loss experience in propertyimpairments of non-investment grade corporate debt securities that we intend to sell or more likely than not will be required to sell. For the three and engineering lines,nine months ended September 30, 2019, these losses were principally due to impairments of non-U.S. denominated securities due to the impact of improved pricing over loss trends, partially offset by an increase in mid-size loss experience in aviation lines.
the strengthening of the U.S. dollar.
Refer to ‘Prior Year Reserve Development’ for further details.
Change in Fair Value of Investment Derivatives
Acquisition Cost Ratio:
From time to time, we economically hedge foreign exchange exposure and interest rate risk with derivative contracts.
For the three and nine months ended September 30, 2020, we recorded losses of $1 million and gains of $2 million, respectively, related to foreign exchange contracts. For the three and nine months ended September 30, 2019, we recorded gains of $3 million and $4 million, respectively relating to foreign exchange contracts and losses of $nil and $4 million, respectively, related to interest rates swaps.
Total Return
Total return on cash and investments was as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, | |
| | 2020 | | 2019 | | 2020 | | 2019 | |
| | | | | | | | | |
| Net investment income | $ | 101,956 | | $ | 115,763 | | $ | 240,098 | | $ | 361,014 | |
| Net investments gains | 55,609 | | 14,527 | | 45,777 | | 48,522 | |
| Change in net unrealized gains (losses) on fixed maturities (1) | 73,050 | | 29,493 | | 204,828 | | 388,939 | |
| Interest in income (loss) of equity method investments | 2,896 | | 792 | | (13,579) | | 5,645 | |
| Total | $ | 233,511 | | $ | 160,575 | | $ | 477,124 | | $ | 804,120 | |
| | | | | | | | | |
| Average cash and investments(2) | $ | 15,512,967 | | $ | 15,492,106 | | $ | 15,523,879 | | $ | 15,199,356 | |
| | | | | | | | | |
| Total return on average cash and investments, pre-tax: | | | | | | | | |
| Including investment related foreign exchange movements | 1.5 | % | | 1.0 | % | | 3.1 | % | | 5.3 | % | |
| Excluding investment related foreign exchange movements(3) | 1.2 | % | | 1.2 | % | | 3.1 | % | | 5.5 | % | |
| | | | | | | | | |
(1)Change in net unrealized gains (losses) on fixed maturities is calculated by taking net unrealized gains (losses) at period end less net unrealized gains (losses) at the prior period end.
(2)The acquisition cost ratio increasedaverage cash and investments balance is calculated by taking the average of the period end fair value balances.
(3)Pre-tax total return on cash and investments excluding foreign exchange movements is a non-GAAP financial measure as defined in Item 10(e) of SEC Regulation S-K. The reconciliation to 23.3%pre-tax total return on cash and investments, the most comparable GAAP financial measure, included foreign exchange gains (losses) of $42 million and $(31) million for the three months ended September 30, 2020, and 2019, compared to 22.4% for the three months ended September 30, 2018. The increase in the acquisition cost ratio for the three months ended September 30, 2019, compared to the same period in 2018, was primarily attributable to adjustments related to loss sensitive featuresrespectively, and the impactforeign exchange (losses) gains of retrocessional contracts, partially offset by changes in business mix.
The acquisition cost ratio of 23.4%$(6) million and $(28) million for the nine months ended September 30, 2020 and 2019, was comparable to 23.2% for the nine months ended September 30, 2018.
respectively.
General and Administrative Expense Ratio:
The general and administrative expense ratio decreased to 4.1% for the three months ended September 30, 2019, compared to 4.8% for the three months ended September 30, 2018. The decrease was driven by increases in net premiums earned and fees associated with arrangements with strategic capital partners, partially offset by an increase in the allocation of corporate costs to the segment.
The general and administrative expense ratio decreased to 4.9% for the nine months ended September 30, 2019, compared to 5.5% for the nine months ended September 30, 2018. The decrease was driven by an increase in fees associated with arrangements with strategic capital partners, together with a decrease in information technology costs, partially offset by a decrease in net premiums earned, and an increase in the allocation of corporate costs to the segment.
OTHER EXPENSES (REVENUES), NET
The following table provides a summary of other expenses (revenues), net:
|
| | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, | |
| | 2019 | | % Change | | 2018 | | 2019 | | % Change | | 2018 | |
| | | | | | | | | | | | | |
| Corporate expenses | $ | 28,903 |
| | 17% | | $ | 24,643 |
| | $ | 97,468 |
| | 15% | | $ | 85,069 |
| |
| Foreign exchange losses (gains) | (59,543 | ) | | nm | | 8,305 |
| | (64,868 | ) | | nm | | 2,066 |
| |
| Interest expense and financing costs | 18,042 |
| | 7% | | 16,897 |
| | 49,545 |
| | (2%) | | 50,758 |
| |
| Income tax expense (benefit) | 8,147 |
| | nm | | (3,525 | ) | | 23,850 |
| | nm | | (3,565 | ) | |
| Total | $ | (4,451 | ) | | nm | | $ | 46,320 |
| | $ | 105,995 |
| | (21%) | | $ | 134,328 |
| |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, | |
| | 2020 | | % Change | | 2019 | | 2020 | | % Change | | 2019 | |
| | | | | | | | | | | | | |
| Corporate expenses | $ | 20,988 | | | (27%) | | $ | 28,903 | | | $ | 74,915 | | | (23%) | | $ | 97,468 | | |
| Foreign exchange losses (gains) | 60,734 | | | nm | | (59,543) | | | 8,760 | | | nm | | (64,868) | | |
| Interest expense and financing costs | 15,574 | | | (14%) | | 18,042 | | | 59,641 | | | 20% | | 49,545 | | |
| Income tax expense (benefit) | (12,056) | | | nm | | 8,147 | | | (6,030) | | | nm | | 23,850 | | |
| Total | $ | 85,240 | | | | | $ | (4,451) | | | $ | 137,286 | | | | | $ | 105,995 | | |
| | | | | | | | | | | | | |
nm – not meaningful
Corporate Expenses
Corporate expenses include holding company costs necessary to support our worldwide insurance and reinsurance operations and costs associated with operating as a publicly-traded company. As a percentage of net premiums earned, corporate expenses weredecreased to 1.9% and 2.3% for the three and nine months ended September 30, 2020, respectively, from 2.5% and 2.9% for the three and nine months ended September 30, 2019, respectively, compared to 2.0% and 2.4%, for the same periods in 2018, respectively.
The increasedecrease in corporate expenses for the three and nine months ended September 30, 2019,2020, was primarily attributablerelated to ongoing investmentsdecreases in information technology and digital capabilities, professional fees, and adjustments associated with performance-related compensation costs, partially offset by a decrease in officepersonnel costs and an increase in the allocation of corporate costs to the reinsurance segment. In addition, the increaseprofessional fees. The decrease in corporate expenses for the nine months ended September 30, 2019,2020, was partially offset by an increaseprimarily related to decreases in the allocation of corporatepersonnel costs, to the insurance segment.professional fees, travel and entertainment costs, and information technology costs.
Foreign Exchange Losses (Gains)
Some of our business is written in currencies other than the U.S. dollar. Foreign exchange losses of $61 million for the three months ended September 30, 2020, were mainly driven by the impact of the weakening of the U.S. dollar on the remeasurement of net insurance-related liabilities denominated in euro and in pound sterling.
Foreign exchange losses of $9 million for the nine months ended September 30, 2020, were mainly driven by the impact of the weakening of the U.S. dollar on the remeasurement of net insurance-related liabilities denominated in pound sterling.
Foreign exchange gains of $60 million and $65 million for the three and nine months ended September 30, 2019, respectively, were primarily attributable to the impact of the strengthening of the U.S. dollar on the remeasurement of net insurance-related liabilities denominated in pound sterling and euro.
The foreign exchange losses of $8 million and $2 million for the three and nine months ended September 30, 2018, respectively, were primarily attributable to the impact of the strengthening of the U.S. dollar on the remeasurement of other investments, specifically, overseas deposits mainly denominated in australian dollar and pound sterling.
Interest ExpenseOn Sale of Investments
Generally, sales of individual securities occur when there are changes in the relative value, credit quality or duration of a particular issue. We may also sell securities to re-balance our investment portfolio in order to change exposure to particular asset classes or sectors.
Impairment and Financing CostsOTTI Losses
Interest expenseThe impairment losses for the three and financing costs arenine months ended September 30, 2020 were $nil and $1 million, respectively, compared to OTTI losses of $1 million and $6 million for the three and nine months ended September 30, 2019. For the three and nine months ended September 30, 2020, these losses were principally due to impairments of non-investment grade corporate debt securities that we intend to sell or more likely than not will be required to sell. For the three and nine months ended September 30, 2019, these losses were principally due to impairments of non-U.S. denominated securities due to the impact of the strengthening of the U.S. dollar.
Change in Fair Value of Investment Derivatives
From time to time, we economically hedge foreign exchange exposure and interest rate risk with derivative contracts.
For the three and nine months ended September 30, 2020, we recorded losses of $1 million and gains of $2 million, respectively, related to foreign exchange contracts. For the three and nine months ended September 30, 2019, we recorded gains of $3 million and $4 million, respectively relating to foreign exchange contracts and losses of $nil and $4 million, respectively, related to interest duerates swaps.
Total Return
Total return on 5.875% Senior Notes issuedcash and investments was as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, | |
| | 2020 | | 2019 | | 2020 | | 2019 | |
| | | | | | | | | |
| Net investment income | $ | 101,956 | | $ | 115,763 | | $ | 240,098 | | $ | 361,014 | |
| Net investments gains | 55,609 | | 14,527 | | 45,777 | | 48,522 | |
| Change in net unrealized gains (losses) on fixed maturities (1) | 73,050 | | 29,493 | | 204,828 | | 388,939 | |
| Interest in income (loss) of equity method investments | 2,896 | | 792 | | (13,579) | | 5,645 | |
| Total | $ | 233,511 | | $ | 160,575 | | $ | 477,124 | | $ | 804,120 | |
| | | | | | | | | |
| Average cash and investments(2) | $ | 15,512,967 | | $ | 15,492,106 | | $ | 15,523,879 | | $ | 15,199,356 | |
| | | | | | | | | |
| Total return on average cash and investments, pre-tax: | | | | | | | | |
| Including investment related foreign exchange movements | 1.5 | % | | 1.0 | % | | 3.1 | % | | 5.3 | % | |
| Excluding investment related foreign exchange movements(3) | 1.2 | % | | 1.2 | % | | 3.1 | % | | 5.5 | % | |
| | | | | | | | | |
(1)Change in 2010, 5.15% Senior Notes issuednet unrealized gains (losses) on fixed maturities is calculated by taking net unrealized gains (losses) at period end less net unrealized gains (losses) at the prior period end.
(2)The average cash and investments balance is calculated by taking the average of the period end fair value balances.
(3)Pre-tax total return on cash and investments excluding foreign exchange movements is a non-GAAP financial measure as defined in 2014, 4.0% Senior Notes issuedItem 10(e) of SEC Regulation S-K. The reconciliation to pre-tax total return on cash and investments, the most comparable GAAP financial measure, included foreign exchange gains (losses) of $42 million and $(31) million for the three months ended September 30, 2020, and 2019, respectively, and foreign exchange (losses) gains of $(6) million and $(28) million for the nine months ended September 30, 2020 and 2019, respectively.
