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Comprehensive Income (Loss)
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Shareholders? Equity
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Shareholders? Equity (Parenthetical)
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Other Restricted Assets
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Value of Fixed Maturity Securities, by Contractual
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Unrealized Appreciation (Depreciation) for the
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Gross Unrealized Depreciation of Fixed Maturity
Securities by Security Type (Details)
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Investment Income (Details)
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Allowance for Credit Losses of Fixed Maturities,
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Allowance for Credit Losses of Fixed Maturities,
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Results for Segments (Details)
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Notes (Details)
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OTHER RESTRICTED ASSETS - Schedule of Restricted
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OTHER RESTRICTED ASSETS - Narrative (Details)
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OTHER RESTRICTED ASSETS - Schedule of Premiums and
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OTHER RESTRICTED ASSETS - Schedule of
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Components of Comprehensive Income (Loss)
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Amount Reclassified from Accumulated Other
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(Exact name of registrant as specified in its charter)
iBermuda
i98-0365432
(State
or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
iSeon Place – 4th Floor
i141
Front Street
iPO Box HM 845
iHamiltoniBermuda
iHM
19
(Address of principal executive offices)
(Zip Code)
i441-i295-0006
(Registrant’s telephone number, including area code)
Not Applicable
(Former name, former address and
former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Class
Trading Symbol
Name of Exchange where Registered
iCommon
Shares, $0.01 par value
iEG
iNew York Stock Exchange
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.
iYes
X
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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
iYes
X
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.
iLarge
Accelerated Filer
X
Accelerated filer
Non-accelerated filer
iSmaller reporting company
iEmerging
growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
YES
iNO
X
Indicate
the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
This report contains forward-looking statements within the meaning of the United States Private Securities Litigation Reform Act of 1995 and other U.S. federal securities laws. We intend these forward-looking statements to be covered by the safe harbor provisions for forward-looking statements in the federal securities laws. In some cases, these statements can be identified by the use of forward-looking words such as “may”, “will”, “should”, “could”, “anticipate”, “estimate”, “expect”, “plan”, “believe”, “predict”, “potential” and “intend”. Forward-looking statements only reflect our expectations and are not guarantees of performance. These statements involve risks, uncertainties and assumptions. Actual events or results may differ materially from
our expectations. Important factors that could cause our actual events or results to be materially different from our expectations are discussed in our filings with the U.S. Securities and Exchange Commission (the “SEC”) including those described under the caption “Item 1A - Risk Factors” in our most recent Annual Report on Form 10-K (the “Form 10-K filing”). These include:
•the effects of catastrophic events on our financial statements;
•our losses from catastrophe exposure could exceed our projections;
•information regarding our reserves for losses and loss adjustment expenses or LAE;
•our failure to accurately assess underwriting risk and establish adequate premium rates;
•decreases
in pricing for property and casualty reinsurance and insurance;
•our inability or failure to purchase reinsurance;
•our ability to maintain our financial strength ratings;
•the failure of our insured, intermediaries and reinsurers to satisfy their obligations to us;
•decline in our investment values and investment income due to exposure to financial markets conditions;
•the failure to maintain enough cash to meet near-term financial obligations;
•our ability to pay dividends, interest and principal, which is dependent on our ability to receive dividends, loan payments
and other funds from our subsidiaries due to our holding company structure;
•reduced net income and capital levels due to foreign currency exchange losses;
•our sensitivity to unanticipated levels of inflation;
•the effects of measures taken by domestic or foreign governments on our business;
•our ability to retain our key executive officers and to attract or retain the executives and employees necessary to manage our business;
•the effect of cybersecurity risks, including technology breaches or failure, and regulatory and legislative developments
related to cybersecurity on our business;
•our dependence on brokers and agents for business developments;
•material variation of analytical models used in decision making from actual results;
•the effects of business continuation risk on our operations;
•the effect on our business of the highly competitive nature of our industry, including the effects of new entrants to, competing products for and consolidation in the (re)insurance industry;
•an anti-takeover effect caused by insurance laws and provisions in the bye-laws of Group (as defined in Part I below);
•the difficulty
investors in Group may have in protecting their interests compared to investors in a U.S. corporation;
•our failure to comply with insurance laws and regulations and other regulatory challenges;
•the ability of Bermuda Re (as defined in Part I below) to obtain licenses or admittance in additional jurisdictions to develop its business;
•the ability of Bermuda Re to arrange for security to back its reinsurance impacting its ability to write reinsurance;
•changes in international and U.S. tax laws;
•the effect on Group and/or Bermuda Re should it become subject to taxes in jurisdictions where not currently subject to taxation; and
•the
ability of Everest Re, Holdings, and Holdings Ireland (each, as defined in Part I below), Everest Dublin Insurance Holdings Limited (Ireland), Bermuda Re and Everest International Reinsurance, Ltd. to pay dividends.
We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.
Everest
Group, Ltd. (“Group”), a Bermuda company, through its subsidiaries, principally provides reinsurance and insurance in the U.S., Bermuda and other international markets. As used in this document, “Company” means Group and its subsidiaries.
Unless noted otherwise, all tabular dollar amounts are in millions of United States (“U.S.”) dollars (“U.S. dollars” or “$”). Some amounts may not reconcile due to rounding.
2. iBASIS
OF PRESENTATION
i
The unaudited consolidated financial statements of the Company as of March 31, 2024 and December 31, 2023 and for the three months ended March 31, 2024 and 2023 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, 2023 consolidated balance sheet data was derived from audited financial statements but does not include all disclosures required by GAAP. The results for the three months ended March 31, 2024 and 2023 are not necessarily indicative of the results for a full year. These financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the years ended December 31, 2023, 2022
and 2021, included in the Company’s most recent Form 10-K filing.
iThe Company consolidates the results of operations and financial position of all voting interest entities ("VOE") in which the Company has a controlling financial interest and all variable interest entities ("VIE") in which the
Company is considered to be the primary beneficiary. The consolidation assessment, including the determination as to whether an entity qualifies as a VIE or VOE, depends on the facts and circumstances surrounding each entity.
i
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.
i
All
intercompany accounts and transactions have been eliminated.
i
Adoption of New Accounting Standards
The Company did not adopt any new accounting standards that had a material impact during the three months ended March 31, 2024.
Future Adoption of Recently Issued Accounting Standards
The
Company assessed the adoption impacts of recently issued accounting standards that are effective after 2024 by the Financial Accounting Standards Board on the Company’s consolidated financial statements. Additionally, the Company assessed whether there have been material updates to previously issued accounting standards that are effective after 2024. There were no accounting standards identified, other than those directly referenced below, that are expected to have a material impact to Group.
Improvements to Income Tax Disclosures. InDecember 2023, the Financial Accounting Standards Board issued Accounting Standard Update No. 2023-09, which requires expanded income tax disclosures,
including the disaggregation of existing disclosures related to the tax rate reconciliation and income taxes paid. The guidance is effective for annual periods beginning after December 15, 2024. Prospective application is required, with retrospective application permitted. The Company is currently evaluating the effect the updated guidance will have on the Company's financial statement disclosures.
Application of Methods and Assumption changes
The
Company refined its premium estimation methodology for its risk attaching reinsurance contracts within its Reinsurance Segment to continue to recognize gross written premium over the term of the treaty, albeit over a different
pattern than what was previously used. The refined estimate resulted in an increase of gross written premium for the three months ended March 31, 2024, and has further aligned the estimation methodology across the reinsurance division globally. This change had no impact on the total written
premium to be recognized over the term of the treaty. There was no impact on net earned premium and therefore, no impact on income from continuing operations, net income, or any related per-share amounts.
3. iINVESTMENTS
i
The
tables below present the amortized cost, allowance for credit losses, gross unrealized appreciation/(depreciation) (“URA(D)”) and fair value of fixed maturity securities - available for sale for the periods indicated:
The following tables show amortized cost, allowance for credit losses, gross URA(D) and fair value of fixed maturity securities - held to maturity for the periods indicated:
Total
fixed maturity securities - held to maturity
$
i864
$
(i8)
$
i12
$
(i13)
$
i854
(Some
amounts may not reconcile due to rounding.)
i
The amortized cost and fair value of fixed maturity securities - available for sale are shown in the following table by contractual maturity. As the stated maturity of such securities may not be indicative of actual maturities, the totals for mortgage-backed and asset-backed securities are shown separately.
The amortized cost and fair value of fixed maturity securities - held to maturity are shown in the following table by contractual maturity. As the stated maturity of such securities may not be indicative of actual maturities, the totals for mortgage-backed and asset-backed securities are shown separately.
Total
fixed maturity securities - held to maturity
$
i849
$
i842
$
i864
$
i854
(Some
amounts may not reconcile due to rounding.)
i
The changes in net URA(D) for the Company’s investments are as follows:
Three
Months Ended March 31,
(Dollars in millions)
2024
2023
Increase (decrease) during the period between the fair value and cost of
investments carried at fair value, and deferred taxes thereon:
Fixed
maturity securities - available for sale and short-term investments
$
(i186)
$
i279
Change
in URA(D), pre-tax
(i186)
$
i279
Deferred
tax benefit (expense)
i33
$
(i30)
Change
in URA(D), net of deferred taxes, included in shareholders’ equity
$
(i153)
$
i249
(Some
amounts may not reconcile due to rounding.)
/i
The tables below display the aggregate fair value and gross unrealized depreciation of fixed maturity securities - available for sale by security type and contractual maturity, in each case subdivided according to length of time that individual securities had been in a continuous unrealized loss position
for the periods indicated:
Duration of Unrealized Loss at March 31, 2024 By Security Type
Less than 12 months
Greater
than 12 months
Total
(Dollars in millions)
Fair Value
Gross Unrealized Depreciation
Fair Value
Gross Unrealized Depreciation
Fair Value
Gross Unrealized Depreciation
Fixed maturity securities - available for sale
U.S.
Treasury securities and obligations of
U.S. government agencies and corporations
$
i159
$
(i3)
$
i749
$
(i49)
$
i908
$
(i52)
Obligations
of U.S. states and political subdivisions
i8
i—
i63
(i9)
i71
(i10)
Corporate
securities
i1,767
(i47)
i2,911
(i282)
i4,678
(i329)
Asset-backed
securities
i399
(i3)
i943
(i30)
i1,342
(i33)
Mortgage-backed
securities
Commercial
i167
(i17)
i722
(i66)
i890
(i84)
Agency
residential
i1,143
(i18)
i2,101
(i262)
i3,244
(i280)
Non-agency
residential
i211
(i4)
i5
i—
i215
(i4)
Foreign
government securities
i494
(i14)
i994
(i117)
i1,488
(i131)
Foreign
corporate securities
i885
(i9)
i2,653
(i276)
i3,537
(i285)
Total
$
i5,233
$
(i115)
$
i11,141
$
(i1,092)
$
i16,374
$
(i1,208)
Securities
where an allowance for credit loss was recorded
i33
(i1)
i2
i—
i35
(i1)
Total
fixed maturity securities - available for sale
Duration
of Unrealized Loss at March 31, 2024 By Maturity
Less than 12 months
Greater than 12 months
Total
(Dollars in millions)
Fair Value
Gross Unrealized Depreciation
Fair Value
Gross Unrealized Depreciation
Fair Value
Gross Unrealized Depreciation
Fixed
maturity securities - available for sale
Due in one year or less
$
i214
$
(i3)
$
i876
$
(i36)
$
i1,090
$
(i39)
Due
in one year through five years
i1,135
(i18)
i3,822
(i299)
i4,958
(i317)
Due
in five years through ten years
i1,282
(i25)
i2,234
(i325)
i3,516
(i350)
Due
after ten years
i682
(i26)
i438
(i74)
i1,119
(i100)
Asset-backed
securities
i399
(i3)
i943
(i30)
i1,342
(i33)
Mortgage-backed
securities
i1,521
(i40)
i2,828
(i328)
i4,349
(i368)
Total
$
i5,233
$
(i115)
$
i11,141
$
(i1,092)
$
i16,374
$
(i1,208)
Securities
where an allowance for credit loss was recorded
i33
(i1)
i2
i—
i35
(i1)
Total
fixed maturity securities - available for sale
$
i5,267
$
(i116)
$
i11,143
$
(i1,092)
$
i16,409
$
(i1,209)
(Some
amounts may not reconcile due to rounding.)
