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EX-32.1 - EXHIBIT 32-1 - EVEREST REINSURANCE HOLDINGS INCexhibit321.htm
EX-31.2 - EXHIBIT 31-2 - EVEREST REINSURANCE HOLDINGS INCexhibit312.htm
EX-31.1 - EXHIBIT 31-1 - EVEREST REINSURANCE HOLDINGS INCexhibit311.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

 

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended March 31, 2020

 

Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

Commission file number 1-14527

 

EVEREST REINSURANCE HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

 

Delaware

 

22-3263609

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

477 Martinsville Road

Post Office Box 830

Liberty Corner, New Jersey 07938-0830

(908) 604-3000

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive office)

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

YES      NO 

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

YES      NO 

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐ 

 

Accelerated filer ☐ 

Non-accelerated Filer ☑ 

 

Smaller reporting company 

 

 

Emerging growth company 

 

Indicate by check mark if the registrant is an emerging growth company and has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange act.

YES      NO 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

YES      NO 

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

 

Number of Shares Outstanding

Class

 

At May 1, 2020

Common Shares, $0.01 par value

 

1,000

 

The Registrant meets the conditions set forth in General Instruction H (1)(a) and (b) of Form 10-Q and is therefore filing this form with the reduced disclosure format permitted by General Instruction H of Form 10-Q. 

 

 


 

EVEREST REINSURANCE HOLDINGS, INC.

 

Table of Contents

Form 10-Q

 

 

 

 

Page

PART I

 

 

 

 

FINANCIAL INFORMATION

 

 

 

 

Item 1.

 

Financial Statements

 

 

 

 

 

 

 

Consolidated Balance Sheets at March 31, 2020 (unaudited) and December 31, 2019

1

 

 

 

 

 

 

Consolidated Statements of Operations and Comprehensive Income (Loss) for the three months ended March 31, 2020 and 2019 (unaudited)

2

 

 

 

 

 

 

Consolidated Statements of Changes in Stockholder’s Equity for the three months ended March 31, 2020 and 2019 (unaudited)

3

 

 

 

 

 

 

Consolidated Statements of Cash Flows for the three months ended March 31, 2020 and 2019 (unaudited)

4

 

 

 

 

 

 

Notes to Consolidated Interim Financial Statements (unaudited)

5

 

 

 

 

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operation

34

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

45

 

 

 

 

Item 4.

 

Controls and Procedures

45

 

 

 

 

PART II

 

 

 

 

OTHER INFORMATION

 

 

 

 

Item 1.

 

Legal Proceedings

46

 

 

 

 

Item 1A.

 

Risk Factors

46

 

 

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

46

 

 

 

 

Item 3.

 

Defaults Upon Senior Securities

46

 

 

 

 

Item 4.

 

Mine Safety Disclosures

46

 

 

 

 

Item 5.

 

Other Information

46

 

 

 

 

Item 6.

 

Exhibits

47

 


 

EVEREST REINSURANCE HOLDINGS, INC.

CONSOLIDATED BALANCE SHEETS

 

March 31,

 

December 31,

(Dollars in thousands, except share amounts and par value per share)

2020

 

2019

 

(unaudited)

 

 

 

ASSETS:

 

 

 

 

 

Fixed maturities - available for sale, at market value (amortized cost: 2020, $7,539,624; 2019, $7,334,425 allowances for credit losses: 2020, $12,099; 2019, $0)

$

7,496,815

 

$

7,492,079

Fixed maturities - available for sale, at fair value

 

4,703

 

 

5,826

Equity securities, at fair value

 

578,531

 

 

764,049

Short-term investments (cost: 2020, $324,861; 2019, $279,824)

 

324,874

 

 

279,879

Other invested assets (cost: 2020, $1,026,409; 2019, $1,020,766)

 

1,026,409

 

 

1,020,766

Other invested assets, at fair value

 

2,425,061

 

 

1,982,582

Cash

 

385,974

 

 

411,122

Total investments and cash

 

12,242,367

 

 

11,956,303

Note Receivable - affiliated

 

300,000

 

 

300,000

Accrued investment income

 

56,964

 

 

54,383

Premiums receivable

 

1,419,662

 

 

1,337,344

Reinsurance receivables - unaffiliated

 

1,354,520

 

 

1,318,820

Reinsurance receivables - affiliated

 

2,981,436

 

 

3,125,269

Income taxes

 

76,787

 

 

65,793

Funds held by reinsureds

 

247,444

 

 

228,297

Deferred acquisition costs

 

414,953

 

 

388,238

Prepaid reinsurance premiums

 

381,953

 

 

413,612

Other assets

 

554,683

 

 

518,127

TOTAL ASSETS

$

20,030,769

 

 

19,706,186

 

 

 

 

 

 

LIABILITIES:

 

 

 

 

 

Reserve for losses and loss adjustment expenses

$

10,271,222

 

$

10,209,519

Unearned premium reserve

 

2,307,999

 

 

2,198,932

Funds held under reinsurance treaties

 

39,649

 

 

41,233

Other net payable to reinsurers

 

349,121

 

 

267,367

Losses in course of payment

 

71,107

 

 

70,541

Senior notes due 6/1/2044

 

397,104

 

 

397,074

Long term notes due 5/1/2067

 

235,083

 

 

236,758

Accrued interest on debt and borrowings

 

7,571

 

 

2,878

Unsettled securities payable

 

45,797

 

 

25,230

Other liabilities

 

309,387

 

 

399,229

Total liabilities

 

14,034,040

 

 

13,848,761

 

 

 

 

 

 

Commitments and Contingencies (Note 6)

 

-

 

 

-

 

 

 

 

 

 

STOCKHOLDER'S EQUITY:

 

 

 

 

 

Common stock, par value: $0.01; 3,000 shares authorized;

  1,000 shares issued and outstanding (2019 and 2018)

 

-

 

 

-

Additional paid-in capital

 

1,100,781

 

 

1,100,678

Accumulated other comprehensive income (loss), net of deferred income

  tax expense (benefit) of ($29,426) at 2020 and $16,977 at 2019

 

(114,027)

 

 

64,324

Retained earnings

 

5,009,975

 

 

4,692,423

Total stockholder's equity

 

5,996,729

 

 

5,857,425

TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY

$

20,030,769

 

$

19,706,186

 

 

 

 

 

 

The accompanying notes are an integral part of the consolidated financial statements.

 

1 


 

EVEREST REINSURANCE HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE INCOME (LOSS)

 

Three Months Ended

 

March 31,

(Dollars in thousands)

2020

 

2019

 

(unaudited)

REVENUES:

 

 

 

 

 

Premiums earned

$

1,494,005

 

$

1,270,454

Net investment income

 

74,201

 

 

84,534

Net realized capital gains (losses):

 

 

 

 

 

Credit allowances on fixed maturity securities

 

(12,099)

 

 

-

Other-than-temporary impairments on fixed maturity securities

 

-

 

 

(2,290)

Other net realized capital gains (losses)

 

268,966

 

 

137,346

Total net realized capital gains (losses)

 

256,867

 

 

135,056

Other income (expense)

 

(4,498)

 

 

(730)

Total revenues

 

1,820,575

 

 

1,489,314

 

 

 

 

 

 

CLAIMS AND EXPENSES:

 

 

 

 

 

Incurred losses and loss adjustment expenses

 

1,029,513

 

 

796,096

Commission, brokerage, taxes and fees

 

323,104

 

 

288,218

Other underwriting expenses 

 

101,208

 

 

78,382

Corporate expenses

 

3,721

 

 

1,651

Interest, fee and bond issue cost amortization expense

 

7,460

 

 

9,828

Total claims and expenses

 

1,465,006

 

 

1,174,175

 

 

 

 

 

 

INCOME (LOSS) BEFORE TAXES

 

355,569

 

 

315,139

Income tax expense (benefit) 

 

38,924

 

 

63,531

 

 

 

 

 

 

NET INCOME (LOSS) 

$

316,645

 

$

251,608

 

 

 

 

 

 

Other comprehensive income (loss), net of tax:

 

 

 

 

 

Unrealized appreciation (depreciation) ("URA(D)")

  on securities arising during the period

 

(177,524)

 

 

88,449

Less: reclassification adjustment for realized

  losses (gains) included in net income (loss)

 

27,886

 

 

(1,016)

Total URA(D) on securities arising during

  the period

 

(149,638)

 

 

87,433

 

 

 

 

 

 

Foreign currency translation adjustments

 

(29,633)

 

 

9,564

 

 

 

 

 

 

Reclassification adjustment for amortization of net

  (gain) loss included in net income (loss)

 

920

 

 

1151

Total benefit plan net gain (loss) for the period

 

920

 

 

1,151

Total other comprehensive income (loss), net of tax

 

(178,351)

 

 

98,148

 

 

 

 

 

 

COMPREHENSIVE INCOME (LOSS)  

$

138,294

 

$

349,756

 

 

 

 

 

 

The accompanying notes are an integral part of the consolidated financial statements.

 

 

 

 

 

 

2 


 

EVEREST REINSURANCE HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF

CHANGES IN STOCKHOLDER’S EQUITY

 

(Dollars in thousands, except share amounts)

2020

 

2019

 

(unaudited)

COMMON STOCK (shares outstanding):

 

 

 

 

 

Balance, January 1

 

1,000

 

 

1,000

Balance, March 31

 

1,000

 

 

1,000

 

 

 

 

 

 

ADDITIONAL PAID-IN CAPITAL:

 

 

 

 

 

Balance, January 1

$

1,100,678

 

$

1,100,315

Share-based compensation plans

 

103

 

 

87

Balance, March 31

 

1,100,781

 

 

1,100,402

 

 

 

 

 

 

ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS),

NET OF DEFERRED INCOME TAXES:

 

 

 

 

 

Balance, January 1

 

64,324

 

 

(126,254)

Net increase (decrease) during the period

 

(178,351)

 

 

98,148

Balance, March 31

 

(114,027)

 

 

(28,106)

 

 

 

 

 

 

RETAINED EARNINGS:

 

 

 

 

 

Balance, January 1

 

4,692,423

 

 

4,062,696

Change to beginning balance due to adoption of ASU 2016-13

 

907

 

 

-

Net income (loss)

 

316,645

 

 

251,608

Balance, March 31

 

5,009,975

 

 

4,314,306

 

 

 

 

 

 

TOTAL STOCKHOLDER'S EQUITY, March 31

$

5,996,729

 

$

5,386,602

 

 

 

 

 

 

The accompanying notes are an integral part of the consolidated financial statements.

 

3 


 

EVEREST REINSURANCE HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

Three Months Ended

 

March 31,

(Dollars in thousands)

2020

 

2019

 

(unaudited)

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

Net income (loss) 

$

316,645

 

$

251,608

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

Decrease (increase) in premiums receivable

 

(88,422)

 

 

(104,944)

Decrease (increase) in funds held by reinsureds, net

 

(20,983)

 

 

(14,361)

Decrease (increase) in reinsurance receivables

 

97,388

 

 

(63,291)

Decrease (increase) in income taxes

 

35,413

 

 

94,733

Decrease (increase) in prepaid reinsurance premiums

 

30,259

 

 

(2,163)

Increase (decrease) in reserve for losses and loss adjustment expenses

 

106,144

 

 

(3,035)

Increase (decrease) in unearned premiums

 

112,401

 

 

123,901

Increase (decrease) in other net payable to reinsurers

 

84,561

 

 

(61,808)

Increase (decrease) in losses in course of payment

 

976

 

 

(78,061)

Change in equity adjustments in limited partnerships

 

6,063

 

 

(7,836)

Distribution of limited partnership income

 

9,486

 

 

7,162

Change in other assets and liabilities, net

 

(76,651)

 

 

44,139

Non-cash compensation expense

 

7,528

 

 

7,551

Amortization of bond premium (accrual of bond discount)

 

1,385

 

 

(366)

Net realized capital (gains) losses

 

(256,867)

 

 

(135,056)

Net cash provided by (used in) operating activities

 

365,327

 

 

58,173

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

Proceeds from fixed maturities matured/called - available for sale, at market value

 

257,000

 

 

184,894

Proceeds from fixed maturities sold - available for sale, at market value

 

164,244

 

 

1,603,889

Proceeds from equity securities sold - at fair value

 

204,161

 

 

69,238

Distributions from other invested assets

 

76,391

 

 

43,469

Cost of fixed maturities acquired - available for sale, at market value

 

(713,474)

 

 

(1,522,903)

Cost of equity securities acquired - at fair value

 

(167,914)

 

 

(146,335)

Cost of other invested assets acquired

 

(101,663)

 

 

(89,216)

Net change in short-term investments

 

(45,503)

 

 

(283,094)

Net change in unsettled securities transactions

 

(34,793)

 

 

19,330

Net cash provided by (used in) investing activities

 

(361,551)

 

 

(120,728)

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

Tax benefit from share-based compensation, net of expense

 

(7,425)

 

 

(7,464)

Cost of debt repurchase

 

(1,198)

 

 

-

Net cash provided by (used in) financing activities

 

(8,623)

 

 

(7,464)

 

 

 

 

 

 

EFFECT OF EXCHANGE RATE CHANGES ON CASH

 

(20,301)

 

 

2,722

 

 

 

 

 

 

Net increase (decrease) in cash

 

(25,148)

 

 

(67,297)

Cash, beginning of period

 

411,122

 

 

404,522

Cash, end of period

$

385,974

 

$

337,225

 

 

 

 

 

 

SUPPLEMENTAL CASH FLOW INFORMATION:

 

 

 

 

 

Income taxes paid (recovered)

$

3,558

 

$

(90,148)

Interest paid

 

2,712

 

 

3,049

 

 

 

 

 

 

The accompanying notes are an integral part of the consolidated financial statements.

 

4 


 

NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)

 

For the Three Months Ended March 31, 2020, and 2019

 

1.  GENERAL

 

As used in this document, “Holdings” means Everest Reinsurance Holdings, Inc., a Delaware company and direct subsidiary of Everest Underwriting Group (Ireland) Limited (“Holdings Ireland”); “Group” means Everest Re Group, Ltd. (Holdings Ireland’s parent); “Bermuda Re” means Everest Reinsurance (Bermuda), Ltd., a subsidiary of Group; “Everest Re” means Everest Reinsurance Company and its subsidiaries, a subsidiary of Holdings (unless the context otherwise requires) and the “Company” means Holdings and its subsidiaries.

 

During the fourth quarter of 2018, Everest Global Services (“Global Services”), a previously affiliated company, was contributed to Holdings from its parent company, Holdings Ireland. 

 

2.  BASIS OF PRESENTATION

 

The unaudited consolidated financial statements of the Company for the three months ended March 31, 2020 and 2019 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, 2019 consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP.  The results for the three months ended March 31, 2020 and 2019 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, 2019, 2018 and 2017 included in the Company’s most recent Form 10-K filing. 

 

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. This is particularly true given the fluid and continuing nature of the COVID-19 pandemic.  This is an ongoing event and so is the Company’s evaluation and analysis.  While the Company’s analysis considers all aspects of its operations, it does not take into account legal, regulatory or legislative intervention that could retroactively mandate or expand coverage provisions. Given the uncertainties in the current public health and economic environment, there could be an adverse impact on results for the Property & Casualty industry and the Company for the remainder of the year.  The impact is dependent on the shape and length of the economic recovery.

 

With recent changes in executive management and organizational structure, the Company manages its reinsurance and insurance operations as autonomous units and key strategic decisions are based on the aggregate operating results and projections for these segments of business.  Accordingly, effective January 1, 2020, the Company revised it reporting segments to Reinsurance Operations and Insurance Operations.  This replaces the previous reported segments of U.S. Reinsurance, International (reinsurance) and Insurance.  The prior year presented segment information has been reformatted to reflect this change. 

 

All intercompany accounts and transactions have been eliminated. 

 

Certain reclassifications and format changes have been made to prior years’ amounts to conform to the 2020 presentation. 

 

 

5 


 

Application of Recently Issued Accounting Standard Changes. 

 

Accounting for Income Taxes.  In December 2019, The Financial Accounting Standards Board (“FASB”) issued ASU 2019-12, which provides simplification of existing guidance for income taxes, including the removal of certain exceptions related to recognition of deferred tax liabilities on foreign subsidiaries. The guidance is effective for annual reporting periods beginning after December 15, 2020 and interim periods within that annual reporting period. The Company is currently evaluating the impact of the adoption of ASU 2019-12 on its financial statements.

