NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)
For the Three Months Ended March 31, 2021 and 2020
1. GENERAL
Everest Re Group, Ltd. (“Group”), a Bermuda company, through its subsidiaries, principally provides reinsurance and insurance in the U.S., Bermuda and international markets. As used in this document, “Company” means Group and its subsidiaries.
2. BASIS OF PRESENTATION
The unaudited consolidated financial statements of the Company as of March 31, 2021 and December 31, 2020 and for the three months ended March 31, 2021 and 2020 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, 2020 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, 2021 and 2020 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, 2020, 2019 and 2018, included in the Company’s most recent Form 10-K filing.
The Company consolidates the results of operations and financial position of all voting interest entities ("VOE") in which the Company has a controlling financial interest and all variable interest entities ("VIE") in which the Company is considered to be the primary beneficiary. The consolidation assessment, including the determination as to whether an entity qualifies as a VIE or VOE, depends on the facts and circumstances surrounding each entity.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities (and disclosure of contingent assets and liabilities) at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Ultimate actual results could differ, possibly materially, from those estimates. This is particularly true given the fluid and continuing nature of the COVID-19 pandemic. This is an ongoing event and so is the Company’s evaluation and analysis. While the Company’s analysis considers all aspects of its operations, it does not take into account legal, regulatory or legislative intervention that could retroactively mandate or expand coverage provisions. Given the uncertainties in the current public health and economic environment, there could be an adverse impact on results for the Property & Casualty industry and the Company for the remainder of the year. The impact is dependent on the shape and length of the economic recovery.
All intercompany accounts and transactions have been eliminated.
Application of Recently Issued Accounting Standard Changes.
Accounting for Income Taxes. In December 2019, The Financial Accounting Standards Board (“FASB”) issued ASU 2019-12, which provides simplification of existing guidance for income taxes, including the removal of certain exceptions related to recognition of deferred tax liabilities on foreign subsidiaries. The guidance is effective for annual reporting periods beginning after December 15, 2020 and interim periods within that annual reporting period. The Company adopted the guidance as of January 1, 2021. The adoption of ASU 2019-12 did not have a material impact on the Company’s financial statements.
Accounting for Cloud Computing Arrangement. In August 2018, FASB issued ASU 2018-15, which outlines accounting for implementation costs of a cloud computing arrangement that is a service contract. This guidance requires that implementation costs of a cloud computing arrangement that is a service contract must be capitalized and expensed in accordance with the existing provisions provided in Subtopic 350-40 regarding development of internal use software. In addition, any capitalized implementation costs should be amortized over the term of the hosting arrangement. The guidance is effective for annual reporting periods beginning after December 15, 2019 and interim periods within that annual reporting period. The Company adopted the guidance as of January 1, 2020. The adoption of ASU 2018-15 did not have a material impact on the Company’s financial statements.
Accounting for Long Duration Contracts. In August 2018, FASB issued ASU 2018-12, which discusses changes to the recognition, measurement and presentation of long duration contracts. The main provisions of this guidance address the following: 1) In determining liability for future policy benefits, companies must review cash flow assumptions at least annually and the discount rate assumption at each reporting period date 2) Amortization of deferred acquisition costs has been simplified to be in constant level proportion to either premiums, gross profits or gross margins 3) Disaggregated roll forwards of beginning and ending liabilities for future policy benefits are required. The guidance was originally effective for annual reporting periods beginning after December 15, 2020 and interim periods within that annual reporting period. However, FASB issued ASU 2019-09 in November 2019 and then ASU 2020-11 in November 2021, which ultimately defers the effective date of ASU 2018-12 until annual reporting periods beginning after December 15, 2022. The Company is currently evaluating the impact of the adoption of ASU 2018-12 on its financial statements.
Valuation of Financial Instruments. In June 2016, FASB issued ASU 2016-13 (and has subsequently issued related guidance and amendments in ASU 2019-11 and ASU 2019-10 in November 2019) which outline guidance on the valuation of and accounting for assets measured at amortized cost and available for sale debt securities. The new guidance requires the carrying value of assets measured at amortized cost, including reinsurance and premiums receivables to be presented as the net amount expected to be collected on the financial asset (amortized cost less an allowance for credit losses valuation account). The allowance reflects expected credit losses of the financial asset which considers available information using a combination both historical information, current market conditions and reasonable and supportable forecasts. For available-for-sale debt securities, the guidance modified the previous other than temporary impairment model, now requiring an allowance for estimated credit related losses rather than a permanent impairment, which will be limited to the amount by which fair value is below amortized cost. The guidance is effective for annual and interim reporting periods beginning after December 15, 2019. The Company adopted the guidance effective January 1, 2020, on a modified retrospective basis. The adoption resulted in a cumulative reduction of $4,214 thousand in retained earnings, net of tax, which is disclosed separately within the Consolidated Statements of Shareholders’ Equity.
Any issued guidance and pronouncements, other than those directly referenced above, are deemed by the Company to be either not applicable or immaterial to its financial statements.
3. INVESTMENTS
Effective January 1, 2020, the Company adopted ASU 2016-13 which modified the previous other than temporary impairment model for available for sale fixed maturity securities. The guidance requires the Company to record allowances for credit losses for securities that are deemed to have valuation deterioration due to credit related factors. The following tables show amortized cost, allowance for credit losses, gross unrealized appreciation, gross unrealized depreciation and market value of available for sale, fixed maturity securities as of the dates indicated:
|
|
|
At March 31, 2021
|
|
|
|
Amortized
|
|
Allowance for
|
|
Unrealized
|
|
Unrealized
|
|
Market
|
|
(Dollars in thousands)
|
Cost
|
|
Credit Losses
|
|
Appreciation
|
|
Depreciation
|
|
Value
|
|
Fixed maturity securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities and obligations of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government agencies and corporations
|
$
|
1,271,760
|
|
$
|
-
|
|
$
|
33,703
|
|
$
|
(11,537)
|
|
$
|
1,293,926
|
|
|
Obligations of U.S. states and political subdivisions
|
|
566,698
|
|
|
-
|
|
|
32,092
|
|
|
(2,741)
|
|
|
596,049
|
|
|
Corporate securities
|
|
7,228,229
|
|
|
(3,603)
|
|
|
255,940
|
|
|
(85,555)
|
|
|
7,395,011
|
|
|
Asset-backed securities
|
|
2,615,962
|
|
|
(4,915)
|
|
|
27,486
|
|
|
(2,762)
|
|
|
2,635,771
|
|
|
Mortgage-backed securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
992,442
|
|
|
-
|
|
|
43,127
|
|
|
(6,252)
|
|
|
1,029,317
|
|
|
Agency residential
|
|
2,257,474
|
|
|
-
|
|
|
56,223
|
|
|
(14,724)
|
|
|
2,298,973
|
|
|
Non-agency residential
|
|
9,253
|
|
|
-
|
|
|
4
|
|
|
(12)
|
|
|
9,245
|
|
|
Foreign government securities
|
|
1,556,644
|
|
|
-
|
|
|
74,746
|
|
|
(27,160)
|
|
|
1,604,230
|
|
|
Foreign corporate securities
|
|
3,433,728
|
|
|
(205)
|
|
|
154,145
|
|
|
(42,710)
|
|
|
3,544,958
|
|
Total fixed maturity securities
|
$
|
19,932,190
|
|
$
|
(8,723)
|
|
$
|
677,466
|
|
$
|
(193,453)
|
|
$
|
20,407,480
|
|
|
|
At December 31, 2020
|
|
|
|
Amortized
|
|
Allowance for
|
|
Unrealized
|
|
Unrealized
|
|
Market
|
|
(Dollars in thousands)
|
Cost
|
|
Credit Losses
|
|
Appreciation
|
|
Depreciation
|
|
Value
|
|
Fixed maturity securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities and obligations of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government agencies and corporations
|
$
|
1,325,156
|
|
$
|
-
|
|
$
|
49,084
|
|
$
|
(7,134)
|
|
$
|
1,367,106
|
|
|
Obligations of U.S. states and political subdivisions
|
|
543,895
|
|
|
-
|
|
|
34,654
|
|
|
(1,254)
|
|
|
577,295
|
|
|
Corporate securities
|
|
6,824,800
|
|
|
(1,220)
|
|
|
380,677
|
|
|
(55,231)
|
|
|
7,149,026
|
|
|
Asset-backed securities
|
|
2,540,809
|
|
|
-
|
|
|
30,691
|
|
|
(5,698)
|
|
|
2,565,802
|
|
|
Mortgage-backed securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
915,923
|
|
|
-
|
|
|
75,275
|
|
|
(895)
|
|
|
990,303
|
|
|
Agency residential
|
|
2,206,139
|
|
|
-
|
|
|
64,663
|
|
|
(3,063)
|
|
|
2,267,739
|
|
|
Non-agency residential
|
|
5,187
|
|
|
-
|
|
|
9
|
|
|
(2)
|
|
|
5,194
|
|
|
Foreign government securities
|
|
1,565,260
|
|
|
(22)
|
|
|
102,587
|
|
|
(22,450)
|
|
|
1,645,375
|
|
|
Foreign corporate securities
|
|
3,297,898
|
|
|
(503)
|
|
|
204,023
|
|
|
(29,085)
|
|
|
3,472,333
|
|
Total fixed maturity securities
|
$
|
19,225,067
|
|
$
|
(1,745)
|
|
$
|
941,663
|
|
$
|
(124,812)
|
|
$
|
20,040,173
|
The amortized cost and market value of fixed maturity securities are shown in the following table by contractual maturity. Mortgage-backed securities are generally more likely to be prepaid than other fixed maturity securities. As the stated maturity of such securities may not be indicative of actual maturities, the totals for mortgage-backed and asset-backed securities are shown separately.
