Everest (EG) - 2019 Q1 - Quarterly Report

PART I FINANCIAL INFORMATION This section provides the unaudited consolidated financial statements and management's discussion and analysis for the first quarter of 2019 Item 1. Financial Statements This section presents the unaudited consolidated financial statements for Q1 2019, including balance sheets, income statements, equity changes, cash flows, and detailed notes Consolidated Balance Sheets Total assets grew to $25.63 billion, with shareholders' equity reaching $8.43 billion by March 31, 2019 Consolidated Balance Sheet Highlights (in thousands of USD) | Metric | March 31, 2019 (unaudited) | December 31, 2018 | | :--- | :--- | :--- | | Total Assets | $25,630,507 | $24,793,999 | | Total Investments and Cash | $19,223,944 | $18,433,066 | | Reserve for losses and loss adjustment expenses | $13,247,102 | $13,119,090 | | Total Liabilities | $17,203,878 | $16,890,195 | | Total Shareholders' Equity | $8,426,629 | $7,903,804 | Consolidated Statements of Operations and Comprehensive Income (Loss) Net income significantly increased to $348.9 million in Q1 2019, driven by higher premiums and capital gains, with comprehensive income reaching $595.3 million Q1 Statement of Operations Highlights (in thousands of USD, except per share amounts) | Metric | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | | :--- | :--- | :--- | | Premiums Earned | $1,732,697 | $1,619,427 | | Total Revenues | $1,960,083 | $1,745,157 | | Net Realized Capital Gains (Losses) | $92,232 | $(24,901) | | Net Income | $348,900 | $210,318 | | Comprehensive Income | $595,346 | $30,436 | | Diluted EPS | $8.54 | $5.11 | Consolidated Statements of Changes in Shareholders' Equity Shareholders' equity grew to $8.43 billion in Q1 2019, primarily due to net income and comprehensive income, partially offset by dividends - Total shareholders' equity grew to $8,426.6 million at the end of Q1 2019, up from a starting balance of $7,903.8 million at the beginning of the period[13][16] - Dividends declared increased to $1.40 per share in Q1 2019 from $1.30 per share in Q1 2018[16] Consolidated Statements of Cash Flows Operating cash flow more than doubled to $459.8 million in Q1 2019, while investing and financing activities resulted in a net cash decrease of $72.1 million Q1 Cash Flow Summary (in thousands of USD) | Cash Flow Activity | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $459,802 | $195,640 | | Net Cash from Investing Activities | $(432,750) | $(55,416) | | Net Cash from Financing Activities | $(93,021) | $(76,868) | | Net (Decrease) Increase in Cash | $(72,121) | $65,519 | Notes to Consolidated Interim Financial Statements Detailed notes cover accounting policies, investment portfolio, loss reserves, derivatives, fair value, credit facilities, reinsurance, debt, and segment performance - The company adopted new lease accounting guidance (ASU 2016-02) effective January 1, 2019, recognizing a right-of-use asset of $69.9 million and a lease liability of $77.3 million[42][44] Investment Portfolio Composition (March 31, 2019, in thousands of USD) | Security Type | Market Value | | :--- | :--- | | U.S. Treasury & Gov't Agencies | $1,297,113 | | Corporate securities | $6,016,532 | | Mortgage-backed securities | $2,888,552 | | Foreign government securities | $1,298,136 | | Foreign corporate securities | $2,790,931 | | Total fixed maturity securities | $15,513,287 | - The company has reinsurance agreements with Kilimanjaro Re Limited, financed by catastrophe bonds, with no loss estimates exceeding retentions for 2017 catastrophe events[139] - The company maintains three primary credit facilities: an $800 million Group Credit Facility, a $200 million Bermuda Re Letter of Credit Facility, and a £30 million Everest International Credit Facility[115][116][120][122] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operation Management discusses Q1 2019 performance, highlighting a 10.1% premium increase, 65.9% net income growth to $348.9 million, and an improved combined ratio of 88.7% Q1 2019 vs Q1 2018 Financial Summary (in millions of USD) | Metric | Q1 2019 | Q1 2018 | % Change | | :--- | :--- | :--- | :--- | | Gross Written Premiums | $2,127.1 | $1,931.6 | 10.1% | | Premiums Earned | $1,732.7 | $1,619.4 | 7.0% | | Net Income | $348.9 | $210.3 | 65.9% | | Combined Ratio | 88.7% | 93.3% | (4.6) pts | - The increase in reinsurance premiums was mainly due to growth in treaty casualty writings and business in the Middle East and Africa, while insurance premiums rose broadly across various lines[182] - Shareholders' equity increased by $522.8 