The following selected consolidated GAAP financial data of the Company as of and for the years ended December 31, 2019, 2018, 2017, 2016 and 2015, were derived from the audited consolidated financial statements of the Company. The following financial data should be read in conjunction with the Consolidated Financial Statements and accompanying notes.
(4) Based on weighted average diluted common shares outstanding of 40.4 million, 40.6 million, 40.8 million, 41.6 million, and 43.8 million for 2019, 2018, 2017, 2016, and 2015, respectively.
(5) Loss ratio is the GAAP losses and LAE incurred as a percentage of GAAP net premiums earned. Underwriting expense ratio is the GAAP commissions, brokerage, taxes, fees and other underwriting expenses as a percentage of GAAP net premiums earned. Combined ratio is the sum of the loss ratio and underwriting expense ratio.
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.
We compete in the U.S., Bermuda and international reinsurance and insurance markets with numerous global competitors. Our 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.
Premiums. Gross written premiums increased by 7.8% to $9,133.4 million in 2019, compared to $8,475.2 million in 2018, reflecting a $526.9 million, or 23.4%, increase in our insurance business and a $131.3 million, or 2.1%, increase in our reinsurance business. The rise in insurance premiums was primarily due to increases in many lines of business, including casualty, energy, accident and health and business written through the Lloyd’s Syndicate. The increase in reinsurance premiums was mainly due to increases in treaty casualty writings and mortgage business, partially offset by a decline in treaty property business, including lower reinstatement premiums, and a $55.5 million negative impact from the movement of foreign exchange rates. Net written premiums increased by 5.5% to $7,824.4 million in 2019, compared to $7,414.4 million in 2018. This change is consistent with the change in gross written premiums. Premiums earned increased by 6.8% to $7,403.7 million in 2019, compared to $6,931.7 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.
Gross written premiums increased by 18.1% to $8,475.2 million in 2018, compared to $7,173.9 million in 2017, reflecting a $1,109.9 million, or 21.7%, increase in our reinsurance business and a $191.3 million, or 9.3%, increase in our insurance business. The increase in reinsurance premiums was mainly due to increases in treaty property and treaty casualty writings, rise in mortgage business, growth in Latin American business, and increases in production from our U.K. branch and Ireland office. The rise in insurance premiums was primarily due to increases in many lines of business, including casualty, energy, accident and health and business written through the Lloyd’s Syndicate. Net written premiums increased by 18.7% to $7,414.4 million in 2018, compared to $6,244.7 million in 2017. This change is consistent with the change in gross written premiums. Premiums earned increased by 16.7% to $6,931.7 million in 2018, compared to $5,937.8 million in 2017. 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 increased by 7.1% to $581.2 million in 2018 compared with investment income of $542.9 million in 2017. Net pre-tax investment income, as a percentage of average invested assets, was 3.2% in 2018 compared to 3.1% in 2017. The increases in both income and yield were primarily the result of higher income from our growing fixed maturity portfolio and higher income from our limited partnerships, partially offset by lower dividend income from our equity portfolio.
Net Realized Capital Gains (Losses). Net realized capital gains were $185.0 million in 2019, net realized capital losses were $127.1 million in 2018 and net realized capital gains were $153.2 million in 2017. The net realized capital gains of $185.0 million in 2019 were comprised of $167.0 million of net gains from fair value re-measurements and $38.9 million of net realized capital gains from sales of investments, partially offset by $20.9 million of other-than-temporary impairments. The net realized capital losses of $127.1 million in 2018 were comprised of $67.3 million of net losses from fair value re-measurements, $51.7 million of net realized capital losses from sales of investments and $8.1 million of other-than-temporary impairments. The net realized capital gains of $153.2 million in 2017 were comprised of $139.0 million of net gains from fair value re-measurements and $21.3 million of net realized capital gains from sales of investments, partially offset by $7.1 million of other-than-temporary impairments.
