As Of               Filer                 Filing    For·On·As Docs:Size

 3/27/20  Everest Reinsurance Holdings Inc  10-K       12/31/19  148:34M

Document/Exhibit                   Description                      Pages   Size 

 1: 10-K        Holdings 10-K 2019                                  HTML   4.58M 
 2: EX-23.1     Consent of Experts or Counsel -- exhibit231         HTML     44K 
 3: EX-31.1     Certification -- §302 - SOA'02 -- exhibit311        HTML     50K 
 4: EX-31.2     Certification -- §302 - SOA'02 -- exhibit312        HTML     50K 
 5: EX-32.1     Certification -- §906 - SOA'02 -- exhibit321        HTML     47K 
31: R1          Document And Entity Information                     HTML    110K 
112: R2          Consolidated Balance Sheets                         HTML    153K  
131: R3          Consolidated Balance Sheets (Parenthetical)         HTML     67K  
75: R4          Consolidated Statements Of Operations And           HTML    129K 
                Comprehensive Income (Loss)                                      
27: R5          Consolidated Statements Of Changes In               HTML     80K 
                Stockholder's Equity                                             
108: R6          Consolidated Statements Of Cash Flows               HTML    161K  
127: R7          Summary Of Significant Accounting Policies          HTML    103K  
82: R8          Investments                                         HTML    445K 
26: R9          Reserves For Losses And LAE                         HTML   1.17M 
13: R10         Fair Value                                          HTML    266K 
65: R11         Senior Notes                                        HTML     66K 
122: R12         Long Term Subordinated Notes                        HTML     73K  
104: R13         Federal Home Loan Bank Membership                   HTML     48K  
14: R14         Collateralized Reinsurance And Trust Agreements     HTML     64K 
66: R15         Leases                                              HTML     67K 
123: R16         Income Taxes                                        HTML    157K  
105: R17         Reinsurance                                         HTML    188K  
16: R18         Comprehensive Income (Loss)                         HTML    132K 
63: R19         Employee Benefit Plans                              HTML    334K 
145: R20         Dividend Restrictions And Statutory Financial       HTML     59K  
                Information                                                      
91: R21         Commitments And Contingencies                       HTML     53K 
46: R22         Related-Party Transactions                          HTML     71K 
59: R23         Segment Reporting                                   HTML    116K 
146: R24         Subsequent Events                                   HTML     46K  
92: R25         Unaudited Quarterly Financial Data                  HTML     95K 
47: R26         Revisions To Financial Statements                   HTML    606K 
60: R27         Schedule I - Summary Of Investments - Other Than    HTML    107K 
                Investments In Related Parties                                   
143: R28         Schedule II - Condensed Financial Information Of    HTML    279K  
                The Registrant                                                   
94: R29         Schedule III - Supplementary Insurance Information  HTML    177K 
100: R30         Schedule IV - Reinsurance                           HTML     99K  
118: R31         Summary Of Significant Accounting Policies          HTML    137K  
                (Policy)                                                         
71: R32         Summary Of Significant Accounting Policies          HTML     54K 
                (Tables)                                                         
19: R33         Investments (Tables)                                HTML    434K 
99: R34         Reserves For Losses And LAE (Tables)                HTML   1.15M 
117: R35         Fair Value (Tables)                                 HTML    244K  
70: R36         Senior Notes (Tables)                               HTML     69K 
18: R37         Long Term Subordinated Notes (Tables)               HTML     68K 
97: R38         Leases (Tables)                                     HTML     62K 
120: R39         Income Taxes (Tables)                               HTML    146K  
89: R40         Reinsurance (Tables)                                HTML    185K 
141: R41         Comprehensive Income (Loss) (Tables)                HTML    134K  
50: R42         Employee Benefit Plans (Tables)                     HTML    347K 
34: R43         Dividend Restrictions And Statutory Financial       HTML     51K 
                Information (Tables)                                             
88: R44         Commitments And Contingencies (Tables)              HTML     52K 
140: R45         Related-Party Transactions (Tables)                 HTML     63K  
49: R46         Segment Reporting (Tables)                          HTML    116K 
33: R47         Unaudited Quarterly Financial Data (Tables)         HTML     94K 
87: R48         Revisions To Financial Statements (Tables)          HTML    604K 
142: R49         Summary Of Significant Accounting Policies          HTML     65K  
                (Narrative) (Details)                                            
133: R50         Summary Of Significant Accounting Policies          HTML     44K  
                (Schedule Of Uncollectible Reinsurance Recoverable               
                And Premium Receivables) (Details)                               
113: R51         Summary Of Significant Accounting Policies          HTML     47K  
                (Schedule Of Deferred Acquisition Costs Amortized                
                To Income) (Details)                                             
22: R52         Investments (Narrative) (Details)                   HTML     80K 
73: R53         Investments (Summary Of Unrealized Appreciation     HTML     90K 
                (Depreciation) Of Available For Sale, Fixed                      
                Maturity And Equity Security Investments)                        
                (Details)                                                        
134: R54         Investments (Summary Of Amortized Cost And Market   HTML     86K  
                Value Of Fixed Maturity Securities, By Contractual               
                Maturity) (Details)                                              
114: R55         Investments (Summary Of Changes In Net Unrealized   HTML     60K  
                Appreciation (Depreciation) For The Company's                    
                Investments) (Details)                                           
23: R56         Investments (Summary Of Aggregate Market Value And  HTML     99K 
                Gross Unrealized Depreciation Of Fixed Maturity                  
                And Equity Securities, By Security Type) (Details)               
74: R57         Investments (Summary Of Aggregate Market Value And  HTML     85K 
                Gross Unrealized Depreciation Of Fixed Maturity                  
                And Equity Securities, By Contractual Maturity)                  
                (Details)                                                        
132: R58         Investments (Summary Of Components Of Net           HTML     71K  
                Investment Income) (Details)                                     
115: R59         Investments (Summary Of Components Of Net Realized  HTML     75K  
                Capital Gains (Losses)) (Details)                                
35: R60         Investments (Summary Of Gross Gains (Losses) From   HTML     54K 
                Sales Of Fixed Maturity And Equity Securities)                   
                (Details)                                                        
53: R61         Reserves For Losses And LAE (Narrative) (Details)   HTML     78K 
135: R62         Reserves For Losses And LAE (Summary Of Activity    HTML     72K  
                In The Reserve For Losses And LAE) (Details)                     
83: R63         Reserves For Losses And LAE (Incurred Loss And      HTML    257K 
                ALAE And Paid Loss And ALAE, Net Of Reinsurance)                 
                (Details)                                                        
39: R64         Reserves For Losses And LAE (Average Annual         HTML     88K 
                Percentage Payout Incurred Claims By Age, Net Of                 
                Reinsurance) (Details)                                           
56: R65         Reserves For Losses And LAE (Reconciliation of the  HTML     78K 
                Net Incurred and Paid Claims Development)                        
                (Details)                                                        
139: R66         Reserves For Losses And LAE (Summary Of Incurred    HTML     60K  
                Losses With Respect To A&E Reserves On Both Gross                
                And Net Of Reinsurance Basis) (Details)                          
86: R67         Fair Value (Narrative) (Details)                    HTML     91K 
40: R68         Fair Value (Fair Value Measurement Levels For All   HTML    115K 
                Assets, Recorded At Fair And Market Value)                       
                (Details)                                                        
51: R69         Fair Value (Activity Under Level 3, Fair Value      HTML     87K 
                Measurements Using Significant Unobservable Inputs               
                By Asset Type) (Details)                                         
79: R70         Fair Value (Fair Value Measurements Using           HTML     58K 
                Significant Unobservable Inputs for Equity Index                 
                Put Option Contracts) (Details)                                  
32: R71         Senior Notes (Narrative) (Details)                  HTML     56K 
111: R72         Senior Notes (Schedule Of Outstanding Senior        HTML     58K  
                Notes) (Details)                                                 
130: R73         Senior Notes (Schedule Of Interest Expense          HTML     45K  
                Incurred In Connection With Senior Notes)                        
                (Details)                                                        
76: R74         Long Term Subordinated Notes (Narrative) (Details)  HTML     74K 
28: R75         Long Term Subordinated Notes (Schedule Of           HTML     62K 
                Outstanding Fixed To Floating Rate Long Term                     
                Subordinated Notes) (Details)                                    
107: R76         Long Term Subordinated Notes (Schedule Of Interest  HTML     45K  
                Expense Incurred In Connection With Long Term                    
                Subordinated Notes) (Details)                                    
126: R77         Federal Home Loan Bank Membership (Narrative)       HTML     51K  
                (Details)                                                        
81: R78         Collateralized Reinsurance And Trust Agreements     HTML    129K 
                (Narrative) (Details)                                            
25: R79         Leases (Narrative) (Details)                        HTML     69K 
78: R80         Leases (Supplemental Information Relating to        HTML     57K 
                Operating Leases) (Details)                                      
30: R81         Leases (Maturities of Lease Liabilities) (Details)  HTML     61K 
110: R82         Income Taxes (Narrative) (Details)                  HTML     96K  
129: R83         Income Taxes (Components Of The Provision)          HTML     59K  
                (Details)                                                        
77: R84         Income Taxes (Reconciliation Of The Difference      HTML     82K 
                Between The Provision For Income Taxes And The                   
                Expected Tax Provision At The Weighted Average Tax               
                Rate) (Details)                                                  
29: R85         Income Taxes (Reconciliation Of The Beginning And   HTML     58K 
                Ending Amount Of Unrecognized Tax Benefits)                      
                (Details)                                                        
109: R86         Income Taxes (Net Deferred Income Tax               HTML    107K  
                Assets/(Liabilities)) (Details)                                  
128: R87         Reinsurance (Narrative) (Details)                   HTML     58K  
80: R88         Reinsurance (Premiums Written And Earned And        HTML     81K 
                Incurred Losses And LAE) (Details)                               
24: R89         Reinsurance (Affiliated Quota Share Reinsurance     HTML     90K 
                Agreements For All New And Renewal Business For                  
                The Indicated Coverage Period) (Details)                         
36: R90         Reinsurance (Schedule Of Loss Portfolio Transfer    HTML     58K 
                Reinsurance Agreements, Net Insurance Exposures                  
                And Reserves Were Transferred To An Affiliate)                   
                (Details)                                                        
54: R91         Reinsurance (Premiums And Losses Ceded By The       HTML     74K 
                Company To Affiliate) (Details)                                  
136: R92         Comprehensive Income (Loss) (Components Of          HTML     85K  
                Comprehensive Income (Loss) In The Consolidated                  
                Statements Of Operations) (Details)                              
84: R93         Comprehensive Income (Loss) (Reclassification From  HTML     65K 
                Accumulated Other Comprehensive Income) (Details)                
37: R94         Comprehensive Income (Loss) (Components Of          HTML     72K 
                Accumulated Other Comprehensive Income (Loss), Net               
                Of Tax, In The Consolidated Balance Sheets)                      
                (Details)                                                        
55: R95         Employee Benefit Plan (Narrative) (Details)         HTML    109K 
138: R96         Employee Benefit Plans (Summary Of Contributions    HTML     48K  
                To Defined Benefit Pension Plans) (Details)                      
85: R97         Employee Benefit Plans (Summary Of Pension          HTML     46K 
                Expense) (Details)                                               
41: R98         Employee Benefit Plans (Summary Of Status Of Plan)  HTML     89K 
                (Details)                                                        
52: R99         Employee Benefit Plans (Amounts Recognized In The   HTML     63K 
                Consolidated Balance Sheets) (Details)                           
69: R100        Employee Benefit Plans (Amounts Not Yet Reflected   HTML     56K 
                In Net Periodic Benefit Cost And Included In                     
                Accumulated Other Comprehensive Income (Loss))                   
                (Details)                                                        
17: R101        Employee Benefit Plans (Other Changes In Other      HTML     68K 
                Comprehensive Income (Loss)) (Details)                           
98: R102        Employee Benefit Plans (Summary Of Net Periodic     HTML     76K 
                Benefit Cost For U.S. Employees) (Details)                       
116: R103        Employee Benefit Plans (Summary Of Accumulated      HTML     50K  
                Benefit Obligation) (Details)                                    
72: R104        Employee Benefit Plans (Projected Benefit           HTML     53K 
                Obligations In Excess Of Plan Assets) (Details)                  
20: R105        Employee Benefit Plans (Accumulated Benefit         HTML     54K 
                Obligations In Excess Of Plan Assets) (Details)                  
101: R106        Employee Benefit Plans (Expected Benefit Payments)  HTML     61K  
                (Details)                                                        
119: R107        Employee Benefit Plans (Fair Value Measurement      HTML     80K  
                Levels For Qualified Plan Assets) (Details)                      
68: R108        Employee Benefit Plans (Incurred Expenses Related   HTML     46K 
                To Defined Contribution Plans For U.S. Employees)                
                (Details)                                                        
21: R109        Employee Benefit Plans (Incurred Expenses Related   HTML     46K 
                To Defined Contribution Plans For Non-U.S.                       
                Employees) (Details)                                             
48: R110        Employee Benefit Plans (Changes In The Assumed      HTML     54K 
                Healthcare Cost Trend) (Details)                                 
61: R111        Employee Benefit Plans (Post-Retirement Benefit     HTML     46K 
                Expenses) (Details)                                              
147: R112        Dividend Restrictions And Statutory Financial       HTML     54K  
                Information (Narrative) (Details)                                
93: R113        Dividend Restrictions And Statutory Financial       HTML     51K 
                Information (Regulatory Targeted Capital And                     
                Actual Statutory Capital) (Details)                              
45: R114        Commitments And Contingencies (Estimated Cost To    HTML     50K 
                Replace All Such Annuities For Which The Company                 
                Was Contingently Liable) (Details)                               
58: R115        Related-Party Transactions (Narrative) (Details)    HTML     90K 
144: R116        Related-Party Transactions (Amendments To The       HTML     57K  
                Share Repurchase Program For The Common Shares                   
                Approved For Repurchase) (Details)                               
90: R117        Related-Party Transactions (Dividends Received On   HTML     47K 
                Preferred Shares) (Details)                                      
44: R118        Related-Party Transactions (Expenses Incurred By    HTML     44K 
                Holdings From Services Provided By Affiliated                    
                Company) (Details)                                               
62: R119        Segment Reporting (Narrative) (Details)             HTML     50K 
124: R120        Segment Reporting (Schedule Of Underwriting         HTML     86K  
                Results For Operating Segments) (Details)                        
106: R121        Segment Reporting (Schedule Of Underwriting         HTML     68K  
                Results For Operating Segments To Income (Loss)                  
                Before Taxes) (Details)                                          
15: R122        Segment Reporting (Schedule Of Gross Written        HTML     47K 
                Premium Derived From Largest Non-U.S. Market)                    
                (Details)                                                        
67: R123        Unaudited Quarterly Financial Data (Summary Of      HTML     67K 
                Quarterly Financial Data) (Details)                              
121: R124        Revisions To Financial Statements (Schedule Of      HTML     78K  
                Prior Period Financial Statements - Balance                      
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103: R125        Revisions To Financial Statements (Schedule Of      HTML     81K  
                Prior Period Financial Statements - Operations And               
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12: R126        Revisions To Financial Statements (Schedule Of      HTML     75K 
                Prior Period Financial Statements - Stockholder's                
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64: R127        Revisions To Financial Statements (Schedule Of      HTML     65K 
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                (Details)                                                        
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                The Registrant (Condensed Balance Sheets)                        
                (Details)                                                        
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

