filings.toolsItem 1. BUSINESS
101K characters. Original on sec.gov · Markdown
Item 1. BUSINESS
BUSINESS
The Company.
Group, a Bermuda company,
was established in
1999 as a wholly-owned
subsidiary of Holdings.
On February 24,
2000, a corporate restructuring
was completed and Group
became the new parent holding company
of Holdings.
Holdings
continues
to
be the
holding
company
for
the Company’s
U.S.
based
operations.
Holders
of shares
of
common
stock
of
Holdings
automatically
became
holders
of
the
same
number
of
common
shares
of
Group.
Prior to the
restructuring, Group
had no significant
assets or capitalization
and had
not engaged
in any
business
or prior activities other than in connection with the restructuring.
In
connection
with
the
February
24,
2000
restructuring,
Group
established
a
Bermuda-based
reinsurance
subsidiary,
Everest
Reinsurance (Bermuda),
Ltd. (“Bermuda
Re”), which
commenced business
in the
second half
of
Group
also
formed
Everest
Global
Services,
Inc.,
a
Delaware
subsidiary,
to
perform
administrative
functions for Group and its U.S. based
and non-U.S. based subsidiaries.
On
December
30,
2008,
Group
contributed
Holdings
to
its
Irish
holding
company,
Holdings
Ireland.
Holdings
Ireland is
a direct
subsidiary of
Group and
was established
to serve
as a
holding company
for the
U.S. and
Irish
reinsurance
and
insurance
subsidiaries.
Effective
July
1,
2016,
the
Company
established
a
new
Irish
holding
company,
Everest
Dublin
Insurance
Holdings
Limited
(Ireland)
(“Everest
Dublin
Holdings”)
and
contributed
Ireland Re to Everest
Dublin Holdings.
Holdings, a Delaware corporation,
was established in 1993 to serve
as the parent holding company
of Everest Re,
a
Delaware
property
and
casualty
reinsurer
formed
in
Until
October
6,
1995,
Holdings
was
an
indirect
wholly-owned
subsidiary
of
The
Prudential
Insurance
Company
of
America
(“The Prudential”).
On
October
6,
1995, The Prudential sold its entire interest
in Holdings in an initial public offering.
The Company’s
principal business, conducted
through its operating
segments, is the
underwriting of reinsurance
and
insurance
in
the
U.S.,
Bermuda
and
international
markets.
The
Company
had
gross
written
premiums,
in
2022,
of
$14.0
billion
with
approximately
66.8%
representing
reinsurance
and
33.2%
representing
insurance.
Shareholders’
equity
at
December
31,
2022
was
$8.4
billion.
The
Company
underwrites
reinsurance
both
through
brokers
and
directly
with
ceding
companies,
giving
it
the
flexibility
to
pursue
business
based
on
the
ceding
company’s
preferred
reinsurance
purchasing
method.
The
Company
underwrites
insurance
principally
through brokers,
surplus lines brokers
and general agent
relationships.
Group’s
active operating
subsidiaries are
each rated A+ (“Superior”) by
A.M. Best Company (“A.M.
Best”), a leading provider of
insurer ratings that
assigns
financial
strength
ratings
to
insurance
companies
based
on
their
ability
to
meet
their
obligations
to
policyholders.
Following is a summary of the Company’s
principal operating subsidiaries:
●
Bermuda Re,
a Bermuda
insurance company
and a direct
subsidiary of
Group, is
registered in
Bermuda as
a
Class
insurer
and
long-term
insurer
and
is
authorized
to
write
both
reinsurance
and
insurance
property
and
casualty
and
life
and
annuity
business.
Bermuda
Re’s
UK
branch
writes
property
and
casualty
reinsurance to
the United
Kingdom,
China and European
markets.
At December
31, 2022,
Bermuda Re
had
shareholder’s equity of $2.7 billion.
●
Everest International
Reinsurance, Ltd.
(“Everest International”),
a Bermuda insurance company
and a direct
subsidiary
of Group,
is
registered
in
Bermuda
as
a
Class
4 insurer
and
is authorized
to
write
property
and
casualty
business.
All
of
Everest
International’s
business
has
inter-affiliate
reinsurance
assumed
from
Everest Re,
the UK branch
of Bermuda Re,
Ireland Re
and Ireland Insurance
.
At December 31,
2022, Everest
International had shareholder’s
equity of $1.0 billion.
●
Ireland Re,
an Ireland
reinsurance company
and an indirect
subsidiary of Group,
is licensed to
write non-life
reinsurance, both directly and through
brokers, for
the London and European markets.
●
Ireland
Insurance,
an
Ireland
insurance
company
and
an
indirect
subsidiary
of
Group,
is
licensed
to
write
insurance for
the European markets.
In addition, Ireland
Insurance is
considered an approved/eligible
alien
surplus lines insurer in the 50 states
and the District of Columbia.
●
Everest
Compañia
de
Seguros
Generales
Chile
S.A.,
a
Chile
based
insurance
company,
is
licensed
to
write
insurance and reinsurance
within Chile.
●
Everest
Re, a
Delaware reinsurance
company and
a direct
subsidiary of
Holdings, is
a licensed
property and
casualty
insurer
and/or
reinsurer
in
all
states,
the
District
of
Columbia,
Puerto
Rico
and
Guam
and
is
authorized
to
conduct
reinsurance
business
in
Canada,
Singapore
and
Brazil.
Everest
Re
underwrites
property
and
casualty
reinsurance
for
insurance
and
reinsurance
companies
in
the
U.S.
and
international
markets.
At December 31, 2022 Everest
Re had statutory surplus of $5.6 billion.
●
Everest
Insurance
Company
of
Canada
(“Everest
Canada”),
a
Canadian
insurance
company
and
direct
subsidiary of Holdings Ireland, is licensed to write property
and casualty insurance in all Canadian provinces.
●
Everest
National
Insurance
Company
(“Everest
National”),
a
Delaware
insurance
company
and
a
direct
subsidiary of
Everest
Re, is
licensed in
50 states,
the District
of Columbia
and Puerto
Rico and
is authorized
to write property and
casualty insurance on
an admitted basis in
the jurisdictions in which it is
licensed.
The
majority of Everest National’s
business is reinsured by its parent,
Everest Re.
●
Everest
Indemnity
Insurance
Company
(“Everest
Indemnity”), a
Delaware
insurance
company
and
a
direct
subsidiary
of Everest
Re,
writes
excess
and
surplus
lines
insurance
business
in
the
U.S.
on
a
non-admitted
basis.
Excess
and
surplus
lines
insurance
is
specialty
property
and
liability
coverage
that
an
insurer
not
licensed to
write insurance
in a
particular jurisdiction
is permitted
to provide
to insureds
when the
specific
specialty coverage
is unavailable
from admitted insurers.
Everest Indemnity
is a Delaware
Domestic Surplus
Lines
Insurer
and
is
eligible
to
write
business
on
a
non-admitted
basis
in
all
other
states,
the
District
of
Columbia and
Puerto Rico.
The majority
of Everest
Indemnity’s
business is
reinsured
by its
parent,
Everest
Re.
●
Everest
Security
Insurance
Company
(“Everest
Security”),
a
Georgia
insurance
company
and
a
direct
subsidiary
of
Everest
Re,
writes
property
and
casualty
insurance
on
an
admitted
basis
in
Georgia
and
Alabama and is
approved as
an eligible surplus
lines insurer in
Delaware.
The majority
of Everest
Security’s
business is reinsured by its parent,
Everest Re.
●
Everest
International
Assurance, Ltd.
(“Everest
Assurance”), a
Bermuda company
and a
direct subsidiary
of
Holdings is
registered
in Bermuda
as a
Class 3A
general business
insurer and
as a
Class C long-term
insurer.
Everest
Assurance has
made a one-time
election under
section 953(d)
of the
U.S. Internal
Revenue Code
to
be a U.S. income
tax paying
“Controlled Foreign
Corporation.”
By making this
election, Everest
Assurance is
authorized to write life rein
surance and casualty reinsurance
in both Bermuda and the U.S.
●
Everest
Premier
Insurance
Company
(“Everest
Premier”),
a
Delaware
insurance
company
and
a
direct
subsidiary of Everest
Re, is
licensed to write
property and
casualty insurance
in all 50
states and
the District
of Columbia.
●
Everest Denali Insurance
Company (“Everest
Denali”), a Delaware insurance company
and a direct subsidiary
of
Everest
Re,
is
licensed
to
write
property
and
casualty
insurance
in
all
states
and
the
District
of
Columbia.
Reinsurance Industry Overview.
Reinsurance
is
an
arrangement
in
which
an
insurance
company,
the
reinsurer,
agrees
to
indemnify
another
insurance
or
reinsurance
company,
the
ceding
company,
against
all
or
a
portion
of
the
insurance
risks
underwritten by
the ceding company
under one or
more insurance
contracts.
Reinsurance can
provide a
ceding
company
with
several
benefits,
including
a
reduction
in
its
net
liability
on
individual
risks
or
classes
of
risks,
catastrophe
protection from
large and/or
multiple losses
and/or a
reduction in
operating
leverage
as measured
by
the
ratio
of
net
premiums
and
reserves
to
capital.
Reinsurance
also
provides
a
ceding
company
with
additional
underwriting capacity
by
permitting
it to
accept larger
risks
and write
more business
than
would be
acceptable
relative
to
the
ceding
company’s
financial
resources.
Reinsurance
does
not
discharge
the
ceding
company from its liability to policyholders;
rather,
it reimburses the ceding company
for covered losses.
There are two basic
types of reinsurance
arrangements:
treaty and facultative.
Treaty
reinsurance obligates
the
ceding company to
cede and the reinsurer
to assume a specified
portion of a type or
category of risks
insured by
the
ceding
company.
Treaty
reinsurers
do
not separately
evaluate
each
of the
individual
risks
assumed
under
their
treaties,
instead,
the
reinsurer
relies
upon
the
pricing
and
underwriting
decisions
made
by
the
ceding
company.
In facultative
reinsurance, the
ceding company
cedes and the
reinsurer assumes
all or part of
the risk
under
a single
insurance
contract.
Facultative
reinsurance
is
negotiated
separately
for
each insurance
contract
that
is
reinsured.
Facultative
reinsurance,
when
purchased
by
ceding
companies,
usually
is
intended
to
cover
individual risks not
covered by their
reinsurance treaties
because of the dollar
limits involved or
because the risk
is unusual.
Both treaty and facultative
reinsurance can be written
on either a pro rata basis
or an excess of loss basis.
Under
pro
rata
reinsurance,
the
ceding
company
and
the
reinsurer
share
the
premiums
as
well
as
the
losses
and
expenses
in
an
agreed
proportion.
Under
excess
of
loss
reinsurance,
the
reinsurer
indemnifies
the
ceding
company against
all or
a specified
portion of
losses and
expenses in
excess of
a specified
dollar amount,
known
as the ceding company's
retention or reinsurer's
attachment point,
generally subject to a
negotiated reinsurance
contract limit.
In
pro
rata
reinsurance,
the
reinsurer
generally
pays
the
ceding
company
a
ceding
commission.
The
ceding
commission
generally
is
based
on
the
ceding
company’s
cost
of
acquiring
the
business
being
reinsured
(commissions,
premium
taxes,
assessments
and
miscellaneous
administrative
expense
and
may
contain
profit
sharing provisions, whereby
the ceding commission is adjusted
based on loss experience).
Premiums paid by the
ceding company
to a
reinsurer for
excess of
loss reinsurance
are not
directly proportional
to the
premiums that
the ceding
company
receives
because
the reinsurer
does not
assume a
proportionate
risk.
There is
usually
no
ceding commission on excess of loss
reinsurance.
Reinsurers
may purchase
reinsurance
to cover
their own
risk exposure.
Reinsurance
of a
reinsurer's
business is
called
a
retrocession.