 

Simplification of Disclosure Requirements.  In August 2018, the Securities and Exchange Commission (“SEC”) issued Final Rule Release #33-10532 (“the Rule”) which addresses the simplification of the SEC’s disclosure requirements for quarterly and annual financial reports.  The main change addressed by the Rule that is applicable to the Company is a new requirement to disclose changes in equity by line item with subtotals for each interim reporting period on the Statements of Changes in Shareholders’ Equity.  The Rule became effective for all financial reports filed after November 5, 2018 (30 days after its publication in the Federal Register), except for the additional requirement for the Statements of Changes in Shareholders’ Equity which was to be implemented for first quarter 2019 reporting. The Company has adopted the portions of the Rule that became effective November 5, 2018.  The portion of the Rule related to the new requirement for the Statements of Changes in Shareholders’ Equity was adopted by the Company in the first quarter of 2019.

 

Accounting for Cloud Computing Arrangement.  In August 2018, FASB issued ASU 2018-15, which outlines accounting for implementation costs of a cloud computing arrangement that is a service contract.  This guidance requires that implementation costs of a cloud computing arrangement that is a service contract must be capitalized and expensed in accordance with the existing provisions provided in Subtopic 350-40 regarding development of internal use software. In addition, any capitalized implementation costs should be amortized over the term of the hosting arrangement.  The guidance is effective for annual reporting periods beginning after December 15, 2019 and interim periods within that annual reporting period. The Company adopted the guidance as of January 1, 2020. The adoption of ASU 2018-15 did not have a material impact on the Company’s financial statements.

 

Accounting for Impact on Income Taxes due to Tax Reform.  In December 2017, the SEC issued Staff Accounting Bulletin (“SAB”) 118, which provides guidance on the application of FASB Accounting Standards Codification (“ASC”) Topic 740, Income Taxes, due to the enactment of TCJA.  SAB 118 became effective upon release.  The Company has adopted the provisions of SAB 118 with respect to measuring the tax effects for the modifications to the determination of tax basis loss reserves.  In 2018, the Company recorded adjustments to the amount of tax expense it recorded in 2017 with respect to the TCJA as estimated amounts were finalized, which did not have a material impact on the Company’s financial statements.

 

Amortization of Bond Premium.  In March 2017, FASB issued ASU 2017-08 which outlines guidance on the amortization period for premium on callable debt securities.  The new guidance requires that the premium on callable debt securities be amortized through the earliest call date rather than through the maturity date of the callable security.  The guidance is effective for annual and interim reporting periods beginning after December 15, 2018.  The Company adopted the guidance effective January 1, 2019. The adoption of ASU 2017-08 did not have a material impact on the Company’s financial statements.

 

Valuation of Financial Instruments.  In June 2016, FASB issued ASU 2016-13 (and has subsequently issued related guidance and amendments in ASU 2019-11 and ASU 2019-10 in November 2019) which outline guidance on the valuation of and accounting for assets measured at amortized cost and available for sale debt securities.  The carrying value of assets measured at amortized cost will now be presented as the amount expected to be collected on the financial asset (amortized cost less an allowance for credit losses valuation account).  Available for sale debt securities will now record credit losses through an allowance for credit losses, which will be limited to the amount by which fair value is below amortized cost.  The guidance is effective for annual and interim reporting periods beginning after December 15, 2019.  The Company adopted the guidance effective January 1, 2020.  The adoption resulted in a cumulative adjustment of $907 thousand in retained earnings, which is disclosed separately within the Consolidated Statements of Shareholders’ Equity.

 

 

6 


 

Leases.  In February 2016, FASB issued ASU 2016-02 (and subsequently issued ASU 2018-11 in July, 2018) which outline new guidance on the accounting for leases.  The new guidance requires the recognition of lease assets and lease liabilities on the balance sheets for most leases that were previously deemed operating leases and required only lease expense presentation in the statements of operations.  The guidance is effective for annual and interim reporting periods beginning after December 15, 2018.  The Company adopted ASU 2016-02 effective January 1, 2019 and elected to utilize a cumulative-effect adjustment to the opening balance of retained earnings for the year of adoption.  Accordingly, the Company’s reporting for the comparative periods prior to adoption continue to be presented in the financial statements in accordance with previous lease accounting guidance.  The Company also elected to apply the package of practical expedients applicable to the Company in the updated guidance for transition for leases in effect at adoption.  The Company did not elect the hindsight practical expedient to determine the lease term of existing leases (e.g. The Company did not re-assess lease renewals, termination options nor purchase options in determining lease terms).  The adoption of the updated guidance resulted in the Company recognizing a right-of-use asset of $60,325 thousand as part of other assets and a lease liability of $66,551 thousand as part of other liabilities in the consolidated balance sheet, as well as de-recognizing the liability for deferred rent that was required under the previous guidance.  The cumulative effect adjustment to the opening balance of retained earnings was zero. The adoption of the updated guidance did not have a material effect on the Company’s results of operations or liquidity.

 

Any issued guidance and pronouncements, other than those directly referenced above, are deemed by the Company to be either not applicable or immaterial to its financial statements. 

 

3.  INVESTMENTS

 

Effective January 1, 2020, the Company adopted ASU 2016-13 which provides guidance on the accounting for fixed maturity securities.  The guidance requires the Company to record allowances for credit losses for securities that are deemed to have valuation deterioration due to credit risk issues.  The initial table below presents the amortized cost, allowance for credit losses, gross unrealized appreciation/(depreciation) and market value of fixed maturity securities as of March 31, 2020 in accordance with ASU 2016-13 guidance.  The second table presents the amortized cost, gross unrealized appreciation/(depreciation), market value and other-than-temporary impairments (“OTTI”) in AOCI as of December 31, 2019, in accordance with previously applicable guidance

 

At March 31, 2020

 

Amortized

 

Allowances for

 

Unrealized

 

Unrealized

 

Market

(Dollars in thousands)

Cost

 

Credit Losses

 

Appreciation

 

Depreciation

 

Value

Fixed maturity securities 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities and obligations of

  U.S. government agencies and corporations

$

771,122

 

$

-

 

$

35,125

 

$

(835)

 

$

805,412

Obligations of U.S. states and political

  subdivisions

 

507,155

 

 

-

 

 

21,733

 

 

(4,994)

 

 

523,894

Corporate securities

 

2,903,505

 

 

(11,468)

 

 

48,755

 

 

(128,058)

 

 

2,812,734

Asset-backed securities

 

875,091

 

 

-

 

 

1,701

 

 

(76,674)

 

 

800,118

Mortgage-backed securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

313,624

 

 

-

 

 

16,479

 

 

(775)

 

 

329,328

Agency residential

 

638,008

 

 

-

 

 

28,502

 

 

(782)

 

 

665,728

Non-agency residential

 

1,090

 

 

-

 

 

-

 

 

(13)

 

 

1,077

Foreign government securities

 

654,644

 

 

(70)

 

 

28,238

 

 

(11,960)

 

 

670,852

Foreign corporate securities

 

875,385

 

 

(561)

 

 

32,524

 

 

(19,676)

 

 

887,672

Total fixed maturity securities

$

7,539,624

 

$

(12,099)

 

$

213,057

 

$

(243,767)

 

$

7,496,815

 

 

7 


 

 

At December 31, 2019

 

Amortized

 

Unrealized

 

Unrealized

 

Market

 

OTTI in AOCI

(Dollars in thousands)

Cost

 

Appreciation

 

Depreciation

 

Value

 

(a)

Fixed maturity securities 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities and obligations of

  U.S. government agencies and corporations

$

768,374

 

$

10,128

 

$

(987)

 

$

777,515

 

$

-

Obligations of U.S. states and political

  subdivisions

 

506,347

 

 

29,651

 

 

(87)

 

 

535,911

 

 

-

Corporate securities

 

2,777,097

 

 

70,898

 

 

(26,438)

 

 

2,821,557

 

 

245

Asset-backed securities

 

761,607

 

 

5,659

 

 

(1,309)

 

 

765,957

 

 

-

Mortgage-backed securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

311,961

 

 

17,242

 

 

(154)

 

 

329,049

 

 

-

Agency residential

 

625,612

 

 

19,395

 

 

(320)

 

 

644,687

 

 

-

Non-agency residential

 

1,638

 

 

-

 

 

-

 

 

1,638

 

 

-

Foreign government securities

 

646,149

 

 

18,908

 

 

(7,050)

 

 

658,007

 

 

27

Foreign corporate securities

 

935,640

 

 

31,257

 

 

(9,139)

 

 

957,758

 

 

333

Total fixed maturity securities

$

7,334,425

 

$

203,138

 

$

(45,484)

 

$

7,492,079

 

$

605

 

(a)  Represents the amount of OTTI recognized in AOCI.  Amount includes unrealized gains and losses on impaired securities relating to changes in the value of such securities subsequent to the impairment measurement date.

 

The amortized cost and market value of fixed maturity securities are shown in the following tables by contractual maturity. Mortgage-backed securities are generally more likely to be prepaid than other fixed maturity securities. As the stated maturity of such securities may not be indicative of actual maturities, the totals for mortgage-backed and asset-backed securities are shown separately. 

 

 

At March 31, 2020

 

At December 31, 2019

 

Amortized

 

Market

 

Amortized

 

Market

(Dollars in thousands)

Cost

 

Value

 

Cost

 

Value

Fixed maturity securities – available for sale

 

 

 

 

 

 

 

 

 

 

 

Due in one year or less

$

617,696

 

$

611,935

 

$

569,506

 

$

563,730

Due after one year through five years

 

2,878,464

 

 

2,885,401

 

 

2,919,966

 

 

2,963,903

Due after five years through ten years

 

1,626,513

 

 

1,654,400

 

 

1,541,695

 

 

1,602,642

Due after ten years

 

589,138

 

 

548,828

 

 

602,440

 

 

620,473

Asset-backed securities

 

875,091

 

 

800,118

 

 

761,607

 

 

765,957

Mortgage-backed securities

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

313,624

 

 

329,328

 

 

311,961

 

 

329,049

Agency residential

 

638,008

 

 

665,728

 

 

625,612

 

 

644,687

Non-agency residential

 

1,090

 

 

1,077

 

 

1,638

 

 

1,638

Total fixed maturity securities

$

7,539,624

 

$

7,496,815

 

$

7,334,425

 

$

7,492,079

 

 

8 


 

The changes in net unrealized appreciation (depreciation) for the Company’s investments are derived from the following sources for the periods as indicated:

 

 

Three Months Ended

 

March 31,

(Dollars in thousands)

2020

 

2019

Increase (decrease) during the period between the market value and cost of investments

  carried at market value, and deferred taxes thereon:

 

 

 

 

 

Fixed maturity securities

$

(188,407)

 

$

110,909

Fixed maturity securities, other-than-temporary impairment

 

-

 

 

(332)

Change in unrealized appreciation (depreciation), pre-tax

 

(188,407)

 

 

110,577

Deferred tax benefit (expense)

 

38,769

 

 

(23,214)

Deferred tax benefit (expense), other-than-temporary impairment

 

-

 

 

70

Change in unrealized appreciation (depreciation),  net of deferred taxes, included in

  stockholder's equity

$

(149,638)

 

$

87,433

 

The Company reviews all of its fixed maturity, available for sale securities whose fair value has fallen below their amortized cost at the time of review.  The Company then assesses whether the decline in value is temporary or credit related.  In making its assessment, the Company evaluates the current market and interest rate environment as well as specific issuer information.  Generally, a change in a security’s value caused by a change in the market, interest rate or foreign exchange environment does not constitute a credit impairment, but rather a temporary decline in market value.  Temporary declines in market value are recorded as unrealized losses in accumulated other comprehensive income (loss).  If the Company intends to sell the security or is more likely than not to sell the security, the Company records the entire fair value adjustment in net realized capital gains (losses) in the Company’s consolidated statements of operations and comprehensive income (loss).  If the Company determines that the decline is credit related and the Company does not have the intent to sell the security; and it is more likely than not that the Company will not have to sell the security before recovery of its cost basis, the Company establishes a credit allowance equal to the estimated credit loss and is recorded in net realized capital gains (losses) in the Company’s consolidated statements of operations and comprehensive income (loss).  The amount of the allowance for a given security will generally be the difference between a discounted cash flow model and the Company’s carrying value.  The fair value adjustment that is non-credit related is recorded as a component of other comprehensive income (loss), net of tax, and is included in accumulated other comprehensive income (loss) in the Company’s consolidated balance sheets. We will adjust the credit allowance account for future changes in credit loss estimates for a security and record this adjustment through net realized capital gains (losses) in the Company’s consolidated statements of operations and comprehensive income (loss).

 

The Company does not create an allowance for uncollectible interest.  If interest is not received when due, the interest receivable is immediately reversed and no additional interest is accrued. If future interest is received that has not been accrued, it is recorded as income at that time.

 

Prior to the adoption of ASU 2016-13 effective January 1, 2020, estimated credit losses were recorded as adjustments to the carrying value of the security and any subsequent improvement in market value were recorded through other comprehensive income.

 

The Company’s assessments are based on the issuers’ current and expected future financial position, timeliness with respect to interest and/or principal payments, speed of repayments and any applicable credit enhancements or breakeven constant default rates on mortgage-backed and asset-backed securities, as well as relevant information provided by rating agencies, investment advisors and analysts. 

 

Retrospective adjustments are employed to recalculate the values of asset-backed securities. All of the Company’s asset-backed and mortgage-backed securities have a pass-through structure. Each acquisition lot is reviewed to recalculate the effective yield. The recalculated effective yield is used to derive a book value as if the new yield were applied at the time of acquisition. Outstanding principal factors from the time of acquisition to the adjustment date are used to calculate the prepayment history for all applicable securities. Conditional

 

9 


 

prepayment rates, computed with life to date factor histories and weighted average maturities, are used in the calculation of projected prepayments for pass-through security types.

 

The tables below display the aggregate market value and gross unrealized depreciation of fixed maturity securities, 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 March 31, 2020 By Security Type

 

Less than 12 months

 

Greater than 12 months

 

Total

 

 

 

 

Gross

 

 

 

 

Gross

 

 

 

 

Gross

 

Market

 

Unrealized

 

Market

 

Unrealized

 

Market

 

Unrealized

(Dollars in thousands)

Value

 

Depreciation

 

Value

 

Depreciation

 

Value

 

Depreciation

Fixed maturity securities -

  available for sale

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities and

  obligations of U.S. government

  agencies and corporations

$

-

 

$

-

 

$

9,003

 

$

(835)

 

$

9,003

 

$

(835)

Obligations of U.S. states and

  political subdivisions

 

78,392

 

 

(4,745)

 

 

3,309

 

 

(249)

 

 

81,701

 

 

(4,994)

Corporate securities

 

1,006,791

 

 

(69,967)

 

 

117,380

 

 

(58,091)

 

 

1,124,171

 

 

(128,058)

Asset-backed securities

 

603,807

 

 

(68,849)

 

 

107,550

 

 

(7,825)

 

 

711,357

 

 

(76,674)

Mortgage-backed securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

13,302

 

 

(491)

 

 

14,094

 

 

(284)

 

 

27,396

 

 

(775)

Agency residential

 

20,787

 

 

(761)

 

 

1,872

 

 

(21)

 

 

22,659

 

 

(782)

Non-agency residential

 

553

 

 

(12)

 

 

517

 

 

(1)

 

 

1,070

 

 

(13)

Foreign government securities

 

144,468

 

 

(3,758)

 

 

38,825

 

 

(8,202)

 

 

183,293

 

 

(11,960)

Foreign corporate securities

 

207,389

 

 

(11,354)

 

 

61,954

 

 

(8,322)

 

 

269,343

 

 

(19,676)

Total fixed maturity securities

$

2,075,489

 

$

(159,937)

 

$

354,504

 

$

(83,830)

 

$

2,429,993

 

$

(243,767)

 

 

Duration of Unrealized Loss at March 31, 2020 By Maturity

 

Less than 12 months

 

Greater than 12 months

 

Total

 

 

 

 

Gross

 

 

 

 

Gross

 

 

 

 

Gross

 

Market

 

Unrealized

 

Market

 

Unrealized

 

Market

 

Unrealized

(Dollars in thousands)

Value

 

Depreciation

 

Value

 

Depreciation

 

Value

 

Depreciation

Fixed maturity securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Due in one year or less

$

102,257

 

$

(3,625)

 

$

56,571

 

$

(7,462)

 

$

158,828

 

$

(11,087)

Due in one year through five years

 

692,049

 

 

(35,783)

 

 

130,311

 

 

(16,942)

 

 

822,360

 

 

(52,725)

Due in five years through ten years

 

491,144

 

 

(38,231)

 

 

8,969

 

 

(1,254)

 

 

500,113

 

 

(39,485)

Due after ten years

 

151,590

 

 

(12,185)

 

 

34,620

 

 

(50,041)

 

 

186,210

 

 

(62,226)

Asset-backed securities

 

603,807

 

 

(68,849)

 

 

107,550

 

 

(7,825)

 

 

711,357

 

 

(76,674)

Mortgage-backed securities

 

34,642

 

 

(1,264)

 

 

16,483

 

 

(306)

 

 

51,125

 

 

(1,570)

Total fixed maturity securities

$

2,075,489

 

$

(159,937)

 

$

354,504

 

$

(83,830)

 

$

2,429,993

 

$

(243,767)

 

The aggregate market value and gross unrealized losses related to investments in an unrealized loss position at March 31, 2020 were $2,429,993 thousand and $243,767 thousand, respectively.  The market value of securities for the single issuer whose securities comprised the largest unrealized loss position at March 31, 2020, did not exceed 0.1% of the overall market value of the Company’s fixed maturity securities.  In addition, as indicated on the above table, there was no significant concentration of unrealized losses in any one market sector.  The $159,937 thousand of unrealized losses related to fixed maturity securities that have been in an unrealized loss position for less than one year were generally comprised of domestic and foreign corporate securities and asset backed securities.  Of these unrealized losses, $123,786 thousand were related to securities that were rated investment grade by at least one nationally recognized statistical rating agency.  The $83,830 thousand of unrealized losses related to fixed maturity securities in an unrealized loss position for more than one year related primarily to domestic and foreign corporate securities, foreign government securities and asset backed securities.  Of these unrealized losses $26,723 thousand were related to securities that were rated investment grade by at least one nationally recognized statistical rating agency.