Net Derivative Gain (Loss). In 2005 and prior, we sold seven equity index put option contracts, three of which remain outstanding. These contracts meet the definition of a derivative in accordance with FASB guidance and as such, are fair valued each quarter with the change recorded as net derivative gain or loss in the consolidated statements of operations and comprehensive income (loss). As a result of these adjustments in value, we
Other Income (Expense). We recorded other expense of $11.0 million, $24.8 million and $21.2 million in 2019, 2018 and 2017, respectively. The changes were primarily the result of fluctuations in foreign currency exchange rates, income related to Mt. Logan Re and changes in deferred gains related to any retroactive reinsurance transactions. We recognized foreign currency exchange expense of $13.4 million in 2019, foreign currency exchange income of $2.4 million in 2018 and foreign currency exchange expense of $11.3 million in 2017.
Incurred losses and LAE decreased by 12.9% to $4,922.9 million in 2019, compared to $5,651.4 million in 2018, primarily due to an decrease in current year catastrophe losses of $693.5 million and $531.2 million less of unfavorable development on prior years catastrophe losses in 2019 compared to 2018. These decreases were partially offset by an increase of $415.6 million in current year attritional losses, mainly due to the impact of the increase in premiums earned and changes in the mix of business, and $80.6 million less of favorable development on prior years attritional losses in 2019 compared to 2018. The current year catastrophe losses of $545.5 million in 2019 related to Typhoon Hagibis ($200.0 million), Hurricane Dorian ($170.9 million), Typhoon Faxai ($124.3 million), Townsville Monsoon ($25.3 million), and the Dallas tornadoes ($25.0 million). The $1,239.0 million of current year catastrophe losses in 2018 related to Hurricane Michael ($462.0 million), Camp
Commission, Brokerage, Taxes and Fees. Commission, brokerage, taxes and fees increased by 12.2% to $1,703.7 million for the year ended December 31, 2019 compared to $1,519.0 million for the year ended December 31, 2018. The changes were primarily due to the impact of the increases in premiums earned, higher contingent commissions and changes in the mix of business.
Commission, brokerage, taxes and fees increased by 16.5% to $1,519.0 million for the year ended December 31, 2018 compared to $1,304.0 million for the year ended December 31, 2017. The changes were primarily due to the impact of the increases in premiums earned and changes in the mix of business towards additional pro rata business.
Other Underwriting Expenses. Other underwriting expenses were $440.9 million, $371.5 million and $318.8 million in 2019, 2018 and 2017, respectively. The increases in other underwriting expenses were mainly due to the impact of the increases in premiums earned and costs incurred to support the continued expansion of the insurance business.
Corporate Expenses. Corporate expenses, which are general operating expenses that are not allocated to segments, were $33.0 million, $30.7 million and $25.9 million for the years ended December 31, 2019, 2018 and 2017, respectively.
Income Tax Expense (Benefit). We had income tax expense of $89.5 million in 2019, and an income tax benefit of $331.2 million in 2018 and $63.3 million in 2017. The 2017 tax benefit included $8.2 million of tax expense related to the enactment of the TCJA. Income tax 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) was primarily due to the decrease in incurred losses, including catastrophe losses, and loss adjustment expenses from 2018 to 2019. In addition, the tax rate was lowered from 35% in 2017 to 21% in 2018 under the TCJA.
Shareholders’ equity decreased by $479.9 million to $7,860.8 million at December 31, 2018 from $8,340.7 million at December 31, 2017, principally as a result of $228.2 million of unrealized depreciation on investments net of tax, $216.2 million of shareholder dividends, $76.8 million of net foreign currency translation adjustments and the repurchase of 0.3 million common shares for $75.3 million, partially offset by $89.0 million of net income, $23.0 million of share-based compensation transactions and $4.5 million of net benefit plan obligation adjustments, net of tax
Net realized capital gains were $185.0 million in 2019, net realized capital losses were $127.1 million in 2018 and net realized capital gains were $153.2 million in 2017. In 2019, we recorded $167.0 million of net gains from fair value re-measurements and $38.9 million of net realized capital gains from sales of investments, partially offset by $20.9 million of other-than-temporary impairments. In 2018, we recorded $67.3 million of net losses from fair value re-measurements, $51.7 million of net realized capital losses from sales of investments and $8.1
For inter-affiliate reinsurance and business written through the Lloyd’s Syndicate, business is generally reported within the segment in which the business was first produced, consistent with how the business is managed.