Reinsurance
companies
cede risks
under
retrocessional
agreements
to
other reinsurers,
known as
retrocessionaires,
for reasons
similar to
those that
cause insurers
to purchase
reinsurance:
to reduce
net
liability
on
individual
or
classes
of
risks,
protect
against
catastrophic
losses,
stabilize
financial
ratios
and
obtain additional underwriting capacity.
Reinsurance
can be
written
through intermediaries,
generally
professional
reinsurance
brokers,
or directly
with
ceding companies.
From a
ceding company's
perspective,
the broker
and the
direct distribution
channels have
advantages
and disadvantages.
A ceding
company's
decision to
select one
distribution
channel over
the other
will be
influenced by
its perception
of such
advantages
and disadvantages
relative
to the
reinsurance
coverage
being placed.
Business Strategy.
The Company’s
business strategy
is to
sustain
its leadership
position within
targeted
reinsurance
and insurance
markets,
provide
effective
management
throughout
the
property
and
casualty
underwriting
cycle
and
thereby
achieve an attractive
return for
its shareholders.
The Company’s
underwriting strategies
seek to capitalize
on its
i)
financial
strength
and
capacity,
ii)
global
franchise,
iii)
stable
and
experienced
management
team,
iv)
diversified
product
and
distribution
offerings,
v)
underwriting
expertise
and
disciplined
approach,
vi)
efficient
and low-cost operating
structure and vii) effective
enterprise risk management practices.
The
Company
offers
treaty
and
facultative
reinsurance
and
admitted
and
non-admitted
insurance.
The
Company’s
products
include
the
full
range
of
property
and
casualty
reinsurance
and
insurance
coverages,
including marine, aviation,
surety,
errors and omissions
liability (“E&O”), directors’
and officers’ liability (“D&O”),
medical
malpractice,
mortgage
reinsurance,
other
specialty
lines,
accident
and
health
(“A&H”)
and
workers’
compensation.
The
Company’s
underwriting
strategies
emphasizes
underwriting
profitability
over
premium
volume.
Key
elements of this
strategy
include careful
risk selection,
appropriate pricing
through strict
underwriting discipline
and
adjustment
of
the
Company’s
business
mix
in
response
to
changing
market
conditions.
The
Company
focuses
on
reinsuring
companies
that
effectively
manage
the
underwriting
cycle
through
proper
analysis
and
appropriate pricing
of underlying risks
and whose underwriting
guidelines and performance
are compatible
with
its objectives.
The Company’s
underwriting strategies
emphasize flexibility
and responsiveness
to changing
market conditions.
The
Company
believes
that
its
existing
strengths,
including
its
broad
underwriting
expertise,
global
presence,
strong financial ratings and
substantial capital, facilitate
adjustments to its mix of business geographically,
by line
of
business
and
by
type
of
coverage,
allowing
it
to
fully
participate
in
market
opportunities
that
provide
the
greatest
potential
for
underwriting
profitability.
The
Company’s
insurance
operations
complement
these
strategies by
accessing business that
is not available
on a reinsurance
basis.
The Company carefully
monitors its
mix of business across all operations
to avoid unacceptable geographic
or other risk concentrations.
Marketing.
The Company
writes business
on a
worldwide basis
for many
different
customers
and lines
of business,
thereby
obtaining
a
broad
spread
of
risk.
The
Company
is
not
substantially
dependent
on
any
single
customer,
small
group of customers,
line of business
or geographic area.
For the 2022
calendar year,
no single customer
(ceding
company
or
insured)
generated
more
than
3.7%
of
the
Company’s
gross
written
premiums.
The
Company
believes
that
a
reduction
of
business
from
any
one
customer
would
not
have
a
material
adverse
effect
on
its
future financial condition or results of operations.
Approximately
60.2%,
33.2%
and
6.6%
of
the
Company’s
2022
gross
written
premiums
were
written
in
the
broker reinsurance,
insurance and direct reinsurance
markets, respectively.
The broker
reinsurance
market
consists
of several
substantial
national
and international
brokers
and a
number
of
smaller
specialized
brokers.
Brokers
do
not
have
the
authority
to
bind
the
Company
with
respect
to
reinsurance
agreements,
nor
does
the
Company
commit
in
advance
to
accept
any
portion
of
a
broker’s
submitted
business.
Reinsurance
business
from
any
ceding
company,
whether
new
or
renewal
is
subject
to
acceptance
by
the
Company.
Brokerage
fees
are
generally
paid
by
reinsurers.
The
Company’s
ten
largest
brokers
accounted
for
an
aggregate
of
approximately
52.7%
of
gross
written
premiums
in
The
largest
broker,
Marsh
and
McLennan,
accounted
for
approximately
20.0%
of
gross
written
premiums.
The
second
largest broker,
Aon, accounted
for approximately
16.6% of gross
written premiums.
The Company
believes that
a reduction of business assumed from any one
broker would not have
a material adverse effect
on the Company.
The
direct
reinsurance
market
is
an
important
distribution
channel
for
reinsurance
business
written
by
the
Company.
Direct
placement
of
reinsurance
enables
the
Company
to
access
clients
who
prefer
to
place
their
reinsurance directly
with reinsurers
based upon the
reinsurer’s in-depth
understanding of
the ceding company’s
needs.
The
Company’s
insurance
business
mainly
writes
commercial
property
and
casualty
on
an
admitted
and
non-
admitted basis.
The business
is written
through wholesale
and retail
brokers,
surplus lines
brokers
and through
program
administrators.
In
2022,
two
program
administrators
accounted
for
approximately
12%
of
the
Company’s
gross
written
premium
in
total
and
included
multiple
independent
programs
for
each
program
administrator with the largest
representing 2% of the overall
gross written premium.
The
Company
continually
evaluates
each
business
relationship,
including
the
underwriting
expertise
and
experience
brought
to
bear
through
the
involved
distribution
channel,
performs
analyses
to
evaluate
financial
security, monitors
performance and adjusts underwriting decisions accordingly.
Segment Results.
The
Company
manages
its
reinsurance
and
insurance
operations
as
autonomous
units
and
key
strategic
decisions are based on the aggregate operating
results and projections for
these segments of business.
The Reinsurance
operation
writes worldwide
property
and casualty
reinsurance
and specialty
lines of
business,
on both
a treaty
and facultative
basis,
through
reinsurance
brokers,
as well
as directly
with ceding
companies.
Business is
written in
the U.S.,
Bermuda, and
Ireland offices,
as well as,
through branches
in Canada,
Singapore,
the United
Kingdom
and Switzerland.
The Insurance
operation
writes property
and casualty
insurance
directly
and
through
brokers,
surplus
lines
brokers
and
general
agents
within
the
U.S.,
Bermuda,
Canada,
Europe,
Singapore
and South
America through
its offices
in the
U.S.,
Canada, Chile,
Singapore,
United Kingdom,
Ireland
and branches in the Netherlands,
France, Germany and Spain.
These segments are
managed independently,
but conform
with corporate
guidelines with respect
to pricing, risk
management,
control
of
aggregate
catastrophe
exposures,
capital,
investments
and
support
operations.
Management
generally
monitors
and
evaluates
the
financial
performance
of
these
operating
segments
based
upon their underwriting results.
Underwriting
results
include
earned
premium
less
losses
and
loss
adjustment
expenses
(“LAE”)
incurred,
commission
and
brokerage
expenses
and
other
underwriting
expenses.
We
measure
our
underwriting
results
using
ratios,
in
particular
loss,
commission
and
brokerage
and
other
underwriting
expense
ratios,
which,
respectively,
divide incurred
losses, commissions
and brokerage
and other
underwriting expenses
by premiums
earned.
For
selected
financial
information
regarding
these
segments,
see
ITEM
8,
“Financial
Statements
and
Supplementary
Data”
-
Note
of
Notes
to
Consolidated
Financial
Statements
and
ITEM
7,
“Management’s
Discussion and Analysis of Financial Condition and Results
of Operation - Segment Results”.
Underwriting Operations.
The following five year
table presents the distribution
of the Company’s
gross written premiums
by its segments:
Reinsurance
and
Insurance.
The
premiums
for
each
segment
are
further
split
between
property
and
casualty
business and, for reinsurance business,
between pro rata or excess
of loss business:
Gross Written Premiums by Segment
Years Ended December 31,
(Dollars in millions)
2022
2021
2020
2019
2018
Reinsurance
Property Pro Rata (1)
$
2,606
28.0%
$
2,843
31.4%
$
2,397
32.9%
$
1,974
31.1%
$
2,147
34.5%
Property Non-Catastrophe XOL
6.2%
6.9%
7.0%
7.0%
6.4%
Property Catastrophe XOL
1,422
15.3%
1,468
16.2%
1,277
17.5%
1,187
18.6%
1,313
21.1%
Casualty Pro Rata
2,654
28.5%
2,251
24.8%
1,527
21.0%
1,443
22.7%
1,172
18.8%
Casualty XOL
1,321
14.2%
1,267
14.0%
13.0%
11.5%
9.2%
Financial Lines
7.9%
6.8%
8.6%
9.1%
10.0%
Reinsurance Total (2)
$
9,316
100.0%
$
9,067
100.0%
$
7,282
100.0%
$
6,356
100.0%
$
6,225
100.0%
Insurance (3)
Accident and Health
$
10.8%
$
10.5%
$
11.6%
$
12.1%
$
12.7%
Specialty Casualty
1,622
35.0%
1,360
34.0%
1,005
31.4%
28.4%
25.9%
Other Specialty
7.0%
5.9%
5.3%
4.8%
4.2%
Professional Liability
17.7%
19.7%
16.9%
15.0%
13.8%
Property/Short Tail
18.4%
18.0%
18.9%
19.1%
19.9%
Workers' Compensation
11.1%
11.9%
15.9%
20.5%
23.6%
Insurance Total (2)
4,636
100.0%
3,982
100.0%
3,201
100.0%
2,778
100.0%
2,251
100.0%
Total Company (2)
$
13,952
100.0%
$
13,050
100.0%
$
10,482
100.0%
$
9,133
100.0%
$
8,475
100.0%
(1)
For purposes of the presentation above, pro rata includes all insurance and reinsurance
attaching to the first dollar of loss incurred by the ceding company.
(2)
Certain totals and subtotals may not reconcile due to rounding.
(3)
Certain reclassifications have been made to prior years’ amounts to conform to the 2022 presentation
(Some amounts may not reconcile due to rounding.)
Reinsurance
Segment.
In
2022,
the
Company’s
Reinsurance
segment
wrote
$9.3
billion
of
gross
written
premiums.
Reinsurance
business
written
directly
through
the
Company’s
offices
represented
$8.4
billion
or
90.2% of the segment’s premium and
$914 million or 9.8% was written directly with
ceding companies.
Property
Pro
Rata
business,
which
accounted
for
28.0%
of
reinsurance
gross
written
premiums,
contains
predominantly
contracts
providing
coverage
to
cedents
for
property
damage
and
related
losses,
which
may
include business
interruption
and other
non-property
losses, resulting
from natural
or man-made
perils arising
from their underlying portfolio of policies at an
agreed upon percentage for both
premium and loss.
Property
Non-Catastrophe
Excess
of
Loss
(“XOL”)
business,
which
accounted
for
6.2%
of
reinsurance
gross
written
premiums,
contains
predominantly
contracts
providing
coverage
to
cedents
for
a
portion
of
property
damage
and
related
losses,
which
may
include
business
interruption
and
other
non-property
losses,
resulting
from natural or man-made perils in excess
of an agreed upon deductible up to a stated
limit.
Property Catastrophe
XOL business, which
accounted for
15.3% of reinsurance
gross written
premiums, contains
predominantly
contracts
providing
coverage
to
cedents
for
a
portion
of
property
damage
and
related
losses,
which
may
include
business
interruption
and
other
non-property
losses,
resulting
from
catastrophic
losses,
in
excess of an agreed upon deductible
up to a stated limit.
