UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM

10-Q

_X_

 Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended

September 30, 2020

___

 Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission file number

1-15731

EVEREST RE GROUP, LTD.

(Exact name of registrant as specified in its charter)

Bermuda

98-0365432

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

Seon Place – 4th Floor

141 Front Street

PO Box HM 845

Hamilton

HM 19

,

Bermuda

441

-

295-0006

(Address, including zip code, and telephone number, including area code,

of registrant’s principal executive office)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities

Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),

and (2) has been subject to such filing requirements for the past 90 days.

Yes

X

No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant

to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such

files).

Yes

X

No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting

company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting

company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. 

Large Accelerated Filer

X

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

Indicate by check mark if the registrant is an emerging growth company and has elected not to use the extended transition period for

complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange act. 

YES

NO

X

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

YES

NO

X

Securities registered pursuant to Section 12(b) of the Act: 

Class

Trading Symbol

Name of Exchange where Registered

Number of Shares Outstanding

At November 1, 2020

Common Shares, $0.01 par value

RE

New York Stock Exchange

39,965,673

EVEREST RE GROUP, LTD

Table of Contents

Form 10-Q

Page

PART I

FINANCIAL INFORMATION

Item 1.

Financial Statements

1

2

3

4

5

Item 2.

36

Item 3.

59

Item 4.

60

PART II

OTHER INFORMATION

Item 1.

60

Item 1A.

60

Item 2.

62

Item 3.

62

Item 4.

62

Item 5.

62

Item 6.

63

1

EVEREST RE GROUP, LTD.

CONSOLIDATED BALANCE SHEETS

September 30,

 December 31, 

(Dollars and share amounts in thousands, except par value per share)

2020

2019

(unaudited)

ASSETS:

Fixed maturities - available for sale, at market value

$

17,856,377

$

16,824,944

(amortized cost: 2020, $

17,131,414

; 2019, $

16,473,491

, credit allowances: 2020,

$

19,641

; 2019, $

0

)

Fixed maturities - available for sale, at fair value

3,748

5,826

Equity securities, at fair value

1,173,162

931,457

Short-term investments (cost: 2020, $

1,221,198

; 2019, $

414,639

)

1,220,753

414,706

Other invested assets (cost: 2020, $

1,911,757

; 2019, $

1,763,531

)

1,911,757

1,763,531

Cash

938,881

808,036

Total investments and cash

23,104,678

20,748,500

Accrued investment income

132,513

116,804

Premiums receivable

2,611,036

2,259,088

Reinsurance receivables 

1,923,012

1,763,471

Funds held by reinsureds

548,940

489,901

Deferred acquisition costs

601,784

581,863

Prepaid reinsurance premiums

455,961

445,716

Income taxes

77,761

305,711

Other assets

697,342

612,997

TOTAL ASSETS

$

30,153,027

$

27,324,051

LIABILITIES:

Reserve for losses and loss adjustment expenses

$

15,233,125

$

13,611,313

Future policy benefit reserve

40,374

42,592

Unearned premium reserve

3,447,455

3,056,735

Funds held under reinsurance treaties

15,931

10,668

Other net payable to reinsurers

364,654

291,660

Losses in course of payment

184,894

51,950

Senior notes due

6/1/2044

397,164

397,074

Long term notes due

5/1/2067

223,649

236,758

Advances from FHLB

90,000

-

Accrued interest on debt and borrowings

7,215

2,878

Equity index put option liability

6,632

5,584

Unsettled securities payable

119,869

30,650

Other liabilities

430,773

453,264

Total liabilities

20,561,735

18,191,126

Commitments and contingencies (Note 8)

(nil)

(nil)

SHAREHOLDERS' EQUITY:

Preferred shares, par value: $

0.01

;

50,000

 shares authorized; 

no

 shares issued and outstanding

-

-

Common shares, par value: $

0.01

;

200,000

 shares authorized; (2020)

69,603

and (2019)

69,464

 outstanding before treasury shares

696

694

Additional paid-in capital

2,235,378

2,219,660

Accumulated other comprehensive income (loss), net of deferred income 

tax expense (benefit) of $

74,481

 at 2020 and $

30,996

 at 2019

411,598

28,152

Treasury shares, at cost;

29,636

 shares (2020) and

28,665

 shares (2019)

(3,622,172)

(3,422,152)

Retained earnings

10,565,792

10,306,571

Total shareholders' equity 

9,591,292

9,132,925

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY

$

30,153,027

$

27,324,051

The accompanying notes are an integral part of the consolidated financial statements.

2

EVEREST RE GROUP, LTD.

CONSOLIDATED STATEMENTS OF OPERATIONS 

AND COMPREHENSIVE INCOME (LOSS)

Three Months Ended 

Nine Months Ended

September 30,

September 30,

(Dollars in thousands, except per share amounts)

2020

2019

2020

2019

(unaudited)

(unaudited)

REVENUES:

Premiums earned 

$

2,205,811

$

1,905,619

$

6,285,030

$

5,455,615

Net investment income

234,233

181,058

420,116

501,062

Net realized capital gains (losses):

Credit allowances on fixed maturity securities

6,196

-

(19,641)

-

Other-than-temporary impairments on fixed maturity securities

-

(7,314)

-

(15,404)

Other net realized capital gains (losses)

104,007

(5,629)

103,904

124,965

Total net realized capital gains (losses)

110,203

(12,943)

84,263

109,561

Net derivative gain (loss)

2,456

(189)

(1,048)

3,395

Other income (expense)

57,481

(31,025)

48,354

(52,550)

Total revenues

2,610,184

2,042,520

6,836,715

6,017,083

CLAIMS AND EXPENSES:

Incurred losses and loss adjustment expenses 

1,736,210

1,371,924

4,574,066

3,515,104

Commission, brokerage, taxes and fees

445,332

443,076

1,360,170

1,253,500

Other underwriting expenses 

138,875

118,158

385,865

321,976

Corporate expenses

10,618

8,435

29,184

22,622

Interest, fees and bond issue cost amortization expense

6,641

7,907

21,477

23,972

Total claims and expenses

2,337,676

1,949,500

6,370,762

5,137,174

INCOME (LOSS) BEFORE TAXES

272,508

93,020

465,953

879,909

Income tax expense (benefit)

29,451

(11,378)

15,404

88,092

NET INCOME (LOSS)

$

243,057

$

104,398

$

450,549

$

791,817

Other comprehensive income (loss), net of tax:

Unrealized appreciation (depreciation) ("URA(D)") on securities arising during

the period

63,480

93,765

335,835

524,589

Reclassification adjustment for realized losses (gains) included in net income

(loss)

(11,453)

(529)

12,689

(4,220)

Total URA(D) on securities arising during the period

52,027

93,236

348,524

520,369

Foreign currency translation adjustments

60,628

(3,426)

30,390

(15,206)

Reclassification adjustment for amortization of net (gain) loss included in net

income (loss)

1,806

1,363

4,532

3,665

Total benefit plan net gain (loss) for the period

1,806

1,363

4,532

3,665

Total other comprehensive income (loss), net of tax

114,461

91,173

383,446

508,828

COMPREHENSIVE INCOME (LOSS)

$

357,518

$

195,571

$

833,995

$

1,300,645

EARNINGS PER COMMON SHARE:

Basic

$

6.08

$

2.56

$

11.20

$

19.44

Diluted

6.07

2.56

11.18

19.38

The accompanying notes are an integral part of the consolidated financial statements.

3

EVEREST RE GROUP, LTD.

CONSOLIDATED STATEMENTS OF 

CHANGES IN SHAREHOLDERS’ EQUITY

(Dollars in thousands, except share and dividends per share amounts)

2020

2019

(unaudited)

COMMON SHARES (shares outstanding):

Balance, January 1

40,798,963

40,651,148

Issued during the period, net

159,423

194,584

Treasury shares acquired

(970,892)

(75,193)

Balance, March 31

39,987,494

40,770,539

Issued during the period, net

(15,849)

9,403

Treasury shares acquired

-

(39,440)

Balance, June 30

39,971,645

40,740,502

Issued during the period, net

(5,129)

39,967

Treasury shares acquired

-

-

Balance, September 30

39,966,516

40,780,469

COMMON SHARES (par value):

Balance, January 1

$

694

$

692

Issued during the period, net

2

2

Balance, March 31

696

694

Issued during the period, net

-

-

Balance, June 30

696

694

Issued during the period, net

-

-

Balance, September 30

696

694

ADDITIONAL PAID-IN CAPITAL:

Balance, January 1

2,219,660

2,188,777

Share-based compensation plans

(3,181)

767

Balance, March 31

2,216,479

2,189,544

Share-based compensation plans

9,514

8,917

Balance, June 30

2,225,993

2,198,461

Share-based compensation plans

9,385

7,865

Balance, September 30

2,235,378

2,206,326

ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS),

NET OF DEFERRED INCOME TAXES:

Balance, January 1

28,152

(462,557)

Net increase (decrease) during the period

(297,903)

246,446

Balance, March 31

(269,751)

(216,111)

Net increase (decrease) during the period

566,888

171,209

Balance, June 30

297,137

(44,902)

Net increase (decrease) during the period

114,461

91,174

Balance, September 30

411,598

46,272

RETAINED EARNINGS:

Balance, January 1

10,306,571

9,531,433

Change to beginning balance due to adoption of Accounting Standards Update 2016-13

(4,214)

-

Net income (loss) 

16,612

354,551

Dividends declared ($

1.55

 per share 2020 and $

1.40

 per share 2019)

(63,277)

(57,137)

Balance, March 31

10,255,692

9,828,847

Net income (loss) 

190,880

332,868

Dividends declared ($

1.55

 per share 2020 and $

1.40

 per share 2019)

(61,927)

(56,999)

Balance, June 30

10,384,645

10,104,716

Net income (loss) 

243,057

104,398

Dividends declared ($

1.55

 per share 2020 and $

1.40

 per share 2019)

(61,910)

(56,995)

Balance, September 30

10,565,792

10,152,118

TREASURY SHARES AT COST:

Balance, January 1

(3,422,152)

(3,397,548)

Purchase of treasury shares

(200,020)

(16,153)

Balance, March 31

(3,622,172)

(3,413,701)

Purchase of treasury shares

-

(8,451)

Balance, June 30

(3,622,172)

(3,422,152)

Purchase of treasury shares

-

-

Balance, September 30

(3,622,172)

(3,422,152)

TOTAL SHAREHOLDERS' EQUITY, September 30

$

9,591,292

$

8,983,258

The accompanying notes are an integral part of the consolidated financial statements.

4

EVEREST RE GROUP, LTD.

CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine Months Ended

September 30,

(Dollars in thousands)

2020

2019

(unaudited)

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income (loss)

$

450,549

$

791,817

Adjustments to reconcile net income to net cash provided by operating activities:

Decrease (increase) in premiums receivable

(357,162)

(219,637)

Decrease (increase) in funds held by reinsureds, net

(53,878)

(17,961)

Decrease (increase) in reinsurance receivables

(172,454)

(42,891)

Decrease (increase) in income taxes

184,311

168,360

Decrease (increase) in prepaid reinsurance premiums

(7,963)

(145,846)

Increase (decrease) in reserve for losses and loss adjustment expenses

1,665,982

553,668

Increase (decrease) in future policy benefit reserve

(2,218)

(2,502)

Increase (decrease) in unearned premiums

392,904

388,597

Increase (decrease) in other net payable to reinsurers

68,784

160,306

Increase (decrease) in losses in course of payment

132,208

(6,438)

Change in equity adjustments in limited partnerships

(12,475)

(104,987)

Distribution of limited partnership income

55,576

62,359

Change in other assets and liabilities, net

(131,224)

(37,449)

Non-cash compensation expense 

29,337

25,386

Amortization of bond premium (accrual of bond discount)

32,594

23,642

Net realized capital (gains) losses 

(84,263)

(109,561)

Net cash provided by (used in) operating activities

2,190,608

1,486,863

CASH FLOWS FROM INVESTING ACTIVITIES:

Proceeds from fixed maturities matured/called - available for sale, at market value

1,781,821

1,631,298

Proceeds from fixed maturities sold - available for sale, at market value

1,390,747

2,589,232

Proceeds from fixed maturities sold - available for sale, at fair value

2,054

2,706

Proceeds from equity securities sold, at fair value

329,750

185,157

Distributions from other invested assets

210,527

215,800

Cost of fixed maturities acquired - available for sale, at market value

(3,874,890)

(5,039,728)

Cost of equity securities acquired, at fair value

(460,953)

(269,969)

Cost of other invested assets acquired

(392,650)

(299,480)

Net change in short-term investments

(804,744)

(213,048)

Net change in unsettled securities transactions

89,064

(13,770)

Net cash provided by (used in) investing activities

(1,729,274)

(1,211,802)

CASH FLOWS FROM FINANCING ACTIVITIES:

Common shares issued during the period for share-based compensation, net of expense

(13,617)

(7,836)

Purchase of treasury shares

(200,020)

(24,604)

Dividends paid to shareholders

(187,110)

(171,131)

Cost of debt repurchase

(10,647)

-

FHLB advances (repayments)

90,000

-

Cost of shares withheld on settlements of share-based compensation awards

(15,298)

(12,473)

Net cash provided by (used in) financing activities

(336,691)

(216,044)

EFFECT OF EXCHANGE RATE CHANGES ON CASH

6,203

2,060

Net increase (decrease) in cash

130,845

61,077

Cash, beginning of period

808,036

656,095

Cash, end of period

$

938,881

$

717,172

SUPPLEMENTAL CASH FLOW INFORMATION:

Income taxes paid (recovered)

$

(169,149)

$

(80,544)

Interest paid 

16,731

19,078

The accompanying notes are an integral part of the consolidated financial statements.

5

NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)

For the Three and Nine Months Ended September 30, 2020 and 2019

1. GENERAL

Everest Re Group, Ltd. (“Group”), a Bermuda company, through its subsidiaries, principally provides reinsurance

and insurance in the U.S., Bermuda and international markets. As used in this document, “Company” means

Group and its subsidiaries.

2. BASIS OF PRESENTATION

The unaudited interim consolidated financial statements of the Company as of September 30, 2020 and

December 31, 2019 and for the three and nine months ended September 30, 2020 and 2019 include all

adjustments, consisting of normal recurring accruals, which, in the opinion of management, are necessary for a

fair statement of the results on an interim basis. Certain financial information, which is normally included in

annual financial statements prepared in accordance with accounting principles generally accepted in the United

States of America (“GAAP”), has been omitted since it is not required for interim reporting purposes. The

December 31, 2019 consolidated balance sheet data was derived from audited financial statements but does not

include all disclosures required by GAAP. The results for the three and nine months ended September 30, 2020

and 2019 are not necessarily indicative of the results for a full year. These financial statements should be read in

conjunction with the audited consolidated financial statements and notes thereto for the years ended December

31, 2019, 2018 and 2017 included in the Company’s most recent Form 10-K filing.

The Company consolidates the results of operations and financial position of all voting interest entities ("VOE")

in which the Company has a controlling financial interest and all variable interest entities ("VIE") in which the

Company is considered to be the primary beneficiary. The consolidation assessment, including the

determination as to whether an entity qualifies as a VIE or VOE, depends on the facts and circumstance

surrounding each entity. 

The preparation of financial statements in conformity with GAAP requires management to make estimates and

assumptions that affect the reported amounts of assets and liabilities (and disclosure of contingent assets and

liabilities) at the date of the financial statements and the reported amounts of revenues and expenses during the

reporting period. Ultimate actual results could differ, possibly materially, from those estimates. This is

particularly true given the fluid and continuing nature of the COVID-19 pandemic. This is an ongoing event and

so is the Company’s evaluation and analysis. While the Company’s analysis considers all aspects of its

operations, it does not take into account legal, regulatory or legislative intervention that could retroactively

mandate or expand coverage provisions. Given the uncertainties in the current public health and economic

environment, there could be an adverse impact on results for the Property & Casualty industry and the Company

for the remainder of the year. The impact is dependent on the shape and length of the economic recovery.

With recent changes in executive management and organizational structure, the Company manages its

reinsurance and insurance operations as autonomous units and key strategic decisions are based on the

aggregate operating results and projections for these segments of business. Accordingly, effective January 1,

2020, the Company revised it reporting segments to Reinsurance Operations and Insurance Operations. This

replaces the previous reported segments of U.S. Reinsurance, International (reinsurance), Bermuda

(reinsurance) and Insurance. The prior year presented segment information has been reformatted to reflect this

change. 

All intercompany accounts and transactions have been eliminated. 

Certain reclassifications and format changes have been made to prior years’ amounts to conform to the 2020

presentation. 

6

Application of Recently Issued Accounting Standard Changes. 

Modernization of Regulation S-K Disclosures. 

In August 2020, the Securities and Exchange Commission (“SEC”)

issued Final Rule Release #33-10825 which addresses the modernization of the disclosure requirements for

business, legal proceeding and risk factor disclosures in Regulation S-K filings. Rule #33-10825 will become

effective for all financial reports filed after November 9, 2020 (30 days after its publication in the Federal

Register) and will be adopted by the Company in the fourth quarter of 2020 for implementation within its 2020

10-K filings.

Accounting for Income Taxes

. In December 2019, The Financial Accounting Standards Board (“FASB”) issued ASU

2019-12, which provides simplification of existing guidance for income taxes, including the removal of certain

exceptions related to recognition of deferred tax liabilities on foreign subsidiaries. The guidance is effective for

annual reporting periods beginning after December 15, 2020 and interim periods within that annual reporting

period. The Company is currently evaluating the impact of the adoption of ASU 2019-12 on its financial

statements.

Simplification of Disclosure Requirements. 

In August 2018, the SEC issued Final Rule Release #33-10532 (“the

Rule”) which addresses the simplification of the SEC’s disclosure requirements for quarterly and annual financial

reports. The main changes addressed by the Rule that are applicable to the Company are 1) elimination of the

requirement to disclose dividend per share information on the face of the Statements of Operations and

Comprehensive Income (Loss) and 2) a new requirement to disclose changes in equity by line item with subtotals

for each interim reporting period on the Statements of Changes in Shareholders’ Equity. The Rule became

effective for all financial reports filed after November 5, 2018 (30 days after its publication in the Federal

Register), except for the additional requirement for the Statements of Changes in Shareholders’ Equity which

was to be implemented for first quarter 2019 reporting. The Company has adopted the portions of the Rule that

became effective November 5, 2018. The portion of the Rule related to the new requirement for the Statements

of Changes in Shareholders’ Equity was adopted by the Company in the first quarter of 2019.

Accounting for Cloud Computing Arrangement. 

In August 2018, FASB issued ASU 2018-15, which outlines

accounting for implementation costs of a cloud computing arrangement that is a service contract. This guidance

requires that implementation costs of a cloud computing arrangement that is a service contract must be

capitalized and expensed in accordance with the existing provisions provided in Subtopic 350-40 regarding

development of internal use software. In addition, any capitalized implementation costs should be amortized

over the term of the hosting arrangement. The guidance is effective for annual reporting periods beginning after

December 15, 2019 and interim periods within that annual reporting period. The Company adopted the guidance

as of January 1, 2020. The adoption of ASU 2018-15 did not have a material impact on the Company’s financial

statements.

Accounting for Long Duration Contracts. 

In August 2018, FASB issued ASU 2018-12, which discusses changes to

the recognition, measurement and presentation of long duration contracts. The main provisions of this guidance

address the following: 1) In determining liability for future policy benefits, companies must review cash flow

assumptions at least annually and the discount rate assumption at each reporting period date 2) Amortization of

deferred acquisition costs has been simplified to be in constant level proportion to either premiums, gross

profits or gross margins 3) Disaggregated roll forwards of beginning and ending liabilities for future policy

benefits are required. The guidance was originally effective for annual reporting periods beginning after

December 15, 2020 and interim periods within that annual reporting period. However, FASB issued ASU 2019-09

in November 2019 which defers the effective date of ASU 2018-12 until annual reporting periods beginning after

December 15, 2021. The Company is currently evaluating the impact of the adoption of ASU 2018-12 on its

financial statements.

Accounting for Impact on Income Taxes due to Tax Reform. 

In December 2017, the SEC issued Staff Accounting

Bulletin (“SAB”) 118 which provides guidance on the application of FASB Accounting Standards Codification

7

(“ASC”) Topic 740, Income Taxes, due to the enactment of TCJA. SAB 118 became effective upon release. The

Company has adopted the provisions of SAB 118 with respect to measuring the tax effects for the modifications

to the determination of tax basis loss reserves. In 2018, the Company recorded adjustments to the amount of

tax expense it recorded in 2017 with respect to the TCJA as estimated amounts were finalized, which did not

have a material impact on the Company’s financial statements.

Amortization of Bond Premium. 

In March 2017, FASB issued ASU 2017-08 which outlines guidance on the

amortization period for premium on callable debt securities. The new guidance requires that the premium on

callable debt securities be amortized through the earliest call date rather than through the maturity date of the

callable security. The guidance is effective for annual and interim reporting periods beginning after December

15, 2018. The Company adopted the guidance effective January 1, 2019. The adoption of ASU 2017-08 did not

have a material impact on the Company’s financial statements.

Valuation of Financial Instruments. 

In June 2016, FASB issued ASU 2016-13 (and has subsequently issued related

guidance and amendments in ASU 2019-11 and ASU 2019-10 in November 2019) which outline guidance on the

valuation of and accounting for assets measured at amortized cost and available for sale debt securities. The

new guidance requires the carrying value of assets measured at amortized cost, including reinsurance and

premiums receivables to be presented as the net amount expected to be collected on the financial asset

(amortized cost less an allowance for credit losses valuation account). The allowance reflects expected credit

losses of the financial asset which considers available information using a combination both historical

information, current market conditions and reasonable and supportable forecasts. For available -for-sale debt

securities, the guidance modified the previous other than temporary impairment model, now requiring an

allowance for estimated credit related losses rather than a permanent impairment, which will be limited to the

amount by which fair value is below amortized cost. The guidance is effective for annual and interim reporting

periods beginning after December 15, 2019. The Company adopted the guidance effective January 1, 2020, on a

modified retrospective basis. The adoption resulted in a cumulative reduction of $

4,214

 thousand in retained

earnings, net of tax, which is disclosed separately within the Consolidated Statements of Shareholders’ Equity.

