EDGAR 10-K Filing

Company CIK: 914748
Filing Year: 2022
Filename: 914748_10-K_2022_0000914748-22-000002.json

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ITEM 1. BUSINESS
ITEM 1. BUSINESS
The Company.
Holdings, a Delaware corporation, is a wholly-owned subsidiary of Holdings Ireland. On December 30, 2008, Group contributed Holdings to its recently established Irish holding company, Holdings Ireland. Holdings Ireland is a direct subsidiary of Group and serves as a holding company for the U.S. reinsurance and insurance subsidiaries. Group is a Bermuda holding company whose common shares are publicly traded in the U.S. on the New York Stock Exchange under the symbol “RE”. Group files an annual report on Form 10-K with the Securities and Exchange Commission (the “SEC”) with respect to its consolidated operations, including Holdings.
The Company’s principal business, conducted through its operating segments, is the underwriting of reinsurance and insurance in the U.S. and international markets. The Company had gross written premiums, in 2021, of $9.3 billion, with approximately 65% representing reinsurance and 35% representing insurance. Stockholder’s equity at December 31, 2021 was $7.0 billion. The Company underwrites reinsurance both through brokers and directly with ceding companies, giving it the flexibility to pursue business based on the ceding company’s preferred reinsurance purchasing method. The Company underwrites insurance through brokers, surplus lines brokers and general agent relationships. Holdings’ active operating subsidiaries are each rated A+ (“Superior”) by A.M. Best Company (“A.M. Best”), a leading provider of insurer ratings that assigns financial strength ratings to insurance companies based on their ability to meet their obligations to policyholders.
Following is a summary of the Company’s principal operating subsidiaries:
 Everest Re, a Delaware insurance company and a direct subsidiary of Holdings, is a licensed property and casualty insurer and/or reinsurer in all states, the District of Columbia, Puerto Rico and Guam and is authorized to conduct reinsurance business in Canada, Singapore and Brazil. Everest Re underwrites property and casualty reinsurance for insurance and reinsurance companies in the U.S. and international markets. Everest Re has engaged in reinsurance transactions with Bermuda Re, Everest International Reinsurance, Ltd. (“Everest International”), Mt. Logan Re, Ltd. (“Mt. Logan Re”) and Everest Insurance Company of Canada (“Everest Canada”), which are affiliated companies, primarily driven by enterprise risk and capital management considerations under which business is transacted at market rates and terms. At December 31, 2021, Everest Re had statutory surplus of $5.7 billion.
 Everest National Insurance Company (“Everest National”), a Delaware insurance company and a direct subsidiary of Everest Re, is licensed in 50 states, the District of Columbia and Puerto Rico and is authorized to write property and casualty insurance on an admitted basis in the jurisdictions in which it is licensed. The majority of Everest National’s business is reinsured by its parent, Everest Re.
 Everest Indemnity Insurance Company (“Everest Indemnity”), a Delaware insurance company and a direct subsidiary of Everest Re, writes excess and surplus lines insurance business in the U.S. on a non-admitted basis. Excess and surplus lines insurance is specialty property and liability coverage that an insurer not licensed to write insurance in a particular jurisdiction is permitted to provide to insureds when the specific specialty coverage is unavailable from admitted insurers. Everest Indemnity is licensed in Delaware and is eligible to write business on a non-admitted basis in all other states, the District of Columbia and Puerto Rico. The majority of Everest Indemnity’s business is reinsured by its parent, Everest Re.
 Everest Security Insurance Company (“Everest Security”), a Georgia insurance company and a direct subsidiary of Everest Re, writes property and casualty insurance on an admitted basis in Georgia and Alabama and is approved as an eligible surplus lines insurer in Delaware. The majority of Everest Security’s business is reinsured by its parent, Everest Re.
 Everest Denali Insurance Company (“Everest Denali”), a Delaware insurance company and a direct subsidiary of Everest Re, is licensed to write property and casualty insurance in all 50 states and the District of Columbia. The majority of Everest Denali’s business is reinsured by its parent, Everest Re.
 Everest Premier Insurance Company (“Everest Premier”), a Delaware insurance company and a direct subsidiary of Everest Re, is licensed to write property and casualty insurance in all 50 states and the District of Columbia. The majority of Everest Premier’s business is reinsured by its parent, Everest Re.
 Everest International Assurance, Ltd. (“Everest Assurance”), a Bermuda company and a direct subsidiary of Holdings is registered in Bermuda as a Class 3A general business insurer and as a Class C long-term insurer. Everest Assurance has made a one-time election under section 953(d) of the U.S. Internal Revenue Code to be a U.S. income tax paying “Controlled Foreign Corporation.” By making this election, Everest Assurance is authorized to write life reinsurance and casualty reinsurance in both Bermuda and the U.S.
Reinsurance Industry Overview.
Reinsurance is an arrangement in which an insurance company, the reinsurer, agrees to indemnify another insurance or reinsurance company, the ceding company, against all or a portion of the insurance risks underwritten by the ceding company under one or more insurance contracts. Reinsurance can provide a ceding company with several benefits, including a reduction in its net liability on individual risks or classes of risks, catastrophe protection from large and/or multiple losses and/or a reduction in operating leverage as measured by the ratio of net premiums and reserves to capital. Reinsurance also provides a ceding company with additional underwriting capacity by permitting it to accept larger risks and write more business than would be acceptable relative to the ceding company’s financial resources. Reinsurance does not discharge the ceding company from its liability to policyholders; rather, it reimburses the ceding company for covered losses.
There are two basic types of reinsurance arrangements: treaty and facultative. Treaty reinsurance obligates the ceding company to cede and the reinsurer to assume a specified portion of a type or category of risks insured by the ceding company. Treaty reinsurers do not separately evaluate each of the individual risks assumed under their treaties, instead, the reinsurer relies upon the pricing and underwriting decisions made by the ceding company. In facultative reinsurance, the ceding company cedes and the reinsurer assumes all or part of the risk under a single insurance contract. Facultative reinsurance is negotiated separately for each insurance contract that is reinsured. Facultative reinsurance, when purchased by ceding companies, usually is intended to cover individual risks not covered by their reinsurance treaties because of the dollar limits involved or because the risk is unusual.
Both treaty and facultative reinsurance can be written on either a pro rata basis or an excess of loss basis. Under pro rata reinsurance, the ceding company and the reinsurer share the premiums as well as the losses and expenses in an agreed proportion. Under excess of loss reinsurance, the reinsurer indemnifies the ceding company against
all or a specified portion of losses and expenses in excess of a specified dollar amount, known as the ceding company's retention or reinsurer's attachment point, generally subject to a negotiated reinsurance contract limit.
In pro rata reinsurance, the reinsurer generally pays the ceding company a ceding commission. The ceding commission generally is based on the ceding company’s cost of acquiring the business being reinsured (commissions, premium taxes, assessments and miscellaneous administrative expense and may contain profit sharing provisions, whereby the ceding commission is adjusted based on loss experience). Premiums paid by the ceding company to a reinsurer for excess of loss reinsurance are not directly proportional to the premiums that the ceding company receives because the reinsurer does not assume a proportionate risk. There is usually no ceding commission on excess of loss reinsurance.
Reinsurers may purchase reinsurance to cover their own risk exposure. Reinsurance of a reinsurer's business is called a retrocession. Reinsurance companies cede risks under retrocessional agreements to other reinsurers, known as retrocessionaires, for reasons similar to those that cause insurers to purchase reinsurance: to reduce net liability on individual or classes of risks, protect against catastrophic losses, stabilize financial ratios and obtain additional underwriting capacity.
Reinsurance can be written through intermediaries, generally professional reinsurance brokers, or directly with ceding companies. From a ceding company's perspective, the broker and the direct distribution channels have advantages and disadvantages. A ceding company's decision to select one distribution channel over the other will be influenced by its perception of such advantages and disadvantages relative to the reinsurance coverage being placed.
Business Strategy.
The Company’s business strategy is to sustain its leadership position within targeted reinsurance and insurance markets, provide effective management throughout the property and casualty underwriting cycle and thereby achieve an attractive return for its stockholder. The Company’s underwriting strategies seek to capitalize on its i) financial strength and capacity, ii) global franchise, iii) stable and experienced management team, iv) diversified product and distribution offerings, v) underwriting expertise and disciplined approach, vi) efficient and low-cost operating structure and vii) effective enterprise risk management practices.
The Company offers treaty and facultative reinsurance and admitted and non-admitted insurance. The Company’s products include the full range of property and casualty reinsurance and insurance coverages, including marine, aviation, surety, errors and omissions liability (“E&O”), directors’ and officers’ liability (“D&O”), medical malpractice, mortgage reinsurance, other specialty lines, accident and health (“A&H”) and workers’ compensation.
The Company’s underwriting strategies emphasizes underwriting profitability over premium volume. Key elements of this strategy include careful risk selection, appropriate pricing through strict underwriting discipline and adjustment of the Company’s business mix in response to changing market conditions. The Company focuses on reinsuring companies that effectively manage the underwriting cycle through proper analysis and pricing of underlying risks and whose underwriting guidelines and performance are compatible with its objectives.
The Company’s underwriting strategies emphasize flexibility and responsiveness to changing market conditions. The Company believes that its existing strengths, including its broad underwriting expertise, global presence, strong financial ratings and substantial capital, facilitate adjustments to its mix of business geographically, by line of business and by type of coverage, allowing it to participate in those market opportunities that provide the greatest potential for underwriting profitability. The Company’s insurance operations complement these strategies by accessing business that is not available on a reinsurance basis. The Company carefully monitors its mix of business across all operations to avoid unacceptable geographic or other risk concentrations.
Commencing 2015, the Company initiated a strategic build out of its insurance platform through the investment in key leadership hires which in turn has brought significant underwriting talent and stronger direction in
achieving its insurance program strategic goals of increased premium volume and improved underwriting results. Recent growth is coming from newly launched lines of business, as well as, product and geographic expansion in existing lines of business. The Company is building a world-class insurance platform capable of offering products across lines and geographies, complementing its leading global reinsurance franchise.
Capital Transactions.
The Company’s business operations are in part dependent on its financial strength and financial strength ratings, and the market’s perception of its financial strength. The Company stockholder’s equity was $7.0 billion and $6.4 billion at December 31, 2021 and 2020, respectively. The Company possesses significant financial flexibility with access to the debt markets and, through its ultimate parent, equity markets, as a result of its perceived financial strength, as evidenced by the financial strength ratings as assigned by independent rating agencies. The Company’s capital position remains strong, commensurate with its financial ratings and the Company has ample liquidity to meet its financial obligations for the foreseeable future.
Financial Strength Ratings.
The following table shows the current financial strength ratings of the Company’s operating subsidiaries as reported by A.M. Best, S&P Global Ratings (“S&P”) and Moody’s. These ratings represent an independent opinion of the financial strength, operating performance, business profile and ability to meet policyholder obligations. The ratings are not intended to be an indication of the degree or lack of risk involved in a direct or indirect equity investment or a recommendation to buy, sell or hold our securities. Additionally, rating organizations may change their rating methodology, which could have a material impact on our financial strength ratings.
All of the below-mentioned ratings are continually monitored and revised, if necessary, by each of the rating agencies. The ratings presented in the following table were in effect as of January 31, 2022.
The Company believes that its ratings are important as they provide the Company’s customers and others with an independent assessment of the Company’s financial strength using a rating scale that provides for relative comparisons. Strong financial ratings are particularly important for reinsurance and insurance companies given that customers rely on a company to pay covered losses well into the future. As a result, a highly rated company is generally preferred.
Operating Subsidiary:
A.M. Best
S&P
Moody's
Everest Reinsurance Company
A+ (Superior)
A+ (Strong)
A1 (upper-medium)
Everest National Insurance Company
A+ (Superior)
A+ (Strong)
Not Rated
Everest Indemnity Insurance Company
A+ (Superior)
A+ (Strong)
Not Rated
Everest Security Insurance Company
A+ (Superior)
Not Rated
Not Rated
Everest International Assurance, Ltd.
A+ (Superior)
A+ (Strong)
Not Rated
Everest Denali Insurance Company
A+ (Superior)
A+ (Strong)
Not Rated
Everest Premier Insurance Company
A+ (Superior)
A+ (Strong)
Not Rated
A.M. Best states that the “A+” (“Superior”) rating is assigned to those companies which, in its opinion, have a superior ability to meet their ongoing insurance policy and contract obligations based on A.M. Best’s comprehensive quantitative and qualitative evaluation of a company’s balance sheet strength, operating performance and business profile. A.M. Best affirmed these ratings on May 7, 2021. S&P states that the “A+”/”A” ratings are assigned to those insurance companies which, in its opinion, have strong financial security characteristics with respect to their ability to pay under its insurance policies and contracts in accordance with their terms. S&P affirmed all ratings on June 4, 2021. Moody’s states that an “A1” rating is assigned to companies that, in their opinion, offer upper-medium grade security and are subject to low credit risk. Moody’s affirmed these ratings on July 20, 2021.
Subsidiaries other than Everest Re may not be rated by some or any rating agencies because such ratings are not considered essential by the individual subsidiary’s customers or because of the limited nature of the subsidiary’s operations or because the subsidiaries are newly established and have not yet been rated by the agencies.
Debt Ratings.
The following table shows the debt ratings by A.M. Best, S&P and Moody’s of the Holdings’ senior notes due June 1, 2044, senior notes due October 15, 2050, senior notes due October 15, 2052, and long-term notes due May 1, 2067 all of which are considered investment grade. Debt ratings are the rating agencies’ current assessment of the credit worthiness of an obligor with respect to a specific obligation.
Instrument
A.M. Best
S&P
Moody's
Senior Notes due June 1, 2044
a-
(Strong)
A-
(Strong)
Baa1
(Medium Grade)
Senior Notes due October 15, 2050
a-
(Strong)
A-
(Strong)
Baa1
(Medium Grade)
Senior Notes due October 15, 2052
Not Rated
A-
(Strong)
Baa1
(Medium Grade)
Long Term Notes due May 1, 2067
bbb
(Adequate)
BBB
(Adequate)
Baa2
(Medium Grade)
Competition.
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. 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, 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 historically have been 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, provided capital markets with access to insurance and reinsurance risk exposure. The capital markets demand for these products was being primarily driven by a low interest environment and the desire to achieve greater risk diversification and potentially higher returns on their investments. This increased competition was generally having a negative impact on rates, terms and conditions; however, the impact varies widely by market and coverage.
The industry continues to deal with the impacts of a global pandemic, COVID-19 and its subsequent variants. We activated our operational resiliency plan across our global footprint and all of our critical operations are functioning effectively. We continue to service and meet the needs of our clients while ensuring the safety and health of our employees and customers.
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. The increased frequency of catastrophe losses in 2020 and 2021 appears to be further pressuring the increase of rates. As business activity continues to regain strength, rates also appear to be firming in most 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 are experiencing modest rate increase, while some lines such as workers’ compensation were experiencing softer market conditions. It is too early to tell what the impact on pricing conditions will be 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 and a low operating expense ratio. Our diversified global platform with its broad mix of products, distribution and geography is resilient.
Human Capital Management.
Our employees are essential to the success of our business, and so we strive to attract and retain a high standard of insurance professionals to meet our business needs as well as the needs of our clients and customers. As of February 1, 2022, the Company employed 1,615 persons. Management believes that employee relations are good. None of the Company’s employees are subject to collective bargaining agreements, and the Company is not aware of any current efforts to implement such agreements.
Everest is committed to providing our employees with an engaging and supportive environment so that employees can develop personally and help us achieve success as an organization. We consider the ability to attract, develop and retain a high caliber of insurance professionals to be critical to our success. Opportunities for continued learning and talent development are provided to all employee levels. Employees are encouraged to take ownership of their development by using the tools that the Company has made available to them including industry training, mentorships and personal development classes. Everest actively manages succession planning throughout our organization and strives to provide job growth and advancement opportunities to internal talent, where possible.
Diversity and Inclusion.
Our strength and success derive from our diversity, and we are at our best when we embrace diverse views and perspectives. Our Board is committed to diversity within its structure as well as emphasizing its importance in our senior executive leadership. We believe that diversity in gender, age, ethnicity and skill set allows for dynamic and evolving perspectives in governance, strategy, corporate responsibility, human rights and risk management.
Proactive diversity recruitment is an integral aspect of succession planning at the executive level involving identifying and developing female and other minority leaders within the organization to assume more visible senior leadership roles. Our Talent Development team works with senior management to identify women and persons of color across the Company as potential leaders. These individuals are provided management and executive leadership training and education to enhance their skillsets and encourage promotions. Indeed, our executive officers are measured on their forward-thinking diversity initiatives as part of their annual performance evaluations. Such diversity at the most senior levels of our organization reflects our commitment to identify and develop highly qualified women and individuals of color to help lead our Company into the future.
Available Information.
The Company’s Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports are available free of charge through the Company’s internet website at http://www.everestregroup.com as soon as reasonably practicable after such reports are electronically filed with the SEC.