OTHER EXPENSES (REVENUES), NET
The following table provides a summary of other expenses (revenues), net:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, | |
| | 2020 | | % Change | | 2019 | | 2020 | | % Change | | 2019 | |
| | | | | | | | | | | | | |
| Corporate expenses | $ | 20,988 | | | (27%) | | $ | 28,903 | | | $ | 74,915 | | | (23%) | | $ | 97,468 | | |
| Foreign exchange losses (gains) | 60,734 | | | nm | | (59,543) | | | 8,760 | | | nm | | (64,868) | | |
| Interest expense and financing costs | 15,574 | | | (14%) | | 18,042 | | | 59,641 | | | 20% | | 49,545 | | |
| Income tax expense (benefit) | (12,056) | | | nm | | 8,147 | | | (6,030) | | | nm | | 23,850 | | |
| Total | $ | 85,240 | | | | | $ | (4,451) | | | $ | 137,286 | | | | | $ | 105,995 | | |
| | | | | | | | | | | | | |
nm – not meaningful
Corporate Expenses
Corporate expenses include holding company costs necessary to support our worldwide insurance and reinsurance operations and costs associated with operating as a publicly-traded company. As a percentage of net premiums earned, corporate expenses decreased to 1.9% and 2.3% for the three and nine months ended September 30, 2020, respectively, from 2.5% and 2.9% for the three and nine months ended September 30, 2019, respectively.
The decrease in 2017,corporate expenses for the three months ended September 30, 2020, was primarily related to decreases in personnel costs and 3.90% Senior Notes issuedprofessional fees. The decrease in 2019. Interestcorporate expenses for the nine months ended September 30, 2020, was primarily related to decreases in personnel costs, professional fees, travel and financingentertainment costs, increased by $1and information technology costs.
Foreign Exchange Losses (Gains)
Some of our business is written in currencies other than the U.S. dollar. Foreign exchange losses of $61 million for the three months ended September 30, 2019, compared to2020, were mainly driven by the same period in 2018, primarily attributable to the issuanceimpact of the 3.90% Senior Notes on June 19, 2019, partially offset by the repaymentweakening of the 2.65% Senior NotesU.S. dollar on April 1, 2019the remeasurement of net insurance-related liabilities denominated in euro and the repaymentin pound sterling.
Foreign exchange losses of the Dekania Notes on November 15, 2018.
Interest expenses and financing costs decreased by $1$9 million for the nine months ended September 30, 2019, compared to2020, were mainly driven by the same period in 2018, primarily attributable to the repaymentimpact of the 2.65% Senior Notes on April 1, 2019 and the repaymentweakening of the Dekania Notes on November 15, 2018, partially offset by the issuance of the 3.90% Senior Notes on June 19, 2019.
Income Tax Expense (Benefit)
Income tax expense (benefit) primarily results from income (loss) generated by our foreign operations in the U.S. and Europe. Our effective tax rate is calculated as income tax expense (benefit) divided by income (loss) before tax including interest in income (loss) of equity method investments. This effective rate can vary between periods dependingdollar on the distributionremeasurement of net income (loss) among tax jurisdictions, as well as other factors.insurance-related liabilities denominated in pound sterling.
The tax expenseForeign exchange gains of $8$60 million and $24$65 million for the three and nine months ended September 30, 2019, respectively, waswere primarily attributable to the generation of pre-tax income in our U.S. and European operations, partially offset by pre-tax losses in our U.K. operations.
The tax benefit of $4 million recognized for the three and nine months ended September 30, 2018, respectively, was driven by the generation of pre-tax losses in our U.K. and European operations, largely offset by the generation of pre-tax income in our U.S. operations.
NET INVESTMENT INCOME AND NET INVESTMENT GAINS (LOSSES)
Net Investment Income
The following table provides details of income generated by our cash and investment portfolio by major asset class:
|
| | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, | |
| | 2019 | | % Change | | 2018 | | 2019 | | % Change | | 2018 | |
| | | | | | | | | | | | | |
| Fixed maturities | $ | 96,311 |
| | 7% | | $ | 89,887 |
| | $ | 285,062 |
| | 9% | | $ | 262,165 |
| |
| Other investments | 11,143 |
| | (30%) | | 15,933 |
| | 49,271 |
| | 12% | | 44,179 |
| |
| Equity securities | 2,232 |
| | 6% | | 2,099 |
| | 7,757 |
| | 11% | | 7,015 |
| |
| Mortgage loans | 3,984 |
| | 20% | | 3,322 |
| | 10,735 |
| | 9% | | 9,805 |
| |
| Cash and cash equivalents | 7,034 |
| | 1% | | 6,992 |
| | 20,974 |
| | 25% | | 16,770 |
| |
| Short-term investments | 973 |
| | (71%) | | 3,413 |
| | 5,975 |
| | 1% | | 5,933 |
| |
| Gross investment income | 121,677 |
| | —% | | 121,646 |
| | 379,774 |
| | 10% | | 345,867 |
| |
| Investment expense | (5,914 | ) | | (18%) | | (7,225 | ) | | (18,760 | ) | | (8%) | | (20,487 | ) | |
| Net investment income | $ | 115,763 |
| | 1% | | $ | 114,421 |
| | $ | 361,014 |
| | 11% | | $ | 325,380 |
| |
| | | | | | | | | | | | | |
| Pre-tax yield:(1) | | | | | | | | | | | | |
| Fixed maturities | 3.1 | % | | | | 3.0 | % | | 3.2 | % | | | | 2.9 | % | |
| | | | | | | | | | | | | |
(1) Pre-tax yield is calculated by dividing annualized net investment income by the average month-end amortized cost balances.
Fixed Maturities
Net investment income attributable to fixed maturities for the three and nine months ended September 30, 2019 was $96 million and $285 million, respectively, compared to net investment income of $90 million and $262 million for the three and nine months ended September 30, 2018. The increase was due to the increase in yields and a larger allocationimpact of the portfolio to fixed maturities.
Other Investments
The following table provides detailsstrengthening of the U.S. dollar on the remeasurement of net investment income from other investments:
|
| | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, | |
| | 2019 | | 2018 | | 2019 | | 2018 | |
| | | | | | | | | |
| Hedge, direct lending, private equity and real estate funds | $ | 10,411 |
| | $ | 13,390 |
| | $ | 32,665 |
| | $ | 35,847 |
| |
| Other privately held investments | 2,040 |
| | 508 |
| | 16,666 |
| | 1,613 |
| |
| CLO-Equities | (1,308 | ) | | 2,035 |
| | (60 | ) | | 6,719 |
| |
| Net investment income from other investments (1) | $ | 11,143 |
| | $ | 15,933 |
| | $ | 49,271 |
| | $ | 44,179 |
| |
| | | | | | | | | |
| Pre-tax return on other investments(2) | 1.6 | % | | 2.1 | % | | 7.0 | % | | 5.7 | % | |
| | | | | | | | | |
| |
(1) | Excluding overseas deposits. |
| |
(2) | The pre-tax return on other investments is calculated by dividing total net investment income from other investments (non-annualized) by the average month-end fair value balances held for the periods indicated, excluding overseas deposits. |
Net investment income attributable to other investments for the threeinsurance-related liabilities denominated in pound sterling and nine months ended September 30, 2019 was $11 million and $49 million, respectively, compared to net investment income of $16 million and $44 million for the three and nine months ended September 30, 2018, respectively. The decrease for the three months ended September 30, 2019, compared to the same period in 2018, was attributable to lower returns from credit funds and CLO-Equities. The increase for the nine months ended September 30, 2019,
compared to the same period in 2018, was attributable to a realized gain of $13 million associated with the sale of a privately held investment, partially offset by lower returns from credit funds and CLO-Equities.
Net Investment Gains (Losses)
euro.
The following table provides details of net investment gains (losses):
|
| | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, | |
| | 2019 | | 2018 | | 2019 | | 2018 | |
| | | | | | | | | |
| On sale of investments: | | | | | | | | |
| Fixed maturities and short-term investments | $ | 17,918 |
| | $ | (21,383 | ) | | $ | 17,069 |
| | $ | (71,971 | ) | |
| Equity securities | 1,745 |
| | 15 |
| | 3,221 |
| | 17,444 |
| |
| | 19,663 |
| | (21,368 | ) | | 20,290 |
| | (54,527 | ) | |
| OTTI charges recognized in net income | (1,458 | ) | | (5,546 | ) | | (6,328 | ) | | (7,634 | ) | |
| Change in fair value of investment derivatives | 2,592 |
| | 2,626 |
| | 287 |
| | 9,782 |
| |
| Net unrealized gains (losses) on equity securities | (6,270 | ) | | 6,660 |
| | 34,273 |
| | (25,172 | ) | |
| Net investment gains (losses) | $ | 14,527 |
| | $ | (17,628 | ) | | $ | 48,522 |
| | $ | (77,551 | ) | |
| | | | | | | | | |
Net investment gains for the three months ended September 30, 2019 were $15 million compared to net investment losses of $18 million for the three months ended September 30, 2018, an increase of $33 million. For the three months ended September 30, 2019, the net investment gains were primarily due to net realized gains on the sale of U.S. government and agency RMBS securities partially offset by net unrealized losses on equity securities. For the three months ended September 30, 2018, the net investment losses were primarily due to net realized losses on the sale of U.S. government, agency RMBS and corporate debt securities, partially offset by net unrealized gains on equity securities.
Net investment gains for the nine months ended September 30, 2019 were $49 million compared to net investment losses of $78 million for the nine months ended September 30, 2018, an increase of $127 million. For the nine months ended September 30, 2019, net investment gains were primarily due to net unrealized gains on equity securities and net realized gains on the sale of U.S. government and agency RMBS securities. For the nine months ended September 30, 2018, net investment losses were primarily due to net realized losses on the sale of U.S. government, agency RMBS and corporate debt securities and net unrealized losses on equity securities.
On Sale of Investments
Generally, sales of individual securities occur when there are changes in the relative value, credit quality or duration of a particular issue. We may also sell securities to re-balance our investment portfolio in order to change exposure to particular asset classes or sectors.
Impairment and OTTI ChargesLosses
The OTTI chargesimpairment losses for the three and nine months ended September 30, 20192020 were $nil and 2018 were$1 million, respectively, compared to OTTI losses of $1 million and $6 million respectively. The OTTI charges for the three and nine months ended September 30, 2019. For the three and nine months ended September 30, 2020, these losses were principally due to impairments of non-investment grade corporate debt securities that we intend to sell or more likely than not will be required to sell. For the three and nine months ended September 30, 2019, these losses were $6 million, compared to $8 million for the nine months ended September 30, 2018, a decrease of $2 million. These OTTI charges were primarilyprincipally due to impairments of non-U.S. denominated securities due to the impact of the strengthening of the U.S. dollar.
Change in Fair Value of Investment Derivatives
From time to time, we economically hedge foreign exchange exposure and interest rate risk with derivative contracts.
For the three and nine months ended September 30, 2019, we2020, we recorded losses of $1 million and gains of $3$2 million, respectively, related to foreign exchange contracts. For the three and nine months ended September 30, 2018, we2019, we recorded gains of $1$3 million relatedand $4 million, respectively relating to foreign exchange contracts and gainslosses of $2$nil and $4 million, respectively, related to interest rates swaps.
Total Return
Total return on cash and investments was as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, | |
| | 2020 | | 2019 | | 2020 | | 2019 | |
| | | | | | | | | |
| Net investment income | $ | 101,956 | | $ | 115,763 | | $ | 240,098 | | $ | 361,014 | |
| Net investments gains | 55,609 | | 14,527 | | 45,777 | | 48,522 | |
| Change in net unrealized gains (losses) on fixed maturities (1) | 73,050 | | 29,493 | | 204,828 | | 388,939 | |
| Interest in income (loss) of equity method investments | 2,896 | | 792 | | (13,579) | | 5,645 | |
| Total | $ | 233,511 | | $ | 160,575 | | $ | 477,124 | | $ | 804,120 | |
| | | | | | | | | |
| Average cash and investments(2) | $ | 15,512,967 | | $ | 15,492,106 | | $ | 15,523,879 | | $ | 15,199,356 | |
| | | | | | | | | |
| Total return on average cash and investments, pre-tax: | | | | | | | | |
| Including investment related foreign exchange movements | 1.5 | % | | 1.0 | % | | 3.1 | % | | 5.3 | % | |
| Excluding investment related foreign exchange movements(3) | 1.2 | % | | 1.2 | % | | 3.1 | % | | 5.5 | % | |
| | | | | | | | | |
(1)Change in net unrealized gains (losses) on fixed maturities is calculated by taking net unrealized gains (losses) at period end less net unrealized gains (losses) at the prior period end.