The main perils covered include hurricane,
earthquake,
flood, convective storm and
fire.
Casualty
Pro
Rata
business,
which
accounted
for
28.5%
of
reinsurance
gross
written
premiums,
contains
predominantly
contracts
providing
coverage
to
cedents
for
losses
arising
from,
but
not
limited
to,
general
liability,
professional
indemnity,
product
liability,
workers'
compensation,
employers
liability,
aviation
and auto
liability from their underlying portfolio of policies
at an agreed upon percentage
for both premium and loss.
Casualty
XOL
business,
which
accounted
for
14.2%
of
reinsurance
gross
written
premiums,
contains
predominantly
contracts
providing
coverage
to
cedents
for
losses
arising
from,
but
not
limited
to,
general
liability,
professional
indemnity,
product
liability,
workers'
compensation,
aviation
and auto
liability
from
their
underlying portfolio of policies in excess
of an agreed upon deductible up to a stated
limit.
Financial
Lines
business,
which
accounted
for
7.9%
of
reinsurance
gross
written
premiums,
contains
predominantly
contracts
providing
coverage
to
cedents
for
losses
arising
from
political
risk,
credit,
surety,
mortgage and alternative risk lines of business
on both a pro rata and excess
of loss basis.
Insurance Segment.
In 2022, the Company’s Insurance
segment wrote $4.6 billion of gross written
premiums.
Accident
and
Health
business,
which
accounted
for
10.8%
of
Insurance
gross
written
premiums,
contains
Predominantly
includes
policies
covering
Participant
Accident,
Short-Term
Medical,
and
Medical
Stop-Loss
protection for employers
with Self-funded medical plans.
Specialty
Casualty
business,
which
accounted
for
35.0%
of
Insurance
gross
written
premiums,
predominantly
includes
policies
covering
General
Liability
(Premises/Operations
and
Products),
Auto
Liability,
and
Umbrella/Excess Liability.
Other
Specialty
business,
which
accounted
for
7.0%
of
Insurance
gross
written
premiums,
predominantly
includes
policies
covering
specialty
areas
including
but
not
limited
to
Surety,
Trade
Credit
&
Political
Risk,
Transactional
Liability, Energy
& Construction, and Aviation.
Professional
Liability business,
which accounted
for 17.7%
of Insurance
gross written
premiums,
predominantly
includes
policies
covering
Directors
&
Officers
Liability,
Errors
&
Omissions,
Cyber
Liability,
and
other
ancillary
financial lines products.
Property/Short-Tail
business,
which
accounted
for
18.4%
of
Insurance
gross
written
premiums,
predominantly
includes policies covering Property,
Inland Marine, and other short-tail lines.
Workers’
Compensation
business,
which
accounted
for
11.1%
of
Insurance
gross
written
premiums,
predominantly
includes
policies
covering
Workers
Compensation
including
both
guaranteed
cost
and
loss
sensitive product offerings.
Geographic Areas.
The Company
conducts its
business in
Bermuda, the
U.S. and
a number
of foreign
countries.
For
select financial
information
about
geographic
areas,
see ITEM
8, “Financial
Statements
and Supplementary
Data” -
Note 17 of Notes
to the Consolidated
Financial Statements.
Risks attendant
to the foreign
operations of
the
Company
parallel
those
attendant
to
the
U.S.
operations
of
the
Company,
with
the
primary
exception
of
foreign
exchange
risks.
For
more
information
about
the
risks,
see
ITEM
7,
“Management’s
Discussion
and
Analysis of Financial Condition and Results of Operations
– Safe Harbor Disclosure”.
Underwriting.
One of the
Company’s strategies
is to "lead"
as many
of the reinsurance
treaties it
underwrites as possible.
The
lead
reinsurer
on
a
treaty
generally
accepts
one
of
the
largest
percentage
shares
of
the
treaty
and
is
in
the
strongest
position to
negotiate price,
terms and
conditions.
The Company
leads on approximately
two-thirds of
its
treaty
reinsurance
business
as
measured
by
premium.
Management
believes
this
strategy
enables
it
to
obtain
more favorable
terms and
conditions on
the treaties
on which
it participates.
When the
Company does
not
lead
the
treaty,
it
may
still
suggest
changes
to
any
aspect
of
the
treaty.
The
Company
may
decline
to
participate on a treaty based upon
its assessment of all relevant factors.
The
Company’s
treaty
underwriting
process
involves
a
team
approach
among
the
Company’s
underwriters,
actuaries,
modelling
and
claim
staff.
Treaties
are
reviewed
for
compliance
with
the
Company’s
general
underwriting
standards
and
most
larger
treaties
are
subjected
to
detailed
actuarial
analysis.
The
actuarial
models
used
in
such
analyses
are
tailored
in
each
case
to
the
subject
exposures
and
loss
experience.
The
Company
does
not
separately
evaluate
each
of
the
individual
risks
assumed
under
its
treaties.
The
Company
does,
however,
evaluate
the
underwriting
guidelines,
data
and
other
information
of
its
ceding
companies
to
determine
their
adequacy
prior
to
entering
into
a
treaty.
The
Company
may
also
conduct
underwriting,
operational
and
claim
audits
at
the
offices
of
ceding
companies
to
monitor
adherence
to
underwriting
guidelines.
Underwriting audits focus
on the quality of
the underwriting staff,
pricing and risk
selection and rate
monitoring over
time.
Claim audits
may be
performed in
order to
evaluate
the client’s
claims handling
abilities
and practices.
The Company’s
facultative underwriters
operate within guidelines
specifying acceptable types
of risks, limits and
maximum
risk
exposures.
Specified
classes
of
large
premium
U.S.
risks
are
referred
to
Everest
Re’s
New
York
facultative
headquarters
for
specific
review
before
premium
quotations
are
given
to
clients.
In
addition,
the
Company’s guidelines
require certain
types of risks
to be submitted
for review
because of their
aggregate limits,
complexity
or
volatility,
regardless
of
premium
amount
on
the
underlying
contract.
Non-U.S.
risks
exhibiting
similar characteristics are reviewed
by senior managers within the involved
operations.
In
addition
to
its
own
underwriting
staff,
the
Company’s
insurance
operations
write
property
and
casualty
coverages for
homogeneous risks
through select program
managers.
These programs
are evaluated
based upon
actuarial
analysis
and
the
program
manager’s
capabilities.
The
Company’s
rates,
forms
and
underwriting
guidelines
are
tailored
to
specific
risk
types.
The
Company’s
underwriting,
actuarial,
claim
and
financial
functions
work
closely
with
its
program
managers
to
establish
appropriate
underwriting
and
processing
guidelines as well as appropriate performance
monitoring mechanisms.
Risk Management of Underwriting and Reinsurance
Arrangements
Underwriting Risk
and Accumulation
Controls.
Each segment
and business
unit manages
its underwriting
risk in
accordance with
established guidelines.
These guidelines
place dollar
limits on
the amount
of business
that can
be
written
based
on
a
variety
of
factors,
including
(re)insured
company
profile,
line
of
business,
geographic
location
and risk
hazards.
In each
case,
the guidelines
permit limited
exceptions,
which
must
be authorized
by
the Company’s
senior management.
Management regularly
reviews and
revises these
guidelines in
response to
changes
in
business
unit
product
offerings,
market
conditions,
risk
versus
reward
analyses
and
the
Company’s
enterprise and underwriting risk management processes.
The operating results and financial condition
of the Company can be adversely
affected by catastrophe
and other
large losses. The Company manages its
exposure to catastrophes
and other large losses by:
●
selective underwriting practices;
●
diversifying its risk portfolio by geographic
area and by types and classes of business;
●
limiting its aggregate catastrophe
loss exposure in any particular geographic
zone and contiguous zones;
●
purchasing
reinsurance
and/or
retrocessional
protection
to
the
extent
that
such
coverage
can
be
secured
cost-effectively.
See “Reinsurance and Retrocession
Arrangements”.
Like other
insurance
and reinsurance
companies, the
Company is
exposed to
multiple insured
losses arising
out
of a single occurrence, whether a natural
event, such as a hurricane or an earthquake,
or other catastrophe, such
as
an
explosion
at
a
major
factory.
A
large
catastrophic
event
can
be
expected
to
generate
insured
losses
to
multiple
reinsurance
treaties,
facultative
certificates
and
direct
insurance
policies
across
various
lines
of
business.
The Company focuses
on potential losses
that could result
from any single
event or series
of events as
part of its
evaluation and
monitoring of its aggregate
exposures to
catastrophic events.
Accordingly,
the Company employs
various techniques to
estimate the amount of
loss it could sustain
from any single catastrophic
event or series of
events
in
various
geographic
areas.
These
techniques
range
from
deterministic
approaches,
such
as
tracking
aggregate
limits
exposed
in
catastrophe-prone
zones
and
applying
reasonable
damage
factors,
to
modeled
approaches
that
attempt
to
scientifically
measure
catastrophe
loss
exposure
using
sophisticated
Monte
Carlo
simulation techniques that forecast
frequency and severity of potential losses
on a probabilistic basis.
No single computer
model, or
group of
models, is currently
capable of
projecting the
amount and
probability of
loss in
all global
geographic regions
in which
the Company
conducts business.
In addition,
the form,
quality and
granularity
of
underwriting
exposure
data
furnished
by
(re)insureds
is
not
uniformly
compatible
with
the
data
requirements
for
the
Company’s
licensed
models,
which adds
to
the inherent
imprecision
in the
potential
loss
projections.
Further,
the
results
from
multiple
models
and
analytical
methods
must
be
combined
to
estimate
potential losses
by and across
business units.
Also, while most
models have been
updated to incorporate
claims
information
from
recent
catastrophic
events,
catastrophe
model
projections
are
still
inherently
imprecise.
In
addition, uncertainties
with respect
to future
climatic patterns
and cycles
could add
further uncertainty
to loss
projections from models based on historical
data.
Nevertheless,
when combined
with traditional
risk management
techniques
and sound
underwriting judgment,
catastrophe
models
are
a
useful
tool
for
underwriters
to
price
catastrophe
exposed
risks
and
for
providing
management with
quantitative
analyses with
which to monitor
and manage
catastrophic
risk exposures
by zone
and across zones for individual and
multiple events.
Projected
catastrophe
losses
are
generally
summarized
in
terms
of
the
probable
maximum
loss
(“PML”).
The
Company
defines
PML
as its
anticipated
loss,
taking
into
account
contract
terms
and limits,
caused
by
a single
catastrophe
affecting
a
broad
contiguous
geographic
area,
such
as
that
caused
by
a
hurricane
or
earthquake.
The
PML
will
vary
depending
upon
the
modeled
simulated
losses
and
the
make-up
of
the
in
force
book
of
business.
The projected severity levels are
described in terms of “return periods”,
such as “100-year events” and
“250-year
events”.
For
example,
a 100-year
PML is
the estimated
loss
to
the current
in-force
portfolio
from
a
single
event
which
has
a
1%
probability
of
being
exceeded
in
a
twelve
month
period.
In
other
words,
it
corresponds
to
a
99%
probability
that
the
loss
from
a
single
event
will
fall
below
the
indicated
PML.
It
is
important
to note
that PMLs
are estimates.
Modeled events
are hypothetical
events
produced
by a
stochastic
model.
As a
result,
there
can
be no
assurance
that
any
actual event
will align
with the
modeled event
or that
actual losses from events similar to the
modeled events will not vary materially
from the modeled event PML.
From
an
enterprise
risk
management
perspective,
management
sets
limits
on
the
levels
of
catastrophe
loss
exposure
the
Company
may
underwrite.
The
limits
are
revised
periodically
based
on
a
variety
of
factors,
including but
not limited
to the
Company’s
financial resources
and expected
earnings and
risk/reward
analyses
of the business being underwritten.
The
Company
may
purchase
reinsurance
to
cover
specific
business
written
or
the
potential
accumulation
or
aggregation
of exposures
across some
or all
of its
operations.
