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

11/14/19  Everest Reinsurance Holdings Inc  10-Q        9/30/19   95:18M

Document/Exhibit                   Description                      Pages   Size 

 1: 10-Q        Holdings 10-Q 3Q19                                  HTML   2.75M 
 2: EX-31.1     Certification -- §302 - SOA'02 -- exhibit311        HTML     36K 
 3: EX-31.2     Certification -- §302 - SOA'02 -- exhibit312        HTML     36K 
 4: EX-32.1     Certification -- §906 - SOA'02 -- exhibit321        HTML     33K 
77: R1          Document And Entity Information                     HTML     59K 
46: R2          Consolidated Balance Sheets                         HTML    134K 
17: R3          Consolidated Balance Sheets (Parenthetical)         HTML     52K 
63: R4          Consolidated Statements Of Operations And           HTML    112K 
                Comprehensive Income (Loss)                                      
74: R5          Consolidated Statements Of Changes In               HTML     70K 
                Stockholder's Equity                                             
43: R6          Consolidated Statements Of Cash Flows               HTML    149K 
14: R7          General                                             HTML     32K 
61: R8          Basis Of Presentation                               HTML     57K 
78: R9          Revisions To Financial Statements                   HTML    593K 
75: R10         Investments                                         HTML    469K 
64: R11         Reserves For Losses And LAE                         HTML     57K 
15: R12         Fair Value                                          HTML    347K 
44: R13         Commitments And Contingencies                       HTML     38K 
76: R14         Comprehensive Income (Loss)                         HTML    164K 
65: R15         Collateralized Reinsurance And Trust Agreements     HTML     46K 
16: R16         Senior Notes                                        HTML     54K 
45: R17         Long Term Subordinated Notes                        HTML     61K 
79: R18         Federal Home Loan Membership                        HTML     33K 
62: R19         Leases                                              HTML     53K 
30: R20         Segment Reporting                                   HTML    125K 
37: R21         Related-Party Transactions                          HTML    177K 
94: R22         Retirement Benefits                                 HTML     72K 
59: R23         Income Taxes                                        HTML     33K 
31: R24         Subsequent Events                                   HTML     31K 
38: R25         Revisions To Financial Statements (Tables)          HTML    591K 
95: R26         Investments (Tables)                                HTML    455K 
60: R27         Reserves For Losses And LAE (Tables)                HTML     55K 
29: R28         Fair Value (Tables)                                 HTML    325K 
39: R29         Commitments And Contingencies (Tables)              HTML     37K 
42: R30         Comprehensive Income (Loss) (Tables)                HTML    166K 
12: R31         Senior Notes (Tables)                               HTML     57K 
67: R32         Long Term Subordinated Notes (Tables)               HTML     55K 
81: R33         Leases (Tables)                                     HTML     50K 
41: R34         Segment Reporting (Tables)                          HTML    126K 
11: R35         Related-Party Transactions (Tables)                 HTML    169K 
66: R36         Retirement Benefits (Tables)                        HTML     67K 
80: R37         Basis Of Presentation (Details)                     HTML     46K 
40: R38         Revisions To Financial Statements (Schedule Of      HTML     64K 
                Prior Period Financial Statements - Balance                      
                Sheets) (Details)                                                
13: R39         Revisions To Financial Statements (Schedule Of      HTML     67K 
                Prior Period Financial Statements - Operations And               
                Comprehensive Income (Loss)) (Details)                           
36: R40         Revisions To Financial Statements (Schedule Of      HTML     61K 
                Prior Period Financial Statements - Stockholder's                
                Equity) (Details)                                                
26: R41         Revisions To Financial Statements (Schedule Of      HTML     50K 
                Prior Period Financial Statements - Cash Flows)                  
                (Details)                                                        
55: R42         Investments (Narrative) (Details)                   HTML     67K 
90: R43         Investments (Summary Of Unrealized Appreciation     HTML     73K 
                (Depreciation) Of Available For Sale, Fixed                      
                Maturity And Equity Security Investments)                        
                (Details)                                                        
35: R44         Investments (Summary Of Amortized Cost And Market   HTML     72K 
                Value Of Fixed Maturity Securities, By Contractual               
                Maturity) (Details)                                              
25: R45         Investments (Summary Of Changes In Net Unrealized   HTML     46K 
                Appreciation (Depreciation) For The Company's                    
                Investments) (Details)                                           
54: R46         Investments (Summary Of Aggregate Market Value And  HTML     84K 
                Gross Unrealized Depreciation Of Fixed Maturity                  
                And Equity Securities, By Security Type) (Details)               
89: R47         Investments (Summary Of Aggregate Market Value And  HTML     71K 
                Gross Unrealized Depreciation Of Fixed Maturity                  
                And Equity Securities, By Contractual Maturity)                  
                (Details)                                                        
34: R48         Investments (Summary Of Components Of Net           HTML     57K 
                Investment Income) (Details)                                     
27: R49         Investments (Summary Of Components Of Net Realized  HTML     57K 
                Capital Gains (Losses)) (Details)                                
21: R50         Investments (Summary Of Gross Gains (Losses) From   HTML     40K 
                Sales Of Fixed Maturity And Equity Securities)                   