_X_    Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the fiscal year ended December 31, 2019

 

___  Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

Commission file number 1-14527

 

EVEREST REINSURANCE HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

 

477 Martinsville Road

Post Office Box 830

Liberty Corner, New Jersey 07938-0830

(908) 604-3000

 

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive office)

 

Securities registered pursuant to Section 12(b) of the Act:

 

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

 

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

 

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

 

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  [   ]

 

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,”  “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

 

Indicate by check mark if the registrant is an emerging growth company and has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange act.

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.)

 

 

The aggregate market value on June 30, 2019, the last business day of the registrant’s most recently completed second quarter, of the voting stock held by non-affiliates of the registrant was zero.

 

At March 15, 2020, the number of shares outstanding of the registrant common shares was 1,000, all of which are owned by Everest Underwriting Group (Ireland) Limited, a wholly-owned direct subsidiary of Everest Re Group, Ltd.

 

The Registrant meets the conditions set forth in General Instruction I(1)(a) and (b) of Form 10-K and is therefore filing this form with the reduced disclosure format permitted by General Instruction I of Form 10-K.

EVEREST REINSURANCE HOLDINGS, INC.

 

Table of Contents

FORM 10-K

 

PART I

 

Unless otherwise indicated, all financial data in this document have been prepared using accounting principles generally accepted in the United States of America (“GAAP”).  As used in this document, “Holdings” means Everest Reinsurance Holdings, Inc., a Delaware company and direct subsidiary of Everest Underwriting Group (Ireland) Limited (“Holdings Ireland”); “Group” means Everest Re Group, Ltd. (Holdings Ireland’s parent); “Bermuda Re” means Everest Reinsurance (Bermuda), Ltd., a subsidiary of Group; “Everest Re” means Everest Reinsurance Company and its subsidiaries, a subsidiary of Holdings (unless the context otherwise requires); and the “Company”, “we”, “us”, and “our” means Holdings and its subsidiaries (unless the context otherwise requires).

 

ITEM 1.    BUSINESS

 

The Company.

Holdings, a Delaware corporation, is a wholly-owned subsidiary of Holdings Ireland.  On December 30, 2008, Group contributed Holdings to its recently established Irish holding company, Holdings Ireland.  Holdings Ireland is a direct subsidiary of Group and serves as a holding company for the U.S. reinsurance and insurance subsidiaries.  Group is a Bermuda holding company whose common shares are publicly traded in the U.S. on the New York Stock Exchange under the symbol “RE”.  Group files an annual report on Form 10-K with the Securities and Exchange Commission (the “SEC”) with respect to its consolidated operations, including Holdings. 

 

The Company’s principal business, conducted through its operating segments, is the underwriting of reinsurance and insurance in the U.S. and international markets. The Company had gross written premiums, in 2019, of $7.1 billion, with approximately 65% representing reinsurance and 35% representing insurance.  Stockholder’s equity at December 31, 2019 was $5.9 billion. The Company underwrites reinsurance both through brokers and directly with ceding companies, giving it the flexibility to pursue business based on the ceding company’s preferred reinsurance purchasing method.  The Company underwrites insurance through brokers, surplus lines brokers and general agent relationships.  Holdings’ active operating subsidiaries are each rated A+ (“Superior”) by A.M. Best Company (“A.M. Best”), a leading provider of insurer ratings that assigns financial strength ratings to insurance companies based on their ability to meet their obligations to policyholders. 