Reinsurance
purchasing
decisions consider
both
the
potential
coverage
and
market
conditions
including
the
pricing,
terms,
conditions,
availability
and
collectability
of
coverage,
with
the
aim
of
securing
cost
effective
protection
from
financially
secure
counterparties. The
amount of reinsurance
purchased has
varied over
time, reflecting
the Company’s
view of its
exposures and the cost of reinsurance.
Management
estimates
that
the
projected
net
economic
loss
from
its
largest
100-year
event
in
a
given
zone
represents
approximately
6.9%
of
its
December
31,
2022
shareholders’
equity.
Economic
loss
is
the
PML
exposure,
net
of
third
party
reinsurance
including
catastrophe
industry
loss
warranty
cover,
reduced
by
estimated reinstatement
premiums to renew coverage
and estimated income
taxes.
The impact of income taxes
on the PML depends
on the distribution
of the losses
by corporate
entity,
which is also
affected by
inter-affiliate
reinsurance.
Management
also
monitors
and
controls
its
largest
PMLs
at
multiple
points
along
the
loss
distribution
curve,
such
as
loss
amounts
at
the
20,
50,
100,
and
year
return
periods.
This
process
enables
management
to
identify
and
control
exposure
accumulations
and
to
integrate
such
exposures
into
enterprise risk, underwriting and capital management
decisions.
The Company’s
catastrophe
loss
projections,
segmented
by
risk
zones,
are
updated
quarterly
and
reviewed
as
part of a formal
risk management review
process.
The table below reflects
the Company’s
PML exposure, net
of
third
party reinsurance
including catas
trophe
industry
loss warranty
cover,
at various
return
periods for
its top
four
zones/perils
(as
ranked
by
the
largest
in
year
economic
loss)
based
on
loss
projection
data
as
of
January 1, 2023:
Return Periods (in years)
1 in 20
1 in 50
1 in 100
1 in 250
1 in 500
Exceeding Probability
5.0%
2.0%
1.0%
0.4%
0.2%
(Dollars in millions)
Zone/ Peril
California, Earthquake
$
$
$
$
1,326
$
1,762
Southeast U.S., Wind
1,094
1,224
Europe, Wind
Texas Wind
1,096
The
projected
net
economic
losses,
defined
as
PML
exposures,
net
of
third
party
reinsurance
including
catastrophe
industry loss warranty
cover,
reinstatement
premiums and estimated
income taxes,
for the top
four
zones/perils scheduled above are as follows
:
Return Periods (in years)
1 in 20
1 in 50
1 in 100
1 in 250
1 in 500
Exceeding Probability
5.0%
2.0%
1.0%
0.4%
0.2%
(Dollars in millions)
Zone/ Peril
California, Earthquake
$
$
$
$
$
1,242
Southeast U.S., Wind
Europe, Wind
Texas
Wind
The Company believes
that its methods
of monitoring, analyzing
and managing catastrophe
exposures provide
a
credible risk management framework,
which is integrated
with its enterprise risk management,
underwriting and
capital
management
plans.
However,
there
is
much
uncertainty
and
imprecision
inherent
in
the
catastrophe
models and
the catastrophe
loss estimation
process
generally.
As a
result,
there can
be no
assurance
that the
Company
will
not
experience
losses
from
individual
events
that
exceed
the
PML
or
other
return
period
projections,
perhaps
by a
material amount.
Nor can
there
be assurance
that the
Company
will not
experience
events impacting
multiple zones,
or multiple
severe
events that
could, in
the aggregate,
exceed
the Company’s
PML expectations by a significant
amount.
Terrorism
Risk.
While
the
Company
writes some
reinsurance
contracts
covering
terrorism,
the Company’s
risk
management
philosophy
is
to
limit
the
amount
of
exposure
by
geographic
region,
and
to
strictly
manage
coverage for
properties in
areas that
may be considered
a target
for terrorists.
Providing terrorism
coverage on
reinsurance
contracts
is negotiable,
and many,
but not
all, treaties
contain
exclusions
which limit
much of
this
risk.
While many
property insurance
policies are required
to offer
coverage
for terrorism,
this coverage
is often
not
purchased.
However,
terrorism
is
typically
covered
by
worker
compensation
policies.
As
a
result,
the
Company
is
exposed
to
losses
from
terrorism
on
both
its
reinsurance
and
its
insurance
book
of
business,
particularly
its workers’
compensation
and property
policies.
However,
the
insurance
book
generally
does
not
insure large corporations
or corporate locations that
represent large concentrations
of risk.
The
U.S.
Terrorism
Risk
Insurance
Program
Reauthorization
Act
of
2019
provides
some
protection
to
the
insurance
book of
business.
It also
provides
indirect protection
to exposed
reinsurance
treaties.
However,
the
Company
is
still
exposed
to
risk
of
loss
from
terrorism
due
to
deductibles,
co-pays
and
uncovered
lines
of
business.
Reinsurance and Retrocession
Arrangements.
The Company may purchase reinsurance
to cover specific business
written
or
the
potential
accumulation
or
aggregation
of
exposures
across
some
or
all
of
its
operations.
Reinsurance
purchasing
decisions
consider
both
the
potential
coverage
and
market
conditions
including
the
pricing,
terms,
conditions
and
availability
of
coverage,
with
the
aim
of securing
cost
effective
protection.
The
amount of
reinsurance
purchased
has varied
over time,
reflecting the
Company’s
view of
its exposures
and the
cost
of reinsurance.
In recent
years,
the Company
has increased
its use
of reinsurance
offered
through
capital
market facilities.
The
Company
participates
in
“common
account”
retrocessional
arrangements
for
certain
reinsurance
treaties
whereby a
ceding company
purchases reinsurance
for the
benefit of
itself and
its reinsurers
under one
or more
of
its
reinsurance
treaties.
Common
account
retrocessional
arrangements
reduce
the
effect
of
individual
or
aggregate
losses
to
all
participating
companies,
including
the
ceding
company,
with
respect
to
the
involved
treaties.
All
of
the
Company’s
reinsurance
and
retrocessional
agreements
transfer
significant
reinsurance
risk
and
therefore,
are
accounted
for
as
reinsurance
in
accordance
with
the
Financial
Accounting
Standards
Board
(“FASB”) guidance.
At December
31, 2022,
the Company
had $2.2
billion in
reinsurance recoverables
with respect
to both
paid and
unpaid losses
ceded.
Of this
amount $520
million, or
23.2%, was
recoverable
from Mt.
Logan Re
collateralized
segregated
accounts;
$283 million,
or 12.6%,
was recoverable
from Munich
Reinsurance
America, Inc.
(“Munich
Re”)
and
$148
million,
or
6.6%,
was
recoverable
from
Endurance
Reinsurance
Corporation
of
America
(“Endurance
Re”).
No
other
retrocessionaire
accounted
for
more
than
5%
of
our
recoverables.
Although
management carefully
selects its
reinsurers, the
Company is
subject to credit
risk with respect
to its reinsurance
because
the
ceding
of
risk
to
reinsurers
does
not
relieve
the
Company
of
its
liability
to
insureds
or
ceding
companies.
See
ITEM
7,
“Management’s
Discussion
and
Analysis
of
Financial
Condition
and
Results
of
Operations – Financial Condition”.
Claims.
Insurance
claims
are
managed
by
the
Company’s
professional
Claims
staff
many
of
whom
have
insurance
and
legal
professional
qualifications.
Their
responsibilities
include
reviewing
initial
loss
reports,
analyzing
coverage
issues,
evaluating
and
reserving
claims,
and
paying
settlements.
When
appropriate
the
Claims
staff
engage
external
professional
advisors
such
as
Counsel,
Loss
Adjusters
and
Engineers
to
support
the
effective
management
of
claims.
Claims
are
allocated
to
staff
according
to
their
expertise
and
experience
and
most
specialize
in
particular
product
segments
and
geographies.
Some
insurance
claims
are
handled
by
third
party
claims service
providers
who have
limited authority
and are
subject to
oversight
by the
Company’s
professional
Claims
staff.
The
Claims
staff
work
closely
with
senior
management,
as
well
as
underwriting,
finance
and
actuarial.
Reinsurance
claims
are
managed
by
the
Company’s
professional
claims
staff
whose
responsibilities
include
reviewing
initial
loss
reports
and
coverage
issues,
monitoring
claims
handling
activities
of
ceding
companies,
establishing
and
adjusting
proper
case
reserves
and
approving
payment
of
claims.
In
addition
to
claims
assessment,
processing
and payment,
the claims
staff
selectively
conducts
comprehensive
claim audits
of both
specific claims and
overall claim
procedures at
the offices of
selected ceding companies.
Some insurance
claims
are
handled
by
third
party
claims service
providers
who have
limited authority
and are
subject
to
oversight
by
the Company’s professional
claims staff.
The
Company
intensively
manages
its
asbestos
and
environmental
(“A&E”)
exposures
through
a
dedicated,
centrally
managed
claim staff
with
experienced
claim
and legal
professionals
who
specialize
in
the
handling
of
such
exposures.
They
actively
manage
each
individual
insured
and
reinsured
account,
responding
to
claim
developments with evaluations
of the involved exposures
and adjustment of reserves
as appropriate.
Specific or
general
claim developments
that may
have
material implications
for the
Company
are regularly
communicated
to
senior
management,
actuarial,
legal
and
financial
areas.
Senior
management
and
claim
management
personnel
meet
at
least
quarterly
to
review
the
Company’s
overall
reserve
positions
and
make
changes,
if
appropriate.
The Company continually
reviews its internal
processing, communications
and analytics, seeking to
enhance
the
management
of
its
A&E
exposures,
in
particular
in
regard
to
changes
in
asbestos
claims
and
litigation.
Reserves for Unpaid Property and Casualty Losses and
LAE.
Significant periods of time may elapse
between the occurrence of an insured
loss, the reporting of the loss to the
insurer and the reinsurer and
the payment of that loss by the insurer
and subsequent payments to
the insurer by
the reinsurer.
To
recognize liabilities
for unpaid losses and
LAE, insurers and
reinsurers establish
reserves, which
are
balance sheet
liabilities representing
estimates
of future
amounts
needed to
pay
reported
and unreported
claims
and
related
expenses
for
losses
that
have
already
occurred.
Actual
losses
and
LAE
paid
may
deviate,
perhaps substantially,
from such
reserves.
To
the extent
reserves prove
to be
insufficient to
cover actual
losses
and
LAE
after
taking
into
account
available
reinsurance
coverage,
the
Company
would
have
to
recognize
such
reserve
shortfalls
and incur
a charge
to
earnings,
which could
be material
in the
period such
recognition
takes
place.
See ITEM
7, “Management’s
Discussion and
Analysis of
Financial Condition
and Results
of Operations
—
Loss and LAE Reserves”.
As part of the reserving
process, insurers
and reinsurers
evaluate historical
data and trends
and make judgments
as
to
the
impact
of
various
factors
such
as
legislative
and
judicial
developments
that
may
affect
future
claim
amounts, changes
in social
and political
attitudes that
may increase
loss exposures
and inflationary
and general
economic
trends.
While
the
reserving
process
is
difficult
and
subjective
for
insurance
companies,
the
inherent
uncertainties
of
estimating
such
reserves
are
even
greater
for
the
reinsurer,
due
primarily
to
the
longer
time
between the
date
of an
occurrence and
the reporting
of any
attendant
claims to
the reinsurer,
the diversity
of
development
patterns
among
different
types
of
reinsurance
treaties
or
facultative
contracts,
the
necessary
reliance
on
the
ceding
companies
for
information
regarding
reported
claims
and
differing
reserving
practices
among ceding
companies.
In addition,
trends
that have
affected
development
of liabilities
in the
past
may
not
necessarily occur
or affect
liability development
in the
same manner
or to
the same
degree in
the future.
