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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
20549
FORM
10-K
_X_
Annual Report Pursuant to Section
13 or 15(d) of the Securities Exchange Act of
1934
For the fiscal year ended
December 31, 2022
___
Transition Report Pursuant
to Section 13 or 15(d) of the Securities Exchange
Act of 1934
Commission file number
1-15731
EVEREST RE GROUP, LTD.
(Exact name of registrant as specified
in its charter)
Bermuda
98-0365432
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
Seon Place – 4
th
Floor
141 Front Street
PO Box HM 845
Hamilton
HM 19
,
Bermuda
441
-
295-0006
(Address, including zip code, and telephone number,
including area code, of registrant’s
principal executive office)
Securities registered pursuant
to Section 12(g) of the Act:
None
Indicate by check mark if the registrant
is a well-known seasoned issuer,
as defined in Rule 405 of the Securities Act.
YES
X
NO
Indicate by check mark if the registrant
is not required to file reports pursuant
to Section 13 or Section 15(d) of the Act.
YES
NO
X
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 requi
rements for the past 90 days.
YES
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 during the preceding
12 months (or for such shorter period that
the registrant was required
to submit such files).
YES
X
NO
Indicate by check mark if disclosure
of delinquent filers pursuant
to Item 405 of Regulation S-K
is not contained herein, and
will not be contained, to the best
of the registrant’s
knowledge, in
definitive proxy or information
statements incorporated
by reference in Part III
of this Form 10-K or any amendment to
this Form 10-K.
[
]
Indicate by check mark whether
the registrant is a
large accelerated filer,
an accelerated filer,
a non-accelerated filer,
a smaller reporting company
or an emerging growth
company.
See the
definitions of “large accelerated filer,”
“accelerated filer,”
“smaller reporting company” and “emerging
growth company” in Rule 12b-2 of the Exchange
Act.
Large accelerated filer
X
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
Indicate by check mark if the
registrant is an emerging
growth company and
has elected not to use the
extended transition period for
complying with any new or revised
financial accounting
standards provided pursuant
to Section 13(a) of the Exchange act.
YES
NO
X
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2
of the Exchange Act).
YES
NO
X
Indicate by check mark
whether the registrant
has filed a report on
and attestation
to its management’s
assessment of the effectiveness
of its internal control
over financial reporting
under
Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C.
7262(b)) by the registered public accounting
firm that prepared or issued its audit report.
YES
X
NO
If securities are
registered
pursuant to
Section 12(b)
of the
Act, indicate
by check
mark whether the
financial statements
of the
registrant included
in the filing
reflect the
correction of
an
error to previously issued financial statements.
YES
NO
X
Indicate
by
check mark
whether
any
of
those
error
corrections
are
restatements
that
required
a recovery
analysis
of
incentive-based
compensation
received
by
any
of
the registrant’s
executive officers during the relevant
recovery period pursuant
to §240.10D-1(b).
YES
NO
x
The aggregate
market value
on June
30, 2022, the
last business
day of the
registrant’s
most recently
completed second
quarter,
of the voting
shares held
by non-affiliates
of the registrant
was $
11.0
billion.
Securities registered pursuant
to Section 12(b) of the Act:
Class
Trading Symbol
Name of Exchange where
Registered
Number of Shares Outstanding
At February 1, 2023
Common Shares, $0.01 par value
RE
New York Stock Exchange
39,157,235
DOCUMENTS INCORPORATED BY
REFERENCE
Certain information
required by
Items 10,
11, 12, 13
and 14 of
Form 10-K
is incorporated
by reference
into Part
III hereof
from the registrant’s
proxy statement
for the
2023 Annual General
Meeting of
Shareholders,
which
will
be
filed
with
the
Securities
and
Exchange
Commission
within
120
days
of
the
close
of
the
registrant’s
fiscal
year
ended
December
31,
2022.
EVEREST RE GROUP,
LTD
TABLE OF CONTENTS
FORM 10-K
Page
PART I
Item 1.
Business
1
Item 1A.
Risk Factors
24
Item 1B.
Unresolved Staff Comments
37
Item 2.
Properties
37
Item 3.
Legal Proceedings
37
Item 4.
Mine Safety Disclosures
38
PART II
Item 5.
Market for Registrant’s Common Equity, Related Shareholder Matters and
Issuer Purchases of Equity Securities
38
Item 6.
(Reserved)
40
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of
Operations
41
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
67
Item 8.
Financial Statements and Supplementary Data
67
Item 9.
Changes in and Disagreements With
Accountants on Accounting and Financial
Disclosure
67
Item 9A.
Controls and Procedures
68
Item 9B.
Other Information
68
Item 9C.
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
68
PART III
Item 10.
Directors, Executive Officers and Corporate Governance
68
Item 11.
Executive Compensation
69
Item 12.
Security Ownership of Certain Beneficial Owners and Management and
Related Shareholder Matters
69
Item 13.
Certain Relationships and Related Transactions, and Director Independence
69
Item 14.
Principal Accountant Fees and Services
69
PART IV
Item 15.
Exhibits and Financial Statement Schedules
69
1
PART I
Unless otherwise
indicated,
all financial
data
in this
document have
been prepared
using
accounting
principles
generally accepted
in the United
States of America
(“GAAP”).
As used in
this document, “Group”
means Everest
Re
Group,
Ltd.;
“Holdings
Ireland”
means
Everest
Underwriting
Group
(Ireland)
Limited;
“Ireland
Re”
means
Everest
Reinsurance
Company
(Ireland),
dac,
designated
activity
company;
“Ireland
Insurance”
means
Everest
Insurance
(Ireland),
dac,
designated
activity
company,
“Holdings”
means
Everest
Reinsurance
Holdings,
Inc.;
“Everest
Re”
means Everest
Reinsurance
Company
and its
subsidiaries
(unless the
context
otherwise requires);
and the “Company”,
“we”,
“us”,
and “our” means Everest Re Group,
Ltd. and its subsidiaries.
ITEM 1.
BUSINESS
The Company.
Group, a Bermuda company,
was established in
1999 as a wholly-owned
subsidiary of Holdings.
On February 24,
2000, a corporate restructuring
was completed and Group
became the new parent holding company
of Holdings.
Holdings
continues
to
be the
holding
company
for
the Company’s
U.S.
based
operations.
Holders
of shares
of
common
stock
of
Holdings
automatically
became
holders
of
the
same
number
of
common
shares
of
Group.
Prior to the
restructuring, Group
had no significant
assets or capitalization
and had
not engaged
in any
business
or prior activities other than in connection with the restructuring.
In
connection
with
the
February
24,
2000
restructuring,
Group
established
a
Bermuda-based
reinsurance
subsidiary,
Everest
Reinsurance (Bermuda),
Ltd. (“Bermuda
Re”), which
commenced business
in the
second half
of
2000.
Group
also
formed
Everest
Global
Services,
Inc.,
a
Delaware
subsidiary,
to
perform
administrative
functions for Group and its U.S. based
and non-U.S. based subsidiaries.
On
December
30,
2008,
Group
contributed
Holdings
to
its
Irish
holding
company,
Holdings
Ireland.
Holdings
Ireland is
a direct
subsidiary of
Group and
was established
to serve
as a
holding company
for the
U.S. and
Irish
reinsurance
and
insurance
subsidiaries.
Effective
July
1,
2016,
the
Company
established
a
new
Irish
holding
company,
Everest
Dublin
Insurance
Holdings
Limited
(Ireland)
(“Everest
Dublin
Holdings”)
and
contributed
Ireland Re to Everest
Dublin Holdings.
Holdings, a Delaware corporation,
was established in 1993 to serve
as the parent holding company
of Everest Re,
a
Delaware
property
and
casualty
reinsurer
formed
in
1973.
Until
October
6,
1995,
Holdings
was
an
indirect
wholly-owned
subsidiary
of
The
Prudential
Insurance
Company
of
America
(“The Prudential”).
On
October
6,
1995, The Prudential sold its entire interest
in Holdings in an initial public offering.
The Company’s
principal business, conducted
through its operating
segments, is the
underwriting of reinsurance
and
insurance
in
the
U.S.,
Bermuda
and
international
markets.
The
Company
had
gross
written
premiums,
in
2022,
of
$14.0
billion
with
approximately
66.8%
representing
reinsurance
and
33.2%
representing
insurance.
Shareholders’
equity
at
December
31,
2022
was
$8.4
billion.
The
Company
underwrites
reinsurance
both
through
brokers
and
directly
with
ceding
companies,
giving
it
the
flexibility
to
pursue
business
based
on
the
ceding
company’s
preferred
reinsurance
purchasing
method.
The
Company
underwrites
insurance
principally
through brokers,
surplus lines brokers
and general agent
relationships.
Group’s
active operating
subsidiaries are
each rated A+ (“Superior”) by
A.M. Best Company (“A.M.
Best”), a leading provider of
insurer ratings that
assigns
financial
strength
ratings
to
insurance
companies
based
on
their
ability
to
meet
their
obligations
to
policyholders.
2
Following is a summary of the Company’s
principal operating subsidiaries:
●
Bermuda Re,
a Bermuda
insurance company
and a direct
subsidiary of
Group, is
registered in
Bermuda as
a
Class
4
insurer
and
long-term
insurer
and
is
authorized
to
write
both
reinsurance
and
insurance
property
and
casualty
and
life
and
annuity
business.
Bermuda
Re’s
UK
branch
writes
property
and
casualty
reinsurance to
the United
Kingdom,
China and European
markets.
At December
31, 2022,
Bermuda Re
had
shareholder’s equity of $2.7 billion.
●
Everest International
Reinsurance, Ltd.
(“Everest International”),
a Bermuda insurance company
and a direct
subsidiary
of Group,
is
registered
in
Bermuda
as
a
Class
4 insurer
and
is authorized
to
write
property
and
casualty
business.
All
of
Everest
International’s
business
has
inter-affiliate
reinsurance
assumed
from
Everest Re,
the UK branch
of Bermuda Re,
Ireland Re
and Ireland Insurance
.
At December 31,
2022, Everest
International had shareholder’s
equity of $1.0 billion.
●
Ireland Re,
an Ireland
reinsurance company
and an indirect
subsidiary of Group,
is licensed to
write non-life
reinsurance, both directly and through
brokers, for
the London and European markets.
●
Ireland
Insurance,
an
Ireland
insurance
company
and
an
indirect
subsidiary
of
Group,
is
licensed
to
write
insurance for
the European markets.
In addition, Ireland
Insurance is
considered an approved/eligible
alien
surplus lines insurer in the 50 states
and the District of Columbia.
●
Everest
Compañia
de
Seguros
Generales
Chile
S.A.,
a
Chile
based
insurance
company,
is
licensed
to
write
insurance and reinsurance
within Chile.
●
Everest
Re, a
Delaware reinsurance
company and
a direct
subsidiary of
Holdings, is
a licensed
property and
casualty
insurer
and/or
reinsurer
in
all
states,
the
District
of
Columbia,
Puerto
Rico
and
Guam
and
is
authorized
to
conduct
reinsurance
business
in
Canada,
Singapore
and
Brazil.
Everest
Re
underwrites
property
and
casualty
reinsurance
for
insurance
and
reinsurance
companies
in
the
U.S.
and
international
markets.
At December 31, 2022 Everest
Re had statutory surplus of $5.6 billion.
●
Everest
Insurance
Company
of
Canada
(“Everest
Canada”),
a
Canadian
insurance
company
and
direct
subsidiary of Holdings Ireland, is licensed to write property
and casualty insurance in all Canadian provinces.
●
Everest
National
Insurance
Company
(“Everest
National”),
a
Delaware
insurance
company
and
a
direct
subsidiary of
Everest
Re, is
licensed in
50 states,
the District
of Columbia
and Puerto
Rico and
is authorized
to write property and
casualty insurance on
an admitted basis in
the jurisdictions in which it is
licensed.
The
majority of Everest National’s
business is reinsured by its parent,
Everest Re.
●
Everest
Indemnity
Insurance
Company
(“Everest
Indemnity”), a
Delaware
insurance
company
and
a
direct
subsidiary
of Everest
Re,
writes
excess
and
surplus
lines
insurance
business
in
the
U.S.
on
a
non-admitted
basis.
Excess
and
surplus
lines
insurance
is
specialty
property
and
liability
coverage
that
an
insurer
not
licensed to
write insurance
in a
particular jurisdiction
is permitted
to provide
to insureds
when the
specific
specialty coverage
is unavailable
from admitted insurers.
Everest Indemnity
is a Delaware
Domestic Surplus
Lines
Insurer
and
is
eligible
to
write
business
on
a
non-admitted
basis
in
all
other
states,
the
District
of
Columbia and
Puerto Rico.
The majority
of Everest
Indemnity’s
business is
reinsured
by its
parent,
Everest
Re.
●
Everest
Security
Insurance
Company
(“Everest
Security”),
a
Georgia
insurance
company
and
a
direct
subsidiary
of
Everest
Re,
writes
property
and
casualty
insurance
on
an
admitted
basis
in
Georgia
and
Alabama and is
approved as
an eligible surplus
lines insurer in
Delaware.
The majority
of Everest
Security’s
business is reinsured by its parent,
Everest Re.
3
●
Everest
International
Assurance, Ltd.
(“Everest
Assurance”), a
Bermuda company
and a
direct subsidiary
of
Holdings is
registered
in Bermuda
as a
Class 3A
general business
insurer and
as a
Class C long-term
insurer.
Everest
Assurance has
made a one-time
election under
section 953(d)
of the
U.S. Internal
Revenue Code
to
be a U.S. income
tax paying
“Controlled Foreign
Corporation.”
By making this
election, Everest
Assurance is
authorized to write life rein
surance and casualty reinsurance
in both Bermuda and the U.S.
●
Everest
Premier
Insurance
Company
(“Everest
Premier”),
a
Delaware
insurance
company
and
a
direct
subsidiary of Everest
Re, is
licensed to write
property and
casualty insurance
in all 50
states and
the District
of Columbia.
●
Everest Denali Insurance
Company (“Everest
Denali”), a Delaware insurance company
and a direct subsidiary
of
Everest
Re,
is
licensed
to
write
property
and
casualty
insurance
in
all
50
states
and
the
District
of
Columbia.
Reinsurance Industry Overview.
Reinsurance
is
an
arrangement
in
which
an
insurance
company,
the
reinsurer,
agrees
to
indemnify
another
insurance
or
reinsurance
company,
the
ceding
company,
against
all
or
a
portion
of
the
insurance
risks
underwritten by
the ceding company
under one or
more insurance
contracts.
Reinsurance can
provide a
ceding
company
with
several
benefits,
including
a
reduction
in
its
net
liability
on
individual
risks
or
classes
of
risks,
catastrophe
protection from
large and/or
multiple losses
and/or a
reduction in
operating
leverage
as measured
by
the
ratio
of
net
premiums
and
reserves
to
capital.
Reinsurance
also
provides
a
ceding
company
with
additional
underwriting capacity
by
permitting
it to
accept larger
risks
and write
more business
than
would be
acceptable
relative
to
the
ceding
company’s
financial
resources.
Reinsurance
does
not
discharge
the
ceding
company from its liability to policyholders;
rather,
it reimburses the ceding company
for covered losses.
There are two basic
types of reinsurance
arrangements:
treaty and facultative.
Treaty
reinsurance obligates
the
ceding company to
cede and the reinsurer
to assume a specified
portion of a type or
category of risks
insured by
the
ceding
company.
Treaty
reinsurers
do
not separately
evaluate
each
of the
individual
risks
assumed
under
their
treaties,
instead,
the
reinsurer
relies
upon
the
pricing
and
underwriting
decisions
made
by
the
ceding
company.
In facultative
reinsurance, the
ceding company
cedes and the
reinsurer assumes
all or part of
the risk
under
a single
insurance
contract.
Facultative
reinsurance
is
negotiated
separately
for
each insurance
contract
that
is
reinsured.
Facultative
reinsurance,
when
purchased
by
ceding
companies,
usually
is
intended
to
cover
individual risks not
covered by their
reinsurance treaties
because of the dollar
limits involved or
because the risk
is unusual.
Both treaty and facultative
reinsurance can be written
on either a pro rata basis
or an excess of loss basis.
Under
pro
rata
reinsurance,
the
ceding
company
and
the
reinsurer
share
the
premiums
as
well
as
the
losses
and
expenses
in
an
agreed
proportion.
Under
excess
of
loss
reinsurance,
the
reinsurer
indemnifies
the
ceding
company against
all or
a specified
portion of
losses and
expenses in
excess of
a specified
dollar amount,
known
as the ceding company's
retention or reinsurer's
attachment point,
generally subject to a
negotiated reinsurance
contract limit.
In
pro
rata
reinsurance,
the
reinsurer
generally
pays
the
ceding
company
a
ceding
commission.
The
ceding
commission
generally
is
based
on
the
ceding
company’s
cost
of
acquiring
the
business
being
reinsured
(commissions,
premium
taxes,
assessments
and
miscellaneous
administrative
expense
and
may
contain
profit
sharing provisions, whereby
the ceding commission is adjusted
based on loss experience).
Premiums paid by the
ceding company
to a
reinsurer for
excess of
loss reinsurance
are not
directly proportional
to the
premiums that
the ceding
company
receives
because
the reinsurer
does not
assume a
proportionate
risk.
There is
usually
no
ceding commission on excess of loss
reinsurance.
Reinsurers
may purchase
reinsurance
to cover
their own
risk exposure.
Reinsurance
of a
reinsurer's
business is
called
a
retrocession.
Reinsurance
companies
cede risks
under
retrocessional
agreements
to
other reinsurers,
known as
retrocessionaires,
for reasons
similar to
those that
cause insurers
to purchase
reinsurance:
to reduce
4
net
liability
on
individual
or
classes
of
risks,
protect
against
catastrophic
losses,
stabilize
financial
ratios
and
obtain additional underwriting capacity.
Reinsurance
can be
written
through intermediaries,
generally
professional
reinsurance
brokers,
or directly
with
ceding companies.
From a
ceding company's
perspective,
the broker
and the
direct distribution
channels have
advantages
and disadvantages.
A ceding
company's
decision to
select one
distribution
channel over
the other
will be
influenced by
its perception
of such
advantages
and disadvantages
relative
to the
reinsurance
coverage
being placed.
Business Strategy.
The Company’s
business strategy
is to
sustain
its leadership
position within
targeted
reinsurance
and insurance
markets,
provide
effective
management
throughout
the
property
and
casualty
underwriting
cycle
and
thereby
achieve an attractive
return for
its shareholders.
The Company’s
underwriting strategies
seek to capitalize
on its
i)
financial
strength
and
capacity,
ii)
global
franchise,
iii)
stable
and
experienced
management
team,
iv)
diversified
product
and
distribution
offerings,
v)
underwriting
expertise
and
disciplined
approach,
vi)
efficient
and low-cost operating
structure and vii) effective
enterprise risk management practices.
The
Company
offers
treaty
and
facultative
reinsurance
and
admitted
and
non-admitted
insurance.
The
Company’s
products
include
the
full
range
of
property
and
casualty
reinsurance
and
insurance
coverages,
including marine, aviation,
surety,
errors and omissions
liability (“E&O”), directors’
and officers’ liability (“D&O”),
medical
malpractice,
mortgage
reinsurance,
other
specialty
lines,
accident
and
health
(“A&H”)
and
workers’
compensation.
The
Company’s
underwriting
strategies
emphasizes
underwriting
profitability
over
premium
volume.
Key
elements of this
strategy
include careful
risk selection,
appropriate pricing
through strict
underwriting discipline
and
adjustment
of
the
Company’s
business
mix
in
response
to
changing
market
conditions.
The
Company
focuses
on
reinsuring
companies
that
effectively
manage
the
underwriting
cycle
through
proper
analysis
and
appropriate pricing
of underlying risks
and whose underwriting
guidelines and performance
are compatible
with
its objectives.
The Company’s
underwriting strategies
emphasize flexibility
and responsiveness
to changing
market conditions.
The
Company
believes
that
its
existing
strengths,
including
its
broad
underwriting
expertise,
global
presence,
strong financial ratings and
substantial capital, facilitate
adjustments to its mix of business geographically,
by line
of
business
and
by
type
of
coverage,
allowing
it
to
fully
participate
in
market
opportunities
that
provide
the
greatest
potential
for
underwriting
profitability.
The
Company’s
insurance
operations
complement
these
strategies by
accessing business that
is not available
on a reinsurance
basis.
The Company carefully
monitors its
mix of business across all operations
to avoid unacceptable geographic
or other risk concentrations.
Marketing.
The Company
writes business
on a
worldwide basis
for many
different
customers
and lines
of business,
thereby
obtaining
a
broad
spread
of
risk.
The
Company
is
not
substantially
dependent
on
any
single
customer,
small
group of customers,
line of business
or geographic area.
For the 2022
calendar year,
no single customer
(ceding
company
or
insured)
generated
more
than
3.7%
of
the
Company’s
gross
written
premiums.
The
Company
believes
that
a
reduction
of
business
from
any
one
customer
would
not
have
a
material
adverse
effect
on
its
future financial condition or results of operations.
Approximately
60.2%,
33.2%
and
6.6%
of
the
Company’s
2022
gross
written
premiums
were
written
in
the
broker reinsurance,
insurance and direct reinsurance
markets, respectively.
The broker
reinsurance
market
consists
of several
substantial
national
and international
brokers
and a
number
of
smaller
specialized
brokers.
Brokers
do
not
have
the
authority
to
bind
the
Company
with
respect
to
reinsurance
agreements,
nor
does
the
Company
commit
in
advance
to
accept
any
portion
of
a
broker’s
submitted
business.
Reinsurance
business
from
any
ceding
company,
whether
new
or
renewal
is
subject
to
5
acceptance
by
the
Company.
Brokerage
fees
are
generally
paid
by
reinsurers.
The
Company’s
ten
largest
brokers
accounted
for
an
aggregate
of
approximately
52.7%
of
gross
written
premiums
in
2022.
The
largest
broker,
Marsh
and
McLennan,
accounted
for
approximately
20.0%
of
gross
written
premiums.
The
second
largest broker,
Aon, accounted
for approximately
16.6% of gross
written premiums.
The Company
believes that
a reduction of business assumed from any one
broker would not have
a material adverse effect
on the Company.
The
direct
reinsurance
market
is
an
important
distribution
channel
for
reinsurance
business
written
by
the
Company.
Direct
placement
of
reinsurance
enables
the
Company
to
access
clients
who
prefer
to
place
their
reinsurance directly
with reinsurers
based upon the
reinsurer’s in-depth
understanding of
the ceding company’s
needs.
The
Company’s
insurance
business
mainly
writes
commercial
property
and
casualty
on
an
admitted
and
non-
admitted basis.
The business
is written
through wholesale
and retail
brokers,
surplus lines
brokers
and through
program
administrators.
In
2022,
two
program
administrators
accounted
for
approximately
12%
of
the
Company’s
gross
written
premium
in
total
and
included
multiple
independent
programs
for
each
program
administrator with the largest
representing 2% of the overall
gross written premium.
The
Company
continually
evaluates
each
business
relationship,
including
the
underwriting
expertise
and
experience
brought
to
bear
through
the
involved
distribution
channel,
performs
analyses
to
evaluate
financial
security, monitors
performance and adjusts underwriting decisions accordingly.
Segment Results.
The
Company
manages
its
reinsurance
and
insurance
operations
as
autonomous
units
and
key
strategic
decisions are based on the aggregate operating
results and projections for
these segments of business.
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
and Switzerland.
The Insurance
operation
writes property
and casualty
insurance
directly
and
through
brokers,
surplus
lines
brokers
and
general
agents
within
the
U.S.,
Bermuda,
Canada,
Europe,
Singapore
and South
America through
its offices
in the
U.S.,
Canada, Chile,
Singapore,
United Kingdom,
Ireland
and branches in the Netherlands,
France, Germany and Spain.
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.
For
selected
financial
information
regarding
these
segments,
see
ITEM
8,
“Financial
Statements
and
Supplementary
Data”
-
Note
17
of
Notes
to
Consolidated
Financial
Statements
and
ITEM
7,
“Management’s
Discussion and Analysis of Financial Condition and Results
of Operation - Segment Results”.
6
Underwriting Operations.
The following five year
table presents the distribution
of the Company’s
gross written premiums
by its segments:
Reinsurance
and
Insurance.
The
premiums
for
each
segment
are
further
split
between
property
and
casualty
business and, for reinsurance business,
between pro rata or excess
of loss business:
Gross Written Premiums by Segment
Years Ended December 31,
(Dollars in millions)
2022
2021
2020
2019
2018
Reinsurance
Property Pro Rata (1)
$
2,606
28.0%
$
2,843
31.4%
$
2,397
32.9%
$
1,974
31.1%
$
2,147
34.5%
Property Non-Catastrophe XOL
574
6.2%
625
6.9%
508
7.0%
443
7.0%
398
6.4%
Property Catastrophe XOL
1,422
15.3%
1,468
16.2%
1,277
17.5%
1,187
18.6%
1,313
21.1%
Casualty Pro Rata
2,654
28.5%
2,251
24.8%
1,527
21.0%
1,443
22.7%
1,172
18.8%
Casualty XOL
1,321
14.2%
1,267
14.0%
948
13.0%
730
11.5%
574
9.2%
Financial Lines
740
7.9%
612
6.8%
625
8.6%
578
9.1%
620
10.0%
Reinsurance Total (2)
$
9,316
100.0%
$
9,067
100.0%
$
7,282
100.0%
$
6,356
100.0%
$
6,225
100.0%
Insurance (3)
Accident and Health
$
501
10.8%
$
418
10.5%
$
370
11.6%
$
337
12.1%
$
286
12.7%
Specialty Casualty
1,622
35.0%
1,360
34.0%
1,005
31.4%
798
28.4%
588
25.9%
Other Specialty
324
7.0%
233
5.9%
169
5.3%
134
4.8%
94
4.2%
Professional Liability
821
17.7%
781
19.7%
542
16.9%
409
15.0%
304
13.8%
Property/Short Tail
855
18.4%
717
18.0%
605
18.9%
531
19.1%
447
19.9%
Workers' Compensation
513
11.1%
473
11.9%
510
15.9%
569
20.5%
531
23.6%
Insurance Total (2)
4,636
100.0%
3,982
100.0%
3,201
100.0%
2,778
100.0%
2,251
100.0%
Total Company (2)
$
13,952
100.0%
$
13,050
100.0%
$
10,482
100.0%
$
9,133
100.0%
$
8,475
100.0%
__________________
(1)
For purposes of the presentation above, pro rata includes all insurance and reinsurance
attaching to the first dollar of loss incurred by the ceding company.
(2)
Certain totals and subtotals may not reconcile due to rounding.
(3)
Certain reclassifications have been made to prior years’ amounts to conform to the 2022 presentation
(Some amounts may not reconcile due to rounding.)
Reinsurance
Segment.
In
2022,
the
Company’s
Reinsurance
segment
wrote
$9.3
billion
of
gross
written
premiums.
Reinsurance
business
written
directly
through
the
Company’s
offices
represented
$8.4
billion
or
90.2% of the segment’s premium and
$914 million or 9.8% was written directly with
ceding companies.
Property
Pro
Rata
business,
which
accounted
for
28.0%
of
reinsurance
gross
written
premiums,
contains
predominantly
contracts
providing
coverage
to
cedents
for
property
damage
and
related
losses,
which
may
include business
interruption
and other
non-property
losses, resulting
from natural
or man-made
perils arising
from their underlying portfolio of policies at an
agreed upon percentage for both
premium and loss.
Property
Non-Catastrophe
Excess
of
Loss
(“XOL”)
business,
which
accounted
for
6.2%
of
reinsurance
gross
written
premiums,
contains
predominantly
contracts
providing
coverage
to
cedents
for
a
portion
of
property
damage
and
related
losses,
which
may
include
business
interruption
and
other
non-property
losses,
resulting
from natural or man-made perils in excess
of an agreed upon deductible up to a stated
limit.
Property Catastrophe
XOL business, which
accounted for
15.3% of reinsurance
gross written
premiums, contains
predominantly
contracts
providing
coverage
to
cedents
for
a
portion
of
property
damage
and
related
losses,
which
may
include
business
interruption
and
other
non-property
losses,
resulting
from
catastrophic
losses,
in
excess of an agreed upon deductible
up to a stated limit.
The main perils covered include hurricane,
earthquake,
flood, convective storm and
fire.
Casualty
Pro
Rata
business,
which
accounted
for
28.5%
of
reinsurance
gross
written
premiums,
contains
predominantly
contracts
providing
coverage
to
cedents
for
losses
arising
from,
but
not
limited
to,
general
liability,
professional
indemnity,
product
liability,
workers'
compensation,
employers
liability,
aviation
and auto
liability from their underlying portfolio of policies
at an agreed upon percentage
for both premium and loss.
7
Casualty
XOL
business,
which
accounted
for
14.2%
of
reinsurance
gross
written
premiums,
contains
predominantly
contracts
providing
coverage
to
cedents
for
losses
arising
from,
but
not
limited
to,
general
liability,
professional
indemnity,
product
liability,
workers'
compensation,
aviation
and auto
liability
from
their
underlying portfolio of policies in excess
of an agreed upon deductible up to a stated
limit.
Financial
Lines
business,
which
accounted
for
7.9%
of
reinsurance
gross
written
premiums,
contains
predominantly
contracts
providing
coverage
to
cedents
for
losses
arising
from
political
risk,
credit,
surety,
mortgage and alternative risk lines of business
on both a pro rata and excess
of loss basis.
Insurance Segment.
In 2022, the Company’s Insurance
segment wrote $4.6 billion of gross written
premiums.
Accident
and
Health
business,
which
accounted
for
10.8%
of
Insurance
gross
written
premiums,
contains
Predominantly
includes
policies
covering
Participant
Accident,
Short-Term
Medical,
and
Medical
Stop-Loss
protection for employers
with Self-funded medical plans.
Specialty
Casualty
business,
which
accounted
for
35.0%
of
Insurance
gross
written
premiums,
predominantly
includes
policies
covering
General
Liability
(Premises/Operations
and
Products),
Auto
Liability,
and
Umbrella/Excess Liability.
Other
Specialty
business,
which
accounted
for
7.0%
of
Insurance
gross
written
premiums,
predominantly
includes
policies
covering
specialty
areas
including
but
not
limited
to
Surety,
Trade
Credit
&
Political
Risk,
Transactional
Liability, Energy
& Construction, and Aviation.
Professional
Liability business,
which accounted
for 17.7%
of Insurance
gross written
premiums,
predominantly
includes
policies
covering
Directors
&
Officers
Liability,
Errors
&
Omissions,
Cyber
Liability,
and
other
ancillary
financial lines products.
Property/Short-Tail
business,
which
accounted
for
18.4%
of
Insurance
gross
written
premiums,
predominantly
includes policies covering Property,
Inland Marine, and other short-tail lines.
Workers’
Compensation
business,
which
accounted
for
11.1%
of
Insurance
gross
written
premiums,
predominantly
includes
policies
covering
Workers
Compensation
including
both
guaranteed
cost
and
loss
sensitive product offerings.
Geographic Areas.
The Company
conducts its
business in
Bermuda, the
U.S. and
a number
of foreign
countries.
For
select financial
information
about
geographic
areas,
see ITEM
8, “Financial
Statements
and Supplementary
Data” -
Note 17 of Notes
to the Consolidated
Financial Statements.
Risks attendant
to the foreign
operations of
the
Company
parallel
those
attendant
to
the
U.S.
operations
of
the
Company,
with
the
primary
exception
of
foreign
exchange
risks.
For
more
information
about
the
risks,
see
ITEM
7,
“Management’s
Discussion
and
Analysis of Financial Condition and Results of Operations
– Safe Harbor Disclosure”.
Underwriting.
One of the
Company’s strategies
is to "lead"
as many
of the reinsurance
treaties it
underwrites as possible.
The
lead
reinsurer
on
a
treaty
generally
accepts
one
of
the
largest
percentage
shares
of
the
treaty
and
is
in
the
strongest
position to
negotiate price,
terms and
conditions.
The Company
leads on approximately
two-thirds of
its
treaty
reinsurance
business
as
measured
by
premium.
Management
believes
this
strategy
enables
it
to
obtain
more favorable
terms and
conditions on
the treaties
on which
it participates.
When the
Company does
not
lead
the
treaty,
it
may
still
suggest
changes
to
any
aspect
of
the
treaty.
The
Company
may
decline
to
participate on a treaty based upon
its assessment of all relevant factors.
The
Company’s
treaty
underwriting
process
involves
a
team
approach
among
the
Company’s
underwriters,
actuaries,
modelling
and
claim
staff.
Treaties
are
reviewed
for
compliance
with
the
Company’s
general
underwriting
standards
and
most
larger
treaties
are
subjected
to
detailed
actuarial
analysis.
The
actuarial
8
models
used
in
such
analyses
are
tailored
in
each
case
to
the
subject
exposures
and
loss
experience.
The
Company
does
not
separately
evaluate
each
of
the
individual
risks
assumed
under
its
treaties.
The
Company
does,
however,
evaluate
the
underwriting
guidelines,
data
and
other
information
of
its
ceding
companies
to
determine
their
adequacy
prior
to
entering
into
a
treaty.
The
Company
may
also
conduct
underwriting,
operational
and
claim
audits
at
the
offices
of
ceding
companies
to
monitor
adherence
to
underwriting
guidelines.
Underwriting audits focus
on the quality of
the underwriting staff,
pricing and risk
selection and rate
monitoring over
time.
Claim audits
may be
performed in
order to
evaluate
the client’s
claims handling
abilities
and practices.
The Company’s
facultative underwriters
operate within guidelines
specifying acceptable types
of risks, limits and
maximum
risk
exposures.
Specified
classes
of
large
premium
U.S.
risks
are
referred
to
Everest
Re’s
New
York
facultative
headquarters
for
specific
review
before
premium
quotations
are
given
to
clients.
In
addition,
the
Company’s guidelines
require certain
types of risks
to be submitted
for review
because of their
aggregate limits,
complexity
or
volatility,
regardless
of
premium
amount
on
the
underlying
contract.
Non-U.S.
risks
exhibiting
similar characteristics are reviewed
by senior managers within the involved
operations.
In
addition
to
its
own
underwriting
staff,
the
Company’s
insurance
operations
write
property
and
casualty
coverages for
homogeneous risks
through select program
managers.
These programs
are evaluated
based upon
actuarial
analysis
and
the
program
manager’s
capabilities.
The
Company’s
rates,
forms
and
underwriting
guidelines
are
tailored
to
specific
risk
types.
The
Company’s
underwriting,
actuarial,
claim
and
financial
functions
work
closely
with
its
program
managers
to
establish
appropriate
underwriting
and
processing
guidelines as well as appropriate performance
monitoring mechanisms.
Risk Management of Underwriting and Reinsurance
Arrangements
Underwriting Risk
and Accumulation
Controls.
Each segment
and business
unit manages
its underwriting
risk in
accordance with
established guidelines.
These guidelines
place dollar
limits on
the amount
of business
that can
be
written
based
on
a
variety
of
factors,
including
(re)insured
company
profile,
line
of
business,
geographic
location
and risk
hazards.
In each
case,
the guidelines
permit limited
exceptions,
which
must
be authorized
by
the Company’s
senior management.
Management regularly
reviews and
revises these
guidelines in
response to
changes
in
business
unit
product
offerings,
market
conditions,
risk
versus
reward
analyses
and
the
Company’s
enterprise and underwriting risk management processes.
The operating results and financial condition
of the Company can be adversely
affected by catastrophe
and other
large losses. The Company manages its
exposure to catastrophes
and other large losses by:
●
selective underwriting practices;
●
diversifying its risk portfolio by geographic
area and by types and classes of business;
●
limiting its aggregate catastrophe
loss exposure in any particular geographic
zone and contiguous zones;
●
purchasing
reinsurance
and/or
retrocessional
protection
to
the
extent
that
such
coverage
can
be
secured
cost-effectively.
See “Reinsurance and Retrocession
Arrangements”.
Like other
insurance
and reinsurance
companies, the
Company is
exposed to
multiple insured
losses arising
out
of a single occurrence, whether a natural
event, such as a hurricane or an earthquake,
or other catastrophe, such
as
an
explosion
at
a
major
factory.
A
large
catastrophic
event
can
be
expected
to
generate
insured
losses
to
multiple
reinsurance
treaties,
facultative
certificates
and
direct
insurance
policies
across
various
lines
of
business.
The Company focuses
on potential losses
that could result
from any single
event or series
of events as
part of its
evaluation and
monitoring of its aggregate
exposures to
catastrophic events.
Accordingly,
the Company employs
9
various techniques to
estimate the amount of
loss it could sustain
from any single catastrophic
event or series of
events
in
various
geographic
areas.
These
techniques
range
from
deterministic
approaches,
such
as
tracking
aggregate
limits
exposed
in
catastrophe-prone
zones
and
applying
reasonable
damage
factors,
to
modeled
approaches
that
attempt
to
scientifically
measure
catastrophe
loss
exposure
using
sophisticated
Monte
Carlo
simulation techniques that forecast
frequency and severity of potential losses
on a probabilistic basis.
No single computer
model, or
group of
models, is currently
capable of
projecting the
amount and
probability of
loss in
all global
geographic regions
in which
the Company
conducts business.
In addition,
the form,
quality and
granularity
of
underwriting
exposure
data
furnished
by
(re)insureds
is
not
uniformly
compatible
with
the
data
requirements
for
the
Company’s
licensed
models,
which adds
to
the inherent
imprecision
in the
potential
loss
projections.
Further,
the
results
from
multiple
models
and
analytical
methods
must
be
combined
to
estimate
potential losses
by and across
business units.
Also, while most
models have been
updated to incorporate
claims
information
from
recent
catastrophic
events,
catastrophe
model
projections
are
still
inherently
imprecise.
In
addition, uncertainties
with respect
to future
climatic patterns
and cycles
could add
further uncertainty
to loss
projections from models based on historical
data.
Nevertheless,
when combined
with traditional
risk management
techniques
and sound
underwriting judgment,
catastrophe
models
are
a
useful
tool
for
underwriters
to
price
catastrophe
exposed
risks
and
for
providing
management with
quantitative
analyses with
which to monitor
and manage
catastrophic
risk exposures
by zone
and across zones for individual and
multiple events.
Projected
catastrophe
losses
are
generally
summarized
in
terms
of
the
probable
maximum
loss
(“PML”).
The
Company
defines
PML
as its
anticipated
loss,
taking
into
account
contract
terms
and limits,
caused
by
a single
catastrophe
affecting
a
broad
contiguous
geographic
area,
such
as
that
caused
by
a
hurricane
or
earthquake.
The
PML
will
vary
depending
upon
the
modeled
simulated
losses
and
the
make-up
of
the
in
force
book
of
business.
The projected severity levels are
described in terms of “return periods”,
such as “100-year events” and
“250-year
events”.
For
example,
a 100-year
PML is
the estimated
loss
to
the current
in-force
portfolio
from
a
single
event
which
has
a
1%
probability
of
being
exceeded
in
a
twelve
month
period.
In
other
words,
it
corresponds
to
a
99%
probability
that
the
loss
from
a
single
event
will
fall
below
the
indicated
PML.
It
is
important
to note
that PMLs
are estimates.
Modeled events
are hypothetical
events
produced
by a
stochastic
model.
As a
result,
there
can
be no
assurance
that
any
actual event
will align
with the
modeled event
or that
actual losses from events similar to the
modeled events will not vary materially
from the modeled event PML.
From
an
enterprise
risk
management
perspective,
management
sets
limits
on
the
levels
of
catastrophe
loss
exposure
the
Company
may
underwrite.
The
limits
are
revised
periodically
based
on
a
variety
of
factors,
including but
not limited
to the
Company’s
financial resources
and expected
earnings and
risk/reward
analyses
of the business being underwritten.
The
Company
may
purchase
reinsurance
to
cover
specific
business
written
or
the
potential
accumulation
or
aggregation
of exposures
across some
or all
of its
operations.
Reinsurance
purchasing
decisions consider
both
the
potential
coverage
and
market
conditions
including
the
pricing,
terms,
conditions,
availability
and
collectability
of
coverage,
with
the
aim
of
securing
cost
effective
protection
from
financially
secure
counterparties. The
amount of reinsurance
purchased has
varied over
time, reflecting
the Company’s
view of its
exposures and the cost of reinsurance.
Management
estimates
that
the
projected
net
economic
loss
from
its
largest
100-year
event
in
a
given
zone
represents
approximately
6.9%
of
its
December
31,
2022
shareholders’
equity.
Economic
loss
is
the
PML
exposure,
net
of
third
party
reinsurance
including
catastrophe
industry
loss
warranty
cover,
reduced
by
estimated reinstatement
premiums to renew coverage
and estimated income
taxes.
The impact of income taxes
on the PML depends
on the distribution
of the losses
by corporate
entity,
which is also
affected by
inter-affiliate
reinsurance.
Management
also
monitors
and
controls
its
largest
PMLs
at
multiple
points
along
the
loss
distribution
curve,
such
as
loss
amounts
at
the
20,
50,
100,
250
and
500
year
return
periods.
This
process
10
enables
management
to
identify
and
control
exposure
accumulations
and
to
integrate
such
exposures
into
enterprise risk, underwriting and capital management
decisions.
The Company’s
catastrophe
loss
projections,
segmented
by
risk
zones,
are
updated
quarterly
and
reviewed
as
part of a formal
risk management review
process.
The table below reflects
the Company’s
PML exposure, net
of
third
party reinsurance
including catas
trophe
industry
loss warranty
cover,
at various
return
periods for
its top
four
zones/perils
(as
ranked
by
the
largest
1
in
100
year
economic
loss)
based
on
loss
projection
data
as
of
January 1, 2023:
Return Periods (in years)
1 in 20
1 in 50
1 in 100
1 in 250
1 in 500
Exceeding Probability
5.0%
2.0%
1.0%
0.4%
0.2%
(Dollars in millions)
Zone/ Peril
California, Earthquake
$
143
$
619
$
842
$
1,326
$
1,762
Southeast U.S., Wind
486
677
878
1,094
1,224
Europe, Wind
176
388
585
855
979
Texas Wind
126
360
545
844
1,096
The
projected
net
economic
losses,
defined
as
PML
exposures,
net
of
third
party
reinsurance
including
catastrophe
industry loss warranty
cover,
reinstatement
premiums and estimated
income taxes,
for the top
four
zones/perils scheduled above are as follows
:
Return Periods (in years)
1 in 20
1 in 50
1 in 100
1 in 250
1 in 500
Exceeding Probability
5.0%
2.0%
1.0%
0.4%
0.2%
(Dollars in millions)
Zone/ Peril
California, Earthquake
$
114
$
440
$
580
$
846
$
1,242
Southeast U.S., Wind
302
423
515
643
764
Europe, Wind
138
286
423
620
708
Texas
Wind
94
250
368
486
663
The Company believes
that its methods
of monitoring, analyzing
and managing catastrophe
exposures provide
a
credible risk management framework,
which is integrated
with its enterprise risk management,
underwriting and
capital
management
plans.
However,
there
is
much
uncertainty
and
imprecision
inherent
in
the
catastrophe
models and
the catastrophe
loss estimation
process
generally.
As a
result,
there can
be no
assurance
that the
Company
will
not
experience
losses
from
individual
events
that
exceed
the
PML
or
other
return
period
projections,
perhaps
by a
material amount.
Nor can
there
be assurance
that the
Company
will not
experience
events impacting
multiple zones,
or multiple
severe
events that
could, in
the aggregate,
exceed
the Company’s
PML expectations by a significant
amount.
Terrorism
Risk.
While
the
Company
writes some
reinsurance
contracts
covering
terrorism,
the Company’s
risk
management
philosophy
is
to
limit
the
amount
of
exposure
by
geographic
region,
and
to
strictly
manage
coverage for
properties in
areas that
may be considered
a target
for terrorists.
Providing terrorism
coverage on
reinsurance
contracts
is negotiable,
and many,
but not
all, treaties
contain
exclusions
which limit
much of
this
risk.
While many
property insurance
policies are required
to offer
coverage
for terrorism,
this coverage
is often
not
purchased.
However,
terrorism
is
typically
covered
by
worker
compensation
policies.
As
a
result,
the
Company
is
exposed
to
losses
from
terrorism
on
both
its
reinsurance
and
its
insurance
book
of
business,
particularly
its workers’
compensation
and property
policies.
However,
the
insurance
book
generally
does
not
insure large corporations
or corporate locations that
represent large concentrations
of risk.
The
U.S.
Terrorism
Risk
Insurance
Program
Reauthorization
Act
of
2019
provides
some
protection
to
the
insurance
book of
business.
It also
provides
indirect protection
to exposed
reinsurance
treaties.
However,
the
11
Company
is
still
exposed
to
risk
of
loss
from
terrorism
due
to
deductibles,
co-pays
and
uncovered
lines
of
business.
Reinsurance and Retrocession
Arrangements.
The Company may purchase reinsurance
to cover specific business
written
or
the
potential
accumulation
or
aggregation
of
exposures
across
some
or
all
of
its
operations.
Reinsurance
purchasing
decisions
consider
both
the
potential
coverage
and
market
conditions
including
the
pricing,
terms,
conditions
and
availability
of
coverage,
with
the
aim
of securing
cost
effective
protection.
The
amount of
reinsurance
purchased
has varied
over time,
reflecting the
Company’s
view of
its exposures
and the
cost
of reinsurance.
In recent
years,
the Company
has increased
its use
of reinsurance
offered
through
capital
market facilities.
The
Company
participates
in
“common
account”
retrocessional
arrangements
for
certain
reinsurance
treaties
whereby a
ceding company
purchases reinsurance
for the
benefit of
itself and
its reinsurers
under one
or more
of
its
reinsurance
treaties.
Common
account
retrocessional
arrangements
reduce
the
effect
of
individual
or
aggregate
losses
to
all
participating
companies,
including
the
ceding
company,
with
respect
to
the
involved
treaties.
All
of
the
Company’s
reinsurance
and
retrocessional
agreements
transfer
significant
reinsurance
risk
and
therefore,
are
accounted
for
as
reinsurance
in
accordance
with
the
Financial
Accounting
Standards
Board
(“FASB”) guidance.
At December
31, 2022,
the Company
had $2.2
billion in
reinsurance recoverables
with respect
to both
paid and
unpaid losses
ceded.
Of this
amount $520
million, or
23.2%, was
recoverable
from Mt.
Logan Re
collateralized
segregated
accounts;
$283 million,
or 12.6%,
was recoverable
from Munich
Reinsurance
America, Inc.
(“Munich
Re”)
and
$148
million,
or
6.6%,
was
recoverable
from
Endurance
Reinsurance
Corporation
of
America
(“Endurance
Re”).
No
other
retrocessionaire
accounted
for
more
than
5%
of
our
recoverables.
Although
management carefully
selects its
reinsurers, the
Company is
subject to credit
risk with respect
to its reinsurance
because
the
ceding
of
risk
to
reinsurers
does
not
relieve
the
Company
of
its
liability
to
insureds
or
ceding
companies.
See
ITEM
7,
“Management’s
Discussion
and
Analysis
of
Financial
Condition
and
Results
of
Operations – Financial Condition”.
Claims.
Insurance
claims
are
managed
by
the
Company’s
professional
Claims
staff
many
of
whom
have
insurance
and
legal
professional
qualifications.
Their
responsibilities
include
reviewing
initial
loss
reports,
analyzing
coverage
issues,
evaluating
and
reserving
claims,
and
paying
settlements.
When
appropriate
the
Claims
staff
engage
external
professional
advisors
such
as
Counsel,
Loss
Adjusters
and
Engineers
to
support
the
effective
management
of
claims.
Claims
are
allocated
to
staff
according
to
their
expertise
and
experience
and
most
specialize
in
particular
product
segments
and
geographies.
Some
insurance
claims
are
handled
by
third
party
claims service
providers
who have
limited authority
and are
subject to
oversight
by the
Company’s
professional
Claims
staff.
The
Claims
staff
work
closely
with
senior
management,
as
well
as
underwriting,
finance
and
actuarial.
Reinsurance
claims
are
managed
by
the
Company’s
professional
claims
staff
whose
responsibilities
include
reviewing
initial
loss
reports
and
coverage
issues,
monitoring
claims
handling
activities
of
ceding
companies,
establishing
and
adjusting
proper
case
reserves
and
approving
payment
of
claims.
In
addition
to
claims
assessment,
processing
and payment,
the claims
staff
selectively
conducts
comprehensive
claim audits
of both
specific claims and
overall claim
procedures at
the offices of
selected ceding companies.
Some insurance
claims
are
handled
by
third
party
claims service
providers
who have
limited authority
and are
subject
to
oversight
by
the Company’s professional
claims staff.
The
Company
intensively
manages
its
asbestos
and
environmental
(“A&E”)
exposures
through
a
dedicated,
centrally
managed
claim staff
with
experienced
claim
and legal
professionals
who
specialize
in
the
handling
of
such
exposures.
They
actively
manage
each
individual
insured
and
reinsured
account,
responding
to
claim
12
developments with evaluations
of the involved exposures
and adjustment of reserves
as appropriate.
Specific or
general
claim developments
that may
have
material implications
for the
Company
are regularly
communicated
to
senior
management,
actuarial,
legal
and
financial
areas.
Senior
management
and
claim
management
personnel
meet
at
least
quarterly
to
review
the
Company’s
overall
reserve
positions
and
make
changes,
if
appropriate.
The Company continually
reviews its internal
processing, communications
and analytics, seeking to
enhance
the
management
of
its
A&E
exposures,
in
particular
in
regard
to
changes
in
asbestos
claims
and
litigation.
Reserves for Unpaid Property and Casualty Losses and
LAE.
Significant periods of time may elapse
between the occurrence of an insured
loss, the reporting of the loss to the
insurer and the reinsurer and
the payment of that loss by the insurer
and subsequent payments to
the insurer by
the reinsurer.
To
recognize liabilities
for unpaid losses and
LAE, insurers and
reinsurers establish
reserves, which
are
balance sheet
liabilities representing
estimates
of future
amounts
needed to
pay
reported
and unreported
claims
and
related
expenses
for
losses
that
have
already
occurred.
Actual
losses
and
LAE
paid
may
deviate,
perhaps substantially,
from such
reserves.
To
the extent
reserves prove
to be
insufficient to
cover actual
losses
and
LAE
after
taking
into
account
available
reinsurance
coverage,
the
Company
would
have
to
recognize
such
reserve
shortfalls
and incur
a charge
to
earnings,
which could
be material
in the
period such
recognition
takes
place.
See ITEM
7, “Management’s
Discussion and
Analysis of
Financial Condition
and Results
of Operations
—
Loss and LAE Reserves”.
As part of the reserving
process, insurers
and reinsurers
evaluate historical
data and trends
and make judgments
as
to
the
impact
of
various
factors
such
as
legislative
and
judicial
developments
that
may
affect
future
claim
amounts, changes
in social
and political
attitudes that
may increase
loss exposures
and inflationary
and general
economic
trends.
While
the
reserving
process
is
difficult
and
subjective
for
insurance
companies,
the
inherent
uncertainties
of
estimating
such
reserves
are
even
greater
for
the
reinsurer,
due
primarily
to
the
longer
time
between the
date
of an
occurrence and
the reporting
of any
attendant
claims to
the reinsurer,
the diversity
of
development
patterns
among
different
types
of
reinsurance
treaties
or
facultative
contracts,
the
necessary
reliance
on
the
ceding
companies
for
information
regarding
reported
claims
and
differing
reserving
practices
among ceding
companies.
In addition,
trends
that have
affected
development
of liabilities
in the
past
may
not
necessarily occur
or affect
liability development
in the
same manner
or to
the same
degree in
the future.
As a
result,
actual
losses
and
LAE
may
deviate,
perhaps
substantially,
from
estimates
of
reserves
reflected
in
the
Company's consolidated financial statem
ents.
The
Company’s
loss
and
LAE
reserves
represent
management’s
best
estimate
of
the
ultimate
liability.
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
such
process
is
to
determine
a
single
best
estimate
viewed
by
management
to
be
the
best
estimate
of
its
ultimate
loss
liability.
While there
can
be no
assurance
that
these reserves
will not
need to
be increased
in the
future,
management
believes that
the Company’s
existing reserves
and reserving
methodologies reduce
the likelihood
that any
such
increases
would
have
a
material
adverse
effect
on
the
Company’s
financial
condition,
results
of
operations
or
cash flows.
These statements
regarding the
Company’s
loss reserves
are forward
looking statements
within the
meaning
of
the
U.S.
federal
securities
laws
and
are
intended
to
be
covered
by
the
safe
harbor
provisions
contained
therein.
See
ITEM
7,
“Management’s
Discussion
and
Analysis
of
Financial
Condition
and
Results
of
Operations – Safe Harbor Disclosure”.
Like many other
property and casualty
insurance and reinsurance
companies, the Company
has experienced loss
development
for
prior
accident
years,
which
has
impacted
losses
and
LAE
reserves
and
caused
corresponding
effects
to
income
(loss)
in
the
periods
in
which
the
adjustments
were
made.