 

Following is a summary of the Company’s operating subsidiaries:

 

·        Everest Re, a Delaware insurance company and a direct subsidiary of Holdings, is a licensed property and casualty insurer and/or reinsurer in all states, the District of Columbia, Puerto Rico and Guam and is authorized to conduct reinsurance business in Canada, Singapore and Brazil. Everest Re underwrites property and casualty reinsurance for insurance and reinsurance companies in the U.S. and international markets.  Everest Re has engaged in reinsurance transactions with Bermuda Re, Everest International Reinsurance, Ltd. (“Everest International”), Mt. Logan Re, Ltd. (“Mt. Logan Re”) and Everest Insurance Company of Canada (“Everest Canada”), which are affiliated companies, primarily driven by enterprise risk and capital management considerations under which business is transacted at market rates and terms.  At December 31, 2019, Everest Re had statutory surplus of $3.7 billion.  

 

·        Everest National Insurance Company (“Everest National”), a Delaware insurance company and a direct subsidiary of Everest Re, is licensed in 50 states, the District of Columbia and Puerto Rico and is authorized to write property and casualty insurance on an admitted basis in the jurisdictions in which it is licensed. The majority of Everest National’s business is reinsured by its parent, Everest Re. 

 

·        Everest Indemnity Insurance Company (“Everest Indemnity”), a Delaware insurance company and a direct subsidiary of Everest Re, writes excess and surplus lines insurance business in the U.S. on a non-admitted basis. Excess and surplus lines insurance is specialty property and liability coverage that an insurer not licensed to write insurance in a particular jurisdiction is permitted to provide to insureds when the specific specialty coverage is unavailable from admitted insurers.  Everest Indemnity is licensed in Delaware and is eligible to write business on a non-admitted basis in all other states, the District of Columbia and Puerto Rico.  The majority of Everest Indemnity’s business is reinsured by its parent, Everest Re.

 

·        Everest Security Insurance Company (“Everest Security”), a Georgia insurance company and a direct subsidiary of Everest Re, writes property and casualty insurance on an admitted basis in Georgia and Alabama and is approved as an eligible surplus lines insurer in Delaware.  The majority of Everest Security’s business is reinsured by its parent, Everest Re. 

 

·        Everest Denali Insurance Company (“Everest Denali”), a Delaware insurance company and a direct subsidiary of Everest Re, is licensed to write property and casualty insurance in 50 states and the District of Columbia.  The majority of Everest Denali’s business is reinsured by its parent, Everest Re.

 

·        Everest Premier Insurance Company (“Everest Premier”), a Delaware insurance company and a direct subsidiary of Everest Re, is licensed to write property and casualty insurance in 50 states and the District of Columbia.  The majority of Everest Premier’s business is reinsured by its parent, Everest Re.

 

·        Everest International Assurance, Ltd. (“Everest Assurance”), a Bermuda company and a direct subsidiary of Holdings is registered in Bermuda as a Class 3A general business insurer and as a Class C long-term insurer.  Everest Assurance has made a one-time election under section 953(d) of the U.S. Internal Revenue Code to be a U.S. income tax paying “Controlled Foreign Corporation.”  By making this election, Everest Assurance will be authorized to write life reinsurance and casualty reinsurance in both Bermuda and the U.S. 

 

Reinsurance Industry Overview.

Reinsurance is an arrangement in which an insurance company, the reinsurer, agrees to indemnify another insurance or reinsurance company, the ceding company, against all or a portion of the insurance risks underwritten by the ceding company under one or more insurance contracts.  Reinsurance can provide a ceding company with several benefits, including a reduction in its net liability on individual risks or classes of risks, catastrophe protection from large and/or multiple losses and/or a reduction in operating leverage as measured by the ratio of net premiums and reserves to capital.  Reinsurance also provides a ceding company with additional underwriting capacity by permitting it to accept larger risks and write more business than would be acceptable relative to the ceding company’s financial resources.  Reinsurance does not discharge the ceding company from its liability to policyholders; rather, it reimburses the ceding company for covered losses.

 

There are two basic types of reinsurance arrangements: treaty and facultative.  Treaty reinsurance obligates the ceding company to cede and the reinsurer to assume a specified portion of a type or category of risks insured by the ceding company.  Treaty reinsurers do not separately evaluate each of the individual risks assumed under their treaties, instead, the reinsurer relies upon the pricing and underwriting decisions made by the ceding company.  In facultative reinsurance, the ceding company cedes and the reinsurer assumes all or part of the risk under a single insurance contract.  Facultative reinsurance is negotiated separately for each insurance contract that is reinsured.  Facultative reinsurance, when purchased by ceding companies, usually is intended to cover individual risks not covered by their reinsurance treaties because of the dollar limits involved or because the risk is unusual.

 

Both treaty and facultative reinsurance can be written on either a pro rata basis or an excess of loss basis.  Under pro rata reinsurance, the ceding company and the reinsurer share the premiums as well as the losses and expenses in an agreed proportion.  Under excess of loss reinsurance, the reinsurer indemnifies the ceding company against all or a specified portion of losses and expenses in excess of a specified dollar amount, known as the ceding company's retention or reinsurer's attachment point, generally subject to a negotiated reinsurance contract limit.

 

In pro rata reinsurance, the reinsurer generally pays the ceding company a ceding commission.  The ceding commission generally is based on the ceding company’s cost of acquiring the business being reinsured (commissions, premium taxes, assessments and miscellaneous administrative expense and may contain profit sharing provisions, whereby the ceding commission is adjusted based on loss experience).  Premiums paid by the ceding company to a reinsurer for excess of loss reinsurance are not directly proportional to the premiums that the ceding company receives because the reinsurer does not assume a proportionate risk.  There is usually no ceding commission on excess of loss reinsurance.

 

Reinsurers may purchase reinsurance to cover their own risk exposure.  Reinsurance of a reinsurer's business is called a retrocession.  Reinsurance companies cede risks under retrocessional agreements to other reinsurers, known as retrocessionaires, for reasons similar to those that cause insurers to purchase reinsurance:  to reduce net liability on individual or classes of risks, protect against catastrophic losses, stabilize financial ratios and obtain additional underwriting capacity.

 

Reinsurance can be written through intermediaries, generally professional reinsurance brokers, or directly with ceding companies.  From a ceding company's perspective, the broker and the direct distribution channels have advantages and disadvantages.  A ceding company's decision to select one distribution channel over the other will be influenced by its perception of such advantages and disadvantages relative to the reinsurance coverage being placed.

 

Business Strategy.

The Company’s business strategy is to sustain its leadership position within targeted reinsurance and insurance markets, provide effective management throughout the property and casualty underwriting cycle and thereby achieve an attractive return for its stockholder.  The Company’s underwriting strategies seek to capitalize on its i) financial strength and capacity, ii) global franchise, iii) stable and experienced management team, iv) diversified product and distribution offerings, v) underwriting expertise and disciplined approach, vi) efficient and low-cost operating structure and vii) effective enterprise risk management practices. 

 

The Company offers treaty and facultative reinsurance and admitted and non-admitted insurance. The Company’s products include the full range of property and casualty reinsurance and insurance coverages, including marine, aviation, surety, errors and omissions liability (“E&O”), directors’ and officers’ liability (“D&O”), medical malpractice, other specialty lines, accident and health (“A&H”) and workers’ compensation.

 

The Company’s underwriting strategies emphasizes underwriting profitability over premium volume.  Key elements of this strategy include careful risk selection, appropriate pricing through strict underwriting discipline and adjustment of the Company’s business mix in response to changing market conditions.  The Company focuses on reinsuring companies that effectively manage the underwriting cycle through proper analysis and pricing of underlying risks and whose underwriting guidelines and performance are compatible with its objectives. 

 

The Company’s underwriting strategies emphasize flexibility and responsiveness to changing market conditions.  The Company believes that its existing strengths, including its broad underwriting expertise, global presence, strong financial ratings and substantial capital, facilitate adjustments to its mix of business geographically, by line of business and by type of coverage, allowing it to participate in those market opportunities that provide the greatest potential for underwriting profitability.  The Company’s insurance operations complement these strategies by accessing business that is not available on a reinsurance basis.  The Company carefully monitors its mix of business across all operations to avoid unacceptable geographic or other risk concentrations. 

 

Commencing 2015, the Company initiated a strategic build out of its insurance platform through the investment in key leadership hires which in turn has brought significant underwriting talent and stronger direction in achieving its insurance program strategic goals of increased premium volume and improved underwriting results. Recent growth is coming from highly diversified areas including newly launched lines of business, as well as, product and geographic expansion in existing lines of business. The Company is building a world-class insurance platform capable of offering products across lines and geographies, complementing its leading global reinsurance franchise.  

 

Capital Transactions.

 

The Company’s business operations are in part dependent on its financial strength and financial strength ratings, and the market’s perception of its financial strength.  The Company stockholder’s equity was $5,857.4 million and $5,036.8 million at December 31, 2019 and 2018, respectively. The Company possesses significant financial flexibility with access to the debt markets and, through its ultimate parent, equity markets, as a result of its perceived financial strength, as evidenced by the financial strength ratings as assigned by independent rating agencies.  The Company’s capital position remains strong, commensurate with its financial ratings and the Company has ample liquidity to meet its financial obligations for the foreseeable future. 

 

Financial Strength Ratings.

