filings.toolsItem 1. FINANCIAL STATEMENTS
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Item 1. FINANCIAL STATEMENTS
EVEREST GROUP, LTD.
CONSOLIDATED BALANCE SHEETS
| June 30, | December 31, | ||||||||||
| (Dollars and share amounts in millions, except par value per share) | 2023 | 2022 | |||||||||
| (unaudited) | |||||||||||
| ASSETS: | |||||||||||
| Fixed maturities - available for sale, at fair value (amortized cost: 2023, $26,372; 2022, $24,191, credit allowances: 2023, $(63); 2022, $(54)) | $ | 24,489 | $ | 22,236 | |||||||
| Fixed maturities - held to maturity, at amortized cost (fair value: 2023, $781; 2022, $821, net of credit allowances: 2023, $(8); 2022, $(9)) | 798 | 839 | |||||||||
| Equity securities, at fair value | 259 | 281 | |||||||||
| Other invested assets | 4,262 | 4,085 | |||||||||
| Short-term investments | 1,675 | 1,032 | |||||||||
| Cash | 2,067 | 1,398 | |||||||||
| Total investments and cash | 33,550 | 29,872 | |||||||||
| Accrued investment income | 266 | 217 | |||||||||
| Premiums receivable (net of credit allowances: 2023, $(34); 2022, $(29)) | 4,263 | 3,619 | |||||||||
| Reinsurance paid loss recoverables (net of credit allowances: 2023, $(24); 2022, $(23)) | 201 | 136 | |||||||||
| Reinsurance unpaid loss recoverables | 2,175 | 2,105 | |||||||||
| Funds held by reinsureds | 1,075 | 1,056 | |||||||||
| Deferred acquisition costs | 1,086 | 962 | |||||||||
| Prepaid reinsurance premiums | 692 | 610 | |||||||||
| Income tax asset, net | 399 | 459 | |||||||||
| Other assets (net of credit allowances: 2023, $(7); 2022, $(5)) | 961 | 930 | |||||||||
| TOTAL ASSETS | $ | 44,668 | $ | 39,966 | |||||||
| LIABILITIES: | |||||||||||
| Reserve for losses and loss adjustment expenses | $ | 23,405 | $ | 22,065 | |||||||
| Future policy benefit reserve | 28 | 29 | |||||||||
| Unearned premium reserve | 5,943 | 5,147 | |||||||||
| Funds held under reinsurance treaties | 25 | 13 | |||||||||
| Amounts due to reinsurers | 678 | 567 | |||||||||
| Losses in course of payment | 150 | 74 | |||||||||
| Senior notes | 2,348 | 2,347 | |||||||||
| Long-term notes | 218 | 218 | |||||||||
| Borrowings from FHLB | 519 | 519 | |||||||||
| Accrued interest on debt and borrowings | 19 | 19 | |||||||||
| Unsettled securities payable | 21 | 1 | |||||||||
| Other liabilities | 412 | 526 | |||||||||
| Total liabilities | 33,766 | 31,525 | |||||||||
| Commitments and contingencies (Note 11) | |||||||||||
| 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; (2023) 74.2 and (2022) 69.9 outstanding before treasury shares | 1 | 1 | |||||||||
| Additional paid-in capital | 3,753 | 2,302 | |||||||||
| Accumulated other comprehensive income (loss), net of deferred income tax expense (benefit) of $(247) at 2023 and $(250) at 2022 | (1,883) | (1,996) | |||||||||
| Treasury shares, at cost; 30.8 shares (2023) and 30.8 shares (2022) | (3,908) | (3,908) | |||||||||
| Retained earnings | 12,940 | 12,042 | |||||||||
| Total shareholders' equity | 10,902 | 8,441 | |||||||||
| TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $ | 44,668 | $ | 39,966 |
The accompanying notes are an integral part of the consolidated financial statements.
EVEREST GROUP, LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| (Dollars in millions, except per share amounts) | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||
| (unaudited) | (unaudited) | ||||||||||||||||||||||
| REVENUES: | |||||||||||||||||||||||
| Premiums earned | $ | 3,251 | $ | 2,916 | $ | 6,352 | $ | 5,708 | |||||||||||||||
| Net investment income | 357 | 226 | 617 | 469 | |||||||||||||||||||
| Total net gains (losses) on investments | 5 | (236) | 10 | (390) | |||||||||||||||||||
| Other income (expense) | 38 | (71) | (42) | (56) | |||||||||||||||||||
| Total revenues | 3,650 | 2,835 | 6,936 | 5,731 | |||||||||||||||||||
| CLAIMS AND EXPENSES: | |||||||||||||||||||||||
| Incurred losses and loss adjustment expenses | 1,960 | 1,876 | 3,927 | 3,666 | |||||||||||||||||||
| Commission, brokerage, taxes and fees | 686 | 630 | 1,347 | 1,236 | |||||||||||||||||||
| Other underwriting expenses | 205 | 170 | 405 | 331 | |||||||||||||||||||
| Corporate expenses | 17 | 15 | 36 | 29 | |||||||||||||||||||
| Interest, fees and bond issue cost amortization expense | 33 | 24 | 65 | 48 | |||||||||||||||||||
| Total claims and expenses | 2,901 | 2,715 | 5,779 | 5,310 | |||||||||||||||||||
| INCOME (LOSS) BEFORE TAXES | 750 | 119 | 1,157 | 421 | |||||||||||||||||||
| Income tax expense (benefit) | 80 | (4) | 122 | 1 | |||||||||||||||||||
| NET INCOME (LOSS) | $ | 670 | $ | 123 | $ | 1,035 | $ | 420 | |||||||||||||||
| Other comprehensive income (loss), net of tax: | |||||||||||||||||||||||
| Unrealized appreciation (depreciation) ("URA(D)") on securities arising during the period | (169) | (732) | 77 | (1,548) | |||||||||||||||||||
| Reclassification adjustment for realized losses (gains) included in net income (loss) | 2 | 16 | 5 | 20 | |||||||||||||||||||
| Total URA(D) on securities arising during the period | (167) | (717) | 82 | (1,528) | |||||||||||||||||||
| Foreign currency translation adjustments | (1) | (28) | 30 | (62) | |||||||||||||||||||
| Reclassification adjustment for amortization of net (gain) loss included in net income (loss) | — | 1 | 1 | 2 | |||||||||||||||||||
| Total benefit plan net gain (loss) for the period | — | 1 | 1 | 2 | |||||||||||||||||||
| Total other comprehensive income (loss), net of tax | (168) | (744) | 113 | (1,588) | |||||||||||||||||||
| COMPREHENSIVE INCOME (LOSS) | $ | 502 | $ | (621) | $ | 1,148 | $ | (1,168) | |||||||||||||||
| EARNINGS PER COMMON SHARE: | |||||||||||||||||||||||
| Basic | $ | 16.26 | $ | 3.11 | $ | 25.74 | $ | 10.67 | |||||||||||||||
| Diluted | 16.26 | 3.11 | 25.74 | 10.67 |
The accompanying notes are an integral part of the consolidated financial statements.
EVEREST GROUP, LTD.
CONSOLIDATED STATEMENTS OF
CHANGES IN SHAREHOLDERS’ EQUITY
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| (Dollars in millions, except dividends per share amounts) | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||
| (unaudited) | (unaudited) | ||||||||||||||||||||||
| COMMON SHARES (shares outstanding): | |||||||||||||||||||||||
| Balance beginning of period | 39.3 | 39.4 | 39.2 | 39.3 | |||||||||||||||||||
| Issued (redeemed) during the period, net | 4.1 | — | 4.2 | 0.2 | |||||||||||||||||||
| Treasury shares acquired | — | — | — | — | |||||||||||||||||||
| Balance end of period | 43.4 | 39.4 | 43.4 | 39.4 | |||||||||||||||||||
| COMMON SHARES (par value): | |||||||||||||||||||||||
| Balance beginning of period | $ | 1 | $ | 1 | $ | 1 | $ | 1 | |||||||||||||||
| Issued during the period, net | — | — | — | — | |||||||||||||||||||
| Balance end of period | 1 | 1 | 1 | 1 | |||||||||||||||||||
| ADDITIONAL PAID-IN CAPITAL: | |||||||||||||||||||||||
| Balance beginning of period | 2,295 | 2,272 | 2,302 | 2,274 | |||||||||||||||||||
| Public offering of shares | 1,445 | — | 1,445 | — | |||||||||||||||||||
| Share-based compensation plans | 12 | 12 | 5 | 9 | |||||||||||||||||||
| Balance end of period | 3,753 | 2,284 | 3,753 | 2,284 | |||||||||||||||||||
| ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS), NET OF DEFERRED INCOME TAXES: | |||||||||||||||||||||||
| Balance beginning of period | (1,716) | (833) | (1,996) | 12 | |||||||||||||||||||
| Net increase (decrease) during the period | (168) | (744) | 113 | (1,588) | |||||||||||||||||||
| Balance end of period | (1,883) | (1,577) | (1,883) | (1,577) | |||||||||||||||||||
| RETAINED EARNINGS: | |||||||||||||||||||||||
| Balance beginning of period | 12,342 | 11,936 | 12,042 | 11,700 | |||||||||||||||||||
| Net income (loss) | 670 | 123 | 1,035 | 420 | |||||||||||||||||||
| Dividends declared ($1.65 per share in 2Q 2023 and $3.30 per share YTD in 2023; | |||||||||||||||||||||||
| $1.65 per share in 2Q 2022 and $3.20 per share YTD in 2022) | (72) | (65) | (136) | (126) | |||||||||||||||||||
| Balance, end of period | 12,940 | 11,994 | 12,940 | 11,994 | |||||||||||||||||||
| TREASURY SHARES AT COST: | |||||||||||||||||||||||
| Balance beginning of period | (3,908) | (3,849) | (3,908) | (3,847) | |||||||||||||||||||
| Purchase of treasury shares | — | — | — | (1) | |||||||||||||||||||
| Balance end of period | (3,908) | (3,849) | (3,908) | (3,849) | |||||||||||||||||||
| TOTAL SHAREHOLDERS' EQUITY, END OF PERIOD | $ | 10,902 | $ | 8,853 | $ | 10,902 | $ | 8,853 |
The accompanying notes are an integral part of the consolidated financial statements.