|
|
At March 31, 2021
|
|
At December 31, 2020
|
|
|
Amortized
|
|
Market
|
|
Amortized
|
|
Market
|
|
(Dollars in thousands)
|
Cost
|
|
Value
|
|
Cost
|
|
Value
|
|
Fixed maturity securities – available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
Due in one year or less
|
$
|
1,548,669
|
|
$
|
1,559,198
|
|
$
|
1,365,793
|
|
$
|
1,374,674
|
|
Due after one year through five years
|
|
6,510,731
|
|
|
6,715,932
|
|
|
6,529,189
|
|
|
6,774,785
|
|
Due after five years through ten years
|
|
4,895,574
|
|
|
5,036,321
|
|
|
4,414,211
|
|
|
4,751,903
|
|
Due after ten years
|
|
1,102,085
|
|
|
1,122,723
|
|
|
1,247,816
|
|
|
1,309,773
|
|
Asset-backed securities
|
|
2,615,962
|
|
|
2,635,771
|
|
|
2,540,809
|
|
|
2,565,802
|
|
Mortgage-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
992,442
|
|
|
1,029,317
|
|
|
915,923
|
|
|
990,303
|
|
Agency residential
|
|
2,257,474
|
|
|
2,298,973
|
|
|
2,206,139
|
|
|
2,267,739
|
|
Non-agency residential
|
|
9,253
|
|
|
9,245
|
|
|
5,187
|
|
|
5,194
|
|
Total fixed maturity securities
|
$
|
19,932,190
|
|
$
|
20,407,480
|
|
$
|
19,225,067
|
|
$
|
20,040,173
|
The changes in net unrealized appreciation (depreciation) for the Company’s investments are derived from the following sources for the periods indicated:
|
|
Three Months Ended
|
|
|
March 31,
|
|
(Dollars in thousands)
|
2021
|
|
2020
|
|
Increase (decrease) during the period between the market value and cost
|
|
|
|
|
|
|
of investments carried at market value, and deferred taxes thereon:
|
|
|
|
|
|
|
Fixed maturity securities
|
$
|
(332,708)
|
|
$
|
(277,023)
|
|
Change in unrealized appreciation (depreciation), pre-tax
|
|
(332,708)
|
|
|
(277,023)
|
|
Deferred tax benefit (expense)
|
|
40,427
|
|
|
29,024
|
|
Change in unrealized appreciation (depreciation),
|
|
|
|
|
|
|
net of deferred taxes, included in shareholders’ equity
|
$
|
(292,281)
|
|
$
|
(247,999)
|
The Company reviews all of its fixed maturity, available for sale securities whose fair value has fallen below their amortized cost at the time of review. The Company then assesses whether the decline in value is due to non-credit related or credit related factors. In making its assessment, the Company evaluates the current market and interest rate environment as well as specific issuer information. Generally, a change in a security’s value caused by a change in the market, interest rate or foreign exchange environment does not constitute a credit impairment, but rather a non-credit related decline in market value. Non-credit related declines in market value are recorded as unrealized losses in accumulated other comprehensive income (loss). If the Company intends to sell the security or is more likely than not to sell the security, the Company records the entire fair value adjustment in net realized capital gains (losses) in the Company’s consolidated statements of operations and comprehensive income (loss). If the Company determines that the decline is credit related and the Company does not have the intent to sell the security; and it is more likely than not that the Company will not have to sell the security before recovery of its cost basis, the Company establishes a credit allowance equal to the estimated credit loss and is recorded in net realized capital gains (losses) in the Company’s consolidated statements of operations and comprehensive income (loss). The amount of the allowance for a given security will generally be the difference between a discounted cash flow model and the Company’s carrying value. The fair value adjustment that is non-credit related is recorded as a component of other comprehensive income (loss), net of tax, and is included in accumulated other comprehensive income (loss) in the Company’s consolidated balance sheets. The Company will adjust the credit allowance account for future changes in credit loss estimates for a security and record this adjustment through net realized capital gains (losses) in the Company’s consolidated statements of operations and comprehensive income (loss).
The Company does not create an allowance for uncollectible interest. If interest is not received when due, the interest receivable is immediately reversed and no additional interest is accrued. If future interest is received that has not been accrued, it is recorded as income at that time.
Prior to the adoption of ASU 2016-13 effective January 1, 2020, estimated credit losses were recorded as adjustments to the carrying value of the security and any subsequent improvement in market value were recorded through other comprehensive income.
The Company’s assessments are based on the issuers’ current and expected future financial position, timeliness with respect to interest and/or principal payments, speed of repayments and any applicable credit enhancements or breakeven constant default rates on mortgage-backed and asset-backed securities, as well as relevant information provided by rating agencies, investment advisors and analysts.
Retrospective adjustments are employed to recalculate the values of asset-backed securities. All of the Company’s asset-backed and mortgage-backed securities have a pass-through structure. Each acquisition lot is reviewed to recalculate the effective yield. The recalculated effective yield is used to derive a book value as if the new yield were applied at the time of acquisition. Outstanding principal factors from the time of acquisition to the adjustment date are used to calculate the prepayment history for all applicable securities. Conditional prepayment rates, computed with life to date factor histories and weighted average maturities, are used in the calculation of projected prepayments for pass-through security types.
The tables below display the aggregate market value and gross unrealized depreciation of fixed maturity securities, 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, 2021 By Security Type
|
|
|
Less than 12 months
|
|
Greater than 12 months
|
|
Total
|
|
|
|
|
|
Gross
|
|
|
|
|
Gross
|
|
|
|
|
Gross
|
|
|
|
|
|
Unrealized
|
|
|
|
|
Unrealized
|
|
|
|
|
Unrealized
|
|
(Dollars in thousands)
|
Market Value
|
|
Depreciation
|
|
Market Value
|
|
Depreciation
|
|
Market Value
|
|
Depreciation
|
|
Fixed maturity securities - available for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities and obligations of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government agencies and corporations
|
$
|
230,960
|
|
$
|
(9,326)
|
|
$
|
14,778
|
|
$
|
(2,211)
|
|
$
|
245,738
|
|
$
|
(11,537)
|
|
Obligations of U.S. states and political subdivisions
|
|
57,823
|
|
|
(1,709)
|
|
|
12,079
|
|
|
(1,032)
|
|
|
69,902
|
|
|
(2,741)
|
|
Corporate securities
|
|
1,571,716
|
|
|
(61,150)
|
|
|
253,539
|
|
|
(24,405)
|
|
|
1,825,255
|
|
|
(85,555)
|
|
Asset-backed securities
|
|
304,407
|
|
|
(1,981)
|
|
|
24,619
|
|
|
(781)
|
|
|
329,026
|
|
|
(2,762)
|
|
Mortgage-backed securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
152,882
|
|
|
(5,290)
|
|
|
5,600
|
|
|
(962)
|
|
|
158,482
|
|
|
(6,252)
|
|
Agency residential
|
|
899,288
|
|
|
(13,640)
|
|
|
54,717
|
|
|
(1,084)
|
|
|
954,005
|
|
|
(14,724)
|
|
Non-agency residential
|
|
6,266
|
|
|
(10)
|
|
|
156
|
|
|
(2)
|
|
|
6,422
|
|
|
(12)
|
|
Foreign government securities
|
|
215,989
|
|
|
(11,701)
|
|
|
123,143
|
|
|
(15,459)
|
|
|
339,132
|
|
|
(27,160)
|
|
Foreign corporate securities
|
|
782,295
|
|
|
(32,134)
|
|
|
100,457
|
|
|
(10,576)
|
|
|
882,752
|
|
|
(42,710)
|
|
Total fixed maturity securities
|
$
|
4,221,626
|
|
$
|
(136,941)
|
|
$
|
589,088
|
|
$
|
(56,512)
|
|
$
|
4,810,714
|
|
$
|
(193,453)
|
|
|
|
Duration of Unrealized Loss at March 31, 2021 By Maturity
|
|
|
Less than 12 months
|
|
Greater than 12 months
|
|
Total
|
|
|
|
|
|
Gross
|
|
|
|
|
Gross
|
|
|
|
|
Gross
|
|
|
|
|
|
Unrealized
|
|
|
|
|
Unrealized
|
|
|
|
|
Unrealized
|
|
(Dollars in thousands)
|
Market Value
|
|
Depreciation
|
|
Market Value
|
|
Depreciation
|
|
Market Value
|
|
Depreciation
|
|
Fixed maturity securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due in one year or less
|
$
|
159,736
|
|
$
|
(6,665)
|
|
$
|
108,331
|
|
$
|
(10,340)
|
|
$
|
268,067
|
|
$
|
(17,005)
|
|
Due in one year through five years
|
|
1,117,370
|
|
|
(33,855)
|
|
|
246,205
|
|
|
(20,081)
|
|
|
1,363,575
|
|
|
(53,936)
|
|
Due in five years through ten years
|
|
1,231,926
|
|
|
(60,905)
|
|
|
60,821
|
|
|
(7,511)
|
|
|
1,292,747
|
|
|
(68,416)
|
|
Due after ten years
|
|
349,751
|
|
|
(14,595)
|
|
|
88,639
|
|
|
(15,751)
|
|
|
438,390
|
|
|
(30,346)
|
|
Asset-backed securities
|
|
304,407
|
|
|
(1,981)
|
|
|
24,619
|
|
|
(781)
|
|
|
329,026
|
|
|
(2,762)
|
|
Mortgage-backed securities
|
|
1,058,436
|
|
|
(18,940)
|
|
|
60,473
|
|
|
(2,048)
|
|
|
1,118,909
|
|
|
(20,988)
|
|
Total fixed maturity securities
|
$
|
4,221,626
|
|
$
|
(136,941)
|
|
$
|
589,088
|
|
$
|
(56,512)
|
|
$
|
4,810,714
|
|
$
|
(193,453)
|
The aggregate market value and gross unrealized losses related to investments in an unrealized loss position at March 31, 2021 were $,4,810714 thousand and $193,453 thousand, respectively. The market value of securities for the single issuer (the United States government) whose securities comprised the largest unrealized loss position at March 31, 2021, did not exceed 1.3% of the overall market value of the Company’s fixed maturity securities. The market value of the securities for the issuer with the second the largest unrealized loss position at March 31, 2021, comprised less than 0.1% of the Company’s fixed maturity securities. In addition, as indicated on the above table, there was no significant concentration of unrealized losses in any one market sector. The $136,941 thousand of unrealized losses related to fixed maturity securities that have been in an unrealized loss position for less than one year were generally comprised of domestic and foreign corporate securities, agency residential mortgage-backed securities and foreign government securities. Of these unrealized losses, $130,331 thousand were related to securities that were rated investment grade by at least one nationally recognized statistical rating agency. The $56,512 thousand of unrealized losses related to fixed maturity securities in an unrealized loss position for more than one year related primarily to domestic and foreign corporate securities and foreign government securities. Of these unrealized losses, $38,150 thousand were related to securities that were rated investment grade by at least one nationally recognized statistical rating agency. There was no gross unrealized depreciation for mortgage-backed securities related to sub-prime and alt-A loans. In all instances, there were no projected cash flow shortfalls to recover the full book value of the investments and the related interest obligations. The mortgage-backed securities still have excess credit coverage and are current on interest and principal payments.