The following table shows the current financial strength ratings of the Company’s operating subsidiaries as reported by A.M. Best, Standard & Poor’s, and Moody’s.  These ratings are based upon factors relevant to policyholders and are not intended to be an indication of the degree or lack of risk involved in a direct or indirect equity investment in an insurance or reinsurance company.

 

All of the below-mentioned ratings are continually monitored and revised, if necessary, by each of the rating agencies.  The ratings presented in the following table were in effect as of January 31, 2020. 

 

The Company believes that its ratings are important as they provide the Company’s customers and others with an independent assessment of the Company’s financial strength using a rating scale that provides for relative comparisons.  Strong financial ratings are particularly important for reinsurance and insurance companies given that customers may rely on a company to pay covered losses well into the future.  As a result, a highly rated company is generally preferred. 

 

 

A.M. Best states that the “A+” (“Superior”) rating is assigned to those companies which, in its opinion, have a superior ability to meet their ongoing insurance policy and contract obligations based on A.M. Best’s comprehensive quantitative and qualitative evaluation of a company’s balance sheet strength, operating performance and business profile.  A.M. Best affirmed these ratings on May 2, 2019. Standard & Poor’s states that the “A+”/”A” ratings are assigned to those insurance companies which, in its opinion, have strong financial security characteristics with respect to their ability to pay under its insurance policies and contracts in accordance with their terms.  Standard & Poor’s affirmed these ratings on July 25, 2019.  Moody’s states that an “A1” rating is assigned to companies that, in their opinion, offer upper-medium grade security and are subject to low credit risk.  Moody’s affirmed these ratings on September 27, 2019. 

 

Subsidiaries other than Everest Re may not be rated by some or any rating agencies because such ratings are not considered essential by the individual subsidiary’s customers or because of the limited nature of the subsidiary’s operations or because the subsidiaries are newly established and have not yet been rated by the agencies. 

 

Debt Ratings.

The following table shows the debt ratings by A.M. Best, Standard & Poor’s and Moody’s of the Holdings’ senior notes due June 1, 2044 and long term notes due May 1, 2067 both of which are considered investment grade.  Debt ratings are the rating agencies’ current assessment of the credit worthiness of an obligor with respect to a specific obligation. 

 

 

Competition.

The worldwide reinsurance and insurance businesses are highly competitive, as well as cyclical by product and market.  As such, financial results tend to fluctuate with periods of constrained availability, higher rates and stronger profits followed by periods of abundant capacity, lower rates and constrained profitability.  Competition in the types of reinsurance and insurance business that we underwrite is based on many factors, including the perceived overall financial strength of the reinsurer or insurer, ratings of the reinsurer or insurer by A.M. Best and/or Standard & Poor’s, underwriting expertise, the jurisdictions where the reinsurer or insurer is licensed or otherwise authorized, capacity and coverages offered, premiums charged, other terms and conditions of the reinsurance and insurance business offered, services offered, speed of claims payment and reputation and experience in lines written.  Furthermore, the market impact from these competitive factors related to reinsurance and insurance is generally not consistent across lines of business, domestic and international geographical areas and distribution channels. 

 

The Company competes in the U.S. and international reinsurance and insurance markets with numerous global competitors. The Company’s competitors include independent reinsurance and insurance companies, subsidiaries or affiliates of established worldwide insurance companies, reinsurance departments of certain insurance companies, domestic and international underwriting operations, including underwriting syndicates at Lloyd’s of London and certain government sponsored risk transfer vehicles.  Some of these competitors have greater financial resources than we do and have established long term and continuing business relationships, which can be a significant competitive advantage.  In addition, the lack of strong barriers to entry into the reinsurance business and recently, the securitization of reinsurance and insurance risks through capital markets provide additional sources of potential reinsurance and insurance capacity and competition. 

 

Worldwide insurance and reinsurance market conditions continued to be competitive. Generally, there was ample insurance and reinsurance capacity relative to demand, as well as, additional capital from the capital markets through insurance linked financial instruments.  These financial instruments such as side cars, catastrophe bonds and collateralized reinsurance funds, provide capital markets with access to insurance and reinsurance risk exposure.  The capital markets demand for these products is being primarily driven by the current low interest environment and the desire to achieve greater risk diversification and potentially higher returns on their investments.  This increased competition is generally having a negative impact on rates, terms and conditions; however, the impact varies widely by market and coverage. 

 

Rates tend to fluctuate by specific region and products, particularly areas recently impacted by large catastrophic events.  Although insured catastrophe losses for 2019 were slightly below recent annual averages, there were numerous natural catastrophes in 2018, with total industry losses estimated to be $90 billion.  The costliest event was the Camp Wildfire in California, the deadliest and most destructive California fire on record. These 2018 catastrophe losses followed another record year of catastrophes in 2017 where total industry losses for the worldwide events were estimated at $140 billion. These catastrophe losses included an unprecedented series of catastrophes in the third quarter of 2017 with Hurricanes Harvey, Irma and Maria, as well as a significant earthquake in Mexico City.  Additional catastrophe events occurred in the fourth quarter of 2017 with the wildfires in California and Hurricanes Nate and Ophelia.  During 2016, catastrophe losses included the Fort McMurray Canadian wildfire, Hurricane Matthew which affected a large area of the Caribbean and southeastern United States, storms and an earthquake in Ecuador.  While the future impact on market conditions from these catastrophes cannot be determined at this time, there is a growing industry consensus that there is some firming of (re)insurance rates for the areas impacted by the recent catastrophes.

 

Rates also appear to be firming in some of the casualty lines of business, particularly in the casualty lines that have seen significant losses such as excess casualty and directors and officers’ liability.   Other casualty lines are experiencing modest rate increase, while some lines such as workers’ compensation are experiencing softer market conditions.

 

Commencing in 2015, the Company initiated a strategic build out of its insurance platform through the investment in key leadership hires which in turn has brought significant underwriting talent and stronger direction in achieving its insurance program strategic goals of increased premium volume and improved underwriting results.  Recent growth is coming from highly diversified areas including newly launched lines of business, as well as, product and geographic expansion in existing lines of business.  The Company is building a world-class insurance platform capable of offering products across lines and geographies, complementing its leading global reinsurance franchise. 

 

Overall, the Company believes that given its size, strong ratings, distribution system, reputation, expertise and capital market vehicle activity the current marketplace conditions provide profit opportunities.  The Company continues to employ its strategy of targeting business that offers the greatest profit potential, while maintaining balance and diversification in its overall portfolio.

 

Employees.

As of February 1, 2020, the Company employed 1,376 persons. Management believes that employee relations are good.  None of the Company’s employees are subject to collective bargaining agreements, and the Company is not aware of any current efforts to implement such agreements. 

 

Available Information.

The Company’s Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports are available free of charge through the Company’s internet website at http://www.everestregroup.com as soon as reasonably practicable after such reports are electronically filed with the SEC.

 

ITEM 1A.  RISK FACTORS

 

In addition to the other information provided in this report, the following risk factors should be considered when evaluating an investment in our securities.  If the circumstances contemplated by the individual risk factors materialize, our business, financial condition and results of operations could be materially and adversely affected and our ability to service our debt, our debt ratings and our ability to issue new debt could decline significantly.

 

Risks relating to our Business

 

Fluctuations in the financial markets could result in investment losses.

 

Prolonged and severe disruptions in the overall public debt and equity markets, such as occurred during 2008, could result in significant realized and unrealized losses in our investment portfolio.  Although financial markets have significantly improved since 2008, they could deteriorate in the future.  There could also be disruption in individual market sectors, such as occurred in the energy sector in recent years.  Such declines in the financial markets could result in significant realized and unrealized losses on investments and could have a material adverse impact on our results of operations, equity, business and insurer financial strength and debt ratings. 

 

Our results could be adversely affected by catastrophic events.

 

We are exposed to unpredictable catastrophic events, including weather-related and other natural catastrophes, as well as acts of terrorism.  Any material reduction in our operating results caused by the occurrence of one or more catastrophes could inhibit our ability to pay dividends or to meet our interest and principal payment obligations.  By way of illustration, during the past five calendar years, pre-tax catastrophe losses, net of reinsurance, were as follows: 

 

 

Our losses from future catastrophic events could exceed our projections.

 

We use projections of possible losses from future catastrophic events of varying types and magnitudes as a strategic underwriting tool.  We use these loss projections to estimate our potential catastrophe losses in certain geographic areas and decide on the placement of retrocessional coverage or other actions to limit the extent of potential losses in a given geographic area.  These loss projections are approximations, reliant on a mix of quantitative and qualitative processes, and actual losses may exceed the projections by a material amount, resulting in a material adverse effect on our financial condition and results of operations.

 

If our loss reserves are inadequate to meet our actual losses, our net income would be reduced or we could incur a loss.