Premiums. Gross written premiums decreased by 1.7% to $2,962.4 million in 2019 from $3,014.3 million in 2018, primarily due to a decline in treaty property business and lower reinstatement premiums, partially offset by an increase in casualty writings. Net written premiums decreased by 4.9% to $2,513.6 million in 2019 compared to $2,642.2 million in 2018. The difference between the change in gross written premiums compared to the change in net written premiums was primarily due to varying utilization of reinsurance. Premiums earned decreased by 2.3% to $2,471.4 million in 2019, compared to $2,529.0 million in 2018. The change in premiums earned relative to net written premiums is primarily the result of timing; premiums are earned ratably over the coverage period whereas written premiums are recorded at the initiation of the coverage period.
Gross written premiums increased by 16.3% to $3,014.3 million in 2018 from $2,593.0 million in 2017, primarily due to increases in treaty property and treaty casualty writings and growth in the mortgage business. Net written premiums increased by 17.7% to $2,642.2 million in 2018 compared to $2,245.4 million in 2017, which is consistent with the change in gross written premiums. Premiums earned increased by 15.9% to $2,529.0 million in 2018, compared to $2,181.2 million in 2017. The change in premiums earned relative to net written premiums is primarily 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 decreased by 45.6% to $1,514.2 million in 2019, compared to 2,784.2 million in 2018. The decrease was primarily due to a decrease of $833.2 million in current year catastrophe losses and an improvement of $529.7 million on development of prior years catastrophe losses, partially offset by an increase of $100.6 million in current year attritional losses, mainly due to the impact of changes in the mix of business, primarily writing more treaty casualty. The current year catastrophe losses of $119.0 million in 2019 related primarily to Typhoon Faxai ($35.5 million), Typhoon Hagibis ($34.6 million), the Dallas tornadoes ($25.0 million) and Hurricane Dorian ($24.0 million). The $952.2 million of current year catastrophe losses in 2018 related primarily to Hurricane Michael ($416.5 million), Camp wildfire ($297.0 million), Woolsey wildfire ($151.0 million), Hurricane Florence ($49.3 million), other 2018 California wildfires ($23.1 million), Typhoon Jebi ($6.5 million), Japan floods ($5.5 million), Typhoon Trami ($2.0 million) and the U.S. winter storms ($1.3 million).
Incurred losses increased by 70.5% to $2,784.2 million in 2018, compared to $1,632.8 million in 2017. The increase was primarily due to $519.6 million of unfavorable development on prior years catastrophe losses in 2018, primarily related to Hurricanes Harvey, Irma and Maria and the 2017 California wildfires, an increase of $279.4 million in current year attritional losses, mainly due to the impact of the increase in premiums earned and changes in the mix of business, and an increase of $236.5 million in current year catastrophe losses. The increase in loss estimates for Hurricanes Harvey, Irma and Maria was mostly driven by re-opened claims reported in the second quarter of 2018 and loss inflation from higher than expected loss adjustment expenses and in particular, their impact on aggregate covers. The current year catastrophe losses of $952.2 million in 2018 are outlined above. The $715.7 million of current year catastrophe losses in 2017 related to Hurricane Irma
($331.8 million), Hurricane Harvey ($204.3 million), the Northern California wildfires ($132.9 million), Hurricane Maria ($31.2 million), the Southern California wildfires ($9.6 million), and the 2017 US Midwest storms ($6.9 million).
Commission and brokerage expense increased by 22.9% to $568.4 million in 2018 compared to $568.4 million in 2018. The increases are mainly due to 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. The increases were mainly due to the impact of the increase in premiums earned.
Incurred losses and LAE increased by 20.3% to $1,193.8 million in 2019 compared to $992.7 million in 2018, primarily due to an increase of $225.0 million on current year catastrophe losses. The current year catastrophe losses of $390.3 million in 2019 related primarily to Typhoon Hagibis ($149.4 million), Hurricane Dorian ($133.0 million), Typhoon Faxai ($83.8 million) and Townsville Monsoon ($24.1 million). The $165.3 million of current year catastrophe losses in 2018 related primarily to Typhoon Jebi ($60.1 million), Cyclone Mekunu ($43.7 million), Australia hailstorm ($24.0 million), Typhoon Trami ($23.0 million), Japan floods ($9.5 million), Hurricane Michael ($3.0 million) and Hurricane Florence ($2.0 million).