The Company, given the size of its investment portfolio and capital position, does not have the intent to sell these securities; and it is more likely than not that the Company will not have to sell the security before recovery of its cost basis. In addition, all securities currently in an unrealized loss position are current with respect to principal and interest payments.
The tables below display the aggregate market value and gross unrealized depreciation of fixed maturity and equity securities, by security type and contractual maturity, in each case subdivided according to length of time that individual securities had been in a continuous unrealized loss position for the periods indicated:
|
|
|
Duration of Unrealized Loss at December 31, 2020 By Security Type
|
|
|
Less than 12 months
|
|
Greater than 12 months
|
|
Total
|
|
|
|
|
|
Gross
|
|
|
|
|
Gross
|
|
|
|
|
Gross
|
|
|
|
|
|
Unrealized
|
|
|
|
|
Unrealized
|
|
|
|
|
Unrealized
|
|
(Dollars in thousands)
|
Market Value
|
|
Depreciation
|
|
Market Value
|
|
Depreciation
|
|
Market Value
|
|
Depreciation
|
|
Fixed maturity securities - available for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities and obligations of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government agencies and corporations
|
$
|
135,190
|
|
$
|
(7,134)
|
|
$
|
-
|
|
$
|
-
|
|
$
|
135,190
|
|
$
|
(7,134)
|
|
Obligations of U.S. states and political subdivisions
|
|
19,524
|
|
|
(999)
|
|
|
4,059
|
|
|
(255)
|
|
|
23,583
|
|
|
(1,254)
|
|
Corporate securities
|
|
669,755
|
|
|
(26,159)
|
|
|
247,962
|
|
|
(29,072)
|
|
|
917,717
|
|
|
(55,231)
|
|
Asset-backed securities
|
|
235,566
|
|
|
(4,768)
|
|
|
85,595
|
|
|
(930)
|
|
|
321,161
|
|
|
(5,698)
|
|
Mortgage-backed securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
53,511
|
|
|
(578)
|
|
|
6,592
|
|
|
(317)
|
|
|
60,103
|
|
|
(895)
|
|
Agency residential
|
|
434,447
|
|
|
(2,016)
|
|
|
50,353
|
|
|
(1,047)
|
|
|
484,800
|
|
|
(3,063)
|
|
Non-agency residential
|
|
185
|
|
|
(2)
|
|
|
-
|
|
|
-
|
|
|
185
|
|
|
(2)
|
|
Foreign government securities
|
|
114,755
|
|
|
(8,813)
|
|
|
150,812
|
|
|
(13,637)
|
|
|
265,567
|
|
|
(22,450)
|
|
Foreign corporate securities
|
|
354,548
|
|
|
(17,489)
|
|
|
115,595
|
|
|
(11,596)
|
|
|
470,143
|
|
|
(29,085)
|
|
Total fixed maturity securities
|
$
|
2,017,481
|
|
$
|
(67,958)
|
|
$
|
660,968
|
|
$
|
(56,854)
|
|
$
|
2,678,449
|
|
$
|
(124,812)
|
|
|
|
Duration of Unrealized Loss at December 31, 2020 By Maturity
|
|
|
Less than 12 months
|
|
Greater than 12 months
|
|
Total
|
|
|
|
|
|
Gross
|
|
|
|
|
Gross
|
|
|
|
|
Gross
|
|
|
|
|
|
Unrealized
|
|
|
|
|
Unrealized
|
|
|
|
|
Unrealized
|
|
(Dollars in thousands)
|
Market Value
|
|
Depreciation
|
|
Market Value
|
|
Depreciation
|
|
Market Value
|
|
Depreciation
|
|
Fixed maturity securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due in one year or less
|
$
|
96,144
|
|
$
|
(4,942)
|
|
$
|
112,419
|
|
$
|
(12,071)
|
|
$
|
208,563
|
|
$
|
(17,013)
|
|
Due in one year through five years
|
|
653,816
|
|
|
(32,469)
|
|
|
283,866
|
|
|
(21,319)
|
|
|
937,682
|
|
|
(53,788)
|
|
Due in five years through ten years
|
|
422,517
|
|
|
(19,392)
|
|
|
49,749
|
|
|
(2,034)
|
|
|
472,266
|
|
|
(21,426)
|
|
Due after ten years
|
|
121,295
|
|
|
(3,791)
|
|
|
72,394
|
|
|
(19,136)
|
|
|
193,689
|
|
|
(22,927)
|
|
Asset-backed securities
|
|
235,566
|
|
|
(4,768)
|
|
|
85,595
|
|
|
(930)
|
|
|
321,161
|
|
|
(5,698)
|
|
Mortgage-backed securities
|
|
488,143
|
|
|
(2,596)
|
|
|
56,945
|
|
|
(1,364)
|
|
|
545,088
|
|
|
(3,960)
|
|
Total fixed maturity securities
|
$
|
2,017,481
|
|
$
|
(67,958)
|
|
$
|
660,968
|
|
$
|
(56,854)
|
|
$
|
2,678,449
|
|
$
|
(124,812)
|
The aggregate market value and gross unrealized losses related to investments in an unrealized loss position at December 31, 2020 were $2,678,449 thousand and $124,812 thousand, respectively. The market value of securities for the single issuer whose securities comprised the largest unrealized loss position at December 31, 2020, did not exceed 0.7.% of the overall market value of the Company’s fixed maturity securities. The market value of the securities for the issuer with the second largest unrealized loss comprised less than 0.1% of the Company’s fixed maturity securities. In addition, as indicated on the above table, there was no significant concentration of unrealized losses in any one market sector. The $67,958 thousand of unrealized losses related to fixed maturity securities that have been in an unrealized loss position for less than one year were generally comprised of domestic and foreign corporate securities and foreign government securities. Of these unrealized losses, $63,424 thousand were related to securities that were rated investment grade by at least one nationally recognized statistical rating agency. The $56,854 thousand of unrealized losses related to fixed maturity securities in an unrealized loss position for more than one year related primarily to domestic and foreign corporate securities, foreign government securities and agency residential mortgage-backed securities. Of these unrealized losses, $33,533 thousand were related to securities that were rated investment grade by at least one nationally recognized statistical rating agency. There was no gross unrealized depreciation for mortgage-backed securities related to sub-prime and alt-A loans. In all instances, there were no projected cash flow shortfalls to recover the full book value of the investments and the related interest obligations. The mortgage-backed securities still have excess credit coverage and are current on interest and principal payments.
The components of net investment income are presented in the table below for the periods indicated:
|
|
Three Months Ended
|
|
|
March 31,
|
|
(Dollars in thousands)
|
2021
|
|
2020
|
|
Fixed maturities
|
$
|
140,916
|
|
$
|
137,924
|
|
Equity securities
|
|
4,838
|
|
|
3,521
|
|
Short-term investments and cash
|
|
180
|
|
|
2,175
|
|
Other invested assets:
|
|
|
|
|
|
|
Limited partnerships
|
|
114,333
|
|
|
21,568
|
|
Other
|
|
6,019
|
|
|
(13,071)
|
|
Gross investment income before adjustments
|
|
266,286
|
|
|
152,117
|
|
Funds held interest income (expense)
|
|
7,966
|
|
|
8,216
|
|
Future policy benefit reserve income (expense)
|
|
(291)
|
|
|
(211)
|
|
Gross investment income
|
|
273,961
|
|
|
160,122
|
|
Investment expenses
|
|
(13,548)
|
|
|
(12,322)
|
|
Net investment income
|
$
|
260,413
|
|
$
|
147,800
|
The Company records results from limited partnership investments on the equity method of accounting with changes in value reported through net investment income. Due to the timing of receiving financial information from these partnerships, the results are generally reported on a one month or quarter lag. If the Company determines there has been a significant decline in value of a limited partnership during this lag period, a loss will be recorded in the period in which the Company identifies the decline.
The Company had contractual commitments to invest up to an additional $1,413,543 thousand in limited partnerships and private placement loans at March 31, 2021. These commitments will be funded when called in accordance with the partnership and loan agreements, which have investment periods that expire, unless extended, through 2026.
The Company participates in a private placement liquidity sweep facility (“the facility”). The primary purpose of the facility is to enhance the Company’s return on its short-term investments and cash positions. The facility invests in high quality, short-duration securities and permits daily liquidity. The Company consolidates its participation in the facility. As of March 31, 2021, the market value of investments in the facility consolidated within the Company’s balance sheets was $734,888 thousand.
The components of net realized capital gains (losses) are presented in the tables below for the periods indicated:
|
|
Three Months Ended
|
|
|
March 31,
|
|
(Dollars in thousands)
|
2021
|
|
|
2020
|
|
Fixed maturity securities, market value:
|
|
|
|
|
|
|
Allowance for credit losses
|
$
|
(6,977)
|
|
$
|
(21,774)
|
|
Gains (losses) from sales
|
|
9,174
|
|
|
(14,076)
|
|
Fixed maturity securities, fair value:
|
|
|
|
|
|
|
Gains (losses) from sales
|
|
-
|
|
|
-
|
|
Gains (losses) from fair value adjustments
|
|
-
|
|
|
(1,123)
|
|
Equity securities, fair value:
|
|
|
|
|
|
|
Gains (losses) from sales
|
|
6,238
|
|
|
(27,599)
|
|
Gains (losses) from fair value adjustments
|
|
29,056
|
|
|
(144,003)
|
|
Other invested assets
|
|
1,346
|
|
|
(2,327)
|
|
Short-term investments gain (loss)
|
|
66
|
|
|
314
|
|
Total net realized capital gains (losses)
|
$
|
38,902
|
|
$
|
(210,588)
|
|
|
Roll Forward of Allowance for Credit Losses
|
|
|
Three Months Ended March 31, 2021
|
|
Three Months Ended March 31, 2020
|
|
|
|
|
|
|
|
|
Foreign
|
|
Foreign
|
|
|
|
|
|
|
|
Foreign
|
|
Foreign
|
|
|
|
|
|
Corporate
|
|
Asset-Backed
|
|
Government
|
|
Corporate
|
|
|
|
|
Corporate
|
|
Government
|
|
Corporate
|
|
|
|
|
|
Securities
|
|
Securities
|
|
Securities
|
|
Securities
|
|
Total
|
|
Securities
|
|
Securities
|
|
Securities
|
|
Total
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning Balance
|
$
|
(1,220)
|
|
$
|
-
|
|
$
|
(22)
|
|
$
|
(503)
|
|
$
|
(1,745)
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
Credit losses on securities where credit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
losses were not previously recorded
|
|
(2,383)
|
|
|
(4,915)
|
|
|
-
|
|
|
-
|
|
|
(7,298)
|
|
|
(17,305)
|
|
|
(519)
|
|
|
(3,950)
|
|
|
(21,774)
|
|
Increases in allowance on previously
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
impaired securities
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Decreases in allowance on previously
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
impaired securities
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Reduction in allowance due to disposals
|
|
-
|
|
|
-
|
|
|
22
|
|
|
298
|
|
|
320
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of March 31, 2021
|
$
|
(3,603)
|
|
$
|
(4,915)
|
|
$
|
-
|
|
$
|
(205)
|
|
$
|
(8,723)
|
|
$
|
(17,305)
|
|
$
|
(519)
|
|
$
|
(3,950)
|
|
$
|
(21,774)
|
The Company recorded as net realized capital gains (losses) in the consolidated statements of operations and comprehensive income (loss) fair value re-measurements, allowances for credit losses per ASU 2016-13 and write-downs in the value of securities deemed to be impaired on an other-than-temporary basis in prior years as displayed in the table above.
