Everest Re’s corporate offices are located in approximately 230,500 square feet of leased office space in Liberty Corner, New Jersey. The Company’s other eleven locations occupy a total of approximately 124,070 square feet, all of which are leased. Management believes that the above described office space is adequate for its current and anticipated needs.
Worldwide insurance and reinsurance market conditions continued to be very competitive, particularly in the casualty lines of business. Generally, there was ample insurance and reinsurance capacity relative to demand. Competition and its effect on rates, terms and conditions vary widely by market and coverage yet continued to be most prevalent in the U.S. casualty insurance and reinsurance markets.
However, during 2011, the industry experienced significant losses from Australian floods, the New Zealand earthquake, the earthquake and tsunami in Japan, storms in the U.S, and the Thailand floods. It is too early to determine the impact on market conditions as a result of these events. While there have been meaningful rate increases for catastrophe coverages in some global catastrophe prone regions, particularly areas impacted by these losses, whether the magnitude of these losses is sufficient to increase rates and improve market conditions for other lines of business remains to be seen.
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:
Premiums. Gross written premiums increased by $90.8 million, or 2.6%, in 2011 compared to 2010, reflecting a $103.7 million increase in our insurance business, partially offset by a $12.9 million decrease in our reinsurance business. The year over year increase in insurance premiums was primarily due to the acquisition of Heartland, which provided $169.6 million of new crop insurance business, our recent initiative in primary medical stop loss insurance, which added $54.0 million of premium and improved premium rates on our California workers’ compensation business, partially offset by our reduced participation on a large casualty program. The decrease in reinsurance premiums was due to the continued reduction in U.S. casualty business, the loss of several large crop reinsurance contracts, as well as the planned reduction of catastrophe exposed business in certain territories, partially offset by higher reinstatement premiums, $24.5 million resulting from catastrophe losses and favorable foreign exchange impact, year over year, of $33.4
million. Net written premiums decreased by $34.7 million, or 1.9%, in 2011 compared to 2010. The fluctuations in net written premiums relative to the change in gross written premiums were due to a combination of a higher percentage of premiums ceded under the affiliated quota share agreement and a lower level of ceded reinsurance in the Insurance segment due to the planned reduction in one casualty program. Premiums earned decreased $20.0 million, or 1.1%, in 2011 compared to 2010. The change in net premiums earned is relatively consistent with the decline in net written premiums.
Gross written premiums increased by $133.6 million, or 4.0%, in 2010 compared to 2009, reflecting an increase of $110.8 million in our reinsurance business and $22.8 million increase in our insurance business. The increase in reinsurance premiums was primarily the result of increased writings in our U.S. treaty property and international books of business, driven by a combination of new business, increased participations on renewal contracts, rate increases in select areas and economic and insurance growth in several regions. The increase in insurance premiums was due to increased writings in professional liability and California workers’ compensation business, partially offset by a reduction in the audit premium accrual for workers’ compensation business. Net written premiums increased by $53.4 million, or 3.1%, in 2010 compared to 2009. The fluctuations in net written premiums in comparison to the fluctuations in gross written premiums were primarily attributable to fluctuations in cessions under the affiliated quota share agreement. Premiums earned increased $28.8 million, or 1.6%, in 2010 compared to 2009. The change in net premiums earned is relatively consistent with the increase in net written premiums.
Net Investment Income. Net investment income decreased $37.4 million, or 10.7%, to $312.9 million in 2011 compared with net investment income of $350.3 million in 2010, primarily due to a $58.2 million decline in income from our fixed maturities, reflective of reducing our municipal bond exposures and declining reinvestment rates. These decreases were partially offset by an increase of $19.5 million in income from equities due to our expanded public equity portfolio and emerging market debt mutual funds. Net pre-tax investment income, as a percentage of average invested assets, was 3.9% in 2011 compared to 4.4% in 2010. The variance in this yield was primarily the result of fluctuations in our limited partnership income.