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ITEM 1A. RISK FACTORS
ITEM 1A. RISK FACTORS
In addition to the other information provided in this report, the following risk factors should be considered when evaluating an investment in our securities. If the circumstances contemplated by the individual risk factors materialize, our business, financial condition and results of operations could be materially and adversely affected and our ability to service our debt, our debt ratings and our ability to issue new debt could decline significantly.
Risks relating to our Business
Fluctuations in the financial markets could result in investment losses.
Prolonged and severe disruptions in the overall public debt and equity markets, such as occurred during 2008, or temporary disruption, as occurred in early 2020 related to the Covid-19 pandemic, could result in significant realized and unrealized losses in our investment portfolio. Although financial markets have significantly improved since 2008, they could deteriorate in the future. There could also be disruption in individual market sectors, such as occurred in the energy sector in recent years. Such declines in the financial markets could result in significant realized and unrealized losses on investments and could have a material adverse impact on our results of operations, equity, business and insurer financial strength and debt ratings.
Our results could be adversely affected by catastrophic events.
We are exposed to unpredictable catastrophic events, including weather-related and other natural catastrophes, as well as acts of terrorism. The frequency and/or severity of catastrophic events may be impacted in the future by the continued effects of climate change. Any material reduction in our operating results caused by the occurrence of one or more catastrophes could inhibit our ability to pay dividends or to meet our interest and principal payment obligations. By way of illustration, during the past five calendar years, pre-tax catastrophe losses, net of reinsurance, were as follows:
Calendar year:
Pre-tax catastrophe losses
(Dollars in millions)
$
940.0
397.4
573.7
1,712.6
941.4
Our losses from future catastrophic events could exceed our projections.
We use projections of possible losses from future catastrophic events of varying types and magnitudes as a strategic underwriting tool. We use these loss projections to estimate our potential catastrophe losses in certain geographic areas and decide on the placement of retrocessional coverage or other actions to limit the extent of potential losses in a given geographic area. These loss projections are approximations, reliant on a mix of quantitative and qualitative processes, and actual losses may exceed the projections by a material amount, resulting in a material adverse effect on our financial condition and results of operations.
If our loss reserves are inadequate to meet our actual losses, our net income would be reduced or we could incur a loss.
We are required to maintain reserves to cover our estimated ultimate liability of losses and loss adjustment expenses (“LAE”) for both reported and unreported claims incurred. These reserves are only estimates of what we believe the settlement and administration of claims will cost based on facts and circumstances known to us. In setting reserves for our reinsurance liabilities, we rely on claim data supplied by our ceding companies and brokers and we employ actuarial and statistical projections. The information received from our ceding companies is not always timely or accurate, which can contribute to inaccuracies in our loss projections. Because of the uncertainties that surround our estimates of loss and LAE reserves, we cannot be certain that ultimate losses and LAE payments will not exceed our estimates. If our reserves are deficient, we would be required to increase loss reserves in the period in which such deficiencies are identified which would cause a charge to our earnings and a reduction of capital. During the past five calendar years, the reserve re-estimation process resulted in a decrease to our pre-tax net income in 2021, 2020 and 2019, 2018 and an increase for the year 2017:
Calendar year:
Effect on pre-tax net income
(Dollars in millions)
$
5.3
decrease
200.3
decrease
44.4
decrease
558.8
decrease
117.7
increase
The difficulty in estimating our reserves is significantly more challenging as it relates to reserving for potential asbestos and environmental (“A&E”) liabilities. At December 31, 2021, 1.3% of our gross reserves were comprised of A&E reserves. A&E liabilities are especially hard to estimate for many reasons, including the long delays between exposure and manifestation of any bodily injury or property damage, difficulty in identifying the source of the asbestos or environmental contamination, long reporting delays and difficulty in properly allocating liability for the asbestos or environmental damage. Legal tactics and judicial and legislative developments affecting the scope of insurers’ liability, which can be difficult to predict, also contribute to uncertainties in estimating reserves for A&E liabilities.
The failure to accurately assess underwriting risk and establish adequate premium rates could reduce our net income or result in a net loss.
Our success depends on our ability to accurately assess the risks associated with the businesses on which the risk is retained. If we fail to accurately assess the risks we retain, we may fail to establish adequate premium rates to cover our losses and LAE. This could reduce our net income and even result in a net loss.
In addition, losses may arise from events or exposures that are not anticipated when the coverage is priced. In addition to unanticipated events, we also face the unanticipated expansion of our exposures, particularly in long-tail liability lines. An example of this is the expansion over time of the scope of insurers’ legal liability within the mass tort arena, particularly for A&E exposures discussed above.
Decreases in pricing for property and casualty reinsurance and insurance could reduce our net income.
The worldwide reinsurance and insurance businesses are highly competitive, as well as cyclical by product and market. These cycles, as well as other factors that influence aggregate supply and demand for property and casualty insurance and reinsurance products, are outside of our control. The supply of (re)insurance is driven by prevailing prices and levels of capacity that may fluctuate in response to a number of factors including large catastrophic losses and investment returns being realized in the insurance industry. Demand for (re)insurance is influenced by underwriting results of insurers and insureds, including catastrophe losses, and prevailing general
economic conditions. If any of these factors were to result in a decline in the demand for (re)insurance or an overall increase in (re)insurance capacity, our net income could decrease.
If rating agencies downgrade the ratings of our insurance subsidiaries, future prospects for growth and profitability could be significantly and adversely affected.
Our active insurance company subsidiaries currently hold financial strength ratings assigned by third-party rating agencies which assess and rate the claims paying ability and financial strength of insurers and reinsurers. Financial strength ratings are used by cedents, agents and brokers to assess the financial strength and credit quality of reinsurers and insurers. A downgrade or withdrawal of any of these ratings could adversely affect our ability to market our reinsurance and insurance products, our ability to compete with other reinsurers and insurers, and could have a material and adverse effect on our ability to write new business that in turn could impact our profitability and operating results. In December 2021, S&P announced proposed changes to its rating methodologies. The proposed changes have not been finalized, so the impact, if any, that these changes may have on our financial strength ratings is unknown.
Consistent with market practice, much of our treaty reinsurance business allows the ceding company to terminate the contract or seek collateralization of our obligations in the event of a rating downgrade below a certain threshold. The termination provision would generally be triggered if a rating fell below A.M. Best’s A- rating level. To a lesser extent, Everest Re also has modest exposure to reinsurance contracts that contain provisions for obligatory funding of outstanding liabilities in the event of a rating agency downgrade. Those provisions would also generally be triggered if Everest Re’s rating fell below A.M. Best’s A- rating level.
The failure of our insureds, intermediaries and reinsurers to satisfy their obligations to us could reduce our income.
In accordance with industry practice, we have uncollateralized receivables from insureds, agents and brokers and/or rely on agents and brokers to process our payments. We may not be able to collect amounts due from insureds, agents and brokers, resulting in a reduction to net income.
We are subject to credit risk of reinsurers in connection with retrocessional arrangements because the transfer of risk to a reinsurer does not relieve us of our liability to the insured. In addition, reinsurers may be unwilling to pay us even though they are able to do so. The failure of one or more of our reinsurers to honor their obligations to us in a timely fashion would impact our cash flow and reduce our net income and could cause us to incur a significant loss.
If we are unable or choose not to purchase reinsurance and transfer risk to the reinsurance markets, our net income could be reduced or we could incur a net loss in the event of unusual loss experience.
We are generally less reliant on the purchase of reinsurance than many of our competitors, in part because of our strategic emphasis on underwriting discipline and management of the cycles inherent in our business. We try to separate our risk taking process from our risk mitigation process in order to avoid developing too great a reliance on reinsurance. With the expansion of the capital markets into insurance linked financial instruments, we increased our use of capital market products for catastrophe reinsurance. In addition, we have increased some of our quota share contracts with larger retrocessions. The percentage of business that we reinsure may vary considerably from year to year, depending on our view of the relationship between cost and expected benefit for the contract period.
Percentage of ceded written premiums to gross written premiums
Unaffiliated
14.3
%
14.9
%
16.7
%
14.7
%
14.6
%
Affiliated
4.9
%
1.7
%
1.4
%
8.7
%
38.4
%
Our industry is highly competitive and we may not be able to compete as successfully in the future.
Our industry is highly competitive and subject to pricing cycles that can be pronounced. We compete globally in the United States, international reinsurance and insurance markets with numerous competitors. Our competitors include independent reinsurance and insurance companies, subsidiaries or affiliates of established worldwide insurance companies, reinsurance departments of certain insurance companies and domestic and international underwriting operations, including underwriting syndicates at Lloyd’s of London.
According to S&P, Group ranks among the top ten global reinsurance groups, where more than two-thirds of the market share is concentrated. The worldwide net premium written by the Top 40 global reinsurance groups, for both life and non-life business, was estimated to be $274 billion in 2020 according to data compiled by S&P. In addition to competitors, the entry of alternative capital market products and vehicles provide additional sources of reinsurance and insurance capacity.
We are dependent on our key personnel.
Our success has been, and will continue to be, dependent on our ability to retain the services of our Chairman, Joseph V. Taranto (age 72) and existing key executive officers and to attract and retain additional qualified personnel in the future. The loss of the services of any key executive officer or the inability to hire and retain other highly qualified personnel in the future could adversely affect our ability to conduct business. Generally, we consider key executive officers to be those individuals who have the greatest influence in setting overall policy and controlling operations: President and Chief Executive Officer, Juan C. Andrade (age 56); Executive Vice President and Chief Financial Officer, Mark Kociancic (age 52), Executive Vice President, Group, Chief Operating Officer and Head of Reinsurance Division, Jim Williamson (age 48), Executive Vice President, General Counsel, Chief Compliance Officer and Secretary, Sanjoy Mukherjee (age 55) and Executive Vice President, President and Chief Executive Officer of the Everest Insurance® Division, Mike Karmilowicz (age 53). We have employment contracts with all of our key officers, which contain automatic renewal provisions that provide for the contracts to continue indefinitely unless sooner terminated in accordance with the contract or as otherwise may be agreed.
Our investment values and investment income could decline because they are exposed to interest rate, credit and market risks.
A significant portion of our investment portfolio consists of fixed income securities and smaller portions consist of equity securities and other investments. Both the fair market value of our invested assets and associated investment income fluctuate depending on general economic and market conditions. For example, the fair market value of our predominant fixed income portfolio generally increases or decreases inversely to fluctuations in interest rates. The market value of our fixed income securities could also decrease as a result of a downturn in the business cycle that causes the credit quality of such securities to deteriorate. The net investment income that we realize from future investments in fixed income securities will generally increase or decrease with interest rates.
Interest rate fluctuations also can cause net investment income from fixed income investments that carry prepayment risk, such as mortgage-backed and other asset-backed securities, to differ from the income anticipated from those securities at the time of purchase. In addition, if issuers of individual investments are unable to meet their obligations, investment income will be reduced and realized capital losses may arise.
The majority of our fixed income securities are classified as available for sale and temporary changes in the market value of these investments are reflected as changes to our stockholder’s equity. Our actively managed equity security portfolios are fair valued and any changes in fair value are reflected as net realized capital gains or losses. As a result, a decline in the value of our securities reduces our capital or could cause us to incur a loss.
