filings.toolsItem 7. of our Form 10-K for the
47K characters. Original on sec.gov · Markdown
Item 7. of our Form 10-K for the
year ended December 31, 2020.
All comparisons in this discussion are to the corresponding
prior year unless otherwise indicated.
Industry Conditions.
The worldwide
reinsurance
and insurance
businesses
are highly
competitive,
as well
as cyclical
by
product
and
market.
As
such,
financial
results
tend
to
fluctuate
with
periods
of
constrained
availability,
higher
rates
and
stronger
profits
followed
by
periods
of
abundant
capacity,
lower
rates
and
constrained
profitability.
Competition
in
the
types
of reinsurance
and
insurance
business
that
we
underwrite
is
based
on
many
factors,
including the perceived overall
financial strength of
the reinsurer or insurer,
ratings of the reinsurer
or insurer by
A.M. Best
and/or
Standard
& Poor’s,
underwriting expertise,
the jurisdictions
where the
reinsurer
or insurer
is
licensed
or
otherwise
authorized,
capacity
and
coverages
offered,
premiums
charged,
other
terms
and
conditions
of
the
reinsurance
and
insurance
business
offered,
services
offered,
speed
of
claims
payment
and
reputation
and
experience
in
lines
written.
Furthermore,
the
market
impact
from
these
competitive
factors
related
to
reinsurance
and
insurance
is
generally
not
consistent
across
lines
of
business,
domestic
and
international geographical
areas and distribution channels.
We
compete
in
the
U.S.,
Bermuda
and
international
reinsurance
and
insurance
markets
with
numerous
global
competitors.
Our
competitors
include
independent
reinsurance
and
insurance
companies,
subsidiaries
or
affiliates
of
established
worldwide
insurance
companies,
reinsurance
departments
of
certain
insurance
companies, domestic
and international
underwriting operations,
including underwriting
syndicates
at Lloyd’s
of
London
and
certain
government
sponsored
risk
transfer
vehicles.
Some
of
these
competitors
have
greater
financial resources
than we do
and have
established long
term and continuing
business relationships,
which can
be
a
significant
competitive
advantage.
In
addition,
the
lack
of
strong
barriers
to
entry
into
the
reinsurance
business
and
recently,
the
securitization
of
reinsurance
and
insurance
risks
through
capital
markets
provide
additional sources of potential reinsurance
and insurance capacity and competition.
Worldwide insurance
and reinsurance
market conditions
historically have
been competitive.
Generally,
there is
ample
insurance
and
reinsurance
capacity
relative
to
demand,
as
well
as
additional
capital
from
the
capital
markets
through
insurance
linked
financial
instruments.
These
financial
instruments
such
as
side
cars,
catastrophe
bonds and
collateralized
reinsurance
funds, provided
capital
markets
with access
to insurance
and
reinsurance
risk exposure.
The capital
markets
demand for
these products
is
primarily driven
by the
desire to
achieve
greater
risk
diversification
and
potentially
higher
returns
on
their
investments.
This
competition
generally has a negative impact
on rates, terms and conditions;
however,
the impact varies widely by market
and
coverage.
Based on recent competitive
behaviors in the
insurance and reinsurance
industry, natural
catastrophe
events
and
the
macroeconomic
backdrop,
there
has
been
some
dislocation
in
the
market
which
we
expect
to
have a positive impact on rates
and terms and conditions, generally,
though local market specificities can
vary.
The
increased
frequency
of
catastrophe
losses
experienced
throughout
2022
appears
to
be
pressuring
the
increase
of
rates.
As
business
activity
continues
to
regain
strength
after
the
pandemic
and
current
macroeconomic uncertainty,
rates appear to be firming in
most lines of business, particularly in the casualty
lines
that had
seen significant
losses such
as excess
casualty and
directors’
and officers’
liability.
Other casualty
lines
are
experiencing
modest
rate
increase,
while
some
lines
such
as
workers’
compensation
were
experiencing
softer
market
conditions.
It
is
too
early
to
tell
what
the
impact
on
pricing
conditions
will
be,
but
it
is
likely
to
change depending on the line of business and geography.
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.
Financial Summary.
We monitor and evaluate
our overall performance based upon
financial results.
The following table displays a
summary of the consolidated
net income (loss), ratios and shareholders’
equity for the periods indicated.
Years Ended December 31,
Percentage Increase/(Decrease)
(Dollars in millions)
2022
2021
2020
2022/2021
2021/2020
Gross written premiums
$
13,952
$
13,050
$
10,482
6.9%
24.5%
Net written premiums
12,344
11,446
9,117
7.9%
25.5%
REVENUES:
Premiums earned
$
11,787
$
10,406
$
8,682
13.3%
19.9%
Net investment income
1,165
(28.8)%
81.3%
Net gains (losses) on investments
(455)
(276.4)%
-3.6%
Other income (expense)
(102)
NM
NM
Total revenues
12,060
11,866
9,598
1.6%
23.6%
CLAIMS AND EXPENSES:
Incurred losses and loss adjustment expenses
8,100
7,391
6,551
9.6%
12.8%
Commission, brokerage, taxes
and fees
2,528
2,209
1,873
14.5%
17.9%
Other underwriting expenses
17.0%
14.0%
Corporate expenses
(10.1)%
65.0%
Interest, fees and bond issue
cost amortization expense
43.9%
93.1%
Total claims and expenses
11,472
10,321
9,013
11.2%
14.5%
INCOME (LOSS) BEFORE TAXES
1,546
(62.0)%
164.1%
Income tax expense (benefit)
(9)
(105.3)%
133.9%
NET INCOME (LOSS)
$
$
1,379
$
(56.7)%
168.2%
RATIOS:
Point Change
Loss ratio
68.7%
71.0%
75.5%
(2.3)
(4.5)
Commission and brokerage ratio
21.4%
21.2%
21.6%
0.2
(0.4)
Other underwriting expense ratio
5.8%
5.6%
5.8%
0.2
(0.2)
Combined ratio
96.0%
97.8%
102.9%
(1.8)
(5.1)
At December 31,
Percentage Increase/(Decrease)
(Dollars in millions, except per share amounts)
2022
2021
2020
2022/2021
2021/2020
Balance sheet data:
Total investments
and cash
$
29,872
$
29,673
$
25,462
0.7%
16.5%
Total assets
39,966
38,185
32,712
4.7%
16.7%
Loss and loss adjustment expense reserves
22,065
19,009
16,322
16.1%
16.5%
Total debt
3,084
3,089
1,910
(0.2)%
61.7%
Total liabilities
31,525
28,046
22,985
12.4%
22.0%
Shareholders' equity
8,441
10,139
9,726
(16.8)%
4.2%
Book value per share
215.54
258.21
243.25
(16.5)%
6.2%
(NM, not meaningful)
(Some amounts may not reconcile due to rounding.)