(2)The average cash and investments balance is calculated by taking the average of the period end fair value balances.
(3)Pre-tax total return on cash and investments excluding foreign exchange movements is a non-GAAP financial measure as defined in Item 10(e) of SEC Regulation S-K. The reconciliation to pre-tax total return on cash and investments, the most comparable GAAP financial measure, included foreign exchange gains (losses) of $42 million and $(31) million for the three months ended September 30, 2020, and 2019, respectively, and foreign exchange (losses) gains of $(6) million and $(28) million for the nine months ended September 30, 2020 and 2019, respectively.
OTHER EXPENSES (REVENUES), NET
The following table provides a summary of other expenses (revenues), net:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, | |
| | 2020 | | % Change | | 2019 | | 2020 | | % Change | | 2019 | |
| | | | | | | | | | | | | |
| Corporate expenses | $ | 20,988 | | | (27%) | | $ | 28,903 | | | $ | 74,915 | | | (23%) | | $ | 97,468 | | |
| Foreign exchange losses (gains) | 60,734 | | | nm | | (59,543) | | | 8,760 | | | nm | | (64,868) | | |
| Interest expense and financing costs | 15,574 | | | (14%) | | 18,042 | | | 59,641 | | | 20% | | 49,545 | | |
| Income tax expense (benefit) | (12,056) | | | nm | | 8,147 | | | (6,030) | | | nm | | 23,850 | | |
| Total | $ | 85,240 | | | | | $ | (4,451) | | | $ | 137,286 | | | | | $ | 105,995 | | |
| | | | | | | | | | | | | |
nm – not meaningful
Corporate Expenses
For
Corporate expenses include holding company costs necessary to support our worldwide insurance and reinsurance operations and costs associated with operating as a publicly-traded company. As a percentage of net premiums earned, corporate expenses decreased to 1.9% and 2.3% for the three and nine months ended September 30, 2020, respectively, from 2.5% and 2.9% for the three and nine months ended September 30, 2019, respectively.
The decrease in corporate expenses for the three months ended September 30, 2020, was primarily related to decreases in personnel costs and professional fees. The decrease in corporate expenses for the nine months ended September 30, 2020, was primarily related to decreases in personnel costs, professional fees, travel and entertainment costs, and information technology costs.
Foreign Exchange Losses (Gains)
Some of our business is written in currencies other than the U.S. dollar. Foreign exchange losses of $61 million for the three months ended September 30, 2020, were mainly driven by the impact of the weakening of the U.S. dollar on the remeasurement of net insurance-related liabilities denominated in euro and in pound sterling.
Foreign exchange losses of $9 million for the nine months ended September 30, 2020, were mainly driven by the impact of the weakening of the U.S. dollar on the remeasurement of net insurance-related liabilities denominated in pound sterling.
Foreign exchange gains of $60 million and $65 million for the three and nine months ended September 30, 2019, respectively, were primarily attributable to the impact of the strengthening of the U.S. dollar on the remeasurement of net insurance-related liabilities denominated in pound sterling and euro.
Interest Expense and Financing Costs
Interest expense and financing costs are related to interest due on the 5.875% senior unsecured notes ("5.875% Senior Notes") issued in 2010 and repaid in June 2020, the 5.150% senior unsecured notes ("5.150% Senior Notes") issued in 2014, the 4.000% senior unsecured notes ("4.000% Senior Notes") issued in 2017, the 3.900% senior unsecured notes ("3.900% Senior Notes"), and the 4.900% fixed-rate reset junior subordinated notes ("Junior Subordinated Notes") issued in 2019.
Interest expense and financing costs decreased by $2 million for the three months ended September 30, 2020, compared to the same period in 2019, due to the repayment of the 5.875% Senior Notes on June 1, 2020. Interest expense and financing costs increased by $10 million for the nine months ended September 30, 2020, compared to the same period in 2019, due to the issuance of the 3.900% Senior Notes on June 19, 2019 and the issuance of the Junior Subordinated Notes on December 10, 2019, partially offset by the repayment of the 2.650% Senior Notes on April 1, 2019 and the repayment of the 5.875% Senior Notes on June 1, 2020.
Income Tax Expense (Benefit)
Income tax expense (benefit) primarily results from income (loss) generated by our foreign operations in the U.S. and Europe. Our effective tax rate is calculated as income tax expense (benefit) divided by income (loss) before tax including interest in income (loss) of equity method investments. This effective rate can vary between periods depending on the distribution of net income (loss) among tax jurisdictions, as well as other factors.
The tax benefit of $12 million a for the three months ended September 30, 2020, was principally due to the generation of pre-tax losses in our U.S. operations.
The tax benefit of $6 million for the nine months ended September 30, 2020, was principally due to the generation of pre-tax losses in our U.S. and U.K. operations.
The tax expense of $8 million and $24 million for the three and nine months ended September 30, 2019, respectively, was attributable to the generation of pre-tax income in our U.S. and European operations, partially offset by pre-tax losses in our U.K. operations.
FINANCIAL MEASURES
We believe the following financial indicators are important in evaluating performance and measuring the overall growth in value generated for common shareholders:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, | |
| | 2020 | | 2019 | | 2020 | | 2019 | |
| | | | | | | | | |
| Annualized return on average common equity(1) | (6.2 | %) | | 2.3 | % | | (4.1 | %) | | 8.6 | % | |
| Annualized operating return on average common equity(2) | (5.5 | %) | | (2.7 | %) | | (4.4 | %) | | 6.1 | % | |
| | | | | | | | | |
| Book value per diluted common share(3) | $ | 54.75 | | $ | 56.26 | | $ | 54.75 | | $ | 56.26 | |
| Cash dividends declared per common share | $ | 0.41 | | $ | 0.40 | | $ | 1.23 | | $ | 1.20 | |
| Increase (decrease) in book value per diluted common share adjusted for dividends | $ | 0.07 | | $ | 0.67 | | $ | 0.13 | | $ | 5.16 | |
| | | | | | | | | |
(1)Annualized return on average common equity ("ROACE") is calculated by dividing annualized net income (loss) available (attributable) to common shareholders for the period by the average common shareholders' equity determined using the common shareholders' equity balances at the beginning and end of the period.
(2)Annualized operating return on average common equity ("operating ROACE") is a non-GAAP financial measures as defined in Item 10(e) of SEC Regulation S-K. The reconciliation to the most comparable GAAP financial measure, annualized ROACE, and a discussion of the rationale for the presentation of this item is provided in 'Management's Discussion and Analysis of Financial Condition and Results of Operations - Non-GAAP Financial Measures Reconciliation'.
(3)Book value per diluted common share represents total common shareholders’ equity divided by diluted common shares outstanding, determined using the treasury stock method. Cash-settled restricted stock units are excluded.
Return on Average Common Equity
Our objective is to generate superior returns on capital that appropriately reward common shareholders for the risks we assume and to grow revenue only when we expect the returns will meet or exceed our requirements. We recognize that the nature of underwriting cycles and the frequency or severity of large loss events in any one year may challenge the ability to achieve a profitability target in any specific period.
ROACE reflects the impact of net income (loss) available (attributable) to common shareholders including net investment gains (losses), foreign exchange losses (gains), reorganization expenses, and interest in income (loss) of equity method investments.
The decrease in ROACE for the three months ended September 30, 2020, compared to the three months ended September 30, 2019, was primarily driven by the foreign exchange losses and an increase in the underwriting loss, together with a decrease in net investment income, partially offset by an increase in net investment gains, the income tax benefit, and decreases in reorganization expenses and corporate expenses.
The decrease in ROACE for the nine months ended September 30, 2020, compared to the nine months ended September 30, 2019, was primarily driven by the underwriting loss, a decrease in net investment income, and the foreign exchange losses, together with the interest in loss of equity method investments, partially offset by the income tax benefit, and decreases in reorganization expenses, corporate expenses, and the amortization of value of business acquired ("VOBA") associated with the acquisition of Novae. In addition, ROACE was impacted by an increase in average common shareholders' equity.
Operating ROACE excludes the impact of net investment gains (losses), foreign exchange losses (gains), reorganization expenses, and interest in income (loss) of equity method investments.
The decrease in operating ROACE for the three months ended September 30, 2020, compared to the three months ended September 30, 2019, was primarily driven by an increase in the underwriting loss, together with a decrease in net investment income, partially offset by the income tax benefit and a decrease in corporate expenses.
The decrease in operating ROACE for the nine months ended September 30, 2020, compared to the nine months ended September 30, 2019, was primarily driven by the underwriting loss and a decrease in investment income, partially offset by the income tax benefit, and a decrease in corporate expenses and a decrease in the amortization of VOBA associated with the acquisition of Novae.
Book Value per Diluted Common Share
We consider book value per diluted common share to be an appropriate measure of returns to common shareholders, as we recordedbelieve growth in book value on a diluted basis will ultimately translate into appreciation of stock price.
During the three months ended September 30, 2020, book value per diluted common share decreased to $54.75 from $55.09, a decrease of 0.6%, due to the net loss generated and common dividends declared, partially offset by net unrealized gains of $4 million related to foreign exchange contracts and losses of $4 million related to interest rates swaps. Forreported in accumulated other comprehensive income.
During the nine months ended September 30, 2018,2020, book value per diluted common share decreased to $54.75 from $55.79, a decrease of 1.9%, due to the net loss generated and common dividends declared, partially offset by net unrealized gains reported in accumulated other comprehensive income.
Cash Dividends Declared per Common Share
We believe in returning excess capital to shareholders by way of dividends and share repurchases. Accordingly, dividend policy is an integral part of the value we recordedcreate for shareholders. Our cumulative strong earnings have permitted our Board of Directors to approve sixteen successive annual increases in quarterly common share dividends.
Book Value per Diluted Common Share Adjusted for Dividends
Book value per diluted common share adjusted for dividends increased by $0.07 for the three months ended September 30, 2020, and increased by $0.19 for the nine months ended September 30, 2020.
Taken together, we believe that growth in book value per diluted common share and common share dividends declared represent the total value created for common shareholders. As companies in the insurance industry have differing dividend payout policies, we believe investors use the book value per diluted common share adjusted for dividends metric to measure comparable performance across the industry.
During the three months ended September 30, 2020, the increase in total value was driven by unrealized investment gains reported in accumulated other comprehensive income, partially offset by the net loss generated in the period.
During the nine months ended September 30, 2020, the increase in total value was driven by net unrealized investment gains recognized in accumulated other comprehensive income, partially offset by the net loss generated in the period.
Book value per diluted common share adjusted for dividends increased by $0.67, or 1% for the three months ended September 30, 2019 and increased by $7.53, or 15.0% for the nine months ended September 30, 2019.
During the three and nine months ended September 30, 2019, total value created was driven by the net income generated in the quarter and unrealized investment gains reported in accumulated other comprehensive income.