We have invested a portion of our investment portfolio in equity securities. The value of these assets fluctuates with changes in the markets. In times of economic weakness, the fair value of these assets may decline, and may
negatively impact net income. We also invest in non-traditional investments which have different risk characteristics than traditional fixed income and equity securities. These alternative investments are comprised primarily of private equity limited partnerships. The changes in value and investment income/(loss) for these partnerships may be more volatile than over-the-counter securities.
We may experience foreign currency exchange losses that reduce our net income and capital levels.
Through our international operations, we conduct business in a variety of foreign (non-U.S.) currencies, principally the Canadian dollar and the Singapore dollar. Assets, liabilities, revenues and expenses denominated in foreign currencies are exposed to changes in currency exchange rates. Our reporting currency is the U.S. dollar, and exchange rate fluctuations, especially relative to the U.S. dollar, may materially impact our results and financial position. In 2021, we wrote approximately 15.8% of our coverages in non-U.S. currencies; as of December 31, 2021, we maintained approximately 8.3% of our investment portfolio in investments denominated in non-U.S. currencies. During 2021, 2020 and 2019, the impact on our quarterly pre-tax net income from exchange rate fluctuations ranged from a loss of $7.7 million to a gain of $9.3 million.
Changes in the method for determining LIBOR and the potential replacement of LIBOR may affect our cost of capital and net investment income.
On July 27, 2017, the UK Financial Conduct Authority announced that it intends to stop persuading or compelling banks to submit LIBOR rates after 2021, which is expected to result in these widely used reference rates no longer being available. In 2020 it was announced that most LIBOR rates would continue to be published until June 2023. Potential changes to LIBOR, as well as uncertainty related to such potential changes and the establishment of any alternative reference rates, may adversely affect the market for LIBOR-based securities and could adversely impact the interest rate on our long-term subordinate notes. In addition, the discontinuance of LIBOR or changes or reforms to the determination or supervision of LIBOR may result in a sudden or prolonged increase or decrease in reported LIBOR, which could have an adverse impact on the market for LIBOR-based securities or the value of our investment portfolio.
We are subject to cybersecurity risks that could negatively impact our business operations.
We are dependent upon our information technology platform, including our processing systems, data and electronic transmissions in our business operations. Security breaches could expose us to the loss or misuse of our information, litigation and potential liability. In addition, cyber incidents that impact the availability, reliability, speed, accuracy or other proper functioning of these systems could have a significant negative impact on our operations and possibly our results. An incident could also result in a violation of applicable privacy and other laws, damage our reputation, cause a loss of customers or give rise to monetary fines and other penalties, which could be significant. Management is not aware of a cybersecurity incident that has had a material impact on our operations.
The NAIC has adopted an Insurance Data Security Model Law, which, when adopted by the states will require insurers, insurance producers and other entities required to be licensed under state insurance laws to comply with certain requirements under state insurance laws, such as developing and maintaining a written information security program, conducting risk assessments and overseeing the data security practices of third-party vendors. In addition, certain state insurance regulators are developing or have developed regulations that may impose regulatory requirements relating to cybersecurity on insurance and reinsurance companies (potentially including insurance and reinsurance companies that are not domiciled, but are licensed, in the relevant state). For example, the New York State Department of Financial Services has adopted a regulation pertaining to cybersecurity for all banking and insurance entities under its jurisdiction, effective as of March 1, 2017, which applies to us. We cannot predict the impact these laws and regulations will have on our business, financial condition or results of operations, but our insurance and reinsurance companies could incur additional costs resulting from compliance with such laws and regulations.
The continuing COVID-19 pandemic has adversely affected, and may materially and adversely affect, our results of operations, financial position and liquidity in the future.
The ongoing COVID-19 pandemic, including the related impact on the U.S. and global economies, has adversely affected our results of operations. We expect the pandemic and its impact on our business to continue and potentially even worsen, but we cannot predict the magnitude or duration of its continued impact, particularly given the great uncertainties associated with COVID-19, including regarding the reopening of the U.S. and global economies and the recovery from its economic and other effects. The full impact of COVID-19 on our results of operations, financial position and liquidity is not yet known, and likely will not be known for some time, but includes the following:
Claim Losses Related to COVID-19 May Exceed Reserves: We have established reserves for COVID-19-related losses. Our reserves represent management’s best estimate of what the settlement and claims administration will cost for claims that have occurred, whether reported or unreported. Given the great uncertainties associated with COVID-19 and its impact and the limited information upon which our current assumptions and assessments have been made, our preliminary reserves and the underlying estimated level of claim losses and costs arising from COVID-19 may materially change.
Adverse Legislative and Regulatory Action: Legislative and regulatory initiatives taken or which may be taken in response to COVID-19 may adversely affect us. For example, our business may be subject to, certain initiatives, including, but not limited to: legislative and regulatory action that seeks to retroactively mandate coverage for losses which our insurance policies would not otherwise cover and which were not priced to cover; actions prohibiting us from cancelling insurance policies in accordance with our policy terms or non-renewing policies at their natural expiration; and/or orders to provide premium refunds, grant extended grace periods for premium payments, and provide extended time to pay past due premiums. Any such action would likely increase both our underwriting losses and our expenses and any legal challenges to any such action could take years to resolve.
Reduction in Premiums: The demand for insurance is significantly influenced by general economic conditions. Consequently, reduced economic activity relating to the COVID-19 pandemic is likely to decrease demand for our insurance products and services and negatively impact our premium volumes (and, in certain cases, may result in return of premiums due to a decrease in exposures). This may continue for an indefinite period, with the magnitude of the impact impossible to predict.
Investments: Further disruptions in global financial markets due to the continuing impact of COVID-19 could cause us to incur additional unrealized and/or realized investment losses, including credit impairments in our fixed maturity portfolio. In addition, the economic uncertainty resulting from COVID-19 may result in a decline in interest rates, which may negatively impact our future net investment income.
Credit Risk: As credit risk is generally a function of the economy, we face greater credit risk from our policyholders, independent agents and brokers in connection with the payment and remittance of premiums as a result of the economic conditions caused by COVID-19. Similarly, our credit risk related to the reimbursement of deductibles from policyholders and in connection with reinsurance recoverables has increased.
Operational Disruptions and Costs: Our operations could be disrupted if key members of our senior management or a significant percentage of our workforce or the workforce of our agents, brokers, suppliers or other third party service providers are unable to continue to work because of illness, government directives or otherwise. In addition, our agents, brokers, suppliers and other third party service providers, which we rely on for key aspects of our operations, are subject to risks and uncertainties related to the COVID-19 pandemic, which may interfere with their ability to fulfill their respective commitments and responsibilities to us in a timely manner and in accordance with the agreed-upon terms. In response to the COVID-19 pandemic, we have implemented remote working policies which have resulted in disruptions to our business routines, heightened risk to cybersecurity attacks and data security incidents and a greater dependency on internet and telecommunication access and capabilities.
Risks Relating to Regulation
Insurance laws and regulations restrict our ability to operate and any failure to comply with those laws and regulations could have a material adverse effect on our business.
We are subject to extensive and increasing regulation under U.S., state and foreign insurance laws. These laws limit the amount of dividends that can be paid to us by our operating subsidiaries, impose restrictions on the amount and type of investments that we can hold, prescribe solvency, accounting and internal control standards that must be met and maintained and require us to maintain reserves. These laws also require disclosure of material inter-affiliate transactions and require prior approval of “extraordinary” transactions. Such “extraordinary” transactions include declaring dividends from operating subsidiaries that exceed statutory thresholds. These laws also generally require approval of changes of control of insurance companies. The application of these laws could affect our liquidity and ability to pay dividends, interest and other payments on securities, as applicable, and could restrict our ability to expand our business operations through acquisitions of new insurance subsidiaries. We may not have or maintain all required licenses and approvals or fully comply with the wide variety of applicable laws and regulations or the relevant authority’s interpretation of the laws and regulations. If we do not have the requisite licenses and approvals or do not comply with applicable regulatory requirements, the insurance regulatory authorities could preclude or temporarily suspend us from carrying on some or all of our activities or monetarily penalize us. These types of actions could have a material adverse effect on our business. To date, no material fine, penalty or restriction has been imposed on us for failure to comply with any insurance law or regulation.
As a result of the previous dislocation of the financial markets, Congress and the previous Presidential administration in the United States implemented changes in the way the financial services industry is regulated. Some of these changes are also impacting the insurance industry. For example, the U.S. Treasury established the Federal Insurance Office with the authority to monitor all aspects of the insurance sector, monitor the extent to which traditionally underserved communities and consumers have access to affordable non-health insurance products, to represent the United States on prudential aspects of international insurance matters, to assist with administration of the Terrorism Risk Insurance Program and to advise on important national and international insurance matters. In addition, several European regulatory bodies are in process of updating existing or developing new capital adequacy directives for insurers and reinsurers. The future impact of such initiatives or new initiatives from the current Government Administration, if any, on our operation, net income (loss) or financial condition cannot be determined at this time.
Risk Relating to our seCURITIES
Because of our holding company structure, our ability to pay dividends, interest and principal is dependent on our receipt of dividends, loan payments and other funds from our subsidiaries.
We are a holding company, whose most significant asset consists of the stock of our operating subsidiaries. As a result, our ability to pay dividends, interest or other payments on our securities in the future will depend on the earnings and cash flows of the operating subsidiaries and the ability of the subsidiaries to pay dividends or to advance or repay funds to us. This ability is subject to general economic, financial, competitive, regulatory and other factors beyond our control. Payment of dividends and advances and repayments from some of the operating subsidiaries are regulated by U.S., state and foreign insurance laws and regulatory restrictions, including minimum solvency and liquidity thresholds. Accordingly, the operating subsidiaries may not be able to pay dividends or advance or repay funds to us in the future, which could prevent us from paying dividends, interest or other payments on our securities.
Risk Relating to taxation
If U.S. tax law changes, our net income may be impacted.
The 2017 TCJA addressed what some members of Congress had expressed concern about for several years, which was U.S. corporations moving their place of incorporation to low-tax jurisdictions to obtain a competitive advantage over domestic corporations that are subject to the U.S. corporate income tax rate of 21%. Specifically, it addressed their concern over a perceived competitive advantage that foreign-controlled insurers and reinsurers may have had over U.S. controlled insurers and reinsurers resulting from the purchase of reinsurance by U.S. insurers from affiliates operating in some foreign jurisdictions, including Bermuda. Such affiliated reinsurance transactions may subject the U.S. ceding companies to a Base Erosion and Anti-abuse Tax (“BEAT”) of 10% from 2019 to 2025 and 12.5% thereafter which may exceed its regular income tax. In addition, new legislation as well as proposed and final regulations may further limit the ability of the Company to execute alternative capital balancing transactions with unrelated parties. This would further impact our net income and effective tax rate.