/
The aggregate fair value and gross unrealized losses related to fixed maturity securities - available for sale in an unrealized loss position at March 31, 2024 were $i16.4 billion and $i1.2
billion, respectively. The fair value of securities for the single issuer (the United States government), whose securities comprised the largest unrealized loss position at March 31, 2024, amounted to less than i3.0% of the overall fair value of the Company’s fixed maturity securities available for sale. The fair value of the securities for the issuer with the second largest unrealized loss position at March 31, 2024 comprised less than i0.7%
of the Company’s fixed maturity securities available for sale. In addition, as indicated on the above table, there was no significant concentration of unrealized losses in any one market sector. The $i116 million of unrealized losses related to fixed maturity securities - available for sale that have been in an unrealized loss position for less than one year were generally
comprised of domestic and foreign corporate securities, agency residential and commercial mortgage-backed securities and foreign government securities. Of these unrealized losses, $i108 million were related to securities that were rated investment grade by at least one nationally recognized rating agency. The $i1.1
billion of unrealized losses related to fixed maturity securities - available for sale in an unrealized loss position for more than one year related primarily to domestic and foreign corporate securities, agency residential mortgage-backed securities, foreign government securities and commercial mortgage-backed securities. Of these unrealized losses, $i1.1 billion were related to securities that were rated investment grade by at least one nationally recognized
rating agency. In all instances, there were no projected cash flow shortfalls to recover the full book value of the investments and the related interest obligations. The mortgage-backed securities still have excess credit coverage and are current on interest and principal payments. Based upon the Company’s current evaluation of securities in an unrealized loss position as of March 31, 2024, the unrealized losses are due to changes in interest rates and non-issuer-specific credit spreads and are not credit-related. In addition, the contractual terms of these securities do not permit these securities to be settled at a price less than their amortized cost.
The tables below display the aggregate fair value and gross unrealized depreciation of fixed maturity securities - available for sale by security type and contractual maturity, in each case subdivided according to length of time that individual securities had been in a continuous unrealized loss position for the periods indicated:
Securities
where an allowance for credit loss was recorded
i2
(i1)
i—
i—
i2
(i1)
Total
fixed maturity securities - available for sale
$
i2,566
$
(i102)
$
i12,222
$
(i1,035)
$
i14,789
$
(i1,137)
(Some
amounts may not reconcile due to rounding.)
The aggregate fair value and gross unrealized losses related to fixed maturity - available for sale investments in an unrealized loss position at December 31, 2023 were $i14.8 billion and $i1.1
billion, respectively. The fair value of securities for the single issuer (the United States government), whose securities comprised the largest unrealized loss position at December 31, 2023, amounted to less than i3.0% of the overall fair value of the Company’s fixed maturity securities - available for sale. The fair value of the securities for the issuer with the second largest unrealized loss comprised less than i0.7%
of the Company’s fixed maturity securities - available for sale. In addition, as indicated on the above table, there was no significant concentration of unrealized losses in any one market sector. The $i102 million of unrealized losses related to fixed maturity securities - available for sale that have been in an unrealized loss position for less than one year were generally
comprised of domestic and foreign corporate securities, asset-backed securities, agency residential mortgage-backed securities and foreign government securities. Of these unrealized losses, $i86 million were related to securities that were rated investment grade by at least one nationally recognized rating agency. The $i1.0
billion of unrealized losses related to fixed maturity securities - available for sale in an unrealized loss position for more than one year related primarily to domestic and foreign corporate securities, agency residential mortgage-backed securities and foreign government securities. Of these unrealized losses, $i1.0 billion were related to securities that were
rated investment grade by at least one nationally recognized rating agency. In all instances, there were no projected cash flow shortfalls to recover the full book value of the investments and the related interest obligations. The mortgage-backed securities still have excess credit coverage and are current on interest and principal payments.
i
The components of net investment income are presented in the table below for the periods indicated:
Three
Months Ended March 31,
(Dollars in millions)
2024
2023
Fixed maturities
$
i352
$
i247
Equity
securities
i1
i1
Short-term
investments and cash
i38
i17
Other
invested assets
Limited partnerships
i54
(i15)
Other
i20
i22
Gross
investment income before adjustments
i465
i272
Funds
held interest income (expense)
i6
i—
Future
policy benefit reserve income (expense)
i—
i—
Gross
investment income
i470
i272
Investment
expenses
i13
i12
Net
investment income
$
i457
$
i260
(Some
amounts may not reconcile due to rounding.)
/
The Company records results from limited partnership investments on the equity method of accounting with changes in value reported through net investment income. The net investment income from limited partnerships is dependent upon the Company’s share of the net asset values (“NAVs”) of interests underlying each limited partnership. Due to the timing of receiving financial information from these partnerships, the results are generally reported on a one month or quarter lag. If the Company
determines there has been a significant decline in value of a limited partnership during this lag period, a loss will be recorded in the period in which the Company identifies the decline.
The Company had contractual commitments to invest up to an additional $i2.8 billion in limited partnerships and private placement loan securities at March 31, 2024. These
commitments will be funded when called in accordance with the partnership and loan agreements, which have investment periods that expire, unless extended, through 2034.
In 2022, the Company entered into corporate-owned life insurance (“COLI”) policies, which are invested in debt and equity securities. The COLI policies are carried within other invested assets at policy cash surrender value of $i1.4
billion and $i1.3 billion as of March 31, 2024 and December 31, 2023, respectively.
Variable Interest Entities
The Company is engaged with various special purpose entities and other entities that are deemed to be VIEs primarily as an investor through normal investment activities but also as an investment manager. A VIE is
an entity that either has investors that lack certain essential characteristics of a controlling financial interest, such as simple majority kick-out rights, or lacks sufficient funds to finance its own activities without financial support provided by other entities. The Company performs ongoing qualitative assessments of its VIEs to determine whether the Company has a controlling financial interest in the VIE and therefore is the primary beneficiary. The Company is deemed to have a controlling financial interest when it has both the ability to direct the activities that most significantly impact the economic performance of the VIE and the obligation to absorb losses or right to receive benefits from the VIE
that could potentially be significant to the VIE. Based on the Company’s assessment, if it determines it is the primary beneficiary, the Company consolidates the VIE in the Company’s Consolidated Financial Statements. As of March 31, 2024 and December 31, 2023, the Company did iinot/
hold any securities for which it is the primary beneficiary.
The Company, through normal investment activities, makes passive investments in general and limited partnerships and other alternative investments. For these non-consolidated VIEs, the Company has determined it is not the primary beneficiary as it has no ability to direct activities that could significantly affect the economic performance of the investments. The Company’s maximum exposure to loss as of March 31, 2024 and December 31, 2023 is limited to the total carrying value of $i4.9
billion and $i4.8 billion, respectively, which are included in general and limited partnerships, COLI policies and other alternative investments in other invested assets in the Company's Consolidated Balance Sheets.
As of March 31, 2024, the Company has outstanding commitments totaling $i2.2 billion whereby the Company is committed to fund these investments and may be called by the partnership during the commitment period to fund the purchase of new investments and partnership expenses. These investments are generally of a passive nature in
that the Company does not take an active role in management.
In addition, the Company makes passive investments in structured securities issued by VIEs for which the Company is not the manager. These investments are included in asset-backed securities, which includes collateralized loan obligations and are classified as fixed maturities, available for sale. The Company has not provided financial or other support with respect to these investments other than its original investment. For these investments, the
Company determined it is not the primary beneficiary due to the relative size of the Company’s investment in comparison to the principal amount of the structured securities issued by the VIEs, credit subordination that reduces the Company’s obligation to absorb losses or right to receive benefits or the Company’s inability to direct the activities that most significantly impact the economic performance of the VIEs. The Company’s maximum exposure to loss on these investments is limited to the amount of the Company’s investment.
i
The
components of net gains (losses) on investments are presented in the table below for the periods indicated:
Three Months Ended March 31,
(Dollars in millions)
2024
2023
Fixed
maturity securities
Allowance for credit losses
$
i2
$
(i8)
Net
realized gains (losses) from dispositions
(i7)
i2
Equity
securities, fair value
Net realized gains (losses) from dispositions
i1
i7
Gains
(losses) from fair value adjustments
(i2)
i4
Other
invested assets
i—
i—
Short-term
investments gain (loss)
i—
i—
Total
net gains (losses) on investments
$
(i7)
$
i5
(Some
amounts may not reconcile due to rounding.)
/
i
The following tables provide a roll forward of the Company’s beginning and ending balance of allowance for credit losses for the periods indicated:
Roll
Forward of Allowance for Credit Losses - Fixed Maturities - Available for Sale
The proceeds and split between gross gains and losses from dispositions of fixed maturity and equity securities are presented in the table below for the periods indicated:
Three
Months Ended March 31,
(Dollars in millions)
2024
2023
Proceeds from sales of fixed maturity securities - available for sale
$
i407
$
i72
Gross
gains from dispositions
i11
i11
Gross
losses from dispositions
(i18)
(i9)
Proceeds
from sales of equity securities
$
i—
$
i46
Gross
gains from dispositions
i1
i7
Gross
losses from dispositions
i—
i—
(Some
amounts may not reconcile due to rounding.)
/
4. iFAIR VALUE
GAAP guidance regarding fair value measurements addresses how companies should measure fair value when they are required to use fair value measures for recognition or disclosure purposes under GAAP and provides a common definition of fair value
to be used throughout GAAP. It defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly fashion between market participants at the measurement date. In addition, it establishes a three-level valuation hierarchy for the disclosure of fair value measurements. The valuation hierarchy is based on the transparency of inputs to the valuation of an asset or liability. The level in the hierarchy within which a given fair value measurement falls is determined based on the lowest level input that is significant to the measurement, with Level 1 being the highest priority and Level 3 being the lowest priority.
The levels in the hierarchy are defined as follows:
Level 1: Inputs to the valuation methodology are observable inputs that reflect unadjusted quoted prices for identical assets or liabilities in an active market;
Level
2: Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument;
Level 3: Inputs to the valuation methodology are unobservable and significant to the fair value measurement.
The Company’s fixed maturity and equity securities are managed both internally and on an external basis by independent, professional investment managers using portfolio guidelines approved by the Company. The Company obtains prices from nationally recognized
pricing services. These services seek to utilize market data and observations in their evaluation process. These services use pricing applications that vary by asset class and incorporate available market information and when fixed maturity securities do not trade on a daily basis the services will apply available information through processes such as benchmark curves, benchmarking of like securities, sector groupings and matrix pricing. In addition, they use model processes, such as the Option Adjusted Spread model to develop prepayment and interest rate scenarios for securities that have prepayment features.