 

10 


 

There was no gross unrealized depreciation for mortgage-backed securities related to sub-prime and alt-A loans. 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 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 market value and gross unrealized depreciation of fixed maturity securities, 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, 2019 By Security Type

 

Less than 12 months

 

Greater than 12 months

 

Total

 

 

 

 

Gross

 

 

 

 

Gross

 

 

 

 

Gross

 

Market

 

Unrealized

 

Market

 

Unrealized

 

Market

 

Unrealized

(Dollars in thousands)

Value

 

Depreciation

 

Value

 

Depreciation

 

Value

 

Depreciation

Fixed maturity securities -

  available for sale

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities and

  obligations of U.S. government

  agencies and corporations

$

8,997

 

$

(141)

 

$

203,780

 

$

(846)

 

$

212,777

 

$

(987)

Obligations of U.S. states and

  political subdivisions

 

4,600

 

 

(38)

 

 

4,518

 

 

(49)

 

 

9,118

 

 

(87)

Corporate securities

 

334,973

 

 

(5,186)

 

 

230,679

 

 

(21,252)

 

 

565,652

 

 

(26,438)

Asset-backed securities

 

159,695

 

 

(887)

 

 

76,351

 

 

(422)

 

 

236,046

 

 

(1,309)

Mortgage-backed securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

13,083

 

 

(87)

 

 

16,374

 

 

(67)

 

 

29,457

 

 

(154)

Agency residential

 

19,019

 

 

(82)

 

 

17,147

 

 

(238)

 

 

36,166

 

 

(320)

Non-agency residential

 

-

 

 

-

 

 

690

 

 

-

 

 

690

 

 

-

Foreign government securities

 

113,256

 

 

(858)

 

 

109,953

 

 

(6,192)

 

 

223,209

 

 

(7,050)

Foreign corporate securities

 

105,551

 

 

(1,260)

 

 

121,710

 

 

(7,879)

 

 

227,261

 

 

(9,139)

Total fixed maturity securities

$

759,174

 

$

(8,539)

 

$

781,202

 

$

(36,945)

 

$

1,540,376

 

$

(45,484)

 

 

Duration of Unrealized Loss at December 31, 2019 By Maturity

 

Less than 12 months

 

Greater than 12 months

 

Total

 

 

 

 

Gross

 

 

 

 

Gross

 

 

 

 

Gross

 

Market

 

Unrealized

 

Market

 

Unrealized

 

Market

 

Unrealized

(Dollars in thousands)

Value

 

Depreciation

 

Value

 

Depreciation

 

Value

 

Depreciation

Fixed maturity securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Due in one year or less

$

34,542

 

$

(1,067)

 

$

188,755

 

$

(6,411)

 

$

223,297

 

$

(7,478)

Due in one year through five years

 

226,521

 

 

(2,554)

 

 

357,728

 

 

(11,562)

 

 

584,249

 

 

(14,116)

Due in five years through ten years

 

251,967

 

 

(3,292)

 

 

43,129

 

 

(6,785)

 

 

295,096

 

 

(10,077)

Due after ten years

 

54,347

 

 

(570)

 

 

81,028

 

 

(11,460)

 

 

135,375

 

 

(12,030)

Asset-backed securities

 

159,695

 

 

(887)

 

 

76,351

 

 

(422)

 

 

236,046

 

 

(1,309)

Mortgage-backed securities

 

32,102

 

 

(169)

 

 

34,211

 

 

(305)

 

 

66,313

 

 

(474)

Total fixed maturity securities

$

759,174

 

$

(8,539)

 

$

781,202

 

$

(36,945)

 

$

1,540,376

 

$

(45,484)

 

The aggregate market value and gross unrealized losses related to investments in an unrealized loss position at December 31, 2019 were $1,540,376 thousand and $45,484 thousand, respectively.  The market value of securities for the single issuer whose securities comprised the largest unrealized loss position at December 31, 2019, did not exceed 0.2% of the overall market value of the Company’s fixed maturity securities.  In addition, as indicated on the above table, there was no significant concentration of unrealized losses in any one market sector. The $8,539 thousand of unrealized losses related to fixed maturity securities that have

 

11 


 

been in an unrealized loss position for less than one year were generally comprised of domestic and foreign corporate securities. Of these unrealized losses, $5,645 thousand were related to securities that were rated investment grade by at least one nationally recognized statistical rating agency.  The $36,945 thousand of unrealized losses related to fixed maturity securities in an unrealized loss position for more than one year related primarily to domestic and foreign corporate securities and foreign government securities. Of these unrealized losses $16,976 thousand were related to securities that were rated investment grade by at least one nationally recognized statistical rating agency. There was no gross unrealized depreciation for mortgage-backed securities related to sub-prime and alt-A loans. 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 tables below for the periods indicated: 

 

 

Three Months Ended

 

March 31,

(Dollars in thousands)

2020

 

2019

Fixed maturities

$

74,088

 

$

67,054

Equity securities

 

1,592

 

 

1,431

Short-term investments and cash

 

1,570

 

 

2,736

Other invested assets

 

 

 

 

 

Limited partnerships

 

6,996

 

 

8,055

Dividends from preferred shares of affiliate

 

7,758

 

 

7,758

Other

 

(13,072)

 

 

2,980

Gross investment income before adjustments

 

78,932

 

 

90,014

Funds held interest income (expense)

 

3,257

 

 

2,881

Interest income from Parent

 

1,282

 

 

-

Gross investment income

 

83,471

 

 

92,895

Investment expenses

 

(9,270)

 

 

(8,361)

Net investment income

$

74,201

 

$

84,534

 

 

 

 

 

 

(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. 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 $880,460 thousand in limited partnerships and private placement loans at March 31, 2020.  These commitments will be funded when called in accordance with the partnership and loan agreements, which have investment periods that expire, unless extended, through 2026.

 

The Company participates in a private placement liquidity sweep facility (“the facility”).  The primary purpose of the facility is to enhance the Company’s return on its short-term investments and cash positions.  The facility invests in high quality, short-duration securities and permits daily liquidity. The Company consolidates its participation in the facility. As of March 31, 2020, the market value of investments in the facility consolidated within the Company’s balance sheets was $214,344 thousand. 

 

Other invested assets, at fair value, as of March 31, 2020 and December 31, 2019, were comprised of preferred shares held in Preferred Holdings, an affiliated company. 

 

 

12 


 

The components of net realized capital gains (losses) are presented in the table below for the periods indicated: 

 

 

Three Months Ended

 

March 31,

(Dollars in thousands)

2020

 

2019

Fixed maturity securities, market value:

 

 

 

 

 

Allowances for credit losses

$

(12,099)

 

$

-

Other-than-temporary impairments

 

-

 

 

(2,290)

Gains (losses) from sales

 

(20,937)

 

 

3,426

Fixed maturity securities, fair value:

 

 

 

 

 

Gains (losses) from fair value adjustments

 

(1,123)

 

 

13

Equity securities, fair value:

 

 

 

 

 

Gains (losses) from sales

 

(27,602)

 

 

5,044

Gains (losses) from fair value adjustments

 

(121,669)

 

 

77,846

Other invested assets

 

(2,327)

 

 

396

Other invested assets, fair value:

 

 

 

 

 

Gains (losses) from fair value adjustments

 

442,479

 

 

50,627

Short-term investment gains (losses)

 

145

 

 

(6)

Total net realized capital gains (losses)

$

256,867

 

$

135,056

 

 

 

 

 

 

Foreign

 

Foreign

 

 

 

 

 

Corporate

 

Government

 

Corporate

 

 

 

 

 

Securities

 

Securities

 

Securities

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of December 31, 2019

$

-

 

$

-

 

$

-

 

$

-

Provision for credit losses

 

(11,468)

 

 

(70)

 

 

(561)

 

 

(12,099)

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of March 31, 2020

$

(11,468)

 

$

(70)

 

$

(561)

 

$

(12,099)

 

The Company recorded as net realized capital gains (losses) in the consolidated statements of operations and comprehensive income (loss) fair value re-measurements, allowances for credit losses per ASU 2016-13 and write-downs in the value of securities deemed to be impaired on an other-than-temporary basis in prior years as displayed in the table above.  The Company had no other-than-temporary impaired securities where the impairment had both a credit and non-credit component. 

 

The proceeds and split between gross gains and losses, from sales of fixed maturity and equity securities, are presented in the table below for the periods indicated: 

 

 

Three Months Ended

 

March 31,

(Dollars in thousands)

2020

 

2019

Proceeds from sales of fixed maturity securities

$

164,244

 

$

1,603,889

Gross gains from sales

 

1,846

 

 

8,104

Gross losses from sales

 

(22,783)

 

 

(4,678)

 

 

 

 

 

 

Proceeds from sales of equity securities

$

204,161

 

$

69,238

Gross gains from sales

 

2,581

 

 

5,671

Gross losses from sales

 

(30,183)

 

 

(627)

 

 

13 


 

4.  RESERVES FOR LOSSES AND LAE

 

Activity in the reserve for losses and LAE is summarized for the periods indicated: 

 

 

Three Months

 Ended 

 

Three Months

 Ended 

   

March 31,

 

March 31,

(Dollars in thousands)

2020

 

2019

Gross reserves beginning of period

$

10,209,519

 

$

10,167,018

Less reinsurance recoverables

 

(4,215,348)

 

 

(4,697,543)

Net reserves beginning of period

 

5,994,171

 

 

5,469,475

Incurred related to:

 

 

 

 

 

Current year

 

1,026,442

 

 

788,837

Prior years

 

3,071

 

 

7,259

Total incurred losses and LAE

 

1,029,513

 

 

796,096

Paid related to:

 

 

 

 

 

Current year 

 

138,778

 

 

100,676

Prior years

 

593,482

 

 

607,365

Total paid losses and LAE

 

732,260

 

 

708,041

 

 

 

 

 

 

Foreign exchange/translation adjustment and cumulative adjustment due to adoption of ASU 2016-13

 

(36,673)

 

 

7,368

 

 

 

 

 

 

Net reserves end of period

 

6,254,751

 

 

5,564,898

Plus reinsurance recoverables

 

4,016,471

 

 

4,608,571

Gross reserves end of period

$

10,271,222

 

$

10,173,469

 

 

 

 

 

 

(Some amounts may not reconcile due to rounding.)

 

 

 

 

 

 

Current year incurred losses were $1,026,442 thousand for the three months ended March 31, 2020 and $788,837 thousand for the three months ended March 31, 2019, respectively.  The increase in current year incurred losses in 2020 compared to 2019 was primarily due to $35,700 thousand of incurred losses due to COVID-19 as well as the impact of the increase in premiums earned.

 

5.  FAIR VALUE

 

GAAP guidance regarding fair value measurements address 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.

 

 

14 


 

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. 

 

In limited instances where prices are not provided by pricing services or in rare instances when a manager may not agree with the pricing service, price quotes on a non-binding basis are obtained from investment brokers.  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.  In addition, the Company continually performs analytical reviews of price changes and tests the prices on a random basis to an independent pricing source.  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 March 31, 2020, $881,064 thousand of fixed maturities, market value and $4,703 thousand of fixed maturities, fair value were fair valued using unobservable inputs.  The majority of the fixed maturities, market value, $722,948 thousand and all of the $4,703 thousand of fixed maturities, fair value, 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 review and evaluate these independent third party valuations.  The remaining Level 3 fixed maturities of $158,116 thousand were fair valued by the Company at either par or amortized cost, which the Company believes approximates fair value.  At December 31, 2019, $702,331 thousand of fixed maturities, market value and $5,826 thousand of fixed maturities, fair value were fair valued using unobservable inputs.  The majority of the fixed maturities, market value, $610,873 thousand and all of the $5,826 thousand of fixed maturities, fair value, were valued by investment managers’ valuation committees and a majority of these fair values were substantiated by valuations from independent third parties.  The remaining Level 3 fixed maturities of $91,458 thousand were fair valued by the Company at either par or amortized cost, which the Company believes approximates fair value. 

 

The Company internally manages a public equity portfolio which had a fair value at March 31, 2020 and December 31, 2019 of $210,845 thousand and $170,888 thousand, respectively, and all prices were obtained from publicly published sources. 

 

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 or market value.  The Company uses foreign currency exchange rates published by nationally recognized sources.

 

All categories of fixed maturity securities listed in the tables below are generally 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.

 

The fixed maturities with fair values categorized as level 3 result when prices are not available from the nationally recognized pricing services. 

 

The composition and valuation inputs for the presented fixed maturities categories 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;

 

15 


 

·        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.

 

Other invested assets, at fair value, were categorized as Level 3 at March 31, 2020 and December 31, 2019, since it represented a privately placed convertible preferred stock issued by an affiliate. The stock was received in exchange for shares of the Company’s parent.  The 25 year redeemable, convertible preferred stock with a 1.75% coupon is valued using a pricing model. The pricing model includes observable inputs such as the U.S. Treasury yield curve rate T note constant maturity 10 year and the swap rate on the Company’s June 1, 2044, 4.868% senior notes, with adjustments to reflect the Company’s own assumptions about the inputs that market participants would use in pricing the asset.

 

 

16 


 

The following table presents the fair value measurement levels for all assets, which the Company has recorded at fair value (fair and market value) as of the period indicated: 

 

 

 

 

 

Fair Value Measurement Using:

 

 

 

 

Quoted Prices

 

 

 

 

 

 

 

 

 

 

in Active

 

Significant

 

 

 

 

 

 

 

Markets for

 

Other

 

Significant

 

 

 

 

Identical

 

Observable

 

Unobservable

 

March 31,

 

Assets

 

Inputs

 

Inputs

(Dollars in thousands)

2020

 

(Level 1)

 

(Level 2)

 

(Level 3)

Assets:

 

 

 

 

 

 

 

 

 

 

 

Fixed maturities, market value

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities and obligations of

  U.S. government agencies and corporations

$

805,412

 

$

-

 

$

805,412

 

$

-

Obligations of U.S. States and political subdivisions

 

523,894

 

 

-

 

 

523,894

 

 

-

Corporate securities

 

2,812,734

 

 

-

 

 

2,170,301

 

 

642,433

Asset-backed securities

 

800,118

 

 

-

 

 

561,487

 

 

238,631

Mortgage-backed securities

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

329,328

 

 

-

 

 

329,328

 

 

-

Agency residential

 

665,728

 

 

-

 

 

665,728

 

 

-

Non-agency residential

 

1,077

 

 

-

 

 

1,077

 

 

-

Foreign government securities

 

670,852

 

 

-

 

 

670,852

 

 

-

Foreign corporate securities

 

887,672

 

 

-

 

 

887,672

 

 

-

Total fixed maturities, market value

 

7,496,815

 

 

-

 

 

6,615,751

 

 

881,064

 

 

 

 

 

 

 

 

 

 

 

 

Fixed maturities, fair value

 

4,703

 

 

-

 

 

-

 

 

4,703

Equity securities, fair value

 

578,531

 

 

544,056

 

 

34,475

 

 

-

Other invested assets, fair value

 

2,425,061

 

 

-

 

 

-

 

 

2,425,061

 

There were no transfers between Level 1 and Level 2 for the three months ended March 31, 2020.