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ITEM 1B. UNRESOLVED STAFF COMMENTS
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.

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ITEM 2. PROPERTIES
ITEM 2. PROPERTIES
Everest Re’s corporate offices are located in approximately 321,500 square feet of leased office space in Warren, New Jersey. The Company’s other 17 locations occupy a total of approximately 212,800 square feet, all of which are leased.

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ITEM 3. LEGAL PROCEEDINGS
ITEM 3. 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.

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ITEM 4. MINE SAFETY DISCLOSURE
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
PART II

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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information and Holder of Common Stock.
As of December 31, 2021, all of the Company’s common stock was owned by Holdings Ireland and was not publicly traded.
Dividend History and Restrictions.
The Company did not pay any dividends in 2021, 2020 and 2019. The declaration and payment of future dividends, if any, by the Company will be at the discretion of the Board of Directors and will depend upon many factors, including the Company’s earnings, financial condition, business needs and growth objectives, capital and surplus requirements of its operating subsidiaries, regulatory restrictions, rating agency considerations and other factors. As an insurance holding company, the Company is dependent on dividends and other permitted payments from its subsidiaries to pay cash dividends to its stockholder. The payment of dividends to Holdings by Everest Re is subject to limitations imposed by Delaware law. Generally, Everest Re may only pay dividends out of its statutory earned surplus, which was $5.7 billion at December 31, 2021, and only after it has given 10 days prior notice to the Delaware Insurance Commissioner. During this 10-day period, the Commissioner may, by order, limit or disallow the payment of ordinary dividends if the Commissioner finds the insurer to be presently or potentially in financial distress. Further, the maximum amount of dividends that may be paid without the prior approval of the Delaware Insurance Commissioner in any twelve month period is the greater of (1) 10% of an insurer’s statutory surplus as of the end of the prior calendar year or (2) the insurer’s statutory net income, not including realized capital gains, for the prior calendar year. The maximum amount that is available for the payment of dividends by Everest Re in 2022 without prior regulatory approval is $571.7 million.
Recent Sales of Unregistered Securities.
None.

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ITEM 6. SELECTED FINANCIAL DATA
ITEM 6. SELECTED FINANCIAL DATA
Information for Item 6 is not required pursuant to General Instruction I(2) of Form 10-K.