million during the quarter to $8.4 billion, driven by net income and unrealized appreciation on investments[198] Segment Results Segment results show U.S. Reinsurance with a strong $123.7 million underwriting gain, while International and Bermuda segments saw reduced gains due to catastrophe losses Q1 2019 Underwriting Gain (Loss) by Segment (in millions of USD) | Segment | Q1 2019 | Q1 2018 | | :--- | :--- | :--- | | U.S. Reinsurance | $123.7 | $(126.0) | | International | $6.7 | $123.8 | | Bermuda | $46.5 | $98.0 | | Insurance | $18.8 | $12.5 | - The U.S. Reinsurance segment's combined ratio improved dramatically to 80.3% from 122.4% YoY, driven by favorable development on prior year catastrophe losses related to Hurricane Michael and the Woolsey wildfire[216][219] - The International segment's combined ratio deteriorated to 98.1% from 64.0%, impacted by $25.0 million in current year catastrophe losses from the Townsville monsoon and unfavorable development on 2018 Japan loss events[223][227] Financial Condition, Liquidity and Capital Resources Financial condition strengthened with $19.2 billion in cash and invested assets, robust liquidity from $459.8 million operating cash flow, and strong capital levels - Cash and invested assets increased by $790.9 million during Q1 2019 to $19.2 billion, primarily from operating cash flows and unrealized appreciation on investments[244] - Net cash flow from operations was $459.8 million for Q1 2019, a significant increase from $195.6 million in Q1 2018[274] - The company repurchased 75,193 shares for $16.2 million and paid $57.1 million in dividends during Q1 2019[273] Market Sensitive Instruments Primary market risks include interest rate, equity, and foreign currency, with a 100 bps rate increase impacting the $16.1 billion fixed maturity portfolio by $459.6 million after-tax Interest Rate Sensitivity of Fixed Maturity Portfolio (at March 31, 2019, in millions of USD) | Interest Rate Shift | Market/Fair Value Change (%) | After-tax Change in Unrealized Appreciation ($M) | | :--- | :--- | :--- | | +200 bps | -6.4% | $(922.0) | | +100 bps | -3.2% | $(459.6) | | -100 bps | +3.1% | $439.7 | | -200 bps | +6.1% | $865.1 | - The company's loss and loss reserve obligations have an expected duration of approximately 2.9 years, consistent with the fixed income portfolio's duration of 3.1 years, mitigating interest rate risk[295][251] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section refers to the 'Market Sensitive Instruments' discussion in Item 2 for comprehensive market risk disclosures - The report directs readers to the MD&A section for details on market risk, covering interest rate, equity, and foreign currency risks[303] Item 4. Controls and Procedures Management confirmed the effectiveness of disclosure controls and procedures, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO certified that the company's disclosure controls and procedures are effective[304] - No changes occurred during the quarter that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[304] PART II OTHER INFORMATION This section covers legal proceedings, risk factors, equity security sales, and a list of exhibits filed with the Form 10-Q Item 1. Legal Proceedings The company is involved in routine legal proceedings inherent to its business, with no other material litigation reported - The company is not a party to any material litigation or arbitration outside of the ordinary course of its insurance and reinsurance business[307] Item 1A. Risk Factors No material changes to previously disclosed risk factors were reported during the quarter - There were no material changes to the company's risk factors during the quarter[308] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 118,514 common shares in Q1 2019, with 75,193 under its repurchase program, leaving 1.37 million shares authorized Issuer Purchases of Equity Securities (Q1 2019, in USD) | Period | Total Shares Purchased | Average Price Paid | Shares Purchased as Part of Program | | :--- | :--- | :--- | :--- | | Jan 2019 | 0 | - | 0 | | Feb 2019 | 43,321 | $223.4676 | 0 | | Mar 2019 | 75,193 | $214.8230 | 75,193 | | Total | 118,514 | - | 75,193 | - The company's board has authorized the repurchase of up to 30 million shares in total; as of March 31, 2019, 1,368,135 shares may yet be purchased under this authorization[310] Item 6. Exhibits This section lists exhibits filed with the Form 10-Q, including CEO/CFO certifications and XBRL data files - Exhibits filed include Section 302 and 906 certifications by the CEO and CFO, along with XBRL instance and taxonomy documents[314]