Hurricane Maria ($263.2 million), Hurricane Irma ($107.6 million), the Mexico City earthquake ($25.6 million), the South Africa Knysna fires ($24.0 million), Cyclone Debbie in Australia ($17.1 million), the Peru storms ($15.2 million) and Hurricane Harvey ($3.7 million).
Incurred losses and LAE increased by 19.6% to $967.2 million in 2019 compared to $808.7 million in 2018, primarily due to an increase of $151.5 million of current year attritional losses, related primarily to the impact of the increase in premiums earned and changes in the mix of business, as well as less overall favorable development on both prior years attritional losses and prior years catastrophe losses in 2019 compared to 2018. These impacts were partially offset by a decrease of $46.3 million in current year catastrophe losses. The current year catastrophe losses of $32.1 million in 2019 related primarily to Typhoon Hagibis ($16.0 million), Hurricane Dorian ($9.9 million), Typhoon Faxai ($5.0 million) and the Townsville Monsoon ($1.2 million). The $78.4 million of current year catastrophe losses in 2018 related primarily to Camp wildfire ($25.0 million), Hurricane Michael ($18.5 million), Typhoon Jebi ($13.4 million), Hurricane Florence ($13.0 million), Japan floods ($5.4 million) and Woolsey wildfire ($3.0 million).
Incurred losses and LAE increased by 10.0% to $808.7 million in 2018 compared to $735.3 million in 2017, primarily due to an increase of $172.2 million of current year attritional losses, related primarily to the impact of the increase in premiums earned, partially offset by a decrease of $81.5 million in current year catastrophe losses and $43.3 million of favorable development on prior years catastrophe losses mainly related to Hurricanes Irma and Maria. The current year catastrophe losses of $78.4 million in 2018 are outlined above. The $159.9 million of current year catastrophe losses in 2017 primarily related to Hurricane Maria ($53.4 million),
Segment Expenses. Commission and brokerage increased by 10.9% to $354.0 million in 2019 compared to $319.2 million in 2018 mainly due to the impact of the increase in premiums earned. Segment other underwriting expenses increased to $50.3 million in 2019 compared to $43.6 million in 2018. The increases are mainly due to the impact of the increases in premiums earned and changes in the mix of business.
Commission and brokerage increased by 5.1% to $319.2 million in 2018 compared to $303.7 million in 2017 mainly due to the impact of the increase in premiums earned, partially offset by lower contingent commissions. Segment other underwriting expenses increased to $43.6 million in 2018 compared to $38.0 million in 2017. The increases are mainly due to the impact of the increases in premiums earned.
Loss and LAE Reserves. Our most critical accounting policy is the determination of our loss and LAE reserves. We maintain reserves equal to our estimated ultimate liability for losses and LAE for reported and unreported claims for our insurance and reinsurance businesses. Because reserves are based on estimates of ultimate losses and LAE by underwriting or accident year, we use a variety of statistical and actuarial techniques to monitor reserve adequacy over time, evaluate new information as it becomes known and adjust reserves whenever an adjustment appears warranted. We consider many factors when setting reserves including: (1) our exposure base and projected ultimate premiums earned; (2) our expected loss ratios by product and class of business, which are developed collaboratively by underwriters and actuaries; (3) actuarial methodologies and assumptions which analyze our loss reporting and payment experience, reports from ceding companies and historical trends, such as reserving patterns, loss payments and product mix; (4) current legal interpretations of coverage and liability; (5) economic conditions; and (6) uncertainties discussed below regarding our liability for A&E claims. Our insurance and reinsurance loss and LAE reserves represent management’s best estimate of our ultimate liability. Actual losses and LAE ultimately paid may deviate, perhaps substantially, from such reserves. Our net income (loss) will be impacted in a period in which the change in estimated ultimate losses and LAE is recorded. See also ITEM 8, “Financial Statements and Supplementary Data” - Note 1 of Notes to the Consolidated Financial Statements.
It is more difficult to accurately estimate loss reserves for reinsurance liabilities than for insurance liabilities. At December 31, 2019, we had reinsurance reserves of $10,147.8 million, of which $257.9 million were loss reserves for A&E liabilities, and insurance loss reserves of $3,463.5 million. A detailed discussion of additional considerations related to A&E exposures follows later in this section.