There
can
be
no
assurance
that
adverse
development
from
prior
years
will
not
occur
in
the
future
or
that
such
adverse
development
will
not
have a material adverse
effect on net income (loss).
13
Since the Company
has operations
in many countries,
part of the Company’s
loss and LAE reserves
are in foreign
currencies
and
translated
to
U.S.
dollars
for
each
reporting
period.
Fluctuations
in
the
exchange
rates
for
the
currencies,
period
over
period,
affect
the
U.S.
dollar
amount
of
outstanding
reserves.
The
translation
adjustment eliminates
the impact of the
exchange fluctuations
from the reserve
re-estimates.
For reconciliation
of beginning and ending reserves, see Note 3 of Notes
to Consolidated Financial Statements.
Reserves for Asbestos and Environmental
Loss and LAE.
At December 31,
2022, the Company’s
gross reserves
for A&E claims
represented 1.3%
of its total
reserves.
The
Company’s
A&E
liabilities
stem
from
Mt.
McKinley
Insurance
Company’s
(“Mt.
McKinley”)
direct
insurance
business
and Everest
Re’s
assumed reinsurance
business.
Mt. McKinley
was a
former
wholly-owned subsidiary
that was sold in
2015 to Clearwater Insurance
Company (Clearwater”), a subsidiary
of Fairfax Financial.
Liabilities
related to
Mt. McKinley’s
direct business,
which had been
ceded to
Bermuda Re
previously,
were retroceded
to
an affiliate of Clearwater in July
2015, concurrent with the sale of Mt. McKinley to Clearwater.
Concurrently
with
the
closing,
the
Company
entered
into
a
retrocession
treaty
with
an
affiliate
of
Clearwater.
Per the retrocession
treaty,
the Company retroceded
100% of the liabilities
associated with certain
Mt. McKinley
policies,
which
had
been
reinsured
by
Bermuda
Re.
As
consideration
for
entering
into
the
retrocession
treaty,
Bermuda Re
transferred
cash of
$140.3 million,
an amount
equal to
the net
loss reserves
as of
the closing
date.
Of
the
$140.3
million
of
net
loss
reserves
retroceded,
$100.5
million
were
related
to
A&E
business.
The
maximum
liability
retroceded
under
the
retrocession
treaty
will
be
$440.3
million,
equal
to
the
retrocession
payment plus
$300.0 million.
The Company will
retain liability
for any
amounts exceeding
the maximum liability
retroceded under the retrocession
treaty.
On December 20, 2019, the retrocession
treaty was amended and
included a partial commutation.
As a result of
this amendment
and partial
commutation, gross
A&E reserves
and correspondingly
reinsurance receivable
were
reduced
by
$43.4
million.
In
addition,
the
maximum
liability
permitted
to
be
retroceded
increased
to
$450.3
million.
Additional losses,
including those relating
to latent
injuries and
other exposures,
which are as
yet unrecognized,
the type
or magnitude
of which
cannot be
foreseen by
either the
Company or
the industry,
may emerge
in the
future. Such
future emergence
could have
material adverse
effects on
the Company’s
future financial condition,
results of operations and cash flows.
There are
significant uncertainties
in estimating
the amount
of the
Company’s
potential losses
from A&E
claims
and
ultimate
values
cannot
be
estimated
using
traditional
reserving
techniques.
See
ITEM
7,
“Management’s
Discussion
and
Analysis
of
Financial
Condition
and
Results
of
Operations
–
Asbestos
and
Environmental
Exposures”
and
ITEM
8,
“Financial
Statements
and
Supplementary
Data”
–
Note
3
of
Notes
to
Consolidated
Financial Statements.
Future Policy Benefit Reserves.
The Company
wrote a
limited amount
of life
and annuity
reinsurance in
its Reinsurance
segment.
Future policy
benefit
liabilities
for
annuities
are
reported
at
the
accumulated
fund
balance
of these
contracts.
Reserves
for
those
liabilities
include
mortality
provisions
with
respect
to
life
and
annuity
claims,
both
reported
and
unreported. Actual
experience in a
particular period may
be worse than
assumed
experience and, consequently,
may
adversely
affect
the
Company’s
operating
results
for
that
period.
See
ITEM
8,
“Financial
Statements
and
Supplementary Data” - Note 1F and
Note 3 of Notes to Consolidated Financial Statements.
Investments.
The board of directors
of each of the Company’s
operating subsidiaries is
responsible for establishing
investment
policy and guidelines and, together with senior management,
for overseeing their execution.
14
The
Company’s
principal
investment
objectives
are
to
ensure
funds
are
available
to
meet
its
insurance
and
reinsurance obligations
and to maximize after-tax
investment income
while maintaining a high
quality diversified
investment
portfolio.
Considering
these objectives,
the
Company
views
its investment
portfolio
as having
two
components: 1)
the investments
needed to
satisfy outstanding
liabilities (its
core fixed
maturities portfolio)
and
2) investments funded by the Company’s
shareholders’ equity.
For the portion
needed to satisfy
global outstanding
liabilities, the Company
generally invests
in fixed maturities
with a high level of average
credit quality.
This global fixed maturity securities portfolio
is largely managed on an
external
basis
by
independent,
professional
investment
managers
using
portfolio
guidelines
approved
by
the
Company.
Over
the
past
several
years,
the
Company
has
expanded
the
allocation
of
its
investments
funded
by
shareholders’ equity
to include:
1) publicly traded
equity securities, 2) emerging
market fixed
maturities, as well
as individual holdings,
3) high yield
fixed maturities,
4) bank and
private loan
securities, 5) private
equity limited
partnership
investments
and 6)
Company
owned life
insurance.
The objective
of this
portfolio diversification
is
to
enhance
the
risk-adjusted
total
return
of
the
investment
portfolio
by
allocating
a
prudent
portion
of
the
portfolio to higher return asset
classes.
The Company limits its allocation to these
asset classes because of 1) the
potential
for
volatility
in
their
values
and
2)
the
impact
of
these
investments
on
regulatory
and
rating
agency
capital adequacy
models.
The Company uses
investment managers
experienced in these
markets and
adjusts its
allocation to these investments
based upon market conditions.
The duration
of an
investment
is based
on the
maturity of
the security
but also
reflects the
payment of
interest
and the
possibility of
early prepayments.
The Company’s
fixed income
investment
guidelines include
a general
duration
guideline.
This investment
duration
guideline is
established
and periodically
revised
by management,
which
considers
economic
and
business
factors,
as
well
as
the
Company’s
average
duration
of
potential
liabilities, which, at December 31, 2022, is estimated
at approximately 3.8 years,
based on the estimated payouts
of
underwriting
liabilities
using
standard
duration
calculations.
The
average
duration
of
the
fixed
income
portfolio at December 31, 2022
and 2021 was 3.1 years and 3.2 years,
respectively.
For each
currency in
which the
Company has
established
substantial
loss and
LAE reserves,
the Company
seeks
to maintain
invested
assets
denominated in
such currency
in an
amount approximately
equal to
the estimated
liabilities.
Approximately
42.7%
of
the
Company’s
consolidated
reserves
for
losses
and
LAE
and
unearned
premiums represent amounts
payable in foreign currencies.
The Company’s
cash and
invested
assets
totaled
$29.9 billion
at December
31, 2022,
which consisted
of 85.4%
fixed maturities,
short term investments
and cash, of which
93.2% were investment
grade; 13.7% other
invested
assets and
0.9% equity
securities.
The average
maturity of
fixed maturity
securities was
4.6 years
at December
31, 2022, and their overall average
duration was 3.1 years.
As of
December 31,
2022, the
Company did
not have
any direct
investments
in commercial
real estate
or direct
commercial
mortgages
or
securities
of
issuers
that
are
experiencing
cash
flow
difficulty
to
an
extent
that
the
Company’s
management
believes
could
threaten
the
issuer’s
ability
to
meet
debt
service
payments,
except
where an allowance for credit
losses has been recognized.
The Company’s
investment
portfolio includes
structured commercial
mortgage-backed
securities (“CMBS”)
with
a book
value of
$1.0 billion
and a
fair val
ue of
$925.8 million.
CMBS securities
comprising more
than 86.6%
of
the
December
31,
2022
fair
value
are
rated
AAA
by
S&P
Global
Ratings
(“S&P”).
Furthermore,
all
held
CMBS
securities are rated investment
grade by S&P.
15
The following table reflects investment
results for the Company for
the periods indicated:
December 31,
Pre-tax
Pre-tax
Pre-tax
Pre-tax
Realized Net
Unrealized Net
Average
Investment
Effective
Gains (Losses)
Gains (Losses)
(Dollars in millions)
Investments
(1)
Income
(2)
Yield
On Investments
(3)
On Investments
2022
$
29,788
$
830
2.79%
$
(455)
$
(2,225)
2021
27,606
1,165
4.22%
258
(542)
2020
23,253
643
2.76%
268
465
2019
19,632
647
3.30%
185
533
2018
18,426
581
3.15%
(127)
(251)
(1)
Average of
the beginning and
ending carrying values
of investments
and cash,
less net funds
held, future policy
benefit reserve,
and non-interest
bearing
cash.
Fixed
maturities,
available
for
sale
and
equity
securities
are
carried
at
fair
value.
Fixed
maturities,
held
to
maturity
securities
are
carried
at
amortized cost net of the expected
credit loss allowance.
(2)
After investment expenses,
excluding realized net gains
(losses) on investments.
(3)
Included in
2022, 2021,
2020, 2019
and 2018
are fair
value re-measurements
of $460
million, $236
million, $280
million,
$167 million
and ($67)
million,
respectively. In addition,
2022 & 2021 includes ($33 million) and ($28 million) of
expected credit losses.
(Some amounts may not reconcile due
to rounding.)
The following
table
represents
the credit
quality distribution
of the
Company’s
fixed
maturities
for
the periods
indicated:
At December 31,
2022
2021
(Dollars in millions)
Fair Value/
Percent of
Fair Value/
Percent of
Rating Agency Credit Quality Distribution:
Amortized Cost
(1)
Total
Amortized Cost
(1)
Total
AAA
$
8,432
36.6%
$
7,111
31.8%
AA
2,886
12.5%
2,591
11.6%
A
6,268
27.2%
5,833
26.1%
BBB
3,768
16.3%
4,763
21.4%
BB
1,227
5.3%
1,204
5.4%
B
163
0.7%
325
1.5%
Rated below B
49
0.2%
57
0.3%
Other
283
1.2%
425
1.9%
Total
$
23,075
100.0%
$
22,308
100.0%
(Some amounts may not reconcile due
to rounding.)
(1)
Fixed maturities-available for
sale are at fair value and fixed
maturities-held to maturity are at amortized
cost, net of allowances for
credit losses
16
The following table summarizes fixed
maturities by contractual maturity
for the periods indicated:
At December 31,
2022
2021
Fair Value/
Percent of
Fair Value/
Percent of
(Dollars in millions)
Amortized Cost
(1)
Total
Amortized Cost
(1)
Total
Fixed maturity securities
Due in one year or less
$
1,319
5.7%
$
1,398
6.2%
Due after one year through five years
7,607
33.0%
7,155
32.1%
Due after five years through ten years
4,098
17.8%
5,101
22.9%
Due after ten years
1,299
5.6%
1,627
7.3%
Asset-backed securities
4,705
20.4%
3,582
16.1%
Mortgage-backed securities
4,029
17.5%
3,446
15.4%
Total fixed
maturity securities
$
23,057
100.0%
$
22,308
100.0%
(Some amounts may not reconcile due
to rounding.)
(1) The amortized cost and fair value
of fixed maturity securities are shown
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.
Financial Strength Ratings.
The
following
table
shows
the
current
financial
strength
ratings
of
the
Company’s
operating
subsidiaries
as
reported
by
A.M.
Best,
S&P
Global
Ratings
(“S&P”)
and
Moody’s.
These
ratings
represent
an
independent
opinion
of
the
financial
strength,
operating
performance,
business
profile
and
ability
to
meet
policyholder
obligations.
The ratings
are not
intended to
be an
indication of
the degree
or lack
of risk
involved
in a
direct or
indirect
equity
investment
or
a
recommendation
to
buy,
sell
or
hold
our
securities.
Additionally,
rating
organizations
may
change
their
rating
methodology,
which
could
have
a
material
impact
on
our
financial
strength ratings.
All
of
the
below-mentioned
ratings
are
continually
monitored
and
revised,
if
necessary,
by
each
of
the
rating
agencies.
The ratings presented in
the following table were in
effect as of January 31, 2023.
17
The Company
believes that
its ratings
are important
as they
provide the
Company’s
customers
and others
with
an
independent
assessment
of
the
Company’s
financial
strength
using
a
rating
scale
that
provides
for
relative
comparisons.
Strong financial
ratings are
particularly important
for reinsurance
and insurance
companies given
that customers
rely on a company
to pay covered
losses well into the future.
As a result, a highly rated
company
is generally preferred.
Operating Subsidiary:
A.M. Best
S&P
Moody's
Everest Reinsurance Company
A+ (Superior)
A+ (Strong)
A1 (upper-medium)
Everest Reinsurance (Bermuda) Ltd.
A+ (Superior)
A+ (Strong)
A1 (upper-medium)
Everest Reinsurance Company (Ireland) dac
A+ (Superior)
A+ (Strong)
Not Rated
Everest National Insurance Company
A+ (Superior)
A+ (Strong)
Not Rated
Everest Indemnity Insurance Company
A+ (Superior)
A+ (Strong)
Not Rated
Everest Security Insurance Company
A+ (Superior)
A+ (Strong)
Not Rated
Everest International Assurance, Ltd.
A+ (Superior)
A+ (Strong)
Not Rated
Everest Compañia de Seguros Generales Chile S.A.
A+ (Superior)
Not Rated
Not Rated
Everest Insurance Company of Canada
A+ (Superior)
A+ (Strong)
Not Rated
Everest International Reinsurance,
Ltd.
A+ (Superior)
A+ (Strong)
Not Rated
Everest Denali Insurance Company
A+ (Superior)
A+ (Strong)
Not Rated
Everest Premier Insurance Company
A+ (Superior)
A+ (Strong)
Not Rated
Everest Insurance (Ireland), dac
A+ (Superior)
A+ (Strong)
Not Rated
A.M. Best
states
that
the
“A+”
(“Superior”) rating
is
assigned to
those
companies
which, in
its opinion,
have
a
superior
ability
to
meet
their
ongoing
insurance
policy
and
contract
obligations
based
on
A.M.
Best’s
comprehensive
quantitative
and
qualitative
evaluation
of
a
company’s
balance
sheet
strength,
operating
performance
and
business
profile.
A.M.
Best
affirmed
these
ratings
on
June
15,
2022.
S&P
states
that
the
“A+”/”A”
ratings
are assigned
to those
insurance companies
which, in
its opinion,
have strong
financial security
characteristics
with respect
to their
ability to
pay under
its insurance
policies and
contracts
in accordance
with
their
terms.
S&P
affirmed
all
ratings
on
May
27,
2022.
Moody’s
states
that
an
“A1”
rating
is
assigned
to
companies that, in
their opinion, offer
upper-medium grade
security and are
subject to low
credit risk.
Moody’s
affirmed these ratings on June 17, 2022.
Subsidiaries
other
than
Everest
Reinsurance
Co.
and
Everest
Reinsurance
(Bermuda)
Ltd.
may
not
be
rated
by
some
or
any
rating
agencies
given
that
such
ratings
are
not
considered
essential
by
the
individual
subsidiary’s
customers
because
of
the
limited
nature
of
the
subsidiary’s
operations
or
because
the
subsidiaries
are
newly
established and have not yet
been rated by the agencies.
Debt Ratings.
The
following
table
shows
the
debt
ratings
by
A.M.
Best,
S&P
and
Moody’s
of
the
Holdings’
senior
notes
due
June 1,
2044, senior
notes due
October
15, 2050,
senior notes
due October
15, 2052
and long-term
notes
due
May
1,
2067
all
of
which
are
considered
investment
grade.
Debt
ratings
are
the
rating
agencies’
current
assessment of the credit worthiness of an
obligor with respect to a specific obligation.
Instrument
A.M. Best
S&P
Moody's
Senior Notes due June 1, 2044
a-
(Strong)
A-
(Strong)
Baa1
(Medium Grade)
Senior Notes due October 15, 2050
a-
(Strong)
A-
(Strong)
Baa1
(Medium Grade)
Senior Notes due October 15, 2052
NR
A-
(Strong)
Baa1
(Medium Grade)
Long-Term Notes due May
1, 2067
bbb
(Adequate)
BBB
(Adequate)
Baa2
(Medium Grade)
18
Competition.
The worldwide
reinsurance
and insurance
businesses
are highly
competitive,
as well
as cyclical
by
product
and
market.
As
such,
financial
results
tend
to
fluctuate
with
periods
of
constrained
availability,
higher
rates
and
stronger
profits
followed
by
periods
of
abundant
capacity,
lower
rates
and
constrained
profitability.
Competition
in
the
types
of reinsurance
and
insurance
business
that
we
underwrite
is
based
on
many
factors,
including the perceived overall
financial strength of
the reinsurer or insurer,
ratings of the reinsurer
or insurer by
A.M. Best
and/or
Standard
& Poor’s,
underwriting expertise,
the jurisdictions
where the
reinsurer
or insurer
is
licensed
or
otherwise
authorized,
capacity
and
coverages
offered,
premiums
charged,
other
terms
and
conditions
of
the
reinsurance
and
insurance
business
offered,
services
offered,
speed
of
claims
payment
and
reputation
and
experience
in
lines
written.
Furthermore,
the
market
impact
from
these
competitive
factors
related
to
reinsurance
and
insurance
is
generally
not
consistent
across
lines
of
business,
domestic
and
international geographical
areas and distribution channels.
We
compete
in
the
U.S.,
Bermuda
and
international
reinsurance
and
insurance
markets
with
numerous
global
competitors.
Our
competitors
include
independent
reinsurance
and
insurance
companies,
subsidiaries
or
affiliates
of
established
worldwide
insurance
companies,
reinsurance
departments
of
certain
insurance
companies, domestic
and international
underwriting operations,
including underwriting
syndicates
at Lloyd’s
of
London
and
certain
government
sponsored
risk
transfer
vehicles.
Some
of
these
competitors
have
greater
financial resources
than we do
and have
established long
term and continuing
business relationships,
which can
be
a
significant
competitive
advantage.
In
addition,
the
lack
of
strong
barriers
to
entry
into
the
reinsurance
business
and
the
securitization
of
reinsurance
and
insurance
risks
through
capital
markets
provide
additional
sources of potential reinsurance
and insurance capacity and competition.
Worldwide insurance
and reinsurance
market conditions
historically have
been competitive.
Generally,
there is
ample
insurance
and
reinsurance
capacity
relative
to
demand,
as
well
as
additional
capital
from
the
capital
markets
through
insurance
linked
financial
instruments.
These
financial
instruments
such
as
side
cars,
catastrophe
bonds and
collateralized
reinsurance
funds, provided
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
some
dislocation
in
the
market
which
we
expect
to
have a positive impact on rates
and terms and conditions, generally,
though local market specificities can
vary.
The
increased
frequency
of
catastrophe
losses
experienced
throughout
2022
appears
to
be
pressuring
the
increase
of
rates.
As
business
activity
continues
to
regain
strength
after
the
pandemic
and
current
macroeconomic uncertainty,
rates appear to be firming in
most lines of business, particularly in the casualty
lines
that had
seen significant
losses such
as excess
casualty and
directors’
and officers’
liability.
Other casualty
lines
are
experiencing
modest
rate
increase,
while
some
lines
such
as
workers’
compensation
were
experiencing
softer
market
conditions.
It
is
too
early
to
tell
what
the
impact
on
pricing
conditions
will
be,
but
it
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 war in the
Ukraine is ongoing
and an evolving
event.
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
by
numerous
countries,
including
the
United States.
The significant
political and
economic uncertainty
surrounding the
war and
associated sanctions
have
impacted
economic and
investment
markets
both within
Russia and
around
the world.
The Company
has
recorded $45 million of losses related
to the Ukraine/Russia war during 2022.
19
Human Capital Management.
Our employees are essential to
the success of our business, and so we strive
to attract and retain
a high standard
of insurance
professionals
to meet
our business
needs as
well as
the needs
of our
clients and
customers.
As of
February
1,
2023,
the
Company
employed
2,428
persons.
Management
believes
that
employee
relations
are
good.
None of
the Company’s
employees
are
subject
to
collective
bargaining
agreements,
and the
Company
is
not aware of any current
efforts to implement such agreements.
Everest
is
committed
to
providing
our
employees
with
an
engaging
and
supportive
environment
so
that
employees
can
develop
personally
and
help
us
achieve
success
as
an
organization.
We
consider
the
ability
to
attract,
develop and
retain
a high
caliber of
insurance
professionals
to be
critical to
our success.
Opportunities
for continued
learning and
talent development
are provided
to all
employee levels.
Employees are
encouraged
to
take
ownership
of
their
development
by
using
the
tools
that
the
Company
has
made
available
to
them
-
including
industry
training,
mentorships
and
personal
development
classes.
Everest
actively
manages
its
succession
planning
throughout
our
organization
and
strives
to
provide
job
growth
and
advancement
opportunities to internal talent, where
possible.
Diversity and Inclusion.
Our strength
and success derive
from our diversity,
and we are
at our best
when we embrace
diverse views
and
perspectives.
Equality
in
opportunity,
career
development,
compensation
and
respect
for
all
individuals
are
fundamental human
rights that
are at
the forefront
of our
culture and
promoted not
only within
our workplace
but also the global
communities in which
we operate.
Our Board is
committed to
diversity within
its structure as
well as
emphasizing its
importance in
our senior
executive
leadership. We
believe that
diversity
in gender,
age,
ethnicity
and
skill
set
allows
for
dynamic
and
evolving
perspectives
in
governance,
strategy,
corporate
responsibility,
human rights and risk management.
Proactive
diversity
recruitment
is
an
integral
aspect
of
succession
planning
at
both
the
board
level
and
throughout
all
levels
in
the
organization.
Our
Talent
Development
team
works
with
senior
management
to
identify
women
and
persons
of color
across
the
Company
as
potential
leaders.
These
individuals
are
provided
management
and
executive
leadership
training
and
education
to
enhance
their
skillsets
and
provide
opportunities for
advancement.
Indeed, our
executive
officers are
measured on
their forward-thinking
diversity
initiatives
as
part
of
their
annual
performance
evaluations.
Such
diversity
at
the
most
senior
levels
of
our
organization
reflects our commitment
to identify and
develop highly qualified
women and individuals
of color to
help lead our Company into the future.
The
work
of
the
DEI
Council
has
helped
enhance
the
employee
experience
for
all
our
colleagues
across
the
organization
worldwide.
The
council
encourages
continuous
and
open
dialogue
between
executive
and
senior
management
and
traditionally
underrepresented
groups
at
all
levels,
without
fear
of
reprisal
or
retaliation,
to
identify areas
of improvement
and carry
out the
message of
inclusion both
inside and
outside our
organization.
The
DEI
council
was
instrumental
in
forming
and
supporting
additional
Employee
Resource
Groups
(“ERGs”),
developing
a
Regional
Representation
network
and
leveraging
specific
Talent
Development
and
Talent
Acquisition initiatives that will positively influence
the composition of our workforce.
Regulatory Matters.
The Company and
its insurance subsidiaries
are subject to
regulation under the
insurance statutes
of the various
jurisdictions in which they
conduct business, including
essentially all states
of the U.S., Canada,
Singapore, Brazil,
the United Kingdom,
Ireland, Chile and
Bermuda.
These regulations vary
from jurisdiction to
jurisdiction and are
generally
designed
to
protect
ceding
insurance
companies
and
policyholders
by
regulating
the
Company’s
conduct
of
business,
financial
integrity
and
ability
to
meet
its
obligations.
Many
of
these
regulations
require
reporting of information designed to
allow insurance regulators
to closely monitor the Company’s
performance.
Insurance
Holding Company
Regulation.
Under applicable
U.S. laws
and regulations,
no person,
corporation
or
other
entity
may
acquire
a
controlling
interest
in
the
Company,
unless
such
person,
corporation
or
entity
has
obtained
the prior
approval
for
such
acquisition
from
the insurance
commissioners
of Delaware
and
the
other
20
states
in
which
the
Company’s
insurance
subsidiaries
are
domiciled
or
deemed
domiciled,
currently
California
and Georgia.
Under these
laws, “control”
is presumed
when any
person acquires,
directly or
indirectly,
10% or
more
of
the
voting
securities
of
an
insurance
company.
To
obtain
the
approval
of
any
change
in
control,
the
proposed
acquirer
must
file
an
application
with
the
relevant
insurance
commissioner
disclosing,
among
other
things, the background of the acquirer and that
of its directors and officers, the
acquirer’s financial condition
and
its proposed
changes in
the management
and operations
of the
insurance
company.
U.S.
state
regulators
also
require
prior
notice
or
regulatory
approval
of
material
inter-affiliate
transactions
within
the
holding
company
structure.
The Insurance Companies Act
of Canada requires prior
approval by
the Minister of Finance of
anyone acquiring a
significant
interest
in an
insurance
company
authorized
to do
business
in Canada.
In addition,
the Company
is
subject to regulation by the insurance
regulators of other states
and foreign jurisdictions in which it is
authorized
to do
business.
Certain of
these states
and foreign
jurisdictions impose
regulations regulating
the ability
of any
person
to
acquire
control
of
an
insurance
company
authorized
to
do
business
in
that
jurisdiction
without
appropriate regulatory
approval similar to those described above.
Dividends.
Under Bermuda law,
Group is
prohibited from
declaring or paying
a dividend
if such payment
would
reduce the realizable
value of its
assets to an amount
less than the aggregate
value of its liabilities
and its issued
share
capital
and share
premium
(additional
paid-in
capital)
accounts.
Group’s
ability
to
pay
dividends
and its
operating
expenses
is
partially
dependent
upon
dividends
from
its
subsidiaries.
The
payment
of
dividends
by
insurance
subsidiaries
is
limited
under
Bermuda
law
as
well
as
the
laws
of
the
various
U.S.
states
in
which
Group’s
insurance
and
reinsurance
subsidiaries
are
domiciled
or
deemed
domiciled.
The
limitations
are
generally
based
upon
net
income
(loss)
and
compliance
with
applicable
policyholders’
surplus
or
minimum
solvency
and
liquidity
requirements
as
determined
in
accordance
with
the
relevant
statutory
accounting
practices.
Under
Irish
corporate
and
regulatory
law,
Holdings
Ireland,
Everest
Dublin
Holdings
and
their
subsidiaries are limited as to the dividends
they can pay based on retained earnings
and net income (loss) and/or
capital and minimum solvency requirements.
As Holdings has outstanding debt obligations,
it is dependent upon
dividends
and
other
permissible
payments
from
its
operating
subsidiaries
to
enable
it
to
meet
its
debt
and
operating expense obligations
and to pay dividends.
Under
Bermuda
law,
Bermuda
Re,
Everest
International
and
Everest
Assurance
are
unable
to
declare
or
make
payment
of a
dividend if
they
fail to
meet their
minimum solvency
margin or
minimum liquidity
ratio.
As long
term insurers,
Bermuda Re and
Everest Assurance
are also unable
to declare or
pay a dividend
to anyone
who is
not a policyholder unless, after
payment of the dividend,
the value of the assets in
their long term business fund,
as
certified by
their
approved
actuary,
exceeds
their
liabilities
for
long
term
business
by
at
least
the
$250,000
minimum
solvency
margin.
Prior
approval
of
the
Bermuda
Monetary
Authority
is
required
if
Bermuda
Re’s,
Everest
International’s
or
Everest
Assurance’s
dividend
payments
would
exceed
25%
of
their
prior
year
end
statutory
capital and
surplus.
At December
31, 2022,
Bermuda Re,
Everest
International and
Everest
Assurance
exceeded their solvency and liquidity
requirements.
The
payment
of
dividends
to
Holdings
by
Everest
Re
is
subject
to
limitations
imposed
by
Delaware
law.
Generally,
Everest
Re
may
only
pay
dividends
out
of
its
statutory
earned
surplus,
which
was
$5.6
billion
at
December
31, 2022,
and only
after
it
has
given
10 days
prior
notice to
the
Delaware
Insurance
Commissioner.
During this 10-day
period, the
Commissioner may,
by order,
limit or disallow
the payment
of ordinary
dividends
if the
Commissioner finds
the insurer
to be
presently
or potentially
in financial
distress.
Further,
the maximum
amount
of dividends
that
may
be paid
without
the
prior
approval
of the
Delaware
Insurance
Commissioner
in
any
twelve
month
period is
the
greater
of (1)
10% of
the
insurer’s
statutory
surplus
as of
the
end of
the
prior
calendar year
or (2) the
insurer’s statutory
net income (loss),
not including realized
capital gains
(losses), for
the
prior calendar
year.
Accordingly,
the maximum
amount
that
will be
available
for
the payment
of dividends
by
Everest
Re in
2023 without triggering
the requirement
for prior
approval of
regulatory authorities
in connection
with a dividend is $555 million.
21
Insurance Regulation.
Bermuda Re
and Everest
International are
not admitted
to do
business in any
jurisdiction
in
the
U.S.
These
entities
conduct
their
insurance
business
from
their
offices
in
Bermuda,
and
in
the
case
of
Bermuda Re,
its branch
in the UK.
Everest
Assurance, by
virtue of its
one-time election
under section
953(d) of
the U.S.
Internal Revenue
Code to
be a
U.S. income
tax paying
“Controlled Foreign
Corporation”,
is admitted
to
do
business
in the
U.S.
and
Bermuda.
In
Bermuda,
Bermuda
Re,
Everest
International,
Everest
Assurance
and
Mt. Logan Re are
regulated by the
Insurance Act 1978 (as
amended) and related
regulations (the “Act”).
The Act
establishes solvency
and liquidity
standards
and auditing
and reporting
requirements and
subjects Bermuda
Re,
Everest
International
and
Everest
Assurance
to
the
supervision,
investigation
and
intervention
powers
of
the
Bermuda
Monetary
Authority.
Under
the
Act,
Bermuda
Re
and
Everest
International,
as
Class
4
insurers,
are
each
required
to
maintain
a
principal
office
in
Bermuda,
to
maintain
a
minimum
of
$100
million
in
statutory
capital
and surplus,
to have
an independent
auditor approved
by the
Bermuda Monetary
Authority conduct
an
annual audit and
report on their
respective statutory
and U.S. GAAP
financial statements
and filings and
to have
an appointed
loss reserve
specialist (also
approved
by the
Bermuda Monetary
Authority) review
and report
on
their
respective
loss
reserves
annually.
Under
the
Act,
Everest
Assurance
is
licensed
as
a
Class
3A
insurer
for
general business and as a Class C insurer for
long-term business.
Bermuda
Re
is
also
registered
under
the
Act
as
long
term
insurer
and
is
thereby
authorized
to
write
life
and
annuity
business.
As
a
long
term
insurer,
Bermuda
Re
is
required
to
maintain
$250,000
in
statutory
capital
separate
from
their
Class
4
minimum
statutory
capital
and
surplus,
to
maintain
long
term
business
funds,
to
separately account
for this business
and to have
an approved
actuary prepare a
certificate concerning
their long
term
business
assets
and
liabilities
to
be
filed
annually.
Bermuda
Re’s
operations
in
the
United
Kingdom
and
worldwide
are
subject
to
regulation
by
the
Prudential
Regulation
Authority
(the
“PRA”).
The
PRA
imposes
solvency,
capital adequacy,
audit, financial
reporting and
other regulatory
requirements
on insurers
transacting
business
in the
United Kingdom.
Bermuda Re
presently
meets or
exceeds
all of
the PRA’s
solvency
and capital
requirements.
U.S.
domestic
property
and
casualty
insurers,
including
reinsurers,
are
subject
to
regulation
by
their
state
of
domicile
and
by
those
states
in
which
they
are
licensed.
The
regulation
of
reinsurers
is
typically
focused
on
financial
condition,
investments,
management
and
operation.
The
rates
and
policy
terms
of
reinsurance
agreements are generally not
subject to direct regulation by any
governmental authority.
The operations
of Everest
Re’s
foreign
branch
offices in
Canada
and Singapore
are subject
to regulation
by the
insurance
regulatory
officials
of
those
jurisdictions.
Management
believes
that
the
Company
is
in
compliance
with applicable laws and regulations
pertaining to its business and operations.
Everest
Indemnity,
Everest
National,
Everest
Security,
Everest
Denali
and
Everest
Premier
are
subject
to
regulations
similar to
the U.S.
regulations
applicable
to
Everest
Re.
In addition,
these companies
must
comply
with
substantial
regulatory
requirements
in
each
state
where
they
conduct
business.
These
additional
requirements
include,
but
are
not
limited
to,
rate
and
policy
form
requirements,
requirements
with
regard
to
licensing,
agent
appointments,
participation
in
residual
markets
and
claim
handling
procedures.
These
regulations are primarily designed for the protection
of policyholders.
The operations of Ireland Insurance
and its branch offices in Netherlands,
Germany, France
and Spain are subject
to
regulation
by
the
insurance
regulatory
officials
of
those
jurisdictions.
Management
believes
that
the
Company is in compliance with applicable laws
and regulations pertaining to its business
and operations.
Licenses.
Everest
Re
is
a
licensed
property
and
casualty
insurer
and/or
reinsurer
in
all
states,
the
District
of
Columbia, Puerto Rico and
Guam.
Such licensing enables U.S. domestic
ceding company clients
to take credit
for
uncollateralized reinsurance
receivables from Everest
Re in their statutory
financial statements.
Everest Re
is licensed as a property
and casualty reinsurer
in Canada. It is also
authorized to conduct
reinsurance
business in Singapore
and Brazil.
Everest Re
can also write
reinsurance in other
foreign countries.
Because some
jurisdictions
require
a reinsurer
to register
in order
to be
an acceptable
market
for local
insurers,
Everest
Re is
22
registered as
a foreign insurer
and/or reinsurer
in the following
countries:
Bolivia, Brazil, Chile,
China, Colombia,
Dominican
Republic,
Ecuador,
El
Salvador,
Guatemala,
Honduras,
India,
Mexico,
Nicaragua,
Panama,
Paraguay,
the Philippines, Singapore and Venezuela.
Everest National
is licensed in 50 states, the District of Columbia and
Puerto Rico.
Everest
Indemnity
is
a
Delaware
Domestic
Surplus
Lines
Insurer
and
is
eligible
to
write
insurance
on
a
surplus
lines basis in the 50 states, the District of Columbia
and Puerto Rico.
Everest
Security
is
licensed
in
Georgia
and
Alabama
and
is
approved
as
an
eligible
surplus
lines
insurer
in
Delaware.
Everest
Denali is
licensed in
50 states
and the
District of
Columbia.
Everest
Premier is
licensed in
50 states
and
the District of Columbia.
Bermuda
Re
and
Everest
International
are
registered
as
Class
4
insurers
in
Bermuda,
and
Bermuda
Re
is
also
registered as
a long-term insurer
in Bermuda.
Bermuda Re is
also registered
as a certified
reinsurer in New
York
and
Delaware
and
is
registered
as
a
reciprocal
reinsurer
in:
Delaware;
California;
Massachusetts;
Michigan;
Minnesota; New
Hampshire; New
York;
Ohio and
Texas.
Bermuda Re
is also
an authorized
reinsurer in
the U.K.
and is also registered as a reinsurer
in China.
Everest Assurance
is registered as a
Class 3A general business
insurer in Bermuda and a Class
C long-term insurer
in Bermuda.
By virtue
of its
one-time election
under section
953(d) of
the U.S.
Internal
Revenue
Code to
be a
U.S.
income
tax
paying
“Controlled
Foreign
Corporation,”
Everest
Assurance
may
operate
in
both
the U.S.
and
Bermuda. Everest
Assurance
is also
considered
an approved/eligible
alien
surplus
lines insurer
in the
50 states
and the District of Columbia
In addition, Everest
Assurance can also write reinsurance
in other foreign countries.
Because some jurisdictions
require a reinsurer
to register
in order to
be an acceptable
market for
local insurers
,
Everest
Assurance
is
registered
as
a
foreign
insurer
and/or
reinsurance
in
the
following
countries:
Bolivia,
Columbia, Chile, Ecuador,
Guatemala, Mexico and Paraguay.
Ireland Re is licensed to write non-life
reinsurance for the London
and European markets.
Ireland
Insurance
is
licensed
to
write
insurance
for
the
European
markets.
In
addition,
Ireland
Insurance
is
considered an approved/eligible
alien surplus lines insurer in the 50 states
and the District of Columbia
Everest Canada is licensed to
write property and casualty insurance
in Canada.
Everest
Compañia de Seguros
Generales Chile
S.A. is an
insurance corporation
authorized by
the general
laws of
Chile.
Periodic Examinations.
Led by their
state of
domicile, U.S.
insurance companies
are subject
to periodic financial
examination
of
their
affairs,
usually
every
three
to
five
years.
U.S.
insurance
companies
are
also
subject
to
examinations
by the
various
state
insurance
departments
where they
are
licensed concerning
compliance with
applicable conduct
of business
regulations.
In addition,
foreign insurance
companies and
foreign branch
offices
are subject
to examination
and review
by regulators
in their
various
jurisdictions.
None of
the reports
of these
examinations or reviews contained
any material findings or recommendations.
NAIC Risk-Based
Capital Requirements.
The U.S.
National
Association of
Insurance
Commissioners
(“NAIC”) has
developed a
formula to
measure the
statutory minimum
amount of
capital required
for a
property and
casualty
insurance
company
to
support
its
overall
business
operations
in
light
of
its
size
and
risk
profile.
The
major
categories
of
a
company’s
risk
profile
are
its
asset
risk,
credit
risk,
and
underwriting
risk.
The
standard
is
an
effort
to
anticipate
insolvencies.
This
allows
regulators
to
take
actions
that
could
limit
the
impact
of
these
insolvencies on policyholders.
23
Under the
approved
formula,
a company’s
adjusted
statutory
surplus (end
of period
surplus adjusted
for items
not currently
applicable
to
the Everest
companies)
is compared
to
its risk
based
capital
(“RBC”).
If this
ratio
is
above a minimum
threshold, no
action is necessary.
Below this threshold
are four distinct
action levels at
which
an insurer’s
domiciliary state
regulator can
intervene with
increasing degrees
of authority
over an insurer
as the
ratio
of
adjusted
surplus
to
RBC
decreases.
The
mildest
intervention
requires
an
insurer
to
submit
a
plan
of
appropriate corrective actions.
The most severe action requires
an insurer to be rehabilitated or
liquidated.
Based on their financial positions at December 31, 2022, Everest
Re, Everest National,
Everest Indemnity,
Everest
Security, Everest
Denali and Everest Premier exceed
the minimum thresholds.
Tax Matters.
The following summary
of the taxation
of the Company
is based on current
law.
There can be
no assurance that
legislative, judicial, or administrative
changes will not be enacted that might materially
affect this summary.
Bermuda.
Under Bermuda
law,
no income,
withholding or
capital
gains
taxes
are imposed
upon Group
and its
Bermuda
subsidiaries.
Group
and its
Bermuda
subsidiaries
have
received
an undertaking
from
the
Minister
of
Finance in
Bermuda
that,
in the
event
of any
taxes
being imposed,
Group
and its
Bermuda
subsidiaries
will be
exempt
from
taxation
in
Bermuda
until
March
2035.
Non-Bermuda
branches
of
Bermuda
subsidiaries
are
subject to local taxes in
the jurisdictions in which they operate.
United
States.
On
December
22,
2017,
the
Tax
Cuts
and
Jobs
Act
(“TCJA”)
was
signed
into
law.
The
Internal
Revenue Service
(“IRS”) and
the United
States
Treasury
Department (“U.S.
Treasury”)
have subsequently
issued
both proposed and
final regulations related
to the new law.
Management continues
to monitor this
guidance as
it
is
issued
to
determine
the
impact
on
the
Company
and
acts
if necessary.
Group’s
U.S.
subsidiaries
conduct
business in and are
subject to taxation
in the U.S. Non-U.S.
branches of U.S. subsidiaries
are subject to both
local
taxation in
the jurisdictions in which
they operate
and U.S. corporate
income tax but
are generally
relieved from
double
taxation
through
the
use
of
foreign
tax
credits
against
their
U.S.
income
tax
liability.
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
withholding
taxes.
The
cumulative
amount
that
would
be
subject
to
U.S.
withholding
tax,
if distributed,
is not
practicable
to
compute.
Group
and its
Bermuda subsidiaries
believe
that
they
have
operated
and
will
continue
to
operate
their
businesses
in
a
manner
that
will
not
cause
them
to
generate income treated
as effectively connected
with the conduct of a trade or
business within the U.S.
On this
basis, Group
does not
expect that
it and
its Bermuda
subsidiaries will
be required
to pay
U.S. corporate
income
taxes
other
than
withholding
taxes
on
certain
investment
income
and
premium
excise
taxes.
If
Group
or
its
Bermuda
subsidiaries
were
to
become
subject
to
U.S.
income
tax,
there
could
be a
material
adverse
effect
on
the Company’s financial condition,
results of operations and cash flows.
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.
As
the IRS issues additional guidance, we will evaluate
any impact to our consolidated
financial statements.
United Kingdom.
Bermuda Re’s
UK branch,
the Company’s
Lloyd’s
Syndicate and
Ireland Insurance’s
UK branch
conduct business
in the UK
and are subject
to taxation
in the UK.
Bermuda Re believes
that it has
operated and
will
continue
to
operate
its
Bermuda
operation
in
a
manner
which
will
not
cause
them
to
be
subject
to
UK
taxation.
If
Bermuda
Re’s
Bermuda
operations
were
to
become
subject
to
UK
income
tax,
there
could
be
a
material adverse impact on the Company’s
financial condition, results of operations
and cash flow.
Ireland.
Holdings Ireland,
Everest
Dublin Holdings,
Ireland Re
and Ireland
Insurance conduct
business in
Ireland
and are subject to taxation
in Ireland.
24
Switzerland.
Ireland
Re’s
Zurich
branch
conducts
business
in
Switzerland
and
is
subject
to
taxation
in
Switzerland.
Netherlands.
Ireland
Insurance’s
Netherland
branch
conducts
business
in
the
Netherlands
and
is
subject
to
taxation in the Netherlands.
Germany:
Ireland
Insurance’s
German
branch
conducts
business
in
Germany
and
is
subject
to
taxation
in
Germany.
Spain:
Ireland Insurance’s
Spanish branch conducts business in Spain and is subject
to taxation in Spain.
France:
Ireland Insurance’s
French branch conducts business in France
and is subject to taxation in France.
Belgium: Ireland Insurance’s
Belgium branch conducts business in Belgium and is subject
to taxation in Belgium.
Singapore:
Everest
International
Reinsurance
Ltd’s
Singapore
branch
conducts
business
in
Singapore
and
is
subject to taxation in Singapore.
Chile:
Everest Insurance
Chile conducts business in Chile and is subject to taxation
in Chile.
Available Information.
The Company’s
Annual
Reports
on Form
10-K, Quarterly
Reports
on
Form
10-Q, Current
Reports
on Form
8-K,
proxy statements
and amendments to those reports
are available free of charge
through the Company’s
internet
website
at
http://www.everestre.com
as
soon
as
reasonably
practicable
after
such
reports
are
electronically
filed with the Securities and Exchange Commission (the “SEC”).
ITEM 1A.
RISK FACTORS
In addition to the other information
provided in this report,
the following risk factors
should be considered when
evaluating
an
investment
in
our
securities.
If
the
circumstances
contemplated
by
the
individual
risk
factors
materialize, our business, financial condition
and results of operations could
be materially and adversely affected
and the trading price of our common shares could
decline significantly.
25
RISKS RELATING TO
OUR BUSINESS
Our results could be adversely affected by catastrophic
events.
We are exposed
to unpredictable catastrophic
events, including weather-related
and other natural
catastrophes,
as well as acts of
terrorism.
The frequency and/or
severity of catastrophic
events may be
impacted in the future
by
the
continued
effects
of
climate
change.
Climate
change
and
resulting
changes
in
global
temperatures,
weather patterns,
and sea
levels may
both increase
the frequency
and severity
of natural
catastrophes
and the
resulting
losses
in
the
future
and
impact
our
risk
modeling
assumptions.
We
cannot
predict
the
impact
that
changing
climate
conditions,
if
any,
may
have
on
our
results
of
operations
or
our
financial
condition.
Additionally,
we cannot
predict how
legal, regulatory
and/or social
responses to
concerns around
global climate
change
and
the
resulting
impact
on
various
sectors
of
the
economy
may
impact
our
business.
Any
material
reduction in our operating
results caused by
the occurrence of one or
more catastrophes
could inhibit our ability
to
pay
dividends
or
to
meet our
interest
and
principal
payment
obligations.
By
way
of illustration,
during
the
past five calendar years, pre
-tax catastrophe
losses, net of reinsurance, were as follows:
Calendar year:
Pre-tax net catastrophe losses
(Dollars in millions)
2022
$
1,055
2021
1,135
2020
425
2019
576
2018
1,800
Our losses from future catastrophic events
could exceed our projections.
We
use
projections
of
possible
losses
from
future
catastrophic
events
of
varying
types
and
magnitudes
as
a
strategic underwriting tool.
We use these loss projections
to estimate our potential
catastrophe losses
in certain
geographic areas
and decide
on the placement
of retrocessional
coverage or
other actions
to limit the
extent of
potential
losses
in
a
given
geographic
area.
These
loss
projections
are
approximations,
reliant
on
a
mix
of
quantitative
and
qualitative
processes,
and
actual
losses
may
exceed
the
projections
by
a
material
amount,
resulting in a material adverse effect
on our financial condition and results of operations.
26
If our loss
reserves are inadequate
to meet our
actual losses, our
net income
would be reduced
or we could
incur
a loss.
We
are
required
to
maintain
reserves
to
cover
our
estimated
ultimate
liability
of
losses
and
LAE
for
both
reported and
unreported claims
incurred.
These reserves
are only
estimates of
what we
believe the
settlement
and administration
of claims will
cost based
on facts and
circumstances known
to us.
In setting
reserves for
our
reinsurance
liabilities,
we
rely
on
claim
data
supplied
by
our
ceding
companies
and
brokers
and
we
employ
actuarial and statistical
projections.
The information received
from our ceding companies
is not always timely or
accurate,
which
can
contribute
to
inaccuracies
in
our
loss
projections.
Because
of
the
uncertainties
that
surround
our estimates
of loss
and LAE
reserves,
we
cannot
be certain
that
ultimate
losses
and LAE
payments
will not exceed our estimates.
If our reserves are deficient, we
would be required to increase
loss reserves in the
period in
which such
deficiencies are
identified which
would cause
a charge
to our
earnings and
a reduction
of
capital.
During the past five
calendar years,
the reserve re-estimation
process resulted in
an increase to our
pre-
tax net income in 2022, 2021 and 2019 and resulted
in a decrease to our pre-tax net income
in 2020 and 2018:
Calendar year:
Effect on pre-tax net income
(Dollars in millions)
2022
$
1
increase
2021
9
increase
2020
401
decrease
2019
64
increase
2018
387
decrease
The difficulty
in
estimating
our
reserves
is significantly
more challenging
as
it
relates
to
reserving
for
potential
A&E liabilities.
At year-end 2022,
1.3% of our gross
reserves were comprised
of A&E reserves.
A&E liabilities are
especially hard
to estimate
for many
reasons, including
the long
delays between
exposure and
manifestation
of
any
bodily
injury
or
property
damage,
difficulty
in
identifying
the
source
of
the
asbestos
or
environmental
contamination,
long
reporting
delays
and
difficulty
in
properly
allocating
liability
for
the
asbestos
or
environmental
damage.
Legal
tactics
and judicial
and legislative
developments
affecting
the scope
of insurers’
liability,
which
can
be
difficult
to
predict,
also
contribute
to
uncertainties
in
estimating
reserves
for
A&E
liabilities.
The
failure
to
accurately
assess
underwriting
risk
and
establish
adequate
premium
rates
could
reduce
our
net
income or result in a net loss.
Our success depends on our ability to accurately
assess the risks associated with the businesses
on which the risk
is retained.
If we fail to accurately
assess the risks we retain, we may
fail to establish adequate
premium rates to
cover our losses and LAE.
This could reduce our net income and even result
in a net loss.
In addition,
losses may
arise from
events or
exposures that
are not
anticipated when
the coverage
is priced.
In
addition to unanticipated events,
we also face the unanticipated expansion
of our exposures, particularly in long-
tail liability lines.
An example
of this is the
expansion over time
of the scope
of insurers’
legal liability within
the
mass tort arena, particularly for A&E exposures
discussed above.
Decreases in pricing for property and casualty reinsurance
and insurance could reduce our net income.
The worldwide
reinsurance
and insurance
businesses
are highly
competitive,
as well
as cyclical
by
product
and
market.
These
cycles,
as
well
as
other
factors
that
influence
aggregate
supply
and
demand
for
property
and
casualty insurance
and reinsurance products,
are outside of our
control.
The supply of (re)insurance
is driven by
prevailing
prices
and
levels
of
capacity
that
may
fluctuate
in
response
to
a
number
of
factors
including
large
catastrophic
losses and investment
returns being
realized in
the insurance
industry.
Demand for
(re)insurance is
influenced by
underwriting results
of insurers
and insureds,
including catastrophe
losses, and
prevailing general
27
economic
conditions.
If
any
of
these
factors
were
to
result
in
a
decline
in
the
demand
for
(re)insurance
or
an
overall increase in (re)insurance
capacity, our
net income could decrease.
If
rating
agencies
downgrade
the
ratings
of
our
insurance
subsidiaries,
future
prospects
for
growth
and
profitability could be significantly and adversely
affected.
Our active insurance
company subsidiaries
currently hold financial
strength ratings
assigned by third-party rating
agencies
which
assess
and
rate
the
claims
paying
ability
and
financial
strength
of
insurers
and
reinsurers.
Financial
strength
ratings
are
used
by
cedents,
agents
and
brokers
to
assess
the
financial
strength
and
credit
quality of reinsurers
and insurers.
A downgrade
or withdrawal
of any
of these ratings
could adversely
affect our
ability
to
market
our
reinsurance
and
insurance
products,
our
ability
to
compete
with
other
reinsurers
and
insurers,
and
could
have
a
material
and
adverse
effect
on
our
ability
to
write
new
business
that
in
turn
could
impact our profitability and operating
results.
In December 2021, S&P announced proposed
changes to its rating
methodologies.
The
proposed
changes
have
not
been
finalized,
so
the
impact,
if
any,
that
these
changes
may
have on our financial strength
ratings is unknown.
Consistent
with
market
practice,
much
of
our
treaty
reinsurance
business
allows
the
ceding
company
to
terminate
the
contract
or
seek
collateralization
of our
obligations
in
the
event
of a
rating
downgrade
below
a
certain
threshold.
The termination
provision
would
generally
be triggered
if a
rating
fell
below
A.M. Best’s
A-
rating
level.
To
a
lesser
extent,
Everest
Re
also
has
modest
exposure
to
reinsurance
contracts
that
contain
provisions
for
obligatory
funding
of
outstanding
liabilities
in
the
event
of
a
rating
agency
downgrade.
Those
provisions would also generally
be triggered if Everest Re’s
rating fell below A.M. Best’s
A- rating level.
The
failure
of
our
insureds,
intermediaries
and
reinsurers
to
satisfy
their
obligations
to
us
could
reduce
our
income.
In
accordance
with
industry
practice,
we
have
uncollateralized
receivables
from
insureds,
agents
and
brokers
and/or rely
on agents
and brokers
to process
our payments.
We may
not be
able to
collect amounts
due from
insureds, agents and brokers,
resulting in a reduction to net income.
We are
subject to
credit risk
of reinsurers
in connection
with retrocessional
arrangements
because the
transfer
of risk to a
reinsurer does not
relieve us of
our liability to the insured.
In addition, reinsurers
may be unwilling
to
pay
us
even
though
they
are
able
to
do
so.
The
failure
of
one
or
more
of
our
reinsurers
to
honor
their
obligations
to us
in a
timely fashion
would impact
our cash
flow and
reduce our
net income
and could
cause us
to incur a significant loss.
If
we
are
unable
or
choose
not
to
purchase
reinsurance
and
transfer
risk
to
the
reinsurance
markets,
our
net
income could be reduced or we could incur a net
loss in the event of unusual loss experience.
We
are
generally
less reliant
on the
purchase
of reinsurance
than many
of our
competitors,
in part
because of
our strategic
emphasis on
underwriting discipline
and management
of the
cycles inherent
in our
business.
We
try to
separate
our risk
taking process
from our
risk mitigation
process in
order to
avoid developing
too great
a
reliance on
reinsurance.
With the
expansion
of the
capital
markets
into insurance
linked
financial instruments,
we
increased
our
use
of
capital
market
products
for
catastrophe
reinsurance.
In
addition,
we
have
increased
some of
our quota
share contracts
with larger
retrocessions.