As a
result,
actual
losses
and
LAE
may
deviate,
perhaps
substantially,
from
estimates
of
reserves
reflected
in
the
Company's consolidated financial statem
ents.
The
Company’s
loss
and
LAE
reserves
represent
management’s
best
estimate
of
the
ultimate
liability.
Management’s
best estimate
is developed
through
collaboration
with actuarial,
underwriting, claims,
legal
and
finance
departments
and
culminates
with
the
input
of
reserve
committees.
Each
segment
reserve
committee
includes the participation of the relevant parties
from actuarial, finance, claims and segment senior management
and has
the responsibility
for recommending
and approving
management’s
best estimate.
Reserves are
further
reviewed
by
Everest’s
Chief
Reserving
Actuary
and
senior
management.
The
objective
of
such
process
is
to
determine
a
single
best
estimate
viewed
by
management
to
be
the
best
estimate
of
its
ultimate
loss
liability.
While there
can
be no
assurance
that
these reserves
will not
need to
be increased
in the
future,
management
believes that
the Company’s
existing reserves
and reserving
methodologies reduce
the likelihood
that any
such
increases
would
have
a
material
adverse
effect
on
the
Company’s
financial
condition,
results
of
operations
or
cash flows.
These statements
regarding the
Company’s
loss reserves
are forward
looking statements
within the
meaning
of
the
U.S.
federal
securities
laws
and
are
intended
to
be
covered
by
the
safe
harbor
provisions
contained
therein.
See
ITEM
7,
“Management’s
Discussion
and
Analysis
of
Financial
Condition
and
Results
of
Operations – Safe Harbor Disclosure”.
Like many other
property and casualty
insurance and reinsurance
companies, the Company
has experienced loss
development
for
prior
accident
years,
which
has
impacted
losses
and
LAE
reserves
and
caused
corresponding
effects
to
income
(loss)
in
the
periods
in
which
the
adjustments
were
made.
There
can
be
no
assurance
that
adverse
development
from
prior
years
will
not
occur
in
the
future
or
that
such
adverse
development
will
not
have a material adverse
effect on net income (loss).
Since the Company
has operations
in many countries,
part of the Company’s
loss and LAE reserves
are in foreign
currencies
and
translated
to
U.S.
dollars
for
each
reporting
period.
Fluctuations
in
the
exchange
rates
for
the
currencies,
period
over
period,
affect
the
U.S.
dollar
amount
of
outstanding
reserves.
The
translation
adjustment eliminates
the impact of the
exchange fluctuations
from the reserve
re-estimates.
For reconciliation
of beginning and ending reserves, see Note 3 of Notes
to Consolidated Financial Statements.
Reserves for Asbestos and Environmental
Loss and LAE.
At December 31,
2022, the Company’s
gross reserves
for A&E claims
represented 1.3%
of its total
reserves.
The
Company’s
A&E
liabilities
stem
from
Mt.
McKinley
Insurance
Company’s
(“Mt.
McKinley”)
direct
insurance
business
and Everest
Re’s
assumed reinsurance
business.
Mt. McKinley
was a
former
wholly-owned subsidiary
that was sold in
2015 to Clearwater Insurance
Company (Clearwater”), a subsidiary
of Fairfax Financial.
Liabilities
related to
Mt. McKinley’s
direct business,
which had been
ceded to
Bermuda Re
previously,
were retroceded
to
an affiliate of Clearwater in July
2015, concurrent with the sale of Mt. McKinley to Clearwater.
Concurrently
with
the
closing,
the
Company
entered
into
a
retrocession
treaty
with
an
affiliate
of
Clearwater.
Per the retrocession
treaty,
the Company retroceded
100% of the liabilities
associated with certain
Mt. McKinley
policies,
which
had
been
reinsured
by
Bermuda
Re.
As
consideration
for
entering
into
the
retrocession
treaty,
Bermuda Re
transferred
cash of
$140.3 million,
an amount
equal to
the net
loss reserves
as of
the closing
date.
Of
the
$140.3
million
of
net
loss
reserves
retroceded,
$100.5
million
were
related
to
A&E
business.
The
maximum
liability
retroceded
under
the
retrocession
treaty
will
be
$440.3
million,
equal
to
the
retrocession
payment plus
$300.0 million.
The Company will
retain liability
for any
amounts exceeding
the maximum liability
retroceded under the retrocession
treaty.
On December 20, 2019, the retrocession
treaty was amended and
included a partial commutation.
As a result of
this amendment
and partial
commutation, gross
A&E reserves
and correspondingly
reinsurance receivable
were
reduced
by
$43.4
million.
In
addition,
the
maximum
liability
permitted
to
be
retroceded
increased
to
$450.3
million.
Additional losses,
including those relating
to latent
injuries and
other exposures,
which are as
yet unrecognized,
the type
or magnitude
of which
cannot be
foreseen by
either the
Company or
the industry,
may emerge
in the
future. Such
future emergence
could have
material adverse
effects on
the Company’s
future financial condition,
results of operations and cash flows.
There are
significant uncertainties
in estimating
the amount
of the
Company’s
potential losses
from A&E
claims
and
ultimate
values
cannot
be
estimated
using
traditional
reserving
techniques.
See
ITEM
7,
“Management’s
Discussion
and
Analysis
of
Financial
Condition
and
Results
of
Operations
–
Asbestos
and
Environmental
Exposures”
and
ITEM
8,
“Financial
Statements
and
Supplementary
Data”
–
Note
of
Notes
to
Consolidated
Financial Statements.
Future Policy Benefit Reserves.
The Company
wrote a
limited amount
of life
and annuity
reinsurance in
its Reinsurance
segment.
Future policy
benefit
liabilities
for
annuities
are
reported
at
the
accumulated
fund
balance
of these
contracts.
Reserves
for
those
liabilities
include
mortality
provisions
with
respect
to
life
and
annuity
claims,
both
reported
and
unreported. Actual
experience in a
particular period may
be worse than
assumed
experience and, consequently,
may
adversely
affect
the
Company’s
operating
results
for
that
period.
See
ITEM
8,
“Financial
Statements
and
Supplementary Data” - Note 1F and
Note 3 of Notes to Consolidated Financial Statements.
Investments.
The board of directors
of each of the Company’s
operating subsidiaries is
responsible for establishing
investment
policy and guidelines and, together with senior management,
for overseeing their execution.
The
Company’s
principal
investment
objectives
are
to
ensure
funds
are
available
to
meet
its
insurance
and
reinsurance obligations
and to maximize after-tax
investment income
while maintaining a high
quality diversified
investment
portfolio.
Considering
these objectives,
the
Company
views
its investment
portfolio
as having
two
components: 1)
the investments
needed to
satisfy outstanding
liabilities (its
core fixed
maturities portfolio)
and
- investments funded by the Company’s
shareholders’ equity.
For the portion
needed to satisfy
global outstanding
liabilities, the Company
generally invests
in fixed maturities
with a high level of average
credit quality.
This global fixed maturity securities portfolio
is largely managed on an
external
basis
by
independent,
professional
investment
managers
using
portfolio
guidelines
approved
by
the
Company.
Over
the
past
several
years,
the
Company
has
expanded
the
allocation
of
its
investments
funded
by
shareholders’ equity
to include:
- publicly traded
equity securities, 2) emerging
market fixed
maturities, as well
as individual holdings,
- high yield
fixed maturities,
- bank and
private loan
securities, 5) private
equity limited
partnership
investments
and 6)
Company
owned life
insurance.
The objective
of this
portfolio diversification
is
to
enhance
the
risk-adjusted
total
return
of
the
investment
portfolio
by
allocating
a
prudent
portion
of
the
portfolio to higher return asset
classes.
The Company limits its allocation to these
asset classes because of 1) the
potential
for
volatility
in
their
values
and
the
impact
of
these
investments
on
regulatory
and
rating
agency
capital adequacy
models.
The Company uses
investment managers
experienced in these
markets and
adjusts its
allocation to these investments
based upon market conditions.
The duration
of an
investment
is based
on the
maturity of
the security
but also
reflects the
payment of
interest
and the
possibility of
early prepayments.
The Company’s
fixed income
investment
guidelines include
a general
duration
guideline.
This investment
duration
guideline is
established
and periodically
revised
by management,
which
considers
economic
and
business
factors,
as
well
as
the
Company’s
average
duration
of
potential
liabilities, which, at December 31, 2022, is estimated
at approximately 3.8 years,
based on the estimated payouts
of
underwriting
liabilities
using
standard
duration
calculations.
The
average
duration
of
the
fixed
income
portfolio at December 31, 2022
and 2021 was 3.1 years and 3.2 years,
respectively.
For each
currency in
which the
Company has
established
substantial
loss and
LAE reserves,
the Company
seeks
to maintain
invested
assets
denominated in
such currency
in an
amount approximately
equal to
the estimated
liabilities.
Approximately
42.7%
of
the
Company’s
consolidated
reserves
for
losses
and
LAE
and
unearned
premiums represent amounts
payable in foreign currencies.
The Company’s
cash and
invested
assets
totaled
$29.9 billion
at December
31, 2022,
which consisted
of 85.4%
fixed maturities,
short term investments
and cash, of which
93.2% were investment
grade; 13.7% other
invested
assets and
0.9% equity
securities.
The average
maturity of
fixed maturity
securities was
4.6 years
at December
31, 2022, and their overall average
duration was 3.1 years.
As of
December 31,
2022, the
Company did
not have
any direct
investments
in commercial
real estate
or direct
commercial
mortgages
or
securities
of
issuers
that
are
experiencing
cash
flow
difficulty
to
an
extent
that
the
Company’s
management
believes
could
threaten
the
issuer’s
ability
to
meet
debt
service
payments,
except
where an allowance for credit
losses has been recognized.
The Company’s
investment
portfolio includes
structured commercial
mortgage-backed
securities (“CMBS”)
with
a book
value of
$1.0 billion
and a
fair val
ue of
$925.8 million.
CMBS securities
comprising more
than 86.6%
of
the
December
31,
2022
fair
value
are
rated
AAA
by
S&P
Global
Ratings
(“S&P”).
Furthermore,
all
held
CMBS
securities are rated investment
grade by S&P.
The following table reflects investment
results for the Company for
the periods indicated:
December 31,
Pre-tax
Pre-tax
Pre-tax
Pre-tax
Realized Net
Unrealized Net
Average
Investment
Effective
Gains (Losses)
Gains (Losses)
(Dollars in millions)
Investments
(1)
Income
(2)
Yield
On Investments
(3)
On Investments
2022
$
29,788
$
2.79%
$
(455)
$
(2,225)
2021
27,606
1,165
4.22%
(542)
2020
23,253
2.76%
2019
19,632
3.30%
2018
18,426
3.15%
(127)
(251)
(1)
Average of
the beginning and
ending carrying values
of investments
and cash,
less net funds
held, future policy
benefit reserve,
and non-interest
bearing
cash.
Fixed
maturities,
available
for
sale
and
equity
securities
are
carried
at
fair
value.
Fixed
maturities,
held
to
maturity
securities
are
carried
at
amortized cost net of the expected
credit loss allowance.
(2)
After investment expenses,
excluding realized net gains
(losses) on investments.
(3)
Included in
2022, 2021,
2020, 2019
and 2018
are fair
value re-measurements
of $460
million, $236
million, $280
million,
$167 million
and ($67)
million,
respectively. In addition,
2022 & 2021 includes ($33 million) and ($28 million) of
expected credit losses.
(Some amounts may not reconcile due
to rounding.)
The following
table
represents
the credit
quality distribution
of the
Company’s
fixed
maturities
for
the periods
indicated:
At December 31,
2022
2021
(Dollars in millions)
Fair Value/
Percent of
Fair Value/
Percent of
Rating Agency Credit Quality Distribution:
Amortized Cost
(1)
Total
Amortized Cost
(1)
Total
AAA
$
8,432
36.6%
$
7,111
31.8%
AA
2,886
12.5%
2,591
11.6%
A
6,268
27.2%
5,833
26.1%
BBB
3,768
16.3%
4,763
21.4%
BB
1,227
5.3%
1,204
5.4%
B
0.7%
1.5%
Rated below B
0.2%
0.3%
Other
1.2%
1.9%
Total
$
23,075
100.0%
$
22,308
100.0%
(Some amounts may not reconcile due
to rounding.)