The Company does not make any changes to prices received from the pricing services. In addition, the Company has procedures in place to review
the reasonableness of the prices from the service providers and may request verification of the prices. The Company also continually performs quantitative and qualitative analysis of prices, including but not limited to initial and ongoing review of pricing methodologies, review of prices obtained from pricing services and third party investment asset managers, review of pricing statistics and trends, and comparison of prices for certain securities with a secondary price source for reasonableness. No material variances were noted during these price validation procedures. In limited situations, where financial markets are inactive or illiquid, the Company may use its own assumptions about future cash flows and risk-adjusted discount rates to determine fair value.
At
March 31, 2024, $i2.0 billion of fixed maturities were fair valued using unobservable inputs. The majority of these fixed maturities were valued by investment managers’ valuation committees and many of these fair values were substantiated by valuations from independent third parties. The Company has procedures in place to evaluate these independent third-party valuations. At December 31,
2023, $i2.0 billion of fixed maturities were fair valued using unobservable inputs.
Equity
securities denominated in U.S. currency with quoted prices in active markets for identical assets are categorized as Level 1 since the quoted prices are directly observable. Equity securities traded on foreign exchanges are categorized as Level 2 due to the added input of a foreign exchange conversion rate to determine fair value. The Company uses foreign currency exchange rates published by nationally recognized sources.
Fixed maturity securities listed in the tables have been categorized as Level 2, since a particular security may not have traded but the pricing services are able to use valuation models with observable market inputs such as interest rate yield curves and prices for similar fixed maturity securities in terms of issuer, maturity and seniority. For foreign government securities and foreign corporate securities, the fair
values provided by the third party pricing services in local currencies, and where applicable, are converted to U.S. dollars using currency exchange rates from nationally recognized sources.
In addition, some of the fixed maturities with fair values categorized as Level 3 result when prices are not available from the nationally recognized pricing services and are obtained from investment managers and are derived using unobservable inputs. The Company will value the securities with unobservable inputs using comparable market information or receive fair values from investment managers. The investment managers may obtain non-binding price quotes for the securities from brokers. The single broker quotes are provided by market makers or broker-dealers who are recognized as market participants in the markets in which they are providing the
quotes. The prices received from brokers are reviewed for reasonableness by the third party asset managers and the Company. If the broker quotes are for foreign denominated securities, the quotes are converted to U.S. dollars using currency exchange rates from nationally recognized sources.
The composition and valuation inputs for the presented fixed maturities categories Level 1 and Level 2 are as follows:
•U.S. Treasury securities and obligations of U.S. government agencies and corporations are primarily comprised of U.S. Treasury bonds, and the fair value is based on observable market inputs such as quoted prices, reported trades, quoted prices for similar issuances or benchmark yields;
•Obligations
of U.S. states and political subdivisions are comprised of state and municipal bond issuances, and the fair values are based on observable market inputs such as quoted market prices, quoted prices for similar securities, benchmark yields and credit spreads;
•Corporate securities are primarily comprised of U.S. corporate and public utility bond issuances, and the fair values are based on observable market inputs such as quoted market prices, quoted prices for similar securities, benchmark yields and credit spreads;
•Asset-backed and mortgage-backed securities fair values are based on observable inputs such as quoted prices, reported trades, quoted prices for similar issuances or benchmark yields and cash flow models using observable inputs such as prepayment speeds, collateral performance and default spreads;
•Foreign
government securities are comprised of global non-U.S. sovereign bond issuances, and the fair values are based on observable market inputs such as quoted market prices, quoted prices for similar securities and models with observable inputs such as benchmark yields and credit spreads and then, where applicable, converted to U.S. dollars using an exchange rate from a nationally recognized source;
•Foreign corporate securities are comprised of global non-U.S. corporate bond issuances, and the fair values are based on observable market inputs such as quoted market prices, quoted prices for similar securities and models with observable inputs such as benchmark yields and credit spreads and then, where applicable, converted to U.S. dollars using an exchange rate from a nationally recognized source.
The following tables present the fair value measurement levels for all assets and liabilities, which the Company has recorded at fair value as of the periods indicated:
The following tables present the activity under Level 3, fair value measurements
using significant unobservable inputs for fixed maturities - available for sale, for the periods indicated:
Transfers
in/(out) of Level 3 and reclassification of
securities in/(out) of investment categories
i—
i—
i—
i—
Ending
balance of fixed maturities
$
i709
$
i1,020
$
i16
$
i1,745
The
amount of total gains or losses for the period
included in earnings (or changes in net assets)
attributable
to the change in unrealized gains
or losses relating to assets still held at
the
reporting date
$
i—
$
i—
$
i—
$
i—
(Some
amounts may not reconcile due to rounding.)
/
There were ino transfers of assets in/(out) of Level 3 for the three months ended March 31, 2024.
Financial
Instruments Disclosed, But Not Reported, at Fair Value
Certain financial instruments disclosed, but not reported, at fair value are excluded from the fair value hierarchy tables above. Fair values and valuation hierarchy of fixed maturity securities – held to maturity, senior notes and long-term subordinated notes can be found within Notes 3, 8 and 9, respectively. Short-term investments are stated at cost, which approximates fair value.
Exempt from Fair Value Disclosure Requirements
Certain financial instruments are exempt from the requirements for fair value disclosure, such as limited partnerships accounted for under the equity method and pension and other postretirement obligations. The Company’s investment in COLI policies are recorded at their cash
surrender value and are therefore not required to be included in the tables above. See Note 3 of the Notes to these Consolidated Financial Statements for details of investments in COLI policies.
In addition, $i258 million and $i274
million of investments within other invested assets on the consolidated balance sheets as of March 31, 2024 and December 31, 2023, respectively, are not included within the fair value hierarchy tables, as the assets are measured at NAV as a practical expedient to determine fair value.
Current year incurred losses were $i2.2 billion and $i2.0
billion for the three months ended March 31, 2024 and 2023, respectively. Gross and net reservesincreasedfor the three months ended March 31, 2024, reflecting an increase in underlying exposure due to earned premium growth, year over year, amounting to approximately $i301
million in 2024 of current year attritional losses compared to 2023, offset by a decrease of $i30 million in 2024 current year catastrophe losses.
6. iSEGMENT
REPORTING
The Company operates through itwo operating segments. The Reinsurance operation writes worldwide property and casualty reinsurance and specialty lines of business, on both a treaty and facultative basis, through reinsurance brokers, as well as directly with ceding companies. Business is written in the U.S., Bermuda, and Ireland offices, as well as, through branches in Canada, Singapore, the United Kingdom (“UK”) and Switzerland. The Insurance operation writes property and casualty
insurance directly and through brokers, including for surplus lines, and general agents within the U.S., Bermuda, Canada, Europe, Singapore and South America through its offices in the U.S., Bermuda, Canada, Chile, Singapore, the UK, Ireland, and branches located in the UK, the Netherlands, France, Germany and Spain. The itwo segments are managed independently, but conform with corporate guidelines with respect to pricing, risk management, control of aggregate catastrophe exposures, capital, investments and support operations.
Our itwo
operating segments each have executive leadership who are responsible for the overall performance of their respective segments and who are directly accountable to our chief operating decision maker (“CODM”), the Chief Executive Officer of Everest Group, Ltd., who is ultimately responsible for reviewing the business to assess performance, make operating decisions and allocate resources. We report the results of our operations consistent with the manner in which our CODM reviews the business.
During the fourth quarter of 2023, the Company revised the classification and presentation of certain products related to its accident and health business within the segment groupings. These products have been realigned from within the Reinsurance segment to the Insurance segment to appropriately reflect how the business segments are managed. These
changes have been reflected retrospectively.
The Company does not review and evaluate the financial results of its operating segments based upon balance sheet data. Management generally monitors and evaluates the financial performance of these operating segments based upon their underwriting results. Underwriting results include earned premium less losses and loss adjustment expenses (“LAE”) incurred, commission and brokerage expenses and other underwriting expenses. The Company
measures its underwriting results using ratios, in particular, loss, commission and brokerage and other underwriting expense ratios, which, respectively, divide incurred losses, commissions and brokerage and other underwriting expenses by premiums earned. Management has determined that these measures are appropriate and align with how the business is managed. We continue to evaluate our segments as our business evolves and may further refine our segments and financial performance measures.
i
The following tables present the underwriting
results for the operating segments for the periods indicated:
Further classifications of revenues by geographic location are impracticable to disclose and, therefore, are not provided. Additionally, such information is not utilized by the Company’s CODM when reviewing the business to assess performance, make operating decisions or allocate resources.
7. iCREDIT
FACILITIES
The Company has multiple active committed letter of credit facilities with a total commitment of up to $i1.7 billion as of March 31, 2024. The Company also has additional uncommitted letter of credit facilities of up to $i240
million which may be accessible via written request and corresponding authorization from the applicable lender. There is no guarantee the uncommitted capacity will be available to us on a future date.
The terms and outstanding amounts for each facility are discussed below. See Note 10 for collateral posted related to secured letters of credit.
Bermuda Re Wells Fargo Bilateral Letter of Credit Facility
Effective February 23, 2021, Everest Reinsurance (Bermuda) Ltd. (“Bermuda Re”) entered into a letter of credit issuance facility with Wells Fargo, referred to as the “2021 Bermuda Re Wells Fargo Bilateral Letter of Credit Facility.” The Bermuda Re Wells Fargo Bilateral Letter of Credit Facility originally provided for the issuance of up to $i50
million of secured letters of credit. Effective May 5, 2021, the agreement was amended to provide for the issuance of up to $i500 million of secured letters of credit. Effective May 2, 2023, the agreement was amended to extend the availability of committed issuance for an additional year.
i
The
following table summarizes the outstanding letters of credit for the periods indicated:
Effective August 9, 2021, Bermuda Re entered into a letter of credit issuance facility with Citibank N.A., referred to as the “Bermuda Re Citibank Letter of Credit Facility”. The Bermuda Re Citibank Letter of Credit Facility provides for the committed issuance of up to $i230
million of secured letters of credit. In addition, the facility provided for the uncommitted issuance of up the $i140 million, which may be accessible via written request by the Company and corresponding authorization from Citibank N.A. Effective December 13, 2023, the agreement was amended to extend the availability of committed issuance for an additional itwo
years.
Bermuda Re Bayerische Landesbank Bilateral Secured Credit Facility
Effective August 27, 2021, Bermuda Re entered into a letter of credit issuance facility with Bayerische Landesbank, an agreement referred to as the “Bermuda Re Bayerische Landesbank Bilateral Secured Credit Facility”. The Bermuda Re Bayerische Landesbank Bilateral Secured Credit Facility provides for the committed issuance of up to $i200
million of secured letters of credit.
The following table summarizes the outstanding letters of credit for the periods indicated:
Bermuda Re Bayerische Landesbank Bilateral Unsecured Letter of Credit Facility
Effective December 30, 2022, Bermuda Re entered into a new additional letter of credit issuance facility with Bayerische Landesbank, New York Branch, referred to as the “Bayerische Landesbank Bilateral Unsecured Letter of Credit Facility”. The Bermuda Re Bayerische Landesbank Bilateral Unsecured Letter of Credit Facility provides for the committed issuance of up to $i150
million of unsecured letters of credit and is fully and unconditionally guaranteed by Group, as Parent Guarantor.
The following table summarizes the outstanding letters of credit for the periods indicated:
Bayerische
Landesbank Bilateral Unsecured LOC Agreement - Committed
$
i150
$
i150
12/31/2024
$
i150
$
i150
12/31/2024
(Some
amounts may not reconcile due to rounding.)
