filings.toolsItem 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
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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 28, 2022.
| EVEREST RE GROUP, LTD. | |||
|---|---|---|---|
| By: | /S/ JUAN C. ANDRADE | ||
| Juan C. Andrade | |||
| (President and Chief Executive Officer) |
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 28, 2022 | ||||
| Juan C. Andrade | ||||||
| /S/ MARK KOCIANCIC | Executive Vice President and Chief Financial Officer | February 28, 2022 | ||||
| Mark Kociancic | ||||||
| /S/ ROBERT J. FREILING | Senior Vice President and Chief | February 28, 2022 | ||||
| Robert J. Freiling | Accounting Officer | |||||
| /S/ JOSEPH V. TARANTO | Chairman | February 28, 2022 | ||||
| Joseph V. Taranto | ||||||
| /S/ JOHN J. AMORE | Director | February 28, 2022 | ||||
| John J. Amore | ||||||
| /S/ WILLIAM F. GALTNEY, JR. | Director | February 28, 2022 | ||||
| William F. Galtney, Jr. | ||||||
| /S/ JOHN A. GRAF | Director | February 28, 2022 | ||||
| John A. Graf | ||||||
| /S/ MERYL HARTZBAND | Director | February 28, 2022 | ||||
| Meryl Hartzband | ||||||
| /S/ GERALDINE LOSQUADRO | Director | February 28, 2022 | ||||
| Geraldine Losquadro | ||||||
| /S/ ROGER M. SINGER | Director | February 28, 2022 | ||||
| Roger M. Singer | ||||||
| /S/ JOHN A. WEBER | Director | February 28, 2022 | ||||
| John A. Weber | ||||||
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E-2
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| 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. |
E-5
F-1
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, 2021 and 2020, 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, 2021, 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, 2021, 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, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021 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, 2021, 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
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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 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, 2021 was $19.0 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
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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 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 28, 2022
We have served as the Company’s or its predecessor's auditor since 1996.
F-4
EVEREST RE GROUP, LTD.
CONSOLIDATED BALANCE SHEETS
| December 31, | |||||
|---|---|---|---|---|---|
| (Dollars and share amounts in thousands, except par value per share) | 2021 | 2020 | |||
| ASSETS: | |||||
| Fixed maturities - available for sale | $ | 22,308,272 | $ | 20,040,173 | |
| (amortized cost: 2021, $22,063,592; 2020, $19,225,067, credit allowances: 2021, $(29,738); 2020, $(1,745)) | |||||
| Equity securities, at fair value | 1,825,908 | 1,472,236 | |||
| Short-term investments (cost: 2021, $1,178,386; 2020, $1,135,088) | 1,178,337 | 1,134,950 | |||
| Other invested assets | 2,919,965 | 2,012,581 | |||
| Cash | 1,440,861 | 801,651 | |||
| Total investments and cash | 29,673,343 | 25,461,591 | |||
| Accrued investment income | 149,105 | 141,304 | |||
| Premiums receivable | 3,293,598 | 2,680,562 | |||
| Reinsurance recoverables | 2,053,354 | 1,994,555 | |||
| Funds held by reinsureds | 868,601 | 716,655 | |||
| Deferred acquisition costs | 872,289 | 622,053 | |||
| Prepaid reinsurance premiums | 515,445 | 412,015 | |||
| Income taxes | 2,381 | 17,253 | |||
| Other assets | 757,167 | 665,515 | |||
| TOTAL ASSETS | $ | 38,185,283 | $ | 32,711,503 | |
| LIABILITIES: | |||||
| Reserve for losses and loss adjustment expenses | $ | 19,009,486 | $ | 16,322,143 | |
| Future policy benefit reserve | 35,669 | 37,723 | |||
| Unearned premium reserve | 4,609,634 | 3,501,359 | |||
| Funds held under reinsurance treaties | 18,391 | 15,807 | |||
| Other net payable to reinsurers | 449,723 | 294,347 | |||
| Losses in course of payment | 260,684 | 127,971 | |||
| Senior notes | 2,345,800 | 1,376,718 | |||
| Long term notes | 223,774 | 223,674 | |||
| Borrowings from FHLB | 519,000 | 310,000 | |||
| Accrued interest on debt and borrowings | 17,348 | 10,460 | |||
| Unsettled securities payable | 16,698 | 206,693 | |||
| Other liabilities | 539,896 | 558,432 | |||
| Total liabilities | 28,046,103 | 22,985,327 | |||
| Commitments and contingencies (Note 15) | (nil) | (nil) | |||
| SHAREHOLDERS' EQUITY: | |||||
| Preferred shares, par value: $0.01; 50,000 shares authorized; | |||||
| no shares issued and outstanding | - | - | |||
| Common shares, par value: $0.01; 200,000 shares authorized; (2021) 69,790 | |||||
| and (2020) 69,620 outstanding before treasury shares | 698 | 696 | |||
| Additional paid-in capital | 2,274,431 | 2,245,301 | |||
| Accumulated other comprehensive income (loss), net of deferred income tax expense | |||||
| (benefit) of $26,781 at 2021 and $80,451 at 2020 | 11,523 | 534,899 | |||
| Treasury shares, at cost; 30,524 shares (2021) and 29,636 shares (2020) | (3,847,308) | (3,622,172) | |||
| Retained earnings | 11,699,836 | 10,567,452 | |||
| Total shareholders' equity | 10,139,180 | 9,726,176 | |||
| TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $ | 38,185,283 | $ | 32,711,503 | |
| The accompanying notes are an integral part of the consolidated financial statements. | |||||
F-5
EVEREST RE GROUP, LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
| Years Ended December 31, | ||||||||
|---|---|---|---|---|---|---|---|---|
| (Dollars in thousands, except per share amounts) | 2021 | 2020 | 2019 | |||||
| REVENUES: | ||||||||
| Premiums earned | $ | 10,406,441 | $ | 8,681,513 | $ | 7,403,686 | ||
| Net investment income | 1,164,892 | 642,465 | 647,139 | |||||
| Net realized capital gains (losses): | ||||||||
| Credit allowances on fixed maturity securities | (27,992) | (1,745) | - | |||||
| Other net realized capital gains (losses) | 285,935 | 269,394 | 205,903 | |||||
| Total net realized capital gains (losses) | 257,943 | 267,649 | 185,004 | |||||
| Other income (expense) | 36,987 | 6,487 | (4,660) | |||||
| Total revenues | 11,866,263 | 9,598,114 | 8,231,169 | |||||
| CLAIMS AND EXPENSES: | ||||||||
| Incurred losses and loss adjustment expenses | 7,391,253 | 6,550,837 | 4,922,898 | |||||
| Commission, brokerage, taxes and fees | 2,208,766 | 1,873,250 | 1,703,726 | |||||
| Other underwriting expenses | 582,647 | 511,237 | 440,899 | |||||
| Corporate expenses | 67,827 | 41,118 | 32,966 | |||||
| Interest, fees and bond issue cost amortization expense | 70,149 | 36,323 | 31,693 | |||||
| Total claims and expenses | 10,320,642 | 9,012,765 | 7,132,182 | |||||
| INCOME (LOSS) BEFORE TAXES | 1,545,621 | 585,349 | 1,098,987 | |||||
| Income tax expense (benefit) | 166,538 | 71,198 | 89,526 | |||||
| NET INCOME (LOSS) | $ | 1,379,083 | $ | 514,151 | $ | 1,009,461 | ||
| Other comprehensive income (loss), net of tax: | ||||||||
| Unrealized appreciation (depreciation) ("URA(D)") on securities arising during the period | (488,378) | 423,210 | 496,430 | |||||
| Reclassification adjustment for realized losses (gains) included in net income (loss) | 3,616 | (3,476) | (12,613) | |||||
| Total URA(D) on securities arising during the period | (484,762) | 419,734 | 483,817 | |||||
| Foreign currency translation adjustments | (62,091) | 86,327 | 14,030 | |||||
| Benefit plan actuarial net gain (loss) for the period | 6,251 | (5,615) | (12,591) | |||||
| Reclassification adjustment for amortization of net (gain) loss included in net income (loss) | 17,227 | 6,300 | 5,453 | |||||
| Total benefit plan net gain (loss) for the period | 23,478 | 685 | (7,138) | |||||
| Total other comprehensive income (loss), net of tax | (523,375) | 506,746 | 490,709 | |||||
| COMPREHENSIVE INCOME (LOSS) | $ | 855,708 | $ | 1,020,897 | $ | 1,500,170 | ||
| EARNINGS PER COMMON SHARE: | ||||||||
| Basic | $ | 34.66 | $ | 12.81 | $ | 24.77 | ||
| Diluted | 34.62 | 12.78 | 24.70 | |||||
| The accompanying notes are an integral part of the consolidated financial statements. |
F-6
EVEREST RE GROUP, LTD.
CONSOLIDATED STATEMENTS OF
CHANGES IN SHAREHOLDERS’ EQUITY
| Years Ended December 31, | ||||||||
|---|---|---|---|---|---|---|---|---|
| (Dollars in thousands, except share and dividends per share amounts) | 2021 | 2020 | 2019 | |||||
| COMMON SHARES (shares outstanding): | ||||||||
| Balance, January 1 | 39,983,481 | 40,798,963 | 40,651,148 | |||||
| Issued during the period, net | 170,774 | 155,410 | 262,448 | |||||
| Treasury shares acquired | (887,622) | (970,892) | (114,633) | |||||
| Balance, December 31 | 39,266,633 | 39,983,481 | 40,798,963 | |||||
| COMMON SHARES (par value): | ||||||||
| Balance, January 1 | $ | 696 | $ | 694 | $ | 692 | ||
| Issued during the period, net | 2 | 2 | 2 | |||||
| Balance, December 31 | 698 | 696 | 694 | |||||
| ADDITIONAL PAID-IN CAPITAL: | ||||||||
| Balance, January 1 | 2,245,301 | 2,219,660 | 2,188,777 | |||||
| Share-based compensation plans | 29,130 | 25,641 | 30,883 | |||||
| Balance, December 31 | 2,274,431 | 2,245,301 | 2,219,660 | |||||
| ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS), | ||||||||
| NET OF DEFERRED INCOME TAXES: | ||||||||
| Balance, January 1 | 534,899 | 28,152 | (462,557) | |||||
| Net increase (decrease) during the period | (523,375) | 506,746 | 490,709 | |||||
| Balance, December 31 | 11,523 | 534,899 | 28,152 | |||||
| RETAINED EARNINGS: | ||||||||
| Balance, January 1 | 10,567,452 | 10,306,571 | 9,531,433 | |||||
| Change to beginning balance due to adoption of Accounting Standards Update 2016-13 | - | (4,214) | - | |||||
| Net income (loss) | 1,379,083 | 514,151 | 1,009,461 | |||||
| Dividends declared ($6.20 per share 2021, $6.20 per share 2020 and $5.75 per share 2019) | (246,699) | (249,056) | (234,322) | |||||
| Balance, December 31 | 11,699,836 | 10,567,452 | 10,306,571 | |||||
| TREASURY SHARES AT COST: | ||||||||
| Balance, January 1 | (3,622,172) | (3,422,152) | (3,397,548) | |||||
| Purchase of treasury shares | (225,136) | (200,020) | (24,604) | |||||
| Balance, December 31 | (3,847,308) | (3,622,172) | (3,422,152) | |||||
| TOTAL SHAREHOLDERS' EQUITY, December 31 | $ | 10,139,180 | $ | 9,726,176 | $ | 9,132,925 | ||
| The accompanying notes are an integral part of the consolidated financial statements. | ||||||||
F-7
EVEREST RE GROUP, LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
| Years Ended December 31, | ||||||||
|---|---|---|---|---|---|---|---|---|
| (Dollars in thousands) | 2021 | 2020 | 2019 | |||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net income (loss) | $ | 1,379,083 | $ | 514,151 | $ | 1,009,461 | ||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
| Decrease (increase) in premiums receivable | (648,735) | (387,123) | (62,018) | |||||
| Decrease (increase) in funds held by reinsureds, net | (151,028) | (219,321) | (56,722) | |||||
| Decrease (increase) in reinsurance recoverables | (124,796) | (150,753) | 67,444 | |||||
| Decrease (increase) in income taxes | 68,148 | 239,883 | 237,479 | |||||
| Decrease (increase) in prepaid reinsurance premiums | (127,792) | 55,334 | (95,207) | |||||
| Increase (decrease) in reserve for losses and loss adjustment expenses | 2,805,064 | 2,631,016 | 343,254 | |||||
| Increase (decrease) in future policy benefit reserve | (2,054) | (4,869) | (4,186) | |||||
| Increase (decrease) in unearned premiums | 1,145,512 | 404,049 | 521,709 | |||||
| Increase (decrease) in other net payable to reinsurers | 185,764 | (24,163) | 66,477 | |||||
| Increase (decrease) in losses in course of payment | 133,700 | 74,759 | (33,557) | |||||
| Change in equity adjustments in limited partnerships | (612,569) | (103,772) | (108,332) | |||||
| Distribution of limited partnership income | 211,367 | 122,326 | 81,300 | |||||
| Change in other assets and liabilities, net | (289,562) | (99,171) | 4,950 | |||||
| Non-cash compensation expense | 43,406 | 39,209 | 34,018 | |||||
| Amortization of bond premium (accrual of bond discount) | 75,777 | 49,673 | 30,936 | |||||
| Net realized capital (gains) losses | (257,943) | (267,649) | (185,004) | |||||
| Net cash provided by (used in) operating activities | 3,833,342 | 2,873,579 | 1,852,002 | |||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Proceeds from fixed maturities matured/called - available for sale, at market value | 3,892,918 | 2,586,405 | 2,302,299 | |||||
| Proceeds from fixed maturities sold - available for sale, at market value | 1,915,916 | 1,945,867 | 3,280,237 | |||||
| Proceeds from fixed maturities sold - available for sale, at fair value | - | 4,907 | 2,917 | |||||
| Proceeds from equity securities sold, at fair value | 990,376 | 376,347 | 283,965 | |||||
| Distributions from other invested assets | 257,233 | 309,912 | 284,558 | |||||
| Cost of fixed maturities acquired - available for sale, at market value | (8,825,315) | (7,189,301) | (6,613,917) | |||||
| Cost of fixed maturities acquired - available for sale, at fair value | - | - | (4,243) | |||||
| Cost of equity securities acquired, at fair value | (1,097,886) | (637,082) | (329,417) | |||||
| Cost of other invested assets acquired | (756,560) | (557,473) | (425,438) | |||||
| Net change in short-term investments | (42,630) | (717,527) | (167,290) | |||||
| Net change in unsettled securities transactions | (203,016) | 194,574 | (26,163) | |||||
| Net cash provided by (used in) investing activities | (3,868,964) | (3,683,371) | (1,412,492) | |||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Common shares issued during the period for share-based compensation, net of expense | (14,275) | (13,566) | (3,134) | |||||
| Purchase of treasury shares | (225,136) | (200,020) | (24,604) | |||||
| Dividends paid to shareholders | (246,699) | (249,097) | (234,322) | |||||
| Proceeds from issuance of senior notes | 968,357 | 979,417 | - | |||||
| Cost of debt repurchase | - | (10,647) | - | |||||
| FHLB advances (repayments) | 209,000 | 310,000 | - | |||||
| Cost of shares withheld on settlements of share-based compensation awards | (17,054) | (15,908) | (13,627) | |||||
| Net cash provided by (used in) financing activities | 674,193 | 800,220 | (275,687) | |||||
| EFFECT OF EXCHANGE RATE CHANGES ON CASH | 639 | 3,187 | (11,882) | |||||
| Net increase (decrease) in cash | 639,210 | (6,385) | 151,941 | |||||
| Cash, beginning of period | 801,651 | 808,036 | 656,095 | |||||
| Cash, end of period | $ | 1,440,861 | $ | 801,651 | $ | 808,036 | ||
| SUPPLEMENTAL CASH FLOW INFORMATION: | ||||||||
| Income taxes paid (recovered) | $ | 98,030 | $ | (169,748) | (148,585) | |||
| Interest paid | 62,369 | 28,415 | 31,689 | |||||
| The accompanying notes are an integral part of the consolidated financial statements. | ||||||||
F-8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2021, 2020 and 2019
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 Group: 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 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 have control and 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 2021 presentation.
B. Investments.
Fixed maturity investments available for sale reflect unrealized appreciation and depreciation, as a result of changes in market value during the period, in shareholders’ equity, net of income taxes in “accumulated other comprehensive income (loss)” in the consolidated balance sheets, since cash flows from these investments will be primarily used to settle its reserve for losses and loss adjustment expense liabilities. The Company anticipates holding these investments for an extended period as the cash flow from interest and maturities will fund the projected payout of these liabilities. The Company reviews all of its fixed maturity, available for sale
F-9
securities whose fair value has fallen below their amortized cost at the time of review. The Company then assesses whether the decline in value is due to non-credit related or credit related factors. In making its assessment, the Company evaluates the current market and interest rate environment as well as specific issuer information. Generally, a change in a security’s value caused by a change in the market, interest rate or foreign exchange environment does not constitute a credit impairment, but rather a non-credit related decline in market value. Non-credit related declines in market value are recorded as unrealized losses in accumulated other comprehensive income (loss). If the Company intends to sell the 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 realized capital gains (losses) in the Company’s consolidated statements of operations and comprehensive income (loss). If the Company determines that the decline is credit related and the Company does not have the intent to sell the security; and it is more likely than not that the Company will not have to sell the security before recovery of its cost basis, the Company establishes a credit allowance equal to the estimated credit loss and is recorded in net realized capital gains (losses) in the Company’s consolidated statements of operations and comprehensive income (loss). The amount of the allowance for a given security will generally be the difference between a discounted cash flow model and the Company’s carrying value. The fair value adjustment that is non-credit related is recorded as a component of other comprehensive income (loss), net of tax, and is included in accumulated other comprehensive income (loss) in the Company’s consolidated balance sheets. The Company will adjust the credit allowance account for future changes in credit loss estimates for a security and record this adjustment through net realized capital gains (losses) in the Company’s consolidated statements of operations and comprehensive income (loss).
The Company does not create an allowance for uncollectible interest. If interest is not received when due, the interest receivable is immediately reversed and no additional interest is accrued. If future interest is received that has not been accrued, it is recorded as income at that time.
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 value as net realized capital gains and losses. 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). Short-term investments are stated at cost, which approximates market 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, market 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. Retrospective adjustments are employed to recalculate the values of asset-backed securities. 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
F-10
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 as an input to the calculation of projected and prepayments for pass-through security types. Other invested assets include limited partnerships and rabbi trusts. Cash contributions to and cash distributions from the sweep facility were reported gross in cash flows from investing activities in the consolidated statements of cash flows. Limited partnerships are accounted for under the equity method of accounting, which can be recorded on a monthly or quarterly lag.
C. Allowance for Premium Receivable and Reinsurance Recoverables.
Effective January 1, 2020, the Company adopted 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. Prior to the adoption of CECL, an allowance for doubtful accounts was estimated on the basis of periodic evaluations of balances due from third parties, considering historical collection experience, solvency and current economic conditions.
