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EVEREST REINSURANCE HOLDINGS INC – 10-K – 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 byA.M. Best and/orStandard & 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 theU.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. 15 -------------------------------------------------------------------------------- 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. 16 --------------------------------------------------------------------------------
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:
Percentage
Years Ended December 31, Increase/(Decrease)
(Dollars in millions) 2021 2020 2019 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 501.3 49.8 419.4 NM -88.1%
(losses)
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 5,386.9 4,608.1 3,829.1 16.9% 20.3%
adjustment expenses
Commission, brokerage, taxes 1,512.5 1,373.4 1,270.1 10.1% 8.1%
and fees
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 70.0 35.7 34.9 96.2% 2.1%
cost amortization expense
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 2019 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 13.3% 14.3%
expense reserves 13,121.2 11,578.1 10,129.1
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
compared to
increase in our reinsurance business and a
17 -------------------------------------------------------------------------------- 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
expense of
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
2021
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%
2020
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%
2019
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, 18 -------------------------------------------------------------------------------- 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 ), theTexas winter storms ($288.2 million ), the European floods ($107.8 million ), theCanada 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 ), theNorthern California wildfires ($44.1 million ), Hurricane Zeta ($36.5 million ), Hurricane Sally ($31.4 million ), the California Glass wildfire ($29.5 million ), theNashville tornadoes ($22.8 million ), the Derecho storms ($20.5 million ), Hurricane Isaias ($20.0 million ),Hurricane Delta ($18.5 million ), the Calgary storms inCanada ($17.4 million ),Oregon wildfires ($17.0 million ), theU.S. Civil Unrest ($14.5 million ) theQueensland hailstorm ($10.0 million ), theAustralia 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 endedDecember 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 inOctober 2020 and the issuance of$1.0 billion of senior notes inOctober 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 ofDecember 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 onMarch 27, 2020 , provided thatU.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
respectively. The change was primarily driven by the financial component
fluctuations explained above.
19 --------------------------------------------------------------------------------
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 atDecember 31, 2021 from$6.4 billion atDecember 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$375.9 million in 2020. The increase in 2021 was primarily the result of a significant increase in limited partnership income and higher income from other alternative investments. The limited partnership income primarily reflects increases in their reported net asset values. As such, until these asset values are monetized and the resultant income is distributed, they are subject to future increases or decreases in the asset value, and the results may be volatile. The following table shows the components of net investment income for the periods indicated: Years Ended December 31, (Dollars in millions) 2021 2020 2019 Fixed maturities$ 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:
2021 2020 2019
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 %
20
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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) 2021 2020 2019 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) 21
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(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) 2021 2020 2019 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
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
11.6%
brokerage 1,250.1 1,120.0 1,027.3 130.2 92.7 9.0%
Other underwriting
expenses 143.1 119.3 110.0 23.8 19.9% 9.3 8.5%
Underwriting gain $ $ $ $ NM $
(loss) (205.6) 36.2 (33.9) (241.9) 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. 22 --------------------------------------------------------------------------------
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
2021
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%
2020
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%
2019
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
(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 ), theTexas winter storms ($230.7 million ), the European floods ($107.8 million ), theCanada drought loss ($80.0 million ) and the Quad State Tornadoes ($27.0 million ), with the rest of the losses emanating from the 2021Australia floods. The current year catastrophe losses of$342.5 million in 2020 primarily related to Hurricane Laura ($96.5 million ), theNorthern 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 ), theNashville tornadoes ($17.3 million ),Oregon wildfires ($17.0 million ),Hurricane Delta ($16.5 million ), Hurricane Sally ($15.5 million ), the Calgary storms inCanada ($14.9 million ), theQueensland hailstorm ($10.0 million ), theAustralia East Coast storm ($6.8 million ), the 2020 Australia fires ($6.5 million ), and theU.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 23 -------------------------------------------------------------------------------- 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) 2021 2020 2019 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 3.6%
brokerage 262.4 253.4 242.8 9.0 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.
24
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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
2021
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%
2020
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%
2019
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 ), theTexas 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 ), theU.S. Civil Unrest ($10.4 million ), Hurricane Zeta ($8.0 million ), theNashville tornadoes ($5.5 million ), the Derecho storms ($3.0 million ), the Calgary storms inCanada ($2.5 million ), Hurricane Isaias ($2.2 million ), andHurricane 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. 25 --------------------------------------------------------------------------------
SAFE HARBOR DISCLOSURE
This report contains forward-looking statements within the meaning of theU.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.
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