EVEREST GROUP, LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
| Six Months Ended June 30, | |||||||||||
| (Dollars in millions) | 2023 | 2022 | |||||||||
| (unaudited) | |||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | |||||||||||
| Net income (loss) | $ | 1,035 | $ | 420 | |||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
| Decrease (increase) in premiums receivable | (584) | (223) | |||||||||
| Decrease (increase) in funds held by reinsureds, net | (5) | (51) | |||||||||
| Decrease (increase) in reinsurance recoverables | (21) | (237) | |||||||||
| Decrease (increase) in income taxes | 56 | (100) | |||||||||
| Decrease (increase) in prepaid reinsurance premiums | (40) | (110) | |||||||||
| Increase (decrease) in reserve for losses and loss adjustment expenses | 1,142 | 1,360 | |||||||||
| Increase (decrease) in future policy benefit reserve | (1) | (2) | |||||||||
| Increase (decrease) in unearned premiums | 732 | 177 | |||||||||
| Increase (decrease) in amounts due to reinsurers | 63 | 120 | |||||||||
| Increase (decrease) in losses in course of payment | 75 | (178) | |||||||||
| Change in equity adjustments in limited partnerships | (56) | (157) | |||||||||
| Distribution of limited partnership income | 49 | 105 | |||||||||
| Change in other assets and liabilities, net | (292) | (11) | |||||||||
| Non-cash compensation expense | 25 | 24 | |||||||||
| Amortization of bond premium (accrual of bond discount) | (11) | 35 | |||||||||
| Net (gains) losses on investments | (10) | 390 | |||||||||
| Net cash provided by (used in) operating activities | 2,158 | 1,562 | |||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | |||||||||||
| Proceeds from fixed maturities matured/called/repaid - available for sale | 1,137 | 1,661 | |||||||||
| Proceeds from fixed maturities sold - available for sale | 168 | 772 | |||||||||
| Proceeds from fixed maturities matured/called/repaid - held to maturity | 61 | — | |||||||||
| Proceeds from equity securities sold | 46 | 438 | |||||||||
| Distributions from other invested assets | 133 | 205 | |||||||||
| Cost of fixed maturities acquired - available for sale | (3,396) | (4,071) | |||||||||
| Cost of fixed maturities acquired - held to maturity | (15) | (72) | |||||||||
| Cost of equity securities acquired | (3) | (283) | |||||||||
| Cost of other invested assets acquired | (298) | (308) | |||||||||
| Net change in short-term investments | (625) | 878 | |||||||||
| Net change in unsettled securities transactions | 41 | 23 | |||||||||
| Net cash provided by (used in) investing activities | (2,752) | (757) | |||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | |||||||||||
| Common shares issued (redeemed) during the period for share-based compensation, net of expense | (19) | (15) | |||||||||
| Proceeds from public offering of common shares | 1,445 | — | |||||||||
| Purchase of treasury shares | — | (1) | |||||||||
| Dividends paid to shareholders | (136) | (126) | |||||||||
| Cost of shares withheld on settlements of share-based compensation awards | (20) | (17) | |||||||||
| Net cash provided by (used in) financing activities | 1,269 | (159) | |||||||||
| EFFECT OF EXCHANGE RATE CHANGES ON CASH | (7) | 30 | |||||||||
| Net increase (decrease) in cash | 668 | 675 | |||||||||
| Cash, beginning of period | 1,398 | 1,441 | |||||||||
| Cash, end of period | $ | 2,067 | $ | 2,116 | |||||||
| SUPPLEMENTAL CASH FLOW INFORMATION: | |||||||||||
| Income taxes paid (recovered) | $ | 73 | $ | 101 | |||||||
| Interest paid | 64 | 48 | |||||||||
The accompanying notes are an integral part of the consolidated financial statements.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)
For the Three and Six Months Ended June 30, 2023 and 2022
1. GENERAL
Everest 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.
Effective July 10, 2023, the Company changed its name to Everest Group, Ltd. from Everest Re Group, Ltd. to reflect its evolution, global growth and diversification strategy.
2. BASIS OF PRESENTATION
The unaudited consolidated financial statements of the Company as of June 30, 2023 and December 31, 2022 and for the three and six months ended June 30, 2023 and 2022 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, 2022 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 six months ended June 30, 2023 and 2022 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, 2022, 2021 and 2020, 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.
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 six months ended June 30, 2023. The Company assessed the adoption impacts of recently issued accounting standards by the Financial Accounting Standards Board (“FASB”) 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, 2022. There were no accounting standards issued in the six months ended June 30, 2023, that are expected to have a material impact to Group.
Application of Methods and Assumption changes
During 2023, the Company refined its premium estimation methodology for its risk attaching reinsurance contracts within its Reinsurance Segment to continue to recognize gross written premium over the term of the treaty, albeit over a different pattern than what was previously used. The refined estimate resulted in an increase of gross written premium during the three and six months ended June 30, 2023 periods and has further aligned the estimation methodology across the reinsurance division globally. This change had no impact on the total written premium to be recognized over the term of the treaty. There was no impact on net earned premium and therefore, no impact on income from continuing operations, net income, or any related per-share amounts.
3. INVESTMENTS
The tables below present the amortized cost, allowance for credit losses, gross unrealized appreciation/(depreciation) and fair value of fixed maturity securities - available for sale for the periods indicated:
| At June 30, 2023 | |||||||||||||||||||||||||||||
| (Dollars in millions) | Amortized Cost | Allowance for Credit Losses | Unrealized Appreciation | Unrealized Depreciation | Fair Value | ||||||||||||||||||||||||
| Fixed maturity securities - available for sale | |||||||||||||||||||||||||||||
| U.S. Treasury securities and obligations of U.S. government agencies and corporations | $ | 1,225 | $ | — | $ | 2 | $ | (82) | $ | 1,145 | |||||||||||||||||||
| Obligations of U.S. states and political subdivisions | 424 | — | 1 | (30) | 395 | ||||||||||||||||||||||||
| Corporate Securities | 7,639 | (56) | 27 | (553) | 7,057 | ||||||||||||||||||||||||
| Asset-backed Securities | 4,973 | — | 6 | (117) | 4,862 | ||||||||||||||||||||||||
| Mortgage-backed securities | |||||||||||||||||||||||||||||
| Commercial | 1,085 | — | — | (113) | 972 | ||||||||||||||||||||||||
| Agency Residential | 3,673 | — | 6 | (292) | 3,387 | ||||||||||||||||||||||||
| Non-agency Residential | 62 | — | — | (1) | 61 | ||||||||||||||||||||||||
| Foreign government securities | 1,755 | — | 7 | (165) | 1,597 | ||||||||||||||||||||||||
| Foreign corporate securities | 5,536 | (7) | 14 | (530) | 5,013 | ||||||||||||||||||||||||
| Total fixed maturity securities - available for sale | $ | 26,372 | $ | (63) | $ | 63 | $ | (1,883) | $ | 24,489 |
(Some amounts may not reconcile due to rounding.)
| At December 31, 2022 | |||||||||||||||||||||||||||||
| (Dollars in millions) | Amortized Cost | Allowance for Credit Losses | Unrealized Appreciation | Unrealized Depreciation | Fair Value | ||||||||||||||||||||||||
| Fixed maturity securities - available for sale | |||||||||||||||||||||||||||||
| U.S. Treasury securities and obligations of U.S. government agencies and corporations | $ | 1,334 | $ | — | $ | 6 | $ | (82) | $ | 1,257 | |||||||||||||||||||
| Obligations of U.S. states and political subdivisions | 444 | — | 2 | (32) | 413 | ||||||||||||||||||||||||
| Corporate securities | 7,044 | (45) | 31 | (561) | 6,469 | ||||||||||||||||||||||||
| Asset-backed securities | 4,229 | — | 5 | (171) | 4,063 | ||||||||||||||||||||||||
| Mortgage-backed securities | |||||||||||||||||||||||||||||
| Commercial | 1,023 | — | — | (105) | 919 | ||||||||||||||||||||||||
| Agency residential | 3,382 | — | 7 | (290) | 3,099 | ||||||||||||||||||||||||
| Non-agency residential | 5 | — | — | (1) | 4 | ||||||||||||||||||||||||
| Foreign government securities | 1,586 | — | 8 | (179) | 1,415 | ||||||||||||||||||||||||
| Foreign corporate securities | 5,143 | (10) | 23 | (562) | 4,596 | ||||||||||||||||||||||||
| Total fixed maturity securities - available for sale | $ | 24,191 | $ | (54) | $ | 81 | $ | (1,982) | $ | 22,236 |
(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 for the periods indicated:
| At June 30, 2023 | |||||||||||||||||||||||||||||
| (Dollars in millions) | Amortized Cost | Allowance for Credit Losses | Unrealized Appreciation | Unrealized Depreciation | Fair Value | ||||||||||||||||||||||||
| Fixed maturity securities - held to maturity | |||||||||||||||||||||||||||||
| Corporate Securities | $ | 152 | $ | (2) | $ | — | $ | (6) | $ | 144 | |||||||||||||||||||
| Asset-backed Securities | 612 | (5) | 2 | (15) | 595 | ||||||||||||||||||||||||
| Mortgage-backed securities | |||||||||||||||||||||||||||||
| Commercial | 14 | — | — | — | 14 | ||||||||||||||||||||||||
| Foreign corporate securities | 28 | (1) | 2 | — | 29 | ||||||||||||||||||||||||
| Total fixed maturity securities - held to maturity | $ | 806 | (8) | $ | 4 | $ | (21) | $ | 781 |
(Some amounts may not reconcile due to rounding.)