Bermuda Re Lloyd’s Bank Letter of Credit Facility
Effective December 27, 2023, Bermuda Re entered into an amended and restated letter of credit issuance facility with Lloyd’s Bank Corporate Markets PLC, to add Ireland Insurance as an account party with access to a $i15 million sub-limit for the issuance of letters of credit, an agreement referred to as the “Bermuda Re Lloyd’s Bank
Letter of Credit Facility”,
which superseded the previous letter of credit issuance facility with Lloyd’s Bank that was effective August 18, 2023. The Bermuda Re Lloyd’s Bank Letter of Credit Facility provides for the committed issuance of up to $i250
million of unsecured letters of credit and is fully and unconditionally guaranteed by Group, as Parent Guarantor.
The following table summarizes the outstanding letters of credit for the periods indicated:
Effective November 3, 2021, Bermuda Re entered into a letter of credit issuance facility with Barclays Bank PLC, an agreement referred to as the “Bermuda Re Barclays Credit Facility”. The Bermuda Re Barclays Credit Facility provides for the committed issuance of up to $i200 million of secured letters of credit.
The
following table summarizes the outstanding letters of credit for the periods indicated:
Bermuda Re Barclays Bilateral Letter of Credit Facility
$
i200
$
i150
12/30/2024
$
i200
$
i168
12/30/2024
i14
i14
12/31/2024
Total
Bermuda Re Barclays Bilateral Letter of Credit Facility
$
i200
$
i164
$
i200
$
i182
Bermuda
Re Nordea Bank Letter of Credit Facility
Effective November 21, 2022, Bermuda Re entered into a letter of credit issuance facility with Nordea Bank ABP, New York Branch, referred to as the “Nordea Bank Letter of Credit Facility”. The Bermuda Re Nordea Bank Letter of Credit Facility provides for the committed issuance of up to $i200 million of unsecured letters of credit, and subject to credit approval, uncommitted issuance
of $i100 million for a maximum total facility amount of $i300 million.
The following table summarizes
the outstanding letters of credit for the periods indicated:
Nordea
Bank Letter of Credit Facility - Uncommitted
i100
i100
12/31/2024
i100
i100
12/31/2024
Total
Nordea Bank ABP, NY LOC Facility
$
i300
$
i300
$
i300
$
i300
(Some
amounts may not reconcile due to rounding.)
Federal Home Loan Bank Membership
Everest Reinsurance Company (“Everest Re”) is a member of the Federal Home Loan Bank of New York (“FHLBNY”), which allows Everest Re to borrow up to i10%
of its statutory admitted assets. As of March 31, 2024, Everest Re had admitted assets of approximately $i27.1 billion which provides borrowing capacity of up to approximately $i2.7
billion. As of March 31, 2024, Everest Re has $i819 million of borrowings outstanding, all of which expire in 2024. Everest Re incurred interest expense of $i11 million and $i6
million for the three months ended March 31, 2024 and 2023, respectively. The FHLBNY membership agreement requires that i4.5% of borrowed funds be used to acquire additional membership stock. As of March 31, 2024, Everest Re had $i1.1
billion of collateral pledged.
The table below displays Everest Reinsurance Holdings’ (“Holdings”) outstanding senior notes. Fair value is based on quoted market prices, but due
to limited trading activity, these senior notes are considered Level 2 in the fair value hierarchy.
Interest expense incurred in connection with these senior notes is as follows for the periods indicated:
Three
Months Ended March 31,
(Dollars in millions)
Interest Paid
Payable Dates
2024
2023
i4.868%
Senior notes
semi-annually
June 1/December 1
$
i5
$
i5
i3.5%
Senior notes
semi-annually
April 15/October 15
i9
i9
i3.125%
Senior notes
semi-annually
April 15/October 15
i8
i8
$
i22
$
i22
(Some
amounts may not reconcile due to rounding.)
/
9. iLONG-TERM SUBORDINATED NOTES
i
The
table below displays Holdings’ outstanding fixed to floating rate long-term subordinated notes (“Subordinated Notes Issued 2007”). Fair value is based on quoted market prices, but due to limited trading activity, these subordinated notes are considered Level 2 in the fair value hierarchy.
During
the fixed rate interest period from May 3, 2007 through May 14, 2017, interest was at the annual rate of i6.6%, payable semi-annually in arrears on November 15 and May 15 of each year, commencing on November 15, 2007. During the floating rate interest period from May 15, 2017 through maturity, interest will be based on the 3 month LIBOR plus i238.5
basis points, reset quarterly, payable quarterly in arrears on February 15, May 15, August 15 and November 15 of each year, subject to Holdings’ right to defer interest on one or more occasions for up to ten consecutive years. Deferred interest will accumulate interest at the applicable rate compounded quarterly for periods from and including May 15, 2017. The reset quarterly interest rate for February 15, 2024 to May 14, 2024 is i8.03%.
Following the cessation of LIBOR, for periods from and including August 15, 2023, interest will be based on 3-month Chicago Mercantile Exchange (“CME”) Term Secured Overnight Financing Rate (“SOFR”) plus a spread.
Holdings may redeem the long-term subordinated notes on or after May 15, 2017, in whole or in part at i100% of the principal amount plus accrued and unpaid interest; however, redemption
on or after the scheduled maturity date and prior to May 1, 2047 is subject to a replacement capital covenant. This covenant is for the benefit of certain senior note holders and it mandates that Holdings receive proceeds from the sale of another subordinated debt issue, of at least similar size, before it may redeem the subordinated notes. The Company’s i4.868% senior notes, due on June 1, 2044, i3.5%
senior notes due on October 15, 2050 and i3.125% senior notes due on October 15, 2052 are the Company’s long-term indebtedness that rank senior to the long-term subordinated notes.
Interest
expense incurred in connection with these long-term subordinated notes is as follows for the periods indicated:
Three Months Ended March 31,
(Dollars in millions)
2024
2023
Interest
expense incurred
$
i4
$
i4
/
10. iCOLLATERALIZED REINSURANCE, TRUST AGREEMENTS AND OTHER RESTRICTED ASSETS
The Company maintains certain restricted assets as security for potential future obligations, primarily to support its underwriting operations. iThe
following table summarizes the Company’s restricted assets:
At March 31,
At December 31,
(Dollars in millions)
2024
2023
Collateral in trust for non-affiliated agreements (1)
$
i3,178
$
i3,208
Collateral
for secured letter of credit facilities
i1,427
i1,438
Collateral
for FHLB borrowings
i1,067
i1,077
Securities
on deposit with or regulated by government authorities
i1,415
i1,447
Funds
at Lloyd's
i532
i538
Funds held by reinsureds
i1,155
i1,135
Total
restricted assets
i8,774
i8,843
(1)
At March 31, 2024 and December 31, 2023, the total amount on deposit in trust accounts includes $i299 million and $i243 million of restricted cash respectively.
The
Company reinsures some of its catastrophe exposures with the segregated accounts of subsidiary Mt. Logan Re, Ltd. (“Mt. Logan Re”). Mt. Logan Re is a collateralized insurer registered in Bermuda and i100% of the voting common shares are owned by Group. Each segregated account invests predominantly in a diversified set of catastrophe exposures, diversified by risk/peril and across different geographic regions globally.
i
The
following table summarizes the premiums and losses that are ceded by the Company to Mt. Logan Re segregated accounts and assumed by the Company from Mt. Logan Re segregated accounts.
The Company entered into various collateralized reinsurance agreements with Kilimanjaro Re Limited (“Kilimanjaro”), a Bermuda-based special purpose reinsurer, to provide the Company with catastrophe reinsurance coverage. These agreements are multi-year reinsurance contracts which cover named storm and earthquake events. iThe
table below summarizes the various agreements.
(Dollars in millions)
Class
Description
Effective
Date
Expiration Date
Limit
Coverage Basis
Series 2019-1 Class A-2
US,
Canada, Puerto Rico – Named Storm and Earthquake Events
12/12/2019
12/19/2024
i150
Occurrence
Series 2019-1 Class B-2
US, Canada, Puerto Rico – Named Storm and Earthquake Events
12/12/2019
12/19/2024
i275
Aggregate
Series
2021-1 Class A-1
US, Canada, Puerto Rico – Named Storm and Earthquake Events
4/8/2021
4/21/2025
i150
Occurrence
Series 2021-1 Class B-1
US,
Canada, Puerto Rico – Named Storm and Earthquake Events
4/8/2021
4/21/2025
i85
Aggregate
Series 2021-1 Class C-1
US, Canada, Puerto Rico – Named Storm and Earthquake Events
4/8/2021
4/21/2025
i85
Aggregate
Series
2021-1 Class A-2
US, Canada, Puerto Rico – Named Storm and Earthquake Events
4/8/2021
4/20/2026
i150
Occurrence
Series 2021-1 Class B-2
US,
Canada, Puerto Rico – Named Storm and Earthquake Events
4/8/2021
4/20/2026
i90
Aggregate
Series 2021-1 Class C-2
US, Canada, Puerto Rico – Named Storm and Earthquake Events
4/8/2021
4/20/2026
i90
Aggregate
Series
2022-1 Class A
US, Canada, Puerto Rico – Named Storm and Earthquake Events
Recoveries under these collateralized reinsurance agreements with Kilimanjaro are primarily dependent on estimated industry level insured losses from covered events, as well as the geographic location
of the events. The estimated industry level of insured losses is obtained from published estimates by an independent recognized authority on insured property losses.
The Company has up to $i350 million of catastrophe bond protection (“CAT Bond”) that attaches at a $48.1 billion Property Claims Services (“PCS”) Industry loss threshold. This recovery would be recognized on a pro-rata basis up to a $63.8 billion PCS Industry
loss level. As a result of Hurricane Ian, PCS’s current industry estimate of $48.3 billion issued in April 2024 exceeds the attachment point. The potential recovery under the CAT Bond is not expected to be material.
Kilimanjaro has financed the various property catastrophe reinsurance coverages by issuing catastrophe bonds to unrelated, external investors. The proceeds from the issuance of the catastrophe bonds are held in reinsurance trusts throughout the duration of the applicable reinsurance agreements and invested solely in U.S. government money market funds with a rating of at least “AAAm” by Standard & Poor’s. The catastrophe bonds’ issue dates, maturity dates and amounts correspond to the reinsurance agreements listed above.
11. iCOMMITMENTS
AND CONTINGENCIES
In the ordinary course of business, the Company is involved in lawsuits, arbitrations and other formal and informal dispute resolution procedures, the outcomes of which will determine the Company’s rights and obligations under insurance and reinsurance agreements. In some disputes, the Company seeks to enforce its rights under an agreement or to collect funds owing to it. In other matters, the Company is resisting attempts by others to collect funds or enforce alleged rights. These disputes arise from time to time and are ultimately resolved through both
informal and formal means, including negotiated resolution, arbitration and litigation. In all such matters, the Company believes that its positions are legally and commercially reasonable. The Company considers the statuses of these proceedings when determining its reserves for unpaid loss and LAE.
Aside from litigation and arbitrations related to these insurance and reinsurance agreements, the Company is not a party to any other material litigation or arbitration.