(1)
Fixed maturities-available for
sale are at fair value and fixed
maturities-held to maturity are at amortized
cost, net of allowances for
credit losses
The following table summarizes fixed
maturities by contractual maturity
for the periods indicated:
At December 31,
2022
2021
Fair Value/
Percent of
Fair Value/
Percent of
(Dollars in millions)
Amortized Cost
(1)
Total
Amortized Cost
(1)
Total
Fixed maturity securities
Due in one year or less
$
1,319
5.7%
$
1,398
6.2%
Due after one year through five years
7,607
33.0%
7,155
32.1%
Due after five years through ten years
4,098
17.8%
5,101
22.9%
Due after ten years
1,299
5.6%
1,627
7.3%
Asset-backed securities
4,705
20.4%
3,582
16.1%
Mortgage-backed securities
4,029
17.5%
3,446
15.4%
Total fixed
maturity securities
$
23,057
100.0%
$
22,308
100.0%
(Some amounts may not reconcile due
to rounding.)
(1) The amortized cost and fair value
of fixed maturity securities are shown
by contractual maturity.
Mortgage-backed securities
are generally more likely to
be
prepaid than other fixed maturity securities.
As the stated maturity of such securities
may not be indicative of actual maturities,
the totals for mortgage-backed
and asset-backed securities are shown
separately.
Financial Strength Ratings.
The
following
table
shows
the
current
financial
strength
ratings
of
the
Company’s
operating
subsidiaries
as
reported
by
A.M.
Best,
S&P
Global
Ratings
(“S&P”)
and
Moody’s.
These
ratings
represent
an
independent
opinion
of
the
financial
strength,
operating
performance,
business
profile
and
ability
to
meet
policyholder
obligations.
The ratings
are not
intended to
be an
indication of
the degree
or lack
of risk
involved
in a
direct or
indirect
equity
investment
or
a
recommendation
to
buy,
sell
or
hold
our
securities.
Additionally,
rating
organizations
may
change
their
rating
methodology,
which
could
have
a
material
impact
on
our
financial
strength ratings.
All
of
the
below-mentioned
ratings
are
continually
monitored
and
revised,
if
necessary,
by
each
of
the
rating
agencies.
The ratings presented in
the following table were in
effect as of January 31, 2023.
The Company
believes that
its ratings
are important
as they
provide the
Company’s
customers
and others
with
an
independent
assessment
of
the
Company’s
financial
strength
using
a
rating
scale
that
provides
for
relative
comparisons.
Strong financial
ratings are
particularly important
for reinsurance
and insurance
companies given
that customers
rely on a company
to pay covered
losses well into the future.
As a result, a highly rated
company
is generally preferred.
Operating Subsidiary:
A.M. Best
S&P
Moody's
Everest Reinsurance Company
A+ (Superior)
A+ (Strong)
A1 (upper-medium)
Everest Reinsurance (Bermuda) Ltd.
A+ (Superior)
A+ (Strong)
A1 (upper-medium)
Everest Reinsurance Company (Ireland) dac
A+ (Superior)
A+ (Strong)
Not Rated
Everest National Insurance Company
A+ (Superior)
A+ (Strong)
Not Rated
Everest Indemnity Insurance Company
A+ (Superior)
A+ (Strong)
Not Rated
Everest Security Insurance Company
A+ (Superior)
A+ (Strong)
Not Rated
Everest International Assurance, Ltd.
A+ (Superior)
A+ (Strong)
Not Rated
Everest Compañia de Seguros Generales Chile S.A.
A+ (Superior)
Not Rated
Not Rated
Everest Insurance Company of Canada
A+ (Superior)
A+ (Strong)
Not Rated
Everest International Reinsurance,
Ltd.
A+ (Superior)
A+ (Strong)
Not Rated
Everest Denali Insurance Company
A+ (Superior)
A+ (Strong)
Not Rated
Everest Premier Insurance Company
A+ (Superior)
A+ (Strong)
Not Rated
Everest Insurance (Ireland), dac
A+ (Superior)
A+ (Strong)
Not Rated
A.M. Best
states
that
the
“A+”
(“Superior”) rating
is
assigned to
those
companies
which, in
its opinion,
have
a
superior
ability
to
meet
their
ongoing
insurance
policy
and
contract
obligations
based
on
A.M.
Best’s
comprehensive
quantitative
and
qualitative
evaluation
of
a
company’s
balance
sheet
strength,
operating
performance
and
business
profile.
A.M.
Best
affirmed
these
ratings
on
June
15,
S&P
states
that
the
“A+”/”A”
ratings
are assigned
to those
insurance companies
which, in
its opinion,
have strong
financial security
characteristics
with respect
to their
ability to
pay under
its insurance
policies and
contracts
in accordance
with
their
terms.
S&P
affirmed
all
ratings
on
May
27,
Moody’s
states
that
an
“A1”
rating
is
assigned
to
companies that, in
their opinion, offer
upper-medium grade
security and are
subject to low
credit risk.
Moody’s
affirmed these ratings on June 17, 2022.
Subsidiaries
other
than
Everest
Reinsurance
Co.
and
Everest
Reinsurance
(Bermuda)
Ltd.
may
not
be
rated
by
some
or
any
rating
agencies
given
that
such
ratings
are
not
considered
essential
by
the
individual
subsidiary’s
customers
because
of
the
limited
nature
of
the
subsidiary’s
operations
or
because
the
subsidiaries
are
newly
established and have not yet
been rated by the agencies.
Debt Ratings.
The
following
table
shows
the
debt
ratings
by
A.M.
Best,
S&P
and
Moody’s
of
the
Holdings’
senior
notes
due
June 1,
2044, senior
notes due
October
15, 2050,
senior notes
due October
15, 2052
and long-term
notes
due
May
1,
2067
all
of
which
are
considered
investment
grade.
Debt
ratings
are
the
rating
agencies’
current
assessment of the credit worthiness of an
obligor with respect to a specific obligation.
Instrument
A.M. Best
S&P
Moody's
Senior Notes due June 1, 2044
a-
(Strong)
A-
(Strong)
Baa1
(Medium Grade)
Senior Notes due October 15, 2050
a-
(Strong)
A-
(Strong)
Baa1
(Medium Grade)
Senior Notes due October 15, 2052
NR
A-
(Strong)
Baa1
(Medium Grade)
Long-Term Notes due May
1, 2067
bbb
(Adequate)
BBB
(Adequate)
Baa2
(Medium Grade)
Competition.
The worldwide
reinsurance
and insurance
businesses
are highly
competitive,
as well
as cyclical
by
product
and
market.
As
such,
financial
results
tend
to
fluctuate
with
periods
of
constrained
availability,
higher
rates
and
stronger
profits
followed
by
periods
of
abundant
capacity,
lower
rates
and
constrained
profitability.
Competition
in
the
types
of reinsurance
and
insurance
business
that
we
underwrite
is
based
on
many
factors,
including the perceived overall
financial strength of
the reinsurer or insurer,
ratings of the reinsurer
or insurer by
A.M. Best
and/or
Standard
& Poor’s,
underwriting expertise,
the jurisdictions
where the
reinsurer
or insurer
is
licensed
or
otherwise
authorized,
capacity
and
coverages
offered,
premiums
charged,
other
terms
and
conditions
of
the
reinsurance
and
insurance
business
offered,
services
offered,
speed
of
claims
payment
and
reputation
and
experience
in
lines
written.
Furthermore,
the
market
impact
from
these
competitive
factors
related
to
reinsurance
and
insurance
is
generally
not
consistent
across
lines
of
business,
domestic
and
international geographical
areas and distribution channels.
We
compete
in
the
U.S.,
Bermuda
and
international
reinsurance
and
insurance
markets
with
numerous
global
competitors.
Our
competitors
include
independent
reinsurance
and
insurance
companies,
subsidiaries
or
affiliates
of
established
worldwide
insurance
companies,
reinsurance
departments
of
certain
insurance
companies, domestic
and international
underwriting operations,
including underwriting
syndicates
at Lloyd’s
of
London
and
certain
government
sponsored
risk
transfer
vehicles.
Some
of
these
competitors
have
greater
financial resources
than we do
and have
established long
term and continuing
business relationships,
which can
be
a
significant
competitive
advantage.
In
addition,
the
lack
of
strong
barriers
to
entry
into
the
reinsurance
business
and
the
securitization
of
reinsurance
and
insurance
risks
through
capital
markets
provide
additional
sources of potential reinsurance
and insurance capacity and competition.
Worldwide insurance
and reinsurance
market conditions
historically have
been competitive.
Generally,
there is
ample
insurance
and
reinsurance
capacity
relative
to
demand,
as
well
as
additional
capital
from
the
capital
markets
through
insurance
linked
financial
instruments.
These
financial
instruments
such
as
side
cars,
catastrophe
bonds and
collateralized
reinsurance
funds, provided
capital
markets
with access
to insurance
and
reinsurance
risk exposure.
The capital
markets
demand
for
these products
is primarily
driven
by
the desire
to
achieve
greater
risk
diversification
and
potentially
higher
returns
on
their
investments.
This
competition
generally has a negative impact
on rates, terms and conditions;
however,
the impact varies widely by market
and
coverage.
Based on recent competitive
behaviors in the
insurance and reinsurance
industry, natural
catastrophe
events
and
the
macroeconomic
backdrop,
there
has
been
some
dislocation
in
the
market
which
we
expect
to
have a positive impact on rates
and terms and conditions, generally,
though local market specificities can
vary.
The
increased
frequency
of
catastrophe
losses
experienced
throughout
2022
appears
to
be
pressuring
the
increase
of
rates.
As
business
activity
continues
to
regain
strength
after
the
pandemic
and
current
macroeconomic uncertainty,
rates appear to be firming in
most lines of business, particularly in the casualty
lines
that had
seen significant
losses such
as excess
casualty and
directors’
and officers’
liability.
Other casualty
lines
are
experiencing
modest
rate
increase,
while
some
lines
such
as
workers’
compensation
were
experiencing
softer
market
conditions.
It
is
too
early
to
tell
what
the
impact
on
pricing
conditions
will
be,
but
it
is
likely
to
change depending on the line of business and geography.
Our capital position remains
a source of strength,
with high quality invested
assets, significant liquidity
and a low
operating
expense
ratio.
Our
diversified
global
platform
with
its
broad
mix
of
products,
distribution
and
geography is resilient.
The war in the
Ukraine is ongoing
and an evolving
event.
Economic and legal
sanctions have been
levied against
Russia,
specific
named
individuals
and
entities
connected
to
the
Russian
government,
as
well
as
businesses
located
in
the
Russian
Federation
and/or
owned
by
Russian
nationals
by
numerous
countries,
including
the
United States.
The significant
political and
economic uncertainty
surrounding the
war and
associated sanctions
have
impacted
economic and
investment
markets
both within
Russia and
around
the world.
The Company
has
recorded $45 million of losses related
to the Ukraine/Russia war during 2022.
Human Capital Management.
Our employees are essential to
the success of our business, and so we strive
to attract and retain
a high standard
of insurance
professionals
to meet
our business
needs as
well as
the needs
of our
clients and
customers.
As of
February
1,
2023,
the
Company
employed
2,428
persons.
Management
believes
that
employee
relations
are
good.
None of
the Company’s
employees
are
subject
to
collective
bargaining
agreements,
and the
Company
is
not aware of any current
efforts to implement such agreements.
Everest
is
committed
to
providing
our
employees
with
an
engaging
and
supportive
environment
so
that
employees
can
develop
personally
and
help
us
achieve
success
as
an
organization.