NON-GAAP FINANCIAL MEASURES RECONCILIATION
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
| 2020 | | 2019 | | 2020 | | 2019 |
| | | | | | | |
| | | | | | | |
Net income (loss) available (attributable) to common shareholders | $ | (72,945) | | $ | 27,745 | | $ | (145,855) | | $ | 292,258 |
Net investment (gains) losses(1) | (55,609) | | (14,527) | | (45,777) | | (48,522) |
Foreign exchange losses (gains)(2) | 60,734 | | (59,543) | | 8,760 | | (64,868) |
| | | | | | | |
Reorganization expenses(3) | 1,413 | | 11,215 | | 822 | | 29,310 |
| | | | | | | |
Interest in (income) loss of equity method investments(4) | (2,896) | | (792) | | 13,579 | | (5,645) |
Income tax expense | 4,235 | | 3,361 | | 10,494 | | 6,524 |
| | | | | | | |
Operating income (loss) | $ | (65,068) | | $ | (32,541) | | $ | (157,977) | | $ | 209,057 |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Earnings (loss) per diluted common share | $ | (0.87) | | $ | 0.33 | | $ | (1.73) | | $ | 3.46 |
Net investment (gains) losses | (0.66) | | (0.17) | | (0.54) | | (0.57) |
Foreign exchange losses (gains) | 0.72 | | (0.71) | | 0.10 | | (0.77) |
| | | | | | | |
Reorganization expenses | 0.02 | | 0.13 | | 0.01 | | 0.35 |
| | | | | | | |
Interest in (income) loss of equity method investments | (0.03) | | (0.01) | | 0.16 | | (0.07) |
Income tax expense | 0.05 | | 0.04 | | 0.12 | | 0.08 |
| | | | | | | |
Operating income (loss) per diluted common share(5) | $ | (0.77) | | $ | (0.39) | | $ | (1.88) | | $ | 2.48 |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Weighted average diluted common shares outstanding(6) | 84,308 | | 83,947 | | 84,235 | | 84,420 |
| | | | | | | |
Average common shareholders' equity | $ | 4,731,858 | | $ | 4,801,174 | | $ | 4,742,452 | | $ | 4,532,971 |
| | | | | | | |
Annualized return on average common equity | (6.2 | %) | | 2.3 | % | | (4.1 | %) | | 8.6 | % |
| | | | | | | |
| | | | | | | |
Annualized operating return on average common equity(7) | (5.5 | %) | | (2.7 | %) | | (4.4 | %) | | 6.1 | % |
| | | | | | | |
| | | | | | | |
| | | | | | | |
(1)Tax cost (benefit) of $6,667 and $897 for the three months ended September 30, 2020 and 2019, respectively, and $9,104 and $6,667 for the nine months ended September 30, 2020 and 2019, respectively. Tax impact is estimated by applying the statutory rates of applicable jurisdictions, after consideration of other relevant factors including the ability to utilize capital losses.
(2)Tax cost (benefit) of ($2,245) and $4,784 for the three months ended September 30, 2020 and 2019, respectively, and $1,366 and $5,372 for the nine months ended September 30, 2020 and 2019, respectively. Tax impact is estimated by applying the statutory rates of applicable jurisdictions, after consideration of other relevant factors including the tax status of specific foreign exchange contractstransactions.
(3)Tax cost (benefit) of ($187) and gains($2,320) for the three months ended September 30, 2020 and 2019, respectively, and $24 and ($5,515) for the nine months ended September 30, 2020 and 2019, respectively. Tax impact is estimated by applying the statutory rates of $8 million relatedapplicable jurisdictions.
(4)Tax cost (benefit) of $nil for the three and nine months ended September 30, 2020 and 2019, respectively. Tax impact is estimated by applying the statutory rates of applicable jurisdictions.
(5)Loss per diluted common share and operating loss per diluted common share for the three and nine months ended September 30, 2020 were calculated using weighted average common shares outstanding due to interest rates swaps.the net loss attributable to common shareholders and the operating loss recognized in these periods.
(6)Refer to Item 1, Note 7 to our Consolidated Financial Statements 'Earnings per Common Share' for further details.
Total Return
The following table provides details(7)Annualized operating ROACE is calculated by dividing annualized operating income (loss) for the period by the average common shareholders' equity balances determined using the common shareholders' equity balances at the beginning and end of the period. The reconciliation to ROACE, the most comparable GAAP financial measure is provided in the table above, and a discussion of the rationale for its presentation is provided below.
Rationale for the Use of Non-GAAP Financial Measures
We present our results of operations in the way we believe will be most meaningful and useful to investors, analysts, rating agencies and others who use our financial information to evaluate our performance. Some of the measurements we use are considered non-GAAP financial measures under SEC rules and regulations. In this Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A"), we present underwriting-related general and administrative expenses, consolidated underwriting income (loss), operating income (loss) (in total and on a per share basis), annualized operating return on average common equity ("operating ROACE"), amounts presented on a constant currency basis and pre-tax total return on cash and investments excluding foreign exchange movements which are non-GAAP financial measures as defined in Item 10(e) of SEC Regulation S-K. We believe that these non-GAAP financial measures, which may be defined and calculated differently by other companies, better explain and enhance the understanding of our results of operations. However, these measures should not be viewed as a substitute for those determined in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP").
Underwriting-Related General and Administrative Expenses
Underwriting-related general and administrative expenses include those general and administrative expenses that are incremental and/or directly attributable to our underwriting operations. While this measure is presented in Item 1, Note 2 to the Consolidated Financial Statements 'Segment Information', it is considered a non-GAAP financial measure when presented elsewhere on a consolidated basis.
Corporate expenses include holding company costs necessary to support our worldwide insurance and reinsurance operations and costs associated with operating as a publicly-traded company. As these costs are not incremental and/or directly attributable to our underwriting operations, these costs are excluded from underwriting-related general and administrative expenses, and therefore, consolidated underwriting income (loss). General and administrative expenses, the most comparable GAAP financial measure to underwriting-related general and administrative expenses, also includes corporate expenses.
The reconciliation of underwriting-related general and administrative expenses to general and administrative expenses, the most comparable GAAP financial measure, is presented in 'Management’s Discussion and Analysis of Financial Condition and Results of Operations – Consolidated Results of Operations'.
Consolidated Underwriting Income (Loss)
Consolidated underwriting income (loss) is a pre-tax measure of underwriting profitability that takes into account net premiums earned and other insurance related income (loss) as revenues and net losses and loss expenses, acquisition costs and underwriting-related general and administrative expenses as expenses. While this measure is presented in Item 1, Note 2 to the Consolidated Financial Statements 'Segment Information', it is considered a non-GAAP financial measure when presented elsewhere on a consolidated basis.
We evaluate our underwriting results separately from the performance of our investment portfolio. As a result, we believe it is appropriate to exclude net investment income and net investment gains (losses) from our underwriting profitability measure.
Foreign exchange losses (gains) in our consolidated statements of operations primarily relate to the impact of foreign exchange rate movements on our net insurance-related liabilities. However, we manage our investment portfolio in such a way that unrealized and realized foreign exchange losses (gains) on our investment portfolio generally offset a large portion of the foreign exchange losses (gains) arising from our underwriting portfolio. As a result, we believe that foreign exchange losses (gains) are not a meaningful contributor to our underwriting performance, therefore, foreign exchange losses (gains) are excluded from consolidated underwriting income (loss).
Interest expense and financing costs primarily relate to interest payable on our debt. As these expenses are not incremental and/or directly attributable to our underwriting operations, these expenses are excluded from underwriting-related general and administrative expenses, and therefore, consolidated underwriting income (loss).
Reorganization expenses are related to the transformation program which was launched in 2017. This program encompasses the integration of Novae, which commenced in the fourth quarter of 2017, the realignment of our accident and health business, together with other initiatives designed to increase efficiency and enhance profitability, while delivering a customer-centric operating model. Reorganization expenses are primarily driven by business decisions, the nature and timing of which are not related to the underwriting process, therefore, these expenses are excluded from consolidated underwriting income (loss).
We believe that the presentation of underwriting-related general and administrative expenses and consolidated underwriting income (loss) provides investors with an enhanced understanding of our results of operations, by highlighting the underlying pre-tax profitability of our underwriting activities. The reconciliation of consolidated underwriting income (loss) to net income (loss), the most comparable GAAP financial measure, is presented in 'Management’s Discussion and Analysis of Financial Condition and Results of Operations – Consolidated Results of Operations'.
Operating Income (Loss)
Operating income (loss) represents after-tax operational results exclusive of net investment gains (losses), foreign exchange losses (gains), reorganization expenses, and interest in income (loss) of equity method investments.
Although the investment of premiums to generate income and investment gains (losses) is an integral part of our operations, the determination to realize investment gains (losses) is independent of the underwriting process and is heavily influenced by the availability of market opportunities. Furthermore, many users believe that the timing of the realization of investment gains (losses) is somewhat opportunistic for many companies.
Foreign exchange losses (gains) in our consolidated statements of operations primarily relate to the impact of foreign exchange rate movements on net insurance-related liabilities. In addition, we recognize unrealized foreign exchange losses (gains) on our equity securities and foreign exchange losses (gains) realized on the sale of our available for sale investments and equity securities in net investment gains (losses). We also recognize unrealized foreign exchange losses (gains) on our available for sale investments in other comprehensive income (loss). These unrealized foreign exchange losses (gains) generally offset a large portion of the foreign exchange losses (gains) reported in net income (loss), thereby minimizing the impact of foreign exchange rate movements on total shareholders' equity. As a result, foreign exchange losses (gains) in our consolidated statements of operations in isolation are not a fair representation of the performance of our business.
Reorganization expenses are related to the transformation program which was launched in 2017. This program encompasses the integration of Novae, which commenced in the fourth quarter of 2017, the realignment of our accident and health business, together with other initiatives designed to increase efficiency and enhance profitability, while delivering a customer-centric operating model. Reorganization expenses are primarily driven by business decisions, the nature and timing of which are not related to the underwriting process, therefore, these expenses are excluded from operating income (loss).
Interest in income (loss) of equity method investments is primarily driven by business decisions, the nature and timing of which are not related to the underwriting process, therefore, this income (loss) is excluded from operating income (loss).
Certain users of our financial statements evaluate performance exclusive of after-tax net investment gains (losses), foreign exchange losses (gains), reorganization expenses, and interest in income (loss) of equity method investments to understand the profitability of recurring sources of income.
We believe that showing net income (loss) available (attributable) to common shareholders exclusive of after-tax net investment gains (losses), foreign exchange losses (gains), reorganization expenses, and interest in income (loss) of equity method investments reflects the underlying fundamentals of our business. In addition, we believe that this presentation enables investors and other users of our financial information to analyze performance in a manner similar to how our management analyzes the underlying business performance. We also believe this measure follows industry practice and, therefore, facilitates comparison of our performance with our peer group. We believe that equity analysts and certain rating agencies that follow us, and the insurance industry as a whole, generally exclude these items from their analyses for the period indicated:same reasons. The reconciliation of operating income (loss) to net income (loss) available (attributable) to common shareholders, the most comparable GAAP financial measure, is presented above.
We also present operating income (loss) per diluted common share and annualized operating ROACE, which are derived from the operating income (loss) measure and are reconciled above to the most comparable GAAP financial measures, earnings (loss) per diluted common share and annualized return on average common equity ("ROACE"), respectively.
|
| | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, | |
| | 2019 | | 2018 | | 2019 | | 2018 | |
| | | | | | | | | |
| Net investment income | $ | 115,763 |
| | $ | 114,421 |
| | $ | 361,014 |
| | $ | 325,380 |
| |
| Net investments gains (losses) | 14,527 |
| | (17,628 | ) | | 48,522 |
| | (77,551 | ) | |
| Change in net unrealized gains (losses) on fixed maturities (1) | 29,493 |
| | (1,073 | ) | | 388,939 |
| | (184,082 | ) | |
| Interest in income of equity method investments | 792 |
| | 1,667 |
| | 5,645 |
| | 5,045 |
| |
| Total | $ | 160,575 |
| | $ | 97,387 |
| | $ | 804,120 |
| | $ | 68,792 |
| |
| | | | | | | | | |
| Average cash and investments(2) | $ | 15,492,106 |
| | $ | 15,160,361 |
| | $ | 15,199,356 |
| | $ | 15,366,875 |
| |
| | | | | | | | | |
| Total return on average cash and investments, pre-tax: | | | | | | | | |
| Including investment related foreign exchange movements | 1.0 | % | | 0.6 | % | | 5.3 | % | | 0.4 | % | |
| Excluding investment related foreign exchange movements(3) | 1.2 | % | | 0.7 | % | | 5.5 | % | | 0.6 | % | |
| | | | | | | | | |
Constant Currency Basis
We present gross premiums written, net premiums written and net premiums earned on a constant currency basis in this MD&A. The amounts presented on a constant currency basis are calculated by applying the average foreign exchange rate from the current year to the prior year amounts. We believe this presentation enables investors and other users of our financial information to analyze growth in gross premiums written, net premiums written and net premiums earned on a constant basis. The reconciliation to gross premiums written, net premiums written and net premiums earned on a GAAP basis is presented in 'Management’s Discussion and Analysis of Financial Condition and Results of Operations – Results by Segment'.