Revenues.
Premiums.
Gross
written
premiums
increased
by
6.9%
to
$14.0
billion
in
2022,
compared
to
$13.1
billion
in
2021,
reflecting
a
$653.4
million,
or
16.4%,
increase
in
our
insurance
business
and
a
$248.8
million,
or
2.7%,
increase
in our
reinsurance
business.
The increase
in insurance
premiums
reflects
growth
across
most lines
of
business,
particularly
specialty
casualty
business
and
property/short
tail
business,
driven
by
positive
rate
and
exposure
increases,
new
business
and
strong
renewal
retention.
The
increase
in
reinsurance
premiums
was
primarily due to increases in casualty pro
rata business and financial lines of business, partially offset
by a decline
in
property
pro
rata
business.
Net
written
premiums
increased
by
7.9% to
$12.3 billion
in
2022, compared
to
$11.4
billion
in
The
higher
percentage
increase
in
net
written
premiums
compared
to
gross
written
premiums was primarily
due to a reduction
in business ceded to
the segregated
accounts of Mt. Logan
Re during
2022
compared
to
Premiums
earned
increased
by
13.3%
to
$11.8
billion
in
2022,
compared
to
$10.4
billion
in
The
change
in
premiums
earned
relative
to
net
written
premiums
was
primarily
the
result
of
timing; premiums
are
earned
ratably
over
the coverage
period whereas
written
premiums
are
recorded
at
the
initiation of
the coverage
period.
Accordingly,
the significant
increase in
gross written
premiums from
pro rata
business
during
the
latter
half
of
2021
contributed
to
the
current
year-to-date
percentage
increases
in
net
earned premiums.
Other Income
(Expense).
We
recorded
other expense
of $102
million and
other income
of $37
million in
2022
and 2021, respectively.
The changes were primarily
the result of fluctuations
in foreign currency exchange
rates.
We
recognized
foreign
currency
exchange
expense
of
$103
million
in
2022
and
foreign
currency
exchange
income of $28 million in 2021.
Claims and Expenses.
Incurred
Losses
and
Loss
Adjustment
Expenses.
The
following
table
presents
our
incurred
losses
and
loss
adjustment expenses (“LAE”) for
the periods indicated.
Years Ended December 31,
Current
Ratio %/
Prior
Ratio %/
Total
Ratio %/
(Dollars in millions)
Year
Pt Change
Years
Pt Change
Incurred
Pt Change
2022
Attritional
$
7,047
59.8%
$
(2)
—%
$
7,045
59.8%
Catastrophes
1,055
9.0%
—
—%
1,055
9.0%
Total segment
$
8,102
68.8%
$
(2)
—%
$
8,100
68.7%
2021
Attritional
$
6,265
60.2%
$
(9)
(0.1)%
$
6,256
60.1%
Catastrophes
1,135
10.9%
—
—%
1,135
10.9%
Total segment
$
7,400
71.1%
$
(9)
(0.1)%
$
7,391
71.0%
2020
Attritional
$
5,724
66.0%
$
4.7%
$
6,126
70.7%
Catastrophes
4.9%
—
—%
4.9%
Total segment
$
6,150
70.9%
$
4.7%
$
6,551
75.5%
Variance 2022/2021
Attritional
$
(0.4)
pts
$
0.1
pts
$
(0.3)
pts
Catastrophes
(80)
(1.9)
pts
—
—
pts
(80)
(1.9)
pts
Total segment
$
(2.3)
pts
$
0.1
pts
$
(2.2)
pts
Variance 2021/2020
Attritional
$
(5.8)
pts
$
(411)
(4.8)
pts
$
(10.6)
pts
Catastrophes
6.0
pts
—
—
pts
6.0
pts
Total segment
$
1,251
0.2
pts
$
(411)
(4.8)
pts
$
(4.6)
pts
(Some amounts may not reconcile due to rounding.)
Incurred losses and LAE
increased by 9.6% to
$8.1 billion in 2022, compared
to $7.4 billion in 2021,
primarily due
to
an
increase
of $782
million
in
current
year
attritional
losses,
partially
offset
by
a
decrease
of $80
million
in
current year
catastrophe
losses.
The increase
in current
year attritional
losses was
mainly due
to the
impact of
the
increase
in
premiums
earned
and
$45 million
of attritional
losses
incurred
due
to
the
Ukraine/Russia
war.
The current
year catastrophe
losses of
$1.1 billion
in 2022
related primarily
to Hurricane
Ian ($699
million), the
2022
Australia
floods
($88
million),
the
2022
Western
Europe
hailstorms
($69
million),
the
2022
South
Africa
flood ($50
million), the
2022 Western
Europe Convective
Storm ($35
million), Hurricane
Fiona ($27
million), the
2022
European
storms
($21
million)
and
the
2022
Canada
derecho
($21
million),
with
the
remaining
losses
resulting from various
storm events.