The percentage
of business
that we
reinsure may
vary
considerably
from
year
to
year,
depending
on
our
view
of
the
relationship
between
cost
and
expected
benefit for the contract period.
2022
2021
2020
2019
2018
Percentage of ceded written premiums to gross
written premiums
11.5%
12.3%
13.0%
14.3%
12.5%
28
Our industry is highly competitive and we may not be able
to compete as successfully in the future.
Our industry
is highly competitive
and subject
to pricing cycles
that can
be pronounced.
We compete
globally in
the
United
States,
Bermuda
and
international
reinsurance
and
insurance
markets
with
numerous
competitors.
Our
competitors
include
independent
reinsurance
and
insurance
companies,
subsidiaries
or
affiliates
of
established
worldwide
insurance
companies,
reinsurance
departments
of
certain
insurance
companies
and
domestic and international underwriting operations,
including underwriting syndicates at
Lloyd’s
of London.
According to
S&P,
Everest
ranks among
the top
ten global
property &
casualty reinsurance
groups,
where more
than two-thirds
of the
market share
is concentrated.
The worldwide
net premium
written by
the Top
40 global
reinsurance groups
for both life and
non-life business was
estimated to be
$292 billion in 2022 according
to data
compiled by
S&P.
In addition to
competitors the
entry of alternative
capital market
products and
new company
formations provide additional sources
of reinsurance and insurance capacity.
We are dependent on our key
personnel.
Our success
has been,
and will
continue to
be, dependent
on our
ability to
retain
the services
of our
Chairman,
Joseph
V.
Taranto
(age
73)
and
existing
key
executive
officers
and
to
attract
and
retain
additional
qualified
personnel
in the
future.
The loss
of the
services of
any
key
executive
officer or
the inability
to hire
and retain
other highly
qualified personnel
in the
future could
adversely
affect
our ability
to conduct
business.
Generally,
we
consider
key
executive
officers
to
be
those
individuals
who
have
the
greatest
influence
in
setting
overall
policy
and
controlling
operations:
President
and
Chief
Executive
Officer,
Juan
C.
Andrade
(age
57);
Executive
Vice
President
and
Chief
Financial
Officer,
Mark
Kociancic
(age
53),
Executive
Vice
President,
Group,
Chief
Operating
Officer and
Head of
Reinsurance
Division,
Jim Williamson
(age 49),
Executive
Vice President,
General
Counsel,
Chief
Compliance
Officer
and
Secretary,
Sanjoy
Mukherjee
(age
56)
and
Executive
Vice
President,
President
and
Chief
Executive
Officer
of
the
Everest
Insurance
®
Division,
Mike
Karmilowicz
(age
54).
We
have
employment contracts
with all
of our
key
officers,
which contain
automatic renewal
provisions
that provide
for
the contracts
to continue
indefinitely unless
sooner terminated
in accordance
with the contract
or as
otherwise
may be agreed.
Special
considerations
apply
to
our
Bermuda
operations.
Under
Bermuda
law,
non-Bermudians,
other
than
spouses of Bermudians
and individuals holding
permanent or working
resident certificates,
are not
permitted to
engage in any gainful occupation
in Bermuda without a work permit issued by the Bermuda
government.
A work
permit
is
only
granted
or
extended
if
the
employer
can
show
that,
after
a
proper
public
advertisement,
no
Bermudian, spouse
of a Bermudian
or individual holding
a permanent or
working resident
certificate is
available
who meets the minimum standards
reasonably required for
the position.
The Bermuda government places
a six-
year term
limit on individuals
with work
permits, subject
to specified
exemptions
for persons
deemed to be
key
employees
of
businesses
with
a
significant
physical
presence
in
Bermuda.
Currently,
all
our
Bermuda-based
professional
employees who
require work
permits have
been granted
permits by the
Bermuda government
that
expire at various times between
February 2024 and October 2027.
Our
investment
values
and
investment
income
could
decline
because
they
are
exposed
to
interest
rate,
credit,
and market risks.
A significant
portion of
our investment
portfolio consists
of fixed
income securities
and smaller
portions consist
of
equity
securities
and
other
investments.
The
fair
value
of
our
invested
assets
and
associated
investment
income
fluctuate
depending
on
general
economic
and
market
conditions.
For
example,
the
fair
value
of
our
predominant
fixed
income
portfolio
generally
increases
or decreases
inversely
to
fluctuations
in interest
rates.
The fair
value of
our fixed
income securities
could also
decrease as
a result
of a
downturn in
the business
cycle
that causes
the credit quality
of such securities
to deteriorate.
The net investment
income that
we realize
from
future investments in fixed
income securities will generally increase
or decrease with interest
rates.
29
Interest
rate
fluctuations
also
can
cause
net
investment
income
from
fixed
income
investments
that
carry
prepayment
risk,
such
as
mortgage-backed
and
other
asset-backed
securities,
to
differ
from
the
income
anticipated
from
those
securities
at
the
time
of
purchase.
In
addition,
if
issuers
of
individual
investments
are
unable to meet their obligations, investment
income will be reduced and realized capital
losses may arise.
The majority
of our
fixed income
securities are
classified as
available for
sale and
temporary
changes in
the fair
value
of these
investments
are reflected
as changes
to
our shareholders’
equity.
Our actively
managed
equity
security
portfolios
are
fair
valued
and
any
changes
in
fair
value
are
reflected
as
net
realized
capital
gains
or
losses.
As a result, a decline in the value of our securities reduces
our capital or could cause us to incur a loss.
As a
part of
our ongoing
analysis of
our investment
portfolio, we
are required
to assess
current expected
credit
losses
for
all
held-to-maturity
securities
and
evaluate
expected
credit
losses
for
available-for-sale
securities
when
fair
value
is
below
amortized
cost,
which
considers
reasonable
and
supportable
forecasts
of
future
economic conditions in addition to information
about past events and current
conditions. This analysis requires
a
high degree of
judgment. Financial assets
with similar risk characteristics
and relevant
historical loss
information
are included
in the development
of an estimate
of expected
lifetime losses.
Declines in relevant
stock and
other
financial markets
and other
factors
impacting the
value of
our investments
could result
in an
adverse
effect
on
our net income and
other financial results
We have
invested
a portion of
our investment
portfolio in
equity securities.
The value
of these assets
fluctuates
with changes in the markets.
In times of economic weakness,
the fair value of
these assets may decline,
and may
negatively
impact
net
income.
We
also
invest
in
non-traditional
investments
which
have
different
risk
characteristics
than traditional
fixed income
and equity
securities. These
alternative
investments
are comprised
primarily
of
private
equity
limited
partnerships.
The
changes
in
value
and
investment
income/(loss)
for
these
partnerships may be more volatile
than over-the-counter securities.
Prolonged and
severe disruptions
in the overall
public and
private debt
and equity
markets, such
as occurred
in
early
2020
related
to
the
COVID-19
pandemic,
could
result
in
significant
realized
and
unrealized
losses
in
our
investment portfolio.
There could also
be disruption in individual
market sectors,
such as occurred in the
energy
sector in
recent years.
Such declines
in the
financial markets
could result
in significant
realized
and unrealized
losses
on investments
and could
have
a material
adverse
impact on
our results
of operations,
equity,
business
and insurer financial strength and
debt ratings.
We may experience
foreign currency exchange losses that
reduce our net income and capital levels.
Through
our
Bermuda
and
international
operations,
we
conduct
business
in
a
variety
of
foreign
(non-U.S.)
currencies,
principally
the
Euro,
the
British
pound,
the
Canadian
dollar,
and
the
Singapore
dollar.
Assets,
liabilities,
revenues
and
expenses
denominated
in
foreign
currencies
are
exposed
to
changes
in
currency
exchange
rates.
Our reporting
currency is
the U.S.
dollar,
and exchange
rate
fluctuations,
especially relative
to
the U.S. dollar,
may materially
impact our results and
financial position.
In 2022, we wrote
approximately
25.8%
of our
coverages
in non-U.S.
currencies;
as of
December
31,
2022,
we
maintained
approximately
19.3%
of our
investment portfolio in investments
denominated in non-U.S. currencies.
We are subject to cybersecurity risks
that could negatively impact our business operations.
We
are
dependent
upon
our
information
technology
platform,
including
our
processing
systems,
data
and
electronic transmissions
in our
business operations.
Security breaches
could expose
us to
the loss
or misuse
of
our
information,
litigation
and
potential
liability.
In
addition,
cyber
incidents
that
impact
the
availability,
reliability,
speed, accuracy or
other proper functioning
of these systems
could have a
significant negative
impact
on our
operations and
possibly our
results.
An incident
could also
result in
a violation
of applicable
privacy and
other laws, damage
our reputation,
cause a loss
of customers
or give rise to
monetary fines and
other penalties,
which could be
significant.
Management is not
aware of a
cybersecurity incident
that has had
a material impact
on our operations.
30
The NAIC
has
adopted
an
Insurance
Data
Security
Model
Law,
which,
when
adopted
by
the
states
will require
insurers,
insurance
producers
and
other
entities
required
to
be licensed
under
state
insurance
laws
to
comply
with certain requirements
under state
insurance laws, such
as developing and
maintaining a written
information
security program,
conducting risk assessments
and overseeing the
data
security practices of
third-party vendors.
In
addition,
certain
state
insurance
regulators
are
developing
or
have
developed
regulations
that
may
impose
regulatory requirements
relating to cybersecurity
on insurance and
reinsurance companies
(potentially including
insurance
and
reinsurance
companies
that
are
not
domiciled,
but
are
licensed,
in
the
relevant
state).
For
example, the New York
State Department of
Financial Services has a
regulation pertaining to
cybersecurity for all
banking and
insurance
entities under
its jurisdiction,
which was
effective
as of
March 1,
2017, which
applies to
us.
We
cannot
predict
the
impact these
laws
and regulations
will have
on our
business,
financial
condition
or
results
of operations,
but our
insurance
and reinsurance
companies
could
incur additional
costs
resulting
from
compliance with such laws and regulations.
RISKS RELATING TO
REGULATION
Insurance
laws
and
regulations
restrict
our
ability
to
operate
and
any
failure
to
comply
with
those
laws
and
regulations could have a material adverse effect on
our business.
We are
subject to
extensive
and increasing
regulation under
U.S., state
and foreign
insurance laws.
These laws
limit the
amount
of dividends
that
can
be paid
to
us
by
our operating
subsidiaries,
impose
restrictions
on
the
amount and type of
investments that
we can hold, prescribe
solvency,
accounting and internal
control standards
that
must
be
met
and
maintained
and
require
us
to
maintain
reserves.
These
laws
also
require
disclosure
of
material
inter-affiliate
transactions
and
require
prior
approval
of
“extraordinary”
transactions.
Such
“extraordinary”
transactions
include
declaring
dividends
from
operating
subsidiaries
that
exceed
statutory
thresholds.
These
laws
also
generally
require
approval
of
changes
of
control
of
insurance
companies.
The
application
of these
laws could
affect our
liquidity and
ability to
pay dividends,
interest
and other
payments on
securities, as
applicable, and
could restrict
our ability to
expand our
business operations
through acquisitions
of
new
insurance
subsidiaries.
We
may
not
have
or
maintain
all
required
licenses
and
approvals
or
fully
comply
with the wide variety of applicable laws and
regulations or the relevant authority’s
interpretation of the laws and
regulations.
If we do
not have
the requisite
licenses and
approvals
or do
not comply
with applicable
regulatory
requirements,
the
insurance
regulatory
authorities
could
preclude
or
temporarily
suspend
us
from
carrying
on
some
or
all
of
our
activities
or
monetarily
penalize
us.
These
types
of
actions
could
have
a
material
adverse
effect
on
our
business.
To
date,
no
material
fine, penalty
or
restriction
has been
imposed
on us
for
failure
to
comply with any insurance law or regulation.
As
a
result
of
the
previous
dislocation
of
the
financial
markets,
Congress
and
the
previous
Presidential
administration
in the United
States implemented
changes in
the way
the financial services
industry is
regulated.
Some of these changes are also impacting the insurance
industry.
For example, the U.S. Treasury
established the
Federal Insurance
Office with
the authority
to monitor all
aspects of the
insurance sector,
monitor the
extent to
which
traditionally
underserved
communities
and
consumers
have
access
to
affordable
non-health
insurance
products, to
represent the
United States
on prudential
aspects of international
insurance matters,
to assist
with
administration
of the
Terrorism
Risk
Insurance
Program
and
to
advise
on
important
national
and
international
insurance
matters.
In
addition,
several
European
regulatory
bodies
are
in
process
of
updating
existing
or
developing new
capital adequacy
directives for
insurers
and reinsurers.
The future
impact of
such initiatives
or
new
initiatives
from
the
current
Government
Administration,
if
any,
on
our
operation,
net
income
(loss)
or
financial condition cannot be determined at this
time.
Regulatory challenges in the United States
could adversely affect the ability of Bermuda Re to
conduct business.
Bermuda Re does
not intend to
be licensed or admitted
as an insurer or
reinsurer in any
U.S. jurisdiction.
Under
current
law,
Bermuda
Re
generally
will
be
permitted
to
reinsure
U.S.
risks
from
its
office
in
Bermuda
without
obtaining
those licenses.
However,
the
insurance
and reinsurance
regulatory
framework
is subject
to
periodic
31
legislative
review
and
revision.
In
the
past,
there
have
been
congressional
and
other
initiatives
in
the
United
States regarding
increased supervision
and regulation of
the insurance industry,
including proposals to
supervise
and
regulate
reinsurers
domiciled
outside
the
United
States.
If
Bermuda
Re
were
to
become
subject
to
any
insurance
laws
of
the
United
States
or
any
U.S.
state
at
any
time
in
the
future,
it
might
be
required
to
post
deposits or maintain
minimum surplus levels
and might be
prohibited from
engaging in lines
of business or
from
writing some types
of policies.
Complying with those
laws could
have a
material adverse
effect on
our ability to
conduct business in Bermuda and international
markets.
Bermuda Re may need to be licensed or admitted
in additional jurisdictions to develop its business.
As
Bermuda
Re’s
business
develops,
it
will
monitor
the
need
to
obtain
licenses
in
jurisdictions
other
than
Bermuda and the U.K., where
it has an authorized branch,
in order to comply with applicable
law or to be able to
engage in additional
insurance-related activities.
In addition, Bermuda Re
may be at
a competitive disadvantage
in
jurisdictions
where
it
is
not
licensed
or
does
not
enjoy
an
exemption
from
licensing
relative
to
competitors
that
are
so
licensed
or
exempt
from
licensing.
Bermuda
Re
may
not
be able
to
obtain
any
additional
licenses
that
it
determines
are
necessary
or
desirable.
Furthermore,
the
process
of
obtaining
those
licenses
is
often
costly and may take
a long time.
Bermuda Re’s
ability to write
reinsurance may be
severely limited if
it is unable to
arrange for security to
back its
reinsurance.
Many
jurisdictions
do not
permit insurance
companies
to take
credit
for reinsurance
obtained
from unlicensed
or
non-admitted
insurers
on
their
statutory
financial
statements
without
appropriate
security.
Bermuda
Re’s
reinsurance
clients
typically
require
it
to
post
a
letter
of
credit
or
enter
into
other
security
arrangements.
If
Bermuda
Re
is
unable
to
obtain
or
maintain
a
letter
of
credit
facility
on
commercially
acceptable
terms
or
is
unable
to
arrange
for
other
types
of
security,
its
ability
to
operate
its
business
may
be
severely
limited.
If
Bermuda
Re
defaults
on
any
letter
of
credit
that
it
obtains,
it
may
be
required
to
prematurely
liquidate
a
substantial portion of its investment
portfolio and other assets pledged as collateral.
RISKS RELATING TO
GROUP’S SECURITIES
Because of our holding company
structure, our ability to pay
dividends, interest and
principal is dependent on our
receipt of dividends, loan payments and other funds from our subsidiaries.
Group
and
Holdings
are
holding
companies,
each
of
whose
most
significant
asset
consists
of
the
stock
of
its
operating
subsidiaries.
As
a
result,
each
of
Group’s
and
Holdings’
ability
to
pay
dividends,
interest
or
other
payments on
its securities in
the future will
depend on the
earnings and cash
flows of the
operating subsidiaries
and the
ability of
the subsidiaries
to pay
dividends
or to
advance or
repay
funds to
it.
This ability
is subject
to
general economic, financial, competitive,
regulatory and other factors
beyond our control.
Payment of dividends
and advances
and repayments
from some
of the
operating
subsidiaries are
regulated
by U.S.,
state
and foreign
insurance
laws
and
regulatory
restrictions,
including
minimum
solvency
and
liquidity
thresholds.
Accordingly,
the operating
subsidiaries may
not be able to
pay dividends
or advance or
repay funds
to Group and
Holdings in
the future, which could prevent
us from paying dividends, interest
or other payments on our securities.
Provisions in
Group’s
bye-laws could
have an
anti-takeover
effect, which
could diminish
the value
of its
common
shares.
Group’s
bye-laws
contain
provisions
that
could
delay
or
prevent
a
change
of control
that
a
shareholder
might
consider favorable.
The effect
of these
provisions
could be
to prevent
a shareholder
from receiving
the benefit
from
any
premium
over
the
market
price
of
our
common
shares
offered
by
a
bidder
in
a
potential
takeover.
Even
in the
absence
of an
attempt
to
effect
a
change
in management
or
a
takeover
attempt,
these
provisions
may
adversely
affect
the
prevailing
market
price
of
our
common
shares
if
they
are
viewed
as
discouraging
takeover attempts
in the future.
32
For example, Group’s
bye-laws contain the
following provisions that could have
an anti-takeover effect:
●
the total voting
power of any
shareholder owning more
than 9.9% of the
common shares will
be reduced to
9.9% of the total voting power of the common shares;
●
the board of
directors may
decline to register
any transfer
of common shares
if it has reason
to believe that
the transfer would result
in:
i.)
any person that
is not an investment
company beneficially
owning more than 5.0%
of any class
of the issued and outstanding share capital
of Group,
ii.)
any
person
holding
controlled
shares
in
excess
of
9.9%
of
any
class
of
the
issued
and
outstanding share capital
of Group, or
iii.)
any adverse
tax, regulatory
or legal consequences
to Group, any
of its subsidiaries
or any of
its
shareholders;
●
Group also has the
option to redeem or purchase
all or part of a shareholder’s
common shares to
the extent
the
board
of
directors
determines
it
is
necessary
or
advisable
to
avoid
or
cure
any
adverse
or
potential
adverse consequences if:
i.)
any person that is not an investment
company beneficially owns more than
5.0% of any class of
the issued and outstanding share capital
of Group,
ii.)
any person
holds controlled shares
in excess of
9.9% of any class
of the issued and
outstanding
share capital of Group, or
iii.)
share ownership
by any
person may
result in
adverse tax,
regulatory or
legal consequences
to
Group, any of its subsidiaries or any
other shareholder.
The
Board
of
Directors
has
indicated
that
it
will
apply
these
bye-law
provisions
in
such
manner
that
“passive
institutional investors”
will be treated similarly
to investment
companies.
For this purpose, “passive
institutional
investors”
include all
persons who
are eligible,
pursuant
to Rule
13d-1(b)(1) under
the U.S.
Securities Exchange
Act
of
1934,
(“the
Exchange
Act”)
to
file
a
short-form
statement
on
Schedule
13G,
other
than
an
insurance
company or any parent
holding company or control person
of an insurance company.
Applicable insurance laws may also have an anti-takeover
effect.
Before a
person can
acquire control
of a U.S.
insurance company,
prior written
approval must
be obtained
from
the
insurance
commissioner
of the
state
where
that
insurance
company
is
domiciled
or
deemed
commercially
domiciled.
Prior
to
granting
approval
of an
application
to acquire
control
of a
domestic
insurance
company,
a
state
insurance
commissioner
will consider
such
factors
as the
financial strength
of the
applicant,
the integrity
and competence
of the
applicant’s
board of
directors
and executive
officers,
the acquiror’s
plans for
the future
operations of the insurance
company and any
anti-competitive results
that may arise from
the consummation of
the
acquisition
of control.
Because any
person
who acquired
control
of Group
would
thereby
acquire
indirect
control
of
its
insurance
company
subsidiaries
in
the
U.S.,
the
insurance
change
of
control
laws
of
Delaware,
California
and
Georgia
would
apply
to
such
a
transaction.
This
could
have
the
effect
of
delaying
or
even
preventing such a change of control.
33
The ownership of common
shares of Group by Everest
Re Advisors, Ltd.,
a direct subsidiary of Group
may have an
impact on securing approval of shareholder proposals that Group’s
management supports.
As
of
December
31,
2022,
Everest
Re
Advisors,
Ltd.
(Bermuda)
owned
9,719,971
or
19.9%
of
the
outstanding
common shares of Group.
Under Group’s
bye-laws, the total voting
power of any shareholder owning more
than
9.9% of the
common shares
is reduced
to 9.9%
of the
total voting
power of
the common
shares.
Nevertheless,
Everest
Re Advisors,
Ltd., which
is controlled
by Group,
has the ability
to vote
9.9% of the
total voting
power of
Group’s common
shares.
Investors in Group may have more difficulty in protecting
their interests than investors in
a U.S. corporation.
The Companies Act 1981 of Bermuda (the “Companies Act”), differs
in material respects from
the laws applicable
to
U.S.
corporations
and
their
shareholders.
The
following
is
a
summary
of
material
differences
between
the
Companies
Act,
as modified
in
some
instances
by
provisions
of Group’s
bye-laws,
and Delaware
corporate
law
that
could
make
it
more
difficult
for
investors
in
Group
to
protect
their
interests
than
investors
in
a
U.S.
corporation.
Because the
following statements
are summaries,
they do
not address
all aspects
of Bermuda
law
that may be relevant to
Group and its shareholders.
Alternate Directors.
Group’s bye
-laws provide,
as permitted by
Bermuda law,
that each director
may appoint
an
alternate
director,
who
shall
have
the
power
to
attend
and
vote
at
any
meeting
of
the
board
of
directors
or
committee at
which that director
is not personally
present and to
sign written consents
in place of that
director.
Delaware
law
permits
a
director
to
appoint
another
director
as
an
alternate
to
attend
any
board
committee
meeting.
However,
Delaware
law does
not provide
for the
designation
of alternate
directors
with authority
to
attend or vote at a meeting of
the board of directors.
Committees of
the Board
of Directors.
Group’s
bye-laws provide,
as permitted
by Bermuda
law,
that the
board
of directors
may delegate
any of
its powers
to committees
that the
board appoints,
and those
committees may
consist
partly
or
entirely
of
non-directors.
Delaware
law
allows
the
board
of
directors
of
a
corporation
to
delegate many of its powers
to committees, but those committees
may consist only of directors.
Interested
Directors.
Bermuda law
and Group’s
bye-laws
provide
that if
a director
has a
personal
interest
in a
transaction to
which the company
is also a party
and if the director
discloses the nature
of this personal
interest
at the first
opportunity,
either at a
meeting of directors
or in writing
to the directors,
then the company
will not
be able to
declare the transaction
void solely
due to the
existence of
that personal
interest and
the director
will
not be liable
to the company
for any
profit realized
from the
transaction.
In addition,
after a director
has made
the
declaration
of
interest
referred
to
above,
he
or
she
is
allowed
to
be
counted
for
purposes
of determining
whether a quorum
is present and
to vote
on a transaction
in which he
or she has
an interest,
unless disqualified
from doing so by
the chairman of the relevant
board meeting.
Under Delaware law,
an interested
director could
be held liable
for a
transaction in
which that
director derived
an improper
personal benefit.
Additionally,
under
Delaware
law,
a corporation
may be
able to
declare a
transaction
with an
interested
director to
be void
unless
one of the following conditions is fulfilled:
●
the material
facts as
to the
interested
director’s
relationship
or interests
are disclosed
or are
known to
the
board
of
directors
and
the
board
in
good
faith
authorizes
the
transaction
by
the
affirmative
vote
of
a
majority of the disinterested directors;
●
the material facts are
disclosed or are known to
the shareholders entitled to
vote on the transaction
and the
transaction is specifically approved
in good faith by the holders of a majority of the voting
shares; or
●
the transaction is fair to the corporation
as of the time it is authorized, approved or
ratified.
Transactions
with Significant Shareholders.
As a Bermuda company,
Group may
enter into business
transactions
with
its
significant
shareholders,
including
asset
sales,
in
which
a
significant
shareholder
receives,
or
could
34
receive,
a
financial
benefit
that
is
greater
than
that
received,
or
to
be
received,
by
other
shareholders
with
prior approval
from Group’s
board
of directors
but without
obtaining
prior approval
from the
shareholders.
In
the case of an amalgamation, in which
two or more companies join together
and continue as a single company,
a
resolution of
shareholders approved
by a majority
of at least
75% of the
votes cast
is required in
addition to the
approval
of
the
board
of
directors,
except
in
the
case
of
an
amalgamation
with
and
between
wholly-owned
subsidiaries.
If
Group
was
a
Delaware
corporation,
any
business
combination
with
an
interested
shareholder
(which, for this purpose, would include mergers
and asset sales of greater than
10% of Group’s
assets that would
otherwise be considered
transactions in
the ordinary course
of business) within
a period of three
years from
the
time the
person
became
an
interested
shareholder
would
require
prior
approval
from shareholders
holding
at
least
66
2/3%
of
Group’s
outstanding
common
shares
not
owned
by
the
interested
shareholder,
unless
the
transaction
qualified
for
one
of
the
exemptions
in
the
relevant
Delaware
statute
or
Group
opted
out
of
the
statute.
For purposes of the
Delaware statute,
an “interested
shareholder” is generally defined
as a person
who
together
with that
person’s
affiliates
and associates
owns, or
within the
previous
three
years
did own,
15% or
more of a corporation’s
outstanding voting shares.
Takeovers.
Under Bermuda law,
if an acquiror
makes an
offer for
shares of
a company
and, within
four months
of the
offer,
the holders
of not less
than 90%
of the
shares that
are the
subject of
the offer
tender their
shares,
the acquiror may
give the nontendering shareholders
notice requiring them to
transfer their shares
on the terms
of the offer.
Within one month
of receiving the notice,
dissenting shareholders
may apply to the
court objecting
to
the
transfer.
The
burden
is
on
the
dissenting
shareholders
to
show
that
the
court
should
exercise
its
discretion
to
enjoin the
transfer.
The court
will be
unlikely
to
do this
unless there
is evidence
of fraud
or bad
faith
or
collusion
between
the
acquiror
and
the
tendering
shareholders
aimed
at
unfairly
forcing
out
minority
shareholders.
Under
another
provision
of
Bermuda
law,
the
holders
of
95%
of
the
shares
of
a
company
(the
“acquiring
shareholders”)
may
give notice
to the
remaining
shareholders
requiring them
to sell
their shares
on
the terms described
in the notice.
Within one month
of receiving the
notice, dissenting
shareholders may
apply
to
the
court
for
an
appraisal
of
their
shares.
Within
one
month
of
the
court’s
appraisal,
the
acquiring
shareholders are
entitled either to
acquire all shares
involved at
the price fixed
by the court
or cancel the notice
given
to
the
remaining
shareholders.
If
shares
were
acquired
under
the
notice
at
a
price
below
the
court’s
appraisal price, the acquiring shareholders
must either pay the difference
in price or cancel the notice and return
the
shares
thus
acquired
to
the
shareholder,
who
must
then
refund
the
purchase
price.
There
are
no
comparable provisions under Delaware
law.
Inspection of Corporate
Records.
Members of the
general public
have the right
to inspect the public
documents
of Group
available
at
the office
of the
Registrar
of Companies
and Group’s
registered
office, both
in Bermuda.
These
documents
include
the
memorandum
of
association,
which
describes
Group’s
permitted
purposes
and
powers,
any
amendments
to
the
memorandum
of
association
and
documents
relating
to
any
increase
or
reduction in Group’s
authorized share capital. Shareholders
of Group have the additional right
to inspect Group’s
bye-laws, minutes
of general meetings
of shareholders
and audited financial
statements that
must be presented
to the annual
general meeting
of shareholders.
The register
of shareholders
of Group
also is open
to inspection
by shareholders and to members
of the public without charge.
Group is required to maintain
its share register at
its registered
office in Bermuda.
Group also maintains
a branch register
in the offices
of its transfer
agent in the
U.S., which
is open
for public
inspection as
required under
the Companies
Act.
Group is
required to
keep at
its
registered
office
a
register
of
its
directors
and
officers
that
is
open
for
inspection
by
members
of
the
public
without charge.
However,
Bermuda law
does not
provide
a general
right for
shareholders
to inspect
or obtain
copies of
any other
corporate
records.
Under Delaware
law,
any shareholder
may inspect
or obtain
copies of
a
corporation’s
shareholder
list
and
its
other
books
and
records
for
any
purpose
reasonably
related
to
that
person’s
interest as a shareholder.
Shareholder’s
Suits.
The
rights
of
shareholders
under
Bermuda
law
are
not
as
extensive
as
the
rights
of
shareholders
under
legislation
or
judicial
precedent
in
many
U.S.
jurisdictions.
Class
actions
and
derivative
actions
are
generally
not available
to
shareholders
under the
laws
of Bermuda.
However,
the Bermuda
courts
ordinarily would be expected to
follow English case law precedent,
which would permit a shareholder to bring
an
action
in
the
name
of
Group
to
remedy
a
wrong
done
to
Group
where
the
act
complained
of is
alleged
to
be
35
beyond
the
corporate
power
of
Group
or
illegal
or
would
result
in
the
violation
of
Group’s
memorandum
of
association or bye-laws.
Furthermore, the court would
give consideration
to acts that are
alleged to constitute
a
fraud against the minority shareholders
or where an act requires the approval
of a greater percentage of Group’s
shareholders
than actually
approved
it.
The winning
party in
an action
of this
type generally
would
be able
to
recover
a
portion
of attorneys’
fees
incurred
in
connection
with
the
action.
Under
Delaware
law,
class
actions
and derivative
actions generally
are available
to stockholders
for breach
of fiduciary
duty,
corporate
waste
and
actions not taken
in accordance with applicable
law.
In these types of actions,
the court has discretion
to permit
the winning party to recover its attorneys’
fees.
Limitation of
Liability of Directors
and Officers.
Group’s
bye-laws provide
that Group and
its shareholders
waive
all
claims
or
rights
of
action
that
they
might
have,
individually
or
in
the
right
of
the
Company,
against
any
director or
officer for any
act or failure
to act in
the performance of
that director’s
or officer’s duties.
However,
this waiver
does not
apply
to
claims or
rights
of action
that
arise out
of fraud
or dishonesty.
This waiver
may
have
the
effect
of barring
claims
arising
under U.S.
federal
securities
laws.
Under
Delaware
law,
a
corporation
may
include
in
its
certificate
of
incorporation
provisions
limiting
the
personal
liability
of
its
directors
to
the
corporation
or
its
stockholders
for
monetary
damages
for
many
types
of
breach
of
fiduciary
duty.
However,
these provisions may
not limit liability for any
breach of the duty of loyalty,
acts or omissions not in good
faith or
that involve
intentional misconduct
or a knowing
violation of law,
the authorization
of unlawful dividends,
stock
repurchases
or
stock
redemptions,
or
any
transaction
from
which
a
director
derived
an
improper
personal
benefit.
Moreover,
Delaware
provisions
would
not
be likely
to
bar
claims
arising
under
U.S.
federal
securities
laws.
Indemnification
of Directors
and Officers.
Group’s
bye-laws
provide
that Group
shall indemnify
its directors
or
officers to
the full extent
permitted by
law against
all actions,
costs, charges,
liabilities, loss, damage
or expense
incurred
or
suffered
by
them
by
reason
of
any
act
done,
concurred
in
or
omitted
in
the
conduct
of
Group’s
business
or
in
the
discharge
of
their
duties.
Under
Bermuda
law,
this
indemnification
may
not
extend
to
any
matter
involving
fraud
or dishonesty
of which
a director
or officer
may be
guilty in
relation to
the company,
as
determined
in
a
final
judgment
or
decree
not
subject
to
appeal.
Under
Delaware
law,
a
corporation
may
indemnify a director
or officer who
becomes a party
to an action,
suit or proceeding
because of his
position as a
director or officer if (1) the director or officer
acted in good faith and in a manner he reasonably
believed to be in
or
not
opposed
to
the
best
interests
of the
corporation
and (2)
if the
action
or
proceeding
involves
a criminal
offense, the director or officer had
no reasonable cause to believe his or her conduct
was unlawful.
Enforcement of Civil
Liabilities.
Group is organized
under the laws of Bermuda.
Some of its directors
and officers
may reside outside
the U.S.
A substantial portion
of our assets are
or may be
located in jurisdictions
outside the
U.S.
As a result, a
person may not
be able to affect
service of process within
the U.S. on directors
and officers of
Group and
those experts
who reside outside
the U.S.
A person
also may
not be able
to recover
against them
or
Group
on
judgments
of
U.S.
courts
or
to
obtain
original
judgments
against
them or
Group
in
Bermuda
courts,
including judgments predicated upon
civil liability provisions of the U.S. federal
securities laws.
Dividends.
Bermuda law
does not
allow a
company
to declare
or pay
a dividend,
or make
a distribution
out of
contributed surplus,
if there are
reasonable grounds
for believing that
the company,
after the payment
is made,
would
be unable
to
pay
its liabilities
as they
become due,
or that
the realizable
value
of the
company’s
assets
would
be
less,
as
a
result
of
the
payment,
than
the
aggregate
of
its
liabilities
and
its
issued
share
capital
and
share premium accounts.
The share capital account represents
the aggregate par value
of issued shares, and the
share premium
account represents
the aggregate
amount paid
for issued shares
over and above
their par value.
Under Delaware law,
subject to any restrictions
contained in a company’s
certificate of incorporation,
a company
may pay
dividends out
of the
surplus or,
if there
is no
surplus, out
of net
profits for
the fiscal
year in
which the
dividend
is
declared
and/or
the
preceding
fiscal
year.
Surplus
is
the
amount
by
which
the
net
assets
of
a
corporation
exceed
its
stated
capital.
Delaware
law
also
provides
that
dividends
may
not
be
paid
out
of
net
profits at any
time when stated
capital is less
than the capital represented
by the outstanding
stock of all
classes
having a preference upon
the distribution of assets.
36
RISKS RELATING TO
TAXATION
If international tax laws change, our net income
may be impacted.
The
Organization
for
Economic
Co-operation
and
Development
(“OECD”)
and
its
member
countries
which
includes the
U.S., have
been focusing
for an
extended
period on
issues related
to the
taxation
of multinational
corporations,
such as the
comprehensive plan
set forth
by the OECD to
create an
agreed set
of international
tax
rules
for
preventing
base
erosion
and
profit
shifting.
Recently
they
agreed
upon
a
broad
framework
for
overhauling
the
taxation
of
multinational
corporations
that
includes,
among
other
things,
profit
reallocation
rules
and
a
15%
global
minimum
corporate
income
tax
rate.
These
proposals,
if
implemented,
could
have
an
impact
our
net
income
and
effective
tax
rate.
Group
and/or
various
Group
companies
may
be
subject
to
additional income taxes, which
would reduce our net income.
If U.S. tax law changes, our net income
may be impacted.
The
2017
TCJA
addressed
what
some
members
of
Congress
had
expressed
concern
about
for
several
years,
which was
U.S. corporations
moving their
place of
incorporation
to low-tax
jurisdictions to
obtain a
competitive
advantage
over
domestic
corporations
that
are
subject
to
the
U.S.
corporate
income
tax
rate
of
21%.
Specifically,
it addressed
their concern
over a
perceived
competitive
advantage
that foreign
-controlled
insurers
and
reinsurers
may
have
had
over
U.S.
controlled
insurers
and
reinsurers
resulting
from
the
purchase
of
reinsurance
by
U.S.
insurers
from
affiliates
operating
in
some
foreign
jurisdictions,
including
Bermuda.
Such
affiliated reinsurance
transactions
may subject
the U.S.
ceding companies
to a
Base Erosion
and Anti-abuse
Tax
(“BEAT”)
of 10% from
2019 to
2025 and 12.5%
thereafter which
may exceed
its regular
income tax.
In addition,
new legislation as
well as proposed
and final regulations
may further limit
the ability of the
Company to
execute
alternative
capital balancing
transactions
with unrelated
parties. This
would further
impact our
net income
and
effective tax rate.
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.
As
the IRS issues additional guidance, we will evaluate
any impact to our consolidated
financial statements.
Group and/or Bermuda Re may be subject to
U.S. corporate income tax, which
would reduce our net income.
Bermuda Re.
The income
of Bermuda Re
is a significant
portion of our
worldwide income
from operations.
We
have
established
guidelines
for
the
conduct
of our
operations
that
are
designed
to
ensure
that
Bermuda
Re
is
not engaged in
the conduct of
a trade or
business in the
U.S.
Based on its
compliance with
those guidelines, we
believe that Bermuda Re
should not be required
to pay U.S. corporate
income tax, other
than withholding tax
on
U.S. source
dividend income.
However,
if the IRS
were to
successfully assert
that Bermuda Re
was engaged
in a
U.S. trade
or business,
Bermuda Re would
be required
to pay
U.S. corporate
income tax
on all of
its income and
possibly
the
U.S.
branch
profits
tax.
However,
if
the
IRS
were
to
successfully
assert
that
Bermuda
Re
was
engaged in
a U.S.
trade or
business, we believe
the U.S.-Bermuda
tax treaty
would preclude
the IRS
from taxing
Bermuda Re’s
income except
to the
extent
that its
income was
attributable
to a
U.S. permanent
establishment
maintained by that
subsidiary.
We do not believe that
Bermuda Re has a permanent
establishment in the U.S.
If
the IRS were
to successfully
assert that
Bermuda Re did
have income attributable
to a permanent
establishment
in the U.S., Bermuda Re would be subject to
U.S. tax only on that income.
This would reduce our net income.
Group.
We
conduct
our
operations
in
a
manner
designed
to
minimize
our
U.S.
tax
exposures.
Based
on
our
compliance with guidelines designed
to ensure that we
generate only
immaterial amounts, if
any,
of income that
is
subject
to
the
taxing
jurisdiction
of
the
U.S.,
we
believe
that
we
should
be
required
to
pay
only
immaterial
amounts,
if
any,
of
U.S.
corporate
income
tax,
other
than
withholding
tax
on
U.S.
source
dividend
income.
However,
if the IRS
successfully asserted
that we had
material amounts
of income that
was subject to
the taxing
37
jurisdiction of the
U.S., we would
be required to
pay U.S. corporate
income tax on
that income, and
possibly the
U.S. branch profits
tax.
The imposition of such tax
would reduce our net income.
If Bermuda Re became
subject
to U.S. income tax
on its income, or if we became
subject to U.S. income tax,
our income could also be subject
to
the
U.S.
branch
profits
tax.
In
that
event,
Group
and
Bermuda
Re
would
be
subject
to
taxation
at
a
higher
combined effective
rate
than if
they were
organized
as U.S.
corporations.
The combined
effect of
the 21%
U.S.
corporate income tax
rate and the
30% branch profits tax
rate is a net tax
rate of 44.7%.
The imposition of these
taxes would reduce our net
income.
Group and/or Bermuda Re may become
subject to Bermuda tax, which would reduce our net
income.
Group
and
Bermuda
Re
are
not
subject
to
income
or
profits
tax,
withholding
tax
or
capital
gains
taxes
in
Bermuda.
Both
companies
have
received
an
assurance
from
the
Bermuda
Minister
of
Finance
under
The
Exempted Undertakings
Tax
Protection Amendment
Act of 2011
to the effect
that if any
legislation is
enacted in
Bermuda
that
imposes
any
tax
computed
on
profits
or
income,
or
computed
on
any
capital
asset,
gain
or
appreciation,
or any
tax
in the
nature
of estate
duty or
inheritance tax,
then that
tax
will not
apply to
us or
to
any of
our operations
or our shares,
debentures or
other obligations
until March
31, 2035.
This assurance
does
not prevent the application
of any of those taxes
to persons ordinarily resident
in Bermuda and does not prevent
the
imposition
of
any
tax
payable
in
accordance
with
the
provisions
of
The
Land
Tax
Act
1967
of
Bermuda
or
otherwise payable in relation to
any land leased to Group or Bermuda Re.
Our net income will be reduced if U.S. excise
and withholding taxes are increased.
Reinsurance and
insurance premiums
paid to Bermuda
Re with respect
to risks
located in
the U.S. are
subject to
a U.S.
federal excise
tax of
one percent.
In addition,
Bermuda Re
is subject
to federal
excise tax
on reinsurance
and
insurance
premiums
with
respect
to
risks
located
in
the
U.S.
In
addition,
Bermuda
Re
is
subject
to
withholding
tax
on
dividend
income
from
U.S.
sources.
These
taxes
could
increase,
and
other
taxes
could
be
imposed in the future on Bermuda Re’s
business, which would reduce our net income.
If U.S. tax law changes, our U.S. shareholders net
income may be impacted.
U.S.
shareholders.
In
January
2022,
Treasury
and
the
IRS
released
proposed
regulations
regarding
the
determination
and
inclusion
of
related-person
insurance
income
(RPII).
The
regulations,
if
finalized
without
modifications,
could
cause
RPII
to
be
attributable
to
the
Company’s
U.S.
shareholders
prospectively
and
therefore
additional
income
tax.
The
imposition
of
such
tax
could
reduce
our
U.S.
shareholders
return
on
investment
in the
Company.
Our U.S.
shareholders
net income
and tax
liabilities might
be increased,
reducing
their net income.
ITEM 1B.
UNRESOLVED
STAFF COMMENTS
None.
ITEM 2.
PROPERTIES
Everest Re’s
corporate offices are
located in approximately
321,500 square feet of
leased office space in Warren,
New
Jersey.
Bermuda
Re’s
corporate
offices
are
located
in
approximately
12,300
total
square
feet
of
leased
office space
in Hamilton,
Bermuda.
The Company’s
other 24
locations occupy
a total
of approximately
271,200
square feet, all of which are leased.
ITEM 3.
LEGAL PROCEEDINGS
In
the
ordinary
course
of
business,
the
Company
is
involved
in
lawsuits,
arbitrations
and
other
formal
and
informal
dispute
resolution
procedures,
the
outcomes
of
which
will
determine
the
Company’s
rights
and
obligations
under insurance
and reinsurance
agreements.
In some
disputes,
the Company
seeks
to
enforce
its
38
rights under an agreement or to
collect funds owing to it.
In other matters, the Company
is resisting attempts by
others
to
collect
funds
or
enforce
alleged
rights.
These
disputes
arise
from
time
to
time
and
are
ultimately
resolved through
both informal
and formal
means, including
negotiated resolution,
arbitration and
litigation.
In
all such matters,
the Company believes
that its positions
are legally and
commercially reasonable.
The Company
considers
the statuses
of these
proceedings
when determining
its reserves
for unpaid
loss and
loss adjustment
expenses.
Aside from litigation and arbitrations
related to these insurance and reinsurance
agreements, the Company is
not a party to any other material litigation
or arbitration.
ITEM 4.
MINE SAFETY DISCLOSURES
Not Applicable.
PART II
ITEM 5.
MARKET
FOR
REGISTRANT’S
COMMON
EQUITY,
RELATED
SHAREHOLDER
MATTERS
AND
ISSUER
PURCHASES OF EQUITY SECURITIES
Market Information.
The common shares of Group
trade on the New York
Stock Exchange under
the symbol, “RE”.
The quarterly high
and low closing market prices of Group’s
common shares for the periods indicated
were:
2022
2021
High
Low
High
Low
First Quarter
$
304.72
$
267.35
$
255.97
$
211.08
Second Quarter
307.10
265.00
276.95
236.21
Third Quarter
285.67
245.79
273.68
236.68
Fourth Quarter
337.94
260.84
286.62
250.41
Number of Holders of Common Shares.
The number of record
holders of common
shares as of February
1, 2023 was 729.
That number does not
include
the beneficial
owners
of shares
held in
“street”
name or
held through
participants
in depositories,
such as
The
Depository Trust
Company.
Dividend History and Restrictions.
The Board
of Directors
of the
Company
has
an established
policy
of declaring
regular
quarterly
cash
dividends
and
has
paid
a
regular
quarterly
dividend
in
each
quarter
since
the
fourth
quarter
of
1995.
The
Company
declared
and
paid
its
quarterly
cash
dividend
of $1.55
per
share
for
the
four
quarters
of 2021.
The
Company
declared
and
paid
its
quarterly
cash
dividend
of
$1.55
per
share
for
the
first
quarter
of
2022
and
paid
its
quarterly cash
dividend of $1.65
per share
for the
remaining three
quarters of
2022.
On February
23, 2023, the
Company’s
Board of
Directors
declared a
dividend of
$1.65 per
share,
payable
on or
before
March 30,
2023 to
shareholders of record on
March 16, 2023.
The declaration and payment
of future dividends, if any,
by the Company will be at
the discretion of the Board
of
Directors
and
will
depend
upon
many
factors,
including
the
Company’s
earnings,
financial
condition,
business
needs
and
growth
objectives,
capital
and
surplus
requirements
of
its
operating
subsidiaries,
regulatory
restrictions,
rating
agency considerations
and other
factors.
As an
insurance
holding company,
the Company
is
partially dependent on dividends
and other permitted payments
from its subsidiaries
to pay cash dividends
to its
shareholders.
The
payment
of
dividends
to
Group
by
Holdings
and
to
Holdings
by
Everest
Re
is
subject
to
Delaware
regulatory
restrictions
and the
payment
of dividends
to Group
by Bermuda
Re is
subject to
Bermuda
insurance
regulatory
restrictions.
See “Regulatory
Matters
– Dividends”
and ITEM
8, “Financial
Statements
and
Supplementary Data” - Note 14 of Notes
to Consolidated Financial Statements.
39
Purchases of Equity Securities by the Issuer and
Affiliated Purchasers
Issuer Purchases of Equity Securities
(a)
(b)
(c)
(d)
Maximum Number (or
Total Number of
Approximate Dollar
Shares (or Units)
Value) of Shares (or
Purchased as Part
Units) that May Yet
Total Number of
of Publicly
Be Purchased Under
Shares (or Units)
Average Price Paid
Announced Plans or
the Plans or
Period
Purchased
per Share (or Unit)
Programs
Programs (1)
January 1 - 31, 2022
—
$
—
—
1,470,181
February 1 - 28, 2022
44,455
$
299.5577
—
1,470,181
March 1 - 31, 2022
11,175
$
269.9151
5,000
1,465,181
April 1 - 30, 2022
—
$
—
—
1,465,181
May 1 - 31, 2022
1,601
$
276.8129
—
1,465,181
June 1 - 30, 2022
801
$
270.2875
—
1,465,181
July 1 - 31, 2022
—
$
—
—
1,465,181
August 1 - 31, 2022
128,764
$
252.6871
128,764
1,336,417
September 1 - 30, 2022
110,531
$
252.6578
105,007
1,231,410
October 1 - 31, 2022
2,502
$
256.7054
2,502
1,228,908
November 1 - 30, 2022
3,828
$
321.1994
—
1,228,908
December 1 - 31, 2022
—
$
—
—
1,228,908
Total
303,657
$
—
241,273
1,228,908
(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.
As of December 31, 2022 the Company and/or
its subsidiary Holdings have repurchased
30.8 million of the Company’s shares.
Recent Sales of Unregistered
Securities.
None.
40
168.99
156.89
181.93
$0
$50
$100
$150
$200
$250
1/1/2017
1/1/2018
1/1/2019
1/1/2020
1/1/2021
1/1/2022
COMPARISON
OF 5 YEAR CUMULATIVE
TOTAL
RETURN*
Among Everest Re Group,
Ltd., the S&P 500 Index
and the S&P Property & Casualty Insurance
Index
Everest Re Group, Ltd.
S&P 500
S&P Property & Casualty Insurance
Performance Graph.
The
following
Performance
Graph
compares
cumulative
total
shareholder
returns
on
the
Common
Shares
(assuming reinvestment of
dividends) from December 31, 2017 through
December 31, 2022, with the cumulative
total
return
of
the
Standard
&
Poor’s
500
Index
and
the
Standard
&
Poor’s
Insurance
(Property
and
Casualty)
Index.
12/17
12/18
12/19
12/20
12/21
12/22
Everest Re Group, Ltd.
100.00
100.73
131.11
113.99
136.61
168.99
S&P 500
100.00
95.62
125.72
148.85
191.58
156.89
S&P Property & Casualty Insurance
100.00
95.31
119.97
128.31
153.05
181.93
*$100 invested on 12/31/22 in stock or index, including reinvestment of dividends.
Fiscal year ending December 31.
Copyright© 2021 Standard & Poor's, a division of S&P Global. All rights reserved.
ITEM 6.
SELECTED FINANCIAL DATA
Information for Item 6 is not
required pursuant to General
Instruction I(2) of Form 10-K.
41
ITEM 7.
MANAGEMENT’S
DISCUSSION
AND
ANALYSIS
OF
FINANCIAL
CONDITION
AND
RESULTS
OF
OPERATION
The following is
a discussion and analysis
of our results of
operations and financial
condition for the
years ended
December
31,
2022
and
2021.
This
discussion
should
be
read
in
conjunction
with
the
Consolidated
Financial
Statements
and
related
Notes,
under
ITEM
8
of
this
Form
10-K.
Pursuant
to
the
FAST
Act
Modernization
and
Simplification
of Regulation
S-K, comparisons
between
2020 and
2019 have
been omitted
from this
Form 10-K
but can be
found in "Management's
Discussion and Analysis
of Financial Condition
and Results of
Operations" in
Part II, Item 7 of our Form 10-K for the
year ended December 31, 2020.
All comparisons in this discussion are to the corresponding
prior year unless otherwise indicated.
Industry Conditions.
The worldwide
reinsurance
and insurance
businesses
are highly
competitive,
as well
as cyclical
by
product
and
market.
As
such,
financial
results
tend
to
fluctuate
with
periods
of
constrained
availability,
higher
rates
and
stronger
profits
followed
by
periods
of
abundant
capacity,
lower
rates
and
constrained
profitability.
Competition
in
the
types
of reinsurance
and
insurance
business
that
we
underwrite
is
based
on
many
factors,
including the perceived overall
financial strength of
the reinsurer or insurer,
ratings of the reinsurer
or insurer by
A.M. Best
and/or
Standard
& Poor’s,
underwriting expertise,
the jurisdictions
where the
reinsurer
or insurer
is
licensed
or
otherwise
authorized,
capacity
and
coverages
offered,
premiums
charged,
other
terms
and
conditions
of
the
reinsurance
and
insurance
business
offered,
services
offered,
speed
of
claims
payment
and
reputation
and
experience
in
lines
written.
Furthermore,
the
market
impact
from
these
competitive
factors
related
to
reinsurance
and
insurance
is
generally
not
consistent
across
lines
of
business,
domestic
and
international geographical
areas and distribution channels.
We
compete
in
the
U.S.,
Bermuda
and
international
reinsurance
and
insurance
markets
with
numerous
global
competitors.
Our
competitors
include
independent
reinsurance
and
insurance
companies,
subsidiaries
or
affiliates
of
established
worldwide
insurance
companies,
reinsurance
departments
of
certain
insurance
companies, domestic
and international
underwriting operations,
including underwriting
syndicates
at Lloyd’s
of
London
and
certain
government
sponsored
risk
transfer
vehicles.
Some
of
these
competitors
have
greater
financial resources
than we do
and have
established long
term and continuing
business relationships,
which can
be
a
significant
competitive
advantage.
In
addition,
the
lack
of
strong
barriers
to
entry
into
the
reinsurance
business
and
recently,
the
securitization
of
reinsurance
and
insurance
risks
through
capital
markets
provide
additional sources of potential reinsurance
and insurance capacity and competition.
Worldwide insurance
and reinsurance
market conditions
historically have
been competitive.
Generally,
there is
ample
insurance
and
reinsurance
capacity
relative
to
demand,
as
well
as
additional
capital
from
the
capital
markets
through
insurance
linked
financial
instruments.
These
financial
instruments
such
as
side
cars,
catastrophe
bonds and
collateralized
reinsurance
funds, provided
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
some
dislocation
in
the
market
which
we
expect
to
have a positive impact on rates
and terms and conditions, generally,
though local market specificities can
vary.
The
increased
frequency
of
catastrophe
losses
experienced
throughout
2022
appears
to
be
pressuring
the
increase
of
rates.
As
business
activity
continues
to
regain
strength
after
the
pandemic
and
current
macroeconomic uncertainty,
rates appear to be firming in
most lines of business, particularly in the casualty
lines
that had
seen significant
losses such
as excess
casualty and
directors’
and officers’
liability.
Other casualty
lines
are
experiencing
modest
rate
increase,
while
some
lines
such
as
workers’
compensation
were
experiencing
softer
market
conditions.
It
is
too
early
to
tell
what
the
impact
on
pricing
conditions
will
be,
but
it
is
likely
to
change depending on the line of business and geography.
42
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 war in the
Ukraine is ongoing
and an evolving
event.
