Investments

6 Months Ended

Jun. 30, 2021

Investments [Abstract]

Investments

3. INVESTMENTS

The following tables show amortized cost, allowance for credit losses, gross unrealized appreciation, gross unrealized depreciation and market value of available for sale, fixed maturity securities as of the dates indicated:

	At June 30, 2021
	Amortized		Allowances 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	$	538,733	$	-	$	14,207	$	(106)	$	552,834
Obligations of U.S. states and political subdivisions		573,398		-		35,932		(986)		608,344
Corporate securities		3,539,895		(18,475)		131,825		(23,239)		3,630,006
Asset-backed securities		2,989,971		(4,915)		32,904		(2,426)		3,015,534
Mortgage-backed securities
Commercial		575,995		-		28,512		(2,478)		602,029
Agency residential		1,019,028		-		21,091		(6,168)		1,033,951
Non-agency residential		5,633		-		4		(2)		5,635
Foreign government securities		717,562		-		41,661		(2,571)		756,652
Foreign corporate securities		1,295,067		(393)		58,756		(4,600)		1,348,830
Total fixed maturity securities	$	11,255,282	$	(23,783)	$	364,892	$	(42,574)	$	11,553,817

	At December 31, 2020
	Amortized		Allowances 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	$	659,957	$	-	$	22,032	$	-	$	681,989
Obligations of U.S. states and political subdivisions		543,646		-		34,655		(1,255)		577,046
Corporate securities		3,316,525		(1,205)		166,072		(31,480)		3,449,912
Asset-backed securities		2,450,807		-		28,585		(5,222)		2,474,170
Mortgage-backed securities
Commercial		512,388		-		37,875		(183)		550,080
Agency residential		937,166		-		28,630		(696)		965,100
Non-agency residential		3,164		-		2		(2)		3,164
Foreign government securities		694,132		-		51,317		(3,211)		742,238
Foreign corporate securities		1,130,865		(361)		73,265		(3,903)		1,199,866
Total fixed maturity securities	$	10,248,650	$	(1,566)	$	442,433	$	(45,952)	$	10,643,565

The amortized cost and market value of fixed maturity securities are shown in the following tables 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 June 30, 2021				At December 31, 2020
	Amortized		Market		Amortized		Market
(Dollars in thousands)	Cost		Value		Cost		Value
Fixed maturity securities – available for sale
Due in one year or less	$	640,570	$	646,794	$	658,561	$	659,622
Due after one year through five years		2,980,474		3,077,758		2,911,285		3,036,151
Due after five years through ten years		2,095,560		2,191,943		1,927,265		2,079,866
Due after ten years		948,051		980,172		848,014		875,412
Asset-backed securities		2,989,971		3,015,534		2,450,807		2,474,170
Mortgage-backed securities
Commercial		575,995		602,029		512,388		550,080
Agency residential		1,019,028		1,033,951		937,166		965,100
Non-agency residential		5,633		5,636		3,164		3,164
Total fixed maturity securities	$	11,255,282	$	11,553,817	$	10,248,650	$	10,643,565

The changes in net unrealized appreciation (depreciation) for the Company’s investments are derived from the following sources for the periods as indicated:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
(Dollars in thousands)	2021		2020		2021		2020
Increase (decrease) during the period between the market value and cost of investments carried at market value, and deferred taxes thereon:
Fixed maturity securities	$	63,124	$	311,927	$	(74,026)	$	123,520
Change in unrealized appreciation (depreciation), pre-tax		63,124		311,927		(74,026)		123,520
Deferred tax benefit (expense)		(13,272)		(64,834)		15,510		(26,065)
Change in unrealized appreciation (depreciation), net of deferred taxes, included in stockholder's equity	$	49,852	$	247,093	$	(58,516)	$	97,455

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. The Company 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).

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.

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 June 30, 2021 By Security Type
	Less than 12 months				Greater than 12 months				Total
			Gross				Gross				Gross
	Market		Unrealized		Market		Unrealized		Market		Unrealized
(Dollars in thousands)	Value		Depreciation		Value		Depreciation		Value		Depreciation
Fixed maturity securities - available for sale
U.S. Treasury securities and obligations of U.S. government agencies and corporations	$	81,465	$	(106)	$	-	$	-	$	81,465	$	(106)
Obligations of U.S. states and political subdivisions		20,473		(214)		3,189		(772)		23,662		(986)
Corporate securities		760,710		(21,706)		83,158		(1,533)		843,868		(23,239)
Asset-backed securities		640,155		(2,199)		8,539		(227)		648,694		(2,426)
Mortgage-backed securities
Commercial		108,610		(2,478)		-		-		108,610		(2,478)
Agency residential		603,966		(6,118)		10,242		(50)		614,208		(6,168)
Non-agency residential		-		-		156		(2)		156		(2)
Foreign government securities		88,608		(2,570)		1,009		(1)		89,617		(2,571)
Foreign corporate securities		231,115		(3,741)		10,755		(858)		241,870		(4,600)
Total fixed maturity securities	$	2,535,102	$	(39,132)	$	117,048	$	(3,442)	$	2,652,150	$	(42,574)