 

17 


 

 

The following table presents the fair value measurement levels for all assets, which the Company has recorded at fair value (fair and market value) as of the period indicated.

 

 

 

 

Fair Value Measurement Using:

 

 

 

 

Quoted Prices

 

 

 

 

 

 

 

 

 

 

in Active

 

Significant

 

 

 

 

 

 

 

Markets for

 

Other

 

Significant

 

 

 

 

Identical

 

Observable

 

Unobservable

 

December 31,

 

Assets

 

Inputs

 

Inputs

(Dollars in thousands)

2019

 

(Level 1)

 

(Level 2)

 

(Level 3)

Assets:

 

 

 

 

 

 

 

 

 

 

 

Fixed maturities, market value

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities and obligations of

  U.S. government agencies and corporations

$

777,515

 

$

-

 

$

777,515

 

$

-

Obligations of U.S. States and political subdivisions

 

535,911

 

 

-

 

 

535,911

 

 

-

Corporate securities

 

2,821,557

 

 

-

 

 

2,274,618

 

 

546,939

Asset-backed securities

 

765,957

 

 

-

 

 

612,316

 

 

153,641

Mortgage-backed securities

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

329,049

 

 

-

 

 

329,049

 

 

-

Agency residential

 

644,687

 

 

-

 

 

644,687

 

 

-

Non-agency residential

 

1,638

 

 

-

 

 

1,638

 

 

-

Foreign government securities

 

658,007

 

 

-

 

 

658,007

 

 

-

Foreign corporate securities

 

957,758

 

 

-

 

 

956,007

 

 

1,751

Total fixed maturities, market value

 

7,492,079

 

 

-

 

 

6,789,748

 

 

702,331

 

 

 

 

 

 

 

 

 

 

 

 

Fixed maturities, fair value

 

5,826

 

 

-

 

 

-

 

 

5,826

Equity securities, fair value

 

764,049

 

 

719,548

 

 

44,501

 

 

-

Other invested assets, fair value

 

1,982,582

 

 

-

 

 

-

 

 

1,982,582

 

In addition, $212,677 thousand and $209,578 thousand of investments within other invested assets on the consolidated balance sheets as of March 31, 2020 and December 31, 2019, 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. 

 

 

18 


 

The following tables present the activity under Level 3, fair value measurements using significant unobservable inputs by asset type, for the periods indicated: 

 

 

Total Fixed Maturities, Market Value

 

Three Months Ended March 31, 2020

 

Three Months Ended March 31, 2019

 

Corporate

 

Asset

 

Foreign

 

 

 

Corporate

 

Asset

 

Foreign

 

 

 

(Dollars in thousands)

Securities

 

Backed Securities

 

Corporate

 

Total

 

Securities

 

Backed Securities

 

Corporate

 

Total

Beginning balance

$

546,939

 

$

153,641

 

$

1,751

 

$

702,331

 

$

376,250

 

$

-

 

$

7,744

 

$

383,994

Total gains or (losses) (realized/unrealized)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Included in earnings

 

(214)

 

 

4

 

 

-

 

 

(210)

 

 

4,858

 

 

-

 

 

119

 

 

4,977

Included in other comprehensive

  income (loss)

 

(3,357)

 

 

(15,882)

 

 

-

 

 

(19,239)

 

 

574

 

 

-

 

 

-

 

 

574

Purchases, issuances and settlements

 

99,064

 

 

100,868

 

 

(1,751)

 

 

198,181

 

 

(12,046)

 

 

-

 

 

(565)

 

 

(12,611)

Transfers in and/or (out) of Level 3

 

-

 

 

-

 

 

-

 

 

-

 

 

(2,458)

 

 

-

 

 

-

 

 

(2,458)

Ending balance

$

642,432

 

$

238,631

 

$

-

 

$

881,063

 

$

367,178

 

$

-

 

$

7,298

 

$

374,476

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

$

(539)

 

$

-

 

$

-

 

$

(539)

 

$

-

 

$

-

 

$

-

 

$

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Some amounts may not reconcile due to rounding.)

 

 

Total Fixed Maturities, Fair Value

 

Three Months Ended

March 31, 2020

 

Three Months Ended

March 31, 2019

 

Foreign

 

 

 

Foreign

 

 

 

(Dollars in thousands)

Corporate

 

Total

 

Corporate

 

Total

Beginning balance fixed maturities at fair value

$

5,826

 

$

5,826

 

$

2,337

 

$

2,337

Total gains or (losses) (realized/unrealized)

 

 

 

 

 

 

 

 

 

 

 

Included in earnings

 

(1,123)

 

 

(1,123)

 

 

13

 

 

13

Included in other comprehensive income (loss)

 

-

 

 

-

 

 

-

 

 

-

Transfers in and/or (out) of Level 3

 

-

 

 

-

 

 

-

 

 

-

Ending balance

$

4,703

 

$

4,703

 

$

2,350

 

$

2,350

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.)

 

 

 

 

 

 

 

 

 

 

 

 

The net transfers to/(from) level 3, fair value measurements using significant unobservable inputs for fixed maturities, market value were $0 thousand and $(2,458) thousand for the three months ended March 31, 2020 and 2019, respectively.  The transfers during 2019 were related to securities that were priced using investment managers as of December 31, 2018 and were subsequently priced by a recognized pricing service as of March 31, 2019.

 

 

19 


 

The following table presents the activity under Level 3, fair value measurements using significant unobservable inputs by other invested assets, for the periods indicated: 

 

 

Three Months Ended

 

March 31,

(Dollars in thousands)

2020

 

2019

Other invested assets, fair value:

 

 

 

 

 

Beginning balance

$

1,982,582

 

$

1,717,336

Total gains or (losses) (realized/unrealized)

 

 

 

 

 

Included in earnings

 

442,479

 

 

50,627

Included in other comprehensive income (loss)

 

-

 

 

-

Purchases, issuances and settlements

 

-

 

 

-

Transfers in and/or (out) of Level 3

 

-

 

 

-

Ending balance

$

2,425,061

 

$

1,767,963

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.)

 

 

 

 

 

 

6.  COMMITMENTS AND CONTINGENCIES

 

In the ordinary course of business, the Company is involved in lawsuits, arbitrations and other formal and informal dispute resolution procedures, the outcomes of which will determine the Company’s rights and obligations under insurance and reinsurance agreements.  In some disputes, the Company seeks to enforce its rights under an agreement or to collect funds owing to it.  In other matters, the Company is resisting attempts by others to collect funds or enforce alleged rights.  These disputes arise from time to time and are ultimately resolved through both informal and formal means, including negotiated resolution, arbitration and litigation.  In all such matters, the Company believes that its positions are legally and commercially reasonable.  The Company considers the statuses of these proceedings when determining its reserves for unpaid loss and loss adjustment expenses.

 

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.

 

The Company has entered into separate annuity agreements with The Prudential Insurance Company of America (“The Prudential”) and an additional unaffiliated life insurance company in which the Company has either purchased annuity contracts or become the assignee of annuity proceeds that are meant to settle claim payment obligations in the future. In both instances, the Company would become contingently liable if either The Prudential or the unaffiliated life insurance company were unable to make payments related to the respective annuity contract.

 

The table below presents the estimated cost to replace all such annuities for which the Company was contingently liable for the periods indicated: 

 

 

At March 31,

 

At December 31,

(Dollars in thousands)

2020

 

2019

The Prudential

$

141,281

 

$

141,703

Unaffiliated life insurance company

 

33,116

 

 

35,082

 

 

20 


 

7.  COMPREHENSIVE INCOME (LOSS)

 

The following tables present the components of comprehensive income (loss) in the consolidated statements of operations and comprehensive income (loss) for the periods indicated: 

 

 

Three Months Ended

March 31, 2020

(Dollars in thousands)

Before Tax

 

Tax Effect

 

Net of Tax

Unrealized appreciation (depreciation) ("URA(D)") on securities - temporary

$

(223,770)

 

 

46,246

 

$

(177,524)

Reclassification of net realized losses (gains) included in net income (loss)

 

35,364

 

 

(7,478)

 

 

27,886

Foreign currency translation adjustments

 

(37,532)

 

 

7,899

 

 

(29,633)

Reclassification of amortization of net gain (loss) included in net income (loss)

 

1,165

 

 

(245)

 

 

920

Total other comprehensive income (loss)

$

(224,773)

 

$

46,422

 

$

(178,351)

 

 

 

 

 

 

 

 

 

(Some amounts may not reconcile due to rounding)

 

 

 

 

 

 

 

 

 

 

Three Months Ended

March 31, 2019

(Dollars in thousands)

Before Tax

 

Tax Effect

 

Net of Tax

Unrealized appreciation (depreciation) ("URA(D)") on securities - temporary

$

112,441

 

$

(23,730)

 

$

88,711

URA(D) on securities - OTTI

 

(332)

 

 

70

 

 

(262)

Reclassification of net realized losses (gains) included in net income (loss)

 

(1,532)

 

 

516

 

 

(1,016)

Foreign currency translation adjustments

 

12,110

 

 

(2,546)

 

 

9,564

Reclassification of amortization of net gain (loss) included in net income (loss)

 

1,457

 

 

(306)

 

 

1,151

Total other comprehensive income (loss)

$

124,144

 

$

(25,996)

 

$

98,148

 

 

 

 

 

 

 

 

 

(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

 

Affected line item within the

 

March 31,

 

statements of operations and

AOCI component

2020

 

2019

 

comprehensive income (loss)

(Dollars in thousands)

 

 

 

 

 

 

 

URA(D) on securities

$

35,364

 

$

(1,532)

 

Other net realized capital gains (losses)

 

 

(7,478)

 

 

516

 

Income tax expense (benefit)

 

$

27,886

 

$

(1,016)

 

Net income (loss)

Benefit plan net gain (loss)

$

1,165

 

$

1,457

 

Other underwriting expenses

 

 

(245)

 

 

(306)

 

Income tax expense (benefit)

 

$

920

 

$

1,151

 

Net income (loss)

 

 

 

 

 

 

 

 

(Some amounts may not reconcile due to rounding)

 

 

21 


 

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

 

March 31,

(Dollars in thousands)                   

2020

 

2019

Beginning balance of URA (D) on securities

$

124,612

 

$

(55,950)

Current period change in URA (D) of investments - temporary

 

(149,638)

 

 

87,695

Current period change in URA (D) of investments - non-credit OTTI

 

-

 

 

(262)

Ending balance of URA (D) on securities

 

(25,025)

 

 

31,483

 

 

 

 

 

 

Beginning balance of foreign currency translation adjustments

 

14,267

 

 

(2,886)

Current period change in foreign currency translation adjustments

 

(29,633)

 

 

9,564

Ending balance of foreign currency translation adjustments

 

(15,367)

 

 

6,678

 

 

 

 

 

 

Beginning balance of benefit plan net gain (loss)

 

(74,556)

 

 

(67,418)

Current period change in benefit plan net gain (loss)

 

920

 

 

1,151

Ending balance of benefit plan net gain (loss)

 

(73,635)

 

 

(66,267)

 

 

 

 

 

 

Ending balance of accumulated other comprehensive income (loss)

$

(114,027)

 

$

(28,106)

 

8.  COLLATERALIZED REINSURANCE AND TRUST AGREEMENTS

 

A subsidiary of the Company, Everest Re, has established a trust agreement, which effectively uses Everest Re’s investments as collateral, as security for assumed losses payable to non-affiliated ceding companies.  At March 31, 2020, the total amount on deposit in the trust account was $752,337 thousand.

 

On April 24, 2014, the Company entered into two 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 specified named storm and earthquake events.  The first agreement provides up to $250,000 thousand of reinsurance coverage from named storms in specified states of the Southeastern United States.  The second agreement provides up to $200,000 thousand of reinsurance coverage from named storms in specified states of the Southeast, Mid-Atlantic and Northeast regions of the United States and Puerto Rico as well as reinsurance coverage from earthquakes in specified states of the Southeast, Mid-Atlantic, Northeast and West regions of the United States, Puerto Rico and British Columbia.  These reinsurance agreements expired in April 2018.

 

On November 18, 2014, the Company entered into a collateralized reinsurance agreement with Kilimanjaro to provide the Company with catastrophe reinsurance coverage. This agreement is a multi-year reinsurance contract which covers specified earthquake events.  The agreement provides up to $500,000 thousand of reinsurance coverage from earthquakes in the United States, Puerto Rico and Canada. These reinsurance agreements expired in November, 2019.

 

On December 1, 2015, the Company entered into two collateralized reinsurance agreements with Kilimanjaro to provide the Company with catastrophe reinsurance coverage.  These agreements are multi-year reinsurance contracts which cover named storm and earthquake events. The first agreement provides up to $300,000 thousand of reinsurance coverage from named storms and earthquakes in the United States, Puerto Rico and Canada.  The second agreement provides up to $325,000 thousand of reinsurance coverage from named storms and earthquakes in the United States, Puerto Rico and Canada.

 

On April 13, 2017, the Company entered into six collateralized reinsurance agreements with Kilimanjaro to provide the Company with annual aggregate catastrophe reinsurance coverage.  The initial three agreements are four year reinsurance contracts which cover named storm and earthquake events.  These agreements provide up to $225,000 thousand, $400,000 thousand and $325,000 thousand, respectively, of annual

 

22 


 

aggregate reinsurance coverage from named storms and earthquakes in the United States, Puerto Rico and Canada. The subsequent three agreements are five year reinsurance contracts which cover named storm and earthquake events.  These agreements provide up to $50,000 thousand, $75,000 thousand and $175,000 thousand, respectively, of annual aggregate reinsurance coverage from named storms and earthquakes in the United States, Puerto Rico and Canada. 

 

On April 30, 2018, the Company entered into four collateralized reinsurance agreements with Kilimanjaro to provide the Company with catastrophe reinsurance coverage.  These agreements are multi-year reinsurance contracts which cover named storm and earthquake events. The first two agreements are four year reinsurance contracts which provide up to $62,500 thousand and $200,000 thousand, respectively, of annual aggregate reinsurance coverage from named storms and earthquakes in the United States, Puerto Rico, the U.S. Virgin Islands and Canada.  The remaining two agreements are five year reinsurance contracts which provide up to $62,500 thousand and $200,000 thousand, respectively, of annual aggregate reinsurance coverage from named storms and earthquakes in the United States, Puerto Rico, the U.S. Virgin Islands and Canada.

 

On December 12, 2019, the Company entered into four collateralized reinsurance agreements with Kilimanjaro to provide the Company with catastrophe reinsurance coverage.  These agreements are multi-year reinsurance contracts which cover named storm and earthquake events.  The first two agreements are four year reinsurance contracts which provide up to $150,000 thousand and $275,000 thousand, respectively, of annual aggregate reinsurance coverage from named storms and earthquakes in the United States, Puerto Rico, the U.S. Virgin Islands and Canada.  The remaining two agreements are five year reinsurance contracts which provide up to $150,000 thousand and $275,000 thousand, respectively, of annual aggregate reinsurance coverage from named storms and earthquakes in the United State, Puerto Rico, the U.S. Virgin Islands and Canada.

 

Recoveries under these collateralized reinsurance agreements with Kilimanjaro are primarily dependent on estimated industry level insured losses from covered events, as well as, the geographic location of the events.  The estimated industry level of insured losses is obtained from published estimates by an independent recognized authority on insured property losses.  Currently, none of the published insured loss estimates for catastrophe events during the applicable covered periods of the various agreements have exceeded the single event retentions or aggregate retentions under the terms of the agreements that would result in a recovery.

 

Kilimanjaro has financed the various property catastrophe reinsurance coverages by issuing catastrophe bonds to unrelated, external investors.  On April 24, 2014, Kilimanjaro issued $450,000 thousand of notes (“Series 2014-1 Notes”). The $450,000 thousand of Series 2014-1 Notes were fully redeemed on April 30, 2018 and are no longer outstanding.  On November 18, 2014, Kilimanjaro issued $500,000 thousand of notes (“Series 2014-2 Notes”). The $450,000 thousand of Series 2014-2 Notes were fully redeemed in November 2019 and are no longer outstanding. On December 1, 2015, Kilimanjaro issued $625,000 thousand of notes (“Series 2015-1 Notes).  On April 13, 2017, Kilimanjaro issued $950,000 thousand of notes (“Series 2017-1 Notes) and $300,000 thousand of notes (“Series 2017-2 Notes). On April 30, 2018, Kilimanjaro issued $262,500 thousand of notes (“Series 2018-1 Notes”) and $262,500 thousand of notes (“Series 2018-2 Notes”). On December 12, 2019 Kilimanjaro issued $425,000 thousand of notes (“Series 2019-1 Notes”) and $425,000 thousand of notes (“Series 2019-2 Notes’”). The proceeds from the issuance of the Notes listed above are held in reinsurance trust throughout the duration of the applicable reinsurance agreements and invested solely in US government money market funds with a rating of at least “AAAm” by Standard & Poor’s. 