Leases

. In February 2016, FASB issued ASU 2016-02 (and subsequently issued ASU 2018-11 in July, 2018) which

outline new guidance on the accounting for leases. The new guidance requires the recognition of lease assets

and lease liabilities on the balance sheets for most leases that were previously deemed operating leases and

required only lease expense presentation in the statements of operations. The guidance is effective for annual

and interim reporting periods beginning after December 15, 2018. The Company adopted ASU 2016-02 effective

January 1, 2019 and elected to utilize a cumulative -effect adjustment to the opening balance of retained

earnings for the year of adoption. Accordingly, the Company’s reporting for the comparative periods prior to

adoption continue to be presented in the financial statements in accordance with previous lease accounting

guidance. The Company also elected to apply the package of practical expedients applicable to the Company in

the updated guidance for transition for leases in effect at adoption. The Company did not elect the hindsight

practical expedient to determine the lease term of existing leases (e.g. The Company did not re -assess lease

renewals, termination options nor purchase options in determining lease terms). The adoption of the updated

guidance resulted in the Company recognizing a right-of-use asset of $

69,869

 thousand as part of

other assets

and a lease liability of $

77,270

 thousand as part of

other liabilities

 in the consolidated balance sheet at the time

of adoption, as well as de-recognizing the liability for deferred rent that was required under the previous

guidance. The cumulative effect adjustment to the opening balance of retained earnings was

zero

. The adoption

of the updated guidance did not have a material effect on the Company’s results of operations or liquidity. 

Any issued guidance and pronouncements, other than those directly referenced above, are deemed by the

Company to be either not applicable or immaterial to its financial statements.

8

3. INVESTMENTS 

Effective January 1, 2020, the Company adopted ASU 2016-13 which modified the previous other than

temporary impairment model for available for sale fixed maturity securities. The guidance requires the

Company to record allowances for credit losses for securities that are deemed to have valuation deterioration

due to credit related factors. The initial table below presents the amortized cost, allowance for credit losses,

gross unrealized appreciation/(depreciation) and market value of fixed maturity securities as of September 30,

2020 in accordance with ASU 2016-13 guidance. The second table presents the amortized cost, gross unrealized

appreciation/(depreciation), market value and other-than-temporary impairments (“OTTI”) in AOCI as of

December 31, 2019, in accordance with previously applicable guidance.

At September 30, 2020

Amortized

Allowance for

Unrealized

Unrealized

Market

(Dollars in thousands)

Cost

Credit Losses

Appreciation

Depreciation

Value

Fixed maturity securities 

U.S. Treasury securities and obligations of 

U.S. government agencies and corporations

$

1,387,482

$

-

$

67,544

$

(3,023)

$

1,452,003

Obligations of U.S. states and political subdivisions

514,787

-

30,939

(2,443)

543,283

Corporate securities

6,526,127

(17,474)

363,613

(66,917)

6,805,349

Asset-backed securities

1,326,918

-

23,191

(11,907)

1,338,202

Mortgage-backed securities

Commercial

892,998

-

78,298

(1,976)

969,320

Agency residential

2,044,837

-

76,284

(2,468)

2,118,653

Non-agency residential

2,559

-

-

(39)

2,520

Foreign government securities

1,476,092

(119)

86,015

(26,913)

1,535,075

Foreign corporate securities

2,959,614

(2,048)

165,297

(30,891)

3,091,972

Total fixed maturity securities

$

17,131,414

(19,641)

$

891,181

$

(146,577)

$

17,856,377

At December 31, 2019

Amortized

Unrealized

Unrealized

Market

OTTI in AOCI

(Dollars in thousands)

Cost

Appreciation

Depreciation

Value

(a)

Fixed maturity securities 

U.S. Treasury securities and obligations of 

U.S. government agencies and corporations

$

1,489,660

$

28,357

$

(2,214)

$

1,515,803

$

-

Obligations of U.S. states and political subdivisions

507,353

29,651

(89)

536,915

-

Corporate securities

6,227,661

185,052

(37,767)

6,374,946

469

Asset-backed securities

892,373

6,818

(1,858)

897,333

-

Mortgage-backed securities

Commercial

814,570

31,236

(1,249)

844,557

-

Agency residential

2,173,099

36,361

(10,879)

2,198,581

-

Non-agency residential

5,723

-

(20)

5,703

-

Foreign government securities

1,492,315

47,148

(33,513)

1,505,950

71

Foreign corporate securities

2,870,737

107,999

(33,580)

2,945,156

447

Total fixed maturity securities

$

16,473,491

$

472,622

$

(121,169)

$

16,824,944

$

987

(a) Represents the amount of OTTI recognized in AOCI. Amount includes unrealized gains and losses on impaired securities relating to changes in the value of

such securities subsequent to the impairment measurement date.

9

The amortized cost and market value of fixed maturity securities are shown in the following table by contractual

maturity. Mortgage-backed securities are generally more likely to be prepaid than other fixed maturity

securities. As the stated maturity of such securities may not be indicative of actual maturities, the totals for

mortgage-backed and asset-backed securities are shown separately.

At September 30, 2020

At December 31, 2019

Amortized

Market

Amortized

Market

(Dollars in thousands)

Cost

Value

Cost

Value

Fixed maturity securities – available for sale:

 Due in one year or less

$

1,475,335

$

1,483,621

$

1,456,960

$

1,457,919

 Due after one year through five years

6,408,491

6,624,753

6,757,107

6,869,359

 Due after five years through ten years

3,878,019

4,186,765

3,471,370

3,609,816

 Due after ten years

1,102,257

1,132,543

902,289

941,676

Asset-backed securities

1,326,918

1,338,202

892,373

897,333

Mortgage-backed securities:

Commercial

892,998

969,320

814,570

844,557

Agency residential

2,044,837

2,118,653

2,173,099

2,198,581

Non-agency residential

2,559

2,520

5,723

5,703

Total fixed maturity securities

$

17,131,414

$

17,856,377

$

16,473,491

$

16,824,944

The changes in net unrealized appreciation (depreciation) for the Company’s investments are derived from the

following sources for the periods indicated:

Three Months Ended 

Nine Months Ended

September 30,

September 30,

(Dollars in thousands)

2020

2019

2020

2019

Increase (decrease) during the period between the market value and cost

of investments carried at market value, and deferred taxes thereon:

Fixed maturity securities

$

55,587

$

103,173

$

392,640

$

584,333

Fixed maturity securities, other-than-temporary impairment

-

72

-

(1,671)

Change in unrealized appreciation (depreciation), pre-tax

55,587

103,245

392,640

582,662

Deferred tax benefit (expense)

(3,560)

(9,984)

(44,116)

(62,415)

Deferred tax benefit (expense), other-than-temporary impairment

-

(25)

-

122

Change in unrealized appreciation (depreciation), 

net of deferred taxes, included in shareholders’ equity 

$

52,027

$

93,236

$

348,524

$

520,369

The Company reviews all of its fixed maturity, available for sale securities whose fair value has fallen below their

amortized cost at the time of review. The Company then assesses whether the decline in value is due to non-

credit related or credit related factors. In making its assessment, the Company evaluates the current market and

interest rate environment as well as specific issuer information. Generally, a change in a security’s value caused

by a change in the market, interest rate or foreign exchange environment does not constitute a credit

impairment, but rather a non-credit related decline in market value. Non-credit related declines in market value

are recorded as unrealized losses in accumulated other comprehensive income (loss). If the Company intends to

sell the security or is more likely than not to sell the security, the Company records the entire fair value

adjustment in net realized capital gains (losses) in the Company’s consolidated statements of operations and

comprehensive income (loss). If the Company determines that the decline is credit related and the Company

does not have the intent to sell the security; and it is more likely than not that the Company will not have to sell

the security before recovery of its cost basis, the Company establishes a credit allowance equal to the estimated

credit loss and is recorded in net realized capital gains (losses) in the Company’s consolidated statements of

operations and comprehensive income (loss). The amount of the allowance for a given security will generally be

the difference between a discounted cash flow model and the Company’s carrying value. The fair value

adjustment that is non-credit related is recorded as a component of other comprehensive income (loss), net of

tax, and is included in accumulated other comprehensive income (loss) in the Company’s consolidated balance

sheets. We will adjust the credit allowance account for future changes in credit loss estimates for a security and

record this adjustment through net realized capital gains (losses) in the Company’s consolidated statements of

operations and comprehensive income (loss). 

10

The Company does not create an allowance for uncollectible interest. If interest is not received when due, the

interest receivable is immediately reversed and no additional interest is accrued. If future interest is received

that has not been accrued, it is recorded as income at that time.

Prior to the adoption of ASU 2016-13 effective January 1, 2020, estimated credit losses were recorded as

adjustments to the carrying value of the security and any subsequent improvement in market value were

recorded through other comprehensive income.

The Company’s assessments are based on the issuers’ current and expected future financial position, timeliness

with respect to interest and/or principal payments, speed of repayments and any applicable credit

enhancements or breakeven constant default rates on mortgage -backed and asset-backed securities, as well as

relevant information provided by rating agencies, investment advisors and analysts. 

Retrospective adjustments are employed to recalculate the values of asset-backed securities. All of the

Company’s asset-backed and mortgage-backed securities have a pass-through structure. Each acquisition lot is

reviewed to recalculate the effective yield. The recalculated effective yield is used to derive a book value as if

the new yield were applied at the time of acquisition. Outstanding principal factors from the time of acquisition

to the adjustment date are used to calculate the prepayment history for all applicable securities. Conditional

prepayment rates, computed with life to date factor histories and weighted average maturities, are used in the

calculation of projected prepayments for pass-through security types. 

The tables below display the aggregate market value and gross unrealized depreciation of fixed maturity

securities, by security type and contractual maturity, in each case subdivided according to length of time that

individual securities had been in a continuous unrealized loss position for the periods indicated:

Duration of Unrealized Loss at September 30, 2020 By Security Type

Less than 12 months

Greater than 12 months

Total

Gross

Gross

Gross

Unrealized

Unrealized

Unrealized

(Dollars in thousands)

Market Value

Depreciation

Market Value

Depreciation

Market Value

Depreciation

Fixed maturity securities - available for sale

U.S. Treasury securities and obligations of

U.S. government agencies and corporations

$

69,055

$

(3,023)

$

-

$

-

$

69,055

$

(3,023)

Obligations of U.S. states and political subdivisions

50,368

(2,278)

4,943

(165)

55,311

(2,443)

Corporate securities

752,828

(24,799)

196,660

(42,118)

949,488

(66,917)

Asset-backed securities

328,216

(8,346)

163,014

(3,561)

491,230

(11,907)

Mortgage-backed securities

-

-

Commercial

77,850

(1,524)

6,634

(452)

84,484

(1,976)

Agency residential

248,155

(1,256)

65,145

(1,212)

313,300

(2,468)

Non-agency residential

213

(3)

2,308

(36)

2,521

(39)

Foreign government securities

83,267

(4,352)

176,739

(22,561)

260,006

(26,913)

Foreign corporate securities

399,841

(11,117)

193,809

(19,774)

593,650

(30,891)

Total fixed maturity securities

$

2,009,793

$

(56,698)

$

809,252

$

(89,879)

$

2,819,045

$

(146,577)

11

Duration of Unrealized Loss at September 30, 2020 By Maturity

Less than 12 months

Greater than 12 months

Total

Gross

Gross

Gross

Unrealized

Unrealized

Unrealized

(Dollars in thousands)

Market Value

Depreciation

Market Value

Depreciation

Market Value

Depreciation

Fixed maturity securities

Due in one year or less

$

76,867

$

(2,652)

$

135,762

$

(21,608)

$

212,629

$

(24,260)

Due in one year through five years

675,450

(22,976)

304,410

(29,003)

979,860

(51,979)

Due in five years through ten years

377,219

(12,287)

69,424

(4,266)

446,643

(16,553)

Due after ten years

225,823

(7,654)

62,555

(29,741)

288,378

(37,395)

Asset-backed securities

328,216

(8,346)

163,014

(3,561)

491,230

(11,907)

Mortgage-backed securities

326,218

(2,783)

74,087

(1,700)

400,305

(4,483)

Total fixed maturity securities

$

2,009,793

$

(56,698)

$

809,252

$

(89,879)

$

2,819,045

$

(146,577)

The aggregate market value and gross unrealized losses related to investments in an unrealized loss position at

September 30, 2020 were $

2,819,045

 thousand and $

146,577

 thousand, respectively. The market value of

securities for the single issuer whose securities comprised the largest unrealized loss position at September 30,

2020, did not exceed

0.1

% of the overall market value of the Company’s fixed maturity securities. In addition, as

indicated on the above table, there was no significant concentration of unrealized losses in any one market

sector. The $

56,698

 thousand of unrealized losses related to fixed maturity securities that have been in an

unrealized loss position for less than one year were generally comprised of domestic and foreign corporate

securities, asset-backed securities and foreign government securities. Of these unrealized losses, $

42,015

thousand were related to securities that were rated investment grade by at least one nationally recognized

statistical rating agency. The $

89,879

 thousand of unrealized losses related to fixed maturity securities in an

unrealized loss position for more than one year related primarily to domestic and foreign corporate securities,

foreign government securities and asset-backed securities. Of these unrealized losses, $

53,247

 thousand were

related to securities that were rated investment grade by at least one nationally recognized statistical rating

agency. There was

no

 gross unrealized depreciation for mortgage-backed securities related to sub-prime and

alt-A loans. In all instances, there were no projected cash flow shortfalls to recover the full book value of the

investments and the related interest obligations. The mortgage-backed securities still have excess credit

coverage and are current on interest and principal payments. 

The Company, given the size of its investment portfolio and capital position, does not have the intent to sell

these securities; and it is more likely than not that the Company will not have to sell the security before recovery

of its cost basis. In addition, all securities currently in an unrealized loss position are current with respect to

principal and interest payments. 

12

The tables below display the aggregate market value and gross unrealized depreciation of fixed maturity and

equity securities, by security type and contractual maturity, in each case subdivided according to length of time

that individual securities had been in a continuous unrealized loss position for the periods indicated:

Duration of Unrealized Loss at December 31, 2019 By Security Type 

Less than 12 months

Greater than 12 months

Total

Gross

Gross

Gross

Unrealized

Unrealized

Unrealized

(Dollars in thousands)

Market Value

Depreciation

Market Value

Depreciation

Market Value

Depreciation

Fixed maturity securities - available for sale

U.S. Treasury securities and obligations of

U.S. government agencies and corporations

$

85,527

$

(1,005)

$

249,371

$

(1,209)

$

334,898

$

(2,214)

Obligations of U.S. states and political subdivisions

4,600

(38)

5,522

(51)

10,122

(89)

Corporate securities

547,120

(9,877)

395,369

(27,890)

942,489

(37,767)

Asset-backed securities

176,222

(1,027)

94,190

(831)

270,412

(1,858)

Mortgage-backed securities

Commercial

83,127

(689)

23,063

(560)

106,190

(1,249)

Agency residential

344,267

(1,834)

488,680

(9,045)

832,947

(10,879)

Non-agency residential

332

-

3,976

(20)

4,308

(20)

Foreign government securities

210,766

(4,770)

283,648

(28,743)

494,414

(33,513)

Foreign corporate securities

278,403

(7,553)

365,808

(26,027)

644,211

(33,580)

Total fixed maturity securities

$

1,730,364

$

(26,793)

$

1,909,627

$

(94,376)

$

3,639,991

$

(121,169)

Duration of Unrealized Loss at December 31, 2019 By Maturity

Less than 12 months

Greater than 12 months

Total

Gross

Gross

Gross

Unrealized

Unrealized

Unrealized

(Dollars in thousands)

Market Value

Depreciation

Market Value

Depreciation

Market Value

Depreciation

Fixed maturity securities

Due in one year or less

$

67,879

$

(1,237)

$

416,583

$

(23,004)

$

484,462

$

(24,241)

Due in one year through five years

464,753

(7,960)

689,195

(38,138)

1,153,948

(46,098)

Due in five years through ten years

495,741

(12,388)

103,612

(11,100)

599,353

(23,488)

Due after ten years

98,043

(1,658)

90,328

(11,678)

188,371

(13,336)

Asset-backed securities

176,222

(1,027)

94,190

(831)

270,412

(1,858)

Mortgage-backed securities

427,726

(2,523)

515,719

(9,625)

943,445

(12,148)

Total fixed maturity securities

$

1,730,364

$

(26,793)

$

1,909,627

$

(94,376)

$

3,639,991

$

(121,169)

The aggregate market value and gross unrealized losses related to investments in an unrealized loss position at

December 31, 2019 were $

3,639,991

 thousand and $

121,169

 thousand, respectively. The market value of

securities for the single issuer whose securities comprised the largest unrealized loss position at December 31,

2019, did not exceed

0.8

% of the overall market value of the Company’s fixed maturity securities. In addition, as

indicated on the above table, there was no significant concentration of unrealized losses in any one market

sector. The $

26,793

 thousand of unrealized losses related to fixed maturity securities that have been in an

unrealized loss position for less than one year were generally comprised of domestic and foreign corporate

securities and foreign government securities. Of these unrealized losses, $

23,104

 thousand were related to

securities that were rated investment grade by at least one nationally recognized statistical rating agency. The

$

94,376

 thousand of unrealized losses related to fixed maturity securities in an unrealized loss position for more

than one year related primarily to domestic and foreign corporate securities, foreign government securities and

agency residential mortgage-backed securities. Of these unrealized losses, $

73,144

 thousand were related to

securities that were rated investment grade by at least one nationally recognized statistical rating agency. There

was

no

 gross unrealized depreciation for mortgage-backed securities related to sub-prime and alt-A loans. In all

instances, there were no projected cash flow shortfalls to recover the full book value of the investments and the

related interest obligations. The mortgage-backed securities still have excess credit coverage and are current on

interest and principal payments. 

13

The components of net investment income are presented in the table below for the periods indicated:

Three Months Ended

Nine Months Ended

September 30,

September 30,

(Dollars in thousands)

2020

2019

2020

2019

Fixed maturities

$

136,104

$

130,139

$

407,946

$

383,440

Equity securities

4,402

4,147

11,585

12,250

Short-term investments and cash

494

3,899

4,356

13,497

Other invested assets

Limited partnerships

88,778

43,758

22,092

100,298

Other 

14,742

7,286

(1,291)

13,565

Gross investment income before adjustments

244,520

189,229

444,688

523,050

Funds held interest income (expense)

684

2,325

10,921

9,715

Future policy benefit reserve income (expense)

(291)

(372)

(805)

(965)

Gross investment income

244,913

191,182

454,804

531,800

Investment expenses

(10,680)

(10,124)

(34,688)

(30,738)

Net investment income

$

234,233

$

181,058

$

420,116

$

501,062

The Company records results from limited partnership investments on the equity method of accounting with

changes in value reported through net investment income. Due to the timing of receiving financial information

from these partnerships, the results are generally reported on a one month or quarter lag. If the Company

determines there has been a significant decline in value of a limited partnership during this lag period, a loss will

be recorded in the period in which the Company identifies the decline. 

The Company had contractual commitments to invest up to an additional $

1,464,947

 thousand in limited

partnerships and private placement loans at September 30, 2020. These commitments will be funded when

called in accordance with the partnership and loan agreements, which have investment periods that expire,

unless extended, through

2026

. 

The Company participates in a private placement liquidity sweep facility (“the facility”). The primary purpose of

the facility is to enhance the Company’s return on its short-term investments and cash positions. The facility

invests in high quality, short-duration securities and permits daily liquidity. The Company consolidates its

participation in the facility. As of September 30, 2020, the market value of investments in the facility

consolidated within the Company’s balance sheets was $

1,101,256

 thousand. 

The components of net realized capital gains (losses) are presented in the tables below for the periods indicated:

Three Months Ended 

Nine Months Ended

September 30,

September 30,

(Dollars in thousands)

2020

2019

2020

2019

Fixed maturity securities, market value:

Allowance for credit losses

$

6,196

$

-

$

(19,641)

$

-

Other-than-temporary impairments

-

(7,314)

-

(15,404)

Gains (losses) from sales

5,398

5,290

941

16,660

Fixed maturity securities, fair value:

Gains (losses) from sales

(1,968)

-

(1,968)

356

Gains (losses) from fair value adjustments

3,339

-

1,944

13

Equity securities, fair value:

Gains (losses) from sales

(1,317)

(1,192)

(12,642)

2,541

Gains (losses) from fair value adjustments

96,673

(12,008)

114,364

102,795

Other invested assets

1,084

2,098

50

2,341

Short-term investments gain (loss)

798

183

1,215

259

Total net realized capital gains (losses)

$

110,203

$

(12,943)

$

84,263

$

109,561

14

Roll Forward of Allowance for Credit Losses

Three Months Ended September 30, 2020

Nine Months Ended September 30, 2020

Foreign

Foreign

Foreign

Foreign

Corporate

Government

Corporate

Corporate

Government

Corporate

Securities

Securities

Securities

Total

Securities

Securities

Securities

Total

(Dollars in thousands)

Beginning Balance

$

(22,253)

$

(92)

$

(3,492)

$

(25,837)

$

-

$

-

$

-

$

-

Credit losses on securities where credit

losses were not previously recorded

(6)

-

(144)

(150)

(27,666)

(519)

(4,699)

(32,884)

Increases in allowance on previously

impaired securities

(5,354)

(27)

(181)

(5,562)

(6,136)

(27)

(481)

(6,644)

Decreases in allowance on previously 

impaired securities

159

-

151

310

3,590

212

844

4,646

Reduction in allowance due to disposals

9,980

-

1,618

11,598

12,738

215

2,288

15,241

Balance as of September 30, 2020

$

(17,474)

$

(119)

$

(2,048)

$

(19,641)

$

(17,474)

$

(119)

$

(2,048)

$

(19,641)

The Company recorded as net realized capital gains (losses) in the consolidated statements of operations and

comprehensive income (loss) fair value re-measurements, allowances for credit losses per ASU 2016-13 and

write-downs in the value of securities deemed to be impaired on an other-than-temporary basis in prior years as

displayed in the table above. The Company had no other-than-temporary impaired securities where the

impairment had both a credit and non-credit component. 