                (Details)                                                        
51: R51         Reserves For Losses And LAE (Narrative) (Details)   HTML     32K 
83: R52         Reserves For Losses And LAE (Summary Of Activity    HTML     57K 
                In The Reserve For Losses And LAE) (Details)                     
68: R53         Fair Value (Narrative) (Details)                    HTML     82K 
22: R54         Fair Value (Fair Value Measurement Levels For All   HTML    102K 
                Assets, Recorded At Fair And Market Value)                       
                (Details)                                                        
52: R55         Fair Value (Activity Under Level 3, Fair Value      HTML     75K 
                Measurements Using Significant Unobservable Inputs               
                By Asset Type) (Details)                                         
84: R56         Fair Value (Fair Value Measurements Using           HTML     44K 
                Significant Unobservable Inputs for Equity Index                 
                Put Option Contracts) (Details)                                  
69: R57         Commitments And Contingencies (Estimated Cost To    HTML     35K 
                Replace All Such Annuities For Which The Company                 
                Was Contingently Liable) (Details)                               
20: R58         Comprehensive Income (Loss) (Components Of          HTML     69K 
                Comprehensive Income (Loss) In The Consolidated                  
                Statements Of Operations) (Details)                              
53: R59         Comprehensive Income (Loss) (Reclassification From  HTML     49K 
                Accumulated Other Comprehensive Income) (Details)                
91: R60         Comprehensive Income (Loss) (Components Of          HTML     63K 
                Accumulated Other Comprehensive Income (Loss), Net               
                Of Tax, In The Consolidated Balance Sheets)                      
                (Details)                                                        
57: R61         Collateralized Reinsurance And Trust Agreements     HTML     99K 
                (Narrative) (Details)                                            
23: R62         Senior Notes (Narrative) (Details)                  HTML     42K 
32: R63         Senior Notes (Schedule Of Outstanding Senior        HTML     44K 
                Notes) (Details)                                                 
92: R64         Senior Notes (Schedule Of Interest Expense          HTML     31K 
                Incurred In Connection With Senior Notes)                        
                (Details)                                                        
58: R65         Long Term Subordinated Notes (Narrative) (Details)  HTML     62K 
24: R66         Long Term Subordinated Notes (Schedule Of           HTML     49K 
                Outstanding Fixed To Floating Rate Long Term                     
                Subordinated Notes) (Details)                                    
33: R67         Long Term Subordinated Notes (Schedule Of Interest  HTML     30K 
                Expense Incurred In Connection With Long Term                    
                Subordinated Notes) (Details)                                    
93: R68         Federal Home Loan Membership (Narratvie) (Details)  HTML     37K 
56: R69         Leases (Narrative) (Details)                        HTML     33K 
72: R70         Leases (Supplemental Information Relating to        HTML     42K 
                Operating Leases) (Details)                                      
88: R71         Leases (Maturities of Lease Liabilities) (Details)  HTML     49K 
50: R72         Segment Reporting (Narrative) (Details)             HTML     34K 
19: R73         Segment Reporting (Schedule Of Underwriting         HTML     60K 
                Results For Operating Segments) (Details)                        
70: R74         Segment Reporting (Schedule Of Underwriting         HTML     52K 
                Results For Operating Segments To Income (Loss)                  
                Before Taxes) (Details)                                          
86: R75         Segment Reporting (Schedule Of Gross Written        HTML     32K 
                Premium Derived From Largest Non-U.S. Market)                    
                (Details)                                                        
47: R76         Related-Party Transactions (Narrative) (Details)    HTML     92K 
18: R77         Related-Party Transactions (Amendments To The       HTML     43K 
                Share Repurchase Program For The Common Shares                   
                Approved For Repurchase) (Details)                               
73: R78         Related-Party Transactions (Dividends Received On   HTML     32K 
                Preferred Shares) (Details)                                      
85: R79         Related-Party Transactions (Affiliated Quota Share  HTML     76K 
                Reinsurance Agreements For All New And Renewal                   
                Business For The Indicated Coverage Period)                      
                (Details)                                                        
71: R80         Related-Party Transactions (Schedule Of Loss        HTML     42K 
                Portfolio Transfer Reinsurance Agreements, Net                   
                Insurance Exposures And Reserves Were Transferred                
                To An Affiliate) (Details)                                       
87: R81         Related-Party Transactions (Premiums And Losses     HTML     59K 
                Ceded By The Company To Affiliate) (Details)                     
48: R82         Retirement Benefits (Details)                       HTML     57K 
28: XML         IDEA XML File -- Filing Summary                      XML    189K 
82: EXCEL       IDEA Workbook of Financial Reports                  XLSX    124K 
 7: EX-101.INS  XBRL Instance -- cik0000914748-20190930              XML   6.38M 
 5: EX-101.CAL  XBRL Calculations -- cik0000914748-20190930_cal      XML    259K 
 6: EX-101.DEF  XBRL Definitions -- cik0000914748-20190930_def       XML    998K 
 8: EX-101.LAB  XBRL Labels -- cik0000914748-20190930_lab            XML   1.81M 
 9: EX-101.PRE  XBRL Presentations -- cik0000914748-20190930_pre     XML   1.47M 
10: EX-101.SCH  XBRL Schema -- cik0000914748-20190930                XSD    228K 
49: ZIP         XBRL Zipped Folder -- 0000914748-19-000015-xbrl      Zip    293K 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