 

 

23 


 

9.  SENIOR NOTES

 

The table below displays Holdings’ outstanding senior notes.  Market 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. 

 

 

 

 

 

 

 

 

March 31, 2020

 

December 31, 2019

 

 

 

 

 

 

 

Consolidated

 

 

 

 

Consolidated

 

 

 

 

 

 

 

 

Principal

 

Balance Sheet

 

Market

 

Balance Sheet

 

Market

(Dollars in thousands)

Date Issued

 

Date Due

 

Amounts

 

Amount

 

Value

 

Amount

 

Value

Senior notes

06/05/2014

 

06/01/2044

 

400,000

 

$

397,104

 

$

454,224

 

$

397,074

 

$

452,848

                                   

 

On June 5, 2014, Holdings issued $400,000 thousand of 30 year senior notes at 4.868%, which will mature on June 1, 2044. Interest will be paid semi-annually on June 1 and December 1 of each year. 

 

Interest expense incurred in connection with these senior notes is as follows for the periods indicated:

 

 

Three Months Ended

 

March 31,

(Dollars in thousands)

2020

 

2019

Interest expense incurred

$

4,868

 

$

4,868

           

 

10.  LONG TERM SUBORDINATED NOTES

 

The table below displays Holdings’ outstanding fixed to floating rate long term subordinated notes.  Market 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. 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2020

 

December 31, 2019

 

 

 

Original

 

 

 

 

 

Consolidated

 

 

 

 

Consolidated

 

 

 

 

 

 

Principal

 

Maturity Date

 

 

 

Balance

 

Market

 

Balance

 

Market

(Dollars in thousands)

Date Issued

 

Amount

 

Scheduled

 

Final

 

Sheet Amount

 

Value

 

Sheet Amount

 

Value

Long term subordinated notes

04/26/2007

 

$

400,000

 

05/15/2037

 

05/01/2067

 

$

235,083

 

$

181,834

 

$

236,758

 

$

233,191

                                         

 

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 February 18, 2020 to May 14, 2020 is 4.08%. 

 

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.  Effective upon the maturity of the Company’s 5.40% senior notes on October 15, 2014, the Company’s 4.868% senior notes, due on June 1, 2044, have become the Company’s long term indebtedness that ranks senior to the long term subordinated notes. 

 

The Company repurchased and retired $1,700 thousand of its outstanding long term subordinated notes during the three months ended March 31, 2020.  The Company realized a gain of $502 thousand from the repurchase of the long term subordinated notes.

 

 

24 


 

On March 19, 2009, Group announced the commencement of a cash tender offer for any and all of the 6.60% fixed to floating rate long term subordinated notes.  Upon expiration of the tender offer, the Company had reduced its outstanding debt by $161,441 thousand. 

 

Interest expense incurred in connection with these long term subordinated notes is as follows for the periods indicated:

 

 

Three Months Ended

 

March 31,

(Dollars in thousands)

2020

 

2019

Interest expense incurred

$

2,538

 

$

2,605

           

 

11.  FEDERAL HOME LOAN BANK MEMBERSHIP

 

Effective August 15, 2019, Everest Re became a member of the Federal Home Loan Bank (“FHLB”) organization, which allows Everest Re to borrow up to 10% of its statutory admitted assets.  As of March 31, 2020, Everest Re had admitted assets of approximately $12,879,681 thousand which provides borrowing capacity of up to approximately $1,287,968 thousand.  Through March 31, 2020, Everest Re had no borrowings through the FHLB.

 

12.  LEASES

 

Effective January 1, 2019, the Company adopted ASU 2016-02 and ASU 2018-11 which outline new guidance on the accounting for leases.  The Company enters into lease agreements for real estate that is primarily used for office space in the ordinary course of business.  These leases are accounted for as operating leases, whereby lease expense is recognized on a straight-line basis over the term of the lease.  Most leases include an option to extend or renew the lease term.  The exercise of the renewal is at the Company’s discretion.  The operating lease liability includes lease payments related to options to extend or renew the lease term if the Company is reasonably certain of exercise those options.  The Company, in determining the present value of lease payments utilizes either the rate implicit in the lease if that rate is readily determinable or the Company’s incremental secured borrowing rate commensurate with terms of the underlying lease.

 

Supplemental information related to operating leases is as follows for the periods indicated:

 

 

Three Months

Ended

 

Three Months

Ended

 

March 31,

 

March 31,

(Dollars in thousands)

2020

 

2019

Lease expense incurred:

 

 

 

 

 

Operating lease cost

$

7,248

 

$

4,562

 

 

At March 31,

 

At December 31,

(Dollars in thousands)

2020

 

2019

Operating lease right of use assets

$

148,855

 

$

152,978

Operating lease liabilities

 

158,350

 

 

160,387

 

 

Three Months Ended

 

Three Months Ended

 

March 31,

 

March 31,

(Dollars in thousands)

2020

 

2019

Operating cash flows from operating leases

$

(4,357)

 

$

(4,304)

           

 

 

25 


 

 

At March 31,

At December 31,

 

2020

2019

Weighted average remaining operating lease term

12.8 years

 

12.8 years

 

Weighted average discount rate on operating leases

3.83

%

3.91

%

 

Maturities of the existing lease liabilities are expected to occur as follows: 

 

(Dollars in thousands)

 

 

Remainder of 2020

$

13,649

2021

 

15,844

2022

 

17,879

2023

 

17,450

2024

 

17,438

2025

 

14,430

Thereafter

 

111,609

Undiscounted lease payments

 

208,299

Less:  present value adjustment

 

49,949

Total operating lease liability

$

158,350

 

The amount of operating lease liabilities is not separately presented in the consolidated financial statements but is included in other liabilities.  Disclosures regarding minimum lease payments under previous lease accounting guidance can be found in the Company’s 2018 Form 10-K.

 

On July 2, 2019, the Company entered into a lease agreement to relocate its corporate offices from Liberty Corner, New Jersey to a corporate complex in Warren, New Jersey.  The new lease, which covers approximately 315,000 square feet of office space, will be effective October 1, 2019 and runs through 2036.  The initial base rent payment of the lease will be approximately $650 thousand per month or $7,800 thousand per year.  The Company expects to relocate the existing operations and employees of the Liberty Corner, New Jersey facility to the new corporate complex by 2021.

 

13.  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 United States as well as through branches in Canada and Singapore.  The Insurance operation writes property and casualty insurance directly and through brokers, surplus lines brokers and general agents within the United States.

 

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.  We measure our underwriting results using ratios, in particular loss, commission and brokerage and other underwriting expense ratios, which, respectively, divide incurred losses, commissions and brokerage and other underwriting expenses by premiums earned. 

 

The Company does not maintain separate balance sheet data for its operating segments.  Accordingly, the Company does not review and evaluate the financial results of its operating segments based upon balance sheet data. 

 

 

26 


 

The following tables present the underwriting results for the operating segments for the periods indicated:

 

 

Three Months Ended

Reinsurance

March 31,

(Dollars in thousands)

2020

 

2019

Gross written premiums

$

1,308,194

 

$

1,153,111

Net written premiums

 

1,114,235

 

 

975,999

 

 

 

 

 

 

Premiums earned

$

1,007,034

 

$

897,278

Incurred losses and LAE

 

682,707

 

 

553,714

Commission and brokerage

 

260,901

 

 

236,965

Other underwriting expenses

 

29,847

 

 

24,056

Underwriting gain (loss)

$

33,579

 

$

82,543

 

 

Three Months Ended

Insurance

March 31,

(Dollars in thousands)

2020

 

2019

Gross written premiums

$

666,771

 

$

531,771

Net written premiums

 

524,474

 

 

416,244

 

 

 

 

 

 

Premiums earned

$

486,970

 

$

373,176

Incurred losses and LAE

 

346,805

 

 

242,382

Commission and brokerage

 

62,203

 

 

51,253

Other underwriting expenses

 

71,361

 

 

54,326

Underwriting gain (loss)

$

6,601

 

$

25,215

 

The following table reconciles the underwriting results for the operating segments to income (loss) before taxes as reported in the consolidated statements of operations and comprehensive income (loss) for the periods indicated:

 

 

Three Months Ended

 

March 31,

(Dollars in thousands)

2020

 

2019

Underwriting gain (loss)

$

40,180

 

$

107,758

Net investment income

 

74,201

 

 

84,534

Net realized capital gains (losses)

 

256,867

 

 

135,056

Corporate expense

 

(3,721)

 

 

(1,651)

Interest, fee and bond issue cost amortization expense

 

(7,460)

 

 

(9,828)

Other income (expense)

 

(4,498)

 

 

(730)

Income (loss) before taxes

$

355,569

 

$

315,139

 

The Company produces business in the U.S. and internationally.  The net income deriving from assets residing in the individual foreign countries in which the Company writes business are not identifiable in the Company’s financial records.  Based on gross written premium, the table below presents the largest country, other than the U.S., in which the Company writes business, for the periods indicated: 

 

 

Three Months Ended

 

March 31,

(Dollars in thousands)

2020

 

2019

Canada gross written premiums

$

63,637

 

$

39,050

           

 

No other country represented more than 5% of the Company’s revenues. 

 

 

27 


 

14.  RELATED-PARTY TRANSACTIONS

 

Parent

 

Group entered into a $300,000 thousand long term note agreement with Everest Re as of December 17, 2019. The note will pay interest annually at a rate of 1.69% and is scheduled to mature in December, 2028. This transaction is presented as a Note Receivable – Affiliated in the Consolidated Balance Sheet of Holdings. The Company recognized interest income related to the this long term note of $1,282 thousand and $0 thousand for the three months ended March 31, 2020 and 2019, respectively.

 

Group entered into a $250,000 thousand long term promissory note agreement with Holdings as of December 31, 2014.  The note was repaid in December 2018.

 

Group’s Board of Directors approved an amended share repurchase program authorizing Group and/or its subsidiary Holdings to purchase Group’s common shares through open market transactions, privately negotiated transactions or both.  The table below represents the amendments to the share repurchase program for the common shares approved for repurchase. 

 

 

 

Common

 

 

Shares

 

 

Authorized for

Amendment Date

 

Repurchase

(Dollars in thousands)

 

 

09/21/2004

 

5,000,000

07/21/2008

 

5,000,000

02/24/2010

 

5,000,000

02/22/2012

 

5,000,000

05/15/2013

 

5,000,000

11/19/2014

 

5,000,000

 

 

30,000,000

 

Holdings had purchased and held 9,719,971 Common Shares of Group, which were purchased in the open market between February 2007 and March 2011.

 

In December, 2015, Holdings transferred the 9,719,971 Common Shares of Group, which it held as other invested assets, at fair value, valued at $1,773,214 thousand, to Preferred Holdings, an affiliated entity and subsidiary of Group, in exchange for 1,773.214 preferred shares of Preferred Holdings with a $1,000 thousand par value and 1.75% annual dividend rate.  After the exchange, Holdings no longer holds any shares or has any ownership interest in Group. 

 

Holdings has reported the preferred shares in Preferred Holdings, as other invested assets, fair value, in the consolidated balance sheets with changes in fair value re-measurement recorded in net realized capital gains (losses) in the consolidated statements of operations and comprehensive income (loss).  The following table presents the dividends received on the preferred shares of Preferred Holdings and on the Parent shares that are reported as net investment income in the consolidated statements of operations and comprehensive income (loss) for the period indicated. 

 

 

Three Months Ended

 

March 31,

(Dollars in thousands)

2020

 

2019

Dividends received on preferred stock of affiliate

$

7,758

 

$

7,758

           

 

Affiliated Companies

 

Effective December 31, 2018, Holdings entered into a $300,000 thousand long-term promissory note agreement with Bermuda Re.  The note was repaid in May, 2019.  This transaction was presented as a Note

 

28 


 

Payable – Affiliated in the consolidated balance sheets of Holdings as of December 31, 2018.  Interest expense of $0 thousand and $2,303 thousand was recorded by Holdings for the three months ended March 31, 2020 and 2019, respectively. 

 

Effective October 1, 2018, Holdings Ireland made a capital contribution of Global Services, an affiliated entity, to Holdings.  Global Services had an equity value of $227,253 thousand at the time of contribution and that value is classified as additional paid in capital in the Company’s consolidated balance sheets.

 

Affiliates

 

The table below represents affiliated quota share reinsurance agreements ("whole account quota share") for all new and renewal business for the indicated coverage period: 

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Single

 

 

 

 

 

 

 

Percent

 

Assuming

 

 

 

Occurrence

 

Aggregate

 

Coverage Period

 

Ceding Company

 

Ceded

 

Company

 

Type of Business

 

Limit

 

Limit

 

01/01/2010-12/31/2010

 

Everest Re

 

44.0

%

 

Bermuda Re

 

property / casualty business

 

150,000

 

325,000

 

01/01/2011-12/31/2011

 

Everest Re

 

50.0

%

 

Bermuda Re

 

property / casualty business

 

150,000

 

300,000

 

01/01/2012-12/31/2014

 

Everest Re

 

50.0

%

 

Bermuda Re

 

property / casualty business

 

100,000

 

200,000

 

01/01/2015-12/31/2016

 

Everest Re

 

50.0

%

 

Bermuda Re

 

property / casualty business

 

162,500

 

325,000

 

01/01/2017-12/31/2017

 

Everest Re

 

60.0

%

 

Bermuda Re

 

property / casualty business

 

219,000

 

438,000

 

01/01/2010-12/31/2010

 

Everest Re- Canadian Branch

 

60.0

%

 

Bermuda Re

 

property business

 

350,000

(1)

-

 

01/01/2011-12/31/2011

 

Everest Re- Canadian Branch

 

60.0

%

 

Bermuda Re

 

property business

 

350,000

(1)

-

 

01/01/2012-12/31/2012

 

Everest Re- Canadian Branch

 

75.0

%

 

Bermuda Re

 

property / casualty business

 

206,250

(1)

412,500

(1)

01/01/2013-12/31/2013

 

Everest Re- Canadian Branch

 

75.0

%

 

Bermuda Re

 

property / casualty business

 

150,000

(1)

412,500

(1)

01/01/2014-12/31/2017

 

Everest Re- Canadian Branch

 

75.0

%

 

Bermuda Re

 

property / casualty business

 

262,500

(1)

412,500

(1)

01/01/2012-12/31/2017

 

Everest Canada

 

80.0

%

 

Everest Re-

  Canadian Branch

 

property business

 

-

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1) Amounts shown are Canadian dollars.

 

Effective January 1, 2018, Everest Re entered into a twelve month whole account aggregate stop loss reinsurance contract (“stop loss agreement”) with Bermuda Re.  The stop loss agreement provides coverage for ultimate net losses on applicable net earned premiums above a retention level, subject to certain other coverage limits and conditions.  The stop loss agreement was renewed effective January 1, 2019. 

 

In addition, Everest Re entered into a property catastrophe excess of loss reinsurance contract with Bermuda Re, effective January 1, 2019.  The contract provides $100,000 thousand of reinsurance coverage for property catastrophe losses above certain attachment points. 

 

The table below represents loss portfolio transfer (“LPT”) reinsurance agreements whereby net insurance exposures and reserves were transferred to an affiliate. 

 

(Dollars in thousands)

Effective

 

Transferring

 

Assuming

 

 

% of Business or

 

 

Covered Period

Date

 

Company

 

Company

 

 

Amount of Transfer

 

 

of Transfer

10/01/2001

 

Everest Re  (Belgium Branch)

 

Bermuda Re

 

 

100

%

 

 

All years

10/01/2008

 

Everest Re

 

Bermuda Re

 

$

747,022

 

 

 

01/01/2002-12/31/2007

12/31/2017

 

Everest Re

 

Bermuda Re

 

$

970,000

 

 

 

All years

 

On December 31, 2017, the Company entered into a LPT agreement with Bermuda Re.  The LPT agreement covers subject loss reserves of $2,336,242 thousand for accident years 2017 and prior.  As a result of the LPT agreement, the Company transferred $1,000,000 thousand of cash and fixed maturity securities and transferred $970,000 thousand of loss reserves to Bermuda Re.  As part of the LPT agreement, Bermuda Re will provide an additional $500,000 thousand of adverse development coverage on the subject loss reserves. 