The detailed data required to evaluate ultimate losses for our insurance business is accumulated from our underwriting and claim systems. Reserving for reinsurance requires evaluation of loss information received from ceding companies. Ceding companies report losses to us in many forms dependent on the type of contract and the agreed or contractual reporting requirements. Generally, proportional/quota share contracts require the submission of a monthly/quarterly account, which includes premium and loss activity for the period with corresponding reserves as established by the ceding company. This information is recorded into our records. For certain proportional contracts, we may require a detailed loss report for claims that exceed a certain dollar threshold or relate to a particular type of loss. Excess of loss and facultative contracts generally require individual loss reporting with precautionary notices provided when a loss reaches a significant percentage of the attachment point of the contract or when certain causes of loss or types of injury occur. Our experienced claims staff handles individual loss reports and supporting claim information. Based on our evaluation of a claim, we may establish additional case reserves (ACRs) in addition to the case reserves reported by the ceding company. To ensure ceding companies are submitting required and accurate data, the
Underwriting, Claim, Reinsurance Accounting and Internal Audit departments of the Company perform various reviews of our ceding companies, particularly larger ceding companies, including on-site audits.
Given the inherent variability in our loss reserves, we have developed an estimated range of possible gross reserve levels. A table of ranges by segment, accompanied by commentary on potential and historical variability, is included in “Financial Condition - Loss and LAE Reserves”. The ranges are statistically developed using the exposure groups used in the reserve estimation process and aggregated to the segment level. For each exposure group, our actuaries calculate a range for each accident year based principally on two variables. The first is the historical changes in losses and LAE incurred but not reported (“IBNR”) for each accident year over time; the second is volatility of each accident year’s held reserves related to estimated ultimate losses, also over time. Both are measured at various ages from the end of the accident year through the final payout of the year’s losses. Ranges are developed for the exposure groups using statistical methods to adjust for diversification; the ranges for the exposure groups are aggregated to the segment level, likewise, with an adjustment for diversification. Our estimates of our reserve variability may not be comparable to those of other
Reinsurance Receivables. We have purchased reinsurance to reduce our exposure to adverse claim experience, large claims and catastrophic loss occurrences. Our ceded reinsurance provides for recovery from reinsurers of a portion of losses and loss expenses under certain circumstances. Such reinsurance does not relieve us of our obligation to our policyholders. In the event our reinsurers are unable to meet their obligations under these agreements or are able to successfully challenge losses ceded by us under the contracts, we will not be able to realize the full value of the reinsurance receivable balance. To minimize exposure from uncollectible reinsurance receivables, we have a reinsurance security committee that evaluates the financial strength of each reinsurer prior to our entering into a reinsurance arrangement. In some cases, we may hold full or partial collateral for the receivable, including letters of credit, trust assets and cash. Additionally, creditworthy foreign reinsurers of business written in the U.S., as well as capital markets’ reinsurance mechanisms, are generally required to secure their obligations. We have established reserves for uncollectible balances based on our assessment of the collectability of the outstanding balances. As of December 31, 2019 and 2018, the reserve for uncollectible balances was $15.0 million. Actual uncollectible amounts may vary, perhaps substantially, from such reserves, impacting income (loss) in the period in which the change in reserves is made. See also ITEM 8, “Financial Statements and Supplementary Data” - Note 11 of Notes to the Consolidated Financial Statements and “Financial Condition - Reinsurance Receivables” below.
earned premiums by our ceding companies, we use standard accepted actuarial methodologies to estimate earned but not reported premium at each financial reporting date. These earned but not reported premiums are combined with reported earned premiums to comprise our total premiums earned for determination of our incurred losses and loss and LAE reserves. Commission expense and incurred losses related to the change in earned but not reported premium are included in current period company and segment financial results. See also ITEM 8, “Financial Statements and Supplementary Data” - Note 1 of Notes to the Consolidated Financial Statements.