	Duration of Unrealized Loss at June 30, 2021 By Maturity
	Less than 12 months				Greater than 12 months				Total
			Gross				Gross				Gross
	Market		Unrealized		Market		Unrealized		Market		Unrealized
(Dollars in thousands)	Value		Depreciation		Value		Depreciation		Value		Depreciation
Fixed maturity securities
Due in one year or less	$	71,420	$	(1,509)	$	1,009	$	(1)	$	72,429	$	(1,510)
Due in one year through five years		494,028		(8,866)		82,946		(1,288)		576,974		(10,154)
Due in five years through ten years		406,678		(9,302)		10,967		(1,103)		417,645		(10,405)
Due after ten years		210,245		(8,660)		3,189		(772)		213,434		(9,432)
Asset-backed securities		640,155		(2,199)		8,539		(227)		648,694		(2,426)
Mortgage-backed securities		712,576		(8,596)		10,398		(51)		722,974		(8,647)
Total fixed maturity securities	$	2,535,102	$	(39,132)	$	117,048	$	(3,442)	$	2,652,150	$	(42,574)

The aggregate market value and gross unrealized losses related to investments in an unrealized loss position at June 30, 2021 were $2,652,150 thousand and $42,574 thousand, respectively. The market value of securities for the single issuer whose securities comprised the largest unrealized loss position at June 30, 2021, did not exceed 0.2% 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 $39,132 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, foreign government securities as well as commercial and agency residential mortgage backed securities. Of these unrealized losses, $27,803 thousand were related to securities that were rated investment grade by at least one nationally recognized statistical rating agency. The $3,442 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. Of these unrealized losses $1,421 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.

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 December 31, 2020 By Security Type
	Less than 12 months				Greater than 12 months				Total
			Gross				Gross				Gross
	Market		Unrealized		Market		Unrealized		Market		Unrealized
(Dollars in thousands)	Value		Depreciation		Value		Depreciation		Value		Depreciation
Fixed maturity securities - available for sale
Obligations of U.S. states and political subdivisions		19,524		(999)		4,059		(256)		23,583		(1,255)
Corporate securities		240,601		(7,799)		188,853		(23,681)		429,454		(31,480)
Asset-backed securities		223,919		(4,573)		81,952		(649)		305,871		(5,222)
Mortgage-backed securities
Commercial		37,414		(182)		3,983		(1)		41,397		(183)
Agency residential		235,809		(682)		1,573		(14)		237,382		(696)
Non-agency residential		161		(2)		-		-		161		(2)
Foreign government securities		10,505		(373)		25,793		(2,838)		36,298		(3,211)
Foreign corporate securities		57,900		(2,182)		18,349		(1,721)		76,249		(3,903)
Total fixed maturity securities	$	825,833	$	(16,792)	$	324,562	$	(29,160)	$	1,150,395	$	(45,952)

	Duration of Unrealized Loss at December 31, 2020 By Maturity
	Less than 12 months				Greater than 12 months				Total
			Gross				Gross				Gross
	Market		Unrealized		Market		Unrealized		Market		Unrealized
(Dollars in thousands)	Value		Depreciation		Value		Depreciation		Value		Depreciation
Fixed maturity securities
Due in one year or less	$	28,802	$	(1,218)	$	34,555	$	(4,142)	$	63,357	$	(5,360)
Due in one year through five years		150,106		(5,828)		116,987		(4,783)		267,093		(10,611)
Due in five years through ten years		81,492		(1,634)		13,118		(435)		94,610		(2,069)
Due after ten years		68,130		(2,673)		72,394		(19,136)		140,524		(21,809)
Asset-backed securities		223,919		(4,573)		81,952		(649)		305,871		(5,222)
Mortgage-backed securities		273,384		(866)		5,556		(15)		278,940		(881)
Total fixed maturity securities	$	825,833	$	(16,792)	$	324,562	$	(29,160)	$	1,150,395	$	(45,952)

The aggregate market value and gross unrealized losses related to investments in an unrealized loss position at December 31, 2020 were $1,150,395 thousand and $45,952 thousand, respectively. The market value of securities for the single issuer whose securities comprised the largest unrealized loss position at December 31, 2020, did not exceed 0.2% 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 $16,792 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 as well as asset backed securities. Of these unrealized losses, $12,522 thousand were related to securities that were rated investment grade by at least one nationally recognized statistical rating agency. The $29,160 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 and foreign government securities. Of these unrealized losses $5,856 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 components of net investment income are presented in the tables below for the periods indicated:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
(Dollars in thousands)	2021		2020		2021		2020
Fixed maturities	$	91,895	$	74,897	$	177,016	$	148,985
Equity securities		3,385		2,024		6,308		3,616
Short-term investments and cash		83		578		236		2,148
Other invested assets
Limited partnerships		126,407		(40,465)		178,558		(33,469)
Dividends from preferred shares of affiliate		7,758		7,758		15,516		15,516
Other		25,856		(2,962)		31,875		(16,034)
Gross investment income before adjustments		255,384		41,830		409,509		120,762
Funds held interest income (expense)		2,732		901		6,221		4,158
Interest income from Parent		1,281		1,281		2,549		2,563
Gross investment income		259,397		44,012		418,279		127,483
Investment expenses		(11,262)		(8,859)		(22,421)		(18,129)
Net investment income	$	248,135	$	35,153	$	395,858	$	109,354
(Some amounts may not reconcile due to rounding.)