The proceeds and split between gross gains and losses, from sales of fixed maturity and equity securities, are presented in the table below for the periods indicated:
|
|
Three Months Ended
|
|
|
March 31,
|
|
(Dollars in thousands)
|
2021
|
|
2020
|
|
Proceeds from sales of fixed maturity securities
|
$
|
228,278
|
|
$
|
501,953
|
|
Gross gains from sales
|
|
14,864
|
|
|
14,001
|
|
Gross losses from sales
|
|
(5,690)
|
|
|
(28,077)
|
|
|
|
|
|
|
|
|
Proceeds from sales of equity securities
|
$
|
281,313
|
|
$
|
112,841
|
|
Gross gains from sales
|
|
12,304
|
|
|
2,584
|
|
Gross losses from sales
|
|
(6,066)
|
|
|
(30,183)
|
4. RESERVE FOR LOSSES, LAE AND FUTURE POLICY BENEFIT RESERVE
Activity in the reserve for losses and LAE is summarized for the periods indicated:
|
|
Three Months Ended
|
|
|
March 31,
|
|
(Dollars in thousands)
|
2021
|
|
2020
|
|
Gross reserves beginning of period
|
$
|
16,398,997
|
|
$
|
13,611,313
|
|
Less reinsurance recoverables
|
|
(1,843,691)
|
|
|
(1,640,712)
|
|
Net reserves beginning of period
|
|
14,555,306
|
|
|
11,970,601
|
|
|
|
|
|
|
|
|
Incurred related to:
|
|
|
|
|
|
|
Current year
|
|
1,713,253
|
|
|
1,433,440
|
|
Prior years
|
|
(1,834)
|
|
|
(2,600)
|
|
Total incurred losses and LAE
|
|
1,711,419
|
|
|
1,430,840
|
|
|
|
|
|
|
|
|
Paid related to:
|
|
|
|
|
|
|
Current year
|
|
215,302
|
|
|
168,528
|
|
Prior years
|
|
837,051
|
|
|
907,790
|
|
Total paid losses and LAE
|
|
1,052,353
|
|
|
1,076,318
|
|
|
|
|
|
|
|
|
Foreign exchange/translation adjustment
|
|
(5,841)
|
|
|
(156,565)
|
|
|
|
|
|
|
|
|
Net reserves end of period
|
|
15,208,531
|
|
|
12,168,558
|
|
Plus reinsurance recoverables
|
|
1,882,113
|
|
|
1,651,946
|
|
Gross reserves end of period
|
$
|
17,090,644
|
|
$
|
13,820,504
|
|
|
|
|
|
|
|
|
(Some amounts may not reconcile due to rounding.)
|
Current year incurred losses were $1,713,253 thousand and $1,433,440 thousand for the three months ended March 31, 2021 and 2020, respectively. The increase in current year incurred losses in 2021 compared to 2020 was primarily due to a $240,000 thousand increase in catastrophe losses and the impact of the increase in premiums earned.
5. FAIR VALUE
GAAP guidance regarding fair value measurements address how companies should measure fair value when they are required to use fair value measures for recognition or disclosure purposes under GAAP and provides a common definition of fair value to be used throughout GAAP. It defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly fashion between market participants at the measurement date. In addition, it establishes a three-level valuation hierarchy for the disclosure of fair value measurements. The valuation hierarchy is based on the transparency of inputs to the valuation of an asset or
liability. The level in the hierarchy within which a given fair value measurement falls is determined based on the lowest level input that is significant to the measurement, with Level 1 being the highest priority and Level 3 being the lowest priority.
The levels in the hierarchy are defined as follows:
Level 1:Inputs to the valuation methodology are observable inputs that reflect unadjusted quoted prices for identical assets or liabilities in an active market;
Level 2:Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument;
Level 3:Inputs to the valuation methodology are unobservable and significant to the fair value measurement.
The Company’s fixed maturity and equity securities are primarily managed by third party investment asset managers. The investment asset managers managing publicly traded securities obtain prices from nationally recognized pricing services. These services seek to utilize market data and observations in their evaluation process. They 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 investment asset managers do not make any changes to prices received from either the pricing services or the investment brokers. In addition, the investment asset managers have procedures in place to review the reasonableness of the prices from the service providers and may request verification of the prices. In addition, the Company continually performs analytical reviews of price changes and tests the prices on a random basis to an independent pricing source. 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, 2021, $1,495,500 thousand of fixed maturities, market value 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, 2020, $1,330,224 thousand of fixed maturities, market value were fair valued using unobservable inputs.
The Company internally manages a public equity portfolio which had a fair value at March 31, 2021 and December 31, 2020 of $912,126 thousand and $784,746 thousand, respectively, and all prices were obtained from publicly published sources.
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 or market value. The Company uses foreign currency exchange rates published by nationally recognized sources.
All categories of fixed maturity securities listed in the tables below are generally 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 to the valuations from investment managers, some of the fixed maturities with fair values categorized as Level 3 result when prices are not available from the nationally recognized pricing services. The asset 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. In limited circumstances when broker prices are not available for private placements, the Company will value the securities using comparable market information or receive fair values from investment managers.
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 table presents the fair value measurement levels for all assets and liabilities, which the Company has recorded at fair value (fair and market value) as of the periods indicated:
|
|
|
|
|
|
Fair Value Measurement Using:
|
|
|
|
|
|
|
Quoted Prices
|
|
|
|
|
|
|
|
|
|
|
|
|
in Active
|
|
Significant
|
|
|
|
|
|
|
|
|
|
Markets for
|
|
Other
|
|
Significant
|
|
|
|
|
|
|
Identical
|
|
Observable
|
|
Unobservable
|
|
|
|
|
|
|
Assets
|
|
Inputs
|
|
Inputs
|
|
(Dollars in thousands)
|
|
March 31, 2021
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturities, market value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities and obligations of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government agencies and corporations
|
|
$
|
1,293,926
|
|
$
|
-
|
|
$
|
1,293,926
|
|
$
|
-
|
|
Obligations of U.S. States and political subdivisions
|
|
|
596,049
|
|
|
-
|
|
|
596,049
|
|
|
-
|
|
Corporate securities
|
|
|
7,395,011
|
|
|
-
|
|
|
6,690,469
|
|
|
704,542
|
|
Asset-backed securities
|
|
|
2,635,771
|
|
|
-
|
|
|
1,850,411
|
|
|
785,360
|
|
Mortgage-backed securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
1,029,317
|
|
|
-
|
|
|
1,029,317
|
|
|
-
|
|
Agency residential
|
|
|
2,298,973
|
|
|
-
|
|
|
2,298,973
|
|
|
-
|
|
Non-agency residential
|
|
|
9,245
|
|
|
-
|
|
|
9,245
|
|
|
-
|
|
Foreign government securities
|
|
|
1,604,230
|
|
|
-
|
|
|
1,604,230
|
|
|
-
|
|
Foreign corporate securities
|
|
|
3,544,958
|
|
|
-
|
|
|
3,539,360
|
|
|
5,598
|
|
Total fixed maturities, market value
|
|
|
20,407,480
|
|
|
-
|
|
|
18,911,980
|
|
|
1,495,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities, fair value
|
|
|
1,400,674
|
|
|
1,343,843
|
|
|
56,831
|
|
|
-
|
The following table presents the fair value measurement levels for all assets and liabilities, which the Company has recorded at fair value as of the periods indicated:
|
|
|
|
|
|
|
Fair Value Measurement Using:
|
|
|
|
|
|
|
Quoted Prices
|
|
|
|
|
|
|
|
|
|
|
|
|
in Active
|
|
Significant
|
|
|
|
|
|
|
|
|
|
Markets for
|
|
Other
|
|
Significant
|
|
|
|
|
|
|
Identical
|
|
Observable
|
|
Unobservable
|
|
|
|
|
|
|
Assets
|
|
Inputs
|
|
Inputs
|
|
(Dollars in thousands)
|
|
December 31, 2020
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturities, market value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities and obligations of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government agencies and corporations
|
|
$
|
1,367,106
|
|
$
|
-
|
|
$
|
1,367,106
|
|
$
|
-
|
|
Obligations of U.S. States and political subdivisions
|
|
|
577,295
|
|
|
-
|
|
|
577,295
|
|
|
-
|
|
Corporate securities
|
|
|
7,149,026
|
|
|
-
|
|
|
6,447,534
|
|
|
701,492
|
|
Asset-backed securities
|
|
|
2,565,802
|
|
|
-
|
|
|
1,942,769
|
|
|
623,033
|
|
Mortgage-backed securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
990,303
|
|
|
-
|
|
|
990,303
|
|
|
-
|
|
Agency residential
|
|
|
2,267,739
|
|
|
-
|
|
|
2,267,739
|
|
|
-
|
|
Non-agency residential
|
|
|
5,194
|
|
|
-
|
|
|
5,194
|
|
|
-
|
|
Foreign government securities
|
|
|
1,645,375
|
|
|
-
|
|
|
1,645,375
|
|
|
-
|
|
Foreign corporate securities
|
|
|
3,472,333
|
|
|
-
|
|
|
3,466,634
|
|
|
5,699
|
|
Total fixed maturities, market value
|
|
|
20,040,173
|
|
|
-
|
|
|
18,709,949
|
|
|
1,330,224
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities, fair value
|
|
|
1,472,236
|
|
|
1,368,704
|
|
|
103,532
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In addition, $240,892 thousand and $224,698 thousand of investments within other invested assets on the consolidated balance sheets as of March 31, 2021 and December 31, 2020, respectively, are not included within the fair value hierarchy tables as the assets are measured at NAV as a practical expedient to determine fair value.