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
The following is a discussion and analysis of our results of operations and financial condition. It should be read in conjunction with the Consolidated Financial Statements and accompanying notes thereto presented under ITEM 8, “Financial Statements and Supplementary Data”.
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.
We compete in the U.S. 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, 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 historically have been 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, provided capital markets with access to insurance and reinsurance risk exposure. The capital markets demand for these products was being primarily driven by a low interest environment and the desire to achieve greater risk diversification and potentially higher returns on their investments. This increased competition was generally having a negative impact on rates, terms and conditions; however, the impact varies widely by market and coverage.
The industry continues to deal with the impacts of a global pandemic, COVID-19 and its subsequent variants. We 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.
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. The increased frequency of catastrophe losses in 2020 and 2021 appears to be further pressuring the increase of rates. As business activity continues to regain strength, rates also appear to be firming in most 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 are experiencing modest rate increase, while some lines such as workers’ compensation were experiencing softer market conditions. It is too early to tell what the impact on pricing conditions will be 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 and a low operating expense ratio. Our diversified global platform with its broad mix of products, distribution and geography is resilient.
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:
Years Ended December 31,
Percentage Increase/(Decrease)
(Dollars in millions)
2021/2020
2020/2019
Gross written premiums
$
9,331.0
$
7,957.0
$
7,053.1
17.3%
12.8%
Net written premiums
7,719.4
6,638.7
5,774.9
16.3%
15.0%
REVENUES:
Premiums earned
$
7,178.6
$
6,406.6
$
5,489.0
12.1%
16.7%
Net investment income
745.0
375.9
356.2
98.2%
5.5%
Net realized capital gains (losses)
501.3
49.8
419.4
NM
-88.1%
Other income (expense)
23.4
(14.6)
(1.6)
NM
NM
Total revenues
8,448.2
6,817.7
6,263.0
23.9%
8.9%
CLAIMS AND EXPENSES:
Incurred losses and loss adjustment expenses
5,386.9
4,608.1
3,829.1
16.9%
20.3%
Commission, brokerage, taxes and fees
1,512.5
1,373.4
1,270.1
10.1%
8.1%
Other underwriting expenses
454.1
401.0
350.9
13.2%
14.3%
Corporate expense
33.3
16.0
13.1
108.5%
22.4%
Interest, fee and bond issue cost amortization expense
70.0
35.7
34.9
96.2%
2.1%
Total claims and expenses
7,456.8
6,434.2
5,498.1
15.9%
17.0%
INCOME (LOSS) BEFORE TAXES
991.5
383.5
765.0
158.5%
-49.9%
Income tax expense (benefit)
191.6
31.7
135.2
NM
-76.6%
NET INCOME (LOSS)
$
799.8
$
351.9
$
629.7
127.3%
-44.1%
RATIOS:
Point Change
Loss ratio
75.0%
71.9%
69.8%
3.1
2.1
Commission and brokerage ratio
21.1%
21.4%
23.1%
(0.3)
(1.7)
Other underwriting expense ratio
6.3%
6.3%
6.4%
-
(0.1)
Combined ratio
102.4%
99.6%
99.3%
2.8
0.3
At December 31,
Percentage Increase/ (Decrease)
(Dollars in millions)
2021/2020
2020/2019
Balance sheet data:
Total investments and cash
$
19,718.8
$
15,910.2
$
11,956.3
23.9%
33.1%
Total assets
27,695.0
23,640.2
19,626.1
17.2%
20.5%
Loss and loss adjustment expense reserves
13,121.2
11,578.1
10,129.1
13.3%
14.3%
Total debt
3,088.6
1,910.4
633.8
61.7%
201.4%
Total liabilities
20,656.9
17,225.9
13,768.7
19.9%
25.1%
Stockholder's equity
7,038.0
6,414.3
5,857.4
9.7%
9.5%
(Some amounts may not reconcile due to rounding)
(NM, not meaningful)
Revenues.
Premiums. Gross written premiums increased by 17.3% to $9.3 billion in 2021, compared to $8.0 billion in 2020, reflecting a $762.5 million, or 14.5%, increase in our reinsurance business and a $611.5 million, or 22.7%, increase
in our insurance business. The rise in reinsurance premiums was due to increases in most lines of business, notably casualty pro rata business, casualty excess of loss business, property pro rata business and property catastrophe excess of loss business as well as positive impact from the movement of foreign exchange rates. The rise in insurance premiums was mainly due to increases in specialty casualty business, professional liability business and short tail business, including property. Net written premiums increased by 16.3% to $7.7 billion in 2021, compared to $6.6 billion in 2020 which is consistent with the change in gross written premiums. Premiums earned increased by 12.1% to $7.2 billion in 2021, compared to $6.4 billion in 2020. 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 income of $23.4 million and other expense of $14.6 million in 2021 and 2020, respectively. The changes were 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.
Total
Current
Ratio %/
Prior
Ratio %/
Total
Ratio %/
(Dollars in millions)
Year
Pt Change
Years
Pt Change
Incurred
Pt Change
Attritional (a)
$
4,438.8
61.8%
$
8.0
0.1%
$
4,446.9
61.9%
Catastrophes
942.7
13.1%
(2.7)
-%
940.0
13.1%
Total
$
5,381.5
74.9%
$
5.3
0.1%
$
5,386.9
75.0%
Attritional (a)
$
3,997.2
62.4%
$
213.5
3.3%
$
4,210.8
65.7%
Catastrophes
410.6
6.4%
(13.2)
-0.2%
397.4
6.2%
Total
$
4,407.8
68.8%
$
200.3
3.1%
$
4,608.1
71.9%
Attritional (a)
$
3,271.4
59.6%
$
(16.0)
-0.3%
$
3,255.5
59.3%
Catastrophes
513.3
9.4%
60.3
1.1%
573.7
10.5%
Total
$
3,784.8
69.0%
$
44.4
0.8%
$
3,829.1
69.8%
Variance 2021/2020
Attritional (a)
$
441.6
(0.6)
pts
$
(205.5)
(3.2)
pts
$
236.1
(3.8)
pts
Catastrophes
532.2
6.7
pts
10.4
0.2
pts
542.6
6.9
pts
Total
$
973.8
6.1
pts
$
(195.0)
(3.0)
pts
$
778.7
3.1
pts
Variance 2020/2019
Attritional (a)
$
725.8
2.8
pts
$
229.5
3.6
pts
$
955.3
6.4
pts
Catastrophes
(102.7)
(3.0)
pts
(73.5)
(1.3)
pts
(176.3)
(4.3)
pts
Total
$
623.0
(0.2)
pts
$
155.9
2.3
pts
$
779.0
2.1
pts
(a) Attritional losses exclude catastrophe losses.
(Some amounts may not reconcile due to rounding.)
Incurred losses and LAE increased by 16.9% to $5.4 billion in 2021 compared to $4.6 billion in 2020, primarily due to an increase of $532.2 million in current year catastrophe losses and an increase of $441.6 million in current year attritional losses including the impact of a change in the Company’s reinsurance program with an affiliate,
partially offset by more favorable development on prior year attritional losses in 2021 compared to 2020. The increase is current year attritional losses was mainly related to the impact of the increase in premiums earned, partially mitigated by $154.8 million of COVID-19 losses incurred in 2020 which did not recur in 2021, and an increase of $532.2 million in current year catastrophe losses. The current year catastrophe losses of $942.7 million in 2021 primarily related to Hurricane Ida ($423.2 million), the Texas winter storms ($288.2 million), the European floods ($107.8 million), the Canada drought loss ($80.0 million) and the Quad State Tornadoes ($42.0 million), with the rest of the losses emanating from the 2021 Australia floods. The current year catastrophe losses of $410.6 million in 2020 related to Hurricane Laura ($115.0 million), the Northern California wildfires ($44.1 million), Hurricane Zeta ($36.5 million), Hurricane Sally ($31.4 million), the California Glass wildfire ($29.5 million), the Nashville tornadoes ($22.8 million), the Derecho storms ($20.5 million), Hurricane Isaias ($20.0 million), Hurricane Delta ($18.5 million), the Calgary storms in Canada ($17.4 million), Oregon wildfires ($17.0 million), the U.S. Civil Unrest ($14.5 million) the Queensland hailstorm ($10.0 million), the Australia East Coast storm ($6.8 million) and the 2020 Australia fires ($6.5 million).
Commission, Brokerage, Taxes and Fees. Commission, brokerage, taxes and fees increased to $1.5 billion in 2021 compared to $1.4 billion in 2020. The increase was mainly due to increases in premiums earned and changes in the mix of business.
Other Underwriting Expenses. Other underwriting expenses were $454.1 million and $401.0 million in 2021 and 2020, respectively. The increase in other underwriting expenses in 2021 was mainly due to the continued build out of our insurance operations and growth overall; broadly in line with the year over year increase in premiums earned.
Corporate Expenses. Corporate expenses, which are general operating expenses that are not allocated to segments, were $33.3 million and $16.0 million for the years ended December 31, 2021 and 2020, respectively. The variances were mainly due to higher compensation costs from increased staff count.