At December 31, 2019, we had unrealized gains, net of tax, of $304.4 million compared to unrealized losses, net of tax, of $179.4 million at December 31, 2018. Gains and losses from market fluctuations for investments held at market value are reflected as comprehensive income (loss) in the consolidated balance sheets. Gains and losses from market fluctuations for investments held at fair value are reflected as net realized capital gains and losses in the consolidated statements of operations and comprehensive income (loss). Market value declines for the fixed income portfolio, which are considered credit other-than-temporary impairments, are reflected in our consolidated statements of operations and comprehensive income (loss), as realized capital losses. We consider many factors when determining whether a market value decline is other-than-temporary, including: (1) we have no intent to sell and, more likely than not, will not be required to sell prior to recovery, (2) the length of time the market value has been below book value, (3) the credit strength of the issuer, (4) the issuer’s market sector, (5) the length of time to maturity and (6) for asset-backed securities, changes in prepayments, credit enhancements and underlying default rates. If management’s assessments change in the future, we may ultimately record a realized loss after management originally concluded that the decline in value was temporary. See also ITEM 8, “Financial Statements and Supplementary Data” - Note 1 of Notes to the Consolidated Financial Statements.
(1) There can be no assurance that reserves will not ultimately exceed the indicated ranges requiring additional income (loss) statement expense.
Depending on the specific segment, the range derived for the loss reserves, excluding reserves for A&E exposures, ranges from minus 13.7% to minus 16.5% for the low range and from plus 13.7% to plus 16.5% for the high range. Both the higher and lower ranges are associated with the U.S. Reinsurance segment. The size of the range is dependent upon the level of confidence associated with the outcome. Within each range, management’s best estimate of loss reserves is based upon the point estimate derived by our actuaries in detailed reserve studies. Such ranges are necessarily subjective due to the lack of generally accepted actuarial standards with respect to their development. For the above presentation, we have assumed what we believe is a reasonable confidence level but note that there can be no assurance that our claim obligations will not vary outside of these ranges.
Industry analysts use the “survival ratio” to compare the A&E reserves among companies with such liabilities. The survival ratio is typically calculated by dividing a company’s current net reserves by the three year average of annual paid losses. Hence, the survival ratio equals the number of years that it would take to exhaust the current reserves if future loss payments were to continue at historical levels. Using this measurement, our net three year asbestos survival ratio was 5.7 years at December 31, 2019. These metrics can be skewed by individual large settlements occurring in the prior three years and therefore, may not be indicative of the timing of future payments.
Our two main operating companies Bermuda Re and Everest Re are regulated by the Bermuda Monetary Authority (“BMA”) and the State of Delaware, Department of Insurance, respectively. Both regulatory bodies have their own capital adequacy models based on statutory capital as opposed to GAAP basis equity. Failure to
meet the required statutory capital levels could result in various regulatory restrictions, including business activity and the payment of dividends to their parent companies.
(3) The 2019 BSCR calculation is not yet due to be completed; however, the Company anticipates that Bermuda Re's December 31, 2019 actual capital will exceed the targeted capital level.
In 2019, we repurchased 0.1 million shares for $24.6 million in the open market and paid $234.3 million in dividends to adjust our capital position and enhance long term expected returns to our shareholders. During 2018, we repurchased 0.3 million shares for $75.3 million in the open market and paid $216.2 million in dividends to adjust our capital position and enhance long term expected returns to our shareholders. We may at times enter into a Rule 10b5-1 repurchase plan agreement to facilitate the repurchase of shares. On November 19, 2014, our existing Board authorization to purchase up to 25 million of our shares was amended to authorize the purchase of up to 30 million shares. As of December 31, 2019, we had repurchased 28.7 million shares under this authorization.
If such a single catastrophe loss were to occur, management estimates that the economic loss to us would be approximately $533.7 million. The estimate involves multiple variables, including which Everest entity would experience the loss, and as a result there can be no assurance that this amount would not be exceeded.
We may purchase reinsurance to cover specific business written or the potential accumulation or aggregation of exposures across some or all of our operations. Reinsurance purchasing decisions consider both the potential coverage and market conditions including the pricing, terms, conditions, availability and collectability of coverage, with the aim of securing cost effective protection from financially secure counterparts. The amount of reinsurance purchased has varied over time, reflecting our view of our exposures and the cost of reinsurance.