The following tables present the activity under Level 3, fair value measurements using significant unobservable inputs for fixed maturities, for the periods indicated:
|
|
|
|
Total Fixed Maturities, Market Value
|
|
|
|
Three Months Ended March 31, 2021
|
|
Three Months Ended March 31, 2020
|
|
|
|
Corporate
|
|
Asset-Backed
|
|
Foreign
|
|
|
|
|
Corporate
|
|
Asset-Backed
|
|
Foreign
|
|
|
|
|
(Dollars in thousands)
|
|
Securities
|
|
Securities
|
|
Corporate
|
|
Total
|
|
Securities
|
|
Securities
|
|
Corporate
|
|
Total
|
|
Beginning balance fixed maturities at market value
|
|
$
|
701,492
|
|
$
|
623,033
|
|
$
|
5,699
|
|
$
|
1,330,224
|
|
$
|
617,588
|
|
$
|
153,641
|
|
$
|
1,750
|
|
$
|
772,979
|
|
Total gains or (losses) (realized/unrealized)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in earnings
|
|
|
(1,789)
|
|
|
(4,168)
|
|
|
3
|
|
|
(5,954)
|
|
|
(214)
|
|
|
4
|
|
|
-
|
|
|
(210)
|
|
Included in other comprehensive income (loss)
|
|
|
2,836
|
|
|
(3,135)
|
|
|
49
|
|
|
(250)
|
|
|
(3,357)
|
|
|
(15,882)
|
|
|
-
|
|
|
(19,239)
|
|
Purchases, issuances and settlements
|
|
|
2,003
|
|
|
169,630
|
|
|
(153)
|
|
|
171,480
|
|
|
99,064
|
|
|
100,868
|
|
|
(1,750)
|
|
|
198,182
|
|
Transfers in and/or (out) of Level 3
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Ending balance
|
|
$
|
704,542
|
|
$
|
785,360
|
|
$
|
5,598
|
|
$
|
1,495,500
|
|
$
|
713,081
|
|
$
|
238,631
|
|
$
|
-
|
|
$
|
951,712
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
(539)
|
|
$
|
-
|
$
|
$
|
-
|
|
$
|
(539)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Some amounts may not reconcile due to rounding.)
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Fixed Maturities, Fair Value
|
|
|
|
Three Months Ended March 31, 2021
|
|
Three Months Ended March 31, 2020
|
|
|
|
Foreign
|
|
|
|
|
Foreign
|
|
|
|
|
(Dollars in thousands)
|
|
|
Corporate
|
|
Total
|
|
Corporate
|
|
Total
|
|
Beginning balance fixed maturities at fair value
|
|
$
|
-
|
|
$
|
-
|
|
$
|
5,826
|
|
$
|
5,826
|
|
Total gains or (losses) (realized/unrealized)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in earnings
|
|
|
-
|
|
|
-
|
|
|
(1,123)
|
|
|
(1,123)
|
|
Included in other comprehensive income (loss)
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Purchases, issuances and settlements
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Transfers in and/or (out) of Level 3
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Ending balance
|
|
$
|
-
|
|
$
|
-
|
|
$
|
4,703
|
|
$
|
4,703
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The amount of total gains or losses for the period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
included in earnings (or changes in net assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
attributable to the change in unrealized gains
|
|
|
|
|
|
|
|
|
|
|
|
|
|
or losses relating to assets still held
|
|
|
|
|
|
|
|
|
|
|
|
|
|
at the reporting date
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Some amounts may not reconcile due to rounding.)
|
6. EARNINGS 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 thousands, except per share amounts)
|
2021
|
|
2020
|
|
Net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
Numerator
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
$
|
341,862
|
|
|
$
|
16,612
|
|
|
|
Less: dividends declared-common shares and unvested common shares
|
|
(62,229)
|
|
|
|
(63,277)
|
|
|
|
Undistributed earnings
|
|
279,633
|
|
|
|
(46,666)
|
|
|
|
Percentage allocated to common shareholders (1)
|
|
98.7
|
%
|
|
|
98.7
|
%
|
|
|
|
|
276,031
|
|
|
|
(46,082)
|
|
|
|
Add: dividends declared-common shareholders
|
|
61,415
|
|
|
|
62,488
|
|
|
|
Numerator for basic and diluted earnings per common share
|
$
|
337,446
|
|
|
$
|
16,406
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator
|
|
|
|
|
|
|
|
|
|
Denominator for basic earnings per weighted-average common shares
|
|
39,543
|
|
|
|
40,204
|
|
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
Options
|
|
54
|
|
|
|
92
|
|
|
|
Denominator for diluted earnings per adjusted weighted-average common shares
|
|
39,597
|
|
|
|
40,296
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per common share net income (loss)
|
|
|
|
|
|
|
|
|
|
Basic
|
$
|
8.53
|
|
|
$
|
0.41
|
|
|
|
Diluted
|
$
|
8.52
|
|
|
$
|
0.41
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Basic weighted-average common shares outstanding
|
|
39,543
|
|
|
|
40,204
|
|
|
|
Basic weighted-average common shares outstanding and unvested common shares expected to vest
|
|
40,059
|
|
|
|
40,713
|
|
|
|
Percentage allocated to common shareholders
|
|
98.7
|
%
|
|
|
98.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
(Some amounts may not reconcile due to rounding.)
|
|
|
|
|
|
|
|
There were no anti-diluted options outstanding for the three months ended March 31, 2021 and 2020.
All outstanding options expire on or between May 18, 2021 and September 19, 2022.
7. COMMITMENTS AND CONTINGENCIES
In the ordinary course of business, the Company is involved in lawsuits, arbitrations and other formal and informal dispute resolution procedures, the outcomes of which will determine the Company’s rights and obligations under insurance and reinsurance agreements. In some disputes, the Company seeks to enforce its rights under an agreement or to collect funds owing to it. In other matters, the Company is resisting attempts by others to collect funds or enforce alleged rights. These disputes arise from time to time and are ultimately resolved through both informal and formal means, including negotiated resolution, arbitration and litigation. In all such matters, the Company believes that its positions are legally and commercially reasonable. The Company considers the statuses of these proceedings when determining its reserves for unpaid loss and loss adjustment expenses.
Aside from litigation and arbitrations related to these insurance and reinsurance agreements, the Company is not a party to any other material litigation or arbitration.
The Company had one equity index put option contract at March 31, 2021, based on the Standard & Poor’s 500 (“S&P 500”) index. Based on historical index volatilities and trends and the March 31, 2021 S&P 500 index value, the Company estimates the probability that the equity index put option contract of the S&P 500 index falling below the strike price on the exercise date to be less than 0.2%. The theoretical maximum payout under this equity index put option contract would occur if on the exercise date the S&P 500 index value was zero. At March 31, 2021, the present value of the theoretical maximum payout using a 3% discount factor was $148,976
thousand. Conversely, if the contract had expired on March 31, 2021, with the S&P index at 3,972.89, there would have been no settlement amount.
The Company has entered into separate annuity agreements with The Prudential Insurance of America (“The Prudential”) and an additional unaffiliated life insurance company in which the Company has either purchased annuity contracts or become the assignee of annuity proceeds that are meant to settle claim payment obligations in the future. In both instances, the Company would become contingently liable if either The Prudential or the unaffiliated life insurance company were unable to make payments related to the respective annuity contract.
The table below presents the estimated cost to replace all such annuities for which the Company was contingently liable for the periods indicated:
|
|
At March 31,
|
|
At December 31,
|
|
(Dollars in thousands)
|
2021
|
|
2020
|
|
The Prudential
|
$
|
139,981
|
|
$
|
140,773
|
|
Unaffiliated life insurance company
|
|
32,835
|
|
|
35,128
|
8. OTHER COMPREHENSIVE INCOME (LOSS)
The following table presents the components of comprehensive income (loss) in the consolidated statements of operations for the periods indicated:
|
|
Three Months Ended March 31, 2021
|
|
Three Months Ended March 31, 2020
|
|
(Dollars in thousands)
|
Before Tax
|
|
Tax Effect
|
|
Net of Tax
|
|
Before Tax
|
|
Tax Effect
|
|
Net of Tax
|
|
Unrealized appreciation (depreciation) ("URA(D)") on securities - non-credit related
|
$
|
(329,166)
|
|
$
|
40,551
|
|
$
|
(288,615)
|
|
$
|
(315,200)
|
|
$
|
35,802
|
|
$
|
(279,398)
|
|
Reclassification of net realized losses (gains) included in net income (loss)
|
|
(3,542)
|
|
|
(124)
|
|
|
(3,666)
|
|
|
38,177
|
|
|
(6,778)
|
|
|
31,399
|
|
Foreign currency translation adjustments
|
|
(8,988)
|
|
|
(594)
|
|
|
(9,582)
|
|
|
(58,723)
|
|
|
7,899
|
|
|
(50,824)
|
|
Reclassification of benefit plan liability amortization included in net income (loss)
|
|
2,586
|
|
|
(543)
|
|
|
2,043
|
|
|
1,165
|
|
|
(245)
|
|
|
920
|
|
Total other comprehensive income (loss)
|
$
|
(339,110)
|
|
$
|
39,290
|
|
$
|
(299,820)
|
|
$
|
(334,581)
|
|
$
|
36,678
|
|
$
|
(297,903)
|
The following table presents details of the amounts reclassified from AOCI for the periods indicated:
|
|
|
Three Months Ended
|
|
|
|
|
|
March 31,
|
|
Affected line item within the statements of
|
|
AOCI component
|
|
2021
|
|
2020
|
|
operations and comprehensive income (loss)
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
URA(D) on securities
|
|
$
|
(3,542)
|
|
$
|
38,177
|
|
Other net realized capital gains (losses)
|
|
|
|
|
(124)
|
|
|
(6,778)
|
|
Income tax expense (benefit)
|
|
|
|
$
|
(3,666)
|
|
$
|
31,399
|
|
Net income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
Benefit plan net gain (loss)
|
|
$
|
2,586
|
|
$
|
1,165
|
|
Other underwriting expenses
|
|
|
|
|
(543)
|
|
|
(245)
|
|
Income tax expense (benefit)
|
|
|
|
$
|
2,043
|
|
$
|
920
|
|
Net income (loss)
|
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 thousands)
|
2021
|
|
2020
|
|
Beginning balance of URA (D) on securities
|
$
|
724,159
|
|
$
|
304,425
|
|
Current period change in URA (D) of investments - non-credit OTTI
|
|
(292,281)
|
|
|
(247,999)
|
|
Ending balance of URA (D) on securities
|
|
431,878
|
|
|
56,426
|
|
|
|
|
|
|
|
|
Beginning balance of foreign currency translation adjustments
|
|
(115,390)
|
|
|
(201,717)
|
|
Current period change in foreign currency translation adjustments
|
|
(9,582)
|
|
|
(50,824)
|
|
Ending balance of foreign currency translation adjustments
|
|
(124,972)
|
|
|
(252,541)
|
|
|
|
|
|
|
|
|
Beginning balance of benefit plan net gain (loss)
|
|
(73,870)
|
|
|
(74,556)
|
|
Current period change in benefit plan net gain (loss)
|
|
2,043
|
|
|
920
|
|
Ending balance of benefit plan net gain (loss)
|
|
(71,827)
|
|
|
(73,636)
|
|
|
|
|
|
|
|
|
Ending balance of accumulated other comprehensive income (loss)
|
$
|
235,079
|
|
$
|
(269,751)
|
|
|
|
|
|
|
|
|
(Some amounts may not reconcile due to rounding.)