The
following table presents the components of accumulated other comprehensive income (loss), net of tax, in the consolidated balance sheets for the periods indicated:
Three Months Ended March 31,
(Dollars in millions)
2024
2023
Beginning
balance of URA(D) on securities
$
(i723)
$
(i1,709)
Current
period change in URA(D) of investments - non-credit related
(i153)
i249
Ending
balance of URA(D) on securities
(i876)
(i1,460)
Beginning
balance of foreign currency translation adjustments
(i195)
(i254)
Current
period change in foreign currency translation adjustments
(i38)
i31
Ending
balance of foreign currency translation adjustments
(i233)
(i223)
Beginning
balance of benefit plan net gain (loss)
(i16)
(i33)
Current
period change in benefit plan net gain (loss)
i—
i—
Ending
balance of benefit plan net gain (loss)
(i16)
(i33)
Ending
balance of accumulated other comprehensive income (loss)
$
(i1,125)
$
(i1,716)
(Some
amounts may not reconcile due to rounding.)
/
13. iSHARE-BASED COMPENSATION PLANS
For the three months ended March
31, 2024, a total of i214,943 restricted stock awards were granted: i207,839
and i7,104 of restricted stock awards were granted on February 28, 2024 and February 29, 2024, respectively. The per-share fair value of the restricted stock awards was $i369.518
and $i367.040, respectively. Additionally, i18,713
performance share units awards were granted on February 28, 2024, with a fair value of $i369.518 per unit. For the three months ended March 31, 2023, a total of i174,171
restricted stock awards were granted on February 23, 2023 with a fair value of $i382.385 per share. Additionally, i14,975
performance share unit awards were granted on February 23, 2023, with a fair value of $i382.385 per unit.
14. iEARNINGS
PER COMMON SHARE
Basic earnings per share are calculated by dividing net income by the weighted average number of common shares outstanding. Diluted earnings per share reflect the potential dilution that would occur if options granted under various share-based compensation plans were exercised resulting in the issuance of common shares that would participate in the earnings of the entity.
Net
income (loss) per common share has been computed as per below, based upon weighted average common basic and dilutive shares outstanding.
Three Months Ended March 31,
(Dollars in millions, except per share amounts)
2024
2023
Net
income (loss) per share:
Numerator
Net income (loss)
$
i733
$
i365
Less: dividends
declared - common shares and unvested common shares
(i76)
(i65)
Undistributed earnings
ii657/
ii300/
Percentage
allocated to common shareholders (1)
i98.9%
i98.7%
ii649/
ii296/
Add: dividends
declared - common shareholders
i75
i64
Numerator
for basic and diluted earnings per common share
$
ii725/
$
ii360/
Denominator
Denominator
for basic earnings per weighted-average common shares
i42.9
i38.7
Effect
of dilutive securities:
Options
i—
i—
Denominator
for diluted earnings per adjusted weighted-average common shares
i42.9
i38.7
Per
common share net income (loss)
Basic
$
i16.87
$
i9.31
Diluted
$
i16.87
$
i9.31
(1) Basic
weighted - average common shares outstanding
i42.9
i38.7
Basic
weighted - average common shares outstanding and unvested common shares expected to vest
i43.4
i39.2
Percentage
allocated to common shareholders
i98.9%
i98.7%
(Some
amounts may not reconcile due to rounding.)
/
There were iino/
options outstanding as of March 31, 2024 and 2023, respectively.
15. iINCOME TAXES
With the assent of the governor on December 27, 2023, the Bermuda Corporate Income Tax Act of 2023 (“The 2023 Act”) became law. Beginning in 2025, a 15% corporate income
tax will be applicable to Bermuda businesses that are part of multinational enterprise groups with annual revenue of €750 million or more. Group’s Bermuda entities will be subject to the new corporate income tax. The Company has evaluated The 2023 Act and has recorded $i578 million of net deferred income tax benefits as of December 31, 2023. The net deferred income tax benefits relate primarily to a default provision in the
law which allows for what is called an “Economic Transition Adjustment” (“ETA”). The ETA allowed companies to establish deferred tax assets or liabilities related to the revaluation of intangible assets, excluding goodwill, and their other assets and liabilities, based on fair value as of September 30, 2023.
All of the income of Group's non-Bermuda subsidiaries is subject to the applicable federal, foreign, state, and local taxes on corporations. Additionally, the income of the foreign branches of the Company's insurance operating companies is subject to various rates of income tax. Group's U.S. subsidiaries
conduct business in and are subject to taxation in the U.S. Should the U.S. subsidiaries distribute current or accumulated earnings and profits in the form of dividends or otherwise, the Company would be subject to an accrual of i5% U.S. withholding tax. Currently, however, no withholding tax has been accrued with respect to such un-remitted earnings as management has no intention of remitting them. The cumulative amount that would be subject to withholding tax, if distributed,
is not practicable to compute. The provision for income taxes in the consolidated statement of operations and comprehensive income (loss) has been determined in accordance with the individual income of each entity and the respective applicable tax laws. The provision reflects the permanent differences between financial and taxable income relevant to each entity.
On August 16, 2022, the Inflation Reduction Act of 2022 (“IRA”) was enacted. We have evaluated the tax provisions of the IRA, the most significant of which are the corporate alternative minimum tax and the share repurchase excise tax and do not expect the legislation to have a material impact on our results of operations.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Industry Conditions.
The worldwide insurance and reinsurance businesses are highly competitive, as well as cyclical by product and market. As a result, financial results tend to fluctuate with periods of constrained availability, higher rates and stronger profits followed by periods of abundant capacity, lower rates and constrained profitability. Competition in the types of insurance and reinsurance 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 insurance and reinsurance 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 insurance and reinsurance is generally not consistent across lines of business, domestic and international geographical areas and distribution channels.
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 primarily driven by the desire to achieve greater risk diversification and potentially higher returns on their investments. This competition generally has
a negative impact on rates, terms and conditions; however, the impact varies widely by market and coverage. Based on recent competitive behaviors in the insurance and reinsurance industry, natural catastrophe events and the macroeconomic backdrop, there has been dislocation in the market which has had a positive impact on rates and terms and conditions, generally, though specifics in local markets can vary.
Specifically, recent market conditions in property, particularly catastrophe excess of loss, have resulted in rate increases. As a result of the rate increases, most of the lines within property have been affected. Other casualty lines have been experiencing modest rate increases, while some lines such as workers’ compensation and directors and officers liability have been experiencing softer market conditions. The impact on pricing conditions is likely to change depending on the line of business and geography.
Our
capital position remains a source of strength, with high quality invested assets, significant liquidity and a low operating expense ratio. Our diversified global platform with its broad mix of products, distribution and geography is resilient.
The ongoing Middle East war and the war in Ukraine continue to evolve. Economic and legal sanctions have been levied against Russia, specific named individuals and entities connected to the Russian government, as well as businesses located in the Russian Federation and/or owned by Russian nationals in numerous countries, including the United States. The significant political and economic uncertainty surrounding these wars and associated sanctions have impacted economic and investment markets both within Russia, Ukraine, the Middle East region, and around the world.
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 shareholders’ equity for the periods indicated:
Three
Months Ended March 31,
Percentage Increase/ (Decrease)
(Dollars in millions)
2024
2023
Gross written premiums
$
4,411
$
3,743
17.9
%
Net
written premiums
3,900
3,329
17.1
%
REVENUES:
Premiums
earned
$
3,652
$
3,100
17.8
%
Net investment income
457
260
76.0
%
Net
gains (losses) on investments
(7)
5
NM
Other income (expense)
31
(79)
NM
Total
revenues
4,133
3,286
25.8
%
CLAIMS AND EXPENSES:
Incurred
losses and loss adjustment expenses
2,237
1,966
13.8
%
Commission, brokerage, taxes and fees
782
661
18.2
%
Other
underwriting expenses
224
200
12.1
%
Corporate expenses
22
19
15.2
%
Interest,
fees and bond issue cost amortization expense
37
32
16.5
%
Total claims and expenses
3,302
2,878
14.7
%
INCOME
(LOSS) BEFORE TAXES
832
408
NM
Income tax expense (benefit)
99
43
NM
NET
INCOME (LOSS)
$
733
$
365
NM
RATIOS:
Point Change
Loss
ratio
61.3
%
63.4
%
(2.1)
Commission and brokerage ratio
21.4
%
21.3
%
0.1
Other
underwriting expense ratio
6.1
%
6.4
%
(0.3)
Combined ratio
88.8
%
91.2
%
(2.4)
At March
31,
At December 31,
Percentage Increase/ (Decrease)
(Dollars in millions, except per share amounts)
2024
2023
Balance sheet data:
Total investments and cash
$
38,148
$
37,142
2.7
%
Total
assets
50,937
49,399
3.1
%
Reserve for losses and loss adjustment expenses
25,211
24,604
2.5
%
Total debt
3,386
3,385
—
%
Total
liabilities
37,308
36,197
3.1
%
Shareholders' equity
13,628
13,202
3.2
%
Book value per share
313.55
304.29
3.0
%
(NM,
not meaningful)
(Some amounts may not reconcile due to rounding.)
Revenues.
Premiums. Gross written premiums increased by 17.9% to $4.4 billion for the three months ended March 31, 2024, compared to $3.7 billion for the three months ended March 31, 2023, reflecting a $555 million, or 21.2%, increase in our reinsurance business and a $114 million, or 10.1%, increase in our insurance business. The increase in reinsurance premiums was primarily due to property pro rata business and casualty pro rata business. The increase in insurance premiums was primarily due to property/short tail business
and other specialty business.
Net written premiums increased by 17.1% to $3.9 billion for the three months ended March 31, 2024, compared to $3.3 billion for the three months ended March 31, 2023, which is consistent with the percentage change in gross written premiums. Premiums earned increased by 17.8% to $3.7 billion during the three months ended March 31, 2024, compared to $3.1 billion during the three months ended March
31, 2023. The change in premiums earned relative to net written premiums was primarily the result of timing; premiums are earned ratably over the coverage period whereas written premiums are recorded at the initiation of the coverage period.
Other Income (Expense). We recorded other income of $31 million and other expense of $79 million for the three months ended March 31, 2024 and 2023, respectively. The changes were primarily the result of fluctuations in foreign currency exchange rates. We recognized foreign currency exchange income of $32 million for the three months ended March 31, 2024and foreign currency exchange expense of $85 million for the
three months ended March 31, 2023.
Net Investment Income. Refer to Consolidated Investments Results Section below.
Net Gains (Losses) on Investments. Refer to Consolidated Investments Results Section below.
Claims and Expenses.
Incurred Losses and Loss Adjustment Expenses. The following tables present our incurred losses and LAE for the periods indicated.
Three
Months Ended March 31,
(Dollars in millions)
Current Year
Ratio %/ Pt Change
Prior Years
Ratio %/ Pt Change
Total Incurred
Ratio %/ Pt Change
2024
Attritional
$
2,152
58.9
%
$
—
—
%
$
2,152
58.9
%
Catastrophes
85
2.3
%
—
—
%
85
2.3
%
Total
$
2,237
61.3
%
$
—
—
%
$
2,237
61.3
%
2023
Attritional
$
1,851
59.7
%
$
—
—
%
$
1,851
59.7
%
Catastrophes
115
3.7
%
—
—
%
115
3.7
%
Total
$
1,966
63.4
%
$
—
—
%
$
1,966
63.4
%
Variance
2024/2023
Attritional
$
301
(0.8)
pts
$
—
—
pts
$
301
(0.8)
pts
Catastrophes
(30)
(1.4)
pts
—
—
pts
(30)
(1.4)
pts
Total
$
271
(2.2)
pts
$
—
—
pts
$
271
(2.2)
pts
(Some
amounts may not reconcile due to rounding.)