Information Technology. Our information technology is a key component of our business operations and is supported by a team of knowledgeable professionals. The majority of our information technology platform is located at our service processing center in New Jersey but processing is performed at the office locations of our operating subsidiaries and branches. In addition, our main-frame processing is performed by a third party vendor at a separate location. We have implemented procedures that ensure that our key business systems are protected (or secured) and data is backed up and stored at off-site locations so that they can be restored promptly if necessary. We have documented business continuity plans and disaster recovery plans to provide
During 2019, 2018 and 2017, we declared and paid common shareholder dividends of $234.3 million, $216.2 million and $207.2 million, respectively. As an insurance holding company, we are partially dependent on dividends and other permitted payments from our subsidiaries to pay cash dividends to our shareholders. The payment of dividends to Group by Holdings Ireland and Everest Dublin Holdings is subject to Irish corporate and regulatory restrictions; the payment of dividends to Holdings Ireland by Holdings and to Holdings by Everest Re is subject to Delaware regulatory restrictions; and the payment of dividends to Group by Bermuda Re, Everest International or Mt. Logan Re is subject to Bermuda insurance regulatory restrictions. Management expects that, absent extraordinary catastrophe losses, such restrictions should not affect Everest Re’s ability to declare and pay dividends sufficient to support Holdings’ general corporate needs and that Holdings Ireland, Everest Dublin Holdings, Bermuda Re and Everest International will have the ability to declare and pay dividends sufficient to support Group’s general corporate needs. For the years ended December 31, 2019, 2018 and 2017, Everest Re paid dividends to Holdings of $300.0 million, $0.0 million and $0.0 million, respectively, and EGS paid dividends to Holdings of $0.0 million, $90.0 million and $0.0 million, respectively. For the years ended December 31, 2019, 2018 and 2017, Bermuda Re paid dividends to Group of $600.0 million, $750.0 million and $400.0 million, respectively; Everest International paid dividends to Group of $0.0 million, $200.0 million and $0.0 million, respectively; and Mt. Logan Re paid dividends to Group of $0.0 million, $0.0 million and $25.0 million, respectively. See ITEM 1, “Business - Regulatory Matters - Dividends” and ITEM 8, “Financial Statements and Supplementary Data” - Note 14 of Notes to Consolidated Financial Statements.
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 does not expect the adoption of ASU 2018-15 to have a material impact on its financial statements.
cash flow assumptions at least annually and the discount rate assumption at each reporting period date 2) Amortization of deferred acquisition costs has been simplified to be in constant level proportion to either premiums, gross profits or gross margins 3) Disaggregated roll forwards of beginning and ending liabilities for future policy benefits are required. The guidance was effective for annual reporting periods beginning after December 15, 2020 and interim periods within that annual reporting period. However, FASB issued ASU 2019-09 in November 2019 which defers the effective date of ASU2018-12 until annual reporting periods beginning after December 15, 2021. The Company is currently evaluating the impact of the adoption of ASU 2018-12 on its financial statements.
Intra-Entity Asset Transfers. In October 2016, FASB issued ASU 2016-16 which outlines guidance on the tax accounting for intra-entity asset sales and transfers, other than inventory. The new guidance requires that reporting entities recognize tax expense from the intra-entity transfer of an asset in the seller’s tax jurisdiction at the time of transfer and recognize any deferred tax asset in the buyer’s tax jurisdiction at the time of transfer. The guidance is effective for annual and interim reporting periods beginning after December 15, 2017. The Company adopted the guidance effective January 1, 2018. The adoption of ASU 2016-16 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 does not expect the adoption of ASU 2016-13, 2019-11 and 2019-10 to have a material impact on its financial statements.
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 $69.9 million as part of other assets and a lease liability of $77.2 million as part of other liabilities in the consolidated balance sheet at the time of adoption, 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.
Interest Rate Risk. Our $20.7 billion investment portfolio, at December 31, 2019, 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.
In January 2020, the United Kingdom exited the European Union (commonly referred to as "Brexit"). The Company has a Lloyd’s of London Syndicate and Bermuda Re has a branch operation in the United Kingdom. The nature and extent of the impact of Brexit on regulation, interest rates, currency exchange rates and financial markets is still uncertain and may adversely affect our operations.
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 impact of the Tax Cut and Jobs Act, the adequacy of capital in relation to regulatory required capital, the adequacy of our provision for uncollectible balances, estimates of our catastrophe exposure, the effects of catastrophic events on our financial statements, the ability of Everest Re, Holdings, Holdings Ireland, Dublin Holdings, Bermuda Re and Everest International to pay dividends and the settlement costs of our specialized equity index put option contracts. 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”. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.