 

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

For the quarterly period ended September 30, 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

 

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.

YES  ☑      NO  ☐

 

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).

YES  ☑      NO  ☐

 

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.

YES   ☐     NO  ☑

 

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

YES   ☐     NO  ☑

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

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

 

EVEREST REINSURANCE HOLDINGS, INC.

 

Table of Contents

Form 10-Q

 

EVEREST REINSURANCE HOLDINGS, INC.

CONSOLIDATED BALANCE SHEETS

EVEREST REINSURANCE HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE INCOME (LOSS)

EVEREST REINSURANCE HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF

CHANGES IN STOCKHOLDER’S EQUITY

 

EVEREST REINSURANCE HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)

 

For the Three and Nine Months Ended September 30, 2019, and 2018

 

1.  GENERAL

 

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” means Holdings and its subsidiaries.

 

During the fourth quarter of 2018, Everest Global Services (“Global Services”), a previously affiliated company, was contributed to Holdings from its parent company, Holdings Ireland. 

 

2.  BASIS OF PRESENTATION

 

The unaudited consolidated financial statements of the Company as of September 30, 2019 and December 31, 2018 and  for the three and nine months ended September 30, 2019 and 2018 include all adjustments, consisting of normal recurring accruals, which, in the opinion of management, are necessary for a fair statement of the results on an interim basis.  Certain financial information, which is normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”), has been omitted since it is not required for interim reporting purposes.  The December 31, 2018 consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP.  The results for the three and nine months ended September 30, 2019 and 2018 are not necessarily indicative of the results for a full year.  These financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the years ended December 31, 2018, 2017 and 2016 included in the Company’s most recent Form 10-K filing. 

 

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities (and disclosure of contingent assets and liabilities) at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Ultimate actual results could differ, possibly materially, from those estimates. 

 

All intercompany accounts and transactions have been eliminated. 

 

Certain reclassifications and format changes have been made to prior years’ amounts to conform to the 2019 presentation. 

 

Application of Recently Issued Accounting Standard Changes. 

 

Accounting for Cloud Computing Arrangement.  In August 2018, The Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2018-15, which outlines accounting for implementation costs of a cloud computing arrangement that is a service contract.  This guidance requires that implementation costs of a cloud computing arrangement that is a service contract must be capitalized and expensed in accordance with the existing provisions provided in Subtopic 350-40 regarding development of internal use software.  In addition, any capitalized implementation costs should be amortized over the term of the hosting arrangement.  The guidance is effective for annual reporting periods beginning after December 15, 2019 and interim periods within that annual reporting period.  The Company is currently evaluating the impact of the adoption of ASU 2018-15 on its financial statements.