Incurred losses and LAE increased by 13.8% to $2.2 billion for the three months ended March 31, 2024, compared to $2.0 billion for the three months ended March 31, 2023, primarily due to an increase of $301 million in current year attritional losses, partially offset by a decrease of $30 million in current year catastrophe losses. The increase in current year attritional losses was mainly due to the impact of the increase in underlying exposures due to increased premiums earned. The current year catastrophe losses of $85 million for the three months ended March 31, 2024 related primarily to the 2024 Baltimore bridge
collapse ($70 million) and the 2024 United States (“U.S.”) East Coast convective storms ($15 million). The $115 million of current year catastrophe losses for the three months ended March 31, 2023 related primarily to the 2023 Turkey earthquakes ($75.0 million), and the 2023 New Zealand storms ($40.0 million).
Catastrophe losses and loss expenses typically have a material effect on our incurred losses and loss adjustment expense results and can vary significantly from period to period. Losses from natural and man-made catastrophes contributed 2.3 percentage points to the combined ratio for the three months ended March 31, 2024, compared with 3.7 percentage points for the three months ended March
31, 2023. The Company has up to $350 million of catastrophe bond protection (“CAT Bond”) that attaches at a $48.1 billion Property Claims Services (“PCS”) Industry loss threshold. This recovery would be recognized on a pro-rata basis up to a $63.8 billion PCS Industry loss level. As a result of Hurricane Ian, PCS’s current industry estimate of $48.3 billion issued in April 2024 exceeds the attachment point. The potential recovery under the CAT Bond is not expected to be material.
Commission, Brokerage, Taxes and Fees. Commission, brokerage, taxes and fees increased by 18.2% to $782 million for the three months ended March 31, 2024 compared to $661 million for the three months ended March 31, 2023. The increase was primarily due to the impact of the increase in premiums earned and changes in the mix of business.
Other Underwriting Expenses. Other underwriting expenses were $224 million and $200 million for the three months ended March 31, 2024 and March 31, 2023, respectively. The increase in other underwriting expenses was mainly due to the impact of the increase in premiums earned as
well as the continued build out of our insurance operations, including an expansion of the international insurance platform.
Corporate Expenses. Corporate expenses, which are general operating expenses that are not allocated to segments, were $22 million and $19 million for the three months ended March 31, 2024 and 2023, respectively. The increase from 2023 to 2024 was mainly due to information technology costs.
Interest, Fees and Bond Issue Cost Amortization Expense. Interest, fees and other bond amortization expense was $37 million and $32 million for the three months ended March 31, 2024 and 2023, respectively. Interest expense was
mainly impacted by the movement in the floating interest rate related to the Company’s long-term subordinated notes, which is reset quarterly per the note agreement, as well as variable interest rate costs on borrowings from FHLB.
Income Tax Expense (Benefit). We had income tax expense of $99 million and $43 million for the three months ended March 31, 2024 and 2023, respectively. Income tax expense is primarily a function of the geographic location of the Company’s pre-tax income and the statutory tax rates in those jurisdictions. The effective tax rate (“ETR”) is primarily affected by tax-exempt investment income, foreign
tax credits and dividends. Variations in the ETR generally result from changes in the relative levels of pre-tax income, including the impact of catastrophe losses and net capital gains (losses), among jurisdictions with different tax rates.
With the assent of the governor on December 27, 2023, the Bermuda Corporate Income Tax Act of 2023 (“The 2023 Act”) became law. Beginning in 2025, a 15% corporate income tax will be applicable to Bermuda businesses that are part of multinational enterprise groups with annual revenue of €750 million or more. Group’s Bermuda entities will be subject to the new corporate income tax. The Company has evaluated The 2023 Act and has recorded $578 million of net deferred income tax benefits as of December
31, 2023. The net deferred income tax benefits relate primarily to a default provision in the law which allows for what is called an “Economic Transition Adjustment” (“ETA”). The ETA allowed companies to establish deferred tax assets or liabilities related to the revaluation of intangible assets, excluding goodwill, and their other assets and liabilities, based on fair value as of September 30, 2023.
On August 16, 2022, the Inflation Reduction Act of 2022 (“IRA”) was enacted. We have evaluated the tax provisions of the IRA, the most significant of which are the corporate alternative minimum tax and the share repurchase excise tax and do not expect the legislation to have a material impact on our results of operations.
Net
Income (Loss).
Our net income was $733 million and $365 million for the three months ended March 31, 2024 and 2023, respectively. These changes were primarily driven by the financial component fluctuations explained above.
Ratios.
Our combined ratio decreased by 2.4 points to 88.8% for the three months ended March 31, 2024, compared to 91.2% for the three months ended March 31, 2023. The loss ratio component decreased by 2.1 points for the three months ended March 31, 2024
over the same period last year mainly due to a $30 million decrease in catastrophe losses and changes in the mix of business. The commission and brokerage ratio components increased to 21.4% for the three months ended March 31, 2024 compared to 21.3% for the three months ended March 31, 2023. The increase was mainly due to changes in the mix of business. The other underwriting expense ratios decreased to 6.1% for the three months ended March 31, 2024 compared to 6.4% for the three months ended March 31, 2023. This decrease was mainly due to higher insurance operations costs offset by higher earned premium base.
Shareholders’
Equity.
Shareholders’ equity increased by $426 million to $13.6 billion at March 31, 2024 from $13.2 billion at December 31, 2023, principally as a result of $733 million of net income, partially offset by $153 million of unrealized depreciation on available for sale fixed maturity portfolio net of tax, $38 million of net foreign currency translation adjustments, $76 million of shareholder dividends and $35 million of treasury share purchases.
Net investment income increased by 76.0% to $457 million for the three months ended March 31, 2024 compared with net investment income of $260 million for the three months ended March 31, 2023. The increase for the three months ended March 31, 2024 was primarily the result of an increase of $105 million in income from fixed maturity investments, an increase of $21 million in short-term investments and an increase of $69 million in limited partnership income. The limited partnership income primarily reflects changes in their reported net asset values. As such, until these
asset values are monetized and the resultant income is distributed, they are subject to future increases or decreases in the asset value, and the results may be volatile.
The following table shows the components of net investment income for the periods indicated.
Three Months Ended March 31,
(Dollars
in millions)
2024
2023
Fixed maturities
$
352
$
247
Equity securities
1
1
Short-term
investments and cash
38
17
Other invested assets
Limited partnerships
54
(15)
Other
20
22
Gross
investment income before adjustments
465
272
Funds held interest income (expense)
6
—
Future policy benefit reserve income (expense)
—
—
Gross
investment income
470
272
Investment expenses
13
12
Net investment income
$
457
$
260
(Some
amounts may not reconcile due to rounding.)
The following table shows a comparison of various investment yields for the periods indicated.
The following table presents the composition of our net gains (losses) on investments for the periods indicated.
Three Months Ended March 31,
(Dollars
in millions)
2024
2023
Variance
Realized gains (losses) from dispositions:
Fixed maturity securities - available for sale
Gains
$
11
$
11
$
—
Losses
(18)
(9)
(9)
Total
(7)
2
(9)
Equity
securities
Gains
1
7
(6)
Losses
—
—
—
Total
1
7
(6)
Other
Invested Assets
Gains
—
—
—
Losses
—
—
—
Total
—
—
—
Total
net realized gains (losses) from dispositions
Gains
12
18
(7)
Losses
(18)
(9)
(9)
Total
(6)
9
(16)
Allowance
for credit losses
2
(8)
10
Gains (losses) from fair value adjustments
Equity
securities
(2)
4
(7)
Total
(2)
4
(7)
Total
net gains (losses) on investments
$
(7)
$
5
$
(12)
(Some amounts may not reconcile due to rounding.)
Net gains (losses) on investments during the three months ended March 31, 2024 primarily relate to $6 million of losses due to the disposition of investments, $2 million of losses from fair value adjustments
on equity securities, partially offset by a decrease to the allowance for credit losses of $2 million. The realized losses from dispositions of investments mainly related to the execution of a Company strategy to sell lower yielding investments in order to reinvest the proceeds at higher interest rates.
Segment Results.
The Company operates through two operating segments. The Reinsurance operation writes worldwide property and casualty reinsurance and specialty lines of business, on both a treaty and facultative basis, through reinsurance brokers, as well as directly with ceding companies. Business is written in the U.S., Bermuda, and Ireland offices,
as well as, through branches in Canada, Singapore, the United Kingdom (“UK”) and Switzerland. The Insurance operation writes property and casualty insurance directly and through brokers, including for surplus lines, and general agents within the U.S., Bermuda, Canada, Europe, Singapore and South America through its offices in the U.S., Bermuda, Canada, Chile, Singapore, the UK, Ireland, and branches located in the UK, the Netherlands, France, Germany and Spain. The two segments are managed independently, but conform with corporate guidelines with respect to pricing, risk management, control of aggregate catastrophe exposures, capital, investments and support operations.
Our two operating segments each have executive leadership who are responsible for the overall performance of their respective segments and who are directly accountable to our chief operating decision maker (“CODM”),
the Chief
Executive Officer of Everest Group, Ltd., who is ultimately responsible for reviewing the business to assess performance, make operating decisions and allocate resources. We report the results of our operations consistent with the manner in which our CODM reviews the business.
During the fourth quarter of 2023, the Company revised the classification and presentation of certain products related to its accident and health business within the segment groupings. These products have been realigned from within the Reinsurance
segment to the Insurance segment to appropriately reflect how the business segments are managed. These changes have been reflected retrospectively.
The Company does not review and evaluate the financial results of its operating segments based upon balance sheet data. Management generally monitors and evaluates the financial performance of these operating segments based upon their underwriting results. Underwriting results include earned premium less losses and loss adjustment expenses (“LAE”) incurred, commission and brokerage expenses and other underwriting expenses. The Company measures its underwriting results using ratios, in particular, loss, commission and brokerage and other underwriting expense ratios, which, respectively, divide incurred
losses, commissions and brokerage and other underwriting expenses by premiums earned. Management has determined that these measures are appropriate and align with how the business is managed. We continue to evaluate our segments as our business evolves and may further refine our segments and financial performance measures.
The following tables present the underwriting results for our segments for the periods indicated:
Reinsurance.
The following table presents the underwriting results and ratios for the Reinsurance segment for the periods indicated.
Three
Months Ended March 31,
(Dollars in millions)
2024
2023
Variance
% Change
Gross written premiums
$
3,175
$
2,620
$
555
21.2
%
Net
written premiums
2,942
2,438
504
20.7
%
Premiums
earned
$
2,728
$
2,226
$
503
22.6
%
Incurred losses and LAE
1,641
1,401
240
17.1
%
Commission
and brokerage
671
556
115
20.7
%
Other underwriting expenses
71
63
8
12.1
%
Underwriting
gain (loss)
$
345
$
205
$
140
68.1
%
Point
Chg
Loss ratio
60.2
%
63.0
%
(2.8)
Commission and brokerage ratio
24.6
%
25.0
%
(0.4)
Other
underwriting expense ratio
2.6
%
2.8
%
(0.2)
Combined ratio
87.3
%
90.8
%
(3.5)
(NM,
Not Meaningful)
(Some amounts may not reconcile due to rounding.)
Premiums. Gross written premiums increased by 21.2% to $3.2 billion for the three months ended March 31, 2024 from $2.6 billion for the three months ended March 31, 2023, primarily due to property and casualty pro rata business. Net written premiums increased by 20.7% to $2.9 billion for the three months ended March 31, 2024 compared to $2.4 billion for the three months ended March 31, 2023. The increase was consistent with the percentage increase in gross written premiums. Premiums earned generally reflect the portion of net premiums written that was recorded as revenues for the period as the
exposure periods expire. Premiums earned increased by 22.6% to $2.7 billion for the three months ended March 31, 2024, compared to $2.2 billion for the three months ended March 31, 2023.
