filings.toolsItem 2. MANAGEMENT’S
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Item 2. MANAGEMENT’S
MANAGEMENT’S
DISCUSSION
AND
ANALYSIS
OF
FINANCIAL
CONDITION
AND
RESULTS
OF
OPERATION
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
was 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
was being
primarily driven
by a
low
interest environment
and the desire to
achieve greater risk
diversification and
potentially higher returns
on their
investments.
This increased competition
was generally
having 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
activity,
natural
catastrophe
events
and
the
macroeconomic
backdrop,
there
has
been
some
dislocation
in
the
market
which
should
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 2021
and thus
far in
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.
While we
are unable
to predict
the full
impact the
pandemic will
have on
the insurance
industry as
it continues
to have
a negative
impact on the global
economy,
we are well
positioned to continue
to service our clients.
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
incurred
underwriting
losses
related
to
the
Ukraine/Russia
war
as
of
the
nine
months
ended September 30, 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.
Three Months Ended
Percentage
Nine Months Ended
Percentage
September 30,
Increase/
September 30,
Increase/
(Dollars in millions)
2022
2021
(Decrease)
2022
2021
(Decrease)
Gross written premiums
$
3,680
$
3,498
5.2
%
$
10,313
$
9,619
7.2
%
Net written premiums
3,323
3,026
9.8
%
9,156
8,389
9.1
%
REVENUES:
Premiums earned
$
3,067
$
2,656
15.5
%
$
8,775
$
7,603
15.4
%
Net investment income
-48.3
%
-35.4
%
Net gains (losses) on investments
(129)
(4)
NM
(519)
NM
Other income (expense)
(16)
(20)
-20.0
(71)
NM
Total revenues
3,073
2,925
5.1
%
8,805
8,746
0.7
%
CLAIMS AND EXPENSES:
Incurred losses and loss adjustment expenses
2,623
2,274
15.3
%
6,289
5,572
12.9
%
Commission, brokerage, taxes
and fees
13.7
%
1,877
1,611
16.5
%
Other underwriting expenses
19.8
%
17.8
%
Corporate expenses
-11.9
%
-3.5
%
Interest, fees and bond issue
cost amortization expense
62.1
%
57.5
%
Total claims and expenses
3,474
3,013
15.3
%
8,785
7,700
14.1
%
INCOME (LOSS) BEFORE TAXES
(401)
(88)
NM
1,046
-98.1
%
Income tax expense (benefit)
(82)
(14)
NM
(81)
-183.8
%
NET INCOME (LOSS)
$
(319)
$
(73)
NM
$
$
-89.3
%
RATIOS:
Point
Change
Point
Change
Loss ratio
85.5
%
85.6
%
(0.1)
71.7
%
73.3
%
(1.6)
Commission and brokerage ratio
20.9
%
21.2
%
(0.3)
21.4
%
21.2
%
0.2
Other underwriting expense ratio
5.5
%
5.3
%
0.2
5.7
%
5.6
%
0.1
Combined ratio
112.0
%
112.2
%
(0.2)
98.8
%
100.1
%
(1.3)
At
At
Percentage
September 30,
December 31,
Increase/
(Dollars in millions, except per share amounts)
2022
2021
(Decrease)
Balance sheet data:
Total investments
and cash
$
28,516
$
29,673
-3.9
%
Total assets
38,144
38,185
-0.1
%
Loss and loss adjustment expense reserves
21,222
19,009
11.6
%
Total debt
3,084
3,089
-0.2
%
Total liabilities
30,495
28,046
8.7
%
Shareholders' equity
7,649
10,139
-24.6
%
Book value per share
195.27
258.21
-24.4
%
(NM, not meaningful)
(Some amounts may not reconcile due to rounding.)
Revenues.
Premiums.
Gross written premiums
increased by 5.2% to
$3.7 billion for the three
months ended September
30,
2022,
compared
to
$3.5
billion
for
the
three
months
ended
September
30,
2021,
reflecting
a
$120
million,
or
11.9%, increase
in our
insurance business
and a
$62 million,
or 2.5%,
increase in
our reinsurance
business.
The
increase
in
insurance
premiums
reflects
growth
across
most
lines
of
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 casualty
excess of
loss business,
partially offset
by a
decline
in
property
pro
rata
business
and
property
casualty
excess
of
loss
business.
Gross
written
premiums
increased by
7.2% to
$10.3 billion
for the
nine months
ended September
30, 2022,
compared
to $9.6
billion for
the
nine
months
ended
September
30,
2021,
reflecting
a
$452
million,
or
15.5%,
increase
in
our
insurance
business and
a $242 million,
or 3.6%, increase
in our reinsurance
business.
The increase
in insurance
premiums
reflects
growth across
most lines
of 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
9.8%
to
$3.3
billion
for
the
three
months
ended
September
30,
2022,
compared to
$3.0 billion
for the
three months
ended September
30, 2021.
Net written
premiums increased
by
9.1%
to
$9.2
billion
for
the
nine
months
ended
September
30,
2022,
compared
to
$8.4
billion
for
the
nine
months
ended
September
30,
The
higher
percentage
increases
in
net
written
premiums
compared
to
gross written
premiums were
primarily due
to a
reduction in
business ceded
to the
segregated
accounts
of Mt.
Logan Re during
the three and
nine months ended
September 30, 2022
compared to
the three and
nine months
ended
September
30,
Premiums
earned
increased
by
15.5% to
$3.1 billion
for
the
three
months
ended
September
30,
2022,
compared
to
$2.7
billion
for
the
three
months
ended
September
30,
Premiums
earned
increased
by
15.4%
to
$8.8
billion
for
the
nine
months
ended
September
30,
2022,
compared
to
$7.6
billion for the
nine months ended
September 30, 2021.
The changes
in premiums
earned relative
to net written
premiums
are
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
quarter
and year-to-date percentage
increases
in net earned premiums.
Other Income (Expense).
We recorded
other expense of $16
million and $20 million for
the three months
ended
September 30, 2022 and
2021, respectively.
We recorded
other expense of $71 million
and other income of $44
million for
the nine
months ended
September 30,
2022 and
2021, respectively.
The changes
were primarily
the
result of
fluctuations in
foreign currency
exchange
rates.
We recognized
foreign currency
exchange
expense of
$9
million
and
$17
million
for
the
three
months
ended
September
30,
2022
and
2021,
respectively.
We
recognized
foreign
currency
exchange
expense
of
$70
million
and
foreign
currency
exchange
income
of
$44
million for the nine months ended September
30, 2022 and 2021, respectively.
Net Investment Income.
Refer to Consolidated
Investments Results Section below.
Net Gains (Losses) on Investments.
Refer to Consolidated Investments
Results Section below.
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.