We
consider
the
ability
to
attract,
develop and
retain
a high
caliber of
insurance
professionals
to be
critical to
our success.
Opportunities
for continued
learning and
talent development
are provided
to all
employee levels.
Employees are
encouraged
to
take
ownership
of
their
development
by
using
the
tools
that
the
Company
has
made
available
to
them
-
including
industry
training,
mentorships
and
personal
development
classes.
Everest
actively
manages
its
succession
planning
throughout
our
organization
and
strives
to
provide
job
growth
and
advancement
opportunities to internal talent, where
possible.
Diversity and Inclusion.
Our strength
and success derive
from our diversity,
and we are
at our best
when we embrace
diverse views
and
perspectives.
Equality
in
opportunity,
career
development,
compensation
and
respect
for
all
individuals
are
fundamental human
rights that
are at
the forefront
of our
culture and
promoted not
only within
our workplace
but also the global
communities in which
we operate.
Our Board is
committed to
diversity within
its structure as
well as
emphasizing its
importance in
our senior
executive
leadership. We
believe that
diversity
in gender,
age,
ethnicity
and
skill
set
allows
for
dynamic
and
evolving
perspectives
in
governance,
strategy,
corporate
responsibility,
human rights and risk management.
Proactive
diversity
recruitment
is
an
integral
aspect
of
succession
planning
at
both
the
board
level
and
throughout
all
levels
in
the
organization.
Our
Talent
Development
team
works
with
senior
management
to
identify
women
and
persons
of color
across
the
Company
as
potential
leaders.
These
individuals
are
provided
management
and
executive
leadership
training
and
education
to
enhance
their
skillsets
and
provide
opportunities for
advancement.
Indeed, our
executive
officers are
measured on
their forward-thinking
diversity
initiatives
as
part
of
their
annual
performance
evaluations.
Such
diversity
at
the
most
senior
levels
of
our
organization
reflects our commitment
to identify and
develop highly qualified
women and individuals
of color to
help lead our Company into the future.
The
work
of
the
DEI
Council
has
helped
enhance
the
employee
experience
for
all
our
colleagues
across
the
organization
worldwide.
The
council
encourages
continuous
and
open
dialogue
between
executive
and
senior
management
and
traditionally
underrepresented
groups
at
all
levels,
without
fear
of
reprisal
or
retaliation,
to
identify areas
of improvement
and carry
out the
message of
inclusion both
inside and
outside our
organization.
The
DEI
council
was
instrumental
in
forming
and
supporting
additional
Employee
Resource
Groups
(“ERGs”),
developing
a
Regional
Representation
network
and
leveraging
specific
Talent
Development
and
Talent
Acquisition initiatives that will positively influence
the composition of our workforce.
Regulatory Matters.
The Company and
its insurance subsidiaries
are subject to
regulation under the
insurance statutes
of the various
jurisdictions in which they
conduct business, including
essentially all states
of the U.S., Canada,
Singapore, Brazil,
the United Kingdom,
Ireland, Chile and
Bermuda.
These regulations vary
from jurisdiction to
jurisdiction and are
generally
designed
to
protect
ceding
insurance
companies
and
policyholders
by
regulating
the
Company’s
conduct
of
business,
financial
integrity
and
ability
to
meet
its
obligations.
Many
of
these
regulations
require
reporting of information designed to
allow insurance regulators
to closely monitor the Company’s
performance.
Insurance
Holding Company
Regulation.
Under applicable
U.S. laws
and regulations,
no person,
corporation
or
other
entity
may
acquire
a
controlling
interest
in
the
Company,
unless
such
person,
corporation
or
entity
has
obtained
the prior
approval
for
such
acquisition
from
the insurance
commissioners
of Delaware
and
the
other
states
in
which
the
Company’s
insurance
subsidiaries
are
domiciled
or
deemed
domiciled,
currently
California
and Georgia.
Under these
laws, “control”
is presumed
when any
person acquires,
directly or
indirectly,
10% or
more
of
the
voting
securities
of
an
insurance
company.
To
obtain
the
approval
of
any
change
in
control,
the
proposed
acquirer
must
file
an
application
with
the
relevant
insurance
commissioner
disclosing,
among
other
things, the background of the acquirer and that
of its directors and officers, the
acquirer’s financial condition
and
its proposed
changes in
the management
and operations
of the
insurance
company.
U.S.
state
regulators
also
require
prior
notice
or
regulatory
approval
of
material
inter-affiliate
transactions
within
the
holding
company
structure.
The Insurance Companies Act
of Canada requires prior
approval by
the Minister of Finance of
anyone acquiring a
significant
interest
in an
insurance
company
authorized
to do
business
in Canada.
In addition,
the Company
is
subject to regulation by the insurance
regulators of other states
and foreign jurisdictions in which it is
authorized
to do
business.
Certain of
these states
and foreign
jurisdictions impose
regulations regulating
the ability
of any
person
to
acquire
control
of
an
insurance
company
authorized
to
do
business
in
that
jurisdiction
without
appropriate regulatory
approval similar to those described above.
Dividends.
Under Bermuda law,
Group is
prohibited from
declaring or paying
a dividend
if such payment
would
reduce the realizable
value of its
assets to an amount
less than the aggregate
value of its liabilities
and its issued
share
capital
and share
premium
(additional
paid-in
capital)
accounts.
Group’s
ability
to
pay
dividends
and its
operating
expenses
is
partially
dependent
upon
dividends
from
its
subsidiaries.
The
payment
of
dividends
by
insurance
subsidiaries
is
limited
under
Bermuda
law
as
well
as
the
laws
of
the
various
U.S.
states
in
which
Group’s
insurance
and
reinsurance
subsidiaries
are
domiciled
or
deemed
domiciled.
The
limitations
are
generally
based
upon
net
income
(loss)
and
compliance
with
applicable
policyholders’
surplus
or
minimum
solvency
and
liquidity
requirements
as
determined
in
accordance
with
the
relevant
statutory
accounting
practices.
Under
Irish
corporate
and
regulatory
law,
Holdings
Ireland,
Everest
Dublin
Holdings
and
their
subsidiaries are limited as to the dividends
they can pay based on retained earnings
and net income (loss) and/or
capital and minimum solvency requirements.
As Holdings has outstanding debt obligations,
it is dependent upon
dividends
and
other
permissible
payments
from
its
operating
subsidiaries
to
enable
it
to
meet
its
debt
and
operating expense obligations
and to pay dividends.
Under
Bermuda
law,
Bermuda
Re,
Everest
International
and
Everest
Assurance
are
unable
to
declare
or
make
payment
of a
dividend if
they
fail to
meet their
minimum solvency
margin or
minimum liquidity
ratio.
As long
term insurers,
Bermuda Re and
Everest Assurance
are also unable
to declare or
pay a dividend
to anyone
who is
not a policyholder unless, after
payment of the dividend,
the value of the assets in
their long term business fund,
as
certified by
their
approved
actuary,
exceeds
their
liabilities
for
long
term
business
by
at
least
the
$250,000
minimum
solvency
margin.
Prior
approval
of
the
Bermuda
Monetary
Authority
is
required
if
Bermuda
Re’s,
Everest
International’s
or
Everest
Assurance’s
dividend
payments
would
exceed
25%
of
their
prior
year
end
statutory
capital and
surplus.
At December
31, 2022,
Bermuda Re,
Everest
International and
Everest
Assurance
exceeded their solvency and liquidity
requirements.
The
payment
of
dividends
to
Holdings
by
Everest
Re
is
subject
to
limitations
imposed
by
Delaware
law.
Generally,
Everest
Re
may
only
pay
dividends
out
of
its
statutory
earned
surplus,
which
was
$5.6
billion
at
December
31, 2022,
and only
after
it
has
given
10 days
prior
notice to
the
Delaware
Insurance
Commissioner.
During this 10-day
period, the
Commissioner may,
by order,
limit or disallow
the payment
of ordinary
dividends
if the
Commissioner finds
the insurer
to be
presently
or potentially
in financial
distress.
Further,
the maximum
amount
of dividends
that
may
be paid
without
the
prior
approval
of the
Delaware
Insurance
Commissioner
in
any
twelve
month
period is
the
greater
of (1)
10% of
the
insurer’s
statutory
surplus
as of
the
end of
the
prior
calendar year
or (2) the
insurer’s statutory
net income (loss),
not including realized
capital gains
(losses), for
the
prior calendar
year.
Accordingly,
the maximum
amount
that
will be
available
for
the payment
of dividends
by
Everest
Re in
2023 without triggering
the requirement
for prior
approval of
regulatory authorities
in connection
with a dividend is $555 million.
Insurance Regulation.
Bermuda Re
and Everest
International are
not admitted
to do
business in any
jurisdiction
in
the
U.S.
These
entities
conduct
their
insurance
business
from
their
offices
in
Bermuda,
and
in
the
case
of
Bermuda Re,
its branch
in the UK.
Everest
Assurance, by
virtue of its
one-time election
under section
953(d) of
the U.S.
Internal Revenue
Code to
be a
U.S. income
tax paying
“Controlled Foreign
Corporation”,
is admitted
to
do
business
in the
U.S.
and
Bermuda.
In
Bermuda,
Bermuda
Re,
Everest
International,
Everest
Assurance
and
Mt. Logan Re are
regulated by the
Insurance Act 1978 (as
amended) and related
regulations (the “Act”).
The Act
establishes solvency
and liquidity
standards
and auditing
and reporting
requirements and
subjects Bermuda
Re,
Everest
International
and
Everest
Assurance
to
the
supervision,
investigation
and
intervention
powers
of
the
Bermuda
Monetary
Authority.
Under
the
Act,
Bermuda
Re
and
Everest
International,
as
Class
insurers,
are
each
required
to
maintain
a
principal
office
in
Bermuda,
to
maintain
a
minimum
of
$100
million
in
statutory
capital
and surplus,
to have
an independent
auditor approved
by the
Bermuda Monetary
Authority conduct
an
annual audit and
report on their
respective statutory
and U.S. GAAP
financial statements
and filings and
to have
an appointed
loss reserve
specialist (also
approved
by the
Bermuda Monetary
Authority) review
and report
on
their
respective
loss
reserves
annually.
Under
the
Act,
Everest
Assurance
is
licensed
as
a
Class
3A
insurer
for
general business and as a Class C insurer for
long-term business.
Bermuda
Re
is
also
registered
under
the
Act
as
long
term
insurer
and
is
thereby
authorized
to
write
life
and
annuity
business.
As
a
long
term
insurer,
Bermuda
Re
is
required
to
maintain
$250,000
in
statutory
capital
separate
from
their
Class
minimum
statutory
capital
and
surplus,
to
maintain
long
term
business
funds,
to
separately account
for this business
and to have
an approved
actuary prepare a
certificate concerning
their long
term
business
assets
and
liabilities
to
be
filed
annually.
Bermuda
Re’s
operations
in
the
United
Kingdom
and
worldwide
are
subject
to
regulation
by
the
Prudential
Regulation
Authority
(the
“PRA”).
The
PRA
imposes
solvency,
capital adequacy,
audit, financial
reporting and
other regulatory
requirements
on insurers
transacting
business
in the
United Kingdom.
Bermuda Re
presently
meets or
exceeds
all of
the PRA’s
solvency
and capital
requirements.
U.S.
domestic
property
and
casualty
insurers,
including
reinsurers,
are
subject
to
regulation
by
their
state
of
domicile
and
by
those
states
in
which
they
are
licensed.
The
regulation
of
reinsurers
is
typically
focused
on
financial
condition,
investments,
management
and
operation.
The
rates
and
policy
terms
of
reinsurance
agreements are generally not
subject to direct regulation by any
governmental authority.
The operations
of Everest
Re’s
foreign
branch
offices in
Canada
and Singapore
are subject
to regulation
by the
insurance
regulatory
officials
of
those
jurisdictions.