| At December 31, 2022 | |||||||||||||||||||||||||||||
| (Dollars in millions) | Amortized Cost | Allowance for Credit Losses | Unrealized Appreciation | Unrealized Depreciation | Fair Value | ||||||||||||||||||||||||
| Fixed maturity securities - held to maturity | |||||||||||||||||||||||||||||
| Corporate Securities | $ | 152 | $ | (2) | $ | — | $ | (6) | $ | 144 | |||||||||||||||||||
| Asset-backed Securities | 661 | (6) | 2 | (15) | 642 | ||||||||||||||||||||||||
| Mortgage-backed securities | |||||||||||||||||||||||||||||
| Commercial | 7 | — | — | — | 7 | ||||||||||||||||||||||||
| Foreign corporate securities | 28 | (1) | 2 | — | 28 | ||||||||||||||||||||||||
| Total fixed maturity securities - held to maturity | $ | 848 | $ | (9) | $ | 3 | $ | (22) | $ | 821 |
(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. 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 June 30, 2023 | At December 31, 2022 | ||||||||||||||||||||||
| (Dollars in millions) | Amortized Cost | Fair Value | Amortized Cost | Fair Value | |||||||||||||||||||
| Fixed maturity securities – available for sale | |||||||||||||||||||||||
| Due in one year or less | $ | 1,695 | $ | 1,642 | $ | 1,331 | $ | 1,314 | |||||||||||||||
| Due after one year through five years | 8,423 | 7,842 | 8,131 | 7,546 | |||||||||||||||||||
| Due after five years through ten years | 4,572 | 4,045 | 4,636 | 4,057 | |||||||||||||||||||
| Due after ten years | 1,889 | 1,678 | 1,454 | 1,233 | |||||||||||||||||||
| Asset-backed securities | 4,973 | 4,862 | 4,229 | 4,063 | |||||||||||||||||||
| Mortgage-backed securities | |||||||||||||||||||||||
| Commercial | 1,085 | 972 | 1,023 | 919 | |||||||||||||||||||
| Agency residential | 3,673 | 3,387 | 3,382 | 3,099 | |||||||||||||||||||
| Non-agency residential | 62 | 61 | 5 | 4 | |||||||||||||||||||
| Total fixed maturity securities - available for sale | $ | 26,372 | $ | 24,489 | $ | 24,191 | $ | 22,236 |
(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. 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 June 30, 2023 | At December 31, 2022 | ||||||||||||||||||||||
| (Dollars in millions) | Amortized Cost | Fair Value | Amortized Cost | Fair Value | |||||||||||||||||||
| Fixed maturity securities – held to maturity | |||||||||||||||||||||||
| Due in one year or less | $ | 5 | $ | 5 | $ | 5 | $ | 5 | |||||||||||||||
| Due after one year through five years | 64 | 61 | 63 | 61 | |||||||||||||||||||
| Due after five years through ten years | 44 | 41 | 43 | 41 | |||||||||||||||||||
| Due after ten years | 68 | 65 | 68 | 65 | |||||||||||||||||||
| Asset-backed securities | 613 | 595 | 661 | 642 | |||||||||||||||||||
| Mortgage-backed securities | |||||||||||||||||||||||
| Commercial | 14 | 14 | 7 | 7 | |||||||||||||||||||
| Total fixed maturity securities - held to maturity | $ | 806 | $ | 781 | $ | 848 | $ | 821 |
(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 $722 million, net of allowance for current expected credit losses, which was subsequently recognized as the new amortized cost basis. As of June 30, 2023, these securities had an unrealized loss of $46 million, which remained in accumulated other comprehensive income (“AOCI”) 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 fair values of these securities incorporate the use of significant unobservable inputs and therefore are classified as Level 3 within the fair value hierarchy.
The Company evaluated fixed maturity securities classified as held to maturity for current expected credit losses as of June 30, 2023 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 June 30, 2023.
The changes in net unrealized appreciation (depreciation) for the Company’s investments are as follows:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| (Dollars in millions) | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||
| Increase (decrease) during the period between the fair value and cost of investments carried at fair value, and deferred taxes thereon: | |||||||||||||||||||||||
| Fixed maturity securities - available for sale and short-term investments | $ | (195) | $ | (832) | $ | 84 | $ | (1,760) | |||||||||||||||
| Change in unrealized appreciation (depreciation), pre-tax | (195) | (832) | 84 | (1,760) | |||||||||||||||||||
| Deferred tax benefit (expense) | 28 | 116 | (2) | 232 | |||||||||||||||||||
| Change in unrealized appreciation (depreciation), net of deferred taxes, included in shareholders’ equity | $ | (167) | $ | (717) | $ | 82 | $ | (1,528) |
(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 June 30, 2023 By Security Type | |||||||||||||||||||||||||||||||||||
| Less than 12 months | Greater than 12 months | Total | |||||||||||||||||||||||||||||||||
| (Dollars in millions) | Fair Value | Gross Unrealized Depreciation | Fair Value | Gross Unrealized Depreciation | Fair Value | Gross Unrealized Depreciation | |||||||||||||||||||||||||||||
| Fixed maturity securities - available for sale | |||||||||||||||||||||||||||||||||||
| U.S. Treasury securities and obligations of U.S. government agencies and corporations | $ | 198 | $ | (12) | $ | 877 | $ | (70) | $ | 1,075 | $ | (82) | |||||||||||||||||||||||
| Obligations of U.S. states and political subdivisions | 77 | (1) | 199 | (29) | 276 | (30) | |||||||||||||||||||||||||||||
| Corporate securities | 1,877 | (114) | 3,982 | (438) | 5,859 | (553) | |||||||||||||||||||||||||||||
| Asset-backed securities | 1,120 | (24) | 2,490 | (93) | 3,610 | (117) | |||||||||||||||||||||||||||||
| Mortgage-backed securities | |||||||||||||||||||||||||||||||||||
| Commercial | 87 | (2) | 873 | (110) | 961 | (113) | |||||||||||||||||||||||||||||
| Agency residential | 1,067 | (33) | 1,948 | (259) | 3,015 | (292) | |||||||||||||||||||||||||||||
| Non-agency residential | 57 | (1) | 4 | — | 61 | (1) | |||||||||||||||||||||||||||||
| Foreign government securities | 353 | (13) | 1,043 | (152) | 1,396 | (165) | |||||||||||||||||||||||||||||
| Foreign corporate securities | 1,169 | (50) | 3,317 | (479) | 4,486 | (530) | |||||||||||||||||||||||||||||
| Total | $ | 6,004 | $ | (250) | $ | 14,734 | $ | (1,630) | $ | 20,738 | $ | (1,881) | |||||||||||||||||||||||
| Securities where an allowance for credit loss was recorded | 2 | (2) | — | (1) | 3 | (2) | |||||||||||||||||||||||||||||
| Total fixed maturity securities - available for sale | $ | 6,007 | $ | (252) | $ | 14,734 | $ | (1,631) | $ | 20,741 | $ | (1,883) |
(Some amounts may not reconcile due to rounding.)
| Duration of Unrealized Loss at June 30, 2023 By Maturity | |||||||||||||||||||||||||||||||||||
| Less than 12 months | Greater than 12 months | Total | |||||||||||||||||||||||||||||||||
| (Dollars in millions) | Fair Value | Gross Unrealized Depreciation | Fair Value | Gross Unrealized Depreciation | Fair Value | Gross Unrealized Depreciation | |||||||||||||||||||||||||||||
| Fixed maturity securities - available for sale | |||||||||||||||||||||||||||||||||||
| Due in one year or less | $ | 404 | $ | (9) | $ | 1,007 | $ | (36) | $ | 1,411 | $ | (44) | |||||||||||||||||||||||
| Due in one year through five years | 1,718 | (66) | 5,193 | (521) | 6,912 | (587) | |||||||||||||||||||||||||||||
| Due in five years through ten years | 982 | (50) | 2,639 | (482) | 3,622 | (532) | |||||||||||||||||||||||||||||
| Due after ten years | 569 | (65) | 578 | (128) | 1,147 | (193) | |||||||||||||||||||||||||||||
| Asset-backed securities | 1,120 | (24) | 2,490 | (93) | 3,610 | (117) | |||||||||||||||||||||||||||||
| Mortgage-backed securities | 1,211 | (36) | 2,825 | (370) | 4,036 | (406) | |||||||||||||||||||||||||||||
| Total | $ | 6,004 | $ | (250) | $ | 14,734 | $ | (1,630) | $ | 20,738 | $ | (1,881) | |||||||||||||||||||||||
| Securities where an allowance for credit loss was recorded | 2 | (2) | — | (1) | 3 | (2) | |||||||||||||||||||||||||||||
| Total fixed maturity securities - available for sale | $ | 6,007 | $ | (252) | $ | 14,734 | $ | (1,631) | $ | 20,741 | $ | (1,883) |
(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 June 30, 2023 were $20.7 billion and $1.9 billion, respectively. The fair value of securities for the single issuer (the United States government), whose securities comprised the largest unrealized loss position at June 30, 2023, amounted to less than 4.4% 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 June 30, 2023 comprised less than 0.8% 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 $252 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 and non-agency residential mortgage-backed securities and asset-backed securities. Of these unrealized losses, $221 million were related to securities that were rated investment grade by at least one nationally recognized rating agency. The $1.6 billion 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, foreign government securities, commercial mortgage-backed securities and asset-backed securities. Of these unrealized losses, $1.56 billion 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 June 30, 2023, 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:
| Duration of Unrealized Loss at December 31, 2022 By Security Type | |||||||||||||||||||||||||||||||||||
| Less than 12 months | Greater than 12 months | Total | |||||||||||||||||||||||||||||||||
| (Dollars in millions) | Fair Value | Gross Unrealized Depreciation | Fair Value | Gross Unrealized Depreciation | Fair Value | Gross Unrealized Depreciation | |||||||||||||||||||||||||||||
| Fixed maturity securities - available for sale | |||||||||||||||||||||||||||||||||||
| U.S. Treasury securities and obligations of U.S. government agencies and corporations | $ | 668 | $ | (31) | $ | 487 | $ | (52) | $ | 1,155 | $ | (82) | |||||||||||||||||||||||
| Obligations of U.S. states and political subdivisions | 235 | (23) | 27 | (9) | 261 | (32) | |||||||||||||||||||||||||||||
| Corporate securities | 4,143 | (326) | 1,316 | (234) | 5,459 | (561) | |||||||||||||||||||||||||||||
| Asset-backed securities | 3,204 | (142) | 456 | (29) | 3,661 | (171) | |||||||||||||||||||||||||||||
| Mortgage-backed securities | |||||||||||||||||||||||||||||||||||
| Commercial | 806 | (90) | 101 | (15) | 907 | (105) | |||||||||||||||||||||||||||||
| Agency residential | 1,905 | (132) | 870 | (158) | 2,776 | (289) | |||||||||||||||||||||||||||||
| Non-agency residential | 4 | — | 1 | (1) | 4 | — | |||||||||||||||||||||||||||||
| Foreign government securities | 985 | (100) | 321 | (79) | 1,306 | (179) | |||||||||||||||||||||||||||||
| Foreign corporate securities | 3,264 | (372) | 853 | (189) | 4,117 | (561) | |||||||||||||||||||||||||||||
| Total | $ | 15,213 | $ | (1,217) | $ | 4,432 | $ | (764) | $ | 19,645 | $ | (1,982) | |||||||||||||||||||||||
| Securities where an allowance for credit loss was recorded | 2 | — | — | — | 2 | — | |||||||||||||||||||||||||||||
| Total fixed maturity securities - available for sale | $ | 15,215 | $ | (1,217) | $ | 4,432 | $ | (764) | $ | 19,647 | $ | (1,982) |
(Some amounts may not reconcile due to rounding.)
| Duration of Unrealized Loss at December 31, 2022 By Maturity | |||||||||||||||||||||||||||||||||||
| Less than 12 months | Greater than 12 months | Total | |||||||||||||||||||||||||||||||||
| (Dollars in millions) | Fair Value | Gross Unrealized Depreciation | Fair Value | Gross Unrealized Depreciation | Fair Value | Gross Unrealized Depreciation | |||||||||||||||||||||||||||||
| Fixed maturity securities - available for sale | |||||||||||||||||||||||||||||||||||
| Due in one year or less | $ | 989 | $ | (19) | $ | 40 | $ | (7) | $ | 1,029 | $ | (26) | |||||||||||||||||||||||
| Due in one year through five years | 4,935 | (383) | 1,645 | (209) | 6,580 | (592) | |||||||||||||||||||||||||||||
| Due in five years through ten years | 2,698 | (360) | 911 | (230) | 3,609 | (590) | |||||||||||||||||||||||||||||
| Due after ten years | 672 | (91) | 408 | (116) | 1,080 | (207) | |||||||||||||||||||||||||||||
| Asset-backed securities | 3,204 | (142) | 456 | (29) | 3,661 | (171) | |||||||||||||||||||||||||||||
| Mortgage-backed securities | 2,715 | (222) | 972 | (173) | 3,687 | (395) | |||||||||||||||||||||||||||||
| Total | $ | 15,213 | $ | (1,217) | $ | 4,432 | $ | (764) | $ | 19,645 | $ | (1,982) | |||||||||||||||||||||||
| Securities where an allowance for credit loss was recorded | 2 | — | — | — | 2 | — | |||||||||||||||||||||||||||||
| Total fixed maturity securities - available for sale | $ | 15,215 | $ | (1,217) | $ | 4,432 | $ | (764) | $ | 19,647 | $ | (1,982) |
(Some amounts may not reconcile due to rounding.)