The $1.1 billion of current
year catastrophe
losses in 2021 related
primarily
to Hurricane
Ida ($460
million), the
Texas
winter storms
($294 million),
the European
floods ($242
million), the
Canada
drought
loss
($80
million)
and
the
Quad
State
tornadoes
($45
million)
with
the
rest
of
the
losses
emanating from the South Africa riots and
the 2021 Australia floods.
Catastrophe
losses and loss
expenses typically
have a
material effect
on our incurred
losses and loss
adjustment
expense results
and can
vary significantly
from period
to period.
Losses from
natural
catastrophes
contributed
9.0
percentage
points
to
the
combined
ratio
in
2022,
compared
with
10.9
percentage
points
in
The
Company has
up to
$350.0 million
of catastrophe
bond protection
(“CAT
Bond”) that
attaches
at a
$48.1 billion
PCS
Industry
loss
threshold.
This
recovery
would
be
recognized
on
a
pro-rata
basis
up
to
a
$63.8
billion
PCS
Industry loss level.
PCS’s current
industry estimate of $47.4 million
is below the attachment point.
The potential
recovery
under
the
CAT
Bond
is
not
included
in
the
Company’s
estimate
for
Hurricane
Ian
but
would
provide
significant downside protection should
the industry loss estimate increase.
Commission,
Brokerage,
Taxes
and
Fees.
Commission,
brokerage,
taxes
and
fees
increased
by
14.5%
to
$2.5
billion for
the year
ended December
31, 2022
compared
to $2.2
billion for
the year
ended December
31, 2021.
The
increase
was
primarily
due
to
the
impact
of
the
increases
in
premiums
earned
and
changes
in
the
mix
of
business.
Other
Underwriting
Expenses.
Other
underwriting
expenses
were
$682
million
and
$583
million
in
2022
and
2021, respectively.
The increase in
other underwriting expenses
was mainly due to
the impact of the
increase in
premiums earned
as well
as the
continued build
out of
our insurance
operations,
including an
expansion of
the
international insurance platform.
Corporate
Expenses.
Corporate
expenses,
which
are
general
operating
expenses
that
are
not
allocated
to
segments, were $61
million and $68 million
for the years
ended December 31, 2022
and 2021, respectively.
The
decrease from 2021 to 2022 was mainly
due to a decrease in variable incentive compensation.
Interest,
Fees and
Bond Issue
Cost
Amortization
Expense.
Interest,
fees
and other
bond
amortization
expense
was
$101
million
and
$70
million
in
2022
and
2021,
respectively.
The
increases
were
primarily
due
to
the
issuance of $1.0
billion of senior
notes in October
Interest expense
was also
impacted by the
movements
in the
floating
interest
rate
related
to
the long
term
subordinated
notes,
which is
reset
quarterly
per the
note
agreement.
The floating rate was
6.99% as of December 31, 2022 compared to 2.54% as of December 31,
Income Tax
Expense (Benefit).
We had
income tax
benefit of $9
million and income
tax expense
of $167 million
in
2022
and
2021,
respectively.
Income
tax
expense
is
primarily
a
function
of
the
geographic
location
of
the
Company’s
pre-tax
income
and
the
statutory
tax
rates
in
those
jurisdictions.
The
effective
tax
rate
(“ETR”)
is
primarily
affected
by
tax-exempt
investment
income,
foreign
tax
credits
and
dividends.
Variations
in
the
ETR
generally result
from changes
in the relative
levels of pre
-tax income,
including the impact
of catastrophe
losses
and net capital gains (losses), among jurisdictions
with different tax rates.
On
August
16,
2022,
the
Inflation
Reduction
Act
of
2022
(“IRA”)
was
enacted.
We
have
evaluated
the
tax
provisions
of
the
IRA,
the
most
significant
of
which
are
the
corporate
alternative
minimum
tax
and
the
share
repurchase excise tax
and do not expect the legislation to have
a material impact on our results of operations.
As
the IRS issues additional guidance, we will evaluate
any impact to our consolidated
financial statements.
Net Income (Loss).
Our
net
income
was
$597
million
and
$1.4
billion
in
2022
and
2021,
respectively.
The
change
was
primarily
driven by the consolidated investment
results explained below.
Ratios.
Our
combined
ratio
decreased
by
1.8
points
to
96.0%
in
2022,
compared
to
97.8%
in
The
loss
ratio
component decreased by
2.3 points in 2022 over
the same period last year
mainly due to a decline $80 million
in
catastrophe
losses.
The
commission
and
brokerage
ratio
components
increased
slightly
to
21.4%
in
2022
compared
to
21.2%
in
The
increase
was
mainly
due
to
changes
in
the
mix
of
business.
The
other
underwriting expense ratios
increased slightly
to 5.8% in
2022 compared
to 5.6% in
These increases
were
mainly due to higher insurance operations
costs.
Shareholders’ Equity.
Shareholders’
equity
decreased
by
$1.7
billion
to
$8.4
billion
at
December
31,
2022
from
$10.1
billion
at
December
31,
2021,
principally
as
a
result
of $1.9
billion
of unrealized
depreciation
on
available
for
sale
fixed
maturity
portfolio
net
of
tax,
$255
million
of
shareholder
dividends,
$77
million
of
net
foreign
currency
translation adjustments,
and the repurchase
of 241,273 common
shares for
$61 million,
partially offset
by $597
million of net income.
Consolidated Investment
Results
Net Investment Income.
Net
investment
income
decreased
by
28.8% to
$830 million
in 2022
compared
with
net
investment
income
of
$1.2
billion
in
The
decrease
was
primarily
the
result
of
a
decline
of
$490
million
in
limited
partnership
income,
partially
offset
by
an
additional
$181
million
of
income
from
fixed
maturity
investments.