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
by
numerous
countries,
including
the
United States.
The significant
political and
economic uncertainty
surrounding the
war and
associated sanctions
have
impacted
economic and
investment
markets
both within
Russia and
around
the world.
The Company
has
recorded $45 million of losses related
to the Ukraine/Russia war during 2022.
43
Financial Summary.
We monitor and evaluate
our overall performance based upon
financial results.
The following table displays a
summary of the consolidated
net income (loss), ratios and shareholders’
equity for the periods indicated.
Years Ended December 31,
Percentage Increase/(Decrease)
(Dollars in millions)
2022
2021
2020
2022/2021
2021/2020
Gross written premiums
$
13,952
$
13,050
$
10,482
6.9%
24.5%
Net written premiums
12,344
11,446
9,117
7.9%
25.5%
REVENUES:
Premiums earned
$
11,787
$
10,406
$
8,682
13.3%
19.9%
Net investment income
830
1,165
643
(28.8)%
81.3%
Net gains (losses) on investments
(455)
258
268
(276.4)%
-3.6%
Other income (expense)
(102)
37
7
NM
NM
Total revenues
12,060
11,866
9,598
1.6%
23.6%
CLAIMS AND EXPENSES:
Incurred losses and loss adjustment expenses
8,100
7,391
6,551
9.6%
12.8%
Commission, brokerage, taxes
and fees
2,528
2,209
1,873
14.5%
17.9%
Other underwriting expenses
682
583
511
17.0%
14.0%
Corporate expenses
61
68
41
(10.1)%
65.0%
Interest, fees and bond issue
cost amortization expense
101
70
36
43.9%
93.1%
Total claims and expenses
11,472
10,321
9,013
11.2%
14.5%
INCOME (LOSS) BEFORE TAXES
588
1,546
585
(62.0)%
164.1%
Income tax expense (benefit)
(9)
167
71
(105.3)%
133.9%
NET INCOME (LOSS)
$
597
$
1,379
$
514
(56.7)%
168.2%
RATIOS:
Point Change
Loss ratio
68.7%
71.0%
75.5%
(2.3)
(4.5)
Commission and brokerage ratio
21.4%
21.2%
21.6%
0.2
(0.4)
Other underwriting expense ratio
5.8%
5.6%
5.8%
0.2
(0.2)
Combined ratio
96.0%
97.8%
102.9%
(1.8)
(5.1)
At December 31,
Percentage Increase/(Decrease)
(Dollars in millions, except per share amounts)
2022
2021
2020
2022/2021
2021/2020
Balance sheet data:
Total investments
and cash
$
29,872
$
29,673
$
25,462
0.7%
16.5%
Total assets
39,966
38,185
32,712
4.7%
16.7%
Loss and loss adjustment expense reserves
22,065
19,009
16,322
16.1%
16.5%
Total debt
3,084
3,089
1,910
(0.2)%
61.7%
Total liabilities
31,525
28,046
22,985
12.4%
22.0%
Shareholders' equity
8,441
10,139
9,726
(16.8)%
4.2%
Book value per share
215.54
258.21
243.25
(16.5)%
6.2%
(NM, not meaningful)
(Some amounts may not reconcile due to rounding.)
44
Revenues.
Premiums.
Gross
written
premiums
increased
by
6.9%
to
$14.0
billion
in
2022,
compared
to
$13.1
billion
in
2021,
reflecting
a
$653.4
million,
or
16.4%,
increase
in
our
insurance
business
and
a
$248.8
million,
or
2.7%,
increase
in our
reinsurance
business.
The increase
in insurance
premiums
reflects
growth
across
most lines
of
business,
particularly
specialty
casualty
business
and
property/short
tail
business,
driven
by
positive
rate
and
exposure
increases,
new
business
and
strong
renewal
retention.
The
increase
in
reinsurance
premiums
was
primarily due to increases in casualty pro
rata business and financial lines of business, partially offset
by a decline
in
property
pro
rata
business.
Net
written
premiums
increased
by
7.9% to
$12.3 billion
in
2022, compared
to
$11.4
billion
in
2021.
The
higher
percentage
increase
in
net
written
premiums
compared
to
gross
written
premiums was primarily
due to a reduction
in business ceded to
the segregated
accounts of Mt. Logan
Re during
2022
compared
to
2021.
Premiums
earned
increased
by
13.3%
to
$11.8
billion
in
2022,
compared
to
$10.4
billion
in
2021.
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.
Accordingly,
the significant
increase in
gross written
premiums from
pro rata
business
during
the
latter
half
of
2021
contributed
to
the
current
year-to-date
percentage
increases
in
net
earned premiums.
Other Income
(Expense).
We
recorded
other expense
of $102
million and
other income
of $37
million in
2022
and 2021, respectively.
The changes were primarily
the result of fluctuations
in foreign currency exchange
rates.
We
recognized
foreign
currency
exchange
expense
of
$103
million
in
2022
and
foreign
currency
exchange
income of $28 million in 2021.
45
Claims and Expenses.
Incurred
Losses
and
Loss
Adjustment
Expenses.
The
following
table
presents
our
incurred
losses
and
loss
adjustment expenses (“LAE”) for
the periods indicated.
Years Ended December 31,
Current
Ratio %/
Prior
Ratio %/
Total
Ratio %/
(Dollars in millions)
Year
Pt Change
Years
Pt Change
Incurred
Pt Change
2022
Attritional
$
7,047
59.8%
$
(2)
—%
$
7,045
59.8%
Catastrophes
1,055
9.0%
—
—%
1,055
9.0%
Total segment
$
8,102
68.8%
$
(2)
—%
$
8,100
68.7%
2021
Attritional
$
6,265
60.2%
$
(9)
(0.1)%
$
6,256
60.1%
Catastrophes
1,135
10.9%
—
—%
1,135
10.9%
Total segment
$
7,400
71.1%
$
(9)
(0.1)%
$
7,391
71.0%
2020
Attritional
$
5,724
66.0%
$
401
4.7%
$
6,126
70.7%
Catastrophes
425
4.9%
—
—%
425
4.9%
Total segment
$
6,150
70.9%
$
401
4.7%
$
6,551
75.5%
Variance 2022/2021
Attritional
$
782
(0.4)
pts
$
7
0.1
pts
$
789
(0.3)
pts
Catastrophes
(80)
(1.9)
pts
—
—
pts
(80)
(1.9)
pts
Total segment
$
702
(2.3)
pts
$
7
0.1
pts
$
709
(2.2)
pts
Variance 2021/2020
Attritional
$
541
(5.8)
pts
$
(411)
(4.8)
pts
$
130
(10.6)
pts
Catastrophes
710
6.0
pts
—
—
pts
710
6.0
pts
Total segment
$
1,251
0.2
pts
$
(411)
(4.8)
pts
$
840
(4.6)
pts
(Some amounts may not reconcile due to rounding.)
Incurred losses and LAE
increased by 9.6% to
$8.1 billion in 2022, compared
to $7.4 billion in 2021,
primarily due
to
an
increase
of $782
million
in
current
year
attritional
losses,
partially
offset
by
a
decrease
of $80
million
in
current year
catastrophe
losses.
The increase
in current
year attritional
losses was
mainly due
to the
impact of
the
increase
in
premiums
earned
and
$45 million
of attritional
losses
incurred
due
to
the
Ukraine/Russia
war.
The current
year catastrophe
losses of
$1.1 billion
in 2022
related primarily
to Hurricane
Ian ($699
million), the
2022
Australia
floods
($88
million),
the
2022
Western
Europe
hailstorms
($69
million),
the
2022
South
Africa
flood ($50
million), the
2022 Western
Europe Convective
Storm ($35
million), Hurricane
Fiona ($27
million), the
2022
European
storms
($21
million)
and
the
2022
Canada
derecho
($21
million),
with
the
remaining
losses
resulting from various
storm events.
The $1.1 billion of current
year catastrophe
losses in 2021 related
primarily
to Hurricane
Ida ($460
million), the
Texas
winter storms
($294 million),
the European
floods ($242
million), the
Canada
drought
loss
($80
million)
and
the
Quad
State
tornadoes
($45
million)
with
the
rest
of
the
losses
emanating from the South Africa riots and
the 2021 Australia floods.
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
catastrophes
contributed
9.0
percentage
points
to
the
combined
ratio
in
2022,
compared
with
10.9
percentage
points
in
2021.
The
Company has
up to
$350.0 million
of catastrophe
bond protection
(“CAT
Bond”) that
attaches
at a
$48.1 billion
PCS
Industry
loss
threshold.
This
recovery
would
be
recognized
on
a
pro-rata
basis
up
to
a
$63.8
billion
PCS
Industry loss level.
PCS’s current
industry estimate of $47.4 million
is below the attachment point.
The potential
recovery
under
the
CAT
Bond
is
not
included
in
the
Company’s
estimate
for
Hurricane
Ian
but
would
provide
significant downside protection should
the industry loss estimate increase.
46
Commission,
Brokerage,
Taxes
and
Fees.
Commission,
brokerage,
taxes
and
fees
increased
by
14.5%
to
$2.5
billion for
the year
ended December
31, 2022
compared
to $2.2
billion for
the year
ended December
31, 2021.
The
increase
was
primarily
due
to
the
impact
of
the
increases
in
premiums
earned
and
changes
in
the
mix
of
business.
Other
Underwriting
Expenses.
Other
underwriting
expenses
were
$682
million
and
$583
million
in
2022
and
2021, 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 $61
million and $68 million
for the years
ended December 31, 2022
and 2021, respectively.
The
decrease from 2021 to 2022 was mainly
due to a decrease in variable incentive compensation.
Interest,
Fees and
Bond Issue
Cost
Amortization
Expense.
Interest,
fees
and other
bond
amortization
expense
was
$101
million
and
$70
million
in
2022
and
2021,
respectively.
The
increases
were
primarily
due
to
the
issuance of $1.0
billion of senior
notes in October
2021.
Interest expense
was also
impacted by the
movements
in the
floating
interest
rate
related
to
the long
term
subordinated
notes,
which is
reset
quarterly
per the
note
agreement.
The floating rate was
6.99% as of December 31, 2022 compared to 2.54% as of December 31,
2021.
Income Tax
Expense (Benefit).
We had
income tax
benefit of $9
million and income
tax expense
of $167 million
in
2022
and
2021,
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.
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.
As
the IRS issues additional guidance, we will evaluate
any impact to our consolidated
financial statements.
Net Income (Loss).
Our
net
income
was
$597
million
and
$1.4
billion
in
2022
and
2021,
respectively.
The
change
was
primarily
driven by the consolidated investment
results explained below.
Ratios.
Our
combined
ratio
decreased
by
1.8
points
to
96.0%
in
2022,
compared
to
97.8%
in
2021.
The
loss
ratio
component decreased by
2.3 points in 2022 over
the same period last year
mainly due to a decline $80 million
in
catastrophe
losses.
The
commission
and
brokerage
ratio
components
increased
slightly
to
21.4%
in
2022
compared
to
21.2%
in
2021.
The
increase
was
mainly
due
to
changes
in
the
mix
of
business.
The
other
underwriting expense ratios
increased slightly
to 5.8% in
2022 compared
to 5.6% in
2021.
These increases
were
mainly due to higher insurance operations
costs.
Shareholders’ Equity.
Shareholders’
equity
decreased
by
$1.7
billion
to
$8.4
billion
at
December
31,
2022
from
$10.1
billion
at
December
31,
2021,
principally
as
a
result
of $1.9
billion
of unrealized
depreciation
on
available
for
sale
fixed
maturity
portfolio
net
of
tax,
$255
million
of
shareholder
dividends,
$77
million
of
net
foreign
currency
translation adjustments,
and the repurchase
of 241,273 common
shares for
$61 million,
partially offset
by $597
million of net income.
47
Consolidated Investment
Results
Net Investment Income.
Net
investment
income
decreased
by
28.8% to
$830 million
in 2022
compared
with
net
investment
income
of
$1.2
billion
in
2021.
The
decrease
was
primarily
the
result
of
a
decline
of
$490
million
in
limited
partnership
income,
partially
offset
by
an
additional
$181
million
of
income
from
fixed
maturity
investments.
The
limited
partnership
income
primarily
reflects
decreases
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.
Years Ended December 31,
(Dollars in millions)
2022
2021
2020
Fixed maturities
$
742
$
561
$
542
Equity securities
16
17
19
Short-term investments and cash
28
1
5
Other invested assets
Limited partnerships
75
565
113
Other
29
63
2
Gross investment income before adjustments
890
1,208
681
Funds held interest income (expense)
2
12
13
Future policy benefit reserve income (expense)
—
(1)
(1)
Gross investment income
892
1,219
692
Investment expenses
(62)
(54)
(50)
Net investment income
$
830
$
1,165
$
643
(Some amounts may not reconcile due to rounding.)
The following tables show a comparison
of various investment yields for
the periods indicated.
2022
2021
2020
Annualized pre-tax yield on average cash and invested assets
2.7
%
4.4
%
2.9
%
Annualized after-tax yield on average cash and invested assets
2.3
%
3.8
%
2.5
%
Annualized return on invested assets
1.2
%
5.3
%
4.0
%
2022
2021
2020
Fixed income portfolio total return
(5.9)
%
0.5
%
6.3
%
Barclay's Capital - U.S. aggregate index
(13.0)
%
(1.5)
%
7.5
%
Common equity portfolio total return
(18.5)
%
19.0
%
26.7
%
S&P 500 index
(18.1)
%
28.7
%
18.4
%
Other invested asset portfolio total return
4.5
%
36.5
%
8.3
%
The pre
-tax
equivalent
total
return
for
the
bond
portfolio
was
approximately
(5.9)%
and
0.5%,
respectively,
in
2022
and
2021.
The
pre-tax
equivalent
return
adjusts
the
yield
on
tax-exempt
bonds
to
the
fully
taxable
equivalent.
Our
fixed
income
and
equity
portfolios
have
different
compositions
than
the
benchmark
indexes.
Our
fixed
income portfolios have
a shorter duration
because we align our investment
portfolio with our liabilities.
We also
hold
foreign
securities
to
match
our
foreign
liabilities
while
the
index
is
comprised
of
only
U.S.
securities.
Our
equity portfolios
reflect an
emphasis on
dividend yield
and growth
equities, while
the index
is comprised
of the
largest 500 equities by market
capitalization.
48
Net Realized Capital Gains (Losses).
The following table presents the composition
of our net realized capital gains
(losses) for the periods indicated.
Years Ended December 31,
2022/2021
2021/2020
(Dollars in millions)
2022
2021
2020
Variance
Variance
Realized gains (losses) from dispositions:
Fixed maturity securities - available for sale:
Gains
$
40
$
72
$
80
$
(32)
$
(8)
Losses
(127)
(55)
(85)
(72)
27
Total
(87)
17
(5)
(104)
19
Equity securities:
Gains
165
42
37
123
5
Losses
(53)
(15)
(46)
(38)
32
Total
112
28
(9)
85
37
Other Invested Assets
Gains
18
10
8
8
2
Losses
(5)
(4)
(6)
(1)
2
Total
13
6
2
7
4
Short Term Investments
Gains
—
—
1
—
(1)
Losses
—
—
—
—
—
Total
—
—
1
—
(1)
Total net realized gains (losses) from dispositions:
Gains
223
124
126
99
(2)
Losses
(185)
(74)
(137)
(111)
63
Total
38
50
(11)
(12)
61
Allowance for credit losses:
(33)
(28)
(2)
(5)
(26)
Gains (losses) from fair value adjustments:
Fixed maturities
—
—
2
—
(2)
Equity securities
(460)
236
279
(696)
(43)
Total
(460)
236
280
(696)
(45)
Total net gains (losses) on investments
$
(455)
$
258
$
268
$
(713)
$
(10)
(Some amounts may not reconcile due to rounding.)
Net
gains
(losses)
on
investments
in
2022
primarily
relate
to
net
losses
from
fair
value
adjustments
on
equity
securities in
the amount
of $460
million as
a result
of equity
market
declines in
2022.
In addition,
we realized
$38 million
of gains
due to
the disposition
of investments
and recorded
an increase
to the
allowance for
credit
losses of $33 million primarily related to our direct
holdings of Russian corporate
fixed maturity securities.
Segment Results.
The
Company
manages
its
reinsurance
and
insurance
operations
as
autonomous
units
and
key
strategic
decisions are based on the aggregate operating
results and projections for
these segments of business.
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
and Switzerland.
The Insurance
operation
writes property
and casualty
insurance
directly
49
and
through
brokers,
surplus
lines
brokers
and
general
agents
within
the
U.S.,
Bermuda,
Canada,
Europe,
Singapore
and
South
America
through
its
offices
in
the
U.S.,
Canada,
Chile,
Singapore,
the
United
Kingdom,
Ireland and branches located
in the Netherlands, France, Germany and Spain.
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
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.
Our
loss
and LAE
reserves
are
management’s
best
estimate
of our
ultimate
liability
for
unpaid
claims.
We
re-
evaluate
our
estimates
on
an
ongoing
basis,
including
all
prior
period
reserves,
taking
into
consideration
all
available
information,
and
in
particular,
recently
reported
loss
claim
experience
and
trends
related
to
prior
periods.
Such re-evaluations are recorded
in incurred losses in the period in which re-evaluation
is made.
The following discusses the underwriting results for
each of our segments for the periods indicated.
Reinsurance.
The
following
table
presents
the
underwriting
results
and
ratios
for
the
Reinsurance
segment
for
the
periods
indicated.
Years Ended December 31,
2022/2021
2021/2020
(Dollars in millions)
2022
2021
2020
Variance
% Change
Variance
% Change
Gross written premiums
$
9,316
$
9,067
$
7,282
$
249
2.7%
$
1,786
24.5%
Net written premiums
8,983
8,536
6,768
447
5.2%
1,768
26.1%
Premiums earned
$
8,663
$
7,758
$
6,466
$
905
11.7%
$
1,291
20.0%
Incurred losses and LAE
5,997
5,556
4,933
441
7.9%
623
12.6%
Commission and brokerage
2,134
1,855
1,552
279
15.1%
302
19.5%
Other underwriting expenses
218
199
176
19
9.6%
23
13.3%
Underwriting gain (loss)
$
313
$
147
$
(195)
$
166
112.6%
$
343
175.4%
Point Chg
Point Chg
Loss ratio
69.2%
71.6%
76.3%
(2.4)
(4.7)
Commission and brokerage ratio
24.6%
23.9%
24.0%
0.7
(0.1)
Other underwriting expense ratio
2.5%
2.6%
2.7%
(0.1)
(0.1)
Combined ratio
96.4%
98.1%
103.0%
(1.8)
(4.9)
(NM, not meaningful)
(Some amounts may not reconcile due to rounding.)
Premiums.
Gross written
premiums increased by
2.7% to $9.3 billion
in 2022 from $9.1
billion in 2021, primarily
due
to
increases
in
casualty
pro
rata
business
and
financial
lines
of
business,
partially
offset
by
a
decline
in
property
pro rata
business.
Net written
premiums
increased
by 5.2%
to
$9.0 billion
in 2022
compared
to
$8.5
billion in
2021.
The higher
percentage
increase
in net
written
premiums
compared
to gross
written
premiums
50
mainly related to
a reduction in business ceded
to the segregated
accounts of Mt. Logan
Re in 2022 compared
to
2021.
Premiums
earned
increased
by
11.7%
to
$8.7
billion
in
2022,
compared
to
$7.8
billion
in
2021.
The
change
in
premiums
earned
relative
to
net
written
premiums
is
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.
Accordingly,
the significant
increases in
gross written
premiums from
pro rata
business during
the latter half of 2021 contributed
to the current year-to-date percentage
increase in net earned premiums.
Incurred Losses
and LAE.
The following table
presents the
incurred losses
and LAE for
the Reinsurance
segment
for the periods indicated.
Years Ended December 31,
Current
Ratio %/
Prior
Ratio %/
Total
Ratio %/
(Dollars in millions)
Year
Pt Change
Years
Pt Change
Incurred
Pt Change
2022
Attritional
$
5,070
58.5%
$
(2)
—%
$
5,067
58.5%
Catastrophes
930
10.7%
—
—%
930
10.7%
Total segment
$
6,000
69.2%
$
(2)
—%
$
5,997
69.2%
2021
Attritional
$
4,582
59.1%
$
(8)
(0.1)%
$
4,574
59.0%
Catastrophes
983
12.7%
—
—%
983
12.7%
Total segment
$
5,564
71.8%
$
(8)
(0.1)%
$
5,556
71.6%
2020
Attritional
$
4,180
64.6%
$
397
6.1%
$
4,576
70.7%
Catastrophes
357
5.5%
—
—%
357
5.5%
Total segment
$
4,537
70.1%
$
397
6.1%
$
4,933
76.3%
Variance 2022/2021
Attritional
$
488
(0.6)
pts
$
6
0.1
pts
$
494
(0.5)
pts
Catastrophes
(53)
(2.0)
pts
—
—
pts
(53)
(2.0)
pts
Total segment
$
435
(2.6)
pts
$
6
0.1
pts
$
441
(2.4)
pts
Variance 2021/2020
Attritional
$
402
(5.5)
pts
$
(405)
(6.2)
pts
$
(3)
(11.7)
pts
Catastrophes
626
7.2
pts
—
—
pts
626
7.2
pts
Total segment
$
1,028
1.7
pts
$
(405)
(6.2)
pts
$
623
(4.5)
pts
(Some amounts may not reconcile due to rounding.)
Incurred
losses
increased
by
7.9%
to
$6.0
billion
in
2022, compared
to
$5.6
billion
in
2021.
The
increase
was
primarily due to an increase
of $488 million in current
year attritional losses,
partially offset by a decrease
of $53
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
and
$45 million
of attritional
losses
due to
the
Ukraine/Russia
war.
The
current
year
catastrophe
losses
of
$930
million
in
2022
related
primarily
to
Hurricane
Ian
($599
million),
the
2022
Australia
floods
($88
million),
the
Western
Europe
hailstorms
($69
million),
the
2022
South
Africa
flood
($50
million),
the
2022
Western
Europe
Convective
storm
($29
million),
Hurricane
Fiona
($22
million), the 2022 European
storms ($21 million)
and the 2022 Canada
derecho ($21 million),
with the remaining
losses resulting
from various
storm events.
The $983
million of
current year
catastrophe
losses in
2021 related
primarily
to
Hurricane
Ida
($380
million),
the
Texas
winter
storms
($237
million),
the
European
floods
($242
million), the
Canada drought
loss ($80
million) and
the Quad
state
tornadoes ($30
million), with
the rest
of the
losses emanating from the 2021 South Africa riots and
the 2021 Australia floods.
Segment Expenses.
Commission and
brokerage
expense increased
by 15.1% to
$2.1 billion in
2022 compared to
$1.9 billion in 2021.
The increase was mainly
due to the impact of the
increase in premiums earned
and changes
51
in
the
mix
of
business.
Segment
other
underwriting
expenses
increased
to
$218
million
in
2022
from
$199
million
in
2021.
The
increase
was
mainly
due
to
the
increase
in
written
premium
attributable
to
the
planned
expansion of the business.
Insurance.
The
following
table
presents
the
underwriting
results
and
ratios
for
the
Insurance
segment
for
the
periods
indicated.
Years Ended December 31,
2022/2021
2021/2020
(Dollars in millions)
2022
2021
2020
Variance
% Change
Variance
% Change
Gross written premiums
$
4,636
$
3,983
$
3,201
$
653
16.4%
$
782
24.4%
Net written premiums
3,361
2,910
2,349
451
15.5%
561
23.9%
Premiums earned
$
3,124
$
2,649
$
2,215
$
475
17.9%
$
434
19.6%
Incurred losses and LAE
2,103
1,835
1,617
268
14.6%
217
13.4%
Commission and brokerage
394
354
321
40
11.3%
33
10.4%
Other underwriting expenses
463
384
336
79
20.8%
48
14.3%
Underwriting gain (loss)
$
164
$
76
$
(58)
$
88
114.4%
$
135
230.7%
Point Chg
Point Chg
Loss ratio
67.3%
69.3%
73.0%
(2.0)
(3.7)
Commission and brokerage ratio
12.6%
13.4%
14.5%
(0.8)
(1.1)
Other underwriting expense ratio
14.8%
14.5%
15.1%
0.3
(0.6)
Combined ratio
94.8%
97.1%
102.6%
(2.5)
(5.5)
(Some amounts may not reconcile due to rounding.)
Premiums.
Gross written
premiums increased
by 16.4% to
$4.6 billion in
2022 compared
to $4.0 billion
in 2021.
The increase
in insurance
premiums reflects
growth across
most lines
of business,
particularly specialty
casualty
and
property/short
tail
business,
driven
by
positive
rate
and
exposure
increases,
new
business
and
strong
renewal retention.
Net written
premiums increased
by 15.5% to
$3.4 billion in
2022 compared
to $2.9 billion
in
2021, which
is consistent
with the
percentage
change
in gross
written
premiums.
Premiums
earned increased
17.9% to
$3.1 million
in 2022
compared to
$2.6 billion
in 2021.
The change
in premiums
earned relative
to net
written premiums is the result
of timing; premiums are earned ratably
over the coverage
period whereas written
premiums
are
recorded
at
the
initiation
of the
coverage
period.
Accordingly,
the significant
increases
in gross
written premiums
during the
latter
half of
2021 contributed
to the
current year
-to-date
percentage
increase in
net earned premiums.
52
Incurred Losses and
LAE.
The following table presents
the incurred losses
and LAE for the Insurance
segment for
the periods indicated.
Years Ended December 31,
Current
Ratio %/
Prior
Ratio %/
Total
Ratio %/
(Dollars in millions)
Year
Pt Change
Years
Pt Change
Incurred
Pt Change
2022
Attritional
$
1,977
63.3%
$
1
—%
$
1,978
63.3%
Catastrophes
125
4.0%
—
—%
125
4.0%
Total segment
$
2,102
67.3%
$
1
—%
$
2,103
67.3%
2021
Attritional
$
1,684
63.6%
$
(1)
—%
$
1,682
63.6%
Catastrophes
153
5.8%
—
—%
153
5.8%
Total segment
$
1,836
69.4%
$
(1)
—%
$
1,835
69.3%
2020
Attritional
$
1,545
69.7%
$
5
0.2%
$
1,549
69.9%
Catastrophes
68
3.1%
—
—%
68
3.1%
Total segment
$
1,613
72.8%
$
5
0.2%
$
1,617
73.0%
Variance 2022/2021
Attritional
$
293
(0.3)
pts
$
1
—
pts
$
294
(0.3)
pts
Catastrophes
(28)
(1.8)
pts
—
—
pts
(28)
(1.8)
pts
Total segment
$
265
(2.1)
pts
$
1
—
pts
$
266
(2.0)
pts
Variance 2021/2020
Attritional
$
139
(6.1)
pts
$
(6)
(0.2)
pts
$
133
(6.3)
pts
Catastrophes
85
2.7
pts
—
—
pts
85
2.7
pts
Total segment
$
223
(3.4)
pts
$
(6)
(0.2)
pts
$
217
(3.7)
pts
(Some amounts may not reconcile due to rounding.)
Incurred losses and LAE increased by
14.6% to $2.1 billion in 2022 compared to $1.8 billion
in 2021.
The increase
was mainly
due to
an increase
of $293
million in
current year
attritional
losses,
partially offset
by a
decrease in
current year
catastrophe
losses of
$28 million.
The increase
in current
year attritional
losses was
primarily due
to the impact
of the increase
in premiums earned.
The current year
catastrophe
losses of $125
million primarily
related to
Hurricane Ian
($99 million),
with the
remaining losses
resulting from
various storm
events.
The $153
million of current
year catastrophe
losses in 2021 related
to Hurricane Ida
($80 million), the Texas
winter storms
($58 million) and the Quad State tornadoes
($15 million).
Segment
Expenses.
Commission and
brokerage
increased by
11.3% to
$394 million
in 2022
compared
to
$354
million
in
2021.
Segment
other
underwriting
expenses
increased
to
$463
million
in
2022
compared
to
$384
million
in
2021.
These
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.
Critical Accounting Estimates
The following
is a
summary of
the critical
accounting estimates
related to
accounting estimates
that (1)
require
management
to
make
assumptions
about
highly
uncertain
matters
and
(2)
could
materially
impact
the
consolidated financial statements
if management made different
assumptions.
Loss and LAE
Reserves.
Our most critical
accounting estimate
is the determination
of our loss
and LAE reserves.
We
maintain
reserves
equal to
our estimated
ultimate
liability for
losses
and LAE
for
reported
and unreported
53
claims for our insurance and reinsurance
businesses.
Because reserves are based on estimates
of ultimate losses
and
LAE
by
underwriting
or
accident
year,
we
use
a
variety
of
statistical
and
actuarial
techniques
to
monitor
reserve
adequacy
over
time, evaluate
new information
as it
becomes known
and adjust
reserves
whenever
an
adjustment
appears
warranted.
We
consider
many
factors
when
setting
reserves
including:
(1)
our
exposure
base
and
projected
ultimate
premiums
earned;
(2)
our
expected
loss
ratios
by
product
and
class
of
business,
which are developed collaboratively
by underwriters and actuaries;
(3) actuarial methodologies and
assumptions
which analyze
our loss
reporting and
payment experience,
reports from
ceding companies
and historical
trends,
such
as
reserving
patterns,
loss
payments
and
product
mix;
(4)
current
legal
interpretations
of
coverage
and
liability;
and
(5)
economic
conditions.
Our
insurance
and
reinsurance
loss
and
LAE
reserves
represent
management’s best
estimate of our ultimate
liability. Actual
losses and LAE ultimately
paid may deviate,
perhaps
substantially,
from
such
reserves.
Our
net
income
(loss)
will
be
impacted
in
a
period
in
which
the
change
in
estimated ultimate losses
and LAE is recorded.
See also ITEM 8, “Financial Statements
and Supplementary Data”
- Note 1 of Notes to the Consolidated Financial
Statements.
It is more
difficult to
accurately
estimate loss
reserves for
reinsurance
liabilities than
for insurance
liabilities.
At
December 31,
2022, we
had reinsurance
reserves of
$16.1 billion,
of which
$278 million
were loss
reserves for
A&E
liabilities,
and
insurance
loss
reserves
of
$5.9
billion.
A
detailed
discussion
of
additional
considerations
related to A&E exposures
follows later in this section.
The
detailed
data
required
to
evaluate
ultimate
losses
for
our
insurance
business
is
accumulated
from
our
underwriting and claim systems.
Reserving for reinsurance
requires evaluation of loss
information received
from
ceding companies.
Ceding companies
report losses
to us
in many
forms dependent
on the type
of contract
and
the
agreed
or
contractual
reporting
requirements.
Generally,
proportional/quota
share
contracts
require
the
submission
of
a
monthly/quarterly
account,
which
includes
premium
and
loss
activity
for
the
period
with
corresponding reserves
as established by
the ceding company.
This information
is recorded into
our records.
For
certain
proportional
contracts,
we
may
require
a
detailed
loss
report
for
claims
that
exceed
a
certain
dollar
threshold
or
relate
to
a
particular
type
of
loss.
Excess
of
loss
and
facultative
contracts
generally
require
individual loss reporting
with precautionary notices
provided when a
loss reaches a
significant percentage
of the
attachment point
of the contract
or when certain causes
of loss or types
of injury occur.
Our experienced claims
staff
handles
individual
loss reports
and supporting
claim information.
Based on
our evaluation
of a
claim, we
may establish
additional case
reserves (ACRs)
in addition
to the
case reserves
reported by
the ceding
company.
To
ensure
ceding
companies
are
submitting
required
and accurate
data,
the
Underwriting,
Claim,
Reinsurance
Accounting
and Internal
Audit departments
of the
Company
perform various
reviews
of our
ceding companies,
particularly larger ceding companies, including
on-site audits of domestic ceding companies.
We sort
both our
reinsurance
and insurance
reserves into
exposure
groupings
for actuarial
analysis.
We assign
our
business
to
exposure
groupings
so
that
the
underlying
exposures
have
reasonably
homogeneous
loss
development
characteristics
and
are
large
enough
to
facilitate
credible
estimation
of
ultimate
losses.
We
periodically
review
our
exposure
groupings
and
we
may
change
our
groupings
over
time
as
our
business
changes.
We
currently
use
over
200
exposure
groupings
to
develop
our
reserve
estimates.
One
of
the
key
selection characteristics
for
the
exposure
groupings
is the
historical
duration
of the
claims
settlement
process.
Business in
which claims
are reported
and settled
relatively quickly
are commonly
referred
to as
short tail
lines,
principally property
lines.
Casualty claims
tend to
take
longer to
be reported
and settled
and casualty
lines are
generally referred
to as
long tail
lines.
Our estimates
of ultimate
losses for
shorter tail
lines, with
the exception
of loss estimates for large catastrophic
events,
generally exhibit less volatility
than those for the longer tail lines.
We
use
similar
actuarial
methodologies,
such
as
expected
loss
ratio,
chain
ladder
reserving
methods
and
Bornhuetter-Ferguson,
supplemented
by judgment
where appropriate,
to estimate
our ultimate
losses and
LAE
for each
exposure group.
Although we
use similar
actuarial methodologies
for both
short tail
and long
tail lines,
the faster reporting
of experience for
the short tail lines
allows us to
have greater confidence
in our estimates
of
ultimate
losses
for
short
tail
lines
at
an
earlier
stage
than
for
long
tail
lines.
As
a
result,
we
utilize,
as
well,
exposure-based
methods
to
estimate
our ultimate
losses
for
longer
tail
lines,
especially
for
immature
accident
years.
For
both
short
and
long
tail
lines,
we
supplement
these
general
approaches
with
analytically
based
54
judgments.
We
cannot
estimate
losses
from
widespread
catastrophic
events,
such
as
hurricanes
and
earthquakes,
using
traditional
actuarial
methods.
We
estimate
losses
for
these
types
of
events
based
on
information
derived
from
catastrophe
models,
quantitative
and
qualitative
exposure
analyses,
reports
and
communications
from
ceding
companies
and
development
patterns
for
historically
similar
events.
Due
to
the
inherent
uncertainty
in
estimating
such
losses,
these
estimates
are
subject
to
variability,
which
increases
with
the severity and complexity of the underlying event.
Our key
actuarial assumptions
contain
no explicit
provisions
for reserve
uncertainty
nor do
we supplement
the
actuarially determined reserves for uncertainty.
Our carried
reserves at
each reporting
date are
management’s
best estimate
of ultimate
unpaid losses
and LAE
at
that
date.
We
complete
detailed
reserve
studies
for
each exposure
group
annually
for our
reinsurance
and
insurance
operations.
The
completed
annual
reinsurance
reserve
studies
are
“rolled
forward”
for
each
accounting period
until the
subsequent reserve
study is
completed.
Analyzing the
roll-forward
process involves
comparing
actual
reported
losses
to
expected
losses
based
on
the
most
recent
reserve
study.
We
analyze
significant
variances
between
actual
and
expected
losses
and
also
consider
recent
market,
underwriting
and
management
criteria
to
determine
management’s
best
estimate
of
ultimate
unpaid
losses
and
LAE.
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
such
process
is
to
determine a single best
estimate viewed by
management to be
the best estimate
of its ultimate loss
liability.
As
a result of
these additional factors,
in some instances
the selected reserve
level may be
higher or lower than
the
actuarial indicated estimate.
Given
the
inherent
variability
in
our
loss
reserves,
we
have
developed
an
estimated
range
of
possible
gross
reserve
levels.
A
table
of
ranges
by
segment,
accompanied
by
commentary
on
potential
and
historical
variability,
is
included
in
“Financial
Condition
- Loss
and
LAE Reserves”.
The ranges
are
statistically
developed
using the exposure groups used in
the reserve estimation process
and aggregated to the segment
level.
For each
exposure
group,
our actuaries
calculate
a range
for each
accident year
based principally
on two
variables.
The
first
is
the
historical
changes
in
losses
and
LAE incurred
but not
reported
(“IBNR”)
for
each
accident
year
over
time; the second is
volatility of each
accident year’s
held reserves related
to estimated
ultimate losses, also
over
time.
Both are measured at various
ages from the end of the accident year through
the final payout of the year’s
losses.
Ranges are
developed for
the exposure
groups using
statistical
methods to
adjust for
diversification;
the
ranges
for
the
exposure
groups
are
aggregated
to
the
segment
level,
likewise,
with
an
adjustment
for
diversification.
Our
estimates
of
our
reserve
variability
may
not
be
comparable
to
those
of
other
companies
because there
are no
consistently
applied actuarial
or accounting
standards
governing such
presentations.
Our
recorded
reserves
reflect
our
best
point
estimate
of
our
liabilities
and
our
actuarial
methodologies
focus
on
developing
such
point
estimates.
We
calculate
the
ranges
subsequently,
based
on
the
historical
variability
of
such reserves.
Asbestos and Environmental
Exposures.
We continue to
receive claims under expired
insurance and reinsurance
contracts asserting
injuries and/or damages
relating to
or resulting
from environmental
pollution and hazardous
substances,
including
asbestos.
Environmental
claims
typically
assert
liability
for
(a)
the
mitigation
or
remediation
of environmental
contamination
or (b)
bodily injury
or property
damage
caused
by
the release
of
hazardous
substances
into the
land, air
or water.
Asbestos claims
typically assert
liability for
bodily injury
from
exposure to asbestos or for
property damage resulting from asbestos
or products containing asbestos.
Our
reserves
include
an
estimate
of
our
ultimate
liability
for
A&E
claims.
There
are
significant
uncertainties
surrounding our
estimates of
our potential
losses from
A&E claims.
Among the
uncertainties
are: (a)
potentially
long waiting periods
between exposure
and manifestation
of any
bodily injury or
property damage;
(b) difficulty
in
identifying
sources
of
asbestos
or
environmental
contamination;
(c)
difficulty
in
properly
allocating
55
responsibility
and/or liability
for asbestos
or environmental
damage; (d)
changes in
underlying laws
and judicial
interpretation
of those laws;
(e) the potential
for an
asbestos or
environmental
claim to involve
many insurance
providers
over
many
policy
periods;
(f)
questions
concerning
interpretation
and
application
of
insurance
and
reinsurance coverage;
and (g) uncertainty
regarding the
number and identity
of insureds with
potential asbestos
or environmental exposure.
Due to the uncertainties
discussed above, the ultimate
losses attributable to
A&E, and particularly asbestos,
may
be subject to more variability
than are non-A&E reserves
and such variation
could have a material
adverse effect
on our
financial condition,
results of
operations
and/or cash
flows.
See also
ITEM 8,
“Financial Statements
and
Supplementary Data” - Notes 1 and 3
of Notes to the Consolidated Financial Statements.
Reinsurance
Recoverables.
We
have
purchased
reinsurance
to
reduce
our
exposure
to
adverse
claim
experience,
large
claims
and catastrophic
loss
occurrences.
Our ceded
reinsurance
provides
for
recovery
from
reinsurers
of
a
portion
of
losses
and
loss
expenses
under
certain
circumstances.
Such
reinsurance
does
not
relieve us of our
obligation to
our policyholders.
In the event our
reinsurers are
unable to meet their obligations
under these agreements
or are able to successfully
challenge losses ceded by
us under the contracts,
we will not
be
able
to
realize
the
full
value
of
the
reinsurance
recoverable
balance.
In
some
cases,
we
may
hold
full
or
partial collateral
for the
receivable,
including letters
of credit,
trust assets
and cash.
Additionally,
creditworthy
foreign
reinsurers
of
business
written
in
the
U.S.,
as
well
as
capital
markets’
reinsurance
mechanisms,
are
generally required
to secure their
obligations.
We have
established reserves
for uncollectible balances
based on
our
assessment
of
the
collectability
of
the
outstanding
balances.
The
allowance
for
uncollectible
reinsurance
reflects
management’s
best
estimate
of
reinsurance
cessions
that
may
be
uncollectible
in
the
future
due
to
reinsurers’
unwillingness or
inability to pay.
The allowance for
uncollectible reinsurance
comprises an
allowance
and
an
allowance
for
disputed
balances.
Based
on
this
analysis,
the
Company
may
adjust
the
allowance
for
uncollectible reinsurance or charge
off reinsurer balances that are
determined to be uncollectible.
Due to the inherent
uncertainties as to
collection and the length
of time before reinsurance
recoverable become
due, it is possible that future adjustments
to the Company’s reinsurance
recoverable, net of the
allowance, could
be required,
which could
have a
material adverse
effect on
the Company’s
consolidated results
of operations
or
cash flows in a particular quarter or annual period.
The allowance
is
estimated
as
the
amount
of reinsurance
recoverable
exposed
to
loss multiplied
by
estimated
factors
for
the
probability
of
default.
The
reinsurance
recoverable
exposed
is
the
amount
of
reinsurance
recoverable
net of collateral
and other offsets,
considering the nature
of the collateral,
potential future
changes
in collateral
values, and
historical loss
information for
the type of
collateral obtained.
The probability
of default
factors are
historical insurer
and reinsurer
defaults for
liabilities with similar
durations to
the reinsured liabilities
as
estimated
through
multiple
economic
cycles.
Credit
ratings
are
forward-looking
and
consider
a
variety
of
economic outcomes.
The Company's
evaluation of
the required allowance
for reinsurance
recoverable
considers
the current economic environment
as well as macroeconomic scenarios.
The
Company
records
credit
loss
expenses
related
to
reinsurance
recoverable
in
Incurred
losses
and
loss
adjustment expenses in the Company’s
consolidated statements
of operations and comprehensive
income (loss).
Write-offs of
reinsurance recoverable
and any related
allowance are recorded
in the period in
which the balance
is deemed uncollectible.
Premiums
Written
and
Earned.
Premiums
written
by
us
are
earned
ratably
over
the
coverage
periods
of
the
related insurance
and reinsurance
contracts.
We
establish
unearned premium
reserves
to cover
the unexpired
portion of
each contract.
Such reserves,
for assumed
reinsurance,
are computed
using pro
rata
methods based
on statistical
data received from
ceding companies.
Premiums earned, and the
related costs,
which have not yet
been
reported
to
us,
are
estimated
and
accrued.
Because
of
the
inherent
lag
in
the
reporting
of
written
and
earned
premiums
by
our
ceding
companies,
we
use
standard
accepted
actuarial
methodologies
to
estimate
earned but not reported
premium at each financial reporting
date. These earned but
not reported premiums
are
combined
with
reported
earned
premiums
to
comprise
our
total
premiums
earned
for
determination
of
our
56
incurred
losses
and
loss
and
LAE
reserves.
Commission
expense
and
incurred
losses
related
to
the
change
in
earned
but
not
reported
premium are
included
in
current
period
company
and segment
financial
results.
See
also
ITEM
8,
“Financial
Statements
and
Supplementary
Data”
-
Note
1
of Notes
to
the
Consolidated
Financial
Statements.
The following table displays
the estimated components of net earned but
not reported premiums by segment for
the periods indicated.
At December 31,
(Dollars in millions)
2022
2021
2020
Reinsurance
$
2,255
$
2,055
$
1,774
Insurance
—
—
—
Total
$
2,255
$
2,055
$
1,774
(Some amounts may not reconcile due to rounding.)
Investment
Valuation.
Our fixed
income
investments
are
classified for
accounting
purposes
as either
available
for sale
or held to
maturity.
The available
for sale
fixed maturity
securities are
carried at fair
value and
the held
to maturity fixed
maturity portfolio
is carried at
amortized cost,
net of current
expected credit
allowance on our
consolidated
balance
sheets.
Our
equity
securities
are
all
carried
at
fair
value.
Most
securities
we
own
are
traded
on
national
exchanges
where
market
values
are
readily
available.
Some
of
our
commercial
mortgage-
backed
securities (“CMBS”)
are valued
using cash
flow models
and risk-adjusted
discount rates.
We hold
some
privately
placed securities,
less than
10% of
the portfolio,
that
are
either valued
by investment
advisors
or the
Company.
In
some
instances,
values
provided
by
an
investment
advisor
are
supported
with
opinions
from
qualified independent third parties.
The Company has procedures
in place to review the values
received from its
investment
advisors.
At
December 31,
2022 and
2021, our
investment
portfolio
included
$3.8 billion
and $2.6
billion,
respectively,
of
limited
partnership
investments
whose
values
are
reported
pursuant
to
the
equity
method
of
accounting.
We
carry
these
investments
at
values
provided
by
the
managements
of
the
limited
partnerships and
due to inherent
reporting lags,
the carrying values
are based on
values with “as
of” dates from
one month to one quarter prior to our financial statement
date.
At December 31, 2022, we had
net unrealized losses on our available
for sale fixed maturity
securities, net of tax,
of $1.7 billion
compared to
net unrealized
gains on
our available
for sale
fixed maturity
securities, net
of tax,
of
$239 million
at December
31, 2021.
Gains (losses)
from market
fluctuations on
available for
sale fixed
maturity
securities
at
fair
value
are
reflected
as
accumulated
other
comprehensive
income
(loss)
in
the
consolidated
balance sheets.
Market
value declines
for available
for sale
fixed income
portfolio,
which are
considered credit
related, are reflected
in our consolidated
statements of operations
and comprehensive income
(loss), as realized
capital
losses.
We
consider
many
factors
when
determining
whether
a
market
value
decline
is
credit
related,
including:
(1) we
have no
intent
to sell
and, more
likely than
not, will
not be
required to
sell prior
to recovery,
(2) the
length of
time the
market
value has
been below
book value,
(3) the
credit strength
of the
issuer,
(4) the
issuer’s
market
sector,
(5)
the
length
of
time
to
maturity
and
(6)
for
asset-backed
securities,
changes
in
prepayments,
credit
enhancements
and
underlying
default
rates.
If management’s
assessments
change
in
the
future, we may
ultimately record
a realized loss
after management
originally concluded that
the decline in value
was temporary.
Fixed
maturity
securities
designated
as
held
to
maturity
consist
of
debt
securities
for
which
the
Company
has
both the positive
intent and ability
to hold to
maturity or redemption
and are reported
at amortized cost,
net of
the
current
expected
credit
loss
allowance.
Interest
income
for
fixed
maturity
securities
held
to
maturity
is
determined in the
same manner as interest
income for fixed
maturity securities available
for sale.
The Company
evaluates
fixed
maturity
securities
classified as
held to
maturity
for
current
expected
credit
losses
utilizing
risk
characteristics
of
each
security,
including
credit
rating,
remaining
time
to
maturity,
adjusted
for
prepayment
considerations,
and
subordination
level,
and
applying
default
and
recovery
rates,
which
include
the
57
incorporation
of
historical
credit
loss
experience
and
macroeconomic
forecasts,
to
develop
an
estimate
of
current expected credit losses.
See also ITEM 8, “Financial
Statements and
Supplementary Data”
- Note 1 of Notes
to the Consolidated
Financial
Statements.
FINANCIAL CONDITION
Investments.
Total
investments were
$28.5 billion at
December 31, 2022,
an increase
of $241 million
compared
to
$28.2
billion
at
December
31,
2021.
The
rise
in
investments
was
primarily
related
to
an
increase
in
other
invested assets, partially
offset by a decline in equity
securities.
The increase in other invested
assets was due to
the inclusion
of assets held
for the implementation
of a Company
Owned Life Insurance
(“COLI”) program
in the
fourth quarter
of 2022.
A portion of
the equity securities
portfolio was
sold in order
to invest
in the COLI
assets
which accounted for the decline in equity
securities.
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
of
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
as
of
the
dates
indicated.
At December 31,
2022
2021
Fixed income portfolio duration (years)
3.1
3.2
Fixed income composite credit quality
A+
A+
Reinsurance Recoverables
.
Reinsurance
recoverables
for
both
paid
and
unpaid
losses
totaled
$2.2
billion
at
December
31,
2022
and
$2.1
billion at
December 31,
2021.
At
December 31,
2022, $520
million, or
23.2%, was
recoverable
from Mt.
Logan
Re
collateralized
segregated
accounts;
$283
million,
or
12.6%,
was
recoverable
from
Munich
Re
and
$148
million, or 6.6%, was
recoverable
from Endurance
Re.
No other retrocessionaire
accounted for
more than 5% of
our recoverables.
Loss and LAE Reserves.
Gross loss and LAE reserves
totaled $22.1 billion and
$19.0 billion at December 31,
2022
and 2021, respectively.
58
The following
tables summarize
gross outstanding
loss and
LAE reserves
by segment,
classified by
case reserves
and IBNR reserves, for the periods indicated.
At December 31, 2022
Case
IBNR
Total
% of
(Dollars in millions)
Reserves
Reserves
Reserves
Total
Reinsurance
$
6,045
$
9,818
$
15,862
71.9%
Insurance
1,863
4,062
5,925
26.9%
Total excluding A&E
7,908
13,880
21,787
98.7%
A&E
138
140
278
1.3%
Total including A&E
$
8,046
$
14,019
$
22,065
100.0%
(Some amounts may not reconcile due to rounding.)
At December 31, 2021
Case
IBNR
Total
% of
(Dollars in millions)
Reserves
Reserves
Reserves
Total
Reinsurance
$
5,415
$
8,312
$
13,727
72.2%
Insurance
1,546
3,562
5,109
26.9%
Total excluding A&E
6,961
11,875
18,836
99.1%
A&E
164
10
174
0.9%
Total including A&E
$
7,125
$
11,885
$
19,009
100.0%
(Some amounts may not reconcile due to rounding.)
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
such
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,
which 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.
We
have
included
ranges
for
loss
reserve
estimates
determined
by
our
actuaries,
which
have
been
developed
through
a
combination
of
objective
and
subjective
criteria.
Our
presentation
of
this
information
may
not
be
directly comparable
to similar presentations
of other companies
as there are
no consistently
applied actuarial or
59
accounting standards
governing such presentations.
Our recorded reserves
are an aggregation
of our best
point
estimates
for
approximately
200
reserve
groups
and
reflect
our
best
point
estimate
of
our
liabilities.
Our
actuarial methodologies develop
point estimates
rather than ranges
and the ranges
are developed subsequently
based upon historical and prospective
variability measures.
The
following
table
below
represents
the
reserve
levels
and
ranges
for
each
of
our
business
segments
for
the
period indicated.
Outstanding Reserves and Ranges By Segment (1)
At December 31, 2022
As
Low
Low
High
High
(Dollars in millions)
Reported
Range %
Range
Range %
Range
Gross Reserves By Segment
Reinsurance
$
15,862
-7.4%
$
14,689
7.8%
$
17,095
Insurance
5,925
-9.9%
5,340
10.8%
6,565
Total Gross Reserves (excluding A&E)
21,787
-8.1%
20,029
8.6%
23,660
A&E (All Segments)
278
-22.9%
214
22.7%
341
Total Gross Reserves
$
22,065
-8.3%
20,243
8.8%
24,001
(Some amounts may not reconcile due
to rounding.)
______________________________________________________
(1)
There can be no assurance that reserves
will not ultimately exceed the
indicated ranges requiring additional
income (loss) statement expense.
Depending
on
the
specific
segment,
the
range
derived
for
the
loss
reserves,
excluding
reserves
for
A&E
exposures,
ranges
from minus
7.4% to
minus 9.9%
for the
low range
and from
plus 7.8%
to plus
10.8% for
the
high range.
Both the higher
and lower ranges
are associated
with the Insurance
segment.
The size of
the range
is
dependent
upon
the
level
of
confidence
associated
with
the
reserve
estimates.
Within
each
range,
management’s
best
estimate
of
loss
reserves
is
based
upon
the
point
estimate
derived
by
our
actuaries
in
detailed reserve
studies.
Such ranges
are necessarily
subjective due
to the
lack of
generally
accepted actuarial
standards with
respect to their
development.
There can be
no assurance that
our claim obligations
will not vary
outside of these ranges.
Additional losses, including
those relating to
latent injuries, and
other exposures, which
are as yet
unrecognized,
the type
or magnitude
of which
cannot be
foreseen
by us
or the
reinsurance
and insurance
industry
generally,
may
emerge
in
the
future.
Such
future
emergence,
to
the
extent
not
covered
by
existing
retrocessional
contracts,
could have
material
adverse
effects
on our
future financial
condition,
results of
operations
and cash
flows.
Asbestos and Environmental
Exposures.
A&E exposures represent a separate
exposure group for monitoring
and
evaluating reserve adequacy.
With
respect
to
asbestos
only,
at
December
31,
2022,
we
had
net
asbestos
loss
reserves
of
$233
million,
or
90.5%, of total net A&E reserves, all of which was
for assumed business.
See
Note
3
of
Notes
to
Consolidated
Financial
Statements
for
a
summary
of
Asbestos
and
Environmental
Exposures.
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
60
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
6.9
years
at
December
31,
2022.
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
December 31,
2022 and
December 31,
2021 was
$8.4 billion
and $10.1
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
(“BMA”)
and
the
State
of
Delaware,
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)
2022
(3)
2021
2022
2021
Regulatory targeted capital
$
—
$
2,169
$
3,353
$
2,960
Actual capital
$
2,759
$
3,184
$
5,553
$
5,717
(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.
(3)
The 2022 BSCR calculation is not
yet due to be completed;
however,
the Company anticipates that
Bermuda Re's December
31, 2022 actual capital will
exceed
the targeted capital level.