The aggregate fair value and gross unrealized losses related to fixed maturity - available for sale investments in an unrealized loss position at December 31, 2022 were $19.6 billion and $2.0 billion, 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, 2022, amounted to less than 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 comprised less than 0.2% 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 $1.2 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 domestic and foreign corporate securities, asset-backed securities, agency residential mortgage-backed securities and foreign government securities. Of these unrealized losses, $1.1 billion were related to securities that were rated investment grade by at least one nationally recognized rating agency. The $764 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, agency residential mortgage-backed securities and foreign government securities. Of these unrealized losses, $732 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 June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| (Dollars in millions) | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||
| Fixed maturities | $ | 276 | $ | 169 | $ | 523 | $ | 317 | |||||||||||||||
| Equity securities | 1 | 5 | 2 | 9 | |||||||||||||||||||
| Short-term investments and cash | 34 | 7 | 51 | 7 | |||||||||||||||||||
| Other invested assets | |||||||||||||||||||||||
| Limited partnerships | 53 | 48 | 38 | 136 | |||||||||||||||||||
| Other | 6 | 14 | 27 | 26 | |||||||||||||||||||
| Gross investment income before adjustments | 369 | 242 | 641 | 494 | |||||||||||||||||||
| Funds held interest income (expense) | 2 | 1 | 2 | 4 | |||||||||||||||||||
| Future policy benefit reserve income (expense) | — | — | — | — | |||||||||||||||||||
| Gross investment income | 371 | 242 | 643 | 498 | |||||||||||||||||||
| Investment expenses | 14 | 16 | 26 | 30 | |||||||||||||||||||
| Net investment income | $ | 357 | $ | 226 | $ | 617 | $ | 469 |
(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 (“NAVs”) 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 $2.8 billion in limited partnerships and private placement loan securities at June 30, 2023. These commitments will be funded when called in accordance with the partnership and loan agreements, which have investment periods that expire, unless extended, through 2027.
During the fourth quarter of 2022, the Company entered into corporate-owned life insurance (COLI) policies, which are primarily invested in liquid credit, equity, and other assets, including alternative assets. The COLI policies are carried within other invested assets at policy cash surrender value of $968 million and $939 million as of June 30, 2023 and December 31, 2022, respectively.
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 June 30, 2023 and December 31, 2022, the Company did not hold any securities for which it is the primary beneficiary.
The Company, through normal investment activities, makes passive investments in general and limited partnerships and other alternative investments. For these non-consolidated VIEs, the Company has determined it is not the primary beneficiary as it has no ability to direct activities that could significantly affect the economic performance of the investments. The Company’s maximum exposure to loss as of June 30, 2023 and December 31, 2022 is limited to the total carrying value of $4.3 billion and $4.1 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 June 30, 2023, 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 classified as fixed maturities, available for sale. The Company has not provided financial or other support with respect to these investments other than its original investment. For these investments, the Company determined it is not the primary beneficiary due to the relative size of the Company’s investment in comparison to the principal amount of the structured securities issued by the VIEs, credit subordination that reduces the Company’s obligation to absorb losses or right to receive benefits or 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 table below for the periods indicated:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| (Dollars in millions) | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||
| Fixed maturity securities | |||||||||||||||||||||||
| Allowance for credit losses | $ | — | $ | (1) | $ | (8) | $ | (13) | |||||||||||||||
| Net realized gains (losses) from dispositions | (3) | (16) | (1) | (13) | |||||||||||||||||||
| Equity securities, fair value | |||||||||||||||||||||||
| Net realized gains (losses) from dispositions | — | (31) | 7 | (43) | |||||||||||||||||||
| Gains (losses) from fair value adjustments | 8 | (189) | 12 | (326) | |||||||||||||||||||
| Other invested assets | — | 1 | — | 5 | |||||||||||||||||||
| Total net gains (losses) on investments | $ | 5 | $ | (236) | $ | 10 | $ | (390) |
(Some amounts may not reconcile due to rounding.)
The following tables provide a roll forward of the Company’s beginning and ending balance of allowance for credit losses for the periods indicated:
| Roll Forward of Allowance for Credit Losses - Fixed Maturities - Available for Sale | |||||||||||||||||||||||||||||||||||||||||||||||
| Three Months Ended June 30, 2023 | Six Months Ended June 30, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||
| (Dollars in millions) | Corporate Securities | Asset-Backed Securities | Foreign Corporate Securities | Total | Corporate Securities | Asset-Backed Securities | Foreign Corporate Securities | Total | |||||||||||||||||||||||||||||||||||||||
| Beginning balance | $ | (55) | $ | — | $ | (7) | $ | (62) | $ | (45) | $ | — | $ | (10) | $ | (54) | |||||||||||||||||||||||||||||||
| Credit losses on securities where credit losses were not previously recorded | (2) | — | — | (2) | (14) | — | — | (14) | |||||||||||||||||||||||||||||||||||||||
| Increases in allowance on previously impaired securities | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Decreases in allowance on previously impaired securities | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Reduction in allowance due to disposals | 1 | — | — | 1 | 4 | — | 3 | 6 | |||||||||||||||||||||||||||||||||||||||
| Balance, end of period | $ | (56) | $ | — | $ | (7) | $ | (63) | $ | (56) | $ | — | $ | (7) | $ | (63) |
(Some amounts may not reconcile due to rounding.)
| Roll Forward of Allowance for Credit Losses - Fixed Maturities - Available for Sale | |||||||||||||||||||||||||||||||||||||||||||||||
| Three Months Ended June 30, 2022 | Six Months Ended June 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||
| (Dollars in millions) | Corporate Securities | Asset-Backed Securities | Foreign Corporate Securities | Total | Corporate Securities | Asset-Backed Securities | Foreign Corporate Securities | Total | |||||||||||||||||||||||||||||||||||||||
| Beginning balance | $ | (20) | $ | (8) | $ | (14) | $ | (42) | $ | (19) | $ | (8) | $ | (3) | $ | (30) | |||||||||||||||||||||||||||||||
| Credit losses on securities where credit losses were not previously recorded | (5) | — | (5) | (10) | (7) | — | (16) | (23) | |||||||||||||||||||||||||||||||||||||||
| Increases in allowance on previously impaired securities | (1) | — | (1) | (1) | (1) | — | (1) | (1) | |||||||||||||||||||||||||||||||||||||||
| Decreases in allowance on previously impaired securities | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Reduction in allowance due to disposals | — | 8 | 2 | 10 | 1 | 8 | 2 | 11 | |||||||||||||||||||||||||||||||||||||||
| Balance, end of period | $ | (26) | — | $ | (17) | $ | (43) | $ | (26) | $ | — | $ | (17) | $ | (43) |
(Some amounts may not reconcile due to rounding.)
| Roll Forward of Allowance for Credit Losses - Fixed Maturities - Held to Maturity | |||||||||||||||||||||||||||||||||||||||||||||||
| Three Months Ended June 30, 2023 | Six Months Ended June 30, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||
| (Dollars in millions) | Corporate Securities | Asset-Backed Securities | Foreign Corporate Securities | Total | Corporate Securities | Asset-Backed Securities | Foreign Corporate Securities | Total | |||||||||||||||||||||||||||||||||||||||
| Beginning balance | $ | (2) | $ | (6) | $ | (1) | $ | (9) | $ | (2) | $ | (6) | $ | (1) | $ | (9) | |||||||||||||||||||||||||||||||
| Credit losses on securities where credit losses were not previously recorded | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Increases in allowance on previously impaired securities | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Decreases in allowance on previously impaired securities | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Reduction in allowance due to disposals | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Balance, end of period | $ | (2) | $ | (5) | $ | (1) | $ | (8) | $ | (2) | $ | (5) | $ | (1) | $ | (8) |
(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 June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| (Dollars in millions) | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||
| Proceeds from sales of fixed maturity securities - available for sale | $ | 96 | $ | 353 | $ | 168 | $ | 772 | |||||||||||||||
| Gross gains from dispositions | 7 | 7 | 17 | 28 | |||||||||||||||||||
| Gross losses from dispositions | (10) | (23) | (19) | (40) | |||||||||||||||||||
| Proceeds from sales of equity securities | $ | — | $ | 348 | $ | 46 | $ | 438 | |||||||||||||||
| Gross gains from dispositions | — | 4 | 7 | 8 | |||||||||||||||||||
| Gross losses from dispositions | — | (35) | — | (50) |
4. 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 1 being the highest priority and Level 3 being the lowest priority.
The levels in the hierarchy are defined as follows:
Level 1: Inputs to the valuation methodology are observable inputs that reflect unadjusted quoted prices for identical assets or liabilities in an active market;
Level 2: Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument;
Level 3: Inputs to the valuation methodology are unobservable and significant to the fair value measurement.
The Company’s fixed maturity and equity securities are primarily managed by third party investment asset managers. The investment asset managers managing publicly traded securities obtain prices from nationally recognized pricing services. These services seek to utilize market data and observations in their evaluation process. They use pricing applications that vary by asset class and incorporate available market information, and when fixed maturity securities do not trade on a daily basis, the services will apply available information through processes such as benchmark curves, benchmarking of like securities, sector groupings and matrix pricing. In addition, they use model processes, such as the Option Adjusted Spread model to develop prepayment and interest rate scenarios for securities that have prepayment features.