The proceeds and split between gross gains and losses, from sales of fixed maturity and equity securities, are

presented in the table below for the periods indicated:

Three Months Ended

Nine Months Ended

September 30,

September 30,

(Dollars in thousands)

2020

2019

2020

2019

Proceeds from sales of fixed maturity securities

$

402,528

$

271,025

$

1,392,801

$

2,591,938

Gross gains from sales

18,721

14,270

54,077

42,316

Gross losses from sales

(15,291)

(8,980)

(55,104)

(25,300)

Proceeds from sales of equity securities

$

116,565

$

35,924

$

329,750

$

185,157

Gross gains from sales

9,512

1,035

30,268

9,286

Gross losses from sales

(10,829)

(2,227)

(42,910)

(6,745)

15

4. RESERVE FOR LOSSES, LAE AND FUTURE POLICY BENEFIT RESERVE 

Activity in the reserve for losses and LAE is summarized for the periods indicated:

Nine Months Ended

September 30,

(Dollars in thousands)

2020

2019

Gross reserves beginning of period

$

13,611,313

$

13,119,090

 Less reinsurance recoverables

(1,640,712)

(1,619,641)

 Net reserves beginning of period

11,970,601

11,499,449

Incurred related to:

 Current year

4,572,640

3,559,505

 Prior years

1,426

(44,401)

 Total incurred losses and LAE

4,574,066

3,515,104

Paid related to:

 Current year 

1,015,538

550,724

 Prior years

2,042,712

2,406,753

 Total paid losses and LAE

3,058,250

2,957,477

Foreign exchange/translation adjustment and cumulative adjustment due to adoption of ASU

2016-13

(28,024)

(52,125)

Net reserves end of period

13,458,393

12,004,952

 Plus reinsurance recoverables

1,774,732

1,632,687

 Gross reserves end of period

$

15,233,125

$

13,637,639

(Some amounts may not reconcile due to rounding.)

Current year incurred losses were $

4,572,640

 thousand and $

3,559,505

 thousand for the nine months ended

September 30, 2020 and 2019, respectively. The increase in current year incurred losses in 2020 compared to

2019 was primarily due to $

434,918

 thousand of incurred losses due to COVID-19 as well as the impact of the

increase in premiums earned.

5. DERIVATIVES 

The Company sold

seven

 equity index put option contracts, based on

two

 indices, in 2001 and 2005. The

Company sold these equity index put options as insurance products with the intent of achieving a profit. These

equity index put option contracts meet the definition of a derivative under FASB guidance and the Company’s

position in these equity index put option contracts is unhedged. Accordingly, these equity index put option

contracts are carried at fair value in the consolidated balance sheets with changes in fair value recorded in the

consolidated statements of operations and comprehensive income (loss). 

Six

 of these contracts had expired

prior to

September 30, 2020

, with

no

 liabilities due under the terms of the expired contracts. 

The Company had

one

 remaining equity index put option contract at September 30, 2020, based on the

Standard & Poor’s 500 (“S&P 500”) index. Based on historical index volatilities and trends and the September

30, 2020 S&P 500 index value, the Company estimates the probability that the equity index put option contract

of the S&P 500 index falling below the strike price on the exercise date to be less than

0.5

%. The theoretical

maximum payout under this equity index put option contract would occur if on the exercise date the S&P 500

index value was

zero

. At September 30, 2020, the present value of the theoretical maximum payout using a

3

%

discount factor was $

146,796

 thousand. Conversely, if the contract had expired on September 30, 2020, with

the S&P index at

3,363.00

, there would have been

no

 settlement amount. 

16

At September 30, 2020 and December 31, 2019, the fair value for these equity put options was $

6,632

 thousand

and $

5,584

 thousand, respectively. 

The fair value of the equity index put options can be found in the Company’s consolidated balance sheets as

follows:

(Dollars in thousands)

Derivatives not designated as

Location of fair value

At

At

hedging instruments

in balance sheets

September 30, 2020

December 31, 2019

Equity index put option contracts

Equity index put option liability

$

6,632

$

5,584

Total

$

6,632

$

5,584

The change in fair value of the equity index put option contracts can be found in the Company’s statement of

operations and comprehensive income (loss) as follows:

(Dollars in thousands)

For the Three Months Ended 

For the, Nine Months Ended

Derivatives not designated as

Location of gain (loss) in statements of

September 30,

September 30,

hedging instruments

operations and comprehensive income (loss)

2020

2019

2020

2019

Equity index put option contracts

Net derivative gain (loss) 

$

2,456

$

(189)

$

(1,048)

$

3,395

Total

$

2,456

$

(189)

$

(1,048)

$

3,395

6. FAIR VALUE 

GAAP guidance regarding fair value measurements address how companies should measure fair value when they

are required to use fair value measures for recognition or disclosure purposes under GAAP and provides a

common definition of fair value to be used throughout GAAP. It defines fair value as the price that would be

received to sell an asset or paid to transfer a liability in an orderly fashion between market participants at the

measurement date. In addition, it establishes a three-level valuation hierarchy for the disclosure of fair value

measurements. The valuation hierarchy is based on the transparency of inputs to the valuation of an asset or

liability. The level in the hierarchy within which a given fair value measurement falls is determined based on the

lowest level input that is significant to the measurement, with Level 1 being the highest priority and Level 3

being the lowest priority. 

The levels in the hierarchy are defined as follows:

Level 1: Inputs to the valuation methodology are observable inputs that reflect unadjusted quoted prices for

identical assets or liabilities in an active market;

Level 2: Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active

markets, and inputs that are observable for the asset or liability, either directly or indirectly, for

substantially the full term of the financial instrument;

Level 3: Inputs to the valuation methodology are unobservable and significant to the fair value measurement.

The Company’s fixed maturity and equity securities are primarily managed by third party investment asset

managers. The investment asset managers managing publicly traded securities obtain prices from nationally

recognized pricing services. These services seek to utilize market data and observations in their evaluation

process. They use pricing applications that vary by asset class and incorporate available market information and

when fixed maturity securities do not trade on a daily basis the services will apply available information through

processes such as benchmark curves, benchmarking of like securities, sector groupings and matrix pricing. In

addition, they use model processes, such as the Option Adjusted Spread model to develop prepayment and

interest rate scenarios for securities that have prepayment features. 

In limited instances where prices are not provided by pricing services or in rare instances when a manager may

not agree with the pricing service, price quotes on a non-binding basis are obtained from investment brokers. 

17

The investment asset managers do not make any changes to prices received from either the pricing services or

the investment brokers. In addition, the investment asset managers have procedures in place to review the

reasonableness of the prices from the service providers and may request verification of the prices. In addition,

the Company continually performs analytical reviews of price changes and tests the prices on a random basis to

an independent pricing source. No material variances were noted during these price validation procedures. In

limited situations, where financial markets are inactive or illiquid, the Company may use its own assumptions

about future cash flows and risk-adjusted discount rates to determine fair value. At September 30, 2020,

$

1,134,535

 thousand of fixed maturities, market value and $

3,748

 thousand of fixed maturities, fair value were

fair valued using unobservable inputs. The majority of the fixed maturities, market value, $

805,061

 thousand,

were valued by investment managers’ valuation committees and many of these fair values and all of the $

3,748

thousand of fixed maturities, fair value were substantiated by valuations from independent third parties. The

Company has procedures in place to evaluate these independent third party valuations. The remaining Level 3

fixed maturities of $

329,474

 thousand were valued at either par or amortized cost, which the Company believes

approximates fair value. At December 31, 2019, $

772,979

 thousand of fixed maturities, market value and $

5,826

thousand of fixed maturities, fair value were fair valued using unobservable inputs. The majority of the fixed

maturities, market value, $

610,873

 thousand, were valued by investment managers’ valuation committees and a

majority of these fair values and all of the $

5,826

 thousand of fixed maturities, fair value were substantiated by

valuations from independent third parties. The Company has procedures in place to review and evaluate these

independent third party valuations. The remaining Level 3 fixed maturities of $

162,106

 thousand were valued at

either par or amortized cost, which the Company believes approximates fair value. 

The Company internally manages a public equity portfolio which had a fair value at September 30, 2020 and

December 31, 2019 of $

591,681

 thousand and $

170,888

 thousand, respectively, and all prices were obtained

from publicly published sources. 

Equity securities denominated in U.S. currency with quoted prices in active markets for identical assets are

categorized as Level 1 since the quoted prices are directly observable. Equity securities traded on foreign

exchanges are categorized as Level 2 due to the added input of a foreign exchange conversion rate to determine

fair or market value. The Company uses foreign currency exchange rates published by nationally recognized

sources. 

All categories of fixed maturity securities listed in the tables below are generally categorized as Level 2, since a

particular security may not have traded but the pricing services are able to use valuation models with observable

market inputs such as interest rate yield curves and prices for similar fixed maturity securities in terms of issuer,

maturity and seniority. For foreign government securities and foreign corporate securities, the fair values

provided by the third party pricing services in local currencies, and where applicable, are converted to U.S.

dollars using currency exchange rates from nationally recognized sources. 

The fixed maturities with fair values categorized as Level 3 result when prices are not available from the

nationally recognized pricing services. 

The composition and valuation inputs for the presented fixed maturities categories are as follows:

• U.S. Treasury securities and obligations of U.S. government agencies and corporations are primarily

comprised of U.S. Treasury bonds and the fair value is based on observable market inputs such as quoted

prices, reported trades, quoted prices for similar issuances or benchmark yields;

• Obligations of U.S. states and political subdivisions are comprised of state and municipal bond issuances and

the fair values are based on observable market inputs such as quoted market prices, quoted prices for

similar securities, benchmark yields and credit spreads;

18

• Corporate securities are primarily comprised of U.S. corporate and public utility bond issuances and the fair

values are based on observable market inputs such as quoted market prices, quoted prices for similar

securities, benchmark yields and credit spreads; 

• Asset-backed and mortgage -backed securities fair values are based on observable inputs such as quoted

prices, reported trades, quoted prices for similar issuances or benchmark yields and cash flow models using

observable inputs such as prepayment speeds, collateral performance and default spreads;

• Foreign government securities are comprised of global non-U.S. sovereign bond issuances and the fair

values are based on observable market inputs such as quoted market prices, quoted prices for similar

securities and models with observable inputs such as benchmark yields and credit spreads and then, where

applicable, converted to U.S. dollars using an exchange rate from a nationally recognized source;

• Foreign corporate securities are comprised of global non-U.S. corporate bond issuances and the fair values

are based on observable market inputs such as quoted market prices, quoted prices for similar securities

and models with observable inputs such as benchmark yields and credit spreads and then, where applicable,

converted to U.S. dollars using an exchange rate from a nationally recognized source.

The Company’s liability for equity index put options is categorized as Level 3 since there is no active market for

these equity put options. The fair values for these options are calculated by the Company using an industry

accepted pricing model, Black-Scholes. The model inputs and assumptions are: risk free interest rates, equity

market indexes values, volatilities and dividend yields and duration. The model results are then adjusted for the

Company’s credit default swap rate. All of these inputs and assumptions are updated quarterly. 

The following table presents the fair value measurement levels for all assets and liabilities, which the Company

has recorded at fair value (fair and market value) as of the periods indicated:

Fair Value Measurement Using:

Quoted Prices

in Active

Significant

Markets for

Other

Significant

Identical

Observable

Unobservable

Assets

Inputs

Inputs

(Dollars in thousands)

September 30, 2020

(Level 1)

(Level 2)

(Level 3)

Assets:

Fixed maturities, market value

U.S. Treasury securities and obligations of

U.S. government agencies and corporations

$

1,452,003

$

-

$

1,452,003

$

-

Obligations of U.S. States and political subdivisions

543,283

-

543,283

-

Corporate securities

6,805,349

-

6,081,305

724,044

Asset-backed securities

1,338,202

-

933,413

404,789

Mortgage-backed securities

Commercial

969,320

-

969,320

-

Agency residential

2,118,653

-

2,118,653

-

Non-agency residential

2,520

-

2,520

-

Foreign government securities

1,535,075

-

1,535,075

-

Foreign corporate securities

3,091,972

-

3,086,270

5,702

Total fixed maturities, market value

17,856,377

-

16,721,842

1,134,535

Fixed maturities, fair value

3,748

-

-

3,748

Equity securities, fair value

1,173,162

1,084,448

88,714

-

Liabilities:

Equity index put option contracts

$

6,632

$

-

$

-

$

6,632

There were

no

 transfers between Level 1 and Level 2 for the nine months ended September 30, 2020. 

19

The following table presents the fair value measurement levels for all assets and liabilities, which the Company

has recorded at fair value (fair and market value) as of the periods indicated:

Fair Value Measurement Using:

Quoted Prices

in Active

Significant

Markets for

Other

Significant

Identical

Observable

Unobservable

Assets

Inputs

Inputs

(Dollars in thousands)

December 31, 2019

(Level 1)

(Level 2)

(Level 3)

Assets:

Fixed maturities, market value

U.S. Treasury securities and obligations of

U.S. government agencies and corporations

$

1,515,803

$

-

$

1,515,803

$

-

Obligations of U.S. States and political subdivisions

536,915

-

536,915

-

Corporate securities

6,374,946

-

5,757,358

617,588

Asset-backed securities

897,333

-

743,692

153,641

Mortgage-backed securities

Commercial

844,557

-

844,557

-

Agency residential

2,198,581

-

2,198,581

-

Non-agency residential

5,703

-

5,703

-

Foreign government securities

1,505,950

-

1,505,950

-

Foreign corporate securities

2,945,156

-

2,943,406

1,750

Total fixed maturities, market value

16,824,944

-

16,051,965

772,979

Fixed maturities, fair value

5,826

-

-

5,826

Equity securities, fair value

931,457

864,584

66,873

-

Liabilities:

Equity index put option contracts

$

5,584

$

-

$

-

$

5,584

In addition, $

218,821

 thousand and $

209,578

 thousand of investments within other invested assets on the

consolidated balance sheets as of September 30, 2020 and December 31, 2019, respectively, are not included

within the fair value hierarchy tables as the assets are measured at NAV as a practical expedient to determine

fair value. 

The following tables present the activity under Level 3, fair value measurements using significant unobservable

inputs for fixed maturities, for the periods indicated:

Total Fixed Maturities, Market Value

Three Months Ended September 30, 2020

Nine Months Ended September 30, 2020

Corporate

Asset-Backed

Foreign

Corporate

Asset-Backed

Foreign

(Dollars in thousands)

Securities

Securities

Corporate

Total

Securities

Securities

Corporate

Total

Beginning balance fixed maturities at market value

$

721,834

$

295,730

$

6,274

$

1,023,838

$

617,588

$

153,641

$

1,750

$

772,979

Total gains or (losses) (realized/unrealized)

Included in earnings

362

457

26

845

(100)

582

(71)

411

Included in other comprehensive income (loss)

(992)

5,028

126

4,162

(4,898)

7,238

86

2,426

Purchases, issuances and settlements

(1,349)

103,574

139

102,364

112,060

243,328

3,823

359,211

Transfers in and/or (out) of Level 3

4,189

-

(863)

3,326

(606)

-

114

(492)

Ending balance

$

724,044

$

404,789

$

5,702

$

1,134,535

$

724,044

$

404,789

$

5,702

$

1,134,535

The amount of total gains or losses for the period

included in earnings (or changes in net assets)

attributable to the change in unrealized gains 

or losses relating to assets still held

 at the reporting date

$

-

$

-

$

-

$

-

$

(539)

$

-

$

$

-

$

(539)

(Some amounts may not reconcile due to rounding.)

20

Total Fixed Maturities, Market Value

Three Months Ended September 30, 2019

Nine Months Ended September 30, 2019

Corporate

Asset-Backed

Foreign

Corporate

Asset-Backed

Foreign

(Dollars in thousands)

Securities

Securities

Corporate

Total

Securities

Securities

Corporate

Total

Beginning balance fixed maturities at market value

$

542,878

$

-

$

2,093

$

544,971

$

428,215

$

-

$

7,744

$

435,959

Total gains or (losses) (realized/unrealized)

Included in earnings

1,018

-

-

1,018

3,348

-

(119)

3,229

Included in other comprehensive income (loss)

(1,314)

644

-

(670)

1,130

644

-

1,774

Purchases, issuances and settlements

42,289

40,000

-

82,289

150,659

40,000

(5,532)

185,127

Transfers in and/or (out) of Level 3

3,176

-

-

3,176

4,695

-

-

4,695

Ending balance

$

588,047

$

40,644

$

2,093

$

630,784

$

588,047

$

40,644

$

2,093

$

630,784

The amount of total gains or losses for the period

included in earnings (or changes in net assets)

attributable to the change in unrealized gains 

or losses relating to assets still held

 at the reporting date

$

-

$

-

$

-

$

-

$

-

$

-

$

-

$

-

(Some amounts may not reconcile due to rounding.)

Total Fixed Maturities, Fair Value

Three Months Ended September 30, 2020

Nine Months Ended September 30, 2020

Foreign

Foreign

(Dollars in thousands)

Corporate

Total

Corporate

Total

Beginning balance fixed maturities at market value

$

4,431

$

4,431

$

5,826

$

5,826

Total gains or (losses) (realized/unrealized)

Included in earnings

1,371

1,371

(24)

(24)

Included in other comprehensive income (loss)

-

-

-

-

Purchases, issuances and settlements

(2,054)

(2,054)

(2,054)

(2,054)

Transfers in and/or (out) of Level 3

-

-

-

-

Ending balance

$

3,748

$

3,748

$

3,748

$

3,748

The amount of total gains or losses for the period

included in earnings (or changes in net assets)

attributable to the change in unrealized gains 

or losses relating to assets still held

 at the reporting date

$

-

$

-

$

-

$

-

(Some amounts may not reconcile due to rounding.)

Total Fixed Maturities, Fair Value

Three Months Ended September 30, 2019

Nine Months Ended September 30, 2019

Foreign

Foreign

(Dollars in thousands)

Corporate

Total

Corporate

Total

Beginning balance fixed maturities at market value

$

-

$

-

$

2,337

$

2,337

Total gains or (losses) (realized/unrealized)

Included in earnings

-

-

369

369

Included in other comprehensive income (loss)

-

-

-

-

Purchases, issuances and settlements

-

-

(2,706)

(2,706)

Transfers in and/or (out) of Level 3

-

-

-

-

Ending balance

$

-

$

-

$

-

$

-

The amount of total gains or losses for the period

included in earnings (or changes in net assets)

attributable to the change in unrealized gains 

or losses relating to assets still held

 at the reporting date

$

-

$

-

$

-

$

-

(Some amounts may not reconcile due to rounding.)

21

The following table presents the activity under Level 3, fair value measurements using significant unobservable

inputs for equity securities, for the periods indicated:

Three Months Ended 

Nine Months Ended

September 30,

September 30,

(Dollars in thousands)

2020

2019

2020

2019

Common Stock

Balance, beginning of period

$

9,877

$

-

$

-

$

-

Total (gains) or losses (realized/unrealized)

Included in earnings

-

-

-

-

Included in other comprehensive income (loss)

-

-

-

-

Purchases, issuances and settlements

-

-

9,877

-

Transfers in and/or (out) of Level 3

(9,877)

-

(9,877)

-

Balance, end of period

$

-

$

-

$

-

$

-

The amount of total gains or losses for the period included in earnings

(or changes in net assets) attributable to the change in unrealized

gains or losses relating to liabilities still held at the reporting date

$

-

$

-

$

-

$

-

(Some amounts may not reconcile due to rounding.)

The net transfers to/(from) Level 3, fair value measurements using significant unobservable inputs for fixed

maturities, market value were $

3,326

 thousand and ($

492

) thousand for the three and nine months ended

September 30, 2020, respectively, and were $

3,176

 thousand and $

4,695

 thousand for the three and nine

months ended September 30, 2019, respectively. The transfers of $

3,326

 thousand during the three months

ended September 30, 2020 were previously priced by a recognized pricing service and were subsequently priced

using investment managers as of September 30, 2020. The transfers of ($

492

) thousand during the nine months

ended September 30, 2020 were related to securities that were previously priced using investment managers

and were subsequently priced by a recognized pricing service as of September 30, 2020. The transfers of $

3,176

thousand and $

4,695

 thousand during 2019 were related to securities that were previously priced by a

recognized pricing service and were subsequently priced using investment managers as of September 30, 2019. 

22

The net transfers to/(from) Level 3, fair value measurements using significant unobservable inputs for equity

securities, fair value were ($

9,877

) thousand for both the three and nine months ended September 30, 2020. 

The transfers of ($

9,877

) thousand during both the three and nine months ended September 30, 2020, were

related to preferred stock in a private entity purchased during the second quarter of 2020 which was priced at

cost as of June 30, 2020 and was subsequently priced based upon the book value of the underlying private entity 

as of September 30, 2020.

The following table presents the activity under Level 3, fair value measurements using significant unobservable

inputs for equity index put option contracts, for the periods indicated:

Three Months Ended 

Nine Months Ended

September 30,

September 30,

(Dollars in thousands)

2020

2019

2020

2019

Liabilities:

Balance, beginning of period

$

9,088

$

8,374

$

5,584

$

11,958

Total (gains) or losses (realized/unrealized)

Included in earnings

(2,456)

189

1,048

(3,395)

Included in other comprehensive income (loss)

-

-

-

-

Purchases, issuances and settlements

-

-

-

-

Transfers in and/or (out) of Level 3

-

-

-

-

Balance, end of period

$

6,632

$

8,563

$

6,632

$

8,563

The amount of total gains or losses for the period included in earnings

(or changes in net assets) attributable to the change in unrealized

gains or losses relating to liabilities still held at the reporting date

$

-

$

-

$

-

$

-

(Some amounts may not reconcile due to rounding.)

7. EARNINGS PER COMMON SHARE

Basic earnings per share are calculated by dividing net income by the weighted average number of common

shares outstanding. Diluted earnings per share reflect the potential dilution that would occur if options granted

under various share -based compensation plans were exercised resulting in the issuance of common shares that

would participate in the earnings of the entity. 

23

Net income (loss) per common share has been computed as per below, based upon weighted average common

basic and dilutive shares outstanding.

Three Months Ended

Nine Months Ended

September 30,

September 30,

(Dollars in thousands, except per share amounts)

2020

2019

2020

2019

Net income (loss) per share:

Numerator

Net income (loss) 

$

243,057

$

104,398

$

450,549

$

791,817

Less: dividends declared-common shares and unvested common shares

(61,910)

(56,995)

(187,115)

(171,131)

Undistributed earnings

181,148

47,403

263,435

620,687

Percentage allocated to common shareholders (1)

98.8

%

98.9

%

98.7

%

98.9

%

178,938

46,869

260,096

613,847

Add: dividends declared-common shareholders

61,199

56,403

184,836

169,329

Numerator for basic and diluted earnings per common share

$

240,138

$

103,273

$

444,931

$

783,176

Denominator

Denominator for basic earnings per weighted-average common shares

39,483

40,287

39,711

40,289

Effect of dilutive securities:

Options

74

125

79

131

Denominator for diluted earnings per adjusted weighted-average common shares

39,557

40,411

39,790

40,421

Per common share net income (loss)

Basic

$

6.08

$

2.56

$

11.20

$

19.44

Diluted

$

6.07

$

2.56

$

11.18

$

19.38

(1)

Basic weighted-average common shares outstanding

39,483

40,287

39,711

40,289

Basic weighted-average common shares outstanding and unvested common shares expected to vest

39,971

40,746

40,221

40,738

Percentage allocated to common shareholders

98.8

%

98.9

%

98.7

%

98.9

%

(Some amounts may not reconcile due to rounding.)