Pre-Tax Total Return on Cash and Investments excluding Foreign Exchange Movement
Pre-tax total return on cash and investments excluding foreign exchange movements measures net investment income (loss), net investments gains (losses), interest in income (loss) of equity method investments, and change in unrealized gains (losses) generated by average cash and investment balances. The reconciliation of pre-tax total return on cash and investments excluding foreign exchange movements to pre-tax total return on cash and investments, the most comparable GAAP financial measure, is presented in 'Management’s Discussion and Analysis of Financial Condition and Results of Operations – Net Investment Income and Net Investment Gains (Losses)'. We believe this presentation enables investors and other users of our financial information to analyze the performance of our investment portfolio.
Acquisition of Novae
On October 2, 2017, we acquired Novae. At the acquisition date, we identified value of business acquired ("VOBA") which represents the present value of the expected underwriting profit within policies that were in-force at the closing date of the transaction. In addition, the allocation of the acquisition price to the assets acquired and liabilities assumed based on estimated fair values at the acquisition date, resulted in the write-off of the deferred acquisition cost asset on Novae's balance sheet at the acquisition date as the value of policies in-force on that date are considered within VOBA. Consequently, underwriting income (loss) for the three and nine months ended September 30, 2019, included the recognition of premiums attributable to Novae's balance sheet at the acquisition date without the recognition of the associated acquisition costs.
| | |
(1) | Change in net unrealized gains (losses) on fixed maturities is calculated by taking net unrealized gains (losses) at period end less net unrealized gains (losses) at the prior period end. |
| |
(2) | The average cash and investments balance is calculated by taking the average of the period end fair value balances. |
| |
(3) | Pre-tax total return on cash and investments excluding foreign exchange movements is a non-GAAP financial measure as defined in Item 10(e) of SEC Regulation S-K. The reconciliation to pre-tax total return on cash and investments, the most comparable GAAP financial measure, included foreign exchange (losses) gains of $(31) million and $(10) million for the three months ended September 30, 2019 and 2018, respectively, and foreign exchange (losses) of $(28) million for nine months ended September 30, 2019 and 2018. |
CASH AND INVESTMENTS
The table below provides details of our cash and investments:
|
| | | | | | | | | | | |
| | September 30, 2019 | December 31, 2018 | |
| | | Fair Value | | | Fair Value | |
| | | | | | | |
| Fixed maturities | | $ | 12,616,241 |
| | | $ | 11,435,347 |
| |
| Equity securities | | 429,903 |
| | | 381,633 |
| |
| Mortgage loans | | 407,790 |
| | | 298,650 |
| |
| Other investments | | 779,200 |
| | | 787,787 |
| |
| Equity method investments | | 113,748 |
| | | 108,103 |
| |
| Short-term investments | | 12,539 |
| | | 144,040 |
| |
| Total investments | | $ | 14,359,421 |
| | | $ | 13,155,560 |
| |
| | | | | | | |
| Cash and cash equivalents(1) | | $ | 1,208,551 |
| | | $ | 1,830,020 |
| |
| | | | | | | |
| | |
(1) | Includes restricted cash and cash equivalents of $445 million and $597 million at September 30, 2019 and at December 31, 2018, respectively. |
Details of cash and investments are as follows:
| | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2020 | | | December 31, 2019 | |
| | | Fair Value | | | | Fair Value | |
| | | | | | | | |
| Fixed maturities | | $ | 12,609,241 | | | | | $ | 12,468,205 | | |
| Equity securities | | 417,886 | | | | | 474,207 | | |
| Mortgage loans | | 544,095 | | | | | 432,748 | | |
| Other investments | | 760,206 | | | | | 770,923 | | |
| Equity method investments | | 104,242 | | | | | 117,821 | | |
| Short-term investments | | 69,996 | | | | | 38,471 | | |
| Total investments | | $ | 14,505,666 | | | | | $ | 14,302,375 | | |
| | | | | | | | |
| Cash and cash equivalents(1) | | $ | 1,440,816 | | | | | $ | 1,576,457 | | |
| | | | | | | | |
(1)Includes restricted cash and cash equivalents of $440 million and $335 million at September 30, 2020 and at December 31, 2019, respectively.
Overview
The fair value of total investments increased by $1.2 billion for$203 million in the nine months ended September 30, 2019,2020, driven by the investment of cash balances,inflows from operations and the increase in the market value of fixed maturities due to a decreasethe decline in interest ratesyields, partially offset by the repayment of $500 million 5.875% Senior Notes and the tighteningredemption of credit spreads and the increase in the market value$225 million of equity securities due to the improved performance5.50% Series D preferred shares.
An analysis of equity markets which resulted in higher valuations.
The following provides further analysis on our investment portfolio by asset class:class is detailed below:
Fixed Maturities
The table below provides detailsDetails of our fixed maturities portfolio:portfolio are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2020 | | December 31, 2019 | |
| | Fair Value | | % of Total | | Fair Value | | % of Total | |
| | | | | | | | | |
| Fixed maturities: | | | | | | | | |
| U.S. government and agency | $ | 1,991,466 | | | 16 | % | | $ | 2,112,881 | | | 17 | % | |
| Non-U.S. government | 673,801 | | | 5 | % | | 576,592 | | | 5 | % | |
| Corporate debt | 4,796,731 | | | 39 | % | | 4,930,254 | | | 38 | % | |
| Agency RMBS | 1,677,106 | | | 13 | % | | 1,592,584 | | | 13 | % | |
| CMBS | 1,380,738 | | | 11 | % | | 1,365,052 | | | 11 | % | |
| Non-agency RMBS | 133,530 | | | 1 | % | | 84,922 | | | 1 | % | |
| ABS | 1,672,175 | | | 13 | % | | 1,598,693 | | | 13 | % | |
| Municipals(1) | 283,694 | | | 2 | % | | 207,227 | | | 2 | % | |
| Total | $ | 12,609,241 | | | 100 | % | | $ | 12,468,205 | | | 100 | % | |
| | | | | | | | | |
| Credit ratings: | | | | | | | | |
| U.S. government and agency | $ | 1,991,466 | | | 16 | % | | $ | 2,112,881 | | | 17 | % | |
| AAA(2) | 5,012,547 | | | 40 | % | | 4,896,833 | | | 38 | % | |
| AA | 934,983 | | | 7 | % | | 865,601 | | | 7 | % | |
| A | 1,973,829 | | | 16 | % | | 1,848,331 | | | 15 | % | |
| BBB | 1,690,837 | | | 13 | % | | 1,684,589 | | | 14 | % | |
| Below BBB(3) | 1,005,579 | | | 8 | % | | 1,059,970 | | | 9 | % | |
| Total | $ | 12,609,241 | | | 100 | % | | $ | 12,468,205 | | | 100 | % | |
| | | | | | | | | |
|
| | | | | | | | | | | | | | | |
| | September 30, 2019 | | December 31, 2018 | |
| | Fair Value | | % of Total | | Fair Value | | % of Total | |
| | | | | | | | | |
| Fixed maturities: | | | | | | | | |
| U.S. government and agency | $ | 2,133,956 |
| | 17 | % | | $ | 1,515,697 |
| | 13 | % | |
| Non-U.S. government | 537,632 |
| | 4 | % | | 493,016 |
| | 4 | % | |
| Corporate debt | 5,077,095 |
| | 40 | % | | 4,876,921 |
| | 44 | % | |
| Agency RMBS | 1,632,768 |
| | 13 | % | | 1,643,308 |
| | 14 | % | |
| CMBS | 1,368,890 |
| | 11 | % | | 1,092,530 |
| | 10 | % | |
| Non-Agency RMBS | 58,952 |
| | — | % | | 40,687 |
| | — | % | |
| ABS | 1,600,535 |
| | 13 | % | | 1,637,603 |
| | 14 | % | |
| Municipals(1) | 206,413 |
| | 2 | % | | 135,585 |
| | 1 | % | |
| Total | $ | 12,616,241 |
| | 100 | % | | $ | 11,435,347 |
| | 100 | % | |
| | | | | | | | | |
| Credit ratings: | | | | | | | | |
| U.S. government and agency | $ | 2,133,956 |
| | 17 | % | | $ | 1,515,697 |
| | 13 | % | |
| AAA(2) | 4,867,996 |
| | 39 | % | | 4,569,632 |
| | 40 | % | |
| AA | 900,443 |
| | 6 | % | | 874,932 |
| | 8 | % | |
| A | 1,865,289 |
| | 15 | % | | 1,769,686 |
| | 15 | % | |
| BBB | 1,741,081 |
| | 14 | % | | 1,678,962 |
| | 15 | % | |
| Below BBB(3) | 1,107,476 |
| | 9 | % | | 1,026,438 |
| | 9 | % | |
| Total | $ | 12,616,241 |
| | 100 | % | | $ | 11,435,347 |
| | 100 | % | |
| | | | | | | | | |
(1)Includes bonds issued by states, municipalities, and political subdivisions. | |
(1) | Includes bonds issued by states, municipalities, and political subdivisions. |
| |
(2) | Includes U.S. government-sponsored agencies, Residential mortgage-backed securities ("RMBS") and Commercial mortgage-backed securities ("CMBS"). |
| |
(3) | Non-investment grade and non-rated securities. |
(2)Includes U.S. government-sponsored agencies, residential mortgage-backed securities ("RMBS") and commercial mortgage-backed securities ("CMBS").
(3)Non-investment grade and non-rated securities.
At September 30, 2019,2020, fixed maturities had a weighted average credit rating of AA- (2018:(2019: AA-), a book yield of 2.9% (2018: 3.1%2.3% (2019: 2.8%) and an average duration of 3.13.4 years (2018: 3.0(2019: 3.2 years). The interest rate swap positions, which reduced duration to 2.8 years at December 31, 2018, were closed during the nine months ended September 30, 2019. At September 30, 2019,2020, fixed maturities together with short-term investments, and cash and cash equivalents (i.e. total investments of $13.8$14.1 billion), had an average credit rating of AA- (2018:(2019: AA-), and an average duration of 3.2 years (2019: 2.9 years (2018: 2.6 years) and duration inclusive of interest rate swaps was 2.5 years at December 31, 2018..
At September 30, 2019,2020, net unrealized gains on fixed maturities were $209$407 million, compared to net unrealized lossesgains of $181$205 million at December 31, 2018,2019, an increase of $390$202 million due to the decreasedecline in U.S. Treasury rates and the tightening of credit spreads.yields.
Equity Securities
At September 30, 2019,2020, net unrealized gains on equity securities were $49$62 million, compared to unrealized gains of $16$75 million at December 31, 2018, an increase2019, a decrease of $33$13 million driven by realized gains taken during the rally in equity markets.
year.
Mortgage Loans
During the nine months ended September 30, 2019,2020, our investment in commercial mortgage loans increased by $109$111 million. The commercial mortgage loans are high quality and collateralized by a variety of commercial properties and are diversified both geographically throughout the U.S. and by property type to reduce the risk of concentration. At September 30, 2019,2020, there were no credit losses or past due amounts associated with our commercial mortgage loans portfolio.
