Information for Item 6 is not required pursuant to General Instruction I(2) of Form 10-K.
The Company competes in the U.S. and international reinsurance and insurance markets with numerous global competitors. The Company’s competitors include independent reinsurance and insurance companies,
Rates tend to fluctuate by specific region and products, particularly areas recently impacted by large catastrophic events. Although insured catastrophe losses for 2019 were slightly below recent annual averages, there were numerous natural catastrophes in 2018, with total industry losses estimated to be $90 billion. The costliest event was the Camp Wildfire in California, the deadliest and most destructive California fire on record. These 2018 catastrophe losses followed another record year of catastrophes in 2017 where total industry losses for the worldwide events were estimated at $140 billion. These catastrophe losses included an unprecedented series of catastrophes in the third quarter of 2017 with Hurricanes Harvey, Irma and Maria, as well as a significant earthquake in Mexico City. Additional catastrophe events occurred in the fourth quarter of 2017 with the wildfires in California and Hurricanes Nate and Ophelia. During 2016, catastrophe losses included the Fort McMurray Canadian wildfire, Hurricane Matthew which affected a large area of the Caribbean and southeastern United States, storms and an earthquake in Ecuador. While the future impact on market conditions from these catastrophes cannot be determined at this time, there is a growing industry consensus that there is some firming of (re)insurance rates for the areas impacted by the recent catastrophes.
Premiums. Gross written premiums increased by 7.3% to $7,053.1 million in 2019, compared to $6,573.7 million in 2018, reflecting a $445.7 million, or 22.2%, increase in our insurance business and a $33.7 million, or 0.7%, increase in our reinsurance business. The rise in insurance premiums was primarily due to increases in many lines of business, including casualty, energy and accident and health. The increase in reinsurance premiums was mainly due to the increase in treaty casualty writings, partially offset by a decline in treaty property business. Net written premiums increased by 14.8% to $5,774.9 million in 2019, compared to $5,031.9 million in 2018. The difference between the change in gross written premiums compared to the change in net written premiums is primarily due to the impact of changes in affiliated reinsurance contracts. Premiums ceded to Bermuda Re in 2019 were $100.1 million compared with $572.6 million in 2018. Premiums earned increased by 13.4% to $5,489.0 million in 2019, compared to $4,839.1 million in 2018. 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.
Other Income (Expense). We recorded other expense of $1.6 million and $9.6 million in 2019 and 2018, respectively, and other income of $25.9 million in 2017. The changes were primarily the result of fluctuations in foreign currency exchange rates.
Commission, Brokerage, Taxes and Fees. Commission, brokerage, taxes and fees increased to $1,270.1 million in 2019 compared to $1,141.7 million in 2018. The increase was mainly due to changes in affiliated reinsurance agreements, increases in premiums earned and changes in the mix of business toward additional pro rata business.
Commission, brokerage, taxes and fees increased to $1,141.7 million in 2018 compared to $210.9 million in 2017. The increase was mainly due to changes in affiliated reinsurance agreements, including the non-renewal of the quota share agreement with Bermuda Re as of December 31, 2017, increases in premiums earned and changes in the mix of business toward additional pro rata business.
Other Underwriting Expenses. Other underwriting expenses were $350.9 million, $293.3 million and $254.9 million in 2019, 2018 and 2017, respectively. The increases were 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.
Income Tax Expense (Benefit). The Company had an income tax expense of $135.2 million in 2019, an income tax benefit of $367.0 million in 2018, and an income tax benefit of $200.7 million in 2017. The TCJA impact was an income tax benefit of $28.4 million and $123.1 million in 2018 and 2017, respectively. Variations in income taxes generally result from changes in the relative levels of pre-tax income, including the impact of catastrophe losses and net capital gains (losses) as well as changes in tax exempt investment income and creditable foreign taxes. The change in income tax expense (benefit) was primarily due to the decrease in catastrophe losses from 2018 to 2019. In addition, the enactment of the TCJA on December 22, 2017 reduced the U.S. corporate income tax rate to 21% from 35%.
The Company completed its accounting and interpreted the additional guidance issued by the IRS and U.S. Department of Treasury, and recognized an income tax benefit of $1.2 million primarily related to the 2018 tax return to provision true-up.
Stockholder’s equity increased by $820.6 million to $5,857.4 million at December 31, 2019 from $5,036.8 million at December 31, 2018, principally as a result of $629.7 million of net income, $180.6 million of net unrealized appreciation on investments, net of tax, $17.2 million of net foreign currency translation adjustments and $0.4 million of capital contributions, partially offset by $7.1 million of net benefit plan obligation adjustments.
Net realized capital gains were $419.4 million in 2019, net realized capital losses were $185.4 million in 2018 and net realized capital gains were $161.6 million in 2017. The net realized capital gains of $419.4 million in 2019, were comprised of $420.8 million of gains from fair value re-measurements, $18.2 million of gains from sales of investments, partially offset by $19.6 million of other-than-temporary impairments. The net realized capital losses of $185.4 million in 2018 were comprised of $148.0 million of losses from fair value re-measurements, $31.2 million of losses from sales of investments and $6.2 million of other-than-temporary impairments. The net realized capital gains of $161.6 million in 2017 were comprised of $158.5 million of gains from fair value re-measurements and $9.1 million of gains from sales of investments, partially offset by $6.1 million of other-than-temporary impairments.
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 International operation writes non-U.S. property and casualty reinsurance through Everest Re’s branches in Canada, Singapore and through offices in Brazil, Miami and New Jersey. The Insurance operation writes property and casualty insurance directly, through brokers, surplus lines brokers and general agents mainly within the U.S.
Commission and brokerage increased to $568.4 million in 2018 compared to $160.3 million in 2017. The increase was mainly due to changes in affiliated reinsurance agreements, including the non-renewal of the quota share agreement with Bermuda Re as of December 31, 2017, the impact of the increases in premiums earned and changes in the mix of business towards additional pro rata business. Segment other underwriting expenses increased to $60.3 million in 2018 from $55.9 million in 2017, mainly due to the impact of changes in affiliated reinsurance contracts and the impact of the increases in premiums earned.
Premiums. Gross written premiums increased by 5.3% to $1,638.0 million in 2019 compared to $1,555.2 million in 2018, primarily due to increases in business written through our Canada and Singapore branches, partially offset by the negative impact of $25.0 million from the movement of foreign exchange rates. Net written premiums increased by 6.0% to $1,512.6 million in 2019 compared to $1,426.6 million in 2018, which is consistent with the change in gross written premiums. Premiums earned increased 1.5% to $1,427.1 million in 2019 compared to $1,406.5 million in 2018. The change in premiums earned is the result of
Segment Expenses. Commission and brokerage decreased to $324.0 million in 2019 compared to $355.5 million in 2018. The decrease was mainly due to changes in affiliated reinsurance agreements and changes in the mix of business. Segment other underwriting expenses increased to $41.2 million in 2019 from $37.7 million in 2018 mainly due to changes in affiliated reinsurance agreements and higher variable compensation.
Premiums. Gross written premiums increased by 22.4% to $2,452.7 million in 2019 compared to $2,004.1 million in 2018. This increase was related to most lines of business including casualty, energy and accident and health. Net written premiums increased by 22.4% to $1,851.2 million in 2019 compared to $1,512.2 million in 2018 which is consistent with the change in gross written premiums. Premiums earned increased 16.5% to $1,692.9 million in 2019 compared to $1,452.7 million in 2018. 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.