Our financial strength
ratings as determined
by A.M. Best, Moody’s
and Standard & Poor’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.
See also ITEM 1, Business – “Financial Strength Ratings”.
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.
In 2022,
we repurchased
241,273 shares
for $61
million in
the open
market
and paid
$255 million
in dividends.
During
2021,
we
repurchased
887,622
shares
for
$225
million
in
the
open
market
and
paid
$247
million
in
dividends.
We may
at times enter
into a
Rule 10b5-1 repurchase
plan agreement
to facilitate
the repurchase
of
shares.
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
December 31,
2022, we
had repurchased
30.8 million shares under this authorization.
We repurchased
$6 million of our
long term subordinated
notes during the
third quarter of
2022 and recognized
a gain
of $1
million on
the repurchase.
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
61
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 October 7,
2020, we
issued
an additional
$1.0 billion of
30 year senior
notes with
an interest
coupon rate
of
3.5%.
These senior notes will mature on October
15, 2050 and will pay interest
semi-annually.
On October 4,
2021, we
issued an
additional $1.0
billion of 31
year senior
notes with
an interest
coupon rate
of
3.125%.
These senior notes will mature on October 15, 2052 and
will pay interest semi-annually.
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 $3.7
billion and
$3.8 billion
for the
years
ended December
31, 2022
and 2021,
respectively.
Additionally,
these cash
flows reflected
net catastrophe
loss payments
of $677
million and
$834 million
for the
years
ended
December 31,
2022
and 2021,
respectively
and net
tax
payments
of $171
million and
$98 million
for the
years
ended December 31, 2022 and 2021, respectively.
If disbursements
for claims
and benefits,
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 - 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 from investment dispositions.
As the
timing of
payments for
claims and
benefits 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
December
31,
2022
and
December
31,
2021,
we
held
cash
and short
-term
investments
of
$2.4
billion
and
$2.6
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 December
31, 2022, we had
$1.3 billion of
available for
sale fixed
maturity securities
maturing within one
year or less,
$7.5
billion maturing
within one
to
five years
and
$5.3 billion
maturing
after
five
years.
Our
$281 million
of
equity
securities
are
comprised
primarily
of
publicly
traded
securities
that
can
be
easily
liquidated.
We
believe
that
these fixed
maturity and equity 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
in the
near future.
We
do not anticipate selling
a significant amount
of securities or using available
credit facilities to
pay losses and LAE
but have
the ability to
do so.
Sales of securities
might result
in realized capital
gains or losses.
At December 31,
2022
we
had
$1.9
billion
of
net
pre-tax
unrealized
depreciation
related
to
available
for
sale
fixed
maturity
securities,
comprised
of
$2.0
billion
of
pre-tax
unrealized
depreciation
and
$81
million
of
pre-tax
unrealized
appreciation.
Management generally
expects annual
positive cash
flow from operations,
which reflects
the strength
of overall
pricing.
However,
given the recent
set of catastrophic
events, 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
$1.5
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
$440
million
of
uncommitted
credit
facilities,
which
would
require
approval
from
the
applicable
62
lender.
There is
no guarantee
the uncommitted
capacity will
be available
to us
on a
future date.
See Note
5 –
Credit Facilities for further details.
Exposure to
Catastrophes.
Like other insurance
and reinsurance
companies, we are
exposed to
multiple insured
losses arising out of a
single occurrence, whether a
natural event,
such as a hurricane
or an earthquake,
or other
catastrophe,
such
as
an
explosion
at
a
major
factory.
A
large
catastrophic
event
can
be
expected
to
generate
insured
losses
to
multiple
reinsurance
treaties,
facultative
certificates
and
direct
insurance
policies
across
various lines of business.
We focus on
potential losses that
could result from
any single event,
or series of events
as part of our evaluation
and monitoring
of our
aggregate
exposures
to
catastrophic
events.
Accordingly,
we employ
various
techniques
to estimate
the amount of
loss we could
sustain from
any single catastrophic
event or series
of events in
various
geographic
areas.
These
techniques
range
from
deterministic
approaches,
such
as
tracking
aggregate
limits
exposed
in
catastrophe-prone
zones
and
applying
reasonable
damage
factors,
to
modeled
approaches
that
attempt
to
scientifically
measure
catastrophe
loss
exposure
using
sophisticated
Monte
Carlo
simulation
techniques that forecast
frequency and severity of potential losses
on a probabilistic basis.
No single
computer
model or
group
of models
is currently
capable of
projecting
the amount
and probability
of
loss in
all global geographic
regions in
which we
conduct business.
In addition,
the form,
quality and
granularity
of underwriting exposure
data furnished
by (re)insureds
is not uniformly
compatible with the
data requirements
for
our
licensed
models,
which
adds
to
the
inherent
imprecision
in
the
potential
loss
projections.
Further,
the
results
from
multiple
models
and
analytical
methods
must
be
combined
to
estimate
potential
losses
by
and
across
business
units.
Also,
while
most
models
have
been
updated
to
incorporate
claims
information
from
recent
catastrophic
events,
catastrophe
model
projections
are
still
inherently
imprecise.
In
addition,
uncertainties with respect
to future climatic patterns
and cycles could add
further uncertainty to loss
projections
from models based on historical data.
Nevertheless,
when combined
with traditional
risk management
techniques
and sound
underwriting judgment,
catastrophe
models
are
a
useful
tool
for
underwriters
to
price
catastrophe
exposed
risks
and
for
providing
management with
quantitative
analyses with
which to monitor
and manage
catastrophic
risk exposures
by zone
and across zones for individual and
multiple events.
Projected catastrophe
losses are
generally summarized
in terms
of the
PML.
We define
PML as
our anticipated
loss, taking
into account
contract
terms and
limits, caused
by a
single catastrophe
affecting
a broad
contiguous
geographic
area,
such
as
that
caused
by
a
hurricane
or
earthquake.
The
PML
will
vary
depending
upon
the
modeled simulated
losses
and the
make-up
of the
in force
book
of business.
The projected
severity
levels
are
described
in
terms
of “return
periods”,
such
as
“100-year
events”
and
“250-year
events”.
For
example,
a
100-
year PML is
the estimated loss
to the current
in-force portfolio
from a single
event which has
a 1% probability
of
being exceeded in
a twelve month
period.
In other words, it
corresponds to a
99% probability that
the loss from
a
single
event
will
fall
below
the
indicated
PML.
It
is
important
to
note
that
PMLs
are
estimates.
Modeled
events are
hypothetical events
produced by
a stochastic
model.
As a result,
there can be
no assurance
that any
actual event
will align
with the
modeled event
or that
actual losses
from events
similar to
the modeled
events
will not vary materially from the modeled event
PML.
From
an
enterprise
risk
management
perspective,
management
sets
limits
on
the
levels
of
catastrophe
loss
exposure we
may underwrite.
The limits are
revised periodically
based on a
variety of factors,
including but not
limited
to
our
financial
resources
and
expected
earnings
and
risk/reward
analyses
of
the
business
being
underwritten.
Management estimates
that the projected
net economic loss
from its largest
100-year event in
a given zone is
to
an
Earthquake
event
affecting
California
which
represents
approximately
6.9%
of
its
December
31,
2022
shareholders’
equity.
Economic
loss
is the
PML
exposure,
net of
third
party
reinsurance
including
catastrophe
industry loss
warranty
cover,
reduced by
estimated
reinstatement
premiums
to renew
coverage
and estimated
63
income taxes.
The impact
of income
taxes
on the
PML depends
on the
distribution
of the
losses
by corporate
entity,
which is
also affected
by
inter-affiliate
reinsurance.
Management
also monitors
and controls
its largest
PMLs at
multiple points
along the
loss distribution
curve, such
as loss
amounts at
the 20,
50, 100,
250, and
500
year return
periods.
This process
enables management
to identify
and control
exposure
accumulations
and to
integrate such exposures
into enterprise risk, underwriting and capital
management decisions.
Our
catastrophe
loss
projections,
segmented
by
risk
zones,
are
updated
quarterly
and
reviewed
as
part
of
a
formal risk management review
process.
We
believe
that our
greatest
worldwide 1
in 100
year
exposure
to a
single catastrophic
event
is to
a hurricane
event
affecting
Southeast
U.S.,
where
we
estimate
we
have
a
PML
exposure,
net
of
third
party
reinsurance
including catastrophe
industry loss warranty
cover,
of $878 million. See also
table under ITEM
1, “Business -
Risk
Management of Underwriting and Retrocession
Arrangements”.
If such a single catastrophe
loss were to occur,
management estimates that
the net economic loss to us would be
approximately
$515
million.
The
estimate
involves
multiple
variables,
including
which
Everest
entity
would
experience the loss, and as a result there can be no
assurance that this amount would not be exceeded.
We may
purchase reinsurance
to cover specific
business written
or the potential
accumulation or aggregation
of
exposures
across
some or
all of
our operations.
Reinsurance
purchasing
decisions
consider
both
the
potential
coverage
and
market
conditions
including
the
pricing,
terms,
conditions,
availability
and
collectability
of
coverage, with the
aim of securing cost
effective protection
from financially secure counterparts.
The amount of
reinsurance purchased has varied
over
time, reflecting our view of our exposures
and the cost of reinsurance.
Information
Technology.
Everest’s
information
technology
is
a
key
component
of
its
business
operations.
Information
technology
systems
and
services
are
hosted
at
public
and
private
cloud
service
providers
across
multiple
datacenters
with
processing
performed
at
the
office
locations
of
our
operating
subsidiaries
and
branches.
We have
implemented security
procedures,
and regularly
assess and
enhance our
security protocols,
to ensure
that our
key business
systems
are protected,
secured and
backed up
at off-site
locations so
that they
can be restored
promptly if necessary.
We have business
continuity plans and disaster
recovery plans along with
periodic testing
of those
plans
to
ensure
we are
capable
of providing
uninterrupted
technology
services in
the
event of major systems
outages with alternative secure datacenters
available in case of broader outages.
Our
business
operations
depend
on
the
proper
functioning
and
availability
of
our
information
technology
platform,
which
includes
data
processing
and
related
electronic
communications.
We
communicate
electronically
internally
and
externally
with
our
brokers,
program
managers,
clients,
third-party
vendors,
regulators,
and
others.
These
communications
and
the
data
we
handle
may
include
personal,
confidential
or
proprietary
information.
We
ensure
that
all
our
systems,
data
and
electronic
transmissions
are
appropriately
protected with the latest technology
safeguards and meet regulatory
standards.
Despite these safeguards,
a significant cyber incident,
including system
failure, security
breach and disruption
by
malware or other
damage could
interrupt or delay
our operations
and possibly our
results.
This type of incident
may result
in a
violation of
applicable data
security,
privacy,
or other
laws, damage
our reputation,
cause a
loss
of customers
or give
rise to
regulatory
scrutiny
as well
as monetary
fines and
other penalties.
Management
is
not aware of a cybersecurity incident that
has had a material impact on our operations.
64
Expected
Cash
Outflows.
The
following
table
shows
our
significant
expected
cash
outflows
for
the
period
indicated.
Payments due by period
Less than
More than
(Dollars in millions)
Total
1 year
1-3 years
3-5 years
5 years
Senior notes
$
2,400
$
—
$
—
$
—
$
2,400
Long term notes
219
—
—
—
219
Interest expense (1)
3,018
101
202
202
2,513
Operating lease agreements
187
21
38
32
95
Gross reserve for losses and LAE (2)
22,065
2,430
7,971
5,230
6,435
Total
$
28,409
$
3,071
$
8,211
$
5,464
$
11,662
(Some amounts may not reconcile due to rounding.)
(1)
Interest expense on long term notes is calculated
at the variable floating rate of 6.99% as of
December 31, 2022.
(2)
Loss and LAE reserves
represent management’s
best estimate of
losses from claim
and related settlement
costs.
Both the amounts
and timing of such
payments are
estimates, and
the inherent
variability of
resolving claims as
well as
changes in
market conditions
make the
timing of
cash flows
uncertain.
Therefore,
the ultimate
amount and timing of loss and LAE payments could differ
from our estimates.
The cash
outflows for
senior notes
and long
term notes
are the
responsibility
of Holdings.
We
strive to
ensure
that
we
have
sufficient
cash
flow,
liquidity,
investments
and
access
to
capital
markets
to
satisfy
these
obligations.
Holdings generally
depends upon
dividends from
Everest
Re, its
operating
insurance
subsidiary for
its funding,
capital contributions
from Group
or access
to the
capital markets.
Our various
operating
insurance
and reinsurance
subsidiaries
have
sufficient
cash
flow,
liquidity
and investments
to settle
outstanding
reserves
for losses and LAE.
Management believes that
we, and each of our entities,
have sufficient financial
resources or
ready access thereto, to
meet all obligations.
Dividends.
During 2022
and 2021,
we declared
and paid
common shareholder
dividends
of $255
million and
$247 million,
respectively.
As
an insurance
holding
company,
we
are
partially
dependent
on dividends
and other
permitted
payments from
our subsidiaries
to pay
cash dividends
to our
shareholders.
The payment
of dividends
to Group
by
Holdings
Ireland
and
Everest
Dublin
Holdings
is
subject
to
Irish
corporate
and
regulatory
restrictions;
the
payment
of
dividends
to
Holdings
Ireland
by
Holdings
and
to
Holdings
by
Everest
Re
is
subject
to
Delaware
regulatory
restrictions;
and
the
payment
of
dividends
to
Group
by
Bermuda
Re,
Everest
International,
Everest
Preferred International
Holdings (“Preferred
Holdings”), Everest
Re Advisors Ltd.
(“Advisors
Re”) or Mt. Logan
Re
is
subject
to
Bermuda
insurance
regulatory
restrictions.
Management
expects
that,
absent
extraordinary
catastrophe
losses, such restrictions
should not affect
Everest Re’s
ability to declare
and pay
dividends sufficient
to
support
Holdings’
general
corporate
needs
and
that
Holdings
Ireland,
Everest
Dublin
Holdings,
Bermuda
Re
and Everest
International will
have the
ability to declare
and pay dividends
sufficient to
support Group’s
general
corporate needs.
For the years
ended December 31, 2022
and 2021, Everest
Re paid $250 million
and $0 million
of
cash
dividends
to
Holdings.
For
the
years
ended
December
31,
2022
and
2021,
Bermuda
Re
paid
cash
dividends
to Group
of $430
million and
$300 million,
respectively;
Everest
International
paid no
cash dividends
to Group;
Preferred
Holdings paid
cash dividends
to Group
of $46 million
and $10 million,
respectively; Advisors
Re
paid
cash
dividends
to
Group
of
$0
million
and
$10
million,
respectively;
and
Mt.
Logan
Re
paid
no
cash
dividends to Group.
See ITEM 1, “Business
– Regulatory Matters
– Dividends” and ITEM 8,
“Financial Statements
and Supplementary Data” - Note 14 of Notes
to Consolidated Financial Statements.
Market Sensitive Instruments.
The SEC’s
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.
65
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
non-trading
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 $29.9 billion investment
portfolio at December
31, 2022, 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,
it
includes
prepayment
risk
on
the
$4.0 billion
of mortgage
-backed
securities
in
the
$23.1 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 tables below
display the
potential impact
of market
value fluctuations
and after-tax
unrealized appreciation
on our
fixed maturity
portfolio (including
$1.0 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 December 31, 2022
-200
-100
-
100
200
(Dollars in millions)
Total Fair Value
$
25,618
$
24,863
$
24,107
$
23,352
$
22,596
Fair Value Change from Base (%)
6.3%
3.1%
-%
(3.1)%
(6.3)%
Change in Unrealized Appreciation
After-tax from Base ($)
$
1,316
$
658
$
—
$
(658)
$
(1,316)
Impact of Interest Rate Shift in Basis Points
At December 31, 2021
-200
-100
-
100
200
(Dollars in millions)
Total Fair Value
$
24,973
$
24,230
$
23,487
$
22,744
$
22,001
Fair Value Change from Base (%)
6.3%
3.2%
-%
(3.2)%
(6.3)%
Change in Unrealized Appreciation
After-tax from Base ($)
$
1,294
$
647
$
—
$
(647)
$
(1,294)
66
We
had $22.1
billion and
$19.0 billion
of gross
reserves for
losses and
LAE as
of December
31, 2022
and 2021,
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
3.8
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
$3.6 billion resulting
in a discounted
reserve balance
of approximately
$16.4 billion,
representing
approximately 67.9% of the value
of the fixed maturity investment
portfolio funds.
Equity Risk.
Equity risk is
the potential change
in fair and/or
market value
of the common
stock, preferred
stock
and mutual fund portfolios
arising from changing prices.
Our equity investments
consist of a diversified
portfolio
of individual
securities and
mutual funds,
which invest
principally in
high quality
common and
preferred
stocks
that are
traded on
the major exchanges.
The primary
objective of
the equity
portfolio is
to obtain
greater total
return relative to our core
bonds over time through market
appreciation and income.
The tables below display the impact on fair/market
value and after-tax change
in fair/market value
of a 10% and
20% change in equity prices up and down for the period indicated.
Impact of Percentage Change in Equity Fair/Market Values
At December 31, 2022
(Dollars in millions)
-20%
-10%
0%
10%
20%
Fair Value of the Equity Portfolio
$
225
$
253
$
281
$
309
$
337
After-tax Change in Fair Value
$
(46)
$
(23)
$
—
$
23
$
46
Impact of Percentage Change in Equity Fair/Market Values
At December 31, 2021
(Dollars in millions)
-20%
-10%
0%
10%
20%
Fair Value of the Equity Portfolio
$
1,461
$
1,643
$
1,826
$
2,009
$
2,191
After-tax Change in Fair Value
$
(290)
$
(145)
$
—
$
145
$
290
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
(“foreign”)
operations
maintains
capital
in
the
currency
of
the
country
of
its
geographic
location
consistent
with
local
regulatory
guidelines.
Each
foreign
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
foreign
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
market
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.
67
The tables below display
the potential impact of a
parallel and immediate 10%
and 20% increase and decrease
in
foreign exchange
rates
on the
valuation
of invested
assets subject
to foreign
currency exposure
for the
periods
indicated.
This
analysis
includes
the
after-tax
impact
of
translation
from
transactional
currency
to
functional
currency
as
well
as
the
after-tax
impact
of
translation
from
functional
currency
to
the
U.S.
dollar
reporting
currency.
Change in Foreign Exchange Rates in Percent
At December 31, 2022
(Dollars in millions)
-20%
-10%
0%
10%
20%
Total After-tax
Foreign Exchange Exposure
$
(814)
$
(407)
$
—
$
407
$
814
Change in Foreign Exchange Rates in Percent
At December 31, 2021
(Dollars in millions)
-20%
-10%
0%
10%
20%
Total After-tax
Foreign Exchange Exposure
$
(688)
$
(344)
$
—
$
303
$
606
Safe Harbor Disclosure.
This
report
contains
forward-looking
statements
within
the
meaning
of
the
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
contained
in
this
report
include
information
regarding
our reserves
for losses
and LAE,
the impact
of the
Tax
Cut and
Jobs Act,
the adequacy
of
capital
in
relation
to
regulatory
required
capital,
the
adequacy
of
our
provision
for
uncollectible
balances,
estimates
of
our
catastrophe
exposure,
the
effects
of
catastrophic
and
pandemic
events
on
our
financial
statements,
the
ability
of
Everest
Re,
Holdings,
Holdings
Ireland,
Dublin
Holdings,
Bermuda
Re
and
Everest
International
to
pay
dividends
and
the
settlement
costs
of
our
specialized
equity
index
put
option
contracts.
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 include
those discussed under
the caption ITEM
1A, “Risk Factors”.
We undertake
no obligation
to
update or revise
publicly any
forward-looking statements,
whether as a result
of new information,
future events
or otherwise.
ITEM 7A.
QUANTITATIVE
AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
See “Market Sensitive Instruments”
in ITEM 7.
ITEM 8.
FINANCIAL STATEMENTS
AND SUPPLEMENTARY
DATA
The financial
statements
and schedules
listed in
the accompanying
Index to
Financial Statements
and Schedules
on page F-1 are filed as part of this report.
ITEM 9.
CHANGES
IN
AND
DISAGREEMENTS
WITH
ACCOUNTANTS
ON
ACCOUNTING
AND
FINANCIAL
DISCLOSURE
None.
68
ITEM 9A.
CONTROLS AND PROCEDURES
Disclosure Controls and Procedures.
As
required
by
Rule
13a-15(b)
of
the
Securities
Exchange
Act
of
1934
(the
“Exchange
Act”), our
management,
including our Chief Executive Officer
and Chief Financial Officer,
has evaluated the effectiveness
of our disclosure
controls
and procedures
(as defined
in Rule
13a-15(e) under
the Exchange
Act).
Based on
that evaluation,
the
Chief
Executive
Officer
and
Chief
Financial
Officer
have
concluded
that
our disclosure
controls
and procedures
were effective as of the
end of the period covered by this annual report.
Management’s Report
on Internal Control Over Financial Reporting.
Our
management
is
responsible
for
establishing
and
maintaining
adequate
internal
controls
over
financial
reporting.
Our
internal
control
over
financial
reporting
is designed
to
provide
reasonable
assurance
regarding
the
reliability
of
financial
reporting
and
the
preparation
of
our
financial
statements
for
external
purposes
in
accordance with generally accepted
accounting principles.
Because
of
its
inherent
limitations,
internal
control
over
financial
reporting
may
not
prevent
or
detect
misstatements.
Also, projections
of any evaluation
of effectiveness
to future periods
are subject to
the risk that
controls
may
become inadequate
because
of changes
in conditions,
or that
the degree
of compliance
with the
policies or procedures may deteriorate.
Management has
assessed the
effectiveness
of our
internal control
over financial
reporting as
of December
31,
2022.
In making this assessment, we used the
criteria set forth by the Committee
of Sponsoring Organizations
of
the Treadway
Commission (COSO)
in
Internal Control
– Integrated
Framework (2013)
.
Based on
our assessment
we concluded
that, as
of December
31, 2022,
our internal
control
over financial
reporting is
effective
based on
those criteria.
The effectiveness
of the
Company’s
internal control
over financial
reporting as
of December
31, 2022,
has been
audited
by
PricewaterhouseCoopers
LLP,
an
independent
registered
public
accounting
firm,
as
stated
in
their
report, which appears herein.
Changes in Internal Control over
Financial Reporting.
As required
by Rule
13a-15(d) of
the Exchange
Act, our
management, including
our Chief
Executive
Officer and
Chief
Financial
Officer,
has
evaluated
our
internal
control
over
financial
reporting
to
determine
whether
any
changes occurred during
the fourth
fiscal quarter covered
by this annual
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 fourth
quarter.
ITEM 9B.
OTHER INFORMATION
None.
ITEM 9C.
DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT
PREVENT INSPECTIONS
None.
PART III
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS
AND CORPORATE GOVERNANCE
Reference
is
made
to
the
sections
captioned
“Information
Concerning
Nominees”,
“Information
Concerning
Continuing
Directors
and
Executive
Officers”,
“Audit
Committee”,
“Nominating
and
Governance
Committee”,
“Code
of
Ethics
for
CEO
and
Senior
Financial
Officers”
and
“Section
16(a)
Beneficial
Ownership
Reporting
Compliance” in
our proxy
statement
for
the 2023
Annual
General
Meeting
of Shareholders,
which will
be filed
69
with
the
Commission
within
120
days
of
the
close
of
our
fiscal
year
ended
December
31,
2022
(the
“Proxy
Statement”), which sections are incorporated
herein by reference.
ITEM 11.
EXECUTIVE COMPENSATION
Reference
is
made
to
the
sections
captioned
“Directors’
Compensation”
and
“Compensation
of
Executive
Officers” in the Proxy Statement,
which are incorporated herein
by reference.
ITEM 12.
SECURITY
OWNERSHIP
OF
CERTAIN
BENEFICIAL
OWNERS
AND
MANAGEMENT
AND
RELATED
SHAREHOLDER MATTERS
Reference
is
made to
the
sections
captioned
“Common
Share
Ownership
by
Directors
and
Executive
Officers”,
“Principal
Beneficial
Owners
of
Common
Shares”
and
“Securities
Authorized
for
Issuance
Under
Equity
Compensation Plans” in the Proxy Statement,
which are incorporated herein
by reference.
ITEM 13.
CERTAIN RELATIONSHIPS
AND RELATED TRANSACTIONS,
AND DIRECTOR INDEPENDENCE
Reference
is made to
the section captioned
“Certain Transactions
with Directors”
in the Proxy
Statement, which
is incorporated herein by
reference.
ITEM 14.
PRINCIPAL ACCOUNTANT
FEES AND SERVICES
Reference is made to the section
captioned “Audit
Committee Report” in the Proxy Statement,
which is
incorporated herein by
reference.
PART IV
ITEM 15.
EXHIBITS AND FINANCIAL STATEMENT
SCHEDULES
Financial Statements and Schedules.
The financial
statements
and schedules
listed in
the accompanying
Index to
Financial Statements
and Schedules
on page F-1 are filed as part of this report.
Exhibits.
The exhibits
listed on
the accompanying
Index to
Exhibits on page
E-1 are
filed as part
of this report
except that
the certifications
in Exhibit 32
are being furnished
to the SEC,
rather than
filed with the
SEC, as permitted
under
applicable SEC rules.
SIGNATURES
Pursuant
to the
requirements
of Section
13 or
15(d) 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
on February 24,
2023.
EVEREST RE GROUP,
LTD.
By:
/S/ JUAN C. ANDRADE
Juan C. Andrade
(President and Chief Executive
Officer)
70
Pursuant
to the
requirements
of the
Securities Exchange
Act of
1934, this
report has
been signed
below by
the
following persons on behalf of the registrant
and in the capacities and on the dates indicated.
Signature
Title
Date
/S/ JUAN C. ANDRADE
President and Chief Executive
Officer
(Principal Executive Officer)
February 24, 2023
Juan C. Andrade
/S/ MARK KOCIANCIC
Executive Vice President and Chief
Financial
Officer
February 24, 2023
Mark Kociancic
/S/ ROBERT J. FREILING
Senior Vice President and Chief
February 24, 2023
Robert J. Freiling
Accounting Officer
/S/ JOSEPH V.
TARANTO
Chairman
February 24, 2023
Joseph V.
Taranto
/S/ JOHN J. AMORE
Director
February 24, 2023
John J. Amore
/S/ WILLIAM F.
GALTNEY,
JR.
Director
February 24, 2023
William F.
Galtney, Jr.
/S/ JOHN A. GRAF
Director
February 24, 2023
John A. Graf
/S/ MERYL HARTZBAND
Director
February 24, 2023
Meryl Hartzband
/S/ GERALDINE LOSQUADRO
Director
February 24, 2023
Geraldine Losquadro
/S/ HAZEL McNEILAGE
Director
February 24, 2023
Hazel McNeilage
/S/ ROGER M. SINGER
Director
February 24, 2023
Roger M. Singer
71
INDEX TO EXHIBITS
Exhibit No.
2.
1
Agreement and Plan of Merger among Everest Reinsurance Holdings, Inc., Everest Re Group,
Ltd. and Everest Re Merger Corporation, incorporated herein by reference to Exhibit 2.1 to the
Registration Statement on Form S-4 (No. 333-87361)
3.
1
Memorandum of Association of Everest Re Group, Ltd., incorporated herein by reference to
Exhibit 3.1 to the Registration Statement on Form S-4 (No. 333-87361)
3.
2
Bye-Laws of Everest Re Group, Ltd., incorporated herein by reference to exhibit 3.2 to the
Everest Re Group, Ltd., Quarterly Report for Form 10-Q for the quarter ended June 30, 2011 (the
“second quarter 2011 10-Q”)
4.
1
Specimen Everest Re Group, Ltd. common share certificate, incorporated herein by reference to
Exhibit 4.1 of the Registration Statement on Form S-4 (No. 333-87361)
4.
2
Indenture, dated March 14, 2000, between Everest Reinsurance Holdings, Inc. and The Chase
Manhattan Bank (now known as JPMorgan Chase Bank), as Trustee, incorporated herein by
reference to Exhibit 4.1 to Everest Reinsurance Holdings, Inc. Form 8-K filed on March 15, 2000
4.
3
Fourth Supplemental Indenture relating to Holdings $400.0 million 4.868% Senior Notes due
June 1, 2044, dated June 5, 2014, between Holdings and The Bank of New York Mellon, as
Trustee, incorporated herein by reference to Exhibit 4.1 to Everest Reinsurance Holdings, Inc.
Form 8-K filed on June 5, 2014
4.
4
Fifth Supplemental Indenture relating to Holdings $1.0 billion 3.5% Senior Notes due October
15, 2050, dated October 7, 2020, between Holdings and The Bank of New York Mellon, as
Trustee, incorporated herein by reference to Exhibit 4.1 to Everest Reinsurance Holdings, Inc.
Form 8-K filed on October 7, 2020
4.
5
Sixth Supplemental Indenture relating to Holdings $1.0 billion 3.125% Senior Notes due October
15, 2052, dated October 4, 2021, between Holdings and The Bank of New York Mellon, as
Trustee, incorporated herein by reference to Exhibit 4.1 to Everest Reinsurance Holdings, Inc.
Form 8-K filed on October 4, 2021
*10.
1
Everest Re Group, Ltd. Annual Incentive Plan effective January 1, 1999, incorporated herein by
reference to Exhibit 10.1 to Everest Reinsurance Holdings, Inc. Annual Report on Form 10-K for
the year ended December 31, 1998 (the “1998 10-K”)
*10.
2
Everest Re Group, Ltd. 2003 Non-Employee Director Equity Compensation Plan, incorporated
herein by reference to Exhibit 4.1 to the Registration Statement on Form S-8 (No. 333-105483)
*10.
3
Form of Non-Qualified Stock Option Award Agreement under the Everest Re Group, Ltd. 2003
Non-Employee Director Equity Compensation Plan, incorporated herein by reference to Exhibit
10.47 to Everest Re Group, Ltd., Report on Form 10-K for the year ended December 31, 2004
*10.
4
Amendment of Everest Re Group, Ltd. 2003 Non-Employee Director Equity Compensation Plan
adopted by shareholders at the annual general meeting on May 25, 2005, incorporated herein
by reference to Appendix B to the 2005 Proxy Statement filed on April 14, 2005
72
*10.
5
Form of Restricted Stock Award Agreement under the Everest Re Group, Ltd. 2003 Non-
Employee Director Equity Compensation Plan, incorporated by reference to Exhibit 10.1 to
Everest Re Group, Ltd. Form 8-K filed on September 22, 2005
10.
6
Completion of Tender Offer relating to Everest Reinsurance Holdings, Inc. 6.60% Fixed to
Floating Rate Long Term Subordinated Notes (LoTSSM) dated March 19, 2009, incorporated
herein by reference to Exhibit 99.1 to Everest Re Group, Ltd. Form 8-K filed on March 31, 2009
*10.
7
Everest Re Group, Ltd. 2009 Stock Option and Restricted Stock Plan for Non-Employee Directors
incorporated herein by reference to Exhibit 10.1 to Everest Re Group, Ltd. second quarter 2009
10-Q
*10.
8
Everest Re Group, Ltd. 2010 Stock Incentive Plan for employees is incorporated herein by
reference to exhibit 10.2 to Everest Re Group, Ltd. Form S-8 filed on September 30, 2010
*10.
9
Amendment of Executive Performance Annual Incentive Plan adopted by shareholders at the
annual general meeting on May 18, 2011, incorporated herein by reference to Appendix B to
the 2011 Proxy Statement filed on April 15, 2011
*10.
10
Amendment of Everest Re Group, Ltd. 2010 Stock Incentive Plan adopted by shareholders at the
annual general meeting on May 13, 2015, incorporated herein by reference to Appendix A to
the 2015 Proxy Statement filed on April 10, 2015
*10.
11
Amendment of Everest Re Group, Ltd. 2003 Non-Employee Director Equity Compensation Plan
adopted by shareholders at the annual general meeting on May 13, 2015, incorporated herein
by reference to Appendix B to the 2015 Proxy Statement filed on April 10, 2015
*10.
12
Employment agreement between Everest Global Services, Inc., Everest Reinsurance Holdings
Inc. and Dominic J. Addesso, dated December 4, 2015, incorporated herein by reference to
Exhibit 10.1 to Everest Re Group, Ltd. Form 8-K filed on December 8, 2015
10.
13
Standby Letter of Credit, dated November 9, 2015, between Everest International Reinsurance,
Ltd. and Lloyds Bank, Plc. providing £175.0 million four year credit facility, incorporated herein
by reference to Exhibit 10.23 to Everest Re Group, Ltd. Annual Report on Form 10-K- for the year
ended December 31, 2015 filed on February 29, 2016
*10.
14
Amendment of employment agreement between Everest Global Services, Inc. and Sanjoy
Mukherjee, dated February 12, 2016, incorporated herein by reference to Exhibit 10.1 to
Everest Re Group, Ltd. Form 8-K filed on February 17, 2016
*10.
15
Employment agreement between Everest Global Services, Inc. and Craig Howie, dated April 7,
2016, incorporated herein by reference to Exhibit 10.1 to Everest Re Group, Ltd. Form 8-K filed
on April 8, 2016
10.
16
Credit Agreement, dated May 26, 2016, between Everest Re Group, Ltd., Everest Reinsurance
(Bermuda), Ltd. and Everest International Reinsurance, Ltd., certain lenders party thereto and
Wells Fargo Bank, N.A. as administrative agent, providing for an $800.0 million four year senior
credit facility, incorporated herein by reference to Exhibit 10.31 to Everest Re Group, Ltd. Form
10-Q filed on August 9, 2016. This new agreement replaces the June 22, 2012 four year, $800.0
million senior credit facility
73
*10.
17
Chairmanship agreement between Everest Re Group, Ltd. and Joseph V. Taranto, dated August
15, 2016 and effective January 1, 2017, incorporated herein by reference to Exhibit 10.1 to
Everest Re Group, Ltd. Form 8-K filed on August 16, 2016
*10.
18
Employment agreement between Everest Global Services, Inc., and John P. Doucette, dated
October 21, 2016, incorporated herein by reference to Exhibit 10.1 to Everest Re Group, Ltd.
Form 8-K filed on October 26, 2016
*10.
19
Employment agreement between Everest Global Services, Inc., and Sanjoy Mukherjee, dated
January 3, 2017, incorporated herein by reference to Exhibit 10.1 to Everest Re Group, Ltd. Form
8-K filed on January 6, 2017
10.
20
Amendment of Standby Letter of Credit, dated May 17, 2017, between Everest International
Reinsurance, Ltd. and Lloyds Bank, Plc. providing £145.0 million four year credit facility, herein
by reference to Exhibit 10.1 to Everest Re Group, Ltd., Form 10-Q filed on August 9, 2017
*10.
21
Employment agreement between Everest Re Group, Ltd., and Jonathan Zaffino dated
September 8, 2017, incorporated herein by reference to Exhibit 10.1 to Everest Re Group, Ltd.
Form 8-K filed on September 12, 2017
*10.
22
Amendment of employment agreement between Everest Global Services, Inc., Everest Re
Group, Ltd., Everest Reinsurance Holdings Inc. and Dominic J. Addesso, dated November 20,
2017, incorporated herein by reference to Exhibit 10.1 to Everest Re Group, Ltd. Form 8-K filed
on November 20, 2017
10.
23
Bye-Law waiver agreement between Everest Re Group, Ltd., and BlackRock, Inc. dated
December 1, 2017, incorporated herein by reference to exhibit 10.1 to the Everest Re Group,
Ltd., Form 8-K filed on December 4, 2017
10.
24
Amendment of Standby Letter of Credit, dated December 29, 2017, between Everest
Reinsurance (Bermuda), Ltd. and Citibank Europe plc providing $250.0 million four year credit
facility, incorporated herein by reference to exhibit 10.26 to the Everest Re Group, Ltd., Form
10-K filed on March 1, 2018
10.
25
Amendment of Standby Letter of Credit, dated November 9, 2018, between Everest
International Reinsurance, Ltd. and Lloyds Bank, Plc. providing £30.0 million four year credit
facility, incorporated herein by reference to exhibit 10.33 to the Everest Re Group, Ltd., Form
10-K filed on March 1, 2019
10.
26
Amendment of Committed Facility Letter, dated December 10, 2018, between Everest
Reinsurance (Bermuda), Ltd. and Citibank Europe plc providing $200.0 million annually,
incorporated herein by reference to exhibit 10.34 to the Everest Re Group, Ltd., Form 10-K filed
on March 1, 2019
*10.
27
Employment agreement between Everest Re Group, Ltd. and Juan Andrade dated August 1,
2019, incorporated herein by reference to Exhibit 10.1 to Everest Re Group Ltd. Form 8-K filed
on August 8, 2019.
10.
28
Amendment of Standby Letter of Credit, dated November 7, 2019, between Everest
International Reinsurance, Ltd. and Lloyds Bank, Plc. providing £47.0 million four year credit
facility, incorporated herein by reference to Exhibit 10.30 to the Everest Re Group, Ltd. Form 10-
K filed on March 2, 2020
74
10.
29
Amendment of Committed Facility Letter, dated December 31, 2019, between Everest
Reinsurance (Bermuda), Ltd. and Citibank Europe plc providing $200.0 million annually,
incorporated herein by reference to Exhibit 10.31 to the Everest Re Group, Ltd. Form 10-K filed
on March 2, 2020
10.
30
Everest Re Group, Ltd. 2020 Stock Incentive Plan for employees is incorporated herein by
reference to Appendix A of the 2021 Proxy Statement filed on April 9, 2021
10.
31
Amendment of Standby Letter of Credit, dated May 7, 2020 between Everest International
Reinsurance, Ltd. and Lloyds Bank, Plc. providing £52.175 million four year credit facility,
incorporated herein by reference to Exhibit 10.1 to Everest Re Group, Ltd. Form 10-Q filed on
August 10, 2020
10.
32
Employment agreement between Everest Global Services, Inc. and Mark Kociancic, incorporated
herein by reference to Exhibit 10.1 to Everest Re Group, Ltd. Form 8-K filed on October 1, 2020
10.
33
Employment agreement between Everest Global Services, Inc. and James Williamson,
incorporated herein by reference to Exhibit 10.2 to Everest Re Group, Ltd. Form 8-K filed on
October 1, 2020
10.
34
Amendment of Committed Facility Letter, dated December 9, 2020 between Everest
Reinsurance (Bermuda), Ltd. and Citibank Europe plc providing $200.0 million annually,
incorporated herein by reference to Exhibit 10.34 to Everest Re Group, Ltd. Form 10-K filed on
March 1, 2021
10.
35
Credit facility agreement dated February 23, 3021 between Everest Reinsurance (Bermuda), Ltd.
and Wells Fargo Bank, N.A. providing up to $50.0 million of committed credit facility,
incorporated herein by reference to Exhibit 10.1 to Everest Re Group, Ltd. Form 10-Q filed on
May 10, 2021
10.
36
Amendment of Credit Facility agreement, dated May 5, 2021 between Everest Reinsurance
(Bermuda), Ltd. and Wells Fargo Bank, N.A. providing up to $500.0 million of committed credit
facility, incorporated herein by reference to Exhibit 10.1 to Everest Re Group, Ltd. Form 10-Q
filed on August 5, 2021
10.
37
Credit Facility agreement, dated August 9, 2021 between Everest Reinsurance (Bermuda), Ltd.
and Citibank Europe plc providing up to $230.0 million committed credit facility and $140.0
million of additional uncommitted credit facility, incorporated herein by reference to Exhibit
10.1 to Everest Re Group, Ltd. Form 10-Q filed on November 4, 2021
10.
38
Credit Facility agreement, dated August 27, 2021 between Everest Reinsurance (Bermuda), Ltd.
and Bayerische Landesbank providing up to $200.0 million of committed credit facility,
incorporated herein by reference to Exhibit 10.2 to Everest Re Group, Ltd. Form 10-Q filed on
November 4, 2021
10.
39
Credit Facility agreement, dated October 8, 2021 between Everest Reinsurance (Bermuda), Ltd.
and Lloyd’s Bank Corporate Markets Plc providing up to $50.0 million of committed credit
facility, incorporated herein by reference to Exhibit 10.39 to Everest Re Group, Ltd. Form 10-K
filed on February 28, 2022
75
10.
40
Credit Facility agreement, dated November 3, 2021 between Everest Reinsurance (Bermuda),
Ltd. and Barclays Bank Plc providing up to $200.0 million of committed credit facility,
incorporated herein by reference to Exhibit 10.40 to Everest Re Group, Ltd. Form 10-K filed on
February 28, 2022
10.
41
Credit Facility agreement, dated November 21, 2022 between Everest Reinsurance (Bermuda),
Ltd. and Nordea Bank ABP, New York Branch providing up to $200.0 million of committed credit
facility and $100.0 million of additional uncommitted credit facility, filed herewith
10.
42
Amendment of Credit Facility agreement, dated December 30, 2022, between Everest
Reinsurance (Bermuda), Ltd. and Bayerische Landesbank, New York Branch, providing up to
$150.0 million of committed, unsecured credit facility, filed herewith
21.
1
Subsidiaries of the registrant, filed herewith
23.
1
Consent of PricewaterhouseCoopers LLP, filed herewith
31.
1
Section 302 Certification of Juan C. Andrade, filed herewith
31.
2
Section 302 Certification of Mark Kociancic, filed herewith
32.
1
Section 906 Certification of Juan C. Andrade and Mark Kociancic, furnished herewith
101.
INS
XBRL Instance Document
101.
SCH
XBRL Taxonomy
Extension Schema
101.
CAL
XBRL Taxonomy
Extension Calculation Linkbase
101.
DEF
XBRL Taxonomy
Extension Definition Linkbase
101.
LAB
XBRL Taxonomy
Extension Label Linkbase
101.
PRE
XBRL Taxonomy
Extension Presentation Linkbase
104
Cover Page Interactive
Data File (embedded within the Inline XBRL document)
*
Management contract or compensatory plan or arrangement.
F-1
EVEREST RE GROUP,
LTD.
INDEX TO FINANCIAL STATEMENTS
AND SCHEDULES
Pages
Report of Independent Registered
Public Accounting Firm
(PCAOB FIRM ID
238
)
F-2
Consolidated Balance Sheets at December 31, 2022 and 20
21
F-5
Consolidated Statements of Operations and Comprehensive Income (Loss) for the Years Ended
December 31, 2022, 2021 and 2020
F-6
Consolidated Statements of Changes in Shareholders’ Equity for the Years Ended
December 31, 2022, 2021 and 2020
F-7
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2022, 2021 and 2020
F-8
Notes to Consolidated Financial Statements
F-9
Schedules
I
Summary of Investments Other Than Investments in Related Parties at December 31, 20
22
S-1
II
Condensed Financial Information of Registrant:
Balance Sheets as of December 31, 2022 and 2021
S-2
Statements of Operations for the Years Ended December 31, 2022, 2021 and 2020
S-3
Statements of Cash Flows for the Years Ended December 31, 2022, 2021 and 2020
S-4
Notes to Condensed Financial Information
S-5
III
Supplementary Insurance Information
As of and for the Years
Ended
December 31, 2022, 2021 and 2020
S-6
IV
Reinsurance for the Years Ended December 31, 2022, 2021 and 2020
S-7
Schedules other than those listed above are
omitted for the reason that
they are not applicable or the
information is otherwise contained
in the Financial Statements.
F-2
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Everest Re Group,
Ltd.
Opinions on the Financial Statements and Internal
Control over Financial Reporting
We have audited the accompanying consolidated balance
sheets of Everest Re Group, Ltd. and its subsidiaries
(the “Company”) as of December 31, 2022 and 2021, and
the related consolidated statements of operations and
comprehensive income (loss), of changes in shareholders'
equity and of cash flows for each of the three years in
the period ended December 31, 2022, including the related
notes and financial statement schedules listed in the
index appearing on page F-1 (collectively referred to as
the “consolidated financial statements”). We also have
audited the Company's internal control over financial reporting as
of December 31, 2022, based on criteria
established in
Internal Control - Integrated Framework
(2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects,
the financial position of the Company as of December
31, 2022 and 2021, and the results of its operations and
its cash flows for each of the three years in the period ended
December 31, 2022 in conformity with accounting
principles generally accepted in the United States of America.
Also in our opinion, the Company maintained, in
all material respects, effective internal control over financial
reporting as of December 31, 2022, based on
criteria established in
Internal Control - Integrated Framework
(2013) issued by the COSO.
Basis for Opinions
The Company's management is responsible for these consolidated
financial statements, for maintaining
effective internal control over financial reporting, and for
its assessment of the effectiveness of internal control
over financial reporting, included in Management’s Report on Internal
Control over Financial Reporting
appearing under Item 9A. Our responsibility is to express opinions
on the Company’s consolidated financial
statements and on the Company's internal control over financial
reporting based on our audits. We are a public
accounting firm registered with the Public Company Accounting
Oversight Board (United States) (PCAOB) and
are required to be independent with respect to the Company in
accordance with the U.S. federal securities laws
and the applicable rules and regulations of the Securities and
Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards
of the PCAOB. Those standards require that we plan
and perform the audits to obtain reasonable assurance about
whether the consolidated financial statements are
free of material misstatement, whether due to error or
fraud, and whether effective internal control over
financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included
performing procedures to assess the risks of
material misstatement of the consolidated financial statements,
whether due to error or fraud, and performing
procedures that respond to those risks. Such procedures
included examining, on a test basis, evidence regarding
the amounts and disclosures in the consolidated financial
statements. Our audits also included evaluating the
accounting principles used and significant estimates made
by management, as well as evaluating the overall
presentation of the consolidated financial statements. Our
audit of internal control over financial reporting
included obtaining an understanding of internal control over financial
reporting, assessing the risk that a
material weakness exists, and testing and evaluating the design
and operating effectiveness of internal control
based on the assessed risk. Our audits also included performing
such other procedures as we considered
necessary in the circumstances. We believe that our audits
provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control
over Financial Reporting
A company’s internal control over financial reporting is a process
designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation
of financial statements for external purposes
in accordance with generally accepted accounting principles.
A company’s internal control over financial
reporting includes those policies and procedures that (i)
pertain to the maintenance of records that, in
F-3
reasonable detail, accurately and fairly reflect the transactions
and dispositions of the assets of the company;
(ii) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of
the company are being made only in accordance with authorizations
of management and directors of the
company; and (iii) provide reasonable assurance regarding
prevention or timely detection of unauthorized
acquisition, use, or disposition of the company’s assets
that could have a material effect on the financial
statements.
Because of its inherent limitations, internal control over financial
reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness
to future periods are subject to the risk that
controls may become inadequate because of changes in
conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matter communicated below is a matter arising
from the current period audit of the
consolidated financial statements that was communicated
or required to be communicated to the audit
committee and that (i) relates to accounts or disclosures
that are material to the consolidated financial
statements and (ii) involved our especially challenging, subjective,
or complex judgments. The communication
of critical audit matters does not alter in any way our opinion
on the consolidated financial statements, taken as
a whole, and we are not, by communicating the critical
audit matter below, providing a separate opinion on the
critical audit matter or on the accounts or disclosures to
which it relates.
Valuation of the Reserve for Losses and Loss Adjustment
Expenses
As described in Notes 1 and 3 to the consolidated financial
statements, the Company maintains reserves equal to
the estimated ultimate liability for losses and loss adjustment
expense for reported and unreported claims for
both insurance and reinsurance businesses. The Company’s
reserve for losses and loss adjustment expenses as
of December 31, 2022 was $22.1 billion. Reserves are based
on estimates of ultimate losses and loss adjustment
expenses by underwriting or accident year. Management
uses a variety of statistical and actuarial techniques to
monitor reserve adequacy over time, evaluate new information
as it becomes known and adjust reserves as
warranted. Management considers many factors when setting reserves
including (i) exposure base and projected
ultimate premium; (ii) expected loss ratios by product
and class of business, which are developed collaboratively
by underwriters and actuaries; (iii) actuarial methodologies and
assumptions which analyze loss reporting and
payment experience, reports from ceding companies and historical
trends, such as reserving patterns, loss
payments and product mix; (iv) current legal interpretations
of coverage and liability; and (v) economic
conditions.
The principal considerations for our determination that
performing procedures relating to the valuation of the
reserve for losses and loss adjustment expenses is a critical audit
matter are the significant judgment by
management when developing their estimate; this in turn
led to a high degree of auditor subjectivity, judgment
and effort in performing procedures and evaluating the audit
evidence relating to the methodologies and the
significant assumptions related to expected loss ratios
and historical trends, such as reserving patterns, loss
payments and product mix, and the audit effort involved
the use of professionals with specialized skill and
knowledge.
Addressing the matter involved performing procedures
and evaluating audit evidence in connection with
forming our overall opinion on the consolidated financial statements.
These procedures included testing the
effectiveness of controls relating to management’s valuation
of the reserve for losses and loss adjustment
expenses, including controls over the selection of methodologies and
development of significant assumptions.
These procedures also included, among others, testing
the completeness and accuracy of data provided by
management and the involvement of professionals with specialized
skill and knowledge to assist in performing
procedures for a sample of products and lines of business
including: (i) evaluating management’s methodologies
and assumptions related to expected loss ratios and historical
trends, such as, reserving patterns, loss payment
F-4
and product mix used for determining reserves for losses and
loss adjustment expenses; and (ii) developing an
independent estimate of the reserve for losses and loss adjustment
expenses and comparing the independent
estimate to management’s actuarially determined reserves.
/s/
PricewaterhouseCoopers LLP
New York, New York
February 24, 2023
We have served as the Company’s or its predecessor's auditor
since 1996.
F-5
EVEREST RE GROUP,
LTD.
CONSOLIDATED
BALANCE SHEETS
December 31,
(Dollars and share amounts in millions, except par value per share)
2022
2021
ASSETS:
Fixed maturities - available for sale, at fair value
$
22,236
$
22,308
(amortized cost: 2022, $
24,191
; 2021, $
22,064
, credit allowances: 2022, $
(54)
; 2021, $
(30)
)
Fixed maturities - held to maturity, at amortized cost
(fair value: 2022, $
821
, net of credit allowances: 2022, $
(
9
)
)
839
-
Equity securities, at fair value
281
1,826
Other invested assets
4,085
2,920
Short-term investments (cost: 2022, $
1,032
; 2021, $
1,178
)
1,032
1,178
Cash
1,398
1,441
Total investments and cash
29,872
29,673
Accrued investment income
217
149
Premiums receivable (net of credit allowances: 2022, $
(
29
)
; 2021, $
(
26
)
)
3,619
3,294
Reinsurance paid loss recoverables (net of credit allowances: 2021, $
(
23
)
; 2021, $
(
17
)
)
136
107
Reinsurance unpaid loss recoverables
2,105
1,946
Funds held by reinsureds
1,056
869
Deferred acquisition costs
962
872
Prepaid reinsurance premiums
610
515
Income tax asset, net
459
2
Other assets (net of credit allowances: 2022, $
(
5
)
; 2021, $
(
4
)
)
930
757
TOTAL ASSETS
$
39,966
$
38,185
LIABILITIES:
Reserve for losses and loss adjustment expenses
$
22,065
$
19,009
Future policy benefit reserve
29
36
Unearned premium reserve
5,147
4,610
Funds held under reinsurance treaties
13
18
Other net payable to reinsurers
567
450
Losses in course of payment
74
261
Senior notes
2,347
2,346
Long term notes
218
224
Borrowings from FHLB
519
519
Accrued interest on debt and borrowings
19
17
Unsettled securities payable
1
17
Other liabilities
526
540
Total liabilities
31,525
28,046
Commitments and contingencies (Note
15)
(nil)
(nil)
SHAREHOLDERS' EQUITY:
Preferred shares, par value: $
0.01
;
50.0
shares authorized;
no
shares issued and outstanding
-
-
Common shares, par value: $
0.01
;
200.0
shares authorized; (2022)
69.9
and (2021)
69.8
outstanding before treasury shares
1
1
Additional paid-in capital
2,302
2,274
Accumulated other comprehensive income (loss), net of deferred income tax expense
(benefit) of $
(250)
at 2022 and $
27
at 2021
(1,996)
12
Treasury shares, at cost:
30.8
shares (2022) and
30.5
shares (2021)
(3,908)
(3,847)
Retained earnings
12,042
11,700
Total shareholders' equity
8,441
10,139
TOTAL
LIABILITIES AND SHAREHOLDERS' EQUITY
$
39,966
$
38,185
The accompanying notes are an integral
part of the consolidated financial statements.
F-6
EVEREST RE GROUP,
LTD.