Interest, Fees and Bond Issue Cost Amortization Expense. Interest, fees and other bond amortization expense were $70.0 million and $35.7 million in 2021 and 2020, respectively. The increase in interest expense was primarily due to the issuance of $1.0 billion of senior notes in October 2020 and the issuance of $1.0 billion of senior notes in October 2021. Interest expense was also impacted by the movements in the floating interest rate related to the long term subordinated notes, which is reset quarterly per the note agreement. The floating rate was 2.54% as of December 31, 2021.
Income Tax Expense (Benefit). The Company had an income tax expense of $191.6 million and $31.7 million in 2021 and 2020, 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 resulted primarily from higher investment income, capital gains and earned premiums offset by an increase in catastrophe losses.
The Coronavirus Aid, Relief, and Economic Security (“CARES”) Act, enacted on March 27, 2020, provided that U.S. companies could carryback for five years net operating losses incurred in 2018, 2019 and/or 2020. This beneficial tax provision in the CARES Act enabled the Company to carryback its significant 2018 net operating losses to prior tax years with higher effective tax rates of 35% versus 21% in 2018 and later years. As a result, the Company was able to record a net income tax benefit from the five-year carryback of $32.5 million and obtain federal income tax cash refunds of $182.5 million including interest in 2020.
Net Income (Loss).
Our net income was $799.8 million and $351.9 million in 2021 and 2020, respectively. The change was primarily driven by the financial component fluctuations explained above.
Ratios.
Our combined ratio increased by 2.8 points to 102.4% in 2021 compared to 99.6% in 2020. The loss ratio component increased by 3.1 points in 2021 over the same period last year. The increase was mainly due to higher current year catastrophe losses, partially offset by COVID 19 losses in 2020 which did not recur in 2021. The commission and brokerage ratio component decreased to 21.1% in 2021 compared to 21.4% in 2020, reflecting changes in affiliated reinsurance agreements and changes in the mix of business. The other underwriting expense ratio remained the same at 6.3% in 2021 and 2020.
Stockholder's Equity.
Stockholder’s equity increased by $623.7 million to $7.0 billion at December 31, 2021 from $6.4 billion at December 31, 2020, principally as a result of $799.8 million of net income and $23.5 million of net benefit plan obligation adjustments, partially offset by $191.3 million of net unrealized depreciation on investments, net of tax and $8.7 million of net foreign currency translation adjustments.
Consolidated Investment Results
Net Investment Income.
Net investment income increased by 98.2% to $745.0 million in 2021 compared to $375.9 million in 2020. The increase in 2021 was primarily the result of a significant increase in limited partnership income and higher income from other alternative investments. The limited partnership income primarily reflects increases in their reported net asset values. As such, until these asset values are monetized and the resultant income is distributed, they are subject to future increases or decreases in the asset value, and the results may be volatile.
The following table shows the components of net investment income for the periods indicated:
Years Ended December 31,
(Dollars in millions)
Fixed maturities
$
343.7
$
305.4
$
273.1
Equity securities
15.3
11.5
10.8
Short-term investments and cash
0.5
3.0
10.2
Other invested assets
Limited partnerships
321.1
48.9
43.3
Dividends from preferred shares of affiliate
31.0
31.0
31.0
Other
62.9
1.7
14.1
Gross investment income before adjustments
774.5
401.5
382.6
Funds held interest income (expense)
7.7
5.7
6.5
Interest income from Parent
6.0
5.2
0.2
Gross investment income
788.1
412.3
389.3
Investment expenses
(43.1)
(36.4)
(33.1)
Net investment income
$
745.0
$
375.9
$
356.2
(Some amounts may not reconcile due to rounding.)
The following table shows a comparison of various investment yields for the periods indicated:
Annualized pre-tax yield on average cash and invested assets
4.4
%
2.8
%
3.2
%
Annualized after-tax yield on average cash and invested assets
3.5
%
2.3
%
2.6
%
Net Realized Capital Gains (Losses).
The following table presents the composition of our net realized capital gains (losses) for the periods indicated:
Years Ended December 31,
2021/2020
2020/2019
(Dollars in millions)
Variance
Variance
Gains (losses) from sales:
Fixed maturity securities, market value
Gains
$
32.7
$
24.2
$
24.7
$
8.5
$
(0.5)
Losses
(24.5)
(56.8)
(17.1)
32.3
(39.7)
Total
8.2
(32.6)
7.6
40.8
(40.2)
Fixed maturity securities, fair value
Gains
-
-
0.4
-
(0.4)
Losses
-
(2.9)
-
2.9
(2.9)
Total
-
(2.9)
0.4
2.9
(3.3)
Equity securities, fair value
Gains
39.1
37.4
14.2
1.7
23.2
Losses
(14.6)
(45.3)
(10.1)
30.7
(35.2)
Total
24.4
(7.9)
4.1
32.3
(12.0)
Other invested assets
Gains
10.0
7.7
6.7
2.3
1.0
Losses
(3.8)
(6.0)
(0.7)
2.2
(5.3)
Total
6.2
1.7
6.0
4.5
(4.3)
Short Term Investments:
Gains
-
1.1
0.2
(1.1)
0.9
Losses
-
-
-
-
-
Total
-
1.1
0.2
(1.1)
0.9
Total net realized gains (losses) from sales
Gains
81.8
70.4
46.3
11.4
24.1
Losses
(43.0)
(111.0)
(27.9)
68.0
(83.1)
Total
38.8
(40.6)
18.4
79.4
(59.0)
Allowances for credit losses:
(25.9)
(1.6)
-
(24.3)
(1.6)
Other than temporary impairments:
-
-
(19.6)
-
19.6
Gains (losses) from fair value adjustments:
Fixed maturities, fair value
-
1.9
1.8
(1.9)
0.1
Equity securities, fair value
254.1
276.1
153.7
(22.0)
122.4
Other invested assets, fair value
234.3
(186.1)
265.2
420.4
(451.3)
Total
488.4
91.9
420.7
396.5
(328.8)
Total net realized gains (losses)
$
501.3
$
49.8
$
419.4
$
451.5
$
(369.6)
(Some amounts may not reconcile due to rounding.)
Segment Results.
The Company’s operations are comprised of its Reinsurance segment and its Insurance segment. 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.
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 Reinsurance segment for the periods indicated.
Years Ended December 31,
2021/2020
2020/2019
(Dollars in millions)
Variance
% Change
Variance
% Change
Gross written premiums
$
6,028.2
$
5,265.7
$
4,600.4
$
762.5
14.5%
$
665.3
14.5%
Net written premiums
5,264.7
4,632.3
3,923.8
632.4
13.7%
708.5
18.1%
Premiums earned
$
4,948.7
$
4,484.7
$
3,796.2
$
464.0
10.3%
$
688.5
18.1%
Incurred losses and LAE
3,761.1
3,209.2
2,692.7
551.9
17.2%
516.5
19.2%
Commission and brokerage
1,250.1
1,120.0
1,027.3
130.2
11.6%
92.7
9.0%
Other underwriting expenses
143.1
119.3
110.0
23.8
19.9%
9.3
8.5%
Underwriting gain (loss)
$
(205.6)
$
36.2
$
(33.9)
$
(241.9)
NM
$
70.1
(207.6)%
Point Chg
Point Chg
Loss ratio
76.0%
71.6%
70.9%
4.4
0.7
Commission and brokerage ratio
25.3%
25.0%
27.1%
0.3
(2.1)
Other underwriting expense ratio
2.9%
2.6%
2.9%
0.3
(0.3)
Combined ratio
104.2%
99.2%
100.9%
5.0
(1.7)
(Some amounts may not reconcile due to rounding)
Premiums. Gross written premiums increased by 14.5% to $6.0 billion in 2021 from $5.3 billion in 2020, primarily due to increases in most lines of business, notably casualty pro rata business, casualty excess of loss business, property pro rata business and property catastrophe excess of loss business. Net written premiums increased by 13.7% to $5.3 billion in 2021 compared to $4.6 billion in 2020, which is consistent with the change in gross written premiums. Premiums earned increased 10.3% to $4.9 billion in 2021 compared to $4.5 billion in 2020. 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. The following table presents the incurred losses and LAE for the Reinsurance segment for the periods indicated.
Years Ended December 31,
Current
Ratio %/
Prior
Ratio %/
Total
Ratio %/
(Dollars in millions)
Year
Pt Change
Years
Pt Change
Incurred
Pt Change
Attritional
$
3,003.7
60.7%
$
(31.8)
(0.6)%
$
2,971.9
60.1%
Catastrophes
791.9
16.0%
(2.7)
(0.1)%
789.2
15.9%
Total segment
$
3,795.6
76.7%
$
(34.5)
(0.7)%
$
3,761.1
76.0%
Attritional
$
2,692.2
60.0%
$
187.3
4.2%
$
2,879.5
64.2%
Catastrophes
342.5
7.6%
(12.8)
(0.3)%
329.7
7.4%
Total segment
$
3,034.7
67.7%
$
174.5
3.9%
$
3,209.2
71.6%
Attritional
$
2,140.1
56.4%
$
(15.4)
(0.4)%
$
2,124.7
56.0%
Catastrophes
509.3
13.4%
58.7
1.5%
568.0
14.9%
Total segment
$
2,649.4
69.8%
$
43.3
1.1%
$
2,692.7
70.9%
Variance 2021/2020
Attritional
$
311.5
0.7
pts
$
(219.1)
(4.8)
pts
$
92.4
(4.1)
pts
Catastrophes
449.3
8.4
pts
10.1
0.2
pts
459.4
8.5
pts
Total segment
$
760.9
9.0
pts
$
(209.0)
(4.6)
pts
$
551.8
4.4
pts
Variance 2020/2019
Attritional
$
552.1
3.6
pts
$
202.7
4.6
pts
$
754.8
8.2
pts
Catastrophes
(166.8)
(5.8)
pts
(71.5)
(1.8)
pts
(238.3)
(7.5)
pts
Total segment
$
385.3
(2.1)
pts
$
131.2
2.8
pts
$
516.5
0.7
pts
(Some amounts may not reconcile due to rounding.)