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 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 consolidated 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
F-11
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 expects the impact of the COVID-19 pandemic to reinsurers to be somewhat mitigated by their regulated capital and liquidity positions. The ultimate impact to the Company's financial statements could vary significantly from our estimates depending on the duration and severity of the pandemic, the duration and severity of the economic downturn and the degree to which federal, state and local government actions to mitigate the economic impact of COVID-19 are effective.
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.
Allowances are presented in the table below for the periods indicated.
| Years Ended December 31, | |||||
|---|---|---|---|---|---|
| (Dollars in thousands) | 2021 | 2020 | |||
| Reinsurance recoverable premium receivables and deductibles | $ | 46,499 | $ | 41,357 |
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 and COVID-19 exposures, for which liabilities cannot be estimated using traditional 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-12
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, 2021 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 AOCI.
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 investments, which are excluded from net income (loss) and accumulated in shareholders’ equity, net of deferred taxes.
F-13
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 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, | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (Dollars in thousands, except per share amounts) | 2021 | 2020 | 2019 | |||||||||
| Net income (loss) per share: | ||||||||||||
| Numerator | ||||||||||||
| Net income (loss) | $ | 1,379,083 | $ | 514,151 | $ | 1,009,461 | ||||||
| Less: dividends declared-common shares and nonvested common shares | (246,699) | (249,056) | (234,322) | |||||||||
| Undistributed earnings | 1,132,384 | 265,094 | 775,139 | |||||||||
| Percentage allocated to common shareholders (1) | 98.7 | % | 98.7 | % | 98.9 | % | ||||||
| 1,117,318 | 261,770 | 766,386 | ||||||||||
| Add: dividends declared-common shareholders | 243,569 | 246,054 | 231,796 | |||||||||
| Numerator for basic and diluted earnings per common share | $ | 1,360,887 | $ | 507,824 | $ | 998,182 | ||||||
| Denominator | ||||||||||||
| Denominator for basic earnings per weighted-average common shares | 39,263 | 39,656 | 40,291 | |||||||||
| Effect of dilutive securities: | ||||||||||||
| Options | 41 | 77 | 129 | |||||||||
| Denominator for diluted earnings per adjusted weighted-average common shares | 39,304 | 39,734 | 40,420 | |||||||||
| Per common share net income (loss) | ||||||||||||
| Basic | $ | 34.66 | $ | 12.81 | $ | 24.77 | ||||||
| Diluted | $ | 34.62 | $ | 12.78 | $ | 24.70 | ||||||
| (1) | Basic weighted-average common shares outstanding | 39,263 | 39,656 | 40,291 | ||||||||
| Basic weighted-average common shares outstanding and nonvested common shares expected to vest | 39,792 | 40,160 | 40,751 | |||||||||
| Percentage allocated to common shareholders | 98.7 | % | 98.7 | % | 98.9 | % | ||||||
| (Some amounts may not reconcile due to rounding.) |
There were no anti-diluted options outstanding for the years ended December 31, 2021 and 2020.
All outstanding options expire on or between February 22, 2022 and September 19, 2022.
L. Segmentation.
The Company, through its subsidiaries, operates in two segments: Reinsurance and Insurance. See also Note 17.
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M. Deposit Assets and Liabilities.
In the normal course of its operations, the Company may enter into contracts that do not meet risk transfer provisions. Such contracts are accounted for using the deposit accounting method and are included in other liabilities in the Company’s consolidated balance sheets. For such contracts, the Company originally records deposit liabilities for an amount equivalent to the assets received. Actuarial studies are used to estimate the final liabilities under such contracts with any change reflected in the consolidated statements of operations and comprehensive income (loss).
N. 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.
O. Application of Recently Issued Accounting Guidance.
Reference Rate Reform - LIBOR. In March 2020, the Financial Accounting Standards Board (“FASB”) issued ASU 2020-04, which outlines the issues surrounding the cessation of LIBOR as a reference rate for contractual debt agreements. The guidance also details the potential alternative expedients and sources available for use in determination of rates and terms for such debt agreements in order to apply appropriate accounting policy. The guidance is effective for annual reporting periods beginning after December 15, 2021. The Company has reviewed its inventory of investments, debt issuances and business contracts to evaluate the impact of elimination of LIBOR upon its financial statements and business operations. Due to the existence of modification or default provisions for use of other reference rates after the elimination of LIBOR, the Company has determined that the adoption of ASU 2020-04 did not have a material impact upon its financial statements or business operations.
Accounting for Income Taxes. In December 2019, The Financial Accounting Standards Board (“FASB”) issued ASU 2019-12, which provides simplification of existing guidance for income taxes, including the removal of certain exceptions related to recognition of deferred tax liabilities on foreign subsidiaries. The guidance is effective for annual reporting periods beginning after December 15, 2020 and interim periods within that annual reporting period. The Company adopted the guidance effective January 1, 2021. The adoption of ASU 2019-12 did not have a material impact on the Company’s financial statements.
Accounting for Long Duration Contracts. In August 2018, FASB issued ASU 2018-12, which discusses changes to the recognition, measurement and presentation of long duration contracts. The main provisions of this guidance address the following: 1) In determining liability for future policy benefits, companies must review cash flow assumptions at least annually and the discount rate assumption at each reporting period date 2) Amortization of deferred acquisition costs has been simplified to be in constant level proportion to either premiums, gross profits or gross margins 3) Disaggregated roll forwards of beginning and ending liabilities for future policy benefits are required. The guidance was originally effective for annual reporting periods beginning after December 15, 2020 and interim periods within that annual reporting period. However, FASB issued ASU 2019-09 in November 2019 and then ASU 2020-11 in November 2021, which ultimately defers the effective date of ASU 2018-12 until annual reporting periods beginning after December 15, 2022. The Company is currently evaluating the impact of the adoption of ASU 2018-12 on its financial statements.
Valuation of Financial Instruments. In June 2016, FASB issued ASU 2016-13 (and has subsequently issued related guidance and amendments in ASU 2019-11 and ASU 2019-10 in November 2019) which outline guidance on the valuation of and accounting for assets measured at amortized cost and available for sale debt securities. The new guidance requires the carrying value of assets measured at amortized cost, including reinsurance and premiums receivables to be presented as the net amount expected to be collected on the financial asset (amortized cost less an allowance for credit losses valuation account). The allowance reflects expected credit losses of the financial asset which considers available information using a combination both historical information, current market conditions and reasonable and supportable forecasts. For available-for-sale debt
F-15
securities, the guidance modified the previous other than temporary impairment model, now requiring an allowance for estimated credit related losses rather than a permanent impairment, which will be limited to the amount by which fair value is below amortized cost. The guidance is effective for annual and interim reporting periods beginning after December 15, 2019. The Company adopted the guidance effective January 1, 2020, on a modified retrospective basis. The adoption resulted in a cumulative reduction of $4,214 thousand in retained earnings, net of tax, which is disclosed separately within the Consolidated Statements of Shareholders’ Equity.
Any issued guidance and pronouncements, other than those directly referenced above, are deemed by the Company to be either not applicable or immaterial to its financial statements.
2. INVESTMENTS
The tables below present the amortized cost, allowance for credit losses, gross unrealized appreciation/(depreciation) and market value of fixed maturity securities as of December 31, 2021 and 2020.
| At December 31, 2021 | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Amortized | Allowance for | Unrealized | Unrealized | Market | |||||||||||
| (Dollars in thousands) | Cost | Credit Losses | Appreciation | Depreciation | Value | ||||||||||
| Fixed maturity securities | |||||||||||||||
| U.S. Treasury securities and obligations of | |||||||||||||||
| U.S. government agencies and corporations | $ | 1,407,256 | $ | - | $ | 23,720 | $ | (10,358) | $ | 1,420,618 | |||||
| Obligations of U.S. states and political subdivisions | 558,842 | (151) | 29,080 | (1,150) | 586,621 | ||||||||||
| Corporate securities | 7,443,535 | (19,267) | 195,210 | (62,580) | 7,556,898 | ||||||||||
| Asset-backed securities | 3,579,439 | (7,679) | 21,817 | (11,848) | 3,581,729 | ||||||||||
| Mortgage-backed securities | |||||||||||||||
| Commercial | 1,032,506 | - | 37,550 | (5,690) | 1,064,366 | ||||||||||
| Agency residential | 2,361,208 | - | 32,997 | (18,873) | 2,375,332 | ||||||||||
| Non-agency residential | 6,530 | - | 22 | (16) | 6,536 | ||||||||||
| Foreign government securities | 1,423,634 | - | 41,957 | (28,079) | 1,437,512 | ||||||||||
| Foreign corporate securities | 4,250,642 | (2,641) | 95,195 | (64,536) | 4,278,660 | ||||||||||
| Total fixed maturity securities | $ | 22,063,592 | $ | (29,738) | $ | 477,548 | $ | (203,130) | $ | 22,308,272 |
| At December 31, 2020 | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Amortized | Allowance for | Unrealized | Unrealized | Market | |||||||||||
| (Dollars in thousands) | Cost | Credit Losses | Appreciation | Depreciation | Value | ||||||||||
| Fixed maturity securities | |||||||||||||||
| U.S. Treasury securities and obligations of | |||||||||||||||
| U.S. government agencies and corporations | $ | 1,325,156 | $ | - | $ | 49,084 | $ | (7,134) | $ | 1,367,106 | |||||
| Obligations of U.S. states and political subdivisions | 543,895 | - | 34,654 | (1,254) | 577,295 | ||||||||||
| Corporate securities | 6,824,800 | (1,220) | 380,677 | (55,231) | 7,149,026 | ||||||||||
| Asset-backed securities | 2,540,809 | - | 30,691 | (5,698) | 2,565,802 | ||||||||||
| Mortgage-backed securities | |||||||||||||||
| Commercial | 915,923 | - | 75,275 | (895) | 990,303 | ||||||||||
| Agency residential | 2,206,139 | - | 64,663 | (3,063) | 2,267,739 | ||||||||||
| Non-agency residential | 5,187 | - | 9 | (2) | 5,194 | ||||||||||
| Foreign government securities | 1,565,260 | (22) | 102,587 | (22,450) | 1,645,375 | ||||||||||
| Foreign corporate securities | 3,297,898 | (503) | 204,023 | (29,085) | 3,472,333 | ||||||||||
| Total fixed maturity securities | $ | 19,225,067 | $ | (1,745) | $ | 941,663 | $ | (124,812) | $ | 20,040,173 |
F-16
The amortized cost and market value of fixed maturity securities are shown in the following table by contractual maturity. Mortgage-backed securities are generally more likely to be prepaid than other fixed maturity securities. As the stated maturity of such securities may not be indicative of actual maturities, the totals for mortgage-backed and asset-backed securities are shown separately.
| At December 31, 2021 | At December 31, 2020 | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Amortized | Market | Amortized | Market | ||||||||
| (Dollars in thousands) | Cost | Value | Cost | Value | |||||||
| Fixed maturity securities – available for sale: | |||||||||||
| Due in one year or less | $ | 1,398,742 | $ | 1,398,006 | $ | 1,365,793 | $ | 1,374,674 | |||
| Due after one year through five years | 7,075,077 | 7,154,468 | 6,529,189 | 6,774,785 | |||||||
| Due after five years through ten years | 5,003,792 | 5,100,672 | 4,414,211 | 4,751,903 | |||||||
| Due after ten years | 1,606,298 | 1,627,163 | 1,247,816 | 1,309,773 | |||||||
| Asset-backed securities | 3,579,439 | 3,581,729 | 2,540,809 | 2,565,802 | |||||||
| Mortgage-backed securities: | |||||||||||
| Commercial | 1,032,506 | 1,064,366 | 915,923 | 990,303 | |||||||
| Agency residential | 2,361,208 | 2,375,332 | 2,206,139 | 2,267,739 | |||||||
| Non-agency residential | 6,530 | 6,536 | 5,187 | 5,194 | |||||||
| Total fixed maturity securities | $ | 22,063,592 | $ | 22,308,272 | $ | 19,225,067 | $ | 20,040,173 |
The changes in net unrealized appreciation (depreciation) for the Company’s investments are derived from the following sources for the periods indicated:
| Years Ended December 31, | |||||
|---|---|---|---|---|---|
| (Dollars in thousands) | 2021 | 2020 | |||
| Increase (decrease) during the period between the market value and cost | |||||
| of investments carried at market value, and deferred taxes thereon: | |||||
| Fixed maturity securities and short-term investments | $ | (542,343) | $ | 465,192 | |
| Change in unrealized appreciation (depreciation), pre-tax | (542,343) | 465,192 | |||
| Deferred tax benefit (expense) | 57,581 | (45,458) | |||
| Change in unrealized appreciation (depreciation), | |||||
| net of deferred taxes, included in shareholders’ equity | $ | (484,762) | $ | 419,734 |
F-17
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 $15.7 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 thousands) | Market Value | Depreciation | Market Value | Depreciation | Market Value | Depreciation | |||||||||||
| Fixed maturity securities - available for sale | |||||||||||||||||
| U.S. Treasury securities and obligations of | |||||||||||||||||
| U.S. government agencies and corporations | $ | 504,168 | $ | (6,264) | $ | 91,735 | $ | (4,094) | $ | 595,903 | $ | (10,358) | |||||
| Obligations of U.S. states and political subdivisions | 51,094 | (1,038) | 2,558 | (112) | 53,652 | (1,150) | |||||||||||
| Corporate securities | 2,132,576 | (38,316) | 472,831 | (24,264) | 2,605,407 | (62,580) | |||||||||||
| Asset-backed securities | 1,954,079 | (11,180) | 41,823 | (668) | 1,995,902 | (11,848) | |||||||||||
| Mortgage-backed securities | |||||||||||||||||
| Commercial | 221,852 | (2,854) | 40,496 | (2,836) | 262,348 | (5,690) | |||||||||||
| Agency residential | 1,101,215 | (12,178) | 279,697 | (6,695) | 1,380,912 | (18,873) | |||||||||||
| Non-agency residential | 2,320 | (14) | 156 | (2) | 2,476 | (16) | |||||||||||
| Foreign government securities | 392,447 | (9,709) | 100,673 | (18,370) | 493,120 | (28,079) | |||||||||||
| Foreign corporate securities | 1,734,510 | (46,247) | 210,722 | (18,289) | 1,945,232 | (64,536) | |||||||||||
| Total fixed maturity securities | $ | 8,094,261 | $ | (127,800) | $ | 1,240,691 | $ | (75,330) | $ | 9,334,952 | $ | (203,130) |
| 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 thousands) | Market Value | Depreciation | Market Value | Depreciation | Market Value | Depreciation | |||||||||||
| Fixed maturity securities | |||||||||||||||||
| Due in one year or less | $ | 129,860 | $ | (2,415) | $ | 136,827 | $ | (11,832) | $ | 266,687 | $ | (14,247) | |||||
| Due in one year through five years | 2,165,467 | (35,264) | 446,247 | (28,685) | 2,611,714 | (63,949) | |||||||||||
| Due in five years through ten years | 1,727,823 | (47,413) | 244,454 | (22,038) | 1,972,277 | (69,451) | |||||||||||
| Due after ten years | 791,645 | (16,482) | 50,991 | (2,574) | 842,636 | (19,056) | |||||||||||
| Asset-backed securities | 1,954,079 | (11,180) | 41,823 | (668) | 1,995,902 | (11,848) | |||||||||||
| Mortgage-backed securities | 1,325,387 | (15,046) | 320,349 | (9,533) | 1,645,736 | (24,579) | |||||||||||
| Total fixed maturity securities | $ | 8,094,261 | $ | (127,800) | $ | 1,240,691 | $ | (75,330) | $ | 9,334,952 | $ | (203,130) |
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 $203.1 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 $127.8 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 mortgage-backed securities, asset-backed securities and foreign government securities. Of these unrealized losses, $116.2 million were related to securities that were rated investment grade by at least one nationally recognized statistical rating agency. The $75.3 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, $72.3 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.
F-18
The Company, given the size of its investment portfolio and capital position, does not have the intent to sell these securities; and it is more likely than not that the Company will not have to sell the security before recovery of its cost basis. In addition, all securities currently in an unrealized loss position are current with respect to principal and interest payments.
The tables below display the aggregate market value and gross unrealized depreciation of fixed maturity 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 $0.3 million of market value and $(0.1) million of gross unrealized depreciation as of December 31, 2020 related to fixed maturity securities for which the Company has recorded an allowance for credit losses.
| Duration of Unrealized Loss at December 31, 2020 By Security Type | |||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Less than 12 months | Greater than 12 months | Total | |||||||||||||||
| Gross | Gross | Gross | |||||||||||||||
| Unrealized | Unrealized | Unrealized | |||||||||||||||
| (Dollars in thousands) | Market Value | Depreciation | Market Value | Depreciation | Market Value | Depreciation | |||||||||||
| Fixed maturity securities - available for sale | |||||||||||||||||
| U.S. Treasury securities and obligations of | |||||||||||||||||
| U.S. government agencies and corporations | $ | 135,190 | $ | (7,134) | $ | - | $ | - | $ | 135,190 | $ | (7,134) | |||||
| Obligations of U.S. states and political subdivisions | 19,524 | (999) | 4,059 | (255) | 23,583 | (1,254) | |||||||||||
| Corporate securities | 669,755 | (26,159) | 247,962 | (29,072) | 917,717 | (55,231) | |||||||||||
| Asset-backed securities | 235,566 | (4,768) | 85,595 | (930) | 321,161 | (5,698) | |||||||||||
| Mortgage-backed securities | |||||||||||||||||
| Commercial | 53,511 | (578) | 6,592 | (317) | 60,103 | (895) | |||||||||||
| Agency residential | 434,447 | (2,016) | 50,353 | (1,047) | 484,800 | (3,063) | |||||||||||
| Non-agency residential | 185 | (2) | - | - | 185 | (2) | |||||||||||
| Foreign government securities | 114,755 | (8,813) | 150,812 | (13,637) | 265,567 | (22,450) | |||||||||||
| Foreign corporate securities | 354,548 | (17,489) | 115,595 | (11,596) | 470,143 | (29,085) | |||||||||||
| Total fixed maturity securities | $ | 2,017,481 | $ | (67,958) | $ | 660,968 | $ | (56,854) | $ | 2,678,449 | $ | (124,812) |
| Duration of Unrealized Loss at December 31, 2020 By Maturity | |||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Less than 12 months | Greater than 12 months | Total | |||||||||||||||
| Gross | Gross | Gross | |||||||||||||||
| Unrealized | Unrealized | Unrealized | |||||||||||||||
| (Dollars in thousands) | Market Value | Depreciation | Market Value | Depreciation | Market Value | Depreciation | |||||||||||
| Fixed maturity securities | |||||||||||||||||
| Due in one year or less | $ | 96,144 | $ | (4,942) | $ | 112,419 | $ | (12,071) | $ | 208,563 | $ | (17,013) | |||||
| Due in one year through five years | 653,816 | (32,469) | 283,866 | (21,319) | 937,682 | (53,788) | |||||||||||
| Due in five years through ten years | 422,517 | (19,392) | 49,749 | (2,034) | 472,266 | (21,426) | |||||||||||
| Due after ten years | 121,295 | (3,791) | 72,394 | (19,136) | 193,689 | (22,927) | |||||||||||
| Asset-backed securities | 235,566 | (4,768) | 85,595 | (930) | 321,161 | (5,698) | |||||||||||
| Mortgage-backed securities | 488,143 | (2,596) | 56,945 | (1,364) | 545,088 | (3,960) | |||||||||||
| Total fixed maturity securities | $ | 2,017,481 | $ | (67,958) | $ | 660,968 | $ | (56,854) | $ | 2,678,449 | $ | (124,812) |
F-19
The aggregate market value and gross unrealized losses related to investments in an unrealized loss position at December 31, 2020 were $2.7 billion and $124.8 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, 2020, did not exceed 0.7% of the overall market value of the Company’s fixed maturity securities. The market value of the securities for the issuer with the second largest unrealized loss comprised less than 0.1% of the Company’s fixed maturity securities. In addition, as indicated on the above table, there was no significant concentration of unrealized losses in any one market sector. The $68.0 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, foreign government securities and agency residential asset-backed securities. Of these unrealized losses, $63.4 million were related to securities that were rated investment grade by at least one nationally recognized statistical rating agency. The $56.9 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, $33.5 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 components of net investment income are presented in the table below for the periods indicated:
| Years Ended December 31, | ||||||||
|---|---|---|---|---|---|---|---|---|
| (Dollars in thousands) | 2021 | 2020 | 2019 | |||||
| Fixed maturities | $ | 561,091 | $ | 542,363 | $ | 520,291 | ||
| Equity securities | 17,276 | 18,776 | 19,505 | |||||
| Short-term investments and cash | 1,329 | 5,012 | 17,619 | |||||
| Other invested assets | ||||||||
| Limited partnerships | 565,265 | 112,853 | 105,815 | |||||
| Other | 62,944 | 1,699 | 14,117 | |||||
| Gross investment income before adjustments | 1,207,905 | 680,703 | 677,347 | |||||
| Funds held interest income (expense) | 12,324 | 12,754 | 13,271 | |||||
| Future policy benefit reserve income (expense) | (1,093) | (1,237) | (1,380) | |||||
| Gross investment income | 1,219,136 | 692,220 | 689,238 | |||||
| Investment expenses | (54,244) | (49,755) | (42,099) | |||||
| Net investment income | $ | 1,164,892 | $ | 642,465 | $ | 647,139 |
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 $2.3 billion in limited partnerships and private placement loans at December 31, 2021. These commitments will be funded when called in accordance with the partnership and loan agreements, which have investment periods that expire, unless extended, through 2026.