 

 

29 


 

The following tables summarize the premiums and losses ceded by the Company to Bermuda Re and Everest International, respectively, and premiums and losses assumed by the Company from Everest Canada and Lloyd’s syndicate 2786 for the periods indicated: 

 

 

Three Months Ended

Bermuda Re

March 31,

(Dollars in thousands)

2020

 

2019

Ceded written premiums

$

30,500

 

$

51,473

Ceded earned premiums

 

30,500

 

 

52,524

Ceded losses and LAE

 

(22,159)

 

 

11,733

 

 

Three Months Ended

Everest International

March 31,

(Dollars in thousands)

2020

 

2019

Ceded written premiums

$

-

 

$

-

Ceded earned premiums

 

-

 

 

-

Ceded losses and LAE

 

22

 

 

10

 

 

Three Months Ended

Everest Canada

March 31,

(Dollars in thousands)

2020

 

2019

Assumed written premiums

$

236

 

$

-

Assumed earned premiums

 

39

 

 

-

Assumed losses and LAE

 

1,598

 

 

(1,601)

 

 

Three Months Ended

Lloyd's Syndicate 2786

March 31,

(Dollars in thousands)

2020

 

2019

Assumed written premiums

$

(3,031)

 

$

(9,209)

Assumed earned premiums

 

(2,822)

 

 

(18,827)

Assumed losses and LAE

 

814

 

 

(7,918)

 

In 2013, Group established Mt. Logan Re, which is a Class 3 insurer based in Bermuda.  Mt. Logan Re then established separate segregated accounts for its business activity, which invest in a diversified set of catastrophe exposures.

 

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

Mt. Logan Re Segregated Accounts

March 31,

(Dollars in thousands)

2020

 

2019

Ceded written premiums

$

95,350

 

$

63,223

Ceded earned premiums

 

79,855

 

 

44,822

Ceded losses and LAE

 

37,465

 

 

34,623

Assumed written premiums

 

-

 

 

-

Assumed earned premiums

 

-

 

 

-

Assumed losses and LAE

 

-

 

 

-

 

15.  RETIREMENT BENEFITS

 

The Company maintains both qualified and non-qualified defined benefit pension plans for its U.S. employees employed prior to April 1, 2010.  Generally, the Company computes the benefits based on average earnings over a period prescribed by the plans and credited length of service.  The Company’s non-qualified defined benefit pension plan provided compensating pension benefits for participants whose benefits have been

 

30 


 

curtailed under the qualified plan due to Internal Revenue Code limitations.  Effective January 1, 2018, participants of the Company’s non-qualified defined benefit pension plan may no longer accrue additional service benefits. 

 

Net periodic benefit cost for U.S. employees included the following components for the periods indicated: 

 

Pension Benefits

Three Months Ended

 

March 31,

(Dollars in thousands)

2020

 

2019

Service cost

$

4,011

 

$

2,276

Interest cost

 

2,483

 

 

2,930

Expected return on plan assets

 

(5,197)

 

 

(5,016)

Amortization of net (income) loss 

 

1,213

 

 

1,601

Settlement charge

 

-

 

 

104

Net periodic benefit cost

$

2,510

 

$

1,895

 

Other Benefits

Three Months Ended

 

March 31,

(Dollars in thousands)

2020

 

2019

Service cost

$

141

 

$

286

Interest cost

 

215

 

 

295

Amortization of prior service cost

 

(48)

 

 

(144)

Amortization of net (income) loss 

 

-

 

 

-

Net periodic benefit cost

$

308

 

$

437

 

 

 

 

 

 

(Some amounts may not reconcile due to rounding.)

 

The service cost component of net periodic benefit costs is included within other underwriting expenses on the consolidated statement of operations and comprehensive income (loss).  In accordance with ASU 2017-07, other staff compensation costs are also primarily recorded within this line item. 

 

The Company did not make any contributions to the qualified pension benefit plan for the three months ended March 31, 2020 and 2019, respectively.

 

16.  INCOME TAXES

 

The Company is domiciled in the United States and has subsidiaries domiciled within the United States with significant branches in Canada and Singapore.  The Company’s non-U.S. branches are subject to income taxation at varying rates in their respective domiciles. 

 

The Company generally applies the estimated annual effective tax rate approach for calculating its tax provision for interim periods as prescribed by ASC 740-270, Interim Reporting.  Under the estimated annual effective tax rate approach, the estimated annual effective tax rate is applied to the interim year-to-date pre-tax income/loss to determine the income tax expense or benefit for the year-to-date period.  If the annual effective tax rate approach produces a year-to-date tax benefit which exceeds the amount which is estimated to be recoverable for the full year, then the tax benefit for the interim reporting period will be limited as prescribed under ASC 740-270 to the estimated recoverable based on the year-to-date result.  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 effective tax rate.

 

17.  SUBSEQUENT EVENTS

 

The Company has evaluated known recognized and non-recognized subsequent events.  The Company does not have any subsequent events to report.

 

31 


 

 

18.   REVISIONS TO FINANCIAL STATEMENTS

 

In preparing third quarter 2019 financial statements, the Company identified errors in the handling of foreign exchange related to premium funds held from reinsureds.  Although management determined that the impact of the foreign exchange differences were not material to prior period financial statements, the impact of recording the cumulative difference would have significantly impacted results within the third quarter 2019.  As a result, prior period balances have been revised in the applicable financial statements and corresponding footnotes to correct the foreign exchange adjustments.

 

Management assessed the materiality of this change within prior period financial statements based upon SEC Staff Accounting Bulletin Number 99, Materiality, which is since codified in Accounting Standards Codification ("ASC") 250, Accounting Changes and Error Corrections. The prior period comparative financial statements that are presented herein have been revised.

 

The following tables present line items for prior period financial statements that have been affected by the revision. For these line items, the tables detail the amounts as previously reported, the impact upon those line items due to the revision, and the amounts as currently revised within the financial statements.

 

 

CONSOLIDATED STATEMENTS OF OPERATIONS

 

Three Months Ended March 31, 2019

AND COMPREHENSIVE INCOME (LOSS):

 

As Previously

 

Impact of

 

 

 

 

 

Reported

 

Revisions

 

As Revised

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

Revenues:

 

 

 

 

 

 

 

 

 

Other income (expense)

 

 

(1,214)

 

 

484

 

 

(730)

Total revenues

 

$

1,488,830

 

$

484

 

$

1,489,314

 

 

 

 

 

 

 

 

 

 

INCOME (LOSS) BEFORE TAXES

 

$

314,655

 

$

484

 

$

315,139

Income tax expense (benefit) 

 

 

63,429

 

 

102

 

 

63,531

 

 

 

 

 

 

 

 

 

 

NET INCOME (LOSS)

 

$

251,226

 

$

382

 

$

251,608

 

 

 

 

 

 

 

 

 

 

COMPREHENSIVE INCOME (LOSS)  

 

$

349,374

 

$

382

 

$

349,756

 

CONSOLIDATED STATEMENTS OF

 

Three Months Ended March 31, 2019

CHANGES IN STOCKHOLDER'S EQUITY

 

As Previously

 

Impact of

 

 

 

 

 

Reported

 

Revisions

 

As Revised

 

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

RETAINED EARNINGS:

 

 

 

 

 

 

 

 

 

Balance, January 1

 

$

4,070,604

 

$

(7,908)

 

$

4,062,696

Net income (loss)

 

 

251,226

 

 

382

 

 

251,608

Balance, March 31

 

 

4,321,830

 

 

(7,524)

 

 

4,314,306

 

 

32 


 

CONSOLIDATED STATEMENTS OF CASH FLOWS 

 

Three Months Ended March 31, 2019

 

 

As Previously

 

Impact of

 

 

 

 

 

Reported

 

Revisions

 

As Revised

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

 

Net income (loss) 

 

$

251,226

 

$

382

 

$

251,608

Decrease (increase) in funds held by reinsureds, net

 

 

(13,877)

 

 

(484)

 

 

(14,361)

Decrease (increase) in income taxes

 

 

94,631

 

 

102

 

 

94,733

 

33 


 

ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

 

Industry Conditions.

The worldwide reinsurance and insurance businesses are highly competitive, as well as cyclical by product and market.  As such, financial results tend to fluctuate with periods of constrained availability, higher rates and stronger profits followed by periods of abundant capacity, lower rates and constrained profitability.  Competition in the types of reinsurance and insurance business that we underwrite is based on many factors, including the perceived overall financial strength of the reinsurer or insurer, ratings of the reinsurer or insurer by A.M. Best and/or Standard & Poor’s, underwriting expertise, the jurisdictions where the reinsurer or insurer is licensed or otherwise authorized, capacity and coverages offered, premiums charged, other terms and conditions of the reinsurance and insurance business offered, services offered, speed of claims payment and reputation and experience in lines written.  Furthermore, the market impact from these competitive factors related to reinsurance and insurance is generally not consistent across lines of business, domestic and international geographical areas and distribution channels. 

 

The Company competes in the global reinsurance and insurance markets with numerous global competitors. The Company’s competitors include independent reinsurance and insurance companies, subsidiaries or affiliates of established worldwide insurance companies, reinsurance departments of certain insurance companies, domestic and international underwriting operations, including underwriting syndicates at Lloyd’s of London and certain government sponsored risk transfer vehicles.  Some of these competitors have greater financial resources than we do and have established long term and continuing business relationships, which can be a significant competitive advantage.  In addition, the lack of strong barriers to entry into the reinsurance business and recently, the securitization of reinsurance and insurance risks through capital markets provide additional sources of potential reinsurance and insurance capacity and competition. 

 

Worldwide insurance and reinsurance market conditions continued to be competitive. Generally, there was ample insurance and reinsurance capacity relative to demand, as well as, additional capital from the capital markets through insurance linked financial instruments.  These financial instruments such as side cars, catastrophe bonds and collateralized reinsurance funds, provide capital markets with access to insurance and reinsurance risk exposure.  The capital markets demand for these products is being primarily driven by the current low interest environment and the desire to achieve greater risk diversification and potentially higher returns on their investments.  This increased competition is generally having a negative impact on rates, terms and conditions; however, the impact varies widely by market and coverage. 

 

The industry is currently dealing with the impacts of a global pandemic, COVID-19.    Globally, many countries have mandated that their citizens remain at home and non-essential businesses have been physically closed.  We have closed our physical offices; however, we have activated our operational resiliency plan across our global footprint and all of our critical operations are functioning effectively from remote locations.  We continue to service and meet the needs of our clients while ensuring the safety and health of our employees and customers.

 

The pandemic has caused significant volatility in the global financial markets.  Interest rates plummeted, credit spreads widened and the equity markets lost value.  We saw our fixed maturity and equity portfolios decline in value; however, some of the declines reflected in our March 31, 2020 financial statements have already recovered in April.  Nevertheless, the lack of business activity may lead to an increase in bankruptcies and corresponding credit losses. Our other invested assets are comprised primarily of limited partnership investments.  The change in limited partnership values are generally recorded on a quarter lag, As a result, the impact on the limited partnership values during the first quarter volatility will not be reflected in our results until the second quarter of 2020.

 

There will also be a negative impact on the industry underwriting results. With the closing of non-essential businesses, there has been a significant decline in business activity.  To the extent that premiums are based on business activity, there will be a decline in premium volume.  Incurred losses from the pandemic will be impacted by the duration of the event and will vary by line of business and geographical location.  For the quarter ended March 31, 2020, our underwriting results include $35.7 million of estimated losses related to the pandemic.  We anticipate this pandemic could have a meaningful impact on our revenue, as well as net

 

34 


 

and operating income in future quarters as a result of reinsurance and insurance claims due to the pandemic and resulting macro-economic market conditions.

 

Many regulators have issued moratoriums on the cancellation of policies for the non-payment of premiums and also on non-renewals. We are complying with the various regulatory requests for accommodations to policyholders during this difficult period.  The moratoriums combined with the forced closure of businesses may lead to an increase in uncollectible premium expense.

 

Prior to the pandemic, there was a growing industry consensus that there was some firming of (re)insurance rates for the areas impacted by the recent catastrophes.  Rates also appeared to be firming in some of the casualty lines of business, particularly in the casualty lines that had seen significant losses such as excess casualty and directors’ and officers’ liability.  Other casualty lines were experiencing modest rate increase, while some lines such as workers’ compensation were experiencing softer market conditions. It is too early to tell what will be the impact on pricing conditions but it is likely to change depending on the line of business and geography.

 

While we are unable to predict the full impact the pandemic will have on the insurance industry as it continues to have a negative impact on the global economy, we are well positioned to continue to service our clients.  Our capital position remains a source of strength, with high quality invested assets, significant liquidity, low financial leverage, and a low operating expense ratio. Our diversified global platform with its broad mix of products, distribution and geography is resilient.

 

 

35 


 

Financial Summary.

We monitor and evaluate our overall performance based upon financial results.  The following table displays a summary of the consolidated net income (loss), ratios and stockholder’s equity for the periods indicated: 

 

 

Three Months Ended

 

 Percentage  

 

March 31,

 

Increase/

(Dollars in millions)

2020

 

2019

 

(Decrease)

Gross written premiums

$

1,975.0

 

$

1,684.9

 

17.2%

Net written premiums

 

1,638.7

 

 

1,392.2

 

17.7%

 

 

 

 

 

 

 

 

REVENUES:

 

 

 

 

 

 

 

Premiums earned

$

1,494.0

 

$

1,270.5

 

17.6%

Net investment income

 

74.2

 

 

84.5

 

-12.2%

Net realized capital gains (losses)

 

256.9

 

 

135.1

 

90.2%

Other income (expense)

 

(4.5)

 

 

(0.7)

 

NM

Total revenues

 

1,820.6

 

 

1,489.3

 

22.2%

 

 

 

 

 

 

 

 

CLAIMS AND EXPENSES:

 

 

 

 

 

 

 

Incurred losses and loss adjustment expenses

 

1,029.5

 

 

796.1

 

29.3%

Commission, brokerage, taxes and fees

 

323.1

 

 

288.2

 

12.1%

Other underwriting expenses

 

101.2

 

 

78.4

 

29.1%

Corporate expense

 

3.7

 

 

1.7

 

125.4%

Interest, fee and bond issue cost amortization expense

 

7.5

 

 

9.8

 

-24.1%

Total claims and expenses

 

1,465.0

 

 

1,174.2

 

24.8%

 

 

 

 

 

 

 

 

INCOME (LOSS) BEFORE TAXES

 

355.6

 

 

315.1

 

12.8%

Income tax expense (benefit)

 

38.9

 

 

63.5

 

-38.7%

NET INCOME (LOSS)

$

316.6

 

$

251.6

 

25.8%

 

 

 

 

 

 

 

 

RATIOS:

 

 

 

 

 

 

Point

Change

Loss ratio

 

68.9%

 

 

62.7%

 

6.2

Commission and brokerage ratio

 

21.6%

 

 

22.7%

 

(1.1)

Other underwriting expense ratio

 

6.8%

 

 

6.1%

 

0.7

Combined ratio

 

97.3%

 

 

91.5%

 

5.8

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Dollars in millions)

 

 

 

 

 

 

 

Balance sheet data:

 

 

 

 

 

 

 

Total investments and cash

$

12,242.4

 

$

 11,956.3  

 

2.4%

Total assets

 

20,030.8

 

 

 19,706.2  

 

1.6%

Loss and loss adjustment expense reserves

 

10,271.2

 

 

 10,209.5  

 

0.6%

Total debt

 

632.2

 

 

 633.8  

 

-0.3%

Total liabilities

 

14,034.0

 

 

 13,848.8  

 

1.3%

Stockholder's equity

 

5,996.7

 

 

 5,857.4  

 

2.4%

 

 

 

 

 

 

 

 

(Some amounts may not reconcile due to rounding)

(NM, not meaningful)

 

 

36 


 

Revenues.

 

Premiums.  Gross written premiums increased by 17.2% to $1,975.0 million for the three months ended March 31, 2020, compared to $1,684.9 million for the three months ended March 31, 2019, reflecting a $135.0 million, or 25.4%, increase in our insurance business and a $155.1 million, or 13.4%, increase in our reinsurance business. The rise in insurance premiums was primarily due to increases in many lines of business, including property, casualty, energy, specialty lines and accident and health. The increase in reinsurance premiums was mainly due to the increase in treaty casualty writings, treaty property business and facultative business. Net written premiums increased by 17.7% to $1,638.7 million for the three months ended March 31, 2020, compared to $1,392.2 million for the three months ended March 31, 2019, which is consistent with the change in gross written premiums. Premiums earned increased by 17.6% to $1,494.0 million for the three months ended March 31, 2020, compared to $1,270.5 million for the three months ended March 31, 2019. The change in premiums earned relative to net written premiums is the result of timing; premiums are earned ratably over the coverage period whereas written premiums are recorded at the initiation of the coverage period.