|
|
|
|
|
|
9. CREDIT FACILITIES
The Company has three active credit facilities for a total commitment of up to $1,050,000 thousand and an additional credit facility for a total commitment of up to £52,175 thousand, providing for the issuance of letters of credit and/or unsecured revolving credit lines. The following table presents the interest and fees incurred in connection with the two credit facilities for the periods indicated:
|
|
Three Months Ended
|
|
|
March 31,
|
|
(Dollars in thousands)
|
2021
|
|
2020
|
|
Credit facility interest and fees incurred - Wells Fargo Bank
|
$
|
105
|
|
$
|
123
|
|
Loan interest and fees incurred - Federal Home Loan Bank
|
|
271
|
|
|
-
|
|
Total interest and fees incurred
|
$
|
376
|
|
$
|
123
|
The terms and outstanding amounts for each facility are discussed below:
Group Credit Facility
Effective May 26, 2016, Group, Everest Reinsurance (Bermuda), Ltd. (“Bermuda Re”) and Everest International Reinsurance, Ltd. (“Everest International”), both direct subsidiaries of Group, entered into a five year, $800,000 thousand senior credit facility with a syndicate of lenders, which amended and restated in its entirety the June 22, 2012, four year, $800,000 thousand senior credit facility. Both the May 26, 2016 and June 22, 2012 senior credit facilities, which have similar terms, are referred to as the “Group Credit Facility”. Wells Fargo Corporation (“Wells Fargo Bank”) is the administrative agent for the Group Credit Facility, which consists of two tranches. Tranche one provides up to $200,000 thousand of unsecured revolving credit for liquidity and general corporate purposes, and for the issuance of unsecured standby letters of credit. The interest on the revolving loans shall, at the Company’s option, be either (1) the Base Rate (as defined below) or (2) an adjusted London Interbank Offered Rate (“LIBOR”) plus a margin. The Base Rate is the higher of (a) the prime commercial lending rate established by Wells Fargo Bank, (b) the Federal Funds Rate plus 0.5% per annum or (c) the one month LIBOR Rate plus 1.0% per annum. The amount of margin and the fees payable for the Group Credit Facility depends on Group’s senior unsecured debt rating. Tranche two exclusively provides up to $600,000 thousand for the issuance of standby letters of credit on a collateralized basis.
The Group Credit Facility requires Group to maintain a debt to capital ratio of not greater than 0.35 to 1 and to maintain a minimum net worth. Minimum net worth is an amount equal to the sum of $5,370,979 thousand
plus 25% of consolidated net income for each of Group’s fiscal quarters, for which statements are available ending on or after March 31, 2016 and for which consolidated net income is positive, plus 25% of any increase in consolidated net worth during such period attributable to the issuance of ordinary and preferred shares, which at March 31, 2021, was $6,476,618 thousand. As of March 31, 2021, the Company was in compliance with all Group Credit Facility covenants.
On March 25, 2020, Group borrowed $50,000 thousand under Tranche one of the credit facility as an unsecured revolving credit loan. The loan was fully paid off on June 26, 2020.
The following table summarizes the outstanding letters of credit and/or borrowings for the periods indicated:
|
(Dollars in thousands)
|
|
|
|
|
At March 31, 2021
|
|
|
At December 31, 2020
|
|
Bank
|
|
|
|
Commitment
|
|
In Use
|
|
Date of Expiry
|
|
Commitment
|
|
In Use
|
|
Date of Expiry
|
|
Wells Fargo Bank Group Credit Facility
|
|
Tranche One
|
|
$
|
200,000
|
|
$
|
151,380
|
|
12/31/2021
|
|
$
|
200,000
|
|
$
|
164,242
|
|
12/31/2021
|
|
|
|
Tranche Two
|
|
|
600,000
|
|
|
598,386
|
|
12/31/2021
|
|
|
600,000
|
|
|
589,690
|
|
12/31/2021
|
|
Total Wells Fargo Bank Group Credit Facility
|
|
|
|
$
|
800,000
|
|
$
|
749,766
|
|
|
|
$
|
800,000
|
|
$
|
753,932
|
|
|
Bermuda Re Wells Fargo Letter of Credit Facility
Effective February 23, 2021, Bermuda Re entered into a letter of credit issuance facility with Wells Fargo referred to as the “Bermuda Re Wells Fargo Letter of Credit Facility.” The Bermuda Re Wells Fargo Letter of Credit Facility provides for the issuance of up to $50,000 thousand of secured letters of credit to collateralize reinsurance obligations as a non-admitted reinsurer.
The following table summarizes the outstanding letters of credit for the periods indicated:
|
(Dollars in thousands)
|
|
At March 31, 2021
|
|
At December 31, 2020
|
|
Bank
|
|
Commitment
|
|
In Use
|
|
Date of Expiry
|
|
Commitment
|
|
In Use
|
|
Date of Expiry
|
|
Wells Fargo Bank Bilateral LOC Agreement
|
|
$
|
50,000
|
|
$
|
42,893
|
|
12/31/2021
|
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
$
|
50,000
|
|
$
|
42,893
|
|
|
|
$
|
-
|
|
$
|
-
|
|
|
Bermuda Re Citibank Letter of Credit Facility
Effective December 31, 2020, Bermuda Re renewed its letter of credit issuance facility with Citibank N.A. referred to as the “Bermuda Re Letter of Credit Facility”, which commitment is reconfirmed annually with updated fees. The current renewal of the Bermuda Re Letter of Credit Facility provides for the issuance of up to $200,000 thousand of secured letters of credit to collateralize reinsurance obligations as a non-admitted reinsurer. The interest on drawn letters of credit shall be (A) 0.35% per annum of the principal amount of issued standard letters of credit (expiry of 15 months or less) and (B) 0.45% per annum of the principal amount of issued extended tenor letters of credit (expiry maximum of up to 60 months). The commitment fee on undrawn credit shall be 0.15% per annum.
The following table summarizes the outstanding letters of credit for the periods indicated:
|
(Dollars in thousands)
|
|
At March 31, 2021
|
|
At December 31, 2020
|
|
Bank
|
|
Commitment
|
|
In Use
|
|
Date of Expiry
|
|
Commitment
|
|
In Use
|
|
Date of Expiry
|
|
Citibank Bilateral Letter of Credit Agreement
|
|
$
|
200,000
|
|
$
|
1,264
|
|
11/24/2021
|
|
$
|
200,000
|
|
$
|
4,425
|
|
02/28/2021
|
|
|
|
|
|
|
|
452
|
|
12/16/2021
|
|
|
|
|
|
3,672
|
|
11/24/2021
|
|
|
|
|
|
|
|
156
|
|
12/20/2021
|
|
|
|
|
|
448
|
|
12/16/2021
|
|
|
|
|
|
|
|
139,005
|
|
12/31/2021
|
|
|
|
|
|
115
|
|
12/20/2021
|
|
|
|
|
|
|
|
4,425
|
|
02/28/2022
|
|
|
|
|
|
136,383
|
|
12/31/2021
|
|
|
|
|
|
|
|
828
|
|
08/15/2022
|
|
|
|
|
|
39,619
|
|
12/30/2024
|
|
|
|
|
|
|
|
40,147
|
|
03/30/2025
|
|
|
|
|
|
821
|
|
08/15/2022
|
|
Total Citibank Bilateral Agreement
|
|
$
|
200,000
|
|
$
|
186,277
|
|
|
|
$
|
200,000
|
|
$
|
185,483
|
|
|
Everest International Credit Facility
Effective May 12, 2020, Everest International amended its credit facility with Lloyds Bank plc (“Everest International Credit Facility”). The current amendment of the Everest International Credit Facility provides up to £52,175 thousand for the issuance of standby letters of credit on a collateralized basis. The Company pays a commitment fee of 0.1% per annum on the average daily amount of the remainder of (1) the aggregate amount available under the facility and (2) the aggregate amount of drawings outstanding under the facility. The Company pays a credit commission fee of 0.35% per annum on drawings outstanding under the facility.
The Everest International Credit Facility requires Group to maintain a debt to capital ratio of not greater than 0.35 to 1 and to maintain a minimum net worth. Minimum net worth is an amount equal to the sum of $6,393,047 thousand (70% of consolidated net worth as of December 31, 2019), plus 25% of consolidated net income for each of Group’s fiscal quarters, for which statements are available ending on or after January 1, 2020 and for which net income is positive, plus 25% of any increase in consolidated net worth of Group during such period attributable to the issuance of ordinary and preferred shares, which at March 31, 2021, was $6,613,571 thousand. As of March 31, 2021, the Company was in compliance with all Everest International Credit Facility requirements.