Other Investments
The table below provides detailsDetails of our other investments portfolio:portfolio are as follows:
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| | | | | | | | | | | | | | | |
| | September 30, 2019 | | December 31, 2018 | |
| | Fair Value | | % of Total | | Fair Value | | % of Total | |
| | | | | | | | | |
| Hedge funds | | | | | | | | |
| Long/short equity funds | $ | 30,617 |
| | 4 | % | | $ | 26,779 |
| | 3 | % | |
| Multi-strategy funds | 166,079 |
| | 21 | % | | 167,819 |
| | 22 | % | |
| Total hedge funds | 196,696 |
| | 25 | % | | 194,598 |
| | 25 | % | |
| | | | | | | | | |
| Direct lending funds | 275,619 |
| | 35 | % | | 274,478 |
| | 35 | % | |
| Private equity funds | 67,210 |
| | 9 | % | | 64,566 |
| | 8 | % | |
| Real estate funds | 130,209 |
| | 17 | % | | 84,202 |
| | 11 | % | |
| Total hedge, direct lending, private equity and real estate funds | 669,734 |
| | 86 | % | | 617,844 |
| | 79 | % | |
| | | | | | | | | |
| CLO-Equities | 15,454 |
| | 2 | % | | 21,271 |
| | 2 | % | |
| Other privately held investments | 30,719 |
| | 4 | % | | 44,518 |
| | 6 | % | |
| Overseas deposits | 63,293 |
| | 8 | % | | 104,154 |
| | 13 | % | |
| Total other investments | $ | 779,200 |
| | 100 | % | | $ | 787,787 |
| | 100 | % | |
| | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2020 | | December 31, 2019 | |
| | Fair Value | | % of Total | | Fair Value | | % of Total | |
| | | | | | | | | |
| Hedge funds | | | | | | | | |
| Long/short equity funds | $ | 24,815 | | | 3 | % | | $ | 31,248 | | | 4 | % | |
| Multi-strategy funds | 111,980 | | | 15 | % | | 136,542 | | | 18 | % | |
| | | | | | | | | |
| | | | | | | | | |
| Total hedge funds | 136,795 | | | 18 | % | | 167,790 | | | 22 | % | |
| | | | | | | | | |
| Direct lending funds | 269,783 | | | 35 | % | | 277,395 | | | 36 | % | |
| Private equity funds | 106,701 | | | 14 | % | | 80,412 | | | 10 | % | |
| Real estate funds | 153,163 | | | 20 | % | | 130,112 | | | 17 | % | |
| Total hedge, direct lending, private equity and real estate funds | 666,442 | | | 87 | % | | 655,709 | | | 85 | % | |
| | | | | | | | | |
| CLO-Equities | 9,189 | | | 2 | % | | 14,328 | | | 2 | % | |
| Other privately held investments | 39,493 | | | 5 | % | | 36,934 | | | 5 | % | |
| Overseas deposits | 45,082 | | | 6 | % | | 63,952 | | | 8 | % | |
| Total other investments | $ | 760,206 | | | 100 | % | | $ | 770,923 | | | 100 | % | |
| | | | | | | | | |
During the nine months ended September 30, 2019, the fair value of total hedge funds increased by $2 million driven by $8 million of net redemptions, offset by $10 million of price appreciation. Certain of these funds may be subject
Refer to restrictions on redemptions which may limit our ability to liquidate these investments in the short term. See Note 3(c) to the Consolidated Financial Statements 'Investments' for further details on these restrictions and details on unfunded commitments relating to our other investment portfolio..
Overseas deposits include investments in private funds held by Syndicate 2007 where the underlying investments are primarily U.S. government, non-U.S. government and corporate debt securities. The funds do not trade on an exchange and therefore are not included within the available for sale investments category.
Equity Method Investments
During 2016, we paid $108 million including direct transactions costs to acquire 19% of the common equity of Harrington Reinsurance Holdings Limited ("Harrington"), the parent company of Harrington Re Ltd. ("Harrington Re"), an independent reinsurance company jointly sponsored by AXIS Capital and The Blackstone Group L.P. ("Blackstone"). Harrington is not a variable interest entity that is required to be included in our consolidated financial statements. We account for our ownership interest in Harrington under the equity method of accounting.
In our consolidated results, our ownership interest in Harrington is reported in interest in income (loss) of equity method investments.
Interest in income (loss) of equity method investments was $3 million and $(14) million for the three and nine months ended September 30, 2020, respectively, compared to interest in income of equity method investments of $1 million and $6 million for the three and nine months ended September 30, 2019, respectively. The income for the three months ended September 30, 2020, was attributable to positive investment returns realized by Harrington. The loss for the nine months ended September 30, 2020 was attributable to negative investment returns realized by Harrington.
LIQUIDITY AND CAPITAL RESOURCES
Refer to the ‘Liquidity and Capital Resources’ section included underin Item 7 of our Annual Report on Form 10-K for the year ended December 31, 20182019 for a general discussion of our liquidity and capital resources.
The following table summarizes our consolidated capital:
| | | | | | | | | | | | | | | | | |
| | September 30, 2020 | | December 31, 2019 | |
| | | | | |
| Debt | $ | 1,309,384 | | | $ | 1,808,157 | | |
| | | | | |
| Preferred shares | 550,000 | | | 775,000 | | |
| Common equity | 4,715,895 | | | 4,769,008 | | |
| Shareholders’ equity | 5,265,895 | | | 5,544,008 | | |
| Total capital | $ | 6,575,279 | | | $ | 7,352,165 | | |
| | | | | |
| Ratio of debt to total capital | 19.9 | % | | 24.6 | % | |
| | | | | |
| Ratio of debt and preferred equity to total capital | 28.3 | % | | 35.1 | % | |
| | | | | |
|
| | | | | | | | | |
| | September 30, 2019 | | December 31, 2018 | |
| | | | | |
| Debt | $ | 1,388,135 |
| | $ | 1,341,961 |
| |
| | | | | |
| Preferred shares | 775,000 |
| | 775,000 |
| |
| Common equity | 4,810,870 |
| | 4,255,071 |
| |
| Shareholders’ equity | 5,585,870 |
| | 5,030,071 |
| |
| Total capital | $ | 6,974,005 |
| | $ | 6,372,032 |
| |
| | | | | |
| Ratio of debt to total capital | 19.9 | % | | 21.1 | % | |
| Ratio of debt and preferred equity to total capital | 31.0 | % | | 33.2 | % | |
| | | | | |
We finance our operations with a combination of debt and equity capital. Our debtDebt to total capital and debt and preferred equity to total capital ratios provide an indication of our capital structure, along with some insight into our financial strength.
On April 1, 2019, we repaid $250 million aggregate principal amount of 2.65% senior unsecured notes (the "2.65% Senior Notes") at their stated maturity.
On June 19, 2019,While the impact of the COVID-19 pandemic and catastrophe and weather-related losses have reduced common shareholders' equity, we issued $300 million aggregate principal amount of 3.90% senior unsecured notes (the "3.90% Senior Notes"), due 2029. Refer to Item 1, Note 10 'Debt and Financing Arrangements' to the Consolidated Financial Statements for details on recent debt transactions.
We believe that our financial flexibility remains strong.strong, and we will make adjustments as necessary, if the outlook and impact changes. Refer to 'Management’s Discussion and Analysis of Financial Condition and Results of Operations – Executive Summary – Recent Developments related to COVID-19' for further information on the impact of the COVID-19 pandemic.
Debt
On June 1, 2020, AXIS Specialty Finance LLC, a 100% owned finance subsidiary, repaid $500 million aggregate principal amount of 5.875% Senior Notes at their stated maturity.
Secured Letter of Credit Facility
On March 28, 2019,2020, certain of AXIS Capital’s operating subsidiaries (the "Participating Subsidiaries") amended their existing $250 million secured letter of credit facility with Citibank Europe plc (the "$250 Million Facility") under their aggregate $750 million secured letter of credit facility with Citibank Europe plc (the "$750 Million Facility") to extend the expiration date to March 31, 2020.2021.
The terms and conditions of the additional $500 million secured letter of credit facility under the $750 Million Facility(the "$500 million Facility") remain unchanged. The $500 million secured letter of credit facility expires December 31, 2019.
Letters of credit issued under the $750 Million$250 million Facility and the $500 million Facility are principally used to support the reinsurance obligations of the Participating Subsidiaries. The Participating Subsidiaries are subject to certain covenants, including the requirement to maintain sufficient collateral to cover the obligations outstanding under the $750 Million Facility.facilities. Such obligations include contingent reimbursement obligations for outstanding letters of credit and fees payable to Citibank Europe plc. In the event of default, Citibank Europe plc may exercise certain remedies, including the exercise of control over pledged collateral and the termination of the availability of the $750 Million Facilityfacility to any or all of the Participating Subsidiaries.
77
Common Equity
During the
nine months endedSeptember 30, 2019, our common equity increased by $556 million. The following table reconciles our opening and closing common equity positions: |
| | | | | |
| Nine months ended September 30, | 2019 | |
| | | |
| Common equity - opening | $ | 4,255,071 |
| |
| Treasury shares reissued | 1,734 |
| |
| Share-based compensation expense | 21,014 |
| |
| Change in unrealized gains (losses) on available for sale investments, net of tax | 352,797 |
| |
| Foreign currency translation adjustment | 609 |
| |
| Net income | 324,227 |
| |
| Preferred share dividends | (31,969 | ) | |
| Common share dividends | (103,168 | ) | |
| Treasury shares repurchased | (9,445 | ) | |
| Common equity - closing | $ | 4,810,870 |
| |
| | | |
During the nine months ended September 30, 2019,2020, common equity decreased by $53 million. The following table reconciles opening and closing common equity positions:
| | | | | | | | | | | |
| Nine months ended September 30, | 2020 | |
| | | |
| Common equity - opening | $ | 4,769,008 | | |
| Treasury shares reissued | 1,888 | | |
| | | |
| Share-based compensation expense | 27,332 | | |
| Change in unrealized gains (losses) on available for sale investments, net of tax | 179,982 | | |
| Foreign currency translation adjustment | (1,581) | | |
| Net income (loss) | (123,167) | | |
| Preferred share dividends | (22,688) | | |
| Common share dividends | (106,194) | | |
| Treasury shares repurchased | (8,685) | | |
| | | |
| | | |
| Common equity - closing | $ | 4,715,895 | | |
| | | |
During the nine months ended September 30, 2020, we repurchased 165,000repurchased 155,256 common shares from employees to satisfy withholding tax liabilities related to the vesting of share-settled restricted stock units granted under our 2007 and 2017 Long-Term Equity Compensation Plans for a total cost of $9 million in connection with the vesting of restricted stock awards granted under our 2007 and 2017 Long-Term Equity Compensation Plans.$8.7 million.
A common share repurchase plan has not been authorized for 2019.2020.
We continue to expect that cash flows generated from our operations, combined with the liquidity provided by our investment portfolio, will be sufficient to cover our required cash outflows and other contractual commitments throughthat become due within one year after the foreseeable future.
date that the financial statements are issued. Refer to 'Management’s Discussion and Analysis of Financial Condition and Results of Operations – Executive Summary – Recent Developments related to COVID-19' for further information on the impact of COVID-19 pandemic.
Financial Strength Ratings
Our principal insurance and reinsurance operating subsidiaries are assigned financial strength ratings from internationally recognized rating agencies, including Standard & Poor’s, A.M. Best and Moody’s Investors Service. These ratings are publicly announced and are available directly from the agencies, as well as on our website.
On May 5, 2020, A.M. Best revised its rating and outlook from A+ and negative to A and stable, respectively. The revised rating was based on unfavorable trends in operating performance over the past five years, particularly emanating from the insurance segment. The revised outlook continues to reflect our strong balance sheet, favorable business profile and appropriate risk management practices.
On May 11, 2020, Standard & Poor's revised its outlook from stable to negative due to unfavorable trends in operating performance.
Our rating and outlook from Moody’s Investors Service remain unchanged.