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
F-20
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, 2021 and 2020, the Company did not 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, 2021 and 2020 is limited to the total carrying value of $2.9 billion and $2.0 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, 2021, 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-back securities, which includes collateralized loan obligations and are reported in fixed maturities, available-for-sale. The Company has not provided financial or other support with respect to these investments other than its original investment. For these investments, the Company determined it is not the primary beneficiary due to the relative size of the Company’s investment in comparison to the principal amount of the structured securities issued by the VIEs, 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 thousands) | 2021 | 2020 | 2019 | |||||
| Fixed maturity securities, market value: | ||||||||
| Allowance for credit losses | $ | (27,992) | $ | (1,745) | $ | - | ||
| Other-than-temporary impairments | - | - | (20,899) | |||||
| Gains (losses) from sales | 16,503 | (2,214) | 28,025 | |||||
| Fixed maturity securities, fair value: | ||||||||
| Gains (losses) from sales | - | (2,863) | 355 | |||||
| Gains (losses) from fair value adjustments | - | 1,944 | 1,808 | |||||
| Equity securities, fair value: | ||||||||
| Gains (losses) from sales | 27,596 | (8,963) | 4,148 | |||||
| Gains (losses) from fair value adjustments | 235,686 | 278,461 | 165,200 | |||||
| Other invested assets | 6,142 | 1,705 | 6,003 | |||||
| Short-term investments gain (loss) | 8 | 1,324 | 364 | |||||
| Total net realized capital gains (losses) | $ | 257,943 | $ | 267,649 | $ | 185,004 |
F-21
| Roll Forward of Allowance for Credit Losses | ||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Twelve Months Ended December 31, 2021 | ||||||||||||||||||
| Obligations of | ||||||||||||||||||
| U.S. States | Foreign | Foreign | ||||||||||||||||
| Corporate | Asset-Backed | and Political | Government | Corporate | ||||||||||||||
| Securities | Securities | Subdivisions | Securities | Securities | Total | |||||||||||||
| (Dollars in thousands) | ||||||||||||||||||
| Beginning Balance | $ | (1,220) | $ | - | $ | - | $ | (22) | $ | (503) | $ | (1,745) | ||||||
| Credit losses on securities where credit | ||||||||||||||||||
| losses were not previously recorded | (21,177) | (4,915) | (151) | - | (2,436) | (28,679) | ||||||||||||
| Increases in allowance on previously | ||||||||||||||||||
| impaired securities | (2,529) | (2,764) | - | - | (5,293) | |||||||||||||
| Decreases in allowance on previously | ||||||||||||||||||
| impaired securities | - | - | - | - | - | |||||||||||||
| Reduction in allowance due to disposals | 5,659 | - | 22 | 298 | 5,979 | |||||||||||||
| Balance as of December 31 | $ | (19,267) | $ | (7,679) | $ | (151) | $ | - | $ | (2,641) | $ | (29,738) | ||||||
| Roll Forward of Allowance for Credit Losses | ||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Twelve Months Ended December 31, 2020 | ||||||||||||||||||
| Obligations of | ||||||||||||||||||
| U.S. States | Foreign | Foreign | ||||||||||||||||
| Corporate | Asset-Backed | and Political | Government | Corporate | ||||||||||||||
| Securities | Securities | Subdivisions | Securities | Securities | Total | |||||||||||||
| (Dollars in thousands) | ||||||||||||||||||
| Beginning Balance | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | ||||||
| Credit losses on securities where credit | ||||||||||||||||||
| losses were not previously recorded | (27,666) | - | - | (518) | (4,700) | (32,884) | ||||||||||||
| Increases in allowance on previously | ||||||||||||||||||
| impaired securities | (6,136) | - | - | (28) | (481) | (6,645) | ||||||||||||
| Decreases in allowance on previously | ||||||||||||||||||
| impaired securities | 4,333 | - | - | 309 | 883 | 5,525 | ||||||||||||
| Reduction in allowance due to disposals | 28,249 | - | - | 215 | 3,795 | 32,259 | ||||||||||||
| Balance as of December 31 | $ | (1,220) | $ | - | $ | - | $ | (22) | $ | (503) | $ | (1,745) |
The proceeds and split between gross gains and losses, from sales of fixed maturity and equity securities, are presented in the table below for the periods indicated:
| Years Ended December 31, | ||||||||
|---|---|---|---|---|---|---|---|---|
| (Dollars in thousands) | 2021 | 2020 | 2019 | |||||
| Proceeds from sales of fixed maturity securities | $ | 1,915,916 | $ | 1,950,774 | $ | 3,283,154 | ||
| Gross gains from sales | 71,744 | 79,609 | 63,721 | |||||
| Gross losses from sales | (55,241) | (84,686) | (35,341) | |||||
| Proceeds from sales of equity securities | $ | 990,376 | $ | 376,347 | $ | 283,965 | ||
| Gross gains from sales | 42,241 | 37,415 | 14,274 | |||||
| Gross losses from sales | (14,645) | (46,378) | (10,126) |
Securities with a carrying value amount of $1.5 billion at December 31, 2021 were on deposit with various state or governmental insurance departments in compliance with insurance laws.
F-22
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 thousands) | 2021 | 2020 | 2019 | |||||
| Gross reserves beginning of period | $ | 16,322,143 | $ | 13,531,256 | $ | 13,098,158 | ||
| Less reinsurance recoverables on unpaid losses | (1,843,691) | (1,640,712) | (1,619,641) | |||||
| Net reserves beginning of period | 14,478,452 | 11,890,544 | 11,478,517 | |||||
| Incurred related to: | ||||||||
| Current year | 7,400,303 | 6,149,410 | 4,986,456 | |||||
| Prior years | (9,050) | 401,427 | (63,558) | |||||
| Total incurred losses and LAE | 7,391,253 | 6,550,837 | 4,922,898 | |||||
| Paid related to: | ||||||||
| Current year | 2,490,645 | 2,046,260 | 2,042,246 | |||||
| Prior years | 2,226,457 | 2,077,613 | 2,519,950 | |||||
| Total paid losses and LAE | 4,717,102 | 4,123,873 | 4,562,196 | |||||
| Foreign exchange/translation adjustment | (89,481) | 160,944 | 51,325 | |||||
| Net reserves end of period | 17,063,121 | 14,478,452 | 11,890,544 | |||||
| Plus reinsurance recoverables on unpaid losses | 1,946,365 | 1,843,691 | 1,640,712 | |||||
| Gross reserves end of period | $ | 19,009,486 | $ | 16,322,143 | $ | 13,531,256 | ||
| (Some amounts may not reconcile due to rounding.) |
Current year incurred losses were $7.4 billion, $6.1 billion and $5.0 billion in 2021, 2020 and 2019, respectively. The increase in current year incurred losses from 2020 to 2021 was primarily related to an increase of $710.0 million in current year catastrophe losses and an increase of $540.9 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 $511.1 million of losses related to COVID-19 in 2020 which did not recur in 2021. The increase in current year incurred losses from 2019 to 2020 was primarily due to an increase of $772.4 million in current year attritional losses primarily due to higher premiums earned and the previously mentioned $511.1 million of losses related to COVID-19 in 2020, partially offset by a $120.5 million decline in current year catastrophe losses.
Incurred prior years losses were ($9.1) million in 2021, $401.4 million in 2020 and ($63.6) million in 2019. The favorable development on prior year reserves of ($9.1) 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. The decrease for 2019 primarily related to reserve reductions associated with short-tail lines of business and worker’s compensation.
The following is information about incurred and paid claims development as of December 31, 2021, 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
F-23
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, 2012 to December 31, 2020 is presented as supplementary information.
The Cumulative Number of Reported Claims is shown only for Insurance Casualty as it is impracticable 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, 2021 | ||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Total of | ||||||||||||||||||||||||||||||||||||
| IBNR Liabilities | ||||||||||||||||||||||||||||||||||||
| Incurred Claims and Allocated Claim Adjustment Expenses, Net of reinsurance | Plus Expected | Cumulative | ||||||||||||||||||||||||||||||||||
| Years Ended December 31, | Development | Number of | ||||||||||||||||||||||||||||||||||
| 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | on Reported | Reported | |||||||||||||||||||||||||
| Accident Year | (unaudited) | (unaudited) | (unaudited) | (unaudited) | (unaudited) | (unaudited) | (unaudited) | (unaudited) | (unaudited) | Claims | Claims | |||||||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||||||||||||||
| 2012 | $ | 913,235 | $ | 806,271 | $ | 707,089 | $ | 692,497 | $ | 676,252 | $ | 677,924 | $ | 682,447 | $ | 656,696 | $ | 635,281 | $ | 626,752 | 22,382 | N/A | ||||||||||||||
| 2013 | 726,240 | 816,634 | 804,255 | 794,549 | 764,362 | 735,487 | 715,578 | 715,519 | 710,499 | 21,566 | N/A | |||||||||||||||||||||||||
| 2014 | 776,680 | 815,861 | 822,646 | 798,868 | 757,392 | 734,567 | 747,748 | 745,601 | 31,868 | N/A | ||||||||||||||||||||||||||
| 2015 | 795,662 | 836,303 | 831,492 | 828,634 | 812,346 | 848,989 | 849,230 | 75,907 | N/A | |||||||||||||||||||||||||||
| 2016 | 808,757 | 885,069 | 882,087 | 877,209 | 952,811 | 954,364 | 129,447 | N/A | ||||||||||||||||||||||||||||
| 2017 | 894,903 | 854,313 | 861,180 | 942,467 | 950,788 | 199,152 | N/A | |||||||||||||||||||||||||||||
| 2018 | 1,340,402 | 1,337,894 | 1,414,891 | 1,445,481 | 466,230 | N/A | ||||||||||||||||||||||||||||||
| 2019 | 1,721,440 | 1,786,629 | 1,788,763 | 907,117 | N/A | |||||||||||||||||||||||||||||||
| 2020 | 1,943,096 | 1,914,757 | 1,482,711 | N/A | ||||||||||||||||||||||||||||||||
| 2021 | 2,513,341 | 1,951,060 | N/A | |||||||||||||||||||||||||||||||||
| $ | 12,499,575 | |||||||||||||||||||||||||||||||||||
F-24
| Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance | ||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Years Ended December 31, | ||||||||||||||||||||||||||||||
| 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | |||||||||||||||||||||
| Accident Year | (unaudited) | (unaudited) | (unaudited) | (unaudited) | (unaudited) | (unaudited) | (unaudited) | (unaudited) | (unaudited) | |||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||||||||
| 2012 | $ | 41,756 | $ | 98,010 | $ | 179,993 | $ | 275,548 | $ | 355,728 | $ | 425,397 | $ | 504,848 | $ | 539,251 | $ | 549,564 | $ | 568,922 | ||||||||||
| 2013 | 49,581 | 123,813 | 214,769 | 314,826 | 389,143 | 496,373 | 548,578 | 574,706 | 603,638 | |||||||||||||||||||||
| 2014 | 57,942 | 122,673 | 214,072 | 304,645 | 430,751 | 507,146 | 553,006 | 594,417 | ||||||||||||||||||||||
| 2015 | 57,114 | 160,199 | 267,841 | 413,852 | 503,917 | 573,637 | 621,569 | |||||||||||||||||||||||
| 2016 | 90,184 | 190,818 | 326,011 | 433,583 | 548,345 | 629,704 | ||||||||||||||||||||||||
| 2017 | 81,099 | 188,542 | 322,029 | 464,179 | 592,780 | |||||||||||||||||||||||||
| 2018 | 154,910 | 290,083 | 463,099 | 638,435 | ||||||||||||||||||||||||||
| 2019 | 210,530 | 343,081 | 526,547 | |||||||||||||||||||||||||||
| 2020 | 190,530 | 268,027 | ||||||||||||||||||||||||||||
| 2021 | 216,969 | |||||||||||||||||||||||||||||
| $ | 5,261,006 | |||||||||||||||||||||||||||||
| All outstanding liabilities prior to 2012, net of reinsurance | 824,128 | |||||||||||||||||||||||||||||
| Liabilities for claims and claim adjustment expenses, net of reinsurance | $ | 8,062,697 | ||||||||||||||||||||||||||||
| Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance (unaudited) | ||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Years | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | ||||||||||||||||||||
| Casualty | 9.2 | % | 8.5 | % | 12.4 | % | 13.6 | % | 12.7 | % | 10.4 | % | 7.7 | % | 4.9 | % | 2.9 | % | 3.1 | % |
Reinsurance – Property Business
| At December 31, 2021 | ||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Total of | ||||||||||||||||||||||||||||||||||||
| IBNR Liabilities | ||||||||||||||||||||||||||||||||||||
| Incurred Claims and Allocated Claim Adjustment Expenses, Net of reinsurance | Plus Expected | Cumulative | ||||||||||||||||||||||||||||||||||
| Years Ended December 31, | Development | Number of | ||||||||||||||||||||||||||||||||||
| 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | on Reported | Reported | |||||||||||||||||||||||||
| Accident Year | (unaudited) | (unaudited) | (unaudited) | (unaudited) | (unaudited) | (unaudited) | (unaudited) | (unaudited) | (unaudited) | Claims | Claims | |||||||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||||||||||||||
| 2012 | $ | 1,595,581 | $ | 1,282,432 | $ | 1,159,361 | $ | 1,158,272 | $ | 1,152,163 | $ | 1,144,478 | $ | 1,132,514 | $ | 1,151,907 | $ | 1,154,729 | $ | 1,152,601 | 10,597 | |||||||||||||||
| 2013 | 1,302,966 | 954,434 | 843,829 | 787,484 | 781,908 | 777,334 | 784,582 | 782,978 | 782,285 | 2,615 | ||||||||||||||||||||||||||
| 2014 | 1,366,519 | 1,207,588 | 1,055,896 | 963,339 | 963,168 | 964,131 | 956,387 | 956,892 | 5,114 | |||||||||||||||||||||||||||
| 2015 | 1,408,609 | 1,072,514 | 996,351 | 970,290 | 973,022 | 965,298 | 967,102 | 6,102 | ||||||||||||||||||||||||||||
| 2016 | 1,725,574 | 1,560,324 | 1,596,178 | 1,590,207 | 1,567,764 | 1,568,689 | 19,440 | |||||||||||||||||||||||||||||
| 2017 | 2,799,762 | 3,422,515 | 3,533,258 | 3,662,032 | 3,707,890 | 9,592 | ||||||||||||||||||||||||||||||
| 2018 | 2,650,359 | 2,526,001 | 2,527,900 | 2,465,788 | 40,866 | |||||||||||||||||||||||||||||||
| 2019 | 2,122,117 | 2,153,458 | 2,098,665 | 176,930 | ||||||||||||||||||||||||||||||||
| 2020 | 2,453,269 | 2,526,034 | 616,803 | |||||||||||||||||||||||||||||||||
| 2021 | 2,802,843 | 1,445,812 | ||||||||||||||||||||||||||||||||||
| $ | 19,028,789 | |||||||||||||||||||||||||||||||||||
| Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance | ||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Years Ended December 31, | ||||||||||||||||||||||||||||||
| 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | |||||||||||||||||||||
| Accident Year | (unaudited) | (unaudited) | (unaudited) | (unaudited) | (unaudited) | (unaudited) | (unaudited) | (unaudited) | (unaudited) | |||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||||||||
| 2012 | $ | 404,621 | $ | 703,440 | $ | 896,790 | $ | 990,221 | $ | 1,024,725 | $ | 1,058,690 | $ | 1,069,836 | $ | 1,092,694 | $ | 1,101,861 | $ | 1,106,461 | ||||||||||
| 2013 | 384,956 | 530,340 | 663,255 | 720,662 | 741,032 | 751,190 | 760,516 | 761,755 | 762,225 | |||||||||||||||||||||
| 2014 | 378,154 | 670,226 | 805,888 | 882,489 | 911,719 | 921,984 | 928,821 | 931,494 | ||||||||||||||||||||||
| 2015 | 386,340 | 626,200 | 787,370 | 875,529 | 904,827 | 926,506 | 937,534 | |||||||||||||||||||||||
| 2016 | 489,865 | 1,035,935 | 1,336,301 | 1,460,922 | 1,520,320 | 1,539,568 | ||||||||||||||||||||||||
| 2017 | 850,375 | 2,277,663 | 2,858,044 | 3,259,500 | 3,477,657 | |||||||||||||||||||||||||
| 2018 | 558,319 | 1,563,718 | 1,941,282 | 2,125,022 | ||||||||||||||||||||||||||
| 2019 | 769,261 | 1,365,923 | 1,703,956 | |||||||||||||||||||||||||||
| 2020 | 606,518 | 1,385,266 | ||||||||||||||||||||||||||||
| 2021 | 687,773 | |||||||||||||||||||||||||||||
| $ | 14,656,957 | |||||||||||||||||||||||||||||
| All outstanding liabilities prior to 2012, net of reinsurance | 519,855 | |||||||||||||||||||||||||||||
| Liabilities for claims and claim adjustment expenses, net of reinsurance | $ | 4,891,687 | ||||||||||||||||||||||||||||
F-25
| Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance (unaudited) | ||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Years | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | ||||||||||||||||||||
| Property | 29.0 | % | 32.9 | % | 16.2 | % | 8.8 | % | 4.3 | % | 1.8 | % | 1.0 | % | 0.9 | % | 0.5 | % | 0.4 | % |
F-26
Insurance – Casualty Business
| At December 31, 2021 | ||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Total of | ||||||||||||||||||||||||||||||||||||
| IBNR Liabilities | ||||||||||||||||||||||||||||||||||||
| Incurred Claims and Allocated Claim Adjustment Expenses, Net of reinsurance | Plus Expected | Cumulative | ||||||||||||||||||||||||||||||||||
| Years Ended December 31, | Development | Number of | ||||||||||||||||||||||||||||||||||
| 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | on Reported | Reported | |||||||||||||||||||||||||