Incurred losses increased by 17.2% to $3.8 billion in 2021 compared to $3.2 billion in 2020. The increase was primarily due to an increase of $449.3 million in current years catastrophe losses and an increase of $311.5 million in current year attritional losses including the impact of a change in the Company’s reinsurance program with an affiliate, partially offset by more favorable development on prior years attritional losses in 2021 compared to 2020. The increase in current year attritional losses was primarily related to the impact of the increase in premiums earned, partially mitigated by $116.4 million of COVID-19 losses incurred in 2020 which did not recur in 2021. The current year catastrophe losses of $791.9 million in 2021 primarily related to Hurricane Ida ($344.9 million), the Texas winter storms ($230.7 million), the European floods ($107.8 million), the Canada drought loss ($80.0 million) and the Quad State Tornadoes ($27.0 million), with the rest of the losses emanating from the 2021 Australia floods. The current year catastrophe losses of $342.5 million in 2020 primarily related to Hurricane Laura ($96.5 million), the Northern California wildfires ($44.1 million), the California Glass wildfire ($29.5 million), Hurricane Zeta ($28.5 million), Hurricane Isaias ($17.8 million), the Derecho storms ($17.5 million), the Nashville tornadoes ($17.3 million), Oregon wildfires ($17.0 million), Hurricane Delta ($16.5 million), Hurricane Sally ($15.5 million), the Calgary storms in Canada ($14.9 million), the Queensland hailstorm ($10.0 million), the Australia East Coast storm ($6.8 million), the 2020 Australia fires ($6.5 million), and the U.S. Civil Unrest ($4.1 million).
Segment Expenses. Commission and brokerage increased to $1.3 billion in 2021 compared to $1.1 billion in 2020. The increase was mainly due to the impact of the increase in premiums earned and changes in the mix of
business. Segment other underwriting expenses increased to $143.1 million in 2021 from $119.3 million in 2020, mainly due to the impact of the increase in premiums earned.
Insurance.
The following table presents the underwriting results and ratios for the Insurance segment for the periods indicated.
Years Ended December 31,
2021/2020
2020/2019
(Dollars in millions)
Variance
% Change
Variance
% Change
Gross written premiums
$
3,302.8
$
2,691.3
$
2,452.7
$
611.5
22.7%
$
238.6
9.7%
Net written premiums
2,454.8
2,006.4
1,851.2
448.4
22.3%
155.2
8.4%
Premiums earned
$
2,229.9
$
1,921.9
$
1,692.9
$
308.0
16.0%
$
229.0
13.5%
Incurred losses and LAE
1,625.8
1,399.0
1,136.4
226.9
16.2%
262.7
23.1%
Commission and brokerage
262.4
253.4
242.8
9.0
3.6%
10.6
4.4%
Other underwriting expenses
311.0
281.7
240.9
29.2
10.4%
40.7
16.9%
Underwriting gain (loss)
$
30.8
$
(12.2)
$
72.8
$
42.9
NM
$
(84.9)
(116.4)%
Point Chg
Point Chg
Loss ratio
72.9%
72.8%
67.1%
0.1
5.7
Commission and brokerage ratio
11.8%
13.2%
14.3%
(1.4)
(1.1)
Other underwriting expense ratio
13.9%
14.6%
14.3%
(0.7)
0.3
Combined ratio
98.6%
100.6%
95.7%
(2.0)
4.9
(Some amounts may not reconcile due to rounding)
(NM, not meaningful)
Premiums. Gross written premiums increased by 22.7% to $3.3 billion in 2021 compared to $2.7 billion in 2020. This increase was primarily due to increases in specialty casualty business, professional liability business and short tail business, including property. Net written premiums increased by 22.3% to $2.5 billion in 2021 compared $2.0 billion in 2020 which is consistent with the change in gross written premiums. Premiums earned increased 16.0% to $2.2 billion in 2021 compared to $1.9 billion in 2020. 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 table presents the incurred losses and LAE for the Insurance segment for the periods indicated.
Years Ended December 31,
Current
Ratio %/
Prior
Ratio %/
Total
Ratio %/
(Dollars in millions)
Year
Pt Change
Years
Pt Change
Incurred
Pt Change
Attritional
$
1,435.1
64.4%
$
39.8
1.8%
$
1,475.0
66.1%
Catastrophes
150.8
6.8%
-
(0.0)%
150.8
6.8%
Total segment
$
1,586.0
71.1%
$
39.8
1.8%
$
1,625.8
72.9%
Attritional
$
1,305.1
67.9%
$
26.3
1.4%
$
1,331.3
69.3%
Catastrophes
68.0
3.5%
(0.4)
(0.0)%
67.7
3.5%
Total segment
$
1,373.1
71.4%
$
25.9
1.3%
$
1,399.0
72.8%
Attritional
$
1,131.3
66.8%
$
(0.5)
-%
$
1,130.8
66.8%
Catastrophes
4.0
0.2%
1.7
0.1%
5.7
0.3%
Total segment
$
1,135.3
67.0%
$
1.2
0.1%
$
1,136.4
67.1%
Variance 2021/2020
Attritional
$
130.1
(3.5)
pts
$
13.6
0.4
pts
$
143.7
(3.2)
pts
Catastrophes
82.8
3.3
pts
0.3
-
pts
83.2
3.3
pts
Total segment
$
212.9
(0.3)
pts
$
13.9
0.5
pts
$
226.8
0.1
pts
Variance 2020/2019
Attritional
$
173.8
1.1
pts
$
26.8
1.4
pts
$
200.6
2.5
pts
Catastrophes
64.0
3.3
pts
(2.1)
(0.1)
pts
62.0
3.2
pts
Total segment
$
237.8
4.4
pts
$
24.7
1.2
pts
$
262.7
5.7
pts
(Some amounts may not reconcile due to rounding.)
Incurred losses and LAE increased by 16.2% to $1.6 billion in 2021 compared to $1.4 billion in 2020, mainly due to an increase of $130.1 million of current year attritional losses and an increase of $82.8 million in current year catastrophe losses. The rise in current year attritional losses was primarily due to the impact of the increase in premiums earned, partially mitigated by $38.4 million of COVID-19 losses incurred in 2020 which did not recur in 2021. The $150.8 million of current year catastrophe losses in 2021, primarily related to Hurricane Ida ($78.3 million), the Texas winter storms ($57.5 million) and the Quad State Tornadoes ($15.0 million). The $68.0 million of current year catastrophe losses in 2020, primarily related to Hurricane Laura ($18.5 million), Hurricane Sally ($15.9 million), the U.S. Civil Unrest ($10.4 million), Hurricane Zeta ($8.0 million), the Nashville tornadoes ($5.5 million), the Derecho storms ($3.0 million), the Calgary storms in Canada ($2.5 million), Hurricane Isaias ($2.2 million), and Hurricane Delta ($2.0 million).
Segment Expenses. Commission and brokerage increased to $262.4 million in 2021 compared to $253.4 million in 2020. Segment other underwriting expenses increased to $311.0 million in 2021 compared to $281.7 million in 2020. The increases were mainly due to the impact of the increases in premiums earned and expenses related to the continued build out of the insurance business.
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 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”. 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 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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, fixed maturity portfolio, while maintaining an adequate level of liquidity. The fixed maturity securities in the investment portfolio are comprised of non-trading available for sale securities. Additionally, we have invested in equity securities, private equity and private placement loans.
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 $19.7 billion investment portfolio, at December 31, 2021, 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 $1.9 billion of mortgage-backed securities in the $12.9 billion 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 $695.9 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 December 31, 2021
(Dollars in millions)
O
Total Market/Fair Value
$
14,300.0
$
13,927.9
$
13,556.3
$
13,184.7
$
12,813.1
Market/Fair Value Change from Base (%)
5.5
%
2.7
%
-
%
-2.7
%
-5.5
%
Change in Unrealized Appreciation
After-tax from Base ($)
$
587.2
$
293.6
$
-
$
(293.6)
$
(587.2)
Impact of Interest Rate Shift in Basis Points
At December 31, 2020
(Dollars in millions)
O
Total Market/Fair Value
$
12,041.1
$
11,696.3
$
11,351.5
$
11,006.7
$
10,661.9
Market/Fair Value Change from Base (%)
6.1
%
3.0
%
-
%
-3.0
%
-6.1
%
Change in Unrealized Appreciation
After-tax from Base ($)
$
544.8
$
272.4
$
-
$
(272.4)
$
(544.8)
We had $13.1 billion and $11.6 billion of gross reserves for losses and LAE as of December 31, 2021 and December 31, 2020, 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.
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 December 31, 2021
(Dollars in millions)
-20%
-10%
0%
10%
20%
Fair/Market Value of the Equity Portfolio
$
1,406.2
$
1,582.0
$
1,757.8
$
1,933.6
$
2,109.4
After-tax Change in Fair/Market Value
(277.7)
(138.9)
-
138.9
277.7
Impact of Percentage Change in Equity Fair/Market Values
At December 31, 2020
(Dollars in millions)
-20%
-10%
0%
10%
20%
Fair/Market Value of the Equity Portfolio
$
1,031.0
$
1,159.9
$
1,288.8
$
1,417.6
$
1,546.5
After-tax Change in Fair/Market Value
(203.6)
(101.8)
-
101.8
203.6
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.
The tables below display the potential impact of a parallel and immediate 10% and 20% increase and decrease in foreign exchange rates on the valuation of invested assets subject to foreign currency exposure for the periods indicated. This analysis includes the after-tax impact of translation from transactional currency to functional currency as well as the after-tax impact of translation from functional currency to the U.S. dollar reporting currency.
Change in Foreign Exchange Rates in Percent
At December 31, 2021
(Dollars in millions)
-20%
-10%
0%
10%
20%
Total After-tax Foreign Exchange Exposure
$
(190.4)
$
(95.2)
$
-
$
95.2
$
190.4
Change in Foreign Exchange Rates in Percent
At December 31, 2020
(Dollars in millions)
-20%
-10%
0%
10%
20%
Total After-tax Foreign Exchange Exposure
$
(162.3)
$
(81.1)
$
-
$
81.1
$
162.3