The following table summarizes the outstanding letters of credit for the periods indicated:
|
(Dollars in thousands)
|
|
At March 31, 2021
|
|
At December 31, 2020
|
|
Bank
|
|
Commitment
|
|
In Use
|
|
Date of Expiry
|
|
Commitment
|
|
In Use
|
|
Date of Expiry
|
|
Lloyd's Bank plc
|
|
£
|
52,175
|
|
£
|
52,175
|
|
12/31/2024
|
|
£
|
52,175
|
|
£
|
52,175
|
|
12/31/2023
|
|
|
|
|
-
|
|
|
-
|
|
|
|
|
-
|
|
|
-
|
|
|
|
Total Lloyd's Bank Credit Facility
|
|
£
|
52,175
|
|
£
|
52,175
|
|
|
|
£
|
52,175
|
|
£
|
52,175
|
|
|
Federal Home Loan Bank Membership
Effective August 15, 2019, Everest Reinsurance Company (“Everest Re”) became a member of the Federal Home Loan Bank of New York (“FHLBNY”), which allows Everest Re to borrow up to 10% of its statutory admitted assets. As of March 31, 2021, Everest Re had admitted assets of approximately $17,280,068 thousand which provides borrowing capacity of up to approximately $1,728,007 thousand. During 2020, Everest Re borrowed $400,000 thousand under its FHLBNY capacity. The borrowings have interest payable at an interest rate of 0.35%. As of March 31, 2021, $310,000 of these borrowings remain outstanding, with maturities in November and December 2021. The FHLBNY membership agreement requires that 4.5% of borrowed funds be used to acquire additional membership stock.
10. COLLATERALIZED REINSURANCE AND TRUST AGREEMENTS
Certain subsidiaries of Group have established trust agreements, which effectively use the Company’s investments as collateral, as security for assumed losses payable to certain non-affiliated ceding companies. At March 31, 2021, the total amount on deposit in trust accounts was $1,293,107 thousand.
The Company reinsures some of its catastrophe exposures with the segregated accounts of Mt. Logan Re. Mt. Logan Re is a Class 3 insurer registered in Bermuda effective February 27, 2013 under The Segregated Accounts Companies Act 2000 and 100% of the voting common shares are owned by Group. Separate segregated accounts for Mt. Logan Re began being established effective July 1, 2013 and non-voting, redeemable preferred shares have been issued to capitalize the segregated accounts. Each segregated account invests predominantly in a diversified set of catastrophe exposures, diversified by risk/peril and across different geographic regions globally.
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.
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
Mt. Logan Re Segregated Accounts
|
|
2021
|
|
2020
|
|
(Dollars in thousands)
|
|
|
|
|
|
Ceded written premiums
|
|
99,110
|
|
110,188
|
|
Ceded earned premiums
|
|
78,107
|
|
90,550
|
|
Ceded losses and LAE
|
|
80,843
|
|
45,115
|
|
|
|
|
|
|
|
Assumed written premiums
|
|
2,476
|
|
2,759
|
|
Assumed earned premiums
|
|
2,476
|
|
2,759
|
|
Assumed losses and LAE
|
|
-
|
|
-
|
Each segregated account is permitted to assume net risk exposures equal to the amount of its available posted collateral, which in the aggregate was $920,339 thousand and $806,564 thousand at March 31, 2021 and December 31, 2020, respectively. Of this amount, Group had investments recorded at $70,419 thousand and $67,645 thousand at March 31, 2021 and December 31, 2020, respectively, in the segregated accounts.
Effective April 1, 2018, the Company entered into a retroactive reinsurance transaction with one of the Mt. Logan Re segregated accounts to retrocede $269,198 thousand of casualty reserves held by Bermuda Re related to accident years 2002 through 2015. As consideration for entering the agreement, the Company transferred cash of $252,000 thousand to the Mt. Logan Re segregated account. The maximum liability to be retroceded under the agreement will be $319,000 thousand. The Company will retain liability for any amounts exceeding the maximum liability.
On December 1, 2015 the Company entered into two collateralized reinsurance agreements with Kilimanjaro to provide the Company with catastrophe reinsurance coverage. These agreements are multi-year reinsurance contracts which cover named storm and earthquake events. The first agreement provides up to $300,000 thousand of reinsurance coverage from named storms and earthquakes in the United States, Puerto Rico and Canada. The second agreement provides up to $325,000 thousand of reinsurance coverage from named storms and earthquakes in the United States, Puerto Rico and Canada. These reinsurance agreements expired in December 2020.
On April 13, 2017 the Company entered into six collateralized reinsurance agreements with Kilimanjaro to provide the Company with annual aggregate catastrophe reinsurance coverage. The initial three agreements are four year reinsurance contracts which cover named storm and earthquake events. These agreements provide up to $225,000 thousand, $400,000 thousand and $325,000 thousand, respectively, of annual aggregate reinsurance coverage from named storms and earthquakes in the United States, Puerto Rico and Canada. The subsequent three agreements are five year reinsurance contracts which cover named storm and earthquake events. These agreements provide up to $50,000 thousand, $75,000 thousand and $175,000 thousand, respectively, of annual aggregate reinsurance coverage from named storms and earthquakes in the United States, Puerto Rico and Canada.
On April 30, 2018 the Company entered into four collateralized reinsurance agreements with Kilimanjaro to provide the Company with catastrophe reinsurance coverage. These agreements are multi-year reinsurance contracts which cover named storm and earthquake events. The first two agreements are four year reinsurance contracts which provide up to $62,500 thousand and $200,000 thousand, respectively, of annual aggregate reinsurance coverage from named storms and earthquakes in the United States, Puerto Rico, the U.S. Virgin Islands and Canada. The remaining two agreements are five year reinsurance contracts which provide up to $62,500 thousand and $200,000 thousand, respectively, of annual aggregate reinsurance coverage from named storms and earthquakes in the United States, Puerto Rico, the U.S. Virgin Islands and Canada.
On December 12, 2019, the Company entered into four collateralized reinsurance agreements with Kilimanjaro to provide the Company with catastrophe reinsurance coverage. These agreements are multi-year reinsurance contracts which cover named storm and earthquake events. The first two agreements are four year reinsurance contracts which provide up to $150,000 thousand and $275,000 thousand, respectively, of annual aggregate reinsurance coverage from named storms and earthquakes in the United States, Puerto Rico, the U.S. Virgin Islands and Canada. The remaining two agreements are five year reinsurance contracts which provide up to $150,000 thousand and $275,000 thousand, respectively, of annual aggregate reinsurance coverage from named storms and earthquakes in the United State, Puerto Rico, the U.S. Virgin Islands and Canada.
On April 8, 2021, the Company entered into six collateralized reinsurance agreements with Kilimanjaro to provide the Company with catastrophe reinsurance coverage. These agreements are multi-year reinsurance contracts which cover named storm and earthquake events. The first three agreements are four year reinsurance contracts which provide up to $150,000 thousand, $85,000 thousand and $85,000 thousand, respectively, of annual aggregate reinsurance coverage from named storms and earthquakes in the United States, Puerto Rico, the U.S. Virgin Islands and Canada. The remaining three agreements are five year reinsurance contracts which provide up to $150,000 thousand, $90,000 thousand and $90,000 thousand, respectively, of annual aggregate reinsurance coverage from named storms and earthquakes in the United States, Puerto Rico, the U.S. Virgin Islands and Canada.
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. Currently, none of the published insured loss estimates for catastrophe events during the applicable covered periods of the various agreements have exceeded the single event retentions or aggregate retentions under the terms of the agreements that would result in a recovery.
Kilimanjaro has financed the various property catastrophe reinsurance coverages by issuing catastrophe bonds to unrelated, external investors. On December 1, 2015, Kilimanjaro issued $625,000 thousand of notes (“Series 2015-1 Notes). The $625,000 thousand of Series 2015-1 Notes were fully redeemed and are no longer outstanding. On April 13, 2017, Kilimanjaro issued $950,000 thousand of notes (“Series 2017-1 Notes) and $300,000 thousand of notes (“Series 2017-2 Notes). On April 30, 2018, Kilimanjaro issued $262,500 thousand of notes (“Series 2018-1 Notes”) and $262,500 thousand of notes (“Series 2018-2 Notes”). On December 12, 2019 Kilimanjaro issued $425,000 thousand of notes (“Series 2019-1 Notes”) and $425,000 of notes (“Series 2019-2 Notes”). On April 8, 2021 Kilimanjaro issued $320,000 thousand of notes (“Series 2021-1 Notes”) and $330,000 thousand of notes (“Series 2021-2 Notes”). The proceeds from the issuance of the Notes listed above are held in reinsurance trust throughout the duration of the applicable reinsurance agreements and invested solely in US government money market funds with a rating of at least “AAAm” by Standard & Poor’s.
11. SENIOR NOTES
The table below displays Everest Reinsurance Holdings’ (“Holdings”) outstanding senior notes. Market 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.
|
|
|
|
|
|
|
|
March 31, 2021
|
|
December 31, 2020
|
|
|
|
|
|
|
|
|
Consolidated Balance
|
|
|
|
|
Consolidated Balance
|
|
|
|
|
(Dollars in thousands)
|
Date Issued
|
|
Date Due
|
|
Principal Amounts
|
|
Sheet Amount
|
|
Market Value
|
|
Sheet Amount
|
|
Market Value
|
|
4.868% Senior notes
|
6/5/2014
|
|
6/1/2044
|
|
400,000
|
|
$
|
397,224
|
|
$
|
479,616
|
|
$
|
397,194
|
|
$
|
528,000
|
|
3.5% Senior notes
|
10/07/2020
|
|
10/15/2050
|
|
1,000,000
|
|
|
979,654
|
|
|
976,480
|
|
|
979,524
|
|
|
1,138,100
|
On June 5, 2014, Holdings issued $400,000 thousand of 30 year senior notes with an interest coupon rate of 4.868%, which will mature on June 1, 2044. Interest will be paid semi-annually on June 1 and December 1 of each year.
On October 7, 2020, Holdings issued $1,000,000 thousand of 30 year senior notes with an interest coupon rate of 3.50%, which will mature on October 15, 2050. Interest will be paid semi-annually on April 15 and October 15 of each year.