| Accident Year | (unaudited) | (unaudited) | (unaudited) | (unaudited) | (unaudited) | (unaudited) | (unaudited) | (unaudited) | (unaudited) | Claims | Claims | |||||||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||||||||||||||
| 2012 | $ | 349,721 | $ | 351,526 | $ | 347,065 | $ | 348,260 | $ | 353,394 | $ | 344,007 | $ | 346,980 | $ | 351,441 | $ | 353,942 | $ | 354,697 | 31,942 | 15,782 | ||||||||||||||
| 2013 | 393,689 | 393,519 | 392,955 | 393,129 | 351,380 | 344,479 | 350,927 | 349,965 | 350,107 | 29,280 | 21,360 | |||||||||||||||||||||||||
| 2014 | 431,297 | 457,270 | 454,801 | 460,862 | 397,307 | 398,126 | 399,021 | 397,889 | 44,649 | 25,265 | ||||||||||||||||||||||||||
| 2015 | 519,869 | 528,468 | 536,106 | 542,637 | 469,081 | 472,079 | 472,700 | 56,840 | 27,044 | |||||||||||||||||||||||||||
| 2016 | 554,134 | 552,057 | 581,114 | 616,641 | 554,151 | 542,750 | 86,737 | 31,674 | ||||||||||||||||||||||||||||
| 2017 | 614,528 | 604,615 | 627,426 | 659,359 | 635,622 | 156,575 | 35,627 | |||||||||||||||||||||||||||||
| 2018 | 708,122 | 714,065 | 752,894 | 766,992 | 193,686 | 36,041 | ||||||||||||||||||||||||||||||
| 2019 | 852,407 | 855,266 | 888,280 | 288,688 | 39,219 | |||||||||||||||||||||||||||||||
| 2020 | 997,126 | 1,058,272 | 620,239 | 34,983 | ||||||||||||||||||||||||||||||||
| 2021 | 1,196,128 | 782,844 | 31,679 | |||||||||||||||||||||||||||||||||
| $ | 6,663,437 | |||||||||||||||||||||||||||||||||||
| Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance | ||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Years Ended December 31, | ||||||||||||||||||||||||||||||
| 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | |||||||||||||||||||||
| Accident Year | (unaudited) | (unaudited) | (unaudited) | (unaudited) | (unaudited) | (unaudited) | (unaudited) | (unaudited) | (unaudited) | |||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||||||||
| 2012 | $ | 33,194 | $ | 101,300 | $ | 157,924 | $ | 213,488 | $ | 246,454 | $ | 272,113 | $ | 294,442 | $ | 306,934 | $ | 311,863 | $ | 317,249 | ||||||||||
| 2013 | 33,314 | 117,046 | 176,326 | 224,633 | 260,222 | 285,872 | 303,784 | 310,927 | 317,111 | |||||||||||||||||||||
| 2014 | 41,194 | 124,936 | 201,688 | 256,885 | 297,760 | 326,008 | 339,484 | 350,976 | ||||||||||||||||||||||
| 2015 | 44,317 | 134,760 | 218,987 | 292,111 | 353,440 | 382,743 | 414,069 | |||||||||||||||||||||||
| 2016 | 54,740 | 164,357 | 269,127 | 342,880 | 402,518 | 445,429 | ||||||||||||||||||||||||
| 2017 | 53,918 | 172,415 | 281,339 | 381,169 | 457,197 | |||||||||||||||||||||||||
| 2018 | 63,587 | 208,432 | 319,559 | 447,358 | ||||||||||||||||||||||||||
| 2019 | 72,394 | 234,915 | 398,600 | |||||||||||||||||||||||||||
| 2020 | 79,658 | 248,000 | ||||||||||||||||||||||||||||
| 2021 | 109,311 | |||||||||||||||||||||||||||||
| $ | 3,505,299 | |||||||||||||||||||||||||||||
| All outstanding liabilities prior to 2012, net of reinsurance | 226,081 | |||||||||||||||||||||||||||||
| Liabilities for claims and claim adjustment expenses, net of reinsurance | $ | 3,384,219 | ||||||||||||||||||||||||||||
| Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance (unaudited) | ||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Years | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | ||||||||||||||||||||
| Casualty | 8.8 | % | 18.8 | % | 17.4 | % | 15.2 | % | 11.1 | % | 7.2 | % | 5.4 | % | 2.8 | % | 1.6 | % | 1.5 | % |
F-27
Insurance – Property Business
| At December 31, 2021 | ||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Total of | ||||||||||||||||||||||||||||||||||||
| IBNR Liabilities | ||||||||||||||||||||||||||||||||||||
| Incurred Claims and Allocated Claim Adjustment Expenses, Net of reinsurance | Plus Expected | Cumulative | ||||||||||||||||||||||||||||||||||
| Years Ended December 31, | Development | Number of | ||||||||||||||||||||||||||||||||||
| 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | on Reported | Reported | |||||||||||||||||||||||||
| Accident Year | (unaudited) | (unaudited) | (unaudited) | (unaudited) | (unaudited) | (unaudited) | (unaudited) | (unaudited) | (unaudited) | Claims | Claims | |||||||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||||||||||||||
| 2012 | $ | 106,363 | $ | 89,038 | $ | 81,773 | $ | 82,475 | $ | 82,045 | $ | 81,828 | $ | 82,005 | $ | 82,552 | $ | 82,613 | $ | 82,685 | 5 | N/A | ||||||||||||||
| 2013 | 112,082 | 98,203 | 91,334 | 92,222 | 92,311 | 92,472 | 92,326 | 91,893 | 92,035 | 94 | N/A | |||||||||||||||||||||||||
| 2014 | 131,752 | 123,744 | 119,989 | 119,523 | 119,344 | 119,481 | 119,138 | 119,428 | 49 | N/A | ||||||||||||||||||||||||||
| 2015 | 173,059 | 153,028 | 144,081 | 146,930 | 144,919 | 146,626 | 146,559 | 47 | N/A | |||||||||||||||||||||||||||
| 2016 | 291,182 | 275,740 | 280,797 | 292,750 | 295,140 | 297,417 | 380 | N/A | ||||||||||||||||||||||||||||
| 2017 | 498,044 | 502,601 | 496,195 | 499,323 | 493,370 | 480 | N/A | |||||||||||||||||||||||||||||
| 2018 | 409,168 | 403,013 | 398,243 | 411,160 | 693 | N/A | ||||||||||||||||||||||||||||||
| 2019 | 349,061 | 351,599 | 355,692 | 5,808 | N/A | |||||||||||||||||||||||||||||||
| 2020 | 599,613 | 507,281 | 45,162 | N/A | ||||||||||||||||||||||||||||||||
| 2021 | 649,738 | 191,897 | N/A | |||||||||||||||||||||||||||||||||
| $ | 3,155,364 | |||||||||||||||||||||||||||||||||||
| Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance | ||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Years Ended December 31, | ||||||||||||||||||||||||||||||
| 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | |||||||||||||||||||||
| Accident Year | (unaudited) | (unaudited) | (unaudited) | (unaudited) | (unaudited) | (unaudited) | (unaudited) | (unaudited) | (unaudited) | |||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||||||||
| 2012 | $ | 56,506 | $ | 81,798 | $ | 80,495 | $ | 81,776 | $ | 81,917 | $ | 81,708 | $ | 81,846 | $ | 82,483 | $ | 82,612 | $ | 82,669 | ||||||||||
| 2013 | 68,711 | 93,179 | 91,919 | 92,189 | 91,798 | 91,838 | 91,855 | 91,864 | 91,942 | |||||||||||||||||||||
| 2014 | 81,853 | 116,089 | 118,277 | 118,270 | 118,605 | 118,724 | 118,799 | 118,808 | ||||||||||||||||||||||
| 2015 | 102,239 | 141,394 | 142,560 | 145,367 | 146,866 | 146,954 | 147,052 | |||||||||||||||||||||||
| 2016 | 162,906 | 250,034 | 272,535 | 290,278 | 293,247 | 294,031 | ||||||||||||||||||||||||
| 2017 | 179,403 | 425,384 | 460,130 | 482,817 | 486,538 | |||||||||||||||||||||||||
| 2018 | 245,840 | 359,276 | 379,654 | 404,819 | ||||||||||||||||||||||||||
| 2019 | 227,630 | 317,766 | 339,411 | |||||||||||||||||||||||||||
| 2020 | 293,331 | 415,518 | ||||||||||||||||||||||||||||
| 2021 | 328,207 | |||||||||||||||||||||||||||||
| $ | 2,708,995 | |||||||||||||||||||||||||||||
| All outstanding liabilities prior to 2012, net of reinsurance | 557 | |||||||||||||||||||||||||||||
| Liabilities for claims and claim adjustment expenses, net of reinsurance | 446,926 | |||||||||||||||||||||||||||||
| Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance (unaudited) | ||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Years | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | ||||||||||||||||||||
| Property | 55.4 | % | 31.2 | % | 5.0 | % | 4.3 | % | 2.6 | % | 0.6 | % | 0.6 | % | 0.2 | % | 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, 2021 | ||
|---|---|---|
| (Dollars in thousands) | ||
| Net outstanding liabilities | ||
| Reinsurance Casualty | $ | 8,062,697 |
| Reinsurance Property | 4,891,687 | |
| Insurance Casualty | 3,384,219 | |
| Insurance Property | 446,926 | |
| Liabilities for unpaid claims and claim adjustment expenses, net of reinsurance | 16,785,529 | |
| Reinsurance recoverable on unpaid claims | ||
| Reinsurance Casualty | 293,110 | |
| Reinsurance Property | 507,097 | |
| Insurance Casualty | 973,182 | |
| Insurance Property | 172,977 | |
| Total reinsurance recoverable on unpaid claims | 1,946,365 | |
| Insurance lines other than short-duration | - | |
| Unallocated claims adjustment expenses | 235,391 | |
| Other | 42,199 | |
| 277,590 | ||
| Total gross liability for unpaid claims and claim adjustment expense | $ | 19,009,486 |
| (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. Insurance and reinsurance loss and LAE reserves represent the Company’s best estimate of its ultimate 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.
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
F-29
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 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 handles 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. On the other hand, 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 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
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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 Company’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.
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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 thousands) | 2021 | 2020 | 2019 | |||||
| Gross basis: | ||||||||
| Beginning of period reserves | $ | 219,341 | $ | 257,921 | $ | 347,495 | ||
| Incurred losses | 10,862 | 1,540 | 2,070 | |||||
| Paid losses | (55,048) | (40,120) | (91,644) | |||||
| End of period reserves | $ | 175,155 | $ | 219,341 | $ | 257,921 | ||
| Net basis: | ||||||||
| Beginning of period reserves | $ | 198,255 | $ | 228,701 | $ | 261,456 | ||
| Incurred losses | - | (772) | - | |||||
| Paid losses | (42,139) | (29,674) | (32,756) | |||||
| End of period reserves | $ | 156,115 | $ | 198,255 | $ | 228,701 |
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 $140.3 million, an amount equal to the net loss reserves as of the closing date. The maximum liability retroceded under the retrocession treaty will be $440.3 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.
Reinsurance Recoverables.
Reinsurance recoverables for both paid unpaid losses totaled $2.1 billion and $2.0 billion at December 31, 2021 and December 31, 2020, respectively. At December 31, 2021, $691.4 million, or 33.7%, was receivable from Mt. Logan Re collateralized segregated accounts; $221.9 million, or 10.8%, was receivable from Munich Reinsurance America, Inc. and $115.1 million, or 5.6%, was recoverable from Endurance Reinsurance Corporation of America. No other retrocessionaire accounted for more than 5% of our receivables.
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Future Policy Benefit Reserve.
Activity in the reserve for future policy benefits is summarized for the periods indicated:
| At December 31, | ||||||||
|---|---|---|---|---|---|---|---|---|
| (Dollars in thousands) | 2021 | 2020 | 2019 | |||||
| Balance at beginning of year | $ | 37,723 | $ | 42,592 | $ | 46,778 | ||
| Liabilities assumed | 27 | 35 | 53 | |||||
| Adjustments to reserves | 719 | (1,113) | 350 | |||||
| Benefits paid in the current year | (2,800) | (3,791) | (4,589) | |||||
| Balance at end of year | $ | 35,669 | $ | 37,723 | $ | 42,592 | ||
| (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.
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At December 31, 2021, $2.1 billion of fixed maturities, market value were fair valued using unobservable inputs. The majority of these fixed maturities were valued by investment managers’ valuation committees and many of these fair values were substantiated by valuations from independent third parties. The Company has procedures in place to evaluate these independent third party valuations. At December 31, 2020, $1.3 billion of fixed maturities, market value were fair valued using unobservable inputs.
The Company internally manages a public equity portfolio which had a fair value at December 31, 2021 and December 31, 2020 of $1.3 billion and $784.4 million, respectively. During the fourth quarter of 2021, the Company began to internally manage a portfolio of collateralized loan obligations included in asset-backed securities which had a fair value of $2.0 billion at December 31, 2021. 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 or market 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;
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-
Foreign government securities are comprised of global non-U.S. sovereign bond issuances and the fair values are based on observable market inputs such as quoted market prices, quoted prices for similar securities and models with observable inputs such as benchmark yields and credit spreads and then, where applicable, converted to U.S. dollars using an exchange rate from a nationally recognized source;
-
Foreign corporate securities are comprised of global non-U.S. corporate bond issuances and the fair values are based on observable market inputs such as quoted market prices, quoted prices for similar securities and models with observable inputs such as benchmark yields and credit spreads and then, where applicable, converted to U.S. dollars using an exchange rate from a nationally recognized source.
The following table presents the fair value measurement levels for all assets and liabilities, which the Company has recorded at fair value (fair and market value) as of the periods indicated:
| Fair Value Measurement Using: | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Quoted Prices | ||||||||||||
| in Active | Significant | |||||||||||
| Markets for | Other | Significant | ||||||||||
| Identical | Observable | Unobservable | ||||||||||
| Assets | Inputs | Inputs | ||||||||||
| (Dollars in thousands) | December 31, 2021 | (Level 1) | (Level 2) | (Level 3) | ||||||||
| Assets: | ||||||||||||
| Fixed maturities, market value | ||||||||||||
| U.S. Treasury securities and obligations of | ||||||||||||
| U.S. government agencies and corporations | $ | 1,420,618 | $ | - | $ | 1,420,618 | $ | - | ||||
| Obligations of U.S. States and political subdivisions | 586,621 | - | 586,621 | - | ||||||||
| Corporate securities | 7,556,898 | - | 6,756,324 | 800,574 | ||||||||
| Asset-backed securities | 3,581,729 | - | 2,330,448 | 1,251,281 | ||||||||
| Mortgage-backed securities | ||||||||||||
| Commercial | 1,064,366 | - | 1,064,366 | - | ||||||||
| Agency residential | 2,375,332 | - | 2,375,332 | - | ||||||||
| Non-agency residential | 6,536 | - | 6,536 | - | ||||||||
| Foreign government securities | 1,437,512 | - | 1,437,512 | - | ||||||||
| Foreign corporate securities | 4,278,660 | - | 4,262,645 | 16,015 | ||||||||
| Total fixed maturities, market value | 22,308,272 | - | 20,240,402 | 2,067,870 | ||||||||
| Equity securities, fair value | 1,825,908 | 1,742,367 | 83,541 | - |
F-35
The following table presents the fair value measurement levels for all assets and liabilities, which the Company has recorded at fair value (fair and market value) as of the periods indicated:
| Fair Value Measurement Using: | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Quoted Prices | ||||||||||||
| in Active | Significant | |||||||||||
| Markets for | Other | Significant | ||||||||||
| Identical | Observable | Unobservable | ||||||||||
| Assets | Inputs | Inputs | ||||||||||
| (Dollars in thousands) | December 31, 2020 | (Level 1) | (Level 2) | (Level 3) | ||||||||
| Assets: | ||||||||||||
| Fixed maturities, market value | ||||||||||||
| U.S. Treasury securities and obligations of | ||||||||||||
| U.S. government agencies and corporations | $ | 1,367,106 | $ | - | $ | 1,367,106 | $ | - | ||||
| Obligations of U.S. States and political subdivisions | 577,295 | - | 577,295 | - | ||||||||
| Corporate securities | 7,149,026 | - | 6,447,534 | 701,492 | ||||||||
| Asset-backed securities | 2,565,802 | - | 1,942,769 | 623,033 | ||||||||
| Mortgage-backed securities | ||||||||||||
| Commercial | 990,303 | - | 990,303 | - | ||||||||
| Agency residential | 2,267,739 | - | 2,267,739 | - | ||||||||
| Non-agency residential | 5,194 | - | 5,194 | - | ||||||||
| Foreign government securities | 1,645,375 | - | 1,645,375 | - | ||||||||
| Foreign corporate securities | 3,472,333 | - | 3,466,634 | 5,699 | ||||||||
| Total fixed maturities, market value | 20,040,173 | - | 18,709,949 | 1,330,224 | ||||||||
| Equity securities, fair value | 1,472,236 | 1,368,704 | 103,532 | - |
In addition, $286.6 million and $224.7 million of investments within other invested assets on the consolidated balance sheets as of December 31, 2021 and 2020, respectively, are not included within the fair value hierarchy tables as the assets are measured at NAV as a practical expedient to determine fair value.