 

Net Investment Income.  Net investment income decreased 12.2% to $74.2 million for the three months ended March 31, 2020 compared with net investment income of $84.5 million for the three months ended March 31, 2019.  Net pre-tax investment income as a percentage of average invested assets was 2.6% and 3.1% for the three months ended March 31, 2020 and 2019, respectively. The decrease in income and yield was primarily the result of lower income from other invested assets, partially offset by higher income from our growing fixed maturity portfolio.

 

Net Realized Capital Gains (Losses).  Net realized capital gains were $256.9 million and $135.1 million for the three months ended March 31, 2020 and 2019, respectively.  The net realized capital gains of $256.9 million in 2020 were comprised of $319.7 million of gains from fair value re-measurements, partially offset by $50.7 million of losses from sales of investments and $12.1 million of allowances for credit losses. The net realized capital gains of $135.1 million in 2019 were comprised of $128.5 million of gains from fair value re-measurements and $8.9 million of gains from sales of investments, partially offset by $2.3 million of other-than-temporary impairments.

 

Other Income (Expense).  We recorded other expense of $4.5 million and $0.7 million for the three months ended March 31, 2020 and 2019, respectively. The change was primarily the result of fluctuations in foreign currency exchange rates. 

 

Claims and Expenses.

 

Incurred Losses and Loss Adjustment Expenses.  The following table presents our incurred losses and loss adjustment expenses (“LAE”) for the periods indicated. 

 

 

Three Months Ended March 31,

 

Current

 

Ratio %/

 

Prior

 

Ratio %/

 

Total

 

Ratio %/

(Dollars in millions)

Year

 

Pt Change

 

Years

 

Pt Change

 

Incurred

 

Pt Change

2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Attritional

$

996.4

 

66.7%

 

 

$

(1.1)

 

-0.1%

 

 

$

995.3

 

66.6%

 

Catastrophes

 

30.0

 

2.0%

 

 

 

4.2

 

0.3%

 

 

 

34.2

 

2.3%

 

Total

$

1,026.4

 

68.7%

 

 

$

3.1

 

0.2%

 

 

$

1,029.5

 

68.9%

 

2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Attritional

$

763.8

 

60.1%

 

 

$

-

 

0.0%

 

 

$

763.8

 

60.1%

 

Catastrophes

 

25.0

 

2.0%

 

 

 

7.3

 

0.6%

 

 

 

32.3

 

2.6%

 

Total

$

788.8

 

62.1%

 

 

$

7.3

 

0.6%

 

 

$

796.1

 

62.7%

 

Variance 2020/2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Attritional

$

232.6

 

6.6

pts

 

$

(1.1)

 

(0.1)

pts

 

$

231.5

 

6.5

pts

Catastrophes

 

5.0

 

               -

pts

 

 

(3.1)

 

(0.3)

pts

 

 

1.9

 

(0.3)

pts

Total

$

237.6

 

6.6

pts

 

$

(4.2)

 

(0.4)

pts

 

$

233.4

 

6.2

pts

 

 

37 


 

Incurred losses and LAE increased by 29.3% to $1,029.5 million for the three months ended March 31, 2020 compared to $796.1 million for the three months ended March 31, 2019, primarily due to an increase of $232.6 million in current year attritional losses, related primarily to $35.7 million of losses from the COVID-19 pandemic and the impact of the increase in premiums earned. The current year catastrophe losses of $30.0 million for the three months ended March 31, 2020 related to the Nashville tornadoes ($10.0 million), Australia East Coast storms ($10.0 million) and the Australia fires ($10.0 million). The current year catastrophe losses of $25.0 million for the three months ended March 31, 2019 related to the Townsville monsoon in Australia ($25.0 million).

 

Commission, Brokerage, Taxes and Fees.  Commission, brokerage, taxes and fees increased to $323.1 million for the three months ended March 31, 2020 compared to $288.2 million for the three months ended March 31, 2019. The increase was mainly due to the impact of the increases in premiums earned and changes in affiliated reinsurance agreements.

 

Other Underwriting Expenses. Other underwriting expenses increased to $101.2 million compared to $78.4 million for the three months ended March 31, 2020 and 2019, respectively. The increase was mainly due to changes in affiliated reinsurance agreements, impact of increases in premium earned and costs incurred to support the expansion of the insurance business. 

 

Corporate Expenses.  Corporate expenses, which are general operating expenses that are not allocated to segments, have increased to $3.7 million from $1.7 million for the three months ended March 31, 2020 and 2019, respectively. The increase was mainly due to higher incentive compensation costs.

 

Interest, Fees and Bond Issue Cost Amortization Expense.  Interest, fees and other bond amortization expense was $7.5 million and $9.8 million for the three months ended March 31, 2020 and 2019, respectively. The decrease in expense was primarily due to interest expense on the $300.0 million affiliated loan agreement with Bermuda Re in 2019 and the movement in the floating interest rate related to the long term subordinated notes, which is reset quarterly per the note agreement. The floating rate was 4.1% as of March 31, 2020 compared to 5.1% as of March 31, 2019.

 

Income Tax Expense (Benefit).  We had an income tax expense of $38.9 million and $63.5 million for the three months ended March 31, 2020 and 2019, respectively. Income tax benefit or expense is primarily a function of the geographic location of the Company’s pre-tax income and the statutory tax rates in those jurisdictions.  The effective tax rate (“ETR”) is primarily affected by tax-exempt investment income, foreign tax credits and dividends. Variations in the ETR generally result from changes in the relative levels of pre-tax income, including the impact of catastrophe losses and net capital gains (losses), among jurisdictions with different tax rates.  The change in income tax expense (benefit) for the three months ended March 31, 2020 compared to the three months ended March 31, 2019 was primarily due to estimated incurred losses from the COVID-19 pandemic and the impact from the Coronavirus Aid, Relief and Economic Securities Act (“the CARES Act”).

 

The CARES Act was passed by Congress and signed into law by the President on March 27, 2020 in response to the COVID-19 pandemic.  Among the provisions of the CARES Act was a special tax provision which allows companies to elect to carryback five years net operating losses incurred in the 2018, 2019 and/or 2020 tax years.  The Tax Cuts and Jobs Act of 2017 had eliminated net operating loss carrybacks for most companies. The Company determined that the special 5 year loss carryback tax provision provided a tax benefit of $31.0 million which it recorded in the quarter ended March 31, 2020.

 

Net Income (Loss).  

Our net income was $316.6 million and $251.6 million, for the three months ended March 31, 2020 and 2019 respectively. The changes were primarily driven by the financial component fluctuations explained above. 

 

Ratios.

Our combined ratio increased by 5.8 points to 97.3% for the three months ended March 31, 2020 compared to 91.5% for the three months ended March 31, 2019. The loss ratio component increased by 6.2 points in 2020 over the same period last year mainly due to $35.7 million of losses, 2.4 points, related to the COVID-19 pandemic and changes in affiliated reinsurance agreements. The commission and brokerage ratio component decreased to 21.6% for the three months ended March 31, 2020 compared to 22.7% for the three months

 

38 


 

ended March 31, 2019, reflecting changes in affiliated reinsurance agreements and changes in the mix of business. The other underwriting expense ratio increased to 6.8% for the three months ended March 31, 2020 from 6.1% for the three months ended March 31, 2019, mainly due to the impact of changes in affiliated reinsurance contracts.

 

Stockholder's Equity.

Stockholder’s equity increased by $139.3 million to $5,996.7 million at March 31, 2020 from $5,857.4 million at December 31, 2019, principally as a result of $316.6 million of net income, $0.9 million of net benefit plan obligation adjustments and $0.9 million of cumulative adjustment from the adoption of ASU-2016-13, partially offset by $149.6 million of net unrealized depreciation on investments, net of tax, and $29.6 million of net foreign currency translation adjustments.

 

Consolidated Investment Results

 

Net Investment Income. 

Net investment income decreased by 12.2% to $74.2 million for the three months ended March 31, 2020 compared to $84.5 million for the three months ended March 31, 2019. The decrease in 2020 was primarily due to lower income from other invested assets, partially offset by higher income from our growing fixed maturity portfolio.

 

The following table shows the components of net investment income for the periods indicated: 

 

 

Three Months Ended

 

March 31,

(Dollars in millions)

2020

 

2019

Fixed maturities

$

74.1

 

$

67.1

Equity securities

 

1.6

 

 

1.4

Short-term investments and cash

 

1.6

 

 

2.7

Other invested assets

 

 

 

 

 

Limited partnerships

 

7.0

 

 

8.1

Dividends from preferred shares of affiliate

 

7.8

 

 

7.8

Other

 

(13.1)

 

 

3.0

Gross investment income before adjustments

 

79.0

 

 

90.0

Funds held interest income (expense)

 

3.2

 

 

2.9

Interest income from Parent

 

1.3

 

 

-

Gross investment income

 

83.5

 

 

92.9

Investment expenses

 

9.3

 

 

(8.4)

Net investment income

$

74.2

 

$

84.5

 

 

 

 

 

 

(Some amounts may not reconcile due to rounding.)

 

 

 

 

 

 

The following tables show a comparison of various investment yields for the periods indicated:

 

 

At

 

At

 

March 31,

 

December 31,

 

2020

 

2019

Imbedded pre-tax yield of cash and invested assets

3.5%

 

3.5%

Imbedded after-tax yield of cash and invested assets

2.8%

 

2.8%

 

 

Three Months Ended

 

March 31,

 

2020

 

2019

Annualized pre-tax yield on average cash and invested assets

2.6%

 

3.1%

Annualized after-tax yield on average cash and invested assets

2.1%

 

2.5%

 

 

39 


 

Net Realized Capital Gains (Losses).

The following table presents the composition of our net realized capital gains (losses) for the periods indicated: 

 

 

Three Months Ended March 31,

(Dollars in millions)

2019

 

2018

 

Variance

Gains (losses) from sales:

 

 

 

 

 

 

 

 

Fixed maturity securities, market value

 

 

 

 

 

 

 

 

Gains

$

1.8

 

$

8.1

 

$

(6.3)

Losses

 

(22.8)

 

 

(4.7)

 

 

(18.1)

Total

 

(21.0)

 

 

3.4

 

 

(24.4)

Equity securities, fair value

 

 

 

 

 

 

 

 

Gains

 

2.6

 

 

5.7

 

 

(3.1)

Losses

 

(30.2)

 

 

(0.6)

 

 

(29.6)

Total

 

(27.6)

 

 

5.1

 

 

(32.7)

Other invested assets

 

 

 

 

 

 

 

 

Gains

 

3.0

 

 

0.4

 

 

2.6

Losses

 

(5.4)

 

 

-

 

 

(5.4)

Total

 

(2.4)

 

 

0.4

 

 

(2.8)

    Short Term Investments:

 

 

 

 

 

 

 

 

         Gains

 

0.1

 

 

-

 

 

0.1

         Losses

 

-

 

 

-

 

 

-

     Total

 

0.1

 

 

-

 

 

0.1

Total net realized gains (losses) from sales

 

 

 

 

 

 

 

 

Gains

 

7.5

 

 

14.2

 

 

(6.7)

Losses

 

(58.4)

 

 

(5.3)

 

 

(53.1)

Total

 

(50.7)

 

 

8.9

 

 

(59.6)

 

 

 

 

 

 

 

 

 

Allowances for credit losses:

 

(12.1)

 

 

-

 

 

(12.1)

 

 

 

 

 

 

 

 

 

Other than temporary impairments:

 

-

 

 

(2.3)

 

 

2.3

 

 

 

 

 

 

 

 

 

Gains (losses) from fair value adjustments:

 

 

 

 

 

 

 

 

Fixed maturities, fair value

 

(1.1)

 

 

-

 

 

(1.1)

Equity securities, fair value

 

(121.7)

 

 

77.8

 

 

(199.5)

Other invested assets, fair value

 

442.5

 

 

50.6

 

 

391.9

Total

 

319.7

 

 

128.5

 

 

191.2

 

 

 

 

 

 

 

 

 

Total net realized gains (losses)

$

256.9

 

$

135.1

 

$

121.8

 

 

 

 

 

 

 

 

 

(Some amounts may not reconcile due to rounding.)

 

 

 

 

 

 

 

 

 

Net Realized Capital Gains (Losses). Net realized capital gains were $256.9 million and $135.1 million for the three months ended March 31, 2020 and 2019, respectively. The net realized capital gains of $256.9 million for the three months ended March 31, 2020, were comprised of $319.7 million of gains from fair value re-measurements, partially offset by $50.7 million of losses from sales of investments and $12.1 million of allowances for credit losses. The net realized capital gains of $135.1 million for the three months ended March 31, 2019, were comprised of $128.5 million of gains from fair value re-measurements and $8.9 million of net gains from sales of investments, partially offset by $2.3 million of other-than-temporary impairments.

 

Segment Results.

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 United States as well as through branches in Canada and Singapore.  The Insurance operation writes property and casualty insurance directly and through brokers, surplus lines brokers and general agents within the United States.

 

40 


 

 

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.  We measure our underwriting results using ratios, in particular loss, commission and brokerage and other underwriting expense ratios, which respectively, divide incurred losses, commissions and brokerage and other underwriting expenses by premiums earned. 

 

Our loss and LAE reserves are management’s best estimate of our ultimate liability for unpaid claims.  We re-evaluate our estimates on an ongoing basis, including all prior period reserves, taking into consideration all available information and, in particular, recently reported loss claim experience and trends related to prior periods.  Such re-evaluations are recorded in incurred losses in the period in which the re-evaluation is made. 

 

The following discusses the underwriting results for each of our segments for the periods indicated: 

 

Reinsurance.

The following table presents the underwriting results and ratios for the U.S. Reinsurance segment for the periods indicated.

 

 

Three Months Ended March 31,

(Dollars in millions)

2020

 

2019

 

Variance

 

% Change

Gross written premiums

$

1,308.2

 

$

1,153.1

 

$

155.1

 

13.5%

Net written premiums

 

1,114.2

 

 

976.0

 

 

138.2

 

14.2%

 

 

 

 

 

 

 

 

 

 

 

Premiums earned

$

1,007.0

 

$

897.3

 

$

109.7

 

12.2%

Incurred losses and LAE

 

682.7

 

 

553.7

 

 

129.0

 

23.3%

Commission and brokerage

 

260.9

 

 

237.0

 

 

23.9

 

10.1%

Other underwriting expenses

 

29.8

 

 

24.1

 

 

5.7

 

23.7%

Underwriting gain (loss)

$

33.6

 

$

82.5

 

$

(48.9)

 

-59.3%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Point Chg

Loss ratio

 

67.8%

 

 

61.7%

 

 

 

 

6.1

Commission and brokerage ratio

 

25.9%

 

 

26.4%

 

 

 

 

(0.5)

Other underwriting ratio

 

3.0%

 

 

2.7%

 

 

 

 

0.3

Combined ratio

 

96.7%

 

 

90.8%

 

 

 

 

5.9

 

 

 

 

 

 

 

 

 

 

 

(Some amounts may not reconcile due to rounding.)

(NM, not meaningful)

 

Premiums.  Gross written premiums increased by 13.5% to $1,308.2 million for the three months ended March 31, 2020 from $1,153.1 million for the three months ended March 31, 2019 primarily due to increases in casualty writings and treaty property business. Net written premiums increased by 14.2% to $1,114.2 million for the three months ended March 31, 2020 compared to $976.0 million for the three months ended March 31, 2019, which is consistent with the change in gross written premiums. Premiums earned increased 12.2% to $1,007.0 million for the three months ended March 31, 2020 compared to $897.3 million for the three months ended March 31, 2019. The change in premiums earned relative to net written premiums is the result of timing; premiums are earned ratably over the coverage period whereas written premiums are recorded at the initiation of the coverage period.

 

 

41 


 

Incurred Losses and LAE.  The following tables present the incurred losses and LAE for the U.S. Reinsurance segment for the periods indicated.

 

 

Three Months Ended March 31,

 

Current

 

Ratio %/

 

Prior

 

Ratio %/

 

Total

 

Ratio %/

(Dollars in millions)

Year

 

Pt Change

 

Years

 

Pt Change

 

Incurred

 

Pt Change

2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Attritional

$

654.7

 

65.0%

 

 

$

(0.6)

 

-0.1%

 

 

$

654.0

 

64.9%

 

Catastrophes

 

24.5

 

2.4%

 

 

 

4.2

 

0.4%

 

 

 

28.7

 

2.8%

 

Total segment

$

679.2

 

67.4%

 

 

$

3.5

 

0.3%

 

 

$

682.7

 

67.8%

 

2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Attritional

$

522.1

 

58.2%

 

 

$

-

 

0.0%

 

 

$

522.1

 

58.2%

 

Catastrophes

 

25.0

 

2.8%

 

 

 

6.7

 

0.7%

 

 

 

31.7

 

3.5%

 

Total segment

$

547.1

 

61.0%

 

 

$

6.7

 

0.7%

 

 

$

553.7

 

61.7%

 

Variance 2020/2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Attritional

$

132.6

 

6.8

pts

 

$

(0.6)

 

(0.1)

pts

 

$

131.9

 

6.7

pts

Catastrophes

 

(0.5)

 

(0.4)

pts

 

 

(2.5)

 

(0.3)

pts

 

 

(3.0)

 

(0.7)

pts

Total segment

$

132.1

 

6.4

pts

 

$

(3.1)

 

(0.4)

pts

 

$

129.0

 

6.1

pts

 

Incurred losses increased by 23.3% to $682.7 million for the three months ended March 31, 2020 compared to $553.7 million for the three months ended March 31, 2019.  The increase was primarily due to an increase of $132.6 million in current year attritional losses, primarily related to $20.0 million of losses from the COVID-19 pandemic and the impact of the increase in premiums earned. The current year catastrophe losses of $24.5 million for the three months ended March 31, 2020 primarily related to Australia East Coast storms ($10.0 million), Australia fires (10.0 million) and the Nashville tornadoes ($4.5 million). The $25.0 million of current year catastrophe losses for the three months ended March 31, 2019 related to the Townsville monsoon in Australia ($25.0 million).

Segment Expenses.  Commission and brokerage increased to $260.9 million for the three months ended March 31, 2020 compared to $237.0 million for the three months ended March 31, 2019. The increase was mainly due to the impact of the increase in premiums earned. Segment other underwriting expenses increased to $29.8 million for the three months ended March 31, 2020 from $24.1 million for the three months ended March 31, 2019, mainly due to the impact of the increase in premiums earned and changes in affiliated reinsurance agreements.

 

Insurance.

The following table presents the underwriting results and ratios for the Insurance segment for the periods indicated. 

 

 

Three Months Ended March 31,

(Dollars in millions)

2020

 

2019

 

Variance

 

% Change

Gross written premiums

$

666.8

 

$

531.8

 

$

135.0

 

25.4%

Net written premiums

 

524.5

 

 

416.2

 

 

108.3

 

26.0%

 

 

 

 

 

 

 

 

 

 

 

Premiums earned

$

487.0

 

$

373.2

 

$

113.8

 

30.5%

Incurred losses and LAE

 

346.8

 

 

242.4

 

 

104.4

 

43.1%

Commission and brokerage

 

62.2

 

 

51.3

 

 

10.9

 

21.2%

Other underwriting expenses

 

71.4

 

 

54.3

 

 

17.1

 

31.5%

Underwriting gain (loss)

$

6.6

 

$

25.2

 

$

(18.6)

 

-73.8%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Point Chg

Loss ratio

 

71.2%

 

 

65.0%

 

 

 

 

6.2

Commission and brokerage ratio

 

12.8%

 

 

13.7%

 

 

 

 

(0.9)

Other underwriting ratio

 

14.6%

 

 

14.5%

 

 

 

 

0.1

Combined ratio

 

98.6%

 

 

93.2%

 

 

 

 

5.4

 

 

 

 

 

 

 

 

 

 

 

(Some amounts may not reconcile due to rounding.)

(NM, not meaningful)

 

 

42 


 

Premiums. Gross written premiums increased by 25.4% to $666.8 million for the three months ended March 31, 2020 compared to $531.8 million for the three months ended March 31, 2019.  This increase was related to most lines of business including casualty, property, energy, specialty lines and accident and health.  Net written premiums increased by 26.0% to $524.5 million for the three months ended March 31, 2020 compared to $416.2 million for the three months ended March 31, 2019, which is consistent with the change in gross written premiums. Premiums earned increased 30.5% to $487.0 million for the three months ended March 31, 2020 compared to $373.2 million for the three months ended March 31, 2019. The change in premiums earned is the result of timing; premiums are earned ratably over the coverage period whereas written premiums are recorded at the initiation of the coverage period.

 

Incurred Losses and LAE.  The following tables present the incurred losses and LAE for the Insurance segment for the periods indicated. 

 

 

Three Months Ended March 31,

 

Current

 

Ratio %/

 

Prior

 

Ratio %/

 

Total

 

Ratio %/

(Dollars in millions)

Year

 

Pt Change

 

Years

 

Pt Change

 

Incurred

 

Pt Change

2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Attritional

$

341.8

 

70.2%

 

 

$

(0.5)

 

-0.1%

 

 

$

341.3

 

70.1%

 

Catastrophes

 

5.5

 

1.1%

 

 

 

-

 

0.0%

 

 

 

5.5

 

1.1%

 

Total segment

$

347.3

 

71.3%

 

 

$

(0.5)

 

-0.1%

 

 

$

346.8

 

71.2%

 

2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Attritional

$

241.8

 

64.8%

 

 

$

-

 

0.0%

 

 

$

241.8

 

64.8%

 

Catastrophes

 

-

 

0.0%

 

 

 

0.6

 

0.2%

 

 

 

0.6

 

0.2%

 

Total segment

$

241.8

 

64.8%

 

 

$

0.6

 

0.2%

 

 

$

242.4

 

65.0%

 

Variance 2020/2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Attritional

$

100.0

 

5.4

pts

 

$

(0.5)

 

(0.1)

pts

 

$

99.5

 

5.3

pts

Catastrophes

 

5.5

 

1.1

pts

 

 

(0.6)

 

(0.2)

pts

 

 

4.9

 

0.9

pts

Total segment

$

105.5

 

6.5

pts

 

$

(1.1)

 

(0.3)

pts

 

$

104.4

 

6.2

pts

 

Incurred losses and LAE increased by 43.1% to $346.8 million for the three months ended March 31, 2020 compared to $242.4 million for the three months ended March 31, 2019, mainly due to an increase of $100.0 million in current year attritional losses, resulting from $15.7 million of losses from the COVID-19 pandemic, the impact of the increase in premiums earned and an increase of $5.5 million in current year catastrophe losses.  The current year catastrophe losses for the three months ended March 31, 2020 of $5.5 million related to the Nashville tornadoes ($5.5 million). There were no catastrophe losses for the three months ended March 31, 2019.

 

Segment Expenses.  Commission and brokerage increased to $62.2 million for the three months ended March 31, 2020 compared to $51.3 million for the three months ended March 31, 2019. The increase was mainly due to the impact of the increase in premiums earned. Segment other underwriting expenses increased to $71.4 million for the three months ended March 31, 2020 compared to $54.3 million for the three months ended March 31, 2019. The increase was mainly due to the impact of the increase in premiums earned and expenses related to the continued build out of the insurance business.

 

Market Sensitive Instruments.

The SEC’s Financial Reporting Release #48 requires registrants to clarify and expand upon the existing financial statement disclosure requirements for derivative financial instruments, derivative commodity instruments and other financial instruments (collectively, “market sensitive instruments”).  We do not generally enter into market sensitive instruments for trading purposes. 

 

Our current investment strategy seeks to maximize after-tax income through a high quality, diversified, taxable and tax-preferenced fixed maturity portfolio, while maintaining an adequate level of liquidity.  Our mix of taxable and tax-preferenced investments is adjusted periodically, consistent with our current and projected operating results, market conditions and our tax position.  The fixed maturity securities in the investment portfolio are comprised of non-trading available for sale securities.  Additionally, we have invested in equity securities. 

 

43 


 

 

The overall investment strategy considers the scope of present and anticipated Company operations.  In particular, estimates of the financial impact resulting from non-investment asset and liability transactions, together with our capital structure and other factors, are used to develop a net liability analysis.  This analysis includes estimated payout characteristics for which our investments provide liquidity.  This analysis is considered in the development of specific investment strategies for asset allocation, duration and credit quality.  The change in overall market sensitive risk exposure principally reflects the asset changes that took place during the period. 

 

Interest Rate Risk.  Our $12.2 billion investment portfolio, at March 31, 2020, is principally comprised of fixed maturity securities, which are generally subject to interest rate risk and some foreign currency exchange rate risk, and some equity securities, which are subject to price fluctuations and some foreign exchange rate risk.  The overall economic impact of the foreign exchange risks on the investment portfolio is partially mitigated by changes in the dollar value of foreign currency denominated liabilities and their associated income statement impact. 

 

Interest rate risk is the potential change in value of the fixed maturity securities portfolio, including short-term investments, from a change in market interest rates.  In a declining interest rate environment, it includes prepayment risk on the $996.1 million of mortgage-backed securities in the $7,501.5 million fixed maturity portfolio.  Prepayment risk results from potential accelerated principal payments that shorten the average life and thus the expected yield of the security. 

 

The table below displays the potential impact of market value fluctuations and after-tax unrealized appreciation on our fixed maturity portfolio (including $324.9 million of short-term investments) for the period indicated based on upward and downward parallel and immediate 100 and 200 basis point shifts in interest rates.  For legal entities with a U.S. dollar functional currency, this modeling was performed on each security individually.  To generate appropriate price estimate on mortgage-backed securities, changes in prepayment expectations under different interest rate environments were taken into account.  For legal entities with non-U.S. dollar functional currency, the effective duration of the involved portfolio of securities was used as a proxy for the market value change under the various interest rate change scenarios. 

 

 

Impact of Interest Rate Shift in Basis Points

 

At March 31, 2020

(Dollars in millions)

-200

 

-100

 

-

 

100

 

200

Total Market/Fair Value

$

8,362.9

 

$

8,094.7

 

$

7,826.4

 

$

7,558.0

 

$

7,289.9

Market/Fair Value Change from Base (%)

 

6.9%

 

 

3.4%

 

 

0.0%

 

 

-3.4%

 

 

-6.9%

Change in Unrealized Appreciation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

After-tax from Base ($)

$

423.8

 

$

211.9

 

$

-

 

$

(212.0)

 

$

(423.8)

 

We had $10,271.2 million and $10,209.5 million of gross reserves for losses and LAE as of March 31, 2020 and December 31, 2019, respectively. These amounts are recorded at their nominal value, as opposed to present value, which would reflect a discount adjustment to reflect the time value of money. Since losses are paid out over a period of time, the present value of the reserves is less than the nominal value. As interest rates rise, the present value of the reserves decreases and, conversely, as interest rates decline, the present value increases. These movements are the opposite of the interest rate impacts on the fair value of investments. While the difference between present value and nominal value is not reflected in our financial statements, our financial results will include investment income over time from the investment portfolio until the claims are paid. Our loss and loss reserve obligations have an expected duration that is reasonably consistent with our fixed income portfolio.

 

Equity Risk. Equity risk is the potential change in fair and/or market value of the common stock, preferred stock and mutual fund portfolios arising from changing prices. Our equity investments consist of a diversified portfolio of individual securities. The primary objective of the equity portfolio is to obtain greater total return relative to our core bonds over time through market appreciation and income.

 

 

 

44 


 

The table below displays the impact on fair/market value and after-tax change in fair/market value of a 10% and 20% change in equity prices up and down for the periods indicated. 

 

 

Impact of Percentage Change in Equity Fair/Market Values

 

At March 31, 2020

(Dollars in millions)

-20%

 

-10%

 

0%

 

10%

 

20%

Fair/Market Value of the Equity Portfolio

$

462.8

 

$

520.7

 

$

578.5

 

$

636.4

 

$

694.2

After-tax Change in Fair/Market Value

 

(91.4)

 

 

(45.7)

 

 

-

 

 

45.7

 

 

91.4

 

Foreign Currency Risk.  Foreign currency risk is the potential change in value, income and cash flow arising from adverse changes in foreign currency exchange rates.  Each of our non-U.S. (“foreign”) operations maintains capital in the currency of the country of its geographic location consistent with local regulatory guidelines.  Each foreign operation may conduct business in its local currency, as well as the currency of other countries in which it operates.  The primary foreign currency exposures for these foreign operations are the Singapore and Canadian Dollars.  We mitigate foreign exchange exposure by generally matching the currency and duration of our assets to our corresponding operating liabilities.  In accordance with FASB guidance, the impact on the market value of available for sale fixed maturities due to changes in foreign currency exchange rates, in relation to functional currency, is reflected as part of other comprehensive income.  Conversely, the impact of changes in foreign currency exchange rates, in relation to functional currency, on other assets and liabilities is reflected through net income as a component of other income (expense).  In addition, we translate the assets, liabilities and income of non-U.S. dollar functional currency legal entities to the U.S. dollar.  This translation amount is reported as a component of other comprehensive income. 



SAFE HARBOR DISCLOSURE

This report contains forward-looking statements within the meaning of the U.S. federal securities laws.  We intend these forward-looking statements to be covered by the safe harbor provisions for forward-looking statements in the federal securities laws.  In some cases, these statements can be identified by the use of forward-looking words such as “may”, “will”, “should”, “could”, “anticipate”, “estimate”, “expect”, “plan”, “believe”, “predict”, “potential” and “intend”.  Forward-looking statements contained in this report include information regarding our reserves for losses and LAE, the CARES Act, the impact of the TCJA, the adequacy of our provision for uncollectible balances, estimates of our catastrophe exposure, the effects of catastrophic and pandemic events on our financial statements and the ability of our subsidiaries to pay dividends.  Forward-looking statements only reflect our expectations and are not guarantees of performance.  These statements involve risks, uncertainties and assumptions.  Actual events or results may differ materially from our expectations.  Important factors that could cause our actual events or results to be materially different from our expectations include those discussed under the caption ITEM 1A, “Risk Factors” in the Company’s most recent 10-K filing.  We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise. 

 



ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Market Risk Instruments.  See “Market Sensitive Instruments” in PART I – ITEM 2. 



ITEM 4.  CONTROLS AND PROCEDURES

 

As of the end of the period covered by this report, our management carried out an evaluation, with the participation of the Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)).  Based on their evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act are recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.  Our

 

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management, with the participation of the Chief Executive Officer and Chief Financial Officer, also conducted an evaluation of our internal control over financial reporting to determine whether any changes occurred during the quarter covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.  Based on that evaluation, there has been no such change during the quarter covered by this report. 



PART II

 

ITEM 1.  LEGAL PROCEEDINGS

 

In the ordinary course of business, the Company is involved in lawsuits, arbitrations and other formal and informal dispute resolution procedures, the outcomes of which will determine the Company’s rights and obligations under insurance and reinsurance agreements.  In some disputes, the Company seeks to enforce its rights under an agreement or to collect funds owing to it.  In other matters, the Company is resisting attempts by others to collect funds or enforce alleged rights.  These disputes arise from time to time and are ultimately resolved through both informal and formal means, including negotiated resolution, arbitration and litigation.  In all such matters, the Company believes that its positions are legally and commercially reasonable.  The Company considers the statuses of these proceedings when determining its reserves for unpaid loss and loss adjustment expenses.

 

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.



ITEM 1A.  RISK FACTORS

 

No material changes.



ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

None.



ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

 

None.



ITEM 4.  MINE SAFETY DISCLOSURES

 

Not applicable.



ITEM 5.  OTHER INFORMATION

 

None. 



 

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ITEM 6.  EXHIBITS

 

Exhibit Index:

 

 

 

Exhibit No.

Description

 

 

31.1

Section 302 Certification of Juan C. Andrade

 

 

31.2

Section 302 Certification of Craig Howie

 

 

32.1

Section 906 Certification of Juan C. Andrade and Craig Howie

 

 

101.INS

XBRL Instance Document

 

 

101.SCH

XBRL Taxonomy Extension Schema

 

 

101.CAL

XBRL Taxonomy Extension Calculation Linkbase

 

 

101.DEF

XBRL Taxonomy Extension Definition Linkbase

 

 

101.LAB

XBRL Taxonomy Extension Labels Linkbase

 

 

101.PRE

XBRL Taxonomy Extension Presentation Linkbase

 

 

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Everest Reinsurance Holdings, Inc.

Signatures

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

 

 

 

 

 

 

 

 

Everest Reinsurance Holdings, Inc.

 

 

 

(Registrant)

 

 

 

 

 

 

 

 

 

 

 

 

 

/S/ CRAIG HOWIE

 

 

 

Craig Howie

 

 

 

Executive Vice President and

 

 

 

 

Chief Financial Officer

 

 

 

 

 

 

 

 

(Duly Authorized Officer and Principal Financial Officer)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dated:  May 15, 2020

 

 

 

 

               

 

 

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