Three Months Ended September 30,
Current
Ratio %/
Prior
Ratio %/
Total
Ratio %/
(Dollars in millions)
Year
Pt Change
Years
Pt Change
Incurred
Pt Change
2022
Attritional
$
1,783
58.1
%
$
-
-
%
$
1,783
58.1
%
Catastrophes
27.4
%
-
-
%
27.4
%
Total
$
2,623
85.5
%
$
-
-
%
$
2,623
85.5
%
2021
Attritional
$
1,581
59.5
%
$
(2)
-0.1
%
$
1,579
59.4
%
Catastrophes
26.2
%
-
-
%
26.2
%
Total
$
2,276
85.7
%
$
(2)
-0.1
%
$
2,274
85.6
%
Variance 2022/2021
Attritional
$
(1.4)
pts
$
0.1
pts
$
(1.3)
pts
Catastrophes
1.2
pts
-
-
pts
1.2
pts
Total
$
(0.2)
pts
$
0.1
pts
$
(0.1)
pts
Nine Months Ended September 30,
Current
Ratio %/
Prior
Ratio %/
Total
Ratio %/
(Dollars in millions)
Year
Pt Change
Years
Pt Change
Incurred
Pt Change
2022
Attritional
$
5,251
59.8
%
$
(2)
-
%
5,249
59.8
%
Catastrophes
1,040
11.9
%
-
-
%
1,040
11.9
%
Total
$
6,291
71.7
%
$
(2)
-
%
$
6,289
71.7
%
2021
Attritional
$
4,568
60.1
%
$
(6)
-0.1
%
4,562
60.0
%
Catastrophes
1,010
13.3
%
-
-
%
1,010
13.3
%
Total
$
5,578
73.4
%
$
(6)
-0.1
%
$
5,572
73.3
%
Variance 2022/2021
Attritional
$
(0.3)
pts
$
0.1
pts
$
(0.2)
pts
Catastrophes
(1.4)
pts
-
-
pts
(1.4)
pts
Total
$
(1.7)
pts
$
0.1
pts
$
(1.6)
pts
(Some amounts may not reconcile due to rounding.)
Incurred
losses
and
LAE
increased
by
15.3%
to
$2.6
billion
for
the
three
months
ended
September
30,
2022,
compared to
$2.3 billion
for the
three months
ended September
30,
2021, primarily
due to
an increase
of $202
million in
current year
attritional
losses and
an increase
of $145
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.
The
current
year
catastrophe
losses
of
$840
million
for
the
three
months
ended
September
30,
2022
related
primarily
to
Hurricane
Ian
($700
million),
the
2022
Western
Europe
hailstorms
($75
million),
Hurricane
Fiona
($25
million),
Typhoon
Nanmadol
($20
million)
and
the
2022
Western
Europe
Convective
storm
($20
million).
The $695
million of
current year
catastrophe
losses for
the three
months ended
September 30,
2021
related to
Hurricane Ida ($463 million) and the European
floods ($232 million).
Incurred
losses
and
LAE
increased
by
12.9%
to
$6.3
billion
for
the
nine
months
ended
September
30,
2022,
compared
to $5.6
billion for
the nine
months
ended September
30, 2021,
primarily due
to an
increase of
$683
million in
current
year
attritional
losses and
an increase
of $30
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
$1.0 billion for
the nine months
ended September 30,
2022 related
primarily to Hurricane
Ian ($700 million),
the
2022
Australia
floods
($85
million),
the
2022
Western
Europe
hailstorms
($75
million),
the
2022
South
Africa
flood ($45
million), the
2022 Western
Europe Convective
Storm ($30
million), Hurricane
Fiona ($25
million), the
2022 European
storms
($21 million),
Typhoon
Nanmadol ($20
million), the
2022 Canada
derecho ($18
million),
the 2022
nd
quarter U.S.
storms
($12 million),
and the
2022 March
U.S. storms
($8 million).
The $1.0
billion of
current
year
catastrophe
losses for
the nine
months
ended
September
30, 2021
related
primarily to
Hurricane
Ida ($463 million), the Texas
winter storms ($285
million) and the European
floods ($242 million) with the rest
of
the losses emanating from the 2021 Australia
floods and Victoria Australia flooding.
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
27.4 percentage
points to
the combined
ratio
for the
three months
ended September
30, 2022,
compared with
26.2 percentage
points
in
the
same
period
of
2021, and
11.9 percentage
points
to
the
combined
ratio
for
the
nine months ended September
30, 2022, compared
with 13.3 percentage
points in the same period
of 2021. The
Company has
up to
$350.0 million
of catastrophe
bond protection
(“CAT
Bond”) that
attaches
at a
$48.1 billion
PCS
Industry
loss
threshold.
This
recovery
would
be
recognized
on
a
pro-rata
basis
up
to
a
$63.8
billion
PCS
Industry loss level.
PCS’s current
industry estimate of $40.9 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
13.7%
to
$641
million for
the three
months ended
September 30,
2022, compared
to $564
million for
the three
months ended
September
30,
Commission,
brokerage,
taxes
and
fees
increased
by
16.5%
to
$1.9
billion
for
the
nine
months
ended September
30,
2022, compared
to
$1.6 billion
for
the nine
months
ended September
30, 2021.
The increases
were 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
$169
million
and
$141
million
for
the
three
months ended September
30, 2022 and
2021, respectively.
Other underwriting expenses
were $500 million
and
$424
million
for
the
nine
months
ended
September
30,
2022
and
2021,
respectively.
The
increases
in
other
underwriting
expenses
were
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,
remained
relatively
flat
at
$16
million
and
$18
million
for
the
three
months
ended
September
30,
2022 and
2021,
respectively,
and
$45 million
and
$46
million
for
the
nine
months
ended
September
30,
2022
and 2021, respectively.
Interest,
Fees and
Bond Issue
Cost
Amortization
Expense.
Interest,
fees
and other
bond
amortization
expense
was
$25
million
and
$16
million
for
the
three
months
ended
September
30,
2022
and
2021,
respectively.
Interest,
fees and
other bond
amortization expense
was $74
million and
$47 million
for the
nine months
ended
September 30,
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 5.29% as of September
30, 2022.
Income Tax
Expense (Benefit).
We had
income tax
benefit of
$82 million
and $14
million for
the three
months
ended September
30, 2022
and
2021, respectively.
We
had
income tax
benefit
of $81
million and
income
tax
expense
of
$97
million
for
the
nine
months
ended
September
30,
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
loss
was
$319
million
and
$73
million
for
the
three
months
ended
September
30,
2022
and
2021,
respectively.
Our net income
was $101 million and
$948 million for
the nine months
ended September 30,
2022
and 2021,
respectively.
These changes
were primarily
driven by
the financial
component fluctuations
explained
above.
Ratios.
Our combined ratio
decreased slightly
by 0.2 points
to 112.0% for
the three months
ended September 30,
2022,
compared to
112.2%
for the
three months
ended September
30, 2021 and
decreased by
1.3 points
to 98.8% for
the
nine
months
ended
September
30,
2022,
compared
to
100.1%
for
the
nine
months
ended
September
30,
The
loss
ratio
component
decreased
slightly
by
0.1
points
for
the
three
months
ended
September
30,
2022 over the
same period last
year.
The loss ratio
component decreased
1.6 points for
the nine months
ended
September 30,
2022 over the
same period last
year due to
a lower loss
ratio on
current year
catastrophe
losses.
Although
current
year
catastrophe
losses
increased
by
$30
million,
earned
premium
increased
by
$1.2
billion
resulting
in a
lower
loss
ratio
related
to
catastrophe
losses.
The commission
and brokerage
ratio
components
decreased slightly
to 20.9%
for
the three
months
ended September
30, 2022
compared
to 21.2%
for the
three
months
ended
September
30,
2021
and
increased
to
21.4%
for
the
nine
months
ended
September
30,
2022
compared to 21.2%
for the nine
months ended September
30, 2021. These changes
were mainly due
to changes
in
the
mix
of
business.
The other
underwriting
expense
ratios
increased
to
5.5%
for
the
three
months
ended
September 30,
2022 compared
to 5.3%
for the
three months
ended September
30, 2021
and increased
slightly
to
5.7%
for
the
nine
months
ended
September
30,
2022
compared
to
5.6%
for
the
nine
months
ended
September 30, 2021.
These increases were mainly due to higher insurance
operations costs.
Shareholders’ Equity.