The following tables present the activity under Level 3, fair value measurements using significant unobservable inputs by asset type, for the periods indicated:
| Total Fixed Maturities, Market Value | ||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| December 31, 2021 | December 31, 2020 | |||||||||||||||||||||||
| Corporate | Asset-Backed | Foreign | Corporate | Asset-Backed | Foreign | |||||||||||||||||||
| (Dollars in thousands) | Securities | Securities | Corporate | Total | Securities | Securities | Corporate | Total | ||||||||||||||||
| Beginning balance fixed maturities at market value | $ | 701,492 | $ | 623,033 | $ | 5,699 | $ | 1,330,224 | $ | 617,588 | $ | 153,641 | $ | 1,750 | $ | 772,979 | ||||||||
| Total gains or (losses) (realized/unrealized) | ||||||||||||||||||||||||
| Included in earnings | (11,717) | (6,469) | 399 | (17,787) | 1,216 | 681 | (125) | 1,772 | ||||||||||||||||
| Included in other comprehensive income (loss) | 4,008 | (6,603) | 184 | (2,411) | (1,115) | 11,678 | 147 | 10,710 | ||||||||||||||||
| Purchases, issuances and settlements | 106,791 | 641,320 | 9,733 | 757,844 | 84,840 | 457,033 | 3,814 | 545,687 | ||||||||||||||||
| Transfers in and/or (out) of Level 3 | - | - | - | - | (1,037) | - | 113 | (924) | ||||||||||||||||
| Ending balance | $ | 800,574 | $ | 1,251,281 | $ | 16,015 | $ | 2,067,870 | $ | 701,492 | $ | 623,033 | $ | 5,699 | $ | 1,330,224 | ||||||||
| 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 | $ | (16,467) | $ | (7,679) | $ | - | $ | (24,146) | $ | (539) | $ | - | $ | - | $ | (539) | ||||||||
| (Some amounts may not reconcile due to rounding.) |
F-36
| Total Fixed Maturities, Fair Value | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| December 31, 2021 | December 31, 2020 | |||||||||||
| Foreign | Foreign | |||||||||||
| (Dollars in thousands) | Corporate | Total | Corporate | Total | ||||||||
| Beginning balance fixed maturities at market value | $ | - | $ | - | $ | 5,826 | $ | 5,826 | ||||
| Total gains or (losses) (realized/unrealized) | ||||||||||||
| Included in earnings | - | - | (919) | (919) | ||||||||
| Included in other comprehensive income (loss) | - | - | - | - | ||||||||
| Purchases, issuances and settlements | - | - | (4,907) | (4,907) | ||||||||
| Transfers in and/or (out) of Level 3 | - | - | - | - | ||||||||
| Ending balance | $ | - | $ | - | $ | - | $ | - | ||||
| The amount of total gains or losses for the period | ||||||||||||
| included in earnings (or changes in net assets) | ||||||||||||
| attributable to the change in unrealized gains | ||||||||||||
| or losses relating to assets still held | ||||||||||||
| at the reporting date | $ | - | $ | - | $ | - | $ | - | ||||
| (Some amounts may not reconcile due to rounding.) |
The net transfers to/(from) Level 3, fair value measurements using significant unobservable inputs for fixed maturities, market value were $(0.9) million as of December 31, 2020. The transfers during 2020 were related to securities that were previously priced using a recognized pricing service and were subsequently priced by investment managers as of December 31, 2020.
The net transfers to/(from) Level 3, fair value measurements using significant unobservable inputs for equity securities, fair value were ($9.9) million for 2020. The transfer of ($9.9) million was related to preferred stock in a private entity purchased during the second quarter of 2020 which was priced at cost originally and was subsequently priced based upon the book value of the underlying private entity as of December 31, 2020. There were no such transfers during 2021.
5. CREDIT FACILITIES
The Company has multiple active letter of credit facilities for a total commitment of up to $1.2 billion as of December 31, 2021, providing for the issuance of letters of credit. The Company also has additional uncommitted letter of credit facilities of up to $340.0 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 thousands) | 2021 | 2020 | 2019 | |||||
| Credit facility interest and fees incurred - Wells Fargo Bank | $ | 175 | $ | 664 | $ | 420 |
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, $800.0 million senior credit facility with a syndicate of lenders, which amended and restated in its entirety the June 22, 2012, four year, $800.0 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.
F-37
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 is limited only to the remaining $39.2 million of letters of credit currently in force and scheduled to expire in 2022. No additional letters of credit will be issued under the 2016 Group Credit Facility, and the facility will be dormant once the remaining letters of credit have expired. As of December 31, 2021, the Company was in compliance with all Group Credit Facility covenants.
On March 25, 2020, Group borrowed $50.0 million under Tranche one of the credit facility as an unsecured revolving credit loan. The loan was fully paid off on June 26, 2020. There were no revolving credit borrowings from the facility during the year ended 2019.
The following table summarizes the outstanding letters of credit for the periods indicated:
| (Dollars in thousands) | At December 31, 2021 | At December 31, 2020 | ||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Bank | Commitment | In Use | Date of Expiry | Commitment | In Use | Date of Expiry | ||||||||||||
| Wells Fargo Bank Group Credit Facility | $ | 39,198 | $ | 39,198 | 12/30/2022 | $ | 200,000 | $ | 164,242 | 12/31/2021 | ||||||||
| - | 600,000 | 589,690 | 12/31/2021 | |||||||||||||||
| Total Wells Fargo Bank Group Credit Facility | $ | 39,198 | $ | 39,198 | $ | 800,000 | $ | 753,932 |
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 $50.0 million of secured letters of credit. Effective May 5, 2021, the agreement was amended to provide for the issuance of up to $500.0 million of secured letters of credit.
The following table summarizes the outstanding letters of credit for the periods indicated:
| (Dollars in thousands) | At December 31, 2021 | |||||||
|---|---|---|---|---|---|---|---|---|
| Bank | Commitment | In Use | Date of Expiry | |||||
| Bermuda Re Wells Fargo Bank Bilateral Letter of Credit Facility | $ | 500,000 | $ | 351,497 | 12/30/2022 | |||
| Total Bermuda Re Wells Fargo Bank Bilateral Letter of Credit Facility | $ | 500,000 | $ | 351,497 |
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 $230.0 million of secured letters of credit. In addition, the facility provided for the uncommitted issuance of up to $140.0 million, which may be accessible via written request by the Company and corresponding authorization from Citibank N.A.
F-38
The following table summarizes the outstanding letters of credit for the periods indicated:
| (Dollars in thousands) | At December 31, 2021 | At December 31, 2020 | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Bank | Commitment | In Use | Date of Expiry | Commitment | In Use | Date of Expiry | ||||||||||
| Bermuda Re Citibank LOC Facility- Committed | $ | 230,000 | $ | 4,425 | 02/28/2022 | $ | 200,000 | $ | 4,425 | 02/28/2021 | ||||||
| 925 | 03/01/2022 | 3,672 | 11/24/2021 | |||||||||||||
| 1,264 | 11/24/2022 | 448 | 12/16/2021 | |||||||||||||
| 423 | 12/16/2022 | 115 | 12/20/2021 | |||||||||||||
| 146 | 12/20/2022 | 136,383 | 12/31/2021 | |||||||||||||
| 216,622 | 12/31/2022 | 39,619 | 12/30/2024 | |||||||||||||
| 473 | 01/21/2023 | 821 | 08/15/2022 | |||||||||||||
| 985 | 08/15/2023 | - | ||||||||||||||
| 1,234 | 09/23/2023 | - | ||||||||||||||
| Bermuda Re Citibank LOC Facility - Uncommitted | 140,000 | 84,203 | 12/31/2022 | - | ||||||||||||
| 22,731 | 12/30/2025 | - | ||||||||||||||
| Total Bermuda Re Citibank LOC Facility | $ | 370,000 | $ | 333,429 | $ | 200,000 | $ | 185,483 |
Everest International Lloyds Bank Credit Facility
Effective May 12, 2020, Everest International had amended its credit facility with Lloyds Bank plc (“Everest International Credit Facility”). The amendment of the Everest International Credit Facility provided up to £52.2 million for the issuance of standby letters of credit on a collateralized basis.
However, the Everest International Credit Facility was terminated effective December 20, 2021. As a result, the Everest International Credit Facility no longer has any letter of credit commitment or availability as of that date, and there are no remaining letters of credit in force under the facility.
The following table summarizes the outstanding letters of credit for the periods indicated:
| (Dollars in thousands) | At December 31, 2021 | At December 31, 2020 | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Bank | Commitment | In Use | Date of Expiry | Commitment | In Use | Date of Expiry | ||||||||||
| Everest International Credit Facility | £ | - | £ | - | £ | 52,175 | £ | 52,175 | 12/31/2024 | |||||||
| Total Everest International Credit Facility | £ | - | £ | - | £ | 52,175 | £ | 52,175 |
Bermuda Re Bayerische Landesbank Bilateral 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 Credit Facility”. The Bermuda Re Bayerische Landesbank Bilateral Credit Facility provides for the committed issuance of up to $200.0 million of secured letters of credit.
| (Dollars in thousands) | At December 31, 2021 | |||||||
|---|---|---|---|---|---|---|---|---|
| Bank | Commitment | In Use | Date of Expiry | |||||
| Bermuda Re Bayerische Landesbank Bilateral Letter of Credit Facility | $ | 200,000 | $ | 154,691 | 12/31/2022 | |||
| Total Bermuda Re Bayerische Landesbank Bilateral Letter of Credit Facility | $ | 200,000 | $ | 154,691 |
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 $50.0 million of secured letters of credit, and subject to credit approval a maximum total facility amount of $250.0 million.
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| (Dollars in thousands) | At December 31, 2021 | |||||||
|---|---|---|---|---|---|---|---|---|
| Bank | Commitment | In Use | Date of Expiry | |||||
| Bermuda Re Lloyd's Bank Credit Facility | $ | 50,000 | $ | 46,008 | 12/31/2022 | |||
| Total Bermuda Re Lloyd's Bank Credit Facility | $ | 50,000 | $ | 46,008 |
Bermuda Re Barclays Bank 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 $200.0 million of secured letters of credit.
| (Dollars in thousands) | At December 31, 2021 | |||||||
|---|---|---|---|---|---|---|---|---|
| Bank | Commitment | In Use | Date of Expiry | |||||
| Bermuda Re Barclays Bilateral Letter of Credit Facility | $ | 200,000 | $ | 186,299 | 12/31/2022 | |||
| Total Bermuda Re Barclays Bilateral Letter of Credit Facility | $ | 200,000 | $ | 186,299 |
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, 2021, Everest Re had admitted assets of approximately $20.3 billion which provides borrowing capacity of up to approximately $2.0 billion. As of December 31, 2021, Everest Re has $519.0 million of borrowings outstanding, with maturities in 2022 and interest payable at interest rates between 0.53% and 0.65%. Everest incurred interest expense of $1.2 million and $0.2 million for the years ended December 31, 2021 and 2020, respectively. The FHLBNY membership agreement requires that 4.5% of borrowed funds be used to acquire additional membership stock.
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, 2021 | December 31, 2020 | |||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Principal | Consolidated Balance | Consolidated Balance | ||||||||||||||||
| (Dollars in thousands) | Date Issued | Date Due | Amounts | Sheet Amount | Market Value | Sheet Amount | Market Value | |||||||||||
| 4.868% Senior Notes | 6/5/2014 | 6/1/2044 | $ | 400,000 | $ | 397,314 | $ | 503,840 | $ | 397,194 | $ | 528,000 | ||||||
| 3.5% Senior Notes | 10/7/2020 | 10/15/2050 | 1,000,000 | 980,046 | 1,054,520 | 979,524 | 1,138,100 | |||||||||||
| 3.125% Senior Notes | 10/4/2021 | 10/15/2052 | 1,000,000 | 968,440 | 983,140 | - | - | |||||||||||
| $ | 2,400,000 | $ | 2,345,800 | $ | 2,541,500 | $ | 1,376,718 | $ | 1,666,100 |
On October 4, 2021, Holdings issued $1.0 billion of 31 year senior notes with an interest coupon rate of 3.125%, which will mature on October 15, 2052. Interest is paid semi-annually on April 15 and October 15 of each year.
Interest expense incurred in connection with these senior notes is as follows for the periods indicated:
| Years Ended December 31, | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (Dollars in thousands) | Interest Paid | Payable Dates | 2021 | 2020 | 2019 | ||||||||
| 4.868% Senior Notes | semi-annually | June 1/December 1 | $ | 19,472 | $ | 19,472 | $ | 19,472 | |||||
| 3.5% Senior Notes | semi-annually | April 15/October 15 | 35,221 | 8,115 | - | ||||||||
| 3.125% Senior Notes | semi-annually | April 15/October 15 | 7,635 | - | - | ||||||||
| $ | 62,328 | $ | 27,587 | $ | 19,472 |
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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, 2021 | December 31, 2020 | ||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Original | Consolidated Balance | Consolidated Balance | ||||||||||||||||||
| (Dollars in thousands) | Date Issued | Principal Amount | Scheduled | Final | Sheet Amount | Market Value | Sheet Amount | Market Value | ||||||||||||
| Long term subordinated notes | 4/26/2007 | $ | 400,000 | 5/15/2037 | 5/1/2067 | $ | 223,774 | $ | 216,289 | $ | 223,674 | $ | 206,447 |
During the fixed rate interest period from May 3, 2007 through May 14, 2017, interest was at the annual rate of 6.6%, payable semi-annually in arrears on November 15 and May 15 of each year, commencing on November 15, 2007. During the floating rate interest period from May 15, 2017 through maturity, interest will be based on the 3 month LIBOR plus 238.5 basis points, reset quarterly, payable quarterly in arrears on February 15, May 15, August 15 and November 15 of each year, subject to Holdings’ right to defer interest on one or more occasions for up to ten consecutive years. Deferred interest will accumulate interest at the applicable rate compounded quarterly for periods from and including May 15, 2017. The reset quarterly interest rate for November 16, 2021 to February 15, 2022 is 2.54%.
Holdings may redeem the long term subordinated notes on or after May 15, 2017, in whole or in part at 100% of the principal amount plus accrued and unpaid interest; however, redemption on or after the scheduled maturity date and prior to May 1, 2047 is subject to a replacement capital covenant. This covenant is for the benefit of certain senior note holders and it mandates that Holdings receive proceeds from the sale of another subordinated debt issue, of at least similar size, before it may redeem the subordinated notes. Effective upon the maturity of the Company’s 5.40% senior notes on October 15, 2014, the Company’s 4.868% senior notes, due on June 1, 2044, have become the Company’s long term indebtedness that ranks senior to the long term subordinated notes.
The Company repurchased and retired $13.2 million of its outstanding long term subordinated notes for the year ended December 31, 2020. The Company realized a gain of $2.5 million from the repurchase of the long term subordinated notes for the year ended 2020.
On March 19, 2009, Group announced the commencement of a cash tender offer for any and all of the 6.60% fixed to floating rate long term subordinated notes. Upon expiration of the tender offer, the Company had reduced its outstanding debt by $161.4 million.
Interest expense incurred in connection with these long term subordinated notes is as follows for the periods indicated:
| Years Ended December 31, | ||||||||
|---|---|---|---|---|---|---|---|---|
| (Dollars in thousands) | 2021 | 2020 | 2019 | |||||
| Interest expense incurred | $ | 5,818 | $ | 7,645 | $ | 11,587 |
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, 2021, the total amount on deposit in trust accounts was $1.7 billion.
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.
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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 | 2021 | 2020 | 2019 | |||
| (Dollars in thousands) | ||||||
| Ceded written premiums | 341,460 | 303,178 | 291,979 | |||
| Ceded earned premiums | 332,989 | 306,184 | 294,762 | |||
| Ceded losses and LAE | 282,233 | 241,347 | 187,192 | |||
| Assumed written premiums | 12,120 | 18,831 | 17,005 | |||
| Assumed earned premiums | 12,120 | 18,831 | 17,005 |
Each segregated account is permitted to assume net risk exposures equal to the amount of its available posted collateral, which in the aggregate was $930.0 million and $806.6 million at December 31, 2021 and 2020, respectively. Of this amount, Group had investments recorded at $66.3 million and $67.6 million at December 31, 2021 and 2020, respectively, in the segregated accounts.
Effective April 1, 2018, the Company entered into a retroactive reinsurance transaction with one of the Mt. Logan Re segregated accounts to retrocede $269.2 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 $252.0 million to the Mt. Logan Re segregated account. The maximum liability to be retroceded under the agreement will be $319.0 million. The Company will retain liability for any amounts exceeding the maximum liability. As of December 31, 2021 and 2020, the Company has a reinsurance recoverable of $206.1 million and $254.9 million, respectively. In addition the Company has a deferred gain liability of $15.5 million and $38.8 million as of December 31, 2021 and 2020, respectively, reported in Other liabilities.
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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 thousands) | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Class | Description | Effective Date | Expiration Date | Limit | Coverage Basis | |||||||
| Series 2017-1 Class A-2 | US, Canada, Puerto Rico – Named Storm and Earthquake Events | 4/13/2017 | 4/13/2022 | $ | 50,000 | Aggregate | ||||||
| Series 2017-1 Class B-2 | US, Canada, Puerto Rico – Named Storm and Earthquake Events | 4/13/2017 | 4/13/2022 | 75,000 | Aggregate | |||||||
| Series 2017-1 Class C-2 | US, Canada, Puerto Rico – Named Storm and Earthquake Events | 4/13/2017 | 4/13/2022 | 175,000 | Aggregate | |||||||
| Series 2018-1 Class A-1 | US, Canada, Puerto Rico – Named Storm and Earthquake Events | 4/30/2018 | 5/6/2022 | 62,500 | Aggregate | |||||||
| Series 2018-1 Class B-1 | US, Canada, Puerto Rico – Named Storm and Earthquake Events | 4/30/2018 | 5/6/2022 | 200,000 | Aggregate | |||||||
| Series 2018-1 Class A-2 | US, Canada, Puerto Rico – Named Storm and Earthquake Events | 4/30/2018 | 5/5/2023 | 62,500 | Aggregate | |||||||
| Series 2018-1 Class B-2 | US, Canada, Puerto Rico – Named Storm and Earthquake Events | 4/30/2018 | 5/5/2023 | 200,000 | Aggregate | |||||||
| Series 2019-1 Class A-1 | US, Canada, Puerto Rico – Named Storm and Earthquake Events | 12/12/2019 | 12/19/2023 | 150,000 | Occurrence | |||||||
| Series 2019-1 Class B-1 | US, Canada, Puerto Rico – Named Storm and Earthquake Events | 12/12/2019 | 12/19/2023 | 275,000 | Aggregate | |||||||
| Series 2019-1 Class A-2 | US, Canada, Puerto Rico – Named Storm and Earthquake Events | 12/12/2019 | 12/19/2024 | 150,000 | Occurrence | |||||||
| Series 2019-1 Class B-2 | US, Canada, Puerto Rico – Named Storm and Earthquake Events | 12/12/2019 | 12/19/2024 | 275,000 | Aggregate | |||||||
| Series 2021-1 Class A-1 | US, Canada, Puerto Rico – Named Storm and Earthquake Events | 4/8/2021 | 4/21/2025 | 150,000 | Occurrence | |||||||
| Series 2021-1 Class B-1 | US, Canada, Puerto Rico – Named Storm and Earthquake Events | 4/8/2021 | 4/21/2025 | 85,000 | Aggregate | |||||||
| Series 2021-1 Class C-1 | US, Canada, Puerto Rico – Named Storm and Earthquake Events | 4/8/2021 | 4/21/2025 | 85,000 | Aggregate | |||||||
| Series 2021-1 Class A-2 | US, Canada, Puerto Rico – Named Storm and Earthquake Events | 4/8/2021 | 4/20/2026 | 150,000 | Occurrence | |||||||
| Series 2021-1 Class B-2 | US, Canada, Puerto Rico – Named Storm and Earthquake Events | 4/8/2021 | 4/20/2026 | 90,000 | Aggregate | |||||||
| Series 2021-1 Class C-2 | US, Canada, Puerto Rico – Named Storm and Earthquake Events | 4/8/2021 | 4/20/2026 | 90,000 | Aggregate | |||||||
| Total available limit as of December 31, 2021 | $ | 2,325,000 |
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.