The Company records results from limited partnership investments on the equity method of accounting with changes in value reported through net investment income. The net investment income from limited partnerships is dependent upon the Company’s share of the net asset values of interests underlying each limited partnership. 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 $1,342,994 thousand in limited partnerships and private placement loan securities at June 30, 2021. 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 June 30, 2021, the market value of investments in the facility consolidated within the Company’s balance sheets was $381,679 thousand.

Other invested assets, at fair value, as of June 30, 2021 and December 31, 2020, were comprised of preferred shares held in Everest Preferred International Holdings, Ltd. (“Preferred Holdings”), a wholly-owned subsidiary of Group.

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

	Three Months Ended				Six Months Ended
	June 30,				June 30,
(Dollars in thousands)	2021		2020		2021		2020
Fixed maturity securities, market value:
Allowances for credit losses	$	(15,075)	$	(7,826)	$	(22,217)	$	(19,925)
Gains (losses) from sales		4,128		1,963		8,055		(18,974)
Fixed maturity securities, fair value:
Gains (losses) from fair value adjustments		-		(272)		-		(1,395)
Equity securities, fair value:
Gains (losses) from sales		585		16,274		6,823		(11,328)
Gains (losses) from fair value adjustments		103,824		148,205		141,375		26,536
Other invested assets		2,748		1,292		4,094		(1,035)
Other invested assets, fair value:
Gains (losses) from fair value adjustments		87,552		(639,058)		180,630		(196,579)
Short-term investment gains (losses)		1		62		14		207
Total net realized capital gains (losses)	$	183,763	$	(479,360)	$	318,774	$	(222,493)

	Roll Forward of Allowance for Credit Losses
	Three Months Ended June 30, 2021								Six Months Ended June 30, 2021
			Asset		Foreign						Asset		Foreign
	Corporate		Backed		Corporate				Corporate		Backed		Corporate
	Securities		Securities		Securities		Total		Securities		Securities		Securities		Total
Beginning Balance	$	(3,588)	$	(4,915)	$	(205)	$	(8,708)	$	(1,205)	$	-	$	(361)	$	(1,566)
Credit losses on securities where credit
losses were not previously recorded		(13,538)		-		(188)		(13,726)		(15,921)		(4,915)		(188)		(21,024)
Increases in allowance on previously
impaired securities		(1,468)		-		-		(1,468)		(1,468)		-		-		(1,468)
Decreases in allowance on previously
impaired securities		-		-		-		-		-		-		-		-
Reduction in allowance due to disposals		119		-		-		119		119		-		156		275
Balance as of June 30, 2021	$	(18,475)	$	(4,915)	$	(393)	$	(23,783)	$	(18,475)	$	(4,915)	$	(393)	$	(23,783)

	Roll Forward of Allowance for Credit Losses
	Three Months Ended June 30, 2020								Six Months Ended June 30, 2020
			Foreign		Foreign						Foreign		Foreign
	Corporate		Government		Corporate				Corporate		Government		Corporate
	Securities		Securities		Securities		Total		Securities		Securities		Securities		Total
Beginning Balance	$	(11,468)	$	(70)	$	(561)	$	(12,099)	$	-	$	-	$	-	$	-
Credit losses on securities where credit
losses were not previously recorded		(10,355)		-		-		(10,355)		(21,823)		(70)		(561)		(22,454)
Increases in allowance on previously
impaired securities		(555)		-		(211)		(766)		(555)		-		(211)		(766)
Decreases in allowance on previously
impaired securities		1,238		-		116		1,354		1,238		-		116		1,354
Reduction in allowance due to disposals		1,742		70		129		1,941		1,742		70		129		1,941
Balance as of June 30, 2020	$	(19,398)	$	-	$	(527)	$	(19,925)	$	(19,398)	$	-	$	(527)	$	(19,925)

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 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				Six Months Ended
	June 30,				June 30,
(Dollars in thousands)	2021		2020		2021		2020
Proceeds from sales of fixed maturity securities	$	165,443	$	173,479	$	242,072	$	337,723
Gross gains from sales		8,850		8,755		15,199		10,601
Gross losses from sales		(4,722)		(6,792)		(7,144)		(29,575)
Proceeds from sales of equity securities	$	64,775	$	8,842	$	346,088	$	213,003
Gross gains from sales		2,633		18,172		14,937		20,753
Gross losses from sales		(2,048)		(1,898)		(8,114)		(32,081)