There were

no

 anti-diluted options outstanding for the three and nine months ended September 30, 2020 and

2019. 

All outstanding options expire on or between

February 24, 2021

 and

September 19, 2022

.

8. COMMITMENTS AND CONTINGENCIES

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. 

The Company has entered into separate annuity agreements with The Prudential Insurance of America (“The

Prudential”) and an additional unaffiliated life insurance company in which the Company has either purchased

annuity contracts or become the assignee of annuity proceeds that are meant to settle claim payment

24

obligations in the future. In both instances, the Company would become contingently liable if either The

Prudential or the unaffiliated life insurance company were unable to make payments related to the respective

annuity contract.

The table below presents the estimated cost to replace all such annuities for which the Company was

contingently liable for the periods indicated:

At September 30,

At December 31,

(Dollars in thousands)

2020

2019

The Prudential 

$

141,488

$

141,703

Unaffiliated life insurance company

34,441

35,082

9. OTHER COMPREHENSIVE INCOME (LOSS)

The following table presents the components of comprehensive income (loss) in the consolidated statements of

operations for the periods indicated:

Three Months Ended September 30, 2020

Nine Months Ended September 30, 2020

(Dollars in thousands)

Before Tax

Tax Effect

Net of Tax

Before Tax

Tax Effect

Net of Tax

Unrealized appreciation (depreciation) ("URA(D)") on securities - non-

credit related

$

68,264

$

(4,784)

$

63,480

$

373,990

$

(38,155)

$

335,835

Reclassification of net realized losses (gains) included in net income

(loss)

(12,678)

1,225

(11,453)

18,650

(5,961)

12,689

Foreign currency translation adjustments

64,453

(3,825)

60,628

28,555

1,835

30,390

Reclassification of benefit plan liability amortization included in net

income (loss)

2,285

(479)

1,806

5,736

(1,204)

4,532

Total other comprehensive income (loss)

$

122,324

$

(7,863)

$

114,461

$

426,931

$

(43,485)

$

383,446

Three Months Ended September 30, 2019

Nine Months Ended September 30, 2019

(Dollars in thousands)

Before Tax

Tax Effect

Net of Tax

Before Tax

Tax Effect

Net of Tax

Unrealized appreciation (depreciation) ("URA(D)") on securities - non-

credit related

$

103,247

$

(9,529)

$

93,718

$

587,930

$

(61,792)

$

526,138

URA(D) on securities - OTTI

72

(25)

47

(1,671)

122

(1,549)

Reclassification of net realized losses (gains) included in net income

(loss)

(74)

(455)

(529)

(3,597)

(623)

(4,220)

Foreign currency translation adjustments

(2,665)

(761)

(3,426)

(13,890)

(1,316)

(15,206)

Reclassification of benefit plan liability amortization included in net

income (loss)

1,726

(363)

1,363

4,640

(975)

3,665

Total other comprehensive income (loss)

$

102,306

$

(11,133)

$

91,173

$

573,412

$

(64,584)

$

508,828

The following table presents details of the amounts reclassified from AOCI for the periods indicated:

Three Months Ended

Nine Months Ended

September 30,

September 30,

Affected line item within the statements of

AOCI component

2020

2019

2020

2019

operations and comprehensive income (loss)

(Dollars in thousands)

URA(D) on securities

$

(12,678)

$

(74)

$

18,650

$

(3,597)

Other net realized capital gains (losses)

1,225

(455)

(5,961)

(623)

Income tax expense (benefit)

$

(11,453)

$

(529)

$

12,689

$

(4,220)

Net income (loss)

Benefit plan net gain (loss)

$

2,285

$

1,726

$

5,736

$

4,640

Other underwriting expenses

(479)

(363)

(1,204)

(975)

Income tax expense (benefit)

$

1,806

$

1,363

$

4,532

$

3,665

Net income (loss)

25

The following table presents the components of accumulated other comprehensive income (loss), net of tax, in

the consolidated balance sheets for the periods indicated:

Three Months Ended

Nine Months Ended

September 30,

September 30,

(Dollars in thousands) 

2020

2019

2020

2019

Beginning balance of URA (D) on securities

$

600,922

$

247,741

$

304,425

$

(179,392)

Current period change in URA (D) of investments - non-credit related

52,027

93,190

348,524

521,919

Current period change in URA (D) of investments - non-credit OTTI

-

47

-

(1,549)

Ending balance of URA (D) on securities

652,949

340,978

652,949

340,978

Beginning balance of foreign currency translation adjustments

(231,955)

(227,527)

(201,717)

(215,747)

Current period change in foreign currency translation adjustments

60,628

(3,426)

30,390

(15,206)

Ending balance of foreign currency translation adjustments 

(171,327)

(230,953)

(171,327)

(230,953)

Beginning balance of benefit plan net gain (loss)

(71,830)

(65,116)

(74,556)

(67,418)

Current period change in benefit plan net gain (loss)

1,806

1,363

4,532

3,665

Ending balance of benefit plan net gain (loss)

(70,024)

(63,753)

(70,024)

(63,753)

Ending balance of accumulated other comprehensive income (loss)

$

411,598

$

46,272

$

411,598

$

46,272

(Some amounts may not reconcile due to rounding.)

10. CREDIT FACILITIES

The Company has

two

 active credit facilities for a total commitment of up to $

1,000,000

 thousand and an

additional credit facility for a total commitment of up to £

52,175

 thousand, providing for the issuance of letters

of credit and/or unsecured revolving credit lines. The following table presents the interest and fees incurred in

connection with the

two

 credit facilities for the periods indicated:

Three Months Ended

Nine Months Ended

September 30,

September 30,

(Dollars in thousands)

2020

2019

2020

2019

Credit facility interest and fees incurred

$

105

$

105

$

560

$

315

The terms and outstanding amounts for each facility are discussed below:

Group Credit Facility

Effective May 26, 2016, Group, Everest Reinsurance (Bermuda), Ltd. (“Bermuda Re”) and Everest International

Reinsurance, Ltd. (“Everest International”), both direct subsidiaries of Group, entered into a

five year

, $

800,000

thousand senior credit facility with a syndicate of lenders, which amended and restated in its entirety the June

22, 2012,

four year

, $

800,000

 thousand senior credit facility. Both the May 26, 2016 and June 22, 2012 senior

credit facilities, which have similar terms, are referred to as the “Group Credit Facility”. Wells Fargo Corporation

(“Wells Fargo Bank”) is the administrative agent for the Group Credit Facility, which consists of two tranches. 

Tranche one provides up to $

200,000

 thousand of unsecured revolving credit for liquidity and general corporate

purposes, and for the issuance of unsecured standby letters of credit. The interest on the revolving loans shall,

at the Company’s option, be either (1) the Base Rate (as defined below) or (2) an adjusted London Interbank

Offered Rate (“LIBOR”) plus a margin. The Base Rate is the higher of (a) the prime commercial lending rate

established by Wells Fargo Bank, (b) the Federal Funds Rate plus

0.5

% per annum or (c) the one month LIBOR

Rate plus

1.0

% per annum. The amount of margin and the fees payable for the Group Credit Facility depends on

Group’s senior unsecured debt rating. Tranche two exclusively provides up to $

600,000

 thousand for the

issuance of standby letters of credit on a collateralized basis.

The Group Credit Facility requires Group to maintain a debt to capital ratio of not greater than

0.35

 to 1 and to

maintain a minimum net worth. Minimum net worth is an amount equal to the sum of $

5,370,979

 thousand

plus

25

% of consolidated net income for each of Group’s fiscal quarters, for which statements are available

26

ending on or after March 31, 2016 and for which consolidated net income is positive, plus

25

% of any increase in

consolidated net worth during such period attributable to the issuance of ordinary and preferred shares, which

at September 30, 2020, was $

6,372,662

 thousand. As of September 30, 2020, the Company was in compliance

with all Group Credit Facility covenants. 

On March 25, 2020, Group borrowed $

50,000

 thousand under Tranche one of the credit facility as an unsecured

revolving credit loan. The loan was fully paid off on June 26, 2020. There were

no

 revolving credit borrowings

from the facility during the year ended 2019.

The following table summarizes the outstanding letters of credit and/or borrowings for the periods indicated:

(Dollars in thousands)

At September 30, 2020

At December 31, 2019

Bank

Commitment

In Use

Date of Expiry

Commitment

In Use

Date of Expiry

Wells Fargo Bank Group Credit Facility

Tranche One

$

200,000

$

99,077

12/31/2020

$

200,000

$

33,737

12/31/2020

Tranche Two

600,000

586,186

12/31/2020

600,000

2,381

7/29/2020

Tranche Two

-

1,649

9/30/2020

Tranche Two

-

573,353

12/31/2020

Tranche Two

-

12,364

1/4/2021

Total Wells Fargo Bank Group Credit Facility

$

800,000

$

685,263

$

800,000

$

623,484

Bermuda Re Letter of Credit Facility

Effective December 31, 2019, Bermuda Re renewed its letter of credit issuance facility with Citibank N.A.

referred to as the “Bermuda Re Letter of Credit Facility”, which commitment is reconfirmed annually with

updated fees. The current renewal of the Bermuda Re Letter of Credit Facility provides for the issuance of up to

$

200,000

 thousand of secured letters of credit to collateralize reinsurance obligations as a non-admitted

reinsurer. The interest on drawn letters of credit shall be (A)

0.35

% per annum of the principal amount of issued

standard letters of credit (expiry of 15 months or less) and (B)

0.45

% per annum of the principal amount of

issued extended tenor letters of credit (expiry maximum of up to

60

 months). The commitment fee on undrawn

credit shall be

0.15

% per annum. 

The following table summarizes the outstanding letters of credit for the periods indicated:

(Dollars in thousands)

At September 30, 2020

At December 31, 2019

Bank

Commitment

In Use

Date of Expiry

Commitment

In Use

Date of Expiry

Citibank Bilateral Letter of Credit Agreement

$

200,000

$

3,672

11/24/2020

$

200,000

$

4,425

02/29/2020

93,846

12/31/2020

512

09/03/2020

4,425

02/28/2021

3,672

11/24/2020

183

12/16/2021

177

12/16/2020

109

12/20/2021

125

12/20/2020

5,475

12/31/2021

101,404

12/31/2020

777

08/15/2022

559

08/15/2021

37,802

09/30/2024

37,096

12/30/2023

Total Citibank Bilateral Agreement

$

200,000

$

146,289

$

200,000

$

147,970

Everest International Credit Facility

Effective May 12, 2020, Everest International amended its credit facility with Lloyds Bank plc (“Everest

International Credit Facility”). The current amendment of the Everest International Credit Facility provides up to

£

52,175

 thousand for the issuance of standby letters of credit on a collateralized basis. The Company pays a

commitment fee of

0.1

% per annum on the average daily amount of the remainder of (1) the aggregate amount

available under the facility and (2) the aggregate amount of drawings outstanding under the facility. The

Company pays a credit commission fee of

0.35

% per annum on drawings outstanding under the facility. 

The Everest International Credit Facility requires Group to maintain a debt to capital ratio of not greater than

0.35

 to 1 and to maintain a minimum net worth. Minimum net worth is an amount equal to the sum of

$

5,532,663

 thousand (

70

% of consolidated net worth as of December 31, 2018), plus

25

% of consolidated net

27

income for each of Group’s fiscal quarters, for which statements are available ending on or after January 1, 2019

and for which net income is positive, plus

25

% of any increase in consolidated net worth of Group during such

period attributable to the issuance of ordinary and preferred shares, which at September 30, 2020, was

$

5,910,400

 thousand. As of September 30, 2020, the Company was in compliance with all Everest International

Credit Facility requirements. 

The following table summarizes the outstanding letters of credit for the periods indicated:

(Dollars in thousands)

At September 30, 2020

At December 31, 2019

Bank

Commitment

In Use

Date of Expiry

Commitment

In Use

Date of Expiry

Lloyd's Bank plc

£

52,175

£

52,175

12/31/2023

£

47,000

£

47,000

12/31/2023

-

-

-

-

Total Lloyd's Bank Credit Facility

£

52,175

£

52,175

£

47,000

£

47,000

Federal Home Loan Bank Membership

Effective August 15, 2019, Everest Reinsurance Company (“Everest Re”) became a member of the Federal Home

Loan Bank of New York (“FHLBNY”), which allows Everest Re to borrow up to

10

% of its statutory admitted

assets. As of September 30, 2020, Everest Re had admitted assets of approximately $

14,667,099

 thousand

which provides borrowing capacity of up to approximately $

1,466,709

 thousand. 

On August 31, 2020, Everest Re borrowed $

90,000

 thousand under its FHLBNY available capacity. The $

90,000

thousand collateralized borrowing has interest payable at a rate of

0.35

% and will mature on

November 30,

2020

. The FHLBNY membership agreement requires that

4.5

% of borrowed funds be used to acquire additional

membership stock.

11. COLLATERALIZED REINSURANCE AND TRUST AGREEMENTS

Certain subsidiaries of Group have established trust agreements, which effectively use the Company’s

investments as collateral, as security for assumed losses payable to certain non-affiliated ceding companies. At

September 30, 2020, the total amount on deposit in trust accounts was $

1,158,783

 thousand. 

The Company reinsures some of its catastrophe exposures with the segregated accounts of Mt. Logan Re. Mt.

Logan Re is a Class 3 insurer registered in Bermuda effective February 27, 2013 under The Segregated Accounts

Companies Act 2000 and

100

% of the voting common shares are owned by Group. Separate segregated

accounts for Mt. Logan Re began being established effective July 1, 2013 and non-voting, redeemable preferred

shares have been issued to capitalize the segregated accounts. Each segregated account invests predominantly

in a diversified set of catastrophe exposures, diversified by risk/peril and across different geographic regions

globally. 

28

The following table summarizes the premiums and losses that are ceded by the Company to Mt. Logan Re

segregated accounts and assumed by the Company from Mt. Logan Re segregated accounts.

Three Months Ended 

Nine Months Ended

September 30,

September 30,

Mt. Logan Re Segregated Accounts

2020

2019

2020

2019

(Dollars in thousands)

Ceded written premiums

86,712

97,391

245,422

237,841

Ceded earned premiums

71,396

79,560

233,089

220,200

Ceded losses and LAE

87,917

79,499

173,968

164,914

Assumed written premiums

8,894

9,867

14,448

14,900

Assumed earned premiums

8,894

9,867

14,448

14,900

Assumed losses and LAE

-

-

-

-

Each segregated account is permitted to assume net risk exposures equal to the amount of its available posted

collateral, which in the aggregate was $

806,564

 thousand and $

993,036

 thousand at September 30, 2020 and

December 31, 2019, respectively. Of this amount, Group had investments recorded at $

66,175

 thousand and

$

46,390

 thousand at September 30, 2020 and December 31, 2019, respectively, in the segregated accounts. 

Effective April 1, 2018, the Company entered into a retroactive reinsurance transaction with one of the Mt.

Logan Re segregated accounts to retrocede $

269,198

 thousand of casualty reserves held by Bermuda Re related

to accident years

2002

 through

2015

. As consideration for entering the agreement, the Company transferred

cash of $

252,000

 thousand to the Mt. Logan Re segregated account. The maximum liability to be retroceded

under the agreement will be $

319,000

 thousand. The Company will retain liability for any amounts exceeding

the maximum liability.

On April 24, 2014, the Company entered into

two

 collateralized reinsurance agreements with Kilimanjaro Re

Limited (“Kilimanjaro”), a Bermuda based special purpose reinsurer, to provide the Company with catastrophe

reinsurance coverage. These agreements are multi-year reinsurance contracts which cover specified named

storm and earthquake events. The first agreement provides up to $

250,000

 thousand of reinsurance coverage

from named storms in specified states of the Southeastern United States. The second agreement provides up to

$

200,000

 thousand of reinsurance coverage from named storms in specified states of the Southeast, Mid-

Atlantic and Northeast regions of the United States and Puerto Rico as well as reinsurance coverage from

earthquakes in specified states of the Southeast, Mid-Atlantic, Northeast and West regions of the United States,

Puerto Rico and British Columbia. These reinsurance agreements expired in

April, 2018

. 

On November 18, 2014, the Company entered into a collateralized reinsurance agreement with Kilimanjaro to

provide the Company with catastrophe reinsurance coverage. This agreement is a multi-year reinsurance

contract which covers specified earthquake events. The agreement provides up to $

500,000

 thousand of

reinsurance coverage from earthquakes in the United States, Puerto Rico and Canada. These reinsurance

agreements expired in

November 2019

.

On December 1, 2015 the Company entered into

two

 collateralized reinsurance agreements with Kilimanjaro to

provide the Company with catastrophe reinsurance coverage. These agreements are multi-year reinsurance

contracts which cover named storm and earthquake events. The first agreement provides up to $

300,000

thousand of reinsurance coverage from named storms and earthquakes in the United States, Puerto Rico and

Canada. The second agreement provides up to $

325,000

 thousand of reinsurance coverage from named storms

and earthquakes in the United States, Puerto Rico and Canada. 

On April 13, 2017 the Company entered into

six

 collateralized reinsurance agreements with Kilimanjaro to

provide the Company with annual aggregate catastrophe reinsurance coverage. The initial

three

 agreements are

four year

 reinsurance contracts which cover named storm and earthquake events. These agreements provide up

to $

225,000

 thousand, $

400,000

 thousand and $

325,000

 thousand, respectively, of annual aggregate

29

reinsurance coverage from named storms and earthquakes in the United States, Puerto Rico and Canada. The

subsequent

three

 agreements are

five year

 reinsurance contracts which cover named storm and earthquake

events. These agreements provide up to $

50,000

 thousand, $

75,000

 thousand and $

175,000

 thousand,

respectively, of annual aggregate reinsurance coverage from named storms and earthquakes in the United

States, Puerto Rico and Canada.

On April 30, 2018 the Company entered into

four

 collateralized reinsurance agreements with Kilimanjaro to

provide the Company with catastrophe reinsurance coverage. These agreements are multi-year reinsurance

contracts which cover named storm and earthquake events. The first

two

 agreements are

four year

 reinsurance

contracts which provide up to $

62,500

 thousand and $

200,000

 thousand, respectively, of annual aggregate

reinsurance coverage from named storms and earthquakes in the United States, Puerto Rico, the U.S. Virgin

Islands and Canada. The remaining

two

 agreements are

five year

 reinsurance contracts which provide up to

$

62,500

 thousand and $

200,000

 thousand, respectively, of annual aggregate reinsurance coverage from named

storms and earthquakes in the United States, Puerto Rico, the U.S. Virgin Islands and Canada. 

On December 12, 2019, the Company entered into

four

 collateralized reinsurance agreements with Kilimanjaro

to provide the Company with catastrophe reinsurance coverage. These agreements are multi-year reinsurance

contracts which cover named storm and earthquake events. The first

two

 agreements are

four year

 reinsurance

contracts which provide up to $

150,000

 thousand and $

275,000

 thousand, respectively, of annual aggregate

reinsurance coverage from named storms and earthquakes in the United States, Puerto Rico, the U.S. Virgin

Islands and Canada. The remaining

two

 agreements are

five year

 reinsurance contracts which provide up to

$

150,000

 thousand and $

275,000

 thousand, respectively, of annual aggregate reinsurance coverage from named

storms and earthquakes in the United State, Puerto Rico, the U.S. Virgin Islands and Canada.

Recoveries under these collateralized reinsurance agreements with Kilimanjaro are primarily dependent on

estimated industry level insured losses from covered events, as well as, the geographic location of the events. 

The estimated industry level of insured losses is obtained from published estimates by an independent

recognized authority on insured property losses. Currently, none of the published insured loss estimates for

catastrophe events during the applicable covered periods of the various agreements have exceeded the single

event retentions or aggregate retentions under the terms of the agreements that would result in a recovery.

Kilimanjaro has financed the various property catastrophe reinsurance coverages by issuing catastrophe bonds

to unrelated, external investors. On April 24, 2014, Kilimanjaro issued $

450,000

 thousand of notes (“Series

2014-1 Notes”). The $

450,000

 thousand of Series 2014-1 Notes were fully redeemed on April 30, 2018 and are

no longer outstanding. On November 18, 2014, Kilimanjaro issued $

500,000

 thousand of notes (“Series 2014-2

Notes”). The $

500,000

 thousand of Series 2014-2 Notes were fully redeemed in November 2019 and are no

longer outstanding. On December 1, 2015, Kilimanjaro issued $

625,000

 thousand of notes (“Series 2015-1

Notes). On April 13, 2017, Kilimanjaro issued $

950,000

 thousand of notes (“Series 2017-1 Notes) and $

300,000

thousand of notes (“Series 2017-2 Notes). On April 30, 2018, Kilimanjaro issued $

262,500

 thousand of notes

(“Series 2018-1 Notes”) and $

262,500

 thousand of notes (“Series 2018-2 Notes”). On December 12, 2019

Kilimanjaro issued $

425,000

 thousand of notes (“Series 2019-1 Notes”) and $

425,000

 of notes (“Series 2019-2

Notes”). The proceeds from the issuance of the Notes listed above are held in reinsurance trust throughout the

duration of the applicable reinsurance agreements and invested solely in US government money market funds

with a rating of at least “AAAm” by Standard & Poor’s.

30

12. SENIOR NOTES

The table below displays Everest Reinsurance Holdings’ (“Holdings”) outstanding senior notes. Market value is

based on quoted market prices, but due to limited trading activity, these senior notes are considered Level 2 in

the fair value hierarchy.

September 30, 2020

December 31, 2019

Consolidated Balance

Consolidated Balance

(Dollars in thousands)

Date Issued

Date Due

Principal Amounts

Sheet Amount

Market Value

Sheet Amount

Market Value

Senior notes

06-05-2014

06-01-2044

400,000

$

397,164

$

460,252

$

397,074

$

452,848

On June 5, 2014, Holdings issued $

400,000

 thousand of

30

 year senior notes at

4.868

%, which will mature on

June 1, 2044

. Interest will be paid semi-annually on June 1 and December 1 of each year. 