Shareholders’
equity
decreased
by
$2.5
billion
to
$7.6
billion
at
September
30,
2022
from
$10.1
billion
at
December 31,
2021, principally
as a
result of
$2.2 billion
of unrealized
depreciation
on fixed
maturity
portfolio
net of
tax,
$191 million
of shareholder
dividends,
$163 million
of net
foreign
currency translation
adjustments,
and
the
repurchase
of 238,771
common
shares
for
$60
million,
partially
offset
by
$101
million
of net
income,
$19 million of share
-based compensation
transactions and $2
million of net
benefit plan obligation
adjustments,
net of tax.
Consolidated Investment
Results
Net Investment Income.
Net
investment
income
decreased
by
48.3%
to
$151
million
for
the
three
months
ended
September
30,
2022
compared
with
net
investment
income
of $29
million
for
the
three
months
ended
September
30,
The
decrease for the three
months ended September
30, 2022 was primarily
the result of a decline
of $181 million in
limited
partnership
income,
partially
offset
by
an
additional
$52
million
of
income
from
fixed
maturity
investments.
Net investment
income decreased by
35.4% to $620 million
for the nine months
ended September
30,
2022
compared
with
investment
income
of
$960
million
for
the
nine
months
ended
September
30,
The
decrease
for
the
nine
months
ended
September
30,
2022
was
primarily
the
result
of
a
decline
of
$399
million in limited
partnership income,
partially offset
by an
additional $80
million of income
from fixed
maturity
investments.
The limited
partnership
income primarily
reflects
increases 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.
Three Months Ended
Nine Months Ended
September 30,
September 30,
(Dollars in millions)
2022
2021
2022
2021
Fixed maturities
$
$
$
$
Equity securities
Short-term investments and cash
-
Other invested assets
Limited partnerships
(42)
Other
Gross investment income before adjustments
Funds held interest income (expense)
-
Future policy benefit reserve income (expense)
-
-
-
(1)
Gross investment income
1,004
Investment expenses
(15)
(16)
(45)
(44)
Net investment income
$
$
$
$
(Some amounts may not reconcile due to rounding.)
The following table shows a comparison
of various investment yields for
the periods indicated.
Three Months Ended
Nine Months Ended
September 30,
September 30,
2022
2021
2022
2021
Annualized pre-tax yield on average cash and invested assets
2.0
%
4.4
%
2.8
%
5.0
%
Annualized after-tax yield on average cash and invested assets
1.7
%
3.8
%
2.4
%
4.4
%
Annualized return on invested assets
0.3
%
4.3
%
0.5
%
5.6
%
Net Gains (Losses) on Investments.
The following table presents the composition
of our net gains (losses) on investments
for the periods indicated.
Three Months Ended September 30,
Nine Months Ended September 30,
(Dollars in millions)
2022
2021
Variance
2022
2021
Variance
Realized gains (losses) from dispositions:
Fixed maturity securities, available for sale:
Gains
$
$
$
(12)
$
$
$
(20)
Losses
(58)
(11)
(47)
(98)
(26)
(72)
Total
(53)
(59)
(66)
(92)
Equity securities, fair value:
Gains
Losses
(2)
(3)
(53)
(11)
(42)
Total
-
Other Invested Assets:
Gains
Losses
(1)
(1)
-
(4)
(2)
(2)
Total
Short Term Investments:
Gains
-
-
Losses
-
-
-
-
-
-
Total
-
-
Total net realized gains (losses) from dispositions:
Gains
Losses
(62)
(15)
(47)
(155)
(40)
(115)
Total
(40)
(81)
Allowance for credit losses:
(5)
(7)
(18)
(30)
Gains (losses) from fair value adjustments:
Equity securities, fair value
(136)
(5)
(131)
(462)
(590)
Total
(136)
(5)
(131)
(462)
(590)
Total net gains (losses) on investments
$
(129)
$
(4)
$
(125)
$
(519)
$
$
(658)
(Some amounts may not reconcile due to rounding.)
Net
gains
(losses)
on
investments
during
the
three
months
ended
September
30,
2022
primarily
relate
to
net
losses from fair value
adjustments on equity
securities in the amount of
$136 million as a result
of equity market
declines during
the third
quarter of
In addition,
we realized
$12 million
of gains
due to
the disposition
of
investments and recorded
an increase to the allowance for credit
losses of $5 million.
Net
gains
(losses)
on
investments
during
the
nine
months
ended
September
30,
2022
primarily
relate
to
net
losses from fair value
adjustments on equity
securities in the amount of
$462 million as a result
of equity market
declines
during
the
first
nine
months
of
In
addition,
we
realized
$40
million
of
losses
due
to
the
disposition
of investments
and recorded
an increase
to
the
allowance
for
credit
losses
of $18
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 a branch located in
the Netherlands.
These segments are
managed independently,
but conform
with corporate
guidelines with respect
to pricing, risk
management,
control
of
aggregate
catastrophe
exposures,
capital,
investments
and
support
operations.
Management
generally
monitors
and
evaluates
the
financial
performance
of
these
operating
segments
based
upon their underwriting results.
Underwriting
results
include
earned
premium
less
losses
and
loss
adjustment
expenses
(“LAE”)
incurred,
commission
and
brokerage
expenses
and
other
underwriting
expenses.
We
measure
our
underwriting
results
using
ratios,
in
particular
loss,
commission
and
brokerage
and
other
underwriting
expense
ratios,
which,
respectively,
divide incurred
losses, commissions
and brokerage
and other
underwriting expenses
by premiums
earned.
The
Company
does
not
maintain
separate
balance
sheet
data
for
its
operating
segments.
Accordingly,
the
Company does not
review and evaluate
the financial results
of its operating
segments based upon
balance sheet
data.
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-evalu
ation 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.
Three Months Ended September 30,
Nine Months Ended September 30,
(Dollars in millions)
2022
2021
Variance
% Change
2022
2021
Variance
% Change
Gross written premiums
$
2,551
$
2,488
$
2.5
%
$
6,938
$
6,696
$
3.6
%
Net written premiums
2,460
2,293
7.3
%
6,664
6,266
6.4
%
Premiums earned
$
2,245
$
1,976
$
13.6
%
$
6,451
$
5,675
$
13.7
%
Incurred losses and LAE
1,992
1,766
12.8
%
4,699
4,206
11.7
%
Commission and brokerage
14.0
%
1,582
1,353
16.9
%
Other underwriting expenses
18.3
%
8.1
%
Underwriting gain (loss)
$
(338)
$
(306)
$
(32)
10.3
%
$
$
(29)
$
147.1
%
Point Chg
Point Chg
Loss ratio
88.7
%
89.4
%
(0.7)
72.8
%
74.1
%
(1.3)
Commission and brokerage ratio
23.9
%
23.8
%
0.1
24.5
%
23.8
%
0.7
Other underwriting expense ratio
2.4
%
2.3
%
0.1
2.4
%
2.5
%
(0.1)
Combined ratio
115.0
%
115.5
%
(0.5)
99.8
%
100.5
%
(0.7)
(NM, Not Meaningful)
(Some amounts may not reconcile due to rounding.)
Premiums.
Gross written premiums
increased by 2.5% to
$2.6 billion for the three
months ended September
30,
2022 from
$2.5 billion
for
the three
months
ended September
30,
2021, primarily
due
to
increases
in casualty
pro
rata
business
and
catastrophe
excess
of loss
business
due
to
additional
reinstatement
premiums,
partially
offset
by
a
decline
in
property
pro
rata
business
and
property
casualty
excess
of
loss
business.
Net
written
premiums increased
by 7.3%
to $2.5
billion for
the three
months ended
September 30,
2022 compared
to $2.3
billion
for
the
three
months
ended
September
30,
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
the
three
months
ended
September
30,
2022
compared
to
the
three
months ended
September 30,
Premiums
earned increased
by 13.6%
to $2.3
billion for
the three
months
ended
September
30,
2022,
compared
to
$2.0
billion
for
the
three
months
ended
September
30,
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 quarter percentage
increase in net earned premiums.
Gross written
premiums increase
d
by 3.6%
to $6.9
billion for
the nine
months ended
September 30,
2022 from
$6.7
billion
for
the
nine
months
ended
September
30,
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
6.4% to
$6.7 billion
for
the nine
months
ended September
30,
2022 compared
to
$6.3
billion for the nine
months ended September
30, 2021.
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 the
nine months
ended September 30,
2022 compared
to the nine
months ended
September
30, 2021.
Premiums earned
increased by
13.7% to
$6.5 billion
for the
nine months
ended September
30, 2022,
compared
to
$5.7
billion
for
the
nine
months
ended
September
30,
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.
Three Months Ended September 30,
Current
Ratio %/
Prior
Ratio %/
Total
Ratio %/
(Dollars in millions)
Year
Pt Change
Years
Pt Change
Incurred
Pt Change
2022
Attritional
$
1,262
56.2
%
$
-
-
%
1,262
56.2
%
Catastrophes
32.5
%
-
-
%
32.5
%
Total Segment
$
1,992
88.7
%
$
-
-
%
$
1,992
88.7
%
2021
Attritional
$
1,153
58.3
%
$
(2)
-0.1
%
1,151
58.2
%
Catastrophes
31.1
%
-
-
%
31.1
%
Total Segment
$
1,768
89.4
%
$
(2)
-0.1
%
$
1,766
89.4
%
Variance 2022/2021
Attritional
$
(2.1)
pts
$
0.1
pts
$
(2.1)
pts
Catastrophes
1.4
pts
-
-
pts
1.4
pts
Total Segment
$
(0.7)
pts
$
0.1
pts
$
(0.7)
pts
Nine Months Ended September 30,
Current
Ratio %/
Prior
Ratio %/
Total
Ratio %/
(Dollars in millions)
Year
Pt Change
Years
Pt Change
Incurred
Pt Change
2022
Attritional
$
3,781
58.6
%
$
(2)
-
%
3,779
58.6
%
Catastrophes
14.3
%
-
-
%
14.3
%
Total Segment
$
4,701
72.9
%
$
(2)
-
%
$
4,699
72.8
%
2021
Attritional
$
3,339
58.8
%
$
(5)
-0.1
%
3,334
58.7
%
Catastrophes
15.4
%
-
-
%
15.4
%
Total Segment
$
4,211
74.2
%
$
(5)
-0.1
%
$
4,206
74.1
%
Variance 2022/2021
Attritional
$
(0.2)
pts
$
0.1
pts
$
(0.1)
pts
Catastrophes
(1.1)
pts
-
-
pts
(1.1)
pts
Total Segment
$
(1.3)
pts
$
0.1
pts
$
(1.3)
pts
Incurred losses increased
by 12.8%
to $2.0 billion for
the three months
ended September 30, 2022,
compared to
$1.8 billion
for the
three months
ended September
30, 2021.
The increase
was primarily
due to
an increase
of
$115 million in
current year
catastrophe
losses and an
increase of $109
million in current
year attritional
losses.
The
increase
in
current
year
attritional
losses
was
mainly
related
to
the
impact
of
the
increase
in
premiums
earned.
The current
year
catastrophe
losses
of $730
million
for
the
three
months
ended September
30,
2022
related
primarily
to
Hurricane
Ian
($600
million),
the
Western
Europe
hailstorms
($70
million),
Typhoon
Nanmadol
($20
million),
Hurricane
Fiona
($20
million)
and
the
2022
Western
Europe
Convective
storm
($20
million).
The $615
million of
current
year
catastrophe
losses for
the three
months
ended September
30, 2021
related primarily to Hurricane Ida
($383 million) and the European floods ($232 million).
Incurred losses
increased by
11.7% to $4.7
billion for
the nine
months ended
September 30,
2022, compared
to
$4.2 billion
for
the nine
months
ended September
30, 2021.
The increase
was
primarily
due to
an increase
of
$443 million
in current
year attritional
losses and
an increase
of $48
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 $920 million for
the nine months
ended September 30,
2022 related primarily
to Hurricane Ian
($600 million),
the 2022 Australia
floods ($85 million), the
Western Europe
hailstorms ($70 million),
the 2022 South Africa
flood
($45 million), the 2022
Western
Europe Convective
storm ($30 million),
the 2022 European
storms ($21 million),
Typhoon
Nanmadol
($20
million),
Hurricane
Fiona
($20
million),
the
2022
Canada
derecho
($18
million),
the
2022
nd
quarter
U.S.
storms
($7
million)
and
the
2022
March
U.S.
storms
($4
million).
The
$873
million
of
current
year
catastrophe
losses for
the nine
months
ended
September
30, 2021
related
primarily to
Hurricane
Ida ($383 million), the European
floods ($242 million) and the Texas
winter storms ($228
million) with the rest of
the losses emanating from the 2021 Australia
floods and the Victoria Australia flooding.
Segment
Expenses.
Commission
and
brokerage
expense
increased
by
14.0%
to
$537
million
for
the
three
months ended
September 30,
2022 compared
to $471
million for
the three
months ended
September 30,
Commission and brokerage
expense increased by 16.9% to
$1.6 billion for the nine months
ended September 30,
2022 compared
to $1.4
billion for
the nine
months ended
September 30,
The increases
were mainly
due
to the impact of the increases
in premiums earned and changes in the mix of business.
Segment other underwriting
expenses increased
to $54 million
for the three
months ended
September 30, 2022
from
$45
million
for
the
three
months
ended
September
30,
Segment
other
underwriting
expenses
increased to $156
million for the nine
months ended September
30, 2022 from $144
million for the
nine months
ended September
30, 2021.
The increases
were 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.
Three Months Ended September 30,
Nine Months Ended September 30,
(Dollars in millions)
2022
2021
Variance
% Change
2022
2021
Variance
% Change
Gross written premiums
$
1,129
$
1,009
$
11.9
%
$
3,376
$
2,924
$
15.5
%
Net written premiums
17.6
%
2,492
2,123
17.4
%
Premiums earned
$
$
$
20.9
%
$
2,324
$
1,928
$
20.6
%
Incurred losses and LAE
24.2
%
1,591
1,366
16.5
%
Commission and brokerage
12.0
%
14.3
%
Other underwriting expenses
20.5
%
22.8
%
Underwriting gain (loss)
$
(29)
$
(17)
$
(12)
68.6
%
$
$
$
288.9
%
Point Chg
Point Chg
Loss ratio
76.8
%
74.7
%
2.1
68.4
%
70.8
%
(2.4)
Commission and brokerage ratio
12.7
%
13.7
%
-1.0
12.7
%
13.4
%
(0.7)
Other underwriting
expense ratio
14.0
%
14.1
%
-0.1
14.8
%
14.5
%
0.3
Combined ratio
103.5
%
102.5
%
1.0
95.9
%
98.7
%
(2.8)
(NM not meaningful)
(Some amounts may not reconcile due to rounding.)
Premiums.
Gross
written
premiums
increased by
11.9% to
$1.1 billion
for the
three
months
ended September
30, 2022
compared
to $1.0
billion for
the three
months
ended September
30,
The increase
in insurance
premiums
reflects
growth
across
most
lines
of
business
driven
by
positive
rate
and
exposure
increases,
new
business and
strong renewal
retention.
Net written
premiums increased
by 17.6%
to $862
million for
the three
months ended
September 30,
2022 compared
to $733
million for
the three
months ended
September 30,
The higher percentage increase
in net written premiums
compared to gross written
premiums was mainly due to
a
change
in
business
mix.
Premiums
earned
increased
20.9%
to
$822
million
for
the
three
months
ended
September 30,
2022 compared
to $680 million
for the
three months
ended September
30,
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
quarter percentage increase
in net earned premiums.
Gross
written
premiums
increased
by
15.5%
to
$3.4
billion
for
the
nine
months
ended
September
30,
2022
compared to
$2.9 billion
for the
nine months
ended September
30, 2021.
The increase
in insurance
premiums
reflects
growth across
most lines
of business
driven by
positive rate
and exposure
increases,
new business
and
strong
renewal retention.
Net written
premiums increased
by 17.4%
to $2.5
billion for
the nine
months ended
September
30,
2022
compared
to
$2.1
billion
for
the
nine
months
ended
September
30,
The
higher
percentage increase
in net
written
premiums compared
to gross
written premiums
was mainly
due to
a change
in
business
mix.
Premiums
earned
increased
20.6% to
$2.3
million
for
the
nine
months
ended
September
30,
2022 compared to
$1.9 billion for
the nine months
ended September 30,
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.
Three Months Ended September 30,
Current
Ratio %/
Prior
Ratio %/
Total
Ratio %/
(Dollars in millions)
Year
Pt Change
Years
Pt Change
Incurred
Pt Change
2022
Attritional
$
63.4
%
$
-
-
%
63.4
%
Catastrophes
13.4
%
-
-
%
13.4
%
Total Segment
$
76.8
%
$
-
-
%
$
76.8
%
2021
Attritional
$
63.0
%
$
-
-
%
63.0
%
Catastrophes
11.8
%
-
-
%
11.8
%
Total Segment
$
74.7
%
$
-
-
%
$
74.7
%
Variance 2022/2021
Attritional
$
0.4
pts
$
-
-
pts
$
0.4
pts
Catastrophes
1.6
pts
-
-
pts
1.6
pts
Total Segment
$
2.1
pts
$
-
-
pts
$
2.1
pts
Nine Months Ended September 30,
Current
Ratio %/
Prior
Ratio %/
Total
Ratio %/
(Dollars in millions)
Year
Pt Change
Years
Pt Change
Incurred
Pt Change
2022
Attritional
$
1,470
63.2
%
$
-
%
1,471
63.2
%
Catastrophes
5.2
%
-
-
%
5.2
%
Total Segment
$
1,590
68.4
%
$
-
%
$
1,591
68.4
%
2021
Attritional
$
1,229
63.8
%
$
(1)
-0.1
%
1,228
63.7
%
Catastrophes
7.1
%
-
-
%
7.1
%
Total Segment
$
1,366
70.9
%
$
(1)
-0.1
%
$
1,366
70.8
%
Variance 2022/2021
Attritional
$
(0.6)
pts
$
0.1
pts
$
(0.5)
pts
Catastrophes
(18)
(1.9)
pts
-
-
pts
(18)
(1.9)
pts
Total Segment
$
(2.5)
pts
$
0.1
pts
$
(2.4)
pts
(Some amounts may not reconcile due to rounding.)
Incurred
losses
and
LAE
increased
by
24.2%
to
$631
million
for
the
three
months
ended
September
30,
2022
compared to
$508 million for
the three
months ended
September 30,
The increase
was mainly
due to
an
increase of $93 million in
current year attritional
losses and an increase
in current year catastrophe
losses of $30
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
$110 million
related
to Hurricane
Ian ($100
million),
Hurricane
Fiona
($5
million)
and
the
Western
Europe
hailstorms
($5
million).
The
$80
million
of
current
year
catastrophe losses
for the three months ended September
30, 2021 related to Hurricane Ida.
Incurred
losses
and
LAE
increased
by
16.5%
to
$1.6
billion
for
the
nine
months
ended
September
30,
2022
compared
to
$1.4 billion
for
the
nine
months
ended September
30,
The increase
was
mainly
due
to
an
increase
of
$241
million
in
current
year
attritional
losses,
partially
offset
by
a
decrease
in
current
year
catastrophe
losses of $18 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 $120 million related to
Hurricane Ian
($100
million),
Hurricane
Fiona
($5
million),
the
Western
Europe
hailstorms
($5
million),
the
2022
March
U.S.
storms
($5
million)
and
the
2022
nd
quarter
U.S.
storms
($5
million).
The
$138
million
of
current
year
catastrophe losses
for the nine months
ended September 30, 2021
related to Hurricane
Ida ($80 million) and the
Texas
winter storms ($58 million).
Segment Expenses.
Commission and
brokerage
increased by
12.0% to $104
million for
the three
months ended
September 30, 2022 compared
to $93 million for the
three months ended September
30, 2021.
Commission and
brokerage increased
by 14.3% to $295 million for
the nine months ended September
30, 2022 compared to
$258
million for
the nine
months ended
September 30,
These increases
were mainly
due to
the impact
of the
increases
in
premiums
earned
and
increased
expenses
related
to
the
continued
build
out
of
the
insurance
business, including an expansion of the international
insurance platform.
Segment
other
underwriting
expenses
increased
to
$115
million
for
the
three
months
ended
September
30,
2022 compared
to
$96 million
for
the
three
months
ended
September
30,
Segment
other
underwriting
expenses increased to $344 million for
the nine months ended September 30, 2022 compared
to $280 million for
the nine months
ended September 30,
These increases
were mainly due
to the impact
of the increase
s
in
premiums earned and increased
expenses related to
the continued build out
of the insurance business,
including
an expansion of the international insurance
platform.
FINANCIAL CONDITION
Investments.
Total
investments
were $26.8
billion at
September 30,
2022, a
decrease of
$1.4 million
compared
to
$28.2
billion
at
December
31,
This
decrease
was
primarily
related
to
declines
in
fixed
maturity
securities,
equity securities
and short
-term investments.
Fixed
maturity
securities decreased
due to
declines in
fair
values
resulting
primarily
from
higher
interest
rates,
as
well
as
net
purchases
of
fixed
maturity
securities
during
the
period.
Equity
securities
decreased
due
to
declines
in
fair
values
due
to
diminished
market
performance as well as net sales of equity securities during
the period.
The
Company’s
limited
partnership
investments
are
comprised
of
limited
partnerships
that
invest
in
private
equities.
Generally,
the limited partnerships
are reported on a
month or quarter lag.
We receive annual
audited
financial
statements
for
all
of
the
limited
partnerships
which
are
prepared
using
fair
value
accounting
in
accordance
with
FASB
guidance.
For
the
quarterly
reports,
the
Company
reviews
the
financial
reports
for
any
unusual changes in carrying
value.
If the Company becomes
aware of a significant
decline in value during
the lag
reporting period, the loss will be recorded in the period
in which the Company identifies the decline.
The
table
below
summarize
the
composition
and
characteristics
of
our
investment
portfolio
as
of
the
dates
indicated.
At
At
September 30, 2022
December 31, 2021
Fixed income portfolio duration (years)
3.1
3.2
Fixed income composite credit quality
A+
A+
Reinsurance Recoverables
.
Reinsurance
recoverables
for both
paid and
unpaid losses
totaled $2.2
billion and
$2.1 billion
at September
30,
2022 and December 31,
2021, respectively.
At September 30,
2022, $526 million, or
23.5%, was receivable
from
Mt.
Logan
Re
collateralized
segregated
accounts;
$234
million,
or
10.4%,
was
receivable
from
Munich
Reinsurance
America,
Inc.
(“Munich
Re”)
and
$140
million,
or
6.3%
was
receivable
from
Endurance
Specialty
Holdings, Ltd. (“Endurance”).
No other retrocessionaire accoun
ted for more than 5% of our recoverables
.
Loss
and
LAE
Reserves.
Gross
loss
and
LAE
reserves
totaled
$21.2
billion
and
$19.0
billion
at
September
30,
2022 and December 31, 2021, respectively.
The following
tables summarize
gross outstanding
loss and
LAE reserves
by segment,
classified by
case reserves
and IBNR reserves, for the periods indicated.
At September 30, 2022
Case
IBNR
Total
% of
(Dollars in millions)
Reserves
Reserves
Reserves
Total
Reinsurance
$
5,763
$
9,620
$
15,383
72.5
%
Insurance
1,728
3,973
5,701
26.9
%
Total excluding A&E
7,491
13,592
21,083
99.4
%
A&E
-
0.6
%
Total including A&E
$
7,630
$
13,592
$
21,222
100.0
%
(Some amounts may not reconcile due
to rounding.)
At December 31, 2021
Case
IBNR
Total
% of
(Dollars in millions)
Reserves
Reserves
Reserves
Total
Reinsurance
$
5,415
$
8,312
$
13,727
72.2
%
Insurance
1,546
3,562
5,109
26.9
%
Total excluding A&E
6,961
11,875
18,836
99.1
%
A&E
0.9
%
Total including A&E
$
7,125
$
11,885
$
19,009
100.0
%
(Some amounts may not reconcile due
to rounding.)
Changes
in
premiums
earned
and
business
mix,
reserve
re-estimations,
catastrophe
losses
and
changes
in
catastrophe loss reserves
and claim settlement activity all impact loss and LAE
reserves by segment and in total.
Our loss and
LAE reserves represent
management’s best
estimate of
our ultimate liability
for unpaid
claims.
We
continuously
re-evaluate
our reserves,
including re-estimates
of prior
period reserves,
taking into
consideration
all
available
information
and,
in
particular,
newly
reported
loss
and
claim
experience.
Changes
in
reserves
resulting from
such re-evaluations
are reflected
in incurred
losses in the
period when the
re-evaluation
is made.
Our analytical
methods and
processes operate
at multiple
levels including
individual contracts,
groupings of
like
contracts, classes
and lines of business,
internal business units,
segments, legal entities,
and in the aggregate.
In
order to set appropriate
reserves, we make
qualitative and quantitative
analyses and judgments at
these various
levels.
Additionally,
the attribution
of reserves,
changes
in
reserves
and incurred
losses
among accident
years
requires
qualitative
and
quantitative
adjustments
and
allocations
at
these
various
levels.
We
utilize
actuarial
science,
business
expertise
and
management
judgment
in
a
manner
intended
to
ensure
the
accuracy
and
consistency of
our reserving
practices.
Nevertheless, our
reserves are
estimates, which
are subject
to variation,
which may be significant.
There
can
be no
assurance
that reserves
for,
and losses
from,
claim obligations
will not
increase
in the
future,
possibly
by
a
material
amount.
However,
we
believe
that
our
existing
reserves
and
reserving
methodologies
lessen
the
probability
that
any
such
increase
would
have
a
material
adverse
effect
on
our
financial
condition,
results of operations or cash flows.
Asbestos
and
Environmental
Exposures.
Asbestos
and
Environmental
(“A&E”)
exposures
represent
a
separate
exposure
group
for
monitoring
and
evaluating
reserve
adequacy.
The
following
table
summarizes
the
outstanding
loss
reserves
with
respect
to
A&E
reserves
on
both
a
gross
and
net
of
retrocessions
basis
for
the
periods indicated.
At
At
September 30,
December 31,
(Dollars in millions)
2022
2021
Gross reserves
$
$
Ceded reserves
(15)
(19)
Net reserves
$
$
(Some amounts may not reconcile due to rounding.)
With
respect
to
asbestos
only,
at
September
30,
2022,
we
had
net
asbestos
loss
reserves
of
$125
million,
or
101.0%, of total net A&E reserves, all of which was
for assumed business.
Ultimate
loss
projections
for
A&E
liabilities
cannot
be
accomplished
using
standard
actuarial
techniques.
We
believe
that
our
A&E
reserves
represent
management’s
best
estimate
of the
ultimate
liability;
however,
there
can be no assurance that ultimate loss
payments will not exceed such reserves,
perhaps by a significant amount.
Industry
analysts
use
the
“survival
ratio”
to
compare
the
A&E
reserves
among
companies
with
such
liabilities.
The survival ratio is typically calculated
by dividing a company’s
current net reserves by the three year
average of
annual
paid
losses.
Hence,
the
survival
ratio
equals
the
number
of
years
that
it
would
take
to
exhaust
the
current reserves
if future
loss payments
were to
continue at
historical
levels.
Using this
measurement,
our net
three
year
asbestos
survival
ratio
was
3.5
years
at
September
30,
These
metrics
can
be
skewed
by
individual large settlements
occurring in the
prior three years
and therefore,
may not be
indicative of
the timing
of future payments.
LIQUIDITY AND CAPITAL RESOURCES
Capital.
Shareholders’
equity at
September 30,
2022 and
December 31,
2021 was
$7.6 billion
and $10.1
billion,
respectively.
Management’s
objective
in
managing
capital
is
to
ensure
its
overall
capital
level,
as
well
as
the
capital
levels
of
its
operating
subsidiaries,
exceed
the
amounts
required
by
regulators,
the
amount
needed
to
support
our current
financial strength
ratings
from rating
agencies and
our own
economic capital
models.
The
Company’s capital
has historically exceeded these benchmark
levels.
Our
two
main
operating
companies
Bermuda
Re
and
Everest
Re
are
regulated
by
the
Bermuda
Monetary
Authority
(“BMA”)
and
the
State
of
Delaware,
Department
of
Insurance,
respectively.
Both
regulatory
bodies
have their
own capital
adequacy models
based on
statutory capital
as opposed
to GAAP basis
equity.
Failure to
meet
the
required
statutory
capital
levels
could
result
in
various
regulatory
restrictions,
including
business
activity and the payment of dividends to
their parent companies.
The regulatory targeted
capital and the actual statutory
capital for Bermuda Re and Everest
Re were as follows:
Bermuda Re
(1)
Everest Re
(2)
At December 31,
At December 31,
(Dollars in millions)
2021
2020
2021
2020
Regulatory targeted capital
$
2,169
$
1,923
$
2,960
$
2,490
Actual capital
$
3,184
$
2,930
$
5,717
$
5,276
(1)
Regulatory targeted capital
represents the target capital
level from the applicable year's BSCR
calculation.
(2)
Regulatory targeted capital
represents 200% of the RBC authorized
control level calculation for
the applicable year.
Our financial strength
ratings as determined
by A.M. Best, Standard
& Poor’s and
Moody’s are important
as they
provide
our
customers
and
investors
with
an
independent
assessment
of
our
financial
strength
using
a
rating
scale that provides
for relative comparisons.
We continue
to possess significant
financial flexibility and
access to
debt
and
equity markets
as a
result
of our
financial
strength,
as evidenced
by
the
financial strength
ratings
as
assigned by independent rating agencies.
We maintain
our own
economic capital
models to
monitor and
project our
overall capital,
as well
as the
capital
at
our
operating
subsidiaries.
A
key
input
to
the
economic
models
is
projected
income
and
this
input
is
continually compared to actual results,
which may require a change in the capital
strategy.
On October 4, 2021, we issued $1.0 billion of 31 year senior
notes with an interest coupon
rate of 3.125%.
These
senior notes will mature on October 15, 2052 and will pay
interest semi-annually.
During the
first three
quarters
of 2022,
we repurchased
238,771 shares
for $60
million in
the open
market
and
paid
$191
million
in
dividends
to
adjust
our
capital
position
and
enhance
long
term
expected
returns
to
our
shareholders.
In
2021,
we
repurchased
887,622
shares
for
$225
million
in
the
open
market
and
paid
$247
million in
dividends to
adjust our
capital position
and enhance
long term
expected
returns to
our shareholders.
We may
at times enter
into a Rule
10b5-1 repurchase
plan agreement to
facilitate the
repurchase of
shares.
On
May
22,
2020,
our
existing
Board
authorization
to
purchase
up
to
million
of
our
shares
was
amended
to
authorize
the purchase
of up
to 32
million shares.
As of
September 30,
2022, we
had repurchased
30.8 million
shares under this authorization.
We
also
repurchased
$6
million
of
our
long
term
subordinated
notes
during
the
third
quarter
of
2022
and
recognized
a
gain
of
$1
million
on
the
repurchase.
We
may
continue,
from
time
to
time,
to
seek
to
retire
portions
of
our
outstanding
debt
securities
through
cash
repurchases,
in
open-market
purchases,
privately
negotiated
transactions
or
otherwise.
Such
repurchases,
if
any,
will
be
subject
to
and
depend
on
prevailing
market
conditions,
our liquidity
requirements,
contractual
restrictions
and other
factors.
The amounts
involved
in any such transactions, individually or in the
aggregate, may be material.
Liquidity.
Our liquidity
requirements
are generally
met from
positive
cash flow
from operations.
Positive
cash
flow results
from reinsurance
and insurance
premiums being
collected prior
to disbursements
for claims,
which
disbursements
generally
take
place
over
an
extended
period
after
the
collection
of
premiums,
sometimes
a
period of many
years.
Collected premiums
are generally
invested,
prior to
their use in
such disbursements,
and
investment
income provides
additional funding
for loss
payments.
Our net
cash flows
from operating
activities
were
$2.7
billion
and
$2.8
billion
for
the
nine
months
ended
September
30,
2022
and
2021,
respectively.
Additionally,
these cash
flows reflected
net catastrophe
loss payments
of $534
million and
$526 million
for the
nine months
ended September
30, 2022
and 2021,
respectively
and net
tax
payments
of $167
million and
$40
million for the nine months ended September
30, 2022 and 2021, respectively.
If disbursements
for claims
and benefits,
policy acquisition
costs and
other operating
expenses
were to
exceed
premium inflows,
cash flow
from reinsurance
and insurance
operations
would be
negative.
The effect
on cash
flow
from
insurance
operations
would
be
partially
offset
by
cash
flow
from
investment
income.
Additionally,
cash
inflows
from
investment
maturities
and
dispositions,
both
short-term
investments
and
longer
term
maturities are available to supplement
other operating cash flows.
As the
timing of
payments for
claims and
benefits cannot
be predicted
with certainty,
we maintain
portfolios of
long
term
invested
assets
with
varying
maturities,
along
with
short-term
investments
that
provide
additional
liquidity
for
payment
of claims.
At
September 30,
2022 and
December 31,
2021,
we
held cash
and short-term
investments
of
$2.3
billion
and
$2.6
billion,
respectively.
Our
short-term
investments
are
generally
readily
marketable
and can
be converted
to cash.
In addition
to these
cash and
short-term investments,
at September
30, 2022, we had
$1.3 billion of
available for
sale fixed
maturity securities
maturing within one
year or less,
$7.2
billion
maturing
within
one
to
five
years
and
$5.1
billion
maturing
after
five
years.
Our
$1.3
billion
of
equity
securities
are
comprised
primarily
of
publicly
traded
securities
that
can
be
easily
liquidated.
We
believe
that
these fixed maturity and
equity securities, in conjunction
with the short-term investments
and positive cash flow
from operations,
provide ample
sources of
liquidity for
the expected
payment
of losses
in the
near future.
We
do
not anticipate
selling
a significant
amount
of securities
to
pay
losses
and LAE
but have
the
ability
to
do so.
Sales of
securities might
result in
net gains
(losses)
on investments
.
At September
30, 2022
we had
$2.5 billion
of net
pre-tax
unrealized
depreciation
related
to
fixed
maturity
securities,
comprised
of
$2.3
billion
of
pre-tax
unrealized depreciation and $153 million
of pre-tax unrealized appreciation.
Management generally
expects annual
positive cash
flow from operations,
which reflects
the strength
of overall
pricing.
However,
given the recent
set of catastrophic
events, cash
flow from operations
may decline
and could
become negative in the near term as
significant claim payments are
made related to the catastrophes.
However,
as indicated
above,
the Company
has ample
liquidity to
settle its
catastrophe
claims and/or
any
payments
due
for
its catastrophe bond program
.
In addition to our cash flows from operations
and liquid investments, we also have
multiple active credit facilities
that
provide
commitments
of
up
to
$1.2
billion
of
collateralized
standby
letters
of
credit
to
support
business
written by
our Bermuda operating
subsidiaries.
In addition, the
Company has the
ability to request
access to an
additional
$340
million
of
uncommitted
credit
facilities,
which
would
require
approval
from
the
applicable
lender.
There is
no guarantee
the uncommitted
capacity will
be available
to us
on a
future date.
See Note
9 –
Credit Facilities for further details.
Market Sensitive Instruments.
The SEC’s
Financial Reporting
Release
#48 requires
registrants
to clarify
and expand
upon the
existing
financial
statement
disclosure
requirements
for
derivative
financial
instruments,
derivative
commodity
instruments
and
other financial instruments (collectively,
“market sensitive
instruments”).
We do not generally
enter into market
sensitive instruments for trading
purposes.
Our
current
investment
strategy
seeks
to
maximize
after-tax
income
through
a
high
quality,
diversified,
fixed
maturity
portfolio,
while
maintaining
an
adequate
level
of
liquidity.
Our
mix
of
investments
is
adjusted
periodically,
consistent
with
our
current
and
projected
operating
results
and
market
conditions.
The
fixed
maturity
securities
in
the
investment
portfolio
are
comprised
of
non-trading
available
for
sale
securities.
Additionally, we
have invested
in equity securities.
The
overall
investment
strategy
considers
the
scope
of
present
and
anticipated
Company
operations.
In
particular,
estimates
of
the
financial
impact
resulting
from
non-investment
asset
and
liability
transactions,
together
with our
capital
structure
and
other factors,
are used
to
develop
a net
liability analysis.
This analysis
includes estimated payout
characteristics for
which our investments
provide liquidity.
This analysis is considered
in the development of specific investment
strategies for asset
allocation, duration and
credit quality.
The change
in overall market sensitive
risk exposure principally reflects
the asset changes that took place during the period.
Interest
Rate
Risk.
Our
$28.6
billion
investment
portfolio,
at
September
30,
2022,
is
principally
comprised
of
fixed
maturity
securities,
which
are
generally
subject
to
interest
rate
risk
and some
foreign
currency
exchange
rate risk, and some
equity securities, which are subject
to price fluctuations and some
foreign exchange
rate risk.
The overall
economic impact
of the
foreign
exchange
risks
on the
investment
portfolio
is partially
mitigated
by
changes
in
the
dollar
value
of
foreign
currency
denominated
liabilities
and
their
associated
income
statement
impact.
Interest
rate
risk is
the potential
change in
value of
the fixed
maturity securities
portfolio,
including short-term
investments,
from
a
change
in
market
interest
rates.
In
a
declining
interest
rate
environment,
it
includes
prepayment
risk
on
the
$3.6 billion
of mortgage
-backed
securities
in
the
$21.0 billion
fixed
maturity
portfolio.
Prepayment risk results
from potential accelerated
principal payments that
shorten the average
life and thus
the
expected yield of the security.
The table
below displays
the potential
impact of
fair value
fluctuations and
after-tax unrealized
appreciation on
our fixed maturity
portfolio (including
$611 million of short
-term investments)
for the period
indicated based on
upward and
downward parallel
and immediate
100 and 200
basis point shifts
in interest
rates.
For legal
entities
with a
U.S.
dollar functional
currency,
this modeling
was performed
on each
security individually.
To
generate
appropriate price estimates
on mortgage-backed
securities, changes in prepayment
expectations under different
interest rate
environments were taken
into account.
For legal entities with
a non-U.S. dollar functional currency,
the effective
duration of
the involved
portfolio of
securities was
used as a
proxy for
the fair
value change
under
the various interest rate
change scenarios.
Impact of Interest Rate Shift in Basis Points
At September 30, 2022
-200
-100
(Dollars in millions)
Total Fair Value
$
25,586
$
24,861
$
24,135
$
23,410
$
22,684
Fair Value Change from Base (%)
6.0
%
3.0
%
0.0
%
(3.0)
%
(6.0)
%
Change in Unrealized Appreciation
After-tax from Base ($)
$
1,266
$
$
-
$
(633)
$
(1,266)
We
had
$21.2
billion
and
$19.0
billion
of
gross
reserves
for
losses
and
LAE
as
of
September
30,
2022
and
December
31,
2021,
respectively.
These amounts
are
recorded
at
their
nominal
value,
as
opposed
to
present
value, which
would reflect
a discount
adjustment to
reflect the
time value
of money.
Since losses
are paid
out
over a period
of time, the present
value of the reserves
is less than the nominal
value.
As interest
rates rise, the
present
value
of the
reserves
decreases
and,
conversely,
as interest
rates
decline, the
present
value
increases.
These
movements
are
the
opposite
of
the
interest
rate
impacts
on
the
fair
value
of
investments.
While
the
difference
between
present
value
and
nominal
value
is
not
reflected
in
our
financial
statements,
our
financial
results
will include
investment
income
over
time
from
the
investment
portfolio
until
the
claims
are
paid.
Our
loss
and
loss
reserve
obligations
have
an
expected
duration
of
approximately
3.7
years,
which
is
reasonably
consistent
with
our
fixed
income
portfolio.
If
we
were
to
discount
our
loss
and
LAE
reserves,
net
of
ceded
reserves,
the
discount
would
be
approximately
$2.8
billion
resulting
in
a
discounted
reserve
balance
of
approximately
$16.3
billion,
representing
approximately
72.8%
of
the
value
of
the
fixed
maturity
investment
portfolio funds.
Equity
Risk.
Equity
risk is
the potential
change
in
fair
value
of the
common
stock,
preferred
stock
and
mutual
fund
portfolios
arising
from
changing
prices.
Our
equity
investments
consist
of
a
diversified
portfolio
of
individual securities and mutual
funds, which invest
principally in high quality
common and preferred
stocks that
are
traded
on
the
major
exchanges,
and
mutual
fund
investments
in
emerging
market
debt.
The
primary
objective
of the
equity
portfolio
is
to
obtain
greater
total
return
relative
to
our
core
bonds
over
time through
market appreciation and income.
The table
below displays
the impact on
fair value
and after-tax
change in
fair value
of a 10%
and 20%
change in
equity prices up and down for the period indicated.
Impact of Percentage Change in Equity Fair/Market Values
At September 30, 2022
(Dollars in millions)
-20%
-10%
0%
10%
20%
Fair Value of the Equity Portfolio
$
1,041
$
1,171
$
1,301
$
1,431
$
1,561
After-tax Change in Fair Value
$
(206)
$
(103)
$
-
$
$
Foreign Currency
Risk.
Foreign currency
risk is the
potential change
in value,
income and
cash flow arising
from
adverse
changes
in
foreign
currency
exchange
rates.
Each
of
our
non-U.S./Bermuda
(“foreign”)
operations
maintains
capital
in
the
currency
of
the
country
of
its
geographic
location
consistent
with
local
regulatory
guidelines.
Each
foreign
operation
may
conduct
business in
its local
currency,
as well
as the
currency of
other
countries
in
which
it
operates.
The
primary
foreign
currency
exposures
for
these
foreign
operations
are
the
Canadian
Dollar,
the
Singapore
Dollar,
the
British
Pound
Sterling
and
the
Euro.
We
mitigate
foreign
exchange
exposure
by
generally
matching
the
currency
and
duration
of
our
assets
to
our
corresponding
operating
liabilities.
In accordance
with FASB
guidance, the
impact
on the
fair value
of available
for sale
fixed
maturities
due to changes in
foreign currency exchange
rates, in relation
to functional currency,
is reflected as part of
other
comprehensive
income.
Conversely,
the
impact
of
changes
in
foreign
currency
exchange
rates,
in
relation
to
functional
currency,
on
other
assets
and
liabilities
is
reflected
through
net
income
as
a
component
of
other
income
(expense).
In
addition,
we
translate
the
assets,
liabilities
and
income
of
non-U.S.
dollar
functional
currency
legal
entities
to
the
U.S.
dollar.
This
translation
amount
is
reported
as
a
component
of
other
comprehensive income.
Safe Harbor Disclosure.
This
report
contains
forward-looking
statements
within
the
meaning
of
the
U.S.
federal
securities
laws.
We
intend
these
forward-looking
statements
to
be
covered
by
the
safe
harbor
provisions
for
forward-looking
statements
in
the
federal
securities
laws.
In
some
cases,
these
statements
can
be
identified
by
the
use
of
forward-looking
words
such
as
“may”,
“will”,
“should”,
“could”,
“anticipate”,
“estimate”,
“expect”,
“plan”,
“believe”,
“predict”,
“potential”
and
“intend”.
Forward-looking
statements
contained
in
this
report
include
information regarding
our reserves for losses and LAE,
the CARES Act, the impact of the Tax
Cut and Jobs Act, the
adequacy
of
capital
in
relation
to
regulatory
required
capital,
the
adequacy
of
our
provision
for
uncollectible
balances,
estimates
of
our
catastrophe
exposure,
the
effects
of
catastrophic
and
pandemic
events
on
our
financial
statements,
the
ability
of
Everest
Re,
Holdings,
Holdings
Ireland,
Dublin
Holdings,
Bermuda
Re
and
Everest
International
to
pay
dividends
and
the
settlement
costs
of
our
specialized
equity
index
put
option
contracts.
Forward-looking
statements
only
reflect
our
expectations
and
are
not
guarantees
of
performance.
These
statements
involve
risks,
uncertainties
and
assumptions.
Actual
events
or
results
may
differ
materially
from our expectations.
Important factors
that could cause
our actual events
or results to
be materially different
from our expectations
include those discussed
under the caption ITEM
1A, “Risk Factors”
in the Company’s
most
recent
10-K
filing.
We
undertake
no
obligation
to
update
or
revise
publicly
any
forward-looking
statements,
whether as a result of new information,
future events or otherwise.
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