CONSOLIDATED
STATEMENTS
OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
Years Ended December 31,
(Dollars in millions, except per share amounts)
2022
2021
2020
REVENUES:
Premiums earned
$
11,787
$
10,406
$
8,682
Net investment income
830
1,165
642
Net gains (losses) on investments:
Credit allowances on fixed maturity securities
(33)
(28)
(2)
Gains (losses) from fair value adjustments
(460)
236
280
Net realized gains (losses) from dispositions
38
50
(11)
Total net realized capital gains
(losses)
(455)
258
268
Other income (expense)
(102)
37
6
Total revenues
12,060
11,866
9,598
CLAIMS AND EXPENSES:
Incurred losses and loss adjustment expenses
8,100
7,391
6,551
Commission, brokerage, taxes and fees
2,528
2,209
1,873
Other underwriting expenses
682
583
511
Corporate expenses
61
68
41
Interest, fees and bond issue cost amortization expense
101
70
36
Total claims and expenses
11,472
10,321
9,013
INCOME (LOSS) BEFORE TAXES
588
1,546
585
Income tax expense (benefit)
(9)
167
71
NET INCOME (LOSS)
$
597
$
1,379
$
514
Other comprehensive income (loss), net of tax:
Unrealized appreciation (depreciation) ("URA(D)") on securities arising during the period
(2,037)
(488)
423
Reclassification adjustment for realized losses (gains) included in net income (loss)
89
4
(3)
Total URA(D) on securities arising during the period
(1,948)
(485)
420
Foreign currency translation adjustments
(77)
(62)
86
Benefit plan actuarial net gain (loss) for the period
15
17
(6)
Reclassification adjustment for amortization of net (gain) loss included in net income (loss)
2
6
6
Total benefit plan net gain (loss) for the period
17
23
1
Total other comprehensive income (loss), net of tax
(2,008)
(523)
507
COMPREHENSIVE INCOME (LOSS)
$
(1,411)
$
856
$
1,021
EARNINGS PER COMMON SHARE:
Basic
$
15.19
$
34.66
$
12.81
Diluted
15.19
34.62
12.78
The accompanying notes are an integral part of the consolidated
financial statements.
F-7
EVEREST RE GROUP,
LTD.
CONSOLIDATED
STATEMENTS
OF
CHANGES IN SHAREHOLDERS’ EQUITY
Years Ended December 31,
(Dollars in millions, except dividends per share amounts)
2022
2021
2020
COMMON SHARES (shares outstanding):
Balance beginning of period
39
40
41
Issued during the period, net
-
-
-
Treasury shares acquired
-
(1)
(1)
Balance end of period
39
39
40
COMMON SHARES (par value):
Balance beginning of period
$
1
$
1
$
1
Issued during the period, net
-
-
-
Balance end of period
1
1
1
ADDITIONAL PAID-IN CAPITAL:
Balance beginning of period
2,274
2,245
2,220
Share-based compensation plans
28
29
26
Balance end of period
2,302
2,274
2,245
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS),
NET OF DEFERRED INCOME TAXES:
Balance beginning of period
12
535
28
Net increase (decrease) during the period
(2,008)
(523)
507
Balance end of period
(1,996)
12
535
RETAINED EARNINGS:
Balance beginning of period
11,700
10,567
10,307
Change to beginning balance due to adoption of Accounting Standards Update 2016-13
-
-
(4)
Net income (loss)
597
1,379
514
Dividends declared ($
6.50
per share 2022, $
6.20
per share 2021 and $
6.20
per share 2020)
(255)
(247)
(249)
Balance end of period
12,042
11,700
10,567
TREASURY SHARES AT COST:
Balance beginning of period
(3,847)
(3,622)
(3,422)
Purchase of treasury shares
(61)
(225)
(200)
Balance end of period
(3,908)
(3,847)
(3,622)
TOTAL SHAREHOLDERS' EQUITY,
END OF PERIOD
$
8,441
$
10,139
$
9,726
The accompanying notes are an integral
part of the consolidated financial statements.
F-8
EVEREST RE GROUP,
LTD.
CONSOLIDATED
STATEMENTS
OF CASH FLOWS
Years Ended December 31,
(Dollars in millions)
2022
2021
2020
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss)
$
597
$
1,379
$
514
Adjustments to reconcile net income
to net cash provided by operating
activities:
Decrease (increase) in premiums receivable
(435)
(649)
(387)
Decrease (increase) in funds held by reinsureds,
net
(197)
(151)
(219)
Decrease (increase) in reinsurance
recoverables
(413)
(125)
(151)
Decrease (increase) in income taxes
(181)
68
240
Decrease (increase) in prepaid reinsurance
premiums
(166)
(128)
55
Increase (decrease) in reserve for losses
and loss adjustment expenses
3,477
2,805
2,631
Increase (decrease) in future policy benefit
reserve
(7)
(2)
(5)
Increase (decrease) in unearned premiums
655
1,146
404
Increase (decrease) in other net payable
to reinsurers
201
186
(24)
Increase (decrease) in losses in course
of payment
(186)
134
75
Change in equity adjustments in limited partnerships
(94)
(613)
(104)
Distribution of limited partnership income
180
211
122
Change in other assets and liabilities, net
(291)
(290)
(99)
Non-cash compensation expense
45
43
39
Amortization of bond premium (accrual of
bond discount)
55
76
50
Net (gains) losses on investments
455
(258)
(268)
Net cash provided by (used in) operating
activities
3,695
3,833
2,874
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from fixed maturities
matured/called/repaid - available
for sale
2,626
3,893
2,586
Proceeds from fixed maturities sold
- available for sale
1,403
1,916
1,951
Proceeds from fixed maturities
matured/called/repaid - held to
maturity
39
-
-
Proceeds from equity securities sold
2,217
990
376
Distributions from other invested
assets
266
257
310
Cost of fixed maturities acquired -
available for sale
(7,344)
(8,825)
(7,189)
Cost of fixed maturities acquired -
held to maturity
(153)
-
-
Cost of equity securities acquired
(1,003)
(1,098)
(637)
Cost of other invested assets acquired
(1,547)
(757)
(557)
Net change in short-term investments
149
(43)
(718)
Net change in unsettled securities transactions
(71)
(203)
195
Net cash provided by (used in) investing
activities
(3,418)
(3,869)
(3,683)
CASH FLOWS FROM FINANCING ACTIVITIES:
Common shares issued during the period for
share-based compensation, net of expense
(17)
(14)
(14)
Purchase of treasury shares
(61)
(225)
(200)
Dividends paid to shareholders
(255)
(247)
(249)
Proceeds from issuance of senior notes
-
968
979
Cost of debt repurchase
(6)
-
(11)
Net FHLB borrowings (repayments)
-
209
310
Cost of shares withheld on settlements of
share-based compensation awards
(20)
(17)
(16)
Net cash provided by (used in) financing
activities
(359)
674
800
EFFECT OF EXCHANGE RATE
CHANGES ON CASH
39
1
3
Net increase (decrease) in cash
(42)
639
(6)
Cash, beginning of period
1,441
802
808
Cash, end of period
$
1,398
$
1,441
$
802
SUPPLEMENTAL CASH FLOW
INFORMATION:
Income taxes paid (recovered)
$
171
$
98
$
(170)
Interest paid
98
62
28
NON-CASH TRANSACTIONS:
Reclassification of specific investments
from fixed maturity securities,
available for sale
at fair value to fixed maturity
securities, held to maturity at amortized
cost net of credit allowances
$
722
$
-
$
-
The accompanying notes are an integral part of the consolidated
financial statements.
F-9
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
Years Ended
December 31, 2022, 2021
and 2020
1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A.
Business and Basis of Presentation.
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.
The
accompanying
consolidated
financial
statements
have
been
prepared
in
conformity
with
accounting
principles
generally
accepted
in
the
United
States
of
America
(“GAAP”).
The
statements
include
all
of
the
following domestic
and foreign
direct and indirect
subsidiaries of Gro
up:
Everest International
Reinsurance, Ltd.
(“Everest
International”),
Mt.
Logan
Insurance
Managers,
Ltd.,
Mt.
Logan
Management,
Ltd.,
Everest
International
Holdings
(Bermuda),
Ltd.
(“International
Holdings”),
Everest
Corporate
Member
Limited,
Everest
Service
Company
(UK),
Ltd.,
Everest
Preferred
International
Holdings,
Ltd.
(“Preferred
International”),
Everest
Reinsurance
(Bermuda),
Ltd.
(“Bermuda
Re”),
Everest
Re
Advisors,
Ltd.,
Everest
Advisors
(UK),
Ltd.,
Everest
Compañia
de
Seguros
Generales
Chile
S.A.
(“Everest
Chile”),
Everest
Underwriting
Group
(Ireland),
Limited
(“Holdings
Ireland”),
Everest
Global
Services,
Inc.
(“Global
Services”),
Everest
Insurance
Company
of
Canada
(“Everest
Canada”),
Premiere
Insurance
Underwriting Services
(“Premiere”),
Everest
Dublin
Insurance
Holdings
Limited (Ireland)
(“Everest
Dublin Holdings”),
Everest
Insurance (Ireland),
designated
activity company
(“Ireland
Insurance”),
Everest
Reinsurance
Company
(Ireland),
designated
activity
company
(“Ireland
Re”),
Everest
Reinsurance
Holdings,
Inc.
(“Holdings”),
Salus
Systems,
LLC
(“Salus”),
Everest
International
Assurance,
Ltd.
(Bermuda)
(“Everest
Assurance”),
Specialty
Insurance
Group,
Inc.
(“Specialty”),
Specialty
Insurance
Group
-
Leisure and
Entertainment
Risk Purchasing
Group LLC
(“Specialty RPG”),
Mt. McKinley
Managers,
L.L.C., Everest
Specialty
Underwriters
Services,
LLC,
Everest
Reinsurance
Company
(“Everest
Re”),
Everest
National
Insurance
Company (“Everest
National”), Everest
Reinsurance Company
Ltda. (Brazil),
Mt. Whitney
Securities, Inc.,
Everest
Indemnity
Insurance
Company
(“Everest
Indemnity”),
Everest
Denali
Insurance
Company
(“Everest
Denali”),
Everest
Premier
Insurance
Company
(“Everest
Premier”)
and
Everest
Security
Insurance
Company
(“Everest
Security”).
All intercompany
accounts and
transactions have
been eliminated.
All amounts
are reported
in U.S.
dollars.
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.
Certain
reclassifications
and
format
changes
have
been
made
to
prior
years’
amounts
to
conform
to
the
2022
presentation.
B.
Investments and Cash.
Fixed
maturity
securities designated
as available
for
sale
reflect
unrealized
appreciation
and depreciation,
as a
result
of change
s
in
fair
value during
the
period,
in shareholders’
equity,
net
of income
taxes
in
“accumulated
other
comprehensive
income
(loss)”
in
the
consolidated
balance
sheets. The
Company
reviews
all
of
its
fixed
F-10
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
fair
value.
Non-credit
related
declines
in
fair
value
are
recorded
as
unrealized
losses
in
accumulated other comprehensive
income (loss).
If the Company intends
to sell the impaired security
or is more
likely than
not to
be required
to sell
the security
before
an anticipated
recovery
in value,
the Company
records
the
entire
impairment
in
net
gains
(losses)
on
investments
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
gains (losses)
on investments
in the
Company’s
consolidated
statements
of operations
and comprehensive
income
(loss).
The determination
of credit
related
or non-credit
related impairment is
first based on an
assessment of qualitative
factors, which may
determine that a qualitative
analysis is
sufficient to
support the
conclusion that
the present
value of
expected
cash flows
equals or
exceeds
the
security’s
amortized
cost
basis.
However,
if
the
qualitative
assessment
suggests
a
credit
loss
may
exist,
a
quantitative assessment
is performed, and 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 Company
will adjust
the credit allowance account
for future changes
in credit loss estimates
for a security and record
this adjustment
through
net
gains
(losses)
on
investments
in
the
Company’s
consolidated
statements
of
operations
and
comprehensive income (loss).
Fixed
maturity
securities
designated
as
held
to
maturity
consist
of
debt
securities
for
which
the
Company
has
both the positive
intent and ability
to hold to
maturity or redemption
and are reported
at amortized cost,
net of
the
current
expected
credit
loss
allowance.
Interest
income
for
fixed
maturity
securities
held
to
maturity
is
determined in the
same manner as interest
income for fixed
maturity securities available
for sale.
The Company
evaluates
fixed
maturity
securities
classified as
held to
maturity
for
current
expected
credit
losses
utilizing risk
characteristics
of
each
security,
including
credit
rating,
remaining
time
to
maturity,
adjusted
for
prepayment
considerations,
and
subordination
level,
and
applying
default
and
recovery
rates,
which
include
the
incorporation
of
historical
credit
loss
experience
and
macroeconomic
forecasts,
to
develop
an
estimate
of
current expected credit losses.
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.
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.
For
equity securities,
the
Company
reflects
changes
in fair
value
as net
gains
(losses)
on investments.
Interest
income on all fixed maturities
and dividend income on all equity securities
are included as part of net
investment
income in the consolidated statements
of operations and comprehensive
income (loss).
F-11
Short-term
investments
comprise
securities due
to
mature
within one
year
from
the date
of purchase
and are
stated at cost, which appro
ximates fair value.
Realized
gains
or losses
on sales
of investments
are
determined
on the
basis of
identified
cost.
For some
non-
publicly
traded
securities,
market
prices
are
determined
through
the
use
of
pricing
models
that
evaluate
securities
relative
to
the
U.S.
Treasury
yield
curve,
taking
into
account
the
issue
type,
credit
quality,
and
cash
flow characteristics
of each
security.
For
other
non-publicly
traded
securities,
investment
managers’
valuation
committees
will estimate
fair
value
and in
many
instances,
these fair
values
are
supported
with opinions
from
qualified
independent
third
parties.
All
fair
value
estimates
from
investment
managers
are
reviewed
by
the
Company
for
reasonableness.
For
publicly
traded
securities,
fair
value
is
based
on
quoted
market
prices
or
valuation
models
that
use
observable
market
inputs.
When
a
sector
of
the
financial
markets
is
inactive
or
illiquid, the
Company may
use its
own assumptions
about future
cash flows
and risk-adjusted
discount
rates
to
determine fair value.
Other
invested
assets
include
limited
partnerships,
company-owned
life
insurance,
rabbi
trusts
and
other
investments.
Limited
partnerships
are
accounted
for
under
the
equity
method
of
accounting,
which
can
be
recorded
on
a
monthly
or
quarterly
lag.
Company-owned
life
insurance
policies
are
carried
at
policy
cash
surrender value and changes in the policy cash
surrender value are included within net investment
income.
Cash
includes
cash
on
hand.
Restricted
cash
is
included
within
cash
in
the
consolidated
balance
sheets
and
represents
amounts
held
for
the
benefit
of
third
parties
that
is
legally
or
contractually
restricted
as
to
its
withdrawal or usage. Amounts
include trust funds set up for the benefit of ceding companies.
C.
Allowance for Premium Receivable
and Reinsurance Recoverables
.
The
Company
applies
the
Current
Expected
Credit
Losses
(CECL)
methodology
for
estimating
allowances
for
credit losses.
The Company
evaluates
the recoverability
of its
premiums and
reinsurance
recoverable
balances
and establishes an allowance for estimated
uncollectible amounts.
Premiums
receivable,
excluding
receivables
for
losses
within
a
deductible
and
retrospectively-rated
policy
premiums, are primarily
comprised of premiums
due from policyholders/
cedants.
Balances are considered
past
due
when
amounts
that
have
been
billed
are
not
collected
within
contractually
stipulated
time
periods.
For
these
balances,
the
allowance
is
estimated
based
on
recent
historical
credit
loss
and
collection
experience,
adjusted for current economic
conditions and reasonable and supportable
forecasts, when appropriate.
A portion of the
Company's commercial
lines business is
written with large
deductibles or under
retrospectively-
rated
plans.
Under some
commercial
insurance
contracts
with a
large
deductible,
the
Company
is obligated
to
pay the
claimant the
full amount
of the
claim and the
Company is
subsequently reimbursed
by the
policyholder
for
the
deductible
amount.
As
such,
the
Company
is
subject
to
credit
risk
until
reimbursement
is
made.
Retrospectively-rated
policies
are
policies
whereby
the
ultimate
premium
is
adjusted
based
on
actual
losses
incurred.
Although
the
premium
adjustment
feature
of
a
retrospectively-rated
policy
substantially
reduces
insurance
risk
for
the
Company,
it
presents
credit
risk
to
the
Company.
The
Company’s
results
of
operations
could be adversely
affected if
a significant portion of
such policyholders failed
to reimburse
the Company for
the
deductible
amount
or
the
amount
of
additional
premium
owed
under
retrospectively-rated
policies.
The
Company
manages
these
credit
risks
through
credit
analysis,
collateral
requirements,
and
oversight.
The
allowance
for
receivables
for
loss
within
a
deductible
and
retrospectively-rated
policy
premiums
is
recorded
within
other
assets
in
the
consolidated
balance
sheets.
The
allowance
is
estimated
as
the
amount
of
the
receivable exposed
to loss multiplied
by estimated
factors for
probability of
default. The
probability of
default is
assigned
based
on
each
policyholder's
credit
rating,
or
a
rating
is
estimated
if
no
external
rating
is
available.
Credit ratings
are reviewed
and updated
at least
annually.
The exposure
amount is
estimated
net of
collateral
and
other
offsets,
considering
the
nature
of
the
collateral,
potential
future
changes
in
collateral
values,
and
historical
loss
information
for
the
type
of
collateral
obtained.
The
probability
of
default
factors
are
historical
corporate
defaults
for
receivables
with
similar
durations
estimated
through
multiple
economic
cycles.
Credit
F-12
ratings
are
forward-looking
and
consider
a
variety
of
economic
outcomes.
The
Company's
evaluation
of
the
required
allowance
for
receivables
for
loss
within
a
deductible
and
retrospectively-rated
policy
premiums
considers the current economic
environment as well as the probability
-weighted macroeconomic scenarios.
The Company
records total
credit loss
expenses related
to premiums
receivable in
Other underwriting
expenses
and records
credit
loss
expenses
related
to
deductibles
in Incurred
losses
and loss
adjustment
expenses
in the
Company’s consolidate
d
statements of operations
and comprehensive income (loss).
The
allowance
for
uncollectible
reinsurance
recoverable
reflects
management’s
best
estimate
of
reinsurance
cessions
that
may
be
uncollectible
in
the
future
due
to
reinsurers’
unwillingness
or
inability
to
pay.
The
allowance
for
uncollectible
reinsurance
recoverable
comprises
an
allowance
and
an
allowance
for
disputed
balances.
Based
on
this
analysis,
the
Company
may
adjust
the
allowance
for
uncollectible
reinsurance
recoverable or charge
off reinsurer balances that are
determined to be uncollectible.
Due to the inherent
uncertainties as to
collection and the length
of time before reinsurance
recoverable become
due, it is possible that future adjustments
to the Company’s reinsurance
recoverable, net
of the allowance, could
be required,
which could
have a
material adverse
effect on
the Company’s
consolidated results
of operations
or
cash flows in a particular quarter or annual period.
The allowance
is
estimated
as
the
amount
of reinsurance
recoverable
exposed
to
loss multiplied
by
estimated
factors
for
the
probability
of
default.
The
reinsurance
recoverable
exposed
is
the
amount
of
reinsurance
recoverable net
of collateral
and other offsets,
considering the nature
of the collateral,
potential future
changes
in collateral
values, and
historical loss
information for
the type of
collateral obtained.
The probability
of default
factors are
historical insurer
and reinsurer
defaults for
liabilities with similar
durations to
the reinsured liabilities
as
estimated
through
multiple
economic
cycles.
Credit
ratings
are
forward-looking
and
consider
a
variety
of
economic outcomes.
The Company's
evaluation of
the required allowance
for reinsurance
recoverable
considers
the current economic environment
as well as macroeconomic scenarios.
The
Company
records
credit
loss
expenses
related
to
reinsurance
recoverable
in
Incurred
losses
and
loss
adjustment expenses in the Company’s
consolidated statements
of operations and comprehensive
income (loss).
Write-offs of
reinsurance recoverable
and any related
allowance are recorded
in the period in
which the balance
is deemed uncollectible.
D.
Deferred Acquisition Costs.
Acquisition costs,
consisting principally
of commissions
and brokerage
expenses and
certain premium
taxes
and
fees
incurred
at
the
time
a
contract
or
policy
is
issued
and
that
vary
with
and
are
directly
related
to
the
Company’s reinsurance
and insurance business,
are deferred
and amortized over
the period in which the
related
premiums
are
earned.
Deferred
acquisition
costs
are
limited
to
their
estimated
realizable
value
by
line
of
business
based
on
the
related
unearned
premiums,
anticipated
claims
and
claim
expenses
and
anticipated
investment income.
E.
Reserve for Losses and Loss Adjustment
Expenses.
The reserve
for
losses
and loss
adjustment
expenses
(“LAE”) is
based
on individual
case estimates
and
reports
received from
ceding companies.
A provision
is included
for losses
and LAE
incurred but
not reported
(“IBNR”)
based on past
experience.
Provisions are
also included for
certain potential
liabilities, including those
relating to
asbestos
and
environmental
(“A&E”)
exposures,
catastrophe
exposures,
COVID-19
and
other
exposures,
for
which liabilities
cannot be
estimated
using trad
itional reserving
techniques.
See also
Note
3.
The reserves
are
reviewed
periodically
and
any
changes
in
estimates
are
reflected
in
earnings
in
the
period
the
adjustment
is
made.
The
Company’s
loss
and
LAE
reserves
represent
management’s
best
estimate
of
the
ultimate
liability.
Loss and
LAE reserves
are presented
gross of
reinsurance
recoverable
and incurred
losses and
LAE are
presented net of reinsurance.
F-13
Accruals
for
commissions
are
established
for
reinsurance
contracts
that
provide
for
the
stated
commission
percentage to
increase or
decrease based
on the loss
experience of the
contract.
Changes in
estimates for
such
arrangements are
recorded as
commission expense.
Commission accruals
for contracts
with adjustable
features
are estimated based on expected
loss and LAE.
F.
Future Policy Benefit Reserve.
Liabilities
for
future
policy
benefits
on
annuity
policies
are
carried
at
their
accumulated
values.
Reserves
for
policy
benefits
include
mortality
claims
in
the
process
of
settlement
and
IBNR
claims.
Actual
experience
in
a
particular period may fluctuate from
expected results.
G.
Premium Revenues.
Written
premiums
are
earned
ratably
over
the
periods
of
the
related
insurance
and
reinsurance
contracts.
Unearned
premium
reserves
are
established
relative
to
the
unexpired
contract
period.
For
reinsurance
contracts,
such
reserves
are
established
based
upon
reports
received
from
ceding
companies
or
estimated
using
pro
rata
methods
based
on
statistical
data.
Reinstatement
premiums
represent
additional
premium
recognized
and
earned
at
the
time
a
loss
event
occurs
and
losses
are
recorded,
most
prevalently
catastrophe
related,
when
limits
have
been
depleted
under
the
original
reinsurance
contract
and
additional
coverage
is granted.
The recognition
of reinstatement
premiums
is based
on estimates
of loss
and LAE,
which
reflects
management’s
judgement.
Written
and
earned
premiums
and
the
related
costs,
which
have
not
yet
been reported to the Company,
are estimated and accrued.
Premiums are net of ceded reinsurance.
H.
Prepaid Reinsurance Premiums.
Prepaid
reinsurance
premiums
represent
unearned
premium
reserves
ceded
to
other
reinsurers.
Prepaid
reinsurance
premiums
for
any
foreign
reinsurers
comprising
more
than
10
%
of
the
outstanding
balance
at
December 31,
2022 were
secured either
through collateralized
trust arrangements,
rights of
offset or
letters
of
credit, thereby limiting the credit risk to
the Company.
I.
Income Taxes.
Holdings
and
its
wholly
owned
subsidiaries
file
a
consolidated
U.S.
federal
income
tax
return.
Foreign
subsidiaries and branches of subsidiaries
file local tax returns as required.
Group and subsidiaries not included in
Holdings’
consolidated
tax
return
file separate
company
U.S.
federal
income
tax
returns
as required.
Deferred
income
taxes
have
been
recorded
to
recognize
the
tax
effect
of
temporary
differences
between
the
financial
reporting and
income tax
bases of
assets
and liabilities,
which arise
because of
differences
between
GAAP and
income tax accounting rules.
As
an
accounting
policy,
the
Company
has
adopted
the
aggregate
portfolio
approach
for
releasing
disproportionate income tax
effects from Accumulated
Other Comprehensive Income.
J.
Foreign Currency.
The Company
transacts business
in numerous
currencies through
business units
located around
the world.
The
base transactional
currency for
each business
unit is
determined by
the local
currency used
for most
economic
activity
in
that
area.
Movements
in
exchange
rates
related
to
foreign
currency
denominated
monetary
assets
and liabilities
at
the business
units
between the
original
currency
and the
base currency
are
recorded
through
the consolidated
statements
of operations
and comprehensive
income (loss)
in other
income (expense),
except
for
currency
movements
related
to
available
for
sale
fixed
maturities
securities,
which
are
excluded
from
net
income (loss) and accumulated in shareholders’
equity, net of deferred
taxes.
The business
units’ base
currency financial
statements
are translated
to U.S.
dollars using
the exchange
rates
at
the end of period for the balance sheets and the average
exchange rates
in effect for the reporting
period for the
F-14
income statements.
Gains and losses
resulting from translating
the foreign currency
financial statements,
net of
deferred income taxes,
are excluded from net income
loss and accumulated in shareholders’
equity.
K.
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.
Years Ended December 31,
(Amounts in millions, except per share amounts)
2022
2021
2020
Net income (loss) per share:
Numerator
Net income (loss)
$
597
$
1,379
$
514
Less:
dividends declared-common shares and nonvested common shares
(255)
(247)
(249)
Undistributed earnings
342
1,132
265
Percentage allocated to common shareholders (1)
98.7
%
98.7
%
98.7
%
337
1,117
262
Add:
dividends declared-common shareholders
252
244
246
Numerator for basic and diluted earnings per common share
$
589
$
1,361
$
508
Denominator
Denominator for basic earnings per weighted-average common shares
39
39
40
Effect of dilutive securities:
Options
-
-
-
Denominator for diluted earnings per adjusted weighted-average common shares
39
39
40
Per common share net income (loss)
Basic
$
15.19
$
34.66
$
12.81
Diluted
$
15.19
$
34.62
$
12.78
(1)
Basic weighted-average common shares outstanding
39
39
40
Basic weighted-average common shares outstanding
and nonvested common shares expected
to vest
39
40
40
Percentage allocated to common shareholders
98.7
%
98.7
%
98.7
%
(Some amounts may not reconcile due to rounding.)
There were
no
options outstanding as of December 31, 2022.
Options granted
under share-based
compensation plans
have all
expired as
of September
19, 2022.
There were
no
anti-diluted options outstanding as
of December 31, 2021 and 2020, respectively.
L.
Segmentation.
The Company,
through its subsidiaries, operates
in
two
segments: Reinsurance and Insurance.
See also Note 17.
M.
Share-Based Compensation.
Share-based compensation
stock option,
restricted
share and
performance share
unit awards
are fair
valued at
the grant
date and
expensed over
the vesting
period of
the award.
The tax
benefit on
the recorded
expense is
deferred until the time the award
is exercised or vests
(becomes unrestricted).
See Note 16.
F-15
N.
Application of Recently Issued Accounting
Guidance.
The Company
did not
adopt any
new accounting
standards
that
had a
material
impact
in 2022.
The Company
assessed
the
adoption
impacts
of
recently
issued
accounting
standards
by
the
Financial
Accounting
Standards
Board on
the Company’s
consolidated financial
statements as
well as material
updates to
previous assessments,
if any,
from the Company’s
Annual Report on
Form 10-K for
the year ended
December 31, 2021.
There were no
accounting standards
issued for the year
ended December 31, 2022, that
are expected to
have a material
impact
to Group.
2.
INVESTMENTS
The
tables
below
present
the
amortized
cost,
allowance
for
credit
losses,
gross
unrealized
appreciation/(depreciation)
and
market
value
of
fixed
maturity
securities
-
available
for
sale
for
the
periods
indicated.
At December 31, 2022
Amortized
Allowance for
Unrealized
Unrealized
Fair
(Dollars in millions)
Cost
Credit Losses
Appreciation
Depreciation
Value
Fixed maturity securities - available for sale:
U.S. Treasury securities and obligations of
U.S. government agencies and corporations
$
1,334
$
-
$
6
$
(82)
$
1,257
Obligations of U.S. states and political subdivisions
444
-
2
(32)
413
Corporate securities
7,044
(45)
31
(561)
6,469
Asset-backed securities
4,229
-
5
(171)
4,063
Mortgage-backed securities
Commercial
1,023
-
-
(105)
919
Agency residential
3,382
-
7
(290)
3,099
Non-agency residential
5
-
-
(1)
4
Foreign government securities
1,586
-
8
(179)
1,415
Foreign corporate securities
5,143
(10)
23
(562)
4,596
Total fixed maturity securities - available for sale
$
24,191
$
(54)
$
81
$
(1,982)
$
22,236
(Some amounts may not reconcile due to rounding.)
At December 31, 2021
Amortized
Allowance for
Unrealized
Unrealized
Fair
(Dollars in millions)
Cost
Credit Losses
Appreciation
Depreciation
Value
Fixed maturity securities - available for sale:
U.S. Treasury securities and obligations of
U.S. government agencies and corporations
$
1,407
$
-
$
24
$
(10)
$
1,421
Obligations of U.S. states and political subdivisions
559
-
29
(1)
587
Corporate securities
7,444
(19)
195
(63)
7,557
Asset-backed securities
3,579
(8)
22
(12)
3,582
Mortgage-backed securities
Commercial
1,032
-
38
(6)
1,064
Agency residential
2,361
-
33
(19)
2,375
Non-agency residential
7
-
-
-
7
Foreign government securities
1,424
-
42
(28)
1,438
Foreign corporate securities
4,251
(3)
95
(65)
4,279
Total fixed maturity securities - available for sale
$
22,064
$
(30)
$
478
$
(203)
$
22,308
(Some amounts may not reconcile due to rounding.)
F-16
The
following
table
shows
amortized
cost,
allowance
for
credit
losses,
gross
unrealized
appreciation/(depreciation) and fair
value of fixed maturity securities held to
maturity for the periods indicated:
At December 31, 2022
Amortized
Allowance for
Unrealized
Unrealized
Fair
(Dollars in millions)
Cost
Credit Losses
Appreciation
Depreciation
Value
Fixed maturity securities - held to maturity:
Corporate securities
$
152
$
(2)
$
-
$
(6)
$
144
Asset-backed securities
661
(6)
2
(15)
642
Mortgage-backed securities
-
Commercial
7
-
-
-
7
Foreign corporate securities
28
(1)
2
-
28
Total fixed maturity securities - held to maturity
$
848
$
(9)
$
3
$
(22)
$
821
(Some amounts may not reconcile due
to rounding.)
The amortized
cost
and
market
value
of
fixed
maturity
securities
available
for
sale
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 December 31, 2022
At December 31, 2021
Amortized
Fair
Amortized
Fair
(Dollars in millions)
Cost
Value
Cost
Value
Fixed maturity securities – available for sale:
Due in one year or less
$
1,331
$
1,314
$
1,399
$
1,398
Due after one year through five years
8,131
7,546
7,075
7,154
Due after five years through ten years
4,636
4,057
5,004
5,101
Due after ten years
1,454
1,233
1,606
1,627
Asset-backed securities
4,229
4,063
3,579
3,582
Mortgage-backed securities:
Commercial
1,023
919
1,032
1,064
Agency residential
3,382
3,099
2,361
2,375
Non-agency residential
5
4
7
7
Total fixed maturity securities -available for sale
$
24,191
$
22,236
$
22,064
$
22,308
(Some amounts may not reconcile due to rounding.)
The amortized
cost and
fair value
of fixed
maturity securities
held to
maturity 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 December 31, 2022
Amortized
Fair
(Dollars in millions)
Cost
Value
Fixed maturity securities – held to maturity:
Due in one year or less
$
5
$
5
Due after one year through five years
63
61
Due after five years through ten years
43
41
Due after ten years
68
65
Asset-backed securities
661
642
Mortgage-backed securities:
Commercial
7
7
Total fixed maturity securities - held to maturity
$
848
$
821
(Some amounts may not reconcile due
to rounding.)
During
2022,
the
Company
re-designated
a
portion
of
its
fixed
maturity
securities
from
its
fixed
maturity
–
available
for
sale
portfolio
to
its
fixed
maturity
–
held
to
maturity
portfolio.
The
fair
value
of
the
securities
F-17
reclassified at
the date
of transfer
was $
722
million, net
of allowance
for current
expected
credit losses,
which
was subsequently recognized
as the new amortized
cost basis.
As of the date of transfer,
these securities had an
unrealized
loss
of
$
53
million,
which
remained
in
accumulated
other
comprehensive
income
on
the
balance
sheet and
will be
amortized
into
income through
an adjustment
to
the yields
of the
underlying
securities over
the remaining life of the securities.
The Company evaluated
fixed maturity
securities classified as
held to maturity
for current
expected credit
losses
as of
December 31,
2022 utilizing
risk characteristics
of each
security,
including credit
rating, remaining
time to
maturity,
adjusted
for
prepayment
considerations,
and
subordination
level,
and
applying
default
and
recovery
rates,
which
include
the
incorporation
of
historical
credit
loss
experience
and
macroeconomic
forecasts,
to
develop an estimate
of current expected
credit losses. These
fixed maturities classified
as held to maturity
are of
a high credit quality and are all rated
investment grade as of December
31, 2022.
The changes
in net
unrealized
appreciation
(depreciation)
for the
Company’s
investments
are derived
from the
following sources for the periods
indicated:
Years Ended December 31,
(Dollars in millions)
2022
2021
Increase (decrease) during the period between the fair value and cost
of investments carried at fair value, and deferred taxes thereon:
Fixed maturity securities and short-term investments
$
(2,225)
$
(542)
Change in unrealized appreciation (depreciation), pre-tax
(2,225)
(542)
Deferred tax benefit (expense)
277
58
Change in unrealized appreciation (depreciation),
net of deferred taxes, included in shareholders’ equity
$
(1,948)
$
(485)
(Some amounts may not reconcile due to rounding.)
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 December
31, 2022 By Security Type
Less than 12 months
Greater than 12 months
Total
Gross
Gross
Gross
Unrealized
Unrealized
Unrealized
(Dollars in millions)
Fair Value
Depreciation
Fair Value
Depreciation
Fair Value
Depreciation
Fixed maturity securities - available for
sale:
U.S. Treasury securities and
obligations of
U.S. government agencies and corporations
$
668
$
(31)
$
487
$
(52)
$
1,155
$
(82)
Obligations of U.S. states and
political subdivisions
235
(23)
27
(9)
261
(32)
Corporate securities
4,143
(326)
1,316
(234)
5,459
(561)
Asset-backed securities
3,204
(142)
456
(29)
3,661
(171)
Mortgage-backed securities
Commercial
806
(90)
101
(15)
907
(105)
Agency residential
1,905
(132)
870
(158)
2,776
(289)
Non-agency residential
4
-
1
(1)
4
-
Foreign government securities
985
(100)
321
(79)
1,306
(179)
Foreign corporate securities
3,264
(372)
853
(189)
4,117
(561)
Total
$
15,213
$
(1,217)
$
4,432
$
(764)
$
19,645
$
(1,982)
Securities where an allowance for credit
loss was recorded
2
-
-
-
2
-
Total fixed
maturity securities - available for
sale
$
15,215
$
(1,217)
$
4,432
$
(764)
$
19,647
$
(1,982)
(Some amounts may not reconcile due to rounding.)
F-18
Duration of Unrealized Loss at December
31, 2022 By Maturity
Less than 12 months
Greater than 12 months
Total
Gross
Gross
Gross
Unrealized
Unrealized
Unrealized
(Dollars in millions)
Fair Value
Depreciation
Fair Value
Depreciation
Fair Value
Depreciation
Fixed maturity securities - available for
sale:
Due in one year or less
$
989
$
(19)
$
40
$
(7)
$
1,029
$
(26)
Due in one year through five years
4,935
(383)
1,645
(209)
6,580
(592)
Due in five years through ten years
2,698
(360)
911
(230)
3,609
(590)
Due after ten years
672
(91)
408
(116)
1,080
(207)
Asset-backed securities
3,204
(142)
456
(29)
3,661
(171)
Mortgage-backed securities
2,715
(222)
972
(173)
3,687
(395)
Total
$
15,213
$
(1,217)
$
4,432
$
(764)
$
19,645
$
(1,982)
Securities where an allowance for credi
t
loss was recorded
2
-
-
-
2
-
Total fixed
maturity securities - available for
sale
$
15,215
$
(1,217)
$
4,432
$
(764)
$
19,647
$
(1,982)
(Some amounts may not reconcile due to rounding.)
The aggregate
market
value and
gross unrealized
losses related
to investments
in an
unrealized loss
position at
December 31, 2022 were $
19.6
billion and $
2.0
billion, respectively.
The market value
of securities for the single
issuer
(the
United
States
government)
whose
securities
comprised
the
largest
unrealized
loss
position
at
December 31, 2022,
did not exceed
5.2
% 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
0.2
%
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 $
1.2
billion 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,
asset-backed
securities,
agency
residential
mortgage-backed
securities and
foreign
government
securities.
Of these
unrealized
losses, $
1.1
billion were
related
to securities
that
were
rated
investment
grade
by
at
least
one
nationally
recognized
statistical
rating
agency.
The
$
764
million 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,
agency
residential
mortgage-backed
securities and
foreign government
securities.
Of these unrealized
losses, $
732
million were
related to
securities
that were rated
investment
grade by
at least one
nationally recognized
statistical
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.
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.
F-19
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.
The
amounts
presented
in
the
tables
below
include
$
16
million
of
market
value
and
$
(0.4)
million
of
gross
unrealized
depreciation as
of December
31, 2021
related
to fixed
maturity securities
for which
the Company
has recorded
an allowance for credit losses.
Duration of Unrealized Loss at December
31, 2021 By Security Type
Less than 12 months
Greater than 12 months
Total
Gross
Gross
Gross
Unrealized
Unrealized
Unrealized
(Dollars in millions)
Fair Value
Depreciation
Fair Value
Depreciation
Fair Value
Depreciation
Fixed maturity securities - available for
sale:
U.S. Treasury securities and
obligations of
U.S. government agencies and corporations
$
504
$
(6)
$
92
$
(4)
$
596
$
(10)
Obligations of U.S. states and
political subdivisions
51
(1)
3
-
54
(1)
Corporate securities
2,133
(38)
473
(24)
2,605
(63)
Asset-backed securities
1,954
(11)
42
(1)
1,996
(12)
Mortgage-backed securities
Commercial
222
(3)
40
(3)
262
(6)
Agency residential
1,101
(12)
280
(7)
1,381
(19)
Non-agency residential
2
-
-
-
2
-
Foreign government securities
392
(10)
101
(18)
493
(28)
Foreign corporate securities
1,735
(46)
211
(18)
1,945
(65)
Total fixed
maturity securities - available for
sale
$
8,094
$
(128)
$
1,241
$
(75)
$
9,335
$
(203)
(Some amounts may not reconcile due to rounding.)
Duration of Unrealized Loss at December
31, 2021 By Maturity
Less than 12 months
Greater than 12 months
Total
Gross
Gross
Gross
Unrealized
Unrealized
Unrealized
(Dollars in millions)
Fair Value
Depreciation
Fair Value
Depreciation
Fair Value
Depreciation
Fixed maturity securities - available for
sale:
Due in one year or less
$
130
$
(2)
$
137
$
(12)
$
267
$
(14)
Due in one year through five years
2,165
(35)
446
(29)
2,612
(64)
Due in five years through ten years
1,728
(47)
244
(22)
1,972
(69)
Due after ten years
792
(16)
51
(3)
843
(19)
Asset-backed securities
1,954
(11)
42
(1)
1,996
(12)
Mortgage-backed securities
1,325
(15)
320
(10)
1,646
(25)
Total fixed
maturity securities - available for
sale
$
8,094
$
(128)
$
1,241
$
(75)
$
9,335
$
(203)
(Some amounts may not reconcile due to rounding.)
The aggregate
market
value and
gross unrealized
losses related
to investments
in an
unrealized loss
position at
December 31, 2021 were $
9.3
billion and $
203
million, respectively.
The market value
of securities for the single
issuer
(the
United
States
government)
whose
securities
comprised
the
largest
unrealized
loss
position
at
December 31, 2021,
did not exceed
2.7
% 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
0.5
%
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
$
128
million
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
asset-backed
securities
and foreign
government
securities.
Of
these
unrealized
losses,
$
116
million
were
related
to
securities
that
were
rated
investment
grade
by
at
least one
nationally
recognized
statistical
rating
agency.
The $
75
million
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,
$
72
million were
related to
securities that
were rated
investment
grade
by
at
least
one
nationally
recognized
statistical
rating
agency.
In
all
instances,
there
were
no
projected
F-20
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:
Years Ended December 31,
(Dollars in millions)
2022
2021
2020
Fixed maturities
$
742
$
561
$
542
Equity securities
16
17
19
Short-term investments and cash
28
1
5
Other invested assets
Limited partnerships
75
565
113
Other
29
63
2
Gross investment income before adjustments
890
1,208
681
Funds held interest income (expense)
2
12
13
Future policy benefit reserve income (expense)
-
(1)
(1)
Gross investment income
892
1,219
692
Investment expenses
(62)
(54)
(50)
Net investment income
$
830
$
1,165
$
642
(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 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
$
2.6
billion in limited partnerships
and
private
placement loans
at December
31, 2022.
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
.
During the fourth
quarter of 2022, the
Company entered
into corporate
-owned life insurance
policies, which are
carried within other invested assets
at policy cash surrender value of $
939
million as of December 31, 2022.
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 December 31, 2022 and
2021, the Company did
no
t 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 December 31, 2022
and 2021
F-21
is limited
to
the total
carrying
value
of $
4.1
billion and
$
2.9
billion,
respectively,
which
are
included in
general
and
limited
partnerships
and
other
alternative
investments
in
Other
Invested
Assets
in
the
Company's
Consolidated
Balance
Sheets.
As
of
December 31,
2022,
the
Company
has
outstanding
commitments
totaling
$
2.1
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.
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,
the
level
of
credit
subordination
which
reduces
the
Company’s
obligation
to
absorb
losses
or
right
to
receive
benefits
and
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.
The components of net realized capital
gains (losses) are presented in the
table below for the periods indicated:
Years Ended December 31,
(Dollars in millions)
2022
2021
2020
Fixed maturity securities:
Allowance for credit losses
$
(33)
$
(28)
$
(2)
Net realized gains (losses) from dispositions
(87)
17
(5)
Gains (losses) from fair value adjustments
-
-
2
Equity securities:
Net realized gains (losses) from dispositions
112
28
(9)
Gains (losses) from fair value adjustments
(460)
236
278
Other invested assets
13
6
2
Short-term investments gain (loss)
-
-
1
Total net realized gains (losses) on investments
$
(455)
$
258
$
268
(Some amounts may not reconcile due to rounding.)
The
following
tables
provide
a
roll
forward
of
the
Company’s
beginning
and
ending
balance
of
allowance
for
credit losses for the periods indicated:
F-22
Roll Forward of Allowance for Credit Losses
Twelve Months Ended December 31, 2022
Foreign
Corporate
Asset-Backed
Corporate
Securities
Securities
Securities
Total
(Dollars in millions)
Beginning Balance
$
(19)
$
(8)
$
(3)
$
(30)
Credit losses on securities where credit
losses were not previously recorded
(1)
(13)
(6)
(17)
(35)
Increases in allowance on previously
impaired securities
(20)
-
(1)
(21)
Decreases in allowance on previously
impaired securities
-
-
-
-
Reduction in allowance due to disposals
6
8
10
23
Balance as of December 31
$
(46)
$
(6)
$
(11)
$
(63)
(Some amounts may not reconcile due to rounding.)
(1)
Credit losses recorded as of December 31,
2022 for HTM were $
2
million, $
6
million and $
1
million for Corporate, asset-backed
securities and foreign
corporate securities, respectively.
Roll Forward of Allowance for Credit Losses
Twelve Months Ended December 31, 2021
Foreign
Corporate
Asset-Backed
Corporate
Securities
Securities
Securities
Total
(Dollars in millions)
Beginning Balance
$
(1)
$
-
$
(1)
$
(2)
Credit losses on securities where credit
losses were not previously recorded
(21)
(5)
(2)
(29)
Increases in allowance on previously
impaired securities
(3)
(3)
-
(5)
Decreases in allowance on previously
Reduction in allowance due to disposals
6
-
-
6
Balance as of December 31
$
(19)
$
(8)
$
(3)
$
(30)
(Some amounts may not reconcile due to rounding.)
The proceeds and
split between gross
gains and losses,
from sales of
fixed maturity
securities - available
for sale
and equity securities, are presented in the table
below for the periods indicated:
Years Ended December 31,
(Dollars in millions)
2022
2021
2020
Proceeds from sales of fixed maturity securities - available for sale
$
1,403
$
1,916
$
1,951
Gross gains from sales
40
72
80
Gross losses from sales
(127)
(55)
(85)
Proceeds from sales of equity securities
$
2,217
$
990
$
376
Gross gains from sales
165
42
37
Gross losses from sales
(53)
(15)
(46)
Securities with a
carrying value
amount of
$
1.4
billion at
December 31, 2022
were on
deposit with various
state
or governmental insurance departments
in compliance with insurance laws.
F-23
3.
RESERVE FOR LOSSES, LAE AND FUTURE
POLICY BENEFIT RESERVE
Reserves for losses and LAE.
The following
table provides
a roll forward
of the Company’s
beginning and
ending reserve
for losses
and LAE is
summarized for the periods indicated:
Years Ended December 31,
(Dollars in millions)
2022
2021
2020
Gross reserves beginning of period
$
19,009
$
16,322
$
13,531
Less reinsurance recoverables on unpaid losses
(1,946)
(1,844)
(1,641)
Net reserves beginning of period
17,063
14,478
11,891
Incurred related to:
Current year
8,102
7,400
6,149
Prior years
(2)
(9)
401
Total incurred losses and LAE
8,100
7,391
6,551
Paid related to:
Current year
1,220
2,491
2,046
Prior years
3,740
2,226
2,078
Total paid losses and LAE
4,960
4,717
4,124
Foreign exchange/translation adjustment
(243)
(89)
161
Net reserves end of period
19,960
17,063
14,478
Plus reinsurance recoverables on unpaid losses
2,105
1,946
1,844
Gross reserves end of period
$
22,065
$
19,009
$
16,322
(Some amounts may not reconcile due
to rounding.)
Current year
incurred losses
were $
8.1
billion, $
7.4
billion and
$
6.1
billion in
2022, 2021
and 2020, respectively.
Gross and
net reserves
increased in
2022, reflecting
an increase
in underlying
exposure due
to earned
premium
growth, year
over year,
the impact
of $
45
million of
incurred losses
related to
the Ukraine/Russia
war,
partially
offset by decrease of $
80
million in 2022 current year catastrophe
losses compared to 2021.
The war in
the Ukraine
is ongoing
and an evolving
event. 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
by
numerous
countries,
including
the
United States.
The significant
political and
economic uncertainty
surrounding
the war
and associated
sanctions
have impacted economic and investment
markets both within Russia and around
the world.
The
increase
in
current
year
incurred
losses
from
2020
to
2021
was
primarily
related
to
an
increase
of
$
710
million in
current year
catastrophe
losses and
an increase
of $
541
million in
current year
attritional losses.
The
increase in
current year
attritional losses
was mainly
due to
the growth
in premiums
earned, partially
mitigated
by $
511
million of losses related to COVID-19
in 2020 which did not recur in 2021.
Incurred prior years
losses were $(
2
) million in 2022, ($
9
) million in 2021 and $
401
million in 2020. The favorable
development
on
prior
year
reserves
of
($
2
)
million
in
2022
is
primarily
driven
by
better
than
expected
loss
emergence in
workers’
compensation and
surety lines
of business, as
well as attritional
property.
The favorable
development
on
prior
year
reserves
of
($
9
)
million
in
2021
is
primarily
driven
by
a
commutation
and
reserve
releases
within
the
reinsurance
segment.
The
increase
for
2020
primarily
related
to
higher
ultimate
loss
estimates
for
long-tail
casualty
business
in
the
reinsurance
segment
for
accident
years
2015
to
2018,
notably
general
liability,
professional
lines,
and
auto
liability.
The
reserve
charge
also
includes
actions
on
non-CAT
property
lines,
primarily
for
the
2017
to
2019
accident
years
and
driven
by
a
few
large
losses
to
aggregate
programs.
F-24
The
following
is
information
about
incurred
and
paid
claims
development
as
of
December
31,
2022,
net
of
reinsurance,
as
well as
cumulative
claim frequency
and
the total
of incurred
but not
reported
liabilities
(IBNR)
plus
expected
development
on
reported
claims
included
within
the
net
incurred
claims
amounts.
Each
of the
Company’s
financial
reporting
segments
has
been
disaggregated
into
casualty
and
property
business.
The
casualty
and
property
segregation
results
in
groups
that
have
homogeneous
loss
development
characteristics
and
are
large
enough
to
represent
credible
trends.
Generally,
casualty
claims
take
longer
to
be
reported
and
settled, resulting
in longer
payout
patterns
and increased
volatility.
Property claims
on the
other hand,
tend to
be
reported
and
settled
quicker
and
therefore
tend
to
exhibit
less
volatility.
The
property
business
is
more
exposed
to
catastrophe
losses, which
can result
in year
over year
fluctuations
in incurred
claims depending
on
the frequency and severity of catastrophes
claims in any one accident year.
The
information
about
incurred
and
paid
claims
development
for
the
years
ended
December
31,
2013
to
December 31, 2021 is presented as supplementary
information.
The Cumulative
Number of
Reported
Claims is
shown only
for Insurance
Casualty as
it is
impractical
to provide
the
information
for
the
remaining
groups.
The
reinsurance
groups
each
include
pro
rata
contracts
for
which
ceding
companies
provide
only
summary
information
via
a
bordereau.
This
summary
information
does
not
include the
number of
reported claims
underlying the
paid and
reported
losses.
Therefore,
it is
not possible
to
provide
this
information.
The
Insurance
Property
group
includes
Accident
&
Health
insurance
business.
This
business is
written via
a master
contract and
individual claim
counts are
not provided.
This business
represents
a
significant
enough
portion
of
the
business
in
the
Insurance
Property
group
so
that
including
the
number
of
reported claims for the remaining
business would distort any analytics
performed on the group.
The Cumulative Number
of Reported
Claims shown for
the Insurance Casualty
is determined by
claim and line of
business.
For
example,
a
claim
event
with
three
claimants
in
the
same
line
of
business
is
a
single
claim.
However,
a claim event with a single claimant that
spans two lines of business contributes two claims.
The
following
tables
present
the
ultimate
loss
and
ALAE
and
the
paid
loss
and
ALAE,
net
of
reinsurance
for
casualty
and
property,
as
well
as
the
average
annual
percentage
payout
of
incurred
claims
by
age,
net
of
reinsurance for each of our disclosed lines
of business.
Reinsurance – Casualty Business
At December 31, 2022
Total of
IBNR Liabilities
Ultimate Incurred Loss and Allocated Loss Adjustment Expenses, Net of reinsurance
Plus Expected
Cumulative
Years Ended December 31,
Development
Number of
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
on Reported
Reported
Accident Year
(unaudited)
(unaudited)
(unaudited)
(unaudited)
(unaudited)
(unaudited)
(unaudited)
(unaudited)
(unaudited)
Claims
Claims
(Dollars in millions)
2013
$
710
$
801
$
788
$
779
$
748
$
719
$
699
$
699
$
694
$
684
$
11
N/A
2014
762
800
807
783
741
719
732
730
720
13
N/A
2015
777
818
814
811
795
832
832
829
47
N/A
2016
790
865
862
857
933
935
965
91
N/A
2017
870
830
837
918
926
982
132
N/A
2018
1,311
1,309
1,386
1,416
1,485
354
N/A
2019
1,683
1,748
1,751
1,775
727
N/A
2020
1,896
1,867
1,846
1,178
N/A
2021
2,454
2,449
1,829
N/A
2022
2,818
2,133
N/A
$
14,554
(Some amounts may not reconcile due to rounding.)
F-25
Cumulative Paid Loss and Allocated Loss Adjustment Expenses, Net of Reinsurance
Years Ended December 31,
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
Accident Year
(unaudited)
(unaudited)
(unaudited)
(unaudited)
(unaudited)
(unaudited)
(unaudited)
(unaudited)
(unaudited)
(Dollars in millions)
2013
$
48
$
121
$
211
$
310
$
383
$
489
$
540
$
565
$
593
$
603
2014
57
122
212
301
426
501
545
585
607
2015
57
157
263
408
497
565
611
647
2016
88
187
320
426
539
614
690
2017
80
185
316
455
575
677
2018
154
284
456
616
803
2019
208
338
511
718
2020
190
300
489
2021
214
318
2022
200
$
5,754
All outstanding liabilities prior to 2013, net of reinsurance
916
Liabilities for claims and claim adjustment expenses, net of reinsurance
$
9,715
(Some amounts may not reconcile due to rounding.)