 

We are required to maintain reserves to cover our estimated ultimate liability of losses and loss adjustment expenses (“LAE”) for both reported and unreported claims incurred.  These reserves are only estimates of what we believe the settlement and administration of claims will cost based on facts and circumstances known to us.  In setting reserves for our reinsurance liabilities, we rely on claim data supplied by our ceding companies and brokers and we employ actuarial and statistical projections.  The information received from our ceding companies is not always timely or accurate, which can contribute to inaccuracies in our loss projections.  Because of the uncertainties that surround our estimates of loss and LAE reserves, we cannot be certain that ultimate losses and LAE payments will not exceed our estimates.  If our reserves are deficient, we would be required to increase loss reserves in the period in which such deficiencies are identified which would cause a charge to our earnings and a reduction of capital.  By way of illustration, during the past five calendar years, the reserve re-estimation process resulted in a decrease to our pre-tax net income in 2019 and 2018, and an increase for the years 2017 through 2015: 

 

 

The difficulty in estimating our reserves is significantly more challenging as it relates to reserving for potential asbestos and environmental (“A&E”) liabilities.  At December 31, 2019, 2.5% of our gross reserves were comprised of A&E reserves.  A&E liabilities are especially hard to estimate for many reasons, including the long delays between exposure and manifestation of any bodily injury or property damage, difficulty in identifying the source of the asbestos or environmental contamination, long reporting delays and difficulty in properly allocating liability for the asbestos or environmental damage.  Legal tactics and judicial and legislative developments affecting the scope of insurers’ liability, which can be difficult to predict, also contribute to uncertainties in estimating reserves for A&E liabilities.

 

The failure to accurately assess underwriting risk and establish adequate premium rates could reduce our net income or result in a net loss.

 

Our success depends on our ability to accurately assess the risks associated with the businesses on which the risk is retained.  If we fail to accurately assess the risks we retain, we may fail to establish adequate premium rates to cover our losses and LAE.  This could reduce our net income and even result in a net loss.

 

In addition, losses may arise from events or exposures that are not anticipated when the coverage is priced.  In addition to unanticipated events, we also face the unanticipated expansion of our exposures, particularly in long-tail liability lines.  An example of this is the expansion over time of the scope of insurers’ legal liability within the mass tort arena, particularly for A&E exposures discussed above.

 

Decreases in pricing for property and casualty reinsurance and insurance could reduce our net income.

 

The worldwide reinsurance and insurance businesses are highly competitive, as well as cyclical by product and market.  These cycles, as well as other factors that influence aggregate supply and demand for property and casualty insurance and reinsurance products, are outside of our control.  The supply of (re)insurance is driven by prevailing prices and levels of capacity that may fluctuate in response to a number of factors including large catastrophic losses and investment returns being realized in the insurance industry. Demand for (re)insurance is influenced by underwriting results of insurers and insureds, including catastrophe losses, and prevailing general economic conditions. If any of these factors were to result in a decline in the demand for (re)insurance or an overall increase in (re)insurance capacity, our net income could decrease.

 

If rating agencies downgrade the ratings of our insurance subsidiaries, future prospects for growth and profitability could be significantly and adversely affected.

 

Our active insurance company subsidiaries currently hold financial strength ratings assigned by third-party rating agencies which assess and rate the claims paying ability and financial strength of insurers and reinsurers. Our active subsidiaries that have been rated carry an “A+” (“Superior”) rating from A.M. Best. Everest Re, Everest National and Everest Indemnity hold an “A+” (“Strong”) rating from Standard & Poor’s and Everest Assurance holds an “A” (“Strong”) rating from this same agency.  Everest Re holds an “A1” (“upper-medium grade”) rating from Moody’s.  Financial strength ratings are used by client companies and agents and brokers that place the business as an important means of assessing the financial strength and quality of reinsurers. A downgrade or withdrawal of any of these ratings might adversely affect our ability to market our insurance products and could have a material and adverse effect on future prospects for growth and profitability. 

 

Consistent with market practice, much of our treaty reinsurance business allows the ceding company to terminate the contract or seek collateralization of our obligations in the event of a rating downgrade below a certain threshold.  The termination provision would generally be triggered if a rating fell below A.M. Best’s A- rating level, which is three levels below Everest Re’s current rating of A+. To a lesser extent, Everest Re also has modest exposure to reinsurance contracts that contain provisions for obligatory funding of outstanding liabilities in the event of a rating agency downgrade.  Those provisions would also generally be triggered if Everest Re’s rating fell below A.M. Best’s A- rating level.

 

The failure of our insureds, intermediaries and reinsurers to satisfy their obligations to us could reduce our income.

 

In accordance with industry practice, we have uncollateralized receivables from insureds, agents and brokers and/or rely on agents and brokers to process our payments.  We may not be able to collect amounts due from insureds, agents and brokers, resulting in a reduction to net income.

 

We are subject to credit risk of reinsurers in connection with retrocessional arrangements because the transfer of risk to a reinsurer does not relieve us of our liability to the insured. In addition, reinsurers may be unwilling to pay us even though they are able to do so.  The failure of one or more of our reinsurers to honor their obligations to us in a timely fashion would impact our cash flow and reduce our net income and could cause us to incur a significant loss. 

 

If we are unable or choose not to purchase reinsurance and transfer risk to the reinsurance markets, our net income could be reduced or we could incur a net loss in the event of unusual loss experience.

 

We are generally less reliant on the purchase of reinsurance than many of our competitors, in part because of our strategic emphasis on underwriting discipline and management of the cycles inherent in our business.  We try to separate our risk taking process from our risk mitigation process in order to avoid developing too great a reliance on reinsurance. With the expansion of the capital markets into insurance linked financial instruments, we increased our use of capital market products for catastrophe reinsurance starting in 2014.  In addition, some of our quota share contracts with larger retrocessions have increased.  The percentage of business that we reinsure may vary considerably from year to year, depending on our view of the relationship between cost and expected benefit for the contract period. 

 

We entered into affiliated whole account quota share reinsurance agreements for 2002 through 2017 with Bermuda Re but we did not renew the quota share reinsurance agreement with Bermuda Re after 2017.  We believe that the terms, conditions and pricing of the quota share agreements reflect arm’s length market conditions.

 

 

If we are unable to purchase affiliated or unaffiliated reinsurance in the future, we may have to reduce our premium volume and we may be more exposed to reductions in net income from large losses.

 

Our industry is highly competitive and we may not be able to compete successfully in the future.

 

Our industry is highly competitive and subject to pricing cycles that can be pronounced. We compete globally in the United States, international reinsurance and insurance markets with numerous competitors.  Our competitors include independent reinsurance and insurance companies, subsidiaries or affiliates of established worldwide insurance companies, reinsurance departments of certain insurance companies and domestic and international underwriting operations, including underwriting syndicates at Lloyd’s of London.

 

According to Standard & Poor’s, Group ranks among the top ten global reinsurance groups, where  more than two-thirds of the market share is concentrated. The worldwide net premium written by the Top 40 global reinsurance groups, for both life and non-life business, was estimated to be $225.1 billion in 2018 according to data compiled by Standard & Poor’s.  The leaders in this market are Swiss Re, Munich Re, Hannover Rueck SE, Berkshire Hathaway Re, and SCOR SE. Some of these competitors have greater financial resources than we do and have established long term and continuing business relationships throughout the industry, which can be a significant competitive advantage.  In addition, the lack of strong barriers to entry into the reinsurance business and the entry of alternative capital market products and vehicles provide additional sources of reinsurance and insurance capacity and increased competition. 

 

We are dependent on our key personnel.

 

Our success has been, and will continue to be, dependent on our ability to retain the services of our Chairman, Joseph V. Taranto (age 70) and existing key executive officers and to attract and retain additional qualified personnel in the future.  The loss of the services of any key executive officer or the inability to hire and retain other highly qualified personnel in the future could adversely affect our ability to conduct business.  Generally, we consider key executive officers to be those individuals who have the greatest influence in setting overall policy and controlling operations: Effective January 1, 2020, Juan C. Andrade (age 54) became President and Chief Executive Officer, replacing Dominic J. Addesso (age 66), who retired effective December 31, 2019 and remains on our Board of Directors.  Other key officers include Executive Vice President and Chief Financial Officer, Craig Howie (age 56), Executive Vice President and Chief Executive Officer Reinsurance Division, John P. Doucette (age 54), Executive Vice President, General Counsel, Chief Compliance Officer, Secretary and Managing Director and Chief Executive Officer of Bermuda Re, Sanjoy Mukherjee (age 53) and Executive Vice  C: 

 C: President, President and Chief Executive Officer of the Everest Insurance^® Division, Jonathan Zaffino (age 47). We have employment contracts with all of our key officers, which contain automatic renewal provisions that provide for the contracts to continue indefinitely unless sooner terminated in accordance with the contract or as otherwise may be agreed.

 

Our investment values and investment income could decline because they are exposed to interest rate, credit and market risks.

 

A significant portion of our investment portfolio consists of fixed income securities and smaller portions consist of equity securities and other investments.  Both the fair market value of our invested assets and associated investment income fluctuate depending on general economic and market conditions.  For example, the fair market value of our predominant fixed income portfolio generally increases or decreases inversely to fluctuations in interest rates.  The market value of our fixed income securities could also decrease as a result of a downturn in the business cycle that causes the credit quality of such securities to deteriorate.  The net investment income that we realize from future investments in fixed income securities will generally increase or decrease with interest rates. 

 

Interest rate fluctuations also can cause net investment income from fixed income investments that carry prepayment risk, such as mortgage-backed and other asset-backed securities, to differ from the income anticipated from those securities at the time of purchase.  In addition, if issuers of individual investments are unable to meet their obligations, investment income will be reduced and realized capital losses may arise.

 

The majority of our fixed income securities are classified as available for sale and temporary changes in the market value of these investments are reflected as changes to our stockholder’s equity.  Our actively managed equity security portfolios are fair valued and any changes in fair value are reflected as net realized capital gains or losses.  As a result, a decline in the value of our securities reduces our capital or could cause us to incur a loss. 

 

We have invested a portion of our investment portfolio in equity securities. The value of these assets fluctuates with changes in the markets. In times of economic weakness, the fair value of these assets may decline, and may negatively impact net income.  We also invest in non-traditional investments which have different risk characteristics than traditional fixed income and equity securities. These alternative investments are comprised primarily of private equity limited partnerships.  The changes in value and investment income/(loss) for these partnerships may be more volatile than over-the-counter securities.

 

The following table quantifies the portion of our investment portfolio that consists of fixed income securities, equity securities and investments that carry prepayment risk. 

 

 

We may experience foreign currency exchange losses that reduce our net income and capital levels.

 

Through our international operations, we conduct business in a variety of foreign (non-U.S.) currencies, principally the Canadian dollar and the Singapore dollar. Assets, liabilities, revenues and expenses denominated in foreign currencies are exposed to changes in currency exchange rates. Our reporting currency is the U.S. dollar, and exchange rate fluctuations, especially relative to the U.S. dollar, may materially impact our results and financial position.  In 2019, we wrote approximately 15.5% of our coverages in non-U.S. currencies; as of December 31, 2019, we maintained approximately 9.8% of our investment portfolio in investments denominated in non-U.S. currencies. During 2019, 2018 and 2017, the impact on our quarterly pre-tax net income from exchange rate fluctuations ranged from a loss of $6.4 million to a gain of $16.1 million.

 

Changes in the method for determining LIBOR and the potential replacement of LIBOR may affect our cost of capital and net investment income.

 

On July 27, 2017, the UK Financial Conduct Authority announced that it intends to stop persuading or compelling banks to submit LIBOR rates after 2021, which is expected to result in these widely used reference rates no longer being available.  Potential changes to LIBOR, as well as uncertainty related to such potential changes and the establishment of any alternative reference rates, may adversely affect the market for LIBOR-based securities and could adversely impact the interest rate on our long term subordinate notes.  In addition, the discontinuance of LIBOR or changes or reforms to the determination or supervision of LIBOR may result in a sudden or prolonged increase or decrease in reported LIBOR, which could have an adverse impact on the market for LIBOR-based securities or the value of our investment portfolio. 

 

We are subject to cybersecurity risks that could negatively impact our business operations.

 

We are dependent upon our information technology platform, including our processing systems, data and electronic transmissions in our business operations.  Security breaches could expose us to the loss or misuse of our information, litigation and potential liability.  In addition, cyber incidents that impact the availability, reliability, speed, accuracy or other proper functioning of these systems could have a significant negative impact on our operations and possibly our results.  An incident could also result in a violation of applicable privacy and other laws, damage our reputation, cause a loss of customers or give rise to monetary fines and other penalties, which could be significant.  Management is not aware of a cybersecurity incident that has had a material impact on our operations. 

 

The NAIC has adopted an Insurance Data Security Model Law, which, when adopted by the states will require insurers, insurance producers and other entities required to be licensed under state insurance laws to comply with certain requirements under state insurance laws, such as developing and maintaining a written information security program, conducting risk assessments and overseeing the data security practices of third-party vendors.  In addition, certain state insurance regulators are developing or have developed regulations that may impose regulatory requirements relating to cybersecurity on insurance and reinsurance companies (potentially including insurance and reinsurance companies that are not domiciled, but are licensed, in the relevant state).  For example, the New York State Department of Financial Services has adopted a regulation pertaining to cybersecurity for all banking and insurance entities under its jurisdiction, effective as of March 1, 2017, which applies to us.  We cannot predict the impact these laws and regulations will have on our business, financial condition or results of operations, but our insurance and reinsurance companies could incur additional costs resulting from compliance with such laws and regulations. 

  

 

Risks Relating to Regulation

 

Insurance laws and regulations restrict our ability to operate and any failure to comply with those laws and regulations could have a material adverse effect on our business.

 

We are subject to extensive and increasing regulation under U.S., state and foreign insurance laws.  These laws limit the amount of dividends that can be paid to us by our operating subsidiaries, impose restrictions on the amount and type of investments that we can hold, prescribe solvency, accounting and internal control standards that must be met and maintained and require us to maintain reserves.  These laws also require disclosure of material inter-affiliate transactions and require prior approval of “extraordinary” transactions.  Such “extraordinary” transactions include declaring dividends from operating subsidiaries that exceed statutory thresholds.  These laws also generally require approval of changes of control of insurance companies.  The application of these laws could affect our liquidity and ability to pay dividends, interest and other payments on securities, as applicable, and could restrict our ability to expand our business operations through acquisitions of new insurance subsidiaries.  We may not have or maintain all required licenses and approvals or fully comply with the wide variety of applicable laws and regulations or the relevant authority’s interpretation of the laws and regulations.  If we do not have the requisite licenses and approvals or do not comply with applicable regulatory requirements, the insurance regulatory authorities could preclude or temporarily suspend us from carrying on some or all of our activities or monetarily penalize us.  These types of actions could have a material adverse effect on our business.  To date, no material fine, penalty or restriction has been imposed on us for failure to comply with any insurance law or regulation.

 

As a result of the previous dislocation of the financial markets, Congress and the previous Presidential administration in the United States implemented changes in the way the financial services industry is regulated.  Some of these changes are also impacting the insurance industry.  For example, the U.S. Treasury established the Federal Insurance Office with the authority to monitor all aspects of the insurance sector, monitor the extent to which traditionally underserved communities and consumers have access to affordable non-health insurance products, to represent the United States on prudential aspects of international insurance matters, to assist with administration of the Terrorism Risk Insurance Program and to advise on important national and international insurance matters.  In addition, several European regulatory bodies are in process of updating existing or developing new capital adequacy directives for insurers and reinsurers.  The future impact of such initiatives or new initiatives from the current Government Administration, if any, on our operation, net income (loss) or financial condition cannot be determined at this time. 

 

Risk Relating to our seCURITIES

 

Because of our holding company structure, our ability to pay dividends, interest and principal is dependent on our receipt of dividends, loan payments and other funds from our subsidiaries.

 

We are a holding company, whose most significant asset consists of the stock of our operating subsidiaries.  As a result, our ability to pay dividends, interest or other payments on our securities in the future will depend on the earnings and cash flows of the operating subsidiaries and the ability of the subsidiaries to pay dividends or to advance or repay funds to us.  This ability is subject to general economic, financial, competitive, regulatory

and other factors beyond our control. Payment of dividends and advances and repayments from some of the operating subsidiaries are regulated by U.S., state and foreign insurance laws and regulatory restrictions, including minimum solvency and liquidity thresholds.  Accordingly, the operating subsidiaries may not be able to pay dividends or advance or repay funds to us in the future, which could prevent us from paying dividends, interest or other payments on our securities.

 

Risk Relating to taxation

 

If U.S. tax law changes, our net income may be impacted.

 

The 2017 TCJA addressed concerns by members of Congress regarding U.S. corporations moving their place of incorporation to low-tax jurisdictions to obtain a competitive advantage over domestic corporations that are subject to the U.S. corporate tax rate of 21%.  Specifically, it addressed their concern over a perceived competitive advantage that foreign-controlled insurers and reinsurers may have had over U.S. controlled insurers and reinsurers resulting from the purchase of reinsurance by U.S. insurers from affiliates operating in foreign jurisdictions, including Bermuda.  Such affiliated reinsurance transactions may subject the U.S. ceding companies to a Base Erosion and Anti-abuse Tax (“BEAT”) of 10% from 2019 to 2025 and 12.5% thereafter which may exceed its regular income tax.  In addition, new proposed and final regulations may further limit the ability of the Company to execute alternative capital balancing transactions with unrelated parties. This would further impact our net income and effective tax rate. 

 

ITEM 1B.  UNRESOLVED STAFF COMMENTS

 

None.

 

ITEM 2.    PROPERTIES

 

Everest Re’s corporate offices are located in approximately 230,500 square feet of leased office space in Liberty Corner, New Jersey. The Company’s other 18 locations occupy a total of approximately 206,400 square feet, all of which are leased. In addition, effective October 2019, the Company entered into a lease agreement to move its corporate offices from Liberty Corner, New Jersey to Warren, New Jersey. The lease agreement covers approximately 315,000 square feet of office space.  Management believes that the above-described office space is adequate for its current and anticipated needs.

 

ITEM 3.    LEGAL PROCEEDINGS

 

In the ordinary course of business, the Company is involved in lawsuits, arbitrations and other formal and informal dispute resolution procedures, the outcomes of which will determine the Company’s rights and obligations under insurance and reinsurance agreements.  In some disputes, the Company seeks to enforce its rights under an agreement or to collect funds owing to it.  In other matters, the Company is resisting attempts by others to collect funds or enforce alleged rights.  These disputes arise from time to time and are ultimately resolved through both informal and formal means, including negotiated resolution, arbitration and litigation.  In all such matters, the Company believes that its positions are legally and commercially reasonable.  The Company considers the statuses of these proceedings when determining its reserves for unpaid loss and loss adjustment expenses.

 

Aside from litigation and arbitrations related to these insurance and reinsurance agreements, the Company is not a party to any other material litigation or arbitration.

 

ITEM 4.    MINE SAFETY DISCLOSURES

 

Not applicable.

 

PART II

 

ITEM 5.    MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

 

Market Information and Holder of Common Stock.

As of December 31, 2019, all of the Company’s common stock was owned by Holdings Ireland and was not publicly traded.

 

Dividend History and Restrictions.

The Company did not pay any dividends in 2019, 2018 and 2017.  The declaration and payment of future dividends, if any, by the Company will be at the discretion of the Board of Directors and will depend upon many factors, including the Company’s earnings, financial condition, business needs and growth objectives, capital and surplus requirements of its operating subsidiaries, regulatory restrictions, rating agency considerations and other factors.  As an insurance holding company, the Company is dependent on dividends and other permitted payments from its subsidiaries to pay cash dividends to its stockholder.  The payment of dividends to Holdings by Everest Re is subject to limitations imposed by Delaware law.  Generally, Everest Re may only pay dividends out of its statutory earned surplus, which was $3,739.1 million at December 31, 2019, and only after it has given 10 days prior notice to the Delaware Insurance Commissioner.  During this 10-day period, the Commissioner may, by order, limit or disallow the payment of ordinary dividends if the Commissioner finds the insurer to be presently or potentially in financial distress.  Further, the maximum amount of dividends that may be paid without the prior approval of the Delaware Insurance Commissioner in any twelve month period is the greater of (1) 10% of an insurer’s statutory surplus as of the end of the prior calendar year or (2) the insurer’s statutory net income, not including realized capital gains, for the prior calendar year.  The maximum amount that is available for the payment of dividends by Everest Re in 2020 without prior regulatory approval is $373.9 million.  

 

Recent Sales of Unregistered Securities.

 

None.

 

ITEM 6.    SELECTED FINANCIAL DATA

 

Information for Item 6 is not required pursuant to General Instruction I(2) of Form 10-K.  

 

ITEM 7.    Management’s Discussion and Analysis of Financial Condition and Results of Operation

 

The following is a discussion and analysis of our results of operations and financial condition.  It should be read in conjunction with the Consolidated Financial Statements and accompanying notes thereto presented under ITEM 8, “Financial Statements and Supplementary Data”.

 

Industry Conditions.

The worldwide reinsurance and insurance businesses are highly competitive, as well as cyclical by product and market.  As such, financial results tend to fluctuate with periods of constrained availability, higher rates and stronger profits followed by periods of abundant capacity, lower rates and constrained profitability.  Competition in the types of reinsurance and insurance business that we underwrite is based on many factors, including the perceived overall financial strength of the reinsurer or insurer, ratings of the reinsurer or insurer by A.M. Best and/or Standard & Poor’s, underwriting expertise, the jurisdictions where the reinsurer or insurer is licensed or otherwise authorized, capacity and coverages offered, premiums charged, other terms and conditions of the reinsurance and insurance business offered, services offered, speed of claims payment and reputation and experience in lines written.  Furthermore, the market impact from these competitive factors related to reinsurance and insurance is generally not consistent across lines of business, domestic and international geographical areas and distribution channels. 

 

The Company competes in the U.S. and international reinsurance and insurance markets with numerous global competitors. The Company’s competitors include independent reinsurance and insurance companies,

subsidiaries or affiliates of established worldwide insurance companies, reinsurance departments of certain insurance companies, domestic and international underwriting operations, including underwriting syndicates at Lloyd’s of London and certain government sponsored risk transfer vehicles.  Some of these competitors have greater financial resources than we do and have established long term and continuing business relationships, which can be a significant competitive advantage.  In addition, the lack of strong barriers to entry into the reinsurance business and recently, the securitization of reinsurance and insurance risks through capital markets provide additional sources of potential reinsurance and insurance capacity and competition. 

 

Worldwide insurance and reinsurance market conditions continued to be competitive. Generally, there was ample insurance and reinsurance capacity relative to demand, as well as, additional capital from the capital markets through insurance linked financial instruments.  These financial instruments such as side cars, catastrophe bonds and collateralized reinsurance funds, provide capital markets with access to insurance and reinsurance risk exposure.  The capital markets demand for these products is being primarily driven by the current low interest environment and the desire to achieve greater risk diversification and potentially higher returns on their investments.  This increased competition is generally having a negative impact on rates, terms and conditions; however, the impact varies widely by market and coverage. 

 

Rates tend to fluctuate by specific region and products, particularly areas recently impacted by large catastrophic events.  Although insured catastrophe losses for 2019 were slightly below recent annual averages, there were numerous natural catastrophes in 2018, with total industry losses estimated to be $90 billion.  The costliest event was the Camp Wildfire in California, the deadliest and most destructive California fire on record. These 2018 catastrophe losses followed another record year of catastrophes in 2017 where total industry losses for the worldwide events were estimated at $140 billion. These catastrophe losses included an unprecedented series of catastrophes in the third quarter of 2017 with Hurricanes Harvey, Irma and Maria, as well as a significant earthquake in Mexico City.  Additional catastrophe events occurred in the fourth quarter of 2017 with the wildfires in California and Hurricanes Nate and Ophelia.  During 2016, catastrophe losses included the Fort McMurray Canadian wildfire, Hurricane Matthew which affected a large area of the Caribbean and southeastern United States, storms and an earthquake in Ecuador.  While the future impact on market conditions from these catastrophes cannot be determined at this time, there is a growing industry consensus that there is some firming of (re)insurance rates for the areas impacted by the recent catastrophes.

 

Rates also appear to be firming in some of the casualty lines of business, particularly in the casualty lines that have seen significant losses such as excess casualty and directors and officers’ liability.   Other casualty lines are experiencing modest rate increase, while some lines such as workers’ compensation are experiencing softer market conditions.

 

Commencing in 2015, the Company initiated a strategic build out of its insurance platform through the investment in key leadership hires which in turn has brought significant underwriting talent and stronger direction in achieving its insurance program strategic goals of increased premium volume and improved underwriting results.  Recent growth is coming from highly diversified areas including newly launched lines of business, as well as, product and geographic expansion in existing lines of business.  The Company is building a world-class insurance platform capable of offering products across lines and geographies, complementing its leading global reinsurance franchise. 

 

Overall, the Company believes that given its size, strong ratings, distribution system, reputation, expertise and capital market vehicle activity the current marketplace conditions provide profit opportunities.  The Company continues to employ its strategy of targeting business that offers the greatest profit potential, while maintaining balance and diversification in its overall portfolio. 

 

Financial Summary.

We monitor and evaluate our overall performance based upon financial results.  The following table displays a summary of the consolidated net income (loss), ratios and stockholder’s equity for the periods indicated: 

 

 

Revenues.

Premiums.  Gross written premiums increased by 7.3% to $7,053.1 million in 2019, compared to $6,573.7 million in 2018, reflecting a $445.7 million, or 22.2%, increase in our insurance business and a $33.7 million, or 0.7%, increase in our reinsurance business. The rise in insurance premiums was primarily due to increases in many lines of business, including casualty, energy and accident and health. The increase in reinsurance premiums was mainly due to the increase in treaty casualty writings, partially offset by a decline in treaty property business. Net written premiums increased by 14.8% to $5,774.9 million in 2019, compared to $5,031.9 million in 2018.  The difference between the change in gross written premiums compared to the change in net written premiums is primarily due to the impact of changes in affiliated reinsurance contracts. Premiums ceded to Bermuda Re in 2019 were $100.1 million compared with $572.6 million in 2018. Premiums earned increased by 13.4% to $5,489.0 million in 2019, compared to $4,839.1 million in 2018. The change in premiums earned relative to net written premiums is the result of timing; premiums are earned ratably over the coverage period whereas written premiums are recorded at the initiation of the coverage period.

 

Gross written premiums increased by 13.6% to $6,573.7 million in 2018, compared to $5,788.5 million in 2017, reflecting a $637.0 million, or 16.2%, increase in our reinsurance business and a $148.2 million, or 8.0%, increase in our insurance business.    The increase in reinsurance premiums was mainly due to the increases in treaty property and treaty casualty writings, rise in mortgage business and growth in Latin American business.  The rise in insurance premiums was primarily due to increases in many lines of business, including casualty, energy and accident and health.  Net written premiums increased by 84.7% to $5,031.9 million in 2018, compared to $2,723.8 million in 2017.  The difference between the change in gross written premiums compared to the change in net written premiums is primarily due to the impact of changes in affiliated reinsurance contracts, particularly the non-renewal of the quota share agreement between Everest Re and Bermuda Re as of December 31, 2017.  Effective January 1, 2018, Everest Re entered into an aggregate stop loss agreement with Bermuda Re.  Premiums ceded to Bermuda Re in 2018 were $572.6 million compared with $2,219.4 million in 2017.  Premiums earned increased by 148.2% to $4,839.1 million in 2018, compared to $1,949.6 million in 2017.  The change in premiums earned relative to net written premiums is partially due to the impact of the non-renewal of the quota share contract between Everest Re and Bermuda Re and is also the result of timing; premiums are earned ratably over the coverage period whereas written premiums are recorded at the initiation of the coverage period.

 

Net Investment Income.  Net investment income increased 13.3% to $356.2 million in 2019 compared with net investment income of $314.4 million in 2018.  Net pre-tax investment income as a percentage of average invested assets was 3.2% in both 2019 and 2018.  The increase in income was primarily the result of higher income from our growing fixed maturity portfolio, partially offset by lower income from our limited partnerships and lower dividend income from our equity portfolio. 

 

Net investment income increased 9.8% to $314.4 million in 2018 compared with net investment income of $286.3 million in 2017.  Net pre-tax investment income as a percentage of average invested assets was 3.2% in both 2018 and 2017.  The increase in income was primarily the result of higher income from our limited partnerships and from our growing fixed maturity portfolio, partially offset by lower dividend income from our equity portfolio.    

 

Net Realized Capital Gains (Losses).  Net realized capital gains were $419.4 million in 2019, net realized capital losses were $185.4 million in 2018 and net realized capital gains were $161.6 million in 2017.  The net realized capital gains of $419.4 million in 2019, were comprised of $420.8 million of gains from fair value re-measurements, $18.2 million of gains from sales of investments, partially offset by $19.6 million of other-than-temporary impairments. The net realized capital losses of $185.4 million in 2018 were comprised of $148.0 million of losses from fair value re-measurements, $31.2  million of losses from sales of investments and $6.2 million of other-than-temporary impairments. The net realized capital gains of $161.6 million in 2017 were comprised of $158.5 million of gains from fair value re-measurements and $9.1 million of gains from sales of investments, partially offset by $6.1 million of other-than-temporary impairments.

  

Other Income (Expense).  We recorded other expense of $1.6 million and $9.6 million in 2019 and 2018, respectively, and other income of $25.9 million in 2017. The changes were primarily the result of fluctuations in foreign currency exchange rates. 

 

Claims and Expenses.

Incurred Losses and Loss Adjustment Expenses.  The following table presents our incurred losses and loss adjustment expenses (“LAE”) for the periods indicated. 

 

 

Incurred losses and LAE decreased by 20.4% to $3,829.1 million in 2019 compared to $4,811.0 million in 2018, primarily due to a decrease in current year catastrophe losses of $646.3 million and a decrease in unfavorable development on prior year catastrophe losses of $492.7 million mainly related to the development on Hurricanes Harvey, Irma and Maria and the California wildfires in 2018. The decrease in losses was partially offset by an increase of $178.8 million on current year attritional losses mainly due to the increase in premiums earned. The current year catastrophe losses of $513.3 million in 2019 related to Typhoon Hagibis ($184.0 million), Hurricane Dorian ($161.0 million), Typhoon Faxai ($119.3 million), the Dallas tornadoes ($25.0 million), and the Townsville Monsoon in Australia ($24.0 million). The current year catastrophe losses of $1,159.6 million in 2018 related to Hurricane Michael ($443.5 million), Camp wildfire ($297.0 million), Woolsey wildfire (151.0 million), Typhoon Jebi ($66.6 million), Hurricane Florence ($60.8 million), Cyclone Mekunu ($43.7 million), Typhoon Trami ($25.0 million), other 2018 California wildfires ($24.6 million), Australian hailstorm ($24.0 million), Japan Floods ($15.0 million) and the U.S. winter storms ($8.4 million).

 

Incurred losses and LAE increased by 135.9% to $4,811.0 million in 2018 compared to $2,039.8 million in 2017, primarily due to an increase in current year attritional losses of $1,892.0 million, mainly due to the impact of the increase in premiums earned resulting primarily from changes in affiliated reinsurance

agreements, including the non-renewal of the quota share agreement with Bermuda Re as of December 31, 2017 and the implementation of an aggregate stop loss agreement with Bermuda Re as of January 1, 2018.  The increase in incurred losses also resulted from $553.0 million of unfavorable development on prior years catastrophe losses in 2018, mainly related to Hurricanes Harvey, Irma and Maria and the California wildfires and an increase in current year catastrophe losses of $202.7 million.  The current year catastrophe losses of $1,159.6 million in 2018 are outlined above. Current year catastrophe losses of $956.9 million in  2017 related to Hurricane Irma ($333.7 million), Hurricane Maria ($268.1 million), Hurricane Harvey ($235.8 million), the Northern California wildfires ($75.3 million), the South Africa Knysna fires ($9.6 million), the Mexico City earthquake ($9.3 million), Cyclone Debbie in Australia ($8.5 million), the Peru storms ($7.1 million), the 2017 US Midwest storms ($5.0 million) and the Southern California wildfires ($4.4 million).  

 

Commission, Brokerage, Taxes and Fees.  Commission, brokerage, taxes and fees increased to $1,270.1 million in  2019 compared to $1,141.7 million  in  2018.  The increase was mainly due to changes in affiliated reinsurance agreements, increases in premiums earned and changes in the mix of business toward additional pro rata business.

 

Commission, brokerage, taxes and fees increased to $1,141.7 million in  2018 compared to $210.9 million  in  2017.  The increase was mainly due to changes in affiliated reinsurance agreements, including the non-renewal of the quota share agreement with Bermuda Re as of December 31, 2017, increases in premiums earned and changes in the mix of business toward additional pro rata business.

 

Other Underwriting Expenses.  Other underwriting expenses were $350.9 million, $293.3 million and $254.9 million in 2019, 2018 and 2017, respectively.  The increases were mainly due to changes in affiliated reinsurance agreements, impact of increases in premium earned and costs incurred to support the expansion of the insurance business. 

 

Corporate Expenses.  Corporate expenses, which are general operating expenses that are not allocated to segments, were $13.1 million, $11.0 million and $7.4 million for the years ended December 31, 2019, 2018 and 2017, respectively. The variances were mainly due to changes in variable compensation.

 

Interest, Fees and Bond Issue Cost Amortization Expense.  Interest, fees and other bond amortization expense were $34.9 million, $30.6 million and $31.2 million in 2019, 2018 and 2017, respectively.  The changes in expense were primarily due to the movements in the floating interest rate related to the long term subordinated notes, which is reset quarterly per the note agreement.  The floating rate was 4.3% as of December 31, 2019. 

 

Income Tax Expense (Benefit).  The Company had an income tax expense of $135.2 million in 2019, an income tax benefit of $367.0 million in 2018, and an income tax benefit of $200.7 million in 2017.  The TCJA impact was an income tax benefit of $28.4 million and $123.1 million in 2018 and 2017, respectively. Variations in income taxes generally result from changes in the relative levels of pre-tax income, including the impact of catastrophe losses and net capital gains (losses) as well as changes in tax exempt investment income and creditable foreign taxes.  The change in income tax expense (benefit) was primarily due to the decrease in catastrophe losses from 2018 to 2019.  In addition, the enactment of the TCJA on December 22, 2017 reduced the U.S. corporate income tax rate to 21% from 35%. 

 

The Company completed its accounting and interpreted the additional guidance issued by the IRS and U.S. Department of Treasury,  and recognized an income tax benefit of $1.2 million primarily related to the 2018 tax return to provision true-up.

 

Net Income (Loss).  

Our net income was $629.7 million in 2019, our net loss was $962.2 million in 2018 and our net income was $79.9 million in 2017.  The changes were primarily driven by the financial component fluctuations explained above. 

 

Ratios.

Our combined ratio decreased by 29.8 points to 99.3% in  2019 compared to 129.1% in  2018.  The loss ratio component decreased by 29.6 points in 2019 over the same period last year mainly due to a lower loss ratio on current year catastrophe losses and less unfavorable development on prior years catastrophe losses in 2019 compared to 2018. The commission and brokerage ratio component decreased slightly to 23.1% in  2019 compared to 23.6% in 2018, reflecting changes in affiliated reinsurance agreements and changes in the mix of business.  The other underwriting expense ratio increased slightly to 6.4% in 2019 from 6.1% in 2018.

 

Our combined ratio increased by 0.6 points to 129.1% in  2018 compared to 128.5% in  2017.  The loss ratio component decreased by 5.2 points in 2018 over the same period last year mainly due to a lower loss ratio on current year catastrophe losses and changes in affiliated reinsurance agreements, partially offset by higher unfavorable development on prior years catastrophe losses in 2018 compared to 2017.  The commission and brokerage ratio component increased to 23.6% in  2018 compared to 10.8% in 2017, reflecting changes in affiliated reinsurance agreements and changes in the mix of business.  The other underwriting expense ratio decreased to 6.1% in 2018 from 13.1% in 2017, mainly due to the impact of changes in affiliated reinsurance contracts. 

 

Stockholder's Equity.

Stockholder’s equity increased by $820.6 million to $5,857.4 million at December 31, 2019 from $5,036.8 million at December 31, 2018, principally as a result of $629.7 million of net income, $180.6 million of net unrealized appreciation on investments, net of tax, $17.2 million of net foreign currency translation adjustments and $0.4 million of capital contributions, partially offset by $7.1 million of net benefit plan obligation adjustments.

 

Stockholder’s equity decreased by $372.5 million to $5,036.8 million at December 31, 2018 from $5,409.3 million at December 31, 2017, principally as a result of $962.2 million of net loss, $90.9 million of net unrealized depreciation on investments, net of tax and $36.4 million of net foreign currency translation adjustments, partially offset by $712.3 million of capital contributions and $4.5 million of net benefit plan obligation adjustments

 

Consolidated Investment Results

 

Net Investment Income. 

Net investment income increased by 13.3% to $356.2 million in 2019 compared to $314.4 million in 2018. The increase in 2019 was primarily due to higher income from our growing fixed maturity portfolio, partially offset by lower income from our limited partnerships and lower dividend income from our equity portfolio. 

 

Net investment income increased by 9.8% to $314.4 million in 2018 compared to $286.3 million in 2017. The increase in 2018 was primarily due to higher income from our limited partnerships and from our growing fixed maturity portfolio, partially offset by a lower dividend income from our equity portfolio.

 

The following table shows the components of net investment income for the periods indicated: 

 

 

The following table shows a comparison of various investment yields for the periods indicated:

 

 

Net Realized Capital Gains (Losses).

The following table presents the composition of our net realized capital gains (losses) for the periods indicated: