filings.toolsItem 6. [Exhibits](a27028)
88K characters. Original on sec.gov · Markdown
Item 6. [Exhibits](a27028)
EVEREST RE GROUP,
LTD.
CONSOLIDATED
BALANCE SHEETS
September 30,
December 31,
(Dollars and share amounts in millions, except par value per share)
2022
2021
(unaudited)
ASSETS:
Fixed maturities - available for sale, at fair value
$
21,009
$
22,308
(amortized cost: 2022, $
23,204
; 2021, $
22,064
, credit allowances: 2022, $
(
)
; 2021, $
(
)
)
Fixed maturities - held to maturity, at amortized cost, net of credit allowances
(fair value: 2022, $
, credit allowances: 2022, $
(
)
)
-
Equity securities, at fair value
1,301
1,826
Short-term investments (cost: 2022, $
; 2021, $
1,178
)
1,178
Other invested assets
3,079
2,920
Cash
1,679
1,441
Total investments and cash
28,516
29,673
Accrued investment income
Premiums receivable
3,452
3,294
Reinsurance recoverables
2,240
2,053
Funds held by reinsureds
Deferred acquisition costs
Prepaid reinsurance premiums
Income taxes
Other assets
TOTAL
ASSETS
$
38,144
$
38,185
LIABILITIES:
Reserve for losses and loss adjustment expenses
$
21,222
$
19,009
Future policy benefit reserve
Unearned premium reserve
4,795
4,610
Funds held under reinsurance treaties
Other net payable to reinsurers
Losses in course of payment
Senior notes
2,347
2,346
Long term notes
Borrowings from FHLB
Accrued interest on debt and borrowings
Unsettled securities payable
Other liabilities
Total liabilities
30,495
28,046
Commitments and contingencies (Note 7)
(nil)
(nil)
SHAREHOLDERS' EQUITY:
Preferred shares, par value: $
0.01
;
50.0
shares authorized;
no
shares issued and outstanding
-
-
Common shares, par value: $
0.01
;
200.0
shares authorized; (2022)
69.9
and (2021)
69.8
outstanding before treasury shares
Additional paid-in capital
2,293
2,274
Accumulated other comprehensive income (loss), net of deferred income
tax expense (benefit) of $
(269)
at 2022 and $
at 2021
(2,348)
Treasury shares, at cost;
30.8
shares (2022) and
30.5
shares (2021)
(3,907)
(3,847)
Retained earnings
11,610
11,700
Total shareholders' equity
7,649
10,139
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
$
38,144
$
38,185
The accompanying notes are an integral part of the consolidated
financial statements.
EVEREST RE GROUP,
LTD.
CONSOLIDATED
STATEMENTS
OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
Three Months Ended
Nine Months Ended
September 30,
September 30,
(Dollars in millions, except per share amounts)
2022
2021
2022
2021
(unaudited)
(unaudited)
REVENUES:
Premiums earned
$
3,067
$
2,656
$
8,775
$
7,603
Net investment income
Net gains (losses) on investments:
Credit allowances on fixed maturity securities
(5)
(7)
(18)
(30)
Gains (losses) from fair value adjustments
(136)
(5)
(462)
Net realized gains (losses) from dispositions
(39)
Total net gains (losses) on investments
(129)
(4)
(519)
Other income (expense)
(16)
(20)
(71)
Total revenues
3,073
2,925
8,805
8,746
CLAIMS AND EXPENSES:
Incurred losses and loss adjustment expenses
2,623
2,274
6,289
5,572
Commission, brokerage, taxes and fees
1,877
1,611
Other underwriting expenses
Corporate expenses
Interest, fees and bond issue cost amortization expense
Total claims and expenses
3,474
3,013
8,785
7,700
INCOME (LOSS) BEFORE TAXES
(401)
(88)
1,046
Income tax expense (benefit)
(82)
(14)
(81)
NET INCOME (LOSS)
$
(319)
$
(73)
$
$
Other comprehensive income (loss), net of tax:
Unrealized appreciation (depreciation) ("URA(D)") on securities arising during the
period
(712)
(100)
(2,260)
(304)
Reclassification adjustment for realized losses (gains) included in net income (loss)
(1)
(3)
Total URA(D) on securities arising during the period
(671)
(101)
(2,199)
(308)
Foreign currency translation adjustments
(101)
(54)
(163)
(29)
Reclassification adjustment for amortization of net (gain) loss included in net income (loss)
Total benefit plan net gain (loss) for the period
Total other comprehensive income (loss), net of tax
(771)
(153)
(2,360)
(331)
COMPREHENSIVE INCOME (LOSS)
$
(1,090)
$
(227)
$
(2,259)
$
EARNINGS PER COMMON SHARE:
Basic
$
(8.22)
$
(1.88)
$
2.57
$
23.74
Diluted
(8.22)
(1.88)
2.57
23.72
The accompanying notes are an integral part of the consolidated
financial statements.
EVEREST RE GROUP,
LTD.
CONSOLIDATED
STATEMENTS
OF
CHANGES IN SHAREHOLDERS’ EQUITY
Three Months Ended
Nine Months Ended
September 30,
September 30,
(Dollars in millions, except dividends per share amounts)
2022
2021
2022
2021
(unaudited)
(unaudited)
COMMON SHARES (shares outstanding):
Balance beginning of period
Issued (redeemed) during the period, net
-
-
-
-
Treasury shares acquired
-
(1)
-
(1)
Balance end of period
COMMON SHARES (par value):
Balance beginning of period
$
$
$
$
Issued during the period, net
-
-
-
-
Balance end of period
ADDITIONAL PAID-IN CAPITAL:
Balance beginning of period
2,284
2,256
2,274
2,245
Share-based compensation plans
Balance end of period
2,293
2,266
2,293
2,266
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS),
NET OF DEFERRED INCOME TAXES:
Balance beginning of period
(1,577)
Net increase (decrease) during the period
(771)
(153)
(2,360)
(331)
Balance end of period
(2,348)
(2,348)
RETAINED EARNINGS:
Balance beginning of period
11,994
11,465
11,700
10,567
Net income (loss)
(319)
(73)
Dividends declared ($
1.65
per share in 3Q 2022 and $
4.85
per share YTD
in 2022; $
1.55
per share in 3Q 2021 and $
4.65
per share YTD in 2021)
(65)
(61)
(191)
(186)
Balance, end of period
11,610
11,330
11,610
11,330
TREASURY SHARES AT COST:
Balance beginning of period
(3,849)
(3,662)
(3,847)
(3,622)
Purchase of treasury shares
(58)
(160)
(60)
(200)
Balance end of period
(3,907)
(3,822)
(3,907)
(3,822)
TOTAL
SHAREHOLDERS' EQUITY, END OF PERIOD
$
7,649
$
9,979
$
7,649
$
9,979
The accompanying notes are an integral part
of the consolidated financial statements.
EVEREST RE GROUP,
LTD.
CONSOLIDATED
STATEMENTS
OF CASH FLOWS
Nine Months Ended
September 30,
(Dollars in millions)
2022
2021
(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)
$
$
Adjustments to reconcile net income to net cash provided by operating activities:
Decrease (increase) in premiums receivable
(405)
(737)
Decrease (increase) in funds held by reinsureds, net
(35)
(93)
Decrease (increase) in reinsurance recoverables
(662)
(231)
Decrease (increase) in income taxes
(249)
Decrease (increase) in prepaid reinsurance premiums
(194)
(147)
Increase (decrease) in reserve for losses and loss adjustment expenses
3,117
2,560
Increase (decrease) in future policy benefit reserve
(2)
(1)
Increase (decrease) in unearned premiums
Increase (decrease) in other net payable to reinsurers
Increase (decrease) in losses in course of payment
(150)
Change in equity adjustments in limited partnerships
(126)
(543)
Distribution of limited partnership income
Change in other assets and liabilities, net
(134)
(230)
Non-cash compensation expense
Amortization of bond premium (accrual of bond discount)
Net (gains) losses on investments
(139)
Net cash provided by (used in) operating activities
2,680
2,791
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from fixed maturities matured/called/repaid - available for sale
2,171
2,757
Proceeds from fixed maturities matured/called/repaid - held to maturity
-
Proceeds from fixed maturities sold - available for sale
1,177
Proceeds from equity securities sold, at fair value
1,030
Distributions from other invested assets
Cost of fixed maturities acquired - available for sale
(5,958)
(5,671)
Cost of fixed maturities acquired - held to maturity
(133)
-
Cost of equity securities acquired, at fair value
(960)
(508)
Cost of other invested assets acquired
(455)
(604)
Net change in short-term investments
Net change in unsettled securities transactions
(177)
Net cash provided by (used in) investing activities
(2,196)
(2,102)
CASH FLOWS FROM FINANCING ACTIVITIES:
Common shares issued (redeemed) during the period for share-based compensation, net of expense
(16)
(12)
Purchase of treasury shares
(60)
(200)
Dividends paid to shareholders
(191)
(186)
Cost of debt repurchase
(6)
-
Cost of shares withheld on settlements of share-based compensation awards
(19)
(15)
Net cash provided by (used in) financing activities
(292)
(413)
EFFECT OF EXCHANGE RATE CHANGES ON CASH
(9)
Net increase (decrease) in cash
Cash, beginning of period
1,441
Cash, end of period
$
1,679
$
1,068
SUPPLEMENTAL CASH FLOW INFORMATION:
Income taxes paid (recovered)
$
$
Interest paid
NON-CASH TRANSACTIONS:
Reclassification of specific investments from fixed maturity securities, available for sale
at fair value to fixed maturity securities, held to maturity at amortized cost net of credit allowances
$
$
-
The accompanying notes are an integral
part of the consolidated financial statements.
NOTES TO CONSOLIDATED
INTERIM FINANCIAL STATEMENTS
(UNAUDITED)
For the Three and Nine Months Ended September
30, 2022 and 2021
GENERAL
Everest
Re Group,
Ltd. (“Group”),
a Bermuda company,
through its
subsidiaries, principally
provides reinsurance
and
insurance
in
the
U.S.,
Bermuda
and
international
markets.
As
used
in
this
document,
“Company”
means
Group and its subsidiaries.
BASIS OF PRESENTATION
The unaudited
consolidated
financial statements
of the
Company
as of
September
30, 2022
and December
31,
2021 and for the three
and nine months ended
September 30, 2022 and
2021 include all adjustments,
consisting
of
normal
recurring
accruals,
which,
in
the
opinion
of
management,
are
necessary
for
a
fair
statement
of
the
results
on
an
interim
basis.
Certain
financial
information,
which
is
normally
included
in
annual
financial
statements
prepared
in
accordance
with
accounting
principles
generally
accepted
in
the
United
States
of
America (“GAAP”),
has been
omitted since
it is
not required
for interim
reporting purposes.
The December
31,
2021
consolidated
balance
sheet
data
was
derived
from
audited
financial
statements
but
does
not
include
all
disclosures
required by
GAAP.
The results
for the
three and
nine months
ended September
30, 2022
and 2021
are
not
necessarily
indicative
of
the
results
for
a
full
year.
These
financial
statements
should
be
read
in
conjunction with the audited consolidated
financial statements and
notes thereto for
the years ended December
31, 2021, 2020 and 2019, included in the Company’s
most recent Form 10-K filing.
The Company
consolidates
the results
of operations
and financial
position of
all voting
interest
entities ("VOE")
in
which
the
Company
has
a controlling
financial
interest
and
all
variable
interest
entities
("VIE")
in
which
the
Company is considered to be the primary beneficiary.
The consolidation assessment, including
the determination
as
to
whether
an
entity
qualifies
as
a
VIE
or
VOE,
depends
on
the
facts
and
circumstances
surrounding
each
entity.
The preparation
of financial
statements
in conformity
with GAAP
requires
management
to make
estimates
and
assumptions
that
affect
the reported
amounts
of assets
and liabilities
(and disclosure
of contingent
assets
and
liabilities) at the date of the financial
statements and the reported
amounts of revenues and expenses
during the
reporting period.
Ultimate actual results could differ,
possibly materially,
from those estimates.
All intercompany accounts
and transactions have been eliminated.
Certain
reclassifications
and
format
changes
have
been
made
to
prior
years’
amounts
to
conform
to
the
2022
presentation.
Application of Recently Issued Accounting
Standard Changes.
The Company did
not adopt any
new accounting standards
that had a
material impact during
the three and
nine
months ended
September 30,
The Company
assessed the
adoption impacts
of recently
issued accounting
standards
by the
Financial Accounting
Standards
Board on
the Company’s
consolidated
financial statements
as
well as
material updates
to previous
assessments,
if any,
from the
Company’s
Annual Report
on Form
10-K for
the
year
ended
December
31,
There
were
no
accounting
standards
issued
in
the
nine
months
ended
September 30, 2022, that are expected to
have a material impact to Group.
Any
issued
guidance
and
pronouncements,
other
than
those
directly
referenced
above,
are
deemed
by
the
Company to be either not applicable or immaterial to
its financial statements.
INVESTMENTS
The
following
tables
show
amortized
cost,
allowance
for
credit
losses,
gross
unrealized
appreciation/(depreciation) and fair
value of fixed maturity securities available
for sale as of the dates indicated:
At September 30, 2022
Amortized
Allowance for
Unrealized
Unrealized
Fair
(Dollars in millions)
Cost
Credit Losses
Appreciation
Depreciation
Value
Fixed maturity securities - available for sale
U.S. Treasury securities and obligations of
U.S. government agencies and corporations
$
1,367
$
-
$
$
(79)
$
1,308
Obligations of U.S. states and political subdivisions
-
(38)
Corporate securities
7,010
(29)
(653)
6,397
Asset-backed securities
3,935
-
(164)
3,772
Mortgage-backed securities
Commercial
1,016
-
-
(108)
Agency residential
3,058
-
(337)
2,723
Non-agency residential
-
-
-
Foreign government securities
1,528
-
(205)
1,335
Foreign corporate securities
4,768
(9)
(726)
4,080
Total fixed maturity securities - available for sale
$
23,204
$
(38)
$
$
(2,310)
$
21,009
(Some amounts may not reconcile due to rounding.)
At December 31, 2021
Amortized
Allowance for
Unrealized
Unrealized
Fair
(Dollars in millions)
Cost
Credit Losses
Appreciation
Depreciation
Value
Fixed maturity securities - available for sale
U.S. Treasury securities and obligations of
U.S. government agencies and corporations
$
1,407
$
-
$
$
(10)
$
1,421
Obligations of U.S. states and political subdivisions
-
(1)
Corporate securities
7,444
(19)
(63)
7,557
Asset-backed securities
3,579
(8)
(12)
3,582
Mortgage-backed securities
Commercial
1,033
-
(6)
1,064
Agency residential
2,361
-
(19)
2,375
Non-agency residential
-
-
-
Foreign government securities
1,424
-
(28)
1,438
Foreign corporate securities
4,251
(3)
(65)
4,279
Total fixed maturity securities - available for sale
$
22,064
$
(30)
$
$
(203)
$
22,308
(Some amounts may not reconcile due to rounding.)
The
following
tables
show
amortized
cost,
allowance
for
credit
losses,
gross
unrealized
appreciation/(depreciation) and fair
value of fixed maturity securities held to
maturity as of the dates indicated:
At September 30, 2022
Amortized
Allowance for
Unrealized
Unrealized
Fair
(Dollars in millions)
Cost
Credit Losses
Appreciation
Depreciation
Value
Fixed maturity securities - held to maturity
Corporate securities
$
$
(2)
$
-
$
(11)
$
Asset-backed securities
(6)
(10)
Mortgage-backed securities
Commercial
-
-
-
Foreign corporate securities
(1)
-
(1)
Total fixed maturity securities - held to maturity
$
(9)
$
$
(21)
$
(Some amounts may not reconcile due to rounding.)
The amortized
cost and
fair value
of fixed
maturity securities
available for
sale are
shown in
the following
table
by
contractual
maturity.
Mortgage-backed
securities
are
generally
more
likely
to
be
prepaid
than
other
fixed
maturity securities. As the stated
maturity of such securities may not be indicative
of actual maturities, the totals
for mortgage-backed and
asset-backed securities
are shown separately.
At September 30, 2022
At December 31, 2021
Amortized
Fair
Amortized
Fair
(Dollars in millions)
Cost
Value
Cost
Value
Fixed maturity securities – available for sale:
Due in one year or less
$
1,257
$
1,258
$
1,399
$
1,398
Due after one year through five years
7,875
7,216
7,075
7,154
Due after five years through ten years
4,603
3,938
5,004
5,101
Due after ten years
1,456
1,189
1,606
1,627
Asset-backed securities
3,935
3,772
3,579
3,582
Mortgage-backed securities:
Commercial
1,016
1,033
1,064
Agency residential
3,058
2,723
2,361
2,375
Non-agency residential
Total fixed maturity securities - available for sale
$
23,204
$
21,009
$
22,064
$
22,308
(Some amounts may not reconcile due to rounding.)
The amortized
cost and
fair value
of fixed
maturity securities
held to
maturity are
shown in
the following
table
by contractual maturity.
At September 30, 2022
Amortized
Fair
(Dollars in millions)
Cost
Value
Fixed maturity securities – held to maturity:
Due after one year through five years
$
$
Due after five years through ten years
Due after ten years
Asset-backed securities
Mortgage-backed securities:
Commercial
Total fixed
maturity securities - held to maturity
$
$
(Some amounts may not reconcile due
to rounding.)
During the
third
quarter
of 2022,
the Company
re-designated
a portion
of its
fixed
maturity
securities from
its
fixed maturity – available
for sale portfolio
to its fixed maturity
– held to maturity portfolio.
The fair value of the
securities
reclassified
at
the
date
of
transfer
was
$
million,
net
of
allowance
for
current
expected
credit
losses,
which
was
subsequently
recognized
as
the
new
amortized
cost
basis.
As of
the date
of transfer,
these
securities had an unrealized
loss of $
million, which remained in accumulated
other comprehensive income
on
the
balance
sheet
and
will
be
amortized
into
income
through
an
adjustment
to
the
yields
of
the
underlying
securities over the remaining life of the securities.
The Company evaluated
fixed maturity
securities classified as
held to maturity
for current
expected credit
losses
as of
September 30,
2022 utilizing
risk characteristics
of each security,
including credit
rating, remaining
time to
maturity,
adjusted
for
prepayment
considerations,
and
subordination
level,
and
applying
default
and
recovery
rates,
which
include
the
incorporation
of
historical
credit
loss
experience
and
macroeconomic
forecasts,
to
develop an estimate
of current expected
credit losses. These
fixed maturities classified
as held to maturity
are of
a high credit quality and are all rated
investment grade as of September
30, 2022.
The changes
in net
unrealized
appreciation
(depreciation)
for the
Company’s
investments
are derived
from the
following sources for the periods
indicated:
Three Months Ended
Nine Months Ended
September 30,
September 30,
(Dollars in millions)
2022
2021
2022
2021
Increase (decrease) during the period between the fair value and cost
of investments carried at fair value, and deferred taxes thereon:
Fixed maturity securities and short-term investments
$
(724)
$
(109)
$
(2,484)
$
(344)
Change in unrealized appreciation (depreciation), pre-tax
(724)
(109)
(2,484)
(344)
Deferred tax benefit (expense)
Change in unrealized appreciation (depreciation),
net of deferred taxes, included in shareholders’ equity
$
(671)
$
(101)
$
(2,199)
$
(308)
(Some amounts may not reconcile due to rounding.)
The tables
below display
the aggregate
fair value
and gross
unrealized
depreciation
of fixed
maturity securities
available for
sale, by security
type and contractual
maturity,
in each case
subdivided according
to length
of time
that individual securities had been in a continuous unrealized
loss position for the periods indicated.
Duration of Unrealized Loss at September
30, 2022 By Security Type
Less than 12 months
Greater than 12 months
Total
Gross
Gross
Gross
Unrealized
Unrealized
Unrealized
(Dollars in millions)
Fair Value
Depreciation
Fair Value
Depreciation
Fair Value
Depreciation
Fixed maturity securities - available for
sale
U.S. Treasury securities and
obligations of
U.S. government agencies and corporations
$
$
(47)
$
$
(32)
$
1,080
$
(79)
Obligations of U.S. states and
political subdivisions
(30)
(8)
(38)
Corporate securities
4,247
(447)
(189)
5,243
(636)
Asset-backed securities
2,827
(158)
(5)
2,882
(164)
Mortgage-backed securities
Commercial
(104)
(4)
(108)
Agency residential
2,086
(222)
(115)
2,674
(337)
Non-agency residential
-
-
-
Foreign government securities
(137)
(68)
1,221
(205)
Foreign corporate securities
2,792
(496)
(229)
3,600
(726)
Total
$
14,937
$
(1,640)
$
3,023
$
(651)
$
17,960
$
(2,291)
Securities where an allowance for credit
loss was recorded
(19)
-
-
(19)
Total fixed
maturity securities
$
14,960
$
(1,659)
$
3,023
$
(651)
$
17,983
$
(2,310)
(Some amounts may not reconcile due to rounding.)
Duration of Unrealized Loss at September
30, 2022 By Maturity
Less than 12 months
Greater than 12 months
Total
Gross
Gross
Gross
Unrealized
Unrealized
Unrealized
(Dollars in millions)
Fair Value
Depreciation
Fair Value
Depreciation
Fair Value
Depreciation
Fixed maturity securities
- available for sale
Due in one year or less
$
$
(21)
$
$
(6)
$
$
(27)
Due in one year through five years
4,908
(502)
1,264
(204)
6,173
(706)
Due in five years through ten years
2,517
(459)
(239)
3,329
(697)
Due after ten years
(174)
(77)
1,040
(252)
Asset-backed securities
2,827
(158)
(5)
2,882
(164)
Mortgage-backed securities
2,967
(325)
(120)
3,583
(445)
Total
$
14,937
$
(1,640)
$
3,023
$
(651)
$
17,960
$
(2,291)
Securities where an allowance for credit
loss was recorded
(19)
-
-
(19)
Total fixed
maturity securities
$
14,960
$
(1,659)
$
3,023
$
(651)
$
17,983
$
(2,310)
(Some amounts may not reconcile due to rounding.)
The aggregate
fair
value
and gross
unrealized
losses related
to
fixed
maturity
securities available
for
sale in
an
unrealized loss position
at September 30, 2022
were $
18.0
billion and $
2.3
billion, respectively.
The fair value
of
securities for the
single issuer (the United
States government)
whose securities comprised
the largest unrealized
loss
position
at
September 30,
2022,
did
not
exceed
5.2
%
of
the
overall
fair
value
of
the
Company’s
fixed
maturity
securities
available
for
sale.
The
fair
value
of
the
securities
for
the
issuer
with
the
second
largest
unrealized
loss
position
at
September 30,
2022,
comprised
less
than
0.9
%
of
the
Company’s
fixed
maturity
securities available
for sale.
In addition,
as indicated
on the
above table,
there was
no significant
concentration
of
unrealized
losses
in
any
one
market
sector.
The
$
1.7
billion
of
unrealized
losses
related
to
fixed
maturity
securities available
for
sale that
have
been in
an unrealized
loss position
for
less than
one year
were generally
comprised
of
foreign
and
domestic
corporate
securities,
agency
residential
and
commercial
mortgage-backed
securities,
asset-backed
securities
and
foreign
government
securities.
Of
these
unrealized
losses,
$
1.5
billion
were related
to securities
that were
rated investment
grade by
at least
one nationally
recognized rating
agency.
The $
million of
unrealized
losses related
to fixed
maturity securities
available
for sale
in an
unrealized
loss
position
for
more
than
one
year
related
primarily
to
foreign
and
domestic
corporate
securities,
agency
residential
mortgage-backed
securities
and
foreign
government
securities.
Of
these
unrealized
losses,
$
million were
related to
securities that
were rated
investment
grade by
at least
one nationally
recognized
rating
agency.
In
all
instances,
there
were
no
projected
cash
flow
shortfalls
to
recover
the
full
book
value
of
the
investments
and
the
related
interest
obligations.
The
mortgage-backed
securities
still
have
excess
credit
coverage
and are
current on
interest
and principal
payments.
Based upon
the Company’s
current evaluation
of
securities in
an unrealized
loss
position
as of
September
30, 2022,
the
unrealized
losses
are
due
to
changes
in
interest
rates
and
non-issuer
specific
credit
spreads
and
are
not
credit-related.
In
addition,
the
contractual
terms of these securities do not permit these securities to be settled
at a price less than their amortized cost.
The
Company,
given
the
size
of
its
investment
portfolio
and
capital
position,
does
not
have
the
intent
to
sell
these securities; and it is more
likely than not that
the Company will not have
to sell the security before
recovery
of
its
cost
basis.
In
addition,
all
securities
currently
in
an
unrealized
loss
position
are
current
with
respect
to
principal and interest payments.
The tables
below display
the aggregate
fair value
and gross
unrealized
depreciation
of fixed
maturity securities
available for
sale, by security
type and contractual
maturity,
in each case
subdivided according
to length
of time
that
individual
securities
had
been
in
a
continuous
unrealized
loss
position
for
the
periods
indicated.
The
amounts
presented
in
the
tables
below
include
$
million
of
fair
value
and
$(
0.4
)
million
of
gross
unrealized
depreciation
as
of
December
31,
2021
related
to
fixed
maturity
securities
available
for
sale
for
which
the
Company has recorded an allowance
for credit losses.
Duration of Unrealized Loss at December
31, 2021 By Security Type
Less than 12 months
Greater than 12 months
Total
Gross
Gross
Gross
Unrealized
Unrealized
Unrealized
(Dollars in millions)
Fair Value
Depreciation
Fair Value
Depreciation
Fair Value
Depreciation
Fixed maturity securities - available for
sale
U.S. Treasury securities and
obligations of
U.S. government agencies and corporations
$
$
(6)
$
$
(4)
$
$
(10)
Obligations of U.S. states and
political subdivisions
(1)
-
(1)
Corporate securities
2,133
(38)
(24)
2,605
(63)
Asset-backed securities
1,954
(11)
(1)
1,996
(12)
Mortgage-backed securities
Commercial
(3)
(3)
(6)
Agency residential
1,101
(12)
(7)
1,381
(19)
Non-agency residential
-
-
-
-
Foreign government securities
(10)
(18)
(28)
Foreign corporate securities
1,735
(46)
(18)
1,945
(65)
Total fixed
maturity securities
$
8,094
$
(128)
$
1,241
$
(75)
$
9,335
$
(203)
(Some amounts may not reconcile due to rounding.)
Duration of Unrealized Loss at December
31, 2021 By Maturity
Less than 12 months
Greater than 12 months
Total
Gross
Gross
Gross
Unrealized
Unrealized
Unrealized
(Dollars in millions)
Fair Value
Depreciation
Fair Value
Depreciation
Fair Value
Depreciation
Fixed maturity securities - available for
sale
Due in one year or less
$
$
(2)
$
$
(12)
$
$
(14)
Due in one year through five years
2,165
(35)
(29)
2,612
(64)
Due in five years through ten years
1,728
(47)
(22)
1,972
(69)
Due after ten years
(16)
(3)
(19)
Asset-backed securities
1,954
(11)
(1)
1,996
(12)
Mortgage-backed securities
1,325
(15)
(10)
1,646
(25)
Total fixed
maturity securities
$
8,094
$
(128)
$
1,241
$
(75)
$
9,335
$
(203)
(Some amounts may not reconcile due to rounding.)
The
aggregate
fair
value
and
gross
unrealized
losses
related
to
investments
in
an
unrealized
loss
position
at
December 31,
2021
were
$
9.3
billion
and
$
million,
respectively.
The
fair
value
of
securities
for
the
single
issuer
(the
United
States
government)
whose
securities
comprised
the
largest
unrealized
loss
position
at
December
31,
2021,
did
not
exceed
2.7
%
of
the
overall
fair
value
of
the
Company’s
fixed
maturity
securities
available for sale.
The fair value of the securities
for the issuer with the second
largest unrealized
loss comprised
less
than
0.5
%
of
the
Company’s
fixed
maturity
securities
available
for
sale.
In
addition,
as
indicated
on
the
above
table,
there
was
no
significant
concentration
of
unrealized
losses
in
any
one
market
sector.
The
$
million of unrealized
losses related
to fixed
maturity securities
available for
sale that
have been
in an unrealized
loss
position
for
less
than
one
year
were
generally
comprised
of
domestic
and
foreign
corporate
securities,
agency
residential
mortgage-backed
securities,
asset-backed
securities
and
foreign
government
securities.
Of
these unrealized
losses, $
million were related
to securities that
were rated
investment
grade by at
least one
nationally
recognized
rating
agency.
The
$
million
of
unrealized
losses
related
to
fixed
maturity
securities
available for
sale in an
unrealized loss
position for more
than one year
related primarily
to domestic and
foreign
corporate securities,
foreign government
securities and agency
residential mortgage-backed
securities.
Of these
unrealized
losses,
$
million
were
related
to
securities
that
were
rated
investment
grade
by
at
least
one
nationally recognized
rating agency.
In all instances,
there were
no projected
cash flow shortfalls
to recover
the
full book value
of the investments
and the related
interest obligations.
The mortgage-backed
securities still have
excess credit coverage
and are current on interest
and principal payments.
The components of net investment
income are presented in the table
below for the periods indicated:
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
Company
records
results
from
limited
partnership
investments
on
the
equity
method
of
accounting
with
changes
in
value
reported
through
net
investment
income.
The
net
investment
income
from
limited
partnerships is dependent
upon the Company’s
share of the net asset
values of interests
underlying each limited
partnership.
Due
to
the
timing
of
receiving
financial
information
from
these
partnerships,
the
results
are
generally
reported
on
a
one
month
or
quarter
lag.
If
the
Company
determines
there
has
been
a
significant
decline in value
of a limited
partnership during
this lag period,
a loss will
be recorded
in the period
in which the
Company identifies the decline.
The Company had
contractual commitments
to invest
up to an additional
$
2.5
billion in limited partnerships
and
private
placement
loan
securities
at
September
30,
These
commitments
will
be
funded
when
called
in
accordance
with
the
partnership
and
loan
agreements,
which
have
investment
periods
that
expire,
unless
extended, through
2026
.
The Company
participates in
a private
placement liquidity
sweep facility
(“the facility”).
The primary purpose
of
the
facility
is
to
enhance
the
Company’s
return
on
its
short-term
investments
and
cash
positions.
The
facility
invests
in
high
quality,
short-duration
securities
and
permits
daily
liquidity.
The
Company
consolidates
its
participation in
the facility.
As of
September 30,
2022, the
fair value
of investments
in the
facility consolidated
within the Company’s balance sheets
was $
million.
Variable Interest
Entities
The
Company
is
engaged
with
various
special
purpose
entities
and
other
entities
that
are
deemed
to
be
VIEs
primarily
as
an
investor
through
normal
investment
activities
but
also
as
an
investment
manager.
A
VIE
is
an
entity that
either has
investors
that lack
certain essential
characteristics
of a
controlling
financial interest,
such
as simple
majority kick-out
rights, or
lacks sufficient
funds to
finance its
own activities
without financial
support
provided
by
other
entities.
The
Company
performs
ongoing
qualitative
assessments
of
its
VIEs
to
determine
whether the Company has
a controlling financial interest
in the VIE and therefore
is the primary beneficiary.
The
Company
is
deemed to
have
a
controlling
financial
interest
when
it
has
both
the
ability to
direct
the
activities
that most
significantly impact
the economic
performance of
the VIE
and the
obligation to
absorb losses
or right
to
receive
benefits
from
the
VIE
that
could
potentially
be
significant
to
the
VIE.
Based
on
the
Company’s
assessment,
if it
determines
it
is
the
primary
beneficiary,
the
Company
consolidates
the
VIE
in
the
Company’s
Consolidated
Financial
Statements.
As
of
September
30,
2022
and
December 31,
2021,
the
Company
did
no
t
hold any securities for which it is the primary
beneficiary.
The
Company,
through
normal
investment
activities,
makes
passive
investments
in
general
and
limited
partnerships
and other
alternative
investments.
For these
non-consolidated
VIEs, the
Company has
determined
it is not the
primary beneficiary as
it has no ability
to direct activities
that could significantly
affect the economic
performance
of
the
investments.
The
Company’s
maximum
exposure
to
loss
as
of
September
30,
2022
and
December 31, 2021
is limited
to the
total
carrying value
of $
3.1
billion and
$
2.9
billion,
respectively,
which are
included in
general
and limited
partnerships
and other
alternative
investments
in Other
Invested
Assets
in the
Company's
Consolidated
Balance
Sheets.
As
of
September
30,
2022,
the
Company
has
outstanding
commitments
totaling
$
2.2
billion
whereby
the
Company
is
committed
to
fund
these
investments
and
may
be
called
by
the
partnership
during
the
commitment
period
to
fund
the
purchase
of
new
investments
and
partnership
expenses.
These investments
are generally
of a
passive nature
in that
the Company
does not
take
an active role in management.
In
addition,
the
Company
makes
passive
investments
in
structured
securities
issued
by
VIEs
for
which
the
Company
is
not
the
manager.
These
investments
are
included
in
asset-backed
securities,
which
includes
collateralized loan
obligations and are
reported in fixed
maturities, available-for
-sale and fixed maturities
held to
maturity.
The
Company
has
not
provided
financial
or
other
support
with
respect
to
these
investments
other
than its
original investment.
For these
investments,
the Company
determined
it is
not the
primary beneficiary
due
to
the
relative
size
of the
Company’s
investment
in
comparison
to
the principal
amount
of the
structured
securities issued by the
VIEs, the level of
credit subordination
which reduces the Company’s
obligation to absorb
losses
or
right
to
receive
benefits
and
the
Company’s
inability
to
direct
the
activities
that
most
significantly
impact the economic performance
of the VIEs.
The Company’s
maximum exposure
to loss on
these investments
is limited to the amount of the Company’s
investment.
The components of net gains (losses) on investments
are presented in the tables below for
the periods indicated:
Three Months Ended
Nine Months Ended
September 30,
September 30,
(Dollars in millions)
2022
2021
2022
2021
Fixed maturity securities:
Allowance for credit losses
$
(5)
$
(7)
$
(18)
$
(30)
Net realized gains (losses) from dispositions
(53)
(66)
Equity securities, fair value:
Net realized gains (losses) from dispositions
-
Gains (losses) from fair value adjustments
(136)
(5)
(462)
Other invested assets
Short-term investments gain (loss)
-
-
Total net gains (losses) on investments
$
(129)
$
(4)
$
(519)
$
(Some amounts may not reconcile due to rounding.)
Roll Forward of Allowance for Credit Losses – Fixed maturities
Three Months Ended September 30, 2022
Nine Months Ended September 30, 2022
Foreign
Foreign
Corporate
Asset-Backed
Corporate
Corporate
Asset-Backed
Corporate
Securities
Securities
Securities
Total
Securities
Securities
Securities
Total
(Dollars in millions)
Beginning Balance
$
(26)
$
-
$
(17)
$
(43)
$
(19)
$
(8)
$
(3)
$
(30)
Credit losses on securities where credit
losses were not previously recorded
(2)
(6)
(1)
(9)
(9)
(6)
(17)
(32)
Increases in allowance on previously
impaired securities
(3)
-
-
(3)
(4)
-
(1)
(4)
Decreases in allowance on previously
impaired securities
-
-
-
-
-
-
-
-
Reduction in allowance due to disposals
-
-
Balance as of September 30, 2022
$
(31)
$
(6)
$
(10)
$
(47)
$
(31)
$
(6)
$
(10)
$
(47)
(Some amounts may not reconcile due to rounding.)
Roll Forward of Allowance for Credit Losses – Fixed maturities
Three Months Ended September 30, 2021
Nine Months Ended September 30, 2021
Foreign
Foreign
Corporate
Asset-Backed
Corporate
Corporate
Asset-Backed
Corporate
Securities
Securities
Securities
Total
Securities
Securities
Securities
Total
(Dollars in millions)
Beginning Balance
$
(18)
$
(5)
$
(1)
$
(25)
$
(1)
$
-
$
(1)
$
(2)
Credit losses on securities where credit
losses were not previously recorded
(5)
-
-
(5)
(21)
(5)
(1)
(27)
Increases in allowance on previously
impaired securities
-
(3)
-
(3)
(2)
(3)
-
(5)
Decreases in allowance on previously
impaired securities
-
-
-
-
-
-
-
-
Reduction in allowance due to disposals
-
-
-
-
Balance as of September 30, 2021
$
(23)
(8)
$
(1)
$
(32)
$
(23)
$
(8)
$
(1)
$
(32)
(Some amounts may not reconcile due to rounding.)
The proceeds
and split
between gross
gains and
losses from
dispositions of
fixed maturity
and equity
securities,
are presented in the table below
for the periods indicated:
Three Months Ended
Nine Months Ended
September 30,
September 30,
(Dollars in millions)
2022
2021
2022
2021
Proceeds from sales of fixed maturity securities
$
$
$
1,177
$
Gross gains from dispositions
Gross losses from dispositions
(58)
(11)
(98)
(26)
Proceeds from sales of equity securities
$
$
$
1,030
$
Gross gains from dispositions
Gross losses from dispositions
(3)
(3)
(53)
(11)
RESERVE FOR LOSSES, LAE AND FUTURE
POLICY BENEFIT RESERVE
Activity in the reserve for losses and LAE is summarized
for the periods indicated:
Nine Months Ended
September 30,
(Dollars in millions)
2022
2021
Gross reserves beginning of period
$
19,009
$
16,322
Less reinsurance recoverables on unpaid losses
(1,946)
(1,844)
Net reserves beginning of period
17,063
14,478
Incurred related to:
Current year
6,291
5,578
Prior years
(2)
(6)
Total incurred losses and LAE
6,289
5,572
Paid related to:
Current year
1,794
1,376
Prior years
1,841
1,803
Total paid losses and LAE
3,635
3,179
Foreign exchange/translation adjustment
(605)
(41)
Net reserves end of period
19,112
16,831
Plus reinsurance recoverables on unpaid losses
2,110
2,033
Gross reserves end of period
$
21,222
$
18,864
(Some amounts may not reconcile due
to rounding.)
Current
year
incurred
losses
were
$
6.3
billion
and $
5.6
billion
for
the nine
months
ended September
30,
2022
and
2021,
respectively.
Gross
and
net
reserves
increased
for
the
nine
months
ended
September
30,
2022,
reflecting an
increase in
underlying exposure
due to
earned premium
growth, year
over year,
the impact of
$
million of
incurred losses
related to
the Ukraine/Russia
war and
an increase
of $
million in
2022 current
year
catastrophe losses
compared to 2021.
The war in
the Ukraine
is ongoing
and an evolving
event. Economic
and legal
sanctions have
been levied against
Russia,
specific
named
individuals
and
entities
connected
to
the
Russian
government,
as
well
as
businesses
located
in
the
Russian
Federation
and/or
owned
by
Russian
nationals
by
numerous
countries,
including
the
United States.
The significant
political and
economic uncertainty
surrounding
the war
and associated
sanctions
have
impacted
economic and
investment
markets
both within
Russia and
around
the world.
The Company
has
recorded
$
million
of
incurred
underwriting
losses
related
to
the
Ukraine/Russia
war
for
the
nine
months
ended September 30, 2022.
FAIR VALUE
GAAP guidance
regarding
fair
value
measurements
addresses
how
companies
should
measure
fair
value
when
they are
required to
use fair
value measures
for recognition
or disclosure
purposes under
GAAP and
provides
a
common
definition
of fair
value
to
be used
throughout
GAAP.
It
defines
fair
value
as
the
price that
would
be
received
to
sell an
asset
or paid
to
transfer
a liability
in an
orderly
fashion
between market
participants
at the
measurement
date.
In
addition,
it
establishes
a
three-level
valuation
hierarchy
for
the
disclosure
of fair
value
measurements.
The valuation
hierarchy
is based
on the
transparency
of inputs
to
the valuation
of an
asset or
liability.
The level in the
hierarchy within
which a given fair
value measurement
falls is determined
based on the
lowest
level
input
that
is
significant
to
the
measurement,
with
Level
being
the
highest
priority
and
Level
being the lowest priority.
The levels in the hierarchy
are defined as follows:
Level 1:
Inputs
to
the valuation
methodology
are
observable
inputs that
reflect unadjusted
quoted
prices for
identical assets or liabilities in an active market;
Level 2:
Inputs
to
the
valuation
methodology
include
quoted
prices
for
similar
assets
and
liabilities
in
active
markets,
and
inputs
that
are
observable
for
the
asset
or
liability,
either
directly
or
indirectly,
for
substantially the full term of the financial instrument;
Level 3:
Inputs to the valuation methodology are
unobservable and significant to the fair
value measurement.
The
Company’s
fixed
maturity
and
equity
securities
are
primarily
managed
by
third
party
investment
asset
managers.
The
investment
asset
managers
managing
publicly
traded
securities
obtain
prices
from
nationally
recognized
pricing
services.
These
services
seek
to
utilize
market
data
and
observations
in
their
evaluation
process.
They use pricing
applications that
vary by asset
class and incorporate
available market
information and
when fixed
maturity securities
do not trade
on a daily
basis the services
will apply available
information through
processes
such
as
benchmark
curves,
benchmarking
of
like
securities,
sector
groupings
and
matrix
pricing.
In
addition,
they
use
model
processes,
such
as
the
Option
Adjusted
Spread
model
to
develop
prepayment
and
interest rate scenarios
for securities that have
prepayment features.
The investment
asset managers
do not
make any
changes to
prices received
from either
the pricing
services or
the
investment
brokers.
In
addition,
the
investment
asset
managers
have
procedures
in
place
to
review
the
reasonableness
of
the
prices
from
the
service
providers
and
may
request
verification
of
the
prices.
The
Company
also
continually
performs
quantitative
and
qualitative
analysis
of prices,
including
but
not
limited
to
initial
and
ongoing
review
of
pricing
methodologies,
review
of
prices
obtained
from
pricing
services
and
third
party
investment
asset
managers,
review
of
pricing
statistics
and
trends,
and
comparison
of
prices
for
certain
securities
with
a
secondary
price
source
for
reasonableness.
No
material
variances
were
noted
during
these
price validation
procedures.
In limited
situations,
where financial
markets
are inactive
or illiquid,
the Company
may use
its own
assumptions
about future
cash flows
and risk-adjusted
discount
rates
to determine
fair value.
At September
30, 2022, $
1.6
billion of fixed
maturities were
fair valued
using unobservable inputs.
The majority
of
these
fixed
maturities
were
valued
by
investment
managers’
valuation
committees
and
many
of
these
fair
values were
substantiated
by valuations
from independent
third parties.
The Company
has procedures
in place
to
evaluate
these
independent
third
party
valuations.
At
December
31,
2021,
$
2.1
billion
of
fixed
maturities
were fair valued using unobservable
inputs.
The
Company
internally
manages
a
public
equity
portfolio
which
had
a
fair
value
at
September
30,
2022
and
December 31, 2021 of $
1.2
billion and $
1.3
billion, respectively.
During the fourth quarter of 2021,
the Company
began
to
internally
manage
a
portfolio
of
collateralized
loan
obligations
included
in
asset-backed
securities,
available for sale,
which had a fair value
of $
2.4
billion and $
2.0
billion at September
30, 2022 and December
31,
2021,
respectively.
All
prices
for
these
securities
were
obtained
from
publicly
published
sources
or
nationally
recognized pricing vendors.
Equity
securities
denominated
in
U.S.
currency
with
quoted
prices
in
active
markets
for
identical
assets
are
categorized
as
Level
since
the
quoted
prices
are
directly
observable.
Equity
securities
traded
on
foreign
exchanges are
categorized as
Level 2 due
to the added input
of a foreign
exchange conversion
rate to determine
fair value.
The Company uses foreign currency exchange
rates published by nationally
recognized sources.
Fixed maturity
securities listed in
the tables have
been categorized
as Level 2, since
a particular security may
not
have
traded
but
the
pricing
services
are
able
to
use
valuation
models
with
observable
market
inputs
such
as
interest rate yield
curves and prices for similar fixed
maturity securities in terms of issuer,
maturity and seniority.
For
foreign
government
securities
and
foreign
corporate
securities,
the
fair
values
provided
by
the
third
party
pricing services
in local
currencies, and
where applicable,
are converted
to U.S.
dollars using
currency exchange
rates from nationally recognized
sources.
In
addition
to
the
valuations
from
investment
managers,
some
of
the
fixed
maturities
with
fair
values
categorized
as
Level
3 result
when
prices
are
not
available
from
the
nationally
recognized
pricing
services
and
are
derived
using
unobservable
inputs.
The
Company
will
value
the
securities
with
unobservable
inputs
using
comparable
market
information
or
receive
fair
values
from
investment
managers.
The
investment
managers
may obtain
non-binding price
quotes for
the securities
from brokers.
The single
broker
quotes are
provided by
market
makers
or
broker-dealers
who
are
recognized
as
market
participants
in
the
markets
in
which
they
are
providing the quotes.
The prices received from
brokers are
reviewed for
reasonableness by the
third party asset
managers
and
the
Company.
If
the
broker
quotes
are
for
foreign
denominated
securities,
the
quotes
are
converted to U.S. dollars
using currency exchange rates
from nationally recognized
sources.
The composition
and
valuation
inputs
for
the
presented
fixed
maturities
categories
Level
1 and
Level
are
as
follows:
U.S.
Treasury
securities
and
obligations
of
U.S.
government
agencies
and
corporations
are
primarily
comprised
of U.S.
Treasury
bonds
and the
fair
value
is based
on observable
market
inputs
such as
quoted
prices, reported trades, quoted
prices for similar issuances or benchmark yields;
Obligations of U.S.
states and political
subdivisions are comprised
of state and municipal
bond issuances and
the
fair
values
are
based
on
observable
market
inputs
such
as
quoted
market
prices,
quoted
prices
for
similar securities, benchmark yields and credit spreads;
Corporate securities
are primarily
comprised of U.S.
corporate
and public
utility bond issuances
and the fair
values
are
based
on
observable
market
inputs
such
as
quoted
market
prices,
quoted
prices
for
similar
securities, benchmark yields and credit spreads;
Asset-backed
and
mortgage-backed
securities
fair
values
are
based
on
observable
inputs
such
as
quoted
prices, reported
trades, quoted
prices for
similar issuances
or benchmark yields
and cash flow
models using
observable inputs such as prepayment speeds,
collateral performance and default
spreads;
Foreign
government
securities
are
comprised
of
global
non-U.S.
sovereign
bond
issuances
and
the
fair
values
are
based
on
observable
market
inputs
such
as
quoted
market
prices,
quoted
prices
for
similar
securities and
models with observable
inputs such
as benchmark
yields and
credit spreads
and then,
where
applicable, converted to U.S.
dollars using an exchange rate
from a nationally recognized
source;
Foreign corporate
securities are
comprised of
global non-U.S.
corporate
bond issuances
and the
fair values
are
based
on
observable
market
inputs
such
as
quoted
market
prices,
quoted
prices
for
similar
securities
and models with observable inputs
such as benchmark yields and credit
spreads and then, where applicable,
converted to U.S. dollars
using an exchange rate
from a nationally recognized
source.
The following
tables present
the fair
value measurement
levels for
all assets
and liabilities,
which the
Company
has recorded at fair value
as of the periods indicated:
Fair Value Measurement Using:
Quoted Prices
in Active
Significant
Markets for
Other
Significant
Identical
Observable
Unobservable
Assets
Inputs
Inputs
(Dollars in millions)
September 30, 2022
(Level 1)
(Level 2)
(Level 3)
Assets:
Fixed maturities, available for sale
U.S. Treasury securities and obligations of
U.S. government agencies and corporations
$
1,308
$
-
$
1,308
$
-
Obligations of U.S. States and political subdivisions
-
-
Corporate securities
6,397
-
5,678
Asset-backed securities
3,772
-
2,880
Mortgage-backed securities
Commercial
-
-
Agency residential
2,723
-
2,723
-
Non-agency residential
-
-
Foreign government securities
1,335
-
1,335
-
Foreign corporate securities
4,080
-
4,064
Total fixed maturities, available for sale
21,009
-
19,381
1,628
Equity securities, fair value
1,301
1,212
-
(Some amounts may not reconcile due to rounding.)
Fair Value Measurement Using:
Quoted Prices
in Active
Significant
Markets for
Other
Significant
Identical
Observable
Unobservable
Assets
Inputs
Inputs
(Dollars in millions)
December 31, 2021
(Level 1)
(Level 2)
(Level 3)
Assets:
Fixed maturities, available for sale
U.S. Treasury securities and obligations of
U.S. government agencies and corporations
$
1,421
$
-
$
1,421
$
-
Obligations of U.S. States and political subdivisions
-
-
Corporate securities
7,557
-
6,756
Asset-backed securities
3,582
-
2,330
1,251
Mortgage-backed securities
Commercial
1,064
-
1,064
-
Agency residential
2,375
-
2,375
-
Non-agency residential
-
-
Foreign government securities
1,438
-
1,438
-
Foreign corporate securities
4,279
-
4,262
Total fixed maturities, available for sale
22,308
-
20,240
2,068
Equity securities, fair value
1,826
1,742
-
(Some amounts may not reconcile due to rounding.)
In
addition,
$
million
and
$
million
of
investments
within
other
invested
assets
on
the
consolidated
balance sheets
as of
September 30,
2022 and
December 31,
2021, respectively,
are not
included within
the fair
value hierarchy tables
as the assets are measured at NAV
as a practical expedient to determine fair
value.
The following
table presents
the activity
under Level
3, fair
value measurements
using significant
unobservable
inputs for fixed maturities available
for sale, for the periods indicated:
Total Fixed Maturities,
Available for Sale
Three Months Ended September 30, 2022
Nine Months Ended September 30, 2022
Corporate
Asset-Backed
Foreign
Corporate
Asset-Backed
Foreign
(Dollars in millions)
Securities
Securities
CMBS
Corporate
Total
Securities
Securities
CMBS
Corporate
Total
Beginning balance fixed maturities
$
$
1,255
$
$
$
2,164
$
$
1,251
$
-
$
$
2,068
Total gains or (losses) (realized/unrealized)
Included in earnings
(2)
-
-
-
(2)
-
-
-
Included in other comprehensive income (loss)
(6)
-
-
(13)
(11)
-
(4)
(28)
Purchases, issuances and settlements
-
-
(43)
Transfers in/(out) of Level
3 and reclassification of
securities in/(out) of investment categories
(163)
(587)
(6)
(24)
(779)
(35)
(735)
(6)
(4)
(779)
Ending balance
$
$
$
-
$
$
1628
$
$
$
-
$
$
1628
The amount of total gains or losses for the period
included in earnings (or changes in net assets)
attributable to the change in unrealized gains
or losses relating to assets still held
at the reporting date
$
(3)
$
-
$
-
$
-
$
(3)
$
(8)
$
$
-
$
-
$
-
(Some amounts may not reconcile due to rounding.)
Total Fixed Maturities,
Available for Sale
Three Months Ended September 30, 2021
Nine Months Ended September 30, 2021
Corporate
Asset-Backed
Foreign
Corporate
Asset-Backed
Foreign
(Dollars in millions)
Securities
Securities
Corporate
Total
Securities
Securities
Corporate
Total
Beginning balance fixed maturities
$
$
$
$
1,526
$
$
$
$
1,330
Total gains or (losses) (realized/unrealized)
Included in earnings
(3)
-
-
(12)
(7)
-
(19)
Included in other comprehensive income (loss)
(1)
-
-
(2)
-
Purchases, issuances and settlements
-
(1)
Transfers in/(out) of Level
3 and reclassification of
securities in/(out) of investment categories
-
-
-
-
-
-
-
-
Ending balance
$
$
1,004
$
$
1,803
$
$
1,004
$
$
1,803
The amount of total gains or losses for the period
included in earnings (or changes in net assets)
attributable to the change in unrealized gains
or losses relating to assets still held
at the reporting date
$
$
(3)
$
-
$
(2)
$
(16)
$
(8)
$
-
$
(24)
(Some amounts may not reconcile due to rounding.)
The $
million
shown
as transfers
in/(out)
of Level
3 and
reclassification
of securities
in/(out)
of investment
categories
for
the
three
and
nine
months
ended
September
30,
2022
relate
mainly
to
previously
designated
Level
securities
that
the
Company
has
reclassified
from
“fixed
maturities
–
available
for
sale”
to
“fixed
maturities
–
held
to
maturity”
during
the
third
quarter
of
As
“fixed
maturities
–
held
to
maturity"
are
carried at
amortized
cost,
net
of credit
allowances
rather
than
at
fair
value
as “fixed
maturities
– available
for
sale”,
these securities are
no longer included
within the fair
value hierarchy
table or in
the rollforward
of Level 3
securities.
The
fair
values
of
these
securities
are
determined
in
a
similar
manner
as
the
Company’s
fixed
maturity securities available for
sale as described above. The fair values of these
securities incorporate the use of
significant
unobservable
inputs
and
therefore
are
classified
as
Level
within
the
fair
value
hierarchy
as
of
September 30, 2022.
EARNINGS PER COMMON SHARE
Basic
earnings
per
share
are
calculated
by
dividing
net
income
by
the
weighted
average
number
of
common
shares outstanding.
Diluted earnings per
share reflect
the potential
dilution that
would occur if
options granted
under various
share-based compensation
plans were
exercised
resulting in
the issuance
of common
shares that
would participate in the earnings of the entity.
Net income
(loss) per
common share
has been
computed as
per below,
based upon
weighted average
common
basic and dilutive shares outstanding.
Three Months Ended
Nine Months Ended
September 30,
September 30,
(Dollars in millions, except per share amounts)
2022
2021
2022
2021
Net income (loss) per share:
Numerator
Net income (loss)
$
(319)
$
(73)
$
$
Less:
dividends declared-common shares and unvested common shares
(65)
(61)
(191)
(186)
Undistributed earnings
(384)
(135)
(90)
Percentage allocated to common shareholders
(1)
100.0
%
100.0
%
98.7
%
98.7
%
(384)
(135)
(88)
Add:
dividends declared-common shareholders
Numerator for basic and diluted earnings per common share
$
(319)
$
(73)
$
$
Denominator
Denominator for basic earnings per weighted-average common shares
38.8
39.2
38.8
39.4
Effect of dilutive securities:
Options
-
-
-
-
Denominator for diluted earnings per adjusted weighted-average common shares
38.8
39.2
38.8
39.5
Per common share net income (loss)
Basic
$
(8.22)
$
(1.88)
$
2.57
$
23.74
Diluted
$
(8.22)
$
(1.88)
$
2.57
$
23.72
(1)
Basic weighted-average common shares outstanding
38.8
39.2
38.8
39.4
Basic weighted-average common shares outstanding and unvested common shares
expected to vest
38.8
39.2
39.4
39.9
Percentage allocated to common shareholders
100.0
%
100.0
%
98.7
%
98.7
%
(Some amounts may not reconcile due to rounding.)
There
were
no
material
anti-diluted
options
outstanding
for
the
three
and
nine
months
ended
September
30,
2022 and
During the
three
months
ended September
30, 2022
and 2021,
the Company
did not
exclude
the
dividends
declared
to
unvested
common
shares
as
doing
so
would
have
an
anti-dilutive
effect
on
the
numerator for basic and diluted
earnings per common share.
Options granted under share-based
compensation plans have all expired
as of
September 19, 2022
.
COMMITMENTS AND CONTINGENCIES
In
the
ordinary
course
of
business,
the
Company
is
involved
in
lawsuits,
arbitrations
and
other
formal
and
informal
dispute
resolution
procedures,
the
outcomes
of
which
will
determine
the
Company’s
rights
and
obligations
under insurance
and reinsurance
agreements.
In some
disputes,
the Company
seeks
to
enforce
its
rights under an agreement or to
collect funds owing to it.
In other matters, the Company
is resisting attempts by
others
to
collect
funds
or
enforce
alleged
rights.
These
disputes
arise
from
time
to
time
and
are
ultimately
resolved through
both informal
and formal
means, including
negotiated resolution,
arbitration and
litigation.
In
all such matters,
the Company believes
that its positions
are legally and
commercially reasonable.
The Company
considers
the statuses
of these
proceedings
when determining
its reserves
for unpaid
loss and
loss adjustment
expenses (“LAE”).
Aside
from
litigation
and
arbitrations
related
to
these
insurance
and
reinsurance
agreements,
the
Company
is
not a party to any other material litigation
or arbitration.
OTHER COMPREHENSIVE INCOME (LOSS)
The following
table presents
the components
of comprehensive
income (loss) in
the consolidated
statements
of
operations for the periods indicated:
Three Months Ended September 30, 2022
Nine Months Ended September 30, 2022
(Dollars in millions)
Before Tax
Tax Effect
Net of Tax
Before Tax
Tax Effect
Net of Tax
Unrealized appreciation (depreciation)
("URA(D)") on securities - non-
credit related
$
(776)
$
$
(712)
$
(2,557)
$
$
(2,260)
Reclassification of net realized
losses (gains) included in net income
(loss)
(10)
(12)
Foreign currency translation adjustments
(109)
(101)
(174)
(163)
Reclassification of benefit plan liability amortization
included in net
income (loss)
(1)
(1)
Total other comprehensive
income (loss)
$
(832)
$
$
(771)
$
(2,655)
$
$
(2,360)
Three Months Ended September 30, 2021
Nine Months Ended September 30, 2021
(Dollars in millions)
Before Tax
Tax Effect
Net of Tax
Before Tax
Tax Effect
Net of Tax
Unrealized appreciation (depreciation)
("URA(D)") on securities - non-
credit related
$
(108)
$
$
(100)
$
(343)
$
$
(304)
Reclassification of net realized
losses (gains) included in net income
(loss)
(1)
(1)
(1)
(1)
(2)
(3)
Foreign currency translation adjustments
(59)
(54)
(30)
(29)
Reclassification of benefit plan liability amortization
included in net
income (loss)
-
(2)
Total other comprehensive
income (loss)
$
(166)
$
$
(153)
$
(367)
$
$
(331)
The following table presents details
of the amounts reclassified from AOCI for
the periods indicated:
Three Months Ended
Nine Months Ended
September 30,
September 30,
Affected line item within the statements of
AOCI component
2022
2021
2022
2021
operations and comprehensive income (loss)
(Dollars in millions)
URA(D) on securities
$
$
(1)
$
$
(1)
Other net realized capital gains (losses)
(10)
(1)
(12)
(2)
Income tax expense (benefit)
$
$
(1)
$
$
(3)
Net income (loss)
Benefit plan net gain (loss)
$
$
$
$
Other underwriting expenses
(1)
-
(1)
(2)
Income tax expense (benefit)
$
$
$
$
Net income (loss)
The following
table presents
the components
of accumulated
other comprehensive
income (loss),
net of
tax, in
the consolidated balance sheets for the periods
indicated:
Three Months Ended
Nine Months Ended
September 30,
September 30,
(Dollars in millions)
2022
2021
2022
2021
Beginning balance of URA (D) on securities
$
(1,288)
$
$
$
Current period change in URA (D) of investments - non-credit related
(671)
(101)
(2,199)
(308)
Ending balance of URA (D) on securities
(1,959)
(1,959)
Beginning balance of foreign currency translation adjustments
(240)
(91)
(177)
(115)
Current period change in foreign currency translation adjustments
(101)
(54)
(163)
(29)
Ending balance of foreign currency translation adjustments
(341)
(144)
(341)
(144)
Beginning balance of benefit plan net gain (loss)
(49)
(70)
(50)
(74)
Current period change in benefit plan net gain (loss)
Ending balance of benefit plan net gain (loss)
(48)
(68)
(48)
(68)
Ending balance of accumulated other comprehensive income (loss)
$
(2,348)
$
$
(2,348)
$
(Some amounts may not reconcile due to rounding.)
CREDIT FACILITIES
The
Company
has
multiple
active
letter
of
credit
facilities
for
a
total
commitment
of
up
to
$
1.2
billion
as
of
September
30,
The
Company
also
has
additional
uncommitted
letter
of
credit
facilities
of
up
to
$
million which may
be accessible via written
request and corresponding
authorization from
the applicable lender.
There is no guarantee the uncommitted
capacity will be available to us on a
future date.
The terms and outstanding amounts for
each facility are discussed below:
Bermuda Re Wells Fargo
Letter of Credit Facility
Effective February
23, 2021, Bermuda Re entered into
a letter of credit issuance facility
with Wells Fargo
referred
to as
the “2021
Bermuda Re
Wells
Fargo
Letter of
Credit Facility.”
The Bermuda
Re Wells
Fargo
Letter of
Credit
Facility
originally
provided
for
the
issuance
of
up
to
$
million
of
secured
letters
of
credit.
Effective
May
5,
2021, the agreement was amended to provide
for the issuance of up to $
million of secured letters of credit.
The following table summarizes the
outstanding letters of credit
for the periods indicated:
(Dollars in millions)
At September 30, 2022
At December 31, 2021
Bank
Capacity
In Use
Date of Expiry
Capacity
In Use
Date of Expiry
Wells Fargo Bank Bilateral LOC Agreement
$
$
12/30/2022
$
$
12/30/2022
12/29/2023
-
Total Wells Fargo
Bank Bilateral LOC Agreement
$
$
$
$
(Some amounts may not reconcile due to rounding.)
Bermuda Re Citibank Letter of Credit Facility
Effective
August
9,
2021,
Bermuda
Re
entered
into
a
letter
of
credit
issuance
facility
with
Citibank
N.A.
which
superseded
the
previous
letter
of
credit
issuance
facility
with
Citibank
N.A.
that
was
effective
December
31,
Both
of
these
agreements
are
referred
to
as
the
“Bermuda
Re
Citibank
Letter
of
Credit
Facility”.
The
current Bermuda
Re Citibank
Letter of
Credit Facility
provides
for the
committed issuance
of up
to $
million
of
secured
letters
of
credit.
In
addition,
the
facility
provided
for
the
uncommitted
issuance
of
up
the
$
million,
which
may
be
accessible
via
written
request
by
the
Company
and
corresponding
authorization
from
Citibank N.A.
The following table summarizes the
outstanding letters of credit
for the periods indicated:
(Dollars in millions)
At September 30, 2022
At December 31, 2021
Bank
Capacity
In Use
Date of Expiry
Capacity
In Use
Date of Expiry
Bermuda Re Citibank LOC Facility-
Committed
$
$
12/31/2022
$
$
2/28/2022
1/21/2023
3/1/2022
2/28/2023
11/24/2022
3/1/2023
–
12/16/2022
9/23/2023
12/31/2022
–
12/20/2023
8/15/2023
12/31/2023
9/23/2023
Bermuda Re Citibank LOC Facility - Uncommitted
12/31/2022
12/31/2022
9/30/2026
12/30/2025
Total Citibank Bilateral Agreement
$
$
$
$
(Some amounts may not reconcile due to rounding.)
Bermuda Re Bayerische Landesbank
Credit Facility
Effective
August
27,
2021
Bermuda
Re
entered
into
a
letter
of
credit
issuance
facility
with
Bayerische
Landesbank,
an agreement
referred
to as
the “Bermuda
Re Bayerische
Landesbank
Bilateral
LOC
Facility”.
The
Bermuda
Re
Bayerische
Landesbank
Bilateral
LOC
Facility
provides
for
the
committed
issuance
of
up
to
$
million of secured letters of credit.
The following table summarizes the
outstanding letters of credit
for the periods indicated:
(Dollars in millions)
At September 30, 2022
At December 31, 2021
Bank
Capacity
In Use
Date of Expiry
Capacity
In Use
Date of Expiry
Bayerische Landesbank Bilateral LOC Agreement
$
$
12/31/2022
$
$
12/31/2022
Total Bayerische Landesbank Bilateral LOC Agreement
$
$
$
$
Bermuda Re Lloyd’s
Bank Credit Facility.
Effective October
8, 2021 Bermuda Re entered
into a letter of credit
issuance facility with Lloyd’s
Bank Corporate
Markets
PLC,
an
agreement
referred
to
as
the
“Bermuda
Re
Lloyd’s
Bank
Credit
Facility”.
The
Bermuda
Re
Lloyd’s
Bank Credit
Facility provides
for the
committed issuance
of up to
$
million of secured
letters
of credit,
and subject to credit approval a maximum
total facility amount
of $
million.
The following table summarizes the
outstanding letters of credit
for the periods indicated:
(Dollars in millions)
At September 30, 2022
At December 31, 2021
Bank
Capacity
In Use
Date of Expiry
Capacity
In Use
Date of Expiry
Bermuda Re Lloyd's Bank Credit Facility-Committed
$
$
12/31/2022
$
$
12/31/2022
Bermuda Re Lloyd's Bank Credit Facility-Uncommitted
12/31/2022
-
-
Total Bermuda Re Lloyd's Bank Credit Facility
$
$
$
$
Bermuda Re Barclays Bank Credit
Facility.
Effective
November 3,
2021 Bermuda
Re entered
into a
letter of
credit issuance
facility with
Barclays
Bank PLC,
an agreement
referred
to as
the “Bermuda
Re Barclays
Credit Facility”.
The Bermuda
Re Barclays
Credit Facility
provides for the committed issuance
of up to $
million of secured letters of credit.
The following table summarizes the
outstanding letters of credit
for the periods indicated:
(Dollars in millions)
At September 30, 2022
At December 31, 2021
Bank
Capacity
In Use
Date of Expiry
Capacity
In Use
Date of Expiry
Bermuda Re Barclays Bilateral Letter of Credit Facility
$
$
12/31/2022
$
$
12/31/2022
Total Bermuda Re Barclays Bilateral
Letter of Credit Facility
$
$
$
$
Federal Home Loan Bank Membership
Everest
Reinsurance
Company
(“Everest
Re”)
is
a
member
of
the
Federal
Home
Loan
Bank
of
New
York
(“FHLBNY”), which allows
Everest
Re to
borrow up
to
% of its
statutory
admitted assets.
As of September
30,
2022, Everest
Re had
admitted assets
of approximately
$
22.0
billion which provides
borrowing capacity
of up to
approximately
$
2.2
billion.
As of
September 30,
2022, Everest
Re has
$
million of
borrowings
outstanding,
with
maturities
in
November
and
December,
2022,
and
interest
payable
at
interest
rates
between
0.53
%
and
0.65
%.
Everest
Re
incurred
interest
expense
of
$
0.8
million
and
$
0.3
million
for
the
three
months
ended
September
30,
2022
and
2021,
respectively.
Everest
Re
incurred
interest
expense
of
$
2.3
million
and
$
0.8
million
for
the
nine
months
ended
September
30,
2022
and
2021,
respectively.
The
FHLBNY
membership
agreement requires that
4.5
% of borrowed funds be used to acquire additional
membership stock.
COLLATERALIZED
REINSURANCE AND TRUST AGREEMENTS
Certain
subsidiaries
of
Group
have
established
trust
agreements,
which
effectively
use
the
Company’s
investments
as collateral,
as security
for assumed
losses payable
to certain
non-affiliated
ceding companies.
At
September 30,
2022, the total
amount on deposit
in trust accounts
was $
2.2
billion, which includes
$
million
of restricted cash.
The Company
reinsures
some of
its catastrophe
exposures
with the
segregated
accounts
of Mt.
Logan
Re.
Mt.
Logan Re is
a Collateralized
insurer registered
in Bermuda and
% of the voting
common shares
are owned by
Group.
Each segregated
account invests
predominantly in
a diversified
set of catastrophe
exposures, diversified
by risk/peril and across different
geographic regions globally.
The
following
table
summarizes
the
premiums
and
losses
that
are
ceded
by
the
Company
to
Mt.
Logan
Re
segregated accounts and
assumed by the Company from Mt. Logan
Re segregated accounts.
Three Months Ended
Nine Months Ended
September 30,
September 30,
Mt. Logan Re Segregated Accounts
2022
2021
2022
2021
(Dollars in millions)
Ceded written premiums
$
$
$
$
Ceded earned premiums
Ceded losses and LAE
Assumed written premiums
Assumed earned premiums
Assumed losses and LAE
-
-
-
-
Effective
April
1,
2018,
the
Company
entered
into
a
retroactive
reinsurance
transaction
with
one
of
the
Mt.
Logan
Re
segregated
accounts
to
retrocede
$
million
of
casualty
reserves
held
by
Bermuda
Re
related
to
accident years
2002
through
2015
.
As consideration
for entering
the agreement,
the Company
transferred
cash
of
$
million
to
the
Mt.
Logan
Re
segregated
account
with
a
maximum
liability
to
be
retroceded
under
the
agreement of
$
million.
The Company
will retain
liability for
any amounts
exceeding
the maximum
liability.
Effective
July 1,
2022, the
Company
has commuted
this reinsurance
agreement
with the
Mt. Logan
segregated
account.
The
Company
entered
into
various
collateralized
reinsurance
agreements
with
Kilimanjaro
Re
Limited
(“Kilimanjaro”),
a
Bermuda
based
special
purpose
reinsurer,
to
provide
the
Company
with
catastrophe
reinsurance
coverage.
These
agreements
are
multi-year
reinsurance
contracts
which
cover
named
storm
and
earthquake events.
The table below summarizes the various
agreements.
(Dollars in millions)
Class
Description
Effective Date
Expiration Date
Limit
Coverage Basis
Series 2018-1 Class A-2
US, Canada, Puerto Rico – Named Storm and Earthquake Events
4/30/2018
5/5/2023
$
Aggregate
Series 2018-1 Class B-2
US, Canada, Puerto Rico – Named Storm and Earthquake Events
4/30/2018
5/5/2023
Aggregate
Series 2019-1 Class A-1
US, Canada, Puerto Rico – Named Storm and Earthquake Events
12/12/2019
12/19/2023
Occurrence
Series 2019-1 Class B-1
US, Canada, Puerto Rico – Named Storm and Earthquake Events
12/12/2019
12/19/2023
Aggregate
Series 2019-1 Class A-2
US, Canada, Puerto Rico – Named Storm and Earthquake Events
12/12/2019
12/19/2024
Occurrence
Series 2019-1 Class B-2
US, Canada, Puerto Rico – Named Storm and Earthquake Events
12/12/2019
12/19/2024
Aggregate
Series 2021-1 Class A-1
US, Canada, Puerto Rico – Named Storm and Earthquake Events
4/8/2021
4/21/2025
Occurrence
Series 2021-1 Class B-1
US, Canada, Puerto Rico – Named Storm and Earthquake Events
4/8/2021
4/21/2025
Aggregate
Series 2021-1 Class C-1
US, Canada, Puerto Rico – Named Storm and Earthquake Events
4/8/2021
4/21/2025
Aggregate
Series 2021-1 Class A-2
US, Canada, Puerto Rico – Named Storm and Earthquake Events
4/8/2021
4/20/2026
Occurrence
Series 2021-1 Class B-2
US, Canada, Puerto Rico – Named Storm and Earthquake Events
4/8/2021
4/20/2026
Aggregate
Series 2021-1 Class C-2
US, Canada, Puerto Rico – Named Storm and Earthquake Events
4/8/2021
4/20/2026
Aggregate
Series 2022-1 Class A
US, Canada, Puerto Rico – Named Storm and Earthquake Events
6/22/2022
6/22/2025
Aggregate
Total available limit as of September 30, 2022
$
2,063
Recoveries
under
these
collateralized
reinsurance
agreements
with
Kilimanjaro
are
primarily
dependent
on
estimated
industry
level
insured
losses
from
covered
events,
as
well
as
the
geographic
location
of
the
events.
The
estimated
industry
level
of
insured
losses
is
obtained
from
published
estimates
by
an
independent
recognized
authority
on
insured
property
losses.
Currently,
none
of
the
published
insured
loss
estimates
for
catastrophe
events
during
the applicable
covered
periods
of the
various
agreements
have
exceeded
the
single
event retentions or aggregate
retentions under the terms of the agreements
that would result in a recovery.
Kilimanjaro
has
financed the
various
property
catastrophe
reinsurance
coverages
by
issuing catastrophe
bonds
to
unrelated,
external
investors.
The
proceeds
from
the
issuance
of
the
Notes
listed
below
are
held
in
reinsurance trusts
throughout the
duration of
the applicable reinsurance
agreements and
invested
solely in U.S.
government money market
funds with a rating of at least
“AAAm” by Standard
& Poor’s.
(Dollars in millions)
Note Series
Issue Date
Maturity Date
Amount
Series 2018-1 Class A-2
4/30/2018
5/5/2023
$
Series 2018-1 Class B-2
4/30/2018
5/5/2023
Series 2019-1 Class A-1
12/12/2019
12/19/2023
Series 2019-1 Class B-1
12/12/2019
12/19/2023
Series 2019-1 Class A-2
12/12/2019
12/19/2024
Series 2019-1 Class B-2
12/12/2019
12/19/2024
Series 2021-1 Class A-1
4/8/2021
4/21/2025
Series 2021-1 Class B-1
4/8/2021
4/21/2025
Series 2021-1 Class C-1
4/8/2021
4/21/2025
Series 2021-1 Class A-2
4/8/2021
4/20/2026
Series 2021-1 Class B-2
4/8/2021
4/20/2026
Series 2021-1 Class C-2
4/8/2021
4/20/2026
Series 2022-1 Class A
6/22/2022
6/22/2025
$
2,063
SENIOR NOTES
The
table
below
displays
Everest
Reinsurance
Holdings’
(“Holdings”)
outstanding
senior
notes.
Fair
value
is
based on
quoted market
prices, but
due to
limited trading
activity,
these senior
notes are
considered Level
2 in
the fair value hierarchy.
September 30, 2022
December 31, 2021
Principal
Consolidated Balance
Consolidated Balance
(Dollars in millions)
Date Issued
Date Due
Amounts
Sheet Amount
Fair Value
Sheet Amount
Fair Value
4.868
% Senior notes
6/5/2014
6/1/2044
$
$
$
$
$
3.5
% Senior notes
10/7/2020
10/15/2050
1,000
1,055
3.125
% Senior notes
10/4/2021
10/15/2052
1,000
$
2,400
$
2,347
$
1,635
$
2,346
$
2,542
Interest expense incurred in
connection with these senior notes is as follows
for the periods indicated:
Three Months Ended
Nine Months Ended
September 30,
September 30,
(Dollars in millions)
2022
2021
2022
2021
Interest expense incurred
4.868
% Senior notes
$
$
$
$
Interest expense incurred
3.5
% Senior notes
Interest expense incurred
3.125
% Senior notes
-
-
$
$
$
$
LONG TERM SUBORDINATED
NOTES
The table below
displays Holdings’
outstanding fixed
to floating rate
long term subordinated
notes.
Fair value
is
based
on
quoted
market
prices,
but
due
to
limited
trading
activity,
these
subordinated
notes
are
considered
Level 2 in the fair value hierarchy.
Maturity Date
September 30, 2022
December 31, 2021
Original
Consolidated Balance
Fair
Consolidated Balance
Fair
(Dollars in millions)
Date Issued
Principal Amount
Scheduled
Final
Sheet Amount
Value
Sheet Amount
Value
Long term subordinated notes
4/26/2007
$
5/15/2037
5/1/2067
$
$
$
$
During the fixed
rate interest
period from
May 3, 2007
through
May 14, 2017
, interest
was at the
annual rate
of
6.6
%, payable semi-annually in arrears
on November 15 and May 15 of each year,
commencing on
November 15,
2007
.
During the floating rate
interest period from
May 15, 2017 through
maturity,
interest will be based
on the
month
LIBOR
plus
238.5
basis
points,
reset
quarterly,
payable
quarterly
in
arrears
on
February
15,
May
15,
August 15
and November
15 of
each year,
subject to
Holdings’ right
to defer
interest
on
one
or more
occasions
for up
to
ten
consecutive
years.
Deferred
interest
will accumulate
interest
at the
applicable rate
compounded
quarterly for
periods from
and including
May 15,
The reset
quarterly interest
rate for
August 15,
2022 to
November 14, 2022 is
5.29
%.
Holdings may redeem
the long term subordinated
notes on or after
May 15, 2017, in
whole or in part at
% of
the principal amount
plus accrued and unpaid
interest; however,
redemption on or
after the scheduled
maturity
date and
prior to
May 1, 2047
is subject
to a
replacement
capital covenant.
This covenant
is for
the benefit
of
certain
senior
note
holders
and
it
mandates
that
Holdings
receive
proceeds
from
the
sale
of
another
subordinated
debt issue,
of at
least similar
size, before
it may
redeem the
subordinated
notes.
The Company’s
4.868
% senior notes,
due on
June 1, 2044
,
3.5
% senior noted
due on
October 15, 2050
and
3.125
% senior notes
due
on
October 15, 2052
are
the
Company’s
long
term
indebtedness
that
rank
senior
to
the
long
term
subordinated notes.
In
2009,
the
Company
had
reduced
its
outstanding
amount
of
long
term
subordinated
notes
by
$
million
through the initiation
of a cash tender offer
for any and
all of the long term
subordinated notes.
In addition, the
Company
repurchased
and
retired
$
million
of
the
long
term
subordinated
notes
in
During
the
third
quarter
of
2022,
the
Company
repurchased
and
retired
$
million
of
the
outstanding
long
term
subordinated
notes. The Company realized
a gain of $
million on the transaction.
Interest
expense
incurred
in
connection
with
these
long
term
subordinated
notes
is
as follows
for
the
periods
indicated:
Three Months Ended
Nine Months Ended
September 30,
September 30,
(Dollars in millions)
2022
2021
2022
2021
Interest expense incurred
$
$
$
$
SEGMENT REPORTING
The Reinsurance
operation
writes worldwide
property
and casualty
reinsurance
and specialty
lines of
business,
on both
a treaty
and facultative
basis,
through
reinsurance
brokers,
as well
as directly
with ceding
companies.
Business is
written in
the U.S.,
Bermuda, and
Ireland offices,
as well as,
through branches
in Canada,
Singapore,
the United
Kingdom
and Switzerland.
The Insurance
operation
writes property
and casualty
insurance
directly
and
through
brokers,
surplus
lines
brokers
and
general
agents
within
the
U.S.,
Bermuda,
Canada,
Europe,
Singapore
and South
America through
its offices
in the
U.S.,
Canada, Chile,
Singapore,
United Kingdom,
Ireland
and a branch in the Netherlands.
These segments are
managed independently,
but conform
with corporate
guidelines with respect
to pricing, risk
management,
control
of
aggregate
catastrophe
exposures,
capital,
investments
and
support
operations.
Management
generally
monitors
and
evaluates
the
financial
performance
of
these
operating
segments
based
upon their underwriting results.
Underwriting
results
include
earned
premium
less
losses
and
loss
adjustment
expenses
(“LAE”)
incurred,
commission and brokerage
expenses and other
underwriting expenses.
The Company measures
its underwriting
results using
ratios, in
particular loss,
commission and
brokerage
and other
underwriting expense
ratios, which,
respectively,
divide incurred
losses, commissions
and brokerage
and other
underwriting expenses
by premiums
earned.
The
Company
does
not
maintain
separate
balance
sheet
data
for
its
operating
segments.
Accordingly,
the
Company does not
review and evaluate
the financial results
of its operating
segments based upon
balance sheet
data.
The following tables present the underwriting
results for the operating segments
for the periods indicated:
Three Months Ended September 30, 2022
Nine Months Ended September 30, 2022
(Dollars in millions)
Reinsurance
Insurance
Total
Reinsurance
Insurance
Total
Gross written premiums
$
2,551
$
1,129
$
3,680
$
6,938
$
3,376
$
10,313
Net written premiums
2,460
3,323
6,664
2,492
9,156
Premiums earned
$
2,245
$
$
3,067
$
6,451
$
2,324
$
8,775
Incurred losses and LAE
1,992
2,623
4,699
1,591
6,289
Commission and brokerage
1,582
1,877
Other underwriting expenses
Underwriting gain (loss)
$
(338)
$
(29)
$
(367)
$
$
$
Net investment income
Net gains (losses) on investments
(129)
(519)
Corporate expenses
(16)
(45)
Interest, fee and bond issue cost amortization expense
(25)
(74)
Other income (expense)
(16)
(71)
Income (loss) before taxes
$
(401)
$
(Some amounts may not reconcile due to rounding.)
Three Months Ended September 30, 2021
Nine Months Ended September 30, 2021
(Dollars in millions)
Reinsurance
Insurance
Total
Reinsurance
Insurance
Total
Gross written premiums
$
2,488
$
1,009
$
3,498
$
6,696
$
2,924
$
9,619
Net written premiums
2,293
3,026
6,266
2,123
8,389
Premiums earned
$
1,976
$
$
2,656
$
5,675
$
1,928
$
7,603
Incurred losses and LAE
1,766
2,274
4,206
1,366
5,572
Commission and brokerage
1,353
1,611
Other underwriting expenses
Underwriting gain (loss)
$
(306)
$
(17)
$
(323)
$
(29)
$
$
(5)
Net investment income
Net gains (losses) on investments
(4)
Corporate expenses
(18)
(46)
Interest, fee and bond issue cost amortization expense
(16)
(47)
Other income (expense)
(20)
Income (loss) before taxes
$
(88)
$
1,046
(Some amounts may not reconcile due to rounding.)
The
Company
produces
business
in
the
U.S.,
Bermuda
and
internationally.
The
net
income
deriving
from
and
assets
residing
in the
individual
foreign
countries
in which
the Company
writes
business
are
not identifiable
in
the Company’s
financial records.
Based on gross written
premium, the table below
presents the largest
country,
other than the U.S., in which the Company writes business,
for the periods indicated:
Three Months Ended
Nine Months Ended
September 30,
September 30,
(Dollars in thousands)
2022
2021
2022
2021
United Kingdom gross written premium
$
$
$
$
SHARE-BASED COMPENSATION
PLANS
For
the
three
months
ended
September
30,
2022,
a
total
of
4,070
restricted
stock
awards
were
granted
on
September 8, 2022 with a fair value
of $283.72 per share.
For
the
nine
months
ended
September
30,
2022,
a
total
of
203,208
restricted
stock
awards
were
granted:
187,760
,
9,048
,
2,330
and
4,070
restricted share awards
were granted
on February 23, 2022, February
24, 2022,
May
10,
2022 and
September
8,
2022,
with
a
fair
value
of
$
301.54
per
share,
$
287.94
per
share,
$280.98
per
share and $
283.72
per share, respectively.
Additionally,
18,340
performance share unit
awards were granted
on
February 23, 2022, with a fair value of $
301.54
per unit.
INCOME TAXES
The
Company
is
domiciled
in
Bermuda
and
has
subsidiaries
and/or
branches
in
Canada,
Chile,
Ireland,
the
Netherlands,
Singapore,
Switzerland,
the
United
Kingdom,
and
the
United
States.
The
Company’s
Bermuda
domiciled
subsidiaries
are
exempt
from
income
taxation
under
Bermuda
law
until
The
Company’s
non-
Bermudian
subsidiaries
and
branches
are
subject
to
income
taxation
at
varying
rates
in
their
respective
domiciles.
The Company generally
applies the estimated
Annualized Effective
Tax
Rate (“AETR”)
approach for
calculating its
tax
provision
for
interim
periods
as prescribed
by
ASC 740-270,
Interim
Reporting.
Under
the
AETR approach,
the
estimated
annualized
effective
tax
rate
is
applied
to
the
interim
year-to-date
pre-tax
income/(loss)
to
determine
the
income
tax
expense
or
benefit
for
the
year-to-date
period.
The
tax
expense
or
benefit
for
the
quarter represents
the difference
between the
year-to-date
tax expense
or benefit
for the
current year
-to-date
period less such
amount for
the immediately
preceding year-to-date
period.
Management considers
the impact
of all known events
in its estimation
of the Company’s
annual pre-tax
income/(loss) and annualized
effective tax
rate.
SUBSEQUENT EVENTS
The Company
has evaluated
known recognized
and non-recognized
subsequent events.
The Company
does not
have any subsequent
events to report.
Previous: Item 5. [Other Information](a27015) · Next: Item 2. MANAGEMENT’S