Average Annual Percentage
Payout of Incurred Loss by
Age, Net of Reinsurance (unaudited)
Years
1
2
3
4
5
6
7
8
9
10
Casualty
8.9
%
7.8
%
11.7
%
12.7
%
12.5
%
10.2
%
6.8
%
4.5
%
3.6
%
1.5
%
Reinsurance – Property Business
At December 31, 2022
Total of
IBNR Liabilities
Ultimate Incurred Loss and Allocated Loss Adjustment Expenses, Net of reinsurance
Plus Expected
Cumulative
Years Ended December 31,
Development
Number of
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
on Reported
Reported
Accident Year
(unaudited)
(unaudited)
(unaudited)
(unaudited)
(unaudited)
(unaudited)
(unaudited)
(unaudited)
(unaudited)
Claims
Claims
(Dollars in millions)
2013
$
1,275
$
930
$
819
$
763
$
757
$
753
$
760
$
758
$
758
$
757
$
2
N/A
2014
1,343
1,181
1,030
937
933
937
930
930
928
3
N/A
2015
1,386
1,053
976
950
952
945
946
943
2
N/A
2016
1,695
1,518
1,554
1,548
1,526
1,527
1,523
10
N/A
2017
2,784
3,407
3,518
3,647
3,692
3,703
3
N/A
2018
2,611
2,486
2,488
2,426
2,379
24
N/A
2019
2,038
2,070
2,015
1,899
29
N/A
2020
2,408
2,481
2,425
240
N/A
2021
2,754
2,780
476
N/A
2022
3,257
1,898
N/A
$
20,594
(Some amounts may not reconcile due to rounding.)
Cumulative Paid Loss and Allocated Loss Adjustment Expenses, Net of Reinsurance
Years Ended December 31,
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
Accident Year
(unaudited)
(unaudited)
(unaudited)
(unaudited)
(unaudited)
(unaudited)
(unaudited)
(unaudited)
(unaudited)
(Dollars in millions)
2013
$
375
$
510
$
638
$
693
$
713
$
723
$
732
$
733
$
733
$
735
2014
366
641
769
842
874
884
891
892
893
2015
377
607
759
842
869
891
900
905
2016
469
961
1,249
1,367
1,421
1,441
1,454
2017
819
2,180
2,744
3,130
3,332
3,426
2018
545
1,525
1,878
2,065
2,136
2019
730
1,185
1,505
1,667
2020
584
1,321
1,733
2021
684
1,534
2022
652
$
15,134
All outstanding liabilities prior to 2013, net of reinsurance
103
Liabilities for claims and claim adjustment expenses, net of reinsurance
$
5,562
(Some amounts may not reconcile due to rounding.)
Average Annual Percentage
Payout of Incurred Loss by
Age, Net of Reinsurance (unaudited)
Years
1
2
3
4
5
6
7
8
9
10
Property
27.2
%
31.8
%
16.1
%
8.8
%
4.0
%
2.0
%
0.9
%
0.3
%
0.1
%
0.1
%
F-26
Insurance – Casualty Business
At December 31, 2022
Total of
IBNR Liabilities
Ultimate Incurred Loss and Allocated Loss Adjustment Expenses, Net of reinsurance
Plus Expected
Cumulative
Years Ended December 31,
Development
Number of
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
on Reported
Reported
Accident Year
(unaudited)
(unaudited)
(unaudited)
(unaudited)
(unaudited)
(unaudited)
(unaudited)
(unaudited)
(unaudited)
Claims
Claims
(Dollars in millions)
2013
$
393
$
393
$
393
$
393
$
351
$
344
$
351
$
350
$
350
$
347
$
25
$
22,031
2014
431
457
454
460
396
397
398
397
398
32
26,449
2015
519
527
535
541
467
471
471
477
40
29,020
2016
552
550
579
612
549
538
540
53
34,164
2017
610
600
620
652
628
629
85
38,344
2018
701
705
742
755
769
154
39,029
2019
848
844
876
885
204
42,006
2020
993
1,049
1,043
416
39,545
2021
1,189
1,246
732
44,274
2022
1,367
865
37,739
$
7,703
(Some amounts may not reconcile due to rounding.)
Cumulative Paid Loss and Allocated Loss Adjustment Expenses, Net of Reinsurance
Years Ended December 31,
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
Accident Year
(unaudited)
(unaudited)
(unaudited)
(unaudited)
(unaudited)
(unaudited)
(unaudited)
(unaudited)
(unaudited)
(Dollars in millions)
2013
$
33
$
117
$
176
$
225
$
260
$
286
$
304
$
311
$
317
$
321
2014
41
125
202
257
297
325
339
350
360
2015
44
135
219
292
353
382
413
435
2016
55
164
268
341
400
443
481
2017
54
172
280
378
453
529
2018
63
207
317
443
594
2019
72
234
397
551
2020
66
236
388
2021
109
261
2022
85
$
4,003
All outstanding liabilities prior to 2013, net of reinsurance
127
Liabilities for claims and claim adjustment expenses, net of reinsurance
$
3,828
(Some amounts may not reconcile due to rounding.)
Average Annual Percentage
Payout of Incurred Loss by
Age, Net of Reinsurance (unaudited)
Years
1
2
3
4
5
6
7
8
9
10
Casualty
8.1
%
17.6
%
16.8
%
15.5
%
13.4
%
8.4
%
5.7
%
3.3
%
2.1
%
1.3
%
F-27
Insurance – Property Business
At December 31, 2022
Total of
IBNR Liabilities
Ultimate Incurred Loss and Allocated Loss Adjustment Expenses, Net of reinsurance
Plus Expected
Cumulative
Years Ended December 31,
Development
Number of
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
on Reported
Reported
Accident Year
(unaudited)
(unaudited)
(unaudited)
(unaudited)
(unaudited)
(unaudited)
(unaudited)
(unaudited)
(unaudited)
Claims
Claims
(Dollars in millions)
2013
$
112
$
98
$
91
$
92
$
92
$
92
$
92
$
92
$
92
$
92
$
-
N/A
2014
132
123
120
119
119
119
119
119
120
1
N/A
2015
173
153
144
146
144
146
146
150
1
N/A
2016
288
274
279
289
292
294
294
-
N/A
2017
494
499
492
495
489
504
-
N/A
2018
405
400
394
407
422
1
N/A
2019
347
347
351
363
1
N/A
2020
599
507
498
27
N/A
2021
646
579
66
N/A
2022
767
273
N/A
$
3,789
(Some amounts may not reconcile due to rounding.)
Cumulative Paid Loss and Allocated Loss Adjustment Expenses, Net of Reinsurance
Years Ended December 31,
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
Accident Year
(unaudited)
(unaudited)
(unaudited)
(unaudited)
(unaudited)
(unaudited)
(unaudited)
(unaudited)
(unaudited)
(Dollars in millions)
2013
$
69
$
93
$
92
$
92
$
92
$
92
$
92
$
92
$
92
$
92
2014
82
116
118
118
118
119
119
119
119
2015
102
141
142
145
146
146
147
147
2016
162
249
271
287
290
293
293
2017
179
423
457
479
496
499
2018
245
357
376
404
418
2019
227
315
339
357
2020
293
416
453
2021
328
473
2022
372
$
3,223
All outstanding liabilities prior to 2013, net of reinsurance
-
Liabilities for claims and claim adjustment expenses, net of reinsurance
566
(Some amounts may not reconcile due to rounding.)
Average Annual Percentage
Payout of Incurred Loss by
Age, Net of Reinsurance (unaudited)
Years
1
2
3
4
5
6
7
8
9
10
Property
54.3
%
31.5
%
5.7
%
4.5
%
2.3
%
1.0
%
0.6
%
0.1
%
0.1
%
-
%
F-28
Reconciliation of the Disclosure of Incurred
and Paid Claims Development to the Liability for
Unpaid Claims
and Claim Adjustment Expenses
The reconciliation of the net incurred and
paid claims development tables to the liability
for claims and claim
adjustment expenses in the consolidated
statement of financial position is as follows.
December 31, 2022
(Dollars in thousands)
Net outstanding liabilities
Reinsurance Casualty
$
9,715
Reinsurance Property
5,562
Insurance Casualty
3,828
Insurance Property
566
Liabilities for unpaid claims and claim adjustment expenses, net of reinsurance
19,671
Reinsurance recoverable on unpaid claims
Reinsurance Casualty
150
Reinsurance Property
576
Insurance Casualty
1,220
Insurance Property
160
Total reinsurance recoverable
on unpaid claims
2,105
Insurance lines other than short-duration
-
Unallocated claims adjustment expenses
244
Other
45
289
Total gross liability for unpaid claims and claim adjustment expense
$
22,065
(Some amounts may not reconcile due to rounding.)
Reserving Methodology
The Company maintains
reserves equal to our estimated
ultimate liability for losses
and loss adjustment expense
(LAE)
for
reported
and
unreported
claims
for
our
insurance
and
reinsurance
businesses.
Because
reserves
are
based on
estimates
of ultimate
losses and
LAE by
underwriting or
accident year,
the Company
uses a
variety of
statistical
and
actuarial
techniques
to
monitor
reserve
adequacy
over
time,
evaluate
new
information
as
it
becomes
known,
and
adjust
reserves
whenever
an
adjustment
appears
warranted.
The
Company
considers
many factors
when setting
reserves including:
(1) exposure
base and
projected ultimate
premium; (2)
expected
loss ratios
by product
and class
of business,
which are
developed collaboratively
by underwriters
and actuaries;
(3)
actuarial
methodologies
and
assumptions
which
analyze
loss
reporting
and
payment
experience,
reports
from
ceding
companies
and
historical
trends,
such
as
reserving
patterns,
loss
payments,
and
product
mix;
(4)
current
legal
interpretations
of
coverage
and
liability;
and
(5)
economic
conditions.
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
such
process
is
to
determine
a
single best estimate
viewed by management
to be the best
estimate of its ultimate
loss liability.
Actual loss and
LAE
ultimately
paid
may
deviate,
perhaps
substantially,
from
such
reserves.
Net
income
will be
impacted
in
a
period in which the change in estimated ultimate
loss and LAE is recorded.
F-29
The
detailed
data
required
to
evaluate
ultimate
losses
for
the
Company’s
insurance
business
is
accumulated
from
its
underwriting
and
claim
systems.
Reserving
for
reinsurance
requires
evaluation
of
loss
information
received
from
ceding
companies.
Ceding
companies
report
losses
in
many
forms
depending
on
the
type
of
contract
and
the
agreed
or
contractual
reporting
requirements.
Generally,
pro
rata
contracts
require
the
submission
of
a
monthly/quarterly
account,
which
includes
premium
and
loss
activity
for
the
period
with
corresponding
reserves
as
established
by
the
ceding
company.
This
information
is
recorded
in
the
Company’s
records.
For certain pro
rata contracts,
the Company may
require a detailed
loss report for
claims that exceed
a
certain
dollar threshold
or relate
to
a particular
type of
loss.
Excess
of loss
and facultative
contracts
generally
require
individual
loss
reporting
with
precautionary
notices
provided
when
a
loss
reaches
a
significant
percentage
of
the
attachment
point
of
the
contract
or
when
certain
causes
of
loss
or
types
of
injury
occur.
Experienced
claims
staff
handle
individual
loss
reports
and
supporting
claim
information.
Based
on
evaluation
of
a
claim,
the
Company
may
establish
additional
case
reserves
in
addition
to
the
case
reserves
reported
by
the
ceding
company.
To
ensure
ceding
companies
are
submitting
required
and
accurate
data,
Everest’s
Underwriting, Claim, Reinsurance Accounting,
and Internal Audit
Departments perform various
reviews
of ceding companies, particularly larger ceding companies,
including on-site audits.
The
Company
segments
both
reinsurance
and
insurance
reserves
into
exposure
groupings
for
actuarial
analysis.
The
Company
assigns
business
to
exposure
groupings
so
that
the
underlying
exposures
have
reasonably homogeneous loss
development characteristics
and are large enough
to facilitate
credible estimation
of
ultimate
losses.
The
Company
periodically
reviews
its
exposure
groupings
and
may
change
groupings
over
time
as
business
changes.
The
Company
currently
uses
approximately
200
exposure
groupings
to
develop
reserve estimates.
One of
the key
selection characteristics
for the
exposure groupings
is the
historical duration
of
the
claims
settlement
process.
Business
in
which
claims
are
reported
and
settled
relatively
quickly
are
commonly
referred
to
as
short
tail
lines,
principally
property
lines.
Casualty
claims
tend
to
take
longer
to
be
reported and settled and casualty
lines are generally referred
to as long tail lines. Estimates
of ultimate losses for
shorter
tail
lines,
with
the
exception
of
loss
estimates
for
large
catastrophic
events,
generally
exhibit
less
volatility than those for the longer tail
lines.
The
Company
uses
a
variety
of
actuarial
methodologies,
such
as
the
expected
loss
ratio
method,
chain
ladder
methods,
and
Bornhuetter-Ferguson
methods,
supplemented
by
judgment
where
appropriate,
to
estimate
ultimate loss and LAE for each exposure
group.
Expected Loss Ratio Method:
The expected loss ratio
method uses earned premium
times an expected
loss ratio
to calculate
ultimate losses for
a given underwriting or
accident year.
This method relies entirely
on expectation
to
project
ultimate
losses
with
no
consideration
given
to
actual
losses.
As
such,
it
may
be
appropriate
for
an
immature
underwriting
or
accident
year
where
few,
if
any,
losses
have
been
reported
or
paid,
but
less
appropriate for a more mature
year.
Chain
Ladder
Method:
Chain
ladder
methods
use
a
standard
loss
development
triangle
to
project
ultimate
losses.
Age-to-age
development
factors
are
selected
for
each
development
period
and
combined
to
calculate
age-to-ultimate
development
factors
which
are
then
applied
to
paid
or
reported
losses
to
project
ultimate
losses.
This method relies
entirely on
actual paid or
reported losses
to project
ultimate losses.
No other factors
such as
changes in
pricing or
other expectations
are taken
into
account.
It is
most appropriate
for groups
with
homogeneous, stable
experience where
past development
patterns are
expected to
continue in
the future.
It is
least appropriate for groups
which have changed significantly
over time or which are more volatile.
Bornhuetter-Ferguson
Method:
The Bornhuetter
-Ferguson
method is
a combination
of the
expected
loss
ratio
method
and
the
chain
ladder
method.
Ultimate
losses
are
projected
based
partly
on
actual
paid
or
reported
losses
and
partly
on
expectation.
Incurred
but
not
reported
(IBNR)
reserves
are
calculated
using
earned
premium, an a priori loss ratio,
and selected age-to-age development
factors and added to actual
reported (paid)
losses
to
determine
ultimate
losses.
It
is
more
responsive
to
actual
reported
or
paid
development
than
the
F-30
expected
loss
ratio
method
but
less
responsive
than
the
chain
ladder
method.
The
reliability
of
the
method
depends on the accuracy of the selected a priori loss
ratio.
Although the
Company uses
similar actuarial
methods for
both short
tail and
long tail
lines, the
faster reporting
of experience
for the
short tail
lines allows
the Company
to have
greater confidence
in its
estimates of
ultimate
losses
for
short
tail
lines
at
an
earlier
stage
than
for
long
tail
lines.
As
a
result,
the
Company
utilizes,
as
well,
exposure-based
methods
to
estimate
its
ultimate
losses
for
longer
tail
lines,
especially
for
immature
underwriting
or
accident
years.
For
both
short
and
long
tail
lines,
the
Company
supplements
these
general
approaches with analytically based judgments.
Key
actuarial
assumptions
contain
no
explicit
provisions
for
reserve
uncertainty
nor
does
the
Company
supplement the actuarially determined reserves
for uncertainty.
Carried reserves
at each
reporting date
are the
management’s
best estimate
of ultimate
unpaid losses
and LAE
at
that
date.
The
Company
completes
detailed
reserve
studies
for
each
exposure
group
annually
for
both
reinsurance
and
insurance
operations.
The
completed
annual
reserve
studies
are
“rolled-forward”
for
each
accounting period
until the
subsequent reserve
study is
completed.
Analyzing the
roll-forward
process involves
comparing
actual
reported
losses
to
expected
losses
based
on
the
most
recent
reserve
study.
The
Company
analyzes
significant
variances
between
actual
and
expected
losses
and
post
adjustments
to
its
reserves
as
warranted.
Certain reserves,
including losses
from widespread
catastrophic
events
and COVID
-19 related
losses, cannot
be
estimated
using traditional
actuarial methods.
These types
of events
are reserved
for separately
using a
variety
of
statistical
and
actuarial
techniques.
We
estimate
losses
for
these
types
of
events
based
on
information
derived from
catastrophe
models, quantitative
and qualitative
exposure
analyses,
reports
and communications
from ceding companies and development patterns
for historically similar events,
where available.
The Company
continues
to
receive
claims under
expired
insurance
and reinsurance
contracts
asserting
injuries
and/or
damages
relating
to
or
resulting
from
environmental
pollution
and
hazardous
substances,
including
asbestos.
Environmental
claims
typically
assert
liability
for
(a) the
mitigation
or
remediation
of environmental
contamination
or (b)
bodily injury
or property
damage caused
by the
release of
hazardous
substances
into
the
land,
air
or
water.
Asbestos
claims
typically
assert
liability
for
bodily
injury
from
exposure
to
asbestos
or
for
property damage resulting from asbestos
or products containing asbestos.
The Company’s
reserves include
an estimate
of the Company’s
ultimate liability
for A&E
claims.
The Company’s
A&E
liabilities
emanate
from
Mt.
McKinley
Insurance
Company’s,
a
former
wholly
owned
subsidiary
that
was
sold
in 2015,
direct
insurance
business
and Everest
Re’s
assumed
reinsurance
business.
All of
the
contracts
of
insurance
and reinsurance,
under which
the Company
has received
claims during
the past
three
years,
expired
more
than
20
years
ago.
There
are
significant
uncertainties
surrounding
the
Company’s
reserves
for
its
A&E
losses.
F-31
A&E
exposures
represent
a
separate
exposure
group
for
monitoring
and
evaluating
reserve
adequacy.
The
following table
summarizes incurred
losses with respect
to A&E
reserves on
both a gross
and net of
reinsurance
basis for the periods indicated:
At December 31,
(Dollars in millions)
2022
2021
2020
Gross basis:
Beginning of period reserves
$
175
$
219
$
258
Incurred losses
144
11
2
Paid losses
(42)
(55)
(40)
End of period reserves
$
278
$
175
$
219
Net basis:
Beginning of period reserves
$
156
$
198
$
229
Incurred losses
138
-
(1)
Paid losses
(37)
(42)
(30)
End of period reserves
$
257
$
156
$
198
(Some amounts may not reconcile due to rounding.)
In
2015,
the
Company
sold
Mt.
McKinley
to
Clearwater
Insurance
Company,
a
subsidiary
of
Fairfax
Financial.
Concurrently
with
the
closing,
the
Company
entered
into
a
retrocession
treaty
with
an
affiliate
of
Clearwater
Insurance Company.
Per the retrocession
treaty,
the Company retroceded
100
% of the liabilities associated
with
certain Mt. McKinley policies, which related
entirely to A&E business and had
been reinsured by Bermuda Re.
As
consideration
for entering
into the
retrocession treaty,
Everest
Re Bermuda
transferred
cash of $
140
million, an
amount
equal
to
the
net
loss
reserves
as
of
the
closing
date.
The
maximum
liability
retroceded
under
the
retrocession treaty
will be $
440
million, equal to
the retrocession
payment plus
$
300
million.
The Company
will
retain liability for any
amounts exceeding the maximum liability
retroceded under the retrocession
treaty.
On December 20, 2019, the retrocession
treaty was amended and
included a partial commutation.
As a result of
this amendment
and partial
commutation, gross
A&E reserves
and correspondingly
reinsurance receivable
were
reduced by $
43
million.
In addition, the maximum liability permitted to
be retroceded increased to
$
450
million.
In 2022
the Company
posted
additional A&E
reserves of
$
138
m, following
a comprehensive
actuarial reserving
review.
This
increase
in
reserves
brings
the
Company
A&E
position
in
line
with
the
overall
industry
survival
ratios.
Reinsurance Recoverables.
Reinsurance
recoverables
for
both paid
and unpaid
losses totaled
$
2.2
billion and
$
2.1
billion at
December 31,
2022 and December
31, 2021,
respectively.
At December
31, 2022, $
520
million, or
23.2
%, was receivable
from
Mt.
Logan
Re
collateralized
segregated
accounts;
$
283
million,
or
12.6
%,
was
receivable
from
Munich
Reinsurance
America, Inc.
and $
148
million, or
6.6
%, was
recoverable
from Endurance
Reinsurance
Corporation
of America.
No other retrocessionaire accounted
for more than
5
% of our receivables.
F-32
Future Policy Benefit Reserve.
Activity in the reserve for future policy benefits
is summarized for the periods indicated:
At December 31,
(Dollars in thousands)
2022
2021
2020
Balance at beginning of year
$
36
$
38
$
43
Liabilities assumed
-
-
-
Adjustments to reserves
(3)
1
(1)
Benefits paid in the current year
(4)
(3)
(4)
Balance at end of year
$
29
$
36
$
38
(Some amounts may not reconcile due to rounding.)
4.
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.
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.
F-33
At December 31, 2022, $
1.7
billion of fixed maturities, fair
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,
2021,
$
2.1
billion
of
fixed
maturities, fair value were fair
valued using unobservable inputs.
The
Company
internally
manages
a
public
equity
portfolio
which
had
a
fair
value
at
December
31,
2022
and
December 31, 2021
of $
97
million and
$
1.3
billion, respectively.
The Company
internally manages
a portfolio
of
collateralized
loan obligations
included in
asset-backed
securities which
had a
fair value
of $
2.6
billion and
$
2.0
billion at December
31, 2022 and
December 31, 2021, respectively.
All prices for
these securities were
obtained
from publicly published sources or nationally
recognized pricing vendors.
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
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
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;
F-34
•
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
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 millions)
December 31, 2022
(Level 1)
(Level 2)
(Level 3)
Assets:
Fixed maturities, available for sale
U.S. Treasury securities and obligations of
U.S. government agencies and corporations
$
1,257
$
-
$
1,257
$
-
Obligations of U.S. States and political subdivisions
413
-
413
-
Corporate securities
6,469
-
5,754
715
Asset-backed securities
4,063
-
3,069
994
Mortgage-backed securities
Commercial
919
-
919
-
Agency residential
3,099
-
3,099
-
Non-agency residential
4
-
4
-
Foreign government securities
1,415
-
1,415
-
Foreign corporate securities
4,596
-
4,579
16
Total fixed maturities, available for sale
22,236
-
20,511
1,725
Equity securities, fair value
281
132
150
-
(Some amounts may not reconcile due to rounding.)
F-35
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 millions)
December 31, 2021
(Level 1)
(Level 2)
(Level 3)
Assets:
Fixed maturities, available for sale
U.S. Treasury securities and obligations of
U.S. government agencies and corporations
$
1,421
$
-
$
1,421
$
-
Obligations of U.S. States and political subdivisions
587
-
587
-
Corporate securities
7,557
-
6,756
801
Asset-backed securities
3,582
-
2,330
1,251
Mortgage-backed securities
Commercial
1,064
-
1,064
-
Agency residential
2,375
-
2,375
-
Non-agency residential
7
-
7
-
Foreign government securities
1,438
-
1,438
-
Foreign corporate securities
4,279
-
4,262
16
Total fixed maturities, available for sale
22,308
-
20,240
2,068
Equity securities, fair value
1,826
1,742
84
-
(Some amounts may not reconcile due to rounding.)
In
addition,
$
292
million
and
$
287
million
of
investments
within
other
invested
assets
on
the
consolidated
balance sheets
as of December
31, 2022 and
2021, respectively,
are not
included within
the fair value
hierarchy
tables as the assets are measured at
net asset value (“NAV”) as a pract
ical expedient to determine fair value.
The following
table presents
the activity
under Level
3, fair
value measurements
using significant
unobservable
inputs by asset type, for the periods indicated:
Total Fixed Maturities,
Available for Sale
December 31, 2022
December 31, 2021
Corporate
Asset-Backed
Foreign
Corporate
Asset-Backed
Foreign
(Dollars in millions)
Securities
Securities
CMBS
Corporate
Total
Securities
Securities
Corporate
Total
Beginning balance fixed maturities
$
801
$
1,251
$
-
$
16
$
2,068
$
701
$
623
$
6
$
1,330
Total gains or (losses) (realized/unrealized)
Included in earnings
(10)
-
-
-
(10)
(12)
(6)
-
(18)
Included in other comprehensive income (loss)
3
(35)
-
(4)
(36)
4
(7)
-
(2)
Purchases, issuances and settlements
(45)
513
6
8
481
107
641
10
758
Transfers in and/or (out) of Level
3
(35)
(735)
(6)
(4)
(779)
-
-
-
-
Ending balance
$
715
$
994
$
-
$
16
$
1,725
$
801
$
1,251
$
16
$
2,068
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
$
(23)
$
8
$
-
$
-
$
(15)
$
(16)
$
(8)
$
-
$
(24)
(Some amounts may not reconcile due to rounding.)
The $
779
million
shown
as transfers
in/(out)
of Level
3 and
reclassification
of securities
in/(out)
of investment
categories for
the year ended
December 31, 2022
related mainly
to previously
designated Level
3 securities that
the Company
has reclassified
from “fixed
maturities – available
for sale”
to “fixed
maturities –
held to maturity”
during
2022.
As
“fixed
maturities
–
held
to
maturity"
are
carried
at
amortized
cost,
net
of
credit
allowances
F-36
rather
than at
fair value
as “fixed
maturities –
available
for sale”,
these securities
are no
longer included
within
the fair
value hierarchy
table
or in
the roll
forward
of Level
3 securities.
The fair
values
of these
securities are
determined in a
similar manner as
the Company’s
fixed maturity
securities available
for sale as
described above.
The
fair
values
of
these
securities
incorporate
the
use
of
significant
unobservable
inputs
and
therefore
are
classified as Level 3 within the fair value hierarchy
as of December 31, 2022.
There were
no
transfers of assets
in/(out) Level 3 during 2021.
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 of fixed maturity
securities held to maturity and senior notes
can be found within Notes
2 and 6, respectively.
Short-term investments
are stated at cost,
which approximates fair value.
See Note 1.
5.
CREDIT FACILITIES
The
Company
has
multiple
active
letter
of
credit
facilities
for
a
total
commitment
of
up
to
$
1.5
billion
as
of
December
31,
2022,
providing
for
the
issuance
of
letters
of
credit.
The
Company
also
has
additional
uncommitted
letter
of
credit
facilities
of
up
to
$
440
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 following
table presents
the interest
and fees
incurred in
connection with
these committed credit facilities
for the periods indicated:
Years Ended December 31,
(Dollars in millions)
2022
2021
2020
Credit facility interest and fees incurred - Wells Fargo Bank
$
-
$
-
$
1
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
million senior credit
facility with
a syndicate
of lenders,
which amended and
restated
in its entirety
the June 22,
2012,
four year
,
$
800
million
senior
credit
facility.
Both
the
May
26,
2016
and
June
22,
2012
senior
credit
facilities, which
have similar
terms, are
referred
to as
the “2016 Group
Credit Facility”.
Wells Fargo
Corporation
(“Wells Fargo Bank”) is
the administrative agent
for the 2016 Group Credit Facility.
Effective
May 26,
2021, the
term of
the 2016
Group Credit
Facility expired.
The Company
elected not
to renew
this facility
to allow
for the
replacement by
other collateralized
letter of
credit facilities
such as
those described
below.
As a
result of
the non-renewal
in May
2021, letter
of credit
commitment/availability
in the
2016 Group
Credit Facility
as of December
21, 2021 was
limited to
the remaining
$
39
million of letters
of credit that
were in
force and which expired
in 2022.
The following table summarizes the
outstanding letters of credit
for the periods indicated:
(Dollars in millions)
At December 31, 2022
At December 31, 2021
Bank
Commitment
In Use
Date of Expiry
Commitment
In Use
Date of Expiry
Wells Fargo Bank Group Credit Facility
$
-
$
-
$
39
$
39
12/30/2022
F-37
Bermuda Re Wells Fargo
Bilateral 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 “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
$
50
million
of
secured
letters
of
credit.
Effective
May 5, 2021,
the agreement
was amended to
provide for
the issuance of
up to $
500
million of secured
letters of credit.
The following table summarizes the
outstanding letters of credit
for the periods indicated:
(Dollars in millions)
At December 31, 2022
At December 31, 2021
Bank
Commitment
In Use
Date of Expiry
Commitment
In Use
Date of Expiry
Wells Fargo Bank Bilateral LOC Agreement
$
500
$
463
12/29/2023
$
500
$
351
12/30/2022
(Some amounts may not reconcile due to rounding.)
Bermuda Re Citibank Letter of Credit Facility
Effective
August
9,
2021,
Bermuda
Re
entered
into
a
new
letter
of
credit
issuance
facility
with
Citibank
N.A.
which
superseded
the
previous
letter
of
credit
issuance
facility
with
Citibank
that
was
effective
December
31,
2020.
Both
of
these
are
referred
to
as
the
“Bermuda
Re
Letter
of
Credit
Facility”.
The
current
Bermuda
Re
Citibank Letter
of Credit
Facility provides
for the
committed
issuance of
up to
$
230
million of
secured letters
of
credit.
In
addition,
the
facility
provided
for
the
uncommitted
issuance
of
up
to
$
140
million,
which
may
be
accessible
via written request by
the Company and corresponding authorization
from Citibank N.A.
The following table summarizes the
outstanding letters of credit
for the periods indicated:
F-38
(Dollars in millions)
At December 31, 2022
At December 31, 2021
Bank
Commitment
In Use
Date of Expiry
Commitment
In Use
Date of Expiry
Bermuda Re Citibank LOC Facility-
Committed
$
230
$
1
1/21/2023
$
230
$
4
02/28/2022
4
2/28/2023
1
03/01/2022
1
3/1/2023
1
11/24/2022
1
8/15/2023
217
12/31/2022
3
9/23/2023
1
8/15/2023
212
12/31/2023
1
9/23/2023
Bermuda Re Citibank LOC Facility
- Uncommitted
140
87
12/31/2023
140
84
12/31/2022
18
12/30/2026
23
12/30/2025
Total Citibank Bilateral
Agreement
$
370
$
329
$
370
$
333
(Some amounts may not reconcile due to rounding.)
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 $
200
million of secured letters of credit.
The following table summarizes the
outstanding letters of credit
for the periods indicated:
(Dollars in millions)
At December 31, 2022
At December 31, 2021
Bank
Commitment
In Use
Date of Expiry
Commitment
In Use
Date of Expiry
Bayerische Landesbank Bilateral Secured
Credit Facility
$
200
$
183
12/31/2023
$
200
$
155
12/31/2022
(Some amounts may not reconcile due to rounding.)
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
$
150
million of unsecured letters of credit.
The following table summarizes the
outstanding letters of credit
for the periods indicated:
(Dollars in millions)
At December 31, 2022
Bank
Commitment
In Use
Date of Expiry
Bayerische Landesbank Unsecured Bilateral LOC Agreement - Committed
$
150
$
150
12/31/2023
(Some amounts may not reconcile due to rounding.)
Bermuda Re Lloyd’s
Bank Credit Facility.
Effective October
8, 2021 Bermuda Re entered
into a letter of credit
issuance facility with Lloyd’s
Bank Corporate
Markets
PLC,
an
agreement
referred
to
as
the
“Bermuda
Re
Lloyd’s
Bank
Credit
Facility”.
The
Bermuda
Re
Lloyd’s
Bank Credit
Facility provides
for the
committed issuance
of up to
$
50
million of secured
letters
of credit,
and subject to credit approval a maximum
total facility amount
of $
250
million.
F-39
The following table summarizes the
outstanding letters of credit
for the periods indicated:
(Dollars in millions)
At December 31, 2022
At December 31, 2021
Bank
Commitment
In Use
Date of Expiry
Commitment
In Use
Date of Expiry
Bermuda Re Lloyd's Bank Credit Facility-Committed
$
50
$
50
12/31/2023
$
50
$
46
12/31/2022
Bermuda Re Lloyd's Bank Credit Facility-Uncommitted
200
136
12/31/2023
-
-
Total Bermuda Re Lloyd's Bank Credit Facility
$
250
$
186
$
50
$
46
(Some amounts may not reconcile due to rounding.)
Bermuda Re Barclays Credit
Facility
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 $
200
million of secured letters of credit.
The following table summarizes the
outstanding letters of credit
for the periods indicated:
(Dollars in millions)
At December 31, 2022
At December 31, 2021
Bank
Commitment
In Use
Date of Expiry
Commitment
In Use
Date of Expiry
Bermuda Re Barclays Credit Facility
$
200
$
179
12/31/2023
$
200
$
186
12/31/2022
(Some amounts may not reconcile due to rounding.)
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 $
200
million of unsecured
letters of
credit,
and
subject
to
credit
approval,
uncommitted
issuance
of
$
100
million
for
a
maximum
total
facility
amount
of
$
300
million.
The following table summarizes the
outstanding letters of credit
for the periods indicated:
(Dollars in millions)
At December 31, 2022
Bank
Commitment
In Use
Date of Expiry
Nordea Bank ABP, NY Unsecured LOC Facility - Committed
$
200
$
50
12/31/2023
Nordea Bank ABP, NY Unsecured LOC Facility - Uncommitted
100
100
12/31/2023
Total Nordea Bank ABP,
NY LOC Facility
$
300
$
150
(Some amounts may not reconcile due
to rounding.)
Federal Home Loan Bank Membership
Everest
Re
is
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 December
31, 2022, Everest
Re had
admitted assets
of
approximately
$
22.4
billion
which
provides
borrowing
capacity
of
up
to
approximately
$
2.2
billion.
As
of
December
31, 2022,
Everest
Re has
$
519
million of
borrowings
outstanding,
which all
mature
in 2023.
Everest
incurred
interest
expense
of
$
4
million
and
$
1
million
for
the
years
ended
December
31,
2022
and
2021,
respectively.
The
FHLBNY
membership
agreement
requires
that
4.5
%
of
borrowed
funds
be
used
to
acquire
additional membership stock.
F-40
6.
SENIOR NOTES
The table
below
displays
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.
December 31, 2022
December 31, 2021
Consolidated
Consolidated
Principal
Balance Sheet
Balance Sheet
(Dollars in millions)
Date Issued
Date Due
Amounts
Amount
Market Value
Amount
Market Value
4.868
% Senior notes
6/5/2014
6/1/2044
$
400
$
397
$
343
$
397
$
504
3.5
% Senior notes
10/7/2020
10/15/2050
1,000
981
677
980
1,055
3.125
% Senior notes
10/4/2021
10/15/2052
1,000
969
627
969
983
$
2,400
$
2,347
$
1,647
$
2,346
$
2,542
Interest expense incurred in
connection with these senior notes is as follows
for the periods indicated:
Years Ended December 31,
(Dollars in millions)
Interest Paid
Payable Dates
2022
2021
2020
4.868
% Senior Notes
semi-annually
June 1/December 1
$
19
$
19
$
19
3.5
% Senior Notes
semi-annually
April 15/October 15
35
35
8
3.125
% Senior Notes
semi-annually
April 15/October 15
32
8
-
$
86
$
62
$
28
(Some amounts may not reconcile due to rounding.)
7.
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
December 31, 2022
December 31, 2021
Original
Consolidated
Consolidated
Principal
Balance Sheet
Balance Sheet
(Dollars in millions)
Date Issued
Amount
Scheduled
Final
Amount
Market Value
Amount
Market Value
Long-term subordinated notes
4/26/2007
$
400
5/15/2037
5/1/2067
$
218
$
187
$
224
$
216
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 November
15, 2022
to February 14, 2023 is
6.99
%.
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.
The Company’s
4.868
% senior
notes due
on
June 1, 2044
,
3.5
% senior
notes due
on
October 15, 2050
and
3.125
% senior
notes
due
on
October 15, 2052
are
the
Company’s
long-term
indebtedness
that
rank
senior
to
the
long-term
subordinated notes.
F-41
In
2009,
the
Company
had
reduced
its
outstanding
amount
of
long-term
subordinated
notes
through
the
initiation
of a
cash tender
offer for
any and
all of
the long-term
subordinated
notes.
In addition,
the Company
repurchased
and
retired
$
6
million
of
the
outstanding
long-term
subordinated
notes
for
the
year
ended
December 31, 2022.
The Company realized a gain
of $
1
million on the repurchases made during 2022.
Interest
expense
incurred
in
connection
with
these
long-term
subordinated
notes
is
as follows
for
the
periods
indicated:
Years Ended December 31,
(Dollars in millions)
2022
2021
2020
Interest expense incurred
$
9
$
6
$
8
8.
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
December 31,
2022, the
total amount
on deposit
in trust
accounts was
$
2.4
billion, which
includes $
122
million
of restricted
cash.
At December
31, 2021, the
total amount
on deposit
in trust
accounts was
$
1.7
billion, which
includes $
190
million of restricted cash.
The Company
reinsures
some of
its catastrophe
exposures
with the
segregated
accounts
of Mt.
Logan
Re.
Mt.
Logan Re is
a Collateralized
insurer registered
in Bermuda and
100
% 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.
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.
Years Ended December 31,
Mt. Logan Re Segregated Accounts
2022
2021
2020
(Dollars in millions)
Ceded written premiums
201
341
303
Ceded earned premiums
206
333
306
Ceded losses and LAE
191
282
241
Assumed written premiums
5
12
19
Assumed earned premiums
5
12
19
Effective
April
1,
2018,
the
Company
entered
into
a
retroactive
reinsurance
transaction
with
one
of
the
Mt.
Logan
Re
segregated
accounts
to
retrocede
$
269
million
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
million
to
the
Mt.
Logan
Re
segregated
account.
The
maximum
liability
to
be
retroceded
under
the
agreement
will
be
$
319
million.
The
Company
will
retain
liability
for
any
amounts
exceeding
the
maximum
liability.
The
Company
will
retain
liability
for
any
amounts
exceeding
the
maximum
liability.
Effective
July
1,
2022, the Company has commuted this reinsurance
agreement with Mt. Logan segregated
account.
F-42
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.
The table below summarizes the various
agreements.
(Dollars in millions)
Class
Description
Effective Date
Expiration
Date
Limit
Coverage Basis
Series 2018-1 Class A-2
US, Canada, Puerto Rico – Named Storm and Earthquake
Events
4/30/2018
5/5/2023
$
63
Aggregate
Series 2018-1 Class B-2
US, Canada, Puerto Rico – Named Storm and Earthquake
Events
4/30/2018
5/5/2023
200
Aggregate
Series 2019-1 Class A-1
US, Canada, Puerto Rico – Named Storm and Earthquake
Events
12/12/2019
12/19/2023
150
Occurrence
Series 2019-1 Class B-1
US, Canada, Puerto Rico – Named Storm and Earthquake
Events
12/12/2019
12/19/2023
275
Aggregate
Series 2019-1 Class A-2
US, Canada, Puerto Rico – Named Storm and Earthquake
Events
12/12/2019
12/19/2024
150
Occurrence
Series 2019-1 Class B-2
US, Canada, Puerto Rico – Named Storm and Earthquake
Events
12/12/2019
12/19/2024
275
Aggregate
Series 2021-1 Class A-1
US, Canada, Puerto Rico – Named Storm and Earthquake
Events
4/8/2021
4/21/2025
150
Occurrence
Series 2021-1 Class B-1
US, Canada, Puerto Rico – Named Storm and Earthquake
Events
4/8/2021
4/21/2025
85
Aggregate
Series 2021-1 Class C-1
US, Canada, Puerto Rico – Named Storm and Earthquake
Events
4/8/2021
4/21/2025
85
Aggregate
Series 2021-1 Class A-2
US, Canada, Puerto Rico – Named Storm and Earthquake
Events
4/8/2021
4/20/2026
150
Occurrence
Series 2021-1 Class B-2
US, Canada, Puerto Rico – Named Storm and Earthquake
Events
4/8/2021
4/20/2026
90
Aggregate
Series 2021-1 Class C-2
US, Canada, Puerto Rico – Named Storm and Earthquake
Events
4/8/2021
4/20/2026
90
Aggregate
Series 2022-1 Class A
US, Canada, Puerto Rico – Named Storm and Earthquake
Events
6/22/2022
6/22/2025
300
Aggregate
Total available limit as of
December 31, 2022
$
2,063
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.
The
proceeds
from
the
issuance
of
the
Notes
listed
below
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.
(Dollars in millions)
Note Series
Issue Date
Maturity Date
Amount
Series 2018-1 Class A-2
4/30/2018
5/5/2023
$
63
Series 2018-1 Class B-2
4/30/2018
5/5/2023
200
Series 2019-1 Class A-1
12/12/2019
12/19/2023
150
Series 2019-1 Class B-1
12/12/2019
12/19/2023
275
Series 2019-1 Class A-2
12/12/2019
12/19/2024
150
Series 2019-1 Class B-2
12/12/2019
12/19/2024
275
Series 2021-1 Class A-1
4/8/2021
4/21/2025
150
Series 2021-1 Class B-1
4/8/2021
4/21/2025
85
Series 2021-1 Class C-1
4/8/2021
4/21/2025
85
Series 2021-1 Class A-2
4/8/2021
4/20/2026
150
Series 2021-1 Class B-2
4/8/2021
4/20/2026
90
Series 2021-1 Class C-2
4/8/2021
4/20/2026
90
Series 2022-1 Class A
6/22/2022
6/22/2025
300
$
2,063
F-43
9.
LEASES
The Company
enters into
lease agreements
for real
estate
that is
primarily used
for office
space in
the ordinary
course of business.
These leases are
accounted for
as operating
leases, whereby lease
expense is recognized
on
a straight-line basis over the
term of the lease.
Most leases include an option to extend
or renew the lease term.
The exercise
of the renewal
is at the Company’s
discretion.
The operating lease
liability includes lease payments
related
to
options
to
extend
or
renew
the
lease
term
if
the
Company
is
reasonably
certain
of
exercise
those
options.
The Company,
in determining the present
value of lease payments
utilizes either the rate
implicit in the
lease if
that
rate
is readily
determinable
or the
Company’s
incremental
secured
borrowing
rate
commensurate
with terms of the underlying lease.
Supplemental information related
to operating leases is as follows
for the periods indicated:
Year Ended December 31,
(Dollars in thousands)
2022
2021
Lease expense incurred:
Operating lease cost
$
28
$
27
At December 31,
(Dollars in millions)
2022
2021
Operating lease right of use assets
$
128
$
139
Operating lease liabilities
147
158
Year Ended December 31,
(Dollars in millions)
2022
2021
Operating cash flows from operating leases
$
(20)
$
(18)
At December 31,
2022
2021
Weighted average remaining operating lease term
10.8
years
11.6 years
Weighted average discount rate on operating leases
4.08
%
4.08
%
Maturities of the existing lease liabilities are expected
to occur as follows:
(Dollars in thousands)
2023
$
21
2024
21
2025
18
2026
16
2027
16
Thereafter
95
Undiscounted lease payments
187
Less:
present value adjustment
40
Total operating lease liability
$
147
10.
INCOME TAXES
Under Bermuda
law,
no income
or capital
gains taxes
are imposed
on Group
and its
Bermuda Subsidiaries.
The
Minister of Finance of
Bermuda has assured
Group and its Bermuda
subsidiaries that, pursuant
to The Exempted
Undertakings
Tax
Protection
Amendment
Act
of
2011,
they
will
be
exempt
until
2035
from
imposition
of
any
such taxes.
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,
in
particular
the
UK
branch
of
Bermuda
Re,
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
F-44
distribute
current
or
accumulated
earnings
and
profits
in
the
form
of
dividends
or
otherwise,
the
Company
would
be
subject
to
an
accrual
of
5
%
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.
The
Coronavirus
Aid,
Relief,
and
Economic
Security
(“CARES”)
Act,
enacted
on
March
27,
2020,
provided
that
U.S.
companies
could
carryback
for
five
years
net
operating
losses
incurred
in
2018,
2019
and/or
2020.
This
beneficial
tax
provision
in
the
CARES
Act
enabled
the
Company
to
carryback
its
significant
2018 net
operating
losses to prior tax years
with higher effective tax
rates of
35
% versus
21
% in 2018 and later years.
As a result, the
Company
was
able
to
record
a
net
income
tax
benefit
from
the
five-year
carryback
of
$
33
million
and
obtain
federal income tax cash
refunds of $
183
million including interest in 2020.
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. As
the IRS issues additional guidance, we will evaluate
any impact to our consolidated
financial statements.
The significant components of the provision
are as follows for the periods indicated:
Years Ended December 31,
(Dollars in millions)
2022
2021
2020
Current tax expense (benefit):
U.S.
$
76
$
124
$
(108)
Non-U.S.
5
2
3
Total current tax expense (benefit)
81
126
(105)
Deferred tax expense (benefit):
U.S.
(90)
38
179
Non-U.S.
-
3
(3)
Total deferred tax expense
(benefit)
(90)
41
176
Total income tax expense (benefit)
$
(9)
$
167
$
71
(Some amounts may not reconcile due to rounding.)
F-45
The
weighted
average
expected
tax
provision
has
been
calculated
using
the
pre-tax
income
(loss)
in
each
jurisdiction
multiplied
by
that
jurisdiction's
applicable
statutory
tax
rate.
Reconciliation
of
the
difference
between the
provision for
income taxes
and the expected
tax provision
at the weighted
average tax
rate for
the
periods indicated is provided below:
Years Ended December 31,
2022
2021
2020
(Dollars in millions)
U.S.
Non-U.S.
U.S.
Non-U.S.
U.S.
Non-U.S.
Underwriting gain (loss)
$
(81)
$
558
$
(83)
$
307
$
24
$
(278)
Net investment income
607
223
708
457
340
303
Net realized capital gains (losses)
(426)
(29)
266
(8)
235
33
Net derivative gain (loss)
-
-
-
3
-
2
Corporate expenses
(26)
(35)
(33)
(34)
(16)
(25)
Interest, fee and bond
issue cost amortization expense
(101)
-
(70)
-
(36)
(1)
Other income (expense)
(6)
(96)
23
11
(15)
20
Pre-tax income (loss)
$
(32)
$
620
$
811
$
735
$
532
$
53
Expected tax provision at the applicable
statutory rate(s)
(9)
-
170
14
112
(10)
Increase (decrease) in taxes resulting
from:
Tax exempt
income
(4)
-
(4)
-
(4)
-
Dividend received deduction
(3)
-
(1)
-
(1)
-
Proration
1
-
1
-
1
-
Affiliated preferred stock
dividends
7
-
7
-
7
-
Creditable foreign premium tax
(11)
-
(13)
-
(12)
-
Tax audit settlement
-
-
-
-
-
-
Share-based compensation tax benefits
formerly in APIC
(3)
-
(2)
-
(3)
-
Impact of CARES Act
-
-
-
-
(32)
-
Valuation allowance
-
5
-
(10)
-
15
Change in uncertain tax positions
-
-
-
-
-
-
Other
5
-
3
1
3
(5)
Total income tax
provision
$
(14)
$
5
$
161
$
5
$
71
$
-
(Some amounts may not reconcile due to rounding.)
At December 31, 2022, 2021 and 2020,
the Company had
no
uncertain tax positions.
The Company’s
2014 through
2018 U.S.
Federal
tax
returns
are
under audit
by the
IRS.
To
date,
the Company
has received
a significant
number of Information
Document Requests
(“IDRs”).
However,
the IRS has
not issued
any
Notice
of
Proposed
Adjustments
for
these
tax
years.
The
Company
had
filed
amended
tax
returns
requesting refunds for 2015 and
2016 for $
2
million and $
5
million, respectively.
Tax years
2019, 2020 and 2021 are open for examination
by the U.S. Federal income tax
jurisdiction.
F-46
Deferred
Income
taxes
reflect
the
tax
effect
of
the
temporary
differences
between
the
value
of
assets
and
liabilities
for
financial
statement
purposes
and
such
values
are
measured
by
the
U.S.
tax
laws
and
regulations.
The principal
items making
up the
net deferred
income tax
assets/(liabilities) are
as follows
for the
periods indicated:
Years Ended December 31,
(Dollars in millions)
2022
2021
Deferred tax assets:
Net unrealized investment losses
$
218
$
-
Loss reserves
154
130
Unearned premium reserves
114
108
Lease liability
29
31
Net operating loss carryforward
28
20
Unrealized foreign currency losses
24
4
Investment impairments
12
6
Net unrealized losses on benefit plans
9
13
Equity compensation
8
8
Uncollectible reinsurance reserves
3
3
Foreign tax credits
3
22
Other assets
10
9
Total deferred tax assets
611
354
Deferred tax liabilities:
Deferred acquisition costs
105
99
Partnership investments
56
57
Right of use asset
25
27
Depreciation
16
4
Net fair value income
7
98
Benefit plan asset
3
2
Net unrealized investment gains
-
37
Other liabilities
8
6
Total deferred tax liabilities
220
329
Net deferred tax assets
392
25
Less:
Valuation allowance
(25)
(18)
Total net deferred tax
assets/(liabilities)
$
367
$
7
(Some amounts may not reconcile due to rounding.)
At
December 31,
2022 and
2021, the
Company
had $
25
million and
$
18
million of
Valuation
Allowance (“VA”),
respectively.
The VA is a
result of our conclusion
under US GAAP accounting principles
that the UK, Netherlands,
Ireland, Chile, Switzerland,
France, Germany,
Singapore, and
U.S. jurisdictions could
not demonstrate
that it was
more likely
than not
that the
related deferred
tax assets
will be realized.
This was
primarily due
to factors
such
as cumulative losses
in recent years
related to
COVID 19 and
market conditions
and the inability
to demonstrate
overall
profitability
within
the
specific
jurisdiction.
During
the
year
ended
December
31,
2022,
the
Company
recorded
an
overall
decrease
in
its
VA
of
$
7
million.
Tax
effected
UK
Net
Operating
Losses
(“NOLs”)
of
$
16
million do not
expire.
Tax
effected
Irish NOLs
of $
4
million do not
expire.
Tax
effected
Swiss NOLs
of $
5
million
begin to
expire
in
2028
.
The remaining
tax
effected
NOLs of
$
3
million arose
in various
jurisdictions and
begin
expiring in 2027.
Note that not all NOLs had a VA
up against them.
At December
31, 2022,
and 2021,
the Company
had $
3
million and
$
29
million respectively
of foreign
tax credit
(“FTC”) carryforwards, all related to
the branch basket.
The branch basket FTCs begin to
expire in
2030
.
At December 31, 2022, $
218
million of the Company’s
deferred tax asset
relates primarily to unrealized
losses on
available
for
sale fixed
maturity
securities.
The unrealized
losses
on available
for
sale fixed
maturity
securities
were a
result of
market conditions,
including rising
interest rates.
Ultimate realization
of the
deferred tax
asset
F-47
depends
on
the
Company’s
ability
and
intent
to
hold
the
available
for
sale
securities
until
they
recover
their
value or mature.
As of December 31, 2022, based on all the available
evidence, the Company has concluded
that
the deferred tax
asset related to
the unrealized losses
on the available for
sale fixed maturity
portfolio are, more
likely than not, expected to
be realized.
The Company
follows
ASU 2016-09
in
regard
to
the
treatment
of the
tax
effects
of share
-based
compensation
transactions.
ASU
2016-09
required
that
the
income
tax
effects
of
restricted
stock
vestings
and
stock
option
exercises
resulting
from the
change
in value
of share
-based compensation
awards
between the
grant
date
and
settlement
(vesting/exercise)
date be
recorded
as part
of income
tax
expense
(benefit) within
the consolidated
statements of operations
and comprehensive income
(loss).
Per ASU 2016-09, the Company
recorded excess
tax
benefits of $
2
million, $
2
million and $
3
million related
to restricted
stock vestings
and stock option
exercises
as
part
of
income
tax
expense
(benefit)
within
the
consolidated
statements
of
operations
and
comprehensive
income (loss) in 2022, 2021 and, 2020, respectively.
ASU 2016-09
does not
impact the
accounting treatment
of tax
benefits related
to dividends
on restricted
stock.
The tax benefits related to
the payment of dividends on restricted
stock have been recorded
as part of additional
paid-in
capital
in
the
shareholders'
equity
section
of
the
consolidated
balance
sheets
in
all
years.
The
tax
benefits related
to the
payment of
dividends on
restricted stock
were $
0.6
million, $
0.6
million and
$
0.6
million
in 2022, 2021 and 2020, respectively.
For
the
year
ended
December
31,
2022,
the
Company
considers
our
earnings
within
each
jurisdiction
to
be
indefinitely
reinvested.
Should
the
subsidiaries
distribute
current
or
accumulated
earnings
and
profits
in
the
form
of dividends
or otherwise,
the
Company
would
be subject
to
withholding
taxes.
The cumulative
amount
that would be subject to withholding tax,
if distributed, is not practicable to compute.
11.
REINSURANCE
The
Company
utilizes
reinsurance
agreements
to
reduce
its
exposure
to
large
claims
and
catastrophic
loss
occurrences.