Interest expense incurred in connection with these senior notes is as follows for the periods indicated:

Three Months Ended

Nine Months Ended

September 30,

September 30,

(Dollars In thousands

2020

2019

2020

2019

Interest expense incurred

$

4,868

$

4,868

$

14,604

$

14,604

In addition to the above senior notes outstanding, Holdings issued $

1,000,000

 thousand of

30 year

 senior notes

on

October 7, 2020

 at an interest rate of

3.5

%. These senior notes will mature on

October 15, 2050

 and will pay

interest semi-annually on April 15th and October 15th of each year.

13. LONG TERM SUBORDINATED NOTES 

The table below displays Holdings’ outstanding fixed to floating rate long term subordinated notes. Market

value is based on quoted market prices, but due to limited trading activity, these subordinated notes are

considered Level 2 in the fair value hierarchy.

Maturity Date

September 30, 2020

December 31, 2019

Original

Consolidated

Balance

Consolidated

Balance

(Dollars in thousands)

Date Issued

Principal

Amount

Scheduled

Final

Sheet Amount

Market Value

Sheet Amount

Market Value

Long term subordinated notes

04-26-2007

$

400,000

05-15-2037

05-01-2067

$

223,649

$

191,301

$

236,758

$

233,191

During the fixed rate interest period from

May 3, 2007

 through

May 14, 2017

, interest was at the annual rate of

6.6

%, payable semi-annually in arrears on November 15 and May 15 of each year, commencing on

November 15,

2007

. During the floating rate interest period from May 15, 2017 through maturity, interest will be based on the

3 month LIBOR plus

238.5

 basis points, reset quarterly, payable quarterly in arrears on February 15, May 15,

August 15 and November 15 of each year, subject to Holdings’ right to defer interest on

one

 or more occasions

for up to

ten

 consecutive years. Deferred interest will accumulate interest at the applicable rate compounded

quarterly for periods from and including May 15, 2017. The reset quarterly interest rate for August 17, 2020 to

November 15, 2020 is

2.67

%. 

Holdings may redeem the long term subordinated notes on or after May 15, 2017, in whole or in part at

100

% of

the principal amount plus accrued and unpaid interest; however, redemption on or after the scheduled maturity

date and prior to

May 1, 2047

 is subject to a replacement capital covenant. This covenant is for the benefit of

certain senior note holders and it mandates that Holdings receive proceeds from the sale of another

subordinated debt issue, of at least similar size, before it may redeem the subordinated notes. Effective upon

the maturity of the Company’s

5.40

% senior notes on

October 15, 2014

, the Company’s

4.868

% senior notes,

due on

June 1, 2044

, have become the Company’s long term indebtedness that ranks senior to the long term

subordinated notes. 

31

The Company repurchased and retired $

0

 thousand and $

13,183

 thousand of its outstanding long term

subordinated notes during the three and nine months ended September 30, 2020, respectively. The Company

realized a gain of $

0

 thousand and $

2,536

 thousand from the repurchase of the long term subordinated notes

for the three and nine months ended September 30, 2020, respectively.

On March 19, 2009, Group announced the commencement of a cash tender offer for any and all of the

6.60

%

fixed to floating rate long term subordinated notes. Upon expiration of the tender offer, the Company had

reduced its outstanding debt by $

161,441

 thousand. 

Interest expense incurred in connection with these long term subordinated notes is as follows for the periods

indicated:

Three Months Ended

Nine Months Ended

September 30,

September 30,

(Dollars in thousands)

2020

2019

2020

2019

Interest expense incurred

$

1,587

$

2,881

$

6,126

$

8,892

14. LEASES

Effective January 1, 2019, the Company adopted ASU 2016-02 and ASU 2018-11 which outline new guidance on

the accounting for leases. The Company enters into lease agreements for real estate that is primarily used for

office space in the ordinary course of business. These leases are accounted for as operating leases, whereby

lease expense is recognized on a straight -line basis over the term of the lease. Most leases include an option to

extend or renew the lease term. The exercise of the renewal is at the Company’s discretion. The operating lease

liability includes lease payments related to options to extend or renew the lease term if the Company is

reasonably certain of exercise those options. The Company, in determining the present value of lease payments

utilizes either the rate implicit in the lease if that rate is readily determinable or the Company’s incremental

secured borrowing rate commensurate with terms of the underlying lease.

Supplemental information related to operating leases is as follows for the periods indicated:

Three Months Ended

Nine Months Ended

September 30,

September 30,

(Dollars in thousands)

2020

2019

2020

2019

Lease expense incurred:

Operating lease cost

$

8,424

$

5,384

$

24,572

$

16,602

At September 30,

At December 31,

(Dollars in thousands)

2020

2019

Operating lease right of use assets

$

149,206

$

161,435

Operating lease liabilities

163,329

169,909

Three Months Ended

Nine Months Ended

September 30,

September 30,

(Dollars in thousands)

2020

2019

2020

2019

Operating cash flows from operating leases

$

(5,047)

$

(5,739)

$

(14,883)

$

(14,665)

At September 30,

At December 31,

2020

2019

Weighted average remaining operating lease term

12.3 years

12.6 years

Weighted average discount rate on operating leases

4.11

%

3.91

%

32

Maturities of the existing lease liabilities are expected to occur as follows:

(Dollars in thousands)

Remainder of 2020

$

5,235

2021

18,433

2022

20,882

2023

20,110

2024

19,859

2025

16,868

Thereafter

119,204

Undiscounted lease payments

220,591

Less: present value adjustment

57,262

Total operating lease liability

$

163,329

On July 2, 2019, the Company entered into a lease agreement to relocate its corporate offices from Liberty

Corner, New Jersey to a corporate complex in Warren, New Jersey. The new lease, which covers approximately

315,000

 square feet of office space, was effective October 1, 2019 and runs through

2036

. The initial base rent

payment of the lease will be approximately $

650

 thousand per month or $

7,800

 thousand per year. The

Company expects to relocate the existing operations and employees of the Liberty Corner, New Jersey facility to

the new corporate complex during 2021.

15. SEGMENT REPORTING

The Reinsurance operation writes worldwide property and casualty reinsurance and specialty lines of business,

on both a treaty and facultative basis, through reinsurance brokers, as well as directly with ceding companies. 

Business is written in the U.S., Bermuda, and Ireland offices, as well as, through branches in Canada, Singapore

and the United Kingdom. The Insurance operation writes property and casualty insurance directly and through

brokers, surplus lines brokers and general agents within the U.S., Canada and Europe through its offices in the

U.S., Canada, Ireland and a branch located in Zurich. 

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. 

Underwriting results include earned premium less losses and loss adjustment expenses (“LAE”) incurred,

commission and brokerage expenses and other underwriting expenses. We measure our underwriting results

using ratios, in particular loss, commission and brokerage and other underwriting expense ratios, which,

respectively, divide incurred losses, commissions and brokerage and other underwriting expenses by premiums

earned. 

The Company does not maintain separate balance sheet data for its operating segments. Accordingly, the

Company does not review and evaluate the financial results of its operating segments based upon balance sheet

data. 

The following tables present the underwriting results for the operating segments for the periods indicated:

33

Three Months Ended

Nine Months Ended

Reinsurance

September 30,

September 30,

(Dollars in thousands)

2020

2019

2020

2019

Gross written premiums

$

2,086,961

$

1,736,672

$

5,403,080

$

4,678,310

Net written premiums

1,936,851

1,583,713

4,974,034

4,212,952

Premiums earned

$

1,669,257

$

1,420,799

$

4,656,733

$

4,072,078

Incurred losses and LAE

1,335,048

1,050,621

3,361,367

2,605,901

Commission and brokerage

373,251

371,098

1,130,946

1,039,113

Other underwriting expenses

51,333

43,832

135,170

117,031

Underwriting gain (loss)

$

(90,375)

$

(44,752)

$

29,250

$

310,033

Three Months Ended

Nine Months Ended

Insurance

September 30,

September 30,

(Dollars in thousands)

2020

2019

2020

2019

Gross written premiums

$

704,643

$

666,602

$

2,328,733

$

2,018,727

Net written premiums

511,829

484,844

1,693,603

1,491,286

Premiums earned

$

536,554

$

484,820

$

1,628,297

$

1,383,537

Incurred losses and LAE

401,162

321,303

1,212,699

909,203

Commission and brokerage

72,081

71,978

229,224

214,387

Other underwriting expenses

87,542

74,326

250,695

204,945

Underwriting gain (loss)

$

(24,231)

$

17,213

$

(64,321)

$

55,002

The following table reconciles the underwriting results for the operating segments to income before taxes as

reported in the consolidated statements of operations and comprehensive income (loss) for the periods

indicated:

Three Months Ended

Nine Months Ended

September 30,

September 30,

(Dollars in thousands)

2020

2019

2020

2019

Underwriting gain (loss)

$

(114,606)

$

(27,539)

$

(35,071)

$

365,035

Net investment income

234,233

181,058

420,116

501,062

Net realized capital gains (losses)

110,203

(12,943)

84,263

109,561

Net derivative gain (loss)

2,456

(189)

(1,048)

3,395

Corporate expenses

(10,618)

(8,435)

(29,184)

(22,622)

Interest, fee and bond issue cost amortization expense

(6,641)

(7,907)

(21,477)

(23,972)

Other income (expense)

57,481

(31,025)

48,354

(52,550)

Income (loss) before taxes

$

272,508

$

93,020

$

465,953

$

879,909

The Company produces business in the U.S., Bermuda and internationally. The net income deriving from and

assets residing in the individual foreign countries in which the Company writes business are not identifiable in

the Company’s financial records. Based on gross written premium, the table below presents the largest country,

other than the U.S., in which the Company writes business, for the periods indicated:

Three Months Ended

Nine Months Ended

September 30,

September 30,

(Dollars in thousands)

2020

2019

2020

2019

United Kingdom gross written premium

$

314,502

$

272,297

$

857,310

$

743,294

No other country represented more than

5

% of the Company’s revenues.

34

16. SHARE-BASED COMPENSATION PLANS 

For the three months ended September 30, 2020,

5,590

 restricted stock awards were granted on

September 11,

2020

, with a fair value of $

207.5050

. 

For the nine months ended September 30, 2020, a total of

173,419

 restricted stock awards were granted: 

167,829

 restricted share awards were granted on

February 26, 2020

, with a fair value of $

277.145

 per share and

5,590

 on

September 11, 2020

 with a fair value of $

207.5050

. Also,

16,120

 performance share unit awards were

granted on

February 26, 2020

, with a fair value of $

277.145

 per unit.

17. RETIREMENT BENEFITS

The Company maintains both qualified and non-qualified defined benefit pension plans for its U.S. employees

employed prior to April 1, 2010. Generally, the Company computes the benefits based on average earnings over

a period prescribed by the plans and credited length of service. The Company’s non-qualified defined benefit

pension plan provided compensating pension benefits for participants whose benefits have been curtailed under

the qualified plan due to Internal Revenue Code limitations. Effective January 1, 2018, participants of the

Company’s non-qualified defined benefit pension plan may no longer accrue additional service benefits. 

Net periodic benefit cost for U.S. employees included the following components for the periods indicated:

Pension Benefits

Three Months Ended

Nine Months Ended

September 30,

September 30,

(Dollars in thousands)

2020

2019

2020

2019

Service cost

$

2,040

$

2,064

$

8,092

$

6,616

Interest cost

2,562

2,928

7,608

8,788

Expected return on plan assets

(5,197)

(4,492)

(15,591)

(14,523)

Amortization of net (income) loss 

2,462

1,909

6,137

5,111

FAS 88 settlement charge

871

102

871

309

Net periodic benefit cost

$

2,738

$

2,511

$

7,117

$

6,301

Other Benefits

Three Months Ended

Nine Months Ended

September 30,

September 30,

(Dollars in thousands)

2020

2019

2020

2019

Service cost

$

311

$

245

$

763

$

818

Interest cost

215

245

644

835

Amortization of prior service cost

(177)

(144)

(401)

(433)

Amortization of net (income) loss 

-

(39)

-

(39)

Net periodic benefit cost

$

349

$

307

$

1,006

$

1,181

The service cost component of net periodic benefit costs is included within other underwriting expenses on the

consolidated statement of operations and comprehensive income (loss). In accordance with ASU 2017-07, other

staff compensation costs are also primarily recorded within this line item. 

The Company did

no

t make any contributions to the qualified pension benefit plan for the three and nine

months ended September 30, 2020 and 2019, respectively.

18. INCOME TAXES

The Company is domiciled in Bermuda and has significant subsidiaries and/or branches in Canada, Ireland,

Singapore, Switzerland, the United Kingdom, and the United States. The Company’s Bermuda domiciled

subsidiaries are exempt from income taxation under Bermuda law until 2035. The Company’s non-Bermudian

subsidiaries and branches are subject to income taxation at varying rates in their respective domiciles.

35

The Company generally applies the estimated Annualized Effective Tax Rate (“AETR”) approach for calculating its

tax provision for interim periods as prescribed by ASC 740-270, Interim Reporting. Under the AETR approach,

the estimated annualized effective tax rate is applied to the interim year-to-date pre-tax income/loss to

determine the income tax expense or benefit for the year-to-date period. The tax expense or benefit for the

quarter represents the difference between the year-to-date tax expense or benefit for the current year-to-date

period less such amount for the immediately preceding year-to-date period. Management considers the impact

of all known events in its estimation of the Company’s annual pre -tax income/loss and annualized effective tax

rate.

19. SUBSEQUENT EVENTS 

The Company has evaluated known recognized and non-recognized subsequent events. In October 2020,

Hurricanes Delta and Zeta impacted the Caribbean and southeastern United States. Due to the recentness of

these events, the Company is unable to estimate the amount of losses at this time. However, the Company

anticipates that the losses from these events will adversely impact its fourth quarter 2020 financial statements.

36

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATION 

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., Bermuda and international reinsurance and insurance markets with numerous global

competitors. Our competitors include independent reinsurance and insurance companies, subsidiaries or

affiliates of established worldwide insurance companies, reinsurance departments of certain insurance

companies, domestic and international underwriting operations, including underwriting syndicates at Lloyd’s of

London and certain government sponsored risk transfer vehicles. Some of these competitors have greater

financial resources than we do and have established long term and continuing business relationships, which can

be a significant competitive advantage. In addition, the lack of strong barriers to entry into the reinsurance

business and recently, the securitization of reinsurance and insurance risks through capital markets provide

additional sources of potential reinsurance and insurance capacity and competition. 

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. Globally, many countries

mandated that their citizens remain at home and many non-essential businesses have continued to be physically

closed. We closed our physical offices; however, 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.

The pandemic has caused significant volatility in the global financial markets. Interest rates plummeted, credit

spreads widened and the equity markets lost value. We saw our fixed maturity and equity portfolios decline in

value resulting in realized and unrealized investment losses in our March 31, 2020 financial statements. 

However, the financial markets rebounded during the second and third quarters and we recognized after -tax

realized gains of $239.4 million and unrealized gains of $596.5 million in our financial statements for these two

quarters. Nevertheless, the lack of business activity may lead to an increase in bankruptcies and corresponding

credit losses. 

There will also be a negative impact on future industry underwriting results. With the closing of non-essential

businesses, there has been a significant decline in business activity. To the extent that premiums are based on

business activity, there will be a decline in premium volume. Incurred losses from the pandemic will be

impacted by the duration of the event and will vary by line of business and geographical location. For the

37

quarter ended September 30, 2020, our underwriting results include $125 million of estimated losses related to

the pandemic and $435 million for the nine months ended September 30, 2020. We anticipate this Pandemic

could have a meaningful impact on our revenue, as well as net and operating income in future quarters as a

result of reinsurance and insurance claims due to the pandemic and resulting macro -economic market

conditions.

Many regulators had issued moratoriums on the cancellation of policies for the non-payment of premiums and

also on non-renewals. We are complying with the various regulatory requests for accommodations to

policyholders during this difficult period. The moratoriums combined with the forced closure of businesses may

lead to an increase in uncollectible premium expense.

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

appears to be further pressuring the increase of rates. Rates also appear to be firming in some of the casualty

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 will be the

impact on pricing conditions 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.

38

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 shareholders’ equity for the periods indicated.

Three Months Ended

Percentag

e

Nine Months Ended

Percentag

e

September 30,

Increase/

September 30,

Increase/

(Dollars in millions)

2020

2019

(Decrease)

2020

2019

(Decrease)

Gross written premiums 

$

2,791.6

$

2,403.3

16.2

%

$

7,731.8

$

6,697.0

15.5

%

Net written premiums 

2,448.7

2,068.6

18.4

%

6,667.6

5,704.2

16.9

%

REVENUES:

Premiums earned

$

2,205.8

$

1,905.6

15.8

%

$

6,285.0

$

5,455.6

15.2

%

Net investment income

234.2

181.1

29.4

%

420.1

501.1

-16.2

%

Net realized capital gains (losses)

110.2

(12.9)

NM

%

84.3

109.6

-23.1

%

Net derivative gain (loss)

2.5

(0.2)

NM

%

(1.0)

3.4

-130.9

%

Other income (expense)

57.5

(31.0)

NM

%

48.4

(52.6)

-192.0

%

Total revenues

2,610.2

2,042.5

27.8

%

6,836.7

6,017.1

13.6

%

CLAIMS AND EXPENSES:

Incurred losses and loss adjustment expenses

1,736.2

1,371.9

26.6

%

4,574.1

3,515.1

30.1

%

Commission, brokerage, taxes and fees

445.3

443.1

0.5

%

1,360.2

1,253.5

8.5

%

Other underwriting expenses

138.9

118.2

17.5

%

385.9

322.0

19.8

%

Corporate expenses

10.6

8.4

25.9

%

29.2

22.6

29.0

%

Interest, fees and bond issue cost amortization expense

6.6

7.9

-16.0

%

21.5

24.0

-10.4

%

Total claims and expenses

2,337.7

1,949.5

19.9

%

6,370.8

5,137.2

24.0

%

INCOME (LOSS) BEFORE TAXES

272.5

93.0

193.0

%

466.0

879.9

-47.0

%

Income tax expense (benefit) 

29.5

(11.4)

NM

%

15.4

88.1

-82.5

%

NET INCOME (LOSS)

$

243.1

$

104.4

132.8

%

$

450.5

$

791.8

-43.1

%

RATIOS:

Point

Change

Point

Change

Loss ratio

78.7

%

72.0

%

6.7

72.8

%

64.4

%

8.4

Commission and brokerage ratio

20.2

%

23.3

%

(3.1)

21.7

%

23.0

%

(1.3)

Other underwriting expense ratio

6.3

%

6.1

%

0.2

6.1

%

5.9

%

0.2

Combined ratio

105.2

%

101.4

%

3.8

100.6

%

93.3

%

7.3

At

At

Percentag

e

September 30,

December 31,

Increase/

(Dollars in millions, except per share amounts)

2020

2019

(Decrease)

Balance sheet data:

Total investments and cash

$

23,104.7

$

20,748.5

11.4

%

Total assets

30,153.0

27,324.1

10.4

%

Loss and loss adjustment expense reserves

15,233.1

13,611.3

11.9

%

Total debt

710.8

633.8

12.1

%

Total liabilities

20,561.7

18,191.1

13.0

%

Shareholders' equity

9,591.3

9,132.9

5.0

%

Book value per share

239.98

223.85

7.2

%

(NM, not meaningful)

(Some amounts may not reconcile due to rounding.)

Revenues. 

Premiums. Gross written premiums increased by 16.2% to $2,791.6 million for the three months ended

September 30, 2020, compared to $2,403.3 million for the three months ended September 30, 2019, reflecting a

$350.3 million, or 20.2%, increase in our re insurance business and a $38.0 million, or 5.7%, increase in our

insurance business. The increase in reinsurance premiums was mainly due to increases in treaty property

business and facultative business. The rise in insurance premiums was primarily due to increases in many lines

of business, including casualty, specialty lines and business written through the Lloyd’s Syndicate. Gross written

premiums increased by 15.5% to $7,731.8 million for the nine months ended September 30, 2020, compared to

$6,697.0 million for the nine months ended September 30, 2019, reflecting a $724.8 million, or 15.5%, increase

in our re insurance business and a $310.0 million, or 15.4%, increase in our insurance business. The increase in

reinsurance premiums was mainly due to increases in treaty property business, casualty writings and facultative

39

business. The rise in insurance premiums was primarily due to increases in many lines of business, including

property, casualty, specialty lines, accident and health and business written through the Lloyd’s Syndicate. 

Net written premiums increased by 18.4% to $2,448.7 million for the three months ended September 30, 2020,

compared to $2,068.6 million for the three months ended September 30, 2019. Net written premiums increased

by 16.9% to $6,667.6 million for the nine months ended September 30, 2020, compared to $5,704.2 million for

the nine months ended September 30, 2019. The differences between the changes in gross written premiums

compared to the changes in net written premiums are primarily due to varying utiliza tion of reinsurance. 

Premiums earned increased by 15.8% to $2,205.8 million for the three months ended September 30, 2020,

compared to $1,905.6 million for the three months ended September 30, 2019. Premiums earned increased by

15.2% to $6,285.0 million for the nine months ended September 30, 2020, compared to $5,455.6 million for the

nine months ended September 30, 2019. The changes in premiums earned relative to net written premiums are

the result of timing; premiums are earned ratably over the coverage period whereas written premiums are

recorded at the initiation of the coverage period. 

Net Investment Income. Net investment income increased by 29.4% to $234.2 million for the three months

ended September 30, 2020, compared with investment income of $181.1 million for the three months ended

September 30, 2019. This increase was primarily the result of an increase in limited partnership income, as the

improvement in the equity markets during the second quarter had a positive impact on the limited partnership

valuations, and we had higher income from our growing fixed income portfolio. Net investment income

decreased by 16.2% to $420.1 million for the nine months ended September 30, 2020, compared with

investment income of $501.1 million for the nine months ended September 30, 2019. This decrease in income

was primarily the result of losses from our limited partnerships in the second quarter, partially offset by higher

income from our growing fixed maturity portfolio. Net pre-tax investment income, as a percentage of average

invested assets, was 4.4% for the three months ended September 30, 2020, compared to 3.7% for the three

months ended September 30, 2019. Net pre-tax investment income, as a percentage of average invested assets,

was 2.7% for the nine months ended September 30, 2020, compared to 3.5% for the nine months ended

September 30, 2019. 

Net Realized Capital Gains (Losses). Net realized capital gains were $110.2 million and net realized capital losses

were $12.9 million for the three months ended September 30, 2020 and 2019, respectively. As discussed earlier,

the COVID-19 pandemic caused significant volatility in the global financial markets. The net realized capital gains

of $110.2 million for the three months ended September 30, 2020 were comprised of $100.0 million of net gains

from fair value re -measurements, resulting primarily from increases in equity security valuations which further

rebounded from declines in the first quarter of 2020, $6.2 million from a decline in net allowances for credit

losses and $4.0 million of net realized capital gains from sales of investments . The net realized capital losses of

$12.9 million for the three months ended September 30, 2019 were comprised of $12.0 million of net losses

from fair value re-measurements and $7.3 million of other-than-temporary impairments, partially offset by $6.5

million of net realized capital gains from sales of investments. 

Net realized capital gains were $84.3 million and $109.6 million for the nine months ended September 30, 2020

and 2019, respectively. The net realized capital gains of $84.3 million for the nine months ended September 30,

2020 were comprised of $116.3 million of net gains from fair value re-measurements, partially offset by $19.6

million of net allowances for credit losses and $12.4 million of net realized capital losses from sales of

investments. The net realized capital gains of $109.6 million for the nine months ended September 30, 2019

were comprised of $102.8 million of net gains from fair value re-measurements and $22.3 million of net realized

capital gains from sales of investments, partially offset by $15.4 million of other-than-temporary impairments. 

Net Derivative Gain (Loss). In 2005 and prior, we sold seven equity index put option contracts, one of which

remained outstanding at September 30, 2020. These contracts meet the definition of a derivative in accordance

with FASB guidance and as such, are fair valued each quarter with the change recorded as net derivative gain or

loss in the consolidated statements of operations and comprehensive income (loss). As a result of these

adjustments in value, we recognized a net derivative gain of $2.5 million and a net derivative loss of $0.2 million

40

for the three months ended September 30, 2020 and 2019, respectively, and net derivative losses of $1.0 million

and net derivative gains of $3.4 million for the nine months ended September 30, 2020 and 2019, respectively. 

The changes in the fair value of these equity index put option contracts is generally indicat ive of the changes in

the equity markets and interest rates over the same periods. 

Other Income (Expense). We recorded other income of $57.5 million and $48.4 million for the three and nine

months ended September 30, 2020, respectively. We recorded other expense of $31.0 million and $52.6 million

for the three and nine months ended September 30, 2019, respectively. The changes were primarily the result

of fluctuations in foreign currency exchange rates, income related to Mt. Logan Re and changes in deferred gains

related to any retroactive reinsurance transactions. We recognized foreign currency exchange income of $61.4

million and $37.9 million for the three and nine months ended September 30, 2020, respectively. We recognized

foreign currency exchange expense of $26.0 million and $44.5 million for the three and nine months ended

September 30, 2019, respectively. 

Claims and Expenses.

Incurred Losses and Loss Adjustment Expenses. The following tables present our incurred losses and loss

adjustment expenses (“LAE”) for the periods indicated. 

Three Months Ended September 30,

Current

Ratio %/

Prior

Ratio %/

Total

Ratio %/

(Dollar in millions)

Year

Pt Change

Years

Pt Change

Incurred

Pt Change

2020

Attritional

$

1,427.5

64.8

%

$

(1.3)

-0.1

%

$

1,426.2

64.7

%

Catastrophes

310.0

14.0

%

-

-

%

310.0

14.0

%

Total

$

1,737.5

78.8

%

$

(1.3)

-0.1

%

$

1,736.2

78.7

%

2019

Attritional

$

1,128.7

59.2

%

$

(52.2)

-2.7

%

$

1,076.4

56.5

%

Catastrophes

295.5

15.5

%

-

-

%

295.5

15.5

%

Total

$

1,424.2

74.7

%

$

(52.2)

-2.7

%

$

1,371.9

72.0

%

Variance 2020/2019

Attritional

$

298.8

5.6

pts

$

50.9

2.6

pts

$

349.8

8.2

pts

Catastrophes

14.5

(1.5)

pts

-

-

pts

14.5

(1.5)

pts

Total

$

313.3

4.1

pts

$

50.9

2.6

pts

$

364.3

6.7

pts

Nine Months Ended September 30,

Current

Ratio %/

Prior

Ratio %/

Total

Ratio %/

(Dollar in millions)

Year

Pt Change

Years

Pt Change

Incurred

Pt Change

2020

Attritional

$

4,217.6

67.1

%

$

1.4

0.1

%

$

4,219.1

67.2

%

Catastrophes

355.0

5.6

%

-

-

%

355.0

5.6

%

Total

$

4,572.6

72.7

%

$

1.4

0.1

%

$

4,574.1

72.8

%

2019

Attritional

$

3,239.0

59.4

%

$

(74.4)

-1.4

%

$

3,164.6

58.0

%

Catastrophes

320.5

5.9

%

30.0

0.5

%

350.5

6.4

%

Total

$

3,559.5

65.3

%

$

(44.4)

-0.9

%

$

3,515.1

64.4

%

Variance 2020/2019

Attritional

$

978.6

7.7

pts

$

75.8

1.5

pts

$

1,054.5

9.2

pts

Catastrophes

34.5

(0.3)

pts

(30.0)

(0.5)

pts

4.5

(0.8)

pts

Total

$

1,013.1

7.4

pts

$

45.8

1.0

pts

$

1,059.0

8.4

pts

Incurred losses and LAE increased by 26.6% to $1,736.2 million for the three months ended September 30, 2020,

compared to $1,371.9 million for the three months ended September 30, 2019. The increase was primarily due

to a rise of $298.8 million in current year attritional losses, mainly due to $124.9 million of losses related to the

COVID-19 pandemic and the impact of the increase in premiums earned, as well as an increase of $14.5 million

in current year catastrophe losses. The current year catastrophe losses of $310.0 million for the three months

ended September 30, 2020 related to Hurricane Laura ($131.0 million), the Northern California wildfires ($52.0

million), the California Glass wildfire ($30.0 million), Hurricane Sally ($26.0 million), the Oregon wildfires ($21.0

million), Hurricane Isaias ($19.9 million), the Derecho storms ($15.1 million) and the Calgary storms in Canada

41

($15.0 million). The $295.5 million of current year catastrophe losses for the three months ended September 30,

2019 related to Hurricane Dorian ($164.5 million) and Typhoon Faxai ($131.0 million). 

Incurred losses and LAE increased by 30.1% to $4,574.1 million for the nine months ended September 30, 2020,

compared to $3,515.1 million for the nine months ended September 30, 2019. The increase was primarily due to

a rise of $978.6 million in current year attritional losses, mainly due to $434.9 million of losses related to the

COVID-19 pandemic and the impact of the increase in premiums earned, as well as an increase of $34.5 million

in current year catastrophe losses. The current year catastrophe losses of $355.0 million fo r the nine months

ended September 30, 2020 related to Hurricane Laura ($131.0 million), the Northern California wildfires ($52.0

million), the California Glass wildfire ($30.0 million), Hurricane Sally ($26.0 million), the Oregon wildfires ($21.0

million), Hurricane Isaias ($19.9 million), the 2020 U.S. civil unrest ($17.4 million), Nashville tornadoes ($15.2

million), the Derecho storms ($15.1 million), the Calgary storms in Canada ($15.0 million), Australia East Coast

Storm ($6.8 million) and the 2020 Australia fires ($5.6 million). The $320.5 million of current year catastrophe

losses for the nine months ended September 30, 2019 related to Hurricane Dorian ($164.5 million), Typhoon

Faxai ($131.0 million) and the Townsville monsoon in Australia ($25.0 million). 

Commission, Brokerage, Taxes and Fees. Commission, brokerage, taxes and fees increased by 0.5% to $445.3

million for the three months ended September 30, 2020, compared to $443.1 million for the three months

ended September 30, 2019. Commission, brokerage, taxes and fees increased by 8.5% to $1,360.2 million for

the nine months ended September 30, 2020, compared to $1,253.5 million for the nine months ended

September 30, 2019. The increases were primarily due to the impact of the increases in premiums earned and

changes in the mix of business. 

Other Underwriting Expenses. Other underwriting expenses were $138.9 million and $118.2 million for the

three months ended September 30, 2020 and 2019, respectively. Other underwriting expenses were $385.9

million and $322.0 million for the nine months ended September 30, 2020 and 2019, respectively. The increases

in other underwriting expenses were mainly due to the impact of the increases in premiums earned. 

Corporate Expenses. Corporate expenses, which are general operating expenses that are not allocated to

segments, were $10.6 million and $8.4 million for the three months ended September 30, 2020 and 2019,

respectively, and $29.2 million and $22.6 million for the nine months ended September 30, 2020 and 2019,

respectively. These increases were mainly due to costs associated with the relocation of our U.S. headquarters. 

Interest, Fees and Bond Issue Cost Amortization Expense. Interest, fees and other bond amortization expense

was $6.6 million and $7.9 million for the three months ended September 30, 2020 and 2019, respectively. 

Interest, fees and other bond amortization expense was $21.5 million and $24.0 million for the nine months

ended September 30, 2020 and 2019, respectively. Any variance in expense was primarily due to the movement

in the floating interest rate related to the long term subordinated notes, which is reset quarterly per the note

agreement. The floating rate was 2.67% as of September 30, 2020. 

Income Tax Expense (Benefit). We had an income tax expense of $29.5 million and $15.4 million for the three

and nine months ended September 30, 2020, respectively. We had an income tax benefit of $11.4 million and

income tax expense of $88.1 million for the three and nine months ended September 30, 2019, respectively. 

Income tax benefit or expense is primarily a function of the geographic location of the Company’s pre-tax

income and the statutory tax rates in those jurisdictions. The effective tax rate (“ETR”) is primarily affected by

tax-exempt investment income, foreign tax credits and dividends. Variations in the ETR generally result from

changes in the relative levels of pre -tax income, including the impact of catastrophe losses and net capital gains

(losses), among jurisdictions with different tax rates. The change in income tax expense (benefit) for the three

months ended September 30, 2020 as compared to the three months ended September 30, 2019 results

primarily from higher investment income and realized investment gains, partially offset by the estimated

incurred losses from the COVID-19 pandemic. The change in income tax for the nine months ended September

30, 2020 as compared to the nine months ended September 30, 2019 was primarily due to the estimated

42

incurred losses from the COVID-19 pandemic and the beneficial tax impact from the Coronavirus Aid, Relief and

Economic Securities Act (“the CARES Act”). 

The CARES Act was passed by Congress and signed into law by the President on March 27, 2020 in response to

the COVID -19 pandemic. Among the provisions of the CARES Act was a special tax provision which allows

companies to elect to carryback five years net operating losses incurred in the 2018, 2019 and/or 2020 tax years. 

The Tax Cuts and Jobs Act of 2017 had eliminated net operating loss carrybacks for most companies. The

Company determined that the special 5 year loss carryback tax provision provided a tax benefit of $31.0 million

which it recorded in the quarter ended March 31, 2020. 

Net Income (Loss). 

Our net income was $243.1 million and $104.4 million for the three months ended September 30, 2020 and

2019, respectively. Our net income was $450.5 million and $791.8 million for the nine months ended September

30, 2020 and 2019, respectively. The changes were primarily driven by the financial component fluctuations

explained above. 

Ratios.

Our combined ratio increased by 3.8 points to 105.2% for the three months ended September 30, 2020,

compared to 101.4% for the three months ended September 30, 2019, and increased by 7.3 points to 100.6% for

the nine months ended September 30, 2020, compared to 93.3% for the nine months ended September 30,

2019. The loss ratio component increased 6.7 points and 8.4 points for the three and nine months ended

September 30, 2020 over the same periods last year mainly due to $124.9 million and $434.9 million of

attritional losses related to the COVID -19 pandemic for the three and nine months ended September 30, 2020,

respectively. The commission and brokerage ratio component decreased to 20.2% for the three months ended

September 30, 2020 compared to 23.3% for the three months ended September 30, 2019 and decreased to

21.7% for the nine months ended September 30, 2020 compared to 23.0% for the nine months ended

September 30, 2019. The declines were mainly due to changes in the mix of business. The other underwriting

expense ratio increased slightly to 6.3% for the three months ended September 30, 2020 from 6.1% for the three

months ended September 30, 2019 and increased slightly to 6.1% for the nine months ended September 30,

2020 from 5.9% for the nine months ended September 30, 2019. The increases for the three and nine month

periods were mainly due to employee benefit expenses. 

Shareholders’ Equity.

Shareholders’ equity increased by $458.4 million to $9,591.3 million at September 30, 2020 from $9,132.9

million at December 31, 2019, principally as a result of $450.5 million of net income, $348.5 million of unrealized

appreciation on investments net of tax, $30.4 million of net foreign currency translation adjustments, $15.7

million of share -based compensation transactions and $4.5 million of net benefit plan obligation adjustments,

partially offset by the repurchase of 970,892 common shares for $200.0 million, $187.1 million of shareholder

dividends, and $4.2 million of cumulative adjustment from the adoption of ASU 2016-13. 

Consolidated Investment Results

Net Investment Income.

Net investment income increased by 29.4% to $234.2 million for the three months ended September 30, 2020,

compared with investment income of $181.1 million for the three months ended September 30, 2019. This

increase was primarily the result of an increase in limited partnership income, as the improvement in the equity

markets during the second quarter had a positive impact on the limited partnership valuations, and we had

higher income from our growing fixed income portfolio. Net investment income decreased by 16.2% to $420.1

million for the nine months ended September 30, 2020, compared with investment income of $501.1 million for

the nine months ended September 30, 2019. This decrease in income was primarily the result of losses from our

limited partnerships in the second quarter, partially offset by higher income from our growing fixed maturity

portfolio. 

43

The following table shows the components of net investment income for the periods indicated. 

Three Months Ended

Nine Months Ended

September 30,

September 30,

(Dollars in millions)

2020

2019

2020

2019

Fixed maturities

$

136.1

$

130.1

$

407.9

$

383.4

Equity securities 

4.4

4.2

11.6

12.3

Short-term investments and cash

0.5

3.9

4.4

13.5

Other invested assets

Limited partnerships

88.8

43.8

22.1

100.3

Other

14.7

7.3

(1.3)

13.6

Gross investment income before adjustments

244.5

189.3

444.7

523.1

Funds held interest income (expense)

0.7

2.3

10.9

9.7

Future policy benefit reserve income (expense)

(0.3)

(0.4)

(0.8)

(1.0)

Gross investment income

244.9

191.2

454.8

531.8

Investment expenses

(10.7)

(10.1)

(34.7)

(30.7)

Net investment income

$

234.2

$

181.1

$

420.1

$

501.1

(Some amounts may not reconcile due to rounding.)

The following tables show a comparison of various investment yields for the periods indicated.

At

At

September 30,

December 31,

2020

2019

Imbedded pre-tax yield of cash and invested assets

3.1

%

3.4

%

Imbedded after-tax yield of cash and invested assets

2.7

%

3.0

%

Three Months Ended

Nine Months Ended

September 30,

September 30,

2020

2019

2020

2019

Annualized pre-tax yield on average cash and invested assets

4.4

%

3.7

%

2.7

%

3.5

%

Annualized after-tax yield on average cash and invested assets

3.8

%

3.3

%

2.3

%

3.1

%

44

Net Realized Capital Gains (Losses).

The following table presents the composition of our net realized capital gains (losses) for the periods indicated. 

Three Months Ended September 30,

Nine Months Ended September 30,

(Dollars in millions)

2020

2019

Variance

2020

2019

Variance

Gains (losses) from sales:

 Fixed maturity securities, market value:

 Gains

$

18.7

$

14.3

$

4.4

$

54.1

$

42.0

$

12.1

 Losses

(13.3)

(9.0)

(4.3)

(53.1)

(25.3)

(27.8)

 Total

5.4

5.3

0.1

0.9

16.7

(15.8)

 Fixed maturity securities, fair value:

 Gains

$

-

$

-

$

-

-

0.4

(0.4)

 Losses

(2.0)

-

(2.0)

(2.0)

-

(2.0)

 Total

(2.0)

-

(2.0)

(2.0)

0.4

(2.4)

 Equity securities, fair value:

 Gains

9.5

1.0

8.5

30.3

9.3

21.0

 Losses

(10.8)

(2.2)

(8.6)

(42.9)

(6.7)

(36.2)

 Total

(1.3)

(1.1)

(0.1)

(12.6)

2.6

(15.2)

 Other Invested Assets:

 Gains

1.4

2.6

(1.2)

6.0

2.9

3.1

 Losses

(0.3)

(0.5)

0.3

(5.9)

(0.6)

(5.3)

 Total

1.1

2.1

(0.9)

0.1

2.3

(2.2)

 Short Term Investments:

 Gains

0.8

0.2

0.6

1.2

0.3

0.9

 Losses

-

-

-

-

-

-

 Total

0.8

0.2

0.6

1.2

0.3

0.9

Total net realized gains (losses) from sales:

 Gains

30.4

18.2

12.2

91.5

54.9

36.7

 Losses

(26.4)

(11.7)

(14.7)

(103.9)

(32.6)

(71.3)

 Total

4.0

6.5

(2.4)

(12.4)

22.3

(34.6)

Allowance for credit losses

6.2

-

6.2

(19.6)

-

(19.6)

Other-than-temporary impairments:

-

(7.3)

7.3

-

(15.4)

15.4

Gains (losses) from fair value adjustments:

 Fixed maturities, fair value

3.3

-

3.3

1.9

-

1.9

 Equity securities, fair value

96.7

(12.0)

108.7

114.4

102.8

11.6

Total

100.0

(12.0)

112.0

116.3

102.8

13.5

Total net realized capital gains (losses)

$

110.2

$

(12.9)

$

123.1

84.3

109.6

(25.3)

(Some amounts may not reconcile due to rounding.)

Net realized capital gains were $110.2 million and net realized capital losses were $12.9 million for the three

months ended September 30, 2020 and 2019, respectively. As discussed earlier, the COVID-19 pandemic caused

significant volatility in the global financial markets. For the three months ended September 30, 2020, we

recorded $100.0 million of net gains from fair value re -measurements, resulting primarily from increases in

equity security valuations which further rebounded from declines in the first quarter of 2020, $6.2 million from a

decline in net allowances for credit losses and $4.0 million of net realized capital gains from sales of investments. 

For the three months ended September 30, 2019, we recorded $12.0 million of net losses from fair value re-

measurements and $7.3 million of other-than-temporary impairments, partially offset by $6.5 million of net

realized capital gains from sales of investments. The fixed maturity and equity sales for the three months ended

45

September 30, 2020 and 2019 related primarily to adjusting the portfolios for overall market changes and

individual credit shifts. 

Net realized capital gains were $84.3 million and $109.6 million for the nine months ended September 30, 2020

and 2019, respectively. For the nine months ended September 30, 2020, we recorded $116.3 million of net gains

from fair value re-measurements, partially offset by $19.6 million of net allowances for credit losses and $12.4

million of net realized capital losses from sales of investments . For the nine months ended September 30, 2019,

we recorded $102.8 million of net gains from fair value re-measurements and $22.3 million of net realized

capital gains from sales of investments, partially offset by $15.4 million of other-than-temporary impairments. 

The fixed maturity and equity sales for the nine months ended September 30, 2020 and 2019 related primarily to

adjusting the portfolios for overall market changes and individual credit shifts. 

Segment Results.

The Reinsurance operation writes worldwide property and casualty reinsurance and specialty lines of business,

on both a treaty and facultative basis, through reinsurance brokers, as well as directly with ceding companies. 

Business is written in the U.S., Bermuda, and Ireland offices, as well as, through branches in Canada, Singapore

and the United Kingdom. The Insurance operation writes property and casualty insurance directly and through

brokers, surplus lines brokers and general agents within the U.S., Canada and Europe through its offices in the

U.S., Canada, Ireland and a branch located in Zurich. 

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. 

Underwriting results include earned premium less losses and loss adjustment expenses (“LAE”) incurred,

commission and brokerage expenses and other underwriting expenses. We measure our underwriting results

using ratios, in particular loss, commission and brokerage and other underwriting expense ratios, which,

respectively, divide incurred losses, commissions and brokerage and other underwriting expenses by premiums

earned. 

The Company does not maintain separate balance sheet data for its operating segments. Accordingly, the

Company does not review and evaluate the financial results of its operating segments based upon balance sheet

data. 

The following discusses the underwriting results for each of our segments for the periods indicated. 

46

Reinsurance.

The following table presents the underwriting results and ratios for the Reinsurance segment for the periods

indicated.

Three Months Ended September 30,

Nine Months Ended September 30,

(Dollars in millions)

2020

2019

Variance

% Change

2020

2019

Variance

% Change

Gross written premiums

$

2,087.0

$

1,736.7

$

350.3

20.2

%

$

5,403.1

$

4,678.3

$

724.8

15.5

%

Net written premiums

1,936.9

1,583.7

353.1

22.3

%

4,974.0

4,213.0

761.1

18.1

%

Premiums earned

$

1,669.3

$

1,420.8

$

248.5

17.5

%

$

4,656.7

$

4,072.1

$

584.7

14.4

%

Incurred losses and LAE

1,335.0

1,050.6

284.4

27.1

%

3,361.4

2,605.9

755.5

29.0

%

Commission and brokerage

373.3

371.1

2.2

0.6

%

1,130.9

1,039.1

91.8

8.8

%

Other underwriting expenses

51.3

43.8

7.5

17.1

%

135.2

117.0

18.1

15.5

%

Underwriting gain (loss)

$

(90.4)

$

(44.8)

$

(45.6)

101.9

%

$

29.3

$

310.0

$

(280.8)

-90.6

%

Point Chg

Point Chg

Loss ratio

80.0

%

73.9

%

6.1

72.2

%

64.0

%

8.2

Commission and brokerage ratio

22.3

%

26.1

%

(3.8)

24.3

%

25.5

%

(1.2)

Other underwriting expense ratio

3.1

%

3.1

%

-

2.9

%

2.9

%

-

Combined ratio

105.4

%

103.1

%

2.3

99.4

%

92.4

%

7.0

(NM, Not Meaningful)

(Some amounts may not reconcile due to rounding.)

Premiums. Gross written premiums increased by 20.2% to $2,087.0 million for the three months ended

September 30, 2020 from $1,736.7 million for the three months ended September 30, 2019, primarily due to an

increase in treaty property writings and facultative business. Net written premiums increased by 22.3% to

$1,936.9 million for the three months ended September 30, 2020 compared to $1,583.7 million for the three

months ended September 30, 2019. The difference between the change in gross written premiums compared to

the change in net written premiums is primarily due to varying utilization of reinsurance. Premiums earned

increased by 17.5% to $1,669.3 million for the three months ended September 30, 2020, compared to $1,420.8

million for the three months ended September 30, 2019. The change in premiums earned relative to net written

premiums is primarily the result of timing; premiums are earned ratably over the coverage period whereas

written premiums are recorded at the initiation of the coverage period. 

Gross written premiums increased by 15.5% to $5,403.1 million for the nine months ended September 30, 2020

from $4,678.3 million for the nine months ended September 30, 2019, primarily due to an increase in treaty

property writings, casualty business and facultative business. Net written premiums increased by 18.1% to

$4,974.0 million for the nine months ended September 30, 2020 compared to $4,213.0 million for the nine

months ended September 30, 2019. The difference between the change in gross written premiums compared to

the change in net written premiums is primarily due to varying utilization of reinsurance. Premiums earned

increased by 14.4% to $4,656.7 million for the nine months ended September 30, 2020, compared to $4,072.1

million for the nine months ended September 30, 2019. The change in premiums earned relative to net written

premiums is primarily the result of timing; premiums are earned ratably over the coverage period whereas

written premiums are recorded at the initiation of the coverage period. 

47

Incurred Losses and LAE

. The following table presents the incurred losses and LAE for the Reinsurance segment

for the periods indicated. 

Three Months Ended September 30,

Current

Ratio %/

Prior

Ratio %/

Total

Ratio %/

(Dollars in millions)

Year

Pt Change

Years

Pt Change

Incurred

Pt Change

2020

Attritional

$

1,063.8

63.8

%

$

(1.3)

-0.1

%

$

1,062.5

63.7

%

Catastrophes

272.5

16.3

%

-

-

%

272.5

16.3

%

Total Segment

$

1,336.3

80.1

%

$

(1.3)

-0.1

%

$

1,335.0

80.0

%

2019

Attritional

$

808.0

56.9

%

$

(52.2)

-3.7

%

755.8

53.2

%

Catastrophes

291.5

20.5

%

3.4

0.2

%

294.9

20.7

%

Total Segment

$

1,099.5

77.4

%

$

(48.8)

-3.5

%

$

1,050.6

73.9

%

Variance 2020/2019

Attritional

$

255.8

6.9

pts

$

50.9

3.6

pts

306.7

10.5

pts

Catastrophes

(19.0)

(4.2)

pts

(3.4)

(0.2)

pts

(22.4)

(4.4)

pts

Total Segment

$

236.8

2.7

pts

$

47.5

3.4

pts

$

284.4

6.1

pts

Nine Months Ended September 30,

Current

Ratio %/

Prior

Ratio %/

Total

Ratio %/

(Dollars in millions)

Year

Pt Change

Years

Pt Change

Incurred

Pt Change

2020

Attritional

$

3,067.5

65.9

%

$

(3.1)

-0.1

%

3,064.4

65.8

%

Catastrophes

297.0

6.4

%

-

-

%

297.0

6.4

%

Total Segment

$

3,364.5

72.3

%

$

(3.1)

-0.1

%

$

3,361.4

72.2

%

2019

Attritional

$

2,330.5

57.2

%

$

(74.4)

-1.8

%

2,256.0

55.4

%

Catastrophes

316.5

7.8

%

33.4

0.8

%

349.9

8.6

%

Total Segment

$

2,647.0

65.0

%

$

(41.1)

-1.0

%

$

2,605.9

64.0

%

Variance 2020/2019

Attritional

$

737.0

8.7

pts

$

71.3

1.7

pts

$

808.3

10.4

pts

Catastrophes

(19.5)

(1.4)

pts

(33.4)

(0.8)

pts

(52.9)

(2.2)

pts

Total Segment

$

717.5

7.3

pts

$

37.9

0.9

pts

$

755.5

8.2

pts

(Some amounts may not reconcile due to rounding.)

Incurred losses increased by 27.1% to $1,335.0 million for the three months ended September 30, 2020,

compared to $1,050.6 million for the three months ended September 30, 2019. The increase was primarily due

to an increase of $255.8 million in current year attritional losses, mainly related to $109.9 million of losses from

the COVID -19 pandemic and the impact of the increase in premiums earned, as well at $50.9 million less of

favorable development on prior years attritional losses in 2020 compared to 2019. The increase was partially

offset by a decline of $19.0 million in current year catastrophe losses. The current year catastrophe losses of

$272.5 million for the three months ended September 30, 2020 related primarily to Hurricane Laura ($116.0

million), the Northern California wildfires ($52.0 million), the California Glass wildfire ($30.0 million), the Oregon

wildfires ($21.0 million), Hurricane Isaias ($17.9 million), the Derecho storms ($13.1 million), the Calgary storms

in Canada ($12.5 million) and Hurricane Sally ($10.0 million). The $291.5 million of current year catastrophe

losses for the three months ended September 30, 2019 related to Hurricane Dorian ($160.5 million) and

Typhoon Faxai ($131.0 million). 

Incurred losses increased by 29.0% to $3,361.4 million for the nine months ended September 30, 2020,

compared to $2,605.9 million for the nine months ended September 30, 2019. The increase was primarily due to

an increase of $737.0 million in current year attritional losses, mainly related to $351.0 million of losses from the

COVID-19 pandemic and the impact of the increase in premiums earned, as well as $71.3 million less of favorable

development on prior years attritional losses in 2020 compared to 2019. The increase was partially offset by a

decline of $19.5 million in current year catastrophe losses and $33.4 million of less favorable development on

prior year catastrophe losses. The current year catastrophe losses of $297.0 million for the nine months ended

48

September 30, 2020 related primarily to Hurricane Laura ($116.0 million), the Northern California wildfires

($52.0 million), the California Glass wildfire ($30.0 million), the Oregon wildfires ($21.0 million), Hurricane Isaias

($17.9 million), the Derecho storms ($13.1 million), the Calgary storms in Canada ($12.5 million), Hurricane Sally

($10.0 million), the Nashville tornadoes ($9.7 million), the Australia East Coast storm ($6.8 million), the Australia

fires ($5.6 million) and the 2020 U.S. Civil Unrest ($2.4 million). The $316.5 million of current year catastrophe

losses for the nine months ended September 30, 2019 were related to Hurricane Dorian ($160.5 million),

Typhoon Faxai ($131.0 million) and the Townsville monsoon in Australia ($25.0 million). 

Segment Expenses. Commission and brokerage expenses increased by 0.6% to $373.3 million for the three

months ended September 30, 2020 compared to $371.1 million for the three months ended September 30,

2019. Commission and brokerage expenses increased by 8.8% to $1,130.9 million for the nine months ended

September 30, 2020 compared to $1,039.1 million for the nine months ended September 30, 2019. The

increases were mainly due to the impact of the increases in premiums earned and changes in the mix of

business. 

Segment other underwriting expenses increased to $51.3 million for the three months ended September 30,

2020 from $43.8 million for the three months ended September 30, 2019. Segment other underwriting

expenses increased to $135.2 million for the nine months ended September 30, 2020 from $117.0 million for the

nine months ended September 30, 2019. These increases were 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.

Three Months Ended September 30,

Nine Months Ended September 30,

(Dollars in millions)

2020

2019

Variance

% Change

2020

2019

Variance

% Change

Gross written premiums

$

704.6

$

666.6

$

38.0

5.7

%

$

2,328.7

$

2,018.7

$

310.0

15.4

%

Net written premiums

511.8

484.8

27.0

5.6

%

1,693.6

1,491.3

202.3

13.6

%

Premiums earned

$

536.6

$

484.8

$

51.7

10.7

%

$

1,628.3

$

1,383.5

$

244.8

17.7

%

Incurred losses and LAE

401.2

321.3

79.9

24.9

%

1,212.7

909.2

303.5

33.4

%

Commission and brokerage

72.1

72.0

0.1

0.1

%

229.2

214.4

14.8

6.9

%

Other underwriting expenses

87.5

74.3

13.2

17.8

%

250.7

204.9

45.8

22.3

%

Underwriting gain (loss)

$

(24.2)

$

17.2

$

(41.4)

-240.8

%

$

(64.3)

$

55.0

$

(119.3)

-216.9

%

Point Chg

Point Chg

Loss ratio

74.8

%

66.2

%

8.6

74.6

%

65.8

%

8.8

Commission and brokerage ratio

13.4

%

14.8

%

(1.4)

14.0

%

15.5

%

(1.5)

Other underwriting expense ratio

16.3

%

15.4

%

0.9

15.4

%

14.7

%

0.7

Combined ratio

104.5

%

96.4

%

8.1

104.0

%

96.0

%

8.0

(NM not meaningful)

(Some amounts may not reconcile due to rounding.)

Premiums. Gross written premiums increased by 5.7% to $704.6 million for the three months ended September

30, 2020 compared to $666.6 million for the three months ended September 30, 2019. This increase was related

to many lines of business including casualty, specialty lines and business written through Lloyd’s syndicate. Net

written premiums increased by 5.6% to $511.8 million for the three months ended September 30, 2020

compared to $484.8 million for the three months ended September 30, 2019. The change is consistent with the

change in gross written premiums. Premiums earned increased 10.7% to $536.6 million for the three months

ended September 30, 2020 compared to $484.8 million for the three months ended September 30, 2019. The

change in premiums earned relative to net written premiums is the result of timing; premiums are earned

ratably over the coverage period whereas written premiums are recorded at the initiation of the coverage

period. 

Gross written premiums increased by 15.4% to $2,328.7 million for the nine months ended September 30, 2020

compared to $2,018.7 million for the nine months ended September 30, 2019. This increase was related to most

lines of business including property, casualty, specialty lines, accident and health and business written through

49

Lloyd’s syndicate . Net written premiums increased by 13.6% to $1,693.6 million for the nine months ended

September 30, 2020 compared to $1,491.3 million for the nine months ended September 30, 2019. The

difference between the change in gross written premiums compared to the change in net written premiums is

primarily due to varying utilization of reinsurance. Premiums earned increased 17.7% to $1,628.3 million for the

nine months ended September 30, 2020 compared to $1,383.5 million for the nine months ended September 30,

2019. 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 Insurance segment for

the periods indicated. 

Three Months Ended September 30,

Current

Ratio %/

Prior

Ratio %/

Total

Ratio %/

(Dollars in millions)

Year

Pt Change

Years

Pt Change

Incurred

Pt Change

2020

Attritional

$

363.7

67.8

%

$

-

-

%

$

363.7

67.8

%

Catastrophes

37.5

7.0

%

-

-

%

37.5

7.0

%

Total Segment

$

401.2

74.8

%

$

-

-

%

$

401.2

74.8

%

2019

Attritional

$

320.7

66.1

%

$

-

-

%

$

320.7

66.1

%

Catastrophes

4.0

0.8

%

(3.4)

-0.7

%

0.6

0.1

%

Total Segment

$

324.7

66.9

%

$

(3.4)

-0.7

%

$

321.3

66.2

%

Variance 2020/2019

Attritional

$

43.0

1.7

pts

$

-

-

pts

$

43.0

1.7

pts

Catastrophes

33.5

6.2

pts

3.4

0.7

pts

36.9

6.9

pts

Total Segment

$

76.5

7.9

pts

$

3.4

0.7

pts

$

79.9

8.6

pts

Nine Months Ended September 30,

Current

Ratio %/

Prior

Ratio %/

Total

Ratio %/

(Dollars in millions)

Year

Pt Change

Years

Pt Change

Incurred

Pt Change

2020

Attritional

$

1,150.1

70.7

%

$

4.6

0.3

%

$

1,154.7

71.0

%

Catastrophes

58.0

3.6

%

-

-

%

58.0

3.6

%

Total Segment

$

1,208.1

74.3

%

$

4.6

0.3

%

$

1,212.7

74.6

%

2019

Attritional

$

908.5

65.7

%

$

-

-

%

$

908.6

65.7

%

Catastrophes

4.0

0.3

%

(3.4)

-0.2

%

0.6

0.1

%

Total Segment

$

912.5

66.0

%

$

(3.4)

-0.2

%

$

909.2

65.8

%

Variance 2020/2019

Attritional

$

241.6

5.0

pts

$

4.5

0.3

pts

$

246.1

5.3

pts

Catastrophes

54.0

3.3

pts

3.4

0.2

pts

57.4

3.5

pts

Total Segment

$

295.6

8.3

pts

$

7.9

0.5

pts

$

303.5

8.8

pts

(Some amounts may not reconcile due to rounding.)

Incurred losses and LAE increased by 24.9% to $401.2 million for the three months ended September 30, 2020

compared to $321.3 million for the three months ended September 30, 2019. The increase was mainly due to a

rise of $43.0 million in current year attritional losses, primarily related to $15.0 million of losses from the COVID-

19 pandemic and the impact of the increase in premiums earned, as well as an increase of $33.5 million in

current year catastrophe losses. The current year catastrophe losses of $37.5 million for the three months

ended September 30, 2020 related to Hurricane Sally ($16.0 million), Hurricane Laura ($15.0 million), the Calgary

storms in Canada ($2.5 million), the Derecho storms ($2.0 million) and Hurricane Isaias ($2.0 million). The $4.0

million of current year catastrophe losses for the three months ended September 30, 2019 related to Hurricane

Dorian ($4.0 million). 

50

Incurred losses and LAE increased by 33.4% to $1,212.7 million for the nine months ended September 30, 2020

compared to $909.2 million for the nine months ended September 30, 2019. The increase was mainly due to a

rise of $241.6 million in current year attritional losses, primarily related to $84.0 million of losses from the

COVID-19 pandemic and the impact of the increase in premiums earned, as well as an increase of $54.0 million

in current year catastrophe losses. The current year catastrophe losses of $58.0 million for the nine months

ended September 30, 2020 related to Hurricane Sally ($16.0 million), Hurricane Laura ($15.0 million), the 2020

U.S. Civil Unrest ($15.0 million), the Nashville tornadoes ($5.5 million), the Calgary storms in Canada ($2.5

million), the Derecho storms ($2.0 million) and Hurricane Isaias ($2.0 million). The $4.0 million of current year

catastrophe losses for the nine months ended September 30, 2019 related to Hurricane Dorian ($4.0 million). 

Segment Expenses. Commission and brokerage increased by 0.1% to $72.1 million for the three months ended

September 30, 2020 compared to $72.0 million for the three months ended September 30, 2019. Commission

and brokerage increased by 6.9% to $229.2 million for the nine months ended September 30, 2020 compared to

$214.4 million for the nine months ended September 30, 2019. The increases were mainly due to the impact of

the increases in premiums earned. 

Segment other underwriting expenses increased to $87.5 million for the three months ended September 30,

2020 compared to $74.3 million for the three months ended September 30, 2019. Segment other underwriting

expenses increased to $250.7 million for the nine months ended September 30, 2020 compared to $204.9

million for the nine months ended September 30, 2019. The increases were mainly due to the impact of the

increase in premiums earned and increased expenses related to the continued build out of the insurance

business. 

FINANCIAL CONDITION 

Cash and Invested Assets. Aggregate invested assets, including cash and short-term investments, were

$23,104.7 million at September 30, 2020, an increase of $2,356.2 million compared to $20,748.5 million at

December 31, 2019. This increase was primarily the result of $2,190.6 million of cash flows from operations,

$392.6 million of pre-tax unrealized appreciation, $89.1 million of unsettled securities, $88.0 million in fair value

re-measurements, $12.5 million in equity adjustments of our limited partnership investments, $11.8 million due

to fluctuations in foreign currencies, partially offset by repurchases of 970,892 million common shares for $200.0

million, $187.1 million paid out in dividends to shareholders, $32.6 million of amortization bond premium and

$19.6 million of allowance for credit losses. 

Our principal investment objectives are to ensure funds are available to meet our insurance and reinsurance

obligations and to maximize after-tax investment income while maintaining a high quality diversified investment

portfolio. Considering these objectives, we view our investment portfolio as having two components: 1) the

investments needed to satisfy outstanding liabilities (our core fixed maturities portfolio) and 2) investments

funded by our shareholders’ equity. 

For the portion needed to satisfy global outstanding liabilities, we generally invest in taxable and tax-

preferenced fixed income securities with an average credit quality of Aa3. For the U.S. portion of this portfolio,

our mix of taxable and tax -preferenced investments is adjusted periodically, consistent with our current and

projected U.S. operating results, market conditions and our tax position. This global fixed maturity securities

portfolio is externally managed by independent, professional investment managers using portfolio guidelines

approved by internal management. 

Over the past several years, we have expanded the allocation of our investments funded by shareholders’ equity

to include: 1) a greater percentage of publicly traded equity securities, 2) emerging market fixed maturities

through mutual fund structures, as well as individual holdings, 3) high yield fixed maturities, 4) bank and private

loan securities and 5) private equity limited partnership investments. The objective of this portfolio

diversification is to enhance the risk-adjusted total return of the investment portfolio by allocating a prudent

portion of the portfolio to higher return asset classes, which are also less subject to changes in value with

51

movements in interest rates. We limit our allocation to these asset classes because of 1) the potential for

volatility in their values and 2) the impact of these investments on regulatory and rating agency capital adequacy

models. We use investment managers experienced in these markets and adjust our allocation to these

investments based upon market conditions. At September 30, 2020, the market value of investments in these

investment market sectors, carried at both market and fair value, approximated 58.3% of shareholders’ equity. 

The Company’s limited partnership investments are comprised of limited partnerships that invest in private

equities. Generally, the limited partnerships are reported on a quarter lag. We receive annual audited financial

statements for all of the limited partnerships which are prepared using fair value accounting in accordance with

FASB guidance. For the quarterly reports, the Company’s staff performs reviews of the financial reports for any

unusual changes in carrying value. If the Company becomes aware of a significant decline in value during the lag

reporting period, the loss will be recorded in the period in which the Company identifies the decline. 

The tables below summarize the composition and characteristics of our investment portfolio as of the dates

indicated. 

(Dollars in millions)

At September 30, 2020

At December 31, 2019

Fixed maturities, market value

$

17,856.4

77.3

%

$

16,824.9

81.1

%

Fixed maturities, fair value

3.7

0.0

%

5.8

0.0

%

Equity securities, fair value

1,173.2

5.1

%

931.5

4.5

%

Short-term investments

1,220.8

5.2

%

414.7

2.0

%

Other invested assets

1,911.8

8.3

%

1,763.5

8.5

%

Cash

938.9

4.1

%

808.0

3.9

%

Total investmen ts and cash

$

23,104.7

100.0

%

$

20,748.5

100.0

%

(Some amounts may not reconcile due to rounding.)

At

At

September 30, 2020

December 31, 2019

Fixed income portfolio duration (years)

3.5

3.5

Fixed income composite credit quality

Aa3

A1

Imbedded end of period yield, pre-tax

3.1

%

3.4

%

Imbedded end of period yield, after-tax

2.7

%

3.0

%

The following table provides a comparison of our total return by asset class relative to broadly accepted industry

benchmarks for the periods indicated: 

Nine Months Ended

Twelve Months Ended

September 30, 2020

December 31, 2019

Fixed income portfolio total return

4.4

%

6.2

%

Barclay's Capital - U.S. aggregate index

6.8

%

8.7

%

Common equity portfolio total return

11.0

%

23.8

%

S&P 500 index

5.6

%

31.5

%

Other invested asset portfolio total return

1.5

%

9.9

%

The pre-tax equivalent total return for the bond portfolio was approximately 4.5% and 6.3%, respectively, for the

nine months ended September 30, 2020 and the twelve months ended December 31, 2019. The pre-tax

equivalent return adjusts the yield on tax-exempt bonds to the fully taxable equivalent. 

Our fixed income and equity portfolios have different compositions than the benchmark indexes. Our fixed

income portfolios have a shorter duration because we align our investment portfolio with our liabilities. We also

hold foreign securities to match our foreign liabilities while the index is comprised of only U.S. securities. Our

52

equity portfolios reflect an emphasis on dividend yield and growth equities, while the index is comprised of the

largest 500 equities by market capitalization. 

Reinsurance Receivables. 

Reinsurance receivables for both paid and recoverable on unpaid losses totaled $1,923.0 million and $1,763.5

million at September 30, 2020 and December 31, 2019, respectively. At September 30, 2020, $716.2 million, or

37.2%, was receivable from Mt. Logan Re collateralized segregated accounts and $153.1 million, or 8.0%, was

receivable from Munich Reinsurance America, Inc. (“Munich Re”). No other retrocessionaire accounted for more

than 5% of our receivables. 

Loss and LAE Reserves. Gross loss and LAE reserves totaled $15,233.1 million and $13,611.3 million at

September 30, 2020 and December 31, 2019, respectively. 

The following tables summarize gross outstanding loss and LAE reserves by segment, classified by case reserves

and IBNR reserves, for the periods indicated. 

At September 30, 2020

Case

IBNR

Total

% of 

(Dollars in millions)

Reserves

Reserves

Reserves

Total

Reinsurance

$

4,847.2

$

5,987.0

$

10,834.1

71.1

%

Insurance

1,249.4

2,924.1

4,173.5

27.4

%

Total excluding A&E

6,096.5

8,911.1

15,007.6

98.5

%

A&E

181.5

43.9

225.5

1.5

%

Total including A&E

$

6,278.1

$

8,955.0

$

15,233.1

100.0

%

(Some amounts may not reconcile due to rounding.)

At December 31, 2019

Case

IBNR

Total

% of 

(Dollars in millions)

Reserves

Reserves

Reserves

Total

Reinsurance

$

5,050.5

$

4,839.4

$

9,889.9

72.7

%

Insurance

1,090.4

2,373.2

3,463.5

25.4

%

Total excluding A&E

6,140.9

7,212.5

13,353.4

98.1

%

A&E

203.4

54.5

257.9

1.9

%

Total including A&E

$

6,344.3

$

7,267.0

$

13,611.3

100.0

%

(Some amounts may not reconcile due to rounding.)

Changes in premiums earned and business mix, reserve re-estimations, catastrophe losses and changes in

catastrophe loss reserves and claim settlement activity all impact loss and LAE reserves by segment and in total.

Our loss and LAE reserves represent management’s best estimate of our ultimate liability for unpaid claims. We

continuously re-evaluate our reserves, including re-estimates of prior period reserves, taking into consideration

all available information and, in particular, newly reported loss and claim experience. Changes in reserves

resulting from such re -evaluations are reflected in incurred losses in the period when the re-evaluation is made. 

Our analytical methods and processes operate at multiple levels including individual contracts, groupings of like

contracts, classes and lines of business, internal business units, segments, legal entities, and in the aggregate. In

order to set appropriate reserves, we make qualitative and quantitative analyses and judgments at these various

levels. Additionally, the attribution of reserves, changes in reserves and incurred losses among accident years

requires qualitative and quantitative adjustments and allocations at these various levels. We utilize actuarial

science, business expertise and management judgment in a manner intended to ensure the accuracy and

consistency of our reserving practices. Nevertheless, our reserves are estimates, which are subject to variation,

which may be significant. 

53

There can be no assurance that reserves for, and losses from, claim obligations will not increase in the future,

possibly by a material amount. However, we believe that our existing reserves and reserving methodologies

lessen the probability that any such increase would have a material adverse effect on our financial condition,

results of operations or cash flows. 

Asbestos and Environmental Exposures. A&E exposures represent a separate exposure group for monitoring and

evaluating reserve adequacy. The following table summarizes the outstanding loss reserves with respect to A&E

reserves on both a gross and net of retrocessions basis for the periods indicated. 

At

At

September 30,

December 31,

(Dollars in millions)

2020

2019

Gross reserves 

$

227.3

$

257.9

Reinsurance receivable

(20.0)

(29.2)

Net reserves 

$

207.3

$

228.7

(Some amounts may not reconcile due to rounding.)

With respect to asbestos only, at September 30, 2020, we had net asbestos loss reserves of $203.1 million, or

97.9%, of total net A&E reserves, all of which was for assumed business.

In 2015, we sold Mt. McKinley to Clearwater Insurance Company. Concurrently with the closing, we entered into

a retrocession treaty with an affiliate of Clearwater. Per the retrocession treaty, we retroceded 100% of the

liabilities associated with certain Mt. McKinley policies, which had been reinsured by Bermuda Re. As

consideration for entering into the retrocession treaty, Bermuda Re transferred cash of $140.3 million, an

amount equal to the net loss reserves as of the closing date. Of the $140.3 million of net loss reserves

retroceded, $100.5 million were related to A&E business. The maximum liability retroceded under the

retrocession treaty will be $440.3 million, equal to the retrocession payment plus $300.0 million. We will retain

liability for any amounts exceeding the maximum liability retroceded under the retrocession treaty. 

On December 20, 2019, the retrocession treaty was amended and included a partial commutation. As a result of

this amendment and partial commutation, gross A&E reserves and correspondingly reinsurance receivable were

reduced by $43.4 million. In addition, the maximum liability permitted to be retroceded increased to $450.3

million.

Ultimate loss projections for A&E liabilities cannot be accomplished using standard actuarial techniques. We

believe that our A&E reserves represent management’s best estimate of the ultimate liability; however, there

can be no assurance that ultimate loss payments will not exceed such reserves, perhaps by a significant amount. 

Industry analysts use the “survival ratio” to compare the A&E reserves among companies with such liabilities. 

The survival ratio is typically calculated by dividing a company’s current net reserves by the three year average of

annual paid losses. Hence, the survival ratio equals the number of years that it would take to exhaust the

current reserves if future loss payments were to continue at historical levels. Using this measurement, our net

three year asbestos survival ratio was 5.3 years at September 30, 2020. These metrics can be skewed by

individual large settlements occurring in the prior three years and therefore, may not be indicative of the timing

of future payments. 

Shareholders’ Equity. Our shareholders’ equity increased to $9,591.3 million as of September 30, 2020 from

$9,132.9 million as of December 31, 2019. This increase was the result of $450.5 million of net income, $348.5

million of unrealized appreciation on investments net of tax, $30.4 million of net foreign currency translation

adjustments, $15.7 million of share-based compensation transactions and $4.5 million of net benefit plan

obligation adjustments, partially offset by the repurchase of 970,892 common shares for $200.0 million, $187.1

million of shareholder dividends, and $4.2 million of cumulative adjustment from the adoption of ASU 2016-13. 

54

LIQUIDITY AND CAPITAL RESOURCES 

Capital. Shareholders’ equity at September 30, 2020 and December 31, 2019 was $9,591.3 million and $9,132.9

million, respectively. Management’s objective in managing capital is to ensure its overall capital level, as well as

the capital levels of its operating subsidiaries, exceed the amounts required by regulators, the amount needed to

support our current financial strength ratings from rating agencies and our own economic capital models. The

Company’s capital has historically exceeded these benchmark levels. 

Our two main operating companies Bermuda Re and Everest Re are regulated by the Bermuda Monetary

Authority (“BMA”) and the State of Delaware, Department of Insurance, respectively. Both regulatory bodies

have their own capital adequacy models based on statutory capital as opposed to GAAP basis equity. Failure to

meet the required statutory capital levels could result in various regulatory restrictions, including business

activity and the payment of dividends to their parent companies. 

The regulatory targeted capital and the actual statutory capital for Bermuda Re and Everest Re were as follows:

Bermuda Re

(1)

Everest Re

(2)

At December 31,

At December 31,

(Dollars in millions)

2019

2018

2019

2018

Regulatory targeted capital

$

2,061.1

$

1,753.2

$

2,001.2

$

2,173.0

Actual capital

$

3,197.4

$

3,068.5

$

3,739.1

$

3,650.6

(1)

Regulatory targeted capital represents the target capital level from the applicable year's BSCR calculation.

(2)

Regulatory targeted capital represents 200% of the RBC authorized control level calculation for the applicable year. 

Our financial strength ratings as determined by A.M. Best, Standard & Poor’s and Moody’s are important as they

provide our customers and investors with an independent assessment of our financial strength using a rating

scale that provides for relative comparisons. We continue to possess significant financial flexibility and access to

debt and equity markets as a result of our financial strength, as evidenced by the financial strength ratings as

assigned by independent rating agencies. 

We maintain our own economic capital models to monitor and project our overall capital, as well as, the capital

at our operating subsidiaries. A key input to the economic models is projected income and this input is

continually compared to actual results, which may require a change in the capital strategy. 

As part of our capital strategy, we model our potential exposure to catastrophe losses arising from a single

event. Projected catastrophe losses are generally summarized in term of probable maximum loss (“PML”). A full

discussion on PMLs is included in our December 31, 2019 Form 10-K filing in PART 1, Item 1. Business, Risk

Management of Underwriting and Reinsurance Arrangements. We focus on the projected net economic loss

from a catastrophe in a given zone as compared to our shareholders’ equity. Economic loss is the PML exposure,

net of third party reinsurance, reduced by estimated reinstatement premiums to renew coverage and estimated

income taxes. In our December 31, 2019 Form 10-K, we reported that our projected net economic loss from our

largest projected 100-year event represented approximately 6% of our December 31, 2019 shareholders’

equity. During the first three quarters of 2020, in response to current favorable market conditions, we increased

our net exposure to catastrophes. As a result, our projected net economic loss from our largest 100-year event

in a given zone represents approximately 7% of our June 30, 2020 shareholders’ equity.

The table below reflects the Company’s PML exposure, net of third party reinsurance at various return periods

for its top three zones/perils (as ranked by largest 1 in 100 year economic loss) based on projection data as of

July 1, 2020.

55

Return Periods (in years)

1 in 20

1 in 50

1 in 100

1 in 250

1 in 500

1 in 1,000

Exceeding Probability

5.0%

2.0%

1.0%

0.4%

0.2%

0.1%

(Dollars in millions)

Zone/ Peril

California, Earthquake

$ 

164

$ 

582

$ 

914

$ 

1,135

$ 

1,342

$ 

1,887

Southeast U.S., Wind

530

726

891

1,140

1,418

2,170

Europe Wind

147

378

632

993

1,106

1,245

The projected economic losses, defined as PML exposures, net of third party reinsurance, reinstatement

premiums and estimated income taxes, for the top three zones/perils scheduled are as follows:

Return Periods (in years)

1 in 20

1 in 50

1 in 100

1 in 250

1 in 500

1 in 1,000

Exceeding Probability

5.0%

2.0%

1.0%

0.4%

0.2%

0.1%

(Dollars in millions)

Zone/ Peril

California, Earthquake

$

130

$

443

$

689

$

853

$

1,034

$

1,648

Southeast U.S., Wind

358

495

635

840

1,068

1,705

Europe Wind

122

310

509

815

909

1,022

During the first three quarters of 2020, we repurchased 970,892 shares for $200.0 million in the open market

and paid $187.1 million in dividends to adjust our capital position and enhance long term expected returns to

our shareholders. We also repurchased $13.2 million of our long-term subordinated notes in the first three

quarters of 2020. We recognized a realized gain of $2.5 million on the repurchase.

We may continue, from time to time, to seek to retire portions of our outstanding debt securities through cash

repurchases, in open-market purchases, privately negotiated transactions or otherwise. Such repurchases, if any,

will be subject to and depend on prevailing market conditions, our liquidity requirements, contractual

restrictions and other factors. The amounts involved in any such transactions, individually or in the aggregate,

may be material. 

On October 7, 2020, we issued an additional $1,000.0 million of 30 year senior notes at a rate of 3.5%. These

senior notes will mature on October 15, 2050 and will pay interest semi-annually.

In 2019, we repurchased 114,633 shares for $24.6 million in the open market and paid $234.3 million in

dividends. We may at times enter into a Rule 10b5-1 repurchase plan agreement to facilitate the repurchase of

shares. On May 22, 2020, our existing Board authorization to purchase up to 30 million of our shares was

amended to authorize the purchase of up to 32 million shares. As of September 30, 2020, we had repurchased

29.6 million shares under this authorization. 

Liquidity. Our liquidity requirements are generally met from positive cash flow from operations. Positive cash

flow results from reinsurance and insurance premiums being collected prior to disbursements for claims, which

disbursements generally take place over an extended period after the collection of premiums, sometimes a

period of many years. Collected premiums are generally invested, prior to their use in such disbursements, and

investment income provides additional funding for loss payments. Our net cash flows from operating activities

were $2,190.6 million and $1,486.9 million for the nine months ended September 30, 2020 and 2019,

respectively. Additionally, these cash flows reflected net catastrophe loss payments of $505.9 million and

$678.0 million for the nine months ended September 30, 2020 and 2019, respectively and net tax recoveries of

$169.1 million and $80.5 million for the nine months ended September 30, 2020 and 2019, respectively. 

If disbursements for claims and benefits, policy acquisition costs and other operating expenses were to exceed

premium inflows, cash flow from reinsurance and insurance operations would be negative. The effect on cash

flow from insurance operations would be partially offset by cash flow from investment income. Additionally,

56

cash inflows from investment maturities and dispositions, both short-term investments and longer term

maturities are available to supplement other operating cash flows. 

As the timing of payments for claims and benefits cannot be predicted with certainty, we maintain portfolios of

long term invested assets with varying maturities, along with short-term investments that provide additional

liquidity for payment of claims. At September 30, 2020 and December 31, 2019, we held cash and short-term

investments of $2,159.6 million and $1,222.7 million, respectively. Our short-term investments are generally

readily marketable and can be converted to cash. In addition to these cash and short-term investments, at

September 30, 2020, we had $1,483.6 million of available for sale fixed maturity securities maturing within one

year or less, $6,624.8 million maturing within one to five years and $5,319.3 million maturing after five years. 

Our $1,173.2 million of equity securities are comprised primarily of publicly traded securities that can be easily

liquidated. We believe that these fixed maturity and equity securities, in conjunction with the short-term

investments and positive cash flow from operations, provide ample sources of liquidity for the expected

payment of losses in the near future. We do not anticipate selling a significant amount of securities or using

available credit facilities to pay losses and LAE but have the ability to do so. Sales of securities might result in

realized capital gains or losses. At September 30, 2020 we had $744.6 million of net pre-tax unrealized

appreciation related to fixed maturity securities, comprised of $891.2 million of pre -tax unrealized appreciation

and $146.6 million of pre-tax unrealized depreciation. 

Management generally expects annual positive cash flow from operations. Cash flow from operations may

decline and could become negative; however, as indicated above, the Company has ample liquidity to settle its

claims.

In addition to our cash flows from operations and liquid investments, we also have multiple credit facilities that

provide up to $200.0 million of unsecured revolving credit for liquidity and letters of credit but more importantly

provide for up to $600.0 million and £52.2 million of collateralized standby letters of credit to support business

written by our Bermuda operating subsidiaries. 

Effective May 26, 2016, Group, Bermuda Re and Everest International entered into a five year, $800.0 million

senior credit facility with a syndicate of lenders, which amended and restated in its entirety the June 22, 2012,

four year, $800.0 million senior credit facility. Both the May 26, 2016 and June 22, 2012 senior credit facilities,

which have similar terms, are referred to as the “Group Credit Facility”. Wells Fargo Corporation (“Wells Fargo

Bank”) is the administrative agent for the Group Credit Facility, which consists of two tranches. Tranche one

provides up to $200.0 million of unsecured revolving credit for liquidity and general corporate purposes, and for

the issuance of unsecured standby letters of credit. The interest on the revolving loans shall, at the Company’s

option, be either (1) the Base Rate (as defined below) or (2) an adjusted London Interbank Offered Rate

(“LIBOR”) plus a margin. The Base Rate is the higher of (a) the prime commercial lending rate established by

Wells Fargo Bank, (b) the Federal Funds Rate plus 0.5% per annum or (c) the one month LIBOR Rate plus 1.0%

per annum. The amount of margin and the fees payable for the Group Credit Facility depends on Group’s senior

unsecured debt rating. Tranche two exclusively provides up to $600.0 million for the issuance of standby letters

of credit on a collateralized basis.

The Group Credit Facility requires Group to maintain a debt to capital ratio of not greater than 0.35 to 1 and to

maintain a minimum net worth. Minimum net worth is an amount equal to the sum of $5,371.0 million plus 25%

of consolidated net income for each of Group’s fiscal quarters, for which statements are available ending on or

after March 31, 2016 and for which consolidated net income is positive, plus 25% of any increase in consolidated

net worth during such period attributable to the issuance of ordinary and prefe rred shares, which at September

30, 2020, was $6,372.7 million. As of September 30, 2020, the Company was in compliance with all Group Credit

Facility covenants. 

At September 30, 2020 and December 31, 2019, the Company had no outstanding short -term borrowings from

the Group Credit Facility revolving credit line. At September 30, 2020, the Group Credit Facility had $99.1 million

outstanding letters of credit under tranche one and $586.2 million outstanding letters of credit under tranche

57

two. At December 31, 2019, the Group Credit Facility had $33.7 million outstanding letters of credit under

tranche one and $589.7 million outstanding letters of credit under tranche two. 

Effective May 12 2020, Everest International amended its credit facility with Lloyds Bank plc (“Everest

International Credit Facility”). The current amendment of the Everest International Credit Facility provides up to

£52.2 million for the issuance of standby letters of credit on a collateralized basis. The Company pays a

commitment fee of 0.1% per annum on the average daily amount of the remainder of (1) the aggregate amount

available under the facility and (2) the aggregate amount of drawings outstanding under the facility. The

Company pays a credit commission fee of 0.35% per annum on drawings outstanding under the facility. 

The Everest International Credit Facility requires Group to maintain a debt to capital ratio of not greater than

0.35 to 1 and to maintain a minimum net worth. Minimum net worth is an amount equal to the sum of $5,532.7

million (70% of consolidated net worth as of December 31, 2018), plus 25% of consolidated net income for each

of Group’s fiscal quarters, for which statements are available ending on or after January 1, 2019 and for which

net income is positive, plus 25% of any increase in consolidated net worth of Group during such period

attributable to the issuance of ordinary and preferred shares, which at September 30, 2020, was $5,910.4

million. As of September 30, 2020, the Company was in compliance with all Everest International Credit Facility

requirements. 

At September 30, 2020 and December 31, 2019, Everest International Credit Facility had £52.2 million and £47.0

million, respectively, of outstanding lette rs of credit. 

Costs incurred in connection with the Group Credit Facility and Everest International Credit Facility were $0.1

million for the three months ended September 30, 2020 and 2019, respectively . Costs incurred in connection

with the Group Cred it Facility and Everest International Credit Facility were $0.6 million and $0.3 million for the

nine months ended September 30, 2020 and 2019, respectively.

Effective August 15, 2019, Everest Re became a member of the Federal Home Loan Banks (“FHLB”) organization,

which allows Everest Re to borrow up to 10% of its statutory admitted assets. As of September 30, 2020, Everest

Re had admitted assets of approximately $14,667.1 million which provides borrowing capacity of up to

approximately $1,466.7 million. On August 31, 2020, Everest Re borrowed $90.0 million under its FHLB available

capacity. The $90.0 million collateralized borrowing has interest payable at a rate of 0.35% and will mature on

November 30, 2020.

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, taxable

and tax -preferenced fixed maturity portfolio, while maintaining an adequate level of liquidity. Our mix of

taxable and tax-preferenced investments is adjusted periodically, consistent with our current and projected

operating results, market conditions and our tax position. The fixed maturity securities in the investment

portfolio are comprised of non-trading available for sale securities. Additionally, we have invested in equity

securities. 

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. 

58

Interest Rate Risk. Our $23.1 billion investment portfolio, at September 30, 2020, 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 $3,090.5 million of mortgage-backed securities in the $17,860.1 million 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 $1,220.8 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 estimates on mortgage-backed securities, changes in prepayment expectations

under different interest rate environments were taken into account. For legal entities with a 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 September 30, 2020

-200

-100

0 

100

200

(Dollars in millions)

Total Market/Fair Value

$

20,414.9

$

19,747.9

$

19,080.9

$

18,413.9

17,746.9

Market/Fair Value Change from Base (%)

7.0

%

3.5

%

0.0

%

(3.5)

%

(7.0)

%

Change in Unrealized Appreciation

After-tax from Base ($)

$

1,177.3

$

588.6

$

-

$

(588.6)

$

(1,177.3)

We had $15,233.1 million and $13,611.3 million of gross reserves for losses and LAE as of September 30, 2020

and December 31, 2019, 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 of approximately 3.1 years, which is

reasonably consistent with our fixed income portfolio. If we were to discount our loss and LAE reserves, net of

ceded reserves, the discount would be approximately $1.4 billion resulting in a discounted reserve balance of

approximately $12.0 billion, representing approximately 63.2% of the value of the fixed maturity investment

portfolio funds. 

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 and mutual funds, which invest principally in high quality common and preferred stocks

that are traded on the major exchanges, and mutual fund investments in emerging market debt. 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. 

59

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 period indicated. 

Impact of Percentage Change in Equity Fair/Ma rket Values

At September 30, 2020

(Dollars in millions)

-20%

-10%

0%

10%

20%

Fair/Market Value of the Equity Portfolio

$

938.5

$

1,055.8

$

1,173.2

$

1,290.5

$

1,407.8

After-tax Change in Fair/Market Value

$

(191.3)

$

(95.7)

$

-

$

95.7

$

191.3

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./Bermuda (“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

Canadian Dollar, the Singapore Dollar, the British Pound Sterling and the Euro. 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. 

In January 2020, the United Kingdom exited the European Union (commonly referred to as "Brexit"). The

Company has a Lloyd’s of London Syndicate and Bermuda Re has a branch operation in the United Kingdom. The

nature and extent of the long term impact of Brexit on regulation, interest rates, currency exchange rates and

financial markets is still uncertain and may adversely affect our operations. 

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 CARES Act, the impact of the Tax Cut and Jobs Act, the

adequacy of capital in relation to regulatory required capital, the adequacy of our provision for uncollectible

balances, estimates of our catastrophe exposure, the effects of catastrophic and pandemic events on our

financial statements, the ability of Everest Re, Holdings, Holdings Ireland, Dublin Holdings, Bermuda Re and

Everest International to pay dividends and the settlement costs of our specialized equity index put option

contracts. Forward-looking statements only reflect our expectations and are not guarantees of performance. 

These statements involve risks, uncertainties and assumptions. Actual events or results may differ materially

from our expectations. Important factors that could cause our actual events or results to be materially different

from our expectations include those discussed under the caption ITEM 1A, “Risk Factors” in the Company’s most

recent 10-K filing. 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 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market Risk Instruments.

 See “Liquidity and Capital Resources - Market Sensitive Instruments” in PART I – ITEM

2.

60

ITEM 4. CONTROLS AND PROCEDURES

As of the end of the period covered by this report, our management carried out an evaluation, with the

participation of the Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure

controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange

Act”)). Based on their evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our

disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the

reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within

the time periods specified in Securities and Exchange Commission’s rules and forms. Our management, with the

participation of the Chief Executive Officer and Chief Financial Officer, also conducted an evaluation of our

internal control over financial reporting to determine whether any changes occurred during the quarter covered

by this 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 quarter covered by this

report. 

PART II

ITEM 1. 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. 

ITEM 1A. RISK FACTORS

Other than as set forth below, there have been no material changes from the risk factors previously disclosed in

the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2019.

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

61

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.

62

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Issuer Purchases of Equity Securities.

Issuer Purchases of Equity Securities

(a)

(b)

(c)

(d)

Maximum Number (or

Total Number of

Approximate Dollar

Shares (or Units)

Value) of Shares (or

Purchased as Part

Units) that May Yet

Total Number of

of Publicly

Be Purchased Under

Shares (or Units)

Average Price Paid

Announced Plans or

the Plans or

Period

Purchased

per Share (or Unit)

Programs

Programs (1)

July 1 - 31, 2020

-

$ -

-

357,803

August 1 - 31, 2020

-

$-

-

357,803

September 1 - 30, 2020

5,435

$ 205.4490

-

357,803

Total

5,435

$-

-

357,803

(1) On May 22, 2020, the Company’s executive committee of the Board of Directors approved an amendment to the share repurchase program

authorizing the Company and/or its subsidiary Holdings, to purchase up to a current aggregate of 32.0 million of the Company’s shares (recognizing that the

number of shares authorized for repurchase has been reduced by those shares that have already been purchased) in open market transactions, privately

negotiated transactions or both. Currently, the Company and/or its subsidiary Holdings have repurchased 29.6 million of the Company’s shares.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

63

ITEM 6. EXHIBITS 

Exhibit Index 

Exhibit No.

Description

 31.1

Section 302 Certification of Juan C. Andrade

 31.2

Section 302 Certification of Mark Kociancic

 32.1

Section 906 Certification of Juan C. Andrade and Mark Kociancic

64

Everest Re Group, Ltd.

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report

to be signed on its behalf by the undersigned thereunto duly authorized.

Everest Re Group, Ltd.

(Registrant)

/S/ MARK KOCIANCIC

Mark Kociancic

Executive Vice President and

 Chief Financial Officer

(Duly Authorized Officer and Principal Financial Officer)

Dated: November 9, 2020