The
limited
partnership
income
primarily
reflects
decreases
in
their
reported
net
asset
values.
As
such,
until
these
asset
values are monetized and the
resultant income is distributed,
they are subject to future increases
or decreases in
the asset value, and the results may be volatile.
The following table shows the components
of net investment income for
the periods indicated.
Years Ended December 31,
(Dollars in millions)
2022
2021
2020
Fixed maturities
$
$
$
Equity securities
Short-term investments and cash
Other invested assets
Limited partnerships
Other
Gross investment income before adjustments
1,208
Funds held interest income (expense)
Future policy benefit reserve income (expense)
—
(1)
(1)
Gross investment income
1,219
Investment expenses
(62)
(54)
(50)
Net investment income
$
$
1,165
$
(Some amounts may not reconcile due to rounding.)
The following tables show a comparison
of various investment yields for
the periods indicated.
2022
2021
2020
Annualized pre-tax yield on average cash and invested assets
2.7
%
4.4
%
2.9
%
Annualized after-tax yield on average cash and invested assets
2.3
%
3.8
%
2.5
%
Annualized return on invested assets
1.2
%
5.3
%
4.0
%
2022
2021
2020
Fixed income portfolio total return
(5.9)
%
0.5
%
6.3
%
Barclay's Capital - U.S. aggregate index
(13.0)
%
(1.5)
%
7.5
%
Common equity portfolio total return
(18.5)
%
19.0
%
26.7
%
S&P 500 index
(18.1)
%
28.7
%
18.4
%
Other invested asset portfolio total return
4.5
%
36.5
%
8.3
%
The pre
-tax
equivalent
total
return
for
the
bond
portfolio
was
approximately
(5.9)%
and
0.5%,
respectively,
in
2022
and
The
pre-tax
equivalent
return
adjusts
the
yield
on
tax-exempt
bonds
to
the
fully
taxable
equivalent.
Our
fixed
income
and
equity
portfolios
have
different
compositions
than
the
benchmark
indexes.
Our
fixed
income portfolios have
a shorter duration
because we align our investment
portfolio with our liabilities.
We also
hold
foreign
securities
to
match
our
foreign
liabilities
while
the
index
is
comprised
of
only
U.S.
securities.
Our
equity portfolios
reflect an
emphasis on
dividend yield
and growth
equities, while
the index
is comprised
of the
largest 500 equities by market
capitalization.
Net Realized Capital Gains (Losses).
The following table presents the composition
of our net realized capital gains
(losses) for the periods indicated.
Years Ended December 31,
2022/2021
2021/2020
(Dollars in millions)
2022
2021
2020
Variance
Variance
Realized gains (losses) from dispositions:
Fixed maturity securities - available for sale:
Gains
$
$
$
$
(32)
$
(8)
Losses
(127)
(55)
(85)
(72)
Total
(87)
(5)
(104)
Equity securities:
Gains
Losses
(53)
(15)
(46)
(38)
Total
(9)
Other Invested Assets
Gains
Losses
(5)
(4)
(6)
(1)
Total
Short Term Investments
Gains
—
—
—
(1)
Losses
—
—
—
—
—
Total
—
—
—
(1)
Total net realized gains (losses) from dispositions:
Gains
(2)
Losses
(185)
(74)
(137)
(111)
Total
(11)
(12)
Allowance for credit losses:
(33)
(28)
(2)
(5)
(26)
Gains (losses) from fair value adjustments:
Fixed maturities
—
—
—
(2)
Equity securities
(460)
(696)
(43)
Total
(460)
(696)
(45)
Total net gains (losses) on investments
$
(455)
$
$
$
(713)
$
(10)
(Some amounts may not reconcile due to rounding.)
Net
gains
(losses)
on
investments
in
2022
primarily
relate
to
net
losses
from
fair
value
adjustments
on
equity
securities in
the amount
of $460
million as
a result
of equity
market
declines in
In addition,
we realized
$38 million
of gains
due to
the disposition
of investments
and recorded
an increase
to the
allowance for
credit
losses of $33 million primarily related to our direct
holdings of Russian corporate
fixed maturity securities.
Segment Results.
The
Company
manages
its
reinsurance
and
insurance
operations
as
autonomous
units
and
key
strategic
decisions are based on the aggregate operating
results and projections for
these segments of business.
The Reinsurance
operation
writes worldwide
property
and casualty
reinsurance
and specialty
lines of
business,
on both
a treaty
and facultative
basis,
through
reinsurance
brokers,
as well
as directly
with ceding
companies.
Business is
written in
the U.S.,
Bermuda, and
Ireland offices,
as well as,
through branches
in Canada,
Singapore,
the United
Kingdom
and Switzerland.
The Insurance
operation
writes property
and casualty
insurance
directly
and
through
brokers,
surplus
lines
brokers
and
general
agents
within
the
U.S.,
Bermuda,
Canada,
Europe,
Singapore
and
South
America
through
its
offices
in
the
U.S.,
Canada,
Chile,
Singapore,
the
United
Kingdom,
Ireland and branches located
in the Netherlands, France, Germany and Spain.
These segments are
managed independently,
but conform
with corporate
guidelines with respect
to pricing, risk
management,
control
of
aggregate
catastrophe
exposures,
capital,
investments
and
support
operations.
Management
generally
monitors
and
evaluates
the
financial
performance
of
these
operating
segments
based
upon their underwriting results.
Underwriting results
include earned
premium less
LAE incurred,
commission and
brokerage
expenses and
other
underwriting
expenses.
We
measure
our
underwriting
results
using
ratios,
in
particular
loss,
commission
and
brokerage
and other
underwriting expense
ratios,
which, respectively,
divide
incurred
losses,
commissions
and
brokerage and other
underwriting expenses by premiums earned.