Incurred Losses and LAE. The following tables present the incurred losses and LAE for the Reinsurance segment for the periods indicated.
Incurred losses increased by 17.1% to $1.6 billion for the three months ended March 31, 2024, compared to $1.4 billion for the three months ended March 31, 2023. The increase was primarily due to an increase of $273 million in current year attritional losses, partially offset by a decrease of $33 million in current year catastrophe losses. The increase in current year attritional losses was mainly related to the impact of the increase in premiums earned. The current year catastrophe losses of $80 million for the three months ended March 31, 2024 related primarily to the 2024 Baltimore bridge collapse ($65 million) and the 2024 U.S. East Coast convective storms ($15 million). The $113 million of current year catastrophe losses for
the three months ended March 31, 2023 related primarily to the 2023 Turkey earthquakes ($75.0 million) and the 2023 New Zealand storms ($38.0 million).
Segment Expenses. Commission and brokerage expense increased by 20.7% to $671 million for the three months ended March 31, 2024 compared to $556 million for the three months ended March 31, 2023. The increase was mainly due to the impact of the increase in premiums earned. Segment other underwriting expenses increased to $71 million for the three months ended March 31, 2024 from $63 million for the three months ended March
31, 2023. The increase was due to increased expenditures supporting the increased premium volume of the segment.
The following table presents the underwriting results and ratios for the Insurance segment for the periods indicated.
Three
Months Ended March 31,
(Dollars in millions)
2024
2023
Variance
% Change
Gross written premiums
$
1,236
$
1,122
$
114
10.1
%
Net
written premiums
958
891
67
7.5
%
Premiums
earned
$
923
$
874
$
49
5.6
%
Incurred losses and LAE
596
565
30
5.4
%
Commission
and brokerage
111
105
6
5.3
%
Other underwriting expenses
153
137
16
12.0
%
Underwriting
gain (loss)
$
64
$
67
$
(3)
(5.0)
%
Point
Chg
Loss ratio
64.5
%
64.6
%
(0.1)
Commission and brokerage ratio
12.0
%
12.0
%
—
Other
underwriting expense ratio
16.6
%
15.6
%
1.0
Combined ratio
93.1
%
92.3
%
0.8
(NM
not meaningful)
(Some amounts may not reconcile due to rounding.)
Premiums. Gross written premiums increased by 10.1% to $1.2 billion for the three months ended March 31, 2024 compared to $1.1 billion for the three months ended March 31, 2023. The increase in insurance premiums was primarily due to increases in property/short tail business, other specialty lines of business, and specialty casualty business. Net written premiums increased by 7.5% to $958 million for the three months ended March 31, 2024, compared to $891 million for the three months ended March 31, 2023. The lower percentage change in net written premiums
compared to gross written premiums is due to lower net retention resulting from changes in the mix of business. Premiums earned increased by 5.6% to $923 million for the three months ended March 31, 2024, compared to $874 million for the three months ended March 31, 2023.
Incurred Losses and LAE. The following tables present the incurred losses and LAE for the Insurance segment for the periods indicated.
Incurred losses and LAE increased by 5.4% to $596 million for the three months ended March 31, 2024, compared to $565 million for the three months ended March 31, 2023. The increase was mainly due to an increase of $27 million in current year attritional losses and an increase of $3 million in current year catastrophe losses. The increase in current year attritional losses was primarily due to the impact of the increase in premiums earned and changes in mix of business. The $5 million of current year catastrophe
losses for the three months ended March 31, 2024 related to the 2024 Baltimore bridge collapse. The $2 million of current year catastrophe losses for the three months ended March 31, 2023 related to the 2023 New Zealand storms.
Segment Expenses. Commission and brokerage increased by 5.3% to $111 million for the three months ended March 31, 2024 compared to $105 million for the three months ended March 31, 2023. Segment other underwriting expenses increased to $153 million for the three months ended March 31, 2024 compared to $137 million
for the three months ended March 31, 2023. The increases were mainly due to the impact of the increase in premiums earned and increased expenses related to the continued build out of the insurance business, including an expansion of the international insurance platform.
FINANCIAL CONDITION
Investments. Total investments were $36.6 billion at March 31, 2024, an increase of $898 million compared to $35.7 billion at December 31, 2023. The rise in investments was primarily related to an increase in fixed maturities - available for sale due to an overall net purchase of $828 million of fixed
maturities - available for sale during the three months ended March 31, 2024.
The Company’s limited partnership investments are comprised of limited partnerships that invest in private equity, private credit and private real estate. Generally, the limited partnerships are reported on a month or quarter lag. We receive annual audited financial statements for all the limited partnerships, which are prepared using fair value accounting in accordance with FASB guidance. For the quarterly reports, the Company reviews the financial reports for any unusual changes in carrying value. If the Company becomes aware of a significant
decline in value during the lag reporting period, the loss will be recorded in the period in which the Company identifies the decline.
The table below summarizes the composition and characteristics of our investment portfolio for the periods indicated.
Reinsurance recoverables for both paid and unpaid losses totaled $2.3 billion and $2.3 billion at March 31, 2024 and December 31, 2023, respectively. At March 31, 2024, $403 million, or 17.4%, was receivable from Mt. Logan Re collateralized segregated accounts; $248 million, or 10.7%,
was receivable from Munich Reinsurance America, Inc. and $171 million, or 7.4% was receivable from Endurance Specialty Holdings, Ltd. No other retrocessionaire accounted for more than 5% of our recoverables.
Loss and LAE Reserves. Gross loss and LAE reserves totaled $25.2 billion and $24.6 billion at March 31, 2024 and December 31, 2023, respectively.
The following tables summarize gross outstanding loss and LAE reserves by segment, classified by case reserves and IBNR reserves, for the periods
indicated.
Changes in premiums earned and business mix, reserve re-estimations, catastrophe losses and changes in catastrophe loss reserves and claim settlement activity all impact loss and LAE reserves by segment and in total.
Our carried loss and LAE reserves represent management’s best estimate of our ultimate liability for unpaid claims. We continuously re-evaluate our reserves, including re-estimates of prior period reserves, taking into consideration all available information and, in particular, newly reported loss and claim experience. Changes in reserves resulting from such re-evaluations are reflected in incurred losses in the period when the re-evaluation is made. Our analytical methods and processes operate at multiple levels, including individual contracts,
groupings of like contracts, classes and lines of business, internal business units, segments, accident years, legal entities, and in the aggregate. In order to set appropriate reserves, we make qualitative and quantitative analyses and judgments at these various levels. We utilize actuarial science, business expertise and management judgment in a manner intended to ensure the accuracy and consistency of our reserving practices. Management’s best estimate is developed through collaboration with actuarial, underwriting, claims, legal and finance departments and culminates with the input of reserve committees. Each segment reserve committee includes the participation of the relevant parties from actuarial, finance, claims and segment senior management and has the responsibility for recommending and approving management’s best estimate. Reserves are further reviewed by Everest’s
Chief Reserving Actuary and senior management. The objective of this process is to determine a single best estimate viewed by management to be the best estimate of its ultimate loss liability. Nevertheless, our reserves are estimates and are subject to variation, which may be significant.
There can be no assurance that reserves for, and losses from, claim obligations will not increase in the future, possibly by a material amount. However, we believe that our existing reserves and reserving methodologies lessen the probability that any such increase would have a material adverse effect on our financial condition, results of operations or cash flows.
Asbestos
and Environmental Exposures. Asbestos and Environmental (“A&E”) exposures represent a separate exposure group for monitoring and evaluating reserve adequacy. The following table summarizes the outstanding loss reserves with respect to A&E reserves on both a gross and net of retrocessions basis for the periods indicated.
At March 31,
At December 31,
(Dollars in millions)
2024
2023
Gross
reserves
$
233
$
247
Ceded reserves
(13)
(15)
Net reserves
$
220
$
232
(Some amounts may not reconcile due to rounding.)
With
respect to asbestos only, at March 31, 2024, we had net asbestos loss reserves of $200 million, or 90.9%, of total net A&E reserves, all of which was for assumed business.
Ultimate loss projections for A&E liabilities cannot be accomplished using standard actuarial techniques. We believe that our A&E reserves represent management’s best estimate of the ultimate liability; however, there can be no assurance that ultimate loss payments will not exceed such reserves, perhaps by a significant amount.
Industry analysts use the “survival ratio” to compare the A&E reserves among companies with such liabilities. The survival ratio is typically calculated by dividing a company’s current net reserves by the three-year average of annual paid losses. Hence, the survival ratio equals the number of years that it would
take to exhaust the current reserves if future loss payments were to continue at historical levels. Using this measurement, our net three-year asbestos survival ratio was 6.4 years at March 31, 2024. These metrics can be skewed by individual large settlements occurring in the prior three years and therefore may not be indicative of the timing of future payments.
LIQUIDITY AND CAPITAL RESOURCES
Capital. Shareholders’ equity at March 31, 2024 and December 31, 2023 was $13.6 billion and $13.2 billion, respectively. Management’s objective in managing capital is to ensure its overall capital
level, as well as the capital levels of its operating subsidiaries, exceed the amounts required by regulators, the amount needed to support our current financial strength ratings from rating agencies and our own economic capital models. The Company’s capital has historically exceeded these benchmark levels.
Our two main operating companies, Bermuda Re and Everest Re, are regulated by the Bermuda Monetary Authority and the State of Delaware’s Department of Insurance, respectively. Both regulatory bodies have their own capital adequacy models based on statutory capital as opposed to GAAP basis equity. Failure to meet the required statutory capital levels could result in various regulatory restrictions, including business activity and the payment
of dividends to their parent companies.
The regulatory targeted capital and the actual statutory capital for Bermuda Re and Everest Re were as follows:
Bermuda Re (1)
Everest Re (2)
At
December 31,
At December 31,
(Dollars in millions)
2023
2022
2023
2022
Regulatory targeted capital
$
2,669
$
2,217
$
4,242
$
3,353
Actual
capital
$
3,711
$
2,759
$
6,963
$
5,553
(1)Regulatory targeted capital represents the target capital level from the applicable year's BSCR calculation.
(2)Regulatory targeted capital represents 200% of the RBC authorized control level calculation for the applicable year.
Our financial strength
ratings as determined by A.M. Best, Standard & Poor’s and Moody’s are important as they provide our customers and investors with an independent assessment of our financial strength using a rating scale that provides for relative comparisons. We continue to possess significant financial flexibility and access to debt and equity markets as a result of our financial strength, as evidenced by the financial strength ratings as assigned by independent rating agencies.
We maintain our own economic capital models to monitor and project our overall capital, as well as the capital at our operating subsidiaries. A key input to the economic models is projected income, and this input is continually compared to actual results, which may require a change in the capital strategy.
During the first quarter of 2024, we repurchased 0.1 million of our shares at a cost of $35 million in the open market. We paid $76 million in dividends to adjust our capital position and enhance long-term expected returns to our shareholders. In 2023, we repurchased no shares in the open market and paid $288 million in dividends. On May 22, 2020, our existing Board authorization to purchase up to 30 million of our shares was amended to authorize the purchase of up to 32 million shares. As of March 31, 2024, we had repurchased 30.9 million shares under this authorization.