These
agreements
provide
for
recovery
from
reinsurers
of
a
portion
of
losses
and
LAE
under
certain
circumstances
without
relieving
the Company
of its
underlying
obligations
to
the policyholders.
Losses
and LAE
incurred and
premiums earned
are reported
after deduction
for reinsurance.
In the
event that
one or
more of the reinsurers
were unable to meet their
obligations under these reinsurance
agreements, the Company
would
not
realize
the
full
value
of
the
reinsurance
recoverable
balances.
The
Company's
procedures
include
carefully
selecting
its
reinsurers,
structuring
agreements
to
provide
collateral
funds
where
necessary,
and
regularly
monitoring
the
financial
condition
and
ratings
of
its
reinsurers.
Reinsurance
recoverables
include
balances due
from reinsurance
companies and
are presented
net of
an allowance
for uncollectible
reinsurance.
Reinsurance
recoverables
include
an
estimate
of
the
amount
of
gross
losses
and
loss
adjustment
expense
reserves that may
be ceded under the
terms of the reinsurance
agreements, including
incurred but not
reported
unpaid
losses.
The
Company’s
estimate
of
losses
and
loss
adjustment
expense
reserves
ceded
to
reinsurers
is
based
on
assumptions
that
are
consistent
with
those
used
in
establishing
the
gross
reserves
for
amounts
the
Company owes
to its
claimants. The
Company estimates
its ceded
reinsurance
receivable based
on the terms
of
any applicable
facultative
and treaty
reinsurance, including
an estimate
of how incurred
but not reported
losses
will
ultimately
be
ceded
under
reinsurance
agreements.
Accordingly,
the
Company’s
estimate
of
reinsurance
recoverables
is subject
to
similar
risks
and uncertainties
as the
estimate
of the
gross
reserve
for
unpaid
losses
and
loss
adjustment
expenses.
The
Company
may
hold
partial
collateral,
including
letters
of
credit
and
funds
held, under these agreements.
See also Note 1C, Note 3 and Note 8.
Balances
are
considered
past
due
when
amounts
that
have
been
billed
are
not
collected
within
contractually
stipulated
time
periods,
generally
30,
60
or
90
days.
To
manage
reinsurer
credit
risk,
a
reinsurance
security
review committee
evaluates
the credit
standing, financial
performance, management
and operational
quality of
each
potential
reinsurer.
In
placing
reinsurance,
the
Company
considers
the
nature
of
the
risk
reinsured,
including the expected liability payout
duration, and establishes limits tiered
by reinsurer credit rating.
F-48
Where
its
contracts
permit,
the
Company
secures
future
claim
obligations
with
various
forms
of
collateral
or
other credit
enhancement, including
irrevocable letters
of credit,
secured trusts,
funds held accounts
and group
wide offsets.
See Note 1C for discussion of allowance on reinsurance
recoverables.
Insurance
companies, including
reinsurers,
are regulated
and hold
risk-based
capital
to mitigate
the risk
of loss
due to economic
factors
and other risks.
Non-U.S. reinsurers
are either
subject to
a capital
regime substantively
equivalent to domestic
insurers or we hold
collateral to support
collection of reinsurance
receivable.
As a result,
there is limited history of losses from insurer
defaults.
Premiums
written
and
earned
and
incurred
losses
and
LAE
are
comprised
of
the
following
for
the
periods
indicated:
Years Ended December 31,
(Dollars in millions)
2022
2021
2020
Written premiums:
Direct
$
4,602
$
3,988
$
3,218
Assumed
9,350
9,062
7,264
Ceded
(1,608)
(1,604)
(1,365)
Net written premiums
$
12,344
$
11,446
$
9,117
Premiums earned:
Direct
$
4,218
$
3,589
$
3,028
Assumed
9,082
8,315
7,055
Ceded
(1,513)
(1,498)
(1,401)
Net premiums earned
$
11,787
$
10,406
$
8,682
Incurred losses and LAE:
Direct
$
2,804
$
2,385
$
2,141
Assumed
6,285
5,741
5,164
Ceded
(988)
(735)
(754)
Net incurred losses and LAE
$
8,100
$
7,391
$
6,551
12.
OTHER COMPREHENSIVE INCOME (LOSS)
The following
table presents
the components
of comprehensive
income (loss) in
the consolidated
statements
of
operations for the periods indicated:
Years Ended December 31,
2022
2021
2020
(Dollars in millions)
Before Tax
Tax Effect
Net of Tax
Before Tax
Tax Effect
Net of Tax
Before Tax
Tax Effect
Net of Tax
Unrealized appreciation (depreciation) ("URA(D)") on
securities - non-credit related
$
(2,332)
$
295
$
(2,037)
$
(548)
$
59
$
(488)
$
463
$
(40)
$
423
Reclassification of net realized losses (gains) included in
net income (loss)
107
(18)
89
5
(2)
4
2
(6)
(3)
Foreign currency translation adjustments
(82)
5
(77)
(64)
2
(62)
90
(4)
86
Benefit plan actuarial net gain (loss)
18
(4)
15
22
(5)
17
(7)
1
(6)
Reclassification of benefit plan liability amortization
included in net income (loss)
3
(1)
2
8
(2)
6
8
(2)
6
Total other comprehensive income
(loss)
$
(2,285)
$
277
$
(2,008)
$
(577)
$
54
$
(523)
$
556
$
(49)
$
507
F-49
The following table presents details
of the amounts reclassified from AOCI for
the periods indicated:
Years Ended
December 31,
Affected line item within the statements
of
AOCI component
2022
2021
operations and comprehensive
income (loss)
(Dollars in millions)
URA(D) on securities
$
107
$
5
Other net realized capital gains (losses)
(18)
(2)
Income tax expense (benefit)
$
89
$
4
Net income (loss)
Benefit plan net gain (loss)
$
3
$
8
Other underwriting expenses
(1)
(2)
Income tax expense (benefit)
$
2
$
6
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:
Years Ended
December 31,
(Dollars in millions)
2022
2021
Beginning balance of URA (D) on securities
$
239
$
724
Current period change in URA(D) of investments - non-credit related
(1,948)
(485)
Ending balance of URA(D) on securities
(1,709)
239
Beginning balance of foreign currency translation adjustments
(177)
(115)
Current period change in foreign currency translation adjustments
(77)
(62)
Ending balance of foreign currency translation adjustments
(254)
(177)
Beginning balance of benefit plan net gain (loss)
(50)
(74)
Current period change in benefit plan net gain (loss)
17
23
Ending balance of benefit plan net gain (loss)
(33)
(50)
Ending balance of accumulated other comprehensive income (loss)
$
(1,996)
$
12
(Some amounts may not reconcile due to rounding.)
13.
EMPLOYEE BENEFIT PLANS
Defined Benefit Pension Plans.
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.
Although
not
required
to
make
contributions
under
IRS
regulations,
the
following
table
summarizes
the
Company’s contributions
to the defined benefit pension plans for the periods
indicated:
Years Ended December 31,
(Dollars in millions)
2022
2021
2020
Company contributions
$
6
$
4
$
7
F-50
The following table summarizes the
Company’s pension expense
for the periods indicated:
Years Ended December 31,
(Dollars in millions)
2022
2021
2020
Pension expense
$
(2)
$
3
$
8
The
following
table
summarizes
the
status
of
these
defined
benefit
plans
for
U.S.
employees
for
the
periods
indicated:
Years Ended December 31,
(Dollars in millions)
2022
2021
Change in projected benefit obligation:
Benefit obligation at beginning of year
$
403
$
404
Service cost
9
11
Interest cost
10
8
Actuarial (gain)/loss
(115)
(9)
Curtailment
-
-
Benefits paid
(15)
(12)
Projected benefit obligation at end of year
291
403
Change in plan assets:
Fair value of plan assets at beginning of year
377
354
Actual return on plan assets
(83)
31
Actual contributions during the year
6
4
Administrative expenses paid
-
-
Benefits paid
(15)
(12)
Fair value of plan assets at end of year
285
377
Funded status at end of year
$
(6)
$
(25)
(Some amounts may not reconcile due
to rounding.)
Amounts recognized in the consolidated
balance sheets for the periods indicated:
At December 31,
(Dollars in millions)
2022
2021
Other assets (due beyond one year)
$
1
$
-
Other liabilities (due within one year)
(1)
(1)
Other liabilities (due beyond one year)
(6)
(24)
Net amount recognized in the consolidated balance sheets
$
(6)
$
(25)
(Some amounts may not reconcile due to rounding.)
F-51
Amounts not yet reflected in
net periodic benefit cost and included in accumulated
other comprehensive income
(loss) for the periods indicated:
At December 31,
(Dollars in millions)
2022
2021
Accumulated income (loss)
$
(56)
$
(68)
Accumulated other comprehensive income (loss)
$
(56)
$
(68)
(Some amounts may not reconcile due to rounding.)
Other changes in other comprehensive income (loss)
for the periods indicated are as
follows:
Years Ended December 31,
(Dollars in millions)
2022
2021
Other comprehensive income (loss) at December 31, prior year
$
(68)
$
(92)
Net gain (loss) arising during period
7
15
Recognition of amortizations in net periodic benefit cost:
Actuarial loss
4
9
Curtailment loss recognized
-
-
Other comprehensive income (loss) at December 31, current year
$
(56)
$
(68)
(Some amounts may not reconcile due to rounding.)
Net periodic benefit cost for U.S.
employees included the following components
for the periods indicated:
Years Ended December 31,
(Dollars in millions)
2022
2021
2020
Service cost
$
9
$
11
$
10
Interest cost
10
8
10
Expected return on assets
(25)
(24)
(21)
Amortization of actuarial loss from earlier periods
4
8
9
Settlement
1
-
1
Net periodic benefit cost
$
(2)
$
3
$
8
Other changes recognized in other comprehensive income (loss):
Other comprehensive income (loss) attributable to change from prior year
(12)
(24)
Total recognized in net periodic benefit cost and other
comprehensive income (loss)
$
(14)
$
(21)
(Some amounts may not reconcile due to rounding.)
The weighted
average
discount rates
used to determine
net periodic
benefit cost
for 2022,
2021 and 2020
were
2.86
%,
2.55
% and
3.28
%, respectively.
The rate
of
compensation
increase
used
to
determine
the
net
periodic
benefit cost for
2022, 2021 and 2020
was
4.00
%.
The expected long-term
rate of return
on plan assets for
2022,
2021 and 2020 was
6.75
%,
7.00
% and
7.00
% respectively.
The
weighted
average
discount
rates
used
to
determine
the
actuarial
present
value
of
the
projected
benefit
obligation for 2022, 2021 and 2020 were
5.25
%,
2.86
% and
2.55
%, respectively.
F-52
The following table summarizes the
accumulated benefit obligation for
the periods indicated:
At December 31,
(Dollars in millions)
2022
2021
Qualified Plan
$
258
$
339
Non-qualified Plan
6
12
Total
$
264
$
352
(Some amounts may not reconcile due to rounding.)
The following
table displays
the plans
with projected
benefit obligations
in excess
of plan
assets for
the periods
indicated:
At December 31,
(Dollars in millions)
2022
2021
Qualified Plan
Projected benefit obligation
$
284
$
390
Fair value of plan assets
285
377
Non-qualified Plan
Projected benefit obligation
$
6
$
12
Fair value of plan assets
-
-
The
following
table
displays
the
plans
with
accumulated
benefit
obligations
in
excess
of
plan
assets
for
the
periods indicated:
At December 31,
(Dollars in millions)
2022
2021
Qualified Plan
Accumulated benefit obligation
$
-
$
-
Fair value of plan assets
-
-
Non-qualified Plan
Accumulated benefit obligation
$
6
$
12
Fair value of plan assets
-
-
The following table displays
the expected benefit payments in
the periods indicated:
(Dollars in millions)
2023
$
13
2024
14
2025
14
2026
15
2027
17
Next 5 years
100
Plan assets
consist of
shares in
investment
trusts with
74
%,
24
%,
1
% and
1
% of the
underlying assets
consisting
of
equity
securities,
fixed
maturities,
limited
partnerships
and
cash,
respectively.
The
Company
manages
the
qualified
plan
investments
for
U.S.
employees.
The
assets
in
the
plan
consist
of
debt
and
equity
mutual
funds.
Due to the long term nature
of the plan, the target
asset allocation has historically
been
70
% equities and
30
% bonds.
F-53
The following
tables present
the fair
value measurement
levels for
the qualified
plan assets
at fair
value for
the
periods indicated:
Fair Value Measurement Using:
Quoted Prices
in Active
Significant
Markets for
Other
Significant
Identical
Observable
Unobservable
Assets
Inputs
Inputs
(Dollars in millions)
December 31, 2022
(Level 1)
(Level 2)
(Level 3)
Assets:
Short-term investments, which approximates fair value (a)
$
4
$
4
$
-
$
-
Mutual funds, fair value
Fixed income (b)
68
68
-
-
Equities (c)
211
211
-
-
Total
$
283
$
283
$
-
$
-
(Some amounts may not reconcile due to rounding.)
(a)
This category includes high quality, short-term
money market instruments, which are issued and payable in
U.S. dollars.
(b)
This category includes fixed income funds, which invest in
investment grade securities of corporations, governments
and government agencies with approximately
70
% in U.S.
securities and
30
% in international securities.
(c)
This category includes funds, which invest in small, mid and multi-cap equity securities
including common stocks, securities convertible into common stock
and securities with
common stock characteristics, such as rights and warrants, with
approximately
50
% in U.S. equities and
50
% in international equities.
Fair Value Measurement Using:
Quoted Prices
in Active
Significant
Markets for
Other
Significant
Identical
Observable
Unobservable
Assets
Inputs
Inputs
(Dollars in millions)
December 31, 2021
(Level 1)
(Level 2)
(Level 3)
Assets:
Short-term investments, which approximates fair value (a)
$
3
$
3
$
-
$
-
Mutual funds, fair value
Fixed income (b)
85
85
-
-
Equities (c)
287
287
-
-
Total
$
375
$
375
$
-
$
-
(Some amounts may not reconcile due to rounding.)
(a)
This category includes high quality, short-term
money market instruments, which are issued and payable in
U.S. dollars.
(b)
This category includes fixed income funds, which invest in
investment grade securities of corporations, governments
and government agencies with approximately
70
% in U.S.
securities and
30
% in international securities.
(c)
This category includes funds, which invest in small, mid and multi-cap equity securities
including common stocks, securities convertible into common stock
and securities with
common stock characteristics, such as rights and warrants, with
approximately
50
% in U.S. equities and
50
% in international equities.
In addition, $
1.5
million and $
2.6
million of investments
which were recorded
as part of the
qualified plan assets
at
December 31,
2022
and
2021,
respectively,
are
not
included
within
the
fair
value
hierarchy
tables
as
the
assets are valued using the NAV
practical expedient guidance within ASU
2015-07.
No
contributions
were made
to the
qualified pension
benefit plan
for the
years
ended December 31,
2022 and
2021.
Defined Contribution Plans.
The
Company
also
maintains
both
qualified
and
non-qualified
defined
contribution
plans
(“Savings
Plan”
and
“Non-Qualified Savings
Plan”,
respectively) covering
U.S. employees.
Under the plans,
the Company
contributes
F-54
up
to
a
maximum
3
%
of
the
participants’
compensation
based
on
the
contribution
percentage
of
the
employee.
The Non-Qualified
Savings
Plan provides
compensating
savings
plan benefits
for participants
whose
benefits
have
been
curtailed
under
the
Savings
Plan
due
to
Internal
Revenue
Code
limitations.
In
addition,
effective
for new
hires (and
rehires) on
or after
April 1, 2010,
the Company
will contribute
between
3
% and
8
%
of
an
employee’s
earnings
for
each
payroll
period
based
on
the
employee’s
age.
These
contributions
will
be
100
%
vested
after
three
years.
The
Company
incurred
expenses
related
to
these
plans
of
$
18
million,
$
15
million and $
14
million for the years ended December 31,
2022, 2021 and 2020, respectively.
In
addition,
the
Company
maintains
several
defined
contribution
pension
plans
covering
non-U.S.
employees.
Each
international
office
maintains
a
separate
plan
for
the
non-U.S.
employees
working
in
that
location.
The Company contributes
various amounts based
on salary,
age and/or years
of service.
In the current
year,
the contributions
as a
percentage
of salary
for
the international
offices
ranged
from
4.3
% to
39.5
%.
The
contributions
are
generally
used
to
purchase
pension
benefits
from
local
insurance
providers.
The
Company
incurred expenses
related to
these plans
of $
4
million, $
3
million and
$
3
million for
the years
ended December
31, 2022, 2021 and 2020, respectively.
Post-Retirement Plan.
The Company
sponsors a
Retiree Health
Plan for
employees employed
prior to
April 1, 2010.
This plan
provides
healthcare
benefits
for
eligible
retired
employees
(and
their
eligible
dependents),
who
have
elected
coverage.
The Company
anticipates that
most covered
employees will
become eligible for
these benefits
if they
retire
while
working
for
the
Company.
The
cost
of
these
benefits
is
shared
with
the
retiree.
The
Company
accrues the
post-retirement
benefit expense
during the
period of
the employee’s
service.
A medical
cost trend
rate
of
7.00
% in
2022 was
assumed to
decrease gradually
to
4.75
% in
2030 and
then remain
at that
level.
The
Company
incurred
expenses
of
$
1
million,
$
1
million
and
$
1
million
for
the
years
ended
December
31,
2022,
2021 and 2020, respectively.
The following table summarizes the
status of this plan for the periods indicated:
At December 31,
(Dollars in millions)
2022
2021
Change in projected benefit obligation:
Benefit obligation at beginning of year
$
31
$
35
Service cost
1
1
Interest cost
1
1
Amendments
-
-
Actuarial (gain)/loss
(10)
(6)
Benefits paid
-
-
Benefit obligation at end of year
21
31
Change in plan assets:
Fair value of plan assets at beginning of year
-
-
Employer contributions
-
-
Benefits paid
-
-
Fair value of plan assets at end of year
-
-
Funded status at end of year
$
(21)
$
(31)
F-55
Amounts recognized in the consolidated
balance sheets for the periods indicated:
At December 31,
(Dollars in millions)
2022
2021
Other liabilities (due within one year)
$
(1)
$
(1)
Other liabilities (due beyond one year)
(21)
(30)
Net amount recognized in the consolidated balance sheets
$
(21)
$
(31)
(Some amounts may not reconcile due to rounding.)
Amounts not yet reflected in
net periodic benefit cost and included in accumulated
other comprehensive income
(loss) for the periods indicated:
At December 31,
(Dollars in millions)
2022
2021
Accumulated income (loss)
$
13
$
2
Accumulated prior service credit (cost)
1
2
Accumulated other comprehensive income (loss)
$
14
$
4
Other changes in other comprehensive income (loss)
for the periods indicated are as
follows:
Years Ended December 31,
(Dollars in millions)
2022
2021
Other comprehensive income (loss) at December 31, prior year
$
4
$
(2)
Net gain (loss) arising during period
10
6
Prior Service credit (cost) arising during period
-
-
Recognition of amortizations in net periodic benefit cost:
Actuarial loss (gain)
-
-
Prior service cost
-
(1)
Other comprehensive income (loss) at December 31, current year
$
14
$
4
Net periodic benefit cost included the following
components for the periods indicated:
Years Ended December 31,
(Dollars in millions)
2022
2021
2020
Service cost
$
1
$
1
$
1
Interest cost
1
1
1
Prior service credit recognition
-
(1)
(1)
Net gain recognition
-
-
-
Net periodic cost
$
1
$
1
$
1
Other changes recognized in other comprehensive income (loss):
Other comprehensive gain (loss) attributable to change from prior year
(10)
(5)
Total recognized in net periodic benefit cost and
other comprehensive income (loss)
$
(9)
$
(4)
(Some amounts may not reconcile due to rounding.)
The weighted
average
discount rates
used to determine
net periodic
benefit cost
for 2022,
2021 and 2020
were
2.86
%,
2.55
% and
3.28
%, respectively.
F-56
The
weighted
average
discount
rates
used
to
determine
the
actuarial
present
value
of
the
projected
benefit
obligation at year end 2022, 2021 and 2020 were
5.25
%,
2.86
% and
2.55
%, respectively.
The following table displays
the expected benefit payments
in the years indicated:
(Dollars in millions)
2023
$
1
2024
1
2025
1
2026
1
2027
1
Next 5 years
7
14.
DIVIDEND RESTRICTIONS AND STATUTORY
FINANCIAL INFORMATION
Group
and
its
operating
subsidiaries
are
subject
to
various
regulatory
restrictions,
including
the
amount
of
dividends that
may be
paid and
the level
of capital
that the
operating
entities must
maintain.
These regulatory
restrictions are based upon statut
ory capital as opposed to GAAP basis equity or net
assets.
Group and one of its
primary
operating
subsidiaries,
Bermuda
Re,
are
regulated
by
Bermuda
law
and
its
other
primary
operating
subsidiary,
Everest
Re,
is
regulated
by
Delaware
law.
Bermuda
Re
is
subject
to
the
Bermuda
Solvency
Capital
Requirement
(“BSCR”) administered
by
the Bermuda
Monetary
Authority
(“BMA”)
and Everest
Re is
subject
to
the
Risk-Based
Capital
Model
(“RBC”)
developed
by
the
National
Association
of
Insurance
Commissioners
(“NAIC”).
These models
represent
the aggregate
regulatory
restrictions
on net
assets and
statutory
capital and
surplus.
Dividend Restrictions.
Under Bermuda
law,
Group is
prohibited from
declaring or paying
a dividend
if such payment
would reduce
the
realizable
value
of
its
assets
to
an
amount
less
than
the
aggregate
value
of
its
liabilities
and
its
issued
share
capital
and
share
premium
(additional
paid-in
capital)
accounts.
Group’s
ability
to
pay
dividends
and
its
operating expenses is dependent
upon dividends from its subsidiaries.
Under Bermuda law,
Bermuda Re is
prohibited from
declaring or making payment
of a dividend if
it fails to meet
its minimum
solvency
margin or
minimum liquidity
ratio.
As a
long-term insurer,
Bermuda Re
is also
unable to
declare or pay a
dividend to anyone
who is not a policyholder unless,
after payment of the
dividend, the value of
the
assets
in
their
long-term
business
fund,
as
certified
by
their
approved
actuary,
exceeds
their
liabilities
for
long term business by at least the $
0.3
million minimum solvency margin.
Prior approval
of the BMA
is required
if Bermuda Re’s
dividend payments
would exceed
25
% of their
prior year-
end total statutory capital
and surplus.
Bermuda Re
prepares its
statutory
financial statements
in conformity
with the
accounting principles
set forth
in
Bermuda
in
The
Insurance
Act
1978,
amendments
thereto
and
related
regulations.
The
statutory
capital
and
surplus
of
Bermuda
Re
was
$
2.8
billion
and
$
3.1
billion
at
December 31,
2022
and
2021,
respectively.
The
statutory
net
income
of
Bermuda
Re
was
$
603
million,
$
681
million
and
$
223
million
for
the
years
ended
December 31, 2022, 2021 and 2020, respectively.
Delaware law
provides that
an insurance
company which
is a
member of
an insurance
holding company
system
and is domiciled in the state shall
not pay dividends without giving prior notice to
the Insurance Commissioner of
Delaware
and
may
not
pay
dividends
without
the
approval
of
the
Insurance
Commissioner
if
the
value
of
the
proposed
dividend,
together
with
all
other
dividends
and
distributions
made
in
the
preceding
twelve months
,
exceeds the greater
of (1)
10
% of statutory surplus
or (2) net income, not including
realized capital gains,
each as
reported
in
the
prior
year’s
statutory
annual
statement.
In
addition,
no
dividend
may
be
paid
in
excess
of
F-57
unassigned
earned
surplus.
At
December 31,
2022,
Everest
Re
has
$
555
million
available
for
payment
of
dividends in 2023 without the need for prior regulatory
approval.
Everest
Re
prepares
its
statutory
financial
statements
in
accordance
with
accounting
practices
prescribed
or
permitted
by the
NAIC and
the Delaware
Insurance
Department.
Prescribed statutory
accounting
practices
are
set forth
in the
NAIC Accounting
Practices and
Procedures Manual.
The capital
and statutory
surplus of
Everest
Re was
$
5.6
billion and
$
5.8
billion at
December 31, 2022
and 2021,
respectively.
The statutory
net income
of
Everest
Re
was
$
294
million,
$
336
million
and
$
595
million
for
the
years
ended
December 31,
2022, 2021
and
2020.
There
are
certain
regulatory
and
contractual
restrictions
on
the
ability
of
Holdings’
operating
subsidiaries
to
transfer
funds to
Holdings in
the form
of cash
dividends, loans
or advances.
The insurance
laws of
the State
of
Delaware, where
Holdings’ direct
insurance subsidiaries
are domiciled, require
regulatory
approval before
those
subsidiaries can pay dividends or make
loans or advances to Holdings that exceed
certain statutory thresholds.
Capital Restrictions.
In
Bermuda,
Bermuda
Re
is
subject
to
the
BSCR administered
by
the
BMA.
No regulatory
action
is taken
if an
insurer’s
capital
and
surplus
is equal
to
or
in
excess
of their
enhanced
capital
requirement
determined
by
the
BSCR model.
In addition,
the BMA
has
established
a target
capital
level for
each insurer,
which is
120
% of
the
enhanced capital requirement.
In
the
United
States,
Everest
Re
is
subject
to
the
RBC developed
by
the
NAIC
which
determines
an
authorized
control
level risk-based
capital.
As long
as the
total adjusted
capital
is
200
% or
more of
the authorized
control
level capital, no action is required by
the Company.
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)
2022
(3)
2021
2022
2021
Regulatory targeted capital
$
-
$
2,169
$
3,353
$
2,960
Actual capital
$
2,759
$
3,184
$
5,553
$
5,717
(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.
(3)
The 2022 BSCR calculation is not yet due to be completed; however,
the Company anticipates that Bermuda Re's December 31, 2022 actual capital
will exceed the targeted capital
level.
15.
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
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
F-58
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 December 31,
(Dollars in thousands)
2022
2021
The Prudential
$
137
$
138
Unaffiliated life insurance company
34
35
16.
SHARE-BASED COMPENSATION
PLANS
The
Company
has
a
2020
Stock
Incentive
Plan
(“2020
Employee
Plan”),
a
2009
Non-Employee
Director
Stock
Option
and
Restricted
Stock
Plan
(“2009
Director
Plan”)
and
a
2003
Non-Employee
Director
Equity
Compensation Plan (“2003 Director Plan”).
The
2020
Employee
Plan
was
established
in
June
2020.
Under
the
2020
Employee
Plan,
1,400,000
common
shares
have been
authorized
to be
granted
as non-qualified
share options,
share appreciation
rights,
restricted
share
awards
or performance
share unit
awards
to officers
and key
employees
of the
Company.
At
December
31, 2022, there were
996,076
remaining shares
available to
be granted
under the 2020 Employee
Plan.
Through
December
31,
2022,
only
non-qualified
share
options,
restricted
share
awards
and
performance
share
unit
awards had been
granted under the employee
plans. Under the 2009 Director
Plan,
37,439
common shares have
been
authorized
to
be
granted
as
share
options
or
restricted
share
awards
to
non-employee
directors
of
the
Company.
At December
31, 2022,
there were
34,957
remaining
shares available
to be
granted
under the
2009
Director
Plan.
Under
the
2003
Director
Plan,
500,000
common
shares
have
been
authorized
to
be granted
as
share
options
or share
awards
to
non-employee directors
of the
Company.
At
December 31,
2022 there
were
299,461
remaining shares available
to be granted under the 2003 Director
Plan.
Options
and restricted
shares
granted
under the
2020 Employee
Plan vest
at
the earliest
of
20
% per
year
over
five years
or in
accordance with
any applicable
employment agreement.
Options and
restricted shares
granted
under the 2003
Director Plan
generally vest
at
33
% per year
over
three years
, unless an
alternate vesting
period
is
authorized
by
the
Board.
Options
and
restricted
shares
granted
under
the
2009
Director
Plan
will
vest
as
provided
in
the
award
agreement.
All
options
are
exercisable
at
fair
market
value
of
the
stock
at
the
date
of
grant and expire
ten years
after the date of grant.
Performance
Share
Unit
awards
granted
under
the
2020
Employee
Plan
will
vest
100
% after
three years
.
The
Performance
Share Unit
awards
represent the
right to
receive between
0
and
1.75
shares of
stock for
each unit
awarded
depending upon
performance in
relation to
certain metrics.
The performance
share unit
valuation
will
be based
partly on
growth in
book value
per share
over the
three year
vesting period,
compared to
designated
peer companies.
The remaining portion of
the performance share
valuation will be based
upon operating return
on equity for each of the separate operating
years within the vesting period.
For
share
options,
restricted
shares
and
performance
share
units
granted
under
the
2020
Employee
Plan,
the
2009
Director
Plan
and
the
2003
Director
Plan,
share-based
compensation
expense
recognized
in
the
consolidated
statements
of operations
and
comprehensive
income
(loss)
was
$
45
million,
$
43
million
and
$
39
million
for
the
years
ended
December
31,
2022,
2021
and
2020,
respectively.
The
corresponding
income
tax
benefit recorded in
the consolidated statements
of operations and
comprehensive income (loss)
for share-based
compensation was
$
4
million, $
8
million and $
7
million for the
years ended
December 31, 2022,
2021 and 2020,
respectively.
F-59
For the year
ended December 31,
2022, a total
of
203,598
restricted shares
were granted
on February
23, 2022,
February
24,
2022,
May
10,
2022,
September
8,
2022
and
November
10,
2022,
with
a
fair
value
of
$
301.535
,
$
287.9425
, $
280.98
, $
283.7225
and $
323.085
per share,
respectively.
Additionally,
18,340
performance
share
units
were
awarded
on
February
23,
2022,
with
a
fair
value
of
$
301.5350
per
unit.
No
share
options
were
granted
during
the
year
ended
December
31,
2022.
For
share
options
granted
during
previous
years,
the
fair
value per option was calculated on the
date of the grant using the Black-Scholes
option valuation model.
The
Company
recognizes,
as
an
increase
to
additional
paid-in
capital,
a
realized
income
tax
benefit
from
dividends, charged
to retained
earnings and paid
to employees on
equity classified non-vested
equity shares.
In
addition, the
amount recognized
in additional
paid-in capital
for the
realized
income tax
benefit from
dividends
on those awards
is included in the pool of
excess tax
benefits available
to absorb tax
deficiencies on share-based
payment
awards.
For
the
years
ended
December
31,
2022,
2021
and
2020,
the
Company
recognized
$
0.6
million, $
0.6
million and $
0.6
million, respectively,
of additional paid-in capital due to tax
benefits from dividends
on restricted shares.
A summary
of
the
option
activity
under
the
Company’s
shareholder
approved
plans
as
of December
31,
2022,
2021 and 2020, and changes during the year then ended is presented
in the following tables:
Weighted-
Weighted-
Average
Average
Remaining
Aggregate
(Aggregate Intrinsic Value
in millions)
Exercise
Contractual
Intrinsic
Options
Shares
Price/Share
Term
Value
Outstanding at January 1, 2022
49,028
$
88.52
Granted
-
-
Exercised
49,028
88.52
Forfeited/Cancelled/Expired
–
-
Outstanding at December 31, 2022
–
-
-
$
-
.
Exercisable at December 31, 2022
–
-
-
$
-
Weighted-
Weighted-
Average
Average
Remaining
Aggregate
(Aggregate Intrinsic Value in millions; Shares in whole amounts)
Exercise
Contractual
Intrinsic
Options
Shares
Price/Share
Term
Value
Outstanding at January 1, 2021
116,871
$
87.87
Granted
-
-
Exercised
67,843
87.39
Forfeited/Cancelled/Expired
-
-
Outstanding at December 31, 2021
49,028
88.52
0.2
$
9
.
Exercisable at December 31, 2021
49,028
88.52
0.2
$
9
F-60
Weighted-
Weighted-
Average
Average
Remaining
Aggregate
(Aggregate Intrinsic Value in millions; Shares in whole amounts)
Exercise
Contractual
Intrinsic
Options
Shares
Price/Share
Term
Value
Outstanding at January 1, 2020
170,704
$
87.18
Granted
-
-
Exercised
53,833
85.69
Forfeited/Cancelled/Expired
-
-
Outstanding at December 31, 2020
116,871
87.87
0.7
$
17
.
Exercisable at December 31, 2020
116,871
87.87
0.7
$
17
There have
been
no
share options
granted
in since
2012.
As of
December 31,
2022, there
are no
share options
outstanding.
The
aggregate
intrinsic
value
(market
price
less
exercise
price)
of
options
exercised
during
the
years ended
December 31, 2022,
2021 and 2020
was $
10
million, $
11
million and $
10
million, respectively.
The
cash received from
the exercised
share options for
the years ended
December 31, 2022, 2021
and 2020 were
$
4
million, $
6
million and $
5
million, respectively.
The tax
benefit realized
from the
options exercised
for the
years
ended December 31, 2022, 2021 and 2020 were $
2
million, $
3
million and $
2
million, respectively.
The
following
table
summarizes
the
status
of
the
Company’s
non-vested
shares
and
changes
for
the
periods
indicated:
Years Ended December 31,
2022
2021
2020
Weighted-
Weighted-
Weighted-
Average
Average
Average
Grant Date
Grant Date
Grant Date
Restricted (non-vested) Shares
Shares
Fair Value
Shares
Fair Value
Shares
Fair Value
Outstanding at January 1,
496,094
$
247.76
483,427
$
246.60
495,137
$
228.02
Granted
203,598
300.38
213,901
243.51
200,929
269.86
Vested
162,579
246.41
158,735
238.67
175,413
220.88
Forfeited
57,483
262.28
42,499
247.02
37,226
246.20
Outstanding at December 31,
479,630
268.82
496,094
247.76
483,427
246.60
As of December
31, 2022,
there was
$
97
million of total
unrecognized compensation
cost related
to non-vested
share-based
compensation
expense.
That cost
is expected
to be
recognized
over a
weighted-average
period of
3.3
years.
The total
fair value
of shares
vested during
the years ended
December 31, 2022,
2021 and 2020,
was
$
40
million,
$
38
million
and
$
39
million,
respectively.
The
tax
benefit
realized
from
the
shares
vested
for
the
years ended December 31, 2022, 2021 and 2020 were
$
9
million, $
8
million and $
9
million, respectively.
In
addition
to
the
2020
Employee
Plan,
the
2009
Director
Plan
and
the
2003
Director
Plan,
Group
issued
774
common shares
in 2022,
506
common shares
in 2021
and
593
common
shares
in 2020
to
the Company’s
non-
employee directors
as compensation for
their service as directors.
These issuances had aggregate
values of $
0.2
million, $
0.1
million and $
0.1
million in 2022, 2021 and 2020.
The Company
acquired
69,833
,
79,308
and
66,289
common shares
at a
cost of
$
21
million, $
18
million and
$
18
million
in
2022,
2021
and
2020,
respectively,
from
employees
who
chose
to
pay
required
withholding
taxes
and/or the exercise cost
on option exercises or restricted
share vestings by withholding shares.
F-61
The
following
table
summarized
the
status
of
the
Company’s
non-vested
performance
share
unit
awards
and
changes for the period indicated:
Years Ended December 31,
2022
2021
2020
Weighted-
Weighted-
Weighted-
Average
Average
Average
Grant Date
Grant Date
Grant Date
Performance Share Unit Awards
Shares
Fair Value
Shares
Fair Value
Shares
Fair Value
Outstanding at January 1,
50,495
$
-
38,891
$
-
34,850
$
-
Granted
18,340
301.54
22,205
242.24
16,120
277.15
Increase/(Decrease) on vesting units
due to performance
3,028
-
(800)
-
(2,227)
-
Vested
15,919
274.37
9,801
242.24
6,157
277.15
Forfeited
1,083
-
-
-
3,695
-
Outstanding at December 31,
54,861
-
50,495
-
38,891
-
The Company
acquired
6,175
,
3,104
and
2,587
common
shares
at
a cost
of $
1.7
million,
$
0.8
million
and
$
0.7
million in
2022, 2021
and 2020,
respectively,
from employees
who chose
to pay
required
withholding taxes
on
performance shares units settlements
by withholding shares.
17.
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,
the United
Kingdom
and Switzerland.
The Insurance
operation
writes property
and casualty
insurance
directly
and
through
brokers,
surplus
lines
brokers
and
general
agents
within
the
U.S.,
Bermuda,
Canada,
Europe,
Singapore
and
South
America
through
its
offices
in
the
U.S.,
Canada,
Chile,
Singapore,
the
United
Kingdom,
Ireland, and branches located
in the Netherlands, France, Germany and Spain.
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.
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.
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.
F-62
The following tables present the underwriting
results for the operating segments
for the periods indicated:
Year Ended December 31, 2022
(Dollars in millions)
Reinsurance
Insurance
Total
Gross written premiums
$
9,316
$
4,636
$
13,952
Net written premiums
8,983
3,361
12,344
Premiums earned
$
8,663
$
3,124
$
11,787
Incurred losses and LAE
5,997
2,103
8,100
Commission and brokerage
2,134
394
2,528
Other underwriting expenses
218
463
682
Underwriting gain (loss)
$
313
$
164
$
477
Net investment income
830
Net realized capital gains (losses)
(455)
Corporate expenses
(61)
Interest, fee and bond issue cost amortization expense
(101)
Other income (expense)
(102)
Income (loss) before taxes
$
588
Year Ended December 31, 2021
(Dollars in millions)
Reinsurance
Insurance
Total
Gross written premiums
$
9,067
$
3,982
$
13,050
Net written premiums
8,536
2,910
11,446
Premiums earned
$
7,757
$
2,649
$
10,406
Incurred losses and LAE
5,556
1,835
7,391
Commission and brokerage
1,854
354
2,209
Other underwriting expenses
199
383
583
Underwriting gain (loss)
$
147
$
76
$
224
Net investment income
1,165
Net realized capital gains (losses)
258
Corporate expenses
(68)
Interest, fee and bond issue cost amortization expense
(70)
Other income (expense)
37
Income (loss) before taxes
$
1,546
Year Ended December 31, 2020
(Dollars in millions)
Reinsurance
Insurance
Total
Gross written premiums
$
7,282
$
3,201
$
10,482
Net written premiums
6,768
2,349
9,117
Premiums earned
$
6,466
$
2,215
$
8,682
Incurred losses and LAE
4,933
1,617
6,551
Commission and brokerage
1,552
321
1,873
Other underwriting expenses
176
336
511
Underwriting gain (loss)
$
(195)
$
(58)
$
(254)
Net investment income
642
Net realized capital gains (losses)
268
Corporate expenses
(41)
Interest, fee and bond issue cost amortization expense
(36)
Other income (expense)
6
Income (loss) before taxes
$
585
F-63
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:
Year Ended December 31,
(Dollars in millions)
2022
2021
2020
United Kingdom gross written premium
$
1,217
$
1,246
$
1,116
Approximately
20.0
%,
20.5
%
and
20.1
%
of
the
Company’s
gross
written
premiums
in
2022,
2021
and
2020,
respectively,
were sourced through the Company’s
largest intermediary.
18.
SUBSEQUENT EVENTS
The
Company
has
evaluated
known
recognized
and
non-recognized
subsequent
events.
In
February
2023,
an
earthquake occurred
which impacted the
countries of
Turkey
and Syria. Due
to the recentness
of this event,
the
Company is unable to
estimate the magnitude of losses
at this time.
However,
the Company anticipates
that the
losses
from
this
event
will
adversely
impact
its
first
quarter
2023
financial
statements.
S-1
SCHEDULE I — SUMMARY OF INVESTMENTS —
OTHER THAN INVESTMENTS IN RELATED
PARTIES
December 31, 2022
Column A
Column B
Column C
Column D
Amount
Shown in
Market
Balance
(Dollars in millions)
Cost
Value
Sheet
Fixed maturities - available for sale
Bonds:
U.S. government and government agencies
$
1,334
$
1,257
$
1,257
State, municipalities and political subdivisions
444
413
413
Foreign government securities
1,586
1,415
1,415
Foreign corporate securities
5,143
4,596
4,596
Public utilities
218
203
203
All other corporate bonds
10,688
10,013
10,013
Mortgage - backed securities:
Commercial
1,023
919
919
Agency residential
3,382
3,099
3,099
Non-agency residential
5
4
4
Redeemable preferred stock
368
316
316
Total fixed maturities-available for sale
24,191
22,236
22,236
Fixed maturities - held to maturity
Bonds:
Foreign corporate securities
28
28
27
All other corporate bonds
813
786
806
Mortgage - backed securities:
Commercial
7
7
7
Total fixed maturities-held to maturity
848
821
839
Equity securities - at fair value (1)
252
281
281
Short-term investments
1,032
1,032
1,032
Other invested assets
4,085
4,085
4,085
Cash
1,398
1,398
1,398
Total investments and cash
$
31,807
$
29,853
$
29,872
(Some amounts may not reconcile due to rounding.)
(1)
Original cost does not reflect fair value adjustments,
which have been realized through the statements
of operations and comprehensive income (loss).
S-2
SCHEDULE II — CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT
CONDENSED BALANCE SHEETS
December 31,
(Dollars and share amounts in millions, except
par value per share)
2022
2021
ASSETS:
Fixed maturities - available for sale
$
-
$
-
(amortized cost: 2022, $
0
; 2021, $
0
)
Other invested assets (cost: 2022, $
0
; 2021, $
212
)
-
212
Cash
22
3
Investment in subsidiaries, at equity in the underlying net assets
11,116
10,353
Accrued investment income
-
-
Receivable from subsidiaries
11
10
Other assets
43
50
TOTAL ASSETS
$
11,192
$
10,628
LIABILITIES:
Long term notes payable, affiliated
$
2,738
$
500
Due to subsidiaries
4
2
Other liabilities
9
(13)
Total liabilities
2,751
489
SHAREHOLDERS' EQUITY:
Preferred shares, par value: $
0.01
;
50.0
shares authorized;
no
shares issued and outstanding
-
-
Common shares, par value: $
0.01
;
200.0
shares authorized;
(2022)
69.9
and (2021)
69.8
outstanding before treasury shares
1
1
Additional paid-in capital
2,302
2,274
Accumulated other comprehensive income (loss), net of deferred income
tax expense (benefit) of ($
250
) at 2022 and $
27
at 2021
(1,996)
12
Treasury shares, at cost;
30.8
shares (2022) and
30.5
shares (2021)
(3,908)
(3,847)
Retained earnings
12,042
11,700
Total shareholders' equity
8,441
10,139
TOTAL
LIABILITIES AND SHAREHOLDERS' EQUITY
$
11,192
$
10,628
(Some amounts may not reconcile due to rounding.)
See notes to consolidated financial statements.
S-3
SCHEDULE II — CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT
CONDENSED STATEMENTS
OF OPERATIONS
Years Ended December 31,
2022
2021
2020
(Dollars in thousands)
REVENUES:
Net investment income
$
-
$
-
$
1
Other income (expense)
-
-
6
Net income (loss) of subsidiaries
648
1,416
536
Total revenues
648
1,416
543
EXPENSES:
Interest expense - affiliated
13
6
5
Other expenses
38
31
24
Total expenses
51
37
29
INCOME (LOSS) BEFORE TAXES
597
1,379
514
NET INCOME (LOSS)
$
597
$
1,379
$
514
Other comprehensive income (loss), net of tax:
Unrealized appreciation (depreciation) ("URA(D)") on securities arising during the period
(2,037)
(488)
423
Reclassification adjustment for realized losses (gains) included in net income (loss)
89
4
(3)
Total URA(D) on securities arising during the period
(1,948)
(485)
420
Foreign currency translation adjustments
(77)
(62)
86
Benefit plan actuarial net gain (loss) for the period
15
17
(6)
Reclassification adjustment for amortization of net (gain) loss included in net income (loss)
2
6
6
Total benefit plan net gain (loss) for the period
17
23
1
Total other comprehensive income (loss), net of tax
(2,008)
(523)
507
COMPREHENSIVE INCOME (LOSS)
$
(1,411)
$
856
$
1,021
(Some amounts may not reconcile due to rounding.)
See notes to consolidated financial statements.
S-4
SCHEDULE II — CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT
CONDENSED STATEMENTS
OF CASH FLOWS
Years Ended December 31,
(Dollars in millions, except share amounts)
2022
2021
2020
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)
$
597
$
1,379
$
514
Adjustments to reconcile net income to net cash provided by operating activities:
Equity in retained (earnings) deficit of subsidiaries
(648)
(1,416)
(536)
Cash dividends received from subsidiaries
476
320
650
Change in other assets and liabilities, net
28
3
(21)
Increase (decrease) in due to/from affiliates
2
8
(9)
Amortization of bond premium (accrual of bond discount)
-
-
-
Realized capital losses (gains)
-
-
-
Non-cash compensation expense
2
2
3
Net cash provided by (used in) operating activities
457
296
601
CASH FLOWS FROM INVESTING ACTIVITIES:
Additional investment in subsidiaries
(824)
(120)
(138)
Proceeds from fixed maturities matured/called - available for sale, at market value
-
-
1
Proceeds from fixed maturities sold - available for sale, at market value
-
-
200
Distribution from other invested assets
237
607
560
Cost of fixed maturities acquired - available for sale, at market value
-
-
-
Cost of other invested assets acquired
(26)
(535)
(801)
Net change in short-term investments
-
-
-
Net cash provided by (used in) investing activities
(613)
(48)
(178)
CASH FLOWS FROM FINANCING ACTIVITIES:
Common shares issued during the period, net
26
27
23
Purchase of treasury shares
(61)
(225)
(200)
Dividends paid to shareholders
(255)
(247)
(249)
Proceeds from issuance (cost of repayment) of long term notes payable - affiliated
465
200
-
Net cash provided by (used in) financing activities
175
(245)
(426)
EFFECT OF EXCHANGE RATE CHANGES ON CASH
-
-
-
Net increase (decrease) in cash
19
2
(3)
Cash, beginning of period
3
1
3
Cash, end of period
$
22
$
3
$
1
Non-Cash Transactions:
Dividend of
4,297,463
shares of Everest Re Group, Ltd. (“Group”) common stock
$
1,405
$
-
$
-
received by Group from Everest Preferred International Holdings
(“Preferred Holdings”), a direct subsidiary
Issuance of $
1,773
million promissory note payable by Group to Preferred
Holdings in exchange for
5,422,508
shares of Group common stock
received by Group from Preferred Holdings
1,773
-
-
Capital contribution of
9,719,971
shares of Group common stock provided from
Group to Everest Re Advisors, Ltd.
3,178
-
-
(Some amounts may not reconcile due to rounding.)
See notes to consolidated financial statements.
S-5
SCHEDULE II – CONDENSED FINANCIAL INFORMATION
OF THE REGISTRANT
NOTES TO CONDENSED
FINANCIAL INFORMATION
1.)
The
accompanying
condensed
financial
information
should
be
read
in
conjunction
with
the
consolidated
financial statements and related
Notes of Everest Re
Group, Ltd. and its Subsidiaries.
2.)
Everest
Re
Group,
Ltd.
entered
into
a
$
300
million
long-term
note
agreement
with
Everest
Reinsurance
Company,
an
affiliated
company,
as
of
December
2019.
The
note
will
pay
interest
annually
at
a
rate
of
1.69
% and
is
scheduled
to
mature
in
December
2028.
At
December
31,
2022
and
2021,
this
transaction
was
presented
as
a
Long-Term
Note
Payable
–
Affiliated
in
the
Condensed
Balance
sheets
of
Everest
Re
Group, Ltd.
3.)
Everest
Re
Group,
Ltd.
entered
into
a
$
200
million
long-term
note
agreement
with
Everest
Reinsurance
Company,
an affiliated
company,
as of August
2021.
The note
will pay
interest annually
at a rate
of
1.00
%
and
is
scheduled
to
mature
in
August
2030.
At
December
31,
2022
and
2021,
this
transaction
was
presented as
a Long-Term
Note Payable
– Affiliated
in the Condensed
Balance sheets of
Everest
Re Group,
Ltd.
4.)
Everest
Re
Group,
Ltd.
entered
into
a
$
215
million
long-term-note
agreement
with
Everest
Reinsurance
Holdings, Inc., an affiliated company,
as of June 2022.
The note will pay interest
annually at a rate of
3.11
%
and is scheduled to
mature in June 2052.
At December 31,
2022, this transaction
was presented as
a Long-
Term Note
Payable – Affiliated
in the Condensed Balance sheets of Everest
Re Group, Ltd.
5.)
Everest
Re
Group,
Ltd.
entered
into
a
$
125
million
long-term
note
agreement
with
Everest
Reinsurance
Holdings, Inc., an
affiliated company,
as of December 2022.
The note will pay
interest annually
at a rate
of
4.34
% and is scheduled to mature in June
2052.
At December 31, 2022, this transaction
was presented as a
Long-Term Note
Payable – Affiliated
in the Condensed Balance sheets of Everest
Re Group, Ltd.
6.)
Everest
Re
Group,
Ltd.
entered
into
a
$
125
million
long-term
note
agreement
with
Everest
International
Reinsurance,
an affiliated
company,
as of
December 2022.
The note
will pay
interest
annually at
a rate
of
4.34
%
and
is
scheduled
to
mature
in
December
2052.
At
December
31,
2022,
this
transaction
was
presented as
a Long-Term
Note Payable
– Affiliated
in the Condensed
Balance sheets of
Everest
Re Group,
Ltd.
7.)
Everest
Re
Group,
Ltd.
entered
into
a
$
1.773
billion
long-term
note
agreement
with
Everest
Preferred
International Holdings,
an affiliated
company,
as of December
2022.
The note will
pay interest
annually at
a rate of
4.34
% and is scheduled to
mature in December 2052.
At December 31, 2022,
this transaction was
presented as
a Long-Term
Note Payable
– Affiliated
in the Condensed
Balance sheets of
Everest
Re Group,
Ltd.
8.)
Everest
Re
Group,
Ltd.
has
invested
funds
in
the
segregated
accounts
of
Mt.
Logan
Re,
Ltd.
(“Mt.
Logan
Re”),
an
affiliated
entity.
On
the
Condensed
Balance
Sheets,
investments
in Mt.
Logan
Re
valued
at
$
65
million and $
66
million as
of December
31, 2022 and
2021, respectively,
have been
recorded
within Other
Assets.
On the Condensed Statements
of Operations, income (expense)
of $
(0.9)
million, $
(1.3)
million and
$(6.3) million for
the years
ended December 31,
2022, 2021 and
2020, respectively,
have been recorded
in
other income (expense).
S-6
SCHEDULE
III — SUPPLEMENTARY
INSURANCE INFORMATION
Column A
Column B
Column C
Column D
Column E
Column F
Column G
Column H
Column I
Column J
Reserve
Incurred
Segment
for Losses
Loss and
Amortization
Deferred
and Loss
Unearned
Net
Loss
of
Deferred
Other
Net
Acquisition
Adjustment
Premium
Premiums
Investment
Adjustment
Acquisition
Operating
Written
(Dollars in millions)
Costs
Expenses
Reserves
Earned
Income
Expenses
Costs
Expenses
Premium
As of and Year Ended December
31, 2022
Reinsurance
$
710
$
16,140
$
2,894
$
8,663
$
590
$
5,997
$
2,134
$
218
$
8,983
Insurance
252
5,925
2,253
3,124
240
2,103
394
463
3,361
Total
$
962
$
22,065
$
5,147
$
11,787
$
830
$
8,100
$
2,528
$
682
$
12,344
As of and Year Ended December
31, 2021
Reinsurance
$
654
$
13,895
$
2,723
$
7,757
$
823
$
5,556
$
1,854
$
199
$
8,536
Insurance
218
5,114
1,887
2,649
342
1,835
354
383
2,910
Total
$
872
$
19,009
$
4,610
$
10,406
$
1,165
$
7,391
$
2,209
$
583
$
11,446
As of and Year Ended December
31, 2020
Reinsurance
$
448
$
12,023
$
1,995
$
6,466
$
458
$
4,933
$
1,552
$
176
$
6,768
Insurance
174
4,376
1,506
2,215
184
1,617
321
336
2,349
Total
$
622
$
16,399
$
3,501
$
8,682
$
642
$
6,551
$
1,873
$
511
$
9,117
(Some amounts may not reconcile due to rounding.)
S-7
SCHEDULE IV — REINSURANCE
Column A
Column B
Column C
Column D
Column E
Column F
Ceded to
Assumed
Gross
Other
from Other
Net
Assumed
(Dollars in millions)
Amount
Companies
Companies
Amount
to Net
December 31, 2022
Total property and
liability insurance premiums earned
$
4,218
$
1,513
$
9,082
$
11,787
$
77.1%
December 31, 2021
Total property and
liability insurance premiums earned
$
3,589
$
1,498
$
8,315
$
10,406
$
79.9%
December 31, 2020
Total property and
liability insurance premiums earned
$
3,028
$
1,401
$
7,055
$
8,682
$
81.3%