The
Company
does
not
maintain
separate
balance
sheet
data
for
its
operating
segments.
Accordingly,
the
Company does not
review and evaluate
the financial results
of its operating
segments based upon
balance sheet
data.
Our
loss
and LAE
reserves
are
management’s
best
estimate
of our
ultimate
liability
for
unpaid
claims.
We
re-
evaluate
our
estimates
on
an
ongoing
basis,
including
all
prior
period
reserves,
taking
into
consideration
all
available
information,
and
in
particular,
recently
reported
loss
claim
experience
and
trends
related
to
prior
periods.
Such re-evaluations are recorded
in incurred losses in the period in which re-evaluation
is made.
The following discusses the underwriting results for
each of our segments for the periods indicated.
Reinsurance.
The
following
table
presents
the
underwriting
results
and
ratios
for
the
Reinsurance
segment
for
the
periods
indicated.
Years Ended December 31,
2022/2021
2021/2020
(Dollars in millions)
2022
2021
2020
Variance
% Change
Variance
% Change
Gross written premiums
$
9,316
$
9,067
$
7,282
$
2.7%
$
1,786
24.5%
Net written premiums
8,983
8,536
6,768
5.2%
1,768
26.1%
Premiums earned
$
8,663
$
7,758
$
6,466
$
11.7%
$
1,291
20.0%
Incurred losses and LAE
5,997
5,556
4,933
7.9%
12.6%
Commission and brokerage
2,134
1,855
1,552
15.1%
19.5%
Other underwriting expenses
9.6%
13.3%
Underwriting gain (loss)
$
$
$
(195)
$
112.6%
$
175.4%
Point Chg
Point Chg
Loss ratio
69.2%
71.6%
76.3%
(2.4)
(4.7)
Commission and brokerage ratio
24.6%
23.9%
24.0%
0.7
(0.1)
Other underwriting expense ratio
2.5%
2.6%
2.7%
(0.1)
(0.1)
Combined ratio
96.4%
98.1%
103.0%
(1.8)
(4.9)
(NM, not meaningful)
(Some amounts may not reconcile due to rounding.)
Premiums.
Gross written
premiums increased by
2.7% to $9.3 billion
in 2022 from $9.1
billion in 2021, primarily
due
to
increases
in
casualty
pro
rata
business
and
financial
lines
of
business,
partially
offset
by
a
decline
in
property
pro rata
business.
Net written
premiums
increased
by 5.2%
to
$9.0 billion
in 2022
compared
to
$8.5
billion in
The higher
percentage
increase
in net
written
premiums
compared
to gross
written
premiums
mainly related to
a reduction in business ceded
to the segregated
accounts of Mt. Logan
Re in 2022 compared
to
Premiums
earned
increased
by
11.7%
to
$8.7
billion
in
2022,
compared
to
$7.8
billion
in
The
change
in
premiums
earned
relative
to
net
written
premiums
is
primarily
the
result
of
timing;
premiums
are
earned
ratably
over
the
coverage
period
whereas
written
premiums
are
recorded
at
the
initiation
of
the
coverage period.
Accordingly,
the significant
increases in
gross written
premiums from
pro rata
business during
the latter half of 2021 contributed
to the current year-to-date percentage
increase in net earned premiums.
Incurred Losses
and LAE.
The following table
presents the
incurred losses
and LAE for
the Reinsurance
segment
for the periods indicated.
Years Ended December 31,
Current
Ratio %/
Prior
Ratio %/
Total
Ratio %/
(Dollars in millions)
Year
Pt Change
Years
Pt Change
Incurred
Pt Change
2022
Attritional
$
5,070
58.5%
$
(2)
—%
$
5,067
58.5%
Catastrophes
10.7%
—
—%
10.7%
Total segment
$
6,000
69.2%
$
(2)
—%
$
5,997
69.2%
2021
Attritional
$
4,582
59.1%
$
(8)
(0.1)%
$
4,574
59.0%
Catastrophes
12.7%
—
—%
12.7%
Total segment
$
5,564
71.8%
$
(8)
(0.1)%
$
5,556
71.6%
2020
Attritional
$
4,180
64.6%
$
6.1%
$
4,576
70.7%
Catastrophes
5.5%
—
—%
5.5%
Total segment
$
4,537
70.1%
$
6.1%
$
4,933
76.3%
Variance 2022/2021
Attritional
$
(0.6)
pts
$
0.1
pts
$
(0.5)
pts
Catastrophes
(53)
(2.0)
pts
—
—
pts
(53)
(2.0)
pts
Total segment
$
(2.6)
pts
$
0.1
pts
$
(2.4)
pts
Variance 2021/2020
Attritional
$
(5.5)
pts
$
(405)
(6.2)
pts
$
(3)
(11.7)
pts
Catastrophes
7.2
pts
—
—
pts
7.2
pts
Total segment
$
1,028
1.7
pts
$
(405)
(6.2)
pts
$
(4.5)
pts
(Some amounts may not reconcile due to rounding.)
Incurred
losses
increased
by
7.9%
to
$6.0
billion
in
2022, compared
to
$5.6
billion
in
The
increase
was
primarily due to an increase
of $488 million in current
year attritional losses,
partially offset by a decrease
of $53
million in
current
year catastrophe
losses.
The increase
in current
year attritional
losses was
mainly related
to
the
impact
of the
increase
in
premiums
earned
and
$45 million
of attritional
losses
due to
the
Ukraine/Russia
war.
The
current
year
catastrophe
losses
of
$930
million
in
2022
related
primarily
to
Hurricane
Ian
($599
million),
the
2022
Australia
floods
($88
million),
the
Western
Europe
hailstorms
($69
million),
the
2022
South
Africa
flood
($50
million),
the
2022
Western
Europe
Convective
storm
($29
million),
Hurricane
Fiona
($22
million), the 2022 European
storms ($21 million)
and the 2022 Canada
derecho ($21 million),
with the remaining
losses resulting
from various
storm events.
The $983
million of
current year
catastrophe
losses in
2021 related
primarily
to
Hurricane
Ida
($380
million),
the
Texas
winter
storms
($237
million),
the
European
floods
($242
million), the
Canada drought
loss ($80
million) and
the Quad
state
tornadoes ($30
million), with
the rest
of the
losses emanating from the 2021 South Africa riots and
the 2021 Australia floods.
Segment Expenses.
Commission and
brokerage
expense increased
by 15.1% to
$2.1 billion in
2022 compared to
$1.9 billion in 2021.
The increase was mainly
due to the impact of the
increase in premiums earned
and changes
in
the
mix
of
business.
Segment
other
underwriting
expenses
increased
to
$218
million
in
2022
from
$199
million
in
The
increase
was
mainly
due
to
the
increase
in
written
premium
attributable
to
the
planned
expansion of the business.
Insurance.
The
following
table
presents
the
underwriting
results
and
ratios
for
the
Insurance
segment
for
the
periods
indicated.
Years Ended December 31,
2022/2021
2021/2020
(Dollars in millions)
2022
2021
2020
Variance
% Change
Variance
% Change
Gross written premiums
$
4,636
$
3,983
$
3,201
$
16.4%
$
24.4%
Net written premiums
3,361
2,910
2,349
15.5%
23.9%
Premiums earned
$
3,124
$
2,649
$
2,215
$
17.9%
$
19.6%
Incurred losses and LAE
2,103
1,835
1,617
14.6%
13.4%
Commission and brokerage
11.3%
10.4%
Other underwriting expenses
20.8%
14.3%
Underwriting gain (loss)
$
$
$
(58)
$
114.4%
$
230.7%
Point Chg
Point Chg
Loss ratio
67.3%
69.3%
73.0%
(2.0)
(3.7)
Commission and brokerage ratio
12.6%
13.4%
14.5%
(0.8)
(1.1)
Other underwriting expense ratio
14.8%
14.5%
15.1%
0.3
(0.6)
Combined ratio
94.8%
97.1%
102.6%
(2.5)
(5.5)
(Some amounts may not reconcile due to rounding.)
Premiums.
Gross written
premiums increased
by 16.4% to
$4.6 billion in
2022 compared
to $4.0 billion
in 2021.
The increase
in insurance
premiums reflects
growth across
most lines
of business,
particularly specialty
casualty
and
property/short
tail
business,
driven
by
positive
rate
and
exposure
increases,
new
business
and
strong
renewal retention.
Net written
premiums increased
by 15.5% to
$3.4 billion in
2022 compared
to $2.9 billion
in
2021, which
is consistent
with the
percentage
change
in gross
written
premiums.
Premiums
earned increased
17.9% to
$3.1 million
in 2022
compared to
$2.6 billion
in 2021.
The change
in premiums
earned relative
to net
written premiums is the result
of timing; premiums are earned ratably
over the coverage
period whereas written
premiums
are
recorded
at
the
initiation
of the
coverage
period.
Accordingly,
the significant
increases
in gross
written premiums
during the
latter
half of
2021 contributed
to the
current year
-to-date
percentage
increase in
net earned premiums.
Incurred Losses and
LAE.
The following table presents
the incurred losses
and LAE for the Insurance
segment for
the periods indicated.
Years Ended December 31,
Current
Ratio %/
Prior
Ratio %/
Total
Ratio %/
(Dollars in millions)
Year
Pt Change
Years
Pt Change
Incurred
Pt Change
2022
Attritional
$
1,977
63.3%
$
—%
$
1,978
63.3%
Catastrophes
4.0%
—
—%
4.0%
Total segment
$
2,102
67.3%
$
—%
$
2,103
67.3%
2021
Attritional
$
1,684
63.6%
$
(1)
—%
$
1,682
63.6%
Catastrophes
5.8%
—
—%
5.8%
Total segment
$
1,836
69.4%
$
(1)
—%
$
1,835
69.3%
2020
Attritional
$
1,545
69.7%
$
0.2%
$
1,549
69.9%
Catastrophes
3.1%
—
—%
3.1%
Total segment
$
1,613
72.8%
$
0.2%
$
1,617
73.0%
Variance 2022/2021
Attritional
$
(0.3)
pts
$
—
pts
$
(0.3)
pts
Catastrophes
(28)
(1.8)
pts
—
—
pts
(28)
(1.8)
pts
Total segment
$
(2.1)
pts
$
—
pts
$
(2.0)
pts
Variance 2021/2020
Attritional
$
(6.1)
pts
$
(6)
(0.2)
pts
$
(6.3)
pts
Catastrophes
2.7
pts
—
—
pts
2.7
pts
Total segment
$
(3.4)
pts
$
(6)
(0.2)
pts
$
(3.7)
pts
(Some amounts may not reconcile due to rounding.)
Incurred losses and LAE increased by
14.6% to $2.1 billion in 2022 compared to $1.8 billion
in 2021.
The increase
was mainly
due to
an increase
of $293
million in
current year
attritional
losses,
partially offset
by a
decrease in
current year
catastrophe
losses of
$28 million.
The increase
in current
year attritional
losses was
primarily due
to the impact
of the increase
in premiums earned.
The current year
catastrophe
losses of $125
million primarily
related to
Hurricane Ian
($99 million),
with the
remaining losses
resulting from
various storm
events.
The $153
million of current
year catastrophe
losses in 2021 related
to Hurricane Ida
($80 million), the Texas
winter storms
($58 million) and the Quad State tornadoes
($15 million).
Segment
Expenses.
Commission and
brokerage
increased by
11.3% to
$394 million
in 2022
compared
to
$354
million
in
Segment
other
underwriting
expenses
increased
to
$463
million
in
2022
compared
to
$384
million
in
These
increases
were
mainly
due
to
the
impact
of
the
increase
in
premiums
earned
and
increased expenses
related
to the
continued
build out
of the
insurance
business, including
an expansion
of the
international insurance platform.
Critical Accounting Estimates
The following
is a
summary of
the critical
accounting estimates
related to
accounting estimates
that (1)
require
management
to
make
assumptions
about
highly
uncertain
matters
and
(2)
could
materially
impact
the
consolidated financial statements
if management made different
assumptions.
Loss and LAE
Reserves.
Our most critical
accounting estimate
is the determination
of our loss
and LAE reserves.
We
maintain
reserves
equal to
our estimated
ultimate
liability for
losses
and LAE
for
reported
and unreported
claims for our insurance and reinsurance
businesses.
Because reserves are based on estimates
of ultimate losses
and
LAE
by
underwriting
or
accident
year,
we
use
a
variety
of
statistical
and
actuarial
techniques
to
monitor
reserve
adequacy
over
time, evaluate
new information
as it
becomes known
and adjust
reserves
whenever
an
adjustment
appears
warranted.
We
consider
many
factors
when
setting
reserves
including:
(1)
our
exposure
base
and
projected
ultimate
premiums
earned;
(2)
our
expected
loss
ratios
by
product
and
class
of
business,
which are developed collaboratively
by underwriters and actuaries;
(3) actuarial methodologies and
assumptions
which analyze
our loss
reporting and
payment experience,
reports from
ceding companies
and historical
trends,
such
as
reserving
patterns,
loss
payments
and
product
mix;
(4)
current
legal
interpretations
of
coverage
and
liability;
and
(5)
economic
conditions.
Our
insurance
and
reinsurance
loss
and
LAE
reserves
represent
management’s best
estimate of our ultimate
liability. Actual
losses and LAE ultimately
paid may deviate,
perhaps
substantially,
from
such
reserves.
Our
net
income
(loss)
will
be
impacted
in
a
period
in
which
the
change
in
estimated ultimate losses
and LAE is recorded.
See also ITEM 8, “Financial Statements
and Supplementary Data”
- Note 1 of Notes to the Consolidated Financial
Statements.
It is more
difficult to
accurately
estimate loss
reserves for
reinsurance
liabilities than
for insurance
liabilities.
At
December 31,
2022, we
had reinsurance
reserves of
$16.1 billion,
of which
$278 million
were loss
reserves for
A&E
liabilities,
and
insurance
loss
reserves
of
$5.9
billion.
A
detailed
discussion
of
additional
considerations
related to A&E exposures
follows later in this section.
The
detailed
data
required
to
evaluate
ultimate
losses
for
our
insurance
business
is
accumulated
from
our
underwriting and claim systems.
Reserving for reinsurance
requires evaluation of loss
information received
from
ceding companies.
Ceding companies
report losses
to us
in many
forms dependent
on the type
of contract
and
the
agreed
or
contractual
reporting
requirements.
Generally,
proportional/quota
share
contracts
require
the
submission
of
a
monthly/quarterly
account,
which
includes
premium
and
loss
activity
for
the
period
with
corresponding reserves
as established by
the ceding company.
This information
is recorded into
our records.
For
certain
proportional
contracts,
we
may
require
a
detailed
loss
report
for
claims
that
exceed
a
certain
dollar
threshold
or
relate
to
a
particular
type
of
loss.
Excess
of
loss
and
facultative
contracts
generally
require
individual loss reporting
with precautionary notices
provided when a
loss reaches a
significant percentage
of the
attachment point
of the contract
or when certain causes
of loss or types
of injury occur.
Our experienced claims
staff
handles
individual
loss reports
and supporting
claim information.
Based on
our evaluation
of a
claim, we
may establish
additional case
reserves (ACRs)
in addition
to the
case reserves
reported by
the ceding
company.
To
ensure
ceding
companies
are
submitting
required
and accurate
data,
the
Underwriting,
Claim,
Reinsurance
Accounting
and Internal
Audit departments
of the
Company
perform various
reviews
of our
ceding companies,
particularly larger ceding companies, including
on-site audits of domestic ceding companies.
We sort
both our
reinsurance
and insurance
reserves into
exposure
groupings
for actuarial
analysis.
We assign
our
business
to
exposure
groupings
so
that
the
underlying
exposures
have
reasonably
homogeneous
loss
development
characteristics
and
are
large
enough
to
facilitate
credible
estimation
of
ultimate
losses.
We
periodically
review
our
exposure
groupings
and
we
may
change
our
groupings
over
time
as
our
business
changes.
We
currently
use
over
exposure
groupings
to
develop
our
reserve
estimates.
One
of
the
key
selection characteristics
for
the
exposure
groupings
is the
historical
duration
of the
claims
settlement
process.
Business in
which claims
are reported
and settled
relatively quickly
are commonly
referred
to as
short tail
lines,
principally property
lines.
Casualty claims
tend to
take
longer to
be reported
and settled
and casualty
lines are
generally referred
to as
long tail
lines.
Our estimates
of ultimate
losses for
shorter tail
lines, with
the exception
of loss estimates for large catastrophic
events,
generally exhibit less volatility
than those for the longer tail lines.
We
use
similar
actuarial
methodologies,
such
as
expected
loss
ratio,
chain
ladder
reserving
methods
and
Bornhuetter-Ferguson,
supplemented
by judgment
where appropriate,
to estimate
our ultimate
losses and
LAE
for each
exposure group.
Although we
use similar
actuarial methodologies
for both
short tail
and long
tail lines,
the faster reporting
of experience for
the short tail lines
allows us to
have greater confidence
in our estimates
of
ultimate
losses
for
short
tail
lines
at
an
earlier
stage
than
for
long
tail
lines.