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and schedules listed in the accompanying Index to Financial Statements and Schedules on page are filed as part of this report.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.

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ITEM 9A. CONTROLS AND PROCEDURES
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
As required by Rule 13a-15(b) of the Securities Exchange Act of 1934 (the Exchange Act), our management, including our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act). Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of the end of the period covered by this annual report.
Management’s Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal controls over financial reporting. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our financial statements for external purposes in accordance with generally accepted accounting principles.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management has assessed the effectiveness of our internal control over financial reporting as of December 31, 2021. In making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control - Integrated Framework (2013). Based on our assessment we concluded that, as of December 31, 2021, our internal control over financial reporting is effective based on those criteria.
Attestation Report of the Registered Public Accounting Firm
This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s internal controls are not subject to attestation by the Company’s registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report due to the Company’s status as a non-accelerated filer.
Changes in Internal Control Over Financial Reporting
As required by Rule 13a-15(d) of the Exchange Act, our management, including our Chief Executive Officer and Chief Financial Officer, has evaluated our internal control over financial reporting to determine whether any changes occurred during the fourth fiscal quarter covered by this annual 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 fourth quarter.

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ITEM 9B. OTHER INFORMATION
ITEM 9B. OTHER INFORMATION
None.

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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information for Item 10 is not required pursuant to General Instruction I(2) of Form 10-K.

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ITEM 11. EXECUTIVE COMPENSATION
ITEM 11. EXECUTIVE COMPENSATION
Information for Item 11 is not required pursuant to General Instruction I(2) of Form 10-K.

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Information for Item 12 is not required pursuant to General Instruction I(2) of Form 10-K.

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Information for Item 13 is not required pursuant to General Instruction I(2) of Form 10-K.

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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The PricewaterhouseCoopers LLP (and its worldwide affiliates) fees incurred are as follows for the periods indicated:
(Dollars in thousands)
(1)
Audit Fees
$
3,555.1
$
3,529.0
(2)
Audit-Related Fees
281.0
134.2
(3)
Tax Fees
614.2
691.0
(4)
All Other Fees
16.6
16.5
Audit fees include the annual audit and quarterly financial statement reviews, subsidiary audits, and procedures required to be performed by the independent auditor to be able to form an opinion on our consolidated financial statements. These other procedures include information systems and procedural reviews and testing performed in order to understand and place reliance on the systems of internal control, and consultations relating to the audit or quarterly review. Audit fees may also include statutory audits or financial audits for our subsidiaries or affiliates and services associated with SEC registration statements, periodic reports and other documents filed with the SEC or other documents issued in connection with securities offerings.
Audit-related fees include assurance and related services that are reasonably related to the performance of the audit or review of our financial statements, including due diligence services pertaining to potential business acquisitions/dispositions, accounting consultations related to accounting, financial reporting or disclosure matters not classified as “audit services”; assistance with understanding and implementing new accounting and financial reporting guidance from rule making authorities; financial audits of employee benefit plans; agreed-upon or expanded audit procedures related to accounting and/or billing records required to respond to or comply with financial, accounting or regulatory reporting matters and assistance with internal control reporting requirements.
Tax fees include tax compliance, tax planning and tax advice and is granted general pre-approval by Group’s Audit Committee.
All other fees represent an accounting research subscription and software.
Under its Charter and the “Audit and Non-Audit Services Pre-Approval Policy” (the “Policy”), the Audit Committee is required to pre-approve the audit and non-audit services to be performed by the independent auditors. The Policy mandates specific approval by the Audit Committee for any service that has not received a general pre-approval or that exceeds pre-approved cost levels or budgeted amounts. For both specific and general pre-approval, the Audit Committee considers whether such services are consistent with the SEC’s rules on auditor independence. The Audit Committee also considers whether the independent auditors are best positioned to provide the most effective and efficient service and whether the service might enhance the Company’s ability to manage or control risk or improve audit quality. The Audit Committee is also mindful of the relationship between fees for audit and non-audit services in deciding whether to pre-approve any such services. It may determine, for each fiscal year, the appropriate ratio between the total amount of audit, audit-related and tax fees and a total amount of fees for certain permissible non-audit services classified below as “All Other Fees”. All such factors are considered as a whole, and no one factor is determinative. The Audit Committee further considered whether the performance by PricewaterhouseCoopers LLP of the non-audit related services disclosed below is compatible with maintaining their independence. The Audit Committee approved all of the audit-related fees, tax fees and all other fees for 2021 and 2020.
PART IV

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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
Exhibits
The exhibits listed on the accompanying Index to Exhibits on page E-1 are filed as part of this report except that the certifications in Exhibit 32 are being furnished to the SEC, rather than filed with the SEC, as permitted under applicable SEC rules.
Financial Statements and Schedules.
The financial statements and schedules listed in the accompanying Index to Financial Statements and Schedules on page are filed as part of this report.