Net Realized Capital Gains (Losses). Net realized capital losses were $41.1 million and net realized capital gains were $65.3 million and $56.9 million in 2011, 2010 and 2009, respectively. Of the $41.1 million, there were $16.7 million of losses from fair value re-measurements, $14.5 million of other-than-temporary impairments on our available for sale fixed maturity securities and $9.9 million of net realized capital losses from sales on our fixed maturity and equity securities. The net realized capital gains of $65.3 million in 2010 were the result of $93.8 million of gains of fair value re-measurements, partially offset by $26.4 million of net realized capital losses from sales on our fixed maturity and equity securities and $2.1 million of other-than-temporary impairments. The net realized capital gains of $56.9 million in 2009 were the result of $80.3 million of gains in fair value re-measurements, partially offset by $17.9 million of net realized capital losses from sales on our fixed maturity and equity securities and $5.5 million in other-than-temporary impairments on our available for sale fixed maturity securities.
Incurred losses and LAE increased by $400.1 million, or 27.1%, in 2011 compared to 2010. Catastrophe losses increased $531.3 million (29.8 points), period over period, primarily due to losses from the Japan and New Zealand earthquakes, Thailand and Australia floods and U.S. storms. Partially offsetting the catastrophe increase was the decrease in attritional losses of $131.2 million, primarily due to the non-recurrence of prior years’ development, the decrease in premiums earned and changes in the mix of business.
Incurred losses and LAE increased by $385.8 million, or 35.3%, for the year ended December 31, 2010 compared to the same period in 2009. Of the $385.8 million increase, current year catastrophe losses increased $248.4 million (13.7 points), period over period, primarily due to losses on the Chilean earthquake, New Zealand earthquake, Australian hailstorms and floods, and the Canadian hailstorm. The current year attritional losses also increased $144.5 million (7.1 points) reflecting higher expected loss ratios on current year business due to prevailing market conditions. Partially offsetting these higher current year losses was a decrease of $7.2 million, or 0.4 points, in prior year loss development as the 2010 reserve studies indicated net favorable reserve development and loss estimates for prior year catastrophes were reduced.
Commission, brokerage, taxes and fees decreased by $9.5 million, or 2.8%, for the year ended December 31, 2010 compared to the same period in 2009. The change was primarily the result of the mix of business and lower contingent commissions.
Corporate Expenses. Corporate expenses, which are general operating expenses that are not allocated to segments, were $6.1 million, $5.9 million and $7.7 million for the years ended December 31, 2011, 2010 and 2009, respectively. These expenses were previously included as underwriting expenses and therefore included in the other underwriting expense ratio. Effective January 1, 2010, these expenses were removed from the calculation of the other underwriting expense ratio and prior periods were recalculated to conform.
Net investment income decreased 10.7% to $312.9 million in 2011 compared to $350.3 million in 2010, primarily due to a $58.2 million decline in income from our fixed maturities, reflective of reducing our municipal bond exposures and declining reinvestment rates. These decreases were partially offset by an increase of $19.5 million in income from equities due to our expanded public equity portfolio and emerging market debt mutual funds.
Net investment income increased 33.7% to $350.3 million in 2010 compared to $262.1 million in 2009. The increase, period over period, was primarily due to an increase in recorded gains from our limited partnership investments and an increase in dividend income from owning more shares of our parent’s common shares.
Net realized capital losses were $41.1 million and net realized capital gains were $65.3 million and $56.9 million in 2011, 2010 and 2009, respectively. In 2011, we recorded $16.7 million of losses due to fair value re-measurements on fixed maturity and equity securities and other invested assets, $14.5 million of other-than-temporary impairments on fixed maturity securities and $9.9 million of net realized capital losses from sales of fixed maturity and equity securities. In 2010, we recorded $93.8 million in gains due to fair value re-measurements on fixed maturity and equity securities and other invested assets, partially offset by $26.4 million of net realized capital losses from sales of fixed maturity and equity securities and $2.1 million
During the quarter ended September 30, 2011, we realigned our reporting segments to reflect recent changes in the type and volume of business written. We previously reported the results of Marine & Aviation, Surety, A&H Reinsurance and A&H Primary operations as a separate segment-Specialty Underwriting. The A&H primary business, which is a relatively new line of business for us, has increased significantly, representing approximately 2% of premiums earned and is projected to continue to grow. The A&H primary business is better aligned with the Insurance reporting segment based on the similarities of this business with those businesses already reflected in the Insurance segment. The other operating units included in the Specialty Underwriting segment would have encompassed less than 5% of our premiums earned and their volume is projected to remain approximately 6%. As a result of the size of these remaining operating units and their similarity to the business reported within U.S. Reinsurance, they have been reclassified to the U.S. Reinsurance segment. There has been no change to the International reporting segment. We have restated all segment information for prior years to conform to the new reporting segment structure.