The following are the most recent financial strength ratings from internationally recognized agencies in relation to our principal insurance and insurance operating subsidiaries:
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| Rating agency | | Agency’s description of rating | | Rating and outlook | | Agency’s rating definition | | Ranking of rating | |
| | | | | | | | | | |
| Standard & Poor’s | | An "opinion about the financial security characteristics of an insurance organization, with respect to its ability to pay under its insurance policies and contracts, in accordance with their terms". | | A+ (Negative) | | "Strong capacity to meet its financial commitments" | | The ‘A’ category is the third highest out of ten major rating categories. The second through eighth major rating categories may be modified by the addition of a plus or minus sign to show relative standing within the major rating categories. | |
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| A.M. Best | | An "opinion of an insurer’s financial strength and ability to meet its ongoing insurance policy and contract obligations". | | A (Stable) | | "Excellent ability to meet ongoing insurance obligations" | | The ‘A’ category is the third highest rating out of fourteen. Ratings outlooks (‘Positive’, ‘Negative’ and ‘Stable’) are assigned to indicate a rating’s potential direction over an intermediate term, generally defined as 36 months. | |
| | | | | | |
| Moody’s Investors Service | | "Opinions of the ability of insurance companies to pay punctually senior policyholder claims and obligations." | | A2 (Negative) (1) | | "Offers good financial security" | | The ‘A’ category is the third highest out of nine rating categories. Each of the second through seventh categories are subdivided into three subcategories, as indicated by an appended numerical modifier of ‘1’, ‘2’ and ‘3’. The ‘1’ modifier indicates that the obligation ranks in the higher end of the rating category, the ‘2’ modifier indicates a mid-category ranking and the ‘3’ modifier indicates a ranking in the lower end of the rating category. | |
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(1)In April 2019, Moody's Investor Service revised its outlook from stable to negative reflecting higher operational and financial leverage and lower capitalization relative to peers.
CRITICAL ACCOUNTING ESTIMATES
The Company's Consolidated Financial Statements include certain amounts that are inherently uncertain and judgmental in nature. As a result, the Company is required to make assumptions and best estimates in order to determine the reported values. The Company considers an accounting estimate to be critical if: (1) it requires that significant assumptions be made in order to deal with uncertainties and (2) changes in the estimate could have a material impact on the Company's results of operations, financial condition or liquidity.
As disclosed in the Company's 2018 Annual Report on Form 10-K, theThe Company believes the material items requiring such subjective and complex estimates are:
•reserves for losses and loss expenses;
•reinsurance recoverable on unpaid losses and loss expenses, including the provision for uncollectible amounts;
•gross premiums written;
•fair value measurements of financial assets and liabilities; and
•other-than-temporary impairments ("OTTI") in the carrying value of available for sale securities and the allowance for credit losses associated with available for sale securities.
TheOther that the Company's consideration of the impact of the targeted changes to the impairment model for available for sale securities introduced in ASU 2016-13 detailed in Note 1 'Basis of Presentation and Significant Accounting Policies' to the Consolidated Financial Statements, the Company believes that the critical accounting estimates discussion in Item 7 of its Annual Report on Form 10-K for the year ended December 31, 2018,2019, continues to describe the significant estimates and judgments included in the preparation of the Consolidated Financial Statements.
RECENT ACCOUNTING PRONOUNCEMENTS
Refer to Item 1, Note 1 'Basis of Presentation and Significant Accounting Policies' to the Consolidated Financial Statements and Item 8, Note 2 'Basis of Presentation and Significant Accounting Policies' to the Consolidated Financial Statements in the Company's Annual Report on Form 10-K for the year ended December 31, 2018,2019, for a discussion of recently issued accounting pronouncements.
OFF-BALANCE SHEET AND SPECIAL PURPOSE ENTITY ARRANGEMENTS
At September 30, 2019,2020, the Company had not entered into any off-balance sheet arrangements, as defined by Item 303(a)(4) of Regulation S-K.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Refer to Item 7A included in our Annual Report on Form 10-K for the year ended December 31, 2018.2019. There have been no material changes to this item since December 31, 2018,2019, with the exception of the changes in exposure to foreign currency risk presented below.
Foreign Currency Risk
The table below provides a sensitivity analysis of our total net foreign currency exposures.
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| | | | | | | | | | | | | | | | | |
| | AUD | | NZD | | CAD | | EUR | | GBP | | JPY | | Other | | Total | |
| | | | | | | | | | | | | | | | | |
| At September 30, 2020 | | | | | | | | | | | | | | | | |
| Net managed assets (liabilities), excluding derivatives | $ | 5,438 | | | $ | (2,735) | | | $ | 190,349 | | | $ | (436,213) | | | $ | (265,099) | | | $ | (88,100) | | | $ | 86,352 | | | $ | (510,008) | | |
| Foreign currency derivatives, net | (4,446) | | | 4,304 | | | (181,617) | | | 437,229 | | | 225,952 | | | 103,506 | | | 3,457 | | | 588,385 | | |
| Net managed foreign currency exposure | 992 | | | 1,569 | | | 8,732 | | | 1,016 | | | (39,147) | | | 15,406 | | | 89,809 | | | 78,377 | | |
| Other net foreign currency exposure | — | | | — | | | 113 | | | 3,121 | | | (1,456) | | | — | | | 34,553 | | | 36,331 | | |
| Total net foreign currency exposure | $ | 992 | | | $ | 1,569 | | | $ | 8,845 | | | $ | 4,137 | | | $ | (40,603) | | | $ | 15,406 | | | $ | 124,362 | | | $ | 114,708 | | |
| Net foreign currency exposure as a percentage of total shareholders’ equity | — | % | | — | % | | 0.2 | % | | 0.1 | % | | (0.8 | %) | | 0.3 | % | | 2.4 | % | | 2.2 | % | |
| Pre-tax impact of net foreign currency exposure on shareholders’ equity given a hypothetical 10% rate movement(1) | $ | 99 | | | $ | 157 | | | $ | 885 | | | $ | 414 | | | $ | (4,060) | | | $ | 1,541 | | | $ | 12,436 | | | $ | 11,471 | | |
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| | AUD | | NZD | | CAD | | EUR | | GBP | | JPY | | Other | | Total | |
| | | | | | | | | | | | | | | | | |
| At September 30, 2019 | | | | | | | | | | | | | | | | |
| Net managed assets (liabilities), excluding derivatives | $ | 34,266 |
| | $ | (2,075 | ) | | $ | 144,344 |
| | $ | (279,800 | ) | | $ | (202,714 | ) | | $ | 21,202 |
| | $ | 115,846 |
| | $ | (168,931 | ) | |
| Foreign currency derivatives, net | (30,364 | ) | | 3,443 |
| | (121,781 | ) | | 257,361 |
| | 38,102 |
| | (8,784 | ) | | 6,058 |
| | 144,035 |
| |
| Net managed foreign currency exposure | 3,902 |
| | 1,368 |
| | 22,563 |
| | (22,439 | ) | | (164,612 | ) | | 12,418 |
| | 121,904 |
| | (24,896 | ) | |
| Other net foreign currency exposure | — |
| | — |
| | 114 |
| | 2,215 |
| | 215 |
| | — |
| | 47,892 |
| | 50,436 |
| |
| Total net foreign currency exposure | $ | 3,902 |
| | $ | 1,368 |
| | $ | 22,677 |
| | $ | (20,224 | ) | | $ | (164,397 | ) | | $ | 12,418 |
| | $ | 169,796 |
| | $ | 25,540 |
| |
| Net foreign currency exposure as a percentage of total shareholders’ equity | 0.1 | % | | — | % | | 0.4 | % | | (0.4 | %) | | (2.9 | %) | | 0.2 | % | | 3.0 | % | | 0.5 | % | |
| Pre-tax impact of net foreign currency exposure on shareholders’ equity given a hypothetical 10% rate movement(1) | $ | 390 |
| | $ | 137 |
| | $ | 2,268 |
| | $ | (2,022 | ) | | $ | (16,440 | ) | | $ | 1,242 |
| | $ | 16,979 |
| | $ | 2,554 |
| |
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(1)Assumes 10% change in underlying currencies relative to the U.S. dollar. | |
(1) | Assumes 10% change in underlying currencies relative to the U.S. dollar. |
Total Net Foreign Currency Exposure
At September 30, 2019, our2020, total net foreign currency exposure was $26assets were $115 million net long, driven by increases in our exposures to the canadian dollarJapanese Yen and other non-core currencies primarily due to new business written during the nine months ended September 30, 2019. Our total2020. In addition, $35 million included in other net foreign currency exposure included $48 million ofexposures related to assets managed by specific investment managers who have the discretion to hold foreign currency exposures as part of their total return strategy. OurAn emerging market debt portfolio is the primary contributor to this group of assets.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
The Company’s management has performed an evaluation, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (the "Exchange Act")) at September 30, 2019.2020. Based upon that evaluation, the Company's Chief Executive Officer and Chief Financial Officer concluded that, at September 30, 2019,2020, the Company's disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and is accumulated and communicated to management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
The Company’s management has performed an evaluation, with the participation of the Company’s Chief Executive Officer and the Company’s Chief Financial Officer, of changes in the Company’s internal control over financial reporting that occurred during the three months ended September 30, 20192020.
.
Based upon that evaluation, there were no changes in the Company's internal control over financial reporting that occurred during the three months ended September 30, 20192020, that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting. The Company has not experienced any material impact to its internal control over financial reporting resulting from the introduction of a remote work model due to the COVID-19 pandemic.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, the Company is subject to routine legal proceedings, including arbitrations, arising in the ordinary course of business. These legal proceedings generally relate to claims asserted by or against the Company in the ordinary course of insurance or reinsurance operations. Estimated amounts payable under such proceedings are included in the reserve for losses and loss expenses in the consolidated balance sheets.
The Company is not party to any material legal proceedings arising outside the ordinary course of business.
ITEM 1A. RISK FACTORS
There were no material changes from theFor information regarding factors that could affect our results of operations, financial condition or liquidity, refer to risk factors discloseddiscussed in the Company'sPart I, Item 1A. 'Risk Factors' in our Annual Report on Form 10-K for the year ended December 31, 2018.2019.
In light of developments relating to the novel coronavirus ("COVID-19") pandemic occurring subsequent to the filing of our Annual Report on Form 10-K, we are supplementing the risk factors discussed in our Annual Report with the following risk factor, which should be read in conjunction with the risk factors contained in our Annual Report.
The scale and scope of the ongoing, novel COVID-19 pandemic is unknown and is expected to continue to adversely impact our business. The overall impact on our business, results of operations, financial condition or liquidity could be material.
During the first quarter of 2020, there was a global outbreak of the novel coronavirus, COVID-19, which has spread to over 200 countries and territories, including our key business locations of Bermuda, the European Union, the U.K. and the U.S. The World Health Organization has designated COVID-19 as a pandemic, and numerous countries in which we operate, including Bermuda, the U.K., Switzerland and the U.S., have declared national emergencies. The global impact of the outbreak has continued to evolve through the third quarter of 2020, and many countries reacted by instituting social distancing measures and quarantines, placing restrictions on travel, restricting trading, limiting operations of non-essential businesses and issuing shelter in place orders. Whilst some initial restrictions have been relaxed, resurgence of the pandemic in many countries has seen continued restrictions to social and economic activity. Such actions have created disruption in global supply chains, and adversely impacted operations in many sectors of the economy. The outbreak will likely have a continued adverse impact on economic and market conditions, triggering a global economic slowdown.
The scale and scope of the COVID-19 pandemic may heighten the potential adverse effects on our business, results of operation, financial condition or liquidity described in the risk factors contained in our Annual Report on Form 10-K, including without limitation:
•We have substantial exposure to losses resulting from catastrophe events, including pandemics. The extent of our losses from the COVID-19 pandemic will ultimately depend on its severity and duration and such losses could have a material adverse effect on our results of operations, financial condition or liquidity. We have identified exposures arising from our
underwriting of insurance and reinsurance policies that cover accident and health (including travel), event cancellation, property/business interruption, and potential exposures arising from our underwriting of insurance and reinsurance policies that cover credit and surety (including mortgage) and professional lines (medical malpractice and directors’ and officers’ liability) among others. These exposures and potential exposures include direct claims relating to COVID-19 (e.g., business interruption following a shelter in place order) and indirect exposures arising from an ensuing economic downturn. We note that other lines may be affected as the pandemic and associated economic downturn develop, and new information is discovered.
•Our exposures are controlled and limited by our insurance and reinsurance contracts, which include specific terms and conditions defining if and how our policies respond to losses arising from the COVID-19 pandemic. However, legislative, regulatory or judicial actions (e.g. the UK Financial Conduct Authority test case on business interruption insurance and subsequent legal actions, including appeals) and social influences could alter the interpretation of our contracts or extend or change coverage (beyond the obligations set forth within those contracts or beyond what was intended by the parties). We set our reserves based on our best interpretation of the current legal position in applicable jurisdictions, but these legislative, regulatory or judicial actions make it more difficult to predict the total amount of losses we could incur.