The investment asset managers do not make any changes to prices received from either the pricing services or the investment brokers. In addition, the investment asset managers have procedures in place to review the reasonableness of the prices from the service providers and may request verification of the prices. The Company also continually performs quantitative and qualitative analysis of prices, including but not limited to initial and ongoing review of pricing methodologies, review of prices obtained from pricing services and third party investment asset managers, review of pricing statistics and trends, and comparison of prices for certain securities with a secondary price source for reasonableness. No material variances were noted during these price validation procedures. In limited situations, where financial markets are inactive or illiquid, the Company may use its own assumptions about future cash flows and risk-adjusted discount rates to determine fair value. At June 30, 2023, $1.8 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, 2022, $1.7 billion of fixed maturities were fair valued using unobservable inputs.
The Company internally manages a portfolio of assets which had a fair value at June 30, 2023 and December 31, 2022 of $4.3 billion and $2.7 billion, respectively, primarily comprised of collateralized loan obligations included in asset-backed securities and U.S. treasury fixed maturities. All prices for these securities were obtained from publicly published sources or nationally recognized pricing vendors.
Equity securities denominated in U.S. currency with quoted prices in active markets for identical assets are categorized as Level 1 since the quoted prices are directly observable. Equity securities traded on foreign exchanges are categorized as Level 2 due to the added input of a foreign exchange conversion rate to determine fair value. The Company uses foreign currency exchange rates published by nationally recognized sources.
Fixed maturity securities listed in the tables have been categorized as Level 2, since a particular security may not have traded but the pricing services are able to use valuation models with observable market inputs such as interest rate yield curves and prices for similar fixed maturity securities in terms of issuer, maturity and seniority. For foreign government securities and foreign corporate securities, the fair values provided by the third party pricing services in local currencies, and where applicable, are converted to U.S. dollars using currency exchange rates from nationally recognized sources.
In addition to the valuations from investment managers, some of the fixed maturities with fair values categorized as Level 3 result when prices are not available from the nationally recognized pricing services and are derived using unobservable inputs. The Company will value the securities with unobservable inputs using comparable market information or receive fair values from investment managers. The investment managers may obtain non-binding price quotes for the securities from brokers. The single broker quotes are provided by market makers or broker-dealers who are recognized as market participants in the markets in which they are providing the quotes. The prices received from brokers are reviewed for reasonableness by the third party asset managers and the Company. If the broker quotes are for foreign denominated securities, the quotes are converted to U.S. dollars using currency exchange rates from nationally recognized sources.
The composition and valuation inputs for the presented fixed maturities categories Level 1 and Level 2 are as follows:
- U.S. Treasury securities and obligations of U.S. government agencies and corporations are primarily comprised of U.S. Treasury bonds, and the fair value is based on observable market inputs such as quoted prices, reported trades, quoted prices for similar issuances or benchmark yields;
-
Obligations of U.S. states and political subdivisions are comprised of state and municipal bond issuances, and the fair values are based on observable market inputs such as quoted market prices, quoted prices for similar securities, benchmark yields and credit spreads;
-
Corporate securities are primarily comprised of U.S. corporate and public utility bond issuances, and the fair values are based on observable market inputs such as quoted market prices, quoted prices for similar securities, benchmark yields and credit spreads;
-
Asset-backed and mortgage-backed securities fair values are based on observable inputs such as quoted prices, reported trades, quoted prices for similar issuances or benchmark yields and cash flow models using observable inputs such as prepayment speeds, collateral performance and default spreads;
-
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 | |||||||||||||||||||||||
| June 30, 2023 | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | ||||||||||||||||||||
| (Dollars in millions) | |||||||||||||||||||||||
| Assets: | |||||||||||||||||||||||
| Fixed maturities - available for sale | |||||||||||||||||||||||
| U.S. Treasury securities and obligations of U.S. government agencies and corporations | $ | 1,145 | $ | — | $ | 1,145 | $ | — | |||||||||||||||
| Obligations of U.S. States and political subdivisions | 395 | — | 395 | — | |||||||||||||||||||
| Corporate securities | 7,057 | — | 6,347 | 711 | |||||||||||||||||||
| Asset-backed securities | 4,862 | — | 3,746 | 1,115 | |||||||||||||||||||
| Mortgage-backed securities | |||||||||||||||||||||||
| Commercial | 972 | — | 972 | — | |||||||||||||||||||
| Agency residential | 3,387 | — | 3,387 | — | |||||||||||||||||||
| Non-agency residential | 61 | — | 61 | — | |||||||||||||||||||
| Foreign government securities | 1,597 | — | 1,597 | — | |||||||||||||||||||
| Foreign corporate securities | 5,013 | — | 4,997 | 16 | |||||||||||||||||||
| Total fixed maturities - available for sale | 24,489 | — | 22,647 | 1,842 | |||||||||||||||||||
| Equity securities, fair value | 259 | 145 | 114 | — |
(Some amounts may not reconcile due to rounding.)
| Fair Value Measurement Using | |||||||||||||||||||||||
| (Dollars in millions) | December 31, 2022 | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||||||||||||
| Assets: | |||||||||||||||||||||||
| Fixed maturities - available for sale | |||||||||||||||||||||||
| U.S. Treasury securities and obligations of U.S. government agencies and corporations | $ | 1,257 | $ | — | $ | 1,257 | $ | — | |||||||||||||||
| Obligations of U.S. States and political subdivisions | 413 | — | 413 | — | |||||||||||||||||||
| Corporate securities | 6,469 | — | 5,754 | 715 | |||||||||||||||||||
| Asset-backed securities | 4,063 | — | 3,069 | 994 | |||||||||||||||||||
| Mortgage-backed securities | |||||||||||||||||||||||
| Commercial | 919 | — | 919 | — | |||||||||||||||||||
| Agency residential | 3,099 | — | 3,099 | — | |||||||||||||||||||
| Non-agency residential | 4 | — | 4 | — | |||||||||||||||||||
| Foreign government securities | 1,415 | — | 1,415 | — | |||||||||||||||||||
| Foreign corporate securities | 4,596 | — | 4,579 | 16 | |||||||||||||||||||
| Total fixed maturities - available for sale | 22,236 | — | 20,511 | 1,725 | |||||||||||||||||||
| Equity securities, fair value | 281 | 132 | 150 | — |
(Some amounts may not reconcile due to rounding.)
In addition, $293 million and $292 million of investments within other invested assets on the consolidated balance sheets as of June 30, 2023 and December 31, 2022, respectively, are not included within the fair value hierarchy tables, as the assets are measured at NAV as a practical expedient to determine fair value.
The following tables present the activity under Level 3, fair value measurements using significant unobservable inputs for fixed maturities - available for sale, for the periods indicated:
| Total Fixed Maturities - Available for Sale | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Three Months Ended June 30, 2023 | Six Months Ended June 30, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (Dollars in millions) | Corporate Securities | Asset-Backed Securities | Foreign Corporate | Total | Corporate Securities | Asset-Backed Securities | Foreign Corporate | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Beginning balance of fixed maturities | $ | 709 | $ | 1,020 | $ | 16 | $ | 1,745 | $ | 715 | $ | 994 | $ | 16 | $ | 1,725 | |||||||||||||||||||||||||||||||||||||||||||
| Total gains or (losses) (realized/unrealized) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Included in earnings | 1 | — | — | 1 | 2 | — | — | 2 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Included in other comprehensive income (loss) | (2) | (8) | — | (9) | (6) | 10 | — | 4 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Purchases, issuances and settlements | 3 | 103 | — | 105 | — | 111 | — | 111 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Transfers in/(out) of Level 3 and reclassification of securities in/(out) of investment categories | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Ending balance of fixed maturities | $ | 711 | $ | 1,115 | $ | 16 | $ | 1,842 | $ | 711 | $ | 1,115 | $ | 16 | $ | 1,842 | |||||||||||||||||||||||||||||||||||||||||||
| The amount of total gains or losses for the period included in earnings (or changes in net assets) attributable to the change in unrealized gains or losses relating to assets still held at the reporting date | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — |
(Some amounts may not reconcile due to rounding.)
| Total Fixed Maturities - Available for Sale | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Three Months Ended June 30, 2022 | Six Months Ended June 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (Dollars in millions) | Corporate Securities | Asset-Backed Securities | CMBS | Foreign Corporate | Total | Corporate Securities | Asset-Backed Securities | CMBS | Foreign Corporate | Total | |||||||||||||||||||||||||||||||||||||||||||||||||
| Beginning balance of fixed maturities | $ | 715 | $ | 1,389 | $ | 6 | $ | 16 | $ | 2,125 | $ | 801 | $ | 1,251 | $ | — | $ | 16 | $ | 2,068 | |||||||||||||||||||||||||||||||||||||||
| Total gains or (losses) (realized/unrealized) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Included in earnings | (5) | — | — | — | (4) | 11 | — | — | — | 12 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Included in other comprehensive income (loss) | (3) | (47) | — | (4) | (54) | (7) | (76) | — | (4) | (87) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Purchases, issuances and settlements | 28 | 62 | — | 8 | 97 | (70) | 228 | 6 | 8 | 171 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Transfers in/(out) of Level 3 and reclassification of securities in/(out) of investment categories | 128 | (148) | — | 20 | — | 128 | (148) | — | 20 | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Ending balance of fixed maturities | $ | 862 | $ | 1,255 | $ | 6 | $ | 40 | $ | 2,163 | $ | 862 | $ | 1,255 | $ | 6 | $ | 40 | $ | 2,163 | |||||||||||||||||||||||||||||||||||||||
| 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 | $ | (5) | $ | 8 | $ | — | $ | — | $ | 2 | $ | (5) | $ | 8 | $ | — | $ | — | $ | 3 |
(Some amounts may not reconcile due to rounding.)
There were no transfers of assets in/(out) of Level 3 for the three and six months ended June 30, 2023 and 2022, respectively.
Financial Instruments Disclosed, But Not Reported, at Fair Value
Certain financial instruments disclosed, but not reported, at fair value are excluded from the fair value hierarchy tables above. Fair values and valuation hierarchy of fixed maturity securities - held to maturity, senior notes and long-term subordinated notes can be found within Notes 3, 8 and 9, respectively. Short-term investments are stated at cost, which approximates fair value.