Interest expense incurred in connection with these senior notes is as follows for the periods indicated:
|
|
Three Months Ended
|
|
|
March 31,
|
|
(Dollars In thousands
|
2021
|
|
2020
|
|
Interest expense incurred 4.868% Senior notes
|
$
|
4,868
|
|
$
|
4,868
|
|
Interest expense incurred 3.5% Senior notes
|
|
8,805
|
|
|
-
|
12. LONG TERM SUBORDINATED NOTES
The table below displays Holdings’ outstanding fixed to floating rate long term subordinated notes. Market 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.
|
|
|
|
|
|
|
Maturity Date
|
|
March 31, 2021
|
|
December 31, 2020
|
|
|
|
|
Original
|
|
|
|
|
|
Consolidated Balance
|
|
Market
|
|
Consolidated Balance
|
|
Market
|
|
(Dollars in thousands)
|
Date Issued
|
|
Principal Amount
|
|
Scheduled
|
|
Final
|
|
Sheet Amount
|
|
Value
|
|
Sheet Amount
|
|
Value
|
|
Long term subordinated notes
|
4/26/2007
|
|
$
|
400,000
|
|
5/15/2037
|
|
5/1/2067
|
|
$
|
223,699
|
|
$
|
207,648
|
|
$
|
223,674
|
|
$
|
206,447
|
During the fixed rate interest period from May 3, 2007 through May 14, 2017, interest was at the annual rate of 6.6%, payable semi-annually in arrears on November 15 and May 15 of each year, commencing on November 15, 2007. During the floating rate interest period from May 15, 2017 through maturity, interest will be based on the 3 month LIBOR plus 238.5 basis points, reset quarterly, payable quarterly in arrears on February 15, May 15, August 15 and November 15 of each year, subject to Holdings’ right to defer interest on one or more occasions for up to ten consecutive years. Deferred interest will accumulate interest at the applicable rate compounded quarterly for periods from and including May 15, 2017. The reset quarterly interest rate for February 16, 2021 to May 16, 2021 is 2.58%.
Holdings may redeem the long term subordinated notes on or after May 15, 2017, in whole or in part at 100% of the principal amount plus accrued and unpaid interest; however, redemption on or after the scheduled maturity date and prior to May 1, 2047 is subject to a replacement capital covenant. This covenant is for the benefit of certain senior note holders and it mandates that Holdings receive proceeds from the sale of another subordinated debt issue, of at least similar size, before it may redeem the subordinated notes. Effective upon the maturity of the Company’s 5.40% senior notes on October 15, 2014, the Company’s 4.868% senior notes, due on June 1, 2044, have become the Company’s long term indebtedness that ranks senior to the long term subordinated notes.
The Company repurchased and retired $0 thousand and $1,700 thousand of its outstanding long term subordinated notes during the three months ended March 31, 2021 and 2020, respectively. The Company realized a gain of $0 thousand and $502 thousand from the repurchase of the long term subordinated notes for the three months ended March 31, 2021 and 2020, respectively.
On March 19, 2009, Group announced the commencement of a cash tender offer for any and all of the 6.60% fixed to floating rate long term subordinated notes. Upon expiration of the tender offer, the Company had reduced its outstanding debt by $161,441 thousand. In addition, during 2020, the Company repurchased and retired $13,183 thousand of the 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 thousands)
|
2021
|
|
2020
|
|
Interest expense incurred
|
$
|
1,462
|
|
$
|
2,538
|
13. SEGMENT REPORTING
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 and the United Kingdom. The Insurance operation writes property and casualty insurance directly and through brokers, surplus lines brokers and general agents within the U.S., Canada and Europe through its offices in the U.S., Canada, Ireland and a branch located in Zurich.
These 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. 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. We measure our 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.
The Company does not maintain separate balance sheet data for its operating segments. Accordingly, the Company does not review and evaluate the financial results of its operating segments based upon balance sheet data.
The following tables present the underwriting results for the operating segments for the periods indicated:
|
|
Three Months Ended
|
|
Reinsurance
|
March 31,
|
|
(Dollars in thousands)
|
2021
|
|
2020
|
|
Gross written premiums
|
$
|
2,059,015
|
|
$
|
1,777,771
|
|
Net written premiums
|
|
1,912,950
|
|
|
1,613,094
|
|
|
|
|
|
|
|
|
Premiums earned
|
$
|
1,777,452
|
|
$
|
1,485,221
|
|
Incurred losses and LAE
|
|
1,271,906
|
|
|
1,020,642
|
|
Commission and brokerage
|
|
408,724
|
|
|
370,356
|
|
Other underwriting expenses
|
|
51,996
|
|
|
44,139
|
|
Underwriting gain (loss)
|
$
|
44,826
|
|
$
|
50,084
|
|
|
Three Months Ended
|
|
Insurance
|
March 31,
|
|
(Dollars in thousands)
|
2021
|
|
2020
|
|
Gross written premiums
|
$
|
872,418
|
|
$
|
793,100
|
|
Net written premiums
|
|
640,987
|
|
|
588,385
|
|
|
|
|
|
|
|
|
Premiums earned
|
$
|
610,413
|
|
$
|
551,593
|
|
Incurred losses and LAE
|
|
439,513
|
|
|
410,198
|
|
Commission and brokerage
|
|
80,287
|
|
|
78,166
|
|
Other underwriting expenses
|
|
90,235
|
|
|
84,721
|
|
Underwriting gain (loss)
|
$
|
378
|
|
$
|
(21,492)
|
The following table reconciles the underwriting results for the operating segments to income before taxes as reported in the consolidated statements of operations and comprehensive income (loss) for the periods indicated:
|
|
Three Months Ended
|
|
|
March 31,
|
|
(Dollars in thousands)
|
2021
|
|
2020
|
|
Underwriting gain (loss)
|
$
|
45,204
|
|
$
|
28,592
|
|
Net investment income
|
|
260,413
|
|
|
147,800
|
|
Net realized capital gains (losses)
|
|
38,902
|
|
|
(210,588)
|
|
Corporate expenses
|
|
(12,378)
|
|
|
(9,833)
|
|
Interest, fee and bond issue cost amortization expense
|
|
(15,639)
|
|
|
(7,583)
|
|
Other income (expense)
|
|
56,593
|
|
|
7,990
|
|
Income (loss) before taxes
|
$
|
373,095
|
|
$
|
(43,622)
|
The Company produces business in the U.S., Bermuda and internationally. The net income deriving from and assets residing in the individual foreign countries in which the Company writes business are not identifiable in the Company’s financial records. Based on gross written premium, the table below presents the largest country, other than the U.S., in which the Company writes business, for the periods indicated:
|
|
Three Months Ended
|
|
|
March 31,
|
|
(Dollars in thousands)
|
2021
|
|
2020
|
|
United Kingdom gross written premium
|
$
|
366,148
|
|
$
|
306,708
|
No other country represented more than 5% of the Company’s revenues.
14. SHARE-BASED COMPENSATION PLANS
For the three months ended March 31, 2021, a total of 205,266 restricted stock awards were granted: 194,610 and 10,656 restricted share awards were granted on February 23, 2021 and February 24, 2021, with a fair value of $242.24 per share and $244.445 per share, respectively. Additionally, 22,205 performance share unit awards were granted on February 23, 2021, with a fair value of $242.24 per unit.
15. RETIREMENT BENEFITS
The Company maintains both qualified and non-qualified defined benefit pension plans for its U.S. employees employed prior to April 1, 2010. Generally, the Company computes the benefits based on average earnings over a period prescribed by the plans and credited length of service. The Company’s non-qualified defined benefit pension plan provided compensating pension benefits for participants whose benefits have been curtailed under the qualified plan due to Internal Revenue Code limitations. Effective January 1, 2018, participants of the Company’s non-qualified defined benefit pension plan may no longer accrue additional service benefits.
Net periodic benefit cost for U.S. employees included the following components for the periods indicated:
|
Pension Benefits
|
Three Months Ended
|
|
|
March 31,
|
|
(Dollars in thousands)
|
2021
|
|
2020
|
|
Service cost
|
$
|
2,738
|
|
$
|
4,011
|
|
Interest cost
|
|
1,999
|
|
|
2,483
|
|
Expected return on plan assets
|
|
(5,580)
|
|
|
(5,197)
|
|
Amortization of net (income) loss
|
|
2,730
|
|
|
1,213
|
|
Net periodic benefit cost
|
$
|
1,887
|
|
$
|
2,510
|
|
Other Benefits
|
Three Months Ended
|
|
|
March 31,
|
|
(Dollars in thousands)
|
2021
|
|
2020
|
|
Service cost
|
$
|
281
|
|
$
|
141
|
|
Interest cost
|
|
181
|
|
|
215
|
|
Amortization of prior service cost
|
|
(144)
|
|
|
(48)
|
|
Net periodic benefit cost
|
$
|
318
|
|
$
|
308
|
The service cost component of net periodic benefit costs is included within other underwriting expenses on the consolidated statement of operations and comprehensive income (loss). In accordance with ASU 2017-07, other staff compensation costs are also primarily recorded within this line item.
The Company did not make any contributions to the qualified pension benefit plan for the three months ended March 31, 2021 and 2020, respectively.
16. INCOME TAXES
The Company is domiciled in Bermuda and has significant subsidiaries and/or branches in Canada, Ireland, the Netherlands, Singapore, Switzerland, the United Kingdom, and the United States. The Company’s Bermuda domiciled subsidiaries are exempt from income taxation under Bermuda law until 2035. The Company’s non-Bermudian subsidiaries and branches are subject to income taxation at varying rates in their respective domiciles.
The Company generally applies the estimated Annualized Effective Tax Rate (“AETR”) approach for calculating its tax provision for interim periods as prescribed by ASC 740-270, Interim Reporting. Under the AETR approach, the estimated annualized effective tax rate is applied to the interim year-to-date pre-tax income/loss to determine the income tax expense or benefit for the year-to-date period. The tax expense or benefit for the quarter represents the difference between the year-to-date tax expense or benefit for the current year-to-date period less such amount for the immediately preceding year-to-date period. Management considers the impact of all known events in its estimation of the Company’s annual pre-tax income/loss and annualized effective tax rate.
17. SUBSEQUENT EVENTS
The Company has evaluated known recognized and non-recognized subsequent events. The Company does not have any subsequent events to report.