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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 thousands) | |||||||
|---|---|---|---|---|---|---|---|
| Note Series | Issue Date | Maturity Date | Amount | ||||
| Series 2017-1 Class A-2 | 4/13/2017 | 4/13/2022 | $ | 50,000 | |||
| Series 2017-1 Class B-2 | 4/13/2017 | 4/13/2022 | 75,000 | ||||
| Series 2017-1 Class C-2 | 4/13/2017 | 4/13/2022 | 175,000 | ||||
| Series 2018-1 Class A-1 | 4/30/2018 | 5/6/2022 | 62,500 | ||||
| Series 2018-1 Class B-1 | 4/30/2018 | 5/6/2022 | 200,000 | ||||
| Series 2018-1 Class A-2 | 4/30/2018 | 5/5/2023 | 62,500 | ||||
| Series 2018-1 Class B-2 | 4/30/2018 | 5/5/2023 | 200,000 | ||||
| Series 2019-1 Class A-1 | 12/12/2019 | 12/19/2023 | 150,000 | ||||
| Series 2019-1 Class B-1 | 12/12/2019 | 12/19/2023 | 275,000 | ||||
| Series 2019-1 Class A-2 | 12/12/2019 | 12/19/2024 | 150,000 | ||||
| Series 2019-1 Class B-2 | 12/12/2019 | 12/19/2024 | 275,000 | ||||
| Series 2021-1 Class A-1 | 4/8/2021 | 4/21/2025 | 150,000 | ||||
| Series 2021-1 Class B-1 | 4/8/2021 | 4/21/2025 | 85,000 | ||||
| Series 2021-1 Class C-1 | 4/8/2021 | 4/21/2025 | 85,000 | ||||
| Series 2021-1 Class A-2 | 4/8/2021 | 4/20/2026 | 150,000 | ||||
| Series 2021-1 Class B-2 | 4/8/2021 | 4/20/2026 | 90,000 | ||||
| Series 2021-1 Class C-2 | 4/8/2021 | 4/20/2026 | 90,000 | ||||
| $ | 2,325,000 |
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) | 2021 | 2020 | |||
| Lease expense incurred: | |||||
| Operating lease cost | $ | 26,540 | $ | 32,508 |
| At December 31, | |||||
|---|---|---|---|---|---|
| (Dollars in thousands) | 2021 | 2020 | |||
| Operating lease right of use assets | $ | 138,942 | $ | 149,125 | |
| Operating lease liabilities | 157,729 | 165,292 |
| Year Ended December 31, | |||||
|---|---|---|---|---|---|
| (Dollars in thousands) | 2021 | 2020 | |||
| Operating cash flows from operating leases | $ | (18,294) | $ | (20,594) |
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| At December 31, | |||||
|---|---|---|---|---|---|
| 2021 | 2020 | ||||
| Weighted average remaining operating lease term | 11.6 years | 12.3 years | |||
| Weighted average discount rate on operating leases | 4.08 | % | 4.10 | % |
Maturities of the existing lease liabilities are expected to occur as follows:
| (Dollars in thousands) | ||
|---|---|---|
| 2022 | $ | 20,865 |
| 2023 | 20,238 | |
| 2024 | 20,016 | |
| 2025 | 17,025 | |
| 2026 | 15,805 | |
| Thereafter | 108,793 | |
| Undiscounted lease payments | 202,742 | |
| Less: present value adjustment | 45,013 | |
| Total operating lease liability | $ | 157,729 |
On July 2, 2019, the Company entered into a lease agreement to relocate its U.S. corporate offices from Liberty Corner, New Jersey to Warren, New Jersey. The new lease, which covers approximately 315,000 square feet of office space, became effective in October, 2019 and runs through 2036. The initial base rent payment of the lease will be approximately $650 thousand per month or $7.8 million per year. The Company relocated the existing operations and employees of the Liberty Corner, New Jersey facility to the new corporate complex as of December, 2020.
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 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 $32.5 million and obtain federal income tax cash refunds of $182.5 million including interest in 2020.
The significant components of the provision are as follows for the periods indicated:
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| Years Ended December 31, | ||||||||
|---|---|---|---|---|---|---|---|---|
| (Dollars in thousands) | 2021 | 2020 | 2019 | |||||
| Current tax expense (benefit): | ||||||||
| U.S. | $ | 123,876 | $ | (107,757) | $ | (5,044) | ||
| Non-U.S. | 2,038 | 2,948 | 14,420 | |||||
| Total current tax expense (benefit) | 125,914 | (104,809) | 9,376 | |||||
| Deferred tax expense (benefit): | ||||||||
| U.S. | 37,597 | 178,523 | 80,247 | |||||
| Non-U.S. | 3,027 | (2,516) | (97) | |||||
| Total deferred tax expense (benefit) | 40,624 | 176,007 | 80,150 | |||||
| Total income tax expense (benefit) | $ | 166,538 | $ | 71,198 | $ | 89,526 | ||
| (Some amounts may not reconcile due to rounding.) |
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, | |||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2021 | 2020 | 2019 | |||||||||||||||
| (Dollars in thousands) | U.S. | Non-U.S. | U.S. | Non-U.S. | U.S. | Non-U.S. | |||||||||||
| Underwriting gain (loss) | $ | (83,159) | $ | 306,933 | $ | 24,041 | $ | (277,852) | $ | 38,964 | $ | 297,199 | |||||
| Net investment income | 707,971 | 456,921 | 339,721 | 302,744 | 325,179 | 321,960 | |||||||||||
| Net realized capital gains (losses) | 266,036 | (8,094) | 234,970 | 32,679 | 155,609 | 29,394 | |||||||||||
| Net derivative gain (loss) | - | 2,965 | - | 1,541 | - | 6,374 | |||||||||||
| Corporate expenses | (33,334) | (34,493) | (15,985) | (25,133) | (13,063) | (19,903) | |||||||||||
| Interest, fee and bond issue cost amortization expense | (69,974) | (175) | (35,659) | (664) | (34,931) | 3,239 | |||||||||||
| Other income (expense) | 23,315 | 10,709 | (14,656) | 19,602 | (1,976) | (9,057) | |||||||||||
| Pre-tax income (loss) | $ | 810,855 | $ | 734,766 | $ | 532,432 | $ | 52,917 | $ | 469,782 | $ | 629,206 | |||||
| Expected tax provision at the applicable statutory rate(s) | 170,170 | 14,358 | 111,846 | (10,356) | 98,766 | 17,205 | |||||||||||
| Increase (decrease) in taxes resulting from: | |||||||||||||||||
| Tax exempt income | (3,927) | - | (3,598) | - | (3,680) | - | |||||||||||
| Dividend received deduction | (840) | - | (1,100) | - | (998) | - | |||||||||||
| Proration | 1,048 | - | 1,049 | - | 1,050 | - | |||||||||||
| Affiliated preferred stock dividends | 6,517 | - | 6,517 | - | 6,517 | - | |||||||||||
| Creditable foreign premium tax | (13,392) | - | (11,513) | - | (9,852) | - | |||||||||||
| Tax audit settlement | - | - | - | - | (1,576) | - | |||||||||||
| Share based compensation tax benefits formerly in APIC | (1,950) | (232) | (2,605) | (388) | (2,984) | (373) | |||||||||||
| Impact of CARES Act | - | - | (32,500) | - | - | - | |||||||||||
| Valuation allowance | 324 | (9,796) | 277 | 15,144 | 138 | 3,772 | |||||||||||
| Change in uncertain tax positions | - | - | - | - | (8,434) | - | |||||||||||
| Other | 3,523 | 735 | 2,393 | (3,968) | (3,744) | (6,281) | |||||||||||
| Total income tax provision | $ | 161,473 | $ | 5,065 | $ | 70,766 | $ | 432 | $ | 75,203 | $ | 14,323 | |||||
| (Some amounts may not reconcile due to rounding.) |
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Reconciliation of the beginning and ending unrecognized tax benefits, for the periods indicated, is as follows:
| (Dollars in thousands) | 2021 | 2020 | 2019 | |||||
|---|---|---|---|---|---|---|---|---|
| Balance at January 1 | $ | - | $ | - | $ | 8,434 | ||
| Additions based on tax positions related to the current year | - | - | - | |||||
| Additions for tax positions of prior years | - | - | - | |||||
| Reductions for tax positions of prior years | - | - | (8,434) | |||||
| Settlements with taxing authorities | - | - | - | |||||
| Lapses of applicable statutes of limitations | - | - | - | |||||
| Balance at December 31 | $ | - | $ | - | $ | - |
At December 31, 2021, the Company’s unrecognized tax benefits, excluding interest and penalties, that would impact the effective tax rate was $0 million.
Interest and penalties related to unrecognized tax benefits are recognized in income tax expense. At December 31, 2021, the Company accrued $0 million for the payment of interest (net of the federal benefit) and penalties. At December 31, 2020 and 2019, there were no accrued liabilities, respectively, for the payment of interest and penalties.
The Company’s 2014 through 2018 U.S. tax years are under audit by the IRS. To date, the Company has received only one notice of proposed adjustment for an immaterial amount of tax for the 2014 tax year. Also, the Company proposed affirmative beneficial income tax return adjustments to the IRS at the start of the 2014 audit. Subsequent to the Company’s CARES Act net operating loss carryback, the Company received a tax refund of $16.3 million of recaptured foreign tax credits related to the affirmative adjustments. In addition, tax years 2019 and 2020 are open for examination by the U.S. Federal jurisdiction.
To date, the Company has not received any additional Information Document Requests (“IDRs”) or notices of proposed adjustment for 2015 to 2018. The Company had filed amended tax returns requesting refunds for 2015 and 2016 for $1.5 million and $4.7 million, respectively.
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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 thousands) | 2021 | 2020 | |||
| Deferred tax assets: | |||||
| Loss reserves | $ | 129,861 | $ | 96,840 | |
| Unearned premium reserves | 107,724 | 85,028 | |||
| Lease liability | 30,885 | 31,989 | |||
| Foreign tax credits | 21,787 | 46,109 | |||
| Net operating loss carryforward | 20,228 | 33,504 | |||
| Net unrealized losses on benefit plans | 13,395 | 19,636 | |||
| Equity compensation | 7,558 | 7,367 | |||
| Investment impairments | 6,160 | 1,121 | |||
| Unrealized foreign currency losses | 4,486 | 603 | |||
| Uncollectible reinsurance reserves | 3,142 | 3,142 | |||
| Other tax credits | 213 | 4,591 | |||
| Other assets | 8,973 | 7,285 | |||
| Total deferred tax assets | 354,412 | 337,215 | |||
| Deferred tax liabilities: | |||||
| Deferred acquisition costs | 99,395 | 79,994 | |||
| Net fair value income | 97,974 | 75,692 | |||
| Partnership investments | 56,699 | 26,119 | |||
| Net unrealized investment gains | 36,615 | 90,268 | |||
| Right of use asset | 27,111 | 28,822 | |||
| Benefit plan asset | 1,667 | 1,765 | |||
| Other liabilities | 9,963 | 6,710 | |||
| Total deferred tax liabilities | 329,424 | 309,370 | |||
| Net deferred tax assets | 24,988 | 27,845 | |||
| Less: Valuation allowance | (17,765) | (28,805) | |||
| Total net deferred tax assets/(liabilities) | $ | 7,223 | $ | (960) | |
| (Some amounts may not reconcile due to rounding.) |
At December 31, 2021 and 2020, the Company had $17.8 million and $28.8 million of Valuation Allowance (“VA”), respectively. The majority of the VA relates to the Company’s UK operations and were due primarily to net operating losses incurred in 2020 as a result of market conditions and COVID 19. The VA is a result of our conclusion under US GAAP accounting principles, that the UK, Netherlands, 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 and the inability to demonstrate profits within the specific jurisdictions related to recent changes in market conditions. During the year ended December 31, 2021, the Company recorded an overall decrease in its valuation allowance of approximately $11.0 million, primarily due to utilization of UK and Canadian NOLs. Tax effected UK NOLs of $16.7 million do not expire. Tax effected Swiss NOLs of $2.5 million begin to expire in 2028. Tax effected Netherland NOLs of $0.2 million begin to expire in 2027. Tax effected U.S. Separate Return Limitation Year NOLs of $0.8 million begin to expire in 2037.
Due to the passage of the CARES Act in 2020, which allowed for a five-year carryback of NOLs, as of December 31, 2020 the Company no longer has a Consolidated U.S. NOL carryforward Without the Consolidated U.S. NOL carryforward, the Company was able to utilize a significant amount of U.S. Foreign Tax Credits (“FTCs”) in both 2019 and 2020. As a result, its FTC carryforwards were significantly reduced at December 31, 2020 to only
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$46.1 million. The remaining FTC carryforwards as of December 31, 2021 begin to expire in 2028 related to our branch basket.
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 $2.2 million, $3.0 million and $3.5 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 2021, 2020 and, 2019, 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 $611 thousand, $583 thousand and $484 thousand in 2021, 2020 and 2019, respectively.
For the year ended December 31, 2021, 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.
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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.
The Company expects the impact of the COVID-19 pandemic to reinsurers to be somewhat mitigated by their regulated capital and liquidity positions. The ultimate impact to the Company's financial statements could vary significantly from our estimates depending on the duration and severity of the pandemic, the duration and severity of the economic downturn and the degree to which federal, state and local government actions to mitigate the economic impact of COVID-19 are effective.
Premiums written and earned and incurred losses and LAE are comprised of the following for the periods indicated:
| Years Ended December 31, | ||||||||
|---|---|---|---|---|---|---|---|---|
| (Dollars in thousands) | 2021 | 2020 | 2019 | |||||
| Written premiums: | ||||||||
| Direct | $ | 3,987,875 | $ | 3,217,999 | $ | 2,783,036 | ||
| Assumed | 9,061,881 | 7,264,362 | 6,350,328 | |||||
| Ceded | (1,604,251) | (1,365,378) | (1,308,940) | |||||
| Net written premiums | $ | 11,445,505 | $ | 9,116,983 | $ | 7,824,424 | ||
| Premiums earned: | ||||||||
| Direct | $ | 3,588,926 | $ | 3,028,095 | $ | 2,551,662 | ||
| Assumed | 8,315,072 | 7,054,680 | 6,059,222 | |||||
| Ceded | (1,497,557) | (1,401,262) | (1,207,198) | |||||
| Net premiums earned | $ | 10,406,441 | $ | 8,681,513 | $ | 7,403,686 | ||
| Incurred losses and LAE: | ||||||||
| Direct | $ | 2,384,960 | $ | 2,141,065 | $ | 1,618,686 | ||
| Assumed | 5,741,109 | 5,163,946 | 3,923,298 | |||||
| Ceded | (734,816) | (754,174) | (619,086) | |||||
| Net incurred losses and LAE | $ | 7,391,253 | $ | 6,550,837 | $ | 4,922,898 |
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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, | ||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2021 | 2020 | 2019 | ||||||||||||||||||||||||
| (Dollars in thousands) | 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 | $ | (547,690) | $ | 59,312 | $ | (488,378) | $ | 462,939 | $ | (39,729) | $ | 423,210 | $ | 547,539 | $ | (49,665) | $ | 497,874 | ||||||||
| URA(D) on securities - OTTI | - | - | - | - | - | - | (1,559) | 115 | (1,444) | |||||||||||||||||
| Reclassification of net realized losses (gains) included in net income (loss) | 5,347 | (1,731) | 3,616 | 2,253 | (5,729) | (3,476) | (13,129) | 516 | (12,613) | |||||||||||||||||
| Foreign currency translation adjustments | (64,421) | 2,330 | (62,091) | 90,142 | (3,815) | 86,327 | 18,585 | (4,555) | 14,030 | |||||||||||||||||
| Benefit plan actuarial net gain (loss) | 7,912 | (1,661) | 6,251 | (7,107) | 1,492 | (5,615) | (15,938) | 3,347 | (12,591) | |||||||||||||||||
| Reclassification of benefit plan liability amortization included in net income (loss) | 21,807 | (4,580) | 17,227 | 7,974 | (1,674) | 6,300 | 6,902 | (1,449) | 5,453 | |||||||||||||||||
| Total other comprehensive income (loss) | $ | (577,045) | $ | 53,670 | $ | (523,375) | $ | 556,201 | $ | (49,455) | $ | 506,746 | $ | 542,400 | $ | (51,691) | $ | 490,709 |
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 | 2021 | 2020 | operations and comprehensive income (loss) | |||||
| (Dollars in thousands) | ||||||||
| URA(D) on securities | $ | 5,347 | $ | 2,253 | Other net realized capital gains (losses) | |||
| (1,731) | (5,729) | Income tax expense (benefit) | ||||||
| $ | 3,616 | $ | (3,476) | Net income (loss) | ||||
| Benefit plan net gain (loss) | $ | 21,807 | $ | 7,974 | Other underwriting expenses | |||
| (4,580) | (1,674) | Income tax expense (benefit) | ||||||
| $ | 17,227 | $ | 6,300 | 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 thousands) | 2021 | 2020 | |||
| Beginning balance of URA (D) on securities | $ | 724,159 | $ | 304,425 | |
| Current period change in URA (D) of investments - non-credit related | (484,762) | 419,734 | |||
| Ending balance of URA (D) on securities | 239,397 | 724,159 | |||
| Beginning balance of foreign currency translation adjustments | (115,390) | (201,717) | |||
| Current period change in foreign currency translation adjustments | (62,091) | 86,327 | |||
| Ending balance of foreign currency translation adjustments | (177,481) | (115,390) | |||
| Beginning balance of benefit plan net gain (loss) | (73,870) | (74,556) | |||
| Current period change in benefit plan net gain (loss) | 23,478 | 685 | |||
| Ending balance of benefit plan net gain (loss) | (50,392) | (73,870) | |||
| Ending balance of accumulated other comprehensive income (loss) | $ | 11,523 | $ | 534,899 | |
| (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
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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 thousands) | 2021 | 2020 | 2019 | |||||
| Company contributions | $ | 3,821 | $ | 6,825 | $ | 4,750 |
The following table summarizes the Company’s pension expense for the periods indicated:
| Years Ended December 31, | ||||||||
|---|---|---|---|---|---|---|---|---|
| (Dollars in thousands) | 2021 | 2020 | 2019 | |||||
| Pension expense | $ | 3,388 | $ | 8,429 | $ | 10,042 |
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 thousands) | 2021 | 2020 | |||
| Change in projected benefit obligation: | |||||
| Benefit obligation at beginning of year | $ | 404,471 | $ | 355,356 | |
| Service cost | 10,637 | 9,522 | |||
| Interest cost | 8,253 | 10,112 | |||
| Actuarial (gain)/loss | (8,587) | 43,595 | |||
| Curtailment | - | - | |||
| Benefits paid | (12,147) | (14,115) | |||
| Projected benefit obligation at end of year | 402,626 | 404,471 | |||
| Change in plan assets: | |||||
| Fair value of plan assets at beginning of year | 354,464 | 301,467 | |||
| Actual return on plan assets | 31,166 | 60,286 | |||
| Actual contributions during the year | 3,821 | 6,825 | |||
| Administrative expenses paid | - | - | |||
| Benefits paid | (12,147) | (14,115) | |||
| Fair value of plan assets at end of year | 377,303 | 354,464 | |||
| Funded status at end of year | $ | (25,323) | $ | (50,007) | |
| (Some amounts may not reconcile due to rounding.) |
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Amounts recognized in the consolidated balance sheets for the periods indicated:
| At December 31, | |||||
|---|---|---|---|---|---|
| (Dollars in thousands) | 2021 | 2020 | |||
| Other assets (due beyond one year) | $ | - | $ | - | |
| Other liabilities (due within one year) | (1,469) | (2,197) | |||
| Other liabilities (due beyond one year) | (23,854) | (47,810) | |||
| Net amount recognized in the consolidated balance sheets | $ | (25,323) | $ | (50,007) | |
| (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 thousands) | 2021 | 2020 | |||
| Accumulated income (loss) | $ | (67,729) | $ | (91,979) | |
| Accumulated other comprehensive income (loss) | $ | (67,729) | $ | (91,979) | |
| (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 thousands) | 2021 | 2020 | |||
| Other comprehensive income (loss) at December 31, prior year | $ | (91,979) | $ | (97,466) | |
| Net gain (loss) arising during period | 15,298 | (4,090) | |||
| Recognition of amortizations in net periodic benefit cost: | |||||
| Actuarial loss | 8,953 | 9,576 | |||
| Curtailment loss recognized | - | - | |||
| Other comprehensive income (loss) at December 31, current year | $ | (67,729) | $ | (91,979) | |
| (Some amounts may not reconcile due to rounding.) |
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Net periodic benefit cost for U.S. employees included the following components for the periods indicated:
| Years Ended December 31, | ||||||||
|---|---|---|---|---|---|---|---|---|
| (Dollars in thousands) | 2021 | 2020 | 2019 | |||||
| Service cost | $ | 10,637 | $ | 9,522 | $ | 8,255 | ||
| Interest cost | 8,253 | 10,112 | 11,712 | |||||
| Expected return on assets | (24,454) | (20,781) | (17,968) | |||||
| Amortization of actuarial loss from earlier periods | 8,489 | 8,551 | 7,635 | |||||
| Settlement | 464 | 1,025 | 408 | |||||
| Net periodic benefit cost | $ | 3,388 | $ | 8,429 | $ | 10,042 | ||
| Other changes recognized in other comprehensive income (loss): | ||||||||
| Other comprehensive income (loss) attributable to change from prior year | (24,251) | (5,486) | ||||||
| Total recognized in net periodic benefit cost and other | ||||||||
| comprehensive income (loss) | $ | (20,863) | $ | 2,943 | ||||
| (Some amounts may not reconcile due to rounding.) |
The weighted average discount rates used to determine net periodic benefit cost for 2021, 2020 and 2019 were 2.55%, 3.28% and 4.27%, respectively. The rate of compensation increase used to determine the net periodic benefit cost for 2021, 2020 and 2019 was 4.00%. The expected long-term rate of return on plan assets was 7.00% for 2021, 2020 and 2019 based on expected portfolio returns and allocations.
The weighted average discount rates used to determine the actuarial present value of the projected benefit obligation for years end 2021, 2020 and 2019 were 2.86%, 2.55% and 3.28%, respectively.
The following table summarizes the accumulated benefit obligation for the periods indicated:
| At December 31, | |||||
|---|---|---|---|---|---|
| (Dollars in thousands) | 2021 | 2020 | |||
| Qualified Plan | $ | 339,360 | $ | 336,027 | |
| Non-qualified Plan | 12,190 | 16,258 | |||
| Total | $ | 351,550 | $ | 352,285 | |
| (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 thousands) | 2021 | 2020 | |||
| Qualified Plan | |||||
| Projected benefit obligation | $ | 390,437 | $ | 388,213 | |
| Fair value of plan assets | 377,303 | 354,464 | |||
| Non-qualified Plan | |||||
| Projected benefit obligation | $ | 12,190 | $ | 16,258 | |
| Fair value of plan assets | - | - |
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The following table displays the plans with accumulated benefit obligations in excess of plan assets for the periods indicated:
| At December 31, | |||||
|---|---|---|---|---|---|
| (Dollars in thousands) | 2021 | 2020 | |||
| Qualified Plan | |||||
| Accumulated benefit obligation | $ | - | $ | - | |
| Fair value of plan assets | - | - | |||
| Non-qualified Plan | |||||
| Accumulated benefit obligation | $ | 12,189 | $ | 16,258 | |
| Fair value of plan assets | - | - |
The following table displays the expected benefit payments in the periods indicated:
| (Dollars in thousands) | ||
|---|---|---|
| 2022 | $ | 16,662 |
| 2023 | 12,639 | |
| 2024 | 13,565 | |
| 2025 | 14,550 | |
| 2026 | 15,439 | |
| Next 5 years | 95,005 |
Plan assets consist of shares in investment trusts with 76%, 22%, 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.
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 thousands) | December 31, 2021 | (Level 1) | (Level 2) | (Level 3) | |||||||
| Assets: | |||||||||||
| Short-term investments, which approximates fair value (a) | $ | 2,540 | $ | 2,540 | $ | - | $ | - | |||
| Mutual funds, fair value | |||||||||||
| Fixed income (b) | 84,663 | 84,663 | - | - | |||||||
| Equities (c) | 287,382 | 287,382 | - | - | |||||||
| Total | $ | 374,585 | $ | 374,585 | $ | - | $ | - | |||
| (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.
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| Fair Value Measurement Using: | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Quoted Prices | |||||||||||
| in Active | Significant | ||||||||||
| Markets for | Other | Significant | |||||||||
| Identical | Observable | Unobservable | |||||||||
| Assets | Inputs | Inputs | |||||||||
| (Dollars in thousands) | December 31, 2020 | (Level 1) | (Level 2) | (Level 3) | |||||||
| Assets: | |||||||||||
| Short-term investments, which approximates fair value (a) | $ | 1,204 | $ | 1,204 | $ | - | $ | - | |||
| Mutual funds, fair value | |||||||||||
| Fixed income (b) | 93,609 | 93,609 | - | - | |||||||
| Equities (c) | 255,054 | 255,054 | - | - | |||||||
| Total | $ | 349,867 | $ | 349,867 | $ | - | $ | - | |||
| (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, $2.6 million and $4.6 million of investments which were recorded as part of the qualified plan assets at December 31, 2021 and 2020, 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, 2021 and 2020.
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 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 $14.8 million, $14.4 million and $10.8 million for the years ended December 31, 2021, 2020 and 2019, 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 5.0% to 78.3%. The contributions are generally used to purchase pension benefits from local insurance providers. The Company incurred expenses related to these plans of $3.4 million, $3.0 million and $2.2 million for the years ended December 31, 2021, 2020 and 2019, 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 6.50% in 2021 was assumed to decrease gradually to 4.75% in 2030 and then remain at that level. The
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Company incurred expenses of $1.2 million, $1.3 million and $1.2 million for the years ended December 31, 2021, 2020 and 2019, respectively.
The following table summarizes the status of this plan for the periods indicated:
| At December 31, | |||||
|---|---|---|---|---|---|
| (Dollars in thousands) | 2021 | 2020 | |||
| Change in projected benefit obligation: | |||||
| Benefit obligation at beginning of year | $ | 35,098 | $ | 29,376 | |
| Service cost | 1,096 | 1,066 | |||
| Interest cost | 641 | 845 | |||
| Amendments | - | - | |||
| Actuarial (gain)/loss | (6,044) | 4,042 | |||
| Benefits paid | (267) | (232) | |||
| Benefit obligation at end of year | 30,523 | 35,098 | |||
| Change in plan assets: | |||||
| Fair value of plan assets at beginning of year | - | - | |||
| Employer contributions | 267 | 232 | |||
| Benefits paid | (267) | (232) | |||
| Fair value of plan assets at end of year | - | - | |||
| Funded status at end of year | $ | (30,523) | $ | (35,098) |
Amounts recognized in the consolidated balance sheets for the periods indicated:
| At December 31, | |||||
|---|---|---|---|---|---|
| (Dollars in thousands) | 2021 | 2020 | |||
| Other liabilities (due within one year) | $ | (682) | $ | (613) | |
| Other liabilities (due beyond one year) | (29,840) | (34,484) | |||
| Net amount recognized in the consolidated balance sheets | $ | (30,523) | $ | (35,098) | |
| (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 thousands) | 2021 | 2020 | |||
| Accumulated income (loss) | $ | 2,191 | $ | (3,854) | |
| Accumulated prior service credit (cost) | 1,750 | 2,327 | |||
| Accumulated other comprehensive income (loss) | $ | 3,941 | $ | (1,527) |
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Other changes in other comprehensive income (loss) for the periods indicated are as follows:
| Years Ended December 31, | |||||
|---|---|---|---|---|---|
| (Dollars in thousands) | 2021 | 2020 | |||
| Other comprehensive income (loss) at December 31, prior year | $ | (1,527) | $ | 3,092 | |
| Net gain (loss) arising during period | 6,044 | (4,042) | |||
| Prior Service credit (cost) arising during period | - | - | |||
| Recognition of amortizations in net periodic benefit cost: | |||||
| Actuarial loss (gain) | - | - | |||
| Prior service cost | (577) | (577) | |||
| Other comprehensive income (loss) at December 31, current year | $ | 3,941 | $ | (1,527) |
Net periodic benefit cost included the following components for the periods indicated:
| Years Ended December 31, | ||||||||
|---|---|---|---|---|---|---|---|---|
| (Dollars in thousands) | 2021 | 2020 | 2019 | |||||
| Service cost | $ | 1,096 | $ | 1,066 | $ | 983 | ||
| Interest cost | 641 | 845 | 980 | |||||
| Prior service credit recognition | (577) | (577) | (577) | |||||
| Net gain recognition | - | - | (155) | |||||
| Net periodic cost | $ | 1,161 | $ | 1,334 | $ | 1,231 | ||
| Other changes recognized in other comprehensive income (loss): | ||||||||
| Other comprehensive gain (loss) attributable to change from prior year | (5,468) | 4,619 | ||||||
| Total recognized in net periodic benefit cost and | ||||||||
| other comprehensive income (loss) | $ | (4,307) | $ | 5,953 | ||||
| (Some amounts may not reconcile due to rounding.) |
The weighted average discount rates used to determine net periodic benefit cost for 2021, 2020 and 2019 were 2.55%, 3.28% and 4.27%, respectively.
The weighted average discount rates used to determine the actuarial present value of the projected benefit obligation at year end 2021, 2020 and 2019 were 2.86%, 2.55% and 3.28%, respectively.
The following table displays the expected benefit payments in the years indicated:
| (Dollars in thousands) | ||
|---|---|---|
| 2022 | $ | 683 |
| 2023 | 779 | |
| 2024 | 831 | |
| 2025 | 974 | |
| 2026 | 1,084 | |
| Next 5 years | 7,252 |
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 statutory 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
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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 $3.1 billion and $2.9 billion at December 31, 2021 and 2020, respectively. The statutory net income of Bermuda Re was $680.7 million, $222.8 million and $503.6 million for the years ended December 31, 2021, 2020 and 2019, 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 unassigned earned surplus. At December 31, 2021, Everest Re has $578.9 million available for payment of dividends in 2022 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 $5.8 billion and $5.3 billion at December 31, 2021 and 2020, respectively. The statutory net income of Everest Re was $336.1 million, $595.1 million and $363.0 million for the years ended December 31, 2021, 2020 and 2019.
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.
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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 (1) | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| At December 31, | At December 31, | ||||||||||
| (Dollars in thousands) | 2021(1) | 2020 | 2021 | 2020 | |||||||
| Regulatory targeted capital | $ | - | $ | 1,923,209 | $ | 2,940,938 | $ | 2,489,772 | |||
| Actual capital | $ | 3,092,287 | $ | 2,930,250 | $ | 5,789,484 | $ | 5,276,003 |
(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 2021 BSCR calculation is not yet due to be completed; however, the Company anticipates that Bermuda Re's December 31, 2021 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 had one equity index put option contract at December 31, 2021, based on the Standard & Poor’s 500 (“S&P 500”) index. Based on historical index volatilities and trends and the December 31, 2021 S&P 500 index value, the Company estimates the probability that the equity index put option contract of the S&P 500 index falling below the strike price on the exercise date to be less than 0.1%. The theoretical maximum payout under this equity index put option contract would occur if on the exercise date the S&P 500 index value was zero. At December 31, 2021, the present value of the theoretical maximum payout using a 3% discount factor was $152.3 million. Conversely, if the contract had expired on December 31, 2021, with the S&P index at 4,766.18, there would have been no settlement amount.
The Company has entered into separate annuity agreements with The Prudential Insurance of America (“The Prudential”) and an additional unaffiliated life insurance company in which the Company has either purchased annuity contracts or become the assignee of annuity proceeds that are meant to settle claim payment obligations in the future. In both instances, the Company would become contingently liable if either The Prudential or the unaffiliated life insurance company were unable to make payments related to the respective annuity contract.
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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) | 2021 | 2020 | |||
| The Prudential | $ | 138,285 | $ | 140,773 | |
| Unaffiliated life insurance company | 34,847 | 35,128 |
16. SHARE-BASED COMPENSATION PLANS
The Company has a 2020 Stock Incentive Plan (“2020 Employee Plan”), a 2010 Stock Incentive Plan (“2010 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, 2021, there were 1,158,270 remaining shares available to be granted under the 2020 Employee Plan. The 2020 Employee Plan replaced a 2010 Employee Plan, which replaced a 2002 Employee Plan, which replaced a 1995 Employee Plan; therefore, no further awards will be granted under the 2002 Employee Plan or the 1995 Employee Plan. Through December 31, 2021, 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, 2021, there were 34,957 remaining shares available to be granted under the 2009 Director Plan. The 2009 Director Plan replaced a 1995 Director Plan, which expired. 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, 2021 there were 307,378 remaining shares available to be granted under the 2003 Director Plan.
Options and restricted shares granted under the 2020 Employee Plan, 2010 Employee Plan and the 2002 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 and the 2010 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 2010 Employee Plan, the 2002 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 $43.4 million, $39.2 million and $34.0 million for the years ended December 31, 2021, 2020 and 2019, respectively. The corresponding income tax benefit recorded in the consolidated statements of operations and comprehensive income (loss) for share-based compensation was $8.0 million, $7.1 million and $8.4 million for the years ended December 31, 2021, 2020 and 2019, respectively.
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For the year ended December 31, 2021, a total of 213,901 restricted shares were granted on February 23, 2021, February 24, 2021, May 12, 2021, September 9, 2021 and November 16, 2021, with a fair value of $242.240, $244.445, $264.845, $263.630 and $277.605 per share, respectively. Additionally, 22,205 performance share units were awarded on February 23, 2021, with a fair value of $242.240 per unit. No share options were granted during the year ended December 31, 2021. 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, 2021, 2020 and 2019, the Company recognized $0.6 million, $0.6 million and $0.5 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, 2021, 2020 and 2019, and changes during the year then ended is presented in the following tables:
| Weighted- | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| Weighted- | Average | ||||||||
| Average | Remaining | Aggregate | |||||||
| (Aggregate Intrinsic Value in thousands) | 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 | $ | 9,090 | ||||
| . | |||||||||
| Exercisable at December 31, 2021 | 49,028 | 88.52 | 0.2 | $ | 9,090 |
| Weighted- | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| Weighted- | Average | ||||||||
| Average | Remaining | Aggregate | |||||||
| (Aggregate Intrinsic Value in thousands) | 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 | $ | 17,089 | ||||
| . | |||||||||
| Exercisable at December 31, 2020 | 116,871 | 87.87 | 0.7 | $ | 17,089 |
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| Weighted- | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| Weighted- | Average | ||||||||
| Average | Remaining | Aggregate | |||||||
| (Aggregate Intrinsic Value in thousands) | Exercise | Contractual | Intrinsic | ||||||
| Options | Shares | Price/Share | Term | Value | |||||
| Outstanding at January 1, 2019 | 279,164 | $ | 83.84 | ||||||
| Granted | - | - | |||||||
| Exercised | 108,460 | 78.58 | |||||||
| Forfeited/Cancelled/Expired | - | - | |||||||
| Outstanding at December 31, 2019 | 170,704 | 87.18 | 1.4 | $ | 32,376 | ||||
| . | |||||||||
| Exercisable at December 31, 2019 | 170,704 | 87.18 | 1.4 | $ | 32,376 |
There were no share options granted in 2021, 2020 and 2019. The aggregate intrinsic value (market price less exercise price) of options exercised during the years ended December 31, 2021, 2020 and 2019 was $10.9 million, $10.0 million and $16.3 million, respectively. The cash received from the exercised share options for the year ended December 31, 2021 was $5.9 million. The tax benefit realized from the options exercised for the year ended December 31, 2021 was $2.6 million.
The following table summarizes information about share options outstanding for the period indicated:
| At December 31, 2021 | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Options Outstanding | Options Exercisable | ||||||||||
| Weighted- | |||||||||||
| Average | Weighted- | Weighted- | |||||||||
| Number | Remaining | Average | Number | Average | |||||||
| Range of | Outstanding | Contractual | Exercise | Exercisable | Exercise | ||||||
| Exercise Prices | at 12/31/21 | Life | Price | at 12/31/21 | Price | ||||||
| $88.32 - $88.32 | 48,574 | 0.1 | $ | 88.32 | 48,574 | $ | 88.32 | ||||
| $88.33 - $110.13 | 454 | 0.7 | 110.13 | 454 | 110.13 | ||||||
| $90.49 - $110.13 | - | - | - | - | - | ||||||
| 49,028 | 0.2 | 88.52 | 49,028 | 88.52 |
The following table summarizes the status of the Company’s non-vested shares and changes for the periods indicated:
| Years Ended December 31, | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2021 | 2020 | 2019 | ||||||||||||
| 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, | 483,427 | $ | 246.60 | 495,137 | $ | 228.02 | 414,407 | $ | 217.15 | |||||
| Granted | 213,901 | 243.51 | 200,929 | 269.86 | 232,601 | 232.36 | ||||||||
| Vested | 158,735 | 238.67 | 175,413 | 220.88 | 138,322 | 203.41 | ||||||||
| Forfeited | 42,499 | 247.02 | 37,226 | 246.20 | 13,549 | 221.35 | ||||||||
| Outstanding at December 31, | 496,094 | 247.76 | 483,427 | 246.60 | 495,137 | 228.02 |
As of December 31, 2021, there was $90.9 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
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period of 3.3 years. The total fair value of shares vested during the years ended December 31, 2021, 2020 and 2019, was $37.9 million, $38.7 million and $28.1 million, respectively. The tax benefit realized from the shares vested for the year ended December 31, 2021 was $7.5 million.