5. RESERVE FOR LOSSES, LAE AND FUTURE POLICY BENEFIT RESERVE
Activity in the reserve for losses and loss adjustment expenses (“LAE”) is summarized for the periods indicated:
| Six Months Ended June 30, | |||||||||||
| 2023 | 2022 | ||||||||||
| (Dollars in millions) | |||||||||||
| Gross reserves beginning of period | $ | 22,065 | $ | 19,009 | |||||||
| Less reinsurance recoverables on unpaid losses | (2,105) | (1,946) | |||||||||
| Net reserves beginning of period | 19,960 | 17,063 | |||||||||
| Incurred related to: | |||||||||||
| Current year | 3,927 | 3,668 | |||||||||
| Prior years | — | (2) | |||||||||
| Total incurred losses and LAE | 3,927 | 3,666 | |||||||||
| Paid related to: | |||||||||||
| Current year | 1,307 | 979 | |||||||||
| Prior years | 1,515 | 1,484 | |||||||||
| Total paid losses and LAE | 2,822 | 2,462 | |||||||||
| Foreign exchange/translation adjustment | 165 | (259) | |||||||||
| Net reserves end of period | 21,229 | 18,007 | |||||||||
| Plus reinsurance recoverables on unpaid losses | 2,175 | 1,986 | |||||||||
| Gross reserves end of period | $ | 23,405 | $ | 19,993 |
(Some amounts may not reconcile due to rounding.)
Current year incurred losses were $3.9 billion and $3.7 billion for the six months ended June 30, 2023 and 2022, respectively. Gross and net reserves increased for the six months ended June 30, 2023, reflecting an increase in underlying exposure due to earned premium growth, year over year, and an increase of $317 million in 2023 current year attritional losses compared to 2022, partially offset by a decrease of $58 million in 2023 current year catastrophe losses. The Company has estimated and recognized $30 million of reinsurance recoveries related to Hurricane Ian.
6. 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., Bermuda, Canada, Chile, Singapore, the United Kingdom, Ireland, and branches located in the Netherlands, France, Germany and Spain.
These segments are managed independently, but conform with corporate guidelines with respect to pricing, risk management, control of aggregate catastrophe exposures, capital, investments and support operations. Management generally monitors and evaluates the financial performance of these operating segments based upon their underwriting results.
Underwriting results include earned premium less losses and 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, result from dividing 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 June 30, 2023 | Six Months Ended June 30, 2023 | ||||||||||||||||||||||||||||||||||
| (Dollars in millions) | Reinsurance | Insurance | Total | Reinsurance | Insurance | Total | |||||||||||||||||||||||||||||
| Gross written premiums | $ | 2,766 | $ | 1,414 | $ | 4,180 | $ | 5,403 | $ | 2,520 | $ | 7,923 | |||||||||||||||||||||||
| Net written premiums | 2,639 | 1,035 | 3,674 | 5,093 | 1,910 | 7,003 | |||||||||||||||||||||||||||||
| Premiums earned | $ | 2,382 | $ | 869 | $ | 3,251 | $ | 4,624 | $ | 1,728 | $ | 6,352 | |||||||||||||||||||||||
| Incurred losses and LAE | 1,400 | 560 | 1,960 | 2,811 | 1,115 | 3,927 | |||||||||||||||||||||||||||||
| Commission and brokerage | 583 | 103 | 686 | 1,143 | 204 | 1,347 | |||||||||||||||||||||||||||||
| Other underwriting expenses | 62 | 143 | 205 | 125 | 280 | 405 | |||||||||||||||||||||||||||||
| Underwriting gain (loss) | $ | 337 | $ | 64 | $ | 401 | $ | 544 | $ | 129 | $ | 673 | |||||||||||||||||||||||
| Net investment income | 357 | 617 | |||||||||||||||||||||||||||||||||
| Net gains (losses) on investments | 5 | 10 | |||||||||||||||||||||||||||||||||
| Corporate expenses | (17) | (36) | |||||||||||||||||||||||||||||||||
| Interest, fee and bond issue cost amortization expense | (33) | (65) | |||||||||||||||||||||||||||||||||
| Other income (expense) | 38 | (42) | |||||||||||||||||||||||||||||||||
| Income (loss) before taxes | $ | 750 | $ | 1,157 |
(Some amounts may not reconcile due to rounding.)
| Three Months Ended June 30, 2022 | Six Months Ended June 30, 2022 | ||||||||||||||||||||||||||||||||||
| (Dollars in millions) | Reinsurance | Insurance | Total | Reinsurance | Insurance | Total | |||||||||||||||||||||||||||||
| Gross written premiums | $ | 2,201 | $ | 1,246 | $ | 3,447 | $ | 4,387 | $ | 2,247 | $ | 6,633 | |||||||||||||||||||||||
| Net written premiums | 2,122 | 899 | 3,021 | 4,204 | 1,630 | 5,833 | |||||||||||||||||||||||||||||
| Premiums earned | $ | 2,140 | $ | 777 | $ | 2,916 | $ | 4,206 | $ | 1,502 | $ | 5,708 | |||||||||||||||||||||||
| Incurred losses and LAE | 1,382 | 494 | 1,876 | 2,707 | 959 | 3,666 | |||||||||||||||||||||||||||||
| Commission and brokerage | 531 | 99 | 630 | 1,045 | 190 | 1,236 | |||||||||||||||||||||||||||||
| Other underwriting expenses | 52 | 117 | 170 | 103 | 228 | 331 | |||||||||||||||||||||||||||||
| Underwriting gain (loss) | $ | 175 | $ | 66 | $ | 240 | $ | 351 | $ | 124 | $ | 476 | |||||||||||||||||||||||
| Net investment income | 226 | 469 | |||||||||||||||||||||||||||||||||
| Net gains (losses) on investments | (236) | (390) | |||||||||||||||||||||||||||||||||
| Corporate expenses | (15) | (29) | |||||||||||||||||||||||||||||||||
| Interest, fee and bond issue cost amortization expense | (24) | (48) | |||||||||||||||||||||||||||||||||
| Other income (expense) | (71) | (56) | |||||||||||||||||||||||||||||||||
| Income (loss) before taxes | $ | 119 | $ | 421 |
(Some amounts may not reconcile due to rounding.)
7. CREDIT FACILITIES
The Company has multiple active committed letter of credit facilities with a total commitment of up to $1.5 billion as of June 30, 2023. The Company also has additional uncommitted letter of credit facilities of up to $440 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 Bilateral Letter of Credit Facility
Effective February 23, 2021, Everest Reinsurance (Bermuda) Ltd. (“Bermuda Re”) entered into a letter of credit issuance facility with Wells Fargo, referred to as the “2021 Bermuda Re Wells Fargo Bilateral Letter of Credit Facility.” The Bermuda Re Wells Fargo Bilateral Letter of Credit Facility originally provided for the issuance of up to $50 million of secured letters of credit. Effective May 5, 2021, the agreement was amended to provide for the issuance of up to $500 million of secured letters of credit. Effective May 2, 2023, the agreement was amended to extend the availability of committed issuance for an additional year.
The following table summarizes the outstanding letters of credit for the periods indicated:
| (Dollars in millions) | At June 30, 2023 | At December 31, 2022 | ||||||||||||||||||||||||||||||||||||
| Bank | Commitment | In Use | Date of Expiry | Commitment | In Use | Date of Expiry | ||||||||||||||||||||||||||||||||
| Wells Fargo Bank Bilateral LOC Agreement | $ | 500 | $ | 434 | 12/29/2023 | $ | 500 | $ | 463 | 12/29/2023 |
(Some amounts may not reconcile due to rounding.)
Bermuda Re Citibank Letter of Credit Facility
Effective August 9, 2021, Bermuda Re entered into a new letter of credit issuance facility with Citibank N.A., which superseded the previous letter of credit issuance facility with Citibank that was effective December 31, 2020. Both of these are referred to as the “Bermuda Re Letter of Credit Facility”. The current Bermuda Re Citibank Letter of Credit Facility provides for the committed issuance of up to $230 million of secured letters of credit. In addition, the facility provided for the uncommitted issuance of up the $140 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 June 30, 2023 | At December 31, 2022 | ||||||||||||||||||||||||||||||||||||
| Bank | Commitment | In Use | Date of Expiry | Commitment | In Use | Date of Expiry | ||||||||||||||||||||||||||||||||
| Bermuda Re Citibank LOC Facility- Committed | $ | 230 | $ | 209 | 12/31/2023 | $ | 230 | $ | 1 | 1/1/2023 | ||||||||||||||||||||||||||||
| 4 | 2/29/2024 | 4 | 2/28/2023 | |||||||||||||||||||||||||||||||||||
| 1 | 3/1/2024 | 1 | 3/1/2023 | |||||||||||||||||||||||||||||||||||
| 1 | 8/15/2024 | 1 | 8/15/2023 | |||||||||||||||||||||||||||||||||||
| 3 | 9/23/2024 | 3 | 9/23/2023 | |||||||||||||||||||||||||||||||||||
| 1 | 12/1/2024 | 212 | 12/31/2023 | |||||||||||||||||||||||||||||||||||
| 4 | 12/31/2024 | |||||||||||||||||||||||||||||||||||||
| Bermuda Re Citibank LOC Facility - Uncommitted | 140 | 105 | 12/31/2023 | 140 | 87 | 12/31/2023 | ||||||||||||||||||||||||||||||||
| 7 | 6/30/2027 | 18 | 12/30/2026 | |||||||||||||||||||||||||||||||||||
| Total Citibank Bilateral Agreement | $ | 370 | $ | 337 | $ | 370 | $ | 329 |
(Some amounts may not reconcile due to rounding.)
Bermuda Re Bayerische Landesbank Bilateral Secured 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 Secured Credit Facility”. The Bermuda Re Bayerische Landesbank Bilateral Secured Credit Facility provides for the committed issuance of up to $200 million of secured letters of credit.
The following table summarizes the outstanding letters of credit for the periods indicated:
| (Dollars in millions) | At June 30, 2023 | At December 31, 2022 | ||||||||||||||||||||||||||||||||||||
| Bank | Commitment | In Use | Date of Expiry | Commitment | In Use | Date of Expiry | ||||||||||||||||||||||||||||||||
| Bayerische Landesbank Bilateral Secured Credit Facility | $ | 200 | $ | 179 | 12/31/2023 | $ | 200 | $ | 183 | 12/31/2023 | ||||||||||||||||||||||||||||
(Some amounts may not reconcile due to rounding.)
Bermuda Re Bayerische Landesbank Bilateral Unsecured Letter of Credit Facility
Effective December 30, 2022, Bermuda Re entered into a new additional letter of credit issuance facility with Bayerische Landesbank, New York Branch, referred to as the “Bayerische Landesbank Bilateral Unsecured Letter of Credit Facility”. The Bermuda Re Bayerische Landesbank Bilateral Unsecured Letter of Credit Facility provides for the committed issuance of up to $150 million of unsecured letters of credit.