As
a
result,
we
utilize,
as
well,
exposure-based
methods
to
estimate
our ultimate
losses
for
longer
tail
lines,
especially
for
immature
accident
years.
For
both
short
and
long
tail
lines,
we
supplement
these
general
approaches
with
analytically
based
judgments.
We
cannot
estimate
losses
from
widespread
catastrophic
events,
such
as
hurricanes
and
earthquakes,
using
traditional
actuarial
methods.
We
estimate
losses
for
these
types
of
events
based
on
information
derived
from
catastrophe
models,
quantitative
and
qualitative
exposure
analyses,
reports
and
communications
from
ceding
companies
and
development
patterns
for
historically
similar
events.
Due
to
the
inherent
uncertainty
in
estimating
such
losses,
these
estimates
are
subject
to
variability,
which
increases
with
the severity and complexity of the underlying event.
Our key
actuarial assumptions
contain
no explicit
provisions
for reserve
uncertainty
nor do
we supplement
the
actuarially determined reserves for uncertainty.
Our carried
reserves at
each reporting
date are
management’s
best estimate
of ultimate
unpaid losses
and LAE
at
that
date.
We
complete
detailed
reserve
studies
for
each exposure
group
annually
for our
reinsurance
and
insurance
operations.
The
completed
annual
reinsurance
reserve
studies
are
“rolled
forward”
for
each
accounting period
until the
subsequent reserve
study is
completed.
Analyzing the
roll-forward
process involves
comparing
actual
reported
losses
to
expected
losses
based
on
the
most
recent
reserve
study.
We
analyze
significant
variances
between
actual
and
expected
losses
and
also
consider
recent
market,
underwriting
and
management
criteria
to
determine
management’s
best
estimate
of
ultimate
unpaid
losses
and
LAE.
Management’s
best estimate
is developed
through
collaboration
with actuarial,
underwriting, claims,
legal
and
finance
departments
and
culminates
with
the
input
of
reserve
committees.
Each
segment
reserve
committee
includes the participation of the relevant parties
from actuarial, finance, claims and segment senior management
and has
the responsibility
for recommending
and approving
management’s
best estimate.
Reserves are
further
reviewed
by
Everest’s
Chief
Reserving
Actuary
and
senior
management.
The
objective
of
such
process
is
to
determine a single best
estimate viewed by
management to be
the best estimate
of its ultimate loss
liability.
As
a result of
these additional factors,
in some instances
the selected reserve
level may be
higher or lower than
the
actuarial indicated estimate.
Given
the
inherent
variability
in
our
loss
reserves,
we
have
developed
an
estimated
range
of
possible
gross
reserve
levels.
A
table
of
ranges
by
segment,
accompanied
by
commentary
on
potential
and
historical
variability,
is
included
in
“Financial
Condition
- Loss
and
LAE Reserves”.
The ranges
are
statistically
developed
using the exposure groups used in
the reserve estimation process
and aggregated to the segment
level.
For each
exposure
group,
our actuaries
calculate
a range
for each
accident year
based principally
on two
variables.
The
first
is
the
historical
changes
in
losses
and
LAE incurred
but not
reported
(“IBNR”)
for
each
accident
year
over
time; the second is
volatility of each
accident year’s
held reserves related
to estimated
ultimate losses, also
over
time.
Both are measured at various
ages from the end of the accident year through
the final payout of the year’s
losses.
Ranges are
developed for
the exposure
groups using
statistical
methods to
adjust for
diversification;
the
ranges
for
the
exposure
groups
are
aggregated
to
the
segment
level,
likewise,
with
an
adjustment
for
diversification.
Our
estimates
of
our
reserve
variability
may
not
be
comparable
to
those
of
other
companies
because there
are no
consistently
applied actuarial
or accounting
standards
governing such
presentations.
Our
recorded
reserves
reflect
our
best
point
estimate
of
our
liabilities
and
our
actuarial
methodologies
focus
on
developing
such
point
estimates.
We
calculate
the
ranges
subsequently,
based
on
the
historical
variability
of
such reserves.
Asbestos and Environmental
Exposures.
We continue to
receive claims under expired
insurance and reinsurance
contracts asserting
injuries and/or damages
relating to
or resulting
from environmental
pollution and hazardous
substances,
including
asbestos.
Environmental
claims
typically
assert
liability
for
(a)
the
mitigation
or
remediation
of environmental
contamination
or (b)
bodily injury
or property
damage
caused
by
the release
of
hazardous
substances
into the
land, air
or water.
Asbestos claims
typically assert
liability for
bodily injury
from
exposure to asbestos or for
property damage resulting from asbestos
or products containing asbestos.
Our
reserves
include
an
estimate
of
our
ultimate
liability
for
A&E
claims.
There
are
significant
uncertainties
surrounding our
estimates of
our potential
losses from
A&E claims.
Among the
uncertainties
are: (a)
potentially
long waiting periods
between exposure
and manifestation
of any
bodily injury or
property damage;
(b) difficulty
in
identifying
sources
of
asbestos
or
environmental
contamination;
(c)
difficulty
in
properly
allocating
responsibility
and/or liability
for asbestos
or environmental
damage; (d)
changes in
underlying laws
and judicial
interpretation
of those laws;
(e) the potential
for an
asbestos or
environmental
claim to involve
many insurance
providers
over
many
policy
periods;
(f)
questions
concerning
interpretation
and
application
of
insurance
and
reinsurance coverage;
and (g) uncertainty
regarding the
number and identity
of insureds with
potential asbestos
or environmental exposure.
Due to the uncertainties
discussed above, the ultimate
losses attributable to
A&E, and particularly asbestos,
may
be subject to more variability
than are non-A&E reserves
and such variation
could have a material
adverse effect
on our
financial condition,
results of
operations
and/or cash
flows.
See also
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