We may continue, from time to time, to seek to retire portions of our outstanding debt securities through cash repurchases, in open-market purchases, privately negotiated transactions or
otherwise. Such repurchases, if any, will be subject to and depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved in any such transactions, individually or in the aggregate, may be material.
On May 19, 2023, the Company completed the public offering of 4,140,000 common shares, which includes full exercise of the underwriters’ option to purchase an additional 540,000 common shares, at a public offering price of $360.00 per share. Total net proceeds from the public offering were $1,445 million, after underwriting discount and expenses. The Company intends to use the net proceeds from this
offering for long-term reinsurance opportunity and continuing build out of the global insurance business.
Liquidity. Our liquidity requirements are generally met from positive cash flow from operations. Positive cash flow results from reinsurance and insurance premiums being collected prior to disbursements for claims, which disbursements generally take place over an extended period after the collection of premiums, sometimes a period of many years. Collected premiums are generally invested, prior to their use in such disbursements, and investment income provides additional funding for loss payments. Our net cash flows from operating activities were $1.1 billion and $1.1 billion for the three months ended March 31, 2024 and 2023, respectively. Additionally, these cash flows reflected net catastrophe
loss payments of $229 million and $198 million for the three months ended March 31, 2024 and 2023, respectively, and net tax payments of $16 million and $2 million for the three months ended March 31, 2024 and 2023, respectively.
If disbursements for losses and LAE, policy acquisition costs and other operating expenses were to exceed premium inflows, cash flow from reinsurance and insurance operations would be negative. The effect on cash flow from insurance operations would be partially offset by cash flow from investment income. Additionally, cash inflows from investment maturities of both short-term investments and longer term maturities are available to supplement other operating cash flows. We do not expect to supplement
negative insurance operations cash flows with investment dispositions.
As the timing of payments for losses and LAE cannot be predicted with certainty, we maintain portfolios of long-term invested assets with varying maturities, along with short-term investments that provide additional liquidity for payment of claims. At March 31, 2024 and December 31, 2023, we held cash and short-term investments of $3.9 billion and $3.6 billion, respectively. Our short-term investments are generally readily marketable and can be converted to cash. In addition to these cash and short-term investments, at March 31, 2024, we had $1.5 billion of available for sale fixed maturity securities maturing within one year or less, $6.9 billion maturing within one to five years and $8.4 billion maturing
after five years. We believe that these fixed maturity securities, in conjunction with the short-term investments and positive cash flow from operations, provide ample sources of liquidity for the expected payment of losses and LAE in the near future. We do not anticipate selling a significant amount of securities to pay losses and LAE. At March 31, 2024, we had $1.0 billion of net pre-tax unrealized depreciation related to fixed maturity - available for sale securities, comprised of $1.2 billion of pre-tax unrealized depreciation and $240 million of pre-tax unrealized appreciation.
Management generally expects annual positive cash flow from operations, which reflects the strength of overall pricing. However, given catastrophic events observed in recent periods, cash flow from operations may decline and could become negative in the near term as significant claim payments
are made related to the catastrophes. However, as indicated above, the Company has ample liquidity to settle its catastrophe claims and/or any payments due for its catastrophe bond program.
In addition to our cash flows from operations and liquid investments, we also have multiple active credit facilities that provide commitments of up to $1.7 billion of collateralized standby letters of credit to support business written by our Bermuda operating subsidiaries. In addition, the Company has the ability to request access to an additional $240 million of uncommitted credit facilities, which would require approval from the applicable lender. There is no guarantee the
uncommitted capacity will be available to us on a future date. See Note 7 – Credit Facilities for further details.
Market Sensitive Instruments.
The Securities and Exchange Commission’s (“SEC”) Financial Reporting Release #48 requires registrants to clarify and expand upon the existing financial statement disclosure requirements for derivative financial instruments, derivative
commodity instruments and other financial instruments (collectively,
“market sensitive instruments”). We do not generally enter into market sensitive instruments for trading purposes.
Our current investment strategy seeks to maximize after-tax income through a high quality, diversified, fixed maturity portfolio, while maintaining an adequate level of liquidity. Our mix of investments is adjusted periodically, consistent with our current and projected operating results and market conditions. The fixed maturity securities in the investment portfolio are comprised of available for sale and held to maturity securities. Additionally, we have invested in equity securities.
The overall investment strategy considers the scope of present and anticipated Company operations. In particular, estimates of the financial impact resulting from non-investment asset and liability transactions, together with our capital structure and other factors, are
used to develop a net liability analysis. This analysis includes estimated payout characteristics for which our investments provide liquidity. This analysis is considered in the development of specific investment strategies for asset allocation, duration and credit quality. The change in overall market sensitive risk exposure principally reflects the asset changes that took place during the period.
Interest Rate Risk. Our $38.1 billion investment portfolio at March 31, 2024 is principally comprised of fixed maturity securities, which are generally subject to interest rate risk and some foreign currency exchange rate risk, and some equity securities, which are subject to price fluctuations and some foreign exchange rate risk. The overall economic impact of the foreign exchange risks on the investment portfolio is partially mitigated by changes in
the dollar value of foreign currency denominated liabilities and their associated income statement impact.
Interest rate risk is the potential change in value of the fixed maturity securities portfolio, including short-term investments, from a change in market interest rates. In a declining interest rate environment, interest rate risk includes prepayment risk on the $6.3 billion of mortgage-backed securities in the $29.1 billion fixed maturity portfolio. Prepayment risk results from potential accelerated principal payments that shorten the average life and thus the expected yield of the security.
The table below displays the potential impact of market value fluctuations and after-tax unrealized appreciation on our fixed maturity portfolio (including $2.4 billion of short-term investments) for the period indicated based on upward and downward parallel and immediate 100 and 200
basis point shifts in interest rates. For legal entities with a U.S. dollar functional currency, this modeling was performed on each security individually. To generate appropriate price estimates on mortgage-backed securities, changes in prepayment expectations under different interest rate environments were taken into account. For legal entities with a non-U.S. dollar functional currency, the effective duration of the involved portfolio of securities was used as a proxy for the market value change under the various interest rate change scenarios.
Impact
of Interest Rate Shift in Basis Points At March 31, 2024
-200
-100
0
100
200
(Dollars in millions)
Total Fair Value
$
33,746
$
32,640
$
31,533
$
30,427
$
29,320
Fair
Value Change from Base (%)
7.0
%
3.5
%
—
%
(3.5)
%
(7.0)
%
Change in Unrealized Appreciation
After-tax
from Base ($)
$
1,914
$
957
$
—
$
(957)
$
(1,914)
We had $25.2 billion and $24.6 billion of gross reserves for losses and LAE as of March 31, 2024 and December 31, 2023, respectively. These amounts are
recorded at their nominal value, as opposed to present value, which would reflect a discount adjustment to reflect the time value of money. Since losses are paid out over a period of time, the present value of the reserves is less than the nominal value. As interest rates rise, the present value of the reserves decreases and, conversely, as interest rates decline, the present value increases. These movements are the opposite of the interest rate impacts on the fair value of investments. While the difference between present value and nominal value is not reflected in our financial statements, our financial results will include investment income over time from the investment portfolio until the claims are paid. Our loss and loss reserve obligations have an expected duration of approximately 3.9 years, which is reasonably consistent with our fixed income portfolio. If we were to discount our loss and LAE reserves, net of ceded reserves, the discount would be approximately
$4.3 billion resulting in a discounted reserve balance of approximately $18.8 billion, representing approximately 59.6% of the value of the fixed maturity investment portfolio funds.
Foreign Currency Risk. Foreign currency risk is the potential change in value, income and cash flow arising from adverse changes in foreign currency exchange rates. Each of our non-U.S./Bermuda operations maintains capital in the currency of the country of its geographic location consistent with local regulatory guidelines. Each non-U.S. operation may conduct business in its local currency, as well as the currency of other countries in which it operates. The
primary foreign currency exposures for these non-U.S. operations are the Canadian Dollar, the Singapore Dollar, the British Pound Sterling and the Euro. We mitigate foreign exchange exposure by generally matching the currency and duration of our assets to our corresponding operating liabilities. In accordance with FASB guidance, the impact on the fair value of available for sale fixed maturities due to changes in foreign currency exchange rates, in relation to functional currency, is reflected as part of other comprehensive income. Conversely, the impact of changes in foreign currency exchange rates, in relation to functional currency, on other assets and liabilities is reflected through net income as a component of other income (expense). In addition, we translate the assets, liabilities and income of non-U.S. dollar functional currency legal entities to the U.S. dollar. This translation amount is reported as a component of other comprehensive income.
ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market Risk Instruments. See “Liquidity and Capital Resources - Market Sensitive Instruments” in PART I – ITEM 2.
ITEM 4. CONTROLS AND PROCEDURES
As of the end of the period covered by this report, our management carried out an evaluation, with the participation of the Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)). Based on their evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective
to ensure that information required to be disclosed by us in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Our management, with the participation of the Chief Executive Officer and Chief Financial Officer, also conducted an evaluation of our internal control over financial reporting to determine whether any changes occurred during the quarter covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Based on that evaluation, there has been no such change during the quarter covered by this report.
PART II. OTHER INFORMATION
ITEM
1. LEGAL PROCEEDINGS
In the ordinary course of business, the Company is involved in lawsuits, arbitrations and other formal and informal dispute resolution procedures, the outcomes of which will determine the Company’s rights and obligations under insurance and reinsurance agreements. In some disputes, the Company seeks to enforce its rights under an agreement or to collect funds owing to it. In other matters, the Company is resisting attempts by others to collect funds or enforce alleged rights. These disputes arise from time to time and are ultimately resolved through both informal
and formal means, including negotiated resolution, arbitration and litigation. In all such matters, the Company believes that its positions are legally and commercially reasonable. The Company considers the statuses of these proceedings when determining its reserves for unpaid loss and LAE.
Aside from litigation and arbitrations related to these insurance and reinsurance agreements, the Company is not a party to any other material litigation or arbitration.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Issuer Purchases of Equity Securities.
Issuer
Purchases of Equity Securities
(a)
(b)
(c)
(d)
Period
Total Number of
Shares (or Units)
Purchased (2)
Average Price Paid per Share (or Unit)
Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs
Maximum Number (or
Approximate
Dollar
Value) of Shares (or
Units) that May Yet
Be Purchased Under
the Plans or
Programs (1)
January 1 - 31, 2024
154
$
374.32
—
1,228,908
February 1 - 29, 2024
45,250
$
369.7883
—
1,228,908
March
1 - 31, 2024
101,438
$
387.5345
90,291
1,138,617
Total
146,842
$
—
90,291
1,138,617
(1)On May 22, 2020, the Company’s executive committee of the Board of Directors approved an amendment
to the share repurchase program authorizing the Company and/or its subsidiary Holdings, to purchase up to a current aggregate of 32.0 million of the Company’s shares (recognizing that the number of shares authorized for repurchase has been reduced by those shares that have already been purchased) in open market transactions, privately negotiated transactions or both. Currently, the Company and/or its subsidiary Holdings have repurchased (0.1) million of the Company’s shares.
(2)Shares that have not been repurchased through
a publicly announced plan or program consist of shares repurchased by the Company from employees in order to satisfy tax withholding obligations on vestings and/or settlements of share-based compensation awards.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM
5. OTHER INFORMATION
During the fiscal quarter ended March 31, 2024, none of our directors or officers (as defined in Exchange Act Rule 16a-1(f)) iiadopted/, modified or iiterminated/
a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as those terms are defined in Regulation S-K, Item 408.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