The following table summarizes the outstanding letters of credit for the periods indicated:
| (Dollars in millions) | At June 30, 2023 | At December 31, 2022 | ||||||||||||||||||||||||||||||||||||
| Bank | Commitment | In Use | Date of Expiry | Commitment | In Use | Date of Expiry | ||||||||||||||||||||||||||||||||
| Bayerische Landesbank Bilateral Unsecured LOC Agreement - Committed | $ | 150 | $ | 150 | 12/31/2023 | $ | 150 | $ | 150 | 12/31/2023 |
(Some amounts may not reconcile due to rounding.)
Bermuda Re Lloyd’s Bank Credit Facility
Effective October 8, 2021, Bermuda Re entered into a letter of credit issuance facility with Lloyd’s Bank Corporate Markets PLC, an agreement referred to as the “Bermuda Re Lloyd’s Bank Credit Facility”. The Bermuda Re Lloyd’s Bank Credit Facility provides for the committed issuance of up to $50 million of secured letters of credit, and subject to credit approval a maximum total facility amount of $250 million.
The following table summarizes the outstanding letters of credit for the periods indicated:
| (Dollars in millions) | At June 30, 2023 | At December 31, 2022 | ||||||||||||||||||||||||||||||||||||
| Bank | Commitment | In Use | Date of Expiry | Commitment | In Use | Date of Expiry | ||||||||||||||||||||||||||||||||
| Bermuda Re Lloyd's Bank Credit Facility-Committed | $ | 50 | $ | 50 | 12/31/2023 | $ | 50 | $ | 50 | 12/31/2023 | ||||||||||||||||||||||||||||
| Bermuda Re Lloyd's Bank Credit Facility-Uncommitted | 200 | 156 | 12/31/2023 | 200 | 136 | 12/31/2023 | ||||||||||||||||||||||||||||||||
| Total Bermuda Re Lloyd's Bank Credit Facility | $ | 250 | $ | 206 | $ | 250 | $ | 186 |
(Some amounts may not reconcile due to rounding.)
Bermuda Re Barclays Bank Credit Facility
Effective November 3, 2021, Bermuda Re entered into a letter of credit issuance facility with Barclays Bank PLC, an agreement referred to as the “Bermuda Re Barclays Credit Facility”. The Bermuda Re Barclays Credit Facility provides for the committed issuance of up to $200 million of secured letters of credit.
The following table summarizes the outstanding letters of credit for the periods indicated:
| (Dollars in millions) | At June 30, 2023 | At December 31, 2022 | ||||||||||||||||||||||||||||||||||||
| Bank | Commitment | In Use | Date of Expiry | Commitment | In Use | Date of Expiry | ||||||||||||||||||||||||||||||||
| Bermuda Re Barclays Bilateral Letter of Credit Facility | $ | 200 | $ | 179 | 12/31/2023 | $ | 200 | $ | 179 | 12/31/2023 | ||||||||||||||||||||||||||||
Bermuda Re Nordea Bank Letter of Credit Facility
Effective November 21, 2022, Bermuda Re entered into a letter of credit issuance facility with Nordea Bank ABP, New York Branch, referred to as the “Nordea Bank Letter of Credit Facility”. The Bermuda Re Nordea Bank Letter of Credit Facility provides for the committed issuance of up to $200 million of unsecured letters of credit, and subject to credit approval, uncommitted issuance of $100 million for a maximum total facility amount of $300 million.
The following table summarizes the outstanding letters of credit for the periods indicated:
| (Dollars in millions) | At June 30, 2023 | At December 31, 2022 | ||||||||||||||||||||||||||||||||||||
| Bank | Commitment | In Use | Date of Expiry | Commitment | In Use | Date of Expiry | ||||||||||||||||||||||||||||||||
| Nordea Bank ABP, NY Unsecured LOC Facility - Committed | $ | 200 | $ | 200 | 12/31/2023 | $ | 200 | $ | 50 | 12/31/2023 | ||||||||||||||||||||||||||||
| Nordea Bank ABP, NY Unsecured LOC Facility - Uncommitted | 100 | 100 | 12/31/2023 | 100 | 100 | 12/31/2023 | ||||||||||||||||||||||||||||||||
| Total Nordea Bank ABP, NY LOC Facility | $ | 300 | $ | 300 | $ | 300 | $ | 150 |
(Some amounts may not reconcile due to rounding.)
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 10% of its statutory admitted assets. As of June 30, 2023, Everest Re had admitted assets of approximately $24 billion which provides borrowing capacity in excess of $2 billion. As of June 30, 2023, Everest Re has $519 million of borrowings outstanding, all of which expire in 2023. Everest Re incurred interest expense of $7 million and $0.8 million for the three months ended June 30, 2023 and 2022, respectively. Everest Re incurred interest expense of $13 million and $2 million for the six months ended June 30, 2023 and 2022, respectively. The FHLBNY membership agreement requires that 4.5% of borrowed funds be used to acquire additional membership stock.
8. 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.
| June 30, 2023 | December 31, 2022 | ||||||||||||||||||||||||||||||||||||||||
| (Dollars in millions) | Date Issued | Date Due | Principal Amounts | Consolidated Balance Sheet Amount | Fair Value | Consolidated Balance Sheet Amount | Fair Value | ||||||||||||||||||||||||||||||||||
| 4.868% Senior notes | 6/5/2014 | 6/1/2044 | $ | 400 | $ | 397 | $ | 360 | $ | 397 | $ | 343 | |||||||||||||||||||||||||||||
| 3.5% Senior notes | 10/7/2020 | 10/15/2050 | 1,000 | 981 | 714 | 981 | 677 | ||||||||||||||||||||||||||||||||||
| 3.125% Senior notes | 10/4/2021 | 10/15/2052 | 1,000 | 970 | 664 | 969 | 627 | ||||||||||||||||||||||||||||||||||
| $ | 2,400 | $ | 2,348 | $ | 1,738 | $ | 2,347 | $ | 1,647 |
(Some amounts may not reconcile due to rounding.)
Interest expense incurred in connection with these senior notes is as follows for the periods indicated:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||||||||||||||
| (Dollars in millions) | Interest Paid | Payable Dates | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||||||||
| 4.868% Senior notes | semi-annually | June 1/December 1 | $ | 5 | $ | 5 | $ | 10 | $ | 10 | |||||||||||||||||||||||||
| 3.5% Senior notes | semi-annually | April 15/October 15 | 9 | 9 | 18 | 18 | |||||||||||||||||||||||||||||
| 3.125% Senior notes | semi-annually | April 15/October 15 | 8 | 8 | 16 | 16 | |||||||||||||||||||||||||||||
| $ | 22 | $ | 22 | $ | 43 | $ | 43 |
(Some amounts may not reconcile due to rounding.)
9. LONG-TERM SUBORDINATED NOTES
The table below displays Holdings’ outstanding fixed to floating rate long-term subordinated notes (“Subordinated Notes Issued 2007”). 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 | June 30, 2023 | December 31, 2022 | |||||||||||||||||||||||||||||||||||||||||||||
| (Dollars in millions) | Date Issued | Original Principal Amount | Scheduled | Final | Consolidated Balance Sheet Amount | Fair Value | Consolidated Balance Sheet Amount | Fair Value | |||||||||||||||||||||||||||||||||||||||
| Long-term subordinated notes | 4/26/2007 | $ | 400 | 5/15/2037 | 5/1/2067 | $ | 218 | $ | 187 | $ | 218 | $ | 187 |
During the fixed rate interest period from May 3, 2007 through May 14, 2017, interest was at the annual rate of 6.6%, payable semi-annually in arrears on November 15 and May 15 of each year, commencing on November 15, 2007. During the floating rate interest period from May 15, 2017 through maturity, interest will be based on the 3 month LIBOR plus 238.5 basis points, reset quarterly, payable quarterly in arrears on February 15, May 15, August 15 and November 15 of each year, subject to Holdings’ right to defer interest on one or more occasions for up to ten consecutive years. Deferred interest will accumulate interest at the applicable rate compounded quarterly for periods from and including May 15, 2017. The reset quarterly interest rate for May 15, 2023 to August 14, 2023 is 7.71%. Following the cessation of LIBOR, for periods from and including August 15, 2023, interest will be based on three-month CME Term SOFR plus a spread.
Holdings may redeem the long-term subordinated notes on or after May 15, 2017, in whole or in part at 100% of the principal amount plus accrued and unpaid interest; however, redemption on or after the scheduled maturity date and prior to May 1, 2047 is subject to a replacement capital covenant. This covenant is for the benefit of certain senior note holders and it mandates that Holdings receive proceeds from the sale of another subordinated debt issue, of at least similar size, before it may redeem the subordinated notes. The Company’s 4.868% senior notes, due on June 1, 2044, 3.5% senior notes 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 through the initiation of a cash tender offer for any and all of the long-term subordinated notes.
Interest expense incurred in connection with these long-term subordinated notes is as follows for the periods indicated:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| (Dollars in millions) | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||
| Interest expense incurred | $ | 4 | $ | 2 | $ | 8 | $ | 3 |
10. 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 June 30, 2023, the total amount on deposit in trust accounts was $2.5 billion, which included $268 million of restricted cash. At June 30, 2022, the total amount on deposit in trust accounts was $2.0 billion, which included $502 million of restricted cash.
The Company reinsures some of its catastrophe exposures with the segregated accounts of subsidiary Mt. Logan Re, Ltd. (“Mt. Logan Re”). Mt. Logan Re is a collateralized insurer registered in Bermuda and 100% of the voting common shares are owned by Group. Each segregated account invests predominantly in a diversified set of catastrophe exposures, diversified by risk/peril and across different geographic regions globally.
