EVEREST RE GROUP LTD [RE] Filings

10-Q 1 re-20220331.htm GROUP 10-Q 1Q2022

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2022

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

Commission file number 1-15731

EVEREST RE GROUP, LTD.

(Exact name of registrant as specified in its charter)

Bermuda

98-0365432

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

Seon Place – 4th Floor

141 Front Street

PO Box HM 845

HamiltonHM 19, Bermuda

441-295-0006

(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

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

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

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

YES

Securities registered pursuant to Section 12(b) of the Act:

Class

Trading Symbol

Name of Exchange where

Registered

Number of Shares Outstanding

At May 1, 2022

Common Shares, $0.01 par value

New York Stock Exchange

39,437,963

EVEREST RE GROUP, LTD

Table of Contents

Form 10-Q

Page

PART I

FINANCIAL INFORMATION

Item 1.	Financial Statements

	Consolidated Balance Sheets as of March 31, 2022 (unaudited)
	and December 31, 2021	1

	Consolidated Statements of Operations and Comprehensive Income (Loss) for the
	three months ended March 31, 2022 and 2021 (unaudited)	2

	Consolidated Statements of Changes in Shareholders’ Equity for the three
	months ended March 31, 2022 and 2021 (unaudited)	3

	Consolidated Statements of Cash Flows for the three months ended
	March 31, 2022 and 2021 (unaudited)	4

	Notes to Consolidated Interim Financial Statements (unaudited)	5

Item 2.	Management’s Discussion and Analysis of Financial Condition and
	Results of Operation	27

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	42

Item 4.	Controls and Procedures	42

PART II

OTHER INFORMATION

Item 1.	Legal Proceedings	42

Item 1A.	Risk Factors	43

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	43

Item 3.	Defaults Upon Senior Securities	43

Item 4.	Mine Safety Disclosures	43

Item 5.	Other Information	43

Item 6.	Exhibits	44

EVEREST RE GROUP, LTD.

CONSOLIDATED BALANCE SHEETS

	March 31,		December 31,
(Dollars and share amounts in thousands, except par value per share)	2022		2021
	(unaudited)
ASSETS:
Fixed maturities - available for sale	$	21,998,415	$	22,308,272
(amortized cost: 2022, $22,693,029; 2021, $22,063,592, credit allowances: 2022, $(41,591); 2021, $(29,738))
Equity securities, at fair value		1,780,526		1,825,908
Short-term investments (cost: 2022, $823,889; 2021, $1,178,386)		823,875		1,178,337
Other invested assets		2,917,039		2,919,965
Cash		1,778,218		1,440,861
Total investments and cash		29,298,073		29,673,343
Accrued investment income		156,997		149,105
Premiums receivable		3,264,023		3,293,598
Reinsurance recoverables		2,101,641		2,053,354
Funds held by reinsureds		920,054		868,601
Deferred acquisition costs		842,739		872,289
Prepaid reinsurance premiums		496,632		515,445
Income taxes		117,609		2,381
Other assets		789,014		757,167
TOTAL ASSETS	$	37,986,782	$	38,185,283

LIABILITIES:
Reserve for losses and loss adjustment expenses	$	19,495,637	$	19,009,486
Future policy benefit reserve		34,523		35,669
Unearned premium reserve		4,571,705		4,609,634
Funds held under reinsurance treaties		4,732		18,391
Other net payable to reinsurers		464,000		449,723
Losses in course of payment		133,888		260,684
Senior notes		2,346,147		2,345,800
Long term notes		223,799		223,774
Borrowings from FHLB		519,000		519,000
Accrued interest on debt and borrowings		38,843		17,348
Unsettled securities payable		67,698		16,698
Other liabilities		559,181		539,896
Total liabilities		28,459,153		28,046,103

Commitments and contingencies (Note 7)		(nil)		(nil)

SHAREHOLDERS' EQUITY:
Preferred shares, par value: $0.01; 50,000 shares authorized;
no shares issued and outstanding		-		-
Common shares, par value: $0.01; 200,000 shares authorized; (2022) 69,977
and (2021) 69,790 outstanding before treasury shares		700		698
Additional paid-in capital		2,271,890		2,274,431
Accumulated other comprehensive income (loss), net of deferred income
tax expense (benefit) of $(89,926) at 2022 and $26,781 at 2021		(832,820)		11,523
Treasury shares, at cost; 30,529 shares (2022) and 30,524 shares (2021)		(3,848,630)		(3,847,308)
Retained earnings		11,936,489		11,699,836
Total shareholders' equity		9,527,629		10,139,180
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	37,986,782	$	38,185,283

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

EVEREST RE GROUP, LTD.

CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE INCOME (LOSS)

	Three Months Ended
	March 31,
(Dollars in thousands, except per share amounts)	2022		2021
	(unaudited)
REVENUES:
Premiums earned	$	2,791,765	$	2,387,865
Net investment income		242,830		260,413
Net gains (losses) on investments:
Credit allowances on fixed maturity securities		(11,853)		(6,977)
Gains (losses) from fair value adjustments		(136,860)		29,056
Net realized gains (losses) from dispositions		(4,914)		16,823
Total net gains (losses) on investments		(153,627)		38,902
Other income (expense)		15,363		56,593
Total revenues		2,896,331		2,743,773

CLAIMS AND EXPENSES:
Incurred losses and loss adjustment expenses		1,789,863		1,711,419
Commission, brokerage, taxes and fees		605,230		489,011
Other underwriting expenses		161,293		142,231
Corporate expenses		14,020		12,378
Interest, fees and bond issue cost amortization expense		24,078		15,639
Total claims and expenses		2,594,484		2,370,678

INCOME (LOSS) BEFORE TAXES		301,847		373,095
Income tax expense (benefit)		4,096		31,233

NET INCOME (LOSS)	$	297,751	$	341,862

Other comprehensive income (loss), net of tax:
Unrealized appreciation (depreciation) ("URA(D)") on securities arising during the period		(815,177)		(288,615)
Reclassification adjustment for realized losses (gains) included in net income (loss)		4,178		(3,666)
Total URA(D) on securities arising during the period		(810,999)		(292,281)

Foreign currency translation adjustments		(34,102)		(9,582)

Reclassification adjustment for amortization of net (gain) loss included in net income (loss)		758		2,043
Total benefit plan net gain (loss) for the period		758		2,043
Total other comprehensive income (loss), net of tax		(844,343)		(299,820)

COMPREHENSIVE INCOME (LOSS)	$	(546,592)	$	42,042

EARNINGS PER COMMON SHARE:
Basic	$	7.57	$	8.53
Diluted		7.56		8.52

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

EVEREST RE GROUP, LTD.

CONSOLIDATED STATEMENTS OF

CHANGES IN SHAREHOLDERS’ EQUITY

(Dollars in thousands, except share and dividends per share amounts)	2022		2021
	(unaudited)
COMMON SHARES (shares outstanding):
Balance, January 1		39,266,633		39,983,481
Issued during the period, net		187,044		196,481
Treasury shares acquired		(5,000)		(97,462)
Balance, March 31		39,448,677		40,082,500

COMMON SHARES (par value):
Balance, January 1	$	698	$	696
Issued during the period, net		2		2
Balance, March 31		700		698

ADDITIONAL PAID-IN CAPITAL:
Balance, January 1		2,274,431		2,245,301
Share-based compensation plans		(2,541)		436
Balance, March 31		2,271,890		2,245,737

ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS),
NET OF DEFERRED INCOME TAXES:
Balance, January 1		11,523		534,899
Net increase (decrease) during the period		(844,343)		(299,820)
Balance, March 31		(832,820)		235,079

RETAINED EARNINGS:
Balance, January 1		11,699,836		10,567,452
Net income (loss)		297,751		341,862
Dividends declared ($1.55 per share 2022 and $1.55 per share 2021)		(61,097)		(62,228)
Balance, March 31		11,936,489		10,847,085

TREASURY SHARES AT COST:
Balance, January 1		(3,847,308)		(3,622,172)
Purchase of treasury shares		(1,322)		(23,545)
Balance, March 31		(3,848,630)		(3,645,717)

TOTAL SHAREHOLDERS' EQUITY, March 31	$	9,527,629	$	9,682,882

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

EVEREST RE GROUP, LTD.

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Three Months Ended
	March 31,
(Dollars in thousands)	2022		2021
	(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	297,751	$	341,862
Adjustments to reconcile net income to net cash provided by operating activities:
Decrease (increase) in premiums receivable		(14,203)		(105,460)
Decrease (increase) in funds held by reinsureds, net		(67,033)		(25,584)
Decrease (increase) in reinsurance recoverables		(125,881)		(14,518)
Decrease (increase) in income taxes		1,251		24,908
Decrease (increase) in prepaid reinsurance premiums		(7,167)		(27,071)
Increase (decrease) in reserve for losses and loss adjustment expenses		632,398		655,070
Increase (decrease) in future policy benefit reserve		(1,146)		(162)
Increase (decrease) in unearned premiums		4,045		196,631
Increase (decrease) in other net payable to reinsurers		46,310		105,390
Increase (decrease) in losses in course of payment		(125,074)		11,980
Change in equity adjustments in limited partnerships		(97,831)		(116,767)
Distribution of limited partnership income		71,174		18,125
Change in other assets and liabilities, net		47,052		(149,480)
Non-cash compensation expense		11,912		11,021
Amortization of bond premium (accrual of bond discount)		19,254		17,323
Net (gains) losses on investments		153,627		(38,902)
Net cash provided by (used in) operating activities		846,439		904,366

CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from fixed maturities matured/called - available for sale		849,019		818,352
Proceeds from fixed maturities sold - available for sale		418,988		228,278
Proceeds from equity securities sold, at fair value		90,101		281,313
Distributions from other invested assets		162,719		52,211
Cost of fixed maturities acquired - available for sale		(2,010,859)		(1,776,730)
Cost of equity securities acquired, at fair value		(195,026)		(174,981)
Cost of other invested assets acquired		(137,430)		(98,939)
Net change in short-term investments		354,761		308,585
Net change in unsettled securities transactions		46,399		(93,610)
Net cash provided by (used in) investing activities		(421,328)		(455,521)

CASH FLOWS FROM FINANCING ACTIVITIES:
Common shares issued during the period for share-based compensation, net of expense		(14,450)		(10,583)
Purchase of treasury shares		(1,322)		(23,545)
Dividends paid to shareholders		(61,097)		(62,229)
Cost of shares withheld on settlements of share-based compensation awards		(16,692)		(12,507)
Net cash provided by (used in) financing activities		(93,561)		(108,864)

EFFECT OF EXCHANGE RATE CHANGES ON CASH		5,807		(8,972)

Net increase (decrease) in cash		337,357		331,009
Cash, beginning of period		1,440,861		801,651
Cash, end of period	$	1,778,218	$	1,132,660

SUPPLEMENTAL CASH FLOW INFORMATION:
Income taxes paid (recovered)	$	2,681	$	6,417
Interest paid		2,210		1,880

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

NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)

For the Three Months Ended March 31, 2022 and 2021

1. GENERAL

Everest Re Group, Ltd. (“Group”), a Bermuda company, through its subsidiaries, principally provides reinsurance and insurance in the U.S., Bermuda and international markets. As used in this document, “Company” means Group and its subsidiaries.

2. BASIS OF PRESENTATION

The unaudited consolidated financial statements of the Company as of March 31, 2022 and December 31, 2021 and for the three months ended March 31, 2022 and 2021 include all adjustments, consisting of normal recurring accruals, which, in the opinion of management, are necessary for a fair statement of the results on an interim basis. Certain financial information, which is normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”), has been omitted since it is not required for interim reporting purposes. The December 31, 2021 consolidated balance sheet data was derived from audited financial statements but does not include all disclosures required by GAAP. The results for the three months ended March 31, 2022 and 2021 are not necessarily indicative of the results for a full year. These financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the years ended December 31, 2021, 2020 and 2019, included in the Company’s most recent Form 10-K filing.

The Company consolidates the results of operations and financial position of all voting interest entities ("VOE") in which the Company has a controlling financial interest and all variable interest entities ("VIE") in which the Company is considered to be the primary beneficiary. The consolidation assessment, including the determination as to whether an entity qualifies as a VIE or VOE, depends on the facts and circumstances surrounding each entity.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities (and disclosure of contingent assets and liabilities) at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Ultimate actual results could differ, possibly materially, from those estimates.

All intercompany accounts and transactions have been eliminated.

Certain reclassifications and format changes have been made to prior years’ amounts to conform to the 2022 presentation.

Application of Recently Issued Accounting Standard Changes.

The Company did not adopt any new accounting standards that had a material impact during the three months ended March 31, 2022. The Company assessed the adoption impacts of recently issued accounting standards by the Financial Accounting Standards Board on the Company’s consolidated financial statements as well as material updates to previous assessments, if any, from the Company’s Annual Report on Form 10-K for the year ended December 31, 2021. There were no new material accounting standards issued in the three months ended March 31, 2022, that impacted Group.

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

3. INVESTMENTS

The following tables show amortized cost, allowance for credit losses, gross unrealized appreciation/(depreciation) and market value of fixed maturity securities as of the dates indicated:

		At March 31, 2022
		Amortized		Allowance 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	$	1,387,723	$	-	$	9,506	$	(41,423)	$	1,355,806
	Obligations of U.S. states and political subdivisions		560,375		(151)		9,538		(10,574)		559,188
	Corporate securities		7,510,255		(20,049)		64,802		(263,958)		7,291,050
	Asset-backed securities		4,046,636		(7,679)		13,228		(54,294)		3,997,891
	Mortgage-backed securities
	Commercial		1,021,013		-		2,762		(31,904)		991,871
	Agency residential		2,387,754		-		5,354		(109,611)		2,283,497
	Non-agency residential		5,759		-		-		(114)		5,645
	Foreign government securities		1,414,589		-		16,763		(68,970)		1,362,382
	Foreign corporate securities		4,358,925		(13,712)		31,776		(225,904)		4,151,085
Total fixed maturity securities		$	22,693,029	$	(41,591)	$	153,729	$	(806,752)	$	21,998,415

		At December 31, 2021
		Amortized		Allowance 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	$	1,407,256	$	-	$	23,720	$	(10,358)	$	1,420,618
	Obligations of U.S. states and political subdivisions		558,842		(151)		29,080		(1,150)		586,621
	Corporate securities		7,443,535		(19,267)		195,210		(62,580)		7,556,898
	Asset-backed securities		3,579,439		(7,679)		21,817		(11,848)		3,581,729
	Mortgage-backed securities
	Commercial		1,032,506		-		37,550		(5,690)		1,064,366
	Agency residential		2,361,208		-		32,997		(18,873)		2,375,332
	Non-agency residential		6,530		-		22		(16)		6,536
	Foreign government securities		1,423,634		-		41,957		(28,079)		1,437,512
	Foreign corporate securities		4,250,642		(2,641)		95,195		(64,536)		4,278,660
Total fixed maturity securities		$	22,063,592	$	(29,738)	$	477,548	$	(203,130)	$	22,308,272

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

	At March 31, 2022				At December 31, 2021
	Amortized		Market		Amortized		Market
(Dollars in thousands)	Cost		Value		Cost		Value
Fixed maturity securities – available for sale:
Due in one year or less	$	1,391,977	$	1,391,679	$	1,398,742	$	1,398,006
Due after one year through five years		7,302,421		7,112,007		7,075,077		7,154,468
Due after five years through ten years		4,896,715		4,673,737		5,003,792		5,100,672
Due after ten years		1,640,754		1,542,088		1,606,298		1,627,163
Asset-backed securities		4,046,636		3,997,891		3,579,439		3,581,729
Mortgage-backed securities:
Commercial		1,021,013		991,871		1,032,506		1,064,366
Agency residential		2,387,754		2,283,497		2,361,208		2,375,332
Non-agency residential		5,759		5,645		6,530		6,536
Total fixed maturity securities	$	22,693,029	$	21,998,415	$	22,063,592	$	22,308,272

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

	Three Months Ended
	March 31,
(Dollars in thousands)	2022	2021