Management
believes
that
the
Company
is
in
compliance
with applicable laws and regulations
pertaining to its business and operations.
Everest
Indemnity,
Everest
National,
Everest
Security,
Everest
Denali
and
Everest
Premier
are
subject
to
regulations
similar to
the U.S.
regulations
applicable
to
Everest
Re.
In addition,
these companies
must
comply
with
substantial
regulatory
requirements
in
each
state
where
they
conduct
business.
These
additional
requirements
include,
but
are
not
limited
to,
rate
and
policy
form
requirements,
requirements
with
regard
to
licensing,
agent
appointments,
participation
in
residual
markets
and
claim
handling
procedures.
These
regulations are primarily designed for the protection
of policyholders.
The operations of Ireland Insurance
and its branch offices in Netherlands,
Germany, France
and Spain are subject
to
regulation
by
the
insurance
regulatory
officials
of
those
jurisdictions.
Management
believes
that
the
Company is in compliance with applicable laws
and regulations pertaining to its business
and operations.
Licenses.
Everest
Re
is
a
licensed
property
and
casualty
insurer
and/or
reinsurer
in
all
states,
the
District
of
Columbia, Puerto Rico and
Guam.
Such licensing enables U.S. domestic
ceding company clients
to take credit
for
uncollateralized reinsurance
receivables from Everest
Re in their statutory
financial statements.
Everest Re
is licensed as a property
and casualty reinsurer
in Canada. It is also
authorized to conduct
reinsurance
business in Singapore
and Brazil.
Everest Re
can also write
reinsurance in other
foreign countries.
Because some
jurisdictions
require
a reinsurer
to register
in order
to be
an acceptable
market
for local
insurers,
Everest
Re is
registered as
a foreign insurer
and/or reinsurer
in the following
countries:
Bolivia, Brazil, Chile,
China, Colombia,
Dominican
Republic,
Ecuador,
El
Salvador,
Guatemala,
Honduras,
India,
Mexico,
Nicaragua,
Panama,
Paraguay,
the Philippines, Singapore and Venezuela.
Everest National
is licensed in 50 states, the District of Columbia and
Puerto Rico.
Everest
Indemnity
is
a
Delaware
Domestic
Surplus
Lines
Insurer
and
is
eligible
to
write
insurance
on
a
surplus
lines basis in the 50 states, the District of Columbia
and Puerto Rico.
Everest
Security
is
licensed
in
Georgia
and
Alabama
and
is
approved
as
an
eligible
surplus
lines
insurer
in
Delaware.
Everest
Denali is
licensed in
50 states
and the
District of
Columbia.
Everest
Premier is
licensed in
50 states
and
the District of Columbia.
Bermuda
Re
and
Everest
International
are
registered
as
Class
insurers
in
Bermuda,
and
Bermuda
Re
is
also
registered as
a long-term insurer
in Bermuda.
Bermuda Re is
also registered
as a certified
reinsurer in New
York
and
Delaware
and
is
registered
as
a
reciprocal
reinsurer
in:
Delaware;
California;
Massachusetts;
Michigan;
Minnesota; New
Hampshire; New
York;
Ohio and
Texas.
Bermuda Re
is also
an authorized
reinsurer in
the U.K.
and is also registered as a reinsurer
in China.
Everest Assurance
is registered as a
Class 3A general business
insurer in Bermuda and a Class
C long-term insurer
in Bermuda.
By virtue
of its
one-time election
under section
953(d) of
the U.S.
Internal
Revenue
Code to
be a
U.S.
income
tax
paying
“Controlled
Foreign
Corporation,”
Everest
Assurance
may
operate
in
both
the U.S.
and
Bermuda. Everest
Assurance
is also
considered
an approved/eligible
alien
surplus
lines insurer
in the
50 states
and the District of Columbia
In addition, Everest
Assurance can also write reinsurance
in other foreign countries.
Because some jurisdictions
require a reinsurer
to register
in order to
be an acceptable
market for
local insurers
,
Everest
Assurance
is
registered
as
a
foreign
insurer
and/or
reinsurance
in
the
following
countries:
Bolivia,
Columbia, Chile, Ecuador,
Guatemala, Mexico and Paraguay.
Ireland Re is licensed to write non-life
reinsurance for the London
and European markets.
Ireland
Insurance
is
licensed
to
write
insurance
for
the
European
markets.
In
addition,
Ireland
Insurance
is
considered an approved/eligible
alien surplus lines insurer in the 50 states
and the District of Columbia
Everest Canada is licensed to
write property and casualty insurance
in Canada.
Everest
Compañia de Seguros
Generales Chile
S.A. is an
insurance corporation
authorized by
the general
laws of
Chile.
Periodic Examinations.
Led by their
state of
domicile, U.S.
insurance companies
are subject
to periodic financial
examination
of
their
affairs,
usually
every
three
to
five
years.
U.S.
insurance
companies
are
also
subject
to
examinations
by the
various
state
insurance
departments
where they
are
licensed concerning
compliance with
applicable conduct
of business
regulations.
In addition,
foreign insurance
companies and
foreign branch
offices
are subject
to examination
and review
by regulators
in their
various
jurisdictions.
None of
the reports
of these
examinations or reviews contained
any material findings or recommendations.
NAIC Risk-Based
Capital Requirements.
The U.S.
National
Association of
Insurance
Commissioners
(“NAIC”) has
developed a
formula to
measure the
statutory minimum
amount of
capital required
for a
property and
casualty
insurance
company
to
support
its
overall
business
operations
in
light
of
its
size
and
risk
profile.
The
major
categories
of
a
company’s
risk
profile
are
its
asset
risk,
credit
risk,
and
underwriting
risk.
The
standard
is
an
effort
to
anticipate
insolvencies.
This
allows
regulators
to
take
actions
that
could
limit
the
impact
of
these
insolvencies on policyholders.
Under the
approved
formula,
a company’s
adjusted
statutory
surplus (end
of period
surplus adjusted
for items
not currently
applicable
to
the Everest
companies)
is compared
to
its risk
based
capital
(“RBC”).
If this
ratio
is
above a minimum
threshold, no
action is necessary.
Below this threshold
are four distinct
action levels at
which
an insurer’s
domiciliary state
regulator can
intervene with
increasing degrees
of authority
over an insurer
as the
ratio
of
adjusted
surplus
to
RBC
decreases.
The
mildest
intervention
requires
an
insurer
to
submit
a
plan
of
appropriate corrective actions.
The most severe action requires
an insurer to be rehabilitated or
liquidated.
Based on their financial positions at December 31, 2022, Everest
Re, Everest National,
Everest Indemnity,
Everest
Security, Everest
Denali and Everest Premier exceed
the minimum thresholds.
Tax Matters.
The following summary
of the taxation
of the Company
is based on current
law.
There can be
no assurance that
legislative, judicial, or administrative
changes will not be enacted that might materially
affect this summary.
Bermuda.
Under Bermuda
law,
no income,
withholding or
capital
gains
taxes
are imposed
upon Group
and its
Bermuda
subsidiaries.
Group
and its
Bermuda
subsidiaries
have
received
an undertaking
from
the
Minister
of
Finance in
Bermuda
that,
in the
event
of any
taxes
being imposed,
Group
and its
Bermuda
subsidiaries
will be
exempt
from
taxation
in
Bermuda
until
March
Non-Bermuda
branches
of
Bermuda
subsidiaries
are
subject to local taxes in
the jurisdictions in which they operate.
United
States.
On
December
22,
2017,
the
Tax
Cuts
and
Jobs
Act
(“TCJA”)
was
signed
into
law.
The
Internal
Revenue Service
(“IRS”) and
the United
States
Treasury
Department (“U.S.
Treasury”)
have subsequently
issued
both proposed and
final regulations related
to the new law.
Management continues
to monitor this
guidance as
it
is
issued
to
determine
the
impact
on
the
Company
and
acts
if necessary.
Group’s
U.S.
subsidiaries
conduct
business in and are
subject to taxation
in the U.S. Non-U.S.
branches of U.S. subsidiaries
are subject to both
local
taxation in
the jurisdictions in which
they operate
and U.S. corporate
income tax but
are generally
relieved from
double
taxation
through
the
use
of
foreign
tax
credits
against
their
U.S.
income
tax
liability.
Should
the
U.S.
subsidiaries
distribute
current
or
accumulated
earnings
and
profits
in
the
form
of
dividends
or
otherwise,
the
Company
would
be
subject
to
withholding
taxes.
The
cumulative
amount
that
would
be
subject
to
U.S.
withholding
tax,
if distributed,
is not
practicable
to
compute.
Group
and its
Bermuda subsidiaries
believe
that
they
have
operated
and
will
continue
to
operate
their
businesses
in
a
manner
that
will
not
cause
them
to
generate income treated
as effectively connected
with the conduct of a trade or
business within the U.S.
On this
basis, Group
does not
expect that
it and
its Bermuda
subsidiaries will
be required
to pay
U.S. corporate
income
taxes
other
than
withholding
taxes
on
certain
investment
income
and
premium
excise
taxes.
If
Group
or
its
Bermuda
subsidiaries
were
to
become
subject
to
U.S.
income
tax,
there
could
be a
material
adverse
effect
on
the Company’s financial condition,
results of operations and cash flows.
On August 16, 2022, the Inflation Reduction Act of 2022 (“IRA”)
was enacted. We have
evaluated the tax
provisions of the IRA, the most significant of which are
the corporate alternative
minimum tax and the share
repurchase excise tax
and do not expect the legislation to have
a material impact on our results of operations.
As
the IRS issues additional guidance, we will evaluate
any impact to our consolidated
financial statements.
United Kingdom.
Bermuda Re’s
UK branch,
the Company’s
Lloyd’s
Syndicate and
Ireland Insurance’s
UK branch
conduct business
in the UK
and are subject
to taxation
in the UK.
Bermuda Re believes
that it has
operated and
will
continue
to
operate
its
Bermuda
operation
in
a
manner
which
will
not
cause
them
to
be
subject
to
UK
taxation.
If
Bermuda
Re’s
Bermuda
operations
were
to
become
subject
to
UK
income
tax,
there
could
be
a
material adverse impact on the Company’s
financial condition, results of operations
and cash flow.
Ireland.
Holdings Ireland,
Everest
Dublin Holdings,
Ireland Re
and Ireland
Insurance conduct
business in
Ireland
and are subject to taxation
in Ireland.
Switzerland.
Ireland
Re’s
Zurich
branch
conducts
business
in
Switzerland
and
is
subject
to
taxation
in
Switzerland.
Netherlands.
Ireland
Insurance’s
Netherland
branch
conducts
business
in
the
Netherlands
and
is
subject
to
taxation in the Netherlands.
Germany:
Ireland
Insurance’s
German
branch
conducts
business
in
Germany
and
is
subject
to
taxation
in
Germany.
Spain:
Ireland Insurance’s
Spanish branch conducts business in Spain and is subject
to taxation in Spain.
France:
Ireland Insurance’s
French branch conducts business in France
and is subject to taxation in France.
Belgium: Ireland Insurance’s
Belgium branch conducts business in Belgium and is subject
to taxation in Belgium.
Singapore:
Everest
International
Reinsurance
Ltd’s
Singapore
branch
conducts
business
in
Singapore
and
is
subject to taxation in Singapore.
Chile:
Everest Insurance
Chile conducts business in Chile and is subject to taxation
in Chile.
Available Information.
The Company’s
Annual
Reports
on Form
10-K, Quarterly
Reports
on
Form
10-Q, Current
Reports
on Form
8-K,
proxy statements
and amendments to those reports
are available free of charge
through the Company’s
internet
website
at
as
soon
as
reasonably
practicable
after
such
reports
are
electronically
filed with the Securities and Exchange Commission (the “SEC”).
Previous: Item 9C. [Disclosure Regarding Foreign Jurisdictions that Prevent Inspections](a16413) · Next: Item 1A. RISK FACTORS