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 June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||
| Mt. Logan Re Segregated Accounts | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||
| (Dollars in millions) | ||||||||||||||||||||||||||
| Ceded written premiums | $ | 46 | $ | 32 | $ | 99 | $ | 82 | ||||||||||||||||||
| Ceded earned premiums | 52 | 41 | 98 | 92 | ||||||||||||||||||||||
| Ceded losses and LAE | 16 | 21 | 53 | 62 | ||||||||||||||||||||||
| Assumed written premiums | 1 | 1 | 1 | 1 | ||||||||||||||||||||||
| Assumed earned premiums | 1 | 1 | 1 | 1 | ||||||||||||||||||||||
| Assumed losses and LAE | — | — | — | — |
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 2019-1 Class A-1 | US, Canada, Puerto Rico – Named Storm and Earthquake Events | 12/12/2019 | 12/19/2023 | 150 | Occurrence | |||||||||||||||||||||||||||
| Series 2019-1 Class B-1 | US, Canada, Puerto Rico – Named Storm and Earthquake Events | 12/12/2019 | 12/19/2023 | 275 | Aggregate | |||||||||||||||||||||||||||
| Series 2019-1 Class A-2 | US, Canada, Puerto Rico – Named Storm and Earthquake Events | 12/12/2019 | 12/19/2024 | 150 | Occurrence | |||||||||||||||||||||||||||
| Series 2019-1 Class B-2 | US, Canada, Puerto Rico – Named Storm and Earthquake Events | 12/12/2019 | 12/19/2024 | 275 | Aggregate | |||||||||||||||||||||||||||
| Series 2021-1 Class A-1 | US, Canada, Puerto Rico – Named Storm and Earthquake Events | 4/8/2021 | 4/21/2025 | 150 | Occurrence | |||||||||||||||||||||||||||
| Series 2021-1 Class B-1 | US, Canada, Puerto Rico – Named Storm and Earthquake Events | 4/8/2021 | 4/21/2025 | 85 | Aggregate | |||||||||||||||||||||||||||
| Series 2021-1 Class C-1 | US, Canada, Puerto Rico – Named Storm and Earthquake Events | 4/8/2021 | 4/21/2025 | 85 | Aggregate | |||||||||||||||||||||||||||
| Series 2021-1 Class A-2 | US, Canada, Puerto Rico – Named Storm and Earthquake Events | 4/8/2021 | 4/20/2026 | 150 | Occurrence | |||||||||||||||||||||||||||
| Series 2021-1 Class B-2 | US, Canada, Puerto Rico – Named Storm and Earthquake Events | 4/8/2021 | 4/20/2026 | 90 | Aggregate | |||||||||||||||||||||||||||
| Series 2021-1 Class C-2 | US, Canada, Puerto Rico – Named Storm and Earthquake Events | 4/8/2021 | 4/20/2026 | 90 | Aggregate | |||||||||||||||||||||||||||
| Series 2022-1 Class A | US, Canada, Puerto Rico – Named Storm and Earthquake Events | 6/22/2022 | 6/25/2025 | 300 | Aggregate | |||||||||||||||||||||||||||
| Total available limit as of June 30, 2023 | $ | 1,800 |
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. As of June 30, 2023, the Company has up to $350 million of catastrophe bond protection (“CAT Bond”) that attaches at a $48.1 billion Property Claims Services (“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 $49.4 billion issued in July 2023 exceeds the attachment point. The recovery under the CAT Bond, included in the Company’s financial results, is currently estimated to be $25 million, subject to further revision of the industry loss estimate.
Kilimanjaro has financed the various property catastrophe reinsurance coverages by issuing catastrophe bonds to unrelated, external investors. The proceeds from the issuance of the catastrophe bonds 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. The catastrophe bonds’ issue date, maturity date and amount correspond to the reinsurance agreements listed above.
11. 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 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.
12. OTHER COMPREHENSIVE INCOME (LOSS)
The following tables present the components of comprehensive income (loss) in the consolidated statements of operations for the periods indicated:
| Three Months Ended June 30, 2023 | Six Months Ended June 30, 2023 | ||||||||||||||||||||||||||||||||||
| (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 | $ | (199) | $ | 30 | $ | (169) | $ | 75 | $ | 2 | $ | 77 | |||||||||||||||||||||||
| Reclassification of net realized losses (gains) included in net income (loss) | 4 | (2) | 2 | 10 | (4) | 5 | |||||||||||||||||||||||||||||
| Foreign currency translation adjustments | (2) | 1 | (1) | 31 | (1) | 30 | |||||||||||||||||||||||||||||
| Reclassification of benefit plan liability amortization included in net income (loss) | 1 | — | — | 1 | — | 1 | |||||||||||||||||||||||||||||
| Total other comprehensive income (loss) | $ | (196) | $ | 29 | $ | (168) | $ | 116 | $ | (3) | $ | 113 |
(Some amounts may not reconcile due to rounding)
| Three Months Ended June 30, 2022 | Six Months Ended June 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 | $ | (849) | $ | 116 | $ | (732) | $ | (1,781) | $ | 233 | $ | (1,548) | |||||||||||||||||||||||
| Reclassification of net realized losses (gains) included in net income (loss) | 16 | (1) | 16 | 21 | (1) | 20 | |||||||||||||||||||||||||||||
| Foreign currency translation adjustments | (31) | 3 | (28) | (65) | 3 | (62) | |||||||||||||||||||||||||||||
| Reclassification of benefit plan liability amortization included in net income (loss) | 1 | — | 1 | 2 | — | 2 | |||||||||||||||||||||||||||||
| Total other comprehensive income (loss) | $ | (862) | $ | 118 | $ | (744) | $ | (1,823) | $ | 235 | $ | (1,588) |
(Some amounts may not reconcile due to rounding)
The following table presents details of the amounts reclassified from AOCI for the periods indicated:
| Three Months Ended June 30, | Six Months Ended June 30, | Affected line item within the statements of operations and comprehensive income (loss) | ||||||||||||||||||||||||||||||
| AOCI component | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||||||||
| (Dollars in millions) | ||||||||||||||||||||||||||||||||
| URA(D) on securities | $ | 4 | $ | 16 | $ | 10 | $ | 21 | Other net realized capital gains (losses) | |||||||||||||||||||||||
| (2) | (1) | (4) | (1) | Income tax expense (benefit) | ||||||||||||||||||||||||||||
| $ | 2 | $ | 16 | $ | 5 | $ | 20 | Net income (loss) | ||||||||||||||||||||||||
| Benefit plan net gain (loss) | $ | 1 | $ | 1 | $ | 1 | $ | 2 | Other underwriting expenses | |||||||||||||||||||||||
| — | — | — | — | Income tax expense (benefit) | ||||||||||||||||||||||||||||
| $ | — | $ | 1 | $ | 1 | $ | 2 | Net income (loss) |
(Some amounts may not reconcile due to rounding)
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 June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| (Dollars in millions) | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||
| Beginning balance of URA(D) on securities | $ | (1,460) | $ | (572) | $ | (1,709) | $ | 239 | |||||||||||||||
| Current period change in URA(D) of investments - non-credit related | (167) | (717) | 82 | (1,528) | |||||||||||||||||||
| Ending balance of URA(D) on securities | (1,627) | (1,288) | (1,627) | (1,288) | |||||||||||||||||||
| Beginning balance of foreign currency translation adjustments | (223) | (212) | (254) | (177) | |||||||||||||||||||
| Current period change in foreign currency translation adjustments | (1) | (28) | 30 | (62) | |||||||||||||||||||
| Ending balance of foreign currency translation adjustments | (224) | (240) | (224) | (240) | |||||||||||||||||||
| Beginning balance of benefit plan net gain (loss) | (33) | (50) | (33) | (50) | |||||||||||||||||||
| Current period change in benefit plan net gain (loss) | — | 1 | 1 | 2 | |||||||||||||||||||
| Ending balance of benefit plan net gain (loss) | (32) | (49) | (32) | (49) | |||||||||||||||||||
| Ending balance of accumulated other comprehensive income (loss) | $ | (1,883) | $ | (1,577) | $ | (1,883) | $ | (1,577) |
(Some amounts may not reconcile due to rounding.)
13. SHARE-BASED COMPENSATION PLANS
For the three months ended June 30, 2023, a total of 925 restricted stock awards were granted on May 18, 2023, with a fair value of $372.91 per share. For the three months ended June 30, 2022, a total of 2,330 restricted stock awards were granted on May 10, 2022 with a fair value of $280.98 per share.
For the six months ended June 30, 2023, a total of 175,096 restricted stock awards were granted: 174,171 and 925 restricted share awards were granted on February 23, 2023 and May 18, 2023 with a fair value of $382.39 per share and $372.91 per share, respectively. Also, 14,975 performance share unit awards were granted on February 23, 2023, with a fair value of $382.39 per share.
For the six months ended June 30, 2022, a total of 199,138 restricted stock awards were granted: 187,760, 9,048 and 2,330 restricted share awards were granted on February 23, 2022, February 24, 2022 and May 10, 2022, with a fair value of $301.54 per share, $287.94 per share and $280.98 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.
14. 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 June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| (Dollars in millions, except per share amounts) | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||
| Net income (loss) per share: | |||||||||||||||||||||||
| Numerator | |||||||||||||||||||||||
| Net income (loss) | $ | 670 | $ | 123 | $ | 1,035 | $ | 420 | |||||||||||||||
| Less: dividends declared - common shares and unvested common shares | (72) | (65) | (136) | (126) | |||||||||||||||||||
| Undistributed earnings | 599 | 58 | 899 | 294 | |||||||||||||||||||
| Percentage allocated to common shareholders (1) | 98.8 | % | 98.6 | % | 98.8 | % | 98.7 | % | |||||||||||||||
| 591 | 57 | 888 | 290 | ||||||||||||||||||||
| Add: dividends declared - common shareholders | 71 | 64 | 135 | 124 | |||||||||||||||||||
| Numerator for basic and diluted earnings per common share | $ | 662 | $ | 121 | $ | 1,022 | $ | 415 | |||||||||||||||
| Denominator | |||||||||||||||||||||||
| Denominator for basic earnings per weighted-average common shares | 40.7 | 38.9 | 39.7 | 38.9 | |||||||||||||||||||
| Effect of dilutive securities: | |||||||||||||||||||||||
| Options | — | — | — | — | |||||||||||||||||||
| Denominator for diluted earnings per adjusted weighted-average common shares | 40.7 | 38.9 | 39.7 | 38.9 | |||||||||||||||||||
| Per common share net income (loss) | |||||||||||||||||||||||
| Basic | $ | 16.26 | $ | 3.11 | $ | 25.74 | $ | 10.67 | |||||||||||||||
| Diluted | $ | 16.26 | $ | 3.11 | $ | 25.74 | $ | 10.67 | |||||||||||||||
| (1) Basic weighted - average common shares outstanding | 40.7 | 38.9 | 39.7 | 38.9 | |||||||||||||||||||
| Basic weighted - average common shares outstanding and unvested common shares expected to vest | 41.2 | 39.4 | 40.2 | 39.4 | |||||||||||||||||||
| Percentage allocated to common shareholders | 98.8 | % | 98.6 | % | 98.8 | % | 98.7 | % |
(Some amounts may not reconcile due to rounding.)
There were no options outstanding as of June 30, 2023. Options granted under share-based compensation plans have all expired as of September 19, 2022.
15. INCOME TAXES
The Company is domiciled in Bermuda and has subsidiaries and/or branches in Belgium, Canada, Chile, France, Germany, Ireland, the Netherlands, Singapore, Spain, Switzerland, the United Kingdom, and the United States. The Company’s Bermuda domiciled subsidiaries are exempt from income taxation under Bermuda law until 2035. 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 AETR 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 AETR.
16. SUBSEQUENT EVENTS
The Company has evaluated known recognized and non-recognized subsequent events. The Company does not have any subsequent events to report.
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