 

Accounting for Long Duration Contracts.  In August 2018, FASB issued ASU 2018-12, which discusses changes to the recognition, measurement and presentation of long duration contracts.  The main provisions of this guidance address the following:  1) In determining liability for future policy benefits, companies must review cash flow assumptions at least annually and the discount rate assumption at each reporting period date 2) Amortization of deferred acquisition costs has been simplified to be in constant level proportion to either  C: 

 C: premiums, gross profits or gross margins 3) Disaggregated roll forwards of beginning and ending liabilities for future policy benefits are required.  The guidance is effective for annual reporting periods beginning after December 15, 2021 and interim periods within that annual reporting period.  The Company is currently evaluating the impact of the adoption of ASU 2018-12 on its financial statements.

 

Accounting for Deferred Taxes in Accumulated Other Comprehensive Income (AOCI).  In February 2018, FASB issued ASU 2018-02, which outlines guidance on the treatment of trapped deferred taxes contained within AOCI on the consolidated balance sheets.  The new guidance allows the amount of trapped deferred taxes in AOCI, resulting from the change in the U.S. tax rate from 35% to 21% upon enactment of the Tax Cuts and Jobs Act (“TCJA”), to be reclassed as part of retained earnings in the consolidated balance sheets.  The guidance is effective for annual and interim reporting periods beginning after December 15, 2018, but early adoption is allowed.  The Company decided to early adopt the guidance as of December 31, 2017.  The adoption resulted in a reclass of $325 thousand between AOCI and retained earnings during the fourth quarter of 2017.  As an accounting policy, the Company has adopted the aggregate portfolio approach for releasing disproportionate income tax effects from AOCI. 

 

Accounting for Impact on Income Taxes due to Tax Reform.  In December 2017, the SEC issued Staff Accounting Bulletin (“SAB”) 118, which provides guidance on the application of FASB Accounting Standards Codification (“ASC”) Topic 740, Income Taxes, due to the enactment of TCJA.  SAB 118 became effective upon release.  The Company has adopted the provisions of SAB 118 with respect to measuring the tax effects for the modifications to the determination of tax basis loss reserves.  In 2018, the Company recorded adjustments to the amount of tax expense it recorded in 2017 with respect to the TCJA as estimated amounts were finalized, which did not have a material impact on the Company’s financial statements. 

 

Amortization of Bond Premium.  In March 2017, FASB issued ASU 2017-08 which outlines guidance on the amortization period for premium on callable debt securities.  The new guidance requires that the premium on callable debt securities be amortized through the earliest call date rather than through the maturity date of the callable security.  The guidance is effective for annual and interim reporting periods beginning after December 15, 2018.  The adoption of ASU 2017-08 did not have a material impact on the Company’s financial statements.

 

Presentation and Disclosure of Net Periodic Benefit Costs.  In March 2017, FASB issued ASU 2017-07, which outlines guidance on the presentation of net periodic costs of benefit plans.  The new guidance requires that the service cost component of net periodic benefit costs be reported within the same line item of the statements of operations as other compensation costs are reported.  Other components of net periodic benefit costs should be reported separately.  Footnote disclosure is required to state within which line items of the statements of operations the components are reported.  The guidance is effective for annual and interim reporting periods beginning after December 15, 2017.  The Company adopted the guidance effective January 1, 2018.  The adoption of ASU 2017-07 did not have a material impact on the Company’s financial statements.

 

Disclosure of Restricted Cash.  In November 2016, FASB issued ASU 2016-18 and in August 2016, FASB issued ASU 2016-15, which outlines guidance on the presentation in the statements of cash flows of changes in restricted cash.  The new guidance requires that the statements of cash flows should reflect all changes in cash, cash equivalents and restricted cash in total and not segregated individually.  The guidance is effective for annual and interim reporting periods beginning after December 15, 2017.  The Company adopted the guidance effective January 1, 2018.  The adoption of ASU 2016-18 and ASU 2016-15 did not have a material impact on the Company’s financial statements.

 

Intra-Entity Asset Transfers.  In October 2016, FASB issued ASU 2016-16, which outlines guidance on the tax accounting for intra-entity asset sales and transfers, other than inventory.  The new guidance requires that reporting entities recognize tax expense from the intra-entity transfer of an asset in the seller’s tax jurisdiction at the time of transfer and recognize any deferred tax asset in the buyer’s tax jurisdiction at the time of transfer.  The guidance is effective for annual and interim reporting periods beginning after December 15, 2017.  The Company adopted the guidance effective January 1, 2018.  The adoption of ASU 2016-16 did not have a material impact on the Company’s financial statements.