The U.S. Reinsurance operation writes property and casualty reinsurance and specialty lines of business, including Marine, Aviation, Surety and A&H business, on both a treaty and facultative basis, through reinsurance brokers, as well as directly with ceding companies primarily within the U.S. The Insurance operation writes property and casualty insurance, including medical stop loss insurance, directly and through general agents, brokers and surplus lines brokers within the U.S. The International operation writes non-U.S. property and casualty reinsurance through Everest Re’s branches in Singapore and Canada and through offices in Brazil, Miami and New Jersey.
Gross written premiums decreased by 0.8% to $1,395.4 million in 2010 from $1,407.1 million in 2009, primarily due to a $40.7 million (48.2%) decrease in the crop hail quota share treaties, a $32.4 million (8.9%) decrease in U.S. treaty casualty volume and a $28.6 million (29.2%) decrease in facultative volume, partially offset by a $73.7 million (11.8%) increase in treaty property volume. Net written premiums decreased 2.5% to $773.6 million in 2010 compared to $793.5 million for 2009, primarily due to the decrease in gross written premiums. Premiums earned decreased 4.6% to $777.7 million in 2010 compared to $815.6 million in 2009, primarily due to the decline in net written premiums.
Commission and brokerage expenses decreased 7.5% to $169.3 million in 2010 compared to $183.1 million in 2009, primarily due to the decline in premiums earned. Segment other underwriting expenses in 2010 decreased slightly to $42.5 million from $44.9 million in 2009.
Premiums. Gross written premiums increased by 12.0% to $969.1 million in 2011 compared to $865.4 million in 2010. This was due to strategic portfolio changes with growth in short-tail business, primarily driven by the acquisition of Heartland, which provided $169.6 million of new crop insurance premium in 2011 and $54.0 million growth in A&H primary business, partially offset by the reduction of a large casualty program. Net written premiums increased 20.5% to $450.4 million in 2011 compared to $373.7 million for the same period in 2010 due to higher gross premiums and reduced levels of ceded reinsurance, primarily due to the reduction of the large casualty program. Premiums earned increased 12.1% to $459.4 million in 2011 compared to $409.8 million in 2010. 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.
Incurred losses and LAE increased by 13.0% to $359.0 million in 2010 compared to $317.8 million in 2009. The increase was primarily due to the $37.4 million increase in current years’ attritional losses, primarily due to higher expected loss ratios on several programs, reflective of current market conditions. The 2010 prior years’ unfavorable development of $29.9 million was primarily the result of reserve strengthening on several terminated programs.
Commission and brokerage expenses decreased slightly to $29.6 million in 2010 from $29.8 million in 2009. The decrease is primarily due to the impact of variations in reinsurance ceded, particularly under the affiliated quota share agreement. Segment other underwriting expenses in 2010 decreased to $69.7 million from $74.6 million in 2009. The decrease is the result of management’s direct actions to reduce expenses.
Segment Expenses. Commission and brokerage expenses increased 4.5% to $142.3 million in 2011 compared to $136.2 million in 2010. These variances were due to the changes in premiums and the mix of business. Segment other underwriting expenses decreased slightly to $27.3 million in 2011 compared to $27.6 million in 2010.
Commission and brokerage expenses increased 3.4% to $136.2 million in 2010 compared to $131.7 million in 2009. The increase was primarily in line with the increases in premiums earned. Segment other underwriting expenses in 2010 were $27.6 million compared to $23.1 million in 2009. The increase was consistent with the growth in premiums earned resulting in stable other underwriting expense ratios for the periods.