•Actual claims may exceed loss reserves. While we believe that net reserves for losses and loss expenses at September 30, 2020 are adequate, changes in the duration, severity and scope of the impact of the COVID-19 pandemic from current expectations may result in ultimate losses being materially greater or less than the net reserves for losses and loss expenses currently provided. Among the factors that would cause net reserves for losses and loss expenses to increase or decrease are changes in claim frequency or severity driven by the COVID-19 pandemic or its related impact on the economy.
•Uncertainty and market turmoil caused by the COVID-19 pandemic could affect, among other aspects of our business, the demand for our products, and the ability of customers, counterparties and others to establish or maintain their relationships with us. In addition, the market for insurance and reinsurance could be smaller and certain industries for which we write business have been and will likely continue to be particularly impacted by the pandemic (such as, energy, aviation, retail, hospitality and construction lines, among others), resulting in downward pressure on our premium levels.
•Our investment and derivative instrument portfolios are exposed to significant economic and capital markets risks related to changes in interest rates, bankruptcies, credit spreads and equity prices, as well as other risks, which may adversely affect our results of operations or financial condition. The performance of our cash and investments portfolio has a significant impact on our financial results. The impact of the COVID-19 pandemic has heightened the risks to which our portfolios are subject, including risks relating to general economic conditions, interest rate fluctuations, equity price risk, foreign currency movements, pre-payment or reinvestment risk, liquidity risk and credit risk. Our investments in equities, corporate debt and hedge funds have experienced an increase in price volatility. Government imposed restrictions on movements and/or social distancing practices have led to sharp declines in the revenue of many companies and industries, and we have some debt and/or equity exposure to some of these highly impacted sectors. We anticipate that negative impacts of the COVID-19 pandemic may continue for some time.
•The COVID-19 pandemic may impact cashflows and could require access to liquidity in excess of prior forecasts. There is a risk that accessing additional required liquidity may be difficult or have costs associated as a result of the COVID-19 pandemic.
•The impact on the COVID-19 pandemic on financial markets may impact our ability to acquire additional capital, should we desire to do so, or to be able to effectively deploy existing capital resources.
•Certain of our policyholders and intermediaries may not pay premiums owed to us due to insolvency or other reasons. Insolvency, liquidity problems, distressed financial condition due to the impact of the COVID-19 pandemic or the general effects of economic recession may increase the risk that policyholders or intermediaries, such as insurance brokers, may not pay a part of or the full amount of premiums owed to us, despite an obligation to do so. The terms of our contracts, or actions by our regulators, may not permit us to cancel our insurance even though we have not received payment. We may further decide (or be obliged by regulation) to refund premiums already paid where it is judged that the COVID-19 pandemic has reduced the customer need for insurance. If refunds or non-payments become widespread, whether as a result of insolvency, lack of liquidity, adverse economic conditions, operational failure or otherwise, it could have a material adverse impact on our revenues and results of operations.
•The COVID-19 pandemic could impact our ability to obtain reinsurance and retrocessional arrangements on favorable terms which could limit the amount of business we are willing to write or reduce our reinsurance protection for large loss events.
•Our reinsurance and retrocession counterparties may experience financial distress and therefore, may be unable to pay the amounts owed to us under the applicable contracts.
•Our reinsurers and retrocession counterparties may be unwilling to pay claims due to disagreements or differing interpretation of contracts, which could also result in increased litigation and related expenses.
•There is a risk of reputational damage resulting from potential claims disputes and underwriting renewal actions.
In addition, the COVID-19 pandemic may have a material adverse impact on our business and financial condition due to significant disruption in other areas, including:
•We may experience decreased worker productivity, including as a result of prolonged remote working arrangements, increased medical, emergency or other leave.
•The extended period of remote working by our employees could strain our technology resources and introduce operational risks, including heightened cybersecurity risk. Remote working environments may be less secure and more susceptible to hacking attacks, including phishing and social engineering attempts that seek to exploit the COVID-19 pandemic.
•Similarly, third parties on whom we rely to provide key business services on an outsourced basis (including, but not limited to delegated underwriting, claims processing, finance operations, IT support) also may experience operational or system disruption, or cybersecurity issues, impacting their provision of service to us, and in turn, our operational performance.
•The COVID-19 pandemic could impact our ability to attract and retain key personnel which could adversely impact our business.
•Limitations on travel, social distancing requirements implemented in response to COVID-19, alongside economic conditions, may challenge our ability to write new insurance or reinsurance business and market our products and services as anticipated prior to COVID-19.
The duration and extent of the impact from the COVID-19 pandemic depends on future developments that cannot be accurately predicted at this time, such as the severity and transmission rate of the virus, the extent and effectiveness of containment actions and, the extent and effectiveness of government actions to support the economy. The duration and severity of the economic downturn is uncertain, as well as the impact of these and other factors on our employees, customers and partners. Such impact on our business, results of operations, financial condition or liquidity could be material.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Issuer Purchases of Equity Securities
Common Shares
InformationThe following table shows information regarding the number of common shares repurchased:
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Period | Total number of shares purchased(a) (b) | | Average price paid per share | | Total number of shares purchased as part of publicly announced plans or programs | | Maximum number (or approximate dollar value) of shares that may yet be purchased under the plans or programs(b) | |
| | | | | | | | |
July 1-31, 2020 | — | | | $39.80 | | | — | | | — | | |
August 1-31, 2020 | — | | | $40.12 | | | — | | | — | | |
September 1-30, 2020 | 1 | | | $48.69 | | | — | | | — | | |
Total | 1 | | | | | — | | | — | | |
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(a) In thousands.
(b) Shares are repurchased infrom employees to satisfy withholding tax liabilities related to the quarter ended September 30, 2019 is shown in the following table:vesting of share-settled restricted stock units.
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Period | Total number of shares purchased(a) (b) | | Average price paid per share | | Total number of shares purchased as part of publicly announced plans or programs | | Maximum number (or approximate dollar value) of shares that may yet be purchased under the plans or programs(b) | |
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July - September 2019 | 1 |
| |
| $61.23 |
| | — |
| | — |
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(b) | Shares are repurchased from employees to satisfy withholding tax liabilities that arise upon the vesting of restricted stock units. |
ITEM 5. OTHER INFORMATION
Disclosure of Certain Activities Under Section 13(r) of the Securities Exchange Act of 1934
Section 13(r) of the Securities Exchange Act of 1934, as amended, requires issuers to disclose in their annual and quarterly reports whether they or any of their affiliates knowingly engaged in certain activities with Iran or with individuals or entities that are subject to certain sanctions under U.S. law. Issuers are required to provide this disclosure even where the activities, transactions or dealings are conducted outside of the U.S. in compliance with applicable law.
As and when allowed by the applicable law and regulations, certain of our non-U.S. subsidiaries provide treaty reinsurance coverage to non-U.S. insurers on a worldwide basis, including insurers of liability, marine, aviation and energy risks, and as a result, these underlying reinsurance portfolios may have some exposure to Iran. In addition, we underwrite insurance and facultative reinsurance on a global basis to non-U.S. insureds and insurers, including for liability, marine, aviation and energy risks. Coverage provided to non-Iranian business may indirectly cover an exposure in Iran. For example, certain of our operations underwrite global marine hull and cargo policies that provide coverage for vessels navigating into and out of ports worldwide, including Iran. For the quarter ended September 30, 2019,2020, there has been no material amount of premium allocated or apportioned to activities relating to Iran. We intend for our non-U.S. subsidiaries to continue to provide such coverage only to the extent permitted by applicable law.
ITEM 6. EXHIBITS
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| Rule 2.7 Announcement, dated July 5, 2017 (incorporated by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K filed on July 6, 2017). |
| Rule 2.7 Announcement, dated August 24, 2017 (incorporated by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K filed on August 25, 2017). |
| Certificate of Incorporation and Memorandum of Association (incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on Form S-1(Amendment No. 1) (No. 333-103620) filed on April 16, 2003). |
| Amended and Restated Bye-Laws (incorporated by reference to Exhibit 4.2 to the Company’s Registration Statement on Form S-8 filed on May 15, 2009). |
| Specimen Common Share Certificate (incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement on Form S-1 (Amendment No. 3) (No. 333-103620) filed on June 10, 2003). |
| Certificate of Designations establishing the specific rights, preferences, limitations and other terms of the Series D Preferred Shares (incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K filed on May 20, 2013). |
| Certificate of Designations establishing the specific rights, preferences, limitations and other terms of the Series E Preferred Shares (incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K filed on November 7, 2016). |
| First Supplemental Indenture, dated as of April 3, 2019, among AXIS Specialty Finance PLC, AXIS Capital Holdings Limited and The Bank of New York Mellon Trust Company, N.A., relating to the 5.150% Senior Notes due 2045 (incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K filed on April 4, 2019). |
| Form of 3.900% Senior Notes due 2029 (incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K filed on June 19, 2019). |
| Amendment No. 7 to Consulting Agreement by and between Michael A. Butt and AXIS Specialty Limited dated July 18, 2019 (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q filed on August 7, 2019). |
| Amendment No. 21 to Employment Agreement dated December 11, 2017 by and between Peter W. WilsonVogt and AXIS Specialty U.S. Services, Inc. dated September 19, 2019 (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on September 24, 2019)October 7, 2020). |
| Amendment No. 1 to Employment Agreement dated July 5, 2017 by and between Steve K. Arora and AXIS Specialty U.S. Services, Inc. (incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K filed on October 7, 2020). |
| Amendment No. 1 to Letter Agreement dated July 5, 2017 by and between Steve K. Arora and AXIS Specialty U.S. Services, Inc. (incorporated by reference to Exhibit 10.3 to the Company's Current Report on Form 8-K filed on October 7, 2020). |
| Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
†101 | The following financial information from AXIS Capital Holdings Limited’s Quarterly Report on Form 10-Q for the quarter ended September 30, 20192020 formatted in Inline XBRL: (i) Consolidated Balance Sheets at September 30, 20192020 and December 31, 2018;2019; (ii) Consolidated Statements of Operations for the three and nine months ended September 30, 20192020 and 2018;2019; (iii) Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 20192020 and 2018;2019; (iv) Consolidated Statements of Changes in Shareholders' Equity for the nine months ended September 30, 20192020 and 2018;2019; (v) Consolidated Statements of Cash Flows for the nine months ended September 30, 20192020 and 2018;2019; and (vi) Notes to Consolidated Financial Statements, tagged as blocks of text and in detail. |
†104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
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* | Exhibits 10.1 and 10.2 represent a management contract, compensatory plan or arrangement in which directors and/or executive officers are eligible to participate. |
* Exhibits 10.1 through 10.3 represent a management contract, compensatory plan or arrangement in which directors and/or executive officers are eligible to participate.
† Filed herewith.
The agreements and other documents filed as exhibits to this report are not intended to provide factual information or other disclosure other than with respect to the terms of the agreements or other documents themselves, and you should not rely on them for that purpose. In particular, any representations and warranties made by us in these agreements or other documents were made solely within the specific context of the relevant agreement or document and may not describe the actual state of affairs as of the date they were made or at any other time.
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.
Dated: November 6, 2019October 28, 2020
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AXIS CAPITAL HOLDINGS LIMITED |
By: | /S/ ALBERT BENCHIMOL |
| Albert Benchimol |
| President and Chief Executive Officer |
| (Principal Executive Officer) |
| |
AXIS CAPITAL HOLDINGS LIMITED |
By: | /S/ ALBERT BENCHIMOL
|
| Albert Benchimol |
| President and Chief Executive Officer |
| (Principal Executive Officer) |
| |
| /S/ PETER VOGT |
| Peter Vogt |
| Chief Financial Officer |
| (Principal Financial Officer) |