 

Valuation of Financial Instruments.  In June 2016, FASB issued ASU 2016-13, which outline guidance on the valuation of and accounting for assets measured at amortized cost and available for sale debt securities.  The carrying value of assets measured at amortized cost will now be presented as the amount expected to be collected on the financial asset (amortized cost less an allowance for credit losses valuation account).  Available for sale debt securities will now record credit losses through an allowance for credit losses, which will be limited to the amount by which fair value is below amortized cost.  The guidance is effective for annual and interim reporting periods beginning after December 15, 2019.  The Company is currently evaluating the impact of the adoption of ASU 2016-13 on its financial statements.

 

Leases.  In February 2016, FASB issued ASU 2016-02 (and subsequently issued ASU 2018-11 in July, 2018) which outline new guidance on the accounting for leases.  The new guidance requires the recognition of lease assets and lease liabilities on the balance sheets for most leases that were previously deemed operating leases and required only lease expense presentation in the statements of operations.  The guidance is effective for annual and interim reporting periods beginning after December 15, 2018.  The Company adopted ASU 2016-02 effective January 1, 2019 and elected to utilize a cumulative-effect adjustment to the opening balance of retained earnings for the year of adoption.  Accordingly, the Company’s reporting for the comparative periods prior to adoption continue to be presented in the financial statements in accordance with previous lease accounting guidance.  The Company also elected to apply the package of practical expedients applicable to the Company in the updated guidance for transition for leases in effect at adoption.  The Company did not elect the hindsight practical expedient to determine the lease term of existing leases (e.g. The Company did not re-assess lease renewals, termination options nor purchase options in determining lease terms).  The adoption of the updated guidance resulted in the Company recognizing a right-of-use asset of $60,325 thousand as part of other assets and a lease liability of $66,551 thousand as part of other liabilities in the consolidated balance sheet, as well as de-recognizing the liability for deferred rent that was required under the previous guidance.  The cumulative effect adjustment to the opening balance of retained earnings was zero. The adoption of the updated guidance did not have a material effect on the Company’s results of operations or liquidity.

 

Recognition and Measurement of Financial Instruments.  In January 2016, the FASB issued ASU 2016-01, which outlines revised guidance on the accounting for equity investments.  The new guidance states that all equity investments in unconsolidated entities will be measured at fair value, with the change in value being recorded through the income statement rather than being recorded within other comprehensive income.  The updated guidance is effective for annual and interim reporting periods beginning after December 15, 2017.  The Company adopted the guidance effective January 1, 2018.  The adoption of ASU 2016-01 resulted in a cumulative change adjustment of $2,447 thousand between AOCI and retained earnings, which is disclosed separately within the consolidated statement of changes in shareholders equity. 

 

Revenue Recognition.  In May 2014, the FASB issued ASU 2014-09 and in August 2015, FASB issued ASU 2015-14, which outline revised guidance on the recognition of revenue arising from contracts with customers.  The new guidance states that reporting entities should apply certain steps to determine when revenue should be recognized, based upon fulfillment of performance obligations to complete contracts.  The updated guidance is effective for annual and interim reporting periods beginning after December 15, 2017.  The Company adopted the guidance effective January 1, 2018.  The adoption of ASU 2014-09 and ASU 2015-14 did not have a material impact on the Company’s financial statements.

 

Any issued guidance and pronouncements, other than those directly referenced above, are deemed by the Company to be either not applicable or immaterial to its financial statements. 

 

3.   REVISIONS TO FINANCIAL STATEMENTS

 

In preparing its current period financial statements, the Company identified errors in the handling of foreign exchange related to premium funds held from reinsureds.  Although management determined that the impact of the foreign exchange differences were not material to prior period financial statements, the impact of recording the cumulative difference would have significantly impacted results within the current period.  As a result, prior period balances have been revised in the applicable financial statements and corresponding footnotes to correct the foreign exchange adjustments.

 

Management assessed the materiality of this change within prior period financial statements based upon SEC Staff Accounting Bulletin Number 99, Materiality, which is since codified in Accounting Standards Codification ("ASC") 250, Accounting Changes and Error Corrections. The prior period comparative financial statements that are presented herein have been revised.

 

The following tables present line items for prior period financial statements that have been affected by the revision. For these line items, the tables detail the amounts as previously reported, the impact upon those line items due to the revision, and the amounts as currently revised within the financial statements.