In addition to the 2020 Employee Plan, the 2010 Employee Plan, the 2009 Director Plan and the 2003 Director Plan, Group issued 506 common shares in 2021, 593 common shares in 2020 and 459 common shares in 2019 to the Company’s non-employee directors as compensation for their service as directors. These issuances had aggregate values of approximately $0.1 million in 2021, 2020 and 2019.
Since its 1995 initial public offering, the Company has issued to certain key employees of the Company 2,922,717 restricted common shares, of which 411,663 restricted shares have been cancelled. The Company has issued to non-employee directors of the Company 185,153 restricted common shares, of which no restricted shares have been cancelled. The Company acquired 79,308, 66,289 and 71,437 common shares at a cost of $17.8 million, $17.9 million and $14.2 million in 2021, 2020 and 2019, 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.
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, | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2021 | 2020 | 2019 | ||||||||||||
| 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, | 38,891 | $ | - | 34,850 | $ | - | 32,382 | $ | - | |||||
| Granted | 22,205 | 242.24 | 16,120 | 277.15 | 16,855 | 223.45 | ||||||||
| Increase/(Decrease) on vesting units due to performance | (800) | - | (2,227) | - | (3,455) | - | ||||||||
| Vested | 9,801 | 242.24 | 6,157 | 277.15 | 10,922 | 223.45 | ||||||||
| Forfeited | - | - | 3,695 | - | - | - | ||||||||
| Outstanding at December 31, | 50,495 | - | 38,891 | - | 34,850 | - |
The Company acquired 3,104, 2,587 and 5,008 common shares at a cost of $0.8 million, $0.7 million and $1.1 million in 2021, 2020 and 2019, 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 and South America through its offices in the U.S., Canada, Chile, United Kingdom, Ireland and a branch in the Netherlands.
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.
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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.
The following tables present the underwriting results for the operating segments for the periods indicated:
| Year Ended December 31, 2021 | ||||||||
|---|---|---|---|---|---|---|---|---|
| (Dollars in thousands) | Reinsurance | Insurance | Total | |||||
| Gross written premiums | $ | 9,067,292 | $ | 3,982,464 | $ | 13,049,756 | ||
| Net written premiums | 8,535,618 | 2,909,886 | 11,445,505 | |||||
| Premiums earned | $ | 7,757,483 | $ | 2,648,957 | $ | 10,406,441 | ||
| Incurred losses and LAE | 5,556,444 | 1,834,809 | 7,391,253 | |||||
| Commission and brokerage | 1,854,466 | 354,300 | 2,208,766 | |||||
| Other underwriting expenses | 199,148 | 383,499 | 582,647 | |||||
| Underwriting gain (loss) | $ | 147,426 | $ | 76,349 | $ | 223,775 | ||
| Net investment income | 1,164,892 | |||||||
| Net realized capital gains (losses) | 257,943 | |||||||
| Corporate expenses | (67,827) | |||||||
| Interest, fee and bond issue cost amortization expense | (70,149) | |||||||
| Other income (expense) | 36,987 | |||||||
| Income (loss) before taxes | $ | 1,545,621 |
| Year Ended December 31, 2020 | ||||||||
|---|---|---|---|---|---|---|---|---|
| (Dollars in thousands) | Reinsurance | Insurance | Total | |||||
| Gross written premiums | $ | 7,281,716 | $ | 3,200,645 | $ | 10,482,361 | ||
| Net written premiums | 6,767,579 | 2,349,404 | 9,116,983 | |||||
| Premiums earned | $ | 6,466,106 | $ | 2,215,407 | $ | 8,681,513 | ||
| Incurred losses and LAE | 4,933,411 | 1,617,426 | 6,550,837 | |||||
| Commission and brokerage | 1,552,371 | 320,879 | 1,873,250 | |||||
| Other underwriting expenses | 175,734 | 335,503 | 511,237 | |||||
| Underwriting gain (loss) | $ | (195,410) | $ | (58,401) | $ | (253,811) | ||
| Net investment income | 642,465 | |||||||
| Net realized capital gains (losses) | 267,649 | |||||||
| Corporate expenses | (41,118) | |||||||
| Interest, fee and bond issue cost amortization expense | (36,323) | |||||||
| Other income (expense) | 6,487 | |||||||
| Income (loss) before taxes | $ | 585,349 |
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| Year Ended December 31, 2019 | ||||||||
|---|---|---|---|---|---|---|---|---|
| (Dollars in thousands) | Reinsurance | Insurance | Total | |||||
| Gross written premiums | $ | 6,355,889 | $ | 2,777,475 | $ | 9,133,364 | ||
| Net written premiums | 5,732,272 | 2,092,152 | 7,824,424 | |||||
| Premiums earned | $ | 5,491,296 | $ | 1,912,390 | $ | 7,403,686 | ||
| Incurred losses and LAE | 3,675,178 | 1,247,720 | 4,922,898 | |||||
| Commission and brokerage | 1,400,247 | 303,479 | 1,703,726 | |||||
| Other underwriting expenses | 160,834 | 280,065 | 440,899 | |||||
| Underwriting gain (loss) | $ | 255,037 | $ | 81,126 | $ | 336,163 | ||
| Net investment income | 647,139 | |||||||
| Net realized capital gains (losses) | 185,004 | |||||||
| Corporate expenses | (32,966) | |||||||
| Interest, fee and bond issue cost amortization expense | (31,693) | |||||||
| Other income (expense) | (4,660) | |||||||
| Income (loss) before taxes | $ | 1,098,987 |
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 thousands) | 2021 | 2020 | 2019 | |||||
| United Kingdom gross written premium | $ | 1,245,909 | $ | 1,116,363 | $ | 964,358 |
Approximately 20.5%, 20.1% and 23.1% of the Company’s gross written premiums in 2021, 2020 and 2019, respectively, were sourced through the Company’s largest intermediary.
18. SUBSEQUENT EVENTS
The Company has evaluated known recognized and non-recognized subsequent events. The Company does not have any subsequent events to report.
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SCHEDULE I — SUMMARY OF INVESTMENTS —
OTHER THAN INVESTMENTS IN RELATED PARTIES
December 31, 2021
| Column A | Column B | Column C | Column D | |||||
|---|---|---|---|---|---|---|---|---|
| Amount | ||||||||
| Shown in | ||||||||
| Market | Balance | |||||||
| (Dollars in thousands) | Cost | Value | Sheet | |||||
| Fixed maturities-available for sale | ||||||||
| Bonds: | ||||||||
| U.S. government and government agencies | $ | 1,407,256 | $ | 1,420,618 | $ | 1,420,618 | ||
| State, municipalities and political subdivisions | 558,842 | 586,621 | 586,621 | |||||
| Foreign government securities | 1,423,634 | 1,437,512 | 1,437,512 | |||||
| Foreign corporate securities | 4,250,642 | 4,278,660 | 4,278,660 | |||||
| Public utilities | 268,021 | 279,240 | 279,240 | |||||
| All other corporate bonds | 10,340,207 | 10,449,243 | 10,449,243 | |||||
| Mortgage - backed securities: | ||||||||
| Commercial | 1,032,506 | 1,064,366 | 1,064,366 | |||||
| Agency residential | 2,361,208 | 2,375,332 | 2,375,332 | |||||
| Non-agency residential | 6,530 | 6,536 | 6,536 | |||||
| Redeemable preferred stock | 414,746 | 410,144 | 410,144 | |||||
| Total fixed maturities-available for sale | 22,063,592 | 22,308,272 | 22,308,272 | |||||
| Equity securities - at fair value (1) | 1,365,515 | 1,825,908 | 1,825,908 | |||||
| Short-term investments | 1,178,386 | 1,178,337 | 1,178,337 | |||||
| Other invested assets | 2,919,965 | 2,919,965 | 2,919,965 | |||||
| Cash | 1,440,861 | 1,440,861 | 1,440,861 | |||||
| Total investments and cash | $ | 28,968,319 | $ | 29,673,343 | $ | 29,673,343 | ||
| (1) Original cost does not reflect fair value adjustments, which have been realized through the statements of operations and comprehensive income (loss). |
S-1
SCHEDULE II — CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT
CONDENSED BALANCE SHEETS
| December 31, | ||||||
|---|---|---|---|---|---|---|
| (Dollars and share amounts in thousands, except par value per share) | 2021 | 2020 | ||||
| ASSETS: | ||||||
| Fixed maturities - available for sale | $ | - | $ | 3 | ||
| (amortized cost: 2021, $0; 2020, $3) | ||||||
| Other invested assets (cost: 2021, $211,612; 2020, $282,762) | 211,612 | 282,762 | ||||
| Cash | 3,253 | 884 | ||||
| Investment in subsidiaries, at equity in the underlying net assets | 10,353,351 | 9,660,713 | ||||
| Accrued investment income | - | - | ||||
| Receivable from subsidiaries | 9,936 | 18,424 | ||||
| Other assets | 50,061 | 64,692 | ||||
| TOTAL ASSETS | $ | 10,628,213 | $ | 10,027,478 | ||
| LIABILITIES: | ||||||
| Long term notes payable, affiliated | $ | 500,000 | $ | 300,000 | ||
| Due to subsidiaries | 1,622 | 1,933 | ||||
| Other liabilities | (12,589) | (631) | ||||
| Total liabilities | 489,033 | 301,302 | ||||
| SHAREHOLDERS' EQUITY: | ||||||
| Preferred shares, par value: $0.01; 50,000 shares authorized; | ||||||
| no shares issued and outstanding | - | - | ||||
| Common shares, par value: $0.01; 200,000 shares authorized | ||||||
| (2021) 69,790and (2020) 69,620 issued outstanding before treasury shares | 698 | 696 | ||||
| Additional paid-in capital | 2,274,431 | 2,245,301 | ||||
| Accumulated other comprehensive income (loss), net of deferred income | ||||||
| tax expense (benefit) of $26,781 at 2021 and $80,451 at 2020 | 11,523 | 534,899 | ||||
| Treasury shares, at cost; 30,524 shares (2021) and 29,636 shares (2020) | (3,847,308) | (3,622,172) | ||||
| Retained earnings | 11,699,836 | 10,567,452 | ||||
| Total shareholders' equity | 10,139,180 | 9,726,176 | ||||
| TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $ | 10,628,213 | $ | 10,027,478 | ||
| See notes to consolidated financial statements. | ||||||
S-2
SCHEDULE II — CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT
CONDENSED STATEMENTS OF OPERATIONS
| Years Ended December 31, | ||||||||
|---|---|---|---|---|---|---|---|---|
| 2021 | 2020 | 2019 | ||||||
| (Dollars in thousands) | ||||||||
| REVENUES: | ||||||||
| Net investment income | $ | 228 | $ | 1,121 | $ | 3,484 | ||
| Net realized capital gains (losses) | - | 28 | (66) | |||||
| Other income (expense) | (185) | 5,833 | 458 | |||||
| Net income (loss) of subsidiaries | 1,416,451 | 535,866 | 1,026,233 | |||||
| Total revenues | 1,416,494 | 542,848 | 1,030,109 | |||||
| EXPENSES: | ||||||||
| Interest expense - affiliated | 5,952 | 5,155 | 2,087 | |||||
| Other expenses | 31,459 | 23,542 | 18,561 | |||||
| Total expenses | 37,411 | 28,697 | 20,648 | |||||
| INCOME (LOSS) BEFORE TAXES | 1,379,083 | 514,151 | 1,009,461 | |||||
| NET INCOME (LOSS) | $ | 1,379,083 | $ | 514,151 | $ | 1,009,461 | ||
| Other comprehensive income (loss), net of tax: | ||||||||
| Unrealized appreciation (depreciation) ("URA(D)") on securities arising during the period | (488,378) | 423,210 | 496,430 | |||||
| Reclassification adjustment for realized losses (gains) included in net income (loss) | 3,616 | (3,476) | (12,613) | |||||
| Total URA(D) on securities arising during the period | (484,762) | 419,734 | 483,817 | |||||
| Foreign currency translation adjustments | (62,091) | 86,327 | 14,030 | |||||
| Benefit plan actuarial net gain (loss) for the period | 6,250 | (5,615) | (12,591) | |||||
| Reclassification adjustment for amortization of net (gain) loss included in net income (loss) | 17,227 | 6,300 | 5,453 | |||||
| Total benefit plan net gain (loss) for the period | 23,478 | 685 | (7,138) | |||||
| Total other comprehensive income (loss), net of tax | (523,375) | 506,746 | 490,709 | |||||
| COMPREHENSIVE INCOME (LOSS) | $ | 855,708 | $ | 1,020,897 | $ | 1,500,170 | ||
| See notes to consolidated financial statements. |
S-3
SCHEDULE II — CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT
CONDENSED STATEMENTS OF CASH FLOWS
| Years Ended December 31, | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| (Dollars in thousands) | 2021 | 2020 | 2019 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||
| Net income (loss) | $ | 1,379,083 | $ | 514,151 | $ | 1,009,461 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||
| Equity in retained (earnings) deficit of subsidiaries | (1,416,451) | (535,866) | (1,026,233) | |||||||
| Dividends received from subsidiaries | 320,000 | 650,000 | 600,000 | |||||||
| Change in other assets and liabilities, net | 2,676 | (21,145) | 564 | |||||||
| Increase (decrease) in due to/from affiliates | 8,176 | (8,621) | (2,209) | |||||||
| Amortization of bond premium (accrual of bond discount) | - | (14) | (9) | |||||||
| Realized capital losses (gains) | - | (28) | 66 | |||||||
| Non-cash compensation expense | 2,481 | 2,588 | 2,796 | |||||||
| Net cash provided by (used in) operating activities | 295,965 | 601,065 | 584,436 | |||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||
| Additional investment in subsidiaries | (119,598) | (138,320) | (478,125) | |||||||
| Proceeds from fixed maturities matured/called - available for sale, at market value | 3 | 1,356 | 63 | |||||||
| Proceeds from fixed maturities sold - available for sale, at market value | - | 200,264 | 74,841 | |||||||
| Distribution from other invested assets | 606,648 | 559,767 | 644,918 | |||||||
| Cost of fixed maturities acquired - available for sale, at market value | - | - | (200,267) | |||||||
| Cost of other invested assets acquired | (535,499) | (800,828) | (686,528) | |||||||
| Net change in short-term investments | - | - | - | |||||||
| Net cash provided by (used in) investing activities | (48,446) | (177,761) | (645,098) | |||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||
| Common shares issued during the period, net | 26,685 | 23,185 | 22,861 | |||||||
| Purchase of treasury shares | (225,136) | (200,020) | (24,604) | |||||||
| Dividends paid to shareholders | (246,699) | (249,056) | (234,322) | |||||||
| Proceeds from issuance (cost of repayment) of long term notes payable - affiliated | 200,000 | - | 300,000 | |||||||
| Net cash provided by (used in) financing activities | (245,150) | (425,891) | 63,935 | |||||||
| EFFECT OF EXCHANGE RATE CHANGES ON CASH | - | - | - | |||||||
| Net increase (decrease) in cash | 2,369 | (2,587) | 3,273 | |||||||
| Cash, beginning of period | 884 | 3,471 | 198 | |||||||
| Cash, end of period | $ | 3,253 | $ | 884 | $ | 3,471 | ||||
| See notes to consolidated financial statements. |
S-4
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 17, 2019. The note will pay interest annually at a rate of 1.69 % and is scheduled to mature in December 2028. At December 31, 2021 and 2020, 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 5, 2021. The note will pay interest annually at a rate of 1.00 % and is scheduled to mature in August 2030. At December 31, 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. 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 $66.3 million and $67.6 million as of December 31, 2021 and 2020, respectively, have been recorded within Other Assets. On the Condensed Statements of Operations, income (expense) of $1.3 million, $6.3 million and $0.8 million for the years ended December 31, 2021, 2020 and 2019, respectively, have been recorded in other income (expense).
S-5
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 thousands) | Costs | Expenses | Reserves | Earned | Income | Expenses | Costs | Expenses | Premium | ||||||||||||||||||
| As of and Year Ended December 31, 2021 | |||||||||||||||||||||||||||
| Reinsurance | $ | 653,929 | $ | 13,894,992 | $ | 2,722,771 | $ | 7,757,483 | $ | 823,163 | $ | 5,556,444 | $ | 1,854,466 | $ | 199,148 | $ | 8,535,618 | |||||||||
| Insurance | 218,360 | 5,114,494 | 1,886,864 | 2,648,957 | 341,729 | 1,834,809 | 354,300 | 383,499 | 2,909,886 | ||||||||||||||||||
| Total | $ | 872,289 | $ | 19,009,486 | $ | 4,609,634 | $ | 10,406,441 | $ | 1,164,892 | $ | 7,391,253 | $ | 2,208,766 | $ | 582,647 | $ | 11,445,505 | |||||||||
| As of and Year Ended December 31, 2020 | |||||||||||||||||||||||||||
| Reinsurance | $ | 447,632 | $ | 12,023,446 | $ | 1,995,218 | $ | 6,466,106 | $ | 458,354 | $ | 4,933,411 | $ | 1,552,371 | $ | 175,734 | $ | 6,767,579 | |||||||||
| Insurance | 174,421 | 4,375,551 | 1,506,141 | 2,215,407 | 184,111 | 1,617,426 | 320,879 | 335,503 | 2,349,404 | ||||||||||||||||||
| Total | $ | 622,053 | $ | 16,398,997 | $ | 3,501,359 | $ | 8,681,513 | $ | 642,465 | $ | 6,550,837 | $ | 1,873,250 | $ | 511,237 | $ | 9,116,983 | |||||||||
| As of and Year Ended December 31, 2019 | |||||||||||||||||||||||||||
| Reinsurance | $ | 420,182 | $ | 10,064,970 | $ | 1,740,357 | $ | 5,491,296 | $ | 458,492 | $ | 3,675,178 | $ | 1,400,247 | $ | 160,834 | $ | 5,732,272 | |||||||||
| Insurance | 161,681 | 3,546,343 | 1,316,378 | 1,912,390 | 188,647 | 1,247,720 | 303,479 | 280,065 | 2,092,152 | ||||||||||||||||||
| Total | $ | 581,863 | $ | 13,611,313 | $ | 3,056,735 | $ | 7,403,686 | $ | 647,139 | $ | 4,922,898 | $ | 1,703,726 | $ | 440,899 | $ | 7,824,424 | |||||||||
| (Some amounts may not reconcile due to rounding.) |
S-6
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 thousands) | Amount | Companies | Companies | Amount | to Net | ||||||||||
| December 31, 2021 | |||||||||||||||
| Total property and liability insurance premiums earned | $ | 3,588,926 | $ | 1,497,557 | $ | 8,315,072 | $ | 10,406,441 | $ | 79.9% | |||||
| December 31, 2020 | |||||||||||||||
| Total property and liability insurance premiums earned | $ | 3,028,095 | $ | 1,401,262 | $ | 7,054,680 | $ | 8,681,513 | $ | 81.3% | |||||
| December 31, 2019 | |||||||||||||||
| Total property and liability insurance premiums earned | $ | 2,556,386 | $ | 1,207,198 | $ | 6,054,498 | $ | 7,403,686 | $ | 81.8% | |||||
S-7
Previous: Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES